DIRECT TAXES

Tribunals
Aarti Sathe, Deepak R. Shah, Haresh P. Shah, Paras S. Savla, Prem Chandra Tripathi

355. S.2(14) : Definitions – Capital asset – Personal effects – Household items. In the absence of nature and full description consideration received on sale of carpets, paintings cannot be considered as personal asset. (S.68)

The assessee sold certain carpets, paintings, collector items, household items which were claimed to have been inherited or received as gift from his grandfather, father and uncle. The assessee claimed that those articles were in personal use of the assessee or his dependent family members and therefore fell within the meaning of ‘personal effects’ u/s 2(14). It was held that in absence of nature and full description of each household articles or furniture and collector items sold and there being no evidence of intimate connection between the effects and person of assessee, items sold could not be held to be personal effects within the meaning of Section 2(14) and thus, they were not excluded from the definition of capital asset. (A.Y. 2002-03)

ACIT v. Faiz Murtuza Ali (2012) 52 SOT 358 (Delhi)(Trib.)

356. S.2(22)(e) : Definitions – Dividend – Deemed dividend – Share Application money – No material placed on record by the department to show that the entries recorded in the books of account are false, untrue and without any basis, section 2(22)(e) was not applicable.

The assessee was engaged in the business of website hosting, domain name registration and allied services and showed share application money received from another company under the head current liabilities. The AO observed that the amount was in the nature of loans and advances and had common directors. It was held that it is a settled law that the making of an entry or the absence of an entry could not determine the rights and liabilities of a party. In the absence of any material placed on record by the department to show that the entries recorded in the books of account are false, untrue and without any basis, the amount received by the assessee did not come under the scheme of loan and advances. Section 2(22)(e) was not applicable. (A.Y. 2006-07)

ITO v. Direct Information P. Ltd. (2012) 18 ITR 562 (Mum.)(Trib.)

357. S.2(31) : Definitions – Person – Minor – Income clubbed in hands of parents – Exemption allowable. (S. 54EC,64 )

Minor is an assessable entity even though his income is clubbed in his parents. When income is clubbed with parents all deductions are to be allowed including the exemption under section 54EC. (A.Y. 2007-08)

Dy. CIT v. Rajeev Goyal (2012) 52 SOT 335 (Kol.) (Trib.)

358. S.2(47) : Definitions – Transfer – Development agreement – If developer has taken any steps in relation to construction of flats, on the basis of development agreement, then it has to be considered as transfer under section 2(47)(v), (S.45).

When an owner enters into an agreement for development of the property and certain rights are assigned to the developer who in turn has made the substantial payment and taken steps to construction of flats, then the transaction is held to be a transfer under section 2(47)(v). Legal ownership continued with the owner does not have bearing on taxability of capital gains. Though total profits received in later year for the purpose of capital gains tax the year of transfer is relevant. On the facts of the case the provisions of section 53A of Transfer of Property Act is held to be applicable. (A.Ys. 2002-03 & 2008-09)

ACIT v. A. Rama Reddy (2012) 52 SOT 521 (Hyd.)(Trib.)

359. S.4 : Charge of income-tax – Diversion of income by overriding title – Amount paid to wife of late partner was allowed as deduction.

The issue before the Tribunal was whether the amount paid by the assessee to Mrs. Mehru Minoo Shroff, wife of late Dr. M. S. Shroff is first charge on receipts of firm in terms clause 13 of the partnership deed executed on 1-4-2003. Held that, as there was an absolute contractual obligation imposed on the continuing firm/partners by the partnership deed to pay an amount of 2% of the gross receipts subject to maximum of 3 lakhs p.a. to the legal heir of the deceased partner, it was a first charge on the receipts of the continuing firm/partners and constituted a diversion of income by overriding title. The claim of assessee was allowed. (A.Y. 2007-08)(ITA no 1560/2012 Bench ‘D’ dated 3-8-2012)

Shroff Eye Centre v. ACIT ( Delhi)(Trib.) www.itatonline.org

360. S.4 : Charge of income-tax – Income- Accrual – Retention money –Retention money in the contract is assessable only in the year of receipt that too after clearance of the defect liability. (S.5)

The issue referred for the consideration of Third Member was whether the retention money is accrued in the year of retention or in the year of actual receipt of the retention amount from the contractee's departments after the clearance of effect liability claims. The third member held that assessee had no right to receive the money by virtue of the contract between parties and the assessee also had no right to enforce the payment and therefore the Assessing Officer could not include the retention money in the assessment year when actually this amount had not been paid to the assessee. The Tribunal held that the retention money in the contract is assessable only in the year of receipt, that too after clearance of the defect liability. (A. ys. 2003-04 to 2005-06)

ACIT v. Chandragiri Construction Co (2012) 147 TTJ 249/73 DTR 20(TM) (Cochin)(Trib.)

361. S.5 : Scope of total income – Accrual – Guarantee commission – Income should be spread over period to which it is related and should be assessed proportionately.

Assessee received certain guarantee commission and offered the same to tax on accrual basis which was consistently followed by it. It was held that such income should be spread over period to which it is related and should be assessed proportionately. (A.Y. 2002-03 & 2003-04)

BNP Paribas SA v. Dy. DIT (IT) (2012) 137 ITD 322 (Mum.)(Trib.)

362. S. 5 : Scope of total income – Income – Accrual – Rent of premises – Assessee not tenant in premises, compensation received for surrender of tenancy rights would be liable to tax in hands of individuals and not in hands of assessee firm.

In the instant case, premises in question was given on rent to one Y who ran business in name and style of ‘Bombay Electrical Laundry’. In 1947, Y migrated to Pakistan and Custodian of Evacuee property sold rights, titles and interest of Y to A and V. Their legal heirs continued to hold tenancy rights and continued business in the name and style of ‘Bombay Electrical Laundry’. None of the partners at any point of time had ever introduced his/her share in tenancy as capital in accounts of firm. Thus, it was held that since assessee firm was never a tenant in aforesaid premises, compensation received for surrender of tenancy rights would be liable to tax in hands of individuals and not in hands of assessee firm. (A.Y. 2006-07)

ITO v. Bombay Electrical Laundry (2012) 138 ITD 17 (Mum.)(Trib.)

363 S.9 : Income deemed to accrue or arise in India – Interest payment to headoffice and overseas branches – Held not taxable in India since payments were to self which did not give rise to income that was taxable in India.

The assessee is a commercial bank having its head office in France, carried on its activities including financing of foreign trade and foreign exchange transactions through its eight branches in India. It was held that the interest paid to the headoffice and overseas branches by Indian branches could not be taxed in India since these were payments to self which did not give rise to income that was taxable in India. (A.Ys. 2002-03 & 2003-04)

BNP Paribas SA v. Dy. DIT (IT) (2012) 137 ITD 322 (Mum.)(Trib.)

364. S.9 : Income deemed to accrue or arise in India – DTAA-India – USA Telecom engineering services – As contract for providing technical experts and making available expertise, hence held as fees for included services. [Art. 12(4b)]

The assessee was a US company specialized in providing highly qualified technocrats and technology relating to telecom sector and higher solutions in telecom engineering services. The assessee entered into an agreement with an Indian company for providing qualified technocrats for its project in India. It was held that as it was clear from various clauses of agreement that it was a contract for providing technical experts and making available expertise of assessee in this field, hence the service rendered assessee clearly fell within purview of clause 4(b) of Art 12 of Indo- US DTAA, and thus amount received in respect of said services was taxable in India as fees for included services. (A.Y. 2003-04)

Avion Systems Inc. v. Dy. DIT (2012) 138 ITD 57 (Mum.) (Trib.)

365. S.9 : Income deemed to accrue or arise in India – DTAA – India – UAE – Head office expenditure. [S. 44C, Art. 7(3)]

Assessee is a foreign bank incorporated in UAE. It had two branches i.e. PEs in India. Profits of PE were computed in hands of assessee as per provisions of article 7(3). An amount of ` 40.04 lakhs was allocated to PEs representing headoffice expenses incurred and attributable to such Indian PEs. The AO restricted the deduction for head office expenses by applying provisions of section 44C. Applicability of domestic law, viz, section 44C had been provided for allowing deduction of section expenses of PEs by amendment brought in article 7(3) w.e.f. 1-4-2008 and it would not have any retrospective effect. Thus, provisions of section 44C had been provided for allowing deduction of expenses of PEs by amendment brought in article 7(3) w.e.f. 1-4-2008 and it would not have any retrospective effect. Hence, it was held that the provisions of the said section were not applicable to the instant case and therefore, income of Indian PEs of assessee was to be computed after allowing all expenses attributable to its business in India including head office expenses.(A.Y. 1995 – 96 to 2000-01)

Abu Dhabi Commercial Bank Ltd. v. Asst. DIT (IT) 2012) 138 ITD 83 (Mum.)(Trib.)

366. S.9 : Income deemed to accrue or arise in India – DTAA – India-USA-UK-Kingdom of Thailand – Agreement for making interior and exterior changes – No technical services rendered – Not taxable in India. (S. 5, 195, 201, Art. 5, 12, 13, 15, 7, 14, 22)

The assessee was engaged in the business of running a five star hotel at Hyderabad. It entered into four separate and independent agreements with non-resident consultants for making interior and exterior changes and made payments in respect to certain services rendered. There was no permanent establishment for non-resident. It was held that the services rendered did not involve any technical expertise nor did it make available any technical know-how plan, design etc. The services rendered by the non-resident company was inspection of the hotel, reviewing the facilities, comparing them with the standards and suggesting improvements or changes wherever required. Amount paid to non-resident is not assessable in India. (A.Ys. 2003-04 to 2005-06)

ACIT v. Viceroy Hotels Ltd. (2012) 18 ITR 282 (Hyd.)(Trib.)

367. S.9 : Income deemed to accrue or arise in India – DTAA India – Sri Lanka – Capital Gain – Article 13(4) gives exclusive power to tax such income in SriLanka [(Art. 13(4)]

Assessee a resident of India was holding shares in company T incorporated in Sri Lanka. The said shares were sold by the assessee. The assessee claimed that the capital gain could not be taxed in India because such sale was governed by Article 13(4)of India – Sri Lanka DTAA. It was held that the words ‘may be taxed’ under Art. 13(4) of DTAA gave exclusive power to tax such income in SriLanka and thus, said income could not be taxed in India. (A.Y. 2007-08)

Apollo Hospital Enterprise Ltd. v. Dy. CIT (2012) 53 SOT 103 (Chennai)(Trib.)

368. S.9 : Income deemed to accrue or arise in India – Service fee – DTAA-India – Mauritius – Service fee paid to concerns at arm’s length price and assessee did not have any PE India hence not taxable in India. (Art. 5)

The assessee is a foreign company incorporated in Mauritius, engaged in the business of telecasting of TV channels. B4U Multimedia International Ltd and B4U Broadband Ltd. ‘(B)’ was granted general permission by RBI to act as advertisement collecting agent of the assessee. As per the agreement the ‘B’ had no powers to conclude the contract nor was dependent on the assessee. The assessee did not have any PE in India and hence not taxable in India. It was held that even if it is presumed that there was a PE of assessee in India, in view of the fact that payment of service fee by assessee to B was at arm’s length price, there was no need to attribute profits to the PE. (A.Y. 2001-02)

Dy. DIT (IT) v. B4U International Holdings Ltd. (2012) 137 ITD 346 / 148 TTJ 274 (Mum.)(Trib.)

369. S.9 : Income deemed to accrue or arise in India – Brokerage – Commission – Amounts received by assessee were income earned by assessee outside India and therefore is not liable to tax in India.

The assessee was non-resident and was living in Singapore. He has earned brokerage and commission out of import and export of agricultural produce like cashew nuts. The imports were made from African Countries and exports were made to other countries and no activities was routed through Indian waters, The remittances was first received by foreign correspondent bank of Indian Bank and there after the amounts were transferred to NRE account in Chennai by way of cheques/DD/TTs. The Tribunal held that when funds were handed over first in accounts of foreign correspondent bank outside India, income could not be treated as income received or accrued or arose or deemed to accrue in India, therefore not exigible to Indian taxation. (A.Ys 2004-05 to 2009-10)

Jt. CIT v. V. Deenadayalavel (2012) 52 SOT 511 (Chennai) (Trib.)

370. S. 9(1)(i) : Income deemed to accrue or arise in India – Sale of cars in India – Permanent establishment – DTAA – India-Germany – Delivery of goods took place outside India and payment was also made outside India – Held no business connection in India and thus, income from sale not chargeable to tax. [Art 5(2)(b), 5(2)(a)]

The assessee, a German company was engaged in the business of manufacture and sale of automobiles. It entered into a joint venture with company for manufacture/ assembly and sale of cars in India. For direct sales to customers in India, the assessee rendered certain assistance services. It was held that delivery of goods took place outside India and payment was also being made for purchase of goods outside India and there was no business activity carried out by the assessee regarding sale of cars directly are not taxable in India. The said transaction does not give rise to a business connection in India. (A.Y. 1997-98, 2000-01, 2002-03 and 2005-06)

ACIT v. Daimler Chrysler AG (2012) 52 SOT 93(Mum.)(Trib.)

371. S.9(1)(vi) : Income deemed to accrue or arise in India – Software – Data card – Payment for actual cost for purchases/ upgrades made, including data cards, application, support software and OS/OS upgrades – Matter restored to file of CIT(A) as agreement and other material not on record and nature of software not examined.

The assessee is a resident company engaged in the providing employment background screening services to its clients, which consists of checks such as education screening, employment screening, address verification. The assessee entered into an agreement with a US associate as per which the assessee had to pay US company actual cost for various purchases/ upgrades made by said company which included data cards, application, support software and OS/OS upgrades. The AO opined that the payment made amounted to royalty u/s 9(1)(vi). The matter was restored back to file of CIT(A) on the premise that the assessee had reimbursed the expenses, and had not examined the nature of software acquired by the assessee, as the agreement and other material were not on record. (A.Y. 2008-09 and 2009-10)

ACIT v. First Advantage (P.) Ltd. (2012) 52 SOT 406 (Mum.)(Trib.)

372. S. 9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – Consultancy charges.

Where consultancy charges were paid by the Indian Company to non-resident consultants rendering services on Indian Company’s offshore projects, source rule exclusion carved out u/s. 9(1)(vii)(b) is applicable even though the payments are made from India. (A.Y. 2008-09)

Ajappa Integrated Project. v. ACIT, ITA No.349/Mds./2012, Dt. 25-06-2012, BCAJ Pg. 38, Vol. 44-A Part 5, August, 2012. (Chennai)(Trib.)

373. S.9(1)(vii) : Income deemed to accrue or arise in India – Fees for Technical Services – No FTS as services rendered did not involve any technical, managerial or consultancy services.

The assessee was engaged in the business of manufacturing and export of garments. It made remittances to a non-resident company SEL, without deduction of tax at source. It was held that the payment in the issue did not fall within the ambit of fees for technical services u/s. 9(1)(vii) as the services were availed to ensure that imports were received in India on time and in correct quantity. It was clear from the records that SEL nowhere was involved in identification of exporter or selecting material and negotiating price and thus, no consultancy services were involved. Role of SEL did not involve much technical knowledge. Further, there was no managerial services involved as SEL was acting on behalf of assessee as its agent and there was no independent application of thought process in any activity. (A.Y. 2007-08)

Jeans Knit (P.) Ltd. v. Dy. CIT (2012) 53 SOT 76 (Bang.)(Trib.)

374. S.9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – Necessary that some sort of ‘managerial’ ‘technical’ or ‘consultancy’ services should have been rendered in consideration.

It was held that to constitute “fees for technical services”, it is necessary that some sort of ‘managerial’ ‘technical’ or ‘consultancy’ services should have been rendered in consideration. In the instant case, services rendered under a buying service agency agreement are routine services offering procurement assistance. They consist of negotiating between the Principal and manufacturers for purchase of merchandise. Hence, consideration received was classified as “commission” and not for “fees for technical services” Appeal of the assessee was allowed.
(A.Y. 2007-08)(ITA no 5300/Del/2010 Bench ‘D’ dated 18-9-2012)

Adidas Sourcing Limited v. ADI (Delhi)(Trib.) (www.itatonline.org)

375. S.9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – Technical repairs – Fees for “routine technical repairs” not assessable as “fees for technical services”.

The assessee paid sums to foreign parties for repairing and refurbishment of equipment. The AO held that the payments constituted “fees for technical services” u/s 9(1)(vii) and that the assessee ought to have deducted TDS u/s 195 r.w.s. 201 though the assessee argued that as there was no intellectual aspect involved in the repairs and refurbishment activity, it was no assessable as “fees for technical services”. The CIT(A) allowed the claim. On appeal by the department to the Tribunal, Held dismissing the appeal:

The activities carried out by the foreign parties involved assembly, disassembly, inspection, reporting and evaluation. These are routine maintenance repairs and do not involve services of technical nature so as to be assessable as “fees for technical services” u/s. 9(1)(vii). Routine repairs do not constitute ‘FTS’ as they are merely repair works and not technical services. Technical repairs are different from ‘technical services’ (Lufthansa Cargo India Pvt. Ltd. v. Dy. CIT (2005) 274 ITR (AT) 20 (Delhi)(Trib.) followed; Mannesmann Demag Lauchhammer v. CIT (1988) 26 ITD 198(Hyd.)(Trib.) distinguished)(A.Y. 2001-02 to 2006-07)

ADIT v. BHEL-GE-Gas Turbine Servicing (2012) 77 DTR 29 / 53 SOT 460 (Hyd.)(Trib.)

376. S. 9(1)(viii) : Income deemed to accrue or arise in India – Managerial, technical or consultancy services – What constitutes a “Dependent Agent Permanent Establishment” & “Place of Management”.

(i) The fees received by the assessee, a Swiss company, from enabling sellers registered on its offshore website to sell goods to buyers in India is not assessable as “fees for technical services” u/s 9(1)(viii) as the assessee does not render any “managerial, technical or consultancy services” to the payers. The assessee’s websites are analogous to a market place where the buyers and sellers assemble to transact. By providing a platform for doing business the assessee is not rendering services either to the buyer or to the seller which can be assessed as “fees for technical services“;

(ii) In order to constitute a “Dependent Agent Permanent Establishment” of the assessee under Article 5(5) of the DTAA, it is essential that the agent should “habitually exercise an authority to negotiate and enter into contracts for or on behalf of’ the assessee”. On facts, though eBay India & eBay Motors conducted activities exclusively on behalf of the assessee and thus became its dependent agents, they did not constitute a “Dependent Agent Permanent Establishment” because they did not conduct any of the activities set out in the three clauses of Article 5(5) of the DTAA. By simply providing marketing services to the assessee or making collection from the customers and forwarding the same to the assessee, it cannot be said that eBay India entered into contracts on behalf of the assessee. There are also no examples of any contract entered into by eBay India or eBay Motors for or on behalf of the assessee. Thus the test laid down in Article 5(5)(i) of the DTAA is not satisfied.

(iii) eBay India & eBay Motors also do not constitute a “place of management” so as to be a PE under Article 5(2)(a) of the DTAA. A “place of management” ordinarily refers to a place where overall managerial decisions of the enterprise are taken. eBay India & eBay Motors are not taking any managerial decision. They are simply rendering marketing services to the assessee in the form of collection of amount from the customers and remitting the same to the assessee, apart from creating awareness amongst the Indian sellers about the availability of the assessee’s websites in India. All business decisions and deals are settled through the assessee’s websites. eBay India & eBay Motors have no role to play either in the maintenance or the operation of the websites. They have absolutely no say in the matter of entering into online business agreements between the sellers and the assessee or the finalisation of transactions between the buyers and sellers resulting into the accrual of the assessee’s revenue. Consequently, they are not a “place of management” of the assessee’s overall business. (A. Y. 2006-2007)

eBay International AG v. ADIT (Mum.)(Trib) www.itatonline.org.

377. S.10A : Newly established undertakings – Free trade zone –Section 10A (9) applied prospectively but its omission has retrospective effect.

Till A.Y. 2003-04, the assessee’s shares were held by British Airways and Warburg Pincus. In A.Y. 2003-04, there was a change in the beneficial interest in the shareholding. For A.Y. 2004-05, the assessee claimed S. 10A deduction of ` 19 crores in respect of its STPs which were set up pre-2000. The CIT took the view that the S. 10A deduction was not allowable for

A.Y. 2003-04 & 2004-05 in view of s. 10A(9) which was introduced in A.Y. 2001-02 to provide that if the “beneficial interest” in the undertaking was transferred, s. 10A deduction would not be allowed. For A.Y. 2003-04, the CIT’s stand was upheld by the Tribunal. However, for A.Y. 2004-05, Held by the Tribunal, reversing the CIT:

(i) Circular No.8 of 2002 dated 27.8.2002 states that s. 10A(9) was inserted in A.Y. 2001-02 to “to curb trading in incentives by shell companies and to discourage unscrupulous shopping of EOUs and STPs and not to discourage genuine business re–organizations”. On facts, the change in the assessee’s shareholding was by way of global re–organization of the business and cannot be said to be non-genuine;

(ii) When s.10A(9) was omitted in A.Y. 2004-05, the Finance Minister said in the budget speech that the provision was “illogical” and had to be removed. Given the object & purpose of the omission, it can be held that the omission has retrospective effect and applies to change in the ownership in A.Y. 2003–04. Further, sub–section (9) was omitted without any saving clause and it is not a case of repeal. If a provision in a statute is unconditionally omitted without any saving clause in favour of the pending proceedings, all actions must stop where such an omission is found. As S.10A(9) has been omitted, it is as if the sub-section never existed in the statute (G. E. Thermo Matrix (ITAT Bengeluru followed);

(iii) Though for A.Y. 2003–04, the Tribunal upheld the CIT’s stand, this cannot be followed as a precedent because (a) while in A.Y. 2003-04, s. 10A(9) was on the statue and there was a change in shareholding, in A.Y. 2004-05, it was not, (b) In Zycus Infotech (2011) 331 ITR 72 (Bom.) it was held that s. 10A(9) does not have retrospective effect and is applicable only to undertakings set up after 1.4.2001. As the assessee’s STP undertakings were set up before that date, s. 10A(9) had no application. (A.Y. 2004-05)

NS Global Services Pvt. Ltd v. ITO ( Mum.)(Trib.) www.itatonline.org

378. S.10B : Newly established hundred per cent export-oriented undertakings – Exemption -

Customisation of SAP programmes as per the specification of client & its transmission through internet or e-mail – Falls in definition of ‘Computer Programme’ and ‘Produce’, hence, entitled to exemption.
The activity of customisation of SAP programmes as per the specification and requirements of the overseas clients and transmission thereof through internet or e-mail by the assessee fall within the definition of ‘computer programmes’ as clarified in S. 10BB as well as under Expln. 2 to S. 10B and the same fits into the definition of the term ‘produce’ and, therefore, assessee is entitled for exemption u/s 10B in respect of the receipts from overseas clients. (A.Y. 1997-98 & 1999-2000).

Cybertech Systems & Software Ltd. v. CIT (2012) 149 TTJ 17/ 76 DTR 1 (Mum.)(Trib.)

CIT v. Cybertech Systems & Software Ltd. (2012) 149 TTJ 17/76 DTR 1 (Mum.)(Trib.)

379. S.10B : Newly established hundred per cent export-oriented undertakings – Exemption – Interest Income - No direct nexus with the income derived from undertaking by the export of the computer software, no exemption.

Interest income has no direct nexus with the income derived by the assessee from its undertaking by the export of the computer software and, therefore, assessee is not entitled to exemption u/s. 10B in respect of interest income. (A.Y. 1997-98 to 1999-2000)

Cybertech Systems & Software Ltd. v. CIT (2012) 149 TTJ 17/76 DTR1 (Mum.)(Trib.)

CIT v. Cybertech Systems & Software Ltd. (2012) 149 TTJ 17/76 DTR1 (Mum.)(Trib.)

380. S.10B : Newly established hundred per cent export-oriented undertakings – Exemption – To claim exemption u/s. 10B, there is no legal bar against outsourcing of activities.

Provisions of S.10B do not place any bar on assessee having a separate new undertaking for manufacture and production of same or similar goods, as done earlier because what is required to claim exemption under said section is that undertaking established must be a newly established undertaking. Existence of business is a pre-supposition for formation of a new undertaking by reconstruction or splitting up thereof. Therefore, in a case when there is no business in old unit of assessee before start of production by new EOU, it cannot be concluded that new unit is formed by reconstruction or splitting up of a business already in existence so as to deny exemption u/s. 10B. In order to claim exemption u/s. 10B, there is no legal bar against outsourcing of activities involved in manufacturer or processing of goods as what is required is that undertaking must mainly engage itself in manufacturer or processing of goods, either itself, or through some agency under its supervisory control or direction. (A.Y. 2002-03 & 2003-04)

Taurus Merchandising (P) Ltd. v. ITO (2012) 138 ITD 204 (Delhi)(Trib.)

381. S.10B : Newly established hundred per cent export-oriented undertakings-Export or transfer of film software – Deduction under both section is not allowable. (S. 80HHF)

Assessee set up an EOU unit. It claimed deduction u/s 10B. With regard to its other businesses it claimed deduction under section 80HHF. While computing deduction u/s 80HHF it included export profit of EOU. The Commissioner (Appeals), however, reduced profit derived from EOU on ground that profit derived by EOU was exempt from tax under section 10B. The Tribunal held that the express intention of Legislature with regard to sections 10B and 80HHF is not to allow deduction under both sections and further, both of said sections expressly prohibits to allow deduction other than allowable under respective sections. Therefore, order of Commissioner (Appeals) was confirmed (A.Y. 2001-2002)

ACIT v. Sri Adhikari Brothers Television Network Ltd. [2012] 137 ITD 154 (Mum.)(Trib.)

382 S.11 : Charitable or religious purposes – Exemption – Medical relief through ayuryedic system – Since medical relief through allopathic treatment did not fall within ambit of objects mentioned in trust deed, surplus from said activity could not form subject matter of exemption under section 11 therefore the exemption was denied to the assessee.

The assessee trust was formed with object of providing medical relief through ayurvedic system of medicine. However, with passage of time, medical relief through ayurvedic medicines and research was relegated to background and activities mainly constituted of providing medical relief through allopathic system of medicines. The Assessing Officer thus rejected assessee’s claim for exemption under section 11 of the Act. Upholding the order of the Assessing Officer the Hon’ble Tribunal held that since medical relief through allopathic treatment did not fall within ambit of objects mentioned in trust deed, surplus from said activity could not form subject matter of exemption under section 11 whether, therefore the exemption was denied to the assessee trust.(A.Y. 2006-2007)

Dy. DIT (Exemption) v. Mool Chand Kharaiti Ram Trust (2012) 52 SOT 429 (URO)(Delhi)(Trib.)

383 S.11 : Charitable or religious purposes – Principal objects was promotion of vegetarianism and distribution of Prasad – Preparing and selling vegetarian food held to be incidental to object of assessee trust.

Assessee was a charitable trust and its principal objects included promotion of vegetarianism and distribution of Prasad. The AO finding that assessee was in business of running an eating house/restaurant, took a view that entire character and focus of assessee had become totally commercial. Since the promotion of vegetarianism is undoubtedly a charitable activity, business of preparing vegetarian food items and selling same was very much incidental to object of assessee trust and such business could be conducted by a charitable trust as per provisions of section 11(4). Thus, assessee’s claim for exemption was to be allowed. (A.Y. 2008-09)

ADIT (Exemption) v. Sri Sri Radha Damodar Charitable Trust (2012) 52 SOT 622 (Mum)(Trib.)

384. S.12AA : Trust or institution – Registration - One of the objects non charitable registration cannot be denied.

The assessee society having undertaken only charitable activities cannot be denied registration simply in view of one non-charitable object which remained only on paper and was not at all implemented and has been already deleted.

BABA Amarnath Educational Society v. CIT (2012) 149 TTJ 373 (Chd.)(Trib.)

385. S.12A : Trust or institution-Registration – Charitable purposes – TDS deducted on donation made, by the donor – Held the assessee eligible for registration as mere deduction of TDS does not change the nature of donation to commercial receipt. [S. 2(15)]

The assessee was a Trust created with the object of carrying out research in the field of medicines. The assessee received donations from the donors which was utilised in holding conference for doctors in hotels. The said donors had deducted TDS on the said donations. It was held that merely because donors are pharmaceutical companies and they deducted TDS, it would not convert a donation into a commercial receipt on the basis of presumptive inference as long as assessee had credited amount as donations and also issued donation receipts. Thus, the assessee was eligible for grant of registration.
Heart Care Management v. DIT (IT) (2012) 52 SOT 277 (Delhi)(Trib.)

386. S. 13 : Trust or institution – Exemption – Education – Exemption cannot be denied on the ground that high salary was paid to office bearers of management committee unless it was established that it was not open market remuneration. (Ss. 11, 12)

The assessee society was formed with the object to provide education including opening of schools and colleges and to run them according to recognized standard. The assessee declared “NIL’ income. In the course of assessment A.O. took a view that assessee had debited high amount of salary in profit and loss account. However A. O. had not brought any independent evidence on record which could show how much salary various office bearers of management committee could fetch in open market. Also the 6th pay commission had resulted into a handsome enhancement in salary of employees including Government teaching staff. In view of the aforesaid the CIT(A) deleted the disallowance and the ITAT upheld the order of the C.I.T (A) as no independent evidence was being led by the A. O. to sustain the said disallowance. (A.Y. 2006-2007)

ACIT v. Indicula Trust Society (Regd). (2012) 52 SOT 1 (Delhi)(Trib.)

387. S.13 : Trust or institution – Exemption – Land used for society belonging to wife of secretary, exemption not be denied when no benefit passed. (Ss.11, 12AA)
Assessee society registered u/s 12AA was functioning from land belonging to wife of secretary of assessee society. It had incurred expenditure on construction of building on said land. It was apparent from records that land was taken on lease for period of 30 years with renewable option and, thus, no benefit was passed to secretary’s wife. Moreover, there was an option that in case assessee did not want extension of lease, it could remove superstructure erected on leased land. Thus, it was held that impugned order passed by Assessing Officer denying exemption was not sustainable. (A.Ys. 2006-07 & 2007-08)

Addl. CIT v. N. L. Education Society (2012) 52 SOT 603 (Agra)(Trib.)

388. S.14A : Business expenditure – Disallowance – Exempt income – Interest – Proportionate disallowance u/s. 14A should be limited to only interest liability and not overhead or administrative expenses.

Proportionate disallowance u/s. 14A should be limited to only interest liability and not overhead or administrative expenses, which should be considered for disallowance u/r. 8D from 2007-08. It was held that following the ratio laid in the case of CIT v. Catholic Syrian Bank Ltd. (2012) 207 Taxman 2 (Ker.) (High Court), addition made on the account of administrative expenses was to be deleted. (A.Y. 2005-06)

ACIT v. Torrent Pharmaceutical Ltd. (2012) 137 ITD 301 (Ahd.)(Trib.)

389. S.14A : Business expenditure – Disallowance – Exempt Income – Pro-rata-Interest – Assessing Officer was not justified in estimating interest expense incurred by the assessee in relation to exempt income on pro-rata basis and in making disallowance invoking provisions of section 14A. (S.10(33))

The assessee earned dividend income in shares of a company and same was claimed as exemption u/s. 10(33). The assessee claimed that the said investment was made by from its own funds. It was held that AO was not justified in estimating interest expense incurred by the assessee in relation to exempt income on pro-rata basis and in making disallowance invoking provisions of section 14A. (A.Ys. 2002-03 & 2003-04)

BNP Paribas SA v. Dy. DIT (2012) 137 ITD 322 (Mum.)(Trib.)

390. S.14A : Business expenditure –Disallowance – Exempt income –Expenditure neither incurred nor claimed in the profit and loss account disallowance cannot be made.

For the assessment year 2008-09 the Assessing Officer made disallowance under section 14A read with Rule 8D of the Income-tax Rules, though neither any expenditure was incurred nor claimed in the profit and loss account. In appeal Commissioner (Appeals) deleted the addition. On appeal by revenue the Tribunal held that as the assessee has not claimed any expenditure in the profit and loss account for earning the exempt income, the appeal of revenue was dismissed. (A.Y. 2008-09)

ACIT v. Tarun Chandmal Jain (2012) Income tax review – Sept P.90(Mum.)(Trib.)(ITA No. 6310/Mum/2011, Bench “E” dated 10-8-2012)

391. S.14A : Business expenditure – Disallowance – Exempt income – Interest incurred on taxable income also to be excluded to avoid incongruity.

The Tribunal held that it is not necessary that the Assessing Officer has to record specific finding that the assessee’s claim of not incurred any expenditure to earn the tax-free income is not acceptable, but when assessee offers a disallowance the Assessing Officer has to satisfy how the expenditure claimed by the assessee is incorrect. When assessee does not offer any disallowance, Rule 8D can be invoked without any need to express satisfaction. As regards the allocation of expenditure as per Rule 8D(2)(ii), by “expenditure by way of interest…., which is not directly attributable to any particular income or receipt”. This refers to interest relatable to tax free income as well as taxable income. However the definition of variable ‘A’ embedded in the formula under Rule 8D(2)(ii) refers only to interest expenditure directly related to tax exempt income but not to interest expenditure directly related taxable income. The result is that while Rule 8D(2)(ii) seeks to allocate all interest expenditure, it ends up allocating only interest expenditure relatable to tax free income. This is clearly incongruous. In Godrej & Boycee Mfg Co. Ltd. v. UOI (2010 ) 328 ITR 81 (Bom.) (High Court), the department took the stand, to defend the constitutional validity of Rule 8D, that both, interest directly attributable to tax exempt income as well as interest directly relatable to taxable income would be excluded from the definition of variable ‘A’ in the Rule 8 D(2)(ii) formula, once the Revenue has taken a particular stand about the applicability of the formula in Rule 8D(ii) based on which constitutional validity of Rule 8D is up held, it is not open to the Revenue to take any other stand on the issue with regard to the actual implementation of the formula in the case of any assessee. Accordingly, the correct application of the formula set out in Rule 8D(2)(ii) is as noted in Godrej and Boyce (supra), that interest expenses directly attributable to taxable income have to be excluded from the computation of common interest expenses to be allocated under Rule 8D(2)(ii).The matter was remitted back to the Assessing Officer for verification and cross objection of assessee was dismissed. (A.Y. 2008-09)( ITA no 644/Kol/2012 dated 11-9-2012 Bench ‘B’

ACIT v. Champion Commercial Co Ltd (Kol.)(Trib.) www.itatonline.org.

392. S.14A : Business expenditure – Disallowance – Exempt income – Stock in trade – Disallowance under section 14A cannot be made in respect of dividend on shares held for trading purposes.

The assessee is a trader in shares. The assessee has claimed exemption under section 10(33) in respect of shares held as stock-in-trade. The Assessing Officer applied the provisions of section 14A and disallowed the expenses. It was held that disallowance under section 14A cannot be made in respect of dividend on shares held for trading purposes. (A.Y. 2008-09).

Esquire Pvt. Ltd. v. Dy. CIT (ITA No. 5688/Mum/ 2011 Bench “E” dated 29-08-2012) (Mum.) (Trib.) (www.itatonline.org)

393. S.14A : Business expenditure – Disallowance – Exempt income –Stock in trade – DTAA – India-USA-Section 14A applies even if the securities are held as stock-in-trade. Article 7(3) limitation applies to all expenditure and not only to S. 44C H.O. expenditure. [S.44C, Art. 7(3)]

The Tribunal had to consider two issues (i) Whether the provision in Article 7(3) of the India-USA DTAA that a deduction for expenses, including a reasonable allocation of executive and general administrative expenses, would be allowed “in accordance with, and subject to the limitations of, the taxation laws of India” would apply to all expenses or only to executive & general admin expenses and (ii) whether S. 14A applied to tax-free income on securities held as stock-in-trade. Held by the Tribunal:

(i) The qualification in Article 7(3) of the DTAA that the expenses will be allowed “in accordance with the provisions of and subject to the limitations of the taxation laws of that State” applies to all expenditure incurred for the business of the PE and not merely to s. 44C alone. The fact that the assessee’s interpretation was accepted in earlier year does not mean that it cannot be departed with;

(ii) S. 14A talks of making disallowance of expenses incurred in relation to an income not chargeable to tax. No exception, such as the dividend being main or incidental income, has been carved out in the provision. The relation of expenses for disallowance is with the exempt income irrespective of the source or nature of the exempt income. When the legislature in its wisdom has not spelt out any exception coming in the way of applicability of s. 14A, it is wholly impermissible to artificially find any such exception contrary to the language of the provision and the intention of the legislature. Accordingly. s. 14A applies even if the securities are held as stock-in-trade (CIT v. Leena Ramachandran (Smt) (2011) 339 ITR 296 (Ker) (High Court)distinguished). (A.Y. 1997-98)

Jt. CIT v. American Express Bank Ltd. (2012) 19 ITR 650 / 138 ITD 288 (Mum.)(Trib.)

394. S.14A : Expenditure disallowance – Exempt income – Investment in shares of companies and units of mutual funds out of interest free funds available and not out of borrowed funds, hence, no disallowance u/r 8D (2)(ii).

The assessee had made investment in shares of companies and units of mutual funds out of interest free funds available with it and there was nothing on record to show that said investment was made out of borrowed funds, no disallowance could be made by invoking rule 8D (2)(ii). (A.Y. 2008-09)

ACIT v. Mohan Exports (P.) Ltd. (2012) 138 ITD 108 (Delhi) (Trib.)

395. S.14A : Expenditure disallowance – Exempt income – Stock in trade – Disallowance under section 14A cannot be made in respect of shares held as stock-in-trade. The view of Mumbai Tribunal which held that section 14A applies to shares held as stock-in-trade was not followed.

The assessee relying on CIT v. Leena Ramachandran (Smt.)(2011) 339 ITR 296 (Ker.) & CCL Ltd. v. JCIT (2012) 250 CTR 291 (Karn), claimed that as the shares were held as stock-in-trade, s. 14A did not apply. The department opposed this plea by relying on American Express Bank [ITA No. 5904/M/2000 dt. 8-8-2012 (Mum.)(Trib.)] where the view was taken, after considering Leela Ramchandran & Daga Capital Management (2009) 117 ITD 169 (Mum.) (SB), that s. 14A applied even to a trader in shares. Held by the Tribunal:

Though in American Express Bank (supra), the Tribunal followed ITO v. Daga Capital Management (P) Ltd. (2009) 117 ITD 169(SB)(Mum) & distinguished CIT v Leena Ramachandran(Smt.)(2011) 339 ITR 296 (Ker) & held that s. 14A applies also to a trader in shares, the Karnataka High Court has held in CCL Ltd. v. JCIT (2012) 250 CTR 291 that disallowance of expenses incurred on borrowings made for purchase of trading shares cannot be made u/s. 14A. As this is a direct judgment of a High Court on the issue, the same has to be followed in preference to the decision of the Special Bench of the Tribunal in Daga Capital Management (or that in American Express Bank) & it has to be held that disallowance of interest in relation to the dividend received from trading shares cannot be made (Ganjam Trading Co. (included in file) & Yatish Trading Co. v ACIT (2011) 129 ITD 237 followed). (A. Y. 2008-2009)

Dy. CIT v. India Advantage Securities Ltd. (Mum.)(Trib.) www.itatonline.org

396. S.14A : Expenditure disallowance – Nexus – Expenditure – Tax free income-Disallowance under section 14A cannot be made in absence of “live nexus” between expenditure & tax-free income.

The assessee earned tax-free income from shares and units and claimed that he had not incurred any expenditure on earning the tax-free income and so no disallowance u/s 14A was permissible. The AO & CIT(A) rejected the claim and disallowed ` 2.26 lakhs u/s. 14A as expenditure incurred to earn the tax-free income. On appeal by the assessee to the Tribunal, it was held that S. 14A has within it implicit notion of apportionment in cases where expenditure is incurred for composite/indivisible activities in which taxable and non-taxable income is received. But when it is possible to determine the actual expenditure in relation to exempt income or when no expenditure has been incurred in relation to exempt income, then the principle of apportionment embedded in s. 14A has no application. For s. 14A to apply, there should be a proximate relationship between the expenditure and the tax-free income. If the assessee claims that no expenditure has been incurred for earning the exempt income, it is for the AO to determine as to whether the assessee had incurred any expenditure in relation to the tax-free income and, if so, to quantify the extent of disallowance. In order to disallow the expenditure u/s. 14A, there must be a live nexus between the expenditure incurred and the income not forming part of total income. No notional expenditure can be apportioned for the purpose of earning exempt income unless there is an actual expenditure in relation to earning the tax-free income. If the expenditure is incurred with a view to earn taxable income and there is apparent dominant and immediate connection between the expenditure incurred and taxable income, then no disallowance can be made u/s. 14A merely because some tax exempt income is received by the assessee. On facts, from the details of the expenditure, it is clear that the expenditure incurred by the assessee has direct nexus with the professional income of the assessee. It is not the case of the revenue that the assessee has used his official machinery and establishment for earning the exempt income. The AO has not given any finding that any of the expenditure incurred and claimed by the assessee is attributable for earning the exempt income. Consequently, s. 14A disallowance is not permissible (Pawan Kumar Parmeshwarlal (ITAT Mumbai) & Auchtel Products (ITAT Mumbai) followed). (A. Y. 2006-07)

Justice Sam P Bharucha v. ACIT (Mum.)(Trib.) www.itatonline.org

397. S.17(2) : Salary – Perquisite –Reimbursement of medical expenses –Reimbursement cannot be considered for the purpose of chapter XII-H.

Medical reimbursement is taxable as perquisite in the hands of individual employees and therefore it cannot be said to be a fringe benefit for the purposes of chapter XII-H. (A.Y.2006-07)

Intervalue (India) Ltd. v. Addl. CIT (2012) 149 TTJ 365 (Pune)(Trib.)

398. S.22 : Income from house property-Business income – Tests on when rental income is assessable as “house property income” v. “business profits”. (S.56)

U/s 22, income from the rental of building or land appurtenant thereto is assessable as “Income from house property”. However, where complex and varied services are provided and huge investment in the nature of plant and machinery is made, the income is assessable as “Profits & gains of business”. On facts, the assessee had conducted systematic activity and rendered extensive and specialised services which could only be utilised by the IT/Software/BPOs businesses to be located in the I.T. Park. Such income cannot be treated as forming part of income from house property but is a constitution of organised structure for carrying out business activities to earn profit and accordingly the income is assessable as income from business.

Dy. CIT v. Magarpatta Township Development & Construction Co (Pune)(Trib.) www.itatonline.org

399. S.23 : Income from House Property – Annual Value – property is not let out at all during previous year – no vacancy allowance can be given [S. 23(1)(c)]

Vacancy allowance to be given only when property is let and vacant for part of the year and thus, in a case, where property is not let out at all during previous year, no vacancy allowance can be given under section 23(1)(c). (A.Y. 2006-07)

Indra S. Jain (Smt) v. ITO (2012) 52 SOT 270 (Mum) (Trib)

400. S.28(i) : Business Income – Income from undisclosed source – Unexplained sales and expenditure – No addition where no independent evidence brought on record to show assessee suppressed production and made sale of unaccounted production

The assessee was engaged in the manufacture of ingots from iron scrap and its trading. On the basis of information regarding the show-cause notice issued by the Central Excise Department, the AO worked out the unaccounted profit earned by the assessee and added it to the income of the assessee. It was held that there was no merit in any addition being made in the hands of the assessee on the account of the alleged suppression in production and also alleged investment in the purchase of raw materials as there was no independent evidence brought on record to establish that assessee had suppressed its production and made sale of its unaccounted production, outside the books of account. (A.Y. 2004-05)

ACIT v. A.K. Alloys (2012) 17 ITR 424 (Chandigarh)(Trib)

401. S.28(i) : Business income – Settlement money to competitor to end legal dispute – Not payment for loss of source of income or for entering into negative covenants – No transfer of right, hence revenue was a business income

The assessee was a company carrying on business in joint venture with foreign company. A foreign company incorporated a wholly owned subsidiary company in India to carry on competing business of manufacturing electric equipments. The assessee entered into settlement to settle all legal disputes between parties. It was held that it was not payment for loss of source of income or for entering into negative covenants. There was no transfer of right, hence revenue was a business income. (A.Y. 2004-05)

Control and Switchgear Contractors Ltd. v. Dy. CIT (2012) 18 ITR 520 (Delhi)(Trib.)

402. S.28(i) : Business loss – deduction – Purchase of goods, showed as closing stock – Disallowance deleted

The assessee imported insulated craft paper. The same were available in bonded warehouse. The assessee recorded purchase of goods and showed it in closing stock. The AO disallowed the deduction claimed on the ground that assessee had neither taken physical delivery of purchased goods nor it furnished any evidence to support that the same had been included in closing stock or sales. On appeal, the addition was deleted as the details of raw material showed that sum pertaining to insulated paper had been included in imported stock. The assessee further informed that the concerned stock was accounted for in closing stock. (A.Y. 2006-07)

ITO v. Shakti Insulated Wires (P.) Ltd. (2012) 53 SOT 64 (Mum.) (Trib.)

403. S.28(iv) : Business income – Goodwill – Date of Merger - Excess of cost of acquisition over the carrying value of net assets appearing in accounts of amalgamated company, not income

Amount of goodwill representing the excess of cost of acquisition over the carrying value of net assets as on the date of merger appearing in the accounts of the amalgamated company cannot be treated as income taxable u/s 28(iv). (A.Ys. 2002-03, 2003-04, 2006-07 & 2007-08)

Quintegra Solutions P. Ltd. v. ITO (2012) 148 TTJ 471 (Chennai)(Trib.)

404. S.28(iv) : Business income – Perquisite-Amalgamation-Excess fair value cannot be assessed as any benefit or perquisite arising from business or profession.

During relevant assessment year, a company, SIFL, got amalgamated with assessee-company. Pursuant to amalgamation, assets and liabilities and rights and obligations of SIFL vested with assessee-company and those items had been recorded at their fair values. Excess of fair value of net assets taken over by assessee-company over paid-up value of allotted equity shares worked out to ` 2,899.68 lakhs and the said surplus amount was transferred by assessee to its General Revenue Account. Held that the sum of ` 2,899.68 lakhs was only a balancing figure arising out of entries passed in books of account as a result of amalgamation and same could not be treated as income taxable u/s 28(iv) (A.Y. 2002–03)

Spencer & Co. Ltd. v. ACIT [2012] 137 ITD 141(TM)(Chennai)(Trib.)

405. S.32 : Depreciation – Goodwill –Land and building – Primary asset transferred was land hence the depreciation is not allowable on goodwill as there was no good will in the nature of commercial rights
CGEL, a wholly owned subsidiary of the assessee company got amalgamated with the assessee during the year. The subsidiary company earned income by lease of property. It was held that primary asset which was transferred was land and not goodwill. The market value of the primary asset i.e. land and building thereon, should have been considered. If the assessee had paid more than the fair market value of assets minus fair market value of liabilities, then the company would have a case to claim that certain amounts were incurred for goodwill. In the absence of such a claim there was no goodwill in the nature of commercial rights purchase by assessee. This being only book entry and it was only another way of disclosing the intrinsic value of the fixed asset of the company. Depreciation was not allowable on goodwill. (A.Y. 2003-04)

DY. CIT v. Toyo Engineering India Ltd. (2012) 18 ITR 159 (Mum.)(Trib.)

406. S.32 : Depreciation – Lease of assets – Lease rent – Lessee started receiving rent from that date, assets in question were put to use for 180 days or more assessee entitled to full rate of depreciation

The assessee dispatched the Gas Cylinders on 27th September 2003 and claimed 100% depreciation. The Assessing Officer held that the lessee has put to use the assets on 30th September, 2003 hence entitled only 50% depreciation. On appeal the claim of depreciation was allowed 100%. On appeal by revenue the Tribunal held that assessee has demonstrated that it has purchased cylinders on 27th September 2003, dispatched the same to the lessee and started receiveing rent from that date, hence the assets in question was put to use for 180 days or more therefore entitled for full rate of depreciation. (A.Ys. 2003-04 to 2005-06)

Dy. CIT v. Prakash Chemical Agencies (P) Ltd (2012) 136 ITD 222/75 DTR 91/148 TTJ 480(Ahd.) (Trib.)

407. S.32 : Depreciation-Quantification – Applicability of second proviso to S. 32(1)

Second proviso to s. 32(1) is applicable only in the year in which the asset is acquired or put to use for the business for the first time and, therefore, assessee’s claim for depreciation qua assets acquired and put to use prior to the commencement of the current year is wholly allowable, more so as the assets were in use from 1st April, 2001 to 28th Sept., 2001, i.e. for a period of 181 days in the current year before the suspension of assessee’s operations by RBI on 29th Sept., 2011; however, assessee’s claim for depreciation to the extent it relates to assets acquired during the current year is subject to second proviso to S. 32(1). (A.Y. 2002-03)

Vinayak Local Area Bank Ltd v. Dy. CIT (2012) 76 DTR 129 / 149 TTJ 261 (Jaipur) (Trib.)

408. S.32 : Depreciation – Rate – Mistakenly understated – Held rectification letter filed to AO rectifying the rate of depreciation was to be allowed

The assessee installed wind-mill and claimed depreciation @ 15% on written down value basis. However, realizing the wrong rate, assessee filed a letter to rectify the rate @ 80%. It was held that since assessee had made a claim for statutory allowance of depreciation on WDV basis, subject to mistake occurred in choosing correct rate, rectification letter filed by it was to be allowed. (A.Y. 2007-08)

ITO v. Sri Balaji Sago & Starch Products (2012) 53 SOT 15 (Chennai)(Trib.)

409. S.35 : Expenditure on scientific research – Motor car – Employees – Purchase of motor car for employees is not eligible for deduction as the employees came into car provided by employer or by public transport or hired car had no bearing on in-house research & development

The assessee contended that, since the salary to employee was eligible for deduction u/s 35(2AB), acquisition of motor car for those employees should also be considered as eligible for this benefit. It was held that expenditure on purchase of motor car could not be accepted as expenditure whether capital or revenue incurred on in-house research and development as whether the employees came into car provided by employer or by public transport or hired car had no bearing on in-house research & development. (A.Y. 2005-06)

ACIT v. Torrent Pharmaceutical Ltd. (2012) 137 ITD 301 (Ahd.)(Trib.)

410. S.36(1)(iii) : Deductions – Interest on borrowed capital – Funds advanced to sister concern out of business exigencies – Not in nature of personal diversion, hence to be allowed

Assessee as well as its sister concern being engaged in the same field of business, and the assessee having advanced funds to the sister concern out of business exigenicies, it cannot be said to be in the nature of personal diversion of funds and therefore, interest on borrowings could not be disallowed. (A.Ys. 2002-03, 2003-04, 2006-07 & 2007-08)

Quintegra Solutions P. Ltd. v. ITO (2012) 148 TTJ 471 (Chennai)(Trib.)

411. S.36(1)(viia) : Deductions – Bad debt qua sub-standard assets of banking company

Licence of the assessee, a banking company, having been suspended by the RBI vide order dt. 29th Sept. 2011, the case clearly falls under s. 36A(1)(b) of the Banking Regulation Act, 1949 – Assessee company was obliged to classify its assets according to RBI norms as any other non-scheduled bank irrespective of the fact that its banking licence stood cancelled by the RBI prior to 31st March, 2002. Therefore, assessee claim for deduction u/s. 36(1)(viia) in respect of sub-standard assets is allowed to the extent it relates to loss or doubtful assets as per the RBI norms and is otherwise consistent with the provisions of s. 36(1)(viia), subject to the confirmation that the notification u/s. 36A(2) of the Banking Regulation Act was made on 21st Sept., 2002, i.e, subsequent to 31st March, 2002. Merely because it was not able to canvass the legal basis of its claim before the authorities below would not preclude the assessee from doing so before the Tribunal. Contention of the assessee based on the provisions of the applicable law cannot be considered as a new plea, thus matter is restored back to the AO for verification and appropriate findings in accordance with law. (A.Y. 2002-03)

Vinayak Local Area Bank Ltd v. Dy. CIT (2012) 76 DTR 129 / 149 TTJ 261 (Jaipur) (Trib.)

412. S.36(1)(iii) : Deductions – Interest on borrowed capital – Interest free advances to sister concern, disallowance of interest is not justified

Total cash profits of the assessee company in the relevant year being far more than the total interest free advances given by it to subsidiary companies it has to be presumed that the entire interest free advances were given out of interest free funds available with the assessee and no part of the borrowed funds can be said to have been diverted as non interest bearing advances to the subsidiary companies and, therefore no disallowance can be made out of interest paid on borrowings. (A.Ys. 2006-07 & 2007-08)

S. P. Jaiswal Estate (P) Ltd. v. CIT (2012) 147 TTJ 649 / 74 DTR 294 (Kol.)(Trib.)

413. S.36(1)(vii) : Deductions - Bad-debt –Write off– After the amendment with effect from April 1, 1989, it is sufficient to write off the bad debts in the account hence the bad debt is to be allowed

Though the fee disclosed as bad debt had been taken as income of the previous year in respect of the invoices relating to the eight parties and subsequently the assessee had disclosed the debts as irrecoverable and written them off in the books of account for the A.Y. in question. After the amendment with effect from April 1, 1989, it is sufficient that the assessee had written off the bad debts in the account and the debt has to be allowed. Thus, the claim of the bad debt was allowed. (A.Ys. 2001-02, 2002-03 & 2003-04)

KPMG India P. Ltd. v. Dy. CIT (2012) 17 ITR 569 (Mum.)(Trib.)

414. S.36(1)(vii) : Deduction – Bad-debts – Bank – Non-rural branch – Bad-Debt written off relates to non-rural branch is held to be entitled for deduction

Tribunal following the judgment of Apex court in Catholic Syrian Bank Ltd v. CIT (2012) 343 ITR 270 (SC), the assessee bank is held to be entitled to deduction u/s 36(1)(vii) in respect of bad-debt written off relating to its non-rural branch. (A.Y. 2001-02)

Allahabad Bank v. Dy. CIT (2012) 137 ITD 290 (Kol.)(Trib.)

415. S.36(1)(viia) : Deductions – Bad-debt – Provision for bad debts – Newly created during the year – Not to be netted against the amount written back or reversed while computing deduction

Provision for bad and doubtful debts newly created during the year under consideration should not be netted against the amount written back or reversed while computing deduction u/s 36(1)(viia). (A.Y.2007-08)

The Kanpur District Coop. Bank Ltd. v. ACIT (2012) 147 TTJ 744 (Cochin)(Trib.)
416. S.36(1)(iii) : Deductions-Interest on borrowed capital- No interest – bearing funds were utilized by the assessee for subscribing to the share capital of its subsidiary, hence additions cannot be made.

The assessee demonstrated that working capital loan was not utilized for investment with the subsidiary. The Tribunal held that though the assessee had failed to prove that the investment with the subsidiary is for the purpose of business, it has utilized interest free, funds for making the said investment as the assessee’s shareholders’ fund comprising of share capital and reserves and surplus , and also cash profits during the relevant year are much more than the amount invested by the assessee in the share capital of its subsidiary during the year and therefore, no part of interest on borrowings could be disallowed.(A.Y. 2007-08)

Visen Industries Ltd v. Addl. CIT (2012) 74 DTR 57(TM)(Mum.)(Trib.)

417. S.37(1) : Business expenditure – Capital or revenue expenditure – Expenditure on purchase of furniture in leasehold premises – Held that expenditure incurred for capital asset thus, not allowable as revenue expenditure – Depreciation allowed. (S. 32)

Huge expenditure incurred by the assessee on purchase of plywood, furniture, etc. for making partitions, cabins, cubicles, desks, etc. in its leasehold premises was expenditure incurred for capital asset and, therefore, it was not allowable as deduction but is subject to allowance of depreciation in terms of Explanation 1 to 32. (A.Ys. 2001-02 to 2004-05)

Free India Assurance Services Ltd. v. Dy. CIT (2012) 147 TTJ 423 (Mum.) (Trib.)

418. S.37(1) : Business expenditure – Capital or revenue expenditure – Expenditure on renovation of leasehold office premises was held revenue expenditure – Compensation held as capital in nature

Amount spent by the assessee for the renovation of the leasehold office premises is allowable as a revenue expenditure but the amount paid by the assessee to the lessor as compensation to put up a structure or alter the structure to suit the requirements of the assessee is not a revenue expenditure. Further, assessee cannot also claim benefit of depreciation in respect of the latter amount as it is not the assessee who has put up the construction and spent the amount thereon.(A.Y. 1997-98)

CIT v. Lucent Technologies Hindustan Ltd. (2012) 252 CTR 438 (Karn.) (High Court)

Editorial. Lucent Technologies Hindustan Ltd. v. Jt. CIT (2007) 106 TTJ 205 (Bang.)(Trib.) partly affirmed.

419. S.37(1) : Business expenditure – Commencement of business - All categories of its business need not start for allowability of business expenses

For allowability of business expense, it is not necessary that all categories of its business activities must start.

Sardar Sarovar Narmada Nigam Ltd. v. ACIT (2012) 138 ITD 203 (SB)(Ahd.)(Trib.)

420. S.37(1) : Business expenditure – Construction of commercial centre on plot in violation of master plan - Misuse charges allowed as deduction.

The assessee constructed commercial centre on plots in violation of master plan. It was held that misuse charges paid by the assessee for the same not allowed as deduction. (A.Y. 2008-09)
ACIT v. Mohan Exports (P.) Ltd. (2012) 138 ITD 108 (Delhi) (Trib.)

421. S.37(1) : Business expenditure –Cost of production of feature film – Producer of feature film – Even if Rule 9A is applied, the assessee is entitled to claim the unrecouped cost of production as loss. (Rule 9A)

The Assessing Officer disallowed the excess un recouped cost of production of film. In appeal the Commissioner of Income–tax (Appeals) allowed the claim. On further appeal to Tribunal by the revenue, the Tribunal held that the assessee being producer of feature film is entitled to claim the unrecouped cost of production in terms of Rule 9A(3) as also de hors the provisions of Rule 9A. (A.Y. 2005-06)

Addl. CIT v. Nitin M. Panchamiya (2012) 73 DTR 202/148 TTJ 96 (Mum.)(Trib.)

422. S.37(1) : Business expenditure – Enterprise Resource Planning (ERP) – Capital or revenue – Expenditure incurred on ERP is held to be revenue in nature

The assessee company is manufacturer of pharmaceutical items. Following the decision laid in assessee’s own case in other Assessment year and decision of Bombay High Court in CIT v. Raychem RPG Ltd. (ITA No. 4176 of 2009 dated 4/7/2011), it was held that expenditure incurred on Enterprise Resource Planning (ERP) was revenue in nature. (A.Y. 2005-06)

ACIT v. Torrent Pharmaceutical Ltd. (2012) 137 ITD 301 (Ahd.)(Trib.)

423. S.37(1) : Business expenditure – Expenditure for increase in share capital after commencement of business – Held expenditure of revenue nature

Expenditure incurred for increase in share capital of company after commencement of business is not capital expenditure but a regular business expenditure of revenue nature. (A.Y. 2005-06)

Dy. CIT v. Raj Laxmi Stone Crusher (P.) Ltd. (2012) 52 SOT 112 (Delhi)(Trib.)

424. S.37(1) : Business expenditure –Expenses for profession – Advocate – If there is no doubt that expenditure has been incurred, disallowance is not sustainable

While computing the tax liability of an assessee the AO is obliged to compute the correct income of the assessee. Once in substance he is in agreement that the expenditure has been incurred for earning the professional income, no disallowances is sustainable in law. Nowhere the AO has doubted that the expenditure claimed as deduction has been incurred by the assessee. In alleging that the expenditure has been deducted in computing the income from other sources, the AO has ignored the fact that in the return of income, the gross amount of interest income, without any deduction, has been shown under the head “Income from other sources” and the income under the head “Profits and gains of business or profession” has been shown in the tax return on net basis after deducting the expenditure incurred. (A. Ys. 2005-06 to 2006-07)(ITA No. 50, 72, 49 (Gau/2010, Bench ‘D’ dated 31-8-2012)

Lira Goswami v. ACIT (Delhi)(Trib.) www.itatonline.org

425. S.37(1) : Business expenditure –Feature film – Cost of production – Cost of production is not allowed, which is hit by sub-rule (5) of rule 9A. (Rule 9A)

Assessee having neither himself exhibited feature film on commercial basis nor sold rights of exhibition of the feature film nor transferred the rights of exhibition of feature film, then the claim of deduction in respect of cost of production is hit by sub–rule (5) of rule 9A and cannot be allowed. (A.Y. 2007-08)

Sagar Sarhadi v. ITO (2012) 148 TTJ 86 (Mum.) (Trib.)

426. S.37(1) : Business expenditure – Group share holders - Purchase of shares - Expenditure for smooth functioning of business is allowable expenditure

Expenditure incurred on purchase of own shares from the group of share holders who were creating problems in the smooth functioning of business is allowable as business expenditure. (A.Y. 2007-08)
Chemosyn Ltd. v. ACIT (2012) 149 TTJ 294 (Mum.)(Trib.)

427. S.37(1) : Business expenditure – Repairs – Improve condition of building – Building used for business purpose hence repair expenses incurred to improve a condition of building held to be allowable revenue expenditure

The expenditure incurred by assessee on repairs to improve bad condition of building which was used for its business purpose was to be allowed as business expenditure. (A.Ys. 1998-99 & 1999-2000)
Dy. CIT v. Sandoz (P.) Ltd. (2012) 137 ITD 326 (Mum)(Trib.)

428. S.40A(2)(b) : Expenses or payments not deductible – Excessive or unreasonable – Market price- Disallowance can be made only if the payment made was excess of market price

Disallowance u/s 40A(2)(b) can be made only to extent payment for services is excessive or unreasonable vis-a-vis market price of such services, but what is essentially required is that market price of these services is established and then amount paid in excess of such market price is to be disallowed. During year, assessee paid salary to his son at rate of ` 20,000 per month and claimed deduction of ` 2.40 lakhs as business expenditure. Assessing Officer found that assessee’s son rendered services but opined that assessee had paid excess salary to his son. He, therefore, estimated salary of son at rate of ` 5,000 per month and disallowed a sum of ` 1.80 lakhs u/s 40A(2)(b). Since no findings were given by Assessing Officer that payment made by assessee was excessive or unreasonable vis-a-vis market price, estimate of salary made by Assessing Officer at rate of ` 5,000 per month was against express provisions of section 40A(2)(b). Disallowance of ` 60,000 u/s 40A(2)(b) would meet ends of justice. (A.Y. 2007-08)

Vinod Kumar v. Jt. CIT (2012) 137 ITD 48 (Chandigarh)(Trib.)

429. S.40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits

Amended provisions of Ss. 40A(3) and 40A(3A) are applicable in respect of those expenditure for which liability has been incurred in A.Y. 2008-09 or in any subsequent year but it cannot be made applicable to the liability incurred up to the A.Y. 2007-08. (A.Y. 2008-09)

Anandkumar Rawatram Joshi v. ITO (2012) 76 DTR 82 (Ahd.)(Trib.)

430. S.40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits

If the liability for an expense is incurred up to A.Y. 2007-08 and the payment is made in a subsequent year i.e. 2008-09 the provisions of S.40A(3) as applicable in the year in which liability was incurred should be applied. Payment by a crossed cheque in A.Y. 2008-09 in respect of liability of A.Y. 2004-05 could not be disallowed in A.Y. 2008-09 by applying amended provisions of S. 40A(3). (A.Y. 2008-09)

Tushar A. Sanghvi (HUF) v. ITO (2012) 76 DTR 90 / 149 TTJ 205 (Ahd.)(Trib.)

431. S.40(a)(ia) : Amounts not deductible – Deduction at source – Non-resident – One non-resident to another non-resident – Hiring charges for transponder – Outright sale television programme. (S. 9(1) (vi), 195 )

The assessee, a Mauritius company, made payment to Panamsat, USA, for hire of a “transponder satellite”. The AO held that the said hire charges constituted “royalty” and that the assessee ought to have deducted TDS u/s 195 and that as it had not done so, the amount was to be disallowed u/s 40(a)(ia).The Tribunal held that payment of hiring charges for transponder made by assessee a foreign company, to a US company is not in the nature of royalty within the meaning Indo –US DTAA as a no technology is “made available” in the hiring of transponder and therefore assessee is not required to deduct tax at source under section 195. The Tribunal also held that payment has been made by one non-resident to another non-resident outside India on the basis of contract executed outside India. Accordingly addition was deleted. Similarly payment made by the assessee foreign company to another Mauritian company being payment for outright sale of Television programmes and not merely for broad casting rights of such programmes, assessee was not required to deduct tax at source. The Tribunal also held that consideration paid for sale, distribution or exhibition of cinematographic films does not fall within the term “royalty” in view of Explanation 2 to section 9(1)(vi), hence payments made by the assessee are not liable to deduct tax in India, hence provision of section 195 is not applicable. (A.Y. 2002-03)

B4U International Holdings Ltd v. Dy. CIT (2012)74 DTR 162 (Mum.)(Trib.)

432. S.40(a)(ia) : Amounts not deductible-Deduction at source-Production of feature film - Individual - Since the provisions of section 194C were not applicable to individuals prior to Ist April, 2007, the assessee is under no obligation to deduct tax at source hence no disallowance can be made.[Ss. 194C, 194J]

The assessee who is an individual engaged in the business of production of cinematographic films made payments to director of film. The assessee deducted the tax for the assessment year 2005-06 at 2.2% treating the said payment as payment to contractor. The assessee contended that he is not liable to deduct the tax at source by mistake he has deducted tax at source the assessee should not be held liable for disallowance. The Assessing Officer held that the payments falls under the head fees for technical services hence provision of section 194J is applicable hence the assessee should have deducted the tax at 5.23% hence he disallowed the payment by applying the provisions of section 40(a)(ia). In appeal Commissioner of Income-tax (appeals) also confirmed the order of Assessing Officer. The Tribunal held that the payments made by the assessee falls under the expression “work” hence fall under the provisions of section 194C. Since the provisions of section 194C of the Act is not applicable to individuals prior to 1st April, 2007, the assessee was under no obligation to deduct tax at source for the period under consideration therefore disallowance made under section 40(a)(ia) of the Act cannot be sustained. (A.Y. 2005-06)

Nitin M. Panchamiya v. Addl. CIT ( 2012) 73 DTR 202/148 TTJ 96 (Mum.)(Trib.)

433. S.40(a)(ia) : Amounts not deductible – Short deduction of tax – If there is short deduction of tax, assessee be declared as assessee in default under section 201 – No disallowance can be made by invoking section 40(a)(ia).(Ss.194C, 194-I, 201)

The assessee deducted the tax at source in respect of payment of equipment charges at 2.06%, treating the said payment as covered under section 194C. The Assessing Officer is of the opinion that equipment charges is in the nature of hiring and therefore the provisions of section 194-I is applicable hence the TDS is required to be deducted at 11.33%. As there was shortfall in deduction of TDS the Assessing Officer invoked the provision of section 40(a)(ia) and disallowed the expenses. Commissioner (Appeals) upheld the disallowance. On appeal to Tribunal, the Tribunal held that if there is shortfall of deduction due to difference of opinion as to the taxability of any item or nature of payments falling under various provisions of TDS, assessee can be declared as to be assessee in default under section 201, but no disallowance can be made by invoking provisions of section 40(a)(ia). (A.Y. 2008-09)(ITA No. 6281 /Mum/ 2011 dated 10-8-2012 Bench ‘E’.

EGS Survey P. Ltd v. ACIT (2012) Income Tax Review –September – P. 90(Mum.)(Trib.)

434. S.40(a)(i) : Amounts not deductible – Deduction at source-Installation and commissioning services integral part of supply and not assessable as ‘fees for technical services’ despite separate contract. [S.9(1)(vii)]

The assessee is engaged in the business of engineering and general contracting. In the revised return of income, assessee did not make a disallowance u/s 40(a)(ia) in respect of installation charges to M/s Mesto Automation SCADA Solutions Ltd. on the ground that the said amount was paid in relation to plant and machinery supplied by M/s Mesto Automation SCADA Solutions Ltd and the said amount not being chargeable to tax in India in the hands of said party as per the Explanation 2 to section 9(1)(vii), it was not liable to deduct tax at source from the said amount. There were two agreements; one for supply of equipment another for installation and commissioning work which itself made it clear that the installation and commissioning work are different from the supply of plant. The Tribunal held that, though there was a separate contract for supply and a separate one for installation and commissioning services, the said services held to be treated as ‘ancillary and subsidiary as well as inextricable and essentially linked to the sale/supply of the equipment’ and, therefore , was not chargeable to tax in the hands of the Canadian company as ‘fees for technical services’ consequently the disallowance under section 40(a)(i) was not sustainable. Installation and commissioning services are integral part of supply and not assessable as ‘fees for technical services’ despite separate contract. Appeal of revenue was dismissed. (A.Y.2002-03) (ITA No. 2624/Mum/2006 Bench ‘L’ dated 29-8-2012)

Dy. CIT v. Dodsal Pvt. Ltd. (Mum.)(Trib.)www.itatonline.org.

435. S.40(a)(i) : Amounts not deductible – Deduction at source – Royalty – Retrospective amendment of law- Due to retrospective amendment of law, no obligation for TDS as the law cannot compel a person to do something which is impossible to perform. [S. 9(1)(vi)]

The assessee is a company engaged in the business of financing, leasing, hire purchase, production and distribution of internet media and manufacturing of towels. In the said year the video channel started by the assessee became functional. In the course of video channel business the assessee entered into an agreement with with M/s Shan statellite Public Co. Ltd. (SSA). During the year the assessee paid the amount for the facility of uplinking and telecasting programmes, broadcasting and telecasting, the consultation charges to SSA in foreign exchange without deduction of tax at source. The payment was made on the certificate issued by the Chartered Accountant, that the said payment constituted business income of that non-resident party and since they did not have a Permanent Establishment (PE) in India, business income earned by them was not chargeable to tax in India in accordance with the Article 7 of DTAA between India and Thailand, and thus, no tax at source was therefore deductible. The Tribunal following the judgment of Ahmedabad Tribunal in the case of Sterling Abrasive Ltd dated 23-12-2010 held that the assessee cannot be held to be liable to deduct tax at source relying the subsequent amendments made in the Act with retrospective effect. Further, the Tribunal relied on the legal maxim ‘Lex non cogit ad impossibia’ meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform, and on the decision of Hon'ble Supreme Court in the case of Krishna Swamy S. PD and Another v. UOI and Other (2006) 281 ITR 305 where in the said legal Maxim was accepted by the Hon'ble Court. Thus, Tribunal accordingly held that amount paid by the assessee to SSA was not taxable in India in the hands of SSA either under section 9(1)(vii) as per the legal position prevalent time and the assessee therefore was not liable to deduct tax at source from the said amount paid to SSA and there was no question of disallowing the said amount by invoking section 40(a)(i). In view of above the addition confirmed by the Commissioner (Appeals) was deleted. (A.Y. 2004-05) (ITA nos 12221/ Mum/ 2006 / 579/ Mum/ 2006 Bench “L” dated 29-8-2012)

Channel Guide India Ltd v. ACIT (Mum.) (Trib.)(www.itatonline.org)

436. S.41(1) : Profits chargeable tax –Remission or cessation of liability –Liabilities of four months –

All liabilities were maximum 4 months old, 95% of the unclaimed balances arose only during the last four months it was held that the Assessing Officer was not justified in writing back to the income of the assessee for the same year

Section 41 is applicable in the year in which there was a remission or cessation of a trading liability incurred in an earlier year. It was recorded that all liabilities of the assessee were maximum 4 months old and 95% of the unclaimed balances arose only during the last four months, the Assessing Officer was not justified in writing back to the income of the assessee for the same year. Thus addition was deleted as the department had not brought on record any evidence to establish that there was any remission or cessation of liability. (A.Y. 2005-06)

Dy. CIT v. Bax Global India P. Ltd. (2012) 17 ITR 414 (Delhi) (Trib.)

437. S.41(1) : Profits chargeable tax-Remission or cessation of trading liability – Liability shown in books of account – Even in respect of time barred debts provision of section 41(1) cannot be applied

The Assessing Officer noticed that the liability shown in the balance sheet are more than one year hence brought to tax by applying the provisions of section 41(1) of the Act. In appeal Commissioner of Income-tax (Appeals) also confirmed addition. The Tribunal held that even in respect of time barred debt provision of section 41(1) cannot be applied. On the facts the liabilities were only of one year old therefore addition confirmed by the Commissioner of Income-tax (Appeals) were deleted. (A.Y. 2005-06)

Nitin M. Panchamiya v. Addl. CIT ( 2012) 73 DTR 202/148 TTJ 96 ( Mum.)(Trib.)

438. S.41(1) : Profits chargeable to tax - Remission or cessation of liability of inter-branch transaction blocked accounts to reserves, through P&L a/c, as the primary condition of sum being allowed as deduction in earlier years not fulfilled, hence provisions of section 41 could not be invoked
The amount was lying in the accounts which were known as inter-branch account. It was expected that all these inter-branch accounts should get squared up on consolidation. Due to human error of accounting or lack of proper advice from different branches, the amount in question remained either in debit or credit in different inter-branch accounts and the bank had admittedly not reconciled for over a long period of time. It was held that in case of such sum section 41 could not be invoked as department failed to prove that sum in question forming part of so- called inter-branch transaction was earlier allowed as deduction. (A.Y. 2005-06)

Punjab National Bank v. Addl. CIT (2012) 17 ITR 462 (Delhi)(Trib.)

439. S.43(1) : Definitions – Actual cost—Written down value – Succession of firm by company – Without invoking Explanation 3 to section 43(1) the Assessing Officer cannot replace the actual cost by WDV as appearing in the books of transfer of firm. (S. 47 (xiii))

Partnership firm “Prakash Chemical Agency” has transferred all its assets to Prakash Chemicals Pvt. Ltd. i.e. the assessee. WDV as per the books of account of firm were ` 19,84,311/-. Assessee company had taken over said firm, ‘cost’ in books of account were taken at ` 82,51,157/-. The assessee claimed the depreciation on the “actual cost” on which the assets were acquired by the firm. The Assessing Officer held that the assessee is entitled to claim depreciation on the WDV as shown by the erstwhile firm. In appeal the Commissioner (Appeals) allowed the claim of assessee by observing that in the case of demerger, amalgamation transfer from holding company to subsidiary company the legislature has specifically indicated that the “actual cost” of the transferred capital asset would be the same as WDV in the books of the transferor company. However, in the case of transfer of capital assets of firm to company such a provision is not introduced. On appeal the Tribunal held that the Assessing Officer has not invoked Explanation 3 to S. 43(1) he was not justified to disturb actual cost as recorded in books of account of assessee company on date of its acquisition of assets and liabilities of erstwhile firm. Event otherwise in view of the fact that rest of explanation through which Assessing Officer could have disturbed ‘actual cost’ was not applicable, substitution of ‘actual cost’ as replaced by Assessing Officer for purpose of allowing depreciation was not justified. (A.Ys. 2003-04 to 2005-06)

Dy. CIT v. Prakash Chemical Agencies (P) Ltd ( 2012) 136 ITD 222 / 75 DTR 91 / 148 TTJ 480 (Ahd.) (Trib.)

440. S.43(5)(d) : Definitions – Speculative transaction – Derivative trading in commodity – Recognised stock exchange – Notification treating MCX as “recognised stock exchange” on 22-5-2009 to be treated as retrospective and applying since 1-4-2006.

Proviso to s. 43(5)(d) inserted w.e.f. 1-4-2006 provides that a derivative transaction on a recognized stock exchange shall not be a “speculative transaction”. MCX Stock Exchange was notified as a recognised stock exchange on 22-5-2009. Though the recognition came later, MCX has to be treated as a recognized stock exchange w.e.f. 1-4-2006 because the provisions providing for recognition are purely procedural and will have retrospective effect. (A. Y. 2007-2008)(ITA No. 2742 /Mum/2011 dated 12-9-2012 Bench ‘A’)

ACIT v. Arnav Akshay Mehta (2012) 53 SOT 581 (Mum)(Trib.)

441. S.43(5) : Definitions - Speculative transactions – Actual delivery taken by agent – Purchase and sale of shares by the agent of the assessee, loss on the transaction cannot be held to be speculative

Where the actual delivery of shares was not taken by assessee herself but was given or received by an agent of the assessee, it was held that loss from such transaction was not a speculative loss within the meaning of section 43(5). (A.Y. 2008-09)

Dy. CIT v. S. Thilagavathy (Dr.) (2012) 17 ITR 506 ( Chennai) (Trib.)

442. S.43B : Deduction on actual payment – Disallowance of expenditure on exempt income – DTAA – India- Mauritius- Section 43B & s. 14A disallowance can be made under Article 7(3) of the India-Mauritius DTAA [S. 14A, Article 7(3)]

The Tribunal had to consider two issues: Whether in view of Article 7(3) of the India-Mauritius DTAA, a disallowance u/s 43B and s. 14A was permissible while computing the assessee’s income. Held by the Tribunal:

(i) Article 7(3) of the India-Mauritius DTAA provides that “in determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere”. This is in contrast to the other DTAAs (e.g. India-USA DTAA) which provide that the deduction shall be “in accordance with the provisions of and subject to the limitations of the taxation laws of that State”. As there is no limitation, the result is that all expenses incurred for the purpose of business of the permanent establishment have to be allowed as deduction and no disallowance u/s 43B can be made. Neither Article 3(2) nor Article 23(1) make any difference to this interpretation;

(ii) However, the position with regard to s. 14A is different because unlike other disallowance provisions which disallow deductible expenditure, s. 14A contains a fundamental principle that any expenditure incurred in relation to an income not includible in total income, shall not be allowed as deduction. S. 14A, at the very threshold itself, snatches away the deductibility of expenses incurred in relation to an exempt income. It is not a case that the expenses are otherwise deductible but have become non-deductible due to the operation of s. 14A. Rather, the expenses do not qualify for deduction at the very first instance in accordance with the principle that if an item of income is not chargeable under the Act, the related expenditure has to be ignored. (A.Y. 1999-2000)

State Bank of Mauritius Limited v. Dy. DIT (2012) 190 DTR 675 (Mum.)(Trib).www.itatonline.org) 

443. S.43B : Deduction on actual payment – Service Tax – If liability to pay service tax does not exist, service tax cannot be said to be payable

Rigour of S. 43B cannot be made applicable to service tax as firstly, service provider is never allowed deduction on account of service tax which is collected by it on behalf of government and is paid to government accordingly and secondly, liability to payment arises only after service provider has received payments and if there is no liability to make payments to credit of government because of non receipt of payment from receivers of service, it cannot be said that such service tax has become payable. (A.Y. 2007-08)

Pharma Search v. ACIT (2012) 53 SOT 1 (Mum.) (Trib.)

444. S.43B : Deduction on actual payment – Employees Provident Fund- Before due date of filing of return- Contribution to employees provident fund, having been made before the date of filing of a return the payment was to be allowed as deduction

In the instant case, assessee contended that the assessee’s contribution to the employees provident fund be allowed in view of second proviso to section 43B. It was held that the payment having been made before the date of filing of a return the payment was to be allowed as deduction u/s 43B. (A.Ys. 2001-02, 2002-03 & 2003-04)

KPMG India P. Ltd. v. Dy. CIT (2012) 17 ITR 569 (Mum.)(Trib.)

445. S.44BB : Mineral oils – Computation – Service tax is not part of “Gross Receipts” for purposes of s. 44BB

The assessee offered its income to tax on gross basis under sub-section (1) of section 44BB and 10% of the gross receipts was deemed to be income chargeable to tax. It however did not include the amount in the gross receipts, being the service tax received from its customers, while computing its total income. The Assessing Officer rejected the contention of the assessee and added the amount of service tax by the assessee to its gross receipts to compute its total income. In appeal Commissioner (Appeals) decided the issue in favour of assessee. Revenue has filed appeal before the Tribunal. The Tribunal held that, section 44BB is a special provision, treating 10% of the aggregate amount specified in sub-s. (2) of s. 44BB as deemed profits and gains of the non-resident. The amount referred in sub-s. (2) of s. 44BB are the amounts (a) paid to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India, etc. Service tax is a statutory liability like custom duty and reimbursement of custom duty and service tax paid by the assessee cannot form part of amount for the purpose of deemed profits u/s 44BB as it does not involve any element of profit. Accordingly, it cannot be included in the total receipts for determining the presumptive income. Department appeal was dismissed. (A. Y. 2008-09)(ITA No. 698/Del/2012 Bench ‘E” dated 31-8-2012)

Dy. CIT v. Mitchell Drilling International Pty. Ltd (Delhi)(Trib.) www.itatonline.org

446. S.44BB : Mineral oils – Turnkey project – Installation of platform outside India – Even a “Turnkey” contract has to be split into various components – The work of installation of the platform done inside India does not fall u/s 44BB because the activity cannot be regarded as a “facility in connection with the prospecting for, of extraction or production of, mineral oils

The assessee entered into a contract with ONGC for fabrication and installation of on-shore and off-shore oil facilities and pipelines. The assessee claimed that though the contract was one, it had to be sub-divided into two parts, one for designing, fabrication and supply of material and the other for installation and commissioning of the project. It was claimed that the work relating to the former was carried out exclusively in Abu Dhabi and hence no income relating to receipts for that part of the contract was liable to tax in India as there was no PE in India. The AO and DRP rejected the claim on the basis that (a) the contract was a “turnkey” one where the entire risk of completion and commissioning was on the assessee and it was not divisible into different components, (b) the assessee had a project office in India which was a PE, (c) the assessee had a Dependent Agent PE, (d) there was a “construction and installation PE” under Article 5(2)(h) and (e) ownership of the equipment transferred to ONGC only after issue of the certificate of acceptance of the entire work. It was also held that s. 44BB was not applicable and the profit was estimated at 25% of gross receipts. On appeal by the assessee to the Tribunal Held:

(i) The assessee’s project office in India constituted a PE. It also had a “Dependent Agent PE” and also a “construction and installation PE” under Article 5(2)(h);

(ii) However, though the contract was on a “turnkey” basis, it had to be regarded as an “umbrella contract” and as being a divisible contract because the consideration for various activities has been stated separately. Also, ONGC had the discretion to take only the platform erected by the assessee in Abu Dhabi without having installation thereof. The segregation of the contract revenues into offshore and onshore activities was made at the stage of awarding the contract. The total consideration was earmarked towards different activities and separate payment had to be made on the basis of work of design, engineering, procurement and fabrication. These operations had been carried out and completed outside India. The PE was in respect of the installation and commissioning work done in India and the activities carried outside India were not attributable to the said PE (Hyundai Heavy Industries 291 ITR 482 (SC), Ishikawajma-Harima Heavy Industries 288 ITR 408 (SC) & DCIT v Roxon OY (2006) 103 TTJ 891 (Mum.) followed);

(iii) The work of installation of the platform done inside India does not fall u/s 44BB because the activity cannot be regarded as a “facility in connection with the prospecting for, of extraction or production of, mineral oils”. (A. Y. 2007-2008)

National Petroleum Construction Company v. ADIT (Delhi)(Trib.)www.itatonline.org

447. S.44C : Non-residents – Headoffice expenditure – Laboratory expenses held to be fully allowable.
Laboratory expenditure incurred by the Headoffice for Research and Development, which was attributable to the Indian branch was fully allowable and was not subject to the restriction in section 44C. (A.Y. 1981-82 & 1982-83)

John Wyeth & Brother Limited v. ACIT, Mumbai, ITA No.6772 & 6773/Mum/2002, dt. 25-07-2012, BCAJ Pg.36, Vol 44-A Part 6, September, 2012.(Mum.)(Trib.)

448. S.45 : Capital gains – Distribution of tax free dividend – “sham” transaction or “colourable device” – On facts, the transaction cannot be regarded as a “sham” or a “colourable device” because (a) the WOS had sufficient reserves and cash surplus for the distribution of dividend & (b) the WOS paid dividend distribution tax which was duly accepted in its assessment.

The assessee’s act of getting its wholly owned subsidiary (‘WOS’) to distribute tax-free dividend, and thereby reduce the FMV of the shares of the WOS, just prior to the sale of those shares, did result in a tax advantage to the assessee because it paid lower tax on capital gains. However, the transaction of dividend distribution by the WOS cannot be regarded as a “colourable device” or as an “impermissible tax avoidance scheme”. A transaction can be regarded as a “sham” where “the document is not bona fide nor intended to be acted upon, but is only used as a cloak to conceal a different transaction” or where “it is intended to give to third parties the appearance of creating between the parties legal rights and obligations which are different from the actual legal rights and obligations which the parties intend to create”. On facts, the transaction cannot be regarded as a “sham” or a “colourable device” because (a) the WOS had sufficient reserves and cash surplus for the distribution of dividend &

(b) the WOS paid dividend distribution tax which was duly accepted in its assessment. (A.Y. 2006-07)

ADIT v. Maersk Line UK Ltd (Kol.)(Trib) www.itatonline.org

449. S.45 : Capital gains – Loss on sale of share – Not related to business activity, hence capital loss not to be allowed.

Where loss on sale of shares was not in accordance with the business activity of the assessee, then the capital loss cannot be allowed. (A.Y. 2003-04, 2004-05 & 2006-07)

ACIT v. Lanco Infratech Ltd. (2012) 18 ITR 579 (Hyd.) (Trib.)

450. S.45 : Capital gains – Ownership of land – Firm – Partner – Capital gains assessable in the hands of partner

Assessee-firm had filed its return declaring certain income as long-term capital gains generated out of sale of land. Later on, assessee filed a revised return wherein it was explained that land sold actually belonged to ‘J’ a partner of assessee-firm, and, therefore, long-term capital gain was accountable in his hands. Assessing Officer took a view that capital gain was taxable in hands of Assessee firm and not in hands of ‘J’ as individual on ground that land and buildings were shown in balance-sheet of firm as its assets and assessee-firm had claimed depreciation on buildings. On appeal, it was noted that one ‘JM’had carried on a business – After death of JM, business was carried on by his four sons including ‘J’ by constituting assessee-firm. Land property in question belonging to estate of ‘JM’ was not specifically assigned to partnership firm either by act, deed or conduct as wives of partners were also co-owners. However, same was used by firm for business. Subsequently, at time of dissolution of firm, a release deed was executed whereby land in question came to share of ‘J’ after paying certain amount to other partners. It was thereafter ‘J’ sold land property. Thus on facts, it was apparent that property belonged to ‘J’ in his individual capacity and, therefore, capital gain arising on sale of said property was assessable to tax in his hands and not in hands of assessee-firm. (A.Y. 2007-08)
Dy. CIT v. South India Pulverising Mills (2012) 137 ITD 1(TM) (Chandigarh)(Trib.)

451. S.45 : Capital gains – Short term capital asset – capital gain had to be computed on sale of flats and not on transfer of right of claim in flats [S. 2(42A, 48)]

Assessee owned a land since 1962. It entered into a development agreement on 21-2-2001 with a builder for a consideration of Special Business Matching with Hong Kong Companies
 61 lakh and 55 per cent share in built up area. Assessee was given possession of flats on 24-2-2005. Assessee sold two flats on 10-4-2006 and 12-5-2006 and computed long term capital gain by taking holding period from date of agreement 21-2-2001. Special Business Matching with Hong Kong CompaniesRight of claim in flats’ as per agreement of 2001 was an `asset’, assessee had not sold `right of claim in flats’ but had sold `flats’ of which he was owner. `Right of claim in flats’ no longer subsisted once assessee acquired flats and took possession of same on 24-2-2005. Therefore, capital gain had to be computed on sale of flats and not on transfer of right of claim in flats; and considering dates of possession of flats and sale therefore, gain on sale of flats was short term capital gain. Since assessee along with flats had also sold right of land as owner, which was an independent asset held since 1962, capital gain in respect of transfer of right of assessee in land had to be computed separately as long term capital gains. It would be reasonable to adopt a profit margin of 25 per cent on cost of construction of flats to arrive at sale consideration pertaining to flats and balance sale consideration of flats would be appropriated towards sale price for transfer of right in land. (A.Y. 2007-08)

ACIT v. Jaimal K. Shah (2012) 137 ITD 376 (Mum.) (Trib.)

452. S.45 : Capital gains – Transfer – Development agreement – If developer has taken any steps in relation to construction of flats, on the basis of development agreement, then it has to be considered as transfer and assessee is liable to capital gains tax in the year of transfer. (2(47)(v), 53A, of Transfer of Property Act)

When an owner enters in to an agreement for development of the property and certain rights area assigned to the developer who in turn has made the substantial payment and taken steps to construction of flats, then the transaction held to be transfer under section 2 (47)(v). Legal ownership continued with the owner does not have bearing on taxability of capital gains. Though total profits received in later year for the purpose of capital gains tax the year of transfer is relevant. On the facts of the case the provisions of section 53A of Transfer of Property Act is held to be applicable. (A.Ys. 2002-03 & 2008-09)

ACIT v. A. Rama Reddy (2012) 52 SOT 521 (Hyd.)(Trib.)

453. S.47 : Capital gains – Transaction not regarded as transfer – Amalgamation – Excess value cannot be assessed as business income. [S. 2(27), S. 28(iv)]

During relevant assessment year, a company, SIFL, got amalgamated with assessee-company. Pursuant to amalgamation, assets and liabilities and rights and obligations of SIFL vested with assessee-company and those items had been recorded at their fair values. Excess of fair value of net assets taken over by assessee-company over paid-up value of allotted equity shares worked out to
` 2,899.68 lakhs and the said surplus amount was transferred by assessee to its General Revenue Account. Held that the assessee had acquired business of another company through medium of amalgamation, and in view of provisions of section 47(vi), there was no transfer as such of any capital asset. Therefore, question of taxing capital gains did not arise. (A.Y. 2002-03)

Spencer & Co. Ltd. v. ACIT (2012) 137 ITD 141 (TM)(Chennai)(Trib.)

454. S.48 : Capital gains – Computation – Constructed area – Agreed consideration not being actually received the same cannot be taken into account for the purpose of computation of capital gains.

Agreed consideration in the form of constructed area of land as stated in the development agreement between the assessee-landowner and the developer not having been actually received by the assessee, the same cannot be taken into account for the purpose of computation of capital gain arising from the transfer of the property. (A.Y. 2007-08 )

Chemosyn Ltd. v. ACIT (2012) 149 TTJ 294 (Mum.)(Trib.)

455. S.48 : Capital gains – Computation –Fair market value – Sale consideration – Only sale consideration can be taxed and not the fair market value. [S.56(2)(vii)].

It is the sale consideration which is to be considered for purposes of computing capital gains and not the fair market value. Even by introduction of S. 56(2)(vii) w.e.f. 1st Oct. 2009, it has not been provided that fair market value of the assets as contained in balance sheet of the company should be considered for ascertaining the value of the shares. Assessee held shares in BAPL which were sold to YCL @ ` 100 per share – According to the AO, the assessee sold shares in question to one TS Ltd at ` 318 per share via YCL as a device to avoid tax. In the absence of any evidence that assessee received anything over and above stated consideration, no addition could be made by artificially relating the transaction to purchase of Plot by BAPL. Further, “share” sale is altogether a different transaction than “asset” sale holding period for purposes of long term capital gains in case of shares is one year while in case of assets it is three years similar sale of shares has been assessed as long term capital gains in the hands of other assessed while it is being treated as short term capital gain in the hands of assessee. There is nothing on record with the company which purchased the shares from the assessee company and has passed on money from TS Ltd. to the assessee .Therefore, there was no case of increasing the capital gain when there is no iota of evidence to suggest that the assessee has received consideration over and above the consideration received. (A.Y. 2007-08)

Singhal Credit Management Ltd v. ACIT (2012) 76 DTR 169 (Jaipur) (Trib.)

Singhal Securities (P) Ltd v. ACIT(2012) 76 DTR 169 (Jaipur)(Trib.)

SNR Rubbers (P) Ltd v. ACIT(2012) 76 DTR 169 (Jaipur)(Trib.)

456. S.48 : Capital gains – Computation – Initial public offer – Pre issue expenses borne by promoter and company proportionately – Deduction allowed for expenses necessarily incurred in connection with sale of such shares

The assesse were promoter directors in company R which had gone for initial public offering (IPO) of its shares during the PY. Assessee sold their respective shares in ‘R’ as part of IPO. The pre-issue expenses were borne by ‘R’ and assessee proportionately. It was held that when prospectus itself mentioned that issue expenses were to be borne proportionately by company and selling shareholders, it could not be considered that such expenses were not incurred for purpose of selling shares. Thus, expenses having being incurred for IPO through which assessee were also able to sell their shares, expenses necessarily in connection with sale of such shares and, therefore deduction claimed by assessee was to be allowed. (A.Y. 2007-08)

Usharani Raghunathan (Mrs) v. CIT (2012) 53 SOT 84 (Chennai)(Trib.)

457. S.48 : Capital gains – Cost of improvement – PMS fee – Investment portfolio – PMS fee held to be deductible expenditure. (S.45)

The assessee entered into an investment management (Portfolio Management Scheme) agreement with ENAM AMC pursuant to which it paid Special Business Matching with Hong Kong Companies
 2.11 crores as “performance fees/ maintenance fee”. This was treated as a cost of purchase of the shares. The AO disallowed the claim & the CIT(A) confirmed it on the basis that the as the PMS gains were assessable as “capital gains”, the expenditure was neither cost of investment or improvement nor an expenditure incidental to sale. Before the Tribunal, the assessee relied on its own case (KRA Holding & Trading Pvt. Ltd. vs. DCIT) where it had been held (dissenting from Davendra Kothari 136 TTJ 188 (Mum.)(Trib.) that as there was a nexus between the expenditure and the acquisition of shares, the same was allowable u/s 48. The department relied on Homi K. Bhabha vs. ITO which had (dissenting from KRA Holdings) held that PMS fees is not deductible against capital gains. Held by the Tribunal:

The Mumbai Bench declined to follow the decision of the Pune Bench of the Tribunal. It is the settled proposition of law that when two views are possible on the same issue the view which is favourable to the assessee has to be followed (CIT vs. Vegetable Products (1973) 88 ITR 192 (SC)). Further, as the Tribunal in the assessee’s own case has already taken a view in favour of the assessee, that has to be followed unless it is reversed by a higher court. (A.Y. 2007-08)

KRA Holding & Trading Pvt. Ltd v. Dy. CIT (Pune)(Trib.) www.itatonline.org

458. S.50B : Capital Gains – Slump Sale – Lump – sum compensation received on transfer of business for discontinuance of business – Held to be long term capital gain

The assessee was a proprietor of a going concern engaged in providing consultancy services. The concern was taken over by a company. The assessee received a compensation of Special Business Matching with Hong Kong Companies
 1,20,00,000 for discontinuance of the business. It was held that the lump-sum compensation so received was in nature of long term capital gain chargeable to tax as it was case of transfer of business for lump-sum consideration. The intention of assessee was eloquently clear from the disclosure of accounting policies. (A.Y. 2008-09)

ACIT v. Sangeeta Wij (Smt)(2012) 17 ITR 162 (Delhi)(Trib.)

459. S.50C: Capital gains – Full value of consideration - Stamp valuation – No notice is required to invoke provisions of the said section.

In the instant case, it was held that there was no requirement under the Act for AO to put the assessee on notice before invoking the provisions of section 50C. Further it was also held that where assessee had objected to action of AO in adopting guideline value of property in place of stated consideration in sale deed, AO ought to make a reference to Valuation Officer for valuation of property as per S. 50C(2)(a). (A.Y. 2008-09)

T.V. Nagasena (Smt) v. ITO (2012) 53 SOT 166 (Bang.) (Trib.)

460. S.54 : Capital gains – Property used for residence – Exemption – Booking of the flat with the builder is to be treated as construction of flat and extended period under section 139(4) has to be considered for the purpose of utilisation of capital gain amount. [S. 139(4)]

The assessee sold the property and invested in residential property. The Assessing Officer denied the exemption on the ground that the assessee has failed to deposit the balance amount in the account in any of the specified bank as required under section 54 and utilise the same in accordance with the scheme framed by the Government and could not produce evidence regarding taking possession of the new flat. On appeal Commissioner (Appeals) confirmed the disallowance. On appeal to Tribunal the Tribunal held that the assessee had booked the new flat with the builder and as agreement, the assessee was to make payment by installments and the builder was to hand over the possession of the flat after construction. Based on the circular no 672 dated 16-12-1993 (1994) 205 ITR (St) 47, read with circular no 472 dated 15-10-1986, (1986) 162 ITR (st)17 in the case of the assessee was to be considered as construction of new residential house and purchase of flat. The Tribunal held that in the case of assessee had invested the capital gains in construction of a new residential house within a period of three years, this should be treated as sufficient compliance of section 54 and it was not necessary that the possession of the flat should also be taken within the period of three years. The Tribunal also held that the due date of filing of return of income under section 139(1) has to be construed with respect to the due date of section 139(4) as the section 139(4) provides for the extended period of filing return as an exception to the section 139(1) and considering this there is no default as the entire amount of capital gain had been invested within due date under section 139(4). (A.Y. 2006-07).

Kishore H. Galaya v. ITO (2012) 137 ITD 229 (Mum.) (Trib.)

461. S.54EC : Capital Gains – Investment in bonds – Exemption – Purchase of REC Bond prior to sale of property – Exemption disallowed as the investment was made before the date of transfer.

As per Section 54EC of the Act the investment in specified bond is to be made ‘within specified six months after date of such transfer’. Thus, exemption claimed on the ground that assessee had purchased REC bonds prior to sale of property was disallowed as the investment was made before the date of transfer. (A.Y. 2008-09)

Dakshaben R. Patel (Smt) v. ACIT (2012) 52 SOT 212 (Ahd.) (Trib.)

462. S.54EC : Capital Gains – Investment in bonds – Exemption – Investment out of total capital gains in REC bonds, deduction cannot be denied on the ground that the assessee has availed the exemption u/s 54F also against a part of the capital gain. (S.54F)

As per Section 54EC, expression ‘the whole or any part of capital gains in long term specified assets’ makes it clear that the exemption u/s 54EC is available even when the part of capital gain is invested in specified long term asset. There is no dispute that the assessee has invested out of total capital gain in REC bonds within the prescribed period of time as provided u/s 54EC. Therefore, once the conditions as prescribed u/s 54EC are complied with, then the deduction cannot be denied on the ground that the assessee has availed the exemption u/s 54F also against a part of the capital gain. (A.Y. 2007-08)

ACIT v. Deepak S. Bheda (2012) 52 SOT 327 (Mum.) (Trib.)

463. S.54EC : Capital Gains – Investment in bonds – Exemption-Beneficial owners – Clubbing of income – Separate exemption is available in respect of income clubbed under section 64. (S.64)

The assessee earned long term capital gain on sale of shares. The two children of assessee, being beneficial owners also earned LTCG on sale of beneficial shares. The assessee along with his minor children invested amount of long term capital gain in REC bonds and claimed deduction u/s 54EC. The AO clubbed the income of the minor children in the hands of the assessee but disallowed the claim of deduction on account of minor children. It was held that in case of clubbing of minor/ spouse, all deductions are to be allowed while computing income of minor/spouse and only net taxable to be clubbed u/s 64. Therefore, where income of assessee’s minor children was clubbed with his income, assessee was eligible for deduction u/s 54EC on investment in REC capital gain bonds on account of minor’s income from long-term capital gains separately. (A.Y. 2007-08)

Dy. CIT v. Rajeev Goyal (2012) 52 SOT 335 (Kol.) (Trib.)

464. S.54F : Capital gains – Exemption – Investment in residential house – Purchase of house jointly with spouse is eligible for exemption.

The assessee had made long-term capital gain on sale of shares. The sale proceeds were invested in purchase of row house in the joint names and exemption under section 54F was claimed. The Assessing Officer denied the exemption on the ground that the property was purchased in joint name of wife. In appeal Commissioner(Appeal) confirmed the denial of exemption. On appeal to Tribunal, the Tribunal held that total consideration for the house had been met by the assessee and the name of wife was added only for the sake of convenience. The Tribunal drew support from the section 45 of the Transfer of Property Act which provides that the share in the property will depend on the amount contributed towards the purchase consideration. (A.Y.2004-05)(ITA No. 4285/Mum/2009 dated 6-6-2012. Bench ‘F’)

Vasudeo Pandurang Ginde v. ITO (2012) BCAJ –July –P.57(Mum.)(Trib.)

465. S.54F : Capital Gains – Investment in residential house – Exemption – Investment in four 4 flats – Held that exemption allowed as requirement of assessee family met-out only by enlarging residential unit by merging 4 flats and that too prior to handing over of the possession of said residential unit

The assessee earned capital gain from sale of ancestral property. The assessee claimed exemption u/s 54F in respect of amount invested towards purchase of four flats which were converted into one residential unit. The AO allowed exemption only in respect one flat by holding that flat were separate and independent residential unit having separate kitchen and entrance and thus, according to him flat could not be said as adjacent flats even though builders had referred them as composite unit. It was held by the Tribunal that, if requirement of assessee family was met-out only by enlarging residential unit by merging 4 flats and that too prior to handing over of the possession of said residential unit, then said converted residential unit would be treated as a residential house as stipulated u/s 54F and thus, claim of the assessee was allowed. (A.Y. 2007-08)

ACIT v. Deepak S. Bheda (2012) 52 SOT 327 (Mum.) (Trib.)

466. S.54G : Capital gains – Shifting of industrial undertaking from urban area – Exemption – Investment for the purpose of carrying on business is sufficient compliance, it is not mandatory that the investment in land and building in non-urban area is for the purpose of the business of the industrial undertaking transferred.

The assessee company which was carrying on its business of manufacturing activity at its leased premises leased its premises. The assessee sold its plant and machinery and surrendered the tenancy rights. Part of consideration was invested in Capital Gain Account Scheme and part of amount was invested for purchase of land and building in non-urban area and claimed exemption under section 54G and balance amount was offered to tax. The Assessing Officer held that, the assessee had sold entire plant and machinery in the financial year 1999-2000 and since there was no existence of undertaking when the leased premises which was surrendered on 1-10-2003 claim under section 54G was not available. In appeal the Commissioner (Appeals) has allowed the claim of assessee. On appeal by revenue, the Tribunal held that section 54G(1)(b) merely requires that the acquisition of building or land or construction of building should be for the purpose of its business in such non-urban area. The Tribunal compared the section 54Dand section 54G(1)(a) and held that if the amounts are utilized for acquisition of assets for the purpose of its business , this should qualify for the purpose of exemption under section 54G as there is no requirement that the land and building should be used for the purpose of the business of industrial undertaking. The Tribunal also negatived the contention of revenue that industrial undertaking was ceased to exits in 1999-2000, because the section refers the shifting was ‘in the course of or in consequence of” of such undertaking. Appeal of revenue was dismissed. (A.Y. 2004-05)(ITA NO 4428 /Mum/2008 dated 27-6-2012 Bench ‘J’

Dy. CIT v. Enpro Finance Ltd (2012) 53 SOT 151 / 149 TTJ 546 (Mum.)(Trib.)

467. S.56(2) : Income from other sources – Gifts – Marriage of daughter – Gifts received on the occasion of marriage of daughter, Assessing Officer was justified in including the gifts in the hands of assessee in terms of section 56(2)(vi).

Provisions of section 56(2)(vi) r/w proviso (b) clearly reveal that the provisions of section 56(2)(vi) shall not apply to any sum of money or any property received on the occasion of the marriage of the individual; where the gift cheques were in the name of the assessee and not in the name of the assessee’s daughter, whose marriage was solemnised and the amount of such gifts was credited by the assessee to his bank account. It was held that Assessing Officer was justified in including the gifts in the hands of assessee in terms of Section 56(2)(vi). (A.Y. 2007-08).

Rajinder Mohan Lal v. Dy. CIT (2012) 75 DTR 85 (Chd.) (Trib.)

468. S.56 : Income from other sources – Interest on income tax refund – Business income – Income tax refund is assessable income from other sources. (S.28 (i))

The Tribunal held that interest on refund of Income-tax is assessable as income from other sources and not as business income.(A.Y. 2003-04)

Kotak Mahindra Capital Co Ltd v. ACIT ( 2012) 18 ITR 213 (SB) (Mum.) (Trib.)

469. S. 68 : Cash credits – Bank pass book-Income from undisclosed source- Addition held to be justified as the bank has acknowledged that assessee has an asset in the form of credit in the pass book. (S. 69 )

The amount was credited in the pass book of assessee. The Judicial member held that as the amount was credited in the pass book maintained by Bank hence provision of section 68 is not applicable. As there was difference of opinion the matter was referred to third member. The third member held that it cannot be said that assessee has not maintaining books of account in respect of passbook entries pertaining in her individual bank, hence the addition was held to be justified. The third member also held that addition is also justified under section 69, as the assessee has not proved that the source of gift in her bank account and the bank has acknowledged that assessee has an asset credited in bank account of assessee. (A.Y. 2003-04)

Renu Agarawal (Smt) v. ITO ( 2012) 148 TTJ 169/75 DTR 48 (TM ) (Agra) (Trib.)

470. S.68: Cash credits – Credit worthiness of creditor and genuineness of transaction proved, all documents produced, no addition warranted

The assessee received loan amount through cheques from two persons. It was held that no addition u/s 68 can be made where the assessee has proved the credit worthiness of the creditor and genuineness of the transaction by producing copy of PAN, copy of ration card, copies of Income-tax returns and return of wealth tax. (A.Y. 2003-04 & 2004-05)

Abhik Jain v. ITO (2012) 18 ITR 497 (Delhi)(Trib.)

471. S.68: Cash credits – Gift received from non – relative – No occasion of gift and no reciprocity of gift, hence addition sustained.

The assessee, in the instant case received certain amount as gift. The Tribunal confirmed the addition made u/s 68 on the ground that the assessee had received a gift from a person who was not related to the assessee. There was no occasion for the gift whatsoever and there was no reciprocity of gifts between the donor and the assessee. (A.Y.2002-03)

Saroj Bala v. ITO (2012) 18 ITR 411 (Delhi)(Trib.)

472 S.68 : Cash Credits – undisclosed income – burden on department to show that the investment made by the subscribers actually emanated from the coffers of the assessee

Where the assessee discharged the onus by establishing the identity of the shareholder and along with the nature and source of the money. The assessee also filed the confirmation letter, also it was accepted by the AO in the assessment order that identity of share applicant was not in doubt. Thus addition under the said provision was deleted relying on the judicial pronouncement that the department must show that the investment made by the subscribers actually emanated from the coffers of the assessee and then to be treated as undisclosed income u/s 68. (A.Y. 2006-07)

ACIT v. ETC Industries Ltd. (2012) 52 SOT 159 (Indore)(Trib.)

473. S.68 : Cash Credits – loan received from directors – No addition where assessee proved the identity as well as credit worthiness of the lenders who are its directors

The assessee received loans during the year from three directors. AO though treated majority of loans as genuine, but made part addition of part amount as these amounts are deposited in cash in bank account of creditors. It was held that the assessee having proved the identity as well as credit worthiness of the lenders who are its directors, addition u/s 68 could not be made in respect of part of the deposits simply because cash deposit of similar amounts were made in the accounts of the lenders. (2003-04)

Moongipa Investment Ltd. v. ITO (2012) 147 TTJ 378 (Delhi)(Trib.)

474. S.68 : Cash credits – Loans – PAN – Lender assessed to tax and confirmation is filed addition is held not justified.

Assessing Officer treated cash credits in name of one ‘G’ as unexplained cash credits. Commissioner (Appeals) deleted addition on grounds that ‘G’ had furnished required certificate before Assessing Officer and latter did not consider same, that ‘G’ was assessed to income-tax and that he had confirmed loan granted to assessee and quoted his PAN number. Since Commissioner (Appeals) had decided issue on foundation of requisite material on record, he was justified in his action. (A. Y. 2006-07)

ITO v. Bhagwan Dass,[2012] 137 ITD 120/17 ITR 446 (Chandigarh)(Trib.)

475. S.68 : Cash credits – Loans – Account payee cheque – Assessee need not prove the source of source.

Assessee-firm was engaged in business of manufacture of sugar. During previous year, it obtained loans from parties by means of cheques. Assessing Officer accepted part of loans and treated balance amount as unexplained cash credits and added same to income of assessee. Record showed that creditors had explained sources of their deposits in bank. No material was brought on record by Assessing Officer to show that assessee had any other source of income which could have been routed in form of loan given by a third party. On other hand interest payable by assessee on said loans was allowed by Assessing Officer. Held that since initial onus placed upon assessee stood discharged and there was no material to prove that sources explained by creditors were not genuine. Assessing Officer was not justified in calling upon assessee to prove source of source. Therefore, impugned addition made under section 68 was liable to be deleted. (A. Y. 2005-06)

Dwarikadhish Sugar Industries v. ITO [2012] 137 ITD 200 (TM)(Lucknow)(Trib.)

476. S.68 : Cash credits – Loans –Examination of creditors – Addition made on assumption without examining the creditors is held to be not justified.

Assessee received unsecured loans from three parties through account payee cheques. Assessee proved identity, genuineness of transactions and also credit worthiness of creditors by producing their respective bank accounts. Assessing Officer did not examine creditors and made addition on assumption that they would not have saved any money to advance loans. Held that, the Assessing Officer should not have come to any conclusion without examining the cash creditors. The assessee cannot be aware of the source of creditors, which would be within the personal knowledge of the creditors. Mere doubt with regard to the credit worthiness should not automatically reflect in disbelieving the case of the assessee to make addition under section 68 without showing that the assessee would have earned more income from any specific source, in the light of the expression may’ used in section 68. In the instant case, the Assessing Officer examined the books of account of the assessee but did not make any comment on possibility of earning of any additional income from trading business or from any other source and, thus, addition cannot be made in a routine manner. (A.Y. 2006-07)

Vishnu Jaiswal v. CIT(A)-I(2012) 137 ITD 259(TM) (Lucknow)(Trib.)

477. S.69A : Unexplained money – Income deemed to accrue or arise in India – Jewellery – Amount invested in jewellery from non taxable funds cannot be assessed as income from undisclosed source (S.9)

The assessee is non-resident and was living in Singapore. He has earned income which are not taxable in India. The assessee spent from non-taxable funds for gifting jewellery to his family members hence addition could not be made as unexplained jewellery in hands of assessee (A.Ys. 2004-05 to 2009-10)

Jt. CIT v. V. Deenadayalavel (2012) 52 SOT 511 (Chennai) (Trib.)

478. S. 69A : Unexplained money – Survey – Statement – Retraction – Addition made on the basis of purchaser which was retracted latter, addition was deleted. (S. 133A)

A survey was conducted at the premises of the assessee firm, which was engaged in the construction of flats. In the course of the survey conducted in assessee’s case, one of the purchasers of the flat made a statement that he had paid certain amount to assessee over and above the amount mentioned in the sale deed. On basis of the said statement, Assessing Officer made addition to assessee’s income. Later on, the same purchaser of flat retracted from his aforesaid statement in course of the cross examination and revenue failed to bring on record any evidence showing that any amount in excess of sale deed have been paid on assessee firm. In view of the aforesaid fact the impugned addition made by the A.O. under section 69A of the Act was deleted by the e Tribunal. (A.Y. 2004-05)

Rajdeep Builders v. ACIT (2012) 52 SOT 62 (Chd.)(Trib.)

479. S.69 : Unexplained investments – Payment of on-money for purchase of property - Handwritten loose document found at the premises of a third party does not bear the date of the alleged payments and the name of the assessee hence no addition is to be made.

Handwritten loose document found at the premises of a third party which does not bear the date of the alleged payments and the name of the assessee cannot be the basis for making addition on account of payment of on-money for purchase of property in the absence of any corroborative material to suggest that the assessee has actually paid on-money. (A.Y. 2003-04)

K.V Lakshmi Savitri Devi(Smt) v. ACIT (2012) 148 TTJ 517 (Hyd.)(Trib.)

480. S.69 : Unexplained investments – Money received under Will – Genuineness of Will cannot be doubted when direct evidence available, addition deleted.

In the instant case, the assessee received money from father in law under a will. The AO made an addition doubting the genuineness of the Will. It was held that when direct evidence is available on Will, issue could not be decided on assumption without contradicting on record. Thus, addition was deleted. (A.Y. 1996-97 to 2001-02)

Rama Yadav v. ACIT (2012) 53 SOT 22 (Delhi.) (Trib.)

481. S.74: Losses – Capital gains – Carry forward and set off-Option to set off – Right to set-off capital loss is a “vested right” not affected by amendment.

In A.Y. 2003-04, the assessee earned short-term capital gains (“STCG”) of Rs. 2.21 crores and set it off against the long-term capital loss (“LTCL”) relating to A.Y. 2001-02. S. 74 was amended w.e.f. A.Y. 2003-04 to provide that brought forward LTCL could only be set-off against LTCG and not against STCG. The assessee claimed, relying on CIT v Shah Sadiq & Sons (1987) 166 ITR 102 (SC) that the amendment to s. 74 w.e.f. A.Y. 2003-04 did not affect the assessee’s vested right in A.Y. 2001-02 to have the LTCL set-off against the STCG. The AO & CIT(A) relied on Reliance Jute Industries v. CIT (1979) 120 ITR 921 (SC) where it was held that the assessment for one A.Y. cannot be affected by the law in force in another A.Y. and that the law prevailing in A.Y. 2003-04 alone had to be considered. On appeal to the Tribunal, the issue was referred to a Special Bench. Held by the Special Bench:

(i) S. 74(1), as substituted w.e.f. 01.04.2003, uses the present tense and refers to the long-term capital loss of the current year. It applies to the long-term capital loss of A.Y. 2003-04 onwards and not to the long-term capital loss relating to the period prior to A.Y. 2003-04. The set-off of long-term capital loss relating to a period prior to A.Y. 2003-04 is governed by s. 74(1) as it stood in that A.Y.;
(ii) The assessee’s contention, relying on Shah Sadiq, that it had a “vested right” in A.Y. 2001-02 to carry forward the LTCL & set it off against the STCG and that this right cannot be defeated without express language in the statute is also acceptable. In Govinddas and Others(1976)103 ITR 123 (SC) it was held that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right otherwise than as regards the matters of procedure (Reliance Jute Industries v CIT (1979)120 ITR 921 (SC) distinguished; CIT v SSC Shoes (2003) 259 ITR 674 (Mad) followed; Geetanjali Trading (ITAT Mumbai) approved)(A.Y. 2003-04)

Kotak Mahindra Capital Co. Ltd. v. ACIT (2012) 18 ITR 213(SB)(Mum.)(Trib.)

482. S.80G : Deduction – Charitable institution – Renewal of registration - No material brought, suggesting non-fulfillment of conditions stipulated u/s 80G(5) and rule 11AA, hence renewal of registration not to be denied.(S.11AA,12A,)

Where the registration granted to the assessee u/s 12A is subsisting and no material has been brought suggesting that the assessee society did not fulfill the conditions stipulated u/s 80G(5) and rule 11AA, therefore CIT was not justified in denying renewal of approval u/s 80G(5)(vi).

Late Shiv Shankar Memorial Education Society v. CIT (2012)147 TTJ 753 (Delhi)(Trib.)

483. S.80G : Deduction – Donation –Charitable institution- Object of trust purely religious and linked to Hindu religious community, held not entitled to renewal of approval u/s. 80G.

Assessee was a trust for a temple with a deity which was confined only to a particular community for worship. Trust deed provided that income from trust property was to be applied in maintenance and repair of temple property, for worship of deity and in defraying of usual expense of holding festivals of deity. It was held that since objects of assessee trust were purely religious in nature, inextricably linked to Hindu religious community, it was not entitled to renewal of approval u/s. 80G.

Ramanujam Spiritual Public Charitable Trust v. CIT (2012) 138 ITD 81 (TM )(Amritsar) (Trib.)

484. S.80G : Deduction – Donation- Charitable institutions – Approval granted shall continue

Assessee filed its application for renewal of exemption under section 80G on 27-12-2010. Subsequently, assessee vide its application dated 4-2-2011, requested Commissioner to treat application filed for renewal of exemption under section 80G as withdrawn. Commissioner (Appeals) however rejected assessee’s request, held that exemption under section 80G could not be allowed to assessee society. On appeal, assessee submitted that in view of omission of proviso to section 80G(5)(vi) by Finance (No. 2) Act, 2009, approval once granted shall continue to be valid in perpetuity and even if assessee by ignorance or inadvertently filed an application for renewal, Commissioner was required to decide same in accordance with amended provisions. The Tribunal held that, the approval under section 80G(5) already granted to assessee would continue unless and until concerned authority takes appropriate action in accordance with law. Hence, the impugned order passed by Commissioner (Appeals) was set aside.

Association for Advocacy and Legal Initiatives v. CIT (2011) 130 ITD 573 (Luck.) followed. (A.Y.2011-2012)

Vishav Namdhari Sangatv v. ACIT (2012) 137 ITD 74 (Chandigarh)(Trib.)

485. S.80G : Deduction – Donation – Charitable purpose – Registration of Trust – When a particular one clause could not be acted upon, then mere incorporation of the clause in the trust deed would be of no consequence as far as registration u/s 80G (5) is concerned [S. 12A and 10 (23C)]

In the instant case, a clause in the trust deed empowered the trustees to invest in the properties. It was held that where merely if a provision had been incorporated in the Trust Deed, but by reading of all the clauses together, it is evident that the clause could not be acted upon, mere incorporation of the clause in the trust deed would be of no consequence as far as registration u/s 80G(5) is concerned. Therefore, considering all the clauses together, it was evident that the true import of the trust deed was to carry out its activity subject to restrictions laid down under the Act. Since the assessee’s trust was registered u/s 12A as well as under section 10(23C) there could not be any dispute that the trust was established for charitable purposes. In any event the trust deed had also been amended. The assessee trust was entitled to registration u/s 80G.

NSHM Academy v. CIT (2012) 18 ITR 244 (Kol.)(Trib.)

486. S.80G : Deduction – Donation-Charitable purpose – Renewal of registration - Registration of institution u/s 12A by itself a sufficient proof that the institution concerned is created for charitable purpose/ purpose of general public utility, hence, registration could not be denied. (S.2(15), 12A)

The assessee society was registered Societies Registration Act, 1860 and was granted registration u/s 12A of the Act. It was granted exemption certificate u/s 80G(5)(vi) which was renewed for A.Y. 2007-08 and 2009-10. However, Director (exemption) rejected the application filed by assessee in Form 10G on the ground that the activities were beneficial to manufacturers only and not covered u/s 2(15) of the Act. It was held by the Tribunal that the registration of institution u/s 12A by itself was a sufficient proof of the fact that the trust or institution concerned was created or established for charitable purpose or a purpose of general public utility and it enjoys approval u/s 80G. Renewal of registration u/s 80G(5)(vi) had been granted for earlier years and there being no change in the facts and circumstances of the year for which renewal was sought for, there was no justification to reject assessee’s application for renewal of exemption certificate u/s 80G(5)(vi) of the A.Y. 2010-11 onwards.

Bengal Hosiery Manufacturers Assn. v. DIT (2012) 18 ITR 205 (Kol.)(Trib.)

487. S.80HHC : Deduction – Export Business – Direct cost - Direct cost in respect of goods exported but sales proceeds not been brought in India within specified period, cannot be reduced while computing deduction.

Direct cost incurred in respect of goods which have been exported but sales proceeds have not been brought in India within specified period, cannot be reduced while computing deduction u/s 80HHC. The appeal of revenue was allowed. (A.Ys. 1998-99 & 1999-2000)

Dy. CIT v. Sandoz (P.) Ltd. (2012) 137 ITD 326 (Mum.)(Trib)

488. S.80HHC : Deduction – Export business-Turnover - Export house - Held cannot be considered as turnover of assessee.

Exports through export houses cannot be treated as export turnover of the assessee for the purpose of second proviso to section 80HHC(3); since the export turnover of the assessee from direct exports is less than ` 10 crores, it is entitled to benefit of second proviso to S. 80HHC(3). (A.Y. 2001-02)
Baby Marine Products v. ACIT (2012) 147 TTJ 385 / 73 DTR 169 (TM)(Cochin)(Trib.)

489. S. 80HHF : Deduction – Export or transfer of film software - Computation – Deduction cannot be allowed under both the sections. (S. 10B)

Assessee is not entitled to exemption under section 10B as well as deduction under section 80HHF as both the sections prohibit to allow deduction other than allowable under the respective sections. (A.Y. 2001-02)

ACIT v. Sri Adhikari Brothers Television Network Ltd. (2012) 149 TTJ 324 (Mum.)(Trib.)

490. S.80HHF : Deduction - Export or transfer of film software - EOU- Deduction is not available in both the sections. (S. 10B)

Assessee set up an EOU unit. It claimed deduction u/s 10B. With regard to its other businesses it claimed deduction under section 80HHF. While computing deduction u/s 80HHF it included export profit of EOU. The Commissioner (Appeals), however, reduced profit derived from EOU on ground that profit derived by EOU was exempt from tax under section 10B. The Tribunal held that the express intention of Legislature with regard to sections 10B and 80HHF is not to allow deduction under both sections and further, both of said sections expressly prohibits to allow deduction other than allowable under respective sections. Therefore, order of Commissioner (Appeals) was confirmed (A.Y. 2001-02)
ACIT v. Sri Adhikari Brothers Television Network Ltd. (2012) 137 ITD 154 (Mum.)(Trib.)

491. S.80IA : Deductions-Industrial undertakings - Infrastructure development - Profit earned from related parties more in relation to unrelated parties, allowance of deduction u/s 80IB not to be restricted to same proportion at which profit was derived from unrelated parties – working of deduction to be made on individual basis and not on an average basis. (S.80IB)

The assessee company was engaged in the business of generation and distribution of power. The assessee claimed deduction u/s 80IA. The AO by invoking Section 80IA(10) restricted the allowance of deduction by determining the difference between the average price at which power was sold to sister concern and to other related parties. It was held that this section does not provide that if assessee earns more profit from related parties in relation to unrelated parties, then allowance of deduction u/s 80IB is to be restricted to same proportion at which profit was derived from unrelated parties, even in circumstances where profits derived from related parties were such that it could be expected to arise to such eligible business as ordinary profit. It was further held that working for provisions of section 80IA(10) has to be made on individual basis and not on an average basis. (A.Y. 2008-09)

OPG Energy (P.) Ltd. v. Dy. CIT (2012) 52 SOT 321 (Chennai) (Trib.)

492. S.80IB(10) : Deduction – Undertaking-Developing and building – Housing project – Cap on commercial area inserted w.e.f. A.Y. 2005-06 applies to projects approved earlier.

Though the assessee’s project, when it was commenced in the year 2003, was in compliance with S. 80-IB(10) as it then stood, the law prevailing in the year of completion of the project has to be seen. As the Project breached the ceiling of maximum commercial area imposed by s. 80-IB(10)(d) inserted w.e.f. 1.4.2005 (lesser of 2000 sq. ft or 5% of aggregate BU area), the assessee is not eligible for s. 80-IB(10) relief (Saroj Sales Corp vs. ITO (2008)115 TTJ 485(Mum) not followed; CIT v Brahma Associates (2011) 333 ITR 289 (Bom) & Reliance Jute & Industries Ltd. (1979) 120 ITR 921 (SC) referred) (A.Y. 2006-2007)(ITA no 7021/Mum/2008 dated 12-9-2012)

ITO v. Everest Home Construction (Mum.)(Trib.) www.itatonline.org

Editorial – The view of Tribunal is contrary to the view of Gujarat High Court in Manan Corporation v. ACIT www.itatonline.org.

493. S.80IB(10) : Deduction – Undertaking- Development and construction - Housing project - Charitable institution - Held income derived from business cannot be considered as income derived from property held for charitable purpose, hence deduction to be allowed u/s. 80IB(10) (S. 11,12A, 13 and 263)

The assessee was a charitable institution registered u/s 12A. The assessee trust was engaged in the business of construction and earned profits out of it. The assessee claimed deduction u/s 80IB(10). It was held that the income derived from business cannot be considered as income derived from property held for charitable purpose i.e. it will no longer be income within meaning of section 11(1)(a ) and said income will form part of total income under Act and assessee would be entitled to deduction u/s 80IB (10). (A.Y. 2009-10)

India Heritage Foundation v. Dy.DIT (2012) 138 ITD 28 (Bang.)(Trib.)

494. S.80-IB(10) : Deduction – Undertaking - Development and construction - Housing project - Entitled for benefit under section 80-IB(10) in respect of flats completed before prescribed limit even though the housing project was not completed in time due to reasons beyond control.

The assessee was entitled for benefit under section 80-IB(10) in respect of flats completed before prescribed limit even though the housing project was not completed in time due to reasons beyond control.

Ramsukh Properties v. Dy. CIT (2012) 138 ITD 278 (Pune)(Trib.)

495. S.80IB : Deduction – Industrial undertakings – Investment in fixed asset exceeding prescribed limit, provision of s. 80IB (2)(iii) is not complied, hence deduction not allowed.

The assessee made investment in fixed asset in plant & machinery exceeding prescribed limit. Deduction could not be allowed where the assessee was not considered a small scale industrial undertaking u/s 11B of Industrial (Development & Regulations) Act, 1951 thereby not complying the provisions of Section 80IB (2)(iii). (A.Y. 2008-09)

Sawaria Pipes Ltd. v. ACIT (2012) 18 ITR 573 (Hyd.)(Trib.)

496. S.80P(2) : Deduction – Co-operative societies - Primary co-operative Bank - Deduction is allowable if provision of section 80P(4) is not applicable.

If the provisions of section 80P(4) are not applicable to the assessee co-op. society and if the assessee cannot be regarded to be a primary co-op. bank as defined in section 5(ccv) of the Banking Regulation Act, 1949, the assessee is entitled for the deduction under section 80P(2)(a)(i). (A.Ys. 2007-08 to 2009-2010)

Dy. CIT v. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. (2012) 149 TTJ 356 (Panaji)(Trib.)

497. S.80P : Deduction – Co-operative societies – Banking Regulation Act, 1949 - Primary business is not banking hence not entitled to deduction.

Assessee was a society engaged in business of providing credit facilities to its members by granting loans for purposes like business, housing, vehicles, etc. Deduction u/s 80P was denied by Assessee Officer in view of amendment brought into section 80P whereby co-operative banks were excluded from purview of section 80P with effect from 1-4-2007. The Tribunal held that on facts, none of assessee’s aims and objects allowed assessee to accept deposits of money from public for purpose of lending or investment, hence it could not be said that principal business of assessee was banking business. Therefore, assessee could not be regarded as a primary co-operative bank and, hence, was entitled to deduction under section 80P(2)(a)(i). (A. Ys. 2007-08 to 2009-10)

Dy. CIT v. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. [2012] 137 ITD 163 (Panaji)(Trib.)

498. S.90 : Double taxation relief - Fees for Technical Services – DTAA – India – Singapore – Amount received for rendering technical services. (Art.5.6)

The assessee, a Singaporean company received an amount for technical service rendered to it by its wholly owned Indian subsidiary, which constitutes service PE of the assessee within the meaning of Art 5.6(b) of the Indo-Singapore DTAA, is assessable under Article 7 of DTAA by virtue of para 6 of art. 12. (A.Y. 2003-04 & 2004-05)

Addl. DIT (IT) v. Bunge Agribusiness Singapore Pte. Ltd. (2012) 147 TTJ 507 (Mum.)(Trib)

499. S.90 : Double taxation relief – Loss on sale of shares – Set of DTAA – India – Assessing Officer cannot thrust the provisions of the Double taxation avoidance agreement on an assessee, who has chosen to be governed by the Income-tax Act. Assessee is entitled to set off loss under “Profits and gains of business or profession” against “Income from other sources”. (S.71, Art. 7)

Assessee, a non-resident disclosed a loss on sale of shares falling under the head ‘Profits and Gains of Business and Profession’ and claimed a set-off of such loss against income under ‘Income from other sources’. The assessee did not have a PE in India and chose to be governed by Income Tax Act and not by DTAA. However, the AO superimposed his choice on the assessee considering the case to be under DTAA and holding that since the assessee had no PE in India, there could be no business loss available for set off. However, it was held that the view of the AO ran contrary to the manifest prescription of section 90(2) which in unequivocal terms provides that the provisions of DTAA would apply to the extent they are beneficial to assessee. When assessee chose to be governed by the provisions of the Act and not the DTAA by not claiming to have any PE in India or to be regulated by Art 7 read with Art 5, the AO was not justified in directing that the business loss should be considered under the provisions of DTAA and not the Act. Hence, the loss is allowed to be set-off. (A.Y. 2003-04)

Prudential Assurance Co. Ltd. v. ADIT (2012) 18 ITR 186 (Mum.)(Trib.)

500. S. 92C : Avoidance of tax – Transfer pricing - Arms’ length price – Choice of method and profit level indicator (‘PLI’) – Functional Asset Risk (FAR) – On the facts of the case the appropriate PLI will be the net profit /total cost and not the % of FOB value of goods sourced by AE.

The assessee is a wholly owned subsidiary of GAP International Sourcing Inc, USA. The business activities of the assessee is to facilitate sourcing of apparel merchandise from India for the GAP group. Earlier years similar services were provided by a liasoning office, after incorporation as wholly owned subsidiary similar services are rendered by the assessee. Earlier liasoning office was remunerated at cost +15% for these services. The assessee filed its TP report claiming Transactional Net Margin Method (TNMM) with cost plus 15% remuneration to be most appropriate method for determination of arms length price (“ALP”). The TPO looking at the FAR and other factors rejected the assessee’ s claim cost plus 15% ALP and held that commission at 5% of the FOB value of goods by the foreign enterprise through Indian Vendors was the most appropriate PLI for determining ALP. Before the DRP it was submitted that assessees, primary business activity comprised identification of vendors, provision of assistance to vendors in procurement of law material, inspection and quality control and co-ordination with vendors to ensure delivery of goods to GAP Group as per schedule supplied by GAP. However DRP has accepted the report of TPO. The main issue before the Tribunal was whether PLI based on cost plus mark up or 5% of commission on FOB value of goods facilitated by the assessee for out sourcing is the most appropriate in given circumstances. After considering the submissions the Tribunal held that:

(i) The FAR, analysis gives the basis of broad characterization for e.g. Manufacture, service provider, distributor, etc with a further sub- characterization including low risk service provider; fullfledged manufacturer, contract manufacturer, etc. These characterisation are vitally important to determine the arm’s length price of international transactions;

(ii) The department has to proceeded on the erroneous premises is a risk bearing AE and its functions are not in the nature of a service provider only. The FAR attributable to assessee are far greater than what are claimed. It is also assumed that the assessee has developed substantial intangibles in the form of human resources and supply chain and enjoys location advantages. The fact is that the assessee is only a low risk procurement support service provider;

(iii) The arm’s length pricing (method and profit level indicator (PLI) should be the one which reflects commercial and economic realities of the industry and does not lead to absurd and distorted results. The appropriate PLI is the net profit/ total cost as adopted by the assessee.

(iv) On the question of percentage mark up to be applied to the assessee’s cost , in comparable instances of Li & Fung India Pvt Ltd v. DCIT (2010) 12 ITR 748 (Delhi) (Trib.), the rate of 32% was applied as opposed to the rate of 15% applied by the assessee

The Tribunal accordingly held that non risk bearing procurement facilitating functions which are preordained by contract and hand book, the appropriate PLI will be the net profit /total cost and not the % of FOB value of goods sourced by AE. Accordingly the Tribunal upheld the net profit /total remuneration model adopted by the assessee. For determination of cost plus remuneration method the Tribunal, on the facts of the case held as under “In view of the foregoing we have no hesitation to accept candid proposal given by the assessee and hold that assessee TP adjustments be made by adopting the 32% cost plus mark up of the assessee for the Asst years 2006-07 & 2007-08. The mark up proposal of assessee is higher than mark up proposal over total cost earned by all comparables placed on record. The assessments should be framed accordingly. We may hasten to add that this mark we will be subjected to variation in subsequent years if the facts and circumstances of the case so warrant”. The appeal of assessee was partly allowed. (A.Y. 2006-07 & 2007-08)

GAP International Sourcing (India) Pvt Ltd v. ACIT (2012) 149 TTJ 437 / 77 DTR 185 (Delhi) (Trib.)
501. S.92C : Avoidance of tax – Transfer pricing – Arms’ length price-Comparables - Matter remanded to decide fresh.

Assessee-company was mainly engaged in providing various kinds of software and services for Internet Protocol, wire line, mobility and cable networks, helping various communications companies. For providing said services, assessee earned a compensation which equalled to its total operating cost of providing services plus a mark-up of 15 per cent. For establishing arm’s length price relating to software development and related services, assessee adopted ‘Transaction Net Margin Method’ (TNMM) as most appropriate method. As per assessee’s TP report it had identified 18 comparable companies engaged in software development services. During transfer pricing proceedings, TPO rejected most of comparables selected by assessee and adopted some fresh comparables. Based on comparables selected by TPO, certain adjustment was made to ALP determined by assessee. DRP rejected various objections raised by assessee. On appeal, it was noted that some of comparables were rightly selected by TPO whereas objections were rightly raised by assessee in respect of some of comparables. On facts, matter was to be remanded back to Assessing Officer for determining arm’s length price afresh after taking into consideration arithmetic mean of profit ratio of all finally tested comparables. (A. Y. 2007-08)

Telcordia Technologies India (P.) Ltd. v. ACIT (2012) 137 ITD 1 (Mum.)(Trib.)

502. S.92C : Avoidance of tax – Transfer pricing – Arm’s length price-Controlled transaction – A “controlled transaction” can never be regarded as “comparable” even if at ALP.

In determining the comparable parties for purposes of TNMM, the TPO selected a wholly owned subsidiary of the assessee called ICB Contractors India Pvt Ltd (“ICB”) even though there were related party transactions between ICB and another AE called JTS Contracting Co. Malta. The TPO justified the selection on the ground that the transactions between ICB and the AE were at arms’ length and so the distinction between controlled and uncontrolled transactions stood obliterated. In appeal before the Tribunal, the AM held that as there were controlled transactions between ICB and the AE, ICB could not be taken as a comparable party. However, the JM took the view as the transactions entered into by ICB was found to be at arm’s length, it was an internal comparable which could not be ignored. The Third Member had to consider whether “the net margin realized from a transaction with an AE found and accepted at ALP could be taken as a comparable being an internal comparable for computation of ALP an international transaction with another AE?” Held by the Third Member:

The entire scheme in the Act & Rules for determining the ALP of an international transaction is based on making comparison with certain comparable uncontrolled transactions. The various methods prescribed for determining ALP clearly divulge that the comparison is always sought to be made of the assessee’s international transactions with comparable ‘uncontrolled transactions’. An ‘uncontrolled transaction‘is defined under Rule 10A(a) to mean ‘a transaction between enterprises other than associated enterprises whether resident or non-resident‘. A transaction between two associated enterprises goes out of the ambit of ‘uncontrolled transaction’ under Rule l0A. There is no statutory sanction for roping in a comparable controlled transaction for the purposes of benchmarking. If the view that a controlled transaction should not be shunted out for the purposes of benchmarking, is accepted, then all the relevant provisions contained in Chapter X in this regard, will become otiose. The argument that once controlled transactions are verified by the TPO and found at ALP, then the difference between controlled and uncontrolled transactions is obliterated cannot be accepted because it is possible that higher/lower prices for India may have been charged to reduce the overall incidence of tax. The TPO may accept that the transaction does not require adjustment if it benefits India even though the transaction may not be at ALP and cannot be used as a benchmark for purposes of making comparison in other cases. That is why the legislature has ignored controlled transactions, even though at ALP, and restricted the ambit only to uncontrolled transactions for computing ALP in respect of international transactions between two AEs. (A Y 2005-06)

Tecnimont ICB Private Limited v. ACIT (2012) 138 ITD 23 / 75 DTR 259 (TM)(Mum.)(Trib.) www.itatonline.org

503. S.92C : Avoidance of tax – Transfer pricing – Arm’s length price – Comparables – TNMM – Subsequent year TPO has accepted the operating margin method can be the sole basis to apply profit margin method for the relevant year.

The Assessee in its transfer pricing report has accepted the TNMM as most appropriate method after intensive search of comparable companies. The contention of the assessee that operating profit shown should be accepted solely on the ground that in subsequent years the TPO has accepted the operating margin, cannot be accepted. The Tribunal directed TPO to work out the operating profit of comparable cases with certain specified adjustments and take their arithmetic mean for determining the ALP of the international transactions of the assessee company. TPO will restrict the adjustments to the transactions with the AEs only and not whole of the transactions/turnover. Further, while arriving at the arithmetic mean of the operating profit of the comparable companies, if the difference is less then +/- 5 percent as given in section 92C(2), then the benefit of the section 92C (2) should be given according to law. Revenues appeal was partly allowed. (A.Y. 2002-03)

Dy.CIT v. Firmenich Aromatics (I) Ltd (2012) 75 DTR 33 (Mum,)(Trib,)

504. S.92C : Avoidance of tax-Transfer pricing-Arms’ length price – Cup – TNMM – Weighted average - Broking and trading in shares – For comparability analysis, the comparable uncontrolled method (CUP) is better than the TNMM, especially if internal CUP instances are available.

Assessee is in the business of broking and trading in shares. It provided the stock broking services in respect clearing house trade to its Associated Enterprises. The TPO applied the CUP method for comparability analysis. The Assessee contended that the TNMM method is most appropriate. Without prejudice if CUP method is adopted certain adjustments have to be made as per Rule 10B(1)(a)(ii).

The Tribunal held that,

(i) For comparability analysis, the comparable uncontrolled method (CUP) is better than the TNMM, especially if internal CUP instances are available;

(ii) The assessee’s argument that “weighted average arithmetic mean’ of brokerage rates as compared to the “simple average arithmetic mean’ of such rates should be adopted is not acceptable because the first proviso to section 92C refers only to “arithmetic mean” of more than one ALP and does not require the volume of the relevant transactions to be taken in to consideration;

(iii) Under Rule 10B(1)(a)(ii) adjustments to account of difference, if any, between the international transaction and the comparable uncontrolled transaction which could materially, affect the price in the open market have to be made, However, the onus is on the assessee to make out a case for such adjustment (on account of differences in marketing function, research functions and difference in volumes) supported by relevant facts & figures & documentary evidences. The matter was set aside for verification of details and documentary evidence to be furnished in support. (A.Ys 2003 -04 & 2005-06)(ITA Nos. 3077/ Mum/2009 / 1236/Mum/ 2009 dated 14-9-2012 Bench “L”.)

RBS Equities (India) Ltd v. ACIT (Mum.)(Trib.) www.iatonline.org.

505. S.92C : Avoidance of tax - Transfer pricing - Arm’s Length Price – Discount to both domestic company and AEs – No adjustment in ALP as in independent business situation granting of discount is a normal occurrence.

In the instant case, assessee rendered similar service to both domestic customers and AEs abroad, but granted discount of 10% only to AE abroad. According to TPO price of services rendered was not at ALP and thus, he made upward adjustment in ALP to the extent of discount allowed. It was held that in independent business situation granting of discount is a normal occurrence and unless AO demonstrates that discount so allowed would not have been allowed in an arm’s length situation, ALP adjustment could not be made in respect of the same. It was therefore held that since there was nothing on record to show to even suggest that discount in question was not arm’s length discount, or that discount had not been allowed under any other situations, adjustment made by revenue was set aside. (A.Y. 2006-07)

Dresser- Rand India (P.) v. Addl. CIT (2012) 53 SOT 173 (Mum.)(Trib.)

506. S.92C : Avoidance of tax – Transfer pricing – Arm’s length price – Interest free loan to overseas associated concern - Interest free loan to overseas concern falls within the ambit of international transaction.

The assessee made advances to its wholly owned subsidiary. The assessee contended that lending of interest free funds to subsidiaries is a normal and acceptable business practice and thus, the existence of such interest free loans does not fall within the ambit of international transaction. The Tribunal held that grant of interest free-loan to overseas associated concerns comes within the ambit of international transaction, therefore assessee having made interest free advances to its wholly owned subsidiary, a German company, EURIBOR rate is be applied for arriving at the ALP of the interest free loan. (A.Y.2007-08)

Tata Autocomp Systems Ltd v. ACIT (2012) 73 DTR 220 (Mum.)(Trib.)

507. S.92C : Avoidance of tax - Transfer pricing - Arm’s length price-International transaction-Average of percentage of expenditure incurred by 17 pharmaceutical companies on advertisement and marketing - no analysis as to type of drug, nature of market, period of advertisement – held not to be TNMM as per provisions of the Act.

The assessee company was engaged in the business of manufacture and export of pharmaceutical products. The assessee ultimately sold products in Ukraine but routed the same through its Associated Enterprise located in Cyprus as Ukraine was politically and economically very unstable in that period. The assessee adopted CUP method for determining arm’s length price for reimbursement of business promotion expenses to the associated enterprise. The TPO rejecting the CUP method without any cogent reason and applied the mean of percentage of expenditure incurred by 17 pharmaceutical companies on advertisement and marketing and termed the same as ALP arrived by using TNMM. It was held that the said method applied by TPO was not TNMM and what was sought to be compared was only average of expenditure incurred by 17 pharma companies, without any analysis as to type of drug, nature of market, period of advertisement, etc. Thus, as TPO had not applied the TNMM in accordance with the provisions of the act and had adopted ad-hoc method to disallow capital expenditure under guise of transfer pricing provision, impugned adjustment was held to be set-aside. (A.Y. 2004-05)

ACIT v. Genom Biotech (P.) Ltd. (2012) 52 SOT 147 (Mum.)(Trib.)

508. S.92C : Avoidance of tax – Transfer pricing - Arms’ length price - Reference to TPO does not give presumption that the payment is allowable under section 37. (S. 37)

Assessee was a joint venture company between Deloitte and Mastek, formed for establishment and operation of an offshore development centre for provision of both offshore and on site information technology and other related services. As per joint venture agreement Deloitte assisted assessee in generation of sales, management and delivery of projects, and in managing and maintaining customer relationships. For that purpose, three senior managers had been assigned by Deloitte to undertake full-time marketing only for assessee. Cost incurred on assignment of said managers consisting of their salary and related expenditure, was charged by Deloitte on actual basis. TPO held that marketing costs incurred and allocated by Deloitte to assessee did not result in rendering of any service to assessee and, therefore, determined arm’s length price for same, at nil. It was very imperative on part of assessee, to establish before TPO, that payments made were commensurate to volume and quality of services and such costs were comparable. When assessee had not furnished evidence to prove that those three personnel had rendered marketing services to it and, in fact, assessee-company had no revenue which had been derived as a result of those marketing expenses, TPO was justified in determining ALP of marketing expenses at nil. ‘ALP’ has to be determined irrespective of any contractual obligation undertaken by parties. If transactions are, in opinion of TPO, not at arm’s length, required adjustment has to be made, as provided in Act, irrespective of fact that expenditure is allowable under other provisions of Act. In view of CBDT instructions dated 20-5-2003, Assessing Officer is bound to refer all transactions beyond specified limit to IPO for determining ALP and mere reference to TPO by Assessing Officer does not raise presumption that amount in question has been allowed under section 37(1). (A. Ys. 2002-03 to 2006-07)

Deloitte Consulting India (P.) Ltd. v. Dy. CIT (2012) 137 ITD 21 (Mum.)(Trib.)

509. S.92C : Avoidance of tax – Transfer pricing-Cup method - TNM method- Depreciation – While computing Arms length price profit should be considered without deduction of depreciation.

The Assessee company which is engaged in software development. The assessee has adopted the CUP method. The TPO has rejected the CUP method applied by the assessee and adopted TNMM method for computing ALP. The method adopted by the assessee was rejected by the Commissioner (Appeals). On appeal the Tribunal held that for application of CUP method there should be similarity of transactions to be compared. If there are material product differences CUP method may not be applicable. On the facts the Tribunal held that services rendered by assessee to third parties were different from services rendered by it to Associated Enterprises hence third parties could not be considered for comparability analysis for benchmarking of international transactions made by assessee with its AE and therefore, CUP method could not be adopted for determining ALP, therefore order of TPO was justified. Assessees appeal was dismissed. As regards depreciation which can have varied basis and is allowed on different rates, which has no direct connection or bearing on price, cost or profit margin of international transactions profit should be taken without deduction of depreciation. The issue decided in favour of assessee. (A.Y. 2005-06)

Qual Core Logic Ltd v. Dy. CIT (2012) 52 SOT 574 (Hyd.) (Trib.)

510. S.94 : Avoidance of tax -Transaction in securities – Purchase of units and the sale thereof at loss after earning dividend loss is allowable.

The assessee had purchased units of mutual funds on 26-12-2003. On the very same date, the assessee received the dividend. On 29-3-2004, the assessee redeemed the units and claimed shorter capital loss. The Assessing Officer opined that the cheque for the purchase of units was actually realised on 30-12-2003 and therefore, the period of holding before the sale was only 88 days i.e. less than 3 months, therefore provision of section 94(7) of the Act held applicable. He denied the set off short term capital loss claimed by assessee. On appeal the claim of loss was allowed by Commissioner (Appeals) by observing that if date of tender of cheque for purchase of share is considered as the date of purchase, then the sale was not within three months of purchase and provision of section 94(7) held not applicable. On appeal by revenue the Tribunal confirmed the view of Commissioner (Appeals) and dismissed the appeal of revenue. (A.Y. 2004-05)(ITA no 4285/Mum/2009 dated 6-6-2012. Bench ‘F’)

ITO v. Vasudeo Pandurang Ginde (2012) BCAJ – July –P.57(Mum.)(Trib.)

511. S.115JB : Company - Book profit - Computation – Foreign exchange fluctuation-Companies Act - Reduction of amount held to be not justified.

The assessee is a company engaged in the business of running multiplex theatre. The assessee while computing MAT reduced an amount pertaining to “foreign exchange fluctuation due to restated term loan at the year end”. It was held that the provisions of
S. 115JB were a code by themselves therefore, the adjustments can be made as prescribed within this code. Under this code, if a profit and loss account has been made in terms of companies Act, then no adjustment or tinkering is allowable except as provided in the Explanation. The assessee had not demonstrated that under Schedule VI to the companies Act, the income was beyond the scope of profit of the company. By very adoption and inclusion of the income in the profit of the company it had been affirmed by the auditor that it had come within the ambit of “book profit”. Thus, held that assessee was not justified in reducing the amount while computing book profit. (A.Y. 2005-06)

City Gold Media Ltd. v. ITO (2012) 17 ITR 192 (Ahd.) (Trib.)

512. S.115JB : Company - Book profit - Computation - Interest - Adjustment by the Assessing Officer is held to be not justified.

Assessing Officer disallowed assessee’s claim of interest expenditure observing that amount of interest had been described as ‘interest capitalised’ in earlier years written off during current year and added said amount to book profit for computation of tax under section 115JB. Held that amount of interest would not fall under provisions of section 115JB(2) and Explanation 1 thereunder. Therefore, Assessing Officer was wrong in adding amount of interest to book profit under section 115JB. (A. Y. 2008-09)

Jt. CIT v. Shreyans Industries Ltd. (2012) 137 ITD 79 / 18 ITR 169 / 74 DTR 437 (Chandigarh)(Trib.)

513. S.115WB : Fringe benefits – Non employees - Expenditure on non-employees Fringe benefit cannot arise.

Fringe benefit cannot arise when expenditure is incurred on persons who are not employees. (A.Y. 2006-07)

Dy. CIT v. Kotak Mahindra Old Mutual Life Insurance Ltd. (2012) 149 TTJ 332 (Mum.)(Trib.)

514. S. 115WB : Fringe benefits – Charge of tax – Expenditure during office hours – Can not be regarded as fringe benefit.

Expenses paid to employees for day-to-day local travelling and tax hire charges during their working hours cannot be regarded as fringe benefit. (A.Y. 2006-07)

Dy. CIT v. Kotak Mahindra Old Mutual Life Insurance Ltd. (2012) 149 TTJ 332 (Mum.)(Trib.)

515. S.115WB : Fringe benefits – Charge of tax - Postage, e-mail and courier expenses cannot be treated as fringe benefit.

Expenditure under the head postage, e-mail, lease line and courier are not covered by section 115WB(2)(J). (A.Y. 2007-08)

SGS India (P) Ltd. v. Addl. CIT (2012) 149 TTJ 392 (Mum.)(Trib.)

516. S.115WB : Fringe benefits – Telephone – Other expenses under the head telephone expenses are not covered under Fringe benefit. For tour and travel expenses rate applicable will be 5% and not 20% as applied by the Assessing Officer.

The Assessing Officer held that postages, E-mail and courier charges debited under the head telephone expenses has to be considered for the applicability of Fringe benefit, which was confirmed in appeal by the Commissioner (Appeals). On appeal the Tribunal it was held that expenditure debited under the head postage, E-mail, lease line and courier are not covered by section 115WB (2) (J) of the Act hence no disallowance can be made. The Tribunal also held that for the relevant year FBT is applicable at 5% and not 20% as applied by the Assessing Officer. Accordingly the addition made by the Assessing Officer was deleted. (A.Y. 2007-08)

SGS India (P) Ltd v. Addl.CIT ( 2012) 75 DTR 221 (Mum.)(Trib.)

517. S.143(3) : Assessment – Notice-Service of notice at address other than address shown on return which returned unserved, assessment held to be invalid. Provisions of section 292BB is not applicable prior to assessment years 2008-09). (S. 292BB)

The assessment was completed on the basis that notice issued under section 143 (2) was received back unserved. When penalty proceedings were initiated the assessee challenged the assessment order stating that no notice were served on the assessee under section 143(2), as the notice issued was not sent to correct address hence returned unserved. The Commissioner (Appeals) dismissed the appeal on the ground that the assessee participated in the proceedings through authorised representative and by virtue of section 292BB, the assessee was precluded from challenging the notice. On appeal Tribunal held that the service of notice at address other than address shown on return, which returned un served held to be not proper service. Provision precluding assessee from taking such objection is not applicable to assessment years prior to 2008-09, hence the assessment order passed by the Assessing Officer under section 143 (2) (ii) was held to be bad in law.( A.Y. 2007-08)

Ashok B. Bafna v. Dy. CIT (2012) 18 ITR 43 (Mum.) (Trib.)

Editorial. The view of third member in DCIT v. Hindustan Tobacco Company (2003) 87 ITD (TM)(Kol.) (Trib.), affirmed.

518. S.143(3) : Assessment – Set aside order by Tribunal – Fresh assessment - In fresh assessment passed pursuant to remand by ITAT, assessee cannot be worse off than what he was in the original assessment order. [S254(1)]

The AO passed a s. 143(3) assessment order in which he disallowed 50% of the expenditure on an ad-hoc basis. This was reduced to 25% by the CIT(A). On further appeal by the assessee, the Tribunal set aside the matter to the AO to examine the issue afresh. In the second round of appeal, the AO disallowed 100% of the expenditure on the ground that the assessee had already claimed the same expense under some other head and that there was a claim for double deduction. This was upheld by the CIT(A). Before the Tribunal, the assessee argued that once a matter has been set aside by the Tribunal, the assessee cannot be put into a worse situation than what it was at the time of original assessment. Held by the Tribunal upholding the plea:

It is a settled proposition of law that the Tribunal u/s 254(1) has no power to take back the benefit conferred by the AO or enhance the assessment. Once the matter has been restored by the Tribunal, the income cannot be enhanced from what was determined at the time of original assessment proceedings, which was the subject matter of dispute before the Tribunal. This proposition of law has been upheld by the Supreme Court in Hukumchand Mills Ltd. 62 ITR 232 (SC) and reiterated in Mcorp Global v. CIT (2009) 309 ITR 434 (SC). Therefore, the enhancement of assessment by making 100% disallowance in respect of free food allowance cannot be sustained and the same is restricted to 50%, as was made by the AO in the original round of proceedings. (A.Y. 2002-03)

Kellogg India Pvt. Ltd v. ACIT (2012) 19 ITR 220 (Mum.)(Trib.)

519. S.143 : Assessment – Notice – Sending of notice on address, other than that given in return of income and subsequently returned, not amount to either service or deemed service of such notice. (S. 292BB)

No assessment u/s 143(3) or 144 can be said to be have validly made where notice u/s 143(2) is not served or where such notice is served beyond prescribed period or improperly served. The AO cannot wash off his hands from duty to serve notice u/s 143(2) on address given in return, simply on premise that assessee shifted his base to another address at subsequent date. Sending of notice u/s 143(2) on address, other than that given in return of income, and its consequent return by postal authorities, does not amount to either service or deemed service of such notice. (A.Y. 2008-09)

Prakash Ramji Gavali v. ITO (2012) 138 ITD 1 (Mum.)(Trib.)

520. S.144 : Best judgment assessment – Order - Findings of fact same as were available to AO – Hence, deletion of disallowance justified as a change in stand not be made when finding of facts remained the same. [S. 40(a)(ia)]

The assessee derived income from publication and trading books. For the relevant assessment year the AO passed an assessment order u/s 144 making certain disallowances. On appeal to Tribunal, it was held that a change in stand could not be made when finding of facts remained the same as were available to the AO in view of fact that part deduction of tax on certain payments did not lead to the finding that all expenditure incurred was susceptible to be disallowed u/s 40(a)(ia) for want of deduction of tax at source. Hence, the deletion of disallowance was justified. (A.Y. 2008-09)

ITO v. Sahadev Pradhan (2012) 18 ITR 180 (Cuttack) (Trib.)

521. S.145A : Assessment - Method of accounting – Valuation of stock-Provision applies only to valuation of purchase and sale of goods and inventory and not to service contract

The provisions of section 145A applies only in respect of valuation of purchase and sale of goods and inventory and not to service contracts. Thus, provisions of said section cannot be invoked for adding service tax to gross receipts. (A.Y. 2007-08)

Pharma search v. ACIT (2012) 53 SOT 1 (Mum.) (Trib.)

522. S.145 : Assessment – Method of accounting – Estimation of Profit-Rejection of books of account is held to be justified.

For relevant assessment, assessee declared gross profit rate at 12.67 per cent as compared to gross profit rate at 15.07 per cent shown in immediate preceding year. He pointed out that main reason for fall in gross profit rate was that during year receipts of fabrication charges were substantially reduced. He did not maintain stock register of raw material, work-in-progress, consumable and finished products. He also did not give any plausible explanation regarding fallin gross profit rate particularly when turnover had remained almost consistent as per past year. Assessing Officer applied provisions of section 143(5) and estimated gross profit rate at 14 per cent. Held that, Assessing Officer had correctly applied provisions of section 145(3). Since Assessing Officer had partly accepted contention of assessee that main reason for fall in gross profit rate was reduction in receipts of fabrication charges, gross profit rate deserved to be reduced to 13 percent. (A.Y. 2007-08)

Vinod Kumar v. Jt. CIT (2012) 137 ITD 48 (Chandigarh)(Trib.)

523. S.145 : Assessment - Method of accounting - Rejection of accounts - Manufacturing results could be ascertained properly hence rejection of books of account is held to be justified.

Assessee derived income from manufacture and sale of cattle feed, oils, oil cakes, etc. In course of assessment, Assessing Officer found that although quantity of cotton seed, mustard and ground nut crushed during previous year were shown separately but yield of oil and oil cakes had been given in consolidated form. Further, sales of oil and oil cakes had been shown in manufacturing account in consolidated form although there was a wide variation in market price of those products. Thus, Assessing Officer asked assessee to explain reasons for mixing up cotton, mustard and groundnut oil seeds in same category when there was vast variation in market price of those types of oil seeds and other products. In reply assessee stated that there was not much difference in market price of both these oils and, therefore, he made sales of khal and oil of both these varieties jointly. On facts, unless yield of oil obtained on crushing of three types of oil seeds was separately given, manufacturing results could not be appreciated in their proper perspective. Therefore, books of account of assessee had correctly been rejected under section 145(3). (A.Y. 2008-09)

Pawan Kumar v. ITO (2012) 137 ITD 85 (Chandigarh)(Trib.)

524. S.145 : Assessment Method of accounting – Valuation of stock – Cost of production of film - The method of reducing the value of the closing stock by revaluing the film at the cost or net realisable value whichever is less, not justified on facts. (Rule 9A)

Cost of production of film cannot be allowed as deduction until and unless the conditions are specified u/r 9A are satisfied hence, such deduction cannot be permitted by adopting an indirect method of reducing the value of the closing stock by revaluing the film at the cost or net realisable value whichever is less. (A.Y. 2007-08)

Sagar Sarhadi v. ITO (2012) 148 TTJ 86 (Mum.) (Trib.)

525. S.145 : Assessment - Method of accounting – Estimation of profits - Advance money - Income could be assessed only when amount received in advance had reached certainty and hence, impugned addition was deleted.

The assessee firm was engaged in the business of civil work and road construction as a contractor. It entered into an agreement with the State Road Transport Corporation for development of commercial complex. The assessee as a developer had been allowed to find intending allottees and to collect sale consideration from such lessees. Intending lessees could become allottees only on approval by State Road Transport Corporation. Assessee collected certain advance money from customers. The AO relying on AS-7, opined that assessee should have declared profit of the said project on percentage of completion method. Thus, on value of work-in-progress, the AO held that the 10% was income generated which was added to the total income. It was held that assessee could be regarded as a contractor and also a developer, revenue could not be recognised in terms of AS-9 guidelines. Thus, income could be assessed only when amount received in advance had reached certainty and hence, impugned addition was deleted. (A.Ys. 2004-05 & 2005-06)

ACIT v. National Builders (2012) 137 ITD 277 (Ahd.)(Trib.)

526. S.145 : Assessment – Method of accounting - Project completion Method – Sale of TDR - TDR has direct nexus with the project undertaken can be brought to tax only in the year in which the project is completed. (S. 28(i))

The assessee is following project completion method of accounting. During the financial year 2005-06 the assessee sold the TDR allotted to it by BMC, which TDR was directly linked to the projects undertaken by assessee. As the project was not completed this amount was reflected in the balance sheet as advance. The Assessing Officer brought to tax entire amount as income of the assessee in the assessment year 2006-07.In appeal Commissioner (Appeals) confirmed the order of Assessing Officer. On appeal to the Tribunal, the Tribunal held that in the case of an assessee following the completion method, receipts by way of sale of TDR which TDR has direct nexus with the project undertaken can be brought to tax only in the year in which the project is completed. (A.Y. 2006-07)(ITA No.193/Mum/2010/dated 25-4-2012)

Pushpa Construction Co. v. ITO, ITAT ‘C’ Bench, Mumbai, ITA No. 193/Mum./2010, dated 25-04-2012, BCAJ Pg. 59, Vol. 44-A Part 4, July 2012.(Mum.)(Trib.)

527. S145 : Assessment- Method of accounting – Not produced ledger copies, etc. – Rejection of accounts was held to be justified

Assessee firm was engaged in business of civil contracts. During course of assessment proceedings, assessee did not produce account books before AO. On plea that same were impounded by local police; however, no evidence was labour charges, salary expenses, etc. Assessing Officer was vested with discretion of either rejecting book results to estimate profit or to proceed on basis of ledger copies. Assessing Officer having chosen second option, Tribunal could not substitute its opinion to that of Assessing Officer to hold that it was a fit case for rejection of books of account, unless it was pointed out that in process of adopting alternative option, Assessing Officer had arbitrarily made addition which had no rational basis. Hence, in absence of such a finding/conclusion, order passed by A.O. was not erroneous. Order of Assessing Officer was held to be justified, matter was decided in favour of revenue. (A.Y. 2005-06)

Pragati Engineering Corporation v. ITO (2012) 137 ITD 355 / 77 DTR 121 / 149 TTJ 273 (TM.) (Luck)(Trib.)

528. S.147 : Reassessment – Absence of service of notice u/s 148 on power of attorney holder of NRIs. (S.148)

In response to the notice by ITO, Jalandhar, J, the power of attorney holder of the NRI assessee, had filed the return which has not been treated as invalid. Further, that ITO issued a letter to ‘J’ seeking clarification regarding non-declaration of capital gain arising on the acquisition of assessee’s land situated at Village Noorpur Dona in District Kapurthala. Thus, it cannot be presumed that the department did not have any knowledge that ‘J’ is the power of attorney holder of ‘JS’ and other two NRI assessees. As regards the notice under s. 131(1A) issued by the Asstt. Director of IT, there is no service record of the same with the Department so as to prove that the said notice has actually been served on JS and other assessees at Village Noorpur Dona. Thus, this does not support the Revenue’s case. However, notice under s. 148 then issued by ITO, Kapurthala, in the name of assessee. Notice server of the department has given a report that JS does not reside at the given address of Village Noorpur Dona. Reports of the Sarpanch and the Municipal Corporation of Kapurthala also state that JS and other assessees do not live in Village Noorpur Dona/ Mansoorval Dona. As regards the affixation of the impugned notice at Janjghar/Dharamshala in village Noorpur Dona, the said address is not the last known address of the assessees. Copies of the said notices and assessment orders were obtained by inspection after the assessments were made. Thus, the arguments of the Departmental Representative that the notices and orders have been served upon the assessees at Village Noorpur land at Village Noorpur Dona belonging to all the three assessees pursuant to a verbal agreement with J and the payment therefore is made to J in cash after six months. Thus the impugned notices u/s 148 should have been served upon J, power of attorney holder of NRI assessee, to whom other notices had been issued by the Department. Department not having served the notices on J the notices issued on JS and other assessees at Village Noorpur Dona/Mansoorval Dona are bad in law. Hence assessments made pursuant thereto are quashed. (A.Y. 1999-2000)

Jasbir Singh v. ITO (2012) 76 DTR 36 (Asr.)(Trib)

529. S.147 : Reassessment – After expiry of 4 years – No material in possession to conclude that there was escapement of income, hence reassessment proceedings to be quashed

Instant case, was a simple case of change of opinion without there being any intangible material in the possession of the AO for coming to the conclusion that there was an escapement of income. Therefore, AO not justified in initiating reassessment proceedings and thus liable to be quashed. (A.Y. 2003-04)

Prudential Assurance Co. Ltd. v. ADIT (2012) 18 ITR 186 (Mum.)(Trib.)

530. S.147 : Reassessment-Intimation-New material - Non-compete fee-Depreciation - Assessment under section 143(1) cannot be reopened u/s 147 in absence of “new material”. [S. 143(1)]

The assessee filed a ROI in which it claimed deduction for non-compete fees and depreciation on leased premises which was accepted by the AO vide Intimation u/s 143(1). Thereafter, he issued a notice u/s 148 seeking to reopen the assessment on the ground that the expenses were not allowable. The assessee challenged the reopening on the ground that (a) the AO had not given a copy of the recorded reasons and (b) there was no fresh material to justify the reopening. Before the Tribunal, though the division bench agreed that there was no new material, the AM held that in the case of a s. 143(1) intimation, new material was not required while the JM took the contrary view. On a reference to the Third Member Held by the Third Member:

(i) If the recorded reasons are not furnished to the assessee, it is fatal to the validity of the s. 148 notice issued for reopening the assessment (CIT v. Videsh Sanchar Nigam (2012) 340 ITR 66 (Bom.) (SLP dismissed) followed);

(ii) The law laid down by the Supreme Court in CIT v Kelvinator of India Ltd. (2010) 320 ITR 561 does not cover only a case where a s. 143(3) assessment is passed but also covers a case where only a s. 143(1) intimation is passed. The Supreme Court interpreted the words “reason to believe” and held that the AO did not have the power to review. While in that case of a s. 143(1) intimation, the assessee cannot challenge the reopening on the ground of ‘change of opinion”, he can challenge it on the ground that there were no “reasons to believe” that income had escaped assessment or that the said reasons did not have a live link with the formation of the belief. Even in the case of a s. 143(1) intimation, the AO must have “tangible material” that income has escaped assessment. On facts, there was no “tangible material” to support the belief that non-compete fees and depreciation had resulted in escapement of income chargeable to tax (ACIT v Rajesh Jhaveri Stock Brokers (P) Ltd.(2007) 291 ITR 500 (SC) distinguished).(A.Y. 1998-99)

Telco Dadajee Dhackjee Ltd v. DCIT(TM ) ((Mum.)(Trib.)www.itatonline.org

531. S.147 : Reassessment – Reasons recorded – Precise and definite information received, reassessment was justified

In the instant case, Assessing Officer completed assessment of assessee. Subsequently, he received information about receipt of accommodation entries by assessee aggregating to Special Business Matching with Hong Kong Companies 14.45 lakhs from entry providers and, accordingly, reopened assessment for taxing same. It was held that since a precise and definite information was received by AO regarding receipt of accommodation entries and after comparing information, with information available in return of assessee, he recorded definite reasons in clear terms that income escaped assessment and hence reopening was justified. (A.Y. 2002-03)

ITO v. Mukut Finvest & Properties (P.) Ltd (2012) 138 ITD 166 (Delhi)(Trib.)

532. S.148 : Reassessment – Notice – Issued on the basis of survey u/s 133A and statements obtained in the course of survey, reassessment held to be invalid. (S. 133A, 147)

Reassessment was held to be invalid where notice u/s 148 was issued solely on the basis of survey u/s 133A and statements obtained in the course of survey and nothing else on record. (A.Y. 1999-2000 to 2005-06)

J. Mohan (Dr.), & Anr. v. ACIT (2012)18 ITR 363 (Chennai)(Trib.)

533. S.148 : Reassessment – Recording of reasons - Mandatory before issue of notice - Mandatory requirement of law is not fulfilled reassessment proceedings became without jurisdiction and liable to be struck down. S.147)

The Tribunal held that the very basis for assuming jurisdiction under section 147 of the Act gets vitiated and, consequently, the entire proceedings are rendered void ab initio. Section 148(2) exclusively provides that, the Assessing Officer shall before issuing any notice under this record his reasons for doing so. Therefore it is mandatory before issue of notice - Mandatory requirement of law is not fulfilled reassessment proceedings became without jurisdiction and liable to be struck down. (A.Y. 1996-97 )(ITA No. 2759 & 2760/M/11 dated 11-5-2012 Bench ‘D’)

Dadanbai B. Bachani v. ITO (2012) 137 ITD 218 (Mum.)(Trib.)

534. S.153A : Assessment – Search or requisition – Addition deleted of earlier year – Addition made in earlier proceeding for same assessment year was deleted in appeal hence the proceedings cannot be revived and added over again in A.Y.

The additions made in the earlier proceedings for the same assessment years which have been already deleted in appeal cannot be revived and added over again in the assessment year u/s 153A. The scheme of the Act does not permit matters that have become final between the assessee and the IT authorities to be reopened and reagitated except by process known to law. (A.Ys. 2001-02 & 2002-03)

ACIT v. Uttara S. Shorewala (Mrs) (2012) 147 TTJ 716 (Mum.)(Trib.)

Uttara S. Shorewala (Mrs.) v. ACIT (2012) 147 TTJ 716(Mum.)(Trib.)

535. S.153D : Assessment – Search and seizure – Approval – Obtaining the approval is mandatory. (S. 153C)

An assessment order under section 153C can be passed by Assessing Officer only after obtaining prior approval under section 153D of Joint Commissioner inasmuch as compliance of section 153D requirement is mandatory. (A. Ys. 2001-02 to 2004-05)

Akil Gulamali Somji v. ITO [2012] 137 ITD 94 (Pune)(Trib.)

536. S.154 : Assessment - Rectification of mistake – Retrospective amendment of law, rectification order is justified.

The assessment was the subject matter of appeal before the First Appellate Authority and in accordance with the directions of the First Appellate Authority the Assessing Officer recomputed the claim under section 80HHC allowing the deduction. The Assessing Officer noted the Taxation Laws (Amendment), Act, 2005 has brought amendments in section 80HHC with retrospective effect whereby assessee having export turnover exceeding Special Business Matching with Hong Kong Companies 10 Crores is entitled to benefit of second proviso to section 80HHC(3), only if the assessee has necessary evidence to prove that he had an option to choose either duty drawback or DEPB scheme. On the facts as the turnover was more than 10 crores, it had no such option other than DEPB, accordingly the Assessing Officer passed the order under section 154 based on retrospective amendment to section 80HHC. In an appeal before the Tribunal the Tribunal held that rectification under section 154 can be done on the retrospective amendment made by the legislature. (A.Y. 2001-02)

Baby Marine Products v. ACIT (2012) 147 TTJ 385 / 73 DTR 169 (TM)(Kochi)(Trib.)

537. S.158B : Block assessment – Definitions - Undisclosed income – Agreement for development of land already declared in ROI prior to search, long term capital gain arising on transfer outside scope

Assessee having already declared the agreement entered into by them with a company for the development of their landed property in their returns prior to date of search and also the capital gain arising on transfer of proportionate portion of land in A.Y. 2000-01 and subsequent years, the long term capital gains fall outside the scope of the definition of “undisclosed income” in S. 158B(b).

ACIT v. Late Arun Kumar Haridas Dattani By LRs (2012) 148 TTJ 763 (Kochi)(Trib.)

538. S.158BFA : Block Assessment - Penalty – Search and seizure- Question of law admitted by High Court - Levy of penalty is not justified

The assessee filed the return of income declaring the income of ` 10 lakhs along with the note attached with the return. The Assessing Officer assessed the income at ` 38.32 lakhs. On appeal the Tribunal confirmed the addition of ` 13,13,816. Assessee filed an appeal which was admitted by High court. The Assessing Officer levied the penalty of ` 8,82,884. In appeal Commissioner (Appeals) deleted the penalty. On appeal by the revenue the Tribunal dismissed the appeal of revenue by observing that the admission of substantial question of law by the High Court lends credence to the bona fides of the assessee. Hence the order of Commissioner (Appeals) confirmed.

ACIT v. Ekta Exports (2012) Income Tax Review –September P. 89 (Mum.)(Trib.))(ITA No (SS) A.27/Mum/2011, Bench “E” dated 24-8-2012.)

539. S.194C : Deduction at source – Work Contracts – agreement for lease of dumpers and JCBs only and not executing any work or contract – held not work contract and thus, not required to deduct tax u/s 195 and hence no disallowance u/s 40(a)(ia)

[S. 40(a)(ia)]

The assessee paid lease rentals for taking dumpers and JCBs on lease from two companies. The Assessing Officer disallowed the rent u/s 40(a)(ia) on the ground that the lease rentals were paid towards transport contract/work contract for transportation of goods and moving and shifting of materials and thus the assessee defaulted in deducting TDS u/s 194C. It was held that the agreement was for lease of dumpers and JCBs only and not executing any work or contract. Thus, the lease agreement could not be classified as work or service contract and therefore assessee was not required to deduct tax while making payment of lease rental. (A.Y. 2005-06)

Dy. CIT v. Raj Laxmi Stone Crusher (P) Ltd. (2012) 52 SOT 112 (Delhi) (Trib.)

540. S.194H : Deduction at source- Commission - Credit card companies-Commission retained by credit card companies out of amounts paid to merchant establishment is not liable for deduction of tax at source.
[S. 40(a)(ia)]

The assessee company is engaged in business of direct retail trading in consumer goods claimed deduction in respect of commission paid to credit card companies. The Assessing Officer disallowed the commission under section 40(a)(ia) on the ground that the assessee failed to deduct tax at source. In appeal Commissioner (Appeals) allowed the appeal by observing that sale made on basis of a credit card is clearly a transaction of the merchant only and credit card company only facilitates the electronic payment , for a certain payment for a certain charge. The commission retained by the credit card company is therefore in the nature of normal bank charges and not in the nature of commission/brokerage for acting on behalf of the merchant establishment. Therefore not liable to deduct tax at source. On appeal by revenue the Tribunal also confirmed the order of Commissioner (Appeals). (A.Y. 2007-08)(ITA No. 905/Hyd.) 2011/ dated 10-4-2011 Bench ‘D’)

Dt. CIT v. Vah Magnan Retail (P) Ltd (2012) BCAJ – July P. 56 (Mum.)(Trib.)

541. S.194-I : Deduction at source - Rent - Enhanced rent - Liability to deduct tax at source arises only when it pays rent or debits whichever is earlier and not on the basis of enhanced rent demanded by the landlord.

The landlord demanded enhanced lease rent. The assessee made a provision in the books of account, however in the computation of income the assessee disallowed the provision debited in the profit and loss account. The later year the enhanced rent was settled at lower figure. The assessee paid the amount along with interest and deducted at source. The Assessing Officer demanded the interest on delayed payment of along with interest. On appeal, the Tribunal held that a mere entry in the books of account will not determine the income or expenditure of assessee. The Tribunal further held that liability to deduct tax at source arises only when it pays rent or debits whichever is earlier and not on the basis of enhanced rent demanded by the landlord. (A.Y. 2007-08) (ITA No. 667/M/ 2010 dated 20-7-2012 Bench ‘A’)

ITO v. Hotel Parag Ltd (2012) Income Tax Review –Sept P. 90(Mum.)(Trib.)

542. S.194I : Deduction at source – Rent – No TDS where lessor - lessee relationship does not exist.

Assessee was a 100% subsidiary of its holding company ‘M’. Holding company took an office premises on rent and permitted assessee to use of portion of said premises. Assessee reimbursed certain amount of rent to holding company without deducting TDS. It was held that where there is no lessor-lessee relationship between holding company and assessee, provisions of S. 194-I were not applicable. (A.Y. 2008-09)

ACIT v. Result Services P. Ltd. (2012) 52 SOT 598 (Delhi)(Trib.)

543. S.195 : Deduction at source – Income deemed to accrue or arise in India- Business profits - DTAA –India- Switzerland- As there is no PE in India, assessee is not liable to deduct tax at source in respect of remittance towards advertising expenses. (S. 9, Article 7)

The assessee company was engaged in manufacturing and trading of pharmaceuticals bulk drugs and formulations mainly for exports and research and development in the field of pharmaceuticals. The assessee remitted towards advertisement expenses certain amount to Russian advertising agencies through its parent Swiss company in respect of advertisement campaign launched in Russia for introduction of medicine ‘Dlianos’. Thus, in the view of the fact that there was a DTAA between India & Switzerland and India & Russia, the amount remitted by assessee towards advertisement could be assessed as business profits as per section 9, but having regards to fact that non-resident advertising company had no PE in India, amount in question could not be brought to tax in India. Thus, assessee was not liable to deduct TDS u/s 195 as amount in question was not itself chargeable to tax. (A.Ys. 1998-99 & 1999-2000)

Dy. CIT v. Sandoz (P.) Ltd. (2012) 137 ITD 326 (Mum.) (Trib.)

544. S.195 : Deduction at source – obligation to withhold tax – Obligation arises only if payment is chargeable to tax in hands of non-resident recipient in India

The obligation of tax deduction at source arises under this provision arises only if payment is chargeable to tax in hands of non-resident recipient in India. Therefore, merely because a person has not deducted tax at source from remittance abroad, it cannot be inferred that person making remittance abroad, it cannot be inferred that person making remittance has committed a failure in discharging his tax withholding obligation. (A.Y. 2006-07)

Dresser Rand India (P.) Ltd. v. Addl. CIT (2012) 53 SOT 173 (Mum.) (Trib.)

545. S.199 : Deduction at source – Credit for tax deducted-Year of credit – Credit to be given in the year of receipt

One ‘G’ desired to take the franchisee of ‘T’, a brand belonging to the assessee-company. For said purpose, the franchisee needed to take some property on rent. The property which was so chosen belonged to five members of ‘S’ family. Since the landlords did not know the franchisee very well, they did not prefer to enter into a direct agreement with ‘G’. As such, a rent agreement was executed between ‘A’ Ltd., a sister-concern of the assessee and the franchisee in terms of which ‘G’ paid the rent to the assessee after deduction of tax at source. The assessee paid over the gross amount of rent to ‘A’ Ltd., on gross basis and ‘A’ Ltd., paid the rent to the landlords after deduction of tax at source at the rate applicable. The assessee filed its return declaring total loss of ` 7.72 crore. On the basis of the AIR information for CASS-08, it transpired that the assessee-company received rent of ` 39 lakh. The Assessing Officer observed that the assessee had claimed credit for tax deducted at source without offering the amount of rent for taxation from which such tax was deducted. On being called upon to explain as to why the said rental income was not offered for taxation, it was submitted that the assessee and ‘A’ Ltd., were only the link between landlords of the property and the franchisee. That was stated to be the reason for which the assessee had not shown any rental income. The Assessing Officer, on going through the assessee’s explanation, agreed that the assessee did not receive any rental income. He, therefore, did not make any addition on this account. However, he held that the amount of TDS could not be refunded to the assessee as the assessee had not shown any income from rent. Held that, in case where amount on which tax was deducted at source is not at all chargeable to tax, command of section 199 will have to be harmoniously and pragmatically read as providing for allowing credit for tax deducted at source in year of receipt of amount, in which tax was deducted at source. Since assessee received amount after deduction of tax at source from ‘G’and such amount was not admittedly chargeable to tax in its hands, credit for tax deducted at source was to be allowed in instant year. (A.Y. 2007-08)

Arvind Murjani Brands (P.) Ltd. v. ITO (2012) 137 ITD 173 (Mum.)(Trib.)

546. S.201 : Deduction at source - Failure to deduct or pay - Payment of tax by recipient - Before assessing the assessee to be in default, under section, 201 for TDS Liability, Assessing Officer to show that recipient has not paid the tax. (S. 194C)

The Assessing Officer has passed an order u/s 201 in which he held the assessee to be in default for failure to deduct TDS u/s 194C on payments made to contractors. The assessee’s argued that in view of Hindustan Coca Cola Beverages (p) Ltd. v CIT (2007) 293 ITR 226 (SC), the tax could not be recovered from it as it must have been recovered from the recipient was rejected on the ground that the onus was on the assessee to prove that the recipient had paid the taxes. On appeal by the assessee to the Tribunal, held, allowing the appeal: In view of the judgment of the Allahabad High Court in Jagran Prakashan Ltd v. DCIT (TDS)(2012) 345 ITR 288 (All.)(High Court), there is a paradigm shift in the manner in which recovery provisions u/s 201(1) can be invoked. S. 201 is intended to make good the loss of revenue suffered by the revenue as a result of non-deduction of tax. However, the question of making good the loss arises only when the recipient of income has not paid tax and, therefore, the department has to establish that the recipient of income has not paid due taxes thereon. The non-payment of taxes by the recipient is a condition precedent to invoking s. 201(1) and the onus is on the AO to demonstrate that the condition is satisfied. The assessee has to submit all such information about the recipient as he is obliged to maintain under the law. Once this information is submitted, it is for the AO to ascertain whether or not the taxes have been paid by the recipient of income. (A.Y. 2005-06, 2006-07 and 2008-09)

Ramakrishna Vedanta Math v. ITO (2012) 18 ITR 603 (Kol.)(Trib.)

547. S.201: Deduction at source - Failure to deduct or pay - reimbursement of expenses. (S.195)

Reimbursement of relocation related expenses of employees had no element of income embedded in such payments. No mark up has been made and the disputed payments are purely reimbursement of actual expenses incurred. As there is no obligation to deduct tax at source, assessee could not be treated as an assessee in default u/s 201(1). (A.Y. 2007-08)

Global E-Business Operations (P) Ltd. v. Dy. CIT (2012) 76 DTR 106 (Bang)(Trib.)

548. S.206C : Collection at source - Auction of parking lot – No contract executed - Tax at source to be collected as oral contract is a valid contract as per Contract Act (Ss. 2(h) & 10 of Contract Act)

Assessee, city development authority, auctioned for running of parking lots and allotted same to different persons. As assessee defaulted in collecting taxes at source, Assessing Officer raised demand u/s. 206C(1C) along with interest. The assessee contended that though auction was held for parking lots, but no contract was executed. Thus, it was held that as an agreement could be oral in view of sec. 2(h) and section 10 of Contract Act, plea of assessee was to be rejected. Hence, order of Assessing Officer was upheld. (A.Ys. 2007-08 & 2009-10)

Agra Development Authority v. ACIT (2012) 138 ITD 127 (Agra) (Trib.)

549. S.234D : Refund – Interest- Explanation 2 – Assessee is held to be liable to pay interest

The Tribunal held that Explanation 2 having been inserted in section 234D by Finance Act, 2012, with retrospective effect from June 1, 2003, clarifying that the provisions of section 234D shall also apply to the assessment years commencing June 1, 2003, if the proceedings in respect of the assessment year are completed after that date, and the proceedings in respect of the assessment year 2003-04 having been completed on November 30, 2005, the assessee was liable to pay interest under section 234D. (A.Y. 2003-04)

Kotak Mahindra Capital Co Ltd v. ACIT (2012) 18 ITR 213/75 DTR 193 (SB.)(Mum.)(Trib.)

550. S.246A : Commissioner (Appeals) – Appealable orders – Order giving effect to revision order u/s 264

CIT having passed order u/s 264 keeping the contentious issues alive by sending the matter back to the A.O. without deciding the same, it cannot be said that the issue have attained finality vide order u/s 264 and, therefore, assessee was entitled to agitate such issues in the appeal against the fresh assessment made by the A.O. pursuant to the order of the CIT (A.Y. 1999-2000)

Jasbir Singh v. ITO (2012) 76 DTR 36 (Asr.)(Trib.)

551. S.250(5) : Appeal – Commissioner of income-tax (Appeals)-Additional ground - Retrospective amendment of law - Additional ground in view of retrospective amendment could be raised before the Commissioner of Income-tax (Appeals)

Before the Commissioner of Income-tax (Appeals), the assessee raised an additional ground praying for allowability of expenditure in respect of which TDS was paid before due date of filing of return in view of the retrospective amendment in law amending section 40(a)(ia). The Commissioner of Income-tax (Appeals), rejected the claim relying on Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC).The Tribunal held that in view of retrospective amendment of law additional ground could be raised before the CIT(A) and directed the CIT (A) to entertain the claim. (A.Y. 2005-06)

Nitin M. Panchamiya v. Addl. CIT (2012) 73 DTR 202/148 TTJ 96 (Mum.)(Trib.)

552. S.250 : Appeal – Commissioner (Appeals) – Additional evidence – Document not produced before Assessing Officer while replying to relevant query assessee not entitled to produce the documents before CIT(A) (Rule 46A)

Assessee though in possession of the document, having not produced the same before AO while replying to relevant query made by AO, Assessee is not entitled to produce the same in appeal before CIT(A) either under Sub-rule (1) or sub- rule (4) of Rule 46A. (A.Y. 2007-08)

Sagar Sarhadi v. ITO (2012) 148 TTJ 86 (Mum.) (Trib.)

553. S.251 : Appeal – Commissioner (Appeals) – Powers – Admission of additional evidence is held to be justified. (Rule 46A)

Assessee had already filed requisite details before Assessing Officer and further detail was to be filed before Assessing Officer, but latter refused to accept same. Such new evidence that was to be filed by assessee was from Government agency and same was essential for disposal of appeal. The Tribunal observed that the CIT(A) had considered the new evidence and the facts and circumstances of the case in entirety and after recording reasons admitted the new evidences. Hence, admission of new evidence by CIT(A) was justified. (A. Y. 2006-07)

ITO v. Bhagwan Dass (2012) 137 ITD 120/17 ITR 446 (Chandigarh)(Trib.)

554. S.253 : Appeal – Appellate Tribunal - Non–payment of admitted tax - Stay - Appeal is maintainable before the Tribunal. Assessee has shown a prima facie, an arguable case, stay was granted with certain conditions. [Ss. 220(6), 249(4)]

In an appeal filed by the assessee the revenue contended that as the admitted tax was not paid by the assessee the appeal is not maintainable. The appellate Tribunal after refrying the Judgment of supreme Court in CIT v. Pawn Kumar Laddha (2010) 324 ITR 324 (SC), held that the appeal is maintainable because the provisions of section 249(4) in Chapter XX-A relating to filing of appeal before the Commissioner (Appeals) cannot be read into section 253(1)(b) in Chapter XX-B of the Income-tax Act which relating to filing of an appeal before the Tribunal Accordingly, the Tribunal held that the appeal is maintainable. On the facts the Tribunal has found that the Assessing Officer has raised huge demand by passing an order under sections 201(1) and 201(IA) when the bank accounts of assessee was attached. The Tribunal also found that for fraction of financial year 2011-12 demand was raised, which is not permissible . Accordingly the Tribunal granted stay with certain conditions. (A.Ys. 2010 to 2012-13)

Kingfisher Airlines Ltd v. ACIT (2012) 73 DTR 257/148 TTJ 113 (Bang.)(Trib.)

555. S.254(1) : Appellate Tribunal – Power – Issues relating to in respect of another assessment year

– Tribunal has no power to decide an issue in respect of assessment year which are not before it
The issue raised before the third member was whether the Tribunal has power to decide the issue in respect of assessment years which were not before the Tribunal. The third member held that under the Income-tax Act, each assessment year is a separate unit and the decision of Assessing Officer given in a particular year cannot operate as res judicata in the matter of assessment of subsequent years, therefore the Jurisdiction of Tribunal in the hierarchy created by the same Act is no higher than that of the Assessing Officer and hence the Tribunal also to confine to the year of assessment. The Tribunal has no power to decide the issue in respect of assessment years which are not before it. (A.Ys. (2003-04 to 2005-06)

ACIT v. Chandragiri Construction Co. (2012) 147 TTJ 249 (TM)(Kochi) (Trib.)

556. S.254(1) : Appellate Tribunal - Powers - Cross objection - Legal ground in respect of independent and separate issue was not allowed in revenues appeal Rule 27 of Income Tax Appellate Tribunal Rules, 1963 or under cross objection. (Rule 27)

In revenue’s appeal against order of Commissioner (Appeals), assessee filed cross-objections challenging initiation of proceedings under section 153C. Cross-objections were time-barred and, therefore, same were dismissed. Assessee was, however, given liberty to argue same points at time of disposal of departmental appeals. Accordingly, during hearing of appeal before Tribunal, assessee invoked provisions of rule 27 and challenged initiation of proceedings under section 153C. Held that, when validity of invocation of section 153C was decided by Commissioner (Appeals) in favour of revenue and assessee had not filed appeal on said legal ground, assessee could not be allowed to raise such legal ground in revenue’s appeal by invoking rule 27. If cross-objections were not withdrawn, even then, such a legal issue was beyond scope of adjudication through a cross-objection under section 253(4) because impugned legal issue was altogether an independent as well as a separate issue. (A.Ys. 1998-99 to 2003-04)

Dy. CIT v. Sandip M. Patel (2012) 137 ITD 104 (Ahd.)(Trib.)

557. S.254(2A) : Appellate Tribunal - Power - Stay - Judicial conflict whether Tribunal has power to extend stay beyond 365 days has to be resolved in favour of the assessee

The Third Proviso to s. 254(2A), as amended w.e.f. 1-10-2008, provides that if the appeal filed by the assessee is not disposed of within the period of stay granted by the Tribunal (which cannot exceed 365 days), the order of stay shall stand vacated even if the delay in disposing of the appeal is not attributable to the assessee. In Tata Communications Ltd vs. ACIT (2011) 138 TTJ 257 (SB)(Mum), the Special Bench held, following CIT v Ronuk Industries Ltd. (2011) 333 ITR 99 (Bom), that even after the amendment to the Third proviso to s. 254(2A) w.e.f. 1-10-2008, the Tribunal had jurisdiction to extend stay beyond 365 days. However, the Karnataka High Court took the view in CIT vs. Ecom Gill Coffee Trading Pvt. Ltd that after the aforesaid amendment, the Tribunal had no power to extend stay beyond 365 days even if the delay was not attributable to the assessee. The Tribunal had to now consider whether the view of the Bombay High Court & Special Bench had to be followed or that of the Karnataka High Court. Held by the Tribunal:

In Narang Overseas (P) Ltd v. ACIT (2008) 114 TTJ 433 (SB), it was held by the Special Bench that if there is a cleavage of opinion amongst different High Courts and there is no decision of the jurisdictional High Court on the issue, then the view favourable to the assessee has to be followed. As the view of the Bombay High Court in CIT v Ronuk Industries Ltd. (2011) 333 ITR 99 (Bom) & that of the Special Bench in Tata Communications Ltd vs. ACIT (2011)138 TTJ 257 (SB)(Mum) is favourable to the assessee, that has to be followed and it has to be held that the assessee is entitled to a stay of the demand even after the expiry of the period of 365 days if the delay in disposal of the appeal is not exclusively attributable to it. (A.Y. 2000-01 to 2006-07)

Qualcomm Incorporated v. ADIT ( Delhi)(Trib.) www.itatonline.org 

558. S.254(2) : Appellate Tribunal – Order - Rectification of mistake - Reframing the question - Revenues miscellaneous application was dismissed. [S.255(3)]

In the instant case, revenue filed the Miscellaneous Application challenging order passed by Special Bench of Tribunal on three grounds i.e. (i) Special bench had formulated a new question which was not referred by President of Tribunal while constituting Special Bench u/s 255(3). For the said ground it was held that there was mistake in the wording of question mentioned by revenue and question reframed by the SB was within the parameters of reference made by the President. (ii) Special Bench of Tribunal had not considered certain arguments of revenue while adjudicating the issue. It was held that SB had passed a well reasoned order and there was no apparent mistake in terms of scheme of section 254(2) and (iii) Special Bench without giving an opportunity of being heard had considered provisions of section 63 of Indian Contract Act. As regards this question, it was held that it was apparent that special bench had examined issue from another angle in light of provisions of section 63 of Indian Contract Act, 1872 and said exercise of Tribunal was not beyond question raised before it. (A.Y. 2003-04)

Dy. CIT v. Suzler India Ltd. (2012) 138 ITD 1/77 DTR 1/149 TTJ 137 (SB) (Mum.)(Trib.)

559. S.254(2) : Appellate Tribunal - Order - Rectification of mistakes – Ex parte order - Notice refused by illiterate employee – Affidavit filed by the assessee – Matter recalled

In the instant case, notice sent by Tribunal was refused by an illiterate employee. On Miscellaneous Application, Tribunal recalled the matter on the basis that the assessee had filed an affidavit in support of his claim that by refusing notice he was the loser and did not benefit. (A.Ys. 2001-02 to 2003-04)

Sudesh Pandey v. ITO (2012) 18 ITR 560 (Indore)(Trib.)

560. S.254(2) : Appellate Tribunal – Orders- Rectification of mistake apparent from the record – Miscellaneous Application filed four years was dismissed.

Assessee filed miscellaneous petitions on 4-4-2012 which was beyond four years against ex-parte order dated 23-2-2007 of Tribunal. Held that Tribunal was not enshrined with judicial power of entertaining such petition after expiry of relevant period, and condonation of delay was beyond jurisdiction of Tribunal. The Miscellaneous Application was dismissed. (A.Y. 1997-98)

Agni Briquette (P.) Ltd v. ACIT (2012) 137 ITD 147 (Ahd.)(Trib.)

561. S.254(2) : Appellate Tribunal - Orders - Rectification of mistake apparent from the record - Order cannot be rectified when on merit the decision was taken by Tribunal
The Tribunal having found as a fact that assessee, instead of investing the amount of long term capital gains in purchase of residential house purchased the same with borrowed funds and denied relief u/s 54F on that ground. The order of Tribunal cannot be said to be a mistake apparent on record. Application of assessee u/s 254(2) was rejected on the ground that review of the said order on merit was not maintainable. (A.Y. 2006-07)

V. Kumuda (Smt) v. Dy. CIT (2012) 147 TTJ 636 (Hyd.)(Trib.)

562. S.255(4) : Appellate Tribunal - Procedure – Third member - Jurisdiction - Third member has no right to express third opinion

The third member held that jurisdiction of the Third member of the Tribunal is confined only to agreeing with either of two opinions available before him given by the dissenting Members who heard the appeal first. Third member has no right to express a third opinion on the point of difference even if he is fully convinced about the correctness of such third opinion. (A.Y. 2007-08)

Visen Industries Ltd v. Addl. CIT (2012) 74 DTR 57(TM )(Mum.)(Trib.)

563. S.263 : Commissioner – Revision of orders prejudicial to revenue – Order found to be erroneous and prejudicial to interest of revenue – Commissioner to revise any order passed by any subordinate authority

Section 263 authorises a Commissioner to revise any order passed by any subordinate authority, which is to be found erroneous and prejudicial to the interest of revenue. The order passed by the authority to give to the orders of the Tribunal is “any order” passed by assessing authority, who is subordinate to the Commissioner. Thus, invoking of power of Revision u/s 263 by Commissioner was within the permissible limits of the law. (A.Ys. 2002-03 and 2003-04)

Pentamedia Graphics Ltd. v. ACIT (2012) 17 ITR 302 (Chennai) (Trib.)

564. S.263 : Commissioner - Revision of orders prejudicial to revenue - Issue not considered by the Assessing Officer can be brought within the jurisdiction of Commissioner. (S. 147)

Income-escaping assessment order passed u/s 143(3), r.w.s. 147, is an assessment order passed by Assessing Officer and therefore, any issue, which Commissioner thinks that Assessing Officer has not considered in said assessment, can be brought to life by Commissioner in exercise of his powers u/s 263. In such a case, revisional power of Commissioner cannot be denied on ground that issue considered in income-escaping assessment and issue proposed to be considered in revisional proceedings are different (A.Y. 2002-03)

Spencer & Co. Ltd. v. ACIT [2012] 137 ITD 141 (TM)(Chennai)(Trib.)

565. S.263 : Commissioner – Revision of orders prejudicial to revenue - Tax effect is nil - Order not open to revision even if erroneous and prejudicial to the interest of revenue

Where tax effect because of an order passed by the AO is NIL, such order even if erroneous being prejudicial to the interest of the revenue, is not open to revision u/s 263 of the Act. (A.Y. 2006-07)
Punjab Wool Syndicate v. ITO (2012) 17 ITR 439 (Chandigarh)(Trib.)

566. S.271(1)(c) : Penalty – Concealment - Addition on estimate basis - Additions on account of unaccounted sales on estimate basis and for disclosure of lower profit from sales made to sister concern without pointing any discrepancy in the accounts maintained by assessee cannot form the basis for concealment

On a reference to third member the third member held that the conduct of the assessee whether bona fide or mala fide has to be judged in the background of facts of each case and no penalty under section 271(1)(c) for concealment of income or filing of inaccurate particulars of income can be levied in the case of bona fide or genuine mistake or in case where there is a honest difference of opinion with regard to some issues between the department and the assessee resulting in addition made in the assessment of assessees. Merely because, there is a difference in the returned income and assessed income of the assessee, it does not follow that heavy onus is paled on the assessee to reason for such difference, therefore additions on account of unaccounted sales on estimate basis and for disclosure of lower profit from sales made to sister concern without pointing any discrepancy in the accounts maintained by assessee cannot form the basis for concealment. Accordingly the concealment penalty was deleted. (A.Y. 1993-94)

Vikarm Plastics v. ITO (2012)136 ITD 275/ 75 DTR 393/148 TTJ 657 (TM) (Ahd.)(Trib.)

Panorama Plastics v. ACIT (2012)136 ITD 393/ 75 DTR 393/148 TTJ 657 (TM) (Ahd.)(Trib.)

567. S.271(1)(c) : Penalty – Concealment- Advice of counsel - Bona - Fide act on advice of counsel, no penalty could be levied as no concealment of income.

Where the assessee had bona-fide acted on advice of his counsel in respect of claim of exemption under particular provisions of the Act, and which are at variance even under same chapter, where assessee so acted, the claim of the assessee could at the best be called a bona-fide mistake. Thus, penalty u/s 271(1)(c) could not be levied. (A.Y. 2006-07)

Majorjit Singh v. ACIT (2012) 17 ITR 183 (Chandigarh)(Trib.)

568. S.271(1)(c) : Penalty – Concealment - Bona fide mistake - Levy of penalty is not justified

Assessee could not be held to be liable for levy of penalty under section 271(1)(c) where the mistake committed by the assessee is a bona fide mistake. (A.Y. 2006-07)

ITO v. Gurmeet Kaur (Smt) (2012) 149 TTJ 28 (UO)(Chd.)(Trib.)

569. S.271(1)(c) : Penalty–Concealment–Book Profits–Penalty under section 271(l)(c) cannot be levied on additions made under normal provisions of Act when income in assessment has been finally computed on basis of book profit. (Ss. 73, 115JB)

Assessee claimed short-term capital gain on sale of shares. However, Assessing Officer rejected said claim and treated gain as speculative business income under section 73. Assessee submitted that it was not engaged in share trading business and that it purchased those shares for investment purposes and, it was under bona fide belief that income from sale of share was taxable as capital gains. The said explanation was rejected by the Assessing Officer and penalty proceedings were initiated on ground that in quantum proceedings assessee had failed to substantiate its claim under head ‘capital gains’ instead of speculation income. Held that the assessment order is not a final word in penalty proceedings and howsoever good findings may be in assessment proceedings, they are not conclusive so far as penalty proceedings are concerned. Since assessee was carrying out business of infrastructure development and sale and purchase of shares was only ancillary, assessee could not be held to be guilty of furnishing inaccurate particulars of income and hence penalty was deleted. (A.Y. 2007-08)

BSEL Infrastructure Realty Ltd. v. ACIT (2012) 137 ITD 61 (Mum.)(Trib.)

570. S. 271(1)(c) : Penalty – Concealment—Commission disallowance- Failure to deduct tax at source- Failure to file appeal and obtain relief – No penalty warranted. (S. 40(a)(ia)

The Assessing Officer disallowed commission paid to foreign travel agent by invoking the provisions of section 40(a)(ia). The assessee did not file an appeal. The Tribunal held that, merely failure of assessee to file appeal and to obtain legitimate relief cannot lead to inference of penalty.(A.Y.2005-06)

Unison Hotels Ltd. v. Dy. CIT (2012) 138 ITD 39 (Delhi) (Trib.)

571. S.271(1)(c) : Penalty – Concealment - Confirming addition in quantum appeal - Mere fact of making or confirming the addition in quantum cannot ipso facto lead to inference that there has been concealment of income or furnishing of inaccurate particulars of such income by assessee so as to levy penalty under section 271(l)(c).

Assessee entered into a licence agreement with NOPL in terms of which it was permitted to run a fast food restaurant in premises of NOPL for eleven months. Shareholding assessee-company as well as NOPL comprised of certain members of ‘N’ family. Some dispute on distribution of properties, was going on amongst them. A settlement was arrived through which NOPL was allotted to ‘R’ who wanted assessee to vacate premises. In legal proceedings, city civil court directed assessee-company to deliver vacant possession of premises. Assessee filed an appeal before High Court against above order of city civil court and obtained an order of stay on operation of decree till disposal of appeal subject to condition that assessee would pay a sum of ` 10 lakhs towards arrears and continue to deposit a sum of ` 1.25 lakhs per month with effect from 1-8-1993. Thereupon, ‘R’ filed suit before the High Court praying for possession of premises and also certain amount as mesne profits for illegal occupation of premises by assessee-company. Subsequently, a consent was arrived at in terms of which assessee had to pay a ` 34.57 crores to NOPL. Since assessee had already paid a sum of `1.10 crores over a period to NOPL as per directive of High Court, assessee reduced this sum from total agreed amount of ` 34.57 crores and paid the remaining amount of ` 33.47 crores to NOPL. Assessee’s claim for deduction in respect of said payment was rejected on ground that it was a capital expenditure. Further, Assessing Officer passed a penalty order under section 271(l)(c) for raising a false claim in respect of lump-sum payment of ` 34.57 crores. Mere fact of making or confirming the addition in quantum cannot ipso facto lead to inference that there has been concealment of income or furnishing of inaccurate particulars of such income by assessee so as to levy penalty under section 271(l)(c). Since it was apparent from records that prior to making payment in terms of consent decree assessee had made interim payments of similar nature as per order of High Court which had been allowed, claim raised by assessee in respect of lump-sum payment was bona fide. Since assessee had made a proper disclosure of facts material to claim in question, there was no concealment of particulars of income or furnishing of inaccurate particulars of such income by assessee so as to attract levy of penalty under section 271(l)(c). (A.Y. 2002-03)

Narangs International Hotels (P.) Ltd. v. DCIT [2012] 137 ITD 53 (TM)(Mum.)(Trib.)

572. S. 271(1)(c) : Penalty – Concealment – Death of the assessee - Revised return – Order passed on dead person without bringing on record of legal heir held to be bad in law. As the amount of gift was disclosed in revised return levy of penalty held to be not justified.

During pendency of penalty proceedings assessee died and, thereupon Assessing Officer without issuing a fresh notice to legal heir of deceased-assessee passed a penalty order. The Tribunal held that the order so passed was not sustainable being violative of principles of natural justice. Assessee filed revised return wherein he disclosed a gift of ` one lakh received from one ‘B’. Assessee’s case was that though sum of ` 1 lakh was given by way of gift by ‘B’, when he was asked to give in writing for income tax purpose, he showed his inability to furnish details and hence assessee surrendered amount in revised return. Assessing Officer took a view that assessee had filed revised return because Investigation wing had already started investigation in many cases in respect of assessee. However, Assessing Officer had not brought any material on record to indicate that revenue was aware of non-genuineness of gift received by assessee. Assessing Officer had not made any effort to prove either by obtaining statement from donor or otherwise, that gift was not genuine. The Tribunal held that it was not a case of furnishing inaccurate particulars of income and, therefore, no penalty could be levied.(A.Y. 2001-02)

Jai Narain Upadhyay v. ACIT (2012) 137 ITD 241(TM)(Lucknow)(Trib.)

573. S.271(1)(c) : Penalty - Concealment - Deduction of donation - Loss return - Levy of penalty was held to be justified.

The assessee has filed a loss return. In the statement of income it has claimed the deduction under section 80G in respect of donation. As the returned income was loss the assessee was not entitled to deduction. The Tribunal held that as the assessee had not proved that claim was made by mistake and there was no mala fide intention, levy of penalty was held to be justified. (A.Y. 2005-06)

Unison Hotels Ltd. v. Dy. CIT (2012) 138 ITD 39 (Delhi) (Trib.)

574. S.271(1)(c) : Penalty – Concealment – Furnishing of inaccurate particulars – All particulars like freight receipts, income as per the provision of S. 44B disclosed in ROI – No penalty to be levied where treaty benefits denied on the ground that effective place of management in Mauritius. (S. 44B)
Where the assessee has disclosed all the freight receipts in respect of Indian operation in the return of income and has also shown the income as per the provision of S. 44B and calculated tax payable accordingly and claimed benefit of treaty, there cannot be a case of furnishing of inaccurate particulars to invoke penalty u/s 271(1)(c) merely because treaty benefits were denied on the ground that effective place of management in Mauritius was not proved by assessee. (A.Y. 2001-02)

Addl. CIT (IT) v. R Liners Ltd. (2012) 149 TTJ 1 (Mum.) (Trib.)

Dy. DIT (IT) v. James Mackintosh & Co. (P.) Ltd. (2012) 149 TTJ 1 (Mum.)(Trib.)

575. S.271(1)(c) : Penalty – Concealment - Revised return – Issue of notice under section 143(2) – Merely filing of revised return after issue of notice under section 143 (2) and showing capital gain in revised return does not tantamount to detection of concealment, penalty levied was deleted. (S. 139(5), 143 (2))

The assessee filed the return of income, which was selected for scrutiny under section 143(2).The assessee sought adjournments. On the subsequent date the assessee filed the revised withdrawing the long term capital gains which was claimed as exempt in the original return, and also filed the detailed reply. Since the revised return was beyond the prescribed limit the Assessing Officer treated the said return as invalid. In response to penalty notice the assessee contended that the revised return was filed, voluntarily before detection hence penalty should not be levied. Assessing Officer levied the penalty. The Tribunal held that, merely because a notice under section 143 (2) had already been issued and the assessee filed the revised return thereafter disclosing additional income towards capital gains which was not correctly shown in the original return does not tantamount to detection of concealment of income under section 271(1)(c) of the Act. Appeal of department was dismissed. (A.Y. 2006-07) (ITA No. 2970/Del) 2012 Bench “D” dated 31-8-2012 )

ACIT v. Ashok Raj Nath (2012) 19 ITR 70 (Delhi) (Trib.)

576. S.271(1)(c) : Penalty - Concealment –Revised return - Survey - Penalty for concealment cannot be levied if revised ROI filed after survey but before issue of s. 148 notice. (S. 133A, 148)

It is the settled law that if a revised return offering additional income is filed after investigation has started but before the issue of the s. 148 notice, s. 271(1)(c) penalty is not leviable. In CIT v. Sureshchand Mittal (2001) 251 ITR 9, (SC) the Supreme Court held that even where the assessee surrendered additional income by way of a revised return after persistent queries by the AO, once the revised ROI has been regularised by the revenue, the assessee’s explanation that he had declared the additional income to buy peace had to be treated as bona fide and s. 271(1)(c) penalty could not be levied. On facts, as the assessee filed a revised ROI after survey but before the issue of the s. 148 notice, hence penalty was not leviable. (A.Y. 2005-06)

Radheshyam Sarda v. ACIT (Indore)(Trib.) www.itatonline.org 

577. S. 292B : Return of income not to be invalid on certain grounds – Notice – Only one irregularity in notice – Minor omission of some words, does not invalidate notice. (S.143)

Merely compliance to notice may not validate a notice which is totally illegal, however, where there is only an irregularity in notice which is otherwise in substance in conformity with intent and purpose of act, notice cannot be deemed to be invalid. Minor omission of some words, does not invalidate notice in view of s. 292B. (A.Y. 2002-03)

ITO v. Mukut Finvest & Properties (P.) Ltd. (2012) 138 ITD 166 (Delhi)(Trib.)

Wealth Tax Act

578. S. 2(ea) : Definitions - Asset - Building – Let out of factory building and plant - Wealth tax cannot be levied as it remained as commercial asset.

The assessee was carrying on business of manufacturing for two years, however the same was leased thereafter and earned the lease rentals. The Wealth Tax Officer levied the wealth tax, which was confirmed in appeal. On appeal to the Tribunal the Tribunal held that even though the assessee is receiving lease rent from lessee, the property i.e., building, plant and machinery, etc remained commercial assets exploited for the purpose of carrying on manufacturing business, therefore, such assets did not attract levy of wealth–tax. (A.Ys. 1997-98 & 1998-99)

Vyline Glass Works Ltd. v. ACWT (2012) 147 TTJ 642 (Chennai)(Trib.)

579. S.2(ea) : Definitions – Assets – Commercial establishment or complex - Leasing of premises - Leasing of premises cannot be considered as commercial establishment hence liable to wealth tax.

Where assessee was not in business of letting out of its office premises and intention of letting out same was not to exploit business assets in relation to its business, said premises would not fall in category of commercial establishment or complex as per provisions of section 2(ea)(i)(5) and therefore, above premises was assessable to wealth-tax (A.Y. 2006-07)

Naturell (India) (P.) Ltd.v. ACWT (2012) 137 ITD 136 (Mum.)(Trib.)

580. S.5(vi): Exemption – Assets – Plot of Land – Land wrongly shown taxable on return – Held that exemption cannot be ignored, as provided by statute

In the instant case, the assessee wrongly shown a plot of land admeasuring 336 sq meters as taxable. As per the provisions of section 5 and wealth Tax Act, land admeasuring an area of 500 sq meters or less is not chargeable to wealth tax as per provisions of section 5(vi) in return of wealth. It was held that even if assessee had not made any claim for exemption in return of wealth, exemption u/s 5(vi) could not be ignored, which is provided by provisions of the Act. (A.Y. 2007-08)

Udit Narain Agrawal v. Dy. CWT (2012) 138 ITD 51 (Agra)(Trib.)

581 S.7 : Valuation of assets - Residential premises – Rule 3 of Schedule III - Benefit of third proviso is available as the option is with assessee.

Assessee owned a property. He had valued said property on basis of capitalization of net maintainable rent as per third proviso to Rule 3 of Schedule III of Act. The Assessing Officer having noticed that assessee had not occupied property in question for residential purpose for period of 12 months ending on 31-3-2001 valued property as per second proviso to Rule 3 of Schedule III. It was held that the language of third and fourth provisos to rule 3 of Schedule III makes it clear that there may be more than one house belonging to assessee and exclusively used by assessee for his own residential purpose and in that case assessee may not stay in all house, but still benefit of third proviso is available to assessee at his option to one of such houses and staying in house is not a mandatory condition. Since property in question was residential house which had not been let out or used for purpose other than residential, conditions as enumerated in third proviso to rule 3 of Schedule III were satisfied by assessee. (A. Y. 2001-02)

Ramesh D. Hariani v. WTO (2012) 137 ITD 128 (Mum.)(Trib.)

582. S.17 : Reassessment – Reason to believe – No WT returns were filed by assessee – Assessee cannot challenge notice issued under Section 17.

Assessee cannot challenge notice issued under Section 17 on the ground of change of opinion where no WT returns were filed by assessee. (A.Y. 1997-98 & 1998-99)

Vyline Glass Works Ltd. v. ACWT (2012) 147 TTJ 642 (Chennai)(Trib.)

583. S.17 : Reassessment – Information - Tangible material – Information in income tax proceedings constitute a tangible material for reassessment.(S.143 (3))

Information and material found during course of assessment proceedings under section 143(3) of Income-tax Act, 1961 constitute a tangible material for forming a belief that net wealth of assessee assessable to tax has escaped assessment. (A.Y. 2006-07)

Naturell (India) (P.) Ltd. v. ACWT (2012) 137 ITD 136 (Mum.)(Trib.)