1. Bad Debts – S. 36(1)(vii)

The assessee was a share broker. Payments made towards purchase price of shares on behalf of client turned bad. The same was allowable as bad debts.

ACIT vs. Olympia Securities Ltd., ITA No. 4053/Mum/2002, Bench – ‘G’, A.Y. 1997–98, dt. 21-12-2006 – BCAJ p. 147, Vol. 40-A, Part 2, May 2008

2. Bad Debts – Ss. 36(i)(vii), 5

As the accrual of income was based on condition of completion of certain work, and which on facts, could not be done due to other factors, leads to inference that income did not accrue to the assessee. Also till the time legally enforceable right comes into existence income does not accrue, and the assessee is entitled to deduction u/s 36(i)(vii) of an amount shown as income in the books.

Iyshvakoo Radhu vs. ACIT (2008) 169 Taxman 38 (Delhi)

3. Block Assessment – S. 158B

On basis of seized material additions were made in Block Assessment to the extent of properties related to the assessee. Additions were also made in another firm based on same seized material, which was deleted by the Tribunal in that firm’s case. Held, issue being identical in nature and based on finding given by Tribunal, the addition is not justified even in assessee’s case.

It was observed that Assessing Officer once failed to bring on record any evidence by any corroborative material, could not have a second innings by suggesting the matter to be remanded back.

Sahil Builders vs. DCIT (2008) 170 Taxman 165 (Delhi)

4. Block Assessment – S. 158BD

For assessing the undisclosed Income of any person other than the person who is searched u/s. 132(1), it is mandatory that the Assessing Officer should be satisfied, and such satisfaction is based upon material before him, and same should be clearly identified, as the same has to be handed over to Assessing Officer of person in whose case section 158BD is sought to be invoked.

ACIT vs. Hari Singh (2008) 169 Taxman 31 (Delhi)

5. Business Expenditure – S. 37(1)

Held, on facts that once the genuineness of the transactions are confirmed by payee, and it is proved that payments made were wholly and exclusively for the business, same are allowable u/s 37(1).

Further, if the expenses appear to be excessive, same could only lead to an enquiry, but that, by itself, could not be ground to disallow any expenditure.

Ram Manohar Singh vs. ACIT (2008) 170 Taxman 79 (Jabalpur)

6. Business Expenditure – Actual payment – Provident Fund – S. 43B

Payment of contribution of employer to provident fund and pension fund before due date for filing return is allowable as deduction. Second proviso to section 43B which stipulated that the payment has to be made on or before the due date as defined in the Explanation to sec. 36((1)(va) has been omitted by the Finance Act, 2003, w.e.f. 1-4-04. This omission would have retrospective effect.

Jt. CIT vs. I. T. C. Ltd. (2008) 299 ITR (AT) 341 (Kol.) (SB)

7. Business Expenditure – Central Excise payments & MODVAT credit – Allowability – S. 43B

(i) Deposits made to keep a sufficient balance in the current account that is necessitated by mandate of law and not made at the option of the assessee, are to be treated as actual payment of duties for the purpose of deduction u/s. 43B as it is irretrievable.

(ii) The MODVAT credit available as on the last day of the year does not amount to payment of Central Excise Duty u/s. 43B.

Dy. CIT vs. Glaxo SmithKline Consumer Healthcare Ltd. (2008) 299 ITR (AT) 1 (Chandigarh) (SB)

8. Business Expenditure – Interest on borrowed funds – S. 36(1)(iii)

Advances, undisputedly, out of the cash credit account with the bank but the assessee claimed that these advances were made out of own funds and substantial profit for the year was disclosed. Assessing Officer, on the facts and circumstances did not make out a case that these advances were not made in the course of business for commercial expediency and for the purpose of business. In such circumstances notional interest not disallowable.

Jt. CIT vs. I. T. C. Ltd. (2008) 299 ITR (AT) 341 (Kol.) (SB)

9. Business Expenditure – S. 37(1)

Expenditure incurred for advertisement in souvenir is allowable business expenditure.

Jt. CIT vs. ITC Ltd. (2008) 115 TTJ 45 (Kol.) (SB)

In the absence of any evidence on record that the air travel expenses were personal in nature, same are allowable as deduction.

Dy. CIT vs. Gujarat NRE Coke Ltd. (2008) 115 TTJ 822 (Kol.)

Brokerage and commission paid to agents for obtaining houses for employees are allowable as deduction.

Jt. CIT vs. ITC Ltd. (2008) 115 TTJ 45 (Kol.) (SB)

Expenditure incurred for sponsorship of sport is revenue expenditure.

Jt. CIT vs. ITC Ltd. (2008) 115 TTJ 45 (Kol.) (SB)

Compensation paid for routine issues like quality of food, etc. to hotel guests is allowable business expenditure.

Jt. CIT vs. ITC Ltd. (2008) 115 TTJ 45 (Kol.) (SB)

Expenditure incurred for research unit, existence of which is not in dispute is allowable as business expenditure.

Jt. CIT vs. ITC Ltd. (2008) 115 TTJ 45 (Kol.) (SB)

Expenditure incurred on salary by a hotel could not be disallowed on the ground that the hotel was under repair and non operational during one year.

Jt. CIT vs. ITC Ltd. (2008) 115 TTJ 45 (Kol.) (SB)

Expenditure incurred on beautification of city is allowable revenue expenditure.

Jt. CIT vs. ITC Ltd. (2008) 115 TTJ 45 (Kol.) (SB)

Directors authorized to use the vehicle of the company, vehicle expenses were allowable business expenditure.

Omkar Textile Mills vs. ITO (2008) 115 TTJ 716 (Ahd.)

Expenditure incurred for shifting of machinery from one factory premises to another factory premises cannot be treated as capital in nature.

Jt. CIT vs. ITC Ltd. (2008) 115 TTJ 45 (Kol.) (SB)

Sum paid as non-compete charges, restraining the recipient for a short or limited period is not a capital expenditure, as it is for increasing the profitability.

It was further held that as expenditure was incurred for a period of 5 years, same cannot be allowed as lump sum in the impugned assessment year, and it has to allowed over a period of 5 years.

Premier Opticals (Pvt.) Ltd. vs. ACIT (2008) 170 Taxman 167 (Mum.)

10. Capital Expenditure – S. 37(1)

Expenditure on providing music and CC+v in rooms of hotel is capital in nature.

Jt. CIT vs. ITC Ltd. (2008) 115 TTJ 45 (Kol.) (SB)

11. Capital or Revenue Receipt – Mesne profit and interest thereon – S. 4

1. Mesne profit received under order of court on account of damages for deprivation of use and occupation of property is Capital Receipt and not taxable.

2. Interest on such mesne profit till decree of the court held to be capital receipt and interest for the period thereafter is revenue receipt and therefore, such receipt is taxable.

Narang Overseas P. Ltd. vs. ACIT (2008) 300 ITR (AT) 1 (Mum.) (SB)

12. Deduction – Expenditure relating to income not included in taxable income – S. 14A

1. Proviso to section 14A excludes jurisdiction of the A.O. to assess, reassess or to rectify assessments for years up to the A.Y. 2001-02. In otherwords, if assessments for the A.Y. 2001-02 and earlier assessment years have not been concluded and are pending before the A.O. then in that case the A.O. has to give effect to the amended provision of section 14A if any issue relating to allowability of deduction in relation to an exempted income arises before him.

2. The proviso has to be construed strictly according to which the ambit and the operation of the main provision has curtailed jurisdiction of the A.O. and not the other authorities. It means if the intention of the legislature was so then in that case it could have been specifically provided.

3. The A.O. is not restricted from invoking section 14A in case if the CIT(A) or the Appellate Tribunal directs him to do so. Restriction imposed by the proviso would not come in his way while carrying on the direction of the Appellate Authorities which required application of provisions of section 14A. In such case it becomes necessary and therefore, restriction imposed by the said proviso would not restrain him from applying the amended provisions of section 14A.

4. The restriction imposed by the said proviso would not restrict the application of the provision of section 14A in a case where the assessment has been set aside under the provisions of section 263 for fresh adjudication.

5. The CIT(A) can invoke provisions of section 14A when matter before him is related to the A.Y. 2001-02 or earlier assessment years which are pending before him and if the subject matter is pending for consideration and which requires adjudication of applying provisions of section 14A. It is also permissible to invoke the section 14A when the facts were placed before him at that stage and if the A.O. had not invoked section 14A as the said provision was not having been in existence at the time of passing the assessment order.

6. The Appellate Tribunal has the power to invoke the provision of section 14A where the assessment proceedings pertaining to the A.Y. 2001-02 and earlier assessment years have not been concluded or finalized and the matter is pending before the Tribunal which involves issue relating to deduction of expenses incurred in relation to the exempt income.

The Tribunal has power to invoke section 14A when a ground is taken before it by any party or even suo motu irrespective of the fact that the section 14A was not invoked by any of the lower authorities. In such circumstances the Tribunal has to give full opportunity to the parties.

Aquarius Travels P. Ltd. vs. ITO (2008) 301 ITR (AT) 111 (Delhi)(SB)

13. Deduction – S. 80HHC

Deduction under section 80HHC is to be allowed on eligible profits after reducing therefrom deduction under section 80IB.

Bansal Impex vs. CIT (2008) 115 TTJ 906 (Del.)

14. Disallowance – S. 14A

Proportional expenditure towards dividend income could not be disallowed under section 14A without establishing nexus.

Space Financial Services vs. ACIT (2008) 115 TTJ 165 (Del.)

15. Disallowance – S. 40(a)(i)

Commission paid to non-resident agent outside India for services rendered outside India could not be disallowed under section 14A.

CIT vs. Ardeshi B. Cursetjee & Sons Ltd. (2008) 115 TTJ 916 (Mum.)

16. Income – S. 2(24)

The assessee was the world satellite telecast right holder of certain feature films. In consideration for transfer of exclusive rights to transmit, broadcast, etc. of four feature films to Asianet for the period of five years, she was paid a sum of Rs. 4 lakhs. The Tribunal accepted the contention that she had transferred/sold her rights in the said pictures for a period of five years, which according to it, showed that the entire sum of Rs. 4 lacs was the consideration for the exercise of the rights by Asianet for a period of five years. Accordingly, the Tribunal accepted the contention of the assessee that the sum of Rs. 4 lakhs had to be assessed in five years and not in the year under appeal alone.

Molly Boban vs. ITO, ITA No. 01/Coch./2007, Bench – N, A. Y. 2001-02, dt. 11-3-2008 - BCAJ p. 293, Vol. 40-A, Part 3, June 2008.

17. Infrastructure Undertaking – S. 80-IA

While calculating the deduction u/s 80-IA, if the profit does not include any part of interest income in excess of interest payment, then interest received need not be reduced from income for computing deduction u/s 80-IA.

ITO vs. V. Naren Traders & Consultants (2008) 169 Taxman 36 (Mum.)

18. Penalty – S. 271B

The assessee was a chartered accountant by profession. During the year, he received share of profit and remuneration from the partnership firm, each of which was more than Rs.10 lakhs. However, the gross receipts earned by his proprietary concern were less than Rs. 10 lakhs. According to the A.O, the provisions of section 44AB were applicable and levied penalty u/s 271B. The Tribunal noted that assessee’s major income was not from profession, but from the share of his profit from the professional firm. According to it, share of profit cannot be equated with income from profession. The Tribunal held that the assessee had reasonable cause for failure to get his accounts audited as required u/s 44AB of the Act, hence penalty was deleted.

Hitesh D. Gajaria vs. ACIT, ITA Nos. 992/Mum/2007, Bench – K, A.Y. 2003-04, dt. 22-2-2008 - BCAJ p. 16, Vol. 40-A, Part 1, April 2008.

19. Professional or Technical Service Fees – S. 194J, 9

Held, fees paid for obtaining advice and assistance on operational and financial aspects of business, to Mauritius company, cannot be considered as Royalty as per section 9(i) (vi), and hence no requirement to deduct TDS. And since payment for Technical Services was not covered under DTAA between India and Mauritius no tax is required to be deducted even as per provision of section 9(i)(vii).

Spice Telecom vs. ITO (2008) 170 Taxman 82 (Bang.)

20. Project completion method – S. 145

Advertisement expenses of two projects being allocable to individual project have to be capitalized as work in progress and deduction
is to be allowed in the year of completion of the project.

ITO vs. Panchvati Developers (2008) 115 TTJ 139 (Mum.)

21. Reference to Valuation officer – S. 55A

The assessee had shown fair market value as on 1-4-1981 at Rs. 10 lakhs. U/s 55A, the A.O. made reference to the valuation officer who valued the property at Rs. 6.6 lakhs as on said date. On Appeal, CIT(A) took the fair market value at Rs. 9.36 lakhs. On further Appeal, the Tribunal held that reference u/s 55A could be made only if the A.O. was of the opinion that the value returned by the assessee was less than its Fair Market Value. The act of the A.O. in accepting the valuation made u/s 55A, which was undoubtedly less than the Fair Market Value shown by the assessee, proved that the A.O. was of the opinion that the assessee’s claim was more than its FMV. Thus, according to the Tribunal, the A.O. was not justified in making reference to the Valuation Officer.

ITO vs. Lalitaben B. Kapadia, ITA No. 8763/Mum/2004, Bench – K, A. Y. 2001-02, dt. 20-9-2007 - BCAJ p. 16, Vol. 40-A, Part 1, April 2008.

22. Repairs – S. 31

Expenditure incurred on construction of glass curtain wall for better look of hotel building was an allowable expenditure

Fition Hotel vs. ITO, ITA No. 7035/Mum/2003, dt. 8-3-2007 - BCAJ p. 293, Vol. 40-A, Part 3, June 2008.

23. Resident but not ordinarily resident – S. 6(6)

The Tribunal noted that the provisions of section 6(6)(a) uses the term ‘or’ and not ‘and’ between the two conditions given therein. Accordingly, a person would be considered as RNOR if he complies with either of the two conditions given therein. It disagreed with the CIT(A) that in order to qualify as RNOR, the assessee should fulfil both the conditions. In the case of the assessee, since he was not resident in India in nine out of ten previous years, his status would be that of RNOR.

Note : The provisions of section 6(6) have been substituted by the Finance Act, 2003 w.e.f. 1-4-2004.

Jayram Rajgopal Poduval vs. ACIT, ITA No. 7072/M/2004, Bench – H, A. Y. 2001-02, dt. 18-1-2008 - BCAJ p. 18, Vol. 40-A, Part 1, April 2008.

24. Revision – S. 263