90. Accounts – Rejection of books of account – S. 145

Without pointing out any specific defect in the method of accounting regularly employed by the assessees, the books of account could not be rejected.

ACIT vs. Shiv Agrevo Ltd. (2009) 123 TTJ 416 (JP).

91. Appeal – Power of CIT(A) – S. 251

After 1st June, 2001, CIT(A) has no power to set aside the issue to the file of the AO for reconsideration.

Suri Sons vs. Addl. CIT (2009) 124 TTJ 800 (Asr.)

92. Book profit – Minimum Alternate Tax – S. 115JA

Stock borrowing charges not debited to P & L Account as required under Schedule VI of the Companies Act can be claimed as revenue expenditure even by an assessee who is bound to follow the Accounting Standards.

ITO vs. Cyril Traders Pvt. Ltd., ITA No. 5297/Mum/2004, A.Y. 1998-1999, dt. 28-7-2009 – BCAJ p. 43, Vol. 41A, Part 6, September 2009

93. Book profit – Tax credit – S. 115JA

While computing tax liability u/s 115JA credit for tax paid in foreign country is allowable.

ACIT vs. L & T. Ltd., ITA No.4499/Mum/2008, dt. 22-7-2009, BCAJ p. 46, Vol. 41A, Part 6, September 2009

94. Business expenditure – Brand promotion – S. 37

Expenditure on brand promotion and brand building classified in the books of account as deferred revenue expenditure was allowed as revenue expenditure.

ACIT vs. Raj Oil Mills Ltd., ITA No. 5781/M/2007, A.Y. 2003-04, dt. 27-5-2009 – BCAJ p. 31, Vol. 41-A, Part 5, August, 2009.

95. Business expenditure – Foreseeable losses – S. 37

In case of an assessee following mercantile system and “percentage completion method” deduction is allowable in respect of “foreseeable losses” on incomplete projects in respect of which a major part of the work was not completed provided that the same is calculated in accordance with Accounting Standard – 7.

Jacobs Engineering India Pvt. Ltd. vs. ACIT, ITA Nos. 335/Mum/2007 & 336/Mum/2007, A.Ys. 2002- 03 & 2003-04, dt. 26-5-2009 – BCAJ p.31, Vol – 41A, Part 5, August 2009.

96. Business expenditure – New model car – S. 37

Expenditure incurred on launching of a new model of car is a revenue expenditure.

Premier Ltd. vs. Dy. CIT, ITA No. 2091/Mum/2008, dt. 30-6-2009 BCAJ P. 42, Vol. 41A, Part 6, September, 2009

97. Business expenditure – Provision for excess bills – S. 37(1)

If the assessee does not accept the excess bills raised by supplier, he is not entitled to the deduction of provision for excess bills.

ITO vs. Sicgil India (P) Ltd. (2009) 123 TTJ 462 (TM) (Chennai)

98. Business expenditure – Residential facility to engineers – S. 37(1)

Expenditure in providing residential facility to engineers at work site is wholly for the purposes of business and allowable as business expenditure in toto.

ACIT vs. Niko Resources Ltd. (2009) 123 TTJ 310 (Ahd.)

99. Business income – Benefit – S. 28(iv) r.w.s. 41(1)

Reduction of liability availed by the assessee on the basis of One Time Settlement Scheme in respect of its outstanding term loans is not to be treated as taxable u/s 28(iv) or u/s 41(1).

Accelerated Freez & Drying Co. Ltd. vs. Dy. CIT, ITA No. 971/Coch/2008, A.Y. 2005-06, dt. 5-5-2009. BCAJ P. 63, Vol. 41-A, Part 4, July 2009.

100. Business not set up during the year – Receipts cannot be assessed as income from other sources

Receipts up to the stage of setting up of business would go to reduce the cost of setting up of business. It would be travesty of justice if the assessee’s expenditure up to the stage of setting up is treated as capital in nature but not the receipts during the same period.

Shapoorji Pallonji Tower Co. Ltd. vs. ITO (2009) 28 DTR 12 (Mum.)

101. Capital or Revenue – Replacement of part of machinery – S. 37

Expenditure on replacement of parts of machinery is allowable revenue expenditure.

Comsat Max Ltd vs. Dy. CIT (2009) 124 TTJ 86 (Del.)

102. Cash credit – S. 68

Loan amount received in earlier year converted into gift in later year is a valid gift.

Haresh A. Dhanani vs. ACIT, ITA No. 5850/Mum/2008, dt. 22-5-2009 – BCAJ p. 43, Vol. 41A, Part 6, September, 2009.

103. Charitable purpose – Exemption – Conditions of charitable / religious purpose fulfilled – Exemption available – S. 2(15), 11, 12

In the present case, even if the assessee did not render medical services in all cases to poor people, yet it would not fall out of the ambit of the definition of ‘Charitable Purpose’ under section 2(15) of the Act. The relief would be still available to the assessee and the exemption under sections 11 and 12 of the Act was rightly availed by them.

ITO vs. Kaushalya Medical Foundation (Mum.) (2009) 31 SOT 119 (Mum) A.Y. 2003-04

104. Commissioner (Appeals) – Power

– S. 251

There is no requirement for confronting Assessing Officer in a situation where the Additional Evidences were filed before the Commissioner (Appeals) under his direction.

DCIT vs. Thoresen Chartering Singapore (Pte) Ltd. (2009) 118 ITD 416 (Mum.)

105. Deduction – Industrial undertaking – Housing project – Amnesty – Deduction – S. 80(IB)

Amenities provided by the assessee at the time of construction itself, though by way of a separate agreement, are to be treated as part of the housing project undertaken by the assessee. Deduction u/s 80(IB)(10) is allowable in respect of receipts for amenities.

When there is direct nexus between the funds borrowed and funds advanced to sister concerns interest received on amounts advanced can be netted off against interest paid.

DCIT vs. Vimal Builders, ITA Nos. 3646/Mum/2007 & 2730/Mum/2007, A.Y. 2003-04, dt. 28-7-2009. BCAJ p. 45, Vol. 41A, Part 6, September, 2009

106. Deduction – Not available to contractors – S. 80 IA (4)

The difference between a “developer” and “Contractor” is that the former designs and conceives new projects while the later executes the same.

The intention of the legislature is to provide deduction u/s 80IA (4) only to the person directly engaged in developing, maintaining and operating the facility. There should be a complete development of the facility and not just a part of it.

B.T. Patil & Sons vs. ACIT (ITAT Mumbai Larger Banch) ITA No.1408 & 1409/PN/2003,A.Y. 2000-01 & 2001-02. Source: - www.itatonline.org

107. Deduction – Recognition of institution, etc. – Refusal to renew registration

– Ss. 80G, 80G(5)

Activity of assessee of dispensing homoeopathic medicines for a token consideration cannot at all be termed as the assessee’s income being profits and gains of business within the meaning of the proviso to section 80G(5)(i). Rather, it amounts to an object by way of ‘medical relief’ as defined in section 2(15). Therefore, the said proviso does not get attracted and assessee was not therefore required to maintain separate books of account in respect thereof. Further, if any payment has been made to any institution which is not registered under section 12AA, this shall be taken care of in the assessment of the assessee and it does not have any bearing on the renewal of the approval sought under section 80G(5)(vi). It was held that CIT was therefore not justified in refusing renewal of registration to the assessee especially when renewal had been granted in the past for several years.

Agrawal Metal Works Charitable Trust vs. CIT (2009) 28 DTR 54 (Del.) (Trib.)

108. Deduction – S. 80-IB Production of Mineral Oil – S. 80-IB(9)

Assessee producing natural gas is producing mineral oil eligible for deduction u/s. 80-IB(9)

ACIT vs. Niko Resources Ltd. (2009) 123 TTJ 310 (Ahd.)

109. Deduction of tax at source – Assessee in default – S. 201

Payer not an assessee in default u/s 201 if payee has paid tax on income but payer liable to interest u/s 201(1A)

ITO vs. Intel Tech India Pvt. Ltd., ITA No. 71/Bang/2009, A.Y. 2004-05, dt. 9-4-2009 BCAJ p. 48, Vol. 41A, Part 6, September 2009

110. Deduction of tax at source – commission – S. 195

No tax is required to be deducted from commission paid to agent outside India if no services performed in India or no fixed place of business in India

Spahi Projects Pvt. Ltd., In Re, AAR No. 802 of 2009, dt. 29-7-2009 - BCAJ p. 50, Vol. 41A, Part 6, September, 2009

111. Deduction of Tax at Source – Not required if the agreements of assessee with entrepreneurs could not be termed as works contract within the scope of 194c of the Act – S. 194C r/w s. 201 of the i. t. act, 1961

In the present case, the DVDs etc. were manufactured by entrepreneurs in their own establishment, in accordance with specifications of assessee, (ii) the raw material cost and other ancillary costs were also incurred by them, (iii) excise duty was paid by them and it was only when goods were sold to assessee that property in goods passed over to it, such agreements of the assessee with entrepreneurs could not be termed as works contract within the scope of section 194C and hence no TDS was required.

Shemaroo Video (P) Ltd. vs. ITO, Mumbai (2009) 31 SOT 65 (Mum)

112. Deemed dividend – S. 2(22)(e)

Deemed dividend can be assessed only in the hand of a shareholder of lender company and not in the hands of a person other than shareholder. The expression ‘shareholder’ referred to in section 2(22)(e) refers to both – a registered shareholder and a beneficial shareholder. Thus, if a person is registered shareholder but not beneficial shareholder or visa-versa then provisions of section 2(22)(e) would not apply.

ACIT vs. Bhaumik Colour (P) Ltd. (2009) 118 ITD 1 (Mum.) (SB)

113. Deemed dividend – Taxable only in the hands of registered share holder

– S. 2(22)(e)

In the present case following the Special Bench decision of the Mumbai Tribunal in the case of ACIT vs. Bhaumik Colour (P) Ltd. (2009) 27 SOT 270, the Hon’ble Tribunal upheld the order of the Commissioner (Appeals) that under section 2 (22) (e) of the Act, deemed dividend can be assessed only in the hands of a person who is a registered share holder of the lender company and not in the hands of a person other than a registered shareholder.

Dy. CIT vs. National Travel Services (2009) 31 SOT 76 (Delhi)

114. Depreciation – Plant or building – S. 32

Road is not plant but after assessment year 1988-89, it is included in the category of building for depreciation.

Tamil Nadu Road Development Co. Ltd. vs. ACIT (2009) 123 TTJ 702 (Chennai).

115. Disallowance of expenses – Partners share of profit – S. 14A

The fact that the profits are charged to tax in the hands of the firm does not mean that the share of such profits is non exempt in the hands of the partner. The profits being exempt in the hands of the partner, S. 14A does apply in computing his total income.

A firm and the partner are consequently a separate entities under the act.

Dharmasingh Popat vs. ACIT (ITAT Mumbai) Bench ‘H’ ITA No. 7534/M/04, A.Y. 2001-02. Source: www.itatonline.org

116. Disallowance – Absence of exempt income in the relevant year – S. 14A

When the expenditure of interest is incurred in relation to income which does not form part of total income, it has to suffer the disallowance irrespective of the fact whether any income is earned by the assessee or not. Section 14A does not envisage any such exception. This is even if the interest paid on borrowings for the purchase of share were allowable under section 57 as an expenditure incurred for earning an income or under section 36(1)(iii) or u/s/ 37 as an expenditure incurred wholly and exclusively, for the purposes of business. Term in relation to is wide enough to include in its sweep the expenditure both for making or earning income and incurred wholly and exclusively for the purposes of business carried on by the assessee. What one has to see is either any expenditure were incurred by an assessee in relation to an income that does not form part of total income of the assessee under the Act, and if the answer is in affirmative then that expenditure cannot be allowed irrespective of the fact that it was allowable under different provisions of the Act. Further, disallowance has to be of the entire amount of the expenditure so related and cannot be reduced by the receipt of interest which has no relation to such expenditure.

Cheminvest Ltd vs. ITO (2009) 27 DTR 82 (Del.) (SB)

117. Disallowance – Payment of hire charges of trucks – No TDS – Ss. 40(a)(ia), 194C

In the instant case, assessee hired trucks for a fixed period on payment of hire charges which were utilized in its business of civil construction. There was no agreement for carrying out any work or to transport any goods or passengers from one place to another. Hiring of trucks for the purpose of using them in assessee’s business did not amount to contract for carrying out any work as contemplated in section 194C. It was held that once the contract was not for carrying out any work, the provisions of section 194C were not attracted and no disallowance under section 40(a)(ia) can be made.

Dy. CIT vs. Satish Aggarwal & Co. (2009) 27 DTR 34 (Asr.)

118. Disallowance – S. 40(a)(ia) r.w.s. 194H

The assessee sold the products billing them at gross amount and trade discount was given at the rate of 50% or 30% or 17.20% as the case may be. The net amount was shown as price payable and sales tax was collected on the said amount. Held that trade discount debited by the assessee in its accounts is not covered u/s 194H. Since there was no liability to deduct tax, the disallowance
u/s 40(a)(ia) was deleted.

S. D. Pharmacy Pvt. Ltd. vs. Dy. CIT, ITA Nos. 948/Coch/2008, A. Y. 2005-06, dt. 5-5-2009. BCAJ p. 62, Vol. 41-A, Part 4, July 2009.

119. Disallowances cash expenditure

– S. 40A(3)

Provisions of section 40A(3) apply for each payment and not aggregate of the various payments made to same party during one day.
Shanti Ram Mehata vs. ACIT (2009) 119 ITD 62 (Kol.) (TM).

120. Exemptions – Scholarship – S. 10(16)

Scholarship or Stipend received by a student from Government for pursuing higher studies can not be termed as salary and the same is exempt u/s. 10(16).

Rahul Tagnoit vs. ITO (2009) 123 TTJ 251 (Chd.)

121. Expenditure on scientific research for parent company – Not eligible for deduction – S. 35(1)(iv)

Assessee carrying on/doing no business for itself but only carrying out research and development work for its parent company, results of which were to be used by parent company for extension of parent company’s business. It was held that there should be a business carried on by the assessee and the scientific research should relate to that business which is carried on by the assessee. scientific research, per se, is not contemplated as a ‘business’ by the provisions of section 35(1)(iv)

r.w.s. 43(3)(iii)(a). Assessee’s activity was facilitating the extension of business of its parent company in USA and not that of its own and hence, CIT(A) was justified in holding that assessee was not entitled to deduction under section 35(1(iv).

Enem Nostrum Remedies (P) Ltd vs. ACIT (2009) 28 DTR 43 (Mum.)

122. Export – DEPB – Deduction – Ss. 80HHC, 28(iiid)

Entire amount received on sale of DEPB entitlements does not represent profit chargeable u/s 28(iiid). Computation of profit on sale of DEPB entitlements requires an artificial cost to be interpolated.

Topman Exports vs. ITO, ITA No. 5769/Mum/2006, A.Y. 2002-03, dt. 11-8-2009 BCAJ P. 44, Vol. 41A, Part 6, September 2009 (Mum) (SB)

123. Export deduction – S. 80HHC Provisions of See 80-IA(9) S. 80HHC

Deduction u/s. 80 HHC is to be allowed on profits and gains as reduced by the deduction claimed and allowed u/s. 80 IB/80-IA.

ACIT vs. Hindustan Mint and Agro Products (P) Ltd. (2009) 123 TTJ 577 (SB) (Del).

124. Income – Profits chargeable – S. 41(1)

Waiver of loan by creditor not being in respect of trading liability, S. 41 (1) did not apply.

Mindteck (India) Ltd. vs. ITO (2009) 124 TTJ 830 (Mum).

125. Indexation – Determination w.r.t. previous owner – S. 48

For the purpose of computing long term capital gain arising from the transfer of a capital asset which had become property of the assessee under the gift, the first year in which the capital asset was held by the assessee has to be determined to work out the indexed cost of acquisition as envisage in explanation (iii) to Sec 48 after taking into account the period for which the said capital asset was held by the previous owner.

In that view of the matter the indexed cost of acquisition of such capital asset has to be computed w.r.t. the year in which the previous owner first held the asset.

DCIT vs. Manju Shah (Mumbai Special Bench-Bench B-1) ITA NO. 7315/Mum/2007, www.itatonline.org

126. Interest – S. 220(2)

The Assessing Officer is not justified in charging interest for the intervening period when the CIT(A) allowed the appeal in favour of the assessee to the period when the Tribunal allowed the appeal in favour of the revenue.

ACIT vs. The Southern Paradise and Stud Developers Pvt. Ltd., ITA Nos. 2135 & 2136 / Mum / 2008, A. Y. 1995-96 & 1996-97, dt. 27-5-2009. BCAJ P. 30, Vol. 41-A, Part 5, August 2009.

127. Interest – TDS certificate – S. 244A

Grant of interest u/s 244A cannot be denied on the ground that the TDS certificate was filed in the course of assessment proceedings and not along with return of income.

ACIT vs. L & T. Ltd., ITA No. 4499/Mum/2008, dt. 22-7-2009 BCAJ p. 46, Vol. 41A, Part 6, September, 2009

128. International Taxation – Offshore supply – S. 9

Offshore supply of equipment is not liable to tax in India though it is a part of composite contract involving onshore service component.

M/s. Xelo Pty Ltd. vs. DDIT, ITAT Mumbai, ITA Nos. 4107 & 4108/Mum/2002, A.Y. 1995-96 & 1997 – 98, Dt. 22-6-2009 – BCAJ pg. 35, Vol. 41A, Part 5, August 2009

129. Loss on account of transactions in derivatives – Speculation loss – S. 43(5)

Term ‘derivative’ in which the underlying asset in shares falls within the meaning of the term ‘commodity’ for the purpose of section 43(5); cl. (d) of proviso to section 43(5) is prospective in nature and is effective w.e.f. 1st April, 2006; i.e., asst. year 2006-07 onwards; therefore, loss on account of futures and options was rightly treated as speculative loss for the asst. year. 2004-05 under consideration.

Shree Capital Services Ltd vs. ACIT (2009) 28 DTR 1 (Kol.) (SB)

130. Method of accounting – S. 145

The Assessing Officer cannot adopt two methods of accounting, in one and the same project, to determine the income of the assessee. In the case of the assessee following project completion method, and where the road TDR was directly related to the said project the sale proceeds against the TDR were to be recognised as a revenue receipt in the year in which the project was completed and cannot be taxed in the year of sale of TDR.

ITO vs. Chembur Trading Corporation, ITA No. 2593/Mum/2006, A. Y. 2000-01, dt. 21-1-2009 – BCAJ pg. 32, Vol. 41A, Part 5, August, 2009.

131. Penalty – Block assessment – Estimate basis – Validity – S. 158BFA(2)

Additions having been made on estimate basis, penalty cannot be levied.

Dr. Hakeem S.A. Syed Sathar vs. ACIT (2009) 123 TTJ 573 (Chennai)

132. Penalty – Concealment – Block assessment – No positive concealment found on assessee’s part – No penalty leviable on addition made on estimte basis – S. 158BFA

In the present case, the assessee applied a different net profit rate and the Assessing Officer and the CIT (A) adopted different estimates and therefore, it could not be said that the assessee had concealed the particulars of his income so as to attract penalty u/s. 158 BFA(2).

Smt Bitoli Devi vs. ACIT (2009) 31 SOT 30 (Luck) (URD)

133. Penalty – Concealment – S. 271(1)(c)

Concealment penalty u/s. 271(1)(c) levied on account of disallowance of genuine payments made to sister concern as excessive and unreasonable payments u/s. 40A(2). It was held that disallowance u/s. 40A(2) could not be considered as concealment of income or furnishing inaccurate particulars and hence the penalty was not warranted.

Jhavar Properties P. Ltd. vs. ACIT (2009) 317 ITR (AT) 278 (Mum.)

134. Penalty – Concealment – S. 271(1)(c)

If the assessee has not filed any return then there is no concealment and the penalty can not be levied u/s. 271(1)(c) for concealment.

T. Kodeeswaran vs. ITO (2009) 123 TTJ 230 (Chennai)

135. Penalty – Concealment – Wrong claim for non accrual of capital gains and exemption – Ss. 54, 271(1)(c)

Assessee had merely entered into an agreement for purchase of house within two years but no house was in fact purchased. Penalty was therefore leviable on that account. Further, capital gains had accrued to the assessee in respect of sale of another property. It was found that assessee had received full consideration, possession was also given and suit for specific performance against the assessee had also been rejected by the High Court. Neither the assessee disclosed the same while filing its original return nor disclosed in the return filed in response to notice under section 148. Therefore, it was held that it cannot be said that due to bona fide intention, the assessee had not disclosed the amount of capital gains. That apart, interest income earned on deposit on account of transfer of property was not disclosed and therefore penalty was imposable on that account also. Hence, penalty was rightly levied.

Sharan Ramchandani vs. ITO (2009) 27 DTR 57 (Mum.) (Trib.)

136. Reassessment – Change of opinion – Within 4 years

Where the assessee has disclosed material facts, merely from the pursual of the records available the AO is not empowered to reopen the assessment completed under section 143(3) though within four years as this amounts to mere change of opinion. Reopening was not therefore sustainable.

Glaxo SmithJKline Pharmaceuticals Ltd. vs. ITO (2009) 27 DTR 124 (Mum.) (Trib.)

137. Reassessment – Infrastructure undertaking – Ss. 147 r.w. S. 80-IA

Assessee an industrial undertaking set up in A.Y. 1997 – 98 claimed deduction u/s 80-IA, and which was duly allowed as per Order u/s 143 (3). Subsequent assessments of A.Y. 1998-99 to A.Y. 2001-02 were also passed u/s 143 (3) or 143 (1) (a). Reassessment proceedings initiated thereafter for A.Y. 1998-99 to 2000-01, on ground that product of menthol oil is not manufacture for purpose of section 80-IA. In absence of fresh facts or change in law, merely based on whims and fancies reopening was held to be without jurisdiction and unsustainable as same was not backed by any higher judicial opinion or otherwise.

ITO vs. Essential Motto (2009) 183 Taxman 148 (Chandigarh)

138. Revision – S. 263 r.w. S. 115JB

Held, that when Assessing Officer has taken a view, which is in tune with other decisions, and a possible view, then merely because the Commissioner does not agree with the view of Assessing Officer, the action of Commissioner u/s 263 is unjustified.

Saluja Fabrics vs. Dy. CIT (2009) 181 Taxman 132 (Chandigarh)

139. Service of notice – Validity – S. 282

Service of notice on the wife of assessee in his absence is proper service.

ITO vs. Gurbux Singh Gill (2009) 123 TTJ 846 (Asr.)

140. Tribunal – Appeal – Power of Vice President – S.255(1)

Vice President of the Tribunal has powers to prepone cases in order to streamline their disposal.

K Raheja (P) Ltd. vs. ACIT (2009) 124 TTJ 933 (Mum.)

141. Tribunal – Order – S. 254, Rule 34

According to the Rule 34 of the IT (Appellate Tribunal) Rules, 1963 an order of the Tribunal can only be in writing as duly signed and dated by the members constituted it. Hence, oral pronouncement during the course of hearing is not an order at all. It is only an intimation of likely result or prima-facie conclusion expressed on the basis of contentions made by the parties. It was held to be a procedural aspect and it does not create any statutory embargo or limitation. Even entry in the order sheet to that effect signed by the members of the bench would not constitute an order because an order is a mandate precept or command but reasoning is its soul. Hence without any reasoning or conclusion based upon considered or authoritative opinion on a matter or context, oral pronouncement cannot be an order in the strict sense.

Mafatlal Securities Ltd. vs. Jt. CIT (2009) 119 ITD 444 (Mum.)

142. Tribunal – Powers of Tribunal where two views are possible on an issue

– S. 254

After considering the judgment of the Apex Court in case of CIT vs. Vegetable Products Ltd. [88 ITR 192], where it was held that if two views are taken by different High Courts, view favourable to the assessee should be adopted, the Hon’ble Bench of the Tribunal held that a solitary judgment of any High Court, in the country on a particular point or issue, should be followed in its letter and spirit by all Benches of the Tribunal notwithstanding contrary views expressed by some Benches of the Tribunal, unless there are strong reasons to deviate from the view expressed by the High Court.

Otherwise, the hierarchical judicial system would collapse.

ITO vs. Ranisati Fabric Mills (P.) Ltd. (2009) 118 ITD 293 (Mum.).

143. Tribunal – Rectification – Condonation of delay – S. 254(2)

There is no provision to entertain the condonation of rectification application under section 254(2) of the Income-tax Act, therefore the Rectification Application filed after expiry of four years cannot be allowed.

Rahul Jee & Co. vs. ACIT (P) Ltd. (2009) 123 TTJ 217 (Del.)