DIRECT TAXES

High Courts

Ashok Patil, Mandar Vaidya, Sameer Dalal & Sanjukta Chowdhury

341. S. 2(15) : Charitable purpose – Production of television and radio programmes – Registration (S. 12A)

Production of television and radio programmes for purpose of telecasting and broadcasting through assessee’s own network or through one hired by it would not constitute advancement of any object of general public utility within the meaning of section 2 (15). Application for registration has to be considered with reference to objects of assessee available as on end of previous year during which registration is sought under section 12A.

CIT vs. A.Y. Broad Cast Foundation (2011) 199 Taxman 376 (Ker).

342. S. 2(22)(e) : Deemed dividend –Security deposit-Date of deposit

Since on the date on which the security deposit was given by the company to the assessee, the assessee held less than 10 per cent beneficial interest in the company, the amount of security deposit cannot be treated as deemed dividend under section 2(22)(e), merely on the ground that share holding increased to 44% on issue of shares by the company in lieu of security deposit. (A. Y. 1998-99)

CIT vs. Late C.R. Das ( 2011) 57 DTR 201 (Delhi)

343. S. 2(22)(e) : Deemed Dividend – shares held in the name of partners of the firm – for purpose of S. 2(22)(e) firm is considered as "shareholder" though shares held in names of partners

It was held that for s. 2(22)(e), a firm has to be treated as the "shareholder" even though it is not the "registered shareholder". The first limb of s. 2(22)(e) is attracted if the payment is made by a company by way of advance or loan "to a share holder, being a person who is the beneficial owner of shares". While it is correct that the person to whom the payment is made should not only be a registered share holder but a beneficial share holder, the argument that a firm cannot be treated as a "share holder" only because the shares are held in the names of its partners is not acceptable. If this contention is accepted, in no case a partnership firm can come within the mischief of s. 2 (22)(e) because the shares would always be held in the names of the partners and never in the name of the firm. This would frustrate the object of s. 2(22)(e) and lead to absurd results.

CIT vs. National Travel Service (Delhi) (www.itatonline.org)

344. S. 2(IA): Agricultural Income – Sale of Rubber scrap – Scrap generated in Industrial activity

Sale of scrap rubber which is generated in course of extraction of rubber latex from trees cannot be brought to Income tax by applying rule 7A because scrap is generated in course of taking yield which is purely an agricultural operation. However, income from scrap generated in industrial activity of processing latex into products referred to in rule 7A (1) has to be brought to income tax under rule .

CIT vs. State Farming Corporation Ltd (2011) 199 Taxman 371 ( Ker).

345. S. 4 : Income –Interest earned – Performance guarantee

Interest income earned by the assessee on the fixed deposit for performance of guarantee of contract was held to be capital in nature and cannot be assessed as income from other sources.

CIT vs. Jaypee DSC Ventures Ltd. (2011) 53 DTR 305 (Del)

346. S. 4 : Income – NPAs

Income from non-performing assets should be assessed on cash basis and not on mercantile basis despite of the assessee maintaining accounts on mercantile basis.

CIT vs. Canfin Homes Ltd. (2011) 201 Taxman 273 (Kar.)

347. S. 5 : Income – Accrual

Hypothetical income credited by the assessee in the profit and loss account in respect of excise refund based on a Supreme Court decision in case of a third party cannot be said to have accrued to the assessee. (A.Y. 1988-89)

CIT vs. Nuchem Ltd. (2011) 55 DTR 14 (P&H)

348. S. 5 : Income – Capital Receipt – Share capital raised in foreign country and repatriated when required – Gains due to fluctuation in foreign exchange – Constituted capital receipt

The assessee is a multiproduct company, had issued equity shares overseas by way of global depository receipts in US dollars, which was to be repatriated into the country as and when required for end uses as approved by the Ministry of Finance and Industry. It was intimated to the Government of India, that the share capital so raised abroad, 79% of which would be used to acquire assets and 21% for general corporate use. The balance amount not utilised were kept in fixed deposits in the UK and the same was reflected in the balance sheet at the exchange rate prevailing on March 31st. The assessee for the relevant year had accounted in its balance sheet, the gains arising from exchange rate fluctuation of foreign currency. The AO treated this entire foreign gain on exchange rate fluctuation as revenue receipt. On appeal to the High Court by the department the High Court while dismissing the appeal held that the relevant consideration would be to see the source of funds held and not the utilizations of the funds. The High Court held that even in cases where money is raised in India, the money thus collected as share capital would be treated as capital receipt, and merely because part of the share capital was used for working capital, the same could
not be treated as revenue receipt. (A.Y. 1997-98)

CIT vs. Jagatjit Industries Ltd. (2011) 337 ITR 21 (Delhi)

349. S.9(i) : Income deemed to accrue or arise in India – Sale of shares by Mauritius Co. can be treated as sale by 100% USA parent. Sale of shares of foreign company taxable if object is to acquire the Indian assets (S. 148, 163, 195)

(i) The argument that s. 163 applies only with respect to income "deemed to accrue or arise" in India u/s 9 and not to income "accruing or arising" is not acceptable. Pursuant to Eli Lily 312 ITR 225 (SC), the income accruing or arising in India to NCWS, USA on transfer of a capital asset situate in India, (shares of Idea Cellular) is deemed to accrue or arise in India to NCWS and can be assessed either in the hands of NCWS or in the hands of the payer as agent of the non-resident u/s 163;

(ii) The argument that the AO having issued a NOC u/s 195(2) permitting Aditya Birla Nuvo to remit the sale proceeds without TDS could not recover the tax from the payer by treating it as agent is not acceptable because the said order was obtained by "suppressing material facts" relating to the circumstances in which the shares of Idea Cellular were issued in the name of AT&T Mauritius. As the payer had obtained the s. 195(2) Certificate by making a representation which was incorrect to its knowledge, it could not claim that the s. 195(2) Certificate was validly issued. Further, the proceedings
u/ss. 163 & 195 operate in different fields;

(iii) The argument that once the AO exercises his option u/s 166 to assess the non-resident NCWS USA directly by issuing notice u/s 148, the proceedings initiated against the payer must come to an end is not acceptable because there is nothing in the Act to suggest that the option to assess either in the hands of the representative assessee or in the hands of the non-resident must be exercised at the threshold itself and not at the end of the assessment proceedings. While ordinarily, the AO must not proceed against the representative assessee once proceedings are initiated against the non-resident, in exceptional cases like the present one where complex issues are involved and the AO is unable to make up his mind on account of suppression of material facts, it is open to the AO to continue with the assessment proceedings against the representative assessee and the non-resident simultaneously till he decides to assess either of them;

(iv) NCWS’ argument that the s. 148 notice is without jurisdiction is not acceptable because the prima facie belief of the AO that the transaction was in fact a transaction for transfer of a capital asset situate in India (shares of Idea Cellular) was with substance. It is open to NCWS to prove to the contrary by placing all material facts in the assessment proceedings;

(v) Tata Industries’ argument that no gains are taxable in India as the subject matter of sale were shares of AT&T Mauritius and not the shares of Idea Cellular is not acceptable because prima facie it appears that the transaction for sale of shares of AT&T Mauritius was a "colourable transaction" and was in fact for sale of the shares of Idea Cellular.

Adiya Birla Nuvo Limited vs. DDIT (2011) 200 Taxman 437/ 59 DTR 1 (Bombay)

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

Income received by a US company, by way of fees for technical services could not be deemed to have accrued or arisen in India as the services under the agreement were not rendered with in India even though services received from it may have been utilized by the Indian company in India. (A. Y. 1991-92).

Grasim Industries Ltd. & Ors vs. CIT ( 2011) 58 DTR 47 / 242 CTR 166 (Bom)

351. S. 10(22) : Exempt incomes-Educational Institution – Purpose of profit. (Ss. 11 (1)(a) , 13(1) (c), 13 (3)

Exemption under section 10(22) is available only if the assessee is running an educational institution solely for educational purposes and not for purposes of profit : Exemption under section 10(22) is not allowable to the assessee as its objects include establishing small–scale industries of all kind and to aid and assist the poor, the grief–stricken, the destitute, and persons and animals suffering from calamities. (Asst. Years 1983-84 to 1985-86).

CIT vs. Gurukul Ghatkeswar Trust (2011) 58 DTR 122 (AP)

352. S. 10(23C) : Exempt incomes – Order of Court to withdraw utilization and invest in funds in terms of section 11(5) – Assessee complied with direction – Entitlement to exemption – [S. 11(5)]

In the instant case the assessee had complied with the direction of the High Court on its earlier writ petition of withdrawing the amount invested in IEML and placing the amount in a scheduled bank in accordance with section 11(5) of the Income-tax Act, 1961. However the DGIT did not grant exemption to the assessee for the relevant year under consideration even after the assessee had complied with the order of the High Court. On a petition to the High Court again, the High Court while allowing the petition held that the DGIT could not have refused exemption for the relevant year, when the assessee had complied with the High Court Order. The Original order passed by the High Court had held that the second application would be moved by the assessee pursuant to the order of the High Court, would be treated as having been filed was to be an entire substitute of the original application, and therefore exemption was to given for AY 2008-09. (A.Y. 2008-09)

Export Promotion Council for Hindicrafts and Other vs. DGIT (Exemption) (2011) 337 ITR 26 (Delhi)

353. S. 10B : Exemption – EOU – Job work done by sister concern

Assessee, an EOU, approved by NEPZ authorities, being engaged in manufacture of articles and exporting the same cannot be denied exemption under section 10B only because, it was getting some job work done from its sister concern. (A.Y. 2003-04).

CIT vs. Continental Engines Ltd. (2011) 60 DTR 40 (Delhi).

354. S. 11 : Exempt incomes – Charitable trust – Property sub-let

In order to carry out the charitable activity of the trust in effective manner if the property of the trust is sub-let and rental income is received thereon the exemption under section 11 cannot be denied by the assessing officer invoking provisions of section 11(4A) of the Act. (A. Y. 1991-92)

Director of Income Tax (Exemption) vs. Sahu Jain Trust (2011) 56 DTR 402 (Cal)

355. S. 14A : Business expenditure –Exempted income – Investment in tax free income

If the investment in tax free income yielding securities is made from interest free funds, no disallowance can be made under section 14A.(A.Y. 2001-02).

CIT vs. LubiSubmersibles Ltd. (ACAJ Vol 35 Part 5 August-2011 P. 319) (Guj)

356. S. 15 : Salaries – Chargeable-Perquisites – Tax paid by employer in respect of salary. (S. 17, rule 3)

Tax paid by employer in respect of salary paid to expatriate employees is salary under rule 3 of the Income Tax Rules, 1962, for purpose of computing value of perquisites in respect of rent free accommodation provided to said employees. (A.Ys. 1996-97 to 1998-99 ).

Mitsubishi Corporation vs. CIT ( 2011) 200 Taxman 372 (Delhi).

357. S. 15 : Salaries – Profits in lieu of salary – Tips collected and paid to employees. (S. 2 (24), 17(1)(iv), 17(3)).

Payment of banquet and restaurant tips to the employees of assessee in its capacity as employer constitutes salary within the meaning of section 15 read with section 17(3). (A.Ys. 1999-2000 to 2005-06).

CIT vs. ITC Ltd (2011) 59 DTR 312/ 243 CTR 114 (Delhi).

358. S. 22 : Income from House property – Business Income – Rental income (S. 28(i)

Assessee letting out flats in a multi storeyed complex. Assessee was nether in possession of the property nor doing any business there. Income was rightly taxes as income from house property.

CIT vs. Sran Holdings (P) Ltd. (2011) 57 DTR 82 (Pat)

359. S. 22 : Income from house property – Compensation

Where the assessee was assessed to tax under the head income from house property with respect to notional income of rent deemed to have earned by the assessee after the expiry of lease period, year after year. Thereafter, the compensation actually received by the assessee from the lessee under a settlement agreement, for the occupation of the leased premise after lease period cannot be taxed under a different head than income from house property.

Jasmine Commercials Ltd. vs. CIT (2011) 56 DTR 159/ 200 Taxman 338 (Cal)

360. S. 22 : Income from House Property – Ownership

Where the builder had received full consideration against the sale of shops and flat the annual value of the property cannot be assessed in the hands of the builder even though the sale deed of the shops and flat were not registered.

CIT vs. Babu Khan Builders & Ors. (2011) 55 DTR 329 (AP)

361. S. 23 : Income from house property – Annual value – Interest free deposit

Interest free security deposit taken by assessee highly disproportionate to monthly rent charged. This being the device to circumvent liability to income tax, notional interest on security deposit to be treated as income from house property. (A.Y. 1995-96).

CIT vs. K. Streetlite Electric Corporation (2011) 336 ITR 348 (P &H).

362. S. 23 : Income from house property – Annual value – Property let out – Licencee – Sub-let Higher value – Tax Planning transaction not "Sham" if parties assessed – Double taxation

The assessee let out its premises to Minicon pursuant to a leave and licence agreement. Minicon thereafter let out the said premises to various third parties. One director was common between the assessee and Minicon.

It was held that save and except the fact that one of the directors of the assessee company was also a director in Minicon, there is nothing on record to show that the transaction between the assessee and Minicon is a sham transaction. Accordingly, the decision of the Tribunal that the amounts received by Minicon on account of letting out the premises is liable to be assessed in the hands of the assessee on the ground that the transaction between the assessee and Minicon is a sham and bogus transaction cannot be accepted.

Akshay Textile Trading 304 ITR 401 (Bom) followed

Sahney Kirkwood Pvt. Ltd vs ACIT (Bombay) www.itatonline.org

363. S. 24 : Income from house property – Deduction – Brokerage

Brokerage paid was not an admissible expenditure under sec. 24 (Asst. Year 1997-98)

Aravali Engineers P. Ltd. vs. CIT (2011) 335 ITR 508 (P & H).

364. S. 24(1)(iv) : Income from house property – Deduction – Annual charge

Remuneration payable to Shebaits by the assessee deity does not amount to annual charge on the property and thus, no deduction under section 24 (1) (iv) is permissible. (Asst Year 1997-98).

Estate of Sree Sree Radha Kishan Jew vs. CIT & Anr (2011) 58 DTR 131 (Cal)

365. S. 28(i) : Business income – Rent from Leave and Licence of office premises taxable as "business profits"

Applying the test laid down in Universal Plast Ltd 237 ITR 454 (SC) as to when income from property is assessable as "business profits" and as "income from house property". It was held that rental income has to be assessed as "business profits" because (i) all assets of the business were not rented out by the assessee and it continued the main business of dealing in scientific apparatus, etc., (ii) the property was being used for the Regional Office and was let out by way of exploitation of business assets for making profit, (iii) the assessee had not sold away the properties or abandoned its business activities. The transaction was a "commercial venture" taken in order to exploit business assets and for receiving higher income from commercial assets.

The Scientific Instrument Co. Ltd. vs. CIT (All) www.itatonline.org.

366. S. 29 : Business loss – Job work – Theft of raw material

Where the assessee was engaged in doing job work for some business entities, loss of returnable raw material on account of theft was held to be an allowable business expenditure.

Dheeraj Associates (P) Ltd. vs. CIT (2011) 58 DTR 58 (Cal).

367. S. 31(1) : Repairs and insurance of machinery – Plant and furniture. (S. 37(1)).

Expenditure consisted of dismantling, cleaning and inspection of various parts, repairs and replacement of worn out parts, geometrical alignments of machines, painting of machines, overhauling and repair of power transmission unit and replacement of electric panel. Expenditure was on account of current repairs for which deduction would be allowable under section 31 (1) as well as under section 37. (A.Ys. 2005-06-2006-07)

Bharat Gears Ltd. vs. CIT (2011) 201 Taxman 86 (Delhi).

368. S. 32(1)(ii) : Depreciation –Discontinuance of business

Assessee company did not do any hotel business after its hotel building was washed away in floods in September, 1995. However, assessee company being a juristic entity incorporated under the Companies Act, did not cease to exist. Since it has to fulfil its obligations imposed by Companies Act till it is would up some staff has to be maintained. Therefore, once the assessee company is in existence, it is entitled to depreciation though it has discontinued its business. (A.Ys. 1998-99 to 2002-03).

CIT vs. Kirti Resorts (P) Ltd. (2011) 60 DTR 138/243 CTR 341 (HP).

369. S. 32 : Depreciation – Actual Cost

Where the assessee paid custom duty under protest on imported machinery, the assessee would be entitled to add the same to the cost of the plant and machinery for computing depreciation thereon.

CIT vs. Orient Ceramics & Industries Ltd. (2011) 56 DTR 397 (Del)

370. S. 32 : Depreciation – Gas Cylinder – Rate – Mounted on a chassis of a truck – Appendix-1

Liquefied gas cylinder mounted on the chassis of the truck is for all purposes as a gas cylinder including valves and regulators as defined in Appendix 1 item III (ii) F (4) of the income tax Rules and therefore depreciation at 100 per cent was allowable , instead of 40 per cent applicable to transport vehicles.

CIT vs. Anatha Gas Suppliers (2011) 59 DTR 116 / 242 CTR 488( AP) (FB).

371. S. 32 : Depreciation – intangible asset – goodwill – depreciation allowable

The assessee had purchased a hospital with its land, building, equipment, staff, name, trademark and goodwill as a going concern. Under the sale deed the value of the goodwill included the name of the hospital, its logo and trademark was 2 crores. The AO disallowed the depreciation on the goodwill on the ground that it was not covered under section 32(1)(ii). The CIT(A) and Tribunal held in favour of the Department. On appeal to the High Court by the assessee, the High Court while allowing the appeal held that though goodwill is not specifically mentioned in section 32(1)(ii) of the Income-tax Act, depreciation is allowable not only on tangible assets covered by clause (i) of section 32(1), but also on the intangible assets specifically enumerated in clause (ii) and such other business or commercial rights similar to the items specifically covered therein. The High Court held that, by transferring the right to use the name of the hospital itself, the previous owner had transferred the goodwill to the assessee and the benefit derived by the assessee was a retention of continued trust of the patients who were patients of the previous owner. The amount paid for the goodwill for ensuring retention and continued business in the hospital, it was one acquiring a business and commercial rights and the same was comparable with trademark, franchise, copyright; etc., the High Court held that goodwill was covered by the provisions of section 32(1)(ii) entitling the assessee for depreciation. (A.Y. 2004-05).

B. Raveendran Pillai vs. CIT [2011] 332 ITR 531 (Ker)

372. S. 32 : Depreciation – Poultry shed

Poultry shed is a building and not a ‘plant’, as such not eligible for higher rate depreciation as applicable to plant and machinery. (A. Ys. 1991-92 & 1992-93)

Padmavathi Hatcheries (P) Ltd. & Ors. (2011) 55 DTR 105 (AP)

373. S. 32 : Depreciation – Sale and lease back – Despite Tax Avoidance, 100% Depreciation on Sale & Lease Back Allowable

The assessee purchased equipment from the Haryana State Electricity Board ("HSEB") which was already installed at the Board’s Thermal Power Station at Faridabad and immediately leased the equipment back to the HSEB. The assessee claimed 100% depreciation on the said equipment. The AO disallowed depreciation on the ground that the transaction was not one of purchase and lease but was a pure financial and loan transaction.

The Hon’ble High Court held dismissing the dept. appeal that

(i) The real intention of the parties in entering into the sale and lease agreement has to be gathered from the words in the agreement in a tangible and in an objective manner and not upon a hypothetical assessment of the supposed motive of the assessee to avoid tax. (Industrial Development Corporation of Orissa 268 ITR 130 (Ori), Rajasthan State Electricity Board 204 CTR 415 (Raj) and Gujarat Gas Company 308 ITR 243 (Guj) followed);

(ii) In order to deny the claim of depreciation, it would have to be held that the transaction was not genuine and that the same was a subterfuge. Merely because an assessee gets a commercial advantage because of the factoring in of a tax benefit, it cannot be said that the transaction is not genuine. There is no finding or evidence to indicate that the transaction was not genuine. The observations of Chinappa Reddy, J in McDowell is not good law in view of UOI vs. Azadi Bachao Andolan 263 ITR 706 (SC) where it was held that "tax planning may be legitimate provided it is within the framework of law";

(iii) The observations in Asea Brown Boveri Ltd. with regard to the nature of a financial lease are not of much use to the revenue in view of the factual backdrop that the transaction has been found to be genuine. Once it is established that the ownership of the equipment is that of the assessee, it is clear that the assessee is entitled to claim depreciation.

CIT vs. Cosmo Films Ltd. (2011) 59 DTR 153/200 Taxman 384 (Delhi)

374. S. 32 : Depreciation – Unabsorbed – Carry forward and set off

Provisions of section 32 (2) as amended w.e.f. 1st April, 1997 permit set off of brought forward unabsorbed depreciation firstly against the business profits and then against income under any other head in Asst Year 1997-98 and subsequent assessment years for a period of eight years, therefore unabsorbed depreciation for the period up to assessment year 1996-97 could be brought forward and set off against income chargeable under the head income from other sources. (A.Ys. 1989 to 2002-03).

CIT vs. Kirti Resorts (P) Ltd. ( 2011) 60 DTR 138 /243 CTR 340 (HP).

375. S. 32 : Depreciation – UPS. 60%

Depreciation is allowable at the rate of sixty per cent (60%) on U.P.S.

CIT vs. Orient Ceramics & Industries Ltd. (2011) 56 DTR 397 (Del)

376. S. 32 : Depreciation – User of asset – Kept ready for production

Where the plant and machinery were kept ready for production, the assessee would be entitled to claim depreciation under the provisions of section 32 of the Act even though such plant and machinery were not actually put to use by the assessee during the year. (A. Y. 1995-96)

CIT vs. Shahbad Co-operative Sugar Mill Ltd. (2011) 56 DTR 414 (P&H)

377. S. 35B : Offences and Prosecution – Wilful failure to file return – Sanction – Criminal Procedure Code S. 245(1). (S. 35O).

Sanction authority has sanctioned the prosecution, without application of mind, there was no evidence that default was willful. The Court held that prosecution was not valid. (A.Y. 1993-94).

J. Jayalaitha vs. Asst CIT (2011) 337 ITR 1 /60 DTR 169/ 243 CTR 467 (Mad).

378. S. 36(1)(iii) : Business expenditure – Interest – Accounts – Accrual

Where the assessee was following mercantile system of accounting interest expenses on the borrowed capital is to be allowed on accrual basis.

CIT vs. Indore Dugdh Sangh Sahakari Maryadit (2011) 58 DTR 199 (MP)

379. S. 36(1)(iii) : Business expenditure – Interest on borrowed capital –Investment in sister concern – Shares of subsidiary – Control over the company

Investment made by the assessee company out of bank overdraft in the shares of its subsidiary company to have control over that company being an integral part of its business, interest paid by the assessee which is attributable to said borrowings is allowable as deduction under section 36(1)(iii).

CIT vs. Phil Corporation (2011) 61 DTR 15 (Bom).

380. S. 36 (1) (iii) : Business expenditure – Interest on borrowed capital – Suit filed by creditor bank

Interest payable on loans raised by assessee from bank cannot be treated as a contingent liability and cannot be disallowed merely because the bank has instituted a suit and not shown the accrual of interest in its books of account, more so, when there is nothing to show that the bank has not claimed interest for all three years period, ie., pre suit pendent lite and future interest. (Asst. Year 1992-93).

Friends Clearing Agency (P) Ltd vs. CIT (2011) 58 DTR 109 (Delhi)

381. S. 36(1)(iii) : Interest payable on loans

The assessee was in the business of trading in shares and had claimed interest on loans obtained for business. The shares had been shown under ‘Investments’ in its’ books and hence the Assessing Officer disallowed interest on borrowings. It was held that treatment in books was not conclusive and given the nature, volume of the assessee’s business, it was clear that the assessee was trading in shares and hence interest could not be disallowed.

CIT vs. Aravind Prakash Malpani (2011) 200 Taxman 41 (Kar.) (Mag.)

382. S. 36(1)(vii) : Business expenditure – Bad debts – Non financial company – Bank Guarantee

Assessee being a non banking financial company, its activity of giving guarantee on behalf of another company was part of its money lending business and, therefore the security amount adjusted by the bank against the dues of the said company following default on the part of the latter which has became irrecoverable is allowable as bad debt. (Asst. Years 1998-99, 1999-2000 & 2003-04).

CIT vs. Tulip Star Hotels Ltd. (2011) 57 DTR 210 (Delhi)

383. S. 36(1)(vii) : Business expenditure – Bad Debts – Write off in the books

Where the assessee had written off certain debts as bad in its books of account, there is no further requirement to prove that the debts was a trade debt or the fact that it is irrecoverable.(A. Ys. 1996-97 & 1998-99)

CIT & Anr. vs. Krone Communication Ltd. (2011) 53 DTR 120 (Kar)

384. S. 37 : Business Expenditure

If the expenditure is incurred for the purpose of assessee’s business then no part of the same can be disallowed merely because some other person has benefited out of the same.

CIT vs. Agra Beverages Corp Pvt. Ltd. (2011) 200 Taxman 43 (Del.) (Mag.)

385. S. 37 : Business Expenditure

Expenditure incurred on glow sign boards for purpose of advertisement by the assessee is revenue expenditure.

CIT vs. Orient Ceramics & Industries Ltd. (2011) 200 Taxman 64 (Del.)(Mag.)

386. S. 37 : Business Expenditure

Expenditure incurred by the assessee on foreign tours of its’ personnel, in connection with expansion of existing project is eligible for deduction as revenue expenditure.

CIT vs. J. K. Synthetics Ltd. (2011) 200 Taxman 101 (Del.)(Mag.)

387. S. 37(1) : Business expenditure – assessee requesting AO to summon person – addition without summoning – not proper

In the instant case the assessee had a paid a sum in cash and cheque, being tractor charges to D. During the assessment proceeding the assessee had made a mention of his inability to produce D for verification of the transaction, but had also requested the AO to issue summons to the D, so as to enable the AO to determine for himself the veracity of the assessee claim. The AO, however made the additions without issuing summons to D. The CIT(A) and ITAT both ruled in favour of the assessee. On appeal to the High Court, the High Court while deciding the issue in favour of the assessee held that the CIT(A) and ITAT had given a finding that the AO had made additions without any material whatsoever, and the AO could have enforced the presence of D especially since a substantial part of the payments were made by the assessee by banking channels.

CIT vs. Grij Pal Sharma [2011] 333 ITR 229 (P&H).

388. S. 37 (1): Business expenditure –capital or revenue – ERP Software Package Allowable As Revenue Expenditure

The assessee, engaged in manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products, incurred expenditure of ` 23 lakhs on purchase of "Enterprises Resources Planning (ERP) package". The AO treated the expenditure as capital in nature. The Tribunal applied the functional test laid down by the Special Bench (presumably Amway India Enterprise vs. CIT 111 ITD 112 (Del)) and held that the expenditure was allowable as a deduction on the basis that the software facilitated the assessee’s trading operations or enabling the management to conduct the assessee’s business more efficiently or more profitably but it is not in the nature of profit making apparatus. The department filed an appeal before the High Court. HELD dismissing the appeal:

"In our view, no fault can be found in the aforesaid order of ITAT holding that software expenditure was allowable as revenue expenditure."

CIT vs Raychem RPG LTd. (Bombay). www.itatonline.org.

389. S. 37(1) : Business Expenditure – Capital or Revenue – Glow sign board

Expenditure incurred by the assessee on glow signboard was held to be an allowable business expenditure.

CIT vs. Orient Ceramics & Industries Ltd. (2011) 56 DTR 397 (Del).

390. S. 37(1) : Business expenditure –Capital or revenue – Reconditioning of machinery

Assessee incurred huge expenditure on total reconditioning and overhauling of machinery. Since reconditioning had resulted in imparting useful life to hitherto old and unfit machinery and thus, resulting in a benefit of enduring nature expenditure was capital in nature. (A.Y. 1994-95).

Bharat Geras Ltd vs. CIT (2011) 201 Taxman 86 (Delhi).

391. S. 37(1) : Business Expenditure –Company – Personal use

In case of Company there cannot be disallowance of car expense for personal use of car. (A. Y. 1988-89)

CIT vs. Nuchem Ltd. (2011) 55 DTR 14 (P&H)

392. S. 37(1) : Business expenditure –Demolition of structure – Capital or revenue

Amount spent by assessee on demolition of structure which had caught fire and major repair of premises during the period when the business was in existence are admissible as revenue expenditure. ( A.Y. 1995-96 ).

CIT vs. Bhupindera Flour Mills (P) Ltd. (2011) 59 DTR 307 ( P &H).

393. S. 37(1) : Business Expenditure – Education expenses of son of managing director for higher education

Where assessee being a consulting agency in manufacturing and engineering industry entered into an agreement with son of Managing Director, agreeing to spend money on higher education in USA on terms that the son of Managing Director would work with assessee company after completion of the course. Such Money spent by an assessee either in sponsoring a student or towards educational expenses of a student in a discipline, in which assessee is carrying on its business, is a valid expenditure and is entitled to deduction. ( A.Ys. 1997-98 and 1998-99).

CIT vs. Ras Information Technologies (P) Ltd. (2011) 200 Taxman 305 (Kar)

394. S. 37(1) : Business Expenditure –Expenses prohibited on account of being illegal

Where the assessee paid sums to local goons and the police for maintenance of law & order, it was held that such expenditure being prohibited by law, did not qualify for deduction. (A. Y. 1992-93)

CIT vs. Swaminathan {2011} 198 Taxman 140 (Kar.) (Mag.).

395. S. 37 (1) : Business expenditure –Foreign studies of person appointed as trainee in company – Son of president

Fact that trainee happens to be son of President does not make the expenditure personal in nature. Since son of President was appointed by resolution and an agreement has been entered into, that the trainee after completion of the education from abroad will be obliged to resume service in the company as a technical executive at least for ten years. Expenses incurred on foreign studies of person appointed as trainee in company are business expenditure.

Gournitye Tea & Industries Ltd. vs. CIT (2011) Tax LR 315 (Cal.)

396. S. 37(1) : Business expenditure – Key man insurance premium. (S. 10(10D)

Assessee is a Chartered Accountant had debited an amount of ` 50 lakhs towards Keyman Insurance Premium, which was taken in one of the his employees who was the head of the financial consultancy division and looking after the financial consultancy for corporate finance. The appeal of the assessee was allowed by the Tribunal. On appeal by the revenue the Court held that it is the prerogative of the businessman to consider and decide as to which of the employees is important for the business and it is for him to take life insurance policy for such an employee keeping in mind various factors and circumstances. The High Court confirmed the order of Tribunal.

CIT vs. Kamlesh M. Solanki – Tax Appeal No. 2421 of 2009 dt. 26-4-2011 (ACAJ Vol 35 Part 03 June 2011 P. 165 (Guj)

397. S. 37(1) : Business Expenditure –Parties found non existence after three years – Expenditure can not be disallowed

Where the assessee took care to purchase materials for his business by way of account payee cheque from third party and subsequently the parties do not appear before the assessing authorities as they had discontinued their business, the assessee’s claim of genuine business expenditure cannot be disallowed for their non existence after three years of transactions. (A. Y. 1998-99)

Diagnostics vs. CIT (2011) 56 DTR 317 (Cal).

398. S. 37 (1) : Business expenditure- Ransom money – While kidnapping is an offence, paying ransom is not; Bar in Explanation 1 to s. 37(1) not attracted

Where payment is made by assessee as a ransom to secure the release of a kidnapped director, it was held that such a payment is not prohibited. The Explanation of s. 37(1) provides that expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business. It has to be seen whether the expenditure is incurred for any purpose which is an offence or prohibited by law. Accordingly, the Explanation of to s. 37 (1) is not applicable and the ransom is deductible as business expenditure.

CIT vs. Khemchand Motilal Jain Tobacco Products (P) Ltd. (2011) 243 CTR 270 / 60 DTR 113 (MP) www.itatonline.org.

399. S. 37(1) : Business expenditure – Royalty

Payment of royalty by assessee company to its US based holding company which has been incurred wholly and exclusively for the purpose of business of the assessee is allowable as business expenditure.( A.Y. 1999-2000 to 2001-02).

CIT vs. Oracle India (P) Ltd. (2011) 59 DTR 222/ 243 CTR 103 (Delhi).

400. S. 37(1) : Business Expenditure –Substantial repair – Demolition of structure

Amount spent by the assessee on demolition of structure which had caught fire and on substantial repairs to its premises were held to be revenue in nature.

CIT vs. Bhupinder Flour Mills (P) Ltd. (2011) 59 DTR 307 (P&H)

401. S. 37(1). Business Loss-Abandoned project – Capital asset

Amount paid as advance for acquisition of a capital asset for a project which was abandoned, did not qualify for deduction as a business loss since the amount spent was in relation to acquisition of a capital asset.

CIT vs. Southern Gas Ltd. {2011} 198 Taxman 165 (Ker.) (Mag.).

402. S. 37(I) : Business expenditure – Foreign Travelling expenditure of Managing Director and his wife – Authorised by resolution

When the board of directors of the assessee had thought it fit to spend on foreign tour of the accompanying wife of the managing director for commercial expediency for reasons reflected in its resolution, it was not within the province of the Income Tax authority to disallow such expenditure. There was resolution of company authorizing foreign travel of managing director and his wife for business purposes. The Court applied the ratio of CIT vs. Walchand and Co P. Ltd. (1967) 65 ITR 381 (SC). However, as there was no resolution authorizing the wife of the deputy managing director, the expenditure on such travel were rightly disallowed. (A. Y. 200-01)

J.K. Industries Ltd vs. CIT ( 2011) 335 ITR 170 (Cal).

403. S. 37(1) : Business expenditure – Capital or revenue – Contribution to Mahanagar Gs Ltd – Asset remained with property of Mahanagar Gas Ltd.

Assessee in business of manufacture of steel wire rods, etc., paid `45,21,000 to Mahanagar Gas Ltd. towards CNG connection. It was found that the assets remained property of Mahanagar Gas Ltd. and sole object of payment was to get gas to facilitate the manufacturing activity carried out by assessee. Held that such payment was revenue in nature.

CIT vs. Tata SSL Ltd., ITA No. 1321 of 2010, dt. 8-6-2011 (Bombay) (Unreported)

404. S. 40(b)(v) : Interest, Salary, etc. paid by firm to partner

Section 40(b)(v) does not lay down that remuneration payable to partner should be fixed or method of remuneration should be provided for in the partnership deed. All that the said section provides is that if the remuneration paid to partner is in accordance with the partnership deed and does not exceed the aggregate amount laid down in the said section, then the same shall be eligible for deduction. Circular no.739 which states that amount of remuneration should be provided for in the deed, cannot override the statutory provisions and must yield to the substantive provisions.

Durga Dass Devki Nandan vs. ITO (2011) 200 Taxman 318 (HP)

405. S. 40A(2) : Expenses or payments not deductible – Remuneration paid to Director

In case of a assessee engaged in the business of advertisement and media remuneration paid to a Director who held a job profile of a media consultant could not be treated as excessive and unreasonable by comparing the same with fees paid to a consultant for one project or remuneration paid to other directors of the company who were handling job profile of client management.

Hive Communication (P) Ltd. vs. CIT (2011) 59 DTR 409 (Delhi)

406. S. 40A(2)(b) : Expenses or payments not deductible – Technical knowhow – Parent Company. (S.92)

Once it is found that having in regard to the nature, quantum and quality assurance aspects of technical know how and other services provided to the assessee by the parent/ foreign company, compensation paid in the form of royalty / consideration can not be treated as excessive or unreasonable. Tribunal was justified in deleting the addition made by AO by relying upon section 40A(2)(b) and section 92. (Asst Year 1997-98).

CIT vs. Nestle India Ltd ( 2011) 57 DTR 65 (Del).

407. S. 40(b)(i) : Amounts not deductible – Salary to working partner – HUF – Karta

Salary paid to working partner even though as Karta of HUF, is received as individual and as working partner, hence allowable as deduction while computing income of firm. (A.Y. 2005-06).

CIT vs. Jugal Kishor & Sons ( 2011) Tax. L.R. 550 (All).

408. S. 41(1) : Profits chargeable to tax-Income – Business Income – Unclaimed insurance premium

Unclaimed insurance premium credited to profit and loss account which was the amount collected by the assessee from the hirers as insurance premium as unclaimed balance becomes income of the assessee and liable to be tax as business income. (A. Ys. 1997-98 & 2003-04)

Motor General Finance Ltd. vs. CIT (2011) 53 DTR 273/ 199 Taxman 51 (Del)

409. S. 43(5) : Speculative transaction – loss – Set off of loss – Property income. (S.73)

Loss from speculative transaction cannot be set off against income from property. (Asst Year 1997-98).

Aravali Engineers P. Ltd vs. CIT (2011) 335 ITR 508 (P & H).

410. S. 43(6)(c)(i)(B) : Depreciation – Computation – Block of assets – Apparent consideration – Not Fair market value. (S. 2 (14), 32 ).

The expression "moneys payable" according to Explanation 4 to section 43(6) shall have the meaning as is in the Explanation below sub section 4 of section 41. Therefore, the written down value of all the assets falling within the block of assets at the beginning of the previous year has to be adjusted by the amount at which the assets is actually sold and not the fair value of the asset that is sold.

CIT vs. Cable Corporation of India Ltd. (2011) 336 ITR 56 (Bom).

411. S. 43B : Business Expenditure –Actual payment – Licence fee

Licence fees payable under the Abkari Act for grant of right/ privilege to sell liquor if not paid within the period specified in section 43B of the Act cannot be disallowed, as the same is consideration payable to the Government only for grant of right / privilege to sell liquor and not in the nature of any tax, duty, cess or fees as provided in section 43B(a) of the Act. (1999-2000)

CIT vs. G. Soman (2011) 53 DTR 220 (Ker.)

412. S. 43B : Business Expenditure –Ascertained liability – Scientifically computed

Ascertained liability which is computed scientifically in respect of retiral benefits of the assessee’s employees and which is not contributed to a fund is not disallowable under section 43B of the Act.

CIT vs. Ranbaxy Laboratories Ltd. (2011) 60 DTR 77 (Delhi)

413. S. 45 : Capital Gains – Compensation – Specific performance

Compensation received by the assessee for giving up the right to specific performance of an agreement to sell was held to be a capital asset chargeable to capital gain tax. (A. Y. 1998-99)

CIT & Anr. vs. H. Anil Kumar (2011) 56 DTR 384 (Kar).

414. S. 45 : Capital Gains – Handing over the possession

Where the assessee had handed over the possession of the property in May 1996 and received cash part of the agreement the appropriate assessment year in which capital gain is to be taxed in A.Y. 1997-98 and not in the year when the project was complete.

CIT vs. T. K. Dayalu (Dr.) (2011) 60 DTR 403 (Kar)

415. S. 45 : Capital gains – Shares – Purchase and sale –Short time

Mere fact that the shares were sold in a short span of time of acquisition due to steep and unanticipated rise in stock market does not mean that the intention was not to hold them for long period of time or deal in them. Profit on sale of shares within short span of 7 to 10 months held to be capital gains and not as business income. (A.Y. 2005-06).

CIT vs. Consolidated Finvest and Holding Ltd. (2011) 337 ITR 264 (Delhi).

416. S. 45 : Capital gains – Trade marks, brands, copyright and goodwill –Business income (S. 28(va), 55)

Trade marks brands, copyright and goodwill constitute of business and are profit earning apparatus. Assessee was owner of brand name of journals which were also registered /indexed with Indian National Scientific Documentation Centre (INSDOC). Assessee company entered into a "Specified Assets Transfer Agreement" with one CMP for sale of all its rights titles and interest in specified assets of its health care journals and communication business. In consideration the assessee received certain amount from CMP which it showed as income from long term capital gains in its return. Assessing Officer, however held that amount received by assessee taxable as income from business under section 28(va). High Court held that the consideration received would be computed as capital gains. (Asst Year 2006-07)

CIT vs. Mediworld Publications (P) Ltd. (2011) 200 Taxman 1 (Delhi)

417. S. 48 : Capital Gains – Rectifying the defect in title

Amount incurred by the assessee for rectifying the defect in title to the property and removing encumbrance on the property were held to be amount spent in connection with the transfer of the property and allowable as deduction while computing capital gain.

V. Lakshmi Reddy vs. ITO (2011) 55 DTR 241 (Mad).

418. S. 50 : Capital gains – Depreciable asset – Long term

Capital gains arising on transfer of a capital asset (Flat) on which depreciation was allowed for two years but thereafter the assessee stopped claiming deprecation and also gave the flat on rent is chargeable as long term capital gains after allowing the benefit of indexation.

Prabodh Investment & Trading Company Pvt. Ltd., ITA No. 6557/Mum/2008, dt. 28-2-2011, A.Y. 2004– 05, `C’ Bench, Mumbai ITAT, BCAJ p. 24, Vol. 43-A, Part 1, April 2011.

419. S. 54F : Capital gains – Investment in house Property sale proceeds from out of transfer of an asset other than a residential house acquisition of property prior to transfer of asset – deduction allowed

The assessee purchased a residential house and within one year of such purchase, sold his insurance survey business and claimed deduction u/s. 54F against the purchase of residential house. The Assessing Officer rejected the same on the ground that the property was not purchased out of sale consideration of the transferred asset. It was held that the assessee was entitled to the deduction u/s. 54F since the section itself provides for acquisition of property prior to transfer of asset.

CIT vs. R. Srinivasan (2011) 198 Taxman 26 (Mad.) (Mag.).

420. S. 55(2) (b) : Capital gains – Cost of acquisition – Fair market value – 1-4-1981

Fair market value of land at ` 330 per square yard as on Ist April, 1981 adopted by the Tribunal in view of sale of land by Investment Trust on 1st June, 1981 and other comparable sale instances in the same area which is not shown to be erroneous the same has to be accepted as against ` 60 per square yard adopted by the Assessing Officer. (A.Y. 1995-96 ).

CIT vs. Bhupindera Flour Mills (P) Ltd (2011) 59 DTR 307 ( P &H)

421. S. 55(2)(b) : Capital Gains – Fair market value – Comparable sale instances

Fair market value of the land adopted by the Tribunal as on 1-4-1981 for the purpose of computing capital gain, based on compareable sale instance instances in the same area and around the same period, was held to be a sound base for valuation of the land and no interference with the order of the Tribunal was called for.

CIT vs. Bhupinder Flour Mills (P) Ltd. (2011) 59 DTR 307 (P&H)

422. S. 56 : Income from Other source-Fixed deposit placed with Bank as performance guarantee

Fixed deposit placed with Bank as performance guarantee as condition for being awarded contract work. Interest on fixed deposits not assessable as income from other sources. (Asst Year 2003-04).

CIT vs Jaypee Dsc Ventures Ltd (2011) 335 ITR 132 (Delhi)

423. S. 56(2)(v) : Income from other sources amount received and repaid as loan

Amount received and repaid as a loan cannot come within the ambit of section 56(2)(v).

CIT vs. Saranapal Singh (HUF) (2011) 198 Taxman 202 (P & H.) (Mag.).

424. S. 68 : Cash Credits – Gifts –Relation – Occasion – Unexplained investments. (S. 69)

Where the donors who had made the gifts to the assessee having appeared before the Assessing Officer, submitted affidavit on oath confirming the gifts made by them, citing their old relations with the assessee and proved their capacity to make gifts, said gifts could not be treated as non genuine simply because there was no occasion for making the gifts or there was no blood relation between the donors and the donee or that the gifts were made by donors by taking loans. The order of Tribunal deleting the addition was confirmed. (A.Y.2003-04).

CIT vs. Mayawati (MS). (2011) 59 DTR 177 / 201/ Taxman 1/243 CTR 9 (Delhi).

Editorial– Delhi Tribunal in Mayawati (2010) 48 DTR 233 (Delhi) (Trib) was affirmed.

425. S. 68 : Cash Credit – Share application money – Identity of shareholders

Assessee having established identity of shareholders, addition under section 68 could not be made on the ground that assessee failed to explain the source of credit. Department was free to proceed against shareholders in accordance with law. (A.Y. 1992-93).

Hindustan Links & Resins Ltd vs. Dy CIT (2011) 60 DTR 18 (Guj).

426. S. 68 : Cash Credits – Share application

Where the assesse had provided to the assessing authority the name, age, address, date of filing the share application and number of shares applied by each shareholder, addition under section 68 of the Act cannot be made. (2000-01 & 2002-03)

CIT vs. STL Extrusion (P) Ltd. (2011) 53 DTR 97 (MP).

427. S. 68 : Cash Credits – Share capital – Identity of share holder

Where the assessee has established the identity of the share-holders, addition under section 68 of the Income tax Act, 961 could be made on the ground that the assessee failed to explain the source of the credit.

Hindustan Inks & Resins Ltd. vs. Dy. CIT (2011) 60 DTR 18 (Guj)

428. S. 68 : Cash Credits – Work in progress. – Partners capital account. – Burden of proof

WIP in a construction project transferred by a contractor firm to the Assessee firm and credited to the Capital Accounts of partner. Such credit could not be treated as Cash Credit since the transactions are genuine and identity of parties are established.

CIT vs. S. K. Banerjee J.V. Transport Plaza (2011) 241 CTR 152 / 335 ITR 563 (Bom).

429. S. 69 : Income from undisclosed source – Statement in the course of search – Retraction [S. 132(4) ]

Merely on the basis of statement made under section 132(4), in respect of loans, addition under section 69 as income from undisclosed source cannot be made when the said statement was retracted and evidence to show the genuineness of loan was filed. The court also referred the Circular of CBDT No. F.No. 286/2/2003 IT (Inv) dt. 10th March, 2003.(A.Y. 1994-95)

M. Naranan & Bros vs. Asst CIT (2011)60 DTR 233 (Mad).

430. S. 69 : Unexplained investments – Search and seizure – Jewellery – CBDT Circular

The court held that the CBDT circular had been issued for the purpose of non seizure on the basis of recognized customs prevailing in Hindu Society, and unless the revenue showed anything to the contrary, it could safely be presumed that source to extent as stated in Circular No. 1916 stands explained, accordingly the order of Tribunal deleting the addition was confirmed.

CIT vs. Ratanlal Vyaparilal Jain (2011) 199 Taxman 90 (Guj) (Mag).

431. S. 72 : Carry forward and set off of business losses – Hotel business –agreement with another company for running hotels -- disputes -- hotel business run by court receiver – No cessation of business – brought forward losses

The assessee was in the business of running hotels and for that purpose had entered into an agreement with another company to run the same. Disputes arose between the assessee and the company, the court pending adjudication of dispute appointed a court receiver to run the hotel business of the assessee. The dispute was decided by the court and the possession of the hotel was handed over to the assessee, the assessee ran the hotel business on its own. The Hon’ble High Court held that there was no cessation of business by the assessee, as the business was managed by the court receiver, who was none other than its own directors, and the business and assets were also never divested with the receiver, and therefore the assessee was entitled to carry forward and set off losses and depreciation relating to earlier years (AY 1990-91)

CIT vs. Dencomar Hotels (Goa) Ltd. [2011] 332 ITR 441 (Bom).

432. S. 73 : Losses in speculation business – Explanation – Grant of loans

When in respect of the assessment of the assessee of the for Asst Years 1998-99, 1996-97 and 1995-96, the Tribunal specifically held that the principal business of the assessee was grant of loans, the assessee comes within the exception to the Explanation under section 73, and therefore the Tribunal was not justified in holding that the business loss was to be treated as speculation loss. (Asst Year 1997-98).

PCBL Industries Ltd vs. CIT (2011) 58 DTR 25 (Cal).

433. S. 80G : Deduction – Donation – No action against alleged violation

Where no action was taken by the revenue authorities during the previous year when there was alleged violation of section 13 read with section 11 (5) of the Income-tax Act, 1961. The Director of Income tax (Exemption) was held not justified in going through the details of accounts of those previous years while granting recognition under section 80G of the Income tax Act, 1961.

DIT (Exemption) & Anr. vs. Adhaar (2011) 60 DTR 365 (Kar).

434. S. 80HHC : Deduction – Export –Composite services

Professional charges received by the assessee for procuring order and rendering composite services are to be reduced while computing deduction under section 80HHC of the Act as the same do not form part of export sales proceeds. (A. Y. 2001-02)

Anil Dang vs. ITO (2011) 55 DTR 349 (Kar).

435. S. 80HHD : Deduction – Interest – Tour operator – Foreign tourists – Income derived

Interest earned by assessee tour operator by making deposits of advances received from foreign tourists cannot be said to have been derived from the services provided to foreign tourists and, therefore, such interest income did not qualify for benefit of section 80HHD, more so as it was received from banks in
India in Indian currency and not in foreign exchange.

Lotus Trans Travels (P) Ltd. vs. CIT ( 2011) 241 CTR 530 (Del).

436. S. 80HHD : Deduction – Shopping commission – Foreign tourists

Assessee was receiving the commission, from shopkeepers and not in foreign exchange from the tourists directly. Assessee was not eligible for deduction under section 80HHD.

CIT vs. Le Passage to India Tour and Travels (P) Ltd. (2011) 57 DTR 98/ 241 CTR 535 (Del) / 335 ITR 69.

437. S. 80IA : Deduction – Industrial undertaking – Developing, operating and maintaining industrial park – Withdrawal of approval – Writ maintainable. (Article 226)

As per the scheme, what was required to be done by the petitioner was to provide for infrastructural facilities before last date envisaged under the scheme. Thereafter there was no obligation on the part of the petitioner to ensure that industrial units on such plots must also come into existence and commence their production activities, therefore impugned show cause notice for withdrawal of approval of assessee’s Industrial Park was quashed and the CBDT was directed to notify the same. Ordinarily Courts do not encourage litigation at the show cause notice state but where the show cause notice is based on premise which is legally not sustainable, writ petition held to be maintainable.

Ganesh Housing Corporation Ltd. vs. Padam Singh Under Secretary (2011) 61 DTR 1 (Guj).

438. S.80-IA : Deduction – Profits and gains derived from industrial undertaking – Liquidated damages – Interest on delayed payment

Interest on delayed payment of sale amount is eligible for deduction under section 80-IA, further, during the course of the business the assessee receives / pay liquidated damages for not honouring a contract for sale of products and therefore, such income is directly derived from the industrial undertaking, thus eligible
for deduction under section 80-IA. (A.Y. 2000-01).

CIT vs. Prakash Oils Ltd (2011) 58 DTR 279 (MP).

439. S. 80-IA : Deductions – Industrial Undertakings – Number of Workers – Manufacture – Providing wireline logging and perforation services to oil companies – (S. 80-IB)

The assessee was an oilfield services company which provided petro physical and completion solutions and services to its clients for the exploration and production of hydrocarbons. The assessee was providing Wireline logging which basically assists mineral oil concerns primarily to ascertain whether there is any gas or oil in the well, and if there is any such presence, then its availability at what depth and the quantity of such reserves, and whether such gas or oil can be extracted. Wireline logging is usually done through electrical, acoustic radioactive and electromagnetic analyses of rocks. The data collected by these tools is transmitted through an electro mechanical cable to the earth’s surface where it is processed by a sophisticated acquisition software which acquires and processes the data from the logging tools. The computer after processing the data gives an output called logs on the basis of which technical experts can determine the potential and other technical and commercial characteristics of the oil wells. The claim under section 80-IB was denied by the AO on the ground that the assessee was neither an industrial undertaking not did it fulfil the basic criteria of employing certain number of persons as required by the section. On appeal to the High Court, the High Court while dismissing the appeal held that the assessee could be said to be an industrial undertaking, and the logs produced by the appellant by analysis of various data amounts to manufacture or production of an article and therefore deduction under section 80-IA and 80-IB is allowable. (A.Ys. 1980-90 to 2003-04)

CIT vs. HLS India Ltd. (2011) 335 ITR 292 (Delhi)

440. S. 80-IA : Deductions – Transport subsidy – Industrial undertaking

Transport subsidy received by the assessee under the scheme framed by the Central Government cannot be profits derived from the industrial undertaking and is not eligible for deduction under section 80-IA of the Act

CIT vs. Maharani Packaging (P) Ltd. (2011) 55 DTR 340 (HP).

441. S. 80-IB : Deduction – Manufacture – Assembling different parts of Wind mill

Process of assembling of different parts of windmill which is transformed in to a commercially different product known as ‘windmill’, amounts to manufacture or production of article or thing within the meaning of section 80-IB (2)(iii)

CIT vs. Chiranjjeevi Wind Energy Ltd. (2011) 58 DTR 302 (Mad)

442. S. 80-IB : Deduction – Manufacture –Production – Assembling of different parts of windmill

Different parts of windmill when assembled get transformed in to an ultimate product which is commercially known as a "windmill" which amounts to manufacture or production with the meaning of section 80-IB(2)(iii). (A.Y.2005-06).

CIT vs. Chiranjeevi Wind Energy Ltd. (2011) 243 CTR 195 (Mad)

443. S. 80-IB : Deduction – Profits and gains derived from industrial undertakings – Sale of scrap – Manufacture – Labour charges

Activity of forging which involves heat treatment of material to produce automobile parts is "manufacture" and therefore, labour charges and job work charges earned by the assessee for doing the job of forging for customers are gains derived from industrial undertakings and the same are entitled for deduction under section 80-IB. Sale of scrap which generated in the process of manufacturing activity and proximate thereto constitute gains derived from Industrial undertaking for the purpose of computing deduction under section 80-IB. (A.Y. 2004-05)

CIT vs. Sadhu Forgings Ltd. (2011) 57 DTR 194/242 CTR 158 (Delhi).

444. S.80-IB : Deduction – Profits of undertaking – Job work –Miscellaneous receipts

Deduction u/s. 80-IB is allowable on profits of job work and also on miscellaneous receipts, rebate/discounts and balances written off.

CIT vs. Metalman Auto P. Ltd. (2011) 199 Taxman 149 (P & H.) (Mag.).

445. S. 80-IB : Deduction – Survey – Excess income – Industrial undertakings

Where the assessee was not able to show that the amount invested in excess stock found during the survey operation was derived from industrial undertaking, deduction under section 80-IB of the Income-tax Act, 1961 was held to be not allowable with respect to such excess income.

Home Tex vs. CIT (2011) 59 DTR 165 (P&H)

446. S. 80-IB : Deduction of Profits & Gains from Industrial Undertakings ‘Production’

The word ‘production’ is wider in scope than ‘manufacture’ and would include by-products and other residual products resulting during the course of manufacture. Hence the activity of converting boulder into grits/stone chips/powder may not be ‘manufacturing’ but would amount to ‘production’ and therefore the assessee would be entitled to deduction u/s. 80-IB on the said activity.

CIT vs. Mallikarjun Georesources Associates (2011) 201 Taxman 86 (Uttarakhand)(Mag.)

447. S. 80-IB : Deduction of Profits & Gains from Industrial Undertakings - Refund of Excise Duty

Refund of Excise Duty has a direct nexus to the manufacturing activity of the assessee and hence the same qualifies for deduction under section 80-IB.

CIT vs. Meghalaya Steels Ltd. (2011) 201 Taxman 135 (Gau.)(Mag.)

448. S. 80-IB : Deduction of Profits & Gains from Industrial Undertakings

Transport subsidy & Interest Subsidy- Transport & Interest Subsidies received by the assessee, cannot be said to be derived from the industrial activity and the same would not qualify for deduction under section 80-IB.

CIT vs. Meghalaya Steels Ltd. (2011) 201 Taxman 135 (Gau.)(Mag.)

449. S. 80P : Dedcution – Co-operative Society – Interest – Exempted income. (S. 14A)

Deduction under section 80 P(2)(d) is available after deducting the expenditure incurred in earning the income. (A.Y. 2002-03).

Punjab State Co-operative Milk Producers Federation Ltd vs. CIT (2011) 336 ITR 495 (P&H .

450. S. 80P : Deduction – Co-operative Society – Income

Income received by a co-operative bank from deposits, whether or not they are made to discharge of a statutory obligation or otherwise, being income from banking business would be eligible for exemption under section 80P.

CIT vs. Andhra Pradesh State Co-operative Bank Ltd (2011) 200 Taxman 220 (AP).

451. S. 90 : Double Taxation Relief – liaison office

Liaison office of a South Korean company carrying on activities of identifying the buyers, negotiating with them, procuring purchase orders, forwarding the same to head office in Korea, following up with the customer for realisation of payments and offering after sales services was held to be a Permanent Establishment (P.E.) and the profits earned in India through this liaison office are taxable in India as per Article 5 of the DTAA between India and South Korea (A. Ys. 2001-02 to 2006-07)

Jebon Corporation India Liaison Officer vs. CIT (Int. Taxation) & Anr. (2011) 55 DTR 113 (Kar).

452. S. 92 : Avoidance of tax – Transfer Pricing – Royalty – Deductibility of expenses

Section 92 does not apply in respect of "payments of royalty" etc. which are not the part of regular business carried on between a resident and Non-resident. (A. Y. 1997-98 & 1998-99)

CIT vs. Nestle India Ltd (2011) 57 DTR 65 (Del).

453. S. 92C : Avoidance of tax – Transfer pricing – Computation – Selection of comparables

Held that in the absence of any perversity in the finding of the Tribunal in the selection of a different set of comparables for determination of ALP and recomputation of ratio of operating profit/total cost at 21.97% as against 35.26% adopted by TPO, no interference is warranted.

The High Court further upheld the decision of the Tribunal of allowing depreciation on administrative assets for determining the operating profits while computing the ALP. (A.Y. 2005-06).

CIT vs. Rakhra Technologies (P) Ltd. (2011) 243 CTR 505 (P &H).

454. S. 92C : Avoidance of tax – Transfer pricing – Royalty – Business expenditure

Payment of royalty by assessee company to its US based holding company is not hit by the provisions of section 92 in the absence of any comparable case on record to determine the ordinary profit in similar business and the price fixed has been accepted as ALP by the TPO. Payment of royalty being a business expenditure which is incurred wholly and exclusively for the purpose of business of the assessee ,it is to be allowed as business expenditure. (A.Y. 1999-2000 to 2001-02)

CIT vs. Oracle India (P) Ltd. (2011) 59 DTR 222 (Delhi).

455. S. 94 : Avoidance of tax – Transaction in securities – Tax free dividend – Loss on sale of units. (S. 10(33)

Assessee had purchased certain units of UTI from P on 29-5-1989 at rate of ` 14.75 per unit, at the same time assessee entered into an irrecoverable commitment to sell back those units to P at rate of ` 13 per unit on 31-7-1989. The assessee received dividend at the rate of 18 per cent on those units. The assessee incurred loss. The assessing officer disallowed the loss holding that the same was predetermined. The High Court held that even if it was assumed that transaction was a pre planned one, there was nothing to impeach genuineness of transaction and therefore, assessee was entitled to claim the loss on said transaction. (A.Y. 1990-91)

Eveready Industries Ltd vs. CIT (2011) 201 Taxman 278 (Cal).

456. S. 115H : Non-resident – Income from foreign exchange asset – Coverable foreign exchange (S. 115E)

If the original source of the deposit is convertible foreign exchange, the transfer of such foreign exchange asset, namely from one bank to another will not affect its identity as a foreign exchange asset, assessee was entitled to concessional rate of tax on the interest earned from NRNR deposits under section 115H read with section 115E.

CIT vs. M. C. George (2011) 60 DTR 166/243CTR 404 (Ker).

457. S. 115H : Non–residents – Interest on investment made out of foreign funds – Concessional rate

Where assessee received interest on investment made out of foreign funds which was chargeable to tax at concessional rate under section 115H, said special treatment could not be extended to interest on interest re-deposited with original sum. (A.Y. 1996-97).

M. Manohar (Dr.) vs. Asst CIT (2011) 201 Taxman 106 (Mad).

458. S. 115JA : Book profit – Company-Brought forward business loss. (S. 154)

In order to allow deduction of brought forward business loss or unabsorbed depreciation in the computation of book profit under section 115JA, both should be available as per the accounts of the assessee. Since nothing is left after setting off brought forward business loss up to 1994-95 against profit, assessee was not entitled to any relief under clause (b) of Explanation (iii) of section 115JA for assessment year 1997-98. Rectification order passed under section 154 held to be valid. (A.Y. 1997-98).

CIT vs. Carbon & Chemicals India Ltd. (2011) 59 DTR 396 (Ker).

459. S. 119 : Circulars – Binding nature – Conflict in law laid down by High Court or Supreme Court

If a circular is in conflict with the law laid down by High Courts or Supreme Court, the revenue authorities while acting quasi-judicially, should ignore such circular in discharge of their quasi judicial functions. (A.Y. 1998-99)

Bhartia Industries Ltd vs. CIT (2011) 243 CTR 328 (Cal).

460. S. 119 : Instructions to subordinate authorities – CBDT – Circulars – Administrative relief

Benevolent circulars providing administrative relief to the assessee have to be given effect to even if they are issued subsequent to the decision of an authority under the Act. (A. Ys. 1995-96 & 1996-97)

Chhabil Dass Agarwal vs. UOI (2011) 56 DTR 19 (Sikkim).

461. S. 132 : Search and Seizure – Validity – Information – Writ Petition – Dismissed on ground of delay

On the facts the court upheld the validity of search on the ground that the Assessing Officer gathered the information about undisclosed income. Apart from that the Writ Petition was filed after two years hence the petition was dismissed on ground of laches. Section 131(1A), operates in a different field than section 132, while section 131(1A), occupies field before issuing search and seizure warrant, section 132 comes into play thereafter. Assuming the power is invoked it will not any way affect the validity of search and seizure operation.

V.S. Chauhan (Dr.) vs. Director of Income Tax (2011) 200 Taxman 413 (All).

462. S. 132 : Search and Seizure – Writ – Article 226

Writ petition challenging the validity of search and seizure operation carried out under the provisions of section 132 of the Income-tax Act, 1961 was held to be maintainable.

Visa Comtrade Ltd. vs. U.O.I. & Ors. (2011) 60 DTR 81 (Ori).

463. S. 132(3) : Prohibitory Order –Withdrawing the money – Department directed to repay with interest

The action of the Revenue authorities placing prohibitory orders on the current account of the assessee and thereafter converting the money lying in the bank account into demand drafts / pay orders in favour of CIT and withdrawing the same without forming any reasonable belief that the money lying in the current account wholly or partly represented undisclosed income of the assessee, was held to be not valid and department was directed to refund the amount along with the accrued interest thereon forthwith to the assessee.

Visa Comtrade Ltd. vs. U.O.I. & Ors. (2011) 60 DTR 81 (Ori).

464. S. 132B : Application of seized or retained assets – Delay in payment of refund – Interest

Delay in paying refund interest payable under section 132B. (A. Y. 1995-96)

Vishwanath Khanna vs. UOI (2011) 335 ITR 548 (Delhi).

465. S. 142(2A) : Assessment – Special Audit – Reasons not mentioned – Order not valid and was liable to be squashed

The assessee company was engaged in the business of printing and publication of newspapers. The successors to the original promoters were Sudershan Chopra and Vijay Chopra. There was a family settlement between the two promoters, and thereafter proceedings took place before the Company Law Board and thereafter the matter was carried over to the Supreme Court, led the Supreme Court gave a direction that the party should maintain accounts of their respective allotted units. During the course of assessment proceedings, the AO vide order under section 142(2A) directed the assessee to get the accounts audited by an auditor nominated by the Department. The assessee was required to furnish the audit report within 120 days of the said order. The assessee filed a writ petition, challenging the order under section 142(2A), as it was not a speaking order and the order does not indicate how the opinion as to desirability of special audit was formed. The High Court while allowing the appeal held at that order did not show consideration of legal requirements and reasons on which the opinion may have been formed for directing special audit, as it had not been mentioned as to why it was considered necessary having regard to the nature and complexity of accounts and interest of the revenue that special audit was necessary, and therefore held in the order under section 142(2A) was not valid and liable to be
quashed.

Hind Samachar Ltd. vs. ACIT (2011) 335 ITR 277 (P&H)

466. S. 142A : Estimate by Valuation Officer in certain cases – Reference to District Valuation Officer

Where the assessment is framed by the assessing officer and the appeal is decided by the CIT(A) prior to 30-9-2004 it is not open to the assessing officer to order valuation of property by District Valuation Officer (DVO) as the provision of section 142A are not retrospective.

CIT vs. Naveen Gera (2011) 56 DTR 170 (Del).

467. S. 143(2) : Assessment – Notice

Where notice u/s. 143(2) was served upon the assessee after a period of 12 months from the end of the month in which the return was filed, it was held that the proceedings in pursuance of such notice was invalid and liable to be quashed.

DCIT vs. Maxima Systems Ltd. {2011} 198 Taxman 192 (Guj.) Mag.).

468. S. 143(3) : Assessment – Additions

Where the assessee himself offered ` 20 lakhs as income purportedly on account of deficit in stocks but apart from the assessee’s offer, there was no other material pointing towards such deficit, it was held that addition was not justified.

CIT vs. C. Jayantilal {2011} 199 Taxman 34 (Mad.) (Mag.).

469. S. 143(3) : Assessment – Order giving effect to order of Tribunal – Scope –Binding nature of order of Tribunal. (Ss. 237, 254(1))

While giving effect to the appellate order, the Assessing Officer cannot travel beyond the order of Tribunal. Assessing Officer being a quasi-judicial authority and subordinate to the Tribunal is bound by the decision of the Tribunal. (A.Y. 2001-02).

Lopmudra Mishra vs. Asst CIT (2011) 59 DTR 257 (Orissa).

470. S. 144C : Dispute resolution panel –Transfer Pricing – Jurisdictional CIT should not be part of DRP to avoid likelihood of bias – Reassessment (S. 147)

Where DIT-II was exercising supervisory functions over the AO, the real likelihood of "official bias" cannot be ruled out. Even if the officer is impartial and there is no personal bias or malice, nonetheless, a right minded person would think that in the circumstances, there could be a likelihood of bias on his part. In that event, the officer should not sit and adjudicate upon the matter. He should recuse himself. This follows from the principle that justice must not only be done but seen to be done. In order to ensure that no person should think that there is a real likelihood of bias on the part of the officer concerned, the CBDT is directed to ensure that a jurisdictional Commissioner is not nominated as a member of the DRP under Rule 3(2) of the Rules. By doing this, the principle that justice must not only be done but seen to be done would be ensured. Nonetheless the constitutional validity of S. 144C and Rule 3(2) of the Rules was upheld.

Hyundai Heavy Industries Ltd. vs. UOI (Uttarakhand) www.itatonline.org.

471. S. 144C : Disputes Resolution panel – Direction

Direction given by the Dispute Resolution Panel to the Assessing Officer to reconsider petitioner’s claim for deduction under section 10A after verifying the income from engineering and design services and examining whether the same qualified for deduction or not giving liberty to Assessing Officer to decide the issue, after hearing the petitioner, is not violative of sub sections (5) and (8) of section 144C. (A.Y. 2006-07).

GE India Technology Centre (P) Ltd vs. DY CIT (2011) 242 CTR 462 / 60 DTR 322 (Kar).

472. S. 145 : Method of accounting –Accounts – Valuation of unquoted Govt. securities – basis of RBI guidelines. Sustainable method of valuation

In case where the securities are not quoted in market, market price is not known under these circumstances valuation done by assessee of the unquoted Government securities on the basis of Reserve Bank of India guidelines was held to be a sustainable method of valuation. (A. Y. 1994-95)

CIT vs. The Lord Krishna Bank Ltd. (2011) 55 DTR 277 (Ker)

473. S. 145(3) : Method of accounting –Assessment – Account – Rejection of Books

Where discrepancy in stock found during the survey was negligible and no other incriminating documents or material was found. The Hon’ble High Court confirmed the order of the Tribunal, that merely on because the assessee had not maintained stock register book of account maintained by the assessee in the ordinary course of business cannot be rejected. (A. Y. 1999-2000)

CIT vs. Bindals Apparels (2011) 56 DTR 202 (Del)

474. S. 145A : Method of Accounting –Accounts – Valuation of closing stock – Excise duty

Excise duty on sugar manufactured but not sold is not to be included in the value of closing stock. In respect of excisable goods manufactured and lying in stock excise duty liability would get crystallized on date of clearance of goods and not on date of manufacture and therefore, till date of clearance of excisable goods, assessee cannot be said to have incurred excise duty liability (Asst. Year 2001-02).

CIT vs. Loknete Balasaheb Desai S.S.K. Ltd. (2011) 200 Taxman 238/59 DTR 169 (Bom).

475. S. 147 : Reassessment – After four years – Exemption

Notice issued under section 148 of the Act to reassess the income of the assessee after expiry of four (4) years was held to be bad in law where the assessee had duly disclosed all the facts relating to sale of shares, working of capital gain and exemption claimed under section 54F of the Act in his return of income and in the course of original assessment proceedings under section 143(3) of the Act. (A. Y. 1996-97)

Vikram Kothari (HUF) vs. State of Uttar Pardesh & Ors. (2011) 56 DTR 43 (All).

476. S. 147 : Reassessment – After four years – Internal auditor

Notice issued after expiry of four years from the end of the relevant assessment year merely based on the report of the internal auditors was held to be bad in law when all the particulars were duly disclosed by the Appellant during the original assessment proceedings under section 143 (3) of the Act. (1997-98)

CIT vs. Simbhaoli Sugar Mills Ltd. (2011) 55 DTR 233 (Del).

477. S. 147 : Reassessment – After four years – No failure on the part of assessee

When there is no failure on the part of the assessee to disclose fully and truly all material facts for the purpose of computation of the income reopening the assessment after four (4) years from the end of the assessment year was held to be not valid.

Balar Exports vs. Dy. CIT (2011) 60 DTR 369 (Guj).

478. S. 147 : Reassessment : Assessing Officer raised specific and pointed queries in s. 143(3) assessment –AO cannot be said to have formed any opinion if explicit opinion not recorded

The question of change of opinion arises when the AO forms an opinion and decides not to make an addition and holds that the assessee is correct. Here, though the AO had asked specific and pointed queries there was no discussion, ground or reason why addition was not made inspite of the assessee’s failure to furnish conformation and details to that extent. The argument that when the assessment order does not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the AO and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance

The term "failure" on the part of the assessee is not restricted only to the income-tax return but extends also to the assessment proceedings. If the assessee does not disclose or furnish to the AO complete and correct information and details it is required and under an obligation to disclose, there is a failure on its part. 

Dalmia Pvt. Ltd. vs. CIT(Delhi) (www.itatonline.org)

479. S. 147 : Reassessment – Beyond four years – Expenditure – Capital or Revenue

Where there was no failure on the part of the assessee to disclose fully and truly all material facts, reopening of assessment beyond the period of four (4) years from the end of the relevant assessment year made on the ground that the expenditure which was allowed as revenue expenditure should have been held has capital expenditure was held to be bad in law.

Parle Sales & Services (P) Ltd. vs. UOI (2011) 59 DTR 329 (Guj)?

480. S. 147 : Reassessment – Block assessment

Block assessment framed under Chapter XIV – B of the Act can be reopened under section 147 of the Act. (A. Y. 1995-96)

CIT & Anr. vs. Rinku Chakraborthy (2011) 56 DTR 227/ 242 CTR 425 (Kar)

481. S. 147 : Reassessment – change of opinion.

On the claim of 80-IB, the assessee had furnished all the informations during assessment proceeding regarding the alleged manufacturing process involved on the basis of which the assessment was concluded by the Assessing Officer. On the same set of facts and materials, the Assessing Officer cannot take a different view by t aking recourse to Sec. 147 which will amount to change of opinion. (A. Ys. 1998-99 to 2001-02)

Anrit fees Ltd. vs. CIT (2011) 239 CTR 82 (Cal).

482. S. 147 : Reassessment – Full and true disclosure – Notice after expiry of four years – Change in Shareholding. (S. 79)

Assessing Officer reopened the assessment only on the ground that there is a change in the shareholding more than 51% in the assessment year 2001-02 in which the loss was incurred and therefore the loss incurred in the assessment year 2001-02 cannot be allowed to be set off in the assessment year 2003-04. The court held that the effective shareholding of Ned Bank Nihilent Technologies (P) Ltd in the assessee company has gone down below 51% having been specifically brought to the notice of the Assessing Officer by the assessee, there was no failure to disclose fully and truly all material facts necessary for the purpose of assessment and reassessment proceedings could not be initiated after four yeas. (A.Y. 2003-04)

Nihilent Technologies (P) Ltd vs. Dy CIT ( 2011) 59 DTR 281/243 CTR 77 (Bom)

483. S. 147 : Reassessment – Information from Director of Income Tax

Merely on the basis of the information received by the assessing officer from the Director of Income-tax (Investigation) which was very vague and scanty cannot be regarded as material as prima facie evidence establishing escapement of income moreso when the assessing officer did not apply his mind to the information to arrive at the belief that the income had escaped assessment.

Signature Hotels (P) Ltd. vs. ITO & Anr. (2011) 60 DTR 30 (Delhi)

484. S. 147 : Reassessment – Merger –Deduction – With in four years. (S. 80-HHC, 80-I, 80-IA).

Where the assessing officer after due application of his mind allowed the assessee’s claim of deduction under sections 80HHC, 80-I and 80-IA of the Act after some modification, for which assessee preferred an appeal before the Appellate Authority. Reopening the assessment within four (4) years on the ground that deduction under sections 80HHC, 80-I and 80- IB of the Act was excessive was held to be bad in law for the reason that the assessment order has merged with the order of the CIT(A) and had no independent existence. (1996-97)

United Phosphorus Ltd. vs. Addl. CIT (2011) 56 DTR 193 (Guj).

485. S. 147 : Reassessment – Notice –Validity – Service (Ss. 292B, 292BB)

Assessee having filed return stating that the same is filed in response to notice under section 148 and no objection was raised before the Assessing Officer regarding validity of service of notice under section 148, in view of section 292BB it cannot be contended that there was valid service of notice. Section 292BB is applicable to alI proceedings pending on 1st April, 2008.

CIT vs. Panchvati Motors (P) Ltd. (2011) 59 DTR 289 /243 CTR 189 (P&H).

486. S. 147 : Reassessment – Notice –Validity – Status – HUF (S. 292B)

Assessee and also his counsel through their respective letters having submitted that return which had already filed in the capacity of HUF may be treated to have been filed in pursuance to the notice issued under section 148. The said notice issued by the Assessing Officer without specifying the status of the assessee did not render the proceedings invalid, as the said defect stood cured by operation of section 292B.(A.Ys 1976-77 to 1978-79)

CIT vs. Rajbir Singh (2011) 59 DTR 285/ 243 CTR 185 (P&H).

487. S. 147 : Reassessment – Reason to believe – Development agreement – Capital gains. (S.148)

Assessee entered in to development agreement on 17-9-2004, on a consideration of ` 4 crores. As the developer failed to pay the agreed consideration, of ` 30 lakhs before 31-10-1994, the assessee terminated the agreement. Thereafter issuing the cheques for ` 30 lakhs on 30-6-2005, the development agreement was restored. In view of further default on the part of developer, on 19-5-2010, the development agreement was once again terminated. The developer has filed the suit before Bombay High Court , which was ultimately settled on 2-5-2011, where in the consideration was enhanced from 4 crore to 7.5 crores . It was ordered the possession of the property to the developer on 2-5-2011. In the meanwhile the Assessing Officer issued notice under section 148 dated 25-3-2010, proposing to tax the capital gain tax arising from development agreement in the Asst Year 2005-06. In a petition filed by the assessee the Hon’ble Bombay High Court allowed the petition and quashed the notice issued under section 148.

Amar R. Shanbag vs. ITO ( WP No.552 of 2011 dt. 18-7-2011 (593 (2011) 43A BCAJ-August – p 29.)

488. S. 147 : Reassessment – Reason to believe – Supreme Court

Decision of Supreme Court forming the law from the very beginning of the existence of provision forms the material belief on escapement and therefore, becomes a valid reason to reopen. (A. Ys. 2005-06 & 2006-07)

Kartikeya International vs. CIT (2011) 241 CTR 489 (All).

489. S.147 : Reassessment – Valuation of closing stock (S. 145A)

Assessee had not included CST and excise duty paid on closing stock, while making its valuation thereby claimed excess loss. The Court held that the Assessing Officer had sufficient reason to form belief that income of assessee had escaped assessment, hence reassessment held to be valid. (A.Ys. 2000-01 , 2001-02).

Ginni Filaments Ltd vs. CIT (2011) Tax L.R. 538 (All).

490. S. 148 : Reassessment – Based on the basis of subsequent decision of the High Court – The same decision subsequently reversed by the Supreme Court – Notice not valid

The assessments were reopened on the basis of a subsequent decision of the High Court in the case of Gujarat State Co-op Bank Ltd. vs. CIT 250 ITR 229 (Guj). However, subsequently the said decision was reversed in favour of the assessee in the case of Gujarat State Co-op Bank Ltd. vs. 250 ITR 522 (SC). On the petition to the High Court, the High Court while allowing the petition held that though the notices were issued within four years, the AO had placed reliance on the basis of the jurisdictional High Court for arriving at the opinion that the income had escaped assessment. However the said decision was reversed by the Supreme Court, and therefore the decision of the High Court which formed the basis for reopening of the assessment was no longer good law
and the notices therefore could not be sustained.

Commercial Co-op Bank Ltd. vs. ITO (2011) 336 ITR 196 (Guj.)

491. S. 148 : Reassessment – Notice – "issued" in time, date of handing over by AO to post office to be seen.(S. 148)

For purposes of s. 149, the expression "notice shall be issued" means that the notice should go out of the hands of the AO. Merely signing the notices on a particular date cannot be equated with "issuance of notice" as contemplated u/s 149. The date of issue would be the date on which the same was handed over for service to the proper officer, which in the present case would be the date on which the notices was actually handed over to the post office for the purpose of booking for the purpose of effecting service on the assessee. Till the point of time the envelopes are properly stamped with adequate value of postal stamps, it cannot be stated that the process of issue is complete.

Kanubhai M. Patel HUF vs Hiren Bhatt (Guj). www.itatonline.org.

492. S. 150 : Reassessment – Limitation – Finding or Direction. (S. 149)

Assessment having not been reopened to give effect to the order of the CIT(A). According to the Assessing Officer because of giving effect to the order made by the CIT(A), will result in to escapement of income. The court held that section 150 did not apply. As there was no failure on the part of assessee to disclose fully and truly all material facts, reassessment is clearly time barred. (A.Y. 1988-89).

Harsiddh Specific Family Trust vs. JCIT ( 2011) 58 DTR 149 ( Guj).

493. S. 154 : Rectification of mistakes –Apparent from records – Overlooking statutory provision

Overlooking of statutory provision is clearly a mistake on record and , on that basis , rectification under section 154 is clearly admissible. (A.Y. 1985-86).

CIT vs. Steel Strips Ltd. (2011) 200 Taxman 368 ( Punj & Har).

494. S. 154 : Rectification of mistakes – Apparent from records – Salaries – Perquisites – Tax paid by employer – Merger (S. 15, 17)

While computing assessee’s original assessment, Assessing Officer did not include tax payment by employer to exchequer on behalf of employee as part of salary for computing value of rent free accommodation perquisite under rule 3. On appeal, Tribunal quashed of Assessing Officer for financial years 1995-96 to 1997-98, after grossing up income under section 195A and directed Assessing Officer to recompute tax liability for said financial years. Order giving effect was also passed. However thereafter, Assessing Officer rectified assessment under section 154 by recomputing value of perquisite in rest of rent free accommodation after including tax element in gross salary. Assessee challenged the order on the ground that the issue being debatable and original order being merged with the order of Tribunal the Assessing Officer did not have jurisdiction to rectify the mistake under section 154. High Court held that when an earlier occasion, Tribunal had not at all considered aforesaid issue, doctrine of merger would not be applicable in instant case. When jurisdictional Court and other Courts had held at relevant time that income tax paid by employer on behalf of employee is part of salary, issue could not be said to be debatable and therefore, there was legal error apparent from record which was rightly corrected by Assessing Officer under section 154.

Mitsubishi Corporation vs. CIT ( 2011) 200 Taxman 372 (Delhi).

495. S. 154 : Rectification of mistakes- Book profit – Not considering the statutory provision. (S. 115JA)

When original assessment is completed without reference to the statutory provision and in clear violation of the same, such assessment could be rectified under section 154. In order to allow deduction of brought forward business loss or unabsorbed depreciation in the computation of book profit under section 115JA, both should be available as per the accounts of the assessee. Since nothing is left after setting off brought forward business loss up to 1994-95 against profit, assessee was not entitled to any relief under clause (b) of Explanation (iii) of section 115JA for assessment year 1997-98. (A.Y.1 997-98).

CIT vs. Carbon & Chemicals India Ltd. (2011) 59 DTR 396 (Ker).

496. S. 154 : Rectification of Mistake – Subsequent decision of Supreme Court. (S. 10(10C)

In view of subsequent judgment of the Supreme Court setting aside the judgment of the High Court, the assessees are entitled to exemption under section 10 (10C), and therefore Assessing Officer is directed to rectify the assessment order to allow exemption under section 10(10C).

K.R. Alagappan & Ors vs. Asst CIT (2011) 59 DTR 295/ 243 CTR 85 (Mad).

497. S. 158BB : Block Assessment – Search and seizure – Fictitious entries

Where the alleged bogus purchase and alleged fictitious entries which were not based on any material recovered during the search and seizure operation, the impugned amounts were held not liable to be assessed as undisclosed income in the block assessment.

Dheeraj Construction & Industries Ltd. vs. CIT (2011) 60 DTR 217 (Cal)

498. S. 158BC : Block Assessment – Search and seizure – Protective assessment (S. 158BD.)

In absence of specific provision under the Income-tax Act, 1961 to make protective assessment in block assessment proceedings, the Assessing Officer cannot be precluded from making protective assessment under block assessment proceedings.

CIT vs. Mahindra Traders (P) Ltd. (2011) 58 DTR 36 (Delhi).

499. S. 158BD : Block assessment – Search and Seizure – Assessment of third person – Action under section 158BD must be taken before completion of search assessment of searched person. (S. 158BC)

Action under section 158BD must be taken before completion of assessment of searched person. Block assessment under section 158BC, was completed on 30-3-2005. Satisfaction under section 158BD recorded on 15-7-2005 . The court held proceedings held to be not valid. (Block periods 1998 to 2003)

CIT vs. Mridula, Prop Dhruv Fabrics ( 2011) 335 ITR 266 (P&H)

Editorial. Refer Manoj Aggarwal vs. DCIT (2008) 113 ITD 377 / 117 TTJ 145 / 11 DTR 1 (Delhi) (SB).

500. S. 158BD : Block assessment – Search and seizure – Assessment of undisclosed income of other person

The assessment of the person put to search was completed on 28-2-2005 and proceedings u/s. 158BD were initiated on 2-12-2006 by issue of notice. The satisfaction u/s. 158BD was recorded 31-3-2006. Since the satisfaction u/s. 158BD was recorded after the completion of proceedings u/s. 158BC, it was held that proceedings u/s. 158BD are time-barred-

CIT vs. Parveen Fabrics P. Ltd. {2011} 198 Taxman 463 (P & H.).

501. S. 158BD : Block Assessment – Third person – Office note – Presumption (S. 292C)

If any material is found during search and seizure indicating undisclosed income of third person, further investigation is not necessary. Presumption under section 292C is applicable. Office note of Assessing Officer regarding undisclosed income of third person is valid for proceedings under section 158BD of the Income-tax Act.

CIT vs. Mukta Metal Works ( 2011) 336 ITR 555 (P& H).

502. S 158BH : Block Assessment – Search and Seizure – Disallowance – Rule 6DD (S. 40(A)(3)

While computing the income of the Appellant under Chapter XIV-B of the Act if the assessee fails to bring his case within the ambit of exceptional circumstance as provided in rule 6 DD of the Income Tax Rules, 1962 expenditure can be disallowed invoking provisions of section 40 A (3) of the Act. (Block Period 1990 to 2000)

CIT vs. Sai Metal Works (2011) 54 DTR 327 (P&H).

503. S. 161 : Representative Assessee – No liability for unconnected income (S. 163)

The whole of the share capital of Genpact India, an Indian company, was held by a Mauritius company. The whole of the share capital of the Mauritius company was in turn held by General Electric Co, USA. The Mauritius company "gifted" the shares of Genpact India to another Mauritius company, whose shares were then ultimately sold to a Luxembourg company. The AO claimed that the transaction of transfer of shares of Genpact India had resulted in capital gains to General Electric, USA, and so he issued a notice u/s 163 proposing to treat Genpact India as an "agent" of General Electric and to assess it as a "representative assessee". This was challenged by a Writ Petition. Upholding the challenge the court held that, the mere fact that a person is an agent or is to be treated as an agent u/s 163 and is assessable as "representative assessee" does not automatically mean that he is liable to pay taxes on behalf of the non-resident. U/s 161, a representative assessee is liable only "as regards the income in respect of which he is a representative assessee". This means that there must be some connection or concern between the representative assessee and the income. On facts, even assuming that Genpact India was the "agent" and so "representative assessee" of General Electric, there was no connection between Genpact India and the capital gains alleged to have arisen to General Electric (from the sale of shares of Genpact India). Consequently, the s. 163 proceedings seeking to assess Genpact India for the capital gains of General Electric were without jurisdiction.

General Electric Co vs. DDIT (Delhi) www.itatonline.org.

504. S. 194E : Deduction of tax at source – Payments to non resident sportsman or sports association – Umpires – Match referees are neither sports men nor are they on resident sports association or institution (S. 115BBA)

Amounts paid to foreign team for participation in match in India in any shape, either as prize money or as administrative expenses, is income deemed to have accrued in India and is taxable under section 115BBA and thus, section 194E is attracted. However, payments made to umpires or match referees do not come with in purview of section 115BBA because umpires and match referees are nether sportsmen (including an athletic) nor are they non-resident sports association or institution so as to attract provision contained in section 115BBA and therefore, liability to deduct tax at source under section 194E does not arise. (Asst Year 1996-97).

Indcom vs. CIT (2011) 200 Taxman 40/ 58 DTR 1 / 335 ITR 485/ 242 CTR 337 (Cal).

505. S. 194H : Deduction of tax at source – Commission – Brokerage – Discount

Assessee company was engaged in business of providing cellular mobile telephone services under brand name ‘Airtel’, provided the services through its distributors/franchisees who kept sufficient stock of rechargeable coupons and starter packs with them. After selling the Sim cards and prepaid coupons to retailers, franchisees were to make payment of sale proceeds to assessee after deducting the discount. The court held that receipt of discount by franchisee was in real sense, commission paid to franchisees and same would attract provisions of section 194H.

Bharati Cellular Ltd vs. Asst CIT ( 2011) 200 Taxman 254 (Cal).

506. S. 194H : Deduction of tax at source – Commission or Brokerage – Discount.

Where agreement between assessee and distributor was on principal to principal basis, payments made by the assessee to the distributor were incentives and discounts and not commission, there was no need to deduct tax under section 194H on such payments. (Asst year 2004-05).

CIT vs. Jai Drinks (P) Ltd. (2011) 57 DTR 261/242 CTR 505 (Delhi).

507. S. 201(IA) : Interest – Deduction of tax at source – Assessee in default – Profits in lieu of salary – Tips collected and paid to employees. [S. 2 (24), 15, 17(1)(iv), 17(3)], 192, 201, 273B)

Payment of banquet and restaurant tips to the employees of assessee in its capacity as employer constitutes salary within the meaning of section 15 read with section 17 (3). Assessee is considered as assessee in default for non deduction of tax at source on account of banquet and restaurant tips collected by its employees and was liable to interest under section 201 (IA). In the given circumstances no under section 201 could be charged, however levy of interest under section 201(IA), is neither treated as penalty nor has the said provision been included in section 273B to make reasonableness of the cause for the failure to deduct a relevant consideration, hence there is no question of waiver of such interest on the basis that default was not intentional or any other basis. (A.Ys. 1999-2000 to 2005-06).

CIT vs. ITC Ltd. (2011) 59 DTR 312 (Delhi).

508. S. 234B : Interest for default in payment of advance tax – Search and seizure – Retention of seized Asserts. (S. 234C)

Assets seized were released on deposit of money. Assessing Officer failing to accede to request of assessee and adjust advance tax against deposits. Interest under sections 234B and 234C for default in payment of advance tax can not be levied. (A. Y. 1995-96)

Vishwanath Khanna vs. UOI ( 2011) 335 ITR 548 (Delhi).

509. S. 234D : Interest on excess refund – Chargeability

Section 234D is applicable only from Ist June, 2003 and therefore, no interest under that section could be levied from earlier date. (Asst Year 1999-2000).

CIT vs. Faunc India Ltd (2011) 57 DTR 340 (Kar) .

510. S. 244 : Refund – Deduction of tax at source – Details available on record

Where annexure attached to the return of income filed by the assessee depicted that the assessee was entitle to a refund and Tax Deduction at Source certificate were also available on record the assessee’s claim of refund could not be rejected on the ground that only return form and not the annexure attached to the return are relevant to decide whether the assessee is entitle to refund.

Indglonal Investment & Finance Ltd. vs. ITO & Ors. (2011) 60 DTR 337 (Delhi)

511. S. 244A : Interest on refunds – Interest – MAT Credit

From the tax payable by assessee under section 115JA, MAT credits is to be adjusted first, then what becomes refundable after adjustment of MAT credit is excess advance tax, paid by assessee and on such refundable advance tax interest under section 244A has to be calculated and paid. (Asst. Year 1988-99).

CIT vs. Bharat Aluminium Co. Ltd. (2011) 200 Taxman 57/58 DTR 113/ 242 CTR 366 (Delhi)

512. S. 246A : Appeal – Commissioner of Income Tax (Appeals) – Power –Direction

Proceedings for assessment of an assessee cannot be based on directions issued by another co-ordinate Tribunal or even a higher forum, if that was not the subject matter before it. That would be an exercise without jurisdiction. Power of Commissioner (Appeals), directing to tax certain amounts in hands of a third party, held to be not valid. (A.Y. 2006-07).

CIT vs. Krishi Utpadan Mandi Samiti (2011) 336 ITR 77/ 200 Taxman 362 (All).

513. S. 250 : Procedure in appeal – Commissioner (Appeals) – Powers – Stay

Commissioner of Income Tax (Appeals) has inherent power to grant stay of demand though such power is not expressly conferred on him under the Income-tax Act, 1961.

Jagadish N. Hinduja vs. CIT & Anr. (2011) 59 DTR 333 (Kar).

514. S. 251 : Appeal – Commissioner (Appeals) – Powers – No Jurisdiction to determine tax liability of third party

Powers of Appellate Authority is normally co –extensive with that of original authority. It would not be open to Appellate Authority to exercise a jurisdiction which Assessing Officer did not have. Assessee claimed to be charitable institution, in its assessment. Assessing Officer held that amount transferred by assessee to Mandi Parishad as development cess and administrative expenditure were for non charitable purpose and, therefore, were added in assessee’s income.

On appeal Commissioner (Appeals) held that both amounts could not be assessed in hands of assessee, but in hands of Parishad. He observed that amount transferred to Mandi Parishad was not credited to "Cess Fund" (Central Mandi Fund) . Accordingly he directed Assessing Officer to make a reference to Assessing Officer of Mandi Parishad to make remedial measures, if necessary, in relevant assessment years to tax relevant receipts in hands of Mandi Parishad. The court held that it is not open to another quasi-judicial authority to give direction to determine tax liability of third party. Accordingly observations made by Commissioner (Appeals) were without jurisdiction.

CIT vs. Krishi Utpadan Mandi Samiti ( 2011) 336 ITR 77 / 200 Taxman 362 (All).

515. S. 254 : Powers of the Tribunal –Power of Enhancement

The arrears of rent & damages received by the assessee were claimed as ‘not taxable’ by the assessee, being capital receipts whereas the Department contended that the same were taxable, being on revenue account. The Tribunal remanded the matter back to consider whether the same could amount to ‘Capital Gains’, being received for surrender of tenancy. It was not even the case of the Department that these were ‘capital gains’. It was held that the Tribunal cannot enhance the scope of the appeal by adjudicating on grounds not raised by the Appellant.

Jasmine Commercials Ltd. vs. CIT (2011) 200 Taxman 338 (Cal.)

516. S. 254(1) : Appellate Tribunal – Duty – Additional evidence – Report of Forensic & Scientific Laboratory

The revenue has filed the report of the Forensic Science Laboratory was a relevant material and so was affidavit of the searched person . The additional evidence was necessary for just decision of the matter. The Tribunal was not justified in declining to consider the additional evidence comprising the opinion of the laboratory of the Government examiner and also the affidavit of the author of the diary, as the documents had a direct bearing on the issue.

CIT vs. Mukta Metal Works (2011) 336 ITR 555 (P&H).

517. S. 254(1) : Appellate Tribunal – Order giving effect to order of Tribunal – Scope – Binding nature of order of Tribunal – Assessment. (S. 143(3), 237)

While giving to the effect to the appellate order Assessing Officer cannot travel beyond the order of Tribunal and assessee the prize money as income from other sources. Assessing Officer being a quasi-judicial authority and subordinate to the Tribunal is bound by the decision of the Tribunal. The assessee is entitled to refund of advance tax collected with interest as per law. ( A.Y. 2001-02).

Lopamudra Misra (Miss) vs. Asst CIT (2011) 59 DTR 257/ 243 CTR 66/ 337 ITR 92 (Orissa).

518. S. 254(2) : Orders of Appellate Tribunal – Rectification of mistakes – Recalling entire order is not permissible

Section 254 (2) of the Income-tax Act, 1961 only provides that the Tribunal has power to rectify mistake which are apparent from the record. Therefore the act of the Tribunal recalling its entire order amounted to passing fresh order which is not permissible under section 254(2) of the Act.

K.K. Ravindran (Decd) By LRs. vs. I.T.A.T. & Anr. (2011) 58 DTR 174 (Ori)

519. S. 260A : Appeal – High Court – Plea not raised before Tribunal

Plea not raised before Tribunal, cannot be raised for first time before High Court.

CIT vs. Vijay Enterprises (2011) Tax. L.R. 497.9 (A.P).

520. S. 260A : Appeal – High Court – Single appeal to High Court – Court fee is payable in respect of each appeal

One appeal in respect of common order is maintainable however Court fee will be payable in respect of each appeal. (A.Y. 2006-07).

Director Income Tax (International) vs. Transocean Offshore International Ventures Ltd and Others.(2011) 336 ITR 637 (Uttarakhand).

521. S. 263 : Revision of orders prejudicial to revenue – Block Assessment –Documents seized

In the block assessment order the assessing Officer made an addition of ` 90 lakhs on the basis of the documents seized from the premises of Viswas R. Bhoir. The said addition was deleted by the Tribunal and the appeal is pending before the Bombay High Court. In the meantime the CIT passed a revision order under section 263 on 16-10-2005, directing the Assessing Officer to consider the tax implication of page nos. 1 to 13 of bundle no 12 seized from the residence of Viswas R. Bhoir. The Tribunal held that once taxability under both the documents has been considered by the Assessing Officer and the CIT(A), it is not open to CIT to invoke the jurisdiction under section 263. On appeal to the High Court, the High Court confirmed the order of Tribunal.

CIT vs. Mukesh J. Upadhyaya (Bom) (High Court) (ITA No. 428 of 2010 dated 13-6-2011. (594 (2011) 43A – BCAJ – August – P. 30).

522. S. 263 : Revision of orders prejudicial to revenue – Replies supplied by assessee in response to notice.

Where the assessee had supplied details of expenditure in response to the notice issued by the Assessing Officer during the assessment proceedings and the Assessing Officer assessed the assessee at a much higher amount the Commissioner was held to be not justified on the ground that the Assessing Officer should have made further enquiries.

FAB India Overseas (P) Ltd. (2011) 60 DTR 240 (Delhi).

523. S. 263 : Revision

Where the Assessing Officer has taken one of the possible views which resulted in loss of revenue, the order cannot be treated as ‘erroneous’ and the Commissioner cannot invoke jurisdiction under section 263.

CIT vs. Kelvinator of India Ltd. (2011) 201 Taxman 88 (Del.)(Mag.)

524. S. 271(1)(c ) : Penalty – Concealment – Cash credits – Confirmation from Creditors

Where the assessee had filed confirmations letter from the creditors but was not able to secure their presence due to which it conceded for the addition of the unexplained credit. During the penalty proceedings the assessee filed these confirmations and explained that it did not had any intention to avoid tax which was accepted by both the appellate authorities, penalty under section 271(1)(c) of the Income-tax Act, 1961 was held not leviable.

CIT & Anr. vs. SLN Traders (2011) 60 DTR 44 (Kar).

525. S. 271 (1) (c) : Penalty – Concealment – Failure to file return – Explanation 3.

For the purpose of invoking the provisions of Expln. 3 to section 271 (1), the conditions enumerated therein are required to be to be satisfied cumulatively: Assessing Officer having issued a notice under section 148 to the petitioner within the period specified under section 153 (1), the third condition, namely, the notice under section 142(1) or 148 should have been issued within the period specified under sub section (1) or of section 153 is clearly not satisfied and therefore, the failure on the part of the petitioner to furnish return with in the specified period cannot be deemed to be concealment with in the meaning of Explanation 3 to section 271(I)(c), and penalty under section 271(1)(c) could not be levied. (Asst Year 1994-95).

Chhaganlal Suteriya vs. ITO ( 2011) 58 DTR 89/ 242 CTR 528 (Guj).

526. S. 271(1)(c) : Penalty – Concealment-Furnishing Inaccurate Particulars – Despite disclosure of conversion of stock into investment and acceptance by the Assessing Officer claim that gains is Long term capital gain penalty is leviable

The assessee owned a plot of land which in the earlier years was treated as "stock-in-trade". In the year of sale, the assessee converted the stock into "investment" and offered the gains as Long term capital gain. Penalty u/s 271(1)(c) was levied. It was held that though the Assessing Officer accepted the conversion, the assessee’s claim that the gains was a LTCG amounted to furnishing inaccurate particulars of income. The issue was not debatable as held by the Tribunal. When the order of the AO in quantum proceedings was sustained by all successive authorities and the High Court also dismissed the appeal at the admission stage, albeit after admitting the same, it cannot be said that the issue was debatable.

CIT vs. Splender Construction (Delhi). (www.itatonline.org)

527. S. 271 (1) (c) : Penalty – Concealment – Immunity under Explanation 5 – Disclosure under section 132(4)

Unaccounted stock surrendered by assessee in the statement recorded under section 132 (4), on the date of search is covered by ‘other valuable articles or things’ and therefore, the conditions enumerated under Explanation 5 to section 271(1)(c) , were fulfilled and penalty under section 271(1)(c) is not leviable. ( A. Y. 1989-90).

CIT vs. Bhandari Silk Store ( 2011) 242 CTR 443 (P&H) .

528. S. 271 (1)(c ) : Penalty – Concealment – No penalty can be levied without Assessing officers finding on "Inaccurate Particulars"

Where there is no finding by the AO that the assessee furnished inaccurate particulars and that its explanation was not bona fide, the imposition of penalty u/s 271(1)(c) was a "complete non-starter". A mere erroneous claim made by an assessee, though under a bona fide belief that, it was a claim which was maintainable in law cannot lead to an imposition of penalty. The claim for deduction was made in a bona fide manner and the information with respect to the claims was provided in the return and documents appended thereto. Accordingly, there is no furnishing of "inaccurate particulars". Making of an incorrect claim for expenditure does not constitute furnishing of inaccurate particulars of income

CIT vs. Mahanagar Telphone Nigam Ltd (Delhi) (www.itatonline.org)

529. S. 271(1)(c) : Penalty – Concealment – Search and seizure – Disclosure – Due date of filing of return – Explanation 5. (S. 132 (4)

Assessee made disclosure under section 132(4), and paid the tax. Time for filing of return has not expired. Penalty cannot be imposed. (A.Y. 1989-90.

CIT vs. Bhandari Silk Store (2011) 337 ITR 153 (P & H).

530. S. 271(1)(c) : Penalty – Concealment – Search and Seizure – Explanation 5.

Income offered after detection consequent to search operations was rightly treated as concealed income, therefore, penalty under section 271(1)(c), was rightly levied; in the circumstances, Explanation 5 was not attracted.(A.Ys. 1982-83 & 1983-84).

D.K.B. & Co vs. Dy CIT (2011) 58 DTR 299 /243 CTR 198 (Ker).

531. S. 275(1)(a) : Penalty – Concealment – Bar of limitation on imposition – limitation period not curbed by Proviso

The period of six months provided for imposition of penalty u/s 275(1)(a) starts running after the successive appeals from an assessment order have been finally decided by the CIT(A) or the ITAT. The proviso to s. 275(1)(a) extends the period for imposing penalty from six months to one year of the receipt of the CIT(A)’s order after 1-6-2003. The proviso carves out an exception from the main section inasmuch as in cases where no appeal is filed before the ITAT the AO must impose penalty within a period of one year of the date of receipt of the CIT(A)’s order. A proviso is merely a subsidiary to the main section and must be construed harmoniously with the main provision. The proviso to s. 275(1)(a) does not nullify the availability to the AO of the period of limitation of six months from the end of the month when the order of the ITAT is received.

CIT vs. Mohir Investment & Trading Co. (Delhi) (www.itatonline.org)

532. S. 276B : Offences and Prosecution – Compounding of offences – Guidelines – Technical offences

Under the guidelines of September 30, 1994, technical offences could be compounded by the Chief Commissioner or Director General on certain conditions. The court held that compounding is not possible after filing of complaint. (A.Y. 1982-83).

Anil Batra vs. Chief CIT ( 2011) 337 ITR 251 (Delhi).

533. S. 282: Service of notice – Received by assessee – Service on counsel authorized to receive all documents.(S. 288, Income Tax (Appellate Tribunal) Rules, 1963, R 35, Code of Civil Procedure Code, O.3. r 3.)

The assessee’s counsel who duly authorized to receive all documents on behalf of the assessee, received the certified copy of the order of the Tribunal, which was passed it on to another counsel of the assessee from whom the assessee collected the certified copy of order. On appeal to the High Court with an application for condonation of delay, in filing the appeal, contending that certified copy of the order of Tribunal was not served on the assessee by the office of the Tribunal in accordance with rule 35 of the Income Tax (Appellate Tribunal) Rules, 1963. The court held that the phrase " received by the assessee" means received by assessee either him self or through his authorized agent. The counsel was empowered to accept the copy of the order of the Tribunal and hence the service on him was valid service for purposes of calculation of limitation for filing an appeal . Thus the appeal filed by the assessee was barred by limitation. (A.Y. 1997-98).

Sultanpur Kshetriya Gramin Bank vs. JCIT (2011) 336 ITR 156 (All)

Interest Tax

534. S. 2(5) : Chargeable interest –Interest on loans and advances- Bills discounting. (S. 2(7), 5, 6)

Sections 5 and 6 of the Interest Act, specifically exclude the interest accruing or arising to a credit institution on loans and advances made to other credit institutions from the purview of chargeable interest and, therefore, interest received by the assessee on loans and advances made under the bills rediscounting scheme from different banking companies to which Banking Regulation Act, 1949, applies, does not form part of chargeable interest. (A.Y. 1992-93).

National Insurance Co. Ltd. vs. CIT ( 2011) 58 DTR 137 (Cal).

535. S. 2(5) – Interest tax Act, 1974 – Interest tax recovered from borrowers

Interest tax recovered from the borrowers by the credit institution does not form part of chargeable interest and as such not eligible to interest tax.

CIT vs. Haryana Financial Corporation (2011) 60 DTR 12 (P&H)

536. S. 2(5A) : Chargeable interest –Financial company – Business of hire purchase and leasing

High Court has not examined whether the transactions entered into by the assessee constituted financial transactions so as to attract the provisions of the 1974 Act, apart from the fact that the issues covered a wide spectrum, the impugned order is set aside and matter restored back for fresh adjudication.

Editorial.– CIT vs. Motor and General Finance Ltd. (2010) 236 CTR 487/ 48 DTR 118 (Delhi) set aside.

537. S. 2(7) : Interest Tax Act, 1974 – Professional fee – Syndication fee

Syndication fees and brokerage received by the assessee for making arrangement for providing finance to others through other financiers are held to be professional fees and not interest within the meaning of section 2(7) of the Interest-tax Act, 1974.

Peerless Financial Services Ltd. vs. CIT (2011) 58 DTR 235 (Cal)

Wealth Tax

538. Finance Act, 1983 – Wealth tax –Valuation – Land – Urban land Ceiling Act – Schedule III

Assessee’s land was declared as surplus under ULCRA but possession was not taken over by authorities and in view of sections 3 and 4 of Repealed Act, 1999, the assessee continued to be owner of the land and its value was includible in net wealth. Land being subject to ULCRA, the same has to be valued taking into consideration restriction under ULCRA. (A.Ys. 1984-85 to 1989-90, 1991-92 & 1992-93).

CWT vs. Chemsford Club Ltd. (2011) 243 CTR 89 (Delhi)