1. Amount – Addition – Valuation of Stock – S. 143

On account of quality audit undertaken during the year, dead stock was written off which resulted in lower valuation of a stock, and addition were made on account of under-valuation. Held addition not justified, as the defective sets treated as good sets in earlier year and which were being valued at inflated figures, have now been set right, and the closing stock valuation represents the actual position of saleable goods.

Salora International Ltd. vs. ACIT (2008) 166 Taxman 54 (Delhi)

2. Appeal – Powers of CIT – S. 250

CIT(A) is duty bound to consider the matter placed before him in its all respects and he could consider the addition under section 68 even though the Assessing Officer had only invoked section 69.

Smt. Ishrawati Devi vs. ITO (2008) 114 TTJ 541 (All)

3. Appeal – Tribunal – Appeal fee – Revision Order – S. 253(6), 263

In an appeal against order under section 263 filing fee will be governed by cl. (d) of 253 (6). Finding given in order under section 263 is not based on the computation of total income by the AO. Hence, cls. (a) (b) and (c) of section 253 (6) are not attracted. Only Rs 500 is payable as filing fee.

Jet Electronics vs. ACIT (2008) 2 DTR 337 (Ahd.)

Editorial Note: Order of Special Bench of Tribunal at Kolkata in Bidyut Kumar Sett vs. ITO (2004) 85 TTJ 896 (Kol.) (SB) distinguished.

4. Bad debt – Deduction – S. 36(1)(vii)

The assessee was engaged in the business of trading, investment, financing and bill discounting. The assessee had claimed some debts as bad. The proceedings for its recovery were pending before the courts. Held that A.O. was not justified in rejecting the claim of bad debts on the ground that it was premature for the assessee to write off the amount as bad debts.

Space Financial Services vs. ACIT, ITA No. 2002/Del/2005, Bench – G, A. Y. 2000 – 01, dt. 14-9-2007 – BCAJ p. 520, Vol. 39-E, Part 5, February 2008.

5. Bad Debt – Provision for non-performing assets of NBFC – S. 36 (1)(vii), 45A of the RBI Act

Amount debited to profit and loss account as a provision for NPA by an NBFC on the basis of provisioning requirement of prudential Norms by the RBI in exercise of powers conferred under section 45 JA of the RBI Act is not allowable as bad debt.

New India Industries Ltd vs. ACIT (2008) 1 DTR 247 (Del) (SB)

6. Block Assessment – S. 158B

Jewellery received as gift which was supported by affidavits of parties, was treated as unexplained. Held, such additions made, without any examination and comments on Affidavits filed is erroneous, and additions be deleted.

Mrs. Asha Devi vs. ACIT (2008) 167 Taxman 84 (Delhi)

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

Contribution towards PF and ESI though paid after the due date, but before due date of filing the return are allowable as deduction.

Suhag Traders (P) Ltd. vs. ITO (2008) 3 DTR 14 (Del)

CIT vs. Pamwi Tissues Ltd. (2008) 3 DTR 66 (Bom.) requires reconsideration.

Editorial Note: CIT vs. Godaveri (Mannar) Sahakari Sarkhar Karkana Ltd. (2007) 212 CTR 384, 298 ITR (Bom.) considered.

8. Business Expenditure – Advertisement – S. 37(1)

Held, that expenditure on advertisement was for earning better profit and facilitating sales operation, and same cannot be said to be of enduring nature in present day scenario, and by incurring such expenses assessee had not got any fixed capital asset which justifies 1/3rd disallowance as being of capital nature.

Salora International Ltd. vs. ACIT (2008) 166 Taxman 54 (Delhi)

9. Business Expenditure – S. 37

Expenditure incurred towards community development is allowable as business expenditure.

Dy. CIT vs. B. S. E. S. Ltd. (2008) 113 TTJ 227 (Mum.)

Expenditure incurred for survival in the business was revenue expenditure.

ACIT vs. Prabhu Spg. Mills (P) Ltd. (2008) 113 TTJ 372 (Chennai)

Once the services rendered had been established, there was no basis to restrict the commission from 12.5% to 5%.

Gujarat Guardian Ltd. vs. Jt. CIT (2008) 114 TTJ 565 (Del.)

Expenditure on training of personal prior to setting up of plant is to be capitalized and depreciation to be allowed thereon.

Gujarat Guardian Ltd. vs. Jt. CIT (2008) 114 TTJ 565 (Del.)

1. Expenditure incurred on advertisement for recruitment of staff cannot be disallowed.
2. Expenditure on repair of roads within factory premises is allowable as revenue expenditure.
Finolex Pipes (P) Ltd. vs. Dy. CIT (2008) 114 TTJ 664 (Pune)

10. Business Expenditure – S. 37(1)

Sales promotion expenses incurred by assessee firm engaged in business of export of goods on account of travelling, boarding and lodging of foreign buyers who were instrumental in promoting the sales, were held to be allowable u/s 37 (1).

ACIT vs. Sahib Forge (2008) 168 Taxman 83 (Chandigarh)

11. Business Income – Revision – S. 22, 28(1), 263

Taxability of income from immovable property is based upon the primary object of the assessee. If it is found to be exploiting by way of commercial activity then it must be assessed as income from business. Assessee developed a shopping mall/business centres and providing host of services/facilities/amenities then in that case basic intention was commercial exploitation of the immovable property and therefore, such income is to be assessed as business income. Revision is not valid.

PFH Mall & Retail Management Ltd. vs. ITO (2008) 110 ITD 337 & (2008) 298 ITR (AT) (Kol.)

12. Capital Gains – Cost of Acquisition – S. 45, 55(2)(b)(i)

(i) Section 48, 49 & 55 are machinery provisions for computing capital gains under different circumstances and therefore, they are not charging sections.

(ii) Option to opt a Fair market Value [FMV] for the asset acquired prior to 1/4/1981 u/s. 55 is an independent provision for computing cost of acquisition in the given circumstances with a view to bring out such asset at the option of the assessee at it’s FMV as on 1/4/1981 and therefore, this option is independent of the section 48 under the statute.

Alcan Inc. vs. Dy. CIT (International Taxation) (2008) 110 ITD 15 (Mum)

13. Capital Gains – Reference to Valuation Officer – S. 55A

Once the A.O. had exercised the option to adopt cost of acquisition as on 1-4-1981 under 55(2)(b), then the substitution of the said figure, by any figure other than the value determined by valuation cell of the department is not justified.

ICBI India (P) Ltd. vs. JCIT (2008) 166 Taxman 123 (Bangalore)

Valuation report received subsequent to completion of assessment can be examined and adopted by appellate authority as same becomes part of record. The information obtained in said report can be utilised by Commissioner (Appeals).

ICBI India (P) Ltd. vs. JCIT (2008) 166 Taxman 123 (Bangalore)

14. Capital Gains – Take over of business – S. 45(4)

One of the two partners of the firm having relinquished his rights thereon in favour of the other by way of deed of dissolution w.e.f., 19th December, 2001, and the said partner having taken over the running business of the erstwhile firm as the sole proprietor, and later formed a new partnership with a new partner commencing from 21st December, 2001, provisions of section 45 (4) are clearly applicable.

ITO vs. Marketers (2008) 4 DTR 383 (Asr.)

15. Capital or Revenue – S. 37

Expenditure incurred the advantage of which merely facilitates assessee’s trading operations and in effectively carrying on business and enabling better management and better profitability, leaving the fixed capital untouched would be of revenue nature, even though the advantage may endure for indefinite future.

Salora International Ltd. vs. ACIT (2008) 166 Taxman 54 (Delhi)

16. Capital or Revenue – Royalty – S. 37

Royalty payment attributable to training, support service and other technical assistance as part of agreement, payment of which was linked to the quantum of production and sales, cannot be treated as capital expenditure, and same was allowed as revenue expenses.

Salora International Ltd. vs. ACIT (2008) 166 Taxman 54 (Delhi)

17. Cash Credit – S. 68

Bank pass book is not as book of account maintained by assessee.

Ms. Mayawati vs. Dy. CIT (2008) 113 TTJ 178 (Del.)

Additions cannot be made on account of difference in ledger balance which arises when creditor passes entry without any instructions or without any concurrence by the assessee.

If in an account showing credit balance, there is no transfer of money either through cheque or cash during the year under consideration, the additions u/s 68 cannot be made.

Shirish S. Maniar vs. ITO (2008) 167 Taxman 81 (Mumbai)

18. Charitable Trust – Registration – Ss. 12AA, 12A

It was held that for grant of Registration, Commissioner is only required to satisfy himself with regard to the objects and genuineness of the activities of the trust. If nothing offensive is found, and if objects are not outside the purview of section 2(15), and in absence of any dissatisfaction, the rejection of Registration is unjustified.

Dream Land Educational Trust vs. CIT (2008) 166 Taxman 27 (Amritsar)

19. Current repairs – S. 31

The assessee was in hotel business and had incurred expenditure on repairs and replacement of worn-out equipment in its bar and conference room. Assessing Officer disallowed the expenditure on the ground that the expenses resulted in acquiring of new assets, like furniture, cots, fridge, TV stand etc. Held that Assessing Officer was not justified in disallowing the expenses on the ground that expense allowable are only those which are necessitated by the wear and tear of the relevant year, but not the accumulated repairs.

DCIT vs. Southern Paper Products Pvt. Ltd., ITA No. 395/Coch./2005, Cochin Bench, A. Y. 1999 - 2000, dt. 24-9-2007 – BCAJ p. 635, Vol. 39-E, Part 6, March 2008.

20. Deduction – S. 36(1)(viia)(c)

As per the plain reading of the provisions of section 36(1)(viia)(c), no condition of any specific system of accounting to be followed by the assessee had been provided. Therefore, the deduction being a statutory deduction, had to be allowed on the basis of the provisions made in the books of account, notwithstanding the fact that the assessee was following the cash system of accounting. It further noted that in the assessee’s case, the debts also included the amount of loans/advances, which were not affected by the method of accounting being followed by the assessee.

DCIT vs. Delhi Financial Corporation, ITA No. 4566/Del/2005, Bench – H, A. Y. 2002-03, dt. 7-9-2007 – BCAJ p. 396, Vol. 39-E, Part 4, January 2008.

21. Disallowance – Expenditure – S. 14A

It was clear that no part of the interest expenditure can be attributable to or can be said to have a nexus with the dividend income. In absence of nexus between such expenditure and the exempt income disallowance made by the A.O. deleted.

DCIT vs. Falak Investments Pvt. Ltd., ITA No. 7901/Mum/2004, Bench – A, A. Y. 2001-02, dt. 26-12-2007 – BCAJ p. 519, Vol. 39-E, Part 5, February 2008.

22. Disallowance – TDS – S. 40(a)(i)

Held that tax is not required to be deducted from payments made to (i) telecom operators for down-linking (bandwidth) charges and (ii) subscription fees paid by way of an access fee to database maintained outside India. Hence no disallowance u/s 40(a)(i)

ACIT vs. Infosys Technologies Ltd., ITA Nos. 653 & 969/Bang./2006, Bench - B, A. Ys. 2002-03 & 2003-04, dt. 17-10-2007 – BCAJ p. 638, Vol. 39-E, Part 6, March 2008.

23. Exemption – Export – Service charges of export – S. 10A

Service charges received by assessee for manufacturing jewellery for others on job work being operational income is eligible for exemption under section 10A. Service charges earned by assessee from job work contracts having direct and proximate connection with business of eligible undertaking would form part of total turn over for purpose of sub section (4) of section 10A.

Inter Classic Jewellery (I) (P) Ltd. vs. ITO (2008) 3 DTR 339 (Mum.)

24. Exemption – Retirement – S. 10(10C)

Employees retiring under Optional Employees Retirement Scheme of RBI fulfil the requirement of section 10 (10C), r/w R. 2BA, hence eligible for exemption under section 10(10C) to the extent of Rs 5 lakhs.

Anant Kumar Agarwal vs. ITO (2008) 3 DTR 97 (Luck.) (TM)

25. Exemption – S. 10A

Service charges for job work received by assessee being its operational income is eligible for exemption under section 10A.

Inter Classic Jewellery (I) (P) Ltd. vs. ITO (2008) 114 TTJ 402 (Mum.)

26. Family Arrangement – Capital Gain – Transfer – Ss. 2(47), 45

Transfer of assets under family arrangement, whereby assets and liabilities, including flats, were divided among the members, cannot be treated as transfer u/s 2(47), and be taxed as capital gains, on the presumption that family arrangement was not bonafide and it was a colourable device to save tax, when no positive evidence or material was brought in record to establish that arrangement was not actually acted upon.

Shirish S. Maniar vs. ITO (2008) 167 Taxman 81 (Mumbai)

27. Heads of income – S. 14

The totality of facts and circumstances suggested that the assessee intended to do a business in shares and mutual funds. Therefore, according to it, the resultant loss or profit had to be held as loss from business and can be set off against other income.

ITO vs. Navneet Kumar Malpani, ITA No. 223/Jp/2006, Bench – B, A. Y. 2001-02, dt. 27-8-2007 - BCAJ p. 397, Vol. 39-E, Part 4, January 2008.

28. Housing Project – Deduction – S. 80-IB(10)

The restriction put regarding the maximum commercial area to be built up, introduced by Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 would apply only prospectively, and not retrospectively.

Arun Excello Foundation (P) Ltd. vs. ACIT (2008) 166 Taxman 53 (Chennai)

Assessee having completed the construction of various wings of the building under approved plan in two different blocks under different certificates of commencement, was eligible for deduction under section 80IB(10) in respect of one block in respect of which claim for deduction was made and which satisfied the requirement of section 80IB(10). Claim could not be denied by clubbing the two blocks especially when the second block had been kept separate by assessee and for which deduction under section 80IB (10) was not claimed.

Saroj Sales Organisation vs. ITO (2008) 3 DTR 494 (Mum.)

29. Income – Capital or Revenue Receipt – Non-compete fee – S. 4, 28(ii), 28(iv), 45

Non-compete fee received by assessee constituted capital receipt and it can not be taxable as salaries or profits in lieu of salary.

Saurabh Srivastava vs. Dy. CIT (2008) 1 DTR 126 (Del)(SB), (2008) 113 TTJ 1 (Del.) (SB)

30. Income – Non-compete Fee – S. 10 (3), 28(va)

Amount received by assessee pursuant to a restrictive covenant as non compete fee is not taxable as revenue receipt. Provisions of section 28(va) introduced w.e.f. 1st April 2003, are prospective and not retrospective. Receipt by assessee under restrictive covenant is not taxable as a casual and non recurring receipt under section 10(3).

TTK Health Care Ltd. vs. ACIT (2008) 4 DTR 530 (Chennai)

31. Income from House Property – Deduction – S. 24(1)(iv)

Interest on fresh loan raised to repay original loan taken for constructing / buying property is deductible u/s. 24(1)(iv) if the A.O. is satisfied that the second loan was obtained for the purpose of repayment of the original loan which was obtained for acquiring of the property.

ITO vs. Karupa Chemicals P. Ltd. (2008) 298 ITR 189 (AT)(Mum)

32. Income from Other Sources – S. 56

Interest earned on surplus funds during pre operative period was assessable u/s. 56.

Dy. CIT vs. Capital Cars (P) Ltd. (2008) 113 TTJ 120 (Del.)

33. Industrial Undertaking – Deduction – S. 80IA

Assessee engaged in providing international connectivity services to the domestic telecommunication service providers by commissioning telecommunication earth stations. Providing satellite communications is not entitled to the deduction u/s. 80IA as the telecommunication services through earth station set up can not be characterized either with ‘basis or cellular’. The earth station and satellite are supplementary to each other and it is entirely distinct and different from cable or cellular system.

Videsh Sanchar Nigam Ltd. vs. CIT (2008) 299 ITR 234 (AT)(SB)(Mum)

34. Infrastructure Undertaking – Deduction – S. 80IA

(i) In view of the provisions of sub-section (5) of section 80IA carried forward losses and unabsorbed depreciation of the eligible unit have to be kept separate from the other units.

(ii) Quantum of deduction u/s. 80IA can not exceed the gross total income defined u/s. 80B.

(iii) Allocation of common head office expenses on the basis of the turnover of the units is a rational basis.

Khinvasara Investment (P) Ltd. vs. Jt. CIT (2008) 110 ITD 198 (Pune)

35. Interest – S. 201(1A)

Interest can be charged only up to the date of payment of tax by the payee.

Mrs. Meena S. Patil vs. ACIT (2008) 113 TTJ 863 (Bang.)

36. Losses – Speculation Business – S. 73

Provisions of Explanation to section 73 apply only where any part of business consists in purchase and sale of shares and not purchase alone.

Interest paid on purchase of shares from bank finance which were carried forward as stock, cannot be disallowed by invoking Explanation to Section 73, as a loss arising to assessee in speculation business.

Pioneer Equity Trade (India) Pvt. Ltd. vs. ITO (2008) 168 Taxman 76 (Mumbai)

37. Notice – Service – S. 148, 282(1)(a)

Report of Inspector who allegedly served the notice under section 148, being undated and the lady on whom the notice was served not having been identified by Inspector, there was no valid service of notice on the assessee as per provisions of section 282 and order 5 Rule 18 CPC, hence, CIT (A) was justified in annulling the assessment.

ITO vs. Bedi Enterprises (2008) 3 DTR 112 (Luck.)

38. Penalty – Concealment – Recording of Satisfaction – S. 271(1)(c)

Assessing Officer merely mentioning towards the end of the assessment order that “Penalty notice under section 271(1)(c) is issued” does not amount to recording of valid satisfaction, hence, penalty imposed under section 271(1)(c) was invalid and without jurisdiction.

Vikram Chadha vs. ITO (2008) 4 DTR 435 (Asr)

39. Penalty – S. 271(1)(c)

The requisite satisfaction if not derived or recorded by A.O. during the course of original assessment proceedings, regarding concealment or furnishing inaccurate particulars, then the initiation of penalty is bad in law and consequently penalty imposed is liable to be cancelled.

British Airways plc vs. DDIT (2008) 166 Taxman 126 (Delhi)

Interest on FDR declared on receipt basis was enhanced by A.O., at figure as disclosed in TDS certificate. Penalty imposed on account of said addition was deleted on ground that nothing was concealed, and full particulars of income were disclosed with Return by way of TDS certificate.

ITO vs. Purushottam Das Chopra (2008) 167 Taxman 86 (Delhi)

40. Penalty – S. 271G

Satisfaction need not be recorded before initiating proceedings u/s 271G as provisions of said section are quite different from provisions of sec 271(1).

Cargill India (P) Ltd. ITO vs. DCIT (2008) 167 Taxman 114 (Delhi)

41. Power of Tribunal – S. 254

Tribunal can entertain the claim for exemption or non-taxability of particular income.

Kisan Discretionary Family Trust vs. ACIT (2008) 113 TTJ 918 (Ahd.)

42. Precedent – Tribunal

Orders of the Tribunal are binding on the lower authorities.

Finance Officer, MDV vs. ITO (2008) 113 TTJ 914 (Del.)

43. Profits chargeable to tax – S. 41

Addition under section 41(1) could not be made where no deduction or allowance were allowed in earlier assessment years.

ITO vs. Bansi Lal Gupta (2008) 113 TTJ 898 (Asr.)

44. Reassessment – Pendency of Assessment – S. 147,148

During pendency of valid return, initiation of reassessment proceeding held to be invalid.

Handloom Intensive Development Project Ltd. vs. ACIT (2008) 1 DTR 116 (Luck.)

ACIT vs. Cannon Steels (P) Ltd. (2008) 1 DTR 170 (Mum.)

45. Reassessment – S. 143(1), 147

Section 147 can not be used as a substitute for section 143(2) particularly when return of income was filed and the assessment was done u/s. 143(1). In otherwords provisions of section 147 can not be opted when notice period to make the general enquiry u/s. 143(2) has lapsed.

ACIT vs. Muthoot Leasing & Finances Ltd. (2008) 21 SOT 281 (Cochin), followed Kerala High Court’s judgment in case of Travancore Cements Ltd. vs. ACIT, reported in 4 KLT 344

46. Reassessment – S. 147

Initiation of reassessment proceedings during pendency of valid return was invalid in law in spite of Explanation 2(b) to section 147.

Handloom Intensive Development Project (Bijnore) Ltd. vs. ACIT (2008) 114 TTJ 416 (Luck.)

47. Rectification – S. 154

Failure to carry out directions of CIT(A) is mistake apparent from record.

Procter & Gamble India Ltd. vs. Dy. CIT (2008) 113 TTJ 682 (Mum.)

48. Salary – Stock Appreciation Rights – Interest – S. 2 (24), 4, 15, 45, 56, 234B

Amount received by assessee, Managing Director of PGI India, a part of group companies headed by PGU in USA on redemption of stock appreciation rights issued in favour of assessee by PGU was income chargeable to tax under head salaries or in alternative under head income from other sources.

Amount received by the assessee being subject to TDS he could not be said to be defaulted for not paying advance tax, hence interest under section 234B was not chargeable.

Sumit Bhattacharya vs. ACIT (2008) DTR 25 (Mum.) (SB)

49. Search and Seizure – Block Assessment – Statement of Consultant – S. 158 BC,132 (4)

Addition of undisclosed income could not be made in the hands of assessee solely on the basis of statement of its tax consultant, more so when the statement was not voluntary statement and has been retracted.

Statement made by a third person at the time of survey or search of another concern could not be relied upon as he is not the controlling person of that concern and no corroborative evidence was found in that search.

First Global Stock Broking (P) Ltd. vs. ACIT (2008) 4 DTR 172 (Mum.)

50 Software Technology Park – Deduction – S. 10A

The assessee was in business of development of computer software. Its three units were located in Software Technology Parks at Bangalore, Chennai and Pune. The assessee had claimed deduction 10A in respect of the profit of the undertaking established in Software Technology Park. It was held that (i) telecommunication charges which were reduced for ascertaining the export turnover were also not to be considered for the purposes of total turnover, as total turnover is the sum total of export turnover and domestic turnover (ii) loss suffered by one industrial undertaking need not be adjusted against the profit of the other industrial undertaking (iii) the amount equal to the adjustments made by the assessee to the arm’s length price, while filing the return of income, was eligible for deduction.

Gare Global Solutions Ltd. vs. ACIT, ITA Nos. 248 & 249 /Bang/2007, Bench – B, A. Ys. 2002 – 03 & 2003-04, dt. 27-11-2007 – BCAJ p. 395, Vol. 39-E, Part 4, January 2008.

51. TDS – Assessee in default – Limitation – Certificate – S. 201, 195 (2)

An order under section 201, ought to be passed within four years, hence on the basis of showcause notice issued in October, 2002, assessee could not be treated in default for the period prior to 31st March, 1998.

Assessee on the basis of a no objection certificate under section 195(2) obtained in respect of a particular payment could not contend that, it entertained a bonafide belief that it was not obliged to obtain such certificate under section 195(2), once again in respect of similar payment under another contract and hence could not treated to be in default.

Mangalore Refinery & Petro Chemicals Ltd. vs. Dy. Director of IT (2008) 4 DTR 101 (Mum.)

52. Transfer Pricing – S. 92(C)

a) Held that initial burden of proving international transaction carried out is at arm’s length price is on an taxpayer.

b) Non referral of question of determination of arm’s length price to TPO by an A.O. under instruction No 3/23 dt 20.5.03 is only an procedural error.

Ranbaxy Laboratories Ltd. vs. ACIT (2008) 167 Taxman 30 (Delhi)

53. Wealth tax – Belonging to assessee – S. 4(8)(b) r.w.s. 269 UA(f)(1)

Lease of immovable property for less than twelve years, shall not affect the legal ownership, hence, shall be liable to Wealth Tax.

Voltas Ltd. vs. ACWT (2008) 1 DTR 1 (Mum.) (SB)