consolidated digest of case laws jan 2011 to apr...

Consolidated Digest of Case Laws (Jan-April 2011) http://www.itatonline.org 1

Consolidated Digest of Case Laws (January 2011 to April 2011) (Journals Referred: ACAJ / BCAJ / BLR / CITC / CTR / DTR / ITD / ITR (Trib.) / ITR / SOT / TTJ / TLR / Taxman / Taxation / Tax World, www.itatonline.org ) Compiled by: KSA Legal Chambers S. 2(IB): Amalgamation – Subsidiary - Tax Avoidance. Assessing Officer rejected the scheme of Amalgamation with its subsidiary holding that it was a mere device to avoid tax. CIT(A) accepted the scheme. On revenue’s appeal the tribunal held that as the scheme has been sanctioned by High Court and it cannot be held that there was motive to avoid tax, further the shares were issued to outside shareholders by assessee company in terms of scheme sanctioned by High Court and the allotment of shares were done on the basis of valuation report submitted by an independent valuer (A. Y. 2004-2005) ACIT vs. TVS Motors Co. Ltd. (2011) 128 ITD 47/36 DTR 89 (Chennai)(Trib) S. 2(14)(iii) : Agricultural Land - Capital Asset – Distance – Measurement. For measurement of distance for the purpose of deciding the character of land, whether agriculture or not, is to be done in terms of the approach by road and not by straight line distance on horizontal plane or as per crow’s flight. Order of Tribunal is affirmed by High Court. (A. Y. 2001-02) CIT vs. Satinder Pal Singh (2010) 188 Taxman 54 / 229 CTR 82 / 33 DTR 281 (P&H ) (High Court) S. 2(22)(e) : Deemed Dividend - Loans or Advances - Share Holder In order that the first part of cl.(e) of section 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, as the case may be either to a shareholder, being a beneficial owner holding not less than ten percent of the voting power or to any concern to which such a share holder is a member or a partner and in which he has a substantial interest. Amount received from a company been misappropriated by shareholder, there was no loan or advance. Further, even assuming that it was a dividend, it have to be taxed in the hands of the shareholders and not in the hands of the assessee.(A. Y. 2003-04) CIT vs. Universal Medicare (P.) Ltd. (2011) 237 CTR 147/324 ITR 263/37 DTR 409/190 Taxman 144 (Bom.)(High Court) S. 2(22)(e) : Deemed Dividend - Advance given for the purpose of Business. Assessee, Managing Director having received advances from the company, pursuant to resolution passed by it to enable the assessee to purchase land which was to be developed by the company in order to bifurcate the ownership of land from the development or construction of flats thereon so as to reduce the incidence of stamp duty on the ultimate customers, the transaction was motivated by assessee considerations and commercial expediency, therefore, the advances cannot be treated as deemed dividend.(A. Y. 2006-2007) ACIT vs. Harsad V. Doshi (2011) 49 DTR 181 / 136 TTJ 351 (Chennai)(Trib.) S. 2(22)(e) : Deemed Dividend – Debenture – Loan - Investment Debenture is a loan account and therefore, debentures subscribed by the assessee shareholder are to be taken in to account for ascertaining his indebtedness to the company vis-à-vis the loan or advance taken by him and determining deemed dividend under section 2(22)(e).( A. Y. 2003-2004) Anil Kumar Agarwal vs. ITO (2011) 51 DTR 251 (Mum.)(Trib.)


S. 2(22)(e) : Deemed Dividend - Advances given to Business Purposes. Assessee, Managing Director, having received advances from the company, pursuant to resolutions passed by it to enable the assessee to purchase land which was to be developed by the company in order to bifurcate the ownership of land from the development or construction of flats thereon so as to reduce the incidence of stamp duty on the ultimate customers, the transaction was motivated by business considerations and commercial expediency and therefore, the advances can not be treated as deemed dividend under section 2(22)(e).(A. Y. 2006-07) ACIT vs. Harshad V. Doshi (2011) 136 TTJ 351/49 DTR 181 (Chennai)(Trib) S. 2(24) : Income – Non-occupancy Charges – Co-operative Housing Society – Mutuality. The receipts of non-occupancy charges, transfer fees and voluntary contribution from its members by the co-operative housing society is not taxable. ITO vs. Grand Paradi CHS Ltd., ITA No. 521/Mum/2010, dt. 27-08-2010, ITAT ‘G’, Mumbai Bench, BCAJ pg. 20, Vol. 42-B, Part 4, January 2011 (Trib.) S. 2(42A) : Capital Gains - Short term capital loss - Colourable Transaction - Genuine Transaction. In November, 1995 assessee company took over SKB with all its assets and liabilities including rights under contract for using trade mark of Pepsico Inc., USA for certain consideration which was paid through account payee cheques. However, assessee company could not run business of SKB for various reasons including necessity of making further investment, therefore it sold entire shares of SKB vide share purchase agreement dated 23-12-1995 at a loss of ` 8.60 crores. Assessing Officer took the view that assessee could have waited for more reasonable time for watching the market and could have invested further amount of ` 9 to 10 crores to revive business of SKB and period of one month was too short time for taking such a major decision regarding disinvestment of shares of SKB. He further held that transaction was of a colourable nature and declined to allow claim of assessee towards short term capital loss. In appeal Commissioner of (Appeals) and Tribunal allowed the appeal of assessee. On appeal to High Court, the High Court up held the order of Tribunal. (A. Y. 1996-97) CIT vs. Oberoi Hotels (P) Ltd. (2011) 198 Taxman 310 (Cal.)(High Court) S. 4 : Charge of Income Tax - Income – Capital or Revenue Receipt - Subsidy for setting up Industry. Subsidy received for setting up agro based industrial unit in backward area was determined with reference to capital investment, is a capital receipt. CIT vs. Siya Ram Garg (HUF) (2011) 49 DTR 126 / 237 CTR 321(P&H)( High Court) S. 4 : Charge of Income Tax - Income - Capital or Revenue Receipt – Interest - Pre–commencement. Interest on deposit of margin money for opening of letter for credit for import of machinery at the stage of setting up of industrial unit of the assessee is a capital receipt and the same is to be set off against pre-operative expenses.(A. Y. 2005-06) CIT vs. Arihant Threads Ltd. (2011) 49 DTR 251 (P&H)( High Court) S. 4 : Income - Capital or Revenue Receipt – Compensation - Termination from land owner. Compensation received from the land owner on termination of development agreement was the deprivation of potential income and loss of future profits as mentioned in the settlement agreement and not for divesting the assessee of its earning apparatus as restrictive covenant in the said agreement only prohibited the assessee from undertaking a similar project in the vicinity of the existing project without


consent of the land owner for the limited duration of three years, and therefore, the compensation was a revenue receipt.(A. Y. 2001-02) Ansal Properties & Industries Ltd. vs. CIT (2011) 238 CTR 126/196 Tax 45/49 DTR 78 (Del.) (High Court) S. 4 : Charge of Income Tax – Assessment - Law Applicable - Financial Year - Assessment Year - (S. 143) Unless it is made clear in an amendment as to whether it comes in to effect for the assessment year or financial year, normally it is to be deemed that such benefit of the amendment is for the assessment year.(A. Y. 2000-01) Mukesh C. Patel vs. CIT (2011) 238 CTR 332/51 DTR 62 (Kar.)( High Court) S. 4 : Income - Capital or Revenue - Share of Profit from firm pending dissolution. Profit which is calculated on notional basis by deducting 40% from two years average profit, received by the assessee partner for the period of 234 days when the dissolution of the firm was pending under the directions of the Court is to be treated as revenue receipt.(A. Y. 1995-96) B. Rachurama Prabhu Estate, Executrix, Smt. Kaveri Bai & Ors. (2011) 52 DTR 122 / 239 CTR 274 (Kar.)(High Court) S. 4 : Charge of Income Tax – Income – Accrual – Interest Income – Banks and Non-banking Financial Institutions – Non-performing Assets – Accrued interest to be excluded from income. Credit of accrued interest maybe excluded from the income of Bank and non banking financial institutions, where interest outstanding is attributable to assets characterised as a non-performing assets under the notification issued by the RBI. The High Court held that mercantile system of accounting recognises only income which is realisable. (A. Y. 1995-96 to 2000-01) CIT vs. Coimbatore Lakshmi Inv. and Finance Co. (2011) 331 ITR 229 (Mad.)(High Court) S. 4 : Income – Capital or Revenue – Excess Refund – Interest Subsidy – Capital Receipt. Excise Refund and Interest Subsidy received by the assessee from Government of India in pursuance to a New Industrial Policy of Government which was aimed at acceleration of industrial development and generating employment in the State in public interest were held to be capital receipt in the hands of the assessee. Shree Balaji Alloys & Ors. vs. CIT & Ors. (2011) 51 DTR 217 / 239 CTR 70 (J&K)(High Court) S. 4 : Income - Mutuality - Income of Club from Surplus funds -Interest from Fixed deposits and Government Securities. Assessee company is running a recreation club for its members the income earned from the members is exempt on the principle of mutuality. Income of the club from FDR’s in banks and Government securities, dividend income and profit on sale of investment is also covered by the doctrine of mutuality and is not taxable. (A. Y. 2003-04) CIT vs. Delhi Gymkhana Club Ltd. (2011) 53 DTR 330 (Delhi)(High Court) S. 4 : Income - Diversion of at source by overriding Title – Application of Income : Assessee had availed various facilities from Madurai Bank over years, repayment of which was guaranteed by way of change on properties of assessee. As assessee failed to pay dues, bank filed a civil suit. Subsequently, out of settlement was reached at an amount of ` 160 lakhs. Vide Government resolution dt. 14-12-1994 and 19-7-1995, NSSK was permitted to buy spares, plant and machinery of assessee. It was to pay, on behalf of assessee a sum of ` 160 lakhs to Madhurai Bank towards settlement


of amount due. The assessee claimed that as NSSK directly paid Madurai Bank it should be excluded from the sale consideration as that never became the income of the assessee as it stood diverted of overriding title and hence, should be ignored for the purpose of calculating capital gain. The Tribunal held that payment to bank is only application of income not a charge on income. The payment to bank and sale consideration of its assets are entirely two distinct transactions having no relation with each other except for the fact that there was a charge by bank on assets. Hence, amount not deductable from sale consideration. (A. Y. 1996-97) Shree Changdeo Sugar Mills Ltd. vs. Jt. CIT (2011) 44 SOT 479 (Mum.)(Trib.) S. 4 : Income - Capital or Revenue Receipt - Compensation for premature termination of joint venture agreement. Consideration received for premature termination of the joint venture agreement constituted revenue receipt.(1999-2000) Ion Exchange (India) Ltd. vs. ITO (2011) 52 DTR 411 (Mum.)(Trib) S. 5 : Income – Accrual - Advance Receipt. Fees received in advance by the assessee from the clients of its beauty and slimming clinics which is attributable to “unexecuted packages” i.e. services are to be rendered in the succeeding year did not accrue in the relevant year.(A. Y. 1997-98) CIT vs. Dinesh Kumar Goel (2011) 239 CTR 46 / 50 DTR 254/ 331 ITR 10 (Delhi)(High Court) S. 5(2)(b) : Income – Salary – Non Resident – On board of Ship – [Ss. 9(1)(ii), 15)] Salary earned by non-resident for services performed during his stay of 225 days outside India working on board on ship which was outside India, did not accrue or arise in India and as such the same was not taxable in India. (A. Y. 2005-06) DIT (International – Taxation) & Anr. vs. Prahlad Vijendra Rao (2011) 51 DTR 95 / 239 CTR 107 (Karn.)(High Court) S. 6(1) : Residence in India – Non-resident - Residential Status –Business – Profession. For purpose of Explanation (a) to section 6(1)(c), “employment” include self employment like business or profession taken up by assessee abroad. (A. Y. 1989-90) CIT vs. O. Abdul Razak (2011) 198 Taxman 1 (Ker.)(High Court) S. 9 : Income deemed to accrue or arise in India - Finance Act, 2010. Since by Finance Act, 2010, section 9 has been amended with effect from 1-6-1976, department was permitted to move to High Court by way of review petition against its judgment in Jindal Thermal Power Co. Ltd. vs. Dy. CIT (2009) 182 Taxman 252 (Kar.) Dy. CIT vs. Jindal Thermal Power Co. Ltd. (2011) 196 Taxman 495 (SC) S. 9 : Income deemed to accrue or arise in India - Purchase of Technical know how – Royalty - Permanent Establishment - Business Receipt – International Taxation - Tax Deduction at Source - (S. 195) Purchase of technical know how by foreign company, was business receipt. As there was no permanent establishment in India, the same was not liable to be taxed in India, though the same was treated as ‘royalty’.(A. Y. 1991-92) Vesil SPA Italy vs. Jt. CIT (2011) 43 SOT 137 (Hyd.)(Trib)


S. 9(1) : Income deemed to accrue or arise in India - Fees for Technical Services – DTAA - India-Canada – [S. 115A, 234B, Art. 12(4)] The assessee was a non resident company engaged in the business of providing consultancy for infrastructure projects. It had entered into an agreement with the National High way Authority of India and under the agreement the asseseee was to provide technical drawings and reports to NHAI to enable it to use the technology for its infrastructure projects which was founded by the World Bank. The contention of the assessee was that the fee received from NHAI was to be treated as “fees for included services” as prescribed in article 12(4) of the Double Taxation Avoidance Agreement between India and Canada. In terms of this article, the tax chargeable is at 15%. However the Assessing Officer was of the opinion that fee charged for the aforesaid project did not include “fee for included services”. He accordingly is of the opinion that the income was derived as fee for technical services was chargeable to tax under the provisions of section 9(1)(viii) read with section 115A of the Act. According to this section the tax is chargeable was at 20 percent. The Tribunal accepted the contention of assessee. In appeal the High Court affirmed the view of the Tribunal. The amount received by the assessee was taxable under Article 12 of the Indo-Candian treaty. The assessee was not liable to pay advance tax and therefore, interest under section 234B was not chargeable. DIT vs. SNC Lalvalin International, Inc. (2011) 332 ITR 314 (Delhi)(High Court) S. 9(1)(i) : Income deemed to accrue in India – No income deemed to arise even if revenue arises due to viewers in India - International Taxation. For income to be taxable under section 9(1)(i), the carrying of operations in India is a sine qua non. It was held that merely because the footprint area included India and programmes were watched by Indian viewers, it did not mean that the assessee was carrying out business operations in India. The transponder used was in orbit and merely because its footprint was on India did not mean that the process had taken place in India. Ishikawaima-Harima Heavy Industries 288 ITR 408 (SC) followed. It was further observed that the payment by the telecast operators outside India to the assessee cannot be taxed on the basis that the end consumers are in India. Asia Satellite Telecommunication Co. Ltd. vs. DIT (2011) 51 DTR 1 / 238 CTR 233/197 Taxman 263/332 ITR 340(Delhi)(High Court), S. 9(1)(i) : Income deemed to accrue or arise in India - Business Connection - Offshore supply of equipment - International Taxation. Consideration for the offshore supply of equipment by the assessee, a Korean company, to an Indian company cannot be deemed to have accrued or arisen in India as the terms of the agreement stipulated transfer of title / property in the goods as soon as the goods were loaded on the ship at the port of shipment i.e. outside India, and there is no material to show that the accrual of income from this sale was attributable to any operations carried out in India or that the PE of the assessee in India had any role to play in the off shore supply of equipment.(A. Y. 2002-03) Director of Income Tax vs. LG Cable Ltd. (2011) 237 CTR 438 /50 DTR 1(Delhi)( High Court) Editorial:- LG Cable Ltd. vs. Dy. DIT (2008) 119 TTJ 34 (Del.), affirmed. S. 9(1)(i) : Income deemed to accrue or arise in India - Tax Deduction at Source - Technical Services – International Taxation - (S. 40(a)(i), 194J) Assessee was a dealer for Xerox India Ltd. (XIL), authorized to sell and otherwise, promote latter in specified territories. Apart from sales, assessee was also required to render service support to customers, i.e. purchasers of product of XIL. Assessee claimed that payments made to XIL could not be treated as “fees for technical services”. Tribunal held that the payment in question amounted to fees for technical services hence disallowance made by the lower authorities were justified.(A. Y. 2007-08)


Divya Business Systems (P) Ltd. vs. ACIT (2011) 43 SOT 155 (Cochin)(Trib) S. 9(1)(vi) : Income deemed to accrue or arise in India - Copyrighted Software - Non-Resident – Royalty - Double Taxation Avoidance Agreement - India-Mauritius – Art. 12 Both the assessee companies did not have permanent establishment in India. The payments received against sale of software could not be treated as income from royalty either under the income tax Act, 1961 or under the terms of the Double Taxation Avoidance Agreement because payments were made for sale of copyrighted articles.(A. Y. 2005-06) Velankani Maritius Ltd. vs. Dy. CIT (2011) 7 ITR 171 / 42 DTR 193/132 TTJ 124 (Trib.)(Bang.) S. 9(1)(vi) : Income deemed to accrue or arise in India - “Equipment-Use” Royalty If Payer has no control over equipment – DTAA - India-UK. [Art. 12(3)(b)] The activity of transmitting raw data to user, processing of the data by such user by using software belonging to assessee and transmission of such data to assessee does not involve “use of any process” so as to constitute royalty under Article 12(3)(a). In order to constitute ‘use of equipment’, the customer should actually have domain or control over the equipments it should be at its disposal. (A. Y. 2004-05) Standard Chartered Bank vs DDIT (Mum.)(Trib.) Source: www.itatonline.org S. 9(1)(vii) : Income deemed to accrue or arise in India - Fees for Technical Services - Technology advanced in countries - Income Tax Department - Technical Experts - Deduction of tax at source - International Taxation. In cases requiring examination by technical experts, the department ought not to proceed only by the contracts placed before the officers. The department ought to examine technical experts so that the matters could be disposed off expeditiously. In the instant case, a cellular provider under an agreement paid interconnect / access / port charges to BSNL / MTNL, the question whether the cellular provider has rendered technical services and has to deduct tax at source, depended on whether the charges were for technical services and this involved determination of whether any human intervention was involved, which could not be determined without technical assistance. The decision of Delhi High Court in CIT vs. Bharati Cellular Ltd. (2009) 319 ITR 139, set aside and matter remanded to the Assessing Officer with directions. CIT vs. Bharati Celluar Ltd. (2011) 330 ITR 239 (SC) / CIT vs. Hutchison Essar Telecom Ltd. (2011) 330 ITR 239/234 CTR 146/193 Taxman 97/ 44DTR 190 (SC) S. 9(1)(vii) : Income deemed to accrue or arise – Validity challenged - Parliament’s power to make laws with extra - Territorial effect. The constitutional validity of section 9(1)(vii)(b) was challenged by way an appeal to the Supreme Court so as to determine the extent to which laws enacted by Parliament can have extra-territorial effect under Article 245. The Constitution Bench held that Parliament is constitutionally restricted from enacting legislation with respect to extra-territorial aspects or causes that do not have, nor expected to have any, direct or indirect, tangible or intangible impact(s) on or effect(s) in or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. In all other respects, Parliament may enact legislation with extra-territorial effect. All that is required is that the connection to India be real or expected to be real, and not illusory or fanciful. Parliament can only make laws for India and any law which has no impact on or nexus with India would be ultra-vires. GVK Industries Ltd. vs. ITO(2011)332 ITR 130/239CTR 113/197 Taxman 337/52 DTR 1 (SC) 5 Member Bench, Source: www.itatonline.org


S. 9(1)(vii) : Income deemed to accrue or arise in India – Royalty - Computer Software - Copyrighted Article - Tax Deduction at Source -International Taxation – DTAA - India-USA – Art. 7 and 12 - (S. 195) Where the payment is made in respect of the software which is granted on terms of non-exclusive, perpetual, irrevocable, royalty free worldwide license to use the number of copies of the software enumerated in the agreement solely for internal operation, and not directly accessible to third party could not be considered as a “Royalty” under the Act. As the payment was “business income” of the party receiving the payment, as that non-resident party did not have a Permanent Establishment in India and thus as per D.T.A.A. the same cannot be taxed in India. The assessee is not liable to deduct tax at source. Dy. DIT vs. Reliance Industries Ltd. (2011) 43 SOT 506 (Mum.)(Trib.) S. 9(1)(vii) : Income deemed to accrue or arise in India - Fees for Technical Services - International Taxation - DTAA - India-Denmark Amount received by assessee, a Danish shipping company, from its agents in India towards their share of cost of global telecommunication facility provided to the agents to enable them to have access to variety of information regarding tracking of cargo, transportation schedule, etc., to facilitate international shipping business being only reimbursement of cost and not involving any profit element, cannot be considered as fees for technical services.(A. Y. 2001-02 and 2002-03) Dampskibsselskabet AF 1912 A/S Akties Iskabet vs. Addl. DIT (2011) 51 DTR 148 (Mum.) (Trib.)

S. 10A : Exemptions - Free Trade Zone - Foreign Trade (Development and Regulation) Act, 1992 - Allocation of Expenses. Where assessee’ entire income is from STP unit and it is governed under a scheme promulgated by section 3(1) of Foreign Trade (Development and Regulation) Act, 1992, it was held by the Tribunal that Foreign Trade (Development and Regulation) Act, 1992, does not contain any provision overriding provisions of Income Tax Act, therefore, the assessee can get the exemption only as per section 10A of the Income Tax Act. Where travel expenses, telecommunication charges, professional charges and professional consultancy charges as reduced from “export turnover” bore no element of profit which would require allocation by apportionment, the said charges would stand to be excluded from computation of “Total Turnover” as well.(A. Y. 2001-02 to 2004-2005) Dy. CIT vs. IBS Software Services (P) Ltd. (2011) 129 ITD 21/137 TTJ 54/52 DTR 179 (Cochin)(Trib) S. 10A : Exemptions - Free Trade Zone - Interest from Bank Deposits - Turnover - Freight Charges. Interest received from bank deposit and other income shall not form part of “profit from business” for the purpose of computation of deduction under section 10A. After substitution of sub section (4) of section 10A by Finance Act, 2001, total turnover for relevant assessment years shall comprise of total turnover of business carried on by eligible “undertaking” only and not total turnover of all units of assessee for the purpose of calculation of deduction under section 10A. For the purpose of calculating deduction under section 10A, export turnover has to be reduced by freight charges, telecommunication charges or insurance charges attributable to delivery of articles or things or computer software outside India or expenses if any incurred in foreign exchange, in providing technical services out side India. Commission charges that are deducted from export turnover should also be deducted from total turnover.(A. Y.2003-2006) Miracle Software Systems India (P) Ltd. vs. ACIT (2011) 44 SOT 203 (Visakhapatanam)(Trib) S. 10A : Exemptions – Free Trade Zone -Deduction - Interest on Bank - STP Unit - Total Turnover.


Interest on bank deposit exemption under section 10A, is not eligible. When the amount to be proportioned did not include the unrealized sale proceeds, the same would also be included in the total turnover under section 10A. When assessee excluded travel expenses telecommunication charges and professional consultancy charges in the computation of “export turnover”, the same has to be reduced from the figure of ‘total turnover”, for the purpose of section 10A.( A. Y. 2001-02 to 2004-2005) Dy. CIT vs. IBS Software Services (P) Ltd. (2011) 137 TTJ 54 / 52 DTR 179/ 129 ITD 21 (Coch.)(Trib.) S. 10B : Exemption – Deduction – Export - Change of Ownership of Unit - Reconstruction of existing Unit. Firm converted in to company, change of ownership of unit not a reconstruction hence, deduction under section 10B is available.(A. Y. 2007-08) ITO vs. Veto Electropowers (2011) 8 ITR 76 / (Tax World) Feb., 2011 P. 66 (Jaipur)(Trib.) S. 10B : Exemption – Export Oriented Undertaking – Export Turnover. Expenses incurred in connection with development of software by the employees at foreign branch should not be excluded from the export turnover for computing deduction under the section 10B. (A. Y. 2003-04) Zylog Systems Ltd. vs. ITO (2011) 128 ITD 105 / 135 TTJ 0129 / 7 ITR 348 / 49 DTR 1 (Chennai)(SB)(Trib.) S. 10B : Exemption - Export Oriented Undertaking – Option –Declaration. If an assessee files a declaration to avail option of not claiming deduction under section 10B, then provisions of section would not be applicable for any relevant assessment year. Filing of declaration is mandatory and time limit is directory. (A. Y. 2003-04) Wipro BPO Solutions Ltd. vs. Dy. CIT (2011) 44 SOT 353 (Bang.)(Trib.) S. 10B(6) : Exemption – Depreciation – Unabsorbed - Carry forward and set off Unabsorbed depreciation of earlier assessment years in which no deduction was claimed under section 10B is available for set off against other taxable income of the subsequent assessment years.(A. Y. 2002-05) Patspin India Ltd. vs. Dy. CIT (2011) 51 DTR 57 / 129 ITD 35 / 136 TTJ 377 (Cochin)(Trib.)(TM) S. 10(10CC) : Exemption – Perquisite - Tax borne by Employer. Tax paid by employer in respect of salary paid to employees would constitute a non-monetary perquisite eligible for exemption under section 10(10CC).(A. Y. 2004-2005) Transocean Discoverer vs. ACIT (2011) 44 SOT 248 (Delhi)(Trib) S. 10(20) : Exemption – Local Authority – Notified Area – Surat – Municipality. The assessee was a notified area in Surat for industrial development. It had been notified by the State Government under Gujarat Industrial Development, 1962. The assessee had been entrusted with the work of collection of tax under a notification issued by Gujarat Municipality Act, 1963. On the facts of the present case, the assessee was regarded as a ‘municipality’ under section 10(20) and therefore its income was exempt under the said section. (A. Y. 2003-04) ITO vs. Sachin Notified Area (2011) 43 SOT 411 / 7 ITR 699 / 132 TTJ 610 / 42 DTR 478 (Ahd.)(Trib.) S. 10(23C)(vi) : Exemption – Educational Institutional. The assumption that for exemption there should not be any surplus and if it is otherwise the institution society exists for profit and not charity is not justified. Thus, exemption cannot be rejected merely


because there is a surplus. Vanita Vishram Trust 327 ITR 121 (Bom.), Maa Saraswati Trust 194 TM 84 (HP) and Pinegrove International Charitable Trust 327 ITR 73 (P&H) followed). St. Lawrence Educational Society vs. CIT (Delhi High Court) Source: www.itatonline.org S. 11 : Charitable Trust - Application of Income – Depreciation. Depreciation claim is nothing but application of income, hence, depreciation should be reduced from the income for determining the percentage of funds which had to be applied for the purposes of the trust.(A. Y. 2006-07) CIT vs. Tinny Tonts Education Society (2011) 330 ITR 21 (P&H)(High Court) S. 11 : Charitable Trust – Exemption - Set off of loss. The excess of application of the current year / Past year can be set off against the income of subsequent / current year. Raghuvanshi Charitable Trust and others vs. DIT (2011) 221 Taxation 250 (Delhi)(High Court) S. 12A : Charitable Trust – Registration – Genuineness of Trust. Registration under section 12A of the Act cannot be denied to a trust which is newly formed on the ground that it had not commenced any activity. While granting registration under section 12A of the Act only the objects of the trust is to be examined to ascertain the genuineness of the trust. (A. Y. 2004-05) DIT (E) vs. Meenakshi Amma Endowment Trust (2011) 50 DTR 243 (Kar.)(High Court) S. 12A : Charitable Trust – Religious Trust – Cancellation of Registration – Exemption – [S. 10(23C)] Rejection of application under section 10(23C)(vi) cannot be a reason to cancel registration under section 12A. Sunbeam English School Society vs. CIT (2011) 129 ITD 299 (All)(Trib.) S. 12A : Charitable Purpose – Registration - Activity of giving micro finance and earning Interest – [S. 2 (15), 11] Where an assessee is registered under section 25 of Companies Act, 1956, it in itself shows that the company intends to apply its profit in promoting charity. And where the object of the assessee states that it shall promote micro finance services to poor person and help them arise out of poverty. Mere surplus from such micro finance service cannot by itself be a ground to say that no charitable purpose exists. Followed Thanthi Trust 247 ITR 785 (SC) and Agricultural produce and market committee 291 ITR 419 (Bom.) Dish India Micro Credit vs. CIT (ITAT - Delhi) Source: www.itatonline.org S. 14A : Business Expenditure - Exempted Income - Borrowed Funds – Interest - Disallowance of Interest on borrowings on ground that assessee ought not to have used own funds for tax - Free Investments invalid. It was held by Hon’ble High Court that the assessee has sufficiently explained that a majority of the investment in the tax-free security was made before the borrowing. The assessee had demonstrated that it had other sources of investment and that no part of the borrowed fund could be stated to have been diverted to earn tax free income. As borrowed funds were not used for earning tax-free income, applying section 14A was not justified. CIT vs. Gujarat Power Corporation Ltd. (Gujarat High Court) Source: www.itatonline.org


S. 14A : Business Expenditure – Disallowance - Exempted Income - Apportionment of Expenses - Rule 8D - Pre Asst. Year 2008-09. For pre Asst. Year 2008-09, the assessee earned tax free dividend income from investments in units, bonds, shares, etc. The assessee did not maintain separate books of account for tax free securities but claimed that the same had been invested from its own funds and no part of the interest paid by the assessee on its borrowings together with the administrative expenses could be disallowed. Assessing Officer took the view that the interest paid on borrowings and administrative expenses could be disallowed under section 14A. On appeal, the Tribunal held that as no rule had been made prescribed for computing the disallowance no disallowance under section 14A could be made. On appeal by the department, the Court held that in the absence of any precise formula for proportionate disallowance, no disallowance is called for in respect of administrative cost attributable to earning of tax free income until Rule 8D came in to force. CIT vs. Catholic Syriyan Bank Ltd. & Ors. (2011) 237 CTR 164 / 49 DTR 57 (Ker.)(High Court) Editorial:- Godrej & Boyce Mfg Co Ltd (2010)328 ITR 81 (Bom.) Dhanalakshmi Bank (2007) 12 SOT 625 (Coch.) S. 14A : Business Expenditure - Exempted Income - Despite Proviso to S. 14A, disallowance can be made for earlier years The protection of proviso to section 14A w.r.t. A.Y. 2001-02 & earlier years was inserted w.e.f. 11/05/2001. Thus, where order of CIT under section 263 was passed earlier i.e. on 29/12/1999, the protection under the proviso is to available (A. Y. 1995-96). Mahesh G. Shetty & Ors. (2011) 51 DTR 104/238 CTR 440 (Kar.)High Court) S. 14A : Business Expenditure – Disallowance – Exempted Income – No expenditure incurred for earning the exempted income. When no expenditure is incurred for earning exempted income disallowance under section 14A cannot be made. ACIT vs. Pradip N. Desai, ITA No. 2488/AHD/2008 A.Y. 2005-06 Bench ‘A’ dt. 28/12/2010, Ahmedabad Chartered Accountants Journal, Vol. 34 Part 10 January 2011, Pg. 478(Trib) S. 14A : Business Expenditure - Exempted Income - Appellate Tribunal – Power - Applicability of provision of section 14A for the first time before Tribunal – [S. 254(1)] Issue of disallowance under section 14A, cannot be raised for the first time before the Tribunal where the provision of section 14A, was not invoked against the assessee by the Assessing Officer while making disallowance of interest expenditure under section 36(1)(iii) and CIT(A) also at no stage considered the application of section 14A.(A. Y. 2003-04) ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193/ 128 ITD 146 (Mum.)(Trib.) S. 14A : Business Expenditure - Exempted Income – Apportionment of Expenditure. Assessee made investment for earning tax free income from mix funds and it is not possible to ascertain as to whether the investment in tax free was out of assessee’s own funds and the Assessing having not established the nexus between the borrowed funds and investment in tax free funds disallowance on pro rata basis was not proper. Dy. CIT vs. Maharashtra Seamless Ltd. (2011) 52 DTR 5 (Delhi)(Trib.) S. 14A : Business Expenditure - Exempted Income - Interest on Borrowed Funds used to buy shares for trading purposes.


In case of assessee, engaged in trading and investment of shares and received tax-free dividend income of in A.Y. 2004-05. It was held by Tribunal that Rule 8D does not apply prior to A.Y. 2008-09 (Godrej & Boyce Mfg. Co. Ltd. (2010) 328 ITR 81 (Bom.) followed). It was further observed that the expression “in relation to” in section 14A means dominant and immediate connection or nexus with the exempt income. In order to disallow expenditure under section 14A, there must be a live nexus between the expenditure incurred and the tax-free income. Disallowance cannot be made on presumptions and estimation by the Assessing Officer. When it is possible to determine the actual expenditure “in relation to” the exempt income or where no expenditure is incurred “in relation to” the exempt income, the principle of apportionment embedded in section 14A has no application. Yatish Trading Co. Pvt. Ltd. vs. ACIT (ITAT Mumbai)(Trib) Source: www.itatonline.org S. 14A : Business Expenditure - Exempted Income - Disallowance cannot be made for “depreciation” It was held that section 14A permits a disallowance of “expenditure incurred by the assessee” and not of “allowance admissible” to him. There is a distinction between “expenditure” and “allowance”. The expression “expenditure” does not include allowances such as depreciation allowance. Accordingly, depreciation cannot be the subject matter of disallowance under section 14A (ratio of Nectar Beverages 314 ITR 314 (SC) followed); Similarly, it was further held that the deduction under section 80D is not expenditure for earning tax-free income but is a permissible deduction from gross total income under Chapter VIA. Hoshang D. Nanavati vs. ACIT (ITAT Mumbai)(Trib) Source: www.itatonline.org S. 14A : Business Expenditure - Exempted Income – Disallowance -Interest on borrowings on ground that assessee ought to have repaid borrowings instead of investing in tax-free investments invalid. Where borrowed funds were utilized for business purposes and investment in shares is made out of own funds, then disallowance under section 14A of interest on borrowed fund was not permissible. CIT vs. Hero Cycles Ltd. 323 ITR 518 (P&H) (A. Y. 2005-06) Godrej Industries Ltd. vs. Dy. CIT (Mum.)(Trib.) Source: www.itatonline.org S. 14A : Business Expenditure – Exempted Income – Separate Books. The assessee is maintaining separate books of account for the purpose of business. The tax-free investments are in his personal capacity. As the Assessing Officer has not disallowed any expenditure of personal nature out of the business income, the expenditure claimed in the business of share dealings cannot be correlated to the incomes earned in personal capacity that too on dividend, PPF interest and tax free interest on RBI bonds. Accordingly, the estimation of expenditure of ` 20,000 out of business expenditure as being incurred for earning tax free income is not acceptable. (A. Y. 2005-06) Pawan Kumar Parmeshwarlal vs. ACIT, ITA No. 530/Mum/2009, dt. 11-1-2011, ITAT Mumbai ‘C’ Bench, BCAJ pg. 27, Vol. 42-B, Part 5, February 2011 (Trib.) S. 22 : Income from House Property – Ownership - Building constructed on land taken on lease and let out - Deemed Owner – [S. 23, 27(iii)] Assessee having constructed the building on land taken on lease from NDMC, which is owner, further in view of the provisions of section 27(iii) it is the sub licensee who would be “deemed owner” of those premises which the sub licenses transferred to the occupiers and those occupiers are paying rent/ license fee to the sub-licensees and assessee only collected interest free security deposits from sub licensees and no rent, therefore, provisions of section 23 are not applicable. (A. Y. 1999-2000)


CIT vs. C. J. International Hotels Ltd. (2011) 53 DTR 92 (Delhi)(High Court) S. 22 : Income from House Property - Business Income – Sub-let of Property - [S. 28(i)] Where the assessee was engaged in business of manufacturing and sale of food items acquired property on lease for a long period and in turn sub let the same, the income therefrom, was held to be taxable under the head income from house property and not business income as letting out property was not its business activity. Further the letting out was not temporary arrangement. (A. Y. 2003-04) Sheetal Khurana Foods P. Ltd. vs. ITAT (2011) 51 DTR 129 (P&H)(High Court) S. 23 : Income from House Property – Annual Value – Notional Rent - Interest Free Deposit For applying provisions of section 23(1)(a) of the Act, municipal valuation / ratable value should be the determining factor. Since the rent received by the assessee was more than the sum for which the property might reasonably be expected to be let from year to year, the actual rent received should be the annual value of the property under section 23(1)(b) of the Act. Notional interest on interest – free security deposit/rent received in advance should not be added to the same. Dy. CIT vs. Reclamation Realty India Pvt. Ltd., ITA No. 1411/Mum. 2007, dt. 26-11-2010, ITAT ‘D’ Bench, BCAJ pg. 25, Vol. 42-B, Part 5, February 2011 / Source: www.itatonline.org (Trib.) S. 23(1)(a) : Income from House Property - Annual Value - Notional Interest – Deposit - Municipal Ratable Value - For Annual Value under section 23, notional interest on deposit not includible. Municipal value is ordinarily ALV for section 23 though Assessing Officer entitled to depart for sufficient cause. S. 23(1)(a) requires determination of the “fair rent” being “the sum for which the property might reasonably be expected to let from year to year”. If on inquiry Assessing Officer finds that the actual rent received is less than the “fair/market rent” because the assessee has received abnormally high interest free security deposit, he can undertake necessary exercise in that behalf. However, by no stretch of imagination, the notional interest on the interest free security can be taken as determinative factor to arrive at the “fair rent”. The ALV fixed by the Municipal Authorities can be the basis of adopting the ALV for purposes of section 23. Also in determining the reasonable/fair rent, extraneous circumstances may inflate/deflate the “fair rent”. CIT vs. Moni Kumar Subba (2011)333 ITR 38 Editorial:- Refer Dy. CIT vs. Reclamation Reality India Pvt. Ltd. (ITAT Mumbai) Source: www.itatonline.org(Trib) S. 23(1)(a) : Income from House Property – Determination of ALV - Not bound by standard rent, rateble value & can adjust if interest-free deposit reason for low actual rent. It was held that for purpose of determining the ALV under section 23(1)(a) the Assessing Officer has to determine the fair / reasonable rent expected to be fetched by the property. Various factors must be considered by Assessing Officer. Therefore, Notional Interest on interest free security cannot be considered as determinative factor to arrive at fair sent. In the instant case, the matter was remanded back as no inquiry was made by Assessing Officer to determine fair rent under section 23(1)(a). (A. Y. 1992-93, 1993-94) Tivoli Investment and Trading Co. vs. ACIT (Mum.)(Trib.) Source: www.itatonline.org S. 28(1) : Business Loss - Speculative Loss - Sale and purchase of Units of UTI - (S. 43(5), 70, 73)


Assessee tea plantation company purchased units of UTI on cum dividend basis shortly before declaration of dividend and sold the same at a lower price. i.e. ex-dividend immediately after receiving the dividend. Transaction of purchase and sale of units when done as a business in a speculative manner, the loss therefrom could be set off only against profit arising in speculation business. Assessee claimed set off of loss from speculation business against income from tea plantation which is not admissible due to the prohibition contained in section 73(1), however, in view of the Supreme Court decision in Appollo Tyres Ltd. vs. CIT (2002) 255 ITR 273 (SC) assessee’s claim was sustainable. CIT vs. Periakaramalai Tea & Produce Co. Ltd. (2011) 51 DTR 186/195 Taxman 185 (Ker.)(High Court) S. 28(i) : Business Income – Computation - Cost of land contributed by partner to the firm - (S. 4) In computing the profits and gains of the firm on the sale of property in question, the value of the plot brought by one of the partners by way of capital contribution should be taken as per amount declared in revised returns as valuation of land in question which was accepted by the wealth tax authorities and not at value which was earlier shown in the books.(A. Y. 1972-73 to 1979-1980) Hansallaya Properties vs. CIT (2011) 49 DTR 231/196 Taxman 496 (Delhi)(High Court) S. 28(i) : Business Income - Development Rights – Retirement - Value of flats to be allotted latter Assessee, a builder having constituted a partnership firm with four others by contributing his development rights in a plot and retired from the firm within 11 days. The Tribunal held that the firm is not genuine and entire consideration received was taxable as business income. Value of flats to be allotted to be treated as consideration received, though the flats are to be allotted in future.(A. Y. 2004-05) ACIT vs. Dilip S. Hate (2011) 49 DTR 49 / 136 TTJ 40 (Mum.)(Trib.) S. 28(i) : Business Income - Capital Gains - Investment in Shares - (S. 45) Activity of frequent buying and selling of shares over a short span of period has to be treated as adventure in the nature of trade. The assessee had made only 37 transactions in 35 scripts. In the preceding year the Assessing Officer has accepted the short term gains and long term gains as investment. The Tribunal held that the principle of resjudicata cannot be applied to Income Tax proceedings and each assessment year is independent. The Tribunal also held that the treatment in the books of an assessee is not conclusive.(A. Y. 2005-06) Harsha N. Mehta (Smt.) vs. Dy. CIT (2011) 43 SOT 332 (Mum.)(Trib) S. 28(i) : Professional Income - AIR Information. In the absence of contrary material brought by the Revenue authorities, that the assessee had received professional fees more than what has been declared by him, no addition should be made by the Assessing Officer on account of non furnishing of partywise details of professional fees received during the year and non–reconciliation of professional fees received with AIR information. S. Ganesh vs. ACIT (2011) TIOL 87 ITAT-Mum. 701 / (2011) 42-B. BCAJ (March P. 33)(Trib) S. 28(i) : Business Income - Capital Gains - Transactions in Shares - Volume and frequency of the transactions - (S. 45). Where the assessee had carried out about 800 transactions in shares of more than 200 listed companies with borrowed funds and the purchases and sale of shares was the only activity of the assessee with a very short holdings period, and substantial time was devoted for such activity, in a regular and systematic manner, the profit from such transactions was rightly treated as business profit as against short-term capital gains claimed by the assessee.(A. Y. 2004-05) Jayshree Pradip Shah vs. ACIT (2011) 51 DTR 344 (Mum.)(Trib.) www.itatmumbai.org


S. 28(i) : Business Income - Capital Gains – Volume - Despite Large number of transactions in shares, profit assessable as Capital Gains - (S. 45). Where assessee is a HUF and offers income from sale of shares as short term capital gain, the fact that the assessee has transacted in 158 shares should not be the sole criterion to come to the conclusion that assessee is a trader in shares. Following circumstances to be considered while assessing such income as capital gain. These are whether (a) the assessee was holding the shares in its books as an investor, (b) the assessee have any office or administration set up, (c) the shares were acquired out of own funds and family funds and not through borrowing, (d) there was not a single instance where the assessee had squared-up transactions on the same day without taking delivery of the shares, (e) In the previous and subsequent assessment years, the Assessing Officer had vide scrutiny assessments treated the assessee as an investor. Nagindas P. Sheth (HUF) vs. ACIT (ITAT Mumbai)(Trib) Source: www.itatonline.org S. 28(i) : Business Income - Capital Gains - Investment in Shares – Investor – Trader - Large volume in shares not deciding factor to hold assessee trader - (S. 45). The income of an assessee who has invested in shares to be assessed as capital gain if the following conditions are satisfied. If (a) The assessee was a good timer of purchase and sale of shares thereby substantially increasing his gains in the stock market, (b) The large turnover was because of bulk purchases and sales in a scrip. There were very few transactions of purchase and sale, as the assessee was purchasing in block of a particular share in large volume. Accordingly, large volume cannot be a deciding factor to hold as a trader, (c) the assessee was not a broker or sub-broker and did not have any office establishment, (d) The assessee did not do any speculative activity nor indulge in any sales without delivery, (e) The shares were shown as capital assets in the books of account, (f) The assessee had not pledged any shares with any financial institutions, nor borrowed any funds. Ramesh Babu Rao vs. ACIT (ITAT–Mumbai)(Trib) Source : www.itatonline.org S. 28(i) : Business Income - Capital Gains - Transaction in Shares - Share Broker - Two separate accounts; (S. 45) Assessee is a broker as well as investor. It has maintained the investment portfolio separately income of which was liable to be taxed as capital gains, as intention in respect of this was to hold the investment as investment only and shown as such in the books of accounts. Income thereon was shown and treated as capital gains in successive assessments. Income to be assessed as capital gains.(A. Y. 2005-06) ACIT vs. Bulls & Bears Portfolios Ltd. (2011) 137 TTJ 741 (Delhi)(Trib.) S. 28 (i) : Business Income - Capital Gains - Investment in Shares – Income treated as STCG – Rule of consistency applied ; (S. 45) Though in case of transaction of large volumes, magnitude, frequency, continuity, regularity, the ratio between purchase & sale of shares are treated as income from business, but is in certain circumstances, income from such transactions is treated as STCG as a reason of Rule of consistency propounded by Bombay High Court in Gopal Purohit 228 CTR 582 (Bom.), which is squarely applicable. (A. Y. 2006-07) Shantilal M. Jain vs. ACIT (Mum.)(Trib.) Source: www.itatonline.org S. 28(i) : Business Income - Capital Gains - Gains arising from PMS transactions - Not business profits. Transactions carried out via PMS are in nature of transactions meant for Wealth maximization & not encashing profits on appreciation in value of shares. In case where assessee is engaged in systematic


activity of holding of portfolio through PMS manager, it cannot be said that main object of holding the portfolio is to make profit by sale of shares. The high number of transactions are misleading as these are computer split transactions and not independent transactions. Hence, gains arising out of PMS transaction has to be assessed as Capital Gain and not business income. (A. Y. 2006-07) ITO vs. Radha Birju Patel (Mum.)(Trib.) Source: www.itatonline.org S. 28(i) : Business Income or Income from Other Sources – Interest from Partnership Firm When a specific provision has been enshrined in the Act and the income is taxable under the head “Profits & Gains of Business or Profession”, then there is no question of treating the same as income from other sources. (A. Y. 2003-04) ACIT vs. Delite Enterprises P. Ltd. (2011) 135 TTJ 663 / 128 ITD 146 / 50 DTR 193 (Mum.)(Trib.) S. 28(iv) : Business Income - Benefit or Perquisite - Waiver of Loan – [S. 2(24), 41(1)] Loan received for the purpose of acquiring capital assets did not constitute a trading liability and hence neither section 28(iv) nor section 41(1) has application where loan waived by the bank.(A. Y. 2001-02) Iskraemeco Regent Ltd. vs. CIT (2011) 237 CTR 239 / 49 DTR 185 / 237 CTR 239(Mad.)(High Court) S. 28(iv) : Business Income - Benefit arising out of Business - Bank Loan - Waiver of loan by Bank – [S. 41(1)] The assessee was not trading in money transactions. A grant of loan by a bank cannot be termed a trading transaction nor construed to be in the course of business. Indisputably, the assessee obtained the loan for the purpose of investing in capital assets. A part of this loan with interest was waived under agreement between the parties. The amount referable to the loans obtained by the assessee towards the purchase of its capital asset could not constitute a trading receipt. Therefore, the facts were totally different from the facts in CIT vs. T. V. Sundaram Itengar and Sons Ltd. (1996) 222 ITR 344 (SC).(A. Y. 2001-02) Iskaraemeco Regent Ltd. vs. CIT (2011) 331 ITR 317/ 196 Tax 103/49 DTR 185 (Mad.)(High Court) S. 28(iv) : Business Loss - Bad Debt - Claim for “Business loss” maintainable - Website Development Expense is not Capital Expenditure – [S. 37(1)] The assessee, engaged in investment activities, advanced ` 27.97 lakhs for development of a website. As the advance was not recoverable, the assessee wrote off the amount and claimed it as a “bad debt” even though the conditions of section 36(1)(vii) & 36(2) were not satisfied. The Assessing Officer rejected the claim though the CIT(A) allowed it. On appeal by the department to the Tribunal, HELD:

(i) Though the claim as a ‘bad debt’ is not allowable, the assessee is entitled under Rule 27 to support the CIT(A)’s order on the ground that the amount should be allowed as a ‘business loss’. The subject-matter of an appeal should be understood not in a narrow and unrealistic manner but should be so comprehended as to encompass the entire controversy between the parties which is to be adjudicated upon by the Tribunal. Such a claim can be considered provided no new facts are needed (Edward Keventer 123 ITR 200 (Del.) & Gilbert & Barker 111 ITR 529 (Bom.) followed);

(ii) On merits, the department’s argument that the amounts paid for development of websites cannot be allowed as business loss because if the websites had been successfully put up, the expenditure would have been capital expenditure is not acceptable. because (a) as the expenditure was abortive, no capital asset has in fact been acquired and (b) even if the website had materialized, it does not result in an advantage of an enduring nature or in the capital field as it is only for the day-to-day running of the business and provision of information.

Dy. CIT vs. Edelweiss Capital Ltd. (ITAT - Mumbai) Source: www.itatonline.org


S. 28(v) : Business Income – Income from waiver of loan – Capital or Revenue Receipt - Depends on whether loan was used for Capital or Revenue purposes It was held that income from waiver of loan depends on the purpose for which loan is taken. In case the loan was taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible to tax under section 28(iv) or 41(1). Whereas, if the loan was taken for a trading purpose and was treated as such from the very beginning in the books of account, its waiver would result in income more so when it was transferred to the P&L A/c in view of Sundaram Iyengar 222 ITR 344 (SC). Logitronics Pvt. Ltd. vs. CIT(2011) 53 DTR 50 (Del)(High Court) S. 28(v) : Business Income - Method of Accounting – Enhanced Rate - Sale of Flat - (S. 4, 145) Assessing Officer having not brought any material on record to prove that the assessee has sold the flats at a price higher than the price recorded in the books of account, addition made by the assessing officer by enhancing the selling rates cannot be sustained.(A. Y. 1998 to 2000) ACIT vs. Dharti Estate (2011) 51 DTR 28 / 129 ITD 1 / 136 TTJ 263 (Mum.)(Trib.)(TM) S. 28(v) : Business Income - Income from Other Sources - Interest from Partnership Firm - (S . 56) When there is a specific provision for treating interest and salary, etc. earned by a partner of from a firm as taxable under the head “Profits and gains or business or profession” there is no question of categorizing it under the residual head of income.(A. Y. 2003-04) ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib.) S. 28(va) : Business Income - Capital or Revenue - Non–compete compensation - Prior to Asst. Year 2002-03. Section 28(va) inserted w.e.f. A.Y. 2002-03, non-compete compensation is a capital receipt(S.4 ). The payment received as a non competition fee under a negative covenant was always treated as a capital receipt till AY 2003-04. There is a dichotomy between receipt of compensation received for loss of agency, which is treated as revenue receipt and receipt of compensation attributable to negative / restrictive covenant which is treated as capital receipt. It should be noted that it is only by section 28(va) inserted by Finance Act 2002 w.e.f. 1/4/2003, which is amendatory and not clarificatory that the said capital receipt is now made taxable. (A. Y. 1997-98) Guffin Chem P. Ltd. vs. CIT (2011) 239 CTR 225/52 DTR 289/ 332 ITR 602/198 Taxman 78(SC).(Supreme Court) S. 28(va) : Business Income – Share Transfer Agreement – Non-compete covenant – No transfer of controlling interest. It was held that a Share Transfer Agreement is merely agreement for sale of shares and is a non-compete covenant. It does not in any manner refer to transfer of any controlling interest. Thus, the amount assessable as business income. (A. Y. 2006-07) ACIT vs. R.K.B.K. Fiscal Services Ltd.(2011) 52 DTR 29 (Trib) (Kol), S. 28(vi) : Business Income - Keyman Insurance Policy – [S. 10(10D)] Amount received on maturity of keyman insurance policy is liable to be taxed in hands of assessee for the Asst. Year 2005-06 in view of clarificatory amendment, by the Finance (No. 2) Act, 1996, w.e.f. 1st Oct., 1996, though policy was taken earlier.(A. Y. 2005-06) Binjrajka Steel Tubes Ltd. vs. ACIT (2011) 50 DTR 89 / 136 TTJ 113/130 ITD46 (Hyd.)(Trib.) S. 32 : Depreciation - Non user of Asset - Block of Assets


The assessee claimed depreciation under section 32 in respect of the assets at its Bhopal unit which was closed for six years. The claim was on the basis that (1) despite closure of the unit there was a “passive user” of the asset were part of the “Block of assets”, depreciation could not be disallowed. Assessing Officer and CIT(A) rejected the claim. Tribunal upheld the claim. On appeal to High Court, the Court held that despite non-user of assets, depreciation is allowable, if it is part of “Block of assets”. CIT vs. Oswal Agro Mills Ltd.(2011) 50 DTR 305/238 CTR 113/ 197 Taxman 25 (Delhi)( High Court) S. 32 : Depreciation - Asset used by the firm belong to partner - Insurance on building Assessee is not entitled to depreciation on factory building owned by it but used in business of firm in which assessee was partner. Insurance charges paid on said building also not allowable.(A. Y. 2005-2006) Karan Raghav Export (P) Ltd. vs. CIT (2011) 196 Taxman 504/ 49 DTR 327 (Delhi)(High Court) S. 32 : Depreciation – Approach Road – Inside Factory – Building Approach road constructed by the assessee inside its factory premises should be treated as part of building as such, depreciation has to be allowed on the same. CIT vs. Sunshine Glass Indus P. Ltd. (2011) 49 DTR 31 (Raj.)(High Court) S. 32 : Depreciation – Fluctuation in Foreign Exchange – To be allowed on outstanding liability though no amount was paid during the year. The Assessing Officer partly disallowed the claim for depreciation calculation on the basis of increased value of assets of the assessee on account of fluctuation of foreign exchange rates. The CIT(A) held that the assessee is following mercantile system of accounting and allowed the claim on the balance outstanding liability. The High Court and Tribunal affirmed the same and also referred to the judgments in the case of CIT vs. Woodward Governor India P. Ltd. 312 ITR 254 and ONGC vs. 322 ITR 180, wherein it was held that increase and decrease in liability in the repayment of foreign loan should be taken into account to modify the figure of actual cost in the year in which the increase or decrease in liability arises on account of fluctuation in rate of exchange. (A. Y. 1998-99) CIT vs. National Hydroelectric Power Corpn. Ltd. (2011) 332 ITR 322 (P&H)(High Court) S. 32 : Depreciation – Assets in the name of Managing Director Depreciation under section 32 was allowable to the assessee company on the assets which were purchased in the name of the managing director of the assessee company and his wife but, used exclusively for the assessee’s business. (A. Y. 2004-05) CIT vs. Metalman Auto P. Ltd. (2011) 52 DTR 385 (P&H)(High Court) S. 32 : Depreciation – Rate – Hardware - Computer Assessee engaged in printing business, used certain hardware for execution of printing process, said hardware could not be categorized as ‘computer’ and would not be eligible for higher depreciation. It is only where machine is being used essentially and predominantly for computing capability and where it is not being harnessed for other specialized industrial uses, be it mechanical, electric or electronic (or a composite thereof) activity that it could be called as a computer. (A.Y. 2005-06) S. T. Reddiar & Sons vs. Dy. CIT (2011) 129 ITD 475 / 135 TTJ 480 / 49 DTR 326 (Cochin)(Trib.) S. 32 : Depreciation - Actual Cost - Registered Valuation Report - Slump Sale [S. 43(1)] It was held by Hon’ble Mumbai Tribunal that where cost of fixed assets was adopted by assessee on basis of registered valuer’s report and there was no evidence of transaction a collusive one, or to reduce tax liability and there being no clause for payment of goodwill, the assessee was entitled to depreciation on actual cost shown in the books of accounts. (A. Y. 2000-01)


Dy. CIT vs. Lafarge India Ltd. (2011) 9 ITR 118 (Mum.)(Trib.) S. 32(1)(ii) : Depreciation – Ownership - Hire Purchase Hirer of an asset under hire purchase agreement is entitled to depreciation in view of the CBDT Circular No. 9 dt 23-3-1943 (C & P Vol. 10. P. 537 -538 4th Edition). (A. Y. 1995-96) CIT vs. Kaveri Engineering Industries (2011) 53 DTR 102 (Mad.)(High Court) S. 32(1)(ii) : Depreciation - Block of Assets – Ownership - Purchase of shares with right to occupy premises. The assessee made total payment of ` 4.44 crores to WRPL which has been divided in to two parts viz. consideration for shares at ` 2.76 crores and non–refundable construction of ` 1.67 crores. Both these payments are aimed at acquiring, using and occupying the property. But for the purchase of shares it is not permissible to became member. The assessee is entitled to depreciation on the entire consideration.(A. Y. 2000-2001) SRI Adhikari Brothers Television Networks Ltd. vs. ACIT (2011) 52 DTR 295 (Mum.)(Trib.) S. 32(1)(ii) : Depreciation – Website. In view of the amendment of Appendix I w.e.f. Asst. Year 2003-04 allowing depreciation @ 60 percent on software, depreciation is allowable on expenditure for development of website @ 60 percent. (A.Y. 2003-04 & 05) Dy. CIT vs. C. M. Y. K. Printech Ltd. (2011) 53 DTR 59 (Delhi)(Trib.) S. 32(1)(ii) : Depreciation - Intangible Assets – Goodwill. Depreciation is allowable on specified intangible assets like, license or any other business or commercial rights of similar nature and not on Goodwill.(A. Y. 2002 to 2005) Osram India (P) Ltd. vs. Dy. CIT (2011) 51 DTR 297/137 TTJ 749 (Delhi)(Trib.) S. 35(1)(iv) : Expenditure on Scientific Research - Business Expenditure - Capital Expenditure - Development of software. Business of the assessee being development of software for its clients and not solely research and development, any expenditure in doing so cannot itself fall within the parameters of section 35(1)(iv) and cannot be allowed as deduction under that section.(A. Y. 2002-03) 3i Infotech Ltd. vs. Dy. CIT (2011) 51 DTR 385 / 136 TTJ 641 (Mum (Trib.) S. 36(1)(iii) : Business Expenditure - Interest on Borrowed Capital - to settle loan liability of sister concern Interest on loan obtained by assessee to settle liability of its sister concern, to retain business premises of assessee the same is allowable.(A. Y. 1997-98) CIT vs. Neelkanth Synthetics and Chemicals P. Ltd. (2011) 330 ITR 463 (Bom.)(High Court) S. 36(1)(iii) : Business Expenditure - Interest on Borrowed Capital - Interest and Penalty under Sales Tax Act Interest paid on funds borrowed for interest and penalty under Sales Tax Act for belated payment allowable as business expenditure. Revenue appeal was dismissed as no substantial question of law. CIT vs. International Fisheries Ltd. (2011) 220 Taxation 11 (Bom.)(High Court) S. 36(1)(iii) : Business Expenditure – Interest Where the assessee was having sufficient non-interest bearing fund by way of share capital and reserves


and there was no nexus between the borrowings of the assessee and advances made by it, no disallowance under section 36(1)(iii) of the Act was called for. (A. Y. 2001-02, 2003-04, 2004-05) CIT vs. Bharti Televenture Ltd. (2011) 51 DTR 98 (Del.)(High Court) S. 36(1)(iii) : Business Expenditure - Interest on Borrowed Capital -Investment as capital in partnership firm Interest paid on borrowed amount invested in as capital of partnership firm, interest expenditure allowable under section 36(1)(iii) and no disallowance can be made under section 14A. ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193/ 128 ITD 146 (Mum.)(Trib.) S. 37(1) : Business Expenditure - Capital or Revenue Expenditure - Study report. Consultancy charges paid for obtaining study reports in Bitumen is revenue expenditure. CIT vs. Shell Bitumen India (P) Ltd. (2011) 221 Taxation 44 (Delhi)(High Court) S. 37(1) : Business Expenditure - Capital or Revenue Expenditure -Expenditure on setting up new sugar units - Expansion of Business. Expenses incurred by assessee, a sugar manufacturer, by way of salaries, wages, bonus, provident fund contribution, workmen welfare expenses, power, fuel and water, manufacture expenses rent for office building, etc. on setting up new sugar units were expenses for the purpose of manufacture of sugar in respective factories and therefore, the same are allowable as revenue expenditure.(A. Y. 1992 – 93) CIT vs. Sakhti Sugars Ltd. (2011) 237 CTR 51/ 194 Tax 91/ 45 DTR 134 (Mad.)(High Court) S. 37(1) : Business Expenditure - Replacement of Moulds - Revenue Expenditure Replacement of moulds did not result in creation of new capital asset or benefit of enduring nature, mere fact that moulds were used in production process could not be conclusive as to the nature of expenditure, hence, expenditure on replacement of moulds was revenue expenditure. CIT vs. Malerkotla Steels & Alloys (P.) Ltd. (2011) 237 CTR 201 / 49 DTR 1 (P&H)(High Court) S. 37(1) : Business Expenditure - Share of profit from firm - Exempt Income - Interest on Capital Borrowed - [S. 10 (2A)] Interest expenditure incurred on amount borrowed for purpose of contributing funds in form of capital in partnership firm can be allowed against interest income received from partnership firm on credit balance of capital.(A. Y. 2005-06) Karan Raghav Export (P) Ltd. vs. CIT (2011) 196 Taxman 504/49 DTR 327 (Delhi)(High Court) S. 37(1) : Business Expenditure - Capital or Revenue - Expenditure on production of film for advertisement. Expenditure incurred by assessee on production of films by way of advertisement for promoting marketing of products manufactured by it being in respect of ongoing business of assessee is allowable as revenue expenditure. CIT vs. Geoffrey Manners & Co. Ltd. (2011) 238 CTR 49/(2009)315 ITR 134/(2009)180 Tax 87/(2009)19 DTR 249 (Bom.)(High Court) S. 37(1) : Business Expenditure - Expenditure on Foreign Education of managing director’s son – Allowable. Amount spent towards educational expenses of a student, in which the assessee is carrying on its business was allowable expenditure under section 37(1) notwithstanding the fact that the student was son of managing director. (A. Y. 1997 to 1999)


CIT vs. Ras Information Technologies (P) Ltd. (2011) 238 CTR 76/50 DTR 93 (Kar.)(High Court) S. 37(1) : Business Expenditure - Capital or Revenue Expenditure - Voluntary Retirement Scheme - (S. 35DDA) Even for the period prior to the introduction of section 35DDA, w.e.f. 1st April, 2001, the assessee was entitled to claim deduction of expenditure incurred under VRS only in a phased manner; however, in view of consistent views of various High Courts, the assessee had to be allowed deduction of entire expenditure, as revenue expenditure in respect of Asst. Year 1999-2000 CIT vs. O.E.N. India Ltd. (2011) 238 CTR 340/196 Tax 131/49 DTR 94 (Ker.)(High Court) S. 37(1) : Business Expenditure – Part of larger machines. Where parts of larger machines are purchased by the assessee, expenditure on such parts is allowable as ‘revenue expenditure. (A. Y. 2001-02 to 2004-05) CIT vs. Modi Industries Ltd. (2011) 197 Taxman 76 (Del.)(High Court) S. 37(1) : Business Expenditure – Warranty. Provision for warranty claim made by the assessee based on a scientific method and worked on the average of earlier year’s warranty settlement claims was held to be allowable business expenditure. (A. Y. 1999-2000, 2000-01, 2001-02, 2002-03, 2003-04, 2004-05) CIT vs. Luk India P. Ltd. (2011) 52 DTR 117 (Mad.)(High Court) S. 37(1) : Business Expenditure – Ad hoc Expenditure. Ad hoc expenditure out of cartage, labour and sealing expenses cannot be made by the assessing authority when similar expenses are allowed in totality by Appellate Authority in earlier years. (A. Y. 1992-93) Friends Clearing Agency P. Ltd. vs. CIT (2011) 49 DTR 297 / 237 CTR 464 (Del.)(High Court) S. 37(1) : Business Expenditure – Contingent Liability – Suit filed by Bank. Interest payable to the bank on the loan with respect to which the bank had filed suit for recovery cannot be disallowed treating the same as contingent liability merely for the reason that the bank had not shown the accrued interest in its books. (A. Y. 1992-93) Friends Clearing Agency P. Ltd. vs. CIT (2011) 49 DTR 297 / 237 CTR 464 (Del.)(High Court) S. 37(1) : Business Expenditure – Real Estate Business – Income from House Property – Brokerage – Commission. Where the assessee derived income from real estate business and also income from house property, the assessee is claim for deduction of brokerage and commission cannot be disallowed against the business income on the ground that the assessee is not entitled to any further deduction other than those provided under section 24 of the Act. (A. Y. 2003-04) Mukti Properties P. Ltd. vs. CIT (2011) 50 DTR 273 / 238 CTR 174 (Cal.)(High Court) S. 37(1) : Business Expenditure – Convertible Debentures – Capital or Revenue Expenditure. Expenses incurred on the issue of convertible debentures has to be treated as Revenue expenditure. (A. Y. 1993-94) CIT vs. ITC Hotels Ltd. (2011) 238 CTR 447 / 32 DTR 215 / 190 Taxman 430 (Kar.)(High Court) S. 37(1) : Business Expenditure – Expenses towards retrenchment of workers on closure of a unit – Allowable


The assessee carried manufacturing from various units and they were interdependent and unity of control between the units established by the existence of common management, a common business organization, administration and fund. The closure of one unit did not involve the closure of the business. Therefore, the expenses towards retrenchment of workers was therefore an allowable deduction within the meaning of section 37(1) since there was no closure of business. (Asst. Year 2001-02). CIT vs. Pfizer Ltd. (2011) 330 ITR 62/42 DTR 32/233 CTR 521 (Bom.)(High Court) S. 37(1) : Business Expenditure – Closure of one branch – Amortisation of expenses – Claim of unabsorbed expenditure claimed in the year the branch was closed – Allowable in the year the branch is closed The assessee had incurred expenditure for opening branches, the cost of which were to be amortised by spreading it over 10 years in equal instalments. One branch was closed, the assessee claimed the unabsorbed expenditure of the closed branch. The High Court held that the business of the assessee continue after the closure of the branch, and the deduction of amortised expenditure need not wait after the closure of the branch. (A. Y. 2003-04) Victoria Gold Gallery vs. CIT (2011) 330 ITR 330 (Ker.)(High Court) S. 37(1) : Business Expenditure - Capital or Revenue - Feasibility Study - Study Abandoned - Revenue Expenditure Feasibility studies conducted by the assessee for the existing business with a common administration and common fund and the studies were abandoned without creating any new asset, therefore, expenses were of revenue expenditure. CIT vs. Priya Village Road Shows Ltd. (2011) 332 ITR 594 (Delhi)(High Court) S. 37(1) : Business Expenditure - Corporate Guarantee – Subsidiary - One time settlement with Bank Giving corporate guarantee was not only one of the objects of the assessee company but the same was given for its subsidiary company and it was in the interest of the assessee company and hence, the commercially expedient decision, hence, one time settlement with bank was allowable as business loss.(A. Y. 2004-05) ACIT vs. W. C. Industries (India) Ltd. (2011) 128 ITD 98 / 40 DTR 106 (Chennai)(Trib) S. 37(1) : Business Expenditure - Keyman Insurance – Hospital - Consultancy Fees - Software Maintenance. Keyman Insurance premium paid by the Company on the lives of Chief cardiac surgeon, chairman, and managing director of company was qualified as deduction under section 37(1). Consultancy fees paid for maintenance of software were to be allowed as revenue expenditure.(A. Y. 2005-06) Escort Heart Institute & Research Center Ltd. vs. ACIT (2011) 128 ITD 108 (Delhi)(Trib) S. 37(i) : Business Expenditure – Repair of Lease Building – Foreign Travelling expenses of Chief Editor and staff – Allowable. The assessee company was engaged in the business of printing and publication of various periodicals. The assessee company took on lease a building and got repaired an empty derelict hall, which was converted into a recreation room and was used by the assessee’s staff. The assessee company claimed a deduction of the same and the same was allowed under section 37(1) of the Act on the ground that the assessee had not acquired a capital asset but put up a construction of building only for the purpose of business. The foreign travel expenses claimed by the assessee also for the travelling of the Chief Editor, Assistant Editor and other staff was also allowed as a business expenditure as the same was necessitated to grow business of


the assessee’s magazines, periodicals, etc.(A. Y. 2005-06 & 07) ACIT vs. M. M. Publications (2011) 43 SOT 59 (Cochin)(Trib.) S. 37(1) - Business Expenditure - Licence Fee - Parent Company Licence fee paid by the assessee–company to its parent company under technical assistance agreement is allowable business expenditure.( A. Y. 2005-06) Dy. CIT vs. Nestle India Ltd. (2011) 7 ITR 758 (Delhi)(Trib.) S. 37(1) : Business Expenditure - Capital or Revenue - Expenses on Development – Upgradation of computer software – Depreciation - (S. 32). Assessee engaged in the business of development of computer software having followed the method of accounting whereby it is treating the expenditure on development of computer software as part of work in progress during the period of development and capitalization the same when the software attains technically feasibility and is ready for sale, the expenditure incurred on development, upgradation of software products has to be treated as capital expenditure, however, depreciation would be allowable thereon in the year of capitalization.(A. Y. 2002-03) 3i Infotech Ltd. vs. Dy. CIT (2011) 51 DTR 385 / 136 TTJ 641 (Mum (Trib.) S. 37(1) : Business Expenditure - Litigation Expenses - Criminal Proceedings against an actor in his individual capacity. The assessee an actor incurred expenditure in defending himself against criminal proceedings which arose out of the film shooting. The Tribunal held that the criminal proceedings were filed against the individual, this has nothing to do with the assessee’s profession. The expenditure was purely of a personnel nature and not allowable.(A. Y. 2003-04 and 2004-05) Dy. CIT vs. Salman Khan (2011) 8 ITR 150 / 52 DTR 137 / 137 TTJ 15 /130 ITD81 (Mum.)(Trib.) S. 37(1) : Business Expenditure - Capital or Revenue - Entrance fees to a Club - Corporate Membership. Entrance fees paid towards corporate membership of the club is an expenditure incurred wholly and exclusively for the purpose of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit earning apparatus of a business enterprises and accordingly CIT (A) was justified in deleting the disallowances of entrances fee made by the Assessing Officer.(A. Y. 2004-2005) Dy. CIT vs. Bank of America Securities (India) (P) Ltd. (2011) 136 TTJ 441 (Mum.)(Trib) S. 40(a)(i) : Amounts not deductible – Non-Resident - Tax Deduction at Source - Technician outside India - (S. 195) Payment made outside India for services rendered by non-residence technicians outside India no disallowance can be made as provisions of section 195 is not applicable. CIT vs. International Creative Foods (P.) Ltd. (2011) 49 DTR 150 (Ker.)(High Court) S. 40(a)(i) : Amounts not deductible - Business Expenditure – Non-resident – Software. The assessee had purchased a software from M and sold in the Indian market. The assessee acted as a dealer .This could not be termed as royalty, therefore section 40 (a)(i) had no application. CIT vs. Dynamic Vertical Software India P. Ltd (2011) 332 ITR 222 (Delhi)(High Court)


S. 40(a)(i) : Amounts not deductible - Interest - Branch of foreign Bank – Head office - Tax deduction at source - Permanent Establishment - (S. 195) It was held that as regards taxability in the hands of the HO & obligation for TDS under section 195, the same was not chargeable to tax in the hands of the HO. The PE being assessable as separate legal entity pursuant to provisions of DTAA there is no obligation to deduct tax under section 195 and consequently no disallowance under section 40(a)(i) can be made in the hands of the branch. Interest paid by a branch. Thus, interest paid by a branch of a Foreign entity to its HO is deductible in the hands of the branch. Such interest is not taxable in the HO’s hands ABN AMRO Bank NV vs. CIT (Calcutta High Court) Source: www.itatonline.org Editorial: Betts Hartley Huett (1979) 116 ITR 425 (Cal.) distinguished Hyundai Heavy Industries (2007) 291 ITR 482 (SC) & Morgan Stanley (2007) 292 ITR 416 (SC) followed S. 40(a)(i) : Amounts not Deductible – Business Expenditure – Payment of Commission – Disallowance. (S. 195) Tax is not deductible under section 195 with regard to payment of commission to foreign agent in view of Circular No. 23 of 1969 and Circular No. 786 of 2000. The payment cannot be disallowed under section 40(a)(i) as Circular No. 7 of 2009 had no retrospective effect. (A. Y. 2007-08) Dy. CIT vs. Sanjiv Gupta (2011) 135 TTJ 641 / 50 DTR 225 (Luck.)(Trib.) S. 40(a)(iii) : Amounts not Deductible - Salary payable outside India – DTAA - India-Netherlands. (S. 5, 9) Employees were non-residents who rendered services outside India and also received salaries outside India, salaries paid to them were not liable to tax in India hence provisions of section 40(a)(iii) were not applicable. (A. Y. 2002-03) Mother Dairy Fruit, Vegetable (P) Ltd. vs. CIT (2011) 198 Taxman 33 / 240 CTR 40 (Delhi)(High Court) S. 40(a)(ia) : Amounts not deductible - Payments by firm to partners – Sub-contract - Tax Deduction at Source. (S. 194C) Partners of the assessee firm having executed the transportation, contracts undertaken by the firm by using their own trucks and the assessee having acted as an agent in routing the payments to partners, it cannot be held that there was a separate contract between the firm and the partners and, therefore, such payments could not be disallowed under section 40(a)(ia) on the ground that tax was not deducted at source under section 194C. (A. Y. 2006-07) CIT vs. Grewal Brothers (2011) 54 DTR 99 (P&H)(High Court) S. 40(a)(ia) : Amounts not Deductible - Deduction of Tax at Source – Contractor –Sub-contractor - Labour Charges. (S. 194C) It was noted from records that a small friction of total expenditure was in form of labour charges, and as such, it was difficult to say that contract was for supply of labour or work and would rather be categorized as one for purchase of goods, though some labour work stood performed. As it was not a case of contract for service or labour, provision of section 194C cannot be applicable consequently disallowance was deleted. (A. Y. 2005-06) S. T. Reddiar & Sons vs. Dy. CIT (2011) 129 ITD 475 / 135 TTJ 480 / 49 DTR 326 (Coch.)(Trib.) S. 40(a)(ia) : Amounts not Deductible – Business Expenditure – Payment for Goods & Labour Charges.


Disallowance cannot be made under section 40(a)(ia) on account of non-deduction of tax at source in respect of estimated labour charges which is a small fraction of the total expenditure in respect of goods purchased. (A. Y. 2005-06) S. T. Reddiar & Sons vs. Dy. CIT (2011) 129 ITD 475 / 135 TTJ 480 / 49 DTR 326 (Coch.)(Trib.) S. 40(a)(ia) : Amounts not Deductible – Disallowance – Tax deducted during the year but paid before due date of filing of return Provision of section 40(a)(ia) as amended by the Finance Act, 2010 w.e.f. 1st April, 2010 is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the taxpayers it has to be treated as retrospective w.e.f. 1st April 2005, the date on which section 40(a)(ia) has been inserted and therefore, no disallowance under section 40(a)(ia) can be made where the assessee had paid before the due date of filing the return of income, the tax deducted during the previous year. (A. Y. 2005-06) Kanubhai Ramjibhai vs. ITO (2011) 49 DTR 70 / 135 TTJ 364 (Ahd.)(Trib.) S. 40(a)(ia) : Amounts not deductible - Tax deduction at source – Contractor – Amendment – Clarificatory - Tax deducted deposited before due date of filing of return Provisions of section 40(a)(ia), as amended by the Finance Act, 2010, w.e.f. 1-4-2010, which was been inserted by the Finance (No. 2) Act, 2004, w.e.f 1-4-2005 to section 40 of the Act is remedial in nature, designed to eliminate unintended hardship to the tax payers and which made the provision unworkable or unjust in a specific situation and is clarificatory in nature and, therefore, has to be treated as retrospective with effect from 1st April 2005, the date on which section 40(a)(ia) has been inserted by the Finance Act (No. 2) Act, 2004. Kanubhai Ramji Makwana vs. ITO (2011) 49 DTR 70 / 135 TTJ 364 (Ahd.)(Trib.) S. 40(a)(ia) : Amounts not deductible - Tax deduction at source - Interest Commission – Sub-contractor - Freight Charges Assessee deducted the tax at source and paid to Government beyond date stipulated in section 200 but before the due date of filing of his return of income for the year under consideration. Finance Act 2010 had made amendments to provisions of section 40(a)(ia) as per which if tax has been deducted in relevant previous year and same has been paid on or before due date of filing of return of income for said previous year as specified in section 139(1), corresponding amount from which tax has been deducted shall be allowed as deduction. Said amendment was remedial / curative in nature, it would apply respectively with effect from 1-4-2005.(A. Y. 2006-07) Bansal Parivahan (India) (P) Ltd. vs. ITO (2011) 43 SOT 619/53 DTR 40/137 TTJ 319 (Mum.)(Trib.) S. 40A(2) : Expenses or Payments not deductible – Excessive or unreasonable – Same rate of tax – Disallowance not justified Where assessee purchased from its subsidiary material at prices higher than the market rate for assured supply, there was no question of diversion of funds since both the assessee and the subsidiary were subjected to the same rate of tax, hence there was no warrant for addition by invoking section 40A(2). (A. Y. 1985-86) CIT vs. V. S. Dempo & Co. P. Ltd. (2011) 196 Taxman 193 (Bom.)(High Court) S. 40A(3) : Expenses or Payments not deductible - Block Assessment - GP – Estimated - (S. 158BC)


Section 40A(3) applies to block proceedings. It is not accepted that the provisions of block assessment are special, and that they are a complete Code and the other provisions cannot apply. Suresh Gupta 297 ITR 322 (SC) & M. G. Pictures 185 CTR 185 (Mad.) followed; Cargo Clearing Agency 218 CTR 541 (Guj.) not followed. The argument that if income is assessed by estimation on GP rate, no other disallowance can be made is not of universal application. If expenditure which is legally not permissible has been taken into account that can certainly be disallowed even where income is estimated. CIT vs. Sai Metal Works (High Court - P&H) Source: www.itatonline.org S. 40A(3) : Expenses or payments not deductible - Business Expenditure – Disallowance - Payment to Government - (Rule 6DD) Cash payments made by the assessee to the State Government who granted the contract to collect royalty on behalf of the Government cannot be disallowed under section 40A(3) in view of Rule 6DD(b).(A. Y. 2005-06) CIT vs. Kalyan Prasad Gupta (2011) 51 DTR 191 (Raj.)(High Court) S. 40A(3) : Expenses or payments not Deductible – Disallowance – Cash payments for telephone cards, recharge coupons, etc. by distributor to cellular service provider. Assessee distributor does not make any 'purchasers’ either of goods or services on the acceptance of delivery of telephone cards, recharge coupons or other service products of the cellular service provider and, therefore, no disallowance can be made by applying section 40A(3) irrespective of the mode of payment. (A. Y. 2006-07) S. Rahumathulla vs. ACIT (2011) 49 DTR 115 / 135 TTJ 720 / 127 ITD 440 (Coch.)(Trib.) S. 40(b)(v) : Amounts not deductible - Firm – Remuneration - Not Working Partner Where remuneration is paid to a partner who is not a working partner, remuneration payable to him even in accordance with the deed of partnership is not allowable under the provisions of section 40(b) of the Act.(A. Y. 1999-2000 to 2004-2005) Reliable Surface Coatings vs. ACIT (2011) 7 ITR 183 (Ahd.)(Trib.) S. 40(b)(v) : Amounts not deductible – Partnership - Remuneration to Partners - CBDT Circular, which specifies that for section 40(b)(v), the partnership deed should specify the remuneration, is invalid. Section 40(b)(v) allows a deduction of payment of remuneration to a working partner if it authorized by the partnership deed and not in excess of the limits. Section 40(b)(v) does not lay-down any condition that the partnership deed should fix the remuneration or the method of quantifying remuneration. Accordingly, CBDT Circular No. 739 dated 25.3.1996 which requires that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of quantifying such remuneration goes beyond section 40(b)(v). The CBDT cannot issue a circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute. A partnership deed which provides that the remuneration would be as per the provisions of the Act meaning thereby that the remuneration would not exceed the maximum remuneration provided in the Act is valid and deduction is admissible. Durga Dass Devki Nandan vs. ITO (HP High Court) Source: www.itatonline.org (High Court) S. 41(1) : Profits chargeable to tax – Depreciation - Balancing Charge -Benefit or Perquisite – [S. 28(iv), 41(2)] Where the cost of assets purchased by the assessee in earlier year was reduced by the seller on settlement of dispute, benefit of depreciation obtained by the assessee in the earlier years cannot be termed as an


allowance or expenditure claimed by the assessee in the earlier years to warrant invocation of provisions of section 41(1), or 41(2). However, Assessing Officer is directed to bring back to tax, the amount of depreciation granted to the assessee in the earlier years on the alleged excess amount of ` 2 crores under section 28(iv) and redetermine the closing WDV of the block assets in the year under consideration.(A. Y. 2005-06) Binjarjka Steel Tubes Ltd. vs. ACIT (2011) 50 DTR 89 / 136 TTJ 113 (Hyd.)(Trib.) S. 41(1) : Profits Chargeable to Tax - Business Income - Liability outstanding more than three years. There is no rule that liability outstanding for more than three years need not be paid and the same becomes income of the assessee. In the absence of any specific information in the possession of the AO that the amounts outstanding for more than three years were no longer payable by the assessee, same could not be treated as deemed income under section 41(1). (A. Y. 2003-04 & 05) Dy. CIT vs. C. M. Y. K. Printech Ltd. (2011) 53 DTR 59 (Delhi)(Trib.) S. 41(1) : Profits Chargeable to Tax – Business Income – Remission or Cessation of Liability. Where the amount ceased to be payable in the books by showing nil balance and the assessee had claimed the deduction of same amount in earlier year, the provisions of section 41(1) were rightly attracted. (A. Y. 2004-05 to 2006-07) ITO vs. E. A. Infrastructure Operations P. Ltd. (2011) 135 TTJ 239 / 41 SOT 269 / 48 DTR 200 (Mum.)(Trib.) S. 43B : Deductions - Actual Payment - Sales Tax – Extended filing of Return. (S. 139) Where time for filing of return is extended in terms of proviso to section 139(1) , it automatically means extension of due date for purpose of section 43B, thus, Sales Tax paid within extended time for filing return cannot be disallowed under section 43B. (A. Y. 1988-89) CIT vs. Narendra Anand (2011) 198 Taxman 51 (Delhi)(High Court) S. 44BBB : Foreign Companies - Civil Construction - Turnkey Projects. Contract awarded to the applicant, a Japanese company, for erection of steam turbines, turbo generators and auxiliary equipments / heaters to execute a power project in India by an Indian Company being separate and machineries for the same project to the holding company of the applicant, the contract awarded to the applicant fits in to the description given in section 44BBB and therefore, it is eligible for presumptive taxation under section 44BBB. Toshiba Plant Systems & Services Corporation, In Re (2011) 52 DTR 155 / 198 Taxman 26(AAR) S. 44BB : Business of Exploration, etc. of Mineral Oils – Computation of profits of foreign companies. Applicant has entered into a contract with ONGC and Cairn Energy to conduct seismic survey and data acquisition activities. It has specialization for identifying the surface of the ocean for tapping gas and oil reserves - AAR observed that unless a seismic survey is taken, it is difficult to locate the ocean surface with oil and gas reserves. Drilling and other examinations are ancillary for this purpose and hence activities of the applicant fit into description of said section demanding computation of its income in accordance with this provision Global Geophysical Services Ltd., Cayman Islands - AAR No 873/2010 dt. 15-3-2011 (AAR) S. 44C : Non-residents – Head office expenditure.


Any expenditure to fall in consideration Zone of deductibility under the Act, whether under section 44C or under general, must have been incurred for purpose of business of Indian branch. If expenses are shared / allocated / apportioned / non-exclusive head office expenses, then they will find their residence in overall limit under section 44C, on the other hand exclusive expenses incurred by head office for Indian branch shall be distinctly considered under general provisions of Act. (A. Y. 2002-03) Addl. Director of Income Tax vs. Bank of Bahrain & Kuwait (2011) 44 SOT 693 (Mum.)(Trib.) S. 45 : Capital Gains - Sale of lease hold land with incomplete building – Short Term – [S. 2(29B), 2(42B)] Capital Gain arising to the assessee on the sale of lease hold land with incomplete building is to be bifurcated into gain arising out of sale of leasehold interest in land and sale of building. In the absence of perversity in the finding of the Tribunal estimating the value of the building at ` 2.15 crores as against the construction cost of ` 1.85 crore, the gain arising on the sale of land is to be treated as a long term capital gain where as the gain of ` 30 lakhs arising on the sale of incomplete building is to be treated as short term capital gain.(A. Y. 1996-97) CIT vs. Hindustan Hotels Ltd. (2011) 237 CTR 32 / 49 DTR 17 (Bom.)(High Court) S. 45 : Capital Gains - Transfer of Goodwill - Sale of Entire Business Sale of entire business, including all assets and liabilities, as a going concern, not possible to bifurcate consideration received on account of transfer. Transfer does not give rise to capital gains.(A. Y. 1985-86) ACIT vs. Patel Specific Family Trust (2011) 330 ITR 397 (Guj.)(High Court) S. 45 : Capital Gains - Business Income - Sale of Shares - Loan Borrowed - Interest Paid - Capital Gains – [S. 28(iv)] It was held that a capital investment and resale does not lose its capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment [Sutlej Cotton Mills Supply Agency Ltd 100 ITR 706 (SC)] followed. Merely because shares are purchased by taking loan at high interest does not mean gains are taxable as business profits. CIT vs. Niraj Amidhar Surti (Gujarat High Court) Source: www.itatonline.org S. 45 : Capital Gains - Business Income – Shares - Despite high volume & short holding period - Shares Gain is STCG – [S. 28(iv)] The assessee offered income by way of Long Term Capital Gain, Short Term Capital Gain, speculative profit and profit from future trading. In such a case, where shares are held for several years and so assessee had acted as investor and not trader, the said the gain shall be assessable as long term capital gain. In similar manner where there is no intra-day trading, shares are held for period of 2 to 5 months and there are no borrowings, the same shall be assessed as Long Term Capital Gain. ACIT vs. Naishadh V. Vachharajani ( Mumi)(Trib):- www.itatonline.org S. 45 : Capital Gains - Agricultural Land - Beyond Municipal Limits – [S. 2 (14)(iii)] Sale of agricultural land situated beyond 8 Km from municipal limits of the village having a population of less than 10,000 persons is not liable to capital gains tax. ACIT vs. Ashok Kumar Agarwal (2011) Tax World Feb. P. No. 112 (Jaipur)(Trib.) S. 45 : Capital Gains - Conversion of units of UTI in to tax free bonds - Transfer – [S. 2(47)] Assessee claimed capital loss on account of conversion of units of UTI into tax free bonds. The Tribunal held that in the instant case was a simple case of conversion of one asset into another and there was no


transfer of asset within the meaning of section 2(47) hence the Assessing officer rightly rejected the claim. (A. Y. 2004-05) ACIT vs. ABC Bearings Ltd. (2011) 44 SOT 338 (Mumbai)(Trib) S. 45 : Capital Gains - Consent by Landowner – TDR - Compensation paid to members – [S. 2(24)] Mere grant of consent by the land owner to the developer to construct by consuming TDR purchased by the developer from the third party does not amount to transfer of land or any rights therein. Amount of compensation paid by the developer to the members of the society cannot be taxed in the hands of the society. Raj Ratan Palace Co-Operative Hsg. Ltd. vs. Dy. CIT ITA No. 674/Mum/2004 Bench “B” dated 25-2-2011 (Asst. Year 1997-98) (2011) 43A-BCAJ–April 33(Trib) S. 45 : Capital Gains - Transfer of Development Right (TDR) - TDR has no cost of acquisition, amount received not taxable. (S. 48) Transferable Development Rights (TDR) granted by the Development Control Regulations for Greater Mumbai, 1991, qualifying for equivalent Floor Space Index (FSI) have no cost of acquisition and so sale thereof does not give rise to taxable capital gains (Jethalal D. Mehta vs. DCIT 2 SOT 422 (Mum) followed). (A. Y. 1997-98) ITO vs. Hemandas J. Pariyani (Mum.)(Trib.) Source: www.itatonline.org S. 45 : Capital Gains – License - No Cost of Acquisition - Not liable to Capital Gain Tax. In the absence of any cost of acquisition for acquiring the license, consideration received for transferring such license not liable to capital gain. (A. Y. 1996-97) Shree Changdeo Sugar Mills Ltd. vs. Jt. CIT (2011) 44 SOT 479 (Mum.)(Trib.) S. 45 : Capital Gains Tax – India-Mauritius – DTAA [Article 13(4)] Applicant is a company incorporated in Mauritius and was issued a Tax Residence Certificate by the Mauritius Tax Authorities. It realized capital gains from sale of shares in Indian company - AAR observed that in the case of Azadi Bachao Andolan 263 ITR 706, the Honorable Supreme Court has held that the certificate of residence issued by Mauritius Revenue Authority constitutes a valid and sufficient evidence of residential status under DTAA. Also, CBDT in Circular No. 682 dated 30.03.1994 has further clarified that under the DTAA, a resident of Mauritius having income from alienation of shares of Indian company shall be liable to tax only in Mauritius. In the case of E*Trade Mauritius, AAR No. 862 of 2009, and, the Delhi ITAT in the case of Saraswati Holding Corporation, 2009-TIOL-529-ITAT-DEL, held the view that the gains arising out of alienation of shares of an Indian Company to a company who is a resident of Mauritius is liable to tax only in Mauritius in terms of Article 13(4) of the DTAA. Hence ruled that on the facts presented by the applicant and in the light of legal position discussed, the applicant is not liable to pay capital gains tax in India in respect of the transfer of shares. D. B. Zwirn Mauritius Trading No. 3 Ltd., Mauritius (2011) 333ITR 32/ 240 CTR 1 (AAR) S. 45(2) : Capital Gains - Capital Asset – Stock-in-trade - Valuation When a partnership firm is dissolved and the erstwhile partner receives stock, it is a capital asset in his hands. When that asset is introduced into a business as stock, it gets converted into stock-in-trade. The value of this stock will have to be the market value on the date of introduction. The same principle would apply if the assessee used her share of the stock obtained from the dissolved firm in the new business Madu Rani Mehra vs. CIT (Delhi High Court) Source: www.itatonline.org


S. 45(4) : Capital Gains - Assets taken over by partners on dissolution of firm by Court Order – [S. 2(14), 2(47), 45(1)] Outgoing partners of the firm having received amount towards their respective shares in the net assets of the firm from a group of three partners who took over the business in an auction following dissolution of the firm, as per order of Court, the capital gains arising on transfer of the assets of the erstwhile firm were taxable in the hands of such outgoing partners.(A. Y. 1995-96) B. Raghurama Prabhu Estate, Executraix Smt. M. Kaveri Bai & Ors. vs. Jt. CIT (2011) 52 DTR 122 / 239 CTR 274 (Kar.)(High Court) S. 45(4) : Capital Gains – Transfer – Dissolution – Otherwise – [S. 2(47)] Land was transferred in the name of the partners by book entries, the assessee contended that as no registration is done, the immoveable property was not legally transferred and also contended that as there was no dissolution, section 45(4) cannot be applied. The Tribunal held that the provision of section 45(4) were applicable. The word “otherwise” covers the transfer other than the dissolution also.(A. Y. 2001-2002) New Gujarat Tin Printing Works vs. ITO (2011) 128 ITD 182 / 136 TTJ 64 (Ahd.)(Trib) S. 45(4) : Capital Gains – Transfer – Retirement of Partner. The assessee which was a partnership firm consisted of two partners. The business of the partnership firm was that of builders, developers, contractors and real estate consultants. The assessee firm commenced the business and development of the project and all the costs incurred in connection with the same were shown as work-in-progress. One of the partners of the firm died and his legal heirs decided to continue the business with the other partner. The legal heirs also retired from the firm and the existing partner took over the assets and liabilities of the firm. This transfer was held as a transfer under the provisions of section 45(4) of the Act and the matter was remanded back to the Assessing Officer for computation of capital gains in hands of the assessee. (A. Y. 2005-06) ITO vs. Om Namah Shivay Builders & Developers (2011) 43 SOT 397 (Mum.)(Trib.) S. 45(4) : Capital Gains – Transfer of asset to partner by book entry – Registration. [S. 2(47)] If a transaction falls within the ambit of the definition of transfer under the section 2(47) then irrespective of the fact as to whether the transaction is a transfer within the Transfer of Property Act, 1881 or not, the resultant income accrued is chargeable to tax under the provisions of section 45(4). (A. Y. 2001-02) New Gujarat Tin Printing Works vs. ITO (2011) 128 ITD 182 / 136 TTJ 64 / 50 DTR 289 (Ahd.)(Trib.) S. 45(5) : Capital Gains – Enhanced Compensation. Enhanced compensation along with interest thereon is assessable entirely in the year in which it is received. (A. Y. 1999-2000 to 2002-03) Dy. CIT vs. Ajay Sharma (2011) 135 TTJ 222 / 49 DTR 65 (Del.)(Trib.) S. 48 : Capital Gains - Cost of Acquisition - Indexed Cost - Date of Allotment Letter - Stamp Duty – Interest - Processing Charges - (S. 45). Stamp duty, interest, processing fee, development charges, fire fighting charges, generator charges, etc. paid to the builder form part of cost of acquisition incurred by the assessee for acquiring the ownership of the flat and therefore, assessee is entitled to deduction of all aforesaid payments under section 48(ii) on computation of capital gain on the sale of flat. Assessee is also entitled to indexation from 1995, when he started making the payment to builder and received the allotment letter and not from the date of conveyance deed in 2001.(A. Y. 2007-08)


Praveen Gupta vs. ACIT (2011) 52 DTR 334 (Delhi)(Trib.) S. 48 : Capital Gains – Non-resident – Indexation – DTAA - India-Canada – Shares - (S. 90, Art. 24) Denial of the benefit of the second proviso to section 48 to a non resident assessee while computing capital gains from the sale of shares would not amount to discriminatory treatment in terms of Art. 24 of the DTAA with Canada. Transworld Garnet Company Ltd., In Re. (2011) 239 CTR 152 / 52 DTR 161 (AAR) S. 49 : Cost with reference to certain mode of Acquisition - Capital Gains - Family Arrangement - Company Assets – HUF – Director - (S. 45) Assessees are Directors in a company AG. By way of family arrangement half of the land owned by company came to the share of the present assessees and other half went to the share of another family group. Assessees sold their share of land for an amount of ` 2.9 crores. Assessees computed the capital gains by applying the provision of section 49(1). The Assessing Officer held that assets in question are not the property of HUF but it was owned by company AG and there was no distribution of its assets, because there was no liquidation of the company. Consequently, the said capital asset continued to be owned by AG and did not became the property of the assessees hands therefore section 49(1) would not apply. The Court directed the Assessing Officer to compute the capital gains in the said company and give credit of taxes paid by assessee. CIT vs. Shashi Charla (2011) 51 DTR 232 / CIT vs. Atul Charla / Baldev Charla / Jyoti Chrala (2011) 51 DTR 232/(2010)195 Taxman 148(Delhi High Court) S. 49 : Cost with reference to certain mode of Acquisition – Capital Gains – Family Arrangement – Company Assets – HUF – Director – (S. 45) Assessees are Directors in a company AG. By way of family arrangement half of the land owned by company came to the share of the present assessees and other half went to the share of another family group. Assessees sold their share of land for an amount of ` 2.9 crores. Assessees computed the capital gains by applying the provision of section 49(1). The Assessing Officer held that assets in question are not the property of HUF but it was owned by company AG and there was no distribution of its assets, because there was no liquidation of the company. Consequently, the said capital asset continued to be owned by AG and did not became the property of the assessees and therefore section 49(1) would not apply. The Court directed the Assessing Officer to compute the capital gains in the said company and give credit of taxes paid by assessee. CIT vs. Shashi Charla (2011) 51 DTR 232 (Delhi) / CIT vs. Atul Charla / Baldev Charla / Jyoti Charla (2011) 51 DTR 232 (Delhi) (High Court) S. 50 : Capital Gains - Depreciable Assets - Transfer of Undertakings - Tangible and Intangible Assets - (S. 45). In the case of transfer of entire business undertaking, section 50 has application as far as tangible assets are concerned, assessee having transferred its entire marketing undertaking consisting of both tangible and intangible assets to another company, Assessing Officer is directed to apportion and / or segregate the amount of consideration received by the assessee by way of transfer of tangible assets out of the total consideration for assessment under the head capital gains under section 45, read with section 50.(A. Y. 96-97) Kwality Ice Creams (India) Ltd. vs. CIT (2011) 52 DTR 366 /198 Taxman 65 (Cal.)(High Court) S. 50 : Capital Gains – Depreciable Assets - Loss - Carry Forward and Set off of brought forward business loss


Income assessed by the assessee in the relevant year on sale of factory building, plant and machinery although not taxable as profits and gains of business or profession is an income in the nature of business though assessed as capital gains under section 50 and therefore, assessee is entitled to set off of brought forward business losses against the said capital gains.(. A. Y. 2005-06) Digital Electronics Ltd. vs. Addl. CIT (2011) 49 DTR 484/135 TTJ 419 (Mum.)(Trib.) Editorial:- See J. K. Chemicals Ltd. vs. ACIT, ITA No. 8206/Bom/1089 and 8618/Bom/89 Bench ‘A’ dt. 1-11-1993, Sri Padmavathi Srinivasa Cotton Ginning Factory vs. Dy. CIT (2009) 29 DTR 1 (Visakha)(Trib.) S. 50 : Capital Gains - Depreciable Assets - Block of Assets. Section 50(1)(iii) does not make a distinction between block of assets of one unit and block of assets of another unit, even if they are independent units. Even if new asset is not used for the purpose of business, its cost will have to be deducted from full value of consideration received or accruing on transfer of block of assets, while computing short term capital gains.(A. Y. 1989-90) Dy. CIT vs. Ansal Properties & Infrastructure Ltd. (2011) 44 SOT 236 (Delhi)(Trib) S. 50 : Capital Gains - Depreciable Assets – Indexation. Assessee claimed depreciation on capital asset (flat) for two years as it was used as office premises which was allowed. Flat was the only asset in the block of assets. No depreciation was claimed for latter years as the flat was not used for the purposes of business but leased on rent. Assessing Officer and CIT(A) held that the as the flat being only asset in the block of assets the capital gains is assessable as short term capital gains. On appeal the Tribunal held that the moment the assessee stopped claiming depreciation in respect of the flat and even let out the same for rent, it ceased to be a business asset. The Tribunal directed the Assessing Officer to allow benefit of indexation as claimed by the assessee treating the sale as long term capital asset. Prabodh Investment & Trading Company Pvt. Ltd. vs. ITO, ITA No. 6557/Mum/2008 Bench ‘C’ dt. 28-2-2011 (2011) 43–A BCAJ - April P. 34(Trib) S. 50 : Capital Gains - Depreciable Assets - Block of Assets. [S. 2(11)] If any capital asset on which depreciation has been allowed under Income Tax Act 1961, or Indian Income Tax Act 1922, and which otherwise qualifies to form a part of block of assets as on 1-4-1988, special provisions contained in section 50 shall apply on transfer of such asset. Therefore, as regards plant and machinery assessee was allowed depreciation upto 1984, they constituted block of assets hence, provision of section 50 would be applicable. (A. Y. 1996-97) Shree Changdeo Sugar Mills Ltd. vs. Jt. CIT (2011) 44 SOT 479 (Mum.)(Trib.) S. 50 : Capital Gains – Depreciable Assets. Provisions of section 50 are not attracted in a case whereon the asset transferred depreciation was neither claimed nor allowed. Divine Construction Co. vs. ACIT, ITA No. 5396/Mum/2009, dt. 20-12-2010, ITAT Mumbai ‘D’ Bench, BCAJ p. 37, Vol. 42-B, Part 6, March 2011 (Trib.) S. 50B : Capital Gains - Sale of entire business as going concern - Slump Sale - (S. 45). Assessee having transferred the assets and liabilities pertaining to its business as one whole unit as a going concern for a lump sum consideration without assigning any separate value to land, building / structure, plant and machinery, office equipment, furniture and fixtures and vehicles, the sale was a slump sale and therefore, the same is not exigible to tax under the head “Capital Gains”.(A. Y. 2002-03) CIT vs. Chemical Industries Consulting Bureau (2011) 51 DTR 283 (Karn.)(High Court)


S. 50B : Capital Gains - Depreciable Assets - Slump Sale. (S. 2(42C), 45, 50) Sale of an industrial undertaking as a whole which includes land building, machinery, equipments, etc. as a going concern with all the assets and liabilities, was assessable under section 50B treating the transaction as a “slump sale” and not under section 50 as a sale of depreciable assets. (A. Y. 2003-04) CIT vs. Accelerated Freeze Drying Co. Ltd. (2011) 53 DTR 44 / 198 Taxman 18 / 240 CTR 90 (Ker.)(High Court) S. 50B : Slump Sale - Capital Gains - Transfer of Undertaking - Non money consideration - Cost of Acquisition not determinable – (S. 2(42C), 45) In order to constitute a “slump sale” under section 2(42C), the transfer must be as a result of a “sale” i.e. for a money consideration and not by way of an “Exchange”. The difference between a sale and an exchange is this that in the former the price is paid in money, whilst in the latter it is paid in goods by way of barter. The presence of money consideration is an essential element in a transaction of sale. As the undertaking was transferred in consideration of shares & bonds, it was a case of “exchange” and not “sale” and so section 2(42C) and section 50B cannot apply. As regards taxability under section 45 & 48, the “capital asset” which was transferred was the “entire undertaking” and not individual assets and liabilities forming part of the undertaking. In the absence of a cost/date of acquisition, the computation & charging provisions of section 45 fail and the transaction cannot be assessed (Premier Auto 264 ITR 193 (Bom.) distinguished) Bharat Bijilee Limited vs. ACIT (Mum.)(Trib))www.itatonline.org. S. 50C : Capital Gains - Depreciable Assets - Stamp Valuation - Applies to Depreciable Assets. (S. 2(11), 48, 50) There are two deeming fictions created in section 50 and section 50C for computing capital gains on building. While section 50 modifies the “cost of acquisition” for purposes of section 48, section 50C modifies the term “full value of the consideration received or accruing as a result of transfer of the capital asset”. The two deeming fictions operate in different fields and there is no conflict between them. As section 50C was inserted to prevent assessee’s indulging in under-valuation, there is no logic why it should not be applied to a depreciable building. ITO vs. United Marine Academy (Mum.)(SB)(Trib.) Source: www.itatonline.org S. 50C : Capital Gains - Stamp Duty Valuation - Does not apply to transfer of “leasehold rights” as it is not “land or building” Section 50C is a deeming provision which extends only to a capital asset which is “land or building or both”. A deeming provision cannot be extended beyond the purpose for which it is enacted. If a capital asset cannot be described as “land or building or both”, section 50C cannot apply. A lease right in a plot of land is neither “land or building or both”. The distinction between a capital asset being “land or building or both” and any “right in land or building or both” is well recognized. “Land or building’ is distinct from “any right in land or building”. Consequently, section 50C does not apply to leasehold rights. (A. Y. 2006-07) Atul G. Puranik vs. ITO (Mum.)(Trib.) Source: www.itatonline.org S. 50C : Capital Gains - Stamp Valuation - Full value of Consideration – Transfer - Granting Development Rights for demolition and reconstruction of building results in “transfer of land & building”. [S. 2 (47), (45)]


Where there is transfer of existing land & building which was demolished by builder for fresh construction and documents were registered in such cases there involves a “transfer of land / FSI in case of grant of development right. Thus, it does include cost of acquisition. Chairanjeev Lal Khanna vs ITO (Mum.)(Trib.) Source: www.itatonline.org S. 50C : Capital Gains - Full Value of Consideration - Stamp Valuation - Ownership of Land - (S. 45) Assessee purchased certain land through her father in law who was her power of attorney holder. Subsequently, assessee sold said land again through her father in law. The assessing officer applied the provisions of section 50C. On appeal Commissioner (Appeals) held that since assessee’s own name did not appear in revenue records as owner of land, provisions of section 50C did not apply. On further appeal to Tribunal, the Tribunal held that in order to apply provisions of section 50C, it is not necessary that assessee should be direct owner of property. The Tribunal confirmed the view of Assessing Officer. (A. Y. 2003-04) ITO vs. Sushma Gupta (Smt.) (2011) 44 SOT 568 (Delhi)(Trib. S. 54 : Capital Gains – Exemption - Investment in two houses Assessee was not entitled to exemption in respect of two independent residential houses situated at different locations.(A. Y. 2005-06) Pawan Arya vs. CIT (2011) 237 CTR 210 / 49 DTR 123 (P&H)(High Court) S. 54 : Capital Gains - Profit on sale of property used for residence - Exemption is available to multiple sales & purchases of residential houses - (S. 45). Though section 54 refers to capital gains arising from “transfer of a residential house”, it does not provide that the exemption is available only in relation to one house. If an assessee has sold multiple houses, then the exemption under section 54 is available in respect of all houses if the other conditions are fulfilled. If more than one house is sold and more than one house is bought, a corresponding exemption under section 54 is available. However, the exemption is not available on an aggregate basis but has to be computed considering each sale and the corresponding purchase adopting a combination beneficial to the assessee. The decision of the Special Bench in ITO vs. Sushila Jhaveri (2007) 292 ITR (AT) 1 is distinguishable. Rajesh Keshav Pillai vs. ITO (2011) 44 SOT 617 (Trib)( Mum) S. 54B : Capital Gains - Investment in Agricultural purposes - Assesses name - Name of wife and other relations. Deduction under section 54B of the Act will be admissible only in respect of investment made in the purchase of a new asset in his own name, however, deduction shall not be available in respect of the amount invested in the purchase of new asset in the name of wife and other relations. ITO vs. Rameshwar Sharma (2011) Tax World Feb., P. 114 (Jaipur)(Trib) S. 54EC : Capital Gain - Investment in certain bonds - Cheque issued within six months – Cleared after six months For the purpose of computation of LTCG in case of NABARD bonds which were not specified asset as on 1/4/2006 and investment was not within 6 months of transfer, the law has to be read as it stood on the date of transfer of capital asset. Thus, section 54EC relief is available even though cheque was encashed and bonds were allotted later. Kumarpal Amrutlal Doshi vs. Dy. CIT (ITAT - Mumbai) Source: www.itatonline.org(Trib) S. 54F : Capital Gains – Exemption in case of investment in Residential House – Deposit in Capital


Gain Scheme. [S. 45(3)] Where assessee had earned capital gains by virtue of section 45(3) i.e. on account of introducing capital asset in a partnership firm by way of capital contribution, the assessee could not claim benefit of section 54F by constructing a new house if he had not deposited the sale proceeds in capital gains scheme account. Further since the assessee had utilized borrowed amount to construct new property he was debarred from claiming benefit under section 54F. (A. Y. 1995-96) CIT vs. V. R. Desai (2011) 197 Taxman 52 (Ker.)(High Court) S. 54F : Capital Gains – Exemption – Purchase of new house vis-à-vis deposit under Capital Gains accounts scheme. Assessee having deposited the sale proceeds of property in his bank account under the capital gains account scheme within the prescribed period and purchased a new property by availing of a loan which was paid out of the same bank account, he has complied with the provisions of Capital Gains Accounts Scheme and, therefore, assessee is entitled to exemption under section 54F. (A. Y. 2006-07) P. Thirumoorthy vs. ITO (2011) 49 DTR 91 / 135 TTJ 75 (UOI)(Chennai)(Trib.) S. 54F : Capital Gains – Exemption – Investment in residential house - Time Limit Where the assessee had purchased a flat after one year of sale of original asset and constructed a new house within three years of sale of original asset proviso (ii) to section 54F was not attracted and assessee was entitled to exemption under section 54F in respect of new house constructed by him.(A. Y. 2006-07) P. R. Kulkarni & Sons (HUF) vs. Addl. CIT (2011) 49 DTR 442/135 TTJ 630 (Bang.)(Trib.) S. 54F(1)(a) : Capital Gains – Exemption - Stamp Duty Valuation - (S. 45, 50C) Capital gains arising from the transfer of any long term capital asset for the purpose of section 54F has to be worked out applying section 48 without imposing section 50C into it, when sale consideration was shown at Rs 20,00,000/- stamp duty valuation was ` 36,00,000/- and the assessee invested in new house Rs 24,00,000/- including Rs 20,00,000/- sale consideration, he could claim exemption under section 54F only of Rs 18,06,494/- and not entire Rs 36,00,000/-.(A. Y. 2005-06) Gauli Mahadevappa vs. ITO (2011) 49 DTR 207 / 128 ITD 15 (Bang.)(Trib.) Editorial:- Gyan Chand Batra vs. ITO (2010) 133 TTJ 482 / 45 DTR 41 (Jaipur)(Trib.) Tribunal has taken different view. S. 54F(4) : Capital Gains – Exemption - Deposit in Savings Bank Account Where the assessee had deposited sale proceeds in normal savings account as against scheme specified by Central Government through notification in official Gazette as per section 54F(4), it violated provisions of section 54F(4), hence, not eligible for exemption.(A. Y. 1996-97) Thakorlal Harkishandas Intwala vs. ITO (2011) 43 SOT 347 (Ahd.)(Trib) S. 56(2)(v) : Income form Other Sources - Gifts received by minor sons - Maternal Uncle - (S.64) Section 56(2)(v), read with Explanation speaks of relationship between the donor and donee and not deemed assessee, maternal uncle of the assessee who made gifts of ` 5 Lakhs to two minor sons of the assessee is not a “relative” of the donees with in the meaning of explanation to section 56(2)(v) and therefore, the impugned sum is chargeable to tax in the hands of the assessee under the provisions of section 56 read with section 64.(A. Y. 2005-06) ACIT vs. Lucky Pamnani (2011) 49 DTR 501 / 135 TTJ 607 (Mum.)(Trib.) S. 56(2)(v) : Income from Other Sources – Relative. Minor - (S. 64) Gift of 10 lakhs received by minor children of assessee from blood brother of assessee’s mother was


eligible for exemption as in the instant case the relationship of donor & done could not fall in category of grandfather, neither donee was a lineal descendant of the donor. Thus, addition was upheld. ACIT vs. Lucky Pamnani (2011) 129 ITD 489 (Mum.)(Trib.) S. 57(iii) : Income from Other Sources - Deductions - Interest – Assessing Officer can lift veil & determine legal effect but cannot ignore legal effect on ground of “substance” It is held by the Larger Bench that under section 57(iii), expenditure laid out or expended wholly or exclusively for the purpose of making or earning income is deductible. It is the purpose of the expenditure that is relevant but the purpose need not be fulfilled. R. P. Moody 115 ITR 519 (SC) followed. The assessee must act bona fide & show nexus between the advancing of funds and his business interest. The dominant purpose for making the investment must be to earn income & to ascertain the purpose the Assessing Officer may lift the veil (Swapna Roy 233 CTR 10 (All) & Punjab Stainless 324 ITR 396 (Del.) followed); It was also held that legal effect of a transaction cannot be displaced by probing into the “substance of the transaction”. Thus, the exercise of jurisdiction cannot be stretched to hold a roving enquiry or deep probe.(A. Y. 1986-87) CIT vs. Rockman Cycles Industries Pvt. Ltd. (2011) 331 ITR 401 / 51 DTR 169 / 238 CTR 363 (P&H)(High Court) S. 57(iii) : Income from Other Sources – Fixed Deposit in Banks. Where the assessee borrowed funds from bank and invested the same in Fixed Deposits (‘F.D’) and earned more interest on the F.D. than the interest payable on the borrowed funds taking advantage of Export Import policy of the Government interest paid on the borrowing was held to be allowable as deduction under section 57(iii) of the Act from the interest earned on F.D as there was direct nexus between the interest earned and interest paid by the assessee. (A. Y. 2005-06 & 07) CIT vs. Taj International Jewellers (2011) 50 DTR 348 (Del.)(High Court) S. 68 : Cash Credits - Share Application Money - Satisfactory explanation as to the ‘nature of the source’ The Hon’ble High Court held that in order to provide satisfactory explanation as to the “nature and source” of a sum found credited in his books, the initial burden is on the assessee. The assessee is required to prove (a) Identity of the shareholder; (b) Genuineness of transaction; and (c) credit worthiness of shareholders; CIT vs. Oasis Hospitalities Pvt. Ltd. (Delhi High Court) www.itatonline.org S. 68 : Cash Credits – Gift. Assessee has filed address of both the donors, however, revenue authorities did not examine them in person before making addition, further the revenue authorities failed to bring any evidence on record showing that amount received by assessee from donors was actually her own undisclosed income. Addition confirmed by the CIT(A) was deleted.(A. Y. 2002-03) Amita Devi (Smt) vs. ACIT (2011) 129 ITD 72/ 53 DTR 214 (Gau.)(TM) (Trib) S. 68 : Cash Credits – Gift. Assessee received the gift by way of cheques which have been confirmed by the donors in their affidavits and disclosed in their respective returns, the same could not be treated as non genuine.(A. Y. 2004-05) Dy. CIT vs. Vishwanath Prasad Gupta (2011) 52 DTR 346/130 ITD 73/130 ITD 73 (Jab.)(Trib.)(TM) (Trib)


S. 68 : Cash Credits - Share Application Money. Assessee had established identity of each of share holder, and also proved that each of them was income tax assessee and share application money credited to their accounts was duly reflected in their income tax returns and balance sheets, hence, the order of Commissioner (Appeals) deleting the addition was confirmed. (A. Y. 2005-06) Dy. CIT vs. Dolphine Marbles (P) Ltd. (2011) 129 ITD 163 (JB)(TM)(Trib.) S. 68 : Cash Credits- Gifts. Assessee received gift of ` 1 lakh from ten individuals. It was noted from the records that donors had deposited monies in their bank account on same day or one day prior to making of gifts through account payee cheques. It was observed that , personal withdrawals of donors for their house hold expenses were petty and it did not support status of donors to gift of ` 1 lakh, besides none of donors was relative of assessee, in view of the facts gifts received by the assessee confirmed as cash credits. (A. Y.2001-02) Arvind Kumar Mohani vs. ITO (2011) 129 ITD 117 / 54 DTR 33 (JB)(TM)(Trib.) S. 68 : Cash Credits – Gift – Failure to produce Donors. No addition could be made simply rejecting explanation and evidences filed on record in support of the gift without any scrutiny about the confirmation and without bringing any conclusive evidence brought on record merely on the plea that the assessee failed to produce donors for examination. (A. Y. 2006-07) P. R. Kulkarni & Sons (HUF) vs. Addl. CIT (2011) 135 TTJ 630 (Bang.)(Trib.) S. 69 : Unexplained Investments – Difference in statement of value of stock furnished to bank and entries in books of accounts addition justified Where the stock statement of hypothecated goods furnished bank was at variance with stock recorded in books of accounts. It was held that addition was justified as the assessee neither denied statement made to bank nor furnished valid explanation of discrepancy.(A. Y. 1995-96) B. T. Steels Ltd. vs. CIT (2011) 196 Taxman 362 /(2010) 328 ITR 471 /(2011) 196 Tax 362/(2010) 47 DTR 227(P&H)(High Court) S. 69 : Unexplained Investments – Income from Undisclosed Sources - Genuineness of Sale of Shares - (S. 54F) Purchase and sale of shares said to have been made by the assessee being the solitary transaction in shares by him allegedly made through a broker who is not registered with the stock exchange and concerned company as well as the said broker having denied the transaction, Assessing Officer was justified in not accepting the said transaction as genuine by applying the test of human probabilities and treating the impugned amount as income from undisclosed sources.(A. Y. 1997-98) CIT vs. Hakumat Rai (2011) 237 CTR 513/49 DTR 266 (P&H)(High Court) S. 69 : Unexplained Investment - AIR Information - Second owner of the Units of Mutual funds. Addition on account of unexplained investment cannot be made in the hands of the assessee on the basis of AIR information, when the assessee was only the second owner of the units of mutual funds and the identity of the first owner was established and they are assessed to tax. S. Ganesh vs. ACIT (2011) TIOL 87 ITAT-Mum. 701 / (2011) 42-B. BCAJ (March P. 33)(Trib) S. 69A : Unexplained Money – Claim for redemption fine – Deduction not allowed It was held that section 69A does not provide for any deduction, thus claim for redemption fine is not admissible. Adjudication, confiscation and later redemption fine does not affect the assessment in case of seized articles under section 69A. (A. Y. 1989-90)


P. Sonam vs. CIT, Ernakulam (2011) 196 Taxman 335 (Ker.)(High Court) S. 69B : Investment not disclosed in books of account – Undisclosed Income. Addition under section 69B of the Act alleging undisclosed investment cannot be made merely on the basis of District Valuation Officer’s (D.V.O.) report when the books of accounts of the assessee are not rejected nor any incriminating material was found during the search to suggest that assessee had made any payment over and above the consideration mentioned in the return. CIT vs. Bajrang Lal Bansal (2011) 51 DTR 287 (Del.)(High Court) S. 72 : Carry forward and set off of Business Loss - Dividend Income - Shares held for business Under section 72(1)(i), the brought forward business loss can be set-off against “the profits and gains of any business or profession carried on” by the assessee. Section 72(1)(i) does not use the word “assessable under the ‘head‘ profits & gains of business”. The answer to the question as to whether the securities formed part of the trading assets of the business and the income there from was income from the business has to be decided on commercial principles and not on the basis of the classification of ‘heads of income’ in section 14. Though for the purpose of computation of the income, dividends are assessable under the head “Other Sources”, it does not cease to be part of the income from business if the securities are part of the trading assets. Accordingly, the assessee is eligible for set-off of dividend income as against business loss (Cocanada Radhaswmi Bank 57 ITR 306 (SC) & New India Investment 130 ITR 778 (Cal.) followed). Gangan Trading Co. Ltd. vs. Dy. CIT ( Mum) (Trib) Source:- www.itatonline.org S. 73 : Losses in Speculation Business - Delivery based loss on shares also Speculation Loss It is held that the Explanation to section 73 creates a fiction that the loss suffered by certain companies from the business of purchase & sale of shares shall be deemed to be speculation loss. The definition of speculative transaction in section 43(5) not applicable to Explanation to section 73. The CBDT Circular dated 24.7.1976 cannot be treated as guide for interpretation of section 73 when the provision is very clear and free from any ambiguity.(A. Y. 1994-95) Paharpur Cooling Towers Ltd. vs. ACIT(2011) 52 DTR 41/239 CTR 394(Cal)(High Court) Editorial:- Refer Paharpur Cooling Towers Ltd. vs. Dy. CIT (2003) 85 ITD 745 (Kol.) S. 73 : Losses in Speculation Business – Speculative Loss. Where the Company amended its memorandum and articles of association so as to enable it to make money lending as its main business, the loss on account of sale and purchase of shares was allowed to be adjusted against other business income as the assessee’s case fell under exception clause of section 73 of the Act. (A. Y. 1997-98) CIT vs. Front Line Securities Ltd. (2011) 50 DTR 337 (Del.)(High Court) S. 73 : Losses in Speculative Business - Loss in share dealings – Speculative Transactions – [S. 43(5)] Badla charges claimed by the assessee company were rightly treated to be speculative loss in view of Explanation to section 73, since entire share trading activity was deemed to be speculative, provisions of Explanation to section 73 being deeming provisions, section 43(5) cannot override section 73.(A. Y. 2001-02) Dartmour Holdings (P) Ltd. vs. ITO (2011) 51 DTR 321/136 TTJ 432 (Mum.)(Trib.) S. 79 : Carry forward and set off losses – Merger - Change in Share Holdings.


Due to merger of IIPL holding 98% shares of assessee company with the assessee company, the share holders of the IIPL were allotted shares but there was no change in the management which continued to be with persons of the family who were having the control and management of the IIPL as well as of the assessee company and therefore, provisions of section 79 were not violated and the assessee was entitled to carry forward of loss.(A. Y. 2004-2005-06) Dy. CIT vs. Select Holiday Resorts (P) Ltd. (2011) 52 DTR 14 (Delhi)(Trib.) S. 80 : Loss – Carry Forward - Belated filing of return. [S. 139(3)] Assessee is not entitled to carry forward the business loss if the return is not filed within the prescribed time limit under section 139(1). Assessing the income by the Assessing Officer will not mandate to carry forward the loss. (A. Y. 1999-2000) Joginder Paul (HUF) vs. CIT (2011) 239 CTR 566 (P&H)(High Court) S. 80HH : Process of ship breaking activity, whether “production” of “newgoods” – Words and Phrases – “Manufacture” and “Production”, scope of. In view of Explanation 2 added to section 10(15(iv)(c), usance interest paid for purchase of imported ship for ship breaking is exempt from payment of income tax. Distinct articles emerge in process of ship breaking. Process of ship breaking is akin to “production”. Assessee entitled to benefit of sections 80-HH and 80-I. “Manufacture” and “Production” are distinct terms. Reiterated, “production” has a wider connotation than “manufacture”. “Production” takes in bringing into existence new goods by a process which may or may not amount to “manufacture”. It also includes bye-products, intermediate products and residual products which emerge in course of manufacture of goods. Vijay Ship Breaking Corporation and Others vs. CIT (2010) 10 SCC 39(SC) S. 80HHC : Deduction – Export - Profits of Business - Interest on Deposits - Inter-corporate Deposits Finding of the authorities below that interest income received by the assessee company on bank deposits and inter-corporate deposits is a part of business profit not having been shown to be perverse, the same cannot be excluded from the business profit while calculating the deduction under section 80HHC. CIT vs. Sociendade De Fomento Industrial Ltd. (2011) 237 CTR 141 / 49 DTR 161 (Bom.)(High Court) S. 80HHC : Deduction – Export – Receipts - Freight – Insurance - Packing Charges - Sales Tax set off 90% of receipts from freight and insurance, packing charges, sales tax set off and gross service income was be excluded from the profits of the business in terms of explanation (baa) to section 80HHC of the Income Tax Act.(A. Y. 2003-04) CIT vs. Dresser Rand India P. Ltd (2011) 330 ITR 453 (Bom.)(High Court) Editorial:- Refer, CIT vs. Dresser Rand India Pvt. Ltd. (2010) 323 ITR 429 (Bom.). In Pfizer Ltd. (2010) 233 CTR 521 / (2011) 330 ITR 62 (Bom.) distinguished. S. 80HHC : Deduction – Export – Separate Books – Profits of all Business For the purpose of 80HHC of the Act, even though the assessee had maintained separate books for each business, deduction under section 80HHC is to be computed on the basis of profit derived from all these business. (A. Y. 2003-04) G. J. Fernandez vs. ACIT (2011) 52 DTR 345 (Kar.)(High Court) S. 80HHC : Deduction – Export - Fluctuation in Foreign Exchange - Export turnover.


Surplus realization due to fluctuation in foreign exchange rates is part and parcel of the export turnover for the purpose of section 80HHC. Raghunath Exports (P) Ltd. vs. CIT (2011) 240 CTR 79 (Cal.)(High Court) S. 80HHE : Deduction – Export - Computer Software – Non-resident - Discrimination Clause - DTAA As per Article 26(2) of India-USA DTAA Taxation of a PE of a USA resident shall not be less favorable than the taxation of a resident enterprise carrying on the same activities. Thus exemptions and deductions available to Indian enterprises would also be granted to the US enterprises if they are carrying on the same activities. Therefore, assessee was entitled to section 80HHE deduction as admissible to a resident assessee (Automated Securities Clearance Inc. vs. ITO 118 TTJ 619 (Pune) reversed; Metchem Canada Inc. vs. Dy. CIT 99 TTJ 702 (Mum.) referred to); Further where the provisions contained in the DTAA are capable of clear and unambiguous interpretation, it is not necessary to refer to the commentary on the OECD Model Convention, the US Technical Explanation or decisions of any foreign jurisdiction (CIT vs. PVAL Kulandagan Chettiar 267 ITR 654 (SC) followed). (A. Y. 2002-03 to 2004-05) Rajeev Sureshbhai Gajwani vs. ACIT(2011) 52 DTR 201(AHD)(SB)(Trib) S. 80HHE : Deduction - Export of Computer Software - Form 10CCAF - Export turnover retained abroad. Benefit of deduction under section 80HHE cannot be denied to the assessee simply because the income certified for deduction is nil in form no 10CCAF for the reason that the computation of total income as per return was loss. Assessee is entitled to deduction under section 80 HHE on the amount of export turnover retained abroad to the extent of its outstanding dues to that company and the amount retained by assessee’s foreign branch in respect of expenses incurred by it on behalf of assessee provided there is nexus between the outstanding payable / expenditure incurred abroad and the business of export which has yielded the income.(A. Y. 2002-03) 3i Infotech Ltd. vs. Dy. CIT (2011) 51 DTR 385 / 136 TTJ 641 (Mum (Trib.) S. 80IA : Deductions - Industrial Undertaking in Infrastructure Development - Absorption of loss in earlier year, section 80-IA unit loss to be set-off against section 80-IA profits It was held that deduction under section 80-IA has to be computed after deduction of the notional brought forward losses and depreciation of business even though they have been allowed set off against other income in earlier years as concluded by the ITAT Special Bench judgement in ACIT vs. Gold Mine Shares & Finance (P) Ltd. 113 ITD 209 (Ahd.)(SB) against the assessee. Hyderabad Chemical Supplies Ltd. vs. ACIT (Hyd.)(Trib.) Source: www.itatonline.org S. 80IA(4)(iv) : Deduction - Income from Generation of Power - Captive consumption of electricity Assessee is entitled to deduction under section 80IA in respect of notional income from generation of electricity which was captively consumed by itself. Tamil Nadu Petro Products Ltd. vs. ACIT (2011) 51 DTR 67/ 238 CTR 454 (Mad.)(High Court) S. 80IA(8) : Deductions – Industrial Undertaking - Tariff fixed by MERC for sale of power does not reflect “market value” It is held that under section 80-IA(8), the transfer of goods from an eligible business to a non-eligible business is required to be taken at “market value”. But the tariff determined by MERC is based on the concepts of ‘clear profits’ and ‘reasonable return’ and does not reflect the “market value” of the electricity. Further, the tariff is fixed for both activities of generation and distribution of power and may


not reflect the true rates with regard to only the activity of generation. Thus, even after the fixation of tariff by MERC, the profits from the business of generation of power has to be worked out on the basis of the price paid to the outside party for purchase of power. Reliance Infrastructure Ltd. vs. ACIT (Mum.)(Trib.) Source : www.itatonline.org S. 80IB : Deduction - Industrial Undertakings – Interest - Miscellaneous Income Interest on deposits would not be allowable towards the deduction under section 80IB. Miscellaneous income (reversal of LD charges), the matter was remanded to the Tribunal for fresh consideration.(A. Y. 2002-03) CIT vs. Dresser Rand India P. Ltd (2011) 330 ITR 453 (Bom.)(High Court) S. 80IB : Deduction - Industrial Undertakings - Manufacture or Production – Job work - Compound Rubber - Interest from Customers - Belated Payments - Business Income Production of compound rubber on job work for the tyre manufacturing companies by the assessee amounts to “production of an article or thing” qualifying for deduction under section 80IB. There is nothing in section 80IB to indicate that article or thing produced or manufactured should be final product in itself. If the interest is assessable as business income then only it qualifies for deduction under section 80IB as profit earned. In the absence of relevant details of the interest received by the assessee from the customers for belated payment of job work charges matter remanded to the Assessing Officer for reconsideration. Midas Polymer Compounds (P) Ltd. vs. ACIT (2011) 237 CTR 401 / 331 ITR 68 / 50 DTR 139 (Ker.)(FB)(High Court) S. 80IB : Deduction - Industrial Undertakings - Central Excise Duty Refund - Transport and Interest Subsidy. Central Excise Duty refund has inextricable link with manufacturing activity hence eligible for deduction under section 80IB, however, transport and interest subsidies have no direct nexus with the business of industrial undertaking hence not eligible for deduction under section 80IB. CIT vs. Meghalaya Steels Ltd. (2011) 221 Taxation 79 / 332 ITR 91/55 DTR 27 (Gauhati)(High Court) S. 80IB : Deduction - Industrial Undertaking - Derived from Payments Disallowed – [S. 40(a)(ia)] Payments disallowed under section 40(a)(ia), has to be treated as part of “profits and gains of business or profession” and therefore, the same qualifies for deduction under section 80IB.(A. Y. 2002 -03 to 2006-07) ITO vs. Computer Force (2011) 136 TTJ 221/128 ITD 116/49 DTR 298 (Ahd.)(Trib) S. 80IB(2) : Deduction - Industrial Undertaking – Reconstruction - New Unit Assessee having set up a new unit after closing the old unit at a new place for manufacturing new type of telephone instruments by employing new technology in a newly constructed business premises and making substantial investment in plant and machinery, it is not a case of splitting up of old business and therefore claim for under section 80IB could not be disallowed on the ground that the assessee has merely shifted its business from one place to another and not started a new business.(A. Y. 2002-03) ITO vs. Computer Force (2011) 136 TTJ 221/128 ITD 116/49 DTr 298 (Ahd.)(Trib) S. 80IB(10) : Deduction - Housing Project - Disallowance on account of non-payment of tax deduction at source - (S. 80AB, 40(a)(ia), 29)


Where the Assessing Officer makes additions to income of assessee under section 40(a)(ia), for non-compliance of tax deduction at source, such additional income also should be considered for the purpose of allowing deduction under section 80IB(10) as per section 80AB, read with section 29.(A. Y. 2006-07) S. B. Builders & Developers vs. ITO (2011) 50 DTR 299 /136 TTJ 420/ 45 SOT 335 (Mum.)(Trib.) S. 80IB(10) : Deduction - Housing Project - Date of Completion Tribunal held that what is crucial is not the date of issue of letter by local authority, but date mentioned in the letter certifying completion of the project. Therefore, it rejected the contention of the revenue to the effect that the date of completion shall be taken as the date on which the certificate is physically issued by the local authority. D. K. Construction vs. ITO (2011) BCAJ Feb., 24 (ITAT - Indore) (572) (2011) 42 B. BCAJ) (Trib) S. 80IB(10) : Deduction - Housing Project - Pre A. Y. 05-06, a project approved as “housing project” by local authority eligible for deduction under section 80-IB(10) irrespective of extent of commercial user Where the legislature has provided that the deduction under section 80IB(10) is available to all housing projects approved by a local authority, the result is that even projects with commercial user approved as a “housing project” are eligible for deduction. Thus, the Tribunal was justified in confirming the deduction only to projects having commercial area upto 10% of BUA. If the project is approved as a “housing project” deduction under section 80-IB(10) is allowable irrespective of the commercial area. It was further held that the insertion of clause (d) to section 80-IB(10) w.e.f. 1.4.2005 to deny section 80-IB(10) deduction to projects having commercial user beyond the prescribed limits is not retrospective.(A. Y. 2003-04) CIT vs. Brahma Associates (2011)333 ITR 289/ 51 DTR 298/239 CTR 301/2011 VOL 113 (2) Bom.L.R.0995/ (Bombay High Court), www.itatonline.org S. 80IB(10) : Deduction – Housing Project – Joint Development Agreement - Owners of land Assessee developer had entered into joint development agreement with owners of land for construction of residential flats consisting of four wings in consideration of giving 49% of the constructed area to land owners and all other conditions of section 80IB(10) having been found to be fulfilled, deduction under section 80IB(10) could not be denied.(A. Y. 2005-06 to 2007-08) Mudhit Madanlal Gupta vs. ACIT (2011) 51 DTR 217 (Mum.)(Trib.) S. 88E : Rebate - Securities Transaction Tax – [S. 40(a)(ib)] Disallowance of deduction for securities transaction tax under section 40(a)(ib) could not deprive the assessee of rebate under section 88E.(A. Y. 2006-07) ITO vs. Chunilal T. Mehata (2011) 7 ITR 50 (Kol.)(Trib.) S. 80HHF : Deduction – Export - Export Turnover. Claim of the assessee that the meaning of “total turnover” in clause (j) of Explanation to section 80 HHF should be restricted only to the export turnover of the business of exports and not the entire business is not sustainable. While computing deduction under section 80 HHF by multiplying “export turnover” with the “profits of the business” as divided by the total turnover of the business.(A. Y. 2000-2001) SRI Adikari Brothers Television Networks Ltd. vs. ACIT (2011) 52 DTR 295 (Mum.)(Trib.) 80-IB : Deduction – Industrial Undertakings – Interest - Miscellaneous Income. Interest on deposits would not be allowable towards the deduction under section 80-IB as the same is treated as miscellaneous income. (reversal of LD charges). The matter was remanded to the Tribunal for fresh consideration. (A. Y. 2003-04)


CIT vs. Dresser Rand India P. Ltd (2011) 330 ITR 453 (Bom.)(High Court) S. 80-IB : Deduction – Manufacture or Production – Manufacture need not be final product – Rubber compound used in tyre manufacturing. To avail benefit under section 80-IB, product manufactured need not be a final product, it could be saleable intermediate product, as in the present case a rubber compound used in the manufacture of tyres, which was manufactured by processing rubber with chemicals, oil, etc., and the same was inferred by the High Court as manufacture for the purposes of section 80-IB. Midas Polymer Compounds P. Ltd. vs. ACIT (2011) 331 ITR 68 / 237 CTR 401 / 50 DTR 139 (Ker.)(FB)(High Court) S. 80-IB : Deduction – Industrial Undertakings – Derived from –Rebate – Discounts – Labour job receipts. Labour job receipts, miscellaneous income consisting of rebate and discounts and balance written off. etc., were held to be incomes ‘derived from’ industrial undertaking eligible for deduction under section 80-IB of the Act. (A. Y. 2004-05) CIT vs. Metalman Auto P. Ltd. (2011) 52 DTR 385 (P&H)(High Court) S. 80-IB : Deduction – Industrial Undertakings – Job Work. Amount received on account of job work is not a result of manufacturing or producing article or thing and therefore, the assessee is not entitled to claim deduction under section 80-IA and 80-IB of the Act.(A. Y. 2000-2001) Friends Castings P. Ltd. vs. CIT (2011) 50 DTR 61 (P&H)(High Court) S. 80-IB : Deduction – Export – After Deduction under section 80-IA(S. 80HHC) Deduction under section 80HHC of the Act is to be allowed after reducing the amount of deduction allowable under section 80-IA of the Act. Friends Castings P. Ltd. vs. CIT (2011) 50 DTR 61 (P&H)(High Court) Editorial:- Refer Bombay High Court in the case of CIT vs. Associated Capsules Pvt. Ltd, (2011) 332 ITR 42(Bom) S. 80-IB : Deduction – Manufacture or Production – Job Work –Knitted Fabrics. Where the assessee is engaged in the business of manufacture and sale of knitted fabrics and garments was held to be eligible for deduction under section 80-IB of the Act in respect of job work done by it for others. (A. Y. 2004-05) CIT vs. Vallabh Yarns P. Ltd. (2011) 51 DTR 236 (P&H)(High Court) S. 8OIB : Deductions - Industrial Undertakings - Excise Refund –Subsidy - Despite Liberty India, Excise Refund Eligible for section 80IB. Following Delhi High Court decision in CIT vs. Dharampal Premchand (2009) 317 ITR 353, it was held that excise duty refund was eligible under section 80-IB on the ground that (a) there was a direct nexus between the refund of excise duty and the undertaking and (b) if the proper accounting methodology was followed for the payment and refund of excise duty, the net effect on the P&L A/c was nil. Also, the refund of excise duty is the assessee’s own money coming back and is not income at all. ( A. Y. 2007-08) J. K. Aluminium Co. vs ITO (Delhi)(Trib.) Source: www.itatonline.org S. 80IB : Deduction – Processing of Seeds – Manufacture.


Processing of seeds by the assessee which is bought from the agriculturists, does not result in manufacturing of any new article or thing, therefore the assessee is not eligible to claim deduction under section 80-IB. (A. Y. 2002-03 to 2004-05) ITO vs. Daftri Agro (2011) 135 TTJ 729 / 50 DTR 215 (Hyd.)(Trib.) S. 80IB(10) : Deduction - Housing Project - Development Agreement - Not Owner - Commencement Certificate. Deduction under section 80IB(10) can not be denied on the ground that the assessee is not the owner of the property which he undertakes to develop, nor can it be denied on the ground that development agreement is not registered. Merely because the commencement was obtained prior to 1-10-1998, it does not mean that the assessee has commenced the development and construction of the project unless the assessee has taken some effective steps on the site. (A. Y. 2003-04 and 2004-2005) Essem Capital Markets Ltd. vs. ITO (2011) TIOL 196 ITAT –Mum. 171-(2011) 43A – BCAJ (May . P 31) S. 80-IB(10) : Deduction – Housing Project – Date of Completion. Tribunal held that what is crucial is not the date of issue of letter by local authority, but date mentioned in the letter certifying completion of the project. Therefore, it rejected the contention of the revenue to the effect that the date of completion shall be taken as the date on which the certificate is physically issued by the local authority. D. K. Construction vs. ITO, ITA No. 243/Ind/2010, dt. 6-12-2010, ITAT Indore Bench, BCAJ p. 24, Vol. 42-B, Part 5, February 2011. (Trib.) S. 90 : Double Taxation Relief – Royalty – DTAA - India-Singapore - (Art. 12) Assessee, a Singaporean company, which is engaged in providing international telecommunication connectivity services, the amount received by it from Indian customers is for use of “process” besides for use of or right to use industrial, commercial or scientific equipment and therefore, payments made by Indian customers to the assessee company are royalty with in the meaning of Art. 12(3) of the Indo–Singapore DTAA. (A. Y. 2002-03 & 2003-04). Verizon Communications Singapore PTE Ltd. vs. ITO (2011) 54 DTR 65 /45 SOT 263 (Chennai)(Trib.) S. 90 : Double Taxation Relief – DTAA - India-Australia - Interest on Tax Refund not “effectively connected” with PE. [Art. 11(4)] Under Article 11(4) of the DTAA, interest from indebtedness “effectively connected” with a PE of the recipient is taxable under Article 7 and not under Article 11. The payment of tax was the responsibility of the foreign company and the fact that it was discharged by way of TDS did not establish effective connection of the indebtedness with the PE. In order to be “effectively connected”, it is not necessary that the interest income has to be necessarily business income in nature. Even interest assessable under “other sources” can qualify. (Asst year 2003-04) ACIT vs. Clough Engineering Ltd. (Delhi)(SB)(Trib.) Source: www.itatonline.org S. 91: Double Taxation Relief - Countries with no agreement exists - Federal Taxes - Foreign State – DTAA - Tax Credit The view that State taxes cannot be allowed as a deduction and also cannot be taken into account for giving credit is incongruous and results in a contradiction. While section 91 allows credit for Federal & State Taxes, the DTAA allows credit only for Federal Taxes. The result is that the section 91 is more beneficial to the assessee & by virtue of section 90(2) it must prevail over the DTAA. Though section 91


applies only to a case where there is no DTAA, a literal interpretation will result in a situation where an assessee will be worse off as a result of the provisions of the DTAA which is not permissible under the Act. Section 91 must consequently be treated as general in application and must prevail where the DTAA is not more beneficial to the assessee. Accordingly, even an assessee covered by the scope of the DTAA will be eligible for credit of State taxes under section 91 despite the DTAA not providing for the same. Tata Sons Ltd. vs. Dy. CIT (2011) 9 ITR 154 (Trib) (Mum) S. 92C : Avoidance of Tax - Transfer Pricing – Computation - Arm’s Length Price - Opportunity of being heard - (S. 144C) Order was passed by TPO without granting extension of time sought by the petitioner for furnishing more documents and giving an opportunity of personal hearing to it and also documents were not consider which were already on record in their right perspective the impugned order was set aside and TPO was directed to pass an order and also personnel hearing.(A. Y. 2007-08) Toyota Kirloskar Motor (P) Ltd. vs. Addl. CIT (2011) 52 DTR 393 (Kar.)(High Court) S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation - Determination of ALP of slump sale For purpose of transfer pricing in order to determine the ALP in the absence of other identical transactions, the valuation by a registered valuer is the most appropriate means under CUP method. However, as the valuation report filed by the assessee is not reliable, the only option is to adopt the value of the assets sold as per the company law or income-tax WDV. In the sale of a going concern, factors like profitability of the branch office, goodwill, and various other commercial and technical aspects will have a bearing on the ALP. Inter Asia Electronics Inc vs. ADIT (ITAT - Bangalore) www.itatonline.org(Trib) S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation - +/- 5% Variation only if more than one price determined The benefit of +/- 5% variation as per the Proviso to section 92C(2) is available only if more than one price is determined. It does not apply where only one price has been determined. CBDT Circular No.12 dated 23.8.2001 provides that “the AO shall not make any adjustment to the arm’s length price determined by the taxpayer if such price is unto 5% less or unto 5% more than the price determined by the AO”. Circular was issued considering practical difficulties. As the Circular never came into operation thus, Circular No. 12 is otiose and cannot be relied upon. ACIT vs. Essar Steel Ltd. (Trib)(ITAT - Vizag) Source: www.itatonline.org S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation - Super normal profit co must be excluded from comparable The assessee, engaged in providing software development services reported an OP/Cost Margin of 14.96%. The TPO worked out the average of arithmetic mean of ALP (OP/OC) of 42 comparables at 24.91% and directed that an adjustment of ` 10.40 crores be made. In its objections to the DRP, the assessee claimed that the comparables included three companies which were “super-normal profit making” and that these should be excluded. It was claimed that if the said companies were excluded, the arithmetic mean of OP/OC of the comparables was 17.15% which was within the +/- 5% range permitted by section 92(C)(2). The TPO rejected the contention on the ground that one company was listed and audited and showing consistent growth at the same level and there was no abnormality and that the other company’s information was not listed in the database. The third “abnormal” company was not dealt with by the TPO. The DRP dismissed the objections of the assessee by a “very cursory and laconic order”. On appeal by the assessee, HELD allowing the appeal:


(i) The TPO rejected the assessee’s contention with regard to inclusion of the three super-normal profit companies without any cogent reason. It is undisputed that the three companies have shown super-normal profits as compared to other comparables. Their exclusion from the list of comparable is quite correct. After excluding the three companies the arithmetic mean of the comparables falls within the +-5% range permitted by section 92(C)(2); (ii) Despite the voluminous submissions and paper book filed, the DRP passed a very cursory & laconic order without going into the details of the submissions which is quite contrary to the mandate of s. 144C. Adobe Systems India Pvt. Ltd. vs. ACIT(2011) 44 SOT 49 (Delhi)(Trib.)(UOR), S. 92C : Avoidance of Tax - Transfer Pricing – Computation - Arm’s Length Price - Choice of Method - International Taxation Choice of method of determination of ALP is not an unaffected choice on the part of the tax payer and this choice has to be exercised on the touch stone of principles governing selection of most appropriate method set out in section 92C(1), where the Assessing Officer finds that selection of most appropriate method is not correct, he has the powers as well as corresponding duty to select the most appropriate method and compute the ALP by applying that method.(A. Y. 2002-03 to 2004-05) Serdia Pharmaceuticals (India) (P) Ltd. vs. ACIT (2011) 50 DTR 98 / 136 TTJ 129 (Mum.)(Trib.) S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation - Selection of Comparables - (S. 144C) Unless the functional profiles of assessee company are examined minutely and detail. It is very difficult to say that the assessee is engaged in the business of software development as decided by TPO and not in the business of rendering support in respect of engineering designs and drawings as claimed by the assessee. Further DRP has neither examined assessee’s contention nor passed speaking and reasoned order. Matter is remanded back to the file of the AO / TPO for fresh adjudication.(A. Y. 2006-07) Bechtel India (P) Ltd. vs. Dy. CIT (2011) 136 TTJ 212/50 DTR 206 (Delhi)(Trib.) S. 92C : Avoidance of Tax - Transfer Pricing – Computation - Arm’s Length Price - International Taxation. Where the finding of CIT(A) is based on net profit margin of the assessee company worked out by him at 6.97% on the basis of operating profits/sales, which was within +/- 5 % range of ALP, there is no reason to interfere in the order of CIT(A).( A. Y. 2002-03 to 2004-05) Osram India (P) Ltd. vs. Dy. CIT (2011) 51 DTR 297 (Delhi)(Trib.) S. 92C : Avoidance of Tax - Transfer Pricing – External comparables. Assessee company having provided same software related services to AE’s and unrelated parties, it was not required to make segmental reporting or disclose separate financial information in respect of transactions entered into with AE’s and non AEs as per the guidelines provided under AS-17 and therefore, ALP in respect of international transactions undertaken by the assessee with AEs was rightly determined on the basis of international comparison of profit earned from the international transactions with AEs and profit earned from international transactions with unrelated parties and not by recourse to external comparables.(A. Y. 2006-07) Birlasoft (India) Ltd. vs. Dy. CIT (2011) 51 DTR 353/ 136 TTJ 505 (Delhi)(Trib.) S. 92C : Avoidance of Taxation - Transfer Pricing – Computation - Arm’s Length Price – Jurisdiction - International Taxation. Though the deputation of three employees by the assessee to its US subsidiary without consideration is covered by the definition of “international transaction” under section 92B (1), it was not necessary for the


Assessing Officer to determine the ALP of the said transaction as there would be erosion of tax base of India if the assessee charges the cost of deputation of employees in as much as assessee is remunerating the subsidiary on the cost–plus basis for the services and entire revenue accrues to the assessee. Jurisdiction of TPO is restricted to the transactions referred by the Assessing Officer under section 92CA(1) and therefore, TPO cannot determine the ALP in relation to an international transaction not referred to him by the Assessing Officer under section 92CA(1), further, since the conditions laid down in section 92C(3) were not satisfied the impugned addition cannot also be sustained on the premise that the Assessing Officer as determined the ALP on the basis of material or information or document in his possession.(A. Y. 2002-03) 3i Infotech Ltd. vs. Dy. CIT (2011) 51 DTR 385 / 136 TTJ 641/ 129 ITD 422 (Mum) (Trib.) S. 92C : Avoidance of Taxation - Transfer Pricing – Computation - Arm’s Length Price. Assessee company entered into international transactions with Byk which comprised of export of intermediates and clinical trial services. Assessing Officer made reference to TPO in order to find out whether international transactions were at arm’s length price or not. In regard to clinical trial services performed by assessee–company for Byk, TPO after examining various aspects, concluded that mark up of 5% over cost was not as per arm’s length price and same should be 17.4% on basis of comparable cost. On appeal Commissioner (Appeals) concluded that 5% mark up as returned by assessee was fully justified. On appeal by revenue the Tribunal noticed that in course of providing clinical trial service, major part of research activities was carried out by “Byk” itself and function of assessee was only to collect data from various hospitals and transmit same to “Byk” for which it was suitably reimbursed by mark–up of 5% over cost. It was also noted that profits of assessee were exempt under section 10B and thus, company was in no way benefited by charging 5% mark–up as against 17.4% fixed by TPO. The Tribunal held that on facts there was no infirmity in impugned order passed by Commissioner (Appeals) and the same was upheld.(A. Y. 2002-03 to 2003-04) ITO vs. Zydus Altanta Health Care (P) Ltd. (2011) 44 SOT 132 (Mum.)(Trib) S. 92C : Avoidance of Tax - Transfer Pricing - Bad Debts Written off - International Transactions - (S. 10B). Bad debts written off cannot be factor to determine the arm’s length price of any international transaction. The Transfer Pricing Officer had exceeded his limits in following a method not authorized under the Act or Rules.(A. Y. 2002-03-04) C. A. Computer Associates P. Ltd. vs. Dy. CIT (2011) 8 ITR 142 (Mum.)(Trib.) S. 92C : Avoidance of Tax – Transfer Pricing - Arm’s Length Price - Report of the TPO is not binding on the Assessing Officer. Proviso substituted w.e.f. 1st October 2009, operate only form Asst. Year 2009-10. The report of the TPO is not binding on the Assessing Officer. Assessing Officer can refer the matter to the TPO for determination ALP of an International taxation transaction or he may determine it on his own. AO can determine the price of imports of his own. New proviso to section 92C(2) came in to operation from asst year 2009-10 and therefore, did not apply to asst year 2003-04, further, where only one price is determined in the matter of ALP, the option of five percent under proviso to section 92C(2) is not available to the assessee. (A. Y. 2003-04) ACIT vs. UE Trade Corporation (India) Ltd. (2011) 136 TTJ 297/50 DTR 379/45 SOT 197 (Del.)(Trib) S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation - Arm’s Length Price – [Rule 10B(1)(e)]


Under Chapter X of the Income Tax Act, 1961, the determination of the arm’s length price of an international transaction has to be only at the transaction level or at a class of transactions. The law does not permit determination of the arm’s length price of international transactions, by comparing margins at entry level or by taking overall industry level averages. The matter was set aside.(A. Y. 2002-03) Dy. CIT vs. Ankit Diamonds (2011) 8 ITR 487 (Mum.)(Trib.) S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation - If ALP determined by arithmetical mean, 5% deduction allowable. In determining the arms’ length price for transfer pricing purposes in respect of international transactions relating to ‘procurement Support Services’, it was held that pursuant to the First proviso to section 92C(2) (pre-amendment by Finance (No. 2) Act, 2009 w.e.f. 1.10.09) which provides that “where more than one price is determined by the most appropriate method, the arms length price shall be taken to be the arithmetical mean of such prices or at the option of the assessee, a price which may vary from the arithmetical mean of an amount not exceeding five per cent of such arithmetical mean” it is clear that the assessee has an option when there is arithmetical mean involved while computing the ‘arm’s length price’ and it happens only if more than one price is determined by the most appropriate method. The First Proviso becomes operational where more than one comparable price is determined. The assessee at his option can make claim of deduction out of the arithmetic mean not exceeding 5%. All the judicial pronouncements (SAP Labs 6 ITR 81 (Bang.)(Trib.), Sony 315 ITR (AT) 150 (Del.), UE Trade Corp (Del.), Essar Steel (Vizag.) & Perot Systems 130 TTJ 685 (Del.) are uniform in making the proposition that where arithmetic mean is involved, the assessee obtains the eligibility for claim of deduction out of such arithmetic mean. Cummins India Limited vs. Dy. CIT (ITAT Pune) Source: www.itatonline.org(Trib) S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation - Prior Years’ data cannot ordinarily be relied upon to justify ALP. Non-operating income & expenditure should be excluded while comparing. It was held that the assessee has to adopt the data available for the TP study at the time of filing of the return. The OECD guidelines are not of binding nature and even the Proviso to Rule 10B(4) provides that any subsequent year data cannot be considered. The contemporaneous data of relevant financial year is to be used for making the comparable analysis for arriving at the ALP unless it is proved otherwise. For arriving at the net margin of operating income, only operating income and operating expenses for the relevant business activity of the assessee has to be taken into consideration. Other income, such as dividend income, profit on sale of assets, donations as well as non-operating expenses which are included in the operating incomes of other comparable companies should be excluded as it effects the net margin of the operating profits of the comparables. Working capital adjustments also have to be considered while arriving at the operating net margins. Also the assessee is entitled to a standard deduction of 5% as provided under proviso to section 92C(2) before making adjustments of the transfer price. (Schefenacker Motherson 123 TTJ 509 (Del.) and SAP Labs 6 ITR 81 (Bang.)(Trib.) followed) TNT India Limited vs. ACIT (Bang.)(Trib.) Source: www.itatonline.org(Trib) S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation. - For TNMM, interest on surplus and abnormal costs to be excluded Where interest on surplus funds is assessed as “business income”, it has to be excluded in computing the ‘operating profits’ because if it is included, one is computing the “return on investment” which is an inappropriate profit level indicator for a service provider. As the PLI is the Operating Margin on Cost, neither the interest income nor interest expenses is a relevant factor. The essential element is the cost incurred for the operating activity which has to be taken into account. In computing the ALP, abnormal


expenses which are not of a routine nature as well as those of a personal nature have to be excluded. The assessee has to demonstrate “exact details, exhibiting the risk born by the comparable vis-à-vis the risk in running the assessee’s business” (Sony India 114 ITD 448 (Del) where a 20% adjustment was permitted distinguished). The benefit of +/- 5% adjustment is not a ‘standard universal deduction’. This option is available only when assessee is computing the ALP and not when the AO/TPO is computing the ALP. Marubeni India Pvt. Ltd. vs. ACIT (ITAT Delhi)(Trib) Source : www.itatonline.org S. 92(C) : Avoidance of Tax - Transfer Pricing – Method - CUP Method –TNMM The assessee sold automobile wipers to its associated enterprise and claimed that as per the “Comparable Uncontrolled Price” (CUP) method, the transactions were at arms’ length basis. The TPO rejected the CUP method on the basis that the comparability of controlled and uncontrolled transactions was not established with certain degree of reasonableness and accuracy and that the conditions prevailing in the market were not established to be identical. The TPO adopted the TNMM and directed that an adjustment be made by adopting the mean profit of comparables. This was confirmed by the DRP. On appeal, HELD:

(i) Under section 92C read with Rule 10B, the most appropriate method has to be applied for determination of arm’s length price. In principle, the CUP method (the traditional transaction method) is preferable to the other methods because all other things being equal, the CUP and traditional transactional methods lead to more reliable results vis-à-vis the results obtained by applying transaction profit method (UCB India 121 ITD 131 and Serdia Pharmaceuticals followed);

(ii) For the CUP method, the focus is on the market in which the products are sold by the assessee and any unique feature of the market in which assessee is situated is of no importance in relative terms. As the goods were sold by the assessee as well as the competitive Chinese manufacturers in the USA market, the market conditions in the territory of sale were the same. The buyer in the USA market will be more concerned with quality and price rather than economic conditions prevailing in China and India (SNF (Australia) Pty. Ltd. vs. COT (2010) FCA 635 referred to);

(iii) As regards the comparability of the products the assessee has to provide the sale data of the AE in terms of sale price of Chinese and assessee’s goods in the USA market and quantitative data of purchase of Chinese and Indian wipers by the AE and the terms of payment and the Assessing Officer shall compute the arm’s length price using this data on CUP method.

Clear Plus India Pvt. Ltd. vs. Dy. CIT (ITAT - Delhi)(Trib) Source: www.itatonline.org S. 92C : Avoidance of Taxation - Transfer Pricing – Loss-making and super-profit companies are not comparable - International Taxation. When loss making companies have been taken out from the list of comparables by the TPO, Zenith Infotech Ltd. which showed super profits should also be excluded. The fact that assessee has himself included in the list of comparables initially, cannot act as estoppel, particularly in light of the fact that the Assessing Officer had only chosen the companies which are showing profits and had rejected the other companies which showed loss (Quark System vs. Dy. CIT 38 SOT 307 (SB) followed). (A. Y. 2006-07) Sapient Corporation Pvt. Ltd. vs. Dy. CIT (Delhi) (Trib.) Source: www.itatonline.org S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation. Low T/O companies are not comparable. Only operational profits to be considered for comparison (i) The assessee’s argument that comparables with a turnover less than 20% of the assessee’s turnover should be considered is not acceptable because it is a universal fact that there are lot of differences between large businesses and small businesses operating in the same field. In the case of small business, economies of scale are not available and they are generally less profitable. The fact that such companies


were considered comparable in an earlier year is not conclusive for want of facts of that year and also because there is no res judicata; (ii) The argument that segmental results of a company engaged in diverse activities should be considered is also not acceptable because it is a common experience that in many such results certain expenditures, particularly relating to interest and head office, are generally not allocated. When direct comparables are available, there is no need to consider segmented results; (iii) In principle, should be only the operating profit of the comparables considered. Items like interest income, rent, dividend, penalty collected, rent deposits returned back, foreign exchange fluctuations and profit on sale of assets do not form part of the operational income because these items have nothing to do with the main operations of the assessee. Insurance charges would depend on the nature of insurance charges. If the insurance charges were on account of loss of some parcel or courier against which courier has made a payment of compensation then such charges would constitute operational income. (A. Y. 2006-07). See Also Adobe Systems India (ITAT Delhi) (super-normal profit companies to be excluded) & Marubeni India (ITAT Delhi) (interest on surplus & abnormal costs to be excluded) DHL Express (India) Pvt. Ltd. vs. ACIT (Mum.)(Trib.) Source: www.itatonline.org S. 92CA : Avoidance of Tax - Transfer Pricing – Computation – Arm’s Length Price - Reimbursement of Expenses - International Taxation Payment received by the assessee company from its AE / parent company was in the nature of reimbursement of incentives paid to the employees of the assessee and it did not have any element of income and therefore, no adjustment could be made in the computation of ALP by notionally imputing a mark up on that amount, more so when no such adjustment has been made in the earlier or subsequent years wherein also similar incentives were paid and the facts were identical.(A. Y. 2006-07) Aricent Technologies (Holdings) Ltd. vs. Dy. CIT (2011) 51 DTR 17/137 TTJ 209 (Delhi)(Trib.) S. 92CA : Transfer Pricing – Computation - Arm’s Length Price -International Taxation – Adjustment. On a reference under section 92CA(1), TPO can suggest adjustment only in respect of the international transactions entered in to by the assessee with AEs which are referred to him for computation of ALP by the Assessing Officer. TPO cannot suo motu take cognizance of any other international transaction for suggesting adjustment in the ALP. (A. Y. 2006-07) Amadeus India (P) Ltd. vs. ACIT (2011) 52 DTR 378 (Delhi)(Trib.) S. 92CA : Transfer Pricing – Computation - Arm’s Length Price –Trader - Resale Method. Assessee engaged in business of import of rough diamonds and selling same in local markets without value addition to goods, resale price method is most appropriate method for determining ALP with respect to AE transaction. If comparables cited by assessee were not found appropriate, fresh comparables could be searched, but method adopted was not to be rejected. Matter was set aside to Assessing Officer for disposal afresh after finding appropriate comparable and adopting resale price method. (A. Y. 2004-05) Star Diamond Group vs. Dy. CIT (2011) 44 SOT 532 (Mum.)(Trib.) S. 92CA : Avoidance of Tax – Transfer Pricing – Collaboration Agreement – Capital or Revenue – International Taxation. TPO is not concerned, nor is he competent to decide as to whether the payment under collaboration agreement was capital or revenue and on the facts and circumstances, reference to the TPO for determining 'arm's length price' may not be necessary. Honda Siel Cars India Ltd. vs. ACIT (2011) 129 ITD 200 (Delhi)(Trib.)


S. 92(C)(2) : Avoidance of Tax - Transfer Pricing – Computation - Arm’s Length Price - International Taxation Where only one price has been determined under “most appropriate method” for evaluation of ALP, the question of application of proviso to section 92C(2) does not arise, therefore, assessee was not entitled to the concession of 5 percent as prescribed in the said proviso.(A. Y. 2004-05) ACIT vs. Essar Steel Ltd. (2011) 51 DTR 177 / 136 TTJ 470 (Visakha)(Trib.) S. 94(7) : Avoidance of Tax - Transaction in Securities - Capital Loss - Redemption of Units. When units have been redeemed by assessee, same would constitute transfer for the purpose of section 94(7) and short term capital loss to the extent of dividend is not allowable. CIT(A) was justified in applying the provisions of section 94(7) and setting off dividend income of ` 97,90 628 of Asst Year 2002-03 against the short term capital loss of ` 1,06,03,428 of the Asst. Year 2003-04. Administrator of Estate of Late E. F. Dinshaw vs. ITO (2011) 52 DTR 23 /128 ITD365 (Mum.)(Trib.) S. 115A : Capital Gains - Sale of Shares in Indian Company – DTAA - India-Mauritius - International Taxation [S. 90, Art. 13(4)] Article 13(4) of DTAA confers the power of taxation of capital gains derived by a resident of a contracting State from the alienation of specified property only in the State of residence, therefore, the applicant, a Mauritian company, is not liable to pay tax in India on the capital gains arising on transfer of shares of an Indian company to another Mauritius based company. D. B. Zwirn Mauritius Trading No. 3 Ltd., In Re (2011) 333ITR 32/ 240 CTR 1 (AAR) S. 115A : Capital Gains - Transfer of Shares of Indian Company to Swiss Companies – DTAA - India-Netherland [S. 90, 92, Art. 13(5)] Capital Gains earned by a Dutch company, on transfer of shares of an Indian company to Swiss companies are covered by Art. 13(5) of the Indo-Netherlands DTAA and therefore, it is taxable only in Netherlands and not in India hence transfer pricing provisions are not attracted as the transaction of shares is between non resident companies. Vnu International B. V. In Re (2011) 240 CTR 12 /198 Taxman 454(AAR) S. 115J : Company - Book Profit - Zero Tax Companies For the Asst. Year 1988-89, there was no provision in section 115J to compute book profit as per account prepared in a particular manner and therefore, it was open to assessee to compute book profit either on basis of profit and loss account prepared under provisions of part II and part III of schedule VI of Companies Act, or as per annual accounts placed before AGM. However, after insertion of sub-section (1A) in section 115J from assessment year 1990-91, accounts for the purpose of book profit have to be prepared as per Part II and Part III of Schedule VI of Companies Act.(A. Y. 1988-89) Dy. CIT vs. Anagram Finance Ltd. (2011) 43 SOT 433 (Mum.)(Trib) S. 115JA : Company - Book Profits – Export - Set off of carried forward business loss and unabsorbed business loss - Negative Income - (S. 80AB, 80AB(5), 80HHC, 115JB) The Court held that the assessee is entitled to deduction under section 80HHC computed in accordance with sub-section (3)(3A) of 80HHC because assessment under section 115JB is only an alternative scheme of assessment and what is clear from clause (iv) of the Explanation there to is that even in the alternative scheme of assessment under section 115JB, the assessee is entitled to deduction of export profit under section 80HHC. In other words, the export profit eligible for deduction under section 80HHC is allowable under both schemes of assessment. The restriction contained in section 80AB or section


80B(5) cannot be applied in as much as carried forward business loss or depreciation should not be first set off leaving the gross total income at nil, which would disentitle the assessee for deduction under other provisions of Chapter VIA-C, which includes section 80HHC also. There is no provision in section 80HHC to determine the export profit with reference the profit and loss account maintained under companies Act, Therefore, the assessee would be entitled to deduction of export profit under section 80HHC and the relief is to be granted in terms of sub-section (3) and 3(A) of that section. CIT vs. Packworth Udyog Ltd. (2011) 331 ITR 416 (Ker.)(FB) / 51 DTR 251/198 Taxman 10/239 CTR 24 (Ker)(FB)/ Kerala Chemicals and Proteins Ltd. (2011) 331 ITR 416/239 CTR24 (Ker.)(FB) / 51 DTR 251/198 Taxman 10 (Ker)(FB)/ G.T.N. Industries Ltd. (2011) 331 ITR 416/239 CTR 24 /198 Taxman 10(Ker.)(FB) /331 ITR 416/ 51 DTR 251/231 CTR 24/198 Taxman 10 (Ker)(FB)(High Court) S. 115JA : Company - Book Profits - Advance Tax - Interest is payable on failure to pay advance tax in respect of tax payable under section 115JA - (S. 115JB, 234B) Section 115J / 115JA are special provisions. For purposes of advance tax the evaluation of current income and the determination of the assessed income had to be made in terms of the statutory scheme comprising section 115J/115JA. Hence, levying of interest was inescapable. The assessee was bound to pay advance tax under the scheme of the Act. Section 234B is clear that it applies to all companies. There is no exclusion of section 115J/115JA in the levy of interest under section 234B (Kwality Biscuits Ltd vs. CIT 243 ITR 519 (Kar.) (SLP dismissed in 284 ITR 434) considered Jt. CIT vs. Rolta India Ltd. (2011) 237 CTR 329 / 49 DTR 346/330 ITR 470/196 Taxman 594/ 2 SCC 408 (SC) S. 115JA : Book Profits - Minimum Alternative Tax - MAT Credit to be set off before computing Advance-tax shortfall and liability for section 234B, 234C interest - (S. 234B, 234C) The scheme of section 115JA(1) and 115JAA shows that right to set-off the tax credit follows as a matter of course once the conditions of section 115JAA are fulfilled. The grant of credit is not dependent upon determination by the Assessing Officer except that the ultimate amount of tax credit to be allowed depends upon the determination of total income for the first assessment year. Thus, the assessee is entitled to take into account the set off while estimating its liability to pay advance tax. The amendment to Explanation 1 to section 234B by FA 2006 w.e.f. 1.4.2007 to provide that MAT credit under section 115JAA shall be excluded while calculating advance-tax liability is to remove the immense hardship that would result if this was not done; The fact that the Form & Rules provided for set off of MAT credit balance after computation of interest under section 234B is irrelevant because it is directly contrary to a plain reading of section 115JAA(4).(A. Y. 1998-99 to 2000-2001) CIT vs. Tulsyan NEC Ltd. (2011) 330 ITR 226 / 49 DTR 129 (SC) S. 115JB : Company - Book Profits – Computation - Reduction of net profit by amount withdrawn from revaluation reserve - Amount withdrawn from revaluation reserve & credited to P&L A/c. cannot be reduced from book profit even if in year of creation of reserve, the P&L A/c was not debited Where the assessee had revalued its fixed assets in the year and in the relevant year an amount representing differential depreciation was transferred out of the said revaluation reserve and credited to the P&L account the amount transferred from the revaluation reserve to the P&L account could not be reduced for computation of book profits in the earlier year when it was created.(A. Y. 2001-02) Indo Rama Synthetics (I) Ltd. vs. CIT (2011) 330 ITR 363 / 237 CTR 217 / 49 DTR 241/ 2 SCC 1168 (SC)


S. 115JB : Company – Book Profit – Provision for Gratuity. Provision for approved gratuity is ascertained liability and cannot be added back while computing the book profit under section 115JB. (A. Y. 2004-05) ITO vs. Jones Lang Lasalle Property Consultants (India) (P) Ltd. (2011) 135 TTJ 94 (Delhi)(Trib.) S. 115WB : Fringe Benefits - Rent for Car Parking Area – Revision - (S. 263) In the present case it was held that the essential facilities attached to a rented building had to be treated as part of building itself and therefore, rent or license fee paid for such facilities should be treated as forming part of rent. It was further held that in view of the above, the rent paid for car parking area did not fall under category of ‘running, maintenance and repair expenses of car’ and thus assessee was not liable to pay fringe benefit tax on the said amount.(A. Y. 2006-07) Hewlett Packard India Sales (P.) Ltd. vs. CIT (2011) 43 SOT 124 (Bang.)(Trib) S. 132 : Search and Seizure - Warrant of Authorisation - Joint Names - Block Assessment - (S. 158BC) A warrant of authorization must be issued individually. If it is not issued individually, then the assessment cannot be made in individual capacity. Warrant of authorization issued in joint names of husband and wife. Individual assessment on wife alone not valid.(A. Y. 1995 to 2001) CIT vs. Vandana Verma (Smt.) 330 ITR 533/ (2009)227 CTR 388/(2009) 31 DTR 214/(2010) 186 Tax 88 (All)(High Court) S. 132 : Search and Seizure - Warrant of Authorisation - Common Search Warrant - Validity Common search warrant specifying names and addresses of persons residing at different places, held to be valid.(A. Y. 2005-06) Embassy Classic P. Ltd & Another vs. ACIT (2011) 7 ITR 287 (Bang.)(Trib.) S. 132 : Search and Seizure – Warrant of Authorisation – Common Search Warrant – Validity. Common search warrant specifying names and addresses of persons residing at different places, held to be valid. (A. Y. 2005-06) Embassy Classic P. Ltd. & Another vs. ACIT (2011) 7 ITR 287 (Bang.)(Trib.) S. 132(1) : Search and Seizure – Authorisation - Warrant in joint names -Validity What is required to be stated in search warrant is precise details about the assessee and the persons to be searched which contained in the warrants issued in these cases. The warrants authorizing search of a group of concerns by a warrant issued under section 132 is valid. Jose Cyriac vs. CIT (2011) 238 CTR 207 / 50 DTR 292 (Ker.)(High Court) S. 133A : Survey – Statement – Disclosure – Retraction - Addition Addition cannot be made solely on the basis of statement recorded during survey in absence of any corroborative evidence and supporting material in case wherein it has been retracted. ACIT vs. Prabhu Dayal Kanojia (2011) Tax World Vol. XLV Part-1. Page 23. (January, 11)(Trib) S. 133A : Survey - Unexplained Investment - Reports of Facts - Explanation and Reconciliation - (S. 69) The reports of facts collected at time of survey are always subject to explanation and reconciliation by assessee which can be explained either at the time of survey or after survey before Assessing Officer at the time of assessment, therefore, merely on the basis of that some differences were found at the time of survey in stock addition cannot be made automatic.(A. Y. 2005-06)


Chawala Brothers (P) Ltd. vs. ACIT (2011) 43 SOT 651 (Mum.)(Trib.) S. 133A : Survey – Statement – Disclosure – Retraction – Addition. Addition cannot be made solely on the basis of statement recorded during survey in absence of any corroborative evidence and supporting material in case wherein it has been retracted. ACIT vs. Prabhu Dayal Kanojia (2011) Tax World Vol. XLV Part-1 Page 23. (January, 11)(Trib.) S. 139 : Return - Revised Return - Amalgamation of Companies – BIFR - Unabsorbed Business Loss - Sick Company - The Sick Industrial Companies (Special Provisions) Act, 1985 - (S. 72A, 80) BIFR can specify date from which its scheme becomes effective. Amalgamation in January 1994, Scheme sanctioned by BIFR with effect from February 1, 1992. The assessee filed revised return on 31-3-1994, claiming unabsorbed business loss of sick company. Return held to be valid. Special provisions of the Act has overriding effect over Income Tax Act.(A. Y. 1992-93) CIT vs. J. K. Corporation Ltd. (2011) 331 ITR 303/239 CTR 196 (Cal.)(High Court) S. 139(1) : Return - Foreign Company – DTAA - India-Netherland A foreign company, which is liable to be taxed in India by virtue of section 5(2) is required to file its return under section 139 notwithstanding that it is not liable to pay tax in India due to provisions of DTAA. Vnu International B. V. In Re (2011) 240 CTR 12 (AAR) S. 140 : Return - Not signed by Managing Director - Curable Defects - (S. 292B) Return of Company not signed by Managing Director but by person authorized by Board resolution, defects curable under section 292B.(A. Y. 2001-02 and 2002-03) Hind Samachar Ltd. vs. UOI (2011) 330 ITR 266/(2008) 217 CTR 637/ 169 Tax 302/5 DTR 88 (P&H)(High Court) S. 142(2A) : Assessment – Special Audit – No evidence that Assessing Officer had found accounts complex – Order for Special Audit not valid. No record that the Assessing Officer had considered the accounts and found them to be complex, and in the absence of recording with regards to the complexities of accounts on which he had formed an opinion with regards to the complexities of accounts order passed under section 142(2A) for special audit was held to be not valid. (A. Y. 2005-06) Farmsons Fashion Pvt. Ltd. vs. Dy. CIT (2011) 332 ITR 115 (Guj.)(High Court) S. 143(2) : Assessment – Validity – Service of Notice. In the absence of service of notice under section 143(2) or if the notice is served after the statutory time limit under section 143(2) then the assessment in such circumstances is invalid. (A. Y. 2004-05 to 2006-07) CIT vs. Mayawati (Ms.) (2011) 135 TTJ 167 (Delhi)(Trib.) Kiran Bansal (Mrs.) vs. ACIT (2011) 135 TTJ 676 (Delhi)(Trib.) S. 143(3) : Assessment - Ad hoc Disallowance - Business Expenditure Ad hoc disallowance without any basis out of carriage, labour and sealing expenses cannot be sustained particularly when the Tribunal has allowed similar expenses in totality in an earlier year.(A. Y. 1992-93) Friends Clearing Agency (P) Ltd. vs. CIT (2011) 237 CTR 464/ 49 DTR 297 (Delhi)(High Court) S. 143(3) : Assessment – Additions – Opportunity of Cross Examination – Natural Justice.


Where addition had been made on the basis of a statement of party, behind the assessee’s back and without providing any opportunity to cross-examine the party despite being asked for by the assessee, it was held that the matter was to be remanded back to the Assessing Officer for disposal afresh. (A. Y. 1998-99) Ashok Lalwani vs. ITO (2011) 196 Taxman 82 (Delhi)(Mag.)(High Court) S. 143(3) : Assessment – Notice by Affixture – Assessment held to be invalid. Where notice for assessment had been given only a week prior to the expiry of the limitation period by way of affixture and neither was any other mode of service adopted nor was it shown that the assessee had refused to accept service, it was held that the notice was invalid and consequently the assessment was struck down. (A. Y. 1969-70) CIT vs. Kishan Chand (2011) 196 Taxman 88 (P&H)(Mag.)(High Court) S. 143(3) : Assessment – Addition - Adhoc Addition - Self made vouchers Adhoc disallowance cannot be made simply holding that self made vouchers cannot be taken as correct and proved, unless some of such vouchers are proved as bogus or fake. ITO vs. Bajrang Trading Company (2011) Tax World Vol. XLV Part-1 Page 33 (January, 11)(Trib) S. 144C : Dispute Resolution Panel - Transfer Pricing - Speaking Order Where the Dispute Resolution Panel has brushed a side assessee’s submissions without even a whisper of the assessee’s objections against draft assessment order, and passed a laconic non-speaking order, the matter is remitted to the files of Dispute Resolution Panel for speaking order.(A. Y. 2006-07) GAP International Sourcing India (P) Ltd. vs. Dy. CIT (2011) 49 DTR 313/ 9 ITR 129 (Trib.)(Delhi) S. 144C : Dispute Resolution Panel - Act to expectations & not have perfunctory approach The DRP, is an authority created under a statute and conferred with the powers, which has the obligation to act as a body living to the expectations which the law mandates. It was held that section 144C empowers the Dispute Resolution Panel (DRP) to issue directions to the Assessing Officer and cannot be treated as totally redundant or absolutely inefficacious remedy to the assessee. Thus, no assessee can have any kind of apprehension that the approach to the DRP is perfunctory. Ericsson AB vs. ADIT (Delhi High Court) Source: www.itatonline.org S. 144C : Dispute Resolution Panel - Transfer Pricing - Order cannot be passed if no transfer pricing adjustments made by TPO - (S. 92CA) Where no transfer pricing adjustments had been made by the TPO, the assessee was not an “eligible assessee” and the Assessing Officer had no jurisdiction to pass the draft assessment order.(A. Y. 2006-07) Pankaj Extraction Ltd. vs. ACIT ( 2011) 198 Taxman 6(Gujarat High Court) S. 145 : Method of Accounting – Accounting Standard – Advance received in current year for service to be rendered is subsequent year – Income accrued in subsequent year. Accounting standard provides that income accrues only if the corresponding service has to be rendered during the same relevant year. In an event where amount received in advance for a service is to be performed in subsequent year, the advance could not be taken as income in the year of receipt. (A. Y. 1992-98) CIT vs. Dinesh Kumar Goel (2011) 331 ITR 10 (Delhi)(High Court) S. 145 : Method of Accounts - Valuation of Stock - Completion of Contract Method - Work in progress


Assessee having followed percentage completion method consistently which has been accepted in earlier as well as in subsequent years valuation of closing work in progress made by it at historical cost cannot be disturbed particularly when the categorical findings of the CIT(A) highlighting that the assessee has not deviated from the guidelines issued by the ICICI under AS-7 has not been challenged by the revenue. Addition made by the Assessing Officer by reworking the closing work in progress at current rates rightly deleted.(A. Y. 1998-1999, 1999-2000) ACIT vs. Dharti Estate (2011) 51 DTR 28 / 129 ITD 1 / 136 TTJ 263 (Mum.)(Trib.)(TM) S. 147 : Reassessment – Scope - Items unconnected with escapement for which notice was issued - (S. 148) If in the course of reassessment, it comes to the notice of the Assessing Officer that any item or items other than the item of escaped income for which original assessment was reopened, have also escaped assessment, he is bound to assess such items of income also in the course of reassessment.(A. Y. 2001 to 2003) CIT vs. Best Wood Industries & Saw Mills (2011) 237 CTR 404 / 331 ITR 63 / 50 DTR 143 (Ker.)(FB)(High Court) S. 147 : Reassessment - Full and True Disclosure - After Four Years –Deduction - Captive Power Plant - Expansion of Project - (S. 80IA, 80IB) Assessee having claimed deduction under section 80IA, in respect of the profits made by its captive power plant disclosing the computation of profits and explaining the break up thereof and disclosed the basis on which it was claimed deduction under section 80IB, in respect of the refinery expansion project and lube unit, it cannot be said that there was a failure on the part of the assessee to disclose fully all material facts necessary for the assessment and therefore reopening of assessment beyond the period of four years from the end of the relevant year was not justified.(A. Y. 2002-2003) Hindustan Petroleum Corporation Ltd. vs. Dy. CIT (2011) 238 CTR 28/(2010) 328 ITR 534/(2010)192 Tax 178/(2010) 42 DTR 262 (Bom.)(High Court) S. 147 : Reassessment - Full and true disclosure - After four years - Change of Opinion Assessing Officer having reopened the assessment on the sole basis that the system of accounting adopted by the assessee which has been accepted while framing the original assessment is not appropriate, without making any allegation that there was non–disclosure of material facts by the assessee at that time of original assessment, It is a case of mere change of opinion and therefore, reopening of assessment after expiry of four years from the end of the relevant assessment years was not valid.(A. Y. 1995-96 and 1997-98) CIT vs. Manish Ajmera (2011) 51 DTR 117 (Raj.)(High Court) S. 147 : Reassessment - Reopening For A.Y. 2000-01 valid despite Proviso to section 14A - Material facts must be disclosed during assessment proceedings The Proviso to section 14A bars reassessment but not original assessment on the basis of the retrospective amendment. The object and purpose of the Proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases which have attained finality. It is the duty of the assessee to bring to the notice of the Assessing Officer particular items in the books of account or portions of documents which are relevant. Material facts are those facts which if taken into accounts they would have an adverse affect on assessee by the higher assessment of income than the one actually made. (Consolidated Photo 281 ITR 394 (Del.) followed); Accordingly, the fact that there were section 154 proceedings is not a bar to the section 147 proceedings. It was further held that the scope of section 154 & 147 / 148 are different and it cannot be said as a


general principle that if notice under section 154 is issued, then notice under section 147 / 148 is barred or prohibited (Hindustan Unilever Ltd. 325 ITR 102 (Bom.) distinguished).(A. Y. 2000-2001) Honda Siel Power Products Ltd. vs. Dy. CIT( 2011) 197 Taxman415 (Delhi). (Delhi High Court) S. 147 : Reassessment - Reason to Believe - Subsequent Supreme Court Decision – [S. 10(29)] Judgment of the Supreme Court holding that exemption under section 10(29) is available only to that part of income which is derived from letting of godowns or warehouses and not the income derived from other sources constituted a valid basis for reopening the assessments. The Tribunal having not touched upon the question as to whether or not this very issue was discussed in the original assessment to the assessee that it was a case of change of opinion, order of Tribunal is set aside and the matter is remitted back to the Tribunal for fresh consideration only on this aspect.(A. Y. 1995-96 and 1997-98) Central Warehousing Corporation vs. ACIT (2011) 51 DTR 198 (Delhi High Court) S. 147 : Reassessment - Beyond four years - No failure on the part of assessee - Bad Debts. Allowance of bad debt was specifically raised in the original assessment proceedings and on receiving explanation from assessee the claim of assessee was allowed, reassessment held to be invalid.(A. Y. 2004-05) Yash Raj Films P. Ltd. vs. ACIT (2011) 332 ITR 428 (Bom.)(High Court) S. 147 : Reassessment - Compensation on Acquisition of Land – Enhancement by Supreme Court. Initiation of the reassessment proceedings in respect of escaped income due to acquisition of petitioner’s land was not vitiated as Assessing Officer had reasons to believe that the income chargeable to tax had escaped assessment.(A. Y. 1989-90 to 1994-1995 and 1998-99) Maya Rastogi (Smt) vs. CIT (2011) 52 DTR 237 (All)(High Court) S. 147 : Reassessment - Change of Opinion - Income subject matter of block assessment - (S. 158BC) Once the Assessing Officer proceeds to make block assessment under section 158BC based on materials gathered during search under section 132, he cannot proceed to make reassessment under section 147 on the basis of the same material, after block assessment is cancelled by the first appellate authority. Assessing Officer has no jurisdiction to assess the very same amount, which was considered and given up while making block assessment.(A. Y. 1992-93) CIT vs. C. Sivanandan (2011) 52 DTR 428 (Ker.)(High Court) S. 147 : Reassessment – Change of Opinion – Investment – Business Income. Where assessment was completed holding that the income from conversion of equity share from stock-in-trade to investment was business income. Reassessment proceedings initiated merely by taking view that income should taxed under the head short term capital gain amounted to a mere change of opinion as such liable to be quashed. (A. Y. 2005-06) Ritu Investment P. Ltd. vs. CIT (2011) 51 DTR 162 (Del.)(High Court) S. 147 : Reassessment – Search and Seizure – Same Material – Block Assessment held to be invalid. (S. 158BC) Once materials are gathered during the search proceedings under section 132 of the Act it is up to the Assessing Officer to make either block assessment under sections 158BC or assessment under section 147 of the Act whichever he finds appropriate. However, once the assessing officer proceeds to make assessment under section 158BC which is cancelled by the appellate authority. The Assessing Officer cannot proceed to make assessment under section 147 of the Act on the basis of the same material. (A. Y.


1992-93) CIT vs. C. Sivanandan (2011) 52 DTR 428 (Ker.)(High Court) S. 147 : Reassessment – Change of Opinion. Change of opinion leading to ‘reason to believe’ – opinion formed on a claim at the time of framing original assessment cannot be changed subsequently on the same set of materials available in record. In the absence of any substantive additional materials, it will amount to change of opinion; therefore, re-opening of assessment is bad-in-law. (A. Y. 1995-96) Gujarat Power Corporation Ltd. vs. Dy. CIT (2011) 238 CTR 91 (Guj.)(High Court) S. 147 : Reassessment – Compensation on Acquisition of Land – Enhancement by Supreme Court. Initiation of the reassessment proceedings in respect of escaped income due to acquisition of petitioner’s land was not vitiated as Assessing Officer had reasons to believe that the income chargeable to tax had escaped assessment. (1989-90 to 1994-95 & 1998-99) Maya Rastogi (Smt) vs. CIT (2011) 52 DTR 237 (All)(High Court) S. 147 : Reassessment – Change of Opinion – Income subject matter of block assessment. (S. 158BC) Once the Assessing Officer proceeds to make block assessment under section 158BC based on materials gathered during search under section 132, he cannot proceed to make reassessment under section 147 on the basis of the same material, after block assessment is cancelled by the first Appellate Authority. Assessing Officer has no jurisdiction to assess the very same amount, which was considered and given up while making block assessment. (A. Y. 1992-93) CIT vs. C. Sivanandan (2011) 52 DTR 428 (Ker.)(High Court) S. 147 : Reassessment – CBDT by Notification withdrew approval for deduction to the assessee with respect to the deduction of donation under section 35(1)(ii) – assessment re-opened – Notification quashed – Reasons for reopening does not survive. (S. 35, 148) The assessee was granted deduction for donation to an institute which was approved under section 35(1)(ii). CBDT withdrew the approval to the institution, on the basis of which the assessee assessment was reopened. Subsequently the notification was quashed by the Allahabad High Court, the High Court held that reasons for reopening the assessment under section 147/148 does not survive. Ultra Marine Air Aids (P) Ltd. vs. ACIT (2011) 332 ITR 273 (Delhi)(High Court) S. 147 : Reassessment - Non issue of Notice - [S. 143(2)] It is mandatory not merely procedural for the Assessing Officer to issue notice under section 143(2). If the notice is not served within the prescribed period, the assessment order is invalid (Pawan Gupta 318 ITR 322 (Del.), Hotel Blue Moon 321 ITR 362 (SC) & C. Palaniappan 284 ITR 257 (Mad.) followed). UKT Software Technologies vs. ITO (ITAT - Delhi) Source: www.itatonline.org(Trib) S. 147 : Reassessment - Reason to Believe - Finding of Subsequent Year - (S. 148) Information obtained in the assessment of a subsequent assessment year can be a good to initiate proceedings under section 147/148. Disallowance of interest expenditure made in assessment of subsequent assessment year on the basis that the interest free advances constituted prima facie material for the Assessing Officer to form a reasonable belief that certain income had escaped assessment in the present year.(A. Y. 1999 -2000) Maruti Civil Works vs. ITO (2011) 51 DTR 257 (Pune)(Trib.)


S. 147 : Reassessment - Beyond four years - Revaluation of Assets - (S. 45, 50) Assessee firm having duly disclosed the fact of revaluation of assets, creation of self generated asset. Viz., goodwill and also that the difference between the cost and revalued amount of the assets has been transferred to partners’ capital accounts and the same was followed by dissolution of firm, all primary facts stood disclosed by the assessee in the original assessment proceedings itself and therefore, assessment could not be reopened after expiry of four years from the end of the relevant assessment year on the ground that difference between WDV of the assets and the value thereof after revaluation is taxable under the provisions of section 45 read with section 50 which has escaped assessment.(A. Y. 1986-87) Industrial Lining vs. Dy. CIT (2011) 52 DTR 233/ 45 SOT 60 (Ahd.) (TM) (Trib.) S. 147 : Re opening of Assessment – Assessment under section 143(1) – Within four years – Reasons to believe – Not valid. [S. 143(1)] Original assessment order was made under section 143(1) and the re opening of the assessment was initiated within a period of 4 years, it was still necessary that there should be reasons to believe that income had escaped assessment and such reasons are subject to judicial scrutiny. There essentially have to be valid reasons to believe that income has escaped assessment and these reasons on standalone basis must be considered appropriate for arriving at the conclusion arrived at by the officer recording the reasons. In view of the above the initiation of reassessment proceedings in the instant case by the Assessing Officer was held bad in law and the proceedings were quashed. (A. Y. 2001-02) Pirojsha Godrej Foundation vs. Asst. Director of Income-tax (2011) 44 SOT 24 (Mum.)(URO)(Trib.) S. 148 : Reassessment - Sanction of Commissioner - Application of Mind - (S. 151) A material fact which is not in existence right up to the time of assessment cannot possibly be disclosed. Therefore, a fact which comes into existence subsequent to the making of the assessment cannot be a material fact within the purview of section 147. The duty to disclose material facts necessarily postulates existence of a thing or material. If a material is not in existence or if a material is such of which the assessee had no knowledge there would be no duty to disclose such material (Tirath Ram Ahuja (HUF) 306 ITR 173 (Del.) followed); The Central India Electric Supply Co. Ltd. vs. ITO(2011) 51 DTR 51 (Delhi High Court) S. 148 : Reopening of Assessment – Notice - AO entitled to drop notice issued under section 154 & issue notice under section 148 - (S. 154) Though the principle of constructive res judicata was made applicable by the Madras High Court in EID Parry 216 ITR 489 (Mad.) that the Assessing Officer having initiated rectification proceedings under section 154 should stick to the same only and cannot drop that and proceed under section 147 is not acceptable. But the fact that the Assessing Officer invoked section 154 and dropped it does not affect the validity of re-assessment under section 147. CIT vs. India Sea Foods (High Court Kerala) Source: www.itatonline.org(Trib) S. 148 : Reopening of Assessment – Non-supply of ‘Reasons for Reopening’ within the limitation period time - Reopening void Where the notice has been issued within the said period of six years but the reasons have not been furnished within that period is hit by the bar of limitation because the issuance of the notice and the communication and furnishing of reasons go hand-in-hand. A notice under section 148 without the communication of the reasons therefore is meaningless inasmuch as the Assessing Officer is bound to furnish the reasons within a reasonable time. The expression ‘within a reasonable period of time’ as used in GKN Driveshafts 259 ITR 19 (SC) cannot be stretched to such an extent that it extends even beyond the six years stipulated in section 149.


Balwant Rai Wadhwa vs. ITO (Delhi)(Trib.) Source: www.itatonline.org S. 148 : Reassessment - Service of Notice - Second Notice - Validity of Assessment - Limitation from first notice It was held that first notice sent by speed post as permitted by section 282 is presumed to have been duly served upon the assessee and was valid. As the first section 148 notice was valid and reassessment proceedings were pending, the second section 148 notice is not an irregularity but a nullity. (Ranchhodas Karsandas 26 ITR 105 (SC) and Jai Dev Jain 227 ITR 301 (Raj.) followed. Thus, the limitation period reckoned with reference to the first notice. Sanjay Kumar Garg vs. ACIT (ITAT - Delhi) Source: www.itatonline.org(Trib) S. 151 : Reassessment – Sanction – Limitation. In cases covered under section 151, the notice is to be issued by the Assessing Officer and the only requirement is that the Jt. CIT should be satisfied on the reasons recorded by the Assessing Officer. There was no satisfaction of the Jt. CIT for the Asst. Year 1989-90 to 1994-95, hence, notices for these years are invalid.(A. Y. 1989-90 to 1994-95 and 1998-99) Maya Rastogi (Smt.) vs. CIT (2011) 52 DTR 237 (All)(High Court) S. 151 : Reassessment – Sanction for issue of notice – Application of Mind. (S. 148) Merely affixing a ‘yes’ stamp and signing underneath suggested that the decision was taken by the Board in a mechanical manner as such, the same was not a sufficient compliance under section 151 of the Act. (A. Y. 1965-66) Central India Electric Supply Co. Ltd. vs. ITO (2011) 51 DTR 51 (Del.)(High Court) S. 153A : Search and Seizure - Special Procedure for Assessment - On Money Payment – Company - Director Merely on the basis of entry in seized material not supported by corroborative evidence, and contradictions in statement of purchaser of property, additions made in the hands of company on substantive basis and addition in the hands of Director on protective basis was deleted (A. Y. 2005-06) Embassy Classic P. Ltd & Another vs. ACIT (2011) 7 ITR 287 (Bang.)(Trib.) S. 153A : Assessment – Search and Seizure – Validity vis-à-vis absence of notice under section 143(2) – Service of notice prior to issue of notice for filing of return. [S. 143(2)] Compliance of the provisions of section 143(2) can happen only after the receipt of return or documents as specified under section 142(1)(ii), hence, issue of notice under section 143(2) prior to such stage does not serve any purpose, hence, redundant; as no notice under section 143(2) was served on the assessee after the filing of return, the assessment proceedings are quashed as null and void. ACIT vs. G. M. Infrastructure (2011) 49 DTR 151 (Ind.)(Trib.) S. 153A : Search and Seizure – Special Procedure for Assessment – On Money Payment – Company – Director. Merely on the basis of entry in seized material not supported by corroborative evidence, and contradictions in statement of purchaser of property, additions made in the hands of company on substantive basis and addition in the hands of Director on protective basis was deleted. (A. Y. 2005-06) Embassy Classic P. Ltd & Another vs. ACIT (2011) 7 ITR 287 (Bang.)(Trib.) S. 153(2A) : Assessment – Limitation - Some of the additions set aside - Fresh Assessment. [S. 153(3)(ii)]


When several additions have been made by the Assessing Officer and the appellate authority sets a side one or more of the issues to the file of the Assessing Officer, that situation would not give rise to a “fresh assessment” and in that cases section 153(3)(ii) would apply and not section 153(2A). S. M. Dalvi vs. ACIT (2011) 53 DTR 105 (Mum.)(Trib.) S. 154 : Rectification of Mistake – Intimation u/s 143(1)(a) cannot be rectified after order passed u/s 143(3) Rectification order under section 154 cannot be passed to rectify an intimation given under section 143(1)(a) after final assessment order under section 143(3) is passed.(A. Y. 1994-95) Tamil Nadu Magnesite Ltd. vs. CIT, Coimbatore (2011) 196 Taxman 271 (Mad.)(High Court) S. 154 : Rectification of Mistake – Setting aside of Assessment. Where assessment order passed under section 143(3)/147 has been set aside, consequential order under section 154 has also to be set aside (A.Y. 1997-98). CIT vs. DCM Financial Services Ltd. (2011) 196 Taxman 439 (Delhi)(High Court) S. 154(7) : Rectification of Mistake - Notice of Demand - Limitation Order under section 154 purported to have been passed on 24th January 2000, and the consequential calculation of tax payable in Form No. ITNS -150 having been served on the assessee on 24th May 2005 and 6th June, 2005, respectively i.e. After expiry of limitation under section 154(7), it cannot be accepted that the order was in fact passed on 24th January 2000, especially when no notice of demand was issued and no recovery proceedings were initiated.(A. Y. 1995-96) V. B. Desai Financial Services Ltd. vs. Dy. CIT (2011) 51 DTR 205/137 TTJ 338 (Mum.)(Trib.) S. 158BA : Block Assessment - Assessment of Undisclosed Income – Stock It was noticed on verification that there was no noting or computation to show that there was deficit of physical stock at time of search when compared to book stock. It was also noted that basic variables of computing stock position themselves were estimates assumed by the Assessing Officer. Also the partner who had initially deposed before the revenue authorities against the assessee firm, did not turn up for cross examination and thus the evidentiary value built on statement of the said person collapsed. In view of the above facts, the impugned addition made by the authorities were held not sustainable. (A. Y. 1989-90 to 1998-99) Sunrise Sales Corporation vs. Dy. CIT (2011) 43 SOT 16 (Bang.)(URO)(Trib.) S. 158B(b) : Block Assessment - Search and Seizure - Computation of Undisclosed Income - Belated filing of Return - Disclosure of Income – [S. 132(4)] If the search under section 132 takes place after the due date of filing of normal return and no return is filed by that time, and the assessee is not able to demonstrate that he had disclosed his income to the department before the date of search in the some manner or the other, filing of return thereafter under section 139(4) would be of no consequence for the applicability of Chapter XIV–B and the income of the assessee is to be treated as undisclosed. (A. Y. 1999-2000) CIT vs. A. T. Invofin India (P) Ltd. (2011) 237 CTR 360 / 49 DTR 141 (Delhi)(High Court) S. 158BB : Search and Seizure - Block Assessment - Computation of Undisclosed Income - Belated Return – Surrender of Income - Gift from NRI. Income declared in a belated return after search could not be treated as disclosed income. Assessee being unable to give any valid explanation for the alleged gift received from NRI, having surrender the amount


as unexplained income, Tribunal was not justified in treating the gifts as explained simply because the same were disclosed in the regular return. CIT vs. Ashwani Trehan (2011) 239 CTR 10 (P&H)(High Court) S. 158BC : Block Assessment - Protective Assessment be framed - (S. 158BD) The Assessing Officer in absence of any specific power under the Act, has power to make protective assessment in case of regular as well as block assessment under certain circumstances Lalji Haridas vs. ITO 43 ITR 387 (SC) followed. CIT vs. Mahindra Finlease Pvt. Ltd. (Delhi High Court) Source: www.itatonline.org S. 158BC : Block Assessment - Search and Seizure – Depreciation -(S. 158BH) Section 158BH, makes all other provisions applicable to the assessment under. Chapter XIV-B, unless it is otherwise provided for, therefore even in block assessment, the Assessing Officer must allow the claim of the assessee for the depreciation which is legally permitted under the provisions of the Act. (A. Y. 19997-98 and 2003-04) CIT vs. C. Sabira (Smt.) (2011) 237 CTR 477 (2010) 40 DTR 153 (Ker.)(High Court) S. 158BC : Block Assessment - Search and Seizure - Computation of Undisclosed Income - Set off of excess income Assessee is not entitled to set off of excess income disclosed in a particular year falling within the block period against the undisclosed income of subsequent year falling within the same block period. CIT vs. Kamala Devi Jain (2011) 51 DTR 70 / 238 CTR 328 (Guj.)(High Court) S. 158BC : Block Assessment – Search and Seizure – Material not found. Where no evidence/material was found in the course of search or any information relating to any undisclosed income earned by the assessee, block assessment framed by the Assessing Officer making addition of the undisclosed income merely on the basis of third party statement was held to be bad and set aside. (A. Y. 1986-87 to 1996-97) CIT vs. T. Sivaprabhaskar (2011) 50 DTR 329 (Mad.)(High Court) S. 158BC : Block Assessment - Service of Notice In the absence of any material or evidence to prima facie show that the alleged notice under section 158BC was actually sent to the assessee, it cannot be presumed, in the absence of acknowledgement of the said notice, that might have been served upon the assessee and therefore, the proceedings initiated by the Assessing Officer under section 158BC as well as block assessment are null and void initio.(A. Y. 1995 to 99 and 1989 to 2000) ACIT vs. Lakshmi Industries (2011) 135 TTJ 112 /(2010)48 DTR 54/(2011) 7 ITR 495 (Chennai)(Trib) S. 158BD : Search and Seizure - Block Assessment - Statement Recorded Proceedings initiated against the assessee under section 158BD on the basis of statement recorded during search are not valid as statement is neither document nor asset; further, initiation of proceedings under section 158BD by the Assessing Officer against the assessees without recording the requisite satisfaction was illegal. CIT vs. Late Raj Pal Bhatia (2011) 49 DTR 9 / 237 CTR 1 (Delhi)(High Court) S. 158BD : Block Assessment - Search and Seizure - Undisclosed Income of any other person - Recording of Satisfaction


Assessing Officer of searched person, having nowhere recorded any satisfaction that the assessees’ income of the relevant block period had escaped assessment nor forwarded the records of the case to the assessees’, Assessing Officer proceedings under section 158BD against the assessee were rightly set aside. CIT vs. Sunil Bhala (2011) 238 CTR 18 / 50 DTR 238 (Delhi)(High Court) S. 158BD : Block Assessment – Search and Seizure – Notice –Jurisdiction. Where the assessee had not raised the plea that the Assessing Officer had no jurisdiction over him within one month from the date on which he was served notice under section 158BD of the Act, the assessment proceedings cannot be held to be invalid for want of jurisdiction in view of section 124(3) of the Act. (A. Y. 1997-98 to 2003-04) CIT vs. Kapil Jain (2011) 50 DTR 342 (Del.)(High Court) S. 158BD : Search and Seizure - Block Assessment - Judicious Satisfaction - Recorded in Block assessment of person searched. (S. 158BC) Satisfaction recorded under section 158BD before initiation of block assessment proceedings of the person searched does not satisfy the requirement of law; further, so called satisfaction recorded by the Assessing Officer in the order sheet without even stating that undisclosed income pertaining to the assessees has been detected from the seized record of the persons searched was not in accordance with the provisions of section 158BD, therefore the block assessments of the assessees under section 158BD are not valid. ACIT vs. Mukta Goenka (Smt.) (2011) 53 DTR 1 / 129 ITD 201 (Jab.)(TM)(Trib.) S. 158BE : Block Assessment – Limitation - Search and Seizure - Last Panchanamas - Prohibitory Order. [S. 132(3)] Panchanamas drawn on 27th and 28th March 2003 in respect of residential and business premises of the petitioner being the last panchnamas the date of the same is the date of conclusion of the search for reckoning the time limit of two years for completion of the search and not 17th and 14th June 2003, on which dates prohibitory orders under section 132(3) were lifted though time period of 60 days already expired on 27th May, 2003 and therefore, the impugned assessment order passed on 30th June 2005, was barred by limitation. (A. Y. 1997-98 to 2003-04) Rakesh Sarin vs. Dy. CIT (2011) 240 CTR 56 (Mad.)(High Court) S. 158BE : Block Assessment - Search and Seizure – Limitation - Service of non-signed copy of Assessment Order. (S. 292B) On the facts it was established that draft assessment was approved by the CIT under section 158BG on 23rd May, 1997 and that the assessment was finalized by the Assessing Officer on 27th May, 1997 i.e. before expiry of limitation on 31st May, 1997. The copy of the assessment order first sent to the assessee on 30th May, 1997 along with signed notice of demand did not contain the signature of the Assessing Officer did not invalidate the assessment which was validly completed within the period of limitation. (Block period April 1986 - May 1996) CIT vs. T. O. Abraham & Co. (2011) 54 DTR 105 (Ker.)(High Court) S. 159(2) : Assessment - Dead Person - Search and Seizure Assessment cannot be framed on a dead person, where the assessee had already died on 2nd Feb., 1990 and the search was conducted thereafter on 13th Sept., 1990, section 159(2) was not attracted and no assessment could be framed on a dead person. Therefore addition made under section 69B was liable to be deleted.


Late Smt. Laxmibai Karanpuria Through L/H Rajendra Karanapuria vs. ACIT (2011) 135 TTJ 123 / 49 DTR 59/ 130 ITD 40 (Ind.)(Trib.) S. 179 : Liabilities of Director of private company – Tax contemplated under section 179 does not include interest and penalty. While deciding, if the nomenclature ‘tax’ would include other components such as penalty as well as interest, the High Court placed reliance on the judgement in the case of Soma Sundarams Ltd. vs. CIT 116 ITR 620, which had held that the Court has decidedly stated that the component ‘income tax’ does not include payment of penalty as well as interest. H. Ebrahim and Others vs. Dy. CIT (2011) 332 ITR 122 (Karn.)(High Court) S. 184 : Firm – Assessment – Certified copy to be filed every year – Mandatory. Section 184 provides that the assessee firms should file copy of ruling partnership deed certified by all the partners along with return of income, the requirement is mandatory, otherwise the assessee can only be treated as AOP. The fact that assessee has been treated as firm in earlier years will not be sufficient. (A. Y. 1993-94 & 95) Bhaskar and Co. vs. CIT (2011) 331 ITR 90 (Ker.)(High Court) S. 194A : Deduction of Tax at Source – Compensation – Interest – Limit to be worked separately. Where the Motor Accident Claim Tribunal apportionated the compensation amount and interest payable to each claimants. The interest income of each of the claimant is to be taken into account separately for applying the limit prescribed under section 194A(3)(ix) for the purpose of deducting tax at source under section 194 A of the Act. National Insurance Co. Ltd. vs. Smt. Draupadibai & Ors. (2011) 50 DTR 282 (MP)(High Court) S. 194C : Deduction of Tax at Source - Amounts not Deductible -Payments by firm to Partners – Sub-Contract. [S. 40(a)(ia)] Partners of the assessee firm having executed the transportation, contracts undertaken by the firm by using their own trucks and the assessee having acted as an agent in routing the payments to partners, it cannot be held that there was a separate contract between the firm and the partners and, therefore such payments could not be disallowed under section 40(a)(ia) on the ground that tax was not deducted at source under section 194C. (A. Y. 2006-07) CIT vs. Grewal Brothers (2011) 54 DTR 99 (P&H)(High Court) S. 194C : Deduction at Source - Printing Material - Payments to contractor Payment made for purchase of printed packing material to suppliers, no work involving skill or secrecy, it being sale, section 194C is not attracted.(A. Y. 2004-05 and 2005-06) ITO vs. Mother Dairy Food Processing Ltd. (2011) 7 ITR 16 (Delhi)(Trib.) S. 194C : Deduction at Source - Shipping Agent - Carriage of Goods -Technical Services – Payments to Contractors - (S. 194J) Payment made for carriage of goods from the customer’s trailers to the vessel in the case of export and vice versa in the case of import of goods are covered by section 194C rather than section 194J which cannot be applied.(A.Y. 2004-05) ACIT vs. Merchant Shipping Services (P) Ltd. (2011) 49 DTR 97/129 ITD 109/8 ITR (Trib) 1. (Mum.)(Trib.) S. 194C : Deduction of Tax at Source - Contractor and Sub-contractor – [S. 40(a)(ia)]


Where the transporters are hired by the vendors of the goods, who directly made supplies to the factory of the assessee and charged the amount of transportation separately in their bill to the assessee, provisions of section 194C are not applicable, hence, amount paid cannot be disallowed by applying the provisions of section 40(a)(ia). Chang Hing Tannery vs. Dy. CIT / (2011) 42-B-BCAJ March P. 32(Kol)(Trib) S. 194C : Deduction of Tax at Source - Society engaged in Charitable Activities - (S. 40(a)(ia), 194J). For non-deduction of tax at source from paying the payments made towards advertisement expenses, the Assessing Officer disallowed the sum of ` 5.10 lacs and taxed the same as business income. Before the Tribunal the assessee contended that since its income is not chargeable under section 26 to section 44AD under the head “Business income” the provisions of section 40(a)(ia) were not applicable. The Tribunal relying on the decision in the case of ITO vs. Sangat Bhai Pheru Sikh Education Society (ITA Nos. 201 to 203/ASR/2004 dt. 31-3-2006 and CIT vs. India Magnum Fund (2002) 74 TTJ 620 (Mumbai) accepted the contention and allowed the appeal of assessee. Baba Farid Vidyak Society vs. ACIT, ITA No. 180/ASR/2010 Asst. Year 2006-07 dt. 31-1-2011 (2011) 43 A BCAJ April P. 34 (Trib) S. 194D : Deduction at Source - Insurance Commission Assessee, a general insurance company, entered in to an arrangement with one B for facultative reinsurance. As per said arrangement, assessee was liable to pay certain percentage of premium as reinsurance inward commission to B. Assessee was receiving only net premium on reinsurance from B. Profit commission, if any, was shared between assessee and B in certain percentage. Assessing Officer held that assessee was liable to deduct tax on reinsurance commission paid to B under section 194D. The Tribunal held that provisions of section 194D were not applicable to payment of reinsurance commission made by assessee to B.(A. Y. 2005-06 and 2008-09) Tata AIG General Insurance Co. Ltd. vs. ITO (2011) 43 SOT 215 (Mum.)(Trib) S. 194E : Payments to non-resident sports men or sports associations - Tax deduction at source - (S. 115BBA) Once income accrues to a non resident sports man or sports association on fulfillment of the condition as mentioned in section 115BBA, then the statutory obligation of the payer under section 194E comes into play irrespective of taxability thereof, payments including guarantee money made by the assessee a committee formed by three host members of World Cup Cricket, 1996 for the purpose of conducting the tournament to ICC as well as to cricket control boards / associations of member countries of ICC in relation to matches played in India were liable to TDS under section 194E read with section 115BBA.(A. Y. 1995-96) PILCOM vs. CIT (2011) 51 DTR 147/238 CTR 387 (Cal.)(High Court) S. 194H : Deduction at Source – Commission or Brokerage Transaction between assessee and concessionaries, principal to principal. Payments to concessionaries for sale of milk products being not commission, tax not deductible.(A. Y. 2004-05 and 2005-06) ITO vs. Mother Dairy Food Processing Ltd. (2011) 7 ITR 16 (Delhi)(Trib.) S. 194H : Deduction of Tax at Source – Commission – Brokerage. Agents of Airline companies are permitted to sell tickets at any rate between fixed minimum commercial price and published price. Difference between commercial price and published price neither commission nor brokerage tax need not be deducted under section 194H. CIT vs. Qatar Airways (2011) 332 ITR 253 (Bom.)(High Court)


S. 194H : Deduction of Tax at Source - Commission or Brokerage - Booking of Domestic and International Airline Tickets – [S. 40(a)(ia)] The transaction in question were not transactions between principal and agent but those transactions were between principal and principal. In order to bring services or transactions within expression “Commission” and “Brokerage” under section 194H, element of agency must be present. When the discount allowed / given by the assessee to the intermediaries was also allowed to passenger directly who booked the tickets with the assessee and the assessee was recording the transaction in its books of account on net amount of the invoice, then it was not a case of commission or brokerage paid or payable by the assessee to the intermediaries, hence, the provisions of section 194H were not applicable therefore no disallowance can be made under section 40(a)(ia).(A. Y. 2006-07) ITL Tours and Travels (P) Ltd. vs. ITO (2011) 44 SOT 277 (Mum.) (Trib) S. 194I : Deduction of Tax at Source – Rent - Mobile Service Provider. Payment by assessee to other mobile telephone service providers for national roaming facility is not for use of equipment. The assessee was mere a facilitator between its subscriber and other service provider, facilitating a roaming call to be made by the subscriber. The payment of roaming charges by the assessee to other service providers could not be considered as rent within the meaning of Explanation (i) below section 194-I, therefore there was no liability on the part of the assessee to deduct tax at source. (A. Y. 2007-08, 2008-09, 2009-10) Vodafone Essar Ltd. vs. Dy. CIT (2011) 9 ITR 182 (Mum.)(Trib.) S. 194I : Deduction of Tax at Source – Rent - Fixed charges for hire of vehicles not “rent” for section 194I – TDS - Provisions under section 194C applicable. (S. 194C) Where cars were owned and maintained by the contractor and all expenditure was borne by contractor, the contract was for “carriage of passengers” for which a fixed amount was paid. Pursuant to definition of “work” as per section 194C, it was observed that, the payment of vehicle hire charges fell within the scope of section 194C and was not “rent” for section 194I. (A. Y. 2009-10) Ahmedabad Urban Development Authority vs. ACIT (Ahmedabad) (Trib.) ACAJ March 2011. P. 623 / Source: www.itatonline.org S. 194J: Deduction of Tax at Source - Mobile Service Provider - Technical Services. Considering the importance of issue whether payment made by mobile service provider for roaming facility is for technical service, the matter was remanded back to the assessing officer in the light of observation made by the Supreme Court in CIT vs. Bharti Celluar Ltd. (2011) 330 ITR 239 (SC). (A. Y. 2007-08, 2008-09, 2009-10) Vodafone Essar Ltd. vs. Dy. CIT (2011) 9 ITR 182 / 135 TTJ 385 (Mum.)(Trib.) S. 195(2) : Deduction of Tax at Source – Non-Resident - Assessee in Default - Certificate not withdrawn, assessee not in Default - (S. 201) The assessee made payment of “daily allowance” to a Japanese company on account of the stay of Japanese engineers without deduction of tax at source. The Assessing Officer held that the payment was assessable to tax as “fees for technical services” and that the assessee was liable under section 201 for failure to deduct tax at source. It was held that the Assessing Officer had issued a certificate under section 195(2) authorizing the remittance without deduction of tax at source. As this certificate was not cancelled under section 195(4), the assessee was not required to deduct tax at source and could not be treated as assessee in default. The issue whether the payments were taxable or not need not be gone into CIT vs. Swaraj Mazda Ltd. (P&H) Source: www.itatonline.org (High Court)


S. 199: Credit for Tax Deducted – Refund - (S. 203) Assessee, from whose payments taxes have been deducted at source and who is also in receipt of the appropriate certificates in accordance with the scheme of the Act, must get credit admissible under section 199 uninfluenced by any refund of TDS subsequently granted to the tax deductor.(A. Y. 2002-03) Lucent Technologies GRL LLC vs. Dy. Director of IT (2011) 136 TTJ 291 / 45 SOT 311 (Mum.)(Trib) S. 201 : Deduction at Source - Assessee in default - Payment to non resident – [S. 163, 195(2), 201(IA)] The Assessing Officer asked the assessee to deduct the tax and remit the amount. The assessee approached the Court of Appeal in London for permission to deduct the tax at source from the award amount. Pending the stay the Court directed the assessee to remit the amount to escrow account maintained in names of both the parties. The entire amount was remitted as by court order. Indian tax authorities sought to proceed holding assessee in default under section 201(1)(IA). The Tribunal held that assessee could not be held to be assessee in default in terms of section 201(1) and 201(IA), as it was a case of impossibility of performance, and hence assessee would be released from obligation to deduct tax at source.(A. Y. 2001-02) National Aviation Co. of India vs. Dy. CIT (2011) 43 SOT 362/ 137 TTJ 662 (Mum.)(Trib) S. 201 : Assessee in Default – Limitation - Deduction at Source - Tax duly paid by payee Maximum time limit for initiating and completing the proceedings under section 201(1) has to be at par with the time limit available for initiating and completing the assessment / reassessment of the payee; impugned order under section 201(1) passed by the Assessing Officer with in the period of six years from the end of the relevant assessment year is not time barred. Person responsible for deduction tax cannot be treated as an assessee in default in respect of tax under section 201(1) if the payee has paid the tax directly. (A. Y. 2004-05) ACIT vs. Merchant Shipping Services (P) Ltd. (2011) 49 DTR 97/135 TTj 589 (Mum.)(Trib.) S. 201 : Deduction of Tax at Source - Assessee in Default - Burden of Proof. (S. 194I) When assessee provided permanent account numbers of payees and confirmation from some of them. It is the duty of the assessing officer to verify payment of tax by payees. Treating the assessee as in default placing burden of proof wholly on it was not reasonable. (A. Y. 2007-08, 2008-09, 2009-10) Vodafone Essar Ltd. vs. Dy. CIT (2011) 9 ITR 182 / 135 TTJ 385 (Mum.)(Trib.) S. 201(1) : Assessee in Default - Consequences of failure to deduct or pay - Deduction of Tax at Source - Time Limit. Time limit for treating deductor as in default, is maximum time limit available for initiating and completing reassessment. On the facts as the order passed by the Assessing Officer was within six years from the end of the relevant assessment year, the order passed by the Assessing Officer was not time barred.(A. Y. 2004-05) ACIT vs. Merchant Shipping Services (2011) 8 ITR 1 (Mum.)(Trib.) S. 220 : Recovery – Stay - Appellate Tribunal – [S. 254(1)] Assessing Officer and CIT(A) has disallowed the expenses under section 40(a)(ia), mainly relying on the decision of Karnataka High Court which now stands overruled by the Supreme Court and liquidity being not favourable, the entire demand is stayed till the disposal of assessee’s appeal by the Tribunal or for a period of six months which ever is earlier.(A. Y. 2007-08) Softcell Technologies Ltd. vs. Additional CIT (2011) 49 DTR 129/135 TTJ 249 (Mum.)(Trib.)


S. 222 : Certificate to Tax Recovery Officer – Writ - Sale of Immoveable Property - Beneficiaries of Trust - Rule 11, Schedule II - (Article 226) Petition filed by two beneficiaries of a trust challenging the attachment and proclamation of sale of properties belonging to the trust for recovery of tax dues of their deceased father without arraying the third beneficiary either as petitioner or as a party respondent cannot be entertained since the impugned order has became final and conclusive as regards 1/3rd undivided interest of the third beneficiary and no inconsistent order can be passed by the Court in the same lis. Petitioners have an alternative remedy of appeal against the impugned order passed by the respondent authorities rejecting their objections under rule 11 of Schedule II and therefore ,petition filed by two petitioners (beneficiaries of a trust) challenging the attachment and proclamation of sale of properties belonging to the trust for recovery of tax due is dismissed in limine.(A. Y. 1992-93) Sagar Sharma & Anr. vs. Addl. CIT (2011) 52 DTR 89 / 239 CTR 169 (Bom.)(High Court) S. 226 : Recover of Tax – Liability of HUF for individuals Defaults – HUF not liable – Partner in Firm. The assessee was a partner of a firm and karta of a HUF. The High Court held that just because the assessee is karta of HUF, the family properties could not be subject matter of recovery proceedings in respect of tax due from firm. ITO vs. Tippala China Appa Rao (2011) 331 ITR 248 (AP)(High Court) S. 226 : Collection and Recovery of Tax - Reasoned Order. As the Commissioner has not passed a reasoned order the order passed by the Commissioner was set a side and Court directed to pass a speaking order. Dagny De Souza (Smt.) vs. ITO (2011) 198 Taxman 205 (Bom.)(High Court) S. 234B : Interest - Advance Tax - Tax Deduction at Source - Salary - (S. 191, 192, 195) Advance tax is not payable on the salary of an employee in as much as the obligation to deduct tax a t source is upon the employer under section 192, upon failure on the part of the employer to deduct at source, the assessee (employee) only becomes liable to pay the tax directly under section 191 and does not become liable to pay interest under section 234B. Director of IT vs. Maersk Co. Ltd., as Agent of Henning Skov (2011) 54 DTR 41 /198 Taxman 518/240 CTR 218(FB)(Uttarakhand)(High Court) S. 234B : Interest - Advance tax – Company – MAT – (S. 115JA, 115JB, 234C) In view of specific provisions in section 115JA and 115JB, to the effect that all other provisions of the Act, shall apply to the MAT company, interest under sections 234A, 234B is payable on failure to pay advance tax in respect of tax payable under sections 115JA, 115JB. Jt. CIT vs. Rolta India Ltd. (2011) 237 CTR 329 / 49 DTR 346/330 ITR 470/196 Taxman 594/ 2 SCC 408 (SC) S. 234D : Interest on Excess Refund – Asst. Year 2003-04. Section 234D was brought under statute book from the assessment year 2004-05 the Assessing Officer was not to levy the interest under section 234D.(A. Y. 2002-03 and 2003-04) C.A. Computer Associates P. Ltd. vs. Dy. CIT (2011) 8 ITR 142 (Mum.)(Trib.) S. 244A : Refund – Interest - Refund of tax adjusted out of seized amount.


In respect of refund of tax recovered by the authorities by way of adjustment out of the amount seized from the assessee–trust, sub–cl. (b) of section 244A is attracted and accordingly, interest under section 244A is payable to the assessee on such refund.(A. Y. 2004-05) CIT vs. Islamic Academy Education (2011) 52 DTR 69 (Kar.)(High Court) S. 244A : Interest on Refunds – (S. 201) Interest under section 244A(1)(b) is allowable and should be granted on refund of tax paid in pursuance of an order under section 201 of the Act. Reliance Infrastructure Ltd. vs. Dy. CIT, ITA No. 7509/Mum/2010, dt. 28-01-2011, ITAT Mumbai ‘D’ Bench, BCAJ p. 37, Vol. 42-B, Part 6, March 2011 (Trib.) S. 249(4)(a) : Appeal - Commissioner(Appeals) - Admitted Tax – Limitation - Refund of earlier years Commissioner(Appeals), dismissed the appeal on the ground that the assessee has not paid the admitted tax. The assessee contended that in the earlier years the assessee had made excess payments of tax and it was entitled refunds, and further the bank account was also attached. The assessee made payments afterwards. The Tribunal set aside the order of Commissioner of (Appeals) and directed him to decide on merit.(A. Y. 2007-08) Endeavour Industries Ltd. vs. Dy. CIT (2011) 43 SOT 322 (Hyd.)(Trib) S. 249(4) : Appeal - Commissioner(Appeals) - Admitted Tax If the appeal is filed without the payment of tax on returned income but subsequently the required amount of tax is paid, the appeal shall be admitted on payment of tax and appeal has to be decided on merit.(A. Y. 2007-08) Bhumiraj Constructions vs. Addl. CIT (2011) 49 DTR 195/135 TTJ 357 (Mum.)(Trib.) S. 250 : Appeal – Commissioner(Appeals) - Additional Evidence. Rule 46A. Commissioner (Appeals) had recorded the reasons for admission of additional evidence, further, as per Rule 46(A)(3) he had also given an opportunity to Assessing Officer to state his objections, if any to admission of additional evidence and though Assessing Officer had raised objection to admission of additional evidence, yet he had not stated anything about veracity of additional evidence filed by assessee, Tribunal held that the Commissioner(Appeals) had not violated provisions of Rule 46A, and therefore, the order of Commissioner(Appeals) up held. Dy. CIT vs. Dolphine Marbles (P) Ltd. (2011) 129 ITD 163 (JB) (TM) (Trib.) S. 250(5) : Appeal - CIT(A) – Powers - Validity of Assessment - Second round of appeal - Search and Seizure Assessee having not chosen to challenge the validity of assessments on the allegation of defect or irregularity in the warrant issued either before the Assessing Officer or in the first round of appeals and raised the contention after remand before the CIT(A) for the first time, is not permissible. Jose Cyriac vs. CIT (2011) 238 CTR 207 / 50 DTR 292 (Ker.)(High Court) S. 250(6) : Appeal – Reasoned Order – Point for Determination. An order passed by CIT(A) without mentioning point of determination as also without giving any reason for decision while dismissing the appeal is violative of section 250(6) of the Act and cannot be sustained. Rang Rasayan Agencies vs. ITO, ITA No. 917/Ahd./2009, dt. 18-01-2011, ITAT ‘C’ Bench, Ahmedabad, BCAJ p. 25, Vol. 42-B, Part 5, February 2011 (Trib.)


S. 251 : Appeal – Commissioner (Appeals) – Additional Evidence – Rule. 46A : Income Tax Rules, 1962. When the assessee files additional evidence before the CIT(A) it is not necessary that the CIT(A) must remand the matter to the Assessing Officer, it depends on the nature of the evidence. The CIT(A) in appropriate case without prejudice to either parties can look into the evidence itself. (A. Y. 2001-02) CIT vs. Jind Co-operative Sugar Mills Ltd. (2011) 51 DTR 121 (P&H)(High Court) S. 251 : Appeal – Commissioner (Appeals) – Power – Omission to claim in the return. Mere omission of the assessee to claim exemption under section 10(35) in the return of income could not debar the assessee from making the claim before the first Appellate Authority during the appellate proceedings. (A. Y. 2004-05) CIT vs. Metalman Auto P. Ltd. (2011) 52 DTR 385 (P&H)(High Court) S. 253(6)(c) : Appellate Tribunal - Fees - Income Determined - Order under Section 154 Order passed under section 143(1), assessed income is ` 13,06,780/-. Appeal filed against order under section 154. Total income determined at more than ` 2 lakhs fee payable shall be one percent of assessed income subject to a maximum of ` 10,000/-. The Tribunal held that fee rate dependent on total income determined.(A. Y. 2002-03) M. M. Bagwan and Brothers vs. ACIT (2011) 7 ITR 298 (Bang.)(Trib.) S. 254(1) : Appellate Tribunal - Cross Objection - Dismissal of Revenue Appeal - Adjudication Revenue filing appeal and the assessee filing cross objection before the Tribunal. Tribunal dismissed the revenue’s appeal and not adjudicated the assesses cross objection. The Court held that the cross objection to be decided. Ram Ji Dass & Co. vs. CIT (2011) 220 Taxation 90 (P&H)(High Court) S. 254(1) : Appellate Tribunal - Duty of Tribunal - Reasoned Order A judicial order must be supported by sufficient reasons for coming to the conclusion. Failure to record reason would violate the principles of natural justice and is against the basic concept of fairness and transparency, therefore, orders passed by the CIT(A) and the Tribunal suffer from violation of principles of natural justice can not be sustained.(A. Y. 2001-02) Iskraremeco Regent Ltd. vs. CIT (2011) 237 CTR 239 / 49 DTR 185 (Mad.)(High Court) S. 254(1) : Appellate Tribunal – Additional Grounds – Factual Plea – Rule 11 : Income Tax Appellate Tribunal Rule, 1963. Where the Revenue had not contested / urged before the lower appellate authority or as an additional ground before the Tribunal nor the Assessing Officer had taken such stand in his assessment order. The Tribunal was held to have committed an error in allowing the Revenue to raise such new factual plea for the first time before it at the stage of argument and adjudicating upon such plea. Meghji Girdhar (HUF) vs. CIT (2011) 52 DTR 397 (MP)(High Court) S. 254(1) : Appellate Tribunal – Duty of Tribunal – Reasoned Order. A judicial order must be supported by sufficient reasons for coming to the conclusion. Failure to record reason would violate the principles of natural justice and is against the basic concept of fairness and transparency, therefore, orders passed by the CIT(A) and the Tribunal suffer from violation of principles of natural justice cannot be sustained. (A. Y. 2001-02) Iskraremeco Regent Ltd. vs. CIT (2011) 237 CTR 239 / 49 DTR 185 (Mad.)(High Court)


S. 254(1) : Appellate Tribunal – Additional Ground – Issue of Notice. Assessee cannot be allowed to raise the plea as to whether the notice under section 143(2) was validly served on it for the first time before the Tribunal.(A. Y. 1997-98) Aravali Engineers P. Ltd. vs. CIT & Anr. (2011) 49 DTR 68/237 CTR 312 (P&H)(High Court) S. 254(1) : Appellate Tribunal – Power - Applicability of provision of section 14A for the first time before Tribunal - (S. 14A) Issue of disallowance under section 14A, cannot be raised for the first time before the Tribunal where the provision of section 14A, was not invoked against the assessee by the Assessing Officer while making disallowance of interest expenditure under section 36(1)(iii) and CIT(A ) also at no stage considered the application of section 14A. ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib) S. 254(1) : Appellate Tribunal – Recovery - Stay - (S. 220) Besides considerations like existence of strong prima facie case, financial constraints of the applicant are important, even if not sole or qualifying consideration in entertaining a stay application, and therefore stay granted to the assessee subject to certain conditions.(A. Y. 2006-07) KEC International Ltd. vs. Addl. CIT (2011) 136 TTJ 60/ 49 DTR 428 (Mum.)(Trib) S. 254(1) : Appellate Tribunal – Precedent - Decision of Co-ordinate Bench When the issue is already covered by an earlier order of Tribunal, that too in assesse’s own case, a co-ordinate bench of Tribunal should not differ the earlier decision of the bench simply for the reason that a contrary view is possible.(A. Y. 2001-02 to 2004-2005) Patspin India Ltd. vs. Dy. CIT (2011) 51 DTR 57 / 129 ITD 35 / 136 TTJ 377 (Cochin)(Trib.)(TM) S. 254(2) : Appellate – Tribunal - Rectification of Mistake - Power to Review - Additional Evidence Once the Tribunal has disposed the appeal on merits, it cannot review its order and therefore, miscellaneous application filed by the assessee seeking modification of the order of Tribunal so as to admit more additional evidence than that permitted by the order was rightly rejected by the Tribunal.(A. Y. 1998-99) Indrakumar Patodia vs. ITO (2011) 51 DTR 183 / 238 CTR 437 (Bom.)(High Court) S. 254(2) : Appellate Tribunal - Rectification of Mistake - Review While exercising the power of rectification under section 254(2), Tribunal can recall its order in entirety if it is satisfied that prejudice has resulted to the party which is attributable to the Tribunal’s mistake, error or omission and which error is a manifest error and it has nothing to do with the doctrine or concept of inherent power of review.(A. Y. 2000-2001 to 2005-06) Lachman Dass Bhatia Hingwala (P) Ltd. vs. ACIT (2011) 237 CTR 117 / 330 ITR 243/ (2011) Tax LR 101 (SC) (Del.)(FB) S. 254(2) : Appellate Tribunal - Rectification of Mistake - Merger On the facts of the case, the High Court had reversed the order passed by the Tribunal holding that since the assessee had paid arm’s length remuneration for services of its Indian agent, no further profits could be attributed to foreign enterprises in India under Article 7(1) of DTAA. In such cases the application filed by the revenue under section 254 read with section 9 & 90 of the Income-tax Act, 1961 Article 7 of DTAA between India and Singapore was rendered infructuous as the impugned order of Tribunal had already merged with the order passed by High Court & Tribunal had no


jurisdiction to modify its earlier order. The revenue’s application was therefore dismissed.(A. Y. 1999-2000) Dy. Director of IT vs. SET Satellite (Singapore) Pte Ltd. (2011) 43 SOT 1 (Mum.)(URO)(Trib) S. 254(2) : Appellate Tribunal - Rectification of Mistake - Mistake in order passed under section 254(2), cannot be rectified The miscellaneous application filed by the assessee against earlier order passed under section 254(2) is not maintainable only course open to the assessee is to file an appeal against the said order.(A. Y. 1995-96) Padma Prakash (HUF) vs. ITO (2011) 51 DTR 1 / 136 TTJ 257 / 8 ITR 135 (Delhi)(Trib.)(SB) / S. 254(2) : Appellate Tribunal – Powers – Stay. Power of Tribunal to pass an order of stay is not confined to a case where an appeal is pending before Tribunal, but also extends to any proceedings relating to an appeal pending before it. Application under section 254(2) is maintainable against order passed by Tribunal granting stay.(A. Y. 2007-08 and 2009-2010) ITO vs. Vodafone Essar Ltd. (2011) 44 SOT 304/54 DTR 253 (Mum.)(Trib) S. 254(2) : Appellate Tribunal – Power – Stay - Despite Third Proviso to section 254(2A), Tribunal has power to extend stay beyond 365 days if delay not attributable to assessee(Sec. 220,245) The Third Proviso to section 254(2A), as amended w.e.f. 1.10.2008, provides that if the appeal filed by the assessee is not disposed off within the period of stay granted by the Tribunal (which cannot exceed 365 days), the order of stay shall stand vacated even if the delay in disposing of the appeal is not attributable to the assessee. The assessee filed a stay application requesting stay of demand for penalty of ` 369 crores. On the expiry of 365 days of stay, the assessee asked for extension of stay relying on the Tribunal’s order in Ronak Industries where, stay had been granted beyond 365 days relying on the judgement of the Bombay High Court in Narang Overseas 295 ITR 22 (Bom.). As it was felt by the Tribunal that the reliance in Ronak Industries and Narang Overseas was misplaced in view of the amendment to the Third proviso to section 254(2A) w.e.f. 1.10.2008, the question whether the Tribunal had jurisdiction to extend stay beyond 365 days referred to the Special Bench. HELD by the Special Bench: (i) In Ronak Industries, the Tribunal held, relying on Narang Industries, that the Tribunal has the power to extend stay beyond 365 days. This decision of the Tribunal was challenged by the department in the Bombay High Court by specifically raising a question as to the applicability of the Third Proviso to section 254(2A) as amended w.e.f 1.10.2008. The High Court, vide order dated 22.10.2010, dismissed the department’s appeal. As such, the Tribunal’s order holding that there was power to extend stay even after 365 days stood affirmed; (ii) The department’s argument that the High Court’s order in Ronak Industries should be treated as per incuriam on the ground that the amendment made by the FA 2008 was not considered by it is not acceptable because (a) In Narang Overseas (rendered prior to the amendment) a wider view was taken as regards the power to grant stay, (b) In the appeal filed by the department in Ronak Industries a specific question with regard to the effect of the Third Proviso was raised and so it cannot be said that the High Court had not taken cognizance of the amendment, (c) the Tribunal cannot ignore a High Court’s decision on the ground that a provision of law was not considered by the High Court and (d) the fact that there is no discussion in the High Court’s order in Ronak Industries does not mean that does not lay down any ratio decidendi; (iii) However, the recovery of the arrears by the Assessing Officer on the expiry of 365 days of stay cannot be ordered to be refunded because on the date of recovery the stay had expired and the application


for extension was pending before the Special Bench. The Assessing Officer’s act was bona fide and as the recovery was by adjustment of refunds, it was not a “coercive measure” (RPG Enterprises 251 ITR (AT) 20 (Mum) & other cases holding that the Assessing Officer must refund taxes collected during the pendency of a stay application distinguished).(A. Y. 2000 to 2002-03) Tata Communication Ltd. vs. ACIT (2011) 130 ITD 19/54 DTR 274 (Mum)(SB) S. 254(2) : Appellate Tribunal – Stay - Direct Stay Application to Tribunal Maintainable – Not necessary that lower authorities must be approached first ( S. 220) It is settled law that a Direct Stay Application filed before the Tribunal is maintainable and it is not the requirement of the law that assessee should necessarily approach the CIT before approaching the Tribunal for grant of stay. In deciding a stay application, the following aspects have to be considered: (i) liquidity of the funds of the assessee to clear the tax arrears out of own funds at the relevant point of time based on the assessee’s financial status at the time of the stay petition hearing; (ii) creditworthiness of the assessee to outsource the funds to clear the departmental dues; (iii) prima facie views on the likely decision of the Tribunal on the issues raised in the appeal; (iv) departmental urgencies in matters of collection and recovery; (v) guarantees provided by the assessee to safe guard the interest of the revenue etc.(A. Y. 2006-07) Honeywell Automation India Ltd. vs. Dy. CIT(2011) 54 DTR 265 (Pune) S. 254(2) : Appellate Tribunal – Rectification of Mistakes – ITAT Rule 34 – Rectifiable Order – Pronouncement. Order pronounced at the conclusion of hearing, though not passed in writing, constitute an order of the Tribunal and the same could be rectified under section 254(2).(A. Y. 1999-2000 to 2004-05) ITO vs. V. Meenakshi (Smt.) (2011) 128 ITD 1 / (2010) 128 TTJ 619 / 36 DTR 42 (Chennai)(TM)(Trib.) S. 254(2A) : Appellate Tribunal – Power – Stay – Extension of Period. The Tribunal has power to extend period of stay beyond three hundred and sixty five days under the provisions of section 254 (2A) of the Income Tax Act 1961.(A. Y. 2003-04) CIT vs. Ronuk Industries Ltd. (2011) 333 ITR 99/ 240 CTR 265/54 DTR 291 (Bom.)(High Court) S. 260A : Appeal - High Court - Substantial Question of Law - Cash Credit - (S. 68) It is manifest from a bare reading of section 260A of the Income Tax Act, 1961, that an appeal to High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the order of Tribunal, it is mandatory that such questions must be formulated. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and / or while arriving at the said finding, relevant evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. On the facts the Tribunal has given a finding that the assessee has failed to prove the source of cash credit satisfactorily hence, the no question of law arise from the order.(A. Y. 1983-84) Vijay Kumar Talwar vs. CIT (2011) 330 ITR 1/ 1 SCC 673 (SC) S. 260A : Appeal - High Court - Power of Review Section 35G(9) of the Central Excise Act (= s. 260A (7) of the IT Act) provides that “the provisions of Civil Procedure Code, 1908 relating to appeals to the High Court shall as far as may be apply in the case of appeals under this Section”. Given that only the provisions of the CPC relating to “appeals” are made applicable and not those relating to “review”, the High Court had to consider whether the provisions of section 114 and Order XLVII of the Civil Procedure Code which confer power on the High Court to


review its judgments apply to appeals filed under the Excise Act. The assessee and the department were agreed that the High Court had that power. HELD accepting the claim: (i) The High Court is a Court of record as envisaged in Article 215 of the Constitution and has inherent powers to correct the record. As the High Court has plenary jurisdiction, it has inherent power of review to prevent miscarriage of justice or to correct grave and palpable errors committed by it. CCE vs. Hongo India (236) ELT 417 (SC) & D.N. Singh vs. CIT 325 ITR 349 (Pat)(FB) followed; (ii) In dealing with matters under a special enactment, the practice and procedure of the ordinary Court will apply if the special enactment refers to and adopts the practice and procedure to be followed by the ordinary Court. Accordingly, all provisions of the CPC apply to appeals under the Excise Act; (iii) Section 35G(9) does not restrict the jurisdiction of the High Court to only the provisions of the CPC relating to appeal. Section 35G(9) is enacted out of abundant caution to provide that in respect of matters not dealt with by the special enactment, the provisions of the CPC shall apply. Even if section 35G(9) were not there, the ordinary law of the court have to be applied in the absence of anything contrary in the special law; (iv) One of the grounds of review is an error apparent on the face of the record. Where a statute is amended retrospectively, a judgment applying the un amended law constitutes an error apparent on the face of record and can be reviewed. VIP Industries Ltd. vs. CCE Source: www.itatonline.org(Bombay High Court) S. 260A : Appeal – Monetary Limit - CBDT Circular - Filing Appeals - Pending Appeals The Department filed an appeal in the year 2008 where the tax effect was less than ` 10 lakhs. The question arose whether in view of Instruction No. 3/2011 Dated 9-2-2011 the appeal was maintainable. HELD dismissing the appeal: In view of CIT vs. P. S. Jain & Co (included in file) which followed Pithwa Engineering 276 ITR 519 (Bom.) & Ashok Patel 317 ITR 386 (MP) and where it was held that the CBDT Circular imposing limits on the filing of appeals by the department applied to pending appeals, Instruction No. 3/2011 Dated 9-2-2011 also applied to pending appeals and as the tax effect was less than ` 10 lakhs, the appeal was not maintainable. CIT vs. Delhi Race Club Ltd./ Source: www.itatonline.org (Delhi High Court) S. 260A : Appeal - Monetary Limit - CBDT Circular - Pending Appeal Circular dated 15.5.2008 laying down monetary limit controls the filing of the appeals and not their hearing. Appeals filed as per applicable limit at the time of filing cannot be governed by circular applicable at the time of hearing. The object of the Circular u/s 268A is only to govern monetary limit for filing of the appeals. There is no scope for reading the circular as being applicable to pending appeals. [Abhinav Gupta 41 DTR 129 (P&H) (FB) reversed] CIT vs. Varinder Construction Co. (2011) 51 DTR 290/239 CTR 1/198 Taxman 42/331 ITR 449 (P&H) (FB)(High Court) S. 260A : Appeal - High Court – Notice - Paper Publication - Proper mode. Income Tax Department having failed to serve notice on the assessee company (Respondent) other than by way of paper publication at the admission of the appeal, CIT is directed to set right the defect in the presentation of the appeal. Income Tax Department is deprecated for wasting public money by resorting to service of notice by paper publication as a matter of routine thereby incurring considerable unnecessary expenditure on cost of advertisement. CIT vs. Happy Farms & Resorts Ltd. (2011) 51 DTR 334 (Karn.)(High Court)


S. 263 : Revision of orders prejudicial to revenue - CIT not permitted to change view & revise under section 263 without changed circumstances It was held that as the department had examined the fundamental nature of the transaction in the earlier years and its nature remained unchanged, the department could not have changed its view as regards the nature of the transaction by dubbing it as erroneous. The department is not entitled to re-open an assessment based on a fresh inference of transactions accepted by the revenue for several preceding years on the pretext of dubbing them as erroneous. Associated Food Products 280 ITR 377 (MP), Sirpur Paper Mills Ltd 114 ITR 404 (AP) & CIT vs. Gopal Purohit 228 CTR 582 (Bom.) followed. CIT vs. Escorts Ltd. (2011) 51 DTR 321 (Delhi)( High Court) S. 263 : Revision of Orders prejudicial to Revenue – Depreciation – Goodwill - (S. 32) Assessing Officer allowed depreciation on goodwill treating the same as intangible asset. Commissioner revised the order, the Tribunal quashed the order of revision. High Court confirmed the order of Tribunal. The Court held that where two views are possible and the assessing officer accepting one view which is plausible one, not appropriate to exercise power under section 263.(A. Y. 2001-02 to 2003-04) CIT vs. Hindustan Coca Cola Beverages P. Ltd (2011) 331 ITR 192 / 238 CTR 1 (Delhi)(High Court) Editorial:- Refer Hindustan Coca Cola Beverages (P) Ltd. vs. Dy. CIT (2010) 132 TTJ 602 (Delhi) S. 263 : Revision of orders prejudicial to Revenue - Exempted Income - Proviso to section 14A - Law on the passing of the order under section 263 has to be considered - (S. 14A) Proviso to section 14A did not apply to the facts of the case as on date of orders of CIT under section 263 (29th December 1999), said proviso was not even existence, CIT was justified in revising the order of Assessing Officer and in directing him to compute the interest payable on such sum which has been invested in the partnership firm (Which was erroneously allowed by him earlier) and disallow those portions which can be attributable towards investment in partnership.(1995-96) Mahesh G. Shetty & Ors. vs. CIT (2011) 51 DTR 104 (Kar.)(High Court) S. 263 : Revision Orders Prejudicial to Revenue – Export – Deduction. (S. 80HHC) Where the Assessing Officer had allowed deduction under section 80HHC of the Act without excluding the certain receipts as mentioned in Explanation (baa) to section 80HHC of the Act. CIT was held to be justified in invoking jurisdiction under section 263 of the Act and setting aside the assessment order passed by the Assessing Officer under section 143(3) of the Act, as there was a prima facie error committed by the Assessing Officer while framing assessment under section 143(3) of the Act. (A. Y. 1995-96-97) CIT vs. N.C. John & Sons P. Ltd. (2011) 51 DTR 142 (Ker.)(High Court) S. 263 : Revision of orders prejudicial to revenue – Penalty - Two Views The Assessing Officer dropped the penalty proposal holding that appeal against the quantum is pending before the High Court. The Commissioner of Income Tax revised the order. The Tribunal held that the view of Assessing Officer cannot be held to be erroneous in dropping penalty proceedings. The Assessing Officer can impose penalty even after appeal is determined by High Court. Two view possible hence revision was held to be not valid.(A. Y. 2004-05) V. K. Natesan (2011) 128 ITD 81 / 49 DTR 233 / 135 TTJ 257 (Cochin)(TM)(Trib) S. 263 : Revision of orders prejudicial to revenue - Show cause Notice - Reasons not stated in show-cause notice - Order invalid. If a ground of revision is not mentioned in the show-cause notice, it cannot be made the basis of the order for the reason that the assessee would have had no opportunity to meet the point (Maxpack Investments


13 SOT 67 (Del.), G. K. Kabra 211 ITR 336 (AP) & Jagadhri Electric Supply 140 ITR 490 (P&H) followed); Synergy Enterpreneur Solutions Pvt. Ltd. vs. Dy. CIT (ITAT Mumbai) Source: www.itatonline.org (Trib) S. 263 : Revision – Block Assessment – Time Limit – (Ss. 158BC, 158BE) Provisions of section 263 are applicable to the Block Assessment. In such cases question of restriction under section 158BE as regards time-limit completion of fresh assessment does not arise. In such cases by virtue of section 156BH limitation as laid down in section 153(2A) would be applicable. Bhartiben M. Kelawala (Smt.) vs. CIT (2011) 128 ITD 468 / 135 TTJ 455 (Ahd.)(Trib.)/Amita Devi Sanganeria (Smt.) vs. ACIT (2011) 129 ITD 72/53 DTR 214 (Gau.)(TM)(Trib.) S. 269UA(f)(i) : Purchase of immoveable property by Central Government - Lease for 9 years - Renewable at the option for a further period of 9 years Lease for 9 years renewable at option of lessee for a further period of 9 years, amounts to lease for more than 12 years. Parties obliged to submit Form No. 37–I, within 15 days of draft agreement. Govind Impex P. Ltd & Others vs. Appropriate Authority (2011) 330 ITR 10/ 1 SSC 529/(2011) Tax LR 1 (SC) S. 271B : Penalty – Project Completion Method – Advance received cannot be treated as sale. When the assessee was following the project completion method of accounting, the advances received against booking of flats could not be treated as sale proceeds/turnover/gross receipts. Thus penalty under section 271B is deleted. Siroya Developers vs. Dy. CIT, ITA No. 600/Mum/2010, dt.12-1-2011, ITAT Mumbai ‘I’ Bench, BCAJ p. 38, Vol. 42-B, Part 6, March 2011 (Trib.) S. 271C : Penalty for failure to deduct tax at source - Mala fide intention - Deliberate defiance of law - No penalty for tax deduction at source breach if no “mala fide intention” or “deliberate defiance” of law - (S. 194C, 194I, 194J, 201). It was held that the fact that the assessee has not disputed the quantum is not a good ground for imposition of penalty unless and until material is brought on record to the effect that assessee deliberately defied the provisions (Anwar Ali 76 ITR 696 (SC) referred). Further, it was also observed that levy of penalty under section 271C is not automatic. (Woodward Governor India 253 ITR 745 (Del.) followed). If no malafide intentions of any kind are attributed to the assessee for deducting tax under one provision of law than other, thus no penalty could be levied. CIT vs. Cadbury India Ltd. (Delhi High Court) Source: www. itatonline.org S. 271(1)(c) : Penalty – Concealment - Revised Return - After Survey - Voluntary Revised return filed disclosing additional income as a consequence of follow-up proceedings taken by Deputy Director of Income Tax in respect of purchasers hence revised return cannot be said to be voluntary, hence, levy of penalty was justified.(A. Y. 1985-86 and 1987-88) LMP Precision Engg. Co. Ltd. vs. Dy. CIT (2011) 330 ITR 93 /(2009) 223 CTR 301/ 183 Tax 12/ 20 DTR 294 (Guj.)(High Court) S. 271(1)(c) : Penalty – Concealment – Disclosure of all facts – No Penalty for Concealment. In penalty proceedings, it is incumbent on the Tribunal to examine independently, the evidence and material on record for the purpose of judging whether penalty proceedings are justified on account of concealment of income or furnishing of inaccurate particulars thereof. If the assessee has disclosed all the facts, then just


because the department does not agree with the legal stand taken by the assessee, the same would not result into penalty. (A. Y. 1995-96) Devsons P. Ltd. vs. CIT (2011) 196 Taxman 21 (Delhi)(High Court) S. 271(1)(c) : Penalty – Concealment – Revised Return. Where the revised return was filed by the assessee within the time limit prescribed under section 139(5) of the Act and there was nothing to suggest that the assessee had filed revised return with the knowledge that the department had detected such additional income. Penalty under section 271(1)(c) of the Act was not leviable as there was no willful and deliberate suppression of income. (A. Y. 2005-06) CIT vs. R. Gopalakrishnan (Dr.) (2011) 50 DTR 345 (Mad.)(High Court) S. 271(1)(c) : Penalty – Concealment – Withdrawal of Claim. Where the assessee withdraw its claim of deduction under section 80-IA of the Act by filing revised return under section 139(5) of the Act immediately, after it received notice under section 154 of the Act proposing to withdraw deduction under section 80-IA of the Act for earlier year. Penalty under section 271(1)(c) of the Act was held to be not leviable as the claim under section 80-IA was made under a bona fide believe which was rectified later on by the assessee by filing revised return. (A. Y. 2001-02) CIT vs. Backbone Enterprises (2011) 50 DTR 321 (Guj.)(High Court) S. 271(1)(c) : Penalty – Concealment – Where surrender of income is not voluntary – Levy of penalty justified. In the instant case the assessee has surrendered his income after the Assessing Officer had made substantial progress in the investigation and the assessee had also not co-operated with the enquiry. The High Court held that such surrender cannot held to be voluntary nor made bona fide, so as to avoid penalty. The High Court relied on the decision in the case of Bhairav Lal Verma vs. Union of India 230 ITR 855, where the meaning of word ‘voluntary’ in the context of waiver provisions under section 273A was discussed.(A. Y. 2004-05) CIT vs. Rakesh Suri (2011) 331 ITR 458 (All)(High Court) S. 271(1)(c) : Penalty – Concealment - Two set of books of accounts. In the present case, the assessee was maintaining two sets of books; one was meant for showing to Income Tax Authorities and the other for himself. In the second set, he was recording sales and certain expenses on the basis of these documentary evidence, addition had been made which had been confirmed up to the Tribunal. Thus it was not the case of simplicitor estimation of the income by disbelieving the books of account or other details submitted by the assessee during the course of assessment proceedings. In the present case the department was able to lay its hands on the documentary evidence exhibiting the conduct of assessee for avoiding tax and carrying out the business activity out of the regular books. In the above circumstances penalty under section 271(1)(c) of the Act, which was confirmed by the commissioner (A) was upheld.(A. Y. 1985-86 and 1990-91) Shyam Behari vs. ACIT (2011) 43 SOT 129 (Delhi)(Trib) S. 271(1)(c ) : Penalty – Concealment – Return filed after survey The assessee disclosed the income in the Return filed after survey. The Tribunal held that what is punishable under section 271(1)(c) is actual concealment of income in the Return of income and not merely an attempt to make concealment. If the assessee rectifies it itself and declares the correct income in valid return of income and does not file return by concealing the income then such act is not punishable under section 271(1)(c). Hence, penalty under section 271(1)(c) cannot be levied.


Sadhbav Builders vs. ITO, ITA No. 1418/Ahd/2008, A.Y. 2002-03 Bench ‘D’ dt. 21/1/2011, Ahmedabad Chartered Accountants Journal, Vol. 34 Part 10 January 2011, Pg. 480 S. 271(1)(c) : Penalty Concealment - Admission by High Court - Mere admission of Appeal by High Court sufficient to disbar section 271(1)(c) penalty. In quantum proceedings, the Tribunal upheld the addition of three items of income. The assessee filed an appeal to the High Court which was admitted. The Assessing Officer levied penalty under section 271(1)(c) in respect of the said three items. The penalty was upheld by the CIT(A). On appeal to the Tribunal, HELD allowing the appeal: When the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied under section 271(1)(c). The admission of substantial question of law by the High Court lends credence to the bona fides of the assessee in claiming deduction. Once it turns out that the claim of the assessee could have been considered for deduction as per a person properly instructed in law and is not completely debarred at all, the mere fact of confirmation of disallowance would not per se lead to the imposition of penalty. Nayan Builders & Developers Pvt. Ltd. vs. ITO(2011) 43A BCAJ, May Pg. 37(Trib.) Editorial:- Refer - Rupam Mercantile Ltd. vs. Dy. CIT (2004) 91 ITD 237 (Ahd.)(TM) (Trib) S. 271(1)(c) : Penalty – Concealment - Book Profit - Despite Concealment, no section 271(1)(c) penalty if section 115JB book profits assessed. (S. 115JB) Pursuant to a search under section 132 and the detection of incriminating documents, the assessee offered additional income. The Assessing Officer computed the income under the normal provisions and levied penalty under section 271(1)(c) for concealment of income. However, as the book profits computed under section 115JB was higher, the assessee was assessed under section 115JB. The assessee’s appeal against the levy of penalty under section 271(1)(c) was rejected by the CIT(A). However, on appeal to the Tribunal, HELD: It was held by Hon’ble Mumbai Tribunal that, the concealment of income had its repercussions only when the assessment was done under the normal procedure. If the assessment as per the normal procedure was not acted upon and it was the deemed income assessed u/s 115JB which became the basis of assessment, the concealment had no role to play and was totally irrelevant. The concealment did not lead to tax evasion at all. (A. Y. 2005-06) Ruchi Strips & Alloys Ltd. vs. Dy. CIT BCAJ p. 39, Vol. 42-B, Part 6, March 2011 (Trib.) (Mum.) Source: www.itatonline.org S. 271(1)(c) : Penalty – Concealment - Failure to Voluntarily apply section 50C does not attract penalty under section 271(1)(c). (S. 50C) No penalty under section 271(1)(c) can be levied where assessee agreed to the addition made under section 50C as the fact that assessee agreed to addition is not conclusive proof that the sale consideration as per agreement is not correct or accurate. The addition made purely on the basis of deeming provisions of section 50C. (A. Y. 2006-07). Renu Hingorani vs. ACIT BCAJ p. 38, Vol. 42-B, Part 6, March 2011 (Trib.) (Mum.) www.itatonline.org S. 271(1)(c) : Penalty – Concealment - Mere making of claim not sustainable in law not sufficient for levy of penalty. Mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. The assessee in the present case had made a bona fide claim and hence


following the Apex Court’s decision in the case of Reliance Petro Products Pvt. Ltd., it was held that penalty under section 271(1)(c) of the Act was not leviable. (A. Y. 2006-07) Walter Saldhana vs. Dy. CIT (2011) 44 SOT 26 (Mum.)(Trib.) S. 271(1)(c) : Penalty – Concealment – Valuation by Stamp Authorities. Penalty under section 271(1)(c) is not leviable on addition arising under section 50C as per valuation by stamp authorities. Renu Hingorani vs. ACIT, BCAJ p. 38, Vol. 42-B, Part 6, March 2011 (Trib.) S. 271(1)(c) : Penalty – Concealment – Book Profit – Total Income less than Book Profit. Assessee returning income based on book profits. Pursuant to search action additional income declared. Total income as per normal provisions of the Act less than the book profit. Penalty cannot be imposed. Ruchi Strips & Alloys Ltd. vs. Dy. CIT, BCAJ p. 39, Vol. 42-B, Part 6, March 2011 (Trib.) S. 271C : Penalty - Failure to Deduction Tax at Source – Limitation – [S. 201(1)] The Tribunal has quashed the order passed by the DCIT (TDS) under section 201(1) and 201(IA), on the ground that initiation of proceedings was beyond a period of six years and hence was barred by limitation. The Tribunal in penalty appeal held that penalty under section 271C cannot be levied if the order under section 201(1) is barred by limitation. (A. Y. 2000-01 to 2002-03). ACIT vs. American School of Bombay Education Trust (2011) TIOL 209 ITAT–Mum. (172) (2011) 43A BCAJ, May P. 32 (Trib.) S. 276C : Prosecution – Penalty set aside – No Prosecution. Where penalty is set aside in appeal by the Tribunal which was confirmed by the High Court, holding that the non disclosure of the items of income was purely due to mistake on the part of the assessee. In the light of the decision of the Court it cannot be said that the assessee has made a wilful attempt to evade taxes, therefore, assessee cannot be prosecuted for alleged offence under section 276C of the Act. (A. Y. 1989-90) N. S. Babu vs. CIT (2011) 50 DTR 27 (Ker.)(High Court) WEALTH TAX S. 2(ea)(3) : Wealth Tax – Asset – House - Business Centre - (S. 7 Schedule III, R. 3, 5 & 8). Premises in a business centre cannot be said to be a house within the meaning of cl. (3) of section 2(ea). The assessee had given the premises on lease under an agreement which had all the covenants that are usually found to be included in a lease and it cannot be said that the agreement was for a licence and therefore, it cannot be said that he was in occupation of the property for the purpose of a business or profession carried on by him so as to exclude it from the definition of the term “asset”.(A. Y. 1997-98 and 1998-99) Cravatex Ltd. vs. Addl. CIT (2011) 52 DTR 123 (Mum.)(Trib.) S. 2(ea) : Wealth Tax Act – Asset – Ware House – Purpose of Business. In a case where the assessee owns a warehouse which is let out on rental basis and the same is not used by the assessee for the purposes of its business but is used by the tenant for its business, the warehouse is to be excluded as an asset in view of Section 2(ea)(i)(5) of the Act. Dy. CIT vs. Hind Ceramics Pvt. Ltd., WTA No. 42 & 43/Kol.2010, dt.07-01-2011, ITAT Kolkata ‘B’ Bench, BCAJ pg. 27, Vol. 42-B, Part 5, February 2011 (Trib.) S. 2(m) : Wealth – Tax - Net Wealth - Debt Owed - Security Deposit


Security deposit received against the lease of chargeable property, is debt owed, that deposit invested in securities exempt from wealth tax is not relevant. Debt deductible net wealth.(A.Y. 1986-87 and 1988-89) Miss Denna J. Jeejeebhoy vs. WTO (2011) 330 ITR 149 / (2009) 222 CTR 202/180 Tax 586/ 18 DTR 273(Bom.)(High Court) S. 2(m) : Wealth Tax - Net Wealth - Belonging to Assessee – Assets - Contraband Article. Gold given on trust by the assessee to some persons which has neither returned by them nor recovered by the police is to be treated as lost once civil remedy has became time barred and it is not to be included in the net wealth of the assessee. Gold alleged given by assessee to third parties which was recovered from third parties and has been delivered to Gold control authority by an order of the Court, same being a contraband article, cannot be said to be assets belonging to the assessee on the relevant valuation dates and therefore, it is not includible in its net wealth. Meghji Girdhar (HUF) vs. CWT (2011) 52 DTR 397 / 239 CTR 411 (MP)(High Court) S. 16(4) : Wealth Tax – Reassessment – Amalgamation - Notice issued to non existing person is void - Reopening Notice issued to Amalgamating Co. Void & not saved by section 292B (S. 17, 42C Income Tax - S. 292B). The law is well settled that the jurisdiction to reopen a proceeding depends upon issue of a valid notice. If the notice is not properly issued, the proceedings are ultra vires. A notice issued on a non-existent person is void. The fact that the assessee has filed a return in response to the notice makes no difference. Section 42C (S. 292B) does not save the defect in the notice. The defect goes to the root of the jurisdiction to reopen the proceedings. L. K. Agencies Pvt. Ltd. vs. WTO (Calcutta)( High Court) Source: www.itatonline.org) Natural Justice : Adjudication – Duty of Disclosure - Extent and Scope - Foreign Exchange The documents which the appellants wanted were documents upon which no reliance was placed by the authority for setting the law in to motion. The demand for supply of all documents in possession of the authority was based on vague, indefinite and irrelevant grounds. The appellants were not sure whether they were asking for copies of documents in the possession of the adjudicating authority or in the possession of the authorized officer who lodged the complaint. The only object in making such demand was to obstruct the proceedings. Kanwar Natwar Singh vs. Director of Enforcement (2011) 330 ITR 374 (SC)(2010) 160 Comp Cas 301 (SC)./ Kanwar Jagat Singh vs. Director of Enforcement (2011) 330 ITR 374 (SC)(2010) 160 Comp Cas 301 (SC). Interpretation – Precedent - Contextual Interpretation A judgment cannot be read like a statute. Courts should not place reliance on decision without discussing factual situation involved in the said decision and how it would apply to the facts involved in the subsequent case. A ratio laid down by a higher forum should not be taken out context and construed like a statute.(A. Y. 2001-02) Iskrareco Regent Ltd. vs. CIT (2011) 237 CTR 239 / 49 DTR 185 (Mad.)(High Court) Appeal - Instruction of Board No. 3/2001. F. No. 279/Misc 142/2007 – ITJ / Dt. 9th February, 2011. www.itatonline.org Appeal before Appellate Tribunal Rs 3,00,000. Appeal u/s 260A before High Court Rs 10,00,000. Appeal before Supreme Court. Rs 25,00,000. Appeal appeal filed on or after 9th February, 2011. Reference to case laws Bombay High Court.


CWT vs. Executors of late D. T. Udeshi (1991) 189 ITR 319 (Bom.)(High Court) CIT vs. Camco Colour Co. (2002) 254 ITR 565/173 CTR 255/122 Tax 226 (Bom.) (High Court) CIT vs. Pithwa Engg Works (2005) 276 ITR 519/ 197 CTR 655 (Bom.) (High Court) CIT vs. Zeob Topiwalla (2006) 284 ITR 379/199 CTR 656 (Bom.) (High Court) CIT vs. Madhukar K. Inamdar (HUF) (2009) 318 ITR 149(2010) 229 CTR 77/(2009) 185 Tax 101/27 DTR 132 (Bom.) (High Court) CIT vs Vitessee Trading Ltd (2011) 331 ITR 433(Bom) Companies Act - Merger S. 391 : Companies Act – Merger – Demerger - Sanction of Court - Tax Avoidance – Gift. Proposed scheme of arrangement which contemplates transfer of passive infrastructure assets of the petitioner and other group companies to another group company without any consideration and thereafter amalgamation / merger of the transferee company with another company is explicitly a scheme of tax avoidance as it is devised to artificially deplete the taxable profits of the transferor companies apart from evading tax on capital gains by showing the transfer as gift and therefore, the proposed scheme cannot be sanctioned under 391 of the Companies Act, 1956. Vodafone Essar Gujarat Ltd., In Re (2011) 52 DTR 293/ 239 CTR 229 (Guj.)(High Court) Condonation of Delay - Substantial Justice – Appeal - Unless mala fides are writ large, delay should be condoned. Matters should be disposed of on merits and not technicalities. Justice can be done only when the matter is fought on merits and in accordance with law rather than to dispose it of on such technicalities and that too at the threshold. Unless mala fides are writ large on the conduct of the party, generally as a normal rule, delay should be condoned. Improvement Trust vs. Ujagar Singh (2010) 6 SSC 786 / (2010) 6 Scale 173 (Supreme Court) Source: www.itatonline.org GENERAL Transfer Pricing - Australian Tax Office Ruling on Transfer Pricing Implications The Australian Taxation Office has issued a ‘Taxation Ruling’ dated 9.2.2011 in which it has discussed the application of the transfer pricing provisions to business restructuring by multinational enterprises. The Ruling considers situations where such transfers occur between MNE members to implement changes in the MNE’s existing business arrangements or operations. Common examples are product supply chain restructurings involving conversion of a distributor into a sales agency arrangement or of a manufacturer into a provider of manufacturing services. Business restructurings also commonly involve the transfer of the ownership and management of intangibles such as patents, trademarks and brand names. The Ruling explains the following process for setting or reviewing transfer pricing Step 1: Characterize the international dealings between the associated enterprises in the context of the taxpayer’s business Step 2: Select the most appropriate transfer pricing methodology or methodologies Step 3: Apply the most appropriate method and determine an arm’s length outcome The Ruling refers extensively to the “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines)”. The Ruling also gives practical examples to explain the transfer pricing law. Source: www.itatonline.org


Appeal - Inter Departmental Litigation - Public Sector Undertakings - Clearance from Committee on Disputes - Supreme Court recalls law requiring PSUs to obtain COD approval Larger Bench of Supreme Court recalled its order laid down in ONGC vs. CCE 104 CTR (SC) 31 and ONGC vs. CIDCO (2007) 7 SCC 39, that no litigation could be proceeded with in the absence of COD approval in case of dispute between Government and PSUs. It was held that the mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. Thus, in view of the said circumstances it was decided by Larger Bench to recall the directions of this Court. Electronics Corporation of India Ltd. vs. UOI / CCE vs. Bharat Petroleum Corpn. Ltd. (2011) 51 DTR 193 / 238 CTR 353/332 ITR 58 (SC) (5 Member Bench) / Source: www.itatonline.org Interpretation - Binding Precedent - Subsequent Decision of smaller Bench of Supreme Court - Article 149 of the Constitution of India. If subsequent decision of smaller Bench of Supreme Court interpreting decision of larger Bench of Supreme Court is placed before a High Court, latter is bound to follow subsequent decision by smaller Bench which interprets decision of Larger Bench because that is interpretation of larger Bench of Supreme Court and High Court cannot make a different interpretation than one made by subsequent decision of Supreme Court which is binding upon it. (A. Y. 1996-97) CIT vs. Oberoi Hotels (P) Ltd. (2011) 198 Taxman 310 (Cal.)(High Court) Transfer Pricing – Holding and Subsidiary Co. - Canada Court Ruling – “Implicit support” by holding company to subsidiary to be considered in determining “arms length” price In determining the arms length price, all economically relevant factors (including the “implicit support” that the subsidiary enjoys from the holding company) have to be considered. The explicit guarantee by the holding company also has a value to the subsidiary. The “yield method” can be adopted which requires a comparison between the credit rating which an arm’s length party, in the same circumstances as the assessee, would have obtained and the credit rating which would have been obtained without the explicit guarantee. The Queen vs. General Electric Capital Canada Inc. Source: www.itatonline.org Advance Ruling - Binding on others – Precedent. The Andhra Pradesh High Court held that the Advance Ruling Authorities order under section 67(4)(11) was binding not only on the applicant but also similar situated other dealers. Tirupati Chemicals, Vijaywada & Anr. vs. Dy. Commercial Tax Officer (2011) 52 APSTJ P. 48 (AP)(High Court) Contempt of Courts Act 1971 - Malicious Imputations against Judicial Officer - Apology tendered not accepted - (S. 6) The contemner has made wild allegations against the judicial officer, when contempt proceedings were initiated he tendered apology. The Hon’ble Court refuse to accept the apology. Before discussing the facts the Hon’ble Court referred the observation of Apex Court in M. R. Parashar vs. Dr. Farooq Abdullah AIR 1984 SC 615 which reads as under. “The Judges cannot defend themselves. They need due protection of law from unfounded attacks on their character. Law of Contempt is one such laws. We would like to remind those who criticise the Judiciary that it has no form from which to defend itself. The legislature can act in defence of itself from the floor of the House. It enjoys privileges which are beyond reach of law. The executive is all powerful and ample resources and media at its command to explain its actions and, if need be, to counter attack. Those, who attack the judiciary must remember that they are attacking the institution which is indispensable for the survival of the rule of law but which has no means of


defending it self. The sword of Justice is in the hands of Goddess of Justice, not in the hands of mortal judges. Therefore, Judges must receive the due protection of law from unfounded attacks on their character”. Accordingly the Hon’ble Court held that benefit of section 6 of the Contempt Courts Act 1971 may not be given to the contemner as the allegations imputed against the judicial Officer were not in good faith. High Court on its own motion vs. Dnyandev Tulshiram Jadhav and State of Maharashtra (2011) Vol 113 920 Bom. L.R. 1145 (April) Note:- Refer Contempt of Court. www.itatonline.org Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org.

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