Where the Tribunal passed an order after more than four months from the date of hearing without dealing with propositions and case laws relied upon by the Appellant, HELD allowing the appeal that:

(i) The complaint of the assessee that the Tribunal had passed an order after 4 months delay and without recording reasons was “a serious complaint” and reflected “a disturbing state of affairs”;

(ii) It is incumbent upon the Tribunal, being the final authority of facts, to appreciate the evidence, consider the reasons of the authorities below and assign its own reasons as to why it disagrees with the reasons and findings of the lower authorities. The Tribunal cannot brush aside the reasons or findings recorded by the lower authorities. It must give reasons and its failure to do so renders its’ order unsustainable;

(iii) The inordinate unexplained delay in pronouncement of the impugned judgement has also rendered it vulnerable. Confidence tends to be shaken if there is excessive delay between hearing of arguments and delivery of judgments;

(iv) Accordingly the President of the ITAT is directed to frame and lay down guidelines on the lines laid down by the Apex Court in Anil Rai v. State of Bihar and to issue appropriate administrative directions to all the benches of the Tribunal within the shortest reasonable time.

(v) In the meanwhile, all revisional and appellate authorities are directed to decide matters heard by them within three months from the date the case is closed for judgment.

Click here for the ITAT’s order.

See Also: Raval Tiles & Vijay Jyot (Bom).

Where the assessee claimed that the assessment order was invalid for want of service of notice u/s 143(2) though he had participated in the proceedings, HELD rejecting the contention that:

(i) Though s. 292BB comes into force on 1.4.2008 and not from any particular assessment year, it is declaratory, procedural and curative in nature and accordingly the validity of notices issued/served will have to be decided after 31.3.2008 in accordance with the provisions of section 292BB irrespective of the assessment year involved;

(ii) Even if the assessee has appeared in any proceeding or co-operated at any time in the past, i.e., prior to 1.4.2008, in any inquiry related to an assessment etc that per se is sufficient to preclude the assessee from raising the objection of non-service.

See contra: Cebon India vs. ACIT (ITAT Del) where it was held that non-service of the notice was a jurisdictional defect and not merely a procedural defect and that s. 292BB was procedural and prospective.

Note: The issue of s. 292BB is pending before the Special Bench in Kuber Tobacco vs. DCIT.

(i) Amounts received towards reimbursement of expenses can, under no circumstances, be regarded as a revenue Receipt and is not chargeable to income-tax;

(ii) If the Tribunal has answered an issue and that has not been challenged by the revenue, it will not be open to the revenue to raise the said issue again in respect of the same assessee;

(iii) The question whether the judgement of the Supreme Court in Ishikawajima-Harima Heavy Industries vs. DIT 288 ITR 408 (SC) has been overcome by the Explanation to s. 9 inserted by the FA 2007 (which provides that income from royalty paid by a resident would be deemed to accrue in India even if the recipient has no PE) not gone into;

(iv) The meaning of the term “laws in force” in the DTAA means that by a unilateral amendment it is not possible for one nation to tax income which otherwise was not subject to tax. However, the expression would not only include a tax already covered by the Treaty but would also include any other tax as taxes of a substantially similar character subsequent to the date of the agreement. It is not possible to accept the proposition that the law would be the law as was applicable or as defined when the D.T.A.A. was entered into;

(v) The rule of referential incorporation cannot be applied in dealing with a DTAA between two Sovereign Nations. Though it is open to a Sovereign Legislature to amend its Laws, a DTAA entered into by the Government have to be reasonably construed;

(vi) Under the old India-Germany DTAA, royalty other than royalty for mine, quarries, etc., constitute “industrial or commercial profits” and are not taxable under Article III(1) in the absence of a permanent establishment of the enterprise in India.

A non-resident earning long-term capital gains on transfer of listed securities is entitled to the benefit of the lower tax rate in the proviso to section 112(1) in addition to the benefit granted by the first proviso to s. 48.

(ii) Interest paid to the other shareholders pursuant to the order of SEBI to compensate for the delay is a part of the cost of acquisition of shares both in the plain sense and in the commercial sense because without such payment the acquisition would not have been possible.

Where the facts showed that the income arising from the sale proceeds of exported goods had actually been received in India because the applicant’s banks at Chennai had been crediting the amounts received from the importer/buyer to the account of the applicant, HELD

(i) Where the income is actually received or has accrued in India, the resort to deeming provision is not warranted and s. 5(2) is sufficient to create a charge in respect of non-resident’s income. Clause (b) to Explanation 1 makes no difference to this position.

(ii) As the right to receive the payment has arisen in India on account of export sales of gold jewellery to the importers abroad, the income actually accrues or arises in India and there is no scope for the argument that the accrual is nullified by clause (b) of Explanation 1 to section 9(1). Clause (b) does not have the effect of preventing the accrual of income altogether.

Where the department held that on the Company allotting rights and bonus shares to its shareholders in a disproportionate manner, it had made a “gift”, HELD, rejecting the contention that:

(i) An allotment of shares is a “creation” of shares and not a “transfer” of shares. There is a vital difference between the two. An “allotment” is the creation of shares by appropriation out of the unappropriated share capital to a particular person. A share is a chose in action. A chose in action implies existence of some person entitled to the rights in action in-contradistinction from rights in possession. There is a difference between issue of a share to a subscriber and the purchase of a share from an existing shareholder. The first case is that of creation whereas the second case is that of transfer of chose in action. An allotment is not a transfer and does not attract s. 4(1)(a) of the Gift-tax Act.

(ii) The issuance of bonus shares was nothing but mere capitalisation of the profits of the Company in respect of which certificates are issued to the shareholders entitling them to participate in the amount of the reserve but only as part of the capital. When a shareholder gets a bonus share the value of the original share held by him goes down. In effect, the shareholder gets two shares instead of the one share held by him and the market value as well as the intrinsic value of the two shares put together will be the same or nearly the same as the value of the original share before the bonus issue. The issuance of bonus shares does not amount to distribution of accumulated profit of a company. It would be a misnomer to call the recipients of bonus shares as donees of shares from the company.

The word `production’ or `produce’ when used in juxtaposition with the word `manufacture’ takes in bringing into existence new goods by a process, which may or may not amount to manufacture. It also takes in all the byproducts, intermediate products and residual products, which emerge in the course of manufacture of goods. The conversion of Jumbo rolls of photographic films into small flats and rolls in the desired sizes amounts to manufacture/production for purposes of ss. 32AB, 80HH and 80I.

See Also: M/s B. G. Chitale vs. DCIT (ITAT Pune – Special Bench)

Where the High Courts had held in a number of cases that a charitable trust receiving shares of a company by way of donation did not forfeit exemption u/s 11 and the department had not filed appeals against those judgements and the question arose whether it was permissible for the department to challenge the same in the assessee’s case, HELD:

While merely because in some cases revenue has not preferred an appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher court when divergent views are expressed by the different High Courts, this is NOT SO in a case where the fact situation in all the assessment years is the same. Where the fact situation is the same, the revenue cannot prefer an appeal if they have not done so in the other cases.

Note: The principle in C.K. Gagadharan vs. CIT 304 ITR 61 (SC) was applied.

Where (pre s. 50B), the assessee’s banking undertaking was transferred by nationalization and it received compensation calculated on the basis of capitalization of last 5 years profits and the question arose whether the said compensation was assessable as capital gains, HELD

As the undertaking was transferred as a going concern and there was no evidence on record to show that the compensation had been arrived at on an item-wise allocation of the various assets of the undertaking and there was no “cost of acquisition” of the undertaking, capital gains was not chargeable.

Note: See Avaya Global Connect vs. ACIT (1.2 MB) (ITAT Mumbai) where despite s. 50B, it was held that the gains are NOT chargeable.

Where the assessment was reopened after the expiry of four years from the end of the assessment year, HELD:

(a) In view of the Proviso to s. 147, merely having a reason to believe that income had escaped assessment is not sufficient to reopen assessments but it must be specifically alleged by the AO in the recorded reasons that the escapement was on account of the failure of the assessee to make a full and true disclosure of material facts. In the absence of such allegation, the reopening is without jurisdiction;

Wel Intertrade followed. See Also: Hindustan Lever 268 ITR 332 (Bom)

(b) Rejecting the argument of the AO that the “actual reasons” were different from the communicated reasons, there is a strong logic and purpose behind the directions issued by the Supreme Court in GKN Driveshafts 259 ITR 19 that the AO is bound to furnish reasons and pass a speaking order to deal with the objections of the assessee and that is to prevent high-handedness on the part of AO and to temper any action contemplated under S. 147 of the said Act by reason and substance. This is not a mere ‘charade’ or a ‘pretence’ or ‘formality’. The argument rendered the entire process into a sham and made a mockery of the law.

(c) The requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the Assessing Officer does not reopen assessments which have been finalized on his mere whim or fancy and that he does so only on the basis of lawful reasons. These steps are also designed to ensure complete transparency and adherence to the principles of natural justice. A deviation from these directions would entail the nullifying of the proceedings.

(d) The decision of the Supreme Court in Phool Chand Bajrang Lal 203 ITR 456 that the AO may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the truthfulness of those facts and that in such situation, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available, but, one of acting on fresh information DOES NOT APPLY as it was in the context of the old s. 147 prior to the amendment w.e.f 01.04.1989.

(e) Explanation I to Section 147 does not mean that production of account books and other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not “in any event” amount to disclosure within the meaning of the said proviso. The said explanation only stipulates that such evidence will not necessarily “amount to disclosure” within the meaning of the said proviso.

(f) As the facts showed that there were specific enquiries by the AO during the original assessment proceedings and due disclosure by the assessee, the reopening was not justified.