Digest of important case law – August 2012

S.2(47):Definitions-Transfer-Development agreement-If developer has taken any steps in relation to construction of flats, on the basis of development agreement, then it has to be considered as transfer under section 2 (47)(v); (S.45)
When an owner enters into an agreement for development of the property and certain rights are   assigned to the developer who in turn has made the substantial payment and taken steps to construction of flats , then  the transaction is held to be a transfer  under section 2(47)(v). Legal ownership continued with the owner does not have  bearing on taxability of capital gains. Though  total profits received in later year for the purpose of capital gains tax the year of transfer is relevant. On the facts of the case the provisions of section 53A  of Transfer of Property  Act is held to be applicable.(A.Ys. 2002-03 & 2008-09)
ACIT v. A. Rama Reddy ( 2012) 52 SOT 521 (Hyd.)(Trib.)      

S.4: Income- Chargeability-Excess cash in possession of bank –Excess cash found of relevant year   which was transferred to suspense account cannot be treated as income of relevant year. The excess arrears brought forward from earlier years is liable to be taxed as income.
The court held that when there is no possibility of any one claiming any amount  against surplus in the suspense account maintained by the assessee, the assessee cannot treat it as liability or provision for liability ,further as and when the claim is made the appellant has to make any payment  the same is allowable as a deduction in the  year in which the claim is made , therefore the Tribunal is right in rejecting the claim of the assessee in respect of arrears carried over for several years .However in respect of excess found during the previous year need not be treated  as income. The High Court confirmed the order of Tribunal in respect of arrears brought forward except Rs.95,000/- which is the excess found in the previous year.
Catholic  Syrin Bank  Ltd  v. Addl.CIT (2012) 251 CTR 430 (Ker.)(High Court)    

S.4 : Charge of income-tax – Diversion of income by overriding title – Amount paid to wife of late partner was allowed as deduction.
The issue before the Tribunal was whether the amount paid by the assessee to Mrs Mehru  Minoo Shroff,  wife of  late Dr M.S.Shroff  is first charge on receipts of firm in terms clause 13 of the partnership  deed executed on 1-4-2003. Held that, as there was an absolute contractual obligation imposed on the continuing firm/partners by the partnership deed to pay an amount of 2% of the gross receipts subject to maximum of 3 lakhs p.a. to the legal heir of the deceased partner, it was a first charge on the receipts of the continuing firm/partners and constituted a diversion of income by overriding title. The claim of assessee was allowed. (A.Y. 2007-08)(ITA no 1560/2012 Bench ‘D’  Dated 3-8-2012) 
Shroff Eye Centre v. ACIT ( Delhi)(Trib.) www.itatonline.org 

S.5: Scope of total income-Accrual-Lease rentals-It is only financing  charges which represent real income which has to be offered for tax.(S.145 )
The assessee is a non-banking finance company. For the relevant  assessment year , it had received a sum of Rs 11-84 crores as the lease rentals . The assessee deducted a sum of Rs 4.35 crores representing  the lease  equalization account from lease rentals . According  to assessee lease equalization charges should not be added as income. The tax authorities, and Appellate Tribunal held that the assessee is not entitled  to deduction . On appeal to High  Court , the court held that , lease rental may consist of financing charges as well as capital recovery . Amount received towards capital recovery  constitute capital expenditure, where as financing charges which represent real income which has to be offered for tax. In the absence of any provision in Act for calculating lease equalization charges , Accounting  Standards  prescribed by ICAI can be adopted for that purpose and assessee would be entitle to claim  said amount as deduction from total lease rentals . Accordingly the claim of assessee was  allowed. (A.Ys.1998-99 to 2000-01)
Prakash Leasing Ltd  v. Dy.CIT ( 2012) 208 Taxman 464 (Karn.) (High Court).

S.5: Scope of total income- Accrual-Securities-Government debt- Interest on Government Securities accrues only on the date specified in such instrument and not on the last date of financial year.
The  Assessing Officer taxed the interest  accrued though not due on securities held as on 31st  March, 2007,  being last date of the financial year. Addition was deleted by the Commissioner (Appeals) and Tribunal. On appeal, the High Court held that, the right to receive interest on the Government securities vested in the respondent only on the due date mentioned in the securities. Consequently, interest accrued on the securities only on the due dates and cannot be said to have accrued to the respondent on any date other than the date stipulated therein. The contention that interest accrues for broken periods between two consecutive dates stipulated in the agreement / instrument for payment of interest is without any basis in law. The court up held the order of Tribunal.(A.Y.2001-02)
DIT v. Credit Suisse First Boston (Cyprus) Ltd ( 2012) Vol.114(5) Bom.L.R.2783 (Bom.) (High Court) 

S.5: Scope of total income – Accrual – Guarantee commission –Income should be spread over period to which it is related and should be assessed proportionately
Assessee received certain guarantee commission and offered the same to tax on accrual basis which was consistently followed by it. It was held that such income should be spread over period to which it is related and should be assessed proportionately. (AY 2002-03 & 2003-04)
BNP Paribas SA v. Dy. DIT (IT) (2012) 137 ITD 322 (Mum.)(Trib.)

S. 5: Scope of total income- Interest income-Debenture- Matching principle-Interest (Difference between purchase and redemption price ) not assessable in year of allotment of debenture.
The assessee’s act  of offering the interest income arising on the difference between purchase price of the debenture and redemption price after six years on an amortization basis is in accordance with the “matching principle” laid down in Taparia Tools Limited v. JCIT (2003) 260 ITR 102 (Bom.) (High Court) and the real income principle. Such interest cannot be taxed on accrual basis in the year of allotment of debenture itself but has to be taxed on spread over basis .(A.Y.1995-96)(C.A.NO 2051 of 2007  dated 13-9-2012)
Rakesh Shantilal Merdia v.DCIT (SC.) www.itatonline.org

S.9: Income deemed to accrue or arise in India-Deduction at source-Non-resident- Software- Payment made by assessee to non-resident for purchase of software would constitute “royalty” under section 9 hence liable to deduct tax at source.
The Tribunal held that the assessee is  not liable to deduct  tax at  source in respect of payments made for purchase of  software as the same cannot be  treated as income liable to tax in  India  as royalty  or  scientific  work under section 9 of the Act  read with Double Taxation Avoidance Agreements and treaties. On appeal by revenue the Court following the Judgment in CIT v. Samsung Electronics Co Ltd (2011) 203 Taxman 477 (Karn.)(High Court and  in view of retrospective amendment in section 9  Explanation 4 and explanation from 1-6-1976, decided the issue in favour of revenue. The Court held that the assessee is liable to deduct tax at source. (A.Y.2001-02)  
CIT v. P .S .I .Data System Ltd ( 2012) 208 Taxman 452 (Karn.)(High Court)

S.9:Income deemed to accrue or arise in India – Interest payment to head office and overseas branches – Held not taxable in India since payments were to self which did not give rise to income that was taxable in India
The assessee is a commercial bank having its head office in France, carried on its activities including financing of foreign trade and foreign exchange transactions through its eight branches in India. It was held that the interest paid to the head office and overseas branches by Indian branches could not be taxed in India since these were payments to self which did not give rise to income that was taxable in India. (A.Ys. 2002-03 & 2003-04)
BNP Paribas SA v. Dy. DIT (IT) (2012) 137 ITD 322 (Mum.)(Trib.)

S. 9: Income deemed to accrue or arise in India – Service fee –DTAA-India –Mauritius—Service fee paid to  concerns at arm’s length price and   assessee did not have any PE India  hence  not taxable in India. ( Art. 5 )
 The assessee is a foreign company incorporated in Mauritius, engaged in the business of telecasting of TV channels. B4U Multimedia International Ltd and B4U Broad Band Ltd. ‘(B)’ was granted general permission by RBI to act as advertisement collecting agent of the assessee. As per the agreement the ‘B’ had no powers to conclude the contract nor was dependent on the assessee. The assessee did not have any PE in India and hence not taxable in India. It was held that even  if it is presumed that there was a PE of assessee in India, in view of the fact that payment of service fee by assessee to B was at arm’s length price, there was no need to attribute profits to the PE. (A.Y. 2001-02)
DDIT (IT) v. B4U International Holdings Ltd. (2012) 137 ITD 346 / 148 TTJ 274 (Mum.)(Trib.)  

S.9: Income deemed to accrue or arise in India –Brokerage- Commission-Amounts received by assessee were   income earned by   assessee outside India and therefore is not liable to tax in India.
The assessee was non –resident and was living in Singapore. He has earned brokerage and commission  out of import and export of agricultural produce like cashew nuts . The imports were  made from African Countries and exports  were made to other countries  and no activities was routed through Indian waters, The remittances was first received by foreign correspondent bank of  Indian Bank and there after the amounts were transferred to NRE account  in Chennai  by way of cheques /DD//TTs. The Tribunal held that when funds were handed over first in accounts of foreign correspondent bank  outside India ,  income could not be treated as income received or accrued or arose or deemed to accrue in India, therefore not exigible to Indian taxation. (A.Ys 2004-05 to 2009-10 )
JCIT v. V. Deenadayalavel  ( 2012) 52 SOT 511 (Chennai) (Trib.)   

S.9(1)(vi): Income deemed to accrue or arise in India-Software- Royalty-DTAA-India- Finland – Off-shore supply profits  not taxable.(Art.13 )
The assessee, a French company, sold GSM equipment manufactured in Finland to Indian telecom operators from outside India on a principal to principal basis, under independent buyer-seller arrangements. Installation activities were undertaken by the assessee’s subsidiary. The Assessing Officer and Commissioner (Appeals) held  that  the assessee’s liaison office and subsidiary constituted a Permanent Establishment(PE) and  a portion of revenue was attributable to the PE and the whole of software revenue was held as assessable as “royalty” under section 9(1)(vii) and Article 13. The Tribunal decided the issue in favour of assessee. On appeal by revenue, the court held that as regards the profits on supply of equipment, the legal position is that the places of negotiation , the place of signing of agreement or formal acceptance thereof or overall responsibility of the assessee are irrelevant circumstances. The only relevant factor is as to where the property in the goods passes. As the goods were manufactured outside India and the sale has taken place outside India, even in a “composite contract”, the supply has to be segregated from the installation and only then would question of apportionment arise to the determine the extent to which it arises in section 9(1)(i). The departmental argument that composite contracts cannot be split so as to exempt supply profit is not acceptable.  
As regards the profits on supply of software, there is a distinction between the supply of a “copy right” and supply of a “copyrighted  article” . Though the Explanation 4 was added to section 9(1)(vi) by the Finance Act , 2012 with retrospective effect from 1-6-1976 to provide that all consideration for user of software shall be assessable as “royalty” the definition in the DTAA has been left unchanged . In CIT v. Siemens Aktiongesellschaft (2009) 310 ITR 320 (Bom.)(High Court), it was held that amendments  cannot be read in the treaty. As the assessee has opted to be assessed by the DTAA, the consideration cannot be assessed as “royalty” despite the retrospective amendments to the Act.(A.Ys 1997-98 and 1998-99( ITA 512 of 2007 .1137of 2006/ 1138 of 2006/ 505 of 2007/506 of 2007/359 of 2005/ 1324 of 2007/30 of 2008 dated 7-9-2012)
DIT v. Nokia Networks OY and others (Delhi) (High Court) www itatonline.org.
DIT v.CIT Alcatek New Delhi/ (Delhi) (High Court) www itatonline.org.
Nokia Net works OY v. Asst DIT (Delhi) (High Court) www itatonline.org.

S. 9(1)(vii): Income deemed to accrue or arise in India- Fees for technical services-Necessary that some sort of ‘managerial’ ‘technical’ or ‘consultancy’ services should have been rendered in consideration.
It was held that to constitute “fees for technical services”, it is necessary that some sort of ‘managerial’ ‘technical’ or ‘consultancy’ services should have been rendered in consideration. In the instant case, services rendered under a buying service agency agreement are routine services offering procurement assistance. They consist of negotiating between the Principal and manufacturers for purchase of merchandise. Hence, consideration received was classified as “ commission” and not for “ fees for technical services” Appeal of the assessee was allowed.
(A.Y. 2007-08)(ITA no 5300/Del/2010 Bench ‘D’ dated 18-9-2012)    
Adidas Sourcing Limited v.ADI (Delhi) (Trib.) (www.itatonline.org)

S.10(38):Exempt income- Long term capital gains-Transfer- Since shares were not sold to  allottees in stock exchange, transaction would not be eligible for concessional rate of 10 percent for assessing the capital gains.( S. 2(47), 45 )
The  Assessing Officer held that the since the shares were not listed securities at the time of transaction, the tax was payable at normal rate and not concessional rate . The view of Assessing Officer was confirmed by the Commissioner (Appeals)  and Tribunal. The Court held that  trading of these shares in the Stock exchange  commenced only in the morning of 6-1-2006 . The shares were transferred  from the demat account of the assessee on 5-1-2006  the credit of sale consideration was credited on 6-1-2006  would not be relevant to determine the transfer. The court held that once shares were transferred from demat account of assessee to account of ‘Registrar to issue’ and then to demat accounts of allottees, transfer is complete in terms of section 2 (47) by  5-1-2006. On the facts transfer for purchase  being completed prior to listing of shares and commencement of trading in stock exchange being on 6-1-2006, transaction cannot be held to be in stock exchange hence the assessee would not be eligible for payment of capital gains tax at lower rate of 10 percent , normal rate is applicable.
Uday Punj v.CIT ( 2012) 209 Taxman 29 (Delhi) (High Court)        

S.11: Charitable or religious purposes-Depreciation-Capital expenditure- Depreciation is allowable even when entire capital expenditure was allowed as application of income.(S. 32)
The assessee is a charitable trust and claimed depreciation on assets. The assessee had also claimed expenses incurred on assets as ‘application of income’ for charitable purposes. The revenue claimed that no depreciation was allowable since the same would amount to granting ‘double deduction’. The Court up held the claim of assessee for allowance of depreciation and held that there was no double deduction ; under normal commercial accounting principles, there is authority to the proposition that depreciation is a necessary charge in computing the net income  and ratio of supreme court in Escorts Ltd vs UOI (1993 )199 ITR 43 (SC)  is not applicable for the claim of depreciation. Appeal of revenue was dismissed.( ITA no 140 of 2012 dated 29-3-2012 ) (A.Y. 2006-2007)
DIT v. Vishwa Jagriti Mission (2012) Income Tax Review –Sept – P. 83 (Delhi) (High Court)

S.14A:Business expenditure- Disallowance-Exempt income-Deduction under chapter VI-A-No disallowance under section 14A could be made against income which are entitle to deduction under section 80P(2)(d).[S.80P(2)(d)].
The assessee is a co-operative society  which claimed deduction under section 80P(2)(d). The Assessing Officer applied provisions of section 14A and disallowed 1/8  of the  employees benefit and remuneration. In appeal the  disallowance was deleted by Commissioner (Appeals) and Tribunal. On appeal  to the High court , the court held that deductions which are permissible and allowed under chapter VI-A  , do not result in exclusion of the income from the charging section . Chapter VIA is a different from the exclusions /exemptions granted /stated in Chapter III. The Court held that no disallowance under section 14A could therefore be made against the income which was entitled to deduction under section 80P(2)(d).(A.Y. 2006-07)
CIT v. Kribhco (2012) 75 DTR 265 (Delhi) (High Court)     

S.14A:Business expenditure- Disallowance-Exempt income-Interest- Proportionate disallowance u/s 14A should be limited to only interest liability and not overhead or administrative expenses.  
Proportionate disallowance u/s 14A should be limited to only interest liability and not overhead or administrative expenses, which should be considered for disallowance u/r 8D from 2007-08. It was held that following the ratio laid in the case of CIT v. Catholic Syrian Bank Ltd. (2012) 207 Taxman 2 (Ker) (High Court), addition made on the account of administrative expenses was to be deleted. (A.Y. 2005-06)
ACIT v. Torrent Pharmaceutical Ltd. (2012) 137 ITD 301 (Ahd.)(Trib.)  

S. 14A: Business expenditure-Disallowance– Exempt Income –Pro-rata-Interest-  Assessing Officer was not justified in estimating interest expense incurred by the assessee in relation to exempt income on pro-rata basis and in making disallowance invoking provisions of section 14A. (S.10(33 )
The assessee earned dividend income in shares of a company and same was claimed as exemption u/s 10(33). The assessee claimed that the said investment was made by from its own funds. It was held that AO was not justified in estimating interest expense incurred by the assessee in relation to exempt income on pro-rata basis and in making disallowance invoking provisions of section 14A. (A.Ys. 2002-03 & 2003-04)
BNP Paribas SA v. Dy. DIT (2012) 137 ITD 322 (Mum.)(Trib.)

S.14A: Business expenditure- Disallowance-Exempt income- Premium paid to premium note holders could not be disallowed under section 14A.(S.10(23G))
The  assessees  are investment and trading companies. They issued unsecured optionally convertible premium notes of Rs 1 lakh. The Assessing Officer found that income from arising from the said investment was exempt under section 10(23G) , therefore disallowed the premium paid on redemption  of premium notes.  The  disallowance was confirmed in appeal by Commissioner(Appeals). On appeal the Tribunal held that, premium paid to premium note holders could not be disallowed under section 14A, since the said investment had the potentiality of earning  taxable income also such as short term capital gains, fees for providing securities ,collaterals etc.(A.Ys. 2003-04 & 2004-05)
Avshesh Mercantile (P) Ltd & Ors v. Dy.CIT(2012) 75 DTR 229 (Mum.)(Trib.)   

S. 14A:- Business expenditure- Disallowance-Exempt income-Expenditure neither   incurred nor claimed in the profit and loss account disallowance cannot   be made.
For the assessment year 2008-09 the Assessing Officer made  disallowance under section 14A read with Rule 8D of the Income tax Rules, though neither any expenditure was incurred nor claimed in the profit and loss account. In appeal Commissioner (Appeals)  deleted the addition. On appeal by revenue the Tribunal held that as the assessee has not claimed any expenditure in the profit and loss account  for earning the exempt income , the  appeal of revenue was  dismissed.(A.Y. 2008-09)
ACIT v.  Tarun Chandmal Jain( 2012) Income tax review –Sept P.90(Mum.)(Trib.)(ITA No. 6310/Mum/2011, Bench “E” dated  10-8-2012)  

S.14A:Business expenditure- Disallowance- Exempt income- Interest incurred on taxable income also to be excluded to avoid incongruity
The Tribunal held that it is not necessary that the Assessing Officer has to record specific finding that the  assessee’s claim of not incurred any expenditure to earn the tax –free income is not acceptable, but when assessee offers a disallowance the  Assessing Officer has to satisfy how the expenditure claimed by the assessee is incorrect. When assessee does not offer any disallowance, Rule 8D can be invoked without any  need to express satisfaction.  As regards the allocation of expenditure as per Rule 8D(2)(ii), by “expenditure by way of interest…., which is not directly attributable to any particular income or receipt” . This refers to interest relatable to tax free income as well as taxable income. However the definition of variable ‘A’ embedded in the formula under Rule 8D(2)(ii) refers only to interest expenditure directly related to tax exempt income but not to interest expenditure directly related taxable income. The result is that while Rule 8D(2)(ii) seeks to allocate all interest expenditure, it ends up allocating only interest expenditure relatable to tax free income. This is clearly incongruous. In Godrej & Boycee Mfg co ltd  v. UOI (2010 ) 328  ITR 81 (Bom.) (High Court), the department took the stand, to defend the constitutional validity of Rule 8D, that both, interest directly attributable to tax exempt income as well as interest directly relatable to taxable income would be excluded from the definition of variable ‘A’ in the Rule 8 D(2)(ii)  formula , once the Revenue has taken  a particular stand about the applicability of the formula in Rule 8D(ii)  based on which constitutional validity of Rule 8D  is up held , it is not open to the Revenue to take any other stand on the issue with regard to the actual implementation  of the formula in the case of any assessee. Accordingly, the correct application of the formula set out in Rule 8D(2)(ii) is as noted in Godrej and Boyce(supra), that interest expenses directly attributable to taxable income have to be excluded from the computation of common interest expenses to be allocated under Rule 8D(2)(ii).The matter was remitted back to the Assessing Officer for verification and cross objection of assessee was dismissed . (A.Y 2008-09)( ITA no 644/Kol/2012 dated 11-9-2012 Bench ‘B’    
ACIT v. Champion Commercial Co Ltd (Kol.)(Trib.) www.itatonline.org.

S.14A: Business expenditure- Disallowance- Exempt income –Stock in trade-Disallowance under section 14A cannot be made in respect of dividend on shares held for trading purposes.
The assessee is a trader in shares. The assessee has claimed exemption under section 10(33) in respect of shares held as stock in trade. The Assessing Officer applied the provisions of section 14A and disallowed the expenses . It was held that disallowance under section 14A cannot be made in respect of dividend on shares held for trading purposes.      
(A.Y.2008-09) ( ITA no 5688/Mum/ 2011 Bench “E” dated 29-08-2012)
Esquire Pvt Ltd  v. DCIT ( Mum.) (Trib.) (www.itatonline.org)
S.28(i):Business Income – Contingent deposits – Contingent deposits received from leasing /hire purchase customers with a view to protect from potential sales tax liability , which is credited to turnover is assessable to income-tax .
The Assessee is engaged in the business of hire purchase, financing equipment, leasing and allied activities. The assessee has been collecting certain sum as ‘contingent deposit’ from the leasing hire purchase customers , with a view to protect them from sales tax liability . The collection was on ad hoc basis. The assessee has shown this amount as contingent deposit. The assessee contended that the deposit was collected in the anticipation of sale tax liability. Apex court negated the submission and held that contingent deposits received from leasing /hire purchase customers with a view to protect from potential sales tax liability, which is credited to turnover , is assessable to income-tax. (A.Y.1998-99)(C.A.no 5895 of 2008 dated 11-9-2012)
Sundarm Finance Ltd  v. ACIT (SC).www.itatonline.org.

S.28(i):Business income-One time settlement-Principal and interest-In an one time settlement of principal and interest, it cannot be assumed that assessee has paid the interest due.
The appellant had availed a term loan from SICOM. The appellant entered into a  one-time-settlement (OTS). The assessee has not produced any evidence regarding the apportionment of interest and principal amount. The Tribunal has granted the relief in respect of Rs 19 lakhs. The assessee claimed that deduction of interest on a proportionate basis should be  Rs.46,31,658/-. As the assessee has not produced any evidence the order of Tribunal was upheld and appeal of assessee was rejected as no substantial question of law arose, the Court  held that in an one time settlement of principal and interest, it cannot be assumed that assessee has paid the interest due.  
(A.Y. 1999-2000)(ITA no 5481 of 2010   dated 5-9-2012)
Akay Organics  Ltd  v. ITO (Bom.) (High Court) www.itatonline.org.

S.32: Depreciation-User of assets-Block of assets-It is not necessary that all the assets which falling within the block of assets must be used simultaneously to allow the depreciation. [S. 2(11)]
The court approving the judgment of Tribunal held that, once the factory building is put to use it is not possible to restrict the depreciation on the said building by stating that   only a portion there of has been put to use . Similarly in relation to block of  assets , it is not  possible to segregate items falling with in block for the purposes of granting depreciation or restricting the claim thereof .Once  it is found that assets are used for business ,it is not  necessary  that all the items falling with in plant and machinery have to be simultaneously used for being entitled to depreciation. The appeal of revenue was dismissed.(A.Y.1991-92)
ACIT  v. S. K. Patel Family Trust (2012) 251 CTR 427/74 DTR 317 (Guj.)(High Court)    

S. 32: Depreciation- First stock exchange card membership-Intangible assets- Revenue has allowed the depreciation in earlier years the depreciation cannot be disallowed in later years.
The assessee has purchased the first stock exchange card in the financial year 1995-96  and claimed the depreciation. The depreciation was allowed and  which has became final . During the year, question was raised by the revenue stating that the depreciation can be allowed on intangible assets which are acquired on or after 1st April, 1998. The Court held as the revenue has accepted the decision for the Assessment  year 2005-06  the substantial question cannot be raised in late years hence the appeal of revenue was dismissed. (A.Y. 2002-03)
CIT v. Kotak Securities Ltd (No1) (2012) 346 ITR 349 (Bom.)(High Court)
CIT v. Kotak Securities Ltd (No.2)(2012)346 ITR 352 (Bom.)(High Court)    

S. 32: Depreciation- Goodwill –Land and building- Primary asset transferred was land hence the depreciation is  not allowable on goodwill as there was no good will in the nature of commercial rights.
CGEL, a wholly owned subsidiary of the assessee company got amalgamated with the assessee during the year. The subsidiary company earned income by lease of property. It was held that primary asset which was transferred was land and not goodwill. The market value of the primary asset i.e. land and building thereon, should have been considered. If the assessee had paid more than the fair market value of assets minus fair market value of liabilities, then the company  would have  a case to claim that certain amounts were incurred for good will. In the absence  of such a claim there was no goodwill in the nature of commercial rights purchase by assessee. This being only book entry and it was only another way of  disclosing the  intrinsic value of the  fixed asset of the company . Depreciation was not allowable on goodwill.(A.Y.2003-04)
DY.CIT v. Toyo Engineering India Ltd ( 2012) 18 ITR 159 (Mum.)(Trib.)

S.32: Depreciation- Lease of assets –Lease rent-Lessee started receiving rent from that date, assets in question were put to use for 180 days or more assessee entitled to full rate of depreciation.
The assessee dispatched the Gass Cylinders on 27th September 2003 and claimed 100 depreciation. The Assessing Officer held that the lessee has put to use the assets on 30th September , 2003 hence entitled only 50% depreciation. On appeal the claim of depreciation was allowed 100%. On appeal by revenue the court held that assessee has demonstrated that it has purchased cylinders on 27th September 2003, dispatched the same to the lessee and started receiveing rent from that date , hence the assets in question was put to use for 180 days  or more therefore entitled for full rate  of depreciation. (A.Ys2003-04 to 2005-06)
Dy.CIT v. Prakash Chemical Agencies (P) Ltd ( 2012) 75 DTR 91(Ahd.) (Trib.)   

S. 35:Expenditure on scientific research- Motor car-Employees- Purchase of motor car for employees is not eligible for deduction as the employees came into car provided by employer or by public transport or hired car had no bearing on in-house research & development.
The assessee contended that, since the salary to employee was eligible for deduction u/s 35(2AB), acquisition of motor car for those employees should also be considered as eligible for this benefit. It was held that expenditure on purchase of motor car could not be accepted as expenditure whether capital or revenue incurred on in-house research and development as whether the employees came into car provided by employer or by public transport or hired car had no bearing on in-house research & development. (A.Y. 2005-06)
ACIT v. Torrent Pharmaceutical Ltd. (2012) 137 ITD 301 (Ahd.)(Trib.)  

 S. 35AB:Expenditure on known how-Lump sum-  Business expenditure-Lump sum  technical know-how fees are deductible only under section 35AB  and  not under section 37(1).( S.37(1) )
The assessee entered into a “Licence and Technical Assistance Agreement” with an American company pursuant to which the American company agreed to transfer technical know-how to the assessee in consideration of US $2,25,000 to be paid in three installments. The assessee paid the first installment amounting to Rs.17.49 lakhs. Subsequently, disputes arose between the contracting parties and the know-how was not transferred by the American company. The assessee claimed that as the technical know-how was not received, the amount paid was deductible u/s 37(1) and not under s. 35AB. The AO & CIT(A) rejected the claim though the Tribunal upheld it. The High Court reversed the Tribunal. On appeal by the assessee to the Supreme Court, held: 
Once S. 35AB comes into play, then S. 37 of the Act has no application. (A. Y. 1993-94)
Drilcos (India) Pvt. Ltd v. CIT (SC).www.itatonline.org.
Editorial –Decision in CIT v. Drilcos (India) Pvt Ltd (2004) 266 ITR 12( Mad) (High Court) is affirmed.

S. 36(1)(iii): Deductions – Interest on borrowed capital – Interest free advances to sister concern, disallowance of interest is not justified.
Total cash profits of the assessee company in the relevant year being far more than the total interest free advances given by it to subsidiary companies it has to be presumed that the entire interest free advances were given out of interest free funds available with the assessee and no part of the borrowed funds can be said to have been diverted as non interest bearing advances to the subsidiary companies and, therefore no disallowance can be made out of interest paid on borrowings. (A.Y. 2006-07 & 2007-08)
S.P. Jaiswal Estates (P.) Ltd. v. CIT (2012) 147 TTJ 649/74 DTR 294 (Kol.)(Trib.) 

S. 36(1)(vii):Deduction-Bad debt – Share broker- Claim was allowed.
The Court following the judgment in CIT v.Shreyas S.Morakha (2012) 342 ITR 2985(Bom.)(High Court) dismissed the appeal of revenue and allowed  the bad debts. (A.Y. 2004-05)
CIT v. Kotak Securities Ltd (No.2) ( 2012) 346 ITR 352 (Bom.)(High Court)

S. 36(1)(vii):Deductions – Bad-debt –Write off- After the amendment with effect from April 1, 1989, it is sufficient to write off the bad debts in the account hence the bad debt is  to be allowed
Though the fee disclosed as bad debt had been taken as income of the previous year in respect of the invoices relating to the eight parties and subsequently the assessee had disclosed the debts as irrecoverable and written them off in the books of account for the AY in question. After the amendment with effect from April 1, 1989, it is sufficient that the assessee had written off the bad debts in the account and the debt has to be allowed. Thus, the claim of the bad debt was allowed. (A.Ys. 2001-02, 2002-03 & 2003-04)
KPMG India P. Ltd. v. Dy. CIT (2012) 17 ITR 569 (Mum.)(Trib.)

S.36(1)(vii): Deduction-Bad-debts –Bank- Non-rural branch – Bad-Debt written off relates to non- rural branch is  held to be entitled for deduction.
Tribunal following the judgment of Apex court in Catholic Syrian Bank Ltd  v.CIT  (2012) 343 ITR 270 (SC), the assessee bank is held to be  entitled to deduction u/s 36(1)(vii) in respect of bad-debt written off relating to its non-rural branch. (AY 2001-02)
Allahabad Bank v. Dy. CIT (2012) 137 ITD 290 (Kol.)(Trib.)

S. 36(1)(viia): Deductions – Bad-debt – Provision for bad debts – Newly created during the year – Not to be netted against the amount written back or reversed while computing deduction
Provision for bad and doubtful debts newly created during the year under consideration should not be netted against the amount written back or reversed while computing deduction u/s 36(1)(viia). (A.Y.2007-08)
The Kanpur District Coop. Bank Ltd. v. ACIT (2012) 147 TTJ 744 (Cochin)(Trib.)

S.37(1):Business expenditure- Capital or revenue expenditure-Settlement and legal charges-Expenses incurred by assessee who merely given licence and permission to conduct  and  manage the restaurant is allowable as revenue expenditure.
The assessee who was owning and conducting a hotel  handed over the restaurant to run on contract basis for a period of fifteen years   There was certain  dispute ,the matter was settled by consent term  under which  the  assessee paid Rs 10 lakhs  to the conductor and also incurred the legal expenses of Rs 1, 65, 500. On reference to the High Court by the revenue  the Court held that this payment was made for resolving disputes and removing hindrance in the management and running of the restaurant and was incurred as a matter  of commercial expediency the payment to a person who was a bare licensee  and had no interest by way of settlement charges as well as the legal expenses incurred by  the assessee is allowable  as revenue expenditure. Question was answered in favour of assessee.
CIT v. Airlines Hotel (P) Ltd ( 2012)346 ITR 33/ 75 DTR 166 (Bom.)(High Court)    
S.37(1):Business expenditure- Capital or revenue-Professional fees- Professional fees paid for proposed setting up of factory constitute a capital expenditure.
The assessee was engaged in the business of manufacturing cement manufacturing machinery. It  proposed to set up plant  for manufacturing cement and for that purpose  incurred expenses on professional fees paid to consultants in relation to cement project at  Chandrapur. The said expenditure was claimed as revenue expenditure. The Assessing Officer treated the said expenditure as capital in nature, which was affirmed by  Commissioner (Appeals) and Tribunal. On reference to the High Court  the Court held that where the expenditure incurred for the  project / feasibility report in connection with exploring the feasibility of a new business venture then such expenditure is  capital expenditure and not revenue expenditure . (A.Y. 1979-80)
Larsen & Toubro Ltd   v. CIT ( 2012) 75  DTR 30 (Bom.) (High Court)

S.37(1):Business expenditure-Capital or revenue-Software expenses- Software expenses is revenue in nature and treatment in books of account is not conclusive.
The assessee is in the business of manufacturing safety glass. It installed the financial software and in the books of accounts it claimed as deferred revenue expenditure. In the return of income it claimed as revenue expenditure,The Assessing Officer disallowed the expenditure as revenue in nature. On appeal the Commissioner (Appeals) allowed the claim of assessee as revenue in nature. On appeal by the revenue the Tribunal up held the order  of the Commissioner (Appeals)  by holding  that the expenses were incurred for either upgrade the system or to run the system  therefore the said expenditure is revenue in nature. On appeal to High Court by revenue the Court held that expenditure   was not to create new asset or new source of income but to upgrade system and extent of expenditure cannot be a decisive factor in determining its nature and treatment in books of account is not conclusive hence the software expenditure is allowable as  revenue expenditure.(A.Ys. 1997-98 & 1998-99)
CIT v. Asahi India Safety Glass Ltd ( 2012) 346 ITR 329 (Delhi) (High Court)       

S.37(1):Business expenditure-Capital or revenue- Software expenses-Purchase of computer software was held to be revenue in nature.
The assessee treated the computer software as revenue expenditure. The Assessing Officer treated the said expenditure as capital in nature and allowed the depreciation. The Claim of assessee was allowed by Tribunal. On appeal by revenue to High Court , the court affirmed the view of Tribunal and held that it would be a unrealistic to ignore rapid advances and to attribute a degree of endurability and permanence to the technical – know how at any particular stage in fast changing area of science. Thus the expenses incurred by assessee on purchase of computer software revenue in nature.
Chief CIT v. O.K.Play India Ltd ( 2012) 346 ITR 57 (P&H) (High Court) 

S. 37(1):Business expenditure- Capital or revenue- Software expenditure-Held allowable as revenue expenditure.
The assessee purchased a software applications i.e. MS office software, antivirus software ,Lotus notes software and message exchange applications. The assessee in respect of these applications acquired a licence to use the said applications on payment of consideration. The  said expenditure was disallowed by the Assessing Officer  as capital in nature and allowed the depreciation at 25%.On appeal the Commissioner (Appeals) allowed the depreciation at 60%. Both the assessee and revenue carried the appeal to Tribunal .The Tribunal allowed the appeal of assessee and restored the matter to the file of the Assessing Officer with the direction to follow the decision of Special Bench. Against the direction of Tribunal the revenue has filed an appeal before the High Court. High Court following the Judgment in CIT v. Asahi India Safety Glass Ltd (2012) 346 ITR 329 (Delhi) (High Court), decided in favour of assessee.(A.Ys 2001-02 , 2002-03)
CIT v. Amway India Enterprises( 2012) 346 ITR 341(Delhi)(High Court)    
Editorial: Special Bench of Delhi Tribunal in Amway India Enterprises v,Dy.CIT (2008) 111 ITD 112 (SB)(Trib)(Delhi) is affirmed.

S. 37(1):Business expenditure- Capital or revenue- Software expenditure-Held allowable as revenue expenditure.
On the facts of the case the Tribunal has restored the matter to decide the issue in the light of the decision on the special Bench of the Tribunal Amway India Enterprises v. Dy.CIT ( 2008) 111 ITD 112 (Delhi) (SB)(Trib.) The court dismissed the appeal of revenue. The Court also  observed that the Delhi High Court arising from the Special Bench decision has held that entire expenditure was allowable as revenue expenditure (CIT v.Amway India Enterprises (2012) 346 ITR 341 (Delhi) (High Court), accordingly the software expenses allowable is as revenue expenditure. (A.Y.2002-03)
CIT v. Kotak Securities Ltd (No. 1)(2012) 346 ITR 349 (Bom.)(High Court)     

S.37(1): Business expenditure –Feature film- Cost of production-Cost of production is not   allowed,  which is  hit by sub –rule (5) of rule 9A.(Rule 9A )
Assessee having neither himself exhibited feature film on commercial basis nor sold rights of exhibition of the feature film nor transferred the rights of exhibition of feature film, then the claim of deduction in respect of cost of production is hit by sub –rule (5) of rule 9A and cannot be allowed. (AY 2007-08)
Sagar Sarhadi v. ITO (2012) 148 TTJ 86 (Mum.) (Trib.)

S.37(1):Business expenditure – Enterprise Resource Planning (ERP) –Capital or revenue – Expenditure incurred on ERP is held to be revenue in nature. 
The assessee company is manufacturer of pharmaceutical items. Following the decision laid in assessee’s own case in other Assessment year and decision of Bombay High Court in CIT v. Raychem RPG Ltd. (ITA No. 4176 of 2009 dated 4/7/2011), it was held that expenditure incurred on Enterprise Resource  Planning (  ERP) was revenue in nature. (A.Y. 2005-06)
ACIT v. Torrent Pharmaceutical Ltd. (2012) 137 ITD 301 (Ahd.)(Trib.)  

S.37(1):Business expenditure – Repairs-Improve condition of building – Building used for business purpose hence repair expenses incurred to improve a condition of building held to be allowable revenue   expenditure.
The expenditure incurred by assessee on repairs to improve bad condition of building which was used for its business purpose was to be allowed as business expenditure. (A.Ys. 1998-99 & 1999-2000)
Dy. CIT v. Sandoz (P.) Ltd. (2012) 137 ITD 326 (Mum)(Trib.)

S.37(1):Business expenditure- Expenses for profession – Advocate-  If there is no doubt that expenditure has been incurred, disallowance is not sustainable.
While computing the tax liability of an assessee the AO is obliged to compute the correct income of the assessee. Once in substance he is in agreement that the expenditure has been incurred for earning the professional income, no disallowances is sustainable in law. Nowhere the AO has doubted that the expenditure claimed as deduction has been incurred by the assessee. In alleging that the expenditure has been deducted in computing the income from other sources, the AO has ignored the fact that in the return of income, the gross amount of interest income, without any deduction, has been shown under the head “income from other sources” and the income under the head “profits and gains of business or profession” has been shown in the tax return on net basis after deducting the expenditure incurred. (A. Ys.. 2005-06 to 2006-07)(ITA no 50, 72, 49 (Gau/2010 Bench ‘D’   dated 31-8-2012)
Lira Goswami v. ACIT (Delhi)(Trib.) www.itatonline.org

S.40(a)(ia): Amounts not deductible- Short deduction of tax-If there is short deduction of tax, assessee be declared as assessee in default under section 201   –  No disallowance can be made by invoking section 40(a)(ia).(S.194C,194I,201 )
The assessee deducted the tax at source in respect of payment of equipment charges at 2.06 %, treating the said payment as covered under section 194C. The Assessing Officer is of the opinion that equipment charges is in the nature of hiring and therefore the provisions of section 194I  is applicable hence the TDS is required to be deducted at 11.33%. As there was short fall in deduction of TDS  the Assessing Officer invoked the provision of section 40(a)(ia) and disallowed the expenses. Commissioner (Appeals) upheld the disallowance. On appeal to Tribunal, the Tribunal held that if there is short fall of deduction due to difference of opinion as to the taxability of any item or nature of payments falling under various provisions of TDS, assessee can be declared as to be assessee in default under section 201, but no disallowance can be made by invoking provisions of section 40(a)(ia). (A.Y.2008-09)(ITA no 6281 /Mum/ 2011 dated 10-8-2012 Bench ‘E’.
EGS Survey P.Ltd  v. ACIT (2012) Income Tax Review –September –P. 90(Mum.)(Trib.)

S.40A(3): Expenses not deductible- Cash payments exceeding prescribed limits-Single payment was not in excess of Rs 20000, disallowance cannot be made.  Amendment in 2009 adding the word “aggregate” is prospective.
The assessee had made payment in excess to Rs 20000  in cash different dates but Assessing Officer disallowed the expenses under section 40A(3). Addition was confirmed by the Tribunal. On appeal to the High Court, the Court held that Single payment was not excess of Rs 20000, disallowance cannot be made.  Amendment in 2009 adding the word “aggregate” is prospective and not retrospective.(A.Y. 2004-05)
Kiran Jaiswal v. ITO ( 2012) 75 DTR 15 (All.)(High Court)

S.40A(9): Expenses or payments not deductible – Contribution – Reimbursement – Section applies to contribution and not to reimbursement, matter set aside to be decided de nova. (S.37 )
The assessee claimed deduction u/s 37, in respect of welfare expenses towards providing education to its employees’ children. The payment was by way of reimbursement  towards the deficit which the school incurred during the relevant accounting period. The Court observed that ,the interpretation of section 40A(9) of the Act clearly brings out a dichotomy between ‘contribution’ and ‘reimbursement’. Section 40A(9) of the Act was inserted by Finance Act no 2 of 1984. The explanatory memo to the Finance Bill 1984, indicates the reasons why the word ‘contribution’ finds place in section 40A of the Act. It appears that the section 40A(9) of the Act was inserted as a measure for combating tax avoidance. On the facts of the case as there was no clear finding recorded by the Tribunal, the matter was set aside to Tribunal with the direction to decide the matter de nova and refrained from going into the scope and applicability of section 40A(9) of the Act, when proper foundation of facts has not been laid. (A.Ys .1985-86 to 1992-93)(C.A.no 4666 to4675of 2005 18-9-2012)  
Sandur Manganese and Iron Ores Ltd.  v. CIT (SC). www.itatonline.org.

S.40(a)(i): Amounts not deductible-Deduction at source-Installation and commissioning services integral part of supply and not assessable as ‘fees for technical services’  despite  separate  contract.[S.9(1)(vii)]
The assessee is engaged in the business of engineering and general contracting. In the revised return of income, assessee did not make a disallowance u/s 40(a)(ia) in respect of installation charges to M/s Mesto Automation  SCADA Solutions Ltd on the ground that the said amount was paid in relation to  plant   and machinery supplied by M/s Mesto Automation  SCADA Solutions Ltd and the said amount not  being chargeable to tax in India in the hands of said party as per the Explanation 2  to section 9(1)(vii) , it was not liable to deduct tax at source  from the said amount. There were two agreements; one for supply of equipment another for installation and commissioning  work which  itself  made it clear that the installation  and commissioning work are different  from the supply of plant. The Tribunal held that, though there was a separate contract for supply and a separate one for installation and commissioning services, the said services held to be treated as ‘ancillary and subsidiary as well as inextricable and essentially linked to the sale/supply of the equipment’ and, therefore , was not chargeable to tax in the hands of the Canadian company  as ‘fees for technical services’ consequently  the disallowance under section 40(a)(i) was not sustainable. Installation and commissioning services are integral part of supply and not assessable as ‘fees for technical services’  despite  separate  contract. Appeal of revenue was dismissed.(A.Y.2002-03) (ITA no 2624/Mum/2006 Bench ‘L’ dated 29-08-2012)
DCIT v. Dodsal  Pvt Ltd (Mum.)(Trib.)www.itatonline.org.

S.40(a)(i): Amounts not deductible-Deduction at source- Royalty- Retrospective amendment of law- Due to retrospective amendment of law, No obligation for TDS  as the law cannot compel a person to do something which is impossible to perform.( S.9(1)(vi).
The assessee is a company engaged in the business of financing , leasing, hire purchase, production and  distribution of internet media and manufacturing of  towels. In  the said  year the video channel started by the assessee became functional. In the course of Video channel business the assessee entered in to an agreement with with M/s Shan Statelite  Public  Co Ltd (SSA).During the year the assessee paid  the amount for the facility of up linking and telecasting  programmes, broad casting and telecasting ,the consultation charges to SSA in foreign exchange without  deduction of tax at source. The payment was made on the certificate issued by the Chartered accountant, that the said payment constituted business income of that non-resident party and since they did not have a Permanent Establishment (PE) in India, business income earned by them was not chargeable to tax in India in accordance with the Article 7 of DTAA  between India and Thailand,  and thus, no tax at source was therefore deductible. The Tribunal following the judgment of   Ahmedabad Tribunal in the case of Sterling Abrasive Ltd  dated 23-12-2010 held that the assessee cannot be held to be liable to deduct tax at source relying the subsequent amendments made in the Act with retrospective effect. Further, the Tribunal relied on the legal maxim ‘Lex non cogit ad  impossibia’  meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform, and on the decision of Honourable Supreme Court in the case of  Krishna Swamy S. PD  and another  v.UOI and other (2006) 281 ITR 305 where in the said legal Maxim was accepted by the Honourable Court.  Thus, Tribunal accordingly held  that  amount paid by the assessee to SSA  was not taxable in India in the hands of SSA  either under section 9(1)(vii) as per the legal position prevalent time and the assessee therefore was not liable to deduct tax at source from the said amount paid to SSA and there was no question of disallowing the said amount by invoking section 40(a)(i) . In view of above the addition confirmed by the Commissioner (Appeals) was deleted.(A.Y. 2004-05 ) (ITA nos 12221/ Mum/ 2006 / 579/ Mum/ 2006 Bench “L” dated 29-08- 2012)
Channel Guide India Ltd  v. ACIT ( Mum.) (Trib.)( www.itatonline.org)

S. 41(1): Profits chargeable tax-Remission or cessation of trading liability-Loan taken for capital purpose-Cessation of liability to repay loan taken for capital purposes is not assessable as income.( S. 28(iv))
The cessation of liability to repay the loan taken for purchase of a car is not assessable as income u/s 41(1) in accordance with Mahindra and Mahindra Ltd(2003) 261 ITR 501 (Bom). Though in Solid Containers Ltd (2009)308 ITR 407 (Bom) it was held that waiver of a loan taken for trading activity would become  assessee’s income and be subject to tax even if the assessee had never claimed a deduction for the loan, that decision is not applicable because there the loan was taken for "trading purposes" and not for purchase of a capital asset. In the alternative, the waiver of a loan is not taxable u/s 28(iv) as that provision applies only when a benefit or perquisite is received in kind and not in cash.( A.Y. 2004-05)(ITA no 3704 of 2010 dated  13-9-2010)
CIT vs. Xylon Holdings Pvt. Ltd. (Bom)(High Court), www.itatonline.org

S.43(1):Definitions–Actual cost—Written down value-Succession of firm by company- Without invoking  Explanation 3 to section 43(1) the Assessing Officer cannot replace the actual cost by WDV as appearing in the books of transfer of firm.(S. 47 (xiii) )
Partnership firm  “Prakash Chemical Agency” has transferred all its assets to Prakash Chemicals Pvt. Ltd. i.e. the assessee. WDV as per the books of account of firm were Rs.19,84,311/-. Assessee company had taken over said firm, ‘cost’ in books of account were taken at Rs. 82,51,157/-. The assessee claimed the depreciation on the “actual cost” on which the assets were   acquired by the firm. The Assessing Officer held that the assessee is entitled to claim depreciation on the WDV as shown by the erstwhile firm. In appeal the Commissioner (Appeals)  allowed the claim of assessee  by observing that in the case of demerger, amalgamation transfer from holding company to subsidiary  company   the legislature has specifically indicated that the “actual cost” of the transferred capital asset would be the same as WDV in the books of the transferor  company .However  ,in the case of transfer of capital assets  of firm to company such a provision is not introduced. On appeal the Tribunal held that the Assessing officer has not invoked Explanation 3 to S. 43(1) he was not justified to disturb actual cost as recorded in books of account of assessee company on date of its acquisition of assets and liabilities of erstwhile firm. Event otherwise in view of the fact that rest of explanation through which Assessing Officer could have disturbed ‘actual cost’ was not applicable, substitution of ‘actual cost’ as replaced by Assessing Officer for purpose of allowing depreciation was not justified.  (A.Ys. 2003-04 to 2005-06)
Dy.CIT v. Prakash Chemical Agencies (P) Ltd ( 2012) 136 ITD 222 / 75 DTR 91(Ahd.) (Trib.)              

S. 43B: Deduction on actual payment –  Employees provident fund- Before due date of filing of return-  Contribution to employees provident fund  , having been made before the date of filing of a return the payment was to be allowed as deduction.
In the instant case, assessee contended that the assessee’s contribution to the employees provident fund be allowed in view of second proviso to section 43B. It was held that the payment having been made before the date of filing of a return the payment was to be allowed as deduction u/s 43B. (A.Ys. 2001-02, 2002-03 & 2003-04 )
KPMG India P. Ltd. v. Dy. CIT (2012) 17 ITR 569 (Mum.)(Trib.)

S.43(5)(d):Definitions-Speculative transaction-Derivative trading in commodity- Recognised stock exchange- Notification treating MCX as "recognised stock exchange" on 22.5.2009 to be treated as retrospective and applying since 1.4.2006.
Proviso to s. 43(5)(d) inserted w.e.f. 1.4.2006 provides that a derivative transaction on a recognized stock exchange shall not be a "speculative transaction". MCX Stock Exchange was notified as a recognized stock exchange on 22.5.2009. Though the recognition came later, MCX has to be treated as a recognized stock exchange w.e.f. 1.4.2006 because the provisions providing for recognition are purely procedural and will have retrospective effect. (A. Y. 2007-2008)(ITA no 2742 /Mum/2011 dated 12-09 2012 Bench ‘A’
ACIT v. Arnav Akshay Mehta (Mum)(Trib.) www.itatonline.org

S.44BB:Mineral oils-Computation- Service tax is not part of “Gross Receipts” for purposes of s. 44BB
The assessee offered its income to tax on gross basis under sub section (1) of section 44BB and 10 % of the gross receipts was deemed to be income chargeable to tax . It however did not include the amount in the gross receipts , being the service tax received from its customers , while computing its total income. The Assessing Officer rejected the contention of the assessee and added the amount of service tax by the assessee to its gross receipts to compute its total income. In appeal commissioner (Appeals) decided the issue in favour of assessee. Revenue has filed appeal before the Tribunal. The Tribunal held that, section 44BB is a special provision, treating 10% of the aggregate amount specified in sub-s. (2) of s. 44BB as deemed profits and gains of the non-resident. The amount referred in sub-s. (2) of s. 44BB are the amounts (a) paid to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on higher used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India, etc. Service-tax is a statutory liability like custom duty and reimbursement of custom duty & service-tax paid by the assessee cannot form part of amount for the purpose of deemed profits u/s 44BB as it does not involve any element of profit. Accordingly, it cannot be included in the total receipts for determining the presumptive income. Department appeal was dismissed. (A. Y. 2008-2009)(ITA no 698/Del/2012 Bench ‘E”  dated 31-8-2012) 
DCIT v. Mitchell Drilling International Pty. Ltd (Delhi)(Trib.) www.itatonline.org

S.45: Capital gains- Tradeable warrants- Cost of acquisition- Gains on sale of tradeable  warrants is not assessable as capital gains. (S. 55(2)(aa) )
For the assessment 1993-94 ,on sale of the tradeable warrants  which was held as investment , the assessee claimed that the profits arising  there from, were not taxable as the tradeable warrants  did not have any cost of acquisition. The Assessing Officer held that the income earned on sale of tradeable warrarnts  is  liable  to capital gains tax, which was confirmed by Commissioner (Appeals). On appeal, Tribunal allowed the claim  of assessee. On appeal by revenue, the Court up held the order of Tribunal and held that clause (aa) of section 55(2) of the Income-Tax Act, 1961 , which was inserted by the Finance Act,1995, with effect from April 1, 1996, to the effect that cost of acquisition attributable  to trading warrants shall be statutorily deemed to be nil with effect from  April 1,1996. Since the assessment year involved  was the assessment year 1994-95 that is prior to the insertion of clause (aa) of section 55(2) the income was not assessable to tax  as capital gains.(A.Y.1994-95)
CIT v. Crown  Esta tes P. Ltd (2012) 346 ITR 1 (Bom.) (High Court)

S.45:Capital gains- Set off loss- Sale to group company-Transaction of “sale” of “pledged” shares at loss to a group company with object to set-off loss against gains is not a “colourable transaction”.(S.2(47) )
The assessee earned capital gains on sale of certain shares. To offset the gains, the assessee sold shares of another company, which were pledged to IDBI, to a group company, at a loss. The AO & CIT(A) treated the transaction of sale to the group company as a “colourable device” & rejected the loss on the ground that as the shares were pledged, they could not have been sold. However, the Tribunal allowed the assessee’s claim. On appeal by the department to the High Court, held that the Revenue’s argument that the transaction was a “colourable device” and a “paper arrangement” is not acceptable because (i) there is no provision which prevents an assessee from selling loss making shares with a view to offset the loss against other gains and (ii) the transaction with the group company was at the fair value. The fact that the shares were pledged and could not be registered in the purchaser’s name did not establish that transaction was a contrived one.
ACIT v. Biraj Investment Pvt. Ltd (Guj.)( High Cour)www.itatonline.org

S.45: Capital gains –Transfer-Amalgamation-  Tax avoidance scheme-. Scheme of arrangement is not a “tax avoidance scheme”. (S.391-394 Companies Act, 1956 )
Vodafone Essar Gujarat Ltd (“transferor”) filed a Petition u/s 391 to 394 of the Companies Act, 1956 to transfer its ‘Passive Infrastructure Assets’ to Vodafone Essar Infrastructure Ltd (“transferee”) free of liabilities and encumbrances. The corresponding liabilities were not to be transferred. No consideration was payable by the transferee nor were any shares to be allotted to the members of the transferor. Post de-merger, the transferee was to be made a substantially owned company of a new company to be formed by all or some of the shareholders of the transferee. Thereafter, the transferee was to be amalgamated/ merged into Indus Towers Ltd. The application was opposed by the income-tax department on the ground that since no consideration was involved, the transaction was ultra vires. It was also claimed that the transaction did not fall within the anbit of ss. 391 to 394 but was a simple transfer between two separate entities to evade legitimate taxes which would be payable if the transaction was effected as a simplicitor transfer. It was also claimed that the Scheme was solely for purposes of avoiding tax. The Company Judge came to the conclusion that the transferee was a paper company and that the sole object of the Scheme was to avoid tax on income in excess of Rs. 3,500 crore and also stamp duty and VAT to the tune to Rs.600 crores. He accordingly refused to sanction the arrangement. On appeal by the Company, Held reversing the Company Judge:
(i)         The Scheme cannot be said to have no purpose or object and that it is a mere device/subterfuge with the sole intention to evade taxes. While it is true that the Scheme may result into tax avoidance, it cannot be said that the only object of the Scheme is tax avoidance.
(ii)        The Revenue’s argument that the transfer is void for want of consideration is not acceptable because it is not a party to the transaction. Even a consideration of one rupee can be said to be a valid consideration and it is not necessary that consideration is always a monetary consideration. In a reconstruction there is a give and take and mutual/reciprocal promises and obligations, which can be said to be consideration for each other. Even the most trifle benefit can be consideration so as to avoid the impact of section 25 of the Contract Act.
Vodafone Essar Gujarat Ltd v. Dept of Income-tax (Gu.j )( High Court).wwwitatonline.org

S. 45: Capital gains-Government  Securities-Exemption- DTAA- India- Cyprus-Gains arising from sale of  Government Securities is exempt as per Article 14(4) of the DTAA. ( S. 90,  Article 11(4), 14(4) )
The  Assessee sold the Government Securities  and claimed the gain as exempt from capital gain tax. The Assessing Officer held that the  gains in transactions of Government Securities has to be assessed as interest within the meaning of Article 11(4) of the DTAA hence taxable in India. In appeal the additions were deleted by the Commissioner of (Appeal) , which was confirmed by Tribunal. On appeal by revenue the Court  up held the view of the Tribunal by holding that  Article 14(4) is applicable hence gain is exempt from tax .(A.Y.2001-02)
DIT v. Credit Suisse First Boston (Cyprus) Ltd ( 2012) Vol.114(5) Bom.L.R.2783 (Bom.) (High Court) 

S.45:Capital gains–Transfer-Development agreement-If developer has taken any steps in relation to construction of flats, on the basis of development agreement, then it has to be considered as transfer and assessee is liable to capital gains tax in the year of transfer.(2 (47)(v ), 53A, of Transfer of Property Act )
When an owner enters in to an agreement for development of the property and certain rights area   assigned to the developer who in turn has made the substantial payment and  taken steps to construction of flats , then  the transaction held to be transfer  under section 2 (47)(v ).Legal ownership continued with the owner does not have  bearing on taxability of capital gains. Though  total profits received in later year for the purpose of capital gains tax the year of transfer is relevant. On the facts of the case the provisions of section 53A  of Transfer of Property  Act is held to be applicable.(A.Ys. 2002-03 & 2008-09)
ACIT v. A. Rama Reddy ( 2012) 52 SOT 521 (Hyd.)(Trib.)      

S.48: Capital gains-Computation-Self acquired trademark and design- Since there was no cost of acquisition capital gains is not chargeable.(S. 55(2)
The assessee transferred self acquired trade mark and designs for the consideration of Rs 15 crore and Rs. 20 lakhs in the previous year relevant to assessment year 1999-2000 and claimed exemption from capital gains tax relying on the ration of judgment in CIT v. B.C.Srinivasa setty (1981) 128 ITR 249(SC) . Claim of assessee was rejected by the Assessing Officer. On appeal, Commissioner (Appeals) and Tribunal accepted the claim of assessee. On appeal by revenue, the Court upheld the order of tribunal by holding that prior to the amendment made to section 55(2) by the Finance Act, 2001, effective from 1-4-2002  by adding the words ‘trade mark or brand name associated with the business self generated assets such as trade mark did not have any cost of acquisition . Therefore, for the period under  consideration the computation under section 48 fails resulting in such transfer of trademarks not being chargeable to capital gains tax. Circular issued by the CBDT 14 -2001 explaining of the Finance Act , 2001  specifically state that the amendment bringing self generated intangible assets such as trademarks to capital gains only w.e.f .A.Y. 2002-03 onwards. The Court also observed that so far as the sale of self –generated designs (i.e. not acquired) the same is also not chargeable to capital gains tax  not only for the reasons applicable to trademarks but also for the fact that even till date, no amendment has been made to section 55(2) of the said Act, defining cost of acquisition of design as in the case of trademark , goodwill , etc .Appeal of revenue was dismissed . (A.Y. 1999-2000)(ITA no 5615 of 2010 dated 12-6-2012)
CIT v. Fernhill  Laboratories and Industrial Establishment(2012) BCAJ-August P. 43 (Bom.)(High Court)

S.49: Capital gains-Previous owner -Cost of acquisition- The property acquired by assessee under will of her father in the year 1988 and mother in the year 2000, which property was originally acquired by assessee’s  grand father in 1942 ,the period of holding shall be from 1st April 1981,  in respect of entire property and benefit of indexation will be available from that date.(S.242A), 48)
The assessee’s father acquired  immoveable property  in the year 1942, from his father . The assessee’s father expired in the year 1988 leaving behind a will bequeathing the property to his wife and the assessee in equal shares. The  asssessees mother expired on 21st Feb., 2000 leaving behind a will bequeathing 50 percent share in the property to the assessee. The assessee sold the property in the assessment year 2005-06 and  claimed the indexation from 1-4-1981. The Assessing Officer has allowed the indexation from the date of acquisition by assessee and not from 1-4-1981. The Commissioner (Appeals) allowed the appeal of assessee. The revenue challenged the order of Commissioner (Appeals)  only in respect of 50 percent of the property acquired by the mother . On appeal the Tribunal held that  in respect 50 percent  of the inherited property from his mother  period of holding will start from 21st  August 1988  as she became the owner of her 50 percent share in the property only from that date under the will made by her husband .Department filed an appeal against the order of  Tribunal  and the assessee filed a cross appeal . According to revenue the period should be considered from the year 1988.   The court held that ,the property acquired by assessee under will of her father in the year 1988 and mother in the year 2000, which property was originally acquired by assessee’s  grand father in 1942 ,the period of holding shall be from 1st April 1981,  in respect of entire property and benefit of indexation will be available from that date . (A.Y.2005-06)
CIT v. Janhavi S. Desai (Ms)(2012) 75 DTR 1 (Bom.)(High Court)    
Janhavi S. Desai (Ms) v. CIT  (2012) 75 DTR 1 (Bom.)(High Court)    

S.54: Capital gains-Property used for residence-Exemption-Booking of  the flat with the builder is to be treated as construction of flat and extended period under section 139(4) has to be considered for the purpose of utilisation of capital gain amount.(S. 139(4).
The assessee sold the property and invested in residential property. The Assessing Officer denied the exemption on the ground that the assessee has failed to deposit the balance amount  in the account in any of the specified bank as required under section 54 and utilize the same in accordance with the scheme framed by the Government and could not produce evidence regarding taking possession of the new flat. On appeal Commissioner (Appeals) confirmed the disallowance. On appeal to Tribunal the Tribunal held that the assessee had booked the new flat with the builder and as agreement , the assessee was to make payment by installments and the builder was to hand over the possession of the flat after construction. Based   on the circular no 672 dated 16-12-1993(1994) 205 ITR (St) 47, read with circular no 472 dated 15-10-1986,(1986) 162 ITR (st)17 in  the case of the assessee was to be considered as construction of new residential house and purchase of flat. The Tribunal held that in the case of assessee had invested the capital gains in construction of a new residential house within a period of three years, this should be treated as sufficient compliance of section 54  and it was not necessary that the possession of the flat should also be taken within the period of three years. The Tribunal also held that the due date of filing of return of income under section 139(1) has to be construed with respect to the due date of section 139(4) as the section 139(4) provides for the extended period of filing return as an exception to the section 139(1) and considering this there is no default as the entire amount of capital gain had been invested within due date under section 139(4) .(A.Y. 2006-07)(ITA No.7326/Mum/2010 dated 13-6-2012 Bench ‘A’).
Kishore H.Galaya v.ITO ( 2012) BCAJ –July –P. 58 (Mum.)(Trib.)       

S.54B: Capital gains-Land used for agricultural purposes-Exemption-Land purchased in the name of  his son and daughter –in-law assessee is not entitled to exemption.
The assessee purchased new agricultural land  in the name of his son and daughter in –law  and claimed  exemption under section 54B.The  disallowance of claim was confirmed by Tribunal. On appeal, the Court held that word “assessee”  used in  Income –tax Act  needs to be given a legal  interpretation and not a liberal interpretation and consequently  an assessee would not be entitled to get exemption under section 54B  for land purchased  by him  in name of his  son and daughter in law .
Kalya v.CIT (2012) 208 Taxman 436 (Raj.) (High Court)    
S.54F: Capital gains- Exemption – Investment in residential house- Purchase of house jointly with spouse is eligible for exemption.
The assessee had made long-term capital gain on sale of shares. The sale proceeds were invested in purchase of row house in the joint names and exemption  under section 54F  was  claimed. The Assessing Officer denied the exemption on the ground that the property was purchased in joint name of wife. In appeal Commissioner(Appeal) confirmed the denial of exemption. On appeal to Tribunal, the Tribunal held that total consideration for the house had been met by the assessee and the name of wife was added only for the sake of convenience. The Tribunal drew the support from the section 45 of the Transfer of Property Act which provides that the share in the property will depend on the amount contributed towards the purchase consideration.(A.Y.2004-05)(ITA no 4285/Mum/2009 dated 6-6-2012.Bench ‘F’)
Vasudeo  Pandurang Ginde v.ITO (2012) BCAJ –July –P.57(Mum.)(Trib.)      

S.54G: Capital gains-Shifting of industrial undertaking from urban area-Exemption- Investment for  the purpose of carrying on business is sufficient compliance, it is not mandatory that the investment in land and building in non-urban area is for the purpose of the business of the industrial undertaking transferred.
The assessee company which was carrying on its business of manufacturing activity at its leased premises leased its premises. The assessee sold its plant and machinery and surrendered the tenancy rights. Part of consideration was invested in Capital Gain Account Scheme and part of amount was invested for purchase of land and building in non –urban area and claimed exemption under section 54G and balance amount was offered to tax. The Assessing Officer held that, the assessee had sold entire plant and machinery in the financial year 1999-2000 and since there was no existence of undertaking when the leased premises which was surrendered on 1-10-2003 claim under section 54G was not available. In appeal the Commissioner (Appeals) has allowed the claim of assessee. On appeal by revenue, the Tribunal held that section 54G(1)(b) merely requires that the acquisition of building or land or construction of  building  should be for the purpose of its business in such non-urban area. The Tribunal compared the section 54Dand section 54G(1)(a) and held that if the amounts are utilized for acquisition of assets for the purpose of its business , this should qualify for the purpose of exemption under section 54G as there is no requirement that the land and building should be used for the purpose of the business of industrial undertaking . The Tribunal also negatived the contention of revenue that industrial undertaking was ceased to exits in 1999-2000, because the section refers the shifting was ‘in the course of or in consequence of” of such undertaking. Appeal of revenue was dismissed. (A.Y. 2004-05)(ITA NO 4428 /Mum/2008  dated 27-6-2012 Bench ‘J’
Dy.CIT v. Enpro Finance Ltd (2012) BCAJ –August P.39(Trib.)(Mum.)(Trib.)

S.55A: Capital gains- Reference to valuation Officer-Report received after completion of assessment- Reference does not became invalid action taken by the tax authorities on the basis of such a valuation will be open for challenge.(S.45 )
 The assessee  opted to take fair market value of land  as on 1-4-1981  on the basis of  registered valuation report. The  Assessing  Officer referred the matter to DVO. Since report was not received with in time stipulated  for completing assessment proceedings, the  Assessing Officer accepted the  valuation shown by the assessee. The assessee received the  notice from  DVO  for valuing the property. The assessee challenged the said notice by way of wit petition  on the ground that the said notice  by the Valuation officer  was invalid once the assessment under section 143 (3) was completed. The Court while dismissing the writ petition held that  reference to DVO does not become  in valid on  completion of assessment proceedings before receipt of valuation report. Such valuation report received after completion of assessment proceedings, would become  part of record and if any action is taken by departmental authorities on basis  of such valuation report , same will be open to challenge by assessee . (A.Y. 2007-08)
ACC LTD v. DVO( 2012) 208 Taxman 397 (Delhi) (High Court)

S.68: Cash credits-Bank pass book-Income from undisclosed source- Addition held to be justified as the bank has acknowledged that assessee has an asset in the form of credit in the pass book.(S.69 )
The amount was credited in the pass book of assessee. The Judicial member held that as the amount was credited in the pass book   maintained by Bank hence provision of section 68 is not   applicable. As there was difference of opinion the matter was referred to third member. The third member held that  it cannot be said that assessee has not maintaining  books of account in respect of passbook  entries pertaining  in her individual bank, hence the addition was held to be justified. The third member also held that addition is also justified under section 69, as the assessee has not proved that the source of gift in her bank account and the bank has acknowledged that assessee has an asset credited in bank account of assessee. (A.Y. 2003-04)
Renu Agarawal (Smt) v.ITO ( 2012) 148 TTJ 169/75 DTR 48 (TM ) (Agra) (Trib.)      

S.68: Cash credits- Gifts from NRI –Burden of proof – Burden is on assessee to show that donors have financial capacity to give gifts, in favour of assessees .
The Assessee received the gifts from two NRIs. The Tribunal decided the issue in favour of assessee merely observing that the donors are assessed to tax at Singapore. The assessee had not lead any evidence to show that the alleged donors had adequate funds in their respective accounts. The High Court summarily dismissed the appeal of revenue. The assessee contended that no opportunity was given to produce the evidence. On appeal to Supreme court, the Apex court held that the assessee has to lead evidence to show that the alleged donors had adequate funds in their respective accounts to make the purported gifs in accordance with CIT v. P. Mohanakala (2007) 291  ITR 278)(SC). Apex Court set aside the matter to the Tribunal to examine the question and assessee to produce the evidence in the light of  the ratio laid down by Apex court in P. Mohankala(Supra). The assessee has to show whether the donors have financial capacity to make the gifts. ( A.Ys 1994-95, 1995-96)(C.A.NO 4653-4655 of 2007 dated 12-9-2012)
CIT v. P.R.Ganpathy & Ors (SC) www.itatonline.org.

S.69A:Unexpalined money –Income deemed to accrue or arise in India-Jewellery- Amount invested in jewellery from non taxable funds cannot be assessed  as income from undisclosed source (S.9)
The assessee is non –resident and was living in Singapore. He has earned income which are not taxable in India. The assessee spent from non-taxable funds for gifting jewellary  to his family members   hence addition could not be made as un explained jewellery in hands of assessee (A.Ys. 2004-05 to 2009-10 )
JCIT v. V. Deenadayalavel (2012) 52 SOT 511 (Chennai) (Trib.)

S.72: Carry forward and set off-Business losses-Unabsorbed business loss- Unabsorbed  business loss can be set off against income from assessed under the head ‘income from other sources’ and ‘income from house property’.
The assessee claimed the set off of business loss against the Income from other sources and income from house property. The Court held that while deciding the set off of the loss computed under the head “profits and gains business” against the profits and gains of business of assessee in the subsequent year, the condition that computation of the profits and gains of business carried on by subsequent year  should be under the head “profits and gains of business or profession ” is consciously absent in section 72 of the Act ,which means that it is not necessary that income against set off claimed in subsequent year , should be assessable under the head ‘profits and gains of business’. Applying the commercial principles the income assessed under the head ‘income from house property’ and ‘income from other sources’  can be treated as the business income of the assessee, the same shall be eligible for set off against brought forward loss.( ITA no 254of 2006 dated 23-7-2012) (A.Y. 1995 – 1996)
Lavish Apartmenr Pvt Ltd v CIT (2012) Income Tax Review –September P 84 (Delhi) (High Court)     

S.73: Losses -Speculation business-Interest on securities- Income from house property-Capital gains-Income from other sources- The assessee had only income from other sources hence explanation to section 73 is not applicable.
The assessee company filed the return of income showing the loss of Rs 1.65 crores  arising out of purchase and sale of shares. The said loss consisted of  business loss of Rs 1.72 Crores and an income  from other sources of Rs 7 lakhs. The Assessing Officer  invoked the  Explanation  to section  73 and treated the said loss as speculation loss . On appeal the Commissioner (Appeals) held that the Explanation to section 73 refers to the words “income which is chargeable under the heads”. Since in the instant case the only income which is included in gross total income was dividend income , the gross total income mainly consisted of “income from other sources” therefore, Explanation to section  73 was not applicable. The  order of Commissioner (Appeals) was affirmed by the Tribunal . On appeal to the High Court by revenue  the Court affirmed the  order of Tribunal. The Court refer the Judgement CIT v. Darshan Securities (P) Ltd ( 2012) 341 ITR 556 (Bom.)(High Court) and Aman Portfolio (P) Ltd  v. Dy.CIT ( 2005) 92 ITD 324 (Delhi) (Trib.)(A.Y. 1997-98)
CIT v. HSBC Securities & Capital Markets India (P) Ltd ( 2012) 208 Taxman 439 (Bom.) (High Court)

S.80G: Deduction – Charitable institution – Renewal of registration – No material brought, suggesting non-fulfillment of conditions stipulated u/s 80G(5) and rule 11AA, hence renewal of registration not to be denied.(S.11AA,12A,)
Where the registration granted to the assessee u/s 12A is subsisting and no material has been brought suggesting that the assessee society did not fulfill the conditions stipulated u/s 80G(5) and rule 11AA, therefore CIT was not justified in denying renewal of approval u/s 80G(5)(vi).
Late Shiv Shankar Memorial Education Society v. CIT (2012)147 TTJ 753 (Delhi)(Trib.)

S.80G:Deduction – Donation – Charitable purpose – Registration of Trust –When a particular one clause could not be acted upon, then mere incorporation of the clause in the trust deed would be of no consequence as far as registration u/s 80G (5) is concerned [S. 12A and 10 (23C)]
In the instant case, a clause in the trust deed empowered the trustees to invest in the properties. It was held that where merely if a provision had been incorporated in the Trust Deed, but by reading of all the clauses together, it is evident that the clause could not be acted upon, mere incorporation of the clause in the trust deed would be of no consequence as far as registration u/s 80G(5) is concerned. Therefore, considering all the clauses together, it was evident that the true import of the trust deed was to carry out its activity subject to restrictions laid down under the Act. Since the assessee’s trust was registered u/s 12A as well as under section 10(23C) there could not be any dispute that the trust was established for charitable purposes. In any event the trust deed had also been amended. The assessee trust was entitled to registration u/s 80G.
NSHM Academy v. CIT (2012) 18 ITR 244 (Kol.)(Trib.)

S.80G:Deduction – Donation-Charitable purpose – Renewal of registration-Registration of institution u/s 12A by itself a sufficient proof that the institution concerned is created for charitable purpose/ purpose of general public utility ,hence, registration could not be denied.(S.2(15),12A)
The assessee society was registered Societies Registration Act, 1860 and was granted registration u/s 12A of the Act. It was granted exemption certificate u/s 80G(5)(vi) which was renewed for AY 2007-08 and 2009-10. However, Director (exemption) rejected the application filed by assessee in Form 10G on the ground that the activities were beneficial to manufacturers only and not covered u/s 2(15) of the Act. It was held by the Tribunal that the registration of institution u/s 12A by itself was a sufficient proof of the fact that the trust or institution concerned was created or established for charitable purpose or a purpose of general public utility and it enjoys approval u/s 80G. Renewal of registration u/s 80G(5)(vi) had been granted for earlier years and there being no change in the facts and circumstances of the year for which renewal was sought for, there was no justification to reject assessee’s application for renewal of exemption certificate u/s 80G(5)(vi) of the AY 2010-11 onwards.
Bengal Hosiery Manufacturers Assn. v. DIT  (2012) 18 ITR 205 (Kol.)(Trib.)

S.80HH:Deduction-Newly established industrial undertakings-Books of accounts- Requirement of separate books for unit wise is not required – exemption can be claimed on the basis of consolidated accounts certified by Chartered accountant.(S.80 I)
The assessee prepared the consolidated accounts and claimed the deduction under section 80HH/80I. The Assessing Officer has allowed the claim. The Commissioner revised the order under section 263. The Tribunal set aside the order of Commissioner. The departmental appeal was dismissed by the High Court. On appeal to Supreme Court the Court held that requirement of separate books for unit wise is not required exemption can be claimed on the basis of consolidated accounts certified by Chartered accountant. The assessee is directed to file the certificate from the Chartered   Accountant which can be prepared from the consolidated accountants before the Assessing Officer.(A.Y.1992-93) (C.A. No 1679 of 2004  dated 5-9-2012)
CIT v. Bangalore Refinery and Petrochemicals Ltd (SC) (www.itatonline.org)

S.80HHC: Deduction-Export Business-Retrospective effect given to 3rd & 4th Provisos to s. 80HHC is ultra vires .(S.28(iiid), 28(iiia) )
The assessee filed a Writ Petition to challenge the constitutional validity of clause (iiid) and (iiie) to s. 28 and the insertion of the third and fourth provisos to s. 80HHC by the Taxation Laws (Amendment) Act, 2005. Similar matters had been filed before various High Courts. Pursuant to the department’s application, the Supreme Court directed that the matter should first be decided by the Gujarat High Court. The Gujarat High Court allowed the Petition in Avani Exports vs. CIT and held that retrospective effect given to 3rd & 4th Provisos to s. 80HHC is ultra vires. Held by the Bombay High Court:
In Avani Exports, it was held that the amendment is violative for its retrospective operation in order to overcome the decision of the Tribunal, and at the same time, for depriving the benefit earlier granted to a class of the assessees whose assessments were still pending although such benefit will be available to the assessees whose assessments have already been concluded. In other words, in this type of substantive amendment, retrospective operation can be given only if it is for the benefit of the assessee but not in a case where it affects even a fewer section of the assessee. The amendment was quashed to the extent that the operation of the said section could be given effect from the date of the amendment and not in respect of earlier assessment years of the assessees whose export turnover is above Rs. 10 Crore. In other words, the retrospective amendment should not be detrimental to any of the assessee. As the Supreme Court had transferred all the matters to the Gujarat High Court in order to avoid confusion and difficulties in enforcement of conflicting judgments of different High Courts, it would be appropriate to follow the judgment of the Gujarat High Court.(A.Y.  )
Vijaya Silk House (Bangalore) Limited vs. UOI (Mum.)( High Court) www.itatonline.org

S.80HHC:Dedcution-Export Business-Duty drawback and credit under Duty Entitlement pass Book scheme-DEPB credit would fall under clause(iiib), and  premium received would represent  profits  chargeable under clause (iiid) of section 28 , deduction to be allowed accordingly. (S 28(iiib),(iiid) )
The Assessing Officer treated the gross amount of DEPB (i.e. premium received on transfer plus the credit to the DEPB) as profit of business under clause (iiid) of section 28 and excluded the same from the eligible profits.. In appeal Commissioner (Appeals) following the  Topman Exports v.ITO ( 2009) 33  SOT 337 held that section 28(iiid) will only cover profit on transfer on DEPB credit . He held that the conditions of  the third proviso to section 80HHC(3) of the Act were not fulfilled and therefore only conditional; benefit would be granted.  Appeal was filed by revenue and assessee. The matter was restored to the file of Assessing officer to follow CIT v. Kalphataru Colurs & Chemicals ( 2010) 328 ITR 451 (Bom.) (High Court). On appeal to the High Court by assessee the court following the judgment of Supreme court in Tpoman Exports v. CIT (2012) 205 Taxman 119 (SC) drawback and credit under Duty Entitlement pass Book scheme-DEPB credit would fall under clause(iiib), and  premium received would represent  profits  chargeable under clause (iiid) of section 28, deduction to be allowed accordingly. (S 28(iiib),(iiid) )(A.Y. 2002-03)
Pal Enterprises v. CIT ( 2012) 209 Taxman 11 ( Delhi) (High Court)  

S.80HHC:Dedcution-Export Business – Surrender in the course of survey-Profits  of business-Treating the surrendered amount as business income will lead to anomalies while computing deduction under section 80HHC(3) .The formula itself is  unworkable .(S. 133A)
In the course of survey the assessee surrendered an amount of Rs 75 lakhs under the head business income to by peace with department .In the return of income the assessee claimed the surrendered income as business profits and claimed deduction under section  80HHC.The Assessing  Officer disallowed the claim on the ground that the surrendered income was not business profits and the same  was not related  with foreign exchange. In  appeal the Commissioner (Appeals) held that amount surrendered has to be assessed under section 68 and 69A under the head income from other sources .On further appeal to Tribunal the tribunal accepted the surrendered amount as business income  and entitled to deduction under section 80HHC.On appeal to the High Court by revenue the court held that treating the surrendered amount as business income will lead to anomalies while computing deduction under section 80HHC(3) .The formula itself is  unworkable  The court held that there  cannot be  any presumption that the surrendered income should be treated as income from exports. Accordingly the appeal of revenue was allowed. (A.Y. 1997-98)
CIT v. Goel Jewellers ( 2012) 74 DTR 345 (Delhi) (High Court)
Goel Jewellers v.CIT (2012) 74 DTR 345 (Delhi) (High Court) 

S.80HHC:Deduction –Export Business –Direct cost- Direct cost in respect of goods exported but sales proceeds not been brought in India within specified period ,cannot   be reduced while computing deduction.
Direct cost incurred in respect of goods which have been exported but sales proceeds have not been brought in India within specified period, cannot be reduced while computing deduction u/s 80HHC. The appeal of revenue was allowed. (A.Ys. 1998-99 & 1999-2000)
Dy. CIT v. Sandoz (P.) Ltd. (2012) 137 ITD 326 (Mum.)(Trib)

S.80IA: Deduction-Industrial undertakings- Books of account- In absence of separate books, Assessing Officer is  entitled to estimate eligible profits.
The assessee manufactured yarn and also sold raw wool, wool waste and textile and knitting cloth. It claimed a deduction of 30% in respect of the profits of the “manufacturing activity”. As the assessee had not maintained accounts for manufacture of yarn actually produced as a part of industrial undertaking, the AO worked out the manufacturing account giving a bifurcation in terms of quantity of raw wool produced. The assessee challenged the preparation of separate trading account by the AO in respect of manufacturing and trading activities. The CIT(A) upheld the assessee’s claim though the Tribunal and High Court upheld the AO’s stand. On appeal by the assessee to the Supreme Court, held dismissing the appeal:
The findings given by ITAT and the High Court are findings of fact. We are not concerned with the interpretation of Section 80IA of the Act. On facts, we find that the assessee ought to have maintained a separate account in respect of raw material which it had sold during the assessment year. If the assessee had maintained a separate account, then, in that event, a clear picture would have emerged which would have indicated the income accrued from the manufacturing activity and the income accrued on the sale of raw material. We do not know the reason why separate accounts were not maintained for the raw material sold and for the income derived from manufacture of yarn.(A.Y. 1998-99)
Arisudana Spinning Mills Ltd v. CIT (SC) www.itatonline.org

S.80IB(10):Deduction-Developing and building-Housing project-Balcony area-Built up area- Since housing project  of assessee was  approved  prior to 1-4-2005 the definition of built area inserted by Finance (No.2 ) Act, which came in to effect from 1-4-2005 is only prospective in nature and it has no application to housing project projects approved  prior to that date .
The assessee is engaged in building housing projects . The  Assessing Officer found that some of the units sold to purchasers were more than 1500 sq .ft . if the balcony area is taken in to consideration. The assessee contended that if the balcony area is not considered none of the residential units  exceeds 1500 sq. ft.The Assessing Officer relying on the built up area inserted by Finance  (no 2) Act which came in to effect from 1-4-2005  held that Balcony can be excluded only if it was used as common area.  He held that the said amendment being retrospective in nature, the Assessee is not entitled to exemption. On appeal the Commissioner (Appeals) upheld the order of Assessing Officer. The Tribunal up held the order of lower  authorities  however allowed the relief in respect of  those flats  which  are within  1500 sq. ft. On  cross appeal by the assessee the Court held that since housing project  of assessee was  approved  prior to 1-4-2005 the definition of built area inserted by Finance (No. 2) Act, which came in to effect from 1-4-2005 is only prospective in nature and it has no application to housing projects approved  prior to that date  The court allowed the cross appeal and set aside order of Tribunal. The court also held that  one of the purchaser has taken two flats , in order to prevent such  transaction , law is amended preventing a person from purchasing two flats in the same project which is prospective in nature , hence the assessee is entitled to exemption.(A.Ys.2005-06, 2006-07)
CIT v.Anriya Project Management Services (P) Ltd (2012) 209 Taxman 1 (Karn.) High Court)

S.80IB(10):Deduction-Developing and building-Housing project-Joint development agreement- Developer of housing project is also entitled to exemption.
The assessee  purchased certain  agricultural land in a village of Bangalore City.The sale deed was not registered . A joint development was entered in to  and the assessee  were allotted 40 flats . The assessee sold the flats  and claimed  exemption under section 80 IB (10)  on the profits of said flats. The Assessing Officer denied the exemption  on the ground that the conditions  laid down in section 80 IB (10)  was not satisfied which was confirmed by Commissioner (Appeals). On appeal the Tribunal held that  the assessee has not only obtained the permission / sanction for the construction but also had done the work of making the land useful for the apartment construction, providing roads, supervised the construction activity. The assessee being an integral part of the development and construction activities. It was not merely the land owner, who had agreed to part with the land  the developer is also entitled to the benefit under section 80 IB (10).  On appeal to the High Court by revenue , the Court held  that  keeping in mind the object  which the provision is introduced all persons who have made investments in this housing project which is for the middle and lower class people and they have complied with all the conditions prescribed  under the provision hence the order of Tribunal is confirmed. (A.Y. 2004-05)
CIT v. Shravanee Constructions ( 2012) 209 Taxman 6 (Karn.) (High Court)      

S.80IB(10): Deduction- Undertaking-Developing and building-Housing project-Commercial area-Ceiling on commercial area inserted w.e.f 1.4.05 does not apply to projects approved before that date.
 The assessee’s housing project was commenced pre 1.4.2005 when s. 80-IB(10) did not impose any ceiling on the commercial area that could be embedded in the project. S. 80-IB(10)(d) was inserted by the Finance (No.2) Act, 2004 to impose a ceiling on the extent of commercial area that could be contained in the housing project. The Tribunal held that as the assessee’s project was completed after 1.4.2005, the question of eligibility for s. 80-IB(10) deduction had to be considered as per the law then prevailing and not at the time that the project was approved. As the commercial area exceeded the ceiling stipulated in s. 80-IB(10)(d), the claim for deduction was denied. On appeal by the assessee to the High Court, held reversing the Tribunal:
The judgement of the Bombay High Court in CIT v Brahma Associates (2011) 333 ITR 289 (Bom) that w.e.f. 1.4.2005, deduction u/s 80-IB(10) would be governed by the restriction on commercial area imposed by clause (d) does not mean that even projects approved prior to 1.4.2005 would be governed by the said restriction. Neither the assessee nor the local authority responsible to approve the construction projects are expected to contemplate future amendment in the statute and approve and/or carry out constructions maintaining the ratio of residential housing and commercial construction as provided by the amended Act. The entire object of s. 80-IB(10) is to facilitate the construction of residential housing project and if at the stage of approving the project, there was no such restriction in the Act, the restriction subsequently imposed has to be necessarily construed on a prospective basis and as applying to projects approved after that date.(A.Y  2006-2007) (Tax Appeal no 1053 of 2011 dated 3-9-2012)
Manan Corporation v. ACIT (Guj.)(High Court), www.itatonline.org

S. 80IB(10): Deduction- Undertaking-Developing and building-Housing project-  Cap on commercial area inserted w.e.f. AY 2005-06 applies to projects approved earlier.
Though the assessee’s project, when it was commenced in the year 2003, was in compliance with s. 80-IB(10) as it then stood, the law prevailing in the year of completion of the project has to be seen. As the Project breached the ceiling of maximum commercial area imposed by s. 80-IB(10)(d) inserted w.e.f. 1.4.2005 (lesser of 2000 sq. ft or 5% of aggregate BU area), the assessee is not eligible for s. 80-IB(10) relief (Saroj Sales Corp vs. ITO (2008)115 TTJ 485(Mum) not followed; CIT v Brahma Associates (2011) 333 ITR 289 (Bom) & Reliance Jute & Industries Ltd. (1979) 120 ITR 921 (SC) referred) (A.Y. 2006-2007)(ITA no 7021/Mum/2008 dated 12-9-2012)
ITO v. Everest Home Construction ( Mum)(Trib.) www.itatonline.org
Editorial- The view of Tribunal is contrary to the view of Gujarat High Court  in Manan Corporation v. ACIT  www.itatonline.org.

S.80P(2)(a)(iii): Deduction- Co-operative societies-Marketing of agricultural produce grown by its members – Manufacture-  Sugar in to sucrose-To decide what is manufacture the department should have a panel of experts.
The assessee is a co-operative sugar Mill. The assessee buys sugarcane from its members . It undertakes a particular operation whose final outcome is final product in the form of sugar . The assessee claimed the deduction under section 80P(2)(iii) of the Act. The question before the Apex court was whether the final product (Sugar) would make the assessee (s) entitled to claim the benefit of section 80P(2)(iii) of the Income tax Act 1961 , in respect of marketing of the agricultural produce grown by it members.? Whether the operation undertaken by the assess(s) constitute manufacture.?. The assessee contended that the process undertaken by the assessee is not a ‘manufacture’ .Broadly , according to the assessee sugar(also called ‘sucrose’ )  hence the process is not manufacture. According to department process constitute ‘manufacture’ . The Department  referred the judgment of Apex court in CIT v. Oracle Software India Ltd 340 ITR 546 (SC), wherein it has been observed that, the terms ‘manufacture’ implies a change, but every change is not a manufacture, despite the fact that every change in article is that the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation/process renders a commodity or article for its use for which it is otherwise not fit, the operation /process falls within the meaning of the word ‘manufacture’. The court said the question whether conversion of sugar in to sucrose is ‘manufacture’ should be decided by experts. The Court remitted the matter to the file of Commissioner (Appeals) to decide the issue after getting the opinion of experts and giving an reasonable opportunity to the assessee. (C.A.NO 2445 of 2005  dated 26-9-2012 and others)

Morinda cooperative Sugar Mills Ltd v. CIT (SC)www.itatonline.org

S.90:Double taxation relief- Loss on sale of shares-Set of-DTAA –India-Assessing Officer cannot thrust the provisions of the Double taxation avoidance agreement on an assessee , who has chosen to be governed by the Income-tax Act. Assessee is entitled to set off loss under “Profits and gains of business or profession” against “Income from other sources”. (S.71, Art. 7)   
Assessee, a non-resident disclosed a loss on sale of shares falling under the head ‘Profits and Gains of Business and Profession’ and claimed a set-off of such loss against income under ‘Income from other sources’. The assessee did not have a PE in India and chose to be governed by Income Tax Act and not by DTAA. However, the AO superimposed his choice on the assessee considering the case to be under DTAA and holding that since the assessee had no PE in India, there could be no business loss available for set off. However, it was held that the view of the AO ran contrary to the manifest prescription of section 90(2) which in unequivocal terms provides that the provisions of DTAA would apply to the extent they are beneficial to assessee. When assessee chose to be governed by the provisions of the Act and not the DTAA by not claiming to have any PE in India or to be regulated by Art 7 read with Art 5, the AO was not justified in directing that the business loss should be considered under the provisions of DTAA and not the Act. Hence, the loss is allowed to be set-off. (AY 2003-04)
Prudential Assurance Co. Ltd. v. ADIT (2012) 18 ITR 186 (Mum.)(Trib.)

S.92C: Avoidance of tax- Transfer pricing-Cup method- TNM method- Depreciation- While computing Arms length price  profit should be considered without deduction of depreciation.
The Assessee company which is engaged  in software  development. The assessee has adopted the CUP method. The TPO has rejected the CUP method applied by the assessee and adopted TNMM method  for computing ALP. The method adopted by  the assessee was rejected by the Commissioner (Appeals). On appeal the  Tribunal held that for application of CUP method there should be similarity of transactions to  be compared.  If there are material product differences   CUP method may not be applicable. On the facts the Tribunal held that services rendered by assessee to third parties  were different from services rendered by it to Associated Enterprises    hence  third parties could not be considered for comparability analysis for benchmarking of international transactions made by assessee with its AE and therefore , CUP method could not be adopted for determining ALP  , therefore order of TPO was justified . Assessees appeal was dismissed.  As regards depreciation which can  have  varied basis  and is allowed  on different rates, which has no direct connection  or bearing on price , cost or profit margin of international transactions  profit should be taken without deduction of depreciation. The issue decided in favour of  assessee. ( A.Y. 2005-06)
Qual Core Logic Ltd  v. Dy.CIT ( 2012) 52 SOT 574 (Hyd.) (Trib.)        

S.92C: Avoidance of tax- Transfer pricing- Arm’s length price- Comparables-TNMM – Subsequent year TPO has accepted the operating margin method   can be the sole basis to apply profit margin method   for the relevant year.
The Assessee in its  transfer pricing  report has accepted the TNMM as most appropriate method  after  intensive search  of comparable companies. The contention of the assessee that operating profit shown should be accepted solely on the ground that in subsequent years the TPO has accepted the operating margin, cannot be accepted. The Tribunal directed TPO to work out the   operating profit of comparable cases with certain  specified adjustments and take their arithmetic mean for determining the ALP of the international transactions of the assessee company.TPO will restrict the adjustments to the transactions with the AEs only and not whole of the transactions/turnover. Further , while arriving at the aritmatic mean of the operating profit of the comparable companies , if the difference is less then +-5 percent as given in section 92C(2) , then the benefit of the section 92C (2)  should be given according to law. Revenues appeal was partly allowed(A.Y.2002-03)
Dy.CIT v. Firmenich Aromatics (I) Ltd (2012) 75 DTR 33 (Mum,)(Trib,)         

S.92C: Avoidance of tax- Transfer pricing-Arms’ length price-Cup-TNMM-Weighted average-Broking  and trading in shares- For comparability analysis, the comparable uncontrolled method (CUP) is better than the TNMM , especially if internal CUP  instances are available . 
Assessee is in the business of broking and trading in shares. It provided the stock broking services in respect clearing house trade to its  Associated Enterprises. The TPO applied the CUP method for comparability analysis . The Assessee contended that the TNMM method is most appropriate. Without prejudice if CUP method   is adopted certain adjustments have to be made as per Rule 10B(1) (a)(ii).
The Tribunal held  that ,      
(i) For comparability analysis, the comparable uncontrolled method (CUP) is better than the TNMM, especially if internal CUP  instances are available ;
(ii) the assessee’s   argument  that “weighted  average arithmetic mean’ of brokerage rates as compared to the “simple average arithmetic mean’ of such rates should be adopted is not acceptable because the first proviso to section 92C refers only to  “arithmetic mean”  of more  than one  ALP and does not require the volume  of the relevant transactions to be taken in to consideration;
(iii) Under Rule 10B(1)(a)(ii) adjustments to account of difference, if any , between the international transaction and the comparable uncontrolled transaction which could materially, affect the price in the open market have to be made, However ,the onus is on the assessee to make out a case for such adjustment (on account of differences in marketing function, research functions and difference in volumes) supported  by relevant facts & figures & documentary evidences. The matter was set aside for verification of   details and documentary evidence to be furnished in support.  (A.Ys 2003 -04 & 2005-06)(ITA Nos. 3077/ Mum/2009 / 1236/Mum/ 2009 . dated  14-9-2012 .Bench “L”.)
RBS  Equities (India) Ltd  v. ACIT (Mum.)(Trib.)www.iatonline.org.  

S.92C: Avoidance of tax- Transfer pricing-Arms’ length price-Choice of method and profit level indicator (‘PLI’)- Functional Asset Risk (FAR)- On the facts of the case the appropriate PLI  will  be the net profit /total cost  and not the % of FOB  value of goods sourced by AE .
The assessee is a wholly owned subsidiary of GAP International Sourcing Inc, USA . The business activities of the assessee is to facilitate sourcing of apparel merchandise from India for the GAP group . Earlier years similar services were provided by a liasoning  office , after incorporation as wholly  owned subsidiary similar services are rendered by the assessee. Earlier Liasoning  office was remunerated at cost +15% for these services. The assessee filed its TP report claiming Transactional Net Margin Method (TNMM) with cost plus 15% remuneration to be most appropriate method for determination of arms length price (“ALP”). The TPO  looking at the FAR  and other factors rejected the  assessee’ s claim cost plus 15% ALP and held that commission at 5% of the FOB value of goods by the foreign enterprise through Indian Venders was the most appropriate PLI   for determining ALP. Before  the DRP  it was submitted that   assesses, primary business activity comprised identification of vendors, provision of assistance to vendors in procurement of law material, inspection  and quality control  and co-ordination with vendors to ensure  delivery of goods to GAP Group  as per schedule supplied  by GAP. However DRP has accepted the report  of TPO. The main issue before the Tribunal was whether PLI  based on cost plus mark up or 5% of commission on FOB value of goods facilitated by the assessee for out sourcing is the most appropriate  in given circumstances .  After considering the submissions the Tribunal held that,
(i) The FAR , analysis gives the basis of broad characterization for e.g. Manufacture, service  provider , distributor , etc  with a further sub- characterization including low risk service provider; fullfledged manufacturer , contract manufacturer , etc . These characterization are vitally important to determine the arm’s length price of international transactions;
(ii) The department has to proceeded   on the erroneous premises is a risk bearing AE  and its functions  are not in the nature of a service provider only . The FAR attributable to assessee are far greater than   what are claimed. It is also assumed that the assessee has developed substantial intangibles in the form of human resources and supply chain and enjoys location   advantages . The fact is that the assessee is only a low risk procurement support service provider;
(iii)The arms’ length pricing (method and profit level indicator (PLI) should be   the one which reflects commercial and economic realities of the industry and does not lead to absurd and distorted results .  The appropriate PLI is the net profit/ total cost as adopted by the assessee.
(iv) On the question of percentage mark up to be applied to the assessee’s cost , in comparable instances of Li& Fung India Pvt Ltd  v. DCIT (2010) 12  ITR 748 (Delhi) (Trib.), the rate of 32 % was applied as opposed to the rate of  15% applied by the assessee
The Tribunal accordingly held that non risk bearing procurement facilitating  functions which are preordained  by contract and hand book , the appropriate PLI  will  be the net profit /total cost  and not the % of FOB  value of goods sourced by AE . Accordingly the Tribunal up held the net profit /total remuneration model  adopted by the assessee .For determination of cost plus remuneration method the Tribunal ,on the facts of the case held as under “ In view of the foregoing we have no hesitation to accept  candid proposal given by the assessee and hold that assessee TP adjustments  be made by adopting the 32% cost plus mark up of the assessee for the Asst years  2006-07 & 2007-08. The mark up proposal of  assessee is higher than  mark up proposal over total cost earned by all comparables placed on record . The assessments should be framed   accordingly . We may hasten to add that this mark  we will be subjected to variation in subsequent years if the facts and circumstances  of the case so warrant”. The appeal of assessee was partly allowed.
(A.Y. 2006-07 & 2007-08)(ITA no 5147/Del/2001& 228/Del/2012 Bench “C’ New Delhi. Dated 18-9-2012)  
GAP International Sourcing (India) Pvt Ltd  v. ACIT (Delhi) (Trib.) www.itatonline.org.

S.92CA: Avoidance of tax- Transfer pricing-  Reference to TPO- Petitioner participated in the proceedings before TPO and has remedy to move before the DRP as well as appeal before the Tribunal hence  writ petition was held to be not maintainable . (Art 226, Constitution of India)
The Assessing  officer  relying upon the CBDT instruction selected  for scrutiny and after  seeking approval of CIT made reference to the TPO . The petitioner participated in the proceedings before TPO . The petitioner thereafter filed a writ petition  questioning the validity of the approval  granted by the  Commissioner to the Assessing Officer and the order passed by the TPO. The Court dismissed the petition by observing that  petitioner participated in the proceedings before TPO and has remedy to move before the DRP as well as appeal before the Tribunal hence  writ petition was held to be not maintainable under Art 226, of the Constitution of India.
Hindalco Industries Ltd  v. Add.CIT ( 2012) 75 DTR 238 (Bom.) (High Court)

S.92CA: Avoidance of tax- Transfer pricing- Alternative remedy – Writ is not maintainable as the petitioner is having alternative and efficacious remedy against the order.(S. 144C, Art 226 of the Constitution of India)
The petitioner challenged the reference made under section 92CA(1) of the Act  and the show  cause issued by the Addl.CIT . It was contended on behalf of the revenue that there is a complete mechanism provided under the Act for raising objections in the matter of fixation  of  ALP  hence the writ is not maintainable. The court held that  petitioner is having alternative and efficacious remedy against the order passed under section 92CA(3)  as a complete mechanism exists under section 144C the writ is not maintainable .(A.Y. 2008-09)
Bhatia International Ltd  v. Addl. CIT ( 2012) 75  DTR 247 (MP) (High Court)  

S.94: Avoidance of tax-Transaction in securities-Purchase of units and the sale thereof at loss after earning dividend loss is allowable.
The assessee had purchased units of mutual funds on 26-12-20003. On the  very same date , the assessee received the dividend . On 29-03-2004 , the assessee redeemed the units and claimed shorter capital loss. The Assessing Officer opined that the cheque for the purchase of units was actually realized on 30-12-2003 and therefore , the period of holding before the sale was only 88 days i.e. less than 3 months, therefore provision of section 94(7) of the Act held applicable. He denied the  set off short term capital loss claimed  by assessee. On appeal the claim of loss was allowed by Commissioner (Appeals) by observing that if date of tender of cheque for purchase  of share is considered as the date of purchase , then the sale was not within three  months of purchase and provision of section 94(7) held not applicable. On appeal by revenue the Tribunal confirmed the view of Commissioner (Appeals) and dismissed the appeal of revenue. (A.Y.2004-05)(ITA no 4285/Mum/2009 dated 6-6-2012.Bench ‘F’)
ITO v. Vasudeo  Pandurang Ginde (2012) BCAJ –July –P.57(Mum.)(Trib.)    

S.115WB: Fringe benefits-Telephone –Other expenses under the head telephone expenses are not  covered under  Fringe benefit. For tour and travel expenses rate applicable will be 5 % and not 20% as applied by the Assessing Officer. 
The Assessing Officer held that postages, E-mail and courier charges debited under the head telephone expenses  has to be considered for the applicability of Fringe benefit, which was confirmed in appeal by the Commissioner (Appeals).  On  appeal the Tribunal it was held that  expenditure   debited under the head postage, E-mail, lease line and courier are not covered by section 115WB (2) (J) of the Act hence no disallowance can be made. The Tribunal also held that for the relevant year FBT is applicable at 5 % and not 20% as applied by the Assessing Officer . Accordingly the addition made by the Assessing Officer was deleted. (A.Y. 2007-08)
SGS India (P) Ltd v. Addl.CIT ( 2012) 75 DTR 221 (Mum.)(Trib.) 

S.132: Income tax authorities-Powers-Search and seizure- Warrant- legal representative- Warrant  in the name of mother as legal representative-block assessment in consequence of search held to be valid .
Search was carried out to find out the undisclosed income of deceased P. Balaji.  On his  demise  the estate was represented by his legal heirs including the minor son . The  estate was represented  by the minor  through his mother . Block assessment was made pursuant to the search made in the premises of the deceased and the warrant  in the name of mother  as a representative of the legal heir (Minor son) of the deceased was held to be valid. The High Court confirmed the order of Tribunal and dismissed the appeal of assessee(Block period 1988 to 1997-98)
P.Balaji v.Dy.CIT  ( 2012) 251 CTR 418/75DTR 6 (Mad.) (High Court)
CIT v. P. Shanthi (Smt.) LR of Minor P.Balaji ( 2012) 251 CTR 418/75 DTR 6 (Mad) (High Court) 

S.142(2A):Assessment- Special audit-Condition precedent- Direction issued by the Assessing  Officer for a special audit , without considering the objections of assessee was liable to be set aside  as it violates principle of natural justice.
The books of account was audited  and the returns were filed along with the audited profit and loss account. There was survey proceedings in the assessment year 2008-09 and it was found that purchases from 11 parties were bogus. It was sated that the  findings recorded  during the course of assessment proceedings for the assessment year 2008-09 and the material impounded during the survey indicate a similar state of affairs for other assessment years starting from assessment years 2005-06. The assessee was given show cause notice by the Assessing Officer as to why a special audit should not be ordered  for the assessment years 2005-06 , 2006-07 and 2007-08 on the grounds that purchases made from eleven parties were bogus. The assessee has filed a detailed reply in respect  of show cause notice, however without considering the reply the Assessing Officer referred the matter to special audit. The assessee challenged the said order directing for special audit by way of writ petition. The Court allowing the writ petition held that there is violation of the principle of natural justice on the part of the Assessing  Officer in issuing  a direction for special audit under section 142(2A),without considering the objections of the assessee, accordingly the court directed the Assessing Officer to pass an order considering the objections raised by the assessee and upon  affording to the assessee a reasonable opportunity of being  heard in terms of section 142(2A).(A.Ys 2005-06 to 2007-08)
Nickunj Eximp Enterprises Pvt. Ltd.  v. ACIT ( 2012) 346 ITR 6 (Bom.)(High Court)    

S.143(2): Assessment-Notice- Block assessment-Notice under section 143(2) was not served the assessment is bad in law. Proviso to section 282BB was not applicable in a case where the authority  did not have jurisdiction to proceed further  and make assessment.(S. 292BBB)
The block assessment under section 158BC was completed without issue of notice under section 143 (2). The assessee contended that the assessment was bad in law . The appeal of the assessee was allowed   by the Commissioner (Appeals)  which was confirmed by Tribunal . On   appeal to the High Court by revenue the court up held that order of tribunal by holding that as no notice under section 143(2) of the Act  had been served  upon the assessee  the assessment was bad in law. The Court also held that the proviso to section 292BBB   was  not applicable in a case where the authority did not have jurisdiction to proceed further and make assessment, therefore the block assessment was not valid.
CIT  v. Bihari Lal Agrawal ( 2012) 346 ITR 67 (All).(High Court).    

S. 143 (3):Assessment- Notice-Service of notice at address other than  address shown on return which returned un served, assessment held to be invalid. Provisions of section 292BB is not applicable prior to assessment years 2008-09).(S. 292BB )
The assessment was completed on the basis that notice issued under section 143 (2)  was received back un served. When  penalty proceedings were initiated the assessee challenged the  assessment order stating that no notice were served on the assessee  under section 143 (2), as the notice issued  was not sent to correct address hence returned un served .The Commissioner (Appeals) dismissed the appeal on the ground that the assessee participated in the proceedings through authorized representative and by virtue of section 292BB , the assessee was precluded from challenging  the notice. On appeal Tribunal held that  the service of notice at address other than address shown on return , which returned un served held to be not proper service. Provision precluding assessee from taking such objection is not applicable to  assessment years prior to 2008-09, hence the assessment order passed by the Assessing Officer under section 143 (2) (ii) was held to be bad in law.( A.Y.2007-08)
Ashok   B.  Bafna  v. Dy.CIT ( 2012) 18 ITR 43 (Mum.) (Trib.)

S.143(3): Assessment- Natural justice-Cross examination- Breach of natural justice /cross examination should be raised at the earliest opportunity. Disallowance of expenses held to be justified. [S.37(i)]
The principle  of  natural justice cannot  be construed in isolation from the factual matrix of the case. Though the Inspectors report was not given to the assessee , the contents thereof were communicated , the identity of persons question was given and the manner in which the enquiry was held also set out and the assessee was given a chance to explain . Accordingly, the principle  of natural justice were substantially complied with at the assessment stage, the assessee did not feel prejudiced categorically indicated that it had submitted whatever materials were within its possession and did not have anything more to submit. It did not ask for a copy of the report or the cross examination of the inspector. If a party fails to avail of the opportunity to cross-examination a person at the appropriate stage in the proceeding, the said  party would be precluded  from raising such issue at a later stage of the proceedings . Plea of violation of natural justice taken at the appellate stage is an afterthought. Appeal of assessee was dismissed . The disallowance of expenses were confirmed. (A.Y.1994-95)(ITA no 267 of 2003 dated 30-8-2012)
Hindustan Tobacco Company v. CIT (Cal.)(High Court)www.iatonline.org
Editorial. The view of third member in DCIT v. Hindustan Tobacco Company (2003) 87 ITD (TM)(Kol.) (Trib.), affirmed.  

S.144:Best judgment assessment – Order – Findings of fact same as were available to AO – Hence, deletion of disallowance justified as a change in stand not be made when finding of facts remained the same [S. 40(a)(ia)]
The assessee derived income from publication and trading books. For the relevant assessment year the AO passed an assessment order u/s 144 making certain disallowances. On appeal to Tribunal, it was held that a change in stand could not be made when finding of facts remained the same as were available to the AO in view of fact that part deduction of tax on certain payments did not lead to the finding that all expenditure incurred was susceptible to be disallowed u/s 40(a)(ia) for want of deduction of tax at source. Hence, the deletion of disallowance was justified. (AY 2008-09)
ITO v. Sahadev Pradhan (2012) 18 ITR 180 (Cuttack) (Trib.) 

S. 145: Assessment-Method of accounting-Valuation of stock-Excise duty is  not  includible  valuing  closing stock.
 The assessee valued its closing stock without including excise duty. The AO held that excise duty had to be included in the closing stock, though the CIT(A), Tribunal and High Court, upheld assessee’s plea. On appeal by the department to the Supreme Court, held dismissing the appeal:
The assessee has been following consistently the method of valuation of closing stock which is “cost or market price whichever is lower.” Also, while the AO revalued the closing stock, he did not make any adjustment to the opening stock. Excise duty is on the manufacture of the finished product though it is quantified and collected on the selling price. Valuation of unsold stock at the close of the accounting period is a necessary part of the process of determining the trading results of that period. It cannot be regarded as source of profits. The true purpose of crediting the value of unsold stock is to balance the cost of the goods entered on the other side of the account at the time of the purchase, so that on cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions in which actual sales in the course of the year has taken place and thereby showing the profit or loss actually realized on the year’s trading. The entry for stock which appears in the trading account is intended to cancel the charge for the goods bought which have remained unsold which should represent the cost of the goods.(A.Y. 1987-88)
CIT v. Dynavision Limited (SC)www.itatonline.org.

Editorial  : View in CIT v Dynavision Ltd (2004) 267 ITR 600 (Mad)(High Court is up held 

S.145: Assessment Method of accounting – Valuation of stock –Cost of production of film- the  method of reducing the value of the closing stock by revaluing the film at the cost or net realizable value whichever is less, not justified on facts .(Rule 9A)
Cost of production of film cannot be allowed as deduction until and unless the conditions are specified u/r 9A are satisfied hence, such deduction cannot be permitted by adopting an indirect method of reducing the value of the closing stock by revaluing the film at the cost or net realizable value whichever is less. (AY 2007-08)
Sagar Sarhadi v. ITO (2012) 148 TTJ 86 (Mum.) (Trib.)
S.145: Assessment – Method of accounting – Estimation of profits- Advance money- Income could be assessed only when amount received in advance had reached certainty and hence, impugned addition was deleted. 
The assessee firm was engaged in the business of civil work and road construction as a contractor. It entered into an agreement with the State Road Transport Corporation for development of commercial complex. The assessee as a developer had been allowed to find intending allottees and to collect sale consideration from such lessees . Intending lessees could become allottees only on approval by State Road Transport Corporation. Assessee collected certain advance money from customers. The AO relying on AS-7, opined that assessee should have declared profit of the said project on percentage of completion method. Thus, on value of work-in-progress, the AO held that the 10% was income generated which was added to the total income. It was held that assessee could be regarded as a contractor and also a developer, revenue could not be recognized in terms of AS-9 guidelines. Thus, income could be assessed only when amount received in advance had reached certainty and hence, impugned addition was deleted. (A.Ys. 2004-05 & 2005-06)
ACIT v. National Builders (2012) 137 ITD 277(Ahd.)(Trib.)

S.145: Assessment- Method of valuation of stock-Valuation of closing stock-To implement the incentive  scheme, sugar was rightly valued at levy price which was less than the cost of manufacture of sugar.
The assessee company engaged in the business of manufacture and sale of sugar. The assessee valued the closing stock of sugar at levy price which is less than the cost price. Department valued the same at cost price. The question raised before the Apex court was “whether on the facts and in the circumstances of the case, ITAT was right in holding that closing stock of incentive sugar has to be valued at levy price and not cost price”
The court observed that, valuation of opening and closing stock is very important of true profits. An improper valuation could result in rejection of books of account though all that is needed for rectifying it, is to make an addition or necessary adjustment based on proper valuation . Valuation of stock , whatever may be the method ,should be consistently followed . Method of valuation is generally at cost or the market value whichever of the two, is lower. As the incentive scheme was held to be a capital receipt in CIT v. Ponni Sugars and chemicals Ltd  (2008) 306 ITR 392(SC), the assessee is right in valuing the closing tock of incentive sugar at levy price which was less than the cost of manufacture of sugar (Cost price). The court also observed that “If we were to accept the case of the  Department  that the excess amount realized by manufacturer (s) over the levy price was a revenue receipt taxable under the Act ten the very purpose of the incentive scheme formulated by  Sampat committee would have been defeated . One cannot have a stock valuation which converts a capital receipt in to revenue income”. Appeal filed by the Department were dismissed.( A.Ys .1992-93 to 1997-98)(C.A.NO 7014 of 2012 arising out of SLP no 9263 of 2009 dated 26-9-2012and others)
CIT v. Bannari Amman Sugars Ltd (SC).www.itatonline .org

S.145:Assessment-Method of accounting – Project completion Method – Sale of TDR-,  TDR has direct nexus with the project undertaken can be brought to tax only in the year in which the project is completed.(S.28(i) )
The assessee is following project completion method of accounting. During the financial year 2005-06 the assessee sold the TDR allotted to it by BMC, which TDR was directly linked to the projects undertaken by assessee. As the project was not completed this amount was reflected in the balance sheet as advance. The Assessing Officer brought to tax entire amount as income of the assessee in the assessment year 2006-07.In appeal Commissioner (Appeals) confirmed the order of Assessing Officer. On appeal to the Tribunal, the Tribunal held that in the case of an assessee following the completion method, receipts by way of sale of TDR which TDR has direct nexus with the project undertaken can be brought to tax only in the year in which the project is completed.(A.Y. 2006-07)(ITA No.193/Mum/2010/dated 25-4-2012)
Pushpa Construction Co v.ITO (2012) BCAJ –July –P. 59 (Mum.)(Trib.)

S. 147: Reassessment- Failure to disclose material facts-after four years- in There must be finding of failure to disclose material facts, reopening on basis of change of opinion is not justified.
 For AY 2003-04 the AO reopened the assessment after 4 years from the end of the AY on the ground that the assessee had not fully and truly disclosed the fact that it had a permanent establishment (PE) in India and that it was subject to the higher rate of tax of 20% on the gross royalty. The assessee filed a Writ Petition pointing out that the AO had reopened the assessment earlier on the same point and that he had passed an assessment order after being satisfied with the assessee’s submissions that it had no PE. Held  by the High Court quashing the reassessment proceedings:
Though in the recorded reasons, the AO alleged that there was no full and true disclosure by the assessee, in the objections order, there is no finding, even prima facie, how the assessee failed to disclose fully and truly all material facts with regard to the allegation of the existence of the PE. It is evident that the question of the assessee having a PE in India had been gone into in the first round. Once that aspect of the matter had been gone into in the earlier round, it was not open to the AO to reagitate it in the second round without any other / fresh material. No such other or fresh material has even been alleged in the reasons in the second round. Re-opening of assessments cannot be done merely on the basis of change of opinion. (A.Y.2003-04)
Qualcomm Inc v. ADIT (Delhi)( High Court)(www.itatonline.org)

S.147: Reassessment- Notice- Recorded reasons- After four years – Reasons for reopening not communicated, notice held to be invalid and quashed.(S.148) 
The Assessing Officer issued the notice under section 148 after four years  without disclosing the reasons  and an opportunity to file an objections for reopening of reassessment . The assessee challenged the said notice by filing a writ petition .High Court allowed the writ petition and held that  there was a complete violation  of applicability of law by the Assessing Officer . He was required to communicate the reasons for  reopening the  assessment which he had failed to do. As there is violation of the governing principles of natural justice  the order was quashed and set aside . (A.Y. 2004-05)
Agarwal  Metals  and Alloys v. ACIT ( 2012) 346  ITR 64 (Bom.) (High Court)

S.147: Reassessment- Bad debts- After four years- Reopening of assessment on ground deduction for bad debts erroneously allowed held to be not valid.(S.148)
The assessment was completed under section 143 (3) the  Assessing Officer has allowed the claim of loss on account of embezzlement of funds after enquiry and application of mind. The Assessing Officer reopened the assessment on the ground that the  Assessing Officer allowed the loss on account of embezzlement as bad debts which is not permitted by law. The assessee challenged the reassessment notice by way of Writ .The Court held that there was no failure on the part of assessee to disclose material facts hence the reopening of assessment after four years on the ground that deduction for bad debts was erroneously allowed is not justified.(A.Y. 1996-97)
V.B. Investments v. Dy. CIT ( 2012) 346 ITR 193 (Guj) (High Court) 

S.147: Reassessment-No failure to disclose material facts- after four years- Income from other sources-Reassessment to disallow the interest on borrowings for purchase of shares. As there was no failure on part of assessee reassessment held to be not valid.(S. 57(iii), 148 )
The original assessment was completed under section 143(3) . The  Assessing Officer  sought to reopen the assessment  after four years on the ground that on funds borrowed for purchasing of  such shares interest would not be deductible under section 57 (iii) of the Act. The assessee challenged the reassessment by way of writ. High Court allowed the petition and held that there was no failure by assessee to disclose material facts hence reassessment after four years held to be invalid.(A.Y. 2005-06)
Ashank D.Desai v. ACIT ( 2012) 346 ITR 326 (Guj.)(High Court)

S. 147: Reassessment-No failure to disclose material facts- After four years-Reopening of assessment on ground of preoperative expenses being capital in nature had been allowed as revenue , reassessment held to be invalid.(S.148)
Original assessment was completed under section 143 (3) allowing the expenses as revenue in nature. The assessment was reopened on the ground that pre-operative expenses  which are capital in nature has been allowed as revenue expenditure. The assessee challenged the reassessment proceeding by writ . The Court held that it is well settled legal position that for the purpose of reopening the assessment beyond four years from the end of the relevant assessment year , the reasons recorded should reflect that there is failure on the part of the assessee to disclose fully and truly all material facts. While disposing the objects the Assessing Officer stated that expenditure claimed as revenue expenditure in the computation of income but which was capital in nature  unconsidered by the Assessing Officer during course of original assessment proceedings. The court held that  as there was no failure on the part of assessee the reopening after four years held to be in valid.(A.Y.1996-97)
Ashokjyot Oxygen Pvt Ltd v, H.N.Patel  ITO.( 2012) 346 ITR 199 (Guj.)(High Court)  

S.147: Reassessment – No failure to disclose material facts-  After four years-Interest against dividend income- Reassessment to disallow the interest on the ground that the interest was paid for earning dividend income held to be not valid.( S 57(iii), 148 )
In the return of income the assessee has claimed the interest under section 57(iii) of the Act .In the course of original assessment proceedings the  Assessing Officer  made enquiries and allowed the deduction. The Assessing Officer issued the notice under section 148 proposing to reassessment on the ground that the interest was not paid for earning dividends but for acquiring controlling interest in company. The  assessee challenged the reassessment proceedings by filing the writ petition. There was difference of opinion and the matter was referred to third  Judge . The majority view  was that reassessment after four years  to disallow deduction on ground interest was not paid for earning dividend but  for acquiring controlling interest in  company  cannot be said that there was failure on the part of assessee to disclose material facts, accordingly, the reassessment proceedings was quashed.(A.Ys. 1995-96 & 1996-97)
Ketan B.Mehta v. ACIT (2012) 346 ITR 254 (Guj.) (High Court)

S.147: Reassessment- No failure to disclose material facts- After four years- Notice issued to disallow the interest paid to non-resident for failure to deduct tax at source held to be not valid.( S. 40(a)(ia), 148, )
The assessment was completed under section 143(3). The assessment was sought to be reopened after period of four years on the ground that since the assessee had paid  usance interest to non –residents out of boundaries of India on purchase of  ships , it was liable to deduct tax at source as per the provisions of section 40(a)(ia) read with Chapter XVII-B, failing which interest cannot be allowed as deduction in computation of income chargeable to tax under the head “Profits and gains from business or profession”. The assessee challenged the reassessment  proceedings . The Court held that on persual  of the reasons recorded shows that there is not even whisper therein to the effect that  there is any failure on the part of the petitioner to disclose fully and truly all material facts necessary under consideration . On the facts the notice has been served after expiry of period of  four  assessment  years from the relevant assessment years , the assumption of jurisdiction by the Assessing Officer is without jurisdiction . Accordingly the reassessment proceedings was quashed.(A.Y. 1996-97)
Priya Blue Industries Ltd v. Dy.CIT ( 2012) 346  ITR 204 (Guj.)(High Court)

S.147: Reassessment-Another ground than what is recorded in the reasons– After four years- Export-Recalculation- Reassessment cannot be sustained under another ground not mentioned in notice. To recalculate the deduction under section 80HHC reassessment held to be invalid.(S. 80HHC, 148) 
The assessment was completed under section 143(3).The Assessing Officer sought to reopen the assessment on the ground that wrong calculation of deduction under section 80HHC. The assessee raised the objections for the  recorded reasons . The Assessing Officer disposed the objections , while disposing the application he also referred one more issue of deemed dividend .The second  issue referred  while disposing the objection was not part of original recorded reasons. The assessee challenged the reassessment proceedings by writ .The Court held that reassessment cannot be sustained under another ground which was not mentioned in notice hence bad in law. The Court also held that the reassessment after four years to recalculate special deduction under section 80HHC  was not valid. Accordingly the petition was allowed and reassessment proceedings were quashed.(A.Y.2004-05)
Dishman Pharmaceuticals and Chemicals Ltd v. Dy.CIT (2012) 346 ITR 245 (Guj.)(High Court)   

147: Reassessment- Tangible material- After four years-Off shore supply contract-Assessment reopened on the ground that section 44BBB refers to turnkey project and hence offshore supply contracts are subject to tax in India, reopening beyond four years held to be invalid.(S. 44BBB, 148 )
The assessment was completed under section 143(3).The Assessing Officer issued the notice under section 148 on the ground that section 44BBB,refers to turnkey project and hence off shore supply contracts are subject to tax in India .The assessee challenged the  reopening of notice  by way of writ petition. The Court held that reopening of assessment has to be based on some tangible material which leads to a reasonable belief that income has escaped assessment. In the present case , all material which was the basis of seeking to reopen the assessment was examined in the earlier assessment proceedings. As there was no tangible material for the Assessing  officer to form a reasonable belief that income had escaped assessment , reopening of assessment beyond period of four years  held to be not valid hence issue of notice under section 148 was quashed .(A,Y, 2004-05)
Atomstroyexport v. Dy.CIT ( 2012) Vol. 114(5) Bom.L.R.2472 (Bom.) (High Court)            

S.147:Reassessment-Reasons recorded- Within four years- Tangible material- Basis of order is completely different from the reasons recorded for reopening of assessment  which is not permissible, reassessment held to be invalid.
In the present case the reassessment  was done within four years. The  Tribunal held that the reassessment was bad in law . On appeal by the revenue the Court held that  the recorded reasons for reopening the assessment furnished for reopening the assessment  was non –fund income had been shown in fund based income so as to avail  of higher  deduction. However in the assessment order  the disallowance was  made that 20.1 percent out of gross expenses attributed to non fund income was excessive  and ought  to be restricted only 10 percent , thus the basis of the order is completely different from the reasons recorded for reopening the assessment .The Court held that if after issuing notice under section 148 he accepted the contention of the assessee and holding that income which he has initially formed a reason to believe  has not escaped assessment . It is not open to him  independently to assessee some other income. If he intended to do  so a fresh notice  under section 148   is necessary. Accordingly the order of Tribunal is up held and appeal of revenue was dismissed. (A.Y. 1996-97)
CIT v. ICICI Bank Ltd ( 2012) 74 DTR 251 (Bom.)(High Court)     

S.147: Reassessment – Objection-Recorded reasons-Order passed without considering objections held to be invalid.(S.148)
The assessee raised the objections  after receipt of recorded reasons. The Assessing Officer   did not hear the objections of the assessee nor did he pass a separate order on those objections. The Assessing Officer passed the order. The assessee challenged the said order by way of writ before the High Court.  The High Court quashed the order and set aside and directed the Assessing Officer to pass a fresh order on the objections raised by the assessee to the proposed reassessment within the a period of four weeks.(A.Y.2004-05)
Babo India Fianance Ltd  v. Dy.CIT ( 2012) 346 ITR 81 (Bom.)(High Court)   

S.147: Reassessment- Failure disclose material facts- After four years- Failure to disclose substantial interest and amount shown as loan from  the company to be assessed as deemed dividend . Reassessment held to be justified.(S.2(22)(e), 148)
The assessment for the assessment year 2003-04 was completed under section 143(3).During the assessment year 2006-07 the Assessing Officer has come to know that certain advances were required to be treated as deemed dividend under section 2(22) (e) . Upon perusal of accounts of the assessee was seen that the assessee had taken loan . The  Assessing Officer recorded the reasons accordingly . The objections raised against the recorded reasons were disposed by the Assessing Officer. The  assessee filed the writ petition for challenging the reassessment proceedings . The Court held that the assessee has not disclosed that it had a substantial interest in a company , it was found that it had 22.3 percent shareholding. From the return filed and documents annexed within  return , nowhere it could be ascertained that what was holding of the assessee  in SDBL. On the facts there was failure on the assessee to disclose the material facts hence the explanation to section 147 is being applicable , reassessment  even after four years  held to be valid , accordingly the petition was dismissed.(A.Y.2003-04)
Disman Pharmaceuticals and Chemicals Ltd v. Dy.CIT (2012) 346 ITR 228 (Guj.)(High Court)  

S. 147:Reassessment- Failure to disclose material facts- After four years-Investigation by Customs Authorities-Notice need not specify instances of failure. If  failure can be inferred the reassessment held to be valid.(S. 148)
The assessee is engaged in the business of imports and export and manufacture of diamonds. The assessment was completed under section 143(3).The assessment was based on the basis of show cause notice issued by the Joint Commissioner of Customs. The assessee challenged the reassessment proceedings .In the affidavit in reply the respondent stated that assessee had stolen the electricity to run its machinery , depreciation was claimed in respect of machinery given on lease It was also brought to the notice of court that the assessee had paid penalty  which was not shown in the statement. After considering the material as a whole the court held that for the purpose of invoking section 147 beyond four years, the Assessing Officer is required to record a two fold satisfaction. Firstly, that income has escaped assessment and secondly, that such escapement is on account of failure on the part of the assessee to disclose fully and truly all material facts . Neither sub section (2) of section 148 of the Act  nor proviso to section 147, requires that Assessing Officer to expressly state in the reasons that income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts. If, on the face the reasons recorded, it is apparent that failure to disclose is made out, merely because a specific expression does not find place therein, it cannot be said that the Assessing Officer has not recorded the satisfaction in this regard. Accordingly the Court dismissed the writ petition by observing that the Court is only required to examine whether there was prima facie some material on the basis of which the assessment could be reopened. The sufficiency or the correctness of the material cannot be considered. (A.Y. 2003-04)
I.P.Patel and Co v. Dy.CIT ( 2012) 346  ITR 207(Guj.)(High Court)      

S.147:Reassessment – After expiry of 4 years –Intangible materials-  No material in possession to conclude that there was escapement of income, hence reassessment proceedings to be quashed.
Instant case, was a simple case of change of opinion without there being any intangible material in the possession of the AO for coming to the conclusion that the there was an escapement of income. Therefore, AO not justified in initiating reassessment proceedings and thus liable to be quashed.  (AY 2003-04)
Prudential Assurance Co. Ltd. v. ADIT (2012) 18 ITR 186 (Mum.)(Trib.)

S.147:Reassessment- Order on the basis of Jurisdictional high court- Reversal of law by Supreme court-After four years- Reversal of law by Supreme Court does not justify reopening.[S.80HH, 149 (1A)]
When the assessment order was passed, the law declared by the assessee would be entitled to the benefit of section 80HH. This was reversed in CIT v.N.C.Budharaja (1993) 204 ITR 412 (SC). The subsequent reversal of the legal position by the judgment of the supreme court does not authorize the Department to reopen the assessment, which stood closed on the basis of the law , as it stood at the relevant time. Departmental civil appeal was dismissed. (C.A.NO 2329 of 2006 dated 11-9-2012)
DCIT v. Simplex Concrete Piles (India) Ltd(SC)( www. itatonline.org)

S.147: Reassessment- Change of opinion- Within four years – There is no change of opinion if Assessing Officer does not specifically apply his mind .(S.148)
The Full bench was constituted to consider the meaning of the expression “change of opinion” for the purpose of section 147 and whether, in the light of CIT vs Kelvinator of India Ltd. (2002)  256 ITR 1 (Del) (FB), as approved in CIT v  Rieta Biscuit Co.(P)Ltd. (2010) 320 ITR 521 (SC),  in case  where the assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment , the Assessing  Officer within four years from the end of the  assessment year could be said to have formed an opinion and to have no jurisdiction to reopen the assessment even though he had not raised any query with respect to the issue. Full Bench by majority held that (i) the expression “change of opinion” postulates formation of opinion and then a change thereof. The question of change of opinion arises only when the Assessing Officer at the section 143(3) forms an opinion and accepts the assessee’s stand. There is a difference between “change of opinion”  and failure to “form an opinion”  By the Majority ;
 (i) The expression “change of opinion” postulates formation of opinion and then a change thereof. The question of “change of opinion” arise only when the AO at the s. 143(3) stage forms an opinion and accepts the assessee’s stand. There is a difference between “change of opinion” and failure to “form an opinion“. However, for determining whether or not there is “change of opinion“, the fact that the assessment order is silent is not relevant because the assessee has no control over the way the order is written. There may also be cases where though the AO has not raised a query, the issue may be so apparent and obvious that to say that the AO has not formed an opinion would be contrary and opposed to normal human conduct;
(ii) The observations in CIT v Kelvinator of India Ltd. (2002) 256 ITR 1 (FB) that when an assessment order is passed u/s 143(3), a presumption is raised u/s 114(e) of the Indian Evidence Act that the order was passed after application of mind and that otherwise there would be a premium on the authority exercising quasi-judicial function to take benefit of its own wrong does not mean that even if the AO does not examine a particular issue and had not formed any opinion, it must be presumed that he must have formed an opinion. There cannot be deemed formation of opinion even when the particular issue is not examined. The observations were made only to reject the Revenue’s contention that a non-speaking assessment order means a case of non-formation of opinion;
 (iii) In affirming Kelvinator, the Supreme Court referred only to the principle of “change of opinion” and no comments were made on the presumption u/s 114(e) of the Indian Evidence Act. The assessee’s argument that the Full Bench verdict has merged in the judgement of the Supreme Court and cannot be reconsidered is not acceptable because there are no observations by the Supreme Court on the issue of whether there is deemed formation of opinion and it cannot be said that the High Court’s reasoning is the ratio of the apex Court; (ITA no 2026/2010. Dated 21-9-2012)
CIT v. Usha International Ltd(FB) (Delhi)( High Court) (www.itatonline.org )

S.148:Reassessment – Recording of reasons – Mandatory before issue of notice – Mandatory requirement of law is not fulfilled reassessment proceedings became without jurisdiction and liable to be struck down.S.147)
The Tribunal held that the very basis  for assuming jurisdiction under section 147 of the Act gets vitiated and, consequently , the entire proceedings are rendered void ab initio. Section 148(2) exclusively provides that, the Assessing Officer shall before issuing any notice under this record his reasons for doing so. Therefore it is mandatory before issue of notice- Mandatory requirement of law is not fulfilled reassessment proceedings became without jurisdiction and liable to be struck down.(A.Y. 1996-97 )(ITA no 2759& 2760/M/11    dated 11-5-2012 Bench ‘D’)
Dadanbai B.Bachani  v. ITO (2012) Income Tax Review – August –P 140.(Mum.)(Trib.)   

S.151: Reassessment- Sanction for issue of notice- Approval of Joint  Commissioner-  Notice issued by Assessing Officer with approval of JCIT was held to be valid .(S.148)
On the facts of the case the notice under section 148 was issued by Assessing Officer  after approval  of JCIT. The  Tribunal has come to the conclusion that  the jurisdiction was not correctly assumed by the Assessing Officer hence the proceedings were quashed . On appeal by the revenue the Court held that notice by the Assessing Officer after approval of JCIT cannot be held to be invalid on the ground  that notice was issued by the Assessing Officer and not by JCIT .The court held that explanation to section 151 inserted by the Finance Act , 2008 being   clarificatory  and having been made retrospective  effect shall cover the issue , though the explanation which was added was not available  when the Tribunal decided the matter.(A.Y.1995-96)
CIT v. Reshma Arif (Smt) (2012) 74 DTR 357 (All.)(High Court)

S.151: Reassessment- Sanction for issue of notice- Approval of the CIT – Approval of the Commissioner instead JCIT/Addl.CIT, renders reopening void.(S. 147)
The assessee challenged the reassessment notice by way of writ petition . The High Court allowed the petition by observing that,if the approval of the JCIT /Addl.CIT to the reopening as required by section 151 was obtained, it is for the department to produce the same, whether the approval was granted or not is an objective fact which can be established only by producing the approval. Where a statute requires something to be done in a particular manner, it has to be done in that manner, approval  by another authority will not satisfy the requirement. On the facts the approval of CIT was taken and not Joint Commissioner hence the reassessment proceeding was quashed .
DSJ Communication Ltd v. DCIT (Bom.) (High Court).www.itatonline.org

S.153A: Assessment- Search or requisition—Addition deleted of earlier year- Addition made in earlier proceeding for same assessment year was deleted in appeal hence the proceedings cannot be revived and added over again in A.Y .
The additions made in the earlier proceedings for the same assessment years which have been already deleted in appeal cannot be revived and added over again in the assessment year u/s 153A. The scheme of the Act does not permit matters that have become final between the assessee and the IT authorities to be reopened and reagitated except by process known to law.(AY 2001-02 & 2002-03)
ACIT v. Uttara S. Shorewala(Mrs) (2012) 147 TTJ 716 (Mum.)(Trib.)
UTARA S.Shorewala(Mrs ) v. ACIT (2012) 147 TTJ 716(Mum.)(Trib.)

S.158BE: Block assessment- Time limit- last Panchnama-Search and seizure-If there is more than one authorization, for the purpose of calculating the limitation under section 158BE is the last of the Panchnama   recording  the conclusion of search irrespective of the date of authorizations. (S.132 )
On the facts  of the case  for conducting the first search  proceedings , the authorization was first issued on 10th  September, 1997. The search commenced on 11th September ,1997 and proceedings were completed on 11th September, 1997. There was also an authorization  on same date , in respect of which, another search  was commenced  on 11th September, 1997 and completed on 11th September  1997 . The second search commenced on  5th Nov,1997 was concluded on 5th November, 1997. Subsequent there  to, in connection with this, there  was one more authorization dated 31St October  1997, for which the search commenced on 3rd  Nov, 1997 and concluded 0n 3rd Nov  1997. Thus, the last of the  Panchnama  evidencing  the conclusion of search with reference to the authorization issued on 3rd October 1997 was 3rd  November, 1997. Going by the above facts, the time limit available for completion of block assessment, as per section 158BE(1)(b), would be the end of the month  in which the last of Panchnamas evidencing the conclusion of search in respect of which the authorization was executed . Hence , the relevant starting point is to be calculated taking the last Panchnama  dt 3rd November, 1997; that the period of two year time –limit commenced on 30th  Nov, 1997 to expire on 30th  Nov. 1999. The assessment of the relevant year was made on 26th Nov 1999. Accordingly the appeal of revenue was allowed.(Block period 1998-99 to 1997-98)
CIT v. P. Shanthi (Smt.) LR of Minor P.Balaji ( 2012) 251 CTR 418/75 DTR 6 (Mad) (High Court) 
P.Balaji v. dy.CIT ( 2012) 251 CTR 418/75 DTR 6 (Mad) (High Court)

S.158BFA: Block Assessment – Penalty- Search and seizure- Question of law admitted by high Court- Levy of penalty is not justified.
The assessee filed the return of income declaring the income of Rs 10 lakhs  along with the note attached with the return. The assessing offier assessed the income  at Rs 38.32 lakhs. On appeal the Tribunal confirmed the addition of Rs 13, 13, 816. Assessee filed an appeal which was admitted by High court. The assessing  Officer  levied the penalty of Rs  8,82,884. In appeal Commissioner (Appeals) deleted the penalty. On appeal by the revenue the Tribunal dismissed the appeal of revenue by observing that the admission of substantial question of law by the High Court lends credence to the   bona fides of the assessee . Hence the order of Commissioner (Appeals)   confirmed .
ACIT v. Ekta Exports (2012) Income tax review –September P.89(Mum.)(Trib.))(ITA No(SS)A.27/Mum/2011, Bench “E” dated 24-8-2012. )    

S.194A: Deduction at source-Interest-Co-operative society- Circular no 9 of 2002 dated 11-9-2002  is invalid ,being in conflict with the provisions of section 194A(3)(v) ; Board cannot override or withdraw  the exemption under section 194A(3)(v).(S.119 )
 The petitioners challenged the validity of circular no 9 of 2002 dated 11-9-2002 (2002) 258 ITR 98 (ST) /  177 CTR 1(ST), which clarified that: “3.  A question has also been raised as to whether  nominal members , associate members and sympathizer members are also covered by the exemption under section 194A(3)(v). It is hereby clarified that the exemption is available only to such members who have joined in application for the registration of the Co-operative society and those who are admitted to membership after registration in accordance with the bye-laws and rules. A member eligible for exemption under section 194A(3)(v) must have subscribed to and fully paid for at least one share of the co-operative bank , must be entitled to participate and vote in the general body meeting and /or special general body meetings of the co- operative bank”.  The petitioner  contended that Board’s  power to issue clarification under section 119 of the Act . It is the contention of the petitioner that clause (v) of sub section (3) of the section 194A provides for exemption from deduction of tax at source under sub section 1 of section 194A in case of a member of a co-operative society and no further distinction can therefore be made by  the CBDT  between different classes of members .The Court held that section 194A(3)(v) provides for exemption from deduction of tax at source in case of a member of a co operative society and no further distinction can, therefore be made by way of circular by the CBDT between different classes of members , therefore circular no 9 of 2002 is invalid being in conflict with the provisions of section 194A(3)(v) ; Board cannot override or withdraw the exemption under section 194A(3)(v). Accordingly the petition was allowed.
Gujarat Urban Co-Operative Federation & Ors v. UOI ( 2012) 75 DTR 354 (Guj.) (High Court.  

S. 194H:Dedcution at source- Commission or brokerage- Discount – The discount made available to the licensed stamp vendors under the provisions of the Gujarat Stamps Supply and Sales Rules 1987 , does not fall within the expression “Commission” or “brokerage” under section 194H of the Act.
 The assessee, an association of stamp vendors, bought stamps from the State Govt. at a discount. The department claimed that the stamp vendors were “agents” of the State Govt. and that the said discount was “commission or brokerage” and the State Govt. ought to deduct TDS u/s 194H. The assessee filed a Writ Petition to challenge the department’s action. The Gujarat High Court  upheld the assessee’s plea that (a) title in the stamps passed to the vendors and that they were not “agents” of the State Govt. but were transacting on a “principal to principal” basis and (b) the discount available to the stamp vendors was not “commission or brokerage” so as to fall within s. 194H. On appeal by the department to the Supreme Court, held dismissing the appeal:
 We are satisfied that 0.50% to 4% discount given to the Stamp Vendors is for purchasing the stamps in bulk quantity and the said discount is in the nature of cash discount. In the circumstances, we concur with the impugned judgement that the impugned transaction is a sale. Consequently, Section 194H of the Income-tax Act, 1961, has no application.
CIT v. Ahmedabad Stamp Vendors Association (SC).www.itatonline.org.
Editorial : Decision of Gujarat High Court in   Ahamedabad Stamp Vendors Association v. UOI (2002) 257 ITR 202 (Guj.)(High Court) is affirmed.
S.194H: Deduction at source- Commission- Credit card companies-Commission retained by credit card companies out of amounts paid to merchant establishment is not liable for deduction of tax at source. [S. 40(a)(ia)]
The assessee company is engaged in business of direct retail trading in consumer goods claimed deduction in respect of commission paid to credit card companies. The Assessing Officer disallowed the commission under section 40(a)(ia) on the ground that the assessee failed to deduct tax at source. In appeal Commissioner (Appeals) allowed the appeal by observing that sale made on basis of a credit card is clearly a transaction of the merchant only and credit card company only facilitates the electronic payment , for  a certain payment for a certain charge. The commission retained by the credit card company is therefore in the nature of normal bank charges and not in the nature of commission/brokerage for acting on behalf of the merchant establishment. Therefore not liable to deduct tax at source. On appeal by revenue the Tribunal also confirmed the order of Commissioner (Appeals).(A.Y. 2007-08)(ITA no 905/Hyd.) 2011/ dated 10-4-2011 Bench ‘D’)
DCIT v. Vah Magnan Retail (P) Ltd (2012) BCAJ –July P. 56 (Mum.)(Trib.)

S.194I: Deduction at source- Rent-Co-owners-Each of the co-owners of building  had definite share in the premises and individual payment being less than 1,20,000 per annum the assessee cannot be treated to be in default for non-deduction of tax at source. [S 26, 201(1), 201(1A)]
The property is owned by 15 co-owners  and their shares  definite. The property was let out to Bank ie.assessee.The assessee bank is paying rent each co-owner separately and individual payment is less than 1,20,000 per annum. The Assessing Officer treated the payment to AOP  and as it failed to deduct tax at source treated the assessee in default. Appeal of the assessee was allowed by Commissioner (Appeals) , which was confirmed by the Tribunal. Revenue filed an appeal before the High Court. The High Court held that it is not necessary that there should be a physical division of property by meats and bounds in order to attract the provisions of section 26. The provision of section 26 come in to play the movement the share of each co-owner in the property is determined and ascertainable. On the facts assessee bank is paying rent to each of the 15 co-owners of building separately as per their definite share in the premises and individual payment being less than Rs 1,20,000 per annum, the assessee cannot be treated  to be in default for non-deduction of tax at source under section 194I (A.Ys 1996-97 to 2002-03)     
CIT v. Senior Manager , State Bank of India & Anr ( 2012) 75 DTR 313 (All.)(High Court)  
S.194-I: Deduction at source- Rent-Enhanced rent- Liability to deduct tax at source arises only when it pays rent or debits whichever is earlier and not  on the basis of enhanced rent demanded by the land lord.
The landlord demanded enhanced lease rent. The assessee made a provision  in the books of account, however in the computation of income the assessee disallowed the provision  debited in the profit and loss account. The later year the  enhanced rent was settled at lower figure. The assessee paid the amount   along with interest and deducted at source. The Assessing Officer demanded the interest on delayed payment of along with interest. On appeal, the Tribunal held that a mere entry in the books of account will not determine the income or expenditure of assessee. The Tribunal further held that liability to deduct tax at source arises only when it pays rent or debits whichever is earlier and not on the basis of enhanced rent demanded by the land lord. (A.Y. 2007-08) (ITA no 667/M/ 2010 dated 20-7-2012 Bench ‘A’)
ITO v. Hotel Parag Ltd (2012) Income Tax Review –Sept P. 90(Mum.)(Trib.)  

S.195: Deduction at source- Income deemed to accrue or arise in India- Amounts not deductible-   Reimbursement of expenses  of global management expenses, communication Uplink  charges and other expenses provisions of neither section 195 nor 194J are applicable because  such payments are not chargeable to tax at all hence cannot be disallowed .( S 9, 40(a)(i), 194J, 197 )
The assessee is in the business of supplying chain, management, logistics and freight forwarding that is movement of goods and cargo with in India or outside by road , rail air or ship. To undertake these activities , the assessee company has arrangement with its parent company which is foreign company for rendering global management services and VST uplinking enabling it to  have global communication net work. The  Assessing Officer did not  dispute the genuiness of these payments  but disallowed the expenses on the ground that  while remitting the aforesaid payment on its parent company  the assessee  had failed to deduct tax  at source  hence the  he disallowed the payment by applying the provision of section 40(a)(i). On appeal the  disallowance was deleted by the Commissioner (Appeals) and Tribunal.  On appeal by the revenue  the High Court following the ratio of decision in Van Oord ACZ India (P) Ltd v. CIT (2010) 323 ITR 130 (Delhi) (High Court), held that the assessee company has paid  Reimbursement of expenses  of global management expenses, communication Uplink  charges and other expenses provisions of neither section 195 nor 194J are applicable because  such payments are not chargeable to tax at all hence cannot be disallowed .(A.Y. 2004-05)
CIT v. Expeditors International (India) (P) Ltd (2012) 209 Taxman 18 (Delhi) (High Court)     

S.195: Deduction at source –Income deemed to accrue or arise in India- Business profits – DTAA –India- Switzerland- As there is no PE in India, assessee is not liable to deduct tax at source in respect of remittance towards advertising expenses.( S.9 , Article 7)
The assessee company was engaged in manufacturing and trading of pharmaceuticals bulk drugs and formulations mainly for exports and research and development in the field of pharmaceuticals. The assessee remitted towards advertisement expenses certain amount to Russian advertising agencies through its parent Swiss company in respect of advertisement campaign launched in Russia for introduction of medicine ‘ Dlianos. Thus, in the view of the fact that there was a DTAA between India & Switzerland and India & Russia , the amount remitted by assessee towards advertisement could be assessed as business profits as per section 9, but having regards to fact that non- resident advertising company had no PE in India, amount in question could not be brought to tax in India. Thus, assessee was not liable to deduct TDS u/s 195 as amount in question was not itself chargeable to tax. (AY 1998-99 & 1999-2000)
Dy. CIT v. Sandoz (P.) Ltd. (2012) 137 ITD 326 (Mum.) (Trib.)

S.197: Deduction at source- Certificate for lower rate- Charitable Trusts- High Court passed the strictures against   tax administration  for “Dirty Games” with the citizens of the country to coerce them in making payments which the citizens were not legally obliged to make.
The assessee, a charitable institution whose income was exempt u/s 11, was granted a certificate of Nil TDS u/s 197 in the earlier years. For FY 2009-10, the assessee’s application for a s. 197 certificate was not processed and so the assessee filed a Writ Petition pursuant to which the Dept. agreed to consider the application and pass an order. The AO thereafter passed an order stating that since the FY 2009-10 had already lapsed, the s. 197 certificate for that FY could not be issued. The assessee filed a Writ Petition to challenge the rejection. The department filed an affidavit in which it claimed, for the first time, that the rejection was because there were demands outstanding against the assessee. Held by the High Court: 
The reason given in the affidavit regarding the arrears outstanding against the assessee is not correct because there were in fact no demands due pursuant to the Tribunal’s order. There is inordinate delay and serious laches on the part of the AO in dealing with the assessee’s application & there is no explanation why the application submitted on 22.06.2009 was taken up for the first time for consideration towards the fag end of FY 2009-10 and rejected on a wrong ground of non-payment of outstanding dues. Such action is in contravention of CBDT’s Circular No.F.No.20/23/67 IT(A-I) which states that application filed by charitable trusts for issuance of Nil/low TDS certificates should be expeditiously processed. The rejection is also in violation of the Court’s earlier order where the department did not raise the stand that the s. 197 certificate could not be issued as the FY was over and instead agreed to consider the issue of the certificate. Obviously the department’s action are not bona fide and does not speak well of its attitude. Mala fides are writ large because new grounds supporting the rejection have been taken in the counter affidavit though such action is not permissible as per Mohinder Singh Gill vs. CEC AIR 1978 SC 851. The Department cannot take advantage of its own inaction and lapses and say that the certificate cannot be issued as the FY is over. Such action would lead to unnecessary complication for the assessee and the parties dealing with it. As held in Dabur India Ltd State of UP AIR 1990 SC 1814, the Govt. cannot be permitted to play “dirty games” with the citizens of the country to coerce them in making payments which the citizens were not legally obliged to make. If any money is due to the Govt., it should take appropriate steps, but it should not take extra legal steps or adopt the course of maneuvering. The Dept. has to be careful in future not to indulge in such avoidable circumstances which create an impression that the intention of the Department is not to help the assessee but to harass them. This matter needs to be inquired into by the concerned CCIT and appropriate action should be initiated against the erring officer.
Management Committee Paradeep Port v. ITO (Orissa)( High Court)www.itatonline.org

S.220: Collection and recovery- Assessee deemed in default-Stay- Commissioner is directed to pass a reasoned order.
The court held that when a prayer is made to commissioner to stay the demand  he has to pass the reasoned order. The Court held that one of the salutary requirement of natural justice is spelling out reasons for the orders made . On the facts the court  set aside  the order of Commissioner  and directed him to pass  a speaking order.
Idea Cellular Ltd v. CIT ( 2012) 75 DTR 105 (MP) (High Court) 

S.226: Collection and recovery- Modes of recovery- Prohibitory order-Assessee has shown  bona fides the court stayed the prohibitory order.
The appeal of the assessee  is pending before the Commissioner (Appeals). The Recovery Officer issued the prohibitory order against the creditors. The assessee filed writ petition. The   High Court  stayed the prohibitory order  considering the bonafide of assessee  on the condition of paying the tax on installment s.(A.Ys 2007-08 & 2008-09)
Nickunj Eximp Enterprises P. Ltd  v. Addl.CIT ( 2012) 346 ITR 78 (Bom.) (High Court)   

S. 234A: Interest-Advance tax- Not mentioning in the assessment order-Interest is mandatory and can be levied even if assessment is silent (S. 234B)
The Court held that as held in CIT v. Anjum M.H.Ghaswala and others  (2001) 252 ITR 1 (SC) , interest under section 234A, 234B and 234C is mandatory and interest under section 234B / 234C is mandatory in nature and there is no need to specifically recite in the assessment order that the said interest shall be levied . The order of High Court and Tribunal was set aside and directed the Tribunal to consider whether the assessee is eligible for waiver of interest as per notification no F.NO 400/ 234/95 –IT (B) dated May 23 , 1996(C.A.no 1937 of 2007 dated 6-9-2012)   
Karanvir Singh Gossal v. CIT (SC).www.itatonline.org.

S.234B: Interest- Advance tax- Specific direction-No interest can be levied through a notice of demand , in the absence of any specific direction  in the assessment order.
The court following the ratio of  judgment in CIT v. Ranchi Club Ltd (2001) 247 ITR 209(SC), held that in absence of any specific direction  giving reference to the section  charging interest in the assessment order , no interest can be levied through a notice of demand . Accordingly the appeal of revenue was dismissed. (A.Y.1991-92)
ACIT  v. S. K. Patel Family Trust (2012) 251 CTR 427/ 74 DTR 317 (Guj.)(High Court)  

S.234B: Interest- Advance tax-Matter set aside- Held to be justified.
The court held that the Tribunal was justified in remitting to the matter to the Assessing Officer with a direction to  examine and decide the issue of  levy of interest under section 234B.(A.Y, 2004-05)
CIT v.Kotak Securities Ltd (No .2)( 2012) 346 ITR 352 (Bom.)(High Court)

S. 234D: Interest on excess refund-Payable by assessee- Applies even to refunds granted prior to 1.6.2003.
Questions of law admitted before High Court was “whether the Tribunal was right in holding that interest under section 234D is chargeable  from the assessment year 2004-05 only  and it could  not be charged for earlier assessment years even though regular assessments for such earlier assessment years are framed after 1-6-2003” ?  The argument that as in CIT v. Bajaj Hindustan Ltd ITA no 198 of 2009 dated 15-4-2009  it had been held that s. 234D did not apply to refunds granted prior to 1.6.2003, the Explanation to s. 234D inserted by the FA 2012 w..e.f. 1.6.2003 (which provides that s. 234D shall also apply to assessment years commencing pre 1.6.2003) did not apply to the assessee is not acceptable because Explanation 2 is a declaratory/ clarificatory amendment. The alternate argument, relying on CIT v Kerala Chemicals & Proteins Ltd.(2010) 323 ITR 584 (Ker) that interest can be charged only from 1.6.2003 is also not acceptable in view of the language of Explanation 2 to s. 234D. The question of law was answered in the negative i.e. in favour of the appellant revenue and against the respondent –assessee.  (A.Y .2002-03)(ITA no 2012) of 2011 dated 12-9-2012)) 
CIT v. Indian Oil Corporation Ltd (Bom.)( High Court), www.itatonline.org

S.237: Refunds- Credits for tax deducted at source-CBDT- High Court seeks to end TDS & Refund harassment by Department.(S.199 )
One Anand Parkash, FCA, addressed a letter dated 30.4.2012 to the High Court in which he set out the numerous problems being faced by the assesses across the Country owing to the faulty processing of the Income Tax Returns and non-grant of TDS credit & refunds. He claimed that because of the department’s fault, the assessees were being harassed. The High Court took judicial notice of the letter, converted it into a public interest writ petition and directed the CBDT to answer each of the allegations made in the letter and certain other queries that the Court raised. The Court also appointed eminent senior counsel to assist it. The department accepted that tax payers are facing difficulties in receiving credit of TDS & refunds on account of adjustment towards arrears. As an interim measure to provide immediate relief to the assessees, the Court passed the following order: 
(i) The problem is apparent, real and enormous. It has escalated because of Centralized Computerization and problems associated with incorrect and wrong data which is uploaded by both the deductors or payees and the AOs. The issue is of general governance, failure of administration, fairness and arbitrariness. The magnitude of the problem and the number of tax payers adversely affected thereby is apparent from the fact that 43% and 39% of the returns in Delhi zone for the FYs 2010-11 and 2011-12 were defective. Huge demands are created on this count. Every attempt possible has to be made to redress the grievance of the tax payers. The tax payers should not be made to run around, make repeated visits to deductor or the AO. Rejection of TDS, which has been deducted and paid, hurts the assessee and puts him to needless inconvenience, harassment and costs. It gives bad name to the Revenue. The problems faced by tax payers can be broadly classified into two categories. First, failure and difficulties in getting credit of TDS paid and second, adjustment of past demands or arrears of tax from refunds payable.
(ii) As regards the first problem of failure of taxpayers to get credit for TDS on account of (a) incorrect entries/ mismatch in Form 26AS and (b) failure of the deductor to correctly upload the TDS return, the department’s response is unconvincing and unsatisfactory. It expresses complete helplessness on the part of the Revenue to take steps and seeks to absolve them from any responsibility. Denying benefit of TDS to a tax payer because of fault of the deductor, which is not attributable to the deductee, is a serious matter and causes unwarranted harassment and inconvenience. Revenue cannot be a silent spectator and wash their hands or express helplessness. This problem is normally faced by the small taxpayers including senior citizens as they do not have CAs on their pay roles. The marginal amount involved compared to the efforts, costs and frustration, makes it an unviable and a futile exercise to first approach the deductor and then the AO. The CBDT should examine the issue and take appropriate steps to ameliorate and help small tax payers and senior citizens;
(iii) If there are small and insignificant mismatches in the TDS details, they should be condoned or ignored. After all tax has been paid or credited in the name of the assessee. Once the amount is correctly and rightly reflected in Form AS26, small or technical mismatch in the return should not be a ground to deny credit of the amount paid. If the AO still feels that benefit of TDS reflected in AS26 should not be given, he should issue notice to the assessee to revise or correct the mistake and only if the necessary rectification or correction is not made, an order u/s 143(1) should be passed and demand should be raised. An interim direction to this effect is issued;
(iv) As regards the second problem, CPC has stated in letter dated 21.8.2012 that refunds to the extent of Rs. 4800 crores have been adjusted against arrears at the s. 143(1) stage by the CPU. The department’s action of adjusting the refunds without giving prior intimation to the assessee is contrary to s. 245. In a few cases where prior intimation is given and the assessee approaches the AO, he is told to approach the CPC, Bengaluru, and when he approaches the CPC, he is told to approach the AO. The department should file an affidavit stating whether prior intimation is sent or not and set out the procedure followed if an assessee objects to the adjustment. In the meanwhile, the department shall not adjust the refunds against the demands at the s. 143(1) stage without giving the assessee an opportunity to file a reply. The AO should deal with the reply and communicate his findings to the CPC before processing the refund or adjustment of demand.
Court On Its Own Motion v. CIT (Delhi)( High Court)www.itatonline.org

S.245D: Settlement Commission- Procedure –Application-Jurisdiction-Cash credits -Penalty-Settlement Commission pass an order on any other matters which are not covered by the application (S.68, 245H, 271(1)( c ), 274 )
Petitioner filed the  writ petition against the order of settlement commission  where in it urged that they have in their petition had made disclosure of only Rs 10 lakhs each in two assessment years and since the Commissioner was not in a position to determine  either the genuineness or the authenticity of the alleged  transaction, entered into by the petitioner with two companies ,the settlement Commission  acted outside the jurisdiction in entering upon the genuineness of  the transactions in impossible to accept .The Court held that the parliament intended that the entire assessment is before the Settlement Commission .The commission complete the assessment as part of the settlement of the case. Untill  the Settlement Commission is seized of proceedings ,there is no parallel assessment contemplated in law .Comprehensiveness, finality , and conclusiveness are three attributes of function assigned to Commission .That object is achieved when the entire assessment is completed , as part of the jurisdiction to settle the case. To dilute this position would defeat the object  which Parliament intended to achieve .Once an assessee moves the Settlement Commission , the statute expressly mandates that the application cannot be withdrawn . Unless the Commission in given case decides to reject the application, it is entitle to resolve the case by settlement . An assessee who moves the Settlement Commission  cannot be allowed to be anything other than fair and candid . Nor can he assert  an unqualified right that the Settlement Commission should either accept what he discloses or leave him to another round of assessment before  Assessing Officer, therefore the Settlement commission can pass  orders on matters covered by the application and on any matter relating to the case which is referred to in the report  of  the Commissioner though  not covered by application ; it is not constricted from proceeding further where the Commissioner does not submit report at all. As regards addition under section 68 in respect of share premium of two companies, settlement commission  considered all the material on record  and given the finding that transaction is not genuine hence the provision of section 68 rightly applied to facts of the case. As regards levy of penalty under section 271 (1) (c ) , the Court held that the assessee has offered only Rs 10 lakhs in each of the two assessment years in question based on the story of having earned such income  without producing the records and without touching  upon the real  issues for which it was being pursued by the revenue and the settlement commission having found on the basis of totality of evidence that the assessee had not genuinely received the huge share premiums as claimed by it , it was justified in coming to the conclusion that the settlement proceedings was an attempt on the part of the assessee merely to shut out further  investigation and ,therefore , levy of penalty under section 271(1)(c) by the settlement Commission after furnishing a reasonable opportunity of hearing to the assessee on merits no interference was called. Accordingly the Court dismissed the petition of the petitioner.(A.Ys. 2008-09 & 2009-10 )
Major Metals Ltd  v. UOI( 2012) 251  CTR 385 (Bom.)(High Court)  

S.245R: Advance rulings-Procedure-Application- Precedent-AAR is not bound by its own ruling – Foreign company is liable  for MAT- Transfer pricing and return of income filing provisions would apply despite no income . ( S.2(17),115JB, 139(1), Article 226, 227 Constitution of India).
In the instant case, the AAR had to consider  whether as the Applicant had no income chargeable to tax in India (a) the Transfer pricing provisions were applicable to its (b) Section 115JB(MAT) was applicable to it and (c) it was liable to file return of income . The AAR was also to consider whether it was bound by its own earlier rulings. It was held that the theory of precedents does not have strict application to the AAR .It is bound by the decisions of the Supreme Court . The decisions of High Courts have only persuasive value . The AAR  is not subordinate to any High Court for even Article 227  of the Constitution  to apply and there are grave doubts whether the jurisdiction under Article 226  will be attracted to the AAR . While the AAR should be slow in disagreeing with the propositions of law laid down in earlier rulings , it should not be deterred from taking a contrary view if its convinced that the earlier view is not correct. And thus, on the basis of the above principle and correct legal position determined, it was held that transfer pricing and return of income filing provisions would apply despite no income.
Castelton Investment Ltd (AAR). www.itatonline.org,
Editorial :  Refer – Columbia Sportswear  Company   v. DIT  ( 2012) 346 ITR 161(SC) AAR  is subject to the  High Court’s jurisdiction.  

S.245R: Advance ruling-Jurisdiction- Validity of transaction- Capital gains- Gift to subsidiary- Gift by company to subsidiary  appears to be dubious tax avoidance scheme- Application dismissed. (S.45, 47(i),47(iii) 56(2)(viia), 82, Companies Act )
The applicant a Singapore company “gifted” the shares of Bharath Wind farm Ltd  , an Indian company , to its 99.61% subsidiary Orient Green Power Ltd ,  another Indian Company . As the gift was made prior to the enactment of section 56(2) (viia) and there was no consideration received , it was claimed that there was no taxable income and that the transfer pricing provisions did not apply . The AAR held that under section 82 of the Companies Act , shares in a company is moveable property transferrable in the manner provided by its Articles of Association. The applicant has not shown the gift was authorized by its Articles . It is difficult to imagine the Articles of Association of a company providing for gifting away of the assets in the company to another company of shares in a public company, unless it be  one which has been set up for some purpose. The Authority has the right and duty to consider the reality of the transaction and genuineness of the transaction , in addition to its validity . When such transactions are entered in to   involving  substantial assets, the applicant has to prove  to the hilt the factum , genuineness and validity of the transaction, the right to enter into the transaction and the bonafides of the transaction. To postulate that a corporation can give away its assets free to another even orally  can only be aiding dubious attempts at avoidance of tax payable under the Act . The Assessing Officer is in a better position to make a proper enquiry in to the question of the genuineness and validity of the transaction . Hence ruling is denied.  
Orient Green Power Pte Ltd( 2012) 346 ITR 5557 (AAR)
Editorial : G.T.O v. Venesta Foils Ltd. (1980) 124 ITR 660 ( Cal.) (High Court), where it was held that transfer of assets to a 100% subsidiary at an undervaluation was not a “gift) since the transferor held the shares of the transferee.

S. 250:Appeal – Commissioner (Appeals) – Additional evidence – Document not produced the same before Assessing Officer  while replying to relevant query  assessee is  Not entitled to produce the documents before CIT(A) .(Rule 46A )
Assessee though in possession of the document, having not produced the same before AO while replying to relevant query made by AO, Assessee is not entitled to produce the same in appeal before CIT(A) either under Sub- rule (1) or sub- rule (4) of Rule 46A. (AY 2007-08)
Sagar Sarhadi v. ITO (2012) 148 TTJ 86 (Mum.) (Trib.)

S. 254(2):Appellate Tribunal- Orders- Rectification of mistake apparent from the record- 2Tribunal cannot recall its order and substitute by new order for not considering the earlier order.
The power  to rectify an order under section 254(2) is extremely limited. It does not extend to correcting errors of law ,or  re appreciating factual findings as that would amount to a review . The amendment of an order does not mean obliteration of the order originally passed and its substitution by a new order .The Tribunal’s order that it had not considered a decision in the assessee’s own case for an earlier year where the facts and circumstances were the same and this was an “apparent mistake” cannot  be sustained .(A.Y.2006-07) (WP NO 106 OF 2012 dated 4-9-2012)
CIT v. Maruti Insurance Distribution Services (Delhi) (High Court) www.itatonline.org  

S.260A: Appeal –High Court-Tax effect less than 10 lakhs-Pending appeals-Low tax effect Circular has retrospective effect and applies to pending appeals.
The department filed an appeal in the High Court where the tax effect was less than Rs. 10 lakhs. The assessee argued that in view of Instruction No. 3 of 2011 dated 9.2.2011, the appeal was not maintainable. The department argued that the said Instruction made it clear that it applied only to appeals filed the date of its issue and had no retrospective effect. Held by the High Court dismissing the appeal:
The question about applicability of Instruction No.3 of 2011 has been considered in several judgements including Smt. Vijaya V. Kavekar (Bom) and Ranka & Ranka (Kar) and the view is that Instruction No.3 of 2011 dated 9.2.2011 would also apply to pending appeals. We are in agreement with this view and so tax appeals filed by the department which are below the tax effect of Rs.10 lakhs are not maintainable.
CIT v. Sureshchandra Durgaprasad Khatod (HUF) (Guj.)( High Court)www.itatonline.org.
S. 260A: Appeal –High Court- Tax effect -Low tax effect Circular cannot apply "Ipso Facto".
Liberty is given to the Department to move the High Court pointing out that the Circular dated 9th February, 2011, should not be applied ipso facto, particularly, when the matter has a cascading effect. There are cases under the Income Tax Act, 1961, in which a common principle may be involved in subsequent group of matters or large number of matters. In our view, in such cases if attention of the High Court is drawn, the High Court will not apply the Circular ipso facto (Surya Herbal reiterated)(A.Y. 1987-88) ( C.C  21465 /2011 dated 2-7-2012, from the  Judgement order dated 26-4-2011 ITA no 6 /1995) 
CIT v. Atma Ram Properties Pvt. Ltd (SC) www.itatonline.org

S.261: Appeal-Supreme Court- Delay- Supreme Court flays department for "peculiar phenomenon" of delay in filing high stakes appeals
For the reasons given in the Orders passed by this Court on 2nd July, 2012, and 13th August, 2012, on account of huge delay in filing the special leave petitions as also in filing the appeal before the High Court, we had asked the Department to file an affidavit explaining the delay in filing the above proceedings. The affidavit has been filed. It is reiteration of the same affidavit which has been filed earlier in the High Court and the Supreme Court. Further, the affidavit has not been filed by the concerned officer. The amount involved in this matter is approximately Rupees ninety crores. Since the affidavit in this Court pursuant to our Orders, as above, is not satisfactory, we want to know from the learned Additional Solicitor General as to whether the Department intends to hold a departmental inquiry for the above delay.
In large number of cases, we find a peculiar phenomenon. In cases, where huge revenue/demand from the Department is involved, invariably, there is inordinate delay in filing appeals before the High Court under Section 260A of the Income Tax Act, 1961, and in filing special leave petitions before this Court. We do not know the reason why such inordinate delays take place only in matters of stakes. This aspect needs to be looked into. This aspect has been brought to the notice of the learned Attorney General as well as the Ministry of Law in the past. This is one such case. Even in the past, this Court has raised a similar query. Moreover, once a matter is dismissed on the ground of delay, it has a ricocheting effect.
In the above circumstances, we direct the Registry to forward a copy of this Order to the Hon’ble Finance Minister and Hon’ble Law Minister for doing the needful at the departmental level so that such cases of revenue leakages do not recur.(SLP no 19986/2011 dated 14-09-2012)
DIT v. Citibank N.A. (Supreme Court), www.itatonline.org

S. 271(1)(c): Penalty- Concealment- Immunity-Explanation  5 immunity available even if tax not paid by due date of  filing of return .( S. 132(4) ).
In a s. 132 search and seizure operation, on July 29, 1987 the assessee was found with unaccounted income of Rs. 42 lakhs. The assessee made a declaration u/s 132(4) and offered the said amount to tax. However, neither the return of income was filed, nor was the tax due on the surrendered income paid, on the due date (31.7.1987). The tax was paid during the assessment proceedings. The AO took the view that the assessee was not entitled to immunity from penalty under Explanation 5 to s. 271(1)(c) as it had not paid the tax due on the surrendered income by the due date. The CIT (A) reversed the AO. The Tribunal reversed the  finding of CIT (A) High Court  reversed the finding of Tribunal  and decided in favour of assessee. On appeal by the department the Supreme Court, held dismissing the appeal: Explanation 5 to s. 271(1)(c) is a deeming provision which provides that if, in the course of search u/s 132, the assessee is found to be the owner of unaccounted assets and he claims that such assets have been acquired by him by utilizing, wholly or partly, his income for any previous year which has ended before the date of search or which is to end on or after the date of search, then, in such a situation, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall be deemed to have concealed the particulars of his income for the purposes of imposition of penalty u/s 271(1)(c). Sub-clause (2) confers an immunity from penalty if three conditions are fulfilled, namely, (i) the assessee must make a statement u/s 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income to be furnished before expiry of time specified in s. 139(1), (ii) the assessee should specify in the s. 132(4) statement the manner in which such income stood derived and (iii) the tax together with the interest has to be paid. There is no time limit prescribed in the third condition for the payment of the tax & interest. As the assessee had fulfilled the first two conditions and paid the tax & interest (before the completion of the assessment), it was entitled to immunity under Explanation 5 to s. 271(1)(c). (A. Y. 1987-88)
ACIT v. Gebilal Kanhaialal HUF (SC.)www. Itatonline.org.
Editorial: View of Rajasthan High Court in  Gebelal Kanhailal (HUF) v. ACIT ( 2004) 270 ITR 523 (Raj)  is affirmed.

S.271(1)(c):Penalty –Concealment- Quantum appeal pending before High Court- If Quantum appeal  is admitted by Court, s. 271(1)(c) penalty proceedings may be kept in abeyance till the decision of the High Court on the merits.
The assessee’s quantum appeal against the Tribunal’s order was admitted by the High Court. In the s. 271(1)(c) penalty proceedings, the Tribunal, instead of deciding the issue whether the assessee was liable to penalty, restored the issue to the AO with a direction to decide the issue of levy of penalty after the decision of the High Court in the quantum appeal. The department challenged the Tribunal’s order on the ground that it had no jurisdiction to issue such an order as it would in effect extend the time limit prescribed in s. 275 for passing the penalty order (6 months from the end of the month in which the Tribunal’s order is received by the CIT). Held by the High Court dismissing the appeal:
The assessee’s quantum appeal has been admitted by the High Court. If the assessee succeeds in the quantum proceedings, it would not even be necessary to consider the s. 271(1)(c) penalty proceedings and so no prejudice has been caused to the department qua the penalty proceedings. The department’s apprehension that the penalty proceedings may be barred by limitation u/s 275(1A) is not well founded. In any event, the apprehension is set at rest by directing that in the event the proceedings are held to be barred by limitation, this appeal shall stand revived automatically and without further orders of the Court.
www.itatonline.org

S. 271(1)(c ): Penalty –Concealment-Addition on estimate basis-Additions on account of unaccounted sales on estimate basis and for disclosure of lower profit from sales made to sister concern without pointing any discrepancy in the accounts maintained by assessee cannot form the basis for concealment .
On a reference to third member the third member held that  the conduct of the assessee whether  bonafide or mala fide has to be judged in the background of facts of each case and no penalty under section 271(1)(c ) for concealment of income or filing of inaccurate particulars of income can be levied in the case of bonafide or genuine mistake or in case  where there is a honest difference of opinion with regard to some issues between the department and the assessee resulting in addition made in the assessment of assessees. Merely because , there is  a difference in the returned income and assessed income of the assessee , it does not follow that heavy onus is paled on the assessee to reason for such difference, therefore additions on account of unaccounted sales on estimate basis and for disclosure of lower profit from sales made to sister concern without pointing any discrepancy in the accounts maintained by assessee cannot form the basis for concealment. Accordingly the onealment penalty was deleted .(A.Y. 1993-94)
Vikarm Plastics v .ITO ( 2012)136 ITD 275/ 75 DTR 393 (TM ) (Ahd.)(Trib.)
Panorama Plastics v .ACIT ( 2012)136 ITD 393/ 75 DTR 393 (TM ) (Ahd.)(Trib.)

S. 271(1)(c ):Penalty- Concealment-Bonafide-Inadvertent-Human error- Levy of penalty held to be not leviable.
The assessee filed the return of income together with audit report . It has claimed an amount of Rs 23 lakhs towards provision for gratuity which was not allowable under section 40A(7). The said claim was allowed by the Assessing Officer. The Assessing Officer thereafter reopened the  assessment and  disallowed the said claim. The assessee explained that the mistake has occurred due to confusion and the return was prepared by non chartered accountant . The  Assessing Officer levied penalty , which was confirmed by Commissioner (Appeals), Tribunal as well as High Court. On appeal to Supreme Court the , the Supreme Court held that , notwithstanding the fact that the assessee is undoubtedly  a reputed firm and has  great expertise available with it , it is possible that even the assessee could make a “silly” mistake . The fact that the tax audit report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under section 40A(7)  indicates that the assessee made the computation error in its return of income. The Court held this being an inadvertent human error. The caliber and expertise of the assessee has little or nothing to do with the inadvertent error .The Court held the levy of penalty is not justified.(A.Y. 2000-2001)(C.A.NO 6924 of 2012 dt25-9-2012)
Price Water house Coopers Pvt Ltd v.CIT (SC) www.itatonline.org,   

S. 271(1)(c): Penalty- Concealment-Disallowance of expenses- Diminution in the value-Levy of penalty  was held to be not justified for disallowance of  expensed under section 35D and disallowance of claim on account of diminution in the value of shares.
The assessee a NBFC ,  claimed deduction under section 35D  which was disallowed on the ground that it was not an industrial undertaking. The assessee also claimed deduction on account of diminution in the value of shares held by it. The same was disallowed on the ground that the shares were held as investments and profits and loss on the sale thereof were to be considered as capital gains. The quantum was confirmed. Penalty levied was deleted by the Tribunal. On appeal by revenue  the Court held that  the assessee neither concealed of any material particulars  nor did the assessee furnished inaccurate particulars . The assessee disclosed all material facts and on the basis thereof, made certain claims which have been found to be unsustainable in law. Explanation 1(B), would apply only on where an assessee has concealed the particulars of his income or furnished inaccurate particulars of income. The court following the ratio in CIT v.Reliance Petro Products Pvt Ltd (2010) 322 ITR 158 (SC), confirmed the order of Tribunal and dismissed the appeal of revenue.( ITXA no 3899/ 2010  dated 14-8-2012 ) (A.Y.2000-2001)
CIT v. Aditya Birla Nuvo Ltd (2012) Income Tax Review – Sept- P 82 (Bom.)(High Court)

S.271(1)(c ):Penalty- Concealment-Revised return- Issue of notice under section 143(2)- Merely filing of revised return after issue of notice under section 143 (2) and showing capital gain in revised return  does not tantamount to detection  of concealment , penalty levied was deleted . (S. 139(5) , 143 (2) )
The assessee filed the return of income , which was selected for scrutiny under section 143(2).The assessee sought adjournments. On the subsequent date the assessee filed the revised withdrawing the  long term capital gains which was claimed as exempt in the original return, and also filed the detailed reply . Since the revised return was beyond the prescribed limit the  Assessing Officer treated the said return as invalid. In response to penalty notice the assessee contended that the revised return was file voluntarily before detection hence penalty should not be levied . Assessing Officer levied the penalty. The Tribunal held that , merely because a notice under section 143 (2) had already  been issued and the assessee filed the revised return thereafter  disclosing additional income towards capital gains which was not correctly shown in the original return does not tantamount to detection of concealment of income under section 271(1)(c ) of the Act. Appeal of department was dismissed. (A.Y. 2006-07) (ITA NO 2970/Del) 2012 Bench “D”  dated 31-8-2012 )
ACIT v. Ashok Raj  Nath  (Delhi) (Trib.) www.itatonline.org.  

S.281: Certain transfers to be void- Recovery of tax- Pendency of income tax proceedings- Transfer can be held void only if transferee had notice of pendency of income tax   proceedings.
The assessee took loans from a financial institution and created a charge on the property . The Financial institutions  as a secured creditor took physical and actual  procession  of the  secured assets under section 13(4) of the Securitisation  and Reconstruction of Financial Assets and Enforcement of Security Interest Act , 2002.It issued public notice of sale of assets . The Writ petition was filed by the Income tax department and Custom department  stating that the assessee being defaulter had not paid huge outstanding income tax demand with interest and penalty ,  the secured  assets already being  attached by department , therefore such property of assessee could not  have been attached nor possession of the property have been taken by the financial institution to be secured creditor, hence in view of section 281(1) the transfer was void. The Custom department also alleged that the assessee had admitted its huge liability. The Court dismissed the petition  stating that the Tax recovery Officer had not served any notice of pendency of any income tax proceedings  on the financial institutions on or before execution of the equitable mortgage by the assessee in favour of financial institutions. Under section 142 of the Customs Act , 1962 , no charge was created in favour of the Customs Department , much less a first charge or priority of claim over the secured creditors. The Court held that the Financial Insitutition was entitled to proration and bonafide transfer of the property having made for valuable consideration   from the assessee  without serving  the notice under clause (i) of the proviso to sub section (1) of section 281 of the Act , though the transfer was hit by the main provision  of the Act. Accordingly the writ petition of revenue was dismissed.
(A.Ys. 1996-97 to 2001-02).
Tax Recovery Officer  v. Industrial  Finance Corporation of India and another ( 2012) 346 ITR 11 (Guj.)(High Court)

Interest –tax Act , 1974.

S. 2 (5A):Definition- Credit institution- Financial company-Leasing transactions  of assessee constituted only 29 percent of its business activity hence not liable to charge interest  tax. [S.2( 5B)]
The assessee is a subsidiary of a schedule bank. It is engaged in providing financial services .Its main business activities related to income from leasing transactions , merchant banking, brokerage, interest on security , interest on investment , dividend on investment ,profit on sale of investment and interest on loan .
The assessee contended that it is neither “credit institution” nor “financial company” hence provisions of interest –tax Act is not applicable. The claim of assessee was negative by the Assessing Officer and Commissioner (Appeals). On appeal the Tribunal has accepted the claim of assessee. On appeal by revenue to High Court, the High Court up held the claim  of assessee and held that leasing transaction vis –a –vis  loan transactions of assessee constituted only 29 percent of its business activity  therefore the assessee would neither fit in to the definition of “credit institution” as per section 2 (5A)  nor financial company as per section 2 (5B) hence not liable to charge tax. (A.Y. 1998-99)
CIT v. Canbank  Financial Services Ltd ( 2012) 208 Taxman 444( Karn.)(High Court)  

Allied Laws.

Contempt- Officer not following the direction of High Court-The High Court held that the Custom Officer committed gross contempt accordingly punished with simple imprisonment of three months & fine of Rs. 2,000 High court  also observed that CBEC  may consider prosecuting him.

The assessee’s truck loaded with betel nuts was seized by the customs authorities on the suspicion that the assessee was indulging in smuggling. The assessee filed a Writ Petition to challenge the seizure which was allowed by the High Court and the customs authorities were directed to unconditionally release the truck immediately. Despite the High Court’s verdict, the customs authorities issued a show-cause notice threatening confiscation. The assessee filed a contempt petition against the department. The department defended its stand and at the same time tendered an unconditional apology. Held  by the High Court:
 Though the High Court’s order was communicated to the department directing a release of the truck without any conditions, the department wrongly demanded 100% cash security and 100% Bond for the said release. The act of issuing show cause notice to avoid giving release is in direct confrontation with the judicial order of the Court. The plea raised with respect to investigation and confiscation is “absolutely frivolous and ridiculous” and has been raised to save from punishment of contempt. Also, the act of justifying the action and simultaneously tendering unqualified apology is a “double faced stance” which is against the settled principle of law. The Asst/Dy Commissioner, Customs, being a senior officer, should have known his limits and by crossing those limits, he has committed gross contempt. He is accordingly punished with simple imprisonment of three months & fine of Rs. 2,000. Also, as the act may constitute “corrupt practice”, the CBEC may consider prosecuting him.

Birendra Kumar Singh v. UOI (Patna)( High Court)www.itatonline.org
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Circulars/ Notification/Press release

5  of 2012 dated  Ist August , 2012 –Inadmissibility  of expenses incurred in providing freebees to Medical  Practitioner by  pharmaceutical and allied health sector Industry –Reg ( 2012) 346  ITR 95 (St)
6  of 2012  dated 3 rd August , 2012  -Relaxation  from compulsory e. filing of return for the assessment  year 2012-2013 for representative assessee of non- residents and in the case of private discretionary trusts –Reg ( 2012) 346 ITR 96 (St)  

S.90: Double taxation agreement-  Agreement for Exchange of  Information with respect of Taxes with Guernsey ( 2012) 208 Taxman 212 (St)

S.90: Double taxation agreement- Agreement between the  Government of the Republic of India and the Government of the Republic of Estonia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to taxes  on income. ( 2012) 346 ITR 143 (ST)

S.90: Double taxation agreement- India –Nepal –Notification  dated  12th June, 2012( 2012) 345 ITR 142 (ST)
S.90: Double taxation agreement- India –Jersey–Notification  dated  10th July, 2012 (2012) 345 ITR 142 (ST)

F.no. 225/163/2012/ITa-II  dt order dated  July, 2012 –Order under section 119 :Extension of due date for –e. filing returns for the returns for the Assessment year 2012-2013 ( 2012) 346 ITR 94(ST)

Press release, dated 10-8-2012 –Initiatives taken by the Government for unearthing and curbing Black money:  A fact sheet (2012) 208 Taxman 203(ST)

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Articles for reference.

S.2 (15);  Charitable purpose , business and vires of proviso  to section 2 (15); by M.P.Agrwal (2012) 346 ITR 11 (Journal)

S.2(15):Charitable purpose- Charity and business under the Income-tax Act: A  Chronological of legislation and judicial analysis ; by R.B. Shukla ( 2012) 346 ITR 39 (Journal) 

S. 2(15): Charitable purpose- Tax exemption for charitable institutions under the income-tax and changed  service-tax legislation –An analytic appraisal; by  T.N.Pandey  (2012) 252  CTR (Articles) 16

S. 2(15) : Charity and business under Income –tax Act : A Chronology of legislation and judicial analysis;  by R.B.Shukla  (2012) 346 ITR (Journal) 39

S.9:Income deemed to accrue or arise in India- Back dated Pitch –Explanation to an Explanation in section 9-Amendments  ;by Gopal Nathani (2012) 346 ITR 3 (Journal)

S.9(1)(vi): Royalty- Why income from sale of computer software not taxable as Royalty (2012) BACAJ .July P. 16

S.14A: Business expenditure- Ready for  dissection by Minu Agarwal (2012) 251 CTR (Articles) 17

S.14A:Assessing Officer cannot alter  disallowance made under section 14A by the assessee unless there is some error in computation ;by  V.K.Subramani (2012) 208 Taxman 266 (Mag.) 

S.32: Depreciation- Additional depreciation for windmills – A clarificatory amendment;  by R. Raghunathan  ( 2012) 251 CTR (Articles) 32.

S.32: Depreciation- Tax consequence of a sale  and Lease back Agreement; by M.S.Prasad ( 2012) 251 CTR (Articles ) 75

S. 32: Depreciation- Depreciation on ‘Goodwill’-A Critical  analysis; by Kavita Kachhwaha  (2012) Taxman 1 (Mag.) 

S.37:Business expenditure- Building lease agreement- Registration fee , stamp duty, solicitors charges  brokerage , legal charges – Ex facie –Inadmissible; by Gopal Nathani ( 2012) 346  ITR  30 (Journal)
S.37: Business expenditure- Allowance of deduction as expenditure is not dependent on the treatment given in the books of account; by V.K. Subramani  ( 2012) 209 Taxman 15 (Mag.)
S.40(b):Section 40(b) and interest to partners (2012) BCAJ –July P. 53 by; Pradip Kapashi, Gautam Nayak . 

S.40A(2)-Transfer Pricing-Domestic transfer pricing Regulation  is an evolving stage; by R.Raghunathn  ( 2012) 251 CTR (Articles) 68

S. 43B: Deductibility of advance payments by; Pradip Kapashi , Gautam Nayak ( 2012) BCAJ –September –P. 47

S.68: Cash credits- Maximum marginal rates and the unexplained  cash credits;  by T.C.A.Sangeetha  ( 2012) 252  CTR (Articles ) 5

S.69C: Undisclosed source- Is it a draconian provision; by P.C.Chandra  ( 2012) 251 CTR (Articles) 27

S.127: Transfer of case-Section 127  caught in the web; By Minu  Agarwal ( 2012) 251 CTR (Articles) 65

S.195: Deduction at source- Not all reimbursement are exempt from WHT –An unanticipated facet; by Gopal Nathani  ( 2012) 346  ITR (Journal) 49

A.
Audit and certification under Income tax Act 1961  (2012) Income  tax review – August –

C.
Corporate veil- Lifting of corporate veil in taxation matters; by  Divye  Bahadur( 2012) 208 Taxman  268 (Mag.)
Commencement of business- Treatment of interest prior to setting up or  commencement of business  by  Ramu  Krishnamurthi  (2012) 252 CTR (Articles) 8  
Challenges faced by Professional forms by ; M..L.Bhakta (2012) BCAJ –July – P.9

E.
Entertainment Industry –Part. 2.(2012)Income tax review  -June .
Finance Act , 2012- Lacunae in the Finance Act , 2012 by Gopal Nathani  ( 2012) 346 ITR 6 (Journal)
Fiscal Policy at cross Roads; by T.N.C.Rangrajan  (2012) 208 Taxman 203(Mag.)
Fiscal laws- Our fiscal laws –Some random thoughts; by S.Rajaratnam  ,( 2012) 346 ITR (Journal) 52 /AIFTPJ –September – 136
Finance  Act 2012- Amendments in direct  tax  provisions by the Finance Act, 2012;by  P.N.Shah  (2012) BCAJ –July P. 21.

G.
GAR- Draft Guide lines of GAAR –The outlook for future; by S.Rajarathnam  (2012) 346 ITR 19 (Journal)          
General Anti Avoidance Rule (GAAR)  and Recent Retrospective Amendment to the Income-tax Act 1961,  by S.R.Wadhwa  ( 2012) AIFTPJ  -September  P 128

I.
Internal Audits (2012) Income tax Review- September .
IFRS- Ind-As; Functional Currency and consequential impact on deferred tax by; Sanjay Chauhan (2012) BCAJ –July P. 10

P.
Permanent Account Number- Mandatory requirement of permanent account number- Matter of utter chaos; by Minu Agrwal  ( 2012) 252  CTR (Articles) 1.

S.
Service tax- Definition of service , charge of service tax and negative list by; Rankamal Shah (2012) –September P. 9

T.
Tax administration-Salient  Aspects of the Functioning of the Income tax department  from  report of the Comptroller and Auditor General of India (CAG) for the year ended March, 2011; by T.N. Pandey ( 2012) 208 Taxman 209 (Mag.)
Time management –Key to success by Narayn Jain (2012) AIFTPJ  -Sept 2012- P 125.

V.

VAT on builders and developers in the State of Maharashtra by’ Govind G.Goyal (2012) BCAJ –July P.22

VAT on builders and developers in the State of Maharashtra by’ Govind G.Goyal (2012) BCAJ –September  P.17

Vodafone- The Billion Dollor Puzzle;  by V. N. Murlidharan ( 2012) 346 ITR 1 (Journal)
Vodafone-Eclipsing Vodafone ;by R. P. Garg  ( 2012) 208 Taxman 255 (Mag.) 21

W.

Wealth  Manangement- (2012) Income tax Review July