Digest of important case law – January 2011

1.S. 2(IB) : Amalgamation – Subsidiary – Tax Avoidance
Assessing Officer rejected the scheme of Amalgamation with its subsidiary holding that it was a mere device to avoid tax. CIT(A) accepted the scheme. On revenue’s appeal the tribunal held that as the scheme has been sanctioned by High Court and it cannot be held that there was motive to avoid tax., further the shares were issued to outside shareholders by assessee company in terms of scheme sanctioned by High Court and the allotment of shares were done on the basis of valuation report submitted by an independent valuer.
ACIT vs. TVS Motors Co. Ltd. (2011) 128 ITD 47 (Chennai)

2.S. 2(22)(e) : Deemed Dividend – Advance given for the purpose of Business
Assessee, Managing Director having received advances from the company, pursuant to resolution passed by it to enable the assessee to purchase land which was to be developed by the company in order to bifurcate the ownership of land from the development or construction of flats  thereon so as to reduce the incidence of stamp duty on the ultimate customers, the transaction was motivated by assessee considerations and commercial expediency, therefore, the advances cannot be treated as deemed dividend.
ACIT vs. Harsad V. Doshi (2011) 49 DTR 181 (Trib.)(Chennai)

3.S. 4 :Charge of income tax- Income – Capital or Revenue Receipt – Subsidy for setting up Industry
Subsidy received for setting up agro based industrial unit in backward area was determined with reference to capital investment, is a capital receipt.
CIT vs. Siya Ram Garg (HUF) (2011) 49 DTR 126 (P&H)

4.S. 4 :Charge of income tax- Income – Capital or Revenue Receipt – Interest – Pre–commencement
Interest on deposit of margin money for opening of letter for credit for import of machinery at the stage of setting up of industrial unit of the assessee is a capital receipt and the same is to be set off against pre-operative expenses.
CIT vs. Arihant Threads Ltd. (2011) 49 DTR 251 (P&H)

5.S. 9 : Income deemed to accrue or arise in India – Purchase of  Technical know how – Royalty – Permanent Establishment – Business Receipt –International Taxation- Tax Deduction at Source – (S. 195)
Purchase of technical know how by foreign company, was business receipt. As there was no permanent establishment in India, the same was not liable to be taxed in India, though the same was treated as ‘royalty’.
Vesil SPA Italy vs. Jt. CIT (2011) 43 SOT 137 (Hyd.)

6.S. 9(1)(i) : Income deemed to accrue or arise in India – Tax Deduction at Source – Technical Services –International Taxation- (S. 40(a)(i), 194J)
Assessee was a dealer for Xerox India Ltd. (XIL), authorized to sell and otherwise, promote latter in specified territories. Apart from sales, assessee was also required to render service support to customers, i.e. purchasers of product of XIL. Assessee claimed that payments made to XIL could not be treated as “fees for technical services”. Tribunal held that the payment in question amounted to fees for technical services hence disallowance made by the lower authorities were justified.
Divya Business Systems (P) Ltd. vs. ACIT (2011) 43 SOT 155 (Cochin)

7.S. 9(1)(i) : Income deemed to accrue in India – No income deemed to arise even if revenue arises due to viewers in India-International Taxation. 
For income to be taxable under section 9(1)(i), the carrying of operations in India is a sine qua non. It was held that merely because the footprint area included India and programmes were watched by Indian viewers, it did not mean that the assessee was carrying out business operations in India. The transponder used was in orbit and merely because its footprint was on India did not mean that the process had taken place in India. Ishikawaima-Harima Heavy Industries 288 ITR 408 (SC) followed. It was further observed that the payment by the telecast operators outside India to the assessee cannot be taxed on the basis that the end consumers are in India.
Asia Satellite Telecommunication Co. Ltd. vs. DIT, (Delhi High Court) Source: www.itatonline.org

8.S. 10(23C)(vi) : Exemption – Educational Institutional.
The assumption that for exemption there should not be any surplus and if it is otherwise the institution society exists for profit and not charity is not justified. Thus, exemption cannot be rejected merely because there is a surplus. Vanita Vishram Trust 327 ITR 121 (Bom.), Maa Saraswati Trust 194 TM 84 (HP) and Pinegrove International Charitable Trust 327 ITR 73 (P&H) followed).
St. Lawrence Educational Society vs. CIT (Delhi High Court) Source: www.itatonline.org 

9.S. 11 : Charitable Trust – Application of Income – Depreciation
Depreciation claim is nothing but application of income, hence, depreciation should be reduced from the income for determining the percentage of funds which had to be applied for the purposes of the trust.
CIT vs. Tinny Tonts Education Society (2011) 330 ITR 21 (P&H)  

10.S. 14A : Business Expenditure – Disallowance – Exempted Income – Apportionment of Expenses – Rule 8D – Pre Asst. Year 2008-09
For pre Asst. Year 2008-09, the assessee earned tax free dividend income from investments in units, bonds, shares, etc. The assessee did not maintain separate books of account for tax free securities but claimed that the same had been invested from its own funds and no part of the interest paid by the assessee on its borrowings together with the administrative expenses could be disallowed. Assessing Officer took the view that the interest paid on borrowings and administrative expenses could be disallowed under section 14A. On appeal, the Tribunal held that as no rule had been made prescribed for computing the disallowance no disallowance under section 14A could be made. On appeal by the department, the Court held that in the absence of any precise formula for proportionate disallowance, no disallowance is called for in respect of administrative cost attributable to earning of tax free income until Rule 8D came in to force.
CIT vs. Catholic Syriyan Bank Ltd. & Ors. (2011) 237 CTR 164 / 49 DTR 57 (Ker.) / Source: www.itatonline.org
Editorial Note:- Godrej & Boyce Mfg Co Ltd (2010)328 ITR 81 (Bom.)   
Dhanalakshmi Bank (2007) 12 SOT 625 (Coch.)

11. S. 14A : Business Expenditure – Disallowance – Exempted Income – No expenditure incurred for earning the exempted income
When no expenditure is incurred for earning exempted income disallowance u/s 14 A cannot be made .
ACIT Vs Pradip N. Desai , ITA No. 2488/AHD / 2008 AY 2005-06 Bench ‘A’ dt. 28/12/2010 , Ahmedabad Chartered Accountants Journal , Vo. 34 part 10 January 2011 ,Pg. 478      

12.S. 28(i) : Business Income – Development Rights – Retirement – Value of flats to be allotted latter
Assessee, a builder having constituted a partnership firm with four others by contributing his development rights in a plot and retired from the firm within 11 days. The Tribunal held that the firm is not genuine and entire consideration received was taxable as business income. Value of flats to be allotted to be treated as consideration received, though the flats are to be allotted in future.
ACIT vs. Dilip S. Hate (2011) 49 DTR 49 (Trib.)(Mum.)

13.S. 28(i) : Business Income – Capital Gains – Investment in Shares – (S. 45)
Activity of frequent buying and selling of shares over a short span of period has to be treated as adventure in the nature of trade. The assessee had made only 37 transactions in 35 scripts. In the preceding year the Assessing Officer has accepted the short term gains and long term gains as investment. The Tribunal held that the principle of resjudicata cannot be applied to income tax proceedings and each assessment year is independent. The Tribunal also held that the treatment in the books of an assessee is not conclusive.
Harsha N. Mehta (Smt.) vs. Dy. CIT (2011) 43 SOT 332 (Mum.)

14.S. 28(i) : Business Income – Computation – Cost of land contributed by partner to the firm – (S. 4)
In computing the profits and gains of the firm on the sale of property in question, the value of the plot brought by one of the partners by way of capital contribution should be taken as per amount declared in revised returns as valuation of land in question which was accepted by the wealth tax authorities and not at value which was earlier shown in the books.
Hansallaya Properties vs. CIT (2011) 49 DTR 231 (Delhi)

15.S. 28(iv) : Business Income – Benefit or Perquisite – Waiver of Loan – [S. 2(24), 41(1)]
Loan received for the purpose of acquiring capital assets did not constitute a trading liability and hence neither section 28(iv) nor section 41(1) has application where loan waived by the bank.
Iskraemeco Regent Ltd. vs. CIT (2011) 237 CTR 239 / 49 DTR 185 (Mad.)  

16.S. 28(va) : Business Income – Share Transfer Agreement – Non compete covenant – No transfer of controlling interest 
It was held that a Share Transfer Agreement is merely agreement for sale of shares and is a non compete covenant. It does not in any manner refer to transfer of any controlling interest. Thus, the amount assessable as business income.
ACIT vs. R.K.B.K. Fiscal Services Ltd., (Kolkata) (Trib.) Source: (www.itatonline.org)

17.S. 32 : Depreciation – Non user of Asset – Block of Assets
The assessee claimed depreciation under section 32 in respect of the assets at its Bhopal unit which was closed for six years. The claim was on the basis that (1) despite closure of the unit there was a “passive user” of the asset were part of the “Block of assets”, depreciation could not be disallowed. Assessing Officer and CIT(A) rejected the claim. Tribunal upheld the claim. On appeal to High Court, the Court held that despite non-user of assets, depreciation is allowable, if it is part of “Block of assets”.    
CIT vs. Oswal Agro Mills Ltd. (Delhi High Court) Source: www.itatonline.org

18.S. 36(1)(iii) : Business Expenditure – Interest on Borrowed Capital – to settle loan liability of sister concern
Interest on loan obtained by assessee to settle liability of its sister concern, to retain business premises of assessee the same is allowable.
CIT vs. Neelkanth Synthetics and Chemicals P. Ltd. (2011) 330 ITR 463 (Bom.)

19.S. 36(1)(iii) : Business Expenditure – Interest on Borrowed Capital – Interest and Penalty under Sales Tax Act
Interest paid on funds borrowed for interest and penalty under Sales Tax Act for belated payment allowable as business expenditure. Revenue appeal was dismissed as no substantial question of law.
CIT vs. International Fisheries Ltd. (2011) 220 Taxation 11 (Bom.)

20.S. 37(1) : Business Expenditure – Corporate Guarantee – Subsidiary – One time settlement with Bank
Giving corporate guarantee was not only one of the objects of the assessee company but the same was given for its subsidiary company and it was in the interest of the assessee company and hence, the commercially expedient decision, hence, one time settlement with bank was allowable as business loss.
ACIT vs. Industries (India) Ltd. (2011) 128 ITD 98 (Chennai)

21.S. 37(1) : Business Expenditure – Keyman Insurance – Hospital – Consultancy Fees – Software Maintenance
Keyman Insurance premium paid by the Company on the lives of Chief cardiac surgeon, chairman, and managing director of company was qualified as deduction under section 37(1). Consultancy fees paid for maintenance of software were to be allowed as revenue expenditure.
Escort Heart Institute & Research Center Ltd. vs. ACIT (2011) 128 ITD 108 (Delhi)

22.S. 37(1) : Business Expenditure – Capital or Revenue Expenditure -Expenditure on setting up new sugar units – Expansion of Business
Expenses incurred by assessee, a sugar manufacturer, by way of salaries, wages, bonus, provident fund contribution, workmen welfare expenses, power, fuel and water, manufacture expenses rent for office building, etc. on setting up new sugar units were expenses for the purpose of manufacture of sugar in respective factories and therefore, the same are allowable as revenue expenditure.
CIT vs. Sakhti Sugars Ltd. (2011) 237 CTR 51 (Mad.)

23.S. 37(1) : Business Expenditure – Replacement of Moulds – Revenue Expenditure
Replacement of moulds did not result in creation of new capital asset or benefit of enduring nature, mere fact that moulds were used in production process could not be conclusive as to the nature of expenditure, hence, expenditure on replacement of moulds was revenue expenditure.
CIT vs. Malerkotla Steels & Alloys (P.) Ltd. (2011) 237 CTR 201 / 49 DTR 1 (P&H)

24.S. 37(1) : Business Expenditure – Repair
The assessee company was engaged in printing and publication of various periodicals. It got repaired an empty derelict hall which was converted into a recreation room and was used by assessee’s staff. The aforesaid deduction was allowed to the assessee as the repairs did not constitute a capital expenditure and hence were allowable under section 37(1) of the Act.
ACIT  vs. MM Publication Ltd. (2011) 43 SOT 59 (Cochin)

25.S. 40(b) :Amounts not deductible- Firm – Remuneration – Not Working Partner
Where remuneration is paid to a partner who is not a working partner, remuneration payable to him even in accordance with the deed of partnership is not allowable under the provisions of section 40(b) of the Act.
Reliable Surface Coatings vs. ACIT (2011) 7 ITR 183 (Trib.)(Ahd.)

26.S. 40(a)(i) :Amounts not deductible- Non Resident – Tax Deduction at Source – Technician outside India – (S. 195)
Payment made outside India for services rendered by non residence technicians outside India no disallowance can be made as provisions of section 195 is not applicable.
CIT vs. International Creative Foods (P.) Ltd. (2011) 49 DTR 150 (Ker.)

27.S. 45 : Capital Gains – Sale of lease hold land with incomplete building – Short Term – [S. 2(29B), 2(42B)]
Capital gain arising to the assessee on the sale of lease hold land with incomplete building is to be bifurcated into gain arising out of sale of leasehold interest in land and sale of building. In the absence of perversity in the finding of the Tribunal estimating the value of the building at Rs. 2.15 crores as against the construction cost of Rs. 1.85 crore, the gain arising on the sale of land is to be treated as a long term capital gain where as the gain of Rs. 30 lakhs arising on the sale of incomplete building is to be treated as short term capital gain.
CIT vs. Hindustan Hotels Ltd. (2011) 237 CTR 32 / 49 DTR 17 (Bom.)

28.S. 45 : Capital Gains – Transfer of Goodwill – Sale of Entire Business
Sale of entire business, including all assets and liabilities, as a going concern, not possible to bifurcate consideration received on account of transfer. Transfer does not give rise to capital gains.
ACIT vs. Patel Specific Family Trust (2011) 330 ITR 397 (Guj.)

29.S. 45(4) : Capital Gains – Transfer – Dissolution – Otherwise – [S. 2(47)]
Land was transferred in the name of the partners by book entries, the assessee contended that as no registration is done, the immoveable property was not legally transferred and also contended that as there was no dissolution, section 45(4) cannot be applied. The Tribunal held that the provision of section 45(4) were applicable. The word “otherwise” covers  the transfer other than the dissolution also.
New Gujarat Tin Printing Works vs. ITO (2011) 128 ITD 182 (Ahd.)

30.S. 50 : Capital Gains –Depreciable assets- Loss – Carry Forward and Set off of brought forward business loss
Income assessed by the assessee in the relevant year on sale of factory building, plant and machinery although not taxable as profits and gains of business or profession is an income in the nature of business though assessed as capital gains under section 50 and therefore, assessee is entitled to set off of brought forward business losses against the said capital gains.
Digital Electronics Ltd. vs. Addl. CIT (2011) 49 DTR 484 (Trib.)(Mum.)
Editorial Note:- See J. K. Chemicals Ltd. vs. ACIT, ITA No. 8206/Bom/1089 and 8618/Bom/89 Bench ‘A’ dt. 1-11-1993, Sri Padmavathi Srinivasa Cotton Ginning Factory vs. Dy. CIT (2009) 29 DTR 1 (Visakha)(Trib.)   

31.S. 54 : Capital Gains – Exemption – Investment in two houses
Assessee was not entitled to exemption in respect of two independent residential houses situated at different locations.
Pawan Arya vs. CIT (2011) 237 CTR 210 / 49 DTR 123 (P&H)

32.S. 54F : Capital Gains – Exemption – Investment in residential house – Time Limit
Where the assessee had purchased a flat after one year of sale of original asset and constructed a new house within three years of sale of original asset proviso (ii) to section 54F was not attracted and assessee was entitled to exemption under section 54F in respect of new house constructed by him.
P. R. Kulkarni & Sons (HUF) vs. Addl. CIT (2011) 49 DTR 442 (Trib.)(Bang.)
 
33.S. 54F(1)(a) : Capital Gains – Exemption – Stamp Duty Valuation – (S. 45, 50C)
Capital gains arising from the transfer of any long term capital asset for the purpose of section 54F has to be worked out applying section 48 without imposing section 50C into it, when sale consideration was shown at Rs. 20,00,000/- stamp duty valuation was Rs. 36,00,000/- and the assessee invested in new house Rs. 24,00,000/- including Rs. 20,00,000/- sale consideration, he could claim exemption under section 54F only of Rs. 18,06,494/- and not entire Rs. 36,00,000/-.
Gauli Mahadevappa vs. ITO (2011) 49 DTR 207 (Trib.)(Bang.)
Editorial Note:- Gyan Chand Batra vs. ITO (2010) 133 TTJ 482 / 45 DTR 41 (Trib.)(Jaipur) Tribunal has taken different view. 

34.S. 54F(4) : Capital Gains – Exemption – Deposit in Savings Bank Account
Where the assessee had deposited sale proceeds in normal savings account as against scheme specified by Central Government through notification in official Gazette as per section 54F(4), it violated provisions of section 54F(4), hence, not eligible for exemption.
Thakorlal Harkishandas Intwala vs. ITO (2011) 43 SOT 347 (Ahd.)      

35.S. 56(2)(v) : Income form Other Sources – Gifts received by minor sons – Maternal Uncle – (S.64)
Section 56(2)(v), read with Explanation speaks of relationship between the donor and donee and not deemed assessee, maternal uncle of the assessee who made gifts of Rs. 5 Lakhs to two minor sons of the assessee is not a “relative” of the donees with in the meaning of explanation to section 56(2)(v) and therefore, the impugned sum is chargeable to tax in the hands of the assessee under the provisions of section 56 read with section 64.
ACIT vs. Lucky Pamnani (2011) 49 DTR 501 /135 TTJ 607(Trib.)(Mum.) 

36.S. 57(iii) :Income from other sources- Deductions – Interest – Assessing Officer can lift veil & determine legal effect but cannot ignore legal effect on ground of “substance”
It is held by the Larger Bench that under section 57(iii), expenditure laid out or expended wholly or exclusively for the purpose of making or earning income is deductible. It is the purpose of the expenditure that is relevant but the purpose need not be fulfilled.R. P. Moody 115 ITR 519 (SC) followed. The assessee must act bona fide & show nexus between the advancing of funds and his business interest. The dominant purpose for making the investment must be to earn income & to ascertain the purpose the Assessing Officer may lift the veil (Swapna Roy 233 CTR 10 (All) & Punjab Stainless 324 ITR 396 (Del.) followed);
It was also held that legal effect of a transaction cannot be displaced by probing into the “substance of the transaction”. Thus, the exercise of jurisdiction cannot be stretched to hold a roving enquiry or deep probe.
CIT vs. Rockman Cycles Industries (High Court)(Larger Bench)(P&H) Source: www.itatonline.org

37.S. 68 : Cash Credits – Share Application Money -Satisfactory explanation as to the ‘nature of the source.
The Hon’ble High Court held that in order to provide satisfactory explanation as to the “nature and source” of a sum found credited in his books, the initial burden is on the assessee. The assessee is required to prove (a) Identity of the shareholder; (b) Genuineness of transaction; and (c) credit worthiness of shareholders;
CIT vs. Oasis Hospitalities Pvt. Ltd. (Delhi High Court) www.itatonline.org

38.S. 69 : Unexplained Investments –difference in statement of value of stock furnished to bank and entries in books of accounts  addition justified
Where the stock statement of hypothecated goods furnished bank was at variance with stock recorded in books of accounts . It was held that addition was justified as the assessee neither denied statement made to bank nor furnished valid explanation of discrepancy .
B.T.Steels Ltd. Vs CIT , (2011) 196 Taxman 362(P & H) 

39.S. 69A : Unexplained Money – Claim for redemption fine – deduction not allowed
It was held that Sec. 69A does not provide for any deduction , thus claim for redemption fine is not admissible . Adjudication , confiscation and later redemption fine does not affect the assessment in case of seized articles u/s 69A.
P. Sonam V CIT (IV) , Ernakulam (2011) 196 Taxman 335 (ker.)

40.S. 73 : Losses in Speculation Business – Delivery based loss on shares also Speculation Loss.
It is held that the Explanation to section 73 creates a fiction that the loss suffered by certain companies from the business of purchase & sale of shares shall be deemed to be speculation loss. The definition of speculative transaction in section 43(5) not applicable to Explanation to section 73. The CBDT Circular dated 24.7.1976 cannot be treated as guide for interpretation of section 73 when the provision is very clear and free from any ambiguity.
Paharpur Cooling Towers Ltd. vs. ACIT (Calcutta High Court) www.itatonline.org
Editorial : Refer Paharpur Cooling Towers Ltd. Vs DCIT (2003)85 ITD 745 (Kol.)

41.S. 80IA : Deductions – Industrial Undertaking in Infrastructure Development –  Absorption of loss in earlier year, section 80-IA unit loss to be set-off against section 80-IA profits
It was held that deduction under section 80-IA has to be computed after deduction of the notional brought forward losses and depreciation of business even though they have been allowed set off against other income in earlier years as concluded by the ITAT Special Bench judgement in ACIT vs. Gold Mine Shares & Finance (P) Ltd 113 ITD 209 (SB)(Ahd.) against the assessee.
Hyderabad Chemical Supplies Ltd. vs. ACIT (Trib.)(Hyd.) Source: www.itatonline.org

42.S. 80IA(8) : Deductions – Industrial Undertaking – Tariff fixed by MERC for sale of power does not reflect “market value”
It is held that under section 80-IA(8), the transfer of goods from an eligible business to a non-eligible business is required to be taken at “market value”. But the tariff determined by MERC is based on the concepts of ‘clear profits’ and ‘reasonable return’ and does not reflect the “market value” of the electricity. Further, the tariff is fixed for both activities of generation and distribution of power and may not reflect the true rates with regard to only the activity of generation. Thus,even after the fixation of tariff by MERC, the profits from the business of generation of power has to be worked out on the basis of the price paid to the outside party for purchase of power.
Reliance Infrastructure Ltd. vs ACIT (Trib.)(Mum.) Source : www.itatonline.org

43.S. 80HHC : Deduction – Export – Profits of Business – Interest on Deposits -Inter-corporate Deposits
Finding of the authorities below that interest income received by the assessee company on bank deposits and inter-corporate deposits is a part of business profit not having been shown to be perverse, the same cannot be excluded from the business profit while calculating the deduction under section 80HHC.
CIT vs. Sociendade De Fomento Industrial Ltd. (2011) 237 CTR 141 / 49 DTR 161 (Bom.)

44.S. 80HHC : Deduction – Export – Receipts – Freight – Insurance – Packing Charges – Sales Tax set off
90% of receipts from freight and insurance, packing charges, sales tax set off and gross service income was be excluded from the profits of the business in terms of explanation (baa) to section 80HHC of the Income Tax Act.
CIT vs. Dresser Rand India P. Ltd (2011) 330 ITR 453 (Bom.)
Editorial Note:- Refer, CIT vs. Dresser Rand India Pvt. Ltd. (2010) 323 ITR 429 (Bom.). In Pfizer Ltd. (2010) 233 CTR 521 / (2011) 330 ITR 62 (Bom.) distinguished.

45.S. 80IB : Deduction – Industrial Undertakings – Interest – Miscellaneous Income
Interest on deposits would not be allowable towards the deduction under section 80IB. Miscellaneous income (reversal of LD charges), the matter was remanded to the Tribunal for fresh consideration.
CIT vs. Dresser Rand India P. Ltd (2011) 330 ITR 453 (Bom.)  

46.S. 88E : Rebate – Securities Transaction Tax – [S. 40(a)(ib)]
Disallowance of deduction for securities transaction tax under section 40(a)(ib) could not deprive the assessee of rebate under section 88E.
ITO vs. Chunilal T. Mehata (2011) 7 ITR 50 (Trib.)(Kol.)

47.S. 92C :Avoidance of tax- Transfer Pricing – International Taxation – Determination of ALP of slump sale
For purpose of transfer pricing in order to determine the ALP in the absence of other identical transactions, the valuation by a registered valuer is the most appropriate means under CUP method. However, as the valuation report filed by the assessee is not reliable, the only option is to adopt the value of the assets sold as per the company law or income-tax WDV. In the sale of a going concern, factors like profitability of the branch office, goodwill, and various other commercial and technical aspects will have a bearing on the ALP.

Inter Asia Electronics Inc vs. ADIT (ITAT) (Banglore) www.itatonline.org

48.S. 92C :Avoidance of tax- Transfer Pricing : International Taxation – +/- 5% Variation only if more than one price determined
The benefit of +/- 5% variation as per the Proviso to section 92C(2) is available only if more than one price is determined. It does not apply where only one price has been determined.CBDT Circular No.12 dated 23.8.2001 provides that “the AO shall not make any adjustment to the arm’s length price determined by the taxpayer if such price is unto 5% less or unto 5% more than the price determined by the AO”. Circular was issued considering practical difficulties. As the Circular never came into operation thus, Circular No. 12 is otiose and cannot be relied upon.

ACIT vs. Essar Steel Ltd (ITAT)(Vizag) www.itatonline.org

49.S. 92C :Avoidance of tax- Transfer Pricing – International Taxation – Super normal profit co must be excluded from comparable
The assessee, engaged in providing software development services reported an OP/Cost Margin of 14.96%. The TPO worked out the average of arithmetic mean of ALP (OP/OC) of 42 comparables at 24.91% and directed that an adjustment of Rs. 10.40 crores be made. In its objections to the DRP, the assessee claimed that the comparables included three companies which were “super-normal profit making” and that these should be excluded. It was claimed that if the said companies were excluded, the arithmetic mean of OP/OC of the comparables was 17.15% which was within the +/- 5% range permitted by s.92(C)(2). The TPO rejected the contention on the ground that one company was listed and audited and showing consistent growth at the same level and there was no abnormality and that the other company’s information was not listed in the database. The third “abnormal” company was not dealt with by the TPO. The DRP dismissed the objections of the assessee by a “very cursory and laconic order”. On appeal by the assessee, HELD allowing the appeal:
(i) The TPO rejected the assessee’s contention with regard to inclusion of the three super-normal profit companies without any cogent reason. It is undisputed that the three companies have shown super-normal profits as compared to other comparables. Their exclusion from the list of comparable is quite correct. After excluding the three companies the arithmetic mean of the comparables falls within the +-5% range permitted by section 92(C)(2);
(ii) Despite the voluminous submissions and paper book filed, the DRP passed a very cursory & laconic order without going into the details of the submissions which is quite contrary to the mandate of s. 144C.
Adobe Systems India Pvt. Ltd. vs. ACIT (Trib.)(Delhi) Source: www.itatonline.org

50.S. 115WB : Fringe Benefits – Rent for Car Parking Area – Revision – (S. 263)
In the present case it was held that the essential facilities attached to a rented building had to be treated as part of building itself and therefore, rent or license fee paid for such facilities should be treated as forming part of rent. It was further held that in view of the above, the rent paid for car parking area did not fall under category of ‘running, maintenance and repair expenses of car’ and thus assessee was not liable to pay fringe benefit tax on the said amount.
Hewlett Packard India Sales (P.) Ltd. vs. CIT (2011) 43 SOT 124 (Bang.)

51.S. 132 : Search and Seizure – Warrant of Authorisation – Common Search Warrant – Validity
Common search warrant specifying names and addresses of persons residing at different places, held to be valid.
Embassy Classic P. Ltd & Another vs. ACIT (2011) 7 ITR 287 (Trib.)(Bang.)

52.S. 132 : Search and Seizure – Warrant of  Authorisation – Joint Names – Block Assessment – (S. 158BC)
A warrant of authorization must be issued individually. If it is not issued individually, then the assessment cannot be made in individual capacity. Warrant of authorization issued in joint names of husband and wife. Individual assessment on wife alone not valid.
CIT vs. Vandana Verma (Smt.) 330 ITR 533 (All)

53.S. 133A : Survey – Statement – Disclosure – Retraction – Addition
Addition can not be made solely on the basis of statement recorded during survey in absence of any corroborative evidence and supporting material in case wherein it has been retracted.
ACIT vs. Prabhu Dayal Kanojia (2011) Tax World Vol. XLV Part-1. Page 23. (January, 11)

54.S. 140 : Return – Not signed by Managing Director – Curable Defects – (S. 292B)
Return of Company not signed by Managing Director but by person authorized by Board resolution, defects curable under section 292B.
Hind Samachar Ltd. vs. UOI (2011) 330  ITR 266 (P&H)

55.S. 143(3) : Assessment – Addition – Adhoc Addition – Self made vouchers
Adhoc disallowance cannot be made simply holding that self made vouchers cannot be taken as correct and proved, unless some of such vouchers are proved as bogus or fake.
ITO vs. Bajrang Trading Company (2011) Tax World Vol. XLV Part-1 Page 33 (January, 11)

56.S. 144C : Dispute Resolution Panel – Act to expectations & not have perfunctory approach
The DRP, is an authority created under a statute and conferred with the powers, which has the obligation to act as a body living to the expectations which the law mandates. It was held that section 144C empowers the Dispute Resolution Panel (DRP) to issue directions to the Assessing Officer and cannot be treated as totally redundant or absolutely inefficacious remedy to the assessee. Thus, no assessee can have any kind of apprehension that the approach to the DRP is perfunctory.
EricssonAB vs. ADIT (Delhi High Court) Source: www.itatonline.org

57.S. 148 : Reopening of Assessment – Non-supply of ‘Reasons for Reopening’ within the limitation period time – Reopening void
Where the notice has been issued within the said period of six years but the reasons have not been furnished within that period is hit by the bar of limitation because the issuance of the notice and the communication and furnishing of reasons go hand-in-hand. A notice under section 148 without the communication of the reasons therefore is meaningless inasmuch as the Assessing Officer is bound to furnish the reasons within a reasonable time. The expression ‘within a reasonable period of time’ as used in GKN Driveshafts 259 ITR 19 (SC) cannot be stretched to such an extent that it extends even beyond the six years stipulated in section 149. 
Balwant Rai Wadhwa vs. ITO (Trib.) (Delhi) Source: www.itatonline.org

58.S. 153A : Search and Seizure – Special Procedure for Assessment – On Money Payment – Company – Director
Merely on the basis of entry in seized material not supported by corroborative evidence, and contradictions in statement of purchaser of property, additions made in the hands of company on substantive basis and addition in the hands of Director on protective basis was deleted.
Embassy Classic P. Ltd & Another vs. ACIT (2011) 7 ITR 287 (Trib.)(Bang.) 

59.S. 154 : Rectification of mistake – intimation u/s 143(1)(a) cannot be rectified after order passed u/s 143(3)
Rectification order u/s 154 cannot be passed to rectify an intimation given u/s 143(1)(a) after final assessment order u/s 143(3) is passed .
Tamil Nadu Magnesite Ltd. Vs CIT , Coimbatore (2011)196 Taxman 271(Mad.)
 
60.S. 158B(b) : Block Assessment – Search and Seizure – Computation of Undisclosed Income – Belated filing of Return – Disclosure  of Income – [S. 132(4)]
If the search under section 132 takes place after the due date of filing of normal return and no return is filed by that time, and the assessee is not able to demonstrate that he had disclosed his income to the department before the date of search in the some manner or the other, filing of return thereafter under section 139(4) would be of no consequence for the applicability of Chapter XIV–B and the income of the assessee is to be treated as undisclosed.
CIT vs. A. T. Invofin India (P) Ltd. (2011) 237 CTR 360 / 49 DTR 141 (Delhi)

61.S. 158BC : Block Assessment – Service of Notice
In the absence of any material or evidence to prima facie show that the alleged notice under section 158BC was actually sent to the assessee, it cannot be presumed, in the absence of acknowledgement of the said notice, that might have been served upon the assessee and therefore, the proceedings initiated by the Assessing Officer under section 158BC as well as block assessment are null and void initio.
ACIT vs. Lakshmi Industries (2011) 135 TTJ 112 (Chennai)

62.S. 158BC : Block Assessment – Protective Assessment be framed – (S. 158 BD)
The Assessing Officer in absence of any specific power under the Act, has power to make protective assessment in case of regular as well as block assessment under certain circumstances Lalji Haridas vs. ITO 43 ITR 387 (SC) followed.
CIT vs. Mahindra Finlease Pvt. Ltd. (Delhi High Court) Source: www.itatonline.org

63.S. 158BD : Search and Seizure – Block Assessment – Statement Recorded
Proceedings initiated against the assessee under section 158BD on the basis of statement recorded during search are not valid as statement is neither document nor asset; further, initiation of proceedings under section 158BD by the Assessing Officer against the assessees without recording the requisite satisfaction was illegal.
CIT vs. Late Raj Pal Bhatia (2011) 49 DTR 9 / 237 CTR 1 (Delhi)

64.S. 159(2) : Assessment – Dead Person – Search and Seizure
Assessment cannot be framed on a dead person, where the assessee had already died on 2nd Feb., 1990 and the search was conducted thereafter on 13th Sept., 1990, section 159(2) was not attracted and no assessment could be framed on a dead person. Therefore addition made under section 69B was liable to be deleted.
Late Smt. Laxmibai Karanpuria Through L/H Rajendra Karanapuria vs. ACIT (2011) 135 TTJ 123 / 49 DTR 59 (Trib.)(Ind.)

65.S. 194C : Deduction at Source – Printing Material-Payments to contractor.
Payment made for purchase of printed packing material to suppliers, no work involving skill or secrecy, it being sale, section 194C is not attracted.
ITO vs. Mother Dairy Food Processing Ltd. (2011) 7 ITR 16 (Trib.)(Delhi)

66.S. 194C : Deduction at Source – Shipping Agent – Carriage of Goods -Technical Services –Payments to contractors.  (S. 194J)
Payment made for carriage of goods from the customer’s trailers to the vessel in the case of export and vice versa in the case of import of goods are covered by section 194C rather than section 194J which cannot be applied.
ACIT vs. Merchant Shipping Services (P) Ltd. (2011) 49 DTR 97 (Trib.)(Mum.)

67.S. 194D : Deduction  at Source – Insurance Commission
Assessee, a general insurance company, entered in to an arrangement with one B for facultative reinsurance. As per said arrangement, assessee was liable to pay certain percentage of premium  as reinsurance inward commission to B. Assessee was receiving only net premium on reinsurance from B. Profit commission, if any, was shared between assessee and B in certain percentage. Assessing Officer held that assessee was liable to deduct tax on reinsurance commission paid to B under section 194D. The Tribunal held that provisions of section 194D were not applicable to payment of reinsurance commission made by assessee to B.
Tata AIG General Insurance Co. Ltd. vs. ITO (2011) 43 SOT 215 (Mum.)   

68.S. 194H : Deduction  at Source – Commission or brokerage.
Transaction between assessee and concessionaries, principal to principal. Payments to concessionaries for sale of milk products being not commission, tax not deductible.
ITO vs. Mother Dairy Food Processing Ltd. (2011) 7 ITR 16 (Trib.)(Delhi)

69.S. 201 : Deduction at Source – Assessee in default – Payment to non resident – [S. 163, 195(2), 201(IA)]
The Assessing Officer asked the assessee to deduct the tax and remit the amount. The assessee approached the Court of Appeal in London for permission to deduct the tax at source from the award amount. Pending the stay the Court directed the assessee to remit the amount to escrow account maintained in names of both the parties. The entire amount was remitted as by court order. Indian tax authorities sought to proceed holding assessee in default under section 201(1)(IA). The Tribunal held that assessee could not be held to be assessee in default in terms of section 201(1) and 201(IA), as it was a case of impossibility of performance, and hence assessee would be released from obligation to deduct tax at source.
National Aviation Co. of India vs. Dy. CIT (2011) 43 SOT 362 (Mum.)

70.S. 201 : Assessee in default – Limitation – Deduction  at Source – Tax duly paid by payee
Maximum time limit for initiating and completing the proceedings under section 201(1) has to be at par with the time limit available for initiating and completing the assessment / reassessment of the payee; impugned order under section 201(1) passed by the Assessing Officer with in the period of six years from the end of the relevant assessment year is not time barred.
Person responsible for deduction tax cannot be treated as an assessee in default in respect of tax under section 201(1) if the payee has paid the tax directly.
ACIT vs. Merchant Shipping Services (P) Ltd. (2011) 49 DTR 97 (Trib.)(Mum.)

71.S. 220 : Recovery – Stay – Appellate Tribunal – [S. 254(1)]
Assessing Officer and CIT(A) has disallowed the expenses under section 40(a)(ia), mainly relying on the decision of Karnataka High Court which now stands overruled by the Supreme Court and liquidity being not favourable, the entire demand is stayed till the disposal of assessee’s appeal by the Tribunal or for a period of six months which ever is earlier.
Softcell Technologies Ltd. vs. Additional CIT (2011) 49 DTR 129 (Trib.)(Mum.)

72.S. 249(4)(a) : Appeal – Commissioner(Appeals) – Admitted Tax – Limitation – Refund of earlier years
Commissioner(Appeals), dismissed the appeal on the ground that the assessee has not paid the admitted tax. The assessee contended that in the earlier years the assessee had made excess payments of tax and it was entitled refunds, and further the bank account was also attached. The assessee made payments afterwards. The Tribunal set aside the order of Commissioner of (Appeals) and directed him to decide on merit.
Endeavour Industries Ltd. vs. Dy. CIT (2011) 43 SOT 322 (Hyd.)

73.S. 249(4) : Appeal – Commissioner(Appeals) – Admitted Tax
If the appeal is filed without the payment of tax on returned income but subsequently the required amount of tax is paid, the appeal shall be admitted on payment of tax and appeal has to be decided on merit.
Bhumiraj Constructions vs. Addl. CIT (2011) 49 DTR 195/135 TTJ 357 (Trib.)(Mumbai)

74.S. 253(6)(c) : Appellate Tribunal – Fees – Income Determined – Order under Section 154
Order passed under section 143(1), assessed income is Rs. 13,06,780/-. Appeal filed against order under section 154. Total income determined at more than Rs. 2 lakhs fee payable shall be one percent of assessed income subject to a maximum of Rs. 10,000/-. The Tribunal held that fee rate dependent on total income determined.
M. M. Bagwan and Brothers vs. ACIT (2011) 7 ITR 298 (Trib.)(Bang.)    

75.S. 254(1) : Appellate Tribunal – Cross Objection – Dismissal of Revenue Appeal – Adjudication
Revenue filing appeal and the assessee filing cross objection before the Tribunal. Tribunal dismissed the revenue’s appeal and not adjudicated the assesses cross objection. The Court held that the cross objection to be decided.
Ram Ji Dass & Co. vs. CIT (2011) 220 Taxation 90 (P&H) 

76.S. 254(1) : Appellate Tribunal – Duty of Tribunal – Reasoned Order
A judicial order must be supported by sufficient reasons for coming to the conclusion. Failure to record reason would violate the principles of natural justice and is against the basic concept of fairness and transparency, therefore, orders passed by the CIT(A) and the Tribunal suffer from violation of principles of natural justice can not be sustained. 
Iskraremeco Regent Ltd. vs. CIT (2011) 237 CTR 239 / 49 DTR 185 (Mad.)

77.S. 254(2) : Appellate Tribunal – Rectification of Mistake – Merger
On the facts of the case, the High Court had reversed the order passed by the Tribunal holding that since the assessee had paid arm’s length remuneration for services of its Indian agent, no further profits could be attributed to foreign enterprises in India under Article 7(1) of DTAA.
In such cases the application filed by the revenue under section 254 read with section 9 & 90 of the Income-tax Act, 1961 Article 7 of DTAA between India and Singapore was rendered infructuous as the impugned order of Tribunal had already merged with the order passed by High Court & Tribunal had no jurisdiction to modify its earlier order. The revenue’s application was therefore dismissed.
Dy.  Director of IT vs. SET Satellite (Singapore) Pte Ltd. (2011) 43   SOT 1 (Mum.)(URO)

78.S. 260A : Appeal – High Court – Power of Review
S. 35G(9) of the Central Excise Act (= s. 260A (7) of the IT Act) provides that “the provisions of Civil Procedure Code, 1908 relating to appeals to the High Court shall as far as may be apply in the case of appeals under this Section”. Given that only the provisions of the CPC relating to “appeals” are made applicable and not those relating to “review”, the High Court had to consider whether the provisions of section 114 and Order XLVII of the Civil Procedure Code which confer power on the High Court to review its judgments apply to appeals filed under the Excise Act. The assessee and the department were agreed that the High Court had that power. HELD accepting the claim:
(i) The High Court is a Court of record as envisaged in Article 215 of the Constitution and has inherent powers to correct the record. As the High Court has plenary jurisdiction, it has inherent power of review to prevent miscarriage of justice or to correct grave and palpable errors committed by it. CCE vs. Hongo India (236) ELT 417 (SC) & D.N. Singh vs. CIT 325 ITR 349 (Pat)(FB) followed;
(ii) In dealing with matters under a special enactment, the practice and procedure of the ordinary Court will apply if the special enactment refers to and adopts the practice and procedure to be followed by the ordinary Court. Accordingly, all provisions of the CPC apply to appeals under the Excise Act;
(iii) Section 35G(9) does not restrict the jurisdiction of the High Court to only the provisions of the CPC relating to appeal. Section 35G(9) is enacted out of abundant caution to provide that in respect of matters not dealt with by the special enactment, the provisions of the CPC shall apply. Even if section 35G(9) were not there, the ordinary law of the court have to be applied in the absence of anything contrary in the special law;
(iv) One of the grounds of review is an error apparent on the face of the record. Where a statute is amended retrospectively, a judgment applying the un amended law constitutes an error apparent on the face of record and can be reviewed.
VIP Industries Ltd. vs. CCE (Bombay High Court) Source: www.itatonline.org

79.S. 263 : Revision of orders prejudicial to revenue – Penalty – Two Views
The Assessing Officer dropped the penalty proposal holding that appeal against the quantum is pending before the High Court. The Commissioner of Income Tax revised the order. The Tribunal held that the view of Assessing Officer cannot be held to be erroneous in dropping penalty proceedings. The Assessing Officer can impose penalty even after appeal is determined by High Court. Two view possible hence revision was held to be not valid.
V. K. Natesan (2011) 128 ITD 81 / 49 DTR 233/135 TTJ 257 (Cochin)(TM) 

80.S. 263 : Revision of orders prejudicial to revenue – CIT not permitted to change view & revise under section 263 without changed circumstances 
It was held that as the department had examined the fundamental nature of the transaction in the earlier years and its nature remained unchanged, the department could not have changed its view as regards the nature of the transaction by dubbing it as erroneous. The department is not entitled to re-open an assessment based on a fresh inference of transactions accepted by the revenue for several preceding years on the pretext of dubbing them as erroneous.
Associated Food Products 280 ITR 377 (MP), Sirpur Paper Mills Ltd 114 ITR 404 (AP) & CIT vs. Gopal Purohit 228 CTR 582 (Bom.) followed.
CIT vs. Escorts Ltd. (Delhi High Court) Source: www.itatonline.org  

81.S. 271(1)(c) : Penalty –Concealment- Revised Return – After Survey-Voluntary.
Revised return filed disclosing additional income as a consequence of follow-up proceedings  taken by Deputy Director of Income Tax in respect of purchasers hence revised return cannot be said to be voluntary, hence levy of penalty was justified.
LMP Precision Engg. Co. Ltd. vs. Dy. CIT (2011) 330 ITR 93 (Guj.)    

82.S. 271(1)(c) : Penalty – Concealment – Two set of books of accounts
In the present case, the assessee was maintaining two sets of books; one was meant for showing to Income Tax Authorities and the other for himself. In the second set, he was recording sales and certain expenses on the basis of these documentary evidence, addition had been made which had been confirmed up to the Tribunal. Thus it was not the case of simplicitor estimation of the income by disbelieving the books of account or other details submitted by the assessee during the course of assessment proceedings. In the present case the department was able to lay its hands on the documentary evidence exhibiting the conduct of assessee for avoiding tax and carrying out the business activity out of the regular books. In the above circumstances penalty under section 271(1)(c) of the Act, which was confirmed by the commissioner (A) was  upheld.
Shyam Behari vs. ACIT (2011) 43 SOT 129 (Delhi)

 83.S. 271(1)(c ) : Penalty – Concealment – Return filed after survey
The assessee disclosed the income in the Return filed after survey . The Tribunal held that what is punishable u/s 271(1)(c ) is actual concealment of income in the Return of income and not merely an attempt to make concealment . If the assessee rectifies it itself and declares the correct income in valid return of income and doesnot file return by concealing the income then such act is not punishable u/s 271(1)(c ) . Hence penalty u/s 271(1)(c ) cannot be levied .
Sadhbav Builders V ITO , ITA No. 1418/Ahd/2008 , AY 2002-03 Bench ‘D’ dt. 21/1/2011 , Ahmedabad Chartered Accountants Journal , Vol. 34 Part 10 January 2011, pg. 480

Wealth Tax
84.S. 2(m) : Wealth – Tax – Net Wealth – Debt Owed – Security Deposit
Security deposit received against the lease of chargeable property, is debt owed, that deposit invested in securities exempt from wealth tax is not relevant. Debt deductible net wealth.
Miss Denna J. Jeejeebhoy vs. WTO (2011) 330 ITR 149 (Bom.) 

85.Natural Justice : Adjudication – Duty of Disclosure – Extent and Scope – Foreign Exchange
The documents which the appellants wanted were documents upon which no reliance was placed by the authority for setting the law in to motion. The demand for supply of all documents in possession of the authority was based on vague, indefinite and irrelevant grounds. The appellants were not sure whether they were asking for copies of documents in the possession of the adjudicating authority or in the possession of the authorized officer who lodged the complaint. The only object in making such demand was to obstruct the proceedings.
Kanwar Natwar Singh vs. Director of Enforcement (2011) 330 ITR 374 (SC) / Kanwar Jagat Singh vs. Director of Enforcement (2011) 330 ITR 374 (SC)    

86.Interpretation – Precedent – Contextual Interpretation
A judgment cannot be read like a statute. Courts should not place reliance on decision without discussing factual situation involved in the said decision and how it would apply to the facts involved in the subsequent case. A ratio laid down by a higher forum should not be taken out context and construed like a statute.
Iskrareco Regent Ltd. vs. CIT (2011) 237 CTR 239 / 49 DTR 185 (Mad.)
87.Appeal- Instruction of Board. No 3/2001 .F.no 279/Misc 142/2007 –ITJ  /Dt 9 th February, 2011. www.itatonline.org.
Appeal before Appellate Tribunal Rs 3,00,000.
Appeal u/s 260A before High Court Rs 10,00,000.
Appeal before Supreme Court.        Rs 25,00,000.
Appeal appeal filed on or after 9 the February , 2011.
Reference to case laws Bombay High Court.
CWTv Executors of late D.T.Udeshi (1991) 189 ITR 319 (Bom).
CIT v Camco Colour Co (2002) 254 ITR 565 (Bom)
CIT v Pithwa Engg works (2005) 276 ITR 519 (Bom)
CIT v ZOEB Topiwala ( 2006) 284 ITR 379 (Bom)
CIT v Madhukar K.Inamdar (HUF)(2009) 318 ITR 149(Bom).