Digest of important case law – January 2012

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S.2(1A)(b)(ii): Agricultural income-Conversion of raw peas in to pea seeds constitute agricultural income.
Assessee who is engaged in cultivating and growing raw peas and also in the process of converting them into pea seeds so as to render them fit for sale nd also selling seeds in the market and to various godowns. Income derived from pea seeds constituted agricultural income.(A.Y.1997-98)
CIT v. RanaGurjit Singh (2012) 340 ITR 108 (P&H)(High Court)

S. 2(14): Capital assets- Capital gains- Controlling interest can not be treated as capital asset(S.45)
Controlling interest is not an identifiable or distant capital asset independent of holding of shares and therefore does not satisfy definition of a ‘capital asset’ within the meaning of section 2(14).On the facts extent of ‘control’ of parent is no more than a persuasive position, it is not being a legally enforceable right cannot be treated as a ‘capital asset’ within the meaning of section 2(14).
Vodafone International Holdings B.V. v. UOI (2012)341 ITR 1/247 CTR 1/66 DTR 265/ 204 Taxman 408 (SC) 

S. 2(14): Capital assets-Agricultural land- Barren land is not agricultural land hence liable to capital gains. (S. 45)
Assessee sold the land and claimed the exemption on the said transaction treating the same as agricultural land. Tribunal held that land in question was a barren land surrounded by rocky mountains and not fit for agricultural operations. Sale of the said land was not for agricultural purpose but for purpose of construction of flats, therefore the land in question is  capital asset and liable to capital gains tax. (A. Ys. 2002-03 to 2007-08).
Suresh Kumar D.Shah v. Dy. CIT (2012) 49 SOT 341 (Hyd.)(Trib.) 

S. 2(28A):Interest-Allotment of flats- Delayed payment is not interest.
Interest on amount deposited by allotment on account of delayed allotment of flats does not fall under section 2(28A).
CIT v. H. P. Housing Board (2012) 340 ITR 388 (HP)(High Court)

S. (2)(28A): Interest- Official liquidator- Lump sum consideration is received can not be assessed as income from other sources, it is assessable as capital gains.(S. 45, 56)
The amount received by the official liquidator in terms of orders of company court, though referred to as interest, for the purpose of assessment of income-tax it was part of the sale consideration and therefore, could not be treated as income from other sources under section 56, the amount is assessable as capital gains under section 45. (A.Y. 1995-96)
Cauvery Spinning and weaving Mills Ltd. (In liquidation) v. Dy. CIT (2012) 340 ITR 550 (Mad.)(High Court)

S. 2(47)(v): Transfer-Possession of immoveable property by way of lease on facts held is not transfer – Transfer of Property Act, 1982.(S.45)
Possession of the mill was transferred to the purchaser by way of lease and not in terms of the Transfer of Property Act. Therefore, there was neither actual transfer nor artificial transfer of title on account of the transfer of possession. Such transfer of title took place only on payment of the entire amount by the purchaser and only after the sale certificate was issued by the competent court.(A.Y. 1995-96)
Cauvery Spinning and weaving Mills Ltd (In liquidation) v. Dy. CIT (2012) 340 ITR 550 (Mad.)(High Court)

S.4: Income– Chargeable-Subsidiary and its parent are totally distinct tax payer, profits assessable on stand alone basis.
Subsidiary and its parent are totally distinct taxpayers and therefore entities subject to income-tax are taxed on profits derived by them on stand alone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to share holders / participants. Principle of Lifting of corporate veil can be applied in cases of holding company–subsidiary relationship, where, in spite of being separate legal personalities, if facts reveal that they indulge in dubious method of tax evasion.
Vodafone International Holdings B.V. v. UOI (2012)341 ITR 1/ 204 Taxman 408/ 247 CTR 1/ 66 DTR 265 (SC)

S.4: Income- Capital or revenue-Non-compete fee is capital receipt.
Non–compete fee received by the assessee prior to 1stApril 2003, has to be treated as capital receipt. Department has not doubted the genuineness of transaction before lower authorities, hence the Tribunal cannot contend before the High Court that the transaction is sham.(A.Y.1997-98)
Hari Shankar Bhartia v. CIT (2012) 65 DTR 380 (Cal.)(High Court) 

S.4: Income- Undisclosed income- Search and seizure-On money- Paper seized from third party addition is deleted.(S. 132)
In the course of search and seizure action against third party, from the Director of the said company certain loose papers were seized which recorded the alleged payments to artists. One of the name was of the assessee. On the basis of said paper the assessment of the assessee was reopened. Assessing Officer treated the said amount of Rs. 20 lakhs as undisclosed income of assessee. In the course of cross examination the director of the company has stated that he did not recollect the year of payment either 1996 or 1999 nor the person to whom he has given the money. The Tribunal held that under the circumstances the statements given by Director no evidentiary value hence the addition could not be taxed in the assessment year 1999-2000. (A. Y. 1999-2000).
Saif Ali Khan Mansuraliv. ACIT (2012) 13 ITR 204 (Mum.)(Trib.)

S.4: Income-Capital or receipt-Sales tax subsidy is  capital receipt.
Subsidy given under dispersal of Industries scheme as incentive to set up industries in areas other than Mumbai, Pune and Thane is capital receipt. (A.Ys.  2004-05, 2005-06, 2006-07).
Dy. CIT v. Cosmo Films Ltd. (2012) 13 ITR 340 (Delhi)(Trib.)

S. 4: Income – Capital receipt – TDR-Gains on housing society redevelopment is not-taxable it is a capital receipt. [S. 2(24)]
The assessee was the member of a housing society. The housing society and it’s members entered into an agreement with a developer pursuant to which the developer demolished the building owned by the housing society and reconstructed a new multistoried building by using the FSI arising out of the property and the outside TDR available under Development Control Regulations. The assessee, as a member of the housing society, received a larger flat in the new building, displacement compensation of Rs. 6 lakhs (at Rs.34,000/- p.m. for the period of construction of the new building) and additional compensation of Rs.11.75 lakhs. The Assessing Officer &CIT(A) held that the said “additional compensation” was assessable as income in the assessee’s hands. On appeal by the assessee, held allowing the appeal:
In principle, though the scope of “income” in section 2(24) is very wide, a capital receipt is not chargeable to tax as income unless there is a specific provision to that effect. As the residential flat owned by the assessee in the society’s building was a capital asset in his hands, the compensation was a capital receipt. The department’s argument that the cash compensation was a “share in profits earned by the developer” is not acceptable because it proceeds on the fallacy that the nature of payment in the hands of the payer determines the nature in the hands of the recipient. However, as the said receipt reduced the cost of acquisition of the new flat, it had to be taken into when computing the gains from a transfer thereof in the future.

Kushal K. Bangia v. ITO (Mum.)(Trib.) www.itatonline.org

S.4:Income-Diversion by overriding title-Infrastructure fund retained can not be held as diversion by overriding title.
Assessee is a development authority created under the provisions of UP Urban Planning & Development Act, 1973. 90 percent of the amounts collected by the assessee by way of development fees, conversion charges of land user, stamp duty and fees on regularization of colonies were retained in the infrastructure fund account. As per office memorandum assessee has been power to collect the fees charges and functioning. The amount collected by office memorandum not being a separate independent entity of the assessee and the said memorandum having not created any overriding title of the State Government at source of collection of the specified fees/ charges, which have to be applied towards fulfillment of assessee’s object, there is no diversion of income by overriding title as regards the amounts credited to the infrastructure fund.(A.Y. 2006-07 &2007-08)
Mussore Dehradun Development Authority v. Addl. CIT (2012) 65 DTR 297 / 143 TTJ 395 (Delhi)(Trib.)

S. 5 : Income – Accrual-Non-resident- Transfer of shares of foreign company by non-resident to non-resident does not attract Indian tax even if object is to acquire Indian assets held by the foreign company- Representative assessee.-Income can not be assessed [S. 9(1)(i), 195, 163(1)]

Share holding in companies incorporated outside India is property located outside India. Where such shares became subject matter of off shore transfer between two non-residents, there is no liability for capital gains tax. On the facts of case the transaction of outright sale between two non-residents of a capital asset (share) outside India. Further, the transaction was entered in to on principal to principal basis. Therefore, no liability to deduct tax at source. In the absence of permanent establishment, profits were not attributable to Indian operations. More so ever, tax presence has to be viewed in the context of the transaction that is subjected to tax and not with reference to an entirely unrelated matter. Tax presence must be construed in the context and in a matter that brings the non-resident assessee under the jurisdiction of the Indian tax authorities. On the facts the revenue failed to establish any connection with section 9(1)(i). Under the circumstances, section 195 is not applicable. Sections 163(1)(c) and 9(1)(i) have to be read together. Section 163(1)(c) is not attracted as there was no transfer of capital asset situated in India, consequently Vodafone International Holdings cannot be proceeded against even under section 163 of the Act as representative assessee.

Vodafone International Holdings B.V. v. UOI(2012)341 ITR 1/247 CTR 1/66 DTR 265/ 204 Taxman 408 (SC)

Editorial:- Decision of Bombay High Court in Vodafone International Holdings B.V.v. UOI (2010) 329 ITR 126 (Bom.)(High Court) is set aside.

S.5: Income – Accrual – Principle of real income-Even under mercantile system of accounting mere raising of pro forma invoice income does not accrue.
On advice of the Comptroller and Auditor General of India, the assessee had been raising pro forma invoices/bills, even when no money was received the respect of those bills as income of assessee on the ground that assessee was following the mercantile system of accounting, therefore, income had accrued very fact that spaces were given to those agencies and against those spaces pro forma invoices/ bills were raised. There was some disputes and some of departments had never made any payments, hence no income accrued merely because pro forma advices were raised that too at the instance of the Comptroller and auditor General of India. The matter was remitted to the Assessing Officer to examine the matter on the merits. (A.Y.1998-99)
Airports Authority of India v. CIT (2012) 340 ITR 407/247 CTR 149/66 DTR 440 (Delhi)(FB)(High Court)

S.5: Income – Accrual – Commission- Foreign agents–Commission which is reduced  from invoice value can not be assessed as income it is in the nature of discount.
Assessee was engaged in business of export of fabrics. Assessee allegedly claimed the deduction as commission expenses paid to foreign agents. On enquiry by the Assessing Officer the assessee contended that the said amount was reduced from the invoice itself therefore it is discount given to buyer. The Assessing Officer disallowed the commission. On appeal the Tribunal held that when the alleged commission was deducted from invoice value and only net amount was received by assessee from buyer, amount of commission recorded in invoice could not be treated as in income arising to assessee.(A.Y.2005-06)
Rajesh Manikchand Jain v. ITO (2012) 49 SOT 167 (Ahd.)(Trib.)

S.5:Income accrual – Non-realisation of surcharge- Method of accounting – Cash– Mercantile-Levy of surcharge being contingent tax can be levied only when realized and not on the basis of accrual.(S. 145)
Assessee a PSU, engaged in distribution of electricity which maintained the accounts on mercantile system. On the basis of prudence norms the method of accounting was changed and the surcharge was accounted on the basis of actual receipt. The levy of is not mandatory enforceable by assessee at the time of payment of bill. The court held that the receipt of surcharge is purely contingent hence tax can be levied only on the realized income and not on hypothetical income. (A.Y. 2006-07)
Dy. CIT v. Dakshin Haryana BijliVitran Nigam Ltd. (2012) 65 DTR 288 (Delhi)(Trib.)

S.6:Residence in India-Non-resident–Subsidiaries can not be treated as deemed resident.
Mere fact that a parent company exercise shareholder’s influence on its subsidiaries does not generally imply that subsidiaries are to be deemed residents of State in which parent company resides. 
Vodafone International Holdings B.V. v. UOI(2012)341 ITR 1/ 204 Taxman 408/ 247 CTR 1/66 DTR 265 (SC)

S. 9(1): Income deemed to accrue or arise in India-Transfer of shares of foreign company-Off shore transaction tax authorities in India has no jurisdiction to spilt the payment..
Appellant company, namely Vodafone International Holdings BV(VIH), was resident for tax purposes in Netherlands. A sale purchase agreement (SPA) was entered between appellant and HTIL under which HTIL agreed to transfer to appellant its entire issued share capital in CGP and thereby entire interest of HTIL in HEL was transferred to appellant. High Court held that  VIH on purchase of CGP got indirect interest in HEL, acquired controlling  right in certain indirect holding companies in HEL, controlling rights through shareholder agreements which included right to appoint directors in certain  indirect holding companies in HEL, rights to use ‘Hutch’ brand in India, etc., which all constituted capital asset as per section 2(14). High Court further held that VIH by virtue of its diverse agreements had nexus with Indian Jurisdiction and hence proceedings initiated under section 201 for failure to with hold tax by VIH on payments made to HTIL could not be held lack of jurisdiction. On facts it was noted that investment in to India by a holding company (Parent company),HTIL through a maze of subsidiaries. It was also apparent that transaction involved ‘outright sale’ between two non-resident companies of a capital asset (Shares) outside India. Since the parties to transaction had not agreed upon a separate price for CGP share and for High Court called as ‘other rights and entitlements’ (Including options, right to non-compete, control premium, customer base, etc.) it was not open to Revenue to split payment and consider a part of such payments for each of above items. Even otherwise, since there was an off shore transaction between two non–resident companies namely, HTIL and VIH and subject–matter of transaction was transfer of CGP (another non-resident company),Indian tax authorities had no territorial jurisdiction under section 9(1)(i) to tax said off shore transaction. Accordingly the Supreme Court set aside the order of High Court.
Vodafone International Holdings B.V. v. UOI(2012)341 ITR 1/ 204 Taxman 408/247 CTR 1/66 DTR 265 (SC)

S.9(1)(vi): Income deemed to accrue or arise in India-Royalties –Fees for included services – Deduction at source- Non-resident – DTAA – India-USA-Assessee is held liable to deduct at source.(S.195, Article 12)
Assessee obtained orders from Department of Telecommunications for manufacture and supply of telecommunications/switching equipments. In order to execute its orders in India it had placed orders on ‘L’ Technologies, USA for supply of software. Assessee also placed order with ‘L’ Technologies, Taiwan for supply of hardware. Assessing Officer took a view that payment made to ‘L’ Technologies USA for supply of software were in the nature of royalty under provisions of section 9(1)(vi) read with DTAA between India and USA and thus the assessee was required to deduct tax at source under section 195.On appeal Tribunal held that acquisition of software without hardware did not serve any purpose hence, payment made to ‘L’ Technologies, USA could not be termed as royalty and not liable to deduction at source as it was an integrated import could not be sustained. In an appeal before the High Court, by revenue High Court upheld the view of the Assessing Officer.(A. Ys. 2000-01, 2002-02 & 2002-03)
CIT v. Sunary Computers (P) Ltd. (2012) 204 Taxman 1 (Karn.)(High Court)

S. 9(1)(vii): Income deemed to accrue or arise in India-Even if not assessable as “fees for technical services” under DTAA, bar in section 44D against deduction of expenses will apply.
The assessee, an Australian company, set up a permanent establishment (PE) in India to render technical services for evaluation of coal deposits and conducting feasibility studies for transportation of iron ore. The Assessing Officer & CIT(A) held that the payments received by the assessee were taxable as “fee for technical services” under section 9(1)(vii) read with section 115A on a gross basis without any deduction in view of section 44Dat the rate of 20%. On appeal, the Tribunal(Rio Tinto Technical Services v.Dy.CIT(2010)39 DTR 327 (Delhi)) held that as the assessee had a PE in India, the receipts were chargeable to tax as “business profits” after deduction of expenses under Article 7 of the DTAA and section 44D & 115A did not apply. On appeal by the department, HELD partly reversing the Tribunal:
(i) As the assessee had a PE in India from which the income arose, the income was chargeable to tax as “business profits” under Article 7 of the DTAA and not as “fees for technical services” under Article 12;
(ii) Article 7(3) permits a deduction of expenditure “in accordance with and subject to limitations of the law” relating to tax in India including executive and general administrative expenses so incurred regardless whether they have incurred in India or elsewhere. The words “in accordance with and subject to limitation of the law relating to tax” applies not only to the “executive and general administrative expenses” but to all expenditure;
(iii) The income received by the assessee, though not assessable as “fees for technical services” under the DTAA, is “fees for technical services” under Explanation 2 to section 9(1)(vii)because it is for providing technical information and does not arise from a “project”. Consequently, section 44D, which provides that no deduction shall be admissible while computing income of the nature of “fees for technical services” shall apply.

DIT v. Rio Tinto Technical Services (Delhi)(High Court)www.itatonline.org

S. 9(1)(vi): Income deemed to accrue or arise in India – Copyright- -Hardware-Software –Software supplied being an integral part of the mobile telephone system- On facts it is held as not taxable in India-.DTAA- India-Sweden. (S. 5(2)(b),Art. 13)
Assessee a Swedish company, supplied hardware and software to an Indian cellular operator under supply agreement whereby both the transfer of the property in the goods and risk passed outside India, and the installation activity having been carried out by two separate companies, though belonging to the same group, which received separate remuneration and have been independently assessed, in respect of their income, assessee did not have any business connection in India and therefore, no taxable even took place in India. Software supplied by the assessee being an integral part of the GSM mobile telephone system incapable of independent use and therebeing nothing to establish that the cellular operator has obtained any copy right of such software, no part of the payment received by the assessee under supply agreement can be classified as royalty either within the meaning of section 9(1)(vi) or under Article 13(3) of the DTAA between India and Sweden.(A.Y. 1997-98)
DIT v. Ericsson A.B. (2012) 66 DTR 1/ 246 DTR 422 (Delhi)(High Court)
DIT v. Ericsson Radio System A.B. (2012) 66 DTR 1/ 246 DTR 422 (Delhi)(High Court)
DIT v. Metapath Software International Ltd. (2012) 66 DTR 1/ 246 DTR 422 (Delhi)(High Court)

S. 9(1)(vi): Income deemed to accrue or arise in India –Royalty –Business profits-Software royalty- Shrink – Warp application software-Business profits-Permanent establishment- View in favour of assessee should be followed.
The assessee sold “shrink-wrap application software” called “Solidworks 2003″ to customers in India and claimed that the same was “business profits” and not assessable to tax as it did not have  a PE in India. The Assessing Officer held that the income was assessable to tax as “royalty” under section 9(1)(vi)/ Article 12(3) though the Tribunal (for an earlier year) reversed it on the ground that the product was a “copyrighted article” and not “copyright“. Before the Tribunal, the department claimed that the earlier view should not be followed in view of Samsung Electronics Co. Ltd. v. CIT(2011)203 Taxman 477(Karn.) while the assessee relied on DIT v.Ericsson AB (2012)204 Taxman 192 (Delhi). Held by the Tribunal:
The department’s argument that DIT v.Ericsson AB(2012) 204 Taxman 192 (Delhi) was confined to a case where the software was embedded to the equipment is not correct. The Court did hold that consideration paid merely for right to use cannot be held to be royalty and the ratio would also apply when “shrink wrap” software is sold. Where two views are possible, the view in favour of the assessee has to be preferred. This principle is applicable to non-resident assessees as well in view of Article 24(1) of the DTAA (non-discrimination) which provides that nationals of a Contracting State shall not be treated less favorably than the nationals of the other Contracting State.
Dy. DIT v. Solid Works Corporation (Mum.)(Trib.) www.itatonline.org

S.9(1)(vii): Income deemed to accrue or arise in India- Royalties – Fees for technical services-Reimbursement of expenses –No obligation to deduct at source- DTAA- India-UK. (Art. 13)
The assessee is a manufacturer of auto mobile products in India. LDV is a resident of UK and is also in the business of manufacturing of automobiles in UK. The assessee and LDV had proposals for joint venture in the area of auto mobile manufacture.LDV wanted to do market research to find out the potential market for different vehicles and consumer preferences. LDV carried out market research and raised invoice on assessee. Assessee remitted certain amount to LDV without deducting tax at source. Lower authorities held that the payment was not confined to only market research but to provide technical assistance in improving quality of their minibus and to move towards fully engineered minibus and therefore, amount in question was part of fees for rendering technical services by LDV liable to deduct tax at source. Tribunal held that since LDV merely conducted market research on acceptability of possible market for its product in India, and no technical service was being made available to assessee,payment in question was reimbursement of expenses and was not in nature of fees for technical services as contended by revenue, hence, there is no obligation to deduct tax at source.(A.Y.1998-99)
Mahindra & Mahindra Ltd. v. ADIT (2012) 134 ITD 312(Mum.)(Trib.)

S.10(15):Exempt incomes – Interest-Foreign currency loans-Withdrawal of exemption by Government-Interest payment to non-resident is exempt.
Assessee had raised foreign currency loans in form of External Commercial Borrowings (ECBs) towards part of financing its import of capital goods and services. ECBs were duly approved by Government of India. As certain conditions of approval were violated, approval was withdrawn and exemption available under section 10(15)(iv)(f) was also withdrawn. Subsequently, assessee made payment of interest to non-resident lenders and claimed exemption under section 10(15)(iv)(f). Assessing Officer rejected the claim. On appeal the Commissioner (Appeals) held that exemption with drawn by Central Government holding interest as not exempt under section 10(15)(iv)(f) was to be  ignored and it was held that interest payment by assessee to non-resident lenders as per ECB loan approved by Central Government would continue to be exempt. The Tribunal confirmed the view of Commissioner (Appeals).(A.Ys. 2002-03 & 2004-05)
ADIT v. Reliance Industries Ltd. (2012) 49 SOT 181 (Mum.)(Trib.)

S.10(20):Exemption- Local authority-Himachal Pradesh Marketing Board is not local authority hence not exempt- General Clauses Act,1897.[S. 3(31)]
H.P.Marketing Board constituted under section 3 of the H.P. Agricultural Produce Markets Act, 1969 is not a ‘local authority’ hence not exempt under section 10(20).The phrase ‘local authority’ is interpreted in this case only in the context of section 3(31) of the General Clauses Act, 1897, since the assessment years in question are for a period prior to the amendment of section 10(20) of the Income-tax Act, where by Explanation defining ‘local authority’ for the purpose was added by the Finance Act of 2002.
CIT v. H. P. Marketing Board (2012) 66 DTR 124 / 246 CTR 535 (HP)(High Court)

S. 10(23C)(vi):Exemption-Educational institution-Must be  given an opportunity if commissioner desires to use evidence against an assessee-Natural justice.
The Commissioner must give an opportunity to the assessee to if he desires to use the evidence collected against the assessee through reports of subordinate authorities. On the facts the court held that order passed by Chief Commissioner denying approval under section 10(23C)(vi), relying upon certain adverse material without supplying the same to the petitioner and without allowing an opportunity of rebuttal thereof  does not fully meet the requirement of fulfillment of principles of natural justice and therefore, it can be sustained. The matter was set aside to the Commissioner to decide a fresh.
RastraSahayakVidyalayaSamitiv. CCIT (2012) 246 CTR 154 (Raj.)(High Court)

S.10(23C)(vi):Exemption-Educational institution-Teaching and promoting all forms of music and dance western Indian or any other is entitled to exemption.
Assessee society which is teaching and promoting all forms of music and dance, western, Indian or any other form and is run like school or educational institution in a systematic manner with regular classes, vacations, attendance requirements, enforcement of discipline and so on meets the requirement of educational institution within the meaning of section 10(23C)(vi). High Court quashed the order of prescribed authority and directed to pass the order by giving a reasonable opportunity.(A.Y. 2010-11)
Delhi Music Society v. DIG (2012) 65 DTR 337/ 246 CTR 327 (Delhi) (High Court)

S. 10(29): Exemption-Marketing authorities-Letting of godowns is entitled to exemption.
Assessee society, constituted under Airports Authority of India Act, 1994 which was engaged in letting out godowns and warehouses at airports for storage, processing or facilities marketing of commodities was entitled to exemption.(A. Ys. 1995-96, 1997-98 to 2001-02)
Airports Authority of India v. CIT (2012) 134 ITD 34 (Delhi)(Trib.)

S.10A:Exempt incomes- Export oriented undertaking- Software development – Shifting of unit to different State- Consistency method may be accepted..
Assessing Officer has accepted the head count method adopted by the assessee for allocation of indirect expenses between STP unit and non STP unit in the past but has rejected it only for the years, under appeal, it would disturb or distort the profits; method adopted by the assessee has been consistently accepted by the departmental authorities and there being no just cause for abandoning the same it could not be disturbed.(A.Y. 2001-02 &2002-03)
CIT v. EhptIndia (P) Ltd. (2012) 65 DTR 187/ 246 CTR 217 (Delhi)(High Court)

S.10A:Exempt incomes- Export oriented undertaking- Unabsorbed losses- Depreciation from earlier year – Loss of non STP unit cannot be set off against income of section 10A unit. [S. 32(2), 72(2)]
Income of section 10A unit has to  be excluded at source itself before arriving at gross total income, the loss of non section 10A unit cannot be set off against the  income  of section 10A unit. Exemption under section 10A, has to be allowed without setting off brought forward unabsorbed losses and depreciation from earlier assessment year or current assessment year either in the case of non STP units or in the case of very same undertaking. The Court observed that when section 10A, was recast by the Finance Act, 2000, the Parliament was aware of the character of relief given in Chapter III. Chapter deals with incomes which do not form part of total income. If the parliament intended that relief under section 10A should be by way of deduction in the normal course of computation of total income,it could have placed the same in Chapter VI-A, which houses the sections like section 80HHC, 80IA, etc. The Parliament was aware of the various restrictions and limiting provisions like section 80A, section 80AB, which were in Chapter VI-A, which do not appear in Chapter III.The fact that even after recast, the relief has been retained in Chapter III indicates the intention of Parliament that it is to be regarded as an exemption and not deduction. This is supported by Circular No. 7 of 2003 dt.5thSeptember 2003 (2003)263 ITR (st) 62.(A. Ys.  2001-02 to 2006-07)
CIT v. Yokogawa India Ltd.& Ors.(2012) 65 DTR 170 (Karn.)(High Court)
S. 10A: Exempt incomes- Export oriented undertaking – Computation – Total turnover-Expenditure incurred should not be included in total turnover. 
The assessee company is engaged in the business of Call Center operations. The assessee incurred expenses in foreign exchange towards communication expenses. While arriving at the total turnover, the assessee did not include the expenses incurred by it towards communication expenses. Assessing Officer held that no deduction is possible. The Tribunal relying on the judgment of Supreme Court in CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC) held that the expenditure incurred should not form part of total turnover and directed the Assessing Officer to recomputed the relief under section 10A of the Act, excluding the said communication charges from export turnover as well as from total turnover. On appeal by the revenue the Court held that for the purpose of computing exemption under section 10A when the export turnover in the numerator is to be arrived at after excluding communication expenses, the same should also be excluded in computing the export turn over as a component of total turnover in the denominator.(A. Ys. 2001-02 to 2005-06)
CITv. Tata Elxsi Ltd.& Ors.(2012) 65 DTR 206 (Karn.)(High Court)

S. 10A: Exempt incomes- Export oriented undertaking – Sale of software- STP Unit- Exemption is allowed though not claimed in the return.
Assessee had shown the income from the sale of software as long term capital gain. The Assessing Officer held that the same is taxable as trading receipt. It was contended that if it was held to be trading receipt the same is exempt under section 10A. The Tribunal held that the assessee is entitled to exemption under section 10A. The Court held that concurrent finding was arrived by the Assessing Officer, Appellate Authority and Tribunal that income from sale of software was trading income and not capital gains after establishment of STP unit, the assessee is entitled to exemption under section 10A, the fact that the assessee did not claim exemption under section 10A while filing the return cannot come in the way of holding that  assessee is entitled to benefit of section 10A,Since it was alternatively argued before the Assessing Officer and the Appellate Authority that if income is treated as trading receipt, exemption under section 10A may be granted.High Court upheld the order of Tribunal. (A.Y. 1997-98)
CIT v. Infosys Technologies Ltd. (2012) 65 DTR 271 (Karn.)(High Court)

S.10A:Exempt incomes- Export oriented undertaking- – Pure gold converted into jewellery amounts to Manufacture or production-.(S. 10B)
Assessee received pure gold from a non-resident converted same into jewellery and thereupon exported it to said non–resident, activity undertaken by assessee amounted to ‘manufacture or production’ which qualified for deduction under section 10A/10B.(A.Y.2007-08)
CIT v. Lavlesh Jain (2012) 204 Taxman 134 (Delhi)(High Court)

S. 10B:Exempt incomes- Export oriented undertaking-Reconstruction of business-Shifting of unit was done with the permission of Government entitled to exemption.
Assessee company was engaged in software development from its unit located at Gujarat. It commenced its business in the year 1989.It was entitled to benefit of section 10B for a period of 10 years. During 1992-93 it shifted its unit to Bangalore and claimed deduction under section 10B. Assessing Officer held that the shifting of unit will amount to reconstruction of business, hence, not entitled to exemption under section 10B. High Court held that, when the shifting had been done with permission of Government  and after shifting, there was only one undertaking whose identity, integrity and continuity was maintained, therefore the assessee was entitled to claim exemption under section 10B.(A. Y. 1992-93).
CIT v. Sasken Communications Tech. Ltd. (2012) 204 Taxman 84 (Karn.) (High Court)

S.10B:Exempt incomes- Export oriented undertaking – Extended period of deduction – Amended provisions came into force on 1st  April,1999-Assessee is entitled for extended tax holiday under amended provision .
Assessee commenced its production in the 100 percent EOU in the year 1993-94 and claimed the exemption for five years from 1993-94 to 1997-98. Amended provision came into force on 1stApril 1999, under which the assessee was entitled to claim the benefit of tax holidays for 10 years and accordingly the assessee claimed deduction for 1999-2000, 2000-01 and 2001-02. Assessing Officer denied the deduction for the period 2001-02. The High Court held that where the assessee the entitled to the tax holiday under the amended provision for further period of five years i.e. from 1993-94 to 2002-03 as per amendment of section 10B w.e.f. 1st April, 1999 extending the benefit to 10 Years.(A.Y. 2001-02)
CIT v. DSL Software Ltd. (2012) 66 DTR 97/246 CTR 542 (Karn.)(High Court)

S. 10B: Exempt incomes- Export oriented undertaking- Splitting up – Reconstruction-Separate undertaking for production of similar goods-Entitled for exemption.
Assesses earlier undertaking which started in the Assessment year 1994-95, stopped its sales with effect from the assessment years 1998-99 onwards. New undertaking was set up in the assessment year 2002-03. The Tribunal held that provisions of section 10B do not place any bar on the assessee having a separate new undertaking for manufacture and production of same or similar goods as done earlier. Development Commissioner did not take any objection. Process carried on by assessee to produce quilts, bed sheets, bed spreads and bed covers etc. are commodities different from the new raw cloth or consumables out of which they are manufactured. (A.Y. 2002-03 & 2003-04)
Taurus Merchandising (P) Ltd. v. ITO (2012) 143 TTJ 1/ 65 DTR 48 (Delhi) (Trib.)

S.10B: Exempt incomes-Export oriented undertaking- Allocation of expenses-Charity -Miscellaneous expenses should be excluded – Management salary expenses is to be allocated in the ratio of sales turnover.
Charity and miscellaneous expenses should be excluded from allocation of expenses pertaining to export oriented unit. As regards the management salary, the allocation should be made in the ratio of sales turnover as adopted by the assessee itself to allocate other expenses. This method of allocation was more accurate and correct to facts of the case. The basis adopted by the assessee of time estimated in proportion to the production capacity employed in export oriented units and non-export oriented plants was unreliable and unscientific.(A. Ys. 2004-05, 2005-06, 2006-07)
Dy. CITv. Cosmo Films Ltd. (2012) 13 ITR 340 (Delhi)(Trib.)

S. 10BA: Exempt incomes-Export of articles or things – DEPB as profit derived from export business is eligible for exemption.
DEPB as a profit derived from export business for the purpose of computing deduction under section 10BA. Revenue conceded the issue before the High Court.(A.Y 2005-06)
CIT v. Arts & Crafts Exports (2012) 66 DTR 85/ 246 CTR 463 (Bom.)(High Court)
Editorial:- Arts & Crafts Exports v. ITO (2012) 66 DTR 69 (Mum.)(Trib.)

S. 12AA:Exemption- Charitable purpose–As the activities of the trust being genuine the trust is entitled for registration.
For granting registration the object of the trust must be charitable and activities must be genuine. On the facts of the assessee both the conditions were satisfied and Tribunal was justified in holding that the trust was entitled for registration. (A.Y. 2003-04)
CIT v. Lucknow Educational and Social Welfare Society (2012) 340 ITR 86 (All)(High Court)(Lucknow)

S.17(2): Salaries – Perquisites- Tax paid by employer is perquisite – Accommodation- Income–tax Rules 1962-Rule 3.
Tax paid by employer on behalf of employee is perquisite under section 17(2) and therefore not includible in salary under Rule 3 of Income-tax Rules 1962, for purpose of computing perquisite value of accommodation supplied by employer to employee.(A.Y. 2006-07)
Isaco Sakai v. Jt. CIT (2012) 49  SOT  154 (Delhi)(Trib.)

S.22:Income from house property-Deemed owner-Legal owner-Irrevocable permanent leave and licence to tenants-Tenants will be owner and Income from house property will be assessable in their hands. [S.27, 269UA(f)]
Assessee company is engaged in the business of real estate development. It entered into an agreement with a Trust wherein the assessee was given permission to demolish existing structure which was existing occupied by tenants and construct a new building. After settling old tenants, assessee with regards to new persons assigned tenancy rights by accepting substantial amount as deposit and entered on to irrevocable permanent  leave and licence agreement. Assessing Officer held that assessee was owner of property and assessed income from house property in assessee’s hand. Tribunal observed that from the agreement with new persons,it could be seen that assessee had given possession to occupant but also absolute right to transfer or assignment but also right to sub let or grant leave and licence of said premises. Considering various other clauses of agreement the Tribunal held that since the assessee had given irrevocable permanent leave and licence to tenants and virtue of section 27, read with clause (f) to section 269UA, tenants would have became deemed owners of premises income from house property would be taxable in their hands.(A.Y. 2002-03 to 2005-06)
Priyadarshini Properties & Estates(P) Ltd. v. ITO (2012) 134 ITD 290 (Mum.)(Trib.)

S. 28(va): Business income- Capital or revenue receipt – Non-compete fee – Relinquishment of right to manufacture-Capital receipt- Law before April 1, 2003 – Asst. years prior to 2003-04. [S. 55(2)(a)]
In A. Y. 2000-01, the assessee received Rs. 11 crores pursuant to a non-compete agreement which was for 5 years. The Assessing Officer held that there was a “transfer” by way of relinquishment of the assessee’s “right to manufacture” and that the same was chargeable to capital gains by taking Nil cost under section 55(2)(a). This was reversed by the CIT(A) on the ground that the personal skills of the assessee were placed under restraint and as the said personal skills were not a “capital asset”, capital gains was not chargeable. On appeal to the Tribunal, the matter was referred to the Special bench it was held by the Special Bench:
(i) The taxability of a non-compete fee depends on the purpose for which it is paid. A non-compete fee can be divided into two categories: (a) consideration received by the transferor of a business for agreeing not to carry on the same business; (b) consideration received by other persons associated with the transferor to ensure that they do not indulge in competing business. For A.Y. 2003-04 & onwards, non-compete fee received by the transferor of a business is taxable as a capital gains in view of section 55(2)(a) which provides that the cost of a “right to carry on business” shall be Nil. Though section 55(2)(a) as amended by the FA 1997 w.e.f. 1.4.1998 referred to a “right to manufacture, produce or process any article or thing“, that would not cover a non-compete covenant. For A. Y. 2003-04 & onwards, a non-compete fee received by a person associated with the transferor is taxable as “business profits” under section 28(va)(a) as being a payment for “not carrying out any activity in relation to any business”. A non-compete fee received in an earlier year is not chargeable to tax in view of Guffic Chem.P.Ltd. v. CIT(2011) 322 ITR 602 (SC);
(ii) On facts, the consideration of Rs. 11 crores received by the assessee was not for sale of any business nor was it for not carrying on any business which he was carrying on, which he had transferred. It was also not a payment for a “right to manufacture, produce or process any article or thing”. The sum was not paid for transfer of any intangible right in respect of manufacture, production or process of cement. Accordingly, the capital gains provisions were not attracted. The amount was paid for “not carrying out any activity in relation to any business” and would fall within the ambit of section 28(va)(a). However, as section 28(va) came into effect in A. Y. 2003-04, the receipts was not chargeable to tax in A. Y. 2000-01. (A.Y.2000-01)
ACIT v. B. V. Raju (Dr.) (Hyd.)(SB)(Trib.)www.itatonline.org

S. 28(i):Business income- Capital gains-Purchase and sales shares- Frequency – Magnitude – Volume-Assessable as business income-Capital asset.(S. 2(14), 45, 111A)
Assessee filed the return of income showing the income from sale of shares as capital gains. The Tribunal held that the voluminous share transactions were in the ordinary line of the appellants’ business, purchase and sale of shares was not for the purpose of earning dividend but with the dominant intention of resale in order to earn profits; the profit made by them is not of mere enhancement of value of the shares, but is a profit made in the carrying on of a business scheme of profit making; huge volume of shares transactions, the repetition and continuity of the transactions, give them a flavour of “trade”; the magnitude, frequency and ratio of sales to purchases on the total holdings is evidence that the assessee had not purchased with the intention to trade in such scripts. The High Court confirmed the order of Tribunal which held that profit on sale of shares as business income. (A.Ys. 2005-06, 2006-07).
P.V.S.Raju v. Addl.CIT (2012) 340 ITR 75 (AP)(High Court)
P.Rajyalakshmi v. Addl. CIT (2012) 340 ITR 75 (AP)(High Court)

 

S. 28(i):Business income- Capital gains – Long-term and short-term gains from PMS transactions taxable as business profits. [S.10 (38),28(i)]
The assessee offered LTCG & STCG on sale of shares which had arisen through a Portfolio Management Scheme of Kotak and Reliance. The investments were shown under the head “investments” in the accounts and were made out of surplus funds. Delivery of the shares was taken. The Assessing Officer &CIT(A) held that as the transactions by the PMS manager were frequent and the holding period was short, the LTCG & STCG were assessable as business profits. On appeal by the assessee, held dismissing the appeal:

1. In a Portfolio Management Scheme, the choice of securities and its period of holding is left to the portfolio manager and the assessee has no control. Only the portfolio manager can deal with the Demat account of the assessee. (b) It is at the end of the year the shares available in the DEMAT account can be entered. Therefore, at the time of deposit of amount, the intention of the assessee was to maximize the profit. (c)As the purchase and sale of shares under PMS is not in the control of the assessee at all, it cannot be said that the assessee had invested money under PMS with intention to hold shares as investment.(d) The portfolio manager carried out trading in shares on behalf of his clients to maximize the profits. Therefore, it cannot be said that shares were held by the assessee as investment. (e ).There is, however, a difference between investment in a mutual fund and PMS.

Radials International v. ACIT (Delhi)(Trib.)www.itatonline.org
Editorial:- Refer, ARA Trading & Investment Pvt. Ltd. (2011) 47 SOT 172 (Pune)(Trib.), ITO v.RadhaBirju Patel ITA NO 5382/M/2009 Bench D DT 30 30 th November 2010(Mum.)(Trib.)www.iatonline.org, NaliniNavinBhagwati (Mrs) v. ITO  ITA No53/M/2010 Bench “B’  Asst year 2006-07 dt 5-8-2011(Mum) (Trib)__ (Unreported)

S. 28(i):Business income- Capital gains – Investment in shares- Assessee had intention to trade therefore assessable as business income. (S. 45)
Assessing Officer treated the share transaction as business income. On appeal the Tribunal upheld the assessment as business income by considering the following factors (1) Company has passed the resolution to open account with depository participant for trading in shares of various companies under DEMAT segment.(2) Company by its resolution authorised its three directors to deal in purchase and sale and securities to tune of Rs. 100.00 crore. (3) Assessee had appointed asset management company as its portfolio manager to provide portfolio management and other related services. On the facts, it was apparent that assessee company had intention to do trading in shares with a profit motive and thus, income arising from share transactions was rightly brought to tax as business income. (A.Y. 2006-07)
Mafatlal Fabrics (P) Ltd.v. Dy. CIT (2012) 49 SOT 303 (Mum.)(Trib.)

S. 28(i): Business income – Export- DEPB credit – Not assessable as income till it is sold.
In the profit and loss account the assessee has shown the export benefit was receivable (DEPB). In schedule 9 to the balance sheet, DEPB credit was shown under the head “Other income”. The DEPB credit was not sold during the year. The Tribunal held that DEPB credit not sold during the relevant year cannot be assessable as income.(A.Y. 2007-08)
ITO v. Binayak Hi-Tech Engineering Ltd. (2012) 13 ITR 369 (Kol.)(Trib.)

S. 28(i): Business loss- Foreign exchange-Foreign currency assets- Loss is assessable as business loss.
The assessee converted the foreign currency assets and liabilities in to rupee terms at the exchange rate prevalent at the last date of financial year i.e.the date on which the balance sheet of the assessee was drawn and this was reflected in the profit and loss account regularly from year to year. In the current year it was loss while in the immediate preceding year there was gain. The loss is allowable as business loss. (A.Ys. 2004-05, 2005-06, 2006-07)
Dy. CIT v. Cosmo Films Ltd. (2012) 13 ITR 340 (Delhi)(Trib.)

S. 32: Depreciation- Computer Accessories is integral part of computer system and is  entitled to depreciation at 60%.
Computer accessories are integral part of computer system and depreciation against these are liable to be allowed at 60 percent.(A.Ys.  2004-05, 2005-06, 2006-07)
Dy. CIT v. Cosmo Films Ltd. (2012) 13 ITR 340 (Delhi)(Trib.)

S. 32: Depreciation- Commercial right-Similar nature- Scheme of Corporatisation and Demutualization –Right to conduct business acquired  hence depreciation is not allowable.
Assessee company purchased a membership card in cash segment and derivative segment from Bombay stock exchange. i.e. ‘BSE’ for a total consideration of Rs. 2.50 crores and claimed depreciation on same which was allowed. Subsequently, BSE under scheme of ‘Corporatisation’ and ‘Demutualisation’ was succeeded by a company incorporated under Companies Act, 1956, under the name and style “Bombay Stock Exchange Ltd.”. Assessee, consequent to demutualization had acquired two separate rights in new Company i.e. (i) ownership rights and (ii) trading rights. Ownership rights were given by issuing 10000 shares of BSEL in the name of assessee, whereas, trading rights were subject to deposit of certain amount by assessee with BSEL.In the course of original assessment proceedings the Assessing officer held that no part of original cost of BSE card could be attributable to right to conduct trading and hence, assessee would not be entitled claim depreciation. Since ownership right gave assessee a right to participate in ownership of assets and management of BSEL, it was not a business and commercial right of similar nature under section 32(1)(ii) and thus assessee could not be allowed depreciation in respect of said right. As regards trading right, even though said right was a commercial right,yet in fact that value of said right was equal to refundable deposit to be made by assessee with BSEL, it could be depreciated when its value in reality did not come down. The Tribunal confirmed the view of Assessing Officer.(A.Y. 2006-07)
Sino Securities (P) Ltd.v. ITO (2012) 134 ITD 321 (Mum.)(Trib.)

S. 35D: Business expenditure- Amortisation of preliminary expenses- Expenditure on preference shares.- Disallowance was confirmed as extension of industrial undertaking could not be completed during the relevant year.
The assessee issued non-convertible cumulative preference shares of Rs. 150 crores. Assessee claimed the entire issue expenditure as revenue. The assessing officer held that the said expenditure was capital in nature. On appeal Tribunal held that the purchase of a rig might result in extension of its Industrial undertaking. But the deduction under section 35D of the Act would be allow for ten successive years beginning with the year in which extension of industrial undertaking was complete. It was found that the rig was under refurbishment and was not put to use and assessee had shown this as part of work in progress. No article classified as work in progress could be considered as a completed item. As the extension of industrial undertaking could not be considered as complete during relevant assessment year, claim under section 35D cannot be allowed. (A. Y. 2005-06, 2006-07)
Dy.CIT v. Aban Offshore Ltd. (2012) 13 ITR 180 (Chennai)(Trib.)

S. 36(1)(iii):Business expenditure – Interest on borrowed capital-Indian venture is allowable as business expenditure .
Assessee borrowed money for working capital loan and paid interest on said loans Assessee also advanced the amount for placing the interest free security deposit for the accommodation of MIL regional business head. Assessing Officer disallowed the proportionate interest in respect of amount kept as security deposit. The Tribunal held that as a group holding company of Indian ventures, it provides certain support / steward services to various downstream ventures in India. Mr. ‘S’ was south Asia head of the MIL group. It is thus clear that interest free advance in question was owing to commercial and business expediency. The disallowance of interest was not justified.(A.Y. 2003-04 & 2004-05)
Dy. CIT v. Monsanto Holdings (P) Ltd. (2012) 134 ITD 189 (Mum.)(Trib.)

S. 36(1)(vii) : Business expenditure-Bad debts- Money lending business allowable as bad debts.
Assessee has advanced the money in the course of money lending business, therefore the claim of bad debt was allowable under section 36(1)(vii) read with second limb of section36(2).(A.Y. 2000-01)
All Grow Finance & Investment (P) Ltd. v. CIT (2012) 66 DTR 131 (Delhi)(High Court)

S. 36(1)(vii): Business expenditure- Bad debts-Business loss-Money lending  is one of the ancillary objects hence the loss was not allowable .[S. 28(1), 37(1)]
Money lending is one of the ancillary objects of assessee company, as the loan advanced was not in the course of money lending, the loss is neither deductible as bad debts nor business expenditure.(A.Y. 2001-02 and 2004-05)
Maini Shipping P.Ltd v.ACIT (2012) 13 ITR 440 (Mum.)(Trib.)

S. 36(1)(viii): Business expenditure – Financial corporation – Dividend- Interest on short term deposit- Service charges on SDF loans is not income derived from business of providing long term finance.
Assessee claimed  deduction under section 36(1)(viii), in respect of following items of income (a) Dividend received in respect of redeemable preference share in companies (b) Interest on short  deposits with banks (c) Service charges on SDF loans. Assessing opined that these were income not ‘derived from’ business of providing long term finance. Tribunal and High Court up held the view of Assessing Officer.(A. Ys. 1999-2000 to 2007-08)
National Co-operative Development Corporation v. ACIT (2012) 204  Taxman 6/ 65 DTR 295 (Delhi)(High Court).

S. 37(1): Business expenditure- Capital or revenue- Removal of encroachments is allowable as revenue expenditure.
Expenditure towards removal of encroachments in and around technical area of airport for safety and security is merely for purpose of removal of disability hence allowable as revenue expenditure. (A.Y. 1998-99)
Airports Authority of India v. CIT (2012) 340 ITR 407/247 CTR 149/66 DTR 440 (Delhi)(FB)(High Court)

S.37(1):Business expenditure-Capital or revenue–Purchase of  Software application- Improvement of leased premises-Both allowable as revenue expenditure.
Expenditure incurred on purchase of software application is allowable as revenue expenditure. Expenditure incurred on improvements of lease hold premises viz. expenses of flooring, partition, wiring, false ceiling, roofing, air-conditioning unit and duct, electric wiring laying network for setting up computers and on purchase of furniture on improvement of leasehold premises allowable as revenue expenditure.(A.Ys. 2001-02, 2002-03)
CIT v. Amway India Enterprises (2012) 65 DTR 313 (Delhi)(High Court)

S. 37(1): Business expenditure- Capital or revenue- Suspension of one manufacturing activities-Severance cost of employees is allowable as business expenditure.
The assessee company had started manufacturing of powdered soft drink. During the accounting year relevant to the assessment year 2003-04, it decided to stop its manufacturing activity as it was found to be non-profitable. Many of employees who were directly in the manufacturing activity were laid off and the severance cost to those employees were paid. Assessee continued to do the trading activity. The Court held that suspension of one of the activities did not amount to closer of business, hence the expenditure was allowable.(A.Y. 2003-04)
CIT v. Kjs India P.Ltd. (2012) 340 ITR 380 (Delhi)(High Court)

S.37(1):Business expenditure-Capital or revenue-Membership of club-ISO certificate.-Both allowable as revenue expenditure.
Expenditure incurred for acquiring membership of clubs is revenue expenditure. ISO certificate would only certify the quality which is already maintained by the assessee in the manufacturing process and does not confer any benefit of enduring credibility, hence the expenditure is revenue in nature.(A.Y.1994-95 to 1996-97)
CIT v. Infosys Technologies Ltd. (2012) 65 DTR 347 (Karn.)(High Court)

S.37(1):Business expenditure-Contribution to traffic police- Not allowable-Repairs and renovation of leasehold premises is allowable as revenue expenditure.
The contribution made to traffic police can at the most considered as donation and cannot be considered as wholly and exclusively incurred for the purpose of business. Expenditure incurred on repairs and renovation of the leasehold premises and done in connection with the business of the assessee to improve the ambience of the office was revenue in nature and allowable as business expenditure.(A. Y.1993-94 to 1996-97)
CIT v. Infosys Technologies Ltd. (2012) 65 DTR 353/ 246 CTR 371 (Karn.)(High Court)
S. 37(1): Business expenditure- Capital or revenue–Expenditure incurred on development of new product in same line of business is allowable as revenue expenditure.(S. 35D)
The assessee engaged in manufacturing of permanent magnets, in its books showed under the head “Miscellaneous expenditure” a sum of Rs. 27,05,401/- being pre-production expenses in relation to bonded permanent magnet and claimed the said expenditure as revenue expenditure in the return of income. The Assessing Officer disallowed the said expenditure on the ground that the assessee had shown the expenditure as “Pre production expenses” and having capitalized in the books of account, the said expenditure to be amortised under section 35D. Commissioner (Appeals) and Tribunal held that, expenditure for development of new product in same line of business is revenue expenditure.(A.Y. 2004-05)
Dy. CIT v. Magnetic Meter Systems India Ltd. (2012) 13 ITR 43 (Chennai) (Trib.)

S. 37(1): Business expenditure- Travelling expenses – Employee- Foreign citizens to be considered for computing disallowance under  Rule 6D.
The Assessing Officer, calculated the disallowance under Rule 6D of the Income-tax Rules, 1962, with reference to each trip of the individual employee and after considering other related expenses. Commissioner (Appeals) agreed with the assessee that other related expenses like telephone, local conveyance could not be considered for the purpose of Rule 6D.However, computation in respect of each trip was up held. Tribunal confirmed the view of Commissioner (Appeals). Tribunal held that even in respect of travelling expenses of foreign citizens to be considered for computing disallowance under rule 6D.(A.Y. 1995-96)
Aditya Birla NuvoLtd. v. ACIT (2012) 13 ITR 128 (Mum.)(Trib.)

S.37(1) : Business expenditure- Capital or revenue-Construction of access road to new plant is capital in nature.
The Tribunal held that the approach road was connected to the additional profit earning apparatus being built by the assessee at the new unit of the expansion programme, therefore expenditure incurred on the approach road was in connection with augmentation to the existing profit earning apparatus of the company and hence the expenditure would be capital in nature. (A.Y. 1995-96)
Aditya Birla NuvoLtd. v. ACIT (2012) 13 ITR 128 (Mum.)(Trib.)

S.37(1): Business expenditure – Firm- Insurance premium on key man insurance policy of partner is allowable . [S. 10(10D)]
The assesseee–firm took a key man insurance  policy in respect of a partner, paid insurance policy premium on the policy and claimed it as expenditure. The Assessing Officer held that the partner was not a separate and independent person from the firm and, therefore, the payment of key man insurance premium in respect of the policy taken on the life of partner amounted to claiming the deduction for self and not allowable. The Tribunal confirmed the order of Commissioner (Appeals) who held that insurance premium on key man insurance policy to insure life of partner is allowable. (A.Y. 2007-08)
ACIT v. Paramount Impex (2012) 13 ITR 374 (Chandigarh)(Trib.)

S. 37(1): Business expenditure- Advertisement expenditure-Ad-hoc disallowance is not justified.
The Assessing Officer cannot disallow the expenditure on ad-hoc basis merely because the advertise expenditure has increased by 200%, as neither pointing out any defects in the books of account nor rejected the books of account.(A.Y. 2007-98)
WidexIndia (P) Ltd v. Dy. CIT (2012) 66 DTR 57 (Delhi)(Trib.)

S.40(a)(i): Amounts not deductible- Business expenditure – Commission- Non-resident –Agent-Business connection- Tax is not deductable  at source. (S. 195)
Assessee has paid sales commission to its holding company Eon Technology UK.The Court held that, when a non–resident agents operates outside the country, no part of income arises in India and since payment is remitted directly abroad and merely because an entry in the books of account is made in India, it does not mean that non-resident has received any payment in India, therefore, assessee is not liable to deduct tax at source hence, no disallowance can be made by applying the provision of section 40(a)(i)(A.Y. 2007-08).     
CIT v. Eon Technology (P) Ltd. (2012) 246 CTR 40 (Delhi)(High Court)

S. 40(a)(ia):Amounts not deductible- Deduction at source-Reimbursement of expenses- Clearing and forwarding agent. Disallowance can not be made(S. 172, 194C, 195)
Reimbursement of payment towards sea freight transport, CCI charges, steam freight  charges and REPO container charges made by the assessee to C&F agents who have already made the payment on behalf of the assessee is covered under section 172 and not by section 194C or 195 and the agent having already deducted TDS from the transportation charges and shipping bill before making these payments to the principal which have been reimbursed by the assessee, assessee was not liable to deduct tax at source from such payments and consequently, same could not be disallowed by invoking the provisions of section 40(a)(ia).(A.Y. 2005-06)
ACIT v. Minpro Industries (2012) 65 DTR 113/ 143 TTJ 331 (Jd.)(Trib.)
S. 40(a)(ia): Amounts not deductible-Deduction at source- VSAT and transaction charges-Even if payee has paid tax, payer not eligible for deduction.
For A. Ys. 2007-08 & 08-09, the assessee paid VSAT & transaction charges without deduction of TDS. The Assessing Officer held the payment to be “fees for technical services” & disallowed the payment under section 40(a)(ia) for want of TDS under section 194J though the CIT(A) allowed the claim by relying on Skycell Communications Ltd. and another v. Dy. CIT   (2001) 251 ITR 53 (Mad.). Before the Tribunal, the assessee argued that though the merits were covered against it by CIT v. Kotak Securities Ltd. (2012) 340 ITR 333 (Bom.), the deduction had to be allowed because (i) section 40(a)(ia) was not a ‘tax-levying’ provision but was merely to ensure that tax was paid by either the payer or the payee. As the payee had already paid the taxes, the bar in section 40(a)(ia) did not apply in line with Hindustan Coca Cola Beverage Ltd. v.CIT (2007) 293 ITR 226 (SC) and (ii) in accordance with Kotak Securities, as the department had not objected to the non-deduction of TDS on transaction charges in the past, there was no justification for invocation of section 40(a)(ia). Held by the Tribunal:
The argument that since the payee has already paid due tax on the income, section 40(a)(ia) cannot be invoked is not correct. The law in Hindustan Coca Cola Beverage Ltd v.CIT (2007) 293 ITR 226 (SC) that if the payee is assessed, the tax cannot be recovered from the payer was in the context of section 201 and pursuant to Circular No.275/201/95-IT dated 29-1-1997. In the absence of such circular in case of disallowance under section 40(a)(ia), the principle laid down cannot be adopted for s. 40(a)(ia). As regards the principle that the department had accepted the position in the past, the defense is available for A.Y. 2007-08 but not for A.Y. 2008-09.

ACIT v. DICGC Ltd. (Mum.)(Trib.)www.itatonline.org
S. 40A(3): Expenses or payments not deductible- Cash payments- Airports Authority-Payments to agent- Disallowance can not be made. [Income-tax Rules,1962,Rule 6DD(k)]
Payments to Airports Authority of India in accordance with directions of Authority, falls under exceptions specified in Rule 6DD(k) hence  disallowance was not justified. (A.Ys. 2005-06 to 2007-08)
SRC Aviation P.Ltd. v. Dy. CIT (2012) 13 ITR 600 (Delhi)(Trib.)

S. 40A(3): Expenses or payments not deductible- Cash payments- Advance for purchase of land- Disallowance can not be made..
Advance made to purchase of land was received back by assessee as the deal could not materialize, payment made for purchase of land cannot be disallowed under section 40(A)(3).(A.Y.2006-07)
Yamuna Prasad Peshwa v. Dy.CIT (2012) 65 DTR 330/ 143 TTJ 615 (Jd.)(Trib.)

S. 40A(3): Expenses or payments not deductible- Cash payments- Purchase of land- No Banking facilities-Disallowance can not be made. [Rule 6DD(e)(g)(j)&(k)]
The cash payments made purchase of land to farmers residing in a villages, where there is no banking facilities and made cash payments after banking hours as indicated by the time of payment mentioned in the cash vouchers, there was an exceptional circumstances for making cash payments which fall under the exception clause in rule 6DD and therefore, the impugned payments could not be disallowed under section 40A(3). (A.Ys. 2006-07 and 2007-08)
Shree Salasar Overseas (P) Ltd. v. Dy. CIT (2012) 66 DTR 9 (Jp.)(Trib.)

S. 41(1): Profits chargeable to tax – Income – Accrual-Remission or cessation of trading liability- Waiver of loan- Section 41 (1) is not attracted.
For the application of section 41(1), the condition precedent is that there should be an allowance or deduction in the assessment for any year in respect of loss, expenditure or trading liability incurred by assessee hence the section 41(1) is not attracted to waiver of loan liability since no allowance or deduction was claimed in respect of the same.(A.Y. 2003-04)
CIT v. Compaq Electric Ltd. (2012) 66 DTR 38 (Karn.)(High Court)

S. 41(1): Profits chargeable to tax – Income-Remission or cessation of trading liability- Refund of value added tax can not be assessed under section 41(1)..
After refund is claimed by the assessee in the prescribed form, the Commercial tax authority has to accept or reject the claim. Value added tax refund is not an automatic refund, it is depended on the decision of the commercial tax authority who has to adjudicate the claim.  It is not a benefit that accrued to the assessee during the year as the claim was not adjudicated by the commercial tax authority.(A.Y.2007-08)
ITO v. Binayak Hi Tech Engineering Ltd. (2012) 13 ITR 369 (Kol.)(Trib.)

S. 41(1): Profits chargeable to tax – Income – Accrual- Remission or cessation of trading liability- Conditional consent decree passed by Debt recovery Tribunal income can not be taxed during the year.
For the A. Y. 200-01, the Assessing Officer made addition of income under section 41(1), being the loan written off by Syndicate Bank in pursuance of an order passed by the Debt Recovery Tribunal. The Tribunal held that it was clear from the order passed by the Debt Recovery Tribunal that only on fulfilling certain conditions which were spread over a period of time, the assessee would derive the benefit. The payments to be made by the assessee over a period of three years. The Bank gave the “No dues” certificate only in October, 2003. Hence, income if any from the consent decree could not be bought to tax in the assessment year 2000-01 as the assessee had not obtained any benefit during the year, either by way of any liability in that year. (A.Y. 2001-02 and 2004-05)
Maini Shipping P.Ltd. v.ACIT (2012) 13 ITR 440 (Mum.)(Trib.)

S. 43(5):Speculative transaction – Derivatives- Futures and options- Business loss- Transaction before 25th Jan., 2006- Net income after setting off loss can only be assessed as business loss . [S. 28(i)]
Assessee has offered a sum of Rs. 3,27,687/- arising out of F&O transactions under the head  ‘Short term capital gains’. Assessing Officer held that as per provisions of section 43(5)(d) profits from transaction in F&O was assessable under the head ‘Business’ and not ‘Capital gains’. As regards the loss amounting to Rs. 1,35,889/- was allowed to be carried forward as speculation loss. On appeal the Commissioner (Appeals) confirmed the order of Assessing Officer. On appeal the Tribunal held that insertion of clause (d) in section 43(5) is applicable from A. Y. 2006-07 and even loss incurred before 25th Jan., 2006 should also be reckoned as only business loss. The Tribunal directed the Assessing Officer to assessee net profit from F&O at Rs. 3,27,687/- under the head business.(A.Y. 2006-07)
Pradeep Kumar Harlaka v. ACIT (2012) 65 DTR 157/ 143 TTJ 446 (Mum.)(Trib.)

S. 45: Capital gains–Transfer- Issue of sale certificate- Lump sum paid towards interest-Sale of property by public action – Income from other sources- Assessable as capital gains after sale certificate issued by competent authority  . (S. 2(28A), 2, 47(v), 56)
The amount received by the official liquidator in terms of orders of company court, though referred to as interest, for the purpose of assessment of income-tax it was part of the sale consideration and therefore, could not be treated as income from other sources under section 56, the amount is assessable as capital gains under section 45. Possession of the mill was transferred to the purchaser by way of lease and not in terms of the Transfer of Property Act. Therefore, there was neither actual transfer nor artificial transfer of title on account of the transfer of possession. Such transfer of title took place only on payment of the entire amount by the purchaser and only after the sale certificate was issued by the competent court.(A.Y.1995 -96)
Cauvery Spinning and Weaving Mills Ltd. (In liquidation) v. Dy. CIT (2012) 340 ITR 550 (Mad.)(High Court)

S. 45: Capital gains – Business income- Investment in shares-Rule of consistency-Profit on sale of shares is assessable as capital gains [S. 28(i)]
Assessee is buying and selling shares in a large scale at high frequency and the period of holding was also not very long. Assessing Officer taxed the income as business income. The Tribunal held that once the Assessing Officer has accepted the transaction of shares as investment in earlier year and also in subsequent year, in the absence of any glaring material change in facts and circumstances, Assessing Officer ought to have maintained consistent view on issue. The Tribunal held that income arising from purchase and sale of shares held as investment would be assessable as capital gain and not as business income.(A. Ys. 2005-06 and 2006-07)
Sunil Kumar Ganeriwal v. Dy. CIT (2012) 134 ITD 179 (Mum.)(Trib.)

S. 45: Capital gains – Business income- Investment in shares- Rule of consistency is to be followed and assessable as capital gains . [S. 28(i)]
Following the rule of consistency the Tribunal held that the profit on sale of shares has to be assessed as short term capital gains and not as business income.(A.Y. 2005-06)
S.K.Finance v.Dy. CIT (2012) 13 ITR 236 (Mum.)(Trib.)

S. 45: Capital gains – Business income- Investment in shares-Rule of consistency-Profit on sale of shares is assessable as capital gains. [S. 28(i)]
The assessee had consistently shown in past several years the share trading income as capital gains, either short term or long term or both and that had not been challenged by the Department. There was no material on record to hold that the assessee had deviated from the accepted nature of transaction or adopted a different method of share transaction more akin to business transaction. As far as the period of holding of an investment was concerned, the accepted legal position was that a decision had to be taken by the assessee himself as to reap the maximum benefits.The profit on sale of shares cannot be assessed as business income. (A.Y.2006-07)
ACIT v. GargiShitalkumar Patel (2012) 13 ITR 386 (Ahd.)(Trib.)

S. 45: Capital gains-Business income- Investment in bonds, mutual funds and other securities- Short term- Profit on sale of shares is assessable as capital gains and cannot be treated as business income-Principle laid down[S. 28(i)]
Assessee company was engaged in business of dealing in auto spare parts and investment in bonds, mutual funds and other securities. Assessing Officer treated share transactions as business activity and assessed as business income. The Tribunal held that the assessee has not borrowed funds for purchase of shares, further value of shares at close of year had been taken at cost and not market price or cost whichever is lower, which showed that shares were not treated as stock-in-trade. In earlier assessment year,purchase of shares by assessee had been treated as investment. Tribunal applied 11 principles to determine whether the sale of investment is capital gain or business income. Accordingly the Tribunal directed the Assessing Officer to treat the sale as investment as capital gains and not as business income.(A.Y.2006-07)
D& M Components Ltd. v. ACIT (2012) 49 SOT 224 (Delhi)(Trib.)

S. 45: Capital gains- Business income- Investment in shares- Surplus is assessable as capital gains. [S. 28(i)]
Assessee is carrying on the business of marketing and distribution of books and magazines. He had income from purchase and sale of shares. During the year the assessee had large number of transactions of purchase and sale of shares. Assessing held the income as business income. On appeal Commissioner (Appeals) held that transactions resulted into short term capital gains and not business profits. On appeal by revenue the Tribunal held that as the department has accepted the assessee as investor in earlier years and latter years, coupled with fact that bulk of profit had arisen from sale of bonus shares the order of Commissioner (Appeals) is confirmed.(A.Y. 2007-08)
ACIT v. Om PrakashArora (2012) 134 ITD 217 (Delhi)(Trib.)

S. 45: Capital gains- Development agreement-Handing over of possession- Business income – Transfer- Assessable as capital gains in the year transferee is willing to perform the obligation as per the contract- Transfer of Property Act  Section 53A.[S. 2(47)(v), 28(i)]
On the facts the Tribunal found that developer had violated essential terms of agreement which tend to subvert the relationship established by the development agreement with the assessee. There was no progress in the development agreement for the relevant assessment year, even the municipal sanction for development was not obtained in the relevant year.Handing over the possession of the property is only one of the conditions, section 53A of the Transfer of Property Act but it is not the sole and isolated condition and it is necessary to go in to whether or not the transferee was willing to perform its obligation under the consent terms. On the facts of the case provisions of section 2(47)(v) will not apply in the assessment year under consideration and the capital gains would not be taxed in the assessment  year. The Assessee was showing income from the land holding as agricultural income. Land which was acquired in September, 1996 was sold during the A. Y. 2004-05. There was no regular activity of purchasing and selling of land, therefore profit on sale of the land was assessable as capital gains and not as business income. (A.Y. 2006-07)
K.Radhika (Mrs) &Ors. v. Dy. CIT (2012) 65 DTR 250 (Hyd.)(Trib.)

S. 45: Capital gains- Sale of shares–ESOP –Short term – Long term – The date on which option to buy the shares is granted, could not be treated as ‘date of acquisition of shares’ -. Gains will be short term [S. 2(42A)]
Assessee is an employee of Johnson & Johnson Ltd. an India based subsidiary of Johnson & Johnson, Inc USA.  During the year the assessee received the consideration in respect of sale of stock option shares received by him. The assessee treated the same as long term capital gain and claimed exemption under section54EA. Assessing Officer held that the holding period for these share to be considered from the date of exercising the stock option to the sale of the shares, which was less than twelve months, hence the gain on these shares to be treated as short term capital gains. The Commissioner (Appeals) held that, the assessee has taken constructive delivery hence treated as long term  capital gains. Tribunal reversed the finding of Commissioner (Appeals) and held that the date on which option to buy the shares is granted, could not be treated as ‘date of acquisition of shares’   As per broker’s statement, the assessee was not the owner of these shares before the shares were sold and entries, to that extent, were mere notional in nature, therefore impugned gains cannot be taxed under the head ‘long term capital gains’. As the shares were held for less than 12 months, the gains will be short term capital gains. (A.Y. 1998-99)
ACIT v. Pramod H.Lele (2012) 66 DTR 134 (Mum.)(Trib.)

S. 45: Capital gains- Transfer of development rights- TDR is “improvement” of land and if it has no cost, then, even if the land has a “cost”, no part of the gain on transfer of land is taxable.
The assessee transferred “Development Rights” being the FSI and the “right to load TDR” on the land. While the right to construct on the land by consuming FSI was a capital asset which was acquired at a cost, the right to load TDR arose pursuant to the DC Regulations, 1991 without payment of any cost. The said right to “load TDR” was an improvement to the “capital asset” held by the assessee. If the “cost of improvement” of an asset is not determinable, capital gains are not chargeable. The result was that even the consideration attributable to the FSI (which had a cost) was not assessable to tax (Principle laid down in Jethalal D. Mehta v.Dy. CIT(2005)2 SOT 422 (Mum.)(Trib.) &Maheshwar Prakash-2 Co-op.Hsg.Society Ltd. (2008) 24 SOT 366 (Mum.)(Trib.) in the context of transfer of only TDR followed).
Ishverlal Manmohandas Kanakia v. ACIT (Mum.)(Trib.)www.itatonline.org

S. 45: Capital gains- Sale of shares- Statement of broker- Addition as undisclosed source is not justified. (S.69)
Assessee had purchased the shares more than one year before date of sale and purchase which was accepted as genuine, the Assessing Officer was not justified in making addition of sale proceeds of such shares as undisclosed income of the assessee merely on the basis of statement of the broker that he was issuing accommodation entries. (A.Y. 2003-03)
Dalpat Singh Choudhary v. ACIT (2012) 143 TTJ 500 (Jd.)(Trib.)
Dy. CIT v. Dalpat Singh Choudhary(2012) 143 TTJ 500 (Jd.)(Trib.)

S. 48 : Capital gains-Cost of acquisition- Portfolio management  services fee is not deductible. (S. 45)
The expenditure incurred in connection with fee of portfolio management has nothing to do with the cost of acquisition of shares or transaction of shares, therefore it is not allowable.(A.Y. 2006-07)
Pradeep Kumar Harlalka v. ACIT (2012) 65  DTR 157 /143 TTJ 446(Mum.) (Trib.)

S.48: Capital gains – Computation – Indexation – Bond- Conversion of units of UTI in to tax free bonds no indexation is available .
The assessee filed the return of income disclosing long term capital loss. While computing the capital loss the assessee claimed benefit of indexed cost of acquisition of UTI units. Assessing Officer invoked the third proviso of section 48 as per which no indexation is available on bonds and debentures. According to the Assessing Officer scheme of conversion was required to be listed on whole sale debt segment of NSE, which clearly implied that it was a debt instrument, where fixed rate of interest was available which was in the nature of FD/NSC, Bonds and debentures and other fixed income instruments. Tribunal held that since units issued by UTI fell under definition of ‘bond’  order passed by the Assessing Officer was upheld. (A.Y. 2005-06)
Dy. CIT v. Areez P. Khambhatta (2012) 49 SOT 319 (Ahd.)(Trib.)

S.50C: Capital gains-Full value of consideration- Investment in residential house provision of section 50C is not applicable. (S.48,54EC,54F)
During relevant assessment year, assessee sold a property and entire sale consideration was invested in Bonds in view of provisions of section 54EC. Assessing Officer by taking value determined by DVO under section 50C, revalued capital gain and after reducing amount invested in Bonds, added remaining amount in assessee’s income. Since the assessee has invested entire amount of sale consideration in Bonds ,provisions of section 50C are not applicable and he is entitled to deduction under section 54F.Provisions of section 50C is applicable to section 48 and section 54F and not where entire consideration invested in section Bonds under section 54EC. (A.Y. 2006-07)
PrakashKarnavat v. ITO (2012) 49 SOT 160 (Jaipur)(Trib.)

S.54F: Capital gains-Cost of acquisition-Amount paid to contactor is to be considered as cost of acquisition.
Amounts paid for completion of flat purchased in semi finished condition, pursuant to a tripartite agreement entered by the assessee with the contractors and the builder form part of cost of new house even though such agreement was entered prior to agreement for purchase of  house. On the facts all expenditure incurred prior to taking over possession has to be considered as part of cost.(A.Y. 2006-07)
Nirupama K.Shah v.ITO – 419 (2012) 43B. BCAJ P. 31 (Jan 2012)(Mum.)(Trib.)

S.68: Cash credits-Sundry creditors-Out standing in balance sheet additions can not be as cash credits.
Assessing Officer disallowed the sundry creditors holding that the assessee could not furnish complete names, addresses and PANs of all sundry creditors. The assessee contended that these creditors were petty karigars engaged in doing job work for assessee pertaining very old period and since said records had been destroyed in fire assessee was not in a position to get these outstanding creditors verified further the reading results have been accepted. Tribunal held that taking in to consideration all then facts addition cannot be made cash credits by invoking deeming fiction under section 68. (A.Y. 2001-02).
Dy. CIT v. Divine International (2012) 134 ITD 148 (Delhi)(Trib.)

S. 68: Cash credits-Opening balance- Loan confirmation filed addition can not be made as cash credits.
Assessee has taken loan from various parties. Assessee filed the conformation letters, all loans were by account payee cheques and the lenders were employed abroad. The Tribunal held that the assessee has discharged the burden hence addition cannot be made under section 68. As regards loan taken in earlier year addition cannot be made for the relevant year. (A.Y. 2006-07)
ITO v. Nasir Khan J. Mahadik (2012) 134 ITD 166 (Mum.)(Trib.)

S.68: Cash credits- Capital contribution by partners – Addition cannot be made in the assessment of firm.
Assessee firm received Rs. 7.15 lakhs as fresh capital contributions from its four partners and furnished copies of capital account of partners, their individual cash books, pass books and statement, their balance sheets computation of income and income tax returns. Assessing Officer treated the said amount as unexplained cash credits on the ground that the assessee did not furnish source of cash credit in cash book of partners. The Tribunal held the assessee has discharged the initial onus laid upon it by filing various documents. The Tribunal further held that if the Assessing Officer is doubting the genuineness the same could be considered in hands of partners and not in the assessment of firm.(A.Y. 2005-06)
ACIT v.MeghMalhar Developers (2012) 134 ITD 437 (Ahd.)(Trib.)

S. 69: Unexplained money-Income from undisclosed source – Statement under section 132(4)-Addition on the basis of loose papers  found  was confirmed .
The Assessing Officer has made addition on the basis of loose papers found and the statement jointly signed by the assessee. On appeal Commissioner (Appeals) deleted the addition on the ground that the person who has given the statement did not appear before the Assessing Officer for cross examination. Tribunal held that loose paper was signed by assessee and that it is indicative of the fact that the impugned amount was given as loan by assessee. On appeal High Court held that the Tribunal has decided the issue based on factual aspects and therefore the order of Tribunal was up held.
Bhanuvijaysingh M. Vachela deceased, through Legal Heir v. ITO (2012) 65  DTR 201/ 246 CTR 274 (Guj.)(High Court)

S.69: Unexplained moneys – Firm – Partner – Capital.- Addittion can not be made in the assessment of firm.(S.68)
Initial capital introduced by partners before commencement of business of firm, could not be treated as undisclosed income of assessee–firm even if the Assessing Officer was not satisfied with the explanation offered by firm explaining the source of said income. At the most the addition could be made in hands of individual partners of firm.(A.Y. 2004-05)
G.L. Foods v. ITO (2012) 134 ITD 159 (Luck.)(Trib.)

S. 69A: Unexplained investments- – Sale of shares- Short term capital gains- Addition as income from undisclosed source was confirmed .
Assessee has shown the profit on sale of shares, the Court observed that the sale of Shares were not listed. It was also observed that the sale was taken place in 1998 and payment was received by the assessee was in next year. No explanation was offered why the payment was delayed about one year and three months. The Court held that purchase and sale of shares was not genuine and addition as undisclosed income was justified.(A.Y.1997-98)
CIT v.RanaGurjit Singh (2012) 340 ITR 108 (P&H)(High Court)

S.73: Losses in speculation business-Computation of gross total income to be made by applying the normal provisions of the Act – Share loss to be first set-off to determine what gross total income consists of  there after Explanation applies.
The department’s submission that in computing the gross total income for the purpose of the explanation to section 73, income under the heads of “Profits and gains of business” must be ignored and /or that the share loss should not be allowed to be set off against the income from any other source under the head “Profits and gains of business” is not acceptable because it leads to an incongruous situation where in determining whether a company is carrying on a speculation business within the meaning of the Explanation, sub-section (1) of section 73 is applied in the first instance. This is not permissible as a matter of statutory interpretation because the Explanation is designed to define a situation where a company is deemed to carry on speculation business. It is only thereafter that sub-section (1) of section 73 can apply. Applying the provisions of section 73(1) to determine whether a company is carrying on speculation business would reverse the order of application. Legislature has mandated that in order to determine whether the exception that is carved out by the Explanation applies, a computation of the gross total income has to be made in accordance with the normal provisions of the Act and it is only thereafter that it has to be determined whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the Explanation to section 73 or not.

CIT v. Darshan Securities Pvt. Ltd. (Bom.)(High Court) www.itatonline.org

S. 80: Return –Losses-Revised return is held to be valid and is allowed to carry forward and set off. [S. 70, 71, 139(5)]
Assessee filed the original return under section 139(1) declaring the positive income. Assessee found certain mistake thereafter and filed revised return declaring the loss and to be carried forward and set off in future. The Tribunal held that the revised return to be treated as valid return and the assessee is entitled to carry forward of ‘long term capital loss’. (A.Y. 2005-06)
Ramesh R. Shah v. ACIT (2012) 65 DTR 104 (Mum.)(Trib.)

S.80HH: Deduction-New industrial undertakings – Manufacture –Production- Forging process- Sub contract receipts.
Assessee claimed deduction under section 80HH, in respect of sub-contract receipts. The Court held that Krishnapuran unit of the assessee completes hot forging and after the process comes to Padi where there is further value addition and after assembling nuts and bolts, they are marked. Thus only after the process carried on by the Krishnapuran  unit, that the commodities reach a stage of marketability, therefore, it satisfied the test as given in section 80HH, hence receipt of job work done eligible for deduction under section 80HH.(A. Ys.1989-90 and 1992-93).
Sundaram Fasteners Ltd v. CIT (2012) 246 CTR 95 (Mad.)(High Court)

S. 80HHC: Deduction – Export – Computation-Profits of business- DEPB sale proceeds is not “profits”- The face value of DEPB shall be deducted from the sale proceeds. [S.28(iiid)]
DEPB is “cash assistance” receivable against exports under the scheme of the Government. While the face value of the DEPB falls under clause (iiib) of section 28, the difference between the sale value and the face value of the DEPB (the “profit”) will fall under clause (iiid) of section 28. DEPB represents part of the cost incurred by a person for manufacture of the export product and hence even where the DEPB is not utilized by the exporter but is transferred to another person, the DEPB continues to remain as a cost to the exporter. When DEPB is transferred, the entire sum received on such transfer does not become his profits. It is only the amount that he receives in excess of the DEPB which represents his profits on transfer of the DEPB.
Topman Exports v. CIT (SC)www.itatonline.org

S.80HHC:Deduction – Export – Computation-Interest – Netting – Explanation (baa) to section 80HHC,  refer netting of income from expenditure.
Under Clause (1) of Explanation (baa) to section 80HHC, 90% of any receipts by way of brokerage, commission, etc. “included in any such profits” have to be deducted from the profits & gains of business. The expression “included any such profits” means such receipts by way of brokerage, commission, etc included in the profits & gains. Therefore, if any quantum of receipts by way of brokerage, commission, etc is allowed as expenses under section 30 to 44D and is not included in the profits of business, 90% of such quantum of receipts cannot be reduced under clause (1) of Explanation (baa) to section 80HHC. In other words, only 90% of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining “profits of the business”. (Principle in Distributors (Baroda) P.Ltd. v. UOI (1985)155 ITR 120 (SC) followed;CITv Shri Ram Honda Power Equip(2007) 289 ITR 475 (Delhi)(High Court) approved).
ACG Associated Capsules Pvt. Ltd v. CIT (SC)www.itatonline.org

S.80HHC: Deduction – Export-Export from third country.
Assessee is engaged in purchase and sale of non ferrous metals, scraps, skimming ashes etc., who made purchases from one country and made exports to another country at margin of profit by arranging direct shipment from the purchasing country to the selling country. The Court held that in section 80HHC, there is no express words which provide that the export of such goods to be from India. There need not be two way traffic of bringing the goods from a foreign country into the Indian shores and thereafter exporting that goods from Indian shores to the off shore, because it is a mere empty formality and meaningless ritual in which the country gains nothing. If the object of earning of foreign exchange is achieved then the assessee is entitled to entitled to deduction under section 80HHC. (A. Ys. 1989-90 to 2002-03)
Anil Kumar v. ITO (2012) 65 DTR 49/ 246 CTR 194 (Karn.)(High Court)

S. 80HHC: Deduction – Export- Addition as unexplained cash credits. (S.68)
Assessee is engaged in export business. Assessing officer made addition under section 68 on account of unexplained cash credits appearing in books of assessee. Assessee deduction under section 80HHC in respect of addition made on account of creditors. The Tribunal held that since creditors in assessee’s case represented purchasers, benefit of section 80HHC was to be allowed to assessee.(A.Y. 2001-02).
Dy. CIT v. Divine International (2012) 134 ITD 148 (Delhi)(Trib.)

S.80HHE:Deduction – Export-Computer software-Foreign currency-Development and export of software.
The Tribunal has not considered the relevant documents which would clearly show that the expenses incurred in foreign exchange was towards technical services rendered outside India and not for development of software outside India. Once it is held that expenditure incurred for the relevant assessment years pertains to technical services outside India, the same has to be  excluded from the export turnover for the purpose of arriving at the deduction admissible under section 80HHE, therefore, High Court set aside the finding of Tribunal.(A. Y.1993-94 to 1996-97)
CIT v. Infosys Technologies Ltd. (2012) 65 DTR 353/ 246 CTR 371 (Karn.)(High Court)
S.80IA:Deductions- Profits and gains from infrastructure undertakings- Joint venture- Consortium.
Assessee company formed joint venture which was awarded a contract a contract by irrigation department.40 percentage of works awarded was to be executed by assessee as one of constituents of JV and 60 percent by other constituent. Similarly, assessee also formed consortium along with one ‘CT’ of Moscow and assessee was to execute 100 percent of works which were awarded to said consortium. Assessee claimed deduction under section 80IA(4) on profits of aforesaid works. Assessing Officer disallowed the claim. The Tribunal held that (1)on facts the joint venture is only a de-jure contractor and assessee is de–facto contractor.(2) The joint venture and assessee cannot be held to be main contractor and members as sub-contractors.(3) Each joint venture would stand in relation to a principal as well as agent of others (4) Since Joint venture and consortium was formed only to obtain the contract from Government body, benefit of deduction under provisions of section 80IA(4) was to be allowed to any enterprise carrying on business of developing or operating and maintaining any infrastructure facility subject to fulfillment of other conditions. (A.Y. 2006-07).
Transstory (India) Ltd. v. ITO (2012) 134 ITD 269 (Viskhapatanam)(Trib.)  

S. 80IB: Deductions-Profits and gains from industrial undertakings-Manufacture or production- Rule of consistency – Appeal-High Court. (S.10BA(2)(e), 260A)
Department has not challenged the decision of Tribunal in the case of assessee for earlier years holding that the assessee is engaged in manufacturing activity and thus entitled to deduction under section 80IB. High Court refused to entertain the question applying the rule of consistency.(A.Y. 2005-06)
CIT v. Arts & Crafts Exports (2012) 66 DTR 85/ 246 CTR 463 (Bom.)(High Court)
Editorial:– Refer Arts & Crafts Exports v. ITO (2012) 66 DTR69/(2011) 45 SOT 415(Mum.)(Trib.)

S.80IB : Deductions – Profits and gains from industrial undertakings-Excise duty income-Insurance claim.
Excise income and insurance claim received for shortage of material is entitle to deduction under section 80IB.(A.Y.2006-07)
ITO v. Electro Ferro Alloys Ltd. (2012) 13 ITR 594 (Ahd.)(Trib.)

S.80IB(10):Deduction – Undertaking- Developing and building-Housing Project- Eligible even if developer not “owner” of land.
The assessee entered into a ‘development agreement’ with the owner of the land pursuant to which it agreed to develop the land. Deduction under section 80-IB(10) in respect of the profits arising from the said activity was claimed on the ground that it was “derived from the business of undertaking developing and building housing project approved by the local authority”. The Assessing Officer & CIT(A) rejected the claim on the ground that the assessee was not the “owner” of the land and that the approval of the local authority to, and the completion certificate of, the “housing project” was given to the owner and not to the assessee. However, the Tribunal allowed the claim. On appeal by the department to the High Court, HELD dismissing the appeal:
 Section80IB(10) allows deduction to an undertaking engaged in the business of developing and constructing housing projects. There is no requirement that the land must be owned by the assessee seeking the deduction. Under the development agreement, the assessee had undertaken the development of housing project at its own risk and cost. The land owner had accepted the full price of the land and had no responsibility. The entire risk of investment and expenditure was that of the assessee. Resultantly, profit and loss also accrued to the assessee alone. The assessee had total and complete control over the land and could put the land to the agreed use. It had full authority and responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. The risk element was entirely that of the assessee. The assessee was a “developer” in common parlance as well as legal parlance and could not be regarded as only a “works contractor”. The Explanation to section 80IB inserted w.r.e.f. 1.4.2001 has no application as the project is not a “works contract”. Further, as the assessee was, in part performance of the agreement to sell the land, given possession and had also carried out the construction work for development of the housing project, it had to be deemed to be the “owner” under section 2(47)(v) r.w.s. 53A of the TOP Act even though formal title had not passed (Faqir Chand Gulati vs. Uppal Agencies(2008) 10 SCC 345 distinguished)

CIT v. Radhe Developers ( 2012) 204 Taxman 543(Guj.)(High Court)www.itatonline.org

S. 80IB(10):Deduction – Undertaking- Developing and building –Housing Project-Completion certificate-Residential units- Built up area as defined under local authority-Assessee’s claim was allowed.
Assessee is a builder is engaged in construction and development of residential units. For the relevant years the assessee filed its return of income declaring nil income after claiming deduction under section 80IB(10). The Assessing Officer rejected the claim on the ground that completion certificate was issued on later date by Municipal Authorities and covered area /built up area of residential units was more than prescribed limit. Tribunal found that as the housing project was approved by local authority on 22-3-2001 (Before 1stday of 2004), same had to be completed on or before 31-3-2008. As per the clarification issued by Municipal corporation date of completion of project was 27-2-2008. When the launch of project the Income-tax Act did not define the ‘built up area’ As per M.P. Nagar Grah Nirman Adhiniyaam and M.P.Bhumi Vikas Niyam, 1984, which were applicable to assesse’s case, built up area was less than prescribed limit of 1500 sq. ft. In view of the facts the order of Assessing Officer was set aside and the assessee’s appeal was allowed. (A.Ys. 2002-03 to 2006-07)
Global Reality v. ITO (2002) 134 ITD 407 (Indore)(Trib.)

S.80IC: Deduction – Special category states – Computation- Eligible business-Head office expenses-Apportionment of expenses- Financial expenses.
One unit of the assessee is eligible for deduction under section 80IC, where as other two units are not eligible for deduction under section 80IC. The Assessee has filed a consolidated statement without substantiating individual items as to how why they should not be considered for the purpose of allocation of common expenses. The Court held that allocation of financial expenses to the eligible unit has to be in the ratio of turnover of the eligible business to the total turnover for the purpose of computing deduction under section 80IC.(A.Y. 2006-07)
Controls & Switchgear Co. Ltd. (2012) 66 DTR 161 (Delhi)(High Court)

S.80P:Deductions-Co-operative societies- Banking business- Cancellation of license.
Assessee was registered under Multi State Co-operative Societies Act, 1984 and was subsequently notified by Government of Maharashtra as a State Co-operative Bank and Reserve Bank of India also gave assessee,licence under Banking Regulation Act, 1949.Maharashtra State Government’s notification and licence by Reserve Bank of India were challenged by Maharashtra State Co-operative Bank Ltd., by a writ petition before Bombay High Court. High Court allowed the petition, thereupon Reserve Bank of India cancelled assessee’s licence with effect from 30-10-2003.During the relevant assessment year the assessee filed the return of income claiming deduction under section 80P(2)(a)(i).Assessing Officer rejected assessee’s claim. In an appeal before the Tribunal, the Tribunal held that as the licence was cancelled the income of the society cannot be considered as banking business eligible for deduction under section 80P(2)(a)(i), reason that assessee no longer remained a State cooperative Bank. (A.Y. 2005-06)
Apex Urban Co-operative Bank of Maharashtra & Goa Ltd. v. ITO (2012) 134 ITD 118 (Mum.)(Trib.)

S.90: Double taxation relief-Agreement with foreign countries – DTAA -India-Mauritius.
Indo–Mauritius DTAA and Circular No. 789 dated 13-4-2000, would not preclude Income-tax department from denying tax treaty benefits, if it is established, on facts, that Mauritius company has been interposed as owner of share in India, at time of disposal of share to a third partly, solely with a view to avoid tax without any commercial substance. In such a situation, notwithstanding fact that Mauritian Company is required to be treated as beneficial owner of shares under Circular No. 789 and DTAA, the tax department is entitled to look at entire transaction of sale as a whole and take into consideration real transaction between parties and transaction may be subject to tax.
Vodafone International Holdings B.V.v. UOI (2012)341 ITR 1/ 204 Taxman 408/247 CTR 1/66 DTR 265 (SC)

S. 90 : Double taxation relief- Avoidance of tax-Non-resident-Business support services-Financial services – DTAA – India-Netherland. (S. 195,Article 12)
SSSABV, a company incorporated in Netherlands, through its branch in the Philippines, is providing back office financial services relating to accounts etc.to the Applicant. Consideration paid by the applicant, an Indian company to SSSAB, a Dutch company is governed by the treaty between India and Netherlands and not the one between India and Philippines and since SSABV is providing back office services to then applicant without any involvement of the latter, the consideration paid for the services is not of fees for technical services within the meaning of Article 12.5(b) of the DTAA between India and Netherlands and therefore, it is not chargeable to tax in India. Since there is no liability to tax in India, applicant has no obligation to with hold tax under section 195.
Shell Technology India (P) Ltd. (2012) 65 DTR 34 / 246 CTR 158/ 204 Taxman 314(AAR)

S.92C: Avoidance of tax- Transfer pricing-Arm’s length price – Subsidiary- International transaction- Not in excess of 5% variation.
Assessee was a wholly owned subsidiary of U.S. based company MTC. It entered into a support agreement with assessee for research services and corporate support services which was an international transaction. For bench marking assessee’s international transactions TPO took various companies and made additions. Before Commissioner (Appeals) the assessee submitted that comparable cases identified by TPO were not engaged in similar activities as that of assessee. It was also contended that the TPO has ignored the comparable of another subsidiary where in the business is identical. The Commissioner(Appeals) held that the TPO arbitrarily selected ‘S’ Ltd. as comparable and ignored ‘C’ Ltd as comparable. Commissioner (Appeals) further held that had ‘C’ had been considered as comparable then arithmetic mean all comparable selected by TPO and assessee would be only 11.71 percentage and applying safe harbor rules in terms of second proviso below section 92C(2), difference in price between one adopted by TPO and ALP determined by including ‘C’ Ltd would be within + or -5 percent range calling for no adjustment to price adopted by assessee in respect of international transaction, accordingly the Commissioner (Appeals) deleted the addition made by the TPO. Tribunal confirmed the view of Commissioner (Appeals). (A. Y. 2003-04 & 2004-05)
Dy. CIT v. Monsanto Holdings (P) Ltd. (2012) 134 ITD 189 (Mum.)(Trib.)

S.92C: Avoidance of tax- Transfer pricing-TPO can rely on “contemporaneous” data even if not available at specified date.
In a transfer pricing appeal, the Tribunal had to consider two issues: (a) what is the data to be considered by the TPO at the time of determining ALP? & (b) whether the assessee should be given an opportunity to refute the material sought to be utilized by the TPO? HELD by the Tribunal:
(i) Under Rule 10D(4) the information and documents should as far as possible be contemporaneous and should exists latest by the ‘specified date’ specified in section 92F(4) i.e. the due date for filing the ROI. There is no cut-off date upto which only the information available in public domain can be taken into consideration by the TPO while making the transfer pricing adjustments and arriving at the ALP. The assessee’s argument that section 92D and Rule 10D is defeated if the TPO takes the data which is available in the public domain after the specified date is not acceptable.
(ii) While the TPO is empowered by section 131(1) & 133(6) to call for information without informing the assessee about the process, he cannot use such information against the assessee without giving the assessee a reasonable opportunity of hearing. If the assessee seeks an opportunity to cross-examine third parties, it has to be given the opportunity (Genisys Integrating Systems followed)

Kodiak Networks (India) Pvt. Ltd. v. ACIT(Bang.)(Trib.) www.itatonline.org

S.92C: Avoidance of tax-Transfer pricing – TPO is duty bound to eliminate differences in comparables’ data.
 In a Transfer Pricing matter, the Tribunal had to consider whether for purposes of making adjustment under Rule 10B(1)(e)(iii) ‘working capital’ constituted a ‘difference between the international transactions and the comparable uncontrolled transactions of between the enterprises entering into such transactions’ and if so whether the said difference ‘could materially affect’ the amount of net profit margin of relevant transactions in the open market. Held by the Tribunal:
Rule 10B(1)(e)(iii) provides that “the profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market“. While the “differences” are not specified, it covers “any differences” which could materially affect the amount of net profit margin. The litmus test to be applied is if the ‘difference, if any, is capable of affecting the NPM in open market? If yes, then the TPO is under statutory obligation to eliminate such differences. The revenue cannot say that difference is likely to exist in all accounts and so the demands of the assessee should be ignored. The revenue’s stand that the assessee is ineligible for any adjustments if he provides the set of comparable is not correct because under Rule 10(3) it is the duty of the AO/TPO/DRP to minimize/eliminate the difference which is likely to materially affect the price. It is the settled proposition that ‘working capital’ adjustment is an adjustment that is required to be made in TNMM. The revenue’s contention that the ‘differences’ specified should refer to only (i) the factor of demand and supply; (ii) existence of marketable intangibles i.e. brand name etc; (iii) geographical location and the like is not acceptable. Further, as the difference in the Arm’s length Operating Margin of the Comparables before and after making the adjustment for working capital was up to 3.77%, it was “material” and had to be eliminated (Mentor Graphics(2007) 109 ITD 101 (Delhi), E-gain Communication(2008) 118 ITD 243 (Pune) Sony India( 2008) 114 ITD 448 (Delhi) &TNT India followed).

Demag Cranes & Components (India) v. Dy. CIT (Pune)(Trib)www.itatonline.org

S.92C: Avoidance of tax-Transfer pricing – Computation-Arm’s length price – Royalty-Cup method.
Assessee has paid 3% of the net sales price, which was approved by RBI. The Tribunal has found that the assessee had sold only part of goods manufactured to its Associated enterprise and bulk sales were made to uncontrolled parties, and the Assessing Officer had failed to bring any material on record to show that payment of royalty @ 3% was not at arm’s length, hence disallowance of royalty was not justified.(A.Y.2006-07)
SonaOkegawa Precision Forgings Ltd. v. Addl. CIT(2012) 65 DTR 317 (Delhi)(Trib.)
S.92C: Avoidance of tax- Transfer pricing – Computation-Arm’s length price- Reimbursement of cost-Jurisdiction of Assessing Officer.
Assessee has reimbursed only cost of one employee who is sitting in Singapore. Assessee has produced evidence in the form of e-mails to substantiate its case that it has actually obtained services from its group companies and justified the commercial expediency of reimbursement of cost to said concerns by relating the payment to revenue earned by it from such services, the Tribunal held that there is no justification for adjustment to the ALP in respect of the payments made by the assessee to its group concerns. The Tribunal also held that once an international transaction has been made subject of determination of ALP by the TPO, and he has found that transaction is at arm’s length, then it is not permissible  for the Assessing Officer to re-examine that transaction and make disallowance  under  the normal provisions of the Act.(A.Y.2006-07)
Cushman & Wakefield India (P) Ltd v. ACIT (2012) 66 DTR 28 (Delhi)(Trib.)

S.92C:Avoidance of tax –Transfer pricing – Computation – Arm’s length price-Functional method- Combining all international transaction is not proper.
Assessee company which is in the business of providing buying services to associated enterprises for sourcing of garments, handicrafts, leather products etc. in India. Assessee determined ALP on ‘transaction by transaction’ basis using most appropriate method having regard to functional analysis and availability of comparable uncontrolled bench mark. TPO determined ALP by combining all transactions undertaken by assessee. Tribunal held that in assessee’s case, there were different segmental activities, which were independent of each other, they are required to be analyzed on transaction to transaction basis and not by combining all activities, hence the method adopted by the assessee is correct and up held the computation of assessee.(A.Y. 2006-07)
Benetton India (P) Ltd. v. ITO (2012) 134 ITD 229 (Delhi)(Trib.) 

S.115JA:Book profit – Company – Deduction – Export-Deduction under section 80HHC is  to be computed as per P&L Profits  and  not normal provisions. (S.80HHC, 115JB)
In computing “book profits” under section 115JA & 115JB, the assessee claimed that the deduction admissible there under section 80HHC had to be computed on the basis of the “book profits” and not on the basis of the income computed under the normal provisions of the Act. This claim was upheld by the Tribunal by relying on the judgment of the Special Bench in Dy. CIT v. Syncome Formulations (I) Ltd.(2007)106 ITD 193(Mum.)(SB) (Trib.). On appeal by the Revenue, the High Court [CITv.AI-Kabeer Exports Ltd. (2010) 233 CTR 443 (Bom.)] reversed the Tribunal. On appeal by the assessee, The Apex Court held reversing the High Court:
In view of this Court’s Order in the case of CIT vs. Bhari Information Technology Systems(2012) 340 ITR 593(SC)upholding the judgment of the Special Bench of Tribunal in  Dy. CIT v. Syncome Formulations (I) Ltd. (2007)106 ITD 193, the impugned judgment of the High Court is set aside and the judgments of the ITAT in these cases stand affirmed.
Al-Kabeer Exports Ltd. v. CIT (SC) www.itatonline.org

S. 115JA: Company- Book profit – Deduction – Export. (S. 80HHC, 115JB)
In computing book profits under section 115JA, 115JB, the deduction under section 80HHC had to be allowed on the basis of book profits and not by applying the normal provisions of the Act for computation deduction.(A.Ys. 2001, 2003-04)
CIT v. C.P.S.Textiles P. Ltd. (2012) 340 ITR 590 (Mad.)(High Court)

S. 115JB: Company-Book profit- STP unit-Exempt income- Companies Act. (S. 10A)

Book profits prepared by Company in accordance with Companies Act can neither be interfered with by Assessing Officer nor could assessee adjust the same except as provided under the Companies Act. In terms of clause (3) of Explanation to section 115JB(2) lower of amount of loss brought forward or unabsorbed depreciation is to be reduced  from book profit  and it is amount as per books of account and not as per Income tax records which has been computed under the provisions of Income-tax Act. Therefore while computing book profit under section 115JB and making adjustments  thereunder as provided in Explanation thereto, aggregate of profits /losses of both STP and non STP units is to be taken in to consideration and not profit or losses of non STP units only. (A.Y. 2005-06)

Yokogawa India Ltd. v. Dy. CIT (2012) 49 SOT 173 (Bang.)(Trib.)

S. 115VD: Shipping companies – Qualifying ship- Tonnage tax scheme- Ship operating in coastal waters and ship operating in international waters-Entitled to for the benefit of tonnage tax scheme.
Tonnage tax scheme does not distinguish between ships operating in costal waters and ships operating in International waters and therefore, the ship operated by the assessee for transporting  thermal coal from one location to another location within country is a qualifying ship under section 115VD and assessee is entitled for the benefit of tonnage tax scheme.(A.Y. 2006-07)
ACIT v. West Asia Maritime Ltd. (2012) 65 DTR 16/ 143 TTJ 129 (Chennai) (TM)(Trib.)

S. 115WB: Fringe benefits-Sales promotion expenses can not classified as gift.(S. 115WD,115WO)
Assessee in order to promote its products, from time to time formulated schemes which entitled distributors / dealers /stockiest to specific articles /presents depending upon volume of sales achieved through stockiest/ dealer etc. Value of said articles presents would be considered as advertising / sales promotion expenses falling under section 115WB(D) and could not be classified under section 115WB(O) treating it as gift as the expenditure has direct nexus with sales promotion and publicity.(A. Y. 2006-07)
Birla CorporationLtd. v. Dy. CIT (2002) 134 ITD 142 (Kol.)(Trib.)

S. 132: Search and seizure- Warrant of authorization- Condition precedent – Satisfaction- Inspection must be allowed. (S. 153A)
For issuing warrant of authorization satisfaction must be based on information coming into possession of department. In the absence of new material with authorities, loose satisfaction notes placed by authorities based on the high growth of company, is not sufficient to meet the requirements of provisions. Accordingly the action of search and seizure was held to be invalid. As the search and seizure held to be invalid the notices under section 153A was held to be bad in law. The Court also held that if appropriate prayer is made, inspection of such documents may be required to be allowed. (A. Ys. 2004-05 to 2009-10)
Spacewood Furnishers Pvt. Ltd. and others v. DIG (Investigation)(2012) 65 DTR 281/204 Taxman 392/ 246 CTR 313 (Bom.)(High Court)

S. 132:Search and seizure – Power-Interrogation till late night amounts to “torture” & violation of “human rights”- Officers are held liable for to pay compensation from their salary.
The assessee’s premises were searched under section 132 and alleged undisclosed income of Rs. 4.18 crores was detected. The assessee filed a complaint before the Bihar Human Rights Commission stating that interrogation & recording of statement was conducted for more than 30 hours and till the odd hours of the night without any break or interval and this violated his human rights. The Commission upheld the plea and directed the concerned officials to show-cause why the assessee should not be compensated from their salary. The Department filed a Writ Petition to challenge the order,held by the Court:
(i) The interrogation continued till 3.30 a.m. on the second night of search and seizure as per the department’s record. The search and seizure manual does not prescribe any time limit for search and survey operation and the same may continue for days if required, but it has to be in keeping with the basic human rights and dignity of an individual. The purpose of the Act is to give effect to the process of execution of actions of executive and bureaucratic machinery in line of accepted standard of basic human rights which are internationally recognized. The laws, and approach to law for its execution must confirm to the charter of human values and dignity. Even a person accused of a serious offence has to be produced before the nearest Magistrate within 24 hours minus the time taken in reaching the Court. There is no possible justification to continue interrogation and keep the assessee awake till 3 a.m. on the second night of search and interrogations. No reason has been assigned as to why the interrogations could not have been deferred till the morning of the next day. The officials could have continued with the interrogation on the next day in the morning after allowing the assessee to retire at an appropriate time in the night. Sleep deprivation method of interrogation amounts to inhuman treatment and violation of Article 3 of the European Convention on Human Rights. The Convention prohibits in absolute terms torture or Inhuman or degrading treatment or punishment. No exception to Article 3 can be made even in the event of Public Emergency threatening the life of the Nation. Accordingly, the department is guilty of violating human rights even though the operations were conducted in best interest of revenue and good faith (Ireland vs. UK (1978) ECHR 1, Kalashnikov vs. Russia (2002) ECHR 596 &Salmouni vs. France (2000) 29 EHRR 403 followed; RajendranChingaravelu 2010(1) SCC 45 distinguished)
(ii) However, as the Commission, without issuing any notice to the officials engaged in the search (as to the violation of Human Rights), issued notice on why monetary compensation be not awarded and be recoverable from their salary, it had pre-judged the officials as being guilty of violation of human rights, without affording them an opportunity of hearing. This was contrary to section 16 of the Protection of Human Rights Act, 1993 and had to be reversed.
CCIT v. Rajendra Singh (Patna)(High Court)www.itatonline.org

S. 132(4A): Search and seizure- Block assessment – Diary seized –Presumption is applicable . (S. 158BC)
In the course of search a diary was found which contained the noting of higher value of value purchase of property than shown in the books of account. The author of the diary was son of the partner, who stated that he has written the diary as per instruction of his partner. On the basis of diary addition was made in the block assessment. The addition was deleted by the Tribunal. On appeal the court held that the presumption under section 132(4A) is applicable hence addition is justified in block assessment as the author of diary was son of the partner
CIT v. Ambika Appalam Depot (2012) 340 ITR 497 (Mad.)(High Court)

S. 132A: Search and seizure- Unexplained cash- Seized by police – Writ is not maintainable warrant of authorization is held to be valid.- Article 226.
Cash of Rs. 6.5 Lacswas seized by police from the vehicle in which the petitioner was travelling. Thereafter warrant of authorization was issued under section 132A, by Director of IT(Inv.)requiring the police authorities to deliver the seized cash to the Income-tax department and the cash was deposited in Court. Assessee filed a writ petition to quash the proceedings on the ground that the amount of Rs. 6.50 seized from him on 23rd Jan., 2001 was the amount received by him on sale of agricultural lands and as against sale of house on various dates beginning from 3rdJune, 1994. The Court held that it was not clear how and under what circumstances the amounts received by the petitioner during the period of six years were kept by him or were carried by him on the said date. As the explanation was not a convincing, the writ is not maintainable under Article 226 of the Constitution of India.
Atta Husain v. Director of Income Tax(Investigation) & Ors. (2012) 246 CTR 207 (MP)(High Court)

S.132B:Search and seizure- Retained asset- Cash and other assets- Assets seized from partners cannot be adjusted against  advance tax liability of firm.
During the course of search proceedings, cash and other documents from business premises as well as residential premises of partners of assessee firm were seized. After completion of assessment of the firm,the assessee filed application under section 154 and requested the Assessing Officer to adjust payment of Rs. 1.52 croresin P.D. account against tax liability of assessee. Revenue authorities were rejected the application. The Tribunal held that in view of provisions of section 132B(3), Assessing Officer  cannot apply seized assets for discharge of liability of person other than person from whose custody assets were seized. Since in instant case,unexplained cash and jewellery were seized from partners of assessee firm said,unexplained cash and jewellery could be adjusted against partners of firm and not firm. Even otherwise since the request for adjustment of amount of PD had been made by concerned persons /partners after due date of payment of advance tax, request made could be considered only against regular and final tax liability of assessee and not against advance tax liability. (A.Y. 2007-08)
Summer Builders v. Dy. CIT (2012) 49 SOT 210 (Mum.)(Trib.)

S. 139:Assessment – Return- Revised computation – Revised statement is nor revised return , assessment has to be based on as per original return..
Assessee cannot revise his return by way of filing a revised statement of income, after filing original return. In the absence of revised return as prescribed under section 139(5), Assessing Officer is bound to make the assessment as per original return. (A.Y. 2006-07)
Orissa Rural Housing Development Corporation Ltd. v. ACIT (2012) 66 DTR 73/ 247 CTR 137 (Orissa)(High Court)

S. 139: Assessment – Return-Electronic filing of return – Non-receipt of form ITR–V by the department- Assessee is permitted to file the return .
Assessee furnished adequate material to show that after filing the return electronically, it had also submitted Form ITR–V by ordinary post thrice the impugned communications issued by the Department treating the return as invalid on the ground that Form ITR–V has not been received is thoroughly misconceived, since the order of assessment for the relevant assessment year has still not been passed, assessee is permitted to file a verification of the return before the Assessing Officer with in a period of one week. (A.Y.2009-10)
Crawford Bayley& Co. v. UOI (2012) 66 DTR 157 / 246 CTR 459 (Bom.)(High Court)
S. 139:Assessment – Return- Revised return- Loss – Carry forward  and set off is allowd . (S. 70, 71, 80)
Assessee filed the original return under section 139(1) declaring the positive income. Assessee found certain mistake thereafter and filed revised return declaring the loss and  to be carried forward and set off in future. The Tribunal held that the revised return to be treated as valid return and the assessee is entitled to carry forward of ‘long term capital loss’. (A.Y. 2005-06)
Ramesh R. Shah v. ACIT (2012) 65 DTR 104/ 143 TTJ 166 (Mum.)(Trib.)

S. 142(1): Assessment – Limitation-Notice- Held to be invalid.
By Finance Act, 2006, the legislature has added proviso in section 142(1)(i) to the effect that an assessment framed pursuant to a notice issued under section 142 after the end of the assessment year would also be valid, therefore, notice issued after the end of the relevant assessment year i.e. after 31stMarch, 1988 was not invalid. (A.Y. 1997-98)
DIT v. Ericsson A.B.(2012) 66 DTR 1/ 246 DTR 422 (Delhi)(High Court)
DIT v. Ericsson Radio System A.B. (2012) 66 DTR 1 /246 DTR 422 (Delhi)(High Court)
DIT v.Metapath Software International (2012) 66 DTR 1/ 246 DTR 422(Delhi)(High Court)

S. 142(1): Assessment- Validity – Notices held to be valid. [S. 143(2)]
Section 142(1) empowers the Assessing Officer to issue notice under section 142(1) for production of accounts and documents for the purpose of making assessment. Notice under section 143(2) is issued requiring the assessee to produce his accounts, evidences and particulars on which the assessee may rely in his support of his claim made in the return. On the facts the notice under section 142(1) was issued on 3rdOctober, 2008 where as notice under section 143(2) was issued on 10thOctober, 2007. There is no sequence prescribed as to what manner notices under section 142(1) and 143(2) are to be issued, therefore, there is nothing to say that notice under section 142(1) should precede notice under section 143(2).Therefore notice issued under section 143(2) on 10th October 2007 is within the period of limitation.(A. Y. 2006-07) 
Orissa Rural Housing Development Corporation Ltd. v. ACIT (2012) 66 DTR 73/ 247 CTR 137 (Orissa)(High Court)

S.143(3): Assessment- Non–existing amalgamating company –Held to be invalid.. (S.292B)
Assessee filed the return and the fact of amalgamation was brought into the notice of Assessing Officer, it was incumbent on the Income Tax Authorities to substitute the successor in place of “dead person”. A company dies on its dissolution as per the provisions of the Companies Act. Therefore assessment order made in the name of assessee is void. Mere participation by the assessee in such proceedings is of no estoppels against the law, therefore assessment in the name of a company which has been amalgamated with another company and stands dissolved is null an void; assessment in the name of a non existing entity is a jurisdictional defect and not merely a procedural irregularity of the nature which can be cured by invoking the provisions of section 292B.(A.Ys. 2002-03 & 2003-04)
Spice Infotainment Ltd. v. CIT (2012) 65 DTR 391 (Delhi)(High Court)

S. 143(3): Assessment – Validity- Without signature-Assessment order without Assessing officer’s  signature is void.(S. 156, 292B)
The Assessing Officer passed an assessment order under section 143(3) and issued the Income-tax Computation Form (ITNS 150), Demand Notice under section 156 and Penalty Notice under section 271(1)(c). While all the other documents were signed by the Assessing Officer, the assessment order was not. In reply to the assessee’s contention that the assessment order was invalid, the department relied on section 292B and Kalyankumar Ray v. CIT(1991) 191 ITR 634 (SC) and argued that the Act does not require the service of an assessment order and the service of a valid ITNS 150 & demand notice was sufficient. Tribunal held rejecting the department’s plea:
Section 143(3) contemplates that the Assessing Officer shall pass an order of assessment in writing. If the assessment order is signed then because the computation of tax is a ministerial act, ITNS-150 need not be signed by the Assessing Officer. However, if the assessment order is not signed, then the fact that he has signed the tax computation form and the notice of demand is irrelevant. The omission to sign the assessment order cannot be explained by relying on section 292B. If such a course is permitted to be followed than that would amount to delegation of powers conferred on the Assessing Officer by the Act. Delegation of powers of the Assessing Officer under section 143(3) is not the intent and purpose of the Act. An unsigned assessment order is not in substance and effect in conformity with or according to the intent and purpose of the Act (Kilasho Devi Burman(Mrs.) and other v. CIT (1996)219 ITR 214 (SC) followed; Kalyankumar Ray(1991) 191 ITR 634 (SC) explained)
Vijay Corporation v. ITO (Mum.)(Trib.)www.itatonline.org

S. 143(3):Assessment-Revised computation- Deduction on interest- Direction to consider the claim and allow.
Assessee during the course of assessment proceedings filed revised computation of income and claimed additional deduction in respect of payment of interest. Assessing Officer refused to consider the revised claim on the ground that the assessee has not filed the revised return under section 139(5).In appeal Commissioner (Appeals) up held the order of Assessing Officer relying on the Supreme Court decision in Goetze India Ltd. (2006) 284 ITR 323 (SC). Tribunal referring the judgment in Pradeep Kumar Harlakarv.Asstt.CIT (2011) 47 SOT 204(URO)(Mum) (Trib)admitted the claim made by the assessee and restored the matter to the file of Assessing Officer with  the direction to consider the revised computation of income filed by the assessee and decide the issue a fresh.(A.Y. 2006-07)
Rachna S. Talreja v. Dy. CIT 546 (2012)43-B.BCAJ –Feb., 2012P. 26(Mum.)(Trib.)

S. 145:Assessment- Method of  accounting-  Lease-In a finance lease, claim for “lease equalization charge” as per ICAI Guidelines is allowable. [S. 28(i)]
The assessee received lease charges and claimed a reduction towards “lease equalization charges” on the ground that reduction was in accordance with the Guidance Note dated 20.09.1995 issued by the ICAI in respect of Accounting for Leases and the Accounting Standard AS-1 notified under section 145 which mandated that the accounting policy of the assessee should represent a true and fair view. The Assessing Officer &CIT(A) rejected the claim on the ground that it was a “notional charge” and that the accounting guidelines could not override the Act. The Tribunal, however, allowed the claim. On appeal by the department, held dismissing the appeal:
(i) As the method for accounting for lease rentals was based on the Guidance Note “Accounting For Leases” issued by the ICAI, the Assessing Officer was not entitled to disregard the same. The Guidance Note reflects the best practices adopted by accountants the world over and the fact that it was not mandatory is irrelevant. The ICAI is recognized as the body vested with the authority to recommend Accounting Standards for ultimate prescription by the Central Government under section 211(3C) of the Companies Act. Also AS-1 pertaining to Disclosure of Accounting Policies has mandatory status for periods commencing on or after 01.04.1991. The change by the assessee in the policy of accounting for leases had the imprimatur of the ICAI and so the Assessing Officer was not entitled to disregard the books of accounts or the method of accounting for leases;
(ii) The department’s contention that the “lease equalization charge” is a claim in the form of a deduction which cannot be allowed as there is no provision under the Act is based on a complete misappreciation of what constitutes a lease equalization charge. As the transaction was a finance lease, the charge had to be provided as per the ICAI Guidelines. As long as the method employed for accounting of income meets with the rudimentary principles of accountancy, one of which, includes offering only revenue income for tax, no fault can be found with the assessee debiting lease equalization charges in its profit and loss account. This represented the true and fair view of the accounts; a statutory requirement under section 211(2) of the Companies Act, enabled determination of real income.
CIT v. Virtual Soft Systems Ltd. (Delhi)(High Court) www.itatonline.org
Editorial : Virtual Soft Systems Ltd. v. ACIT (2010)38 SOT 412
S. 147:Assessment – Reassessment- Full and true disclosure- Notice after expiry of four years – Valid-Failure to disclose- Exemption – Investment in specified bonds-Reopening is held to be valid. (S.54EC)
Assessee submitted computation of total taxable long term capital gains of Rs. 23.19 crores in its return of income and sought exemption under section 54EC of Rs. 23.24 crores. Assessment was completed under section 143(3).Assessing Officer issued notice under section 148. The assessee challenged the notice in a writ petition. The Court held that Assessee having claimed  exemption under section 54EC without making any reference to the dates on which amounts were invested in the specified bonds either in the return or in the disclosures which were made in response to the query of the Assessing Officer there was no full and proper disclosure of all material facts by the assessee and therefore, Assessing Officer was justified in reopening the assessment beyond the period of four years on the ground that income has escaped assessment.(A.Y. 2004-05)
Indian Hume Pipe Co. Ltd. v. ACIT (2012) 65 DTR 26/246 CTR 31/ 204 Taxman 347 (Bom.)(High Court)

S. 147:Assessment – Reassessment- Full and true disclosure- Notice after expiry of four years- Failure to disclose material facts necessary- Waiver of part of loan-Reassessment held invalid.
Assessee had disclosed the waiver of loans in the notes on account. The Assessing Officer called for details and after satisfying with the explanation the assessment was passed under section 143(3). Thereafter the notice was issued under section 148, read with 147 to reopen the assessment. The assessee challenged the reassessment proceedings. The Court held that there was no failure on the part of assessee to disclosure material facts hence the reassessment after four years held to be invalid.(A.Y. 2004-05)
Kimplas Trenton Fittings Ltd. v.ACIT (2012) 340 ITR 299 (Bom.)(High Court)

S. 147:Assessment – Reassessment-Full and true disclosure-Income forming subject matter of appeal- Reassessment held to be invalid.
The assessee had claimed certain amount as bad debts, which the Assessing officer has allowed partly. In appeal the Commissioner (Appeals) partly allowed the appeal. In the mean time the Assessing Officer issued the notice under section 147 read with 148 on the ground that the assessee had claimed the bad debts, in respect of parties where the income had been exempt under section 10(23G).In a Writ the Court held that Commissioner (Appeals) having partly allowed the assessee’s appeal by  accepting its claim under section 36(1)(vii) and allowing a proportionate exemption under section 10(23G), the exercise of power to reopen the assessment on the grounds relating to write off of bad debts under section 36(1)(vii) is in excess of jurisdiction in view of bar of second proviso to section 147, it could not be said that income had escaped assessment by reason of excessive deduction under section 36(1)(viia) when the Assessing Officer has infact, allowed a deduction to the extent of 7.5% of the business income instead of 7.5% of total income and therefore reopening of assessment on this ground is also not valid.(A.Y. 2003-04)
ICICI Bank Ltd. v. Dy. CIT (2012) 65 DTR 249 /246 CTR 292/ 204 Taxman 65 (Mag.)(Bom.)(High Court)

S. 147:Assessment – Reassessment – Penalty – Writ- Alternative remedy- Held not maintainable .(S. 69B, 271(1)(c), Constitution of India – Article 226)
Assessee did not file objections against reassessment, hence there was no breach of principle of natural justice. Writ is not maintainable as it does not fall within the exceptional categories for invoking extraordinary jurisdiction under Article 226 and the impugned reassessment order as well as penalty order being appealable before the Appellate Authority, the writ was dismissed as not maintainable. (A.Y. 2006-07)
SushilaKanwarChauhan v.UOI (2012) 65 DTR 5 (Raj.)(High Court)

S. 147:Assessment – Reassessment- Not for correction of errors-Not to recomputed the income on same set of facts reassessment was not valid. 
The petitioner had been returning its income from plying oil tankers for several years. The claim towards driver’s expenses was within the knowledge of the assessing officer and also the subject matter of consideration at the stage of original assessment. The finding of the successor–in-office ignoring the findings of the predecessor on the issue and disallowing the expenses in entirety was a case of change of opinion on the same set of facts and could not be permitted. The reassessment was not valid and was liable to be quashed.(A.Y. 2001-02)
Kumar Stores v. CIT (2012) 340 ITR 90 (Patna)(High Court)

S. 147:Assessment – Reassessment-Issues not included in reasons not recorded-Reassessment is  held to be valid. [S. 148(2)]
The Court held that Explanation 3 to sub-section 3 to section 147 of the Act has been inserted by the Finance (No.2) Act, 2009, retrospectively from April 1, 1989, and thus the Assessing Officer is justified in making addition even in respect of those issues which come to his notice subsequently in the course of reassessment proceedings though such issue was not included in the reasons recorded while initiating proceedings under section 147 of the Act.(A.Y. 1998-99)
Balbir Chand Maini v. CIT (2012) 340 ITR 161 (P&H)(High Court)

S. 147:Assessment – Reassessment-After four years held invalid and with in four years held valid –Depreciation and revenue expenditure.
Notice u/s 148 for assessment years 1991-92 and 1992-93 were issued after four years. There was no mention in the recorded reasons that the escapement of chargeable income from tax was due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The notices in respect of the assessment years 1991-92 and 1992-93 was quashed. Reassessment for the Asst. years 1993-94, within four years held to be valid in respect of depreciation and revenue expenditure. (A. Ys. 1991-92, 1992-93 & 1993-94)
Sri Sakthi Textiles Ltd. v. Jt. CIT(2012) 340 ITR 144 (Mad.)(High Court)

S. 147:Assessment – Reassessment – Limitation- After four years but before six years- Clubbing of income- Benamidar-Reassessment is justified.(S. 149)
For different financial years up to 2001-02 the assessee made several payments to Mr. Mitra. For the assessment year1994-95 an amount of Rs. 3,03,345 was made by the assessee to Mr.Mitra. Based on the above information the assessment was reopened. The Court held that as no proper explanation was furnished for payment exceeding three lakhs of Rupees   prima facie escapement of income of income of more than one lakh of Rupees. On merit clubbing of income of third person as benamidar of assessee was justified. (A.Y. 1995-96)
M.R. Associates v.Income-Tax Appellate Tribunal and others (2012) 340 ITR 293 (All)(High Court)

S. 147:Assessment – Reassessment- Dropped the proceedings in respect of income referred in the notice- Assessing the other income not mentioned in the notice is not valid. [S. 148, 152(2)]
Assessment was reopened on the basis of belief that certain income had escaped assessment but in the reassessment order passed under section 147 by the Assessing Officer no addition was made in respect of said income. In respect of other incomes no notice was issued and the assessee had no opportunity to put forward his case under section 152(2) to avail benefit of said section for dropping the proceedings and the revenue cannot take advantage of the Explanation 3 to section 147.(A.Y. 1997-98)
ACIT v. Major Deepak Mehta (2012) 65 DTR 237 / 246 CTR 255 (Chhattisgarh)(High Court).

S. 147:Assessment – Reassessment-292BB – Delay in issue of  notice under section 143(2), notice renders assessment invalid. (S. 292BB)
The Assessing Officer issued a notice under section 148 to reopen the assessment. Though the assessee filed a ROI, the Assessing Officer did not issue the section 143(2) notice within the prescribed period but passed a draft assessment order under section 144C. The Court had to consider (a) what is the effect of the failure to issue notice under section 143(2) within the period stipulated in the proviso to clause (ii) and (b) the effect of section 292BB of the Act. HELD by the Court quashing the assessment proceedings:
(i) The service of notice under section 143(2) within the statutory time limit is mandatory and is not an inconsequential procedural requirement. Omission to issue notice under section 143(2) is not curable and the requirement cannot be dispensed with. Section 143(2) is applicable to proceedings under section 147 & 148. While the Proviso to section 148 protects and grants liberty to the Revenue to serve notice under section 143(2) before passing of the assessment order for returns furnished on or before 1.10.2005, in respect of returns filed pursuant to notice under section 148 after 1.10.2005, it is mandatory to serve notice under section 143(2) within the stipulated time limit (Hotel Blue Moon 321 ITR 362 (SC) referred).
(ii) Section 292BB incorporates the principle of estoppels and stipulates that an assessee who has appeared in any proceeding and co-operated in any enquiry relating to assessment or reassessment shall be deemed to be served with any notice which was required to be served and would be precluded from objecting that the notice was not served upon him or was served upon him in an improper manner or was not served upon him in time. However, the principle of estoppels does not apply if the assessee has raised objection in reply to the notice before completion of assessment or reassessment. As the Assessing Officer had passed a draft assessment order and the assessee had raised an objection before completion of assessment, the estoppel in section 292BB did not apply and the section 147 proceedings could not continue.

Alpine Electronics Asia Pte Ltd. v. DGIT( 2012) 341 ITR 247 (Delhi)(High Court) www.itatonline.org

S. 147:Assessment – Reassessment- Retrospective amendment no basis beyond 4 years held to be invalid  – Assessing Officer not to delay passing objection order direction is given all the  Assessing Officers .
For A. Y. 2005-06, the Assessing Officer passed a section 143(3) order in which he allowed section 80-IA deduction. Thereafter, after the expiry of 4 years, he reopened the assessment under section 147 on the ground that in view of the retrospective amendment to the Explanation to section 80-IA by the Finance (No. 2) Act 2009 w.r.e.f. 1.4.2000, the assessee, being a works contractor, was not eligible for section 80-IA deduction. The Assessing Officer took 6 months to deal with the objections and passed the assessment order within 2 weeks. On a Writ Petition filed by the assessee to challenge the assessment order, held allowing the Petition:
(i) The fact that by virtue of the Explanation to section 80IA added with retrospective effect from 1.4.2000, income derived from the works contract would not qualify for deduction under section 80IA does not mean that an assessment can be reopened beyond 4 years without there being any failure to disclose truly and fully all material facts (Sadbhav Engineering Ltd v.Dy.CIT(2011 )333 ITR 483(Guj.) followed);
(ii) The argument that the assessee failed to disclose the nature of works executed and that the same was executed only as works contractor and not as a developer, cannot be accepted for two reasons. Firstly, the reasons recorded do not refer to such a ground. Secondly, when the assessee filed the return of income, the Explanation in question was not in picture. The assessee cannot be expected to comply with the requirements of such Explanation by making disclosures in this regard which Explanation did not form part of the statute book when he filed his return;
(iii) The Assessing Officers have a tendency to delay disposing of the objections and, thereafter at the fag end of final time limit, to frame the assessment. This tendency is not approved. This was not the intention of the Apex Court when GKN Driveshafts (India) Ltd. v. ITO(2003) 259 ITR 19 (SC) was rendered. This should be brought to the notice of the Assessing Officers by the Department so that such instances do not recur in future.

Doshion Ltd. v. ITO (Guj.)(High Court)www.itatonline.org

S. 147:Assessment – Reassessment- Sanction of Commissioner instead of Jt. CIT renders reopening invalid.
The Assessing Officer issued a notice under section 148 to reopen an assessment. As a section 143(3) order had not been passed & 4 years had elapsed, the Assessing Officer ought to have obtained the sanction of the Joint/Additional CIT under section 151(2). Instead, he routed the file through the Additional CIT and obtained the sanction of the CIT. On appeal by the assessee, the Tribunal struck down the reopening on the ground that correct sanction had not been obtained. On appeal by the department, held upholding the Tribunal:
(i) Section 151(2) requires the sanction to be accorded by the Joint/Additional CIT. The Assessing Officer sought the sanction of the CIT. Though the file was routed through the Addl. CIT, the latter only made an endorsement “CIT may kindly accord sanction”. This showed that the Addl. CIT did not apply his mind or gave any sanction. Instead, he requested the CIT to accord approval. This is not an irregularity curable under section 292B;
(ii) The different authorities specified in section 116 have to exercise their powers in accordance with law. If powers conferred on a particular authority are arrogated by other authority without mandate of law, it will create chaos in the administration of law and hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction of the other authority. If the statute requires a thing to be done in a certain manner it has to be done in that manner alone. Also, the designated authority should apply his independent mind to record his satisfaction and it should not be at the behest of a superior authority.

CIT v. SPL’s Siddhartha Ltd. (Delhi)(High Court)www.itatonline.org

S.147:Assessment – Reassessment-Full and true disclosure- Subsequent decision of Jurisdictional High Court in favour of revenue –Amounts to change of opinion reassessment is invalid.(S. 44BB)
Assessing Officer assessed the income of the assessee under section 44BB, by passing the order under section 143(3), after due application of mind and making necessary enquiry. Reopening of assessment on the basis of subsequent decision of Jurisdictional High Court holding in favour of revenue amounted the change of opinion, hence invalid.(A.Y. 2003-04)
B.J.Services Company Middle East Ltd.& Ors.v. Dy. CIT (2012) 65 DTR 316/ 246 CTR 381 (Uttarakhand)(High Court)

S. 147:Assessment – Reassessment- Time available for issue of notice under section 143(2)- Reassessment is hed to be  bad in law..
Reassessment under section 147 cannot be made within the time available for issuing notice under section 143(2) and for completion of assessment under section 143(3).The Court held that as Madras and Delhi High courts have held that an income escaping assessment under section 147 cannot be completed within the time available for issuing notice under section 143(2) and for completion of assessment under section 143(3) and since these decisions remain unchallenged by the department, the department appeal was dismissed (CITv. TCP Ltd. (2010) 323 ITR 346 (Mad.),CIT v.Qatalys Software technologies Ltd. (2009) 308 ITR 249 (Mad.) and KLM Royal Dutch Air lines v. ADIT (2007) 292 ITR 49 (Delhi) followed.)(A. Ys. 1999-2000, 2000-01, 2002-03 &2003-04).
CIT v. Abad Fisheries (2012) 65 DTR 370/ 204 Taxman 267/ 246 CTR 513 (Ker.)(High Court)

S.147:Assessment – Reassessment- Reason to believe-Absence of any new material- New industrial undertaking-Reassessment is held to be invalid. [S. 80IA(4)(iii)]
Assessing Officer reopened the assessment on the ground that for the relevant assessment year mainly on the ground that the petitioner’s industrial park was not notified by the CBDT till the end of relevant year, therefore deduction under section 80IA(4)(iii) was wrongly claimed and granted.The Court held that the assessment was completed under section 143(3), and there is nothing on the record to point out any new material justifying the issue of notice under section 148, more so the same issue has been examined by the Court in the case of the petitioner itself and the questions have been adjudicated in favour of the petitioner.
Ganesh Housing Corporation Ltd. v. Dy. CIT (2012) 66 DTR 106/ 242 CTR 465 (Guj.)(High Court)

S. 147:Assessment – Reassessment- Change of opinion-Decision based on judgments-Reassment is bad in law..
The Assessing Officer had taken decision in the original assessment by considering the judgments that deductions under section 80HHC and 80IA are to be separately computed. The Tribunal held that, if there is a decision in favour of assessee then the same is to be applied and thus the Assessing Officer has taken one possible view. The Tribunal has held that the concept of ‘change of opinion’ must be treated as an in built test to check the abuse of power. On the facts there is no tangible material with Assessing Officer for the purpose of initiating reassessment, hence the reopening of assessment is bad in law. (A. Y. 2003-04)
ACIT v. Hycron India (2012) 65 DTR 97 / 143 TTJ 226(Jd.)(Trib.)

S. 147:Assessment – Reassessment – Reasons – Irrelevant and non-existing reasons-Reassessment is held invalid.
In the reasons recorded for reopening of assessment the Assessing Officer received information from the Dy. Director of IT (Inv.) and on the basis of a statement of the bank manger, that assessee purchased demand draft in cash but it was found that no such demand draft was issued in favour of assessee. The Tribunal held that the Assessing Officer proceeded for reopening of the assessment on non-existent and factually incorrect reasons and had not applied independent mind and did not verify the information received from the Dy. Director of IT (Inv.),therefore reassessment was invalid and unjustified. (A.Y. 1993-94).
Mahadev Trading Co. v. ITO (2012) 65  DTR 140 / 143 TTJ 492(Ahd.)(Trib.)

S. 147:Assessment – Reassessment-Recording of reasons-After issue of notice- Full and true disclosure- Notice after expiry of four years- Eligible exemption- Reassessment held valid.(S.11,148)
Department representative submitted documentary evidence in the form of internal correspondence to demonstrate that the reasons recorded by the Assessing Officer for reopening the assessment existed prior to the issue of notice under section 148, hence the notice was held to be valid. Assessee mentioned “no” against the “amount eligible for exemption under section 11(1)(d) in the report, in the return it claimed deduction of Rs. 15,83,100 as eligible for exemption under section 11(1)(d), there was failure on the part of the assessee to disclose fully and truly basic facts required for making the assessment and the same constituted valid reason that escaped assessment (A.Y. 1999-2000)
Singhad Technical Educational Society v. ACIT (2012) 143 TTJ 352 (Pune)(Trib.)

S. 147: Assessment- Assessment under section 143(1), cannot be reopening in absence of “new material”.(S. 143(1), 148)
The Assessing Officer has accepted the ROI filed by the assessee under section 143(1). He thereafter issued a notice under section 148 on the ground that the assessee had claimed a deduction for ERP software and that although only 20% of the said expenses was debited to the P&L A/c, the entire amount was claimed as a deduction. The assessee claimed that the reopening was not valid as there was no “new material” in the Assessing Officer’s  possession. Tribunal held upholding the plea:
Though the assessment was originally under section 143(1), it is clearly evident from the recorded reasons that there was no new material coming to the possession of the Assessing Officer on the basis of which the section 143(1) assessment was reopened. In Telco DadajiDhackjee Ltd., v.Dy. CIT (ITA No. 4613/M/2005 dt. 12-5-2010(Mum.)(Trib.)(Unreported), the Third Member held, after considering ACIT v.Rajesh Jhaveri Stock Brokers P.Ltd. (2007) 291 ITR 500 (SC)&CIT v.Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), that a section 143(1) assessment could not be reopened under section 147 without there being any new material coming to the possession of the Assessing Officer. As the Assessing Officer had reopened the section 143(1) assessment on the basis of the material which was already on record, the reopening was not valid.
HV Transmissions Ltd. v. ITO (Mum.)(Trib.)www.itatonline.org

S. 148: Assessment – Reassessment- Notice “issued” within limitation period is valid even if “service” is later. (S. 149)
For A.Y. 1998-99, the Assessing Officer issued a notice under section 148 dated 28.3.2005 (within the limitation period of 6 years). However, as this notice was returned un-served, a second notice dated 17.6.2005 (beyond 6 years) which issued & served. The assessee contended that since the Assessing Officer had issued a second notice, the first one was non-est and as the second notice was issued beyond limitation period, the assessment proceedings were null and void. The CIT(A) upheld the plea. Before the Tribunal, the AM held that there was a difference between “issue” of the notice and its “service” and that the notice dated 28.3.2005 was valid, though not served, and the second notice was invalid and non-est. The JM took a contrary view and held that the first notice was invalid and the second notice having been issued after the limitation period did not give jurisdiction to make the assessment. On a reference to the Third Member, held:
The Act makes a clear distinction between “issue of notice” and “service of notice”. Section 149 which prescribes the period of limitation provides that no notice under section 148 shall be “issued” after the expiry of the limitation period. The “service” of the notice is necessary under section 148 only to make the order of assessment. Once a notice is “issued” within the period of limitation, the Assessing Officer has jurisdiction to make the assessment. A notice is considered to have been “issued” if it is placed in the hands of a person authorized to serve it, and with a bona fide intent to have it served. Service of the notice is not a condition precedent to conferment of jurisdiction on the Assessing Officer but it is a condition precedent to the making of the order of assessment. On facts, as the Assessing Officer had issued the notice within the period of limitation, he had jurisdiction to reopen the assessment (R.K.Upadhyaya  v. Shanabhai P. Patel (1987) 166 ITR 163 (SC) followed).
ITO v. Lal Chand Agarwal (Agra)(TM)(Trib.) www.itatonline.org

S. 151:Assessment –Reassessment – Sanction-Challenge after lapse of eight years-Circumstantial evidence-Not justified.(S. 147, 148)
The Tribunal held that the assessee cannot challenge the issue of notice under section 148 in second round of appeal as regards non–compliance of conditions precedent required by section 151(2) after lapse of more than eight years, more so when the very fact that the assessee did not choose to make such acclaim till the file is transferred from the ITO Ward 17(2) would cast a doubt on the correctness of the claim of assessee.(A.Y.1993-94)
Laxminaryan Agrwal(HUF) v.ITO (2012) 143 TTJ 175 (Mum.)(Trib.)

S. 153A:Assessment- Search and seizure-Special procedure for assessment-Abatement of regular assessment which has became final  is not justified- Departmental appeal was allowed.(S. 132)
Only an assessment or reassessment pending on the date of initiation of search under section 132 or requisition under section 132A shall abate under the second proviso to section 153A. Even if an appeal is pending against a competed assessment before the Tribunal on the date of search, such completed proceedings do not abate. The Court observed that the abatement of any proceedings has serious causes and effect in as much as the abatement of the proceedings takes away all the consequences that arise thereafter. In the present case after deducting bogus gifts in the regular assessment proceedings, the proceedings for penalty were drawn under section 271(1)(c). The material found in the search may be ground for notice and assessment under section 153A, but that would not efface or terminate all the consequences which have arisen out of the regular assessment or reassessment resulting in to the demand or proceedings of penalty. Accordingly the Tribunal erred in law in abating the regular assessment proceedings, which had became final, and restoring them as a consequence of search under section 132 and notice under section 153A to the file of the Assessing Officer. (A.Y. 2002-03)
CIT v. ShailaAgrwal(Smt) (2012) 65 DTR 41/ 246 CTR 266/ 204 Taxman 276 (All)(High Court)

S. 153A:Assessment-Search and seizure-Special procedure for assessment-Abatement of pending assessment- New claim for deduction- Claim  made for first time before Commissioner (Appeals).Commissioner can entertain the claim.(S. 132)
While filing the return in response to notice under section 153A, assessee voluntarily disallowed the interest of Rs. 58.86 which was disallowed in the original assessment, However a note to the return of income was annexed claiming the said interest was allowable. Assessing Officer has accepted the loss as returned by the assessee. In appeal before Commissioner (Appeals), it was contended that the funds available in the hands of the assessee were mixed and there was no question of apportionment of such funds available with assessee. After obtaining the remand report he disallowed the interest of Rs. 10,81,326/- and deleted the remaining amount.In appeal before the Tribunal it was contended that the Commissioner was erred in giving relief to the assessee on the income disclosed by him in the return of income filed under section 153A, ignoring the fact that the Assessing Officer has merely assessed the total income at the returned income. Secondly, in view of Apex Court judgment in Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC), the Commissioner (Appeal) should not have entertained the claim of assessee.Tribunal held that requirement of section 153A is to compute the total income of each such assessment years without any reference to what was done in the original assessment, hence the assessee is entitled to seek relief on any addition which was made in the original assessment. As regards the claim made before the Commissioner (Appeals) following the ratio of National Thermal Power Co Ltd v. CIT (1998)229 ITR 383 (SC), the Tribunal can examine  and entertain the claim provided  facts are exists on record for  examination the claim. Accordingly the Tribunal dismissed the appeal of the revenue. (A.Y. 2001-02)
Dy. CIT v. Eversmile Construction Co. (P) Ltd. (2012) 65 DTR 39/ 143 TTJ 322(Mum.)(Trib.)

S.154:Assessment-Rectification of mistake- Non consideration of Supreme Court decision is a mistake apparent on record and can be rectified.
Assessee suffered the loss from the export of trading goods, which ought to have been adjusted against 90 percent of the export incentive as per the decision of the Supreme Court. High court held that non-consideration of the judgment of the Supreme Court and non-application of the ratio of the judgment of the Supreme Court to the facts of the present case is a glaring,patent and obvious mistake of law which can be rectified under section 154.Accordingly the appeal of revenue was allowed.(A.Y.2002-03)
CIT v. Satish Kumar Agarwal (2012) 66 DTR 68 (Delhi)(High Court)
Editorial:– Refer Circular No. 71 dated 20-12-1971 (1972) 83 ITR (St) 91

S. 158BC: Block assessment- Search and seizure-Undisclosed income – Annulment- Interest is not payable.(S.132, 158BFA)
When the assessment under section 158BC of the Income-tax Act, 1961 itself has been annulled on the ground of a defective notice, interest for delay in filing the return would not be payable under section 158BFA.
CIT v. Micro Nova Pharmaceuticals P. Ltd. (2012) 340 ITR 118 (Karn.)(High Court)

S. 158BC:Assessment- Block assessment-Search and seizure – Undisclosed income-Set off against miscellaneous receipts is entitled to set off- Levy of surcharge subject to the decision of larger bench of supreme court .(S. 132, 158BFA)
The Assessing Officer and the appellate authority held that the assessee was not entitled to set off of the amount as miscellaneous income was shown as income from other sources and not from arrack business the unaccounted sale of arrack and the miscellaneous income shown in the books of account by the assessee. The Tribunal held that the assessee is entitled to setoff. As regards estimate of undisclosed income the Tribunal confirmed the addition. The Court held that as the assessee himself admitted that he had not included the excise duty in the sale price, which was Rs. 2 per ofsuch sale  , the inclusion of the excise duty was unassailable and levy of surcharge and interest was also justified.The Court made it clear that the levy of surcharge shall be subject to the larger bench decision of the Supreme Court in the case of CIT v. Rajiv Bhatara(2009) 310 ITR 105 (SC).
J.P.Narayanaswamy v. Dy.CIT(2012) 340 ITR 193 (Karn.)(High Court)

S. 163:Representative assesses-liability of representative assesses-Non-resident-Agent- Section is not attracted. (S.161)
Once a person comes with in any of clauses of section 163(1), such a person would be ‘agent’ of non-resident for purpose of Act, however, merely because a person is an agent or is to be treated  as an agent, would not lead to an automatic conclusion that he becomes liable to pay taxes on behalf of non–resident. As per section 163(1)(c), income should be deemed to accrue or arise in India and therefore said section is not attracted when there is no transfer of capital asset situated in India.
Vodafone International Holdings B.V. v. UOI (2012)341 ITR 1/ 204 Taxman 408/ 247  CTR 1/66 DTR 265(SC)  

S.194A: Deduction at source – Interest – Damages – Delayed allotment of flats not liable to deduct at source. [S. 2(28A)]
Interest on amount deposited on account of delayed allotment of flats does not fall under section 2(28A),the amount being in nature of damages the assessee is not liable to deduct tax at source.
CIT v. H. P. Housing Board(2012) 340 ITR 388 (HP)(High Court) 

S. 194C:Deduction at source – Contractor – Payments made by school to bus contractors providing pick and drop facility is contract and not rent. (S. 194I)
Payments made by school to bus operators for providing pick and drop facility to school students is not a case of hire of machinery but of service rendered by transport contractor to assessee, therefore section 194C is applicable and not section 194I. (A.Y. 2008-09)
Lotus Valley Educational Society v. ACIT (2012) 13 ITR 61 (Delhi)(Trib.)   

S.194C: Deduction at source- Sub-contractor- Canteen contractors is sub contractor. .
Assessee entering in to contract with another person for carrying out part of work undertaken. Deduction at 1% is proper and order of Commissioner (Appeals) was confirmed. (A.Ys. 2005-06 &2006-07)
Dy.CIT v. Aban Offshore Ltd. (2012) 13 ITR 180 (Chennai)(Trib.)

S.194H : Deduction at source – Commission – Brokerage – In absence of principal-agent relationship, payment, though called “commission”, not covered. (S. 201)
The assessee obtained a bank guarantee and paid ‘bank guarantee commission’. The Assessing Officer &CIT(A) took the view that since the payment was characterized as “commission” it fell within the ambit of section 194H and the assessee ought to have deducted TDS. The assessee was held liable as assessee-in-default under section 201. On appeal by the assessee, held reversing the Assessing Officer and Commissioner (Appeals):
Section 194H defines the expression “commission or brokerage” to include any payment received by a person acting on behalf of another person for services rendered or for any services in the course of buying or selling of goods. Applying the principle of noscitur a sociis & ejusdem generis, the expression “commission” has to take its colour from the expression “brokerage”. As the expression “brokerage”, in common parlance and in law, means ‘fees or commission given to or charged by a broker’, the expression ‘commission’ must be confined to a payment made to agents etc for effecting sales and carrying out business transactions and cannot extend to payments which are for services rendered or products offered on a principal to principal basis. A principal-agent relationship is a sine qua non for invoking the provisions of section 194H. As there is no principal agent relationship between a bank issuing the bank guarantee and the assessee, the payment, though termed “commission”, is not covered by section 194H (SRL Ranbaxy Ltd.vs ACIT (2012) 143 TTJ 265 (Delhi)(Trib.) referred).
Kotak Securities Limited v. Dy. CIT (Mum.)(Trib.)www.itatonline.org.

S. 194I : Deduction at source – Rent- Payment to State Electricity Board-Transmission of electricity- Not liable to deduct at source.
Payments made by assessee, a State Electricity Board, to PGCIL for transmission of power purchased by it from NTPC  was made for the services of transmission of electricity and not for use of transmission wires per se in as much as these  transmission  lines are used  not only for transmission of  electricity to the assessee but also for transmission of electricity to various other entities, and the assessee has no say in the manner in which such transmission lines can be controlled or used by PGCIL and therefore section 194I has no application in respect of impugned payments for transmission of electricity. (A. Ys. 2006-07 to 2009-10)
Chhattisgarh State Electricity Board v. ITO (2012) 65 DTR 1/ 143 TTJ 151(Mum.)(Trib.)

S.194J: Deduction at source- Technical services- Payments made by school to contractors for training students in horse riding- Liable to deduct at source.(S. 194C)
The assessee entered into a contract with Mustang Riding School to provide five horses for Rs. 10,000/- per horse per month along with qualified and experienced instructor to teach the children horse riding. The school deducted the tax at source as per section 194C of the Income-tax Act. The Assessing Officer held that it was fee for professional or technical services to the assessee and therefore,invoked section 194J.  The order was up held by the Commissioner (Appeals) and Tribunal. (A.Y. 2008-09)
Lotus Valley Educational Society v. ACIT (2012) 13 ITR 61 (Delhi)(Trib.)     

S.195:Deduction at source – Commission- Non-resident – Agent-Business connection-Amounts not deductible- Not liable to deduct at source. [S. 40(a)(i)]
Assessee has paid sales commission to its holding company Eon Technology UK. The Court held that, when a non–resident agents operates outside the country, no part of income arises in India, and since payment is remitted directly abroad, and merely because an entry in the books of account is made in India, it does not mean that non-resident has received any payment in India, therefore, assessee is not liable to deduct tax at source hence, no disallowance can be made by applying the provision of section 40(a)(i). (A.Y. 2007-08).     
CIT v. Eon Technology (P) Ltd.(2012) 246 CTR 40 (Delhi)(High Court)
S.195: Deduction at source- Non-resident-Production of mineral oil- Not liable to deduct at source. (S. 40(a)(i), 44AB)
The assessee had during the relevant previous year, paid for offshore drilling services and machinery repairs /rentals varying amounts to M/s. International Tubular F2E and International Off shore Management both of which were non–resident entities. On such payments, the assessee deducted tax at 4 percent considering the, services rendered by the non-residents entities fall under section 44B of the Act. As per assessee only 10 percent, of the receipts could be deemed income and 40 percent of such 10 percent works out 4 percent. However, Assessing Officer was of the opinion that the assessee was required to deduct at 40 percent, on the gross sum paid to such entities under section 195 of the Act. As the assessee failed to deduct the tax at prescribed rate he disallowed the amount under section 40(a)(ia). In appeal Commissioner (Appeals) held that the assessee had taken a bona fide view hence disallowance was not called for. On the facts the assessee had deducted the tax at specified rate on 10 percent, of the bare boat charges paid to Norway company who is non-resident, computed as per the provisions of section 44BB. Therefore, there is no violation of the provisions of section 195, hence no disallowance can be made under section 40(a)(ia) of the Act.(A.Ys. 2005-06, 2006-07)
Dy.CIT v. Aban Offshore Ltd. (2012) 13 ITR 180 (Chennai)(Trib.)

S. 195: Deduction at source-Reimbursement of expenses- Clearing and forwarding agent- Not liable to deduct at source.. (S. 40(a)(ia), 172, 194C)
Reimbursement of payment towards sea freight transport, CCI charges, steam freight charges and REPO container charges made by the assessee to C&F agents who have already made the payment on behalf of the assessee is covered under section 172 and not by section 194C or 195 and the agent having already deducted TDS from the transportation charges and shipping bill before making these payments to the principal which have been reimbursed by the assessee, assessee was not liable to deduct tax at source from such payments and consequently, same could not be disallowed by invoking the provisions of section 40(a)(ia).(A.Y. 2005-06)
ACIT v. Minpro Industries (2012) 65 DTR 113/ 143 TTJ 331 (Jd.)(Trib.)

S. 201 : Deduction at source-Assessee in default-Tax paid by payee- Such vicarious liability can not be invoked.(S. 191)
By the virtue of insertion of Explanation to section 191 w.e.f.1st June 2003, a person can be treated as an assessee in default under section 201(1), only when there is lapse in deduction at source on his part and in addition to this lapse, the recipient of income has also failed to pay such tax directly. The reasons are not difficult to fathom. Proceedings under section 201(1) are not penal proceedings. These are vicarious proceedings to make good the shortfall in tax collection and when the tax liability is duly discharged by the recipient of income embedded in payment, such vicarious liability cannot be invoked. Unlike section 271C, 201(1) is not of penal in nature. (A. Ys. 2006-07 to 2009-10)
Chhattisgarh State Electricity Board v. ITO (2012) 65 DTR 1(Mum.)(Trib.)

S.201 : Deduction at source-Assessee in default – Appeal – Commissioner(Appeals)- Appeal is maintainable. (S. 246A)
The Commissioner (Appeals) held that the Assessing Officer has passed an order levying the interest under section 201 hence the appeal is not maintainable. The Tribunal held that order passed under section 201 is appealable.(A. Ys. 2007-08 to 2009-10)
Canara Bank v. Dy. CIT (TDS)(2012) 134 ITD 1 (Lucknow)(Trib.)

S.201 : Deduction at source-Assessee in default –Salary – Perquisite-Concessional education –Assessee is liable to pay interest- Income–tax Rules, 1962, Rule 3(5). [S. 201(IA)]
While computing the perquisite value of free /concessional education provided by assessee towards its teachers / staff, the cost of education per student exceeds Rs. 1000 per month, entire perquisite value shall be reckoned in the hands of recipient and the assessee deducted  tax at source considering only Rs. 1000 per month per child in determining the such perquisite there occurred a resultant short deduction of tax at source, hence the assessee is liable to be treated as assessee in default under section 201(1) and interest under section 201(IA).(A.Y. 2003-04)
CIT v. Director, Delhi Public School (2012) 66 DTR 149 (P&H)(High Court)

S. 206C:Collection at source – Scrap-Importer and dealer in recycled ferrous and ferrous metals- Not liable to pay tax..
Assessee, an importer and dealer in recycled ferrous and non ferrous metals, was not liable to collect tax at source under section 206C from the sale of said recycled metals to manufacturers and to other traders as the scrap sold is not the scrap as defined in Explanation (b) to section 206C, since scrap sold was neither generated from the manufacture or mechanical working of materials. The scrap was neither sold nor usable as such. In view of the matter Commissioner (Appeals), was not justified in upholding the orders under sections 206(6) / 206(7) passed by the Assessing Officer directing the assessee to pay the tax.(A.Ys. 2009-10 2010& 2011).
Nathulal P. Lavti v. ITO (2012 65  DTR 133/ 133 TTJ 509 (Rajkot)(Trib.)

S. 220: Collection and recovery-Assessee deemed in default- Stay- Stay has to be granted when assessed income is more than 47 times of income declared.
Income assessed by the Assessing Officer was 47 times of income declared by assessee. Therefore instruction No. 95 dated 21st August, 1969 holds the field. Therefore assessee cannot be treated as assessee in default. (A.Y. 2008-09)
Maheswari Agro Industries v. UOI (2012) 246 CTR 113/ 65 DTR 129 (Raj.)(High Court)

S. 226:Collection and recovery of tax-Garnishee proceedings – Attachment- Search and seizure- Fixed deposit of third parties attachment is held to be not valid. (S. 132, 222, 281B, Art. 226)
Assessee was searched and articles were seized. Articles were released on bank guarantee on basis of fixed deposits receipts of third parties. Department issued garnishee proceedings against bank and attached the fixed deposits under section 226(3).Department passed the provisional attachment under section 281B.Department invoking the bank guarantee en cashed the fixed deposit. Assessee challenged the order by way of Writ, the Court held that the encashment of the fixed deposit was unjustified. The Court held that the fixed deposits not belonging to assessee hence attachment of fixed deposit receipts were not valid.
Gopal Das Khandewal and others v. UOI (2012) 340 ITR 235 (All)(High Court)

S. 234A:Interest-Adavnce tax-Search and seizure- Cash seized from third party-Tribunal directed the Assessing Officer to adjust the cash seized against advance tax liability..(S.132, 234B, 234C)
A search and seizure was carried out at the premises of the assessee and cash was seized. Assessee requested that the seized cash be treated as advance tax paid and adjust it against cash liability. However the Assessing Officer has not adjusted the cash seized. The Tribunal held that the cash seized from third party was found to be the cash of the assessee and this fact was not disputed. Therefore the cash seized from the third party or the cash seized from the assessee would retain the same character and did not affect processing of such seized cash. Accordingly the Tribunal directed the Assessing Officer to adjust the seized cash against advance tax liability from the date of seizure itself.(A.Y. 2008-09)
Ram S.Sarda v. Dy. CIT (2012) 13 ITR 457 (Rajkot)(Trib.)

S. 234B: Interest-Advance tax – Assessment-Reassessment-Interet is payable from orginal order of assessment. (S. 143(3), 147)
Original order of assessment was dated 24-6-1991 and order of reassessment was on 28-1-1994. The interest under section 234B was payable from original order of assessment.
Vijay Kumar Saboo (HUF) and another v. ACIT (2012) 340 ITR 382 (Karn.) (High Court)

S. 234D:Interest – Refund-Regular assessment- Date on which the regular assessment order has been passed.
The Court held that since the regular assessment had been completed on March 30, 2004 and section 234D came in to operation on and from June 1, 2003, which was prior to the completion of the regular assessment, the assessee was liable to pay interest on the excess refund amount received as contemplated under section 234D of the Act. It is not the year of assessment that falls for consideration in such circumstances, but the date on which the regular assessment order has been passed. (A.Y. 2001-02)
CITv. Infrastructure Development Finance Co. Ltd. (2012) 340 ITR 580 (Mad.)(High Court)

S.245R: Advance rulings – International transaction-Pendency of proceedings-Application is not maintainable.(S. 44BBB, 195)
The applicant is a public sector company. It has entered in to an offshore services contract with Atomstroy Export Russia(ASE) for setting up a power plant in the State of Tamil Nadu. According to the applicant, the income from such contracts is taxable under section 44BBB of the Act. It had entered in to four contracts with ASE. The applicant stated that it was assessed to tax for the years 2006-07 and 2007-08 pursuant to the directions of the Dispute Resolution Panel and it was held that payments received by ASE, under off shore services are covered by section 44BBB. The applicant approached the Authority for a ruling on the question “whether ASE is chargeable to tax as per the Act or under the Double Avoidance Convention between India and Russia in respect of the payment made by NPCIL to ASE under off shore supply contracts”. The Authority held that since the question whether the payment made under the transaction was chargeable to tax under the Act was pending before the authorities under the Act arising out of an assessment against, before the applicant approached the Authority seeking ruling to know its Tax deducted at source obligations, hence the application is barred by clause (i) of the proviso to section 245R(2).
Nuclear Power Corporation of India Ltd. (2012) 65 DTR 99/ 246 CTR 165/ 204 Taxman 181 (AAR)

S.245R: Advance rulings – International transaction-Pendency of proceedings- Deduction at source- Application is not maintainable.(S. 40(a)(i), 195)
When the issue is pending in appeal, application for Advance Ruling is not maintainable. On facts it was found that the decision of Assessing Officer whether tax to be deducted on payment to non-resident was challenged before the Authorities and was pending hence the Authority held that application is not maintainable.
Foster Pte. Ltd. (2012) 340 ITR 246 (AAR)

S. 245R: Advance rulings-International transaction-Pendency of proceedings- Rectification of mistake- Dismissed the application. (S. 245Q)
Application of the assessee was not admitted on the ground that return filed by assessee and therefore matter pending before Assessing Officer. Assessee filed the rectification application based on certain observation in the hand book published by the Authority for Advance Rulings. The Authority for Advance Rulings held that Hand Book cannot control the rendering a decision with reference to the relevant provisions. It also clarified that the Hand Book referred the situation where a notice is issued calling upon the applicant to file a return. It does not deal with a situation where a return has been filed with in time allowed under section 139(1). Accordingly the Authority has not entertained the application for rectification of mistake and dismissed the application.
SepcoIII Electronic Power Construction (No. 2) (2012) 340 ITR 231 (AAR)

S.246A: Appeal – Commissioner (Appeals) –Maintainability – Merger – Revision is not maintainable. (S. 264)
Once the assessee approaches under section 264 and order is passed, the assessment order merges with the order of revision, hence the assessee cannot file an appeal before the Commissioner (Appeals) under section 246A, as the appeal filed after rejection of petition under section 264 is not maintainable.(A.Y.2006-07)
Orissa Rural Housing Development Corporation Ltd. v. ACIT (2012) 66 DTR 73/247 CTR 137 (Orissa)(High Court)

S. 246A:Appeal- Commissioner (Appeals) – Deduction at source – Interest-Assessee in default- Appeal is maintainable.(S. 201)
The Commissioner (Appeals) held that the Assessing Officer has passed an order levying the interest under section 201 hence the appeal is not maintainable. The Tribunal held that order passed under section 201 is appealable. (A. Ys. 2007-08 to 2009-10)
Canara Bank v. Dy. CIT (TDS) (2012) 134 ITD 1 (Lucknow)(Trib.)

S. 250:Appeal- Commissioner (Appeals)-Additional evidence- CBDT   circular can not be treated as additional evidence. (Income–tax Rules, 1962- Rule 46A)
Circular issued by CBDT cannot be termed as an additional evidence in appeal and, therefore, it cannot be said that Commissioner (Appeals) was not justified in admitting circular No. 723, dt.19thSeptember, 1995 and considering the same without affording opportunity of hearing to the Assessing Officer.(A.Y. 2005-06)
ACIT v. Minpro Industries (2012) 65 DTR 113/ 143 TTJ 331 (Jd.)(Trib.)

S. 251: Appeal- Commissioner (Appeals) – Stay – Power – Recovery-Commissioner (Appeals) has the power to stay the recovery. (S. 220)
Commissioner (Appeals) have inherent implied and ancillary powers to grant stay against recovery of disputed demand of tax while the appeal filed before them under section 246 or 246A is pending. The Court observed that all the first appellate authority in cases of other appellant assessee with in State of Rajasthan also would entertain stay applications filed before them during the pendency of appeals and would decide the same on their own merits in future. (A.Y. 2008-09)
Maheswari Agro Industries v. UOI (2012) 246 CTR 113/ 65 DTR 129 (Raj.) (High Court)

S. 251: Appeal – Commissioner (Appeals)-Additional ground- Raised first time before Commissioner (Appeals)- Additional ground admitted.
Assessee did not claim deduction under section 80C in the return but took up the claim by way of a letter without revising the return. Assessing Officer disallowed the claim. On appeal Commissioner (Appeals) also did not allow the claim. The Tribunal held that the Appellate Authority still has the power to entertain the claim, accordingly the order of Commissioner was set aside and matter remitted to the file of the Assessing Officer, with a direction to consider the claim. (A.Y. 2006-07)
Pradeep Kumar Harlaka v. ACIT (2012) 65 DTR 157 / 143 TTJ 446(Mum.)(Trib.)

S. 254: Appellate Tribunal-Binding – Precedent – Contempt-Tribunal’s order is binding and failure to follow it is ‘Contempt of Court’.
Though the Tribunal in the assessee’s own case held that exemption under section 11 was available and the facts were identical, the CIT(A), for a subsequent year, declined to follow it inter alia on the ground that the DR had not advanced arguments before the Tribunal in a ‘comprehensive and effective manner’. The assessee filed an appeal demanding exemplary costs under section 254(2B). Held by the Tribunal after a comprehensive review of the law on the subject:
It is well settled that the Tribunal is exercising judicial functions and has all powers of a Court. The proceeding before the Tribunal are deemed to be judicial proceedings. It appears to be the impression/ misunderstanding of some tax officials that the orders of the ITAT interpreting the law cannot be binding as it is a fact finding authority. However, this is not correct because the decision of a higher authority in the judicial hierarchy is binding on all the lower authorities below the line. Hence, the Assessing Officer and Commissioner(Appeals) are bound by the decision rendered by the jurisdictional Tribunal. Refusal to follow the order of the ITAT would render that authority guilty of committing contempt of Tribunal for which the concerned authority is liable to be proceeded against. If the decision of the Tribunal is found to be unacceptable to the authorities below, the right course to follow is to carry the matter in appeal to the High Court and to seek suspension of the operation of the order of the Tribunal. A person occupying the chair of CIT(A) is expected to be aware of judicial discipline and the binding nature of the Tribunal’s order. To avoid harassment to the assessee and unpleasant circumstances, the CBDT should take appropriate steps to enlighten all officials to ensure that judicial discipline is maintained. Costs under section 254(2B) can be granted only if frivolous appeals are filed and not in a case like this. However, the assessee is free to take proper steps for initiating contempt proceeding against the CIT(A) (Ajay Gandhi and another v. B. Singh and others (2004) 265 ITR 451 (SC), ITAT v. V.K.Agarwal and another (1999) 235 ITR 175 (SC) &Agarwal Warehousing and Leasing Ltd. v.CIT (2002) 257 ITR 235 (MP) followed)
Cargo Handling Private Workers Pool v. Dy. CIT (Vishakhapatanam) (Trib.)www.itatonline.org

S. 254(2) : Appellate Tribunal- Mistake apparent on record- Bad debts- Appeal High Court – Writ is mainatinable. (S. 36(1)(vii), 260A, Article 226)
Decision of Appellate Tribunal disallowing for bad debts disregarding the legal position as settled by the Supreme Court and the amendment in law w.e.f. 1st April, 1989 there is an apparent mistake in the order of Tribunal and therefore, Tribunal was not justified in rejecting the miscellaneous application filed by the assessee and not rectifying the said mistake. No appeal lies before the High Court under section 260A against the order passed under section 254(2) and therefore writ petition filed by the assessee against the order of Tribunal rejecting the miscellaneous application cannot be dismissed on the ground that the assessee has alternative remedy by way of appeal under section 260A.(A.Y. 1999-2000)
Madhav Marbles & Granites v. Income-tax Appellate Tribunal (2012) 65 DTR 217/ 246 CTR 243 (Raj.)(High Court)

S. 260A: Appeal to High Court- Order of Appellate Tribunal- Mistake apparent  on record – Writ-Appeal is not maintainable.. (S. 254(2), Article 226)
No appeal lies before the High Court under section 260A against the order passed under section 254(2) and therefore writ petition filed by the assessee against the order of Tribunal rejecting the miscellaneous application cannot be dismissed on the ground that the assessee has alternative remedy by way of appeal under section 260A.(A.Y. 1999-2000)
Madhav Marbles & Granites v. Income-tax Appellate Tribunal (2012) 65 DTR 217/ 246 CTR 243 (Raj.)(High Court)

S. 263:Revision of orders prejudicial to revenue-Dropping penalty proceedings-Revsion is justified.
Commissioner under section 263, can revise the order passed by the Assessing Officer dropping penalty proceedings. The word “proceedings” under section 263 is broad enough to include dropping penalty proceedings.(A.Y. 2004-05)
R.A. Himmatsingka and Co. v. CIT (2012) 340 ITR 253 (Patna)(High Court)

S. 263:Revision of orders prejudicial to revenue – Deduction-Export of mica products- Mineral ore-Revision is justified.. (S. 80HHC)
Assessee exported the goods which are made by converting mica into pieces of specific sizes and the same lost its character as goods and merchandise of the category namely ‘mineral ores’ hence claimed the deduction under section 80HHC, which was allowed by the Assessing Officer. The Commissioner revised the order under section 263 on the ground that Assessing Officer gave the benefit of section 80HHC notwithstanding the fact that the legislature had excluded the operation of section 80HHC in respect of goods and merchandise of mineral items processed by the assessee. High Court up held the revision order passed by the Commissioner.(A.Y.1990-91)
Jai Mica Supply Co. (P) Ltd. v. CIT (2012) 246 CTR 280 (Cal.)(High Court)

S. 263: Revision of orders prejudicial to revenue – Depreciation – Plant- Terminal building– Revision is not justified. (S.32)
Airports Authority of India uses the terminal building for regulation of air traffic and communicational and Navigational control and use of said building for passengers was only incidental, therefore, Assessing Officer was justified in treating entire terminal building as ‘plant’ and allowing depreciation, hence revision under section 263 may not be justified.(A.Ys. 1995-96 and 1997-98 to 2001-02)
Airports Authority of India v. CIT (2012) 134 ITD 34 (Delhi)(Trib.)

S.263: Revision of orders prejudicial to revenue – Capital gains-Business income – Investment in shares-Revision order is not justified.. (S. 28(i), 45)
If an Assessing Officer acting in accordance with law makes certain assessment, same cannot be branded as erroneous by Commissioner simply because he disagrees with view of Assessing Officer or according to him order should have been written more elaborately. Section 263 does not visualize a case of substitution of judgment of Commissioner for that of Assessing Officer, unless the decision is held to be erroneous. Assessee was holding equity shares of various companies as investment, income arising from sale of investment would be assessable as long term/short term capital gains and not as business income. Revision order under section 263 was not justified. (A.Y. 2006-07)
Manish Kumar v. CIT (2012) 134 ITD 27 (Indore)(Trib.)   

S. 263: Revision of orders prejudicial to revenue-Computation deduction under section 80HHF- Adjustment of brought forward losses-Legal position to be seen when exercising the revision jurisdiction and not when the Assessing Officer passed the order-Revision held to be valid..
Assessing Officer allowed the deduction under section 80HHF, before setting off the losses of brought forward from earlier years. Commissioner passed the order under section 263 revising the order. On appeal to the Tribunal the Tribunal held that for the purpose of examining the validity of revision proceedings, what one needs to examine the legal position prevailing as on the time when revision powers are exercised by the commissioner and not when the Assessing Officer passed the order at the point of time. Accordingly revision order held to be valid. (A.Y. 2003-04)
Star India Ltd. v. Addl. CIT (2012) 65 DTR 169/ 143 TTJ 307 (Mum.)(Trib.)
S. 263: Revision of orders prejudicial to revenue- Transfer pricing-Computation –Arm’s length price- Revision order held to be invalid.(S. 92C)
Assessing Officer has completed the assessment of assessee by accepting export sales made by it. Commissioner passed the revision order on the ground that assessee had entered into international transaction as it had made export sales and the Assessing Officer has passed the order without referring the matter to TPO for determination of ALP. Tribunal held that no part of total export turnover related to any sales made by to any associated concern and more over no evidence had been brought on record by Commissioner to effect that international transactions by way of mutual agreement /arrangement with associated enterprises. As the provision of section 92C itself is not applicable the order cannot be held to erroneous. Tribunal also held that the order may be brief or cryptic but that by itself is not sufficient to brand assessment order as erroneous or prejudicial to interest of revenue. As regards the cash credits the Assessing Officer had made proper enquiries, deputed the inspector, who examined the return of lenders, bank statement, etc. hence the order of revision was not proper. The Tribunal quashed the order and decided the issue in favour of assessee.(A.Y.2004-05)
Maithan International v. ACIT (2012) 134 ITD 393 (Kol.)(Trib.)
S.263 : Revision of orders prejudicial to revenue-   Depreciation- Air Craft- – Revision is not justified is  entitled depreciation at 40%. (S. 32)
Air Craft owned by assessee not Aeroplane, hence entitled to depreciation at 40%. All air crafts whether lighter–than–air or heavier–than-air were “aircrafts”. No aircrafts could ever be termed as an “aero engine” because an “aero engine” was not an aircraft or aeroplane at all. It was only power unit of an aircraft. The Tribunal set aside the revision order of Commissioner on merit and held that depreciation is allowable at 40%.(A.Y. 2005-06 to 2007-08)
SRC Aviation P.Ltd. v. Dy. CIT (2012) 13 ITR 600 (Delhi)(Trib.)
 
S. 269UA: Purchase of immoveable property by Central Government – Under statementof consideration- Failure to apply mind – Conflicting finding of authority- Preemptive purchase was not valid.
While passing the order for preemptive purchase of property the authorities have not taken into consideration market value of property, there was conflicting finding by Authorities, hence, the pre-emptive purchase was held to be not sustainable and the property revests in transferors.
PandharinathBhikajiTelge and others v. Appropriate Authority and others (2012) 340 ITR 420 / 66 DTR 42 (Bom.)(High Court)

S. 271(1)(c): Penalty – Concealment-Annual value of leased property-Notional income-Levy of penalty is upheld.
Assessee has leased the property to a Bank for a sum of Rs. 1 lakh per annum as per lease agreement. The assessee has also received interest free deposit of Rs. 67 crores. In the course of assessment proceedings the assessee filed the valuation report of an approved valuer who estimated the annual letting value of total constructed area leased at Rs. 75,63,360/-, as per section 23(1)(a).The penalty levied by the Assessing officer was confirmed by the Tribunal. On further appeal to the High Court, the Court held that the assessee has diverted the interest free amount to its sister concerns without any interest. The court held that the explanation of assessee was not bonafide hence Explanation 1 to section 271(1)(c)of the Act would fully applicable and the Assessing Officer was justified in levying the penalty.(A.Y. 2006-07)
PSB Industries India (P) Ltd. v. CIT (2012) 65 DTR 400 (Delhi)(Court)

S. 271(1)(c):Penalty –Concealment-Untenable claim of bad debt-Write off of the share application money advanced to another company – Converting into interest bearing loan-Penalty is justified.
Assessee has deposited an amount of Rs. 50 lacs with Dimension Investments and Securities Ltd. as share application money, however no shares were allotted to the assessee and therefore the assessee chose to exercise the option of converting the share application money into loan bearing interest at 22% compounded quarterly. The assessee wrote off the amount as bad debt. The Court observed that no interest on said advances had been offered and assessed to tax in any earlier years and that in fact no interest was charged and claim which was ultimately disallowed by the High Court, it is a case where the assessee failed to particulars, furnished in accurate particulars of income and there was lack of bona fide on the part of assessee, therefore, penalty was sustainable. (A.Y. 2000-01)
Kanchenjunga Advertising (P) Ltd. v. CIT (2012) 66 DTR 137/ 246 DTR 409 (Delhi)(High Court)   

S. 271(1)(c): Penalty – Concealment – Deduction – Export- Amendment in law – Manufacturing-Levy of penalty is not justified. (S. 80HHHC, 80IB)
Assessing Officer disallowed the claim of deduction under section 80HHC, on export incentive by applying the provisions inserted by the Taxation Laws (Amendment) Act, 2005, which did not exist at the time of filing of the return, assessee cannot be said to have furnished in accurate particulars of income and levy of penalty was not justified. Assessee also disclosed the complete particulars regarding the claim under section 80IB, in its return which was accompanied by audit report, penalty under section 271(1)(c) cannot be levied as the disallowance of claim being debatable. (A. Ys. 2002-03 and 2004-05).
ACIT v. Perfect Forgings (2012) 143 TTJ 117 (Chd.)(Trib.)

S. 271(1)(c):Penalty – Concealment – Additional-Depreciation-Penalty  is deleted.
Assets installed and put to use in second half of year, depreciation claimed at 50 percentage of rate allowable in that year, balance of depreciation allowable in next year. Additional depreciation was disallowed. Levy of penalty was not justified.(A. Ys. 2004-05, 2005-06, 2006-07)
Dy. CIT  v. Cosmo Films Ltd. (2012) 13 ITR 340 (Delhi)(Trib.)

S. 271(1)(c):Penalty – Concealment- Opinion of Chartered Accountant- Bonafide claim- Chartered Accountant’s opinion does not necessarily make claim “bona fide”.-Penalty is confirmed.
The assessee obtained the opinion of a Chartered Accountant on whether expenditure on fees to the Registrar of Companies for increasing authorized capital can be claimed as revenue expenditure. The CA relied on judicial precedents and opined that the issue was debatable and a claim could be made on the basis that if two views were possible, the view in favour of the assessee should be taken. The assessee claimed deduction and even the tax auditor did not qualify the same. The Assessing Officer relying on Punjab State Industrial Development Corp. 225 ITR 792 (SC) &Brooke Bond 225 ITR 798 (SC) disallowed the claim and levied section 271(1)(c) penalty which was upheld by the CIT(A). Before the Tribunal, the assessee pleaded that as it had relied on the opinion of an expert in making the claim, its action was bona fide & penalty could not be levied. HELD dismissing the appeal:
In view of the two decisions of the Supreme Court which held the field when the return was filed, the claim was patently disallowable. The claim was also not discernible on the face of the record and the details of expenses had to be gone into in order to decipher the claim. The argument that the assessee does not have expertise in taxation matters and so it relied on expert opinion is not acceptable because the opinion was furnished for accounting purposes. An accountant’s view is not really material for deciding the deductibility or otherwise of an expenditure. The assessee knew about the problem at the time of filing of return, but still made the claim. Not only this, the claim was pursued even up to the level of the CIT(A) in gross disregard for the decision of the Supreme Court, which the assessee came to know at least after receiving the assessment order. Therefore, the claim was not only wrong but also false and it was persisted with for some time. The fact that the assessee did not even seek explanation from the tax auditor or the CA gave the impression that the whole thing was a sham.

Chadha Sugars Pvt. Ltd. v. ACIT (Delhi)(Trib.) www.itatonline .org

S. 271(1)(c):Penalty – Concealment- Search – Despite surrender after detection- Penalty is deleted. (S. 153A)
Pursuant to a search & section 153A assessment on the basis of seized papers, statements, etc; the assessee offered additional income of Rs. 2.68 crores on the basis that he was unable to explain the old records. Some of the other additions made by the Assessing Officer were partly deleted by the CIT(A) & Tribunal. The Assessing Officer &CIT(A) levied section 271(1)(c) penalty on the ground that the assessee’s offer of additional income was not voluntary or bona fide. On appeal by the assessee to the Tribunal, HELD allowing the appeal:
Though the assessee owned the unaccounted transactions only after search action, when an assessee admits his mistake and that he has committed a wrong and offers the additional income to tax, it cannot be said that his statement is false or not bona fide. Neither the CIT(A) nor the Tribunal were completely clear about the exact amount of concealment and there was no conclusive evidence as some additions had been deleted. Section 271(1)(c) gives discretion to the Assessing Officer to exonerate the assessee from levy of penalty even in case where the assessee has concealed the income or furnished incorrect particulars of income. Penalty should not be imposed merely because it is lawful to do so. The Assessing Officer has to exercise his discretion judiciously. If an assessee files a revised return though at a later stage or discloses true income, penalty need not be levied. No doubt, merely offering additional income will not automatically protect the assessee from levy of penalty but in a given case where the assessee came forward with additional income though after detection because he was not in a position to explain the seized material properly and expresses remorse in his conduct un-hesitantly, the Assessing Officer has to exercise the discretion in favour of such assessee as otherwise the expression ‘may’ in section 271(1)(c) becomes redundant. In a case of admitted income, concealment penalty is not automatic. The discretion vested in the Assessing Officer should be used not to levy penalty. On facts, the case was most befitting to exercise such discretion because there was divergent opinion while deleting or sustaining the addition and there was no conclusive proof that the assessee concealed income or furnished inaccurate particulars of income. The assessee’s offer was to avoid litigation. If the Assessing Officer had clinching evidence of concealment, he should not have accepted the assessee’s offer and should have proceeded on the basis of material on record (VIP Industries 112 TTJ 289, Siddharth Enterprises 184 TM 460 (P&H) &Reliance Petro Products 322 ITR 158 (SC) followed).

P. V. Ramana Reddy v. ITO (Hyd.)(Trib.)www.itatonline.org

S. 271(1)(c):Penalty – Concealment – Survey- Search and Seizure- Disclosure of income- Explanation 4 & 5-Penalty is  deleted. (S. 153C)
Assessee had surrendered a sum of Rs. 1.60 crores during the course of survey/ search and seizure operation. Assessee on its own, furnished its return of income before the issuance of the notice under section 153C where in it had declared additional income of Rs. 1.60 crores, the Tribunal held that levy of penalty was rightly deleted by the Commissioner (Appeals).(A.Y. 2005-06)
ACIT v. Jupiter Distillery (2012) 66 DTR 121 (Ahd.)(Trib)

S. 282: Service of notice- Search and seizure- Service of notice is held valid-Block assessment- Validity (S. 132, 143(2), 158BC)
Notice dated 17th October,1997 was served by hand and has been received and bears signature /initials but the name of the recipient is not stated/ mentioned. By notice under section 143(2) dated 24thOctober 1997, the Assessing Officer had required the assessee to furnish details as per questionnaire attached. The assessee by letter dated 17thNovember 1997 filed various details. There was no allegation that the appellant was not served with the notice under section 158B dated 17thOctober 1997. The Court held that section 282 provides that notice may be served on a person either by post or as if summons were issued by a Court under the CPC Order V of the CPC prescribes the mode,procedure and the manner of service of notices. The object and purpose of service of notice/ summons is to inform and initiate the addressee about the proceedings and the date of hearing. If the notice is served or received by the party concerned and this is established, then the manner and mode of service is not relevant. On the facts it was established that notice under section 158BC was served on a person who had represented the assessee and only on that basis reply to notice under section 143(2) was filed, assessee cannot claim non-service of notice under section 158BC and cannot challenge the assessment as in valid.
Venad Properties (P) Ltd. v. CIT (2012) 65 DTR 258 (Delhi)(High Court)

S. 288 : Authorised representative- Appellate Tribunal- Members of Ex-ITAT members – As interim measure – Ex-ITAT Members permitted to practice before Benches where they were not posted-Advocates Act, 1961 S. 30.(S. 254)
Rule 13E of the Income Tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963 notified on June 3, 2009 imposes a ban on the practice by retired members before the Income-tax Appellate Tribunal. The Petitioner, a retired member of the Tribunal, filed a writ petition to challenge the said Rule as being ultra vires the provisions of section 288 of the Act and section 30 of Advocates Act 1961. Held by the High Court granting interim relief:
Though, prima facie, the Rule appears to be a correct notification supposedly issued in public interest in line with the rules and practice clamping ban on the legal practice by the retired judges of High Court in the courts where they remain posted as permanent judge and the Tribunals and Courts subordinate to High Court, however, it appears to be offensive in two respects; namely, that the retired members have been completely barred from practice before the Tribunal, and secondly, that the aforesaid Rule 13E has been interpreted to apply retrospectively in the judgment rendered in the case of Concept Creations v. ACIT(2009 120 ITD 19 (Delhi)(Special Bench) by the Income-tax Appellate Tribunal, Delhi, beyond its pale of competence as it has the jurisdiction to decide only the matters relating to tax appeals as contained in the Income-tax Act vide Sections 253 and 254 thereof.
Hence, issue notice to opposite party No.3 to show cause as to under what jurisdiction and authority, the Tribunal has interpreted Rule 13E as aforesaid in the judgment passed in the case of Concept Creations(supra) to the disadvantage of the retired members by imposing a complete ban on the practice before the Tribunal.
The petitioner may serve this notice dasti as well.
Till the next date of hearing, operation of the impugned Rule 13E as well as the judgment in the case of Concept Creations shall remain stayed in so far as they impose a complete ban on the practice by retired members before the Tribunal.
Thus, it would be open for the retired members to practice before the Benches of Tribunal where they had not remained posted and held Courts temporarily or on regular basis.

Dinesh Chandra Agarwal v. UOI (All)(High Court) www.itatonline.org

Interpretation of statute-Income-tax Act, 1961 – National Housing Bank Act, 1987- Overriding effect.
The NHB Act 1987 was enacted to promote housing finance institutions both at local and regional levels to provide financial and other support to such institutions. There is no provision under the said Act which says that NHB Act will have overriding effect of Income-tax Act, 1961. Since the Assessment orders are passed under the Income-tax Act, the provisions of Income-tax Act is applicable and NHB Act 1987 does not override the Income–tax Act, 1961.
Orissa Rural Housing Development Corporation Ltd. v. ACIT (2012) 66 DTR 73/ 247  CTR 137 (Orissa)(High Court)

Interpretation of statute – Precedent- Per incuriam-Ignorance of earlier decision.
A decision which is rendered in ignorance of an earlier decision of a co-ordinate Bench of equal strength “which covered the case before it” does not have precedent value.The Tribunal followed the ratio of Punjab Land Development & Reclamation Corpn. Ltd. v. Presiding Officer, LabourCourt (1990) 3 SCC 682 and CIT v. B.R. Constructions (1993) 202 ITR 222 (AP)(FB)
ACIT v. Pramod H.Lele (2012) 66 ITR 134 (Mum.)(Trib.)
Interpretation of taxing statute- Tax avoidance and tax plnanning.
The honourable court in Vodafone International Holdings B.V. v.UOI has once again the approved that  tax palnning is permissible and not tax evasion. At para 116 observed as under “ A five Judges Bench judgment of this court in Mathuram Agrwal v. State of Madya Pradesh (1999) 8 SCC 667 after referring to the judgment of in CIT v. B.M. Kharwar(1969) 1  SCC 651(supra) as well as the opinion expressed by Lord Roskill on Duke of westminister stated  that the subject is not to be taxed by inference or analogy , but only by the plain words of a statute applicable to the facts  and circumstances of each case.
117. Revenue can not tax a subject without a statute to support and in the course we also acknowledge that every tax payer is entitled to arrange his affiras so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. Revenue’s stand that the ratio laid down in Macdowell is contrary to what  has been laid down in Azadi Bachao Andolan , in our view , is unsustainable and therefore , calls for no reconsideration by a larger Branch(Bench)

Vodafone International Holdings B.V.v.UOI ( 2012) 341 ITR 1/ 204 Taxman 408/ 247 CTR 1/ 66 DTR 265 (SC).          
AdvocatesAct,1961-Professional misconduct- Professional ethics and morality.(S.35 of the Advocates Act , 1961)
It is not only undesirable but highly unethical on part of appellant to have created title or at least having attempted to create title to him in respect of which litigation was pending in Court and he was representing one of parties in that litigation. The Court also observed that settlement with complainant would not mitigate or wipe out professional misconduct and must not prevent adequate punishment to appellant. The Court held that a person practicing law has an obligation to maintain probity and high standard of professional ethics and morality. On the facts the advocates certificate of practice was suspended for three months.
Dhanraj Singh Choudhry v. NathulalVishwakarma (2012) 204 Taxman 124 (SC)

Referencer to Articles.
S. 4: Income- The concept of real income in income taxation by RamuKrishnamurthi (2012) 246 CTR (Articles) 67

S. 10(23C)(vi):Conditions precedent for exemption under section 10(23C)(vi)  of the Income-tax Act, 1961- By M.Govindrajan  (2012) 204 Taxman 33 (Mag.)

S. 14A: Business expenditure- Delhi High Court’s Elucidation of section 14A of the Income-tax Act, 1961 by T.N.Pandey (2012) 246 CTR (Articles) 57

S. 37(1): Business expenditure – Loopholes in section 37(1), Explanation 1 Exposed By MinuAgarwal (2012) 246 CTR (Articles) 53.

S. 50 : Set–off brought forward business losses against capital gains under section 50 By PradipKapasi&GautamNayak 437(2012) 43-B BCAJ –January -2012 P. 49

S. 54F : Deduction under section 54F of the Income-tax Act, 1961- By AmitAgarwal and PankajArora(2012) 204 Taxman 38 (Mag.)

S. 80I(2)(iv): Eligibility on contractual workers for inclusion in number of workers by PradipKapasi, GautamNayak, AnkitVirendraSudha Shah, 562 (2012) 43-B BCAJ – Jannuary 2012 P. 42

S. 132: Search and seizure- Assessment of undisclosed income detected as a result of Post-Search inquiries By M.S. Prasad (2012) 246 CTR (Articles) 62.

S. 145: Anticipated losses- Mother of all controversies by C.A. DindayalDhandaria (2012) 204 Taxman 69 (Mag.)

S. 252 : Tribunal’s President is not empowered to write ACR’s of members –An analysis of UttamBir Singh Bedi v.UOI (2011) 16 Taxman.com 399 (Mad.) by Rahul Dhawan (2012) 204 Taxman 105 (Mag.)

S. 263: Revision- Suomotu revision by Commissioner analysis in view of recent judgment of the Calcutta High Court by CA Uma Kothari (2012) 340 ITR 53 (Journal)

General
A.
Appeal- First Appeal and Stay of demand – Income tax Review- January 2012 Vol.XXXVII No. 10.
I.
Interpretation- Legitimacy of reference to OECD commentary for interpretation of Income-tax Act and DTAAs ByAnkitVirendraSudha Shah – 529 (2012)43-B BCAJ Feb. 2012 P-9.
P.
Principle of natural Justice particularly in relation to Tax Laws by K.H.Kaji assisted by Manish K.Kaji, Advocates (2012) 340 ITR 63 (Journal)
V.
Off shore Voluntary compliance amnesty scheme: International experience by T.C.A.Ramanujam& T.C.A. Sangeetha (2012) 204 Taxman 41 (Mag.)
Companies Act- Revised Schedule VI to the Companies Act,1956- Income Tax Review. February,2012 Vol.XXXVII No. 11

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