Digest of important case law – March 2011

S. 2(22)(e) : Deemed Dividend – Advances given to Business Purposes.
Assessee, Managing Director, having received advances from the company, pursuant to resolutions passed by it to enable the assessee to purchase land which was to be developed by the company in order to bifurcate the ownership of land from the development or construction of flats thereon so as to reduce the incidence of stamp duty on the ultimate customers, the transaction was motivated by business considerations and commercial expediency and therefore, the advances can not be treated as deemed dividend under section 2(22)(e).
ACIT vs. Harshad V. Doshi (2011) 136 TTJ 351 (Chennai)(Trib)

S. 9(1) : Income deemed to accrue or arise in India – Fees for Technical Services – DTAA – India-Canada – [S. 115A, 234B, Art. 12(4)]
The assessee was a non resident company engaged in the business of providing consultancy for infrastructure projects. It had entered into an agreement with the National High way Authority of India and under the agreement the asseseee was to provide technical drawings and reports to NHAI to enable it to use the technology for its infrastructure projects which was founded by the World Bank. The contention of the assessee was that the fee received from NHAI was to be treated as “fees for included services” as prescribed in article 12(4) of the Double Taxation Avoidance Agreement between India and Canada. In terms of this article, the tax chargeable is at 15%. However the Assessing Officer was of the opinion that fee charged for the aforesaid project did not include “fee for included services”. He accordingly is of the opinion that the income was derived as fee for technical services was chargeable to tax under the provisions of section 9(1)(viii) read with section 115A of the Act. According to this section the tax is chargeable was at 20 percent. The Tribunal accepted the contention of assessee. In appeal the High Court affirmed the view of the Tribunal. The amount received by the assessee was taxable under Article 12 of the Indo-Candian treaty. The assessee was not liable to pay advance tax and therefore, interest under section 234B was not chargeable.
DIT vs. SNC Lalvalin International, Inc. (2011) 332 ITR 314 (Delhi)(High Court)

S. 10A : Exemptions – Free Trade Zone – Foreign Trade (Development and Regulation) Act, 1992 – Allocation of Expenses.
Where assessee’ entire income is from STP unit and it is governed under a scheme promulgated by section 3(1) of Foreign Trade (Development and Regulation) Act, 1992, it was held by the Tribunal that Foreign Trade (Development and Regulation) Act, 1992, does not contain any provision overriding provisions of Income Tax Act, therefore, the assessee can get the exemption only as per section 10A of the Income Tax Act. Where travel expenses, telecommunication charges, professional charges and professional consultancy charges as reduced from “export turnover” bore no element of profit which would require allocation by apportionment, the said charges would stand to be excluded from computation of “Total Turnover” as well.
Dy. CIT vs. IBS Software Services (P) Ltd. (2011) 129 ITD 21 (Cochin)(Trib)

S. 4 : Income – Capital or Revenue – Share of Profit from firm pending dissolution.
Profit which is calculated on notional basis by deducting 40% from two years average profit, received by the assessee partner for the period of 234 days when the dissolution of the firm was pending under the directions of the Court is to be treated as revenue receipt.
B. Rachurama Prabhu Estate, Executrix, Smt. Kaveri Bai & Ors. (2011) 52 DTR 122 / 239 CTR 274 (Kar.)(High Court)

S. 4 : Income – Capital or Revenue Receipt – Compensation for premature termination of joint venture agreement.
Consideration received for premature termination of the joint venture agreement constituted revenue receipt.
Ion Exchange (India) Ltd. vs. ITO (2011) 52 DTR 411 (Mum.)(Trib) 

S. 5 : Income – Accrual – Advance Receipt.
Fees received in advance by the assessee from the clients of its beauty and slimming clinics which is attributable to “unexecuted packages” i.e. services are to be rendered in the succeeding year did not accrue in the relevant year.
CIT vs. Dinesh Kumar Goel (2011) 239 CTR 46 (Delhi)(High Court)

S. 10A : Exemptions – Free Trade Zone – Interest from Bank Deposits – Turnover – Freight Charges.
Interest received from bank deposit and other income shall not form part of “profit from business” for the purpose of computation of deduction under section 10A. After substitution of sub section (4) of section 10A by Finance Act, 2001, total turnover for relevant assessment years shall comprise of total turnover of business carried on by eligible “undertaking” only and not total turnover of all units of assessee for the purpose of calculation of deduction under section 10A. For the purpose of calculating deduction under section 10A, export turnover has to be reduced by freight charges, telecommunication charges or insurance charges attributable to delivery of articles or things or computer software outside India or expenses if any incurred in foreign exchange, in providing technical services out side India. Commission charges that are deducted from export turnover should also be deducted from total turnover.
Miracle Software Systems India (P) Ltd. vs. ACIT (2011) 44 SOT 203 (Visakhapatanam)(Trib)

S. 10(10CC) : Exemption – Perquisite – Tax borne by Employer.
Tax paid by employer in respect of salary paid to employees would constitute a non-monetary perquisite eligible for exemption under section 10(10CC).
Transocean Discoverer vs. ACIT (2011) 44 SOT 248 (Delhi)(Trib)

S. 10A : Exemption – Deduction – Interest on Bank – STP Unit – Total Turnover.
Interest on bank deposit exemption under section 10A, is not eligible. When the amount to be proportioned did not include the unrealized sale proceeds, the same would also be included in the total turnover under section 10A. When assessee excluded travel expenses telecommunication charges and professional consultancy charges in the computation of “export turnover”, the same has to be reduced from the figure of ‘total turnover”, for the purpose of section 10A.
Dy. CIT vs. IBS Software Services (P) Ltd. (2011) 137 TTJ 54 / 52 DTR 179 (Coch.)(Trib.)     

S. 10B : Exemption – Deduction – Export – Change of Ownership of Unit –  Reconstruction of existing Unit.
Firm converted in to company, change of ownership of unit not a reconstruction hence, deduction under section 10B is available.
ITO vs. Veto Electropowers (2011) 8 ITR 76 / (Tax World) Feb., 2011 P. 66 (Jaipur)(Trib.)

S. 14A : Business Expenditure – Exempted Income – Apportionment of Expenditure.
Assessee made investment for earning tax free income from mix funds and it is not possible to ascertain as to whether the investment in tax free was out of assessee’s own funds and the Assessing having not established the nexus between the borrowed funds and investment in tax free funds disallowance on pro rata basis was not proper.
Dy. CIT vs. Maharashtra Seamless Ltd. (2011) 52 DTR 5 (Delhi)(Trib.)

S. 14A : Business Expenditure – Exempted Income – Interest on Borrowed Funds used to buy shares for trading purposes.
In case of assessee, engaged in trading and investment of shares and received tax-free dividend income of in A.Y. 2004-05. It was held by Tribunal that Rule 8D does not apply prior to A.Y. 2008-09 (Godrej & Boyce Mfg. Co. Ltd. (2010) 328 ITR 81 (Bom.) followed). It was further observed that the expression “in relation to” in section 14A means dominant and immediate connection or nexus with the exempt income. In order to disallow expenditure under section 14A, there must be a live nexus between the expenditure incurred and the tax-free income. Disallowance cannot be made on presumptions and estimation by the Assessing Officer. When it is possible to determine the actual expenditure “in relation to” the exempt income or where no expenditure is incurred “in relation to” the exempt income, the principle of apportionment embedded in section 14A has no application.
Yatish Trading Co. Pvt. Ltd. vs. ACIT (ITAT Mumbai)(Trib) Source: www.itatonline.org

S. 14A : Business Expenditure – Exempted Income – Disallowance cannot be made for “depreciation”
It was held that section 14A permits a disallowance of “expenditure incurred by the assessee” and not of “allowance admissible” to him. There is a distinction between “expenditure” and “allowance”. The expression “expenditure” does not include allowances such as depreciation allowance. Accordingly, depreciation cannot be the subject matter of disallowance under section 14A (ratio of Nectar Beverages 314 ITR 314 (SC) followed);
Similarly, it was further held that the deduction under section 80D is not expenditure for earning tax-free income but is a permissible deduction from gross total income under Chapter VIA.
Hoshang D. Nanavati vs. ACIT (ITAT Mumbai)(Trib) Source: www.itatonline.org

S. 14A : Business Expenditure – Exempted Income – Borrowed Funds – Interest – Disallowance of Interest on borrowings on ground that assessee ought not to have used own funds for tax – Free Investments invalid.
It was held by Hon’ble High Court that the assessee has sufficiently explained that a majority of the investment in the tax-free security was made before the borrowing. The assessee had demonstrated that it had other sources of investment and that no part of the borrowed fund could be stated to have been diverted to earn tax free income. As borrowed funds were not used for earning tax-free income, applying section 14A was not justified.
CIT vs. Gujarat Power Corporation Ltd. (Gujarat High Court) Source: www.itatonline.org

S. 23(1)(a) : Income from House Property – Annual Value – Notional Interest – Deposit – Municipal Ratable Value – For Annual Value under section 23, notional interest on deposit not includible. Municipal value is ordinarily ALV for section 23 though Assessing Officer entitled to depart for sufficient cause.
 S. 23(1)(a) requires determination of the “fair rent” being “the sum for which the property might reasonably be expected to let from year to year”. If on inquiry Assessing Officer finds that the actual rent received is less than the “fair/market rent” because the assessee has received abnormally high interest free security deposit, he can undertake necessary exercise in that behalf. However, by no stretch of imagination, the notional interest on the interest free security can be taken as determinative factor to arrive at the “fair rent”. The ALV fixed by the Municipal Authorities can be the basis of adopting the ALV for purposes of section 23. Also in determining the reasonable/fair rent, extraneous circumstances may inflate/deflate the “fair rent”.
CIT vs. Moni Kumar Subba (Delhi High Court – Full Bench) Source: www.itatonline.org
Editorial:- Refer Dy. CIT vs. Reclamation Reality India Pvt. Ltd. (ITAT Mumbai) Source: www.itatonline.org(Trib)

S. 28(i) : Professional Income – AIR Information.
In the absence of contrary material brought by the Revenue authorities, that the assessee had received professional fees more than what has been declared by him, no addition should be made by the Assessing Officer on account of non furnishing of partywise details of professional fees received during the year and non–reconciliation of professional fees received with AIR information.
S. Ganesh vs. ACIT (2011) TIOL 87 ITAT-Mum. 701 / (2011) 42-B. BCAJ (March P. 33)(Trib)

S. 28(i) : Business Income – Capital Gains – Transactions in Shares – Volume and frequency of the transactions – (S. 45).
Where the assessee had carried out about 800 transactions in shares of more than 200 listed companies with borrowed funds and the purchases and sale of shares was the only activity of the assessee with a very short holdings period, and substantial time was devoted for such activity, in a regular and systematic manner, the profit from such transactions was rightly treated as business profit as against short-term capital gains claimed by the assessee.
Jayshree Pradip Shah vs. ACIT (2011) 51 DTR 344 (Mum.)(Trib.)      
www.itatonline.org

S. 28(i) : Business Income – Capital Gains – Volume – Despite Large number of transactions in shares, profit assessable as Capital Gains – (S. 45).
Where assessee is a HUF and offers income from sale of shares as short term capital gain, the fact that the assessee has transacted in 158 shares should not be the sole criterion to come to the conclusion that assessee is a trader in shares. Following circumstances to be considered while assessing such income as capital gain. These are whether (a) the assessee was holding the shares in its books as an investor, (b) the assessee have any office or administration set up, (c) the shares were acquired out of own funds and family funds and not through borrowing, (d) there was not a single instance where the assessee had squared-up transactions on the same day without taking delivery of the shares,  (e) In the previous and subsequent assessment years, the Assessing Officer had vide scrutiny assessments treated the assessee as an investor.
Nagindas P. Sheth (HUF) vs. ACIT (ITAT Mumbai)(Trib) Source: www.itatonline.org

S. 28(i) : Business Income – Capital Gains – Investment in Shares – Investor – Trader – Large volume in shares not deciding factor to hold assessee trader – (S. 45).
The income of an assessee who has invested in shares to be assessed as capital gain if the following conditions are satisfied. If (a) The assessee was a good timer of purchase and sale of shares thereby substantially increasing his gains in the stock market, (b) The large turnover was because of bulk purchases and sales in a scrip. There were very few transactions of purchase and sale, as the assessee was purchasing in block of a particular share in large volume. Accordingly, large volume cannot be a deciding factor to hold as a trader, (c) the assessee was not a broker or sub-broker and did not have any office establishment, (d) The assessee did not do any speculative activity nor indulge in any sales without delivery, (e) The shares were shown as capital assets in the books of account, (f) The assessee had not pledged any shares with any financial institutions, nor borrowed any funds.
Ramesh Babu Rao vs. ACIT (ITAT–Mumbai)(Trib) Source : www.itatonline.org

S. 32(1)(ii) : Depreciation – Block of Assets – Ownership – Purchase of shares with right to occupy premises.
The assessee made total payment of Rs. 4.44 crores to WRPL which has been divided in to two parts viz. consideration for shares at Rs. 2.76 crores and non–refundable construction of Rs. 1.67 crores. Both these payments are aimed at acquiring, using and occupying the property. But for the purchase of shares it is not permissible to became member. The assessee is entitled to depreciation on the entire consideration.
SRI Adhikari Brothers Television Networks Ltd. vs. ACIT (2011) 52 DTR 295  (Mum.)(Trib.)   

S. 32(1)(ii) : Depreciation – Intangible Assets – Goodwill.
Depreciation is allowable on specified intangible assets like, license or any other business or commercial rights of similar nature and not on Goodwill.
Osram India (P) Ltd. vs. Dy. CIT (2011) 51 DTR 297 (Delhi)(Trib.)

S. 35(1)(iv) : Expenditure on Scientific Research – Business Expenditure – Capital Expenditure – Development of software.
Business of the assessee being development of software for its clients and not solely research and development, any expenditure in doing so cannot itself fall within the parameters of section 35(1)(iv) and cannot be allowed as deduction under that section.
3i Infotech Ltd. vs. Dy. CIT (2011) 51 DTR 385 / 136 TTJ 641 (Mum (Trib.)

S. 37(1) : Business Expenditure – Capital or Revenue – Expenses on Development – Upgradation of computer software – Depreciation – (S. 32).
Assessee engaged in the business of development of computer software having followed the method of accounting whereby it is treating the expenditure on development of computer software as part of work in progress during the period of development and capitalization the same when the software attains technically feasibility and is ready for sale, the expenditure incurred on development, upgradation of software products has to be treated as capital expenditure, however, depreciation would be allowable thereon in the year of capitalization.
3i Infotech Ltd. vs. Dy. CIT (2011) 51 DTR 385 / 136 TTJ 641 (Mum (Trib.)

S. 37(1) : Business Expenditure – Litigation Expenses – Criminal Proceedings against an actor in his individual capacity.
The assessee an actor incurred expenditure in defending himself against criminal proceedings which arose out of the film shooting. The Tribunal held that the criminal proceedings were filed against the individual, this has nothing to do with the assessee’s profession. The expenditure was purely of a personnel nature and not allowable.
Dy. CIT vs. Salman Khan (2011) 8 ITR 150 / 52 DTR 137 / 137 TTJ 15 (Mum.)(Trib.)

S. 37(1) : Business Expenditure – Capital or Revenue – Entrance fees to a Club – Corporate Membership.
Entrance fees paid towards corporate membership of the club is an expenditure incurred wholly and exclusively for the purpose of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit earning apparatus of a business enterprises and accordingly CIT (A) was justified in deleting the disallowances of entrances fee made by the Assessing Officer.
Dy. CIT vs. Bank of America Securities (India) (P) Ltd. (2011) 136 TTJ 441 (Mum.)(Trib)

S. 37(1) : Business Expenditure – Capital or Revenue Expenditure – Study report.
Consultancy charges paid for obtaining study reports in Bitumen  is revenue  expenditure.
CIT vs. Shell Bitumen India (P) Ltd. (2011) 221 Taxation 44 (Delhi)

S. 40(a)(i) : Amounts not deductible – Business Expenditure – Non-resident – Software.
The assessee had purchased a software from M and sold in the Indian market. The assessee acted as a dealer .This could not be termed as royalty, therefore section 40 (a)(i) had no application.
CIT vs. Dynamic Vertical Software India P. Ltd (2011) 332 ITR 222 (Delhi)(High Court)  

S. 40(b)(v) : Amounts not deductible – Partnership – Remuneration to Partners – CBDT Circular, which specifies that for section 40(b)(v), the partnership deed should specify the remuneration, is invalid.
Section 40(b)(v) allows a deduction of payment of remuneration to a working partner if it authorized by the partnership deed and not in excess of the limits. Section 40(b)(v) does not lay-down any condition that the partnership deed should fix the remuneration or the method of quantifying remuneration. Accordingly, CBDT Circular No. 739 dated 25.3.1996 which requires that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of quantifying such remuneration goes beyond section 40(b)(v). The CBDT cannot issue a circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute. A partnership deed which provides that the remuneration would be as per the provisions of the Act meaning thereby that the remuneration would not exceed the maximum remuneration provided in the Act is valid and deduction is admissible.
Durga Dass Devki Nandan vs. ITO (HP High Court) Source: www.itatonline.org (High Court)

S. 44BBB : Foreign Companies – Civil Construction – Turnkey Projects.
Contract awarded to the applicant, a Japanese company, for erection of steam turbines, turbo generators and auxiliary equipments / heaters to execute a power project in India by an Indian Company being separate and machineries for the same project to the holding company of the applicant, the contract awarded to the applicant fits in to the description given in section 44BBB and therefore, it is eligible for presumptive taxation under section 44BBB.
Toshiba Plant Systems & Services Corporation, In Re (2011) 52 DTR 155 / 198 Taxman 26(AAR)        

S. 45 : Capital Gains – Agricultural Land – Beyond Municipal Limits – [S. 2 (14)(iii)]
Sale of agricultural land situated beyond 8 Km from municipal limits of the village having a population of less than 10,000 persons is not liable to capital gains tax.
ACIT vs. Ashok Kumar Agarwal (2011) Tax World Feb. P. No. 112 (Jaipur)(Trib.)

S. 45 : Capital Gains – Conversion of units of UTI in to tax free bonds – Transfer – [S. 2(47)]
Assessee claimed capital loss on account of conversion of units of UTI into tax free bonds. The Tribunal held that in the instant case was a simple case of conversion of one asset into another and there was no transfer of asset within the meaning of section 2(47) hence the Assessing officer rightly rejected the claim.
ACIT vs. ABC Bearings Ltd. (2011) 44 SOT 338 (Mumbai)(Trib)

S. 45 : Capital Gains – Consent by Landowner – TDR – Compensation paid to members – [S. 2(24)]
Mere grant of consent by the land owner to the developer to construct by consuming TDR purchased by the developer from the third party does not amount to transfer of land or any rights therein. Amount of compensation paid by the developer to the members of the society cannot be taxed in the hands of the society.
Raj Ratan Palace Co-Operative Hsg. Ltd. vs. Dy. CIT ITA No. 674/Mum/2004 Bench “B” dated 25-2-2011 (Asst. Year 1997-98) (2011) 43A-BCAJ–April 33(Trib)

S. 45(4) : Capital Gains – Assets taken over by partners on dissolution of firm by Court Order – [S. 2(14), 2(47), 45(1)]
Outgoing partners of the firm having received amount towards their respective shares in the net assets of the firm from a group of three partners who took over the business in an auction following dissolution of the firm, as per order of Court, the capital gains arising on transfer of the assets of the erstwhile firm were taxable in the hands of such outgoing partners.
B. Raghurama Prabhu Estate, Executraix Smt. M. Kaveri Bai & Ors. vs. Jt. CIT (2011) 52 DTR 122 / 239 CTR 274 (Kar.)(High Court)

S. 48 : Capital Gains – Non-resident – Indexation – DTAA – India-Canada – Shares – (S. 90, Art. 24)
Denial of the benefit of the second proviso to section 48 to a non resident assessee while computing capital gains from the sale of shares would not amount to discriminatory treatment in terms of Art. 24 of the DTAA with Canada.
Transworld Garnet Company Ltd., In Re. (2011) 239 CTR 152 / 52 DTR 161 (AAR)

S. 48 : Capital Gains – Cost of Acquisition – Indexed Cost – Date of Allotment Letter – Stamp Duty – Interest – Processing Charges – (S. 45).
Stamp duty, interest, processing fee, development charges, fire fighting charges, generator charges, etc. paid to the builder form part of cost of acquisition incurred by the assessee for acquiring the ownership of the flat and therefore, assessee is entitled to deduction of all aforesaid payments under section 48(ii) on computation of capital gain on the sale of flat.
Assessee is also entitled to indexation from 1995, when he started making the payment to builder and received the allotment letter and not from the date of conveyance deed in 2001.
Praveen Gupta vs. ACIT (2011) 52 DTR 334 (Delhi)(Trib.)

S. 49 : Cost with reference to certain mode of Acquisition – Capital Gains – Family Arrangement – Company Assets – HUF – Director – (S. 45)
Assessees are Directors in a company AG. By way of family arrangement half of the land owned by company came to the share of the present assessees and other half went to the share of another family group. Assessees sold their share of land for an amount of Rs 2.9 crores. Assessees computed the capital gains by applying the provision of section 49(1). The Assessing Officer held that assets in question are not the property of HUF but it was owned by company AG and there was no distribution of its assets, because there was no liquidation of the company. Consequently, the said capital asset continued to be owned by AG and did not became the property of the assessees hands therefore section 49(1) would not apply. The Court directed the Assessing Officer to compute the capital gains in the said company and give credit of taxes paid by assessee.
CIT vs. Shashi Charla (2011) 51 DTR 232 / CIT vs. Atul Charla / Baldev Charla / Jyoti Chrala (2011) 51 DTR 232 (Delhi High Court)

S. 50 : Capital Gains – Depreciable Assets – Block of Assets.
Section 50(1)(iii) does not make a distinction between block of assets of one unit and block of assets of another unit, even if they are independent units. Even if new asset is not used for the purpose of business, its cost will have to be deducted from full value of consideration received or accruing on transfer of block of assets, while computing short term capital gains.
Dy. CIT vs. Ansal Properties & Infrastructure Ltd. (2011) 44 SOT 236 (Delhi)(Trib)
S. 50 : Capital Gains – Depreciable Assets – Transfer of Undertakings – Tangible and Intangible Assets – (S. 45).
In the case of transfer of entire business undertaking, section 50 has application as far as tangible assets are concerned, assessee having transferred its entire marketing undertaking consisting of both tangible and intangible assets to another company, Assessing Officer is directed to apportion and / or segregate the amount of consideration received by the assessee by way of transfer of tangible assets out of the total consideration for assessment under the head capital gains under section 45, read with section 50.
Kwality Ice Creams (India) Ltd. vs. CIT (2011) 52 DTR 366 /198 Taxman 65 (Cal.)(High Court)
S. 50 : Capital Gains – Depreciable Assets – Indexation.
Assessee claimed depreciation on capital asset (flat) for two years as it was used as office premises which was allowed. Flat was the only asset in the block of assets. No depreciation was claimed for latter years as the flat was not used for the purposes of business but leased on rent. Assessing Officer and CIT(A) held that the as the flat being only asset in the block of assets the capital gains is assessable as short term capital gains. On appeal the Tribunal held that the moment the assessee stopped claiming depreciation in respect of the flat and even let out the same for rent, it ceased to be a business asset. The Tribunal directed the Assessing Officer to allow benefit of indexation as claimed by the assessee treating the sale as long term capital asset.
Prabodh Investment & Trading Company Pvt. Ltd. vs. ITO, ITA No. 6557/Mum/2008 Bench ‘C’ dt. 28-2-2011 (2011) 43–A BCAJ – April P. 34(Trib)      

S. 50B : Capital Gains – Sale of entire business as going concern – Slump Sale – (S. 45).
Assessee having transferred the assets and liabilities pertaining to its business as one whole unit as a going concern for a lump sum consideration without assigning any separate value to land, building / structure, plant and machinery, office equipment, furniture and fixtures and vehicles, the sale was a slump sale and therefore, the same is not exigible to tax under the head “Capital Gains”.
CIT vs. Chemical Industries Consulting Bureau (2011) 51 DTR 283 (Karn.)(High Court)

S. 54 : Capital Gains – Profit on sale of property used for residence – Exemption is available to multiple sales & purchases of residential houses – (S. 45).
Though section 54 refers to capital gains arising from “transfer of a residential house”, it does not provide that the exemption is available only in relation to one house. If an assessee has sold multiple houses, then the exemption under section 54 is available in respect of all houses if the other conditions are fulfilled. If more than one house is sold and more than one house is bought, a corresponding exemption under section 54 is available. However, the exemption is not available on an aggregate basis but has to be computed considering each sale and the corresponding purchase adopting a combination beneficial to the assessee.
The decision of the Special Bench in ITO vs. Sushila Jhaveri (2007) 292 ITR (AT) 1 is distinguishable.
Rajesh Keshav Pillai vs. ITO (ITAT – Mumbai) Source: www.itatonline.org(Trib)

S. 54B : Capital Gains – Investment in Agricultural purposes – Assesses name – Name of wife and other relations.
Deduction under section 54B of the Act will be admissible only in respect of investment made in the purchase of a new asset in his own name, however, deduction shall not be available in respect of the amount invested in the purchase of new asset in the name of wife and other relations.
ITO vs. Rameshwar Sharma (2011) Tax World Feb., P. 114 (Jaipur)(Trib)

S. 68 : Cash Credits – Gift.
Assessee has filed address of both the donors, however, revenue authorities did not examine them in person before making addition, further the revenue authorities failed to bring any evidence on record showing that amount received by assessee from donors was actually her own undisclosed income. Addition confirmed by the CIT(A) was deleted.
Amita Devi (Smt) vs. ACIT (2011) 129 ITD 72/ 53 DTR 214 (Gau.)(TM) (Trib)

S. 68 : Cash Credits – Gift.
Assessee received the gift by way of cheques which have been confirmed by the donors in their affidavits and disclosed in their respective returns, the same could not be treated as non genuine.
Dy. CIT vs. Vishwanath Prasad Gupta (2011) 52 DTR 346 (Jab.)(Trib.)(TM) (Trib)

S. 69 : Unexplained Investment – AIR Information – Second owner of the Units of Mutual funds.
Addition on account of unexplained investment cannot be made in the hands of the assessee on the basis of AIR information, when the assessee was only the second owner of the units of mutual funds and the identity of the first owner was established and they are assessed to tax.
S. Ganesh vs. ACIT (2011) TIOL 87 ITAT-Mum. 701 / (2011) 42-B. BCAJ (March P. 33)(Trib)  

S. 73 : Losses in Speculative Business – Loss in share dealings – Speculative Transactions – [S. 43(5)]
Badla charges claimed by the assessee company were rightly treated to be speculative loss in view of Explanation to section 73, since entire share trading activity was deemed to be speculative, provisions of Explanation to section 73 being deeming provisions, section 43(5) cannot override section 73.
Dartmour Holdings (P) Ltd. vs. ITO (2011) 51 DTR 321 (Mum.)(Trib.)

S. 79 : Carry forward and set off losses – Merger – Change in Share Holdings.
Due to merger of IIPL holding 98% shares of assessee company with the assessee company, the share holders of the IIPL were allotted shares but there was no change in the management which continued to be with persons of the family who were having the control and management of the IIPL as well as of the assessee company and therefore, provisions of section 79 were not violated and the assessee was entitled to carry forward of loss.
Dy. CIT vs. Select Holiday Resorts (P) Ltd. (2011) 52 DTR 14 (Delhi)(Trib.)

S. 80HHE : Deduction – Export of Computer Software – Form 10CCAF – Export turnover retained abroad.
Benefit of deduction under section 80HHE cannot be denied to the assessee simply because the income certified for deduction is nil in form no 10CCAF for the reason that the computation of total income as per return was loss. Assessee is entitled to deduction under section 80 HHE on the amount of export turnover retained abroad to the extent of its outstanding dues to that company and the amount retained by assessee’s foreign branch in respect of expenses incurred by it on behalf of assessee provided there is nexus between the outstanding payable / expenditure incurred abroad and the business of export which has yielded the income. 
3i Infotech Ltd. vs. Dy. CIT (2011) 51 DTR 385 / 136 TTJ 641 (Mum (Trib.)

S. 80HHF : Deduction – Export – Export Turnover.
Claim of the assessee that the meaning of “total turnover” in clause (j) of Explanation to section 80 HHF should be restricted only to the export turnover of the business of exports and not the entire business is not sustainable. While computing deduction under section 80 HHF by multiplying “export turnover” with the “profits of the business” as divided by the total turnover of the business.
SRI Adikari Brothers Television Networks Ltd. vs. ACIT (2011) 52 DTR 295 (Mum.)(Trib.)  
       
S. 80IB : Deduction – Industrial Undertakings – Central Excise Duty Refund – Transport and Interest Subsidy.
Central Excise Duty refund has inextricable link with manufacturing activity hence eligible for deduction under section 80IB, however, transport and interest subsidies have no direct nexus with the business of industrial undertaking hence not eligible for deduction under section 80IB.
CIT vs. Meghalaya Steels Ltd. (2011) 221 Taxation 79 / 332 ITR 91 (Gauhati)(High Court)

S. 92C : Avoidance of Tax – Transfer Pricing – Computation – Arm’s Length Price – International Taxation.
Where the finding of CIT(A) is based on net profit margin of the assessee company worked out by him at 6.97% on the basis of operating profits/sales, which was within +/- 5 % range of ALP, there is no reason to interfere in the order of CIT(A).
Osram India (P) Ltd. vs. Dy. CIT (2011) 51 DTR 297 (Delhi)(Trib.)  

S. 92C : Avoidance of Tax – Transfer Pricing – External comparables.
Assessee company having provided same software related services to AE’s and unrelated parties, it was not required to make segmental reporting or disclose separate financial information in respect of transactions entered into with AE’s and non AEs as per the guidelines provided under AS-17 and therefore, ALP in respect of international transactions undertaken by the assessee with AEs was rightly determined on the basis of international comparison of profit earned from the international transactions with AEs and profit earned from international transactions with unrelated parties and not by recourse to external comparables.
Birlasoft (India) Ltd. vs. Dy. CIT (2011) 51 DTR 353 (Delhi)(Trib.)

S. 92C : Avoidance of Taxation – Transfer Pricing – Computation – Arm’s Length Price – Jurisdiction – International Taxation.
Though the deputation of three employees by the assessee to its US subsidiary without consideration is covered by the definition of “international transaction” under section 92B (1), it  was not necessary for the Assessing Officer to determine the ALP of the said transaction as there would be erosion of tax base of India if the assessee charges the cost of deputation of employees in as much as assessee is remunerating the subsidiary on the cost–plus basis for the services and entire revenue accrues to the assessee. Jurisdiction of TPO is restricted to the transactions referred by the Assessing Officer under section 92CA(1) and therefore, TPO cannot determine the ALP  in relation to an international transaction not referred to him by the Assessing Officer under section 92CA(1), further, since the conditions laid down in section 92C(3) were not satisfied the impugned addition cannot  also be sustained on the premise that the Assessing Officer as determined the ALP on the basis of material or information or document in his possession. 
3i Infotech Ltd. vs. Dy. CIT (2011) 51 DTR 385 / 136 TTJ 641/ 129 ITD 422 (Mum (Trib.)

S. 92C : Avoidance of Taxation – Transfer Pricing – Computation – Arm’s Length Price.
Assessee company entered into international transactions with Byk which comprised of export of intermediates and clinical trial services. Assessing Officer made reference to TPO in order to find out whether international transactions were at arm’s length price or not. In regard to clinical trial services performed by assessee–company for Byk, TPO after examining various aspects, concluded that mark up of 5% over cost was not as per arm’s length price and same should be 17.4% on basis of comparable cost. On appeal Commissioner (Appeals) concluded that 5% mark up as returned by assessee was fully justified. On appeal by revenue the Tribunal noticed that in course of providing clinical trial service, major part of research activities was carried out by “Byk” itself and function of assessee was only to collect data from various hospitals and transmit same to “Byk” for which it was suitably reimbursed by mark–up of 5% over cost. It was also noted that profits of assessee were exempt under section 10B and thus, company was in no way benefited by charging 5% mark–up as against 17.4% fixed by TPO. The Tribunal held that on facts there was no infirmity in impugned order passed by Commissioner (Appeals) and the same was upheld.
ITO vs. Zydus Altanta Health Care (P) Ltd. (2011) 44 SOT 132 (Mum.)(Trib)                

S. 92C : Avoidance of Tax – Transfer Pricing – Bad Debts Written off – International Transactions – (S. 10B).
Bad debts written off cannot be factor to determine the arm’s length price of any international transaction. The Transfer Pricing Officer had exceeded his limits in following a method not authorized under the Act or Rules.
C. A. Computer Associates P. Ltd. vs. Dy. CIT (2011) 8 ITR 142 (Mum.)(Trib.)

S. 92C : Avoidance of Tax – Transfer Pricing – Arm’s Length Price – Report of the TPO is not binding on the Assessing Officer. Proviso substituted w.e.f. 1st October 2009, operate only form Asst. Year 2009-10.
The report of the TPO is not binding on the Assessing Officer. Assessing Officer can refer the matter to the TPO for determination ALP of an International taxation transaction or he may determine it on his own. AO can determine the price of imports of his own. New proviso to section 92C(2)  came in to operation from asst year 2009-10 and therefore, did not apply to asst year 2003-04, further, where only one price is determined in the matter of ALP, the option of five percent under proviso to section 92C(2) is not available to the assessee.
ACIT vs. UE Trade Corporation (India) Ltd. (2011) 136 TTJ 297 (Del.)(Trib)

S. 92C : Avoidance of Tax – Transfer Pricing – International Taxation – Arm’s Length Price – [Rule 10B(1)(e)]
Under Chapter X of the Income Tax Act, 1961, the determination of the arm’s length price of an international transaction has to be only at the transaction level or at a class of transactions. The law does not permit determination of the arm’s length price of international transactions, by comparing margins at entry level or by taking overall industry level averages. The matter was set aside. 
Dy.  CIT vs. Ankit Diamonds (2011) 8 ITR 487 (Mum.)(Trib.)
S. 92C : Avoidance of Tax – Transfer Pricing – Computation – Arm’s Length Price – Opportunity of being heard – (S. 144C)
Order was passed by TPO without granting extension of time sought by the petitioner for furnishing more documents and giving an opportunity of personal hearing to it and also documents were not consider which were already on record in their right perspective the impugned order was set  aside and TPO was directed to pass an order and also personnel hearing.
Toyota Kirloskar Motor (P) Ltd. vs. Addl. CIT (2011) 52 DTR 393 (Kar.)(High Court)

S. 92C : Avoidance of Tax – Transfer Pricing – International Taxation – If ALP determined by arithmetical mean, 5% deduction allowable.
In determining the arms’ length price for transfer pricing purposes in respect of international transactions relating to ‘procurement Support Services’, it was held that pursuant to the First proviso to section 92C(2) (pre-amendment by Finance (No. 2) Act, 2009 w.e.f. 1.10.09) which provides that “where more than one price is determined by the most appropriate method, the arms length price shall be taken to be the arithmetical mean of such prices or at the option of the assessee, a price which may vary from the arithmetical mean of an amount not exceeding five per cent of such arithmetical mean” it is clear that the assessee has an option when there is arithmetical mean involved while computing the ‘arm’s length price’ and it happens only if more than one price is determined by the most appropriate method. The First Proviso becomes operational where more than one comparable price is determined. The assessee at his option can make claim of deduction out of the arithmetic mean not exceeding 5%. All the judicial pronouncements (SAP Labs 6 ITR 81 (Bang.)(Trib.), Sony 315 ITR (AT) 150 (Del.), UE Trade Corp (Del.), Essar Steel (Vizag.) & Perot Systems 130 TTJ 685 (Del.) are uniform in making the proposition that where arithmetic mean is involved, the assessee obtains the eligibility for claim of deduction out of such arithmetic mean.
Cummins India Limited vs. Dy. CIT (ITAT Pune) Source: www.itatonline.org(Trib)

S. 92C : Avoidance of Tax – Transfer Pricing – International Taxation – Prior Years’ data cannot ordinarily be relied upon to justify ALP. Non-operating income & expenditure should be excluded while comparing.
It was held that the assessee has to adopt the data available for the TP study at the time of filing of the return. The OECD guidelines are not of binding nature and even the Proviso to Rule 10B(4) provides that any subsequent year data cannot be considered. The contemporaneous data of relevant financial year is to be used for making the comparable analysis for arriving at the ALP unless it is proved otherwise. For arriving at the net margin of operating income, only operating income and operating expenses for the relevant business activity of the assessee has to be taken into consideration. Other income, such as dividend income, profit on sale of assets, donations as well as non-operating expenses which are included in the operating incomes of other comparable companies should be excluded as it effects the net margin of the operating profits of the comparables. Working capital adjustments also have to be considered while arriving at the operating net margins. Also the assessee is entitled to a standard deduction of 5% as provided under proviso to section 92C(2) before making adjustments of the transfer price. (Schefenacker Motherson 123 TTJ 509 (Del.) and SAP Labs 6 ITR 81 (Bang.)(Trib.) followed)
TNT India Limited vs. ACIT (Bang.)(Trib.)
Source: www.itatonline.org(Trib)

S. 92C : Avoidance of Tax – Transfer Pricing – International Taxation. – For TNMM, interest on surplus  and abnormal costs to be excluded
Where interest on surplus funds is assessed as “business income”, it has to be excluded in computing the ‘operating profits’ because if it is included, one is computing the “return on investment” which is an inappropriate profit level indicator for a service provider. As the PLI is the Operating Margin on Cost, neither the interest income nor interest expenses is a relevant factor. The essential element is the cost incurred for the operating activity which has to be taken into account. In computing the ALP, abnormal expenses which are not of a routine nature as well as those of a personal nature have to be excluded. The assessee has to demonstrate “exact details, exhibiting the risk born by the comparable vis-à-vis the risk in running the assessee’s business” (Sony India 114 ITD 448 (Del) where a 20% adjustment was permitted distinguished). The benefit of +/- 5% adjustment is not a ‘standard universal deduction’. This option is available only when assessee is computing the ALP and not when the AO/TPO is computing the ALP.
Marubeni India Private Ltd. vs. ACIT (ITAT Delhi)
Source : www.itatonline.org

S. 94(7) : Avoidance of Tax – Transaction in Securities – Capital Loss – Redemption of Units.
When units have been redeemed by assessee, same would constitute transfer for the purpose of section 94(7) and short term capital loss to the extent of dividend is not allowable. CIT(A) was justified in applying the provisions of section 94(7) and setting off dividend income of Rs. 97,90 628 of Asst Year 2002-03 against the short term capital loss of Rs. 1,06,03,428 of the Asst. Year 2003-04.
Administrator of Estate of Late E. F. Dinshaw vs. ITO (2011) 52 DTR 23 (Mum.)(Trib.)

S. 147 : Reassessment – Reason to Believe – Subsequent Supreme Court Decision – [S. 10(29)]
Judgment of the Supreme Court holding that exemption under section 10(29) is available only to that part of income which is derived from letting of godowns or warehouses and not the income derived from other sources constituted a valid basis for reopening the assessments. The Tribunal having not touched upon the question as to whether or not this very issue was discussed in the original assessment to the assessee that it was a case of change of opinion, order of Tribunal is set aside and the matter is remitted back to the Tribunal for fresh consideration only on this aspect.
Central Warehousing Corporation vs. ACIT (2011) 51 DTR 198 (Delhi High Court)
S. 147 : Reassessment – Reason to Believe – Finding of Subsequent Year – (S. 148)
Information obtained in the assessment of a subsequent assessment year can be a good to initiate proceedings under section 147/148. Disallowance of interest expenditure made in assessment of subsequent assessment year on the basis that the interest free advances constituted prima facie material for the Assessing Officer to form a reasonable belief that certain income had escaped assessment in the present year.
Maruti Civil Works vs. ITO (2011) 51 DTR 257 (Pune)(Trib.)
S. 147 : Reassessment – Beyond four years – No failure on the part of assessee – Bad Debts.
Allowance of bad debt was specifically raised in the original assessment proceedings and on receiving explanation from assessee the claim of assessee was allowed, reassessment held to be invalid.
Yash Raj Films P. Ltd. vs. ACIT (2011) 332 ITR 428 (Bom.)(High Court)
S. 147 : Reassessment – Beyond four years – Revaluation of Assets – (S. 45, 50)
Assessee firm having duly disclosed the fact of revaluation of assets, creation of self generated asset. Viz., goodwill and also that the difference between the cost and revalued amount of the assets has been transferred to partners’ capital accounts and the same was followed by dissolution of firm, all primary facts stood disclosed by the assessee in the original assessment proceedings itself and therefore, assessment could not be reopened after expiry of four years from the end of the relevant assessment year on the ground that difference between WDV of the assets and the value thereof after revaluation is taxable under the provisions of section 45 read with section 50 which has escaped assessment.
Industrial Lining vs. Dy. CIT (2011) 52 DTR 233 (Ahd.) (TM) (Trib.)

S. 147 : Reassessment – Compensation on Acquisition of Land – Enhancement by Supreme Court.
Initiation of the reassessment proceedings in respect of escaped income due to acquisition of petitioner’s land was not vitiated as Assessing Officer had reasons to believe that the income chargeable to tax had escaped assessment.
Maya Rastogi (Smt) vs. CIT (2011) 52 DTR 237 (All)(High Court)

S. 147 : Reassessment – Change of Opinion – Income subject matter of block assessment – (S. 158BC)
Once the Assessing Officer proceeds to make block assessment under section 158BC based on materials gathered during search under section 132, he cannot proceed to make reassessment under section 147 on the basis of the same material, after block assessment is cancelled by the first appellate authority. Assessing Officer has no jurisdiction to assess the very same amount, which was considered and given up while making block assessment.
CIT vs. C. Sivanandan (2011) 52 DTR 428 (Ker.)(High Court)

S. 151 : Reassessment – Sanction – Limitation.
In cases covered under section 151, the notice is to be issued by the Assessing Officer and the only requirement is that the Jt. CIT should be satisfied on the reasons recorded by the Assessing Officer. There was no satisfaction of the Jt. CIT for the Asst. Year 1989-90 to 1994-95, hence, notices for these years are invalid.
Maya Rastogi (Smt.) vs. CIT (2011) 52 DTR 237 (All)(High Court)   

S. 158BB : Search and Seizure – Block Assessment – Computation of Undisclosed Income – Belated Return – Surrender of Income – Gift from NRI.
Income declared in a belated return after search could not be treated as disclosed income. Assessee  being unable to give any valid explanation for the alleged gift received from NRI, having surrender the amount as unexplained income, Tribunal was not justified in treating the gifts as explained simply because the same were disclosed in the regular return.
CIT vs. Ashwani Trehan (2011) 239 CTR 10 (P&H)(High Court)

S. 194C : Deduction of Tax at Source – Contractor and Sub-contractor – [S. 40(a)(ia)]
Where the transporters are hired by the vendors of the goods, who directly made supplies to the factory of the assessee and charged the amount of transportation separately in their bill to the assessee, provisions of section 194C are not applicable, hence, amount paid cannot be disallowed by applying the provisions of section 40(a)(ia).
Chang Hing Tannery vs. Dy. CIT / (2011) 42-B-BCAJ March P. 32(Kol)(Trib) 

S. 194C : Deduction of Tax at Source – Society engaged in Charitable Activities – (S. 40(a)(ia), 194J).
For non-deduction of tax at source from paying the payments made towards advertisement expenses, the Assessing Officer disallowed the sum of Rs. 5.10 lacs and taxed the same as business income. Before the Tribunal the assessee contended that since its income is not chargeable under section 26 to section 44AD under the head “Business income” the provisions of section 40(a)(ia) were not applicable. The Tribunal relying on the decision in the case of ITO vs. Sangat Bhai Pheru Sikh Education Society (ITA Nos. 201 to 203/ASR/2004 dt. 31-3-2006 and CIT vs. India Magnum Fund (2002) 74 TTJ 620 (Mumbai) accepted the contention and allowed the appeal of assessee.
Baba Farid Vidyak Society vs. ACIT, ITA No. 180/ASR/2010 Asst. Year 2006-07 dt. 31-1-2011 (2011) 43 A BCAJ April P. 34 (Trib)  

S. 194H : Deduction of Tax at Source – Commission – Brokerage.
Agents of Airline companies are permitted to sell tickets at any rate between fixed minimum commercial price and published price. Difference between commercial price and published price neither commission nor brokerage tax need not be deducted under section 194H.
CIT vs. Qatar Airways (2011) 332 ITR 253 (Bom.)(High Court)
S. 194H : Deduction of Tax at Source – Commission or Brokerage – Booking of Domestic and International Airline Tickets – [S. 40(a)(ia)]
The transaction in question were not transactions between principal and agent but those transactions were between principal and principal. In order to bring services or transactions within expression “Commission” and “Brokerage” under section 194H, element of agency must be present. When the discount allowed / given by the assessee to the intermediaries was also allowed to passenger directly who booked the tickets with the assessee and the assessee was recording the transaction in its books of account on net amount of the invoice, then it was not a case of commission or brokerage paid or payable by the assessee to the intermediaries, hence, the provisions of section 194H were not applicable therefore no disallowance can be made under section 40(a)(ia).
ITL Tours and Travels (P) Ltd. vs. ITO (2011) 44 SOT 277 (Mum.) (Trib) 
S. 195(2) : Deduction of Tax at Source – Non-Resident – Assessee in Default – Certificate not withdrawn, assessee not in Default – (S. 201)
The assessee made payment of “daily allowance” to a Japanese company on account of the stay of Japanese engineers without deduction of tax at source. The Assessing Officer held that the payment was assessable to tax as “fees for technical services” and that the assessee was liable under section 201 for failure to deduct tax at source. It was held that the Assessing Officer had issued a certificate under section 195(2) authorizing the remittance without deduction of tax at source. As this certificate was not cancelled under section 195(4), the assessee was not required to deduct tax at source and could not be treated as assessee in default. The issue whether the payments were taxable or not need not be gone into
CIT vs. Swaraj Mazda Ltd. (P&H) Source: www.itatonline.org (High Court)

S. 199 :  Credit for Tax Deducted – Refund – (S. 203)
Assessee, from whose payments taxes have been deducted at source and who is also in receipt of the appropriate certificates in accordance with the scheme of the Act, must get credit admissible under section 199 uninfluenced by any refund of TDS subsequently granted to the tax deductor.
Lucent Technologies GRL LLC vs. Dy. Director of IT (2011) 136 TTJ 291 (Mum.)(Trib)

S. 201(1) : Assessee in Default – Consequences of failure to deduct or pay – Deduction of Tax at Source – Time Limit.
Time limit for treating deductor as in default, is maximum time limit available for initiating and completing reassessment. On the facts as the order passed by the Assessing Officer was within six years from the end of the relevant assessment year, the order passed by the Assessing Officer was not time barred.
ACIT vs. Merchant Shipping Services (2011) 8 ITR 1 (Mum.)(Trib.)

S. 222 : Certificate to Tax Recovery Officer – Writ – Sale of Immoveable Property – Beneficiaries of Trust – Rule 11, Schedule II – (Article 226)
Petition filed by two beneficiaries of a trust challenging the attachment and proclamation of sale of properties belonging to the trust for recovery of tax dues of their deceased father without arraying the third beneficiary either as petitioner or as a party respondent cannot be entertained since the impugned order has became final and conclusive as regards 1/3rd undivided interest of the third beneficiary and no inconsistent order can be passed by the Court in the same lis. Petitioners have an alternative remedy of appeal against the impugned order passed by the respondent authorities rejecting their objections under rule 11 of Schedule II and therefore ,petition filed by two petitioners (beneficiaries of a trust) challenging the attachment and proclamation of sale of properties belonging to the trust for recovery of tax due is dismissed in limine.
Sagar Sharma & Anr. vs. Addl. CIT (2011) 52 DTR 89 / 239 CTR 169 (Bom.)(High Court)   

S. 234D : Interest on Excess Refund – Asst. Year 2003-04.
Section 234D was brought under statute book from the assessment year 2004-05 the Assessing Officer was not to levy the interest under section 234D.
C.A. Computer Associates P. Ltd. vs. Dy. CIT (2011) 8 ITR 142 (Mum.)(Trib.)

S. 244A : Refund – Interest – Refund of tax adjusted out of seized amount.
In respect of refund of tax recovered by the authorities by way of adjustment out of the amount  seized from the assessee–trust, sub–cl. (b) of section 244A is attracted and accordingly, interest under section 244A is payable to the assessee on such refund.
CIT vs. Islamic Academy Education (2011) 52 DTR 69 (Kar.)(High Court)
S. 254(2) : Appellate Tribunal – Powers – Stay.
Power of Tribunal to pass an order of stay is not confined to a case where an appeal is pending before Tribunal, but also extends to any proceedings relating to an appeal pending before it.
Application under section 254(2) is maintainable against order passed by Tribunal granting stay.
ITO vs. Vodafone Essar Ltd. (2011) 44 SOT 304 (Mum.)(Trib)

S. 254(2) : Appellate Tribunal – Power – Stay – Despite Third Proviso to section 254(2A), Tribunal has power to extend stay beyond 365 days if delay not attributable to assessee.
The Third Proviso to section 254(2A), as amended w.e.f. 1.10.2008, provides that if the appeal filed by the assessee is not disposed off within the period of stay granted by the Tribunal (which cannot exceed 365 days), the order of stay shall stand vacated even if the delay in disposing of the appeal is not attributable to the assessee. The assessee filed a stay application requesting stay of demand for penalty of Rs. 369 crores. On the expiry of 365 days of stay, the assessee asked for extension of stay relying on the Tribunal’s order in Ronak Industries where, stay had been granted beyond 365 days relying on the judgement of the Bombay High Court in Narang Overseas 295 ITR 22 (Bom.). As it was felt by the Tribunal that the reliance in Ronak Industries and Narang Overseas was misplaced in view of the amendment to the Third proviso to section 254(2A) w.e.f. 1.10.2008, the question whether the Tribunal had jurisdiction to extend stay beyond 365 days referred to the Special Bench. HELD by the Special Bench:
(i) In Ronak Industries, the Tribunal held, relying on Narang Industries, that the Tribunal has the power to extend stay beyond 365 days. This decision of the Tribunal was challenged by the department in the Bombay High Court by specifically raising a question as to the applicability of the Third Proviso to section 254(2A) as amended w.e.f 1.10.2008. The High Court, vide order dated 22.10.2010, dismissed the department’s appeal. As such, the Tribunal’s order holding that there was power to extend stay even after 365 days stood affirmed;
(ii) The department’s argument that the High Court’s order in Ronak Industries should be treated as per incuriam on the ground that the amendment made by the FA 2008 was not considered by it is not acceptable because (a) In Narang Overseas (rendered prior to the amendment) a wider view was taken as regards the power to grant stay, (b) In the appeal filed by the department in Ronak Industries a specific question with regard to the effect of the Third Proviso was raised and so it cannot be said that the High Court had not taken cognizance of the amendment, (c) the Tribunal cannot ignore a High Court’s decision on the ground that a provision of law was not considered by the High Court and (d) the fact that there is no discussion in the High Court’s order in Ronak Industries does not mean that does not lay down any ratio decidendi;
(iii) However, the recovery of the arrears by the Assessing Officer on the expiry of 365 days of stay cannot be ordered to be refunded because on the date of recovery the stay had expired and the application for extension was pending before the Special Bench. The Assessing Officer’s act was bona fide and as the recovery was by adjustment of refunds, it was not a “coercive measure” (RPG Enterprises 251 ITR (AT) 20 (Mum) & other cases holding that the Assessing Officer must refund taxes collected during the pendency of a stay application distinguished).
Tata Communication Ltd. vs. ACIT (ITAT Mumbai – Special Bench) Source: www.itatonline.org (Trib)

S. 254(2) : Appellate Tribunal – Stay – Direct Stay Application to Tribunal Maintainable – Not necessary that lower authorities must be approached first.
It is settled law that a Direct Stay Application filed before the Tribunal is maintainable and it is not the requirement of the law that assessee should necessarily approach the CIT before approaching the Tribunal for grant of stay. In deciding a stay application, the following aspects have to be considered: (i) liquidity of the funds of the assessee to clear the tax arrears out of own funds at the relevant point of time based on the assessee’s financial status at the time of the stay petition hearing; (ii) creditworthiness of the assessee to outsource the funds to clear the departmental dues; (iii) prima facie views on the likely decision of the Tribunal on the issues raised in the appeal; (iv) departmental urgencies in matters of collection and recovery; (v) guarantees provided by the assessee to safe guard the interest of the revenue etc.
Honeywell Automation India Ltd. vs. Dy. CIT (ITAT-Pune) Source: www.itatonline.org.(Trib)

S. 260A : Appeal – High Court – Notice – Paper Publication – Proper mode.
Income Tax Department having failed to serve notice on the assessee company (Respondent) other than by way of paper publication at the admission of the appeal, CIT is directed to set right the defect in the presentation of the appeal. Income Tax Department is deprecated for wasting public money by resorting to service of notice by paper publication as a matter of routine thereby incurring considerable unnecessary expenditure on cost of advertisement.
CIT vs. Happy Farms & Resorts Ltd. (2011) 51 DTR 334 (Karn.)(High Court)

S. 263 : Revision of orders prejudicial to revenue – Show cause Notice – Reasons not stated in show-cause notice – Order invalid.
If a ground of revision is not mentioned in the show-cause notice, it cannot be made the basis of the order for the reason that the assessee would have had no opportunity to meet the point (Maxpack Investments 13 SOT 67 (Del.), G. K. Kabra 211 ITR 336 (AP) & Jagadhri Electric Supply 140 ITR 490 (P&H) followed);
Synergy Enterpreneur Solutions Pvt. Ltd. vs. Dy. CIT (ITAT Mumbai) Source: www.itatonline.org (Trib)

S. 271C : Penalty for failure to deduct tax at source – Mala fide intention – Deliberate defiance of law – No penalty for tax deduction at source breach if no “mala fide intention” or “deliberate defiance” of law – (S. 194C, 194I, 194J, 201).
It was held that the fact that the assessee has not disputed the quantum is not a good ground for imposition of penalty unless and until material is brought on record to the effect that assessee deliberately defied the provisions (Anwar Ali 76 ITR 696 (SC) referred). Further, it was also observed that levy of penalty under section 271C is not automatic. (Woodward Governor India 253 ITR 745 (Del.) followed). If no malafide intentions of any kind are attributed to the assessee for deducting tax under one provision of law than other, thus no penalty could be levied.
CIT vs. Cadbury India Ltd. (Delhi High Court) Source: www. itatonline.org 

S. 271(1)(c) : Penalty Concealment – Admission by High Court – Mere admission of Appeal by High Court sufficient to disbar section 271(1)(c) penalty.
In quantum proceedings, the Tribunal upheld the addition of three items of income. The assessee filed an appeal to the High Court which was admitted. The Assessing Officer levied penalty under section 271(1)(c) in respect of the said three items. The penalty was upheld by the CIT(A). On appeal to the Tribunal, HELD allowing the appeal:
When the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied under section 271(1)(c). The admission of substantial question of law by the High Court lends credence to the bona fides of the assessee in claiming deduction. Once it turns out that the claim of the assessee could have been considered for deduction as per a person properly instructed in law and is not completely debarred at all, the mere fact of confirmation of disallowance would not per se lead to the imposition of penalty.
Nayan Builders & Developers Pvt. Ltd. vs. ITO (Trib.) Source: www.itatonline.org
Editorial:- Refer – Rupam Mercantile Ltd. vs. Dy. CIT (2004) 91 ITD 237 (Ahd.)(TM) (Trib)

Wealth Tax

S. 2(ea)(3) : Wealth Tax – Asset – House – Business Centre – (S. 7 Schedule III, R. 3, 5 & 8).
Premises in a business centre cannot be said to be a house within the meaning of cl. (3) of section 2(ea). The assessee had given the premises on lease under an agreement which had all the covenants that are usually found to be included in a lease and it cannot be said that the agreement was for a licence and therefore, it cannot be said that he was in occupation of the property for the purpose of a business or profession carried on by him so as to exclude it from the definition of the term “asset”.
Cravatex Ltd. vs. Addl. CIT (2011) 52 DTR 123 (Mum.)(Trib.) 

S. 2(m) : Wealth Tax – Net Wealth – Belonging to Assessee – Assets – Contraband Article.
Gold given on trust by the assessee to some persons which has neither returned by them nor recovered by the police is to be treated as lost once  civil remedy has became time barred and it is not to be included in the net wealth of the assessee. Gold alleged given by assessee to third parties which was recovered from third parties and has been delivered to Gold control authority by an order of the Court, same being a contraband article, cannot be said to be assets belonging to the assessee on the relevant valuation dates and therefore, it is not includible in its net wealth.
Meghji Girdhar (HUF) vs. CWT (2011) 52  DTR 397 / 239 CTR 411 (MP)(High Court) 

S. 16(4) : Wealth Tax – Reassessment – Amalgamation – Notice issued to non existing person is void – Reopening Notice issued to Amalgamating Co. Void & not saved by section 292B (S. 17, 42C Income Tax – S. 292B).
The law is well settled that the jurisdiction to reopen a proceeding depends upon issue of a valid notice. If the notice is not properly issued, the proceedings are ultra vires. A notice issued on a non-existent person is void. The fact that the assessee has filed a return in response to the notice makes no difference. Section 42C (S. 292B) does not save the defect in the notice. The defect goes to the root of the jurisdiction to reopen the proceedings.
L. K. Agencies Pvt. Ltd. vs. WTO (Calcutta High Court) Source: www.itatonline.org (High Court) 

Companies Act – Merger

S. 391 : Companies Act – Merger – Demerger – Sanction of Court – Tax Avoidance – Gift.
Proposed scheme of arrangement which contemplates transfer of passive infrastructure assets of the petitioner and other group companies to another group company without any consideration and thereafter amalgamation / merger of the transferee company with another company is explicitly a scheme of tax avoidance as it is devised to artificially deplete the taxable profits of the transferor companies apart from evading tax on capital gains by showing the transfer as gift and therefore, the proposed scheme cannot be sanctioned under 391 of the Companies Act, 1956.
Vodafone Essar Gujarat Ltd., In Re (2011) 52 DTR 293 (Guj.)(High Court)

Condonation of Delay – Substantial Justice – Appeal – Unless mala fides are writ large, delay should be condoned. Matters should be disposed of on merits and not technicalities.
Justice can be done only when the matter is fought on merits and in accordance with law rather than to dispose it of on such technicalities and that too at the threshold. Unless malafides are writ large on the conduct of the party, generally as a normal rule, delay should be condoned.
Improvement Trust vs. Ujagar Singh (2010) 6 SSC 786 / (2010) 6 Scale 173 (Supreme Court) Source: www.itatonline.org