Year: 2014

Archive for 2014


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DATE: (Date of pronouncement)
DATE: July 31, 2014 (Date of publication)
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S. 2(22)(e): The law laid down in Universal Medicare 324 ITR 263 (Bom) (approving Bhaumik Colour 313 ITR 146 (SB)), that s. 2(22)(e) does not apply to a non-shareholder, is good law

We do not see how with this legal position and the status of the shareholder recognized in law can be ignored while interpreting Section 2 (22) (e) of the I. T. Act. Precisely, this is what has been done by this Court in the judgment rendered in the case of Universal Medicare. It is not necessary for us to make a detailed reference to the order of the Special Bench of the Tribunal in the case of Bhaumik Colour Pvt Ltd. Suffice it to hold that the view taken by this Court in the case of M/s. Universal Medicare does not require any reconsideration. We are not in agreement with Shri Gupta that the definition does not contemplate or does not stipulate any requirement of assessee being a shareholder of the assessee like the one in the present case. The view taken in the present case that the recipient/assessee was not a shareholder, thus is in consonance with the legal position noted by us hereinabove. We are of the further view that this Court merely restated this principle and which remains unaltered throughout from the case of Rameshwarlal Sanwarmal v/s CIT 122 ITR 1 (SC)

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DATE: (Date of pronouncement)
DATE: July 31, 2014 (Date of publication)
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S. 271(1)(c): Relief by CIT(A) on merits (though reversed by ITAT) means claim is debatable

The fact that the claim of the assessee was accepted by the CIT(A) on merit clearly shows that the claim made by the assessee was based on a possible view of the matter. It also shows that the claim for deduction on account of legal expenses was a bonafide claim. In subsequent years, the assessee has capitalized similar legal expenses after having come to know about the disallowance made in the years under consideration. This show the bonafides of the assessee. All material particulars relevant to the claim were fully and truly furnished by the assessee and there is no allegation made by the AO in the penalty order that any inaccurate particulars were furnished by the assessee while making the claim on account of deduction of legal expenses. It is also not in dispute that the legal expenses claimed by the assessee were actually incurred by him and it is not the case of the Revenue at any stage that the expenses so claimed by the assessee were bogus. When no information given in the return is found to be in-correct or in-accurate, the assessee cannot be held guilty of furnishing in-accurate particulars of its income and unless the case is strictly covered by the provision, penalty cannot be imposed. Where there is no finding that the particulars furnished by the assessee in the return are in-accurate or erroneous or false, there is no question of imposing penalty u/s 271(1)(c) of the act merely because the claim of the assessee for deduction is disallowed in the quantum proceedings (Reliance Petroproducts Ltd 322 ITR158 (SC) followed)

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DATE: (Date of pronouncement)
DATE: July 29, 2014 (Date of publication)
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No s. 14A disallowance of interest paid on borrowings if assessee’s own funds and non-interest bearing funds exceeds investment in tax-free securities

In principle, if there are funds available, both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company if the interest-free funds were sufficient to meet the investment. On facts, the assessee’s own funds and other non-interest bearing funds were more than the investment in the tax free securities. Consequently, the ITAT rightly held that there was no basis for deeming that the assessee had used borrowed funds for investment in tax free securities (Reliance Utilities and Power Ltd 313 ITR 340 (Bom), East India Pharmaceutical Works 224 ITR 627 (SC) & Woolcombers 134 ITR 219 (Cal) followed)

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DATE: (Date of pronouncement)
DATE: July 29, 2014 (Date of publication)
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Frivolous appeals by dept results in harassment to assessee & wastage of judicial time. Dept to pay costs of Rs. 3 Lakh. Costs may be recovered from, disciplinary action taken against, concerned official

(i) We are surprised if not shocked that such appeals are being brought before us and precious judicial time is being wasted that too by the Revenue. The least and minimum that is expected from the Revenue officers is to accept and abide by the Tribunal’s findings in such matters and when they are based on settled principles of law. If they are not deviating from such principles and are not perverse but consistent with the material on record, then, we do not find justification for filing of such appeals. We have found that merely expressing displeasure orally is not serving any purpose;

(iv) It would be open for the superior/competent authority to recover the costs personally from the officer responsible and equally take disciplinary action against him if the power to decide about filing such appeals is abused or the decision making authority is utilized to harass innocent Assessees.

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DATE: (Date of pronouncement)
DATE: July 24, 2014 (Date of publication)
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Mere admission of Appeal by High Court sufficient to disbar s. 271(1)(c) penalty

This Appeal cannot be entertained as it does not raise any substantial question of law. The imposition of penalty was found not to be justified and the Appeal was allowed. As a proof that the penalty was debatable and arguable issue, the Tribunal referred to the order on Assessee’s Appeal in Quantum proceedings and the substantial questions of law which have been framed therein. We have also perused that order dated 27.09.2010 admitting Income Tax Appeal No.2368 of 2009. In our view, there was no case made out for imposition of penalty and the same was rightly set aside

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DATE: (Date of pronouncement)
DATE: July 23, 2014 (Date of publication)
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S. 68: Primary burden is on AO to show that share application money is assessable as unexplained cash credit. AO cannot sit back with folded hands & simply reject assessee’s evidences

(i) Even if the reopening is sustained, the primary burden that income has escaped assessment is on the shoulder of the AO and after discharging this burden only, the onus shifts to the shoulder of the assessee. There are two types of cases. One in which the AO carries out the exercise which is required in law and the other in which the AO ‘sits back with folded hands‘ till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. On facts, nothing has been brought on record by the AO to substantiate his serious allegation that these two entries are accommodation entries which was the sole ground and basis for reopening;

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DATE: (Date of pronouncement)
DATE: July 23, 2014 (Date of publication)
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S. 147: Retracted statement cannot form the basis of reopening. Protective assessment without substantive assessment is not permissible

(ii) The AO has not made any specific allegations against the assessee. He intended to make a protective assessment on the assessee. However, while there can be a substantive assessment without any protective assessment, there cannot be a protective assessment/addition without a substantive assessment/addition. As no substantive assessment/addition was made in the hands of Subodh Gupta, the protective reassessment assessment on the assessee is not permissible (M.P. Ramachandaran 32 SOT 592 (Mum) & Suresh K Jajoo 39 SOT 514 (Mum) followed)

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DATE: (Date of pronouncement)
DATE: July 23, 2014 (Date of publication)
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Fee received for “foreign exchange deal matching system services” constitutes “royalty” under Article 12 of India-UK DTAA & s. 9(1)(vi)

The assessee is facilitating its clients to use its system and application programming interface which is subscriber interface for use with the related services including Auto quote service. The assessee is also providing the equipment with pre-loaded software to its subscribers and network used for provision of the services. The assessee grants subscribers limited license of software to install and use at the site. The said license can be sub-licensed by the subscriber. The subscriber/user can also view, manipulate and create the derived data from information for their individual use. Further the subscriber can Store information, manipulate information for its use and also distribute or redistribute information and Drive Data to anyone to a limited extent so far as it is not done in a systematic manner. The subscribers are allowed to use the information and even to manipulate and Drive the Data to anyone for their individual use. Thus it is clear that it is subscribers who are using the information and system of the assessee for their commercial/business purposes. The information is made available by the assessee through its system and other equipments installed at the site of the subscriber to facilitate the connectivity with the assessee’s system/reuter located in Geneva. The platform of transacting the purchase and sale is commercial equipment allowed to be used by clients/ subscribers for commercial purposes. The nature of service rendered by the assessee includes the information concerning commercial use by the subscriber. Further the entire system of the assessee including the equipments and connectivity facility is provided at the site of the subscriber. Therefore, the assessee is providing the service in the form of information and solution to the need of the subscribers by providing the matching party. Also, the Indian subscribers have been granted a license to use the software for their internal business, which can be sub-licensed by them. The Indian clients are paying for use and right to use of equipment (scientific, commercial) along with software for which license was granted by assessee. It is not a case of simplicitor payment for access to the portal by use of normal computer and internal facility but the access is given only by use of computer system and software system provided by the Assessee under license. Accordingly, by allowing the use of software and computer system to have access to the portal of the assessee for finding relevant information and matching their request for purchase and sale of foreign exchange amount to imparting of information concerning technical, industrial, commercial or scientific equipment work and payment made in this respect constitutes royalty (Asia Satellite Telecommunications Co. Ltd 332 ITR 340 (Del) distinguished)

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DATE: (Date of pronouncement)
DATE: July 22, 2014 (Date of publication)
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S. 43B covers employees’ contribution to Provident Fund & deduction is allowable if paid before due date for filing ROI

On a plain reading of the second proviso to s. 43B, it is clear that the assessees – employers were entitled to deductions only if the contribution to any fund for the welfare of the employees stood credited on or before the due date given in the relevant Act. However, because the second proviso created difficulties for the assessees – employers, an amendment was inserted vide Finance Act, 2003 with effect from 1st April 2004 to delete the second proviso to s. 43B and to amend the first proviso to provide that the deduction would be allowed if the amount was paid on or before the due date for furnishing the return of income u/s 139(1). Therefore, the amendments introduced by the Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various Employee’s Welfare Funds on the other. In Alom Extrusions Ltd 319 ITR 306 (SC) it was held that the amendment to the s. 43B by the Finance Act, 2003 w.e.f. 01.04.2004 was retrospective in nature and would operate from 01.04.1988. Consequently, the ITAT rightly deleted the addition of Rs.1.82 cr on account of delayed payment of Provident Fund of employees’ contribution. Even otherwise, we fail to understand how this deduction could have been disallowed to the Assessee. Admittedly, the AY in question is 2006-07. The second proviso to s. 43B was deleted w.e.f. 01.04.2004 and simultaneously the first proviso was also amended bringing about a uniformity in deductions claimed towards tax, duty, cess and fee on the one hand and contribution to the employees’ provident fund, superannuation fund and other welfare funds on the other. These deductions being claimed in the return of income filed for AY 2006-07, the amendments to s. 43B which came into force w.e.f. 01.04.2004 clearly applied to the assessee’s case

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DATE: (Date of pronouncement)
DATE: July 22, 2014 (Date of publication)
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Loss on account of depreciation in value of securities held as stock is not notional & is allowable as a deduction

A method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping the accounts or on valuation. Financial institutions like bank, are expected to maintain accounts in terms of the RBI Act and its regulations. The form in which, accounts have to be maintained is prescribed under the aforesaid legislation. Therefore, the account had to be in conformity with the said requirements. The RBI Act or the Companies Act do not deal with the permissible deductions or exclusion under the Income Tax Act. For the purpose of the Income Tax Act, the method of valuation followed by the assessee was to value the investments at cost or market value whichever was lower. The assessee was entitled to claim a deduction for the depreciation in the value of the securities held by it. The fact that the securities were not sold to a third party did not mean that the loss was notional (United Commercial Bank 240 ITR 355 (SC), Bank of Baroda 262 ITR 334 (Bom) & Karnataka Bank Ltd 356 ITR 549 (Kar) followed)