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DATE: February 18, 2016 (Date of pronouncement)
DATE: February 22, 2016 (Date of publication)
AY: 2007-08 to 2012-13
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CITATION:
S. 147: The reopening of the assessment is not valid if the reasons recorded are incoherent and do not indicate what the basis for reopening is

A plain reading of the reasons recorded for reopening reveals that the reasons are totally incoherent. In fact, a plain reading of it gives rise to doubts whether some lines have gone missing or some punctuation marks have been left out. Grammatically also the reasons recorded make little sense. However, this is the least of the problems. Essentially, the reasons recorded do not indicate what the basis for the reopening of the assessments is

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DATE: February 11, 2016 (Date of pronouncement)
DATE: February 22, 2016 (Date of publication)
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CITATION:
S. 37(1): Expenditure in respect of a project which did not materialize has to be treated as revenue expenditure as not capital asset comes into existence

On the question was to whether if the project does not materialize and an asset is not created, expenditure on steps in that direction must be treated as capital expenditure or revenue expenditure, the Supreme Court in Commissioner of Income Tax vs. Madras Auto Service (P) Ltd., reported at (1998) 233 ITR 468 clinches the controversy. There while considering the issue, the Court finds that the assessee could not have claimed it as capital expenditure, as there was no capital asset generated by spending said amount. The expenditure has been held rightly classified as revenue expenditure

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DATE: February 11, 2016 (Date of pronouncement)
DATE: February 17, 2016 (Date of publication)
AY: 2011-12
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CITATION:
A Power of Attorney executed by the Head Office in favour of the Liaison Office in India does not create a Permanent Establishment if the powers are specific to the liaison office and are not unfettered powers to enable to Liaison Office to act on behalf of the enterprise

The sole basis on which the AO as well as the DRP came to a conclusion that the assessee had a P.E. in India is the clauses in power of attorney executed by the head office in favour of its employee in the L.O. in India. Reliance was also placed on the permission granted by the RBI to the assessee for setting up the L.O. A plain reading of the clauses in the power of attorney takes us to a conclusion that the powers given therein are L.O. specific. The AO’s conclusion that the power of attorney granted unfettered powers to its L.O. employee, to do all or any acts for and on behalf of the assessee, is incorrect. In our view the finding of the AO that the power of attorney is an open ended document, which is clearly outside the scope of initial permission granted by the RBI is also perverse. No doubt the AO can investigate, call for evidences and come to a conclusion where any income earning activity has been carried out by the L.O. so as to construe it as fixed P.E. but, in our view it is beyond the jurisdiction of the AO to adjudicate and conclude that the assessee has filed false declarations before the RBI. At best, he can bring his findings to the notice of the RBI which may consider the same in accordance with law. The RBI has not found any violation of conditions laid down by it while permitting the assessee to have an L.O. In such circumstances, no adverse inference can be drawn

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DATE: February 1, 2016 (Date of pronouncement)
DATE: February 17, 2016 (Date of publication)
AY: 2007-08
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CITATION:
Explanation 2 to s. 263 (which supersedes the law that there is a difference between "lack of inquiry" and "inadequate inquiry") is "declaratory & clarificatory" in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interests of Revenue

The amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 of the Act is declaratory & clarificatory in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue, it is, inter-alia, provided that if the order is passed without making inquiries or verifications by AO which, should have been made or the order is passed allowing any relief without inquiring into the claim; the order shall be deemed to be erroneous and prejudicial to the interest of Revenue. The Hon’ble Supreme Court in the case of Malabar Industrial Company Limited v. CIT (2000) 109 Taxman 66 (SC) held that if the AO has accepted the entry in the statement of account filed by the taxpayer without making enquiry, the said order of the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue. In our considered opinion, the facts of the case of the assessee company are similar to the facts in the case of Malabar Industrial Co. Limited(supra) whereby no enquiry/verification is made by the AO whatsoever with respect to claim of deduction of Rs. 17.72 crores with respect to the provisions for warranty, excise duty , sales tax and liquidated damages. Moreover, now Explanation 2 to Section 263 of the Act is inserted in the statute which is declaratory and claraficatory in nature to declare the law and provide clarity on the issue whereby if the A.O. failed to make any enquiry or necessary verification which should have been made, the order becomes erroneous in so far as it is prejudicial to the interest of revenue

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DATE: October 16, 2015 (Date of pronouncement)
DATE: February 16, 2016 (Date of publication)
AY: -
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CITATION:
Law on prospective vs. retrospective operation of legislation explained. The Hindu Succession (Amendment Act), 2005 which came into effect on 09.09.2015 and by which daughters in a joint Hindu family, governed by Mitakshara law, were granted statutory right in the coparcenary property (being property not partitioned or alienated) of their fathers applies only if both the father and the daughter are alive on the date of commencement of the Amendment Act

An amendment of a substantive provision is always prospective unless either expressly or by necessary intendment it is retrospective3. In the present case, there is neither any express provision for giving retrospective effect to the amended provision nor necessary intendment to that effect. Requirement of partition being registered can have no application to statutory notional partition on opening of succession as per unamended provision, having regard to nature of such partition which is by operation of law. The intent and effect of the Amendment will be considered a little later. On this finding, the view of the High Court cannot be sustained. Interpretation of a provision depends on the text and the context (RBI vs. Peerless (1987) 1 SCC 424, para 33). Normal rule is to read the words of a statute in ordinary sense. In case of ambiguity, rational meaning has to be given (Kehar Singh vs. State (1988) 3 SCC 609). In case of apparent conflict, harmonious meaning to advance the object and intention of legislature has to be given (District Mining Officer vs. Tata Iron and Steel Co. (2001) 7 SCC 358)

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DATE: December 22, 2015 (Date of pronouncement)
DATE: February 16, 2016 (Date of publication)
AY: -
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CITATION:
Pursuant to the amendment to the Hindu Succession Act, 1956 by the Hindu Succession (Amendment) Act, 2005 all rights which were available to a Hindu male are now also available to a Hindu female. A daughter is now recognised as a co-parcener by birth in her own right and has the same rights in the co-parcenary property that are given to a son. Consequently, the eldest daughter is entitled to be the Karta of the HUF

The impediment which prevented a female member of a HUF from becoming its Karta was that she did not possess the necessary qualification of co-parcenership. Section 6 of the Hindu Succession Act is a socially beneficial legislation; it gives equal rights of inheritance to Hindu males and females. Its objective is to recognise the rights of female Hindus as co-parceners and to enhance their right to equality apropos succession. Therefore, Courts would be extremely vigilant apropos any endeavour to curtail or fetter the statutory guarantee of enhancement of their rights. Now that this disqualification has been removed by the 2005 Amendment, there is no reason why Hindu women should be denied the position of a Karta. If a male member of an HUF, by virtue of his being the first born eldest, can be a Karta, so can a female member. The Court finds no restriction in the law preventing the eldest female co-parcener of an HUF, from being its Karta. The plaintiff’s father‟s right in the HUF did not dissipate but was inherited by her. Nor did her marriage alter the right to inherit the co-parcenary to which she succeeded after her father‟s demise in terms of Section 6

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DATE: February 11, 2016 (Date of pronouncement)
DATE: February 15, 2016 (Date of publication)
AY: 2008-09
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CITATION:
Argument that transfer pricing adjustment cannot be made if the assessee's income is deductible u/s 10A/ 10B is not acceptable. Contrary view in TCS cannot be followed as it is obiter dicta & contrary to law laid down in Aztech Software 107 ITD 141 (SB)

No exception has been carved out by the statute for non-determination of the ALP of an international transaction of an assessee who is eligible for the benefit of deduction section 10A/10B or any other section of Chapter- VIA of the Act. Section 92(1) clearly provides that any income arising from an international transaction is required to be computed having regard to its arm’s length price. There is no provision exempting the computation of total income arising from an international transaction having regard to its ALP, in the case of an assessee entitled to deduction u/s 10A or 10B or any other relevant provision. Section 92C dealing with computation of ALP clearly provides that the ALP in relation to an international transaction shall be determined by one of the methods given in this provision. This section also does not immune an international transaction from the computation of its ALP when income is otherwise eligible for deduction. On the contrary, we find that sub-section (4) of section 92C plainly stipulates that where an ALP is determined, the AO may compute the total income of the assessee having regard to the ALP so determined. This shows that the total income of an assessee entering into an international transaction, is required to be necessarily computed having regard to its ALP without any exception

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DATE: August 28, 2015 (Date of pronouncement)
DATE: February 15, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 54EC: The period of "6 months" available for making investment means 6 calendar months & not 180 days. Payment by cheque dates back to date of presentation & not date of encashment

For purposes of section 54EC, as held by the Special Bench of Ahmedabad bench in the case of Alkaben B. Patel (2014) 148 ITD 31 (Ahd) and M/s. Crucible Trading Co. Pvt. Ltd. in ITA No.5994/Mum/2013 dated 25.02.2015 “6 months” have been interpreted and it is held that the same would mean 6 calendar months and not 180 days. As held by the Supreme Court in CIT vs. Ogale Glass Works Ltd. (1954) 25 ITR 529 (SC), in the case of cheques not having been dishonored but having been encashed, the payment related back to the date of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques

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DATE: September 29, 2015 (Date of pronouncement)
DATE: February 15, 2016 (Date of publication)
AY: 2006-07
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CITATION:
Expl to s. 37(1): Penalties & fines paid to SEBI, BSE etc for breach of regulatory/ procedural requirements are "compensatory" in nature and not for any purpose which is an ‘offense’ prohibited by the law

An ‘offence’ would be the one which will arise as a result to commission of an action which is prohibited by law, and, in all the given situations, no element of any consent of the parties involved can bring any change in its legal consequences. Similarly, any amount paid by the assessee, in the form of compensation, as a consequence of breach of contract between the two parties, cannot be said to be amount paid for any purpose which is an ‘offence’, prohibited by the law. In other words, under the income tax law, one is required to go into the real nature of the transactions and not to the nomenclature that may have been assigned by the parties. Thus, to decide such issues, we are required to see real substance under the Income Tax Law, and not merely its form. Thus, only those payments, which have been made by the assessee for any purpose which is an ‘offence’ or which is ‘prohibited by law’, shall alone would be hit by the explanation to section 37

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DATE: August 28, 2016 (Date of pronouncement)
DATE: February 15, 2016 (Date of publication)
AY: 2008-09
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CITATION:
There is a distinction betwen "setting up" and "commencement" of a business. A business is "set up" and expenditure is deductible even if assessee has no customers and no income

The assessee has already purchased residential flat for the purpose of resale/lease, and therefore assessee was apparently ready to do its business. Under these circumstances, it can be said that the business is set up by the assessee during the year under consideration. For the deductibility of expenses incurred after this stage, earning of the business income is not a mandatory condition under the law. The assessee may not have been successful in getting customers or earning the business income, but if the assessee has done requisite preparations and if the assessee can be said to be in a position to cater to its customers, then it can be said that business is set up and it would amount to carrying on the business and accordingly the expenses would stand allowable to the assessee, irrespective of the fact whether actually assessee got any customer and earned any business income during the year or not

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