U/s 153A & 153C, proceedings can be initiated only after the AO comes to the satisfaction that the seized material pertains to a person other than the searched party and comes to the conclusion that proceedings are required to be initiated in the other party’s case. In Manish Maheshwari 289 ITR 341 (SC), it was held in the context of s. 158 BD that the recording of satisfaction by the AO that any undisclosed income belongs to any person, other than the person searched, is a “condition precedent” and that a notice issued without recording satisfaction and application of mind was a nullity. This principle has been applied to s. 153C in SSP Aviation 207 Taxman 260 (Delhi) & P. Satyanarayana (ITAT Chennai). On facts, as the Department was not able to produce any material to show that the AO assessing the searched party had reached the satisfaction that any income belonged to the assessee, the assessment had to be annulled

In Aspi Ginwala (ITAT Ahmedabad) it was held that the Proviso to s. 54EC merely restricted the investment that can be made in one FY to Rs. 50 Lkahs but it did not restrict the exemption to Rs.50 lakhs. However, a contrary view was taken in Raj Kumar Jain & Sons (ITAT Jaipur) that the exemption u/s 54EC had to be restricted to Rs.50 lakhs. However, Circular no.3/2008 dated 12.3.2008 issued by the CBDT makes it clear that the Proviso only intended to restrict the investment in a particular financial year and did not intend to restrict the maximum amount of exemption permissible u/s 54EC. The fact that the Proviso uses the words “in a financial year” fortifies this interpretation. Accordingly, it has to be held that the assessee is entitled to total deduction of Rs. 1 crores in respect of the investment of Rs. 50 lakhs made in each financial year

U/s 2(22)(a), any distribution by a company of accumulated profits, whether capitalized or not, constitutes “dividend” if such distribution entails the release by the company to its shareholders of all or any part of the assets. As the assessee received the occupancy rights to the flat in perpetuity and could transfer them, it effectively meant that he had full ownership over the flat. Accordingly, the value of the flats was assessable as deemed dividend u/s 2(22)(a)

A retrospective amendment to the Act has no bearing on the DTAA because s. 90(2) makes it clear that the provisions of the Act shall apply only to the extent that it is favourable to the assessee. While a retrospective amendment will alter the provisions of the Act, it will not per se have the effect of automatically altering the analogous provision of the Treaty. Further, though the DTAA provides that the laws in force in India shall govern the taxation of income, this is subject to the exception that there is nothing to the contrary in the DTAA. Similarly, under Article 3(2), as the term “royalty” is defined in Article 12, the definition in s. 9(1)(vi) will have no application

As the assessee is engaged in the business of dealing in shares and the shares were held as stock-in-trade, the intention of the assessee was not to earn dividend income. As the dividend received was incidental to the business of sale of shares, no notional expenditure could be disallowed by invoking s. 14A (CCI Ltd 71 DTR 141 (Kar) & Apoorva Patni (ITAT Pune) (included in file) followed

As regards the determination of ALV in respect of income assessable as house property, it has been held by the Third Member in Baker Technical Services 126 TTJ 455 (Mum)(TM) that the ALV in respect of property which is not covered by the Rent Control Act has to be determined on the basis of the market rent. The municipal rateable value determined under the municipal law is not binding on the AO if he is able to show that the said rateable value does not represent the correct fair rent. In Reclamation Reality, the view of the Third Member in Baker Technical Services was not followed on the ground that it was contrary to the judgement of the Bombay High Court in M. V. Sonavala 177 ITR 246 and it was held that the municipal ratable value has to be considered as the ALV. The decision of the Third Member has the same binding force as that of the Special Bench and was required to be followed by the Division Bench in Reclamation Reality. It wrongly relied on M.V. Sonavala, which was a case dealing with property covered under the Rent Control Act. Also, the issue as to whether, if the Municipal Rateable Value does not give the correct fair rent, should still be taken as the ALV for properties not covered under the Rent Control Act was not an issue in M. V. Sonavala. This aspect has been considered in Baker Technical Services & Moni Kumar Subba 333 ITR 38 (Del) (FB) and it was held that if the municipal rateable value was not the fair rent, it was not binding on the AO

U/s 3, the previous year for a business newly set up is the period beginning with the date of “setting up” of the business. Till the business is “set up”, all expenses have to be capitalized. There is a clear distinction between a “commencement of a business” and “setting up a business”. A business can be said to have been “set up” when it is ready to commence the business for which it has been established. An assessee can be said to have set up its business from the date when one of the categories of its business is started and it is not necessary that all the categories of its business activities must start either simultaneously or that the last stage must start before it can be said that the business was set up. The test to be applied is as to when a businessman would regard a business as being commenced and the approach must be from a commonsense point of view (Western India Vegetable Products 26 ITR 151 (Bom), Ramaraju Surgical Cotton Mills Ltd 63 ITR 478 (SC) & Sarabhai Management Corp 102 ITR 25 (Guj) followed)

S. 153 provides that no assessment order shall be “made” u/s 143 after the expiry of two years from the end of the assessment year. There is no requirement that service must be effected before the expiry date. However, an order can be considered to have been made/ passed only when it leaves the control of the authority concerned. The mere signing of an order on the last date of limitation does not mean that it has been made/ passed if it is not handed over to the person who is authorized to serve it. In order to make the assessment order complete and effective, it should be issued so as to be beyond the control of the authority concerned for any possible change or modification and this should be done within the limitation period though actual service of the assessment order may be beyond that period. When an assessment order has been purported to have been passed within the prescribed period of limitation but the same is served on the assessee after unreasonable delay without being an explanation coming forward for such delay, in the absence of any explanation whatsoever it can safely be presumed that the order was not made on the date on which it purports to have been made and on the basis of such presumption it can be held that the order was passed after the expiry of limitation. On facts, the Department could not produce any evidence to prove that the assessment order was ready and dispatched on 31.12.2008. Thus, the assessee’s contention that the assessment order was not passed on 31.12.2008 has to be accepted and it has to be held that the order was barred by limitation (Kanu Bhai M. Patel (HUF) 334 ITR 25 (Guj) & other judgements followed)