While Explanation 2 to s. 147 deems income to have escaped assessment if excessive deduction is allowed, the reopening of an assessment u/s 147 has serious ramifications because the AO is empowered to reassess income even in respect of issues not set out in the notice. Therefore, if the power to rectify an order u/s 154(1) is adequate to meet a mistake or error in the order of assessment, the AO must take recourse to that power as opposed to the wider power to reopen the assessment. If the error can be rectified u/s 154, it would be arbitrary for the AO to reopen the entire assessment u/s 147. Further, the error in the order was not attributable to a fault or omission on the part of the assessee and the assessee cannot be penalized for a fault of the AO

Under the first proviso to s. 147 where an assessment has been made u/s 143(3), the assessment cannot be reopened after expiry of four years from the end of the relevant assessment year unless if income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. In the present case, there was no failure on the part of the assessee to make a full and true disclosure of the material facts. The argument that in view of the retrospective amendment of section 80IB, it is deemed that the petitioner has failed to disclose the correct facts is not acceptable. The question whether there is a failure to disclose all material facts is a matter of fact and there can be no deemed failure as contended by the department. Consequently, in the absence of any failure on the part of the assessee to make a full & true disclosure of material facts, the initiation of proceedings u/s 147 was vitiated and could not be sustained.

The AO passed an assessment order in which he declined to follow the judgement of the Bombay High Court in CST vs. Pee Vee Textiles 26 VST 281 on the ground that the said judgement “is not accepted by the Sales Tax Department and legal proceeding is initiated against the said judgment”. On a Writ Petition filed by the assessee, the High Court has taken the view that as the said judgement in Pee Vee Textiles is not stayed, “the refusal to follow and implement the judgment of this Court by Mr.Dubey in our considered view prima facie amounts to contempt of this Court”. The Court directed issue of a show-cause notice to the AO as to why action under the Contempt of Courts Act should not be initiated against him

The argument that s. 28(iiid) covers only the “profit” (difference between sale consideration and face value of the DEPB credit) and that the “face value” is assessable u/s 28(iiib) is not correct. The entire amount received on transfer of the DEPB credit is “profits” and falls under s. 28(iiid). There was no basis or justification for the Tribunal to hold that the face value of the DEPB credit can be reduced from the sale consideration. It is not permissible to bifurcate the proceeds of the DEPB into “face value” and “excess of face value”. The approach of the Tribunal is misconceived and unsustainable. As the assessee had an export turnover exceeding Rs.10 crores and did not fulfill the conditions set out in the third proviso to s. 80HHC (3), it was not entitled to a deduction u/s 80HHC on the amount received on transfer of DEPB.

Re user of trademark by the domestic entity on discretionary / mandatory basis: If a domestic Associate Enterprise uses a foreign trademark, no payment to the foreign entity on account of such user is necessary in case the user of the trademark is discretionary. However, the “income” arising from such transaction is required to be determined at arm‘s length price

The fact that a surplus incidentally arises from the activities of the assessee does not disentitle an assessee of the benefit of s. 10(23C). The third proviso to s. 10(23C) which permits accumulation of surplus up to limits shows that the generation of surplus is per se not a disabling factor. The effect of Aditanar Educational Institution 224 ITR 310 (SC) is that the decisive or acid test is whether the object is to make a profit. In evaluating or appraising the issue, one should bear in mind the distinction between the corpus, the objects and the powers of the concerned entity

S. 245S stipulates that an advance ruling is binding on the applicant, the CIT and the authorities subordinate to him in relation to which it was sought. S. 245S(2) postulates that the ruling shall cease to be binding if there is a change in law or facts on the basis of which the advance ruling has been pronounced. Once a ruling has been pronounced by the Authority, its’ binding effect can only be displaced in accordance with the procedure stipulated in law. The CIT manifestly exceeded his jurisdiction in relying upon the ruling of the AAR in Fidelity Northstar Fund as a basis to hold that the ruling obtained by the assessee was not binding on the department. The CIT ignored the clear mandate of the statutory provision that a ruling was binding only on the Applicant and the Revenue in relation to the transaction for which it is sought. The ruling in Fidelity cannot possibly, as a matter of the plain intendment and meaning of s. 245S, displace the binding character of the advance ruling rendered between the assessee and the Revenue

S. 194J requires tax to be deducted at source when payment of any sum is made to a “resident” by way of “fees for professional services”. The term “professional services” is defined in Explanation (a) to mean services rendered by a person inter alia in the course of carrying on medical profession. The term “resident” is not confined to a natural person. The argument that the medical profession can only be carried on by an individual and that consequently a hospital cannot be regarded as carrying on the medical profession and hence payments made by TPAs to a hospital cannot be treated as fees for professional services is not correct because in defining the expression “professional services” Parliament has not confined it to mean services rendered by an individual who carries on the medical profession. If Parliament intended to restrict the ambit of s. 194J only to fees received by an individual, it was open to Parliament to use words that would be indicative of that position. In fact, in defining the character of the person who is to make the payment, Parliament has excluded from the ambit of the expression “any person” an individual and a HUF. However, in defining the character of the payee, Parliament has used the wider expression “resident”. Further, the words “services rendered by a person in the course of carrying on” in the definition include services which are incidental to the carrying out of the medical profession

It is far fetched to accept the view that the rejection of a s. 197 application lies in the absolute discretion of the AO or that the AO is not bound to indicate reasons for the rejection of the application. The AO cannot be heard to urge that though an assessee fulfills all the requirements which are stipulated in Rule 28AA/29B, he possesses an unguided discretion to reject the application. In rejecting an application, he is bound to furnish reasons which demonstrate application of mind to the germane. Hence, It is impossible to accept the view that the rejection of an application u/s 197 does not result in an order. The expression “order” for purposes of s. 264 has a wide connotation and includes a determination by the AO on an application u/s 197

An exporter is not obliged to maintain the export proceeds in the EEFC Account but, this is a facility made available by the RBI. The transaction of export is complete in all respects upon repatriation of the proceeds. It lies within the discretion of the exporter as to whether the export proceeds should be received in a rupee equivalent in the entirety or whether a portion should be maintained in convertible foreign exchange in the EEFC Account. The exchange fluctuation arises after the export transaction is complete and payment has been received by the exporter. It does not bear a proximate and direct nexus with the export transaction so as to be “derived” from exports for s. 80HHC. Interest on EEFC deposits is not “business income” but is “income from other sources” and not eligible for deduction u/s 80HHC