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DATE: February 25, 2016 (Date of pronouncement)
DATE: March 3, 2016 (Date of publication)
AY: 2008-09
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S. 14A/ Rule 8D: Severe strictures passed against the ITAT for taking the view that the presumption laid down in HDFC Bank 366 ITR 505 (Bom) and Reliance Utilities 313 ITR 340 (Bom) that investments in tax-free securities must be deemed to have come out of own funds and (ii) Law laid down in India Advantage (Bom) that s. 14A and Rule 8D does not apply to securities held as stock-in-trade cannot be applied as both propositions are contrary to Godrej & Boyce 328 ITR 81 (Bom). ITAT's order reversed on the ground that it is "Judicial Indiscipline" leading to complete chaos and anarchy in the administration of law

The impugned order of the Tribunal seems to question the decision of this Court in HDFC Bank Ltd. (supra) to the extent it relied upon the decision of this Court in Reliance Utilities and Power Ltd. (supra). This is by observing that the decision in Reliance Utilities and Power Ltd.(supra) it must be appreciated was rendered in the context of Section 36(1)(iii) of the Act and its parameters are different from that of Section 14A of the Act. This Court in its order in HDFC Bank Ltd.(supra) consciously applied the principle of presumption as laid down in Reliance Utilities and Power Ltd. (supra) and in fact quoted the relevant paragraph to emphasize that the same principle / test of presumption would apply to decide whether or not interest expenditure could be disallowed under Section 14A of the Act in respect of the income arising out of tax free securities. It is not the office of Tribunal to disregard a binding decision of this court. This is particularly so when the decision in Reliance Utilities and Power Ltd. (supra) has been consciously applied by this Court while rendering a decision in the context of Section 14A of the Act

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DATE: January 27, 2016 (Date of pronouncement)
DATE: March 3, 2016 (Date of publication)
AY: 2007-08
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S. 147/ 148: Providing the assessee with the recorded reasons towards the end of the limitation period and passing a reassessment order without dealing with the objections results in gross harassment to the assessee which the Pr. CIT should note & remedy

The Principal Commissioner of Income Tax would take serious note of the above and after examining the facts, if necessary, take appropriate remedial action to ensure that an assessee is not made to suffer for no fault on its part. This is particularly so as almost the entire period of two years from the end of the financial year in which the notice is issued was consumed by the Assessing Officer in failing to give reasons recorded in support of the impugned notice. Nevertheless, the Assessing Officer proceeds to pass a draft Assessment order without dealing with the objections filed by the Petitioner. We could have on that date or even earlier passed an order setting aside the draft assessment order dated 30th March 2015 as it was passed without disposing of the objections. Thus, clearly without jurisdiction. However, we were of the view that although this appears to be a gross case of harassing an Assessee, the Principal Commissioner would take note and adopt remedial action / proceedings

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DATE: February 9, 2016 (Date of pronouncement)
DATE: February 23, 2016 (Date of publication)
AY: 2006-07
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S. 271(1)(c): Penalty is not leviable on income declared during survey and offered in return. Law laid down in Mak Data 358 ITR 593 (SC) is distinguishable on facts and not universally applicable. A mere change of head of income does not attract penalty

The reliance by the Revenue upon the decision of the Apex Court in Mak Data P. Ltd 358 ITR 593 (SC) to contend that the justification of having deleted and accepted the amount of Rs.1.62 Crores as business income, to buy peace is not available. We find that the facts in that case are completely distinguishable and the observations made therein would not be universally applicable. In that case, a sum of Rs.40.74 lakhs had never been disclosed to the Revenue. During the course of survey, the assessee therein had surrendered that amount with a covering letter that this surrender has been made to avoid litigation and buy peace with the Revenue. In the aforesaid circumstances, the Apex Court held that the words like “to avoid litigation and buy peace” is not sufficient explanation of an assessee’s conduct. It held that the assessee had to offer an explanation for the concealment of income and/or furnishing of inaccurate particulars of income by leading cogent and reliable evidence. The Apex Court further records that in the facts of the case before it the surrender of income was not voluntary but was made only on the account of detection by the Assessing Officer during the course of survey. Further, the Apex Court also records the fact that the survey was conducted more than 10 months before the assessee filed its return of income

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DATE: February 10, 2016 (Date of pronouncement)
DATE: February 22, 2016 (Date of publication)
AY: 2010-11
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S. 147: Law laid down in DCIT vs. Zuari Estate Development and Investment Co 373 ITR 661 does not mean that in cases where no assessment order is passed and assessment is completed by Intimation u/s 143(1), the sine qua non to show that there is "reason to believe that income chargeable to tax has escaped assessment" is not required. It is open to the assessee to challenge a notice issued u/s 148 as being without jurisdiction for absence of reason to believe even in case where the assessment has been completed earlier by Intimation u/s 143(1) of the Act

It is settled position in law that the decision of the Court has to be read in the context of the facts involved therein and not on the basis of what logically flows therefrom as held by the Supreme Court in Ambica Quarry Works Vs. State of Gujarat, 1987(1) SCC 213. The Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra)not having dealt with the issue of reason to believe that income chargeable to tax has escaped assessment on the part of the Assessing Officer in cases where regular assessment was completed by Intimation under Section 143(1) of the Act, it would not be wise for us to infer that the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has held that the condition precedent for the issue of reopening notice namely, reason to believe that income chargeable to tax has escaped assessment, has no application where the assessment has been completed by Intimation under Section 143(1) of the Act. The law on this point has been expressly laid down by the Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) and the same would continue to apply and be binding upon us. Thus, even in cases where no assessment order is passed and assessment is completed by Intimation under Section 143(1) of the Act, the sine qua non to issue a reopening notice is reason to believe that income chargeable to tax has escaped assessment. In the above view, it is open for the petitioner to challenge a notice issued under Section 148 of the Act as being without jurisdiction for absence of reason to believe even in case where the Assessment has been completed earlier by Intimation under Section 143(1) of the Act

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DATE: February 11, 2016 (Date of pronouncement)
DATE: February 22, 2016 (Date of publication)
AY: -
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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: September 16, 2015 (Date of pronouncement)
DATE: February 13, 2016 (Date of publication)
AY: 2007-08
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Transfer Pricing: Companies with large turnover like Infosys & Wipro are not comparable to companies with smaller turnover and should be excluded from the list of comparables

The said Companies are no doubt large and distinct companies where the area of development of subject services are different and as such the profit earned therefrom cannot be a bench-marked or equated with the assessee. The Tribunal whilst passing the impugned Order has considered the said principles whilst coming to the conclusion that the said three Companies cannot be treated to be comparable to the Assessee Company. The turn over is obviously a relevant factor to consider the comparability

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DATE: February 5, 2016 (Date of pronouncement)
DATE: February 12, 2016 (Date of publication)
AY: 1999-00
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S. 172/ 195: Shipping companies assessed u/s 172 are not subject to TDS obligations u/s 195

To our mind, the Division Bench judgment in Commissioner of Income-tax vs. Orient (Goa) Pvt. Ltd 325 ITR 554 seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business

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DATE: January 27, 2016 (Date of pronouncement)
DATE: February 5, 2016 (Date of publication)
AY: -
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High Court Shocked At Loot Of Taxpayers Funds By Corrupt Babus. Calls For Non-Cooperation Movement By Taxpayers To Eradicate "Hydra Headed Monster" Of Corruption

Hon’ble Justice A. B. Chaudhari of the Nagpur Bench of the Bombay High Court has passed severe strictures against the Government for turning a blind eye to the rampant corruption in the Country. The learned Judge lamented that “It shocks one and all as to the manner in which the taxpayers’ money is being swindled, misappropriated and robbed by such unscrupulous holders of posts”.

He also pointed that corruption has become the order of the day over the past few decades and that taxpayers are helpless victims of the sordid state of affairs.

“Does the taxpayers pay the money to the Government for such kind of acrobatics being played” Justice Chaudhari asked in a rhetorical manner.

He also lamented that ethics and morals have taken a back seat in modern India’s scheme of things. He opined that to eradicate the “hydra headed monster” of corruption, citizens have to come together to tell their Governments that they have had enough. He also recommended that taxpayers’ may have to resort to refuse to pay taxes by a “non-cooperation movement“.

The learned Judge also found fault with the attitude of the employees’ unions who are otherwise very vigilant about their rights. He expressed surprise that the Unions do not “condemn, outcast or demonstrate against their counterpart bureaucracy indulging in corruption” and on the contrary support their misdeeds.

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DATE: December 16, 2015 (Date of pronouncement)
DATE: January 15, 2016 (Date of publication)
AY: 2009-10 to 2012-13
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S. 254(2A): As the Third Proviso which restricts the power of the ITAT to grant stay beyond 365 days “even if the delay in disposing of the appeal is not attributable to the assessee” has been struck down in Pepsi Foods 376 ITR 87 (Del) as being arbitrary, unreasonable and discriminatory, the law laid down in Narang Overseas 295 ITR 22 (Bom) & Ronuk Industries 333 ITR 99 (Bom) that the ITAT has power to grant stay beyond 365 days has to be followed

The ratio of the decision of this Court in “Narang Overseas (P) Ltd.” (supra) would apply even to the substituted third proviso to Section 254(2A) of the Act. The basis of the decision in “Narang Overseas (P) Ltd.” (supra) was that the power to grant stay or interim relief has to be read as coextensive with the power to grant final relief. The object being that in the absence of the power to grant interim relief the final relief itself may be defeated. This Court thereafter followed the decision of the Apex Court in “CCE vs. Kumar Cotton Mills(P) Ltd., (2005(180) ELT 434 (SC)) and held that notwithstanding the pre-substituted third proviso to Section 254(2A) of the Act the Tribunal continues to have powers to grant interim relief. In the above view, therefore, the ratio of the decision in “Narang Overseas (P) Ltd.” (supra) would apply even in case of substituted third proviso to Section 254(2A) of the Act

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DATE: January 8, 2016 (Date of pronouncement)
DATE: January 15, 2016 (Date of publication)
AY: -
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S. 268A: Though the low tax effect circular No. 21/2015 dated 10.12.2015 does not refer to references filed u/s 256(1), it has to be held to apply to references as well in view of the objective of the CBDT to focus only on large tax effect matters

One feature in support of the submission that the Circular be not applied to References could be that the References are opinions sought by the Tribunal on questions of law from this Court unlike statutory appeals filed by the parties, seeking the view of the Courts. However though these References are undoubtedly made by the Tribunal, they emanate from an application by one of the parties before it leading to the order giving rise to the question of law requiring the opinion of the Court. This in practice is similar to the statutory appeal under Section 260A of the Act being filed by a party to the High Court for the reason that, this appeal is not considered as a matter of right of the party but only if the court to which the appeal is preferred is satisfied that a substantial question of law arises and admits the appeal for further consideration. Therefore a pending appeal under Section 260A of the Act is no different from a pending Reference in as much as in the case of a Reference the Tribunal is of the view that a substantial question of law arises either on its own (Section 256(1) of the Act) or as directed by Court (Section 256(2) of the Act) which requires the opinion of the Court, while in a pending appeal under Section 260A of the Act which has been admitted, the Court is of the view that a substantial question of law arises which requires due consideration by the Court. Therefore we construe the Circular dated 10th December 2015 as applicable even to pending References in the same manner they apply to pending appeals

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