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

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)

S. 147: In view of the verdicts of the Supreme Court in GKN Driveshafts & Chhabil Dass Agarwal a s. 148 notice & order on objections cannot be challenged in a Writ Petition

(i) A challenge to an order passed on the objections of the assessee is in effect a challenge to a notice u/s 148 of the Act. Such an order passed by the AO is only at the stage of process of determination and not a determination by itself. The process of assessment is not required to be challenged before Court of law, as it is a still born child. Therefore, the assessee cannot have a legal right as there is no legal injury suffered by them at that stage. A Writ can be filed to the limited extent in cases where an assessment is sought to be reopened by an Officer who is not competent to do so or where on the face of it would appear that the reopening is barred by limitation or lacks inherent jurisdiction i.e. cases where no adjudication is required on facts (Chhabil Dass Agarwal (2014) 1 SCC 603) followed)

S. 54/54F: Two flats, even though acquired under different agreements & from different sellers, are one residential unit if there is a common kitchen

The department’s argument that the law laid down by the Tribunal in ITO v/s Sushila M. Jhaveri 107 ITD 327 (Mum)(SB) and confirmed by this Court in CIT v/s Raman Kumar Suri (Income Tax Appeal No.6962 of 2010, decided on 27.11. 2012) on the availability of exemption u/s 54 is applicable only when the house purchased is a single unit and not where two flats, one acquired in the assessee’s name and another jointly in the names of the assessee and his wife but under two distinct agreements and from different sellers have been taken into consideration is not acceptable. Though these flats were acquired under two distinct agreements and from different sellers, the map of the general layout plan as well as internal layout plan in regard to flat Nos.103 and 104 indicate that there is only one common kitchen for both the flats. The flats were constructed in such a way that adjacent units or flats can be combined into one. The admitted fact is that the flats were converted into one unit and for the purpose of residence of the assessee. Thus, though the acquisition of the flats may have been done independently but eventually they are a single unit and house for the purpose of residence

S. 201 TDS: Even if the statute does not lay down a time limit, proceedings must be completed within a limited period

S. 201 of the Act does not prescribe any limitation period for the assessee being declared as an assessee in default. If no period of limitation is prescribed, a statutory authority must exercise its jurisdiction within a reasonable period. What should be the reasonable period depends upon the nature of the statute, rights and liabilities thereunder and other relevant factors. Insofar as the IncomeTax Act is concerned, s. 153(1)(a) prescribes the time limit for completing the assessment, which is two years from the end of the assessment year in which the income was first assessable. It is well known that the assessment year follows the previous year and, therefore, the time limit would be three years from the end of the financial year. This seems to be a reasonable period as accepted u/s 153 of the Act, though for completion of assessment proceedings. Even though the period of three years would be a reasonable period as prescribed by s. 153 of the Act for completion of proceedings, the Income Tax Appellate Tribunal has taken the view that four years would be a reasonable period of time for initiating action, in a case where no limitation is prescribed. The rationale for this seems to be quite clear if there is a time limit for completing the assessment, then the time limit for initiating the proceedings must be the same, if not less. Nevertheless, the Tribunal has given a greater period for commencement or initiation of proceedings (NHK Japan Broadcasting Corp 305 ITR 137 (Del) & Hutchison Essar Telecom 323 ITR 230 (Del) followed; Bhura Exports (Cal HC) dissented from)

S. 37(1): Expenditure on education of director is personal expenses & not allowable deduction

The expenditure incurred for the education of the Director of the assessee viz. Mr Krishna Kachalia was out of personal consideration and not commercial consideration. The judgement in Sakal Papers 114 ITR 256 (Bom) has been considered in D.C. Mehta v/s. ITO (Income Tax Appeal No.840 of 2012). In that case, the assessee, Mr. D. C. Mehta, an Advocate by profession claimed a deduction of Rs.22L as expenditure incurred for higher education for his daughter, Hemali. The justification for the said deduction was that she joined the Appellant’s firm of Advocates and gave an undertaking that on attaining higher qualification and degree from the University abroad, she would join the firm for a minimum period of five years and thus, the said expenditure was incurred for the business of the assessee and was allowable as a deduction. It was found that the daughter Hemali joined the assessee and immediately was sent for education abroad. The assessee had not been able to bring on record anything and particularly the scheme for higher education abroad for employees and associates. Despite other associate Advocates working in the firm of the Assessee, none were given an opportunity to go abroad for higher education despite the fact that some were working with him for the last 15 years. Despite the aforesaid, within a period of two to three months, after the daughter Hemali became an Advocate and joined the firm as an Associate, she went abroad. In this view of the matter, the Division Bench upheld the contention of the authorities below in disallowing the deduction. The judgment in Sakal Papers must be seen in the peculiar facts and background and the cumulative impact of all events & circumstances must be seen. Only because there was no commitment or contract or bond taken from the trainee, the expenditure cannot be disallowed to the assessee, particularly when as a result of that expenditure, the trainee had secured both, a degree and training which would be of assistance to the assessee Company. The facts of the present case are totally different from that of Sakal Papers and almost identical to that in D. C. Mehta’s case (Chandulal Keshavlal 38 ITR 601 (SC), S.A. Builders 288 ITR 1 (SC) distinguished).

S. 147: Bald statement that assessee has failed to make a full & true disclosure of material facts not sufficient. Details must be given as to which fact was not disclosed

It is true that the reasons for initiating re-assessment proceedings do in fact state that there was a failure on the part of the Petitioner to disclose fully and truly all material facts necessary for its assessment. However, merely making this bald assertion was not enough. In Hindustan Lever Ltd. v/s R.B. Wadkar 268 ITR 332 it was held that the AO must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. On facts, there are no details given by the AO as to which fact or material was not disclosed by the Petitioner that led to it’s income escaping assessment. There is merely a bald assertion in the reasons that there was a failure on the part of the Petitioner to disclose fully and truly all material facts without giving any details thereof. This being the case, the impugned notice is bad in law and on this ground alone the Petitioner is entitled to succeed in this Writ Petition