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DATE: May 2, 2017 (Date of pronouncement)
DATE: May 9, 2017 (Date of publication)
AY: 2010-11
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CITATION:
S. 271(1)(c): Bogus purchases cannot be assessed as 'unexplained expenditure' u/s 69C if the transactions are duly disclosed and payments are through banks. The fact that the sellers are not traceable and the assessee surrendered the bogus purchases does not justify levy of penalty. Mere non-striking of the options in the s. 274 notice does not render the penalty proceedings void if the assessment order shows due application of mind.

Section 69C could not be applied to the facts of the case as the payments were through banking channels which were duly reflected in the books of accounts and therefore, there was no unexplained expenditure within the meaning of Section 69C incurred by the assessee. Further, we find that the assessee was in possession of purchase invoices and various other documentary evidences qua these purchases. A bare perusal of the purchase invoices reveals that the assessee has purchased consumables etc. from the alleged bogus suppliers, which are connected, at least to some extent, with the business of the assessee. The assessee, during quantum proceedings itself filed revised computation of income after disallowing the alleged bogus purchases by citing the reason that the suppliers were not traceable during assessment proceedings. Nevertheless, the assessee was in possession of vital evidences in his possession to prima facie substantiate his purchases to some extent particularly when the payments were though banking channels. Merely because the suppliers could not be traced at the given address would not automatically lead to a conclusion that there was concealment of income or furnishing of inaccurate particulars by the assessee

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DATE: April 27, 2017 (Date of pronouncement)
DATE: May 9, 2017 (Date of publication)
AY: 2009-10
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CITATION:
Transfer Pricing AMP Adjustment: Entire law on whether the advertisement expenditure incurred by the Indian AE towards brand of a foreign company can be treated as an “international transaction” and whether a notional adjustment can be made in the hands of the Indian AE towards compensation receivable from the foreign AE for “deemed brand development” explained

A service has to be conscious activity and it cannot be a subliminal exercise- as is the impact on brand value in this case. A service, by definition, is an act of helping, or doing something on behalf of, someone. A passive exercise cannot be defined as a service. Every benefit accruing to an AE, as a result of dealing with another AE, is not on account of service by the other AE. What I benchmarked is not the accrual of ‘benefit’ but rendition of ‘service’. All benefits are not accounts or services by someone, just as all services do not result in benefits to the parties. The expressions ‘benefit’ and ‘service’ have different connotations, and what is truly relevant, for the purpose of definition of ‘international transaction’ in Indian context, is ‘service’- not the benefit. There is no rendition of service in the present context

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DATE: May 8, 2017 (Date of pronouncement)
DATE: May 8, 2017 (Date of publication)
AY: 2002-03
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CITATION:
S. 14A disallowance has to be made also with respect to dividend on shares and units on which tax is payable by the payer u/s 115-O & 115-R. Argument that such dividends are not tax-free in the hands of the payee is not correct. S. 14A cannot be invoked in the absence of proof that expenditure has actually been incurred in earning the dividend income. If the AO has accepted for earlier years that no such expenditure has been incurred, he cannot take a contrary stand for later years if the facts and circumstances have not changed

While it is correct that Section 10(33) exempts only dividend income under Section 115-O of the Act and there are other species of dividend income on which tax is levied under the Act, we do not see how the said position in law would assist the assessee in understanding the provisions of Section 14A in the manner indicated. What is required to be construed is the provisions of Section 10(33) read in the light of Section 115-O of the Act. So far as the species of dividend income on which tax is payable under Section 115-O of the Act is concerned, the earning of the said dividend is tax free in the hands of the assessee and not includible in the total income of the said assessee. If that is so, we do not see how the operation of Section 14A of the Act to such dividend income can be foreclosed. The fact that Section 10(33) and Section 115-O of the Act were brought in together; deleted and reintroduced later in a composite manner, also, does not assist the assessee. Rather, the aforesaid facts would countenance a situation that so long as the dividend income is taxable in the hands of the dividend paying company, the same is not includible in the total income of the recipient assessee. At such point of time when the said position was reversed (by the Finance Act of 2002; reintroduced again by the Finance Act, 2003), it was the assessee who was liable to pay tax on such dividend income. In such a situation the assessee was entitled under Section 57 of the Act to claim the benefit of exemption of expenditure incurred to earn such income. Once Section 10(33) and 115-O was reintroduced the position was reversed. The above, actually fortifies the situation that Section 14A 44 of the Act would operate to disallow deduction of all expenditure incurred in earning the dividend income under Section 115-O which is not includible in the total income of the assessee

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DATE: May 3, 2017 (Date of pronouncement)
DATE: May 4, 2017 (Date of publication)
AY: 2006-07
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CITATION:
S. 40(a)(ia): S. 194C read with s. 200 are mandatory provisions. The disallowance stipulated in s. 40(a)(ia) for failure to deduct TDS u/s 194C is one of the consequences for the default. Accordingly, though there is a difference between “paid” and “payable”, s. 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. The contrary interpretation that s. 40(a)(ia) applies only to cases where amounts are “payable” will result in defaulters going scot free

It is clear that Section 40(a)(ia) deals with the nature of default and the consequences thereof. Default is relatable to Chapter XVIIB (in the instant case Sections 194C and 200, which provisions are in the aforesaid Chapter). When the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot be held that the word ‘payable’ occurring in Section 40(a)(ia) refers to only those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid. If the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the provisions of Chapter XVIIB (or specifically Sections 194C and 200 in the instant case), he would still go scot free, without suffering the consequences of such monetary default in spite of specific provisions laying down these consequences

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DATE: December 2, 2016 (Date of pronouncement)
DATE: May 4, 2017 (Date of publication)
AY: -
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CITATION:
NOC from Advocate to appoint new advocate: A litigant has the absolute right to appoint an advocate of his choice and to terminate his services any time and for whatever reason. There is no concept of an "irrevocable vakalatnama". A party has the absolute freedom to change his advocate. Fairness demands that the party should inform his advocate already on record though this is not a condition precedent to appoint a new advocate. The Registry cannot insist on a NOC from the old advocate and refuse to take the new vakalatnama on record

There is nothing known as irrevocable vakalatnama. The right of a party to withdraw vakalatnama or authorization given to an advocate is absolute. Hence, a party may discharge his advocate any time, with or without cause by withdrawing his vakalatnama or authorization. On discharging the advocate, the party has the right to have the case file returned to him from the advocate, and any refusal by the advocate to return the file amounts to misconduct under Section 35 of the Advocates Act, 1961. In any proceeding, including civil and criminal, a party has an absolute right to appoint a new Advocate. Under no circumstance, a party can be denied of his right to appoint a new advocate of his choice. Therefore, it follows that any rule or law imposing restriction on the said right can’t be construed as mandatory. Accordingly, Courts, Tribunals or other authorities shall not ask for ‘no objection’ of the advocate already on record, to accept the vakalatnama filed by a new advocate

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DATE: March 23, 2017 (Date of pronouncement)
DATE: May 1, 2017 (Date of publication)
AY: -
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CITATION:
Service of notice by Whatsapp: The purpose of service is put the other party to notice and to give him a copy of the papers. The mode is irrelevant. The rules and procedure are not so ancient or rigid that only antiquated methods of service through a bailiff or by beat of drum is acceptable. E-Mail & Whatsapp are not formally approved but if service is shown to be effected and is acknowledged it cannot be said that the Defendants had ‘no notice’. Defendants who avoid and evade service by regular modes cannot be permitted to take advantage of that evasion

It cannot be that our rules and procedure are either so ancient or so rigid (or both) that without some antiquated formal service mode through a bailiff or even by beat of drum or pattaki, a party cannot be said to have been ‘properly’ served. The purpose of service is put the other party to notice and to give him a copy of the papers. The mode is surely irrelevant. We have not formally approved of email and other modes as acceptable simply because there are inherent limitation to proving service. Where an alternative mode is used, however, and service is shown to be effected, and is acknowledged, then surely it cannot be suggested that the Defendants had ‘no notice’. To say that is untrue; they may not have had service by registered post or through the bailiff, but they most certainly had notice. They had copies of the papers. They were told of the next date. A copy of the previous order was sent to them. Defendants who avoid and evade service by regular modes cannot be permitted to take advantage of that evasion

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DATE: March 28, 2017 (Date of pronouncement)
DATE: May 1, 2017 (Date of publication)
AY: -
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CITATION:
S. 220(6): CBDT's instruction dated 29.02.2016 on stay of demand by the AO does not require the assessee to make a pre-deposit of 15% of the disputed demand. As per the Instruction, if the AO requires the assessee to pay less, or more, than 15% of the demand, the sanction of the Pr. CIT is required. If the AO demands 15% to be paid, the assessee is entitled to approach the Pr CIT for review of the AO's decision

The interpretation by the Assessing Officer that at the time of submitting stay application and/or before stay application is taken up for consideration on merits, the assessee is required to deposit 15% of the disputed demand as pre-deposit is absolutely based on misinterpretation and/or misreading of the modified Instructions dated 29th February 2016. What Clause-4 provides is that the Assessing Officer may/shall grant stay of demand till disposal of first appeal on payment of 15% of the disputed demand, unless the case falls in the category mentioned in para 4 [B] of the modified instructions dated 29th February 2016. Under the circumstances, the impugned decision of the respondent no. 2 in rejecting the stay application and consequently directing the petitioner to deposit 100% of the disputed demand on the ground that the petitioner has not deposited 15% of the disputed demand as a pre-deposit before his application for stay is considered on merits cannot be sustained and the same deserves to be quashed and set-aside

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DATE: April 26, 2017 (Date of pronouncement)
DATE: May 1, 2017 (Date of publication)
AY: 2013-14
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CITATION:
S. 68/ 2(14): "On Money" received by an assessee for sale of agricultural land has to be treated as "agricultural income" and exempted from tax if the facts show that the assessee has no other source for the receipt

The payment of on-money is an unfortunate practice in most part of our country, and none can deny this factual situation. It is the case of the assessee that the buyers were insisting on reducing the sale consideration to be disclosed in the sale deed for the purpose of reducing stamp duty payment. This contention of the assessee cannot be totally brushed aside

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DATE: March 28, 2017 (Date of pronouncement)
DATE: April 28, 2017 (Date of publication)
AY: 1994-95
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CITATION:
S. 143(1)(a): Even though there was a raging controversy amongst the High Courts on whether expenditure for raising capital is capital or revenue in nature, the judgement of the jurisdictional High Court is binding on the assessee and any view contrary thereto is a "prima facie" mistake that requires adjustment

Even though it is a debatable issue but as Gujarat High Court in the case of Ahmedabad Mfg. & Calico (P) Ltd. (supra) had taken a view that it is capital expenditure which was subsequently followed by Alembic Glass Industries Ltd. V. CIT (supra) and the registered office of the respondent assessee being in the State of Gujarat, the law laid down by the Gujarat High Court was binding. (See Taylor Instrument Com.(India) Ltd. v. Commissioner of Income Tax (1998) 232 ITR 771, Commissioner of Gift Tax v. J.K. Jain (1998) 230 ITR 839, Commissioner of Income Tax v. Sunil Kumar (1995) 212 ITR 238, Commissioner of Income Tax v. Thana Electricity Supply Ltd. – (1994) 206 ITR 727, Indian Tube Company Ltd. v. Commissioner of Income Tax & Ors. (1993) 203 ITR 54, Commissioner of Income Tax v. P.C. Joshi & B.C. Joshi (1993) 202 ITR 1017 and Commissioner of Income Tax, West Bengal, Calcutta v. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466). Therefore, so far as the present case is concerned, it cannot be said that the issue was a debatable one

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DATE: March 7, 2017 (Date of pronouncement)
DATE: April 28, 2017 (Date of publication)
AY: -
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CITATION:
Bogus share capital: Mere fact that payment was received by cheque or that the applicants were companies borne on the file of the Registrar of Companies does not prove that the transaction was genuine. Even under the unamended s. 68, the onus is on the assessee prove the creditworthiness of the subscribers. Argument that the amendment to s. 68 is not retrospective is not required to be considered

We have already observed that the judgment in the case of Rajmandir Estates Private Ltd. (supra) was delivered considering the unamended provision of Section 68 of the Act. In the case of the assessees before us, there is no differing feature so far as applicability of the said statutory provision is concerned, even though the Tribunal in Subhalakshmi Vanijya Pvt. Ltd. (supra) had held that the provisos to Section 68 of the Act are retrospective in their operation, and delivered the decision against the assessee in that case that reasoning. In the appeal of Rajmandir Estates Private Ltd. (supra), the Coordinate Bench did not consider it necessary to examine the question of retroactivity of the aforesaid provision. The Coordinate Bench found the order of the C.I.T. to be valid examining the order applying the unamended provision of Section 68 of the Act only. We do not find any other distinguishing element in these appeals which would require addressing the question as to whether the amendment to Section 68 of the Act was retrospective in operation or not. Neither do we need to address the issue that if the inquiries, as directed, revealed that share capital infused were actually unaccounted money, whether the same could be taxed in accordance with Section 56(2) (vii b) or not

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