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[for extension of existing business]

The proviso to s. 36(1)(iii) reads as follows:

"Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction."

The question whether there is an extension of an existing business or not would have to be determined by applying the tests of common management, common fund etc as laid down in B.R. Ltd 113 ITR 647 (SC), Standard Refinery 79 ITR 589 (SC) etc.

If the conclusion is that the business is "new", then on first principles, the deduction is not allowable because the moneys are not borrowed "for purposes of business". If the business is "existing", then the Proviso kicks in.

In my view, the question whether the asset "increases production" or is merely "office equipment" is not relevant. A distinction is not drawn on the basis whether the asset has a role to paly in production or not. The only test is whether or not it is part of the existing business and whether the interest relates to a period prior to the date when "such asset was first put to use".

As regards Lokhandwala 260 ITR 579 (Bom), I agree that the principle laid down therein i.e. that it makes no difference whether the borrowing is for purposes of acquiring a capital or a revenue asset has been affirmed by the SC. (Incidentally both judgements i.e. Core and Lokhandwala were delivered by S.H. Kapadia J). Of course, this principle is now superceded by the Proviso.

Regards,

Probal.

There's an article on the subject of Galileo here (http://www.itatonline.org/articles2/galileo_1.php) where the author has tried to put some issues into perspective. I agree with you though that the scenario is very murky and it will take a very authoritative ruling to clear the field. When that will happen is anybody's guess. I guess we will have to live with the uncertainty till then.

Regards,

Probal.

Hi,

I am not clear on the query. Are you asking whether capital gains is chargeable as the land was agricultural earlier but was non-agricultural on the date of transfer? (The answer to this is that the position prevailing on the date of transfer has to be seen).

Or are you asking whether s. 50C is triggered off because of a difference in valuation from agricultural to non-agricultural? How does this difference arise? Was it agricultural on the date of the agricultural but became non-agricultural on the date of conveyance.

The decisions cited by Mr. Goel are quite relevant but a few more facts would help.

Please do provide more facts.

Regards,

Probal.

Dear Mr. Garg & Mr. Goel,

In the present case, there doesn't seem to be any nexus between the interest earned and the interest paid. While the interest is received on FDRs made out of accumulated funds, the interest is paid on an OD facility. Even assuming that the FDRs are kept as security for the OD, the nexus between the two seems remote.

In the decision of Kashmir Arts cited by Mr. Goel, it is stated "not only must be there be a nexus but it must be shown that obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) was "wholly and exclusively" for the purpose of earning the interest on the fixed deposit".

This test is not satisifed on the facts of the present case.

Regards,

Probal.

Hello Mr. Bhaskar Rao,

To determine whether the notice u/s 148 has been validly issued, the following have to be considered:

(i) Is the notice within the overall time limit of 6 years from the end of the AY?
(ii) Was an order u/s 143 (3) passed for the AY?
(iii) If so, has 4 years passed from the end of the AY (ref proviso to s. 147)?
(iv) Has there been a full & true disclosure of the material facts by the assessee?
(v) Has the AO alleged that there has been a failure to disclose material facts?

I suggest you file a ROI within the time prescribed and ask the AO to give you a copy of the recorded reasons (and sanction letter of the CIT, if applicable). Once you have the reasons, you can decide your strategy.

There is a lot on important case law on the subject. I will collect them and put it up here in a day or two.

Regards,

Probal.

Sir,

I am ITP. My client has received notice u/s 147 of IT Act, 1961 asking to furnish return within 30 days. Can you please advice what are the steps to be taken in the law? I read the articles section but there is no answer there. Is there any article which deals with the topic. How to proceed so as to ensure that my client is not fall foul of law while at the same time protect his interest so that there is nothing untoward to happen in law.  Please respond urgently.

Yours faithfully,

Bhaskar Rao, ITP.

I agree that there is a need for a compilation of recent case laws because it is impossible to keep track. The ITR and CTR are a little outdated. I also want to suggest to the Association that the slideshow on the main page may be removed because it slows down the loading time (I am on dial-up). It will be sufficient to give a simple link to alert the visitor that new articles have been put up. My other suggestion is that the unreported case law, when reported, may be provided with the citation because if one is looking for a reported case, he will still visit the site and find the citation.

I was wondering the same thing. We need to check the date on which this reference was made. If the reference was after the Rogini judgement, then maybe they want to refer to 5 judge bench. However, if the reference was before the judgement, then it may have been done in oversight and may now be dismissed as infructuous. My guess is that it must be the latter.

regards,

Probal.

[By inference, this means that if the same undertaking was claiming both reliefs, s. 80-IA (9) would apply]

Hi,

My view is that there is no conflict between the two decisions. The High Court has not held that relief under section 80-IA should not be deducted from the profits for purposes of section 80-HHC. It only said that if the undertaking claiming relief under section 80-IA was different from the undertaking claiming relief under section 80-HHC. there is no scope to apply s. 80-IA (9). By inference, this means that if the same undertaking was claiming both reliefs, s. 80-IA (9) would apply.

Therefore, tacitly, Godrej Agrovet approves the principle of Rogini Garments.

It is surprising that the issue of separate undertakings claiming separate reliefs was not considered by the Special Bench. In fact, even Godrej is not referred to. Perhaps, the issue never arose on the facts there.

Regards,

Probal.

Hi,

You have made a couple of good points: My response:

A court gives its decision on the (undisputed) facts stated in the Petition. The Applicant had stated that the PE had no role to play in the off-shore supply transaction. This was not (could not be – at that point of time) disputed by the revenue and so the decision was given on that basis.

However, if at the stage of making the assessment, the AO finds that the facts are otherwise, he is entitled to refuse to give full or part effect to the ruling under s. 245S (2) which provides that "The advance ruling referred to in sub-section (1) shall be binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced".

Similarly, u/s 245T, the ruling is void ab initio if it is obtained on a misrepresentation of facts.

Accordingly, there are adequate safe-guards built in.

Incidentally, there is no "finding of fact" by the AAR. It also proceeds on the basis of the averments in the application.

The second point is on the same basis. Yes, it is a question of fact – but one that will have to be determined by the AO at the stage of the assessment proceedings. If the Applicant has stated wrong facts in the application, then he stands the risk of the ruling becoming infructuos.

Regards,

Probal.

Thanks!

Regards,

Probal.

Hi,

In the News section, there is a reference to a judgement of the SC in the case of Hyundai Heavy Industries. However, i cannot find the judgement anywhere (or am I missing something?).

Can somebody please help.

Regards,

Probal.

Hi,

Thanks for the update.

Interesting how the SC, even while deciding against the assessee held that the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.

It was further held that:

"It is true that even after rejecting the explanation given by the assessees if found unacceptable, the crucial aspect whether on the facts and circumstances of the case it should be inferred the sums credited in the books of the assessees constituted income of the previous year must receive the consideration of the authorities provided the assessees rebut the evidence and the inference drawn to reject the explanation offered as unsatisfactory."

I am perplexed about this. If the explanation is rejected as unsatisfactory, where is the question it still being 'inferred' whether the sums are income or not or of the assessee rebutting the evidence and inference drawn (given that his explanation has already been found unsatisfactory)?

How can it be said: "Yes the explanation is unsatisfactory but yet the cash credit cannot be added as income!"?

If anyone has a practical explanation of how this would work, I would be most grateful.

Regards,

Probal.

under rti it is provided that "(g) information, the disclosure of which would endanger the life or physical safety of any person..." or (j) information which relates to personal information the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless the Central Public Information Officer or the State Public Information Officer or the appellate authority, as the case may be, is satisfied that the larger public interest justifies the disclosure of such information" need not be disclosed.

imho, income tax info can endanger life/physical safety etc and also is personal info as per clause j so it cannot be demanded.

full text of rti can be downloaded at  http://incometaxindia.gov.in/ccit/RighttoInformationAct.pdf.

I am also interested in this question because there is no difference between concealment and furnishing of particulars. Both cases are punishable equally. So i feel that the presumption will apply because otherwise it means that a perosn who files inaccurate particukars is better off than a person who conceal. I am interested to know that if there is case law on the subject or how to argue in favour of the query?

regards,

Probal.