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CONSOLIDATEDDIGESTOFCASELAWS(JANUARY2013TOMAY2013
(Journals Referred: ACAJ/AIR/AIFTPJ/BCAJ/BLR/IT Review//Comp Cas/CTR/CCH/DTR /E.L.T.
/GSTR /ITD /ITR /ITR (Trib) /JT /SOT /SCC /TTJ /Tax LR/Taxman/Tax World/ VST/
www.itatonline.org)
S.2(1A):AgriculturalIncomeAssesseefilingletterexplainingownershipofagriculturallandpurchased
in 198687 and disclosing capital gains on sale thereof in subsequent yearSeized material not
suggestinginflationofagriculturalincomeIncomenottobetreatedasincomefromothersources.[S.
153A]
The Assessing Officer made an addition on the ground that no agricultural lands were recorded in the
balancesheet and the assessee had not shown any documentary evidence in support of his claim. He
accordingly treated the income claimed as not agricultural income but as income from other sources.
Before the Commissioner (Appeals) the assessee contended that complete details of agricultural
holdingswerefiledbeforetheAssessingOfficerandthathehadalsoofferedcapitalgainstotaxonsale
of agricultural lands in the financial year 200506, which was accepted by the Assessing Officer. The
Commissioner (Appeals) held that this sort of addition could not be made in an assessment completed
undersection153Awithoutanyreferencetotheseizedmaterialandthatitwasalsonotthecaseofthe
Assessing Officer that the seized material, if any, suggested inflation of agricultural income. The
Commissioner (Appeals) treated the income as agricultural income and not as income from other
sources as the assessee had filed a letter explaining that the ownership of the agricultural land
purchasedintheyear198687bywayofproperevidenceandtherequirementofusingmaterialbeing
foundduringthecourseofsearchoperationwasnotofanyrelevanceandthatitwasnotthecaseofthe
Assessing Officer that the seized material, if any, suggested inflation of agricultural income. On appeal
:Held,thattheorderoftheCommissioner(Appeals)wascorrect.(A.Ys.20022003to20082009)
ACITv.MirMazharuddin(2013)22ITR314(Hyd.)(Trib.)
S.2(14):CapitalassetRuralagriculturallandDistanceof5Kmisheldtobecapitalassetand
liabletobeassessedascapitalgain.
The Central Government has published a notification dated 611994 contemplating that the
areauptoadistanceof5kmfromthemunicipallimitsofPanchkulainalldirectionsshallnotbe
an agricultural land. Since the impugned land fell outside the 5 km limit, it was held to be
capital Asset.The expression 'Municipality' in section 2(14) of the Act is very wide. It is not
restricted to a Municipality constituted under the relevant Municipal Laws such as Haryana
MunicipalAct,butitwouldincludeanyotherareaknownbyanyothername.Subclause(a)of
clause (iii) of section 2 (14) deals with an area which falls within the jurisdiction of a
Municipality, whereas clause (b) enable the Central Government to declare an area situated
within 8 kms from the local limits of any Municipalityreferred to inclause (a) to notify having
regardtoextentandscopeforurbanizationofthatarea.TheNotificationdated611994takes
into its ambit an area within 5 kms of the Municipality in the expression 'capital asset'.
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Therefore, the urban area developed by the Authority forms part of a Municipality. The
expression 'by any other name' appearing in item (a) of clause (iii) of Section 2 (14) has to be
readejusdem generiswith the earlier expressions i.e. municipal corporation, notified area
committee, town area committee, town committee. In view of the above, it is held that the
land, subject matter of acquisition, is a capital asset falling within the scope of clause (iii) of
section2(14).(AY200405)
CITv.RaniTaraDevi(Smt.)(2013)214Taxman321/85DTR374/258CTR225(P&H)(HC.)
S.2(14):CapitalassetPersonaleffectInheritedassetsSaleconsiderationisnotliableto
capitalgaintax.(S.45)
Assessee sold certain items such as furniture, carpets, paintings, watches and crystal items
inheritedfromhisfatherinassessmentyearinquestion,saiditemsbeinginnatureof'personal
effects,'TheCourtheldthattheassesseewasnotliabletopaycapitalgaintaxonsaleofthose
items. Amendment to section 2(14), which has been brought about by the Finance Act, 2007
with, effect from 142008 and which alters the clause pertaining to 'personal effects,' has
prospective application. With effect from 142008 even paintings, sculptures, works of art,
archaeologicalcollectionsanddrawings,inadditiontojewellery,havebeenexcludedfromthe
expression'personaleffects'whichwouldbeapplicablefrom142008.(A.Y.200203)
FaizMurtazaAliv.CIT(2013)214Taxman30/85DTR33(Delhi)(HC)
S.2(14):Capital assetAgricultural land situated beyond 8 kms from municipal limits and beyond 19
kms from centre of cityNot a capital assetLand shown in revenue records as agricultural
compensationisnotassessableascapitalgains.(S.45)
The assessee's lands were acquired by Reliance Projects Engineering Association Ltd through the
Government of Gujarat and the assessee received compensation. He claimed the same as the
agriculturalincomeconsideringitsagriculturalnature.TheAssessingOfficerrejectedtheclaimholding,
thattheassesseefailedtoprovideproofthatthelandwasagriculturalanddidnotsubstantiatethatthe
land was outside the purview of the definition of "capital asset" under section 2(14) of the Act, and
treated the income as longterm capital gains. The Commissioner (Appeals) held that the land was
locatedinavillagewhichwas19.34kmsawayfromthemaincity.Further,theCommissioner(Appeals)
opined that the Assessing Officer invoked the powers conferred by the Act and have obtained the
Government records from the Land Revenue Department for ascertaining whether the land fell within
theboundariesof8kmsfromthemunicipallimitsornot.Accordingly,theCommissioner(Appeals)held
thatthelandwaslocatedoutsidethevillage,whichwaslocatedatadistanceofmorethan19kmsaway
fromcityandgrantedrelieftotheassessee.OnappealbytheDepartment:
Held, dismissing the appeal, that the land was located beyond 8 kms of the Municipal limits of the
Jamnagar and was also located beyond 19 kms from the centre of the city of Jamnagar. On this issue,
thedefinitionofcapitalassetprovidedinsection2(14)(iii)wasnotmet.Therewasnonotificationissued
by the Central Government regarding the same being a capital asset. Therefore, the land held by the
assessee was agricultural land. It was borne out from the records of the Revenue Department that the
landsweredescribedbytheDistrictCollector,Jamnagar,asagriculturallands.Therewasnomaterialin
the possession of the Assessing Officer to hold that the land was a capital asset within the meaning of
section2(14)oftheAct.ThedecisionoftheCommissioner(Appeals)didnotcallforanyinterference(A.
Y.20072008).
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ITOv.AmrutilalB.Shah(2013)22ITR668(Mum)(Trib)
S.2(22)(e): Dividend Deemed dividendShare application money Colour device Not loan
oradvance,cannotbeassessedasdeemeddividend.
The assessee was a beneficial shareholder of three companies named Kingston Properties P
Ltd. (KPPL), New Dimensions Consultants P Ltd (NDCPL) & R. S. Estate Developers P Ltd
(RSEDPL). NDCPL & RESEDPL advanced various sums of money to KPPL towards share
application money. However, some of the advances werereturned by KPPL while some were
adjusted towards allotment of shares. The AO held that the transaction was a colourable
deviceandaloanandadvancewhichfellwithintheambitofs.2(22)(e).Thesaidloanand
advance was assessed as deemed dividend in the hands of the assessee beneficial
shareholder following Universal Medicare Pvt. Ltd. (2010) 324 ITR 263 (Bom). The CIT (A)
reversedtheAO.OnappealbythedepartmenttotheTribunalHELDdismissingtheappeal:
Share application money or share application advance is distinct from loan or advance.
Althoughshareapplicationmoneyisonekindofadvancegivenwiththeintentiontoobtainthe
allotment of shares/equity/preference shares etc., such advances are different form the
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normalloanoradvancesspecifiedbothinsection269SSor2(22)(e)oftheAct.Unlessthemala
fide is demonstrated by the AO with evidence, the book entries or resolution of the Board of
the assessee become relevant and credible, which should not be dismissed without bringing
any adverse material to demonstrate the contrary. It is also evident that share application
money when partly returned without any allotment of shares, such refunds should not be
classified as loan or advance merely because share application advance is returned without
allotment of share. In the instant case, the refund of the amount was done for commercial
reasons and also in the best interest of the prospective share applicant. Further, it is self
explanatorythattheassesseebeingabeneficialshareholder,derivesnobenefitwhatsoever,
when the impugned share application money/advance is finally returned without any
allotmentofsharesforcommercialreasons.Inthiskindofsituations,thebooksentriesbecome
really relevant as they show the initial intentions of the parties into the transactions. It is
undisputedthatthebooksentriessuggestclearlytheshareapplicationnatureoftheadvance
and not the loan or advance. As such the revenue has merely suspected the transactions
without containing any material to support the suspicion. Therefore, the share application
moneymaybeanadvancebuttheyarenotadvanceswhicharereferredtoinsection2(22)(e)
oftheAct.Suchadvances,whenreturnedwithoutanyallotmentorpartallotmentofsharesto
the applicant/subscriber, will not take a natureof the loan merely because the same is repaid
orreturnedorrefundedinthesameyearorlateryearsafterkeepingthemoneyforsometime
with the company. So long as the original intention of payment of share application money is
towardstheallotmentofsharesofanykind,thesamecannotbedeemedasloanoradvance
unlessthemalafideintentionsareexposedbytheAOwithevidence.(A.Y.200203to200708)
DCITv.VikasOberoi(Mum.)(Trib.)www.itatonline.org.
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broadening concept of shareholder so as to tax loans or advances as deemed dividend in
handsofa'deemingshareholder'.(.AY.200607)
KrupeshbhaiN.Patelv.Dy.CIT(2013)140ITD176(Ahd.)(Trib.)
S.2(22)(e):DividendDeemeddividendCreditbalanceinCapitalaccountNonencashment
of cheque the amount is credited back to companys account cannot be assessed asdeemed
dividend.
The assessee is running a proprietorship concern which was converted into private limited
company.Therewascreditbalanceincapitalaccountoftheassesseeinproprietorshipconcern
againstwhichpaymentwasmadebyproprietorshipconcerntotheassessee.However,because
of conversion, cheque could not be encashed and same was returned to company which was
credited to the assessees account by company. Subsequently money was withdrawn by the
assessee. It was held that the said amount could not be treated as deemed dividend. (A.Y.
200809)
Dy.CITv.RadheShyamJain(2013)140ITD244/86DTR42(Chandigarh)(Trib.)
S.2(22)(e):DividendDeemeddividendAdvancetowardsSaleofPropertyMatterremanded.
The assessee is engaged in real estate development. The assessee received advance towards
sale of property. The Assessing Officer treated the said amount as deemed dividend.
Commissioner(Appeals)deletedtheaddition.OnappealbydepartmenttheTribunalsetaside
the order of Commissioner(Appeals) as he failed to pass as speaking order. Matter remanded.
(A.Y.200607,200708)
ITOv.NamEstatesP.Ltd(2013)141ITD659/21ITR109(Bang.)(Trib.)
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S.2(22)(e):DividendDeemed dividendLoans and advancesBusiness of financeLoans would
notberegardedasdeemeddividend.
The company from whom the assessee had obtained loan was engaged in the business of
finance and hence it was contended that the loan transaction from the company fell in the
exclusionary clause and the amount of loan was out of the purview of section 2(22) (e). The
Departments contention was that financing was not a major part of the business of the
company and hence the assessee could not take shelter under theexclusionary clause. Before
the Tribunal the assessee relied upon the decision of the Honble Bombay High Court in
CITv.Parle Plastics Ltd (2011) 332 ITR 63 (Bom.) (HC) wherein it was held that the said
expressionsubstantialpartofthebusinessins.2(22)(e),clause(ii),doesnotconnoteanidea
of being the "major part" or the part that constitutes majority of the whole.It was further
explained by the Hon'ble Bombay High Court that any business of a company which the
company does not regard as small, trivial or inconsequential as compared to the whole of the
businessissubstantialbusinessandvariousfactorsandcircumstanceswouldberequiredtobe
looked into while considering whether a part of the business of a company is its substantial
business. It was held that sometimes a portion which contributes a substantial part of the
turnover,thoughitcontributesrelativelysmallportionoftheprofit,wouldbeasubstantialpart
ofthebusiness.Similarly,aportionwhichisrelativelysmallascomparedtothetotalturnover,
butgeneratesalargeportion,saymorethan50%ofthetotalprofitofthecompanywouldalso
be a substantial part of his business. In view of the said decision of the Honble Bombay High
Court, it was held that the assessees case fell in the exclusionary clause and hence section
2(22)(e)wasnotapplicable.(A.Y.200607)
JayantH.Modi(2013)56SOT84(Mum.)(Trib.)
CITv.S.P.SugunaSeelan(Dr.)(2013)353ITR391(Mad.)(HC)
S.2(28A):InterestDiscountchargesDeductionatsourceBusinessincomehencenotliableto
deducttaxatsource.[S.40(a)(i)]
The Court held that discount charges earned by assesseefinancial service provider by way of
discounting bill of exchange and promissory notes in favour of Indian companies is to be
treated as business income, and not as interest income In favour of assessee. (A.Y.200506 to
200708)
DIT(IT)v.CargilTSFPTELtd.(2013)212Taxman16(Delhi)(HC)
S:2(29B):CapitalgainsShorttermorlongtermPurchaseofpropertybytenantwasheldto
belongterm.(S.(2(42A),45)
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Assesseeboughtthepropertyofwhichshewasoneofthetenants.Allthetenantsenteredinto
an agreement on 10
th
June 1999 and formed a cooperative society. The old building was
demolished and a new building was constructed thereon. The tenants got possession in A.Y.
200203. Assessee sold her property on 17
th
September 2004. Held that the agreement dated
10
th
June 1999 itself gave interest and right in the impugned property to the assessee along
withothertenants,thetransactionclearlyinvolvedlongtermcapitalgains.(A.Y.200506)
NilaV.Shah(Mrs)v.ITO(2013)83DTR218(Mum.)(Trib.)
S.2(47):TransferHandingoverofpossessionYearoftransfer.[S.45,TheTransferofproperty
Act,1882S.53A]
Even if some part of consideration remains to be paid, the transaction shall not affect the
liability to capital gains tax so as to postpone it indefinitely. What is meant in clause (v) is the
"transfer" which involves allowing possession so as to allow developer to undertake
developmentworkonthesite.Itisageneralcontroloverthepropertyinpartperformanceof
the contract. The date of that transaction determines the date of transfer. It is enough if the
transferee has, by virtue of the transaction, a right to enter upon and exercise the act of
possession effectively and such an act amounts to legal possession over the property. The
completion of transfer of an immoveable property under general law was not required for
theapplicabilityoftheprovisionsofsubclause(v)ofsection2(47).Capitalgainisassessableon
handingoverofpossession.(A.Y.20052006)
DurdanaKhatoon(Mrs.)v.ACIT(2013)24ITR55(Hyd.)(Trib)
S.2(47):TransferCapitalgainsAgreementforsaleIncompletetransaction.[S.45]
TheassesseeenteredintoagreementforsaleoflandforconsiderationofRs.2.24croreoutof
whichitreceivedRs.8lakh.Theassesseewasstillownerofpropertyandhadnotpartedwith
possessionofsame.Hence,thetransactioncouldbetreatedastransfer.(A.Y.200809)
MaliFlorexLtd.v.DCIT(2013)57SOT37(URO)(Hyd.)(Trib.)
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S.2(47):TransferSurrenderoftenancyrightsIncomefromothersourcesConsentgivenby
land lord for transfer of tenancy rights would not result in transfer of any capital asset
exemptionundersection54ECisnoteligible.[S.45,54EC,56]
Theassesseewasownerofaproperty,whichwaspartlyoccupiedbyhimandpartlyrentedto
'V'. As per the tripartite agreement between the assessee, 'V' and new tenant, the tenancy
rights and possession of the said property was surrendered in favour of new tenants. The
assessee claimed that the amount so received by it in respect of the surrender was capital
receipt.Heclaimedexemptionundersection54ECbyinvestingtheamountinNABARDBonds.
TheAOrejectedtheassessee'sclaimofexemptionundersection54ECongroundsthat'V'had
surrendered the tenancy rights in favour of new tenants and not in favour of assessee.
Therefore, the amount received was not a capital receipt and consequently the claim of
exemption under section 54EC did not arise, instead the amount was chargeable to tax under
thehead'Incomefromothersources'.
Held that there is no evidence to infer that the house is in vacant possession of the assessee
even after the alleged end of the tenancy of 'V' and, therefore, it can be stated that the
assesseehasnevergotthepropertyinvacantcondition.Theconsiderationforconsentimplies
notransferofanycapitalassetbythelandlordtothenewtenant.Further,theagreementrules
outthattheimpugnedconsiderationforconsentisfortherentortowardstherentaladvance.
Further also, considering the rentoriented terms and conditions specified in the tripartite
agreement,itcannotbeinferredthatthenewtenantreceivedmerelyrentalrightsandthereis
notransferofanycapitalrightstothenewtenantbythelandlord.Thereforetheconsideration
received by the assessee is neither a capital receipt nor a rental receipt. Hence, the action of
theAssessingOfficerwassustained.(A.Y.200607)
VinodV.Chhapiav.ITO(2013)56SOT465(Mum.)(Trib.)
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S.4:ChargeofincometaxAssociationofpersonsJoiningofresourcesCoinheritors
Assessableasindividuals.(S.2(13),167B)
Five persons including assessee were coowners of agricultural land inherited from their
forefathers.Theyexecutedageneralpowerofattorneyinfavourofassesseeappointinghimto
constructplinthsontheirjointagriculturallandinnamesofallownersandtofurtherleaseout
such open plinths to any party on their behalf. An agreement was executed by coowners
leasingoutplinthsto'P'Ltd.Assesseefiledhisreturnshowingrentalincomeandalsopaidtax
accordingly.Similarreturnswerefiledincasesofothercoownerswherevertheyweretaxable.
Assessing Officer, however, assessed coowners as an association of persons treating entire
incomefromplinthsasincomefromothersources.Whetherinordertoassessindividualstobe
forming 'association of persons', individual coowners should have joined their resources and
thereafteracquiredpropertyinnameofassociationofpersonsandpropertyshouldhavebeen
commonly managed, since coowners had inherited property from their ancestors and there
wasnothingtoshowthattheyhadactedasassociationofpersons,incomewastobeassessed
in status of 'individual', therefore, impugned order passed by Assessing Officer framing
assessment in status of association of persons was not sustainable. Once it is held that the
incomewastobeassessedasindividualandnotan'associationofpersons',therefore,section
167Bisnotattracted.
SudhirNagpalv.ITO(2013)214Taxman13(Mag.)/84DTR110/257CTR253/349ITR636(P&H)
(HC)
S.4:ChargeofincometaxAdditionIncomedisclosedinthereturnamountreflectedinthe
TDScertificate,additionwasheldtobejustified.
All authorities below arrived at similar conclusion that the assessee claimed higher credit for
TDS by annexing TDS certificates but had not reflected all of them in its return. Held that
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Tribunalwasjustifiedinconcluding thatnousefulpurpose wouldbeservedbyremandingthe
matterbacktotheAO.(A.Y.199899)
LaxmiVentures(Bombay)(P)Ltd.v.Dy.CIT(2013)83DTR36/257CTR232(Bom.)(HC)
S.4:ChargeofincometaxSubsidyEntertainmenttaxCapitalreceiptHeldtobecapitalin
nature.
The question raised before the Court on behalf of the revenue was the benefit of exemption
fromentertainmenttaxwasavailabletoassesseeonlyoncethemultiplexwasinoperationand
it is revenue receipt. High Court followed the Judgment of Bombay High Court in CIT v.
Chaphalkar Brothers, (2013) 351 ITR 392 (Bom)(HC),and held that such exemption of
entertainmenttaxwasofcapitalreceipt.Appealofrevenuewasdismissed.(A.Y.200304)
DCITv.InoxLeisureLtd(2013)351ITR314/213Taxman160/85DTR103(Guj.)(HC)
S.4:ChargeofincometaxNoncompetefeeAssessableascapitalreceipt.
Payment received by assessee as noncompete fee under a negative covenant is a capital
receiptnottaxableunderAct(A.Y.200102)
CITv.RealImage(P.)Ltd.(2013)213Taxman169(Mad.)(HC)
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S.4:ChargeofIncometaxCompensationforlossofsourceofincomeCapitalreceipt
CompensationtoCAFirmforlossofreferralworkisanontaxablecapitalreceipt.
Theassessee,afirmofCharteredAccountants,wasoneoftheassociatemembersofDeloitte
Haskins&Sellsfor13yearspursuanttowhichitwasentitledtopracticeinthatname.Deloitte
desired to merge all the associate members into one firm. As this was not acceptable to the
assessee,itwithdrewfromthemembershipandreceivedconsiderationofRs.1.15croresfrom
Deloitte.Thesaidamountwascreditedtothepartnerscapitalaccounts&claimedtobeanon
taxable capital receipt by the assessee. The AO rejected the claim. The CIT (A) reversed the
order of AO. The Tribunal reversed the CIT (A) order. On appeal by the assessee to the High
Court,reversingtheTribunalorderheldthat:
(i) There is a distinction between the compensation received for injury to trading operations
arising from breach of contract and compensation received as solatium for loss of office. The
compensation received for loss of an asset of enduring value would be regarded as capital. If
thereceiptrepresentscompensationforthelossofasourceofincome,itwouldbecapitaland
it matters little that the assessee continues to be in receipt of income from its other similar
operations(KettlewellBullenandCo.Ltd.V.CIT(1964)53ITR261(SC)&OberoiHotel(P)Ltd.v.
CIT(1999)236ITR903(SC)followed);
(ii)Onfacts,thecompensationwasforlossofasourceofincome,namelyreferredworkfrom
Deloitte because it is somewhat difficult to conceive of a professional firm of chartered
accountantsenteringintosucharrangementswithinternationalfirmsofCAs,astheassesseein
the present case had done, with the same frequency and regularity with which companies
carrying on business take agencies, simultaneously running the risk of such agencies being
terminated with the strong possibility of fresh agencies being taken. In a firm of chartered
accountants there could be separate sources of professional income such as tax work, audit
work,certificationwork,opinionworkasalsoreferredwork.UnderthearrangementwithDHS
there was a regular inflow of referred work from DHS through the Calcutta firm in respect of
clientsbasedinDelhiandnearbyareas.Thereisnoevidencethattheassesseehadenteredinto
similararrangementswithotherinternationalfirmsofcharteredaccountants.Thearrangement
with DHS was in vogue for a fairly long period of time 13 years and had acquired a kind of
permanency as a source of income. When that source was unexpectedly terminated, it
amounted to the impairment of the profitmaking structure or apparatus of the assessee. It is
for that loss of the source of income that the compensation was calculated and paid to the
assessee.ThecompensationwasthusasubstituteforthesourceandtheTribunalwaswrongin
treating the receipt as being revenue in nature (CIT v. Best & Co (1966) 60 ITR 11 (SC)
distinguished).(A.Y.199798)
Khanna and Annadhanam v. CIT(2013)/351 ITR 110/213 Taxman 347/258 CTR 72/85 DTR
164(Delhi)(HC).
S.4:ChargeofincometaxIncomeorcapitalPowersubsidyreceivedfromState
GovernmentSubsidygivenyearafteryearonactualpowerconsumptionisrevenuereceipt.
The power subsidy was granted after the commencement of production, and it was to the
extent of 10 per cent. or 12.5 per cent., as the case may be. This was given on actual power
consumption and had nothing to do with the investment subsidy given for establishment of
industries or expanding industries in backward areas. The power subsidy given as part of an
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incentive scheme, after commencement of production, should be treated as subsidy linked to
production,andtherefore,arevenuereceipt(A.Y.19831984to19901991)
CITv.RassiCementsLtd.(2013)351ITR169/215Taxman144(Mag.)(AP)(HC)
CITv.DeccanCementsLtd(2013)351ITR169(AP)(HC)
S.4:ChargeofincometaxReceiptsfromheadofficePaymenttoselfCannotbeassessedas
income.
In view of order of Special Bench of Mumbai Tribunal rendered in case of Oman International
Bank S.A.O.G. v. Asstt. CIT [IT Appeal Nos. 19811982 (Mum.) of 2001, dated 2962012],
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addition of interest received by assessee from its head office and overseas branches, being
paymenttoself,wasnotjustifiedinaddingthesameasincome.(A.Y.19992000)
DresdnerBankAGv.ACIT(2013)57SOT203(Mum.)(Trib.)
S.4:ChargeofincometaxAIRinformationOfferedtotaxinthehandsofHUF,sameincome
cannotbeassessedinthehandsofindividualonthebasisofAIRinformation.
OnreceivingsomeAIRinformation,AssessingOfficerassessedcapitalgainonsaleofaproperty
and interest on mutual fund in hands of assessee, an individual. The assessee submitted that
capital gain and interest income had been offered for taxation in his HUF capacity. Held that,
once capital gain on sale of property and interest income shown in hands of HUF had been
acceptedbyrevenue,samecouldnotbeassessedagaininhandsofindividual.(A.Y.200809)
JyotindraNatwarlalNaikv.ITO(2013)57SOT114(Mum.)(Trib.)
S.4:IncomeMutualconcernSportsclubNodisputesastoidentitiesofcontributorsandparticipators,
principleofmutualityisapplicable.
During the financial year relevant to the assessment year the assesseeclub claimed exemption on the
principle of mutuality. The Assessing Officer held that the club premises were allowed to be used by
private parties and the assessee had no control on the receipts which were directly made by the
contractors or professionals and that the amount collected at the rate of 20 per cent was directly
enjoyed by the members of the club, that in order to get the benefit of the principle of mutuality the
assessee should confine its activities only among the members. Therefore he rejected the claim of the
assessee that its income was exempt on the ground of principle of mutuality and treated the total
receipts of the assessee as income from business activities and taxed them accordingly. On appeal the
Commissioner (Appeals) held that the club was registered under section 12A of the Incometax Act,
1961,thattheAssessingOfficerintheearlieryearshadnotquestionedtheapplicabilityoftheprinciples
of mutuality. On appeal, the Tribunal held that there was no dispute as to the identities of the
contributorsandtheparticipatorsoftheclub.Further,theAssessingOfficerdidnotdisputethefactthat
only the members and their families and guests were allowed to participate in club activities. Because
some professionals were engaged in organising the club activities from whom the club derived
commission,itcouldnotbesaidthattheclubwasnoteligibleforexemptiononprincipleofmutuality.
Therefore,theorderoftheCommissioner(Appeals)wascorrect.(A.Ys.20072008,20082009)
ITOv.KamalaViharSportsClub(2013)23ITR104(Mum.)(Trib.)
S.4:ChargeofincometaxAccrualBankGuaranteecommissionIfrefundableonrevocationof
guarantee,commissiontobespreadoverperiodofguarantee.Matterremanded.
TheTribunalheldthatiftheguaranteecommissionisrefundableontherevocationof
guarantee,itcannotbesaidthattheabsoluterighttothecommissionhasaccruedtothe
assesseeatthetimeofexecutionofthecontractforfurnishingtheguarantee,andthe
commissionistobespreadovertheperiodforwhichtheguaranteeisgiven.Inallothercases,
theamountistobetaxedintheyearinwhichtheguaranteehasactuallybeengiven
irrespectiveoftheperiodofguarantee.Matterremanded.(A.Y.199899)(A.Y.19981999to
20032004)
SocieteGeneralev.Dy.DIT(IT)(2013)21ITR606/57SOT101(Mum.)(Trib.)
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S.4:ChargeofincometaxMutualityInterestpaidtoheadofficeoroverseasbranchesnot
considered as expenditure in hands of Indian branchInterest received is also not to be
consideredasincomeinhandsofheadofficeoroverseasbranches.
Theassesseereceivedinterestfromitsheadofficeoroverseasbranches,whichwasnotoffered
fortaxationtheTribunalheldthatontheprincipleofmutualitytheinterestincomereceivedby
the assessee from its head office or overseas branches was not chargeable to taxand interest
paid to the head office or other overseas branches was not deductible. (A.Y.199899) (A. Y.
19981999to20032004)
SocieteGeneralev.Dy.DIT(IT)(2013)21ITR606/57SOT101(Mum.)(Trib.)
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individualmemberindeterminatewithoutanybasis.Distributionbyassesseetruststoselfhelp
groupsunderthemwasassessableasincomeofthoseselfhelpgroupsthemselves.Assesseeis
governedbyprinciplesofmutualityhenceisnottaxableincome.(A.Ys.20072008,20082009)
ITOv.SarvodayaMutualBenefitTrust(2013)22ITR277/56SOT507(Chennai)(Trib.)
S.4:Charge of incometax Capital or revenue Refund of excise duty is capital receipt hence
notchargeabletotax.(S.28(i))
ThequestionbeforetheSpecialBenchwaswhetherinthefactsandcircumstancesofthecase,
theexcisedutyrefundsetoffisacapitalreceipt.Iftheexcisedutyrefund/setoffisheldtobe
revenue receipt, whether the said amount is to be included in the business profits for the
purpose of deduction under section 80IB of the Income tax Act.The Special Bench held that
refund of excise duty is to be treated as capital receipt in the hands of the assessee, which is
notchargeabletotax.Asthefirstquestionisdecidedinfavourofassesseethesecondquestion
wasnotdecided.(A.Y.200607)
VinodKumarJainv.ITO(2013)140ITD1/83DTR258/152TTJ445/22ITR567(SB)(Asr.)(Trib.)
BalajiRosinIndustriesv.ITO(2013)140ITD1/83DTR258/152TTJ445(SB)(Asr.)(Trib.)
S.5:ScopeoftotalincomeMercantilesystemofaccountingAccrualofdisputedpayments
Amountreceivedtaxableasrevenuereceipt.(S.145)
The assessee was maintaining mercantile system of accounts. In earlier years it supplied
rectifiedspirittovariousretailvendorsonbehalfofGovernment.Consequenttoagovernment
order, the amount to be received by the assessee stood enhanced. The assessee had shown
saidamountasoutstandingliabilityinbalancesheetfiledalongwithreturnforassessmentyear
199394 and was continued to be shown as liability even during assessment year 199798. A
publicinterestlitigationwasfiledchallengingtheaforesaidGovernmentorderandHighCourt
allowed writ petition. There upon, the Government vide its order dated 1892000 had
withdrawn its earlier order of enhancement. The assessee challenged the withdrawal order of
Governmentandthematterwaspendinginwritappeal.Held,sincetheaforesaidamountpaid
to assessee was definite and ascertained amount, it was in the nature of revenue receipt and
waschargeabletotaxinhandsofassesseeinAY199394.(A.Y.199394)
CITv.SapthagiriEnterprises(2013)214Taxman458(Karn.)(HC)
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S.5: Scope of total Income Accrual Stock broker Income by overriding title Amount paid
onbehalfofpublicsectorcompaniescannotbeincludedasincomeofassessee.[S.37(1)]
Assessee a registered stock broker he claimed to be a broker of Indian bank which purchased
securities of different public sector undertakings (PSUs) at a particular rate quoted by Indian
Bank and sold them to said bank through Bank of Madura, which acted as routing bank and
chargedservicecharges.Assesseewaspaidcommissionfortransaction.Assesseeclaimedthat
his role was only of a conduit for taking demand drafts of Rs.14.79 crores favouring PSUs in
respectofadditionalinterestpayablebybanktoPSUsondepositskeptbythem.Thisclaimwas
confirmed by Indian BankThe Assessing Officer found that neither public sector orgainsations
norIndianBankhadanyagreementwiththeassessee.Outof8Publicsectorcompaniesonly3
had confirmed receipt of demand drafts. The Assessee also took alternative plea that the
amount may be treated as business expenditure under section 37(1). The Assessing Officer
included the amount in the assessees income holding that the payments made to the public
sector undertakings were not falling under the category of diversion of income by overriding
title at source. On appeal Commissioner (Appeals) accepted the claim of assessee. In the
meantime,thecriminalprosecutionwaslaidagainsttheassesseeandtheBankChairman.The
CBI acquitted them as the charges had not been proved beyond reasonable doubt. In appeal
before theTribunal the Tribunal set aside theorder of Commissioner (Appeals) on the ground
that the criminal Courts decision was not binding on the Tribunal and had no relevance in
decidingtheissue.OnappealbyassesseetheCourtheldthatquestionwithreferencetostatus
ofassesseeasabrokerhadbeenclearlyspokentobywitnesseswhowereofficersofbank,who
had understood role of assessee and, accordingly, instructed assessee to act. Court held that
since evidence recorded clearly proved status of assessee as a broker only, even going by
theory of preponderance of probabilities, assessee could not be mulcted with any liability as
regards sum of Rs. 14.79 crores as his income. In favour of assessee. (A.Ys. 199192, 199293,
199394)
T.Jayachandranv.Dy.CIT(2013)212Taxman620(Mad)(HC)
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S.5: Scope of total incomeIncomeAccrualMembership fee60% as income in the first year
andbalance40%asincomeinremaining24years.[S.145]
Assessee is engaged in business of running holiday homes on time share basis. It provided
holiday home facility to its members for a period of 25 years. In a 25 years plan, 60 per cent
membershipfeeswastreatedasincomeofassesseeoffirstyearandbalance40percentwas
treatedasincomeofremaining24yearsonaproratabasis.AssessingOfficertreatedhundred
percentofmembershipcollectionasincomeliablefortaxationforimpugnedassessmentyear.
On appeal following the special bench inACIT v. MahindraHoliday &Resorts (India) Ltd (2010)
39SOT438(SB)(Chennai)(Trib.),TheTribunalheldthattheassesseewasjustifiedintreatingonly
60percentofitsmembershipfeecollectionasitsincome.(A.Y.20062007)
MahindraHolidaysandResortsIndiaLtd.vDy.CIT(2013)141ITD363(Chennai)(Trib.)
S.5: Scope of total incomeInterest on securitiesAccrued but not due should not be treated
asincome.
Foryearendingon3131999,ithadcreditedincomefrominterestonsecuritiesondaytoday
accrualbasis.However,itdidnotoffersaidinterestfortaxationandclaimedthatinterestwhich
hadnotbecomedueforpaymentduringpreviousyearshouldnotbetreatedasincome.Held,
in view of judgment of Bombay High Court rendered in case of DIT (International Taxation) v.
CreditSuisseFirstBaston(Cyprus)Ltd.[2012]209Taxman234,theinterestinquestiondidnot
constitute income of assessee for assessment year under consideration as the same was not
due.(A.Y.19992000)
DresdnerBankAGv.ACIT(2013)57SOT203(Mum.)(Trib.)
S.5:ScopeoftotalincomeAccrualRetentionmoneyAccruesonperformanceofconditions
intheagreement.
Customer retained money in respect of a completed contract for satisfactory performance of
contract, for which due diligence was undertaken. Only on demonstration of satisfactory
performance of contract, money was to be released finally to assessee, otherwise it had to
repairfaultorpayliquidateddamages.Tribunalheldthatsuchretentionmoneydidnotaccrue
asincometoassesseeonraisingbillaftercompletionofproject,incomearoseonperformance
of conditionalities of agreement and, thus, it did not accrue as income in current year. (A. Y.
200910)
Dy.CITv.AngeliqueInternationalLtd.(2013)55SOT226(Delhi)(Trib.)
S.5: Scope of total income Accrual Revenue for services Unused prepaid cards sold to
usersoftelecomservicesisassessableintheyearwhentalktimeisactuallyused.
Talk time charges received by the assessee, a telecom service provider, on the sale of prepaid
cards are to be recognized as income of the relevant yearonly to theextent the talk time has
beenactuallyusedbythecustomers,andtheamountreferabletotheunusedtalktimeistobe
recognizedasincomeinthesubsequentyearwhenthetalktimeisactuallyused.
ACITv.ShyamTelelinkLtd(2013)151TTJ464(Delhi.(Trib.))
S.5:ScopeoftotalincomeAmountpayabletoforeignentitydidnotconstitutetheincomeof
foreignentityintheabsenceofpermissionobtainedfromRBIasrequiredbyFERA
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The assesse, M/s. Broz Allen & Hamilton (BAH) India, is a foreign partnership firm and it has a
branchofficeinIndiathroughwhichitrendersmanagementandtechnicalconsultancyservices.
BAHIndiahasavailedtheservicesfromvariousgroupentitiesandmadethepaymentsforthe
same. According to Assessing Officer, the payments made by BAH India to the group entities
abroadwerechargeabletotaxasfeesfortechnicalservices.TheAssessingOfficercompleted
assessments under section 143(3) r.w.s. 148 treating BAH India as agent of group entities and
the amount paid were taxable as fees for technical services. The CIT (A) upheld the validity of
assessmentsmadebytheAssessingOfficer.
The Tribunal held that the amounts payable by BAH India to three group entities in Germany,
IndiaandPanama(SEAsia)didnotconstitutetheirincomechargeabletotaxintheyearunder
consideration as there was no accrual of income in the absence of permission obtained from
RBI as required by FERA. Tribunal followed the two decisions of Honble Bombay High Court
namely,1.CITvs.KirloskarTractorsLtd.(1998)231ITR849(Bom.)2.CITvs.JohnFowler(I)Ltd.,
(1999)239ITR312(Bom.).(A.Y.199899)
Booz Allen & Hamilton (India) Ltd. v. ADIT (2013) 152 TTJ 497/83 DTR305/56 SOT 96
(Mum.)(Trib.)
S.6(1):ResidenceinIndiaIndividualConditionscumulativeIndividualresidinginIndiafor
morethan365daysinimmediatelyprecedingfouryearsbutresidingforlessthan182daysin
previousyearisnotaresident.
Section 6(1)(a) makes it clear that an individual would be a resident of India in any previous
yearifhewasinIndiainthatyearforaperiodorperiodsamountinginallto182daysormore.
Section 6(1)(c) applies to citizens of India as well as to persons of Indian origin. In the case of
citizensofIndia,thelengthofstayinIndiainaparticularyearhasbeenextendedto182daysas
comparedto60daysforforeigners.
Althoughtheassesseehadinthepreceding4yearsstayedinIndiaforaperiodinexcessof365
daysinIndia,innoneoftheyearshadhebeeninIndiaforaperiodinexcessof182days.
Therefore,theassesseewasnotaresidentofIndia(A.Ys.20012002to20032004).
CITv.SureshNanda(2013)352ITR611(Delhi)(HC)
S.6(6):ResidenceinIndiaNotordinarilyresidentAccrualofIncomeAssesseehastoprove
thatincomehadaccruedorarisenoutsideIndia.(S.5(1)(c)
Thecourtheldthatforavailingbenefitsofprovisotosection5(1)(c),mereclaimthatassessee
isaperson'notordinarilyresidentinIndia,isnotsufficient.Inabsenceofanyproofthatincome
thathadaccruedorarisenoutsideIndiawasnotonaccountofanybusinessinterestortradein
India, benefits of proviso to section 5(1) (c) could not be taken advantage of by a person 'not
ordinarilyresident'inIndia.Infavourofrevenue.(B.P.198687to199697)
KumariKanagam(Mrs)v.CIT(2013)213Taxman154(Mad.)(HC)
S.9(1)(i):IncomedeemedtoaccrueorariseinIndiaBusinessconnectionliaisonofficeNo
income is attributable to Liaison Offices activity of sourcing manufactured products from
Indiaeveniffeeforserviceisreceivedfromoverseasbuyer.(S.5)
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The assessee, a USA company, setup a liaison office in India whose main activitywas to liaise
with Indian manufacturers for purchase of apparels from India by the assessees HO and
overseas subsidiaries. It employeda large variety of staff whose task was to create awareness
amongst the Indian manufacturers of the need to maintain quality control and adhere to
standards. The price for each apparel was negotiated with the manufacturer and the samples
wereforwardedtotheUSoffice.Theliaisonofficegaveitsopinionaboutthereasonablenessof
thepriceandallrelatedissuesetc.TheUSofficedecidedabouttheprice,quality,quantity,to
whom to be shipped and billed. The liaison office kept a close watch on the progress, quality,
time schedule etc at the manufacturing workshop. The AO held that the activities of the
assessee of identifying exclusive manufacturers, designing the products, supervising the
manufacture and quality of the and marketing the products were beyond that required by a
liaisonofficeandresultedinincomeaccruingorarisinginIndiau/s5(2)readwiths.9(1)(i).He
accordinglyheldthat5%oftheexportvalueofthegoodswasattributabletoIndiaoperations
and was chargeable to tax. This was upheld by the CIT(A). On appeal, the Tribunal (G.G. Dhi(
Dr.)v.ACIT(2010)125ITD35(Bang)heldthattheactivityoftheliaisonofficewasmerelythat
of purchasing goods for the purpose of exports as the agent of the buyer and that under
Explanation(1)(b)tos.9,noincomecanbesaidtobederivedbytheassesseeinIndiathrough
the operations of the liaison office. On appeal by the department to the High Court, HELD
dismissingtheappeal:
(i) U/s 9(1)(i) income accruing or arising from any business connection in India is deemed to
accrueorariseinIndia.TheexpressionbusinessconnectionisdefinedinExplanation2tos.9
to include any business activities carried out by a person who is habitually acting on behalf of
thenonresidentinIndia.However,thisdoesnotincludeanauthoritytoconcludecontractson
behalf of the nonresident if the activities are limited to the purchase of the goods or
merchandise for the nonresident. Under Explanation 1(b) to s. 9(1)(e) a nonresident is not
liabletotaxinIndiaonanyincomeattributabletooperationsconfinedtopurchaseofgoodsin
Indiaforexport,evenifthenonresidenthasanofficeoragencyinIndiaforthatpurposeand
the goods are subjected by him to any manufacturing process before being exported from
India. The result is that no income is deemed to accrue or arise in India to a nonresident,
whether directly or indirectly through or from any business connection, if the activities are
confinedforthepurposeofexport.
(ii) On facts, the assessee is not carrying any business in India. The object of the liaison
office is to identify manufacturers, give them technical knowhow and see that they
manufacture goods according to the assessees specification which would be sold to the
assesseesaffiliates.Thepersonwhopurchasesthegoodspaysmoneytomanufacturerandin
the said income, the assessee has no right. The said income cannot be said to be a income
arising or accruing in India visavis the assessee. As the entire operations are confined to the
purchaseofgoodsinIndiaforthepurposeofexport,theincomederivedtherefromcannotbe
deemedtoaccrueorariseinIndia.Thenonresidentbuyermayinturnpaysomeconsideration
to the assessee outside India but as that contract between the assessee and the buyer is
entered outside India, that income arises or accrues to the assessee outside India and is not
chargeabletotaxinIndia(AngloFrenchTextileCompanyLtd.vCIT(1953)23ITR101(SC)&CIT
v.R.D.AgarwalandCo.(1965)56ITR20(SC)referred)
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CITv.NikeInc(Karn.)(HC)www.itatonline.org.
S.9(1)(i): Income deemed to accrue or arise in India Business connectionOff shore supply
equipmentDespite retrospective amendment to section 9(1) with effect from 161976
assessee would not be liable to tax under Explanation to said section.DTAAIndia Japan
[S.9(vii),90Art.7]
As per earlier Supreme Court decision in assessee's own case in Ishikawajima Harima Heavy
Industries Co Ltd (2007) 288 ITR 408(SC),amount receivable by assessee in respect of offshore
supply of equipment and offshore services was not liable to tax in view of article 7 of DTAA
between India and Japan. Court held that, despite retrospective amendment to section 9(1)
witheffectfrom161976assesseewouldnotbeliabletotaxinrespectofsuchamountunder
Explanationtosaidsection.Infavourofassessee.(A.Y.200304)
DIT(IT)vIshikawjimaHarimaHeavyInds.Co.Ltd.(2013)212Taxman273/258CTR335/86
DTR330(Bom.)(HC)
S.9(1)(i): Income deemed to accrue or arise in India Business profitsStrategic consultancy
servicestoclientsAssessableasbusinessincomeneitherroyaltynorasotherincomeDTAA
IndiaIndonesia.[S.9(1)(vi),56,57,Art.7,12,22]
Assesseeisaforeigncompanywhichisengagedinbusinessofprovidingstrategicconsultancy
services to clients. It provided its Indian group company various information as required.
AssesseeclaimedthatthechargesreceivedfromIndiangroupcompanywastobeassessedas
business profits .The Assessing Officer held that the fees received by the assessee fell in the
categoryofRoyaltyintermsofarticle12oftheDTAA.TheDRPheldthatprovisionsofarticle
22(3) of DTA treaty were applicable and the receipt in question was to be taxed as other
income.TheTribunalheldthatinformationsuppliedwasinnatureofdataanddidnotariseout
ofexploitationofknowhowgeneratedbyskillsandinnovationofpersonswhopossessedsuch
talent. Amount received by assessee from Indian group company did not fall in category of
royalty.TheTribunalalsoheldthatincomecanbetaxedunderanyotherarticle,provisionsof
article22willnotbeapplicable.TheArticle22residuaryarticlesimilartoprovisionsofsection
56and57oftheIncometaxAct1961i.e.Incomefromothersources.(A.Y.200708)
P.T.McKinseyIndonesia.vDy.CIT(2013)141ITD357/88DTR324(Mum.)(Trib.)
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21
S.9(1)(i):IncomedeemedtoaccrueorariseinIndiaBusinessconnectionInterestPermanent
establishmentDTAAIndiaFrance.[Art.5]
Assessee, a foreign company incorporated in France was engaged in business of operation of
ships in India. It filed its return of income claiming tax and interest payable at 'nil' on ground
that it was entitled to benefit under DTAA. Assessing Officer held that business of assessee in
India was carried out through a fixed place through its agent in India and agent of assessee in
IndiawasdependentonassesseeandhencesuchdependentagentconstitutedaPEofassessee
inIndia.Tribunalinassesseesowncasefortheassessmentyear200607heldthatsincethere
wasnonegativefindingthattransactionsbetweenassesseeandagentwerenotmadeunderat
arm'slengthcondition,agentwasofindependentstatus,standofAssessingOfficerwithregard
to existence of PE was not sustainable in law. Tribunal held that assessee had no PE in India,
andhence,notliabletotax.Followedearlieryearorder.(A.Y.200708)
DelmasFranceS.A.vADIT(2013)141ITD67/86DTR145/154TTJ561(Mum.)(Trib.)
S.9(1)(i): Income deemed to accrue or arise in India Business connection Directly or indirectly
attributable to permanent establishmentDTAAIndia UKTaxation of foreign professional firms &
concept of force of attraction under IndiaUK DTAA explained. Linklaters LLP(2010) 40 SOT 51
(Mum)heldtobenotgoodlawIncomeattributabletoservicesrenderedoutsideIndiaisnottaxable
in IndiaExplanation to section 9(1) of the Income tax Act, 1961, was amended by the Finance Act,
2010withretrospectiveeffectfromJune1,1976isapplicableinthecaseofincomeofanonresident
coveredbyclause(v)orclause(vii)ofsubsection(1)ofsection9.[Arts.5,7,15]
The assessee, a U.K. partnership firm of Solicitors, provided legal consultancy services in
connectionwithdifferentprojectsinIndiaandclaimedthatthetaxabilityoftheincomearising
there from had to be processed under Article 15 (independent professional services) of the
IndiaUKDTAA.TheAOrejectedtheclaimregardingapplicabilityofArticle15andheldthatas
the assessee had a PE in India as per Article 5and as the services hadbeen rendered in India,
the entire income was chargeable to tax in India under Article 7. In AY 199697, the Tribunal
{Cliffordchance,UnitedKingdomv.Dy.CIT(2002)82ITD106(Mum)}acceptedtheclaimofthe
assessee that if the aggregate period of stay of the employees/ partners did not exceed 90
days,theincomewasnottaxableunderArticle15 oftheDTAAandifitexceededthatperiod,
onlytheIndianactivitywastaxableu/s9(i).ThesaidverdictwasaffirmedbytheBombayHigh
Court in 176 Taxman 485. Later, another Bench in Linklaters LLP vs. ITO (2010) 40 SOT 51
(Mum)heldthatastheaforesaidverdictsoftheTribunal&HighCourtinCliffordChanceturned
onthebasisthatfeesfortechnicalservicesrenderedoutsideIndiawerenotchargeabletotax
u/s9(1)(vii)andthattheywerenotgoodlawinviewoftheretrospectiveamendmenttos.9(1)
bytheFinanceAct,2010w.e.f.1.6.1976whichprovidedthatfeesfortechnicalserviceswould
be taxable in India even if they were rendered outside India. In Linklaters LLP it was also held
that the expression directly or indirectly attributable in Article 7(1) triggered the force of
attraction rule and that the entire earnings relatable to the projects in India would be
chargeable to tax in India. As there was doubt as to the correctness of the view in Linklaters,
the Special Bench was constituted to consider two issues (i) whether the verdict of the High
CourtinCliffordChancewasgoodlawaftertheretrospectiveamendmenttos.9&(ii)whether
the expression directly or indirectly attributable to the PE in Article 7(1) meant that the
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consideration attributable to the services rendered in the State of residence is taxable in the
sourceState.HELDbytheSpecialBench:
(i)TheviewtakenbytheTribunalandtheHighCourtinCliffordChancewasthatifArticle15of
the IndiaUK Treaty is not applicable because the stay of the partner exceeded 90 days, then
the taxability of the income would be determined by s. 9(1)(i) of the Act. It was held that for
determinationofincomeu/s9(1)(i),theterritorialnexusdoctrineplaysanimportantpartandif
the income arises out of operations in more than one jurisdiction, it would not be correct to
contend that the entire income accrues or arises in each of the jurisdictions. The High Court
applied the law laid down by the Supreme Court in the context of s. 9(1)(i) that if all the
operations are not carried out in the taxable territories, the profits and gains of business
deemed to accrue in India through and from business connection in India shall be only such
profits and gains as are reasonably attributable to the operations carried out in the taxable
territories. Accordingly, the viewexpressed in Linklaters LLP that the judgment of the Bombay
HighCourtisbasedonthepremiseofs.9(1)(vii)andthatthesaidpremisenolongerholdsgood
in view of the retrospective amendment is not correct. The law laid down by the High Court
continuestobegoodlaw;
(ii) As regards the rule of force of attraction, Article 7(1) provides that the profits of the UK
enterprise directly or indirectly attributable to the PE may be assessed in India. The
connotation of what is directly attributable to the PE is set out in Article 7(2) while the
connotation of what is indirectly attributable to the PE is set out in Article 7(3). When the
connotation of profits indirectly attributable to the PE is defined specifically in Article 7(3),
onecannotrefertoArticle7(1)oftheUNModelConventionwhichismateriallydifferentfrom
Article 7(1) & 7(3) of the IndiaUK DTAA. The reliance placed in Linklater on the UN Model
Conventiontocometotheconclusionthattheconnotationofprofitsindirectlyattributableto
PE in Article 7(1) incorporates the force of attraction rule thereby bringing an enterprise
having a PE in another country within the fiscal jurisdiction of that another country to such a
degree that such another country can properly tax all profits that the enterprise derives from
that country, whether the transactions are routed and performed through their PE or not, is
clearlymisplacedandnotacceptable.(A.Ys.199899to200304)
ADIT(IT)v.CliffordChance(2013)24ITR1/87DTR210/154TTJ537(SB)(Mum.)(Trib.)
S.9(1)(i):IncomedeemedtoaccruetoorariseBusinessconnectionDTAAIndiaGermany
SupplyofimportedequipmentandmaterialsfromGermanyandsupervisionoferection,
startupandcommissioningofpowerprojectIncomebetaxedasbusinessprofit.(S.44D,
115A,Art.7)
The assessee a company was awarded a contract by State Government for renovation,
modernization and up gradation of a power house. The scope of work included supply of
imported equipment and materials from Germany and supervision of erection, startup and
commissioning of power project. The assessee offered the amount for taxation at the rate of
10% of contract value as per section 44BBof the Incometax Act.The revenue taxed the
considerationinrespectoftheseactivitiesasBusinessProfit.Itwasheldthattherewasneither
any other contrary view nor the assessee brought on record any material controverting the
findings of the AO in this regards. Thus, the consideration be taxed under article 7 of DTAA
r.w.s.44DandS.115A.Accordinglytheappealofassesseewasdismissed.(A.Y.200708)
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VoithSeimensHydroKraftwerkstechnikGmbh&Co.KG(2013)140ITD216(Delhi.)(Trib.)
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24
products and detailed technical and other formalities; that thus, the provisions of section 9
wouldcomeintoplay.Sincetheassesseehadnotdeductedtaxatsourceundersection195,the
Assessing Officer disallowed the amount of commission paid under section 40(a) (ia). On
appeal,theCommissioner(Appeals),followingthefirstappellateorderfortheassessmentyear
200809 in favour of the assessee, deleted the addition of Rs. 37,87, 26,158 made by the
Assessing Officer. On appeal by revenue, the tribunal held that where the export commission
paidtoanonresidentagentforservicesrenderedoutsideIndiaisnotchargeabletotaxinIndia
favourofassessee.(A.Y.200910)
Dy.CITv.AngeliqueInternationalLtd.(2013)55SOT226(Delhi)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyReimbursementofleaseline
charges Force of attraction rule. Marketing and management servicesDTAAIndiaUK
(Art.5).
Theamountreceivedbyassesseeasreimbursementofleaselinechargesandwouldnotclassify
eitherasroyaltyorasincomeattributedtoapermanentestablishment.Lowerauthoritiesheld
thatfeesreceivedbyassesseeforprovidingmarketingandmanagementservicesoutsideIndia
could not be subjected to tax in India, as same was not attributable to Permanent
Establishment(PE)inIndia.RevenuecontendedbeforetheCourtthatincomeinquestionwas
attributable to a Permanent EstablishmentinIndia by virtue of force of attraction rules, since
revenue had not canvassed force of attraction rules before authorities and decision of lower
authoritiesbeingbasedonfindingoffact,itdidnotwarrantanyinterference.(A.Y.200405)
DITv.WNSGlobalServices(UK)Ltd.(2013)214Taxman317(Bom.)(HC)
S.9(1)(vi): Income deemed to accrue or arise in India Marketing and managerial services is
nottaxableasperarticle12DTAAIndiaUSA[Art.12]
Assessee a US company entered into agreement with WNS India for providing marketing and
sales services. Assessing Officer held that assessee's personnel visited WNS India to provide
managerial services which amounted to rendering of expertise and technical knowledge for
conduct of Indian concern, therefore ,marketing and management services rendered by
assessee were in nature of technical services as per section 9(1)(vii) same would not become
FIS as per IndoUS DTAA. DRP up held the order of Assessing Officer. Tribunal held that
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assessee in the instant case has not made available any technical knowledge, experience, skill
etctoWNSIndia,thesamecannotbesubjectedtotaxaspersection9(1)(vi).Astheprovisions
of article 12(4)(b) shall apply which is more beneficial to assessee which shall apply
supersession of section 9(1)(vi) of the Act. It is therefore held that the marketing and
managerial services rendered by the assessee to WNS India were not chargeable to tax as FIS
undertheArticle12oftheDTAA.(A.Y.20062007)
WNSNorthAmericaInc.v.ACIT(2013)141ITD117(Mum.)(Trib.)
S.9(1)(vi): Income deemed to accrue or arise in India Royalty Live telecast of cricket
matchesBusinessprofitDTAAIndiaSingapore[S.9(1)(i),195,Art.12]
Assessee entered into an agreement with a foreign company for obtaining licence for live
telecastrightofcricketseriestobeplayedoutsideIndia.Assesseesoughtforacertificateofnil
deduction of TDS on ground that fees for live coverage would not be in nature of royalty.
However,theAssessingOfficerheldthatpaymentoffeesforlivetelecastingwasinnatureof
royalty and assessee was liable to deduct tax at source. Held, that the procedure of live
telecasting, does not give birth to a 'work' capable of copyright and any consideration for live
broadcastingcannotbeconsideredas'royalty'.Whereanonresidentonlyallowsaresidentto
exploit some rights vested in it on commercial basis, it cannot be said that nonresident has
carried out any business activity in India. Non resident only allows a resident to exploit some
vestedinitoncommercialbasis,itcannotbesaidthatnonresidenthascarriedhascarriedout
anybusinessactivityinIndia.(A.Y.200910)
DCITv.NimbusCommunicationsLtd.(2013)57SOT92(Mum.)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyLawonwhatconstitutesaPEandhowto
attributeprofitstoaPEexplained.
TheTribunalhadtoconsiderthefollowinglegalissues:(i)whethertheassesseecouldbesaidto
have a PE in terms of Article 5(1) and 5(2) of the DTAA? (ii) what is the correct method to
allocate profits to the PE? (iii) whether fees for software is assessable as royalty after the
retrospectiveamendmenttos.9(1)(vi)and(iv)whetherthepaymentforlinkchargesistaxable
asequipmentroyalty?HELDbytheTribunal:
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26
(i) The assessees argument that it does not have a PE under Article 5(1) cannot be accepted
because its employees frequently visited the premises of CIS to provide supervision, direction
andcontrolovertheoperationsofCISandsuchemployeeshadafixedplaceofbusinessattheir
disposal. CIS was practically the projection of assessees business in India and carried out its
businessunderthecontrolandguidanceoftheassesseeandwithoutassuminganysignificant
riskinrelationtosuchfunctions.Besidestheassesseehasalsoprovidedcertainhardwareand
softwareassetsonfreeofcostbasistoCIS.However,itdoesnotconstituteadependentagent
PEintermsofArticle5(4)and5(5)oftheDTAA;
(ii) The correct approach to arrive at the profits attributable to the PE should. be as under: (i)
computetheGlobaloperatingIncomepercentageofthecustomercarebusinessasperannual
report/10Kofthecompany,(ii)thispercentageshouldbeappliedtotheendcustomerrevenue
with regardto contracts/projects where services were procured from CIS. The amount arrived
at is the Operating Income from Indian operations, (iii) the operating income from India
operations is to be reduced by the profit before tax of CIS. This residual is now attributable
between US and India, (iv) the profit attributable to the PE should be estimated on residual
profitsasdeterminedunderStep3above;
(iii)Asregardsthetaxabilityofsoftwarelicensefees,theretrospectiveamendmenttos.9(1)(vi)
by the Finance Act, 2012 widens the scope of the term royalty but does not impact the
provisionsoftheDTAAinanymanner.Consequently,thepurchaseofsoftwarefallswithinthe
categoryofcopyrightedarticleandnottowardsacquisitionofanycopyrightinthesoftwareand
hencetheconsiderationisnotassessableasRoyalty.Evenotherwise,asthepaymentisinthe
nature of reimbursement of expenses, it is not taxable in the hands of the assessee (B4U
InternationalHolding&NokiaNetworksOYfollowed);
(iv) As regards the payment of link charges as equipment royalty, there is no transfer of the
right to use, either to the assessee or to CIS. The assessee has merely procured a service and
provided the same to CIS, no part of equipment was leased out to CIS. Even otherwise, the
payment is in the nature of reimbursement of expenses and accordingly not taxable in the
handsoftheassessee.(A.Ys.200607&200809)
ConvergysCustomerManagementGroupIncv.ADIT(Delhi)(Trib.)www.itatonline.org.
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyDeductionatsourceRightforsatellite
broadcastingPurchase and sale of rights in satellite and movies is liable to deduct tax at source.
[S.40(a)(ia),194J].
Assesseeisengagedinpurchaseandsaleofrightsinsatelliteandmovies.Assesseehaddebited
initsaccountasumforpurchasingsatelliterightsoffilmsandprograms.Sinceassesseedidnot
purchase cinematographic films as such rather it had only received right for satellite
broadcasting,insuchacase,amountpaidforacquiringsaidrightwouldfallwithindefinitionof
'royalty'inviewofExplanation2tosection9(1)(vi),therefore,assesseewasliabletodeducttax
at source under section 194J on payments effected. However, the additional ground raised by
the assessee that the rigours of section 40(a)(ia) are attracted only on amounts standing
payableattheendoftheyear,isjustifiedinviewofthedecisionofSpecialBenchofTribunalin
the case ofMerilyn Shipping & Transportsv.Addl. CIT(2012)136 ITD 23/20 taxmann.com 244
(Visakha)(SB).Intheresult,theappealofrevenueisallowedbutatthesametime,theissueis
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remitted back to the file of the Assessing Officer for applying section 40(a)(ia) as per
law.(A.Y.200809)
ACITvShriBalajiCommunications.(2013)140ITD687(Chennai)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltySoftwareservicesDTAAIndia
USA.[S.195,Art12]
Assesseeengaged'I',USAtoprovidesoftwareservicesinrelationtocertainaccountingsystems
ofassesseeforwhichitmadepaymentswithoutdeductingtaxatsource.AssessingOfficerwas
of view that payments made for services rendered by 'I' USA amounted to fees for technical
services as it fulfilled conditions contemplated in article 12(4) of IndiaUSA DTAA and was
therefore, taxable in India. On appeal, it was noted that in assessment proceedings issue was
confined to holding as to whether payment was taxable in India under article 12 of IndiaUSA
DTAA,however,therewasnodeterminationastowhetherornotpaymentmadetoconsultant
'I',USA,forservicesrenderedwasinnatureofroyaltyascontemplatedbyprovisionsofsection
9(1)(vii) thereby attracting provisions of TDS. In view of above, impugned order was to be set
aside and, matter was to be remanded back for disposal afresh. Matter remanded. (A.Y.2007
08)
GoldmanSachsServices(P.)Ltd.v.Dy.DIT(2013)140ITD434(Bang.)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyRoyaltyearnedbynonresident
fromanothernonresidentisnottaxableinIndiaevenifpayerusestheknowhowforsaleof
productstoIndia.
The assessee, a USA based company, held patents to the CDMA mobile technology which it
licensed to various unrelated wireless Original Equipment Manufacturers (OEMs) located
outside India. The OEMs used the assessees technology to manufacture CDMA handsets
outside India which were sold to telecom companies in India (e.g. Reliance Com). The Indian
telecomcompaniessoldthehandsetstoIndianconsumers.TheAOandCIT(A)heldthatasthe
OEMs sold the handsets to customers in India, they were carrying on a business in India or
hadasourceofincomeinIndiaandsotheroyaltypaidbythemtotheassesseewastaxable
in India u/s 9(1) (vii) (c). On appeal by the assessee to the Tribunal, held by the Tribunal
allowingtheappeal:
(i) U/s9(1)(vi)(c)royaltypayablebyapersonwhoisanonresidentisdeemedtoarisein
India where the royalty is payable in respect of any right etc. utilised for the purposes of a
businesscarriedonbysuchpersoninIndiaorforthepurposesofearninganyincomefromany
sourceinIndia.S.9(1)(vi)(c)isadeemingprovisionandtheburdenisontheRevenuetoprove
thatthepayerhasabusiness/sourceofincomeinIndia.Whatisimportantfors.9(1)(vi)(c)is
not whether the right to property is used in or for the purpose of a business, but to
determinewhethersuchbusinessiscarriedonbysuchpersoninIndia;
(ii) The first question is whether the OEMs have carried on business in India and used the
assessees patents for that purpose. The mere fact that the products manufactured by the
OEMs outside India were sold to parties in India does not mean that the OEMs carried on
businessinIndia.ForabusinesstobecarriedoutinIndiathereshouldbesomeactivitycarried
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out in India. A mere purchase and sale with an Indian party is not sufficient. The fact that the
OEMs customized the handsets so as lock them to a specific operator and included Hindi and
regional languages, etc. was irrelevant as such customization was not connected with the
assessees patents. There was no customization of the hand set qua the CDMA technology.
Further, even if the OEM customized the handsets to Indian specifications that did not mean
thattheOEMwascarryingonbusinessinIndia.Theassesseesroleendedwhenitlicensedits
patents to the OEMs and the OEMs role ended when they sold the handset to the Indian
customer. The sale was of a chattel as a chattel and though the product is a combination of
hardware and technology, the revenues attempt to break down the sale into various
componentsisnotsupportedbythetermsoftheagreementandthefactsanditcannotbesaid
that every item other than software was sold and that the embedded software has been
separately licensed. There is also no evidence on record to show that title to the handsets
passedinIndiaorthatcertainfurtheractivitywasdonebytheOEMsinIndiaafterthesale.On
the other hand, title to the equipment passed to the Indian customer on high seas and the
profits made by the OEMs would not be chargeable to tax in India. The taxability of the
assessee directly depends on the taxability of the OEMs and if the OEM is not taxable, the
assessee cannot be made taxable (Ericsson AB 246 CTR 433 (Del), Skoda Export, Nokia Net
Worksfollowed).Evenotherwise,themerepassingoftitleinimportedgoodsinIndiadoesnot
meanthattheOEMiscarryingonbusinessinIndia.ItisbusinesswithIndiaandnotbusiness
inIndia;
(iii) ThesecondquestioniswhethertheOEMshaveusedtheasssesseestechnologytoearn
ormakeincomefromasourceinIndia.Asourceofincomeistheactivitythatgivesraiseto
income. The source of the royalty income for the assessee is the activity of manufacturing by
the OEMs, which is carried out outside India (Rhodesia Metals 9 ITR (Suppl) 45 &Havells India
followed). The departments argument that the assessee had made available the CDMA
technology(software)totheOEMsintheformofchipsetsandthatOEMshaveinsertedthese
chipsetsintothehandsetsmanufacturedbythemandthattheseinturnhavebeenlicensedto
IndianoperatorsforwhichOEMshavereceivedaconsiderationandhencetheyhaveasource
ofincomeinIndiaiscontrarytothefacts.Itisalsonotthebasisonwhichtheassessmentwas
madebytheAO&CIT(A).Whatwasbroughttotaxwastheroyaltyearnedfromthelicensingof
patentsandnotroyaltyearnedonsoftwareembeddedinthechipsets.(A.Y.200001to2004
05)
QualcommIncorporatedv.ADIT(2013)23ITR239/85DTR156/153TTJ513/56SOT72(URO)
(Delhi)(Trib.)
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29
servicesasperArt.12ofDTAAandchargeableattherateof15%.However,clientcoordination
feeswhichwastaxedasbusinessprofit,couldnotbetaxedinIndia,duetononexistenceofPE.
(A.Y.201011)
DDIT (IT) v. Euro RSCG Worldwide Inc. (2013) 140 ITD 210/84 DTR 29/153 TTJ 378
(Mum.)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyComputersoftwareDeduction
atsource.(S.40(a)(ia))
Payment made for use of computer software does not amount to royalty under Explanation 2
tosection9(1)(vi)andthussection40(a)(i)doesnotapplytosuchpayment.(A.Y.200708)
SKOLBreweriesLtdv.ACIT(2013)142ITD49/84DTR271/153TTJ257(Mum.)(Trib.)
S.9(1)(vii): Income deemed to accrue or arise in India Fees for technical services Royalty
Software licenceRight to use said confidential information in form of computer programme
softwarewoulditselfconstituteroyaltyandattracttax.DTAAIndiaIreland(Art12)
Assessee granted a nonexclusive nontransferable software license without right of sub
licence. Licensee might make a reasonable number of copies of licensed software for backup
and/orarchivalpurposesonly,evenifitwasnottransferofexclusiverightincopyright,rightto
useconfidentialinformationembeddedinsoftwareintermsofaforesaidlicensewhichmakesit
abundantly clear that there was transfer of certain rights which owner of copyright possessed
in said computer software/programme in respect of copyright owned. Therefore in terms of
DTAA consideration paid for use or right to use said confidential information in form of
computerprogrammesoftwarewoulditselfconstituteroyaltyandattracttax.Courtheldthatit
is not necessary that there should be a transfer of exclusive right in copyright and where
considerationpaidwasforrightsinrespectofcopyrightandforuserofconfidentialinformation
embeddedinsoftware/computerprogramme,itwouldfallwithinmischiefofExplanation(2)of
section 9(1) (vi) and there would be a liability to pay tax. In favour of revenue. (200102 to
200304)
CITv.SynopsisInternationalOldLtd.(2013)212Taxman454(Karn.)(HC)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesITsupport
servicestoitsgroupcompaniesNottaxableinIndiaDTAAIndiaAustralia[S.5(2),9(1)(vi),90,
Art12]
Assessee an Australian company, it was providing the IT support services to its group
companiesintheAsiaSpecificregion.Theservicesprovidedbytheassesseewereinthenature
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30
ofhelpdesk,administrativeandmaintenanceITsupport.It receivedcertainamountfromtwo
IndiangroupcompaniesforprovidingITsupportservicesandclaimedthatinviewoftheTreaty
between India and Australia , as no technical services were made available to its group
companies in India , the payment was exempt. The Assessing Officer rejected the assesses
claimandheldthatthepaymentreceivedbyassesseewastaxableundersection9(1)(vii)asthe
assesseecouldnotgetthebenefitevenundertheTreaty.AsperdirectionofDRPtheAssessing
Officer passed the assessment order bringing to tax entire amount received by the assessee
from its two affiliates in India. On appeal the Tribunal held that assessee had not made
available any technical knowledge or expertise to Indian company. Services rendered by
assesseecompanytoitsIndiangroupcompanythoughwereinnatureoftechnicalservices,but
were not covered by para (3)(g) of article 12 of India Australia Treaty. Hence, same were not
taxableinIndia.(A.Y.200708)
SandvikAustraliaPty.Ltd.vDy.CIT(2013)141ITD598(Pune)(Trib.)
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prescribed under section 206AA .ie 20% .As regards the grossing up is concerned the Tribunal
heldthatthegrossingupoftheamountistobedoneattheratesinforceforthefinancialyear
in which such income is payable and not at 20 percent as specified under section 206AA.
(A.Y.201112)
BoschLtd.v.ITO(2013)141ITD38(Bang.)(Trib.)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesDeveloping
printersDeductionatsourceLiabletobetaxedat15%DTAAIndiaUK.(S.115A,Art.13)
Assessee Company had entered into agreement with 'X', a UK based company for developing
printers.Assesseewastopay25000asstartupfees.AssessingOfficerheldthatpaymentwas
in nature of fees for technical services as intellectual property developed was owned by
assessee, to be taxed accordingly in terms of IndoUK treaty. On appeal Commissioner
(Appeals)heldthattheassesseewasliabletodeducttaxatsourcetreatingthesaidpaymentas
royalty/fees for technical services under section 9(1)(vi) and article 13 of the IndiaUK treaty.
On appeal the Tribunal held that after going through the agreement it is to be opined that it
was not about purchase of printer alone . The Assessee company had purchased a particular
technologyfromXandhadexclusiverightoverit,impugnedagreementwasnotforpurchase
ofmachinebuthadpurchasedtechnologyalso,saidpaymentwasliabletodeductionatsource.
As regards the additional grounds regarding lower rate of tax the matter was set aside to the
Assessing Officer for limited purpose for deciding the question of applicability of lower rateof
tax.(A.Y.200809)
BajajHoldings&InvestmentsLtd.v.ADIT(2013)141ITD62(Mum.)(Trib.)
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32
The assessee was in the business of providing underwater diving services in Saudi Arabia under a
contract with M and K and paid divers fees outside India. It claimed that this amount was paid in
connection with the business of underwater diving services provided outside India and therefore, fell
withintheexceptionofsection9(1)(vii)(b)oftheActandwasnottaxableinIndia.TheAssessingOfficer
disallowed the deduction on account of professional charges paid to divers and held that the services
were technical services and fell under section 9(1)(vii) of the Act and the assessee having failed to
deduct tax deducted at source, the provisions of section 40(a)(i) were applicable. The Commissioner
(Appeals)heldthattheassesseedidnothaveanybranchorpermanentestablishmentoutsideIndiaand
therefore,sincethepaymentsweremadetononresidentsfromIndiathebusinesscouldnotbesaidto
becarriedonoutsideIndiasoastofallwithintheambitofexceptionsprovidedinsection9(1)(vii)(b)of
the Act. He, therefore, upheld the order of the Assessing Officer. On appeal the Tribunal held that
serviceswereprovidedbytheassesseeoutsideIndiaandforthisbusinessunderwaterdivingservicesof
nonresidentswereutilisedtowhomtechnicalfeewaspaid.Therefore,theservicesofnonresidentsto
whom the technical fee was paid by the assessee were utilised for the business which was carried out
outsideIndiaforearningincomefromasourceoutsideIndia.Theassesseewasnotliabletodeducttax
deductedatsourceonsuchpayments.(A.Y.20082009)
AquaOmegaServicesP.Ltd.v.ACIT(2013)23ITR191(Chennai)(Trib.)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesDependent
agentMarket supportive servicesDTAA India SwitzerlandIn the absence of Permanent
Establishment, article 7 pertainingto business profits would cease to operate in assessees
casehencenotliabletotax.(S.90,115A,Art.5,7)
Assessee, a Swiss company, operated India specific websites. For this purpose, it entered into
Marketing Support Agreement with two group companies in India. Assessee claimed that
thoughitearnedrevenuefromitswebsitesinIndia,samewasnottaxableasbusinessprofitsas
itdidnothavePEinIndia.TheIndiangroupcompaniesatnostagenegotiatedorenteredinto
contract for or on behalf of assessee. They simply provided marketing services to assessee or
making collection from customer and forwarding same to assessee. Indian group companies
were not required to manufacture or process goods or merchandise on behalf of foreign
assessee. Further goods or merchandize were delivered by seller to buyer directly who enter
into contract through assessee's website. It was held that though group companies were
dependent agents as per article 5(6) because they exclusively assisted assessee in carrying on
business in India, they could not be considered as 'Dependent agent PE' because they did not
performanyfunctionspecifiedinclauses(i)to(iii)ofarticle5(5).Thus,inabsenceofPE,article
7pertainingtotaxingbusinessprofitswouldceasetooperateinassessee'scase.
eBayInternationalAGv.ADIT(2013)140ITD20/82DTR89/151TTJ769(Mum.)(Trib.)
S.9(1)(vii):Income deemed to accrue or arise in India Fees for technical services Services
rendered by machines is not fees for technical servicesDTAAIndiaGermany. (S.90, 195,
Art7,12.)
TheassesseemadepaymenttoalaboratoryinGermanyforcarryingoutcertaintestsoncircuit
breakers manufactured by the assessee and to certify that the said circuit breakers met with
international standards. The assessee claimed that as the said tests were carried out by
sophisticated machines without human intervention, the services did not constitute fees for
technical services as defined in s. 9(1) (vii) of the Act. The AO &CIT (A) rejected the claim on
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33
the ground that the services were technical in nature and that even assuming human
intervention was necessary, the same was present in the form of humans observing the
process, preparing the report, issuance of certificate and monitoring the machines. On appeal
bytheassesseetotheTribunal,HELDallowingtheappeal:
(i) Explanation2tos.9(1)(vii)definestheexpressionfeesfortechnicalservicestomean
anyconsiderationfortherenderingofanymanagerial,technicalorconsultancyservices.The
word technical is preceded by the word managerial and succeeded by the word
consultancy. Applying the principle of noscitur a sociis, as the words managerial and
consultancyhaveadefiniteinvolvementofahumanelement,thewordtechnicalhastobe
construedinthesamesenseinvolvingdirecthumaninvolvement.Ifservicesareprovidedusing
an equipment or sophisticated machine or standard facility, it cannot be characterized as
technicalservicessoastofallwithins.9(1)(vii)(CITv.BharatiCellularLtd(2009)319ITR139
(Del) & Skycell Communications Ltd. v. Dy. CIT (2001) 251 ITR 53 (Mad) followed; fact that
Bharati Cellular has been set aside by the SC in Bharat Cellular Ltd 330 ITR 239 (SC) does not
affectthisprinciple);
(ii)Onfacts,theservicesprovidedbytheGermanlaboratoryfortestingthecircuitbreakerswas
astandardservicedoneautomaticallybymachinesandnotrequiringhumanintervention.The
fact that humans are required for observing the process, preparing the report, issuance of
certificate and for monitoring of machines is not a relevant criterion. The test is whether the
services are rendered by a human or by a machine. If a human renders the technical services
withtheaidofamachine,theservicesaretechnicalservices.Butiftheservicesarerendered
by a machine without human interface or intervention, then it is not technical services as
defined.Themerefactthatcertificateshavebeenprovidedbyhumansafterthetestiscarried
outbythemachinesdoesnotmeanthatserviceshavebeenprovidedbyhumanskills.
SiemensLimitedv.CIT(2013)142ITD1/23ITR86/84DTR1(Trib.)(Mum.)
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34
merchandise.Duringthecourseoftheassessmentproceedings,theAssessingOfficerheldthat
thebuyingcommissionincomereceivedbytheassesseewasinthenatureoffeesfortechnical
servicesandshouldbetaxableinIndiainthehandsoftheassessee.Accordingly,itconsidered
tobetaxableongrossbasisat30percentonthegroundthattheagreementforprovidingsuch
serviceswasenteredintoonJune18,1999.TheDisputeResolutionPanelconfirmedtheviewof
the Assessing Officer. On appeal to the Tribunal, held, that the assessee was to receive
commission for procuring the products for the Indian company and rendering incidental
services for purchases. The services rendered by the assessee in this case were purely in the
natureofprocurementservicesandcouldnotbecharacterisedas"managerial","technical"or
"consultancy" services. Accordingly, the consideration received by the assessee was
appropriately classified as "commission" as against "fees for technical services". It was not
taxableinIndia.(A.Y.20072008)
AdidasSourcingLtd.v.ADIT(2013)21ITR697/55SOT245/(2012)150TTJ801/80DTR396
(Delhi)(Trib.)
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35
receipts were its business income. The Assessing Officer held that the assessee had made
available technical knowledge, skill or knowhow to the Indian customer and the payments
madetoitwereinthenatureoffeesfortechnicalservicesasdefinedunderarticle12(4)ofthe
Double Taxation Avoidance Agreement between India and Singapore. The Commissioner
(Appeals) confirmed this. On appeal the Tribunal held that, the assessee provided testing
servicesandissuedtestreports.Thesereportscouldnotbesaidtomakeavailableanytechnical
knowledge, experience, skill, know how or processes which enabled the Indian company to
acquiretheservicestoapplythetechnologycontainedtherein.Therefore,thesereceiptswould
not amount to fees for technical services under the "make available" clause in article 12(4) of
theDoubleTaxationAvoidanceAgreementbetweenIndiaandSingapore.(A.Y.20052006)
RomerLabsSingaporePte.Ltdv.ADIT(IT)(2013)141ITD50/22ITR224(Delhi)(Trib.)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesDeductionat
sourceDTAAIndiaUKFabric designDesign supplied by consultant becoming property of
assessee, payment is fees for technical service, assessee isliable to deduct tax at source
[S.195,Art.13(4)(c)]
The assessee entered into an agreement with a consultant in the U. K.,which wasrequired to
deliver 9,000 fabric designs for cotton shirting to the assessee every quarter. The consultant
was also required to show or make available all documents and reports in respect of the
transactionrelatingtothisagreementandtoprovidedetailedquantityreportinwritingtothe
assessee, along with specific or new design developed by the consultant. The compensation
was payable by the assessee to the consultant for each design supplied by the consultant. On
expiry or termination of this agreement, the consultant was required to return all the
documents and other internal documents of the assessee but there was no clause in the
agreementtosaythattheclient,i.e.,theassesseeisrequiredtoreturnthedesignssuppliedby
the consultant. On the question whether the payment to be made to the consultant was
coveredbythedefinitionoftheterm"feesfortechnicalservices"underarticle13oftheDouble
Taxation Avoidance Agreement between India and the U. K. and hence is taxable in India and
accordinglytaxisrequiredtobedeductedatsourceundersection195oftheAct:Onappealby
assessee Tribunal held that the design supplied by the consultant to the assessee became the
propertyoftheassesseeandcouldbeusedbytheassesseeforitsownbusinessandbesoldby
theassesseetoanyoutsiderforconsideration.Theservicesrenderedbytheconsultanttothe
assesseecompanyfellwithinarticle13(4)(c)oftheDoubleTaxationAvoidanceAgreementand,
therefore, the payment therefore was fees for technical services. According to the
memorandumofunderstandingbetweenIndiaandtheU.S.A.,itwasprovidedthattherewillbe
no fees for technical services if technology is not made available to the person acquiring the
services. It was also specified that technology will be considered "made available" when the
person acquiring the services is enabled to apply the technology. In the present case, fabric
design was made available to the assessee and the assessee could apply such fabric design to
processandproducegarmentsanditcouldalsosellandtransfersuchfabricdesigntooutsiders
forconsiderationandtherewasnorestrictionontheassesseeinthisregardintheagreement
between the assessee and the consultant. Considering all these facts, the services received by
theassesseeandprovidedbytheconsultantwerenothingbuttechnicalservicesandhence,tax
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36
was deductible by the assessee from the payments made by the assessee, to the consultant.
(A.Y.20092010,20102011)
SintexIndustriesLtd.v.ADIT(IT)(2013)141ITD98/22ITR182(Ahd.)(Trib.)
S.9(1)(vii):Income deemed to accrue or arise in India Fees for technical services Royalty
TelevisionnewsservicesDTAAIndiaMatterremanded.(Art13)
Assessee, a tax resident of UK, is engaged in business of providing television news services
including audiovisual feed together with textural scripting information, desktop library
services, etc. Assessee received certain amount for rendering 'location special' service to
customers in India. According to assessee 'location special' was a service wherein a customer
requestedassesseetofilmaparticularevent,meeting,etc.,and,thus,paymentwasinrespect
ofservicesforproducingatelevisionfilmWhichdidnotqualityasroyaltyorfeesfortechnical
servicesunderarticle13ofIndoUKtreaty.AssessingOfficer,however,tookaviewthatamount
received for rendering said service was covered as 'fees for technical services' under section
9(1)(vii)(b)readwithExplanation2.Tribunalheldthatinabsenceofrelevantmaterialaswellas
agreementonrecordintermsofwhichassesseehadrenderedservicesandreceivedpayment,
it was not possible to determine real nature of activity carried out /services rendered by
assessee. Therefore, matter was to be remanded back for disposal afresh remanded. (A.Y.
200102)
Dy.CIT(IT)v.ReutersTelevisionLtd.(2013)55SOT235/82DTR27(Mum.)(Trib.)
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Welspun Zuchhi Textiles Ltd. v. ACIT (2013) 83 DTR293/23 ITR 53/56 SOT 444/153 TTJ 153
(Mum.(Trib.)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesAmountnot
paidduringrelevantyeararenotliabletotaxinIndiaAbsenceofpermissionofRBIAmount
payabletooverseasgroupentities.(S.5)
Amounts not paid during the relevant year are not liable to tax in India as fees for technical
services.AdditionsmadebytheAssessingOfficerandconfirmedbytheCIT(A)onaccountofthe
amountspayablebyBAHIndiatothethreeoverseasgroupentitiesinGermany,Singaporeand
UKweredeletedbytheTribunal.Tribunalheldthattheamountscouldnotbebroughttotaxin
India during the year under consideration as fees for technical services as per the relevant
provisions of DTAAs. Since the same had not been paid to the said entities, Tribunal followed
threedecisionsnamely1.DIT(Intl.Taxation)vs.SiemensAktionqesellSchaft(ITAppealNo.124
of2010dt.22102012,HighCourtofBombay)2.CITvs.UHDEGmbH(1996)54TTJ355(Mum.)
(Trib.)3.CSCTechnologySingaporeP.Ltd.vs.ADIT(2012)50SOT399(Delhi).(A.Y.199899)
BoozAllen&Hamilton(India)Ltd.v.ADIT(2013)152TTJ497/83DTR305/56SOT96(Mum.)
(Trib.)
S.10(11):ExemptincomeProvidentfundInterestonProvidentfunds.
Theassesseeinthereturnofincomefiled,whichwasrevisedontwooccasions,aswellasinthe
two revised returns filed by him, offered for taxation under the head income from other
sources, Rs.3,81,565 being interest on PPF. The Assessing Officer (AO) completed the scrutiny
assessmentbyacceptingthereturnedincome.InanappealtoCIT(A),theassesseecontended
that he should be allowed exemption in respect of interest on PPF deposit u/s. 10(11) of the
Act.TheCIT(A),relyingonthedecisionoftheApexCourtinthecaseofGoetzeIndiaLtd(284
ITR323)heldthatnofreshclaimcanbemadebytheassessee.Hedismissedtheappealfiledby
the assessee. ITAT can consider a new deduction which, inadvertently, was not claimed in the
return filed by the assessee. Assessee is entitled to claim interest on PPF to be exempt even
though the same was not claimed in the income tax return. (A.Y.200809) ( ITA No.
7314/M/2011,datedon17102012)
ShriRumiK.Paliv.Dy.CIT(2013)BCAJPg.19,Vol.44BPart4,January2013(Mum.)(Trib.)
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S.10(22):ExemptincomeEducationalinstitutionDenialofexemptionRightofcross
examinationDepartmentdisputinggenuinenessoftransactionContributortoassessee
denyingtransactionOpportunityshouldbegiventoassesseetocrossexaminedisputant
Mattersetaside.(S.68,148)
Fortheassessmentyear199899,theAssessingOfficermadeadditionsdenyingtheexemption
undersection10(22).Fortheassessmentyear200001,anadditionwasmadeinrespectofthe
loan.TheCommissioner(Appeals)upheldtheadditions.TheTribunalheldthattheassesseedid
nothavetherighttocrossexaminethewitnesswhomadetheadversereport,especiallywhen
therecordsdidnotindicatethattheassesseehadmadeanyattempttoproducewitnesses.On
appeals by the assessee the Court held that, when the authorities entertained a doubt about
the genuineness of the transaction, the Tribunal ought to have afforded the assessee an
opportunity to crossexamine the disputant. The Revenue had not accepted the explanation
given by the assessee. The assessee would not have expected one of the contributors to have
denied the factum of contribution. This view was inevitable because but for this the assessee
would not have opted to crossexamine the contributor. Therefore, when there was
unexpected change of facts, the party should not be deprived of the opportunity to cross
examine the witness branded as the assessee'switness. The EvidenceAct also permits a party
to crossexamine his own witness under stated circumstances. Unless it is proved that the
incomederivedwascoveredundersection10(22)itcouldnotbedecidedwhethertheaddition
under section 68 was possible or not. Therefore, the matter was remitted to the Assessing
Officerforfurtherconsiderationinthelightofthelegalposition.(A.Ys.19981999,20002001)
SriKrishnaEducationalandSocialTrustv.ITO(2013)351ITR178(Mad.)(HC)
S.10(22):ExemptincomeEducationalinstitutionsCommercialoperations.[S.11,13]
Where education is imparted by an institution with purpose of profit, that is, purely on
commercialbasis,suchinstitutionwouldnotbeentitledtoexemptionundersection10(22)but
it can claim exemption under section 11 if it applies 75 per cent of its income for charitable
purposes and surplus, if any, has been invested in specified bonds and, further, provisions of
section13arenotviolated.(A.Y.201213)
SaivaniEducationalSocietyvDIT(2013)57SOT84(Hyd.)(Trib.)
S.10(22):ExemptincomeEducationalinstitutionPurposeofprofit.
Anemployeeoftheassesseehadgainedpersonalbenefitfromtheoperationsoftheassessee.
It was held that merely because the employee has gained personal benefit, it cannot change
the character of the institution as a whole from nonprofit institution to a profit making
institution.Exemptioncouldnotbedisallowed.(A.Ys.199798,199899)
ACITv.JamiaUrdu(2013)56SOT517(Agra)(Trib.)
S.10(23C): Exempt incomeApplication Profits earned cannot be the basis for rejection of
application.
The application under section 10(23C) was rejected on the ground that the educational
institutions run by the assessee were generating surplus out of their gross receipts year after
year. Held, the rejection of the application solely on the ground that there had been some
profitwasnotjustified.(A.Ys.20062007to20082009)
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BaptistEducationalSocietyv.ChiefCIT(2013)353ITR320(Delhi)(HC)
St.LawrenceEducationalSociety(Regd.)v.CIT(2013)353ITR320(Delhi)(HC)
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the assessment year 201011 by passing a fresh speaking order after affording opportunity of
hearingtotheassessee.Onappealheld,dismissingtheappeal,thatundersection10(23C)(vi)
and (via), what is required for the purpose of seeking approval is that the university or other
educational institution should exist "solely for educational purposes and not for purposes of
profit". It was nowhere the case or the finding of the Chief Commissioner that on account of
the defect in the admission procedure, the assessee ceased to exist solely for educational
purposes or it existed for the purposes of profit. Further, it was not the case of the Revenue
thatthestudentswhowereadmittedwerenotimpartededucationinthecollegeinwhichthey
were admitted or the admissions granted were fake or nonexistent or that the income
generated by admitting the students was not used for the purpose of the assessee. The
emphasis on the part of the Chief Commissioner that the purpose of education would not be
served if the education is for students who have been illegally admitted and the purpose of
education as contemplated in the section would be served only if the students have been
legally admitted and not otherwise, went beyond the requirements of the section. Of course,
therequirementofaneducationalinstitutiontoprovideadmissionsstrictlyinaccordancewith
the prescribed rules, regulations and statute needs to be adhered to in letter and spirit, but
violationcouldnotleadtoitslosingthecharacterasanentityexistingsolelyforthepurposeof
education.Therefore,therewasnointerferencewiththeorderofthesinglejudge.(A.Ys.2008
2009,20092010,20102011)
ChiefCITv.GeetanjaliUniversityTrust(2013)352ITR433/214Taxman11(Raj.)(HC)
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students utility fees, project work fees, industrial visit fee and a magazine fee from which it
was sought to be deduced that the assessee did not exist solely for educational purposes.
Moreover,therewasanincreaseintheassetbasewithagenerationofsurpluswhichindicated
thattheactivitiesoftheassesseewerenotdevotedsolelyforeducationalpurposes.TheChief
Commissionerheldonthatbasisthattheassesseeexistedforthepurposesofprofit.Onawrit
petition,allowingthepetitionthecourtheldthat,thoughtheChiefCommissionerinquiredinto
thequestionforthepurposesofhisdeterminationundersubclause(vi)ofsection10(23C),the
requirement that an institution must exist solely for educational purposes and not for the
purposesofprofitiscommonbothtosubclause(iiiab)aswellassubclause(iiiad).Hence,the
grievanceoftheassesseewasthatwhileontheonehandtheChiefCommissionerhadheldthat
subclause (vi) would not be applicable to an institution which was in receipt of substantial
grants from the Government (such an institution being governed by subclause (iiiab), at the
same time, the finding that the assessee did not exist solely for educational purposes and not
for the purposes of profit would, in effect, not merely lead to the rejection of the exemption
under subclause (vi) but would also affect the claim of the assessee to the grant of an
exemption under subclause (iiiab) as well. The sole and dominant nature of the activity was
education and the assessee existed solely for the purposes of imparting education. An
incidentalsurpluswhichwasgenerated,andwhichhadresultedinadditionstothefixedassets
wasutilizedasthebalancesheetwouldindicatetowardsupgradingthefacilitiesofthecollege
including for the purchase of library books and the improvement of infrastructure. With the
advancement of technology, no college or institution can afford to remain stagnant. The
assesseewasentitledtoexemptionundersection10(23C(vi).(A.Y.20112012)
Tolani Education Society v. Dy. DIT (Exemptions) (2013) 351 ITR 184/214 Taxman 58/85 DTR
1/259CTR26(Bom.)(HC)
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42
farmersatamarketpricedeterminedbythem.Petitionerwasalsocollectingfeeforproviding
certification. Its application for approval under section 10(23C) (iv) was rejected by Chief
Commissioner. The court held that thepetitioner had not rendered its services directly to
farmersbutwasrenderingitsservicesdirectlytoitsclients/agentswhowereengagedintrading
ofcertifiedseedswithprofitmotiveand,therefore,itsactivitieswerenotfor'advancementof
any other object of general public utility' and hence not for 'charitable purpose' in view of
second limb of first proviso to section 2(15). Therefore, its application for approval under
section10(23C)(iv)wasrightlyrejected.Infavourofrevenue.(A.Y.201011)
Andhra Pradesh State Seed Certification Agency v CCIT (2013) 212 Taxman 493 / 83 DTR
23/256CTR380(AP)(HC)
S.10(23C):ExemptincomeEducationalinstitutionEarnedprofitmorethancrores,exemption
wasdenied.[IncometaxRules,1962Rule2BC])
AssesseeisaRegisteredSocietyformedbyStateGovt.forpromotionanddevelopmentofopen
school system in State. Relevant assessment years assessee filed return declaring NIL income
afterclaimingexemptionundersection10(23C)(iiiab).AssessingOfficerheldthatassesseewas
generatingprofitandthereforeitwasnotexistingforbenefitofpublicatlarge,accordinglythe
claim was rejected. The Commissioner (Appeals) affirmed the view of Assessing Officer. On
appeal Tribunal held that the assessee earned huge profits exceeding monetary limits
prescribedbyrule2BC.Intermsofrule2BtheamountprescribedisRs1crorewhereasthe
surplus generated by the assessee is in crores. As the assessee has not complied with two
essential conditions as stipulated in the Act , therefore there is no infirmity in the conclusion
drawn in the impugned order. Accordingly the order of Assessing Officer was up held.(A.Ys.
200304to200809)
M.P.RajyaOpenSchool,Bhopal.vDy.CIT(2013)141ITD721/89DTR71(Indore)(Trib.)
S.10(23C):ExemptincomeEducationalinstitutionRegistrationisconditionprecedent.(S.11,
12AA)
Assesseeinstitution was formed to provide education to weaker sections of society.It claimed
exemptionundersection10(23C)(iiiad)inrespectofdonationsreceivedfromvariousparties.It
wasnotedthatassesseedidnotexistsolelyforeducationalpurposeand,moreover,amountof
donations exceeded prescribed limit of Rs. one crore, further, there was neither any
registration under section 12AA nor any evidence on record showing that donations were
received with a specific direction that it would form part of corpus of assesseeinstitution.
Tribunal held thatin view of above, assessee's claim for exemption could not be allowed. In
favourofrevenue.(A.Y.200708)
ManasSewaSamitiv.Add.CIT(2013)55SOT217(Agra)(Trib.)
S.10(23C):ExemptincomeEducationalinstitutionAnnualreceiptsistobetakeninto
considerationandnottotalincomeofsociety.
The assessee society is running school activities. The Assessing Officer held that the annual
receipts of the assessee including interestexceeded Rs. 1 crore ,but the assessee had not
obtained prior approval ofChief Commissioner under section 10(23C) (vi). He accordingly the
rejected the claim under section 10(23C) (iiid). Commissioner (Appeals) up held the order of
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43
Assessing Officer. On appeal, the Tribunal held that, in terms of provisions of section 10(23C)
(iiiad), annual receipts of school or university may be taken into consideration and not total
incomeofsocietyrunningthatschooloruniversity.However,incomefrominterestonFDRsis
anadditionalincomeofthesocietyanditcannotbeconsideredtobepartofannualreceiptsof
theschool.Accordinglytheappealofassesseewasallowed.(A.Y.200607)
ParamHansSwamiUmaBhartiMissionv.ACIT(2013)140ITD429/154TTJ531/87DTR204
(Delhi)(Trib.)
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Editorial:TheSupremeCourthasgrantedspecialleavetotheDepartmenttoappealagainstthis
judgment:(2013)350ITR(St.)3
S.10A:FreetradezoneExpensesincurredExportturnoverTotalturnover.
Telecommunication expenses and travelling expenses were excluded from export turnover,
corresponding reduction from total turnover should be made for purpose of computation of
deductionundersection10A.(A.Ys.200405,200607)
GEIndiaTechnologyCentre(P.)Ltd.vDY.CIT(2013)141ITD245(Bang.)(Trib.)
S.10A: Free trade zone Newly established undertakings Computation of profits losses of
non10Aunitscannotbesetoffagainstprofitsof10Aunit.
Lossesofnon10Aunitscannotbesetoffagainstprofitsof10Aunitandbroughtforwardlosses
of 10A units for previous assessment years cannot be set off against current years 10A profits
butcanbesetoffagainstprofitsofposttaxholidayperiod.(A.Y.20042005)
GEIndiaTechnologyCentre(P.)Ltd.v.Dy.CIT(2013)141ITD245(Bang.)(Trib.)
S.10A: Free trade zone Newly established undertakings Export business Computer
software Deduction under section 80HHHE was claimed in second year of productionFor
subsequentyearexemptionundersection10Aisallowable.[S.80HHHE]
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Theassesseesetupaunitinanexportprocessingzoneandstarteditscommercialoperations
in the previous year relevant to the assessment year 199798 ,but it suffered losses it did not
claim exemption in that year. In the previous year relevant to the assessment year 199899
(The second year of operation) the assessee claimed deduction under section 80HHE of the
Act.Frompreviousyearrelevanttotheassessmentyear19992000,theassesseeclaimedand
allowed exemption under section 10A of the Act .For the assessment year 200203, the
assessee was denied the exemption under section 10A of the Act on the ground that since
assessmentyear198889theassesseehadclaimedandwasalloweddeductionundersection
80HHE, the assessee was not entitled to claim exemption 10A of the Act . Commissioner
(Appeals)upheldtheclaimofassesseefordeductionundersection10AoftheAct.Onappeal
theTribunalheldthatsubsequentyearstheclaimofdeductionundersection10Awasupheld
byTribunal.TribunalorderwasupheldbytheHighCourt,claimoftheassesseeforexemption
undersection10AoftheActwasallowable.(A.Ys.20062007,20082009)
InterraInformationTechnologies(India)P.Ltd.v.DCIT(2013)24ITR140(Delhi)(Trib.)
S.10A:FreetradezoneClaimunderrevisedreturnOriginalreturnintime,claimunderrevisedreturn
isvalid.[S.139(1),139(5)]
Assesseeis100percentEOUregisteredwithSTP,wasexportingsoftware.Forrelevantassessmentyear
assesseefileditsreturnwithinduedateclaimingdeductionundersection10B.Subsequently,onfinding
thatitwasentitledfordeductionundersection10A,assesseefiledrevisedreturnundersection139(5).
AssessingOfficerdisallowedsaidclaimongroundthatprovisotosection10Arequiressaiddeductionto
be claimed in return filed under section 139(1). Commissioner (Appeals) upheld the decision of
Assessing Officer. On appeal Tribunal held that, reading of the aforesaid proviso made it clear that
requirementforclaimingdeductionundersection10Awasfilingofareturnofincomeonorbeforethe
due date specified under subsection (1) of section 139. In the instant case, the assessee had filed a
return of income under section 139(1) within the due date claiming deduction under section 10B.
Therefore, the reasoning of the Commissioner (Appeals) that the proviso to section 10A operated as a
barinallowingdeductionclaimedintherevisedreturnwasnotacorrectinterpretation.Itwasafacton
recordthattheassesseeuptotheassessmentyear200607wasclaimingdeductionundersection10B
andthedepartmentwasallowingthesameevenunderscrutinyassessments.Keepinginviewtheorders
oftheTribunalfortheearlierassessmentyears200607and200708,directingtheAssessingOfficerto
considerassessee'sclaimfordeductionundersection10A,mattersentbacktothefileoftheAssessing
Officerdirectinghimtoconsiderassessee'sclaimofdeductionundersection10A.(A.Y.200809)
VNSMakroTechnologies(P.)Ltd.vDy.CIT(2013)140ITD714(Hyd.)(Trib.)
S.10A:FreetradezoneBlendingofteaismanufacture.
Deduction under section 10A was deniedon the ground that blending and packing of tea was
not"manufacture".TheCommissioner(Appeals)allowedtheclaim.Onappealbytherevenue,
theTribunalheldthattheCommissioner(Appeals)hadrightlyallowedtheclaimoftheassessee
undersection10A.(A.Y.20042005to20062007)
AlGayathriTradingCo.P.Ltd.v.Dy.CIT(2013)22ITR214(Trib.)(Cochin)(Trib.)
S.10A:FreetradezoneExportofcomputersoftwareisentitledtodeduction.
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46
Theassesseecompanyprovidedcomputersystemconsultancyservicestoprivatesector,public
sector, Government and other organisations, undertaking studies on matters relating to
feasibility of computerisation, evaluating and selecting appropriate hardware and software,
installingandassistinginusingmainframe,miniandmicrocomputers,etc.Tribunalheldthatthe
assesseecompanyisentitledtothebenefitofdeductionavailableundersection10AoftheAct.
(A.Ys.20032004,20042005)
ACITv.SRASystemsLtd.(2013)22ITR205(Chennai)(Trib.)
S.10A:FreeTradeZoneExportturnover
Tribunal held that whatever is excluded from export turnover has to be excluded from total
turnoveralsowhilecomputingdeductionundersection10A.(A.Y.200405)
SITELIndia(P.)Ltdv.ACIT(2013)55SOT541(Mum.)(Trib.)
S.10A:Free Trade ZoneForeign exchange gain and amounts written off is eligible for
exemptionundersection10A.
Tribunal held that foreign exchange fluctuation gain in respect of export proceeds was to be
includedinincomeeligiblefordeductionundersection10A.Excessprovisionmadeinrelation
to export proceeds in earlier years and written back in relevant assessment year was also
includibleintotalincomeeligiblefordeductionundersection10A.(A.Y.200708)
HeadstrongServicesIndia(P.)Ltd.vACIT(2013)55SOT481(Delhi)(Trib.)
S.10A:FreetradeZoneApportionmentofincomeandExpenditureMethodconsistently
AcceptedbyDepartmentSatellitechargesnottelecommunicationchargestobeexcluded
fromexportturnover.
Assessee had two units, one of which qualified for exemption. There was apportionment of
income and expenditure on basis of headcount of employees in two units. This method
consistently used and accepted by department and is not to be disturbed. UK company was
providing training to employees of assessee in India. Payment for services rendered by UK
company. Technical services are not provided outside India. Expenses relating to technical
services are not to be deducted. Satellite charges not telecommunication charges to be
excludedfromexportturnover.(A.Y.20062007)
WillsProcessingServices(India)P.Ltd.v.Dy.CIT(2013)21ITR1/151TTJ555/81DTR353/
57SOT34(URO)(Mum.)(Trib.)
S.10B:Hundred per cent exportoriented undertakings Local sales Not eligible for
exemptionundersection10B.
Assessee is engaged in business of purchase of textile material, stitching and exporting
garments.Apartfromexportreceipts,itreceivedcertainamountbywayofstitchingcharges.It
claimed exemption under section 10B in respect of receipts of stitching charges. It submitted
that whenever stitching machines were relatively free, same were utilized for purpose of
undertaking job work for outsiders. Assessing Officer disallowed claim of exemption.Tribunal
treated receipts of stitching charges as local sales and held that since said receipts were less
than 25 per cent of total sales, assessee was entitled to exemption under section 10B. On
appealbyrevenuetheCourtheldthatinviewofprovisionsofsecondprovisotosection10B(1)
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and section 10B(4) Tribunal committed error in treating receipts of stitching charges as
amounting to local sales for purpose of granting exemption. Assessee was not eligible for
exemptionundersection10B.Infavourofrevenue(A.Y.200102)
CIT v. First Garments Mfg. Co. India (P.) Ltd. (2013) 81 DTR 372/ 212 Taxman 142(Mag.)/256
CTR212(Mad.)(HC)
S.10B: Hundred per cent exportOriented undertakings Manufacture Food products, like
paratha,samosa,dhokla,etc.
Assessee is a 100 per cent EOU engaged in business of manufacturing and export of various
food products, like paratha, samosa, dhokla, etc. Deduction under section 10B was denied to
assessee on ground that foodstuffs prepared by assessee was not manufacturing. Production
was done by a particular set process and various raw materials when consumed lost their
individualandindependentidentity.Manufacturingofsaideatablesconstitutedmanufacturing
activityandassesseewaseligiblefordeductionundersection10B.(A.Y.200809)
DeepkiranFoods(P.)Ltd.vACIT(2013)141ITD85(Ahd.)(Trib.)
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i.e., flowing from the economic activity comprising the business of the undertaking, but from a
Governmentpolicy.
(iii) That scrap arose out of the manufacturing operations, and went to reduce the cost of production.
Thus, the assessee's business was itself the direct source of the profit from scrap sales. It was not
necessary that every credit or receipt of the export business must arise directly from the export itself,
for it to qualify for inclusion, and it would be suffice that it arises in the course of the assessee's
business.Theveryfactthatsection10B(4)providesforanapportionmentintheratioofexportturnover
tototalturnoverimpliesthatreceiptsotherthanthosecomprisedinexportturnoverarecontemplated
for inclusion in total turnover. They are eligible and would go to form part of the total turnover. The
scrapsalesformedpartofthereceiptoftheassessee'sexportbusiness,sothattheprofitswerederived
fromsuchbusiness.
(iv)That"canteenrecovery"or"finefromtheworkers"couldnotbeconsideredasforminganintegral
part of the assessee's business. However, the assessee's contention was that the credit did not
constitute an income per se, but only represented recovery out of canteen expenses already debited
andreducedinarrivingattheeligibleprofits.TheAssessingOfficerwastoverifythis,andallowreliefto
the extent the amount went to reduce expenditure already claimed and allowed. No case for allowing
thefinefromworkerswas,however,madeout.
(v)Thattheamountclaimed,itcomprisedRs.1.04lakhsreceivedbywayofaonepercent.discounton
purchases from a supplier against purchase of raw material there from, it was not an independent
receipt but only reduces the purchase cost to that extent, though accounted for separately. The
assessee's claim, where found to be so, would be a part of the profits derived from the eligible
business.(A.Y.20052006)
TessituraMontiIndiaP.Ltd.v.ITO(2013)22ITR329/141ITD531(Mum.)(Trib.)
S.10B:Hundred per cent exportOriented undertakingsRegistered with Software Technology Park of
IndiaRatification of Board of approval required to obtain benefit under section 10B.Matter
remanded.
The Assessing Officer disallowed the assessee's claim for deduction under section 10B, on the ground
that it had failed to obtain ratification from the Board of approval as envisaged under section 10B and
that it had also failed to submit the ratification by the Development Commissioner as envisaged in the
InstructionFileNo.178/19/2008ITA01datedMarch9,2009,insupportofitsclaimundersection10Bof
theAct.TheCommissioner(Appeals)allowedtheexemptiononthegroundthattheapprovalof100per
cent exportoriented undertaking by the Board and by the Software Technology Park of India was one
andthesame.OnappealbytheDepartment,theTribunalheldthatbeforetheCommissioner(Appeals),
the assessee produced the registration from the Software Technology Park of India which had been
notified by the Ministry of Commerce, Government of India by Notification No. 33/(RE)/9297 dated
March22,1994.ThenotificationstatedthattheSoftwareTechnologyParkSchemewasa100percent
exportoriented scheme. The assessee had also produced copy of the order of the Tribunal in another
case.TheAssessingOfficerhadnoopportunitytoconsiderthesedocumentsandtheorder.Thematter
wastoberemittedbacktothefileoftheAssessingOfficerforpassingadenovoorderinthelightofthe
materialproducedbytheassessee.(A.Y.20082009)
ITOv.SelectsysIndiaP.Ltd.(2013)22ITR493(Hyd.)(Trib.)
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S.10B:HundredpercentexportorientedundertakingsComputationofprofitsSetoffofloss
Lossesofeligibleunitsduringtaxholidayperiodisnotbeallowedtobesetoffagainst
incomeofnoneligibleunits.(S.2(45),10A)
Assessee had three units, two were section 10B eligible units and one was non eligible unit.
There were losses incurred in eligible units during the year which were sought to be setoff
from profits of noneligible unit. It was held that losses of eligible units during tax holiday
periodcouldnotbeallowedtobesetoffagainstincomeofnoneligibleunitsasperprovisions
ofS.10B(6).Suchlossestobekeptinsuspensetobesetoffonlyaftertaxholidayperiodisover.
Therefore the claim of set off made by assessee was disallowed. Appeal of assessee was
dismissed.(A.Y.200809)
KarleInternational(P.)Ltd.v.ACIT(2013)140ITD261(Bang.)(Trib.)
S.11: Property held for charitable purposes Business held by trust There being no
connectionbetweenthecarryingonofthebusinessandtheobjectofthetrust,theAssessee
isnotentitledtoexemptionundersection11.
Wherebusinesswascommencedbythetrusteesafterformationofthetrustwiththefinancial
aid and assistance from relatives and banks, it cannot be said to be held under trust and the
businessalsocannotbeincidentaltotheattainmentofobjectsofthetrustwhicharedirected
towards promotion of education, running hospitals, etc. and the assessee is not entitle to
exemptionundersection11oftheAct.(A.Y.199293to9495,0102and0506to07
08)
CITv.MehtaCharitablePrajnalayTrust(2013)81DTR104/214Taxman88/255CTR232(Delhi)
(HC)
S.11:PropertyheldforcharitablepurposesBusinessheldintrustTrustentitledtoexemption
whichwascreatedformainlyeducationalandcharitablepurposes.
Assesseetrust was created mainly for educational and charitable purposes. Founders gifted
land and running business with a stipulation that said business shall be run by trustees and
income therefrom shall be utilized for charitable objects. Assessee claimed exemption under
section 11 in respect of income earned from aforesaid business. Assessing Officer denied
exemptiononpleathattherewasnoevidencetoholdthatbusinesscarriedonbytrustwasin
courseofactualcarryingonofprimaryobjects.ThecourtheldthatsinceAssessingOfficerhad
alsorecordedafindingoffactinassessmentorderthatprimaryobjectsoftrustwerecharitable
innature,hewaswrongindenyingexemption.Infavourofassessee.(A.Ys.199091,199192)
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CITv.JanakiammalAyyanadarCharitableTrust(2013)212Taxman274(Mad)(HC)
S.11:PropertyheldforcharitablepurposesAccumulationofincomeFormno10canbefiled
in the course of assessment proceedings. [S.147,Income tax Rules, 1962,Rule 17, Form no
10]
TheTribunalrejectedtheassessee'sclaimforaccumulationofincomeonthegroundthatForm
No. 10 had not been furnished along with the return but was filed during the course of
reassessment proceedings. The Court held that form No. 10 could be furnished by assessee
trust for purposes of section 11 (2), i.e., for accumulation of income, during reassessment
proceedings.Infavourofassessee.(A.Ys.199899,200001,200102)
Association of Corporation & Apex Societies of Handlooms v ADTI(2013)/351 ITR 286/ 213
Taxman15(Delhi)(HC)
S.11:Property held for charitable purposes Exemption of income from property treated as
BusinessIncomeisexemptifthereisnoprofitmotive.(S.2(15),28(iii))
ReceiptsderivedbyaChamberofCommerceandindustryforperformingspecificservicestoits
members, though treated as business income, would still be entitled to exemption under
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section 11, provided there is no profit motive. Issueis decided in favourof assessee. (A.Y.2006
07,200708)
PHDChamberofCommerce&Industryv.DIT(2013)212Taxman194(Delhi)(HC)
S.11:PropertyheldforcharitablepurposesSubscriptiontoChitfundcannotbeconsideredas
investment,exemptioncannotbedenied.[S.13]
Assessee Trust claiming exemption under s. 11.Assessing Officer noticed that assessee had
investedcertainamountwithachitfund.Accordingtohimitwasnotanapprovedinvestment
under section 11(5), it resulted in violation of section 13(1)(d) and claim for exemption was
rejected. The Tribunal held that subscription to chit funds utilized for only to prize a chit or
participate in a draw of lots and it was not an investment or deposit of a money which was
availableassurpluswithassessee.TribunalheldthatAssessingOfficerfellinerrorinconcluding
that such subscriptions were investments which violated modes specified under section 11(5).
Claimforexemptionwasallowed.(A.Y.200809)
SethuValliammalEducationalTrustv.ITO(2013)141ITD712/89DTR42(Chennai)(Trib.)
S.11:PropertyheldforcharitablepurposesExemptionObjectsMerelyonbasisofoneortwo
objectstrustcannotbeheldpurelyreligioustrust.Exemptionallowedforearlieryearsasthe
factsaresameexemptioncannotbedeniedfortherelevantyear.(S.13(1)(b))
Assessing Officer denied the benefit of exemption under section 11 of the Act on the ground
that the objects of the assesseetrust included propagation of the Islamic faith and promotion
ofreligiousactivitiesoftheIslamicfaith,thatthetrustwasamixedtrustandtheprovisionsof
section 13(1) (b) were applicable. On appeal, the Commissioner (Appeals) took the view that
the objects of the trust did not reveal that the benefits were meant only for a particular
religiouscommunitybutwereavailabletothegeneralpublicatlargeandthattheprovisionsof
section 13(1) (b) were not applicable. On appeal : The Tribunal held that major expenses of
TrustwasonconductingpeaceconferenceandmerelyonthebasisofoneortwoobjectsTrust
cannot be heldpurely religious trust. Even if the assessee was a mixed trust, section 13(1) (b)
couldnotbeappliedasitwasapplicabletoapurelycharitabletrustthereforebenefitofsection
11 could not be denied to the assessee under section 13 (1) (b). Exemption was allowed in
earlier yearsthe principle of consistency was also applicable. Accordingly the appeal
ofdepartmentwasdismissed.(A.Y.20082009)
Add.DIT(Exemption)v.IslamicResearchFoundation(2013)21ITR588(Mum.)(Trib.)
S.12:VoluntarycontributionsTrustorinstitutionsCorpusdonationisnottaxable.
Assesseetrust received donation of agricultural land from 'M'. Assessing Officer taking a view
thatdonorhadnotmadeanyspecificstipulationingiftdeedindicatingthatitwouldbetowards
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corpusoftrust,heldthatsaidgiftwasnotentitledtoexemptionundersection11.Tribuanlheld
thatinviewoffactthatdonationwasmadebydonorinordertoestablishanengineeringand
management college in name of his grandfather, donation in question was a corpus donation
and,itwasnotataxableincomeinhandsofassesseeundersection12(1).Infavourofassessee.
(A.Y.200809)
Add.CITv.ChaudharyRaghubirSinghEducational&CharitableTrust(2013)55SOT211(Delhi)
(Trib.)
S.12A:RegistrationTrustorinstitutionRestorationofapplicationAnapplicationsubmittedfor
registrationundersection12Aoncerejected,itcannotberestored.
The assessee, an educational institution, submitted application for registration under section
12A.The Commissioner issued communication requiring the assessee to rectify the defects
mentioned therein. For noncompliance ofhe rejected the application Thereafter the assessee
submittedan application stating that the defects were rectified and requested for
reconsideration of its application. The Commissioner issued communication requiring the
assessee to cure the defects mentioned thereinand also asked it to attend his office. Further,
theCommissionerhavingnoticedthattheassesseehadalsofiledanapplicationforthebenefit
undersection10(23C)(vi)beforetheChiefCommissioner,presumedthattheassesseewasnot
pursuing the application and on that basis, closed the said application as withdrawn. In the
meanwhile,theassesseeappliedforregistrationundersection12Afortheyear201011,which
was granted.The assessee also filed a writ petition before the High Court contending that
applicationwaspendingbeforetheCommissioner.TheHighCourtdisposedofthewritpetition.
It held that the stand taken by the assessee regarding pendency of the application for
registrationundersection12Awasnottrueandcorrect.Therefore,thereliefsoughtforcould
notbegranted.Ithavingnoticedthatregistrationundersection12Ahadalreadybeengranted
totheassesseeonthebasisofasubsequentapplicationwitheffectfromtheassessmentyear
201011 onwards permitted the assessee to seek appropriate remedy for applying for
registration under section 12A with respect to the periods prior to the assessment year 2010
11. Thereupon the assessee approached the Commissioner by submitting fresh application
under section 12A. The Commissioner held that since application was not disposed of as
providedundersection12(AA)(b)(ii),afreshapplicationwasnotmaintainable.Thereafterthe
High Court by judgment modified its earlier judgment dated 2812011 and permitted the
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assessee to seek appropriate remedy to restore application, if permissible under law. The
assesseeagainapproachedtheCommissioner.TheCommissionerconsideredthematterafresh
andpassedorderholdingthatapplicationcouldnotberestoredinlaw.Thecourtheldthatan
applicationsubmittedforregistrationundersection12Aoncerejected,itcannotberestored.In
favourofrevenue.
KadakkalEducationalTrust.v.CIT(2013)213Taxman7/81DTR345(Kerala)(HC)
S.12A:RegistrationTrustorinstitutionWhilegrantingtheregistrationobjectsofTrustisonly
tobeseen.(S.12AA)
The Trust has made an application u/s12A, as it is supposed to do the same within one year
fromthecommencementofitsactivities.TheHonblecourtheldthat,undertheprovisionsofs.
12AA, satisfaction regarding the genuineness of the activities of the trust is to be seen at the
stageforapplicationofincome,thatis,whenthetrustorinstitutionfilesitsreturn,andnotat
the stage of commencement stage when the activities have not commenced in full, therefore
held that the trust was not entitled to benefit of registration was not sustainable. Therefore,
where the trust was in nascent stage and was yet to work towards its object, Commissioner
could not deny registration on ground that it was not utilizing its income for charitable
purposes; at stage of granting registration, objects of trust only had to be considered by
Commissioner.Infavourofassessee.
CITvB.K.K.MemorialTrust(2013)213Taxman1/82DTR299/256CTR424(P&H)(HC)
S.12A:RegistrationTrustorinstitutionCancellationofregistrationisheldtobenotjustified.
(S.10(23C),11,12AA)
Assessee was granted registration under section 12A being a charitable institution. Chief
Commissioner disallowed assessee's claim of exemption under section 10(23C) (vi) on ground
that it had not solely been established for educational purposes.Commissioner relying on said
order cancelled registration granted to assessee under section 12A.Tribunal restored
registration. On appeal by revenuethe Court held that since (i) exemption under section
10(23C) (vi) could be claimed by an assessee without applying for registration under section
12A,and(ii)inorderofCommissionertherewasnowhisperthatassesseehadnotfulfilledany
of conditions of section 11, Tribunal had rightly restored registration. Appeal of revenue was
dismissed.
CITv.JeevanDeepCharitableTrust(2013)212Taxman19(All.)(HC)
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maintenanceoflivestockdidnotcomeunderthedefinitionofcharitablepurposeandalsodid
notcomewithinthemeaningofanyotherobjectsofgeneralpublicutility,asregularbusiness
of selling of milk for maintenance of gaushala was being carried on by assessee. He again
denied the registration under section 12AA.On appeal Tribunal held that it is immaterial that
the trust had been formed on basis of transferring of assets of sole proprietorship concern of
'M'andthisfactnowayinterferedwithgrantingofregistration.Theassesseetrustwaseligible
for12Aregistration.
SriGomandirSevaTrustv.CIT(2013)141ITD472(Cuttack)(Trib.)
Therefore, the Commissioner is directed to grant registration to the assessee trust under
section12AA.Consequenttotheregistrationundersection12AA,theCommissionerisfurther
directedtoconsidertheapplicationoftheassesseeforgrantofinitialcertificateofexemption
undersection80G(5).
A.V.S.EducationalTrust.vITO(2013)140ITD681(Chennai)(Trib.)
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S.12A:RegistrationTrust or institutionAssessee collecting subscription fee and providing
opportunities for students of an institute to seek employmentNot charitable activityTrust is not
entitledtoregistration.[S.80G]
The assessee trust was created to provide opportunities for the students of the Department of
Economics, Delhi School of Economics to seek employment. It collected fees from enrolled students as
well as companies who appeared for campus recruitment. It filed two applications for seeking
registrationandexemptionundersections12Aand80G.TheCommissionerheldthatthepublicatlarge
wasneither eligible tobecomemembersnorwereprovidedanybenefitofthetrustactivities,asallits
activitieswereforthemembersenrolled.Moreover,theactivitiescouldnotbeclassifiedascharitablein
nature.Furtherapartfromadministrativeheadsofexpenditure,nootherexpenseswereshowntohave
been incurred on any charitable activity. In the absence of documentary evidence, it could not be held
thattheactivitieswerecharitableinnature.Accordingly,herejectedtheregistrationandexemptionon
appeal.
DSEEconomicsPlacementCellv.DIT(Exemption)(2013)23ITR121(Delhi)(Trib.)
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TheassesseetrustwasestablishedundertheRajasthanUrbanImprovementAct,1959withthe
main object to construct roads, provide water and electricity facilities, construct drainage
system, improve gardens and open spaces and to provide housing facilities by allotting the
residentialplots.TheTribunalheldthattheprimarypurposeofpublicwelfarewaspredominant
objectoftheassessee,therefore,theassesseewasentitledforregistrationundersection12A.
(A.Y.200304to200708)
UrbanImprovementTrustv.CIT(2013)152TTJ507/83DTR282/24ITR622(Jodh.)(Trib.)
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assesseetoproduceevidenceregardingexpensesincurredtowardsobjectsoforganization.On
failure of assessee to bring on record any such evidence, Commissioner rejected assessee's
applicationforregistration.Tribunal,however,grantedregistrationtoassesseetrust.
OnappealthecourtheldthateventhoughCommissionerhaspowertocallforsuchdocuments
orinformationfromtrustashethinksnecessary,yetitdoesnotmeanthatifactivitiesoftrust
have not commenced, Commissioner has authority to reject its application for registration on
groundthattrustfailedtoconvincehimaboutgenuinenessofactivities.Therefore,theTribunal
wasjustifiedinsettingasideimpugnedorderofCommissioner.Infavourofassessee.
CITvKutchiDasaOswalMotoPariwarAmbamaTrust(2013)212Taxman435(Guj.)(HC)
S.12AA:ProcedureforregistrationTrustorinstitutionCondonationofdelayMistakeof
charteredaccountantdelaywascondoned.(S.12A,80G)
Assessee, a charitable institution, filed an application seeking registration under section 12A
withdelay.Assesseeattributeddelayinfilingregistrationapplicationtoitserstwhiletreasurer
'S', who was a chartered accountant.DIT (Exemption) rejected assessee's application. Tribunal
found that it was because of irregularities, illegalities and misrepresentations of 'S' that
assesseesociety was led to believe that appropriate applications under Act were already filed
withrevenueauthoritiesforregistration.Tribunalfurtherfoundthatassoonasassesseesociety
cametoknowaboutirregularitiesonacomplaintfromdonorandonfurtherenquiryconducted
by governing body, it hastened to take remedial action by filing applications for registration
bothundersections12Aand80G.Tribunalthuscondoneddelayinfilingregistrationapplication
andgrantedregistrationtoassesseesociety.OnappealbyrevenuetheCourtheldthatonfacts,
impugned order passed by Tribunal granting registration did not require any interference. In
favourofassessee.
DIT.V.VishwaJagritiMission(2013)213Taxman65(Delhi)(HC)
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S.12AA: Procedure for registrationTrust or institutionPower to cancel registration under
section 12AA(3) having been brought on statute with effect from 162010 prospectively,
cancellation made with effect from assessment year 200910 would be invalid and not in
accordancewithlaw.[S.2(15,12A]
Theassesseewasgrantedregistrationundersection12A,witheffectfrom1042003.Till313
2003 the assessee was claiming exemption under section 10(20A) which had been omitted by
theFinanceAct,2002witheffectfrom142003.Inordertoexaminethecaseoftheassessee
in the light of change in definition of charitable purpose under section 2(15) , notice for
cancellation of registration with effect from assessment year 200910 was issued to the
assessee on 632002 under section 12AA(3) and thereafter commissioner cancelled the
registration under section 12A with effect from assessment year 200910 by holding that the
assesseewasrenderingserviceinrelationtotrade,commerceorbusinessforacess,feeorany
otherconsideration.OnappealtoTribunal,theTribunalheldthat,powertocancelregistration
undersection12AA(3)havingbeenbroughtonstatutewitheffectfrom162010prospectively,
cancellation made with effect from assessment year 200910 would be invalid and not in
accordancewithlaw.(A.Y.200910)
AgraDevelopmentAuthority.vCIT(2013)141ITD336/85DTR296(Agra)(Trib.)
S.12AA:ProcedureforregistrationProfitelementEnquiryregardingactivities.[S.11,12,13]
Where application for grant of registration is made after commencement of activities by
assessee trust, Director of Incometax (Exemption) justified to enquire about its activities.
Merely because some profit has been earned by an educational institution, registration under
section12AAcannotbedeniedsolongasprovisionsofsections11,12and12AAarecomplied
with and its income has been applied for purpose of education in terms of section 11(2) and
thereisnoviolationofsection13.(A.Y.201213)
SaivaniEducationalSocietyvDIT(2013)57SOT84(Hyd.)(Trib.)
S.12AA:ProcedureforregistrationTrustorinstitutionDegreecourseinfieldofarchitecture.
[S.2(15),12]
Assessee Trust had started a bachelor degree course in field of architecture. It filed an
applicationforregistrationu/s.12AA,Noneofobjectsoftrustwasagainstpublicpolicyandits
main activity was to provide education to student. Institution was covered by provisions of
section2(15),registrationu/s.12Awasallowed.
Swargiya Jagannath Jattewar Shikshan Sanstha. v CIT (2013) 141 ITD 543 / 155 TTJ 104 / 89
DTR51(Nag.)(Trib.)
S.12AA:ProcedureforregistrationRetrospectiveamendmentRevocation.[S.2(15),12A]
The retrospective amendments was made to section 2(15) that advancement of any other
objectofgeneralpublicutilityshallnotbeacharitablepurpose,ifitinvolvesthecarryingonof
anyactivityinthenatureoftrade,commerceorbusiness.Inviewofthesame,theDIT(E)found
that the assessee was carrying on commercial activity and he, by invoking section 12AA(3),
cancelledregistrationgrantedtotheassessee.ItwasheldthatifthereceiptsarebelowRs.25
lakhs,itwillstillbeconsideredas'charitablepurpose'.Also,itisnotopentoDIT(E)inanaction
undersection12AA(3)toexaminetheobjectsofthetrusttoseeifthesamewerecharitablein
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nature. That has already been done when a registration was granted to the assessee under
section12AA(1).(A.Y.200910)
KodavaSamajav.DIT(2013)57SOT73(Bang.)(Trib.)
S.12AA:ProcedureforregistrationTrustorInstitutionCancellationofregistrationAuthorities
under Incometax Act cannot presume to sit in judgment over authorities empowered to
implement policiesCancellation of registration for failure to implement Government policy
isnotsustainablehenceregistrationrestored.(S.(2(15),12A)
Theassesseesocietywasformedtoestablishprogressiveschoolsorothereducationalinstitutionsin
DelhioroutsideDelhiopentochildrenofofficersofAllIndiaandCentralServices.Itwasgranted
registrationundersection12A.TheDirectorofIncometax(Exemptions)wasoftheviewthatthoughthe
objectsofthetrustwerecharitable,theregistrationdeservedtobecancelledonthegroundsthatthe
activitiesresultedin(a)violationofconditionsimposedbytheGovernment;(b)promotionofahigh
costeducationalinstitutionexcludingthestudentsfromtheeconomicallyweakersectioncategoryand
thatsuchactivitieswouldnotformapartofcharitableactivity,asdefinedinsection2(15)ofthe
IncometaxAct,1961.Onappealagainstcancellationofregistrationfromtheassessmentyear200809
onwards:Held,allowingtheappeal,Therewasnotasingleevidenceofdenialtoanystudentseeking
admissionbelongingtotheeconomicallyweakersectioncategory.Therewasnoevidenceonrecord
thattheDirectorateofEducationhadtakenanyactionagainsttheassesseefornotimplementingthe
Governmentpolicyorthatithadinformedthelandallottingauthoritytoproceedagainsttheassessee
schoolforviolationofthetermsofthelandleaseagreement.Therewasnowhisperofanallegationby
theDepartmentinregardtoanyviolationofthetermsandconditionssetoutneitherintheallotment
letterissuedbyMinistryofUrbanDevelopmentnorbythemonitoringauthorityinregardtothe
GovernmentpolicynamelybytheDepartmentofEducation,GovernmentofNationalCapitalTerritoryof
Delhi.Therewassufficientevidenceavailableonrecordthattheobjectsofthesocietywerecharitable
innatureandafindingtothateffecthadbeengivenintheorderitself.Wheretherewasnoalleged
violationofanyoftherequirementseitheroftheMinistryofUrbanDevelopmentoroftheDirectorate
ofEducationtheauthoritiesundertheIncometaxActcouldnotpresumetositinjudgmentoverthe
judgmentoftheauthoritiesempoweredtoimplementthepolicies.TheDirectorofIncometax
(Exemptions)inthefactsofthepeculiarcasecouldnotcancelregistrationforthereasonssetoutinthe
orderasthatamountedtousurpingtheroleofanauthorityconstitutedtoimplementGovernment
policy.Onlywhentherewasanyinstanceofviolationoftermsandconditionspointedoutbythe
DirectorateofEducationortheMinistryofUrbanDevelopmentontheinformationofderecognitionof
theschoolbytheDirectorateofEducationcouldthetaxauthoritiestakenotice.Thecancellationofthe
registrationoftheassesseewastobesetasideandregistrationundersection12Arestored.(A.Y.2008
2009)
TheCivilServicesSocietyv.DIT(Exemption)(2013)22ITR627(Delhi)(Trib.)
S.12AA: Procedure for registrationTrust or institutionAssessee formed for promotion of cricket
Carrying activities of commercial nature and generating huge revenues cancellation was held to be
justified.
TheassesseesocietywastomaintainageneralcontrolofthegameofcricketintheStateofTamilNadu
andintheUnionTerritoryofPuducherryandgiveitsdecisiononallmattersconcerningthegameeither
when referred to or suo motu. The Assessing Officer held that the assessee had deviated from its
declaredobjectsandthatatpresentitwascarryingonactivitiesofcommercialnatureandtherewasno
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60
justificationincontinuingtheregistrationgrantedu/s.12AA.Therefore,hesubmittedaproposaltothe
Director of Incometax (Exemptions) for cancellation of registration under section 12AA(3) of the Act.
The Director of Incometax (Exemptions) held that the assessee was not pursuing objects of general
public utility, but was carrying on activities in the nature of business, resulting in huge turnover year
after year and, therefore, the object of the assessee no longer fell under the definition of "charitable
purpose" explained in section 2(15) with effect from April, 1, 2009. He accordingly cancelled the
registrationundersection12AA(3)oftheIncometaxAct,1961.Onappeal:
Held, dismissing the appeal, that the case of the assessee was covered by both limbs stated in section
12AA(3) of the Act. The entire income of the assessee was generated out of activities of commercial
nature towards earning hyper profits. The genuineness of the activities carried on by the assessee
stoppedwiththephysicalaspectsofthegame.Theobjectoftheassesseewastocarryonanactivityfor
advancement of an object of general public utility by promoting the cricket game. But, it had deviated
from the stated objective by carrying out the game as an entertainment industry, generating huge
revenue.Therefore,theDirectorofIncometax(Exemptions)hadrightlycancelledtheregistrationunder
section12AAoftheAct.
TamilNaduCricketAssociationv.DIT(Exemptions)(2013)22ITR673(Chennai)(Trib.)
S.12AA:Procedure for registrationTrust or institutionInstitution incorporated under section
25ofCompaniesActandengagedinfacilitatingliteracyprogrammes,rejectionofapplication
basedonassumption,ordersetasidewithdirectiontograntregistration.[S.2(15)].
The objects of the assesseecompany were providing education and facilitating social and
economic empowerment, economic development programs, literacy programs, training
programsforvillagersanddowntroddenpeople.Itappliedforregistrationundersection12AA
oftheAct.TheDirectorofIncometax(Exemptions)rejectedtheapplicationonthegroundthat
theobjectsandactivitiesoftheassesseewerenotinconformitywiththedefinitionofcharitable
purpose under section 2(15) and hence did not qualify for registration under section 12AA of
theAct.Onappeal,theTribunalheldthatrejectionofregistrationbytheDirectorofIncometax
(Exemptions) was based on assumption. The fact that the assessee had been incorporated
under section 25 of the Companies Act, 1956 showed that it had been formed for promoting
charity or any other useful object and intended to apply its profits, if any or other income in
promoting its objects. In other words, it was a nonprofit earning organisation. Therefore, the
order of the Director ofIncometax(Exemptions) was to beset aside with a direction to grant
registrationtotheassesseeundersection12AA.
SocialPediaKnowledgeFoundationv.DIT(Exemptions)(2013)141ITD398/22ITR238/154TTJ
780(Chennai)(Trib.)
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61
TheCIT(A)recordedafindingoffactthatdividendearnedonsharesbyassesseewasfromits
investments in shares out of its own funds and consequently question of invoking S. 14A to
disallow expenditure would not arise. Since the revenue did not challenge this finding of fact
beforetheTribunal,noquestionoflawaroseforconsiderationbeforeHighCourt.(AY200203)
DITv.BNPParibasSA(2013)214Taxman548(Bom.)(HC)
S.14A:DisallowanceofexpenditureExemptincomeNoexpenditurewasincurredforearning
exemptincome,disallowancecannotbemade.
High court up held the view of Tribunal wherein the finding has been recorded that no
expenditurewasincurredbytheassesseetoearnthedividendincome,hencethedisallowance
undersection14Awasnotjustified.(A.Y.200102)
CITv.GlenmarkPharmaceuticalLtd.(2013)351ITR359/85DTR169(Bom.)(HighCourt)
Dy.CITvVinbros&Co.(2013)141ITD626(Chennai)(Trib.)
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S.14A:DisallowanceofexpenditureExemptincomeRule8Ddisallowancewithoutshowing
howassesseeiswrongisnotpermissible.
In AY 200910, the assessee earned taxfree dividend of Rs. 32 lakhs on investments that had
beenmadeinearlieryears.Theassesseeclaimedthatashehadnotincurredanyexpenditure
to earn the dividend income, no disallowance u/s.14A was permissible. The AO rejected the
claimandmadeadisallowancebyapplyingRule8D.TheCIT(A)deletedthedisallowanceonthe
groundthattheAOhadmechanicallyappliedRule8Dtocomputethedisallowance.Onappeal
bythedepartmenttotheTribunal,HELDdismissingtheappeal:
TheAOhasnotbroughtonrecordanythingwhichprovesthatthereisanyexpenditureincurred
towards earning of dividend income. The AO has not examined the accounts of the assessee
and there is no satisfaction recorded by the AO about the correctness of the claim of the
assessee and without the same he invoked Rule 8D. While rejecting the claim of the assessee
with regard to expenditure or no expenditure, as the case may be, in relation to exempted
income, the AO has to indicate cogent reasons for the same. The AO has not considered the
claimoftheassesseeandstraightawayembarkeduponcomputingdisallowanceunderRule8D
oftheRulesonpresumingtheaveragevalueofinvestmentat%ofthetotalvalue.Thisisnot
permissible(J.K.Investors(Bombay)(followed)(A.Y.200910)
DCITv.AshishJhunjhunwala(Kol.)(Trib.)www.itatonline.org
The condition precedent for the AO to invoke Rule 8D is that he first must examine the
accountsofassesseeandthenrecordbygivingcogentreasonswhyheisnotsatisfiedwiththe
correctness of the assessees claim. In the absence of an examination of accounts and the
recording of satisfaction, Rule 8D cannot be invoked. On facts, the assessee had itself
disallowedinterest,Dematchargesandadministrativeexpenses.TheAOhadnotexaminedthe
accounts or given a finding how the assessees computation was wrong. Consequently, the
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invocationofRule8Dwasimproperandthedisallowancewasnotpermissible(Godrej&Boyce
Mfg. Co. Ltd. v. Dy. CIT (2010) 328 ITR 81 (Bom), Maxopp Investment Ltd. & Ors. v. CIT (2012)
247 CTR 162 (Del), Walfort Share and Stock Brokers P. Ltd. (2010) 326 ITR 1 (SC), CIT v. Hero
CyclesLtd.(2010)323ITR518(P&H),JusticeSamPBharucha&PawanKumarParameshwarLal
followed)(A.Y.200809)
JKInvestors(Bombay)Ltd.v.ACIT(Mum.)(Trib.)www.itatonline.org
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KansaiNerolacPaintsLtd.v.Dy.CIT(2013)22ITR424/57SOT10(URO)(Mum.)(Trib.)
S.14A:DisallowanceofexpenditureExemptincomeEffectofrule8D.
Aassesseetoproveithadsufficientfundstofinancetaxexemptinvestmentsandthatnodisallowance
wouldariseonbasisofgeneralpooloffundshypothesis.MatterremandedtoAssessingOfficertoallow
assesseeopportunitytoshowwhydisallowanceundersection14A(1)shouldnotbeworkedout
following,proportionatemethod.(A.Y.200506to200809)
HerculesHoistsLtd.v.ACIT(2013)22ITR527(Mum.)(Trib.)
S.14A:Disallowance of expenditureExempt incomeInterest on borrowed capitalInvestment in
sharesInvestment out of own fundsBorrowed capital used for purposes of businessDisallowance
cannotbemadeundersection14A.
The Assessing Officer noted that the assessee had made an investment in shares to the extent of Rs.
2.37 crores, from which dividend was earned. Further, the Assessing Officer noticed from the balance
sheetthattheassessee'sownfundsweretotheextentofRs.96.15croresandborrowedfundswereRs.
3.48crores,whereastotalinterestexpensesdebitedintheprofitandlossaccountwereRs.2.73crores.
InresponsetotheAssessingOfficer'sproposaltomakedisallowanceundersection14A,theassessee's
submissionwasthatduringtheyear,additionalinvestmentsofRs.27.2lakhsalonehadbeenmadeand
allotherinvestmentsofRs.209.96lakhshadbeenmadeintheearlieryears.TheAssessingOfficerheld
thattheprovisionsofsection14A(2)wereattractedandmadedisallowanceundersection14Areadwith
rule 8D. The assessee carried the matter in appeal before the Commissioner (Appeals) who had
confirmed the same.The Tribunal held that no disallowance was called for under section 14A out of
interest expenditure because the assessee's own funds were many times more than the amount
investedinsharesandnodirectnexuswasestablishedbytheAssessingOfficerbetweeninvestmentand
interestbearingborrowedfunds.Butsomedisallowancewasjustifiedoutofadministrativeexpenses.A
disallowanceofRs.1lakhwouldmeettheendsofjustice.(A.Y.20072008)
EimcoElecon(India)Ltd.v.Add.CIT(2013)22ITR380(Ahd.)(Trib.)
S.14A:Disallowance of expenditureExempt incomeTaxable incomeExpense specifically
relatabletotaxableincomecannotbedisallowed.(Rule8D)
ForAY200809,theAOcomputedthes.14AdisallowanceunderRule8Dbyexcludingfromthe
totalgeneralexpenditureofRs.1,16,94,912,anamountofRs.19,96,228beingexpensesrelated
tohousepropertyincome,interestexpenditureanddematcharges.Thebalanceexpenseswere
allocatedasrelatingtotaxexemptincomeintheratiooftaxexemptreceiptstototalreceipts.
Onthisbasis,46.68%ofthebalanceexpenditurewasdisallowedu/s14AreadwithRule8D.In
appeal before the CIT (A), the assessee claimed that an amount of Rs. 57,14,450 was incurred
exclusively on building maintenance and service expenses and as no part of these expenses
could be attributed to tax exempt income, it had to be taken out of computation of 14A
disallowance. This was upheld by the CIT (A). On appeal by the department to the Tribunal,
HELDdismissingtheappeal:
Onceitisfoundthatanexpenseisspecificallyrelatabletoataxableincome,noportionofsuch
anexpensecanbedisallowedu/s14A.Theallocationofgeneralexpensesvisvistaxexempt
incomeandtaxableincomecanonlybemadeinrespectofexpenditurewhichcannoteitherbe
wholly allocated to taxable income, then or which cannot be wholly allocated to tax exempt
income;theallocationcanbemade,evenonthebasisofformulasetoutinRule8D(iii)(should
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beRule8D(2)(iii),inrespectofsuchexpenseswhichdonotfallwithinanyofthesecategories.
(A.Y.200809)
JCITv.PilaniInvestment&IndustriesCorpn.Ltd(Kol.)(Trib.)www.itatonline.org
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(Appeals) had recorded a categorical finding that the interestfree funds available with the
assessee in the shape of capital and reserves were far in excess of the amount invested in
bonds.Inthatviewofthemattertherecouldbenodisallowanceofanyinterestundersection
14A. However, the administrative and other expenses were required to be disallowed under
section14Aonsomereasonablebasis.Appealofrevenuewaspartlyallowed(A.Y.199899)(A.Y.
19981999to20032004)
SocieteGeneralev.Dy.DIT(IT)(2013)21ITR606/57SOT101(Mum.)(Trib.)
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totheAOwithadirectiontorecomputethedisallowanceofexpensestobemadeu/s.14Aby
applyingsomereasonablemethod.(A.Y.200506)
Welspun Zuchhi Textiles Ltd. v. ACIT (2013) 83 DTR 293/23 ITR 53 /56 SOT 444/153 TTJ
153(Mum.)(Trib.)
S.14A:Disallowance of expenditure Exempt incomeInterest free funds are more no
disallowance can be madeNo disallowance of administrative expenses unless the Officer
identifies.
Iftheinterestfreefundsavailablewithassesseearemorethantheimpugnedinvestmentsthen
no disallowance can be made under section 14A of the Act.The Tribunal held that no
disallowance could be made out of interest, management or administrative cost as the
Assessing Officer has not identified any expenditure which has been actually incurred by the
assesseeforearningtheexemptincome.(A.Y.200203)
Dy. CIT v. Jammu and Kashmir Bank Ltd. (2013) 152 TTJ 522/ 142 ITD 553/83 DTR 187 (Asr.)
(Trib.)
S.14A:Disallowance of expenditure Exempt income Interest on borrowings has to be
treatedasbusinessexpenditure,itcannotbedisallowedundersection14A,eventhoughthe
dividendearnedfromtheunitisexemptundersection.(S.10(33),36(1)(iii)).
The assessee has incurred interest expenses for purchase of shares and units of mutual fund
and the borrowed funds, have been used for acquisition of units are not in dispute. The
Assessing Officer has held that the assessee is in business of purchase and sale of shares and
also while framing the assessment under section 143(3), the loss incurred on the sale /
purchase of units has been treated as business loss. The Tribunal held that once the purchase
andsaleofsharesisheldtobeabusinessactivity,theinterestpaidthereonhastobetreated
asbusinessexpensesandnodisallowancecanbemadeundersection14A.(A.Y.200405)
ZaveriVirjibhaiMandaliav.ACIT(2013)152TTJ20(UO)(Ahd.)(Trib.)
S.14A:DisallowanceofexpenditureExemptincomeSharesheldasstockintrade.(Rule8D.)
The assessee received exempt income in the form of dividend from personal investments and
also from shares held for trading. It also received tax free interest from relief bonds. The
assessee maintained separate accounts including separate bank accounts and balance sheets
for personal investments and trading activities in which expenses relating to those two
activities were shown separately. The Tribunal held that no disallowance can be made in
respect of expenses in relation to dividend received from trading in shares. In view of the
judgment of Karnataka High Court in the case of CCI Ltd vs. JCIT, the decision of the Special
BenchoftheTribunalinthecaseofDagaCapitalManagementP.Ltd.cannotbefollowed.(A.Y.
20082009)(FITANo.6332/M/11,dated1112013)
VivekMehrotrav.ACIT(2013)BCAJPg.17,Vol.44BPart6,March2013(Mum.)(Trib.)
S.14A:DisallowanceofexpenditureExemptincomeRule8Disnotapplicable.(Rule8D)
TheAssessingOfficerallocatedexpensesrelatingtoexemptincomeonproportionatebasis.In
appeal before the CIT (A), the CIT (A) directed the Assessing Officer to recompute the
disallowancebyapplyingRule8DofIncomeTaxRules.Onappeal,theTribunalheldthatRule8D
isapplicableonlyfromA.Y.200809andthedisallowancehadtobemadeonreasonablebasis
after hearing the assessee fresh in the light of the decision of Honble Bombay High Court in
caseofGodrej&BoyceMfg.Co.Ltd.vs.Dy.CIT(2010)328ITR81(Bom.)(A.Y.200405)
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ForeverDiamonds(P)Ltd.v.Dy.CIT(2013)152TTJ682/83DTR411(Mum.)(Trib.)
S.14A:Disallowance of expenditure Exempt incomeNo exempt was earned in the relevant
year.(Rule8D)
The Assessing Officer made disallowances under section 14A towards expenditure on
investment by applying Rule 8D. The Tribunal upheld the action of Assessing Officer on the
point that disallowanceunder section 14A can be made inthe absence of any exempt income
butsentthematterbacktothefileofAssessingOfficertocomputethedisallowanceonsome
reasonablebasisnotasperRule8D.(A.Y.200607)
StreamInternationalServicesv.ADIT(2013)152TTJ553/141ITD492/23ITR70/83DTR394
(Mum.)(Trib.)
S.16:Deductions from salaries Director of the Company No Employer employee
relationshipclaimofstandarddeductionundersection16(i)rightlydenied.
Adirectorofthecompanyholdsofficeunderthecompany,but,asadirectorheisnotaservant
or employee of the Company and being so the assessing officer had rightly disallowed the
assesseesclaimofstandarddeductionundersection16(i)oftheAct.(A.Y.199394to199798)
SandeepKohliv.CIT(2013)81DTR307(All)(HC)
VishelKholi(Dead)throughLRsv.CIT(2013)81DTR307(All)(HC)
S.17(1):SalaryNoncompetefeeNoncompetecommissionreceivedfromemployerisLiable
tobetaxedasSalary.(S.28(va)).
Non Compete commission received by the employee for not competing with the employer is
liable to be taxed under the inclusive definition of salary under section 17 of the Act.Even
otherwisetheamountwasliabletobetaxedundersection28(va)oftheAct.(A.Y.200304)
CITv.KanwaljitSingh(2013)81DTR208(Delhi)(HC)
S.17(2):PerquisiteRent free accommodationAs the assessee was not provided with any
accommodationbyhisemployer,thatnofurnitureorsecurityguardsorcookswereprovided
to him and that telephone was provided in name of firm in which assessee was a partner
additiononthebasisofestimationwasdeleted.
Assesseewasanemployeeofone'S'Ltd.Inassessmentproceedings,AssessingOfficernoticed
that assessee was provided with several perquisites by his employer. He thus made certain
additiontoassessee'sincome.Commissioner(Appeals)deletedadditionongroundthatitwas
madeonhypotheticalandestimatedbasis.Tribunalnotedthatassesseewasnotprovidedwith
any accommodation by his employer, that no furniture or security guards or cooks were
provided to him and that telephone was provided in name of firm in which assessee was a
partner.Tribunal thus held that Commissioner (Appeals) rightly deleted perquisites brought to
assessment.Courtheldthatsincetherewasnomaterialtoshowthatfindingoffactrecordedby
Tribunal was contrary to record or was untenable, impugned order passed by Tribunal was to
beupheld.Infavourofassessee.(A.Y.200001)
CITvUKBose(2013)212Taxman399(Delhi)(HC)
S.17(3)(iii):ProfitsinlieuofsalaryDearnessreliefreceivedbyretiredHighCourtJudge.
Dearness relief received by a retired High Court Judge constitutes profits in lieu of salary u/s.
17(3)(iii).(A.Y.199899)
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JusticeG.K.Mathur(Retd.)v.CIT(2013)83DTR178(All)(HC)
S.22:Income from house property Annual valueUnsold flats held as stock in tradeAnnual
valueofunsoldflatstotaxedasincomefromhouseproperty.
Assessee is in construction business. Some flats constructed by assessee were lying unsold.
Assessing Officer assessed ALV of those flats as income from house property. Assessee
contended that said flats were its stockintrade and, therefore, ALV of flats could not be
broughttotaxunderhead'Incomefromhouseproperty'.AssessingOfficerdidnotacceptstand
of assessee. Commissioner (Appeals) has deleted the addition, which was confirmed by
Tribunal.OnappealtoHighCourtbyrevenue,theCourtheldthatlevyofincometaxincaseof
one holding house property is premised not on whether assessee carries on business as
landlord,butonownership.Theincidenceofchargeisbecauseoffactofownership,therefore,
AssessingOfficerrightlybroughtALVofunsoldflatstotaxasincomefromhouseproperty.
CIT.v.AnsalHousingFinance&LeasingCo.Ltd.(2013)354ITR180/213Taxman143/88DTR
227(Delhi)(HC)
CITv.AnsalPropertiesandIndustriesLtd(2013)354ITR180/88DTR227(Delhi)(HC)
CITv.AnsalHousingandConstructionLtd(2013)354ITR180/88DTR227(Delhi)(HC)
Editorial: The Supreme Court has granted the special leave to the assessee against this
judgmentonthispoint.AnsalPropertiesandIndustriesLtdv.CIT(2013)354ITR81(St)
S.22:IncomefromhousepropertyAnnuallettingvalueVacancyallowanceValuationtobeonbasisof
sumforwhichpropertymaybeletAssessingOfficerfixingannuallettingvaluebasedonrentfetched
uptoApril,2004Reasonable.[S.23(1)(c)].
Theassesseedidnotreturnanyincomeunderthehead"Incomefromhouseproperty"inrespectofits
propertylyingvacant,theleaseinrespectthereofhavingexpiredinApril,2004.Thepremiseshadbeen
continuouslyletoutsincetheyear1997.Theyclaimedanotionalamounttotaxasannuallettingvalue
ofthesaidpropertyandinthealternativethattheannuallettingvaluecouldonlybecomputedinterms
of section 23(1)(a) of the Act, so that the standard rent under the rent control had to be applied in
determiningtherentatwhichpropertymayreasonablybeexpectedtobeletoutfromyeartoyear.The
AssessingOfficerrejectedbothcontentionsinviewoftheprovisionofsection23(1)(a),anddetermined
the income assuming the annual letting at Rs. 18,58,116. On appeal, Commissioner (Appeals) affirmed
this.Onappeal:
Held, (i) that the assessee's claim of the property being used for the purposes of its business was not
onlynotborneoutbytherecord,andwasadvancedforthefirsttimewithoutanymaterialandwasalso
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contrarytotheassessee'sconsistentstandthroughoutthatthepropertywasvacantsinceApril,2004as
itcouldnotfindasuitabletenant.
(ii)Thatthevacancyallowanceundersection23(1)(c),whichisinbuiltintheworkingoftheannual
lettingvalue,isonlyinrespectofapropertythevalueofwhichwouldotherwisestandtobebroughtto
taxundersection23(1)(b),i.e.,onthebasisofactuallettingand,further,atarenthigherthanthefair
marketrent,andnotundersection23(1)(a),i.e.,onthebasisofnotionalletting.Theprovisionofsection
23(1)(a),i.e.,oftheannuallettingbeingdeterminedonthebasisofnotionalletting,isapplicableeven
wherethepropertyisactuallylet,thoughonlywhereitisatarentlowerthanthefairrent.Ifthe
conceptofvacancyweretobeincorporatedintheconceptofnotionalletting,thelatterwouldstand
defeatedandincapableofbeingapplied.Itbeingtheadmittedpositionthatthepropertywasnotletfor
therelevantyear,therewasnoquestionofapplicationofsection23(1)(b)and,consequently,section
23(1)(c),andtheannuallettingvaluewouldhavetonecessarilybedeterminedonlywithreferenceto
section23(1)(a).
(iii)Thatwhatwasrelevantwastherentforwhichthepropertymayreasonablybeletfromyeartoyear.
Therewasnoevidencetosupporttheannuallettingvaluebasedonthemunicipalrateablevalueonthe
basisthatthepropertywassubjecttorentcontrollegislation.Theassessee'sargumentthatthe
propertybeingnotactuallylet,thenotionalrentcouldnotbebroughttotaxwasnotsustainable.The
propertywasletatanannualrentofRs.18,58,116continuouslyfromtheyear1997to2004.Therewas
nothingonrecordtoshoworinferthattheproperty,which,aslateasApril,2004,yieldedarenttothe
tuneofRs.18lakhsperannum,becameincapableoffetchingasmuchand,rather,plummetedtoabout
1percent.thereof.TheAssessingOfficerhadkepttheannuallettingvalueatRs.13,00,681,i.e.,netof
standarddeductionat30percent.,constantforalltheyears,i.e.,uptoassessmentyear200809,and
wasreasonable.(A.Y.200506to200809)
HerculesHoistsLtd.v.ACIT(2013)22ITR527(Mum.)(Trib.)
S.22:Income from house property Business income Leasing of hotel Assessable as
propertyincome.[S.28(i)]
As assessee is incurring losses in hotel business run by it, it gave hotel along with furnishings
and fittings on license basis for seven years. This period of seven years was to stand
automaticallyextendedinacertaincontingency.Assessee'sclaimthatlicencefeereceivedbyit
was assessable as business income was rejected by Assessing Officer who assessed it as
property income. Tribunal held that intention of parties had to be considered to decide
whetherlease/rentalincomewasassessableashousepropertyincomeorbusinessincome.On
factsthoughitwasmentionedinagreementthatoperationofhotelwasleasedout,itwasonly
leasing out of hotel building along with furniture, fittings etc. therefore license fee was rightly
assessable as property income rather than as business income. In favour of revenue. (A. Y.
200506)
ACITv.PalmshoreHotels(P.)Ltd.(2013)55SOT198(Cochin.)(Trib.)
S.22:Income from house propertyRental income from lease hold premisesIncome from
othersources.(S.27(iiib),28(i),56.)
The assessee had taken property on lease for a period of 3 yrs. The assessee is neither owner
nor a deemed owner within the meaning of section 27(iiib). The Tribunal held that the rental
income derived by subletting property cannot be charged to tax under the head income from
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house property or as business income. It is assessable under the head income from other
sources.(A.Y.200607)
StreamInternationalServicesv.ADIT(2013)152TTJ553/141ITD492/23ITR70/83DTR394
(Mum.)(Trib.)
S.24:DeductionsIncomefromhousepropertyInterestInterestonborrowedcapitalutilised
for purchase of flats to be allowed in equal proportions in hands of assessee and her
husband.
The assessee claimed deduction against the rental income of Rs. 10,49,604 on account of
interestpaidtothebankonborrowedcapital,undertheheadIncomefromhouseproperty.
TheAssessingOfficerdisallowedtheclaim.TheCommissioner(Appeals)upheldthis.Onappeal,
the Tribunal held thatadmittedly, the total interest paid by the assessee with her husband on
the borrowed loans during the year under consideration was Rs.10,39,604 out of which
deduction of Rs. 5,14,802 had been allowed in the hands of the husband. When the rental
incomefromtheindividualflatsownedbytheassesseeandherhusbandhadbeenincludedin
their respective hands, deduction on account of the interest paid on borrowed capital utilised
forthepurchaseoftheflatwastobeallowedinequalproportionsinthehandsoftheassessee
andherhusband.(A.Y.200607)
GurudasMannv.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
ManjitMann(Smt)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.24:DeductionsIncomefromhousepropertyExpenditureonrepairsoflodge.
Assessing Officer disallowed the claim for deduction stating that the expenditure on repairs
could not be allowed from estimated income. Tribunal held that claim of repairs cannot be
denied in so far as specific repairs were carried out on the lodge. The assessee is entitled to
deduction of expenditure on repairs of lodge under section 24(a) from the estimated income
fromthelodge.
DineshChandraDasv.ACIT(2013)152TTJ25(UO)(Ctk.)(Trib.)
S.28(i):BusinesslossLossonsaleofrawmaterialHeldasallowable.
Held,inabsenceofanyevidenceledbyrevenuetorebutfactumofassesseehavingsustained
loss onsaleofrawmaterials,additionmadeonaccountof disallowanceoflosson saleofraw
materialwasrightlydeletedbyTribunal.
CITv.ShreeRamaMultiTechLtd.(2013)214Taxman129(Mag.)(Guj.)(HC)
S.28(i): Business incomeAdventure in the nature of trade Sale of land after plotting and
developmentwasrightlyassessedasbusinessincome.(S.2(13),45(2).)
Assesseepartlyinheritedfromhisfather,landinurbanareaforwhichZamindariwasabolished
on 1
st
July 1961 and the remaining part of the land was purchased by him between 16
th
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S.28(i):BusinessincomeJointventureAdditionwithoutanyadditionalevidencewasdeleted.
Assessee and one, KM, agreed to form a joint venture andmake investment in 60:40 ratio for
carryingoutconstructionworkjointlyundertakenbythem.Outoftheirrelationandinviewof
robust nature of undertaking, receipts were divided in ratio which was not strictly in 60:40
ratio.TheCourtheldthatsamecannotbeagroundforanyadditioninhandsofassessee,that
too without any additional material evidencing that assessee had actually received additional
paymentsnotreflectedinbooks.Infavourofassessee
CITv.G.K.Patel&Co(2013)213Taxman44(Mag.)(Guj.)(HC)
S.28(i):BusinessincomeEstatebusinessPurchaseandsaleagriculturallandasper
memorandumofunderstandingisassessableasbusinessincome.
Assessees, engaged in real estate business, had entered into an Memorandum of
Understanding(MOU)withNforacquiringanddeliveringagriculturallandof63acresatrateof
Rs.4lakhsperacreAssesseespurchased39.9acreslandatrateofRs.1,61,000peracreandas
part performance of said MoU, delivered it to 'N' at rate of 4 lakh per acre 'N' confirmed
completion of transaction.The court held that thedifference in purchase and sale price would
be assessable as assessee's income from real estate business ,since for remaining portion of
landtobeacquired,therewasnoevidencethatanyadvancewasmade,saidsumcouldnotbe
treatedasassesseesincome.Partlyinfavourofassessee.(A.Y.199697)
CIT.v.Krishnappa(2013)213Taxman137(Karn.)(HC)
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S.28(i):Business incomeEntertainment taxSubsidyNature of subsidy to be seen in light of
policiesofrespectiveStateGovernmentsMatterremanded.
The assessee collected total entertainment tax in respect of its various multiplexes. The
assessee got subsidy from State Governments by way of exemption from payment of
entertainment tax and it had been granted exemption from payment of entertainment tax in
respectofmultiplexesatthreeplaces.Theentireamountofentertainmenttaxcollectedbythe
assessee was included in the profit and loss account, but the assessee claimed that the
entertainmenttaxincentive/subsidywaswronglyofferedtotaxbecauseitwasacapitalreceipt
not chargeable to tax. The Commissioner (Appeals) did not allow the assessee to raise this
ground because the issue had not been deliberated upon by the Assessing Officer. Held, that
therespectiveStateGovernmentPoliciesandtheordersrequiredtobeexaminedtodetermine
whether the contentions of the assessee were correct. The matter was to be remanded for
examinationofthefacts.(A.Y.20052006)
ECityEntertainment(India)Pvt.Ltd.v.ACIT(2013)24ITR73(Mum.)(Trib.)
S.28(i):BusinessincomeCapitalgainsSaleofplotsAgriculturalland.[S.2(13),45]
The assessee sold plots of agricultural land and the surplus arising thereon was taxed under
head 'capital gain'. The Assessing Officer held that the assessee was regularly trading in
agriculturallandwithanintentionnottohold suchlandbuttoreapbenefitwhenthepriceof
landwasatpeakand,therefore,saleproceedsweretobetaxedasadventureinthenatureof
trade under section 2(13). It was observed that the Assessing Officer had not produced any
evidence that assessee was purchasing and selling plots of land in subsequent and earlier
assessment years. Furthermore, having accepted the capital gains in respect of certain lands
during the previous year under consideration, the Assessing Officer should not have taken a
differentviewinrespectofotherplotsofagriculturallands.(A.Y200708)
ACITv.BhopindersinghR.Arneja(2013)57SOT225(Nagpur)(Trib.)
S.28(i):BusinessincomeSharedealingsCapitalgains.[S.45]
Incomefrompurchaseandsaleofshareswouldbeassessedasbusinessincomeifintentionof
assessee behind their purchase and sale is to quickly realize profits. However, if intention of
assessee behind purchasing and holding shares is to earn dividend and not to realize profit by
turningoversharesasitisdoneincourseofbusiness,profitarisingonsaleofshareswouldbe
assessableascapitalgains.Stockturnoverratioofassesseewas1:16andcapitalturnoverratio
was1:14whichisnormallyfoundinbusinessandnotininvestment.Dividendaspercentageof
average capital worked out to 0.05 per cent. Considering all these factors, the income was
taxableasbusinessincome.(A.Y.200809)
DCITvMukeshbhaiBabulalShah(2013)57SOT45(Rajkot)(Trib.)
S.28(i):BusinesslossPercentagecompletionmethodExpectedlossisnotallowable.[S.37(I)]
Assessee is a contractor recognizing revenue based on percentage completion method. It
claimedexpectedlossongroundsthatcontractshadnoescalationclauseandpriceofsteeland
costofwagesandspareshadincreasedmanifold.Tribunalheldthatbookingofexpectedloss
when, circumstances are adverse,might be warranted interms of Accounting Standards , as a
matter of conservatism , but for tax purposes it is a cardinal principle that only expenses
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incurred or losses suffered could be allowed. Assessee based on percentage completion
methodclaimedexpectedloss.Therewasnolegalrightonanypersonforclaimingacostwhich
wasstilltobeincurred,saidlosscouldnothavebeenallowed.(A.Y.200405)
EDACEngineeringLtd.vDy.CIT(2013)141ITD231(Chennai)(Trib.)
S.28(i):BusinessincomeNoncompetefeesLawapplicableSection28(va)insertedw.e.f.14
2003Noncompetefeetaxableforperiodafteramendment.
TheassesseedeclaredRs.5croresunderthehead"longtermcapitalgains"representing"noncompete
fees"receivedfromT,againstwhichtheassesseeclaimeddeductionofRs.50lakhsundersection54EC
of the Act and deposited the balance of Rs. 4.50 crores in capital gain savings account. The Assessing
Officerheldthatthe"noncompetefees"receivedbytheassesseeweretaxableundersection28(va)of
theAct.Heaccordingly,rejectedtheclaimoftheassesseeandtreatedtheamountasfallingunderthe
head"Profitsandgainsofbusinessorprofession'.Onappeal,theCommissioner(Appeals)decided this
issueagainsttheassessee.Onappeal,.Held,dismissingtheappeal,thataftertheamendmenttosection
28withtheinsertionofclause(va),thenoncompetefeereceivedbytheassesseewasliabletobetaxed
under thehead"profitsandgainsof businessorprofession".TheorderoftheCommissioner(Appeals)
needednointerference.(A.Y.20092010)
AnuragToshniwalv.Dy.CIT(2013)23ITR112(Mum.)(Trib.)
ArunToshniwalav.Dy.CIT(2013)23ITR112(Mum.)(Trib.)
S.28(i):BusinessincomeTradingInvestmentSharesPurchaseofsharesininitialpublicoffer
andsalethereofwithinfewdaysafterallotment,profitstobetreatedasbusinessprofitsnot
shorttermcapitalgains.(S.45)
The assessee earned shortterm capital gains on sale of shares, which the Assessing Officer
treated it as business income of the assessee rejecting the assessee's claim that similar
transactionscarriedoutbytheassesseeinearlieryearswereheldtobetaxableunderthehead
"Capitalgains".Onappeal,theCommissioner(Appeals)foundthattheassesseehadappliedfor
andwasallottedsharesin40companiesandtheseshareswereimmediatelysoldonallotment
after an average period of holding of 34 days, that the intention of the assessee was not to
hold the allotted shares but to sell them on allotment to take advantage of market
imperfectionsandthattheAssessingOfficerwasrightinholdingthatthiswasabusinessasset
and treating the shortterm capital gains as business profit. On Tribunal also confirmed the
orderoflowerauthorities.(A.Y.20062007)
ShreyasM.Jhaveriv.ITO(2013)21ITR644(Mum.)(Trib.)
S.28(i):BusinessincomeCapitalgainsSaleofsharesNomaterialconsideredtoverifywhether
sharesheldasinvestmentorstockintradeMatterremanded.(S.45)
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The assessee sold certain shares and offered for taxation the resultant profit twice, that is, a
sum of Rs. 66.57 lakhs as business income and longterm capital gains at Rs. 63.10 lakhs. The
AssessingOfficerdeletedthelongtermcapitalgainsfrominclusioninthetotalincomeallowing
as business income to continue. The claim of the assessee was that the converse should be
done.TheCommissioner(Appeals)upheldtheassessmentorderobservingthatnomaterialwas
placedbeforetheAssessingOfficerorhimtoprovethattheassessee'sclaimwasonaccountof
investment in shares resulting in longterm capital gains and not business income. On appeal
the Tribunal held that no material had been considered or referred to verify whether such
shares were held as investment orstockintrade. The matter was to be restored to the file of
theAssessingOfficertodeterminewhethersuchshareswereheldbytheassesseeasstockin
trade or investment. If such verification showed that the shares were held as investment, the
income from their transfer should be considered under the head "Capital gains", if not as
"Businessincome".Matterremanded(A.Y.:20032004,20042005)
BayerMaterialScienceP.Ltd.v.ACIT(2013)142ITD22/22ITR287(Mum.)(Trib.)
S.28(i):BusinessincomeAmountclaimedincompensationsuit,cannotbetreatedasincome.
Theassessee,manufactureranddomesticsellerofgreyfabric,fileditsreturnofincomeforthe
AY 0809 declaring a loss of Rs.31,31,568/ in the course of assessment proceedings, the AO
noticed that the assessee had acquired a 1250 MW windmill, from M/s. Suzlon Energy, for
captiveconsumption.Thepurchaseordercontainedcompensationclause,whichprovidedthat
theassesseewasentitledtocompensationincaseofanylossofgenerationonaccountofnon
availability of the machine below 95% @ 3.67/ KWH or as per the TNEB tariff during the
warranty period. He also noticed that the generation of power unit did not touch the assured
levelof37lakhunits.TheassesseehadfiledacompensationcasebeforetheJurisdictionalHigh
Court raising claim of Rs.17,58,014 up to 1592007 for shortfall in generation of power. Since
theotherpartyhadnotacceptedtheassesseesclaimforcompensationandalsothecasewas
pendingbeforetheCourt,theassesseehadnotdeclaredtheamountclaimedasitsincome.The
AOheldthat,sincetheassesseewasentitledtocompensationaspertheagreement,hetaxed
the sum of Rs.17,58,014 as the income of the assessee. The Tribunal held that merely by
initiating the compensation suit, the amount claimed therein cannot be treated as assessee's
income unless the other party admits the liability to pay compensation or there is a decree in
favouroftheassessee.AY0809(ChennaiABench,ITANo.1169/Mds/12,dated171212)
ACIT v. Trident Textile Mills Ltd. (2013) BCAJ Pg. 17, Vol. 44B Part 6, March 2013(Chennai)
(Trib.)
S.28(1): Business incomeBusiness expenditure General principle Section 28 does not itself
provideforexpenditure.(S.37(1),2930to43D,40(a)(ia))
TheAssessingOfficerdisallowedtheinterestbyapplyingtheprovisionsofsection40(a)(ia).On
appealthe Commissioner (Appeals) held that interest expenses in the hands of the assessee
trustsaredeductibleundersection28itselfandtherefore,section40(a)(ia)doesnotapplyas
that section covers only the expenses claimed by assessee under sections 30 to 38. He
accordinglydeletedthosedisallowancesmadebytheassessingofficerundersection40(a)(ia).
On appeal by revenue,the Tribunal did not agree with legal proposition of Commissioner
(Appeals).Tribunalheldthat,section28isanexplanatorysectionwhichdescribesvarioustypes
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ofreceiptsofincomewhicharetobeincludedunderthehead"Profitsandgainsofbusinessor
profession". Apart from this general description, section 28 does not provide for deduction of
anyexpenditureincurredbyanassesseeinearningprofitsandgainsofbusinessorprofession.
Section29providesthattheincomereferredtoinsection28shallbecomputedinaccordance
withtheprovisionscontainedinsections30to43D.Lawhasprovidedacomprehensivesystem
for deciding what are profits and gains of business or profession and how profits and gains of
businessorprofessionwillbecomputed.WhensuchanexhaustiveprovisionismadeintheAct,
it is not possible to hold that section 28 itself provides for expenditure and, therefore, the
assesseecanclaimtheexpenditureofinterestpaymentasanexpendituredeductibleatsource
itself under section 28. However the Tribunal deleted the disallowance on principle of
mutuality.(A.Y.20072008,20082009)
ITOv.SarvodayaMutualBenefitTrust(2013)22ITR277/56SOT507(Chennai)(Trib.)
S.28(i):BusinessincomeCapitalgainsSharedealingHeldasbusinessincome.(S.45)
Where assessee has made several transactions of purchase of shares during year under
consideration, and if there is high volume, frequency and regularity of activity carried on by
assesseeinasystematicmanner,itwouldpartakecharacterofbusinessactivitiescarriedonby
assesseeinshares.Appealrevenuewasallowed.(A.Y200708)
ACITv.AnilKumarJain(2013)55SOT77(Hyd.)(Trib.)
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G.K.Properties(P.)Ltd.v.ITO(2013)55SOT86(Hyd.)(Trib.)
S.28(i):Business income Capital gainsShare dealing Shares sold after a short duration of
holdingAssessedasbusinessincome.(S.45)
Assessee declared income arising from sale of shares as shortterm capital gain. Assessing
Officer finding that number of transactions was very large with high frequency, opined that
assessee was engaged in trading of shares. Accordingly, Assessing Officer treated shortterm
capital gain declared by assessee as business income.Tribunal noted that in most of cases
shares had been sold on very date of purchase which showed that sales had been made even
without taking delivery. In fact, assessee while giving details of transactions had himself
mentioned'SpeculativeShorttermCapitalGain'Besides,othershareshadalsobeensoldafter
ashortdurationofholding.Tribunalheldthataforesaidpatternoftransactionsclearlyshowed
that assessee was trading in shares and was not an investor.Therefore, the impugned order
passed by Assessing Officer was to be upheld assessing the income as business income. (A. Y.
200708)
DevjiNenshiPalaniv.ITO(2013)55SOT192(Mum.)(Trib.)
S.28(1):Business lossBad Debt Intercorporate deposit Main business of the assessee,
telecom venture Deduction of amount non recoverable inter corporate deposit not trade
debt or part of any money lending business Not allowable as bad debts or business loss.
(S.36(1)(vii).)
Where the assessee was engaged in telecom business, and not engaged in money lending
business, loss of inter corporate deposit due to nonrecovery of some amounts, did not fall
within parameters of provisions of section 36(1) (vii) therefore not allowed as bad debts nor
allowableasbusinessloss.
BhartiTeleventuresLtd.v.Addl.CIT(2013)81DTR225/213Taxman320(Delhi)(HC)
S.28(i):BusinesslossWritingofinterestonshareloantostaffallowableasbusinessloss.
Assesseecompanygaveshareloantostaffmembersforsubscribing200sharesofcompany.It
offered interest charged on such loan for tax in earlier years. Subsequently on representation
made by employees in current year had written off such interest and debited same to profit
and loss account. Lower authorities disallowed the said interest written off. On appeal to
TribunaltheTribunalheldthatoncetheinterestonsuchloanwasofferedtotaxbyassesseein
earlieryearandsamewaswrittenoffincurrentyear,thedisallowancewasnotjustified.Appeal
ofassesseewasallowed.(AY200102to200203)
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GujaratMineralDevelopmentcorp.Ltd.v.ACIT(2013)140ITD603(Ahd.)(Trib.)
S.28(i):BusinesslossTransferofbusinessSlumpsaleYearoftaxabilityTransactionoftransfer
ofbusinesstookplaceinpreviousyearrelevanttoassessmentyear200304andincomefrom
transfertobeconsideredinthatyearAdditionscannotbemadeonpresumption.
The assessee sold a part of its business to S on September 30, 2002 for a lump sum
consideration of Rs. 7,12,41,450 resulting in loss of Rs. 2,10, 26,593. Pending certain legal
formalities, the assessee agreed to carry out the business on behalf of the buyer S, as its
custodianinIndiawiththeclearunderstandingthatanyloss/profitarisingoutoftheoperations
would belong to the buyer. It contended that the loss of Rs. 2.10 crores should be allowed
underthehead"Profitandgainsofbusinessorprofession".TheAssessingOfficerheldthatthe
transaction was not a slump sale transaction. From the total sale consideration of Rs. 7.12
crorestowardsthebusiness,theAssessingOfficerreducedasumofRs.5.97crores,beingthe
consideration for transfer of all other items of assets at their book value. He worked out that
the inventory valuing Rs. 3.24 crores was transferred to the transfereeonly at Rs. 1.18 crores,
thattheclosingstockwasrequiredtobevaluedatthemarketrate.Consideringthegrossprofit
rateof36.50percentasdeclaredbytheassesseefortheyearinquestion,theAssessingOfficer
computedthemarketvalueofinventoriesatRs.4.43crorescomparedwiththeactualvalueof
transferofinventoriesatRs.1.18crores,andheldthattheassesseesuppressedtheincomeof
Rs. 3.28 crores. Taking into consideration the fact that the business was transferred on
September 30, 2002 and thereafter it was carried on by the assessee as a custodian of the
transferee, the Assessing Officer held that the income of Rs. 3.28 crores was required to be
included in the total income for the assessment year 200304. He, therefore, disallowed the
assessee's claim of loss of Rs. 2.10 crores in the year under consideration and initiated
reassessment proceedings for the assessment year 200304 and completed the assessment
accordingly.WhentheappealsforboththeyearscameupbeforetheCommissioner(Appeals),
heupheldtheactionoftheAssessingOfficer. OnappealtheTribunalheldthatadmittedly,the
assessee's business was transferred to S on September 30, 2002. The assessee in fact, carried
out business on behalf of S as its custodian in India from October 1, 2002 till March 31, 2004
andtransferredprofit/lossarisingoutofsuchoperationstothebuyer.Theassesseecouldnot
be considered simultaneously as agent of the buyer and also the owner of the business
betweenOctober1,2002toMarch31,2004.Thetransactionoftransferofbusinesstookplace
inthepreviousyearrelevanttotheassessmentyear200304andaccordinglyincomefromsuch
transferofbusinesswastobeconsideredinthatyearalone.Thebusinessoftheunitwithallits
assets including stockintrade was transferred by the assessee to S, an altogether different
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concern. The assessee discontinued the business of the unit, thereby necessitating the
valuation of stock at market price. The assessee agreed to sell the assets of its unit including
stockintrade for a total sum of Rs. 7.12 crores. The Assessing Officer computed the market
value of stock in the assessment order for the assessment year 200405 applying the gross
profitrateof36.50per centforthatyear.He,however,madeadditionintheyearrelevantto
the assessment year 200304 holding that the transaction of transfer of stockintrade of the
business along with assets took place in such earlier year. The transaction of transfer of the
business including stockintrade actually took place on September 30, 2002, which was
relevant to the assessment year 200304. The calculation of market value of the stock at Rs.
4.43croresonthedateoftransferofsuchstockwasnotcorrect.
That even if such a value was presumed to be correct, the authorities had nowhere held that
suchvalueofstockactuallyrealisedbytheassesseedidnotrepresentitstruemarketpriceor
thatthemarketvalueofstockwasmorethanwhatwasactuallyrealisedfromthebuyerofthe
business. The transferor and transferee companies were unrelated to each other. In such
circumstances, the only logical conclusion was that the assessee transferred its stock at the
marketvaluerecordedintheagreementatRs.1.18crores.Whenthetransfereecompanyhad
paid a total sale consideration of Rs. 7.12 crores, which included a sum of Rs. 1.18 crores
towardsthevalueofinventories,theAssessingOfficercouldnotpresumethemarketvalueof
suchinventoriesatRs.4.43croreswithoutanycogentreason.
ThatitwasnotpossibletomakeadditionofRs.3.28croresbytakingthemarketvalueofstock
transferred as on the date of transfer without considering the second part of the transaction,
being the transfer of stock at actual price realised at Rs. 1.18 crores, which event also took
place in the relevant year. There was a net loss as claimed by the assessee on the composite
transactionoffirstlyvaluingthestockatmarketpriceonSeptember30,2002andthenitssale
during the year. The Assessing Officer considered only the first part of the transaction
overlooking the second part, which also ought to have been considered. Therefore, the
AssessingOfficer'scomputationofincomeofRs.3.28croreswastobereversed.
The assessee claimed that the profit or loss from the transaction of transfer of stock of the
businesswastobeconsideredunderthehead"Profitsand gainsofbusinessorprofession"as
against the Commissioner (Appeals) and the Assessing Officer including it under the head
"Capitalgains".TheAssessingOfficertooktheitemwisevalueofassets(bothfixedandcurrent)
of the business. He considered all other assets of the business as having been transferred by
theassesseeatbookvalue.Inthatviewofthematter,heheldthatnochargeableincomearose
fromthetransferofotherassets.Thereafter,hecomputedincomefromthetransferofstock
intradebyassigningsomemarketvaluetoit.Theresultantprofitwasheldtobechargeableto
taxascapitalgain.Onappeal
Held,thatprofitorgainchargeableunderChapterIVEcanariseonlyonthetransferofcapital
asset. Stockintrade is not a "capital asset". Resultantly, no profit or gain from the transfer of
stockcouldbechargedtotaxunderthehead"Capitalgains".Thelossfromthetransferofstock
amounting to Rs. 2.10 crores was deductible under the head "Profits and gains of business or
profession"inrelationtotheassessmentyear200304.(A.Y.:20032004,20042005)
BayerMaterialScienceP.Ltd.v.ACIT(2013)142ITD22/22ITR287(Mum.)Trib.)
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S:28(i):Business lossForeign exchange forward contracts Loss on revaluation of unmatured
forexcontractsHeldtobeallowable.
Assessee claimed deduction of Rs. 7.14 crore on account of loss on revaluation of unmatured
foreign exchange forward contracts on basis of valuing such contracts at rate of exchange
prevailingatendofyear.AssessingOfficerdenieddeductionongroundofitbeingcontingentin
nature.TheTribunalheldthatinviewofdecisionofTribunalinDy.CIT(IT)v.BankofBahrain&
Kuwait [2010] 41 SOT 290 (Mum.) (SB) deduction so claimed by assessee was allowable,
however, with a rider that loss so allowed should not be allowed again in succeeding
assessmentyear.Appealwasdecidedinfavourofassessee(A.Y.198889)
Dy. CITv.Banque Indosuez (Known as Credit Agricole Indosuez) (2013) 55 SOT 38 (Mum.)
(Trib.)
S.28(i):BusinesslossBaddebtsExpensesonbehalfofprincipalwasheldtobebusinessloss.
[S36(1)(vii)]
Assessee incurred exhibition expenses on behalf of its principal. On failure of assessee to
recover said amount from principal, it was writtenoff as bad debt. Assessing Officer rejected
assessee's claim. Tribunal held that the Assessing Officer rightly concluded that exhibition
expensescouldnotbeallowedasbaddebtundersection36(1)(vii),howeverhavingregardto
fact that exhibition expenditure was incurred by assessee on behalf of its principal in ordinary
courseofbusiness,nonrecoveryofsamecouldbeallowedasbusinessloss.(A.Y.200304)
A.T.E.Enterprises(P.)Ltd.v.Dy.CIT(2013)55SOT175(Mum.)(Trib.)
S.30: Rent rates, taxes, repairs and insurance for buildingsLeasehold premises Design,
layout,materialconstructionandfabricationworkisrevenueexpenditure.
The assessee was only a lessee in respect of the premises in which it was setting up its office.
Lease period was 30 months. The assessee incurred expenditure mainly towards charges for
design, layout, materialconstruction and fabrication work. The assessee was required to incur
such expenditure for providing partitions, vinyl flooring and interior decoration in order to
provide business ambience and achieve functional utility. Assessing Officer treated the said
expenditureascapitalinnature.TheCIT(A)heldthattheexpendituremadebytheassesseeto
make the premises more useful and enhance its functional utility, would not come under the
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purviewofcapitalexpenditureexceptinrespectofasumpaidforcarryingoutairconditioning
work like providing ducts for split type air conditioner, etc., as those things are of enduring
nature.TribunalconcurredwiththeviewoftheCommissioner(Appeals).OnappealHighCourt
held that the expenditure on designing, lay out and other temporary constructions, to make
functionalwasallowableasrepairandmaintenance,andnotcapitalinnature.(A.Y.200405)
CITv.ArmourConsultants(P.)Ltd.(2013)214Taxman444(Mad.)(HC)
(ii) The Departments argument that the assessee had not used the vehicles is also not
acceptablebecausethevehiclewasusedbytheassesseeinitsbusinessofleasing.Onceitis
held that leasing out of the vehicles is one mode of doing business by the assessee and the
income derived from leasing out is treated as business income it would be contradictory, in
terms,tosaythatthevehiclesarenotusedwhollyforthepurposeoftheassesseesbusiness.
The physical user of the vehicles is not necessary (CIT v Shaan Finance (P) Ltd. (1998) 231 ITR
308(SC)followed)(A.Y.199192to199697)
I.C.D.S.Ltdv.CIT(2013)350ITR527/212Taxman550/255CTR449/82DTR33(SC)
S.32:DepreciationRateLeasingbusinessHigherrateforVehiclesusedinbusinessofhire.
Assesseeinbusinessofleasingvehiclesisentitledtodepreciationathigherrate.(A.Y.199192to
199697)
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I.C.D.S.Ltdv.CIT(2013)350ITR527/212Taxman550/255CTR449/82DTR33(SC)
S.32:DepreciationSoftware.
DepreciationwouldbeallowableonSoftwaredevelopedandinstalledbyassessee.
CITv.ShreeRamaMultiTechLtd.(2013)214Taxman130(Mag.)(Guj.)(HC)
S.32:DepreciationBrandRoyalty
Payment of royalty for acquisition of brand paid to LLB LTD was a part of the acquisition of
brand, therefore form part of cost of assets namely brand hence the assessee is entitled to
depreciationontheamountofroyalty.(A.Y.200102)
CITv.GlenmarkPharmaceuticalLtd.(2013)351ITR359/85DTR169(Bom.)(HighCourt)
S.32:DepreciationLeasedvehiclesNonregistration/commercialpermitVehiclewasready
tousedepreciationwasallowable.
Themomenttheassesseeenteredintotheagreementwiththelesseesforleasingthevehicles
to them and transferred possession for that purpose to the lessees, the assessee would be
deemed to have utilized those vehicles for the purposes of its business, which was leasing of
vehicles.ProvisionsoftheMotorVehiclesAct,1988neednotbereferredbecauseitisnotthe
assessee's business who is plying those vehicles. Depreciation was held to be allowable. (A.Ys.
198990to199394)
CITv.KandCo.(2013)214Taxman1/88DTR166(Delhi)(HC)
S.32:DepreciationOwnerFindingbeingnotperverseDepreciationisnotallowable.
TheTribunalafterexaminingthefactualmatrixonpreponderanceofprobabilitieshadheldthat
the assessee was not the owner. The finding was a finding of fact, which was not under
challenge. It was not a finding which was perverse. Hence, the assessee was not entitled to
depreciation. (A.Y. 19951996)
SaiIndustriesLtd.v.ACIT(2013)353ITR213(Delhi)(HC)
S.32:DepreciationMotor cars used outside India for business and commercial activities
Expensesforupkeepofvehicles,depreciationisallowable.
Expenses incurred for the upkeep of the vehicles, was business expense. Depreciation,
therefore, was directly relatable to business rather than the use of foreign or luxury cars by
executivesoftheassessee.Thus,thedepreciationclaimedonmotorcarspurchasedandusedin
foreigncountrywasallowabletotheassessee.(A.Ys.198788,198889)
CITv.AnsalPropertiesandIndustriesLtd.(2013)352ITR637/87DTR360(Delhi)(HC)
S.32:Depreciation Motor cars used outside India for business and commercial activities
Expensesforupkeepofvehicles,depreciationisallowable.
Expenses incurred for the upkeep of the vehicles, was business expense. Depreciation,
therefore, was directly relatable to business rather than the use of foreign or luxury cars by
executivesoftheassessee.Thus,thedepreciationclaimedonmotorcarspurchasedandusedin
foreigncountrywasallowabletotheassessee.
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CIT.v.AnsalHousingFinance&LeasingCo.Ltd.(2013)354ITR180/213Taxman143/88DTR
227(Delhi)(HC)
CITv.AnsalPropertiesandIndustriesLtd(2013)354ITR180/88DTR227(Delhi)(HC)
CITv.AnsalHousingandConstructionLtd(2013)354ITR180/88DTR227(Delhi)(HC)
S.32:DepreciationScaffoldingandshutteringConstructionbusiness100%depreciationis
alloable.
Theassesseeclaimed100percent.depreciationinrespectofeachsectionoftabularscaffolding
,usedinitsconstructionbusiness.TheAssessingOfficerallowed33percent,holdingthateach
sectiondidnotqualifyfolrplantandentirescaffoldingandshutteringhadtobetakenasplant
for the purpose of 100 perecnt depreciation only if its cost was below Rs 5000.The
Commissioner(Appeals) and Tribunal reversed the view of the Assessing Officer. On appeal,
dismissingtheappealofrevenuethecourtheldthatthevalueofthesuttringwouldhavebben
written off with in a couple of years . Therefore , the assessee was entitled to 100 percent
.depreciation on shuttering and scaffolding , for purchase of parts or sections of such
equipment
CIT.v.AnsalHousingFinance&LeasingCo.Ltd.(2013)354ITR180/213Taxman143/88DTR
227(Delhi)(HC)
CITv.AnsalPropertiesandIndustriesLtd(2013)354ITR180/88DTR227(Delhi)(HC)
CITv.AnsalHousingandConstructionLtd(2013)354ITR180/88DTR227(Delhi)(HC)
S.32:DepreciationBlockofassetsOncetheassetsareputtouseinearlieryearsandformpart
of block of assets, depreciation can be claimed on the same in subsequent years even if all
theitemsinblockarenotusedsimultaneously.(S.2(11))
Oncetheassetshavebeenputto useinearlieryears,suchassetsformpartofblockofassets
anddepreciationthereonhasbeenallowedinthepastthendepreciationontheassetscantbe
restrictedordisallowedinsubsequentyearsonthepretextthatonlyaportionthereofhasbeen
put to use. Items falling within the block of assets cannot be segregated for the purpose of
granting or restricting depreciation. Once the assets are used for business, it is not necessary
that all the items falling within the concerned block have to be simultaneously used for being
entitledtodepreciation.(T.ANo.84of200,dt19/06/2012)
S.K.PatelFamilyTrust.(2012)BCAJNovemberP.401)(Guj.)(HC)
S.32:DepreciationLease backPurchase of electric meters from RSEB and leasing back the
sametoRSEBisgenuinetransactionanddepreciationcanbeclaimedonsuchelectricmeters:
The assessee bought eclectic meters form Rajasthan state Electricity board(RSEB) and leased
them back to RSED on hire purchase basis. The Department didnt allowassessees claim of
depreciation on the said electric meters as it was of the view that the said transaction was a
shamtransactioninlightoftheratiolaiddowninMcDowellscase(154ITR148).Itwasheldby
the Honble High Court that the said transaction was a genuine transaction and the assessee
waseligiblefordepreciationonthesaidelectricmeters.(T.A.No.166of2000,dt,17/07/12)
ParampountPollutionControlLtd.(2012)BCAJNovemberP.399)(Guj.)(HC)
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S.32:DepreciationLease transactions LPG Cylindersfinance Assessee could not prove
purchases of cylinders directly purchased by the lessee,hence depreciation could not be
allowed.
Assessee claimed depreciation on LPG Cylinders, Air Jet Spindle Assembly and Positar Disc
whichwereclaimedtohavebeenleasedout.AssessingOfficerdisalloweddepreciationforming
a view that assessee did not purchase said assets, but merely financed their purchase. It was
heldthatincaseofLPGcylinders,transactionwasonlyafinancingtransactionandnotalease,
withnomaterialtoshowthatassesseebecameownerofcylindersandleasedthem.Incaseof
air jet spindles and Positar Disc, the very existence of assets and genuineness of purchase of
assetsbyassesseewasnotproved,and,therefore,assesseewasnotentitledtodepreciation.In
favourofrevenue.(A.Y.199596)
CITv.GanapatiFinanceLtd.(2013)212Taxman278/82DTR49(Delhi)(HC)
S.32:DepreciationHigherrateMouldsMouldingtoolsMatterremanded.
Assessee is engaged in manufacture of electrical equipment used in power generation. It
claimed depreciation at rate of 40 per cent as per rule 5 in respect of moulds and moulding
toolsusedinmanufactureofplasticcovers,seals,shrouds,etc.Saidclaimwasdisallowedon
ground that no material was produced to show that assessee had a separate unit to
manufacture plastic parts when it was manufacturing heavy electrical equipment. Assessee
submitted that it had separate unit and it had also applied for recognition of its unit before
Government. In earlier year, Commissioner (Appeals) had allowed depreciation finding that
though assessee did not have rubber or plastic goods factory, but it had a unit where moulds
were installed.In interest of justice, matter be remitted back to find out whether recognition
hadbeengrantedtoassesseeasseparateunit.Matterremanded.(A.Y.199596to199899)
ArevaT&DIndiaLtd.v.Jt.CIT(2013)212Taxman429(Mad)(HC)
S.32:DepreciationLeasedassetsPurchasenotdisputedhencedepreciationtobeallowed.
Assessee purchased machinery and leased back same to 'B' Ltd. Assessee's claim for
depreciation was rejected by revenue authorities on ground that there were discrepancies in
payment of rental by lessee and received by assessee. Court held that when revenue had not
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disputed purchase by assessee from 'B' Ltd., in such a case, mere discrepancy in lease rental
paymentpersedidnotnegateclaimofassesseeasownerofmachinery.Therefore,assessee's
claimfordepreciationwastobeallowed.Infavourofassessee.(A.Y.199697)
Dy.CITvFirstLeasingCo.ofIndiaLtd.(2013)212Taxman417(Mad.)(HC)
S.32:DepreciationOwnerLeasebackFinanceleaseMatterremanded.
Assessee purchased and leased back MPP Shut Capacitors to 'A' Ltd. which was engaged in
manufacturing of capacitors 'A' Ltd. sub leased those capacitors to MSEB. Assessing Officer
rejected assessee's claim of depreciation on capacitors holding that it was merely a financial
transaction. Tribunal pointed out that to claim ownership of assets, assessee should produce
purchase invoice and mere furnishing of insurance certificate was not sufficient. Accordingly,
Tribunal upheld order of Assessing Officer. On instant appeal, documents produced before
Courtinformofpurchaseinvoiceshowedinstallationandcommissionofcapacitorsinlessee's
premises,whichweregivenforusebyMSEB,inviewofabove,therewasnojustifiableground
to reject case of assessee on ground that purchase invoice was not filed before authorities
below. Therefore, matter was to be remanded back to Assessing Officer so as to enable
assessee to produce other evidence on record for purpose of satisfying him as regards
ownershipofmachinery.Matterremanded.(A.Y.199697)
Dy.CITv.FirstLeasingCo.ofIndiaLtd.(2013)212Taxman417(Mad.)(HC)
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S.32: DepreciationFly ash handling systemEligible 100% depreciation. [Income tax Rules
1962,Rule5]
Assesseeamanufacturerofasbestossheetsusingflyashasrawmaterialformanufacturingthe
asbestossheets.Accordingtoassessee,ithadsetupaflyashHandlingsystemforthepurpose
ofprocessingflyashinthemanufactureofasbestossheets.InAppendixIprovidedunderrule
5ofIncometaxRules,1962,whereunderdepreciationscheduleisprovided,thereisaspecial
rate of depreciation of 100 percent for items coming under AIR pollution control equipment
.Airpollutioncontrolequipmentalsoincludedflyashhandlingsystemandevacuationsystem
.On the above premises, the assessee claimed depreciation at 100% on its fly ash handling
system. The Assessing Officer did not agree with the contention of assessee and allowed only
15% on said system like other items of plant and machinery .Commissioner (Appeal) allowed
100% depreciation. On appeal Tribunal held that in case of assessee, a manufacturer of
asbestos sheets using fly ash as raw material, a fly ash handing system was installed, said
system was to be regarded as 'air pollution control equipment' for purpose of granting
depreciationathigherrateof100percent.(A.Ys.200506,200607&200809)
Dy.CITvUALIndustriesLtd.(2013)141ITD1/87DTR247/154TTJ580(TM)(Kolkata)(Trib.)
S.32: Depreciation User of asset As machineries were not put to use during the relevant
yeardepreciationwasnotallowable.
Assessee purchased a new machine for an expansion and diversification project and got it
installed in 199697. Due to various reasons the, said project could not take off. Assessee
claimed 100 per cent depreciation on said machine. Tribunal held that there is nothing on
record to suggest that machine was ever put to use during year hence no depreciation was
allowable.(A.Y.19981999)
SuperfilProductsLtd.v.ACIT(2013)141ITD567(Chennai)(Trib.)
S.32:DepreciationUPS60%rateofdepreciation.
UPS forms part of computer system and, therefore, entitled to 60 per cent depreciation. (A.Y.
200708)
AmericanExpressServicesIndiaLtd.v.DCIT(2013)57SOT22(URO)(Delhi)(Trib.)
S.32:DepreciationTestrunEarthstationdepreciationisallowable.
Where assessee had successfully test run earth station before close of relevant financial year,
depreciationwasallowableonsuchassets.(A.Y.199899)
TATACommunicationsLtd.v.JCIT(2013)57SOT1(Mum.)(Trib.)
S.32:DepreciationPartownershipCablenetworkdepreciationisallowable.
The assessee had acquired part ownership of optical fibre cable pursuant to capacity sales
agreement and claimed depreciation on the same. The Assessing Officer disallowed claim on
ground that assessee was not complete owner of asset in question. Tribunal held that the
words 'wholly' or 'partly' have been inserted in section 32 w.e.f. 1441997 and hence, the
assessee was eligible to claim depreciation on cable network even though the entire network
wasnotownedbyit.(A.Y.199899)
TATACommunicationsLtd.v.JCIT(2013)57SOT1(Mum.)(Trib.)
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S.32: DepreciationOwnershipAs per the terms of sale agreement the assessee being not
ownerofthedredgereitherwhollyorpartlydepreciationwasnotallowable.
The agreement for sale of dredger indicated that the seller had not parted with its right of
ownershipofthedredgerinfavouroftheassesseeastheagreementmadeitveryclearthatin
case of failure on the part of the assessee as per the terms of the agreement or if bank
guaranteeisnotextended,thesellerhasrighttoterminatetheagreement,takepossessionof
the dredger and forfeit the amount already paid. Until the last instalment was paid, the seller
shallhaveexclusivechargeoverthedredger.'Effectivedate'asdefinedintheadditionalclause
isclearenoughtoindicatethatthepartiestotheagreementintendedthedateofapprovalby
theRBItobetheeffectivedateofagreement.Clause(2)ofCircularNo.9dated2331943,on
which the assessee relied makes itexplicit that the circular is applicable to such hire purchase
agreementunderwhichtheownershipofthesubjectisatoncetransferredtothelesseewhich
inotherwordsmeansthatthelessorobtainsarighttosueforfailureinpaymentofinstalments
but no right to recovery of the asset. However, the sale agreement of the assessee confers a
right on the seller to terminate the agreement and take back possession of the dredgers and
forfeitthepaymentsalreadymadeincaseofviolationoftheconditionsofpaymentandfailure
toextendthebankguarantee.Inviewofthis,thecircularNo.9 does notapplytothefactsof
theinstantcase.Hence,theclaimofdepreciationwasnotavailable.(A.Y.200809)
DhartiDredgers&InfrastructureLtd.v.ACIT(2013)57SOT31/24ITR538(Hyd.)(Trib.)
S.32:DepreciationPuttouseBifurcationofareaputtouseCapitalorrevenueRepairand
maintenance.[S.37(1)]
The Assessing Officer worked out an area of 53,589 sq.ft. as unutilised space and disallowed
depreciationonthecorrespondingpercentageofplantandmachineryat14.53percentonthe
groundthatthisareawasnotputtobusinessuse.Held,therewasnobasisforworkingoutthe
utilised and unutilised areas as was done by the Assessing Officer when the entire multiplex
wasputtouse.Oncetheentireprojecthadcommencedbusinessoperations,justbecausepart
of it was not leased out or commercially exploited that could not be a basis for disallowing
depreciation and expenditure. Similarly, the Assessing Officer was wrong in disallowing the
claimofrevenueexpenditureonrepairsandmaintenanceonunutilisedarea.(A.Y.20052006)
ECityEntertainment(India)Pvt.Ltd.v.ACIT(2013)24ITR73(Mum)(Trib.)
S.32:DepreciationManufacturingactivityAssetsusedonmanufacturingactivity.
Assessing Officer disallowed depreciation on building, roads and culverts, water system, office
appliance etc. on ground that assessee had not undertaken any manufacturing activity during
relevant years. In previous assessment year 200405, Assessing Officer had allowed
depreciationonassetsinquestion.Sincefactsofassessmentyearsinquestionwereidenticalto
those of assessment year 200405, Assessing Officer was to be directed to allow depreciation
onsuchassets.(A.Ys.200708,200809)
ACITvHindustanFertiliserCorpn.Ltd.(2013)140ITD719(Delhi)(Trib.)
S.32:DepreciationBlockofassetsDiscontinueofbusinessofoneunit.[S.2(11)]
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Operations of manufacture discontinued at one factory. Assets of unit having already entered block of
assetsofassessee,depreciationnottobedisallowedongroundofnonuser.(A.Y.20022003)
KansaiNerolacPaintsLtd.v.Dy.CIT(2013)22ITR424/57SOT10(URO)(Mum.)(Trib.)
S.32:DepreciationDeduction at source Disallowance of expensesCapital expenses. (S. 40(a)
(i),195,200)
During the relevant year the assessee made payments to a foreign company for acquiring its
tradename.Theamountsopaidwascapitalizedanddepreciationwasclaimedinrespectofit.
The Assessing Officer held that the said payment attracted the provisions of section 195 read
withsection200.Sincetheassesseefailedtodeducttaxatsourcewhilemakingsaidpayment
said payment, it was disallowed under section 40(a) (ia). The DRP also confirmed the said
disallowance. On appeal the Tribunal held that the depreciation is a statutory deduction and
notanoutgoingexpenditurethereforeprovisionsofsection40(a)(ia)arenotattractedonsuch
deduction.(A.Y.200708)
SKOLBreweriesLtdv.ACIT(2013)142ITD49/84DTR271/153TTJ257(Mum.)(Trib.)
S.32:DepreciationSale and lease backSpecial Bench verdicts on Sale & Lease Back & lease
financearenotgoodlawAssesseeentitledfordepreciation.
The assessee, a Bank, bought assets from its customers and leased itback to them (sale and
leaseback).Italsopurchasedassetsidentifiedbyitscustomersandleasedittothem(finance
lease). The assessee claimed depreciation on the assets on the ground that it was the owner
and had used the assets for business purposes. The AO, relying on MidEast Portfolio
Management Ltd. v. Dy. CIT (2003) 87 ITD 537 (Mum) (SB) and IndusInd Bank Ltd. v. Add. CIT
(2012) 135 ITD 165 (Mum) (SB), disallowed depreciation on the ground that the transactions
wereaneyewashandcolourabledevice.TheCIT(A)partlyconfirmedthedisallowance.On
appealbytheassesseetotheTribunal,HELDallowingtheclaim:
Theissueofwhetherthelessorisentitledtoclaimdepreciationinthecaseofasaleandlease
back transaction as well as in a finance lease have been laid to rest by the judgements in
ICDS v. CIT (2013) 350 ITR 527 (SC), CIT v. Kotak Mahindra Finance (2009) 317 ITR 236 (Bom)
andCITv.CosmoFilmsLtd.(2011)338ITR266(Del)whereitwasheldthatthelessoriseligible
to claim depreciation. The judgements of the Special Bench in MidEast Portfolio Management
Ltd.v.Dy.CIT(2003)87ITD537(Mum)(SB)andIndusIndBankLtd.v.Add.CIT(2012)135ITD
165(Mum)(SB)areimpliedlyoverruled.(A.Y.9697)
DevelopmentCreditBankLtd.v.DCIT(Mum.)(Trib.)www.itatonline.org.
S.32:DepreciationWindmillsRateofdepreciation.
Following the judgment of Tribunal in K. Ravi v. ACIT (2010) 2 ITR 752 (Chennai) (Trib.) the
Tribunal held that the Assessee is entitled to depreciation at higher rate. (A. Y. 20052006,
20082009)
ABTLtd.v.ACIT(2013)21ITR534/83DTR178/56SOT42(Chennai)(Trib.)
S.32:DepreciationBuildingsBusinessLeased
Depreciation in respect buildings used for purpose of business to be allowed and depreciation
pertaining to portion let out alone to be disallowed. Depreciation in respect of flats given to
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directors for purpose of business to be reexamined, matter remanded. (A. Y.20042005 to
20062007)
AlGayathriTradingCo.P.Ltd.v.Dy.CIT(2013)22ITR214(Cochin)(Trib.)
S.32:DepreciationOfficeDepreciationistobeallowed.
Theauthoritiesbelowdisalloweddepreciationinthehandsoftheassesseeonthegroundthat
theofficewasnotbeingutilisedforbusinesspurpose,asitwasgivenforredevelopment.The
claimoftheassesseewasthattheredevelopmentagreementwassignedonJanuary18,2010
and redevelopment started in the assessment year 200910. The assessee claimed to have
utilised the office during the year under consideration. On appealthe Tribunal held that the
claimofdepreciationwastobeallowedtotheassessee.(A.Y.200607)
ManjitMann(Mrs)v.Dy.CIT(2013)21ITR57(Chandigarh)(Trib.)
S.32:DepreciationCinemahallIncomeshownonestimatebasisdepreciationisallowable.
Depreciationisachargeonanasset,ithasto begrantedinaccordancewiththeprovisions of
the Act. Depreciation is allowable irrespective of the fact that the assessee has shown
estimated income which is less than the amount of depreciation. Depreciation is held to be
allowableoncinemahallownedbytheassessee.(A.Y.200910)
DineshChandraDasv.ACIT(2013)152TTJ25(UO)(Ctk.)(Trib.)
S.32:Depreciation Non compete fee NonCompete Fee not eligible for depreciation or
amortization.
TheassesseeacquiredthebusinessofmanufactureofglassfromPiramalEnterprisesLtd.Italso
entered into a noncompeteagreement withPiramal Enterprises whereby it agreed to payRs.
18croresfortheselleragreeingnottocarryonacompetingbusinessforaperiodof18years.
The assessee claimed the said payment as a revenue deduction and in the alternate as a
depreciableasset.TheAOrejectedbothclaims.TheCIT(A)heldthatthoughthenoncompete
fee was not a depreciable asset, the amount paid for it was entitled to be amortized over the
periodoftheagreement.TheassesseefiledanappealbeforetheTribunalchallengingthenon
grant of depreciation while the department filed an appeal challenging the grant of
amortization.Inthefirstround,theTribunalrejectedtheassesseespleabyrelyingontheThird
Member verdict in Paper Products. However, as this verdict was not put to the assessee, the
matter was reposted for hearing. In the second round, the assessee relied on CIT v. Smifs
Securities Ltd. (2012) 348 ITR 302 (SC) where goodwill was held to be eligible for depreciation
andseveralotherjudgements.HELDbytheTribunalrejectingtheplea:
Theexpressionanyotherbusinessorcommercialrightsofsimilarnatureinthedefinitionof
intangibleassetins.32(1)(ii)showsthattheinitialpart,i.e.knowhow,patents,copyrights,
trademarks, license, franchises, has been disjointed by the conjunction or. The use of the
disjunction or has a very relevant role, because, the legislature accepts the difference and
distinctionofintangiblesandrights.Thelegislaturehasusedorintheprovisionforexplaining
thedistinctionofapplicationoflikenaturewiththatoftheunlikenature,whichisanaccepted
principlei.e.doctrineofejusdemgeneris.Takingnoteofthewordor,usedasadisjunctionis
essential to carve out a meaningful genus. The argument whether non compete rights
constituteisarightinremorarightinpersonamisamattertobedecidedbyanappropriate
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higherjudicialforum.ThejudgementoftheSupremeCourtinCITv.SmifsSecuritiesLtd.(2012)
348ITR302(SC)thatgoodwillisanintangibleasseteligiblefordepreciationisnotapplicableto
anoncompeteright.Noncompetefeedoesnotfallwithintheambitofanyothercommercial
orbusinessrights.Asregardstheclaimofamortization,sincethepaymentofRs.18croresisa
capitalexpenditure,itcannotbeallowedasanexpenseandalsocan(not)beamortized(Sharp
Business System v. CIT (2012) 254 CTR 233(Del) followed. ACIT v. Real Image Tech (P.) Ltd.
(2009) 120 TTJ 983) (Che),ITO v. Medicorp Technologies India Ltd. (2009) 30 SOT 506 (Che),
Bunge Agribusiness (India) (P) Ltd. v. DCIT (2011) 132 lTD 549 (Mum), Serum Institute of India
Ltd.v.Add.CIT(2012)135ITD69(Pune)treatedasnotgoodlaw).(A.Y.199900)
GujaratGlassPrivateLimitedv.ACIT(Mum)(Trib.)www.itatonline.org
S.32:DepreciationUPSEntitledto80%depreciation.
UPS being energy saving device is entitled for higher depreciation @ 80 percent. (A.Y. 2006
07,20072008)(GITANo.7682/M/10andITANo.8549/M/10,Dated22102012.)
Godfrey Phillips India Ltd. v. Addl. CIT(2013) BCAJ Pg. 25, Vol. 44B Part 5, February
2013(Mum.)(Trib.)
S.32:DepreciationAdditionaldepreciationonplantandmachineryacquiredduringrelevant
periodbutinstalledduringthesubsequentperiod.[S.32(iia)]
Theassesseehadclaimedadditionaldepreciationonplantandmachinerywhichwereacquired
in year relevant to A.Y 200506, but its installation was completed on 31.1.2006. The AO and
the CIT (A) held that the assessee was ineligible for claiming additional depreciation since the
assetwasnotinstalledandthemandateofs.32(iia)isthattheassetshouldbebothacquired
andinstalledduringtherelevantperiod.OnAppealbeforetheTribunal,theHonbleTribunal
held that the requirement of s.32(iia) was that both the conditions had to be satisfied viz.
acquired as well as installed. Since the machinery was not acquired after 3132005, the
assesseewasnotentitledforadditionaldepreciationu/s.32(iia).(A.Y.200607)
InternationalCars&MotorsLtd(2013)56SOT50(Delhi.)(Trib.)
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S.32AB:InvestmentdepositaccountInterestConstructionbusinessElegibiltytoclaimbenefit
wasnotissuebeforeAuthoritieshencedeductiononinterestwasjustified.
The assessee claimed the benefit under section 32AB(1)(b) contending that it had utilized the
amounts during the previous year for purchase of new machinery or plat . The Commissioner
(Appeals) had allowed its claim and in some instances , the Tribunal did so, On appeal the
Revenue contending that the assessee was not entitled to claim the benefit , since it did not
carry on eligible business at the relevant time . The Court dismissing the appeal held that the
approachofthetaxauthorities,asellastheTribunalwastocomputethebenefitofsetoff,in
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the manner described. The eligibility or entitlement of the assessee to claim the benefit was
neverquestionedintheproceedingsbeforethelowerauthorities.Theerefore,thededuction
permittedtotheassesseeundersection32ABoninterestwasjustified.
CIT.v.AnsalHousingFinance&LeasingCo.Ltd.(2013)354ITR180/213Taxman143/88DTR
227(Delhi)(HC)
CITv.AnsalPropertiesandIndustriesLtd(2013)354ITR180/88DTR227(Delhi)(HC)
CITv.AnsalHousingandConstructionLtd(2013)354ITR180/88DTR227(Delhi)(HC)
S.33AC:ShippingbusinessReservesInsuranceclaimMatterremanded.
Assessee claimed deduction under section 33AC on insurance claim amount received towards
repairs carried out in respect of a vessel. Assessing Officer held that such insurance receipt
could not be taken to be assessee's business income and, therefore, same was not eligible for
deduction under section 33AC Commissioner (Appeals) however allowed assessee's claim.
Tribunal held that only if insurance claim was found to be assessee's profits derived from
businessoperationofships,amountsoreceivedshallbetakenasaneligibleprofitforpurpose
of creating reserve and allowing deduction in terms of provision of section 33AC. Matter
remanded.(A.Y.200304)
Dy.CITv.MercatorLinesLtd.(2013)55SOT187(Mum.)(Trib.)
S.35:ExpenditureScientificresearchPaymentmadebythirdpartyAllowedasdeduction.
The Assessing Officer disallowed weighted deduction under S.35(1)(ii) as payment had been
madebytwootherrelatedcompanies,inwhosenamesreceiptswereissuedbydoneeinitially
and assessee had only made journal entries for crediting parties who made payment. The
assesseeclaimedthatitdidnothavesufficientfundsandtherefore,amountwaspaidbyother
companies.Itwasfurtherclaimedthatbypassingjournalentries,liabilitywasincurredbyitand
hence, it was eligible for deduction. The Commissioner (Appeals) and Tribunal allowed
assessee's claim as other two companies had not claimed deduction for donation. Held, since
actualpayershadnotclaimeddeduction,theassesseewaseligiblefordeduction.(AY200405)
CITv.ArmourConsultants(P.)Ltd.(2013)214Taxman444(Mad.)(HC)
S.35: Expenditure Scientific research Expenses incurred outside the approved R&D facility
wouldalsogetweighteddeduction.
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The issue raised before the High Court was whether the expenses incurred outside the
approved R&D facility would also get weighted deduction based on the word under on in
house.TheHighCourtheldthatifsucharestrictedmeaningisgivenwouldleadtocompletely
diluting the deduction envisaged under sub section (2AB) of section 35 and on the other
makingtheexplanationmeaningless.Theactivitiesofobtainingapprovalsfromtheregulatory
authority or in filing anapplication for grant ofpatent necessarily shallhave to beoutside the
in house research facility .The Court also observed that merely because the prescribed
authority segregated the expenditure in to two parts, viz those incurred the in house facility
and those incurred outside, it would not by itself be sufficient to deny the benefit to the
assessee under section 35(2B) of the Act. The Certificate issued as only for the purpose of
listingthetotalexpenditureunderRules.Therefore,Tribunalhasnotcommittedanyerrorand
noquestionoflawarises.(TaxAppealno752of2012)dt2032013)
CIT v. Cadaila Healthcare Ltd. (2013) ACAJApril. P. 27/ (2013) 214 Taxman 672/86 DTR
337/350ITR555(Guj.)(HC)(Guj.)(HC)
S.35: Expenditure Scientific research Drug trialExplanation does not require that the
expensesareessentiallytobeincurredinsideaninhouse.
Explanation to section 35(2AB)(1) does not require that the expenses are essentially to be
incurred inside an inhouse research facility because it is not possible to incur these expenses
insideinhouseresearchfacility.Thus,expenditureonclinicaldrugtrial,ifincurredinrelationto
drugdevelopedinaninhouseresearchanddevelopmentfacility,thesamebecomeeligiblefor
deductionundersection35(2AB)(1).(A.Y.200708)
CadilaHealthcareLtd.v.ACIT(2013)56SOT89(URO)(Ahd.)(Trib.)
S.35:ExpenditureScientificresearchCapitalisationofexpenditure.
Assesseeincurredcertainexpensesonscientificresearchwhichwasshowninbooksofaccount
ason3132003waitingcapitalization.AssessingOfficerdisallowedclaimofassesseeonground
thatassesseehadnotcapitalizedsaidexpenditureinbooksofaccountandshownsameasitem
waiting capitalization. Tribunal held that when Assessing Officer had found that expenditure
incurredonresearchanddevelopmentcentrewasallowablefordeductionundersection35in
subsequent assessment, then expenditure incurred for assessment year under consideration
could not be disallowed merely on ground that assessee had not capitalised same because
research centre was not completed during year under consideration, therefore, impugned
disallowancewastobedeleted.(A.Ys.200304to200607)
HindustanConstructionCo.Ltd.v.Dy.CIT(2013)140ITD642(Mum.)(Trib.)
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ElectronicsCorpn.ofIndiaLtd.v.ACIT(2013)140ITD221(Hyd.)(Trib.)
S.35AB:ExpenditureKnowhowProvisionofS.35ABisnotapplicabletorevenueexpenditure.
ProvisionofSection35ABdealingwithexpenditureonknowhowshallbeapplicableonlyifany
suchexpenditureincurrediscapitalinnature.Therevenueexpenditureonknowhowwouldbe
continued to be governed by the provision of S.37(1) of the Act. Provision of S. 35AB wont
applytorevenueexpenditureevenifthesameisinrespectofknowhow,(T.A.No.326of2000,
dt.03/07/2012)
SayajiIndustriesLtd.(2012)BCAJNovemberP.400/(2013)81DTR418(Guj.)(HC)
S.35B:ExportmarketsdevelopmentallowanceInsurancebusiness(S.44,Sch.I,r.5)
Tribunalrightlyrejectedassesseesclaimforweighteddeductionu/s.35B.CITv.HeroCycles
Ltd.&Ors.(1997)228ITR463(SC)followed.(A.Y.198081&198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)351ITR270/83DTR185/213Taxman498(Delhi)
(HC)
S.35B:Export markets development allowance Insurance business Reserve for export. (44
&&Sch.I,r.5)
Reserveforexportmarketdevelopmentallowancecouldnotbeaddedtothebalanceofprofits
disclosed by the annual accounts of assessee insurance company. CIT v. Oriental Fire General
InsuranceCo.Ltd.(2007)291ITR370(SC)applied.(A.Y.198081&198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)351ITR270/83DTR185(Delhi)(HC)
S.35D:AmortisationofpreliminaryexpensesShareapplicationmoneySetoffofinterest
The Tribunal had allowed benefit of set off of interest income from share application money
against public issue expenses. Court held that interest earned was inextricably linked with
requirement of company to raise share capital and thus adjustable towards expenditures
involvedforshareissue.
CITv.ShreeRamaMultiTechLtd.(2013)214Taxman650(Guj.)(HC)
S.35D:AmortisationofpreliminaryexpensesExpandingproductioncapacity.
Expenditure incurred by assesseecompany for expanding production capacity of vehicles at
two of its plants was eligible for deduction under section 35D, however, types of expenditure
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which would go for amortisation under section 35D, particularly with reference to subclause
(c)(iv)ofsubsection(2)ofsection35D,wouldbeonlythoseexpenditurewhicharespecifically
mentionedthereinandnothingbeyond.Partlyinfavourofassessee.(A.Y.199596)
CIT.v.AshokLeylandLtd.(2013)213Taxman204(Mad.)(HC)
S.35D:AmortisationofpreliminaryexpensesRightshares.
Expensesincurredinrelationtoissueofrightsshares.Deductionofonetenthofexpenditureallowable.
(A.Y.20022003)
KansaiNerolacPaintsLtd.v.Dy.CIT(2013)22ITR424/57SOT10(URO)(Mum.)(Trib.)
S.35D:Amortisation of preliminary expensesExpenditure not for expansion of industrial
undertaking or for setting up new industrial undertakingDeduction is not available
InterpretationGeneral principlesPrinciple of consistency not applicable to perpetuate
mistake.
The assessee claimed deduction under section 35D of expenses comprising fee to Registrar of
Companies, stamp fee and printing charges. The Assessing Officer held that fee paid to
RegistrarofCompanieswasnotfeeforextensionofthecompanybutforexpansionofcapital.
TheAssessingOfficerheldthattheassesseehadnotfulfilledtherequirementofsubsection(1)
and(2)ofsection35Dandtherefore,theassesseewasnoteligiblefordeductionundersection
35D. The Commissioner (Appeals) observed that the deduction under section 35D claimed in
thisyearwasinrespectofexpenseincurredinthefinancialyears199495and200001andthe
assesseewasclaimingamortizationoftheseexpensesundersection35Danditwasallowedin
theassessmentyears199596and200203and,therefore,inthepresentyear,therecouldnot
be any disallowance on this account. On this basis, the Commissioner (Appeals) deleted this
disallowance in all the three years. On appeal to the Tribunalthe Tribunal held that the
Assessing Officer had given a specific finding that the assessee had not fulfilled the conditions
under subsections (1) and (2) of section 35D and there was no finding given by the
Commissioner (Appeals) in his order that the assessee fulfilled these conditions. The order of
the Commissioner (Appeals) was on this basis that since the deduction was allowed in the
earlier years, the same could not be disallowed in the present year. The assessment order for
the assessment year 199596 was available in the paper book and there was no discussion in
the assessment order on this aspect. Regarding the rule of consistency followed by the
Commissioner(Appeals)indeletingthisdisallowance,iftheviewtakenbytheAssessingOfficer
intheearlieryearwasapossibleviewthentheremaybeacasefortakingthesameviewinthe
present year under the rule of consistency. But if the view taken in the earlier year was not a
possible view then a mistake could not be perpetuated in the name of consistency. The
Commissioner (Appeals) was not justified in deleting the disallowance made by the Assessing
Officerundersection35D.(A.Y.20032004to20062007)
GujaratPowerCorporationLtd.v.Add.CIT(2013)21ITR683(Ahd.)(Trib.)
S.35D:AmortisationofpreliminaryexpensesFinancialinstitutionsNotallowable.
A financial institution recognized by the RBI guidelines cannot be treated as an industrial
undertaking. Words industrial undertaking have a definite meaning in taxation, thereforea
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nonbanking financial companycannot be treated as an industrial undertaking andit is not
entitledtodeductionundersection35D.(A.Y.200506)
InstantHoldingsLtdv.Dy.CIT(2013)81DTR1(Mum.)(Trib.)
S.36(1)(iii):DeductionsInterestonborrowedcapitalHeldallowable.
Courtheldonfacts,inviewofdecisionofSupremeCourtincaseofCITv.AlomExtrusionsLtd.
[2009]319ITR306,theTribunalwasrightindeletingadditionmadeonaccountofdisallowance
ofinterestundersection36(1)(iii).
CITv.ShreeRamaMultiTechLtd.(2013)214Taxman130(Mag.)(Guj.)(HC)
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S.36(1)(iii): DeductionsInterest on borrowed capitalAssessee allowing its directors and
family members to use funds for personal benefitsNo attempt by directors to repay loan
Interestisnotallowable.
Theassesseedidnothaveitsowncapitalbutborrowedthefundsfromthemarketoninterest
at20percentandpaidheavyinterestandthereturnswerefiledbyshowingloss.Ontheother
hand,thedirectorsmadenoattempttorepaytheloanusedbythemforpersonaluse.Hadthey
repaid the interestfree loans, proportionately, borrowing liability might have been reduced.
The assessee had not acted as a prudent businessman. Nothing was available from the record
that the loans without interest were ever given for business purposes. Hence, the interest
amountwasnotallowable.(A.Ys.19951996,19971998)
CITv.SahuEnterprisesPvt.Ltd.(2013)352ITR8/214Taxman225/87DTR221(All.)(HC)
S.36(1)(iii):DeductionsInterestonborrowedcapitalInvestinsharesforacquiringcontrollinginterest
Commonfunds.
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The assessee made Investment in shares for acquiring controlling interest in subsidiary companies.
Tribunal held that in case involving common funds, presumption that investments made from non
interestbearingfunds.Interestpaidtobanksandonfixeddepositstobeallowed.(A.Y.20022003)
KansaiNerolacPaintsLtd.v.Dy.CIT(2013)22ITR424/57SOT10(URO)(Mum.)(Trib.)
S.36(1)(iii):DeductionsInterestonborrowedcapitalFirm
Funds were advanced to firm in which directors of assesseecompany had interest matter
remandedtoverifywhetherfundsusedbyfirmforbusinessorforpersonalneedsofpartners
tobeexamined.(A.Ys.20042005to20062007)
AlGayathriTradingCo.P.Ltd.v.Dy.CIT(2013)22ITR214(Cochin)(Trib.)
S.36(1)(iii):DeductionsInterestonborrowedcapitalMatterremanded.
Thetribunalheldthatifloansrelatabletospecificpurposeandnotpartofgeneralpooloffunds
availabletoassessee,nodisallowanceofanypartofinterestrelatabletosuchsecuredloansto
be disallowed. Assessee was advancing interestfree loans. Matter remanded for finding on
natureofsecuredloansraisedbyassessee.(A.Y.200809)
GurudasMannv.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.36(1)(iv):DeductionsContributiontorecognizedprovidentfundContributiontodeferred
compensationplanheldtobenotallowableasbusinessexpenditure.(S.36(1)(v),37(1),
40A(9)).
Assesseecompanyconstitutedadeferredcompensationplanforitswholetimedirector(WTD)
employedinUS.UndersaidplanassesseecontributedaproportionofbasicsalaryofWTDtoa
grantor trust which accumulated to Rs. 12.15 crore.Said sum was released to WTD on his
separation from assesseecompany and such released sum of Rs. 12.15 crore was claimed as
deduction under section 37(1). Tribunal held that since trust so formed did not fall under
provisionsofsection36(1)(iv)/(v)andspecificprohibitioncontainedinsection40A(9)attracted
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in instant case, contribution so released could not be allowed. Further, in view of principle of
law that when there are specific provisions governing a deduction under section 40A(9) read
with section 36(1) (iv)/(v), general deduction under section 37(1) can not be invoked, and,
hence, claim of assessee under section 37(1) could not be sustained.Decided in favour of
revenue.(A.Y.200607)
WiproLtd.v.Add.CIT(2013)55SOT3(URO)(Bang.)(Trib.)
S.36(1)(vii):DeductionsBaddebtBusinesslossGivingreasonsisnotnecessaryforbaddebt
Partofgoodswererejectedasunfitforhumanconsumptionthelossisallowableasbusiness
loss.(S.28(i).
The Assessing Officer recorded that no reasons were given for writing off the bad debt in the
books of account. The Commissioner (Appeals) and the Tribunal found that under section
36(1)(vii)itwasnotnecessaryfortheassesseetogivereasonsandwritingofftheamountitself
wassufficient.Insofarastheadditiontowardsqualityrejectionofmaterialwasconcerned,it
washeldthatthecorrespondencebetweentheassesseeandRwaspartoftherecordandthe
authenticity of the debit note filed by the assessee was not questioned or challenged by the
AssessingOfficer.EventherejectionofmaterialwasnotnegatedbytheAssessingOfficer.The
documentsfiledbytheassesseeclearlyshowedthatpartofthematerialsuppliedwasrejected
bytheauthoritiesinUkraineasbeingunfitforconsumption.Theclaimsoftheassesseeforbad
debtandlossongoodswereallowed.(A.Ys.20042005to20062007)
CITv.MakparExportsPvt.Ltd.(2013)352ITR401(MP)(HC)
S.36(1)(vii):Deductions Bad debt Insurance business Provision forbad and doubtful debts.
(S.44)
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Provisionforbadanddoubtfuldebtscouldnotbeaddedtothebalanceofprofitsdisclosedby
theannualaccountsoftheassesseeinsurancecompany.CITv.OrientalFireGeneralInsurance
Co.Ltd.(2007)291ITR370(SC)followed.(A.Y.198081&198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)351ITR270/83DTR185(Delhi)(HC)
S.36(1)(vii):DeductionsBaddebtTotheextentofamountdue.
AssesseeclaimedasumofRs.3,47,419asbaddebt.RecordsshowedthatonlyanamountofRs.
1,65,794 was due from concerned party. Tribunal held sum to extent recorded only could be
allowedasbaddebt.(A.Y.200405)
EDACEngineeringLtd.vDy.CIT(2013)141ITD231(Chennai)(Trib.)
S.36(1)(vii):BaddebtsWrittenoffinbooksAllowability.
The assessee claimed deduction of a certain sum as bad debts which was written off as
irrecoverable in the books of accounts. The Assessing Officer rejected the claim. Held, since
the assessee had written off the amount in its books of account since it was not recoverable,
theadditionmadebytheAssessingOfficerwastobedeleted.(A.Y.20062007)
IndianResearchManifestationLabsP.Ltd.v.ACIT(2013)24ITR30(Ahd.)(Trib.)
S.36(1)(vii):DeductionsBaddebtsWrittenoffinaccountsofassessee.[S.36(2)].
Consequent to amendment to provisions of section 36(1) (vii), assessee is not required to
establish that debt has become bad; it is enough if bad debt is written off as irrecoverable in
accounts of assessee. Where amounts receivable from debtors were taken into account as
incomeinearlieryearsandwerewrittenoffasirrecoverable,suchamountwouldbeallowedas
baddebt.Inthestockbrokingbusinessamountspayabletoclientsisconsideredastakeninto
account under provisions of section 36(2) and any nonrecovery can be claimed as bad debt.
(A.Y.200203)
HSBCSecurities&CapitalMarkets(India)(P.)Ltd.v.ACIT(2013)57SOT194(Mum.)(Trib.)
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S.36(1)(vii):DeductionsBaddebtAdvancestoemployeesnotallowableasbaddebt.
Assesseegavecertainamountastouradvancetoitsemployees.Subsequently,saidemployees
leftcompanywithoutsettlingtheirdues.Assesseethuswroteoffamountoftouradvanceand
claimed same as bad debt. Revenue authorities rejected assessee's claim. Tribunal held that
sinceassesseecouldnotbringanyevidenceonrecordshowingthattouradvancehadgoneinto
computation of its income, revenue authorities were justified in rejected assessee's claim.
(A.Ys.200506,200607)
NatcoPharmaLtd.vDy.CIT(2013)140ITD502(Hyd.)(Trib.)
S.36(1)(vii):DeductionsBaddebtAfter141989itisnotnecessarytoestablishthatdebthad
in fact become irrecoverable in previous year. Amount written off in accounts allowable as
deduction.[S.36(2)]
Tribunal held that after April 1, 1989, it is not necessary for the assessee to establish that the
debtinfacthasbecomeirrecoverable.Itisenoughifthebaddebtiswrittenoffasirrecoverable
inaccountsoftheassessee.Theamountsweredeductible.Appealofassesseewasallowed.(A.
Y.20022003)
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HSBCSecuritiesandCapitalMarkets(India)P.Ltd.v.ACIT(2013)21ITR445(Mum.)(Trib.)
S.36(1)(vii):DeductionsBaddebtIntercorporatedepositsResolutionforwritingoffinterest
in May 2002,would relate back to accounting year relevant for assessment year 200203.
Interest assessed on basis of accrual in earlier years hence deductible. Intercorporate
depositspartofbusinessofassesseehencelossoninvestmentisallowableasbusinessloss.
[S.28(i)]
TheassesseehaddebitedasumofRs.1,94,49,012,asinterestreceivablewrittenoffduringthe
yearunderconsideration.TheAssessingOfficerdisallowedtheclaimandthiswasconfirmedby
theCommissioner(Appeals).TheAssessingOfficerfurtherdisallowedtheclaimforlossofinter
corporate deposits along with interest written off. This was also upheld by the Commissioner
(Appeals). On appeal to the Tribunal, the Tribunal held that there is no condition in section
36(1) (vii) that the decision for treating a debt as bad or irrecoverable should be taken in the
previous year itself. If the books of account are not closed and completed, it is permissible to
make adjustments before they are finally closed. The board resolution passed in May 2002,
with regard to the approval of writing off the amount as irrecoverable in the accounts, would
relate back to that previous year in which it was treated as irrecoverable. In the earlier years
theassessee'sinterestincomeshownunderthehead"Businessincome",hadbeenacceptedby
the Department. Thus, on these facts, once the interest income had been offered on accrual
basis,whichhadbeencreditedintheprofitandlossaccountasbusinessincomeintheearlier
years and the sum had been written off as irrecoverable in the accounts in this year, the sum
had to be allowed as bad debt. The assessee had shown accrued interest on intercorporate
deposits in the profit and loss account and had offered it for tax as business income. This had
beenacceptedbytheDepartmentalso.Thecorollary,therefore,wasthatinterestwasearned
duringthecourseofbusiness.Theinterestwhichhadbeenwrittenoffwasdeductible.Tribunal
also held that investment in intercorporate deposits was part of the business activities as the
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interest accrued there from had been treated as business income. The loss arising on such
investmentwasthusconsequentlyallowableasbusinesslossandtherefore,thesumofRs.32
lakhswasdeductibleasbusinessloss.(A.Y.20022003)
JindalIronandSteelCo.Ltd.v.Dy.CIT[2013]21ITR414/57SOT317(Mum.)(Trib.)
S.37(1):BusinessexpenditureRepairstomachinery
Court held on facts, the addition made on account of disallowance of machinery repair
expenseswasrightlydeletedbyTribunal.
CITv.ShreeRamaMultiTechLtd.(2013)214Taxman129(Mag.)(Guj.)(HC)
S.37(1):BusinessexpenditureProvisionforconsultancychargesisallowableExcessprovision
reversedinsubsequentyear
The assessee made provision for consultancy charges and professional fees in relevant
assessment year, which was found to be in excess and reversed in subsequent year. The
Assessing Officer disallowed provision, as it did not correlate to actual figures. The Assessee
claimed that provision was made at year end when accounts were to be finalized, based on
originalclaimsofconsultants/professionals,asnegotiationswerestillunderway.Held,where
consultant/professional fees were under negotiation at year end when accounts were to be
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finalized, provision made on basis of original claims were allowable, since, on amount being
settled for lesser figure, excess provision had been reversed and offered to income in
subsequentyear.(A.Y.200405)
CITv.ArmourConsultants(P.)Ltd.(2013)214Taxman444(Mad)(HC)
S.37(1):BusinessexpenditureCapitalorrevenueProductregistrationTrademark
registrationRevenueinnature.
TheissuebeforetheHighCourtaswhethertheexpensesmadetoDrugRegulationAuthorities
invariouscountriesforproductregistrationarerevenueinnature.TheTribunalheldthat,such
productswereinexistenceandnothingnewwereacquiredbytheassessee,theexpenditure
only enabled the assessee to run the existing business smoothly hence the said expenses are
revenue in nature. As regards the expenditure in respect of Trade mark and patent following
the ratio of Supreme Court in CIT v. Finlay Mills Limited (1951)20 ITR 475 (SC), wherein it is
observed that the advantage derived by the owner of the trade mark registration falls within
this class of expenditure , which is revenue in nature. The fact that a trade mark after
registrationcouldbeseparatelyassignedandnotasapartofthegoodwillofthebusinessonly
does not also make the expenditure for registration as a capital expenditure, that is only an
additionalandincidentalfacilitygiventotheowneroftheTrademark.Itaddsnothingtotrade
markitself.Theappealofrevenuewasdismissed.(TaxAppealno752of2012)dt2032013)
CITv.CadailaHealthcareLtd.(2013)ACAJAprilP.27/214Taxman672/86DTR337/350ITR555
(Guj.)(HC)
S.37(1):BusinessexpenditureCapitalorrevenueNoncompetefeeMatterremanded.
HighCourtobservedthatTribunalupheldthatfindingoftheCIT(A)thatthenoncompetefees
paid by the assessee was revenue expenditure without any discussion on the issue. Matter
remandedtotheTribunaltopassareasonedorder.(A.Y.200102)
CITv.GlenmarkPharmaceuticalLtd.(2013)351ITR359/85DTR169(Bom.)(HighCourt)
S.37(1):BusinessexpenditureUnlawfulpurposeCircularExpenditurewhichisnotin
violationoftheIndianMedicalCouncil(ProfessionalConduct,EtiquetteandEthics)
Regulations,2002,thenhemaylegitimatelyclaimadeduction.
ThesumandsubstanceofCircularNo. 5of2012,datedAugust1, 2012,issuedbytheCBDTis
that any expenditure incurred by an assessee for any purpose which is prohibited by law shall
not be deemed to have been incurred for the purpose of business or profession. Therefore, if
the assessee satisfies the assessing authority that the expenditure is not in violation of the
IndianMedicalCouncil(ProfessionalConduct,EtiquetteandEthics)Regulations,2002,thenhe
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maylegitimatelyclaimadeduction,butitisfortheassesseetosatisfytheAssessingOfficerthat
theexpenseisnotinviolationoftheRegulations.
Confederation of Indian Pharmaceutical Industry (SSI) v. CBDT (2013) 353 ITR 388/ 258 CTR
332/86DTR34(HP)(HC)
S.37(1):BusinessexpenditureForeigntravelexpensesdisallowanceof20%expenseswas
justified.
The Assessing Officer disallowed such foreign travel expenses on ground that these were not
incurred for purpose of business. The Tribunal found that substantial expenditureon tour and
travelhadbeenincurredandallowedbyrevenueinearlieryearsaswellasinsubsequentyear.
However, since full details and evidence were not available to quantify as to how much
expenditure had been incurred wholly and exclusively for purpose of business, the Tribunal
disallowedtwentypercentofthesaidexpenditure.Held,nosubstantialquestionoflawarose.
(A.Y.20022003)
CITv.SuperiorCrafts(2013)353ITR101/82DTR209(Delhi)(HC)
S.37(1):Business expenditure Provision for installation and service charges payable under
warrantyinrespectofofficeequipmentProvisionnotmadeonanyscientificdataandpast
experiencetheprovisionbeingadhocthesameisnotallowable.
Theprovisionfortheservicechargespayablebytheassesseebywayofwarrantyprovisionwas
not made on any scientific data. The provision made was on ad hoc basis. Even though the
warrantyperiodwasoneyearandtheassesseehadtomakepaymenttotheserviceprovideras
andwhenademandwasmade,normally,suchpaymentclaimhadtocomeduringtheperiodof
warranty or within a reasonable time. Since more than 60 per cent of the provision remained
unpaid even after more than two years since the date of sale, the assessee had not made the
provision after taking stock of the situation properly. Thus, such an ad hoc provision made by
theassesseewouldnotbeentitledtodeduction.(A.Ys.19901991to19971998)
CITv.ForbesCampbellFinanceLtd.(2013)352ITR602/86DTR406(Delhi)(HC)
S.37(1):Business expenditureFact that payment is used for illegal purpose does not attract
Explanationtos.37(1).
TheassesseeexportedteatoIraqundertheOilforFoodProgram,assanctionedbytheUnited
Nations.ItpaidcommissionofRs1.28crorestooneAliaTransportation,aJordaniancompany.
The Volcker Committee, which was set up to expose the Oil for Food scam found that this
companywasafrontcompanyfortheIraqiregime,meanttoreceiveillegalkickbacks,anddid
not render any services. The AO, acting on the report, held that the commission paid by the
assesseewasillegalandnotallowableundertheExplanationtos.37(1).Thiswasreversedby
the CIT (A). On appeal by the department, the Tribunal (72 DTR 425) upheld the stand of the
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assessee on the ground that even if the amounts paid to Alia were actually kickbacks to Iraqi
regime,thatfactpersewouldnotattractExplanationtos.37(1).Itwaspointedoutthatwhile
the transactions between Alia and the Iraqi regime may be contrary to the UN sanctions, the
transactions between the assessee and Alia were not hit by the UN sanctions and that there
was no specific violation of law by the assessee. It was emphasized that what the recipient of
the payment does is not important because the assessee has no control over the matter. The
onus of demonstrating that the assessee was aware that the payments were intended for
kickbacks is on the AO which has not been discharged. It was held that the purpose of the
expenditurehastobeseenandifthepaymentisforbonafidebusinesspurposes,thefactthat
theyendupbeingusedasillegalkickbacks,willnotattractExplanationtos.37(1).Onappealby
thedepartmenttotheHighCourt,HELDdismissingtheappeal:
ThedepartmentcouldnotsatisfyusastowhywerethefindingsrecordedbytheCIT(A)andthe
Tribunal are incorrect either on factor in law. There is, as such, no reason why the appeal
shouldbeentertained.Theappealis,therefore,dismissed.
CITv.RajaraniExportsPvt.Ltd(Cal)(HC)www.itatonline.org.
Editorial: DCIT v. Rajarani Exports Pvt. Ltd (2012) 72 DTR 425/147 TTJ 171 (Kol.)(Trib.) is
affirmed.
S.37(1):BusinessexpenditureCapitalorrevenueExpenditurerelatingtovoluntary
retirementschemeinrespectoftwounitsExpenditureincurredforpurposeofrestructuring
toachievemodernizationisallowableasrevenueexpenditure.
Theclosureoftwounitshadnotresultedinclosureofbusiness.Thiswasdoneforthepurposes
ofrestructuringsoastoachievemodernisation.Thevoluntaryretirementschemeoffereddue
to labour problems or as part of the restructuring process would not make a difference. The
incidentalexpensesincurredinrestructuringthebusinesshadtobeconsideredasexpenditure
incurredinthecourseofconductingthebusinessandallowableundersection37(1).(A.Y.1999
2000)
CITv.FosecoIndiaLtd.(2013)352ITR320(Bom.)(HC)
S.37(1):BusinessexpenditureDistributionexpensesFailuretoverifyentries.
TheAssessingOfficerhimselfhadnotverifiedtheentriesthoughherecordedafindingthatthe
distribution expenses to the extent of Rs. 75 lakhs were genuine. Thus, there was no reason
without verification of the record to decline the remaining amount of distribution expenses.
OrderofTribunalwasconfirmed.(A.Y.200708)
CITv.ShreeKrishnaEnterprises(2013)214Taxman221(Punj&Har.)(HC)
S.37(1):BusinessexpenditureClubmembershipfeesCorporatemembershipRevenue
expenditure.
Corporatemembership,forrunningthebusinesswithaviewtoproduceprofit,doesnotbring
into existence an asset or an advantage for the enduring benefit of the business. It is
expenditureincurredfortheperiodofmembershipandisnotlonglasting.Bysubscribingtothe
membershipofaclub,nocapitalassetiscreatedorcomesintoexistence.Hence,expenditure
wasallowableasrevenueexpenditure.
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CITv.GrozBeckertAsiaLtd.(2013)351ITR156/256CTR1/214Taxman205/84DTR1(FB)
(Punj&Har)(HC)
S.37(1):BusinessexpenditureleaserentGenuinenessofleaseLeaserentwasallowedas
deduction.
Theassesseehadnorighttotransferthemachineryinanyform,wasobligedtoredeliverthe
equipment upon termination of lease agreement, was not to part with possession and not to
make alteration in the equipment with the stipulation that additions would belong to the
lessor; and the lessor was entitled to claim depreciation during the lease period. Hence, lease
rentwasallowedasdeduction.(A.Y.200001)
CITv.BanswaraSyntexLtd.(2013)351ITR419/214Taxman214/84DTR127(Raj.)(HC)
S.37(1):BusinessexpenditureRentPaidtononownerHeldnotallowableasdeduction.
Assessee is engaged in manufacturing and exporting soya deoiled cake. It entered into
agreementwith CRLinterms of which CRL agreed to provide godown spaceat four places. As
per said agreement, assessee was obliged to pay godown rent irrespective of whether such
godowns were utilised or not. Assessee filed its return claiming deduction of godown rent.
AssessingOfficerfindingthatCRLwasneitherownernorinpossessionofthosegodownswhen
rent agreement was made or at any time thereafter, rejected assessee's claim. Tribunal
confirmedorderofAssessingOfficer.TheCourtheldthattheTribunalalsonotedthatassessee
wastoexecuteitsexportcontractslatestby1521992.Assesseehowever,rentedthegodown
for more than a full year thereafter, till 3131993. The observations and conclusions of the
Tribunal being purely factual in nature and also otherwise supported by documents and other
evidenceonrecord,thereisnoreasontointerferewiththesame.(A.Y.199293)
GujaratAmbujaProtiensLtd.v.ACIT(2013)214Taxman310(Guj.)(HC)
S.37(1):BusinessexpenditureMetodofaccoutingProviiosnProvisionforcompleted
expensesandexpensesincurredoncompletedprjectisallowable.[S.145]
Thequestionraisedbeforethecourtwastheexpensesclaimedbytheassesseeunderthehead
provisions for completed expenses and expenses incurred on completed project is alloable
even though the Department has not accepted the system of accounting followed the
assessee.Folling the ratio in CIT v.Ansal Properties and Industries (2013) 352 ITR 637 (Delhi)
(HC),theissueisdecidedinfavourofassessee.
CIT.v.AnsalHousingFinance&LeasingCo.Ltd.(2013)354ITR180/213Taxman143/88DTR
227(Delhi)(HC)
CITv.AnsalPropertiesandIndustriesLtd(2013)354ITR180/88DTR227(Delhi)(HC)
CITv.AnsalHousingandConstructionLtd(2013)354ITR180/88DTR227(Delhi)(HC)
S.37(1):BusinessexpenditureInstallationchargesincurredforinstallationofplantand
machineryarecapitalinnature.
Installationchargesandotherchargesnecessarytobringanassetintoexistenceandtoputthe
machinery in a working condition would constitute capital expenditure.Moreso, when the
amountisreflectedinbalancesheetunderhead'Plantandmachinerygivenonlease'.
BhartiTeleventuresLtd.v.Addl.CIT(2013)81DTR225(Delhi)(HC)
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S.37(1):BusinessexpenditureProvisionforWarrantyallowableasdeduction.
Provisionforwarrantyisallowableasdeduction.(199495to199697)
CITv.MarutiSuzukiIndiaLtd.(2013)212Taxman603/81DTR152/255CTR140(Delhi)(HC)
S.37(1):BusinessexpenditureFreebiestomedicalpractitionersCBDTcircularCBDTCircular
disallowingexpenditureonfreebiestomedicalpractitionersisheldtobevalid.
TheCBDTissuedCircularNo.5/2012dated1.8.2012statingthatastheIndianMedicalCouncil
had imposed a prohibition on medical practitioners taking any Gift, Travel facility, Hospitality,
Cash or monetary grant from pharmaceutical and allied health sector Industries, the
expenditure incurred by the assessee in providing such freebies had to be regarded as
incurredforapurposewhichiseitheranoffenceorprohibitedbylawanddisallowedunder
the Explanation to s. 37(1) of the Act. The assessees challenged the validity of the Circular on
the basis that it went beyond s. 37(1) and was invalid. HELD by the High Court rejecting the
contention:
TheregulationoftheMedicalCouncilprohibitingmedicalpractitionersfromavailingoffreebies
isaverysalutaryregulationwhichisintheinterestofthepatientsandthepublic.ThisCourtis
not oblivious to the increasing complaints that the medical practitioners do not prescribe
genericmedicinesandprescribebrandedmedicinesonlyinlieuofthegiftsandotherfreebies
granted to them by some particular pharmaceutical industries. Once this has been prohibited
bytheMedicalCouncilunderthepowersvestedinit,s.37(1)comesintoplay.ThePetitioners
contention that the circular goes beyond the section is not acceptable. In case the assessing
authoritiesarenotproperlyunderstandingthecircular,thentheremedyliesforeachindividual
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assesseetofileanappealbutthecircularwhichistotallyinlinewiths.37(1)cannotbesaidto
beillegal.Iftheassesseesatisfiestheassessingauthoritythattheexpenditureisnotinviolation
oftheregulationsframedbythemedicalcouncilthenitmaylegitimatelyclaimadeduction,but
itisfortheassesseetosatisfytheAOthattheexpenseisnotinviolationoftheMedicalCouncil
Regulations.
ConfederationofIndianPharmaceuticalIndustryv.CBDT(H.P.)(HC)www.itatonline.org
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S.37(1):BusinessexpenditureLossonaccountofchangeinratesofforeignexchangeNotional
lossMatterremandedtoAssessingOfficertodecidewhetherclaimallowable.
The assessee claimed deductions by way of loss in its business income, due to fluctuations in
therateofexchangeontheoutstandingduespayableinforeignexchange,whichtheassessee
hadraisedforthepurposeofbuyingitsstockintrade.TheAssessingOfficerrejectedtheclaim
on the ground that it was notional loss and, therefore, not allowable. The Commissioner
(Appeals) and the Tribunal held that the assessee could claim deduction on notional basis. On
appeal:
Held,allowingtheappeal,suchclaimwouldhavetobeexaminedinthelightofthefulfillment
of the conditions as indicated by the Supreme Court, for which purpose, the matter was
remittedtotheAssessingOfficer,whohadtoapplytheteststotheclaimmadebytheassessee
and then either admit the claim or reject it depending upon the assessee satisfying the
conditions.
TheCourtheldthattheclaimofnotionalcanbeentertainedsubjecttothefulfillmentofthesix
conditionsthat(i)thesystemofaccountingfollowedbytheassesseeisthemercantilesystem;
(ii) the same system is followed by the assessee from the very beginning and if there was a
changeinthesystem,thechangewasbonafide;(iii)theassesseehasgiventhesametreatment
tolossesclaimedtohaveaccruedandtothegainsthatmayaccruetoit;(iv)theassesseehas
been consistent and definite in making entries in the account books in respect of losses and
gains;(v)themethodadoptedbytheassesseeformakingentriesinthebooksbothinrespect
oflossesandgainsisinaccordancewithnationallyacceptedaccountingstandards;and(vi)the
system adopted by the assessee is fair and reasonable and not adopted only with a view to
reducingtheincidenceoftaxation.TheratioofCITv.WoodwardGovernorIndiaPvt.Ltd.[2009]
312ITR254(SC)applied.(A.Y.20002001)
CITv.WiproFinanceLtd.(2013)351ITR153/213Taxman293(Karn.)(HC)
S.37(1):BusinessexpenditureSalespromotionexpensesHeldtobeallowable
Amount paid by assessee to sales/field organisers who rendered specific services under sales
agreementsaftersaleofcementwasdecontrolled,wastobeallowedasbusinessexpenditure.
Infavourofassessee.(A.Y.198586)
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CITvDalmiaCement(Bharat)Ltd.(2013)212Taxman126(Mag.)(Delhi)(HC)
S.37(1): Business expenditure Provision for salaries being not contingent allowable as
deduction.
Theassessee,apublicsectorundertaking,madeprovisionofsalariesinviewofimpendingpay
revision of salary of its employees. However, the Assessing Officer disallowed said provision
observing that liability was not determinable during relevant previous year and that such
liabilityaroseinJune1999whenPayCommissionsubmitteditsreport.Held,sincetheprovision
forsalarywasnotacontingentliability,isallowablededuction.(A.Y.199899)
TATACommunicationsLtd.vJCIT(2013)57SOT1(Mum.)(Trib.)
S.37(1): Business expenditure Prior period expenses bills received during current financial
yearisallowable,astheliabilitycrystallizedduringyear.
Theassesseeclaimeddeductioninrespectofprovisionofopticalfibrecablechargesonaccount
ofpaymenttodepartmentoftelecom.However,theAssessingOfficerheldthatsuchprovision
pertained to prior period expenses and, therefore, same could not be allowed. The Tribunal
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heldthatsincethebillwasreceivedduringcurrentfinancialyearwhichmeantthatexpenditure
crystallizedduringyearunderconsideration,theexpenditurewasallowable.(AY199899)
TATACommunicationsLtd.vJCIT(2013)57SOT1(Mum.)(Trib.)
S.37(1):Business expenditure Travelling expenses of foreign national employee is
allowable.
Wherecompanyemployedforeignnationalsforitsbusiness,expenseonreturnjourneytotheir
respectivehomecountriesoncompletionofassignment,wasallowable.(A.Y.200708)
Sumitomo Corporation India (P.) Ltd. v DCIT (2013) 57 SOT 18(URO)/24 SOT 385/85 DTR 1
(Delhi)(Trib.)
S.37(1):BusinessexpenditurePenaltyViolationofbyelawsofstockexchangeisallowable
asbusinessexpenditure.
Payment made to stock exchange for violation of byelaws of stock exchange cannot be
consideredaspaymentprohibitedbylaworinconnectionwithanoffenceandisallowableas
businessexpenditure.(A.Y.200203)
HSBCSecurities&CapitalMarkets(India)(P.)Ltd.v.ACIT(2013)57SOT194(Mum.)(Trib.)
S.37(1):BusinessexpenditureLitigationexpensesAbsenceofbill.
In absence of bill or receipt issued by advocate, the fees paid to advocate for defending
acquisition proceedings of company's plot of factory land is not allowable as revenue
expenditure.(A.Y.200304)
GreavesCottonLtd.v.ITO(2013)57SOT158(Mum.)(Trib.)
S.37(1):BusinessexpenditureAcquisitionofsoftwareRevenueexpenditure.
Theassesseespentcertainamounttowardsvariouslicensefeespaidforacquiringsoftwarefor
runningitscomputersandclaimedsameasrevenueexpenditure.Held,sincenoassethadbeen
createdbypayinglicensefeesforutilizationofsoftware,expenditurewasallowableasrevenue
expenditure.(A.Y.200203)
HSBCSecurities&CapitalMarkets(India)(P.)Ltd.v.ACIT(2013)57SOT194(Mum.)(Trib.)
S.37(1):BusinessexpenditureArchitectsfeesSiteplanetc.
The assessee, engaged in real estate business, claimed payment of architect fee in respect of
land sold.It was observed that the expenditure was incurred towards consulting services
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provided by architect with regard to site plan, SEZ specific building plan, etc. Also, since the
payment was made by cheque and also subjected to TDS, the expenditure was allowable as
businessexpenditure.(A.Y.200809)
MaliFlorexLtd.v.DCIT(2013)57SOT37(URO)(Hyd.)(Trib.)
S.37(1):BusinessexpenditureVideosurveillancechargesallowableasbusinessexpenditure.
The assessee, a real estate developer, claimed certain expenses towards video surveillance
charges. The revenue authorities allowed part of expenses in proportion of land sold. Held,
since the expenditure incurred by assessee was for the purpose of business, it had to be
allowed in full though entire property was not sold by assessee in year under
consideration.(A.Ys. 20072008,200809)
MaliFlorexLtd.v.DCIT(2013)57SOT37(URO)(Hyd.)(Trib.)
S.37(1):BusinessexpenditureMaintenanceofbuildingandmachineryNoenhancementin
existingcapacityAllowableasrevenueexpenditure.
The assessee claimed deduction of a certain sum under the head building and machinery
repairs. The Assessing Officer disallowed the claim. The Commissioner (Appeals) held that
these expenses appeared to have been incurred towards maintenance of building and
machinery.Further,theAssessingOfficernotbroughtonrecordanymaterialtoshowthatthe
expenditurehadresultedinbringingintoexistenceanewitemorenhancementoftheexisting
capacity of the assessee. Therefore,the disallowance was not justified. Held, that nothing had
been brought on record by the Department to controvert the findings of the Commissioner
(Appeals).Therefore,theorderneedednointerference.(A.Y.20062007)
IndianResearchManifestationLabsP.Ltd.v.ACIT(2013)24ITR30(Ahd.)(Trib.)
S.37(1):BusinessexpenditureVouchersPetrolanddieselexpensesEstimateat10%washeld
tobereasonable.
The assessee was engaged in the business of travels, moneychanging, cargo, facility
management, tea estate, etc. It claimed deduction of expenditure on petrol and diesel
expenses. The Assessing Officer held that the assessee failed to produce vouchers and
substantiate the claim and disallowed 20 per cent of expenses, which was reduced to 10 per
centbytheCIT(A).Held,thatonemoreopportunitybegrantedtotheassesseetosubstantiate
its claim by producing the vouchers and other details. Therefore, the Assessing Officer was
directed to verify the details after affording the assessee a reasonable opportunity of being
heard. The assessee claimed business promotion and advertising expenses on travel business.
The Assessing Officer held that considering the nature of business the expenses on business
promotion was excessive and also that the assessee had not produced any evidence to justify
itsclaim.Therefore,hedisallowed25percentofthebusinesspromotionexpenses,whichwas
reducedto10percentbytheCIT(A).Held,bytheTribunalthat,theorderoftheCIT(A)needed
nointerference.(A.Y.20062007)
Indian Research Manifestation Labs P. Ltd. v. ACIT (2013) 24 ITR 30 (Ahd.)(Trib.)
S.37(1):BusinessexpenditureExigencyRecipientnottaxed.
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Litigation expenditure incurred by assessee on account of business and commercialexigencies
for purpose of business could not be disallowed merely on ground of deletion of addition in
handsofrecipient.(A.Y.200809)
MaliFlorexLtd.v.DCIT(2013)57SOT37(URO)(Hyd.)(Trib.)
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S.37(1):BusinessexpenditurePriorperiodexpenditureAllowabilityExpenditurecrystalised
duringtheyeararetobeallowed.
Theassesseehaddebitedpriorperiodexpendituretotheprofitandlossaccount.Thisincluded
the difference on account of short provision of depreciation computed under the Companies
Actinearlieryearsanddepreciationwrittenback.Theassesseeexplainedthatthenetamount
was reduced from the total income in the computation as these were only notional entries to
rectifydepreciationwronglycalculatedintheearlieryearsandhadnotaximplicationasthese
wereadded/deductedfromprofitunderbooksforcomputationofincome.Hencethebalance
creditwasofferedfortaxbytheassessee.Otheritemsinthiscategorywereprofessionalfees
and travelling expenses transferred by VSD with whom the assessee had a joint development
agreement, on termination of the agreement. The Assessing Officer disallowed the expenses
including depreciation holding that the assessee had not brought conclusive proof that these
expenses crystallised during the year and disallowed it. The Commissioner (Appeals) held that
the expenses claimed by the assessee were actually not prior period expenses but lump sum
payments made by the assessee to VSD for the termination of the joint development, which
wereofcapitalnatureandnotallowable.Held,thattheAssessingOfficerhadnotexaminedthe
natureofexpenditureinspiteoftheassesseehavinggiventhedetails.Otherwise,hewouldnot
have disallowed the depreciation which was actually disallowed by the assessee in its
computation. Just because the income and expenditure were classified as prior period, they
need not be excluded or disallowed. The Assessing Officer had to examine whether the
expenditure crystallised during the year. Hence, the matter was remanded back to the
AssessingOfficer.(A.Y.20052006)
ECityEntertainment(India)Pvt.Ltd.v.ACIT(2013)24ITR73(Mum.)(Trib.)
S.37(1):BusinessexpenditureStaffwelfareexpensesBreakupofexpenditure.
Assessee incurred staff welfare expenditure and claimed deduction. Assessing Officer
disallowedclaimongroundthatbreakupofexpenditurewasnotgiven.Tribunalheldthatthe
assessee had explained expenses and there was no finding of Assessing Officer that assessee
hadnotrecordedsuchexpenditureinitsbooks.AccordinglythetribunalheldthatJustbecause
break up of expenditure had not been produced, disallowance could not have been made.
MatterremandedtoAssessingOfficer.(A.Y.200405)
EDACEngineeringLtd.v.Dy.CIT(2013)141ITD231(Chennai)(Trib.)
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S.37(1): Business expenditureCapital or revenuePurchase of new transformer installed in
leasepremisesiscapitalinnature.
Assessee incurred expenses towards purchase of a new transformer installed in a premises
takenonleasereplacingtheexistingtransformer.Theassesseeclaimedthesaidexpenditureas
revenue in nature. The Assessing Officer treated the said expenditure as capital in nature and
allowed the depreciation @ 15%.Commissioner (Appeals) confirmed the order of Assessing
Officer.OnappealtheTribunalheldthatforpurposeofdeterminationofnatureofexpenditure
it should be assumed that premises belonged to assessee. Expenditure incurred towards
purchaseofaltogethernewtransformerwasdefinitelycapitalexpenditure.(A.Y.200809)
ACITv.Anand&Anand(2013)141ITD326(Delhi)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueFurnitureunderconstruction.
The assessee claimed the construction of furniture as revenue expenditure. Assessing Officer
disallowed the said expenditure. On appeal Commissioner (Appeals) directed assessing Officer
to verify expenditure incurred by assessee. On appeal by the revenue the Tribunal held that
expenses incurred for procuring furniture could not be allowed as a deduction in nature of
revenueexpenditureand,therefore,directionofCommissioner(Appeals)wastobevacated.As
the furniture was not used for the purpose of business for the relevant year even the
depreciationwasnotallowable.(A.Y.20062007)
MahindraHolidaysandResortsIndiaLtd.v.Dy.CIT(2013)141ITD363(Chennai)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueLicencefeeSoftwareforthreeyears.
Assesseehadacquiredlicencetousesoftwareforaperiodofthreeyears.Everyyearassessee
wasmakingpaymentaslicenecefees.SinceAssesseewashavingonlyapermissiverighttouse
software and it was not enjoying any copyright, amount of licence fee would be allowed as
Businessexpenditure.(A.Y.20062007)
MahindraHolidaysandResortsIndiaLtd.vDy.CIT(2013)141ITD363(Chennai)(Trib.)
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S.37(1):BusinessexpenditureSoftwareexpensesDepreciationat60%.
Assessee purchased a software programme for its specific business needs. It was undisputed
thatexpenditurehadbeenlaidoutforacquiringanintangibleassettobeusedbyassesseefora
numberofyearsand,thus,samewouldhaveanenduringbenefit.Onfacts,softwareexpenses
could not be allowed as revenue expenditure, however, since intangible asset i.e., software
programme was part and parcel of computation of income, assessee was entitled to
depreciationatrateof60percentonexpenditureinquestion.(A.Ys.200304to200607)
HindustanConstructionCo.Ltd.vDy.CIT(2013)140ITD642(Mum.)(Trib.)
S.37(1):BusinessexpenditurePoojaexpenditureTherequirementofcommercialexpediency
mustbejudgedinthecontextofcurrentsocioeconomicthinking.
Tribunalheldthatitisanundisputedfactthatnobusinesscanbeconductedinhostile,socio
economic environment. The expenses incurred on the activities which create a suitable
environment and impression with reference to image and smooth functioning of the business
activity of the assessee by gainingthe trust of the employees as wellas the localpublic in the
affairs of the assessee company. Therefore expenses incurred by assessee in respect of pooja,
donation for local festivals and other such local activities, were to be allowed as business
expenditure. The requirement of commercial expediency must be judged in the context of
currentsocioeconomicthinking.(A.Ys.200304to200607)
HindustanConstructionCo.Ltd.vDy.CIT(2013)140ITD642(Mum.)(Trib.)
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The Assessing Officer disallowed a sum shown as provisional expenses. The Commissioner (Appeals)
held that vouchers and copy of accounts showed that the amount was actually paid by the club.
Therefore he deleted the addition. On appeal by the Department the Tribunal confirmed the order of
Commissioner(Appeals).(A.Ys.20072008,20082009)
ITOv.KamalaViharSportsClub(2013)23ITR104(Mum.)(Trib.)
S.37(1):Business expenditureCapital or revenueLiquidated damages paid for delay in delivery of
goodssuppliedundercontractisallowableasrevenueexpenditure.
Liquidated damages paid by the assessee under a contractual obligation to the purchasers of electrical
equipment, which was a daytoday business activity of the assessee, and was not an expenditure of
capitalinnature.Thecontractbetweentheassesseeanditspurchasersspecificallymentionedthatthe
payment of liquidated damages would not be considered as penalty. Admittedly, the assessee paid
liquidated damages to the Railway department and other Government undertaking enterprises in
accordancewiththecontractandduetothedelayincompletionofthesupplycontract.Therefore,this
is an allowable expenditure. The finding of the Commissioner (Appeals) that the payment of liquidated
damageswascapitalinnaturewasnotsustainable.TheAssessingOfficerwastocalculatetheamountof
liquidated damages allowable for the year under consideration after verifying the quantum of claim of
theassesseeandallowthededuction.(A.Y.20072008)
HuberSuhnerElectronicsP.Ltd.v.Dy.CIT(2013)22ITR596(Delhi)(Trib.)
S.37(1):Business expenditureCapital or revenueAmounts paid by assessee for purchase of master
plateofaudiosongswithcopyrightisrevenueexpenditure.
The assessee purchased copyright for mechanical reproduction of sound recordings of various films in
the form of audio cassette tapes, compact discs or any other format. According to the agreement the
assessee acquired a master plate containing the agreed sound track with copyright to commercially
exploit it. The assessee claimed the cost of purchase of the master plate with copyright as revenue
expenditure.TheAssessingOfficerrejectedtheclaimandtreatedthecostofpurchaseofaudiorightsas
capital expenditure. On appeal, the Commissioner (Appeals) held the said expenditure as revenue
expenditure. On appeal by the Department, the order of commissioner (Appeal) was confirmed. (A.Y.
20042005)
ITOv.FiveStarAudio(2013)22ITR707(Chennai)(Trib.)
S.37(1):BusinessexpenditureDiscontinueofoneunitExpensesisallowable.
The assesseecompany is engaged in the manufacture of paints and varnishes. Assessing Officer
disallowed expenses in relation to the assessee's factory at K on the ground that the assessee had
discontinued its operation of pigment manufacturing at that factory. The Commissioner (Appeals)
directedtheAssessingOfficertoallowthedeductionclaimedbytheassesseeinrespectoftheKunitin
respect of power, fuel and electricity, rent, rates and taxes and watch and ward expenses, but
disallowedtheotherexpensesholdingthattheassetsofthesaidunitwerenotutilisedbytheassessee
for the purpose of its business. On appeal :Held, that expenses incurred to protect the business assets
shouldbeallowedasdeduction.ThedisallowanceofvariousexpensesinrelationtotheKunitwastobe
reversed.(A.Y.20022003)
KansaiNerolacPaintsLtd.v.Dy.CIT(2013)22ITR424/57SOT10(URO)(Mum)(Trib.)
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S.37(1):Business expenditureCapital or revenue expenditureSoftware licence feesSoftware to
enablebusinesstoberunmoreefficientlyisdeductible.
TheassesseepaidRs.51.18lakhstoGTLLtd.towardslicencefeesforuseroffinance,purchasing,order
managementand manufacturing.The AssessingOfficerobservedthatlumpsumpaymentforpurchase
ofOraclelicences,madeforthefirsttimecouldnotbein the natureofrevenueexpenditureandeven
thoughthebenefitderivedbyincurringsuchexpendituremaynotbeforever,itwasspreadoverseveral
yearsanditthusfellintothecategoryofbenefitofenduringnature.Hedisallowedtheexpenditureand
thiswasupheldbytheCommissioner(Appeals).OnappealtotheTribunal:Thattheassesseewasinthe
business of manufacturing mining machinery and the software in question was for the purpose of
finance, purchase order management and manufacturing. This software would help the assessee in
increasingtheefficiencyandcouldnotbetreatedasformingpartoftheprofitmakingapparatusofthe
assesseecompany and, therefore, the expenditure on this software could not be treated as capital
expenditure. Out of this total expenditure of Rs. 62,30,245 claimed by the assessee as revenue
expenditure,theAssessingOfficerhadalreadyalloweddeductionofRs.51.18lakhsbeingdepreciation
at60percent.anddisallowancewasmadeamountingtoRs.20.47lakhsbeingthe40percent.ofsuch
expenditureandsinceitwasnotacapitalexpenditure,thisdisallowancehadtobedeleted.(A.Y.2007
2008)
EimcoElecon(India)Ltd.v.Add.CIT(2013)22ITR380(Ahd)(Trib.)
S.37(1):Business expenditureAssessee failing to produce proper bills and vouchers for direct and
indirectexpensesAssessingOfficerwastorestrictdisallowanceto5percentofcashpayments.
The Assessing Officer disallowed expenses on the ground that the assessee could not produce proper
billsandvouchersformostoftheexpenditureclaimedandforthedirectandindirectexpensesincurred.
He made an estimated disallowance for each of the assessment years. The Commissioner (Appeals)
directed the Assessing Officer to restrict the disallowance to 8 per cent. of the cash expenses claimed
andallowthebalanceofexpenditureforalltheyearsunderappeal.TheRevenueappealedagainstthe
restriction of the disallowance to 8 per cent. and the assessee appealed against the sustenance of the
disallowance of 8 per cent. : Held, that since the issue under consideration was identical to that
considered in the case of the company the Assessing Officer was to restrict the disallowance to 5 per
cent.ofthecashpayments.(A.Y.20022003to20082009)
ACITv.MirMazharuddin(2013)22ITR314(Hyd.)(Trib.)
S.37(1):BusinessexpenditureCateringbusinessDisallowanceongroundofduplicationofexpenditure.
Inastatementrecordedduringthecourseofoperationsundersection132oftheAct,atthepremisesof
a company of which the assessee was the managing director and at the residential premises of the
assessee,oneoftheemployeesoftheassesseeadmittedthatthekitchenfacilitiesofthecompanywere
utilizedbythecateringbusinessoftheassessee,whichdidnothaveaseparatekitchen.Forthisreason,
the Assessing Officer felt that there were duplication of expenditure claimed by the assessee in his
cateringbusinessanddisallowedpaymentsofelectricitymetersinthenameoftheassessee,rentpaid
foradministrativeoffice,andexpenditureondifferentheads.TheCommissioner(Appeals)heldthatthe
finding of claim of duplication of expenses was not properly supported. On appeal :Held, that the
Departmentdidnotbringanymaterialtosuggestthatthesameexpenditurewasclaimedinthecaseof
thecompanytoestablishthattheassesseehadmadedoubleclaimofexpenses.Theassesseehadalso
filedhisreturnofincomeandhaddisclosedprofitoncateringservicesafterclaimingvariousexpenses.
Hence,theexpensesclaimedbytheassesseehadbeenincurredforthepurposeofhiscateringbusiness
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and there was no duplication of the expenses in the case of the assessee. (A.Y. 20022003 to 2008
2009)
ACITv.MirMazharuddin(2013)22ITR314(Hyd.)(Trib.)
S.37(1):BusinessexpenditureProfessionalchargesDirectorDeductionatsourceSalaryOnce
commercialexpediencyisacceptedandtaxdeductionatsourceeffecteddeductiontobe
allowed.(S.40(a)(ia),192,194J)
The assessee made a certain payment as professional charges to director of the assessee
company, after deduction of tax at source under section 194J of the Act,treating the payment
as a payment for professional services rendered. According to the Assessing Officer, the
payment should have been considered as salary paid to an employee and that the assessee
company had misrepresented the salary as professional charges specifically to give an undue
advantage to claim additional expenses in her return of income. He disallowed the sum. On
appeal the Commissioner (Appeals) held that once the commercial expediency of a payment
was not questioned, and the tax deduction at source was actually effected, the question of a
perceived misapplication of the particular provision was academic and that the provisions of
section192beingoutsidethepurviewofsection40(a)(ia),theadditionwasunsustainable.On
appeal by revenue the Tribunal held that once the commercial expediency of a payment was
accepted and tax deduction at source had been effected, the deduction would have to be
allowed. There was a consultancy agreement and the payment in question prima facie was a
paymentforprofessionalservicesrendered.Thepaymentcouldnotbetreatedasapaymentof
salary. In any event, the disallowance of this legitimate business expenses in the hands of the
assesseewaswithoutanybasisandcouldnotbesustained.(A.Y.:20082009)
Dy.CITv.RayKeshavanDesignAssociatesP.Ltd.(2013)22ITR259(Bang.)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueExpenditureonentirelynewlineofbusiness
isheldtobeascapitalexpenditure.
Assessee was engaged in the manufacture of lignite. It set up a new project and claimed
deduction of expenditure incurred as revenue expenditure. The power project was a new line
of assessees business. The product manufactured in power project was an altogether new
product. Hence the expenditure was not allowable as revenue expenditure. (AY 200102 to
200203)
GujaratMineralDevelopmentCorp.Ltd.v.ACIT(2013)140ITD603(Ahd.)(Trib.)
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S.37(1):BusinessexpenditureCapitalorrevenueSoftwareLicencefeeisrevenue.
Theassesseehadspentacertainsumtowardsvariouslicencefeespaidforacquiringsoftware
for running its computers. The Assessing Officer was of the view that the software expenses
gaveanenduringbenefitandwerecapitalinnature.TheCommissioner(Appeals)deletedpart
of the disallowance. On appeal to the Tribunal held that, even though the expenditure on
softwaremightgiveanenduringbenefit,sincenoassethadbeencreatedbypayinglicencefees
for utilisation of the software, the expenditure was allowable as revenue expenditure. Appeal
ofassesseewasallowed.(A.Y.20022003)
HSBCSecuritiesandCapitalMarkets(India)P.Ltd.v.ACIT(2013)21ITR445(Mum.)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueSoftwareMaintenanceofsoftwareis
revenueexpenditure.
AssessingOfficerdisallowedtheexpenditureincurredonsoftware.Onappealitwassubmitted
by the assessee that the expenditure was not incurred for purchase of software but for
maintenanceofsoftwareandtechnicalsupportservices.TheCommissioner(Appeals)setaside
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thedisallowance.OnappealtotheTribunaltheTribunalheldthatthesoftwareexpenseswere
revenueinnatureandhencedeductible(A.Y.20072008)
Dy.CITv.OviraLogisticsP.Ltd(2013)21ITR436/57SOT185(Mum.)(Trib.)
S.37(1):BusinessexpenditureCommencementofbusinessCommercialproductionExpenses
incurredbeforecommencementofbusinessisnotdeductible.(S.35E)
Theassesseeclaimeddeductionundersection35EoftheAct.TheAssessingOfficercametothe
conclusion that the assessee had not complied with the requirement of section 35E because,
mining work was carried out by the Commissioner Geology and Mining in respect of lease
grantedintheyear1988andtheexpenditureincurredonaccountofpaymenttothispartyhad
been shown under the head "consultancy fee" towards project, pending allocation. He also
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observed that there was no evidence of commercial production and, therefore, held that the
assessee was not eligible for deduction under section 35E of the Act. The assessee appealed
beforetheCommissioner(Appeals)butwithoutsuccess.OnappealtotheTribunalitcontended
thateveniftheclaimwasnotallowableundersection35E,itshouldbeallowedundersection
37 because the assessee proposed to sell the project and recover the expenses. The Tribunal
held that the assessee claimed deduction under section 37 because the assessee proposed to
selltheprojectandrecovertheseexpensesfromthebuyer.Noevidencehadbeenproducedin
supportofthisargumentthattheassesseehadultimatelysoldtheprojectinasubsequentyear
andrecoveredtheseexpensesfromthebuyer.Moreover,evenifthiswasdone,nodeduction
was allowable in the present year because even if the expenditure was to be debited in the
profitandlossaccount,ithadtobeconsideredinthecreditsideoftheprofitandlossaccount
also as the closing stock of workinprogress and there could be no resultant deduction in the
presentyear.TheTribunalalsoheldthatthelandwaspurchasedfortheproposedjointventure
power project and none of the power projects had commenced business. In the present case,
theAssessingOfficerhadgiventhis findingthat theratesandtaxesbeforecommencementof
production in a project were capital expenditure. The basis of the order of the Commissioner
(Appeals)wasthatthisexpendituredidnotenhancethevalueoftheasset,i.e.,thelandinthe
presentcase.Evenifitdidnotenhancethevalueofthelandinquestionitcouldnotbeallowed
asrevenueexpenditurebecausethebusinesshadnotcommencedandtherefore,itwasapre
operationalexpenditure.Itwasnotdeductible.(A.Y.20032004to20062007)
GujaratPowerCorporationLtd.v.Add.CIT(2013)21ITR683(Ahd.)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueExpenditureondevelopmentofsoftwareis
revenue.
Tribunal held that the Commissioner (Appeals) had rightly allowed the claim to deduction of
expenditureondevelopmentofsoftware.(A.Y.:20032004,20042005)
ACITv.SRASystemsLtd.(2013)22ITR205(Chennai)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueRepairsHeldtobecapitalinnature.
Assessee had incurred expenditure on repairs and maintenance of plant and machinery and a
building.AssessingOfficerrejectedassessee'sclaiminrespectofsaidexpenditureholdingitto
becapitalinnature.Tribunalheldthatsinceassesseefailedtobringonrecordevidenceshowing
that expenditure incurred was on purchase of spare parts of plant and machinery and
miscellaneousworkdonetobuildingandtherewasnonewcapitalassetacquiredbyassessee
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as a result of said expenditure, impugned disallowance made by Assessing Officer was to be
upheld.Infavourofrevenue.(A.Y.200405)
DresserRandIndia(P.)Ltd.v.Dy.CIT(2013)55SOT167(Mum.)(Trib.)
S.37(1):BusinessexpenditureSoftwareexpensesAllowableasrevenueexpenditure.
Assessee made payments for availing email infrastructure, which was owned by its parent
company.Itwasusingemailinfrastructurefacilitiesforcommunicationbetweenitsemployees
and outside business partners. It had debited said payments in profit and loss account under
head 'software expenses' and claimed deduction for same Whether said expenditure was
purelyrevenueinnatureandwasallowable.Infavourofassessee(A.Y.200708)
EvonikDegussaIndia(P)Ltdv.ACIT(2013)55SOT566(Mum.)(Trib.)
S.37(1):BusinessexpenditureCustomdutyCapitalgoodsNotallowableasbusiness
expenditure.
Tribunal held that payment of custom duty for debonding of capital goods increases value of
those goods and, therefore, same cannot be allowed as business expenditure. In favour of
revenue.(A.Y.200708)
HeadstrongServicesIndia(P.)Ltd.vACIT(2013)55SOT481(Delhi)(Trib.)
S.37(1):BusinessexpenditureElectricityconnectionExpenditureoninitializationofelectricity
connectioniscapitalinnature.
Expenditure incurred on initialization of electricity connection granted benefit of enduring
naturetoassesseeand,therefore,samewasnotallowablebeingcapitalinnature.Infavourof
revenue.(A.Y.200708)
HeadstrongServicesIndia(P.)Ltd.vACIT(2013)55SOT481(Delhi)(Trib.)
S.37(1):BusinessexpenditureWarrantyprovisionAllowableasdeduction.
In course of assessment, assessee claimed deduction in respect of provision created for
warrantysupportonproductssoldduringrelevantyear.AssessingOfficerdisallowedprovision
treating it as an unascertained liability. It was noted from records that assessee took into
account warranty liability for accounting period after bifurcating likely cost on account of
labour,materialetc.Itwasalsoapparentthatwhereverexcessprovisionwasmadeinanearlier
year, same was reversed in subsequent period. Tribunal held that on facts, estimate made by
assesseeinrespectofwarrantyliabilitywasonscientificandreasonablebasisand,thus,same
wastobeallowedasdeduction.Infavourofassessee.(A.Y.200607)
TextronixIndia(P.)Ltd.vDy.CIT(2013)55SOT512(Bang.)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueSellingofdiamondsunderthebrandname
Expenditurenotcapitalinnatureasprofitderivedfromsellingofpremierproduct,noright
eitheronmarkorinIPRorgoodwillofmark.
Theassesseecompanyisengagedinthebusinessoflicensing,manufacturing,distributionand
selling of diamonds under the brand Nakshatra. B, a Swissdiamond manufacturer was
owner of mark Nakshatra B' licensed said mark to 'D', who in turn, had sublicensed to
assessee.AssesseesolddiamondsunderbrandnameNakshatra.Assesseemadepaymentto
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'D' for its share on promotion of mark 'N' and claimed sales promotion expenses. Assessing
Officerdisallowed20percentofpaymentholdingsametobecapitalinnature.Itwasheldthat
facts revealed that entire rights and goodwill through marketing campaign and advertisement
wouldbeownedby'B'and'D';assesseehadnorighteitheronmarkorinintellectualproperty
right or goodwill of mark; and what assessee was enjoying was only profit from selling of
premiumproductsundersaidmark.Therefore,expenditureincurredwasrevenueinnatureand
wastobeallowed.(A.Y.200607)
Brightest Circle Jewellery (P.)Ltd. v. ACIT (2013) 140 ITD 11/154 TTJ 571/86 DTR 280 (Mum.)
(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueFeesforservicesrenderedaspermarket
support agreement Payment for efficient running of business and deriving revenues there
from,feesallowableasdeduction.
Assessee acquired personal computer business from IBM. As IBM had wellestablished
enterprisesalesforceandestablishedglobalsalesinfrastructure,suchasclientrepresentation
centre, etc., for more than 52 years, assessee wanted to take support from IBM and for that
purpose had entered into market support agreement with IBM. Assessee paid certain fees to
IBM for services rendered under market support agreement.Assessing Officer treated same as
paymentforacquisitionofgoodwillandconsideredittobeinnatureofcapitalexpenditurenot
allowableundersection37.Itwasheldthatsincesupportserviceswereforpurposeofsaleof
products manufactured by assessee, it was clearly established that it was for efficient running
ofbusinessandderivingrevenuestherefromand,therefore,feepaidbyassesseeformarketing
supportservicesrenderedbyIBMwasallowableasdeductionundersection37(1).(A.Y.2006
07)
LenovoIndiaP.Ltd.v.ACIT(2013)140ITD127(Bang.)(Trib.)
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adjustment reserve of certain amount was a liability towards various claims/special discounts
payabletodistributors/dealersofIBMIndia,whereas,theactualpayoutrelatingtoperiodupto
effective date of takeover was a much higher amount.Accordingly, the amount of difference
was charged to profit and loss account and claimed as revenue expenditure. It was held that
since assessee was to carry on business with said dealers in future, it was bound to make
paymentstomaintainbusinessrelationswithdealersandsuchpaymentshadtobeconsidered
asbusinessexpenditureofassessee.(A.Y.200607)
LenovoIndiaP.Ltd.v.ACIT(2013)140ITD127(Bang.)(Trib.)
S.37(1):BusinessexpenditureProvisionAssesseeengagedindevelopmentandmaintenance
ofroadsprovisionforroadrenewalisheldtobenotdeductible.
Theassesseecompanyisengagedinthebusinessofdevelopment,operationandmaintenance
of toll roads. For the assessment year 200203, it claimed deduction of Rs. 1,61,37,960 being
expenditureonroadoverlayorrenewal.ItwasobservedbytheAssessingOfficerthatacertain
sumwasdebitedtotheprofitandlossaccount.Whenthedetailswerecalledfortheassessee
explained it to be provision made on a scientific basis. The Assessing Officer disallowed the
claim and this was confirmed by the Commissioner (Appeals). On appeal to the Tribunal held
thatit was evident that the entire expenses claimed by the assessee were a provision made in
thebooksofaccountanddidnotpertaintoactualexpensesincurredbytheassesseeduringthe
year.Theexpenseswerenotdeductible.(A.Y.20022003,20052006)
Dy.CITv.GujaratRoadandInfrastructureCo.Ltd.(2013)141ITD642/21ITR88(Ahd.)(Trib.)
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S.37(1):Business expenditureProject completion methodExpenses and title registration
expenses not attributable to common expenditure for running businessis held to be not
allowable. (S.145)
The assessee is a film maker and an event manager. The assessee followed the project
completionmethod,showedlossfromfilmbusinessandprofitfrommusicalbums.Inaddition
to this, the assessee showed receipts from old films, i. e., royalty, telecast rights of films,
satellite rights of movies and corresponding expenditure in respect of each of her ventures
separately. Over and above this the assessee claimed common expenditure under various
headslikeDiwaliexpenditure,printingandstationery,professionalfee,conveyance,creditcard
charges, depreciation, dress and costume, interest on loan, miscellaneous expenses and
telephone charges. The Assessing Officer held that the expenditure booked on account of
professional fee, publicity, business promotion, dress and costume, etc. was not in any way
linkedtooldfilmincomeandwasnotallowable.TheCommissioner(Appeals)upheldtheorder
of the Assessing Officer. On appeal, the Tribunal held that expenses and title registration
expenses not attributable to common expenditure for running business is held to be not
allowable.(A.Y.200607)
GurudasMann(Mrs)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.37(1):BusinessexpenditureVehicleTelephoneConveyancePersonaluseDisallowance
notproper.
Tribunal held that vehicle related expenses and telephone expenses, disallowance of 20 per
cent for personal use is proper. Conveyance, lodging and boarding, travelling staff welfare,
businesspromotionandpublicityexpensesnodisallowancecanbemadeforpersonaluse.(A.Y.
200809)
ManjitMann(Mrs.)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.37(1):BusinessexpenditureAdhocdisallowanceNotproper.
The tribunal held that disallowance for bills and vouchers not verifiable made after discussion
with assessee cannot be challenged. Ad hoc disallowance without pointing out nature of
discrepanciesandheadoftowhichexpenditurerelateddisallowanceisnotproper.(A.Y.2008
09).
ManjitMann(Mrs.)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.37(1):BusinessexpenditureForeignshowsDisallowanceconfirmed.
The Tribunal held that the Assessee unable to explain nature of expenditure and date of
incurrenceofforeignshow.Expenditurebookedbyassesseeondatesatvariancewithdatesof
foreignshows.Disallowancewasconfirmed.(A.Y.200607)
GurudasMann.(Mrs)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueRepairandmaintenanceNotinnatureof
replacementiscapitalinnature.
The Tribunal held that expenditure on purchase of new furniture not replacement hence
capital expenditure, not allowable. The Tribunal also held that there was no material to show
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replacementofelectricinstallationornatureofelectricinstallationreplacedhencedeductionis
notallowable.(A.Y.200708)
GurudasMann(Mrs)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.37(1):BusinessexpenditureBrokerageCommissionTDSdeductedallowablebalance
disallowancewasconfirmed.
Assessee is engaged in real estate development. Out of the total expenses claimed under the
headBrokerageandcommission,theAssessingOfficerholdingthatinthislineofbusinessof
land transactions the average percentage of commission and brokerage was one per cent.,
disallowedthebalance.TheCommissioner(Appeals)examinedthematterindetailandcameto
theviewthatexpensesoncommissionandbrokeragecharges,onwhichtaxhadbeendeducted
atsourceandremittedtothetreasury,weregenuineaccordingtothefactsplacedbeforehim
and accordingly allowed the assessee relief and Confirmed the disallowance of Rs 4,44, 342.
Tribunal confirmed the order of Commissioner (Appeals) and dismissed the cross appeal of
assessee.(A.Y.20062007,20072008)
ITOv.NamEstatesP.Ltd(2013)141ITD659/21ITR109(Bang.)(Trib.)
S.37(1):BusinessexpenditureForeigntourexpensesofaccompanyingspouseDisallowance
heldtobeproper.
The assessee claimed the foreign tour expenses of accompanying spouse of directors of
assesseecompany. As the assessee failedto provide any evidence disallowance of such
expense,washeldtobeproper.(A.Y.20052006)
HarinagarSugarMillsLtd.v.ACIT[2013]21ITR383/57SOT145(Mum.)(Trib.)
S.37(1):BusinessexpenditureClubexpensesAllowable.
Tribunalheldthatthedisallowanceunderthehead"clubexpenditure"wasnotjustified.(A.Y.
20012002)
JindalIronandSteelCo.Ltd.v.Dy.CIT[2013]21ITR414/57SOT317(Mum.)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueRepairsofflatsorbuildings.
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Expenditure incurred in connection with sofa, recreation central table, electrical fittings and
designconsultancyandsupervisionchargeswasinthenatureofcapitalexpenditure,whilethe
remaining amount of the impugned expenditure was revenue in nature as it was incurred for
maintenance/repairsofthefixedassetsviz.,buildingsorstructures.(A.Y.200203)
LintasIndia(P)Ltd.v.ACIT(2013)83DTR263(Mum.)(Trib.)
S.37(1):BusinessexpenditureProvisionforwarrantyisallowableasdeduction.
Tribunalheldthatcourtshaveconsistentlyheldtheviewthatliabilityforprovisionforwarranty
for replacement on account of manufacturing defects arises at the time of sale and is to be
allowedasdeductioninthatyearonthebasisofrational/scientificestimate,notwithstanding
thattheexactamountofliabilityisascertainedatalaterdate.Tribunalfollowedthedecisionof
HonbleApexCourtinthecaseofRotakControlsIndiaP.Ltd.vs.CIT(2009)314ITR62(SC)and
heldthatprovisionforwarrantymadebytheassesseeisallowable.(A.Y.200607)
GoodyearIndiaLtd.v.Dy.CIT(2013)143ITD35/152TTJ458/83DTR233.(Delhi)(Trib.)
S.37(3):BusinessexpenditureTransithouseNotdeductible.[S.37(4),(37(5)]
Following the ratio in Britania Industries Ltd v. CIT (2005) 278 ITR 546(SC), theCourt held that
the expenditure on maintenance of a transit house was not deductible. (A.Y. 19831984 to
19901991)
CITv.RassiCementsLtd.(2013)351ITR169(AP)(HC)
CITv.DeccanCementsLtd.(2013)351ITR169(AP)(HC)
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S.37(4):Business expenditureMaintenance of accommodation for employees and executives
for duration of projects outside India is not Guest house expenses the said expenses is
allowable.
The assessee had to execute a project outside India. It had contracted for supply of labour
servicesespeciallyprovidingfortemporaryaccommodationtoitsworkersandemployees.The
intention of the assessee was not to provide "guest house" accommodation for those who
visited the project site on "tour" or "visit". In other words, even though the accommodation
providedwasfortheentiredurationoftheproject,whatwassoughttobecoveredbysection
37(4) and 37(5), was the type of accommodation provided to the employee who merely used
them on transitory or temporary basis and not in the circumstances of the assessee's case.
Therefore, the expenses incurred by the assessee on the maintenance of accommodation
providedtoitsemployeesandexecutivesoutsideIndiawasallowable.
CITv.AnsalPropertiesandIndustriesLtd.(2013)352ITR637/87DTR360(Delhi)(HC)
S.37(4):BusinessexpenditureInsurancebusinessExpenditureonguesthouse.(S.44,Sch.I,
r.5)
Payment on account of expenditure on lease rent, taxes and repairs and maintenance of a
guest house was not allowable. Britannia Industries Ltd. v. CIT & Anr. (2005) 278 ITR 546 (SC)
followed.(A.Y.198081,198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)83DTR185(Delhi)(HC)
S.37(4):BusinessexpenditureGuesthouserentcannotbeallowedasdeduction.
Rentofguesthousepaidcannotbeallowedasdeduction(A.Y.199394)
CITv.ForbasEwart(P)Ltd.(2013)81DTR436(Ker.)(HC)
S.40(a)(i): Amounts not deductible Deduction at source Outside India Fes for technical
services Income deemed to accrue or arise in IndiaFess for technical services
[S.9(1)(vii)(b),195]
AssesseeisinbusinessofprovidingunderwaterdivingservicesinSaudiArabiaunderacontract
andpaidfeestononresidentdiversthere.BusinesscarriedonoutsideIndiaforearningincome
from a source outside India, no deduction at source liability would arise, hence disallowance
undersection40(a)(i)couldnotbemade.(A.Y.200809)
AquaOmegaServices(P.)Ltd.v.ACIT(2013)141ITD434(Chennai)(Trib.)
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TheTaxpayer,anIndiancompany,wasasubsidiaryofacompanyincorporatedinNetherlands
(Parent company). During the relevant assessment year , the Tax payer made two types of
payments to the parent company on which taxes were not with held on the ground that the
same amounted to reimbursement, Viz (1) Payment in respect of common expenses borne by
the parent company for various group companies in respect of accounting services, legal and
professional services, communication, R&D etc. These payments were incurred by the parent
companyonbehalfoftaxpayerandothergroupcompaniesandthesamewererecovered.(ii)
Payments in respect of expenses for training services availed by the tax payer from
independentthirdpartyandforwhichthepaymentwasroutedthroughparentcompany.Such
trainingserviceswerearrangedbytheparentcompanywhichpaidtothirdpartiesandlateron
received the amount from the tax payer on actual basis. The Assessing Officer held that the
assesseewasliabletodeducttaxatsource.TheCommissioner(Appeals)upheldtheactionof
Assessing Officer. On appeal the Tribunal held that reimbursement of expenses to holding
company is not an income under the Act and hence not chargeable to tax. Expenses routed
through holding company for payment to third party not in the nature of reimbursement of
expenses and liable to withholding by evaluating tax implications in the hands of the third
party.(A.Y.200607)
C.U.Inspections(I)PvtLtdv.DCIT(2013)BCAJMayP.54/142ITD761(Mum.)(Trib.)
S.40(a)(ia):AmountsnotdeductibleReimbursementsofsalarySisterconcern.
The Assessing Officer disallowed the amount paid by the assessee to its sister concern for
payment of salaries to the latters employees deputed to assessee, since assessee did not
deducttaxatsourcewhilemakingsaidpayment.Itwasnotcaseofrevenuethatassesseehad
made any payment for consideration extraneous to cost of employees deputed to it nor was
thereanyallegationthatamountpaidtoitssisterconcernswasoverandabovesalariesdueto
employees.Thus,theTribunalconcludedthatexpenditurewasincurredforsalariesand,there
wasnooccasiontoinvokeS.40(a)(ia).Sincethiswasafindingoffact,nosubstantialquestionof
lawarosetherefrom.
CITv.OCBEngineers(2013)214Taxman121(Mag.)(Bom.)(HC)
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deductionwasmadeormoreflagrantlydeductionthoughmadeisnotpaidtotheGovernment,
wouldescapetheconsequenceonlybecausetheamountwasalreadypaidoverbeforetheend
of the yearin contrast to another assessee who would otherwise be in similar situation but in
whose case the amount remained payable till the end of the year. There is no logic why the
legislature would have desired to bring about such irreconcilable and diverse consequences.
Secondly, the principle of deliberate or conscious omission is applied mainly when an existing
provision is amended and a change is brought about. The Special Bench was wrong in
comparing the language used in the draft bill to that used in the final enactment to assign a
particularmeaningtos.40(a)(ia).Accordingly,MerilynShippingdoesnotlaydowncorrectlaw.
Thecorrectlawisthats.40(a)(ia)coversnotonlytotheamountswhicharepayableason31th
Marchofaparticularyearbutalsowhicharepayableatanytimeduringtheyear.
CITv.SikandarkhanN.Tunvar(Guj.)(HC)www.itatonline.org.
S.40(a)(ia):AmountsnotdeductibleTaxdeductedatsourceTaxdeductedbutnotpaidTax
deducted during MarchDeduction was allowedAmendment by Finance Act 2008 was held
retrospectivewitheffectfrom142005.
TheassesseefirmclaimeddeductionofthepaymentmadetoitscontractorsforFinancialyear
200405. The Assessing Officer found that the tax deducted at source was not paid within the
stipulated period. He invoked provisions of section 40(a)(ia) and disallowed the claim. The
Commissioner (Appeals) allowed the claim on the basis of amendment in section 40(a)(ia) by
Finance Act, 2008 giving retrospective effect from 142005.The Tribunal held that as per the
amendment,iftaxdeductedduringthelastmonthofpreviousyearwaspaidonorbeforethe
duedatespecifiedinsection139(1)disallowancecouldnotbemade.He,therefore,upheldthe
orderofCommissioner(Appeals).Itisnotindisputethatonthedatetheassesseedeductedthe
tax, he had to pay/remit the money within seven days from that date and if the amount is
actuallypaidwhenthecreditisgiven,thenthetaxispayablewithintwomonths.Intheinstant
case, assessee did not comply with the legal requirement; therefore, the Assessing Authority
wasjustifiedinmakingthedisallowance,butonthedatetheappealwasfiled,thesectioncame
to be amended, giving retrospective benefit. Therefore, the appellate authority extended the
benefitoftheamendedprovisionandheldthatthedisallowanceispaidandtheorderhasbeen
upheldbytheTribunal.ByFinanceAct,2008whichisgivenretrospectiveeffectfrom142005,
the benefit of that provision had been extended to the assessee, though no fault was found
with the assessment order passed initially. With change of law, when the effect of the
amendment is to give benefit to the assessee, the appellate authority and the Tribunal were
justifiedinextendingthesaidbenefit.Thus,orderpassedbytheTribunalisinaccordancewith
lawanddoesnotcallforinterference.Therefore,thesubstantialquestionoflawisansweredin
favouroftheassessee.(A.Y.200506)
ITOv.AnilKumar&Co.(2013)354ITR170/214Taxman202(Karn.)(HC)
S.40(a)(ia):Amounts not deductible Deduction at source Amount paid during the year
FreightchargesSpecialBenchverdictinMerilynShippingisnotgoodlaw.(S.194C)
The assessee incurred expenditure of Rs. 31 lakhs on freight but did not deduct TDS thereon
u/s194C.TheAOheldthatastherewasafailuretodeductTDS,theexpenditurecouldnotbe
allowedasadeductionu/s40(a)(ia).However,theCIT(A)allowedtheclaimonthegroundthat
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thefreightchargewasapartofthepriceofthegoodsandtherewasnocontractbetweenthe
assesseeandthetransporter.Onappealbythedepartment,theTribunaldismissedtheappeal
by relying on the Special Bench verdict in Merilyn Shipping & Transports Ltd. (2012) 146 TTJ 1
(Viz)(SB)whereitwasheld(byamajority)thats.40(a)(ia)hadnoapplicationtoamountsthat
werealreadypaidduringtheyearbutitwasconfinedtoamountsremainingpayableasat
theendoftheyear.Onfurtherappealbythedepartment,HELDreversingtheTribunal:
Wealreadyhavedeliveredajudgmenton3rdApril,2013inITATNo.20of2013,G.A.No.190
of2013(CIT,KolkataXIVs.CrescentExportSyndicates)holdingthattheviewsexpressedinthe
case of Merilyn Shipping & Transports (ITA.477/Viz./2008 dated 20.3.2012) were not
acceptable. That is one reason why the matter should be remanded to the Tribunal. Another
reasonforremandingthemattertotheTribunalisthatthefindingoffactsrecordedbytheCIT
(Appeal)wasnottestedbytheTribunal.Fortheaforesaidreasons,theorderunderchallengeis
setasideandthematterisremandedtotheTribunalforadecisiondenovo.
CITv.Md.JakirHossainMondal(Cal.)(HC).itatonline.org
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceAirfreightpaidtoforeignAirlines
DTAAIndiaSingaporeUAE / Switzerland / Bahrain / Qatar / UK / ChinaMatter remanded.
[S.90,195,197,Art8]
Assessee firm is engaged in business of export of gift articles and promotional items. It made
payments of air fare to freight agents located abroad without deducting tax at source.
AssessingOfficerdisallowedsaidpayments,onthegroundthatthepaymentswerenotmade
directlybytheassesseetoairlinesbutthensamewasmadetodifferentpartieswhoactedas
freight agents. The Assessing officer also held that said parties had also not furnished any
certificate issued under section 197 for non deduction of tax at source. He disallowed the
freight charges under section 40(a)(ia).Commissioner (Appeals) relying on Circular No. 723
dated1991995andarticle8ofconcernedDTAAs,heldthatsaidpaymentswereexemptfrom
tax and assessee was not obliged to deduct tax at source. On appeal the Tribunal held that
sinceCommissioner(Appeals)didnotshowastohowpaymentinquestionwereexempteither
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underrelevanttaxtreatiesorBoardscircular,impugnedorderwassetasideand,matterwas
toberemandedbackfordisposalfresh.(A.Y.200607)
ACITv.S.R.Brothers(2013)141ITD194(Mum.)(Trib.)
S.40(a)(ia):AmountsnotdeductibleIdentityoflabourersDeductionatsourcePaymentto
sardarsDisallowancewasnotjustified.[S.80P,194C]
The assesseesociety was a civil contractor and filed return claimed deduction under section
80P.Thelabourchargespaidbytheassesseeweremeantnotforthelabourersdirectlybutfor
thesardars,whoweretoidentifythelabourersbeingpaidlessthanRs.50,000each.Thesum
couldnotbeconsideredfordisallowanceundersection40(a)(ia),insofarasitcouldnotbesaid
that the sardars were to be subjected to deduction of tax at source only on that part of their
paymentsmeantforthelabourerswhomtheyhadidentified.(A.Y.20082009)
AristoconEngineersCooperativeSocietyLtd.v.DCIT(2013)24ITR42(Kol.)(Trib.)
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wasafailure,theexpenditurewasnotallowableu/s40(a)(i).ThiswasdeletedbytheCIT(A)on
thegroundthatGoogleandYahoodidnothaveaPEinIndia.Onappealbythedepartmentto
theTribunal,HELDdismissingtheappeal:
U/s5(2)(b),incomeaccruingorarisinginIndiaischargeabletotaxinIndia.Awebsitedoesnot
constitute a permanent establishment unless the servers on which websites are hosted are
also located in the same jurisdiction. As the servers of Google and Yahoo are not located in
India, there is no PE in India. As regards the second limb of s. 5(2) (b) of income deemed to
accrue or arise in India, one has to consider s. 9. S. 9(1) (i) does not apply as there is no
business connection in India nor are the online advertising revenues generated in India
serviced by any entity based in India. As regards s. 9(1) (vi), it is held in Yahoo India (P) Ltd.
(2011)140TTJ195(Mum)andPinstormTechnologies(P)Ltd.(2012)54SOT78(Mum)thatthe
advertisingrevenuesarenotassessableasroyalty.Asregardss.9(1)(vii),theservicesarenot
managerial or consultancy in nature as both these words involve a human element.
Applyingtheruleofnosciturasociis,eventhewordtechnicalinExplanation2tos.9(1)(vii)
wouldhavetobeconstruedasinvolvingahumanelement.Ifthereisnohumaninterventionin
atechnicalservice,itcannotbetreatedasatechnicalserviceu/s9(1)(vii).Onfacts,theservice
renderedbyGoogle&Yahooisgenerationofcertaintextonthesearchengineresultpage.This
is a wholly automated process. In the services rendered by the search engines, which provide
these advertising opportunities, there is no human touch at all. The results are completely
automated. Consequently, the whole process of actual advertising service provided by Google
& Yahoo, even if it be a technical service, is not covered by the limited scope of s. 9(1) (vii).
Consequently, the receipts in respect of online advertising on Google and Yahoo cannot be
brought to tax in India under the provisions of the Act or the India US and India Ireland tax
treaty.(A.Y.200506)
ITOv.RightFloristsPvt.Ltd.(2013)86DTR165/154TTJ142(Kol.)(Trib.)
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceDumperhirechargesContractor
SpecialBenchverdictbindingdespitesuspensionbyHighCourt.(S.194C)
TheassesseepaiddumperhirechargesofRs.36.37lakhsandclaimeditasadeduction.TheAO
disallowed the claim u/s 40(a) (ia) on the ground that the assessee had not deducted TDS
thereonu/s194C.BeforetheTribunal,theassesseearguedthatitwasnotliabletodeductTDS
u/s194Castherewasonlynocontractualagreement.Inthealternative,itwasarguedthatin
accordance with the Special Bench judgement in Merilyn Shipping& Transports v. Add. CIT
(2012) 136 ITD 23 (SB), the disallowance u/s 40(a) (ia) had to be confined to the amounts
payableasattheendoftheyearanditdidnotapplytotheamountsalreadypaidduringthe
year. The assessee also argued that though the Andhra Pradesh High Court had granted an
interimsuspensionagainstthesaidjudgementoftheSpecialBench,itwasstillbinding.Held
bytheTribunal:
Theargumentthats.194Cdoesnotapplyintheabsenceofawrittencontractualagreementis
not acceptable. Even a verbal contract is sufficient. As regards the judgement of the Special
Bench in Merilyn Shipping& Transports v Add. CIT (2012) 136 ITD 23 (SB) where the view was
taken that s. 40(a) (ia) can apply only to the amounts remaining payable as at the end of the
year and not to the amounts paid during theyear,though the AndhraPradesh High Court has
granted interim suspension of the said judgement, the said stay/ suspension applies only to
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thepartiestothatproceedinganddoesnotdestroythebindingeffectofthejudgementofthe
SpecialBench.Thereisadifferencebetweenstayofoperationofanorderandquashingof
anorder.While,inthecaseofaquashing,theorderofthelowercourtceasestoexist,inthe
case of a stay, the order of the lower court continues to operate and have binding effect.
Accordingly,thejudgementoftheSpecialBenchinMerilynShippingstillholdsgroundandthe
TDS provisions will apply, for purposes of invocation of s. 40(a) (ia), only on the amounts
remaining payable at the end of the year and not on the amounts paid (Shree Chamund
MopedsLtd.vs.ChurchofSouthIndiaTrustAssociationAIR1992SC1439,1444&PijushKanti
Chowdhuryvs.StateofWestBengal2007(3)CHN178followed).(A.Y.200708)
ITOv.MGBTransport(2013)23ITR391(Kol.)(Trib.).
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceContractorTransportationcharges
paidbeforeendoffinancialyearrelevanttoassessmentyeardisallowanceofchargesfor
failuretodeducttaxatsourcenotproper.(S.194C)
Theassesseeclaimeddeductionofexpendituretowardstransportation charges.TheAssessing
Officerdisallowedthetransportationchargespaidundersection40(a)(ia)oftheAct,asnotax
was deducted at source while making the payment. The Commissioner (Appeals)set aside the
Assessing Officer's order. On appeal by the Department the Tribunal held that the entire
expenditureinrespectoftransportationchargeswaspaidduringthefinancialyearrelevantto
the assessment year under consideration. The balancesheet as on March 31, 2007 indicated
that there were no liabilities which meant that the assessee had paid the transportation
charges before the end of the financial year relevant to the assessment year under
consideration.Therefore,therewasnojustificationinmakingthedisallowancebytheAssessing
Officer under section 40(a) (ia) of the Act. Merilyn Shipping and Transports v. Addl. CIT [2012]
16ITR(Trib)1(Visakhapatnam)[SB]followed.(A.Y.20072008)
ITOv.VinodDatta(2013)22ITR243(Mum.)(Trib.)
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceMatterremanded.
ThetribunalfollowingthejudgmentofSpecialBenchinMerilynShippingandTransportsv.Addl
CIT (2012) 16 ITR 1 (Trib.) (SB) held thatif the amounts paid during the year under
consideration,
Nodisallowancewarranted.Matterremanded.(A.Y.200708).
GurudasMannv.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
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S.40(a)(ia):AmountsnotdeductibleRoyaltySatellitelinkchargesNotliabletodeductionof
taxatsource.(S.201)
Paymentsforsatellitelinkchargesforuseofstandardfacilityisnotroyaltyhencenotliableto
deductionoftaxatsource.Tribunalholdinginfavourofassesseeinproceedingsarisingoutof
section201 proceedingssameisfollowedinproceedingsarisingoutof assessment.(A.Y.2006
2007)
WillsProcessingServices(India)P.Ltd.v.Dy.CIT[2013]21ITR1/151TTJ555/57SOT34(URO)
(Mum.)(Trib.)
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceRoyaltyPaymentforpurchaseof
softwareassesseeisnotliabletodeducttaxatsource.(S.9(1)(vi).)
Assessee is engaged in the business of purchase and sale of software. While computing its
income from business the assessee had claimed expenditures on account of service charges
paidtoSSC(SonataSoftwareLtd.)anddeputationchargesinrespectofpersonneldeputedby
SSC (Sonata Software Ltd.). Book the expenses were allowed by Tribunal by following the
Tribunal decision in assessees own case for earlier years. The assessee made payment for
purchase of software from persons who are resident in India. The assessee did not deduct tax
at source while making payment towards such purchases. The Assessing Officer treated the
paymentasroyaltyonthebasisthattheassesseeasapurchaserofthesoftwarehadarightto
usethesoftware.TheCIT(A)deletedtheadditionmadebyAssessingOfficer.TheTribunalheld
thatthepaymentmadebyassesseeforpurchaseofsoftwarefromvariousresidententitieswas
not in nature of royalty and therefore, there was no obligation on the part of assessee to
deduct tax at source from such payment and consequently no disallowance of the payments
canbemadeundersection40(a)(ia)fornondeductionoftaxatsource.(A.Y.200607)
ACIT v. Sonata Information Technology Ltd. (2013) 152 TTJ 590 / 55 SOT 455/ 82 DTR 337
(Mum.)(Trib.)
S.40(a)(ii):AmountsnotdeductibleRatesortaxDividendtaxInterestfordelayinremitting
taxdeductedatsourceExpensesincurredfordelayinUTIdividendpaymentsisnot
deductible.[S.2(43,37(1)].
TheTribunalheldthatthedelaychargesattributabletodividendtaxpartookofthecharacterof
dividendtaxitself.Dividendtaxassuchisnotdeductible.Thereforethedelaychargesalsowere
notdeductible.Thesamewasthecaseinrespectofinterestfordelayinremittingtaxdeducted
at source. There cannot be a different view on expenses incurred for delay in UTI dividend
payments. Therefore, these expenses claimed by the assessee were not deductible in
computingitsincome.(A.Ys.20032004,20042005)
ACITv.SRASystemsLtd.(2013)22ITR205(Chennai)(Trib.)
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S.40(b):AmountsnotdeductiblePartnerSalaryHeldtobeallowable.
TheassesseefirmclaimedsalaryofRs2.20lakhspaidtoitsfulltimeworkingpartner,whowas
47 years age and graduate. The Assessing Officer allowed Rs 36,000 and the Commissioner
(Appeals) allowed Rs 1,20,000.The statement of partner was recorded under section 131
proved that the partner knew the operation of business. Tribunal held that partner's salary
couldnotbeestimatedwithoutconsideringanycomparativecaseorlayingfoundationforsuch
estimation.Deductionofsalarypaidtoapartnerwasrestrictedtoloweramountongroundof
age factor and qualification. She was full time working partner, she knew operations of firm's
business,amountpaidassalarywasallowable.(A.Y.200506)
S.B.Agenciesv.ACIT(2013)141ITD669(Cal)(Trib.)
S.40(b):AmountsnotdeductibleFirmBookprofitIncomefromOtherSourceincludedinP&L
a/cCannotbediscardedquabookprofitforcomputationofremunerationpayableto
partners.
The assesseefirm derived its income from profession as an advocate. In the profit and loss
account, the assesseefirm credited certain amount received as licence fee and compensation
foruseofsharedfacilities.Inthecourseofassessment,theAssessingOfficeropinedthatsince
the aforesaid income was not a professional income, the same could not form part of 'book
profit'forcomputationofallowableremunerationtopartnersundersection40(b).Itwasheld
that Income from other sources included in profit and loss account to ascertain net profit
cannotbediscardedquabookprofitforcomputationofremunerationpayabletopartners.The
Tribunalallowedtheappealofassessee.(A.Y.200506)
SureshA.Shroff&Co.v.JCIT(2013)140ITD1/153TTJ666/85DTR446(Mum.)(Trib.)
S.40(b)(v):AmountsnotdeductiblePartnerRemunerationPartnershipdeedspecifically
providingforpaymentofremunerationtoworkingpartners,remunerationpaidto
partnerswerewithinstatutoryfixedlimithencenodisallowanceongroundexpenditure
excessive.(S.40A(2))
Whileconsideringtheprovisionsofsection40(b)(v)readwithsection40A(2)(a),theCourtheld
thattheAssessingOfficerisonlyrequiredtoseewhetherthepartnersaretheworkingpartners
mentioned in the partnership deed, the terms and conditions of the partnership deed provide
forpaymentofremunerationtotheworkingpartnersandwhethertheremunerationprovided
iswithinthelimitsprescribedundersection40(b)(v).Ifalltheconditionsarefulfilledhecannot
disallowanypartoftheremunerationonthegroundthatitisexcessive.(A.Y.200506)
CITv.GreatCityManufacturingCo.(2013)351ITR156/256CTR420/83DTR13(All)(HC)
S.40A(2):ExpensesorpaymentsnotdeductibleDirectorsremunerationcomparingwithjob
profileisheldtobeallowable.
The job profile was of one of the directors was client management whereas the job profile of
another was that of media consultant. Therefore, these cases were not comparable. The
assessee was in the business of advertising and media. In such a business, the role of a media
consultant was much more important than the role of a client management. Thus, the
disallowancemadewasthustobedeleted(A.Y.20052006)
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HiveCommunicationsP.Ltd.v.CIT(2013)353ITR200(Delhi)(HC)
S.40A(2):ExpensesorpaymentsnotdeductibleReasonablenessofexpenditureNoadhoc
disallowancecanbemade.
IntheROI,theassesseeclaimedthatcertainresourceslikestaff,officepremises,etc.,hadbeen
used commonly both by the assessee company and its parent company and expenses relating
totheseresourcedhadbeenshared.TheRevenueauthoritiesheldthatsinceassesseefailedto
prove that expenses incurred through associate companies were reasonable and at arm's
length,consideringservicesrenderedbyassessee,apartofsaidexpenseswastobedisallowed.
Held, since it was apparent from records that arrangement of expenses was correct and bona
fide and was in accordance with terms of agreement between both parties, no ad hoc
disallowanceofanyamountwascalledfor(A.Y.200708)
GlobalInnovsourceSearchSolutions(P.)Ltd.vITO(2013)57SOT139(Mum.)(Trib.)
S.40A(2):ExpensesorpaymentsnotdeductibleExcessorunreasonableCommission
DisallowancemadebytheAssessingOfficerwasdeleted.
Assessee is carrying on business of job work and sale of ceramic catalyst items. It paid sales
commission to a partnership firm 'R' in which assessee was also a partner. According to
assessee, marketing services rendered by 'R' included obtaining orders, visiting parties,
collection of payment etc. Assessing Officer took a view that receipt of job work by assessee
was a repetitive process and, in such a case, third party services were not required. He thus
disallowed payment of sales commission by invoking provision of section 40A(2) (b). Tribunal
heldthat,Itwasundisputedthatsalespromotioncommissionpaidto'R'wasallowedinearlier
years. Moreover, revenue failed to bring on record evidence showing that expenses incurred
wereexcessiveorunreasonable,inviewofabove,impugneddisallowancemadeundersection
40A(2)(b)wastobedeleted.Infavourofassessee.(A.Y.200607)
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Dy.CITv.RaviCeramics.(2013)55SOT160(Ahd.)(Trib.)
S.40A(3):ExpensesorpaymentsnotdeductibleCashpaymentsexceedingprescribedlimits
SalaryExceedingprescribedlimitDisallowancewasheldtobejustified.(S.147)
Return of assesseecompany was processed under section 143(1) Subsequently, Assessing
Officer having found that assessee had paid salary to its managing director in cash exceeding
Rs. 20,000 and also claimed nonbusiness expenses initiated reassessment proceedings and
thereafter disallowed said expenses. Tribunal upheld finding of Assessing Officer. Court held
that no substantial question of law arose out of order of Tribunal. In favour of revenue.
(A.Y.200203)
RajasthanTelematicsLtd.v.ACIT(2013)213Taxman44(Mag.)(Raj)(HC)
S.40A(3): Expenses or payments not deductible Cash payments exceeding prescribed limit
AgriculturalproduceKachchaArahtia.[IncometaxRules1962,Rule6DD]
Assessee acted as Pakka Arahtia and made cash purchases of agricultural produce through
Kachcha Arahtias who in order to facilitate , sale o agricultural produce, with farmers brought
toMandi,hadtakencommissionfromPakkaArathia.ie.Assessee.KachchaArahtiashadfiled
affidavitsthatcashpaymentsweremadeattheirinsistenceastheydidnotmaintainanybank
accounts.Furthertheyhadtomakepaymentstofarmersincash.Tribunalheldthatthecase
of assesseewas clearlycovered byexceptions provided under rule 6DD no disallowancecould
bemadeundersection40A(3)(A.Y.200607)
ITOv.SunilKumarAgarwal(2013)141ITD309(Agra)(Trib.)
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were self made to come out of clutches of section 40(A)(3) and assessee had failed to
substantiateitsclaim,disallowancemadebytheAssessingOfficerwasjustified.(A.Y.200708)
RamanMahajan,HUFv.ITO(2013)141ITD485(Asr.)(Trib.)
S.40A(9):ExpensesorpaymentsnotdeductibleNonstatutoryfundsEvidence.
Where the contribution to employees welfare trust etc. being nonstatutory funds were
claimed to have been made as per agreement with workers' union under Industrial Disputes
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Act, 1947, but there was no evidence of such agreement, amount of contributions were not
allowable.(A.Y.200304)
GreavesCottonLtd.v.ITO(2013)57SOT158(Mum.)(Trib.)
S.41(1):ProfitschargeabletotaxRemissionorcessationoftradingliabilitySincetherewasno
declaration by assessee that it did not intend to honour its liabilities nor was there any
dischargeofdebt,provisionsofsection41(1)couldnotbeinvoked.
Assessing Officer finding that assessee had not paid money to many of creditors for years
together added same as income under provisions of section 41 (1).Court held that since there
wasnodeclarationbyassesseethatitdidnotintendtohonouritsliabilitiesnorwasthereany
dischargeofdebt,provisionsofsection41(1)couldnotbeinvoked.Cessationofliabilityhasto
be either by reason of operation of law, i.e., on liability becoming unenforceable at law by
creditor and debtor declaring unequivocally his intention not to honour his liability when
payment is demanded by creditor, or a contract between parties, or by discharge of debt. In
favourofassessee.(A.Y.200607)
CITv.G.K.Patel&Co.(2013)212Taxman384(Guj.)(HC)
S.41(1):ProfitschargeabletaxRemissionorcessationoftradingliabilityUnclaimedliability
Entirecreditcannotbebroughttontax.
Assesseeconsistentlyfollowedamethodofaccountingwherebyitismaintainingprovisionfor
unclaimedliabilitiesandofferingtheunclaimedamountstotaxaftertheendofthethreeyear
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limitation period, entire credit in the said account cannot be brought to tax as income of the
relevantyear.(A.Y.200203)
LintasIndia(P)Ltd.v.ACIT(2013)83DTR263(Mum.)(Trib.)
S.43(1):ActualCostCustomsdutyDepreciationCustomdutypaidtobeconsideredaspartof
actualcostforthepurposeofallowingdepreciation.(S.32)
AssseseepurchasedmachineryfromacompanylocatedinUSA.Itclaimeddepreciationatrate
of 25 per cent on actual cost of machinery worth Rs. one crore. Assessing Officer pointed out
that written down value of machinery in books of account of assessee was Rs. 75.73 lakhs,
which was to be taken as actual cost for purpose of granting depreciation. Tribunal upheld
order of Assessing Officer. On appeal, assessee furnished copies of invoices and pointed out
that Assessing Officer had omitted to take note of payment of ad valorem custom duty which
was to be included in actual cost of machinery for purpose of allowing depreciation. On facts,
totalcostclaimedbyassesseeasRs.onecrorestoodexplainedand,therefore,assessee'sclaim
wastobeallowed.Infavourofassessee.(A.Y.199697)
Dy.CITv.FirstLeasingCo.ofIndiaLtd.(2013)212Taxman417(Mad.)(HC)
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Thoughtheassesseeisnotadealerinforeignexchange,itenteredintoforwardcontractswith
banks for the purpose of hedging the loss due to fluctuation in foreign exchange while
implementing the export contracts. The transactions in foreign exchanges were incidental to
theassesseesregularcourseofbusinessandthelosswasthusnotaspeculativelossu/s43(5)
but was incidental to the assessees business and allowable as such. The fact that there may
have been no direct corelation between the exchange document and the precise export
contract cannot be seen in isolation if there are in fact several separate contracts with the
bankers(CITv.SoorajmullNagarmull(1981)129ITR169(Cal)&CITv.BadridasGauridu(P)Ltd.
(2004)261ITR256(Bom)followed;M.G.Brothersv.CIT(1985)154ITR695(AP)distinguished)
CITv.FriendsAndFriendsShippingPvt.Ltd(Guj.)(HC)www.itatonline.org.
S.43(5):SpeculativetransactionLossonforeigncurrencyforwardcontractsbyamanufacturer
/exporterisaspeculationlossandnotahedgingloss.
The assessee, a dealer in diamonds, entered into forward contracts in US dollars. Some of the
contracts were cancelled during the year and some were outstanding at the end of the year.
The assessee suffered a loss of Rs. 4.02 crores on account of the cancellation and marked to
market of the said forward contracts and claimed that sum as a deduction. The AO & CIT(A),
reliedonInstructionNo.03/2010dated2332010andheldthatthesaidlossaroseonaccount
of a speculative transaction while the assessee claimed that it arose out of a hedging
transaction.HELDbytheTribunal:
Thereisadifferencebetweenaspeculativetransactionandahedgingtransaction.S.43(5)
definesaspeculativetransactiontomeanatransactioninwhichacontractforthepurchase
or sale of any commodity, including stocks and shares, is periodically or ultimately settled
otherwise than by the actual delivery or transfer of the commodity or scrips. Proviso (a) to s.
43(5)referstoahedgingtransactionasacontractinrespectofrawmaterialsormerchandise
enteredintobyapersoninthecourseofhismanufacturingormerchandisingbusinesstoguard
against loss through future price fluctuations in respect of his contracts for actual delivery of
goods manufactured by him or merchandise sold by him. In order for a transaction to be a
hedgingtransaction,thecommoditydealtinshouldbethesame.Ifthesubjectmatterofthe
transaction is different, it cannot be termed a hedging transaction. Also, the merchandise in
respectofwhichtheforwardtransactionshavebeenenteredintobytheassesseemusthavea
direct connection with the goods sold by him. On facts, as the assessee was not dealing in
Foreign Exchange, the forward transactions entered into by it cannot be held to be hedging
transactions. As the assessee is dealing in diamonds, only the forward contracts entered into
for diamonds would be covered by Proviso (a) to s. 43(5). Consequently, the loss suffered by
theassesseeisaspeculativeloss.(200809)
S.VinodkumarDiamondsPvt.Ltd.v.CIT(Mum.)(Trib.)www.itatonline.org.
S.43(5):Speculative transaction Speculative loss Losses from share trading activity and
futureandoptionstransactions.(S.28(i))
Assesseefiledalltheevidenceforclaiminglossfromsharetradingactivityincludingcopyofthe
timestampedcontractnotesissuedbythebrokerscontainingtheuniqueclientcodeandPAN
oftheassessee,theclaimoflosscannotbedisallowedmerelyonthegroundthatitisdirectly
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taken to the capital account without routing it through the P&L a/c nor it can be treated as a
speculation loss; matter is restored to the AO for the limited purpose of verifying whether
deliveryofshareshasbeentakenornot.(A.Y.200809)
ACITv.NaishadI.Parikh(2013)83DTR227(Ahd.)(Trib.)
S.43B:DeductionsonactualpaymentDuedateins.36(1)(va)forpaymentofemployees
Provident Fund, ESIC etc contribution should be read with s. 43B(b) to mean due date for
filingreturnofincome.[S.2(24(X),36(1)(va)]
The assessee collected employees Provident Fund contribution for payment to the provident
fund authorities. However, the amount was not paid to the provident fund authorities within
the due date specified in the Provident Fund Act though it was paid before the due date of
filing the return of income. The AO assessed the amounts received as income u/s 2(24)(x) but
refused to allow a deduction u/s 36(1)(va) on the ground that the amounts were not paid
within the prescribed due date. The CIT(A) and Tribunal allowed the assessees claim for
deductionu/s43B(b).TheDepartmentfiledanappealintheHighCourtclaimingthats.43Bdid
notapplytoemployeescontribution.HELDbytheHighCourtdismissingtheappeal:
S.2(24)(x) provides that the amounts of employees contribution to PF etc collected by the
employer shall be assessed as his income. S. 36(1)(va) provides that the said employees
contribution shall be allowed as a deduction if paid within the due date specified in the
relevantlegislation.S.43(B)(b)providesthatanysumpayablebytheassesseeasanemployer
bywayofcontributiontoanyprovidentfundetcshallbeallowedifpaidbeforetheduedateof
filing the ROI. The due date referred to in s. 36(1)(va) must be read in conjunction with s.
43B(b) to mean the due date of filing the ROI. The AO wrongly proceeded on the basis that
the due date in s. 36(1)(va) is the due date fixed by the Provident Fund authority, whereas
readinthecontextofs.43B(b)itistheduedatefixedforfilingtheROI.
CITv.KichhaSugarCompanyLtd.(Uttarakhand)(HC)www.itatonline.org.s
S.43B:Deductions on actual payment Payment of sales tax made beyond time provided
undertheprovisotosection43BoftheActAssesseenotentitletothebenefitprovidedby
proviso.(S.139(1))
Where the assessee does not make the payment of sales tax dues before filing its return of
incomeundersection139(1)oftheAct,theamountisliabletobedisallowedundersection43
BoftheAct.(A.Y.199394)
CITv.ForbasEwart(P)Ltd.(2013)81DTR436(Ker.)(HC)
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"sufficient"amountsinExcisePLA,asperRule173GofExciseRulestocovertheremovals,such
amounts related to assessee's duty liability, falling within the description under section 43B;
thus,revenue'scontentionthatamountsincreditalsorelatedtogoodsnotmanufactured,and
therefore, not relatable to any "liability incurred" had no basis. Thus, the Tribunal rightly held
that the amounts deposited by the assessee in the Excise PLA could not be disallowed under
section43B.(A.Y.199495).
CITv.MarutiSuzukiIndiaLtd.(2013)212Taxman603/81DTR152(Delhi)(HC)
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that employees contributions are also coveredby s. 43B. Though in AIMIL Ltd. (2010) 321 ITR
508(Del)itwasheldthatemployeescontributiontoEPFandESIfundsarecoveredbys.43B,it
cannotbefollowedbecause(i)theCourtmovedonthepremisethatemployeescontributionis
subjecttoclause(b)ofs.43Banddidnotnoticetheconditionins.36(1)(va),(ii)thedecisionby
thetribunal,whichwasapprovedbytheHighCourtinAIMILwasrenderedwithoutconsidering
thedecisionoftheSpecialBenchinITCLtd&(iii)itisinconsistentwithCITvGodaveri(Mannar)
Sahakari Sakhar Karkhana Ltd.(2008) 298 ITR 149 (Bom). Accordingly, AIMIL cannot be
followedandthedeductibilityofemployeescontributionhastobeseenonlywithreferenceto
s.36(1)(va)(togetherwithgraceperiod)(BengalChemicals&Pharmaceuticals(includedinfile)
&JCITv.ITCLtd(2008)112ITD57(Kol)(SB)followed)(A.Y.200809)
ITOv.LKPSecuritiesLtd.(Mum.)(Trib.)www.itatonline.org.
S.43B:Deductionson actual paymentService taxAmount paid before due date for filing
returnSection43Bisnotapplicable.
The assessee showed liabilities which included service tax payable in respect of which no
documentaryevidenceforpaymentwasfiled.TheAssessingOfficerpresumedthatsuchservice
taxhadnotbeenpaidanddisallowedtheservicetaxpayableundersection43BoftheAct.The
Commissioner(Appeals)deletingpartofthedisallowanceonthegroundthattheamountwas
paidbeforetheduedateoffilingofreturn,observedinrespectofthebalancethatservicetax
had not become payable and deleted the disallowance. Tribunal held that order of the
Commissioner(Appeals)wasjustified.(A.Y.20072008)
Dy.CITv.OviraLogisticsP.Ltd(2013)21ITR436/57SOT185(Mum.)(Trib.)
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S.43D:PublicFinancialinstitutionInterestCreditingtoreserveaccountProvisionIntereston
badordoubtfuldebtscouldbeclaimedasdeductionundersection43D.
Merecreditingofinteresttoareservecannotbesaidtobeanincidencebywhichsaidinterest
could be charged to tax. Where interest on loans granted by assesseebank remained unpaid
whichwereclassifiedasnonaccrualloansandwerereversedtoanaccountcalledReservefor
DoubtfulInterestaccount,assesseewouldbeentitledtoclaimdeductionundersection43Din
respect of said interest and simply on ground that interest had been credited on such type of
debtsinreserveaccount,deductioncouldnotbetakenaway.Appealofassesseewasallowed.
(A.Y.199899)
AmericanExpressBankLtd.v.Add.CIT(2013)55SOT136(Mum.)(Trib.)
S.44:InsurancebusinessProvisionfortaxanddeductionoftaxatsource.(Sch.I,r.5)
ProvisionfortaxandTDScouldnotbeaddedtothebalanceofprofitsdisclosedbytheannual
accountsofassesseeinsurancecompany.CITv.OrientalFireGeneralInsuranceCo.Ltd.(2007)
291ITR370(SC)followed.(A.Y.198081,198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)83DTR185(Delhi)(HC)
S.44BB:MineraloilsComputationNonResidentprovidinggeophysicalsurveyservicestooil
andgasexplorationindustry,provisionsofsection44BBisapplicableandnotsection44DA.
(S.9(1)(vii),44DA).
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Assessee, a nonresident, which is engaged in providing geophysical survey services to oil and
gas exploration industry by way of electromagnetic survey, processing and interpretation of
data. The court held that, assessee is engaged in activities mentioned in specific provisions of
section44BBand,henceitsprofitswillbecomputedaspersection44BBandnotsection44DA.
Infavourofassessee.
DTIv.OHMLtd.(2013)352ITR406/212Taxman440/84DTR142/259CTR407(Delhi)(HC)
S.44BB:MineraloilPermanentestablishmentRemunerationreceivedisnottaxable.DTAA
IndiaUSA.(Art.7)
Assessee,aUSenterprisenothavingpermanentestablishmentinIndia,wouldnotcomewithin
purviewofsection44BBeveninrespectofremunerationreceivedbyitinconnectionwithany
matterprovidedinsection44BB.Infavourofassessee.
CIT v. Enron Oil & Gas Expat Services Inc. Dehradun (2013) 213 Taxman 44/29 Taxman.com
419(Uttarakhand)(HC)
S.44C:NonresidentsHeadofficeexpenditureApplicationofprovision.
TheassesseeclaimeddeductionforheadofficeexpensesatRs.1.06croreonthegroundthatit
wasdirectlyattributabletotheIndianbranch.Assesseeclaimedthattheceilingprovidedunder
section 44C would not apply. The Assessing Officer, however, observed from the invoices
submittedbytheassesseethattheexpensesinquestionwere'allocated'totheassesseebythe
head office; that in some cases the basis of allocation was not given. The Assessing Officer,
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therefore,heldsuchamountofRs.1.06croretobecoveredwithintheceilingprescribedunder
section44C.Onappealbytheassessee,theCommissioner(Appeals)directedAssessingOfficer
toallowindependentdeductiondistinctfromsection44C.Beingaggrievedagainstorderofthe
Commissioner (Appeals), the revenue raised instant ground of appeal. Tribunal heldthat
sincetheassesseecouldnotproduceanyevidencetoprovethatheadofficeexpensestotuneof
Rs.1.06croreweredirectlyattributabletoIndianbranch,suchexpensescouldonlybeallowed
within ceiling prescribed under section 44C Decided in favour of revenue (A.Y. 199495 1998
99to200001)
Dy. CITv.Banque Indosuez (Known as Credit Agricole Indosuez) (2013) 55 SOT 38 (Mum.)
(Trib.)
S.44C:NonresidentsHeadofficeexpenditureDirectiontodeductionofindependentof
provisionsofsection44CisjustifiedRateoftaxForeignbankRateapplicabletonon
residentcompaniesisjustified.
Commissioner (Appeals) directed the Assessing Officer to allow the assessee deduction of Rs.
48,60,008 independentof the provisions of section 44C of the ActTribunal held that the order
of the Commissioner (Appeals) was justified. The assessee's income was taxed at the higher
rateof55percentasapplicabletononresidentcompanies.Held,thattheorderwasjustified.
(A.Y.19971998)
ADIT(Int.)v.CreditAgricoleIndosuez(2013)21ITR345(Mum.)(Trib.)
(ii)ThattheinterestpaidbytheIndianpermanentestablishmenttoitsoverseasheadofficeor
branchesshouldalsonotbeallowedasdeduction.(A.Y.19971998)
ADIT(Int.)v.CreditAgricoleIndosuez(2013)21ITR345(Mum.)(Trib.)
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S.44D: Foreign companies Computation of gross receipt Service tax is not part of gross
receipt.[S.115A]
Service tax was not part of gross receipt that was to be taxed under section 44D, read with
section115A.(A.Y.200708)
DCITv.EgisBCEOMInternationalSA(2013)57SOT134(Del)(Trib.)
S.45:Capital gains No transfer of possession of land during previous year Only receipt of
advanceAmountreceivedinadvanceisnottaxable.[2(47)]
There was no agreement to sell between the parties in the year in question and the only
documentwhichpertainedtothetransferofpropertywasthesaledeedwhichwasexecutedin
the subsequent year. There was no transfer of possession in the year in question, the sum
received was only an advance and no transaction stood concluded in the year in question.
Therefore,thedeletionoftheTribunalwasjustified.(A.Y.20062007)
CITv.DelhiApartmentsPvt.Ltd.(2013)352ITR322/215Taxman113(Delhi)(HC)
S.45:CapitalgainsBusinessincomeAssesseetreatinglandasfixedassetforalongtimeand
usingitforagriculturalpurposesSaleproceedsassessableascapitalgains.[S.28(i)]
Thelandwaspurchasedandwasshownasanassetinthebalancesheetandthatthelandhad
alsobeenusedforagriculturalpurposes.Italsonotedthefactthatthelandhadbeenheldfora
longperiodoftime,havingbeenpurchasedin199496.Therewasnoevidencethatborrowed
capitalhadbeenusedforthepurchase.Therefore,theassesseehadappropriatelyoffereditfor
taxationunderthehead"Capitalgains".(A.Y.20062007)
CITv.DelhiApartmentsPvt.Ltd.(2013)352ITR322/215Taxman113(Delhi)(HC)
S.45:Capital gains Transfer Family settlement A family settlement does not result in a
transfer and compensation received to equalize inequalities in family settlement is not
taxableasincome.[S.(2(47),4.]
There was a dispute between two groups of a family. During the pendency of litigation, the
parties agreed to divide the assets and businesses of the family into two lots i.e. lot1
containing the Jalandhar and Ambala units and lot2 containing the Delhi and Jaipur units. In
termsofsuchsettlement,lot1felltotheshareofGroupAandlot2felltotheshareofGroup
B with the condition of payment of Rs.24 crores. A dispute regarding the date of split of the
saidamountwaspending.TheAOassessedthesaidsuminthehandsoftheassessee.Thiswas
reversedbytheCIT(A)andTribunalonthegroundthatthedistributionofassetsincludingthe
sum of Rs.24 crores was not complete as the matter was subjudice and the amount did not
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accrue to the income of the group A. On appeal by the department to the High Court, the
Court had to consider whether the compensation paid to the assessee to settle inequalities in
partition, being a provision of owelty i.e. compensation deposited to equalize partition
representsimmovablepropertyandisnotanincomeexigibletotax.Onappealbytherevenue,
HighCourtdismissingtheappealheldthatafamilypartitionwhichresultsinanadjustmentof
sharesandoftherespectiverightsinthefamilypropertiesisnotatransferintheeyesoflaw.
Whenthereisnotransferofasset,thereisnocapitalgainandconsequentlythereisnoliability
topaytaxoncapitalgains.Inafamilypartition,asituationariseswhereanitemofpropertyis
notcapableofphysicalpartitionorissuchthat,ifdivided,itwillloseitsintrinsicworth.Insuch
acase,withaviewtoensureanequitablepartition,theitemisallottedtoonepartyandheis
askedtopaycompensationinmoneyvaluetotheotherparty.Thisamountiscalledowelty.
Astheamountofcompensationisonlytoequalizetheinequalitiesinthepartitionitisnothing
but a share in the immovable property itself (though paid in cash) and cannot be treated as
incomeliabletocapitalgain.Ifsuchamountistobetreatedasincomeliabletotax,inequalities
would set in as the share of the recipient will diminish to the extent of tax. On facts, the
payment of Rs.24 crores to Group A is to equalize the inequalities in partition of assets. The
amountsopaidisimmovablepropertyandisnotincomeliabletotax(T.S.SwaminathaOdayar
vs.OfficialReceiverAIR1957SC577,CITvs.A.L.Ramanathan(2000)245ITR494(Mad),CITvs.
Kay Arr Enterprises (2008) 299 ITR 348, CIT vs. R. Nagaraja Rao (2012) 207 Taxman 74 (Kar) &
Ziauddin Ahmed vs. CGT (1976)102 ITR 253 (Gau), Parvathi Amma Vs. Makki Amma AIR 1962
Kerala85reviewed)(A.Y.200708)
CITv.AshwaniChopra(2013)352ITR620/85DTR40/213Taxman490(P&H)(HC)
CITv.ArvindChopra(2013)352ITR620/85DTR40/213Taxman490(P&H)(HC)
S.45:CapitalgainsSharesForeigncompanyNonresidentIndianassetsDTAAIndiaFrance
GainsarisingonsaleofsharesofforeigncompanybyNRtoNRnottaxableinIndiaunder
IndiaFranceDTAAeveniftheforeigncoonlyheldIndianassets.(S.9(1),2(47),90,195,201,
245R(2)(iii),Art14(5))
Two French companies named Murieux Alliance (MA) and Groupe Industrial Marcel
Dassault (GIMD) held shares in another French company named ShanH. MA & GIMD
acquired shares in an Indian company named Shantha Biotechnics Ltd (Shantha). The
shares in Shantha were transferred to ShanH. MA and GIMD subsequently sold the shares in
ShanH to another French company named Sanofi Pasteur Holding. The assessee filed an
applicationforadvancerulingclaimingthatasthetwoFrenchcompanieshadsoldthesharesof
another French company to a third French company, the gains were not chargeable to tax in
India.ThedepartmentopposedtheapplicationonthegroundthatShanHwasformedwithno
purpose other than to hold the shares of the Indian company and that the transaction was
taxable in India. The AAR upheld the departments plea on the ground that the French
companys(ShanH)onlyassetwerethesharesintheIndiancompany&sowhenitsshareswere
sold,whatreallypassesweretheunderlyingassetsandthecontroloftheIndiancompanyand
so the French company was a facade and a scheme for avoidance of tax. On appeal by the
assesseetotheHighCourt,HELDreversingtheAAR:
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(i) ShanH was incorporated as part of the policy that all offshore investments must be made
throughasubsidiaryincorporatedinFrance.ItisnotthecaseoftheRevenuethatin2006itself
ShanHwasconceivedasapreordainedschemetoavoidtaxinIndia.TheRevenuescaseabout
whenShanHbecameataxavoidanceschemeisambivalentandincoherent.ShanHisanentity
of commercial substance and business purpose. Though a subsidiary of MA/GIMD, it is not a
mere nominee or alter ego of MA/GIMD and there is nothing to show that they exercised
overriding control over it. The creation of subsidiaries for investment is a legitimate practice.
ShanH is accordingly the true and beneficial owner of the Indian companys shares. When the
sharesofShanHweresold,itwasthesaleofsharesofaFrenchcompanyanditcannotbesaid
that the control, management or underlying assets of the Indian company were sold so as to
attract tax on capital gains in India (UOI v. Azadi Bachao Andolan(2003) 263 ITR 706 (SC) &
VodafoneInternationalHoldingB.V.v.UOI(2012)341ITR1(SC)followed);
(ii)Article14(5)oftheIndiaFranceDTAAwhichexemptscapitalgainsfromsharesrepresenting
more than 10% holding from tax in India does not permit a see through on whether the
alienation of shares by ShanH is an alienation of the control, management or assets of the
Indian company. It cannot be said that an actual alienation of the ShanH shares amounts to a
deemed alienation of the Indian companys shares. The fact that the value of the shares of
ShanHwasbecauseofthevalueoftheIndiancompanysassetsisirrelevant;
(iv)TheRevenuesargumentthatasthetermalienationisnotdefinedintheDTAA,itshould
have the meaning of the term transfer in s. 2(47) as retrospectively amended is not
acceptablebecauseasperArticle31oftheViennaConvention,atreatyhastobeinterpretedas
pergoodfaithandinaccordancewiththeordinarymeaning.ThoughArticle3(2)providesthata
term not defined in the treaty may be given the meaning in the Act, this is not applicable
becausethetermalienationisnotdefinedintheAct.InsomeDTAAs,thetermalienationis
definedtoincludethetermtransferbutnotintheIndiaFranceDTAA;
(v)EvenassumingthatthecontrollingrightsorassetsinIndiaheldbytheIndiancompanywere
transferredonthealienationoftheFrenchcompanysshares,thecostofacquiringthoserights
andassetsintheIndiancompanyandtheirdateofacquisitioncannotbedetermined.Itisalso
not possible to determine the exact or rationally approximate consideration (out of the total
consideration for the transaction in issue), apportionable to these assets/rights. As the
computation provisions fail, the charging provisions also fail (CIT v. BC Srinivasa Shetty(1981)
128 ITR 294 (SC), PNB Finance Ltd. v. CIT (2008) 307 ITR 75 (SC) & Dana Corporation(2009) 32
DTR1(AAR)followed);
(v) The AAR has no power to review its own order. Having admitted the application, the
AARcannotatalaterstageinvokeclause(iii)oftheProvisotos.245R(2)(iii)&declinetorule
ontheapplication.
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Sanofi Pasteur Holding SA v. Dept of Revenue, Ministry of Finance (2013) 354 ITR 316/257
CTR401/84DTR185/213Taxman504(AP.)(HC).
Groupe Industrial Marcel Dassault v. UOI (2013) 354 ITR 316/257 CTR 401/84 DTR 185/213
Taxman504(AP.)(HC)
Merieux Alliance v. UOI (2013) 354 ITR 316/257 CTR 401/84 DTR 185/213 Taxman 504 (AP.)
(HC)
S.45:CapitalgainsComputationMOUSaleconsiderationAmountactualreceived.
TheinheritedpropertywassoldforRs14croresbutasperMOUreachedbetweentheassessee
and his brother, the assessee received onlyRs 6 Crores as his share, the Court heldthat
Assessing Officer was not justified in taking the sale value at Rs 7 Crores in the hands of
assessee.Appealofrevenuewasdismissed.(A.Y.200607)
CITv.RamanKumarSuri(2013)81DTR33/255CTR257/212Taxman411(Bom.)(HC)
S.45:CapitalgainsAdversepossessionNocostofacquisitionNotliabletocapitalgaintax.
The Income tax Appellate Tribunal held that when an assessee gets the property by adverse
possession there is no cost of acquisition. The consideration is not liable to capital gaintax.
Revenue challenged the said order before High Court. High court dismissed the appeal stating
thatnoquestionoflawarises.(ITANO1110OF2009and1153of2009dt1182009.)
CITv.StarChemicals(Bom.)Pvt.Ltd.(Bom.)(HC)(Unreported)
Editorial:OrderofMumbaiTribunalinDCITv.StarChemicals(Bom)(P)Ltd.(2007)110TTJ753
(Mum.)isconfirmed.
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locality, accessability to infrastructure facilities, comparative sale in locality, potentiality for
futuredevelopment,distancebetweenlandandbusstand,railwaystation,airport,etc.Matter
remandedtoreconsidertheissueinallfactorsmentionedabove.(A.Y.20082009)
R.Vidhyadharan.Dy.CIT(2013)141ITD7/154TTJ41(UO)/155TTJ100(Cochin)(Trib.)
Santhadharan(Smt)v.Dy.CIT(2013)155TTJ100(Cochin)(Trib.)
S.45:CapitalgainsCapitalassetIndexationTransferofrighttousesuitinaHotelisacapital
asset and consideration is taxable as capital gain and not as income from other sources. [S.
2(14),48,56]
Assessee had long term advance booking of a hotel suite, permanently reserved for use. She
treated profit on its transfer as long term capital gains, deducting indexed cost of acquisition.
Assessing Officer did not hold long term advance booking to be capital asset and taxed it as
income from other sources, deducting only amount of installments. Commissioner (Appeals)
held long term advance booking as capital asset, but did not allow deduction of maintenance
charges. Long term advance booking of hotel suite, which gave assessee perpetual right of
possession and right to transfer capital asset under section 2(14). Profit on its transfer was
taxable as capital gain. Maintenance charges paid to Hotel cannot be considered for cost of
indexation. On appeal by revenue Tribunal confirmed the order of Commissioner (Appeals).
(A.Y.200708)
ACITv.ShabnamSachdev(2013)141ITD730(Delhi)(Trib.)
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S.45:CapitalgainsTransferDevelopmentAgreementSubstanceshallprevailovertheform
Capitalgainisassessableintheyearofdevelopmentagreementandnotintheyearof
possession.[S.2.47),292B,TransferofPropertyAct,1882S53A]
Theassesseehadenteredintoadevelopmentagreementwiththatcompanyon1442002for
construction of a multistoried building consisting of residential apartments on land owned by
him.Theassesseewastoreceivecertainconstructedareaandcarparkingareainadditiontoa
sumofRs.18lakhs.ThesaidamountofRs.18lakhswasreceivedbytheassesseefromthesaid
company spread over financial years 200203, 200304 and 200405.As the assessee had not
filed his return of income, the Assessing Officer issued notice under section 148 for three
assessment years i.e. 200304, 200405 and 200506. Thereafter, the Assessing Officer
completedtheassessmentbydeterminingthelongtermcapitalgainfortheassessmentyearin
question,i.e.200304.Healsoheldthatsincehandingoverofpossessionwhichtookplaceon
2142004, capital gain had to be assessed for the assessment year 200506.On appeal the
Commissioner (Appeals) upheld Assessing Officer's for the assessment year in question i.e.
200304. Before Tribunal it was contended that since the Assessing Officer having decided to
assessthecapitalgainintheassessmentyear200506,hecouldnothaveassessedthesamein
the assessment year 200304.The possession was given only on 2142004 and, hence, the
capitalgainwasassessableintheassessmentyear200506only.Itwasarguedthatsection53A
oftheTransferofPropertyActhadundergoneachangewitheffectfrom2492001,i.e.about
eight months prior to the date of agreement and according to the said amendment;
unregistered agreements shall not have any effect for the purposes of section 53A of the Act.
Hence, the Assessing Officer was wrong in invoking the provisions of section 2(47)(v) for the
purposeofassessingcapitalgainsduringtheassessmentyear200304.Tribunalheldthatitisa
wellsettled proposition of law that the substance shall prevail over the form. Though it is
mentioned in the agreement that the possession of land shall be handed over only after
handing over of the assessee's portion of constructed area, yet the builder, under practical
circumstances,cannotstartconstructionunlessthephysicalpossessionoflandishandedover
to him. Hence, for all practical purposes, the physical possession was handed over to the
builderafterenteringintotheagreementdated1442002.Intheinstantcase,thebuildershall
commenceconstructionwithin30daysfromthedateofenteringtheschedulepropertyforthe
purpose of construction. Further it is the responsibility of the builder to obtain necessary
approvals. It is also mentioned that the assessee has executed a registered general power of
attorney in favour of the builder on the very same date,i.e., on 1442002. Hence, the
impugned agreement, being a development agreement, a mere mentioning in one of the
clauses of the agreement to the effect that there is no handing over of possession, shall not
take away the actual fact that the physical possession was handed over to the builder.
Accordingtotheassessee,section53AoftheTransferofPropertyActhasundergonechanges
andaccordingtoamendedsection,theunregistereddocumentsshallnotfallinthepurviewof
section 53A of the Transfer of Property Act. If one carefully read clause (v) of section 2(47) of
theAct,onecannoticethatthereferenceistothe'transactions.ofthenature'referredtoin
section53AoftheTransferofPropertyAct,1882,i.e.,clause(v)talksaboutthetypeornature
of transaction only and it does not mandate invoking of the provisions of section 53A of the
Transfer of Property Act fully. Thus, the stress in clause (v) given to the Incometax Act is
concerned with the type or nature of transaction referred to in section 53A of the Act and
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hence the amendment brought into that section with regard to the registration of the
document, shall not have any effect on clause (v) of section 2(47) of the Act. Even otherwise
thecontractenteredintobytheassesseewouldbehitbyclause(vi)ofsection2(47)andasper
section 292B the Act, the impugned assessment, being in substance and effect in conformity
with or according to the intent and purpose of the Incometax Act, the assessment order is
saved by the provisions of section 292B of the Act. Tribunal held that The Commissioner
(Appeals) was right in law in confirming the action of the Assessing Officer in assessing the
capital gain in the assessment year 200304, since the development agreement was entered
into on 1442002. The Tribunal alo observed that since the capital gain is assessable in
assessment year 200304, the right course for the assessee would be to approach the tax
authorities for exclusion of the income, which was wrongly offered by him in the subsequent
assessment years. In the interest of natural justice, the tax authorities may consider any such
requestmadebytheassesseeinaliberalmanner.(A.Y.200304)
G.Sreenivasanv.Dy.CIT(2013)140ITD235/153TTJ640/86DTR34(Coch.)(Trib.)
S.45:CapitalgainsAgreementfordevelopmentrightsPowerofattorney.[S,2(47)]
Agreement for development of property cancelled and agreement for sale and irrevocable power of
attorney executed with same party. Advance received under first agreement and forfeited and sums
receivedasdamagestogetherconstitutepartofconsiderationforsaleandistaxableascapitalgains.(A.
Y.20052006)
HyderabadBottlingCo.Ltd.v.Dy.CIT(2013)23ITR175(Hyd.)(Trib.)
S.45:CapitalgainsFirmPartnerPurchaseofpropertybypartnerinpersonalcapacityandsale
thereofbydocumentexecutedinpersonalcapacityShowninthebalancesheetoffirmLong
termcapitalgainsnottobetaxedinhandsoffirm.(S.54F)
Oneofthepartnersoftheassesseefirmpurchasedapieceoflandwithmoneywithdrawnfrom
the Firm. The purchase deed was registered in his personal name. In the books of account of
the assesseefirm the purchase of the land was shown as an asset. In the accounts of the
assesseefirm, the property was shown as purchased by the firm. Accordingly, the landed
propertywasreflectedinthebalancesheetoftheassesseefirm.Thepartnersoldthisproperty
onJune17,2005toathirdpersonbyexecutingthesaledocumentinhispersonalcapacity.The
partner purchased another property for claiming deduction under section 54F of the Income
taxAct,1961inrespectofthecapitalgainsarisingoutofthesaleofthepropertypurchasedon
June 17, 1999. The assesseefirm did not disclose any capital gains arising in its hands. On the
otherhand,thepartnerofferedthelongtermcapitalgainsinhispersonalassessmentwithhis
claim. The Assessing Officer held that the funds necessary for purchasing the property were
withdrawn by one of the partners of the assesseefirm from the partnership fund and on the
sale of the property also the funds were brought back to the assesseefirm and during all the
relevant period, the property was shown in the balancesheet of the assesseefirm as its own
property and in such circumstances the property was owned by the assesseefirm and
accordingly brought the longterm capital gains to taxation in the hands of the assesseefirm.
On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On
further appeal, the Tribunal held that the purchase document was registered in the name of
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oneofthepartnersofthefirm.Thedocumentwasexecutedinhispersonalcapacityandinhis
individual name. There was no recital in the purchase deed that the property was being
purchased for and on behalf of the firm. Likewise, the property was sold by a sale deed
executed by the partner individually and in his independent capacity as the owner of the
property. There was also no mention that theproperty belonged to the assesseefirm and the
firm was actually selling the property. Even though the books of account of the assesseefirm
containedentriesregardingthepurchaseandsaleofthepropertyandthebalancesheetofthe
assesseefirm showed the property as its own asset for some time, the accounting entries
reflectedinthebooksofaccountoftheassesseefirmcouldnotundotheruleoflaworthelaw
ofland.Inordertobringthepropertyintotheownershipoftheassesseefirm,itwasnecessary
tohaveaconveyancedeedregisteredinthenameoftheassesseefirm.Asnosuchdocument
wasavailable,nosuchconveyancecouldbepresumedanditwasnotpossibletoholdthatthe
propertywaseverownedbytheassesseefirm.Consequentlythelongtermcapitalgainscould
not be assessed in the hands of the assesseefirm. It was one of the partners of the assessee
firm,whowasboundtoaccountforthelongtermcapitalgainsarisingfromthetransactionand
theAssessingOfficerastoprocessthereturnfiledbyhiminaccordancewithlaw.Theaddition
madeintheassessmentoffirmwasdeleted.(A.Y.20062007)
RajaFertilizersv.ITO(2013)21ITR658(Chennai)(Trib.)
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transferred.Computationalprovisionsofsection48wouldnotbeapplicableincaseoftransfer
of TDRs as there is no cost of acquisition in such cases. The Tribunal held that, the concept of
TDRs originates from the regulation of 'Development Control Regulation of Greater Mumbai'
i.e., 'DCR, 1991' wherein it was provided that the owner or a lessee of a plot, which was
reservedforpublicpurposeunderthedevelopmentplanofDCR,wouldbeeligibleforawardof
compensationbywayofdevelopmentrightcertificateofequivalentFloorSpaceIndex(FSI).In
other words, the Govt. decided to grant Transferable Development Rights to the land owners,
whoagreedtosurrendertheirlandsonFSIforpublicpurposes.TheseTDRscanbetransferred
tootherlandownersorbuildingforconstructingofthebuildingoradditionalfloors.Theplots
on which those development rights could be used were termed as 'Receiving Plots' and on
theseplotsinadditiontowhateverFSIwereoriginallyavailabletotheownerorlessorofsuch
plots, additional FSI can be allowed to the owner or lessor on using the transferable
developmentrightscontainedinDRCsforthepurposeofconstructionofthebuilding.Thus,the
TDRisavailabletotheowner/lesseeofthelandwhichsurrenderstotheGovt.and,therefore,
the acquisition of such TDRs are to detriment the land surrendered by the owner/lessee, and
suchTDRscanbeutilizedonanyplotvacantoralreadydevelopedorbyerectionofadditional
storeys subject to the FSI available in the DCR. TDR entitlement is capital asset and transfer
thereof is 'transfer'. The contentions and reasoning of the Assessing Officer to the extent that
the word 'Property' not only includes tangible asset but also intangible asset and, therefore,
additionalFSIavailabletotheassesseeinviewofDCR,1991,wasarightacquiredbyvirtueof
being owner of the plot, is correct. Thus, such a right is definitely a 'Capital Asset' held by the
assessee and assignment of such a right in favour of the developer amounts to transfer of
capitalasset.ItisheldthattransferofTDRsamountstotransferofa'CapitalAsset'.However,it
hastobeseenastowhethertherewasanykindofcostinacquiringtheserights.Thisrightwas
acquiredautomaticallybyvirtueofDCR,1991,andwhattheassesseehastransferredisnotthe
plot or the building but a right, parting with which, did not result in parting with land or
building. Therefore, such a right cannot be said to be embedded in the land as held by the
Assessing Officer and the Commissioner (Appeals), because there was no detriment to cost of
land by granting such rights. Even though, there was a transfer of a capital asset, however,
therewasnocostofacquisitionoranycostcanbeascribedtosuchright,becausethelandand
the building continued with the possession of the assessee even when transfer of TDR was
made to the developer. The reasoning and the logic given by the Assessing Officer and the
Commissioner (Appeals) that these development rights were embedded with the land and,
therefore,thesumchargeabletocosthastobeascribed,itisheld,isnottenableforthereason
thatthesedevelopmentrightshavebeenavailabletotheassesseeaspertheDCR,1991,andis
separate and distinct from the original right in land and, hence, it cannot be held that such a
rightwasembeddedintheland.Therefore,theconclusiondrawnbytheAssessingOfficerand
the Commissioner (Appeals) on this score gets failed. In such a situation, computational
provisions of section 48, also gets failed because no cost of acquisition can be ascribed to a
rightwhichhasemanatedfromDCR,1991.Thisissuehascomeupseveraltimesandhasbeen
dealtanddiscussedindetailbyvariousdecisionsofMumbaiCoordinateBenchoftheTribunal.
Respectfullyfollowingtheratiolaiddowninthesuchdecisionsandalsoasperinstantfindings
and observations given above, it is held that even though the transfer of TDR amounts to
transfer of a capital asset, however, the same cannot be subjected to tax under the head
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'CapitalGain'forthereasonthatthereisnocostofacquisitioninacquiringtherightwhichhas
beentransferredandcomputationalmodegiveninsection48,thusfailsinthiscase.Therefore,
taxingofthereceiptfromtransferofTDRsunderthehead'capitalgain'bytheAssessingOfficer
for a sum of Rs. 10,70,46, 274 cannot be sustained. Accordingly, the same is directed to be
deletedandorderoftheCommissioner(Appeals)isthusreversed.(A.Y.200708)
Land Breeze Co. Operative Hosing Society Ltd. v. ITO (2013) 55 SOT 103 / 21 ITR 467(Mum.)
(Trib.)
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S.45(4):Capital gains Admission of partner Admission of a new partner in partnership firm
doesnotattractprovisionsofsection45(4).(S.2(47))
Assesseefirm was engaged in business of builders and developers. It admitted a new partner.
AssessingOfficerfoundthatassesseeownedaplotofland50percentofwhichwastransferred
in favour of new partner. He thus, opined that assesseefirm was liable to be taxed under
section45(4).Onappeal,itwasnotedthatfromverybeginningofpartnership,plotinquestion
was treated as stockintrade and even at end of relevant assessment year it was shown as
currentassetinbalancesheetoffirm.Inviewofabove,therewasnoextinguishmentofrightas
envisaged by section 2(47) in case of assesseefirm.Admission of a new partner in partnership
firm does not attract provisions of section 45(4). In the instant case no capital asset was
transferred by the assessee during the relevant assessment year. From the very beginning of
the partnership the plot of land in question was treated stockintrade by the assessee firm.
Evenon3132008itwasshownascurrentasset(i.e.WIP)inthebalancesheet.TheAssessing
Officer has nowhere rebutted/ doubted this factual position. Considering the above, the
Commissioner(Appeals)rightlyheldthatnocapitalassetwastransferredbytheassesseefirm
and, hence, provisions of section 45(4) should not have been invoked. In the result, the
revenue'sappealhastobedismissed.(A.Y.200809)
ITOv.FineDevelopers.(2013)55SOT122(Mum.)(Trib.)
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S.48: Capital gains Full value of consideration Relying on the sale agreement recovered
from the assessees premises and the incometax return of purchaser, the Department was
justifiedinenhancingthefullvalueofconsideration.[S.45]
AssesseesoldanimmovablepropertyundersaledeedforasumofRs.2.33lakh.Asurveywas
carried out at assessee's premises in course of which a sale agreement was found disclosing
that assessee's wife had agreed to sell said property for a sale consideration of Rs. 6.48 lakh.
AssessingOfficerrelyingonsaleagreement,enhancedamountofcapitalgainarisingfromsale
of property. Tribunal confirmed order of Assessing Officer. On appeal, it was noted that
agreement of sale was executed by assessee's wife which was substantiated by income tax
returnsfiledbypurchaseralso.ItwasinsuchcircumstancessaleconsiderationofRs.6.48lakhs
was confirmed by Commissioner (Appeals) and Tribunal. High Court held that on facts, there
wasnolegalinfirmitywarrantinginterferencewithTribunal'sorder.
M.BasheerAhamedv.CIT(2013)352ITR157/214Taxman302(Mad.)(HC)
CITv.RamanKumarSuri(2013)81DTR33/255CTR257/212Taxman411(Bom.)(HC)
S.48:CapitalgainsComputationCostofacquisitionWillRelevantyear.
The property was acquired by mother in the year 1974,assessee acquired the propertyin
accordancewithmotherswilldated11
th
October,1987andsoldin2005,benefitofindexation
istobegivenfrom1stApril,1981andnotfrom1987.(A.Y.200607)
CITv.RamanKumarSuri(2013)81DTR33/255CTR257/212Taxman411(Bom.)(HC)
S.48:CapitalgainsSemifinishedbuildingCostofimprovementofproperty.[S.45]
Theassessee,aplaybacksinger,carriedouttheunfinishedconstructionofthebuildingwithout
which he could not have used that property as dubbing and recording theatre. Since the
contractors left without completing the work, the assessee completed the work himself. He
paid amounts to contractors deducting tax at source. Held, the assessee could not be denied
cost of improvement for the purpose of computing capital gains because the contractors to
whomthepaymentsweremadedidnotcarryoutthework.(A.Y.20072008)
S.P.Balasubramaniyamv.ITO(2013)24ITR47(Chennai)(Trib.)
S.48: Capital gains Cost of acquisition Tenancy rights Demolishing old property and
constructionofnewpropertyCostpaidbyassesseeandnotonthebasisofvaluationreport.
(S.55(2))
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Assessee bought the property of which she was one of the tenantsfor Rs 4.75,000. All the
tenants entered into an agreement on 10
th
June 1999 and formed a cooperative society. The
old building was demolished and a new building was constructed thereon. The tenants got
possession in A.Y. 200203. Assessee sold her property on17
th
September 2004. Held that the
agreementdated10
th
June1999itselfgaveinterestandrightintheimpugnedpropertytothe
assessee along with other tenants, the transaction clearly involved longterm capital gains.
Assessee claimed cost of acquisition at Rs 10.04475 based on approved valuer. The Tribunal
held that, cost of acquisition of impugned property would be taken at Rs. 4,75,000/ being
payment made by the assessee and not as per the higher value declared by the approved
valuer.(A.Y.200506)
NilaV.Shah(Mrs.)v.ITO(2013)83DTR218(Mum.)(Trib.)
April1981alongwiththeindexedcostofacquisitionhastobedeterminedinordertoarriveat
thelongtermcapitalgain.Costofacquisitionoflandcannotbetakenasnilinaccordancewith
theprovisionsofs.55(2)(a)(ii).Approvedvaluerhavingestimatedthefairmarketvalueofthe
land at Rs. 1, 200 per sq. yd. as on 1
st
April 1981, disregarding the fact that it was leasehold
land,itwouldbefairandreasonabletovaluetheleaseholdrightsoftheassesseeatRs.800per
sq.yd.ason1
st
April1981,andtodeterminethelongtermcapitalgain.(A.Y.200708)
Natrajv.Dy.CIT(2013)83DTR201/56SOT23(Ahd.)(Trib.)
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succession it is only cost to previous owner, that would stand to be considered as cost of
acquisition, and there is no scope for adding thereto cost, if any, incurred on acquisition by
successor. The same has again been found as well settled by the court, the law does not
recognizedtransferbywayofWillsothatevenifitweresoconditionprecedent,entitlingacost
to the legatee/s it is only cost to the previous owner. Appeal of assessee was dismissed. (A.Y.
200607)
SoniaMariaMistry.vITO(2013)141ITD508(Mum.)(Trib.)
S.50C:CapitalgainsFullvalueofconsiderationStampvaluationAssessableamendmentis
prospective.
The assessee transferred a property in pursuance of an agreement of sale. Since the sale was
not registered, the Assessing Officer invoking provisions of S. 50C computed long term capital
gain adopting guideline value as sale consideration, instead of consideration admitted by
assessee. The contention of revenue was that word 'assessable' inserted by way of Finance
(No.2)Act,2009witheffectfrom1102009hadtobetreatedasapplicableincaseofassessee.
Held,sincetheBoardhasissuedCircularNo.5/2010,dated362010clarifyingthatamendment
has been made applicable with effect from 1102009, is prospective, therefore revenue
cannotcanvasssameissuewhichineffectisagainstcircularissuedbyBoard.(A.Y.200506)
CITv.R.SuganthaRavindran(2013)214Taxman543(Mad)(HC)
S.50C: Capital gains Full value of consideration Stamp valuation Amendment of section
50Cw.e.f.1102009isnotretrospective[CircularNo.5of2010,dated362010].
The insertion of the words "or assessable" in section 50C of the Incometax Act, 1961, with
effect from October 1, 2009, is neither a clarification nor an explanation to the existing
provision and it is only an inclusion of new class of transactions, namely, the transfer of
properties without or before registration. Before the amendment, only transfer of properties
where the value was adopted or assessed by the stamp valuation authority were subjected to
section 50C application. However, after introduction of the words "or assessable" such
transfers where the value is assessable by the valuation authority are also brought into the
ambit of section 50C. Thus, such introduction of a new set of class of transfer would certainly
have prospective application only. In Circular No. 5 of 2010, dated June 3, 2010, issued by the
Board, it is made clear that the amendment made by the Finance (No. 2) Act, 2009, is
prospectiveinnatureandcannotbeappliedretrospectively(A.Y.20052006).
CITv.R.SuganthaRavindran(2013)352ITR488(Mad.)(HC)
S.50C:CapitalgainsFullvalueofconsiderationRegistrationinsubsequentyearProvisions
ofsection50Cisapplicable.[S.2(47)].
Theassesseewasownerofapartofland.Intheyear1996heagreedtosellhislandtoseveral
buyers.Theassesseeclaimedtohavebeengivenpossessionoflandinthatyear.However,the
conveyance deeds were executed in the year relevant to assessment year 200607, while
registration was done in the year relevant to assessment year 200708.The assessee offered
sale proceeds for taxation in the year of receipt 200506 of sale consideration. The assessee's
furthercasewasthatsection50Chadnoapplicationinthe instantcase.TheAssessingOfficer
held that the provision of section 50C was applicable for determining full value consideration.
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He applied the valuation made by the stamp valuation authority for calculation of stamp duty
for the assessment year 200607. The assessee's appeal was accepted by the Commissioner
(Appeals).Onrevenue'sappeal,theTribunalreversedtheorderofCommissioner(Appeals)and
applied section 50C by taking the value of land assessed by the Stamp Valuation authority for
the relevant assessment year. The Court held that where the land or building or both are sold
or otherwise transferred, such transfer shall be deemed to have taken place only after the
stamp duty has been assessed by the State Government, because it is on the valuation made
forthepurposeofstampdutythatthetaxispayable.Theassesseecannotcontendthatsection
50CwouldnotbeapplicablemerelybecausetheDeedofConveyancehadnotatthattimebeen
executedorregistered(A.Y.200607)
BagriImpex(P.)Ltd.v.ACIT(2013)214Taxman305/89DTR89(Cal)(HC)
S.50C: Capital gains Delayed registration Bonafide reasonsStamp duty on the date of
agreementandnotonthedateofregistrationisrequiredtobeadopted.[S.2(47)]
The assessee sold property and transferred possession vide sale agreement on 1362005, but
sale deed was registered only on 25112005.The Assessing Officer took stamp duty value on
dateofregistrationasfullvalueofconsiderationundersection50Cforcomputingcapitalgains.
Held, where the transfer was completed in terms of section 2(47) by giving possession of
property on date of sale agreement, but registration was delayed on bonafide reasons and
executionofsaledeedwasonlyalegalformality,stampdutyvalueondateofsaleagreement
and not on date of registration was required to be adopted for computing capital gains.(A.Y.
200607)
DCITv.S.VenkatReddy(2013)57SOT117(Hyd)(Trib.)
S.50C:CapitalgainsFullvalueofconsiderationValueforstamppurposesAppliesmandatorily
when consideration stated by assessee less than guideline valueAppellate authority not
bound by valuation by Valuation OfficerEntitled to fix value below that determined by
ValuationOfficer.
The assessee sold a portion of the land of its factory property for a consideration of Rs.2,
22,64,409. At the time, the guideline value adopted by the registering authority was Rs.
3,95,91,000. In the computation of longterm capital gains the assessee adopted the
considerationatRs.2,22,64,409but,theAssessingOfficerheldthattheguidelinevalueofRs.
3,95,91,000 must be adopted in computing the longterm capital gains. On the assessee's
requesttheAssessingOfficerreferredthemattertotheValuationCellundersection50Cofthe
Incometax Act, 1961. But since the Assessing Officer had to complete the assessment before
the limitation period expired he completed the assessment before the Valuation Report was
available adopting the guideline value of Rs.3,95,91,000. The District Valuation Officer finally
valued the property at Rs.3,54,73,536. On appeal, the Commissioner (Appeals) held that the
valuationreportwasnotbindingontheappellateauthoritiesanddeterminedtheconsideration
at Rs. 2.25 crores. On appeal by the Department, the Tribunal held thatthe document
consideration was less than the guideline value. The deeming provision of section 50C(1)
operated,howeveritwaswithintheauthorityoftheappellateauthoritytoheartheassesseeon
the question of value of consideration and grant appropriate relief, depending upon the facts
and circumstances of the case. The Commissioner (Appeals) determined the valuation at Rs
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2.25crores.OnappealbyrevenueTheTribunalheldthatwhenallthesevariableswerechanging
fromtimetotime,fromauthoritytoauthority,itwasnotpossibletorejectthecontentionsof
theassesseeasawhole.NorcouldthevaluationreportedbytheValuationOfficerbeaccepted
assacrosanct.Takingintoallaspectsofthecase,theconsiderationaccountableinthehandsof
theassesseecompanyforthepurposeofsection50CwastobefixedatRs.2.5croresandthe
longtermcapitalgainsassessableinthehandsoftheassesseecompanywastobeaccordingly
modified.Departmentalappealwaspartlyallowed.(A.Y.20052006)
ACITv.MILIndustriesLtd.(2013)21ITR627/142ITD428(Chennai)(Trib.)
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S.50Cappliesonlytothetransferofacapitalasset,beinglandorbuildingorboth,assessed
byanyauthorityofaStateGovernmentforstampdutypurposes.Theexpressiontransferhas
tobeadirecttransferasdefinedu/s2(47)whichdoesnotincludethetaxplanningadoptedby
the assessee. S. 50C is a deeming provisions and has to be interpreted strictly in accordance
withthespiritoftheprovision.Onfacts,thesubjectmatteroftransferissharesinacompany
and not land or building or both. The assessee did not have full ownership on the flats which
are owned by the company. The transfer of shares was never a part of the assessment of the
StampdutyAuthoritiesoftheStateGovernment.Also,thecompanywasderivingincomewhich
wastaxableundertheheadincomefrompropertyformorethanadecade.Consequently,the
action of the AO &CIT (A) to invoke s. 50C to the tax planning adopted by the assessee is not
properanddoesnothavethesanctionoftheprovisionsoftheAct.(A.Y.200708,200809)
IrfanAbdulKaderFazlaniv.ACIT(2013)56SOT12(Mum)(Trib.)
S.50Cappliesonlytothetransferoflandorbuildingandnottothetransferofallimmovable
property.Accordingly,thoughFSIandTDRisimmovablepropertyasheldinCheddaHousing
Developmentvs.BabijanShekhFarid2007(3)MLJ402(Bom),itisnotlandorbuildingandso
cannotbethesubjectmatterofs.50C.Thepropertyacquiredfordevelopment(inlieuofwhich
the FSI/TDR was granted) also cannot be considered even though the property continues to
stand in the assessees name in the property records. The property should be valued by the
DVO net of the land transferred to the Developer by the assessee after considering the
acquisitionmadebytheGovt&theMunicipalCorporationandalsoexcludingthevalueofTDR
or additional FSI included in the consideration shown in the Development Agreement (A. Y.
20062007)
ITOv.PremRattanGupta(Mum.)(Trib.)www.itatonline.org
S.51:CapitalgainsForfeitureofearnestmoneyCapitalreceipt.[S.4,56(2)(vi)]
Theassesseeenteredintoanagreementtosellhishousepropertytoacompanyandinterms
of agreement received certain sum as earnest money. Since purchaser failed to pay balance
considerationbystipulatedperiod,theassesseeforfeitedtheearnestmoneyandclaimedsame
as capital receipt. The Assessing Officer, however, held that entire transaction was a shame
transactioninwhichpurchaserattemptedtobookboguslosses.He,accordingly,madeaddition
of forfeited amount. The Commissioner (Appeals) set aside impugned order of the Assessing
Officer.The Tribunal upheld the order of Commissioner (Appeals) observing that the earnest
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money was received through banking channels and genuineness of the receipt was not in
dispute.Thecourtheldthat,theprovisionsofsection51wouldcomeintoplaywhenthereis
forfeitureofadvance.Oncethetransactionhasbeenheldtobegenuine,thereisnoquestionof
thetransactionbeingwithoutanyconsideration.(A.Y.200708)
CITv.MeeraGoyal(2013)214Taxman298/88DTR277(Delhi)(HC)
S.51:Capital gains Advance money received If transaction is not genuine section 51 is not
applicable.
Where transaction is not genuine, provisions of section 51 is not applicable. In favour of
revenue.(A.Y.200203)
AshwaniOberoivCIT(2013)212Taxman392/256CTR301/82DTR277(Punj&Har)(HC)
S.54: Capital gainsProfit on sale of property used for residenceDeduction allowable for
purchaseofmultipleindependenthouseunits.[S.54F]
Theassesseeofferedlongtermcapitalgainsonsaleofpropertyandclaimeds.54deductionon
thegroundthathehadpurchasetwoadjacentresidentialflats.TheAssessingOfficerheldthat
the deduction could not be given for both flats on the ground that they were independent
units, separated by a strong wall. The CIT(A) and Tribunal allowed the claim on the basis that
section 54 deduction was available for purchase of multiple flats, even if the flats were on
differentfloors.OnappealbythedepartmenttotheHighCourt,HELDdismissingtheappeal:
The expression a residential house in s. 54 (1) has to be understood in the sense that the
buildingshouldbeofresidentialnatureandashouldnotbeunderstoodtoindicateasingular
number.Whereanassesseehadpurchasedtworesidentialflats,heisentitledtoexemptionu/s
54 in respect of capital gains on sale of its property on purchase of both the flats, despite the
fact that the flats were purchased by separate sale deeds. Deduction is allowable even if the
flatsareondifferentfloors.Onfacts,asthetwoflatspurchasedbytheassesseeareadjacentto
oneanotherandhaveacommonmeetingpoint,thedeductioncannotbedenied(CITandors.
vD.AnandaBasappa(2009)309ITR329(Kar),CITvK.G.Rukminiamma(Smt.)(2011)331ITR
211(Kar)followed;ITOv.Ms.SusheelaM.Jhaveri(2007)107ITD327(Mum)(SB)heldnotgood
law)(A.Y.200708)
CITv.SyedAliAdil(AP)(HC).(2013)352ITR418/215Taxman283(AP)(HC)
S.54:CapitalgainsExemptionInvestmentintwoflatswhichisusedasonehouse.
Assessee purchased two flats which were joined together before the purchase, exemption
under section 54 was rightly allowed in respect of both the flats treating them as one
residentialhouse.TheTribunaldecidedtheissueinfavourofassesseefollowingtheratioofITO
v.SushilM.Jhaveri (2007) 292 ITR 1 (SB) (Trib.). On appeal by revenue the High Court affirmed
theviewofTribunal.(A.Y.200607)
CITv.RamanKumarSuri(2013)81DTR33/255CTR257/212Taxman411(Bom.)(HC)
S.54: Capital gains Development agreement Long Consideration for land is assessable as
long term Profits arising of super structure is assessable as short term gain. [S.2(42A),45,
54F]
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Held, the assessee had entered into an agreement for development of the land in question in
thefinancialyear200405.Theincomearisingfromsaleoflandtotheextentof57.5percent
share arose to the assessee in the financial year in which the agreement was executed.
According to the assessee's computation, the assessee had earned the longterm capital gain
fromthesaleoflandtothedeveloperofandlongtermcapitalgainarisingoutofsaleofshare
of undivided land at the time of sale of builtup area. The assessee had invested a sum of Rs.
1,60,00,000 in capital gains bonds and Rs. 1,15,00,000 in capital gains scheme totaling Rs.
2,75,00,000 and had claimed deduction under section 54 and 54F.Assessing Officer held that
sincetheagreementwasexecutedinthefinancialyear200405,thesaidlongtermgainwasto
beassessedintheassessmentyear200506andshorttermgainwastobeassessedduringthe
financialyear200607.i.e.A.Y.200708.Onappeal,theCommissioner(Appeals)heldthatsale
consideration received towards land should be assessed as long term capital gain and the
profitsarisingoutofthesuperstructurewastobeassessedasshorttermcapitalgain.Benefitof
exemption under section 54 and 54F will be available to long term capital gain. Tribunal
confirmedtheviewofCommissioner(Appeals)(A.Y.20072008)
ACITv.V.RamMohan(2013)24ITR50(Chennai)(Trib.)
S.54:CapitalgainsFundsnotutilisedtowardsconstructionWithdrawalofexemptionisin
year which three years expires . Exemption cannot be denied in year in which funds were
invested.[S.45]
TherevenuehadnotdisputedthefactthattheassesseehasinvestedRs.84lakhinpurchaseof
land towards construction of the house, which could not be constructed within the stipulated
periodof3yearsasthepossessionofthelandcouldnotbedeliveredbythedeveloper.Inthese
circumstances, the assessee's claim of exemption under section 54 of the Act could not be
deniedinviewofprovisotosection54forA.Y. 200809.TheAssessingOfficershallalsoverify
whether the assessee has offered the capital gain for taxation in the subsequent assessment
year201112.(A.Y.200809)
SriPrasadNimmagaddav.DCIT(IT)(2013)56SOT473(Hyd.)(Trib.)
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taxing statute should be construed in favour of the assessee would not apply to the
construction of an exception or an exempting provision; these have to be construed strictly.
That the person invoking an exception or an exemption provision to relieve him of the tax
liabilitymustestablishclearlythatheiscoveredbytheprovision.Incaseofdoubtorambiguity,
benefit must go to the State. In section 54 there is no ambiguity. The provision refers to
purchase or construction of a new residential house and it is quite obvious that the same
should be as an owner and not as perpetual tenant. The argument of deemed ownership was
relevant only in connection with computation of income from house property and not in
relationtoexemptionundersection54.Similarly,treatingthetenancyasconveyanceunderthe
Bombay Stamp Act, 1958, was only for the purpose of payment of stamp duty and cannot be
considered as conveyance of the title of the property to the assessee as an owner. Taking
possessioncouldnotbeconsideredasownershipaspossessionhadbeentakenasatenantand
notasanowneroftheflat.Theassesseewaspermittedtosublettheflat,tobequeathitand
toraiseloanbutsuchpowerswereonlyinrelationtotenancyrightsoftheassesseeandnotas
an owner of the flat. All these facilities to which the assessee was entitled were only against
right of the assessee as tenant in the flat and not as owner. Further the agreement provided
thatthetenantwasnotentitledtomakeanystructuralchangesintheflatwhichshowedthat
theassesseewasnottheownerbecauseanownerhadfullrightinrelationtohisproperty.The
assesseewasnotentitledtoexemptionundersection54.(A,Y.20082009)
YogeshSunderlalShahv.ACIT[2013]21ITR97/154TTJ309/86DTR269(Mum.)(Trib.)
S.54B:Capital gains Land used for agricultural purposesAssessee not establishing land was
being used for agricultural purpose for a period of two years prior to date of transfer,
exemptionwasnotavailable.(S.54F)
The assessee had a onefourth share in a property.She sold her share andclaimed exemption
under section 54F of the Act. During the course of the assessment proceedings, the assessee
contended that she was entitled to exemption under section 54B. The Tribunal affirmed the
findings of the authorities that the assessee was not entitled to the benefit of section 54B on
thegroundthatthepropertywhichshesoldwasnotusedforagriculturalpurposesforaperiod
oftwoyearspriortothedateofthesaleasrequiredundersection54B.TheTribunalfoundthat
theassesseewasentitledonlytotakeRs.2lakhsasthecostofacquisitionoverandaboveRs.1
lakhallowedasvalueofsuperstructureundersection54F.OnappealtheCourtalsoheldthat,
the property in the hands of the purchaser was used for putting up anapartment complex, as
the document did not establish that the land was being used for agricultural purpose for a
periodoftwoyearspriortothedateofthetransfer.Appealoftheassesseewasdismissed.(A.Y.
20052006)
AshaGeorge(Smt)v.ITO(2013)351ITR123/83DTR217/214Taxman236(Ker.)(HC)
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Santhadhadhran(Smt)v.Dy.CIT(2013)155TTJ100(Cochin)(Trib.)
S.54EC:CapitalgainsInvestmentinbondsFullvalueofconsiderationStampvaluation
Deemedvaluecannotbeconsideredforthepurposeofsection54EC.(S.50C.)
TheactualsaleconsiderationwasRs160000,thestampauthoritiesvaluedthesaidpropertyat
Rs24,48,118.TheTribunalheldthatdeemingfictionofs.50Ccannotbeimportedintos.54EC
and, therefore, the deemed value cannot be considered for the purpose of exemption u/s.
54EC.Howeverfortheworkingofthelongtermcapitalgainthesaleconsiderationwillbetaken
upasperthevaluedeterminedundersection50C.(A.Y.200506)
NilaV.Shah(Mrs.)v.ITO(2013)83DTR218(Mum.)(Trib.)
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S.54F:Capital gains Investment in residential houseExemption Several independent units
canconstitutearesidentialhouse(S.54)
The assessee entered into a development agreement pursuant to which the developer
demolished the property and constructed a new building comprising of three floors. In
consideration of granting the development rights, the assessee received Rs. 4 crores and two
floorsofthenewbuilding.TheAOheldthatincomputingcapitalgains,thecostofconstruction
of Rs. 3.43 crores incurred by the developer on the development of the property had to be
addedtothesumofRs.4croresreceivedbytheassessee.Theassesseeclaimedthatasthesaid
capitalgainswasinvestedinthesaidtwofloors,shewaseligibleforexemptionu/s54.TheAO
rejected the claim on the basis that the units on the said floors were independent & self
contained and not a residential house and granted exemption for only one unit. The CIT (A)
andTribunalupheldtheassesseesclaimbyrelyingonCITv.D.AnandaBasappa(2009)309ITR
329 (Kar.) and CIT v K.G. Rukminiamma (Smt.) (2011) 331 ITR 211 (Kar). On appeal by the
departmenttotheHighCourtHELDdismissingtheappeal:
AsheldinB.AnandaBassappa(SLPdismissed)&KGRukminiamma,theRevenuescontention
that the phrase a residential house would mean one residential house is not correct. The
expression a residential house should be understood in a sense that building should be of
residential in nature and a should not be understood to indicate a singular number. Also, s.
54/54Fusestheexpressionaresidentialhouseandnotaresidentialunit.S.54/54Frequires
the assessee to acquire a residential house and so long as the assessee acquires a building,
which may be constructed, for the sake of convenience, in such a manner as to consist of
several units which can, if the need arises, be conveniently and independently used as an
independentresidence,therequirementoftheSectionshouldbetakentohavebeensatisfied.
There is nothing in these sections which require the residential house to be constructed in a
particularmanner.Theonlyrequirementisthatitshouldbefortheresidentialuseandnotfor
commercial use. If there is nothing in the section which requires that the residential house
should be built in a particular manner, it seems to us that the income tax authorities cannot
insist upon that requirement. A person may construct a house according to his plans,
requirements and compulsions. A person may construct a residential house in such a manner
that he may use the ground floor for his own residence and let out the first floor having an
independent entry so that his income is augmented. It is quite common to find such
arrangements,particularlypostretirement.Onemaybuildahouseconsistingoffourbedrooms
(all in the same or different floors) in such a manner that an independent residential unit
consistingoftwoorthreebedroomsmaybecarvedoutwithanindependententrancesothatit
canbeletout.Hemayevenarrangeforhischildrenandfamilytostaythere,sothattheyare
nearby, an arrangement which can be mutually supportive. He may construct his residence in
suchamannerthatincaseofafutureneedhemaybeabletodisposeofapartthereofasan
independenthouse.Theremaybeseveralsuchconsiderationsforapersonwhileconstructinga
residentialhouse.Thephysicalstructuringofthenewresidentialhouse,whetheritislateralor
vertical,cannotcomeinthewayofconsideringthebuildingasaresidentialhouse.Thefactthat
the residential house consists of several independent units cannot be permitted to act as an
impediment to the allowance of the deduction u/s 54/54F. It is neither expressly nor by
necessaryimplicationprohibited.(A.Y.200708)
CITv.GitaDuggal(2013)214Taxman51/84DTR346/257CTR208(Delhi)(HC)
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Courtdismissedtheappealofassesseeholdingthatnosubstantialquestionoflaw,thefinding
beingperversewasnotraised.(A.Y.200506)
AshaGeorge(Smt)v.ITO(2013)351ITR123/83DTR217/214Taxman236(Ker.)(HC)
S.54F:CapitalgainsHousedemolishedExtinguishment.[S.2(47)]
Deduction under section 54F is available for purchase of residential house and such house
shouldberealandnotsymbolic.Ifoldhouseisonlymeantfordemolition,itmaynotsatisfythe
test of purchase of residential house, more particularly when it was demolished within two
years.Itwasheldthatvoluntarydemolitionofhouseamountstotransfer.Matterremandedto
Commissioner(Appeals)(A.Y.200708)
ACITv.DilipManharParekh(2013)56SOT487(Mum)(Trib.)
Editorial:RatioisnotgoodlawinviewofjudgmentinthecaseofCoownerCITv.Mrs.Abhhay
B.ParikhtheBombayHighCourtheldthatthevoluntarydemolitionofhousewillnotamountto
transferandtheassesseeiseligibleexemptionundersection54F.AB.ITAno1583ofdt24th
January,2013(Bom.)(HighCourt)(ACITv.MsChhayaB.ParekhITA4956/Mum/2010BenchB
A.Y.200708dt16052012
S.54F:CapitalgainsPurchaseofhousepropertyTwohousesExemptiondenied.[S.45]
Theassesseehadsoldtwoplotsoflandon2272005and2232006respectivelyandinvested
the sale consideration in purchase of two houses. Before the sale of first plot, the assessee
entered into an agreement in January, 2005 to purchase a house in Chandigarh and the said
housewaspurchasedvidesaledeeddated1872005.Furthershehadbrokendownthishouse
andcommencednewconstructionon1952006whichwascompletedbefore26122008.She
had also purchased a flat at Manimajra on 2872006.The Assessing Officer disallowed the
claim of exemption on the ground that the assessee had purchased another house other than
the first house (new asset). Since the assessee had purchased another residentialhouse other
thanthenewassetwithintheperiodofoneyearafterthedateoftransferoftheoriginalasset
and is hit by clause (a)(ii) of the proviso to section 54F(1) and hence, the assessee was not
entitledtodeduction.(AY200607)
KuldipKaurChatha(Smt)v.ITO(2013)56SOT478(Chd)(Trib.)
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S.54F:Capital gainsInvestment in residential houseFailure to Construct newhouse property
within specified period is not entitled to not entitled to deduction claimed under section
54F,taxableintheyearof200809andnotintheyear201112.
Theassesseehadsoldapropertyduringtheyearandcapitalgainwasworkedout.Theassessee
invested that sum in purchasing a plot on which residential house was to be constructed. The
assesseeclaimedproportionatedeductionundersection54F.However,thehousecouldnotbe
constructed. The Assessing Officer disallowed the deduction claimed under section 54F by the
assessee as no construction had taken place within specified time. On appeal, the
Commissioner(Appeals)upheldorderoftheAssessingOfficerobservingthattheassesseehad
not started the work of construction on the said plot, therefore, theclaim of deduction under
section 54F was not acceptable. Assessee only after a period of three years and, therefore, if
theconstructioncouldnotbecompleted,thesaidcapitalgaincouldbetaxedonlyafteralapse
ofperiodofthreeyears.Sincetheassesseehadfiledreturndeclaringcapitalgaininassessment
year201112,thesamecouldnotbetaxedagaininassessmentyear200809.Tribunalheldthat
Plainreadingofsection54Fclearlyshowsthatdeductionunderthissectionisallowableonlyin
case where the assessee within a period of one year before or two years after the date on
which the transfer took place purchases, or has within a period of three years after that date
constructedtheresidentialhouse.Therefore,iftheassesseehasnotpurchasedorconstructed
the house within the specified period the deduction is not available. No doubt the proviso to
subsectionprovidesthatincasetheamountofcapitalgainhasbeendepositedinthespecified
account as provided in subsection (4) and the same could not be used for construction then
such capital gain would be charged in the previous year in which the period of three years
expires from the date of transfer of original asset. It is a settled position of law that proviso
provide exception to the rule. In the instant case, the proviso carves out an exception only in
those cases where the amount had been deposited in the specified account and could not be
usedforthepurposeofconstruction.Thisexceptioncannotbemadepartoftherulewherethe
assessee fails to purchase or construct within specified period. In the instant case, admittedly
noplansweremade,therefore,thereisnoquestionofgettingthesameapproved.Apartfrom
this, assessee admitted that assessee has no evidence to prove that assessee wanted to start
construction.Ifthetaxisallowedtobepostponedmerelyonthebasisofpurchaseofplotthen
no assessee would pay correct taxes during the year and postpone the payment of taxes by
merely purchasing the plot and that cannot be intention of the provisions of section 54F.
Therefore, the Commissioner (Appeals) is right in denying the deduction under section 54F to
theassesseeandaccordinglyhisorderistobeupheld.Theassesseehasvoluntarilyfiledreturn
declaring capital gain in assessment year 201112, therefore, the tax paid in that year would
amount to double taxation if the capital gain is also taxed in assessment year 200809. The
taxes paid in 201112 needs to be adjusted against the capital gain liability during assessment
year200809.Accordingly,theAssessingOfficerisdirectedtoadjustthetaxesalreadypaidby
the assessee in assessment year 201112 regarding the same capital gain after verification
duringthecurrentyearagainstthecapitalgainliability.Intheresult,appealoftheassesseeis
tobepartlyallowed.(A.Y.200809)
AnuAgarwal(Smt.)v.ITO(2013)55SOT294(Chd.)(Trib.)
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S.54F:CapitalgainsInvestmentinaresidentialhouseConstructionofadditionalfloorswould
bepartofexistinghouseDeemingfictionundersection50C.(S.45,48,50C)
The assessee sold a plot of land and computed capital gains. In computing capital gain, the
assessee claimed deduction u/s 54F on the ground that the sale consideration (FVC) was
utilizedforconstructionofresidentialhouse.TheLd.AO,whileinvokingsection50Cdisallowed
the deduction on the ground that the requirements of section 54F were not met. The actual
amountutilizedforthenewhousewasmorethantheFVCevenaspersection50C.Inappeal,
the CIT (A) upheld the application of section 50C but also held that the assessee was entitled
forthe deduction u/s 54F. However, the CIT (A)restricted the same to the figure computed by
theassessee.AccordingtotheCIT(A)thefullvalueofconsiderationwastobeadoptedasper
section 50C but benefit of section 54F was to be restricted to the amount declared by the
assessee.Inotherwords,thedifferencebetweenfullvalueofconsiderationaspersection50C
andtheactualamountdeclaredbytheassesseewastobetaxedascapitalgain;thebenefitof
section 54F being restricted to the amount declared (which was also to be presumed to be
investment/utilizationfors.54F)claimedbytheassessee.TheHonbletribunalheldthatsince
the actual investment was more than eventhe FVC as per section 50C, there was no taxable
capitalgain.Inthepresentcase,theasssesseeshouseincludesgroundplus4floors,wherethe
groundfloorisabiglivingroom,1stfloorhasakitchenplus2bedrooms,2ndfloorhasthree
bedrooms,3
rd
floorhasthreebedroomsandfourthfloorhas3bedrooms.Thus,thesaiddetails
suggestthatfunctionally.TheCommissioner(Appeals)restrictingtheexemptionofcapitalgains
toRs5,84,837/isnotproper.(A.Y.200809)
RajBabbarv.ITO(2013)56SOT1(Mum.)(Trib.)
S.55:CapitalgainsCostofacquisitionSelfgeneratedassetAmountreceivedonterminationof
tenancy.[S.45,54EC,131,132(4)]
Inthereturnfiledtheassesseeclaimedexemptionundersection54ECinrespectofcapitalgain
receivedonsurrenderoftenancyrights.Theassesseereducedfromthesaleconsiderationan
indexcostofRs16,80,000onamarketvalueofRs3,50,000asonApril1,1981.TheAssessing
Officer held that the cost of tenancy right being self generated , it had to be taken as nil in
termsofsection55.TheAssessingOfficerheldthattheassesseehadnotproducedanyproofof
payment of pugree for Rs 20000. The view of Assessing Officer confirmed by Commissioner
(Appeals) and Tribunal. On appeal the High court held that in the statement in the course of
Search the assessee had not stated that he had paid pugree of Rs 20,000.He only stated that
forgettingtenancyin1969hehadtopaythreemonthsadvancerentofRs390.TheCourtalso
observed that the assessee had maintained receipts of Rs 335 however not produced any
evidenceforpaymentofpugree.Astherewasnoproofentiresumwasheldtobetaxable.
P.KunhiramanNairv.CIT(2013)354ITR141(Ker.)(HC)
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registeredvaluerofIncometaxDepartmentwouldcertainlytakesprecedenceoveranyGideto
HouseTax.Infavourofassessee.(A.Y.200607)
CITvRamanKumarSuri(2013)212Taxman411/81DTR33/255CTR257(Bom.)(HC)
S.55:CapitalgainsCostofacquisitionPropertydevolvedonassesseeBenefitofIndexationis
eligibleifpropertiesacquiredpriorto141981.[S.2(42A),48,49]
Whereownerthroughwhomassesseederivedhertitledirectlyorindirectly,acquiredproperty
priorto141981,itsfairmarketvalueason141981wastobeadoptedascostofacquisition,
for purpose of computing capital gain. In such a situation, the benefit of cost inflation index
since 141981 was to be granted even though property devolved on assessee on 2051998.
(A.Y.200607)
ITOv.NoellaP.Perry(Ms)(2013)56SOT495(Mum)(Trib.)
S.56:Income from other sources Composite or inseparable letting Income from house
property(S.22,24)
The assessee claimed deduction in respect of its rental income under the head 'Income from
houseproperty.TheAssessingOfficerperusedrentagreementsandfoundthatpremiseswere
letoutonconditionthattheassesseewouldprovidecertainfacilitieslikefurnitureandfixtures,
plantandmachinery,etc.Heheldthatthelettingoutofthemachinery,plantandfurnitureand
the letting out of buildings being inseparable, the rental income be taxed under the head
'Income from other sources', which resulted in disallowance under section 24.Commissioner
(Appeals)confirmedsaidorderTheTribunalheldthatthelettingoutoftheplant,machineryor
furniture and the premises constituted a single, composite and inseparable letting rental inco
mebeassessableas'incomefromothersources'.OnappealHighCourtalsoheldthatlettingof
buildingandlettingoffixture,furniture,etc.,wasinseparableand,therefore,rentalincomewas
assessableasincomefromothersources.Appealofassesseewasdismissed.(A.Y.200708)
GargDyeing&ProcessingIndustriesv.ACIT[2013]212Taxman160(Delhi)(HC)
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S.56:IncomefromothersourcesBusinessincomeSublettingofpropertyIncomefromhouse
property.[S.22,27,28(i),269UA(f)]
Assesseehadtakenpremisesonleaseforperiodofthreeyears,firstfloorofpremiseswassub
leasedandamountofreceiptwasconsideredasbusinessincome.AssessingOfficertreatedthe
amountearnedfromsublettingasincomefromhouseproperty.OnappealTribunalheldthat
itwasacaseofsimplesublettingofproperty,notfacilitatingcarryingonofassessee'sbusiness
and could not be considered as 'business income', it should be included under head 'Income
fromothersources.(A.Y.20062007)
StreamInternationalServices(P.)Ltd.vACIT(2013)141ITD492(Mum.)(Trib.)
S.56:IncomefromothersourcesInterestCapitalisation.
The assessee credited interest income to the capital expenditure account of projects under
completion. The assessee did not give any specific reason why this amount should be allowed
asinterestcapitalised.Held,theinterestwasrightlytreatedasincomeoftheyear.(A.Y.2005
2006)
ECityEntertainment(India)Pvt.Ltd.v.ACIT(2013)24ITR73(Mum.)(Trib.)
S.56:Income fromothersourcesIncomefromhousepropertySublettingofpropertyisassessableas
incomefromothersources.[S.22,27(iiib),28(i),269UA(f)]
The assessee had taken three floors of a building on lease for its business purpose. Due to the
availabilityofexcesscapacityoutofthethreefloors,theassesseesubletoneofthefloorsandreceived
rent which it treated as business income. The assessee claimed deduction for expenses of rent and
maintenance and depreciation on leasehold improvements. The Assessing Officer treated the sum
earned from subletting of leasehold premises as "Income from house property" consequently
disallowingtheexpensesclaimed.Held,thatinordertobecoveredundersection22,itissinequanon
that the assessee must be the owner of the house property in terms of section 27 read with section
269UA(f). The assessee was not the owner of the property. It could not also be deemed the owner of
house property within the meaning of section 27 because it took the property on lease for a period of
three years. Since the assessee was neither the owner nor the deemed owner of the house property,
applyingtheprovisionsofsection22,theannualvalueofsuchpropertycouldnothavebeenchargedto
taxunderthehead"Incomefromhouseproperty".Asitwasacaseofsimplesublettingorproperty,not
facilitatingthecarryingonoftheassessee'sbusinessinanymanner,therentalincomesorealisedbythe
assesseeinthepresentcircumstancescouldnotbeconsideredas"businessincome".Insuchasituation,
it was to be included under the head "Income from other sources" and the Assessing Officer was to
alloweligibledeductionsandallowancesinaccordancewiththerelevantprovisionsunderChapterIVF.
(A.Y.20062007)
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StreamInternationalServicesP.Ltd.v.ADIT(IT)(2013)23ITR70/152TTJ553/141ITD492/83DTR394
(Mum.)(Trib.)
S.56(2):IncomefromothersourcesGiftofresidentialflatsthroughtransferofsharesby
foreigncompanytoIndiancompanyCannotbeassessedasbusinessincomeorincomefrom
othersources.[S.4,9(1)(i),28(iv),47(ii),CompaniesAct1956S.82,TransferofPropertyAct
,1882S.5,122]
The Assessee had received by way of gift, three residential flats in Hill Park from its sister
concern viz., BISNCL, a UK based company. BISNCL was holding shares of Hill Park Ltd which
entitleditforuseandoccupationofthesaidthreeflatsandthegiftwaseffectedbytransferof
the said shares. Both, the assessee and BISNCL, were 100% subsidiary of a U.K.based entity
whichinitsturnwas100%subsidyofaDubaibasedentity.
According to the tribunal, sucha transfer maytriggercapital gains ramifications inIndia, since
the shares of an Indian company were situated in India and when the transferor is a non
resident, the deeming provisions of sec. 9(1) (i) of the I.T. Act. 1961 came into play However,
referring to sec. 47(ii), the tribunal noted that the transfer of a capital asset, amongst others,
under a gift is not treated as transfers for the purposes of sec. 45 of the Act. Referring to the
provisions of sec. 5 andsection 122 of the Transfer of Property Act (TPA), the tribunal noted
that therewas no requirement in the TPA that a `gift can be made only between two natural
loveandaffectionwhichmeansthataslongasadonorcompanyispermittedbyitsArticlesof
Associationtomakea`gift,itcandoso.Incasewheredonorisaforeigncompany,thetribunal
notedthattherelevantcorporate/commerciallawofthejurisdictionwherethedonorisbased
needstobeconsidered.ReferringtotheCertificateandAttestationbytheNotaryPublicofthe
City of London, England, wherein the authority has inter alia certified and attested that the
Deed of Gift was binding on BISNCL in accordance with the relevant provisions of English law,
the tribunal concluded that BISNCL was regally authorised to give gift of shares. Therefore, it
held that the gift of shares of an Indian company by a foreign company without consideration
hastobetreatedasgiftwithinthemeaningofsec47(iii)oftheAct.
Simply because both the donor and the done happened to belong to the same group cannot
ipso facto establish that they have any business dealings to attract the provisions of section
28(iv).
The Tribunal noted that a plain reading of the provisions of sec. 56(2) show that no every
receipt is taxable under the head `income from other sources but only those which can be
shownas`Incomecanbebroughttotaxunderthishead,ifitdoesnotfalldirectlyunderother
headsofincomespecifiedinsection14oftheAct.Accordingtoit,theissueinvolvedunderthe
present appeal got covered under the clause (viia) of sec. 56(2). However, the saidclause was
introduced with effect from 1
st
day of June, 2010, hence, not applicable to the case of the
assessee.(A.Y.200809)
DP World P. Ltd. v. D CIT (2013)140 ITD 694/ BCAJ Pg. 22, Vol. 44B Part 4,
January2013(Mum.)(Trib.)
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Assessee received interest from 'S' Ltd. against which it claimed deduction of certain amount
being interest paid to same entity and declared net interest as his income. According to
assessee, he had received interest from 'S' Ltd. in respect of land sold to them against which
sales proceeds were received late and, on other hand, he had also paid interest on loan
obtained from 'S' Ltd. earlier for purchase of said land. Court held thatsince right to receive
interestandliabilitytopayinterestaroseinrespectofsameperiodandoutofsameevent,i.e.,
nonpaymentofsaleproceedsintime,itaffordedsufficientnexusbetweentwosoastojustify
applicability of principle of netting, therefore, claim raised by assessee was to be allowed. In
favourofassessee.(A.Y.200001)
CITvUKBose(2013)212Taxman399(Delhi)(HC)
S.57:IncomefromothersourcesDeductionsInterestDirectorOrderofTribunalissetaside
andmatterwastoberemandedbackfordisposalafresh.
Assessee was a director in various companies belonging to 'S' groupIn course of assessment
proceedings, Assessing Officer noticed that assessee had declared certain loss under head
'incomefromothersource'.Hefurthernotedthatlossrepresentedamountofinterestonloans
borrowed from one company belonging to 'S' group for purchase of shares in several other
companies belonging to same Group. According to Assessing Officer, method adopted by
assesseeamountedtoacolourabledevicefortransferringfundsofsomeconcernsof'S'Group
to other concerns of same Group, himself acting as a conduit. He thus disallowed assessee's
claimfordeductionofinterestonborrowedfunds.Tribunal,however,allowedassessee'sclaim.
TheCourtheldthatonfacts,itwasworthexaminingwhycompaniesbelongingtosamegroup
could not have helped each other directly and why assessee was introduced as a conduit.
therefore, impugned order of Tribunal was to be set aside and, matter was to be remanded
backfordisposalafresh.Matterremanded.(A.Y.199495)
CITv.J.B.Roy(2013)212Taxman591(Delhi)(HC)
S.57:IncomefromothersourcesInterestCommencementofbusinessDeductions[S.28(i)]
The assesseecompany was implementing a multiproducts special economic zone. It had
obtained secured loan from banks for business purposes the said loan could not be deployed
immediately and was kept in fixed deposits. The Assesssee earned interest income on fixed
depositsanditpaidinterestonsecuredloan.Theamountofinterestearnedwasnettedofand
the netted amount was shown as preoperative expenses. Assessing Officer taxed the interest
asincomefromothersourcesastheassesseehadnotcommencedthebusinessoperationyet.
Commissioner (Appeals) confirmed the decision of assessing Officer. On appeal the Tribunal
heldthatinterestearnedfromFDswastaxableasIncomefromothersources.Interestpaidon
borrowedfundshadnoconnectionwithreceiptofinterestincomeandinterestonsuchloans
could not be deductible under section 57(1)(iii) from interest earned on fixed deposits.
(A.Y.200809)
KakinadaSEZ(P.)Ltd.v.ACIT(2013)141ITD635(Hyd.)(Trib.)
S.64:ClubbingofincomeSpouseQualificationBurdenisonassessee.
Theassessee,engagedinthebusinessofcivilconstruction,claimeddeductionofsalarypaidto
his wife. According to him she was an engineer by profession and looked after plans for
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executing work allotted to the assessee and helped in making administrative decisions.The
Assessing Officer disallowed the salary. On appeal, the Commissioner (Appeals) allowed the
deduction.Onappealbyrevenue,theTribunaldisallowedthededuction.OnappealHighCourt
held that, the assessee's wife though, was in possession of technical qualification but the
assessee was required to prove conclusively that his wife was in fact looking after plans for
execution work and was taking administrative decisions. The assessee cannot be given benefit
merely on the ground that the deduction had been allowed in the earlier assessment years.
(A.Y.200304,200405)
YashwantChhajtav.Dy.CIT(2013)214Taxman280/85DTR26(HP)(HC)
S.68:CashcreditsGiftPartnerCapitalaccountAssesseeneedtoprovethesourceofsource,
ororiginoforigin.
The assessee was a partnership firm, in which 'K' and 'Z' were partners, who had deposited
amountsintheircapitalaccountsinthefirm.Itwasexplainedthat'K'hadreceivedtheamount
fromsixpersonsand'Z'fromfivepersonsbywayofgiftandallofthemhadfiledtheirincome
tax return and gifttax returns.Thus, the assessee had explained the nature and source of the
depositanddischargeditsburden.Theassesseecouldnothavebeenaskedtoprovethesource
ofsource/originoforigin.(A.Y.199293)
ZafaAhmad&Co.v.CIT(2013)214Taxman440(All.)(HC)
S.68:Cash credits Capital gains Sale transaction of shares cannot be disbelieved only for
reasonsthattheassesseecouldnotgivetheidentityofpurchasers.
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Theassesseesoldsharesandclaimedtohaveearnedcapitalgains.Heproducedpurchasebills
ofshares,letteroftransfer,salebills,accountswithbrokers,purchaseandsalechartandcopy
of quotations from stock exchange showing rate of shares at relevant time and letters from
brokersconformingsaleofshares.Also,paymentofsalepricewasmadethroughbankchannel
and not in cash. Held, in view of mass of documentary evidence, sale transactions of shares
couldnotbedisbelievedonlyforreasonthatassesseecouldnotgiveidentityofpurchasersand,
therefore, income there from could not be treated as income from undisclosed source.(AY
200405)
CITv.SudeepGoenka(2013)214Taxman418(All.)(HC)
S.68:CashcreditsShareapplicationmoneyEvidencefurnishedbyassesseeAdditionwasnot
justified.
The assessee received certain amount as share application money. In order to prove
genuinenessoftransaction,theassesseebroughtonrecordvariousdocumentssuchasnames
andaddressesofshareapplicants,confirmatorylettersofshareapplicants,copiesoftheirbank
statements etc. The Assessing Officer found the assessee's explanation to be unacceptable
and,consequently,addedtheamountofshareapplicationmoneytoassessee'staxableincome
which was deleted by the Commissioner(Appeals). The Tribunal upheld the order of the
Commissioner (Appeals).On appeal High Court held that , there was a clear lack of inquiry on
the part of the Assessing Officer once the assessee had furnished all the relevant material. In
suchaneventualitynoadditioncanbemadeunderS.68.(A.Y.200405)
CITv.GangeshwariMetal(P.)Ltd.(2013)214Taxman423(Del)(HC)
S.68:Cash creditsCash deposit in bankAmount received from another branch which was
VerifiedbyCommissioner(Appeals),additionwasnotjustified.
During assessment proceedings, Assessing Officer made certain addition on account of
undisclosed cash deposit in bank. In appellate proceedings, assessee's explanation was that it
had received said amount from another branch. The Commissioner (Appeals) having verified
saidfact,deletedtheaddition,whichwasupheldbytheTribunal.Courtheld,thattheTribunal
didnotcommitanyerrorinlawandhence,itsorderwasliabletobeupheld.
CITv.MeghaIndustries(2013)214Taxman400(Guj.)(HC)
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S.68:CashcreditsGiftConfirmationwasfiledFornotfurnishingofinformationundersection
133(6)additioncannotbemade.[S.133(6)]
The assessee received gifts from different persons through demand drafts. The Assessing
Officer doubted genuineness of gift and issued letters to all donors under S. 133(6).Although
confirmationswerereceived,noreplywasreceivedandhence,theamountofgiftswasadded
to income of assessee. It was noted that the assessee had furnished all other requisite
documentslikecopiesofDD,giftdeed,copyofPANcards,copyofacknowledgementofreturns
ofdonorsalongwithcomputationandbalancesheet.Held,onfacts,thattheassesseehadduly
established identity of donors so also creditworthiness and genuineness of transaction and,
thus,Tribunalwasjustifiedindeletingimpugnedaddition.
CITv.BhanwarlalSharma(2013)214Taxman122(Mag.)(Guj.)(HC)
S.68:Cash credits Share application money Where most of the share applicants had
deposited money a few days before the issue of shares and also not responded to the
summonsAdditionundersection68heldtobejustified.(S.131)
Where most of the investors deposited monies in the accounts a few days before the issue of
shares and they also did not respond to the summons issued by the assessing officer under
section 131 of the Act, the assessing officer was held justified in making the additions under
section68oftheAct.(A.Y.200607)
CITv.NeelkanthIspatUdyog(P)Ltd.(2013)81DTR214(Delhi)(HC)
S.68:Cash credits SharesDemat account Shares held in Demat account and consideration
received through demand draft,transaction genuine and addition under section 68 is not
calledfor.
Wheretheshareswereheldbytheassesseeinademataccountandsaleconsiderationofthe
same was also received through bank draft transaction held to be genuine, addition under
section68heldtobejustified.(A.Y200405)
CITv.UditNarainAgrawal(2013)81DTR63/213Taxman178/255CTR102S(All)(HC)
S.68:CashcreditsSaleproceedsNoaddition u/s.68canbemadeinrespectofsaleproceeds
alreadyofferedasincome.
Once the sale proceeds have been offered as income by the assessee and the same has been
accepted by AO, no addition in respect of the same can be justified u/s.68 or else. It shall
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185
tantamount to double taxation of the same income. (T.A.No.2471/ 2475/2475 & 2476of 2009
dt03/07/12.)
VishalExportsOverseasLtd.(2012)BCAJNovemberP.400(Guj.)(HC)
S.68:CashcreditsFirmCapitalPartnerFirstyearofbusinessContributionofcapitalby
partnercannotbeaddedinhandsoffirm.
One of the partners, who was a minor, introduced Rs. 2,62,000 as his capital. The Assessing
Officer disputed the capital contribution made by the minor. The explanation offered was not
found satisfactory and the Assessing Officer added the sum in the hands of the assessee. This
was confirmed by the Tribunal. On appeal the Court held that (1) the authorities below had
failedtotakeintoaccountthatthiswasthefirstyearofbusinessoftheassessee.TheTribunal
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186
was not justified in holding that the unexplained cash credit recorded in the assessee's books
beaddedinthehandsoftheassessee.TherewasnomaterialbeforetheTribunaltoholdthat
thecapitalintroducedbytheminorpartneratthetimeofstartingofthebusiness,wasincome
of the assesseefirm. The Tribunal erroneously came to the conclusion that the deposits
represented undisclosed income of the assesseefirm. Accordingly the appeal of assessee was
allowed.(A.Y.19911992)
AbhyudayaPharmaceuticalsv.CIT(2013)350ITR358(All)(HC)
S.68:Cash credits Identity provedCreditworthiness not proved hence addition was held to
bejustified.
Assessee HUF claimedto have received a loan of Rs. 2.15 lakhs in cash from karta's wife, who
was a State Government employee. She claimed to have received gifts of Rs. 2 lakh from her
parentswhohadsupposedlyearnedamountbyleasingagriculturalland.However,noevidence
about such source was submitted. Further, no evidence was filed taking State Government's
permission as required before accepting gifts of such an amount by a government servant.
Creditworthiness of creditor and genuineness of transaction was not proved in instant case,
eventhoughidentityofcreditorwasestablished.Therefore,theadditionofimpugnedamount
wasappropriate.Appealofassesseewasdismissed.(A.Y.200203)
D.SivaSankaraRao(Dr.)v.ITO(2013)212Taxman151(AP)(HC)
S.68:CashcreditsShareapplicationmoneyAssesseeproducingtaxreturnsandalsoproducing
confirmation of shareholders Burden of proving source of share application money
dischargedadditionwasdeleted.
Assesseeproducedthenames,addressesandpermanentaccountnumbersoftheshareholders
theonusontheassesseetoprovethesourceofshareapplicationmoneystandsdischarged.If
theassessingauthorityisnotsatisfiedwiththecreditworthinessoftheshareholders,itisopen
to the assessing authority to verify the same in the hands of the shareholders concerned. The
Tribunal recorded the findings that the assessee had produced the returns filed by the
shareholders who had paid share application money. The assessee had also produced
confirmations from the shareholders indicating the details of their addresses, permanent
accountnumbersandparticularsofchequesthroughwhichtheamountswerepaidtowardsthe
share application money. The Tribunal treated the deposits of share application money as
genuine.OnappealhighCourtalsoconfirmedtheorderofTribunal.
CITv.JayDeeSecuritiesandFinanceLtd.(2013)350ITR220/214Taxman62(Mag.)(All.)(HC)
S.68:CashcreditsAdvancereceivedPANandbankaccountnumber.
AssessingOfficermadeadditiononaccountofunexplainedadvancesfrom'J'and'M',fornon
furnishing of PAN and bank account number. During appellate proceedings assessee filed
detailed submission including assessee's account in books of 'J' and 'M' as well as PAN.
Commissioner (Appeals) found submissions to be plausible explanation within meaning of
section 68 and deleted addition. On appeal by revenue Tribunal, confirmed the order of
Commissioner(Appeals)(A.Y.200708)
ITOv.SainsEngg.Works(2013)141ITD294(Chd.)(Trib.)
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S.68:CashcreditsFirmpartnersCapitalContributionpriortocommencementofbusiness.
Twopartnershaddepositedcertainamountinassesseefirmastheircapital.Assesseehadnot
furnished necessary evidence about source of said amount. Assessing Officer treated said
amountasunexplainedcashcreditundersection68andaddedsametoincomeofassessee.On
appeal Tribunal held that since the amount deposited was from partners at the most the
impugned amount could have been added in the hands of the partners, if they failed to
dischargetheonusbutnotinthehandsoftheassesseefirm.Moreoverthecontributionofthe
capitalbythepartnerswaspriortothecommencementof thebusinesshencecouldnothave
beentreatedasincomeoftheassessee.(A.Y.199495)
LaxmiImaging&MedicalResearch.v.ACIT(2013)141ITD297(Jodh.)(Trib.)
S.68:Cash creditsDealer depositsLoan Dealers deposit and loans received earlier yearsadditions
cannot be madeAssessee need not prove the source if genuineness is establishedCreditors not
producedthematterwasremanded.
Dealer deposits received in assessment years 200304 and 200405.Addition cannot be made for
subsequent year. Assessee producing creditors and creditors filing bank accounts. Assessing Officer
satisfied as to genuineness of transaction and creditworthiness of creditors. Credits to be accepted.
Onus on assessee to prove identity, creditworthiness of creditor, genuineness of transaction. Not to
prove source of creditor. Where creditor neither attending office of Assessing Officer nor assessee
producing creditor. Transaction not established. Loan obtained during financial year 199596 and still
outstanding.Credit could have been added in year of receipt but not during this year. Creditor not
produced before Assessing Officer and remand report of Assessing Officer silent on this issue. Matter
remanded.(A.Y.20062007)
HarishKawadmalBajajv.ITO(2013)22ITR411(Pune)(Trib.)
S.68:Cash creditsIncome was not estimated by Assessing OfficerAddition under section 68
permissibleMatterremanded.
Tribunal held that when the income of the assessee was not estimated but was determined after
considering the returned income and making further disallowance for discrepancies in voucher/bills
producedbytheassessee.However,sincethelowerauthoritieshadnotexaminedtheissuerelatingto
section 68 in proper perspective the matter was to be remanded to the Assessing Officer for fresh
consideration.(A.Ys.20022003to20082009)
ACITv.MirMazharuddin(2013)22ITR314(Hyd.)(Trib.)
S.68.Cashcredits:IdentityCapacityisprovedAdditionsdeleted.
Tribunal held thatduring the course of appellate proceedings, the assessee produced
documents and the details of repayment made through cheque and bank confirmations
showingthatthechequesissuedbytheassesseewereencashedbytherespectiveparties.The
assesseehadalsofurnishedtheidentityofpersonswithcompletedetailsofaddressesandthe
fixed deposit applications showing details. After satisfying himself with the documents, the
Commissioner(Appeals)hadallowedthegroundofappealoftheassessee.Nointerferencewas
warranted.Appealofrevenuewasdismissed.(A.Ys.20052006,20082009)
ABTLtd.v.ACIT(2013)21ITR634/83DTR178/56SOT42(Chennai)(Trib.)
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S.68:CashcreditsGiftsSearchandseizureBlockassessmentFailingtoprovegenuinenessof
gifts,additionisheldtobeproper.(S.158BC)
Pursuant to a search conducted at the residential premises of the assessees who were father
and son, it was found that the assessees received gifts from certain parties. The Assessing
Officernotedthatmostofthedonorswerefriendsandnotrelatives,asclaimed,andthegifts
werenotreceivedonanyspecialorceremonialoccasion.Headdedtheamountsasundisclosed
income under section 68 of the Incometax Act, 1961. The first appellate authority deleted on
the basis that, firstly, they could not be said to be undisclosed and, secondly, no material to
doubt the genuineness of the credits or gifts was found during the search. On appeal by the
Department, it was held that there was no mention of the credits in the returns of income
furnished by the assessee from year to year. It was only as a result of search that the credit
transactions were found, and which the assessee was unable to satisfactorily explain to the
Assessing Officer. No gifts had been given by the assessees to any of their close friends and
relatives, including those from whom gifts were being regularly received over the years.
Further, none of the donors were produced for examination before the Assessing Officer. No
evidenceinsupportoftheirfinancialcapacitywassubmitted.Thereceiptofthecreditthrough
thebankingchannel,orconfirmationbythecreditorordonor,wasitselfnotsufficienttoprove
thegiftsintermsofsection68. Therewasnothingtoexplaintowhythegiftsshouldbemade
by the assessee's father's friends and exemployees. There were materials and information
found as a result of search to discredit the gifts as not genuine. The additions made by the
AssessingOfficerweretobeupheld.(Blockperiod141990to12102010)
ACITv.DwarakaPrasadMalpani(2013)21ITR719(Cochin)(Trib.)
S.68:CashCreditsWithdrawalfrombankSourceexplainedadditioncannotbemade.
Duringpreviousyear,assesseehaddepositedasumofRs.13lakhsinhisbankaccountbyway
of cash. It was submitted that all deposits had been made out of cash withdrawn from cash
book. Tribunal held that since sources of amount deposited in bank account were clearly
explained,noadditioncouldbemadeundersection68.(A.Y.200506)
DeoraTradingCo.v.ITO.(2013)55SOT349(Mum.)(Trib.)
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S.68:CashCreditsWhereAssessingOfficerfailedtobringonrecordcogentandcorroborative
materialtosupporthisconclusion,additionisdeleted.
Tribunalheldthattheassesseehasdischargedonuswithinthemeaningofsection68oftheAct
andalsoinconsonancewiththegeneralprinciplesoflaw.Inthepresentcasetheassesseefiled
evidences before the Assessing Officer and the CIT (A) showing identity of the shareholders,
creditworthiness of such parties and the genuineness of the transactions. In view of this the
onusstandsshiftedtorevenuetobringcrediblematerialonrecordtoshowthenonexistence
of such shareholders and nongenuineness of such transactions. The Tribunal confirmed the
orderofCIT(A)andtheadditionmadeundersection68byAssessingOfficerwasdeleted.(A.Y.
200607)
ACITv.KiscoCastingP.Ltd.(2013)152TTJ629/82DTR63(Chd.)(Trib.)
S.68: Cash Credits Income from undisclosed sources Liability towards outstanding sale
consideration for acquisition of cinema hall, additions cannot be made either under section
68or69,unlessliabilityisheldtobebogus.(S.69)
Theassesseehadpurchasedthecinemahalllock,stockandabarrelwhichwasregisteredand
registration was granted for the assessee to enjoy possession. The seller has acknowledged
parphentasmentionedinthesaledeeddulyregisteredin2007ofhavingreceivedtheamount
in cheque in 2012. The Assessing Officer made the addition of the amount on account of
unexplained sundry creditors. The Tribunal set aside the CIT (A) order and directed the
Assessing Officer to delete the addition and held that addition cannot be made either under
section68orundersection69unlesstheassessingauthoritycomestothefindingthatanasset
has been created on account of bogus liability or the bogus liability exists which has been
adjustedincash.(A.Y.200910)
DineshChandraDasv.ACIT(2013)152TTJ25(UO)(Ctk.)(Trib.)
S.69:UnexplainedinvestmentsCreditworthinessofdonorswasnotprovedadditionwasheld
tobejustified.
Assessee advanced Rs. 78 lakhs to partnership firm and claimed that said amount was sent
from Singapore by her nonresident mother, brother and sisterinlaws.On enquiry, from
Singapore Revenue Authorities, it was found that donors did not have sufficient income to
makes gift of Rs. 13 lakhs each. Assessee also could not place proof to show source of
funds.Since creditworthiness of donors was not proved, whole amount was to be added to
incomeofassesseeasherincomefromundisclosedincomeInfavourofrevenue.(B.P.198687
to199697)
KumariKanagam(Mrs)v.CIT(2013)213Taxman154(Mad.)(HC)
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Tribunalconcluded,onfacts,thattherewasnomaterialfoundduringthesearchtojustifythe
referencetotheDistrictValuationOfficerforvaluationoftheproperties.TheTribunalheldthat
there must be some material to show that the investment made by the assessee was outside
the books and in any event the District Valuation Officer's report was based on incomparable
sales and, therefore, could not be relied upon. The Tribunal also held that the burden was on
theRevenuetoshowthattherealinvestmentinthepropertieswasgreaterthantheapparent
investment, as disclosed by the assessee and the burden had not been discharged by the
Revenue.Onappealbyrevenuedismissingtheappeal,theCourtheldthattherewasnomaterial
foundinthesearchandseizureoperations,whichwouldjustifytheAssessingOfficer'sactionin
referring the matter to the District Valuation Officer for his opinion on valuation of the
properties.Therefore,thevaluationarrivedatbytheDistrictValuationOfficerwouldbeofno
consequence. In any event, the Tribunal had also, on facts, held that the District Valuation
Officer'svaluationwasbasedonincomparablesales,whichisnotpermissibleinlaw.Appealof
revenuewasdismissed(A.Y.20062007)
CITv.AbhinavKumarMittal(2013)351ITR20/87DTR69/213Taxman54(Delhi)(HC)
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theCommissioner(Appeals)hadfoundtheexplanationtobesatisfactorythemattercouldnot
be decided on inferences. The Tribunal is the final fact finding authority and, therefore, it is
incumbentontheTribunaltoreturnafindinginclearandexpressterms.Thisisso,becauseitis
onlywhenthefindingisclearthataquestionoflawbasedonthosefindingscanbeexamined
bythecourt.Therefore,thematterwasremittedtotheTribunaltoreturnaclearfindingasto
whetherornottheexplanationofferedbytheassesseewassatisfactory.(A.Y.20082009)
CITv.AjaiShukla(2013)350ITR594/214Taxman404(Delhi)(HC)
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S.69B:AmountsofinvestmentsnotfullydisclosedinbooksofaccountInvestmentinproperty
DocumentsseizedfromassesseespremisesAdditionasundisclosedinvestmentwasheldto
bejustified.(S.132).
Documentspertainingtoapropertywerefoundandseizedfromassessee'spremises.Assessee
submitted that said property papers were given by a property dealer for verification. Name of
purchaserofpropertywasnotmentionedindocuments.Furthernoonecameforwardtoclaim
these documents. Even summons served on owner of property came back being unserved. In
viewofaforesaid,additionundersection69Bwasjustified.Infavourofrevenue.
CITv.JaiPalAggarwal(2013)212Taxman1(Delhi)(HC)
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with any date or details nor was document signed and, thus, it was a dumb document,
therefore,additionundersection69Bwasnotjustified.
CITv.JaiPalAggarwal[2013]212Taxman1(Delhi)(HC)
S.69B:IncomefromundisclosedsourcesNotingonseizedpaperCostoflandAdditionmade
withoutgivinganopportunityofcrossexaminationwasheldtobebadinlaw.
Intheabsenceofanypositivematerialonrecordtoprovethatthebaldfigurefoundnotedona
seized paper actually represents the cost/purchase price of the land, addition u/s. 69B cannot
be made simply by rejecting assessees explanation; supporting evidence, i.e., statements of
original landowners admitting additional consideration which was neither taken into
considerationbytheAOnorfiledbythedepartmentbeforetheCIT(A)cannotbeacceptedby
the Tribunal, same being totally new evidence, more so when these statements were neither
confrontedtotheassesseenoranycrossexaminationwasallowed.(A.Y.200708)
Dy.CITv.CountrywideBuildestate(P)Ltd.(2013)83DTR346/154TTJ422(JP)(Trib.)
S.69C:UnexplainedexpenditureCashpaymentsDieselexpensesonthebasisofconfirmation
letterbyofficerinchargeheldtobeallowable.
Assessing Officer made addition on account of diesel expenses paid in cash to BP, Sanchor, a
company pump of BPCL. Tribunal on basis of confirmatory letter given by Officerincharge of
BP,Sanchorwhereinitwasstatedthatdieselwassuppliedbyittoassesseedeletedadditions.
Letterclearlymentionedthatbillsissuedtoassesseehadalsobeenverifiedbeforeissuanceof
certificate Whether since conclusion arrived at by Tribunal was based upon concurrent
findings of fact and there was no material to contrary so as to dislodge findings of Tribunal,
samewastobeupheld.Infavourofassessee.(A.Y.200607)
CITvG.K.Patel&Co.(2013)212Taxman384(Guj.)(HC)
S.70:Set off lossOne source against income from another sourceSame head of income
SurveyIncomesurrenderedduringsurveyisnotallowableforsetoff.(S.71,133A)
During the course of survey assessee surrendered an additional income. The Assessing Officer
held that since income surrendered during survey was not recorded in the books of account
thereforenodeductionofsetofflossondepreciationcouldbeallowed.AccordinglytheIncome
surrendered during the course of surveywas assessed separately. On appealCommissioner
(Appeals) also confirmed the order of Assessing Officer. On appeal the Tribunal relying on the
judgementofPunjabandHaryanaHighCourtinKimPharma(P)Ltd.(ITAppealno106of2011
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(O&M ) the Tribunal held thatbrought forward loss cannot be set off against surrendered
incomeundersection70&71.Appealofassesseewasdismissed.(AY200506)
LibertyPlywood(P.)Ltd.v.ACIT(2013)140ITD490(Chd.)(Trib.)
S.72A:CarryforwardandsetoffAccumulatedlossUnabsorbeddepreciationAmalgamation:
Two separate companies, BTPU and another company, got amalgamated with the assessee
company in the previous year relevant to the assessment year 200405. The Assessing Officer
denied set off of the brought forward loss of BTPU on the grounds that (i) 43.79 per cent. of
assetsoftheamalgamatingcompanyhadbeendisposedofbytheassesseeintheveryfirstyear
of the amalgamation; (ii) the assesseecompany was not able to substantiate that the scheme
of amalgamation was with a view to revive the business of the amalgamating company and
amalgamationwasforagenuinebusinesspurposes;(iii)theassesseecompanydidnotachieve
the level of production of at least 50 per cent. of the installed capacity of the amalgamating
companybeforetheendoffouryearsfromthedateofamalgamationandthatitfurtherfailed
todemonstratethatitcontinuedtomaintainthesaidminimumlevelofproductiontilltheend
of five years from the date of amalgamation ; (iv) the assesseecompany failed to furnish a
certificate in the prescribed Form 62 duly verified by an accountant showing particulars of
production, which was one of the prerequisite conditions for availing of the allowance under
section72A,aslaiddowninrule9C(b).TheCommissioner(Appeals)affirmedthis.Onappeal:
Held,(i)thattwocompanies,BTPUandBSPPLamalgamatedwiththeassesseecompanyinthe
relevantpreviousyear.TheassesseeclaimedsetoffofbroughtforwardlossofBTPUalone.In
ordertoclaimsuchbenefit,itwasincumbentupontheassesseenottodisposeofmorethan25
percent.oftheassetsofBTPUalone.Thedisposalofassetsbytheassesseeinallthethree
yearscombinedwasaround10percent.ofthebookvalueoftotalassetsofBTPU.The
AssessingOfficer,whilecalculatingthepercentageof43.79percent.,erredinincludingthe
disposalofassetsofBSPPLwiththedisposalofassetsofBTPU.TheobjectionoftheAssessing
Officerfornotgrantingsetoffandcarryforwardofaccumulatedlossandunabsorbed
depreciationofBTPUthattheassesseedisposedmorethan25percent.oftheassetsofBTPU
was,thereforenot,sustainable.
(ii)ThattheamalgamationtookplaceonApril1,2003.Theperiodoffouryearshadnotexpired
atthetimeofcompletionoftheassessment.TheAssessingOfficerwasrequiredtorestrict
himselftotheyearbeforehimforconsideringastowhethertherewasanyviolationofsection
72A(2).Asthepreviousyearrelevanttotheassessmentyearunderconsiderationwasnotthe
fourthyearfromthedateofamalgamation,theAssessingOfficerwasnotrequiredtoexamine
thisaspectatthatstage.
(iii)Thatitwasprematuretorequirethematerialfordemonstratingeffortstakenbythe
amalgamatedcompanyforrevivingthebusinessofamalgamatingcompany.
(iv) That as the assessee admittedly did not achieve the production at the desired level of the
installed capacity and it was not the fourth year from the date of amalgamation, the
requirementoffurnishingcertificateinForm62waspremature.
(v) That, therefore, there was no failure on the part of the assessee to fulfill the requisite
conditionsforclaimingsetoffofbroughtforwardbusinesslossesandunabsorbeddepreciation
ofBTPUinyearunderconsideration.(A.Y.20032004,20042005)
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BayerMaterialScienceP.Ltd.v.ACIT(2013)142ITD22/22ITR287(Mum.)(Trib.)
S.73:LossesSpeculativebusinessBuyingandsellingofsharesDeemingfictioncanbeapplied
onlylossesinspeculationbusinessorintendtocarryforwardnonobservedloss,itcannotbe
appliedwhenthereisincomeonsaleofshares.
The assessee received certain income by sale of shares. The assessee shown the income as
capitalgains.TheAssessingOfficerappliedExplanationtoS.73andheldthatincomearoseout
of speculative business of assessee and taxed income as business income. On appeal
Commissioner (Appeals) and Tribunal up held that contention of assessee. On appeal by
revenue the Court held that, section 73 has application when assessee has incurred loss or
intendstocarryforwardnonabsorbedloss.Hence,theAssessingOfficercommittedanerrorin
resorting to Explanation 73 as said Explanation only provides for deeming fiction in certain
circumstances where assessee would be deemed to be carrying on a speculative business and
suchdeemingfictionwouldnotapplyinsituationsnotcoveredunderS.73.Courtalsoclarified
that the Assessing Officer has not given any finding on merit whether buying and selling of
shareswasassessableasbusinessincome,henceappealofrevenuewasdismissed.(A.Y.2005
06)
CITv.AppolloVikasSteels(P)Ltd.(2013)214Taxman642(Guj.)(HC)
S.73:LossesSpeculationbusinessExplanationslossincurredonbuyingandsellingofshares.
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Assessee claimed deduction in respect of loss incurred on buying and selling of shares as
business loss. Revenue authorities held that the principal business of the assessee company
was not advancing loans and buying and selling of shares. Principal business of assessee was
manufacture,sale,dealinginexportandimportalltypesofchemicalsanddrugs,thereforeloss
incurred by assessee was speculation loss. On appeal Tribunal held that Assessee's principal
business was to manufacture, sell, export and import of chemicals and drugs, Explanation to
section73appliedtoassessee'scase.Hencetherevenueauthoritieswerejustifiedinrejecting
assessee'sclaim.(A.Ys.199798to19992000)
Dr.Reddy'sLaboratoriesLtd.v.ACIT(2013)141ITD650(Hyd.)(Trib.)
S.79:CarryforwardandsetofflossesChangeinshareholdingsCompanieswhichpublicare
notsubstantiallyinterestedBeneficialownerLossisallowedtobecarriedforward.
In the absence of any material to hold that Tribunal accepted the assessees contentions and
that PM and Mrs. DR were in fact holding the shares on behalf of foreign investors and the
foreign investors fell within the description of beneficial owner u/s. 79, Tribunal was not
justifiedinallowingcarryforwardandsetoffofloss.Matterwasremandedforreconsideration.
(A.Y.200203,200304.)
CITv.SNetFreightIndia(P)Ltd.(2013)83DTR243(Delhi)(HC)
S.80G:DonationCancellationofcertificateCharitablepurposeCancellationwithoutnotice
washeldtobeillegal.[S.2(15)].
No notice was issued by the Commissioner to the assessee calling upon it to show cause with
regard to violation committed by it to cancel the exemption certificate granted under section
80G.Sincenoprofitwasmadebytheassesseeduringtherelevantassessmentyear.Therefore,
itcannotbesaidthattheactivityoftheassesseetrustisnotcharitable.Thus,thecancellation
ofcertificatewasheldillegal.
CITv.RajasthanJainCharitableTrust(2013)351ITR354/214Taxman198/84DTR420(Karn.)
(HC)
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information, Commissioner declined renewal of exemption. Assessee submitted before High
Courtthatitsentirestaffwasbusyinexaminationworksoondateofhearingsuchinformation
could not be furnished, resulting an order jeopardizing its interest. Court held that since
assesseewasenjoyingbenefitofsection80Gsincelongtimebutbecauseoflapseonpartofits
employeesexemptionhadbeenrefused,itwastobeallowedonemoreopportunitytofurnish
allinformationbeforeCommissioner.Matterremanded.
Guru Gobind Singh Educational Society v. CIT (2013) 354 ITR 517/ 214 Taxman 194/354 ITR
517(MP)(HC)
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The Lodge of Universal Charity 273 EC Charitable Trust v. DIT (Exemptions) (2013) 23 ITR 25
(Chennai)(Trib.)
S.80G:DonationCharitable InstitutionsApproval of institutionRenewalCircular clarifying that
existingapprovalsdeemedtohavebeenextendedinperpetuityunlessspecificallywithdrawnCircular
bindingApprovaltocontinue.
The assessee filed an application for renewal of approval for purposes of the deduction under section
80GoftheAct.Itmadearequesttotreattheapplicationforrenewalofexemptionundersection80Gas
withdrawn in view of Circular No. 5 dated June 3, 2010 (2010) 324 ITR (St.) 293, which provided that
approvals under section 80G were deemed to be in perpetuity. The Commissioner did not accept the
requestoftheassessee,observingthatthesocietydidnotfulfilltheconditionsnecessaryforexemption
under section 80G(5). On appeal: Held, allowing the appeal, that approval under section 80G(5) of the
Act already granted to the assessee would continue unless and until the concerned authority took
appropriateactioninaccordancewithlaw.(A.Y.20112012)
VishavNamdhariSangatv.CIT(2013)22ITR468(Chandigarh)(Trib.)
S.80G:Donation Recognition of Institution etc. u/s. 80G(5) Trust created exclusively for a
particularreligion:
Assesseetrustwascreatedfortheconstructionofatempleofadeityandworshipofthesaid
deity under a trust deed which provided that the income of the trust shall be applied in the
maintenance and repair of the temple properties and spent on the daily worship of the said
deity and on defraying the usual expenses of holding festivals of the said deity and the
aforesaidobjectswerestillintactevenaftertheunauthorizedamendmentofthetrustdeedby
the founders and trustees, it was held that it is atrust expressed to be for the benefit of a
particular community i.e. Hindu religious community, which contravenes the provisions of s.
80G(5)(iii)r/wExpln.3toS.80Gand,therefore,assesseetrustwasnotentitledtorenewalof
approvalu/s.80G(5).
RamanujamSpiritualPublicCharitableTrustv.CIT,(2013)151TTJ682(TM)(Asr.)(Trib.)
S.80HHC:Export business Directory for relating to time for furnishing of audit report Audit
reportsubmittedduringassessmentproceedingsdeductioncannotbedenied.
TheAssessingOfficerdisallowedtheclaimoftheassesseeundersection80HHContheground
that the assessee failed to file Form No. 10CCAC along with the return. Held, that the
expression along with the return of income occurring in section 80HHC(4) is directory in
nature in so far it relates to the time for furnishing. If it is furnished during the course of
assessmentproceedings,deductioncannotbedenied.(A.Y.200304)
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CITv.GodhaChemicalsPvt.Ltd.(2013)353ITR679/83DTR190/257CTR10(Raj)(HC)
S.80HHC:Export business Survey Stock valuation found during the course of survey and
surrenderedasbusinessincomeoftheassesseewaseligibleforthedeductionundersection
80HHCtotheextentprescribed.[S.133A]
TheAssessingOfficer,fortheAY200203,disallowedthedeductionundersection,inrespectof
a sum representing excess stock valuation surrendered by the assessee as income during the
courseofsurvey.TheCommissioner(Appeals)andtheTribunalheldthatbecausetheassessee
was doing business in handicraft items and nothing contrary was found by the Department
duringthesurveyproceeding,whichcouldshowthattheassesseewasdoingbusinessinitems
other than handicraft items, the Assessing Officer ought to have allowed the deduction under
section80HHC.
Held,dismissingtheappeal,thattheassesseehadexportedhandicraftitemsmanufacturedby
it during the AY 200203 and had realized the convertible foreign exchange therefor and had
thus satisfied the requisite condition for grant of the deduction under section 80HHC to the
extent of excess closing stock valuation also. The income added in the hands of the assessee
was merely on account of surrendering the amount as income by the assessee on account of
excess valuation of the closing stock made by the assessing authority on account of survey
conducted under section 133A. Hence, the excess stock valuation found during the course of
survey and surrendered as business income of the assessee was eligible for the deduction
undersection80HHCtotheextentprescribed.(A.Y.20022003)
CITv.HaswaniArts(2013)352ITR574/83DTR81/256CTR335(Raj.)(HC)
S.80HHC:Export business Cut and polished marble blocks Extent of cutting and polishing
notprescribedEligiblefordeduction.
The Act does not prescribe the degree or extent of cutting and polishing to be applied to the
marble blocks for claiming deduction under section 80HHC. The Act does not specifically
mentionthatthemarbleshouldbegivenfinalcutandfinalpolishbeforebeingexported.When
roughmarbleiscutintodimensionalblocksofuniformcolourandsizeandacertainamountof
dressing and polishing is done, which would remove various natural flaws such as colour
variations, etc., it would certainly amount to "processing" of the marble and add value to its
marketability.CircularNo.693,datedNovember17,1994,didnotadverselyaffecttheclaimsof
theassesseesandtheassesseeswereentitledtothebenefitofdeductionundersection80HHC.
(A.Y.20032004)
CIT v. Arihant Tiles and Marbles Pvt. Ltd. (2013) 352 ITR 20/215 Taxman 140(Mag.)/257 CTR
169/84DTR58(Raj.)(HC)
S.80HHC:Export business Dividend and interest receipts Ninety per cent of net receipts,
includedinprofits,andnotofgrossreceipts.
That the Tribunal was correct in excluding 90 per cent of the dividend receipts and interest
receipts for arriving at the business profits attributable to such receipts for the purpose of
arrivingattheprofitsofthebusinessoftheassesseeingeneralandnotthegrossreceipts.The
decisionofACGAssociatedCapsulesPvt.Ltd.v.CIT(2012)343ITR89(SC)wasapplied.
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CITv.InfosysTechnologiesLtd.(2013)352ITR74(Karn.)(HC)
S.80HHC:ExportbusinessTotalturnoverMiscellaneousincomeispartoftotalturnover.
Miscellaneous income under the residuary head necessarily had to be part of the total
turnover.
CITv.InfosysTechnologiesLtd.(2013)352ITR74(Karn.)(HC)
S.80HHC:ExportbusinessComputationAdjustmentofunabsorbeddepreciationDeduction
isallowabletoanexporteronlyafteradjustmentofunabsorbeddepreciationofearlieryears
fromcurrentyearprofit.[S.32,80AB].
Inthecontextofcomputingtotalincomeoftheassesseeandevenincomputationofthetotal
income, the depreciation allowance whether for the current year or unabsorbed depreciation
ofearlieryearsnecessarilyisfactored.Itisonlyaftermakingadjustmentsagainstthesecarried
forward losses or unabsorbed depreciation allowance the true profits and positive profits can
bearrivedat.(A.Y.199798)
J.K.IndustriesLtd.v.ACIT(2013)351ITR434/85DTR225/214Taxman52(Mag.)(Karn.)(HC)
S.80HHC:ExportbusinessLossinoneunittobeadjustedagainstprofitsofanother.
Differentunitsoftheassesseecompanywereengagedinthemanufacturingofdifferentgoods.
This does not make separate units of the assessee company as separate and different
assessable units for the purposes of the Income tax Act, 1961 or for that matter for the
purposesofs.80HHC.Deductionu/s.80HHCcouldbeallowedtotheassesscompanyonlyafter
adjustmentoflossinunitIIIagainstprofitsofunitI.(A.Y.200304)
MadhavMarbles&GranitesLtd.v.ACIT(2013)352ITR331/83DTR17/256CTR329(Raj.)(HC)
S.80HHC:ExportbusinessReceiptofexportincentivespertainingtoearlieryears.
Assessee was following cash system of accounting in respect of export incentives. It received
suchincentivespertainingtoearlieryearsintherelevantfinancialyear.Heldthatitwasentitled
todeductionundersection80HHCbytakingtheexportturnoverandthetotalturnoverofthe
yearinrelationtowhichtheexportincentivehasbeenreceived.(A.Y.199293)
BarcleysInternationalv.CIT(2013)83DTR159/257CTR166(P&H)(HC)
S.80HHC:ExportbusinessThirdandfourthprovisosConstitutionality.(Constitutionof
India.Art226)
Amendment of s. 80HHC(3) by insertion of certain conditions in the third and fourth provisos
theretowithretrospectiveeffectbyTaxationLaws(SecondAmendment)Act,2005,violatesArt.
14oftheConstitutionasitdeniesthebenefitofdeductionu/s.80HHCtotheclassofassessees
havingexportturnoverofmorethanRs.10croreswhoseassessmentwerestillpending,while
allowing such benefit to the same class of assessees whose assessments have already been
concluded. It is also invalid for the reason that its retrospective operation takes away the
benefit from one class of assessees. Impugned assessment is quashed to the extent that the
operation of section could be given effect from the date of amendment and not in respect of
earlier assessment years in the case of assessees whose export turnover is more than Rs. 10
crores.
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VijayaSilkHouse(Bangalore)Ltd.UoI&Ors.(2013)83DTR241/257CTR67(Bom.)(HC)
S.80HHC:ExportbusinessProfitsofthebusinessDEPBcreditnottransferredProvisionsof
section28(iiid)isnotattracted.
TheassesseeitselfhadutilisedtheDEPBcreditforitsbusinessandhadnottransferred/soldthe
same to any third party, then the provisions of section 28(iiid) would not be attracted, and
therefore the second, third, fourth provisos of 80HHC(3) are not attracted to the assessees
case.SinceAOwasdirectedtorecomputethedeductionsundersection80HHC,inaccordance
withthelawasheldbytheSupremeCourtinTopmanExportsv.CIT(2012)342ITR49(SC)
CITv.K.R.B.L.LTD.(2013)82DTR241/257CTR32(Delhi)(HC)
S.80HHC:ExportbusinessComputationProfitsofthebusinessInterestfrommoneylendingis
not excludible for purpose of applying formula for computing export profits for earlier year
lawisamendedwitheffectfromAssessmentyear199293.(S.80AB)
The assesseeis an individual engaged in export business. For the assessment year 199192, he
claimed deduction of Rs. 33,63,149 under section 80HHC of the Incometax Act, 1961. The
incometax authorities objected that the interest income, even if it was assessed as business
income on the footing that the assessee was carrying on moneylending business, represented
domestic profits and not export profits and, therefore, a mechanism should be devised by
which the domestic profits were excluded from the profits of the business for the purpose of
applying the formula prescribed by section 80HHC. The Tribunal held that the domestic
businessneednothaveanynexuswiththeexportbusinessforthepurposeofdeductionunder
section 80HHC and hence interest income could not be excluded from the profits of the
business. On appeal the Court held that the amendment made to clause (baa) of the
Explanation below section 80HHC defined "profits of the business" in such a manner as to
excludereceiptslikeinterest,commission,etc.,whichdidnothaveanelementofturnover,was
introducedprospectivelybytheFinance(No.2)Act,1991,witheffectfromtheassessmentyear
199293 and the amendment did not operate retrospectively. Therefore, for the assessment
years prior to the assessment year 199293, it would not be permissible to exclude interest
receipts even if the business from which interest arose did not have an element of turnover.
Appealofrevenuewasdismissed.(A.Y.199192)
CITv.AnilChanana(2013)350ITR47/214Taxman62(Delhi)(HC)
S.80HHC:ExportbusinessTotalturnoverInsuranceclaim,interest,renttobeexcludedfromprofitsof
business.Amountofsaleofrawmaterialtobeincludedintotalturnoverforpurposeofcomputation
ofdeduction.
In the computation of deduction under section 80HHC the Assessing Officer included the sale of raw
materialsinthetotalturnoverandexcluded90percent.ofinsuranceclaims,salestaxrefund,interest
and lease rental receipts from the profits of the business. This was affirmed by the Commissioner
(Appeals).Onappeal:
Held,(i)that90percent.ofotherincomesuchas,insuranceclaim,interest,rent,etc.,wasliabletobe
excludedfromtheprofitsofthebusinesswhilecomputingdeductionundersection80HHC.(ii)Thatthe
amount of sale of raw material was liable to be included in the total turnover of the assessee for the
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purpose of computation of deduction under section 80HHC according to the formula given in the
statute.(A.Y.20022003)
KansaiNerolacPaintsLtd.v.Dy.CIT(2013)22ITR424/57SOT10(URO)(Mum)(Trib.)
S.80HHC:ExportbusinessNetinterest90percentthereof.
Tribunal held that when there is a nexus between interest receipts and interest payment
interestreceiptshouldbesetoffagainstinterestpaymentbeforeexcluding90percentthereof
in terms of Explanation (baa) to section 80HHC, it is 90 per cent of net interest and not gross
interest which has to be deducted under clause (i) of Explanation (baa) to section 80HHC for
determiningprofitsofbusinessinordertocomputedeductionundersection80HHC.Infavour
ofassessee(A.Y.200405)
ACITv.AvonOrganicsLtd.(2013)55SOT260(Hyd.)(Trib.)
S:80HHC:ExportbusinessBlockassessment(S.158BC,158BH)
Incourseofappellateproceedings,assesseeraisedanobjectionthatrevenueauthoritieswere
not justified in denying deduction claimed under section 80HHC. Tribunal held thatsince book
resultswereneitheralterednorrejectedbyrevenueauthoritieswhichshowedexportproceeds
being received by assessee, deduction claimedunder section 80HHC was to be allowed within
premiseofsection158BH.Infavourofassessee.(.Blockperiod141987to23101997)
HindustanPolyamides&FibresLtd.v.Dy.CIT(2013)55SOT52(URO)(Mum.)(Trib.)
S.80HHE:ExportbusinessComputersoftwareDataentryExportofcustomizedelectronicdata
iseligiblefordeduction.
Theassesseeisengagedinthebusinessofinformationvending.Theactivitiesundertakenbythe
assessee is transmission of customized data through internet to its clients abroad and that of
dataentryprocessing.Theassesseeclaimedthedeductionundersection80HHE.TheAssessing
Officer disallowed the claim on the ground that department has not accepted theorder of
Tribunalwhich has allowed the claim of assessee for the assessment year 200001.On appeal
theCommissioner(Appeals)andTribunalallowedtheclaimofassessee.Onappealbyrevenue
the Court held that the job data entryhas been notified as computer software service, vide
notification dt 26
th
Sept, 2000by the CBDT the assessee is eligible to deduction under section
80HHE.Accordinglytheappealofrevenuewasdismissed.(A.Y.200304)
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CIT v. Malhar Information Services (2013) 351 ITR 119/ 83 DTR 44/257 CTR 69/213 Taxman
45(Mag.)(Bom.)(HC)
Editorial:ReferACITv.MalharInformationServices(2008)119TTJ346(Mum.)(Trib.)
S.80HHE:ExportbusinessComputersoftwareReimbursementofexpensesTotalturnover.
Tribunal held that reimbursement of expenses are to be reduced from total turnover for
purposeofcomputingdeductionundersection80HHE(A.Ys.200405,200506)
ACITv.BechtelIndia(P.)Ltd.(2013)141ITD200/85DTR50/153TTJ416(Delhi)(Trib.)
S.80I:IndustrialundertakingsAmalgamationofonecompanywithanotherNotatransfer
as defined in section 2 (47) of the Act Disallowance of deduction u/s. 80 I of the Act not
calledfor.[2.(47)]
When a company is amalgamated into a company it does not amount to transfer within the
meaning ofsection 2 (47) of the Act.Thereforededuction under section 80 I of the Act cannot
be denied on the ground that it was a case of transfer of machinery to a new business. (A.Y.
199596)
CITv. Bhuwalka Steel Industries Ltd. (2013) 81 DTR 348/214 Taxman 392/255 CTR 516 (Karn)
(HC)
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S.80IA:Industrial undertakings Infrastructure undertaking Approval of industrial park
DelayinissuingnotificationExemptioncannotbedenied.[IncometaxRules1962Rule18C]
The claim of assessee for deduction under S. 80IA was denied on ground that assessee was
recognised as an industrial park under rule 18C on 562006; and, thus, benefit of S. 80IA
wouldnotbeavailable.ItwasobservedthattheMinistryofCommerceandIndustryhadfinally
approved assessee as industrial park by 31122004 and in terms of rule 18C, once industrial
park is so approved, the CBDT has to suomotu issue concerned notification. Held, merely
because delay in issuing concerned notification occurred on part of CBDT, deduction under S.
80Ishouldnotbedeniedtoassesseesinceallotherrequisiteconditionsforclaimingdeduction
werecompliedwith.(A.Y.200506)
CITv.AckrutiCityLtd.(2013)214Taxman398(Bom.)(HC)
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S.80IA:IndustrialundertakingsinfrastructuredevelopmentWorkscontractExplanationthats.
80IA(4)doesnotapplytoworkscontractsisclarificatoryanditsretrospectiveoperationis
valid,amendmenrdidnotimposefreshlevyhencethesameisnotvilativeofArtcicle14and
19(1)(g)oftheConstitution.[Art.14(19(1)(g),ConstitutionofIndia)]
By the Finance Act No.2 of 2009 an Explanation was added to s. 80IA(4) with retrospective
effectfrom1.4.2000toprovidethats.80IA(4)wouldapplytoabusinesswhichisinthenature
ofaworkscontractawardedbyanypersonandexecutedbyanundertakingorenterprise.The
saidretrospectiveamendmentwaschallengedonthegroundthat(i)itwasafreshlevyoftax,
(ii) no reasons were given to support the retrospective levy, (iii) the period of retrospective
operation was long and so it violated Article 19(1) (g) of the Constitution. HELD by the High
Courtdismissingthechallenge:
(i)Anenactmentcanbequestionedonlyonthegroundoflackofcompetenceorontheground
that the statute violates the fundamental rights or any other constitutional provisions. An
enactment cannot be struck down by just saying that it is arbitrary or unreasonable. Some or
otherconstitutionalinfirmityhastobefoundbeforeinvalidatinganAct.Asalltaxesareraised
forpublicgood,thereisconsiderablelatitudetoParliamentinframingataxingstatute.Thereis
always a presumption of constitutionality and the burden is on the Petitioner bringing such a
challenge;
(ii) Onmerits, the argument that the Explanation below s. 80IA (13) provides fora levy of tax
which was hitherto unknown is not acceptable. It cannot be said that the Legislature in
introducing the explanation materially changed the exemption which existed till such
explanationwasintroduced.Theexplanationwasintroducedfortheremovalofdoubtsandis
declaratory in nature. By the Explanation, the Legislature has distinguished between cases of
developing/operatingetc.fromaworkscontract.Itcannotbedisputedthatthereisanintrinsic
difference between developing an infrastructure facility and executing a works contract. The
Explanation merely aims to clarify that deduction u/s 80IA(4) is not available in case of
executionofworkscontract.Suchaninterpretationispossibleevenonthebasisoftheexisting
provisionsofs.80IA(4).
Katira Construction Ltd v. UOI(2013) 352 ITR 513/258 CTR 337/86 DTR 1/214 Taxman 599
(Guj)(HC)
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S.80IA:IndustrialundertakingsInfrastructuredevelopmentTelecommunicationservices
VSATservicesMatterremanded.
Assessee,apubliclimitedcompany,wasprovidingsatellitebasedtelecommunicationsolutions
including VSAT services, and broadband service through satellite. It claimed deduction under
section 80IA in respect of income derived from providing broadband/internet services.
AssessingOfficerrejectedassessee'sclaimongroundthatsatellitewasnotadomesticsatellite
becauseitwasownedbyDepartmentofspace,GovernmentofIndia,whichwasnotanIndian
company and, moreover, it was being operated by 'B' Ltd. i.e. a foreign company. Court held
thatas long as assessee was providing stipulated services and had received payments for
specified services, income earned would qualify for deduction under section 80IA(4)
(ii);however, in absence of any details regarding nature and character of service rendered by
assessee through satellite, matter was to be remanded back for disposal afresh. Matter
remanded.(A.Y200506)
EsselShyamCommunicationLtd.v.CIT(2013)212Taxman328(Delhi)(HC)
S.80IA:IndustrialundertakingsInfrastructuredevelopmentTelecommunicationservices
VSATservicesIncomederivedSalesofvariousitemssuchasantenna,RFT,computerprinter,
videoconferencingsystemsetc.Matterremanded.
In course of assessment, Assessing Officer noted that assessee's claim for deduction under
section 80IA included amount received from sales of various items such as antenna, RFT,
computer printer, video conferencing systems etc. Assessing Officerrejected assessee's claim
holding that it was not income derived from specified services. Courtheld thatassessee's claim
for deduction could be allowed only if sale of goods was inextricably connected with primary
purposeofprovidingtelecommunicationservices,therefore,matterwastoberemandedback
fordeterminingtruenatureofsaleofgoods.Matterremanded.
EsselShyamCommunicationLtd.v.CIT(2013)212Taxman328(Delhi)(HighCourt)
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the High Court, held thatUnder a bulk power supply agreement between assesseeelectricity
generatingcompanyandStateElectricityBoard,variouscomponentsoftariffwastobecharged
for sale of electricity. Said agreement as well as relevant notification by Ministry of Power
clarifiedthattaxliabilitywouldbepartofthetariffchargedforsaleofelectricityfromThermal
Power Generating Stations and it would not stand independent of the tariff charge. Further,
there was no reimbursement from State Electricity Board of tax paid by assessee. tariff could
notbedissectedtoconcludethattaxcomponentspecifiedaspartoftariffwasreimbursement
ofliabilityofassesseeand,hence,itwouldnotformpartofincome.relieftobegrantedunder
section80IA,wouldnotcallforexclusionoftaxcomponentinsalepriceofelectricity.Infavour
ofassessee.(A.Y.200102).
NeyveliLigniteCorpn.Ltd.vACIT(2013)212Taxman318(Mad.)(HC)
S.80IA:IndustrialundertakingsInfrastructuredevelopmentPowergenerationCaptive
consumptionSupply,rateatwhichconsumersgetelectricityismarketrateofelectricity.
Assessee is engaged in business of power generation. It captively consumed power generated
and balance was procured by TamilNadu Electricity Board [TNEB] from assessee atrate of Rs.
2.70 per unit. TNEB, in turn charged Rs. 3.50 per unit from its consumers. Assessing Officer
took market value of power consumed at RS 2.70 PER unit and made addition accordingly,
computed profits and gains of eligible unit for purpose of section 80IA. Commissioner
(Appeals)confirmedtheaddition.OnappealTribunalheldthatMarketrateofelectricitybeing
regulated by Government not by forces of demand and supply, rate at which consumers get
electricity is market rate of electricity; and, therefore, Assessing Officer was directed to
recompute profits and gains on basis of price of Rs. 3.50 per unit for purpose of section 80IA
deduction.(A.Y.200708)
SriMathaSpinningMills(P.)Ltd.vDy.CIT(2013)141ITD238(Chennai)(Trib.)
S.80IA:IndustrialundertakingsInfrastructuredevelopmentDeductionsWorkscontract.
Assessee made a claim of deduction under section 80IA with respect to business income
earned from execution of projects relating to development of infrastructure facility such as
dams, roads, power projects etc. Revenue authorities took a view that assessee was merely
engaged in works contract executed for Government authorities for development of
infrastructure facility. Accordingly, revenue authorities concluded that assessee was not
entitled for deduction under section 80IA(4).Tribunal held that since assessee could not
controvert aforesaid finding recorded by authorities below, impugned disallowance was to be
confirmed.(A.Ys.200304to200607)
HindustanConstructionCo.Ltd.vDy.CIT(2013)140ITD642(Mum.)(Trib.)
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yearrelevanttotheinitialassessmentyear.CircularNo.281datedSeptember22,1980([1981]131ITR
(St.) 4) issued by the Board on introduction of section 80I by the Finance (No. 2) Act, 1980, which
contained a like provision in section 80I(6) explains that the losses, depreciation and investment
allowance of earlier years in respect of the new industrial undertaking will be taken into account in
determining the quantum of deduction admissible under the new section 80I even though they may
actuallyhavebeensetoffagainsttheprofitsoftheassesseefromothersources.Thewholepurportand
intentofsection80IA(5)istowardsprovidingaseparateandparallelbasisfortheaggregationandcarry
forward of unabsorbed depreciation and/or loss of the eligible business for the purpose of
determination of the quantum of deduction admissible under the section. To the same effect and
purportaretheNotesonClausesoftheFinance(No.2)Bill,1980andtheMemorandum Explainingthe
ProvisionsoftheBill,clarifyingthelegislativeintent.Ifthefirstyearofclaimofdeductionundersection
80IA(1) is itself taken as the initial assessment year, the whole purpose of the provision gets defeated
andwherethereisanunabsorbeddeprecationorlossincurredpriortothatyear,thereisnoscopeforit
tobecarriedforwardandsetoff.Thereisnorationaleforsuchanembargoorrestrictionnorisitborne
outbytheclearlanguageoftheprovision.Thoughtheperiodofdeductionundersection80IA(1)over
which the deeming of section 80IA(5) is to be applied commences with the previous year relevant to
the initial assessment year, and up to the year of determination of deduction, its stated purpose is
determinationofthequantumofdeductionundersection80IA(1)fortheyearimmediatelysucceeding
the initial assessment year and not the initial assessment itself and for every subsequent year because
therecouldbenobroughtforwardallowanceorlosspriortotheinitialassessmentyear.Ifso,thefirst
year for which there could be a loss or unabsorbed depreciation is the first year of operations, so that
thequestionofaggregationofincomeforthepurposeofdeterminationofquantumofdeductioncould,
at the earliest, be the immediately succeeding assessment year. Therefore, while the aggregation is
applicablefromtheinitialassessmentyearitself,thedeterminationofquantumofdeductionistobefor
or begins from the year immediately succeeding the initial assessment year. Also, once the deeming
commences with the initial assessment year, the aggregation of income is to continue over every
subsequentyear,i.e.,irrespectiveofwhetherthedeductionundertheprovisionisexigibleforthatyear
ornot.Thedeemingwouldthuscontinuetobeoperative,andisnotdependentonwhetherdeduction
foraparticularyearisbeingclaimedornot.Thefirstyearofdeterminationofdeductionundersection
80IA(1),orofreturningprofitsoftheeligiblebusiness,ignoringthelosses,ifany,incurredpriortothat
yearcannot,thus,beconsideredastheinitialassessmentyear.
The absence of a definition of the initial assessment year in section 80IA, as amended by the Finance
Act, 1999 with effect from April 1, 2000 is deliberate. The year marking the commencement of
operations of the eligible undertaking or enterprise is the initial assessment year. Any other reading of
the initial assessment year would render the provision internally inconsistent, besides considerably
dilutingitspurportofgivingtaxshelteronlytotheprofitsoftheeligibleundertaking/business.
The option to the assessee to choose a period of ten consecutive years from a block of fifteen years
commencing the year in which the undertaking begins its operations has nothing to do with the
quantum of deduction per se. The deduction under the provision is to be computed considering the
eligible source to be the only source of income throughout. The tax holiday period has nothing to do
withtheaggregationprincipleperse,thewholepurportofwhichistoextendthetaxshelteronlytothe
profitsoftheeligibleundertakingorenterpriseoverthetaxholidayperiod.Theaggregationprescribed
bythesectionislimitedonlytoquantifyingthedeductionundersection80IA(1),andwhichwouldonly
be on the unit turning positive, returning profits. As a corollary, the losses/unabsorbed depreciation
wouldstandtobesetoffagainsttheotherincomesundertheregularprovisionsoftheAct.
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Oncethedepreciation/lossofaneligibleunitissetoffagainsttheassessee'sotherincome(noneligible
businessincome),itisnolongeravailableforbeingcarriedforwardandsetoff,i.e.,onanotionalbasis.
Section80IA(5),doesnotrestorelifetoanonexistentallowance/losssoastopermitasetoffthereof
on a notional basis. In other words, the overriding effect of section 80IA(5) would only be limited to
wheretheallowancedoesnotstandalreadysetoffagainsttheotherincome.
Section 80IA(5) is a separate provision, which was incorporated with a specific purpose, treating the
profits from the eligible source as the only source of income to determine the quantum of deduction
that could be allowed under the provision. All the other applicable provisions of the Act, including
sections 32(2) and 72, would apply in the computation of such income. It, thus, presents a parallel
method for arriving at the profits of the eligible business, and is to be given full play. That being the
mandateofthesection,carryforwardandsetoffofthelossforearlieryearsfromsuchasourcewould
hold, considering it as the only source of income, in terms of section 72. It may or may not have been
already setoff against other income, but that is irrelevant. A deeming provision or a legal fiction, it is
even otherwise trite, to be taken to its logical end/conclusion. This also agrees with the avowed
objectiveoftheprovision,i.e.,torestrictthetaxshelterundertheprovisiononlytotheprofitsfromthe
eligible source. The grant of the deduction is, however, circumscribed by the condition of section 80
IA(1),whichmustinanycasebesatisfied.Inotherwords,thegrosstotalincomewouldcontinuetobe
computedintermsofsection80B(5),andwouldnotstandrestrictedbysection80IA(5)inanymanner.
Heldaccordingly,thattheinitialassessmentyearwouldbetheassessmentyear200506andsection80
IA(5) being applicable for the current year, the assessee's claim for setoff of loss/allowance under
sections 32(2), 70 and 71, i.e., against other income, admittedly from a noneligible business / source,
wassustainable.(A.Ys.200506to200809)
HerculesHoistsLtd.v.ACIT(2013)22ITR527(Mum.)(Trib.)
S.80IA:Industrial undertakings Infrastructure development Civil contractorDeveloping,
maintaining and operating the facilityThe assessee is eligible for benefit u/s. 801A even if
only part of the Infrastructural Project work is executed by it. Larger Bench verdict in B. T.
Patilv.ACIT(2009)32DTR1isnotgoodlaw.
The assessee, a civil contractor, claimed deduction u/s 80IA (4) in respect of the profits from
infrastructure projects executed by it. The lower authorities rejected the claim on the ground
that the assessee was a mere contractor and not a developer. Before the Tribunal, the
MembersoftheDivisionBenchdissentedandsotheissuewasfirstreferredtoaThirdMember
and then to a Larger Bench of three Members. The Larger Bench (32 DTR 1) rejected the
assesseesclaimonthegroundthatinordertobeeligibleu/s80IA(4),theassesseehadtobe
directlyengagedindeveloping,maintainingandoperatingthefacilityandthattherehadtobe
acompletedevelopmentofthefacilityandnotjustapartofit.Whenthemattercamebefore
the Division Bench for giving effect to the Larger Benchs verdict u/s 255(4), the assessee did
not appear and hence, the Bench dismissed the appeal in limine for nonappearance. The
assesseefiledaMAbeforetheTribunaltorecallthesaidorderandalsofiledanappealbefore
the High Court. The Tribunal recalled its order dismissing the appeals and refixed the matter
for hearing. Consequently, the assessee withdrew the appeal filed in the High Court. In the
order permitting the withdrawal, the High Court directed the Tribunal to consider the
judgement in CIT v. ABG Heavy Industries Ltd. & ors. (2010) 322 ITR 323 (Bom). HELD by the
Tribunal:
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The view of the Larger Bench that the assessee had to be directly engaged in developing,
maintainingandoperatingthefacilityandthattherehadtobeacompletedevelopmentofthe
facility andnot just a part of it is contrary to the law laiddown in CIT v. ABG Heavy Industries
Ltd.&ors.(2010)322ITR323(Bom).TheHighCourtheldthattheeffectoftheamendmentby
theFinanceActof1999isthatthebenefitofs.80IA(4)isavailabletoanyenterprisecarryingon
thebusinessof(i)developing,(ii)maintaining&operating,or(iii)developing,maintainingand
operating an infrastructure facility. It was also held that the assessee did not have to develop
the entire project in order to qualify for deduction u/s 80IA and that Parliament did not
legislateaconditionimpossibleofcompliance.TheExplanationbelow80IA(13)insertedbyFA
2007 & 2009 w.r.e.f 1.4.2000 which provides that s. 80IA(4) shall not apply to a person
executingaworkscontractdoesnotapplytoacasewheretheassesseeexecutestheworkby
shouldering Investment & technical risk by employing team of technically & administratively
qualified persons and it is liable for liquidated damages if failed to fulfill the obligation laid
down in the agreement and also securing by Bank guarantee. On facts, the assessee had
shoulderedtheinvestment&technicalriskinrespectoftheworkexecutedanditwasliablefor
liquidated damages if failed to fulfill the obligation laid down in the agreement. The liabilities
which had been assumed by the assessee were obligations involving the development of an
infrastructure facility. Consequently, it is not correct to say that the assessee is merely a
contractor¬adeveloper.Theassesseeiseligibleforbenefitu/s801Aevenifonlypartof
theInfrastructuralProjectworkisexecutedbyit.(A.Y.200001&200102)
B.T.Patil&SonsBelgaumConstructionsPvt.Ltd.v.ACIT(Pune)(Trib.)www.itatonline.org.
S.80IA:IndustrialundertakingsComputationProvisionsofsection80A(2)and80ABshall
apply.
The assessee owned a hotel which was eligible for deduction u/s 80IA. Since subsec. (7) of S.
80IA provide for determination of amount of deduction whereas section 80AB and S. 80A(2)
provide for amount actually allowable while computing total income, assessees contention
that provisions of S. 80A(2) and 80AB shall not be applicable, cannot be accepted. Matter
remanded.(A.Y.19992000to200506)
Hotel & Allied Trades P. Ltd. v. Dy.CIT (2013) 140 ITD 309/87 DTR 49/154 TTJ 503 (Cochin)
(Trib.)
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S.80IA:Industrial undertakings InfrastructureDevelopment of projectsDeveloperWorks
contractDeductionwasallowed.(S132,153A)
S.80IA(4)allowsdeductiontoanyenterprisecarryingonthebusinessof(i)developingor(ii)
operating and maintaining or (iii) developing, operating and maintaining any infrastructure
facility.TheExplanationprovidesthatitshallnotapplytobusinesswhichisinthenatureofa
works contract. Whether an assessee is a developer or works contractor depends on the
nature of the work undertaken by the assessee. The word contractor is used to denote a
person entering into an agreement for undertaking the development of infrastructure facility.
Everyagreemententeredintoisacontract.Therefore,thecontractorandthedevelopercannot
be viewed differently. Every contractor may not be a developer but every developer is a
contractor. Contracts involving design, development, operating and maintenance, financial
involvement, and defect correction and liability period cannot be called as simple works
contract.Acasewhereinanundevelopedarea,infrastructureisdevelopedandhandedoverto
theGovernmentcannotbeconsideredasamereworkscontractbuthastobeconsideredasa
developmentofinfrastructurefacility.Ifthecontractiscomposite,itwillhavetobesegregated
so as to allow deduction on the parts that involve design, development, operating and
maintenance,financialinvolvementetc.andtodenyonthosewhicharepureworkscontracts.
On facts, the assessee had made substantial investments in fixed assets and was exposed to
variouskindsofrisks.Itwasnotamerecontractor.Itisenoughiftheassesseeisadeveloper.It
need not also maintain & operate the infrastructure facility (Patel Engineering Ltd v. Dy. CIT
(2004) 94 ITD 411 (Mum) &GVPR Engineers Ltd (included in file) followed).Deduction under
section80IAwasallowed.(A.Y.200001to200506)
ACITv.PratibhaIndustriesLtd(2013)141ITD151/23ITR766(Mum.)(Trib.)
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year alone are to be brought forward as stipulated in s. 80IA(5). The loss prior to the initial
assessment year which has already been setoff cannot be brought forward and adjusted into
the period of ten years from the initial assessment year as contemplated or chosen by the
assessee.Itisonlywhenthelosshavebeenincurredfromtheinitialassessmentyear,thenthe
assesseehastoadjustlossinthesubsequentassessmentyearsandithastobecomputedasif
the eligible business is the only source of income and then only deduction u/s 80IA can be
determined.Thisisthetrueimportofs.80IA(5)(VelayudhaswamySpinningMillsP.Ltd.v.ACIT
(2012) 340 ITR 477 (Mad), CIT v. Emerala Jewel Industry (P) Ltd. (2011) 53 DTR 262 (Mad)
followed, ACIT v. Goldmine Shares and Finance P. Ltd. (2008) 302 ITR (AT) 208 (SB) (Ahd),
Hyderabad Chemical Supplies Ltd.v. ACIT (2011) 137 TTJ 732 (Hyd) &Pidilite Industries
Ltd.v.DCIT(2011)46SOT263(Mum)distinguished)(A.Y.200809)
ShevieExportsv.JCIT(Mum.)(Trib.),www.itatonline.org
S.80IA:IndustrialundertakingsInfrastructuredevelopmentProductionofteaInfrastructure
developmentactivityofprocessingwasnotincludedinsection80IA.Assesseeisnotentitled
fordeductionundersection80IA.
Section 80IA mandates that the industrial undertaking should manufacture or produce any
article or thing. The activity of the assessee is blending of tea amounts to processing only and
does not amount to manufacture or production. Tribunal held that activity of processing was
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213
not included in section 80IA as it stood in Asst. Year 19992000, therefore assessee is not
entitledfordeductionundersection80IA.(A.Y.19992000,200001)
Dy. CIT v. Sunrise Tea Processing (P) Ltd. (2013) 152 TTJ 661/84 DTR 333/23 ITR 398 (Pune)
(Trib.)
S.80IB:IndustrialundertakingsNewUnitnotexpansionofbusiness.
The assessee company which is engaged in the business of manufacture and sale of
pharmaceutical products .It set up a new tablet manufacturing unit and claimed deduction
undersection80IB.TheAssessingOfficerdisallowedtheclaimonthegroundthatitisexpansion
ofunit.TheCommissioner(Appeals)andtheTribunalhaverecordedconcurrentfindingoffact
thatfromthematerialwhichwasonrecord,theassesseehadestablishedthatitwasentitledto
claim the deduction under S. 80IB and as such, it will not be possible to interfere with the
findingoffactrecordedbyboththeauthoritiesbelow.(A.Y.200708,200809)
ACITv.GenoPharmaceuticalsLtd.(2013)214Taxman83(Mag.)(Bom.)(HC)
S.80IB:Industrial undertakingsOther than Infrastructure developmentSmall Scale industries
inbackwardareasEleventhschedule.
Assessee'sindustrialundertakingwasrecognizedassmallscaleindustryanditwaslocatedinan
industrially backward State. It was engaged in manufacturing of ophthalmic instruments and
equipments included in the eleventh schedule. It claimed deduction under section 80IB.
AssessingOfficerheldthatastheitemmanufacturedbytheassesseewasanarticlespecifiedin
Schedule XI, it was not eligible for deduction under section 80IB.On appeal, Commissioner
(Appeals) allowed the claim of assessee. On appeal Tribunal also confirmed the order of
Commissioner(Appeals).(A.Y.200910)
Dy.CITv.EyePhotonicsIndia(P.)Ltd.(2013)141ITD617(Chennai)(Trib.)
S.80IB:IndustrialundertakingsManufacturingorproductionMasalapowder.
The manufacturing of masala was manufacturing activity eligible for deduction under section
80IB.(A.Y.20052006)
ACITv.NavasM.Meeran(2013)24ITR111(Cochin)(Trib.)
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214
thatIMPLwasanarticlespecifiedintheeleventhschedule.Sincetheassesseewasnotasmall
scaleindustry(SSI)underIndustries(DevelopmentandRegulation)Act,1951,itcouldnotclaim
benefit of proviso to section 80IB(2)(iii). On appeal, Commissioner (Appeals) held that as the
assesseesIndustrialundertakingwaslocatedintheindustriallybackwardstateofPondicherry
and manufactured article specified in the Eleventh Schedule. There was no need to fulfil
requirement of SSI for claiming deduction under section 80IB.On appeal to Tribunal by
revenue,TribunalconfirmedtheviewofCommissioner(Appeals).(A.Y.20092010)
Dy.CITv.Vinbros&Co.(2013)141ITD626(Chennai)(Trib.)
S.80IB:IndustrialundertakingsAdditionalgroundClaimnotmadeinreturnClaimcannotbe
entertainedinviewofspecificprovisionofsection80A(5)whichwasinsertedbyFinanceAct,
2009whichisapplicableretrospectivelyfromtheAssessmentyear200304.[S.80IB(5)]
AssesseedidnotmakeaclaimofdeductioninAY200304and200405,rathermadetheclaim
forthefirsttimebeforeCIT(A)byfilinganadditionalground.Itwasheldthattheprovisionsof
S.80IB(5)insertedbyFinanceAct,2009whichareapplicableretrospectivelyfromAY200304,
clearly provides that in case assessee fails to make a claim in the return of income, the claim
could not be allowed. The provision was applicable for AY 200304 and 200405. Therefore, in
theviewoftheseprovisionswhicharequietunambiguousandclear,claimofassesseecannot
beallowed.(A.Ys.200304,200405)
HindustanColasLtd.v.ACIT(2013)140ITD277/151TTJ421(Mum)(Trib.)
S.80IB(10):UndertakingDevelopingandbuildingHousingprojectAssesseeneednotownthe
landforclaimingthedeductionundersection80IB(10).
TheAssessingOfficerdisallowedclaimofdeductionongroundthatassesseehadnotdeveloped
housing project, as land was not owned by it. The Tribunal having noticed that (i) as per
developmentagreementassesseehadtoincurandbearallexpensesfordevelopmentofland,
and(ii)ithadrighttoallotpossessionofconstructedunitstomembersofhousingprojectafter
developing housing project, allowed claim of deduction. Held, the Tribunal order was liable to
beupheld.
CITv.MahadevDevelopers(2013)214Taxman130(Mag.)(Guj.)(HC)
CITv.PrathamaDevelopers(2013)214Taxman131(Mag.)(Guj.)(HC)
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S.80IB(10):Undertaking Developing and building Housing projectHead room constructed
by flat owner after sale and occupation certificate issued by local authority, there is no
contravention of conditions, exemption cannot be denied The definition of builtup area,
cannot be held to be retrospectiveRestriction of size of shops and commercial
establishmentsisnotretrospective.
Basedonthematerialonrecord,itwasdisclosedthataheadroomwasconstructed.Thehead
roomwasnotincludedinthesaledeed.Thelocalauthority,afterconstructionofthebuilding,
inspected the building and granted the occupancy certificate. Therefore, the construction put
up by the assessee prima facie could be said to be in accordance with the sanctioned plan. If
after issue of the occupancy certificate and after sale of these residential flats, the owners of
theflatsonthetopfloordecidedtoputupaheadroomandengagedtheverysamecontractor
and the engineer may have put up identical structures, it could not be said that the assessee
had put up the construction and, thus, contravened the requirement of section 80IB. The
definitionofbuiltuparea,asinsertedinsubsection(14)(a)ofsection80IBbytheFinance(No.
2)Actof2004,whichcameintoeffectfromApril1,2005,cannotbeheldtoberetrospective.It
appliesonlytosuchhousingprojects,whichareapprovedsubsequenttoApril1,2005.Thatthe
interpretation placed by the assessing authority and the Appellate Commissioner, that the
approval was for a housingcumcommercial complex and, therefore, the assessee was not
entitledtothebenefitofsection80IB(10)wasunwarranted.
CITv.G.R.Developers(2013)353ITR1(Karn.)(HC)
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questionofapplicabilityofsubclause(c)doesnotariseatall.Goingbythebackgroundofthe
expression 'housing project' and various clauses contained in section 80IB of the Act, read in
thecontextofsubsequentinsertionofclause(d),insertedprospectivelyundertheFinanceAct,
2005, the term 'housing project' has to be understood as a building project and need not be
restricted to residentialproject alone, meaningthereby, user of the unit is not of relevance in
the matter of grant of relief. The project may be either out and out residential project or
commercial project or mix up of both for, a housing project, purely of commercial nature,
approvedbytheLocalAuthority,isalsoahousingproject,entitledto100%deduction.Sotoo,
inprojectscontainingresidentialunitsalone,wherethereisapartialcompliance,proportionate
tothecompliance,theassesseewouldbeentitledtohavethededuction.Inthecaseofmixed
projects,theassessee'sclaimhastobeallowedinfull,ifalltheresidentialunitssatisfiedclause
(c);otherwise,totheextentofcompliance,thereliefhastobeworkedout.Ahousingprojectof
commercial premises is entitled to 100% deduction, there being no necessity of looking at
clause(c) for compliance. Thus, the assessee would be entitled to thebenefit of deduction on
satisfaction of clauses (a), (b) and (c) of section 80IB(10) and that the requirement as regards
clause(c)wouldarise,wherein,inagivenbuilding,wherethereisaresidentialunit,thesame
has to satisfy the maximum builtup area specified under sub clause (c) of section 80IB(10).
Even though the provisions under subclauses (d), (e) and (f) of section 80IB(10) are
prospectiveinnature,yet,forthepurposeofunderstandingthescopeofdeductionunderthe
provisions of the Act, there is no hesitation in drawing assistance from these provisions to
decide on the scope of section 80IB, as it stood at the material point of time. In the
circumstances, the Revenue's appeal is to be rejected and the order of the Tribunal is to be
confirmed.(A.Y.200405)
CITvArunExcelloFoundations(P.)Ltd.(2013)212Taxman342/86DTR99(Mad.)(HC)
S.80IB(10):UndertakingDevelopingandbuildingHousingprojectEachblockInrespectof
eachblock,theassesseeisentitledtohavebenefitofdeductioninrespectofunitssatisfying
therequirementsofsection80IB(10)oftheAct.[S.80HHBA]
Within a composite housing project, where there areeligible and ineligible units, the assessee
can claim deduction in respect of eligible units in the project and even within the block, the
assessee is entitle to claim proportionate relief in the units satisfying the extent of the built
uparea.(A.Y.200405to200809)
Viswas Promoters (P) Ltd. v. A CIT (2013) 81 DTR 68/214 Taxman 524/255 CTR 149 (Mad.)
(HC)
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CIT v. Jain Housing & Construction Ltd. (2013) 82 DTR 135/214 Taxman 178/256 CTR 408
(Mad.)(HC)
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218
S.80IB(10):UndertakingDevelopingandbuildingHousingprojectCombiningthetwoflatsby
thebuyersaftersaleexemptioncannotbedenied.
Assesseehadconstructedahousingprojectandthisprojectconsistedof25buildingsincluding
'Primebuilding'and'Ibuilding'.Assesseeclaimeddeductionundersection80IB(10)inrespect
of profits derived from 24 buildings excluding Prime building. Assessing Officer disallowed
claim on grounds that (i) all flats in Prime building were having builtup area exceeding 1500
sq.ft., and (ii) two flats in 'I building' were combined and after combining builtup area of
combined units exceeded 1500 sq.ft. Order of Assessing Officer was confirmed by the
Commissioner(Appeals).On appeal Tribunal held that the assessee itself had excluded Prime
building and deduction had been claimed on remaining 24 buildings and (ii) two flats in 'I'
buildingwerenotcombinedattimeofsaleandcustomershadcombinedsamelater,hencethe
assesseewasentitledtodeductionundersection80IB(10).(A.Y.200708)
Dy.CIT v. Magarpatta Township Development & Construction Co. (2013) 141 ITD 682 (Pune)
(Trib.)
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ofCommissioner(Appeals)wasthat shopslocatedongroundfloor covered2percentofbuilt
upareahencedeductionisavialble.(A.Y.200607)
Dy.CITv.RameshbhaiC.Prajapati(2013)140ITD486/23ITR516(Ahd.)(Trib.)
S.80IC:SpecialcategorystatesManufactureAssemblyprocessAssessingOfficerwasdirected
tocallexpertanddecide.
The assessee claimed deduction under S. 80IC in respect of one of its unit which was
manufacturing 'microprocessor based fast bus transfer scheme penal' for power generation
segment.Thedeductionwasdeniedongroundthatproductinquestionwasnotmanufactured
by assessee. It was held that how product namely Fast Bus Transfer Scheme Panel, was
manufactured or assesmbled could not be ascertained until and unless some technical expert
person examines this aspect. Since it could not be ascertained whether this was a
manufacturing process or was an assembling process, the matter was remanded to the
AssessingOfficertocallanopinionofexpertinsubjectandthendecideissueinquestion.
AartechSolonicsLtd.v.CIT(2013)214Taxman133(Mag.)(MP.)(HC)
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section80IA(8)andalloweddeductionundersection80IConlyontheadditional6.2percent
profit.ItwasheldthatintheabsenceofanyinterunittransferofgoodsbyBunittoanyunit
oftheassesseecompany,theprovisionsofsection80IA(8)werenotapplicableandtherewas
nooccasionfortheAssessingOfficertocomputetheprofitsonreasonablebasis.(A.Y.200708)
CadilaHealthcareLtd.v.ACIT(2013)56SOT89(URO(Ahd.)(Trib.)
S.80IC:Special category states Set off of lossesEligible to claim set off losses in its 80IC
undertakingagainstitsothertaxableincome.[S.70,80(IA(5)]
TheTribunalheldthatprovisionsofsection80IA(5)onlyprescribesmethodbywhichquantum
ofadeductionhastobearrivedatanditdoesnotbaranassesseetoclaimsetoffoflossesof
eligible business against undertaking which is not entitled to claim a deduction. Therefore,
assessee is eligible to claim setoff of loss incurred in its section 80IC eligible industrial
undertakingagainstitsothertaxablebusinessincome.Infavourofassessee.(A.Y.200607)
WiproLtd.v.Add.CIT(2013)55SOT3(URO)(Bang.)(Trib.)
S.80M:IntercorporatedividendsDeductionsShares.
Assesseeclaimeddeductionundersection80Mwithrespecttodividendreceivedfromshares.
AssessingOfficerwasofviewthatdeductionwasallowableonnetincomeafterapportionment
of expenses. Assessing Officer having apportioned interest expenses, worked out net dividend
at a negative figure. He thus rejected assessee's claim. Tribunal held that when Assessing
Officer had accepted entire expenditure as business expenditure under section 36, then
apportionmentofinterestwithoutestablishingnexusbetweenborrowedfundsandinvestment
was not justified. Even otherwise, since investments on which dividend income had been
earnedbyassesseewasnotmadeduringyearunderconsideration;butsamehadbeencarried
forward in earlier year, in such a case, apportionment made by Assessing Officer towards
interestexpenditureagainstdividendincomewasnotsustainable.(A.Ys.200304to200607)
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HindustanConstructionCo.Ltd.vDy.CIT(2013)140ITD642(Mum)(Trib.)
S.80M:IntercorporatedividendsDeductionsMutualfunds.
Whereassesseehadfailedtoprovethatdividendonmutualfundwasreceivedfromdomestic
company,disallowanceofdeductionundersection80Mhadtobeconfirmed(A.Ys.200304to
200607)
HindustanConstructionCo.Ltd.v.Dy.CIT(2013)140ITD642(Mum.)(Trib.)
S.80P:Cooperative societies Interest earned on deposits of non SLR fund Eligible for deduction
undersection80PoftheAct.
Interest earned by the co operative society on the deposits of its non SLR funds is income
frombankingbusinessandeligiblefordeductionundersection80P(2)(a)(i)oftheAct.
CITv.MuzaffarnagarKshetriyaGraminBankLtd.(2013)81DTR145/256CTR322/214Taxman
177(Mag.)(All)(HC)
S.80P: Cooperative societies Return Belated return beyond time limit prescribed
deductionundersection80Pisnotavailable.[S.80A(5),139(1),139(4),142(1),148]
Theassesseecooperativesocietyclaimeddeductionundersection80P.TheAssessingOfficer
denied deduction on the ground that the assessee having not filed the return, they were not
entitled for deduction under section 80P.Commissioner (Appeals) up held the order of the
Assessing Officer. On appeal to Tribunal the Tribunal held that in view of the mandatory
provisions contained in section 139(1) read with section 80A(5) it is mandatory for every co
operative society for claiming deduction under section 80P to file Return of Income and to
make a claim of deduction under section 80P in the return itself .If the return was not filed
eitherundersection139(1),or139(4)orinpursuanceofnoticeissuedundersection142(1)or
undersection148thetaxpayerisnotentitledforanydeductionundersection80P.(A.Y.2009
10)
KadachiraServiceCoop.BankLtd.v.ITO(2013)141ITD270/153TTJ129(Cochin)(Trib.)
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S.80VV:Expenses Incurred in Connection with IncomeTax Proceedings Retainership fee
Disallowancecannotbemade.
Whereassesseepaidretainershipfeetoanadvocatewhichwasnotinconnectionwithincome
tax proceedings but for general advice relating to other laws, provisions of section 80VV were
notattracted,,therefore,disallowanceofretainershipfeemadebyauthoritiesbelowwastobe
deleted.Infavourofassessee.(A.Y.198586)
CIT0020v.DalmiaCement(Bharat)Ltd.(2013)212Taxman126(Mag.)(Delhi)(HC)
S.90:DoubletaxationreliefEffectivemanagementofitsenterprisesDTAAIndiaNetherlands.
[Art.8A]
'M', a shipping company was incorporated in Netherlands. It was represented in India by the
assesseecompany. For the relevant AY, the assessee filed its return claiming benefit under
IndiaNetherlands DTAA. The Assessing Officer rejected the assessee's claim holding that the
assessee had failed to supply documents necessary to avail the benefit as claimed. The
Commissioner (Appeals), on basis of material produced on record, opined that effective
managementofitsenterpriseswassituatedinNetherlandsand,thus,requirementofcondition
as mentioned in Article 8A of DTAA was met. The Tribunal, finding that revenue had failed to
point out any contrary material either from record or at time of hearing before it, confirmed
orderoftheCommissioner(Appeals).CourtheldthatsincethefindingrecordedbytheTribunal
was a finding of fact, the impugned order passed by the Tribunal did not require any
interference.(A.Y.200708)
DITv.MitsutorShippingAgency(P.)Ltd.(2013)214Taxman532(Guj)(HC)
S.90: Double taxation reliefTreaty shopping Transfer of 74% share holding in an Indian
company.[S.10(38),94(7)]
US company proposed transfer its 74% share holding in an Indian company to its 100 percent
Singapore subsidiary. Revenue contended that , if shareholding would remain with US
company,onanyfuturetransfer,incomewouldbetaxedbothinIndiaandUSasperIndoUS
DTAAwhereasifshareholdingwouldremainwithSingaporecompany,onanyfuturetransfer,
income would be taxed only in Singapore and not in India as per Indo Singapore DTAA.
Revenue contended that the transfer was designed for treaty shopping so as to avoid tax in
India, the AAR held that since shares of Indian company were listed, income arising from any
futuretransferwoulditselfbeexemptbyvirtueofsection10(38)andhence,therewasnoneed
fortreatyshopping.OnwritbyrevenuetheCourtheld,therevenue'scontentionwascorrectly
answeredbyAARandtherewasnoreasontointerferewithorderofAAR.
DITv.GoodyearTire&RubberCompany(2013)214Taxman669(Del)(HC)
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of assessee. Appeal of revenue was dismissed by Tribunal. On appeal to High Court, the Court
held that the Assessee, a limited partnership, paying tax in Germany is considered as taxable
unitunderthetaxationlawsofGermanyasevidentfromthetaxresidencecertificateissuedby
the German Authorities and the trade tax being one of the taxes to which IndoGerman
DTAAapplies,intermsofarticle2(3),thereofisapplicabletotheassesseeandtherefore,benefit
of Article 12(2) thereof cannot be denied. The Court held that the Tribunal was correct in
holding that no interest was chargeable under section 234B. Assessee, a limited liability
partnership,waspayingtradetaxinGermany.Assesseewasissuedataxresidentcertificateby
German authorities and considered a taxable unit. Held that DTAA applicable to the assessee
andbenefitofart.12(2)cannotbedenied.(Appealofrevenuewasdismissed.(A.Y.200203)
DIT(IT) v. Chiron Bearing Gmbh & Co. (2013) 351 ITR 115 / 256 CTR 342 / 83 DTR 1 / 213
Taxman174(Bom.)(HC)
Editorial: Asst DIT(IT) v. Chiron Behring Gmbh & Co. (2009) 120 TTJ 329 (Mum.) (Trib.) is
affirmed.
S.90: Double taxation reliefInterest from an Indian partnership firm is not taxable as business
incomeDTAArateisnottobefurtherenhancedbysurchargeandeducationalCessDTAAIndiaUAE.
[Art.2,7(7),11(2)]
The Tax payer RESIDENT OF UAE, received interest income from partnership firms in India in which he
wasapartner.TheTaxpayerofferedsuchinterestincometotaxinIndiaaspertheprovisionsofIndia
UAEDTAA.Thetaxauthority,inadditiontotaxingtheinterestincomeattherateprescribedinArticle
11 of DTAA , also levied education cess and surcharge. In appeal Commissioner (Appeals) held that
interest income was assessable as business income as per normal rates and the concessional rate as
prescribed in Article 11 was not applicable. On appeal Tribunal held that though interest may be
assessed as business income under the Act , in view of specific interest Article i.e. Article 11, interest
incomeshouldbegovernedbythesaidArticle11.ThetermincomeTaxhasbeendefinedinArticle2of
theUAEDTAAtoincludesurcharge.Therefore,taxrateprovidedinArticle11(2)dealingwithinterest
income also include surcharge. The Tribunal also held that educational cess is in the nature of
surcharge.Accordinglybotheducationcessandsurchargecanberegardedasincludedinthetreatyrate
of12.5%.(A.Y.200809)
SunilV.Mitianiv.ITO(2013)BCAJMay33(Mum.)(Trib.)
S.91:Countries with which no double taxation agreement existsKuwaitCredit for taxes was
given.
During previous year 199697, assessee paid taxes in Kuwait on income earned there and
sought benefit of deduction from tax payable in India under section 91 (1). Assessing Officer
denied benefit of section 91 (1) on ground that payment of taxes in Kuwait was not made in
previous year 199697.Court held that since payment of taxes on income earned in Kuwait
during previous year had been found to be correct by Commissioner (Appeals), assessee was
entitled to benefit of section 91 (1). Object of section 91 (1) is to give relief from taxation in
India to extent taxes have been paid abroad for relevant previous year and this relief is not
dependent upon payment also being made in previous year. In favour of assessee. (A.Y.1997
98)
CITv.PetroleumIndiaInternational(2013)351ITR295/213Taxman41(Bom.)(HC)
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S.91:Countries with which no double taxation agreement existsRelief under section 91 was
allowableatrateofaveragetaxpaidinBhutan.
Assessee earned income from hydroelectric project in Bhutan and paid tax under Bhutan Tax
Law. Since said income was again subjected to tax in India by virtue of residential status of
assessee,reliefwasclaimedundersection91.AssessingOfficercomputedreliefatrateof8.53
percentbeingaveragerateoftaxpaidinBhutanontotalincomecomputedatRs.36.41crores
and not on income from Bhutan operations which stood at Rs. 68.63 and subjected to double
taxation. Tribunal held that since average rate of tax in India was higher than Bhutan, relief
undersection91wasallowableatrateofaveragetaxpaidinBhutan,however,reliefwastobe
computed on amount of income earned from Bhutan operations because it was said income
which was subjected to tax in both countries. Matter was to be remanded back to Assessing
Officertorecomputequantumofreliefallowableundersection91.(A.Ys.200304to200607)
HindustanConstructionCo.Ltd.vDy.CIT(2013)140ITD642(Mum.)(Trib.)
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thetransactionsofwarrantysupportservicesandcommissionincome.Thisisshownbythefact
thatwhiletheequipmentwassuppliedto40customersbytheAE,onlythreeofthemavailedof
the installation services from the assessee. Also, a corroborative circumstance for construing
the transactions of installation/commissioning and maintenance as domestic transactions was
that the TPO had made no adjustment in respect of these transactions. The transactions
pertaining to the installation/commissioning and maintenance services were also not deemed
international transactions u/s 92B(2) because none of the conditions stipulated therein of a
prior agreement existing between the customers of the assessee and the AE have been
established as a fact. Moreover, there is no finding that the terms of the transaction of
installation/commissioningaswellasmaintenancehadbeendeterminedinsubstancebetween
thecustomersandtheassesseebytheAE.Intheabsenceofsuchfinding,itcannotbedeemed
thatthetransactionofinstallation/commissioningaswellasprovisionofmaintenanceservices
bytheassesseetoitsdomesticcustomersinIndiawereinternationaltransactionsfallingwithin
s.92B(2).
CITv.StratexNetWorks(India)Pvt.Ltd.(2013)354ITR304/215Taxman533(Delhi)(HC)
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MarubeniIndiaPvt.Ltdv.DIT(2013)354ITR638/259CTR169/87DTR281/215Taxman
122(Mag.)(Delhi)(HC)
Editorial:Order of Tribunal in Marubeni India P.Ltd v. ADDL.CIT (2012) 15 ITR 297(Delhi)(Trib),
affirmed.
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceCostplusmethod.
For the relevant assessment year the Transfer Pricing Officer did not accept CPM as most
appropriate method and instead chose Transaction Net Margin Method (TNMM) to compute
the arms length price of the international transaction. In subsequent years the Assessing
OfficerhadacceptedCPMasmostappropriatemethodandcomputedthearmslengthprice.In
appeal Commissioner (Appeals) up held that CPM was correctly chosen as the most
appropriate method. The appeal of revenue was dismissed by Tribunal. On appeal to High
CourtbyrevenuetheCourtheldthattheTribunalwasrightinacceptingtheCostplusmethod
adopted by assessee . The Court held that the revenue could not prove that the facts in
subsequent years were materially different . Appeal of revenue was dismissed.(A.Y.200203)
(TS58HC2013(Bom.TP)
CITv.LOrealIndiaPvtLtd(2013)TheChambersJournalMayP.103(Bom.)(HC)
S.92C:AvoidanceoftaxTransferpricingSelectionofcomparablesArmslengthpriceIfmore
than one price is determined by the most appropriate method, the ALP has to be the
arithmeticalmeanofsuchprices.
The assessee was engaged in providing software development support services by which it
developed software upon the instructions of its parent associated enterprise (IKOS Systems
Inc). The entire software developed by the assessee was used by the parent AE captively for
integrating the same with other software components developed by it. The assessee adopted
the TNMM and claimed that its transactions were at ALP. The TPO rejected the assessees
comparables on general grounds and selected his own comparables and used figures for a
subsequentyear.HedeterminedtheALPatamuchhigherfigureandmadeanadjustment.On
appealbytheassessee,theTribunal[ACITv.AdaniExportLtd.(2007)109ITD101]heldthatthe
criteriaadoptedbytheTPOforsearchingcomparableswasnotcorrect.ItheldthattheTPOwas
wrong in selecting his own comparables without first rejecting the assessees comparables. It
alsoheldthatwhereoneofthepricesdeterminedbythemostappropriatemethodislessthan
the price as indicated by the assessee, that may be selected and there would be no need to
adopt the process of taking the arithmetical mean of all the prices arrived at through the
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employmentofthemostappropriatemethod.OnappealbythedepartmenttotheHighCourt,
HELD:
TheTribunalwaswronginholdingthatifoneprofitlevelindicatorofacomparable,outofaset
of comparables, is lower than the profit level indicator of the taxpayer, then the transaction
reported by the taxpayer is at an arms length price and there is no need to take the
arithmetical mean. The proviso to s. 92C(2) is explicit that where more than one price is
determined by most appropriate method, the arms length price shall be taken to be the
arithmetical mean of such prices. The Tribunal was also wrong in the finding that unless and
until the comparables drawn by the taxpayer were rejected, a fresh search by the TPO could
notbeconductedbecauses.92C(3)whichstipulatesfoursituationswhereundertheAO/TPO
may proceed to determine the ALP in relation to an international transaction. If any one of
thosefourconditionsissatisfied,itwouldbeopentotheAO/TPOtoproceedtodeterminethe
ALPprice.Also,thequestionofapplyingOECDguidelinesdoesnotariseatallbecausethereare
specific provisions of Rule 10B (2) & (3) and the first proviso to s. 92C(2) which apply. The
Tribunalwasalsonotrightinreducingthelistofcomparablestomerelyfour.Havingheldthat
the comparables given by the assessee were to be accepted and those searched by the TPO
were to be rejected, the only option then left to the Tribunal was to derive the arithmetical
mean of the profit level indicators of the comparables which were accepted by it. It erred in
selectingonlyoneprofitlevelindicatoroutofasetofprofitlevelindicators.However,onfacts,
thismakesnodifferencebecauseevenifthearithmeticalmeanofthecomparablesasaccepted
by the Tribunal are taken into account, the profit level indicator would be less than 6.99 %
whichistheprofitlevelindicatoroftheassessee.Mattersetasidepartly.(A.Y.200203)
CITv.MentorGraphics(Noida)Pvt.Ltd(2013)354ITR586/86DTR283/259CTR1/215Taxman
539(Delhi)(HighCourt).
Editorial:ReferMentorGraphics(Noida)(P)Ltdv.Dy.CIT(2007)112TTJ408(Delhi)(Trib.)
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determined by assessee but if it exceeds, then ultimate adjustment is not required to be
computedafterreducingarithmaticmeanby5percent.(A.Y.200304)
JohnsonMattheyIndia(P.)Ltd.v.Dy.CIT(2013)141ITD375(Delhi)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceSelectionofcomparables
Assessee company while conducting its TP study had adopted comparables which were all in
field of development and export of computer software. The TPO . however held that the
assessee was providing Research and Development services and not computer software
developmentservicesasclaimedbyassesseeandthattheserviceagreementsoftheassessee
with its affiliates did not speak of software development and therefore , the enterprises
developingsoftwarecouldnotbeusedascomparables.TheTPOselectedcomparablesLurggi
IndiaVimtaLabsetchavingengineeringservicesanddeterminedtheALPbyadoptingTNMM
as the most appropriate method. Commissioner (Appeals) confirmed the adjustment made by
theTPO.OnappealTribunalheldthatasperassessee'ssubmissionsitwasconductingresearch
and development through its multidisciplinary R&D centre and its activities were for several
streams/areasincludingInformationTechnology.TPOhadrightlyrejectedTPstudyconducted
by assessee and had rightly proceeded to select his own comparables in field of Research and
Development and redetermine ALP. However TPO had not conducted FAR analysis before
selecting comparables, issue of selection of comparables were to be remanded back to
AssessingOfficer.(A.Ys.20042005to20062007)
GEIndiaTechnologyCentre(P.)Ltd.vDY.CIT(2013)141ITD245(Bang.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceCommercialborrowings.
AssesseeobtainedtwoCommercialBorrowingsfromitsAEsatfixedrateofinterestat7.5%and
8.9% respectively Tribunal held that, since Assessing Officer for earlier assessment year had
accepted rate of interest as fixed in loan agreement, TP adjustment on account of interest on
external commercial borrowings for this assessment year was not called for. (A.Ys. 20042005
to20062007)
GEIndiaTechnologyCentre(P.)Ltd.vDY.CIT(2013)141ITD245(Bang.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceAdjustmentsExportComputer
IncreasingtheturnoverNotpermissible.[S.80HHE)
The assesseecompany is engaged in the business of designing engineering projects. It had
entered into International Transaction with its AEs.The TPO had made certain additions in
relation to said transaction. Based on addition made by the TPO the Assessing Officer
recomputedthedeductionpermissibleundersection80HHEbyincreasingthetotalturnover;(i)
bytheamountofadjustmentmadebytheTPOand(ii)reimbursementofexpenses.Onappeal
Commissioner(Appeals)allowedtherelieftotheassessee.OnappealbyrevenueTribunalheld
that, Proviso to section 92C(4) prohibits deduction under Chapter VIA to be allowed on
enhancementmadeasperTPO'sorder,thereforenoeffectistobegiventoadditionmadeby
AssessingOfficerasperTPO'sorderwhilecomputingdeductionunderChapterVIA(A.Ys.2004
05,200506).
ACITv.BechtelIndia(P.)Ltd.(2013)141ITD200/85DTR50/153TTJ416(Delhi)(Trib.)
S.92C:AvoidanceoftaxTransferpricingComparablesResalepricemethod.
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TheassesseeimportedcomponentsfromitsAssociatedEnterprises.Itadoptedtheresaleprice
method.Sinceitsgrossmarginwasmorethanaveragegrossmarginoftwoofitscomparables,
the transactions were claimed to be at arm's length. However, the TPO did not take one
comparable as its product range included various other items. Therefore, taking the higher
grossprofitmarginoftheothercomparable,thearm'slengthpriceofassesseewasworkedout
and addition was made by way of Transfer Pricing adjustment. Held, since the comparable
rejectedbytheTPOwasacceptedbyhiminlateryears,thesameshouldhavebeenacceptedin
A.Y.200304 as well. However, the working to arrive at arm's length price on the basis of
comparability analysis should be done by taking into consideration the gross margin of the
assesseecompanyaswellasthetwocomparables.Therefore,theissueisrestoredtothefileof
the Assessing Officer/TPO for the limited purpose of doing this exercise. Matter remanded.
(A.Y.200304)
GreavesCottonLtd.v.ITO(2013)57SOT158(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingExtraordinaryfactorsComparables.
If certain extraordinary factors materially affected profit in a particular year then that aspects
has to be taken into consideration and due adjustment is required to be made to net profit
margin for bringing comparable on same platform at which an assessee is performing its
functions.Anassesseeiswellwithinhisrighttodemonstratethatacomparablesuppliedbyit
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intransferpricinganalysiswasnotcorrectandhadtobeexcludedandthisrightofassesseeis
notcurtailedinanymanner.(A.Y.200708)
AmericanExpressServicesIndiaLtd.v.DCIT(2013)57SOT22(URO)(Delhi)(Trib.)
S.92C:AvoidanceoftaxTransferpricingExtraordinaryfactorsSelectionofcomparables.
Following guidelines laid down by the Tribunal to select the comparables; (a) Companies with
extraordinary circumstances, like those which suffered events like merger/demerger,
impacting financial results, could not be treated as comparables; (b) Companies having
supernormal profit could not be considered as comparable; (c) Companies which were
functionally dissimilar could not be taken as comparables; (d) Companies acting merely as
intermediaryhavingoutsourceditsactivitycannotbecomparedascomparable;(e)Companies
whosedirectorswereinvolvedinfraudcannotbetakenascomparable,astheirfinancialresults
are not reliable; (f) Companies, who were industrial giants and market leaders having
substantiallyhighturnovercouldnotbetakenascomparables.(A.Y.200708)
CapitalIQInformationSystems(India)(P.)Ltd.v.DCIT(2013)57SOT14(URO)(Hyd.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingComparablesBenefitof5%.
Intheabsenceofanychangeinbusinessprofileandotherfactsandcircumstancesasexistedin
A.Ys. 200607 and 200708 as well as functions of sole comparable company, contention of
revenuethatcomparablefoundforAY200708couldnotbesuitablecomparisonforA.Y.2006
07wasdevoidofanymerit.
Since only one comparable was considered to determine ALP, benefit of 5 per cent as
providedunderprovisotosection92C(2)wouldnotbeavailabletoassessee.Thecurrentyear
data would be taken into consideration until and unless some exceptional circumstances are
brought on record to show that one year data of comparable do not give true picture being
influentbysuchcircumstances.(A.Y.200607)
GeneralAtlantic(P.)Ltd.v.DCIT(2013)57SOT27(URO)/89DTR81(Mum.)(Trib.)
S.92C:AvoidanceoftaxComparablesBenefitof5%.
In the course of transfer pricing proceedings, ALP determined byassessee has to be seen only
withregardtointernationaltransactionwithAEsandnotonentireturnover/sales.Thus,since
the TPO had applied mark up at entity level after taking into account entire transactions, the
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impugned working was incorrect. Even otherwise, since it was apparent from working of TPO
thatassessee'stransactionsfellwithinpermittedrangeof5percentasmentionedinproviso
tosection92C,impugnedadjustmentmadebyTPO,wastobesetaside.(A.Y.200607)
HindustanUnileverLtd.v.ACIT(2013)57SOT1(URO)(Mum.)(Trib.)
S.92C:AvoidanceoftaxAvoidanceoftaxArmslengthpriceFluctuationofforeignexchange.
Thepropositionthatgainonforeignexchangeifitrelatestothebusinessoftheassesseeispart
and parcel of operating income is well established. Nothing has been brought on record to
suggest that the gain made by the assessee on fluctuation of foreign exchange was not on
accountofbusinesstransactionsoftheassessee.Hence,itshouldbeincludedforthepurpose
ofcomputingtheprofitmarginoftheassessee.(A.Y.200809)
S.Narendrav.ACIT(2013)57SOT32(URO)(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingComparablesDifferenceinturnover.
The Assessee claimed that it was merely a facilitator for indenting transactions, on which it
earned commission. It considered commission percent of nonAE indenting segment as arm's
lengthcommissionforindentsales,afterdeducting50%discountonbasisofvolume.However,
the TPO took gross profit margin of nonAE trading segment as arm's length commission. The
Tribunal held that since the nature of assessee's indenting transactions was different from its
trading transactions and gross profit margin of latter could not be taken as arm's length
commission for indenting transactions. However, held that, mere difference in turnover is not
sufficient for treating two entities or two transactions as not comparable or warranting any
adjustment.(A.Y.200708)
Sumitomo Corporation India (P.) Ltd. v DCIT (2013) 57 SOT 18(URO) / 24 ITR 385 / 85 DTR 1
(Delhi)(Trib.)
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TheassesseecompanyisengagedinbusinessofprovidingITenabledservicestoitsassociated
enterprises in US and Europe and entered into certain international transactions. It applied
TransactionalNetMarginMethod(TNNM)fordeterminationofarmslengthpriceinrespectof
international transactions. It chose 15 comparable cases for working out operating profit on
totalcost(OP/TC)at7.31percentaspercurrentyearsdata.TPOincludedcertainnewcasesof
his own and ignored certain cases considered by assessee. In selection of comparables, the
TransferPricingOfficer(TPO)appliedfilterof:(i)comparableswithlessthan25percentrelated
partytransactions,and
(ii)comparableswithexportrevenuemorethan25percentoftherevenue.
Theassesseeobjectedtoinclusionoffourcasesinthelistofcomparables.ApplyingtheOP/TC
at 24% the TPO recommended an adjustment of 2.20 crore which came to be made by the
AssessingOfficerinthefinalorder,afterconsiderationofthematterbytheDRP.
On appeal Tribunal held that assessee had inadvertently included a case in its list of
comparablesforcomputingarm'slengthprice,itcouldbeallowedtoexcludesameifitdidnot
pass through filter adopted by TPO. A case should be excluded from list of comparables for
computingarm'slengthpriceongroundofunreliabilityofdata,whenitsreputationwasunder
serious indictment. Pertinent criteria for selection of comparable cases should be similarity in
nature of services and not higher or lower margin of profit in one case visvis other. When
here is a vast difference in cases where services are outsourced and where services are
provided inhouse, there cannot be any comparison between them. Decided in favour of
assessee.A.Y.20062007)
StreamInternationalServices(P.)Ltd.v.ACIT(2013)141ITD492(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingarm'slengthpriceComparablesandadjustments.
Theassessee,anIndiancompany,wasengagedinthebusinessofprovidingcallcentreservices
exclusively to its US Associated Enterprise. The TPO passed an order making an upward
adjustmentofRs.15.23crores.TheAssessingOfficerdeterminedtheincomeoftheassesseeat
Rs. 15.41 crores making the disallowances of telecommunication charges and leased hire
charges both of which were incurred in foreign exchange from 'export turnover' but not from
'total turnover' while computing deduction under section 10A. On appeal, the Commissioner
(Appeals) allowed the assessee partial relief. On appeal to Tribunal the Tribunal held that; TP
provisionsdonotrequireTPOtoestablishamotiveoftransferringprofitsoutofIndiapriorto
finding out as to whether assessee's international transactions are at arm's length or not. For
conducting comparability analysis and determining ALP, it is mandatory to use current year
data; and not data of multiple year. +/ 5 per cent variation is allowed only to justify price
chargedininternationaltransactionsandnotforadjustmentpurposes.Aanentitycanbetaken
as uncontrolled if its related party transactions do not exceed 10 to 15 per cent of total
revenue.Whereentireservicesofacomparablecompanyarerenderedtoasingleenterprise,it
would become an AE and as such all its transactions would assume character of controlled
transactions making it ineligible to be a comparable. A company having exorbitantly high
turnovercannotbetakenascomparable.Whereacomparablecompanyhaddevelopeditsown
unique software for performing specialized services, from which it would derive substantial
benefits/advantages when compared with assessee which had undertaken pure call centre
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services, applying principle that companies which were on similar standards only should be
taken as comparables, this company which had unique intangibles could not be taken as a
comparableforassessee.Whereassesseewascarryingoutitsworkbyitselfwhereasincaseof
a comparable, it was outsourcing most of its work, said company could not be a comparable.
Even where comparable with highest margin had different functional segment, since it had a
clearly demarcated call centre segment and segmental results were available in audited
financial statements of company, it could be considered as a comparable. In case assessee
catered to export market, whereas comparable companies catered to domestic market, these
companiesaretoberejectedascomparables.(A.Y.200405)
24/7Customer.Com(P.)Ltd.v.Dy.CIT(2013)140ITD344/21ITR514(Bang.)(Trib.)
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VodafoneIndiaServicesPvt.Ltdv.DCIT(Mum.)(Trib.)www.itatonlin.org.
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Theassessee,awhollyownedsubsidiaryofHIncoftheU.S.A.,itsassociatedenterprise,wasengagedin
thebusinessofdevelopmentofsoftwareonbehalfofitsholdingcompanyandtransferredthesoftware
to the holding company for marketing and licencing to its customers. For this purpose, the assessee
enteredintoanagreementwithitsholdingcompanyaccordingtowhichfortheservicesrenderedbythe
assessee the holding company would reimburse all the cost incurred plus 8 per cent. markup. The
assessee adopted the cost plus method for computing the arm's length price for its international
transaction. The assessee claimed deduction under section 10A of the Incometax Act, 1961. The
AssessingOfficerreferredthemattertotheTransferPricingOfficerundersection92CA(2)oftheActfor
computing the arm's length price. The assessee produced all the documents called for by the Transfer
PricingOfficer.TheTransferPricingOfficerrejectedthecostplusmethodadoptedbytheassesseeand
heldthatthetransactionalnetmarginmethodwasthemostappropriatemethodtocomputethearm's
length price of the international transaction of the assessee. The Transfer Pricing Officer also rejected
the transfer pricing study report of the assessee. The Transfer Pricing Officer also found some of the
filtersadoptedbytheassesseetobeinadequate.TheTransferPricingOfficerthereforeadoptedcertain
additional filters. Out of the 22 companies selected as comparables by the assessee in the transfer
pricing study report the Transfer Pricing Officer rejected 20 companies. The Transfer Pricing Officer
selected15companiesasadditionalcomparablesrejectingtheassessee'sobjectionstothecompanies.
The Transfer Pricing Officer determined the arithmetic mean profit level indicator of the comparables
selectedat26.88percent.andafterallowingworkingcapitaladjustmentof2.09percent.determined
the adjusted arithmetic mean profit level indicator at 24.79 per cent. Applying the arithmetic mean
profitlevelindicatortheTransferPricingOfficer determinedthe arm'slength priceoftheinternational
transactions by the assessee with its holding company at Rs.15,26,61,330. Since the assessee had
disclosed the price received by it at Rs.13,37,43,661 the shortfall of Rs. 1,89,17,669 was proposed as
adjustment under section 92CA of the Act. On appeal, the Commissioner (Appeals) upheld the
transactional net margin method adopted by the Transfer Pricing Officer as the most appropriate
method but accepted the assessee's contention that large companies having turnovers more than Rs.
100crorescouldnotbetreatedascomparables.Hefurtherheldthatthe"employeecosttosale"filter
adoptedbytheTransferPricingOfficerwasnotappropriateasrelevantdatawasnotavailableinrespect
of all the companies available on the database. Moreover, part of the employee cost was included by
certaincompaniesunderdifferentheadslikesoftwarepackagecostoroperatingexpensesasaresultof
which the filter could not be uniformly and objectively applied for selection of comparables. He
accepted the assessee's contention that the Transfer Pricing Officer was not correct in excluding
companies whose onsite income was more than 75 per cent. He held that lossmaking companies and
companies having super profits could not be treated as comparables. He selected 11 companies as
comparables and directed the Assessing Officer to find out the arithmetic mean of those eleven
companies and compute the adjusted average profit level indicator after allowing working capital
adjustmentandriskadjustmentat3percent.andbenefitof5percent.undertheprovisotosection
92C(2).Onappeal:
Held, (i) that while the assessee had a turnover of about Rs. 13.57 crores many of the comparables
selectedbytheTransferPricingOfficerhadhighturnoversofmorethanRs.100crores.Therefore,those
companies could not be considered as comparables. The decision of the Commissioner (Appeals)
excluding companies whose turnover was more than Rs. 100 crores was correct. The Commissioner
(Appeals)wasequallycorrectinnotsustainingtherejectionofcomparablesselectedbytheassesseeby
applying the "employee cost to sale" filter as relevant information for this filter was not available.
Selectionofcomparablesapplyingthe"onsiteincome"filteralsostoodonthesamefootingasrelevant
information was not available in respect of all the companies in the database. Though the Transfer
PricingOfficerhadhimselfnotappliedthisfilterobservingthatcompanieshavingonsiteincomeofmore
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236
than75percent.couldnotbetreatedascomparables,twoofthecompanies selectedascomparables
by the Transfer Pricing Officer had onsite income/expenses of more than 75 per cent. The
Commissioner (Appeals) was correct in holding that rejection of comparables selected by the assessee
by applying this filter was not correct. Lossmaking companies and companies having super normal
profits could not be considered as comparables. Therefore, the selection of companies by the
Commissioner (Appeals) as comparables was rational and appropriate and the order of the
Commissioner (Appeals) directing the Assessing Officer to compute the arithmetic mean of 11
comparables selected by him and determine the arm's length price after computing the adjusted
averageprofitlevelindicator,wasproper.
(ii)ThattheFinanceAct,2012amendedtheprovisionofsection92CoftheActbyinsertingsubsection
(2A)withretrospectiveeffectfromApril1,2002madeitclearthatanassesseeshallnotbeentitledto
exercise its option as referred to in the proviso to subsection (2) if the variation between the
arithmeticalmeanandthepriceatwhichsuchtransactionhadactuallybeenundertakenexceeded5per
centofthearithmeticalmean.Inviewoftheretrospectiveoperationoftheprovision,thebenefitof5
per cent as a standard deduction could not be allowed. The direction given by the Commissioner
(Appeals)wastobemodifiedtothisextent.
(iii) That the materials on record clearly proved the fact that the assessee was a captive service
provider. It had transactions only with its associated enterprise. It was also a fact that all the risks lay
with the associated enterprise. Different Benches of the Tribunal having taken divergent views on this
issue the view favourable to the assessee had to be taken and the direction of the Commissioner
(Appeals)inthisregardinallowingthebenefitofriskadjustmentsatonepercent.wasaffirmed.
(iv)Thattheassesseehaditselfacceptedthatthetransactionalnetmarginmethodwassimilartothe
costplusmethodexceptingthatthecostplusmethodwasbasedongrossmarginswhereasthe
transactionalnetmarginmethodwasbasedonnetmargins.Theassesseehadalsoacceptedthatif
properselectioncriteriawereadheredto,theapplicationofthetransactionalnetmarginmethodwould
alsoresultinthefactthatthepriceatwhichtheassesseehadundertakentheinternationaltransactions
wereatarm'slength.Theassesseehadnotdisputedadoptionofthetransactionalnetmarginmethod
bytheTransferPricingOfficerintheearlierassessmentyears.
(v)Thatthoughtheassessee'sincomewasexemptundersection10AoftheActthatdidnotnecessarily
meanthattheAssessingOfficerhadtoprovetheshiftingofprofitsbytheassesseetoitsassociated
enterprisebeforeapplyingtransferpricingprovision.
ThoughtheTransferPricingOfficerisempoweredundertheprovisionsoftheActtocollectinformation
under section 133(6) of the Act, at the same time, the principles of natural justice demand that the
informationsocollected,andproposedtobeutilised,beconfrontedtotheassessee.(A.Ys.20052006,
20062007)
Dy.CITv.HellosoftIndiaPvt.Ltd.(2013)23ITR1/57SOT4(URO)/84DTR153(Hyd.)(Trib.)
S.92C:Avoidance of taxTransfer pricingArm's length priceDeterminationTransactional net margin
methodComparablesJudged primarily on functional similarity"Transaction"Reimbursement of
expensesbyoneassociatedenterprisetoanotheris"transaction"Nottobeignoredinapplyingfilters
basedonquantumofrelatedpartytransactions.
The assessee is engaged in the business of providing information technology enabled services to its
group companies in the U. S. A. and Europe through its call centre located in Mumbai. It entered into
internationaltransactionswithitsassociatedenterprises.Areferenceundersection92CA(1)wasmade
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by the Assessing Officer to the Transfer Pricing Officer for determination of the arm's length price in
respect of international transactions undertaken by the assessee during the year under consideration.
The assessee declared operating profit on total cost at 15 per cent. It applied the transactional net
margin method as the most appropriate method. The arm's length percentage of operating profit to
totalcostwasworkedoutat7.31percent.onthebasisofcurrentyear'sdataand9.93percentonthe
basisofmultipleyeardata.Theassesseechose15comparablecasesforworkingoutthepercentageof
operatingprofitontotalcostat7.31percent.accordingtothecurrentyear'sdata.TheTransferPricing
Officer included certain new cases at his own and ignored certain cases considered by the assessee.
Eventually,theTransferPricingOfficertook13casesascomparablesanddeterminedthepercentageof
operating profit on total cost at 24 per cent. applying filters of companies with less than 25 per cent.
relatedpartytransactions,andcompanieswithexportrevenuemorethan25percent.oftherevenues.
TheTransferPricingOfficerrecommendedanadjustmentofRs.2.20croreswhichtheAssessingOfficer
made. On appeal: Held, (i) that section 92F(v) defines "transaction" in the context of transfer pricing
provisionstoincludeanarrangement,understandingoractioninconcertwhetherornotitisformalor
in writing or whether or not it is intended to be enforceable by legal proceeding. Since the Transfer
Pricing Officer applied the filter of having companies with less than 25 per cent. related party
transactions, it was not open to ignore the transactions duly reported by the comparable D as
international transactions within the meaning of section 92B simply because they represented
reimbursement of expenses. A pure reimbursement of expenses by one associated enterprise to
another associated enterprise is very much a "transaction" within the meaning of section 92F(v) and
consequently is equally an international transaction under 92B requiring consideration in terms of
section 92 of the Act. In any case, the Department did not demonstrate that such reimbursement of
expenses was without any markup. Therefore, D was liable to be excluded as it involved related party
transactionsatamuchhigherlevel,asagainstthefilteradoptedbytheTransferPricingOfficerhimself,
beingcompanieswithlessthan25percent.relatedpartytransactions.
(ii)ThattheTransferPricingOfficer,interalia,appliedfilterofcompanieswithexportrevenuesmore
than25percent.oftherevenuestoincludeG.ItstotalrevenuewasRs.30.89croresfromthree
segmentsandthebreakupofsuchrevenueshowedearningsinforeigncurrencyatRs.4.24lakhs.This
casetherefore,didnotpassthroughthefilteradoptedbytheTransferPricingOfficer.Althoughthe
assesseehadearlierincludedthecaseofGwithinitstransferpricingstudyandtheTransferPricing
Officeralsoincludeditinhisfinallistofcomparables,thepurposeofincometaxassessmentisto
determinethecorrectincomeoftheassessee.AstheRevenuecannotallowanassesseetodepresshis
income,inthesamemanner,itisnotpermissibletotheRevenuetotakeadvantageoftheignoranceor
mistakeoftheassesseeinofferingmorethandueincomeandtheassesseewasentitledtoargueat
leastbeforetheappellateauthoritiesthatawrongstandtakenatthetimeoffilingthereturnofincome
shouldbeallowedtobemodified.TheTransferPricingOfficerwastoexamineinfreshproceedingsthe
correctnessofthefiguresplacedonrecordbytheassesseeinsupportofitscontentionthatthecaseof
Gwaswronglyincludedbyitinthelistofcomparablesanddecidethequestionofinclusionorexclusion
ofthiscaseafreshindependentoftheTribunal'sobservations,albeitkeepinginmindthefilterof
companieswhoseexportrevenuesweremorethan25percent.oftherevenues.
(iii)Thatthereputationofthegroup,owningMwasunderseriousindictmentandotherBenchesofthe
TribunalhaddirectedMtobeexcludedfromthelistofcomparablesforthisreason.Mwastobe
excludedfromthefinallistofcomparables.
(iv)ThatthepredominantviewtakenbyvariousBenchesoftheTribunalwastoexcludethecaseofVon
thereasoningthatprofitmargininselfprovisionandoutsourcingofserviceswasdifferent.Thereforeon
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thiscomparablecasethematterwastobedecidedafreshbytheTransferPricingOfficerinconsonance
withtheTribunal'sobservations.
(v) ThatsincetheTribunal hadexcludedtwocasesandthedecisionastoinclusionorotherwiseofthe
remaining two cases had been restored to the Transfer Pricing Officer it would only be when the
TransferPricingOfficerdecidedthefateofthesetwocasesthatanydecisioncouldbearrivedatabout
the mean of the operating profit/total cost of the remaining cases. The Transfer Pricing Officer was to
giveeffecttotheprovisionsofsection92Cafterdecidingthedestinyofsuchtwocasesafterallowinga
reasonableopportunityofbeingheardtotheassesseeinsuchfreshproceedings.(A.Y.20062007)
StreamInternationalServicesP.Ltd.v.ADIT(IT)(2013)23ITR70/152TTJ553/141ITD492/83DTR394
(Mum.)(Trib.)
S.92C:Avoidance of taxTransfer pricing Arms length priceCost of providing services by German
company to all entities of group worldwide and basis of allocation of cost to various group entities
across the world to be submitted to enable Transfer Pricing Officer to ascertain whether there was
profitormerereimbursementofactualcostMatterremanded.
The assessee company, engaged in the business of manufacture and trading of pneumatic equipment,
entered into international transactions with its associated enterprises under which, inter alia, the
assesseepaidasumofRs.2,28,65,807totheGermangroupcompany,anassociatedenterprise,forSAP
service charges. The assessee explained that the F group had implemented a standard ERP software,
namely SAP R/3, that the cost incurred to implement the software and the ongoing cost towards user
licenseandmaintenancewasallocatedtoeachofthegroupcompaniesonthebasisofuse,thatforthe
financial year 200607, that the German company had allocated the actual cost incurred in relation to
useofsuchsoftwareamountingtoRs.2,28,65,807totheassessee,thattheGermancompanyallocated
or apportioned the costs pertaining to the assessee without any markup and the charges for the
implementation activity were based on actual costs incurred by them without any markup. The
AssessingOfficerreferredtothedeterminationofthearm'slengthpriceinrespectofthetransactionto
theTransferPricingOfficerundersection92CAoftheAct.TheAssessingOfficerwasoftheviewthatthe
assessee was not able to demonstrate the services rendered by the German company for which the
paymentwasmadeandthateveniftheserviceswereincurred,thequantumofsuchserviceswouldnot
betotheextentofRs.2.28crores.Moreover,whenexpenditureisincurredforthebenefitofthegroup
asawhole.TheTransferPricingOfficerproceededontheassumptionthatnoserviceswererenderedby
theGermancompanyforwhichSAPchargeswerepaidbytheassessee.Forthisreasonandalsoforthe
reason that no comparable instances had been provided by the assessee, the Transfer Pricing Officer
treatedtheentirepaymentasnotatarm'slength.TheDisputeResolutionPanelconfirmedtheorderof
the Assessing Officer rejecting the stand of the assessee that the Transfer Pricing Officer had no
jurisdiction to go into the question as to whether the assessee received services for which a payment
had been made by the taxpayer. On appeal. Held, that the transfer pricing study done by the assessee
did not give out any comparable instances of similar transactions between the unrelated parties. The
assesseehadtosubstantiatethepricethatispaidtoitsassociatedenterprisewasatarm'slengthwithin
one of the methods prescribed. The transfer pricing study of the assessee was not in tune with the
provisionsofsection92CoftheAct.TheorderoftheAssessingOfficeronthisissuewastobesetaside
and the question of determination of arm's length price remanded to the Transfer Pricing Officer for
freshconsideration.TheTransferPricingOfficershallnottakeintoconsiderationthepaymentsmadefor
SAP modules which were not the subjectmatter of the international transactions in dispute in this
appeal. The assessee was to file the transfer pricing study in accordance with the provisions of the Act
and substantiate that the price paid by it to the German company was at arm's length within the
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methodslaiddownintheAct.ThecostofprovidingSAPchargesbytheGermancompanytoallentities
of the group worldwide and the basis of allocation of cost to various group entities across the world
shouldbesubmittedbytheassesseewithaviewtoenabletheTransferPricingOfficertoascertainasto
whethertherehadbeenanyprofitelementinvolvedorwasitacaseofmerereimbursementofactual
costincurredfortheassesseebytheparentcompany.(A.Y.20072008)
FestoControlsP.Ltdv.Dy.CIT(2013)22ITR574(Bang.)(Trib.)
S.92C:Avoidance of taxTransfer pricingRoyaltyArm's length priceComparable Commissioner
(Appeals) reliefto theassesseebyrevisingtherateupwardly at4.5 percent.asfair andreasonable
withoutgivinganybasisasrequiredbytheprovisionsofsection92CAaswellastherelevantrules,no
furtherreliefwaswarrantedonthisissue.
Duringtheyearunderconsideration,theassesseehadenteredintotwointernationaltransactionswith
its associate enterprise in Japan. One of the two transactions involved a payment of royalty for use of
technical knowhow by the assesseecompany to the Japanese company for supply of technical know
howat5percent.ofthedomesticsalesand8percent.oftheexport.Theassesseehavingenteredinto
agreementswithothernonrelatedforeignpartiesforsupplyoftechnicalknowhowandsincethedata
relating to the said non related foreign parties was available, it had considered the comparable
uncontrolled price method the most appropriate method for its transfer pricing study and keeping in
viewtherateofroyaltypaidtothenonrelatedparties,itcontendedthattherateatwhichroyaltywas
paidbytheassesseetoitsassociatedenterprisewasatarm'slength.TheTransferPricingOfficerfound
thatroyaltywaspaidbytheassesseetotherelatedandnonrelatedpartiesonlyinrespectofdomestic
sales and not exports. He therefore, proceeded to compare the rate at which royalty was paid by the
assessee to the related and nonrelated parties on domestic sales. Since the arithmetic mean of the
royalty rates of the nonrelated parties of 3 per cent. and 5 per cent. worked out at 4 per cent., he
adoptedthisasthearm'slengthrateoftheroyaltypayableondomesticsalesintheorderpassedunder
section 92CA(3). According to the said order, addition was made by the Assessing Officer. The
Commissioner (Appeals) held that it would be fair and reasonable to take 4.5 per cent. as the arm's
lengthrateoftheroyalty.Onappeal:
Held, that the comparable uncontrolled price method was followed by the assessee to determine the
arm'slengthpriceoftheroyaltypaidtoitsassociatedenterprise,namelyonthegroundthattherebeing
similar payment of royalty made to two unrelated parties, the internal comparable uncontrolled prices
were available. Since the royalty paid to the two unrelated parties on domestic sales for supply of
technicalknowhowwas3percent.and5percent.,thearithmeticmeanofroyaltyratewasworkedout
bytheTransferPricingOfficerat4percent.undertherelevantprovisionofsection92CA.Theassessee
itselfhavingtakenthetwononrelated partiesascomparablesinitstransferpricingstudy,itcouldnot
now turn back and say that one of the parties was not comparable without giving any cogent or
convincing reason. Although the assessee contended that the use of technology availed from D had
restrictedapplicationthedomesticsalesgeneratedbytheassesseeusingthetechnologyofDwasquite
comparable withthedomesticsales generatedfromtheuseoftechnologyofitsassociatedenterprise.
Theroyaltyof5percent.paidtoOwasalsoforuseofaparticulartrademarkofthatcompanytowhich
theTransferPricingOfficerattributedtheroyaltypaymenttotheextentofonepercent.onthebasisof
Government policy of automatic route. Whether any product with the trade mark was actually
manufactured by the assessee or was simply imported by it from O was irrelevant because use of the
trademarkwasundoubtedlyallowedbyOtotheassesseealongwithsupplyoftechnologyforaroyalty
payment of 5 per cent. of the domestic sales and irrespective of whether the assessee had
manufactured the goods with the trade mark or not, it was entitled to do so on payment of royalty at
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therateof5percent.asagreedbetweentheparties.Therewasnothingtopointoutanyinfirmityinthe
rate of 4 per cent. determined by the Transfer Pricing Officer as the arm's length rate of royalty
paid/payable by the assessee to its associate enterprise and since the Commissioner (Appeals) had
alreadyallowedafurtherrelieftotheassesseebyrevisingtherateupwardlyat4.5percent.asfairand
reasonablewithoutgivinganybasisasrequiredbytheprovisionsofsection92CAaswellastherelevant
rules,nofurtherreliefwaswarrantedonthisissue.(A.Y.20022003)
KansaiNerolacPaintsLtd.v.Dy.CIT(2013)22ITR424/57SOT10(URO)(Mum)(Trib.)
S.92C:Avoidance of tax Transfer pricing RBI approval FDI policy RBI approval has no
relevanceonissueofArm'slengthpriceCUPMethodTNMMethodMattersetasideand
AssessingOfficertodecidethematterbyadoptingCUPmethod.
The assessee was engaged in the manufacturing and marketing of beer using technical know
how provided by SAB Miller. The assessee paid royalty for the technical knowhow and the
questionarosewhetherthesamewasatarmslength.Oneoftheargumentsadvancedbythe
assessee was that as under Press Note no. 9 of 2000 issued by the Ministry of Commerce and
IndustryinrelationtoFDIpolicy,remittanceofroyaltynotexceed5%ofdomesticsalesand8%
of export sales was permitted, the royalty paid by it which was within those limits should be
consideredasbeingatarmslengthfortransferpricingpurposes.HELDbytheTribunalrejecting
theplea:
Press Note no.9 of 2000 issued by the Ministry of Commerce and Industry in respect of FDI
policy and prescribing the percentage of royalty to the sales allowed under automatic route
cannotsubstituteasALPtobedeterminedundertheprovisionsoftheActandRules.FDIpolicy
permitting certain percentage of payment of royalty is only for remittance of the amount in
foreign exchange and therefore, such permission given in an entirely different context and
purposecannotbeconsideredasrelevantfordeterminationoftheALPunderI.T.Act.TheRBI
is only concerned with the foreign exchange and, therefore, would look into the matter from
that point of view. The RBI, at the time of giving such permission would not keep in mind the
provisionsoftheITAct,whichisthefunctionoftheincometaxauthoritiesand,hence,cannot
validlygointosuchanissue.Whenapropermechanismisprovidedundertheprovisionsofthe
I. T. Act and Rules for determination of the ALP, then the approval by other than the I. T.
Authorities,forthepurposeofremittance/outflowoftheforeignexchange,doesnotipsofacto,
partake the character of ALP, which has to be determined as per TP regulations (CIT v. Nestle
IndiaLtd(2011)337ITR103(Del)followed).(A.Y.200708)
SKOLBreweriesLtdv.ACIT(2013)142ITD49/84DTR271/153TTJ257(Mum.)(Trib.)
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(i)TheassesseescollaborationagreementwithitsAEforpaymentof2%ofcontractvaluefor
manufacturing, drawing and engineering services and 5% of the selling price as royalty falls
undertheautomaticapprovalschemeoftheRBI.Whentherateofroyaltypaymentandfee
fordrawingsetc.hasbeenapprovedordeemedtohave beenapprovedbytheRBI,thensuch
paymenthastobeconsideredatALP;
(ii)Rule10B(1)(e)(i)requirestheprofitmarginrealisedbytheenterprisefromaninternational
transactionenteredintowithanAEtobeascertainedfordeterminingastowhetherornotitis
at arms length. The margin with which such margin earned by the assessee is compared with
for determining the ALP, can be internally available from comparable transaction(s) or from
externally available cases. If the enterprise has entered into similar transactions with third
partiesasareunderconsiderationwiththeAE,thentheprofitrealizedfromsuchtransactions
with third parties is a good measure to benchmark the margin from international transaction.
Thus, on one hand we need to have profit margin which is to be compared from transactions
with the AEs and on the other hand, we need to find out the profit margin from similar
transactions with nonAEs with which comparison is to be made. Both these figures should
come from separate watertight compartments. No overlapping is permissible in the
composition of such compartments. In other words, neither the first compartment of profit
margin from AE transactions should include profit margin from the transactions with nonAEs,
nor the second compartment should have profit margin from the transactions with the AEs. If
such an overlapping takes place, then the entire working is vitiated, thereby obliterating the
finer line of distinction of the profit margin to be compared and the profit margin to be
compared with. On facts, as the assessee had not maintained segmentwise accounts and as
the figures of AE and NonAE transactions were segregated from the common pool of figures,
the margins derived therefrom were not reliable and the claim of internal TNMM was not
acceptable.(A.Y.200809)
ThyssenKruppIndustriesIndiaPvt.Ltdv.ACIT(2013)87DTR65/154TTJ689(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferPricingALPshouldbedeterminedonsegmentwiseprofits
¬atanentitylevel.Adjustmentcannotbemadetotheentireentityturnover/profits.
TheassesseeenteredintoseveralinternationaltransactionswithitsAEandclaimedthatthere
wereatarmslengthonthebasisofasegmentwiseTNMManalysisforeachofthem.TheTPO
rejected the claim on the ground that the segmentwise accounts were not audited. He
adopted an entity method approach for purposes of determining the ALP. However, while
rejecting the segmental analysis undertaken by the assessee, the TPO accepted 4 segments of
the assessees operations and identified comparables. He arrived at different arithmetical
means of appropriate profit level indicators by taking operating profit by cost of various
identifiedcomparablesineachsegment.Hethereaftergaveweightedaveragetotheassessees
percentageofturnoveroutofthetotalturnoveranddeterminedtheweightedaverageofthe
arithmeticmeanineachsegmentsandarrivedattheoperatingprofitat18.09%atentitylevel.
This was taken as the arms length profit margin and as the assessees operating margin of
4.78% operating cost was less than the ALP sodetermined, an adjustment of Rs. 82 crore was
made to the assessees income. Before the DRP, the assessee furnished audited segmental
accountsthoughthesewereignoredbyit.OnappealbytheassesseetotheTribunal,HELD:
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As the assessees operates in four different & independent segments and it submitted
segmentalaccountsforeachofitsoperation,thecorrectapproachunderTNMMshouldbeto
determinetheALPofeachofthesegmentsbycomparingwiththecorrespondingcomparables
involvedinsimilarlinesoffunctioningafterproperFARanalysis.AstheTPOhaddetailsofeach
segmentwiseprofitmarginofthecomparables,heoughttohavecomparedtherelevantprofit
marginswiththatoftheassesseesprofitmarginsineachsegment.Hisapproachoftakingthe
weighted average method of arriving at entity based profit margin is not correct. Also, his
approach of making the adjustment on the entire turnover of the assessee including
transactions with nonAEs instead of restricting it to the AEs transactions is not supported by
the transfer pricing provisions. Further, in arriving at the segmentwise profit margin, the TPO
should carry out an analysis of each companys business activity, why they are selected as
comparable and what are the functions of the company, operating margins, etc. He should
adopt proper parameters/filters in respect of each segment. If the assessee opposes the
selection of comparables by the TPO, it is the responsibility of the TPO to furnish necessary
details.Theonuscannotbeshiftedtotheassesseewhenitiscontendingthatproperdataisnot
availableinpublicdomaininthisregard.(A.Y.200809)
SandozPrivateLimited.v.DCIT(Mum.)(Trib.)www.itatonline.org.
S.92C:AvoidanceoftaxTransferPricingALPofloantransactionhastobedeterminedasper
CUP&LIBOR.
The assessee, an Indian company, gave a loan of $ 10,50,000 to its USA based Associated
Enterprise(AE)at4%rateofinterest.TheTPOadoptedtheIndiancompanyasthetestedparty
andheldthatthecomparableratesforbenchmarkingtheinteresthadtobeselectedfromthe
Indian domain and the rate that the assessee would have earned by giving loans in the Indian
markethadtobetakenastheALP.Itwasalsoheldthatanadditiontotheinterestratehadto
be made for the risk factor. The interest rate was determined at 17.25%. On objection by the
assessee,theDRPheldthattheALPhadtobetakenatthePLRofRBIbeing13.25%.Onappeal
bytheassesseetotheTribunal,HELDreversingtheTPO&DRP:
(i) CUP is the most appropriate method for ascertaining the arms length price of an
international transaction of lending money. Where the transaction is of lending money in
foreign currency to its foreign subsidiaries, the comparable transactions have to be of foreign
currency lent by unrelated parties. The financial position and credit rating of the subsidiaries
will be broadly the same as the holding company. In such a situation, domestic prime lending
ratewouldhavenoapplicabilityandtheinternationalratefixedbeingLIBORshouldbetakenas
the benchmark rate for international transactions. On facts, the assessee had an arrangement
for loan with CitiBank for less than 4% and on the loan provided to its AEs it had charged 4%
interest.Hence,theadjustmentmadebytheTPOwasnotwarranted(SivaIndustries&Holding
Ltd.(2011)59DTR182(Che),FourSoftLtd.v.Dy.CIT(2011)62DTR308(Hyd),Dy.CITv.Tech
Mahindra Ltd. (2011) 46 SOT 141 (Mum) & Tata Autocomp Systems ltd. v. ACIT (2012) 73 DTR
220(Mum)followed);
(ii) Further, the assessees profits are exempt u/s 10B and so there was not a case where
the assessee would benefit by shifting profits outside India (Philips Software Centre (P) Ltd. v.
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243
Asst.CIT(2008)26SOT226(Bang)&Itov.ZydusAltanaHealthCare(P)Ltd.(2011)44SOT132
(Mum)followed).(A.Y.200809)
CottonNaturals(I)Pvt.Ltd.v.DCIT(2013)22ITR438(Delhi)(Trib.)
Theassesseehasnoborrowingsandsothereisnointerestliability.Evenifthepaymentshave
beenmadebytheAEbeyondthenormalcreditperiod,thereisnointerestcosttotheassessee.
Moreover, there is no such agreement whereby interest is to be charged on such a delayed
payment. The assessee does the billing on a quarterly basis and accordingly, the payment is
beingreceived.Therefore,thedelayisnotwhollyonaccountoflatepaymentbytheAEsonly.
Moreover, the T.P. adjustment cannot be made on hypothetical and notional basis until and
unless there is some material on record that there has been under charging of real income.
Consequently,anadditionanaccountofnotionalinterestrelatingtoallegeddelayedpayment
incollectionofreceivablesfromtheA.Esisuncalledfor.(A.Y.200708)
EvonikDegussaIndiaP.Ltd.v.ACIT2013)55SOT566/81DTR143(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceMatterremanded.
Arm's length price not to be determined without proper comparables. Failure by assessee to
file transfer pricing report on ground no public domain comparable in assessee's line of
business.Matter remanded for fresh transfer pricing study for determination of fair arm's
lengthprice.(A.Y.20052006to20072008)
MahashianDiHattiLtd.v.Dy.CIT(2013)21ITR731(Delhi)(Trib.)
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S.92C:Avoidance of taxTransfer pricing Arms length priceTNMM Method cannot be
discardedinpreferenceovertransactionalprofitmethods,withoutanyvalidreasons.
Assesseecompany determined ALP of its international transactions with AE on basis of Cost
PlusMethod(CPM).TPO,however,madeadjustmenttoALPdeterminedbyassesseerelyingon
Transactional Net Margin Method (TNMM).It was noted that TPO had not assigned any valid
reason for rejecting method adopted by assessee for determination of ALP. Further, if four
companies earning super normal profits were excluded from list of comparables selected by
TPO, average OPM would come to 18.91 per cent whereas net profit margin of assessee was
18.11 per cent, in view of above, impugned adjustment made to ALP determined by assessee
wastobesetaside.Tribunalheldthatwhereanassesseehasfollowedoneofstandardmethods
ofdeterminingALP,suchamethodcannotbediscardedinpreferenceovertransactionalprofit
methods, unless revenue authorities are able to demonstrate fallacies in application of
standardmethods.(A.Y.200506)
CITv.SonataSoftwareLtd.(2013)55SOT533(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceMatterremanded.
Assessee belonged to a multinational group of companies which undertook IT project named
Common Operating Environment System (COE3). It received IT support from its Associated
Enterprises (AEs).Costs incurred in respect of said project were allocated to group companies.
AssesseesharedrelatedcostandreimbursedcosttoitsAEs.TPOobservedthatrelevantdetails
regardingallocationofcostswerenotfurnishedbyassessee.Hedeterminedarmslengthprice
atnilanddisallowedentirecostbornebyassessee.Significantcostswereincurredinrespectof
said project. Assessee had also furnished relevant invoices raised in this regard. Tribunal held
that TPO was not justified in ignoring these details and computing ALP at nil and, therefore,
matter be remanded to TPO to workout ALP of relevant transaction. Matter remanded.
(A.Y.200203)
CastrolIndiaLtdv.ACIT(2013)55SOT521(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceComparablesWhilecarryingout
comparabilityanalysisfordeterminingALP,onehastoexaminefunctionalprofileofcompany
andattributesofproductsandservicesprovided.
Assesseeincourseofinternationaltransactionsprovidedtestingandanalyticalsupportservices
in connection with research and development to its associate enterprise. In transfer pricing
study report for comparability analysis, assessee had identified 12 comparable companies.
Dispute resolution panel for determining arm's length price selected six companies for
comparability analysis.These six comparable companies were arrived after rejecting three
diagnostic companies, which were selected by assessee, and two new comparable companies
wereadded.Tribunalheldthatsincefunctionalprofileoftwonewcomparablecompanieswas
different with that of assessee, inclusion of said companies in set of comparables was not
justified, since functional profile of three diagnostic companies was not only different but
characteristic of services rendered was also different, these three companies had rightly been
rejectedfromsetofcomparables.Therefore,onlyfoursetofcompaniesshouldbeincludedfor
purposesofcomparabilityanalysisandarithmeticmeanofthesecompaniesshouldbetakenfor
purposeofdeterminingALP.Partlyinfavourofassessee.Tribunalheldthatwhilecarryingout
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comparability analysis for determining ALP, one has to examine functional profile of company
andattributesofproductsandservicesprovided.(A.Y.200708)
EvonikDegussaIndia(P)Ltdv.ACIT(2013)55SOT566(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceNotionalinterestAdditionwas
deleted.
AssesseehadinternationaltransactionswithitsAE.Ithadgivencreditofthirtydaysininvoices
raisedagainstAE.AEmadepaymentstoassesseebeyondstipulatedcreditperiod.Assesseehad
notchargedanyinterestondelayedpayment.TPOworkedoutnotionalinterestatrateofone
per cent per month for period of delay beyond thirty days and added same to income of
assesseeWhethersincetherewasnoagreementbetweenassesseeandAEtochargeinterest
ondelayedpayment,impugnedadditionwasnotjustified.(A.Y.200708)
EvonikDegussaIndia(P)Ltdv.ACIT(2013)55SOT566(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceMattersetaside.
Assessee is required to support its claim for any adjustment with robust data and full details
andevidencesandburdenofproofisonitwheneveritmakessuchaclaim.Assesseecompany
was a 100 per cent subsidiary of a US based company. It was registered under Software
Technology Park Scheme of Government of India and was primarily engaged in software
development for its parent company. It entered into international transactions with its
associate enterprise It also entered into direct contracts with domestic customers. For
purpose of computing arm's length price, it adopted transactional net margin method and
relied upon internal comparables.TPO rejected internal comparables on ground that internal
uncontrolledtransactionswerejust1.4percentoftotalrevenueearnedbyassesseeandhence
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comparison with such transactions would not provide meaningful benchmarking.He also
rejected some other claims of assessee and computed arm's length price at a margin of 16.3
per cent being arithmetic mean of final set of four comparables. since assessee had
uncontrolled comparables transactions with third parties in export segment to tune of 15 per
centoftotalturnoverandhaduncontrolledtransactionswiththirdpartiesindomesticsectorto
tuneof10percentoftotalturnover,domesticuncontrolledtransactionsweresignificantpart
of total turnover of assessee. In case domestic uncontrolled transactions were functionally
comparable,samecouldbeusedforbenchmarking.therefore,matterrequiredtobesentback
toTPOtoconsiderinternalcomparablesgivenbyassesseeandarriveatfreshdecision.Matter
remanded. Tribunal held that It cannot be laid down as a proposition that transfer pricing
adjustment could not exceed total profits earned by group. Assessee as well as revenue
authorities are bound to determine ALP by applying law and rules laid down and cannot be
guidedbyextraneousparameters,anyclaimforadjustmentonbasisofriskoranyotherfactors
has to be based on proper data and sound calculation and ad hoc adjustments should not be
granted. Where material available with TPO in current year is vastly different to material
available with TPO in earlier year, principle of consistency does not hold water(A.Y.200607,
200708)
Interra Information Technologies (India) (P.) Ltd. v Dy.CIT (2013) 55 SOT 585/81 DTR 70
(Delhi)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceResalePriceMethodAdjustment
heldtobenotjustified.
Assesseecompanyisengagedinbusinessofdistributionoftelecomequipment,logicanalysers
andothertestandmeasurementequipmentonbehalfofitsAssociatedEnterprise(AE).Besides,
if any customer in India wanted to purchase equipment directly from AE, assessee acted as
intermediary and derived commission income for services rendered. In transfer pricing
proceedings, TPO asked for segmental data of trading activity and commission agency activity
separatelyandthereafterworkedoutmargininbothactivitiesandarrivedatadjustment.Itwas
noted that by applying resale price method (RPM), GP as percentage of sales in case of
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247
comparablesselectedbyTPOwas12.90percentwhereasGPaspercentageofsalesincaseof
assessee was much higher at 35.60 per cent. Tribunal held that in view of above, impugned
adjustmentmadetoALPdeterminedbyassesseewasnotsustainable.(A.Y.200607)
TextronixIndia(P.)Ltd.vDy.CIT(2013)55SOT512(Bang.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceComparablesandadjustments
ValueofInternationaltransactionandnotentireturnover.
TribunalheldthatwhateverbemethodfollowedoradoptedforarrivingatALP,ALPcanonlybe
determinedonvalueofinternationaltransactionsaloneandnotonentireturnoverofassessee
atentitylevel.(A.Y.200708)
ThyssenKruppIndustriesIndia(P.)Ltd.vACIT(2013)55SOT497(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceComparablesandadjustments
Tribunalheldthatsolongasexpenditureorpaymenthasbeendemonstratedtohaveincurred
orlaidoutforpurposeofbusiness,itisnoconcernofTPOtodisallowsameonanyextraneous
reasoningHeld,yesWhetherTPOcannotdetermineALPatnilasjurisdictionprovidedtohim
istodetermineALPoftransactionsundermethodsprovidedundertheAct.(A.Y.200708)
ThyssenKruppIndustriesIndia(P.)Ltd.vACIT(2013)55SOT497(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceComparablesandadjustments
liquidateddamages
AssesseemadepaymenttoitsAEonaccountofliquidateddamagespaidbyAEtoathirdparty.
TPO determined arm's length price at nil and made adjustment. Question as to whether
liquidateddamagesweretobepaidbyassesseeornotwasoutsidepurviewofTPprovisionsas
that was a business decision taken by assessee, as far as TP provisions were concerned, since
assesseereimbursedexactamountwhichwasrecoveredbythirdparty,noadjustmentcouldbe
made.A.Y.200708)
ThyssenKruppIndustriesIndia(P.)Ltd.vACIT(2013)55SOT497(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferPricingTheBrightLinetestcanbeappliedtodetermine
whether AMP expenses incurred by assessee are excessive andfor the benefit of the brand
owner Adjustment in relation to advertisement, marketing, and sale promotion expenses
incurred by assessee for creating or improving, marketing intangible for and on behalf
offoreign AE is permissible. Expenses in connection with sales which do not lead to brand
promotion cannot be brought within ambit of advertisement, marketing and promotion
expenses. Correct approach under TNMM is to consider operating profit from each
international transaction in relation to total cost or sales or capital employed etc. of such
internationaltransactionandnotnetprofit,totalcostssales,capitalemployedofassesseeas
awholeonentitylevel.(S.92B,Rule10A,10B)
L.G.ElectronicsInc,aKoreancompany,setupawhollyownedsubsidiaryinIndia(theassessee)
towhichitprovidedtechnicalassistance.Theassesseeagreedtopayroyaltyattherateof1%
as consideration for the use of technical knowhow etc. The Korean company also permitted
the assessee to use its brand name and trade marks to products manufactured in India on a
royaltyfree basis. The AO, TPO & DRP held that as the Advertising, Marketing and Promotion
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(AMP expenses) expenses incurred by the assessee were 3.85% of its sales and such
percentage was higher than the expenses incurred by comparable companies (Videocon &
Whirlpool),theassesseewaspromotingtheLGbrandownedbyitsforeignAEandhenceshould
havebeenadequatelycompensatedbytheforeignAE.ApplyingtheBrightLineTest,itwasheld
that the expenses up to 1.39% of the sales should be considered as having been incurred for
the assessees own business and the remaining part which is in excess of such percentage on
brandpromotionoftheforeignAE.Theexcess,afteraddingamarkupof13%,wascomputedat
Rs. 182 crores. On appeal by the assessee, the Special Bench had to consider the following
issues: (i) whether the TPO had jurisdiction to process an international transaction in the
absenceofanyreferencemadetohimbytheAO?(ii)whetherintheabsenceofanyverbalor
written agreement between the assessee and the AE for promoting the brand, there can be
said to be a transaction? (iii) whether a distinction can be made between the economic
ownership and legal ownership of a brand and the expenses for the former cannot be
treatedasbeingforthebenefitoftheowner?(iv)whethersuchatransaction,ifany,canbe
treatedasaninternationaltransaction?(v)whethertheBrightLineTestwhichisapartof
U.S.legislationcanbeappliedformakingthetransferpricingadjustment?(vi)whetherasthe
entireAMPexpensesweredeductibleu/s37(1)despitebenefittothebrandowner,atransfer
pricing adjustment so as to disallow the said expenditure could be made? (vii) what are the
factorstobeconsideredwhilechoosingthecomparablecases&determiningthecost/valueof
the international transaction of AMP expenses? (viii) whether, if as per TNMM, the assessees
profitisfoundtobeasgoodasthecomparables,aseparateadjustmentforAMPexpensescan
still be made? (ix) whether the verdict in Maruti Suzuki India Ltd. v Add. CIT/Transfer Pricing
Officer(2010) 328 ITR 210 (Del) has been overruled/ merged into the order of the Supreme
Courtsoastoceasetohavebindingeffect?
BytheMajority(HariOmMarathe,JM,dissenting)
(i)Thoughs.92CA(2A),insertedw.e.f.1.6.2011,whichpermitstheAOtoconsiderinternational
transactions not specifically referred to him does not apply as the TPOs order was passed
before that date, subsec (2B) to s. 92CA inserted by the Finance Act 2012 w.r.e.f. 1.6.2002
(which provides that the TPO can consider an internationaltransactionif the assessee has not
furnishedthes.92Ereport)curesthedefectintheotherwiseinvalidjurisdictionatthetimeof
its original exercise. The assessees argument that jurisdiction has to be tested on the basis of
thelawexistingatthetimeofassumingjurisdictionandthats.92CA(2B)cannotregularizethe
otherwise invalid action of the TPO is farfetched and not acceptable because it will render s.
92CA(2B) redundant. The argument that s. 92CA(2B) should be confined only to such
transactionswhichtheassesseeperceivesasinternationaltransactionsbutfailstoreportisalso
notacceptable;
(ii) The assessees contention that in the absence of any mutual agreement between the
assesseeanditsforeignAE,thereisnotransactionisnotacceptableinviewofthedefinition
ofthattermins.92F(v)whichincludesanarrangementorunderstanding.Aninformalororal
agreement,whichislatent,canbeinferredfromtheattendingfactsandcircumstancesandthe
conductoftheparties.AslongasthereexistssomesortofunderstandingbetweentwoAEson
a particular point, the same shall have to be considered as a transaction, whether or not it
hasbeenreducedtowriting.However,thedepartmentscontentionthatthemerefactthatthe
assessee spent proportionately higher amount on advertisement in comparison with other
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249
entities shows an understanding is also not acceptable. On facts, as it was seen that the
assessee not only promoted its name and products through advertisements, but also the
foreign brand simultaneously, and the fact that the assessees AMP expenses were
proportionatelymuchhigherthanthoseincurredbyothercomparablecases,lentduecredence
to the inference of the transaction between the assessee and the foreign AE for creating
marketingintangibleonbehalfofthelatter;
(iii) The assessees contention that a distinction should be made between the economic
ownership of a brand and its legal ownership and that AMP expenses towards the
economicownershipofthebrand,whichareroutineinnature,cannotbeallocatedasbeing
forthebenefitofthebrandownerisnotacceptableasitwillleadtoincongruousresults.While
the concept of economic ownership of a brand is relevant in a commercial sense, it is not
recognizedforthepurposesoftheAct;
(iv) The assessees argument that there is no international transaction is not acceptable
becausethedefinitionofthattermins.92B(1)isinclusive.Underclause(i)oftheExplanation
to s. 92B, a transaction of brand building is in the nature of provision of service by the
assessee to the AE. Clause (ii) of the Explanation defines intangible property to include
marketing related intangible assets, such as, trademarks, trade names, brand names, logos.
Consequently, brand building is a provision of service. The fact that no consideration is paid
bytheforeignAEisirrelevant;
(v) While a provision from a foreign legislation cannot be imported into the Indian
legislation, there is an inherent fallacy in the assessees argument that the bright line test
cannotbeadoptedtodeterminetheALPoftheinternationaltransactionasitisnotoneofthe
recognized methods u/s 92C. The bright line test is a way of finding out the cost/value of the
internationaltransaction,whichisthefirstvariableundertheTPprovisionsandnotthesecond
variable, being the ALP of the international transaction. Bright line is a line drawn within the
overall amount of AMP expense. The amount on one side of the bright line is the amount of
AMP expense incurred for normal business of the assessee and the remaining amount on the
other side is the cost/value of the international transaction representing the amount of AMP
expense incurred for and on behalf of the foreign AE towards creating or maintaining its
marketingintangible.Iftheassesseefailstogiveanybasisfordrawingthislinebynotsupplying
the cost/value of the international transaction, and further by not showing any other more
cogent way of determining the cost/value of such international transaction, then the onus
comes upon the TPO to find out the cost/value of such international transaction in some
rationalmanner.Onfacts,thecost/valueoftheinternationaltransactionwasdeterminedatRs.
161.21crorewhileitsALP(afterthe13%markup)wasRs.182.71crore.Theassesseewasnot
entitledtoclaimadeductionforRs.161.21croreanditwasliabletobetaxedonthemarkupof
Rs.21.50crore;
(vi) The assessees contention that once the entire AMP expense is found to be deductible
u/s 37(1), then, no part of it can be attributed to the brand building for the foreign AE
notwithstanding the fact that the foreign AE also got benefited out of such expense is not
acceptable because the whole purpose of transfer pricing is to provide a statutory framework
which can lead to computation of reasonable,fair andequitable profits and taxinIndia in the
case of multinational enterprises. The TP provisions prevail over the general provisions. The
exerciseofseparatingtheamountspentbytheassesseeinrelationtointernationaltransaction
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ofbuildingbrandforitsforeignAEforseparatelyprocessingaspers.92cannotbeconsidered
asacaseofdisallowanceofAMPexpensesu/s37(1)/40A(2).s.37(1)/40A(2)&s.92operatein
differentfields;
(vii) In principle, it is necessary that properly comparable cases should be chosen before
making comparison of the AMP expenses incurred by them. However, the argument that only
suchcomparablecasesshouldbechosenasareusingtheforeignbrandisnotacceptable.The
correct way to make a meaningful comparison is to choose comparable domestic cases not
using any foreign brand. Also, several factors have to be considered for determining the
cost/valueoftheinternationaltransactionofbrand/logopromotionthroughAMPexpenses(14
illustrative issues set out). On facts, the TPO restricted the comparable cases to only two
without discussing as to how other cases cited by the assessee were not comparable. Also, a
bald comparison with the ratio of AMP expenses to sales of the comparable cases without
givingeffecttotherelevantfactorscannotproducecorrectresult(matterremanded);
(viii) ThereisabasicfallacyintheassesseescontentionthatiftheTNMMisadoptedandthe
net profit is at ALP, there is no scope for making an adjustment for AMP expenses. TNMM is
applied only on a transactional level and not on entity level though it can be correctly applied
on entity level if all the international transactions are of sale by the assessee to its foreign AE
andthereisnoothertransactionofsaletoanyoutsiderandalsothereisnootherinternational
transaction. Where there are unrelated international transactions, it is wrong to apply TNMM
at an entity level. Further, even assuming that in applying the TNMM on entity level for the
transactionofimportofrawmaterialtheoverallnetprofitisbetterthanothercomparables,an
adjustmentcanstillbemadebysubjectingtheAMPexpensestotheTPprovisions.Thereisno
baronthepoweroftheTPOinprocessingallinternationaltransactionsundertheTPprovisions
even when the overall net profit earned by the assessee is better than others. Earning an
overallhigherprofitrateincomparisonwithothercomparablecasescannotbeconsideredasa
licence to the assessee to record other expenses in international transactions without
considering the benefit, service or facility out of such expenses at arms length. All the
transactionsaretobeseparatelyviewed.Also,thecontentionfailsifanyoftheothermethods
(CUPetc.)areadoptedinsteadofTNMM;
(ix) Maruti Suzuki 328 ITR 210 (Del) lays down the law that (a) brand promotion expenses
areaninternationaltransaction,(b)AMPexpensesincurredbyadomesticentitywhichisan
AE of a foreign entity are required to be compensated by the foreign entity in respect of the
brandbuildingadvantageobtainedbyit&(c)thefactorsrequiredtobeconsideredbytheTPO.
This verdict has not be overruled by the Supreme Court except to the extent those directions
weregiventotheTPOtoproceedinaparticularmanner.Theverdicthasalsonotmergedinto
thatoftheSupremeCourtbecausetheprinciplesoflawlaiddownbytheHighCourthavenot
at all been considered and decided by the Supreme Court. Consequently, the law laid down
thereincontinuestohavebindingforce.
PerHariOmMaratha,JM(dissenting):
(i) Before making any transfer pricing adjustments, it is a precondition that there must
exist an international transaction between the assessee and its foreign AE. The Department
has proceeded on a presumption that because the AMP expenses are supposedly higher than
that incurred by other entities, there is an international transaction discernible and a part of
theseexpenseshavetobetreatedtowardsbuildingoftheLGBrandownedbytheforeignAE.It
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is not permissible to proceed on such presumption in the absence of a written agreement or
evidencetosuggestanyoralagreementbetweentheparties;
(ii) Further, the assessee had not paid any brandroyalty to the foreign AE though it got
the benefit of the brand and earned revenue there from which has been taxed. The AMP
expenseshavebeenpaidtoanunrelatedentityinIndiawhichhasinturnpaidtaxthereon.As
there is no shifting of income to a different jurisdiction, neither Chapter X nor the bright line
methodhasanyapplication;
(iii) Also, the concept of commercial ownership of a brand is a reality in modern global
businessrealmanditisasgoodasalegalownershipinsofarasitseffectsonsaleofproductsin
India are concerned. Any advertisement which is productcentric and even entirely brand
centricwillonlyenhancethesalesoftheproductsofthatbrandinIndia.Innowayisthebrand
ownerbenefited.Consequently,theAMPexpensesarenotacaseofbrandbuilding/promotion
and no covert transaction between the Indian entity and its foreign AE can be presumed or
inferred. The Revenue has no power to recharacterize the AMP expenditure as routine and
nonroutineexpenditure;
(iv) MarutiSuziki India Ltd v. Add. CIT /Transfer Pricing Officer (2010) 328 ITR 210 (Del)
cannot be regarded as a binding precedent after the verdict of the Supreme Court in Maruti
SuzukiIndiaLtd.vAdd.CIT(2011)335ITR121(SC).Thefactthatareferencewasmadetothe
SpecialBenchitselfshowsthatbecauseacoveredissuecannotbereferredtoaSpecialBench.
(A.Y.20072008)
L.G. Electronics India Pvt. Ltd v.A CIT (2013)140 ITD 41/ 22 ITR 1/83 DTR 1/152 TTJ 273(SB)
(Delhi)(Trib.)
HaierTelecomP.Ltd(Intervenor)(2013)22ITR1(SB)(Delhi)(Trib)
S.92C:Avoidance of tax Transfer pricing Computation of Arms Length Price Sale Price
realized from AE much higher than ALP fixed by TPO No recommendation by TPO for
adjustmentAOisnotrequiredtomakeanyadjustment.(S.10B(7),80IA(10)
The Assessee is engaged in sale and export of pasteurized crab meat. The Assessee enteredin
tointernational transactions with its associated enterpriseand showed sale price at Rs 24
Crores.TPOonreferencemadebytheAssessingOfficer,fixedarmslengthpriceofgoodsatRs
18Crores.AssessingOfficeropinedthatreceiptsoftheassesseefromsalestoAEwereinexcess
ofarmslengthpriceandsuchexcesswasnothingbutincomefromothersources.TheAssessing
Officer relying on provisions of section 10B(7) read withsection 80IA (8) and 80(IA) (10) added
excessive receipts to income of assessee. Onappeal Commissioner (Appeals) deleted the
addition. On appeal by revenue, the Tribunal held that, where sale price realised from AE was
muchhigherthanALPfixedbyTPOandtherewasnorecommendationbyTPOformakingany
adjustment, Assessing Officer was not at all required to make any adjustment in ALP.
Accordinglytheappealofrevenuewasdismissed.(A.Y.200708)
ACITv.HandyWaterbaseIndia(P.)Ltd.(2013)140ITD112(Chennai)(Trib.)
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Assessee,engagedinautocomponentsmanufacturingandsale,hadinternationaltransactions
with four Associated Enterprises (AEs). International transactions comprised of import of raw
materials,importofmachineryandpaymentforroyaltyandtechnicalassistance.TheAssessing
officerdividedtotaloperatingcostbetweenmaterialcostrelatabletoAEsandcostrelatableto
nonAEs, which included both material cost as well as other costs. Thus, Assessing officer
deducted from operating cost, only material cost relatable to purchases from AEs and not
operatingcostattributabletosuchmaterialcost.Itwasheldthatifalongwithmaterialcostpaid
toAEs,operationalcostattributabletosuchcostwasalsoconsidered,thenamountconsidered
byTPOasALPofAEpurchases,wouldhavegoneupsignificantly,andhenceworkoutofALPof
purchasesfromnonAEshadbeenerroneouslydone.Matterremandedback(A.Y.200708)
SLLumaxLtd.v.ACIT(2013)140ITD158(Chennai)(Trib.)
S.92C:AvoidanceoftaxTransferpricingComputationofALPSimilartransactionswithAE
for subsequent years accepted by TPO without any ALP adjustment TP analysis be
consideredasALP.
Where similar transactions with associated enterprises for subsequent years have been
accepted by TPO without any ALP adjustment, he should adopt TP analysis conducted by
assessee for relevant assessment year also to be at ALP. Revenue could not be permitted to
take a different approachin the relevant assessment year. Matter Remanded back. (A.Y. 2006
07)
LenovoIndiaP.Ltd.v.ACIT(2013)140ITD127(Bang.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceSecretinformationnotbeused
againsttheassesseewithoutgivinganopportunity.Matterremanded.(S.133(6))
Information relied upon by Transfer Pricing Officerisnot available in public domain. Secret
information not to be used against the assessee. No uniformity in rejection of assessees
comparables and selection of comparables by Transfer Pricing Officer. Proper and appropriate
functions, assets and risk analysis required to be done. Transfer Pricing Officer and Dispute
Resolution Panel to deal with assessees objections and discuss them in order. Matter
remanded.(A.Y.20062007)
Wills Processing Services (India) P. Ltd. v. Dy. CIT [2013] 21 ITR 1/151 TTJ 555/57 SOT
34(URO)(Mum.)(Trib.)
S.92C:Avoidance of tax Transfer pricing: Turnover filter must be applied to exclude giant
companiesfromcomparison.
The assessee, a provider of software development services, claimed that in determining the
ALP under TNMM, Infosys Technologies & Wipro were not comparable entities given their
extremelargeturnoverincomparisontothatoftheassessee.Toopposethis,theDepartment
reliedonCapgeminiIndia(ITATMum)whereitwasheldthattheconceptofeconomyofscale
was not applicable to service oriented companies and that the turnover filter could not be
appliedtoexcludecompanieswithanextremelylargeturnover.HELDbytheTribunal:
Though in Capgemini it was held that the concept of economy of scale is relevant only for
manufacturing concerns, which have high fixed assets, and not for service concerns and that
the turnover filter cannot be applied to exclude companies with an extremely large turnover
fromcomparison,acontraryviewhasbeentakeninDy.CITv.DeloitteConsultingIndia(P)Ltd.
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(2012) 145 TTJ 589 (Hyd) that giant companies like Wipro are not at all comparable with
smaller pygmy companies. Consequently, giant companies line Wipro and Infosys cannot be
takenascomparablesastheirturnoverismultiplenumbersoftimeshighercomparedtothatof
theassesseeandtheTPOerredinconsideringtheirPLItoarriveatthearithmeticmean.(A.Y.
20082009)
PatniTelecomSolutionsPvt.Ltd.v.CIT(Hyd)(Trib.).itatonline.org
S.92C:Avoidance of taxTransfer pricingBusiness advances Even business advances have to
bebenchmarkedonLiborALP.
The assessee, an Indian company, gave loans of Rs. 15.65 crores to its AEs in USA, Singapore
and Bahrain. It claimed that the said loans were working capital advances given for
commercial consideration to secure business and that no interest was recoverable on it. The
TPO applied the CUP method and determined the ALP of the advances at LIBOR plus 3% mark
up.TheDRPheldthatonlyinboundloans(ECBs)takenbytheIndianentitiesfromoutsideIndia
could be benchmarked with LIBOR and that outbound loans had to be benchmarked on the
interestrateprevailinginIndiaoncorporatebonds.Ittreatedtheadvanceasanunratedbond
having very high risk and enhanced the assessment by directing the TPO to adopt 14% as the
ALPrate.Onappealbytheassessee,HELDreversingtheDRP:
The assessees argument that the noncharging of interest on the working capital advances to
AEs from whom the assessee was getting good business was justified by commercial
considerations and thatno transferpricing adjustment is warranted isnot acceptable because
theexistenceornonexistenceofcommercialconsiderationbetweentheassesseeandtheAEs
isnotarequiredconditionforapplicabilityoftheTPregulationsFurther,theadvancewasnot
thecreditperiodextendedtotheAEsinrespectofbusinesstransactionsbutwasatransaction
of advancing loans to the AEs which falls under the ambit of international transaction u/s
92B.Inprinciple,theDRPisjustifiedinitsviewthattheALPshouldbedeterminedonthebasis
of the interest rate that would have been earned by the assessee by advancing loans to an
unrelatedthirdparty(inIndia)suchasaFixedDepositwiththeBank.However,sinceLIBORhas
been accepted by the Tribunal in other cases, the ALP should be determined on the basis of
LIBOR + 2% (Siva Industries & Holding Ltd.v. ACIT (2011) 59 DTR 182 (Che), Dy. CIT Tech
Mahindra Ltd. (2011) 46 SOT 141 (Mum) &Tata Autocomp Systems 73 DTR 220 (Mum)
referred).(A.Y.200708)
AurionproSolutionsLtdv.ACIT(Mum).(Trib.)www.itatonline.org
S.92C:Avoidance of taxTransfer pricing Arms length priceBenefit of tolerance margin
available only when variation between arms length price determined under section 92C(1)
and price at which transaction actually undertaken with in specified marginScope of +/ 5%
toleranceadjustment toALPexplained.(AsamendedbyFinanceAct, 2012w.r. e.f.April 1,
2002)(S.92C(2)
The Special Bench was constituted to consider whether prior to the insertion of the second
provisotos.92C(2),thebenefitof5%tolerancemarginasprescribedunderprovisotos.92C(2)
for the purposes of determining the arms length price of an international transaction is
allowableasastandarddeductioninallcases,orisallowableonlyifthedifferenceislessthan
5%. In the meanwhile the second proviso to s. 92C(2) was amended by the Finance Act, 2012
withretrospectiveeffectfrom1.4.2002.Theassesseeclaimed,relyingonPiagioVehicleP.Ltd.
vs.DCITthatevenaftertheretrospectiveamendmentbytheFinanceAct,2012,itwasentitled
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to the benefit of adjustment of +/ 5% variation while computing the ALP. It was also argued
thattheamendmentwasunconstitutional.HELDbytheSpecialBench:
Therewasacontroversyonwhether+/5%toleranceadjustmentwasastandarddeductionor
not. After the retrospective amendment to the second proviso to s. 92C by the Finance Act,
2012 with retrospective effect from 1.4.2002, it is evident that if the variation between the
arms length price and the price at which international transaction was actually undertaken
does not exceed the specified percentage, then only the price at which the international
transaction has actually been undertaken shall be deemed to be arms length price. Thus, the
benefit of tolerance margin would be available only if the variation is within the tolerance
margin. Once the variation exceeded the tolerance margin, then there would be no benefit
evenuptotolerancemargin.Then,theALPasworkedoutunders.92C(1)shallbetakenasALP
without any benefit of tolerance margin. The view taken in Piagio Vehicle was without
considering the amendment and is per incuriam and not good law. The challenge to the
constitutionalvalidityoftheretrospectiveamendmentcannotbemadebeforetheTribunalas
itisacreationoftheActandnotaconstitutionalauthority.(A.Y.200607)
IHGITServices(India)Pvt.Ltd.v.ITO(2013)23ITR608/86DTR257/154TTJ137(SB)(Delhi(Delhi)
(Trib.)
S.92C:Avoidance of taxTransfer pricing: Foreign AE cannot be the tested party. TP additions
canexceedoverallgroupprofits.
The Tribunal had to consider the following important transfer pricing issues: (i) whether the
foreignAEcanbetakenasthetestedparty&ifthesalepricereceivedbytheforeignAEsfrom
theservicesultimatelysoldtocustomersisequaltothatchargedbytheassesseefromitsAEs,
it would show that the international transaction between the assessee and the AEs is at ALP?
(ii) whether the transfer pricing additions can result in the overall profit of the group of AEs
being breached? & (iii) whether if the assessee has consistently followed a method for
determination of the ALP and the same has been accepted by the TPO in the past, he cannot
rejectthatmethodforthecurrentyear?HELDbytheTribunal:
(i) The argument that the foreign AE should be selected as the tested party and the profit
earnedbytheforeignAEfromoutsidecomparablesshouldbecomparedwiththepricecharged
by the assessee from the AE to determine whether they are at ALP is not acceptable because
under the scheme of s. 92C, the profit actually realized by the Indian assessee from the
transaction with its foreign AE has to be compared with that of the comparables. There is no
questionofsubstitutingtheprofitrealizedbytheIndianenterprisefromitsforeignAEwiththe
profit realized by the foreign AE from the ultimate customers for the purposes of determining
theALPoftheinternationaltransactionoftheIndianenterprisewithitsforeignAE.Thescope
ofTPadjustmentundertheIndiantaxationlawislimitedtotransactionbetweentheassessee
and its foreign AE. The contention that the profit earned by the foreign AE should be
substitutedfortheprofitofthecomparablesispatentlyunacceptable.Thefactthatthismaybe
permissibleundertheUSandUKtransferpricingregulationsisirrelevant;
(ii) The contention of the assessee that the authorities cannot go beyond the overall profit of
thegroupofAEsindeterminingtheALPoftheinternationaltransactionisalsonotacceptable
becauseitwillconstituteanewmethod/yardstickfordeterminingtheALP.Thetransferpricing
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adjustments made in India may result in the overall profit earned by all the AEs taken as one
unitbeingbreached;
(iii) The contention that as the assessee consistently followed the same method for
determinationoftheALPanditwasacceptedbytheTPOinthepast,hecannottakeadifferent
view is not acceptable. A delicate balance needs to be maintained between the principle of
consistencyandtheruleofresjudicata.ThereisnoestoppelagainsttheprovisionsoftheAct.
As the method employed by the assessee for determining the ALP is contrary to the statutory
provisions,theinadvertentacceptanceofthewrongmethodbytheTPOinanearlieryeardoes
not grant a license to the assessee to continue calculating the ALP in the grossly erroneous
mannerinperpetuity.Itneedstobediscontinuedforthwith.(A.Y.200607)
OnwardTechnologiesLtdv.Dy.CIT(Mum.)(Trib.).www.itatonline.org
S.92C:Avoidance of taxTransfer Pricing: Important principles on turnover filter &
comparisonexplained.
TheTribunalhadtoconsiderthefollowingimportanttransferpricingissues:(i)whetheraone
time and extraordinaryitem ofexpenditure (ESOP cost) debited to the assesseesP&L A/c has
to be excluded while comparing the margins, (ii) whether for the purpose of comparison of
margins,theconsolidatedresultsofcomparableshavingprofitfromdifferentoverseasmarkets
can be considered? (iii) whether extreme profit and loss cases should be excluded or in case
extreme profit cases are included, the case of losses should also be included? (iv) whether a
turnoverfiltercanbeadoptedtoexcludecompanieswithextremelyhighturnover?(v)whether
theassesseecanseektoexcludeitsowncomparables?(vi)whetheranadjustmentforworking
capitalispermissible?(vii)whetheriftheassesseecanshowthatbecausetheAEisinahightax
jurisdiction and that there is no transfer of profit to a low tax jurisdiction, a transfer pricing
adjustmentneednotbemade?HELDbytheTribunal:
(i) A comparison of margin between the assessee and the comparables has to be made under
identicalconditions.Asthecomparableshadnotclaimedanyextraordinaryitemofexpenditure
onaccountofESOPcost,forthepurposeofmakingpropercomparisonofthemargin,onetime
ESOP cost incurred by the assessee has to be excluded. There is nothing in the Rules that
prohibits adjustment in the margin of the assessee to remove impact of any extraordinary
factors (Skoda Auto India(P) Ltd. v. ACIT (2009) 30 SOT 319 (Pune), Demag Cranes &
Components (India) (P) Ltd. (2012) 49 SOT 610 (Pune), Transwitch, Toyota Kirloskar Motors
followed);
(ii) Under Rule 10B(2) (d), the comparability of transactions has to be considered after taking
into account the prevailing market conditions including geographical locations, size of market
and cost of capital and labour etc. Therefore, consolidated results which include profit from
differentoverseasjurisdictionshavingdifferentgeographicalandmarketingconditionswillnot
be comparable. Only standalone results should be adopted for the purpose of comparison of
margins(AmericanExpressfollowed);
(iii)Comparablecasescannotberejectedonlyonthegroundofextremelyhighprofitorloss.In
casethecompaniessatisfythecomparabilitycriteria,anddonotinvolveanyabnormalbusiness
conditions, the same cannot be rejected only on the ground of loss or high profit. The OECD
guidelines also provide that loss making uncontrolled transactions should be further
investigatedanditshouldberejectedonlywhenthelossdoesnotreflectthenormalbusiness
conditions;
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(iva) In certain Tribunal decisions, various reasons have been given for applying the turnover
filter for comparison of margins such as economy of scale, greater bargaining power, more
skilledemployeesandhigherrisktakingcapabilitiesincasesofhighturnovercompanies,which
increase the margins with rise in turnover. However, in these decisions, no detailed
examination has been made as to how these factors increase the profitability with rising
turnover. The concept of economy of scale is relevant to manufacturing concerns, which have
highfixedassetsand,therefore,withtheriseinvolume,costperunitoftheproductdecreases,
whichisthereasonofincreaseinmarginasscaleofoperationsgoesupbecausewiththesame
fixed cost there is more output when the turnover is high. The same is not true in case of
service companies, which do not require high fixed assets. In these cases employees are the
main assets, who in the case of the assessee are software engineers, who are recruited from
project to project depending upon the requirement. The revenue in these cases is directly
relatedtomanpowerutilized.Withriseinvolumecostgoesupproportionately.Therefore,the
concept of economy of scale cannot be applied to service oriented companies. On facts, it is
shownbythedepartmentthatinthecaseofthecomparablesselectedbytheassessee,thereis
no linear relationship between margin and turnover and that that the margin has come down
with the rise in turnover in some cases. Such detailed study was not available before the
variousBenchesoftheTribunalwhichhaveappliedtheturnoverfilterandconsequentlythose
decisionscannotbefollowed;
(ivb) Under Rule 10B(2), comparability of international transactions with uncontrolled
transactions has to be judged with reference to functions performed,asset employed and risk
assumed. The functions performed by all comparable companies are same as it is because of
same functions they have been selected by the assessee as comparables. The asset employed
hastwodimensionsi.e.quantityandquality.Moreemployeeswouldmeanmoreturnover,but
there is no linear relationship between margin and turnover. As regards quality of employees,
this will depend upon the nature of projects and since the comparables are operating in the
samefieldhavingsimilarnatureofwork,andemployeecostbeingmoreincaseofmoreskilled
manpower, it will not have much impact on the margins. As for the bargaining power, the
assessee is part of a multinational group and well established in the field and, therefore, it
cannot be accepted that it has less bargaining power than any of the Indian Companies,
however big it may be. Therefore, it would not be appropriate to apply turnover filter for the
purpose of comparison of margins. However, for the purpose of comparison, the turnover
wouldberelevantonlyfromthelimitedpurposetoensurethatthecomparableselectedisan
established player capable of executing all types of work relating to software development as
the assessee is also an established company in the field (Genesis Integrating Systemnot
followed);
(v)TheassesseehadselectedInfosysandWiproascomparablesonthebasisofitsowntransfer
pricing study after being fully aware of its work profile. The assessee raised no plea either
before the TPO or DRP for excluding these comparables though it had added some more
comparables. The assessee, therefore, cannot raise any grievance before the Tribunal to
exclude these comparables, without giving any cogent and convincing reason. The reasons
given by the assessee (turnover filter) are not found convincing and so it cannot be permitted
toexcludeInfosysandWipro(KansaiNerolacPaintfollowed)
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(vi) Working capital adjustments are required to be made because these do impact the
profitability of the company. Rule 10B(2) (d) also provides that the comparability has to be
judgedwithrespecttovariousfactorsincludingthemarketconditions,geographicalconditions,
costoflabourandcapitalinthemarket.Accountsreceivable/payableeffectthecostofworking
capital.Acompanywhichhasasubstantialamountblockedwiththedebtorsforalongperiod
cannotbefullycomparabletothecasewhichisabletorecoverthedebtpromptly.Theaverage
ofopeningandclosingbalanceintheaccountreceivable/payablefortherelevantyearmaybe
adoptedwhichmaybroadlygivetherepresentativelevelofworkingcapitalovertheyear.Even
if there is some difference with respect to the representative level, it will not affect the
comparability as the same method will be applied to all cases. Working capital adjustment
cannotbedeniedtotheassesseeonlyonthegroundthattheassesseehadnotmadeanyclaim
in the TP study if it is possible to make such adjustment. Working capital adjustment will
improvethecomparability.
(vii)Theargumentthatnoadjustmentneedbemadebecausetheparentcompanyissituatedin
USwheretaxrateishighandthattherewasnoreasonfortheassesseetotransferprofittothe
parentcompanyisnotacceptable.Thearmslengthpriceofaninternationaltransactionhasto
be calculated with respect to similar transaction with an unrelated party as per the method
prescribed and the revenue is not required to prove tax avoidance due to transfer of profit to
lower tax jurisdiction. Arguments such as that the parent company was incurring loss or had
shown lower margin are not relevant (Aztek Software & Technology Service Ltd. v. A CIT
(2007)107ITD141(SB)&24/7Customers.comfollowed)(A.Y.200708)
CapgeminiIndiaPrivateLimitedv.ACIT(Mum)(Trib),www.itatonline.org
S.92C:AvoidanceoftaxTransferpricingArmslengthAdjustmentforexportCostofgoods
soldDeductionofrebate/discountreceived.
Export incentives cannot be deducted from cost of goods sold in the transfer pricing analysis.
Assessee entitled to deduct rebate received upon purchase of goods from the value of goods
sold in transfer pricing analysis; issue of verification of netting off of rebate from cost of
purchasewasremittedtotheAO.(A.Y.200607)
GoodyearIndiaLtd.v.Dy.CIT(2013)143ITD35/152TTJ458/83DTR233(Delhi)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceSelectionofcomparables.
Assessee cannot be said to have charged any commission from E, a client, as it had entered
into fixed fees arrangement with that company and, therefore, E could not be considered as
comparable, more so it was earning commission at 7% whereas, as per the industry policy
mediaagenciesearnedcommissionof2.5%.(A.Y.200203)
LintasIndia(P)Ltd.v.ACIT(2013)83DTR263(Mum.(Trib.)
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S.92C:AvoidanceoftaxTransferpricingArmslengthpriceCUP.TNMM.(Rule.10B(1)(a),
10B(1)(e)&10B(2)(d))
Intheabsenceofavailabilityofexactdatatocomparetheprocessofsimilarproductssupplied
to AEs and nonAEs, CUP method cannot be applied as the most appropriate method for
transfer pricing exercise; assessee having manufactured and exported wide variety of
bathrobestoitsAEsaswellasnonAEscannotbetakenasCUPand,therefore,AOwasjustified
inapplyingTNMMforbenchmarkingandnotCUPmethod.(A.Y.200506)
Welspun Zuchhi Textiles Ltd. v. ACIT (2013) 83 DTR 293/23 ITR 53 /56 SOT 444/153 TTJ
153(Mum.(Trib.)
S.92C:Avoidance of taxTransfer pricing Computation of arms length price Inclusion of
DEPBbenefitforcomputationofprofitmargin(Rule.10B(1)(e))
Once the DEPB benefit is taken into account in the comparable cases while working out their
profitmarginDEPBbenefitreceivedbytheassesseeduringtheyearunderconsiderationshould
alsobeconsideredaspartoftheturnoveroftheassesseeforworkingouttheprofitmarginto
makethecomparisonofliketolikeandsimilartosimilar.(A.Y.200506)
Welspun Zuchhi Textiles Ltd. v. ACIT (2013) 83 DTR 293/23 ITR 53/56 SOT 444/153 TTJ
153(Mum.)(Trib.)
S.92CA:Avoidance of taxTransfer pricingArm's length pricePowersReference to Transfer
Pricing Officer validAssessing Officer need not consider objections of assesseeThe Transfer
Pricing Officeris not called upon to and is not competent to decide the issue which is sole
jurisdictionoftheAssessingOfficer.(S.144C)
The assessee is engaged in the business of purchasing rough diamonds, manufacturing of
polished diamonds and sale/export of such polished diamonds. During the assessment
proceedings for the assessment year 200809, the Assessing Officer issued a notice under
section142statingthatonaperusaloftheassessmentrecordsfortheassessmentyear2007
08, it was observed that the assessee had filed an audit report in the prescribed form as
required under section 92E of the Act as there were international transactions with an
associatedconcern,BG.Theassessmentproceedingsfortheassessmentyear200708werein
progress. The audit report showed that during the previous year relevant to the assessment
year 200809, the assessee had international transactions with the associated concern
amounting to Rs. 78.63 crores. However, the record did not show that the assessee had filed
theauditreportundersection92EoftheActintheprescribedform.Therewascorrespondence
between the assessee and the Assessing Officer. The Assessing Officer referred the matter to
theTransferPricingOfficer.OnawritpetitionchallengingthereferencetotheTransferPricing
Officer and also the notice from the Transfer Pricing Officer,the Court dismissing the petition,
held that,admittedly, between the assessee and the associated enterprise there was an
international transaction in the preceding year and the assessee had admittedly filed a report
under section 92E of the Act. In the current year also the assessee had entered into
transactions worth Rs. 78.63 crores. In the affidavitinreply it was further stated that the
assessee had made substantial purchases from the associated enterprise. The partners of the
assessee were three brothers and their wives/sons together holding the entire partnership
stake.Thefourthbrotheralongwithhiswifeandhissoncontrolledtheentireshareholdingof
theassociatedenterprise,thefourthbrotherandhissonbeingdirectorsoftheassessee.Itwas
clearthatboththeentitieswerebeingcontrolledbythesamefamilyoffourbrothersandtheir
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close relatives. It was clear that the associated concern was closely related with the assessee
andfellwithintheparametersofsection92A(2)(j),(k)and(m).Therefore,itwasnotnecessary
or appropriate to judge, in the present petition, whether there was any international
transaction between the assessee and the associated enterprise during the previous year
relevant to the assessment year 200809 and such issue must be left to be judged by the
competentauthoritywhileframingthefinalassessment.(A.Y.20082009)
VeerGemsv.ACIT(2013)351ITR35(Guj.)(HC)
(ii) That there is nothing in the statute to indicate that subsection (2A) was introduced in
section92CAinamannersoastooperatewithretrospectiveeffect.Subsection(2A)expands
the jurisdiction of the Transfer Pricing Officer by empowering him to determine the arm's
lengthpriceofanyinternationaltransactionotherthananinternationaltransactionreferredto
himbytheAssessingOfficerundersubsection(1)ofsection92CA.Thisisclearlyanexpansion
ofthejurisdictionoftheTransferPricingOfficerand,therefore,subsection(2A)canonlyhave
prospective effect from June 1, 2011, and would have no application to the assessee's case
whichwasinrespectoftheassessmentyear200607.OrderofTribunalisaffirmed.(A.Y.2006
2007)
CITv.AmadeusIndiaPvt.Ltd.(2013)351ITR92(Delhi)(HC)
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Theassesseecompanywasmanufacturingfuelinjectionequipmentusedinvehicles.Foritstransactions
with associated enterprises, it arrived at the arm's length price, adopting the transactional net margin
method. The Transfer Pricing Officer rejected the method adopted by the assessee and adopted the
comparable uncontrolled price method. The Transfer Pricing Officer concluded that the assessee had
paid an excess amount for imports to the associated enterprises when compared to the price at which
nonassociated enterprises supplied such items to it and recommended upward adjustment of
internationaltransactionpricesasstipulatedinsection92C.TheTransferPricingOfficerlaterrevisedthe
sum, Assessment was accordingly completed. The Dispute Resolution Panel confirmed the proposed
addition.OnappealtotheTribunal:
Held, that if transaction to transaction or item to item comparison is possible, that should always be
preferred, if proper adjustment can be carried out to account for the differences that could materially
affectthepricesintheopenmarketoftherelateditems.Theassesseehadpreferredthe transactional
netmarginmethod.Butitwasamatteroffactthatthereweresubstantialrelatedpartytransactionsin
twoofthecomparablesselectedbytheassessee.TheOECDguidelinesdonotsaythatevenwherethere
weresubstantialdifferencesbetweentheitemsmanufactured,acandidatefortransactionalnetmargin
method could be selected. Therefore, the Transfer Pricing Officer was justified in rejecting the
transactional net margin method having found that the comparable entities selected by the assessee
had substantial related party transactions and the difference in functionality eroded the comparability
materially.Asagainstthis,theassesseeitselfhadadmittedthatithadsimilaritemsofimportfromboth
associated enterprises and nonassociated enterprises. The adoption of the comparable uncontrolled
price method was appropriate especially when such items could be identified. There was substance in
the argument of the assessee that items imported from associated enterprises required further
processing, since the processing required at least in the case of four items had been identified and
described. The assessee was unable to prove the actual effect of such processing on the prices, by
producingevidenceinsupport.Similarly,theclaimoftheassesseethatthecomponentsfromassociated
enterprisescouldbeimportedatlowernumberswhencomparedtothatofnonassociatedenterprises
and this automatically led to more items being ordered from nonassociated enterprises resulting in
higher inventory carrying cost, also was a factor that could materially affect the comparability of the
prices. No doubt, rule 10B(1)(a)(ii) requires prices to be adjusted for differences. The Transfer Pricing
Officerhadtoassessthepricesthatcouldbeadoptedunderthecomparableuncontrolledpricemethod
forcomparisonaftercarryingouttheadjustmentrequired.(A.Y.20062007)
DelphiTVSDieselSystemsLtd.v.ACIT(2013)22ITR478(Chennai)(Trib.)
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methodtoarriveatthearm'slengthprice.Ithadselectedalistof6comparablecompaniesand
had determined arm's length price on the basisof the ratioof operating profit to total cost of
the assesseecompany worked out at 18.04 per cent., the average profit level indicator of the
six companies. The Transfer Pricing Officer approved the transactional net margin method
adopted by the assesseecompany and agreed with the assesseecompany's adoption of the
ratio of operating profit to total cost as the profit level indicator. The Transfer Pricing Officer,
however, made his list of comparable companies and worked out the ratio of operating profit
to total cost at 27.52 per cent. This revised profit level indicator worked out by the Transfer
Pricing Officer brought out an operating profit of Rs. 8.73 crores. But the operating profit
returnedbytheassesseewasRs.4.15crores.TheAssessingOfficermadeanadditionofRs.4.58
crores, the differential amount, to the income of the assessee towards arm's length price
adjustment. On appeal, the Commissioner (Appeals) deleted the said arm's length price
additionofRs.4.58croresanddirectedtheAssessingOfficertoallowexemptionundersection
10A of the Act. The Commissioner (Appeals) also confirmed the disallowance of dividend tax
delay charges, interest for delay in remitting tax deducted at source, expenses incurred for
delay in UTI dividend payments, and directed the Assessing Officer to allow the claim of
expenses towards development of software as allowable business expenditure. On appeals by
theDepartmentandcrossobjectionsbytheassessee,theTribunalheldthat(i)thatthelistof
comparablecompaniesrelieduponbytheassesseecompanyhadbeenrejectedbytheTransfer
PricingOfficerwithoutstatinganyreason,eventhoughtheTransferPricingOfficerhad,byand
large, agreed with the general premises on which the assessee had computed its arm's length
price. The Transfer Pricing Officer had not made any finding that the price charged or paid in
thetransactionsenteredintowiththeassociatedenterprisewasnotinaccordancewithrules.
TheTransferPricingOfficerhadnocasethattheassesseecompanyhadnotmaintainedproper
information and documentation relating to the international transactions. There was also no
dispute on the information and data used in the computation of arm's length price, which
relatedtothefinancialyear200203.Thearbitraryselectionofcomparableshadinfactinflated
the operating profit in the computation made by the Transfer Pricing Officer. There was no
factual basis for the addition of the differential amount of Rs. 4.58 crores worked out by the
Transfer Pricing Officer and adopted by the Assessing Officer. Moreover, for the immediately
succeeding assessment year 200405, the Commissioner (Appeals) had held in the assessee's
own case that the Transfer Pricing Officer should not have rejected the arm's length price
disclosedbytheassesseeandinthesubsequentassessmentyear200506,theTransferPricing
Officerhimselfhadacceptedthearm'slengthpricereturnedbytheassesseecompany.Forall
these assessment years, the factual matrix of the case remained exactly the same. Therefore,
theCommissioner(Appeals)wasjustifiedindeletingthearm'slengthpriceadditionofRs.4.58
crores.(A.Y.:20032004,20042005)
ACITv.SRASystemsLtd.(2013)22ITR205(Chennai)(Trib.)
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applied CUP method.TPO merely compared data with that of a third party agent of holding
companywhichworkedforitearlierandmadeadjustmentinrespectofsocalledundercharged
container control fees and recovery of communication expenses. TPO had neither examined
comparables nor TNMM for benchmarking ALP in relation to international transactions.In
appeal Commissioner (Appeals) had not called for comment upon comparable short listed by
assessee. Tribunal held thatCUP method and data of erstwhile third party could not be
applied.However ,since there was no occasion to examine comparables and applicability of
TNMM, matter was to be restored back to file of TPO, who would require assessee to furnish
comparables into similar line of business and activities and examine same for benchmarking
ALP.(A.Y.200506)
Dy.CITv.CMACGMGlobalIndia(P.)Ltd.(2013)55SOT20/81DTR421(Mum.)(Trib.)
S.92CA:AvoidanceoftaxTransferpricingArm'slengthpriceCUPmethodMatterremanded.
Assessee had procured green coffee beans from coffee planters and traders and sold same to
one of its associated enterprises. It selected CUP method for determining arm's length price
and relied on monthly prices quoted by Coffee Board. TPO found that transfer pricing
documentsdidnotcontaindetailsastohowCUPmethodwasappliedandpricechargedtoAE
was less than price charged by Coffee Board. Accordingly, he worked out ALP and made
addition.The Tribunal held thatsince for earlier assessment year, Tribunal, on identical facts,
hadrestoredissuetoTPOforfreshconsideration,itwouldbeappropriatetoremandmatterto
TPO.Matterremanded.(A.Y.200708)
EcomGillCofeeTrading(P.)Ltd.v.Dy.CIT.(2013)55SOT23(URO)(Bang.)(Trib.)
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the comparable uncontrolled price method adopted by the assessee. He held that the
transactionalnetmarginmethodwastheappropriatemethod.Therefore,hemadeanupward
adjustment of Rs. 9.35 crores of the international transactions of the assessee. The
Commissioner (Appeals) considered that the Transfer Pricing Officer wrongly considered the
entitywise margin of one of the comparable companies for the purpose of benchmarking the
assesseesmarginunderthetransactionalnetmarginmethod.Thematterwasreferredtothe
Commissioner (TPOII). He agreed with the assessees contention and concluded that
consistency needed to be followed while calculating the margins of comparables of the
assessee.Consideringthis,theCommissioner(Appeals)deletedadditionmadebytheAssessing
Officer. On appealthe Tribunal held that(i) that once the Transfer Pricing Officer accepted and
adjusted the computations on the basis of which the Commissioner (Appeals) deleted the
additiontherewasnogroundtointerferewiththeorderoftheCommissioner(Appeals),which
wastobeupheld.(A.Y.20042005)
ACITv.UPSJetairExpressP.Ltd.(2013)21ITR82/57SOT239(Mum.)(Trib.)
S.94(7):AvoidanceoftaxAdventureinthenatureoftradeLossonunitsPurchaseofunitsof
mutualfundsandsalethereofafterrealizationofdividendatalossMatterremandedtogive
findinginthecourseofbusiness.(2(13))
Thecourtheldthatultimatelytheintentionandthecircumstancesalonehavetohaveabearing
on the question as to whether the transaction is only of investment or in the nature of trade.
Disallowanceofaclaimonthegroundthatthetransactionswerefortaxavoidanceorevasion,
couldbeconsideredonlyaftertheindepthinvestigationandproperrecordingandmarshaling
of all relevant facts, so as to establish the motive of tax avoidance. Matter remanded for
reconsideration.(A.Y.20012002)
CITv.AlluArvindBabu(2013)350ITR387/212Taxman260(Mad)(HC)
S.113:TaxBlockassessmentSearchandseizureSurcharge.
Surcharge, held, leviable at the rate of 15% on the block assessment made in respect of the
searchconductedon29
th
August1996(A.Y.199798),notwithstandingthefactthatprovisoto
s.113wasnotintheexistenceatthetimeofsearch.
CITv.D.D.GearsLtd.(2013)83DTR88(Delhi)(HC)
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S.113:TaxBlockassessmentSearchandseizureSurcharge.
Theamendmenttosection113cameintoeffectfromJune1,2002.Althoughthesearchwason
12th and 13th October, 2000 the levy of surcharge on the tax quantified on the assessee`s
undisclosedincomewastobeupheld.
ACITv.DwarakaPrasadMalpani(2013)21ITR719(Cochin)(Trib.)
S.115AD:CapitalgainsForeignInstitutionalInvestorsSecuritiesFIIssecuritiestransactions
profitsnotassessableasbusinessprofits.
Theassessee,aForeignInstitutionalInvestor(FII),sufferedalossofRs.41crore onaccount
of derivative transactions. The AO & CIT(A) relied on the AAR Ruling inRoyal Bank of
Canada(2010) 323 ITR 380 and held that as thesaid loss arose out speculative transactions, it
had to be treated as a business loss and could not be setoff against STCG. On appeal by the
assesseetotheTribunalHELDallowingtheappeal:
UnderthepolicyoftheCentralGovernmentandtheSEBI(FII)Regulations,1995aFIIcanonly
invest in securities and cannot do business in securities. S. 115AD also provides that all
income arising to a FII from securities, whether from their retention or from their transfer, is
taxable as a capital gain. This is also the view expressed in Press Note F. No. 5(13)SE/91FIV
dated 24.03.1994 issued by the Ministry of Finance. If the Revenue is permitted to make a
distinctionbetweenthesecuritiesheldbyaFIIbyclassifyingthemasacapitalassetorasstock
in trade, s. 115AD will become otiose. The result is that all income arising to a FII, including
fromdealingsinderivativeshastobeassessedascapitalgains.ThecontraryviewoftheAARin
Royal Bank of Canadacannot be followed (LG Asian Plus Ltdv. ADIT (International Taxation)
(2011)46SOT159followed)(A.Y.200708)
PlatinumInvestmentManagementLtd.v.DDIT(Mum.)(Trib.)www.itatonline.org.
S.115J:Company Book profit Revalued assets Assessing officer not justified in disallowing
depreciationonrevaluedfigurewhilecomputingbookprofitundersection115JoftheAct.
The Assessing Officer, while computing book profit under S. 115J, disallowed depreciation on
revaluedassets.TheCommissioner(Appeals)andtheTribunalheldthatintermsofclause(1),
readwithprovisotheretooftheExplanationtoS.115J,theassesseewasentitledtodeduction
oftheequalamountfromthebooksprofit.TheassesseereferredtoAS6'Accountingforfixed
assets' issued by the Institute of Chartered Accountants of India which provides for the
revaluation of fixed assets and the guidance note GN(A) 3 (issued 1982) on the treatment of
reservescreatedonrevaluationoffixedassets.ThisAS6wasapplicablebyvirtueofS.211(3)(c)
oftheCompaniesAct.OnappealHighcourtheldthattheTribunaldidnotcommitanyerrorin
lawinallowingthedepreciationontherevaluationreserve,whichisaprescribedandstatutory
methodofaccounting.(A.Y.199091)
CITv.RampurDistillery&ChemicalsCo.Ltd.(2013)214Taxman483/81DTR181/255CTR394
(All.)(HC)
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S.115J:CompanyBookprofitChangeinmethodofchargingdepreciationBookprofittobe
computedbyallowingdepreciationasperthechangedmethod.(S.32)
WheretheassesseehadchangedthemethodofaccountingfromStraightLineMethod(SLM)to
WrittenDownValue(WDV)method,bookprofithastobecomputedbyallowingdepreciation
asbethechangedmethod.
CITv.HindustanPipeUdyogLtd.(2013)81DTR175/214Taxman9(Mag.)(All.)(HC)
S.115JA:CompanyBookprofitMinimumAlternateTaxProvisionforbaddebts.
The assessee, a banking company, made provision for bad debts. The AO added the provision
forbaddebtstonetprofitofassesseewhilecomputingbookprofitundersection115JA.Held,
in view of amendment in clause (g) of Explanation to section 115JA(2) by Finance (No.2) Act,
2009, with retrospective effect from 141998, Assessing Officer was justified in making
addition of said provision to net profit of assessee while computing book profit under section
115JA.(A.Y.19992000)
DresdnerBankAGv.ACIT(2013)57SOT203(Mum.)(Trib.)
S.115JB:CompanyBookprofitWarrantyprovisionsDiminutioninvalueofasset.
Assessee claimed that provision made for warranty in respect of sale of medical consumable
devices and diagnostic equipment would be deducted for calculating book profit . Assessing
Officer added back the amount by applying the Explanation 1(i) to section 115JB (2). Tribunal
held that such provision could not be treated as a provision for diminution in value of asset.
CourtupheldtheorderTribunal.(A.Y.200001,200203,200405and200506)
CITv.BectonDickinsonIndia(P.)Ltd.(2013)214Taxman636(Delhi)(HC)
S.115JB:CompanyBookprofitComputationProvisionforgratuitynottobeadded.
Though the actual payment of gratuity might be made at a later point of time upon the
periodicalreleaseoftheemployeesfromservice,itwasaprovisionbeenmadeontheactuarial
basis,andcouldnotbestatedtobeanunascertainedliabilitysoastobeaddedbackinterms
ofclause(c)toExplanation1tosection115JBoftheIncometaxAct,1961.(A.Y.200304)
DCITv.InoxLeisureLtd(2013)351ITR314/213Taxman160/85DTR103(Guj.)(HC)
S.115JB:CompanyBookprofitComputationMatterremanded.[S.143(3)].
Assesseecompanyfiledreturnshowingtotalincomeasnil.However,ithadshownbookprofit
undersection115JB.AssessingOfficerrejectedaccountbooksofassesseeongroundthatitwas
unable to prove genuineness of transactions made with other parties. He treated said
transactions as unexplained and added relevant amount to total income/book profit of
assessee.He also examined assessee's claim of deduction under section 40(a)(ia) and after
rejectingclaimaddedrelevantamounttototalincome/bookprofitofassessee.Heinoperative
part of order ordered 'assessed under section 143(3).He also ordered 'computation as per
section 115JB was modified accordingly'. Commissioner (Appeals) considered each and every
component which had been considered by Assessing Officer and deleted above addition. He
held that Assessing Officer had added back aforesaid amount to book profit for purpose of
chargingtaxundersection115JBwithoutgivinganyreason.TribunalheldthatAssessingOfficer
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had not made impugned addition under provisions of section 143(3).It upheld deletion of
impugned addition by Commissioner (Appeals). It further restored matter to Assessing Officer
forrecomputingdemandundersection115JB.OnappealHighCourtheldthatmatterrequired
to be remanded back to Assessing Officer for fresh consideration obviously to decide whether
assessment was required to be made under section 115JB or under section 143(3).Matter
remanded.(A.Y.200506)
CITv.InternationalAutoLtd.(2013)214Taxman67(Mag.)/254CTR298(Jharkhand)(HC)
S.115JB:CompanyBookprofitBankProvisionActuarialvaluationCannotbeadded.
The Court held that provision is made on the basis of actuarial valuation it cannot besaid that
the provision for gratuity is not ascertained liability hence cannot be added back while
computingbookprofitundersection115JB.
DCITv.InoxLeisureLtd.(2013)213Taxman260(Guj.)(HC)
S.115JB:CompanyBookprofitExemptincomeDisallowanceofexpenditure.[S.14A]
Expenditure which is disallowed under section 14A and attained finality has to be added back
whilecomputingbookprofitundersection115JB.(A.Ys.200304to200607)
HindustanConstructionCo.Ltd.vDy.CIT(2013)140ITD642(Mum.)(Trib.)
AccordinglytheTribunalheldthatthattheinterestearnedbytheassesseefromitsheadoffice
oroverseasbrancheswaspartandparcelofthecreditsideoftheprofitandlossaccountofthe
assessee.Thisamountwasnotcoveredbyanyoftheclausesfrom(i)to(ix)oftheExplanation.
Thenetinterestearnedbytheassesseefromplacementoffundswiththeheadofficeorother
overseasbranchesamountingwasincludibleincomputingthe"bookprofit"forthepurposesof
section 115JA of the Act. Appeal of assessee was dismissed. Before the Tribunal for the first
timeonthebasisofJudgmentofTribunalinKrungThaiBankPCL(2012)49SOT70(Mum)(URO)
theassesseehasraisedtheissuestatingthattheassesseebeingforeignbankisnotrequiredto
draw its profit and loss account as per CompaniesAct and very applicability of provision of
section 115JAis not valid. As the issue was raised for the first time the matter was directed to
the Assessing Officer to decide accordance with law. (A.Y. 20002001) (19981999 to 2003
2004)
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267
SocieteGeneralev.Dy.DIT(IT)(2013)21ITR606/57SOT101(Mum.)(Trib.)
S.115JB:CompanyBookprofitMATUnabsorbeddepreciationNocarryforwardlossNot
eligible to claim deduction of brought forward depreciation while computing book profit
undersection115JB
Itwasheldthatintermsofclause(iii)ofExplanation1toS.115JB,whilecomputingbookprofit,
assessee is entitled to deduct amount of loss brought forward or unabsorbed depreciation
whicheverislessasperbooksofaccounts.Itwasthereforeheldthatwheretherewasnocarry
forward loss as per books of account, assessee was not eligible to claim deduction of brought
forwarddepreciationwhilecomputingbookprofitundersection115JB.(A.Y.200304)
Hotel & Allied Trades (P. ) Ltd. v. Dy.CIT (2013) 140 ITR 309/87 DTR 49/154 TTJ 503 (Cochin)
(Trib.)
S.115JB:CompanyBookProfitAdjustmentsu/s.115JB(2)explanation.
Assessing Officer cannot tinker with the accounts prepared under Companies Act and have
been certified by the authorities except making adjustment as provided in explanation to
section115JB(2).(A.Y.200405)
ForeverDiamonds(P)Ltd.v.Dy.CIT(2013)152TTJ682(Mum.)(Trib.)
S.115JB:CompanyBookprofitNonresidentcompaniesLiabletobookprofit.
Provisions of section 115JB is not confined to a domestic company but it applies to both
residentcompanyandanonresidentcompany.Infavourofrevenue.(AARno1098of2011dt
862012)
ZD,Inre(2013)212Taxman246(AAR)
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fullyandtherewasnorequirementtosubmitthe'validcertificate'inrespectofshipschartered
under'slotcharter'agreement,sinceincomeforfullcharteredshipswascomputedonbasisof
'net tonnage' shown in valid certificate and income from ships chartered under 'slot charter'
was computed on deemed tonnage. The Assessing Officer did not accept said submission and
denied the benefit of Chapter XIIG to slot charter income. On appeal, the Commissioner
(Appeals)upheldthedenial.OnsecondappealtheTribunalheldthatThebenefitofprovisions
ofChapterXIIGcanbeavailedonlybya'tonnagetaxcompany'(shippingcompany)inrespect
of the business of operating 'Qualifying ships'. 'Operation of Qualifying ships' is a mandatory
condition for availing the benefit of Chapter XIIG. Undoubtedly, the assessee opting to avail
the benefit of Chapter XIIG has to necessarily show that it has generated income from the
business of operation of 'Qualifying ships'. It is necessary to show that the ships chartered in
under'SlotCharter'arrangementarealso'Qualifyingships'byproducingthe'Validcertificate'.
The assessee heavily placed reliance on the provisions of section 115VG,'Deemed tonnage'
defined in section 115VA and 'Specific shipping trades' defined in section 115VI and also on
clause10ofFormNo.66tocontendthatthereisnonecessitytofurnishthe'Validcertificate'in
respect of ships chartered in under 'slot charter' arrangement. The net result of the said
contention is that the ship chartered in under 'slot charter' arrangement need not be a
'Qualifyingship'.(A.Y.200506&200809)
TransAsianShippingServices(P.)Ltd.v.Dy.CIT(2013)55SOT1(Cochin)(Trib.)
S.115VD:ShippingbusinessQualifyingshipOffshoreinstallationTonnagetaxscheme.
The assessee, being owner of ships/vessels, engaged in drilling operations, opted for tonnage
taxscheme.TheAssessingOfficerrejectedtheassessee'sclaimholdingthatvessel'D'wasnota
qualifying ship, but was an offshore installation. The court held, that offshore installations are
fixed for a specific purpose and after finishing purpose are dismantled and shifted to other
site.Since 'D' had been registered under Merchant Shipping Act, 1958, it was held to be a
qualifyingship.
CITv.JaggonInternationalLtd.(2013)214Taxman630(Delhi(HC)
S.119:InstructionsCBDTBindingnatureCircularcontrarytothedecisionofHighCourtsor
Supremecourtistobeignoredbyjudicialfunctions.
IfanexistingcircularisinconflictwiththelawofthelandlaiddownbytheHighCourtsorthe
Supreme Court, the Revenue authorities while acting quasijudicially, should ignore such
circularsindischargeoftheirquasijudicialfunctions.(A.Y.19981999)
BhartiaIndustriesLtdv.CIT(2013)353ITR486(Cal.)(HC)
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HonblehighcourtheldthatCBDThadcrosseditsauthorityunderthegarbofsection119ofthe
Act. And hence, the said circular is not effective. SCA 11209 of 2000 / 1465 of 2003
dt12/06/2012]
GujaratUrbanCooperativeBankFederation.(2012)BCAJNovemberP.401)(Guj.)(HC)
S.119:InstructionsCBDTBindingnatureBaddebtsBankProvisionforbaddebtInstructionis
bindingonrevenue.(S.36(1)(vii),36(1)(viia)).
TheInstructionNo.17/2008,dated26112008issuedundersection119clarifiesthepositionin
respect of working out the deduction under section 36(1) (vii) ,It is well settled that such
instructions issued by the Board in exercise of its statutory powers under section 119(2) may
have the effect of relaxing the rigours of a statutory provision. Hence, there is no reason to
entertain the appeal of the revenue. Therefore, the appeal of the revenue was dismissed. In
favourofassessee.(A.Y.199899)
CITvUTIBankLtd.(2013)212Taxman296/82DTR168/256CTR76(Guj.)(HC)
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therewasnoerrorinexerciseofjurisdictionbytheACIT,CircleIV(1)Agra.Thewritpetitionwas
accordingly,dismissed.(A.Y.200203)
AayushiStockBrokers(P.)Ltd.v.ACIT(2013)213Taxman192/87DTR394(All)(HC)
S.127:PowertotransfercasesFailuretoinformassesseeofreasonsfortransferOpportunity
ofhearingismandatory.
The court held that under section 127(2), the requirement of giving an assessee a reasonable
opportunityofbeingheardwhereveritispossibletodoso,ismandatory;transferofassessees
cases from Mumbai to Delhi without affording an opportunity of hearing was liable to be set
aside.(A.Ys.200304to201112)
SaharaHospitality&Anr.v.CIT(2013)258CTR275/85DTR331(Bom.)(HC)
S.127:PowertotransfercasesFailuretoinformassesseeofreasonsfortransferObjections
ofassesseetobeconsidered.
Unless a party is informed of the reasons for the proposed action, it would be impossible for
thenoticetoputforthitspointofviewwithregardtothereasonsfortheproposedaction.The
viewsofthenoticearetobeconsideredbytheauthoritybeforetakinganydecisiontoconfirm
ordropthenotice.Ashowcausenoticetobeeffectivemustbeadequatesotoenableaparty
to effectively object/respond to the notice and the authority concerned is obliged to consider
the objections, if any. Merely because the assessee had not specifically asked for a personal
hearing it would not absolve the Revenue of its obligation to ordinarily grant such a hearing.
Shikshana Prasaraka Mandali v. CIT (2013) 352 ITR 53 / 258 CTR 289/85 DTR 345 / 215
Taxman191(Bom.)(HC)
S.127:PowertotransfercasesOpportunitytobeheardPersonalhearingnecessary.
Though the reasons for transferring the case of the assesse from Mumbai to New Delhi were
furnished to the assessee and the basis on which the transfer was sought to be effected was
indicated, no personal hearing was afforded. The requirement of a personal hearing in the
assessee's case was of some significance because the assessee had submitted objections both
on the need to transfer the case to New Delhi and on the hardships that would be caused if
suchatransferweretobeeffected.Thefurnishingofapersonalhearingwasnecessary.
However,becauseofthedelayonthepartoftheassesseeinmovingthecourtinrelationtothe
transferpertainingtoproceedingsfortheassessmentyear201011whichwouldbecometime
barredonMarch31,2013,theCommissioner,Mumbai,wastofurnishanopportunityofbeing
heard to the assessee and for that purpose treat the order dated January 5, 2012, as a notice
callingupontheassesseetoshowcausewhythecaseshouldnotbetransferred.
AambyValleyLtd.v.CIT(2013)352ITR48/258CTR284/85DTR341(Bom.)(HC)
S.132:Search and seizure Cash seized from third person adjusted towards his tax liability
Nomaterialtoshowthatcashseizedfromhimbelongstoassessee.
ThemoneyseizedwasalreadyadjustedtowardsthetaxliabilityofBandtherewasnomaterial
onrecordtoshowthatthemoneyseizedinthehandsofBbelongedtotheassessee.Further,
there was no finding by the Commissioner (Appeals) that the money seized in the hands of B
belonged to the assessee and under such circumstances the direction issued by the
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Commissioner (Appeals) to give credit to the assessee to the extent of Rs. 10 lakhs which was
seizedfromBwasnotsustainableinlaw.(A.Y.19921993)
CITv.B.Sumangaladevi(Smt.)(2013)352ITR143(Karn.)(HC)
S.132:SearchandseizureRetentionofseizedarticlesPaymentofentiredemand,retention
ofseizedarticlesheldtobenotvalid.
Since there is no outstanding demand of tax and penalty against the petitioner due to be
recovered from the assessee, there is no justification for detention of seized assets. Pendency
of appeal before the ITAT on the issue of penalty which is already deposited by the assessee,
canonlyresultinfurtherrelieftopetitionertotheextent,whichmaybeallowedbytheITATif
theappealisallowed.Hence,detentionofassetswasnotjustified.Assesseecannotbeaskedto
give bank guarantee to extent of seized articles. Circular no F.NO 286/6/2008IT(Inv.II) dt 21
January,2009wasreferred.(BP200102to200607)
BhawnaLodha(Smt.)v.DGIT(2013)354ITR134/214Taxman273/257CTR176(Raj.)(HC)
S.132:SearchandseizureAuthorisationforsearchInformationinpossessionofcompetent
authoritySearchandseizureisheldtobeillegalgoldseizedwasdirectedtobedeleted.
Assesseecompany was engaged in business of wholesale trading in bullion. Director of
assessee, along with other were found carrying about 23 kilos of gold ornaments by air from
AhmedabadtoChennai.Departmentseizedsaidgoldornamentsundersection132.Directorof
assessee at spot gave statement that 25 kilos of gold was received by assessee from MGHUF
onleaseandgoldornamentsinquestionweremadeoutofsaidgold.Saidstatementsgivenby
director of assessee at airport matched with that of MGHUF and goldsmith supported by
relevantbooksofaccount.Onfacts,competentauthoritycouldnothaveformedareasonable
beliefthatsuchgoldjewelleryhadnotbeenorwouldnotbedisclosedforpurposeofIncome
tax. Therefore, search and seizure operation was to be declared illegal and seizure of gold
ornamentwasalsotobequashed.
LKSBullionImport&Export(P.)Ltd.v.DGIT(2013)214Taxman68/88DTR95(Guj.)(HC)
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Department. The belief of the authorities that the assessees had secreted certain documents
relevant for the purpose of investigation of the matter relating to the evasion of tax by the
assessees,wasbasedonmaterialsavailablebeforetheauthorities.Whenseriousallegationsof
taxevasionbytheassessees,tothetuneofseverallakhsofrupees,havebeenmade,itwould
notbeappropriateforthecourttoscuttletheprocessbyplacingundueemphasisonthehyper
technicalpleasputforthonbehalfoftheassessees,withregardtotheproceduralformalitiesin
theissuanceofthesearchwarrants.(Blockperiod141996to1292002)
P.G.Viswanathan(Dr.)v.DIT(Inv.(2013)351ITR217/214Taxman105/88DTR33(Mad.)(HC)
V.Muthulakshmiv.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
K.ViaswanthanaliasKumarv.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
ArunaViswanthan(Dr.)v.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
AnjanaViswanthan(Dr.)v.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
VikramViswanathn(Dr.)v.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
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S.132(4): Search and seizure Statement on oath Evidentiary valueAddition was held to be
justified.[S.131]
Asearchwasconductedintheresidentialpremisesoftheassessee,whichrevealeddepositsof
Rs. 8 lakhs in cash, in three bank accounts. The assessee was examinedon oath under section
131whereheofferedRs.3lakhsasconsultationchargesreceived.Later,heexplainedthatthe
amount of Rs. 3 lakhs was not his income and belonged to his daughter employed in a bank.
TheamountwastreatedashisincomeandthiswasconfirmedbytheCIT(A)andtheTribunal.
Held,theassessee,atthetimeofsearch,hadgivenastatementandhehadnocasethathehad
retractedfromthestatementonthebasisthatthestatementwasprocuredbyunlawfulmeans.
Furthermore,circumstancesalsoindicatedthatthefindingsoftheTribunalaffirmingtheorders
oftheauthoritieswereprobableinthisregard.Hence,theappealwasdismissed.
P.KunhiramanNairv.CIT(2013)354ITR141(Ker.)(HC)
S.132(4):SearchandseizureStatementonoathRetractioninthereturnStatementonoath
is a piece of evidence and when there is incriminating admission against himself, then it is
required to be examined with due care and cautionAddition made only the basis of
statementwasdeleted.
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During course of search conducted under section 132 upon assesseefirm, a partner made a
statement under section 132(4) and surrendered a sum of Rs. 20 lakhs for assessment year
198889 as income. In return filed after search assesseefirm did not declare income of Rs. 20
lakhsonpleathatdeclarationmadebypartnerwasmisconceivedanddivorcedfromrealfacts
and that firm or individual had no undisclosed income. Lower authorities did not accept
assessee'ssaidretractionongroundthatstatementgivenbypartnerappearedtobevoluntarily
given statement disclosing undisclosed income of Rs. 20 lakhs and added said amount to its
income as undisclosed income. No specific reason had been given for rejection of assessee's
contention by which it had retracted for admission of partner. During course of search there
was no recovery of assets or cash by department, having regard to facts and circumstances of
case a wrong inference had been drawn by authorities below in holding that there was
undisclosedincometotuneofRs.20lakhsofassessee.Additionwasdeleted.(A.Y.199899)
Shree Ganesh Trading Co. v CIT (2013) 214 Taxman 262/257 CTR 159/84 DTR 94
(Jharkhand)(HC)
S.132(4):SearchandseizureStatementonoathRetractionNoevidencetoestablishthat
admissionwasincorrectinanyway,henceadditionmadeonbasisofstatementwasheldto
bejustified.
During the course of search the assessee surrendered a sum of Rs. 1 crore in respect of the
financial year 200506 for buying peace of mind and to avoid litigation. He also requested the
Incometax Department not to initiate any penalty proceedings against him. After ten days,
during the further search conducted by the Incometax Department, the assessee made
anotherstatementonNovember21,2005,whereinhesurrenderedanadditionalsumofRs.75
lakhsonbehalfofhimselfandallfamilymembers,familyfirmsandthecompanies.Therequest
for no penal measures was reiterated. In the statement, however, he indicated that after
receiving all the seized documents from the Incometax Department he would provide the
breakupofthevoluntarydisclosureofRs.1.75croresinvarioushands.Healsopromisedtopay
the due tax as soon as possible. The sum of Rs. 1.75 crores which was surrendered by the
assessee was bifurcated by him into sums of Rs. 1.5 crores and Rs. 25 lakhs. The former sum
was,accordingtohim,tobetreatedasundisclosedbusinessincomeinhishandswhereasthe
latter sum of Rs. 25 lakhs was to be considered in the hands of different family members or
business concerns of the assessee's group. The Tribunal reversed the decision of the
Commissioner (Appeals) and sustained the decision of the Assessing Officer in making an
additionofRs.1.75croresonthebasisofthestatementsmadebytheassesseeundersection
132(4).OnappealbytheassesseetheCourtdismissingtheappeal,heldthatitwasincumbent
uponhimtoshowthathehadmadeamistakeinmakingthatadmissionandthattheadmission
was incorrect. He had access to all the documents which had been seized inasmuch as copies
had been supplied to him. However, he did not produce anything to establish that the
admissionwasincorrectinanyway.Thus,theassesseecouldnotreconcilefromhisstatements
made on November 10,11, 2005, and November 21, 2005. The statements recorded under
section132(4)wereclearlyrelevantandadmissibleandtheycouldbeusedasevidence.Infact,
once there was a clear admission, voluntarily made, on the part of the assessee, that would
constitute a good piece of evidence for the Revenue. Appeal of assesse was
dismissed.(A.Y.20062007)
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BhagirathAggarwalv.CIT(2013)351ITR143/215Taxman229(Delhi)(HC)
S.132(4):SearchandseizureStatementonoathRetractionsNoadditioncanbemademerely
onthebasisofstatement.(S.132,143(3).
The Tribunal held thatin the absence of any discrepancy in inventory, no addition could be
made.AsthefiguresofdiscrepancywerenotavailablewiththeDepartmentandthedirectorof
the assesseecompany had retracted the surrender made by him on account of stock
difference, no addition could be made on the basis of a statement recorded under section
132(4)oftheAct.IftheAssessingOfficerwantedtoaddtheamountofRs.11croresonaccount
ofstockinventory,heshouldhavebroughtmaterialonrecord.(A.Y.20052006to20072008)
MahashianDiHattiLtd.v.Dy.CIT(2013)21ITR731(Delhi)(Trib.)
S.132(8):Search and seizure Retention of seized documents beyond 30 days Non
communicationofCITsapprovaltoassessee.
Booksofaccount,seizedunders.132(1),wereretainedbytheofficerforaperiodexceeding30
days from the date of order of assessment passed u/s. 153A without communicating to the
assesseereasonsrecordedforthesameandapprovalobtainedfromtheCCIT,DirectorGeneral,
or Director, as the case may be, for such retention. Held that the requirements of s. 132(8)
werenotsatisfiedandtherefore,theretentionofdocumentsbeyond30daysaftercompletion
ofassessmentwasillegal.(A.Y.200203to200708)
JoshiP.Mathewv.Dy.CIT(2013)83DTR5/214Taxman267(Ker.)(HC)
S.132A:PowersRequisitionofbooksofaccountCashseizedbypoliceauthorities,reasonable
explanation regarding cash, no evidence that amount would not be disclosed to incometax
authorities,Orderofrequisitionheldtobenotvalid.
Theassessee,acottonbroker,carriedwithhimcashofRs.11lakhscollectedfromAinrespect
of the saleof cotton through him. The cash was seized bythe policeauthorities. The assessee
furnished an explanation but the police authorities did not accept the explanation and seized
the cash. An order was passed under section 132A and the amount was requisitioned by the
incometax authorities. The incometax officials recorded the statement of the assessee
wherein he stated that the amount had been arranged by RS through a shroff of Kalupur
against purchase of cotton. The incometax officials surveyed the business premises of RS and
examined his books of account. RS corroborated the statement of the assessee. RS's accounts
showed issuance of five cheques in favour of STC. The accounts of the shroff showed that the
five cheques issued by RS had been deposited with them for discounting against which Rs. 11
lakhsincashhadbeenhandedovertotheassessee.Theassesseerequestedforreleaseofthe
cash but this was refused. On a writ petition :Held, allowing the petition, that in view of the
factualbackground,noreasonablepersoncouldhavecometotheconclusionthattheamount
of Rs. 11 lakhs belonged to the assessee or that he would not disclose the amount to the
incometaxauthoritiesundertheprovisionsoftheAct.Inthecircumstances,onthebasisofthe
materialbeforehim,theDirectorofIncometaxcouldnothaveformedtherequisiteopinionas
requiredundersection132AoftheAct.Thewarrantofauthorisationissuedbyhim,therefore,
was vitiated as having been issued without the condition precedent for exercise of powers
under section 132A being satisfied. The warrant of authorisation as well as the order under
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section 132A was liable to be quashed. The assessee was entitled to the seized amount along
withinterest.
Prakash Jaichand Shah v.DIT (Investigations) (2013) 350 ITR 336/255 CTR 403/81 DTR 396
(Guj)(HC)
S.132B(4):Search and seizure Delayed Refund Assessee entitled to interest under section
132B(4).(S.132)
Where the assessment of the assessee was concluded resulting in a refund to the assessee
whichwasnotgiventotheassesseeforalongtimeassesseewasentitledtointerestonrefund
undersection132B(4)oftheAct.
OmPrakashAgrawalv.UOI(2013)81DTR341/214Taxman5(Mag.)/255CTR445(MP)(HC)
S.133A:SurveyStatementonoathEvidentiaryvalue.[S.132(4)]
In contradistinction to the power under section 133A, section 132(4) enables the authorised
officer to examine a person on oath and any statement made by such person during such
examination can also be used in evidence. Since the statement recorded under section 133A
was not recorded on oath, such statement was not at par with the statement recorded under
section 132(4) and did not have any evidentiary value. Addition made merely on the basis of
statementinthecourseofsurvetwasheldtobenotvalid.(A.Y.200304)
CITv.P.Balasubramanian(2013)354ITR116/215Taxman288(Mad.)(HC)
S.139:ReturnofincomeEreturnErrorsNotignoranceoflawbutignoranceofusageoflatest
technology, direction to Assessing Officer to examine interest paid and if satisfied, positive
interesttobeaddedtotaxableincome.(S.143(1)
Theassesseesfiledereturnsshowinginterestincomeearnedaswellasinterestpaidunderthe
head "Income from other sources". The assessees did not realise that the server would not
accept a negative figure and therefore the interest paid was rejected by the server while
processingthereturns.TheCommissioner(Appeals)observedthatitwasanincorrectclaimon
account of the assessees failing to reflect the correct details in the returns, under the
computerised processing programme. The Assessing Officer made adjustments for this
incorrect claim for deduction and held that there was no mistake in the processing of returns
and further concluded that no appeals would lie against such processing where adjustments
hadbeencorrectlymadeduringprocessingundersection143(1)(a)(ii)oftheIncometaxAct,
1961. On appeal the Tribunal held thatno one cared to educate the taxpayers about the
nuances of preparing an ereturn compared with filing details in the return forms. This had
resulted in many clerical errors because of the ignorance of the taxpayers in acclimatising
themselves with the latest technology. This was not ignorance of law but ignorance of the
usageofthelatesttechnology.Therefore,theAssessingOfficerwastoexaminetheassessee's
claim of the interest paid and if satisfied with the claim, he was to deduct it from the positive
interestfiguretobeaddedtothetaxableincome.(A.Y20092010)
SumanchandraG.Mehtav.ITO(2013)22ITR270(Mum.)(Trib.)
TarulataS.Mehtav.ITO(2013)22ITR270(Mum.)(Trib.)
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S.139(5):Return of incomeRevised returnServices charges which was shown as income in
theoriginalreturnwaswithdrawnbyfilingrevisedheldwasheldtobevalid.
Assessee was a State Government owned company, acting as a development financial
institution for assisting cause of medium and large scale industries in State of Gujarat. In the
SalesTaxDefermentscheme,achargewastobecreatedinfavourofSalesTaxDepartmentand
the deferred amount of sales tax was considered as a 'deemed loan' and assessee acted as a
nodalagencyforscheme.Duringtheyearunderconsiderationprovisionwasmadeforreceipt
ofservicechargesforabovereferredfeebasedactivitiesandadditionalincomewasaccounted
for and offered to tax while filing original return of income .Subsequently, Government of
Gujarat cancelled Sales Tax Deferment Scheme and due to this withdrawal of earlier
Government Resolution, no income was receivable by assessee and accordingly return had
beenrevised.TheTribunalacceptedrevisedreturnofincomefiledunderS.139(5)andtheHC
heldthattheorderoftheTribunaldidnotmeritinterference.(A.Y.200405)
CITv.GujaratIndustrialDevelopmentCorpn.(2013)214Taxman118(Mag.)(Guj.)(HC)
S.142:EnquirybeforeassessmentNoticePersonValidityofnoticetocooperativebankheld
tobevaild.[S.2(31),133(6)]
S. 142(1) read with s. 2(31) leads to the only conclusion that cooperative societies are also
personasdefinedintheIncometaxAct.Therefore,theimpugnednoticeu/s.142(1)cannot
beheldissuedwithoutjurisdiction.
Mangalam Service Cooperative Bank Ltd. & Anr. V. ITO & Ors. (2013)351 ITR 312/ 83 DTR
198/86DTR399/258CTR449(Ker.)(HC)
Editorial:OrderofsinglejudgeinMangalamServiceCooperativeBankLtd.&Anr.V.ITO&Ors.
(2013)351ITR312(Ker((HC)isaffirmedinMangalamServiceCooperativeBankLtd.&Anr.V.
ITO&Ors.(2013)354ITR601/258CTR452/213Taxman406t(Ker.)(HC)
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Chief Commissioner or the Commissioner. Further, the power under section 142(2A) is not to
belightlyexercised,anditistobebasedonthefoundationofavailablematerial.Agenuineand
honestattemptmustbemadetounderstandtheaccountssinceanorderundertheprovisions
not only entails a heavy monetary burden but it also causes a lot of inconvenience to the
assessee.Section142(2A)isnotaprovisionbywhichtheAssessingOfficerdelegateshispowers
andfunctions,whichhecanperform,tothespecialauditor.Theprovisionhasbeenenactedto
enable the Assessing Officer to take the help of a specialist, who understands accounts and
accountingpracticestoexaminetheaccountswhentheyarecomplexandtheAssessingOfficer
feels that he cannot understand them and comprehend them fully, till he has help and
assistance of a special auditor. Interest of the revenue is the other consideration. An order
under section 142(2A) directing special audit, entails civil consequences.And therefore, the
principlesofnaturaljusticeintheformofhearinghavetobecompliedwith.However,thisdoes
not require an elaborate hearing. The notice under the section may contain briefly the issues
that the Assessing Officer thinks to be necessary and need not be detailed ones. An order of
approval by the Commissioner/Director should not be granted or passed mechanically but
shouldbedonehavingregardtomaterialsonrecord.Questionsshouldberaisedwithregardto
accountsandentriesandonlywhentheexplanationofferedisnotsatisfactory,orverificationis
notpossiblewithoutthehelpandassistanceofaspecialauditor,actionundersection142(2A)
isrequired.Fortheassessmentyear200506,therecommendationforspecialauditwasmade
onOctober17,2007,withintwodaysafterthebooksofaccountwereproducedonOctober15,
2007. The Assessing Officer had not obtained comments/findings on the Comptroller and
AuditorGeneral's report but he had directed the special auditor to obtain it and then give his
opinion. Consideringthe facts of the casethe notices under section 142(2A) relating to the
assessmentyears200304to200910werenotvalidandwereliabletobequashed.(A.Y.2003
2004to20092010)
Delhi Development Authority v. UOI (2013) 350 ITR 432/214 Taxman 130/89 DTR 54 (Delhi)
(HC)
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ground of limitation. Any advantage gained in such circumstances must be neutralised. The
prescription of limitation by itself should not be permitted to confer an advantage on the
assessees for such delay. The defect complained of in the notice was at best a lapse, which
couldbecorrectedbyservingapropernoticeandrecordingofreasons.Thecourtdidnothold
that the reasons were not sufficient. It held that the reasons were not recorded. It observed
that reasons must be recorded in the order to show application of mind on the part of the
officerconcernedonthebasisofthematerialavailableonrecord.Thesubmissionthatafterthe
earlier notice was set aside, a fresh notice could not be issued, was thus devoid of any
substance and must be rejected. On facts reference to specialauditheld to be justified. (A. Y.
20022003,to20082009)
ATS Infrastructure Ltd. v. ACIT (2013) 350 ITR 563/256 CTR 46/81 DTR 249/ 215 Taxman 302
(All.)(HighCourt)
PrateekResorts&Builders(P)Ltd.v.ACIT(2013)350ITR563/256CTR46/81DTR249(All.)(HC)
S.142(2A):Enquiry before assessment Special audit False statementsCost was levied on the
petitioner.
Proceedings under section 142(2A) are not strictly judicial proceedings. The satisfaction regarding
complexity of the accounts is not required to be arrived at by discussing the accounts in meticulous
detail.Wheretheapprovingauthorityhasconsideredtheaccountbooksalongwiththeauditor'sreports
and finds that there was a mala fide intention to avoid verification of the books of account and that
therewerevariouscommentsbytheauditorsregardinggrossneglectandmisappropriationoffunds,an
order under section 142(2A) would be justified. Cost of Rs 1 lakh levied on the petitioner. (A. Y. 2008
2009)
U.P.StateIndustrialDevelopmentCorporationLtd.v.ChiefCIT(2013)353ITR176(All.)(HC)
S.142A:EstimatebyValuationOfficerReferencewasheldtobenotvalid.[S.69,69B]
During relevant assessment year, assessee made additional construction of cold storage. Assessing
Officer did not accept cost disclosed by assessee and referred matter to DVO. DVO estimated figures.
AssessingOfficerthendeterminedcost.TribunalheldthatreferencemadetoDVObyAssessingOfficer
in assessment proceedings was beyond power of Assessing Officer in view of judgment of Supreme
CourtincaseofSmt.AmiyaBalaPaulv.CIT[2003]262ITR407.Revenuecontendedthatinviewofnew
provisions of section 142A introduced retrospectively w.e.f 15111972 by the Finance Act, 2004,
Assessing Officer can require Valuation Officer to make an estimate of value of movable/immovable
property. impugned amendment authorises Assessing Officer only for purposes of making an
assessmentorreassessment,whereanestimateofvalueofanyinvestmentreferredtoinsection69or
section69Borvalueofanybullion,jewellery,etc.,isrequiredtobemade,torefermattertovaluation
officertomakeanestimateofsuchvalueandreportsametohim.Inviewofabove,findingofTribunal
infavourofassesseewascorrect.Theamendmenttosection142A,introducedretrospectivelyw.e.f15
111972 by the Finance Act, 2004, authorises Assessing Officer only for purposes of making an
assessmentorreassessment,whereanestimateofvalueofanyinvestmentreferredtoinsection69or
section69Borvalueofanybullion,jewellery,etc.isinquestion(AY199798).
CITv.BehariColdStorage(P.)Ltd.(2013)214Taxman48(Mag.)(All.)(HC)
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S.142A:Estimate by Valuation Officer Assessing Officer did not reject books of account
maintainedbyassesseeMadereferencetoDVOReferencewithoutjurisdiction(S.145)
Assessing Officer without rejecting books of account maintained by assessee made reference
under section 142A to DVO, for valuation of factory building of assessee. Assessing Officer
made addition on basis of cost of construction estimated byDVO.Commissioner (Appeals)
confirmed the addition and reduced some addition. On appeal to Tribunal the held that
Commissioner(Appeals)forestimationofconstructioncostonbasisofDVOsreportcouldnot
be approved particularly when Assessing Officer made reference to DVO without rejecting
booksofaccount.Assesseesappealwasallowed.(A.Y.200405)
PrahaladKumarJindalv.ACIT(2013)140ITD147(Agra.)(Trib.)
S.143(3):AssessmentBalanceofcreditorsUnverifiedcreditorsofopeningbalance.
TheAssessingOfficernoticedthatopeningandclosingbalanceofsomeofcreditorsweresameandno
businesstransactionshadtakenplaceduringyearinquestion.He,accordingly,addedbacksaidamount
toincomeasunverifiedcreditors.TheCIT(A)andtheTribunalheldthatmerelybecauseassesseehadno
transactionswithsomecreditorsandtheiropeningandclosingbalancesremainedsame,couldnotbea
groundtoaddsaidamount.Heldthat,theorderoftheTribunalcouldnotbeinterferedwith.(A.Y.2005
2006)
CITv.SuperiorCrafts(2013)353ITR101/82DTR209(Delhi)(HC)
S.143(3):AssessmentValuation of stockStatement of third partiesValuation adopted by sales tax
authoritieshastobeacceptedadditionscannotbemadebymerelyrelyingonthebasisofstatement
ofthirdparties.
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UnlessanduntilthecompetentauthorityundertheSalesTaxActdiffersorvarieswiththeclosingstock
of the assessee, the return accepted by the Commercial Tax Department is binding on the incometax
authoritiesandtheAssessingOfficerhasnopowertoscrutinisethereturnsubmittedbytheassesseeto
the Commercial Tax Department and accepted by the authorities. The Assessing Officer has no
jurisdiction to go beyond the value of the closing stock declared by the assessee and accepted by the
CommercialTaxDepartment.
Since the assessee had placed sufficient materials before the AO in respect of the relevant assessment
years which had been accepted by the authorities, the Department could not have made the addition
merelyonthebasisofthestatementofthirdparties(A.Ys.19981999to20022003).
CITv.SakuntalaDeviKhetan(Smt.)(2013)352ITR484(Mad)(HC)
S.143(3):AssessmentUndisclosed incomeAverage rate of surgery based upon number of surgeries
performed by assessee in one year and income earned there fromOnce it was admitted earning of
averagerateofsurgeryearned,assesseecannotdisputetheflatrateappliedbyTribunal.(S.260A)
Theassessee,asurgeon,hadadmittedto247undisclosedsurgeries.Thestatementoftheassesseewas
thatRs.6,000persurgeryshouldbeappliedtodeterminetheundisclosedincome,whereastheTribunal
had reduced the rate of the addition at Rs. 10,147 applied by the Assessing Officer to Rs. 8,000 per
surgery.Oncetheassesseehadhimselfstatedbeforethe Tribunalthattheaveragerateofthesurgery
bereducedtoRs.6,000persurgery,itwasnotopentotheassesseetodisputethattheflatrateapplied
bytheTribunalwasarbitrary.Nosubstantialquestionoflaw.(AY20062007)
GurvinderSinghRandhawa(Dr.)v.CIT(2013)352ITR616/84DTR41(P&H)(HC)
S.143(3):AssessmentScrutinyguidelinesCBDTIncometaxdepartmentmustmakereturn
scrutinyguidelinespublic
The Petitioner, an advocate, filed an application with the CBDT under s. 6 of the Right to
Information Act, 2005 seeking information pertaining to cases excluded from scrutiny, where
thedisclosurewasmadeduringsurvey.Healsosoughtinformationquathescrutinyguidelines
for the financial year 200910. The Department opposed the disclosure of the scrutiny
guidelines on the ground that it would prejudice the economic interest of the Country and
enable assessees to configure their return to avoid scrutiny. The refusal to supply the
informationwasupheldbytheCIC.ThePetitionerfiledaWritPetitiontochallengetheorderof
the CIC. HELD by the High Court reversing the CIC:The Incometax department has issued
instructionswithregardtoprocedureforselectionofcasesforscrutinyfromtimetotimeboth
qua corporate assessees as well as noncorporate assessees. These instructions give detailed
procedure on the basis on which the concerned officers are required to make a random
selection of assessees whose cases are taken up for scrutiny. These instructions are in public
domainevenpriortotheenactmentoftheRTIAct.Mostoftheseinstructionshavebeenissued
in the middle of the financial year and not in the beginning and they are applied to pending
returns as well. Therefore, the argument, that assessees would configure their returns in the
manner, which would impact the economic interest of the country, cannot be accepted. The
expressioneconomicinteresttakeswithinitssweep,matterswhichoperateatamacrolevel
and not at an individual, i.e., micro level. By no stretch of imagination can scrutiny guidelines
impacttheeconomicinterestofthecountry.Theseguidelinesareissuedtopreventharassment
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toassesseesgenerally.Itisnotasif,dehorsthescrutinyguidelines,theI.T.Departmentcannot
take up a case for scrutiny, if otherwise, invested with jurisdiction, in that behalf. This is
information which hasalways been in public realm, and therefore, there is no reason why the
department should keep it away from the public at large. The department shall supply the
relevant scrutiny guidelines to the petitioner for the financial year 200910 and hereafter
uploadtheguidelineswithregardtoscrutinyontheirwebsite.
JoginderPalGulativ.OSDCPIO(Delhi)(HC).www.itatonline.org
S.143(3):AssessmentUndisclosedincomeGrossreceiptOnlyProfitelementembeddedin
grossreceiptsaddedasundisclosedincomeshouldbechargedtotaxifthesamearein
respectofbusinesstransaction.
AO made addition of the gross receipts as Undisclosed Income The Honble ITAT held that
onlyProfitelementembeddedinsuchgrossreceiptsshouldbechargedtotaxsincethesaid
receiptswere in respect of business transactions. Honble High Court dismissed the tax appeal
preferred by the revenue since it didnt give rise to any substantial question of law. (T. A. No
2280of2009,dt,17/07/12)(2012)/(T.A.No.323/325Of2000,dt,16/06/12)
JinendraS.Jain(2012)BCAJNovemberP.399)(Guj.)(HC)
PannaCorporation.(2012)BCAJNovemberP.399)(Guj.)(HC)
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Land purchased by assessee in dispute before civil court. Dispute having adverse impact on market
value. No change in method of valuation. Department accepting value as value of opening stock in
subsequentyear.Additionsmadetovaluenotproper.(A.Y.20062007)
ACITv.SatishEstateP.Ltd.(2013)22ITR349(Chand.)(Trib.)
S.143(3):AssessmentCrossexaminationOpportunitymustbegiven.
IftheaccountantofSTstatedthathewasacceptingsumsofmoneywithoutrecordingthemin
the books of account, addition could be made in the hands of ST and not in the hands of the
assessee. No material had been brought on record to suggest that the amount of Rs. 73,000
waspaidbytheassesseetoSTwithoutrecordingitinthebooks ofaccount. Itisa settledlaw
that third party evidence cannot be the base of addition unless crossexamination is allowed.
The assessee could not be condemned without a hearing. In the absence of any such
evidence/crossexamination,noadditioncouldbemade.(A.Y.20052006to20072008)
MahashianDiHattiLtd.v.Dy.CIT(2013)21ITR731(Delhi)(Trib.)
S.143(3):AssessmentSearchandseizureUndisclosedincomeEntriesinpapers.
Entries in papers seized from person making purchases for assessee. No material to show
difference between sales recorded there and according to books of account, no additionis
warranted.(A.Y.20052006to20072008)
MahashianDiHattiLtd.v.Dy.CIT(2013)21ITR731(Delhi)(Trib.)
S.143(3):AssessmentAdditiontoincomeMatterremanded.
Where there is categorical findings by assessing authority in respect profit rate for preceding
year which differed from what assessee claimed, Commissioner (Appeals) should have called
forassessee'sassessmentrecordsforprecedingyearaswellascurrentyear,andissueddefinite
findingsafterhearingbothparties,matterremanded.(A.Y.2001002)
ACITv.BhiwadiCylinders(P.)Ltd.(2013)55SOT32(URO)(JP)(Trib.)
S.143(3):AssessmentAdditionstoincomeChargingofdifferentialinterestwasnotjustified.
Assessee kept certain deposits received from clients abroad in NOSTRO account by way of
ForeignCurrencyNonResident(Bank)Deposit.Suchaccountwasmaintainedbyheadofficeof
assessee which was used by head office for its global operations. Assessing Officer noted that
interestpaidbyassesseeforabovedepositswashigherthaninterestearnedbyassesseefrom
its domestic deposits held with head office.Assessing Officer held such differential interest to
benotdeductibleandchargedsametotax.Tribunalheldthatsincedecisionastowhenabove
foreign deposits were to be brought into India was with assessee on consideration of factors
like foreign exchange rate prevailing at time of receipt of deposits, and further since such
deposits were not with head office but were in NOSTRO account, action of Assessing Officer
chargingdifferentialinteresttotaxcouldnotbesustained.(A.Y.199899)
Dy. CITv.Banque Indosuez (Known as Credit Agricole Indosuez) (2013) 55 SOT 38 (Mum.)
(Trib.)
S.143(3):AssessmentAdditionUnderstatementofincomeadditionwasdeleted.
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It was noted from audit of CAG that assessee, State Electricity Distribution Company did not
recognizeunbilledrevenue,i.e.,revenuefromenergysuppliedbutbillsnotissuedtillMarchin
respectiveyears.Tribunalheldthatfindingsthatassesseehadbeenfollowingspecifiedmethod
of accounting consistently which was in agreement with changed accounting policies and
principlesunderESSAR,1985,weretobeupheld,hencenoadditioncouldbemadeonaccount
ofunderstatementofIncome.Infavourofassessee.(A.Y.A.Y.200708,200809)
Maharashtra State Electricity Distribution Co. Ltd.v. ACIT. (2013) 55 SOT 84(URO) (Mum.)
(Trib.)
S.143(3):AssessmentIncomeComputationInterestBrokenperiod
Interest paid in respect of broken period to be set off against interest received in respect of
brokenperiod.(A.Y.19971998)
ADIT(IT)v.CreditAgricoleIndosuez[2013]21ITR345(Mum.)(Trib.)
S.144:BestjudgmentassessmentRectificationofmistakeDisallowanceofinterestpaidon
capitalaccountandremunerationtopartnersOpportunityofhearingContentionsnot
raisedbeforeappellateauthoritycannotberaisedforfirsttimebeforeHighCourt.(S.143(3),
143(2),154ConstitutionofIndia,art.226.)
Theassesseefirmconsistedoffourpartnersengagedincivilandelectricalcontractworks.Ona
writ petition contending that for the assessment year 199596 its taxable income was
determinedatRs.35,930andtheassessmentorderwasrectifiedundersection154oftheAct,
and disallowances were made in respect of interest paid by them on capital deposit and
remuneration paid to the partners and subsequently without any notice the assessment was
completed under section 144 determining the taxable income at Rs. 1,36,500.Held, dismissing
the petition, that in so far as the absence of notices under section 143(2) and the proviso to
section 144(1) were concerned, a reading of the order passed by the revisional authority
showedthatsuchacontentionwasneverurgedbytheassesseebeforetherevisionalauthority.
Similarly the inapplicability of section 144 for want of the circumstances specified in section
144(1)(a)to(c)wasalsonoturgedbeforetherevisionalauthority.Acontentionwhichwasnot
urged before the statutory authorities and which the authority had no occasion to deal with,
cannot be allowed to be raised for the first time before the High Court. Therefore, these
contentionscouldnotbeurgedbeforethecourtforthefirsttime.(A.Y.19951996)
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P.P.AbdulKhaderandCov.CIT(2013)351ITR17/83DTR41/215Taxman71(Mag.)(Ker.)(HC)
S.144:BestjudgmentassessmentCivilcontractworkIncomeestimatedat6%ofgross
receipt.[S.44AD,145]
In view of nonmaintenance of proper books of account by assesseecontractor, revenue
authorities estimated its net income at 8 per cent of gross receipts.It was found that assessee
made purchases more than 80 per cent which were billed and were forming part of gross
receipts from contractees, remaining amount could not fetch 8 per cent as per provisions of
section44ADwhenassesseerenderedcivilcontractworkwithoutmaterial.Itwasalsonotcase
ofassesseetomakeprofitof8percentonmaterialcostandinthisviewofmatter,itwouldbe
reasonabletoestimateincomeongrossreceiptsatrateof6percent.(A.Y.200708)
GirishChandraNayakv.ITO(2013)140ITD1430(Cuttack)(Trib.)
The assessee claimed deduction under section 80IA. In scrutiny assessment, though the
assesseesubmittedthattherewasnointerunittransfer,butitwasfoundthatmachinerywas
transferred to one of its units. Draft assessment order was passed making some additions.
Thereafter, final assessment order was passed which completely denied benefit of deduction
though it was allowed in principal in draft assessment order. The assessee in a writ petition
contendedthat once a draft order was made and served upon the assessee, the Assessing
Officer had no jurisdiction to make any additions thereto and that by passing the impugned
assessment order, the assessee had been denied an opportunity of availing the provisions of
section 144C with respect to the additions that were not made in the draft order. The Court
heldthatalthoughthiswritpetitionismaintainable,butitisviewedthatthepetitioneroughtto
pursue its alternate remedy which it had already availed of by filing an appeal before the
Commissioner (Appeals), albeit without prejudice to this petition. Therefore, no opinion was
expressedonthemeritsofthematter.Bynotentertainingthiswritpetition,itisnotsuggested
that assessee's submissions are without substance. These indeed are important issues which
willundoubtedlyrequireadecisionoftheCourtatsomestageinagivenmatteroreveninthe
presentcaseatanotherstageinappropriateproceedings.Theycertainlyarepointsandaspects
thatrequireseriousconsiderationbytheauthoritiesandthisCourt.TheCourtheldthatdespite
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thesame,jurisdictionunderarticle226isnotexercisedforthismatterinvolvesseveralpoints,
some of which require a detailed consideration on disputed questions of fact including as to
whether the petitioner had made false statements as indicated earlier. It would serve no
purpose and would indeed be cumbersome to have these issues decided in different
proceedings.Inthecircumstances,thewritpetitionisdismissedonlyonthegroundthatthisis
not a fit case to exercise jurisdiction under article 226. Needless to add that the rights and
contentions of the parties are kept open in any proceedings that have been adopted and that
maybeadoptedhereafter.Matterremanded.
PiramalHealthcareLtdv.Addl.CIT(2013)213Taxman27(Mag.)(Bom.)(HC)
S.144C:Reference to Dispute Resolution Panel Order of Dispute Resolution Panel should give
reasonsNonspeakingorderisnotvalid.
OnanappealonthegroundthattheDisputeResolutionPanel`sorderwasagainstthejudicialprinciples
which required judicial orders to be speaking order. Held, that the draft assessment order no where
suggestedthattheDisputeResolutionPanelhadconsideredthefactsandcircumstancesofthecase,the
nature of dispute and what was the defense. The order was of a few lines and did not disclose
applicationofmindbytheadjudicators.Itwasanonspeakingorder.TheDisputeResolutionPanelhad
notapplieditsmind.Theassessee'sobjectionhadnotbeenconsideredbytheDisputeResolutionPanel.
The order of the Dispute Resolution Panel was not valid. Roadmaster Industries of India P. Ltd. v.
InspectingAssistantCommissionerofIncometax[2008]303ITR138(P&H)followed.(A.Y.20062007)
PanasonicConsumerIndiaP.Ltd.v.ACIT(2013)22ITR390(Delhi)(Trib.)
S.144C:Reference to dispute resolution panel Consequential order of Assessing Officer
Directedtopassconsequentialorder.
The draft order was passed by the Assessing Officer. The assessee filed objection against the
draft order before the DRP. Subsequently, on basis of circular dated 2012010, the assessee
sought to withdraw objection filed so as to file an appeal before the Commissioner (Appeals).
The Assessee also informed the Assessing Officer about that withdrawal of objection. The
AssessingOfficerpassedassessmentorderundersection144C(3).Ontheotherhand,theDRP
sent letter to the assessee fixing hearing. The assessee informed DRP about the Assessing
Officer'sorderInviewoftheDRP'sdirectionforhearing,theCommissioner(Appeals)dismissed
the appeal filed against order by the Assessing Officer. The DRP ultimately passed order
acceptingtherequestoftheassessee.Subsequently,theAssessingOfficerpassedorderunder
section 144C(13) which was identical to his earlier order under section 144C(3) which the
assessee challenged. On appeal Tribunal held that, Where DRP after taking note of fact that
assessee desired to exercise option to file appeal before Commissioner (Appeals) against
assessmentorder,acceptedrequestofassesseeforwithdrawalofobjectionraised,nodirection
persecouldbesaidtohavebeenpassedbyDRPonmeritofdisputesoastoenableAssessing
Officer to pass an assessment order on basis of DRP'S order. Appeal of assessee was allowed.
((A.Y.200607)
BankofAmericaNAv.ADIT(2013)55SOT30(URO)(Mum.)(Trib.)
S.144C:Reference to dispute resolution panel Transfer pricing Non Speaking Order Order
violationofprovisionsSetaside
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Where DRP confirmed addition made by Assessing Officer without passing a speaking order,
said order being in violation of provisions of section 144C, was to be set aside. Matter was
remandedbacktodecidebothonTPandnonTPissues.(A.Y.200607)
FordIndia(P.)Ltd.v.Dy.CIT(2013)140ITD171(Chennai)(Trib.)
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CITv.ShriRamHondaPowerEquipmentLtd(2013)352ITR481/258CTR329/85DTR390(SC)
S.145:MethodofaccountingRejectionofbooksProfitratiolowMatterremanded.
The entire basis of rejection of the account books was that the profit ratio was low in
comparison to the earlier year though it was submitted by the assessee that the purchase of
coal in both the years 199394 and 199495 as recorded by the Assessing Officer was not
correct.Thefactualpositioncouldbeascertainedonlyfromaperusaloftheaccountbooksand
hence,thematterwasremanded.(A.Y.19941995)
MahakoshalPottariesv.CIT(2013)354ITR149/88DTR286(MP)(HC)
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onrecord.Thus,thefindingsoftheTribunalwerenotperverseandnosubstantialquestionoflawarose.
(A.Y.20022003)
CITv.SuperiorCrafts(2013)353ITR101/82DTR209(Delhi)(HC)
S.145:MethodofaccountingRejectionofaccountsDefectinbooks.
There was no specific evidence to prove any defects in maintenance of books of account by assessee.
Merely because loss declared by assessee from its business was held to be very high, books cannot be
rejectedwithoutpointingoutspecificdefects.
CITv.JananamandalLtd.(2013)214Taxman49(Mag.)(All.)(HC)
S.145:MethodofaccountingChangeinmethodClosingstock.
Change in the method of accounting adopted by the assessee tends to distort the picture for the
purpose of taxable income of the assessee. Consequently, the Assessing Officer has to recompute the
income by treating unsold lottery tickets as part of the closing stock of the assessee. (A.Y. 198990,
199091)
CITv.KandCo.(2013)214Taxman1/88DTR166(Del)(HC)
S.145:Method ofaccountingValuation of stockIf liability to pay Excise duty is not incurred
excisedutyisnottobeincludedinclosingstock:
Undertheschemeofexciseduty,anassesseeincursliabilitytopayexcisedutyonlyuponboth
theeventstakingplace,namelymanufactureofexcisablegoodsandremovalofexcisablegoods.
Accordingly,ifsuchaliabilityinnotincurred,excisedutyisnottobeincludedinthevaluation
ofclosingstock.(T.A.No.436/437of2011,dt13/06/2012)]
BellGranitoCermicaLtd(2012)BCAJNovemberP.402)(Guj.)(HC)
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mercantilesysteminsofarasthelaterequatedmonthlyinstallmentsareconcernedwouldbe
far higher and contrary to the rate prescribed in the assessee's agreements. Further, as the
assesseehaditselfemployedthissystemofaccountinginitsbooksofaccount,applyingthelaw
laid down in Sanjeev Woolen Mills case [2005] 279 ITR 434,the Department was bound to
acceptthesamefortheassessmentproceedings.Appealofassesseewasdismissed.(A.Y.1987
1988)
ChakraFinancialServicesLtd.v.CIT(2013)350ITR396/214Taxman15(Mag.)(AP)(HC)
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The assessee was engaged in the manufacture of PET bottles in industrial area, Barotiwalan,
district Solan, Himachal Pradesh.It was allowed deduction under S. 80IC for the assessment
years200506to200809,undersection143(3).Subsequently,theAssessingOfficerissuedthe
notice under section 148 to reopen the assessment on the ground that the claim of the
assesseebeinginrespectofmanufacturingofPETbottlesintheStateofHimachalPradesh;PET
bottles being an article specified in the Thirteenth Schedule, the assessee was not entitled to
deduction under S. 80IC despite which assessee claimed deduction under S. 80IC. He,
accordingly,heldthattherewasafailureonthepartoftheassesseetodisclosefullyandtruly
all material facts necessary for his assessment for the said assessment year and income
chargeabletotaxhadescapedassessment.Onwritchallengingthenoticetheassesseeargued
that the product manufactured by them falls under, subheading 39.23.30.90 of the Central
Excise Classification which is not within the range of products specified in the 13th schedule
thatis,withinheadings39.09to39.15.Therefore,theassesseecannotbeheldtohavefailedto
fullyandtrulydiscloseallmaterialfactsnecessaryforitsassessment.Thecourtheldthat,the
reassessmentnoticewasliabletobequashed.(A.Ys.200606to200809)
AjayKumarSharmav.CIT(2013)214Taxman518(Del.)(HC)
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ordercameintoexistence.Theassessmentorderisbereftofanydiscussionwithregardtothe
genuineness of the donation given or the creditworthiness of the donor to part with such a
huge amount. It is also shocking to note that the Commissioner passed an order dropping the
proceedings for cancellation of registration without assigning any reason. One fails to
understandwhatimpelledhimtodoso.Theorderbeingbereftofanyreasonisnoorderinthe
eyes of law and is liable to be ignored being illegal and void. The income tax authorities are
required to administer the Act. The right to administer cannot obviously include the right to
maladminister. Thus, we find no words to express anguish as what kind of governance it had
been. Failure to give reasons amounts to denial of justice. It is a case where the Assessing
Officer,theAddl.CommissionerandtheCommissionerhaveabdicatedtheirduties.TheCourt
intheexerciseofsupervisoryjurisdictionunderArticles226and227oftheConstitutionofIndia
cannot be a mute spectator. Such actions on the part of the department not only bring
disrepute to the department but also encourages the dishonest assessees and promotes the
nefarious activities which not only causes loss to revenue but also promotes dishonestly. An
honest tax payer feels cheated. Let the matter be examined by the Chief Commissioner of
Incometax and appropriate departmental proceedings may be taken out against the erring
officials.AcopyofthisjudgmentmayalsobesenttotheChairmanoftheCBDTforappropriate
action.
FatehChandCharitableTrustv.CIT(All)(HC)www.itatonline.org.
April,2013)
HeavyMetal&TubesLimitedv.Dy.CIT(2013)ACAJMayP.93(Guj.)(HC)
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was not taxable at all, on the principles of mutuality. The Assessing Officer rejected the
assessee'scontention.However,theTribunalheldthatTDRpremiumreceivedbytheassessee
was not taxable on account of principles of mutuality. In an appeal before the High court ,
revenue contended that income assessed on reassessment could not be less than the income
originallyassessed.Courtheldthatthatsincetheincomeassessedinreassessmentproceedings
aftergivingeffecttoorderofTribunalbecamelessthanincomeoriginallyassessed,saidorder
passed by Tribunal was not sustainable, being contrary to decision of Apex court in CIT v.Sun
Engg.Works(P)Ltd(1998)198ITR297(SC).MatterwasrestoredtothefileoftheTribunalfor
freshdecision.(A.Y.19992000)
CITv.JaihindCooperativeHousingSocietyLtd.(2013)214Taxman134(Mag.)/259CTR501
(Bom.)(HC)
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S.147:ReassessmentCommissionallowedinoriginalassessmentNoticetodisallowcommissionto
failuretodeducttaxatsourceReassessmentheldtobenotvalid.
During the original assessment proceedings, the Assessing Officer disallowed export commission
paymentmadebytheassesseetoS.ItwasspecificallybroughttothenoticeoftheAssessingOfficerthat
acertificatehadbeenissuedbytheassessee,wherebytheassesseewaspermittedtomakepaymentof
commission to S without deducting tax under section 194H. However, the Tribunal allowed it. The
Department had issued a certificate under section 197(1) for the financial years 200304 and 200405
indicatingthattheassesseecompanywaspermittedtomakethepaymentofcommissiontoSforboth
assessment years without deducting tax under section 194H. Since, there was no violation of the
provisions of section 194H, the decision of the Assessing Officer to reopen the assessment on the
violationoftheprovisionslaiddownundersection40(a)(ia)oftheActonthepremisethattaxwasnot
deductedatsourceundersection194HoftheActwasnottenableinlaw.(A.Y.20052006)
RubaminLtd.v.LoveKumar(2013)353ITR432(Guj)(HC)
S.147:ReassessmentBeyondfouryearsScrutinyofDepreciationCommercialvehiclegivenonlease
Reassessmentwasnotvalid.
Duringthecourseofscrutinyassessment,theassesseemadedetailedsubmissionsregardinghigherrate
of depreciation. Therefore, it was not a case where income chargeable to tax could be stated to have
escaped assessment for the reason of the assessee failing to disclose truly and fully all material facts.
Therefore,thereopeningoftheassessmentbeyondtheperiodoffourwasinvalid.(A.Y.19961997)
GardenFinanceLtd.v.ACIT(2013)353ITR522(Guj)(HC)
S.147:ReassessmentBeyondfouryearsAuditobjectionReassessmentheldtobenotvalid.
During the course of the scrutiny assessment, these claims which were the subjectmatter of reasons
recorded were examined by the Assessing Officer. The assessee pointedly brought to the notice of the
Assessing Officer such claims. It may be that in the ultimate order of assessment that the Assessing
Officer passed, these specific issues were not recorded. Additionally, in the petition, the assessee had
averredthat theAssessingOfficerhadissuedthenoticeat thebehestof theauditparty callingfor the
explanationoftheassessee.Itwasfurtheraverredthattheletterwasissuedundertheauditobjection
only.Thishadnotbeendeniedbythe Department. Thus,thenoticewasnotvalidandwasliabletobe
quashed.(A.Y.19961997)
FagBearingsIndiaLtd.v.Dy.CIT(2013)353ITR405(Guj.)(HC)
S.147:Reassessment Material on record Original assessmentClaim not examined in the original
assessmentReassessmentheldtobevalid.[S.80IA,143(1),148]
Theassessmentundersection143(1)(a)doesnotenvisageconsiderationofanypointandformationof
anyopinionforassessmentpurposes.Intheoriginalassessment,theassesseehadpreferredaclaim
undersection80IAoftheAct.However,theAssessingOfficerdidnotexaminetheclaimonthemerits.
Therefore,itcouldnotbesaidthatitwasacaseofmerechangeofopinionwhennoopinionwasformed
inthefirstinstance.Therefore,therecoursetosection147/148wasvalidandjustified.(A.Y.199495,
199596)
KohinoorFoodsLtd.v.CIT(2013)353ITR264(Delhi)(HC)
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S.147:ReassessmentBeyondfouryearsCapitalgainsExemptiongrantedintheoriginalproceedings
reassessmentonthegroundthatproofofinvestmentisnotsufficientisnotvalid.(S.54)
Theassesseehadbeenallowedexemptionundersection54forthepurchaseofaresidentialhouse
whilecomputinghisincome.Insupportofsuchpurchase,hehadproducedreceiptsshowingdepositof
theamountwithtwodifferentparties.Theassessmentwasreopenedafterfouryearsontheground
thatthereceiptsfiledcouldnotprovetheinvestmentmadeforpurchaseofflat,andalsonoevidence
likepurchasedeed,etc.,wereobtainableonrecord,thisamountedtofailureonthepartoftheassessee
todisclosefullyandtrulyallmaterialfacts.Held,merelybecausetheAssessingOfficerwhohadsought
toreopentheassessmentfoundtheproofsubmittedbytheassesseeatthetimeofassessment
proceedingstobenotsufficientforthepurposeofadmittingtheclaim,itcouldnotbesaidthatthere
wasanyfailureonthepartoftheassesseesoastoinvoketheprovisionsofsection147.Hence,the
noticecouldnotbesustained.
ShirishC.Parikhv.ITO(2013)353ITR505(Guj.)(HC)
S.147:ReassessmentBeyondfouryearsReasonsnotrecordedreassessmentsetasideSecondnotice
afterrecordingreasons,reassessmentheldvalid.
TheearlierassessmentwassetasideonthegroundthattheAssessingOfficerhadnotrecordedreasons
forreopeningtheassessmentwhichisaconditionprecedentforissuingnoticeundersection148(2).In
these circumstances, there was no bar against reopening the assessment once again on the same
groundsafterfollowingdueprocedureinaccordancewithlaw(i.e.afterrecordingthereasons).
Further,sinceincomehadescapedassessmentbecausetheassesseehadsuppressedtheclosingstock,
such escapement was by reason of failure on the part of the assessee to disclose fully and truly all
material facts necessary for its assessment and hence, the notice of reassessment after four years was
valid.(A.Y.199495)
AGGroupCorporationv.HarshPrakash(2013)353ITR158(Guj.)(HC)
S.147:Reassessment Beyond four years No failure to disclose facts hence reassessment is bad in
law.[S.80HHC]
Theoriginalassessmentwasframedafterscrutiny.Therewasnotaniotaofsuchallegationeitherinthe
reasonsrecordedoranywhereelsethattheincomechargeabletotaxhadescapedassessmentforthe
reasonoftheassesseefailingtodisclosefullyandtrulyallmaterialfactsforthepurposeofthe
assessment.Intheoriginalassessmenthadexaminedtheclaimoftheassesseepertainingtodeduction
undersection80HHC,atconsiderablelength.Hence,thenoticeofreassessmentwasnotvalid.(A.Y.
20042005)
ILAGIndustriesP.Ltd.v.ACIT(2013)353ITR393(Guj)(HC)
S.147:Reassessment Subsequent information that lease agreement was not genuine Reassessment
washeldtobevalid.[S.148]
The assessee was a manufacturer of television sets and it also ran a business in leasing of computers.
During assessment year 199091, it purchased computers from PCL and on the same date leased them
to AIL, which in turn subleased to PCL, this being a lease back transaction. In the original assessment,
the assessee had disclosed the lease rent received and it was assessed as such. The Assessing Officer
came to know during the course of assessment proceedings for the assessment year 199394, that
substantialamountofdeductionclaimedbywayofleaserentalshadbeensurrenderedfortaxationby
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thelessees.Theleaserentpaidtotheassesseewasalsoincludedintheamount.TheAssessingOfficer
had come to know that PCL had sold the same computers to the assessee which on paper had been
leased out it. On enquiry, it was found that PCL had not delivered the computers to the assessee nor
weretheydeliveredtoAIL.TheAssessingOfficeralsocametoknowthattheleaserentalswerenotpaid
totheassesseebyAILbutbyPCL.Thereassessmentproceedingswerevalid.(A.Y.19901991)
VideoElectronicsLtd.v.JCIT(2013)353ITR73(Delhi)(HC)
S.147:Reassessment Duty of assessee to disclose facts Depreciation claimed on building on the
ground that it constituted plantTwo issues one issue one issue was held validReassessment cannot
beheldtobeinvalid.[S.148]
Omission of the assessee to bring to the assessing authority's attention particular items in the account
books, or to particular portions of the documents which are relevant, will amount to omission to
disclose fully and truly all material facts necessary for his assessment. Nor will he be able to contend
successfullythatbydisclosingcertainevidence,heshouldbedeemedtohavedisclosedotherevidence,
which might have been discovered by the assessing authority if he had pursued investigation on the
basis of what has been disclosed. Where reassessment proceedings are started with regard to more
than one issue if the reopening is sustainable on one issue, even if on the other issues the exercise of
power under section 147 of the Incometax Act, 1961, is not justified, it would not render the
assumption of jurisdiction under section 147 of the Act invalid. (A. Y. 20062007)
AquagelChemicalsP.Ltd.v.ACIT(2013)353ITR131(Guj)(HC)
S.147:Reassessment Beyond four yearsFailure to disclose facts Loan accepted in subsequent
yearsReassessment was not validAlternative remedy is not a bar for issue of writ. [Art
226.ConstitutionofIndia]
ItwasnotthecaseoftheRevenuethattheassesseedidnotexplainthesourcefromwhichtheloanwas
funded, even though it was called upon to do so. It was also not the case of the Revenue that any
informationfurnishedbytheassesseewithregardtothesourceoffundsfortheloanwasfalse.Theloan
was disclosed in the return of income for AY 198384. The Assessing Officer upon consideration of all
relevantrecordsacceptedtheloan,notonlyinthatyearbutinsubsequentyearsaslateasin198990.
Therefore, the Assessing Officer lacked jurisdiction to reopen the assessment after four years. (A. Y.
19831984)
Mimec(India)P.Ltd.v.Dy.CIT(2013)353ITR284(Cal.)(HC)
S.147:Reassessment Beyond four years Subjectmatter of appeal Reassessment was not valid.
[S.148]
TheAssessingOfficerreopenedtheassessmentonthegroundthatwhilecomputingthetaxableincome,
from the net profit and income and expenditure account, the assessee had deducted under the head
"provision written back. The second ground was based on the fact that, in view of the retrospective
introduction of Explanation 6(b) to section 43 of the Act by the Finance Act, 2008, w.e.f 1
st
April 2003,
theassessee'sclaimrequiredtoberestricted.Thesecondgroundwasthesubjectmatterofappeal.By
virtueofthesecondprovisotosection147,incomeinvolvingmatterswhicharesubjectmattersofany
appeal,referenceorrevisionhasexpresslybeentakenoutofthepurviewofthesection147.(A.Y.2003
2004)
NationalDairyDevelopmentBoardv.Dy.CIT(2013)353ITR538(Guj.)(HC)
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S.147:ReassessmentAssessmentsetasideReassessmentwasheldtobenotvalid.
Held,that thematerialonwhichtheAssessingOfficerhadformedthebeliefasregardsescapementof
income, was the assessment order for the year 200607, which on the date of reopening of the
assessmentfortheyearunderconsiderationwassetasidebytheCIT(A)andassuchhadnoexistencein
theeyesoflaw.Therefore,thenoticecouldnotbesustained.(A.Y.20052006)
P.G.FoilsLtd.v.Dy.CIT(2013)353ITR548(Guj.)(HC)
S.147:ReassessmentSubject of appealSecond provisoDepreciation was not subject matter of
appealReassessmentwasheldtobeinvalid.[S.32]
Held,dismissingthewritpetitionthat,theamountofdepreciationwhichwasallowedbytheAssessing
Officer,whilecompletingtheassessmentundersection143(3)wasneverbeforethehigherauthorities.
Therefore, the second proviso to section 147 upon which reliance was placed was wholly inapplicable.
SincethenoticecontainedthereasonandtheassesseewaspresentbeforetheAssessingOfficerthere
wasnoneedforinterferencebythecourt.(A.Y.20062007)
IndianMetalsandFerroAlloysLtd.v.ACIT(2013)353ITR561(Orissa)(HC)
S.147:Reassessment Deduction of expenses on voluntary retirement scheme Subsequent CBDT
circularReassessmentwasheldtobenotvalid.[S.148]
During the assessment, after considering the submissions of the assessee, the Assessing Officer
accepted the assessee's stand and did not disallow the expenditure incurred on the voluntary
retirementscheme.AsubsequentBoard'scirculardtJanuary23,2001(2001)248ITR257(St)laiddown
general guidelines for the Assessing Officer to follow while examining the claims of the assessee for
deduction as revenue expenditure, the amount expended as ex gratia payment for retrenchment of
employees under the voluntary retirement scheme. The Assessing Officer, therefore, could not have
blindlyreliedonsuchcirculartoholdabeliefthatintheassessee'scase,incomechargeabletotaxhad
escapedassessment.Thenoticeofreassessmentwasnotvalid.(A.Y.19971998)
ArvindPolycotLtd.v.ChandraRam(2013)353ITR511/214Taxman156(Guj.)(HC)
S.147:ReassessmentNoticeFullfactsdisclosedReassessmentwasheldtobeinvalid.[S.148]
Sincetheassesseehadenclosedthedetailsofvaluationofpolisheddiamondsandthemethodologyfor
workingouttheaveragecostofpolisheddiamondspercaratandafterthisdetailedexerciseundertaken
by the Assessing Officer, original assessment. Was framed, there was no failure on the part of the
assessee to disclose fully and truly all material facts for the purpose of assessment. The notice of
reassessmentafterfouryearswasheldinvalid.(A.Y.20032004)
BalarExportsv.Dy.CIT(2013)353ITR422(Guj.)(HC)
S.147:ReassessmentLimitationNotice on the ground to give effect to appellate order would result
inescapementofincome.Reassessmentnoticewasquashed.[S.150]
HeldthattheassessmenthadnotbeenreopenedtogiveeffecttotheorderoftheCIT(A),butbecause,
accordingtotheAssessingOfficer,givingeffecttotheordermadebytheCIT(A)wouldresultin
escapementofincome.Thus,ineffectandsubstancetheAssessingOfficerwassittinginappealoverthe
orderpassedbytheCommissioner(Appeals).Theingredientsforinvokingsection150oftheActwere
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clearlynotsatisfied.Hence,thereassessmentnoticewasliabletobequashed.(A.Y.19891990)
HarsiddhSpecificFamilyTrustv.JointCIT(2013)353ITR500(Guj.)(HC)
S.147:ReassessmentBeyond four yearsAccounting treatmentChange in treatment of subsidy
Reassessmentheldtobenotvalid.[S.148]
In 1995, the assessee received subsidy at the rate of 30 per cent of the investment in eligible assets.
Noticeundersection148wasissuedforAY200405totheassesseeonthegroundthatthesubsidyhad
beenwronglydistributedamongstthepartnersinsteadofbeingutilizedforbusinesspurpose.Held,that
eitheronaccrualoractualreceipt,thetaxableeventdidnotariseduringtheyearunderconsideration.
Intherelevantyear,nothinghadhappenedwhichwouldpermittheDepartmenttocollecttaxonsuch
receipt. The fact that for accounting purposes the assessee changed the nature of treatment of such
subsidy amount received in the year 1995, would not permit the Revenue to examine the taxability of
suchreceipt.(A.Y.20042005)
ChimanlalandSonsv.Dy.CIT(2013)353ITR344(Guj.)(HC)
S.147:ReassessmentChangeofopinionInteresttopartnerReassessmentwasnotvalid.[S.148]
Aperusaloftheassessmentorderasoriginallyframedundersection143indicatedthatwhilecomputing
the profit as per the profit and loss account, the Assessing Officer had added interest to partners and
remunerationtopartnersandthereafter,allowedthededuction,whichclearlyexhibiteddueapplication
of mind on the part of the Assessing Officer. The view taken by the Assessing Officer was a plausible
view.OncetheviewtakenbytheAssessingOfficerwasaplausibleview,thenoticeissuedundersection
148 based on a change of opinion was not valid. (A. Y.20052006)
TulsiDevelopersv.Dy.CIT(2013)353ITR530(Guj.)(HC)
S.147:ReassessmentRecorded reasonsDifferent groundsNotice cannot be held to be valid on
different groundBeyond four years Failure to disclose interest at higher rateReassessment on this
groundwasheldtobevalid.[S.37(1),80HHC,80IA,148]
When the assessee objected to the grounds of reopening of assessment and pointed out in detail that
the claims were valid and that no double claims, as alleged, were made, the Assessing Officer in the
orderrejectingtheobjectionswentonyetdifferentaspectaltogether.Thiswasnotpermissibleandthis
wouldnotformavalidbasisforreopeningtheassessment.
In this case, it could not be said that the assessee failed to fully and truly disclose all material facts. In
the original assessment, the Assessing Officer scrutinized the claim of the assessee under section
80HHC.Evenintheorderdisposingoftheobjections,theAssessingOfficerhadnowherestatedthatthe
assesseefailedtodisclosefullfactswithrespecttosuchclaim.Thisgroundofreopeningtheassessment,
therefore,wasnotvalid.
MerelybecausetheAssessingOfficerdidnotdisallowtheclaimoftheassesseeundersection80IA,that
wouldnotbeagroundtopermitreopeningofsuchallegedunderassessedincomebeyondtheperiodof
fouryears.
Fromthefactsonrecord,itwasnotpossiblefortheAssessingOfficertoascertainthattheassessee
receivedinterestfromsisterconcernwhichwashigherthanthenormalrateofinterest.Sincethisfact
wasrelevanttotheprovisionsofsection80IA(10),thenoticeonthisgroundwasvalid.(A.Y19971998)
SunPharmaceuticalIndustriesLtd.v.Dy.CIT(No.1)(2013)353ITR450(Guj.)(HC)
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S.147:ReassessmentRecorded reasonsWithin four years Sufficiency of reasonsInterest from sister
concernathigherrateReassessmentwasvalid.[S.37(1),80IA,148.]
Inquiryatthestageoffindingoutwhetherthereassessmentnoticeundersection148isvalidisonlyto
seewhethertherearereasonablegroundsfortheIncometaxOfficertobelieveandnotwhetherthe
omission/failureandtheescapementofincomeisestablished.SincethebeliefisthatoftheIncometax
Officer,thesufficiencyofreasonsforformingthebeliefisnotforthecourttojudge.Theassesseehad
failedtodisclosefullyandtrulyallmaterialfacts.Theonlydisclosuremadewasthattheassesseehad
earnedinterestincomeofRs.3,03,48,973.Therewasnofurtherinformationavailableonrecordthat
suchinterestincludedoverduepaymentchargesattherateof24percent.receivedfromitssister
concernviz.,AM.Threeessentialfacts,namely,thattheassesseereceivedinterestonoverdue
paymentsfromAM,thatAMwasasisterconcernoftheassesseeandthatsuchinterestwaschargedat
therateof24percent.perannum,werenotdiscerniblefromtherecordatall.Underthe
circumstances,fromthematerialonrecord,itwasnotpossiblefortheAssessingOfficertomake
adjustmentundersection80IA(10)evenifitwasrequired.Itmaybethattheassesseedidgivethetotal
figureofinterestreceived.However,fromsuchfigures,itwasnotpossiblefortheAssessingOfficerto
ascertainthesevitalfacts.Evenfromtheaccountbooksandotherevidencewhichtheassesseehad
produced,evenafterduediligence,itwasnotpossiblefortheAssessingOfficertodiscoverthesethree
vitalfacts.Thenoticeofreassessmentissuedwithinfouryearswasvalid.(A.Y.19992000)
SunPharmaceuticalIndustriesLtd.v.Dy.CIT(No.2)(2013)353ITR474(Guj.)(HC)
S.147:ReassessmentDirection for assessmentAssessment in pursuance of direction. [S. 144A, 148,
263]
The petitioner invoked the provisions of section 144A. Pursuant thereto, the Additional Commissioner
passedanorderundersection144AdirectingtheAssessingOfficernottotreatthesharetradinglossof
as deemed speculation loss, after which the assessment was framed. After the assessment was made,
theAssistantCommissionerissuednoticeundersection148oftheAct.Held,sincetheDepartmentdid
nottakestepstorevisetheorderpassedundersection144Abyinvokingtheprovisionsofsection263,
the notice under section 148 issued by the Assistant Commissioner could not be sustained. (A. Y.2001
02)
AmritSalesPromotionPvt.Ltd.v.UOI(2013)353ITR68(Cal.)(HC)
S.147:ReassessmentAbatementofproceedingsDeathoflegalrepresentativebroughtonrecord
Applicationforsubstitutionoflegalrepresentativeswasnotconsideredwhilepassingtheorder.
Orderwasrecalledonareviewpetition.[S.148]
The Assessing Officer completed the reassessment against the deceased assessee without issuing
notices to all his legal representatives. The CIT(A) accepted the contention of the assessee that since
noticeshadnotbeenissuedtoallthelegalrepresentativesoftheassessee,theproceedingswerewholly
withoutjurisdiction.TheTribunalandtheHCaffirmedtheviewsoftheCIT(A).Onareviewpetition,held
allowingthepetitionthatthecoordinateBenchproceededtoconsidertheappealashavingabated,for
thelegalrepresentativesoftheassesseehavingnotbeenbroughtonrecord.Theobservationshadbeen
made even to the effect that the Revenue had not moved any application seeking substitution of the
legal representatives of BPB. It was clear that while passing the order dated September 16, 2011, the
factthattheRevenuehadindeedmovedanapplicationseekingsubstitutionofthelegalrepresentatives
oftheassessee,hadbeenoverlooked.Theappealcouldnothavebeenconsideredashavingabatedand,
hence,theorderdatedSeptember16,2011,wasrequiredtoberecalled.
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CITv.MangiLal(2013)352ITR422(Raj.)(HC)
S.147:ReassessmentNoticeafterfouryearsInformationregardingtransportsubsidyavailablein
auditedaccountsandstatementsReassessmentwasnotvalid.
Theassesseehaddisclosed,veryclearlyandthoroughly,itstransportsubsidyreservewas.TheRevenue
couldnotsaythattheassesseedidnotdiscloseallsuchmaterialfacts.Therewasnoomissionorfailure
onthepartoftheassessee.Reassessmentwasnotvalid.(A.Y.19971998)
CITv.SonitpurSolvexLtd.(2013)352ITR305/258CTR420/215Taxman87/85DTR262(Gauhati)(HC)
S.147:ReassessmentRetrospective amendmentNotice beyond four yearsReassessment held to be
invalid.[S.80HHC]
Whether when Legislature amends provisions of Act with retrospective effect, it cannot be said that
therewasfailureonpartofassesseetodisclosefullyandtrulyallmaterialfactsrelevantforpurposeof
assessment.Therefore,reassessmentproceedingswereliabletobesetaside.
CITv.K.MohanandCo.(Exports)(Regd.)(2013)349ITR653/214Taxman17(Mag.)(Bom.)(HC)
S.147:ReassessmentGrounds for reopeningNo opinion in assessment order regarding allowability
Reassessmentwasheldtobeinvalid.[S.80IB].
Inspiteoffulldisclosure,theAssessingOfficergavebenefitoftheprovisionbyconsideringthematerials
onrecord.ThefactthattheAssessingOfficer,intheassessmentproceedingsundersection143(3),did
notgiveanyopinionregardingtheallowabilityorotherwiseofdeductionundersection80IB(10)isnot
agroundforinvokingsection147
GaneshHousingCorporationLtd.v.Dy.CIT(2013)350ITR131/214Taxman18(Mag.)(Guj.)(HC)
S.147:ReassessmentNondisclosure of primary factsChange of opinion One year within two years
otheryearsbeyondfouryearsReassessmentwasheldtobeinvalid.[S.80IB,143(3)].
Since the AO had also noted that the eligibility of the assessee for claiming a deduction under section
80IBhasbeendulyverified,itwouldbetotallycontrarytotherecordforhimtostatethatthenatureof
the activity of the assessee was not verified during the course of the assessment proceedings. For
assessment years 200708 and 200809, reopening the assessment on this ground would amount to
changeofopinion(A.Ys.200506to200809).
DynacraftAirControlsv.SnehaJoshi(Smt.)(2013)214Taxman183(Bom.)(HC)
S.147:ReassessmentGroundofreassessmentdroppedOtherincomecannotbeassessed.[S.148].
Wheregroundonwhichreassessmentnoticeunder section148wasissuedwasdroppedwhilepassing
reassessmentorder,AssessingOfficercouldnotreassessorassessanyotherincomewhichhasescaped
assessment and comes to his notice in reassessment proceedings. Hence, the reassessment order was
liabletobesetaside(A.Y.199900).
CITv.DoubleDotFinanceLtd.(2013)214Taxman47(Mag.)(Bom.)(HC)
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S.147:ReassessmentQuaantum of escaped tax Reopening invalid if reasons silent on
quantumofescapedtax.(S.148,149,151)
InAY20002001theassesseesoldaplotoflandafterconvertingleaseholdlandintofreehold.
The capital gains arrived at was offered as LTCG and the same was accepted by the AO. After
the expiry of 4 years, the AO issued a notice u/s 148 for reopening the assessment on the
groundthatasthepropertywassoldwithinthreeyearsofconversionintofreehold,thegains
were assessable as STCG. The approval of the Joint/ Addl. CIT was obtained. However, in the
recorded reasons, it was not stated whether the amount of income escaping assessment
exceededRs.1lakh.Theassesseechallengedthereopeningonthegroundthatastherecorded
reasonsdidnotstatethattheincomeescapingassessmentisRs.1lakhormore,thereopening
wasinvalid.HELDbytheHighCourtupholdingtheplea:
S.149(1)(b)providesthatnonoticeu/s148shallbeissuedaftertheexpiryof4yearsfromthe
end of the relevant AY unless the income chargeable to tax which has escaped assessment
amountstoRs.1lakhormore.Undertheprovisotos.151(1),nonoticeu/s148canbeissued
aftertheexpiryoffouryearsfromtheendoftherelevantAYunlesstheCCIT/CITissatisfiedon
the reasons recorded by the AO that it is a fit case for issue of such notice. Accordingly, it is
imperativethattheAOshouldstateintherecordedreasonsthattheescapedincomeislikelyto
beRs.1Lakhormoresothatthesanctioningauthorityisawarethatithasexercisedpowerof
extendedperiodoflimitationu/s149(1)(b)andappliesitsmindaccordingly.Asanctiongiven
without being aware of this fact is not valid. On facts, as there is nothing in the recorded
reasonstosuggestthattheincomechargeabletotaxwhichhasescapedtheassessmentisRs.
onelakhormore,thereopeningisnotvalid.(A.Y.20002001)
MaheshKumarGuptav.CIT(2013)215Taxman114(Mag.)(All)(HC)
S.147:ReassessmentReasontobelieveReopeninghastobeonthebasisofsometangible
materialavailabletotheAssessingOfficer.Onthesamematerialreassessmentheldtobenot
valid.(S.80IA(4)
Exerciseofreopeninghastoonthebasisofsometangiblematerialbecomingavailablewiththe
Assessing Officer. There has to be a rational connection and a live link between the material
discoveredandtheformationofbeliefbytheAssessingOfficer.OncetheAssessingOfficerhad
applied his mind and allowed deduction u/s. 80IA(4) to the assessee on the basis of material
before him, it was not permissible for him to reopen the assessment u/s. 147 on the same
materialonthegroundthatcertainaspectswerenotconsideredorthattheywereoverlooked;
achangeofopinionisnogroundforexerciseofpowersu/s.147.(A.Y.200708)
AgrawalJVv.ITO(2013)83DTR101/257CTR112(Guj.)(HC)
S.147:ReassessmentProviso Full and true disclosure Notice after expiry of four years.
(S.80M,148.)
Assesseehadclaimeddeductionu/s.80MwhichtheAOgrantedwithoutdiscussingtheissuein
the order and without looking into the provisions of the Act. The AO had erred while framing
the original assessment. Therefore, merely by adding a line in the reasons recorded that the
assesseehadfailedtodisclosefullyandtrulyallmaterialfacts,therequirementsoftheproviso
tos.147wouldnotbesatisfied.Reassessmentwasheldtobeinvalid.(A.Y.199596)
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Himson Textile Engineering Industries Ltd. v. N.N. Krishnan or His Successor to Office (2013)
83DTR132(Guj.)(HC)
S.147:Reassessment Change of opinionReassessment on same set of facts was held to be
badinlaw.(S.148)
AdifferentviewtakenonthesamesetoffactsamountstochangeofopinionReopeningon
changeofopinionisbadinlaw.(AY.200607)
PraveenP.Bharcuhua(Mrs)v.Dy.CIT(2013)256CTR346(Bom)(HC)
S.147:ReassessmentThe expression reason to believe cannot be restrictively construed
The formation of belief by the assessing officer must always be tentative and not a firm or
finalconclusionReassessmentwasheldtobevalid.
Oncetherearereasonsfortheassessingofficertobelieve,whethersuchreasonsoriginateout
oftherecordalreadyscrutinizedorotherwise,heshallbewithinhiscompetencetoinitiatethe
reassessment proceedings. The formation of belief by the assessing officer must always be
tentativeandnotafirmorfinalconclusionasthelatterwillnegatetheveryobjectofgivingan
opportunity of hearing to the assessee. Reassessment based on agreement to sale which was
signedbybothpartiesisheldtobevalid.(A.Y.200102)
ArunKumarGoyalv.CIT(2013)81DTR123/215Taxman692/255CTR330(P&H)(HC)
S.147:ReassessmentFullandtruedisclosureNoticeafterexpiryoffouryearsNoticewithin
four yearsChange of opinion Remuneration to directorsNo tangible material Reopening is
badinlaw.(S.36(1)(ii),148)
Assessee company in the course of original assessment proceedings, has explained the nature
ofthepaymentbasisofcomputationandrationaleforcomputingtheremunerationpaidtothe
directors partly with reference to fixed amount and partly as a proportion of the net profit,
whichwasacceptedundersection143(3).TheAssessingOfficerreopenedthesaidassessment
on the ground that the payment made to a director who is a shareholder is not covered by
section 36((1) (ii) to be eligible for deduction. The Assessee challenged the said notice by writ
petition,theCourtquashingthenoticeheldthatthereassessmentwasbasedonapurechange
ofopinionandnotontangiblematerialandhenceitisimpermissibleinlaw.Inrespectofnotice
issued after four years the notice was quashed on the ground that in the absence of any
allegationinthenoticethattherewasfailureonthepartoftheassesseetodisclosurefullyand
trulymaterialfactsfortheassessment,reopeningofassessmentdoesnotfulfilltherequirement
setoutintheprovisotosection147,thereforethenoticewasquashed.(A.Y.200506,200607,
200708,200809))
OHM Stock Brokers (P) Ltd v.CIT(2013) 351 ITR 443/258 CTR 90/85 DTR 111/215 Taxman 53
(Bom.)(HC)
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S147:ReassessmentDeductionatsource194Cisnotapplicableinthefirstyearofoperation
Consequently,noticeissuedu/s148todisallowexpenditurefornoncomplianceofs.194Cis
liabletobequashed.(S.143(3),194C)
Anoticeu/s148wasissuedwithinaperiodoffouryearsformtheendofrelevantAsst.Yearso
as to disallow an amount of Rs. 3,07,59,872/ in respect of labour charge on the pretext that
the assessee failed to deduct tax at source u/s. 194C at the time of making the said payment.
Assessmentwasframedearlieru/s.143(3)withoutmakingdisallowanceinrespectofthesame.
According to Proviso to Section 194C(2) an individual or HUF is supposed to deduct tax at
sourceonlyifitstotalsales,grossreceiptsorturnoverfromitsbusinessorprofessionexceeds
monetary limits specified under clauses (a) or (b) of Section 44AB during the financial year
immediately preceding the financialyear in which such sum is creditedor paid. This being the
firstyearofoperation,thesaidconditionisnotfulfilledandhencetheassesseeisnotsupposed
todeducttaxu/s.194CHenceAOsreasontobelievethatincomechargeabletotaxincaseof
assessee has escaped assessment is without foundation andlacks validity. Accordingly, the
impugnednoticeissuedu/s.148isquashed.(SCA12243of2009,dt,16/07/2012)](2012)
HarshadbhaiNaranbhaiBagadia.(2012)BCAJNovemberP.399/(2013)86DTR89(Guj.)(HC)
S.147:ReassessmentNoticeReturnnonestOnceDepartmentacceptsthetaxpaidunder
returnsofincomefiledbyanassesseewithouteverquestioningthatsuchreturnswerefiled
beforeawrongofficer,itcannotlatercontendthatsuchofficerhadnojurisdictiontoaccept
thesame.[S.143(1),143(3,148]
Assessee had filed its return of income before his normal Assessing Officer which were
accepted by such officer u/s.143(1) whereas hewas actually supposed to file the same before
the special Assessing officer designated as such consequent to search action at the assessees
premisesinthepastHence,theassessmentwassoughttobereopenedonthesolegroundthat
assesseehadfiledreturnofincomewithotherwardswithmalafideintentions.Itwasheldby
the Honble High Court that the assessee had discharged his liabilities by filling returns of
income and the same being accepted vide intimation u/s.143(1)Since the Department has
acceptedthetaxpaidundersuchreturnswithouteverquestioningfillingofsuchreturnbeforea
wrongofficer,itcannotnowbeallowedtocontendthatsuchreturnswerefiledbeforewrong
officerswhohadnojurisdictiontoacceptthesame.Sincethesolegroundforsuchreopening
oftheassessmentwasnotsustainablenoticeu/s.148werequashed.(A.Y.199798)
BipinkumarP.Khandheria(2012)BCAJNovemberP.402/(2013)354ITR268(Guj.)(HC)
S.147:ReassessmentAdvanceRulingBindingPrecedentReassessmentbasedonsomeother
casethedecisionwasoverruledcannotbethegroundforreassessment.(S.245S,263).
Theassessee,aforeigncompanyhavingresidentialstatusofnonresident,hadapproachedthe
AuthorityforAdvanceRulings,wherebyitwasheldthatprofitsarisingtoitfromrealizationof
portfolio investments in India will be treated as business profits. The loss on sale of shares
claimed by the assessee under the head 'profits and gains from business or profession' was
accepted by the Assessing Officer under section 143(3).A notice to reopen assessment under
section 147 was issued on grounds that the Advance Ruling in assessee's own case was
overruled by a subsequent Advance Ruling in another case, which held that earnings on
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purchaseandsaleofshareswouldbetaxableunderthehead'capitalgains'andnot'profitsand
gainfrombusinessorprofession.Consequently,areassessmentorderwaspassed. The
TribunalsetasidetheorderoftheAssessingOfficerongroundsthatfortwootherassessment
years, the Director of Incometax had initiated proceedings under section 263 on identical
grounds which had been set aside in a writ petition, the Court held thatAdvance Ruling in
assessee's own case cannot be overruled by a subsequent Advance Ruling in case of another
assessee ,accordinglyreopening of assessment under section 147 on above ground was not
valid, particularly when there was no failure on part of assessee to make full and true
disclosure.Infavourofassessee.(A.Y.200304)
DIT.v.PrudentialAssuranceCo.Ltd.(2013)352ITR66/213Taxman111(Bom.)(HC)
S.147:ReassessmentExchangeofinformationDTAAIndiaJapan.Reassessmentproceedings
initiated on basis of information received from Government were held to be valid.
(S.90,148,Art.26)
For the assessment year 200607, the assessee's return was processed under section 143(1).
Subsequently, the Assessing Officer received information from the Government of India that
the assessee had received certain amount from a Japanesecompany. Since said amount was
not shown in books of account by the assessee, a notice was issued under section 148.The
assesseechallengedtheimpugnednoticeininstantwritpetition.Revenuecontendedthatthe
informationwasreceivedfromtheforeigntaxauthoritiesundertheaegisoftheOECDonwhich
the respondent had no control and hence, the credibility of the information could not be
questioned. Assessee contended that the Japanese authorities had no authority to verify the
accountsoftheassesseetofindoutwhethertheamountinquestionhadbeenaccountedforin
its books and, therefore, the Assessing Officer was not right in stating that the information
receivedfromtheJapaneseauthoritiesrelatedonlytotheamountnotdisclosedinthebooksof
accountoftheassessee.ThematerialinthepossessionoftheAssessingOfficercouldnotinany
case constitute 'reason to believe' so as to clothe him with jurisdiction to reopen the
assessment.The court held that the very fact that this information was received from a
Governmentagencyunderarticle26ofDTAA,samewouldconstitutelivelinkornexusbetween
material and formation of belief that income to that extent had escaped assessment. (A.Y.
200607)
Mitsui&CompanyIndia(P.)Ltd.v.ITO(2013)213Taxman32(Delhi)(HC)
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onthesubjectofalistofbeneficiariesofaccommodationentries.Thereafter,onNovember9,
2009,theassesseefurnishedareplytothequestionnaireandgavedetailsofthesharecapital
raised by it and furnished confirmations from the parties. The Assessing Officer, in order to
furtherverifyandconfirmthefacts,issuednoticesundersection133(6)totheshareapplicant
companiesdirectlyandallthefivecompaniesrespondedtothosenoticesandreaffirmedtheir
respective confirmations. Thereafter, assessment was framed on December 30, 2012. The
assessment was reopened and the main reason for reopening the assessment of the assessee
was that there were bogus accommodation entries and the assessee was one of the
beneficiariesoftheaccommodationentriestotheextentofRs.1,35,00,000.Thereasonsalso
indicatedthattheinformationthattheentrieswereaccommodationentriesandwereprovided
by bogus companies were not available with the Assessing Officer at the time the assessment
was done under section 143(3). On a writ petition : Held, allowing the petition, that the plea
taken in the reasons that the information was "neither available with the Department nor did
theassesseedisclosetheinformationatthetimeofassessmentproceedings"wasfactuallynot
correct. The information was available with the Department and it had been circulated to all
theAssessingOfficers.TherewasnothingtoshowthattheAssessingOfficerdidnotreceivethe
information. There was also nothing to show that the Assessing Officer had not applied his
mind to the information received by him. On the contrary, it was apparently because he was
mindfuloftheinformationthatheissuednoticesundersection133(6)directlytothepartiesto
confirmthefactumofapplicationofsharesandthesourceoffundsofsuchshares.Therefore,
the very foundation of the notice under section 148 was not established even ex facie.
Consequently, it could not be said that the Assessing Officer had the requisite belief under
section 147 and, as a consequence, the notice and the order rejecting the objections were
liabletobequashed.(A.Y.20072008)
Pardesi Developers and InfrastructurePvt.Ltdv.CIT(2013) 351 ITR 8/258 CTR 411/86 DTR 120
(Delhi)(HC)
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306
alongwiththereturn.Thiswasaclearstatutorydisclosureonthepartoftheassesseewith
regardtotheclaimofclubexpenditure.Itwasnotapieceofevidencewhichwashiddenin
somebooksofaccountandwhichtheAssessingOfficercouldhavepossibly,withduediligence,
discovered.Onthecontrary,thiswasmaterialwhichwasplacedbeforetheAssessingOfficer
alongwiththereturnwhichtheAssessingOfficerwasdutyboundtogothroughbefore
completingtheassessment.Therefore,thecasecouldnotfallinthecategoryofmaterialwhich
wasreferredtoinExplanation1tosection147.(A.Y.20032004)
RanbaxyLaboratoriesLtd.v.Dy.CIT(2013)351ITR23/213Taxman91(Delhi)(HC)
S.147:ReassessmentNoticeDutytodiscloseprimaryfactsLicencefeeforuseofgoodwill
Claim based on terms and conditions of licence agreementFailure on part of assessee to
furnish primaryfactsfullyandtrulyattimeoforiginalassessmentnoticeisheldtobevalid
Notice need not contain list of documents required to be furnished, but not actually
furnished,bytheassessee.(S.143(1),148.)
Fortheassessmentyears200203to200607,amountspaidbytheassesseeunderalicence
agreementforuseofgoodwillwereclaimedandallowedasdeduction.Inthecourseofthe
assessmentproceedingsfortheassessmentyears200304,200405,200506and200607the
assesseedidnotfurnishthelicenceagreementbeforetheAssessingOfficer.Inthecourseof
theassessmentproceedingsfortheyear200708thelicenceagreementwasexaminedbutthe
claimfordeductionofthelicencefeepaymentwasfoundnotallowable.Thereafter,notices
wereissuedonthegroundthattheassesseehadnotdisclosedallmaterialfactscorrectlyand
fullyandtherewasfailureonitsparttodisclosefullyandtrulyallmaterialfactsnecessaryfor
itsassessmentintermsoftheprovisotosection147oftheIncometaxAct,1961,byreasonof
whichtherewasescapementofincomechargeabletotax.Onawritpetitioncontendingthat(i)
thereasonsrecordedforreopeningtheassessmentdidnotallegethattheassesseefailedto
filethelicenceagreementnorwasthereanythinginthecounteraffidavittothateffectand,
therefore,itwasnotopentotheRevenuetotakeupthatpointforthefirsttimebeforethe
court;and(ii)thepartnershipdeedwhichwasfiledinthecourseoftheoriginalassessment
proceedingsnarratedthehistoryofthefirminthepreamblewhereintherewasareferenceto
thepaymentofthelicencefeeasalsototheagreement,whichwouldamounttosufficient
disclosure.Held,dismissingthepetitions,(i)thatitwasnotnecessaryfortheAssessingOfficer
tolistthedocumentsthatwererequiredtobefurnished,butnotactuallyfurnished,bythe
assesseeinthecourseoftheoriginalassessmentproceedings.Theprimaryconditionfor
reopeningassessmentisthatthereshouldbereasontobelievethatincomechargeabletotax
hadescapedassessment.Theclaimfordeductionofthelicencefeepaymentundeniablywas
basedonthetermsandconditionsofthelicenceagreement.Neitherthepartnershipdeednor
theletterinquestioncouldbeconsideredtobeprimaryfactsonthebasisofwhichan
inferenceastotheallowabilityofthelicencefeepaymentcouldbeproperlydrawnbythe
AssessingOfficer.Theprofitandlossaccount,thetaxauditreportanditsannexuresandthe
repliestothequestionnaireissuedbytheAssessingOfficerinthecourseoftheoriginal
assessmentproceedingsdidnotcontainanythingwithregardtothelicencefeeagreement.
Thisdisclosurewasonlyforthepurposeofsection40A(2)(b)whichpermitstheAssessing
Officertodisallowsuchpaymentstotheextenttheywerefoundtobeunreasonablehaving
regardtothevariousfactorsspeltoutinthesection.Furnishingoftheseparticularscouldinno
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waybeconsideredasfurnishingtheprimaryfactsinrelationtotheallowabilityofthepayment
ofthelicencefeeswhichcouldbeadjudicatedupononlyifthetermsandconditionsstipulated
intheagreementweremadeknowntotheAssessingOfficer.
(ii)ThatitisdifficulttoattributeanyknowledgetotheAssessingOfficerwhileheisdealingwith
a return for a particular year under section 143(1), as to what he had done in the case of the
same assessee in the earlier assessment years. Therefore, it would not be correct to say that
the Assessing Officer consciously allowed the licence fee payment as a deduction when he
accepted the return under section 143(1). There is nothing in section 147 prohibiting the
reopening of an assessment completed under section 143(1) on the ground that the assessee
failedtofurnishtheprimaryfactsfullyandtruly.Therefore,failuretofurnishtheprimaryfacts
would constitute reason to believe authorising the issue of notice under section 148 also in a
case where the first assessment was made by a mere processing of the return under section
143(1).(A.Y.20022003to20062007)
RemfryandSagarv.CIT(2013)351ITR75/84DTR65/213Taxman268(Delhi)(HC)
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ConvergysCustomerManagementvADIT(2013)212Taxman613/255CTR482(Delhi)(HC)
S.147:Reassessment DTAA IndiaUSASince all facts relating to royalty income had been
placedonrecordincourseofassessment,initiationofreassessmentproceedingsonbasisof
changeofopinionwasnotsustainable.(S.9,44D,115A,Art.12).
The assessee, a nonresident company, had entered into a master licensing agreement (MLA)
with MIPL. In terms of said arrangement the MIPL was granted nonexclusive right to use the
assessee'ssystematagreedlocationsinIndia.ThetermsalsorequiredMIPLtopaytheassessee
initialfranchisefeeupontheopeningofeachrestaurantandroyaltyonrecordedmonthlysales
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of each restaurant during the period. For the relevant assessment years, scrutiny assessments
werecompletedaftertherelevantdocumentsandmaterialswereconsidered.Subsequently,a
noticewasissuedundersection148proposingtoreopentheproceedings.Theassesseefiledits
return and assessment was completed. On said occasion, the Assessing Officer accepted the
assessee's submissions that the rate of taxation applicable was 15 per cent as originally held
andassessedtheroyaltyreceiptsinrespectoftherelevantassessmentyears.Aftercompletion
of reassessment proceedings, again in respect of the same assessment years the Assessing
Officersoughttoinitiateproceedingsafresh.Thereasonforreopeningtheassessmentwasthat
article 12(6), read with article 7 of DTAA between India and USA provides that where an
assesseewasearningincomeinthenatureofRoyaltyorFeesforTechnicalServicesthrough a
permanent establishment situated in the other State, such income was taxable as business
income in accordance with the domestic provisions of the State of source. Therefore, in such
case section 44D, read with section 115A should be applied. The assessee filed its return in
response to notice issued under section 147. The income was held to be taxable in terms of
section 115A, read with section 44D at the rate of 30 per cent. On appeal, the Commissioner
(Appeals)acceptedtheassessee'scontentionthatsincebasicfactsrelevantforroyaltyincome
had been disclosed with other material, inference sought to be drawn could hardly be
characterized as 'reasons to believe'. He thus set aside the reassessment proceedings. The
Tribunal upheld the decision of the Commissioner (Appeals). On appeal by revenue the Court
held thatsince all facts relating to royalty income had been placed on record in course of
assessment, initiation of reassessment proceedings on basis of change of opinion was not
sustainable.(A.Y.200001,200102)
DITv.McDonaldsCorporation(2013)213Taxman26(Delhi)(HC)
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S.147:Reassessment Change of opinionWithin period of four yearsIf there is no fresh
tangiblematerialreassessmentisnotvalidReasonscannotbesupplemented/improvedupon
later.(S.148)
When assessee disclosedall relevant facts,even in case of reopening of assessment within
period of four years from the end of the relevant assessment year, the Assessing Officer has
reasontobelievethatincomechargeabletotaxhasescapedassessmentonthebasisoftangible
material, there being no fresh tangible material which would warrant taking a view different
fromonetakenduringtheregularassessmentproceedings,reopeningwasnotsustainable.The
reasons recorded at the time of issuing noticecannot besupplemented /improved upon later.
Writpetitionofassesseewasallowedandnoticewasquashed.(A.Y.200708)
NDTSystemsv.ITO(2013)81DTR1/255CTR113(Bom.)(HC)
S.147:ReassessmentChangeofopinionBeyondfouryearsThirdprovisoMergerTherewas
no failure on part of assessee to disclose full and true particulars, and order of original
assessment was merged with order of the appellate Authority, hence thereassessment held
tobeinvalid.(S.80IA(8)).
The assessee is in the business of generation of distribution of electricity. Deduction under
section80IAwasallowedundersection143(3).Reassessmentnoticewasissuedontheground
that the assessee has claimed excess deduction under section80IA.Reasseswsment order was
challengedbeforetheCommissioner(Appeals).Commissioner(Appeals)heldthattherewasno
failure on the part of assessee hencethe reassessment was not valid. Tribunal also
confirmedtheorderofTribunal.OnappealbyrevenuethecourtheldthatorderofMaharashtra
Electricity Regulatory Commission was passed by MERCon 1
st
July, 2004 and that order
specificallydealtwithfixationoftariffrateforconsumerandhadnothingtodowiththeactual
profitsearnedbyapowergenerationplant;TheCourtheldthatreopeningofassessmentwas
also barred by in view of the third proviso section 147since the quantum of deductionunder
section 80IA was subject matter of appeal before the Commissioner (Appeals) and the
Tribunaland consequently, the order of original assessment had merged with the order of the
appellateauthority.Accordinglytheappealofrevenuewasdismissed.(A.Y.200102)
CITv.RelianceEnergyLtd(2013)81DTR130/255CTR357/214Taxman64(Mag.)(Bom.)(HC)
S.147:ReassessmentNondisclosureofprimaryfactslossesFactsdifferentfromrecorded
reasonswasheldtobenotvalidhencereassessmentheldtobeinvalid.
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While making assessment for assessment year 199697, Assessing Officer held that loss in
shareshadbeenfraudulentlyclaimed.Accordinglyassessmentforrelevantyearwasreopened
assigningreasonsthatpositionmentionedinassessmentyear199697 alsoexistedinrelevant
year.Asfactsofsubsequentyearwerealtogetherdifferentfromfactsofrelevantyear,reasons
recordedbyAssessingOfficerwasnotvalid.Thusaccordingly,reassessmentproceedingswere
tobequashed.(A.Y.199596)
CITv.Kanodia&Sons(2013)212Taxman55(Mag.)(All.)(HC)
S.147:ReassessmentNoticeafterfouryearsChangeofopinionInspectionreportindicating
two different unitsReopening on basis of report to withdraw deduction under section 80IA
isachangeofopinionheldtobenotvalid.(S.80IA,148)
The assessment wascompleted under section 143(3) and deduction under section 80IA was
allowed. The assessment was reassessed after four yearson the inspection report indicating
different units to withdrawthe deduction under section 80IA. The assesseechallenged the
reassessment proceedingsallowing the petition, the Court held that this wasnota case where
the assessee has failed to disclosefully and truly all material facts and the pre conditionsfor
triggeringtheexceptionintheprovisotosection147werenotsatisfied,thusreassessmentwas
setaside.(A.Y.20002001)
NTPCLtd.v.Dy.CIT(2013)350ITR614/256CTR217(Delhi)(HC)
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fixedassets,loansandadvances,openingandclosinginventory,sundrydebtors,lossonsaleof
fixedassets,repairsandmaintenanceexpenses,detailsoftravellingexpensesforforeignvisits,
etc.,andthesequerieswereansweredbytheassesseeandtheinformationwassubmitted.The
assessmentwascompleted.Thenoticeundersection148wasissuedbeyondtheperiodoffour
years on the ground that the expenditure was debited under the head "repairs and
maintenanceofbuildingandadditionstofixedassets",buttheamountswereactuallysiphoned
off by illegal withdrawals. On a writ petition:Held, allowing the petition, that not only did the
assessee furnish all the relevant details relating to the purchase of fixed assets, repairs and
maintenance of buildings but also the details relating to the foreign travel expenses. The
proceedings relating to the original assessment also showed that the Assessing Officer had
raised queries regarding repairs and maintenance of building, plant and furniture which were
answered by the assessee. No query would appear to have been raised in relation to the
foreign travel expenses in regard to which the assessee had furnished the relevant details.
Therefore,itcouldnotbesaidthattherewasanyfailureonthepartoftheassesseetosubmit
fullandtrueparticularsatthetimeoftheoriginalassessment.ItwasfortheAssessingOfficer
to examine the details and draw the appropriate inferences. The notice under section 148
issuedfortheassessmentyear200405was,therefore,withoutjurisdiction.(A.Y.200405)
RambaghPalaceHotelsP.Ltd.v.Dy.CIT(2013)350ITR660(Delhi)(HC)
MaharajJaiSinghv.ITO(2013)350ITR660(Delhi)(HC)
MaharajPritvirajSinghv.ITO(2013)350ITR660(Delhi)(HC)
S.147:ReassessmentComplaintbydirectorReassessmentheldtobevalid.(S.143(1),148)
For the assessment year 200506, the return of the assessee declaring nil income was
processed under section 143(1) and an intimation was issued on June 6, 2006. On March 30,
2012, notice under section 148 was issued reopening the assessment on the ground that the
complaintfiledbyoneofthedirectorsbefore theCompanyLawBoardregardingirregularities
intheaccountsoftheassessee.Onawritpetition:
Held,dismissingthepetition,thattherewasnoscrutinyassessmentundersection143(3)inthe
firstinstance;thereturnfiledbytheassesseewasmerelyprocessedundersection143(1).The
most basic and indispensable requirements for the validity of the notice under section 148
were satisfied. There was a complaint filed by one of the directors before the Company Law
Board alleging irregularities such as illegal siphoning off of the company's funds by the other
two directors in the guise of fixed assets, repairs and maintenances, travelling expenses, etc.
This complaint constituted tangible material on the basis of which action to reopen the
assessmentcouldbetakeningoodfaith;thebeliefentertainedbytheAssessingOfficeronthe
basisofthecomplaintwhichhadbeenfiledwithsomeresponsibilitybyoneofthedirectorsof
the assessee, could not be said to be a mere pretense nor could the belief be said to be
divorced from the material. The complaint constituted relevant material for the belief.
Therefore, the notice issued under section 148 was within the jurisdiction. The fact that the
assessee submitted all the details to the Assessing Officer along with the return was not
relevantwhereonlyanintimationundersection143(1)wasissuedaftermerelyprocessingthe
return without any scrutiny. There should, however, be reason to believe that income had
escapedassessmentandthisconditionhadbeensatisfiedinrespectofthe(A.Y.200506.)
RambaghPalaceHotelsP.Ltd.v.Dy.CIT(2013)350ITR660(Delhi)(HC)
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S.147:ReassessmentWithinfouryearsTangiblematerialNoquerywasraisedinthecourseof
assessment hence as there is no application of mind by Assessing Officer notice held to be
valid.(S.143(3),148)
Whenanassessmentissoughttobereopenedwithinaperiodoffouryearsfromtheendofthe
relevantassessmentyear,thetesttobeappliediswhetherthereistangiblematerialtodoso.
What is tangible is something which is not illusory, hypothetical or a matter of conjecture.
Somethingwhichistangibleneednotbesomethingwhichisnew.AnAssessingOfficerwhohas
plainlyignoredtherelevantmaterialinarrivingatanassessmentactscontrarytolaw.Ifthereis
anescapementofincomeinconsequence,thejurisdictionalrequirementofsection147ofthe
Incometax Act, 1961, would be fulfilled on the formation of a reason to believe that income
has escaped assessment. The reopening of the assessment within a period of four years is in
these circumstances within the jurisdiction. The Court held, dismissing the petition that no
querywasraisedduringthecourseoftheassessmentandtheassessmentorderwouldexfacie
disclosethattheAssessingOfficerhadnotappliedhismindtoanyofthepointsonthebasisof
which the assessment was reopened. Therefore, there was tangible material for the Assessing
Officertoreopentheassessment.Reassessmentheldtovalidonfacts.(A.Y.20062007)
Export Credit Guarantee Corporation of India Ltd. v. Add. CIT (2013) 350 ITR 651 / 87 DTR
154/259CTR465(Bom.)(HC)
S.147:ReassessmentNoticeSinglejudgepermittingassesseetofileobjectionstonoticeand
directing Assessing Officer to take decision after considering objectionsFailure to file
objectionsAssessee to file objections and order to be passed after considering objections.
(S.133A,148)
The assessee was engaged in jewellery business. During the survey conducted under section
133A of the Incometax Act, 1961, in the assessee's premises on February 1, 2006, the
managing partner of the assessee admitted certain irregularities in the books of account and
offered Rs. 1.5 crores as additional income for investments made by the partners in the
business of the assessee for the assessment year 200607. The income already projected for
advancetaxpaymentin200607wasRs.1croreandtheamountofRs.1.5croreswasoverand
above the estimated income for the year 200607 so that the total income projected was Rs.
2.5 crores and the assessment was completed. Notice was issued for reassessment. On a writ
petition, the single judge found that the proceedings were only at the notice stage and it was
for the assessee to submit objections and it was for the officer to takethe proceedings to the
logical conclusion by passing appropriate orders in accordance with law, after considering the
objections.Sincethetimeforsubmittingobjectionswasover,thesinglejudgegrantedafurther
period of one month. On appealheld dismissing the appeal, that this was a case where the
assesseehadnotcaredtofileanyobjectiontothenotice.Itwasintheexerciseofdiscretionary
jurisdictionthatthesinglejudgepermittedtheassesseetofileobjections.Infact,thestandof
the Revenue was that the objections would certainly be considered. Therefore, the objections
whichtheassesseehadfiledmustnecessarilybeconsideredandreasonsmustbegiven.Inthe
abovecircumstances,interferenceisdeclinedandthewritpetitionisdismissed.However,since
thetimeforsubmittingtheobjectionsisalreadyover,thepetitionerisgrantedafurtherperiod
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of"onemonth"tosubmitthesame.Theproceedingsshallbefinalisedinaccordancewithlaw,
asexpeditiouslyaspossible,atanyrate,withinthreemonthsthereafter.(A.Y.20062007)
Alappat Jewels v. ACIT (2013) 350 ITR 471/257 CTR 358/87 DTR 102/215 Taxman 680 (Ker)
(HC)
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noticesubsequentlyinthecourseoftheproceedings.PriortotheinsertionofExplanation3to
s. 147 by the Finance Act 2009 w.e.f. 1.4.1989, it was clear that if the reason for which the
assessment is reopened fails, the AO could not proceed to assess other income which had
escapedassessment.Forassumingjurisdictiontoframeanassessmentu/s147whatisessential
is a valid reopening. If the very foundation of the reopening is knocked out, any further
proceeding in respect to such assessment naturally would not survive. Explanation 3 to s. 147
doesnotchangethisposition.Explanation3tos.147wasinsertedtocountertheviewtakenby
somecourts(CITv.AtlasCycleIndustries(1989)180ITR319(P&H)&TravancoreCementsLtd.
v.ACIT(2008)305ITR170(Ker.)thatevenifthejurisdictionwasvalidlyexercised,theAOcould
notassesstheotherescapedincomethatwasnotreferredtointhereasons.Itmerelyclarifies
theexistinglawanddoesnotexpandthepowersoftheAOu/s147.IftheAOdropstheground
for which the notice for reopening was issued, it means he had no reason to believe that
income had escaped assessment and so he has no jurisdiction to assess the other escaped
income (CIT v. Jet Airways(I) Ltd. (2011) 331 ITR 236 (Bom), Ranbaxy Laboratories Ltd. v. CIT
(2011)336ITR136(Del.)&MajorDeepakMehta344ITR641(Chhattisgarh)followed;Majinder
SinghKangv.CIT(2012)344ITR358(P&H)notfollowed)(A.Y.200304)
CITv.MohmedJundedDadani(2013)214Taxman38/85DTR12/258CTR168(Guj.)(HC)
S.147:ReassessmentRevenue auditReopening of assessment due to revenue audits
compulsionisvoid.(S.148)
The AO passed a s. 143(3) assessment order in which he allowed the assessees claim for
business expenses. The Revenue Audit raised an objection that as the assessees business had
ceased,theincomehadtoassessedasothersourcesandtheexpendituredisallowed.TheAO
replied to the Audit stating that the objection was not correct and that the assessment order
wascorrect.TheRevenueAuditthereafterwrotetotheCITthattheAOsstandwasnotcorrect.
Basedonthis,theAOissuedas.148notice(within4yearsfromtheendoftheAY)toreopen
the assessment and disallow the expenditure. The assessee challenged the reopening on the
basisthattheAOwascompelledbytheauditpartytoreopentheassessmentthoughhewas
of the belief that no income had escaped assessment. HELD by the High Court upholding the
plea:
If the audit party brings certain aspects to the notice of the AO, he is entitled to reopen the
assessmentafterforminghisownbelief.However,iftheAOactsundercompulsionoftheaudit
party and not independently, the action of reopening would be vitiated. On facts, it is clearly
established that the AO was under compulsion from the audit party to issue notice for
reopeningbecauseaftertheauditpartybroughtthecontroversialissuetothenoticeoftheAO,
he did not agree to the proposal for reexamination of the issue and wrote a letter and gave
elaborate reasons why the assessment order was correct. The s. 148 notice was issued only
after the Revenue Audit wrote to the CIT reiterating its stand that income had escaped
assessment. Consequently, the s. 148 notice had to be quashed [Cadila Healthcare Ltd v. ACIT
(2012) 65 DTR 385(Guj) followed; CIT v. P.V.S Beedies Pvt. Ltd. (1999) 237 ITR 13 (SC)
referred].(A.Y.200708)
VijayRameshbhaiGuptav.ACIT(2013)215Taxman465(Guj.)(HC).
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Assessee is a nonresidential banking company having its headquarters in France. It was
involved in normal banking activities which included financing of foreign trade and foreign
exchange transactions. Assessment was completed under section 143(3).Assessing Officer
initiated reassessment proceedings for three reasons, i.e. loss on sale of investment was a
capital loss, profit on sale of shares was not identifiable in profit and loss account and thirdly
firstprovisotosection48,assesseehadwronglydeductedindexedcostofacquisition.Tribunal
held that deposits in Government securities was not an option of assesseebank. Business
compulsionasperdirectionsofRBIandlossclaimedbybankeitheronvaluationofsecuritiesor
salethereofwastobeallowedasbusinessloss.Asregardssecondreasonnoinfirmityinprofit
andlossaccountasassesseehadaddedbackprofitonsaleofsharesincomputationofincome.
As regard the benefit of indexation under section 48 was undisputed fact that assessee had
purchased shares in Indian currency, first proviso and second proviso to section 48 was not
applicable to assessee's case. Assessing Officer was not justified in initiating reassessment
proceedings.Tribunalalsoheldthatreassessmentproceedingwasinitiatedafterexpiryoffour
yearsfromendofrelevantassessmentyear.Assesseehaddisclosedallmaterialfactsattimeof
assessment.Impugnedreassessmentproceedingswerebarredongroundoflimitationaswell.
(A.Y.200001)
CalyonBankv.Dy.CIT(2013)141ITD521(Mum.)(Trib.)
S.147:ReassessmentNoticeafterfouryearsNofailureonthepartofassesseeReassessment
was held to be bad in law. Order of Commissioner (Appeals) was held to be malafide
AssesseewasallowedcostofRs25000forunnecessarymentalandfinancialharresment.[S.
10B148,234B,234C]
The assessment was completed under section 143(3) and claim under section 10B was allowed. The
assessment was reopened beyond four years ,which was confirmed in appeal .On appeal to Tribunal
the Tribunal held that the reason for reopening given by the Assessing Officer did not fall within the
ambitoftheprovisionsleadingtoescapementofassessment.Itwasachangeofopiniononthepartof
the Assessing Officer. The Assessing Officer had applied his mind while passing the assessment order
and thereafter at the time of passing of revision order. The Department had not alleged that the
assessee had withheld any material information or document at the time of assessment proceedings
whichhadresultedintheescapementofassessment.Accordinglythereassessmentwasquashed.The
Tribunal also held that the assessee was not liable to pay interest under section 235B, 234C. The
Tribunal also held that the order had been passed by the Commissioner (Appeals) in a nonjudicious
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andarbitrarymanner.TheorderoftheCommissioner(Appeals)wasnotonlyagainstthelawlaiddown
bytheHighCourtbutsmackedofmalafideonthepartoftheCommissioner(Appeals).TheDepartment
had to compensate the assessee for causing the latter unnecessary mental and financial harassment.
ThereforetheappealoftheassesseewasallowedwithcostsofRs.25,000.(A.Y.20042005)
QmaxTestEquipmentsP.Ltd.v.ACIT(2013)22ITR690(Chennai)(Trib.)
S.147:ReassessmentJurisdictionSearch and seizureNon obstante clauseOriginal assessments
completed and no proceedings pending when search action takenAdditional ground was allowed to
be first time before the TribunalThereafter notice of reassessment for years falling within six year
periodNotpermissibleduringpendencyofassessmentproceedingspursuanttosearch.[S.148,153A]
For the A.Y. 200102 and 200203 regular assessments of the assessee, a banking company, were
completed on February 13, 2004 and December 30, 2004, respectively. A search action u/s. 132 of the
Act,wasconductedatthepremisesofoneofthebranchesoftheassesseeonJuly2,2005pursuantto
whichtheAssessingOfficerissuednoticeundersection153AoftheActonMay4,2007.Meanwhile,the
Assessing Officer also took proceedings u/s. 148 for the A.Y. 200102 and 200203 by notices dated
August28,2006andJuly25,2006respectivelyandinvokingtheprovisionsofsection145(3)oftheAct
disallowedtheexcessdepreciationbyassessmentscompletedonOctober31,2006.Healsocompleted
the assessments for these two assessment years at the very same income by the assessment orders
u/s.143(3) read with section 153A of the Act. The Commissioner (Appeals) upheld the action of the
Assessing Officer. On appeal raising the additional ground that the reassessment proceedings for the
twoyearsinquestionwerewithoutjurisdiction:Held,allowingtheappeals,
(i) that a question of law which arose from the facts found by the incometax authority could be
raisedatanystage.Theadditionalgroundraisedbytheassesseewastobeadmitted.
(ii) That the original assessments for the assessment years in question were completed u/s.143(3) on
February 13, 2004 and December 30, 2004, respectively. Thereafter, a search and seizure action was
initiatedintheassessee'scasebytheDepartmentonJuly2,2005onwhichdatetheassessmentsforthe
two assessment years were not pending. Therefore, in view of the non obstante clause with which
section 153A(1) opens, the Assessing Officer had no jurisdiction to issue notice u/s. 148 of the Act in
respectof thosesixassessmentyears whichfellwithintheexclusivejurisdictionofsection153Aofthe
ActandaccordinglytheAssessingOfficerwasnotjustifiedinissuingnoticesu/s.148andincompleting
theassessmentsu/s.143(3)readwithsection147oftheActonOctober31,2006.TheAssessingOfficer
instead of complying with the requirement of section 153A proceeded with the provisions of sections
147and148whichwerenotapplicableintheassessmentundersection153AoftheAct.Therefore,the
assessmentscompletedu/s.143(3)readwithsection147oftheActwerewhollywithoutjurisdictionand
liabletobequashed.(A.Ys.20012002,20022003)
StateBankofIndiav.Dy.CIT(2013)22ITR609(Mum.)(Trib.)
S.147:ReassessmentWithinfouryearsNothingtoshowconsiderationofprovisionofsection80IA(5)
by Assessing Officer while framing original assessmentsReassessment proceedings rightly initiated.
[S.80IA(5),148].
Wherethereopeningofassessmentsisbeforetheexpiryofaperiodoffouryearsfromtheendofthe
relevantassessmentyears,thefirstprovisotosection147isnotapplicableandtrueandfulldisclosure
ofthematerialfactsisnotarelevantconsideration.Thequestionofchangeofopinion,whichwouldbar
reopening of an assessment, would come into play only where there has been an expression or
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formation of opinion by assessing authority while framing the assessment being subject to
reassessment. The assessment must show an application of mind and a conscious decision by the
Assessing Officer in the matter. Held accordingly, that there was nothing to show consideration of the
provisions of section 80IA(5) by the Assessing Officer while framing the original assessments. This
aspect of assessment remained to be considered by the assessing authority. The reassessment
proceedingsstoodrightlyinitiatedinlaw.(A.Ys.20052006to20082009)
HerculesHoistsLtd.v.ACIT(2013)22ITR527(Mum.)(Trib.)
S.147:ReassessmentExistence of material and rational beliefTax deducted at sourceNo
return was filed, reassessment was validLimitationReasons for reopening were furnished
aftersixyearsfromtheendoftherelevantassessmentyearwasheldtobevalidSanctionby
Addl.Directorofincometaxwasheldtobevalid.Duetotypingerrorsanctioncannotbeheld
tobeinvalid.(S.2.(28C),149,151)
Atthestageofformationofbeliefthefinaloutcomeoftheproceedingsisnotrelevantandthe
fact of escapement of income need not be established. The phrase reason to believe cannot
be said to mean that the AO shouldhave finally ascertained the fact by legal evidence or
conclusion.OncetheAOhadformedaprimafaciebeliefonthebasis ofrelevantmaterial,any
factswhichsubsequentlysurfaceinthecourseofassessmentproceedingswhichcontradictthe
basisonwhichthebeliefwasformedcannotvitiatethereassessmentproceedingsisvalid.The
contention that since tax was deducted at source for assessment years 200203 and 200304,
thepresumptionisthatthereisnoescapementofincomeisnottenable.Nosuchpresumption
can be there. The fact remains that for the Assessment year 200203 and 200304 there was
incomefromFTSderivedbytheassesseewhichwassubjecttotaxatsourceandthatnoreturn
of income was filed.Reassessment was held to be valid. Reassessment proceedings cannot be
heldtobebarredbylimitationonthegroundthatreasonsforreopeningwerefurnishedafter
the expiry of six years from the end of the relevant assessment year. Sanction under section
151 given by an Add.Director of ITwho is authorized to exercise the power of an Addl.CIT is a
sanctionbyanappropriateauthority.Sanctionundersection151accordedbytheAddl.Director
cannot be said to have given without application of mind simply because the findings of the
Addl.Directoraretyped.(A.Y.200101to200405)
Qualcomm Incorporated v. ADIT (2013) 23 ITR 239/85 DTR 156/153 TTJ 513/56 SOT
72(URO)(Delhi)(Trib.)
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further appeal, the Tribunal opined that whether the cash was explained or unexplained, the
factremainedthatactioncouldbetakenonlyinthehandsofindividualsandnotinthehands
of AOP'. Accordingly, the addition made in the hands of AOP was deleted. On receipt of the
Tribunal's order, the Assessing Officer initiated proceedings under section 148 in case of
assessee. The assessee filed an appeal before the Commissioner (Appeals) challenging the
validityofreopeningonthegroundthatincaseofdocumentsoranyassetrequisitionedunder
section 132A, then the Assessing Officer shall proceed to assess the undisclosed income in
accordancewiththeprovisionsofChapterXIVBoftheAct.TheCommissioner(Appeals)having
accepted assessee's submission set aside reassessment proceedings taking a view that said
proceedings were void ab initio. On revenue's appealthe Tribunal held thatonce Assessing
Officer proceeds to make block assessment under section 158BC based on material gathered
during search under section 132, he cannot proceed to make reassessment under section 147
onbasisofsamematerial,therefore,wherematerialonbasisofwhichAssessingOfficersought
toreopenaregularassessmentwasmaterialpertainingtorequisitionundersection132A,such
materialcouldbesubjecttoonlyblockassessmentanditcouldnotformbasisforreopeningan
assessment.(A.Y.19992000).
ACITv.ViditKumarAgarwal(2013)55SOT48(URO)(Agra)(Trib.)
S.147:ReassessmentIssuenotmentionedinrecordedreasonsExplanation3Reassessment
heldtobejustified.(S.35D,148)
The assessment was completed under section 143(3).The assessment was reopened on the
groundthattheassesseehaddebitedRs.44,90,600towardslossonsaleofinvestmentallowed
asbusiness expenditurethough it is a capital in nature. In the reassessment proceedings the
Assessing Officer disallowed the preliminary expenses though the said expenses were not
referred in the reasons record. On appeal the Tribunal held thatExplanation 3 to section 3 to
section 147 inserted by the Finance (No 2) Act, 2009, provides that the Assessing Officer may
assesseeorreassesstheincomeinrespectofanyissue,whichhasescapedassessment,ifsuch
issue comes to his notice subsequently in the course of the proceedings under section 147
notwithstandingthatthereasonsforsuchissuehavenotbeenincludedinthereasonsrecorded
under sub section (2) of section 148. Therefore in view of explanation 3 to section 147
inadmissible claim of deduction of miscellaneous expenses under section 35Dcould be
disallowedbytheAssessingOfficerinthecourseofreassessmenteventhoughthesamedidnot
findinthereasonsrecordedundersection148(2).Appealofassesseedismissed.(A.Y.200506)
InstantHoldingsLtdv.Dy.CIT(2013)81DTR35(Mum.)(Trib.)
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reassessment was void abinitio. On appeal by revenue the Tribunal up held the validity of
reassessmentanddirectedtheCommissioner(Appeals)todecideonmerits.TheTribunalheld
that reassessment proceedings, validity of those proceedings could not be challenged on
ground that there could not be a simultaneous action by Assessing Officer u/s 154 and 147.
(A.Y.200203)
Hotel & Allied Trades (P. ) Ltd. v. Dy.CIT (2013) 140 ITR 309/87 DTR 49/154 TTJ 503 (Cochin)
(Trib.)
S.148:ReassessmentNoticeMandatory.[S.80IB,143(2)]
Notice under S. 143(2) is mandatory and in the absence of such service, the Assessing Officer
cannot proceed to make an inquiry on the return filed in compliance with the notice issued
under S. 148. Order of Tribunal quashing the reassessment proceedings was held to be valid.
(AY200506,200607)
ACITv.GenoPharmaceuticalsLtd.(2013)214Taxman83(Bom.)(Mag.)(HC)
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TheA.O.issuedanoticeu/s148tomakeareassessment.However,asanoticeu/s143(2)was
notissued,theTribunalquashedthereassessment.TheDepartmentfiledanappealbeforethe
HighCourtwhereitreliedons.292BB(whichprovidesthatthefailuretoissuenoticecannotbe
objected to if the assessee has appeared in theproceeding), inserted by the Finance Act 2008
w.e.f. 1.4.2008 and argued that the said provision was retrospective in operation and the
reassessment was valid. Held by the High Court dismissing the appeal:The issue of a notice
u/s.143(2) is mandatory. The failureto do so renders the reassessment void (CWT v.HUF ofH.
H. Late Shri. J.M. Scindia (2008) 300 ITR 193 (Bom.) followed). S.292BB was inserted w.e.f.
1.4.2008andcameintooperationprospectivelyforAY20082009andonwards.
CITvSalmanKhan(Bom.)(HC)www.itatonline.org.
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SaveshKumarAgarwalv.UOI(2013)353ITR26(All.)(HC)
S.153A:AssessmentSearchAfter expiry of S.143(2) time limit, S.143(1) assessment is final &
additionu/s.153Acanbemadeonlyifincriminatingmaterialisfoundinsearch.[S.143(1)]
For AY 200506, the AO passed an intimation u/s 143(1) accepting the return as filed.
Subsequently, there was a search u/s 132. The AO noticed that an amount of Rs. 93 lakhs
receivedbytheassesseeasaloaninearlieryearshadbeentreatedasagiftandcreditedtothe
capitalaccount.Hepassedanassessmentorderu/s153Ainwhichheheldthatthesaidamount
was assessable as a cash credit u/s 68. The CIT(A) partly confirmed the addition. Before the
Tribunal, the assessee argued that as no incriminating material was found during the search,
theadditioncouldnotbemadeu/s153A.HELDbytheTribunalupholdingtheplea:
In All Cargo Global Logistics v. Dy. CIT (2012) 137 ITD 287 (Mum)(SB), the Special Bench held
thatinacasewheretheassessmenthasabatedtheAOcanmakeadditionsintheassessment,
evenifnoincriminatingmaterialhasbeenfound.However,inacasewheretheassessmenthas
not abated, an assessment u/s 153A can be made only on the basis of incriminating material
(i.e.booksofaccount&otherdocumentsfoundinthecourseofsearchbutnotproducedinthe
courseoforiginalassessmentandundisclosedincomeorpropertydisclosedduringthecourseof
search).Onfacts,astheassessmentwascompletedu/s143(1)andthetimelimitforissueofs.
143(2) notice had expired on the date of search, there was no assessment pending and there
was no question of abatement. Therefore, the addition could be made only on the basis of
incriminating material found during search. As the addition u/s 153A was made on the
information/material available in the return of income (i.e. the information regarding the gift
was available in the return of income as capital account had been credited by the assessee by
theamountofgift)andnotonthebasisofanyincriminatingmaterialfoundduringthesearch,
theAOhadnojurisdictiontomaketheadditionu/s153A.(A.Y.200506)
GurinderSinghBawav.DCIT(Mum.)(Trib.)www.itatonline.org.
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abated and the AO gets a free hand to make the assessment. Circumstance (b) has been
answered in Anil Bhatia to hold that while there is no question of any abatement since no
proceedings are pending, the AO is entitled to reopen the assessment (without having to
comply with the strict conditions of s. 147, 148 and 151) and bring the undisclosed income to
tax.Also,inAllCargoGlobalLogisticsLtdv.Dy.CIT(2012)137ITD287(Mum)(SB)itwasheld
that in the case of a nonabated assessment, an assessment u/s 153A has to be made on the
basis of incriminating material. Circumstance (c) has been kept open and left unanswered.
Circumstance (c) has to be answered to say that even where there is/are no pending
proceedings and no incriminating material has to be found, the AO is still required to pass an
orderu/s153Athoughtheassessedincomewillhavetobethesameastheoriginallyassessed
incomeastherewasnoincriminatingmaterial.Accordingly,theassesseesargumentthatwhen
thereisnoincriminatingmaterialorassets,thenthereisnojurisdictiontoproceedu/s153Ais
notacceptable.S.153Acontainsanonobstanteclauseandistriggeredautomaticallywhenever
asearchisundertaken.Thefactthatnoincriminatingmaterialwasfoundhasnobearingonthe
applicabilityofs.153A;
(ii) S. 80IA(4) allows deduction to any enterprise carrying on the business of (i) developing or
(ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure
facility.TheExplanationprovidesthatitshallnotapplytobusinesswhichisinthenatureofa
works contract. Whether an assessee is a developer or works contractor depends on the
nature of the work undertaken by the assessee. The word contractor is used to denote a
person entering into an agreement for undertaking the development of infrastructure facility.
Everyagreemententeredintoisacontract.Therefore,thecontractorandthedevelopercannot
be viewed differently. Every contractor may not be a developer but every developer is a
contractor. Contracts involving design, development, operating and maintenance, financial
involvement, and defect correction and liability period cannot be called as simple works
contract.Acasewhereinanundevelopedarea,infrastructureisdevelopedandhandedoverto
theGovernmentcannotbeconsideredasamereworkscontractbuthastobeconsideredasa
developmentofinfrastructurefacility.Ifthecontractiscomposite,itwillhavetobesegregated
so as to allow deduction on the parts that involve design, development, operating and
maintenance,financialinvolvementetc.andtodenyonthosewhicharepureworkscontracts.
On facts, the assessee had made substantial investments in fixed assets and was exposed to
variouskindsofrisks.Itwasnotamerecontractor.Itisenoughiftheassesseeisadeveloper.It
need not also maintain & operate the infrastructure facility (Patel Engineering Ltd v. Dy. CIT
(2004) 94 ITD 411 (Mum) &GVPR Engineers Ltd (included in file) followed) (A. Y. 2000 01 to
200506)
ACITv.PratibhaIndustriesLtd(2013)141ITD151/23ITR766(Mum.)(Trib.)
S.153C:AssessmentIncomeofanyotherpersonSearchandseizureDocumentsbelongto
assessee.[S.153A]
InordertoinitiateanyactionunderS.153C,itisessentialthatanymoney,bullion,jewelleryor
othervaluablearticleorthingorbooksofaccountordocumentsseizedorrequisitionedshould
belongtoapersonotherthanpersonreferredtoinS.153A.TheassesseesoldcertainlandtoS
group. Subsequently, 'S' group was subjected to search during which sale deeds of land in
question and agreements entered into by and between tenants of said property and assessee
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on various dates regarding eviction of tenants were seized. Held that the action against the
assesseeunderS.153Cwasjustifiedonthebasisoftheseizeddocuments.
KamleshbhaiDharamshibhaiPatelv.CIT(2013)214Taxman558(Guj.)(HC)
S.154:RectificationofmistakeCommissioner(Appeals)PowersExemptincomeRectification
applicationdenialofexemptionundersection10Awasheldtobenotjustified.(S.10A,251)
Assesseecompanyclaimeddeductionundersection10A.AssessingOfficerallowedsameafter
reducing 'internet expenses' from export turnover. The assessee went in appeal against said
order. The Commissioner (Appeals) dismissed the appeal as infructuous. The Assessee sought
rectification in said order, by filing rectification application, under section 154. Disposing the
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saidapplication,theCommissioner(Appeals)acceptedtheexistenceoftheassesseecompany;
however,heentirelydisallowedtheclaimofassesseeundersection10Aongroundthatactivity
carried out by the assessee was not manufacture. On appeal to Tribunal held thatissue of
eligibility for deduction under section 10A required examination of facts, business activity and
relevant provisions and, therefore, same could not be considered as mistake apparent from
recordsundersection154.Therefore,theCommissioner(Appeals)wasnotjustifiedindenying
deduction in order pursuant to rectification application under section 154. In favour of
assessee.(A.Y.200708)
NuanceTranscriptionServicesIndia(P.)Ltd.v.Dy.CIT.(2013)55SOT39(URO)(Bang.)(Trib.)
S.154:Rectification of mistake Tax on STCG Clerical error Assessee did not showed STCG
under Schedule CG of ereturn Depicted same under Schedule SI Gain taxable at special
rate10%appealofassesseewasallowed.(S.111A,143(1))
Theassesseefilede.return.TheAssessingOfficerreceivedtheintimationundersection143(1).
The Assessing Officer computed the tax payable on short term capital gain at 30 percent as
against at the rate of 10 percent under section 111A. The assessee moved application under
section154.TheAssessingOfficerheldthatshorttermcapitalgainshadnotbeenshownunder
section 111Aat Schedule CG of e. return. Commissioner (Appeals) up held the order of
AssessingOfficer.OnappealtheTribunalheldthatwhereduetoclericalerror,assesseedidnot
showedSTCGunderScheduleCGofereturn,butdepictedsameunderScheduleSI.Itwasheld
that Income chargeable at special rates, gains would be taxable at special rate of 10 per cent.
(A.Y.200809)
Shrikant Real Estates (P.)Ltd. v. ITO (2013) 140 ITD 155/152 TTJ 30/22 ITR 266/ 81 DTR 431
(Mum.)(Trib.)
S.154:Rectification of mistake Free trade zone Depreciation and brought forward losses
Held benefit of tax holiday availed from AY 19992000, its exemption period was continuing
hence,S.10A(6)notapplicable,hencerectificationwasnotjustified.(S.10A)
Assessee, a S.10A unit claimed deduction for depreciation and brought forward losses which
wereallowed.AssessingOfficerfoundthatclaimfordepreciationandbroughtforwardbusiness
loss for AY had been wrongly allowed as assessee, a section 10A unit, had violated S.10A(6).
Assessing Officer passed the order under section 154 and rejected the claim. In appeal
Commissioner(Appeals)confirmedtheorderofAssessingOfficer.OnappealtheTribunalheld
that since assessee chose to avail benefit of tax holiday from AY 19992000, its exemption
period was continuing and therefore S. 10A(6) would not apply. Accordingly the rectification
orderwasquashedandappealofassesseewasallowed.(A.Y.200304&200405)
TataConsultancyServicesLtd.v.ACIT(2013)140ITD325(Chennai)(Trib.)
S.158BB:Block assessmentSearch and seizureNo undisclosed income was found, block assessment
wasinvalid.
Since the Tribunal had found that during search proceedings there was no evidence found and there
werenomaterialsfoundshowingundisclosedincomeitrightlyheldthattheblockassessmentwasnot
valid.
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CITv.SooraSubramaniamHUF(Individual)(2013)353ITR298(Mad.)(HC)
S.158BB:BlockassessmentComputationofundisclosedincomeUnexplainedinvestmentin
stockCashreceiptsandexpensesnotedonseizedmaterial.
TribunaldeletedtheadditionsmadebytheAOtowardstheallegeddiscrepancyinstocksonthe
groundthattheentireprocessofinventorisationfollowedbytheItauthoritieswasinaccurate
as it was humanly impossible to complete the entire exercise in a single day and that the AO
has not examined the reconciliation of stock filed by the assessee and ignored the value
additionmadetothesemifinishedgoodsandthediscountandprofitelementinarrivingatthe
value of stocks coupled with the fact that there was no evidence of sale of stocks outside the
books.Findings of the Tribunal are findings of facts and, therefore, no substantial question of
lawarisesoutofthefindingsoftheTribunal.AOhavingmadeadditionofunaccountedreceipts
noted on seized handwritten slips without allowing deduction for the unaccounted expenses
recordedinthesamematerial,andtheTribunalhavingdeletedtheadditiononthegroundthat
the seizedmaterial should be followed in its entirety and that the said expensewere incurred
bytheassesseeforthepurposesofthebusiness.FindingsoftheTribunal,bothoffactsandlaw,
donotsufferfromanyperversityand,therefore,nosubstantialquestionoflawarises.
CITv.D.D.GearsLtd.(2013)83DTR88(Delhi)(HC)
S.158BB:BlockassessmentUndisclosedincomeAbsenceofanymaterialadditiondeletedby
theTribunalwasheldtobejustified.[S.158B(b)]
Documents on record having indicated that the assessee has in fact, not received any royalty
w.e.f. October 1999, for the user of his trademark from the company. Once the trademark
stood assigned to the company by virtue of the shareholders agreement entered into by the
assessee with another company which is not shown to be sham and bogus, the finding of the
TribunalthatnoroyaltyincomewasassessableunderChapterXIVBdoesnotraiseasubstantial
questionoflaw.
In the absence of any material to show that the assessee had actually received the
reimbursement of marketing expenses from the company using his trademark which he was
entitled to receive only on demand but was not demanded by him, the question of
undisclosed income does not arise and no substantial question of law arises. (Block period
1.4.1999to1.11.2000)
CITv.M.P.Ramchandran(2013)83DTR143(Bom.)(HC)
S.158BB:BlockassessmentComputationUndisclosedincomeMoneyrequisitionedunder
section 132 A of the Act from police beyond the block period cannot treated as undisclosed
income.(S.132A.)
Moneyrequisitionedundersection132AoftheActfromPolicewhichwasreceivedbeyondthe
block period cannot be included while computing undisclosed income in block assessment.
(BlockPeriod:25.08.84to26.10.95&01.04.85to14.11.95)
CITv.NirankarNathMittal(2013)81DTR233/255CTR488/215Taxman43(Mag.)(All.)(HC)
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S.158BB:Block assessment Undisclosed income Assessee following cash system of
accountinginterestonIndiraVikasPatraaccruedonyeartoyearbasiscannotbeassessed
asundisclosedincome.
Where the assessee is following cash system of accounting it cannot be said that interest on
IndiraVikas Patra accrued to the assessee on year to year basis so as to assess the same as
undisclosedincomeoftheassesseeinblockassessment.(BlockPeriod:01.04.90to06.04.2000)
CITv.RoshanSingh(2013)81DTR58(P&H)(HC)
S.158BB:BlockassessmentComputationUndisclosedincomeDeductionunderChapterVIA
isavailableAmountconsideredinregularassessmentcannotbeassessedasundisclosed.
(S.158B)
Assessing Officer disallowed deduction under Chapter VIA while computing undisclosed
incomeofassesseeforrelevantblockperiod.ThecourtheldthatdeductionunderChapterVIA
has to be given while computing total income or loss. The court also held that the amount in
question had been taken into consideration in regular assessment order under section 143(3),
saidamountcouldnotbeincludedundersubclause(b)ofsection158B.(B.P.141985to14
111995)
CITv.AnilSarin(2013)212Taxman108(Mag.)(All)(HC)
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S.158BC:BlockAssessmentUndisclosedincome
Amount received from policy which was in fact received by the Assessee beyond block period
could not possibly be included in the computation of undisclosed income in the Block
Assessment.(BlockPeriod1984to1995)
CITv.NirankarNathMittal(2013)81DTR233/255CTR488/215Taxman43(Mag.)(All.)(HC)
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in the assessee's wife case, could not take a different view in the assessment of the husband.
That would amount to taking contradictory or inconsistent stands without any just cause.
Therefore,theadditionswererightlydeletedbytheTribunal.(A.Y.19981999)
CITv.KuldeepSood(2013)351ITR166/214Taxman134(Mag.)(Delhi)(HC)
S.158BC:BlockassessmentProcedureUndisclosedincomeFixeddeposits.
FDRs in names of employees found to be bogus, addition to incomeis held to be justified.
DeletionofamountsrepresentingFDRsinnamesoffriendsandrelativesofmanagingdirector
astherewasnoevidenceregardinggenuinenessofFDRsMatterremanded.(Blockperiod14
1986to28111996)
HastalloyIndiaLtd.v.Dy.CIT(2013)350ITR52(AP)(HC)
S.158BD:BlockassessmentUndisclosedincomeofanyotherpersonRecordingofsatisfaction
SatisfactionBlockassessmentmadewithoutsuchsatisfactionisheldtobeinvalid.(S.158BC)
The Tribunal held that mere forwarding of such books of account by itself was insufficient to
conclude that the Assessing Officer, having jurisdiction over the Mody group of cases, was
satisfied that any undisclosed income was found or detected, as a result of the search, on the
basisofwhich,proceedingsundersection158BDoftheIncometaxAct,1961,couldhavebeen
initiated against the assessee. On appeal the Court dismissing the appeal held that in the
communication from the Assessing Officer of the searched person to the Assessing Officer of
theassessee,therewasnorecordingofanysatisfactionthatanyundisclosedincomebelonged
to the assessee. The communication merely indicated that the books of account pertaining to
theassesseewereseizedandwerelyinginthecustodyoftheAssessingOfficerinrespectofthe
Modygroupofcases.TherewasnosatisfactionrecordedbytheAssessingOfficeroftheMody
group of companies that any undisclosed income belonged to the assessee. The very first
mandatory condition precedent for assuming jurisdiction under section 158BD and
subsequently under section 158BC had not been satisfied. Thus, the entire proceedings were
withoutjurisdiction.(Blockperiod141986to2111996)
CIT v.Intercontinental Trading and Investment Co. Ltd. (2013) 350 ITR 316/81 DTR 314/255
CTR350/213Taxman59(Delhi)(HC)
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Editorial:RatioofManishMaheshwariv.ACIT(2007)289ITR341(SC)applied.
S.172:ShippingbusinessNonresidentsSummaryproceedings.(S.139,44B)
Tribunal held that where French shipping company undertook a huge number of 40 voyages
through Indian agent and had exercised its option under section 172(7) by filing return of
income under section 139(1), summary proceedings of assessment under section 172(4) could
not be applied; regular assessment proceedingwas required. In favour of assessee. (A.Y.2010
2011)
ITO(IT)v.CMACGMAgencies(India)(P.)Ltd.(2013)55SOT61(URO)(Rajkot)(Trib.)
S.179:Private companyRecovery of tax dues from directorPublic company Lifting of corporate veil
wouldbejustified.
DespiteseveralattemptsmadebytheRevenue,norecoverycouldbemadefromtheprivatecompany.
Once it was established that tax dues could not be recovered from it and that a certain person was a
directoroftheprivatecompanyattherelevanttime,hisjointandseveralliabilitywouldariseunlesshe
establishes that the nonrecovery cannot be attributed to any gross neglect, misfeasance or breach of
duty on his part. The observations of the Assistant Commissioner require further scrutiny and
investigationastheordersufferedfromgrossviolationoftheprinciplesofnaturaljustice.Inhisnotice
under section 179(1), he only put the petitioner to notice that he proposed to hold him liable for
recovery of the tax dues of the company. Therefore, the proceedings were remitted to the Assistant
Commissioner for proceeding further in accordance with law after giving a notice to the petitioner
indicatinghistentativegroundswhyhedesiredtoinvoketheconceptofliftingofcorporateveil,giving
sufficientopportunitytothepetitionertomeetsuchallegations.
PravinbhaiM.Kheniv.ACIT(2013)353ITR585/213Taxman85(Guj.)(HC)
S.179:PrivatecompanyLiabilityofdirectorsRecoveryoftaxNotliableforrecoveryofinterestand
penalty[S.2(43),234A,234B,271(1)(b),(271(1)(c)].
The assessee, a director in a company, was intimated that the tax authorities had computed the
outstandingtaxliabilityofthecompanyandbyorder,directedthattherefundpayabletotheassessee
besetoffagainstthetaxliabilityofthecompanyinaccordancewiththeprovisionsofsection179(1).On
anapplicationforrectification,thetaxauthoritiesenhancedtheoutstandingduesofthecompany,and,
consequently, of the assessee on account of interest due under section 234A/B and penalty leviable
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under section 271(1)(b)/(c). It was held that the assessee could not be made liable for anything more
than the tax as defined under section 2(43) which did not include interest and penalty.(A.Y.1999
2000,20032004)
SanjayGhaiv.ACIT(2013)352ITR468/256CTR241/82DTR248(Delhi)(HC)
S.184:FirmAssessmentAssociationofpersonsStatusAssessmentinthestatusofAssociation
ofpersonswasheldtobevalid.[S.2(31)(v)]
The Assessing Officer held that there was no firm and the status to be held as Association of
persons.Commissioner(Appeals)andTribunalupheldtheorderofAssessingOfficer.Onappeal
to High Court the court held that the question of treating it asunregistered firm would arise
onlyiftheassesseewasabletoprovetheexistenceofavalidpartnershipdeedtoconstitutea
firm. The assessee has not produced any evidence of partnership therefore assessment in the
statusofAssociationofpersonswasheldtobevalid.(A.Y.198586,198687)
MidlandTheatersv.ACIT(2013)350ITR676/258CTR183(Mad.)(HC)
A.R.Srinivasan(BYLRS)(2013)350ITR676/258CTR183(Mad)(HC)
A.R.Srinivasan(HUF)(2013)350ITR676/258CTR183(Mad)(HC)
S.192:DeductionatsourceSalarySecondedemployeesSecondedpersonnelbeingnot
employeesHence,notliabletodeducttaxatsource.[S.40(a)(iii),91(1)].
Assessee, an association of persons consisting of nine public sector oil companies as its
members, was engaged in doing business abroad and for that purpose deployed trained man
power to foreign companies at contracted rate. Trained man power deployed abroad was
drawn by assessee from employees of its member companies. Such deployed man power
continuedtobeemployeesofitsmembercompanies,butweresecondedtoprojectsabroadby
assessee. Assessee paid certain amount as foreign allowance to seconded personnel and
claimed deduction of same. Assessing Officer disallowed claim of deduction on plea that
assessee failed to deduct tax at source under section 192 on such payment and, therefore,
payment was hit by section 40(a) (iii). In view of fact that seconded personnel were not
employeesofassessee,amountpaidtosecondedpersonnelwasnotliablefordeductionoftax
atsource.Infavourofassessee.(A.Y.199798)
CITv.PetroleumIndiaInternational(2013)351ITR295/213Taxman41(Bom.)(HC)
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S.194A:DeductionatsourceInterestotherthaninterestonsecuritiesMutuality[S.40(a)(ia)]
TheAssessingOfficerheldthatsincetheassesseetrustspaidinteresttotheumbrellacompany
withoutdeductingtaxatsourceundersection194AoftheAct,section40(a)(ia)wasattracted
and payments of interest made by the assesseetrusts to the umbrella company were to be
disallowed. The Commissioner (Appeals) came to a finding that the assessees were mutual
concerns and not taxable. The Commissioner (Appeals) also held that interest expenses in the
hands of the assesseetrusts were deductible under section 28 itself and, therefore, section
40(a) (ia) did not apply and deleted the disallowance under section 40(a) (ia) of the Act. On
appeal the Tribunal held that the assessees availed of loans from the umbrella company and
passed over the loans to various selfhelp groups working under them. In fact, the loans were
not utilised by the assesseetrusts but by the selfhelp groups working under the trusts. The
selfhelp groups were mutual concerns and ultimately the interest burden was shared by the
individualmembersofthegroup.Therefore,theexpenditurebywayofinterestwasincurredby
themembersoftheselfhelpgroupsandinfacttheinterestwaspaidbythosemembersofself
help groups to the umbrella company. These individuals, not being liable for audit under
section 44AB, section 194A was not applicable to them. All the assesseetrusts were
representative assessees of the members constituting the selfhelp groups. What was not
applicable to the members, would not apply to representative assessees. Therefore, the
Commissioner (Appeals) was justified in holding that the assessees were not bound to deduct
anytaxatsourcewhilemakingtheinterestpaymentstotheumbrellacompany.Theadditions
made by the assessing authorities under section 40(a) (ia) of the Incometax Act, 1961 were
liabletobedeleted.(A.Ys.20072008,20082009)
ITOv.SarvodayaMutualBenefitTrust(2013)22ITR277/56SOT507(Chennai)(Trib.)
S.194A:Deduction at source Interest other than interest on securities Not obtaining the
form15Gand15Honorbeforelastdayofrelevantfinancialyear,disallowancewasjustified.
[S.40(a)(ia)]
Assessee paid interest without deducting tax at source. It was submitted by assessee that
persons had filed form No. 15G and 15H on basis of which tax was not deducted on interest
payment.AssessingOfficerfindingthatFormNos.15Gand15Hwerefiledafterendofrelevant
financial year, disallowed payment of interest under section 40(a) (ia). Tribunal heldthat for
allowance of deduction under section 40(a) (ia) assessee should have obtained Form No.
15G/15H on or before last day of relevant financial year. Since assessee failed to do so,
impugneddisallowancemadebyAssessingOfficerwastobeupheld.(A.Y.200607)
ACITv.MeerutRubberFactory(2013)55SOT325(Delhi)(Trib.)
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SriVenkateshPaperAgencies(Hyd.)(P.)Ltd.v.Dy.CIT(2013)55SOT332(Hyd.)(Trib.)
S.194A:DeductionatsourceInterestFirmPartnerInterestpaidbypartnertofirm,taxis
deductibleatsourceonsuchinterest.
Theassesseesborrowedmoneyfromthefirmsinwhichtheywerepartnersandpaidinterestto
the firms. The Dy. CIT (TDS) noticed that the assessee did not deduct tax at source under the
provisionsofsection194Aontheinterestsopaidtothefirms.Afterhearingtheassessees,the
Dy. CIT (TDS) levied penalty under section 201 (1) of the Act equivalent to the amount of tax
liable to be deducted at source and levied interest under section 201 (1A) of the Act for the
periodfromtheclosingoftherelevantfinancialyeartoMay31,2009fortheassessmentyears
200506 to 200708. The Commissioner (Appeals) confirmed the penalties and interest. On
appeal to the Tribunal held that t the Incometax Act recognises a partner and a firm as
different "persons", despite the legal relationship between them as prevailing under the
Partnership Act. Further section 194A provides exemption from the obligation imposed under
thatsectiononlyinrespectofinterestpaidorcreditedbyafirmtoitspartner.TheActdoesnot
provide such exemption to the interest paid or credited by a partner to his firm. Tax is
deductibleatsourceontheinterestpaidbythepartnertothefirm.Penaltyleviedwasdirected
tobedeletedafterverificationoffacts.(A.Y.20052006to20082009)
ThomasMuthootv.Dy.CIT[2013]21ITR133/55SOT390(Cochin.)(Trib.)
S.194C:DeductionatsourceContractorsWorkDeductionatsourcedoesnotapplyto
contractmanufacturingagreements.[S.201(1),201(1A)]
The assessee, a manufacturer of pharmaceutical products, entered into agreements with
various manufacturers who manufactured the said items according to the specifications
providedbytheassessee.TheAssessingOfficerheldthatthetransactionbetweentheassessee
andthemanufacturerwasinthenatureofaworkscontractandfellwithinthepurviewofs.
194CandthattheassesseeoughttohavedeductedTDSthereon.Theassesseewasheldtobe
in default and liable to pay the tax and interest u/s 201(1) & 201(1A). On appeal by the
assessee,theTribunalheldthatthetransactionwasoneofsalesimplicitorandwasnotinthe
nature of a work contract and that the assessee was not liable to deduct TDS u/s 194C. The
departments appeal to the High Court was dismissed by following CIT v Reebok India Co.
(2008)306ITR124(Del).OnappealbythedepartmenttotheSupremeCourt,HELDdismissing
theSLP:
On examining the terms and conditions, invoices, purchase orders and challans indicating
payment of excise duty, there is no material on record to indicate that the transaction in
question is a contract for carrying out works. Hence, s. 194C is not attracted. S. 194C has
been amended by the Finance (No.2) Act, 2009, w.e.f. 1.10.2009 to provide that work
includesmanufacturingorsupplyingaproductaccordingtotherequirementorspecificationof
acustomerbyusingmaterialpurchasedfromsuchcustomer.Itisclarifiedthatthedefinitionof
the word work will not include manufacturing or supplying a product according to the
requirement or specification of a customer by using material purchased from a person other
thansuchcustomer.
CITv.SilverOakLaboratoriesP.Ltd(SC)www.itatonline.org.
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S.194C:DeductionatsourceLorrybookingbusinessNotliabletodeducttaxatsource.
Assesseecollectingfreightchargesfromclientswhointendedtotransporttheirgoodsthrough
separate transporters andpaying to transporters entire amount collected from clients after
deductinghiscommission.Thereisnoprivityofcontractofcarriageofgoodsbetweenassessee
and his clients, assesseeis not a person responsible butonly a facilitator hence not liable to
deducttaxatsource.Appealofrevenuewasdismissed.(A.Y.20072008)
CITv.HardarshanSingh(2013)350ITR427(Delhi)(HC)
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S.194C:DeductionatsourceContractorsSubcontractorsBIFRNoreliefcanbegiventoBIFR
companyfordeductiontaxatsource.
Tribunal held thatwhere payment has been made by manufacturer of clothes for processing
andweaving,liabilitytodeductTDSarisesundersection194C(1).Evenwhererecipientcompany
was under BIFR, no relief could be given in terms of TDS liability. Partly in favour of assessee.
(A.Y.200506)
DeoraTradingCo.v.ITO.(2013)55SOT349(Mum.)(Trib.)
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under section 40(a) (ia). Tribunal held that since assessee made payments for hiring of trucks
simplicitor and not for transporting goods which he received from other parties, it was not a
case of subcontracting work and, thus, assessee did not have any obligation to deduct tax at
sourcewhilemakingsaidpayments,therefore,impugneddisallowancewastobedeleted.(A.Y.
200607)
LokeshDuggalv.ITO.(2013)55SOT78(URO)(Kol.)(Trib.)
S.194C:DeductionatsourceContractorsSubcontractorsPrintingmaterialonpaperWorks
contractSaleContractforsaletheassesseeisnotliabletodeducttaxatsource.[S.201,201
(IA)]
Tribunal held that if a person has given specifications for printing and has supplied his own
paper or ink and printer is only printing such material on paper, then it would constitute a
works contract and provisions of section 194C would be attracted. However, if a person has
only given specifications for printing and such material is delivered to such person after
specified printing, it would be a contract of sale. Assessee had specified printing material for
printing to 'F' 'F' had rendered services as specified by assessee and in many cases had
chargedevenVAT/CST.Itwasnotallegedorprovedthatassesseehadsuppliedpaperorinkto
printer,itwascontractforsaleorpurchaseandprovisions ofsection194Cwerenotattracted
and,thus,assesseewasnotindefaultundersection201(1).(A.Y.200607to200910)
PunjabTractorsLtd.v.ITO(2013)55SOT75(URO)(Chd.)(Trib.)
S.194C:DeductionatsourceContractorsSubcontractorsSupervisingMatterremanded.
(S.194J)
Tribunal held that,where contractor merely provided service simpliciter for supervising
construction work of assessee, tax was not to be deducted under section 194C.In respect of
applicability of section 194J to such payment Commissioner (Appeals) had to specify in
appellate order as to which of clauses of section 194J would apply in case of assessee and he
hadtogivereasonsforsameinappellateorder,merelybecauseassesseeoriginallymentioned
section194JinTDSreturn,thatbyitselfwasnotsufficienttoputassesseeindefaultforshort
deduction and late payments of taxes with interest, in case payee had paid tax on same
payment to revenue department, tax could not be recovered once again from assessee,
althoughchargingofinterestwasmandatoryinnaturefordelay.Matterremanded.(A.Y.2008
09)
RadheyshyamBhakar&Co.v.ITO(2013)55SOT80(URO)(Agra)(Trib.)
S:194H:DeductionatsourceCommissionBrokeragePrincipalAgentrelationship
DistributorsMatterremanded.
The assessee has contended that discount given to the distributors is not subjected to the
provisions of section 194H on the ground that the relationship between the assessee and the
distributorisonprincipaltoprincipalandnotprincipaltoagent.TheTribunalheldthatsection
194Hdoesnottalkabouttherelationshipbetweenthepayerandpayeenecessarilybetheofa
principalandagent,theprovisionsdonotrequireanyformalcontractofagency.Onfacts,the
Tribunal held that the assessee has failed toproduce any material such as scheme under
whichthe benefit had been given to the distributors. Accordinglythe matter was set aideto
decideaccordancewithlaw.
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337
(A.Y.200708)
SKOLBreweriesLtdv.ACIT(2013)142ITD49/84DTR271/153TTJ257(Mum.)(Trib.)
S:194H:DeductionatsourceCommissionSIMcardsRechargecouponswholesaledealers
discountCommissionDiscountallowedonsaleofrechargecouponsisnotdiscountbut
commission,taxisdeductibleatsourceonsuchamount.(S.201)
TheassesseecompanywassellingSIMcardsandrechargecouponsoftheChennaiTelephones
towholesaledealersandpayingcommissiontothemuptothefinancialyear200708.Fromthe
financial year 200809 onwards the assesseecompany distinguished the sale of SIM cards and
recharge coupons. It treated the commission paid to dealers on sale of recharge coupons as
discount and did not deduct tax at source under section 194H of the Incometax Act, 1961
thereon. The Assessing Officer treated the company as an assesseeindefault under section
201.ThiswasconfirmedbytheCommissioner(Appeals).OnappealtotheTribunalheldthatthe
payment amounted to commission and tax was deductible at source on such amount. (CIT v.
IdeaCellularLtd.[2010]325ITR148(Delhi)followed.)Appealofassesseewasdismissed.(A.Y.
200910,20102011).
CellularMobileTelecomServicesv.ITO(2013)21ITR456(Bang.)(Trib.)
S.194H:DeductionatsourceCommissionTravelagentDistributionofamount,theassessee
isnotliabletodeducttaxatsource.(S.40(a)(ia)
Assessee isengaged inbusiness of travel agents. It entered into a consortium agreement with
12othermemberswhoweretravelagentsforbookingairticketsthroughplatformprovidedby
'A' Ltd. In terms of said agreement all members travel agents except assessee, rendered
services of booking airline tickets and utilized computerized electronic reservation system
platformprovidedby'A',whoofferedpreferentialratessubjecttobulkbusinessbeingoffered
by all travel agents as one entity. Consortium members agreed that assessee would act as a
lead member and authorized it to enter into contracts with 'A' to make collections and
distribute monies to each of consortium travel agents in proportion to segment bookings
effectedbyeachoftravelagents.Leadmember,i.e.,assesseecollectedcommissionforservices
rendered by other members and distributed said commission amongst members on priority
basis. Though TDS certificate issued by 'A' reflected commission of Rs. 65,71,690, assessee
distributed amount of Rs. 52, 22,326 amongst members for services rendered by them in
booking tickets etc. Since assessee did not deduct tax at source while making payment of
commission to travel agents, referring to provisions of section 40(a) (ia), Assessing Officer
disallowedamountofRs.52,22,326.Tribunalheldthatsinceassesseeonlydistributedmonies
amongstmembersintermsofagreementforservicesrenderedbytheminbookingticketetc.,
and had not claimed said amount as expenditure in its account, it could not be treated as
incomeofassesseesoastoattractprovisionsofsections194Hand40(a)(ia).(A.Y.200607)
ITOv.InterserveTravels(P.)Ltd.(2013)55SOT356(Delhi)(Trib.)
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franchisees for selling products of BSNL. It, out of its own commission, allowed trade discount
to subfranchisees. Assessing Officer treated trade discount as commission and disallowed
samebyapplyingsection40(a)(ia)onpleathatassesseehadnotdeductedtaxatsourceunder
section 194H on trade discount. Tribunal held thattrade discount made available to sub
franchisees was a compensation by foregoing part of commission already subjected to tax at
source by BSNL and it could not have suffered taxation under section 194H. Therefore, the
disallowanceundersection40(a)(ia)wasunjustified.(A.Y.200809)
PareekElectricalsv.ACIT(2013)55SOT338/81DTR342(Cuttack)(Trib.)
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deducted under section 194I As assessee failed to deduct tax, payments were disallowed
undersection40(a)(ia).Itwasnotedthatwagonsprocuredunderschemeweretomergeand
operate in general pool of wagons of Indian Railways and were to be reverted back to Indian
Railways after 10 years. Tribunal held thatrent as defined under section 194I has to be
understood from point of view of ownership and Assessing Officer could not correlate WI
Scheme in question and rent. Assessing Officer misdirected himself by holding arrangement
with two companies asarrangement under section 194I. therefore, order of Assessing Officer
wastobesetaside.Infavourofassessee.(A.Y.200809)
BonaiIndustrialCo.Ltd.v.Dy.CIT(2013)55SOT363(Cuttack)(Trib.)
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S.195:Deduction at source Nonresident Reinsurance premium Matter remanded.
(S.40(ia)).
Assesseecompany paid reinsurance premium to nonresident reinsurance companies.
Assessing Officer finding that assessee did not deduct tax at source while making said
payments, disallowed same. On appeal, assessee relied on order passed by Supreme Court in
case of GE India Technology Cent. (P.) Ltd. v. CIT [2010]193 Taxman 234to contend that
reinsurance premium paid to nonresident reinsurance companies was not taxable in their
handsand,therefore,questionofdeductingtaxatsourcedidnotarise.Assesseealsobrought
on record details of reinsurance premium ceded to nonresident insurance companies, profit
margin of assesseecompany, explanation on concept of unexpired risk reserve, etc. Tribunal
heldthatsinceaforesaiddetailswerenotavailablebeforelowerauthorities,itwasappropriate
to remit matter back to concerned assessing authority to reframe assessments in light of the
newmaterialsandlatestjudicialpronouncements.Matterremanded.(A.Y.200102to201011)
RoyalSundaramAllianceInsuranceCo.Ltd.v.ACIT(2013)55SOT429(Chennai)(Trib.)
S.195:Deduction at source NonResident NRI purchasing flat, seller is liable to deduct tax
at source as the tax was not deducted liable to be held as assessee in default under
sectionn201(1).[S.201(I)]
NRI assessee purchased a residential flat at Bangalore from one G whose Hong Kong address
giveninsaledeedindicatedthatshewasNRIseller.AssessingOfficeropinedthatassesseehad
failed to make TDS at prescribed rate on sale consideration as required by section 195 before
makingpaymenttoNRIsellerandtherefore,hewasassesseeindefaultundersection201(1).
Assesseeclaimedthathewasunawareofprovisionsofsection195andalsothoughtthatseller
wasresidentinIndia.Tribunalheldthatassessee'ssaidclaimwouldnotabsolvehimofdutyto
make TDS under section 195 when seller's address given in sale deed clearly established that
shewasNRIandtherefore,heoughttohavemadeTDS.therefore,assesseewasrightlyheldas
assesseeindefaultinaccordancewithprovisionsofsection201(1).(A.Y.200708)
SyedAslamHashmiv.ITO(2013)55SOT441(Bang.)(Trib.)
S.195:DeductionatsourceNonResidentSaleconsiderationPurchaseofflatCapitalgain
LiabletodeducttaxonentireconsiderationunlessapplicationismadetotheAssessing
Officerundersection195(2).
NRIassesseecontendedthatAssessingOfficerhadwronglyquantifiedTDSundersection195by
applyingspecifiedrateonentiresaleconsiderationpaidtoNRIsellerforpurchaseofresidential
flat and not on capital gain arising on this transaction. Assessee also stated that tax on said
capital gain was duly paid, However, it was found that assessee did not fulfill requirement of
section 195(2) vide which he was required to make application to Assessing Officer to
determine amount chargeable if he had considered that whole or part of sale consideration
wouldnotbeincomeinhandsofNRIseller.Tribunalheldthatwhenassesseedidnotapplyfor
lower or no deductionof tax, he was statutorily duty bound to have deducted tax at specified
rateonentiresaleconsiderationbeforemakingpaymenttoNRIseller,therefore,quantification
ofTDSasmadebyAssessingOfficerwastobeupheld.Infavourofrevenue.(A.Y.200708)
SyedAslamHashmiv.ITO(2013)55SOT441(Bang.)(Trib.)
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S.195:Deduction at sourceNonresident Other sums SurchargeEducational cessIf DTAA is
silent,noobligationtodeductsurcharge&educationcess.
The assessee made a remittance of management fee and interest to a resident of France. The
AOheldthatindeductingTDSthereonu/s195,theassesseeoughttohavedeductedsurcharge
and education cess. The assessee claimed that as the IndiaFrance DTAA was silent about
inclusion of surcharge & education cess, it was under no obligation to do so. HELD by the
Tribunalupholdingtheassesseesplea:
The IndiaFrance DTAAdoes not say anything about inclusion of surcharge and education cess
forthepurposeofdeductionoftaxatsource.Therefore,thereisanapparentconflictbetween
the Incometax Act and the DTAA between the two sovereign countries with regard to
deduction of tax at source on surcharge and education cess. U/s 90(2) if the provisions of the
DTAA are more beneficial to the taxpayer, the DTAA prevails over the Act. Since the DTAA is
silentaboutthesurchargeandeducationcessforthepurposeofdeductionoftaxatsource,the
taxpayermaytakeadvantageofthatprovisionintheDTAAfordeductionoftax.(A.Y.200304
to200809)
ITOv.M.FarHotelsLtd(Cochin)(Trib.),www.itatonline.org
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clause(iii)ofsection204mandatingthepersonstowhomsuchcertificatewasissuedtodeduct
tax at a rate lower than the prescribed rate under section 194C. Merely because the assessee
hadgotseparatetaxdeductionaccountnumbersfortheBahadurgarhunitandfortheMumbai
unit, that would not render the certificate issued under section 197(2) redundant. Such
certificatewastobeissuedtotheprincipalofficerofthecompanyasthepersonresponsiblefor
deduction of tax and not to any other person or unit of the assessee. Therefore, the order
passedbytheCommissioner(Appeals)andaffirmedbytheTribunalcouldnotbesaidtosuffer
fromanyillegalityinanymanner.
CIT(TDS)v.ParleBiscuitsPvt.Ltd.(2013)351ITR138/88DTR77(P&H)(HC)
S.201:DeductionatsourceFailuretodeductorpaySurveyMattersetaside.(S.133A)
AssesseecompanyisengagedinbusinessandoperatingasaschedulepassengerairlineinIndia
A survey under section 133A was conducted in assessee's premises on 1832011 in order to
verifyTDScompliance.IncourseofsurveyAssessingOfficernotedthatassesseecompanyhad
deductedTDSfromemployee'ssalariesbutithadnotremittedsametoGovernment'saccount
within due dates. Assessing Officer, though issued a showcause notice, passed order in haste
treating assessee to beassesseeindefault without providing assesseereasonable opportunity
of being heard. Moreover, it was not clear how liability for default in terms of section 201 (1)
and levy of interest under section 201 (1A) had been determined andas to whether remedies
available to assessee for making adjustments had been exhausted. Order passed by Assessing
Officer was to be set aside and, matter was to be remanded back for disposal afresh. (A.Y.
201011to201213)
KingfisherAirlinesLtd.v.ACIT(2013)55SOT370(Bang.)(Trib.)
S.201:DeductionatsourceFailuretodeductorpayRecoveryprovisionsundersection201
(1)canbeinvokedonlywhenlosstorevenueisestablished,matterremanded.
AssessingOfficertreatedassesseeasassesseeindefaultfornondeductionoftaxatsourceon
several payments made. Assessee contended that since recipients had paid tax on income
embedded in such payments, taxes could not once again be recovered.However, Assessing
Officer held that assessee was not able to prove that taxes had been duly been paid by
recipients. Further, assessee's request to Assessing Officer to 'use his statutory powers to
corroboratefrompayerswhethertheyhadpaidtaxontheiraccount'wasalsorejected.Tribunal
heldthatrecoveryprovisionsundersection201(1)canbeinvokedonlywhenlosstorevenueis
established, once assessee furnishes lawfully maintained information about recipients,
Assessing Officer should first ascertain related facts about payment of taxes directly from
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343
recipients before invoking section 201 (1). Matter remanded. (A.Ys. 200506, 200607 & 2008
09)
RamakrishnaVedantaMathv.ITO(2013)55SOT417(Kol.)(Trib.)
S.206C:CollectionatsourceStateGovernmentPersonCollectorAmaravtiisrequiredto
collecttaxatsource.[S.2(31),133A].
In the course of survey the Assessing Officer found that Tax collected at source (TCS) was not
collectedfromthelessesorthelicenseeswhiledebitingtheiraccountwiththeamountpayable
by them for the lease or license or at the time of receipt of amounts so payable during the
financial year 200405, 200506 and 200607.by them to them . Assessing Officer held that
GovernmentisalsopersonhencefailuretocollecttaxatsourceCollectorwasheldliabletopay
taxwithinterest.Commissioner(Appeals)confirmedtheorderofAssessingOfficer.Onappeal
Tribunalheldthat,
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StateGovernmentisapersonforpurposeofcollectingtaxatsourceasperprovisionsofsection
206C.Appellant representing State Government had allowed licenceholders to excavate
minerals,hewasrequiredtocollectTCSfromthem.(A.Ys.200506,200708)
Collectorv.ITO(2013)141ITD550(Nag.)(Trib.)
S.220:CollectionandrecoveryWaiverofinterestGenuinehardship.
The Assessing Authority had found that the assessee was partner in two firms and also had
substantial agricultural income Whether since assessee had not established that payment of
interest would cause genuine hardship to him, application for waiver of interest was rightly
rejected.
K.C.Mohananv.ChiefCIT(2013)214Taxman127(Mag.)(Ker.)(HC)
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of the Commissioner entrusting the jewellery to one partner and remanded the matter for
redetermination.IncompliancewiththedirectionstheCommissionerpassedanorderholdingthatthe
entirejewellerybelongedtothatpartnerandleviedinterestundersection220(2).
HeldthattheCommissioneroverlookedsection220(2A)whichexpresslyvestspowertowaiveorreduce
the amount of interest with the Chief Commissioner or the Commissioner. Since the existence of
circumstanceswhichmayjustifyreductionorwaivingoftheinterestliabilityisaquestionoffactandthis
aspect had not been discussed in the order by the Commissioner the matter was remanded to the
Commissionertoredeterminetheinterestliabilityoftheassesseewithoutprejudicetotherightofthe
assesseeoritspartnersafterafreshdetermination.
RoxyIndustrialCorporationv.CIT(2013)352ITR569/86DTR313(P&H)(HC)
PawanKumarMittalv.CIT(2013)352ITR569/86DTR313(P&H)(HC)
S.220:CollectionandrecoveryAssesseedeemedindefaultStayDemandshouldbestayedif
strong prima facie case made out. Demand on covered issues cannot be recovered by
adjustmentofrefunds.[S.237,245]
TheAssessingOfficerpassedanassessmentorderu/s143(3)andraisedademandofRs.1719
crores. In response to the assessees stay application, the Assessing Officer accepted that
demand of Rs. 1370 crores had to be kept in abeyance as they were covered in favour of the
assesseebyappellateordersforearlieryears.However,hestillheldthatthesaiddemandhad
to be adjusted against refunds of Rs. 560 crores determined for earlier years. He demanded
that the balance demand of Rs. 377 crores on the other issues be paid by the assessee. The
assessee filed a Writ Petition to challenge the adjustment of refunds against the demand on
coveredissuesandthenongrantofstayontheotherissues.HELDbytheHighCourt:
The manner in which and the ground on which an adjustment of the refund was made is
arbitrary and contrary to law. The stay order states that the assesseewould not be treated as
anassesseeindefaultinrespectofcoveredissues.Yetthedepartmenthasproceededtoadjust
therefunddueandpayabletotheassesseemerelyonthegroundthatthedepartmentsappeal
ispending.Theadjustmentofarefundisamodeofeffectingrecovery.Onceanissuehasbeen
covered in favour of the assessee in respect of another assessment year on the same point, it
was wholly arbitrary on the part of the department to proceed to make an adjustment of the
refund. If the adjustment was not made, there can be no manner of doubt that the assessee
would have been entitled to a stay on the recovery of the demand. The demand cannot be
adjusted by the department in this manner merely because it is in possession of the funds
belongingtotheassesseetowhichtheassesseeislegitimatelyentitledtoandhasbeengranted
arefund.Themakingofanadjustmentinthesefactsistotallyarbitraryandcontrarytolaw.As
regardstheotherissues,theassesseehasmadeoutastrongprimafaciecaseforastayofthe
recovery of the demand. As the action of the department in adjusting the refunds due to the
assessee was contrary to law, the interests of justice would be served if the department is
permitted to make an adjustment to an extent of Rs.60 crores and refund the balance with
interest.(A.Y.20102011)
HDFCBankLimitedv.ACIT(2013)354ITR77/86DTR393/259CTR20(Bom)(HC)
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S.220:Collection and recovery Assessee deemed in default Garnishee proceedings under
226(3) AO did not pass a speaking order u/s220(6),order of attachmentwas squashed.
(S.226(3))
TheassesseewasdeniedclaimofdeductionU/S10B,andsubstantialdemandwasraised.The
assessee had made an application u/s220(6) to the AO stating that the demand should be
stayedtilldisposalofappealbytheCIT(A).TheAOrejectedthestaywithoutcitinganyreasons,
and the bank accounts and rents were attached of the assessee.The assessee filed a writ with
the High Court, and while allowing the writ, held that nonspeaking order under section
s.220(6)withoutassigninganyreasonsneedstobequashed,andthereforetheorderattaching
theaccountsandrentofassesseeisalsoliabletoquashed.(A.Y.200910)
LalitWadhwav.CIT(2013)82DTR130(P&H)(HC)
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By the court : "When the statute confers a discretion on the Assessing Officer, that is a
discretionwhichiswieldedintheexerciseofaquasijudicialfunction.AssessingOfficersreject
stayapplicationsinacavalierfashionmakingabaldstatementtotheeffectthat`lookingtothe
factsandcircumstancesofthecase',nocaseforstayhasbeenmadeout.Thisdoesnotamount
toavalidorproperexerciseofdiscretion.WhatisexpectedofanAssessingOfficerisatleasta
briefstatementintheorderofthereasonsonthebasisofwhichheformedhisdecisionunder
section 220(6). Otherwise recourse to section 220(6) is a meaningless formality. Assessing
Officers when they dispose of applications under section 220(6) are required to act fairly.
FairnessasaconceptdoesnotundergoachangeinthehandsofanAssessingOfficer.Fairness
requiresobjectivity.ObjectivitythatisguidedbytheneedtoprotecttheRevenuewhileatthe
same timebeing fair to the assessee whose case has to be tested in a statutory appeal. (A.Y.
20042005)
DeloitteConsultingIndiaPvt.Ltd.v.ACIT(2013)351ITR160/84DTR437/258CTR164(Bom.)
(HC)
S.220:CollectionandrecoveryInterestWaiverPartialwaivercanbegiven.
InawritpetitionfiledintheHighCourttheCourtheldthatsection220(2A)oftheIncometax
Act, 1961, is an incentive to defaulter/Assessees to cooperate with the Department and to
remit the tax voluntarily at the earliest and, therefore, compliance should be rewarded by
taking a liberal view and approach. The Commissioner or the Chief Commissioner need not
alwayswaivetheamountofinterestinfullbutcangrantwaiverorreductionpartially.Whatis
indicated by the provision is that relief to be granted under section 220(2A) should be
proportionate to the extent of satisfaction of the conditions stated therein. In other words, if
the conditions are partially satisfied the assessee should be given partial relief, i.e., partial
waiver which should be in proportion to the extent of satisfaction of the conditions and
Applicationforstayofrecoveryproceedingscannotbeconstruedasnoncooperationasentire
arrears paid within six months, partial relief under section 220(2A) granted. The Writ petition
wasallowed.(A.Y.20062007)
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ArunSunnyv.ChiefCIT[2013]350ITR147(Ker.)(HC)
S.220:CollectionandrecoveryInterestRejectionofwaiverapplicationforinterestheldtobe
justified.
Assessee partner in two firms and having substantial agricultural income. Assessment was
necessitatedonaccountofadditiontotaxableincomeoffirmofwhichassesseewasapartner.
Assessee not satisfying conditions. Payment of interest would not cause genuine
hardshipRejectionofapplicationforwaiverofinterestwasheldtobejustified
K. C. Mohanan v. Chief CIT (2013) 350 ITR 461/258 CTR 103/85 DTR 125/214 Taxman
127(Mag.)(Ker)(HC)
S.226:CollectionandrecoveryModesofrecoveryStayStayApplicationsarenota
MeaninglessFormality.Norecoveryduringpendencyofastayapplication.S.226(3)notice
mustordinarilybepreservedonassessee.(S.226(3))
Theassessee,anageoldcharitabletrust,amendeditsobjects.Becauseofthischange,theAO
passedanorderu/s143(3)denyingexemptionu/s11andraisedademandofRs.11crores.The
assessee filed a stay application and requested a hearing. During the pendency of the stay
application,theAOissuedanoticeu/s226(3)andattachedtheassesseesbankaccounts.The
noticespecificallystatedthatthebankshouldnotcontacttheassesseetillpaymentwasmade.
Acopyofthesaidnoticewasnotservedontheassessee.TheassesseefiledaWritPetitionto
challengetherecoveryactionundertakenbythedepartment.HeldbytheHighCourtallowing
thePetition:
(i)Theactionofattachingtheassesseesbankaccountu/s226(3)duringthependencyofastay
application and without giving it notice was arbitrary and high handed. The whole object of
serving a notice on the assessee is to enable the assessee to have some recourse. While in a
given case, it may not be feasible to serve a prior notice on the assessee if there is an
apprehension that the monies would be spirited away, this was not a case of that type. In a
situationsuchasthepresentwhereappealsfiledbytheassesseearependingbeforetheCIT(A)
andtheassesseehadsoughtanopportunityofbeingheardandfiledapplicationsforstay,there
wasnojustificationwhatsoevertoproceedhastilywiththeenforcementoftherecoveryofthe
demandwithoutdisposingoftheapplicationforstay;
(ii) Applications for stay cannot be treated by the AOs & appellate authorities as meaningless
formalities.Quasijudicialauthoritieshavetoapplytheirmindinanobjectiveanddispassionate
manner to the merits of each application for stay. While the interests of the Revenue have to
be protected, it is necessary for AOs to realize that fairness to the assessee is an intrinsic
element of the quasijudicial function conferred upon them by law. Applications for stay must
be disposed of at an early date. Such applications cannot be kept pending to obviate
compliance with the need to evaluate the contentions of the assessee until after monies are
recovered using the coercive arm of the law. Appellate authorities must set down time
schedules for disposal of stay applications with reasonable expedition. The manner in which
recourse has been made to the coercive process of law, leaves much to be desired and the
action which was pursued was completely high handed and arbitrary. There could have been
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absolutely no apprehension that the assessee in the present case was likely to spirit out the
monieswhichwereinvestedinFixedDeposits.Apartofthemoneyhastoberefundedtothe
assesseetocarryoutitsdaytodayactivities.
SocietyoftheFranciscan(Hospitaller)Sistersv.DDIT(2013)351ITR302(Bom.)(HC)
S.226:Collection and recovery Modes of recovery Stay Stay of demand can be granted
evenifthereisnofinancialhardship.[S.10(23D),161,177]
TheAOraisedademandontheassesseeonthesamelinesashadbeendoneinthepreceding
AY.ThoughintheprecedingAY,theassesseehadobtainedastayfromtheHighCourt(seeUTI
MutualFundvs.ITO(2012)345ITR71(Bom),theAOrefusedtofollowthatforthepresentAY.
TheassesseefiledaWritPetitiontochallengetherefusaltograntstay.Toopposethegrantof
stay, the department relied on CIT vs. IBM India Pvt. Ltd where the Karnataka High Court had
held that in matters involving large amounts due to the Revenue, an interim order of stay
wouldbegrantedonlyincaseofgenuinefinancialhardshipoftheassesseeandnototherwise.
The Department argued that as the assessee did not have any financial hardship, the stay
shouldberejected.HELDbytheHighCourtrejectingthedepartmentspleaandgrantingstayof
thedemand:
TheorderoftheKarnatakaHighCourtinCITvs.IBMIndiaPvt.Ltdcannotbereadtomeanthat
consideration of whether an assessee has made out a strong prima facie case for stay of
enforcement of a demand is irrelevant. Nor is the law to the effect that absent a case of
financial hardship, no stay on the recovery of a demand can be granted even though a strong
primafaciecaseismadeout.Inconsideringwhetherastayofdemandshouldbegranted,the
Court is duty bound to consider not merely the issue of financial hardship if any, but also
whether a strong prima facie raising a serious triable issue has been raised which would
warrantadispensationofdeposit.Thatisasettledpositioninthejurisprudenceofourrevenue
legislation. In CEAT Limited v. UOI 2010 (250) ELT 200 (Bom) it was held that If the party has
made out a strong prima facie case, that by itself would be a strong ground in the matter of
exercise of discretion as calling on the party to deposit the amount which prima facie is not
liable to deposit or which demand has no legs to stand upon, by itself would result in undue
hardship of the party is called upon to deposit the amount. Where a strong prima facie case
hasbeenmadeout,callingupontheassesseetodepositwoulditselfoccasionunduehardship.
Wheretheissuehasraisedastrongprimafacecasewhichrequiresseriousconsiderationasin
the present case, a requirement of predeposit would itself be a matter of hardship. Also the
mannerinwhichtheRevenuehassoughttobrushasideabindingdecisionoftheCourtinthe
case of the assessee on the issue of a stay on enforcement for the previous year has to be
serious disapproved. The rule of law has an abiding value in our legal regime. No public
authority, including the Revenue, can ignore the principle of precedent. Certainty in tax
administration is of cardinal importance and its absence undermines public confidence.(A.Y.
201011)
UTIMutualFundv.ITO(2013)86DTR301(Bom.)(HighCourt).
S.234A:InterestAdvancetaxWaiverConditions.[S.220,234B]
Interest under S. 234A and S. 234B could be waived by Commissioner, only if the conditions
specified inthe Notification F. No. 400/29/2002IT(B) dated 2662006 are satisfied . Since the
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conditions specified in notification were not available, assessee could not seek waiver of
interest.
K.C.Mohananv.ChiefCIT(2013)214Taxman127(Mag.)(Ker.)(HC)
S.234A:InterestAdvancetaxDefaultinfurnishingreturn ofincomeWaiverorreduction
DelayinfilingreturnattributabletoassesseeChiefCITcorrectinonlypartiallywaivingthe
interest.
Where there was a delay on the part of the assessee in seeking copies of the impounded
documentsforfilingreturn,theChiefCITwascorrectinonlypartiallywavingtheinterestunder
section234AoftheActfordelayinfilingreturnofincome.(A.Y.200102&200203)
ShebinJewelleryv.ChiefCIT(2013)81DTR329(Ker.)(HC)
S.234A:InterestAdvance taxNo interest canbe levied u/s.234A if entire amount of tax has
been paid on or before due date of filling return of income even if return is filed after due
date.
Ifentireamountoftaxontaxableincomeshasbeenpaidonorbeforeduedateoffillingreturn
of income then even if return of income is filed after due date of filling return of income, no
interest can be levied u/s.234A.If tax on total income has been paid in part on or before due
dateoffillingreturnofincometheninterestu/s.234Acanbeleviedonlyondifferentialamount
of tax (i.e. on total tax less tax already paid on or before due date )and not on the entire
amountoftaxorelse,itshallrendertheprovisions ofsection234Apenalinnaturewhichthe
statuedoesnotprovidefor.(SCA9820of2002,dt18/06/2012)]
Bharatbhai B.Shah(2012) BCAJ NovemberP. 400/(2013) 214 Taxman 36(Mag.)/255 CTR 278
(Guj.)(HC)
S.234B:InterestAdvancetaxBookprofitCompany.[S.115JB,234C]
Interestundersection234Band234Cispayableonfailuretopayadvancetaxinrespectoftaxpayable
undersection115JB.(A.Y.200102)
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351
CIT v. Glenmark Pharmaceutical Ltd. (2013) 351 ITR 359/ 85 DTR 169/213 Taxman 315 (Bom.) (High
Court)
S.234B:InterestAdvance taxNonresidentIncome is liable to tax deduction at source no liability to
payadvancetax.
Theamountreceivedbytheassessee,anonresident,wassubjectedto100percenttaxdeductionat
sourceandtherewasnoliabilityontheassesseetopayadvancetax.Hence,thequestionoflevyof
interestundersection234Ballegingshortpaymentdidnotarise.(A.Ys.19911992,19941995)
CITv.ReiterInglostadtSpinnersImaechinanbauA.G.(2013)353ITR349(Mad.)(HC)
S.234B:InterestAdvance taxBook profitIndustrial undertakingsImpracticability of giving effect to
amendedprovisionsLevyofinterestwasnotjustifiedfortheAsst.year200203andjustifiedforthe
Asst.years200304and200405.[S.80IB,115JB,234C].
Section 115JB of the Incometax Act, 1961, is a special charging. Therefore, there is absolutely no
questionofsection80IBhavinganybearingoreffectorcontrolovertheprovisionsofsection115JB.
Though the provisions of section 115JB had come on the statute book with effect from April 1, 2000,
according to the Finance Act, 2000, and is applicable for the assessment year 200102 onwards, it was
amended by the Finance Act, 2002, and though the amending Act, in fact, received the assent of the
PresidentonlyonMay11,2002,itwasmadeapplicablefroman anteriordate,i.e.,fromApril1,2001,
itself.Fortheassessmentyear200203,taxliabilitydeterminedagainsttheassesseeinaccordancewith
section115JBasamendedwitheffect fromApril1, 2001bythe FinanceAct, 2002.Fortheassessment
years 200304 and 200405, the assessee being fully aware of the provisions of section 115JB filed
returns, and assessments were made. Held, that in view of the impracticability existing on the date of
amendmentoftheprovisionsrelatingtotheadvancetaxinrespectoftheassessmentyear200203,the
levyofinterestundersections234Band234Cwasnotjustified.Thelevyofinterestunderthesections
wasjustifiedfortheassessmentyears200304and200405(A.Ys.200203to200405).
SankhlaPolymers(P.)Ltd.v.ITO(2013)352ITR452/215Taxman175/257CTR185(Karn.)(HC)
S.234B:InterestAdvance taxNonresidentDeduction of tax at sourceNot liable to pay interest.
[S.195,234C].
TheassesseebeingnonresidentandentireincomeofassesseewassubjectedtoTDSundersection195
hence,itwasnotliabletopayinterestundersections234Band234C.(A.Y.200405)
DITv.WNSGlobalServices(UK)Ltd.(2013)214Taxman317(Bom.)(HC)
S.234B:InterestAdvancetaxWaiverofinterestTaxleviedinconsequenceofjudgementor
retrospectiveamendmentWaiverisnotpermissible.[S.234C,Rule119(2)].
Since assessment was reopened and tax was reassessed following judgment of High Court, interest
couldnotbewaived.(A.Ys.199596,199697)
P.G.Maniv.CIT(2013)214Taxman34(Mag.)(Ker.)(HC)
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S.234B:InterestAdvancetaxMATcreditAmendmentinsection234BbyFinanceAct,2006
Retrospective in nature Therefore, MAT credit to be considered before calculation of
interestu/s.234BoftheAct.(S.115JAA)
Amendmentinsection234BoftheActw.e.f.01.04.2007washeldtobeclarificatoryinnature
which is retrospective in nature.Therefore, MAT credit is to be considered before calculating
interestundersection234BoftheAct.(A.Y.199900)
Chief CIT v. Gujarat Mitra P. Ltd. (2013) 81 DTR 25 /214 Taxman 35 (Mag.)/255 CTR 18(Guj.)
(HC)
S.234B:InterestAdvance taxNo interest u/s. 234B can be levied unless AO give specific
directionintheAssessmentorder.
No interest can be levied through a notice of demand unless there is any specific direction
givingreferencetothesectioncharginginterestintheAssessmentOrder.(T.ANo.84of200,dt
19/06/2012]
S.K.PatelFamilyTrust.(2012)BCAJNovemberP.401)(Guj.)(HC)
S.234B:InterestAdvancetaxWithoutaspecificordercannotbecharged.(S.156)
Interestundersection234Bcannotbechargedinnoticeofdemandissuedundersection156in
absence of any specific order demanding interest in assessment, reassessment or rectification
order.(A.Y.199697)
CITv.RuchiraPapersLtd.(2013)212Taxman9/259CTR153(HP)(HC)
S.234B:InterestAdvancetaxNoticeofdemandSpecificorderLevyofinterestwasdeleted.
(S.156)
Interestundersection234Bcannotbechargedinnoticeofdemandissuedundersection156in
absence of any specific order demanding interest in assessment, reassessment or rectification
order.(A.Y.199697)
CITv.RuchiraPapersLtd.(2013)212Taxman9(HP)(HC)
S.234B:InterestAdvancetaxForeigncompany.[S.234C]
Assessee is a foreign company not liable to tax in India, interest charged under sections 234B
and234Cwasliabletobedeleted.(A.Y.200708)
DelmasFranceS.A.v.ADIT(2013)141ITD67/86DTR145/154TTJ561(Mum.)(Trib.)
S.234B:InterestAdvancetaxCompanyBookprofitsLevyofinterestismandatory.(S.115JB)
Charginginterestundersection234BoftheActismandatory.(A.Ys.20052006to20072008)
EasternIndiaPowertechLtd.v.Add.CIT(2013)21ITR542(Delhi)(Trib.)
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353
S.234B:InterestAdvancetaxDeductionatsourceNonresidentLiabletoincometaxandnot
advancetax.(S.195,209(1)(d))
The assessee, a tax resident of USA, supplied telecom equipment to customers in India. The
customerswhilemakingpaymenttononresidentassesseedidnotdeducttaxatsourceunder
section195.Inthecourseofassessmentproceedings,theAssessingOfficeropinedthatinview
of failure of payers to deduct tax at source while making payments, assessee being payee in
instantcase,wasindefault.Accordingly,theAssessingOfficerpassedanorderlevyinginterest
under section 234B from the assessee. On appeal, the Commissioner (Appeals) deleted the
interestleviedundersection234B.Onrevenue'sappealtheTribunalheldthatinthiscaseitis
anundisputedfactthatthetaxontheentireincomereceivedbytheassesseewasrequiredto
bedeductedatsourceattheappropriateratesbytherespectivepayersundersection195.The
revenue have not placed any material on record controverting these findings of the
Commissioner (Appeals) nor pointed out any contrary decision so as to enable the Tribunal to
takeadifferentviewinthematter.Inviewofaforesaid,itistobeheldthattheassesseeisnot
liable to pay any interest under section 234B accordingly.the revenue's appeal wasdismissed.
(A.Y.200405to00809)
ADIT(IT)v.AlcatelLucentUSAInc.(2013)55SOT72(URO)(Delhi)(Trib.)
S.234B:InterestAdvancetaxDeductionatsourceNonresidentNoliabilitytoadvancetax
interestundersection234Bcannotbelevied.(S.195,208)
The assesseecompany registered in U.S.A. belonged to ALU group, a leading manufacturer of
telecom equipment in the world ALU group had a substantial presence in India and started its
Indian operations in the year 1982 when it entered into an agreement with Indian Telecom
Industries Ltd. During the year under consideration, the assessee supplied telecomequipment
to various Indian companies. Assessing Officer found that ALU overseas entities including the
assessee had a permanent establishment (PE) in India. The Assessing Officer determined net
income chargeable to tax as attributable to PE in India at the rate of 2.5 per cent of the sales
made by the assessee in India. Accordingly, assessment was framed at an income of Rs.
6,55,033 and also levied the interests under section 234A, 234B and 234C. Before the
Commissioner(Appeals)theassesseequestionedthelevyofinterestundersection234Bbythe
Assessing Officer at Rs. 3,46,360. The Commissioner (Appeals) being convinced with the
contention of the assessee had deleted the interest levied under section 234B.Tribunal held
that combined reading of the provisions of section 209(1) (d) with the provisions of section
234B makes it clear that the liability to pay interest under section 234B would arise only if
advancetaxispayableaftermakingthenecessaryadjustmentfortaxdeductibleatsources.The
amount of (Tax deductible) would obviously mean the tax as was required to be deducted in
respect of a particular income and not the tax which has actually being deducted at source.
Responsibilityofanassesseetopayadvancetaxarisesundertheprovisionsofsection208read
withsections209and210themodeofcomputationofadvancetaxisgiveninsection209.As
long as the assessee has discharged its obligation to pay advance tax as per the provisions of
section208readwithsections209and210hecannotbeheldliablefordefaultinginpayment
of advance tax. Section 234B and section 234C only provide a method of computation of
interestincaseofdefaultbyanassesseetopayadvancetaxasstipulatedinsections208,209
and 210. The undisputed fact in the present case remained that the tax on the entire income
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354
received by the assessee was required to be deducted at appropriate rates by the respective
payersundersection195(2).Hadthepayermadethedeductionoftaxattheappropriaterate,
the net tax payable by the assessee would have been Nil. Thus, there was no liability to pay
advance tax by the assessee. Under similar facts, the High Court of Delhi in the case of Jacabs
Civil Incorporated/Mitsubishi Corpn. (supra) held that section 195 puts an obligation on the
payer i.e. any person responsible for paying any tax at source at the rates in force from such
paymentsandifpayerhasdefaultedindeductingtaxatsource,thedepartmentcantakeaction
againstthepayerundertheprovisionsofsection201.Insuchacase,thenonresidentisliable
topaytaxbutthereisnoquestionofpaymentofadvancetaxand,therefore,itcannotbeheld
liabletopayinterestundersection234Bonaccountofdefaultofthepayerindeductingtaxat
source from the payments made to the nonresident. Appeal of revenue was dismissed.
(A.Y.200203)
Dy.CIT(IT)v.LucentTechnologiesInternationalSalesLtd.(2013)55SOT271(Delhi)(Trib.)
S.234B:InterestAdvancetaxOrdergivingeffectDeductionatsourceSelfassessmenttax.
(S.234A,234C)
TheAOwhilecharginginterestu/s.234Bcalculatedinterest@2%permonthfor19monthson
Rs.8,44,797/ (i.e. Rs.5,63,906/ month of tax worked out after giving credit of Rs and self
assessmenttax(+)Rs.1,09,440amountofinterestchargedu/s.234A(+)Rs.1,70,230amountof
interest u/s. 234B up to 15.5.1994 and Rs.1221 amount of interest charged u/s. 234C).
According to the assessee, the interest u/s. 234B was chargeable only on Rs.5,63,906 which is
amountoftaxworkedoutaftergivingcreditofTDSandselfassessmenttax.Thus,accordingto
the assessee interest u/s. 234B worked out to Rs.2,14, 284 as against Rs.8,44,797 charged by
theAO.Theassesseefiledanapplicationu/s.154oftheActobjectingthatinterestchargedu/s.
234B is not correctly computed. The AO rejected the claim of the assessee vide order dated
15.4.2010.TheTribunalheldthat,atthetimeofpassinganordergivingeffecttoorderofITAT,
interest u/s. 234B is to be computed on tax on total income finally determined under regular
assessmentasreducedbytheamountofTDSandselfassessmenttax.Interestu/s234Bcannot
be levied on amount of interest chargeable u/s. 234A and 234C. (A.Y.199394) (ITA No.
4913/M/11,dated17102012CMum.)
ChandrakantS.Shahv.ITO(2013)BCAJPg.20,Vol.44BPart4,January2013(Mum.)(Trib.)
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appealHeld,dismissingtheappeal,thattheCentralBoardofDirectTaxeshadissuedcircularsin
this regard and the Chief Commissioners and the Director General have been given power to
reducetheinterestpayableundersections234A,234Band234Cinspecifiedandspecificcases.
Since the assessee had not filed any application no opinion could be expressed whether the
assessee's case was covered under the circulars. If deemed appropriate, the assessee could
makeanapplication.(A.Y.20042005)
BillandPeggyMarketingIndiaPvt.Ltd.v.ACIT(2013)350ITR465(Delhi)(HC)
S.234C:InterestDeferment of advance tax Assessed income was loss, assessee is not liable
forinterestundersection234C.
Assessment was subjected to modifications due to findings of appellate authorities regarding
earlier assessment years and allowing toset off loss carried forward against income of current
assessment year. Accordingly, Assessing Officer determined loss for relevant assessment year
andrefundedTDS,advancetaxandinterestpaidundersection234B. He,however,refusedto
refund interest paid under section 234C. Tribunal held thatinterest paid under section 234C is
for deferment of advance tax and when income of assessee having finally been arrived at loss
advance tax was refunded, there was no logic in making assessee liable for interest under
section234C.(A.Y.199697)
Dy.CITv.MysorePaperMillsLtd.(2013)55SOT56(URO)(Bang.)(Trib.)
S.234C:InterestDefermentofadvancetaxBookprofit.[S.115JA]
Assessee is laible interest under section 234C on short payment of advance tax even on the
incomecomputedundersection115JA.(A.Y.19992000to200506)
Hotel & Allied Trades P. Ltd. v. Dy.CIT (2013) 140 ITD 309/87 DTR 49/154 TTJ 503 (Cochin)
(Trib.)
S.237:Refunds:NongrantofrefundsSearchandseizureRefundofseizedamountStrictures
passedagainstDeptforharassinghonesttaxpayers.(S132,.245)
AsearchwasconductedatthepremisesoftheassesseeduringwhichcashofRs.25lakhswas
seized. The assessee succeeded in the block assessments and the said amount of Rs. 25 lakhs
became refundable to the assessee. However, the said amount was not refunded to the
assessee on the ground that there were demands outstanding against a third party who was
alsonamedinthesearchwarrant.Theassesseeclaimedthathehadnorelationwiththethird
partyandthefactthatthereweredemandsoutstandingtheredidnotmeanthattheassessees
refund could be blocked. The department refused to pass an order on the assessees
applicationforrefund.HELDbytheHighCourtallowingtheplea:
Itisbutevidentthatthedepartmenthasfailedtodischargeitslegalobligationinnotrefunding
the seized amount. The argument of the department that unless a direction is issued, a
speaking order shall not be passed on the application for refund of the amount due to him is
not appreciated. It shows that the officers of the Incometax Department are shirking their
responsibilities. Speedy and affordable justice is the requirement of the day. But it cannot be
achieved until the executive including taxman discharge their duties faithfully honestly within
the four corners of law. The revenue official failed to take any decision right or wrong on the
refund application filed by the assessee and passed on the buck on the Court. Time has come
for the heads of the departments to keep a strict vigil on such shirkers and to fix their
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356
responsibility. While it is no doubt true that collection of revenue is a serious matter for the
State and the bounden duty of the authorities functioning under the Act is to implement the
provisions of theAct, there should be safety and assurance to an honest taxpayer. An honest
taxpayer should not be subjected to unnecessary harassment and an action not warranted in
law,whichcanbeofveryseriousconsequencetothetaxpayerifisallowedtoremainwithout
correction,suchharassmentandbrowbeatingofanhonesttaxpayerwillotherwisedriveeven
such honest taxpayers to become cynical and lead to a situation where taxpayers will get a
feeling that paying taxes honestly is not a worthwhile exercise; that the tax authorities are a
menace to the society rather than simply being representatives of the State for enforcing the
taxprovisions.ThedepartmentshallpaycostsofRs.15,000totheassessee[SandikAsiaLtd.v.
CIT (2006) 280 ITR 643 (SC), CIT v. Gujrat Flouro Chemicals (2012) 348 ITR 319(SC)
&RaghavendraSherrigar(2005)142STC153)followed]
VijayPrakashAgrawalv.CIT(All)(HC).www.itatonline.org
April2000;refunddirectedwithinterest.
FagBearingsIndiaLtd.v.CCIT(2013)83DTR136/256CTR413(Guj.)(HC)
S.237:Refunds Circular On the date of applicationRefund claim of an assessee must be
examinedinlightofcircularinforceasofthedateofapplicationforsuchrefund.
PetitionmovedasapplicationforrefundarisingtoitwhichwasappropriateinlightoftheCBDT
circular prevalent at the point of time. Since, the Department did not respond to the said
applicationforaconsiderabletime,anotherletterremainingaboutthesamewasaddressedto
AO.Duringthependencyofsuchapplication,CBDTcameoutwithanothercircularsuperseding
the earlier circular andaccording to provisions of the said circular Petitioner was ineligible for
thesaidrefundandtheDepartmentdeniedthesaidrefundonthestrengthofsuchsubsequent
circular. It was held that the Department cannot process application of an assessee after an
indefinite periodof timeand apply a rule that may have changed in the meantime by virtue of
change in circular. Hence the refund claim of the Petitioner must be examined in light of the
circular in force as of the date of application. (SCA 4141 of2001, dt, 23/07/12/(SCA11132 of
2002,dt23/07/12)
MardiaChemicalsLed.(2012)BCAJNovemberP.399)(Guj.)(HC)
FAGBearingIndiaLtd.(2012)BCAJNovemberP.399)(Guj.)(HC)
S.244:RefundsInterestonrefundIntimationDTAAIndiaFrance[S.143(1)].
Interestassessableinyearinwhichrefundgrantedandnotinyearinwhichproceedingsunder
section 143(1) (a) attain finality. If interest reduced on account of assessment under section
143(3)reducedinteresttoformpartofincomeofthatyear.AssessingOfficertoadoptrateat
which interest on incometax refund charged under Double Taxation Avoidance Agreement
betweenIndiaandFrance.(A.Y.19971998)
ADIT(IT)v.CreditAgricoleIndosuez(2013)21ITR345(Mum.)(Trib.)
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S.244A:RefundsInterestRectificationoforderWithdrawalofinterest.(S.115JB,143(3),154)
Aftercompletingoriginalassessment,AssessingOfficerpassedorderundersection154togive
effecttoamendedclauseofsection115JB(2)(h)andrecomputedincomeathigherfigurethan
originally assessed.Assessing Officer also withdrew interest granted to assessee under section
244A.OnappealbyassesseetheTribunalheldthatinviewofsection244A(3),AssessingOfficer
was justified in withdrawing interest already allowed to assessee. In favour of revenue. (A. Y.
200607)
AartiSteelsLtd.v.Dy.CIT(2013)55SOT59(URO)(Chandigarh)(Trib.)
(i) Re Uploading of wrong or fictitious demand: The CBDT has accepted that incorrect and
wrongdemandshavebeenuploadedontheCPCarrearsportal.Inhisletterdated21.08.2012,
the CIT, CPC, has expressed his concern and anguish on account of uploading of incorrect and
wrong data in the CPU and the problem faced by them and by the assesses. The CBDT has
issuedCircularNo.4of2012inwhichtheburdenisputontheassesseetoapproachtheAOsto
get their records updated and corrected by filing s. 154 applications. While this may be the
easiest option available, it should not be a ground for the AO not to suo motu correct his
records and upload correct data. Each assessee has a right and can demand that correct and
true data relating to the past demands should be uploaded. Asking the assessee to file s. 154
applications entails substantial expenses and defeats the main purpose behind
computerisation.Also,theAOsdonotadheretothetimelimitprescribedfordisposalofthes.
154 applications. To ensure transparency (and accountability), a register must be maintained
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withdetailsandparticularsofeachapplicationmadeu/s154,thedateonwhichitwasmade,
date of disposal and its fate. The s. 154 application has to be disposed of by a speaking order
andcommunicatedtotheassessee.Theremustbefullcomplianceofthesaidrequirements;
(ii)ReAdjustmentofrefundcontrarytos.245:S.245postulatestwostageaction;firstaprior
intimation to the assessee and then, if warranted, the subsequent adjustments of the refund
towardsarrears.ThisisnotbeingfollowedbytheCPCbecausethecomputeritselfadjuststhe
refund due against the existing demand. To prevent this breach of the law, the department
must follow the procedure prescribed u/s 245 and give the assessee an opportunity to file a
reply which should be considered by the AO before giving the direction for adjustment. As
regardsthecaseswheresuch(illegal)adjustmenthasbeenmadeinthepast,thecasesmustbe
transferred to the AOs for issue of notice to the assessee seeking adjustment of refund. The
assesseeswillbeentitledtofileareplytothenoticeandtheAOwillthenpassanorderu/s245
allowing the refund. The CBDT has to fix a time limit and schedule for completing the said
process.Thoughtheprocessinvolvesexpenditureandpaperwork,thesituationhasarisendue
tothelapsesonthepartoftheAOsandtheassesseescannotbemadetosufferforthewrong
uploading of arrears and wrong adjustment of refund. The question of the assessees
entitlementto intereston the SA tax is left open though when the delay is due to the fault of
the Revenue, interest should be paid u/s 244A. False uploading of past arrears and failure to
followthemandateofs.245isalapseonthepartoftheAO;
(iv) Re nongrant of credit for TDS: The problem regarding rejection of TDS credit is in two
categories. The first is those where the deductors fail to upload the correct particulars of the
TDSwhichhasbeendeductedandpaidandthesecondiswherethereisamismatchbetween
the details uploaded by the deductor and the details furnished by the assessee in the ROI. As
regards the first, the CBDT had earlier directed that the AOs to accept the TDS claims without
verification where the difference between the TDS claimed and the TDS as per AS26 did not
exceedrupeesonelakh.ThisfigurehasnowbeenreducedtoamereRs.5,000.Exfacie,thereis
no justification for the reduction because credit is being given only if the three core fields
match.TheCBDTmustreexaminethisaspectandtakesuitableremedialstepsiftheyfeelthat
unnecessary burden or harassment will be caused to the assessees. As regards cases of
mismatchbecauseofdifferentmethodsofaccounting,orofferingincomeindifferentyears,the
departmentmusttakeremedialstepsandensurethatinsuchcasesTDSisnotrejectedonthe
groundthattheamountsdonottally.Thedepartmentshouldalsofixatimelimitwithinwhich
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they shall verify and correct all unmatched challans. An assessee as a deductee should not
suffer because of fault made by deductor or inability of the Revenue to ask the deductor to
rectifyandcorrect.OncepaymenthasbeenreceivedbytheRevenue,creditshouldbegivento
the assessee. The CBDT should issue suitable directions in this regard. The departments
response on the action taken against deductors for noncompliance is unfortunate and
unsatisfactoryanditpurportstoexpresscompletehelplessnessonthe partoftheRevenueto
take steps and seeks to absolve them from any responsibility. Denying benefit of TDS to a
taxpayer because of the fault of the deductor causes unwarranted harassment and
inconvenience. The deductee feels cheated. The Revenue cannot be a silence spectator, wash
theirhandsandpretendhelplessness.S.234EhasnowbeeninsertedbytheFinanceAct,2012
tolevyafeeofRs.200perdayfordefaultofthedeductortofileTDSstatementwithinduedate.
It is unfortunate that the Board did not take immediate steps after even noticing lacuna and
waitedtillFA2012.ThestandoftheRevenuethattheycanonlywritealettertothedeductor
topersuadehimtocorrecttheuploadedentriesortouploadthedetailsisnotacceptable.The
AOmustusehispowerandauthoritytoensurethatthedeductorcomplieswiththelaw.
CourtOnItsOwnMotion(AnandParkash)v.CIT(2013)352ITR273/214Taxman335/85DTR
301/258CTR113(Delhi)(HC)
All India Federation of tax Practioners v.UOI(2013) 352 ITR 273/ 85 DTR 301/258 CTR 113
(Delhi)(HC)
Courtonitsownmotionv.CIT(2013)85DTR289/258CTR143(Delhi)(HC)
TheCourtheldthatsincenoproceedingsunderIncometaxActwerependingattimeoffilingof
application,SettlementCommissionwasnotrightinadmittingassessee'sapplication.Whereby
application of section 153, an assessment order can no longer be made, proceeding, for
purposesofsection245A,wouldhavetobeconstruedasterminated.(A.Ys.200405,200506,
200708,200809)
CITv.IncometaxSettlementCommission(2013)212Taxman511/87DTR178(Delhi)(HC)
S.245D:SettlementCommissionDutyofsettlementcommissiontoexaminematerialsandadmissions
referredtoinreportofcommissionerOrderofSettlementCommissionbeingnonapplicationofmind
theorderwasquashed.[S.245D]
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HavingdueregardtotheseriousnessoftheobjectionstakenbytheCommissionerandthenatureofthe
documentsfoundduringthesurveyoftheassessee'spremises,theSettlementCommissionoughtto
haveactivelyapplieditsmindtothereportoftheCommissionerandthecopiousmaterialsadvertedto.
TheSettlementCommissionlostsightofthefactthatthereportsoftheJointDirectorwerevagueand
didnotthrowlightastowhatwastheexplanationoftheassesseewhichmeritedacceptance.The
SettlementCommissioncouldnothavebeensatisfiedastotheapplicabilityoftheassessee's
explanationwithregardtothevariousissuesraisedbeforeitinthereportoftheCommissionermerely
onthebasisofthereportsoftheJointDirector.Itthusignoredtherelevantevidenceandmaterial
whichitoughttohavetakenintoaccountwhileprocessingtheassessee'sapplication.Hence,itsorder
wasnotvalidandwasliabletobequashed.
CITv.GodwinSteelsP.Ltd.(2013)353ITR353(Delhi)(HC)
S.245D:Settlement CommissionOrder passed by commission after considering the information
availablehencetheordercannotbeinterfered.
TheSettlementCommissionhastoconsiderthematerialbroughtonrecordbeforeit."Consideration"
meansindependentexaminationoftheevidenceandthematerialonrecord.Sincethematerialwas
availablebeforetheCommissionandsuchmaterialhadbeentakenintoconsiderationforreturninga
findingwhichwasrelevantfordeterminingtheundisclosedincomeoftheassessee,theorderofthe
Commissioncouldnotbeinterferedwith.
SupremeAgroFoodsPrivateLtd.v.IncometaxSettlementCommission(2013)353ITR385(P&H)(HC)
S.245D:Settlement commissionWaiver of interestRectification of mistakeOrder of Commission
charging interest contrary to Circular and decision of Supreme CourtRectification order is not
permissible.[S.154,234A,234B].
The Settlement Commission, for the A.Y. 199192 to 199394, granted waiver of interest under section
234A for the A.Y. 199293 and 199394. It charged interest without waiver for the A.Y.199192. It
grantedwaiverofinterestundersection234Banddirectedthebalanceofinteresttobelevieduptothe
date of proceedings under section 143(3). On miscellaneous applications by the Revenue, the
Commission held that the error could be rectified in the light of the Supreme Court decision; that as
regards the interest under section 234A there was no entitlement for waiver for the AY 199394,
consequentlyinterestfortheAYmustbechargedfully;andthattheinterestundersection234Bwasto
be charged up to the date of the order of the Settlement Commission under section 245D(4). On writ
petitionsfiledbytheassessee,itwasheldthattheearlierorderoftheCommissionthoughcontraryto
theBoardCircularandconsideredinthelightofthedecisionoftheSupremeCourtwasanerrorwithin
the jurisdiction of the Commission it was not an error that went to the root of its jurisdiction. An
applicationforrectificationundersection154was,however,impermissibleandbeyondthejurisdiction
oftheCommission.Thus,therevisedorderoftheSettlementCommissioncouldnotbesustained.(A.Ys.
19911992to19931994)
U.Narayanamma(Smt.)v.GovernmentofIndia(2013)352ITR598(AP)(HC)
V.CH.RamaRaov.GovernmentofIndia(2013)352ITR598(AP)(HC)
T.Uma(Smt.)v.GovernmentofIndia(2013)352ITR598(AP)(HC)
A.P.MetEngg.Ltdv.GovernmentofIndia(2013)352ITR598(AP)(HC)
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S.245H:SettlementCommissionImmunityfromprosecution/penaltyRemandingthematter
tosettlementcommissionfordenovoadjudicationbyasinglejudgeheldtobevalid.(S.245C,
245D)
Assessee approached Settlement Commission under section 245C(1) for settlement of its
cases.SettlementCommissiongrantedimmunitytoassesseefromlevyofpenaltyandinitiation
of prosecution. Single Judge of High Court quashed order of Settlement Commission and
remandedmattertoitforreconsideration.Whetherasperprovisionsofsection245Dprevalent
atrelevantassessmentyearsSettlementCommissiononreceiptofapplicationhadtocallfora
report from Commissioner and onbasis of such report granting of immunity from prosecution
and penalty ought to have been scrutinized, since Settlement Commission had not done so,
order of Single Judgeremanding matter to Settlement Commissioner for de novo adjudication
didnotsufferfromanymaterialirregularityorillegality.(A.Y.199495to19992000)
ING Vysya Bank Ltd. v CIT (2012) 76 DTR 193/ (2013) 213 Taxman 115/255 CTR 311 (Karn.)
(HC)
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transactionrequiresrulingonquestionofapplicabilityofsection10(38)andalsosection115JB
but applicant does not seek ruling on applicability of section 10(38), ruling on applicability of
section115JBistobedeclined.Infavourofrevenue.
ZD,Inre(2013)212Taxman246(AAR)
S.246A:AppealCommissioner(Appeals)Appealableorders(S.144,Rule45(2))
Aggrievedbytheexparteorderdated31122008passedbytheAssessingOfficer(AO)u/s.144
of the Act the assessee filed an appeal to CIT (A). The memorandum of appeal was signed by
CA, Shri S.U. Radhakrishnani, as authorised representative. Since the assessee neither
submittedanyvalidpowerofattorneynorwasthereanyexplanationastowhytheappealwas
notsignedbytheassessee,CIT(A)videorderdated11102010dismissedtheappealasinvalid.
Thereafter, the assessee filed a fresh appeal on 732011 along with application for
condonation of delay. The CIT (A) in his order dated 22122011 held that the appeal filed by
the assessee against the assessment order had already been adjudicated by CIT (A) and
dismissed. There was no provision for filing of an appeal when the first appeal had been
dismissed. The appeal was also filed beyond the time limit CIT (A) therefore dismissed the
appeal inlimine. Once the appeal was treated as invalid, the same became nonest. The
assessee had the right to file another appeal which of course has to be considered as delayed
appealand,incasedelayiscondoned,theappealhastobedecidedonmerit.TheTribunalheld
that the view taken by CIT (A) does not represent the correct view and therefore, has to be
rejected. Once the appeal filed by the assessee is found to be legally invalid and dismissed as
such,theassesseecanfileanotherappealwhichhastobeconsideredalongwithcondonation
application and, if admitted after due consideration of condonation application, it has to be
decided on merit. (A.Y. 2006 2007) (G Bench, ITA No.1133/M/12 and ITA No.5490/M/11,
Dated11122012)
YusufHusainv.ITO(2013)BCAJPg.25,Vol.44BPart5,February2013(Mum.)(Trib.)
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Even after amendment of s. 251 (1) (a) w.e.f. 1
st
June 2001, divesting CIT (A) of power to
remand,CIT(A)wasjustifiedinremittingthemattertotheAOinappealagainstgivingeffectto
orderoftheTribunal,wheretheAOfailedtomakeassessmentasperdirectionsoftheTribunal.
Orderbarredbylimitation.Appealofrevenuewasdismissed.(A.Y.197980to198182)
CITv.HindustanZincLtd.(2103)83DTR231/257CTR22(Raj.)(HC)
S.251:AppealCommissioner(Appeals)PowersPowerofenhancementNoticeismandatory
beforeenhancement.
Assesseecompany was incorporated on 3011997. Promoters subscribed to equity shares of
assessee and also made advances to it towards allotment of additional equity shares. Since
allotmentofadditionalequitysharesagainstsubscriptionmoneycouldnotbecompletedby31
31997,assesseepaidinteresttosubscribersandclaimeddeductionofsame.Assessingofficer
accepted assessee's claim for deduction of interest payment. Commissioner (Appeals), on
appeal filed by assessee on some other issues, considered payment of interest too and held
that assessee was not entitled to deduction for payment of interest.Tribunal upheld order of
Commissioner(Appeals)onenhancementofassessment.TheCourtheldthatsaidissuewasto
be sent back to Commissioner (Appeals) with a direction to issue notice to assessee before
consideringanysuchenhancement.Matterremanded.(A.Y.199798)
Infrastructure Development Finance Co. Ltd. v. Jt.CIT (2013) 213 Taxman 28 (Mag.) (Mad.)
(HC)
S.251:AppealCommissioner(Appeals)PowersAdditionalevidenceSufficientcause.
[IncometaxRules,1962Rule46A]
Theassesseesurrenderedanamountinrelationto23creditors,insteadofaskingforadditional
time, when the Assessing Officer asked the assessee to furnish the confirmations of all the
creditors. There is nothing on record to suggest that the Assessing Officer did not allow
sufficient opportunity to the assessee to submit confirmations. When the assessee expressed
itsinabilitytofurnishfurtherconfirmationsortoproducethepersons,itofferedtheamountto
tax; and the Assessing Officer accepted the said offer and completed the assessment. The
powers of the Commissioner (Appeals) in terms of rule 46A to admit fresh evidence, entail an
element of discretion which is required to be exercised in a judicious manner. Additional
evidence was admitted and accepted as genuine without the Assessing Officer furnishing his
commentsandwithoutverification.Hence,thematterwassetasideandrestoredtothefileof
theCommissioner(Appeals).(A.Y.200809)
ACITv.NirulaHandicraftsBazar(P.)Ltd.(2013)56SOT97(URO)(Del.)(Trib.)
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thedocumentsandexplanationfiledbeforehimandwithoutaffordingreasonableopportunity
toexaminesuchevidenceordocumentsfiledbeforehimbytheAssessingOfficerhaddecided
theissueinfavouroftheassessee,whichisclearviolationofprincipleofnaturaljustice.Hence,
thematterremanded.(A.Y.200708)
DCITv.GurdaspurCentralCoop.BankLtd.(2013)56SOT(URO)100(Asr)(Trib.)
S.251:AppealCommissioner(Appeals)PowersEnhancementIncomefromsamesourceof
incomeHeldtobevalid.
Assessee having derived royalty income from licensing of CDMA patents hand sets and
equipment cannot be treated as two different source of royalty and therefore, AO having
concluded the assessment by taxing only the royalty income from handsets, CIT (A) was
competenttoexercisehisjurisdictionundersection251toenhanceincomeoftheassesseeby
includingroyaltyincomefromnetworkequipment.(A.Y.200101to200405)
QualcommIncorporatedv.ADIT(2013)23ITR239/85DTR156/153TTJ513/56SOT72(URO)
(Delhi)(Trib.)
S.251:AppealCommissioner(Appeals)PowersRevisionCommissionerundersection264
hasnopowertopassanorderprejudicialtoassessee,issueswhicharenotsubjectmatterof
revisionundersectioncannotbeenhancedbytheCommissioner(Appeals)(S.35AB,264)
TheAssessingofficerallowedtheclaimofassesseefordeductionundersection35ABinrespect
of technical know howfees. The Assessee filed petition under section 264 in respect of claim
under section 80IB which the assessee had omitted to make in the original return.
Commissionerrestoredtheissueregardingallowabilityofclaimundersection80IBoftheActto
the Assessing Officer.Assessing Officer in fresh assessment proceedings disallowed the claim
undersection80IB.OnappealtheCommissioner(Appeals)suomotudisallowedtheclaimunder
section 35AB.In appeal before the Tribunal it was argued that Commissioner (Appeals) could
not have consider the deduction under section 35AB which is beyond his jurisdiction. The
TribunalheldthattheAssessingOfficerwascorrectinnotconsideringanyissueotherthanthe
claim of deduction under section 80IBmade by assessee in the applicationunder section
264before Commissioneras he had no such jurisdiction. Nodoubt it is true that Commissioner
(Appeals)whiledecidinganappealhasplenarypowerandcanalsoconsideranyissuewhichhas
beenomittedbytheAssessingOfficer.OnthefactstheCommissioner(Appeals)cannotconsider
any issue which is beyond the jurisdiction of Assessing Officer.In the fresh Assessment
proceedingstheAssessingOfficerhadnojurisdictiontoconsideranyissueotherthantheclaim
under section 80IBand therefore, it cannot be said that in not considering the claim of
deduction under section 35AB, the Assessing Officer had failed to do something which was
necessary in the assessment. Commissioner (Appeals) has no power to act on which the
Assessing Officer hasno jurisdiction. Accordingly the order of Commissioner (Appeals) was set
asideonthisissue.(A.Y.200304)
HindustanColasLtd.v.ACIT(2013)140ITD277/151TTJ421(Mum.)(Trib.)
S.253:Appellate Tribunal Condonation of delay Delay in filing appeal against the original
orderoftheCIT(A)aftertheTribunalallowedtheappealoftheRevenueholdingthattheCIT
(A)wasnotjustifiedinrectifyinghisoriginalordertechnicalandhadtobecondoned.
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PendingtheassesseesappealbeforetheTribunaltheassesseefiledarectificationapplication
beforetheCIT(A)whichwasallowedbyhimgivingsubstantialrelieftotheassessee.Thereafter,
the assessee withdrew its appeal before the Tribunal.However, the revenue authorities
challenged the order of the CIT (A) in rectification which was allowed by the Tribunal.The
Assessee therefore filed an appeal before the Tribunal against the CIT (A)s original order and
also filed an application for condonation of delay.The delay was held to be condonable as the
assessee had filed fresh appeal before the Tribunal once the entire reason for challenging the
CIT(A)sorderhadchanged.(A.Y.199394)
UmakantLeasing&Finance(P)Ltd.v.Dy.CIT(2013)81DTR197(Guj.)(HC)
S.253:AppellateTribunalAppealCondonationofdelayHighCourtcondonedthedelayof
morethanoneyearduetonegligenceoflawyer.
Assesseerunningatuitioncentre,anassessmentorderwaspassed.Againstsaidorder,assessee
filed anappeal before Tribunal with a delay ofover one year. Tribunaldismissed appeal being
barred by limitation. On appeal, it was noted that on account of negligence of assessee's
lawyer,appealcouldnotbefiledwithinprescribedtime.Further,sicknessofmotherwasalsoa
contributing factor as assessee was engaged in attending her. The Court heldonfacts, cause
shown by assessee for delay in filing appeal was genuine and bona fide, therefore, impugned
order was to be set aside and, matter was to be remanded back for disposal on merits. (A.Y.
19992000to200102)
MukeshJesangbhaiPatel.v.ITO(2013)213Taxman37(Mag.)(Guj)(HC)
S.253:AppellateTribunalAppealDismissingthecrossobjectionwassetaside.(Rule46A)
Assessing Officer made reassessment and added certain amount to total tax liability of
assessee.Assessee, in appeal, objected to said addition which was accepted. On appeal before
Tribunal by revenue, assessee did not file any appeal or crossobjections. It was disputed
whethernoticeofappealwasinfactreceivedbyassessee.Tribunalpassedorderanddirected
remandtoAssessingOfficeronquestionofconsiderationofadditionalevidencerelieduponby
assessee. Assessee filed appeal before High Court. High Court did not go into question as to
whether notice of appeal was served on assessee. High Court directed Tribunal to adjudicate
matterafreshonapplicabilityofrule46Aandwhetherinobtainingfactualmatrix,onlyoption
was to remand matter to Assessing Officer. Assessee filed its crossobjection before Tribunal
under section 253(4). Tribunal dismissed cross objection on assumption that assessee did not
choose to file crossobjections despite service of notice. The Court heldthat Tribunal was
unjustifiedinrejectingcrossobjectionwhenititselfwassatisfiedthatappellanthadnot,infact,
filedcrossobjectionattimewhenitcouldhaveoriginallyfileditwhenappealswerefiledearlier
before Tribunal. The Court also held that Tribunal should have examined whether cross
objections could be entertained in facts and circumstances of case having regard to
independent power to entertain them contained under section 253(5), therefore, Tribunal's
impugnedorderdismissingcrossobjectionwasunsustainableandwastobesetaside.Infavour
ofassessee.
AshianNeedles(P.)Ltd.v.CIT(2013)213Taxman38(Mag.)(Delhi)(HC)
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S.253:AppellateTribunalAppealDutyofTribunalDutytoexaminefactscarefully.
ThattheorderoftheTribunaldidnotdisclosethefactsconsideredonthebasisofwhichit
arrivedattheconclusioninrespectofthefixeddepositsmadebythefriendsandrelativesof
themanagingdirectortothetuneofRs.21,60,000.Admittedly,reasonsarethelinksbetween
thematerialsonwhichcertainconclusionsarebasedontheactualconclusions.Intheabsence
ofreasonsbasedonconsiderationoffactsbytheTribunalintheordertosupportitsconclusion
asregardsthefixeddepositreceiptsofRs.21,60,000itsordercouldnotbesustained.Matter
remanded.
HastalloyIndiaLtd.v.Dy.CIT(2013)350ITR52(AP)(HC)
S.253:AppellateTribunalJurisdictionLocationofAssessingOfficeratthepassingofOrder
isrelevant[S.127]
Since the office of the Assessing Officer who passed assessment orders was located in Delhi,
and order under section 127 was passed by Commissioner transferring his jurisdiction to
Kanpur after passing assessment order, Delhi Bench of Tribunal had jurisdiction over assessee
tohearappealsandnotLucknowBenchofTribunal.(A.Ys.200607200708)
ACITv.LataJain(Smt.)(2013)56SOT102(URO)(Luck.)(Trib.)
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The Commissioner (Appeal) upheld the action of the Assessing Officer. On appeal by the
AssesseetheITATheldthat,byvirtueofsection179,itcouldnotbesaidthattheassesseehas
been made liable to pay tax due on behalf of 'K'. Also the appeal was decided in favour of K
andhence,nodemandissubsistingagainstthecompanyasondate.Thus,therewasnocause
ofactionthatisexistingfortheerstwhileDirectorsoftheCompanytochallengetheordersof
assessmentof'K'andtheappealwasdismissedasnotmaintainable.TheTribunalalsoheldthat
on the basis of letter the assessee was no justified in challenging the assessment order.(A.Y.
200112)
N.Gowrishankarv.ACIT(2013)56SOT119(URO)(Bang)(Trib.)
S.253:AppellateTribunalAppealDepartmentcannotarguethatregistrationgrantedby
Commissionerundersection12AAisnotproper.(S.12AA).
Tribunalheldthatorderundersection,12AA,isanorderpassedbycompetentauthorityandif
any irregularity has crept in the order, the same can be rectified by the competent authority
itself. No appeal has been provided for the revenue against this order before the Tribunal.
Therefore,therevenuecannotraiseanyobjectionquatheirregularity,ifany,creptintheorder
oftheCommissionerwhilegrantingregistration.Decidedinfavourofassessee.
Add.CITv.ChaudharyRaghubirSinghEducational&CharitableTrust(2013)55SOT211(Delhi)
(Trib.)
S.253:AppellateTribunalAppealCondonationofdelayCrossobjectiondelayof1529days
wasnotcondoned.
Assessee filed cross objections after a delay of 1529 days. Assessee explained that it was an
oversight which was discovered only in conference with its counsel after expiry of four years.
Tribunal heldthat therewas no sufficient cause for delay within meaning of section 253(5) to
justifycondonationofdelay.Decidedinfavourofrevenue.(A.Y.200102)
ACITv.PetroleumIndiaInternational.(2013)55SOT69(URO)(Mum.)(Trib.)
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During previous year 40 voyages were undertaken by a French shipping company through its
Indianagentand40returnswerefiledInsteadofpassing40orders,acompositeassessment
order under section 172(4) was passed by Assessing Officer assessing total income at Rs. 2.72
crore.Tribunalheldthatsincetaxeffectunderappealininstantcasewasmorethanstipulated
taxeffectofRs.3lakhs,eventhough30outof40appealshadtaxeffectsoflessthanRs.3lakhs
each,all40appealsweremaintainablebeforeTribunal.Taxeffectina'case'meansoveralltax
effect in respect of disputed issues in a particular assessment year. In favour of revenue.
CircularsandNotifications:CBDT'sInstructionNo.3/2011,dated922011.(A.Y.201011)
ITO(IT)v.CMACGMAgencies(India)(P.)Ltd.(2013)55SOT61(URO)(Rajkot)(Trib.)
S.253:AppellateTribunalMaintainabilitySmalltaxeffect.(S.268A)
Since the tax effect in the case is less than 3 lacs, the appeal filed by the revenue before the
Tribunalisnotmaintainable.Thelimitisalsoapplicabletopendingcases.(A.Y.200304)
ITOv.SaraswatiDeviGehlot(Smt)(2013)152TTJ17(UO)(Jodh.)(Trib.)
S.254(1):AppellateTribunalOrdersFindingofCIT(A)wasnotconsideredbyTribunalOrderheldtobe
unsustainable.[S.68]
On failure of the production of creditors, summons were issued under section 131. But none of the
creditors appeared and in some cases summons were returned with the endorsement made by the
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postalauthority"nosuchpersonconcernedwasfound".However,afteranalysingeverything,theCIT(A)
accepted the explanation and also the evidence of the creditworthiness of the creditors and granted
relief.However,theTribunalfoundthattheCIT(A)haderroneouslyheldthatthesummonswereissued
aftertheassessmentwasdone.Onlyonthatgrounditwasheldthattheassesseecouldnotestablishby
producingevidencethatthecreditwasreceivedfromcustomers.TheHighCourtheldthattheTribunal
hadnotadjudicateduponthecaseoftheassesseeinthelightoftheevidencewasfoundbytheCIT(A)
andhence,itsorderwasunsustainable.(A.Y.19941995)
CrystalNetworksP.Ltd.v.CIT(2013)353ITR171(Cal.)(HC)
S.254(1):Appellate Tribunal PowerPartial disallowance accepted by assesseeTribunal cannot set
asideentiredisallowanceAgreedadditionappealisnotmaintainable.[S.80IB]
Theassessmentwasanagreedassessmentandtheassessee'srepresentativedidnotopposethepartial
disallowancebytheAssessingOfficer.Aftermakingaclaimundersection80IB,theassesseerequested
theAssessingOfficertomakenecessaryadjustmentintheclaim.Thisobviouslymeantthattheassessee
himselfwasadmittingthattheclaimwashighandtheAssessingOfficerwasfreetorefixtheclaim
eligiblelimit.ItwasthereafterthattheAssessingOfficerinconsultationwiththeassessee'sauditor
madeapartdisallowanceadjustingtheprofitattributabletofinalproductstransferredtotheeligible
unit.TheCourtheldthattheTribunalhadnoauthoritytointervenewiththisorderconfirmedinfirst
appeal.TheassesseesrepresentativedidnotopposethepartialdisallowancebytheAssessingOfficer
.Thereforetheassesseehadnorightofappealagainsttheorderandtheappealchallengingthe
disallowanceitselfwasnottenable.
CITv.M.E.Meeran(2013)353ITR281(Ker.)(HC)
S.254(1):Appellate TribunalOrdersWrit to restrain ITAT Members from discharging statutory
functionsnotmaintainable.[Art.226ConstitutionofIndia]
The Petitioner, a Chartered Accountant practicing before the Amritsar Bench of the Tribunal,
filedaWritPetitionallegingthathewasfacingalotofharassmentatthehandsoftheJudicial
Member(Shri.H.S.Sidhu)andtheAccountantMember(Shri.B.P.Jain)oftheAmritsarBench.
He alleged that the said Members were totally prejudiced against him as he had made a
complaint against the Judicial Member to the Tribunal andalso because he had not been able
tomeettheexpectationsandillegaldemandsofthesaidMembers.Itwasalsoallegedthat
theBenchwasdelayingthemattersofthePetitionerorpassingunreasonedordersorbytotally
ignoringhim.AWritofMandamuswassoughtforrestrainingthesaidJudicialandAccountant
Members of the Amritsar Bench from discharging their functions. HELD by the High Court
dismissingthePetition:
ItappearsthatthewritpetitionistosettlescoreswhichthePetitionermighthaveraisedduring
the course of his conduct as representative of the assessees. The Petitioner has asserted that
he is not able to meet the expectations and illegal demands raised by the Members but there
arenodetailsastowhenandhowthedemandswereraised.Notonlythewritpetitionisbereft
of any material particulars but also the Petitioner has no right to claim mandamus for
restraininganauthorityconstitutedundertheActfromdischargingthefunctionsentrustedtoit
by the Statute. The present writ petition is gross abuse of process of law and, therefore, it is
dismissed.
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YoginderKumarSudv.President,ITAT(P&H)(HC)www.itatonline.org.
S.254(1):AppellateTribunalPowersPowertoremandDirectionshouldbeverycautious.
While remanding issues for fresh consideration by Assessing Officer, Tribunal should be very
cautiousinissuingdirections,evenifitisonlyforguidanceofAssessingOfficer,directionissued
by Tribunal should not give rise to a situation where assessing authority is likely to feel
disturbedbyit.Matterremanded
CITv.RBGInvestment&FinanceLtd.(2013)213Taxman39(Mag.)(Delhi)(HC)
S.254(1):AppellateTribunalOrdersPowerAdditionalevidenceTribunalcanremitmatterto
AssessingOfficertoconsideradditionalevidence.(AppellateTribunal)Rules,1963,29)
The assessee incurred certain expenses in the form of management expenses paid by it to its
groupcompanies.TheAssessingOfficerrejectedtheclaimonthegroundthattheassesseewas
notabletoprovethatthegroupcompanieshadrenderedanyservicestotheassessee.Before
the Commissioner (Appeals) the assessee had filed copies of certain agreements entered into
between the assessee and its group companies to whom the management fee was given. The
Commissioner (Appeals) admitted this fresh evidence but came to the conclusion that the
assesseewasunabletoleadanycredibleevidencetoprovethatforcarryingonthebusinessit
had received any inputs from the group companies and the money to them became payable.
The assessee preferred an appeal before the Tribunal. Along with the appeal application for
leading additional evidence under rule 29 was filed as the assessee wanted to produce some
further evidence which he did not produce before the Assessing Officer and even the
Commissioner(Appeals).TheTribunaladmittedtheadditionalevidenceandremittedthecase
totheAssessingOfficertodecidetheissueafreshafterconsideringtheadditionalevidence.On
appeal by revenue dismissing the appeals, the Court held that the reason which was given by
the assessee in support of its plea for admission of additional evidence was that the assessee
could not produce these records before the lower authorities due to nonirretrievability of e
mailonthedatebecauseoftechnologicaldifficulties.Thisreasonwasspecificallymentionedin
the application filed. No reply to this application was filed refuting this averment, though the
Departmental representative had opposed the admission of the additional evidence. The
groundpleadedbytheassesseewasnotconfronted.Inthisbackdrop,theTribunallookedinto
the entire matter and arrived at a conclusion that the additional evidence was necessary for
deciding the issue at hand. It was, thus, clear that the Tribunal found the requirement of the
evidenceforproperadjudicationofthematterandintheinterestofsubstantialcause.Rule29
categoricallypermitstheTribunaltoallowsuchdocumentstobeproducedforanysubstantial
cause. Once the Tribunal has predicated its decision on that basis, there was no reason to
interferewiththesame.(A.Y.20042005)
CITv.TextHundredIndiaPvt.Ltd.(2013)351ITR57(Delhi)(HC)
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TheassesseehadmadeaclaimonaccountofbaddebtsintheamountofRs.28.69lakhsunder
section 36(2). The Assessing Officer disallowed the claim. In appeal, the Commissioner
(Appeals)confirmedthedisallowancemadebytheAssessingOfficertotheextentofRs.14.96
lakhs. However, the assessee was granted relief to the extent of Rs. 13.73 lakhs under section
36(2).Both,therevenueandtheassessee,filedappealsbeforetheTribunal.Theappealfiledby
the assessee was, however, barred by limitation, there being a delay of 551 days. During the
courseofthehearingbeforetheTribunal,theassesseewithdrewitsappeal,butsoughttopress
in aid the provisions of rule 27 of the Incometax (Appellate Tribunal) Rules, 1963 to contend
thattheCommissioner(Appeals)erredinpartlyconfirmingthedisallowance.TheTribunalheld
that in the absence of relevant details being brought on record by the parties and in the
interests of justice it was appropriate to remand the entire matter pertaining to the
disallowance of Rs. 28.69 lakhs to the Assessing Officer. Accordingly, the order passed by the
Assessing Officer on this account was set aside in its entirety and the Assessing Officer was
directed to decide the matter afresh in view of the decision of Mumbai Special Bench inDy.
CITv.Shreyas S. Morakhia[2010]40 SOT 432.On appeal to the High Court, the revenue
contendedthatrule27ofthe1963Ruleswouldonlypermittheassessee,astherespondentto
the appeal by the revenue, to support the order appealed against on any of the grounds
decided in favour of the assessee and, hence, the assessee could have supported the order of
the Commissioner (Appeals) to the extent to which the appellate authority had allowed the
claimoftheassesseeintheamountofRs.13.73lakhsandnotdisallowanceofRs.14.96lakhs.
Allowing the appeal the Court held that Tribunal erred in setting aside order of Commissioner
(Appeals) in its entirety and by restoring proceedings to Assessing Officer in regard to entire
disallowance; Tribunal could have restored proceedings to Assessing Officer only as regards
amount of disallowance deleted by Commissioner (Appeals). Under rule 27 the respondent is
permittedtosupporttheorderappealedagainst,thoughhemaynothaveappealedagainstthe
order, on any of the grounds decided against him, however set side of entire order is not
permitted.(A.Y.200405)
CIT. v. Jamnadas Virji Shares & Stock Brokers (P.) Ltd. (2013)/86 DTR 402/258 CTR 458/ 212
Taxman120(Mag)(Bom.)(HC)
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S.254(1):AppellateTribunalOrdersDutyofTribunaltogiveitsownreason.
The Court observed that there was no discussion in the order of the Tribunal about the
respective arguments of the parties. It did not contain the points for determination and its
findingsthereon.Evenanorderofaffirmationbyahigherauthorityrequiresthattheauthority
should give its own reasons, may be, in brief for its concurrence with the order appealed. The
Tribunalisunderalegalobligationtorecorditsownfindingonthesubmissionsoftheparties,
may be in brief, depending upon the facts and circumstances of the case. But if it does not
containanyreasonsuchanorderisnoorderintheeyesoflawandcannotbeallowedtostand.
Intheopeningportionoftheorder,theTribunalnoticedthegroundsraisedbytheassesseein
the memo of appeal. It had taken trouble to reproduce them but left them undecided.
Definitely,thecasemeritedadifferenttreatmentatthehandsoftheTribunal.(A.Y.19911992
AbhyudayaPharmaceuticalsv.CIT(2013)350ITR358/214Taxman61(Mag.)(All)(HC)
S.254(1):AppellateTribunalOrders496daysdelayinfilingappealduetoCAsfaultisbona
fide&mustbecondoned.
The assessee filed an appeal before the Tribunal which was delayed by 496 days. In the
applicationforcondonationofdelay,theassesseeclaimedthathehadhandedoverthepapers
to his Chartered Accountant and that the latter had mixed up the papers with other papers in
his office which led to the delay. The department opposed the application on the ground that
therewasgrossnegligenceonthepartoftheassesseeandthatsufficientcauseforthedelay
wasnotexplained.HELDbytheTribunal:
Thefactsdonotsuggestthattheassesseehasactedinamalafidemannerorthatthereasons
explained are only a device to cover an ulteriorpurpose. It is a settled proposition of law that
Courts should take a lenient view on the matter of condonation of delay provided the
explanation and the reason for delay is bonafide and not merely a device to cover an ulterior
purpose or an attempt to save limitation in an underhand way. The Court should be liberal in
construing sufficient cause and should lean in favour of such party. Whenever substantial
Justiceandtechnicalconsiderationsareopposedtoeachother,causeofsubstantialJusticehas
to be preferred. On facts, the reasons explained by the assessee show that due to bonafide
mistake and inadvertence, the appeal could not be filed within the period of limitation.
Accordingly,thedelayof496dayshastobecondoned(collectorLandAcquisitionv.Mst.Katiji
andOrs.(1987)167ITR471(SC)referred).(A.Y.200506)
Y.P.Trivediv.JCIT(Mum)(Trib.)www.itatonline.org.
S.254(1):AppellateTribunalAdditionalgroundsPowertoadmit.
The assessee had not made claim of bad debt in the return of income but made same during
the course of assessment proceedings. The Assessing Officer and the Commissioner(Appeals)
didnotacceptthenewclaim.ItwasheldthattheCommissioner(Appeals)couldhaveaccepted
thenewclaimbyvirtueofitsappellatepowers.(A.Y.200708)
Givaudan Flavours (India) (P.) Ltd. v. Dy.CIT (2013) 56 SOT 105(URO) / 22 ITR 732 (Mum.)
(Trib.)
S.254(1):AppellateTribunalDelayinfilingappealAffidavitRequirementsofavalidaffidavit
insupportofdelaycondonationapplicationismust,otherwisedelaymaynotbecondoned.
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TheassesseefiledanappealbeforetheCIT(A)whichwasdelayedby4months.Thedelaywas
explainedtohavebeencausedbythefactthattheassistantoftheAuthorizedRepresentative
keptthepapersinadrawerandoverlookedthemtillapenaltynoticewasreceived.TheCIT(A)
declined to condone the delay and dismissed the appeal. The assessee filed an appeal before
the Tribunal and also filed an affidavit of the Authorized Representative in support of the
application for condonation of delay. HELD by the Tribunal dismissing the application and the
appeal.
The affidavit produced by the AR is not a valid affidavit because there is no verification
appendedonitandthereisnomentionastowhichoftheparasaretruetotheknowledgeof
thedeponentandwhichoftheparasoftheaffidavitaretruetohisbelief.Theaffidavitisalso
notadulyswornaffidavitasrequiredunderRule10oftheITATRules1963becauseithasnot
been properly endorsed by the notary regarding the oath of affirmation before him by the
executantoftheaffidavit.Thenotaryhasputhissignaturesunderhisnamesealbutthereisno
mentionwhethertheoathwasadministeredtothesignatoryorifdoneso,whenandwhereit
was administered. Evenwords Sworn beforeme aremissing. If the affidavit does not certify
orendorsethefactthatoathhasbeenadministered,itremainsawastepaper.Onmerits,the
case is one of gross negligence and inaction on the part of the assessee and the AR. The
explanation that the ARs assistant kept the papers in his drawer and failed to take necessary
action is vague and evasive and not sufficient cause for condonation. There is also no general
principlesavingthepartyfromallmistakesofitscounsel.Thereisalsototalinactionandgross
negligence on the part of the assessee for not inquiring the status of the appeal from the AR.
Though courts adopt liberal view while condoning delay on the principle that technicalities
should not prevail over the cause of justice, litigants should not take the courts for granted.
(A.Y.200607)
KunalSuranav.ITO(Mum.)(Trib.)www.itatonline.org
S.254(1):Appellate Tribunal OrdersPowers Additional evidence No power to declare
retrospective effect of amendment.Additional evidence after hearing is also permissible.
(AppellateTribunal)Rules1963Rule29)
TheTribunalhasnopowertodeclareretrospectiveeffectofamendmentunconstitutionalThe
Tribunalsuomoturequireadditionalevidenceevenafterconclusionofhearing.(A.Y.200708)
L.G. Electronics India P. Ltd. v. ACIT (2013) 140 ITD 41 / 22 ITR 1/83 DTR 1/152 TTJ 273 (SB)
(Delhi)(Trib.)
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374
The Tribunal upheld the validity of search proceedings carried out at premises of assessee.
Thereafter, the Tribunal also proceeded to examine on merits,the various issues raised by
assesseeregardingadditionsretainedbyCommissioner(Appeals).Thereafter,assesseemoved
an application for rectification of above order on ground that at time of oral submissions
assessee was informed that Tribunal would not consider issues of additions on merits and in
said situation assessee did not got chance to argue its case. The Tribunal accepted assessee's
caseandrectifieditsorder.Held,sincetheTribunalhadproceededtodecidecertainissueson
merits without giving full opportunity to assessee to make submissions thereon, the order
suffered from an error apparent on record and, therefore, it committed no error in exercising
powerofrectification.
DCITv.ManuP.Vyas(2013)214Taxman86(Mag.)(Guj.)(HC)
S.254(2):AppellateTribunalRectificationofmistakeapparentfromtherecordNot
consideringthedecisionofSupremeCourtcanberectifiedundersection254(2).[S.11,13(1)
(c)(ii)]
Assessee, a charitable trust, claimed exemption under section 11. Assessing Officer having
foundthatduringcurrentyearassesseehadadvancedasumofRs.25lakhtooneP,whowas
managingtrusteeoftrust,tookviewthatthisamountedtoviolationofsection13(1)(c)(ii).He,
therefore,askedassesseetoexplainastowhyexemptionclaimedundersection11shouldnot
bedenied.AssesseeexplainedthatincurrentyearnofundsweregivenbytrusttoP,andthat
said transaction related to earlier assessment year 200203. Assessing Officer did not accept
explanation of assessee and denied exemption under section 11. Commissioner (Appeals)
having found, that during current year no funds were given by trust to P, granted exemption
under section 11 to assessee. Tribunal held that assessee had violated provisions of section
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13(1) (c) (ii) and accordingly set aside order passed by Commissioner (Appeals). Thereupon
assesseefiledapetitionundersection254(2)statingthatTribunalwhiledecidingappealdidnot
considerdecisionofSupremeCourtrenderedincaseofAditanarEducationalInstitutionv.Addl.
CIT[1997]224ITR310foradjudicatingissueregardingviolationofsection13(1)(c)(ii).Tribunal
(i) after taking into account fact that advance of Rs. 25 lakh was given to P during period 14
2001 to 3132002, and (ii) also taking into account decision of Supreme Court in case of
Aditanar Educational Institution (supra), held that there was a mistake apparent on record in
earlier order passed by it. It further on basis of above findings held that assessee had not
violated provisions of section 13(1) (c) (ii) during relevant assessment year 200304 and
accordingly rectified order passed by it earlier. On appeal to High Court by revenue the Court
heldthat,onfactsandincircumstancesofcase,Tribunalhadrightlyexercisedpowersconferred
under section 254(2). Therefore, theimpugned order passed by Tribunal was justified.Section
254(2)hasbeenenactednotonlytosafeguardinterestofrevenuebutalsotoenableTribunal
torectifyerrorapparentonfaceofrecord.(A.Y.200304)
CITv.ParkTrust(2013)212Taxman115(Mag.)(Mad.)(HC)
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filing of appeal. The Court held thatpetitioner could not be heard to say that Tribunal was
obligedtoinformpetitioneraboutdismissaloforderfornonremovalofofficeobjections.Since
defects were notified on notice board, that itself could be construed as notice to assessee to
rectify office objections. Therefore, order passed by Tribunal rejecting miscellaneous petition
on ground of delay was justified and thus, petition of assessee in respect of rejection of
miscellaneouspetitionwastoberejected.(A.Y.199899)
Baganeheddal 'C' Estate v.Karnataka Appellate Tribunal (2013) 212 Taxman 99(Mag.) (Karn.)
(HC)
S.254(2):AppellateTribunalPowerofrectificationCorrectfindingTwoviews.
Iftwoviewsarepossibleonapointoflawandoneofthealternativesisadoptedinitsprevious
order, it cannot be held that there is a mistake apparent from record on account of non
adoptionof theotherpossibleview.Unlesstherearemanifesterrorswhichareobvious,clear
and selfevident, the Tribunal cannot recall its previous order, in an attempt to rewrite the
order.(A.Y.200708)
M.Pochamma(Smt.)v.DCIT(2013)56SOT126(URO)(Hyd.)(Trib.)
S.254(2):AppellateTribunalPowertorecallorderMistakeapparentfromtherecord.
Where an error is far from self evident, it ceases to be an apparent error. It is no doubt true
that a mistake capable of being rectified under section 254(2) is not confined to clerical or
arithmetical mistakes. On the other hand, it does not cover any mistake which may be
discovered by a complicated process of investigation, argument or proof. A rectification
application can lie only with regard to an error on the face of the record, which has not
emerged from the material on record. Moreover the assessee has not been able to point out
any apparent mistake in the order passed by the Tribunal and in case application of the
assesseeisaccepted,itwouldtantamounttoreviewofthe orderoftheTribunal,whichisnot
permissible.(A.Y.199798)
PushpaAgarwal(Smt.)v.ITO(2013)56SOT128(URO)(Delhi)(Trib.)
S.254(2):AppellateTribunalMistakeapparentfromtherecordRectification.
Recallingtheentireorderobviouslywouldmeanpassingofafreshorder.Thatdoesnotappear
tobethelegislativeintent.Thescopeandambitofapplicationofsection254(2)isrestrictedto
rectification of mistakes apparent from the record. Recalling of an order automatically
necessitates rehearing and readjudication of the entire subjectmatter of appeal. The dispute
nolongerremainsrestrictedtoanymistakesoughttoberectified.(A.Y.200506)
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377
SyndicateRealtorsv.ITO(2013)56SOT123(URO)(Hyd.)(Trib.)
S.254(2):AppellateTribunalRectificationofmistakeMiscalculationofnumberofassessmentyearsfor
deductionundersection10B.[S.10B]
Tribunal inadvertently miscalculating number of assessment years for which exemption available.
Mistaketoberectified.Changeofyeargoestorootoforder.Earlierorderrecalled.(A.Y.20042005)
ACITv.QmaxTestEquipmentsP.Ltd.(2013)23ITR187(Chennai)(Trib.)
S.255:AppellateTribunalBindingprecedentSpecialbenchSuspensionbyHighCourt
DeductionatsourceSpecialBenchverdictbindingdespitesuspensionbyHighCourt.(S.40(a)
(ia),194C)
TheassesseepaiddumperhirechargesofRs.36.37lakhsandclaimeditasadeduction.TheAO
disallowed the claim u/s 40(a) (ia) on the ground that the assessee had not deducted TDS
thereonu/s194C.BeforetheTribunal,theassesseearguedthatitwasnotliabletodeductTDS
u/s194Castherewasonlynocontractualagreement.Inthealternative,itwasarguedthatin
accordance with the Special Bench judgement in Merilyn Shipping& Transports v. Add. CIT
(2012) 136 ITD 23 (SB), the disallowance u/s 40(a) (ia) had to be confined to the amounts
payableasattheendoftheyearanditdidnotapplytotheamountsalreadypaidduringthe
year. The assessee also argued that though the Andhra Pradesh High Court had granted an
interimsuspensionagainstthesaidjudgementoftheSpecialBench,itwasstillbinding.Held
bytheTribunal:
Theargumentthats.194Cdoesnotapplyintheabsenceofawrittencontractualagreementis
not acceptable. Even a verbal contract is sufficient. As regards the judgement of the Special
Bench in Merilyn Shipping& Transports v Add. CIT (2012) 136 ITD 23 (SB) where the view was
taken that s. 40(a) (ia) can apply only to the amounts remaining payable as at the end of the
year and not to the amounts paid during theyear,though the AndhraPradesh High Court has
granted interim suspension of the said judgement, the said stay/ suspension applies only to
thepartiestothatproceedinganddoesnotdestroythebindingeffectofthejudgementofthe
SpecialBench.Thereisadifferencebetweenstayofoperationofanorderandquashingof
anorder.While,inthecaseofaquashing,theorderofthelowercourtceasestoexist,inthe
case of a stay, the order of the lower court continues to operate and have binding effect.
Accordingly,thejudgementoftheSpecialBenchinMerilynShippingstillholdsgroundandthe
TDS provisions will apply, for purposes of invocation of s. 40(a) (ia), only on the amounts
remaining payable at the end of the year and not on the amounts paid (Shree Chamund
MopedsLtd.vs.ChurchofSouthIndiaTrustAssociationAIR1992SC1439,1444&PijushKanti
Chowdhuryvs.StateofWestBengal2007(3)CHN178followed).(A.Y.200708)
ITOv.MGBTransport(2013)23ITR391(Kol.)(Trib.)
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Revenue passed first assessment order against which appeal was filed before Commissioner
(Appeals). In meantime, there wasa revision of assessment and a fresh assessment order was
passed. This order was set aside by Tribunal against which revenue preferred appeal before
High Court. During pendency of that appeal, first assessment order was set aside by
Commissioner (Appeals) and thereafter by Tribunal on 1812012. On other hand, in appeal in
revisional matter, High Court remanded matter back to assessing authority to reconsider all
issues and directed to pass a fresh order of assessment. In respect of original assessment,
revenue filed an appeal before High Court against Tribunal's order. The Court held that the
orderofHighCourtwouldprevailoverallordersthatwerepassedbydifferentauthoritiesand
notwithstandingallthoseorders,AssessingOfficerwouldreframeassessment.
DCITv.S.Madhava(HUF)(2013)214Taxman87(Mag.)(Karn.)(HC)
S.26OA:AppealHighCourtCommissioner,remandingtheproceedingsnoquestionoflaw.[S.
263]
TheCommissionerafterrecordingcogentreasonsfoundthattheorderpassedbytheAssessing
Officer was erroneous and also prejudicial to the interest of the revenue. He was, therefore,
entitled to exercise revisional powers under S. 263. While doing so, he remanded the
proceedings before the Assessing Officer for full inquiry and fresh consideration. He had not
given any specific directions to consider the issue in a particular manner. In any case, the
Tribunalfurtherclarifiedthisissueintheimpugnedorder.Therefore,noquestionoflawarises
forconsideration.(A.Y.200607)
AdaniAgro(P.)Ltd.v.DCIT(2013)214Taxman138(Mag.)(Guj.)(HC)
S.260A:AppealHighCourtMonetaryceilinglimitsApplicabletopendingcases.
When clause 11 of Instruction No. 3 of 2011, dated February 9, 2011, specifically says that it will be
applicabletothecasesfiledonorafterFebruary9,2011,tosaythatitisapplicabletopendingcasesis
against the provisions under section 268A, public interest and the public policy. Therefore, Instruction
No. 3, dated February 9, 2011, has no retrospective effect and the appeal filed by the Revenue was
maintainable.(A.Y.199293)
CITv.B.Sumangaladevi(Smt.)(2013)352ITR143(Karn.)(HC)
S.260A:AppealHigh CourtMonetary ceiling limitsInstruction No. 3 of 2011, dated February 9, 2011
raisingmonetarylimits,whetherretrospective.
ADivisionBenchoftheKarnatakaHighCourtinCITv.RankaandRanka[2013]352ITR121(Karn)took
the view that Instruction No. 3, dated February 9, 2011, issued by the CBDT enhancing the monetary
limitsforappealsbytheDepartmentisapplicabletopendingcasesalsoandthishadbeenfollowedby
the court in several subsequent decisions. The judgment in Ranka and Ranka had been made the
subjectmatter of the appeal before the Supreme Court and in many appeals. Held accordingly,
dismissingtheappeal,thatlibertywasgiventotheRevenuetorevivetheappealintheeventofsuccess
intheirappealbeforetheSupremeCourt.
CITv.SpiceTelecom(2013)352ITR151(Karn.)(HC)
S.260A:Appeal High Court Territorial jurisdictionCause of actionPart of cause action writ is
maintainableinthatparticularStateHighCourt.[Art.226].
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379
EvenifpartofthecauseofactionhasarisenintermsofArticle226(2)oftheConstitution,thepetition
would be maintainable, in State of Gujarat and High Court of Gujarat had jurisdiction to entertain
instantwritpetition.
LKSBullionImport&Export(P.)Ltd.v.DGIT(2013)214Taxman68/88DTR95(Guj.)(HC)
S.260A:AppealHighCourtSubstantialquestionoflawDisallowanceofdepreciationand
interest.(S.32,36(1)(iii))
Groundsrelatedtothemattersofappreciationofevidenceforafactualenquiryandrendering
of findings on facts about the factory building construction. CIT (A) and Tribunal had deleted
disallowance on account of depreciation on building and interest expenses observing that no
defectswerepointedoutinthebooks. Itwas notacasewhereassesseehadshownexcessive
valuationofbuilding.Impugnedordersdidnotsufferfromanyperversityorwrongapplication
ofanyprincipleoflaw.(A.Y.200506)
CITv.BohraIndustriesLtd.(2013)83DTR113(Raj.)(HC)
S.260A:AppealHighCourtMonetarylimitCircular:Depttoshowwhyappealshouldnotbe
dismissed.
ThedepartmentfiledanappealbeforetheTribunal.TheTribunaldismissedtheappealonthe
ground that the tax involved in the appeal was less than the monetary limit of Rs. 3 lakhs
prescribed in CBDT Instruction No.3/2011 dated 9.2.2011. The Tribunal followed CIT v
Madhukar Inamdar (HUF) (2009) 318 ITR 149 (Bom) where it was held that the CBDT
Instructions fixing monetary limit for filing an appeal to the Tribunal would apply even to
pendingcases.TheDepartmentthenfiledaMAbeforetheTribunalpointingoutthatinCIT v.
SuryaHerbaltheSupremeCourthadheldthattheCBDTInstructionNo.3/2011wouldnotapply
ipso facto and would not apply where the matter has cascading effect or raises a common
principleinvolvingalargenumberofmatters.TheTribunaldismissedtheMA.Onappealbythe
departmenttotheHighCourt,HELDdismissingtheappeal:
The grievance of the Revenue is that the Tribunal ought to have entertained the appeal by
following the decision of the Apex Court in the matter of Surya Herbal Ltd. However, the
revenue has not been able to point out before us any of circumstance as laid down by the
SupremeCourtinthematterofSuryaHerbalLtdbeingapplicabletothiscasewhichwouldlead
to nonapplication of CBDT instructions No.3/2011. In the above circumstances, we see no
reasontoentertaintheproposedquestionoflaw(itwasalsoheldfollowingChemAmitv.ACIT
(2005) 272 ITR 397(Bom) (HC) that an appeal u/s 260A cannot be filed to challenge an order
dismissingaMA)
CITv.SevakPharmaPvt.Ltd(Bom.)(HighCourt)www.itatonline.org.
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judgmentofHighCourtofGujarat,TheCourtheldthatTribunalcouldnotconsidervalidityofa
retrospective amendment, such question could not arise from its order, thereforeinstant case
High Court would be determining constitutional validity of amendment; it would then be
stepping out of and beyond scope of jurisdiction under section 260A. High Court in appeal
cannotdetermineconstitutionalvalidityofamendment,itisbeyondscopeofjurisdictionunder
section260A.Infavourofrevenue(A.Y.200102,200304)
M.AbdulRehumanKunjuv.ACIT(2013)213Taxman11(Mag.)(Ker.)(HC)
S.260A:AppealHighCourtPleawhichwasnotraisedatanystage,couldnotberaisedforfirst
timebeforeCourt.(S.263,292BB)
Notice had been issued under signature of Incometax (Technical), whereas in view of
provisionsofpowersundersection263(1),itwasonlyCommissionertoissuenotice.Inappeal
to High Court, revenue raised newplea that in view of provisions of section 292BB, it was not
openforassesseetoraiseanobjectionwithregardtoproceedingsinitiatedundersection263
ashehadparticipatedinproceedingsandtenderedhisreply.TheCourtheldthatpleascanbe
raised only out of judgment passed by Tribunal or other authorities, but plea which was not
raisedatanystage,asininstantcase,couldnotberaisedforfirsttimebeforeCourt,therefore,
appealagainstorderofTribunalfailed.(A.Y.200708)
CITv.RajeshKumarPandey(2013)213Taxman19(Mag.)(All)(HC)
S.260A:Appeal High Court Tax effectLess than 2 lakhsAppeal is not maintainable. (S.
268A).
Tribunalquashedreassessmentproceedingstobringgiftedamounttotaxforwantofmaterial.
Appeal against order of Tribunal involved tax effect of less than Rs. 2 lakh. Court held that
theappeal of revenue isnot maintainable as tax effect was lower than Rs. 2 lakh prescribed
under CBDT Instruction No. 1979 [F. No. 279/126/98IT], dated 2732000. Hencecase also did
notfallinexclusionaryclauseofsaidInstruction.(A.Y.200506)
CIT.v.SanjayKumarAgrawal(2013)212Taxman127(Mag.)(All)(HC)
S.260A:AppealHighCourtMonetarylimitsLessthantwolakhsappealwasdismissed.
Against common order of Tribunal, revenue filed an appeal under section 260A before High
Court,sinceininstantcasetaxeffectthatwasinvolvedwasnotmorethanRs.2lakhs,interms
ofBoard'sInstructionNo.2/2005,dated24102005saidappealwasliabletobedismissedon
questionofmaintainability.(A.Y.19992000,200001)
CITv.GolfViewHomesLtd.(2013)81DTR46/213Taxman8(Mag.)/255CTR176(Karn.)(HC)
S.260A:AppealHighCourtAppealGuidelinesforengagementofstandingcounselsCBDTgave
assurancetodotheneedful.
BeforetheCourttheCBDTMemberstatedthat,insofarasrevampingsystemandgivingbetter
assistancetoCourtwasconcerned,allnecessaryactionhadbeentaken;matteroffreshpanel
waspendingbeforeLawMinistry;admittedfeewasbeingpaidtostandingcounselsandarrears
of admitted fees would be cleared within next two months and disputed parameters to be
sorted by counsels themselves. Member assured court that there would be no laxity in
assistancerenderedtoCourtinfuture.
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CITv.JacksonEngineersLtd.(2013)213Taxman10(Mag.)(Delhi)(HC))
S.260A:Appeal High Court Memorandum of appeal The question not relating to appeal
cannotbepermittedtobeagitated.
Against orders of Commissioner (Appeals), revenue preferred two appeals before Tribunal.
Assessee also preferred an appeal before Tribunal.Tribunal clubbed together all these appeals
and disposed of them by a common order. Against order of Tribunal, revenue preferred an
appealbeforeHighCourt.Duringpendencyofappeal,revenuealsofiledanapplicationseeking
for suitable amendment in memorandum of appeal so that instant appeal could be agitated
insofarasitrelatedtoorderpassedbyTribunalinappealofassesseeincommonorderpassed
by it. The Court held that allowing application of this nature and also to permit revenue to
agitate such question by further alteration of memorandum of appeal, etc., was not feasible
courseofactionatthispointoftime.Asitwasbarredbylimitation.Thequestionnotrelatingto
appealcannotbepermittedtoagitate.(A.Y.19992000,200001)
CITv.GolfViewHomesLtd.(2013)81DTR46/213Taxman8(Mag.)(Karn.)(HC)
S.260A:AppealHighCourtSubstantialquestionoflawMeaningPrincipleofconsistencyintax
matters.
Anappealundersection260AoftheIncometaxAct1961,willliebeforetheHighCourtifthe
appellantisabletosatisfytheCourtthatitinvolvesasubstantialquestionoflaw.Inordertobe
substantial, a question of law must be debatable, not previously settled under the law of the
land or binding precedent, and must have a material bearing on the decision of the case, if
answered either way,in so far as the rights of the parties before it are concerned. The High
Courtinexerciseofitssecondappellatejurisdictionshouldnormallyacceptallfindingsoffacts
recorded by the first appellate court, being forum of facts. Adequacy of materials or
possibilitiesofanotherviewonfacts,isnogroundforHighCourttoentertainasecondappeal.
The High Court can on factsinterfere only after it reaches the conclusion that, in view of the
materialsonrecord,nopersondulyinstructedinlawcanreachthatconclusion.
Dy.CITv.SulabhInternationalSocialServiceOrganisation(2013)350ITR189(Patna)(HC)
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S. 263. Held, the interference by the Commissioner was based on facts and not any change of
opinionandhence,theorderpassedbyTribunalwassetaside.
CITv.RKBKFiscalServices(P.)Ltd.(2013)214Taxman89(Mag.)/87DTR301(Cal.)(HC)
S.263:CommissionerRevisionofordersprejudicialtorevenueOmissionbyAssessingOfficer
ContingentliabilityProvisionforwarranty.
TheTribunalpointedoutthattheAssessingOfficerhadnotexaminedtheaspectwithregardto
theadmissibilityofacertainsumshownasprovisionforwarrantycost.Thenonconsideration
oromissionbytheAssessingOfficerhavingbeenfoundtobeerroneousandprejudicialtothe
interestsoftheRevenue,therewasnoreasontointerferewithsuchfactualfindings.Orderof
Tribunalconfirmingtherevisionwasupheld.(A.Y.200405)
RenownedAutoProductsMfrs.Ltd.v.ITO(2013)354ITR127(Mad.)(HC)
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Assesseefiledherreturnwhereinsheraisedaclaimfordeductionundersection54F.Assessing
Officer allowed assessee's claim. Commissioner passed a revisional order holding that
assessee'sclaimwaswronglyallowedbecauseshemadeinvestmentinnewhousebeyonddue
date prescribed under section 139(1).Tribunal set aside revisional order holding that
investmentwasmadewithintimespecifiedundersection139(4)relyingontheorderpassedin
caseofFatimaBaiv.ITO[2009]32DTR243(Kar.).Onappealbyrevenueitwascontendedthat
orderpassedinaforesaidcasewasincorrectand,thus,itcouldnotbeaccepted.Thecourtheld
thatiforderpassedinaforesaidcasewasincorrect,revenueshouldhavefiledanappealagainst
it; however, at any rate that would not be a ground for invoking section 263. The court held
thatTribunalwasjustifiedinsettingasiderevisionalorder.(A.Y.200607)
CIT.v.VrindaP.Issac(Smt)(2013)212Taxman101(Mag.)(Karn.)(HC)
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S.263:Commissioner Revision of orders prejudicial to revenue Error of Assessing Officer
shouldbe"unsustainable"Disallowanceundersection14A,debatable,hencerevisionheldto
benotwarranted.(S.10(33),14)
Whether the deduction under section 14A was warranted,was a debatable fact. In any event,
even if it were not debatable, the error by the Assessing Officer was not "unsustainable".
Possibly he could have taken another view; yet, that he did not do so, would not render his
opinionanunsustainableone,warrantingexerciseofsection263.(A.Y.20022003)
CITv.DLFLtd.(2013)350ITR555/214Taxman91(Mag.)(Delhi)(HC)
S.263:CommissionerRevisionoforderprejudicialtorevenueBusinessexpenditureCapital
orrevenueRevisionheldtobenotjustified.
Assesseepaidcertainamounttowardsregulatoryfeeandstampdutyandclaimeddeductionof
same as a revenue expenditure. Assessing Officer allowed claim of deduction. Commissioner
issued on assessee a notice under section 263 stating that license fee, loan arrangement
chargesandstampdutywerecapitalexpenditure.AssessingOfficerbeforepassingassessment
order made an enquiryand directed his mind on all aspects. View adopted by him was clearly
one among two plausible views that could havebeen taken. Commissioner did notspecifically
furnish any reasons to say why original assessment order was unsupportable in
law.Commissioner could not have validly exercised his revisionary power under section 263 in
instantcase.(A.Y.200405)
CITv.VodafoneEssarSouthLtd.(2013)212Taxman184(Delhi)(HC)
S.263:CommissionerRevisionofordersprejudicialtorevenueCapitalgainsInvestmentina
residentialhouse.[S.54F.]
Assessee was deriving income from dealing in property transactions. Assessee had claimed
LTCG and had also claimed benefit of section 54F. Assessment was completed under section
143(3).Commissioneroftheviewthatassesseewasengagedinbusinessofsaleandpurchase
of properties, concluded that he could not claim benefit of deduction under section
54F.AccordinglysetasideorderoftheAssessingOfficer.OnappealtheTribunalheldthateven
though assessees main source of income was sale and purchase of plots/land, yet it did not
mean that assessee could not purchase and hold some plots as capital asset and claim
exemptionundersection54Fontheirsale.MoreoverinviewofthefactthatAssessingOfficer
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had made proper enquiries in this regard and he had taken possible views, accordingly
impugnedrevisionalorderpassedbycommissionerwasnotsustainable.(A.Y.200607)
SunilBhandariv.ACIT(2013)141ITD10/154TTJ751(Jodhpur)(Trib.)
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S.263:CommissionerRevision of ordersTwin conditions to be satisfiedAssessing Officer not
discussingallowabilityordisallowanceofdeductionsRevisionheldtobejustified.(S.80IB)
TheCommissionerhastobesatisfiedoftwinconditionsviz.,(i)theordersoughttoberevisedis
erroneous; and (ii) it is prejudicial to the interests of the Revenue, for invoking section 263. If
one of this is absent, revision cannot be made. The claim of the assessee under section 80
IB(7B)wasallowedthoughtheassesseehadnotmaintainedseparatebooksofaccountforthe
business of convention centre. The Assessing Officer has not discussed the allowability or
disallowanceofthesedeductionsandhisorderwassilentontheseaspects.Thus,theorderof
the Assessing Officer was erroneous in so far as it was prejudicial to the interests of the
Revenue.Tothatextent,theCommissioner'sactioninexercisingjurisdictionundersection263
of the Act was justified. With reference to disallowance of additional depreciation claimed by
the assessee on plant and machinery under section 32(1)(iia) of the Act the assessee, having
not challenged this issue before the Commissioner, could not reargue the issue before the
TribunalafterconcedingbeforetheCommissioner.
Nonmaintenance of separate books of account for convention centre itself could not be a
reason for rejecting outright the claim under section 80IB of the Act. In that event also the
deduction under section 80IB(7B) could be granted to the assessee in proportion to the
turnovertoprofitoftheconventionhall;theassessee'sclaimundersection80IB(7B)couldnot
bedeniedbytheCommissioner.(A.Y.20062007)
LeoMeridianInfrastructureProjectsandHotelsLtd.v.Dy.CIT(2013)24ITR123(Hyd.)(Trib.)
S.263:CommissionerRevisionoforderprejudicialtorevenueBusinessexpenditureDeduction
atsourceFailurebyAssessingOfficertomakeenquiryinrespectofpaymentsliabletotax
deductionatsource,revisionisheldtobejustified.(S.40(a)(ia),194J194H)
The assessee is a telecommunications service provider. The Assessing Officer, inter alia, made
twodisallowancesundersection40(a)(ia)oftheIncometaxAct,1961onthegroundoffailure
by the assessee to deduct tax at source on the payments: free airtime to distributors in the
natureofcommissionexpensesliabletodeductiontaxatsourceundersection194HoftheAct,
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and roaming charges paid to other operators in the nature of fees for technical services liable
for deduction of tax at source under section 194J of the Act. On the basis that the nature of
business of the assessee was the same for the assessment year 200708 also and that the
assessee had not deducted tax at source on the free airtime allowed to distributors under
section 194H of the Act or on the roaming and interconnection charges under section 194J of
theAct,theCommissionerissuednoticeofrevisionundersection263totheassessee,setaside
the assessment for that year and directed the Assessing Officer to examine the case afresh in
respect of these two issues and after giving proper opportunity to the assessee and pass a
speakingorder.Onappeal:Held,dismissingtheappeal,(i)thattheissueofdisallowanceoffree
airtime to distributors under section 40(a) (ia) of the Act had not been examined by the
AssessingOfficerinthecourseofassessmentproceedingsfortheassessmentyear200708.No
referencetheretowasthereintheassessmentorder.TheAssessingOfficerhadnotissuedany
queryinthisregardorobtainednecessarydetails.Hence,itcouldnotbesaidthattheAssessing
Officerhadappliedoneofthetwoviewspossible.(ii)Thatontheissueofroamingchargespaid
thefactthatcertaintaxdeductibleatsourcehadnotbeensodeductedwasclearlyprejudicial
to the Revenue. That something was available in the balancesheet, profit and loss account or
books of accounts could not lead to the conclusion that the Assessing Officer had applied his
mind.TherewasnodiscussionbytheAssessingOfficeronthesesubjects,norhadtheAssessing
Officer made any enquiry on these subjects. The Assessing Officer had mechanically accepted
whattheassesseewantedhimtoacceptwithoutanyapplicationofmindorenquiry.Similarly,
noevidencehadbeenplacedthattheclaimmadebytheassesseewasobjectivelyexaminedor
consideredbytheAssessingOfficereitheronrecordorintheassessmentorder.TheAssessing
Officer had completely omitted the issue in question from consideration and made the
assessmentinanarbitrarymanner.Hence,itwasafitcasefortheCommissionertoexercisehis
revisionaljurisdictionundersection263.Appealofassesseewasdismissed.(A.Y.20072008)
BhartiHexacomLtd.v.CIT(2013)21ITR648(Delhi)(Trib.)
S.263:CommissionerRevisionofordersprejudicialtorevenueTransferpricingCommissioner
has no jurisdiction over TPO administratively and, therefore, Commissioner cannot revise
orderpassedbyTPOundersection92CA(3).(S.92CA)
AssesseesoldsharestoitsAElocatedabroad.Intransferpricingproceedings,TPOdetermined
ALP of share transactions at a higher amount. He thus passed an order under section 92CA(3)
proposing certain adjustments. Assessing Officer passed assessment order accepting addition
proposed by TPO. Subsequently, TPO made a proposal that order passed by him contained
some computation errors and, thus, same be rectified. Commissioner passed an order under
section263revisingassessmentorder.Itwas,however,undisputedthattherewasnoerrorin
assessment order because Assessing Officer had proceeded to compute total income under
section92CA(4)inconformitywithALPdeterminedbyTPO.Tribunalheldthatwheretwoviews
are possible and the TPO has taken one possible view the proceedings under section 263
cannot be invoked. Even otherwise, in this case instead of initiating proposal on TPO order as
suggested,theCommissionerinitiatedtheproceedingsunderAssessingOfficer'sorderwhichis
not erroneous or prejudicial to the interests of the revenue, as Assessing Officer sincerely
followedthemandateofprovisionsofsection92CAinproceedingtocomputethetotalincome
undersubsection(4)ofsection92CAinconformitywiththearmslengthpricesodetermined
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bytheTPO.Astheprovisionsofsection92CA(4)havebeenamendedwitheffectfrom162007
which used the word "shall" Assessing Officer is bound to follow the TPO's order determined
undersubsection(3).Accordingly,thereisnoerrorintheorderofAssessingOfficersothatit
can be considered as erroneous and prejudicial to the interests of the revenue. In view of
above,theimpugnedrevisionalorderpassedundersection263hastobesetaside.(A.Y.2005
06)
EssarSteelLtd.v.Add.CIT(2013)55SOT1(URO)(Mum.)(Trib.)
S.263:CommissionerRevisionofordersprejudicialtorevenueCommissiontovariousparties
Matterremandedforverification.
Assessee paid commission to different parties to tune of Rs. 4.19 crores. Assessing Officer
accepted claim of payment of commission by placing reliance only on confirmation letters
issued by payees without gathering any information regarding genuineness of payments and
evidence to suggest nature of services rendered by these parties. Commissioner revised the
orderundersection263.OnappealbyrevenuetheTribunalheldthatitwasincumbentonpart
of Assessing Officer to come to independent conclusion that payments were commensurate
withnatureofservicesrenderedbypartiesasmereconfirmationlettersthemselvescouldnot
prove genuineness of payments and nature of services rendered ; therefore, it would be
appropriate to remit entire issue back to file of Assessing Officer to carry further enquiry and
examineissuethoroughly.Matterremanded.(A.Y.200708)
SunMineralsv.Add.CIT(2013)55SOT54(Hyd.)(Trib.)
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invest within time. The Tribunal also held that it could be accepted that the timelimit for
investment extended by Notification up to 31122006 canbe stretched up to 27012007by
exercising jurisdiction under the Act. Hence, in the view of above stated legal position
withdrawal of exemption u/s 54EC by commission was justified. Note: Notification No.S.O.
2146(E)dated22/12/2006.(A.Y.200607)
AnuradhaVenkatesan(Smt)v.ITO(2013)140ITD421(Chennai)(Trib.)
S.263:CommissionerRevisionofordersprejudicialtointerestofrevenueNoapplicationof
mindbytheAOatthetimeofassessmentAnorderwithoutapplicationofmindisdefinitely
prejudicialtotheinterestofrevenue.(S.36(1)(viia).)
The assessee claimed provision made for standard assets also as a provision for bad and
doubtfuldebtsundersection36(1)(viia).AssessingOfficerallowedthedeductionundersection
36(1)(viia).CITinitiatedproceedingsundersection263oftheAct.AsperCIT,theprovisionfor
standardassetscouldnotbeconsideredasprovisionforbadanddoubtfuldebtswhichcouldbe
allowed under section 36(1) (viia) of the Act. Before the Tribunal the assessee submitted that
AssessingOfficerhastakenalawfulviewandtherefore,CITcouldnotsubstitutehisviewwith
that of Assessing Officer. The Tribunal upheld the revisional order passed by the CIT and
observed that there was no enquiry made during the course of assessment proceeding.
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Therefore,theorderwhichwassilentontheclaimmadebyassessee,andallowingsuchclaim,
without any discussion will definitely render it erroneous and prejudicial to the interest of
revenue.TribunaldismissingtheappealfollowedthedecisionofApexCourtincaseofMalabar
IndustrialCo.Ltd.vs.CIT(2000)243ITR83(SC)(A.Y.200708).
BharatOverseasBankLtd.v.CIT(2013)152TTJ546/82DTR373(Chennai)(Trib.)
S.264:CommissionerRevisionofotherordersCondonationofdelayCommissioner(Appeals)
DoctrineofmergerOrderrejectingappealbyCommissioner(Appeals),furtherrevisionbefore
Commissionerisnotmaintainable.(S.264(4)(C))
TheassesseefiledanapplicationbeforetheCommissioner(Appeals)tocondonethedelay.He
declined to condone the delay and dismissed the appeal. Subsequently, the assessee filed a
revisionapplicationundersection264oftheAct,,andalongwithithealsofiledanapplication
tocondonethedelay.TheCommissionerrejectedtherevisionapplication.Intheorder,hehad
dealt with the maintainability of the revision, the tenability of the request for condonation of
delay and also the merits of the revision itself. On all these grounds, he decided against the
assessee. On a writ petitionby assessee, dismissing the petition,the Court held that the order
dismissingtheappealfiledbytheassesseewasanorderintheappealfiledbytheassessee.The
assessee had not waived his appellate right to maintain an application for revision under
section 264. Thus, the finding of the Commissioner that in view of section 264(4), the revision
filedbytheassesseewasnotmaintainable,hadtobeupheld.(A.Y.20002001)
K.H.Tradersv.CIT(2013)351ITR1/85DTR287/213Taxman41(Mag.)(Ker.)(HC)
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which ultimately resulted in consent decree and in view of above, it could be concluded that
there was sufficient cause for condoning delay in filing revision petition before Commissioner.
Infavourofassessee(A.Y.200001)
NarinderKumarv.CIT(2013)212Taxman105(Mag.)(Delhi)(HC)
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AryamanSpinners(P.)Ltd.v.CIT(2013)212Taxman102(Mag.)(Guj.)(HC)
S.268A:Appeal Low tax effectAssessing the nil income after set off of loss Dismissal of
appealwasnotproperthematterremandedtodecidetheissueonmerits.(S.253,260A)
Assessee filed return declaring nil income. Assessing Officer fixed total income of assessee at
Rs.1,76,32, 251. He further allowed setoff of business loss and unabsorbed depreciation to
tune of Rs.1,74,96,566 and eventually determined taxable income of assessee at Rs. 1,35,685.
Commissioner (Appeals) partly allowed appeal of assessee. Revenue challenged order of
Commissioner (Appeals) before Tribunal, which dismissed appeal on ground of low tax effect.
Revenue contended before High Court that notional tax effect in instant appeal exceeded
monetary limit prescribed by Board. The court held thatin view of judgment of Gujarat High
Court delivered in another appeal on identical question of law, Tribunal was wrong in
dismissing appeal of revenue on ground of low tax effect. Thereforematter deserved to be
remandedbacktoTribunalforreconsiderationonmerits.Matterremanded.(A.Y.200405)
CITv.SambhavMediaLtd.(2013)212Taxman129(Mag.)(Guj.)(HC)
S.268A:AppealHighcourtMonetarylimitsMatterreferredtolargerBench.(S.260A)
The Revenue filed appeal on 13102010 against Tribunal's judgment when the tax effect
involvedexceededRs.4laci.e.thresholdlimitasprovidedin"instructionsof2008".However,
as per "instructions of 2011", such limit was revised to "does not exceed Rs. 10 lac".The
assessee contended that though at the time of filing of the appeal the limits prescribed by
'instructions of 2008' were applicable but the revised limits contained in the 'instructions of
2011' should be applied when the appeal is taken up for hearing. In view of the conflicting
judgments,theHighCourtwasoftheviewthatissuerequiresconsiderationbyalargerBench
regarding applicability of 'instructions of 2011' prospectively or otherwise to all pending cases
filedearlier.MatterreferredtolargerBench.
CITv.ShambhubhaiMahadevAhir(2013)213Taxman179(Guj.)(HC)
S.269SS:DepositsloansModeofrepaymentPenaltywasdeleted.(S.269T,271D,271E)
Assessing Officer found that assesseehostel had accepted and repaid amounts of
loans/deposits otherwise than by cross cheques / drafts in contravention of provisions of
sections269SSand269T.Assesseecontendedthatsomeexpenditurewasincurredbyhostelor
schoolstudentsandamountwasreimbursedtohostelbymanagingtrusteeofschool,anditdid
notbecomeadepositorloangivenortakenbywayofcash.Itthereforecontendedthatthere
wasnocontraventionofprovisionsofsections269SSand269Tandtheywerenotliabletopay
penaltyundersections271Dand271E.AssessingOfficerdidnotacceptsubmissionofassessee
and imposed penalty under sections 271D and 271E, respectively. Since there was nothing on
recordtoshowthatabovetransactionswereattachedwithcertainconditionsorstipulationas
toperiodofrepayment,rateofinterest,mannerofpayment,etc.,soastotreattransactionsas
loanordeposits,penaltycouldnotbelevieduponassessee.Appealofrevenuewasdismissed.
ITOv.VSHostel(2013)212Taxman61(Mag.)(Guj.)(HC)
S.271(1)(c):PenaltyFurnishinginaccurateparticularsAssesseesclaimscaleddownLevyof
penaltywasnotjustified.[S.80IB]
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Meremakingofaclaimwhichisultimatelyheldnottobesustainableinlaw,wouldnotamount
to furnishing inaccurate particulars regarding the income of an assessee. Where assessee's
claimsofdeductionunderS.80IBhadbeendownscaled.Itwouldnotmeanthatitisacaseof
furnishing inaccurate particulars of income. Furthermore, there was no finding in the penalty
order as to which part of the income, the assessee had concealed and with regard to which
particularfacetofincomehadtheassesseeprovidedinaccurateparticularsthereof.Therefore,
nopenaltycouldbelevied.(AY200304,200405)
CITv.JaksonLtd.(2013)214Taxman94(Delhi)(HC)
S.271(1)(c):PenaltyConcealmentWrongclaimLevyofpenaltywasnotjustified.[S.80IA]
Duringassessmentproceedings,theAssessingOfficeropinedthatassesseehadraisedawrong
claim of deduction under S. 80IA. He, thus, rejected the assessee's claim and also passed a
penalty order under S. 271(1)(c).The Commissioner (Appeals) as well as Tribunal took a view
that issue relating to deduction under S. 80It was squarely covered in favour of assessee in
viewofthedecisionoftheApexCourtincaseofCITv.ReliancePetroproducts(P.)Ltd.[2010]
322ITR158.Hence,theimpugnedpenaltyorderwassetaside.
CITv.ShreeRamaMultiTechLtd.(2013)214Taxman94(Mag.)(Guj.)(HC)
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paisemorethantheamountshowntohavebeenreceivedbyhim.Assuch,thereisnoscopeto
admittheappeal.
CITv.MadanTheatres(2013)88DTR217(Cal.)(HC)
S.271(1)(c):PenaltyConcealmentBogus purchasesStatement of seller denying the salesPenalty
heldtobevalid.
Theseller,inhisswornstatement,hadstatedthathehadnotmadeanysalesandhadgivenonlybillsto
theassessee.Theassesseehadalsonotchosentocrossexaminetheseller.TheTribunalaswellasthe
appellate authority had not controverted or distinguished this fact by relying on any statement or
material documents produced by the assessee. Therefore, the levy of penalty was valid. (A.Ys. 2000
2001,20012002)
CITv.MahaveerMirrorIndustriesP.Ltd.(2013)353ITR553(Mad.)(HC)
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The assessee purchased a piece of land in the financial year 199899 and shown it as stockintrade.
During the financial year relevant to the assessment year 200304, it converted its stockintrade into
"investment" and sold the property and offered the profit as longterm gains. Since the change in the
books of account, just before the sale of the property, was made to avoid payment of full taxes by
changingthecomplexionoftheearningsonthesaleoftheproperty,theassesseehadclearlyfurnished
inaccurateparticularsofincome.Hence,levyofpenaltywasjustified(A.Y.20032004).
CITv.SplenderConstruction(2013)352ITR588(Delhi)(HC)
S.271(1)(c):PenaltyConcealment of incomePenalty for disallowance of claim on basis of subsequent
SupremeCourtdecisionisheldtobenotjustified.
AdditionsmadeonaccountofdisallowanceonthebasisofsubsequentSupremeCourtjudgementwere
neither due to the failure on the part of the assessee to furnish accurate particulars nor on account of
furnishinginaccurateparticulars.Hence,thelevyofpenaltywasnotjustified.
CITv.CeletronixPowerIndiaP.Ltd.(2013)352ITR70(Bom.)(HC)
S.271(1)(c):PenaltyConcealmentClaimofexpendituretoberevenueDisallowanceofclaim,penalty
wasnotjustified.
Itwasonthebasisoftheinterpretationoftheprovisionsofthestatute,thattheAssessingOfficerhad
foundthattheexpenditureclaimedbytheassesseewasnotrevenueexpenditurebutcapitalexpenses.
There is a fine distinction as to when expenditure can be treated as revenue or capital expenditure.
Therefore, merely for the reason that the assessee had claimed the expenditure to be revenue, would
notrendertheassesseeliabletopenaltyproceedings.(A.Y.20012002)
CITv.AmtekAutoLtd.(2013)352ITR394(P&H)(HC)
S.271(1)(c):Penalty Concealment Wrong advice by chartered accountant Levy of
concealmentisnotvalid,ifwrongclaimduetomistakebonafideWrongadviceofCA.
Theassesseefiledareturnofincomeinwhichitcommittedtwomistakes(i)Depreciationwas
claimed at Rs.1.70 crores instead of at Rs. 1.05 crores due to a mistake in calculation, (ii) the
assesseesolditsgarmentmanufacturingmachineandsufferedalossofRs.21.68lakhsthereon.
Thoughthelosswasoncapitalaccount,itwasclaimedasarevenuededuction.Inthecourseof
the assessment proceedings, the assessee realised its mistake and withdrew the claim for
excess depreciation and the claim for the loss. The AO levied penalty u/s 271 (1) (c) on both
issueswhichwasconfirmedbytheCIT(A).However,theTribunalheldthatbothmistakeshad
occurredduetoamistake/wrongadvicegivenbytheCharteredAccountantandthattherewas
a bona fide mistake. It was also held that the bonafide of the assessee is established from
thefactthattheassesseeacceptedthemistakeanddidnotpreferanyappealagainsttheorder
oftheAO.OnappealbythedepartmenttotheHighCourt,HELDdismissingtheappeal:
Thegrievanceoftherevenueisthatpenaltyisjustifiedinviewofthefactthattheassesseehad
not filed a revised return of income. However, the Tribunal noted that the time to file revised
return had expired. In any event, even the revenue does not dispute that it was a bonafide
mistakeonthepartoftheassessee.Intheaboveview,impositionofpenaltyupontheassessee
isnotwarranted.(A.Y.200304)
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CITv.SomanyEvergreenKnitsLtd.(2013)352ITR592(Bom)(HC).
S.271(1)(c):PenaltyConcealmentAbsenceofduecaredoesnotmeanthattheassesseeis
guiltyoffurnishinginaccurateparticularsofincome.
Where Additions were made not in respect of lack of bonafides, penalty levied under section
271(1)(c)oftheActisnotsustainableasabsenceofduecaredoesnotmeanthattheassessee
isguiltyoffurnishinginaccurateparticulars.(A.Y.199192)
CITv.BalajiDistilleriesLtd.(2013)81DTR190/214Taxman96(Mag.)/255CTR265(Mad)(HC)
S.271(1)(c):PenaltyConcealmentExplanation5SearchandseizureInthereturnpursuantto
searchactiontheamountwasnotincluded,thecomputationwasrevisedinthecourseof
assessmentproceedingsLevyofpenaltywasjustified.(S.132(4),139(1),153A)
Afterfilingofreturnundersection139(1),searchwasconducted.Instatementrecordedunder
section132(4),assesseeadmittedbenamishareinvestment.Onbeingissuedwithnoticeunder
section 153A, assessee did not file any return and by a letter, requested that its return, filed
under section 139(1) prior to search and seizure be treated as its return filed in response to
notice under section 153A. It was only when assessment proceedings were taken up for
consideration, did assessee seek to revise its computation.The court held that it could be said
thatassesseedidnotincludeamountinreturnpursuanttonoticeissued,andinsteadchoseto
merely reiterate its return originally filed, therefore, 'escape route', provided by clause (2) to
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Explanation5tosection271(1)(c)inthiscase,wasnotavailabletoassessee,anditwouldbe
liabletopenaltyforconcealment,asareturnfiledundersection153Acanneverbeassumedto
becoveredasoneundersection139(1).(A.Y.200607)
Shourya Towers (P.) Ltd.v.Dy. CIT (2013) 213 Taxman 20(Mag.)/255 CTR 225/81 DTR 161
(Delhi)(HC)
S.271(1)(c):PenaltyConcealmentSurrenderofincomePenaltyisleviable.
Inthecourseofassessmentproceedingsextraliabilityinrespectofsundrycreditorswasfound
byAssessingOfficer.Assesseesimplystatedthatbalanceasperhisaccountbookswerecorrect
and balance shown by third parties incorrect, however, to end prolonged assessment
proceedingsandbuypeace,assesseesurrenderedincomeandagreedtoaddition,however,no
plausibleexplanationwasgivenregardingdiscrepancyinbooksofaccount.Thecourtheldthat
mere surrender of income by assessee without offering plausible explanation regarding its
correctness, would not absolve assessee from charge of penalty for concealment of income.
Penaltywouldbeleviedonassessee.Infavourofrevenue.(A.Y.198990)
BajrangGlassEmporium.v.CIT(2013)213Taxman25(Mag.)(All)(HC)
S.271(1)(c):PenaltyCommencementDepreciationwasclaimedoncostofland,levyofpenalty
washeldtobejustified.(S.32)
AssessingOfficerdisallowedassessee'sclaimofdepreciationinrespectofapropertyonground
thatsaidproperlywasnotusedforbusinesspurposeandmoreovercostoflandwasincludedin
claim of depreciation though no depreciation is allowable under Act on land. He also levied
penalty under section 271 (1) (c) for furnishing inaccurate particulars holding that there was
complete lack of any evidence to show that property was used for purpose of assessee's
business and attempts made by assessee to show to contrary were indicative of frivolous
nature of claim. In appeal Commissioner (Appeals) confirmed the levy of penalty. Tribunal
deletedthepenaltyholdingthatexplanationsubmittedbyassesseewasbonafideandformere
disallowancelevyofpenaltywasnotjustified.OnappealbyrevenuetheCourtheldthatlevyof
penaltywasjustified.Infavourofrevenue(A.Y.200506)
CITv.MorganFinvest(P.)Ltd.(2013)81DTR441/213Taxman23(Mag.)(Delhi)(HC)
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theissueisdebatable.Forthesereasons,weareoftheopinionthatnoquestionoflawarisesin
thepresentcase.
CITv.LiquidInvestmentandTradingCo.(Delhi)(HC)www.itatonline.org
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(Appeals) confirmed the order of the Assessing Officer. On further appeal, the Tribunal held
that when once the return was filed before the issue of notice under section 148 and tax due
with interest was paid, as the income was not suppressed, the imposition of penalty was not
proper. Therefore, the order of imposition of penalty was set aside. On appeal by revenue
theCourt held that merely because it was only after survey that a revised return was filed, it
wasnotagroundtoholdthattherewassuppressionofincomesoastojustifylevyofpenalty.
Infavourofassessee.(A.Y.200405to200607)
CITvVegaAutoAccessories(P.)Ltd.(2013)212Taxman95(Mag.)(Karn.)(HC)
S.271(1)(c):PenaltyConcealmentFalseclaimsLevyofpenaltywasheldtobejustified.
An amount was Rs 10.81 lakhs was paid to PM (P) Ltd which was assessees sister concern.
These payments were made througha debit note raised at the close of the year. Tribunal has
given the finding thatno such amounts were paid. This finding ofTribunal was accepted by
assessee. On appeal by the assessee against the confirmation of penalty the court held that
where Tribunal had reached a finding of fact that appellant had filed inaccurate particulars
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regardingitsincomebyshowingfalse/exaggeratedexpenses,itwouldbeconcludedthatthere
was a concealment of income on part of appellant, leading to imposition of penalty under
section271(1)(c)uponappellant.Appealofassesseewasdismissed.(A.Y.198990)
Sanghvi Swiss Refills (P.) Ltd. v. ACIT (2013)81 DTR 40/255 CTR 251 212 Taxman 66 (Mag.)
(Bom.)(HC)
S.271(1)(c):PenaltyConcealmentAOPDeletionofpenaltyheldtobejustified.(S.167B)
Assessee,anAOP,wasconstitutedforcarryingonbusinessofprocuringordersonbehalfofRIL
forsupplyofpurifiedtrephthalicacid.Inrespectofassessmentyearsinquestion,assesseefiled
a return of income at nil. During course of assessment proceeding, assessee was required to
explainastowhyincomeshouldnotbechargedtotaxinhandsofAOPbyapplyingprovisions
ofsection167B(2).Accordingtoassessee,ithaddistributedprofitamongstitsmembersasper
their respective shares which were defined in joint venture agreement and all of them had
shown their respective shares as income under provisions of section 167A, and, therefore,
section 167B(2) was not applicable. Assessing Officer rejected assessee's explanation and
assessed entire income in hands of AOP under section 167B(2).On second appeal, Tribunal
referred matter to Special Bench which upheld order passed by Assessing Officer. Thereupon,
Assessing Officer taking a view that assessee had deliberately shown income in hands of
members of AOP in order to evade taxes, passed a penalty order under section 271 (1)
(c).Tribunal, however, set aside penalty order. On revenue's appeal, it was noted that when
assessee had filed nil return, therewere two views possible inasmuch as Tribunal itself was in
doubt as to which of two views were to be preferred and it was for this very reason that
TribunalhadpassedreferralorderrequiringmattertobeconsideredbyaSpecialBench.Inview
ofabove,itcouldnotbesaidthatassesseecouldnothavehadsuchadoubtinitsmindwhenit
had indeed filed its return. Therefore, Tribunal was justified in setting aside penalty order.
Appealofrevenuewasdismissed.(A.Y.200304,200405).
CITv.PradeepAgenciesJointVenture(2013)212Taxman72(Mag.)(Delhi)(HC)
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S.271(1)(c):PenaltyConcealmentNo explanation was filed Penalty was held to be justified.
[S.94(7)].
Assesseecompany engaged in business of sale and purchase of shares claimed certain loss on
saleofshares.AssessingOfficerdisallowedamountfornotcomplyingwithprovisionsofsection
94(7) and assessed it as income of assessee. Assessing Officer, thereafter imposed penalty
undersection271(1)(c).Onappeal,Commissioner(Appeals)deletedpenaltybutonappealby
revenueTribunalreversedorderofCommissioner(Appeals).Whenassesseecompanyhadbeen
availingservicesofacharteredaccountantandinspiteofthatnoreplywasfiledbyitfornon
compliance with provisions of section 94(7) while working out income shown in incometax
return, Explanation 1 to section 271 (1) (c) was directly applicable and penalty was rightly
imposedbyAssessingOfficer.Appealofassesseewasdismissed.(A.Y.200506)
VSBInvestment(P.)Ltd.v.CIT(2013)212Taxman59(Mag.)(P&H)(HC)
S.271(1)(c):PenaltyNoconcealmentRepairexpensesClaimbonafide,levyofpenaltywas
notjustified.
Theassessee,whilefurnishingthereturnofincome,hadmadefulldisclosureabouttherepair
expenses. It had also attached a note to its return stating that since the question whether
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repair expenditure was revenue or capital was debatable, the admissibility as revenue
expenditure of amount debited as repairs would be discussed at the time of assessment. The
claim made by the assessee may have been rejected but it could not be said that it was not
plausible or legally tenable. The bona fides of the claim had not been doubted by the
Department at any stage. In the absence of any contrary material brought on record by the
Department to show that the deduction claimed by the assessee was not bona fide or was
bogus, there was noconcealmenton the partof the assesseecalling for levy of penalty under
section271(1)(c).(A.Y.19971998)
BennettColemanandCo.Ltd.v.ACIT(2013)24ITR102(Mum.)(Trib.)
S.271(1)(C):PenaltyConcealmentFor S.40(a)(i) disallowance if TDS deducted next year, levy
ofpenaltywasnotjustified.[S.40(a)(i)]
Theassesseeincurredexpendituretowardsfeesfortechnicalservicesonwhich TDSwasnot
deducted by the end of the year. Though the auditor stated in the tax audit report that the
amount had to be disallowed u/s 40(a)(i), the assessee still claimed a deduction. The TDS was
paid in the subsequent financial year. The Assessing Officer disallowed the deduction and
imposedpenaltyu/s271(1)(c)whichwasaffirmedbytheCIT(A).Onappealbytheassesseeto
theTribunal,HELDallowingtheappeal:
S.40(a)(i)doesnotimposeanabsolutedisallowanceforfailuretodeductTDS.Itprovidesthat
thedeductionshallbeallowedintheyearofdeductionoftheTDS.Astheassesseehadinfact
deducted TDS in the immediately succeeding year, it had substantially complied with the
provision.Also,asthefactthatTDSwasnotdeductedwasstatedinthetaxauditreportwhich
was filed with the return, it could not be said that the assessee has not disclosed the correct
particularsofincome.(A.Y.200304)
DynatronPrivateLimitedv.DCIT(Mum.)(Trib.)www.itatonline.org.
S.271(1)(c):PenaltyConcealmentInaccurateparticularsDetailsnotfurnishedbyassessee,
levyofpenaltywasheldtobejustified.
Theassesseecompany,engagedinrunningahospital,hadsoldoffallitsfixedassets.Itdidnot
carryoutanybusinessduringthepreviousyearandreturnednilincomebutclaimeddeduction
ofexpenditureonaccountofresearchanddevelopmentactivities.Sincetheassesseecouldnot
furnishreasonableevidencetosupportitsclaimofincurringexpenditure,penaltywasleviedby
theAssessingOfficer.TheTribunalobservedthatsincenobusinesswascarriedoutbyassessee
during relevant previous year and no detail regarding nature of research carried out by
assesseecouldbeproduced,assesseehadnolocusstanditoclaimsuchexpenditureand,thus,
itwasafalseclaim.Hence,thepenaltywasheldtobejustified.(A.Y.200607)
ACITv.HarveyHeartHospitalsLtd.(2013)57SOT62(URO)(Chennai)(Trib.)
S.271(1)(c):PenaltyAdditiononestimatebasisLevyofpenaltywasnotjustified.
The Assessing Officer has made all additions, disallowances, treating the cash credits/foreign
receipts as well as the assessee's declared agricultural income merely on estimate and guess
workbasiswithoutbringingonrecordanypositiveandconcreteevidencetobeappliedagainst
the assessee. Hence, the liability could not be sustained. Also, the Assessing Officer has not
broughtanymaterialonrecordtoestablishanymalafideintentionoftheassesseetoevadetax
inreturnfiledbyassessee.Penaltywascancelled.(A.Y.200506)
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ITOv.SukhamritSingh(2013)56SOT107(URO)(Asr.)(Trib.)
S.271(1)(c):PenaltyVoluntarydeclarationbyassesseeNosatisfactionofAssessingOfficerin
thereassessmentproceedingsLevyofpenaltywasnotjustified.[S.148,273A]
Sinceassesseevoluntarilyfiledthepetitionundersection273Awhichadmittedlywasnotvery
legal,asnopenaltyhadbeenimposed,but,neverthelesswasthestartingpointforinitiationof
reassessmentproceedings.Therefore,AssessingOfficershouldhavearrivedatasatisfactionin
thecourseofreassessmentproceedingsregardingfulfilmentofeitherofthesetwinconditions.
This satisfaction had to be derived from the conduct of the assessee. Since the very basis for
initiation of reassessment proceedings was the petition under section 273A along with which
assesseehadfiledreturnofincomeandthesameincomehadbeenreturnedinconsequenceto
proceedings under section 148, therefore, it cannot be held that Assessing Officer had
judiciously acquired the satisfaction regarding fulfilment of either of these twin conditions.
Thus,nopenaltywasliabletobelevied.(A.Ys.200304to200809)
VaishDegreeCollegeTrustv.ACIT(2013)56SOT112(URO)(Del.)(Trib.)
S.271(1)(c):PenaltyConcealmentSurrenderedIncomeSurveyReturnfiledaftersurveyLevy
ofpenaltywasnotjustified.
Theassesseefirmisengagedinrealestatebusiness.Fortherelevantyeartheassesseedidnot
fileitsreturnbeforeduedateoffilingofreturnaspersection139(1).Asurveywascarriedout
inthebusinesspremises.Inthecourseofsurveyassesseeagreedtooffer11.5%ofthesalesas
itsincome.Thereupon,theassesseeinthecourseofassessmentproceedingsagreedthatthe
income declared in the course of survey be adopted as the total income of the assessee.
Assessment was completed on the basis of disclosure and the Assessing Officer levied the
penalty under section 271(1)(c ) of the Act. Commissioner(Appeals) confirmed the order of
Assessing Officer levy of penalty. On appeal Tribunal held that the assessee filed return
disclosingamountsurrenderedinsurvey.AssessingOfficerwhopassedapenaltyorder,itisnot
foundthatthereisactuallyaconcealmentornondisclosureofparticularsofincomeinreturn.
Penaltycannotbeimposed.(A.Ys.200708,200809)
VasaviShelters.vITO(2013)141ITD590(Bang.)(Trib.)
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but only tax paid on behalf of principal company and therefore, entire amount was taxable in
hands of assessee in India. It was therefore held that mere note given by assessee that tax
deducted in Korea did not accrue in India was not sufficient. As the exclusion of amount was
notbonafidepenaltyu/s271(1)(C)wasleviable.(AY200102)
Dy.DITv.SumitomoMitsuiBankingCorpn.(2013)140ITD528/151TTJ409(Mum.)(Trib.)
S.271(1)(c):PenaltyConcealmentUnrealisedexportproceedsdisclosedinreturnInformation
giveninreturnnotfoundtobeincorrect,Levyofpenaltyheldtobenotjustified.(S.10A)
The assessee filed the return and claimed exemption under section 10A of the Act. The
Assessing Officer observed that the assessee could not furnish any reason for treating the
unrealised export proceeds, eligible for claim for exemption. He, accordingly, added back Rs.
13,72,927andinitiatedpenaltyundersection271(1)(c).TheCommissioner(Appeals)heldthat
the assessee had not concealed any particulars of income or not suppressed any facts and
deleted the penalty. On appeal to the Tribunal, held that the assessee had made adequate
disclosurewithrespecttotheunrealisedexportproceedsatthetimeoffilingitsreturn,andno
faultcouldbefoundontheconductoftheassessee.Therefore,penaltywasnotexigibleunder
section 271 (1) (c) of the Incometax Act, 1961.Appeal of revenue was dismissed. (A. Y.2007
2008)
Dy.CITv.GenesysInternationalCorporationLtd.(2013)21ITR581/151TTJ606(Mum.)(Trib.)
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271 (1) (c). Moreover, the assessee had been continuing with the practice of alleged
concealmentandfurnishinginaccurateparticularsintheassessmentyears200001to200506.
However, adopting the "doctrine of continuity" and concurrence, the penalty was liable to be
confirmed only in the first assessment year i.e., assessment year 200001 instead of all the
assessmentyears.(A.Ys.20002001to20052006)
BapujiCherukuri(Dr)v.Dy.CIT(2013)21ITR714(Chennai)(Trib.)
S.271(1)(c):PenaltyConcealmentTransferpricingComputationofALPDebateatthetime
of filing return as to whether current year data can be used or multiple year data has to be
usedAssesseeadoptingmultipleyeardata,bonafideexerciselevyofpenaltyheldtobenot
justified.(S.92C)
Assessee, engaged in providing market support services, returned nil income and computed
arm's length price of its transactions on basis of multiple year data. TPO being of opinion that
current year data was to be used, added some comparables and made transfer pricing
adjustment. The Assessing Officer made addition to assessee's income and initiated penalty
proceedings. It was held that where at time of filing return, there was a legal debate as to
whether current year data can be used or multiple year data has to be used, assessee's
adoptingmultipleyeardatawasabonafideexercise.Theassesseeactedinbonafidemannerin
conducting its transfer pricing study and arriving at arms length price. The explanation is
bonafidehencelevyofpenaltyundersection271(1)(C)isnotwarranted.(A.Y.200607)
VerizonCommunicationIndia(P.)Ltd.v.Dy.CIT(2013)140ITD122(Delhi)(Trib.)
S.271(1)(c):PenaltyConcealmentsurrenderofincomeLevyofpenaltyheldtobevalid.
During the course of assessment proceedings, the Assessing Officer after obtaining details of
creditors, issued notice under section 133(6) of the Act to N and G. In the light of the details
reflectedinthecopyofaccountoftheassesseereceivedfromthesepartiesvisavisthebooks
ofaccountoftheassessee,theAssessingOfficernoticeddifferences.Theassesseesurrendered
theamount.Accordinglyintermsofthesurrenderoftheamount,theAssessingOfficeradded
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theamountandinitiatedpenaltyproceedingsundersection271(1)(c).Thiswasupheldbythe
Commissioner(Appeals).OnappealtotheTribunalheldthatasaresultofenquiriesmadebythe
AssessingOfficer,theassesseedidnotreconcilethedifferenceintheaccountofthetwoparties
andinsteadsurrenderedtheamountasincomeoftheyearunderconsideration.Inthecourse
ofpenaltyproceedings,theassesseedidnotbringanymaterialbeforetheAssessingOfficerto
rebut the inferences drawn by the Assessing Officer in the course of assessment proceedings.
The assessee claimed before the Assessing Officer and the Commissioner (Appeals) that the
additionwasacceptedinordertopurchasepeaceofmindandtobringanendtotheissue.But
this explanation was tendered only after the Assessing Officer confronted the evidence in the
form of copies of account of the assessee in the books of the two parties. Apparently, only
whentheassesseewascornered,theassesseesurrenderedtheamount.Thesurrenderwasnot
voluntary.Thelevyofpenaltywasvalid.(A.Y.20072008)
AjayJainv.ACIT[2013]21ITR41/57SOT64(URO)(Delhi)(Trib.)
S.271(1)(C):Penalty ConcealmentLevy of penalty was not justified without pointing out any
specificfact.
No penalty can be imposed if Assessing Officer has not pointed out any specific fact not
disclosed by the assessee or any wrong particulars furnished by the assessee. Based on the
primary facts disclosed by the assessee inference drawn by the AO could have been drawn.
(A.Y.0405)(CDelhi,ITANo.3522/Del/12dated1112013)
ADIT vGE Energy Control Systems(2013) BCAJ Pg. 24, Vol. 44B Part 5, February 2013(Delhi)
(Trib.)
S.271(1)(c):PenaltyConcealment Consistent losses show mistake/ absence of intention to
evadetaxes.
TheassesseefiledareturndeclaringalossofRs.16lakhsinwhichithadmadeawrongclaimof
depreciation. The AO disallowed the claim and levied 100% penalty which was upheld by the
CIT(A).BeforetheTribunal,theassesseeclaimedthatitsDirectorsweretechnicalpersonsnot
knowingtheintricateprovisionsoftheActbutweredependentontheadviceofprofessionals
forpreparingincometaxreturns.Itclaimedthatithadcommittedabonafidemistakeandthat
therewasnointentiontoevadetaxes.HELDbytheTribunalupholdingtheplea:
A mere mistake in making of a claim in the return of income would not ipso facto reflect
concealment or furnishing of inaccurate particulars of income in terms of s. 271 (1) (c). The
wrong claim of depreciation cannot be said to be made with an intention to evade taxes in as
much as even after the disallowance of depreciation, the resultant income of the assessee
remains a loss. The assessee had been incurring losses since the year 2003 due to the market
forces. Considering the entirety of circumstances, the claim on account of depreciation was a
mistake,anddidnotinvitetheprovisionsofs.271(1)(c).(A.Y.200708)
AmrutaOrganicsPvt.Ltdv.DCIT(Pune)(Trib.)www.itatonline.org
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offwasactuallyaprovisionforunascertainedliabilitytheAOalsoheldthatthelossaccruedto
assesseewasdiminutioninthevalueofstock.TheviewoftheAOwasaffirmeduptotheITAT
on the ground that writeoff is not allowable as the assessee has failed to file supportive
documentsanddetailsTheAOleviedpenaltyandtheorderofthepenaltywasaffirmedbythe
CIT(A)Inthecourseofthepenaltyproceedings,theassesseeproducedmaterialwhichjustified
writeoff and hence contended that it was entitled for the writeoff. The Honble Tribunal
deletedthepenaltyonthegroundthatthequantumproceedingsandpenalproceedingsbeing
separate and independent, the finding in the quantum proceedings cannot be relied upon to
justifypenalty;theassesseewasentitledtoleadfreshevidencetoestablishthatthefindingin
quantumproceedingsisnotconclusive.(A.Y.200102)
GlobalGreenCo.Ltd.(2013)56SOT30(URO).(Delhi)(Trib.)
S.271B:PenaltyFailuretogetaccountsauditedDelayonpartofauditorsPenaltycouldnotbelevied.
[S.44AB]
Held that the books of account were delivered by the assessee for audit on August 14, 1989 (in time)
andthereportwasreceivedfromtheauditorsonMarch31,1991.Onthisfact,theTribunalarrivedata
conclusion that the delay was on the part of the auditors and it amounted to reasonable cause. This
findingoftheTribunalonthefactsandcircumstancesthattherewasreasonablecause,wasafindingof
fact.Hence,penaltycouldnotbeimposedundersection271B.(A.Y.19901991)
CITv.U.P.RajyaSahkariEvamBhoomiVikasBankLtd.(2013)353ITR152(All.)(HC)
S.271B:PenaltyFailure to get accounts auditedIllness of auditor levy of penalty was not justified.
[S.44AB]
Goingbythenatureofillnessthattheassesseesauditorhad,andconsideringthathehadfiledthetax
auditreportpromptlyfortheearlieryears,thedelayof29daysinfilingthetaxauditreportunder
section44ABmeritedtobecondoned.Hence,penaltycouldnotbeimposed.(A.Y.19881989)
LakshmiCardClothingManufacturingCo.P.Ltd.v.Dy.CIT(2013)353ITR544(Mad.)(HC)
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S.271B:Penalty Failure to get accountsaudited Business Income Tax Audit Turnover
Online buying and selling of commodities being speculative in nature not liable for penalty.
(S.44AB)
Assesseeisengagedinonlinebuyingandsellingcommoditiesthroughcommodityexchange,as
aspeculativeactivity,whereinnophysicaldeliverywastakenorgiven,totaltransactionbooked
with such commodity exchange could not be considered as turnover for purpose of
considering liability of assessee to get accounts audited u/s.44AB. Buying and selling the
unitswas aspeculative transaction.No delivery has taken place henceLevy of penalty was
deleted.(A.Y.200607)
BanwariSitaramPasariHUFv.ACIT(2013)140ITD320/155TTJ110/88DTR349(Pune)(Trib.)
S.271B:PenaltyPenaltyFailuretogetaccountsauditedBusinessIncomeTaxAuditProject
completionmethod(S.44AB)
The assessee company was engaged in business of construction. It was following project
completionmethodofaccounting.InrespectofaSRAprojecttakenupbytheassessee,ithad
receivedabookingadvanceofRs.11.25crorefromM/s.WelspunGujaratStahiRobernLtd.The
advancewassubsequentlyreturnedin2010sincethepropertyhadseveralencroachments.The
assessee did not get its accounts audited as required u/s. 44AB of the Act since it was of the
view that the provisions of sec. 44AB would apply only when sales, turnover or gross receipts
exceed Rs.40 lakh. Since the assessee had only received an advance which was later refunded
and the assessee was following project completion method and the sales would be accounted
intheyearofcompletionoftheproject.TheAOleviedpenaltyu/s271BoftheAct.TheTribunal
heldthat,incaseofanassesseefollowingprojectcompletionmethod,advancereceivedwhich
is required to be adjusted against future income cannot be considered as gross receipt of
businessorturnover.Bonafidebeliefconstitutesreasonablecausefornonlevyofpenalty.(A.Y.
200708)(ITAno307/M/011,dated21112012)
Pilot Construction Pvt. Ltd. v. ITO (2013) BCAJ Pg. 18, Vol. 44BPart 4, January 2013(Mum.)
(Trib.)
S.271B:PenaltyFailuretogetaccountsauditedSinceassesseeisentitledtoregistrationfor
levyofpenaltymattersentbacktoAssessingOfficer.(S.12A)
Assessee trust did not get its accounts audited on the basis that the income is exempt.
Therefore, the assessee had a reasonable cause for not getting its accounts audited under
section44ABoftheAct.TheTribunalheldthattheassesseeisentitledtoregistration.Soforthe
levy of penalty, the Tribunal remanded the matter back to the file of Assessing Officer to be
decidedafreshinaccordancewithlawafterprovidingdueandreasonableopportunityofbeing
heardtotheassessee.(A.Y.200304to200708)
UrbanImprovementTrustSriganganejorv.CIT(2013)152TTJ507/83DTR282((Jodh.)(Trib.)
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cash must necessarily satisfy extant rule 6DD of the Income Tax Rules. The assessee had not
shownanyacceptableorunavoidablecircumstancesorimpracticabilityordifficultyinreceiving
money otherwise than in cash. Except for mere statement that the work undertaken by the
assessee at outside the State was for the first time and there was necessity for meeting the
requirementstolabourandothersuppliersdemandingcash,nodetailswereplacedbeforethe
authorities concerned to accept the case of the assessee that there was a reasonable cause
shown in receiving an amount of Rs. 6,51,000 in cash from 'M'. Thus, the assessing authority
rightly pointed out that the explanation was not convincing, hence, the case of the assessee
was rejected. The plea that the transaction should be viewed as a gift transaction is devoid of
merit and it is only an afterthought. Confronting with the factual situation the transaction in
cash attracted penal provision, the assessee immediately wanted to change the colour of the
transactiontooneofgift.Hence,thispleawasliabletoberejected.(AY199495)
BuiltecEngineers&Buildersv.DCIT(2013)214Taxman99(Mag.)(Mad.)(HC)
S.271D:PenaltyAcceptsanyloanordepositReasonablecauseFindingastotheexistenceof
reasonablecauseisafindingoffactwhichcannotgiverisetoanysubstantialquestionoflaw.
(S.269SS,269T,273B.)
CIT(A)and theTribunalarrivedatconcurrentfindingsthat therewasreasonablecausewithin
the meaning of s. 273B for the violation of s. 269SS after taking note of the entire facts and
circumstances in which the assessee was placed, it cannot be held that the view taken by the
Tribunal is either perverse or absolutely irrational, and the findings recorded by the Tribunal
being essentially findings of fact, no substantial question of law arises. (A.Y. 199394 & 1999
2000to200102)
CITv.SaharaIndiaFinancialCorporationLtd.(2013)83DTR162/257CTR215(Delhi)(HC)
S.271D:PenaltyAcceptsanyloanordepositReasonablecause.(S.269T,271E,273B.)
Tribunal cancelled penalties u/ss. 271D and 271E after appraising several facts and
circumstances in accepting the assessees explanation that there exited reasonable cause
within the meaning of s. 273B for the violation of the provisions of ss. 269SS and 269T. The
revenuehadnotbroughtonrecordanymaterialtoshowthatthefindingoftheTribunalasto
theexistenceofreasonablecauseisperverse.Nosubstantialquestionoflawarose.(A.Y.1992
93,199394,199697,19992000&200001)
CITv.SaharaIndiaMutualBenefitCo.Ltd.(2013)83DTR 171/257CTR225/212Taxman97
(Mag.)(Delhi)(HC)
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S.271D:PenaltyAccepts any loan or depositReasonable causeNo material was placed
S.269SS)
Assessing Officer imposed penalty upon assessee for acceptance of cash loans from various
personsexceedingspecifiedlimit.Assesseesubmittedthathehadtofollowvillagecustomsand
traditionsandacceptwordsofeldersofvillageandthatsomedepositorsdidnothavePANs.No
material was placed on record as to which elder advice assessee had taken and why loan was
not received through crossed cheque when some depositors were having PAN, therefore,
impositionofpenaltyundersection271Dwasjustified.Infavourofrevenue.(A.Y.200506)
Addl.CITv.MadireddyVenkatReddy(2013)55SOT94(URO)(Hyd.)(Trib.)
S.271BA:PenaltyFailuretofurnishreportsInternationaltransactionTransferpricingReport
fromaccountanttobefurnishedFailuretofurnishreportisliabletopenalty.(S.92E,formno
3CEB)
AssessingOfficerleviedpenaltyundersection271BAongroundthatassesseefailedtofurnish
accountant'sreportinFormNo.3CEBasrequiredundersection92Ebyduedate.Submissionof
assessee was that it had filed return of income electronically; therefore annexures were not
requiredtobefurnished,andthatFormNo.3CEBwasfiledduringpenaltyproceedings.Though
the contention of assessee that return of income in electronic form was not to accompany
report in Form 3 CEB was correct. Tribunal held that the Assessee was required to file report
under section 92E, read with rule 10E, before specified date i.e., due date for filing of return.
therefore,penaltyundersection271BAwasrightlyimposed.(AY200607)
NectarLifesciencesLtd.v.Dy.CIT(2013)55SOT93(URO)(Delhi)(Trib.)
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S.272A:PenaltyETDSreturnPenaltydeletedfirstyearofdefault.(FormNo.24Q,26Q)
Tribunal held thatwhenthere is no provision for issuing separate notice for levy of penalty for
late or nonfiling of From nos. 24Q and 26Q as in case of failure to file these forms penalty is
leviable under section 272A(2). For relevant assessment year, assessee did not file ETDS
returns within specified time Assessing Officer, thus, levied penalty under section
272A(2).Tribunal held that since requirement of filing Form No. 24Q was new one being first
year of filing such return and, moreover, tax had been duly deducted by assessee, in such a
case,impugnedpenaltyorderwasnotsustainable.Infavourofassessee](200607)
TheManager,UnionBankofIndiavDy.CIT(2013)55SOT96(URO)(Agra)(Trib.)
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alreadylaunchedundersection276CConwhichthetrialcourttookcognizanceofthematter.Held,that
theorderoftheSettlementCommissionwasjustified.
AnilKumarSinhav.UOI(2013)352ITR170(Patna)(HC)
S.278B:Offences and prosecutionsPartners liable unless able to prove innocenceFinding that firm
hadtriedtoevadetax.[S.276C,276DCrl.PC,S.482]
Under section 278B, all the partners are equally responsible for commission of any offence by the
company/firm. The onus lies on the partners or directors to prove that they were not responsible for
actsofomissionorcommissioncommittedbythefirm/company.
It was a case of filing incorrect and false return clubbing the income of a proprietary concern of the
partner.Afternoticingthatcriminalprosecutionwasfiledfortheallegedact,atamuchbelatedstagein
the year 1997, under the Voluntary Disclosure of Income Scheme tax was paid on behalf of the
proprietary concern of the partner. At a subsequent stage, action taken by the petitioners may not
absolvethemfromthecharges.Atleastfortheperiodbetween1989and1997theoffenceofevasionof
theincometaxwascommittedbythepetitioners.Theprosecutioncouldnotbequashed.(A.Y.198990)
DeepakEngineeringWorksv.CIT(2013)352ITR161(Patna)(HC)
S.281B:ProvisionalattachmentRecoveryoftaxAttachmentoverandabovedemandraisedwasheld
tobenotjustifiedandillegal.
Oncetheassessmenthadbeencompleted,theRevenuewouldbejustifiedtoattachtheaccounttothe
extent of the demand raised against the assessee and not the entire amount standing to the credit of
theassessee.TheactionoftheRevenueinextendingtheperiodofattachmentinrespectofallthebank
accountsoftheassesseeandinrespectofoverthetaxdemandwaswhollyunjustifiedandillegal.
NirmalSinghv.UOI(2013)352ITR396/88DTR119/259CTR496(P&H)(HC)
S.281B:ProvisionalattachmentThereisnoprovisioninstatutewhichgivespreferentialrights
to dues of State under ActBank as asecured creditor has preference over the dues of the
Income tax department in respect of the secured assets.[S.13(2) of the Securitization and
ReconstructionofFinancialAssetsandEnforcementofSecurityInterestAct,2002.]
A company availed loan from petitioner and mortgaged certain property to secure loan
advanced to it.Since said company defaulted in making payments of loan, petitioner initiated
proceedings under section 13(2) of the Securitization and Reconstruction of Financial Assets
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and Enforcement of Security Interest Act, 2002.Thereupon, petitioner took possession over
propertyandputitonsale.Impugnedpropertyhadbeenprovisionallyattachedundersection
281B with prior approval of Commissioner and, it was on said basis, revenue claimed
preferential right to realize its dues being crown debt. There is no provision in statute which
gives preferential rights to dues of State under Act. Therefore, the petitioner as secured
creditor had preference over dues of department in respect of secured assets. In view of
aforesaid,instantwritpetitionwastobedisposedofwithadirectiontopetitionertoremitany
excess amount, after adjusting its dues, to revenue being preferential creditor amongst
unsecuredcreditors.Writpetitionofassesseewasallowed.
AxisBankLtd.v.CIT(2013)212Taxman19(Mag.)/259CTR492(P&H)(HC)
S.292C:Presumptionsastoassets,booksofaccountetc.Presumptionnotavailableinrespect
ofpersonotherthanpersonfromwhosepossessionbooksorassetsseized.(S.153A)During
the course of search, papers were seized from the premises of a hospital showing datewise
cashreceivedfromtheassessee.Theassesseeexplainedthatthedonationsweremadeoutof
unaccountedincomedeclaredbyS.TheAssessingOfficerfurthernotedthatthecompanywas
maintaining separate cash account. The presumption under section 292C of the Act was that
the paper belonged to the assessee and its contents were proved. The Assessing Officer
therefore, made the addition. The Dispute Resolution Panel rejected the objections raised by
theassesseeonthegroundthattheadditionmadewasbasedonseizedpapers.Papersseized
from the possession of S from the premises of the hospital showed the expenses incurred on
constructionofaschoolbuildingbelongingtotheMtrust.Anadditionwasmadeinthehands
of the assessee. That admittedly, the papers were seized from the premises of the hospital
fromthepossessionofSwhohadowneduptothedocuments.Noevidencewasfoundduring
the course of search to establish that the donations were made by the assessee out of
undisclosed income. S had donated the amount out of undisclosed income declared by him
undersection153AoftheAct.Thesourceofincomeoutofwhichthepaymenthadbeenmade
existed in the earlier years. The bank statement of M Trust which gave details of Rs. 5 lakhs
debitedtotheaccount.Therewasnothingonrecordtosuggestthattheseamountshadbeen
paid by the assessee. Therefore, no addition could be made in the hands of the assessee
company.Accordingtotheprovisionsofsection292Cthepresumptionwasthatthedocuments
related to S and not to the assessee. Hence, the Assessing Officer had wrongly applied the
provisionsofsection292C.TheTribunalheldthatthepaperinquestiondidnotshowthename
of any person from whose account the money had come for investment in school building.
There was no indication on these pages that amount had come from the account of the
assesseecompany. Therefore, no addition could be made in the hands of the assessee
company. Since the school was owned by M trust the addition could be made if at all, in the
handsofthetrustandnotinthehandsoftheassessee.(A.Y.20052006to20072008)
MahashianDiHattiLtd.v.Dy.CIT(2013)21ITR731(Delhi)(Trib.)
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HighCourtwhereitreliedons.292BB(whichprovidesthatthefailuretoissuenoticecannotbe
objected to if the assessee has appeared in theproceeding), inserted by the Finance Act 2008
w.e.f. 1.4.2008 and argued that the said provision was retrospective in operation and the
reassessmentwasvalid.HELDbytheHighCourtdismissingtheappeal:
The issue of a notice u/s 143(2) is mandatory. The failure to do so renders the reassessment
void(CWTv.HUFofH.H.LateShri.J.M.Scindia(2008)300ITR193(Bom.)followed).S.292BB
was inserted w.e.f. 1.4.2008 and came into operation prospectively for AY 2008 2009 and
onwards.
CITvSalmanKhan(Bom)(HC)www.itatonline.org.
S.292C:Presumptionastoassets,booksofaccount,etc.SearchandSeizureAdditiononthe
basisofdocumentsisheldtobejustified.
Pursuant to a search at assessee's premises, certain documents were found and one of such
documents contained working of interest at rate of 3 per cent on total sum of Rs. 3 lakh.
Assessee was directed to explain contents of document found during course of search
Assesseeexplainedthatcontentsofsaiddocumentwereroughworkingandnoloanwasgiven
out. Assessing Officer rejected assessee's explanation and brought to tax principal amount of
Rs. 3 lakh and interest thereon. Commissioner (Appeals) and Tribunal confirmed order of
Assessing Officer. On basis of material recovered during search, lower authorities had rightly
drawn presumption in terms of section 292C.therefore, impugned addition was to be
confirmed.Appealofassesseewasdismissed.(A.Y.199899)
HirenVasantlalShahv.ACIT(2013)212Taxman23(Mag.)(Guj.)(HC)
GifttaxAct,1958
S.4(1)(c):Deemed gift Revocable gift of shares Donor revoking gift but bonus shares
continuedwithdoneeMatterremanded.(S.11,16(1))
The assessee owned 6000 shares of Hero Cycles. On 20.02.1982, he executed a deed of
revocabletransferinfavourofM/s.YogeshChandra.Thedeedpermittedtheassesseeto,after
completionof74monthsfromthedateoftransferbutbeforetheexpiryof82monthsfromthe
said date, exercise the power of revoking the gift. In other words, there was a window of 8
months within which the gift could be revoked. The deed of revocable transfer specifically
statedthatthegiftshallnotincludeanybonussharesorrightsharesreceivedand/oraccruing
or coming to the transferee from Hero Cycles by virtue of ownership of the said shares.
Effectively, therefore, only a gift of 6000 equity shares was made by the assessee to the
transferee.On 29.09.1982 & 31.5.1986, the company issued 4000 and 10,000 bonus shares to
thetransferee.On15.6.1988,theassesseerevokedthegiftwiththeresultthatthe6000shares
giftedtothetransfereecamebacktotheassessee.However,the14,000bonussharesallotted
to the transferee while it was the holder of the equity shares of the company continued with
the transferee. In AY 198283, the GTO relied on McDowell and Co. Ltd. v. Commercial Tax
Officer(1985)154ITR148(SC)andheldthattherevocabletransferwasonlyforthepurposeof
reducing the wealth tax liability and was void. He, however, made a protective gifttax
assessment. The Tribunal and the High Court (CGT vs. Satya Nand Munjal (2002) 256 ITR 516
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416
(P&H)) reversed the AO and held that a revocable transfer was valid even if its object was to
avoid wealthtax. The assessee was held liable to pay gifttax u/r 11 of the Gifttax Act. In AY
198990 the AO &CIT (A) held that the 14,000 shares belonged to the assessee and as the
revocation was only with respect to the 6,000 shares and the 14,000 bonus shares continued
with the transferee, there was a chargeable gift to that extent. The Tribunal reversed the AO
&CIT(A).Onappealbythedepartment,theHighCourtreversedtheTribunalandheldthatthe
assesseewasliabletogifttaxonthevalueofthebonussharesgiftedbyhimtothetransferee
applyingtheprinciplesofEscortsFarms(Ramgarh)Ltd.vCIT(1996)222ITR509(SC).Onappeal
bytheassesseetotheSupremeCourt,held:
The fundamental question is whether there was in fact a gift of 14,000 bonus shares made by
theassesseetothetransferee.Theanswertothisquestionliesins.4(1)(c)oftheGifttaxAct
whichprovidesthatwherethereisarelease,discharge,surrender,forfeitureorabandonment
ofanydebt,contractorotheractionableclaimorofanyinterestinpropertybyanyperson,the
valueoftherelease,discharge,surrender,forfeitureorabandonmenttotheextenttowhichit
hasnotbeenfoundtothesatisfactionoftheAOtohavebeenbonafide,shallbedeemedtobe
a gift made by the person responsible for the release, discharge, surrender, forfeiture or
abandonment.Onfacts,theassesseehadmadeavalidrevocablegiftof6000equitysharesin
thecompanyon20.2.1982tothetransferee.TheonlyeventthattookplaceinAY198990was
therevocationofthegiftbytheassesseeon15.6.1988.Thequestionwhethertherevocationof
the gift of the original shares in AY 198990 constitutes a gift of the bonus shares that were
allottedtothetransfereeon29.09.1982and31.05.1986requirestobeansweredinthelightof
s.4(1) (c). The question of applicability of Escorts Farms has to be decided after a finding is
reachedontheapplicabilityofthefirstpartofs.4(1)(c)(matterremanded).(A.Y.198990)
SatyaNandMunjalv.CGT(2013)350ITR640/256CTR121/82DTR284/213Taxman437(SC)
OmPrakashMunjalv.CGT(2013)350ITR640/256CTR121/82DTR284(SC)
S.4(1):DeemedgiftReconstitutionofPartnershipfirmdoesntamounttodeemedgift:
Reconstitution of a Partnership firm at the time of admission of new partner resulting into
reductionofshareinprofitoferstwhilepartnersdoesntamounttodeemedgiftandshallnot
give rise to levy of gift tax. (T.A. No. 394/ 395 of 2000,dt16/06/2012/(T.A. No. 346 of 2002,dt
16/16/2012)]
RatilalP.Patel(2012)BCAJNovemberP.402)(Guj.)(HC)
UrmilabenA.Patel(2012)ACAJNovemberP.402)(Guj.)(HC)
S.16B:RevocablegiftInterestMatterremanded.
TheHighCourtheldinteralia,thatsincegifttaxwasleviableontherevocabletransferofequity
sharesbytheassesseetoY,interestwasliabletobepaidbytheassesseeonthegifttaxlevied.
On appeal, the Supreme Court set aside the judgment of the High Court and remanded the
mattersforfreshconsiderationonthemeritsofthecase.(A.Y.198990)
SatyaNandMunjalv.CGT(2013)350ITR649/256CTR127/82DTR275/214Taxman10(Mag.)
(SC)
Om PrakashMunjal v.CGT(2013)350 ITR 649/ 256 CTR 127/82 DTR 275/214 Taxman
10(Mag.)(SC)
Brij Mohan Lal Munjal v.CGT ((2013)350 ITR 649/ 256 CTR 127/82 DTR 275/214 Taxman
10(Mag.)(SC)
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InteresttaxAct,1974.
S.2(5):InterestCreditinstitution.Chargeableinterest.
Interest tax collected by a credit institution cannot partake character of chargeable interest
and,thusnointeresttaxwouldbeexigibleonit.
CITv.HaryanaFinancialCorpn.(2013)212Taxman25(Mag.)(P&H)(HC)
S.2(7):InterestFinancechargesSeparateAccounts.
Assesseebankreceivedfinancechargesincaseofleasetransactionsenteredintobyitwithits
customerswherecustomerspurchasedmachineryfromfinancesprovidedbyassess.Assessing
Officer held that amount received by assessee was liable to interest tax. On appeal, Appellate
Authoritiesheldthatamountcollectedbyassesseewashirepurchasechargesandnotinterest
and, therefore, there was no liability to pay tax as such. In view of concurrent finding of fact
recorded by Appellate Authorities, no case for interference was made out. Appeal ofrevenue
was dismissed. When assessee had maintained a separate account in respect of amounts
collected from customers towards interesttax, amounts so collected by assessee were not
'interest' within meaning of section 2(7) and, hence, could not be treated as chargeable
interest.Appealofrevenuewasdismissed.
CITv.KarnatakaBankLtd.(2013)212Taxman78(Mag.)(Karn.)(HC)
S.5:ChargeableinterestInteresttaxcollectedbyacreditinstitutioncannotpartakecharacter
ofchargeableinterestand,thusnointeresttaxwouldbeexigibleonit.(S.2(5),26C)
The assessee is acredit institution earning interest. It filedits return of chargeableinterest. In
the course of assessment, Assessing Officer noted that assessee had not included the interest
tax collected from its clients in the chargeable interest. The Assessing Officer completed the
assessment under section 8(2) adding the said amount to the chargeable interest in view of
provisions of section 26C. On second appeal, the Tribunal deleted the addition holding that
amount of interest tax recovered from the customers was not chargeable to interest. On
revenue'sappealthecourtheldthatinteresttaxcollectedbyacreditinstitutioncannotpartake
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418
character of chargeable interest and, thus no interest tax would be exigible on it. In favour of
assessee
CITv.HaryanaFinancialCorpn.(2013)212Taxman25(Mag.)(P&H)(HC)
S.5:ChargeableinterestProvisionInterestonbadordoubtfuldebts
Interest on nonperforming assets would be charged to interesttax only in year in which said
interestiscreditedtoprofitandlossaccountorinyearofreceipt,whicheverisearlier.Appealof
assesseewasallowed.(A.Y.199899)
AmericanExpressBankLtd.v.Add.CIT(2013)55SOT136(Trib.)(Mum.)
WealthtaxAct,1957
S.2(ea):AssetHousepropertyTransithouseforexecutivesdoesnotformpartofasset.
Transit house used for the stay of executives on official tour does not form part of asset u/s.
2(ea).(A.Y.199596)
CarborandumUniversalLtd.v.Dy.CWT(2013)83DTR75(Mad.)(HighCourt)
S.2(ea):AssetCommercialpropertiesCommercialPropertieswerenotconsideredasassetsin
termsofS.2(ea)(i)oftheWealthtaxAct,1957priorto01/04/97andhence,suchproperties
cantbeassessedunderthesaidAct.
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419
Property given on rent, being a productive asset, bears the character of a Commercial
Property Commercial Properties were not included in the definition of asset as prescribed
u/s.2(ea) (i) of the Wealthtax Act, 1957 as it stood prior to 01/04/1997. Since the year under
consideration was Asst. Year 199697, it was held by the Honble High Court that the said
property cannot be assessed under the WealthTax Act. 1957. (T.A. no 540 of 2006. dt
16/06/2012)]
NarayanT.Baddi(Dr.)(2012)BCAJNovemberP.402)(Guj.)(HighCourt)
S.2(ea):AssetLeasefor99yearsUsedforthepurposeofbusinessLandisexempt.
Assesseehadbeenallocatedlandinquestionon99yearsleasebyStateIndustrialCorporation.
WTOdeniedexemptionundersection2(ea)(i)(3)andsubjectedlandtowealthtaxonground
that assessee was not doing any business therefrom for last number of years. In fact it was
found that assessee had carried on its business utilizing aforesaid asset for this purpose, and
this position was even accepted by department as well. On factsland in question held by
assesseewasexemptfromwealthtaxundersection2(ea)(i)(3).(A.Y.200102to200405)
CITv.SohnaForge(P.)Ltd.[2013]212Taxman82(Mag.)(Delhi)(HC)
S.2.(m):NetwealthAssetSurplusofincomePresumptionExceptionNopresumption
Additionofincomefromundisclosedsourcesinearlieryearsisnottreatedassurplusavailable
inassessee'shandstobetreatedaswealthforpurposeofwealthtaxforlatteryears.
The Incometax Officer, for the assessment years 198586 to 198889, found that the total
surplusavailablewiththeassesseebywayofincomebeingRs.21,15,164andthetotalwealth
disclosedbytheassesseebeingRs.97,25,000,theincreaseinthewealthwastothetuneofRs.
76,09,836.ThatincomeofRs.76,09,836wastakentobeincomefromundisclosedsources.The
total available surplus available with the assessee during the assessment years 197374 to
197677wasdeclaredtobeRs.21,15,164basedontheassessedincomeoftheassesseeforthe
threeyears.TheTribunalupheldtheassessment.Onappeals:
Held, dismissing the appeals, that the addition of Rs. 23,59,461 made from the assessment
years196364to197071couldnotbeheldtobeassetsinthehandsoftheassesseeafterthe
period of more than eight years and, therefore, no tax could be imposed on the basis of such
addition of Rs. 23,59,461 treating it to be wealth for the purpose of wealthtax for the years
198586to198889andonwards.(A.Y.19851986,to19881989)
Gyan Chand Jain v. CWT (2013) 350 ITR 353/84 DTR 170/257 CTR 273/213 Taxman
212(Jharkhand)(HC)
S.4:DeemedwealthAsset'belongingto'AllotmentoflandLiabletowealthtax.
Assessee was allotted certain land by State Government. It constructed sheds thereon and
rented out same to industrialists. Assessing Officer observed that though income from those
shedshadbeenreflectedinincomeofassessee,inreturnofwealthtaxaforesaidshedwerenot
shownas'assets'ofassessee.AssessingOfficer,therefore,addedvalueofthoseshedstowards
assetsofassesseeOnappeal,Tribunalheldthatpropertyinquestioncouldnotbetreatedto
beassetsofassesseesincesamehadonlybeenallottedtoitandwasactuallytransferredinits
favourinalateryear.Sinceassesseewasderivingrentalincomefromsheds,propertyshouldbe
deemedtobebelongingtoassesseeandwasliabletobeincludedinitsassets.
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CITv.H.P.SmallIndustries&ExportCorp.(2013)212Taxman84(Mag.)(HP.)(HC)
S.7:Valuation of assets Immovable property Let out property Interest free deposits
AnnualrentAdditionwasupheld:
Assessee let out its property on annual rent of Rs. 4.42 lakhs. It also received interest free
depositsofRs.31.50lakhsfromtenantWhilecomputingfairmarketvalueofpropertyletout,
Assessing Officer added interest at rate of 14 per cent on Rs. 31.50 lakhs to figure of annual
rent.Commissioner(Appeals)aswellasTribunalheldthatinterestamountcouldnotbeadded
toannualrenttocomputefairmarketvalueofproperty.ItisundisputedthatasperSchedule
III,rule5,whereanownerhasacceptedanamountordeposit,notbeinganadvancepayment
towardsrentforaperiodof3monthsorless,anamountcalculatedatrateof15percentper
annum on amount of deposit outstanding from month to month shall be added to compute
annualrent.Inviewofaforesaid,computationmadebyAssessingOfficerbyaddingintereston
security deposit to figure of annual rent was to be upheld. Appeal of revenue was up
held.(A.Y.198586to198788)
CWTv.MGBuildersCo.(2013)212Taxman15(Mag.)(Delhi)(HC)
S.7:ValuationofassetsImmovablepropertySlumsonpropertyhastobeconsideredforthe
purposeofvaluationofproperty.
Assessee acquired 50 per cent of share in a property. He acquired same under registered sale
deed.AAC accepted valuation of assessee where under apart fromconsideration mentioned in
sale deed and market value of the property, impediments like ownerships slums on property
werealsotakenintoconsiderationincomingtofairmarketvalue.Onappeal,Tribunaldeclined
tointerferewithfindingrecordedbyAAC.Onfacts,valuationacceptedbyTribunalwasjustand
properandrepresentedtruemarketvalueofproperty.(A.Y.199697to200304)
CITv.S.K.Ramprasad(2013)212Taxman15(Mag.)(Karn.)(HC)
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S.7:ValuationofassetsForeigncarsNotionaldepreciation[WealthtaxRules,1957,Rule14
ScheduleIII]
Where assessee had only one foreign car on relevant date, no depreciation having been
admittedlyeitherclaimedorallowedonanyforeigncar,itsactualcosthadtobeconsideredas
its WDV as at year end. Concept of block of assets is relevant only to ascertain depreciation
exigible or admissible and consequently to determine WDV thereof. Value of any asset under
rule 14, on other hand is to be taken qua each separate business asset of assessee. Notional
depreciationi.e.neitherclaimednorallowed,couldnotbetakenintoaccountorconsideration
forpurposeofcomputingWDVofrelevantassetasatyearend.(A.Y.200506)
VenusRecords&Tapes(P.)Ltd.ACWT(2013)141ITD221/88DTR226(Mum.)(Trib.)
S.16:AssessmentNoticeReassessmentOrderpassedwithoutissuingmandatorynoticeheld
tobeinvalid.(S.16(2),16(4),17)
A notice under section 17 was issued to assessee on ground that authority had reason to
believe that wealth had escaped assessment Assessee did not file any return, in response to
said notice. Assessing Authority issued a notice under section 16(4) calling upon assessee to
produce accounts books and other documents for verification. Instead of producing books as
sought for in said notice, assessee filed returns under section 16(4) (i).Thereafter, Assessing
Authority passed assessment order.Assessee challenged said order before Appellate
Commissioner on ground that notice under section 16(2) was not issued before passing an
order of assessment which was mandatory. Appellate Commissioner taking a view that notice
issued under section 16(4) would satisfy requirement of law as well as principles of natural
justice, dismissed assessee's appeal. On further appeal, Tribunal held that impugned order of
assessmentpassedwithoutcomplyingwithrequirementofsection16(2)wasinvalid.Onappeal
byrevenuetheCourtheldthatsinceAssessingOfficerhadneithergivenanoticeundersection
16(2) nor a notice as contemplated in proviso to section 16(5) and passed impugned order,
ordersopassedwasviolativeofprinciplesofnaturaljustice,therefore,Tribunalwasjustifiedin
settingasideimpugnedassessmentorder.(A.Y.19992000to200304)
CWTv.PrameelaKrishna(Smt)(2013)212Taxman16(Mag.)(Karn.)(HC)
S.16(1)(a):AssessmentPrimafacieadjustmentDebatableTransithouse.
Intheproceedingsu/s.16(1)(a),transithousecouldnotbeincludedinthevalueofnetwealth.
(A.Y.199596)
CarborandumUniversalLtd.v.Dy.CWT(2013)83DTR75(Mad.)(HC)
S.18(1)(c):PenaltyConcealmentNO penalty can be levied in respect of addition made on
accountofadoptiondifferentmethodsofvaluationbyassesseeandDepartment:
Nopenaltycanbeleviedu/s.18(1)(c)onadditionmadeinrespectofdifferenceinvaluationof
properties on account of adoption of different methods of valuation by assessee and
department further, in case the penalty order does not clearly spell out as to whether the
penalty is levied for concealment of wealth orfor furnishing inaccurate particular of wealth.
(T.A.No.145/147Of200,dt,24/07/12)]
RamanbhaiB.PatelHUF(2012)BCAJNovemberP.399)(Guj.)(HC)
S.24:AppellateTribunalPowerAppealRectificationofmistakeNopowertoreview.
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Assessee is an individual belonging to royal family of Patiala. In course of wealthtax
proceedings,departmenthadbifurcatedresidentiallandboundedbyfourwallsofpropertyinto
differentsegmentsandadopteddifferentratesofland.Onappeal,Tribunalconsideredfactsof
caseandproceededtoholdthatvalueofresidentialhouseandlandappurtenanttoresidential
house might be valued as per provisions of section 7(4). However, in same order, Tribunal
proceeded to hold that classification of land into different categories, area of land and
valuation of land, was fair and reasonable. In view of apparent contradictions in Tribunal's
order, assessee filed a miscellaneous application.Tribunal thus recalled its order for a limited
purpose of determining valuation of land appurtenant to residential house in question.
Subsequently, Tribunal concluded that there was no contradiction in findings recorded. On
facts, approach adopted by Tribunal in impugned order smacked review of earlier order.
Therefore,theimpugnedorderwastobesetasideand,matterwastoberemandedbackwith
adirectiontoTribunaltoreconciletwoordersinsteadofwritingaperfunctoryorder.(A.Y.1972
73to198485)
RajaMalwinderSinghv.CWT(2013)212Taxman17(Mag.)(P&H)(HC)
ExciseandCustoms.
S.35C:StayofrecoveryExciseandCustomsStayRecoveryCBECCircularthatdemandshould
be recovered even if stay application is not disposed of for no fault of assessee is arbitrary,
unjustified & unlawfulDigital data records For better administration and control to safe
guard the interest of revenue as well as fairness to assessees, Union of India Ministry of
Financerequestedtogivethesesuggestionsseriousandurgentconsideration.
The Central Board of Excise and Customs (CBEC) issued Circular No. 967/01/ 2013 CX dated
01.01.2013 to deal with recovery of demand. The Circular provided that (i) even if a stay
application is pending, steps for recovery must be initiated thirty days after the filing of the
appeal if no stay is granted, (ii) if the Commissioner (Appeals) has confirmed a demand,
recovery has to be initiated immediately despite s. 35F permitting the assessee to move the
Tribunalforadispensationoftherequirementofdepositand(iii)iftheTribunalhasconfirmed
the demand, recovery should be initiated immediately despite the statute providing a time
period for filing an appeal to the High Court. The Circular was challenged by the assessees on
the ground that recovery of the demand even when the assessee is not responsible for the
delayindisposalofthestayapplication/appealandduringthependencyofthetimeperiodfor
filing an appeal was arbitrary and violative of Article 14 of the Constitution. Held by the High
Courtupholdingtheplea:
(i)ThoughinKrishnaSales(CollectorofCustomsBombayv.KrishnaSales(P)Ltd.(1994)73ELT
519(SC)itwasheldthatthemerefilingofanappealdoesnotoperateasastayorsuspension
oftheorderappealedagainst,wherethedelayinthedisposalofanappealorastayapplication
arisesduetoafailureoftheAppellateAuthoritytodisposeoftheappealorthestayapplication
and the assessee is not at fault, there is no reason or justification to penalize the assessee by
recovering the demand in the meantime. Administrative reasons for nondisposal of the stay
applicationmayincludelackofadequateinfrastructure,unavailabilityoftheofficerconcerned
beforewhomthestayapplicationhasbeenfiled,absenceofaBenchbeforetheCESTATforthe
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423
decision of an application for stay or the sheer volume of work. In such a situation, where an
assessee has done everything within his control by moving an application for stay and which
remains pending because of the inability of the Commissioner (Appeals) or the CESTAT to
dispose of the application within thirty days, it would be a travesty of justice if recovery
proceedingsareallowedtobeinitiatedinthemeantime.Theprotectionoftherevenuehasto
be necessarily balanced with fairness to the assessee. That was why, even though a specific
statutory provision came to be introduced by Parliament in s. 35C(2A) to the effect that an
order of stay would stand vacated where the appeal before the Tribunal was not disposed of
within 180 days, the Supreme Court held in COC &C.Ex.(Ahd) v. Kumar Cotton Mills Pvt. Ltd.
(2005)180ELT434(SC)thatthiswouldnotapplytoasituationwheretheappealhadremained
pendingforreasonsnotattributabletotheassessee.
(ii) Also initiation of recovery proceedings without allowing the assessee, the time which is
allowed by the statute for filing an appeal and for applying for a waiver of predeposit or for
filinganappealtotheHighCourtisnotjustified.Thecircularisinterroremanditsplaineffect
andconsequenceistodeprivetheassesseeoftheremedywhichisprovidedunderthelawof
moving,asthecasemaybe,theCESTAT,theHighCourtortheSupremeCourtagainstanorder
of adjudication of the competent appellate forum. There is no justification to commence
recovery immediately following an order in appeal where the limitation period for challenging
the decision of the Appellate Authority has not expired. The Circular is to that extent patently
arbitrary and violative of Article 14 of the Constitution. The Departments argument that the
field officers who initiate recovery action have no means of verifying the status of the stay
applicationisnotjustified.TheMinistryofFinanceshouldtakestepstoensurethatproceedings
beforealltheauthoritiesarerecordedintheelectronicform.Thiswillprovidetransparencyand
accountabilityinthefunctioningofallauthorities.However,ifthefailuretodisposeofthestay
application is because of the conduct of the assessee, the revenue would be justified in
commencingrecoveryaction.
Larsen&ToubroLimitedv.UOI(2013)(288)E.L.T.481/86DTR162/259CTR37(Bom.)(HC).
S.35C:StayofrecoveryProvisoCBECTaxRecoveryCircularisuntenable,misconceived,wholly
illegalandarbitrary.
The High Court had to consider two issues: (i) whether the revenue is justified in initiating
recovery proceedings on the basis of Circular dated 01.01.2013, even when an application for
waiver of predeposit is pending before the Appellate Authorities for the reason that on such
applicationforstayorwaiverofpredeposit,noordershavebeenpassed?And(ii)whetherthe
second proviso in subsection (2A) of s. 35C is directory and that the Tribunal in appropriate
circumstances can extend the period of stay beyond 180 days?Held,by the HighCourt:(i) The
CircularispurportedtobeissuedintermsofthejudgementinKrishnaSales(73)ELT519(SC).
Though in Krishna Sales it was held that mere filing of an appeal does not operate as stay or
suspensionoftheorderappealedagainst,theBoardhasoverlookedthefactthattheassessee
is not seeking stay only on account of filing of an appeal, but for the reason that the assessee
has sought dispensing with the predeposit of duty and penalty and has a right to demand
decisiononsuchapplication,arightwhichiscreatedbytheStatute.Therefore,theverybasisof
theCircularisuntenable,misconceived,whollyillegalandarbitrary.Therefore,theconditionof
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424
recovery, ifno stay is granted within 30 days, is illegal, arbitrary, unjustified and consequently
setaside(Larsen&Tuobro(Bom)referred);
(ii)AsregardsappealspendingbeforetheTribunal,theassesseehasnocontroloverthenon
disposal of the appeal on account of nonavailability of infrastructure; the members of the
Tribunalandtheworkload. ThevacationofstayforthereasonthattheTribunalisnotableto
decide appeal within 180 days is a harsh, onerous and unreasonable condition. It burdens the
assessee for no fault of his. Such a condition is onerous and renders the right of appeal as
illusory. An order passed by a judicial forum cannot be annulled for no fault of the assessee.
Therefore, s. 35C(2A) which provides for automatic vacation of stay on the expiry of 180 days
hastobereaddowntomeanthatafter180daystheRevenuehasarighttobringtothenotice
oftheTribunaltheconductoftheassesseeindelayoravoidingthedecisionofappeal,soasto
warrantanorderofvacationofstay.Iftheprovisionisnotreaddowninthemannermentioned
above,itsuffersfromillegalityrenderingtherightofappealasredundant.
PMLIndustriesLimitedv.UOI(2013)86DTR227/259CTR87(P&H)HighCourt)
S.35L:AppealHighCourtGroundsnotarguedbeforeTribunalisnottoberaised.
TheCourtheldthatinanappealundersection35Lofthe1944Act,itisnotopentoeitherparty
toraiseanewgroundwhichwasneverarguedbeforetheTribunal.Thecourtsscrutinyofthe
argumentsadvancedhastobelimitedonlytothosegroundswhichwerearguedbytheparties
andaddressedbytheTribunalinitsorder.
CCEv.ConnaughtPlazaRestaurantP.Ltd(2013)18GSTR1(SC.)
VOLUNTARYDISCLOSUREOFINCOMESCHEME,1997.
S.64(2):Existence of stock, cash and amount of sundry debtors accepted in previous years
Presumptionthatthesamecontinuedforashortperiod.[FinanceAct,1997]
Under the Voluntary Disclosure of Income Scheme, 1997, the assessee submitted a declaration of
undisclosed income on December 26, 1997, which included stock, cash and the amount of sundry
debtors. It claimed that the disclosure was not only for the assessment year in which the survey was
conducted but also for the three years preceding the date of survey. The Tribunal held that the
disclosuremadebytheassesseewasnotvoluntaryanditwasacompulsiononthepartofittooptfor
theScheme.
Held, that rejection of stock, cash and the amount of sundry debtors for the year 199798 would
tantamounttorejectionoftheacceptedfactofthe Revenueoftheincreaseofstock,etc.,intheyears
199495, 199596, which had been accepted by the Revenue under the Scheme and accordingly the
assesseehadbeentaxed.Oncethatstock,cashandtheamountofsundrydebtorswasacceptedtobein
existenceintheyears199495and199596itcouldnotbedeclaredtohavebeenextinguishedinsucha
shortperiodoftime,i.e.,from1994to1997only.(A.Y.19971998)
Jainsonsv.ITO(2013)352ITR28/257CTR278/84DTR174(Jharkhand)(HC)
SERVICETAX.
S.65.Service tax Point of taxation CBEC Circulars on CAs liability to pay higher service tax
rateonservicesrendered/invoiceraisedbefore01.04.2012butpaymentreceivedthereafter
isultravires.(FinanceAct,1994.S.65(105)(s),66b),PointoftaxationRules2011,rule,4,7)
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425
Rule 2(e) of the Point of Taxation Rules, 2011 inserted w.e.f. 01.04.2011 defined point of
taxation as the point in time when a service shall be deemed to have been provided.
Consequent to the insertion of s. 66B, the rate of service tax was enhanced from 10% to 12%
w.e.f.01.04.2012.TheHighCourthadtoconsiderwhatwouldbetherateoftaxwhere(a)the
serviceisprovidedbythecharteredaccountantspriorto01.04.2012(b)theinvoiceisissuedby
the CAs prior to 01.04.2012 but (c) the payment is received after 01.04.2012. On facts, as the
serviceswere renderedbefore 01.04.2012 and even the invoices were raised before that date
anditwasonlythatthepaymentwasreceivedafterthesaiddate,thePetitionerclaimedthat
Rule4(a)(ii)ofthePointofTaxationRules,2011appliesandthepointoftaxationshallbethe
date of issuance of the invoice. However, the service tax authorities issued Circular No.154
dated28.03.2012andCircularNo.158dated08.05.2012thatinrespectofinvoicesissuedonor
before31stMarch2012thepointoftaxationshallbethedateofpayment.ThePetitionerfiled
aWritPetitiontochallengethesaidCirculars.HELDbytheHighCourtupholdingtheplea:
Rule4ofthePointofTaxationRules,2011whichhascontinuedevenafter01.04.2012isclearly
theanswer.Itprovidesforaspecificsituationnamelydeterminationofthepointoftaxationin
caseofchangeineffectiverateoftax.AsperRule4,wheneverthereisachangeintheeffective
rateoftaxinrespectofaservice,thepointof taxationshallbedeterminedinthemannerset
out in the Rule. Subclause (ii) of Clause (a) of Rule 4 provides that where the taxable service
has been provided before 01.04.2012 and the invoice was also issued before 01.04.2012, but
thepaymentisreceivedafter01.04.2012,thenthedateofissuanceofinvoiceshallbedeemed
tobethedateonwhichtheservicewasrenderedand,consequently,thepointoftaxation.The
result is that where the services of the chartered accountants were actually rendered before
01.04.2012 and the invoices werealso issued before that date, but the paymentwas received
afterthesaiddate,therateoftaxwillbe10%andnot12%.Thecircularsinquestionhavenot
takennoteofthisaspect,andhaveproceededontheerroneousassumptionthattheoldRule7
continued to govern the case notwithstanding the introduction of the new Rule 7 which does
notprovideforthecontingencythathasariseninthepresentcase.Consequently,thecirculars
arequashedasbeingcontrarytotheFinanceAct,1994andthePointofTaxationRules,2011.A
Circular which is contrary to the Act and the Rules cannot be enforced (Ratan Melting & Wire
Industriesfollowed)
DelhiCharteredAccountantsSocietyv.UOI(2013)84DTR25/257CTR73(Delhi)(HC)
AlliedLaws.
ServicematterPromotionofincometaxInspectorsDirectrecruitspromotes.
where examination and selection process of direct recruits could not be completed within
recruitment year itself, modification/amendment in manner of determining inter se seniority
between direct recruits and promotees, carried out through Office Memorandum dated 72
1986,andcompilationofinstructionspertainingtoseniorityinOfficeMemorandumdated37
1986leavenoroomforanydoubtthat'rotationofquotas'principlewouldbefullyapplicableto
direct recruits. Direct recruits will, therefore, have to be interspaced with promotees of same
recruitment year. Claim of promotees that direct recruit Incometax inspectors in such a case
should be assigned seniority with reference to date of their actual appointment in Incometax
Department;andnotdateoforiginal/firstexamination/selection,wastobedeclined.
UOIv.N.R.Parmar(2013)212Taxman97(SC)
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426
InocmetaxAppellateTribunalAdhocappointmentasofficiatingpresidentofITATisproper
andlegal.
Shri. G. E. Veerabhadrappa, the seniormost Vice President of the Tribunal, was vide order
dated 13.10.2011 appointed President of the Tribunal in an officiating capacity till the post
wasfilleduponregularbasis.Videnotificationdated5.5.2012thesaidorderwasmodifiedto
read in an officiating capacity up to 31.8.2012 or further orders. On 31.8.2012, Shri. H. L.
Karwa was appointed the President in place of Shri. G. E. Veerabhadrappa. Shri.
Veerabhadrappa was thereafter transferred on 7.11.2012 to Calcutta. Shri. Veerabhadrappa
filedaPetitionclaimingthat(i)thecurtailmentoftheperiodofappointmenttill31.8.2012was
unjustified, (ii) his removal from the post of President was actuated by malice and personal
vendetta of the Law Secretary owing to his refusal to cancel the transfers of Shri. Hari Om
MarathaandSmt.DivaSinghand(ii)theappointmentofShri.H.L.Karwa(thejuniormostVice
President)asPresidentwasirregularasfoundbytheAppointmentsCommitteeoftheCabinet.
The Law Ministry opposed the Petition on the ground that there were complaints regarding
integrityandthatthedecisionwastakenatthehighestlevelafterdueconsideration.HELDby
theCATdismissingthePetition:
(i)TheorderappointingtheApplicantasPresidentmadeitclearthattheappointmentwasin
an officiating capacity and until further orders. The appointment order did not confer any
invinciblerightontheApplicanttocontinueinoffice.Also,theorderdated5.5.2012restricting
the Applicants tenure as President till 31.8.2012 was challenged by him several months later.
Even though there may not be delay and laches, it can be said that the conduct was one of
acquiescenceanddidnotentitlehimtorelief;
(ii) As regards the allegation that the removal was motivated by malice and personal
vendetta, the exchange of correspondence between the President and the Law Ministry
regarding the transfers of the Members took place after the passing of the order dated
5.5.2012 curtailing the tenure of the Applicant till 31.8.2012. There is some merit in the
contention of the Respondents that the Applicant is trying to create a smoke screen by
unnecessarilydraggingthenamesoftheLawSecretariesandmakingpersonalallegations;
(iii) The allegation that the appointment of Shri. H. L. Karwa as Officiating President was
improper as a selection process was not resorted to is also not correct. The Government is
entitledtoappointthePresidentinanofficiatingcapacitysoastoensurethatnovacuumisleft
in the Institution. The opinion expressed by the Appointments Committee of the Cabinet is
totally misconceived. It is immaterial whether the person appointed as officiating President is
junior or not and there is no question of supersession. It is, however, desirable that the
appointmenttothepostofPresidentbemadeattheearliestonaregularbasisratherthanon
anadhoc/officiatingbasis.
G.E.Veerabhadrappav.UOI(CAT)www.itatonline.org.
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427
ofoneyear,fromLucknowtoChennai,whichwasthenmodifiedfromLucknowtoKolkotawas
arbitrary and with a malafide intention and contrary to the guidelines laid down in Ajay
Gandhivs.V.B.Singh(2004)2SCC120.Byaninterimorderdated19.11.2012,theCATstayed
operation and implementation of the impugned transfer order. The UOI and the President of
theTribunalfiledanapplicationseekingvacationofthestayorder.HELDbytheCAT:
The interim order has been passed on the basis of a prima facie case that the impugned
transferorderhasnotbeenmadebyaproperCollegiuminaccordancewiththeguidelineslaid
down in Ajay Gandhis case and also on the ground of alleged mala fides against the present
officiatingpresidentoftheITAT.AnewpointhasnowbeenraisedbythetransferredMember
that the ACC (Cabinet Committee of Appointment) has not yet accorded approval on the
proposedappointmentofShriKarwaasofficiatingPresidentoftheITATonthegroundthatby
such appointment there is a supersession of three persons and as there is no difference
betweenanappointmentinasubstantivecapacityandanofficiatingcapacity,theappointment
requirestobeconsideredfirstbytheSelectionCommittee.Thisapprovalmayormaynotcome
in due course of time and then only the exact status of the competent authority i.e. the
President,ITAT,wouldbeascertained.Forthepresent,primafacie,thispointisinfavourofthe
applicant.AsregardsthepointofproperCollegium,therequirementinAjayGandhiisthatthe
PresidentshouldconsulttwoseniorVicePresidentsandnotthetwoVicePresidentsavailable.
IthasbeenallegedthatthoughthetwoSeniorVicePresidentswereavailablefortheCollegium,
they were ignored in an arbitrary manner and in utter defiance of the law. Prima facie there
appearstobesomesubstanceinthesubmission.Aprimafaciecasehasalsobeenmadeoutas
regardstheallegationofmalafides.Consequently,thereisnosubstantialandsufficientground
forvacatingtheinterimorderdated19.11.2012
SunilKumarYadavv.UOI(CAT),www.itatonline.org
Interpretationoftaxingstatues.
PrecedentJudgmentofForeignCourtsPersuasivevalue.
ThejudgmentofForeignCourtshaveonlypersuasivevalue.
L.G. Electronics India P. Ltd v. ACIT (2013)140 ITD 41/ 22 ITR 1/83 DTR 1/152 TTJ 273 (SB)
(Delhi)(Trib.)
FinanceBill,2013.
FinanceBill,2013.Noticeofamendments(2013)352ITR68(st)
FinanceAct,2013(ActNo.17of2013(2013)354ITR(st)1
(Presidentassenton10
th
May,2013)
PartAFinanceMinistersSpeech(2013)351ITR13(st)
PartBTaxproposals(2013)351ITR35(st)
FinanceBill,2013(18of2013)(2013)351ITR45(st)
Notesonclauses(2013)351ITR121(st)
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428
Doubletaxationavoidanceagreements.
S.90 : Notification no S.O. 284(E). dt 29
th
January , 2013. Government of Republic of India and the
Government of Malaysia for the avoidance of double taxation and prevention of fiscal evasion with
respecttotaxonincome(2013)353ITR53(st)
S.90 : Notification no S.O. 418(E) dt 21
st
February, 2013. Government of Republic of India and the
GovernmentoftheFederalDemocraticofEhiopiafortheavoidanceofdoubletaxationandprevention
offiscalevasionwithrespecttotaxonincome(2013)353ITR78(St.)
Circulars
10of2012dated31
st
December,2012(2013)350ITR(ST)31.
RegCertificateSearchandseizure,132,readwith153A,153Cetc.
1of2013dated17
th
January,2013IssuesrelatingtoexportofcomputersoftwareDirecttax
benefitsClarification(2013)350ITR(St)34.
Service TaxCircular no967/01/2013 CX. dt 1
st
January, 2013 Recovery of confirmed demand
duringpendencyofstayapplicationReg(201)255CTR(Statutes)25
IncometaxAppellateTribunal.
ITATs Practice note, dt 1
st
Jan., 2013 Section 255 of the ITAct, 1961E. BenchProcedure of
Practice note for hearing appeals & applications fixed before ITAT Allahabad Bench, Allahabad
(2013)255CTR(Statutes)30
ITATsnote on departments General Grievances in the matter of representation and
adjudicationofcasesfixedbeforeeachbenchofITATDelhi(2013)212Taxman102(ST).
LifecentenarycelebrationofShriK.Sadgoplachari(FormerpresidentofITAT)SpeechJustice
SriS.Ranganthan(2013)21ITR(Trib.)(Journal)P.1
Instructions.
Instructionno.1of2013dt17thJanuary,2013Exchangeofinformationfortaxpurposeswith
foreignjurisdictionsGuidelinesforinboundandoutboundrequests.(2013)351ITR205(ST)
Circulars.
No.2of2013dt26thMarch,2013Circularonapplicationofprofitsplitmethod(2013)352ITR
2(ST)
No. 3 of 2013 dt 26th March, 2013 Circular on conditions relevant to identify development
centersengagedincontractR&Dserviceswithinsignificantrisk(2013)352ITR3(ST)
Marchoftheprofessional.
Philosopy of taxation and simplications by Honourable Mr Justice Swatanter Kumar ( 2013) AIFTPJ
JanuaryP.6
Income tax Appellate Tribunal Sulab Nyay ! Satvar Nyay! i.e. Easy justice ! Speedy justice!
HonourableMrH.L.Karwa,PresidentITAT(2013)AIFTPJJanuaryP.8
DoingbusinessinMyanmarTaxissuesbyS.Sharma(2013)AIFTPJJanuaryP11.
PresentAppellatesetupbyHonourablejusticeS.Ranganathn(Retd)(2013)AIFTPJMarchP.9
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429
Role of chartered Accountants in the shaping of the ITAT by Honourable Justice R.V.Easwar ( 2013)
AIFTPJMarchP.12
RoleofBarAssociationbyHonourableJusticeR.V.Easwar(2013)AIFTPJAprilP7
Taxworld.
Minutes of the meeting held on 1842012, between the Honourable President of the ITAT Shri
G.E.Veerabadrappa,andthemanagingcommitteeoftheITATBarassociation.(2013)AIFTPJJanuary
P.59
Minutesofthemeetingheldon14thDecember,2012betweentheHonourablePresidentoftheITAT
ShriH.L.Karwa(2013)AIFTPJJanuaryP.61
Central Direct taxes Advisory Committee (CTDC) is to develop and encourage mutual cooperation
betweenthetaxpayersandtheIncometaxDepartmentandtoremoveadministrativeandprocedural
difficultiesofageneralnature:FinnaceMinster(2013)352ITR9(st)
ArticlesSections.
S.2(19AA): Demerger Some critical aspects of company and income tax laws by Dr. K.R.
Chandatre(2013)255CTR(Articles)65
S. 2(22) (e): Deemed dividend when advances are given on quid pro basisby
R.Raghunathan(2013)256CTR(Articles)43
S.4:Mutuality Interestfrom bank deposits whether exempt under mutuality doctrine
byR.Raghunathan(2013)255CTR(Articles)84
S.4:Income Earnest money forfeited Whether can be taxed as Incomeby T.N.Pandey(2013)
256CTR(Articles)5
S.4:IncomeCompensationreceivedinlieuofclosureofasourceofincomeiscapitalreceipt.by
T.N.Pandey(2013)258CTR(Articles)21.
S.5(2)(b):Commission to nonresident agentsWhether Accruing or Arising in India by Pradip
Kapashi,GautamNayak(2013)BCAJJanuaryP.40
S.9(1)(i):TaxabilityincaseofoffshoresupplyofcontractsbyRahulDhawan(2013)215Taxman4(Mag.)
S.9(1)(vi): Controversy around software royalty refuses to settleAn analysis of the decision of
DelhiHighCourtinNokianetworksbyAbhishekworah(2013)212Taxman1(Mag)
S.11:Charitable TrustsControversiesDepreciation on cost of assets allowed application of income, by
PradipKapashi,GautamNayak(2013)AprilP.47
S.11:NonProfitorganizationsunderDTCanappraisal(2013)350ITR(Journal)41
S.14A:ControcersiesSection 14A, and its applicability to cases of stock in trade by Pradip Kapashi ,
GautamNayak(2013)BCAJMarchP.33
S.14A:BusinessexpenditureApplicabilityofsection14Atoincomecoveredbydeductionsunder
chapterVIAbyR.Raghunathan(2013)255CTR(Articles)30.
S.15:SalaryHousingperquisitesforhighsalariedemployeesDelhiHighCourtsolvesthepuzzle
byT.C.A.Ramanujam(2013)256CTR(Articles)30
S.32:DepreciationGrantofdepreciationtolessorsinfinanceleasedealsbyT.N.Pandey(2013)258CTR
(Articles)85
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430
S.37(1):Business expenditure Status of a broken contract in claiming deduction by Minuu
Agarwal(2013)256CTR(Articles)17
S.37(1):BusinessexpenditureHowconvincingistheCalcuttaHighCourtdecisionundersection
37(1)oftheIncometaxAct,1961byT.N.Pandey(2013)350ITR(Journal)51
S.37(1):Business expenditureExplanation to section 37(1) of the ITAct 1961by T.N. Pandey
(2013)255CTR(Articles)53
S. 37(1): Business expenditure How long litigation will be proliferated by disallowance of
expensesonthepleaofenduringbenefit,byT.N.Pandey(2013)259CTR40(Articles)
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431
S.54:Car parking space Eligible for exemption under section 54/54F?by Jignesh R.Shah(2013)
351ITR(Journal)1.
S.54:Capital gains Utilisation oflongterm capital gains, some suggestions by Dr.J.C.Agarwal
(2013)351ITR(Journal)46.
S.54: Capital gainsAvailability of exemption on purachse of residentai house property outside
IndiabyRamaGupta&NisahMalpani(2013)259CTR59(Articles)
S.56(2):Determinationoffairmarketvalueofunquotedsharesundersection56
(2)(viib)oftheIncometaxAct,1961,byNirenM.Nagri(2013)ACAJMayP.66
S.80IB(10):Housing Project JudicialBoost for housing Projectsby T.C.A.Sangeetha (2013) 256
CTR(Articles)1.
S.90:Whetherwithholdingtaxincludessurcharge.ByDindyalDhandaria(2013)215Taxman1(Mag.)
S.90:AnanalysisofNationalPetroleumConstructionCorporationv.ADIT(IT)(2012)20ITR545(Delhi)
(Trib.)byGopalNathani(2013)353ITR(Journal)1.
92(2A): Domestic Transfer pricingSalient features of domestic transfer pricing by Yash K. Shah (2013)
AprilACAJP.15
S.92C: Transfer pricing Distinction between subs.(2A) and s. (2B) of s. 92CA is real and effective by
TilakChanna(2013)258CTR(Articles)65
S.92B:TransferpricingWhetherinterestfreeloangivenbyanIndianCotoits100%subsidiary
cocanbesubjectedtotransferpricingadjustments?.byKaushikD.Shah(2012)BCAJFebP.542
S.119:CBDTPowerofCBDTundersection119(2)byShobhitKoshta(2013)214Taxman27(Mag.)
S.132: Search and seizure The need to reexanine the law as laid down in the case of Vipin
KumarJain(2013)259CTR64(Articles)
S.133A:SurveyAbuse of powers of survey under section 133A of the Incometax Act 1961 by
RavindraK.Vepari(2013)258CTR(Articles)14.
S.139(1):ValidityorrevisedreturnofincomebyKaushikD.Shah(2012)BCAJMarchP.606
S.139(5):RevisedreturnWithdrawalofclaimbyletterNotacaseofrevisedreturnbyGopal
Nathani(2013)350ITR(Journal)66
S.143(3): Assessment Incometax law does not mandate howtaxpayers should conduct their
businessandmaximizeprofitsbyT.N.Pandey(2013)256CTR(Articles)35.
S.143(3): Assessment Section 143(3) verses section 115JBThe plight of AO by Minu Agrawal
(2013)255CTR(Articles)1
S.145:EventoccurringaftertheendofaccountingyearvisvisrevisedreturnbyV.K.Subramani
(2013) 212 Taxman 9 (Mag.)S.147: Reopening of assessment visvis Finance Ministers
AssuranceandCBDTInstructionbyTarunJain,(2013)350ITR(Journal)12.
S.145:Applicabilityofsection145intheauditedcaseundersection44AB,byN.R.Chakrabartti(
2013)259CTR28(Articles)
S.147:ReassessmentAfailedAmendmentinsection147,byT.C.A.Rmanujam(2013)259CTR
36(Articles)
ConsolidatedDigestofCaseLaws(Jan2013toMay2013)http://www.itatonline.org
432
S.154: Rectification Judicial resentment for consecutiveamendments, by Minu Agarwal (2013)
255CTR(Articles)49
S.179: CompanyRecovery Tax interest and penalty by T.C.A. Ramanujam (2013) 255 CTR
(Articles)51
S.179: Recovery Even a Director of public Limited company can be held liable for recoveryof
tax dues of the company An analysis, by Krishna Malhotra, Vinayak Srivastava, (2013) 212
Taxman91(Mag.)
S.194J:DeductionatsourceFeesforprofessionalortechnicalservicesAreliabletoAuthorsfor
ArticlesbyT.N.Pandey(2013)350(Journal)69
S.195: TDS liability spread up on whole of the sale consideration and not just limited to the
amount of estimated capital gains on sale of immoveable property..the legal position
revisitedbyAmitAggarwal,AlokPareek(2013)212Taxman5(Mag)
S.195: Deduction at source TDS on commission paid to Foreign Agents divergent views by
RaghavKumarBajaj(2013)212Taxman109(Mag.)
S.206AA:Issuesinconnectionwithsection206AAoftheincometaxAct,1961byChandrakant
K.Thakkar(2012)BCAJFebP.525
S.237:Refund: Does section 237 contemplate a refund assessmentby Minu Agarwal (2013)
255CTR(Articles)25
S. 251:Commissioner (Appeals) Power of remand of Commisssioner (Appeals) A matter of
uttercinfusionbyMinuAgarwal(2013)259CTR33(Articles)
S.251:Commissioner(Appeals)StayPowerofCommissioner(Appeals)tostayapplicationsfiled
beforethem(2012)351ITR(Journal)49
S.271AAB:Penalty Penalty on undisclosed income found during Search Section 271AAB
analysed(2013)351ITR(Journal)56
S.271(1)(c):PenaltyConcealmentConcurrent of concealmentGolden rule on doctrine of continuity
Advantageassessee.byGopalNathani(2013)214Taxman1.(Mag.)
S.271(1)(c): PenaltyConcealment Whether penalty under section 271(1)(c) can be charged for any
claim made by the assessee due to silly mistake or human error ? by Kaushik D.Shah ( 2013) April
ACAJP.33
S.271(1)(c): A land mark judgment from the Apex court on penalty for concealment ofincome
byV.Pattabhiraman(2013)212Taxman27(Mag.)
S.271(1)(c):PenaltyConcealmentHumanerrorinfilingITRsIsPWCcaseaguaranteeagainst
penaltybyGopalNathani(2013)350ITR(Journal)89
S.271(1)(c ):Penalty Concealment Lenient judicial trend in recent times by R.Raghunathn (
2013)259CTR49(Articles)
S.282:ServiceofnoticeHighCourtholdsthat serviceofnoticethroughspeedpostisvalidin
lawbyV.Pattabirman(2013)213Taxman4(Mag.)
S.292B: Defects in return/notices Section 292BCausing a new judicial controversyby Minu
Agarwal(2012)255CTR(Articles)81
ArticlesSubjects.
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A.
AppealDraftingofappealsbeforefirstappellateauthorityundertheIncometaxAct,1961byJigneshJ
Shah(2013)AprilACAJP.18
Appellate Tribunal Importance and scope of filing of applications under Rule 27 of the Incometax
(AppellateTribunal)Rules1963byRameshChander(2013)259CTR(Articles)3
AOPTaxtreatmentoftheshareofacompanyintheincomeofanAOPbyS.K.Tyagi(2013)351
ITR(Journal)16
Accounts Other comprehensive income Some points to ponder by S. Ramachnadran (2013)
255CTR(Articles)4
B.
Budget20132014.
How should high net worth individuals and ultrahigh net worth individuals be taxed in forth
comingBudgetbyDr.AnilKumarJainandMrs.ParulJain(2013)256CTR(Articles)19
Tax Fatigue Steps to assure the feelings of tax payers through budget for 201314 by G.
Lakshminarasimhan(2013)256CTR(Articles)25.
HighertaxforsuperrichWhetherworthwhileMinuAgarwal(2013)256CTR(Articles)33
Indian Super Rich need not oppose paying capacity Based taxes by T.N.Pandey (2013) 213
Taxman1(Mag.)
Whatthebudgetcouldhavedone?byS.Rajaratnam(2013)351ITR41
ExtensionoftaxneutralityformergerstoalsoLLPsbyT.N.Pandey(2013)350ITR(Journal)93.
Proposal to set up tax administration reforms commission Some thoughts to make it a
successbyT.N.Pandey(2012)352ITR(Journal)17.
CommentsbyS.Balakrishnan(2013)352ITR(Journal)28
Budget twenty thirteen ExplorationChidambarams 8
th
:Indias 82 by Raji Nathani and Gopal
Nathani(2013)352ITR(Journal)37
C.
Commission to nonresident agentsWhether accruing or arising in India; by Pradip Kapashi , Gautam
Nayak(2013)BCAJJanuaryP.40
CompaniesBill,2012(2013)ChambersJournalFeb
Carbon creditShould gains on sale of carbon credits be liable to Incometax by T. N.
Pandey(2013)351ITR(Journal)33
Company Lifting of corporate veil of a company to catch tax evasion by
Dr.K.R.Chandratre(2013)257CTR(Articles)108
CaseAnalysisInstructions/154.271(1)(C),SpecialBenchS.10A,Waiverofinterest/Educational
expenses.(2013)352ITR(Journal)1
PrinciplesrealtingtocomputationofperiodoftimelaiddowninstautesandlegaldocumentsPart1by
Dr.K.R.Chandratre(2013)177Companycases77(Journal)
PrinciplesrealtingtocomputationofperiodoftimelaiddowninstautesandlegaldocumentsPartIIby
Dr.K.R.Chandratre(2013)177Companycases87(Journal)
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PrinciplesrealtingtocomputationofperiodoftimelaiddowninstautesandlegaldocumentsPartIII
byDr.K.R.Chandratre(2013)177Companycases98(Journal)
A study of the relevant clauses of the companies Bill, 2012 vis Avis the impugned provisions of the
Companies Act , 1956 , on national company law Tribunal and its Appellate Tribunal and its Appellate
Tribunal in the light of the decision of the Constitution Bench of the Supreme Court ,by
Dr.K.S.Ravichandran(2013)177Companycases6(Journal)
ControversiesWhethertheexpenditureincurredonthebuybackofequityshareswillbe
treatedasrevenueexpenditureorcapitalexpenditure,byKaushikD.Shah(2013)ACAJMayP.
97.
D.
DirectorPersonalliabilityofcompanydirectorsfordebtsandotherfinancialobligationsofthecompany
byDr.K.R.Chadratre(2011)162CompanyCases81(Journal)
DirectorPersonalliabilityofcompanydirectorsfordebtsandotherfinancialobligationsofthecompany
byDr.K.R.Chadratre(2011)162CompanyCases90(Journal)
Drafting of agreement for transfer of immoveable properties and for development Rights by Ajay
R.Ssingh,ParasS.SavlaandRahulHakani(2013)AIFTPJJanuaryP.18
Double taxation treaty Origin and growth of double tax treaty and its role in the backdrop of
globalizationofeconomics,commerceandservicesbyDr.V.K.Moorthy(2013)AIFTPJAprilP.16
Dividends Oscillating tax policy regarding dividends by T.C.A.Ramanujam and T.C.A.Sangeetha ( 2013)
352ITR(Journal)110
F.
Foreign tax credit Discussion paper on drafting tax credit rules in India by S.Krishnan ( 2013) 352 ITR
(Journal)74
Finnacebill,2013InducementsandrestrictionsconcerningrealestatesectorbyT.N.Pandey(2013)352
ITR(Journal)61
Finance Bill , 2013Proposed amendments of section 56 of the Incometax Act by V.N.Murlidharan (
2013)352ITR(Journal)57
FinanceBill,2013SuppersessionofJudicialRulingsbyT.C.A.Ramanujam&T.C.A.Sanggeetha(2013)214
Taxman76(Mag.)
FinanceBill2013
Direct tax proposalsHighlights of the Finance Bill, 2013 by S. Rajaratnam (2013) 257CTR
(Articles)1.
ASuperIdeaintheBudgetbyT.C.A.Ramanujam(2013)257CTR(Articles)20
New house S.80E. Deduction Cheers to purchase of new house by R.Raghunathan (2013)
257CTR(Articles)7
DeductionS.80JJAA Clarifying the scope of section 80JJAA Practical issues remaining un
addressedbyRmaGupta&NishaMalpani(2013)257CTR(Articles)11.
ConsolidatedDigestofCaseLaws(Jan2013toMay2013)http://www.itatonline.org
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CriticalanalysisImportantamendmentsbySunilH.Talati(2013)ACAJMarchP.585
MyImpressionsbyN.M.Ranka(2013)257CTR(Articles)42
Assessment Section 142(2A): Changes proposed by the Finance Bill, 2013 by T. N. Pandey
(2013)257CTR(Articles)49
ExemptionConcessions to securitization Trusts extended by the Finance Bill 2013 .By
R.Ragunathan(2013)257CTR(Article)36
ProsecutionPowerstoarrestanddetentionoftaxpayersbyRevenuebyR.Santhanam(2013)
257CTR(Article)25
Return Proposed enlargement of a defective returnAO s night mare Minu Agarwal (2013)
257CTR(Article)33
ImportantprovisionsbyG.Lakshinarasimhan(2013)257CTR(Articles)67
PropertybuyersbewarebyR.Raghunathan(2013)257CTR(Articles)67
Dividendfromforeignsubsidiary,byNishaMalpani&RamaGupta(2013)257CTR(Articles)73
GAARGhostofGAARcomebackwithchangesbyR.Santhnam(2013)257CTR(Articles)57.
IncentivesforinvestmentinnewplantormachinerybyR.Santhanm(2013) 257CTR(Articles)
96.
CompanyCorporatetaxstructuremodifiedbyT.C.A.Sangheta(2013)257CTR(Article)91
CommoditiestaxbyR.Santhanam(2013)257CTR(Articles)81
KeymanInsurancepolicyAssignmentmadetaxablebyRamanBissa(2103)257(Article)86
SalientfeaturesoftheFinance,Bill,2013,byS.K.Tyagi(2013)351ITR(Journal)61
FinanceAct,2013SignificantdifferencebetweentheFinanceBill,2013andtheFinanceAct,
2013byManthanKhokhani(2013)ACAJMayP.76
Fringe Benefit tax (FBT): No fringe benefit tax leviable on expenditure for nonemployees like
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G.
GAAR New general anti avoidance Rule Whether missed first bus, by Minu Agarwal (2013) 259 CTR
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GAARAn Indian and International perspectiveby Sumit Singh Bagri and Uzma Naseem (2013)
212Taxman30(Mag.)
GeneralRevisitingoftheearlierdecisionsbytheSupremeCourtByT.N.Pandey(2013)255CTR
44(Articles)44.
H.
Hawalabills Transactions with suspected Hawala billsproviders (Income tax implications) by Anant
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I.
ImmoveablepropertiesTransactionsbetweenpartnershipfirmandpartnersSometaxissuesbyAnant
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InternationaltaxationProtocoltoIndiaUKtaxtreatyImpactanalysis,byPranavRaval,KunalMehata
(2013)AIFTPJFebruaryP.10
ConsolidatedDigestofCaseLaws(Jan2013toMay2013)http://www.itatonline.org
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International taxationTaxation of long term capital gains on transfer of Unlisted Securities, by Mayur
Nayak,TarunG.Singhal(2013)BCAJFebruaryP.37.
InternationaltaxationUSTaxGoesglobalbyRajeshH.Dhruva,DarshitaM.Sanghvi(2013)BCAJMarch
P.10
International taxation Taxability of capital gains in India in respect of transfer of shares of a non
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International taxationRecent Global Developments in International Taxation Part 1 by Mayur Nayak ,
TarunG.Singhal(2013)BCAJAprilP.51
International taxationRecent Global Developments in International Taxation Part 1 by Mayur Nayak ,
TarunG.Singhal(2013)BCAJMayP.68
InternationaltaxationUKsdriveforcompetitivenessbyKananRaman(2013)BCAJMay39
Interpretation/StatutesTheliteralrulerevisitedbyS.Narayana(2013)255CTR(Articles)57
L.
LandmarkcasesbyS.Rajaratnam(2013)352ITR(Journal)119
LandmarkcasesbyS.Rajaratnam(2013)353ITR(Journal)13
M.
MaharashtraCooperativeHousingSocietiesPartII(2013)TheChambersJournalMay1983
P.
PreventionofmoneyLaunderingActAmendmentinthePreventionofMoneyLaunderingACTGEMand
Jewellery Sector brought under the Ambit of Prevention of Money Laundering Act by Raghav Kumar
Bajaj(2013)291E.L.T.A72
R.
Right of information Evolution of information rights jurisprudence .by Dr. Amitabh Rajan ( 2013) AIR
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RecoveryService tax Recovery on nonstayed indirect tax demands by Dr. Sanjiv Agarwal
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Reassessment No reassessment based on audit objections by R.Santhanam (2013) 257CTR
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S.
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Service taxReverse mechanism under Service tax Emerging issues by Punit R.Prajapati ( 2013) April
ACAJP.6
ConsolidatedDigestofCaseLaws(Jan2013toMay2013)http://www.itatonline.org
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ServicetaxRebateofservicetaxtoexportersbyDrSanjivAgaral(2013)258CTR(Articles)91t
Securities Taxation of Securities in India by Kavita Kanchhwahha and Kiran Kachhawah (2013) 214
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Service tax Service tax on supply of fire services and goods by Dr. Sajive Agarwal (2013) 256
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ServicetaxVoluntarycomplianceScheme,2013byShaileshC.Shah(2013)BCAJMarchP.
594
Service tax Concept of bundledservices under the new service taxation scheme from I st July,
2012byT.N.Pandey(2013)255CTR(Article)14
ServiceTaxServicesbyforeigndiplomaticmissionlocatedinIndiabyDr.SanjayAgarwal(2013)
255CTR(Article)22
Service tax Exemption on input services to exporters. ByDr. Sanjiv Agarwal (2013) 255 CTR
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Service tax Stringent penalties under service tax regime.by Dr Sanjay Agarwal (2013) 258 CTR
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Service tax Finance Bill Salient features of Union Budget 201314 and Finance Bill, 2013
Applicabletoservicetax.ByDr.SanjivAgrwal(2013)257CTR(Article)53
Service tax Levy of service taxwhen there is refrainment from providing service is apparent
unfairbyT.N.Pandey(2013)257CTR(Articles)116.
ServicetaxPersonalpenaltyinservicetaxbyDrSanjivAgrwal(2013)257CTR(Articles)121.
ServicetaxRegistrationofservicespecificaccountingcodesforregistrationbyDrSanjivAgrwal
(2013)259CTR46(Articles)
Service tax Selling of space or time slots for advertisements no longer taxable, by Dr Sanjay
Agarwal(2013)259CTR69(Articles)
ServicetaxNegativelistbyKunalA.Shah&JaineeR.Shah(2013)ACAJMayP.71
ServicetaxLevyofservicetaxonA/CrestaurantsbyV.N.Murlidhran(2013)60VST19(Journal)
T.
TaxlitigationNationallitigationpolicyandjudicialreviewbyT.C.A.Ramnujam(2013)258CTR(Articles)
81
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TaxationofSecuritizationTrustsbyN.M.Ranka(2013)AIFTPJMarchP.13.
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TaxresidencyCertificatebyS.R.Wadhwa(2013)AIFTPJMarchP.20
Tax on dividends, royalty and technical services fees in the case of foreign companies( 2013) AIFTPJ
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Investmentallowance.byHarishN.Motiwalla(2013)AIFTPJP25
ReintroductionofspecialinvestmentallowanceAboostforthemanufacturingsectorbyNiahaMalpani
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PurchaseandsaleofimmoveablepropertybyNarayanP.Jain(2013)AIFTPJMarchP.29
BuybackofunlistedsharesAnomaliesandpotholes(2013)AIFTPJMarchP.32
KeymanInsurancepolicybySameerDalal(2013)AIFTPJMarchP.37
DecisionsoverruledbyS.N.Divetia(2013)AIFTPJMarchP.40
FinanceBill2013(2013)ChambersjournalMarch
AtallyofthetaxlawbyV.Pattabiraman,AuditOfficer(2013)350ITR(Journal)1Taxworld.
TaxhostilitytowardsequitycapitalbyMinuAgrawal(2013)257CTR(Articles)107.
W.
WealthtaxIssuesunderwealthtaxActbyJayeshC.SharedalalandJinalM.Gohel.(2013)ACAJ
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