Thursday, October 21, 2010

ITR Vol 328, part 1 date 25.10.2010

INCOME TAX REPORTS (ITR)

Volume 328 : Part 1 (Issue dated 25-10-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

==> Accounting --Accounting Standard--Method of accounting cost of inventory--Work-in-progress--Indirect travel cost not to be added--Assessee to be permitted to exclude, subject to verification--Income-tax Act, 1961-- CIT v. Indomag Steel Technology Ltd . (Delhi) . . . 37

==> Business expenditure --Agreement in August 2002 with retrospective effect from January 1, 2002--Addition on ground expenses incurred during January to March 2002 crystallised in relevant previous year--Liability under agreement arising and accruing when agreement executed--Addition cannot be sustained--Income-tax Act, 1961, s. 37-- CIT v. Exxon Mobil Lubricants P. Ltd . (Delhi) . . . 17

==> Disallowance --Excessive and unreasonable payments--International transaction--Import of goods at price higher than for local goods--Assessing Officer comparing figures for subsequent year--Not proper--Disallowance not justified--Income-tax Act, 1961, ss. 40A(2), 92-- CIT v. Denso Haryana Pvt. Ltd. (Delhi) . . . 14

==> Capital gains --Computation of capital gains--Depreciable assets--Scope of section 50--Land is not a depreciable asset--Section 50 not applicable where land forms part of whole undertaking which is transferred--Income-tax Act, 1961, s. 50-- CIT v. Coimbatore Lodge (Mad) . . . 69

==> Computation of capital gains--Perpetual lease of land--Lessee constructing flats and selling them--Lessor having residuary rights and right of pre-emptive purchase--Capital gains to be determined by taking into account discounted value of flats and interest-free advance received from lessee--Income-tax Act, 1961, s. 45-- CIT v. N. Srirama Reddy (Karn) . . . 71

==> Penalty--Concealment of income--Assessee making correction and filing revised return and offering it during assessment proceedings--Finding of inadvertent error--No penalty leviable--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Escorts Finance Ltd .(Delhi) . . . 44

==> Sale of shares to members of family--No finding that any sum in excess of that declared realized--Sale consideration cannot be estimated invoking section 52--Income-tax Act, 1961, s. 52(1)-- CIT v. I. P. Chaudhari (Delhi) . . . 7

==> Transfer--Law applicable--Effect of reintroduction of sub-sections (3) and (4) of section 45 with effect from 1-4-1988--Reconstitution of firm twice in 1994 resulting in entire assets held by original partners vesting in new partners and amounts invested by new partners paid to retiring partners--Transaction covered by section 45(4)--Gains taxable--Income-tax Act, 1961, ss. 2(47), 45(4)-- CIT v. Gurunath Talkies (Karn) . . . 59

==> Capital or revenue expenditure --Payment under agreements for "technical service" and "personnel despatching and receiving"--Whether entire payment to be treated as capital--Income-tax Act, 1961, s. 37-- CIT v. Denso Haryana Pvt. Ltd .(Delhi) . . . 14

==> Cash credits --Customer advances--Assessee failing to prove identity or existence of persons who had advanced money--Advances to be treated as income from unexplained sources--Income-tax Act, 1961, s. 68-- Hacienda Farms P. Ltd. v. CIT (Delhi) . . . 1

==> Co-operative society --Special deduction--Co-operative bank--Compulsory investment in Government securities--Interest entitled to special deduction--Rental income from property--Entitled to special deduction--Income-tax Act, 1961, s. 80P--Bihar Co-operative Societies Act, 1935, s. 19--Banking Regulation Act, 1949, ss. 3, 5, 6.-- Bihar State Co-operative Bank Ltd . v. CIT (Patna) . . . 139

==> Exemption --Income from letting out godowns or warehouses--Condition precedent for exemption--Letting out should be for storage, processing or facilitating marketing of commodities--Income derived from procurement of grains for FCI--Not entitled to exemption--Income-tax Act, 1961, s. 10(29)-- Haryana Warehousing Corporation v. Asst. CIT (P&H) . . . 23

==> Export markets development allowance --Weighted deduction--No requirement for assessee to maintain agency of foreign party outside India--Only required to pay commission as per agreement--Assessee not entitled to weighted deduction under section 35B(1)(b)(iv)-- Income tax Act, 1961, s. 35B(1)(b)(iv)-- CIT v. Rajjab Carpets (All) . . . 42

==> Finance company --Amortisation of preliminary expenses--Expenses incurred for issue of public shares--Not entitled to such benefit--Assessee raising a false claim--Penalty can be imposed--Matter remitted--Income-tax Act, 1961, ss. 35D, 271(1)(c)-- CIT v. Escorts Finance Ltd . (Delhi) . . . 44

==> Income --Accrual of income--Time of accrual--Refund of tax consequent to appellate order--Interest on refund accrues only when refund is granted--Income-tax Act, 1961, s. 244(1A)-- Smt. K. Devayani Amma v. Deputy CIT (Ker) . . . 10

==> Computation of income--Constitutional validity of provisions--Disallowance of expenditure under section 14A--Sub-sections (2) and (3) of section 14A are valid--Income-tax Act, 1961, s. 14A--Constitution of India, art. 14-- Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT (Bom) . . . 81

==> Computation of income--Disallowance of expenditure incurred in earning income not forming part of total income--Scope of section 14A--Section 14A applicable to dividend income and income from mutual funds exempt under section 10(33)--Income-tax Act, 1961, ss. 10(33), 14A-- Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT (Bom) . . . 81

==> Computation of income--Disallowance under section 14A--Law applicable--Rule 8D not retrospective--Rule 8D applicable from assessment year 2008-09--Disallowance for earlier periods to be determined on reasonable basis--Income-tax Act, 1961, s. 14A--Income-tax Rules, 1962, r. 8D-- Godrej and Boyce Mfg. Co. Ltd . v. Deputy CIT (Bom) . . . 81

==> Income or capital--Amount received under incentive scheme for repayment of loans to set up new units--Capital receipt--Income-tax Act, 1961-- CIT v. Kisan Sahkari Chini Mills Ltd. (All) . . . 27

==> Land acquisition--Enhanced compensation--Interest--Tax can be deducted at source--Income-tax Act, 1961, s. 194A-- Sant Ram v. Union of India

==> (P&H) . . . 77

==> Interpretation of taxing statutes --Literal interpretation--Retrospective effect of provisions-- Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT (Bom) . . . 81

==> Investment allowance --Disqualification--Manufacture of items in Eleventh Schedule--"Beer, wine and other alcoholic spirits"--Scope of disqualification--Manufacture of industrial spirits not disqualification--Manufacture of both industrial spirits and IMFL--Plant and machinery "mainly" used in manufacture of industrial spirits--Assessee entitled to allowance--Circular No. 229, dated August 9, 1977--Income-tax Act, 1961, s. 32A(2)(b)(iii), (2A), Sch. XI, item 1-- CIT v. Sraya Industries P. Ltd. (Delhi) . . . 29

==> Penalty --Concealment of income--Assessee claiming entertainment expenses at 50 per cent.--Assessing Officer reducing it to 35 per cent. and imposing penalty--Appellate authority finding no concealment of income--Penalty cannot be imposed--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Escorts Finance Ltd. (Delhi) . . . 44

==> Concealment of income--Findings in assessment proceedings relevant--Bogus claim to deduction on account of commission paid to director--Person to whom commission paid not director of company at relevant time and finding by Tribunal in quantum appeal that no services rendered by her--Penalty justified--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Harparshad and Company Ltd. (Delhi) . . . 53

==> Precedent --Effect of Supreme Court decision in CIT v. Karnataka State Co-op. Apex Bank-- Bihar State Co-operative Bank Ltd. v. CIT (Patna) . . . 139

==> Effect of Supreme Court decision in CIT v. Walfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1-- Godrej and Boyce Mfg. Co. Ltd . v. Deputy CIT (Bom) . . . 81

==> Rectification of mistakes --Decision contrary to law can be rectified--Income-tax Act, 1961, s. 154-- CIT v. Bindal Industries Ltd. (All) . . . 160

==> Reference --Reference returned unanswered for earlier year because of insubstantial tax effect--Same reasons apply for year in question--Income-tax Act, 1961, s. 256-- CIT v. J. K. Synthetics Ltd . (Delhi) . . . 6

==> Revision --Assessing Officer taking possible view on application of provision--Order of Assessing Officer not erroneous--Commissioner taking a different view--Commissioner cannot set aside order of Assessing Officer under section 263--Income-tax Act, 1961, s. 263-- Ranka Jewellers v. Addl. CIT (Bom) . . . 148

==> -Powers of Commissioner--Subject-matter considered and decided in appeal--Revision of order not valid in respect of same subject-matter--Income-tax Act, 1961, s. 263-- Ranka Jewellers v. Addl. CIT (Bom) . . . 148

==> Warehousing corporation --Exemption--Business income--Income derived from providing storage facility--Assessee's main business is providing storage facility--Income covered under business income--Income-tax Act, 1961, ss. 22, 28-- Haryana Warehousing Corporation v. Asst. CIT (P&H) . . . 23

==> SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

==> Banking Regulation Act, 1949 :

==> Ss. 3, 5, 6 --Co-operative society--Special deduction--Co-operative bank--Compulsory investment in Government securities--Interest entitled to special deduction--Rental income from property--Entitled to special deduction-- Bihar State Co-operative Bank Ltd . v. CIT (Patna) . . . 139

==> Bihar Co-operative Societies Act, 1935 :

==> S. 19 --Co-operative society--Special deduction--Co-operative bank--Compulsory investment in Government securities--Interest entitled to special deduction--Rental income from property--Entitled to special deduction-- Bihar State Co-operative Bank Ltd . v. CIT (Patna) . . . 139

==> Constitution of India :

==> Art. 14 --Income--Computation of income--Constitutional validity of provisions--Disallowance of expenditure under section 14A--Sub-sections (2) and (3) of section 14A are valid-- Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT (Bom) . . . 81

==> Income tax Act, 1961 :

==> S. 2(47) --Capital gains--Transfer--Law applicable--Effect of reintroduction of sub-sections (3) and (4) of section 45 with effect from 1-4-1988--Reconstitution of firm twice in 1994 resulting in entire assets held by original partners vesting in new partners and amounts invested by new partners paid to retiring partners--Transaction covered by section 45(4)--Gains taxable-- CIT v. Gurunath Talkies (Karn) . . . 59

==> S. 10(29) --Exemption--Income from letting out godowns or warehouses--Condition precedent for exemption--Letting out should be for storage, processing or facilitating marketing of commodities--Income derived from procurement of grains for FCI--Not entitled to exemption-- Haryana Warehousing Corporation v. Asst. CIT (P&H) . . . 23

==> S. 10(33) --Income--Computation of income--Disallowance of expenditure incurred in earning income not forming part of total income--Scope of section 14A--Section 14A applicable to dividend income and income from mutual funds exempt under section 10(33)-- Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT (Bom) . . . 81

==> S. 14A --Income--Computation of income--Constitutional validity of provisions--Disallowance of expenditure under section 14A--Sub-sections (2) and (3) of section 14A are valid-- Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT (Bom) . . . 81

==> Income--Computation of income--Disallowance of expenditure incurred in earning income not forming part of total income--Scope of section 14A--Section 14A applicable to dividend income and income from mutual funds exempt under section 10(33)-- Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT (Bom) . . . 81

==> Income--Computation of income--Disallowance under section 14A--Law applicable--Rule 8D not retrospective--Rule 8D applicable from assessment year 2008-09--Disallowance for earlier periods to be determined on reasonable basis-- Godrej and Boyce Mfg. Co. Ltd . v. Deputy CIT (Bom) . . . 81

==> S. 22 --Warehousing corporation--Exemption--Business income--Income derived from providing storage facility--Assessee's main business is providing storage facility--Income covered under business income-- Haryana Warehousing Corporation v. Asst. CIT (P&H) . . . 23

==> S. 28 --Warehousing corporation--Exemption--Business income--Income derived from providing storage facility--Assessee's main business is providing storage facility--Income covered under business income-- Haryana Warehousing Corporation v. Asst. CIT (P&H) . . . 23

==> S. 32A(2)(b)(iii) --Investment allowance--Disqualification--Manufacture of items in Eleventh Schedule--"Beer, wine and other alcoholic spirits"--Scope of disqualification--Manufacture of industrial spirits not disqualification--Manufacture of both industrial spirits and IMFL--Plant and machinery "mainly" used in manufacture of industrial spirits--Assessee entitled to allowance--Circular No. 229, dated August 9, 1977-- CIT v. Sraya Industries P. Ltd. (Delhi) . . . 29

==> S. 32A(2A) --Investment allowance--Disqualification--Manufacture of items in Eleventh Schedule--"Beer, wine and other alcoholic spirits"--Scope of disqualification--Manufacture of industrial spirits not disqualification--Manufacture of both industrial spirits and IMFL--Plant and machinery "mainly" used in manufacture of industrial spirits--Assessee entitled to allowance--Circular No. 229, dated August 9, 1977-- CIT v. Sraya Industries P. Ltd. (Delhi) . . . 29

==> S. 35B(1)(b)(iv) --Export markets development allowance--Weighted deduction--No requirement for assessee to maintain agency of foreign party outside India--Only required to pay commission as per agreement--Assessee not entitled to weighted deduction under section 35B(1)(b)(iv)-- CIT v. Rajjab Carpets (All) . . . 42

==> S. 35D --Finance company--Amortisation of preliminary expenses--Expenses incurred for issue of public shares--Not entitled to such benefit--Assessee raising a false claim--Penalty can be imposed--Matter remitted-- CIT v. Escorts Finance Ltd .(Delhi) . . . 44

==> S. 37 --Business expenditure--Agreement in August 2002 with retrospective effect from January 1, 2002--Addition on ground expenses incurred during January to March 2002 crystallised in relevant previous year--Liability under agreement arising and accruing when agreement executed--Addition cannot be sustained-- CIT v. Exxon Mobil Lubricants P. Ltd . (Delhi) . . . 17

==> Capital or revenue expenditure--Payment under agreements for "technical service" and "personnel despatching and receiving"--Whether entire payment to be treated as capital-- CIT v. Denso Haryana Pvt. Ltd . (Delhi) . . . 14

==> S. 40A(2) --Business expenditure--Disallowance--Excessive and unreasonable payments--International transaction--Import of goods at price higher than for local goods--Assessing Officer comparing figures for subsequent year--Not proper--Disallowance not justified-- CIT v. Denso Haryana Pvt. Ltd. (Delhi) . . . 14

==> S. 45 --Capital gains--Computation of capital gains--Perpetual lease of land--Lessee constructing flats and selling them--Lessor having residuary rights and right of pre-emptive purchase--Capital gains to be determined by taking into account discounted value of flats and interest-free advance received from lessee-- CIT v. N. Srirama Reddy (Karn) . . . 71

==> S. 45(4) --Capital gains--Transfer--Law applicable--Effect of reintroduction of sub-sections (3) and (4) of section 45 with effect from 1-4-1988--Reconstitution of firm twice in 1994 resulting in entire assets held by original partners vesting in new partners and amounts invested by new partners paid to retiring partners--Transaction covered by section 45(4)--Gains taxable-- CIT v. Gurunath Talkies (Karn) . . . 59

==> S. 50 --Capital gains--Computation of capital gains--Depreciable assets--Scope of section 50--Land is not a depreciable asset--Section 50 not applicable where land forms part of whole undertaking which is transferred-- CIT v. Coimbatore Lodge (Mad) . . . 69

==> S. 52(1) --Capital gains--Sale of shares to members of family--No finding that any sum in excess of that declared realized--Sale consideration cannot be estimated invoking section 52-- CIT v. I. P. Chaudhari (Delhi) . . . 7

==> S. 68 --Cash credits--Customer advances--Assessee failing to prove identity or existence of persons who had advanced money--Advances to be treated as income from unexplained sources-- Hacienda Farms P. Ltd. v. CIT (Delhi) . . . 1

==> S. 80P --Co-operative society--Special deduction--Co-operative bank--Compulsory investment in Government securities--Interest entitled to special deduction--Rental income from property--Entitled to special deduction-- Bihar State Co-operative Bank Ltd . v. CIT (Patna) . . . 139

==> S. 92 --Business expenditure--Disallowance--Excessive and unreasonable payments--International transaction--Import of goods at price higher than for local goods--Assessing Officer comparing figures for subsequent year--Not proper--Disallowance not justified-- CIT v. Denso Haryana Pvt. Ltd. (Delhi) . . . 14

==> S. 154 --Rectification of mistakes--Decision contrary to law can be rectified-- CIT v. Bindal Industries Ltd. (All) . . . 160

==> S. 194A --Income--Land acquisition--Enhanced compensation--Interest--Tax can be deducted at source-- Sant Ram v. Union of India (P&H) . . . 77

==> S. 244(1A) --Income--Accrual of income--Time of accrual--Refund of tax consequent to appellate order--Interest on refund accrues only when refund is granted-- Smt. K. Devayani Amma v. Deputy CIT (Ker) . . . 10

==> S. 256 --Reference--Reference returned unanswered for earlier year because of insubstantial tax effect--Same reasons apply for year in question-- CIT v. J. K. Synthetics Ltd . (Delhi) . . . 6

==> S. 263 --Revision--Assessing Officer taking possible view on application of provision--Order of Assessing Officer not erroneous--Commissioner taking a different view--Commissioner cannot set aside order of Assessing Officer under section 263-- Ranka Jewellers v. Addl. CIT (Bom) . . . 148

==> Revision--Powers of Commissioner--Subject-matter considered and decided in appeal--Revision of order not valid in respect of same subject-matter-- Ranka Jewellers v. Addl. CIT (Bom) . . . 148

==> S. 271(1)(c) --Capital gains--Penalty--Concealment of income--Assessee making correction and filing revised return and offering it during assessment proceedings--Finding of inadvertent error--No penalty leviable-- CIT v. Escorts Finance Ltd . (Delhi) . . . 44

==> Finance company--Amortisation of preliminary expenses--Expenses incurred for issue of public shares--Not entitled to such benefit--Assessee raising a false claim--Penalty can be imposed--Matter remitted-- CIT v. Escorts Finance Ltd . (Delhi) . . . 44

==> Penalty--Concealment of income--Assessee claiming entertainment expenses at 50 per cent.--Assessing Officer reducing it to 35 per cent. and imposing penalty--Appellate authority finding no concealment of income--Penalty cannot be imposed-- CIT v. Escorts Finance Ltd. (Delhi) . . . 44

==> Penalty--Concealment of income--Findings in assessment proceedings relevant--Bogus claim to deduction on account of commission paid to director--Person to whom commission paid not director of company at relevant time and finding by Tribunal in quantum appeal that no services rendered by her--Penalty justified-- CIT v. Harparshad and Company Ltd. (Delhi) . . . 53

==> Sch. XI, item 1 --Investment allowance--Disqualification--Manufacture of items in Eleventh Schedule--"Beer, wine and other alcoholic spirits"--Scope of disqualification--Manufacture of industrial spirits not disqualification--Manufacture of both industrial spirits and IMFL--Plant and machinery "mainly" used in manufacture of industrial spirits--Assessee entitled to allowance--Circular No. 229, dated August 9, 1977-- CIT v. Sraya Industries P. Ltd. (Delhi) . . . 29

==> Income-tax Rules, 1962 :

==> R. 8D --Income--Computation of income--Disallowance under section 14A--Law applicable--Rule 8D not retrospective--Rule 8D applicable from assessment year 2008-09--Disallowance for earlier periods to be determined on reasonable basis-- Godrej and Boyce Mfg. Co. Ltd . v. Deputy CIT (Bom) . . . 81

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