RECENT JUDGEMENTS ON INCOME TAX
I. MANUFACTURING OR PRODUCTION
(i) Texturising and Twisting of yarn are manufacturing activities.
-- I.T.O. Vs. EMPTEE POLY-YARNS PVT. LTD.
(2010) 320 ITR 665 (SC)
(ii) Process of transferring Blank C.D. into software loaded disc does
-- C.I.T. VS. ORACLE SOFTWARE INDIA LTD.
(2010) 320 ITR 546 (SC)
(iii) Activity of doing embroidery on fabrics is manufacturing or production of goods eligible for additional depreciation.
-- ASWANI INDUSTRIES ITA NO. 2103/AHD/2010
-- HARI PRIYA PROCESSORS P. LTD.
ITA NO. 1569/AHD/2010
II. ADMISSIONS/DECLARATIONS DURING SEARCH /SURVEY
Addition cannot be made solely on the basis of statements recorded during survey without any corroborative findings.
-- C.I.T. Vs. M/S. DHINGRA METALWORKS
ITA NO. 1111 OF 2010 (DELHI HIGH COURT)
-- PAUL MATHEWS & SONS Vs. C.I.T.
(2003) 263 ITR 101 (KERALA)
-- C.I.T. Vs. S. KHEDAR KHAN
(2008) 300 ITR 157 (MAD)
(i) After 1st April, 1989 it is not necessary for the assesses to establish that the debt, in fact, has become bad and irrevocable. It is enough if the bad debts are written off as irrevocable in the accounts of assesses.
-- T.R.F. LTD. Vs. C.I.T.
(2010) 323 ITR 397 (SC)
(ii) It is not necessary to write off and eliminate debtor in the accounts of the assessee. Writing off the Provision for bad debts in P & L A/C and reducing such provision from the figure of debtors in the assets side of Balance Sheet is enough.
-- VIJAYA BANK Vs. CIT & ANR
(2010) 323 ITR 166 (SC)
(iii) NPA provisions (i.e. provision for doubtful debts) debited by the NBFCs and reflected under the head 'Current Liabilities & Provisions in the Balance Sheet are not deductible u/s. 36(1)(vii) of the Act as bed-debts written off.
-- SOUTHERN TECHNOLOGOES LTD. Vs. DCIT
(2010) 320 ITR 577 (SC)
(iv) If brokerage was offered to tax, the share broker is entitled for deduction of bad debts u/s 36 (1)(vii) r.w.s. 36(2) in respect of entire amountbecoming irrecoverable from the client, apart from brokerage.
-- DCIT Vs. SHREYAS S. MORAKHIA
(2010) TIOL 390 (MUM – SB)
IV. DISALLOWANCE U/S. 40(a)(ia)
(i) No disallowance can be made in respect of sums on which TDS was deducted in the month of March (though deductible in earlier months) and paid before the due date of filing of the Return.
-- BAPUSAHEB NANASAHEB DHUMAL Vs. ACIT ITA NO. 6628/MUM/2009
(ii) Amendments to S. 40(a)(ia) by the Finance Act, 2010 are of curative nature and would therefore apply to earlier assessment years also and accordingly no disallowance can be made even in earlier years if TDS is deposited before due date for filing of ROI.
-- GOLDEN STABLE LIFESTYALE CENTRE P. LTD.
ITA. NO. 5145/MUM/2009
(iii) When there is no element of income and payments are only as reimbursement of expenses incurred by the payee, then no disallowance can be made u/s 40(a)(ia) of the Act.
-- UTILITY POWER TECH LTD. Vs. ACIT
(2010) TIOL 545 (MUM)
V. PENALTY U/S. 271 (1)(c)
(i) Merely because the assessee claimed deduction which has not been accepted by Revenue, Penalty u/s. 271(1)(c ) is not attracted. DILIP N.SHROFF 210 CTR (SC) 228, UOI VS. Dharmendra Textile
Processors 212 CTR (SC) 432 and Rajasthan Spg. & Wvg. Mills 224
CTR (SC) 1 explained .
-- C.I.T. VS. RELIANCE PETROPRODUCTS (P) LTD.
(2010) 322 ITR 158 (SC)
(ii) Penalty cannot be levied on disallowance made u/s 40A(2) of the Act. Such disallowance does not fall into category of concealment of income or furnishing inaccurate particulars of income.
-- JHAVAR PROPERTIES PVT. LTD.
123 ITD 429 (MUM)
VI. RE-ASSESSMENT U/S. 147/148
(i) Re-assessment proceedings cannot be initiated on the basis of change of opinion. Re-assessment proceedings can be initiated only when AO has tangible material to come to the conclusion that there is escapement of income.
-- C.I.T. VS. KELVINATOR OF INDIA LTD.
(2010) 320 ITR 561 (SC)
(ii) If AO does not assess the income for which reasons were recorded u/s.147, he can not assess any other income u/s. 147 of the Act. Reassessment order in such a case will be invalid.
-- C.I.T. VS. JET AIRWAYS
ITA NO. 1714 of 2009 (BOMBAY HIGH COURT)
VII. SEC. 14A & RULE 8D
(i) Disallowance u/s 14A can be made if shares are held as investments andonly income derived is Dividend Income. But if shares are held as stock in trade and assessee deals in shares, then disallowance u/s 14A cannot be made.
-- CIT Vs. SMT. LEENA RAMCHANDRAN
ITA NO. 1784 OF 2009 (KERALA HIGH COURT)
(ii) Provisions of sub-sections (2) and (3) of Section 14A are prospective and are applicable from A.Y. 2007-08 only. Rule 8D is also prospective and is applicable from A.Y. 2008-09.
(iii) The AO cannot ipso facto apply Rule 8D but can do so only where he records satisfaction that assessee is unable to establish the correctness of his claim.
(iv) Only the expenses which are incurred in relation to exempt income can be disallowed. Interest expenditure which is directly relatable to the assessee's other income (say interest on loan taken for plant & machinery) shall be excluded while working our disallowance u/s 14A read with Rule 8D.
(v) Provisions of Section 14A (2) & (3) and Rule 8D are constitutionally valid. Argument that dividend on shares/units is not tax free in view of Section 115-O is not acceptable. These are exempt income in the hands of shareholder/unitholder and provisions of Section 14A are applicable.
-- GODREJ & BOYCE Vs. DCIT
W.P. NO. 758 of 2010.
VIII. S. 94(7) – DIVIDEND STRIPPING
(i) Provisions of Section 94(7) shall apply prospectively from A.Y. 2002-03.
Loss incurred in Dividend Stripping transactions before that is allowable.
Provisions of Section 14A are applicable to expenditure and not losses.
-- CIT Vs. WALFORT SHARE STOCK BROKERS PVT. LTD.
326 ITR 1 (SC)
(ii) Conditions spelt out in clauses (a), (b) and (c) of S. 94(7) are cumulative and not alternative. Purchases of units within 3 months but sale beyondthe prescribed period – Loss cannot be ignored.
-- CIT Vs. ALKA BHOSLE
ITA NO. 2656 OF 2009 (BOMBAY HIGH COURT)
IX. BLOCK ASSESSMENT
(i) In an assessment u/s 153A of the Act, additions can be made only on the basis of material found as a result of search.
-- ANIL KHIMANI Vs. DCIT
2010 TIOL 177 ITAT (MUM)
(ii) Block Assessment order passed u/s 158BC without issuing notice u/s 143(2) within stipulated time is bad in law.
-- ACIT Vs. HOTEL BLUE MOON
(2010) 321 ITR 362 (SC)
X. CAPITAL GAIN VIS-À-VIS BUSINESS INCOME
If shares are held for more than a month, they should be treated as investment and profit on said should be charged to Capital Gains. When shares are held for less than a month, gain on them should be treated as profits of business.
-- SUGAMCHAND C. SHAH Vs. ACIT
(2010) 37 DTR (AHD) (TRIB) 345
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