Sunday, January 30, 2011

Fwd: SOME USEFUL JUDGEMENTS



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From: pavan singla <singlapavan@gmail.com>
Date: Sun, Jan 30, 2011 at 00:03
Subject: SOME USEFUL JUDGEMENTS

S. 80IB : Deductions – Profits and Gains from Industrial Undertakings
–Manufacturing – Types of Sheets and Pre-engineering Building Material



Assessee had employed high–tech sophisticated machinery, e.g., for
marking roof tops, it bought plain sheets and gave them curved and
desired shape on cold rolled mill and thereafter, different
engineering operations were carried on and thus, ultimately assessee
gave technical inputs in respect of tensile strength, long durable
service life and structural quality keeping factors like heat
resistance operational requirement, energy consumption and
environmental factors in mind. Similarly, for beams columns and
rafters, assessee had used high duty shearing machine as against
simple fabrication tools employed by others. It had auto–welding
machines which gave uniform welding and made all parts uniformly
joining and becoming one static body and ultimately improved its
tensile strength. In view of above process, there was sea change from
raw materials to finished products, hence, the assessee could be said
to be engaged in production or manufacture of an article or thing and
entitled to deduction under section 80IB.

steelFabBuilding Systems vs. ITO (2010) 127 ITD 419 (Mum.)

S. 139(5) : Revised Return – Limitation – Sanction of Merger Scheme by Court

Once the scheme of amalgamation had been sanctioned with effect from a
particular date, it is binding on every one including the statutory
authorities and the only course open to the Revenue would be to act as
per the scheme sanctioned. The tax authorities are bound to take note
of state of affairs of the applicant as on the effective date i.e. 1st
Jan., 2004 and a revised return filed reflecting the same cannot be
ignored on the strength of section 139(5).

 Pentamedia Graphics Ltd. vs. ITO (2010) 236 CTR 204 (Mad.)

S. 133A : Survey – Disclosure – Statement

Confession made during survey cannot be the sole basis for making an
addition, without considering the explanation of assessee.

Babulal Gangwal, Jaipur vs. Addl. CIT (2010) Tax World December, 10
Vol. XLIV, Part-6, P. No. 222

S. 145(3) : Accounts – Rejection – Absence of Discrepancy – Accounts Audited

Where the Assessing Officer has not pointed out any specific defect or
discrepancy in the account books maintained by the assessee which are
duly audited by an independent Chartered Accountant, there was no
justification in rejecting the books of accounts and making the
addition to the declared income.

CIT vs. Pradise Holidays (2010) 48 DTR 349 (Delhi)


S. 147 : Reassessment – Reason to Believe – Report of DVO – (S. 148)

Opinion of DVO per se is not an information for the purpose of
reopening assessment under section 147. Assessing Officer has to apply
his mind to the information if any, collected and must form a belief
thereon.

ACIT vs. Dhariya Construction Company (2010) 328 ITR 515 / 236 CTR 226
/ 47 DTR 288 (SC)


S. 194A : Deduction of Tax at Source – Bank – Interest – Notional
Provision for half yearly interest of Cumulative deposit – (S. 201)

Bank making for notional provision for half yearly interest on account
of cumulative deposit shown in general ledger reversed on next working
day. Interest credited to provisioning account for macro–monitoring.
Interest not due and payable on that day. Deduction of tax not
obligatory.

Bank of Maharashtra vs. ITO (2010) 6 ITR 824 (Trib.)(Ahd.)

S. 194C : Deduction of Tax at Source – Payment to Contractor and
Sub-contractors

Assessee–society having been created by transporters with a view to
enter into contracts with companies for transportation of goods and to
ensure allocation of work among all members on an equitable basis,
there is no sub-contract between the society and the members and
therefore, section 194C(2) is not attracted to the facts of the case
and the assessee society is not liable to deduct tax at source from
the payments made to the truck owners who are its members.

 CIT vs. Sirmour Truck Operators Union (2010) 48 DTR 130 (HP)


S. 226 : Recovery – No-coercive recovery if first appeal is ready for Hearing



The assessee filed appeals before the Commissioner of Income-tax
(Appeals) against the assessment orders for Asst. Years 2004-05 to
2008-09. Though the appeals were ripe for hearing and the appellate
authority had already posted for hearing on different dates, the
Assessing Officer without considering the pendency of the appeals
issued demand notice and took steps for attachment of the assessee's
bank account. The assessee filed a Writ petition to challenge the
recovery action which was opposed by the department on the ground that
the assessee had repeatedly sought adjournment of the hearing of
appeals, the Court allowed the petition and directed to dispose the
appeals at the earliest possible after affording an opportunity of
hearing to the assessee, at any date within a period of one month from
the date of receipt of a copy of the Court's judgment and till such
time orders are passed by the appellate authority, recovery steps
shall be kept in abeyance. If there is no co-operation by assessee the
appellate authority is at liberty to finalise the appeals without
according any further opportunity of hearing.



Hotel Leela Venture vs. Ag. ITO (Kerala High Court) Source: www.itatonline.org



S. 226 : Recovery – Ability to pay demand is no bar for grant on recovery



The assessee filed a stay application before the Tribunal. The
department opposed the stay by relying on the Supreme Court in ACCE
vs. Dunlop India (1985) 154 ITR 172 (SC), and contended that as
paucity of funds had not been sufficiently demonstrated, for this
reason alone stay should not be granted. The Tribunal rejected the
contention of Departmental representative following B. N. Co. vs. Jt.
CIT (2001) 71 TTJ 153 (Kol.) and further held that Supreme Court's
observation in Dunlop cannot be interpreted to mean that the Tribunal
is denuded of the powers to grant stay until case for financial
stringency is successfully made out by the applicant. Accordingly stay
was granted till the disposal of appeal.

KEC International Ltd. vs. ACIT (ITAT – Mumbai) Source: www.itatonline.org

S. 2(24) : Income – Non-occupancy Charges – Transfer Fee – Voluntary
Contribution

The receipt of non-occupancy charges, transfer fee and voluntary
contribution from its members by the Co-operative Housing Society is
not taxable.

ITO vs. Grand Pradi CHS Ltd. (2011) BCAJ Jan., 2011. P. 20 (Vol. 42B.
Part 4. 436

S. 5 : Income – Accrual – Interest on RBI Bonds – Cash Basis

Assessees were entitled to recognize the interest income attributable
to 8 % RBI Bonds on cash basis to be reckoned at the time of
redemption of the bonds. Assessing Officer was not justified in making
addition on yearly accrual basis.

K. Nagendrasa & Ors. vs. Dy. CIT (2010) 48 DTR 492 (Bang.)(Trib


S. 10B : Exemption – Export Turnover – Foreign Expenditure for self
purpose – Turnover retained abroad



The assessee was engaged in the business of development of software by
way of on site and off shore development and had a branch in USA for
which separate accounts were maintained. The assessee claimed
deduction under section 10B in respect of the exports of software
made. In computing the export turnover, the Assessing Officer held
that the amount of Rs. 3.33 crores incurred by the USA branch
constituted "expenses incurred in foreign exchange in providing
technical services outside India" and had to be deducted from the
export turnover as provided under section 10B. He also held that the
turnover of the USA branch to the extent of Rs. 15.14 crores had to be
reduced from the export profits as it had not been received in
convertible foreign exchange in India within the period specified in
section 10B(3). On appeal CIT(A) upheld the claim of assessee with
regard to Rs. 15.14 crores while rejected the claim with regard to Rs
3.33 crores. The cross appeals of the parties were referred to Special
Bench. The Special Bench referring the circular No. 621 dated
19-12-1991 and 694 dated 23-11-1994 held that expenditure incurred on
site abroad is eligible for deduction under section 10B. As regards
the turnover of Rs. 15.14 retained abroad, one limb of the Government
cannot be allowed to defeat the operation of other limb. While section
10B requires the foreign exchange to be brought to India within the
prescribed period, the RBI permits the assessee to retain the said
foreign exchange abroad for specific purpose. RBI is the competent
authority for section 10B as well. The result is that reinvestment of
export earning is deemed to have been received in India and thereafter
to have been repatriated abroad. (Principle in J. B. Boda & Co. (1998)
233 ITR 271 (SC) followed).

Zylog Systems Ltd. vs. ITO (2011) 49 DTR 1 (Chennai)(Trib.)(SB)

S. 32 : Depreciation – Trial Run – Plant and Machinery



Assessee is entitled to claim depreciation on plant and machinery even
if it is used during the year for trial production.



CIT vs. Mentha & Allied Products (2010) 47 DTR 284 (All)



S. 32(1)(iv) : Depreciation – Initial Depreciation – Construction of
New Residential Quarters



Considering the dictionary meaning of the term "building" along with
the purpose for which the provision of section 32(1)(iv) was enacted,
namely, to afford incentives to business to construct building for
housing lowly paid employees, the Tribunal was right in holding that
the assessee was entitled to initial depreciation under section
32(1)(iv) in respect of new residential quarters.



CIT vs. Modi Industries Ltd. (2010) 48 DTR 364 (Del.)



S. 32(2) : Depreciation – Unabsorbed – Carry forward and set off –
Export Oriented Unit – [S. 10B(6)]



In view of prohibition in section 10B(6) unabsorbed depreciation
carried over for several years is not allowed to be set off in the
assessment year immediately following end of the period of tax
exemption does not mean that the assessee cannot carry forward
unabsorbed depreciation or business loss until such assessment year;
S. 10B(6) has no application in Asst. Year 2003-04 for the assessee
which is enjoying exemption under section 10B from asst year 1996-97
to asst year 2006-07 and the assessee is entitled to carry forward
unabsorbed depreciation from Asst. Year 2002-03.

Akay Flavours & Aromatics (P) Ltd. vs. Dy. CIT (2010) 48 DTR 382 (Ker.)

. 37(1) : Business Expenditure – Retrenchment Compensation –
Suspension of Manufacturing Activity



Assessee having suspended only its manufacturing activity and not
closed down its trading activity, it is not a case of closure of
business and therefore, expenses incurred by it towards severance cost
of employees is allowable as revenue expenditure.



KJS India (P) Ltd. vs. Dy. CIT (2010) 134 TTJ 697 (Del.)



S. 37(1) : Business Expenditure – Market Research Expenses



Assessee a manufacturer of a soft drink having conducted a market
research by using the services of a professional agency to determine
its brand performance with price, gauge the consumer demand at the
current price or a lower price and to know whether its brand can adopt
a different pricing between the base flavours and the new flavours,
the expenses were incurred for exploring the circumstances as to how
assessee can carry on its business more potentially and not exploring
the market of a new product and therefore, same is allowable as
revenue expenditure

KJS India (P) Ltd. vs. Dy. CIT (2010) 134 TTJ 697 (Del.)


 S. 37(1) : Business Expenditure – Capital or Revenue – Purchase of
Anti–virus software



Expenditure incurred on purchase of anti–virus software is of revenue
expenditure.



Chambal Fertilisers & Chemicals Ltd. vs. ACIT (2010) Tax World.
December Vol. XLIV. Part 6. P. 195



S. 37(1) : Business Expenditure – Payment to Trust for Opening and
Running a school in the assessee company premises



Payment made to a trust for opening a school in the assessee company's
premises will be allowable as deduction since the amount was paid with
the object of providing education to the children of employees of
assessee company within the company premises itself and was
necessitated for business purpose.



Chambal Fertilisers & Chemicals Ltd. vs. ACIT (2010) Tax World.
December Vol. XLIV. Part 6. P. 195

 S. 37(1) : Business Expenditure – Administrative Charges for obtaining loan



Administrative charges paid for obtaining loan are allowable as
revenue expenditure in the year of payment, notwithstanding the fact
that the assessee has treated this expenditure as deferred revenue
expenditure in its books of account and benefit of loan would accrue
over a long period.

ACIT vs. Tata Housing Development Co. Ltd. (2010) 48 DTR 452 (Trib.)(Mum.)

S. 40(a)(ia) : Disallowance – Amendment by Finance Act, 2010
-Retrospective effect from the Asst. Year 2005-06 – TDS paid before
due date of filing of return



Section 40(a)(ia) by Finance Act, 2010 is retrospective and applies
from the day said section was brought in to the statute book i.e.
w.e.f. 1-4-2005, meaning thereby, that even if the TDS was paid by due
date for filing return of income, no disallowance under section
40(a)(ia) could be made for any of the assessment years starting from
assessment year 2005-06.



Kanubhai Ramjibhai vs. ITO (2010) Chartered Accountants Association
Ahmedabad, December, 2010 P. 411

S. 40A(3) : Business Disallowance – Cash Payments – Distributor for
BSNL in its card division



During the year under consideration assessee made total purchases of
India Telephone cards at Rs. 270.64 lakhs, of which Rs. 187.73 lakhs
were by way of cash purchases. Assessing Officer invoked provisions of
section 40A(3) and disallowed 20% of impugned expenditure. CIT(A)
upheld the disallowance. The Tribunal held that on facts, it was
apparent that relationship between service provider i.e. BSNL and
assessee–distributor was of principal and agent and income arising to
assessee was in nature of commission or remuneration against services
rendered, hence, disallowance under section 40A(3) is not applicable.

S. Rahumathulla vs. ACIT (2010) 127 ITD 440 (Cochin)

S. 54 : Capital Gains – Long Term Capital Gains – Allotment of Flat
under DDA – [S. 2(14), 2(29A), 2(42A)]



Assessee was allotted a flat under scheme of DDA on 27-2-1982.
Delivery of possession of said flat took place on 15-5-1986, when
actual flat number was allotted to assessee. Assessee sold said flat
on 1-1-1989 and claimed set off under section 54 against long term
Capital Gain. Assessing Officer treated the said transaction as short
term capital gain considering the date as 15-5-1986. The High Court
held that under self finance scheme, an allottee gets title to
property on issuance of an allotment letter and payment of
installments is only a consequential action upon which delivery of
possession flows hence claim under section 54 was justified.



Vinod Kumar Jain vs. CIT (2010) 195 Taxman 174 (P&H)



S. 54 : Capital Gains – Exemption – Investment in more than one
residential house – (General Clauses Act 1897 – S. 13)



Expression "a residential house" in section 54 should be understood in
a sense that the building should be  residential in nature and "a"
should not be understood to indicate a singular number, assessee was
entitled to claim exemption under section 54 in respect of four
residential flats acquired by her.



CIT vs. K. G. Rukminiamma (Smt.) (2010) 48 DTR 377 (Kar.)

 . 80-IA(9) : Deduction – Industrial Undertaking – Interpretation – (S. 80HHC)



S. 80-IA(9) cannot be interpreted to mean that section 80-IA deduction
has to be reduced for computing section 80HHC deduction. The
restriction in section 80IA(9) relates to the allowance of deduction
i.e. seeks to curtail allowance and not computation of deduction.
Section 80IA(9) does not disturb the mechanism of computing the
deduction provided under section 80HHC(3). The reasonable construction
of section 80IA(9) is that where deduction is allowed under section
80IA, then the deduction computed under other provisions under heading
'C' of Chapter VIA has to be restricted to the profits of the business
that remains after excluding the profits allowed as deductions under
section 80IA, so that the total deduction allowed under the heading
'C' of Chapter VIA does not exceed the profits of the business.



Associated Capsules Pvt. Ltd. vs. Dy. CIT (Bombay High Court) Source:
www.itatonline.org



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