Case laws.

Journals Referred : BCAJ, CTR, DTR, ITD, ITR, ITR (Trib), Income Tax Review, SOT, Taxman, Taxation, TLR, TTJ, BCAJ, ACAJ,

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. 9(1)(i) : Income deemed to accrue or arise in India – Business Connection

The profits from the off shore supply contract held not to be liable to tax in India on the ground that the transfer of title in the goods had passed outside India. As no operations qua the agreement for supply of equipment were carried out in India, no income can be deemed to have accrued or arisen in India whether directly or

indirectly or through any business connection in India.

Dy. CIT vs. LG Cables Ltd. (Delhi High Court)

S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty

Under the agreement, the foreign company was to supply plant knowhow and product know how. Agreement was concluded and data was delivered abroad. Transaction was that of a sale, hence, no income could be deemed to accrue or arise to non-resident.

CIT vs. Magronic Devices P. Ltd. (2010) 329 ITR 442 (HP)

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. 12AA(3) : Charitable or Religious Trust – Registration – Power to cancel Registration – Prospective – (S. 12A)

Insertion of new clause in section 12AA(3) with effect from 1-6-2010, by which Commissioner has got power to cancel registration granted earlier to assessee–trust under section 12A, is not applicable retrospectively and its operation has to be effective from date it was introduced and onwards.

Merely by granting a registration under section 12A/12AA, a trust ipso facto is not entitled to exemption prescribed under section 11 and 12.

Ajit Education Trust vs. CIT (2010) 42 SOT 415 (Ahd.)

Editorial Note:

Bharati Vidyapeeth vs. ITO (2008) 119 TTJ 261 / 14 DTR 454

OxfordAcademy for Career Development vs. CCIT (2009) 315 ITR 382 (All)

S. 12AA : Charitable Trust – Registration – Cancellation

As per section 12AA(3), registration granted to any trust or society under section 12AA(1)(b) can be cancelled only if the CIT is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects thereof; registration could not be cancelled under section 12AA(3) by merely re-examining the objects of the trust or society.

Chaturvedi Har Prasad Education Society vs. CIT (2010) 134 TTJ 781 (Luck.)

S. 14A : Business Expenditure – Matters remanded back to Assessing Officer in light of later judgments

In the light of Godrej & BoyceMfg. Co. Ltd. (2010) 328 ITR 81 (Bom.) it was held that the plea of the assessee based on Minda Investments Ltd. that the disallowance should be deleted cannot be accepted as in the later decisions similar matters have been restored to the file of the Assessing Officer and according to rule of precedence, later decision passed by similar strength of the Bench has to be followed in preference to the earlier decision.

Continental Carriers Pvt. Ltd. vs. ACIT (ITAT – Delhi)

S. 14A : Business Expenditure – No Disallowance of Interest on borrowed funds if Assessing Officer does not show nexus between borrowed funds & tax-free investment

No disallowance can be made under section 14A of interest on borrowed funds where in case of mixed funds,it is not possible to ascertain whether the investment in tax free bonds is out of the assessee's own funds, the source of investment in the tax free bonds is identified, and the Assessing Officer failed to establish any nexus between the borrowed funds and the investments in the tax free bonds. As also the cash flow of the assessee was not seen.

Therefore, the apportionment on a pro rata basis was improper in the absence of anything brought by the Assessing Officer to rebut the assessee's stand that the investment in the tax free bonds had been made out of the funds of own funds (Minda Investments, Hero Cycles 323 ITR 518 (P&H) and Winsome Textile Industries 319 ITR 204 (P&H) followed).

Dy. CIT vs. Maharashtra Seamless Ltd. (ITAT – Delhi)

S. 14A : Business Expenditure – Onus on Assessing Officer to show nexus between expenditure & tax-free income for disallowance Rule 8D

It was held that Rule 8D r.w.s. 14A(2) can be invoked only if the Assessing Officer "having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred" in relation to tax-free income. The burden is on the Assessing Officer to establish nexus of expenses incurred with the earning of exempt income, before making any disallowance under section 14A. There cannot be any presumption that the assessee must have incurred expenditure to earn tax free income.

Dy. CIT vs. Jindal Photo Ltd. (ITAT – Delhi)

S. 14A : Business Expenditure – Exempted Income – Personal Tax Free Investments

The assessee a stock broker & Member of BSE earned tax–free income by way of dividend interest on RBI bonds and PPF interest. The assessee claimed that no disallowance under section 14A could be made as no expenditure was incurred by him to earn tax free income as shares were in the Demat account for long time and dividend was automatically credited to bank account. The Assessing Officer disallowed Rs. 20,000/- under section 14A. In appeal CIT(A) instead of examining the issue on factual basis directed the Assessing Officer to apply Rule 8D. On appeal to the Tribunal, allowing the appeal held that disallowance under section 14A cannot be made on being for personal purposes.

Pawan Kumar Parmeshwarlal vs. ACIT

S. 23(1)(a) : Income from House Property – Notional Interest on Deposit not included in Annual Value

In view of Circular 204 dated 24.7.1976, the CBDT has accepted that under section 23(1)(a) the "sum for which the property might reasonably be expected to let from year to year" is the municipal valuation of the property. Thus notional interest on deposit not includible in Annual Value under section 23(1)(a) & 23(1)(b). The same view that the has been taken in CIT vs. Prabhabati Bansali 141 ITR 419 (Cal.) & M. V. Sonavala vs. CIT 177 ITR 246 (Bom.)

Dy. CIT vs. Reclamation Reality India Pvt. Ltd. (ITAT – Mumbai)

S. 28 : Business Income – Commission – Addition as Undisclosed Income

In cases of suspicious transactions, despite of lack of direct evidence, tax evasion can be assessed on the basis of the material available on record, surrounding circumstances, human conduct and preponderance of probabilities. There is no presumption in law that the Assessing Officer is supposed to discharge an impossible burden to assess the tax liability by direct evidence only and to establish the evasion beyond doubt as in criminal proceedings.

Hersh Win Chadha vs. Dy. DIT (ITAT – Delhi)

S. 28(i) : Business Income – Capital Gains – Transactions in Shares

Where the assessee had dealt in more than 300 scripts during the year and turnover of delivery based transactions is about Rs. 3,500 crores and the assessee had regularly dealt in purchase and sales of shares with high frequency and volume with repetitive purchases and sales in the same script, with no shares being held for more than one year, considering the entirety of facts and circumstances, profit earned from delivery based transactions in shares was rightly treated as business income as declared earlier as against short term claimed by the assessee.

Wall Fort Financial Services Ltd. vs. Addl. CIT (2010) 134 TTJ 656 (Mum.) / 48 DTR 138 (Trib.)(Mum.)

S. 28(i) : Business Income – Services of Operating and Maintenance of power station – Permanent Establishment – DTAA – India-UK – (S. 9, 44AD, Art. 5, 7 and 13)

Assessee entered into a contract with Spectrum Ltd., for rendering services of operating and maintenance of power station owned by it. Activity of operating of power station was treated by assessee as its business activity carried on through a project office in India, which in turn, constituted its permanent establishment in India in terms of Article 5 of Indo–UK DTAA. According to assessee, income arising to it from said business activity was its business profit and was liable to tax on net basis. Income received by assessee for executing works contract did not fall within definition of "fees for technical services" (FTS) under explanation 2 to section 9(1)(vii) nor as defined in Art. 13(4) of DTAA between India and UK. Moreover, since assessee had not made available any technical knowledge, skill, etc., to spectrum within meaning assigned to FTS under Art. 13(4)(c) of DTAA, it could not be taxed on gross basis and section 44AD had no application to facts of instant case, further more Article 13(4)(c) read with Article 26 of DTAA would not permit revenue authorities to discriminate against, a UK registered company and accord it less favourable treatment than a domestic company and therefore section 44AD could not be invoked in assessee's case.

Rollys Roycee Industrial Power Ltd. vs. ACIT (2010) 42 SOT 264 / 6 ITR 722 (Trib.)(Delhi)

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.)

 

S. 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 – Compounding fees paid by Builder & Developer

Compounding fees being in nature of penalty & fine in terms of section 483 of Karnataka Municipal Corporation Act, 1976 is not allowable.

CIT vs. CB. K. R. Enterprises (2010) 219 Taxation 1 (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 – Capital or Revenue – Non-compete Fees

Non-compete fee paid by the assessee on acquisition of pharmaceutical business which constituted a new line of products for the assessee is not allowable as a revenue expenditure in one go. The out go is to be treated as a deferred revenue expenditure and is allowable over a period of four years prorata starting from the relevant assessment year.

Orchid Chemicals & Pharmaceuticals Ltd. vs. ACIT (2010) 48 DTR 441 (Trib.) (Chennai)

S. 37(1) : Business Expenditure – Capital or Revenue – Payment for Design and drawing fees and Imparting training to Indian technician

Drawing and designs which needed to be changed from time to time to manufacture the shock absorbers but not for acquiring technology itself hence the expenditure is revenue expenditure. Expenditure incurred for training the personnel of the assessee was allowable as revenue expenditure.

CIT vs. Munjal Show Ltd. (2010) 46 DTR 1 (Delhi)

S. 37(1) : Business Expenditure – Licence to operate Tele communication services – (S. 35AB)

Payment made by the assessee for obtaining licence for providing telecommunication services though for a period of 10 years, the licence fee was payable on yearly basis with right to licensor to terminate the licence and the licence is non-exclusive, non-transferrable and it is open to the Government of India to grant similar licenses to other persons as well and therefore, the benefit of licence fee paid during the year endures only till the end of relevant financial year and does not extend to the subsequent year and hence, the licence fee is not in the nature of capital expenditure falling under section 35ABB, but the same is revenue in nature allowable under section 37(1).

Bharati Airtel Ltd. vs. ACIT (2010) 48 DTR 416 (Trib.)(Mum.)

S. 37(1) : Business Expenditure – Commencement of Business – Setting up of a Business – Construction Business

Where the assessee had incurred expenditure towards soil testing, submission of tenders, payment of architect's fees, etc. in construction business, it would be integral part of the business of the assessee and the CIT(A) was justified in allowing the deduction of such expenditure by holding that the assessee had commencement its business.

CIT vs. Mfr. Construction Ltd. (2010) 48 DTR 360 (Kar.)

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) : Business Expenditure – Fess for Technical Services – Transaction Charges paid to Stock Exchange – Tax deduction at Source

Transaction charges paid by the brokers to the stock exchange were not for any services provided by the stock exchange, hence, the provisions of section 40(a)(ia) were not attracted as no tax was required to be deducted.

Wall Fort Financial Services Ltd. vs. Addl. CIT (2010) 134 TTJ 656 (Mum.) / 48 DTR 138 (Trib.)(Mum.)

S. 40(a)(ia) : Business Disallowance – Foreign Exchange Fluctuation in respect of technical know how fee

Assessee had provided certain amount as liability on account of foreign exchange fluctuation in respect of technical know-fee. The amount was debited to profit and loss account even though no payment in that regard had been made to foreign parties. As no deduction of tax was made on that amount the Assessing Officer disallowed said amount under section 40(a)(i). Assessee contended that increase and decrease of payment of technical fees depends upon foreign exchange fluctuation at the time of payment and tax will be deducted when payment was made. High Court held that provision of section 40(a)(ia) were not applicable.

CIT vs. Mac Charles (India) Ltd. (2010) 195 Taxman 296 (Kar.)

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(2) : Business Disallowance – Excessive Interest

In the absence of any material to show that the payment of interest made by the assessee is in excess of fair market value, and keeping in view the case relied on by the Assessing Officer, 18 percent rate of interest was considered as reasonable, interest paid by the assessee at 7 to 18 percent to its sister concerns was wholly and exclusively laid out for the purpose of the business and hence, the disallowance of interest under section 40A(2) is deleted.

Bharati Airtel Ltd. vs. ACIT (2010) 48 DTR 416 (Trib.)(Mum.)

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. 43(5) : Speculation Loss – Derivatives Trading – (S. 73)

Trading in derivatives cannot be considered as a speculative transaction and therefore set off of loss of derivative trading against the profits of the share trading business was permissible.

Dy. CIT vs. Paterson Securities (P) Ltd. (2010) 127 ITD 386 / 48 DTR 50 (Trib.)(Chennai)

S. 43B : Business Expenditure – Disallowance – Interest on arrear of SEBI Turnover

Interest on SEBI turnover charges is of the same nature as tax, duty, cess or fees and accordingly will be allowed in accordance with section 43B when paid in current year.

Wall Fort Financial Services Ltd. vs. Addl. CIT (2010) 134 TTJ 656 (Mum.) / 48 DTR 138 (Trib.)(Mum.)

S. 44AB : Audit Reports – Corporate Entity

Corporate entity is single entity, assessee is not bound to file tax audit reports for each separate business.

Rolls Royce Industrial Power Ltd. vs. ACIT (2010) 6 ITR 722 (Trib.) / 42 SOT 264 (Trib.)(Delhi)

S. 45 : Capital Loss - Renunciation / foregoing of right to subscribe right shares

Where the assessee claims to have renounced the right to subscribe right shares in favour of unknown persons by forgoing the right, to subscribe to right issue of shares, and that to for no consideration, there is no transfer and hence the notional loss on account of diminution in the value of its shares cannot be allowed.

CIT vs. United Breweries Ltd. (2010) 236 CTR 160 (Kar.)

S. 45(2) : Capital Gains – Business Income – Sale of shares after conversion of investment into stock-in-trade

Assessing Officer having accepted the genuineness of the transaction in the year of purchase of shares or in the year of conversion of the same from investment into stock-in-trade, he was not correct in examining the genuineness of the transaction in the subsequent year in which the shares were sold and assessing the surplus as business income as per section 45(2), surplus is assessable as capital gains.

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

S. 45(4) : Capital Gains – Assets taken over by Partner – Expression "Otherwise"

Assets taken over by a partner on dissolution of firm. Expression "otherwise" appearing in sub–section(4) of section 45 has not to be read "ejusdem generies" with the expression "dissolution of a firm or other AOP" .It has to be read with the words "transfer of a capital asset by way of distribution of capital asset". Therefore capital gain is chargeable to tax on takeover of a capital asset by a partner on dissolution of firm.

ITO vs. International Rubber & Plastics (2010) 48 DTR 219 (Trib.)(Chennai)

S. 50 : Capital Gains – Depreciable Assets – Block of Assets

If after crediting sale proceeds the written down value of block is reduced, it cannot be taxed separately. If written down value of block exceeded profit to be taxed as short term Capital Gains.

Rolls Royce Industrial Power Ltd. vs. ACIT (2010) 6 ITR 722 (Trib.) / 42 SOT 264 (Trib.)(Delhi)

S. 50B : Capital Gains – Slump Sale – Transfer of Business as going Concern – (S. 2(19AA), 2(42C), 50)

Where a business as a going concern is transferred including inventory, contract, license agreements, accounts receivables, vendor lists etc., same would fall within the definition of slump sale and is to be considered for computation of capital gains in accordance with section 50B.

Duchem Laboratories Ltd. vs. ACIT (2010) 134 TTJ 532 (Trib.)(Mum.)

S. 50C : Capital Gains – Stamp Valuation – Development Rights

The assessee was co–owner of inherited property. He entered into an agreement with the developer for development of the property for a consideration of Rs. 63 lakhs and offered his share of the consideration to capital gains. The Stamp valuing authority valued the property at Rs. 4.73 crores though the DVO valued it for Rs. 1.81 crores. The Assessing Officer invoked the provision of section 50C and adopted the DVO's valuation for consideration. This was confirmed by the CIT(A). Before the Tribunal the assessee argued that there was a distinction between "rights in land and building" and "land and building" and the section 50C did not apply to "rights" in land and building such as development rights. The Tribunal held that the argument that transfer of development rights does not amount to transfer of land or building and therefore, section 50C is not applicable is not acceptable because under section 2(47)(v) the giving possession in part performance of a contract as per section 53A of the Transfer of Property Act is deemed to be a "transfer". When the assessee received the sale consideration and handed over possession of the property vide the development agreement, the condition prescribed in section 53A of the Transfer of Property Act is satisfied and section 2(47)(v) the transaction of transfer was completed. The fact that the assessee's name stands in the municipal records does not change the nature of transaction.

Arif Akhatar Hussain vs. ITO (ITAT – Mumbai)

S. 50C : Capital Gains – Stamp Valuation – Transaction of Sale of Property – Prior to 1-4-2003 – Reference to DVO

Provisions of section 50C of the Act shall not be applicable in respect of transaction of sale of property entered into on or before 1-4-2003, considering the theory of natural justice and impossibility. Assessee has a right to challenge the valuation of property under section 56(2), adopted by SVA and in that case Assessing Officer should refer the matter to DVO.

Ashutosh Bhargava, Gudda Godji (Jhunjhunu) vs. Dy. CIT (2010) Tax World Nov., 10 Vol. XlV Part-5 Page 173

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.)

Editorial Note : ITO vs. Ms. Sushila M. Jhaveri (2007) 107 ITD 321 (Mum) (SB)

S. 56 : Income from Other Sources – Business Income – Gift received by Politicians – (S. 28)

Gifts received by assessee, a politician, from numerous donors as a token of appreciation of her reformative work for upliftment of Dalits without any perceptible or intended quid pro qua as evident from the affidavits of the donors are to be treated as personal gifts and not vocational or professional gifts and therefore all such gifts including those upto Rs. 25,000 are to be considered under section 56(2)(v) and not under section 28 and thus gifts up to Rs. 25,000 were not taxable.

Dy. CIT vs. Mayawati (Ms.) (2010) 48 DTR 233 (Trib.)(Delhi)

S. 56 : Income from Other Sources – Interest Income – During Precommencement Period – [S. 28(i), 37(1), 57 (iii)]

Interest earned by the assessee company by investing its surplus funds in deposits with banks and other companies at the time when it was constructing the building of the institute for conducting its main business activity is taxable as "income from other sources" since the business was set up, the expenditure incurred on revenue account cannot be allowed as business expenditure, if any incurred for earning interest income can be allowed.

Whistling Woods International Ltd. vs. ITO (2010) 48 DTR 371 / (2011) 135 TTJ 28 (Trib.)(Mum.)

S. 69 : Income from Undisclosed Source – Benefit of VDIS, 1997 – Other than Declarant – Gift from Declarant – (S. 68)

Benefit of declarations made by ladies and minors under VDIS, 1997, is also available to a person other than the declarant to the extent of amount declared unlike the earlier schemes and therefore, gifts received by the assessee from three ladies by way of account payee cheques out of the amounts declared by them under VDIS, 1997 which are supported by valid and subsisting certificates issued by the competent authority (CIT) have to be accepted as genuine and cannot be treated as undisclosed income of the assessee.

Dy. CIT vs. Mayawati (Ms.) (2010) 48 DTR 65 (Trib.)(Delhi)

S. 71 : Set off loss from one head against income from another – Loss from Non-Industrial Unit – (S. 80HHA, 80AB)

While computing deduction under section 80HHA with regard to income derived from industrial undertaking, loss from a non industrial unit, in terms of section 80AB and section 71, has to be adjusted first.

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

S. 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)

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. 80IB(10)(b) : Deductions – Housing Projects – Area set apart for amenities

In order to allow assessee's claim for deduction under section 80IB(10)(b), area of one acre available for development of housing project includes area required to set apart for amenities as per norms of corporation.

Bunty Builders vs. ITO (2010) 127 ITD 286 (Pune)

S. 80J : Deduction – Industrial Undertaking – Allowed in First Year

Once the claim for deduction under section 80J has been allowed to the assessee in first year by the Tribunal and also for subsequent two years such deduction is allowable for subsequent year falling within period of five years.

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

S. 88E : Rebate – No Tax Payable – Income set off against brought forward losses – [S. 87(2)]

Both the conditions of chargeability of income to tax and liability to pay tax on transactions should co-exist so as to become eligible for relief under section 88E. STT paid by the assessee was not eligible for rebate under section 88E where the income from speculation business was fully set off against brought forward speculation losses and no income tax was payable in respect of such transactions.

Oasis Securities Ltd. vs. Dy. CIT (2010) 134 TTJ 649 (Mum.)

S. 92 : Transfer Pricing – International Transaction - Arm's Length Price

If commercial transaction is at arms' length, no transfer pricing addition for non-charging of interest on overdue debt. A continuing debit balance is not an "international transaction" per se but is a "result" of the international transaction. Unlike a loan or borrowing, it is not an independent transaction which can be viewed on standalone basis. What has to be examined is whether the commercial transaction is at arms length. As also, when an ALP is made in respect excessive credit period allowed under the CUP method, the comparable has to be dues recoverable from a debtor and not a borrower.

Nimbus Communication Ltd. vs ACIT (ITAT – Mumbai)

S. 92C : Transfer Pricing – Arms Length Price – TNMM

It is not acceptable that for purpose of computation of ALP, the assessee has the unfettered discretion to adopt the TNMM and the TPO is not entitled to reject that method without showing deficiencies / defects. Section 92C r.w. Rule 10C requires the "most appropriate" method to be chosen from amongst those specified. The exercise of selecting the "most appropriate" method implies that the appropriateness of method is to be ranked in some order. Accordingly, it is open to the TPO to reject the TNMM and adopt the CUP method on the basis that the latter is "most appropriate" on the facts of the case.

Serdia Pharmaceuticals (I) Pvt. Ltd. vs ACIT (ITAT – Mumbai)

S. 92(C) : Transfer Pricing – Computation of Arm's Length Price – Method of Computing Profit – Total Cost Margin under TNMM

Assessee being engaged in rendering advertising services to its customers/AEs in capacity of an agent receiving remuneration on the basis of fixed commission/charges based on the expenses or cost incurred by it and recovering the payments made to third parties for rendering of advertisement space from the respective customers/AE. For determining the ALP, mark-up is to be applied to the cost incurred by the Assessee in performing its agency function and not to the cost of rendering advertising space to the AEs.

Dy. CIT vs. Cheil Communications India (P) Ltd. (2010) 48 DTR 289 (Trib.)(Delhi)

S. 92C(2) : Transfer Pricing – Computation of Arm's Length Price -Applicability of Proviso – Difference upto 5 percent

Differential rate sales made to associated concern RG and other concerns is below 5 percent and therefore, the Proviso of section 92C(2), is not applicable.

Ravi Kumar Rawat vs. ITO (2010) 47 DTR 470 (Trib.)(JP)

S. 92C : Transfer Pricing – Computation of Arm's Length Price – Adjustment on cess on royalty – Comparison

Assessee having made payments of royalty to its foreign collaborator for importing the technology, research and development cess is payable by the assessee in terms of section 3(2) of Research and Development Cess Act, 1986 and therefore, no adjustment can be made for the same in the computation of ALP on the basis that such cess is payable by the foreign collaborator. When the terms and the basis of payment of royalty are materially different, the rate at which royalty is paid by the assessee to its foreign collaborator cannot be compared with the rates of royalty paid by other companies and no adjustment is to be made.

Kirloskar Ebara Punps Ltd. vs. Dy. CIT (2010) 48 DTR 348 (Trib.)(Pune)

S. 92C : Transfer Pricing – Computation – Comparables – TNMM

The Tribunal held that in absence of allegation that the agreement approved by regulatory authority is a sham, the tax authority cannot disregard the same. For transfer pricing analysis internal comparables are preferable over external comparables. While applying TNMM, only profits related to the transaction with AEs should be compared and not profits of the company as a whole.

Abhishek Auto Industries Ltd. vs. Dy. CIT (2010) TII 54 ITAT–Del-TP (2011) BCAJ Jan 21 (437) (2011 42B –BCAJ)

S. 92C : Transfer Pricing -/+ 5% variation from ALP not available if only one price is determined

The assessee undertook international transactions with associated enterprises for export pulses. The Assessing Officer made a reference to TPO for determination of the ALP and concluded by adopting "CUP" method, that in six instances the price paid by the assessee was in excess of quotation in "Agriwatch" database. In appeal the CIT(A) accepted that in respect of the transaction where the variation between the price paid and the price given in "Agriwatch" was less than 5%, no adjustment could be made though he confirmed other additions. On cross appeal before the Tribunal it was held that transfer pricing benefit under section 92C +5 % variation is not available if only one price determined.

ACIT vs. UE Trade Corporation (India)

S. 92CA : Transfer Pricing – Computation of Arm's Length Price – Out standing more than six months

Assessee company having an AE in USA, entered into a product development services agreement and a professional services agreement, both separately, with its said AE. Assessing Officer made reference under section 92C to TPO. TPO has accepted prices in respect of transaction entered into between assessee and its AE as ALP compatible. However, TPO noticed that an amount of Rs. 5.52 crores belonging to assessee was outstanding for more than six months. She opined that by parking this huge amount at disposal of its AE, assessee was depriving funds otherwise available in its hands and adversely affecting its profitability. TPO has calculated interest on aforesaid amount and recommended Assessing Officer to add interest in assesses's taxable income. Assessing Officer made additions. Tribunal upheld the addition made by the Assessing Officer.

Logix Micro Systems Ltd. vs. ACIT (2010) 42 SOT 525 (Bang) /

S. 115JB : Company – Minimum Alternative Tax – Losses Brought Forward

The expression "losses brought forward" in clause (iii) of Explanation (I) to section 115JB(2) would mean loss on last date of immediately preceding year, which is to be brought forward to financial year in question, what happens during course of year is not relevant.

CIT vs. Sumi Motherson Innovative Engg. Ltd. (2010) 195 Taxman 353 (Delhi)

S. 115JB : Book Profit – Minimum Alternate Tax – Revaluation of Reserve

Amount withdrawn from revaluation reserve & credited to P&L A/c cannot be reduced from book profit even if in year of creation of reserve, the P&L A/c was not debited. It is precisely to tax these kinds of companies that MAT provisions had been introduced. The object of MAT provisions is to bring out the real profit of the companies. The thrust is to find out the real working results of the company.

Indo Rama Synthetics (I) Ltd. vs. CIT (Supreme Court)

S. 127 : Transfer of Case – Recording of Reasons – Opportunity of being heard – (S. 153C)

Not only is the requirement of recording reasons under section 127(1) a mandatory direction under the law, but that non communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee, further, opportunity of being heard has to be provided before making the order of transfer of case.

Madhu Khurana vs. CIT (2010) 47 DTR 289 (Guj.)

S. 127 : Transfer of Case – Opportunity of Hearing

In the case of intra city transfers, though opportunity of hearing as postulated in section 127(1) and 127(2) has been dispensed with other statutory formalities which include issuing an order are required to be complied with; Assessing Officer on his own could not transfer an income Tax file to another officer without an order under section 127(3).

Kusum Goyal vs. ITO (2010) 48 DTR 343 (Cal.)

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. 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. 143 : Assessment – Rejection of Books of Account – Departmental Valuation Officer

Assessing Authority could not refer the matter to the Departmental Valuation Officer in a case where there was a categorical finding recorded by the Tribunal that the books of account were never rejected. Decision of the Uttaranchal High Court reversed.

Saragam Cinema vs. CIT (2010) 328 ITR 513 (SC)

S. 143(2) : Assessment – Notice

In absence of any reference of the alleged first notice under section 143(2) in the order sheet and other abnormal circumstances indicating absence of such notice, it cannot be accepted that the said notice was issued and received by the assessee, and the later notice having been received by her only after the statutory time-limit under section 143(2), the assessment was invalid.

Dy. CIT vs. Mayawati (Ms.) (2010) 48 DTR 233 (Trib.)(Delhi)

S. 144C : Reference to Dispute Resolution Panel – Reasoned Order

DRP while issuing directions under section 144C must not pass "laconic" orders but must deal with assessee's objections. It was held in SaharaIndia (Farms) vs. CIT 300 ITR 403 (SC) that even "an administrative order has to be consistent with the rules of natural justice".

GAP International Sourcing India Pvt. Ltd. vs. Dy. CIT (ITAT–Delhi)

S. 144C : Reference to Dispute Resolution Panel – Reasoned Order

DRP must give "cogent and germane reasons" in support of section 144C directions.

Vodafone Essar Ltd. vs. Dispute Resolution Panel (Delhi High Court)

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 – Notice – Within four years – Based on Supreme Court Decision – (S. 148)

The decision of the Supreme Court which declares the law from the very beginning of the existence of the provision itself would constitute material to reopen the proceeding under section 147 of the Income Tax Act, 1961. Reassessment notice issued within four years based on Supreme Court decision is held to be valid.

Kartikeya International vs. CIT (2010) 329 ITR 539 (All)

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. 147 : Reassessment – Jurisdiction – Second round of litigation before the Tribunal – (S. 253)

The assessee in the first round of litigation did not raise the issue of reassessment, before the Tribunal although it was in appeal before the Tribunal on merits. The Tribunal held that, it is now well established that the issue of jurisdiction of the authorities is fundamental and is like the root of the proceedings or matter. The matter had not reached the finality and the dispute or defect as regards the jurisdiction got inbuilt in to the order and should, therefore always be subject matter for legal scrutiny, when questioned. After all the jurisdiction to authorities cannot be conferred by acceptance or negligence of the parties to the dispute. It can always be agitated or questioned when the assessee gets some opportunity over the issue. In a way that issue is always open to challenge even if the round is second or third. As long as the issue has not reached the finality, it is always open to question or challenge in judicial proceedings.

Hemal Knitting Industries vs. ACIT (2010) 127 ITD 160 / 48 DTR 393 (Chennai)(TM)

S. 147 : Reassessment – After Four Years – Amount received on Retirement

Petitioner on retirement from law firm got first installment of Rs. 17,01,562/- as per partnership deed for not practicing as a lawyer for three years. During original assessment proceedings all the relevant material was disclosed. After four years the assessment was reopened to tax the amount. The Court held that all the relevant particulars was disclosed, assessment cannot be reopened under section 147 after four years.

Anil Radhakrishna Wani vs. ITO (2010) 219 Taxation 74 (Bom.)

S. 148 : Reassessment – Notice – Mandatory – (S. 144)

Where the Assessing Officer is not satisfied with the return filed by the assessee, assessment cannot be made validly unless notice under section 143(2) is issued. Assessing Officer having tinkered with the return filed by the assessee without issuing notice under section 143(2), the assessment is invalid and void ab-initio, more so when the Assessing Officer had sufficient time to adhere to the mandatory requirement of service of notice under section 143(2) as well as for completing the assessment after dismissal of the writ petition filed by the assessee.

Dy. CIT vs. Mayawati (Ms.) (2010) 48 DTR 65 (Delhi)(Trib.)

S. 148 : Reassessment – Notice – Service

Reassessment made without service of a notice under section 148 is vitiated as service of requisite notice on the assessee is a condition precedent to the validity of reassessment; impugned order is set aside and matter remanded to the respondents to proceed after issuing notice under section 148.

S. Nachiar (Smt.) vs. ITO (2010) 48 DTR 61 (Mad.)

S. 148 : Reassessment – Change of Opinion – Non disposal of assessee's objections on merits

Assessing Officer having failed to apply his mind to the merits of the objections raised by the assessee that there was no fresh material before the Assessing Officer and that he was seeking to reopen the assessment only on the basis of a mere change of opinion, the impugned order is quashed and set aside and the proceedings are remanded back to the Assessing Officer to pass a fresh order.

Skol Breweries Ltd. vs. Dy. CIT (2010) 236 CTR 555 (Bom.)

S. 148 : Reassessment – Recording of Reasons – Jurisdiction – (S. 292B)

Reassessment made on the basis of notice under section 148 issued by an ITO who did not have jurisdiction over the assessee and non recording of reason by the Jurisdictional ITO and fresh notice from the latter is not valid. Provision of section 292B cannot be resorted to for curing such a jurisdictional defect.

ITO vs. Rajendra Prasad Gupta (2010) 48 DTR 489 (Trib.)(Jd.)

S. 158BFA : Search and Seizure – Interest – Delay in Filing Return – (S. 158BC)

While computing period for which interest under section 158BFA(1) is chargeable, the total time taken by the assessee from the date of service of notice under section 158BC till date of filing of the return is to be taken into consideration and from this period, the time taken by the department in supplying the documents has to be excluded.

CIT vs. Mesco Airlines Ltd. (2010) 236 CTR 628 (Del.)

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)

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)

S. 234B : Interest – Book Profit Company – (S. 115J, 115JA)

The assessee was bound to pay advance tax under the scheme of the Act. Section 234B is clear that it applies to all companies. There is no exclusion of section 115J/115JA in the levy of interest under section 234B (Kwality Biscuits Ltd vs. CIT 243 ITR 519 (Kar.) (SLP dismissed in 284 ITR 434) considered).

Jt. CIT vs. Rolta India Ltd. (Supreme Court)

S. 253 : Appellate Tribunal – Power – Jurisdiction – Reassessment – Second round of appeal – (S. 147)

The assessee in the first round of litigation did not raise the issue of reassessment, before the Tribunal although it was in appeal before the Tribunal on merits. The Tribunal held that, it is now well established that the issue of jurisdiction of the authorities is fundamental and is like the root of the proceedings or matter. The matter had not reached the finality and the dispute or defect as regards the jurisdiction got inbuilt into the order and should, therefore, always be subject matter for legal scrutiny, when questioned. After all the jurisdiction to authorities cannot be conferred by acceptance or negligence of the parties to the dispute. It can always be agitated or questioned when the assessee gets some opportunity over the issue. In a way that issue is always open to challenge even if the round is second or third. As long as the issue has not reached the finality, it is always open to question or challenge in judicial proceedings.

Hemal Knitting Industries vs. ACIT (2010) 127 ITD 160 / 48 DTR 393 (Chennai)(TM)

S. 254(1) : Appellate Tribunal – Ex-parte Order – Rule 24

Where the Tribunal rejected the application of the petitioner under Rule 24 for recalling ex-parte order on irrelevant grounds and the petitioner had explained reason for non appearance on the date of hearing of appeal, the order passed by Tribunal rejecting the petitioner's application under Rule 24 was liable to be set aside.

Devendra G. Pasale vs. ACIT (2010) 47 DTR 297 (Guj.)

S. 254(1) : Appellate Tribunal – Additional Ground – Alternative Ground

Alternative contentions raised by the assessee in the additional grounds of appeal before the Tribunal claiming deduction of the impugned payment of non-compete fee as a deferred revenue expenditure over the period of agreement or depreciation thereon in case the said fee is to be considered as giving rise to acquisition of an intangible asset are pure questions of law not requiring investigation of fresh facts and therefore, the additional grounds are admitted for adjudication.

Orchid Chemicals & Pharmaceuticals Ltd. vs. ACIT (2010) 48 DTR 441 (Trib.)(Chennai)

S. 254(2) : Appellate Tribunal – Rectification of Mistake – Power to Recall Order

It is fundamental principle that no party appearing before the Tribunal should suffer on account of any mistake committed by the Tribunal and no prejudice should be caused to either of the parties before the Tribunal which is attributable to the Tribunal's mistake, omission or commission. Thus, Tribunal entitled to recall order in entirety to rectify apparent mistake. Followed Supreme Court Judgement Honda Siel Power Products 295 ITR 466 and Saurashtra Kutch Stock Exchange 262 ITR 146.

Lachman Dass Bhatia Hingwala vs. ACIT (Delhi High Court – Full Bench)

S. 260A : Appeal – High Court – Condonation of Delay – Departmental Appeal

The High Court dismissed the department's appeal on the ground of delay. On appeal to Supreme Court, the Court held that looking to the amount of tax involved in this case, we are of the view that the High Court ought to have decided the matter on merits. The Court further observed that in all such cases where there is delay on the part of the department, we request the High Court to consider imposing costs but certainly it should examine the cases on merits and should not dispose of cases merely on the ground of delay, particularly when huge stake is involved.

CIT vs. West Bengal Infrastructure Development Finance Corp. (Supreme Court)

S. 260A : Appeal – High Court – Substantial Question of Law – Cash Credits – (S. 68)

All the authorities below, in particular the Tribunal, having observed in unison that the assessee did not produce any evidence to rebut the presumption drawn against him under section 68 by producing the parties in whose names the impugned amounts were credited in assessee's books of account, the conclusion of the Tribunal to the effect that the assessee has failed to prove the source of the cash credits cannot be said to be perverse, giving rise to a substantial question of law and therefore, no interference is warranted.

Vijay Kumar Talwar vs. CIT (2010) 236 CTR 454 / 48 DTR 174 (SC)

S. 271(1)(c) : Penalty – Concealment – Depreciation – Finance Transaction – Not a genuine leasing transaction

When a legal claim is a made by an assessee it is obviously open to Assessing Officer to accept or reject interpretation canvassed by assessee but then it does not follow that when claim is rejected, it would imply that there has been a concealment of income on part of assessee so as to levy penalty under section 271(1)(c). Penalty levied on disallowance of claim of depreciation on leasing of assets were deleted by the Tribunal.

Industrial Development Bank of India Ltd. vs. Dy. CIT (2010) 42 SOT 325 (Mum.)

S. 271(1)(c) : Penalty – Concealment – Recording of Satisfaction – Wrong Depreciation

Due to bona fide mistake depreciation was claimed in reverse manner i.e., 50% on Rs. 6,35,492 and 100% on Rs. 4,25,79,639. Levy of penalty cannot be justified as there was no mala fide intention. On the facts as the Assessing Officer did not record his satisfaction and did not initiate penalty at the time of assessment, levy of penalty was not justified.

ACIT vs. Chambal Fertilizer & Chemicals Kota (2010) Tax World (November, 10) Vol. XLIV, Part-5. Page 188

S. 273A : Waiver of Penalties and Interests – Genuine Hardship

Where the petitioners had made disclosure of additional income consequent to search and seizure of a diary containing discriminating material, such disclosure cannot be treated to be voluntary within the meaning of section 273A. Where the petitioners had not produced the balance sheet or any material to show that the petitioners were not in a position to pay the penalty and if they had not paid the penalty, there would be adverse consequences to the petitioners, there was no case for the petitioners to plead genuine hardship as envisaged in section 273A(4).

Sharadadevi P. Jhunjhunwala & Ors. vs. CIT (2010) 236 CTR 142 (Bom.)

S. 276AB : Offence – Prosecution – Chapter-XX–C – Form 37I [S. 269UA(f)(i)]

Petitioners having let out its property under a lease for a period of nine years which, Explanation to section 269UA(f)(i), is clearly attracted and, therefore, provisions of Chapter XX-C are applicable. Petitioners having failed to submit Form No. 37-I criminal proceedings under section 276AB r/w 278B cannot be quashed.

Govind Impex (P) Ltd. & Ors vs. Appropriate Authority (2010) 236 CTR 449 / 48 DTR 169 (SC)

S. 276C : Offences – Prosecution – Two different agreements for same construction – Charge – IPC – (S. 193)

Since two agreements for the same purpose with different values were found during search, as per explanation under section 276C, prima facie material is available against the petitioner to frame charge under section 276C.

Vijayalatha vs. ITO (2010) 48 DTR 324 (Mad.)

S. 276CC: Offences – Prosecution – Mens rea – Filing of return in response to notice under section 148 - (S. 148)

Assessee is not exonerated from prosecution under section 276CC for not filing the returns within statutory due date as per section 139(1) though the returns are filed in response to notice under section 148, further, as there is a statutory presumption prescribed under section 278E, the burden is on the assessee to show that there was no willful default.

R. Inbavalli vs. ITO (2010) 48 DTR 276 (Mad.)

S. 276B : Offence and Prosecution – Director – Tax Deduction at Source – [S. 2(35)]

Director of a company is not "principal officer" within meaning of section 2(35) and in case Income Tax Officer seeks to prosecute a director along with company for an offence punishable under section 276B, then he has to issue a notice under sub-clause (b) of section 2(35), expressing his intention to treat such director as "principal officer" of company and in absence of such a notice prosecution against director would fail.

ITO vs. Delhi Iron Works (P) Ltd. (2010) 195 Taxman 372 (Delhi)

Wealth Tax

S. 40(3)(vi) : Wealth Tax – Company – Exemption – Asset Used for Business

Land used for internal roads and play ground, is not entitled to exemption.

Motwane Manufacturing Co. Ltd. vs. CWT (2010) 329 ITR 413 (Bom.)

General Merger – Transaction in the nature of "Gift" – Scheme designed to avoid taxes cannot be sanctioned –  Companies Act – (S. 391-394)

The Court held that section 391 does not contemplate all kinds of schemes, but only schemes that are either a compromise or an arrangement with creditors or members or any class of them. The transaction being in the nature of a "gift" is not an "arrangement". The transaction is also not a "reconstruction" because the important criterion for "restructuring" is that the same persons carry on the same business. In the present case, the transferee is not carry on the same business of the transferor. The scheme being without consideration may be void under section 25 of the Contract Act. The Court held that avoidance of tax is taking place if the scheme is sanctioned. The Court has not sanctioned the scheme of merger.

Vodafone Essar Gujarat Ltd. (Gujarat High Court)

Interest Tax Act, 1974

Interest Tax – Chargeability – Financial Company – Financial Lease – Operating Lease – (S. 2(5A), 2(5B) & 4)

For the purpose of applicability of sub. Cl. (iv) of section 2(5B), i.e. To determine whether the company carrying on lease business would be covered as loan company or not distinction will have to be drawn between a financial lease and an operating lease and financial lease would be relevant for applicability of sub. cl. (iv) as that would fall in the category of a loan company.

CIT vs. Motor and General Finance Ltd. (2010) 48 DTR 118 (Delhi)