Bundle of case law

IT : Where pursuant to an agreement a US company, which had a global central purchasing unit (CPU) in USA allowed access to use of CPU to assessee and assessee made payment to said non-resident company on account of link charges, since manner in which services were provided could not be easily ascertained matter was to be remanded to lower authorities for deciding as to whether payment amounted to `royalty' or `fees for technical services' in order to bring it to tax in India - [2011] 11 taxmann.com 225 (Mum. - ITAT)

IT : By way of amendment made in section 43(5) with effect from 1-4-2006 legislature did not intend to take away brought forward losses of dealing in derivatives or make them ineligible for being set off against profits of same business in subsequent years - [2011] 11taxmann.com 231 (Mum. - ITAT)

IT : Assessing Officer after making enquiries has taken a permissible view on a issue while passing assessment order and if on same facts Commissioner has a different opinion, revisionary proceedings under section 263 cannot be initiated by him - [2011] 11 taxmann.com 230 (Ahd. - ITAT)

IT : Where financial data of three comparable companies were not before Assessing Officer/TPO at time of making assessment and they were not examined on their merit, it was considered fit and proper to restore matter regarding determination of arm's length price of international transactions entered into by assessee with AE to the file of Assessing Officer/TPO for fresh adjudication - [2011] 11taxmann.com 232 (Delhi - ITAT)

IT : Mere making of a claim by assessee in its return based upon ruling of AAR which it had subsequently revised voluntary as per latter ruling of AAR would not amount to concealment of income on part of assessee warranting levy of penalty under section 271(1)(c) - [2011] 11taxmann.com 226 (Mum. - ITAT)

IT : Section 44BB would be applicable to a non-resident-company who entered into turnkey basis contracts with ONGC even though it had bifurcated contract price into two segments one relating to supply of services and other relating to supply of spares - [2011] 11taxmann.com 229 (Delhi - ITAT)

IT : Where no opportunity was provided to assessee by way of issuing show cause notice prior to making order under section 92CA(3), matter was to be remanded back to file of Assessing Officer to comply with provisions of law and provide adequate and meaningful opportunity of being heard on issues and then decide matter afresh in accordance with law - [2011] 11 taxmann.com 228 (Delhi - ITAT)

IT : Where assessee-society advanced rupees five lakhs to one of its members allegedly for improvement and expansion of her building which accommodated school being run by assessee, but there was no evidence that amount had been utilized for purpose it had been lent, assessee was denied exemption under section 11 - [2011] 11 taxmann.com 234 (Patna)

IT : Where Commissioner noticed vital flaws in order of assessment entirely attributable to extremely dishonest and defiant approach of assessee, he was justified in setting aside assessment order by invoking powers under section 263 - [2011] 11 taxmann.com 237 (Patna)

IT : For initiating penalty proceedings under section 271(1)(c) recording of satisfaction about concealment of assessee's income is not necessary to be recorded in specific terms and words - [2011] 11 taxmann.com 236 (Cal.)

IT : Income from sale of scrap generated in course of extraction of rubber latex from trees, which is purely an agricultural operation, cannot be brought to Central Income-tax by applying rule 7A of Income-tax Rules - [2011] 11 taxmann.com 239 (Ker.)

IT : Grant of exemption to assessee-trust under section 11 would not effect assessee's right of claming depreciation - [2011] 11taxmann.com 242 (Punj. & Har.)

IT : Tax of non-resident recipient borne by Indian payer is nothing but deemed income of non-resident and same would not fall within definition of tax on income for disallowance under section 40(a)(ii) - [2011] 11 taxmann.com 268 (Mum. - ITAT)

: Notional interest on interest free security cannot be taken as determinative factor to arrive at fair rent - [2011] 11 taxmann.com 265 (Mum. - ITAT)

IT : Production of television and radio programmes for purpose of telecasting and broadcasting through assessee's own network or through network hired by it did not constitute advancement of any object of general public utility within meaning of section 2(15) - [2011] 11 taxmann.com 240 (Ker.)
2011-TIOL-387-HC-AHM-IT

Vinodbhai Arvindbhai Patel Proprietor Shakti Construction Vs ITO (Dated: May 3, 2011)

Income tax – Sections 147, 148, 149, 150 – Whether when assessment is framed as per remand order of the Tribunal, re-assessment can be initiated even after completion of six years from the end of the assessment. - Assessee's appeal allowed: GUJARAT HIGH COURT;

2011-TIOL-369-ITAT-COCHIN + depreciation story

Dy.DIT, Ernakulam Vs Adi Sankara Trust (Dated: June 16, 2011)

Income Tax - Sections 11, 12A, 32(1) - Whether when assessee, a charitable body, has already claimed deduction for acquisition of capital assets as application of money, the further claim of depreciation on the same assets would amount to double benefits. - Revenue's appeal allowed : COCHIN ITAT;

2011-TIOL-368-ITAT-MUM

The Tata Power Co Ltd Vs Addl.CIT, Mumbai (Dated: May 31, 2011)

Income Tax - Sections 54EC, 72, 74 - Whether when assessee has long-term capital gains, the stage of setting off of long-term capital loss comes only after grant of exemption u/s 54EC. - Revenue's appeal allowed: MUMBAI ITAT;

2011-TIOL-367-ITAT-CHD

M/s Vodafone Essar Ltd Vs Addl.CIIT, Chandigarh (Dated: April 7, 2011)

Income Tax - Sections 14A, 40(a)(ia), 80IA, 115JB, 143(3), 144C(13), 194C, 195, 220(6), 226(3) - Whether when Sec 80IA benefits are debatable, the Tribunal is right in granting conditional stay of high-pitch demand raised - Whether, to do justice to the cause of Revenue, Tribunal is right in directing the assessee to pledge its investments in subsidiaries as security with the AO for the balance demand. - Case disposed of: CHANDIGARH ITAT;

2011-TIOL-366-ITAT-MAD

M/s Rane Brake Lining Ltd Vs ITO, Chennai (Dated: April 21, 2011)

Income tax – Sections 14A, 80HHC, 80IB – Whether disallowance can be made u/s 14A for the interest on borrowed fund even if it is explained that the funds utilised for investments are not borrowed funds – Whether 90% of the rent recovered as sublet is to be excluded from the profit eligible for deduction u/s 80HHC while computing the deduction – Whether the deduction u/s 80HHC is to be allowed after reducing the deduction u/s 80IB. - Assessee's appeal partly allowed : CHENNAI ITAT;



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263, Revision by Commissioner of Income Tax

Whether when assessee lends colour of business income to dividend declared as 'income from other sources' in previous year, and AO allows set-off of brought forward losses, it is a fit case for CIT to invoke revisionary powers - YES: Delhi HC

NEW DELHI, MAY 20, 2011: THE issue before the High Court is - Whether when assessee lends colour of business income to dividend income declared as 'income from other sources' in the previous year and AO allows set off of brought forward losses against such income, it is a fit ground for CIT to invoke revisionary powers u/s 263. YES is the HC's answer.

Facts of the case

CIT rightly initiated proceedings u/s 263 for setting off of brought forward business loss against the income from other sources by the AO, without giving the reason by the AO in the assessment order as to how the dividend income was given the character of business income for the purpose of set off under Section 72 of the Act though the dividend income was assessed as income from other sources, as it was prejudicial to the interest of revenue and erroneous.

Assessee is a non-banking company registered with the Reserve Bank of India, and is engaged in the business of investment in shares, securities, other debt instruments and financing loans and providing guarantees. Assessee claimed dividend income received as business income and set off the brought forward business losses. AO treated the dividend income as income from other sources as was itself shown by the assessee in the preceding years and allowed set off of losses. CIT observed that the AO had wrongly allowed the set off of business losses of preceding years against the income from other sources which was not permissible under section 72(1). Accordingly CIT initiated proceedings u/s 263 stating that the AO did not bestow any consideration or applied his mind leading to escapement of income as setting off of brought forward business losses had resulted in the assessment which was erroneous and prejudicial to the interest of revenue. In reply to the show cause notice issued by CIT, the assessee contended that assessee was engaged in the business of investment and was holding the shares of other companies of the same group. Investment was meant for control and management of investee companies. The shares constituted the business asset of the company and dividend earned from such investment was in nature of `business income' and this income was eligible for set off against the brought forward business losses. CIT set aside the order of the AO for fresh consideration stating that the investments were held as long-term investment and no part of the investment was considered stock-in-trade by the assessee. Therefore, the AO failed to conduct the required enquiry and also failed in application of the provisions of S. 72(1). ITAT allowed the appeal of the assessee and set aside the order of CIT observing that the said income could be treated as business income as dividend was earned from the shares and securities held in the other companies in the same group – the view of the AO was a plausible view and it could not be said that the AO had not applied his mind.

After hearing both the parties, the High Court held:

++ that it would be immaterial as to under what head specified under Section 14 of the Act that the income is computed. Even when it is not computed under the head 'income from profession and business', the commercial character of that income could still be taken into account. If it is found that the particular income was derived from the business of the assessee, for the purposes of set off, it can be taken as business income;

++ that in the assessment order, the AO recorded that even a dividend income in question was shown as business income by the assessee. The AO did not agree with the same, as in the previous years this income was shown as dividend income. After saying so, the AO straightaway allowed the set off of this income against the carry forward losses. The assessment order is totally silent and there is no discussion as to how this dividend income was to be given the character of business income for the purpose of set off under Section 72 of the Act. It was for this reason that the CIT held that the AO had not conducted any inquiry. ITAT did not appreciate that the AO had not even taken any view on this issue, it could not be said that the AO had not applied his mind;

++ that the Tribunal failed to appreciate the limited scope of appeal before it, viz., the validity of the order passed by the CIT exercising his revisionary power under Section 263 of the Act. The CIT recorded that the Assessing Officer had failed to conduct the required enquiry and also had failed in application of the provisions of Section 72 (1) of the I.T. Act. This rendered order passed by the AO erroneous and prejudicial to the interest of Revenue to that extent. The Tribunal was, thus, supposed to adjudge the validity of such an order and not to go beyond when the challenge before it was limited to the said order passed by CIT in exercising the powers under Section 263 of the Act.

Revenue's appeal allowed.