ITR Vol 328, part 1 date 25.10.2010

INCOME TAX REPORTS (ITR)

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

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

==> SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

==> Banking Regulation Act, 1949 :

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

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

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

==> Constitution of India :

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

==> Income tax Act, 1961 :

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

==> Income-tax Rules, 1962 :

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

HC (HP): Sec 43B, CBDT circular, luxury tax

(2010) 33 (I) ITCL 208 (HP-HC)

CIT v. Eastbourne Hotels (P) Ltd.

Counsel: Ms. Vandana Kuthiala, for the Appellant q M/s. K. D. Sood, for the Respondent

JUDGMENT

This appeal has been admitted on the following substantial question of law :

"(i) Whether on the facts and in the circumstances of the case the learned Tribunal was right in law in holding that Circular Nos. 496 and 674 issued by the Central Board of Direct Taxes were applicable to the luxury tax in relation to the provisions of section 43B of the Income Tax Act, 1961, whereas the said circulars cover the sales tax only and do not have mention of luxury tax ?"

2. Briefly stated the facts of the case are that to give an impetus to the industry in the State of Himachal Pradesh especially the hotel industry, the State has permitted the hotels to make deferred payment of luxury tax/sales tax for a period of seven years to new hotels set up in the prescribed areas. According to the assessee, M/s. Eastbourne Hotels Pvt. Ltd., Shimla, it fulfils all the conditions relatable to the deferred payment to the luxury tax/sales tax. It, therefore prayed that in terms of Circular Nos. 496 ((1988) 169 ITR (St.) 53) and 674 ((1994) 205 ITR (St.) 119) issued by the Central Board of Direct Taxes ("CBDT"), the payment of luxury tax be deemed to be made in the year in which it fell due. The assessing officer did not accept the plea of the assessee and held that the assessee-company has not filed the requisite certificates showing that it was eligible to the benefits of the luxury tax deferral scheme and held that the assessee's applications could not be decided at that stage.

3. The assessee filed an appeal and the Commissioner of Income-tax (Appeals) on the basis of Circular dated 2-9-1996, held that the assessee could not be denied the benefit of Circular No. 496. The Income Tax Appellate Tribunal, Chandigarh upheld the order the Commissioner (Appeals). Hence the present appeal by the revenue.

4. Mrs. Vandana Kuthiala, advocate appearing on behalf of the revenue has argued that Circulars Nos. 496 and 674 only make reference to the Sales Tax Act and not to luxury tax and, therefore, the luxury tax deferral scheme is not exempt. She has placed reliance on section 43B of the Income Tax Act which provides that deduction allowable under the Income Tax Act in respect of the tax can only be allowed in the year in which the same is actually paid by the assessee. She has contended that under this section, the luxury tax could be deducted only in the year it was deposited and since it has not been deposited, deduction for the deferred payment of luxury tax cannot be allowed.

5. There is no manner of doubt that Circulars No. 496 and 674 refer to sales tax. In Circular No. 496, the Central Board of Direct Taxes noted the provisions of section 43B and it found that a large number of States had introduced sales tax deferral schemes as a part of the incentives offered to entrepreneurs setting up industries in backward areas. Under these schemes, the eligible units are permitted to collect sales tax and retain such tax for a prescribed period. In the present case, the prescribed period is seven years whereafter the tax is payable either in lump sum or in instalments. Various State Governments made representations that the provisions of section 43B should be read in such a manner so as to give effect to the incentives offered under the deferral schemes and not be an obstruction to the said schemes. Thereafter, the matter was examined by the Central Board of Direct Taxes in consultation with the Ministry of Law and the following decision was taken :

"4. The matter has been examined in consultation with the Ministry of Law and the various State Governments. The Ministry of Law has opined that if the State Governments make an amendment in the Sales Tax Act to the effect that the sales tax deferred under the scheme shall be treated as actually paid, such a deeming provision will meet the requirements of section 43B."

6. It appears that in a number of States, amendments were not carried out in the Act as directed in clause 4 quoted hereinabove and the State Governments prayed that the amounts covered under the scheme be allowed as deduction for the previous year in which the conversion has been permitted by the State Governments. The Board reconsidered the matter and issued another Circular No. 674 on 29-12-1993 ((1994)205 ITR (St.) 119). Relevant portion of it reads as follows :

"The Board have considered the matter and are of the opinion that such deferral schemes notified by the State Governments through the Government orders meet the requirements of the Board's Circular No. 496, dated 25-9-1987, in effect though in a different form. Accordingly, the Board have decided that the amount of sales tax liability converted into loans may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted by or under the Government orders."

7. A bare perusal of this circular shows that once the conversion has been permitted by the Government or under order of the Government, the deduction shall be permissible in the previous year in which such conversion is permitted. The Circular in our opinion totally covers the dispute. It is more in the nature of a clarification of section 43B. The revenue is bound by the circulars issued by the Central Board of Direct Taxes.

8. It may be mentioned that in view of the second circular, the Gujarat High Court in CIT v. Bhagwati Autocast Ltd. (2003) 261 ITR 481 and the Punjab and Haryana High Court in CIT v. Mahaluxmi Brick Manufacturing, Moulding and Fabricating Industries P. Ltd. (2005) 273 ITR 190 held that the assessee is allowed to claim deduction of the sales tax in the year in which it was payable notwithstanding the fact that it has not been actually paid in terms of the deferral scheme.

9. The argument of the revenue that the circulars make reference to the Sales Tax Act only and not to luxury tax and, therefore, do not cover the luxury tax deferral scheme is wholly without force. Deferral schemes for grant of incentives whether under the Sales Tax Act or any other Act have the same effect. The purpose is to encourage the industry. The circulars issued by the Central Board of Direct Taxes relate to the manner in which section 43B of the Act has to be interpreted. This interpretation has to be consistent for every tax deferral scheme and the interpretation cannot change from Act to Act. The Central Board of Direct Taxes has not granted any exemptions from the provisions of section 43B but has held that if its instructions are complied with then it will be deemed that the requirement of section 43B has been met. This will be applicable across the board to all Acts and cannot be limited only to the Sales Tax Acts.

10. However, we may point out that before taking benefit of the deferral scheme, the assessee must produce before the assessing officer the requisite certificates showing that it is covered under the deferral scheme. Therefore, though we hold that the circulars are applicable to luxury tax also, the assessee must produce before the assessing officer evidence to show that it is covered under the scheme. For this purpose, the matter is remitted to the assessing officer.

11. In view of the above discussion, the question is answered in favour of the assessee and against the revenue. The appeal is disposed of in the aforesaid terms. No order as to costs.

Section 132: SLP

Asstt. CIT & Anr. v. Hotel Blue Moon

Counsel: V. Shekhar with Aryit Prasad, Kunal Bahri, B.V. Balaram Das, Hrishikesh Banian, Balvir Singh Dosanjh, Jagjit Singh Chhabra, Dr. Rakesh Gupta, Amboj Kumar Sinha & Aarti Sain, for the Appearing Parties

JUDGMENT

Leave granted in all the special leave petitions.

2. These six appeals have been heard together. They arise out of similar facts and the question of law arising therefrom is the same.

3. The facts in the lead case are : This is an appeal against the judgment of the High Court of Guwahati in an appeal under section 260A of the Income Tax Act, 1961, hereinafter referred to as `the Act', and the point that is raised for our determination is, whether issue of notice under section 143(2) of the Act within the prescribed time for the purpose of block assessment under Chapter XIV-B of the Act is mandatory for assessing undisclosed income detected during search conducted under section 132 of the Act. While, according to the department, issue of a notice under section 143(2) is not essential requirement in block assessment under Chapter XIV-B of the Act. According to the assessee, service of notice on the assessee under section 143(2) of the Act within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XIV-B of the Act. The Tribunal held, while affirming the decision of the Commissioner (Appeals) that non-issue of notice under section 143(2) is only a procedural irregularity and the same is curable. In the appeal filed by the assessee before the Guwahati High Court, the following two questions of law were raised for consideration and decision of the High Court, they were :

"(1) Whether on the facts and in circumstances of the case the issuance of notice under section 143(3) (sic—143(2)) of the Income Tax Act, 1961 within the prescribed time-limit for the purpose of making the assessment under section 143(3) of the Income Tax Act, 1961 is mandatory ? and.

(2) Whether, on the facts and in the circumstances of the case and in view of the undisputed findings arrived at by the Commissioner (Appeals), the additions made under section 68 of the Income Tax Act, 1961 should be deleted or set aside ?"

4. The High Court, disagreeing with the Tribunal, held, that the provisions of section 142 and sub-sections (2) and (3) of section 143 will have mandatory application in a case where the assessing officer in repudiation of return filed in response to a notice issued under section 158BC(a) proceeds to make an inquiry. Accordingly, the High Court answered the question of law framed in affirmative and in favour of the appellant and against the revenue. The revenue thereafter applied to this court for special leave under article 136, and the same was granted, and hence this appeal.

5. The learned counsel Sri Shekhar for the revenue submitted, that, Chapter XIV-B of the Act provides a special procedure for search cases and is a complete code in itself dealing with both the substantive as well as procedural aspects of search cases and, therefore, there is a distinction between the procedure for regular assessment under Chapter XIV and the procedure of block assessment under Chapter XIV-B. Therefore, it is submitted for the purpose of block assessments the assessing authority need not follow the procedure prescribed under Chapter XIV which includes issuance of notice under section 143(2). The learned counsel has further contended that in a proceeding under section 158BC, there is no requirement of a notice to be issued under section 143(2), since issuance of notice for the purpose of section 158BC is separately prescribed. It is further submitted that block assessment is in addition to regular assessment, and what is included in regular assessment, cannot be assessed again in the course of a block assessment and similarly, what is assessed in block assessment, cannot be the subject-matter of regular assessment. It is further submitted that section 143(2) of the Act is in two parts. The first part deals with jurisdiction and the second with the procedure. The proviso to section 143(2) puts an embargo on the assessing officer to exercise jurisdiction after the expiry of 12 months- from the end of the month in which the return was filed by the assessee. It is the discretion of the assessing officer to accept the return as it is or to proceed further with the assessment of income, once the assessing officer decides to proceed, he has to issue notice under section 143(2) within the prescribed time-limit to make the assessee aware that his return has been selected for scrutiny assessment. In distinction to this procedure, under the special procedure prescribed in Chapter XIV-B, there is no discretion left with the assessing officer. It is further contended that the source and origin of a block assessment is the search which has been conducted under section 132 of the Act. Once the search has been carried out, the assessing officer is left with no discretion but to proceed with the block assessment. It is also submitted that in search cases the material is already found and is in the knowledge of the assessing officer. This is distinct and different from the situation of an ordinary assessment, where, the assessing officer does not have any material other than the return filed by the assessee. Therefore, the requirement of notice under section 143(2) is essential for production of material by the assessee. This is so because in regular assessments the assessing officer in the first instance has no material available to him except the return filed by the assessee. It is further submitted that the computation of undisclosed income of the block period has to be done in accordance with the provisions of section 158BB and on the basis of evidence found as a result of search or requisition of books of account, or other documents and such other materials or information as are available with the assessing officer and relatable to such evidence and, therefore, issuance of notice under section 143(2) is not required for block assessment proceedings. It is further submitted that the provisions of section 143(2) and other provisions mentioned in section 158BC(b) are to be applied only to the extent possible, since the provisions incorporated in the Chapter XIV-B constitute a special Code to assess the undisclosed income in search cases, they would override the provisions of Chapter XIV being the procedure for normal assessments. In support of this contention, reference is made to the decision of this court in the case of Dr. Partap Singh & Anr. v. Director of Enforcement & Ors. (1985) 155 ITR 166 (SC). Lastly, it is submitted, that, since both the schemes under Chapter XIV for a regular assessment and under Chapter XIV-B for block assessments are different that while no assessment under section 143(3) could be completed without the issuance of notice under section 143(2), the same restriction would not be applicable in the case of block assessment.

6. Per contra, the contention on behalf of the assessee(s) is that, for the purpose of block assessment under section 158BC, the provisions of section 142 and sub-sections (2) and (3) of section 143 are applicable and, therefore, no block assessments could be made without issuing notice under section 143(2) of the Act. It is further contended that notice under section 143(2) could have been dispensed with by the assessing officer if he proceeds to determine the income on the basis of the return without going for scrutiny. Referring to the provisions in clause (v) of the second proviso to section 158BC, it is submitted by the learned counsel that the words "so far as may be" does not give any discretion to the assessing officer to dispense with the requirement of such a notice under section 143(2), when he proceeds to make an enquiry within the scope and ambit of section 143(2). It is further contended that after a notice under section 158BC is issued, the assessee is required to file a return within a stipulated period. Once the return is filed, it is open to the assessing officer to accept the same or to require further investigation. If he accepts the return of undisclosed income as it is, then, there would be no necessity of issuing any notice under section 143(2) of the Act. However, if the assessing officer is not satisfied with the return so filed, then he is required to issue further notice under section 143(2) before an assessment order is passed under Chapter XIV-B of the Act.

7. The only question that arises for our consideration in this batch of appeals is, whether service of notice on the assessee under section 143(2) within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XIV-B of the Income Tax Act, 1961 ?

8. Chapter XIV-B prescribes the special procedure for making the assessment of search cases.

9. Section 158B defines "undisclosed income", and "block period" which are the two basic factors for framing the block assessments.

10. Section 158BA is an enabling section, empowering the assessing officer, to assess "undisclosed income" as a result of search initiated or requisition made after 30-6-1995, in accordance with the provisions of this chapter and tax the same at the fixed rate specified in section 113. Section 158BB provides the methodology for computation of undisclosed income of the block period. Section 158BC prescribes the procedure for making the block assessment of the searched person. Section 158BD enables assessment of any person, other than the searched person. Section 158BE sets the time-limits for completion of the block assessments. Section 158BF provides for immunity from levy of interest under sections 234A, 234B and 234C and penalties under sections 271(1)(c), 271A and 271B. Section 158BFA provides for levy of interest and penalty in cases of search on or after 1-1-1997. Section 158BG specifies the authorities competent to make the block assessment. Section 158BH provides for application of all the other provisions of this Act, except those as provided in Chapter XIV-B. Section 158BI provides for abolition of the scheme in cases of search after 31-5-2003.

11. The scheme of block assessment has been explained by Central Board of Direct Taxes in para 39.3 of Circular No. 717, dated 14-8-1995 (1995) 215 ITR 70 (St)). We may only notice clause (e) of the circular which provides for the procedure for making block assessment. Omitting what is not necessary for the purpose of this case, clause (e) is extracted and it reads as under :

"(e) Procedure for making block assessment : (i) The assessing officer shall serve a notice on such person requiring him to furnish within such time, not being less than 15 days, as may be specified in the notice, a return in the prescribed form and verified in the same manner as a return under clause (i) of sub-section (1) of section 142 setting forth his total income including undisclosed income for the block period. The officer shall proceed to determine the undisclosed income of the block period and the provisions of section 142, sub-sections (2) and (3) of section 143 and section 144 shall apply accordingly."

12. Chapter XIV-B provides for an assessment of the undisclosed income unearthed as a result of search without affecting the regular assessment made or to be made. Search is the sine qua non for the block assessment. The special provisions are devised to operate in the distinct' field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period. The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. It is not intended to be substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done of to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the assessing officer. Therefore, the income assessable in block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under section 132 or requisition under section 132A of the Act.

13. Section 158BC stipulates that the chapter would have application Where search has been effected under section 132 or on requisition of books of accounts, other documents or assets under section 132A. By making the notice issued under this section mandatory, it makes such notice the very foundation for jurisdiction. Such notice under the section is required to be served on the person who is found to be having undisclosed income.

The section itself prescribes the time-limit of 15 days for compliance. In respect of searches on or after 1-1-1997, the time-limit may be given up to 45 days instead of 15 days for compliance. Such notice is prescribed under rule 12(1A) which in turn prescribes Form 2B for block return.

14. Section 158BC(b) is a procedural provision for making a regular assessment applicable to block assessment as well. Section 158BC(c) would require the assessing officer to compute the income as well as tax on completion of the proceedings to be made. Section 158BC(d) would authorise the assessing officer to apply the assets seized in the same manner as are applied under section 132B.

15. We may now revert back to section 158BC(b) which is the material provision which requires our consideration. Section 158BC(b) provides for enquiry and assessment. The said provision reads "that the assessing officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143, section 144 and section 145 shall, so far as may be, apply." An analysis of this sub-section indicates that, after the return is filed, this clause enables the assessing officer to complete the assessment by following the procedure like issue of notice under section 143(2)/142 and complete the assessment under section 143(3). This section does not provide for accepting the return as provided under section 143(1)(a). The assessing officer has to complete the assessment under section 143(3) only. In case of default in not filing the return or not complying with the notice under section 143(2)/142, the assessing officer is authorized to complete the assessment ex parte under section 144. Clause (b) of section 158BC by referring to sections 143(2) and 143(3) would appear to imply that the provisions of section 143(1) are excluded. But section 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under section 143(2). However, if an assessment is to be completed under section 143(3) read with section 158BC, notice under section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with. The other important feature that requires to be noticed is that the section 158BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the assessing officer while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This section even speaks of sub-sections which are to be followed by the assessing officer. Had the intention of the legislature was to exclude the provisions of Chapter XTV of the Act, the legislature would have or could have indicated that also. A reading of the provision would clearly indicate, in our opinion, if the assessing officer, if for any reason, repudiates the return filed by the assessee in response to notice under section 158BC(a), the assessing officer must necessarily issue notice under section 143(2) of the Act within the time prescribed in the proviso to section 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of section 158BC(b) it has done so specifically. Thus, when section 158BC(b) specifically refers to(sic-s. 143(2)) applicability of the proviso thereto cannot be excluded. We may also notice here itself that the clarification given by CBDT in its Circular No. 717, dated 14-8-1995, has a binding effect on the department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of section 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of section 158BC, the provisions of section 142 and sub-sections (2) and (3) of section 143 are applicable and no assessment could be made without issuing notice under section 143(2) of the Act. However, it is contended by Sri Shekhar, learned counsel for the department that in view of the expression "So far as may be" in section 153BC(b), the issue of notice is not mandatory but optional and are to be applied to the extent practicable. In support of that contention, the learned counsel has relied on the observation made by this court in Dr. Partap Singh's case (supra). In this case, the court has observed that section 37(2) provides that "the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under section 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in section 165 has to be generally followed. The expression "so far as may be" has always been construed to mean that those provisions may be generally followed to the extent possible. The learned counsel for the respondent has brought to our notice the observations made by this court in the case of Maganlal v. Jaiswal Industries & Ors. (1989) 4 SCC 344, wherein this court while dealing with the scope and import of the expression "as far as practicable" has stated "without anything more the expression as far as possible' will mean that the manner provided in the code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied."

16. The case of the revenue is that the expression `so far as may be apply' indicates that it is not expected to follow the provisions of section 142, sub-sections (2) and (3) of section 143 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the Revenue, since we do not see any reason to restrict the scope and meaning of the expression `so far as may be apply'. In our view, where the assessing officer in repudiation of the return filed under section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143.

17. Section 158BH provides for application of the other provisions of the Act.

It reads : "Save as otherwise provided in this chapter, all the other provisions of this Act shall apply to assessment made under this chapter." This is an enabling provision, which makes all the provisions of the Act, save as otherwise provided, applicable for proceedings for block assessment. The provisions which are specifically included are those which are available in Chapter XIV-B of the Act, which includes section 142 and sub-sections (2) and (3) of section 143.

18. On a consideration of the provisions of Chapter XIV-B of the Act, we are in agreement with the reasoning and the conclusion reached by the High Court.

19. The result is that the appeals fail and are dismissed. No order as to costs.

 

ITR (TRIB) VOL 5 PART 8

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))

Volume 5 : Part 8 (Issue dated : 18-10-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Business expenditure --Deduction--Liability on account of foreign exchange fluctuaztion--To be allowed on accrual basis with reference to rate of foreign exchange at end of year--Income-tax Act, 1961, ss. 37, 43A-- HLS Asia Ltd . v. Deputy CIT (Delhi) . . . 774

Charitable purpose --Charitable trust--Registration--Commissioner to satisfy himself about object of trust and genuineness of activities of trust--Trust deed disclosing establishment of trust for purpose of setting up and running educational institution--Activity charitable in nature and genuineness of activity established--Conditions of registration fulfilled--Direction to Commissioner to grant registration--Income-tax Act, 1961, ss. 2(15), 12A, 12AA-- Shri Krishna Education and Welfare Trust v. CIT (Delhi) . . . 750

Depreciation --Plant and machinery--Higher rate allowed in previous years--Assessee entitled to higher depreciation present year also--Income-tax Act, 1961, s. 32-- HLS Asia Ltd. v. Deputy CIT (Delhi) . . . 774

----Transaction of purchase and lease of cylinders --Purchase and lease of cylinders confirmed by parties--No material produced by Assessing Officer to prove transaction not genuine--Assessee entitled to depreciation--Income-tax Act, 1961, s. 32-- Asst. CIT v. Banaras Beads Ltd. (Delhi) . . . 761

Export --Special deduction--Capital assets not constituting trading items of assessee--Not allowable--Income-tax Act, 1961, s. 80HHC-- HLS Asia Ltd. v. Deputy CIT (Delhi) . . . 774

----Special deduction--Receipt of convertible foreign exchange--Extension of time granted by competent authority--Receipt of export sales in convertible foreign exchange before completion of assessment--Export receipts to be included--Income-tax Act, 1961, ss. 80HHC(2), 155(13)-- Asst. CIT v. Banaras Beads Ltd. (Delhi) . . . 761

Income from house property --Deductions--Repairs and vacancy allowance--Commissioner directing Assessing Officer to verify if municipal tax paid and reduce it from annual value to allow deduction--Direction of Commissioner in consonance with legal provisions--Income-tax Act, 1961-- SICAL Logistics Ltd. v. Addl. CIT (Chennai) . . . 801

----Revision--Annual value--Determination of annual value--Property let out to group concern--Fixation of annual value of property by Corporation at higher rate--Commissioner directing Assessing Officer to examine issue considering sections 23 and 24 of Act--Proper--Income-tax Act, 1961, ss. 23, 24, 263-- SICAL Logistics Ltd. v. Addl. CIT (Chennai) . . . 801

Industrial undertaking --Special deduction--Assessee to be given deduction where allowed in previous years--Income-tax Act, 1961, s. 80-IB-- HLS Asia Ltd. v. Deputy CIT (Delhi) . . . 774

Penalty --Acceptance and repayment of loans or deposits in cash--Change of law--Amendment with effect from June 1, 2003 bringing repayment of loans within purview of provision--Repayment of loans in cash prior to amendment--No penalty imposable--Income-tax Act, 1961, ss. 269T, 271E-- ITO v. Sudesh Kumar Sareen (Delhi) . . . 829

Revision --Notice issued on ground profits low--Failure to show error in assessment order--Revision order set aside--Income-tax Act, 1961, s. 263-- SICAL Logistics Ltd. v. Addl. CIT (Chennai) . . . 801

Wealth-tax --Net wealth--Debt owed--Loans obtained for working capital against security of lands--Not debts incurred in relation to lands--Cannot be deducted while computing net wealth--Wealth-tax Act, 1957, s. 2(m)-- Phoenix International Ltd. v. Deputy CWT (Delhi) . . . 787

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 2(15) --Charitable purpose--Charitable trust--Registration--Commissioner to satisfy himself about object of trust and genuineness of activities of trust--Trust deed disclosing establishment of trust for purpose of setting up and running educational institution--Activity charitable in nature and genuineness of activity established--Conditions of registration fulfilled--Direction to Commissioner to grant registration-- Shri Krishna Education and Welfare Trust v. CIT (Delhi) . . . 750

S. 12A --Charitable purpose--Charitable trust--Registration--Commissioner to satisfy himself about object of trust and genuineness of activities of trust--Trust deed disclosing establishment of trust for purpose of setting up and running educational institution--Activity charitable in nature and genuineness of activity established--Conditions of registration fulfilled--Direction to Commissioner to grant registration-- Shri Krishna Education and Welfare Trust v. CIT (Delhi) . . . 750

S. 12AA --Charitable purpose--Charitable trust--Registration--Commissioner to satisfy himself about object of trust and genuineness of activities of trust--Trust deed disclosing establishment of trust for purpose of setting up and running educational institution--Activity charitable in nature and genuineness of activity established--Conditions of registration fulfilled--Direction to Commissioner to grant registration-- Shri Krishna Education and Welfare Trust v. CIT (Delhi) . . . 750

S. 23 --Income from house property--Revision--Annual value--Determination of annual value--Property let out to group concern--Fixation of annual value of property by Corporation at higher rate--Commissioner directing Assessing Officer to examine issue considering sections 23 and 24 of Act--Proper-- SICAL Logistics Ltd. v. Addl. CIT (Chennai) . . . 801

 

S. 24 --Income from house property--Revision--Annual value--Determination of annual value--Property let out to group concern--Fixation of annual value of property by Corporation at higher rate--Commissioner directing Assessing Officer to examine issue considering sections 23 and 24 of Act--Proper-- SICAL Logistics Ltd. v. Addl. CIT (Chennai) . . . 801

 

S. 32 --Depreciation--Plant and machinery--Higher rate allowed in previous years--Assessee entitled to higher depreciation present year also-- HLS Asia Ltd. v. Deputy CIT (Delhi) . . . 774

 

----Depreciation--Transaction of purchase and lease of cylinders--Purchase and lease of cylinders confirmed by parties--No material produced by Assessing Officer to prove transaction not genuine--Assessee entitled to depreciation-- Asst. CIT v. Banaras Beads Ltd. (Delhi) . . . 761

 

S. 37 --Business expenditure--Deduction--Liability on account of foreign exchange fluctuaztion--To be allowed on accrual basis with reference to rate of foreign exchange at end of year-- HLS Asia Ltd . v. Deputy CIT (Delhi) . . . 774

 

S. 43A --Business expenditure--Deduction--Liability on account of foreign exchange fluctuaztion--To be allowed on accrual basis with reference to rate of foreign exchange at end of year-- HLS Asia Ltd . v. Deputy CIT (Delhi) . . . 774

 

S. 80HHC --Export--Special deduction--Capital assets not constituting trading items of assessee--Not allowable-- HLS Asia Ltd. v. Deputy CIT (Delhi) . . . 774

 

S. 80HHC(2) --Export--Special deduction--Receipt of convertible foreign exchange --Extension of time granted by competent authority--Receipt of export sales in convertible foreign exchange before completion of assessment--Export receipts to be included-- Asst. CIT v. Banaras Beads Ltd. (Delhi) . . . 761

 

S. 80-IB --Industrial undertaking--Special deduction--Assessee to be given deduction where allowed in previous years-- HLS Asia Ltd. v. Deputy CIT (Delhi) . . . 774

 

S. 155(13) --Export--Special deduction--Receipt of convertible foreign exchange--Extension of time granted by competent authority--Receipt of export sales in convertible foreign exchange before completion of assessment--Export receipts to be included-- Asst. CIT v. Banaras Beads Ltd. (Delhi) . . . 761

 

S. 263 --Income from house property--Revision--Annual value--Determination of annual value--Property let out to group concern--Fixation of annual value of property by Corporation at higher rate--Commissioner directing Assessing Officer to examine issue considering sections 23 and 24 of Act--Proper-- SICAL Logistics Ltd. v. Addl. CIT (Chennai) . . . 801

 

----Revision--Notice issued on ground profits low--Failure to show error in assessment order--Revision order set aside-- SICAL Logistics Ltd. v. Addl. CIT (Chennai) . . . 801

 

S. 269T --Penalty--Acceptance and repayment of loans or deposits in cash--Change of law--Amendment with effect from June 1, 2003 bringing repayment of loans within purview of provision--Repayment of loans in cash prior to amendment--No penalty imposable-- ITO v. Sudesh Kumar Sareen (Delhi) . . . 829

 

S. 271E --Penalty--Acceptance and repayment of loans or deposits in cash--Change of law--Amendment with effect from June 1, 2003 bringing repayment of loans within purview of provision--Repayment of loans in cash prior to amendment--No penalty imposable-- ITO v. Sudesh Kumar Sareen (Delhi) . . . 829

 

Wealth-tax Act, 1957 :

 

S. 2(m) --Wealth-tax--Net wealth--Debt owed--Loans obtained for working capital against security of lands--Not debts incurred in relation to lands--Cannot be deducted while computing net wealth-- Phoenix International Ltd. v. Deputy CWT (Delhi) . . . 787

 

 

ITAT DEL : Member who has taken a view should not be party to a Special Bench

October 10th, 2010
CLC & Sons  vs. ACIT
(ITAT Delhi Special Bench)

In the interest of judicial discipline, a Member who has taken a view should not be party to a Special Bench

A 3 Member Special Bench was constituted to decide whether the assessee was entitled to claim depreciation u/s 32 on intangible assets termed 'Goodwill'. At the hearing, the assessee raised a preliminary objection that as the Judicial Member on the Special Bench has already taken a view about allowability of depreciation on goodwill in the case of Bharatbhai J. Vyas vs. ITO 97 ITD 248 (Ahd.) judicial discipline requires that this Special Bench should consist of persons who have not already taken a view.

Pursuant to this, the Judicial Member expressed the opinion that having already taken a view on the issue of llowability of depreciation on goodwill, it will be in the interest of judicial discipline to recuse himself from the hearing of the appeal before the Special Bench

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SC: Law Of Natural Justice Has Limits

Kanwar Natwar Singh vs. Directorate of Enforcement (Supreme Court)

 

Non-furnishing of "all documents" does not violate principles of natural justice

 

Natwar Singh & Jagat Singh ("Natwar Singh") were alleged to have dealt in and acquired Foreign Exchange totaling US $ 8,98,027 in respect of some Iraq oil contracts in contravention of FEMA. A notice was issued asking Natwar Singh to show-cause why an inquiry should not be held against them. In response, Natwar Singh demanded that the Adjudicating Authority furnish "copies of all documents in … possession in respect of the instant case, including the 83000 documents allegedly procured by one Virender Dayal". The Adjudicating Authority furnished copies of the documents as were relied upon by it but declined to furnish copies of other documents and decided to hold an inquiry in accordance with FEMA. This non-furnishing of "all documents" was challenged by Natwar Singh in the Delhi High Court which dismissed the challenge. Natwar Singh challenged the decision of the High Court in the Supreme Court. HELD, dismissing the appeal:

 

(i) The extent of applicability of principles of natural justice depends upon the nature of inquiry, the consequences that may visit a person after such inquiry from out of the decision pursuant to such inquiry. The right to fair hearing is a guaranteed right. Every person before an Authority exercising the adjudicatory powers has a right to know the evidence to be used against him. Dhakeswari Cotton Mills Ltd. vs. CIT 26 ITR 775 (SC) followed;

 

(ii) However, the principles of natural justice do not require supply of documents upon which no reliance has been placed by the Authority to set the law into motion. Supply of relied on documents based on which the law has been set into motion would meet the requirements of principles of natural justice;

 

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ITAT (MUM): Banks are not liable to pay S. 115JB MAT on “book profits”

Krung Thai Bank PCL vs. JDIT (ITAT Mumbai)

Banks are not liable to pay S. 115JB MAT on "book profits"

The assessee, a foreign bank operating in India through a branch office, filed a return offering Nil income as per the normal provisions of the Act. Though the assessee had a net profit of Rs. 78.32 lakhs in the P&L A/c it did not compute "book profits" u/s 115JB. The AO accepted the return u/s 143(3) though he subsequently made a reassessment u/s 147 in which he assessed the "book profits" u/s 115JB. The assessee challenged the reopening on the ground that s. 115JB did not apply to banking companies. HELD upholding the challenge:

(i) S. 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax u/s 115 JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to S. 211 (2) of the Companies Act. The final accounts of banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. Consequently, s. 115 JB cannot be applied to a banking company;

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ITR(Tribunal) Vol 5 Part 7

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))

Volume 5 : Part 7 (Issue dated : 11-10-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Appeal to Commissioner (Appeals) --Maintainability--Interest--Denial of liability to pay interest by assessee--Issue appealable--Income-tax Act, 1961, s. 220(2)-- Asst. CIT v. Hemendra M. Kothari (Mumbai) . . . 646

Assessment --Appeal to Appellate Tribunal--Order passed by Assessing Officer consequent to order of Tribunal--Tribunal holding that particular amount arising on transfer of shares not assessable in assessment year 1997-98 but in subsequent year--Tribunal not considering whether amount business income or capital gains--Assessing Officer cannot assess income in subsequent year as business income--Income-tax Act, 1961-- Asst. CIT v. Hemendra M. Kothari (Mumbai) . . . 646

Capital or revenue expenditure --Payment made for obtaining vacant and peaceful possession of premises under sub-lease--Landlord, tenants and sub-tenants and assessee-firm consisting of persons related inter se--No dispute existing--Question of payment for obtaining possession does not arise--Expenditure for renovation of leased premises--Not allowable--Income-tax Act, 1961, s. 32, Expln. 1 -- ITO v. Pritam Juice (Mumbai) . . . 664

Income --Accrual of income--Retention money--Bank guarantee in respect of due performance of contract and deficiencies in goods and equipment--Income from sale accruing to assessee at time of delivery of product and income from installation and commission at time of rendering services--Amount received in respect of delivered goods not installed to be treated as advance--Retention money cannot be excluded from total income--Income-tax Act, 1961-- Emerson Network Power India P. Ltd. v. Asst. CIT (Mumbai) . . . 727

Income from other sources --Interest--Loan obtained for setting up factory--Part of loan and capital contribution deposited in fixed deposit account--Not a condition precedent for disbursement of loan--Interest earned on fixed deposit assessable as income from other sources--Income-tax Act, 1961, s. 56-- Positive Packaging Industries Ltd. v. ITO (Mumbai) . . . 656

Industrial undertaking --Special deduction under section 80-I--Income derived from industrial undertaking alone to be considered as source of income for purpose of section 80-I(6)--Unabsorbed losses, depreciation and investment allowance set off against income of assessee from interest, capital gain and dividend in assessment years 1988-89 to 1991-92--To be reduced in accordance with section 80-I(6) from current year's profit for computation of deduction under section 80-I--Income-tax Act, 1961, s. 80-I-- Gujarat Ambuja Cements Ltd. v. Deputy CIT (Mumbai) . . . 689

----Special deduction--Industrial undertaking not carrying out trading activities--Deduction not allowable on profits and gains derived from any activity incidental to manufacturing activity--Assessee not entitled to deduction on profits of trading activities--Income-tax Act, 1961, s. 80-IA-- Emerson Network Power India P. Ltd. v. Asst. CIT (Mumbai) . . . 727

Search and seizure --Block assessment--Income disclosed prior to search cannot be assessed under sections 158BC and 158BD--Income-tax Act, 1961, ss. 158BC, 158BD-- Deputy CIT v. Suresh Chand Bafna (Chennai) . . . 675

Words and phrases --"Profits and gains derived from industrial undertaking or business of hotel" and "any business of"-- Emerson Network Power India P. Ltd. v. Asst. CIT (Mumbai) . . . 727

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 32, Expln. 1 --Capital or revenue expenditure--Payment made for obtaining vacant and peaceful possession of premises under sub-lease--Landlord, tenants and sub-tenants and assessee-firm consisting of persons related inter se--No dispute existing --Question of payment for obtaining possession does not arise--Expenditure for renovation of leased premises--Not allowable-- ITO v. Pritam Juice (Mumbai) . . . 664

S. 56 --Income from other sources--Interest--Loan obtained for setting up factory--Part of loan and capital contribution deposited in fixed deposit account--Not a condition precedent for disbursement of loan--Interest earned on fixed deposit assessable as income from other sources-- Positive Packaging Industries Ltd. v. ITO (Mumbai) . . . 656

S. 80-I --Industrial undertaking--Special deduction under section 80-I--Income derived from industrial undertaking alone to be considered as source of income for purpose of section 80-I(6)--Unabsorbed losses, depreciation and investment allowance set off against income of assessee from interest, capital gain and dividend in assessment years 1988-89 to 1991-92--To be reduced in accordance with section 80-I(6) from current year's profit for computation of deduction under section 80-I-- Gujarat Ambuja Cements Ltd. v. Deputy CIT (Mumbai) . . . 689

S. 80-IA --Industrial undertaking--Special deduction--Industrial undertaking not carrying out trading activities--Deduction not allowable on profits and gains derived from any activity incidental to manufacturing activity--Assessee not entitled to deduction on profits of trading activities-- Emerson Network Power India P. Ltd. v. Asst. CIT (Mumbai) . . . 727

S. 158BC --Search and seizure--Block assessment--Income disclosed prior to search cannot be assessed under sections 158BC and 158BD-- Deputy CIT v. Suresh Chand Bafna (Chennai) . . . 675

S. 158BD --Search and seizure--Block assessment--Income disclosed prior to search cannot be assessed under sections 158BC and 158BD-- Deputy CIT v. Suresh Chand Bafna (Chennai) . . . 675

S. 220(2) --Appeal to Commissioner (Appeals)--Maintainability--Interest--Denial of liability to pay interest by assessee--Issue appealable-- Asst. CIT v. Hemendra M. Kothari (Mumbai) . . . 646

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