ITR : Volume 331 : Part 4 Issue dated 07-03-2011

INCOME TAX REPORTS (ITR) HIGHLIGHTS  ISSUE DATED 7-3-2011  Volume 331 Part 4

HIGH COURT JUDGMENTS

 

  -->> Appeal to High Court : Commissioner directed to move Board for instructions to withdraw appeals or references where tax effect less than prescribed : CIT v. Vitessee Trading Ltd. (Bom) p. 433

  -->> Reassessment beyond four year period on basis of SC ruling for disallowing section 80HHC deduction in toto not permissible : CIT v. Baer Shoes (India) P. Ltd. (Mad) p. 435

  -->> Financial institution writing off part of its loan to the company and claiming no deduction in respect of loan : Amount not assessable u/s 41 : CIT v. Tosha International Ltd. (Delhi) p. 440

  -->> Revised return after search not entitled to exclusion of income from block assessment : CIT v. K. P. Chandradasan (Ker) p. 443

STATUTES AND NOTIFICATIONS

  -->> Bill :

Budget Speech of Minister of Finance for 2011-12 :

    Part - A p. 21

    Part - B p. 46

    FINANCE BILL, 2011 p. 56

    Notes on Clauses p. 103

    Memorandum explaining the provisions in the Finance Bill, 2011 p. 131

  -->> Notifications :

    Income-tax Act, 1961 : Notification under section 10(23C)(vi) : Approved institutions p. 160

  -->> C. B. D. T. Circulars/Orders :

    Income-tax Act, 1961 : Order under section 119(2)(b) : Extension of time limit for filing ITR-V Forms p. 160

 HIGHLIGHTS OF FINANCE BILL 2011

  -->> Tax rates

    Basic exemption limit for a. y. 2011-12 raised to Rs. 1,80,000 : basic exemption limit for women, Rs. 1,90,000 : Basic exemption limit for senior citizens (above 60 years of age) Rs. 2,50,000 : basic exemption limit for very senior citizens (80 years and above) Rs. 5 lakhs

    Surcharge for domestic companies reduced to 5 % : for other companies to 2 %

    Slabs remain the same as for a. y. 2010-11

  -->> Exemptions

    Definition of "charitable purpose" : monetary limit in respect of receipts from activity in nature of trade, commerce or business, etc., raised from Rs. 10 lakhs to Rs. 25 lakhs, s 2(15) wef 1-4-2012

    Exemption for specific notified perquisites and allowances of serving and retired Chairmen and Members of the Union Public Service Commission, new cl (45) in s 10 wref 1-4-2008

    Exemption of specified income of notified body or authority or Trust or Board or Commission, new cl (46) in s 10 wef 1-6-2011

    Infrastructure Debt Fund : income of notified fund, exempt, new cl (47) in s 10 wef 1-6-2011 : interest received by non-resident fund taxable at 5 % on gross interest, s 115A wef 1-6-2011 : tax deductible at five per cent. by such notified infrastructure debt fund on interest paid to non-resident, new s 194LB wef 1-6-2011

  -->> Deductions

    Weighted deduction for contribution made for approved scientific research programme raised from 175 per cent. to 200 per cent. s 35(2AA) wef 1-4-2012

    Deduction in respect of specified businesses : new businesses specified : developing and building a housing project under a Government scheme for affordable housing and production of fertiliser in India commenced after 1-4-2011 : s 35AD(8)(c) wef 1-4-2012 : loss of "specified business" claiming deduction under section 35AD allowed to be set off against the profit of another "specified business" whether or not eligible, s 73A, wef 1-4-2011

    Contribution by Central Government or other employer to pension scheme under section 80CCD(2) excluded from limit of Rs. 1 lakh provided under section 80CCE, s 80CCE wef 1-4-2012 : contribution paid by employer towards a pension scheme up to ten per cent. of employee's salary allowed as deduction : s 36(1)(iva) wef 1-4-2012

    Deduction for investment in long-term infrastructure bonds extended for one year : s 80CCF wef 1-4-2012

    Extension of terminal date for power sector up to 31st March, 2012, s 80-IA(4)(iv) wef 1-4-2012

    No deduction for undertakings engaged in commercial production of mineral oil for blocks licensed under contract awarded after 31st March, 2011, s 80-IB(9) wef 1-4-2012

  -->> Transfer pricing

    Percentage variation below which no adjustment made to be notified by Government : s 92C wef 1-4-2012

    Jurisdiction of TPO to extend to international transactions other than those referred to him, noticed in the course of proceedings : s 92CA(2A) wef 1-6-2011

    TPO to exercise power of survey under section 133A : s 92CA(7) wef 1-6-2011

    Due date for filing of return of income with transfer pricing report by corporate assessees 30th November of assessment year : s 139 wef 1-4-2011

    Anti-avoidance measures to discourage transactions by resident with persons in jurisdictions which do not effectively exchange information with India, new s 94A wef 1-6-2011

  -->> Companies

    Dividends received from foreign subsidiary to be taxed at lower rate of 15 %, new s 115BBD wef 1-4-2012

    Higher rates of tax on income distributed by debt funds : 25 % where distributed by money market fund, etc. and 12.5 % in case of other fund to individual or HUF : 30 % in all other cases : s 115R(2) wef 1-6-2011

    Exemption for dividend distribution tax in case of SEZ to cease, ss 10(34), Expln. 115-O wef 1-4-2011

  -->> Minimum alternate tax

    Rate of MAT raised to 18½ % from 18% : section 115JB(1) wef 1-4-2012

    Alternate minimum tax regime for LLPs, new Chapter XII-BA wef 1-4-2012

    Exemption for MAT in case of SEZ to cease, s 115JB wef 1-4-2012

  -->> Income-tax authorities

    Power of discovery and inspection, enforcing attendance of any person and examining him on oath, compelling production of books of account and other documents and issuing commission for purpose of enquiry or investigation in relation to double taxation avoidance agreements, new sub-s (2) in s 131, s 133 wef 1-6-2011

  -->> Settlement of cases

    Assessee subject to search can file application for settlement if additional income-tax payable on income disclosed in application exceeds Rs. 50 lakhs : Entities related to such assessee subject to search also allowed to file application for settlement, if additional income-tax payable exceeds Rs. 10 lakh, s 245C(1) wef 1-6-2011

    Power to Settlement Commission to rectify orders within a period of six months, new sub-s (6B) in s 245D (s 22D of W. T. Act) wef 1-6-2011

  -->> Non-residents

    Non-residents to file annual information providing prescribed details as regards liaison offices in India, new s 285 wef 1-6-2011

  -->> Miscellaneous

  -->> Power to exempt persons from filing returns, new sub-section (1C) in s 139, s 296 wef 1-6-2011 [Proposal to exempt salaried persons having no other income under this provision]

  -->> Time taken in obtaining information from tax authorities in jurisdictions situated outside India to be excluded from time limit for assessment or reassessment : new cl. (viii) in Expln. 1 to s 153 wef 1-6-2011

  -->> SERVICE TAX

  -->> New services to be taxed

    Services provided by air-conditioned restaurants having licence to serve alcoholic beverages

    Short-term accommodation provided by hotel, inn, guesthouse, club or campsite for continuous period of less than three months

  -->> Existing services expanded

    Life insurance service to include re-insurance

    Club or association service to include service provided to non-members

    Authorized service station service to include services to all motor vehicles other than goods carriage and three-wheeler scooter auto-rickshaws and services of decoration and similar services in respect of vehicles

    Business support services to include operational or administrative assistance

    Legal consultancy services to included service to individuals in relation to advice, consultancy or assistance in any branch of law, representational service and service of arbitration provided by an arbitral tribunal to business entity

    Commercial training or coaching service to include unrecognized courses

    Health services to include diagnostic services, provided by a centrally air-conditioned (wholly or partially) clinical establishment having more than 25 beds for in-patient treatment and services provided by a clinical establishment with the aid of laboratory or other medical equipment and services provided by a doctor from the premises of such establishment

  -->> Services exempted

    Organizer of business exhibitions in relation to business exhibitions held outside India

    25% abatement from receipts for transport of goods through coastal and inland shipping

    Works contract for construction or finishing of new residential complex under Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana

    Services provided within port or airport specified purposes

    Rashtriya Swasthya Bima Yojana

    Air freight excluded from taxable value of transport of goods by air service

    Transportation of goods by road, rail or air when both origin and destination outside India

    Refund of service tax to SEZ units and developers

  -->> Rates of service tax on travel by air revised wef 1-4-2011

    Domestic travel (economy class) from Rs. 100 to Rs. 150

    International travel (economy class) from Rs. 500 to Rs. 750

    Domestic travel (other than economy class) 10% (standard rate)

  -->> Other amendments

    Exemption on membership fees under "club or association service" representing industry or commerce from 16-6-2005 to 31-3-2008

    Exemption on inter-State or intra-State transportation of passengers in a vehicle bearing contract carriage permit or a tourist vehicle permit from 1-4-2000 to 6-7-2009

    Monetary limit of Rs. 1 lakh for adjustment under rule 6(4B)(iii) of Rules raised to Rs. 2 lakh wef 1-4-2011

    Option to insurers to pay sum based on gross premium

    Sale and purchase of foreign exchange : composition rate reduced from 0.25% to 0.1% of the gross amount of currency exchanged towards discharge of service tax liability

    Service tax self-assessed and not paid recoverable with interest without recourse to section 73

    Value of money changing service defined

    Value of telecommunication services to be gross amount charged by telegraph authority from service receiver

Interest on Non Performing Assets which is doubtful of recovery, taxable on receipt basis

In a recent decision, in the case of CIT v. Vasisth Chay Vyapar Ltd. (Delhi High Court) [ITA 552/2005] dated 29 November, 2010 , the Delhi High Court in the context of loans given by a Non-Banking Financial Company ("NBFC") held that in a scenario where interest on Non Performing Assets ("NPA") was doubtful of recovery due to adverse financial circumstances of the borrower, it was legitimate move to infer that interest income had not accrued and was therefore not exigible to tax, irrespective of the fact that assessee followed mercantile system of accounting.

Facts

•           The assessee a NBFC had advanced Inter Corporate Deposits ("ICD") to M/s Shaw Wallace Company. The interest on such ICD was outstanding since assessment year 1996-97 and the position remained the same until assessment year 2006-07.

•           The assessee being an NBFC had classified the ICD as NPA in accordance with the provisions of the Reserve Bank of India Act, 1934 ("RBI Act") read with NBFCs Prudential Norms (Reserve Bank) Directions, 1998 ("Prudential Norms"). Accordingly, the interest accrued on such NPA was not recognised as income in the books of accounts of the assessee.

•           The Assessing Officer ("AO") made additions on account of the interest on such NPA holding that interest had accrued to the assesse even if it was not realised, since the assessee was following mercantile system of accounting.

•           The Commissioner of Income-tax (Appeals) (CIT(A)) affirmed the order of the AO.

•           The Income-tax Appellate Tribunal ("Tribunal") held that the provisions of section 45Q of the RBI Act override the provisions of the Income-tax Act, 1961 ("the Act"). The treatment of the interest income from the NPA was in accordance with the provisions of the RBI Act and the Prudential Norms issued thereunder and hence in accordance with law. Thus, no additions could be made under the provisions of section 145 of the Act, in the hands of the assessee in respect of the unrealised interest on the ICD

Assessee's contentions

•           The provisions of section 45Q of the RBI Act override the provisions of the Act. This is in view of the decision of the Supreme Court ("SC") in case of TRO v. Custodian, Special Court Act, 1934 [2007] 293 ITR 369 (SC), wherein it was held that, where a provision under any enactment begins with a non-obstante clause, it would override the provisions of all other enactments.

•           The assessee being an NBFC was bound to follow the provisions of the RBI Act and the Prudential Norms issued thereunder and hence the non-credit of interest income on NPA was in accordance with law.

•           The Madras High Court in the case of CIT v. Elgi Finance Ltd. [2007] 293 ITR 357 (Mad) in almost identical controversy held that no interest could be said to have accrued on loans which are doubtful of recovery and classified as NPA.

•           The SC, in the case of CIT v. KICM Investment Ltd. (Supreme Court order dated January 12, 2009 in CC No.29 of 2009) dismissed a Special Leave Petition filed by the tax department against the decision of the Calcutta High Court. In this case, the Calcutta High Court held that interest on NPA cannot be taxed on accrual basis even though mercantile system of accounting was followed.

•           The undisputed facts of the case clearly indicated the uncertainty of ultimate collection of interest, due to tight and precarious financial position of the borrower.

•           The Courts (See Note 1) have recognised the theory of 'real income' and irrespective of the method of accounting followed, the tax payer could only be taxed on real income and not any hypothetical income.

•           The assessee was required to comply with the provisions of section 145(1) of the Act and sections 209 and 211 of the Companies Act, 1956 which mandate observance of the accounting standards as prescribed in a consistent manner. In view of the uncertainty of the ultimate collection of interest due the accounting treatment followed by the assessee in respect of interest on ICD due from M/s Shaw Wallace Company was in conformity with the accounting standards. This was on the ground that M/s Shaw Wallace Company was passing through a financial crisis and winding-up petitions filed by many creditors were pending in courts against the company.

•           The Courts (Note-2) have held that even under the mercantile system of accounting it is

illusory to take credit for interest where recovery of the principal itself was doubtful.

Revenue's contentions

•           The revenue contended that under the provisions of section 5 of the Act, interest income had accrued to the assessee.

•           Provisions of the RBI Act and the Prudential Norms issued thereunder cannot override the provisions of the Act.

•           The SC in the case of Southern Technologies Ltd. v. JCIT [2010] 320 ITR 577 (SC) in the context of deductibility of provision for NPAs upheld the aforesaid principle and held that the RBI Act and the Act operate in different fields, and hence, the Prudential Norms are mere guidelines for accounting purposes and have nothing to do with the computation, or taxability, under the Act.

High Court ruling

The High Court observed and held that,

•           The assessee, being an NBFC, was bound by the provisions of the RBI Act and the Prudential Norms issued thereunder. The treatment to ICDs advanced to M/s Shaw Wallace Company as NPA was in accordance with the Prudential Norms issued by the RBI.

•           Accordingly, interest income could not be said to have accrued to the assessee since the ICD had become an NPA and interest on the NPA was not received by the assessee as the possibility of recovery was almost nil. This accounting practice was in line with the Accounting Standard issued by the Institute of Chartered Accountants of India (AS-9 on Revenue Recognition) which provides that in case of uncertainty, recognition of revenue is to be postponed.

•           Given the financial position of M/s Shaw Wallace Company, where the recovery of the principal amount itself was doubtful, the interest income thereupon could not be said to have accrued to the assessee.

•           The decision of the SC in the case of Southern Technologies Ltd. (above) heavily relied upon by the revenue was distinguishable on facts. The dispute before the SC in that case was with respect to deductibility of provision for NPA. Further, the SC in the context of income (interest) recognition had approved the 'real income' theory.

•           Further, the decision of the SC in the case of Southern Technologies Ltd. (above) relied upon by the revenue had to be read with the decision of the SC in the case of Custodian, Special Court Act, 1934 (above) dealing with situations where there is a provision in other enactment which contains a non-obstante clause, that would override the provisions of the Act.

• In view of the above, the High Court upheld the order of the Tribunal in favour of the assessee and against the revenue.

Conclusion

The decision of the High Court would bring some relief to NBFCs. However, given the fact that this is a debatable issue and unless affirmed by the SC, the tax authorities may continue to dispute the issue. This debate arises primarily due to the fact that under the Act, there is a specific provisions under Section 43D of the Income tax Act, 1961 dealing with interest on NPA with respect to specified financial institutions (including banks) which does not include NBFCs.

However, under the Direct Taxes Code Bill, 2010 proposed to be effective from April 2012, this should not be an issue as it has been proposed that interest on bad and doubtful debts, in cases of all financial institutions (including NBFCs), will be chargeable to tax in the financial year in which the interest is credited to the profit and loss account, or is actually received, whichever is earlier.

Note:-

   1. UCO Bank v. CIT [1999] 237 ITR 889 (SC), CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC), Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746 (SC)
   2. CIT v. Goya! M.G.Gases (P) Ltd. [2008] 303 ITR 159 (Del), CIT v. Eicher Ltd. (ITA No.431/2009 dt.15.7.2009), CIT v. Ferozepur Finance (P) Ltd. [1980] 124 ITR 619 (P&H), CIT v. Motor Credit Co. (P) Ltd. [1981] 127 ITR 572 (Mad)



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Budget 2011. (Recently availavble)

 2 MORE CPC IN PUNE AND MANESAR

NO CHANGE IN TAX RATES : Tax exemption limit for individuals increased from Rs 1.6 lakh to Rs 1.8 lakh

Direct Tax code Bill will be effective from 01-04-2012
...
SENIOR CITIZEN AGE REDUCED TO 60 YEARS- EXEMPTION 2.50 LAKS

NEW CATEGORY OF VERY SENIOR CITIZEN- 80 YEARS OR MORE- EXEMPTION RS. 5 LAKHSSee

MAT RAISED TO 18.5% FROM 18%

SURCHARGE ON DOMESTIC COMPANIES REDUCED TO 5% FROM 7.5%

EXEMPTIONS UNDER 80C- ADDITIONAL 20000.00 IN INFRA BOND WILL CONTINUE FOR ONE MORE YEAR.

More will come as available.

Some of the major Highlights of Budget 2011. (recent Available)

Age of senior citizens is 60 Years
New category of Senior citizen introduced , age 80 years , exemption limit Rs 5,00,000/-

Minor change in Tax slab  1.60 to 1.80.

Salaried person does not have income from other sources, need not to file Return of income.

-टैक्स स्लैब में छूट की सीम बढ़ाई गई। अब 1.60 लाख रुपये के बदले 1.80 लाख रुपये तक की सालाना आमदनी पर कोई टैक्स नहीं देना होगा।

-सीनियर सिटीजन के लिए टैक्स छूट की सीमा 2.40 लाख रुपये से बढ़ाकर 2.50 लाख रुपये की गई। इसके लिए उम्र की सीमा 65 से घटाकर 60 साल की गई।

-सीनियर सिटीजन में एक नई कैटिगरी भी बनाई गई है। 80 साल के ऊपर के बुजुर्गों को 5 लाख रुपये तक की सालाना आमदनी पर कोई टैक्स नहीं देना होगा।

-लॉन्ग टर्म इंफ्रास्ट्रक्चर बॉन्ड पर 20 हजार रुपये तक के निवेश पर टैक्स छूट एक साल और बढ़ाई गई।

-वेतनभोगी लोगों को अगर कोई अतिरिक्त आय नहीं है तो टैक्स रिटर्न नहीं देना होगा। इसीएस से टैक्स भुगतान की सुविधा पूरे देश में होगी

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CLAIMS IN RETURN OR OTHERWSE ??

CLAIMS IN RETURN OR OTHERWSE – A NEW APPROACH AND AMENDMETN IS REQUIRED IN VIEW OF E-FILING OF RETURN

Links and references:

Commissioner of Income Tax Versus M/s. Jai Parabolic Springs Ltd. 2008 -TMI - 3591 - HIGH COURT OF DELHI.

Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court)

CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court)

National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court).

Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court) Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court).

CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court).

Claim in return of income:

Generally a claim of any expenditure, deduction or exemption should be preferred in computation itself and claimed in the return in form of returned income which should be as reduced by such claims. If a claim is not made, it cannot be accepted by the AO while making assessment in summary manner by accepting the return.

Contentions issues:

Tax laws are very complex and on many issues there can be difference of opinion. A claim which is not allowed by the AO can be subject matter of penalty proceedings. Therefore, assessee may adopt policy of play safe and may not claim a doubtful or contentions claim in the return.

Paper return vis a vis e-filing;

When a paper return is filed, the assessee usually attaches a computation of income and supporting documents. In the computation assessee can make further claims for consideration of the AO. However, in course of e-filing of return such claims cannot be made. Even if assessee files a copy of computation and supporting documents, the AO may not consider the same. Therefore, it is difficult to make further claims for consideration of the AO. In such a situation, the only way available to the assessee is to make a claim in the returned income and keep explanation ready so that if the AO enquire about the claim assessee is ready to offer a reasonable explanation.

Judgment of the Supreme Court- claim in return or revised return is must- need reconsideration:

The Supreme Court In case of Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court), held that a claim in the return or revised return is a must. A claim cannot be made by way of letter.

In that case the assessee did not make some claims in the computation of income and the return filed before the assessing officer on 30.11.1995 (revised return) for assessment year 1995-96. However, the assessee made a further claim vide a letter filed with the AO claiming certain deductions, which were not claimed in the return of income. The assessing officer disallowed the claim for the reason that there was no provision in the Income-tax Act, 1961 to permit the assessee to make an amendment in the return without a revised return. The Tribunal as well as the High Court confirmed the order of the AO, the assessee preferred an appeal before the Supreme Court and the Supreme Court also dismissed the appeal holding that a claim not made in original return cannot be claimed by way of letter before the assessing officer and the assessing authority has no power to entertain a claim for deduction otherwise than by a revised return.

Therefore, now it is settled that if assessee wants to make a claim, he must prefer the claim in the return or in a revised return. Mere filing of letter before the assessing officer will not be sufficient and on that ground alone the assessee may lose the relief.

Author feels that the case before the Supreme Court was not properly contested and argued. The specific mentions should have been made by the assessee as to why a claim was made by way of letter instead of by revising return, how limitations prescribed in law prevented the assessee to make a claim in the return, how the policy of `play safe' prompted the assessee not to make a claim in return to avoid penal action, in case the claim was ultimately held by courts as not allowable, other reasons like complexity of issue, uncertainties before the assessee about making the claim in the return etc. could have been pointed out and it could have been pleaded that the AO is duty bound to allow relief, even if it was not claimed by the assessee.

Though return is significant, however, it is not final about tax base:

Return under any tax law is the primary document in which the assessee expresses his computation of the subject matter like income, wealth, expenditure, sales etc. The return is basis upon information and documents, which the assessing officer proceeds to assess the assessee. Therefore, the return is foundation about initiation of assessment proceedings when a return has been filed. The assessee can make his claims in the return of income, as he may considers fit, proper and bona fide at the time of filing of the return. Where there is a doubt, the assessee must have an option to request the AO to allow relief, even if not claimed by assessee due to mistake or ignorance. The assessee must be given an opportunity to make further claims.

Claims having some doubts.

Due to complexity, ambiguity and uncertainty of law, there are many claims which assessee wants to prefer with a caution. To avoid extra burden, which may arise if the claim is not allowed, the assessee may choose not to claim the deduction in main computation and pay tax without making deduction for such item. However, unless a claim is made in the return (or a revised return) it cannot be considered by the assessing officer.

Claim in the original return is best way:

The best way to claim any relief is to make a claim in the original return. A claim can be made by way of revised return, subject to compliance of applicable conditions like that the original return should have been filed within time permissible originally e.g. in case of return of income the original return should have been filed within time allowed u/s 139 (1) then only a revised return can be filed within prescribed time and before completion of assessment.

Many times one may think to file a revised return after clearance of some doubts or on gaining more confidence about such claim. However, once a return is filed, one may be busier in other work and may miss the opportunity to file revised return. Therefore, at lease claims for consideration by the A.O. can be made in the original return itself so that it can be pressed.

Suggested way to claim in case of doubtful claims:

The assessee may want to play safe to avoid burden of tax, interest and penalty liabilities, which may arise if the claim is not allowed. However, as noted above in view of judgment of the Supreme Court, it is necessary that the claim must be preferred in the return. Therefore, the following course of action may be adopted by filing a return or hard copy of e-return: -

A. The Return is without prejudice:

On the cover of the return or other documents and on the acknowledgment "WITHOUT PREJUDICE", should be written.

Illustration of further claims:

Below the computation it should be mentioned that the above computation of income is without prejudice to the following further claims for deductions, benefits and advantages, which are, as per assessee admissible, but have not been claimed in the computation due to disputes raised by the revenue.

B. Claims for consideration of the assessing officer
In addition to the computation as given above, the learned assessing officer is requested to consider the following claims which have not been made in the computation to play safe, and because of difference of opinions. Please allow proper relief:

a) Normal depreciation on new electrical generators costing Rs. one crore has been claimed at general rate of 15% amounting to Rs.15 lakh instead of 80% allowable as per the judgment of Rajasthan High Court in the case of CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court). Please consider allowing 80% depreciation and allowing further relief of Rs.65 lakh.

b) Interest on loan taken from a bank has not been claimed in the above computation because the suit filed by the bank is still pending before the court. In earlier year the CIT (A) / Tribunal has allowed such interest. However, the appeal of the Revenue is pending before the Tribunal / High Court. Please allow further deduction of Rs…

c) Deductions of provident fund, ESI has not been made as payment was made after 15th April but before the due date for filing of the return. In view of several decisions of the Tribunal and decision of the CIT (A) in assesses own case, rendered on this aspect and in view of amendment in section 43B, these payments may be allowed.

d) The estimated disallowance of interest and administrative expenses has been made u/s 14A in respect of tax-free income earned by way of dividend and long-term capital gain. However, it is submitted that shares and securities were acquired in the course of share trading business few years ago and when the nature was changed from stock to investment they were transferred to investment account. Therefore, capital was borrowed for purchasing shares and securities as a stock-in-trade. Furthermore, even investment activity is an adventure in nature of commerce and therefore though shares and securities held as investment are capital assets of the business. Just like fixed assets used in business, shares and securities are also capital assets of the business of investment. Therefore, interest and administrative expenses are necessary business outgo and may be fully allowed while computing business income.

Claims in respect of such items which have a chance of being disallowed by the assessing officer can properly be claimed before the assessing officer in computation itself or below the computation and thereafter if the assessing officer does not consider the same or considers but disallows, the assessee can prefer a rectification petition, appeal or revision petition as may be found suitable.

C. A general clause for consideration of the AO

Below the computation following general clauses in form of prayer may be given

We have made the computation of income as per our understanding and as advised by our tax consultant. We have made some claims for your kind consideration as noted above. However, there may be some more relief, benefit, and advantage allowable to us, which we have not claimed due to ignorance. We request you to kindly allow us all admissible relief, benefit, advantage so as to compute our income and our tax liability correctly and also to work out the amount of refund and interest allowable to us correctly.

In case of e-return:

When a return is filed electronically, it is to be filed as per the e-from and there is not yet any scope by way of explanation sheet or further claim sheet in the e-return forms.

It is suggested that in the e-return forms, provision can be made to provide the assessee scope and option to add some sheets for explanations and further claims for consideration of the AO.

However, till such option is not available the assessee can do the following:

File a hard copy of return and supporting documents with a covering letter stating that the return is without prejudice, and that the AO is requested to consider further claims as mentioned in the covering letter or the accompanying documents. The assessee can also file explanations and supporting documents to justify his claims where there is some scope of doubt or there are different opinions prevailing.

Revised return may be filed

A revised return can be filed within prescribed circumstances and within prescribed limitation. For example under the Income Tax-tax Act, 1961 a revised return can be filed only if the original return has been filed within the due date under section 139(1). A belated return cannot be revised. Therefore, if there are certain claims, which have not been preferred in the original return, the assessee may file revised return of income to claim such claims by way of making a claim in the computation itself or by making claim for consideration of the assessing officer as additional claims.

The CIT (A) has power co-terminus with assessing officer-

a new twist is likely to take place:

Earlier, generally the AO, Commissioner (Appeals) / ITAT used to consider claims on merit, even if some claims were preferred before the A.O. by way of letters during course of hearing before the A.O. However, after the above judgment of the Supreme Court in case of Goetz, it may be difficult to press a claim even before the CIT (A), unless there was a claim in the return filed before the A.O. Because the CIT (A), having power co-terminus with the A.O., can very well take a view that what the A.O. cannot consider, cannot be considered by the CIT (A) as well. Therefore, it becomes necessary that at least in some way claim must be found in the return or accompanying documents to claim such further claims which the assessee wants to press but do not want to make in computation itself to avoid chances of disallowance and consequent liability of tax, interest and penalty proceedings.

After the judgment in case of Goetz (supra.) the AO are not even considering claim for refund if not made in the return. Cases have been informed that the AO, while considering refund or credit for tax is considering the claim made by assessee and credit shown in OLTAS. If an assessee has not made claim for TDS or tax paid in the return, credit may be denied, even if the amount of TDS or tax paid is shown credited in OLTAS or other computerized reports of the department.

Earlier rulings on powers of CIT (A) and ITAT:

Earlier rulings on powers of the CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court) power of ITAT in case of National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), also suggests that they have power to consider a claim on additional matters only if some material is found in the assessment record. In recent decision in case of Goetz (supra.) the Supreme Court has specifically mentioned that their decision is about power of the A.O. and not of power of the ITAT. Therefore, the Supreme Court held that " However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the income-tax Appellate Tribunal under section 254 of the Income tax Act, 1961."

The decision about powers of the CIT (A) in case of Jute Corporation has not been mentioned and considered by the Supreme Court in the case of Goetz. Therefore, there is big question mark on power of CIT(A). A view can be taken that CIT(A) has power co-terminus with the AO, therefore, if a claim cannot be accepted by the AO, CIT(A) cannot admit and consider the same.

In case of Jute corporation, the CIT (A) was held to have power to entertain a legal claim (for liability of sales tax based on ruling of supreme court in case of Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court)) which was not considered by the A.O. {it is not clear whether a claim was made or not before the A.O. in the return of income.}. It was held that the CIT (A) has all the powers, which the A.O. had on the assessment, and CIT (A) can consider what the A.O. has omitted to consider. This means there was some material before the A.O. to consider the claim but the A.O. omitted to or failed to consider. When the A.O. cannot consider a claim, if not made in the return, it seems extremely doubtful, whether CIT (A) will consider such claim after the judgment in Goetz case.

Judgment of Delhi High Court on power of ITAT:

In CIT Versus M/s. Jai Parabolic Springs Ltd decided on 07 April 2008 2008 -TMI - 3591 - HIGH COURT OF DELHI the matter of power of ITAT to consider a new claim came for consideration. Revenue expenditure was shown as deferred revenue expenditure in the audited balance sheet. However, it was claimed as allowable in an additional ground preferred before the Tribunal. The revenue objected to such claim as the Tribunal on the basis of additional ground raised by the assessee allowed full deduction even though it was not claimed in the original return or a revised return.

Delhi High Court upheld the tribunal's decision.
An analysis of Delhi High Court's ruling:

In paragraph 17 the High Court considered that in Goetze (India) Limited v. commissioner of Income Tax 2006 -TMI - 5171 – (SUPREME Court) wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal.

High Court referred to judgment of the Supreme Court in National Thermal Power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), where the Supreme Court observed that:- 'The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessees as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.'

Therefore, according to this judgment Tribunal has power to admit additional claim arising from assessment records and first appeal order. High Court also referred to Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court), wherein the Apex Court decision in National Thermal Power Co. Ltd. (supra) has been followed.

In paragraph 16 the High Court has considered Jute Corporation of India Ltd. v. Commissioner of Income Tax 1990 -TMI - 5320 – (SUPREME Court) about powers of CIT(A). Therein the Supreme Court observed that:-'An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.'

Thus according to the Delhi High Court, the CIT(A) and ITAT can, in view of earlier rulings of the Supreme Court can, in some circumstances consider additional claims.

The purpose of different proceedings is to have assessment as per law:

We find that there are many more proceedings and options are available to revenue in comparison to the assessee to achieve correct assessment of tax. The assessee also faces more stringent restrictions and limitations as compared to revenue. The revenue has many effective remedies like rectification, revision, re assessment and recomputation etc. The limitation prescribed are also longer. Whereas the assessee has only effective way to file a revised return to prefer claim.

Amendment is desirable to permit additional claims:

Tax laws are very complex, even Supreme Courts judgments may not be final- in a review petition, larger bench may change the law, or an amendment may be made. Provisions for interest and penalty are severe. In such circumstances, most of the assessee would prefer to adopt `play safe' approach even if returns are by and large accepted. After filing of return some relief may come to knowledge of the assessee, but by that time, limit to file a revised return might have lapsed. In such circumstances the assessee must be given some way to prefer claims and to get back excessive tax paid. Therefore, some simple provisions for preferring claims by way of rectification petition should be brought in the tax laws.

Conclusions:

In view of the law laid down by the Supreme Court in Jute Corporation read with Goetz India Ltd. as discussed above, it is likely that if a claim is not made before the assessing officer in the return of income or revised return of income, the CIT (A) may not entertain any additional claim. Therefore, to avoid controversy it is necessary that there must be claim in the original return or revised return validly filed before the assessing officer. There is no specific manner prescribed or restriction as to manner of making a claim in the return otherwise than making a claim in computation itself, therefore, claims made by way of notes to the computation or otherwise in the return may be regarded as sufficient claim preferred in return to press the claims before the assessing officer failing which before the appellate authorities or revisionary authorities. In case of e-filing there should be separate sheet for such claims.

Dated: - February 18, 2011

Cash Credits [Section 68] : Where assessee had received share appli

Income-tax - Cash Credits [Section 68] : Where assessee had received share application money from investors/share applicants and had submitted list of all shareholders giving their full names, addresses, details of payment made by cheque and had also submitted confirmations from all shareholders giving complete particulars in form of address, cheque numbers and name of bank, PAN and place of assessment, etc. it could be said that assessee had discharged its primary onus as per law in proving identities of all shareholders and accordingly, no addition could be made under section 68 - [2011] 9 taxmann 305 (Delhi)