ITR (TRIB) Volume 23 : Part 4 (Issue dated : 6-5-2013)

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

Volume 23 : Part 4 (Issue dated : 6-5-2013)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Advance tax --Interest--Company--Minimum alternate tax--Book profit--Provision for doubtful debts added back to book profits on basis of law amended retrospectively--No interest chargeable--As advance tax--Income-tax Act, 1961, s. 234B-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

Business expenditure --Deduction only on actual payment--Exemption--Export of computer software--Provident fund contributions made before filing return--Allowable as business expenditure--If disallowed to be treated as business income under section 10A--Income-tax Act, 1961, ss. 10A, 43B-- Patni Telecom Solutions P. Ltd. v. ITO (Hyderabad) . . . 534

----Deduction only on actual payment--Payments to employees’€™ State corporation and provident fund--Payments made within grace period or within year itself or before filing return of income--Allowable--Income-tax Act, 1961, s. 43B-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

----Disallowance of travel expenses for want of details--System of reversing expenses in succeeding assessment years wherever not incurred--Assessing Officer to examine issue afresh and ascertain reasonableness of basis on which provision made--Matter remanded-- Trilogy E-Business Software India P. Ltd. v. Deputy CIT (Bangalore) . . . 464

----Disallowance--Royalty--Tax deduction at source--Purchase of software with hardware of computers--Claim to depreciation--No purchase of copyright--Does not involve commercial exploitation thereof--No intangible asset involved--Purchase of asset and claim to depreciation not covered under section 40(a)(ia) for disallowance--Income-tax Act, 1961, ss. 9(1)(vi), Expln. 2 , 40(a)(ia)-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

----Disallowance--Whether tax deducted at deposited in Government treasury before due date not clear--Direction to Assessing Officer to verify and decide under law--Matter remanded--Income-tax Act, 1961, ss. 40(a)(ia), 80-IB-- Deputy CIT v. Rameshbhai C. Prajapati (Ahmedabad) . . . 516

----Provision towards building registration charges--Disallowance--Provision reversed and offered to tax during assessment year 2009-10--Assessing Officer not to tax sum in 2009-10 as taxed by disallowance in present year-- Trilogy E-Business Software India P. Ltd. v. Deputy CIT (Bangalore) . . . 464

----Repairs, telephone expenses, vehicle expenses and expenses on repairs and maintenance of machines and building--Ad hoc disallowances for personal use by employees and directors--Assessee a public limited company and maintaining books of account and these audited--Question of any element of personal nature does not arise--Expenditure to be allowed--Income-tax Act, 1961, s. 37-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

----Sums written off of as unrecoverable--All details furnished--Deduction allowable.--Income-tax Act, 1961-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

Business loss --Goods damaged in fire in plant--Assessee making assessment of damages and debiting to profit and loss account--Insurance company paying reduced amount--Difference between sum debited and received claim--Revenue expenditure--Assessing Officer to examine actual amounts incurred by assessee and determine actual loss--Income-tax Act, 1961, ss. 30, 31-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

Cash credit --Burden of proof--Initial burden on assessee to prove genuineness of credit--Details of creditorsbank accounts not enough to fulfil ingredients of section 68--Addition justified--Income-tax Act, 1961, s. 68-- ITO v. Gayatri Associates (Hyderabad) . . . 528

Closing stock --Packing material on which batch numbers and price printed and having no value to assessee after lapse of time--Assessee devaluing inventory at Re. 1--To be allowed deduction--Income-tax Act, 1961, s. 145A-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

Depreciation --Refinery discontinued during year--Assets forming part of block of assets--Even if some assets in block functioning, entire block to be allowed depreciation--Income-tax Act, 1961, s. 32-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

----Technical know-how--Chart submitted by assessee--If depreciation claimed on technical know-how different from one-sixth deduction claimed under section 35AB, depreciation to be allowed--Income-tax Act, 1961, ss. 32, 35AB-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

Exemption --Export of computer software--Export turnover--Expenses in foreign exchange on travelling expenses and internet charges for providing technical services--Internet charges on development of software--To be included--Allowable--Income-tax Act, 1961, s. 10A, Expln. 2(iv) -- Patni Telecom Solutions P. Ltd. v. ITO (Hyderabad) . . . 534

Export --Special deduction under section 80HHC--Sale of music rights--Assessee producing evidence regarding delivery of master tapes and receipt of foreign exchange within time and certificates of foreign inward remittance--Entitled to deduction--Income-tax Act, 1961, s. 80HHC-- Deputy CIT v. K. J. Yesudoss (Chennai) . . . 540

----Special deduction--Book profit--Deduction under section 80HHC to be computed in accordance with ruling of Supreme Court in Ajanta Pharma --Income-tax Act, 1961, ss. 80HHC, 115JB-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

Housing projects --Special deduction--Profits of business--Expenditure disallowed under section 40(a)(ia)--Not to be included in profits eligible for special deduction--Income-tax Act, 1961, ss. 40(a)(ia), 80-IB-- Deputy CIT v. Rameshbhai C. Prajapati (Ahmedabad) . . . 516

Income-tax survey --Statement made by assessee during survey operations--Failure by Department to collect material during survey--Statement no evidentiary value--Addition to be deleted --Income-tax Act, 1961, s. 133A-- Mahesh Ohri v. Assistant CIT (Delhi) . . . 522

Industrial undertaking --Special deduction under section 80-IB --Findings of Commissioner (Appeals) that shops located on ground floor covered 2 per cent. of built-up area--Deduction allowable--Income-tax Act, 1961, s. 80-IB-- Deputy CIT v. Rameshbhai C. Prajapati (Ahmedabad) . . . 516

Interest on borrowed capital --Interest relating to capital work-in-progress--Not allowable--Matter remanded to give opportunity to assessee to give date-wise details of expenditure--Income-tax Act, 1961, s. 36(1)(iii)-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

International transactions --Arm’s length price--Research and development expenses for developing new products in domestic markets--Not considered as part of cost--Assesses€™s submission that expenses incurred for website development--Contrary--Matter remanded for consideration afresh-- Trilogy E-Business Software India P. Ltd. v. Deputy CIT (Bangalore) . . . 464

----Arm’s length price--Determination--Comparable uncontrolled price--To examine whether there were any internal or external comparables--High degree of comparability necessary--Many variables for applying comparable uncontrolled price--Rejection of one method--Authority bound to adopt another from most appropriate methods’€ --Matter remanded to Transfer Pricing Officer to examine Arm’s length price adopting transactional net margin method and carry out fresh comparability analysis--Commissioner--Functional analysis of agency agreements assessee with associated enterprises and with non-associated enterprises--Cost to be incurred by associated enterprises and risk assumed far more--Rate of 10 per cent. reasonable--Benefit of 5 per cent. in terms of proviso to section 92C not a standard deduction--Income-tax Act, 1961, s. 92C(2)--Income-tax Rules, 1962, r. 10B-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

----Arm’s length price--Determination--Transactional net margin method--Selection of comparables--Turnover filter important--No bar to considering companies with either abnormal profits or abnormal losses--Assessee to demonstrate abnormal factors if it seeks to exclude comparable--Onsite and offshore services--Assets and risk profile, pricing, prevailing market conditions different--Onsite revenue filter to be applied--Functional comparability--Foreign exchange gain/loss to be added to operating revenue--Fringe benefit tax not considered part of operating cost of comparables--Not to be considered part of operating cost of assessee--Information collected under section 133(6)--Assessee cannot ask for right to cross examine company--Comparability of company neither considered by Transfer Pricing Officer nor Dispute Resolution Panel--Tribunal would not consider--Income-tax Act, 1961, s. 92CA--Income-tax Rules, 1962, r. 10B-- Trilogy E-Business Software India P. Ltd. v. Deputy CIT (Bangalore) . . . 464

Penalty --Concealment of income--Assessee furnishing income-tax particulars as well as declarations for receiving gifts from donors along with their balance-sheets--Explanation bona fide--Penalty not exigible--Income-tax Act, 1961, s. 271(1)(c)-- Sushil Kumar Modi v. Assistant CIT (Jaipur) . . . 513

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 9(1)(vi), Expln. 2 --Business expenditure--Disallowance--Royalty--Tax deduction at source--Purchase of software with hardware of computers--Claim to depreciation--No purchase of copyright--Does not involve commercial exploitation thereof--No intangible asset involved--Purchase of asset and claim to depreciation not covered under section 40(a)(ia) for disallowance-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

S. 10A --Business expenditure--Deduction only on actual payment--Exemption--Export of computer software--Provident fund contributions made before filing return--Allowable as business expenditure--If disallowed to be treated as business income under section 10A-- Patni Telecom Solutions P. Ltd. v. ITO (Hyderabad) . . . 534

S. 10A, Expln. 2(iv) --Exemption--Export of computer software--Export turnover--Expenses in foreign exchange on travelling expenses and internet charges for providing technical services--Internet charges on development of software--To be included--Allowable--Income-tax Act, 1961, Patni Telecom Solutions P. Ltd. v. ITO (Hyderabad) . . . 534

S. 30 --Business loss--Goods damaged in fire in plant--Assessee making assessment of damages and debiting to profit and loss account--Insurance company paying reduced amount--Difference between sum debited and received claim--Revenue expenditure--Assessing Officer to examine actual amounts incurred by assessee and determine actual loss-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

S. 31 --Business loss--Goods damaged in fire in plant--Assessee making assessment of damages and debiting to profit and loss account--Insurance company paying reduced amount--Difference between sum debited and received claim--Revenue expenditure--Assessing Officer to examine actual amounts incurred by assessee and determine actual loss-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

S. 32 --Depreciation--Refinery discontinued during year--Assets forming part of block of assets--Even if some assets in block functioning, entire block to be allowed depreciation-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

----Depreciation--Technical know-how--Chart submitted by assessee--If depreciation claimed on technical know-how different from one-sixth deduction claimed under section 35AB, depreciation to be allowed-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

S. 35AB --Depreciation--Technical know-how--Chart submitted by assessee--If depreciation claimed on technical know-how different from one-sixth deduction claimed under section 35AB, depreciation to be allowed-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

S. 36(1)(iii) --Interest on borrowed capital--Interest relating to capital work-in-progress--Not allowable--Matter remanded to give opportunity to assessee to give date-wise details of expenditure-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

S. 37 --Business expenditure--Repairs, telephone expenses, vehicle expenses and expenses on repairs and maintenance of machines and building--Ad hoc disallowances for personal use by employees and directors--Assessee a public limited company and maintaining books of account and these audited--Question of any element of personal nature does not arise--Expenditure to be allowed-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

S. 40(a)(ia) --Business expenditure--Disallowance--Royalty--Tax deduction at source--Purchase of software with hardware of computers--Claim to depreciation--No purchase of copyright--Does not involve commercial exploitation thereof--No intangible asset involved--Purchase of asset and claim to depreciation not covered under section 40(a)(ia) for disallowance-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

----Business expenditure--Disallowance--Whether tax deducted at deposited in Government treasury before due date not clear --Direction to Assessing Officer to verify and decide under law--Matter remanded-- Deputy CIT v. Rameshbhai C. Prajapati (Ahmedabad) . . . 516

----Housing projects--Special deduction--Profits of business--Expenditure disallowed under section 40(a)(ia)--Not to be included in profits eligible for special deduction-- Deputy CIT v. Rameshbhai C. Prajapati (Ahmedabad) . . . 516

S. 43B --Business expenditure--Deduction only on actual payment--Exemption--Export of computer software--Provident fund contributions made before filing return--Allowable as business expenditure--If disallowed to be treated as business income under section 10A-- Patni Telecom Solutions P. Ltd. v. ITO (Hyderabad) . . . 534

----Business expenditure--Deduction only on actual payment--Payments to employees’€™ State corporation and provident fund--Payments made within grace period or within year itself or before filing return of income--Allowable-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

S. 68 --Cash credit--Burden of proof--Initial burden on assessee to prove genuineness of credit--Details of creditorsbank accounts not enough to fulfil ingredients of section 68--Addition justified-- ITO v. Gayatri Associates (Hyderabad) . . . 528

S. 80HHC --Export--Special deduction--Book profit--Deduction under section 80HHC to be computed in accordance with ruling of Supreme Court in Ajanta Pharma -- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

----Export--Special deduction under section 80HHC--Sale of music rights--Assessee producing evidence regarding delivery of master tapes and receipt of foreign exchange within time and certificates of foreign inward remittance--Entitled to deduction-- Deputy CIT v. K. J. Yesudoss (Chennai) . . . 540

S. 80-IB --Business expenditure--Disallowance--Whether tax deducted at deposited in Government treasury before due date not clear --Direction to Assessing Officer to verify and decide under law--Matter remanded-- Deputy CIT v. Rameshbhai C. Prajapati (Ahmedabad) . . . 516

----Housing projects--Special deduction--Profits of business--Expenditure disallowed under section 40(a)(ia)--Not to be included in profits eligible for special deduction-- Deputy CIT v. Rameshbhai C. Prajapati (Ahmedabad) . . . 516

----Industrial undertaking--Special deduction under section 80-IB--Findings of Commissioner (Appeals) that shops located on ground floor covered 2 per cent. of built-up area--Deduction allowable-- Deputy CIT v. Rameshbhai C. Prajapati (Ahmedabad) . . . 516

S. 92C(2) --International transaction--Arm’s length price--Determination--Comparable uncontrolled price--To examine whether there were any internal or external comparables--High degree of comparability necessary--Many variables for applying comparable uncontrolled price--Rejection of one method--Authority bound to adopt another from most appropriate methods’€ --Matter remanded to Transfer Pricing Officer to examine Arm’s length price adopting transactional net margin method and carry out fresh comparability analysis--Commissioner--Functional analysis of agency agreements assessee with associated enterprises and with non-associated enterprises--Cost to be incurred by associated enterprises and risk assumed far more--Rate of 10 per cent. reasonable--Benefit of 5 per cent. in terms of proviso to section 92C not a standard deduction-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

S. 92CA --International transactions--Arm’s length price--Determination--Transactional net margin method--Selection of comparables--Turnover filter important--No bar to considering companies with either abnormal profits or abnormal losses--Assessee to demonstrate abnormal factors if it seeks to exclude comparable--Onsite and offshore services--Assets and risk profile, pricing, prevailing market conditions different--Onsite revenue filter to be applied--Functional comparability--Foreign exchange gain/loss to be added to operating revenue--Fringe benefit tax not considered part of operating cost of comparables--Not to be considered part of operating cost of assessee--Information collected under section 133(6)--Assessee cannot ask for right to cross examine company--Comparability of company neither considered by Transfer Pricing Officer nor Dispute Resolution Panel--Tribunal would not consider-- Trilogy E-Business Software India P. Ltd. v. Deputy CIT (Bangalore) . . . 464

S. 115JB --Export--Special deduction--Book profit--Deduction under section 80HHC to be computed in accordance with ruling of Supreme Court in Ajanta Pharma -- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

S. 133A --Income-tax survey--Statement made by assessee during survey operations--Failure by Department to collect material during survey--Statement no evidentiary value--Addition to be deleted-- Mahesh Ohri v. Assistant CIT (Delhi) . . . 522

S. 145A --Closing stock--Packing material on which batch numbers and price printed and having no value to assessee after lapse of time--Assessee devaluing inventory at Re. 1--To be allowed deduction-- Sonic Biochem Extractions P. Ltd. v. ITO (Mumbai) . . . 447

S. 234B --Advance tax--Interest--Company--Minimum alternate tax--Book profit--Provision for doubtful debts added back to book profits on basis of law amended retrospectively--No interest chargeable--As advance tax-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

S. 271(1)(c) --Penalty--Concealment of income--Assessee furnishing income-tax particulars as well as declarations for receiving gifts from donors along with their balance-sheets--Explanation bona fide--Penalty not exigible-- Sushil Kumar Modi v. Assistant CIT (Jaipur) . . . 513

Income-tax Rules, 1962 :

R. 10B --International transaction--Arm’s length price--Determination--Comparable uncontrolled price--To examine whether there were any internal or external comparables--High degree of comparability necessary--Many variables for applying comparable uncontrolled price--Rejection of one method--Authority bound to adopt another from most appropriate methods’€ --Matter remanded to Transfer Pricing Officer to examine Arm’s length price adopting transactional net margin method and carry out fresh comparability analysis--Commissioner--Functional analysis of agency agreements assessee with associated enterprises and with non-associated enterprises--Cost to be incurred by associated enterprises and risk assumed far more--Rate of 10 per cent. reasonable--Benefit of 5 per cent. in terms of proviso to section 92C not a standard deduction-- Garware Polyester Ltd. v. Assistant CIT (Mumbai) . . . 549

----International transactions--Arm’s length price--Determination--Transactional net margin method--Selection of comparables--Turnover filter important--No bar to considering companies with either abnormal profits or abnormal losses--Assessee to demonstrate abnormal factors if it seeks to exclude comparable--Onsite and offshore services--Assets and risk profile, pricing, prevailing market conditions different--Onsite revenue filter to be applied--Functional comparability--Foreign exchange gain/loss to be added to operating revenue--Fringe benefit tax not considered part of operating cost of comparables--Not to be considered part of operating cost of assessee--Information collected under section 133(6)--Assessee cannot ask for right to cross examine company--Comparability of company neither considered by Transfer Pricing Officer nor Dispute Resolution Panel--Tribunal would not consider-- Trilogy E-Business Software India P. Ltd. v. Deputy CIT (Bangalore) . . . 464

ITR Volume 352 Part 5 (Issue dated 6-5-2013)

INCOME TAX REPORTS (ITR)

Volume 352 Part 5 (Issue dated 6-5-2013)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Appeal to High Court --Substantial question of law--Concession recorded during course of hearing--Not to be disputed in appeal--Income-tax Act, 1961, s. 260A-- Dr. Gurvinder Singh Randhawa v . CIT (P&H) . . . 616
Business expenditure --Accounting--Expenses under heads provision for completed expenses and expenses incurred on completed projects --Allowable--Income-tax Act, 1961-- CIT v . Ansal Properties and Industries Ltd . (Delhi) . . . 637
----Disallowance--Maintenance of accommodation for employees and executives for duration of projects outside India--Intention of employer not to provide for guest house--Expenses allowable--Income-tax Act, 1961, s. 37(4), (5)-- CIT v . Ansal Properties and Industries Ltd . (Delhi) . . . 637
----Warranty--Provision for installation and service charges payable under warranty in respect of office equipment--Provision not made on any scientific data and past experience--Not allowable--Income-tax Act, 1961, s. 37-- CIT v . Forbes Campbell Finance Ltd. (Mad) . . . 602
Capital gains --Long-term capital gains--Principle of owelty--Family settlement--Payment to assessee to compensate inequalities in partition of assets--Amount paid is immovable property--No capital gains arise--Income-tax Act, 1961-- CIT v. Ashwani Chopra (P&H) . . . 620
----Transfer--Disputes among family members--Arbitration and family arrangement--Adjustment of shares among family members does not amount to transfer within the meaning of section 45--No capital gains arises--Income-tax Act, 1961, s. 45-- CIT v. R. Nagaraja Rao (Karn) . . . 565
Depreciation --Motor cars used outside India for business and commercial activities--Expenses for upkeeping vehicles--Entitled to depreciation--Income-tax Act, 1961, s. 32(1)(ii)-- CIT v . Ansal Properties and Industries Ltd . (Delhi) . . . 637
Export --Special deduction--Addition on account of surrendering amount as income on account of excess valuation of closing stock--Concurrent finding that assessee satisfied condition for grant of deduction to the extent of excess closing stock valuation--Assessee entitled to deduction--Income-tax Act, 1961, s. 80HHC-- CIT v . Haswani Arts (Raj) . . . 574
Income --Disallowance of expenditure in earning tax-free income--Assessee using its own funds for investments in shares and using borrowed funds entirely for its business purposes--No finding that any expenditure by way of interest was incurred in respect of investments--Disallowance under section 14A not justified--Income-tax Act, 1961, s. 14A-- CIT v . Gujarat Power Corporation Ltd . (Guj) . . . 583
Infrastructure facility --Special deduction--Explanation that person executing works contract not eligible for deduction--Intrinsic difference between developing infrastructure facility and executing works contract--Explanation clarificatory--Introduction in 2009 with effect from 2000--Not a case of retrospective levy or withdrawal of deduction with retrospective effect--Valid--Income-tax Act, 1961, s. 80-IA(4), (13), Expln.-- Katira Construction Ltd. v . Union of India (Guj) . . . 513
Interpretation of taxing statutes --Explanation--Scope of-- Katira Construction Ltd . v . Union of India (Guj) . . . 513
Legislative powers --Parliament--Taxation--Power to legislate with retrospective effect-- Katira Construction Ltd . v . Union of India (Guj) . . . 513
Penalty --Excess claim to depreciation--Wrong claim to loss as revenue expenditure--Mistakes rectified during assessment proceedings since time to file revised return expired--No dispute that mistake bona fide--No penalty leviable--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Somany Evergree Knits Ltd . (Bom) . . . 592
----Furnishing inaccurate particulars--Property held as stock-in-trade--Conversion of stock-in-trade into investment just before sale of property to pay lower tax--Furnishing inaccurate particulars of income--Levy of penalty justified--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Splender Construction (Delhi) . . . 588
Reassessment --Condition precedent--Tangible material regarding escapement of income--Reason for notice must be given and objections disposed of by speaking order--Special deduction under section 80-IB(10) granted in original assessment--Reassessment withdrawing special deduction--Objections not heard--Order of reassessment--Not valid--Income-tax Act, 1961, ss. 80-IB(10), 147, 148-- Vishwanath Engineers v . Asst. CIT (Guj) . . . 549
----Writ--Existence of alternative remedy--Not an absolute bar for issue of writ--Appeal subsequent to filing of writ petition--Petition admitted and affidavit filed--Writ petition could not be dismissed--Income-tax Act, 1961, s. 148--Constitution of India, art. 226-- Vishwanath Engineers v . Asst. CIT (Guj) . . . 549
Residence --Conditions precedent for considering Indian citizen or person of Indian origin a resident--Residence in India for a period exceeding 365 days in the immediately preceding four years and residence during previous year for period of 182 days--Conditions cumulative--Individual residing in India for more than 365 days in immediately preceding four years but residing for less than 182 days in previous year--Not a resident--Income-tax Act, 1961, s. 6-- CIT v . Suresh Nanda (Delhi) . . . 611
Search and seizure --Retention of seized assets--Dispute between assessee and its partners regarding ownership of seized jewellery--Suit pending before civil court--High Court setting aside order of Commissioner entrusting jewellery to one partner and remanding matter for redetermination--Order of Commissioner treating jewellery as belonging to one partner and levying interest under section 220(2)--Power of Commissioner to waive or reduce interest--Matter remanded--Income-tax Act, 1961, ss. 132, 132B, 220(2)--R oxy Industrial Corporation v. CIT (P&H) . . . 569
Settlement of cases --Settlement Commission--Power of review--Rectification of mistakes--Order of Commission charging interest contrary to Circular and decision of Supreme Court--Revision of order by way of rectification--Impermissible--Income-tax Act, 1961, ss. 154, 245D-- Smt. U. Narayanamma v. Government of India
(AP) . . . 598
Undisclosed income --Assessee a surgeon--Addition on account of undisclosed surgeries--Tribunal reducing average rate of surgery than that declared by assessee--Average rate of surgery based upon number of surgeries performed by assessee in one year and income earned therefrom--Assessee not entitled to contend that flat rate applied by Tribunal arbitrary--Income-tax Act, 1961-- Dr. Gurvinder Singh Randhawa v . CIT (P&H) . . . 616
Unexplained investment --Investment in property--No evidence that extra consideration received--Addition to income based solely on report of District Valuation Officer--Not valid--Income-tax Act, 1961, s. 69B-- CIT v . Sadhna Gupta
(Delhi) . . . 595
----Unexplained expenditure--Effect of section 69B--Condition precedent for application of provision--No evidence to establish understatement of purchase price--No addition by treating investment as undisclosed--Wealth-tax Act, 1957, Sch. III, r. 3--Income-tax Act, 1961, s. 69B-- CIT v . Dinesh Jain (HUF) (Delhi) . . . 629

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Constitution of India :
Art. 226 --Reassessment--Writ--Existence of alternative remedy--Not an absolute bar for issue of writ--Appeal subsequent to filing of writ petition--Petition admitted and affidavit filed--Writ petition could not be dismissed-- Vishwanath Engineers v . Asst. CIT (Guj) . . . 549
Income-tax Act, 1961 :
S. 6 --Residence--Conditions precedent for considering Indian citizen or person of Indian origin a resident--Residence in India for a period exceeding 365 days in the immediately preceding four years and residence during previous year for period of 182 days--Conditions cumulative--Individual residing in India for more than 365 days in immediately preceding four years but residing for less than 182 days in previous year--Not a resident-- CIT v . Suresh Nanda (Delhi) . . . 611
S. 14A --Income--Disallowance of expenditure in earning tax-free income--Assessee using its own funds for investments in shares and using borrowed funds entirely for its business purposes--No finding that any expenditure by way of interest was incurred in respect of investments--Disallowance under section 14A not justified-- CIT v . Gujarat Power Corporation Ltd . (Guj) . . . 583
S. 32(1)(ii) --Depreciation--Motor cars used outside India for business and commercial activities--Expenses for upkeeping vehicles--Entitled to depreciation-- CIT v . Ansal Properties and Industries Ltd . (Delhi) . . . 637
S. 37 --Business expenditure--Warranty--Provision for installation and service charges payable under warranty in respect of office equipment--Provision not made on any scientific data and past experience--Not allowable-- CIT v . Forbes Campbell Finance Ltd. (Mad) . . . 602
S. 37(4) --Business expenditure--Disallowance--Maintenance of accommodation for employees and executives for duration of projects outside India--Intention of employer not to provide for guest house--Expenses allowable-- CIT v . Ansal Properties and Industries Ltd . (Delhi) . . . 637
S. 37(5) --Business expenditure--Disallowance--Maintenance of accommodation for employees and executives for duration of projects outside India--Intention of employer not to provide for guest house--Expenses allowable-- CIT v . Ansal Properties and Industries Ltd . (Delhi) . . . 637
S. 45 --Capital gains--Transfer--Disputes among family members--Arbitration and family arrangement--Adjustment of shares among family members does not amount to transfer within the meaning of section 45--No capital gains arises-- CIT v. R. Nagaraja Rao (Karn) . . . 565
S. 69B --Unexplained investment--Investment in property--No evidence that extra consideration received--Addition to income based solely on report of District Valuation Officer--Not valid-- CIT v . Sadhna Gupta (Delhi) . . . 595
----Unexplained investment--Unexplained expenditure--Effect of section 69B--Condition precedent for application of provision--No evidence to establish understatement of purchase price--No addition by treating investment as undisclosed-- CIT v . Dinesh Jain (HUF) (Delhi) . . . 629
S. 80HHC --Export--Special deduction--Addition on account of surrendering amount as income on account of excess valuation of closing stock--Concurrent finding that assessee satisfied condition for grant of deduction to the extent of excess closing stock valuation--Assessee entitled to deduction-- CIT v . Haswani Arts (Raj) . . . 574
S. 80-IA(4) --Infrastructure facility--Special deduction--Explanation that person executing works contract not eligible for deduction--Intrinsic difference between developing infrastructure facility and executing works contract--Explanation clarificatory--Introduction in 2009 with effect from 2000--Not a case of retrospective levy or withdrawal of deduction with retrospective effect--Valid-- Katira Construction Ltd. v . Union of India (Guj) . . . 513
S. 80-IA(13), Expln. --Infrastructure facility--Special deduction--Explanation that person executing works contract not eligible for deduction--Intrinsic difference between developing infrastructure facility and executing works contract--Explanation clarificatory--Introduction in 2009 with effect from 2000--Not a case of retrospective levy or withdrawal of deduction with retrospective effect--Valid-- Katira Construction Ltd. v . Union of India (Guj) . . . 513
S. 80-IB(10) --Reassessment--Condition precedent--Tangible material regarding escapement of income--Reason for notice must be given and objections disposed of by speaking order--Special deduction under section 80-IB(10) granted in original assessment--Reassessment withdrawing special deduction--Objections not heard--Order of reassessment--Not valid-- Vishwanath Engineers v . Asst. CIT (Guj) . . . 549
S. 132 --Search and seizure--Retention of seized assets--Dispute between assessee and its partners regarding ownership of seized jewellery--Suit pending before civil court--High Court setting aside order of Commissioner entrusting jewellery to one partner and remanding matter for redetermination--Order of Commissioner treating jewellery as belonging to one partner and levying interest under section 220(2)--Power of Commissioner to waive or reduce interest--Matter remanded--R oxy Industrial Corporation v. CIT (P&H) . . . 569
S. 132B --Search and seizure--Retention of seized assets--Dispute between assessee and its partners regarding ownership of seized jewellery--Suit pending before civil court--High Court setting aside order of Commissioner entrusting jewellery to one partner and remanding matter for redetermination--Order of Commissioner treating jewellery as belonging to one partner and levying interest under section 220(2)--Power of Commissioner to waive or reduce interest--Matter remanded--R oxy Industrial Corporation v. CIT (P&H) . . . 569
S. 147 --Reassessment--Condition precedent--Tangible material regarding escapement of income--Reason for notice must be given and objections disposed of by speaking order--Special deduction under section 80-IB(10) granted in original assessment--Reassessment withdrawing special deduction--Objections not heard--Order of reassessment--Not valid-- Vishwanath Engineers v . Asst. CIT (Guj) . . . 549
S. 148 --Reassessment--Condition precedent--Tangible material regarding escapement of income--Reason for notice must be given and objections disposed of by speaking order--Special deduction under section 80-IB(10) granted in original assessment--Reassessment withdrawing special deduction--Objections not heard--Order of reassessment--Not valid-- Vishwanath Engineers v . Asst. CIT (Guj) . . . 549
----Reassessment--Writ--Existence of alternative remedy--Not an absolute bar for issue of writ--Appeal subsequent to filing of writ petition--Petition admitted and affidavit filed--Writ petition could not be dismissed-- Vishwanath Engineers v . Asst. CIT (Guj) . . . 549
S. 154 --Settlement of cases--Settlement Commission--Power of review--Rectification of mistakes--Order of Commission charging interest contrary to Circular and decision of Supreme Court--Revision of order by way of rectification--Impermissible-- Smt. U. Narayanamma v. Government of India (AP) . . . 598
S. 220(2) --Search and seizure--Retention of seized assets--Dispute between assessee and its partners regarding ownership of seized jewellery--Suit pending before civil court--High Court setting aside order of Commissioner entrusting jewellery to one partner and remanding matter for redetermination--Order of Commissioner treating jewellery as belonging to one partner and levying interest under section 220(2)--Power of Commissioner to waive or reduce interest--Matter remanded--R oxy Industrial Corporation v. CIT (P&H) . . . 569
S. 245D --Settlement of cases--Settlement Commission--Power of review--Rectification of mistakes--Order of Commission charging interest contrary to Circular and decision of Supreme Court--Revision of order by way of rectification--Impermissible-- Smt. U. Narayanamma v. Government of India (AP) . . . 598
S. 260A --Appeal to High Court--Substantial question of law--Concession recorded during course of hearing--Not to be disputed in appeal-- Dr. Gurvinder Singh Randhawa v . CIT (P&H) . . . 616
S. 271(1)(c) --Penalty--Excess claim to depreciation--Wrong claim to loss as revenue expenditure--Mistakes rectified during assessment proceedings since time to file revised return expired--No dispute that mistake bona fide--No penalty leviable-- CIT v. Somany Evergree Knits Ltd . (Bom) . . . 592
----Penalty--Furnishing inaccurate particulars--Property held as stock-in-trade--Conversion of stock-in-trade into investment just before sale of property to pay lower tax--Furnishing inaccurate particulars of income--Levy of penalty justified-- CIT v. Splender Construction (Delhi) . . . 588
Wealth-tax Act, 1957 :
Sch. III, r. 3 --Unexplained investment--Unexplained expenditure--Effect of section 69B--Condition precedent for application of provision--No evidence to establish understatement of purchase price--No addition by treating investment as undisclosed-- CIT v . Dinesh Jain (HUF) (Delhi) . . . 629
ITR’S TRIBUNAL TAX REPORTS (ITR (TRIB))

expenditure incurred on borrowed funds for financing purchase and sell of shares on behalf of others can be disallowed,

Whether expenditure incurred on borrowed funds for financing purchase and sell of shares on behalf of others can be disallowed, even if income earned from brokerage has been taxed: ITAT

THE issue before the Tribunal is - Whether the expenditure incurred by the assessee on borrowed funds for financing in respect to purchase and sell of shares on behalf of others cannot be allowed, although the income earned from brokerage has been taxed. And the answer goes against the Revenue.

Facts of the case

The assessee has borrowed huge funds from banks and also in the form of inter Corporate deposits etc. The AO has referred the matter to special audit u/s 142(2A), to study issue of utilization of the borrowed funds. The AO passed his order placing reliance on the findings of the Special Auditor, in which it was observed that the interest incurred by the assessee was in excess of the brokerage income. The Auditor also observed that the assessee had carried out huge volume of trade on which no brokerage has been charged, and thus he concluded that there was no commercial sense involved in the transactions of the assessee. The AO agreed with the observations of the Auditor that, there was no reason to allow the claim of interest incurred on financing the loan. Further, the AO relied on the fact that SEBI had debarred the assessee from trading in the stock market for two years for transactions against the public policy. He also came to a conclusion that the the borrowed capital was being utilized for financing the traders, which was not an active business of the assessee. The AO was of the strong opinion that any expense incurred in a business venture, which has no profit motive cannot be allowed as an expenditure

The CIT(A) allowed the appeal of the assesee by observing that on identical facts the issue has been decided in favour of the assessee for the assessment year 2001.

Aggrieved, the Revenue filed an appeal before the Tribunal.

The Departmental Representative strongly opposed the order of the CIT(A) and stated that the order of CIT(A) showed that he was allowing the contention of the assessee for the AY 2000-01 on the facts of that year and not on the facts of subsequent years's enquiry. The DR heavily relied on the order passed by the SEBI, in which an adverse finding was given against the assessee for involving in synchronized trade transactions with Ketan Parkeh group and facilitating circular trades and artificial volumes of the scrips in the markets. Finally, the DR argued that the transactions of the assessee were against public policy and hence expenditure incurred out of such transactions could not be allowed u/s 37(1) of the Act.

The counsel for the assessee contended that if the brokerage earned by the assessee from such illegal activities was taxed, the deduction of interest expenditure incurred to earn that brokerage has to be allowed. He argued that as per the subsequent amendments carried out to Section 37 empowered the AO only to disallow illegal expenditure incurred while carrying on legal business, and therefore even the activity of the assessee was treated as entirely illegal, still the expenditure has to be allowed. Further, he contended that the funds were borrowed for financing various traders from whom the assessee had earned brokerage which was more than the interest expenditure. He submitted that the AO had ignored the fact that brokerage of the assessee had increased substantially which was the basis for the CIT(A) to decide in favour of the assessee for the AY 2000-01

Disallowance u/s 14A

The AO disallowed the interest expenditure on the ground that the assessee had earned dividend income and, therefore, against exempted income, no expenditure on account of interest and other expenses were allowable. The CIT(A) relying upon the the identical facts of AY 2000-01, allowed the claim of expenditure.

Aggrieved, the Revenue filed an appeal before the Tribunal.

Discrepancy of brokerage amount in service tax return vis-a-vis P/L Account

The AO has the added the excess brokerage shown in service tax return as compared to brokerage income shown in profit and loss account. The CIT(A) relying upon previous AY order allow the appeal and deleted the addition.

Aggrieved, the Revenue filed an appeal before the Tribunal.

Allowability of prior period expenses

The AO disallowed certain expenses on the ground that they related to earlier years. On appeal, the CIT(A) deleted this addition following his earlier order.

Aggrieved, the Revenue filed an appeal before the Tribunal.

Interest accrued but not due

The AO had added the interest amount in the income of the assessee which had accrued but not due. On appeal before the CIT(A), that the interest became due on the coupon date of security. It was stated that where the coupon date fell beyond the last date on a particular financial year, the interest was merely taken into books of account of the said financial year in accordance with the periodicity concept of accounting. It was also stated that the interest in securities was receivable only after the last date of financial year, and there was no right of the assessee to receive the interest in the year under consideration. Thereafter, the CIT(A) deleted the addition.

Having heard the parties, the Tribunal held that,

Allowability of interest incurred on borrowed funds

++ it is recorded that during the year under consideration the assessee has earned brokerage of Rs.108,85,85,105/- against brokerage earned of Rs.67,44,07,631/- in earlier year. The assessee has incurred interest cost of Rs.17,48,70,004/- from the sale transaction and has earned brokerage of Rs.72,89,83,531/-. Similarly, against interest cost of Rs.4,43,98,516/-, it was for the purpose of transaction. The assessee company has earned brokerage of Rs.28,67,13,513/-, total of the brokerage comes to Rs.108,85,85,105/-. Therefore, the contention of the AO as well as DR that against huge interest expenditure the assessee has earned less brokerage, is factually incorrect;

+ it is further seen that in immediately preceding year, the assessee incurred interest expenditure about Rs.12 crore or odd against which the assessee has shown brokerage income of Rs.67,44,07,631/-. This fact has been noted by the CIT(A) while allowing the issue in favour of the assessee for assessment year 2000-01. The main contention of the department in denying the claim of the interest expenditure is that the SEBI has passed an order giving adverse report against the assessee. We have seen the report of the Special Auditor and in the note the Special Auditor has noted that the activity of the assessee indulging in financing activity may construe that the assessee is indulged in illegal activity. For a moment if it is accepted that the assessee is indulged in unauthorized activity of financing in respect to purchase and sell of shares on behalf of others, in that case, we are of the view that the interest expenditure has to be set off against brokerage earned by the assessee because the interest expenditure is incurred by the assessee on borrowed money for the purpose of buying shares or making purchases of shares on behalf of others. Huge brokerage is charged, which is much more as compared to interest expenditure. This is not expenditure, which is prohibited under Explanation of Section 37(1) as this expenditure does not belong to bribery nor on account of fine or penalty or hafta paid to someone as these expenditures are on account of borrowed money used for the purpose of business transaction. Even the Courts have held that if for a moment it is accepted that some activities are on account of unauthorized activity, then also unauthorized income has to be set off against unauthorized expenses;

+ in case of Bank of America (nt & sa), the Mumbai Bench of the Tribunal has held that loss incurred by the assessee in security transaction in violation of Section 15 of the Securities Contract Regulation Act, 1956, undisputedly borne out that it was set off against profit from comparable transaction. In this case, it was argued on behalf of the department that losses incurred by the assessee are not allowable on account of expenses as they are relating to illegal activities. Thereafter it was held by the Tribunal that if the expenses are on account of illegal transaction, then income part of the same transaction has to be treated on account of illegal transaction and both i.e. income as well as expenditure is to be set off against each other;

+ in the present case also facts are similar. If the department treats the activities of the assessee are illegal, then income earned by the assessee as well as expenditure incurred by the assessee has to be treated on the same transaction and they have to be netted against each other;

+ the department has also taken a plea that on certain transaction even no brokerage has been charged by the assessee. This is well known and settled position of law that this is business man, who knows how to run its business activities. If by any reason the assessee does not charge any brokerage from certain parties, that may be on account of commercial expediency and to earn brokerage in future. It is not the case of the department that the assessee has not charged brokerage from a particular party from whom heavy transaction has been made by the assessee and heavy interest expenditure have been incurred by the assessee. Figure of interest expenditure against brokerage income has been tabulated somewhere above in this order. Brokerage income is much more than the interest expenditure;

+ keeping in view of all these facts and circumstances of the case and the finding of the CIT(A) for earlier year, which has been followed by the CIT(A) for the year under consideration, we are of the view that the CIT(A) was correct in allowing the issue in favour of the assessee. Accordingly, we confirm the order of the CIT(A) on this issue.

Disallowance u/s 14A

++ we found no infirmity in the finding of the CIT(A). We noted that the CIT(A) has taken into consideration that the assessee is a trader and the entire shares purchases have been kept under the head stock-in-trade. This fact has been accepted by the AO. Dividend income is the consequential income. Any expenditure incurred during the regular course of business is allowable. There is a direct nexus between the trading activity and incurring expenditure either on account of interest or on account of other administrative expenses. Therefore, we are of the considered view that disallowance made by the AO was not justified and CIT(A) was justified in not deleting the same. Accordingly, we confirm the order of the CIT(A) in this respect;

Discrepancy of brokearge amount in service tax return vis-a-vis P/L Account

++ we found that CIT(A) was justified in deleting this addition also. The issue was examined by the CIT(A) for immediately preceding year i.e. assessment year 2000-01. It was seen by the CIT(A) that the assessee has been reflecting the service tax return, the brokerage on accrued basis but in profit and loss account the brokerage has been shown on actual basis on the basis of constant method adopted by the assessee. It was further noticed by the CIT(A) that sometime the assessee is required to reduce the brokerage at the request of the assessee during the final settlement of the bills and some time the assessee is also required to waive part of the brokerage disputed by the clients. Therefore, difference as per the service tax return and as per profit and loss account was found explainable. This is a minor difference, which has been reconciled by the assessee. Therefore, we see no reason to interfere in the finding of the CIT(A) in this respect also;

Allowability of prior period expenses

++ CIT(A) examined the issue in earlier year and found that no such expenses were claimed in earlier year and in the year under consideration the final settlement was arrived at and, therefore, they were booked in the year when the final settlement was made. Similar issue is involved in the year under consideration. These expenses were not claimed in earlier year as they were claimed on the basis of final settlement during the year under consideration. Any claim of expenditure settled in a particular year is allowable in that year if the same is not claimed in earlier year. Undisputedly, these expenses were not booked in earlier year, therefore, in our view, lCIT(A) was justified in deleting the disallowance made by the AO on account of prior period expenses;

Interest accrued but not due

++ after considering the submission and taking into the consideration the case laws relied upon, CIT(A) found that the interest on Government securities is not received on day to day basis, but only on the specified coupon dates. It was found that the Tribunal has held that this is the correct legal position on the basis of which income should be computed and it was held that when the interest was received then only can be taxable. In view of these facts, CIT(A) deleted the addition also.

Admeasuring the land

IN THE INCOME TAX APPELLATE TRIBUNAL "NAGPUR", BENCH,  (E-COURT), MUMBAI

BEFORE SHRI R.K.GUPTA, JM & SHRI D.KARUNAKARA RAO, AM

I T A N o.1 64/Nag/ 20 12

( Assessment Year 2008-09 )

Shri Prakash Laxminarayan   Vs. ACIT, Cir-5, Nagpur-440 001 

Soni,   74,   Shriniketan,   Ramdaspeth, Nagpur-12

P AN No . : AEWPS 2001 P

(Appellant)

..

AN D

( Respondent)

I T A N o.1 65/Nag/2012

( Ass ess me nt Year 2008-09 )

Shri Rahul Prakash Soni, 74, Shriniketan, Ramdaspeth, Nagpur-12

P AN No . : AETPS 696 5 H

Vs. ACIT, Cir-5, Nagpur-440 001

(Appellant)

Assessee by

Revenue by

Date of Hearing

Respondent)

Mr. Bhupendra Shah

Dr. Millind Bhusari

15thMarch., 2013

Date of Pronouncement :

O R D E R

Per Bench :

10th April, 2013

These two appeals have been preferred by two different  assessees before the ITAT Nagpur Bench, Nagpur, against the order  of leaned CIT(A)-II, Nagpur (Maharashtra) relating to assessment year  2008-09, which has been heard through E-Court, Mumbai.

2.   Since common issues are involved in both the cases, therefore,   for the sake of convenience, both these cases have been heard and  disposed of by this consolidated order. 

3.   In both the appeals, the aforesaid assessees have raised the   ground against the action of the learned CIT(A) in regard to confirming   the action of the AO in holding and maintaining that the agricultural  land held by these two assessees are capital asset within the meaning

  ITA Nos.164 & 165/Nag/2012   of Section2(14)(ii)(b) by adopting the ariel distance by straight line   method instead of road distance.

4.   Brief facts giving rising to both these appeals are that during the   course of assessment proceeding, the AO noted that these two  assessees have sold lands, in which they were having 1/4th share. The  lands were purchased on 17-8-2007 admeasuring 2.58 hectare, which  was sold on 31-1-2008 for a total consideration of Rs.1,88,13,156/-.   These two partners were having 1/4thshare in the above stated land   which was situated in Mouza Khadka village. The AO found that as per  the straightline method, the distance of the agricultural lands sold are  situated beyond 8 KMs from the Municipal Limits of the City of Nagpur.   Therefore, he viewed that the land in question is capital asset within  the meaning of Section 2(14)(iii)(b) of the Act. Accordingly, he brought   the gain to tax by computing capital gain.

5.   Being aggrieved, both these assessee preferred appeal before    the CIT(A), wherein the CIT(A) after passing a detailed order held that   the findings of the AO are correct. Hence, both these assessee are   now in appeals here before the Tribunal.

6.   Having heard the rival parties and perusing the material on    record, we found that on similar facts in case of Sanjay Nagorao  Paidlewar &  Nitish Rameshchandra Chordia Vs. ACIT, listed under   ITA Nos.112 &113/Nag/2012, which was decided on 22-3-2013,   wherein after considering the arguments of both the parties in detail, the  Tribunal has taken a view that the distance from municipal limit has to be   adopted by taking approach road distance and not on the basis of  straight-line method or crow's flight.The issue has been discussed at   great length and found that this is squarely covered by the decision of   various Hon'ble High Courts and various benches of the Tribunal. The  findings of the Tribunal have been recorded in para 9 to 21, which are as  under :-



"9. We have heard rival submissions and considered them carefully. We have also considered the written submissions filed on behalf of both the parties i.e. assessees and department and have also perused the relevant material on record, on which our attentions were drawn. We have also taken into consideration the various case laws relied upon by the learned AR as well as learned CIT DR. After considering the submission and perusing the material on record, we found that the issue in respect to whether the agricultural land in question is an asset within the meaning of Section 2(14) or not, have already been decided by the Hon'ble Punjab and Haryana High Court in the case of Satinder Pal Singh(Supra). This decision of the Hon'ble Punjab and Haryana High Court has been consistently followed by various benches of the Tribunal in various parts of the country. One of us has also taken into considering this issue while sitting in Jaipur Benches of  the Tribunal and found that the decision of the Hon'ble Punjab and Haryana High Court has to be followed and the distance has to measured through approach road and not through the crows flight  distance. The Hon'ble Punjab and Haryana High Court in the case of Satinder Pal Singh (supra) has held that the distance of  agricultural land belonging to the assessee within the meaning of Section2(14)(iii)(b) has to be measured in terms of approach road and not by a straight line distance on horizontal plane or as per  crows flight. Copy of the order is also placed in the compilation at pages 1 &2.

10. The contention raised by learned CIT(A) that the reckoning of urbanization as a factor for prescribing the distance is of significance which would yield to the principle of measuring distance in terms of approach road rather than by straight line on horizontal plane, this contention of learned CIT(A) has also been considered by the Hon'ble Punjab and Haryana High Court and has observed that the principle of measurement of distance is considered as straight line distance on horizontal plane or as per crow's flight then it would have no relationship with the statutory  requirement of keeping in view the extent of urbanization. Such a course would be illusory, which is in pursuance of the aforesaid provision that Notification No.9447 dated.6thJanuary, 1994 has been issued by the Central Government. In respect of the State of Punjab, at item No.18, the sub-division Khanna has been listed at serial No.19. It has inter alia been specified that area upto 2 kms.  from the municipal limits in all directions has to be regarded as    other than agricultural land. Once the stator guidance of taking into account the extent and scope of urbanization of the area has to be reckoned while issuing any such notification then it would be incongruous to the argument of the Revenue that the distance of land should be measured by the method of straight line on horizontal plane or as per crow's flight because any measurement by crow's flight is bound to ignore the urbanization which has taken place. The decision of the Mumbai Bench in the case of Laukik Developers Vs DCIT, reported in (2007) 108 TTJ (Mumbai) 364,  was also taken into consideration by the Hon'ble Punjab and Haryana High Court and found that the decision of the Tribunal has  attained finality.

11. In case of Laukik Developers (supra), the Mumbai Bench of the Tribunal has observed that once the principle of measuring distance has been settled namely that the distance of the agricultural land belonging to the assessee-respondent has to be measured in terms of by approach road and not by a straight line distance on horizontal plane or as per crow's flight. Accordingly, the  Hon'ble Punjab and Haryana High Court held that the distance has  to be measured by approach road and not by straight line distance on horizontal plane or as per crow's flight. In case of Laukik Developers (supra), the assessee disputed that the distance for  the purpose of Section 80IB(10) has to be measured through straight line distance on horizontal plane and not by approach road.  The Mumbai Bench of the Tribunal has held that the issue regarding distance to be measured with regard to road distance or a straight line distance is covered with the decision of the Pune Tribunal in the case of Mangalam Inorganics (P) Ltd (supra),  wherein it was held that the distance between the municipal limits  and assessee's industrial undertaking has to be measured having regard to the road distance and not as per the crow's flight i.e., a straight-line distance as canvassed by the Revenue.

12. In case of ITO Vs. Ashok Shukla, decided in ITA No.207/Indore/2012, for assessment year 2008-09, vide order dated 31-8-2012, the issue was in respect to whether the assessee was entitled to exemption from capital gain on sale of agricultural land. This issue was examined in detail and it was found that the Tehsildar and Patwari have given a report that the land in question was agricultural land and the distance is 9.7 kms from the municipal  limit. This distance was through the approach road and not by straight line distance method. Thereafter discussing the issue on merit and having taking into consideration the decision of the Tribunal in the case of Laukik Developers (supra) and considering the decision of the Hon'ble Gujarat High Court in the case of Balkrishna Hariballabhadas Vs. CIT, reported in 138 ITR 245,  which was relied upon by the learned DR and found that the measurement has to be adopted by the approach road and not by straight line method. Reliance was also placed on the decision of the Hon'ble Punjab andHaryana High Court in the case of Satinder Pal Singh (supra). 13. In case of ACIT Vs. M/s Shagun Infrastructure Pvt. Ltd., decided in ITA No.209/Nag/2009, for assessment year 2006-07, vide order dated 27-6-2011, the Nagpur Bench of the Tribunal has held that the land in question which was situated more than 8 kms.   from the local municipal limit and is clearly agricultural land in terms of Section 2(14)(iii) of the Act,, therefore, any income from such land including profit arising from sale of such agricultural land is not assessable as income.

14. In case of ACIT Vs. Gaurav Khandelwal, decided in ITA No.195/Agra/2010, for assessment year 2006-07, the Agra Bench of the Tribunal following the decision of Mumbai Bench in case of Laukik Developers (supra) and the decision of Hon'ble Punjab and Haryana High Court in the case of Satinder Pal Singh (supra), held that the distance of 8kms has to be measured by approach road distance and not by straight line distance on horizontal plane. Similar view has been expressed in case of Shri Mainraj Vs. ACIT, decided in ITA No.1371/Mds/2011, for assessment year 2007-08 vide order dated 18-8-2011. In this case also it has been held that the distance has to be measured by approach road and not through crow's flight or straight line method. In case of Smt. Savithri Ammal Vs. ITO, decided in ITA No.487/Mds/2012, vide order dated 12-7-2012 again it has been held that the distance has to be measured as per the approach road and not by straight line method. Similar view has been expressed in case of ITO Vs. Shri Chaganlal Lalji Aswin  Business, decided in ITA No.857/Mds/2011, for the assessment year 2007-08, vide order dated 18-2-2011. In case of ITO Vs. M/s Ranjit Rattan Mehra (HUF), decided in ITA No.442/Asr/2011 for  assessment year 2008-09, the Amritsar Bench of the Tribunal has  taken a view that the distance of 8 kms has to be measured through the approach road and not through the straight line method. While holding so, the decision of the Hon'ble Punjab and Haryana High Court in case of Satinder Pal Singh (supra), was taken into consideration and another decision of the same High Court in case of CIT Vs. Lal Singh & Others, reported in (2010) 228 CTR 575 was also taken into consideration and has allowed the issue in favour of the assessee by holding that the distance of 8km has to be measured through approach road and not by straight line method on horizontal plane.  15. We have also taken into consideration various arguments of learned CIT DR and found that since the issue is covered by the decision of the various Benches of the Tribunal as well by Hon'ble  Punjab and Haryana High Court, therefore, in view of the consistency the view taken by various benches has to be followed. There is no contrary decision is available on the same facts and, therefore, it cannot be said that the decision of the Hon'ble Punjab and Haryana High Court has only persuasive value. If there is any contrary decision is available either by the Hon'ble High Court or by  any other benches of the Tribunal, then of course it can be said that the decision of other benches have persuasive value. In view of the aforesaid facts and circumstances of the case, we held that distance of 8 kms. has to be measured through approach road and not by straight line distance on horizontal plane or crow's flight. Hence, this issue is decided in favour of the assessees. 

16. Regarding the issue in regard to whether the sale consideration out of agricultural income is assessable as business income or not, once we have held that this was an agricultural land and, therefore, any consideration out of sale of agricultural land, which is not assessable as the land was situated beyond 8 kms., therefore, the direction of the learned CIT(A) that the surplus may  be treated as business income, has become now meaningless. Even and otherwise, this issue is also decided by various High Courts including the Hon'ble Bombay High Court. Though learned CIT(A) has placed reliance on the decision of the Hon'ble Bombay High Court in case of Gopal Ramnarayan Kasat, reported in 9  Taxman.com 236 (Bom), however, in a latest decision the Hon'ble  Bombay High Court in the case of CIT Vs. Smt. Debbie Alemao, reported in (2011) 331 ITR 59, has held that the land which was shown as agricultural land in the revenue records and never sought to be used for non-agricultural purposes by the assessee till it was sold has to be treated as agricultural land, even though no agricultural income was shown by the assessee from this land and, therefore, no capital gain was taxable on the sale of the said land.

17. Facts in the case in hand are similar. The land in question was shown as agricultural land in the revenue record. Whether there was any agricultural income or not, is not the moot question to decide the issue, however, the important factor is to be decided as to whether the character of the land is agriculture or not.  Undisputedly, in the revenue record and as per the Patwari certificate, the land in question is agricultural land. Therefore, the sale consideration was not taxable on the sale of said land i.e. either on account of capital gain or on account of business income. 

18. Even we found that this issue has been decided by the Hon'ble Apex Court while confirming the order of the Hon'ble Delhi  High Court in the case of DLF United Limited, 217 ITR 337. The facts in the case of DLF United Limited (supra) were that the DLF limited purchased agricultural land from various farmers in the ear and shown exemption, however, the AO treated the sale consideration as revenue receipt. Upto the stage of Tribunal, the order of AO was confirmed, however, the Hon'ble Delhi High Court held that the land in question was of agricultural land and therefore, any receipt on account of sale of agricultural land is not taxable. This decision of the Hon'ble Delhi High Court has been confirmed by the Hon'ble Apex Court, whereby it has been held that even and otherwise we see no merit in the Special Leave Petition and the same are accordingly dismissed on the ground of delay as well as on merits. Copies of these orders are placed in the compilation.

19. This issue has also been considered in various other decision i.e. in case of Hindustan Industrial Resources Limited Vs. ACIT, reported in 335 ITR 77, wherein it was held that in view  of the finding of the Tribunal that the land in question was agricultural land at the time of purchase by the assessee as also at the time of acquisition, the land was clearly agricultural land irrespective of the fact that the assessee intended to use the land for industrial purposes and did not carry out any agricultural operations and, therefore, no capital gains could be charged on acquisition thereof under the Land Acquisition Act, 1894. While holding so, the decision in the case of DLF United Limited  (supra), was taken into consideration by the Hon'ble Delhi High Court.

20. In case of Shri Satyanarayan O. Agrawal Vs. ADCIT,  decided in ITA No.169/Nag/2012 for assessment year 2007-08, similar view also was taken following the various case laws and ultimately it was held that the consideration received out of sale of agricultural land was not taxable.

21. Since this issue has already been decided by various benches of the Tribunal and the Hon'ble Bombay High Court as well as the Hon'ble Delhi High Court and the decision of the Hon'ble Delhi High Court in the case of DLF United Limited (supra), which has been confirmed by the Hon'ble Supreme Court,  therefore, we hold that any consideration received out of sale of agricultural land, cannot be treated as business income for the purpose of capital gain or for the purpose of business income,  whatever the case may be. In view of the aforesaid facts and circumstances of the case, we allow this ground in favour of all the assessees."

Since facts are similar, therefore, following the above decision of   the Tribunal in the case of Sanjay Nagorao Paidlewar & Nitish  Rameshchandra Chordia Vs. ACIT, listed under ITA Nos.112 &   113/Nag/2012, decided on 22-3-2013, we allow this ground of these  two assessees in both the appeals by holding that the distance of 8km  has to be measured through approach road and not by straight line  method on horizontal plane and if through approach road the distance  is taken, then it is seen that the distance is beyond 8 km from the  municipal limit. Accordingly, we hold that no capital gain is payable as  the agricultural land sold is not a capital asset within the meaning of  Section 2(14)(iii)(b) of the Act.

Resultantly, appeals of both the assessees are allowed.

Order pronounced in the open court on this 10thday of Apr. 2013.

Sd/-                                           Sd/-

(D.KARUNAKARA RAO) (R.K.GUPTA)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai; Dated :

pkm, PS

10/04/ 2013.

Copy of the Order forwarded to :

1. The Appellant

2. The Respondent.

3. The CIT(A),Nagpur.

4. CIT

5. DR, ITAT, Mumbai/Nagpur

6. Guard file.

//True Copy//

8

ITA Nos.164 &165/Nag/2012

BY ORDER,

(Asstt. Registrar)

ITAT, Mumbai

CLARIFICATION ON POINT OF TAXATION RULES IN RELATION TO AIRLINES CIRCULAR NO.155

CLARIFICATION ON POINT OF TAXATION RULES IN RELATION TO AIRLINES
CIRCULAR NO.155/6/2012 - ST, DATED 9-4-2012

1. Notification No. 2/2012 - Service Tax dated the 17th March, 2012 has rescinded Notification No. 8/2009 - Service Tax, dated the 24th February, 2009, thus restoring the effective rate of service tax to 12% wef 1st April, 2012. Further the Notification No. 26/2010-Service Tax, dated the 22nd June, 2010 has been superseded by Notification No. 6/2012 - Service Tax dated the 17th March, 2012, wef 1st April, 2012.
2. It has been brought to the attention of the Board that some airlines are collecting differential service tax on tickets issued before 1st April, 2012 for journey after 1st April, 2012, causing inconvenience to passengers. Representations have also been received in this regard. The position of law in the above respect is clear and is detailed below.
3. Rule 4 of the Point of Taxation Rules, 2011 deals with the situations of change in effective rate of tax. In case of airline industry, the ticket so issued in any form is recognised as an invoice by virtue of proviso to rule 4A of Service Tax Rules, 1994. Usually in case of online ticketing and counter sales by the airlines, the payment for the ticket is received before the issuance of the ticket. Rule 4(b)(ii) of the Point of Taxation Rules, 2011 addresses such situations and accordingly the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier. Thus the service tax shall be charged @10% subject to applicable exemptions plus cesses in case of tickets issued before 1st April, 2012 when the payment is received before 1st April, 2012.
4. In case of sales through agents (IATA or otherwise including online sales and sales through GSA) the payment is received by the agent and remitted to airlines after some time. When the relationship between the airlines and such agents is that of principal and agent in terms of the Indian Contract Act, 1872, the payment to the agent is considered as payment to the principal. Accordingly as per Rule 4(b)(ii), the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier. Thus the service tax shall be charged @10% subject to applicable exemptions plus cesses in case of tickets issued before 1st April, 2012 when the payment is received before 1st April, 2012 by the agent.
5. However, to the extent airlines have already collected extra amount as service tax and do not refund the same to the customers, such amount will be required to be paid to the credit of the Central Government under section 73A of the Finance Act, 1994 (as amended).
6. Trade Notice/Public Notice may be issued to the field formations accordingly.

Proviso inserted in section 92C(2) by Finance (No. 2) Act, 2009 with effect from 1-10-2009, would not apply to an assessment year prior to its insertion [2012] 20 taxmann 131

Proviso inserted in section 92C(2) by Finance (No. 2) Act, 2009 with effect from 1-10-2009, would not apply to an assessment year prior to its insertion

[2012] 20 taxmann.com 131 (Bangalore - Trib.)
IN THE ITAT BANGALORE BENCH 'A'

Tatra Vectra Motors Ltd. v. Deputy Commissioner of Income-tax, Circle 12(4), Bangalore

CBDT Notification. Tolerance limit in Arm's length price

SECTION 92C OF THE INCOME-TAX ACT, 1961 - TRANSFER PRICING - COMPUTATION OF ARM’S LENGTH PRICE - NOTIFIED TOLERABLE LIMIT FOR DETERMINATION OF ALP

NOTIFICATION NO. 30/2013 [F.NO.500/185/2011-FTD-I], DATED 15-4-2013

In exercise of the powers conferred by the second proviso to sub-section (2) of section 92C of the Income Tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where the variation between the arm's length price determined under section 92C and the price at which the international transaction or specified domestic transaction has actually been undertaken does not exceed one per cent of the latter for wholesale traders and three per cent of the latter in all other cases, the price at which the international transaction or specified domestic transaction has actually been undertaken shall be deemed to be the arm's length price for assessment year 2013-14.

153C : certain conditions precedent are to be followed and they are mandatory

Commissioner of Income Tax v Classic Enterprises Cantt Road Lucknow,

Revenue; Search and seizure — Search conducted on other person — Assessment in respect of third person in respect of whom search has not been conducted — Permissibility — Assessee was registered firm consisting of two partners — Search was conducted in business premises of assessee and its partner — Books were handed over to AO and AO passed notice under s 153C — CIT(A) quashed assessment order — Tribunal also dismissed Revenue's appeal — Held, in order to initiate block assessment proceedings against third person in respect of whom search has not been conducted, certain conditions precedent are to be followed and they are mandatory — Satisfaction by its very nature must precede before papers are sent by AO of person searched to AO of third person — Mere use or mention of word satisfaction in order would not meet requirement of concept of satisfaction as used in s 158BD — Satisfaction has to be in writing and can be gathered from assessment order, if it is so mentioned, or from any other order, note or record maintained by AO of person searched — It refers to state of mind of AO of person searched, which is reflected in tangible form when it is reduced to writing — AO is satisfied when he makes up his mind or reaches clear conclusion when he takes prima facie view that material available establishes "undisclosed income" of third party — At this stage, as proceedings are at very initial state, "satisfaction" is neither required to be firm or conclusive — "Satisfaction" required is to decide whether or not block assessment proceedings are required to be initiated — But "satisfaction" has to be founded on reasonableness — Satisfaction must reflect rational connection with or relevant bearing between material available and undisclosed income of third person — F urther, it was held that there was no necessity for transferring file from one officer to another, in case where person searched was partner and based on materials gathered during search assessment was made by same officer on assessee-firm, wherein searched assessee was partner — So much so, issuance of notice under s 158BD read with s 158BC was sufficient for initiation of assessment — In light of above discussion and considering totality of facts and circumstances of case, no reason was found to sustain order passed by Tribunal — Order passed by Tribunal set aside — Matter remanded back to Tribunal, directing to decide all appeals strictly on merits expeditiously.

How to measure Agricultural Land u/s 2(14)(ii)(b)?

IN THE INCOME TAX APPELLATE TRIBUNAL "NAGPUR", BENCH,  (E-COURT), MUMBAI
BEFORE SHRI R.K.GUPTA, JM & SHRI D.KARUNAKARA RAO, AM

I T A N o.1 64/Nag/ 20 12
( Ass ess me nt Year 2008-09 )
Shri Prakash Laxminarayan   Vs. ACIT, Cir-5, Nagpur-440 001 
Soni,   74,   Shriniketan,   Ramdaspeth, Nagpur-12
P AN No . : AEWPS 2001 P
(Appellant)

..

AN D
( Respondent)
I T A N o.1 65/Nag/2012
( Ass ess me nt Year 2008-09 )
Shri Rahul Prakash Soni, 74, Shriniketan, Ramdaspeth, Nagpur-12
P AN No . : AETPS 696 5 H
Vs. ACIT, Cir-5, Nagpur-440 001
(Appellant)
Assessee by
Revenue by
Date of Hearing
Respondent)

Mr. Bhupendra Shah

Dr. Millind Bhusari

15thMarch., 2013

Date of Pronouncement :

O R D E R

Per Bench :

10th April, 2013

These two appeals have been preferred by two different  assessees before the ITAT Nagpur Bench, Nagpur, against the order  of leaned CIT(A)-II, Nagpur (Maharashtra) relating to assessment year  2008-09, which has been heard through E-Court, Mumbai.

2.   Si n c e common issues are involved in both the cases, therefore,   for the sake of convenience, both these cases have been heard and  disposed of by this consolidated order.

3.   In both the appeals, the aforesaid assessees have raised the   ground against the action of the learned CIT(A) in regard to confirming   the action of the AO in holding and maintaining that the agricultural  land held by these two assessees are capital asset within the meaning

  ITA Nos.164 &165/Nag/2012   of Section2(14)(ii)(b) by adopting the ariel distance by straight line   method instead of road distance.

4.   Brief facts giving rising to both these appeals are that during the   course of assessment proceeding, the AO noted that these two  assessees have sold lands, in which they were having 1/4th share. The  lands were purchased on 17-8-2007 admeasuring 2.58 hectare, which  was sold on 31-1-2008 for a total consideration of Rs.1,88,13,156/-.   These two partners were having 1/4thshare in the above stated land   which was situated in Mouza Khadka village. The AO found that as per  the straightline method, the distance of the agricultural lands sold are  situated beyond 8 KMs from the Municipal Limits of the City of Nagpur.   Therefore, he viewed that the land in question is capital asset within  the meaning of Section 2(14)(iii)(b) of the Act. Accordingly, he brought   the gain to tax by computing capital gain.

5.   Being aggrieved, both these assessee preferred appeal before    the CIT(A), wherein the CIT(A) after passing a detailed order held that   the findings of the AO are correct. Hence, both these assessee are   now in appeals here before the Tribunal.

6.   Having heard the rival parties and perusing the material on    record, we found that on similar facts in case of Sanjay Nagorao  Paidlewar & Nitish Rameshchandra Chordia Vs. ACIT, listed under   ITA Nos.112 & 113/Nag/2012, which was decided on 22-3-2013,   wherein after considering the arguments of both the parties in detail, the  Tribunal has taken a view that the distance from municipal limit has to be   adopted by taking approach road distance and not on the basis of  straight-line method or crow's flight.The issue has been discussed at   great length and found that this is squarely covered by the decision of   various Hon'ble High Courts and various benches of the Tribunal. The  findings of the Tribunal have been recorded in para 9 to 21, which are as  under :-

"9. We have heard rival submissions and considered them carefully. We have also considered the written submissions filed on behalf of both the parties i.e. assessees and department and have also perused the relevant material on record, on which our attentions were drawn. We have also taken into consideration the various case laws relied upon by the learned AR as well as learned CIT DR. After considering the submission and perusing the material on record, we found that the issue in respect to whether the agricultural land in question is an asset within the meaning of Section 2(14) or not, have already been decided by the Hon'ble Punjab and Haryana High Court in the case of Satinder Pal Singh(Supra). This decision of the Hon'ble Punjab and Haryana High Court has been consistently followed by various benches of the Tribunal in various parts of the country. One of us has also taken into considering this issue while sitting in Jaipur Benches of  the Tribunal and found that the decision of the Hon'ble Punjab and Haryana High Court has to be followed and the distance has to measured through approach road and not through the crows flight  distance. The Hon'ble Punjab and Haryana High Court in the case of Satinder Pal Singh (supra) has held that the distance of  agricultural land belonging to the assessee within the meaning of Section2(14)(iii)(b) has to be measured in terms of approach road and not by a straight line distance on horizontal plane or as per  crows flight. Copy of the order is also placed in the compilation at pages 1 & 2.

10. The contention raised by learned CIT(A) that the reckoning of urbanization as a factor for prescribing the distance is of significance which would yield to the principle of measuring distance in terms of approach road rather than by straight line on horizontal plane, this contention of learned CIT(A) has also been considered by the Hon'ble Punjab and Haryana High Court and has observed that the principle of measurement of distance is considered as straight line distance on horizontal plane or as per crow's flight then it would have no relationship with the statutory  requirement of keeping in view the extent of urbanization. Such a course would be illusory, which is in pursuance of the aforesaid provision that Notification No.9447 dated.6thJanuary, 1994 has been issued by the Central Government. In respect of the State of Punjab, at item No.18, the sub-division Khanna has been listed at serial No.19. It has inter alia been specified that area upto 2 kms.  from the municipal limits in all directions has to be regarded as    other than agricultural land. Once the stator guidance of taking into account the extent and scope of urbanization of the area has to be reckoned while issuing any such notification then it would be incongruous to the argument of the Revenue that the distance of land should be measured by the method of straight line on horizontal plane or as per crow's flight because any measurement by crow's flight is bound to ignore the urbanization which has taken place. The decision of the Mumbai Bench in the case of Laukik Developers Vs DCIT, reported in (2007) 108 TTJ (Mumbai) 364,  was also taken into consideration by the Hon'ble Punjab and Haryana High Court and found that the decision of the Tribunal has  attained finality.

11. In case of Laukik Developers (supra), the Mumbai Bench of the Tribunal has observed that once the principle of measuring distance has been settled namely that the distance of the agricultural land belonging to the assessee-respondent has to be measured in terms of by approach road and not by a straight line distance on horizontal plane or as per crow's flight. Accordingly, the  Hon'ble Punjab and Haryana High Court held that the distance has  to be measured by approach road and not by straight line distance on horizontal plane or as per crow's flight. In case of Laukik Developers (supra), the assessee disputed that the distance for  the purpose of Section 80IB(10) has to be measured through straight line distance on horizontal plane and not by approach road.  The Mumbai Bench of the Tribunal has held that the issue regarding distance to be measured with regard to road distance or a straight line distance is covered with the decision of the Pune Tribunal in the case of Mangalam Inorganics (P) Ltd (supra),  wherein it was held that the distance between the municipal limits  and assessee's industrial undertaking has to be measured having regard to the road distance and not as per the crow's flight i.e., a straight-line distance as canvassed by the Revenue.

12. In case of ITO Vs. Ashok Shukla, decided in ITA No.207/Indore/2012, for assessment year 2008-09, vide order dated 31-8-2012, the issue was in respect to whether the assessee was entitled to exemption from capital gain on sale of agricultural land. This issue was examined in detail and it was found that the Tehsildar and Patwari have given a report that the land in question was agricultural land and the distance is 9.7 kms from the municipal  limit. This distance was through the approach road and not by straight line distance method. Thereafter discussing the issue on merit and having taking into consideration the decision of the Tribunal in the case of Laukik Developers (supra) and considering the decision of the Hon'ble Gujarat High Court in the case of Balkrishna Hariballabhadas Vs. CIT, reported in 138 ITR 245,  which was relied upon by the learned DR and found that the measurement has to be adopted by the approach road and not by straight line method. Reliance was also placed on the decision of the Hon'ble Punjab andHaryana High Court in the case of Satinder Pal Singh (supra). 13. In case of ACIT Vs. M/s Shagun Infrastructure Pvt. Ltd., decided in ITA No.209/Nag/2009, for assessment year 2006-07, vide order dated 27-6-2011, the Nagpur Bench of the Tribunal has held that the land in question which was situated more than 8 kms.   from the local municipal limit and is clearly agricultural land in terms of Section 2(14)(iii) of the Act,, therefore, any income from such land including profit arising from sale of such agricultural land is not assessable as income.

14. In case of ACIT Vs. Gaurav Khandelwal, decided in ITA No.195/Agra/2010, for assessment year 2006-07, the Agra Bench of the Tribunal following the decision of Mumbai Bench in case of Laukik Developers (supra) and the decision of Hon'ble Punjab and Haryana High Court in the case of Satinder Pal Singh (supra), held that the distance of 8kms has to be measured by approach road distance and not by straight line distance on horizontal plane. Similar view has been expressed in case of Shri Mainraj Vs. ACIT, decided in ITA No.1371/Mds/2011, for assessment year 2007-08 vide order dated 18-8-2011. In this case also it has been held that the distance has to be measured by approach road and not through crow's flight or straight line method. In case of Smt. Savithri Ammal Vs. ITO, decided in ITA No.487/Mds/2012, vide order dated 12-7-2012 again it has been held that the distance has to be measured as per the approach road and not by straight line method. Similar view has been expressed in case of ITO Vs. Shri Chaganlal Lalji Aswin  Business, decided in ITA No.857/Mds/2011, for the assessment year 2007-08, vide order dated 18-2-2011. In case of ITO Vs. M/s Ranjit Rattan Mehra (HUF), decided in ITA No.442/Asr/2011 for  assessment year 2008-09, the Amritsar Bench of the Tribunal has  taken a view that the distance of 8 kms has to be measured through the approach road and not through the straight line method. While holding so, the decision of the Hon'ble Punjab and Haryana High Court in case of Satinder Pal Singh (supra), was taken into consideration and another decision of the same High Court in case of CIT Vs. Lal Singh & Others, reported in (2010) 228 CTR 575 was also taken into consideration and has allowed the issue in favour of the assessee by holding that the distance of 8km has to be measured through approach road and not by straight line method on horizontal plane.  15. We have also taken into consideration various arguments of learned CIT DR and found that since the issue is covered by the decision of the various Benches of the Tribunal as well by Hon'ble  Punjab and Haryana High Court, therefore, in view of the consistency the view taken by various benches has to be followed. There is no contrary decision is available on the same facts and, therefore, it cannot be said that the decision of the Hon'ble Punjab and Haryana High Court has only persuasive value. If there is any contrary decision is available either by the Hon'ble High Court or by  any other benches of the Tribunal, then of course it can be said that the decision of other benches have persuasive value. In view of the aforesaid facts and circumstances of the case, we held that distance of 8 kms. has to be measured through approach road and not by straight line distance on horizontal plane or crow's flight. Hence, this issue is decided in favour of the assessees. 

16. Regarding the issue in regard to whether the sale consideration out of agricultural income is assessable as business income or not, once we have held that this was an agricultural land and, therefore, any consideration out of sale of agricultural land, which is not assessable as the land was situated beyond 8 kms., therefore, the direction of the learned CIT(A) that the surplus may  be treated as business income, has become now meaningless. Even and otherwise, this issue is also decided by various High Courts including the Hon'ble Bombay High Court. Though learned CIT(A) has placed reliance on the decision of the Hon'ble Bombay High Court in case of Gopal Ramnarayan Kasat, reported in 9  Taxman.com 236 (Bom), however, in a latest decision the Hon'ble  Bombay High Court in the case of CIT Vs. Smt. Debbie Alemao, reported in (2011) 331 ITR 59, has held that the land which was shown as agricultural land in the revenue records and never sought to be used for non-agricultural purposes by the assessee till it was sold has to be treated as agricultural land, even though no agricultural income was shown by the assessee from this land and, therefore, no capital gain was taxable on the sale of the said land.

17. Facts in the case in hand are similar. The land in question was shown as agricultural land in the revenue record. Whether there was any agricultural income or not, is not the moot question to decide the issue, however, the important factor is to be decided as to whether the character of the land is agriculture or not.  Undisputedly, in the revenue record and as per the Patwari certificate, the land in question is agricultural land. Therefore, the sale consideration was not taxable on the sale of said land i.e. either on account of capital gain or on account of business income. 

18. Even we found that this issue has been decided by the Hon'ble Apex Court while confirming the order of the Hon'ble Delhi  High Court in the case of DLF United Limited, 217 ITR 337. The facts in the case of DLF United Limited (supra) were that the DLF limited purchased agricultural land from various farmers in the ear and shown exemption, however, the AO treated the sale consideration as revenue receipt. Upto the stage of Tribunal, the order of AO was confirmed, however, the Hon'ble Delhi High Court held that the land in question was of agricultural land and therefore, any receipt on account of sale of agricultural land is not taxable. This decision of the Hon'ble Delhi High Court has been confirmed by the Hon'ble Apex Court, whereby it has been held that even and otherwise we see no merit in the Special Leave Petition and the same are accordingly dismissed on the ground of delay as well as on merits. Copies of these orders are placed in the compilation.

19. This issue has also been considered in various other decision i.e. in case of Hindustan Industrial Resources Limited Vs. ACIT, reported in 335 ITR 77, wherein it was held that in view  of the finding of the Tribunal that the land in question was agricultural land at the time of purchase by the assessee as also at the time of acquisition, the land was clearly agricultural land irrespective of the fact that the assessee intended to use the land for industrial purposes and did not carry out any agricultural operations and, therefore, no capital gains could be charged on acquisition thereof under the Land Acquisition Act, 1894. While holding so, the decision in the case of DLF United Limited  (supra), was taken into consideration by the Hon'ble Delhi High Court.

20. In case of Shri Satyanarayan O. Agrawal Vs. ADCIT,  decided in ITA No.169/Nag/2012 for assessment year 2007-08, similar view also was taken following the various case laws and ultimately it was held that the consideration received out of sale of agricultural land was not taxable.

21. Since this issue has already been decided by various benches of the Tribunal and the Hon'ble Bombay High Court as well as the Hon'ble Delhi High Court and the decision of the Hon'ble Delhi High Court in the case of DLF United Limited (supra), which has been confirmed by the Hon'ble Supreme Court,  therefore, we hold that any consideration received out of sale of agricultural land, cannot be treated as business income for the purpose of capital gain or for the purpose of business income,  whatever the case may be. In view of the aforesaid facts and circumstances of the case, we allow this ground in favour of all the assessees."

Since facts are similar, therefore, following the above decision of   the Tribunal in the case of Sanjay Nagorao Paidlewar & Nitish  Rameshchandra Chordia Vs. ACIT, listed under ITA Nos.112 &   113/Nag/2012, decided on 22-3-2013, we allow this ground of these  two assessees in both the appeals by holding that the distance of 8km  has to be measured through approach road and not by straight line  method on horizontal plane and if through approach road the distance  is taken, then it is seen that the distance is beyond 8 km from the  municipal limit. Accordingly, we hold that no capital gain is payable as  the agricultural land sold is not a capital asset within the meaning of  Section 2(14)(iii)(b) of the Act.

Resultantly, appeals of both the assessees are allowed.

Order pronounced in the open court on this 10thday of Apr. 2013.

Sd/-                                           Sd/-

(D.KARUNAKARA RAO) (R.K.GUPTA)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai; Dated :

pkm, PS

10/04/ 2013.

Copy of the Order forwarded to :

1. The Appellant

2. The Respondent.

3. The CIT(A),Nagpur.

4. CIT

5. DR, ITAT, Mumbai/Nagpur

6. Guard file.

//True Copy//

8

ITA Nos.164 &165/Nag/2012

BY ORDER,

(Asstt. Registrar)

ITAT, Mumbai

COMPLEX WEB OF TRANSACTIONS A Multi-Starrer Tax Evasion Plot Stumps

COMPLEX WEB OF TRANSACTIONS
A Multi-Starrer Tax Evasion Plot Stumps I-T Dept

Diamond houses,traders,realtors and petty assistants join hands to evade tax

SUGATA GHOSH & M PADMAKSHAN MUMBAI

When officials of the Mumbai income-tax investigation wing stumbled upon a handful of bank accounts with wild entries,they first thought these were typical money-laundering deals one associates with the seedy underbelly of the financial capital.But as they dug deeper into the money flow,they could slowly piece together an amazing web of transactions that involved diamond houses,construction firms,local traders and an army of lackeys who do nothing other than lending their names for small money.These disparate players come together in circuitous transactions that are carried out to escape tax as well as funnel unaccounted cash into audited accounts of regular businesses.It took us a while to get the complete pictureWe have our eyes on some people.The investigation is on, said a senior official of the Income-Tax Department.The chain starts with some diamond firms that regularly import rough stones on 3-6 months credit.But the simple trade is done differently.The import lands in five consignments: on paper,only one of these is linked to the diamond houses.The other four consignments are received by four assistants of the diamond firm.These assistants,who do not have the means and creditworthiness to import,act as fronts for the diamantaire.Once Customs formalities are over and the assistants take delivery of the diamonds,the stones are handed over to the diamond house,which pays them nothing but a small fee for their services.The four assistants (or the fronts),on the other hand,do not have physical diamond in their possession,but have diamonds on the books of their entities that have acted as importers on behalf of the real diamond company.For the diamond house,its a ploy to lower turnover and evade tax in future.But the chain of transaction does not end here.

QUID PRO QUO WTH LOCAL TRADERS

The next set of players that participates in the transaction is local traders and jewellers who typically use cash to buy diamonds.