ITR (TRIB) Volume 17 : Part 1

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))
Volume 17 : Part 1 (Issue dated : 9-07-2012)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Advance tax --Interest--Tax deducted at source to be taken into account--Matter remanded for recomputation--Income-tax Act, 1961, ss. 234A, 234B-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

Capital gains --Exemption--Investment of consideration in specified bonds within six months of transfer--Receipt of consideration in subsequent years and investment within six months of receipt--Exemption allowable--Income-tax Act, 1961, s. 54EC-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116

----Exemption--Investment of proceeds in agricultural land--No material to show land was put to other use--That assessee had ventured into real estate business--Not ground to infer land would be put to non-agricultural use--Exemption not to be denied --Income-tax Act, 1961, s. 54B-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116

----Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement--Income-tax Act, 1961, ss. 2(47), 45(3)-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116

Depreciation --Rate of depreciation--Computer accessories--To be allowed at 60 per cent.--Income-tax Act, 1961-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48

Interest on excess refund --Provision not applicable for assessment year 2003-04--Income-tax Act, 1961, s. 234D-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

International transactions --Arm’s length price--Determination--Transfer pricing study--Transactional net margin method --Rejection of comparables selected by assessee without mentioning how they were not functionally comparable and without considering assessee’s objections--Selection by Transfer Pricing Officer of companies not engaged in similar business--Companies selected by him not functionally comparable--Arm’s length price determined by assessee not liable to adjustment--Income-tax Act, 1961, s. 92C--Income-tax Rules, 1962, r. 10B(2)-- Carlyle India Advisors P. Ltd. v. Asst. CIT (Mumbai) . . . 24

----Arm’s length price--Expenditure cannot be disallowed merely because in opinion of Transfer Pricing Officer it was unnecessary--Amended formula brought for first time before Tribunal--Reasonableness to be determined by authorities below--Matter remanded--Income-tax Act, 1961, s. 92CA-- Ericsson India Private Ltd. v. Deputy CIT (Delhi) . . . 79

----Arm’s length price--Reimbursement of expenses to associate enterprises--Addition on ground that services not intra-group services and no remuneration paid--Assessee furnishing details of expenses paid of work done--Addition to be deleted--Income-tax Act, 1961, s. 92CA-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48

----Transfer pricing--Arm’s length price--Referral fee--Reference to Transfer Pricing Officer--Finding of Transfer Pricing Officer that transaction at arm’s length price--Assessing Officer has no jurisdiction to re-determine and make addition--Income-tax Act, 1961, s. 92CA(4)--CBDT Circular No. 3 dated 12-3-2008-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48

Non-resident --Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services--Income-tax Act, 1961, s. 9(1)(vii)--Double Taxation Avoidance Agreement between India and the Netherlands, arts. 5, 12(5)(b)-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

Reassessment --Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper--Income-tax Act, 1961, ss. 143(1), 147, 148-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

Search and seizure --Block assessment--Limitation--Date from which reckoned--“Last of panchnamas†, meaning of--Last of panchnamas in respect of any of warrants of authorisation not necessarily in respect of last warrant of authorisation--Requirements of panchnama--Panchnama not recording any search or statement but mere formality for lifting prohibitory order--Not panchnama from which time limit of assessment to be reckoned--Income-tax Act, 1961, s. 158BE, Expln. 2 -- CIT (Asst.) v. Shree Ram Lime Products Ltd. [SB] (Jodhpur) . . . 1

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and the Netherlands :

Art. 5 --Non-resident--Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

Art. 12(5)(b) --Non-resident--Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

Income-tax Act, 1961 :

S. 2(47) --Capital gains--Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116

S. 9(1)(vii) --Non-resident--Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

S. 45(3) --Capital gains--Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116

S. 54B --Capital gains--Exemption--Investment of proceeds in agricultural land--No material to show land was put to other use--That assessee had ventured into real estate business--Not ground to infer land would be put to non-agricultural use--Exemption not to be denied-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116

S. 54EC --Capital gains--Exemption--Investment of consideration in specified bonds within six months of transfer--Receipt of consideration in subsequent years and investment within six months of receipt--Exemption allowable-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116

S. 92C --International transactions--Arm’s length price--Determination--Transfer pricing study--Transactional net margin method --Rejection of comparables selected by assessee without mentioning how they were not functionally comparable and without considering assessee’s objections--Selection by Transfer Pricing Officer of companies not engaged in similar business--Companies selected by him not functionally comparable--Arm’s length price determined by assessee not liable to adjustment-- Carlyle India Advisors P. Ltd. v. Asst. CIT (Mumbai) . . . 24

S. 92CA --International transactions--Arm’s length price--Expenditure cannot be disallowed merely because in opinion of Transfer Pricing Officer it was unnecessary--Amended formula brought for first time before Tribunal--Reasonableness to be determined by authorities below--Matter remanded-- Ericsson India Private Ltd. v. Deputy CIT (Delhi) . . . 79

----International transactions--Arm’s length price--Reimbursement of expenses to associate enterprises--Addition on ground that services not intra-group services and no remuneration paid--Assessee furnishing details of expenses paid of work done--Addition to be deleted-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48

S. 92CA(4) --International transactions--Transfer pricing--Arm’s length price--Referral fee--Reference to Transfer Pricing Officer--Finding of Transfer Pricing Officer that transaction at arm’s length price--Assessing Officer has no jurisdiction to re-determine and make addition--CBDT Circular No. 3 dated 12-3-2008-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48

S. 143(1) --Reassessment--Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

S. 147 --Reassessment--Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

S. 148 --Reassessment--Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

S. 158BE, Expln. 2 --Search and seizure--Block assessment--Limitation--Date from which reckoned--“Last of panchnamas†, meaning of--Last of panchnamas in respect of any of warrants of authorisation not necessarily in respect of last warrant of authorisation--Requirements of panchnama--Panchnama not recording any search or statement but mere formality for lifting prohibitory order--Not panchnama from which time limit of assessment to be reckoned-- Asst. CIT v. Shree Ram Lime Products Ltd. [SB] (Jodhpur) . . . 1

S. 234A --Advance tax--Interest--Tax deducted at source to be taken into account--Matter remanded for recomputation-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

S. 234B --Advance tax--Interest--Tax deducted at source to be taken into account--Matter remanded for recomputation-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

S. 234D --Interest on excess refund--Provision not applicable for assessment year 2003-04-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103

Income-tax Rules, 1962 :

R. 10B(2) --International transactions--Arm’s length price--Determination--Transfer pricing study--Transactional net margin method --Rejection of comparables selected by assessee without mentioning how they were not functionally comparable and without considering assessee’s objections--Selection by Transfer Pricing Officer of companies not engaged in similar business--Companies selected by him not functionally comparable--Arm’s length price determined by assessee not liable to adjustment-- Carlyle India Advisors P. Ltd. v. Asst. CIT (Mumbai) . . . 24

INCOME-TAX (FOURTH AMENDMENT) RULES, 2013 - INSERTION OF RULES 6AAD & 6AAE AND F

INCOME-TAX (FOURTH AMENDMENT) RULES, 2013 - INSERTION OF RULES 6AAD & 6AAE AND FORM NOS.3C-O & 3CP

NOTIFICATION NO. 38/2013[F.NO.142/30/2012-SO(TPL)]/SO 1393(E), DATED 30-5-2013

In exercise of the powers conferred by section 295 read with sub-section (1) of section 35CCC of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-
1. (1) These rules may be called the Income-tax (Fourth Amendment) Rules, 2013.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962, (hereinafter referred to as the "said rules"), after rule 6AAC, the following rules shall be inserted, namely:-
"6AAD. Guidelines for approval of agricultural extension project under section 35CCC.
(1) The agricultural extension project shall be considered for notification if it fulfils all of the following conditions namely:-
(i) the project shall be undertaken by an assessee for training, education and guidance of farmers;
(ii) the project shall have prior approval of the Ministry of Agriculture, Government of India; and
(iii) the expenditure (not being expenditure in the nature of cost of any land or building) exceeding an amount of twenty-five lakh rupees is expected to be incurred for the project.
(2) An assessee, before undertaking any agricultural extension project, shall make an application for notification of such project under sub-section (1) of section 35CCC, in duplicate, in Form No. 3C-O, to the Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the assessee.
(3) The assessee shall also send a copy of the application in Form No.3C-O to the Member (IT), Central Board of Direct Taxes (hereinafter referred to as the CBDT) accompanied by the acknowledgement receipt, as evidence of having furnished the application form in duplicate, in the office of the Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the case.
(4) The application shall be accompanied by the following, namely :--
(a) a detailed note on the agricultural extension project to be undertaken by the assessee;
(b) details of the expenditure expected to be incurred on the project and expected date of completion of the project; and
(c) a letter approving the project and specifying the amount of expenditure expected to be incurred on the project from the Ministry of Agriculture, Government of India.
(5) If any defect is noticed in the application referred to in sub-rule (2) or if any relevant document is not attached thereto, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, shall, before the expiry of one month from the date of receipt of the application in his office, intimate the defect to the applicant for its rectification.
(6) The applicant shall remove the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, as may be extended by the Commissioner of Income-tax or the Director of Income-tax, as the case may be, so however, that the total period for removal of defect does not exceed thirty days, and if the applicant fails to remove the defect within such period so allowed, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, shall send his recommendation for treating the application as invalid to the CBDT.
(7) On receipt of recommendation of the Commissioner of Income-tax or the Director of Income-tax, as the case may be, under sub-rule (6), the CBDT, if satisfied, may pass an order treating the application as invalid.
(8) If the application form is complete in all respects, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, may make such inquiry or call for such documents from the assessee as he may consider necessary for satisfying himself regarding the genuineness of the current and proposed activities of the assessee, and send his recommendation to the CBDT for grant of approval or rejection of the application before the expiry of the period of two months to be reckoned from the end of the month in which the application form complete in all respects was received in his office.
(9) The CBDT may, before notifying an agricultural extension project under section 35CCC, call for such documents from the assessee, as it considers necessary, and may also get any inquiry made for verification of the genuineness of the activities of the assessee.
(10) The CBDT may, within a period of three months from the end of the month in which it receives the report referred to in sub-rule (8) from the Commissioner of Income-tax or the Director of Income-tax, as the case may be, under sub-section (1) of section 35CCC, issue a notification in Form No. 3CP to be published in the Official Gazette specifying the agricultural extension project subject to conditions mentioned in rule 6AAE or such other conditions, as it may deem fit, to be effective for such period not exceeding three assessment years or pass an order rejecting the application.
(11) If the CBDT is satisfied with the activities of the agricultural extension project during the period of notification, it may notify the said project for a further period.
(12) A copy of the notification issued under sub-rule (10) or sub-rule (11) shall be sent to the applicant, Ministry of Agriculture, Government of India, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, the Department of Agriculture of the concerned State, and the Agricultural Technology Management Agency (ATMA) of the concerned District(s).
(13) The CBDT may rescind the notification issued under sub-rule (10) or sub-rule (11) at any time, if it is satisfied that the assessee has ceased its activities or its activities are not genuine or are not being carried out in accordance with all or any of the relevant provisions of the Act or this rule or rule 6AAE or are not being carried out in accordance with all or any of the conditions subject to which the notification was issued.
(14) An order treating the application as invalid or rejecting or rescinding the notification shall not be passed unless the assessee has been given an opportunity of being heard in the matter.
(15) A copy of any order invalidating or rejecting the application or rescinding the notification shall be sent to the applicant, Ministry of Agriculture, Government of India, the Commissioner of Income-tax or the Director of Income-tax, as the case may be, the Department of Agriculture of the concerned State, and the Agricultural Technology Management Agency (ATMA) of the concerned District(s).
6AAE. Conditions subject to which an agricultural extension project is to be notified under section 35CCC.
(1) The assessee undertaking agricultural extension project shall maintain separate books of account of the agricultural extension project notified under sub-section(1) of section 35CCC, and get such books of account audited by an accountant as defined in the Explanation below sub-section (2) of section 288.
(2) The audit report referred to in sub-rule (1) shall include the comments of the auditor on the true and fair view of the books of account maintained for agricultural extension project, the genuineness of the activities of the agricultural extension project and fulfillment of the conditions specified in the relevant provisions of the Act or the rules or the conditions mentioned in the notification issued under sub-rule (10) or sub-rule (11) of rule 6AAD.
(3) The assessee shall not accept an amount exceeding the amount as approved in the notification from the beneficiary under the eligible agricultural extension project for training, education, guidance or any material distributed for the purposes of such training, education or guidance.
(4) The assessee shall not get any direct or indirect benefit from the notified agricultural extension project except the deduction of the eligible expenditure in accordance with the provisions of section 35 CCC of the Act, rule 6AAD and this rule.
(5) All expenses (not being expenditure in the nature of cost of any land or building), as reduced by the amount received from beneficiary, if any, incurred wholly and exclusively for undertaking an eligible agricultural extension project shall be eligible for deduction under section 35CCC :
Provided that any expenditure incurred on the agricultural extension project which is reimbursed or reimbursable to the assessee by any person, whether directly or indirectly, shall not be eligible for deduction under section 35CCC.
(6) The assessee shall, on or before the due date of furnishing the return of income under sub-section (1) of section 139, furnish the following to the Commissioner of Income-tax or the Director of Income-tax, as the case may be, namely:—
(a) the audited statement of accounts of the agricultural extension projects for the previous year along with the audit report and amount of deduction claimed under sub-section (1) of section 35CCC;
(b) a note on the agricultural extension project undertaken by it during the previous year and the programme of agricultural extension project to be undertaken during the current year and the financial allocation for such programme; and
(c) a certificate from the Ministry of Agriculture, Government of India, regarding the genuineness of the agricultural extension project undertaken by the assessee during the previous year.
(7) If the Commissioner of Income-tax or the Director of Income-tax, as the case may be, is satisfied that the,---
(a) assessee has not maintained separate books of account for the agricultural extension project or has not got such books of account audited by an accountant in accordance with sub-rule (1);
(b) assessee has not furnished the documents referred to in sub-rule (6);
(c) assessee has ceased to carry out activities of agricultural extension project;
(d) activities of agricultural extension project of the assessee are not genuine; or
(e) activities of the agricultural extension project are not being carried out in accordance with the relevant provisions of the Act or the rules or the conditions subject to which the notification was issued,
he may, after making appropriate inquires, furnish a report on the circumstances referred to in clause (a) to (e) to the CBDT for appropriate action as per the provisions of sub-rule (13) of rule 6AAD.".
3. In Appendix-II of the said rules, after Form No. 3CN, the following forms shall be inserted, namely:-
"FORM NO. 3C-O
[See rule 6AAD]
Application form for approval under sub-section (1) of section 35CCC of the Income-tax Act, 1961
1. (i) Name and address of the applicant.
(ii) Address of the principal place of business/ registered office of the assessee.
(iii) PAN of the assessee.
(iv) Date of incorporation of the company/ partnership firm/proprietary concern.
(v) Enclose a copy of the Memorandum, Articles of Association.
(vi) If the agricultural extension project of the company was notified earlier under sub-section(1) of section 35CCC, mention the notification number and date of the latest notification and furnish a copy of the same.
(vii) Nature of business
(viii) If notification issued under sub-section(1) of section 35CCC was rescinded in the past, mention reasons on account of which the notification was rescinded.
[Enclose a copy of the Order(s) rescinding notification(s)].
(ix) Date from which notification of agricultural extension project is requested for.
(x) Expected date of completion of project.
2. Purpose of the agricultural extension project(Give a brief write up on the requirement of agricultural extension project indicating the objectives of the project, stages of implementation, expected results and usefulness of the Project.)
3. Details of expenses (other than land or building) expected to be incurred for agricultural extension project.
4. Amount, if any, proposed to be charged from each beneficiary of agricultural extension project.
5. Agricultural extension projects undertaken by the applicant:
(i) agricultural extension projects undertaken by the assessee during last five years, if any along with their current status.
(ii) Details of agricultural extension projects which have been taken up in past and which are underway on the date of filing of application.
6. Whether the agricultural extension project approved by Ministry of Agriculture, Government of India.
(Enclose a copy of letter obtained from the Ministry of Agriculture, Government of India)
7. Details of Return of Income filed for the last three Assessment years:
Assessment Year Turnover/Gross receipts Total Income Tax Payable as per return Tax Paid Assessed Income Details

8. Enclose copy of audited annual accounts of the assessee/accounts of the assessee for the last three years.
9. Whether any Penalty under Section 271(1)(c) was levied on the assessee during the last five years and details thereof.
10. Whether any tax demand is outstanding on the date of filing application.
Certified that the above information is true to the best of my knowledge and belief.
Place Signature
Date Designation
Full Address
FORM NO.3CP
[See rule 6AAD]
Form for notification of agricultural extension project under sub-section (1) of section 35CCC of the Income-tax Act, 1961
1. Name, address and PAN of the applicant
2. Title of the agricultural extension project
3. Purpose of the agricultural extension project
4. Reference No. and date of the application
5. Date of commencement of the agricultural extension project
6. Duration of the agricultural extension project in months
7. Assessment year(s) for which the agricultural extension project is being notified (not exceeding three years)
8. Total expenses likely to be incurred for the agricultural extension project (other than cost of land or building)
9. Amount, if any, to be charged from each beneficiary of agricultural extension project
10. Conditions, if any, subject to which agricultural extension project is notified.
Place : (Signature)
Date : (Name and Designation)
Copy to :
(1) the applicant.
(2) Ministry of Agriculture, Government of India.
(3) Commissioner of Income-tax / Director of Income-tax.
(4) The Department of Agriculture of the concerned State.
(5) The Agricultural Technology Management Agency (ATMA) of the concerned District(s).".

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.