ITR : Volume 330 : Part 34 Issue dated 17-01-2011

INCOME TAX REPORTS (ITR) HIGHLIGHTS

 

ISSUE DATED 17-1-2011 Volume 330 Part 3

 

SUPREME COURT JUDGMENTS

 

-> Computation of book profit : Reduction of net profit by amount withdrawn from revaluation reserve only if amount added back in year of creation of revaluation reserve : Indo Rama Synthetics (I.) Ltd. v. CIT p. 363

 

-> Foreign exchange : Adjudication : Noticee not entitled to copies of documents not relied on by adjudicating authority : Kanwar Natwar Singh v. Directorate of Enforcement p. 374

 

HIGH COURT JUDGMENTS

 

-> Return of company not signed by managing director but by person authorised by board resolution: Defect curable u/s 292B : Hind Samachar Ltd. v. UOI (P & H) p. 266

 

-> AO failing to raise any issue with regard to plea u/s 239 at appropriate stage and CIT (A) ordered refund on appeal : Revenue liable to make refund : Hind Samachar Ltd. v. UOI ( P & H) p. 266

 

-> Rejection of application for continuance of registration without affording opportunity to be heard : Not valid : Bharat Construction Co. v. CIT (All) p. 285

 

-> Disallowance of claim in reassessment proceedings valid : Ramesh Chander Singla v. CIT (A) ( P & H) p. 288

 

-> Income from property owned by assessee on property taken on lease assessable as business income : CIT v. D. S. Promoters and Developers P. Ltd. (Delhi) p. 291

 

-> Findings cannot be set aside unless perverse : CIT v. D. S. Promoters and Developers P. Ltd. (Delhi) p. 291

 

-> Cash credits : Inability to find a few applicants not sufficient to invoke s 68 : CIT v. Dwarkadhish Investment P. Ltd. (Delhi) p. 298

 

-> Most of instalments for flat paid prior to sale of agricultural land and flat not in name of assessee-HUF but in joint names of individual and his mother : Benefit of s 54F not available : Vipin Malik (HUF ) v. CIT (Delhi) p. 309

 

-> Tax effect less than prescribed in CBDT Instruction : Appeal barred : CIT v. Koronmoy Roy Choudhury (Gauhati) p. 316

 

-> Amount received for relinquishment of life membership and secretaryship of society : Assessable under income from other sources : CIT v. H. S. Ramachandra Rao (Karn) p. 322

 

-> Unabsorbed expenditure of closure of one branch to be apportioned equally amongst head office and other branches : Victoria Gold Jewellery v. CIT (Ker) p. 330

 

-> Enhanced compensation received on 28-5-1984 for the land acquired on 4-2-1972 : Not taxable either in year of receipt or in year of acquisition : CIT v. Smt. Parkash Kaur ( P & H) p. 332

 

-> Advance tax : Waiver of interest : Position of tax liability not clear : Interest liability fixed at Rs. 1 lakh : Chief CIT v. Jimmichan M. Varicatt (Ker) p. 338

 

-> Refund : Assessee deducting and depositing TDS on time but filing TDS certificates during assessment proceedings : Interest u/s 244A cannot be denied : CIT v. Larsen and Toubro Ltd. (Bom) p. 340

 

-> Wrong claim treating interest receipt as export incentive : Reassessment proceedings cannot be quashed : Tamil Nadu Petrochemicals Ltd. v. CIT (Mad) p. 342

 

-> Purchase of redemption of units of mutual fund : CIT (A) and Tribunal finding transaction genuine and deleting addition : Finding of fact : CIT v. Hindustan Tin Works Ltd. (Delhi) p. 350

 

-> Book profit arrived at to be the basis for taxation : AVT Natural Products Ltd. v. Deputy CIT (Mad) p. 360

 

-> Sale of entire business, including all assets and liabilities as a going concern : Transfer does not give rise to capital gains : Asst. CIT v. Patel Specific Family Trust (Guj) p. 397

 

 

 

NEWS-BRIEFS

 

-> Supreme Court to waive Rs. 25 crore fee from Vodafone

 

A bench comprising Chief Justice S H Kapadia and Justices K S Radha-krishnan and Swatanter Kumar expressed willingness to waive off the one per cent. court fee on the Income-tax Department on the Rs. 2,500 crore deposited by an international telecom company.

 

The "doctrine of unjust enrichment" has been propounded as an equitable concept created to remedy injustices that occur where one person makes a substantial contribution to the property of another person without compensation.

 

The Attorney General submitted that 1 per cent. court fee must be waived off, otherwise in the event of losing the case, the Government will pay back Rs. 2,475 crore only to the appellant. In December, the Government had moved an application requesting the Supreme Court to waive the fee for letting it withdraw Rs. 2,500 crore, deposited by the company.

 

Instead, it had requested the court to direct the telecom company to submit Rs. 25 crore extra, so that the Government gets the full amount of Rs. 2,500 crore.

 

The tax authorities claim that the deal attracts a tax of over Rs. 11,000 crore, even though the deal was done by two MNCs outside the country.

 

On November 15, the Supreme Court had directed the company which is contesting the tax demand to deposit Rs. 2,500 crore, along with a bank guarantee of Rs. 8,500 crore, before it within 8 weeks for adjudication of its suit.

 

As the Government approached the apex court to withdraw the funds deposited by the appellant, it . . . was asked to deposit one per cent. of Rs. 2,500 crore, totalling Rs. 25 crore, as per legislative commission. [Source : www.financialexpress.com dated January 5, 2011]

 

-> Income-tax offices in 8 nations including US, UK soon

 

Government will operationalise eight overseas Income-tax offices in countries like the US, the UK and the UAE soon to obtain classified financial data and the officers who will man these units will be chosen by this month-end.

 

The I-T overseas units will begin functioning in less than two months in United States of America (USA), United Kingdom (UK), Netherlands, Cyprus, Germany, France, Japan and United Arab Emirates (UAE) as the Finance Minister has approved the posting policy of the officials who will be appointed by January-end, sources familiar with the development said.

 

The overseas units are aimed at obtaining seamless flow of information on tax and financial data of investments made by individuals and institutions in these countries and facilitate any data on investment or routing of money in the country and vice-versa.

 

This information is needed during investigations in cases of tax evasion and ensuring tax compliance under the provisions of the Double Taxation Avoidance Agreement (DTAA) and other tax treaties to facilitate exchange of financial information with these countries, they said.

 

The Finance Ministry has made it an essential criteria that any senior I-T officer who will be posted in these units should have had a stint in the foreign taxation wing of the CBDT, international taxation and transfer pricing unit of the I-T Department and also at the investigation wing.

 

"The experience of actual work (by an aspiring officer to be posted at these units) of exchange of information, Mutual Agreement Procedure, tax treaty negotiation would be given more preference," a Finance Ministry notification said in this regard. [Source : www.economictimes.com dated January 6, 2011]

 

-> Finance Ministry cracks whip on IRS officers overstaying abroad

 

The Finance Ministry has cracked a whip on Indian Revenue Service (IRS) officers, who are "overstaying" in foreign countries even after the courses they went to undertake had come to an end.

 

The Ministry has asked all the Chief Commissioners of Income Tax (CCsIT) across the country to report as to how many such officers have gone on trainings and study programmes at universities and institutions abroad and what action has been taken against those who have not returned without furnishing proper reasons.

 

The action has been taken after the Minister of State for Revenue wrote a letter to the Central Board of Direct Taxes (CBDT)-the administrative authority of the IRS (Income Tax) cadre in the country-stating "some officers who have proceeded on training courses overseas are neither returning on the conclusion of the courses or intimating reasons for their overstay. This may please be verified and a status note in each case reporting action taken against those officers may please be given . . . urgently."

 

The Department is already facing a shortage of officers and is faced with increasing work pressure and deputation of officers to other law enforcement agencies, they said.

 

The CCsIT have been asked to furnish the information to the CBDT at the earliest so that proper action can be taken. [Source : www.businessstandard.com dated January 7, 2011]

 

-> I-T Department devise innovative methods to reduce evasion of tax

 

The Income-tax Department plans to "immediately capture" on receipt the data of returns filed by taxpayers to enhance their investigation and enforcement action to curb tax evasion and reduce tax gap over the next few years.

 

The Department is also mooting developing a "criminal investigation" system within its establishment to combat terror financing, money laundering, offshore tax evasion and other illegal trades which impact national security.

 

The 30-page "Vision 2020" document, which charts out the course of action for the I-T Department over next few years, was unveiled recently by the Finance Minister.

 

To achieve this objective, the I-T Department will "make internal data available almost on real time basis by capturing data from paper returns immediately after receipt," the document said. The Department also aims at making internal data (of I-T) "robust and current" by including information gathered during enforcement action by the investigation wing and the Assessing Officers.

 

The Department, which is currently probing a host of high-profile financial irregularities from and to overseas destinations, considers that the "next decade" will see an increased fund flow.

 

"This will require the Income-tax Department to deploy considerable resource and energy on criminal investigation. Effective criminal investigation will necessarily include a comprehensive international strategy to combat offshore tax evasion, that threaten the security of the country."

 

The document, which will undergo a mid-term review in 2013, aims at taking forward the strategic planning of the Department and its policies from 2011-2015 along with the new Direct Taxes Code (DTC) which is proposed to replace the current Income-tax Act from next fiscal. [Source : www.economictimes.com dated January 7, 2011]

ITR(Trib) Vol 7 Part 3 dated 17-01-2011

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

Volume 7 : Part 3 (Issue dated : 17-1-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Appeal --Appeal to Appellate Tribunal--Additional grounds--Legal grounds not requiring fresh material, facts or evidence for adjudication--Permissible--Income-tax Act, 1961-- Nippo Batteries Co. Ltd. v. Asst. CIT (Chennai) . . . 303

Appeal to Appellate Tribunal --Fees--Rate dependent on total income determined --Total income determined at more than Rs. 2 lakhs--Fees of Rs. 10,000 payable--Income-tax Act, 1961, s. 253(6)(c)-- M. M. Bagawan and Brothers v. Asst. CIT (Bangalore) . . . 298

Appeal to Commissioner (Appeals) --Delay in filing appeal--Condonation of delay --No evidence of satisfaction of Commissioner (Appeals) with regard to sufficient cause --No documentary evidence suggesting sufficient cause of delay in filing appeal--Order of Commissioner (Appeals) condoning delay annulled--Income-tax Act, 1961, s. 249(3) -- Deputy CIT v. K. Prabhakar Rao (Bangalore) . . . 209

Bad debts --Balance sale consideration outstanding on balance-sheet date--Receipt of balance amount before filing return--No debt recoverable--Disallowance proper--Income-tax Act, 1961, s. 36(1)(vii)-- Embassy Classic P. Ltd. v. Asst. CIT (Bangalore) . . . 287

Business expenditure --Capital or revenue expenditure--Assessee entering into technical collaboration agreement without acquiring any exclusive right but only licence to manufacture specific product in its patent name for limited period--Royalty cannot be bifurcated without any provision in agreement--Entire payment revenue expenditure and allowable as deduction--Income-tax Act, 1961, s. 37-- Nippo Batteries Co. Ltd. v. Asst. CIT (Chennai) . . . 303

----Commission for services--Payment by account payee cheque in accordance with agreement and receipt independently confirmed by payee--Mere involvement of payee in different line of business not sufficient ground to disallow commission--Failure to summon witnesses--Deduction allowable --Income-tax Act, 1961, s. 37-- Mobile Communication (India) P. Ltd. v. Deputy CIT (Delhi) . . . 219

----Disallowance on ground that no manufacturing activity and sale by assessee--Business existing during year under consideration--Expenses necessary to maintain business and assets of company--To be allowed--Income-tax Act, 1961, s. 37-- Deputy CIT v. Fortune Garments Ltd. (Delhi) . . . 243

Deduction of tax at source --Business expenditure--Disallowance--Labour charges --Payments made to labourers directly--Section 194C not applicable--Income-tax Act, 1961, ss. 40(a)(ia), 194C-- Asst. CIT v. Kalindi Agro Biotech Ltd. (Delhi) . . . 249

----Payments to contractors--Purchase of printed material for manufacturing footwear from suppliers charging value added tax--Transaction of purchase and sale--Purchaser not liable to deduct tax at source--Income-tax Act, 1961, s. 194C-- ITO (TDS) v. Bata India P. Ltd. (Delhi) . . . 246

----Payments to farmers for cultivation--Operations carried out by farmers purely agricultural operations and not in nature of works contract--Section 194C not applicable--Income-tax Act, 1961, ss. 40(a)(ia), 194C-- Asst. CIT v. Kalindi Agro Biotech Ltd. (Delhi) . . . 249

Penalty --Concealment of income--Penalty not automatic--Assessing Officer--Judicial discretion to levy penalty--Assessee surrendering income to buy peace--Whether penalty leviable--Income-tax Act, 1961, s. 271(1)(c)-- Asst. CIT v. Malu Electrodes P. Ltd. (Nagpur) . . . 256

----Concealment of income--Share application money--Statement of director of assessee that transactions bogus--Documentary evidence showing amount given by respective shareholders--No enquiry conducted by Assessing Officer directly from such shareholders--Addition on basis of such statement and levy of penalty--Not proper--Income-tax Act, 1961, s. 271(1)(c)-- Asst. CIT v. Malu Electrodes P. Ltd. (Nagpur) . . . 256

Reassessment --Reassessment beyond four years--Condition precedent--Assessee disclosing fully and truly all material facts at time of original assessment--Records not revealing existence of any new information or material that income escaped assessment--Assessment barred by limitation--Income-tax Act, 1961, ss. 143(3), 147, prov., 148-- Nippo Batteries Co. Ltd. v. Asst. CIT (Chennai) . . . 303

----Rectification of mistakes--Capital gains--Rectification order determining long-term capital gains applying section 50C--Commissioner (Appeals) holding rectification order cannot be passed on debatable issue and section 50C not applicable to sale transaction prior to introduction of section in statute--Tribunal confirming order in toto--Reassessment proceedings cannot be initiated on same issue--Reassessment invalid--Income-tax Act, 1961, ss. 147, 154--Letter No. 153/91/2002/TPL, dated August 27, 2002 -- Ashutosh Bhargava v. Deputy CIT (Jaipur) . . . 268

Rectification of mistake --Mistake apparent from record--Assessing Officer while giving effect to Tribunal's order finding minimum alternate tax liability more than tax liability determined under normal provisions--Mistake apparent from record requiring rectification--Revised claim of nil tax liability under section 115JB categorically rejected by Assessing Officer due to expiry of time under section 139(5)--Revised calculation by assessee under section 115JB not adjudicated by Commissioner (Appeals) or Tribunal--Rectification justified--Income-tax Act, 1961, ss. 115JB, 154-- Deputy CIT v. Wintac Ltd. (Bangalore) . . . 318

Search and seizure --Special procedure for assessment--Entry in seized material not supported by corroborative evidence--Material contradictions in statements of purchaser of property--Deletion of addition in hands of company justified--No different approaches in relation to on-money payments to assessee-company and its director--Addition to be deleted--Income-tax Act, 1961, ss. 132, 153A-- Embassy Classic P. Ltd. v. Asst. CIT (Bangalore) . . . 287

----Warrant of authorisation--Validity--Common search warrant specifying names and addresses of persons residing at different places--Assessment valid--Income-tax Act, 1961, ss. 132, 153A-- Embassy Classic P. Ltd. v. Asst. CIT (Bangalore) . . . 287

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 36(1)(vii) --Bad debts--Balance sale consideration outstanding on balance-sheet date--Receipt of balance amount before filing return--No debt recoverable--Disallowance proper-- Embassy Classic P. Ltd. v. Asst. CIT (Bangalore) . . . 287

S. 37 --Business expenditure--Capital or revenue expenditure--Assessee entering into technical collaboration agreement without acquiring any exclusive right but only licence to manufacture specific product in its patent name for limited period--Royalty cannot be bifurcated without any provision in agreement--Entire payment revenue expenditure and allowable as deduction-- Nippo Batteries Co. Ltd. v. Asst. CIT (Chennai) . . . 303

----Business expenditure--Commission for services--Payment by account payee cheque in accordance with agreement and receipt independently confirmed by payee--Mere involvement of payee in different line of business not sufficient ground to disallow commission--Failure to summon witnesses--Deduction allowable-- Mobile Communication (India) P. Ltd. v. Deputy CIT (Delhi) . . . 219

----Business expenditure--Disallowance on ground that no manufacturing activity and sale by assessee--Business existing during year under consideration--Expenses necessary to maintain business and assets of company--To be allowed-- Deputy CIT v. Fortune Garments Ltd. (Delhi) . . . 243

S. 40(a)(ia) --Deduction of tax at source--Business expenditure--Disallowance--Labour charges--Payments made to labourers directly--Section 194C not applicable-- Asst. CIT v. Kalindi Agro Biotech Ltd. (Delhi) . . . 249

----Deduction of tax at source--Payments to farmers for cultivation--Operations carried out by farmers purely agricultural operations and not in nature of works contract --Section 194C not applicable-- Asst. CIT v. Kalindi Agro Biotech Ltd. (Delhi) . . . 249

S. 115JB --Rectification of mistake--Mistake apparent from record--Assessing Officer while giving effect to Tribunal's order finding minimum alternate tax liability more than tax liability determined under normal provisions--Mistake apparent from record requiring rectification--Revised claim of nil tax liability under section 115JB categorically rejected by Assessing Officer due to expiry of time under section 139(5)--Revised calculation by assessee under section 115JB not adjudicated by Commissioner (Appeals) or Tribunal--Rectification justified-- Deputy CIT v. Wintac Ltd. (Bangalore) . . . 318

S. 132 --Search and seizure--Special procedure for assessment--Entry in seized material not supported by corroborative evidence--Material contradictions in statements of purchaser of property--Deletion of addition in hands of company justified--No different approaches in relation to on-money payments to assessee-company and its director--Addition to be deleted-- Embassy Classic P. Ltd. v. Asst. CIT (Bangalore) . . . 287

----Search and seizure--Warrant of authorisation--Validity--Common search warrant specifying names and addresses of persons residing at different places--Assessment valid-- Embassy Classic P. Ltd. v. Asst. CIT (Bangalore) . . . 287

S. 143(3) --Reassessment--Reassessment beyond four years--Condition precedent--Assessee disclosing fully and truly all material facts at time of original assessment--Records not revealing existence of any new information or material that income escaped assessment--Assessment barred by limitation-- Nippo Batteries Co. Ltd. v. Asst. CIT (Chennai) . . . 303

S. 147 --Reassessment--Rectification of mistakes--Capital gains--Rectification order determining long-term capital gains applying section 50C--Commissioner (Appeals) holding rectification order cannot be passed on debatable issue and section 50C not applicable to sale transaction prior to introduction of section in statute--Tribunal confirming order in toto--Reassessment proceedings cannot be initiated on same issue--Reassessment invalid--Letter No. 153/91/2002/TPL, dated August 27, 2002-- Ashutosh Bhargava v. Deputy CIT (Jaipur) . . . 268

S. 147, prov. --Reassessment--Reassessment beyond four years--Condition precedent--Assessee disclosing fully and truly all material facts at time of original assessment--Records not revealing existence of any new information or material that income escaped assessment--Assessment barred by limitation-- Nippo Batteries Co. Ltd. v. Asst. CIT (Chennai) . . . 303

S. 148 --Reassessment--Reassessment beyond four years--Condition precedent--Assessee disclosing fully and truly all material facts at time of original assessment--Records not revealing existence of any new information or material that income escaped assessment--Assessment barred by limitation-- Nippo Batteries Co. Ltd. v. Asst. CIT (Chennai) . . . 303

S. 153A --Search and seizure--Special procedure for assessment--Entry in seized material not supported by corroborative evidence--Material contradictions in statements of purchaser of property--Deletion of addition in hands of company justified--No different approaches in relation to on-money payments to assessee-company and its director--Addition to be deleted-- Embassy Classic P. Ltd. v. Asst. CIT (Bangalore) . . . 287

----Search and seizure--Warrant of authorisation--Validity--Common search warrant specifying names and addresses of persons residing at different places--Assessment valid-- Embassy Classic P. Ltd. v. Asst. CIT (Bangalore) . . . 287

S. 154 --Reassessment--Rectification of mistakes--Capital gains--Rectification order determining long-term capital gains applying section 50C--Commissioner (Appeals) holding rectification order cannot be passed on debatable issue and section 50C not applicable to sale transaction prior to introduction of section in statute--Tribunal confirming order in toto--Reassessment proceedings cannot be initiated on same issue--Reassessment invalid--Letter No. 153/91/2002/TPL, dated August 27, 2002 -- Ashutosh Bhargava v. Deputy CIT (Jaipur) . . . 268

----Rectification of mistake--Mistake apparent from record--Assessing Officer while giving effect to Tribunal's order finding minimum alternate tax liability more than tax liability determined under normal provisions--Mistake apparent from record requiring rectification--Revised claim of nil tax liability under section 115JB categorically rejected by Assessing Officer due to expiry of time under section 139(5)--Revised calculation by assessee under section 115JB not adjudicated by Commissioner (Appeals) or Tribunal--Rectification justified-- Deputy CIT v. Wintac Ltd. (Bangalore) . . . 318

S. 194C --Deduction of tax at source--Business expenditure--Disallowance--Labour charges --Payments made to labourers directly--Section 194C not applicable-- Asst. CIT v. Kalindi Agro Biotech Ltd. (Delhi) . . . 249

----Deduction of tax at source--Payments to contractors--Purchase of printed material for manufacturing footwear from suppliers charging value added tax--Transaction of purchase and sale--Purchaser not liable to deduct tax at source-- ITO (TDS) v. Bata India P. Ltd. (Delhi) . . . 246

----Deduction of tax at source--Payments to farmers for cultivation--Operations carried out by farmers purely agricultural operations and not in nature of works contract--Section 194C not applicable-- Asst. CIT v. Kalindi Agro Biotech Ltd. (Delhi) . . . 249

S. 249(3) --Appeal to Commissioner (Appeals)--Delay in filing appeal--Condonation of delay--No evidence of satisfaction of Commissioner (Appeals) with regard to sufficient cause--No documentary evidence suggesting sufficient cause of delay in filing appeal--Order of Commissioner (Appeals) condoning delay annulled-- Deputy CIT v. K. Prabhakar Rao (Bangalore) . . . 209

S. 253(6)(c) --Appeal to Appellate Tribunal--Fees--Rate dependent on total income determined--Total income determined at more than Rs. 2 lakhs--Fees of Rs. 10,000 payable-- M. M. Bagawan and Brothers v. Asst. CIT (Bangalore) . . . 298

S. 271(1)(c) --Penalty--Concealment of income--Penalty not automatic--Assessing Officer--Judicial discretion to levy penalty--Assessee surrendering income to buy peace--Whether penalty leviable-- Asst. CIT v. Malu Electrodes P. Ltd. (Nagpur) . . . 256

----Penalty--Concealment of income--Share application money--Statement of director of assessee that transactions bogus--Documentary evidence showing amount given by respective shareholders--No enquiry conducted by Assessing Officer directly from such shareholders--Addition on basis of such statement and levy of penalty--Not proper-- Asst. CIT v. Malu Electrodes P. Ltd. (Nagpur) . . . 256

ITR(Trib) Val 7 part 2 dated 10-01-2011

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS

ISSUE DATED 10-1-2011
Volume 7 Part 2

APPELLATE TRIBUNAL ORDERS

    -> Payments in cash to producers of milk exceeding specified limit ; section 40A(3) not attracted : Gamdiwala Dairy v. Asst. CIT (Ahmedabad) p. 114

    -> Where no defects found in books of assessee, book results to be accepted : Gamdiwala Dairy v. Asst. CIT (Ahmedabad) p. 114

    -> Appeal : Tribunal's order cannot be reviewed u/s. 254(2) : Asst. CIT v. Bank of Madura Ltd. (Chennai) p. 139

    -> Dividend income eligible for deduction under chapter VI-A not liable to disallowance u/s. 14A : Asst. CIT v. Bank of Madura Ltd. (Chennai) p. 139

    -> Assessee depositing STT entitled to rebate u/s. 88E : Asst. CIT v. Parveen Jain (Delhi) p. 142

    -> No evidence disclosing receipt of sale consideration over and above amount mentioned in registered sale deed, addition deleted : Kaushik Sureshbhai Reshamwala v. ITO (Ahmedabad) p. 146

    -> Direction to AO to adopt value of land adopted by assessee on basis of technical report of registered valuer : Kaushik Sureshbhai Reshamwala v. ITO (Ahmedabad) p. 146

    -> Provision for pension based on actuarial valuation to be allowed : Asst. CIT v. Ranbaxy Laboratories Ltd. (Delhi) p. 161

    -> Contribution by assessee to health care society to bring goodwill or to promote its business ; deduction allowable u/s. 37 : Asst. CIT v. Ranbaxy Laboratories Ltd. (Delhi) p. 161

    -> Contribution to ESI paid before due date of filing return ; deduction allowable : Asst. CIT v. Ranbaxy Laboratories Ltd. (Delhi) p. 161

    -> Payments received against sale of copyrighted software not royalty either under ITA or DTAA : Velankani Mauritius Ltd. v. Dy. DIT (Bangalore) p. 171

    -> Payment of wages without signature of workers on vouchers ; books of account liable to be rejected : Reliable Surface Coatings v. Asst. CIT (Ahmedabad) p. 183

    -> Remuneration to non working partner to be disallowed u/s. 40(b) : Reliable Surface Coatings v. Asst. CIT (Ahmedabad) p. 183

    -> Assessee, 80 per cent. owner of windmill, entitled to depreciation : Asst. CIT v. Baghmar Finance Ltd. (Chennai) p. 196

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Despite lack of direct evidence, tax evasion can be assessed

Hersh Win Chadha vs. DDIT (ITAT Delhi)

Despite lack of direct evidence, tax evasion can be assessed

The assessee, an agent of Bofors, was alleged to have received, through his alleged front company Svenska, Panama, commission of Rs. 52.60 crores for securing a defense deal for Bofors from the Government of India. The inference that the commission was paid was drawn on the basis of a report of the Swedish National Audit Bureau, certain correspondence and other documents that suggested that the assessee, in his capacity as a long-standing representative of Bofors was the beneficiary of the income. No direct evidence to link the assessee with the alleged commission was found. The AO assessed the said sum of Rs. 52.60 crores. For the subsequent years, the AO assessed notional interest at 5% p.a. on the said amount. The CIT (A) confirmed the addition. The assessee appealed to the Tribunal on the ground that there was no evidence to show that he had earned the alleged commission and the assessment was based on conjecture. HELD confirming the addition of Rs. 52.60 crores while deleting the addition of notional interest:

(i) Unlike criminal proceedings where the charge has to be proved beyond doubt, income-tax proceedings are quasi-judicial. Tax liability in cases of suspicious transactions has to be assessed on the basis of the material available on record, surrounding circumstances, human conduct and preponderance of probabilities;

(ii) Rules of evidence do not govern income tax proceedings and the AO is not fettered or bound by technical rules contained in the Indian Evidence Act and is entitled to act on material which may not be accepted as evidence in a court of law;

(iii) In clandestine transactions, it is impossible to have direct evidence or demonstrative proof of every move and when the assessee is not forthcoming with proper facts and chooses to be elusive and evasive, the AO has no choice but to take recourse to estimate. The only caveat is that it should be reasonable and based on material available on record. It should not be perverse or based merely on conjectures.

(iv) The Swedish Govt stated that commission was paid to the Indian agent of Bofors (though the assessee was not named). If the statement of a sovereign Govt is not acceptable as reliable evidence in Indian tax proceedings, no case of cross-border tax evasion can ever be detected or proved. No burden can be cast on the AO in impossible terms. Mere non-mentioning of names of recipients cannot be capitalized by Bofors or assessee to derail the tax liability;

(v) Though SNAB did not disclose the names of the beneficiaries due to some strategic consideration, the import of disclosure cannot be ignored or underestimated. It is the duty of the Revenue Authorities to be mindful of clues and coincidences and bring them to logical conclusions, otherwise clandestine tax evasion through shady economic deals, will go undetected, as appears to be the order of the day. India is neither a tax haven, nor a banana republic;

(vi) The I.T. Dept was carrying out investigations in difficult circumstances ascribable to the sensitive nature of inquiries, their ramification on national politics and public perception. It was very difficult to get information and documents and to examine concerned links due to the premeditated surreptitious cover up of transactions and smokescreen corporate jugglery;

(vii) There is no presumption in law that the AO is supposed to discharge an impossible burden to assess the tax liability by direct evidence only and to establish the evasion beyond doubt as in criminal proceedings. He can assessee on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/ evidence available on record;

(viii) Though the original documents were not given to the assessee (despite demand), no inference can be raised that the contents are fabricated or incorrect because the evidence was obtained by lawful means. Questioning their contents or veracity in income tax proceedings will amount to disbelieving the whole system. The assessee has not claimed that the documents are false or fabricated;

(ix) As regards the burden of proof, if the AO comes across material indicating accrual or receipt of income in the hands of the assessee, he is empowered to investigate the matter and ask relevant questions. The AO's burden is initial in nature. Thereafter, the assessee has to give a proper explanation and disclose facts which are in his exclusive knowledge. The assessee has no option to remain selective, elusive, evasive or restrained in disclosure. After such explanation, the AO has to ascertain the correctness of the assessee's submissions on the basis of material available on record, the surrounding circumstances, the conduct of the assessee, the preponderance of probabilities and the nature of incriminating information/ evidence available with him.

(x) Surprise expressed on why the department has taken no proceedings against the other parties including Bofors, the alleged payer, for failure to deduct TDS on payments to the assessee. Pointed out that inaction to take action against the others "may lead to a non-existent undesirable and detrimental notion that India is a soft state and one can meddle with its tax laws with impunity".

Full copy of the order of the Tribunal may be downloaded from itatonline.org.

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Whether deduction of tax at source at higher rate than the one prescribed as per the provisions will suffice short deduction of tax at source

2011-TIOL-06-ITAT-KOL

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'B' KOLKATA

ITA Nos.991/Kol/2010
Assessment Year: 2006-2007

INCOME TAX OFFICER WARD-29(1), KOLKATA Vs NISHA SARAF
PAN NO:ACJPA0430Q
B R Mittal, JM and C D Rao, AM
Dated: December 10, 2010
Appellant Rep by: Shri P C Nayak, Sr.DR
Respondent Rep by: Shri Manish Tiwari

Income Tax - Section 194C(2) - Whether deduction of tax at source at higher rate than the one prescribed as per the provisions will suffice short deduction of tax at source - Whether payment-wise reconciliation of TDS is necessary for proving that the provisions of TDS has been
properly complied with.

Appellant was contractor and made payments to subcontractors. Assessee deducted TDS at the rate of 2.24 percent in relation to job charges paid to the subcontractors - During the course of proceedings the AO observed that the assessee had not deducted any TDS on balance job charges and accordingly, disallowed the same - CIT(A) while observing that the assessee has deducted TDS @2.24% instead of 1% as prescribed under section 194C(2) took the view that extra deduction is sufficient to cover the balance job charges - On appeal of the revenue the DR
pointed out that the CIT(A) has allowed the appeal without matching the payments of balance job charges.

After hearing the parties the ITAT held that,

++ keeping in view of the specific observations made by the AO that the assessee has not recovered any TDS in respect of balance amount of Rs.13,78,542/- and the assessee's submission that the assessee has recovered more amount than the required amount under section 194C of the Act on Rs.1,49,69,028/-, it will not compensate the short recoveryof TDS from the balance amount. As regarding the submissions of the Counsel for the Assessee that the balance amount is below the TDS limits i.e. Rs.50,000/- for the impugned assessment year, in respect of only two parties i.e. Sk. Bagbul Islam and Vipra Beriwal which isamounting to Rs.30,625/- and Rs.48,600/- respectively is below Rs.50,000/-, out of the 22 parties mentioned by the AO. In the absence ofthe details of the balance job charges of Rs.13,78,542/-, the CIT(A)is not justified to delete the entire disallowance by observing thatthe assessee has recovered excess TDS on Rs.1,49,69,028/-;

++ therefore, the issue is restored to the file of the AO with a direction to verify whether the balance job charges of Rs.13,78,542/- was really subjected to TDS as per law or not, after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to furnish the details of Rs.13,78,542/- to substantiatewhether the TDS is required to be deducted or not, before the AO.

Case remanded

ORDER

Per: C D Rao:

This appeal is preferred by the Revenue against the order of the C.I.T. (A)-XVI, Kolkata dated 18.11.2009 for the assessment year 2006-07.

2. The only issue taken by the Revenue in this appeal, is relating to deletion of Rs.13,38,542/- disallowed by the AO by applying provision of section 40(a)(ia) read with section 194C of the Income Tax Act.

3. Brief facts of this issue are that, while doing the scrutiny assessment, the AO has observed that the assessee debited job charges to the tune of Rs.1,63,47,570/- in the P&L a/c. and perusal of the details of job charges submitted revealed that the same was paid to 22 parties. The AO also observed that the assessee deducted TDS on job charges of Rs.1,49,69,028/- only @2.24% which is Rs.3,35,905/- and deposited the same to the govt. a/c. The assessee was asked to explain vide a show cause letter dated 11.11.2008 as to why the balance job charge expenses of Rs.13,78,542/- was not subjected to TDS and why the said amount should not be disallowed under section 40(a)(ia) of the Act for failure to deduct TDS, as per law. After considering the
submission of the assessee, the AO disallowed the same by observing as under:

"It appeared that the assessee is a job contractor within the purview of compulsory tax audit during AY 2005-06 and AY 2006-07, and thus falls within the purview of section 194C(2) of the Income Tax Act.
Hence, the assessee is liable to deduct tax at source from the payments/ credits made to parties in respect of job working expenses.

Hence, the explanation given by the A/R of the assessee is not tenable. Since the assessee has made default in deducting TDS on Rs. 1338542/-, the same is disallowed u/s 40(a)(ia) of the Act, and added back as income of the assessee."

Though the AO has pointed out that the assessee has not deducted TDS amounting to Rs.13,78,542/-, but he disallowed only Rs.13,38,542/-.

4. On appeal, the Ld. CIT(A) has disallowed the same by observing as under:

"6. During the course of appellate proceedings, it was submitted by the appellant that as per tax audit report appellant has deducted tax of Rs.3,35,905/- u/s. 194C of the I. T. Act which consist of T.D.S. of Rs.3,33,366/- on the payment of Rs.1,63,47,570/- as labour charges to 22 different parties. The tax of Rs.2,542/- was deducted on the payment of Rs.1,24,550/- to one party for Saree Dying Charges. It is an admitted fact that the appellant was a contractor and made payment to subcontractors amounting to Rs.1,63,47,570/- on account of job charges. Therefore, the appellant was required to deduct the tax @ 1% u/s. 194C(2) of the I. T. Act. Out of the total payment of Rs. 1,63,47,570/- the payment of Rs.1,37,59,392/- was paid to four parties exceeding Rs.1O,00,000/- and hence as per the provisions of section 194C(2) the tax @ 1.12% on this payment comes to Rs.1,54,380/-. The balance amount of Rs.25,88,178/- was paid to 18 different parties and u/s. 194C(2) the tax © 1.02% on this amount comes to Rs.26,399/-. Therefore, as per the provisions of section 194C(2) of the Act the appellant was required to deduct total tax u/s 194C(2) at Rs. 1,80,779/- (Rs.1,54,380 + Rs.26,399) on total payment of Rs. 1,63,47,570/- on account of labour charges. In fact, the appellant has deducted and paid much more amount than required as per the provisions u/s.194C(2) of 'the Act i.e. the appellant has deducted and paid T.D.S. of Rs.3,33,366/- in place of T.D.S. of Rs.1,80,779/- required to be deducted and payable to the Govt. Treasury. It was contended by the appellant that the A.O. was not justified to invoke the provisions of section 40(a)(ia) on the payment of Rs.13,38,542/- without appreciating the facts of the case. On careful consideration of facts of the case, I am of the opinion that though A.O. has correctly held that in the case of appellant provisions of section 194C(2) were attracted on the payment of labour charges, however, he was not justified in making the disallowance of Rs.13,38,542/- u/s. 40(a)(ia) by calculating the tax u/s. 194C(2) @ 2.24%. I find force in the submission of the appellant that she has deducted and paid more amount of tax than as required under the law. Under the circumstances, no

disallowance could be made by invoking the provisions of section 40(a) (ia). The A.O. is directed to delete the disallowance of Rs. 13,38,542/-. The ground nos. 1 & 2 are allowed."

5. Aggrieved by this, the Revenue is in appeal before us.

6. At the time of hearing, the Ld. D.R., appearing on behalf of the Revenue, has pointed out that the AO has mentioned in the assessment order categorically that the assessee was asked to explain as to why the balance job charge expenses of Rs.13,78,542/- was not subjected to TDS, the assessee has not mentioned anything against that. The contention of the assessee is only that she has deducted the TDS on an amount of Rs.1,49,69,028/- at 2.24% i.e. Rs.3,35,905/- and deposited the same to the government a/c. However, the Ld. CIT(A), without contradicting this finding, has given relief, simply by accepting the submissions of the assessee that the assessee deducted and paid more amount to the tax authorities, than as required under the law. Therefore, he requested to reverse the order of the Ld. CIT(A)1 and restore that of the AO.

7. On the other hand, the Ld. Counsel, appearing on behalf of the Assessee, has reiterated the submissions made before the revenue authorities and further contended that since the assessee has already recovered more amount than required under section 194C, therefore, he requested to uphold the order of the Ld. CIT(A). On query from the Bench, whether the TDS has been recovered on the balance amount of Rs. 13,78,542/-, the Ld. Counsel for the Assessee has submitted that this

amount is not subjected to TDS. However, he has not furnished details in support of this submission.

8. After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the specific observations made by the AO that the assessee has not recovered any TDS in respect of balance amount of Rs.13,78,542/- and the assessee's submission that the assessee has recovered more amount than the required amount under section 194C of the Act on Rs.1,49,69,028/-, it will not compensate the short recovery of TDS from the balance amount. As regarding the submissions of the Ld. Counsel for the Assessee that the balance amount is below the TDS limits i.e. Rs.50,000/- for the impugned assessment year, we observe that in respect of only two parties i.e. Sk. Bagbul Islam and Vipra Beriwal which is amounting to Rs.30,625/- and Rs.48,600/- respectively is below Rs.50,000/-, out of the 22 parties mentioned by the AO. In the absence of the details of the balance job charges of Rs.13,78,542/-, we are of the view that the Ld. CIT(A) is not justified to delete the entire disallowance by observing that the assessee has recovered excess TDS on Rs. 1,49,69,028/-. Therefore, we set aside the same and restore this issue to the file of the AO with a direction to verify whether the balance job charges of Rs.13,78,542/- was really subjected to TDS as per law or not, after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to furnish the details of Rs. 13,78,542/- to substantiate whether the TDS is required to be deducted or not, before the AO.

9. In the result, the appeal of the Revenue is allowed for statistical purposes.

(Order pronounced in the court on 10.12.2010.)

ITR (TRIB) Volume 7 Part 1 dated 03.01.2010

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

Volume 7 : Part 1 (Issue dated : 3-1-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Appeal to Appellate Tribunal --Powers of Tribunal--Rectification of mistake--Tribunal holding that assessee cannot be permitted to claim benefit of closing stock by changing method of valuation in assessment proceedings under section 153A--Not a mistake apparent from record--Application under section 254(2) not maintainable--No power to review its order--Income-tax Act, 1961, ss. 153A, 254(2)-- Charchit Agarwal v. Asst. CIT (Delhi) . . . 35

Best judgment assessment --Estimation of income--Accounting--Rejection of accounts--No estoppel against acceptance of net profit rate by assessee--Assessing Officer applying net profit rate without considering past history where lower net profit rate approved--Direction of Commissioner (Appeals) to apply net profit rate at 8 per cent. considering past history reasonable--Income-tax Act, 1961, ss. 144, 145(3)-- Asst. CIT v. Kanhiya Lal Choudhary (Jaipur) . . . 61

Business expenditure --Disallowance--Payments in cash exceeding prescribed limit --Payments by distributor to service provider--No expenditure incurred since no purchases of goods or services on acceptance of delivery of SIM cards or service products--Transaction of principal to agent--Section 40A(3) not applicable--Income-tax Act, 1961, s. 40A(3)-- S. Rahumathulla v. Asst. CIT (Cochin) . . . 41

----Disallowance--Payments liable to deduction of tax at source--Small fraction of total expenditure representing labour charges--Not a contract for services or labour--Disallowance deleted--Income-tax Act, 1961, ss. 40(a)(ia), 194C-- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

----Disallowance--Securities transaction tax--Rebate--Securities transaction tax paid and share trading income assessed under profits and gains of business--Disallowance under section 40(a)(ib)--Not bar to allow rebate under section 88E--Evidence of payment furnished during assessment not rebutted by Department--Sufficient compliance with provision--Direction to allow rebate proper--Income-tax Act, 1961, s. 88E-- ITO v. Chunilal T. Mehta (Kolkata) . . . 50

----Sales commission--Evidence regarding receipt of commission by assessee--Commission retained by assessee offered for taxation--No evidence regarding retention of money involved in payment of commission to sub-agent--Failure on part of Department to prove payments to sub-agents against public policy--Disallowance not justified --Income-tax Act, 1961, s. 37-- Deputy CIT v. Satya Prakash Arora (Delhi) . . . 95

Capital gains --Exemption--Sale of property--Capital Gains Deposit Scheme--Sale consideration deposited in scheme--Purchase of house property by availing of loan against deposit scheme--Sale consideration deposited in specified account before date for furnishing return--House property purchased within time-limit--Assessee entitled to exemption--Income-tax Act, 1961, ss. 54F(4), 139-- P. Thirumoorthy v. ITO (Chennai) . . . 10

Deduction of tax at source --Commission--Payments to concessionaires for sale of milk products--Transaction between assessee and concessionaires principal to principal --Payments not commission--Tax not to be deducted at source--Income-tax Act, 1961, s. 194H-- ITO v. Mother Dairy Food Processing Ltd. (Delhi) . . . 16

----Payment made for purchase of printed packing material to suppliers--No work involving skill or secrecy--Sale--Section 194C not attracted--Income-tax Act, 1961, s. 194C-- ITO v. Mother Dairy Food Processing Ltd. (Delhi) . . . 16

Depreciation --Higher depreciation--Computers--Specialised machines manufactured by specialists used in printing activity--Not "computers"--Assessee not entitled to higher depreciation --Income-tax Act, 1961, ss. 32, 36(1)(xi), Expln . -- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

Double taxation avoidance --Capital gains--Long-term capital gains on sale of shares in Indian company--Assessee claiming to be Mauritius based company--Whether effective place of management of assessee in Mauritius--Authenticity and relevance of documents relating to board meetings in Mauritius to be examined--Evidence to be brought on record--Matter remanded--Double Taxation Avoidance Agreement between India and Mauritius, arts. 4, 13--Income-tax Act, 1961-- SMR Investments Ltd. v. Deputy Director of Income-tax (Delhi) . . . 23

Industrial undertaking --Special deduction under section 80-IB--Determination of initial assessment year for purposes of section 80-IB--Period of ten years to be reckoned from date of approval by prescribed authority--Income-tax Act, 1961, s. 80-IB(8A), (14)(c)--Circular No. 794, dated August 9, 2000-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

----Special deduction--Assessee engaged in business of scientific research and development--Approved by Government of India for benefit of deduction under section 80-IB(8A)--Conditions under section 80-IB(2) need not be fulfilled--Assessee entitled to deduction of income derived from transfer of technology developed by itself--Income-tax Act, 1961, s. 80-IB(8A)--Income-tax Rules, 1962, r. 18DA(1)(e)-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

----Special deduction--Computation of --Royalty and lease rent to be excluded from profits of business --Only balance net interest income to be excluded from profits of business if nexus between interest income on deposits and interest expenditure on borrowings established--Matter remanded--Income-tax Act, 1961, s. 80-IB-- Videotex International P. Ltd. v. Asst. CIT (Chandigarh) . . . 32

Penalty --Acceptance of loans or deposits in cash exceeding prescribed limit--Assessee facing acute financial difficulties and in exceptional and unavoidable circumstances forced to accept cash deposits--All entries either trade entries or general voucher entry for squaring off accounts of trade and not a loan or deposit--Section 269SS not attracted --Penalty cannot be imposed--Income-tax Act, 1961, ss. 269SS, 271D-- Asst. CIT v. Western India Ceramics P. Ltd. (Ahmedabad) . . . 69

----Cash loans exceeding prescribed limit--Cash loans for purpose of disbursing salary to employees--No material by Department to prove contrary--Deletion of penalty justified--Income-tax Act, 1961, ss. 269SS, 271D-- Deputy CIT v. Rupen Das (Kolkata) . . . 55

Words and phrases --"Computer system"-- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Double Taxation Avoidance Agreement between India and Mauritius :

Arts. 4, 13 --Double taxation avoidance--Capital gains--Long-term capital gains on sale of shares in Indian company--Assessee claiming to be Mauritius based company--Whether effective place of management of assessee in Mauritius--Authenticity and relevance of documents relating to board meetings in Mauritius to be examined--Evidence to be brought on record--Matter remanded-- SMR Investments Ltd. v. Deputy Director of Income-tax (Delhi) . . . 23

Income-tax Act, 1961 :

S. 32 --Depreciation--Higher depreciation--Computers--Specialised machines manufactured by specialists used in printing activity--Not "computers"--Assessee not entitled to higher depreciation -- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

S. 36(1)(xi), Expln. --Depreciation--Higher depreciation--Computers--Specialised machines manufactured by specialists used in printing activity--Not "computers"--Assessee not entitled to higher depreciation -- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

S. 37 --Business expenditure--Sales commission--Evidence regarding receipt of commission by assessee--Commission retained by assessee offered for taxation--No evidence regarding retention of money involved in payment of commission to sub-agent--Failure on part of Department to prove payments to sub-agents against public policy--Disallowance not justified-- Deputy CIT v. Satya Prakash Arora (Delhi) . . . 95

S. 40(a)(ia) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Small fraction of total expenditure representing labour charges--Not a contract for services or labour--Disallowance deleted-- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

S. 40A(3) --Business expenditure--Disallowance--Payments in cash exceeding prescribed limit--Payments by distributor to service provider--No expenditure incurred since no purchases of goods or services on acceptance of delivery of SIM cards or service products--Transaction of principal to agent--Section 40A(3) not applicable-- S. Rahumathulla v. Asst. CIT (Cochin) . . . 41

S. 54F(4) --Capital gains--Exemption--Sale of property--Capital Gains Deposit Scheme--Sale consideration deposited in scheme--Purchase of house property by availing of loan against deposit scheme--Sale consideration deposited in specified account before date for furnishing return--House property purchased within time-limit--Assessee entitled to exemption-- P. Thirumoorthy v. ITO (Chennai) . . . 10

S. 80-IB --Industrial undertaking--Special deduction--Computation of--Royalty and lease rent to be excluded from profits of business--Only balance net interest income to be excluded from profits of business if nexus between interest income on deposits and interest expenditure on borrowings established--Matter remanded-- Videotex International P. Ltd. v. Asst. CIT (Chandigarh) . . . 32

S. 80-IB(8A) --Industrial undertaking--Special deduction--Assessee engaged in business of scientific research and development--Approved by Government of India for benefit of deduction under section 80-IB(8A)--Conditions under section 80-IB(2) need not be fulfilled--Assessee entitled to deduction of income derived from transfer of technology developed by itself-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

----Industrial undertaking--Special deduction under section 80-IB--Determination of initial assessment year for purposes of section 80-IB--Period of ten years to be reckoned from date of approval by prescribed authority--Circular No. 794, dated August 9, 2000-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

S. 80-IB(14)(c) --Industrial undertaking--Special deduction under section 80-IB--Determination of initial assessment year for purposes of section 80-IB--Period of ten years to be reckoned from date of approval by prescribed authority--Circular No. 794, dated August 9, 2000-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

S. 88E --Business expenditure--Disallowance--Securities transaction tax--Rebate--Securities transaction tax paid and share trading income assessed under profits and gains of business--Disallowance under section 40(a)(ib)--Not bar to allow rebate under section 88E--Evidence of payment furnished during assessment not rebutted by Department--Sufficient compliance with provision--Direction to allow rebate proper-- ITO v. Chunilal T. Mehta (Kolkata) . . . 50

S. 139 --Capital gains--Exemption--Sale of property--Capital Gains Deposit Scheme --Sale consideration deposited in scheme--Purchase of house property by availing of loan against deposit scheme--Sale consideration deposited in specified account before date for furnishing return--House property purchased within time-limit--Assessee entitled to exemption-- P. Thirumoorthy v. ITO (Chennai) . . . 10

S. 144 --Best judgment assessment--Estimation of income--Accounting--Rejection of accounts--No estoppel against acceptance of net profit rate by assessee--Assessing Officer applying net profit rate without considering past history where lower net profit rate approved--Direction of Commissioner (Appeals) to apply net profit rate at 8 per cent. considering past history reasonable-- Asst. CIT v. Kanhiya Lal Choudhary (Jaipur) . . . 61

S. 145(3) --Best judgment assessment--Estimation of income--Accounting--Rejection of accounts--No estoppel against acceptance of net profit rate by assessee--Assessing Officer applying net profit rate without considering past history where lower net profit rate approved--Direction of Commissioner (Appeals) to apply net profit rate at 8 per cent. considering past history reasonable-- Asst. CIT v. Kanhiya Lal Choudhary (Jaipur) . . . 61

S. 153A --Appeal to Appellate Tribunal--Powers of Tribunal--Rectification of mistake--Tribunal holding that assessee cannot be permitted to claim benefit of closing stock by changing method of valuation in assessment proceedings under section 153A--Not a mistake apparent from record--Application under section 254(2) not maintainable--No power to review its order-- Charchit Agarwal v. Asst. CIT (Delhi) . . . 35

S. 194C --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Small fraction of total expenditure representing labour charges--Not a contract for services or labour--Disallowance deleted-- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

----Deduction of tax at source--Payment made for purchase of printed packing material to suppliers--No work involving skill or secrecy--Sale--Section 194C not attracted-- ITO v. Mother Dairy Food Processing Ltd. (Delhi) . . . 16

S. 194H --Deduction of tax at source--Commission--Payments to concessionaires for sale of milk products--Transaction between assessee and concessionaires principal to principal--Payments not commission--Tax not to be deducted at source-- ITO v. Mother Dairy Food Processing Ltd. (Delhi) . . . 16

S. 254(2) --Appeal to Appellate Tribunal--Powers of Tribunal--Rectification of mistake--Tribunal holding that assessee cannot be permitted to claim benefit of closing stock by changing method of valuation in assessment proceedings under section 153A--Not a mistake apparent from record--Application under section 254(2) not maintainable--No power to review its order-- Charchit Agarwal v. Asst. CIT (Delhi) . . . 35

S. 269SS --Penalty--Acceptance of loans or deposits in cash exceeding prescribed limit--Assessee facing acute financial difficulties and in exceptional and unavoidable circumstances forced to accept cash deposits--All entries either trade entries or general voucher entry for squaring off accounts of trade and not a loan or deposit--Section 269SS not attracted--Penalty cannot be imposed-- Asst. CIT v. Western India Ceramics P. Ltd. (Ahmedabad) . . . 69

----Penalty--Cash loans exceeding prescribed limit--Cash loans for purpose of disbursing salary to employees--No material by Department to prove contrary--Deletion of penalty justified-- Deputy CIT v. Rupen Das (Kolkata) . . . 55

S. 271D --Penalty--Acceptance of loans or deposits in cash exceeding prescribed limit--Assessee facing acute financial difficulties and in exceptional and unavoidable circumstances forced to accept cash deposits--All entries either trade entries or general voucher entry for squaring off accounts of trade and not a loan or deposit--Section 269SS not attracted--Penalty cannot be imposed-- Asst. CIT v. Western India Ceramics P. Ltd. (Ahmedabad) . . . 69

----Penalty--Cash loans exceeding prescribed limit--Cash loans for purpose of disbursing salary to employees--No material by Department to prove contrary--Deletion of penalty justified-- Deputy CIT v. Rupen Das (Kolkata) . . . 55

Income-tax Rules, 1962 :

R. 18DA(1)(e) --Industrial undertaking--Special deduction--Assessee engaged in business of scientific research and development--Approved by Government of India for benefit of deduction under section 80-IB(8A)--Conditions under section 80-IB(2) need not be fulfilled--Assessee entitled to deduction of income derived from transfer of technology developed by itself-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80--
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Any inaccuracy made by assessee in its books of account or otherwis

Income-tax : Any inaccuracy made by assessee in its books of account or otherwise which results in keeping of or hiding a portion of its income is punishable as furnishing inaccurate particulars of its income.

l Where assessee was maintaining two sets of books, one was meant for showing income-tax authorities and the other for himself, that modus operandi did indicate that it was not the case of simplicitor estimation of the income by disbelieving the books of account or other details submitted by an assessee during the course of assessment proceedings; the department was able to lay its hands on the documentary evidence exhibiting the conduct of assessee for avoiding tax and carrying out the business activity out of the regular books. - [2010] 8 TAXMAN 275 (New Delhi - ITAT)

Income-tax : In case of a company, notice under section 148 is to be served on i

Income-tax : In case of a company, notice under section 148 is to be served on its Principal Officer for making a valid assessment under section 147.

l Where the notice under section 148 was not served upon the Principal Officer of the assessee-company but on a person who was not empowered to receive the notice, the service of notice under section 148 was not a valid service, and the assessment completed under section 147 in the absence of a valid service was bad in law. - [2010] 8 TAXMANN.COM 266 (LUCKNOW - ITAT)

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Instruction to improve assessment made u/s 144

Instruction No. 6/2009 [F.NO. 225/11/2006/ITA.II], dated 18-12-2009

For past sometime the Board has been concerned about the need for
improving general quality of scrutiny assessments on a sustainable
basis. In this connection, reference is invited to Board's instruction
No. 2/2006 dated 27.04.2006 which required monitoring of scrutiny
assessments by Range Heads under the powers available to them under
section 144A of Income tax Act. Instructions have also been issued
from time to time for strengthening the machinery for review of
assessments and inspection of assessment charges. However, it is felt
that there is significant scope for improving the quality of scrutiny
system. The matter came up for discussion during 25th Annual
Conference of Chief Commissioner of Income tax held in August 2009. A
presentation was made by CCIT Chandigarh outlining a scheme for
improving quality assessments implemented in NWR Region. After taking
into account various suggestions, it was decided to devise a similar
scheme with appropriate flexibility for country-wide implementation.


2. Accordingly, it has now been decided that the following scheme for
improving quality of assessments shall be implemented from calendar
year 2010 onwards,

(i) At the beginning of each calendar year i.e. in the month of
January, the Range Head in consultation with the concerned Assessing
Officer would identify at least 5 pending time-barring assessment
cases in respect of each Assessing Officer of his Range for monitoring
These should normally include cases taken up for scrutiny with the
permission of CCIT. The selection should be done jointly by the Range
Head and the concerned Assessing Officer. Cases of PSUs and loss-
making concerns should normally not be identified for this purpose.
This exercise should also include those Ranges which are held as
additional charge by a Range Head in January.

(ii) The Range Head would issue directions u/s 144A in the identified
cases for the guidance of the Assessing Officer regarding the course
of investigation to enable him to complete these assessments in a
proper manner. This should be done at the earliest available
opportunity so as to allow the Assessing Officer to have sufficient
time to complete the assessment proceedings. A copy of the directions
issued by the Range Head would also be endorsed to the CIT. The Range
Head should also monitor the subsequent developments in the assessment
proceedings in these cases.

(iii) On completion of the assessment the Assessing Officer shall send
a copy of the assessment order to the Range Head and the CIT,

(iv) In the event of a Range Head holding more than one Range the
concerned CCIT may appropriately relax the requirement for Issue of
directions under section 144A in respect of the cases of the Range(s)
held as additional charge.

(v) For the purpose of this instruction, a quality assessment would be
one in which issues arising for consideration are clearly identified,
investigation of basic facts in respect of these issues is carried
out, adequate opportunity to rebut adverse evidence is given to the
assessee, the rival evidence are suitably analysed and evaluated in
the light of correct interpretation of law, and these efforts result
in substantial addition to the returned Income, The benchmark for the
quantum of addition to the returned income, which may qualify for
being a quality assessment, may be decided by the concerned CCIT
depending upon the potential of the given Range/Charge. Normally, this
should not be less than Rs.5 lakh excluding additions on account of
recurring issues. It is expected that the selected cases will meet the
parameters for quality assessment

(vi) As regards the remaining scrutiny assessments, it. is expected
that 30% of assessments completed by the Range Head, 20% of the
remaining scrutiny assessments completed by DC/ ACIT and 10% by ITOs
will result in quality assessments. These benchmarks can be reviewed
once the scheme has been in operation for some time,

(vii) The parameters for determining whether an assessment is a
quality assessment should be decided by the concerned Chief
Commissioner in the light of the above and should be widely circulated
at the beginning of the calendar year i.e. in the month of January of
every year.

(viii) At the end of the financial year, the data regarding
assessments completed by Assessing Officers of the CCIT Region shall
be got evaluated by the concerned CCIT in the month of next April
according to the parameters decided earlier. The overall results will
be tabulated in the enclosed proforma and circulated in the CCIT (CCA)
Region for information. Separate performance ranking should be done
for Range Heads in respect of cases completed by them u/s 143(3) out
of the cases selected under Instruction 4 of 2007 dated 16.5.2007, and
those monitored by them under this instruction.

(ix) CCITs may also devise methods for commending good performance of
Assessing Officers in the area of quality assessments and reflecting
the same in the annual appraisals. Important cases involving large
successful additions may be reported to the Board in monthly D.O.
letters. These can be also be sent to DIT (RSP&PR) for inclusion in
the Annual Report of good assessment cases.

3. These instructions may please be brought to the notice of all
officers working in your Cadre Control region immediately for proper
compliance.

Proformae

Performance Ranking of Assessing Officers

CCIT    CIT     RANGE   NAME OF THE ASSESSING OFFICER   NO. OF ASSESSMENTS
COMPLETED       NO. OF QUALITY ASSESSMENTS OUT OF 2
1       2       3       4       5       6

Performance Rankings for Range Heads as Guides

CCIT    CIT     RANGE   NAME OF THE ADDL./JOINT CIT     NO. OF CASES IN WHICH
GUIDANCE GIVEN U/S 144A NO. OF QUALITY ASSESSMENTS OUT OF 2
1       2       3       4       5       6

MANAGEMENT OF SCRUTINY WORKLOAD

INSTRUCTION NO. 4/2007 [F.NO. 225/6/2007-ITA-II], DATED 16-5-2007

Kindly refer to above

2. Considering the increasing gap between workload and disposal of
scrutiny assessments, it has been decided to entrust the Range Heads
with the responsibility of making assessments in top revenue potential
cases of the Range to be selected on the basis of returned Income.

3. In this regard, targets for disposal of cases by the Range Heads
are prescribed as under:-

S. No.  Charge  Minimum number of cases to be disposed off per year
1.      Corporate       20
2.      Non-Corporate / Mixed / Salaries        30

However, the CCITs, considering the local circumstances and other
factors, may assign more cases to the Addl. CITs. / Joint CITs.

4. It is hereby clarified that the above targets are not applicable to
Central Ranges.

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