AO is to follow instruction

Administration instruction No. 9 of 2004 dated 20-9-2004 which provides for scrutiny for return filed in financial year 2004-05 is binding on income-tax authorities - [2011] 11 taxmann.com 241 (Chhattisgarh).

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HC (P&H) : penalty if quantum is deleted

Where Tribunal had decided issue in quantum proceedings in favour of assessee, no case was made out for imposition of penalty for concealment of income - [2011] 11 taxmann.com 259 (Punj. & Har.)

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Payment to a NZ Co for rendering liaison & coordinating

Payment made to a New Zealand company for rendering liaison & coordinating services qua DNA testing at USA does not fall within ambit of royalty & FTS

Income-tax : Nature of payment made by assessee to New Zealand company is of liaisoning and coordinating to ensure that blood samples collected by assessee is properly received at US and reports are received in time and as per terms fixed by US Embassy; neither of these services can be termed as services in nature of managerial, technical or consultancy nature; it is also not providing services of technical or other personnel; therefore, it also cannot be said that such services fall within term `fee for technical services.' as contemplated by Article 12 [Section 195 of the Income-tax Act, 1961 - Deduction of tax at source - Payment to non-resident - Indo - New Zealand DTAA - Article 12 (Royalties & Fees for Technical Services)] - [2011] 10 taxmann.com 123 (Delhi - ITAT)

ITAT(DEL): Penalty u/s 271C

Imposition of penalty under section 271C of IT Act

Where the assessee was prohibited by reasonable cause for not deducting the TDS, the penalty imposed under section 271C was liable to be quashed.

ITAT, DELHI BENCH `H' NEW DELHI

Sahara India Fianncial Corpn. Ltd. v. Addl. CIT
ITA NOS. 97 TO 100/DEL/2006
MARCH 20, 2009
RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

3. We have duly considered the rival contentions and gone through the records carefully. Learned Assessing Officer as well as learned CIT(Appeals) have given much emphasis on the point whether assessee has committed a default within the meaning of sec. 194-A by not deducting the TDS when interest was credited to the interest provision account, In their opinions, assessee was following mercantile system of accounting, therefore, on an accrual basis, it should have been deducted the TDS when interest was transferred to such interest provision account. The stand of the assessee on the other hand was that even if it is assumed that assessee has committed a default then also there was a reasonable cause for not deducting the TDS at that point of time. As far as quantification of the tax and its payment on such interest income is concerned, there is no dispute that tax was determined on actual payment of interest and paid to the government exchequer. The ITAT in the case of M/s. Sahara India Mutual Benefit Co. Ltd(supra) has examined this aspect in detail and found that the assessee was prohibited by reasonable cause for not deducting the TDS, more so, according to the ITAT, there was no default on the part of the assessee, relevant observations of the order of the ITAT are as under:

"We have duly considered the submissions of the learned counsel to the effect that unless the payment forms income of the payee, it cannot be said that income has accrued to the payee. As mentioned earlier, Chapter XVII is a mode of recovery/collection of taxes. Deducting tax at source is one of the modes for recovery/collection of taxes. In some cases, the tax has to be deducted at source irrespective of the fact whether paid amount was the income of the payee whereas in other cases, the taxes have to be deducted at source for paying the amount as income. Both the circumstances may be explained by following examples."

27, Section 192 of the Act provides that any person responsible for paying any income chargeable under the head "salary" shall, at the time of payment, deduct income tax on the amount payable. This section has used the words "for paying any income chargeable under the head "salaries". But sec. 194 which is applicable to the dividends provides that the Principal Officer of the company which has made the prescribed arrangement for the declaration and payment of dividends within India shall, before making any payment, deduct from the amount such dividend, income tax at the rates in force. Similarly, certain sections provided for the deduction of tax at source at the time of actual payment whereas some sections have provided for deduction of tax at source if the amount is credited to the accounts of the payees. For example, in respect of payment of salary, the tax is to be deducted at source at the time of payment the sections 193, 194-A, 194-C provided for deduction of tax at source when the accounts of the payee is credited, In respect of payments covered u/s. 193, 194-A,194-C, the Explanations have also been added providing that if an amount is credited to an assessee's account or interest payable accounts or any similar accounts, it will be deemed that the account of the payee has been credited.

28. Section 194-A includes all these concepts namely, an income by way of interest was being paid credited and also the Explanation attached to this section. If the provisions of sec. 194-A are read carefully, it is clear that this section only speaks that the payment should be in the nature of income of the payee. In other words, if such income was beyond the scope of income then no tax has to be deducted at source. But if such income was an income though below taxable limit, the provisions of this section will still be applicable Thus, the use of the word "income" in this section has been made to indicate that the payment should form part of the income of the payee, may be such income was exempt under any provisions of law or the same was below taxable limit Thus, much significance cannot be attached to the arguments of the learned counsel in this regard.

29. Section 194A provided for deduction of tax at source at the time of credit of such income to the account of the payee or at the time of payment whichever is earlier. Admittedly, in the instant case, the tax has been deducted at source at the time of actual payment. The reading of the Explanation to sec. 194A makes it clear that the moment the income by way of interest is credited to any account, the liability of the assessee to deduct the tax will arise. The learned counsel's argument against such proposition bears no force and is to be dismissed.

30. However, it is settled law that penalty u/s. 271-C is subject to the provisions of sec. 273-B of the Act. This section reads as under:

"Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of sec. 271, section 271-A, Section 271,–AA, section 271-B, section 271,-BA, section 271-BB, section 271-C, section 271-D, section 271-E, section 271F, section 271-G, clause (c) or clause (d) of sub-section (1) or subsection (2) of section 272-A, sub-section (1) of section 272AA or section 272-B sub-section (1) of sec. 272-BB or sub-section (1) of sec. 272-BB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of sec. 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure."

31. We have, therefore, examined whether there was any reasonable cause with the assessee to feel that the tax was not to be deducted at source as the interest payable by the assessee had not accrued to the payee.

32. Admittedly, but for the Explanation there is no violation of the provisions of sec. 194-A because the assessee has not credited the account of the payees and the tax has been deducted source at the time of actual payment The Explanation which was added to the section is a deeming provision. It says that if the income by way of interest is credited to any account in the books of account, such crediting shall be deemed to be credit of such income to the account of the payee. Whether the deeming provisions could exceed the main provision is always debatable. Moreover, whether the provision of sec. 194A will be applicable even in a case where the payment has not become due to the payee was also an equally debatable issue. As mentioned earlier, as per various deposit schemes, the payee has right to receive the interest only on maturity of the scheme. The right to receive the interest does not vest in the payee prior to the maturity. Even if the payee does not have right to receive any income by way of interest and if the assessee transfers the amount to a separate account whether the provisions of sec. 194-A will be applicable was also a highly debatable issue. The amount which was being transferred to a separate account has not partaken the character of income in the hands of the payee. The assessee could always take such explanation and such explanation has to be treated as bona fide. This claim is fortified by the conduct of the Department. As mentioned earlier, the assessee has claimed the deduction of interest on such deposits in assessment year 1995-96 on yearly basis and the same was also allowed by the A.O. But the learned CIT, by invoking the provisions of sec. 263, observed that as the payees do not have any vested right of receiving the interest, the assessee cannot suo moto transfer the amount of interest to a separate account and claim deduction of the same. The learned CIT held such liability to be a contingent liability and set aside the order of the A.O. Subsequently, in the assessment year 1996-97 also, the AO. himself has treated the interest liability claimed on yearly basis attributable to assessment year 1996-97 as contingent liability. It is another issue that on appeal the learned CIT(Appeals) has allowed such deduction. Needless to say that if the liability was contingent whether the provisions of sec. 194A will be applicable was a contentious issue. The reason is obvious. Section 194A enjoins upon a person to tax at source who is responsible for paying to a resident any income by way of interest". If the liability was contingent then there was no responsibility of the assessee to make the payment. Similarly, the provisions are applicable to "any person who is responsible for paying to a resident any income by way of interest". But if the interest is not due to the payee and the right to receive the interest is not vested in the payee whether such interest could be the income of the payee was also a debatable issue. On this ground also the explanation furnished by the assessee was bona fide.

33. Moreover, it is not a case of non-deduction of tax at source or non-payment of tax deducted. The tax has been deducted and the same has been paid also. It is also not a case of short deduction of tax or short payment of tax. The dispute was only limited to the time when the tax was to be deducted at source. The assessee felt that unless the order u/s.201(l) was passed holding the assessee in default, no penalty u/s. 271-C was warranted. Admittedly, because the tax was deducted at source and the same was paid, no order u/s 201(1) was passed As there was delay in payment of tax after deduction, the interest u/s. 201(1A) was levied which was also paid by the assessee.

34. We have also perused the provisions of sec. 271-C of the Act. It reads as under:

"(1) if any person fails to

(a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B;

or

(b) pay the whole or any part of the tax as required by or under:-

(i) sub-section (2) of section 115-O or (ii) second proviso to section 194-B, then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid, (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner."

35. The section postulates a condition for levying of penalty u/s.271-C, i.e. if the assessee has failed to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII- B. The assessee can always have a bona fide belief that as the taxes have been deducted at source, there was no default on the part of the assessee and, no penalty u/s. 271-C was warranted.

36. Even assuming that there was a minor default of non-deducting the tax at source at the time when the amount was transferred to interest payable account, though there was no liability of the assessee to transfer this amount to such account, the default was venial in nature. While relying on the ratio laid down by the Hon'ble Supreme Court in the case of Hindustan Steels Ltd. reported in 83 ITR 26, the assessee could always claim bona fide and there is nothing unreasonable in such claim.

37. Looking to these facts, we are of the considered opinion that the assessee had reasonable cause in not adhering to the provisions of sec. 194A read with sec. 271-C of the Act and the assessee's explanation being bona fide, was covered by section 273-B of the Act, Under these circumstances, no penalty u/s. 271-C of the Act was warranted. We, therefore, cancel the penalty u/s. 271-C sustained by the learned CIT(Appeals) for all the years".

4. In view of the above facts and circumstances of the case, the penalty imposed by the learned CIT is liable to be quashed Accordingly, we delete the penalty imposed under sec. 271-C and allow all the four appeals filed by the assessee.

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Some - Case Laws

Income Tax - 2009 - TMI - 32988 - HC

Power to issue warrant for search - Mere empowering certain specified Deputy Directors of Income-tax (Investigation) and Deputy Commissioners by virtue of the mere re-designation of Deputy Directors of Income-tax as Joint Directors of Income-tax, would not, itself mean that a Joint Director of Income-tax is also empowered – held that there is no notification issued by the CBDT specifically empowering any Joint Director of Income-tax (Investigation) to authorize action under Section 132(1)

Income Tax - 2009 - TMI - 32987 - HC

Whether the loss determined by the Assessing Officer, being different from the loss as claimed by the assessee in the return, can be carried forward in view of the provisions of Section 80 r.w.s. 139(3) - Whether the tribunal has erred in law in holding that the AO had exceeded its jurisdiction in not allowing the carrying forward of the loss after the tribunal had issued directions in the earlier round - Both questions of law are answered in favour of the assessee and against the Revenue

Income Tax - 2009 - TMI - 32986 - HC

Held that that interest under sections 234B and 234C is to be charged after the tax credit (MAT credit) available under section 115JAA is set off against tax payable on the total income - Tribunal was correct in law in holding that rectification could not be made by the Assessing Officer under Section 154 of the Income Tax Act, 1961 as the issue regarding charging of interest under Section 234-B of the Act without giving set off of MAT credit available to the Assessee was highly debatable

Income Tax - 2009 - TMI - 32984 - HC

Challenge to ruling of AAR – held that Authority while giving a finding of fact that none of activities mentioned in Ex. (2) to S. 9(1)(1) is carried on by the petitioner in India, it then erroneously applied the ratio of decision of SC in the case of R.D.Aggarwal and Anglo French Textile Co., to hold that the activity of liaison offices of the petitioner constituted a `business connection' in India and hence, income shall be deemed to accrue/arise in India, to petitioner in UAE

Income Tax - 2009 - TMI - 32983 - HC

Whether reopening of the assessment beyond four years is justified – reassessment order on ground that goodwill is not an intangible asset and, therefore, not eligible for depreciation u/s 32(3)(b) – since there was no failure on the part of the petitioner to disclose all facts, the reopening of the assessment after the expiry of 4 years cannot be sustained - ingredients of section 147 are not fulfilled by revenue - notice issued u/s 148 after the expiry of four years is quashed and set aside

Income Tax - 2009 - TMI - 32982 - HC

Trust – huge demands - Whether C.I.T. (A) is justified in declining to grant absolute stay of demands during pendency of appeals – CIT (A) directed the petitioner to pay 10% of the demands i.e.1.5 crore now and remaining till disposal of appeal - fact that the undisclosed income on account of donation been taxed in the hands of trust as well as the principle trustee, order of C.I.T. (A) is modified - stay of recovery shall be subjected to furnishing of bank guarantee in sum of 1.50 crore

Income Tax - 2009 - TMI - 32981 - HC

Power to issue warrant for search - Mere empowering certain specified Deputy Directors of Income-tax (Investigation) and Deputy Commissioners by virtue of the mere re-designation of Deputy Directors of Income-tax as Joint Directors of Income-tax, would not, itself mean that a Joint Director of Income-tax is also empowered – held that there is no notification issued by the CBDT specifically empowering any Joint Director of Income-tax (Investigation) to authorize action under Section 132(1)

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Tags 132 , 12, 147,AAR ,MAT,

EXTRA ORDINARY ISSUE ******The right to privacy

EXTRA ORDINARY ISSUE

Pritish Nandy

Idon't use a Blackberry. My son and daughters do. I use the world's most boring phone, the one which has been left miles behind in the smartphone race. Once a much admired brand, Nokia now looks like a left behind. The Blackberry and the iPhone have won the popularity stakes. So why don't I use them instead?

My reasons are ridiculous. One: I find touch phones a bit sick. I love touching food and eating it with my fingers. I love touching beautiful women. But to caress a phone to make it respond to me is a bit unnerving at my age. I guess I'm plain old fashioned. I can't snog a robot, pet a tamagotchi or shag an iPad. My romances begin and end only with real people of the opposite sex. As for the Blackberry, I find it as exciting as Queen Latifah on steroids. It's simply much too much for me to handle. Plus, I like phones with great designs and the Blackberry doesn't quite fit that bill. It's dowdy, boring, unimaginative.

But why am I discussing phones here? No, it's not about phones stupid. It's about technology. The Blackberry uses a technology that allows you and me to talk to each other, share our little secrets, crack silly jokes, strike the odd deal, and say all those wonderfully inconsequential things to our friends and lovers that we don't want others to hear or know about. Our Constitution entitles us to this privacy. This is your and my right as Indian citizens. For years now, the Government has been trying every trick in the trade to eavesdrop on our conversations and often does so without us ever knowing. Even Cabinet Ministers and senior Opposition leaders have their phone chats listened in on. Why would they spare us? This means any petty Government official who has a bone to pick with you, whether it's for parking your car in front of his house or because his wife once smiled at you at a party and said hello, can instantly target you as a security risk or an anti-national.

The amount of raw data one must wade through to catch criminals through phone conversations or messaging is impossible to handle in a country as vast and talkative as ours where millions of people are constantly chatting away on their handsets in many languages, many dialects by voice, sms, emails, chat service and social networking sites. So if the intent is to catch criminals at random — terrorists, tax evaders, bribe takers — this is no way to do it. One can spend an entire lifetime listening to sick jokes, porn chats, astrological predictions, sales talk and couples squabbling without getting one piece of authentic, credible, actionable information that can nail a wrongdoer. In any case, intercepted phone chats are not exactly evidence that courts like to hear.

So what's the purpose of such snooping? What's this paranoia that drives us to pursue the dubious examples of Saudi Arabia and UAE (Bahrain too, one hears) to lean on RIM, the company that makes the Blackberry, to open up their security codes to Government scrutiny so that snooping becomes possible? Is it the argument of the State that the privacy of millions of Indian citizens should be made subservient to what it sees as national interest, which in this case is the right to snoop on everyone so that security concerns of the State are addressed? To my knowledge, no terrorist has ever been caught with a Blackberry. They use sat phones. And even if the Blackberry is banned or its encryption codes forced open by the Government by arm twisting RIM, there will be Skype and many more internet phone systems still open to criminals. By the time the Government gets down to banning those, new technologies will emerge. Terrorists and criminals are clever people. They are always one step ahead of the law.

So why ban the Blackberry? It will only hurt people like you and I who will now be sharing our private conversations with eager, State-hired eavesdroppers. What they will make out of such conversations we don't know. But what we do know are two things. One: The word privacy will vanish from our lexicon with every State agency listening on to everything we say and do. Two: More and more innocent people will be harassed by these agencies in their constant attempt to justify their snooping. Witch hunts will increase. Journalists, RTI activists, whistle blowers will be pre-empted, blackmailed, possibly even set up for a kill if they know too much. Is this is the kind of nation we want India to be, in the name of national security?
If RIM refuses to cave in, even I will switch over to the Blackberry to show my support for the cause of free speech, aesthetics be damned. Right now, the Blackberry has come to represent my right to privacy and I am not going to give it up so easily. Nor should you.

Views expressed by columnists in Bombay Times are their own, and not that of the paper .

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Scrutiny, submission by Assessee

In action on part of assessee can be costly in assessment and penalty proceedings- learning from recent ruling.

Duties of assessee:

It can be said that duties of an assessee include inter alia furnishing a correct return of tax base say income or other subject matter of taxation as the case may be. To furnish related documents and to make his explanations as required under law by filing relevant reports and statements or as may be required by the Assessing Authority for ascertaining tax base (say income) and tax payable (say income-tax). The assessee is required to prove genuineness of his transactions and reliability of his accounts and other statements relied on by him.

Evidence to be produced:

The assessee is also required to produce evidence about his claims of income, exempted income, allowable expenditure, assets and liabilities and various claims made by him to seek relief and to determine income properly as per law.

In respect of liabilities in nature of current liabilities or loan liability and some receipts which are claimed as not taxable, assessee is required to produce reasonable evidence and basis on which he had preferred his claims.

When the AO asks for any evidence, assessee must provide reasonable evidence so that at least it can be said that he has discharged his onus. For example, in case of liabilities he must give particulars of creditors ( name , address, PAN , purpose and nature of liability etc.) to discharge initial burden or onus. In fact the assessee in his own interest must make full efforts to produce latest confirmations, and new address etc. If the AO has asked to produce creditors, he must make sincere efforts to produce them and must also inform the AO about his efforts and results. Even if his own efforts does not yield result and the creditor is not willing to come forward, then assessee can request the AO to issue notices to creditors for their appearance etc.

If the assessee does not discharge his preliminary responsibility of furnishing relevant details and evidence, he may be burdened with additions and tax thereon as well as penalty for concealing particulars of income.

Evidence Act:

In this regard section 106 of Indian Evidence Act is also relevant and has been applied by court in a recent ruling. The said provision with high lights reads as follows:

106. Burden of proving fact specially within knowledge - When any fact is specially within the knowledge of any person, the burden of proving that fact is upon him.

Illustrations

(a) When a person does an act with some intention other than that which the character and circumstances of the act suggest, the burden of proving that intention is upon him.

(b) A is charged with traveling on a railway without a ticket. The burden of proving that he had ticket is on him.

On reading of the above provision we find that when a fact is specially within knowledge of any person, the burden of proving that fact is upon him. Thus, when a fact is especially in knowledge of assessee, it is on him to prove the fact. Therefore, accounting entries and adjustments made by assessee are considered as fact within his knowledge, therefore assessee is required to prove the facts. If he fails to prove the facts, adverse inference can be drawn against him.

However, in this regard, it is necessary to consider all other aspects related with a transaction. If a transaction took place long ago, and there is no continuity of dealing with party concerned, the assessee can only give the last known address of concerned party. However, there must be at least that much effort to establish facts as they prevailed on the day of transaction. If there is no action by the assessee to prove facts, then authorities can definitely draw adverse conclusions. In view of author, production of third parties cannot be considered as fact in special knowledge of assessee, and therefore, this provision should not be applied in that regard. With respect, author feels that the Tribunal and High Court In the case of M/s. Aggarwal Financers, were not correct in applying this provision, merely because assessee could not produce the creditors before the AO.

Recent case before Punjab and Haryana High Court:

In case of M/s. Aggarwal Financers, Ladwa Vs. CIT 2011 -TMI - 203225 decided on 19 April 2011 a matter of penalty levied for concealment of income which was confirmed by the ITAT, came for consideration on appeal of assessee. The honorable High Court considered the provisions Sections 68 and 271(1)(c) of the Income-tax Act and section 106 of the Evidence Act .

In this case the Tribunal has recorded a finding that in spited of repeated opportunities the assessee failed to establish the nature, source and creditworthiness of liabilities shown by assessee.

Court held that on a harmonious construction of Section 106 of the Evidence Act and Section 68 of the Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the credit worthiness of his credit - The burden is on the assessee to prove the genuineness of the transaction - In the present appeal, since in spite of various opportunities provided to the assessee, the creditors could not be produced, therefore, it can be said that the assessee attempted to conceal the particulars by furnishing inaccurate particulars .

The court further held that the addition made on this account would not automatically justify the imposition of penalty, under Section 271(1)(c) of the Act, no penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that it does, However, in the present appeal, since the assessee has not explained cash credits, therefore, the penalty has been rightly levied. The impugned order of the ITAT was thus upheld and the appeal of assessee was dismissed.

Questions before the High Court:

The following substantial questions of law were claimed for determination of the High Court ( with highlights provided by author):

"(i) Whether in the facts and circumstances of the present case the action of the authorities below, in passing the penalty order under Section 271(1)(c) of the Act thereby holding the concealment of income, when all the cash credits were duly explained by the appellant assessee, is legally sustainable in the eyes of law?

(ii) Whether under the facts and circumstances of the present case the action of the authorities below in imposing penalty even when the onus was discharged by the appellant assessee in toto is legally sustainable in the eyes of law?

(iii) Whether under the facts and circumstances of the present case the action of the authorities below in imposing penalty for concealment of income, merely on the basis of presumptions, is legally sustainable in the eyes of law?

(iv) Whether under the facts and circumstances of the present case the action of the authorities below in passing orders (Annexure A-1 to A-3) even when the genuineness of the transactions were fully explained by the appellant assessee, therefore, discharging its onus, is legally sustainable in the eyes of law?

(v) Whether under the facts and circumstances of the present case the action of the authorities below in passing the impugned orders (Annexure A-1 to A-3) are legally sustainable in the eyes of law?

Comments of author:

A reading of above questions, particularly highlighted portions suggest that the assessee has claimed to have discharged his onus by furnishing explanations and evidence about cash credits and that tax authorities have applied some presumptions. However, there is no challenge of facts as found by Tribunal as wrong or perverse.

The assessee must have challenged the facts as recorded by Tribunal as wrong and perverse. Without that, the facts as found by the Tribunal have to be considered as final.

Facts as noticed by the High Court:

the assessee filed its return of income for the assessment year 1998-99, on 31.10.1998, declaring income of Rs. 6,889/-.

The assessing officer, however, made assessment under Section 148 of the Act.

Certain short-comings and deficiencies were detected by the assessing officer in the return filed.

The AO noticed that the deposits made by the creditors of the assessee as shown in the books of account were not genuine.

No confirmation and verification had been furnished by the assessee.

The AO made an addition of Rs. 1,97,000/-.

The AO also disallowed 1/4th of the actual expenses of Rs. 67,767/- he added a sum of Rs. 16,942/-.

Pursuant to the additions and disallowances notice under Section 274 read with Section 271(1)(c) of the Act was issued. The assessing officer, vide order dated 24.12.2004, held that there was concealment of income by the assessee and accordingly imposed a penalty of Rs. 68,949/-

Appeals against the imposition of penalty carried by the assessee before the CIT(A) and the Tribunal both were dismissed. Thus CIT(A) and Tribunal had concurrently held that there was concealment of income and assessee was liable to penalty.

Observations and order of the High Court:

High Court heard learned counsel for the parties and have perused the record.

The Tribunal while upholding the findings of CIT(A) and the assessing officer, imposing penalty had recorded as under ( highlights added by author for analysis):

"We are aware that the penalty is not imposable if there is no conscious breach of law as was held by the Hon'ble Apex Court in the case of Hindustan Steel Ltd. Vs. State of Orissa 1969 -TMI - 39958 – (SUPREME Court) and at the same time, for imposition of penalty, the conduct of the assessee must be conscious. Hon'ble Gujarat High Court in the case of AM Shah & Co. vs. CIT (108 Taxman 137) (Guj.) even went to the extent that the concealment/ inaccuration occurring up to final stage must be considered. Even otherwise, a harmonious construction of Section 106 of the Evidence Act and Section 68 of the Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the credit worthiness of his credit. The burden is on the assessee to prove the genuineness of the transaction. In the present appeal, since in spite of various opportunities provided to the assessee, the creditors could not be produced, therefore, it can be said that the assessee attempted to conceal the particulars by furnishing inaccurate particulars. We are aware that the addition made on this account would not automatically justify the imposition of penalty, under Section 271(1)(c) of the Act, no penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that it does. In the present appeal, since the assessee has not explained cash credits, therefore, we are of the view that the penalty has been rightly levied. The impugned order is upheld. Consequently, this appeal is also dismissed."

High Court's ruling:

The Tribunal on appreciation of material had affirmed the orders of the authorities below and arrived at the conclusion that there was concealment of income on the part of the assessee.

The penalty under Section 271(1)(c) of the Act had, thus, been rightly levied.

Nothing could be shown that the findings recorded by the authorities below were perverse or erroneous in any manner.

In view of the above, no substantial question of law arises and the appeal is dismissed.

Observation of author:

The Tribunal has recorded facts as follows:

That in spite of various opportunities provided to the assessee, the creditors could not be produced, therefore, it can be said that the assessee attempted to conceal the particulars by furnishing inaccurate particulars.

that the assessee has not explained cash credits.

It seems that Tribunal in its order has not at all recorded facts about what evidences were produced by assessee, whether assessee furnished names, address, PAN, confirmations etc. is not recorded.

Apparently the Tribunal has come to conclusions of concealment only because the assessee could not produce creditors. In view of the author either the counsels of assessee did not provide any evidence before authorities or the approach of the Tribunal was not fully correct. Production of creditor may not always be within control of the assessee.

If assessee based on his information and record is able to prima facie establish the nature and source of credit then primary onus of assessee stands discharged. For production of creditors the tax authorities are empowered to issue notices, there is no finding about issuance of notices by assessee or the AO to the creditors to produce creditors before AO.

In this case the assessee should have challenged findings of Tribunal as incomplete, incorrect and perverse and should have produced some evidence in this regard before the High Court. In absence of the same the high Court took the findings of Tribunal as final and confirmed penalty by holding that there is no substantial question of law.

With due respect the author also differ from the views of the High Court. This is because, the Tribunals finding is based only on one factor that is failure of assessee to produce creditors.

Failure to produce third party- not hit by S.106 of Evidence Act:

As noted earlier as per section 106 of the Evidence Act - When any fact is specially within the knowledge of any person, the burden of proving that fact is upon him.

Now the question comes is whether production of a third party before the AO can be considered as covered by this provisions. In view of the author, to produce a third party is not covered by this provision. It cannot be considered as `specially within the knowledge of assessee…. , therefore, with due respect, author feels that the Tribunal has not applied this provision correctly in the facts and circumstances of the case.

Learning from this case:

The assessee should have furnished whatever evidence he had about creditors – even old confirmations, evidence of receipt of money like money receipt issued by assessee, evidence of payment of interest and receipt of creditor, clearing of cheques received and paid etc.

The assessee could have issued notices to the creditors and requested them to present evidence before his AO.

If creditors did not respond, the assessee could have requested the AO to issue notices to creditors.

Assessee could have given reasons for his inability to produce creditors and produce evidence available with him.

The assessee should have made petition before Tribunal to make a reference of evidence produced before lower authorities and Tribunal. Non recording of such facts should have been challenged before High Court also. Not challenging the facts found by Tribunal was apparently a serious mistake.

The assessee must have made out a case of discharge of primary onus for explanation of the nature and source of money. Before the High Court also any evidence was not produced. That is why the High Court has recorded that "nothing could be shown that the findings recorded by the authorities below were perverse or erroneous in any manner".

The assessee must have challenged findings of Tribunal as perverse and should have made out case about reasonable evidence available.

The assessee must have claimed that in the facts and circumstances of the case Section 106 of the Indian Evidence act was not applicable.

By: C.A. DEV KUMAR KOTHARI .

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FBT - In absence of proximate purpose of expenses incurred by assessee com

FBT - In absence of proximate purpose of expenses incurred by assessee company for agencies cannot be treated as fringe benefit

BANGALORE, AUG 09, 2010: THE issue is - When there is no proximate purpose of the expenses paid by the assessee company for its agencies other than the employees then whether the same can be considered as fringe benefit under the deeming provision of section 115WB(2) of Act. And the answer is NO.

Facts of the case

Assessee, an Electricity Supply Company, filed the return of income on 27.11.2006 declaring NIL income and book profit of Rs.27,86,58,020/- u/s 115JB. The A.O. assessed the income at Rs.32,33,81,280/- after making certain disallowances and additions. The assessee also filed the return of fringe benefit u/s 115WE declaring total value of fringe benefits at Rs.11,55,82,989/-. A notice u/s 115WE(2) was issued to the assessee on 6.8.2008 calling for the details of the fringe benefits. The assessee vide letter dated 15.12.2008 furnished the details, according to which, the vehicle hire expenses were of Rs.1,02,05,805/- and the assessee stated that the vehicles were hired by the company to be used by the officers exclusively for the official purpose and not used for any tours and travel. The AO was however not satisfied with the assessee's explanation and held that this is a facility provided by the assessee company to its employees/officers for conveyance purpose and therefore, it is covered by section 115WB(F) in respect of fringe benefit and added 20% of the vehicle hiring charges i.e. Rs.20,41,161/- to the total value of the fringe benefits.

CIT(A) observed on the basis of the Circular No.8/2005 dated 29.8.2005 issued by the CBDT, that the word "purposes" used in sub-section 2 refers to the proximate purpose and not the distant purpose and that the proximate purpose of expenses is for conveyance of employees within the meaning of clause (F) of section 115WB(2) and the proximate purpose of expenses mentioned in clause (iii) of paragraph 5 is for conveyance of employees within the meaning of clause (F) of section 115WB(2). He thereafter held that the A.O. was right in including vehicle hire charges as the total value of fringe benefits to the extent of Rs.33,15,367/- representing conveyance paid indirectly to employees and directed the AO to restrict the addition to 20% of the same which works out to Rs.6,63,073/-. As regards to the remaining addition, he deleted the same, as these are the expenses incurred for agencies other than employees.

Being aggrieved the Revenue filed appeal before the tribunal which held that:

++ 115WB(3) provides that for the purposes of sub-section (1), the privilege, service, facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee [or any benefit or amenity in the nature of free or subsidized transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence.

++ It can be seen that what is intended to be taxed is a benefit attributable to employees collectively but the transport services for workers and staff are to be outside the tax net. In the case before us, items 1, 2 and 3 considered by the CIT(A) are for the purposes of carrying on the business activities of the assessee company by the agencies of the assessee company and it is only item 4, which is spent on the employees for attending the meetings, inspections and other official functions. From the reading of the provisions of section 115WB(2), it is clear that the benefits given to an employee directly or indirectly only would be taxable under Chapter XII-H. As rightly pointed out by the CIT(A), the other expenditure is incurred for agencies other than the employees, who are outside the scope of the provisions of section 115WB(2). Therefore, we do not see any reason to interfere with the order of the CIT(A). 

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Recent Case law

[2011] 11 taxmann.com 333 (MUM. - ITAT)

IT : If appeal filed by assessee is only defective, it assumes validity on removal of such defect or irregularity; whereas payment of such tax is mandatory but requirement of paying such tax before filing appeal is only directory

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[2011] 11 taxmann.com 332 (MUM. - ITAT)

IT : Where assessee, owner of a trademark, entered into licence agreements with various Indian hotels in terms of which said hotels became licensees of assessee's trademark and, assessee, besides receiving licence fee, received marketing and reservation contribution from Indian hotels, in view of fact that said amount was received with a corresponding obligation to use it for agreed purposes, it could not be regarded as assessee's income and, moreover, since assessee did not have a PE in India, amount in question could also not be treated as business profits in terms of article 7 of Indo-US DTAA

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[2011] 11 taxmann.com 331 (MUM. - ITAT)

IT : In view of Explanation 1 inserted to section 90 by the Finance Act, 2001 with retrospective effect from 1-4-1962, tax rates prescribed in Finance Act are to be applied even if an assessee-company is covered by provisions of DTAA

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[2011] 11 taxmann.com 330 (MUM. - ITAT)

IT : Transfer pricing : Where assessee sought stay of demand of tax without showing any financial hardship, same could not be accepted

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Case laws Digest

Journals Referred : 30 SOT, 118 ITD, 123 TTJ, 180 Taxman, 313 ITR, 23 & 24 DTR, & 224 CTR.

1. AUTHORITY FOR ADVANCE RULING WRIT – S. 245U, ART. 226.

Authority for Advance Rulings is a Tribunal, hence, High Court can issue writ against advance ruling.

U.A.E. Exchange Centre Ltd. vs. UOI (2009) 313 ITR 94 (Delhi)

2. ADVANCE TAX – INTEREST – COMPANY – BOOK PROFIT – S. 115JA, 234B, 234C

Interest under section 234B and 234C, cannot be levied when book profit is computed under section 115JA.

Snowcem India Ltd. vs. Dy. CIT (2009) 313 ITR 170 (Bom.)

3. APPEAL (TRIBUNAL) – APPEAL FEE – NOT MAINTAINABLE – S. 253(6)(d)

Appeal dismissed by CIT(A) as not maintainable hence such orders would fall within clause (d) of section 253(6) and hence, appeal fee would be only Rs. 500/-.

Dr. A. Naresh Babu vs. ITO (2009) 24 DTR 41 (Hyd.)(Trib.)

4. APPEAL – ORDER GIVING EFFECT – S. 246A(1)(a), 264

Appeals are maintainable from fresh orders passed by the AO to give effect to revisional order passed under section 264, but only such issues can be agitated in such appeals which have not attained finality by virtue of order passed under section 264.

Jai Hotels Co. Ltd. vs. Asst. Director of Income-tax (2009) 24 DTR 37 (Del.)

5. APPEAL (TRIBUNAL) RECTIFICATION OF MISTAKES – CONDONATION OF DELAY – S. 254(2)

There is no provision under section 254(2) to entertain rectification application received after the expiry of period of four years nor the provisions of section 5 of the Limitation Act are applicable to proceedings before quasi judicial authorities like Tribunal and, therefore, condonation of delay in filing miscellaneous application for rectification of order under section 254(1) cannot be allowed.

Rahul Jee & Co. (P) Ltd. vs. ACIT (2009) 123 TTJ 217 (Del )

6. ASSESSMENT – RULE OF CONSISTENCY – PRECEDENT – TRIBUNAL WAS NOT JUSTIFIED IN ALLOWING DEDUCTION RELYING ON THE DECISION REVERSED / OVERRULED BY SUPREME COURT – S. 80HH, 80I, ART. 141

Assessee was allowed deduction in the earlier year and so cannot claim the benefit in the subsequent year based on the judgment passed by the High Court in the Assessee owns case. However, before assessment is made in the subsequent year, principal of law which is applicable to such assessment is clarified by Supreme Court. The principal of law laid down by Supreme Court becomes binding on all the judicial and quasi judicial authorities under Art. 141 of the Constitution and cannot be ignored. Thus, the tribunal by ignoring the mandate of the Supreme Court judgment and continue to give benefit was wrong.

CIT vs. Indian Railways Construction Co. Ltd. (2009) 24 DTR 130 (Del)

7. ASSESSMENT – HUF – PARTITION – S. 171

When there is no order recording partition under section 171(3), original assessment in the status of family attaining finality, assessment to be made as family.

Gaurikanta Barkataky vs. CIT (2009) 313 ITR 34 (Gau.)

8.BUSINESS EXPENDITURE – AD-HOC DISALLOWANCE – TELEPHONE, VEHICLE – S. 37

Ad-hoc disallowance of expenditure without any reason is not proper, further, there is no element of personal user out of telephone expenses, vehicle expenses, car insurance expenses and office expenses of the company.

Rajat Tradecom India (P) Ltd. vs. Dy. CIT (2009) 23 DTR 311 (Ind.)(Trib.)

9. BUSINESS EXPENDITURE – DISALLOWANCE – DEDUCTION OF TAX AT SOURCE – S. 40(a)(iii)

Overseas maintenance allowance paid by assessee by way of reimbursement of maintenance expenses incurred by employees deputed abroad was not part of salary, but covered by Rule 2BB(1)(b), hence, could not be disallowed under section 40(a)(iii) for non deduction of tax at source.

ITO vs. Information Architects (2009) 123 TTJ 35 (Mum.)

10. BUSINESS EXPENDITURE – COMMUNITY ASSISTANCE PROGRAMME – S. 37

Expenditure incurred by the assessee on community assistance programme and the welfare measures undertaken in the vicinity of the manufacturing unit which also benefited its employees is allowable as business expenditure.

CIT vs. Madura Coats Ltd. (2009) 24 DTR 24 (Mad)

11. BUSINESS EXPENDITURE – SETTING UP AND COMMENCEMENT OF BUSINESS – S. 37(1)

The business of assessee cannot be said to have been setup on the date of incorporation of the company as the main objects of the assessee was to acquire the international express business of AFL Ltd., which in turn was subject to necessary approvals of the law. As the setting up and commencement date of business is different and the expenditure incurred after setting up of business i.e. 2nd Nov., 2001, is allowable as revenue expenditure, though business commenced from 1st Jan., 2002.

DHL Express (I) Pvt. Ltd. vs. ACIT (2009) 24 DTR 602 (Mumbai) (Trib.)

12. BUSINESS LOSS – SHARE BROKER – IRRECOVERABLE AMOUNTS FROM CLIENTS – S. 28(i)

Assessee a share broker writing off amounts due from clients in the course of business as irrecoverable, same is allowable as business loss under section 28(i).

Kotak Securities Ltd. vs. Addl. CIT (2009) 24 DTR 214 (Mum.)(Trib.)

13. BLOCK ASSESSMENT – PENALTY – S. 158BFA(2)

Expression "or any expenses deduction or allowance claimed under this Act, which is found to be false" not being there in section 158B(b) at the time of filing the return on 31st May, 2001, penalty under section 158BFA(2) could not be imposed on the basis of disallowance of expenditure claimed and rejection of claim of set off of business loss.

Super Metal Industries vs. Dy. CIT (2009) 123 TTJ 23 (Mumbai)(TM)

14. BLOCK ASSESSMENT – COMPUTATION OF UNDISCLOSED INCOME – SEARCH AND SEIZURE – SHORT OF STOCK – SCRIBBLING PAPERS – S. 132,158BB

In the absence of any corroborative evidence in the possession of the assessee firm or its partners to support its explanation regarding short stock at the time of search, addition in respect of estimated profit on unaccounted sales relatable to stock found was justified.

Addition on account of deficit stock could not be made simply on the basis of some vague scribbling on papers seized in the case of search of an ex-partner of the assessee firm in the absence of anything to connect the contents of said material with the transactions of the firm.

Bhajan Das & Brothers vs. ACIT (2009) 24 DTR 68 (TM) (Trib.)

15.BLOCK ASSESSMENT – REASSESSMENT – S. 147, 148 & 158BC

Provisions of section 147/148 will apply to an assessment for a block period made under Chapter XI B.

CIT vs. Peerchand Ratanlal Baid (HUF) (2009) 24 DTR 209 (Gau.)

16. BLOCK ASSESSMENT – SEARCH AND SEIZURE – SEARCH WARRANT ON DEAD PERSON – S. 132, 158BC

Search warrant issued in the name of dead person, search held to be invalid and assessment based on search also invalid.

CIT vs. Rakesh Kumar (2009) 313 ITR 305 (P & H)

Editorial Note: – SLP rejected (2009) 313 ITR 29 (ST)

17. BUSINESS INCOME – INCOME FROM HOUSE PROPERTY – INCOME FROM WARE HOUSING – S. 22, 28(i)

Assessee not merely letting out its premises for warehousing but being also under obligation to provide adequate security to the material stored apart from receiving and delivering stock, taking physical inventory at regular intervals, to do loading and unloading and stock taking in addition to ensuring proper spray of pesticides in the godown, it was doing a complex commercial activity, hence, receipts were taxable as business income and not income house property, more so when receipts were assessed as business income in the past and there was no change in factual or legal position.

ITO vs. Rasiklal & Co. (P) Ltd. (2009) 123 TTJ 279 (Mum.)

18. CASH CREDITS – GIFT FROM BROTHER – S 68

Addition under section 68 cannot be made in respect of gift received from his real brother by cheque who had annual income of more than Rs. 6.65 lacs, assessed to tax and sufficient creditworthiness.

ACIT vs. Sarv Prakash Kapoor (2009) 24 DTR 91 (Agra) (TM) (Trib.)

19. CAPITAL GAINS – CHARGEABILITY – MONEY RECEIVED FROM INSURANCE COMPANY – S. 43 (6), S.45(IA) & S.50

Expenditure incurred by the assessee on repairs of building damaged tanks and terminals being more than the insurance receipts resulting in to no profits or gains, the provisions of section 43(6)(c)(I) or 45(IA) or 50 were not applicable.

J. R. Enterprises vs. ACIT (2009) 24 DTR 311 (Mum.) (Trib.)

20. CAPITAL GAINS – SLUMP SALE – COST OF ACQUISITION – S. 45, 50

Cost of acquisition of business, transferred lock, stock and barrel being ascertainable even according to assessee's own admission before CIT(A). CIT(A) was justified in holding that the transaction was exigible to capital gains tax, however, as assessee was unable to establish any cost of improvement no benefit on that account will be allowable.

CEAT vs. Dy. CIT (2009) 24 DTR 445 (Mumbai) (Trib.)

21. DEDUCTIONS – DEVELOPER – INFRASTRUCTURE UNDERTAKINGS – S. 80IA(4 )

Assessee which is engaged in `developing' infrastructural facility i.e. road, and not engaged in `operating and maintaining' said facility, is entitled to benefits of deduction under section 80 IA(4) of the Act.

ACIT vs. Bharat Udyog Ltd. (2009) 118 ITD 336 (Mum.) / (2009) 23 DTR 433 (Mum.)(Trib.)

22. DEDUCTION OF TAX AT SOURCE – FEES FOR PROFESSIONAL OR TECHNICAL SERVICES – TRANSACTION FEE – S. 9(I)(vii), 40(a)(ia), 194 J

Transaction fee paid to stock exchange on the basis of volume of transaction is payment for use facilities provided by stock exchange and not for any services, either technical or managerial, hence, provisions of section 194 J are not attracted and no disallowance can be made by invoking section 40(a)(ia).

Kotak Securities Ltd. vs. Addl. CIT (2009) 24 DTR 214 (Mum.) (Trib.)

23. DEDUCTION OF TAX AT SOURCE – LIMITATION – S. 143, 147, 149, 153, 195, 201(1)

As there is no time limit is prescribed order must be passed within reasonable time which is an order akin to assessment i.e. the time limit on par with time available for assessment or reassessment of recipient. Time of one year is available from initiation of proceedings for passing order.

Mahindra and Mahindra Ltd. vs. Dy. CIT (2009) 313 ITR 263 (AT)(Mum.)(SB)

24. DEDUCTION OF TAX AT SOURCE – ASSESSEE IN DEFAULT – S. 195, 201 (1)

Person responsible for paying not to be treated as in default if recipient pays tax or is not chargeable to tax under Act, but may be liable for interest.

Mahindra and Mahindra Ltd. vs. Dy. CIT (2009) 313 ITR 263 (AT) (Mum.) (SB)

25. DEDUCTION –INFRASTRUCTURAL FACILITY-DEVEVELOPER.- s. 80 IA

The assessee need not be engaged in the activity of `operating and maintaining the facility' for availing deduction. As the benefit is given to the developer it pre-supposes income to the developer which would accrue only on the receipt of the money by the developer on transfer of infrastructural facility. It was further held that an assessee was engaged in developing infrastructural facility is also eligible for the benefits of s. 80 IA.

Asst. CIT v. Bharat Udyog Ltd. [2009] 118 ITD 336 (Mum , (2009 ) 24 SOT 412 (Mum)

26. DEEMED DIVIDEND – DEPOSIT – S. 2(22)(e)

Amount received from a company as security by assessee firm. Assessee firm is not registered shareholder hence amount received as security not assessable as deemed dividend in hands of assessee firm.

CIT vs. Hotel Hilltop (2009) 313 ITR 116 (Raj.)

Editorial Note:- See CIT vs. Bhaumik Colour P. Ltd. (2009) 313 ITR 146 (AT) (Mum.) (SB) / (2009) 118 ITD 1 (Mum.) (SB)

27. DEEMED DIVIDEND- LOAN IN ORDINARY COURSE OF BUSINESS- s.2 (22) (e).

The Tribunal accepted assessee contention that both the companies were non-banking companies and the amounts were given in the ordinary course of business hence the receipt of loan as deemed dividend cannot be taxed.

ITO v. Usha Commercial (P) Ltd. [2009] 30 SOT 37 (Kol) (URO).

28. DEPRECIATION – MOTOR LORRY – S. 32

Higher rate of depreciation is also admissible when motor lorry is used by assessee in his own business of transportation of goods on hire.

CIT vs. S. C. Thakur & Bros. (2009) 180 Taxman 348 (Bom.)

29. DEPRECIATION – MEMBERSHIP CARD OF STOCK EXCHANGE – S. 32

Membership card of stock exchange would be entitled to claim depreciation on the WDV of the membership right of the stock exchange.

Kotak Securities Ltd. vs. Addl. CIT (2009) 24 DTR 214 (Mum.) (Trib.)

30. Depreciation – Trial run- s 32.

Depreciation is allowable even where trial – run production takes place.

Dy CIT v Finolex Cables Ltd (2009) 29 SOT 595 (Pune ).

31. EXPORT – COMPUTER SOFTWARE – S. 80HHE

Services rendered by assessee's employees abroad were both for onsite development of software, including services for such development and also in connection with the development or production of computer software entitling assessee to deduction under section 80HHEE.

ITO vs. Information Architects (2009) 123 TTJ 35 (Mum.)

32. EXPORT – DEDUCTION – EXPORT AS WELL AS LOCAL SALES SEPARATE BOOKS OF ACCOUNTS – S. 80HHC

Assessee having maintained separate books of accounts for export business and local business deduction under section 80HHC is to be computed on the basis of total turnover, export turnover and profits of the business of the export division alone and not the total turnover and the profits of the entire business of the assessee.

CIT vs. Sivagami Match Industries (2009) 24 DTR 109 (Mad.)

33. EXPORT – PROFIT ON CANCELLATION FORWARD EXCHANGE CONTRACTS – S. 80HHC

Profits on cancellation of forward exchange contracts were assessee's profits of business, but as such profits were not derived from export activity and were received from banks in India not convertible foreign exchange in terms of sub section (2) of section 80HHC, 90 percent of the same has to be reduced from profits of business as per Expln. (baa) of section 80HHC.

Dy. CIT vs. Intergold (I) Ltd (2009) 24 DTR 250 (Mum.)(Trib.)

34. EXPORT – LEASE OF RIGHT TO EXPLOIT FILMS OUTSIDE INDIA – S. 80HHC

Telecasting rights fell in the category of articles of trade and commerce and hence, within the category of "merchandise" and the transfer of the said rights by way of lease fell within the meaning "sale" and would attract section 80HHC. Lease of right to exploit films out side India amounts to sale.

CIT vs. B. Suresh (2009) 313 ITR 149 (SC)

Editorial Note:- Abdulgafar A. Nadiadwala vs. ACIT (2004) 267 ITR 488 (Bom.) affirmed.

35. GIFT – HUF – DAUGHTER IN LAW AT THE TIME OF MARRIAGE – S. 2(xii), 3

A karta of the family or father in law has no moral obligation to gift gold ornaments to daughter in law and therefore, gift of gold by the father in law at the time of her marriage is chargeable to gift tax.

CGT vs. Smt. Triveni Devi (2009) 24 DTR 143 (Raj.)

36. HEAD OFFICE EXPENSES – APPLICABILITY OF 44C – EXPENSES INCURRED BY OVERSEAS BRANCHES OF THE ASSESSEE BANK FOR ITS INDIAN OPERATION ARE NOT HIT BY SECTION 44C – S. 37, 44C

The book entries are not very important for determining the correct assessed income. The claim can be made through the `computation of income' route. The provisions of s. 44C are in applicable in a case of expenses incurred exclusively by the bank branches abroad in respect of NRI desk maintained by those branches. Therefore, the provisions of s. 44C of the Income-tax is not applicable in respect of expenses incurred by the overseas branches of the assessee bank for its Indian operations are not hit by section 44C.

Bank of America NT & SA vs. Dy. CIT (2009) 24 DTR 409 (Mum.) (Trib).

37. INCOME FROM UNDISCLOSED SOURCE – BOGUS PURCHASES – POWER OF TRIBUNAL – S. 69, 254(1)

Tribunal can set aside the matter or remand it to the file of AO for further enquiry to make the proper assessment by allowing the parties including the revenue authorities to raise a contention for the first time before it.

ACIT vs. Amar Mining Co. (2009) 24 DTR 139 (Ahd.)(TM)(Trib.)

38. INTEREST ON BORROWED CAPITAL – S. 36(1)(iii)

If there were funds available both interest free and overdraft and / or loans taken a presumption would arise that investment would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments, presumption that the borrowed capital was used for purposes of business hence interest was deductible.

CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom.)

39. INTEREST- CASH SEZIED–s. 158 BFA

Cash seized in search to be taken as tax deposited for the purpose of levy of interest under section 158 BFA.

Asst CIT v. Kwality Bar and Resturant [2009] 118 ITD 108 (Bang).

40. INTERNATIONAL TAXATION – DOUBLE TAXATION AVOIDANCE AGREEMENT – INDIA – SWEDEN – AGREEMENT FEES PAYABLE IN RESPECT OF TECHNICAL CONSULTING SERVICES ARE MANAGEMENT FEES – S. 90, ART. 3(3)

Assessee was not managing the affairs of VSNL. Therefore, technical service rendered by Assessee cannot be treated as "management fees". Besides providing technical service assessee was also engaged in the service of supervising installation of all the terminal equipments and the cables in the terminal buildings. The charges received by the Assessee cannot be treated has a commercial profits. So, technical service charges should be taken as "management charges". The matter decided in favour of revenue.

CIT vs. Swedish International AB (2009) 24 DTR 233 (Bom.)

41. INTERNATIONAL TAXATION – TRANSFER PRICING – STEPS TO BE TAKEN TO DETERMINE THE TNMM

Method adopted by the AO suffered from various deficiencies and infirmities and lacked information and data comparables. Matter remanded to file of TPO for determination of arm's length price relating to transaction in question.

UCB India (P) Ltd. vs. ACIT (2009) 30 SOT 95 (Mum.)

42. INTERNATIONAL TAXATION – FOREIGN COMPANY – ROYALTY – DTAA – INDIA – GERMANY – S. 44D, 115JA, 90

Assessee being a person to whom DTAA applied had option being subjected to tax as per DTAA or Act, which was more beneficial to it, hence, it had rightly subjected it self to tax at reduced rate of 10 percent as per DTAA.

Asstt. DIT vs. Chiron Behring GmbH & Co. (2009) 118 ITD 324 (Mum.)

43. INTERNATIONAL TAXATION – DOUBLE TAXATION AVOIDANCE AGREEMENT – INDIA – CANADA – S. 90, ARTS. 18 & 23

Income of Indian cine artiste from entertainment show in Canada is taxable in Canada only in terms of Art. 18 of the DTAA between India and Canada.

MS Pooja Bhatt vs. Dy. CIT (2009) 123 TTJ 404 (Mum.)

44. INTERNATIONAL TAXATION – DTA – INDIA AND FRANCE – S. 44B, 90, ART. 9

Income earned by the assessee on account of transportation by ships operated by other enterprises under slot chartering arrangement is covered by art.9 and is taxable only in the State of residence and accordingly, such income will be exempt from the Income-tax under the Income-tax Act.

Jt. Director of Income-tax (International Taxation) vs. CMA CGM SA France (2009) 24 DTR 37 (Mum.) (Trib.)

45. INTERNATIONAL TAXATION – TRANSFER PRICING – S. 92C

For determination of ALP under TNMM assessee was justified in taking profit level indicator of comparable companies as operating cash profits without taking into consideration, exclusion of depreciation was justified to eliminate difference in technology used, age of assets used in production, differences in capacity utilisation and different depreciation policies adopted by various companies.

Schefenacker Motherson Ltd. vs. ITO (2009) 24 DTR 561 (Del.)(Trib.)

46. INTERNATIONAL TAXATION – TAXABILITY IN INDIA – S. 9(1)(vii) EXPLN. 2

Underwriting commission paid to lead managers to issue of global depository receipts by Indian party, are business profits which are not taxable in absence of permanent establishment in India. Reimbursement of expenses no element of income hence not taxable.

Mahindra and Mahindra Ltd. vs. Dy. CIT (2009) 313 ITR 263 (AT)(Mum.)(SB)

47. MANUFACTURE OR PRODUCTION – ACTIVITY OF RAILWAY LINE IS CONSTRUCTION ACTIVITY AND CANNOT BE AMOUNTED TO MANUFACTURE OR PRODUCTION ACTIVITY – S 80HH, 80I

The activity of laying down railway line does amount to construction activity and not manufacture or production. The assessee was seeking benefit on the ground that the strength of manufacturing activity carried on by the assessee i.e. manufacturing of numerous parts, components etc. which go into the working and operational railway tracks. The matter to be remitted for fresh consideration as per the parameters laid down by the Supreme Court in N. C. Budharaja and the impugned order of the Tribunal is set aside.

CIT vs. Indian Railways Construction Co. Ltd. (2009) 24 DTR 130 (Del.)

Editorial Note:- See amendment in Finance Bill 2009, Source: www.itatonline.org (Article)

48. PENALTY – CONCEALMENT – REVISED RETURN – S. 148, 271(1)(c)

Assessee having surrendered additional income along with an explanation in the revised return filed in pursuance of notice under section 148, and the assessing authority having not taken, any objection that the assessee's explanation was not bona fide, penalty under section 271(1)(c) is not leviable.

CIT vs. Rajiv Garg & Ors. (2009) 224 CTR 321 (P & H) / (2009) 313 ITR 256 (P & H).

49. PENALTY – CONCEALMENT – S. 271(1)(c)

The assessee has furnished all the relevant material which was neither in accurate nor has concealed any particulars of his income which is necessary for computation of total income. The AO did not find the explanation given by Assessee to be false in spite of this AO imposed penalty on Assessee. As AO has failed to point any exact failure of the Assessee for which penalty was levied u/s. 271(1)(c). As Assessee has furnished all the details and has given substantial evidence penalty cannot be levied by invoking explanation 1.

Mrs. Najma M. Kanchwala vs. ITO (2009) 24 DTR 369 (Mum.)(Trib.)

Editorial Note:- UOI vs. Dharmendra Textile Processors & Ors. (2008) 219 CTR 489 (SC) discussed and distinguished.

50.PRECEDENT – DISMISSAL OF SPECIAL LEAVE AND APPEAL – ART. 136, 141

Dismissal of appeal means that the judgement of appealed has been affirmed.

Snowcem India Ltd. vs. Dy. CIT (2009) 313 ITR 170 (SC)

51. PRECEDENT – HIGH COURT – S.254

Tribunal is not bound by decisions of Courts other than jurisdictional High Court.

Mahindra and Mahindra Ltd. vs. Dy. CIT (2009) 313 ITR 263 (AT) (Mum.)(SB) (309)

52. PRECEDENT – HIGH COURT – S. 254

A solitary judgement of any High Court in country on a particular point or issue should be followed in its letter and spirit by all Benches of Tribunal notwithstanding contrary views expressed by some Benches of Tribunal notwithstanding contrary views expressed by some Benches of Tribunal, unless there is strong reason to deviate from view expressed by High Court.

ITO vs. Ranisati Fabric Mills (P) Ltd. (2009) 118 ITD 293 (Mum.)

53. PROFIT CHARGEABLE TO TAX –LIABILITY PAYABLE TO CREDITORS -41 (1)

The provision under section 41 (1) could not be applied in the absence of cessation of liabilities, on the mere fact that the amounts were outstanding for more than 3 years and also in case of absence of unilateral entries in the books of accounts.

DSA Engineers (Bombay) v. ITO [2009] 30 SOT 31 (Mum).

54. REVISION – ERRONEOUS AND PREJUDICIAL – LACK OF PROPER ENQUIRY – S. 263

Assessing Officer having accepted the accounts of the assessee after the latter had submitted the details as called for by the Assessing Officer, it could not be said that he has not applied his mind to the relevant issues and therefore, order passed by CIT under section 263 is not sustainable, more so when he did not record a finding as to how the order of the Assessing Officer is erroneous.

Rajiv Agnihotri vs. CIT (2009) 23 DTR 476 (Del.)(Trib.)

55. REVISION – S. 263

Merely because an assessment order does not refer to queries raised by Assessing Officer during course of scrutiny and response of assessee thereto, it can not be said that there has been no enquiry and, hence, assessment is erroneous and prejudicial to interest of revenue.

CIT vs. Ashish Rajpal (2009) 180 Taxman 623 (Delhi)

56. REVISION – ERRONEOUS AND PREJUDICIAL ORDER – ONE POSSIBLE VIEW – S. 263

The assessee claimed that these expenses were in executing the projects regarding development of the packaged software and were revenue in nature. These expenses of the Assessee were considered as ongoing expense and lead to benefit of enduring nature on development of packaged software. Therefore, the order of AO in allowing this expenditure cannot be said to be erroneous and prejudicial to the interest of the Revenue as the view of the AO having followed one possible view.

Flextronics Software System Ltd. vs. CIT (2009) 24 DTR 551 (Del.) (Trib.)

57. SCIENTIFIC RESEARCH EXPENDITURE – IN HOUSE SCIENTIFIC RESEARCH – S. 35(1)(iv)

For claiming deduction under section 35, there should be nexus between scientific research and with business carried on by assessee. If an assessee does not develop in house scientific research activities but is engaged in development and supply of scientific research to business of other assessee, deduction under section 35 would not be available hence expenditure incurred on the subsidiary would not be entitled deduction under section 35.

Ciba India (P) Ltd. vs. ITO ( 2009) 30 SOT 269 (Mum.)

58. SHIPPING COMPANIES – QUALIFYING COMPANY – TONNAGE TAX – S. 115VC, 115VA, 115VC(d)

Concept of the `the main object of company' in section 115VC(d), in absence of any provision to contrary in Chapter XII-G, has necessarily to be understood in manner in which that term is understood in common parlance without being tied down to any requirement of Companies Act to classify objects of a company in to principal and ancillary and show them distinctly in object clauses in memorandum of association of company, hence, only on the basis of object clause of company the provisions of tonnage tax can not be denied.

South India Corpn. Ltd. vs. Addl. CIT (2009) 180 Taxman 319 (Ker.)

59. SEARCH AND SEIZURE – SATISFACTION NOTE – S. 132(1)

A copy of the information or the satisfaction note need not furnished to the Petitioner.

Genom Biotech (P) Ltd. & Ors. Vs. Director of IT (Investigation) (2009) 224 CTR 270 (Bom.)

60. SEARCH AND SEIZURE – WARRANT- BLOCK ASESSEMENT- s. 132(1), S.158 BC.

No block assessment can be made directly where no search warrant is issued.

Smt. Nasreen Yusuf Dhanani v. Asst CIT [2009] 118 ITD 133 (Mum).

61. Survey- Statement – Assessment – s. 133A.

A survey was conducted in the premises of the assessee and was not signed not by the Inspector or by the Assessing officer nor the contents of the statement was explained to the person who gave the statement. The Assessing Officer based on the statement of the person made addition by applying higher gross profit . As the Assessee had also disclosed higher gross profit than in the preceding two years. The tribunal deleted the addition which was made merely on the basis of statement.

Kailash Chand v. ITO [2009] 29 SOT 63 (Jodh) (URO)

62. Speculative Transaction – Future and option ( Derivatives ) – s.43 (5)(d)

Future and options not to be regarded as an speculation loss when it is treated as a business loss and set off against other incomes in accordance with the provisions of the Income Tax Act. The provisions u/s. 43 (5) is clarifiactory in nature and therefore has retrospective operation.

P.S. Kapur v. Asst. CIT [2209] 29 SOT 587 (Jp.)

Editorial – refer . Dy CIT v SSKI Investors Services ( P ) Ltd ( 2009 ) 29 SOT 78 (Mum) (URO ).

63. TAX DEDUCTION AT SOURCE – FEES FOR TECHNICAL SERVICES – S. 194 J, 201, 201(1A)

Fees for technical services would not include purchase of material by the assessee for the purpose of imparting computer education at their centre, hence, provisions of section 194J and for that purpose section 201(1) and 201(1A) are not attracted.

Taxes having been duly paid by the deductee same can not be recovered from the assessee for failure to deduct tax at source.

ACIT vs. Frontline Software Services (P) Ltd. (2009) 24 DTR 232 (Ind.)(Trib.)

64. TAX DEDUCTION AT SOURCE PERQUISITE- TRANSPORT FACILITY FROM RESIDENCE TO OFFICE- S. 17 (2) 192

The employees were given pick and drop facility from their residence to office and employee also paid conveyance allowance to every employee. The tribunal held that use of any vehicle provided by company or an employer for journey by the employee from his residence to office or office place to his residence shall not be regarded as a benefit or amenity liable for tax as perquisite. Further, since it was not perquisite the question of deducting tax at source u/s. 192 in respect of such payments/ expenditure could not arise.

Transworks Information Services Ltd. V. ITO (TDS) [2009] 29 SOT 543 (Mum).

65. WEALTH TAX – PENALTY – LEGAL REPRESENTATIVE – S. 15B, 18, 19

Assessee filing return and receiving notices of initiation of penalty proceedings. Penalty order was passed after death of assessee, the Court held that no penalty can be levied against legal representative.

ACIT vs. Late Shrimant F. P. Gaekwad (2009) 313 ITR 192 (Guj.)

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Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on carious dates and time fixed. Instead of sending it on one day it is spread on various dates. regards. R R Makwana

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