HC (P&H): loan from sister concern to purchase share...

CIT vs. Rockman Cycle Industries (Punjab & Haryana High Court – Larger Bench)

(248.9 KiB, 379 DLs)

AO can lift veil & determine legal effect but cannot ignore legal effect on ground of "substance"


The assessee borrowed money from a sister concern and paid interest therein @ 18% per annum. The funds were used to purchase shares from a sister concern which carried dividend @ 4%. The AO & CIT (A) followed McDowell 154 ITR 148 (SC) & disallowed the claim for interest u/s 57(iii) on the ground that no prudent person would borrow funds at 18% to make an investment which yielded 4% and that the transaction was "clear cut colourable dubious device". This was reversed by the Tribunal on the ground that the transaction was bona fide and not sham. On appeal by the department, the High Court observed that while tax planning was permissible, the claim had to be supported on the principles of business expediency & referred the issue to the Larger Bench. HELD by the Larger Bench:

(i) U/s 57(iii), expenditure laid out or expended wholly or exclusively for the purpose of making or earning income is deductible. It is the purpose of the expenditure that is relevant but the purpose need not be fulfilled. Even if income is not earned, the expenditure will be deductible (R. P. Moody 115 ITR 519 (SC) followed);

(ii) The AO is entitled and bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction" (B. M. Kharwar 72 ITR 603 (SC) followed);

(iii) In considering whether the expenditure is deductible, the AO must not look at the matter from his own view point but from that of a prudent businessman (S. A. Builders 288 ITR 1 (SC) followed);

(iv) While it is not unfair to borrow money from one concern and invest it in another concern for the purpose of profit or income, the assessee must act bona fide & show nexus between the advancing of funds and his business interest. The test is whether a reasonable person stepping into the shoes of the assessee and working solely in the interest of the assessee would have extended such interest free advances. The dominant purpose for making the investment must be to earn income & to ascertain the purpose the AO may lift the veil (Swapna Roy 233 CTR 10 (All) & Punjab Stainless 324 ITR 396 (Del) followed);

(v) Accordingly, the authorities can determine the true legal relation resulting from a transaction and if some device has been used by the assessee to conceal true nature of the transaction, it is the duty of the authority to unravel the device and determine its true character. However, the legal effect of the transaction cannot be displaced by probing into the "substance of the transaction". The taxing authority must not look at the matter from its own view point but that of a prudent businessman. Each case will depend on its own facts. The exercise of jurisdiction cannot be stretched to hold a roving enquiry or deep probe.

The related Judgments on the subject

1. Rupee Finance vs. ACIT (ITAT Mumbai) Where the assessee purchased shares at a price below the market price and the question was whether the difference between the market price and the purchase price can be assessed as unexplained investment u/s 69 or as a benefit u/s 28(iv) of the Act, held:   (1) Where there…
   
2. In Re E*Trade Mauritius Ltd (AAR) The effect of Azadi Bachao Andolan is that there is no "legal taboo" against 'treaty shopping'. Treaty shopping and the underlying objective of tax avoidance/mitigation are not equated to a colourable device. If a resident of a third country, in order to take advantage of a tax treaty sets…
   
3. Indo Tech Electric Co vs. DCIT (Madras High Court) Both the Tribunal and the AO have held that what was done by the assessee is clearly an attempt to evade tax in order to get over s. 55(2). It is a well settled principle of law that what is permissible is avoidance but not evasion. When an attempt…

IT : For transfer pricing adjustment, assessee should take same class of transa

IT : For transfer pricing adjustment, assessee should take same class of transactions for comparing profit with comparables



Income-tax : When the comparables are not licensee manufacturers of the similar commodity then it would not satisfy the requirement of the law as well as the rules prescribed under the Statute for comparing profit with comparables [Section 92C of the Income-tax Act, 1961 - Transfer Pricing] - [2011] 10 taxmann.com 125 (Mum. - ITAT)

IT : Department is not precluded from taking a correct view of matter in subsequ

IT : Department is not precluded from taking a correct view of matter in subsequent years during reassessment proceedings



Income-tax : Merely on basis of wrong view taken by Assessing Officer in earlier assessment year it cannot be held that the Department is precluded from taking a correct view of matter in subsequent years [Section 148 of the Income-tax Act, 1961 - Income escaping assessment - Issue of notice for] - [2011] 10 taxmann.com 127 (Delhi - ITAT)

Compilations of case law: General Topics: OPPORTUNITY OF BEING HEARD

OPPORTUNITY OF BEING HEARD
ITO issuing notice u/s.271(1)(a) – No explanation furnished by assessee – change of ITO – assessee not asking for opportunity to be heard by successor ITO – Imposition of penalty by successor ITO without giving assessee opportunity to be heard – Penalty valid.
CIT Vs Laljidas Agarwalla (Patna) 190 ITR 429
CWT Vs Gilliaram Suggiram (Patna) 186 ITR 445
CWT Vs Azizunnisa Begum (SC) 243 ITR 852

Change of incumbent of office during pendency of assessment proceedings – As per Sec.129, re-hearing by new officer is not obligatory – it is required only when there is a demand from assessee.
K. Venkata Ramana & Budha Appa Rao Vs CIT (AP) 168 ITR 747
CWT Vs Umrao Lal (All) 136 ITR 49

Opportunity to be heard afforded to major partner of firm – Amounts to opportunity to be heard given to firm.
Manaklal Porwal Vs CIT (Raj) 155 ITR 648

Assessee not availing of opportunities given before completion of assessment – Not entitled to allege contravention of principles of natural justice.
P.N. Baslasubramanian Vs ITO & Ors. (AP) 112 ITR 512

The principle of "audi alteram partem" only means that the party affected should be given sufficient opportunity to meet the case against him. It is not necessary that assessee should be heard at each and every stage of proceedings – when an appeal was filed before AAC, ITO's orders merges with order of AAC and where there is no grievance that no opportunity was given by AAC, he cannot have a grievance that he was denied reasonable opportunity by ITO.
Kashmir Vastralaya Vs CIT (Pat) 112 ITR 630

ITO is not bound by any technical rules of the law of evidence – He can record statement from witnesses in the absence of assessee – But before using the same, assessee should be given opportunity to cross –examine.
C. Vasantal & Co. Vs CIT (SC) 45 ITR 206

Firm dissolved - Penalty notice issued to one of the partners – is sufficient notice – Individual notice on every partner is not necessary.
India Chemical Agency Vs CIT (Mad) 119 ITR 569

For every reason formulated by ITO in his order, no need to give opportunity to produce fresh evidence or fresh explanation.
Newton Chikli Collieries Ltd. Vs CIT (SC) 44 ITR 495
DCIT Vs Subhash Kumar Jain (ITAT, Chd) 69 ITD 313

Right to cross –examine witness who made adverse report, is not an invariable attribute of requirement of 'audi alteram parterm' - When statement of witness is only secondary evidence, there is no denial of natural justice if witnesses were not allowed to be cross-examined by assessee.
G.T,.C. Industries Limited Vs ACIT (ITAT, Bom) 65 ITD 380

Suit against Public Officer in respect of act done under warrant of authorization – opportunity to be granted to Public Officer before granting relief – notice mandatory
Union of India v. Natwarlal M. Bandari (Guj) 250 ITR 641

Simply because an opportunity of being heard was not given to the assessee, will not invalidate an assessment order – It is only a procedural lapse
Kailash Moudgil Vs DCIT (ITAT, Del-SB) 72 ITD 97

If assessee is aware of the contents of the statements recorded from witnesses, failure to provide copies of the same before cross-examination, is not fatal – Addition on account of inflation of purchase price upheld
H.M. Sarif and Sons Vs CIT (All) 296 ITR 523

Non-furnishing of copy of statement given by production-in-charge did not amount to denying opportunity of cross examination to assessee, especially when the addition was made solely on the basis of return filed, documents produced and submissions made by assessee.
DXN Herbal Mfg. (India)(P.) Ltd. Vs ITO (ITAT, Chennai) 110 ITD 99

ITR (TRIB) Volume 12 : Part 1 (Issue dated : 31-10-2011)

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

Volume 12 : Part 1 (Issue dated : 31-10-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Business expenditure --Disallowance on account of excessive consumption of raw material and other direct expenses disproportionate to production as compared to earlier years--Discontinuance of manufacturing activity and stocks held at end of year sold over succeeding years--Addition to be deleted--Income-tax Act, 1961-- Lakshmi Udyog Mandir P. Ltd. v. Deputy CIT (Chandigarh) . . . 36

Business income --Overdue interest from customers and interest on staff loans--Only net amount of interest income having nexus with interest bearing fund to be excluded--Matter remanded--Income-tax Act, 1961-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

Charitable trust --Registration--Cancellation of registration--Assessee engaging manufacturing and trading activities--Assessee converting incidental objects as main objects--Assessee not satisfying first condition of section 11(4A)--Cancellation of registration valid--Income-tax Act, 1961, ss. 11(4A), 12A-- Aurolab Trust v. CIT (Chennai) . . . 74

Export --Special deduction--Computation--Interest on fixed deposits for availing of credit facilities from bank--No immediate nexus with export business--To be treated as income from other sources--Income-tax Act, 1961, s. 80HHC-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

----Special deduction--Computation--Profits on transfer of DEPB credits--Not profits of business includible in computing deduction under section 80HHC--Income-tax Act, 1961, ss. 28(iiib), 80HHC-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

Industrial undertaking --Special deduction--Condition precedent for deduction--Profits must be derived from industrial undertaking--“Derived from”, meaning of--Repairs and maintenance not manufacturing activity--Profits therefrom not eligible for deduction--Income-tax Act, 1961, s. 80-IB-- Deputy CIT v. Rajesh Kr. Drolia [SB] (Kolkata) . . . 1

Non-resident --Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question--Income-tax Act, 1961, ss. 9(1)(vii), Expln. 2, 44DA, 115A(1)(b), (BB), 144C(1)--Double Taxation Avoidance Agreement between India and Russia, arts. 5, 7-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

Penalty --Failure to deduct tax at source--Interest--Assessee disclosing payment of interest in return--No concealment of facts--Recipients showing receipt of interest in their returns and paying tax thereon within time prescribed--No loss to Government--Penalty cannot be levied--Income-tax Act, 1961, s. 271C-- Muthoot Bankers v. Joint CIT (Cochin) . . . 40

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and Russia :

Art. 5 --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement--Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

Art. 7 --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

Income-tax Act, 1961 :

S. 9(1)(vii), Expln. 2 --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

S. 11(4A) --Charitable trust--Registration--Cancellation of registration--Assessee engaging manufacturing and trading activities--Assessee converting incidental objects as main objects--Assessee not satisfying first condition of section 11(4A)--Cancellation of registration valid-- Aurolab Trust v. CIT (Chennai) . . . 74

S. 12A --Charitable trust--Registration--Cancellation of registration--Assessee engaging manufacturing and trading activities--Assessee converting incidental objects as main objects--Assessee not satisfying first condition of section 11(4A)--Cancellation of registration valid-- Aurolab Trust v. CIT (Chennai) . . . 74

S. 28(iiib) --Export--Special deduction--Computation--Profits on transfer of DEPB credits--Not profits of business includible in computing deduction under section 80HHC-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

S. 44DA-- Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement--Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

S. 80-IB --Industrial undertaking--Special deduction--Condition precedent for deduction--Profits must be derived from industrial undertaking--“Derived from”, meaning of--Repairs and maintenance not manufacturing activity--Profits therefrom not eligible for deduction-- Deputy CIT v. Rajesh Kr. Drolia [SB] (Kolkata) . . . 1

S. 80HHC --Export--Special deduction--Computation--Interest on fixed deposits for availing of credit facilities from bank--No immediate nexus with export business--To be treated as income from other sources-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

----Export--Special deduction--Computation--Profits on transfer of DEPB credits--Not profits of business includible in computing deduction under section 80HHC-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

S. 115A(1)(b)(BB) --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

S. 144C(1) --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

S. 271C --Penalty--Failure to deduct tax at source--Interest--Assessee disclosing payment of interest in return--No concealment of facts--Recipients showing receipt of interest in their returns and paying tax thereon within time prescribed--No loss to Government--Penalty cannot be levied-- Muthoot Bankers v. Joint CIT (Cochin) . . . 40

IT : Notice sent under section 158BD cannot be declared as invalid for reason th

IT : Notice sent under section 158BD cannot be declared as invalid for reason that Assessing Officer has not separately mentioned in said notice that it was issued under section 158BC also - [2011] 11 taxmann.com 52 (Ker.)

Direct Tax Laws Oct 2011 01

Interest from (i) fixed deposits made for opening letter of credit and (ii) advances given out of surplus funds, which were not done in ordinary course of business, is to be treated as 'income from other sources' - [2011] 13 taxmann.com 227 (Madras)

Revenue cannot justify reopening of assessment on grounds which are not recorded in reasons for reopening assessment - [2011] 13 taxmann.com 224 (Bombay)

Petition for waiver of interest under section 220(2) can be filed even after payment of interest - [2011] 13 taxmann.com 222 (Delhi)

Application of CBDT Circulars dated 23-5-1996 and 30-1-1997 and Circular No. 2/2006 for charge of interest under section 234B - [2011] 13 taxmann.com 221 (Delhi)

Section 115WC(2)(b) will also apply activity of manufacturing of specialized equipments of solid and waste which includes fixation of certain equipments on land for managing waste - [2011] 13 taxmann.com 228 (Delhi - Trib.)

Where assessee, a Russian company, entered into a co-operation agreement with KPTL and scope of activities of assessee clearly showed that assessee was only required to provide technical services and depute expert for site review and implementation by KPTL, it could not be said that assessee was doing construction work and therefore, scope of work of assessee would not fall within exclusion category of Explanation 2 to section 9(1)(vii) - [2011] 13 taxmann.com 223 (Ahmedabad - Trib.)

IT : Department is not precluded from taking a correct view of matter in subsequ

IT : Department is not precluded from taking a correct view of matter in subsequent years during reassessment proceedings

Income-tax : Merely on basis of wrong view taken by Assessing Officer in earlier assessment year it cannot be held that the Department is precluded from taking a correct view of matter in subsequent years [Section 148 of the Income-tax Act, 1961 - Income escaping assessment - Issue of notice for] - [2011] 10 taxmann.com 127 (Delhi - ITAT)

Compilations of case law: General Topics: PROCEDURAL LAPSE – When fatal ?

PROCEDURAL LAPSE – When fatal ?

A wrong reference to the power under which an order is made does not per se vitiate the order if there is some other power under which the order could lawfully be made. The validity of the impugned order has to be tested by reference to the question whether the ITO had any power at all to make an order of this nature. If the power is otherwise established, the fact that the source of power has been incorrectly described would not make the order invalid.
VR.C.RM. Adaikkappa Chettiar Vs CIT (Mad) 78 ITR 285
R.P. Kandaswami & others Vs CIT (Mad) 49 ITR 344
CIT Vs Hargopal Balan & Sons (P &H) 82 ITR 243
L. Hazir Mal Kuthiala Vs ITO & Anr. (SC) 41 ITR 12
CIT Vs Motor Industries Co. (Kar) 229 ITR 126
K.P. Paulose & Co. Vs CIT (Ker) 230 ITR 798

Non-mention of Section under which statement of assessee is recorded will not invalidate statement recorded during course of proceedings u/s.132A.
ACIT Vs M.V. Nagaraja (ITAT, Bang) 70 ITD 318

Failure to mention specific provision under which interest is charged does not make the order bad.
CIT Vs Quality (Pat) 224 ITR 77

Assessment completed without following prescribed procedure – Non-compliance is only a procedural irregularity and will not render the assessment ab initio void – Direction to ITO to redo assessment after following prescribed procedure is valid
G.R. Steel and Alloys P. Ltd,. Vs CIT (Kar) 152 ITR 220
Saraljit Singh Vs CIT (Del) 234 ITR 641
V. Raju Vs CIT (Mad) 147 ITR 212
M.S. Kimtee Vs CIT (MP) 151 ITR 73

Assessee participating in reassessment proceedings – Failure to consider objection to 148 notice and failure to issue notice under section 143(2) – Reassessment order not void but irregular – Matter remitted to assessing Officer
Areva T & D India Ltd. Vs ACIT (Mad) 294 ITR 233

Penalty proceedings validly initiated – No opportunity of being heard given – Order set-aside – Continuation of proceedings from stage of notice – valid
Guduthur Bros Vs ITO (SC) 40 ITR 298
Thakur V. Hari Prasad Vs CIT (AP) 167 ITR 603
Addl. CIT Vs Boina Surana (AP) 124 ITR 328

Where an invalid assessment is annulled, it should be remanded to the ITO so that the assessee is not set at large without payment of tax
CIT Vs Anaimugan Transports (P) Ltd. (Mad) 215 ITR 553

Death of assessee in course of assessment procedure – Legal representative impleaded and heard – Assessment order mentioning name of deceased assessee instead of legal heir – Only a clerical error – Assessment is valid
Swaran Kanta Vs CIT (P & H) 176 ITR 291

Assessment order passed without giving notice to assessee – Assessment only legally vitiated but not warranting annulment.
C.G.G. Panicker Vs CIT (Ker) 237 ITR 443
Notice to only one legal representative of deceased – No objection taken by him and other legal representatives against non-impleadment of other heirs – assessment so made is valid.
ITO Vs Shahid Atiq, L/H of Late Atiquer Rehman (ITAT, Del) 89 ITD 489
CIT Vs Chandra Mohan Verma (All) 244 ITR 430
CIT Vs Pushpa Devi (Raj) 250 ITR 495
A.K.M. Govindaswamy Chettiar & Ors. Vs ITO ( Mad ) 244 ITR 559

Assessment order against deceased passed after his death – His son, with an advocate appeared in the proceedings – Assessment set-aside to ITO for impleading the legal heirs
CIT Vs Roshan Lal & Ors. (Del) 134 ITR 145

Penalty u/s 271(1)( c) quashed by CIT(A) as ITO had not obtained approval of IAC – ITAT directed ITO to pass an order afresh in accordance with law – held ITAT was justified.
Prabhudayal Amichand Vs CIT ( M P ) 180 ITR 84
CIT Vs Vijay Dal Mills (MP) 230 ITR 301
Gayathri Textiles Vs CIT (Kar) 243 ITR 674
Sardar Harinder Singh Vs ITO & Ors. (All) 219 ITR 257
CIT Vs Damodardas Murarilal (AP) 222 ITR 401

Act does not contemplate a hearing being given to the assessee by IAC before approving the penalty.
Lachmandas Mahar Chand Vs ITAT (Lahore) 12 ITR 432.

Office note is part of assessment order
Bimla Gulati Vs Appellate Asst. Commissioner (MP) 165 ITR 296

Computation of Total income made in assessment order and tax computed only on ITNS 50 – valid.
CIT Vs Hotel Highland Park (J&K) 246 ITR 130

Determination of tax not incorporated in assessment order but on a separate sheet of paper accompanying it – forms part of assessment order
Karuna Rani Jain & Ors. Vs CIT (P&H) 178 ITR 321
Kalyankumar Ray Vs CIT (SC) 191 ITR 634
Shashi Mangla Vs ACIT (ITAT, Del ) 60 TTJ 362

Notice issued u/s.148 vague as 'status' not mentioned therein – Assessee consciously and intentionally waived his right to object to defect in notice – Defect stood caused by sec.292 B – notice valid
CIT Vs Rajbir Singh (P & H) 233 ITR 126

Mere mistake in language used in penalty notice and non-striking of the inapplicable portion cannot by itself invalidate the notice.
CIT Vs Kausalya and others (Bom) 216 ITR 660
H.P. State Forest Corpn. Ltd. Vs CIT & Ors. (HP) 267 ITR 285
CIT Vs Maharaj Kishan (Del) 246 ITR 327

Penalty notice served along with an enclosure – Enclosure signed by ITO but notice not signed – Penalty not vitiated – There is nothing to indicate that the assessee was prejudiced by the defective notice served on him.
Kashmir Vastralaya Vs CIT (Pat) 112 ITR 630

Failure to serve Demand Notice – Recovery proceedings – not valid
Mohan Wahi Vs CIT & Ors. (SC) 248 ITR 799
Original assessment allowing development rebate – AAC set-aside whole assessment order – During fresh assessment proceedings, information that machinery was sold within 10 years – Development rebate can be rejected straight away – No need to allow it first and cancel u/s.35(11).
Indian Motors Transport P. Ltd Vs CIT & Ors. (SC) 156 ITR 489

Failure to quantify amount of penalty in the order – will not invalidate order
Assam Frontier Veneer & Saw Mills Vs CIT (Gau) 104 ITR 479
CIT Vs Jayantilal Meghani (Cal) 244 ITR 468

Office copy of notice available in assessment records – show notice validly issued by Assessing Officer – No evidence for proper service of such notice – Illegality occurred at this stage – Assessing Officer can proceed further from this stage
Raju Saigal Vs ITO (ITAT, Del) 106 Taxman (Mag) 12.

Death of assessee – Notice issued in the name of a person who was dead – widow of such person participating in re-assessment proceedings. Defect in notice stood automatically cured.
Kausalyabai Vs CIT (MP) 238 ITR 1008

Non-service of assessment order before serving of demand notice would not invalidate assessment order.
Surya Proteins Ltd. Vs ACIT ( ITAT, Indore ) 56 ITD 367

After abolition of Sec. 144B, Assessing Officer passed order after getting approval of Deputy Commissioner – Only a procedural lapse - Does not make assessment order invalid.
Amulakhbhai R.Patel Vs ACIT (ITAT, Ahd) 68 ITD 434

Penalty proceedings conducted by IAC – IAC directed ITO to levy penalty and to issue Demand Notice - Penalty valid
A.M. Shah & Co. Vs CIT (Guj) 238 ITR 415

Omissions of Assessing Officer to confront assessee with materials collected by him – Irregularity in exercise of jurisdiction and not lack of jurisdiction – Remand to Assessing Officer
CIT Vs Bharatkumar Modi (Bom) 246 ITR 693

Calling for information u/s.133(6) without approval of CIT – Procedural lapse – curable defect – Still material obtained can be used.
Gyarsri Lal Gupta & Sons Vs ITO (ITAT, JP) 94 ITD 329.

Expl. 3 to sec. 153 – Direction by CIT(A) to initiate re-assessment proceedings against third person – Such person was aware of proceedings and given opportunity of being heard – Formal notice not necessary – Proceedings valid
Atul Traders Vs ITO ( All ) 282 ITR 536

Assessment order in the name of non-existent entity was passed on account of ignorance of fact of amalgamation. Irregularity only – Remit to Assessing Officer to issue notice in the name of successor company
Century Enka Ltd. Vs DCIT ( Mum ) 101 ITD 489
144 Asst – Registration cancelled without affording opportunity – Not justified - Matter restored to Assessing Officer for considering afresh.
Indotia Construction Co. Vs ITO (ITAT, Jp) 61 TTJ 398

Direct Tax Laws Oct 2011 10

Direct Tax  Laws

Aeroplane and Aircraft are same thing; Aircraft cannot be held to be 'plant and machinery' and allowed depreciation less than 40 per cent.Cash payments exceeding prescribed limits made to Airport Authority of India, may be allowable - [2011] 14 taxmann 115 (Delhi - Trib.)

Assessing Officer is not empowered to travel beyond specific issues contained in order of remand passed by Commissioner (Appeals) - [2011] 14 taxmann 118 (Gujarat)

Benefit under section 23(1)(c) cannot be extended to a case where a property is not let out at all during previous year - [2011] 14 taxmann 146 (Andhra Pradesh)

Clause (i) of Explanation 1 to Section 115JB(2) was made effective from 1-4-2001 and would, therefore, apply to assessment year 2001-02 and subsequent assessment years - [2011] 14 taxmann 121 (Punjab and Haryana)

In view of amendment in section 80HHC(3) with effect from 1-4-1991, deduction is required to be computed by aggregating profits, export turnover and total turnover of all businesses carried on by assessee - [2011] 14 taxmann 117 (Calcutta)

It is not proper for Tribunal to remand matter without attempting to settle matter at its stage - [2011] 14 taxmann 143 (Karnataka)

Liberty is to be given to department to move to High Court pointing out that Instruction No. 3, dated 9-2-2011 should not be applied ipso facto - [2011] 14 taxmann 142 (SC)

Provision made towards irrecoverability of debt cannot be said to be provision for liability under clause (c) of Explanation to section 115J(IA) - [2011] 14 taxmann 147 (Calcutta)

Remand can be for rectification of specific points of mistakes - [2011] 14 taxmann 119 (Calcutta)

Sub-letting charges to DDA are not deductible under proviso to section 23(1) - [2011] 14 taxmann 116(Delhi - Trib.)

Supply of foods to international flights leaving India after customs clearance would be export when RBI has treated payment in Indian rupee as convertible foreign exchange - [2011] 14 taxmann 113 (Calcutta)

When in view of business exigency AMC charges from mutual funds expenditure lesser than that actually spent, no addition can be made to income of company - [2011] 14 taxmann 144 (Bombay)

Where a charitable society merges with another society having similar objects, registration granted under section 12AA cannot be withdrawn - [2011] 14 taxmann 114 (Mumbai - Trib.)

Where assessee had furnished details with respect to deposits which investors acknowledged, assessee was not required to prove genuineness of transactions or creditworthiness of investors - [2011] 14 taxmann 150 (Delhi)

Where issue involved is debatable, an intimation under section 143(1)(a) disallowing claim based on such debatable issue on ground that it is prima facie inadmissible, cannot be sustained - [2011] 14 taxmann 122 (Delhi - Trib.)

Where land owner entered into agreement with developers and, received certain sum and a part of build-up area as consideration, capital gain would be assessable in year in which possession of property was handed over, and not in year in which project was completed - [2011] 14 taxmann 120 (Karnataka)

Without showing valid reasoning, value of excess stock found at time of survey cannot be drastically reduced on ground that some of items valued at market price were merely scrap - [2011] 14 taxmann 124 (Delhi - Trib.)

Compilations of case law: General Topics: ESTOPPEL – Whether applicable

ESTOPPEL – Whether applicable

The doctrine of promissory estoppel cannot be used to compel the Government to carry out any representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government.

Delite Cinema Vs Municipal Corporation of Delhi & Anr. (Del) 172 ITR 208

CIT Vs Bankam Investment Ltd. (Cal) 208 ITR 208

Union of India & Ors. Vs Godfrey Philips India Ltd. (SC) 158 ITR 574

Tribunal upheld reopening u/s 147 and on merits remitted to Assessing Officer – Assessing Officer passed subsequent order – Question of validity of reopening u/s 147 cannot be challenged again in subsequent proceedings.

Gowri Rajes & ors. Vs CIT (Mad) 241 ITR 506

M.S.P. Senthil Kumar Vs CIT (Mad) 241 ITR 502

Court decisions based on concession of parties do not constitute binding precedents for other authorities.

Lakshmi Shankar Srivastava AIR 1979 SC 451

The doctrine of " approbate and reprobate " is a species of estoppels. It applies to the conduct of parties. The assessee having opted for a scheme and having availed the benefit, cannot lateron claim that the benefit was wrongly conferred on it.

CIT Vs V. MR. P. Firm (SC) 56 ITR 67

IT : Forfeiture of convertible warrant would amount to 'transfer' within meaning

IT : Forfeiture of convertible warrant would amount to `transfer' within meaning of section 2(47) - [2011] 10 taxmann.com 129 (Delhi)

IT : Short term capital loss, attributable to a genuine business transaction, ca

IT : Short term capital loss, attributable to a genuine business transaction, can be set-off against long-term capital gains

Income-tax : It is not within the province of Assessing Officer to ignore an otherwise genuine transaction and to brand it as a colourable one on ground that it was duty of the company to invest further amount or it should have waited for a reasonable period [Section 74 of the Income-tax Act, 1961 - Losses under the head `Capital gains'] - [2011] 10 taxmann.com 119 (Cal.)

Compilations of case law: General Topics: AFFIDAVIT – How far reliable ?

AFFIDAVIT – How far reliable ?

Affidavit need not always be accepted as correct
Sri Krishna Vs CIT (All) 142 ITR 618

Affidavit says "notice send by registered post on 31.8.88"- Not denied in rejoinder affidavit –Fact of issuing notice accepted eventhough no evidence was produced.
Arjun Singh & Anr. Vs ADIT & Ors. (MP) 246 ITR 363

Direct Tax Laws Oct 10

Where assessee had not furnished details asked for by Assessing Officer during assessment proceedings, there could not be full and true disclosure to apply proviso to section 147 - [2011] 14 taxmann.com 106 (Delhi)

Exemption under section 54EC is allowable in respect of capital gains arising on transfer of capital asset on which depreciation has been allowed - [2011] 14 taxmann.com 110 (Mumbai - Trib.)

Statement recorded under section 132(4) is an evidence by itself and any retraction contrary to that should be supported by strong evidence for demonstrating that earlier evidence recorded was under coercion - [2011] 14 taxmann.com 108 (Ahmedabad - Trib.)

VSAT equipment installed by assessee-stock exchange at premises of member broker for carrying on online and screen base trading would be eligible for full depreciation - [2011] 14 taxmann.com 107 (Mumbai - Trib.)

Compilations of case law: General Topics: STATEMENTS RECORDED – USE IN ASSESSMENT & RETRACTION

STATEMENTS RECORDED – USE IN ASSESSMENT & RETRACTION

Authorised Officer can record statement on oath on all matters pertaining to suppressed income – Explanation to Sec. 132 inserted w.e.f. 1.4.89 is clarificatory- Assessment on the basis of the voluntary statement was valid
V. Kunhambu & Sons Vs CIT (Ker) 219 ITR 235
Iswardin Mewalal Vs CIT (MP) 169 ITR 584
Greenview Restaurant Vs CIT (Gau) 263 ITR 169

Presumption u/s 132(4) is applicable to the assessment proceedings also
P.R. Metrani Vs CIT (SC) 287 ITR 209

Addition made on the basis of admission by assessee – justified.
Hira Singh and Co Vs CIT (HP) 230 ITR 791

Where the petitioner entered into a voluntary settlement with the Government and his liability to pay tax arose from such settlement, he cannot question the settlement – unless and until he can establish that his consent was improperly procured.
Dewan Bahadur Seth Gopal Das Mohta Vs The Union of India & Ors.(SC) 26 ITR 722

An admission is the best evidence that an opposing party can rely upon and though not conclusive, is decisive of the matter, unless successfully withdrawn or proved erroneous.
Narayan Bhagwantrao Gosavi Batajiwale Vs Gopal AIT 1960 SC 100
Pranav Construction Co. Vs ACIT (ITAT, Mum) 61 TTJ 145

Preliminary statement recorded before start of actual search in which questions put to assessee were general in nature and not related to any specific asset / document – Not a valid legal statement – cannot be relied upon. Second statement during search – valid – could not be ignored
Rishab Kumar Jain Vs ACIT (ITAT, Del) 63 TTJ 236

Customs Officials are not Police Officers. The confession through retracted, is an admission and binds the petitioner.
Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560

In statement u/s 132(4), assessee never indicated about receipt of agricultural income outside the books – Later on assessee cannot change stand.
Jaikisan R. Agarwal Vs ACIT (ITAT, Pune) 66 TTJ 704

In a case where party relied on self-serving recitals in documents it was for the party to establish the truth of these recitals. - The taxing authorities were entitled to look into the surrounding circumstances and find out the reality of such recitals.
CIT Vs Durga Prasad More (SC) 82 ITR 540

For retraction to be valid, threat or coercion has to be proved .
Manharlal Kasturchand Chokshi Vs ACIT (ITAT, Ahd) 61 ITD 55
Param Anand Builders Vs ITO (ITAT, Mum) 59 ITD 29
Works of Art (P) Ltd, Vs ACIT (ITAT, Jp) 65 ITD 40
Amritlal Bhagwandas Soni Vs DCIT (ITAT, Ahd) 59 TTJ 418
Hiralal Maganlal & Co. Vs DCIT (ITAT, Mum) 96 ITD 113

Addition on the basis of stock statement given to Bank – valid.
Coimbatore Spinning & Weaving Co. Ltd. Vs CIT (Mad) 95 ITR 375
CIT Vs Ashok Textiles (P) Ltd. (Ker) 141 ITR 785
Great Indian Textiles Vs DCIT (ITAT, Cochin) 58 TTJ 123
God Granites Vs ITO (ITAT, Bang) 65 ITD302
Tip Top Plastic Industries P. Ltd. Vs ITO (Mad) 214 ITR 778
Kaila Sweet Supplier Vs CIT (All) 100 Taxman 59
S. Murugappa Chettiar Vs CIT (Ker) 174 ITR 245
Ramanlal Kacharulal Tejmal Vs CIT (Bom) 146 ITR 368

Valuation done by qualified engineers for LIC and loan advanced by LIC on that basis – AO can rely on such valuation report.
G. Anirudhan Vs ACIT (ITAT,Cochin) 60 TTJ 49

When statement was made voluntary and was not alleged to have been obtained under threat or coercion, onus was on assessee to prove that said declaration was made under any misconception of facts – Since assessee had not taken any steps to rectify its declaration before authorities before whom such declaration was made, there was no valid reason for retraction of same after a gap of about two and a half months
Carpenters Classics (Exim) (P) Ltd. Vs DCIT ( ITAT, Bang ) 108 ITD 142