Category: Direct Taxes

1. Keyman Insurance Policy
taken on the assessee by the employer company was assigned to him in the year
subsequent to the year of the policy at a much lower value.

2. However the value was
paid by the assessee in a different year and the policy was assigned to him in a
different year. The case of assessee subsequently went to the Tribunal so as to
decide the year of taxability and amount of taxable benefits.

3. The Tribunal held that
the surrender value of the policy less value paid by the assignee to the
assignor and less subsequent premium paid will be the benefits accruing to the
assessee. The decision of the Tribunal was, in a way, against the assessee.

4. The AO subsequently
initiated penalty proceedings u/s.271(1)(c) for concealment of income.

5. Also in A.Y. 2004-05 the
assessee received Rs.2.85 crore on maturity, which he claimed as exempt
u/s.10(10D) for an amount equal to 2.51 crore. The AO disallowed the exemption
and also initiated penalty proceedings for entering wrong amount and also for
concealment of income.

6. The above actions of the
AO was upheld by the learned CIT(A).

1. The assessee had
disclosed complete facts to the Department during the course of hearing and the
addition was entirely due the difference of opinion between the assessee and the
AO.

2. Since the year in which
the amount paid by the assessee to the assignor was different from the year in
which the policy was assigned to him, the issue was a matter of considerable
debate and discussion.

3. It was held that the
explanation tendered by the assessee was bona fide notwithstanding the fact that
sketchy disclosure was made in the return of income and the whole issue of
taxation of the amount was highly debatable.

4. Also for the A.Y. 2004-05
the issue of taxability of sum received on maturity of erstwhile Keyman
Insurance Policy, from the LIC was highly debatable.

5. Hence penalty
u/s.271(1)(c) was not leviable.

33 (2010) 127 ITD 94 (Bang.)

Asha Housing Enterprises v.
DCIT

A.Y. 2003-04. Dated :
31-3-2010

S. 45 r.w. S. 28(i) —
Assessee was in the business of real estate — Land was held as investment —
Agreement of sale entered in F.Y. 2002-03 — Full sale consideration received by
F.Y. 2004-05 — Long-term capital gains offered to tax in A.Y. 2005-06 — AO held
it as business income for A.Y. 2003-04 — Held : Land to be treated as investment
and transfer is said to be complete in F.Y. 2004-05.

Facts :

The assessee firm was
engaged in real estate business. It had purchased land in the year 1992. On
22-6-2002, the assessee had entered into agreement of sale with A Developers for
Rs.12.25 crores. On the date of agreement, the assessee received a part payment
of Rs.5.25 crores. Thereafter, sale consideration was received in piecemeal in
the F.Ys. 2002-03, 2003-04 and 2004-05. The assessee offered to tax the income
arising out of this transaction as long-term capital gains in the A.Y. 2005-06.

The Assessing Officer
assessed the income as business income arising in A.Y. 2003-04. The AO observed
that general power of attorney (GPOA) in the favour of developers was executed
in F.Y. 2002-03 and therefore transfer had taken place in A.Y. 2003-04.

Held :

1. The execution of GPOA
cannot be construed as transfer of property.

2. The AO was not having any
conclusive evidence to show that possession of property was indeed handed over
to the developers.

3. The agreement of sale
clearly stated that the vendor shall deliver the possession of property on the
date of sale and against payment of entire sale consideration. The supplemental
agreement also had stated that the vendors at request of purchasers have
permitted by way of licence to enter upon the property to do the work of
property and that the licence granted to the purchasers was on specific
condition that the same shall not be construed as possession u/s.53A of the
Transfer of Property Act.

4. The assessee had held the
said land as investment right from the time the land was purchased. In the F.Y.
2000-01, the assessee had sold a portion of property and treated the gain out of
the same as long-term capital gain. The Department had accepted the same. The
Department cannot now treat the land as stock-in-trade. A firm involved in real
estate business can hold land as investment and/or stock-in-trade.

5. In view of the above, the
assessee had correctly offered income as long-term capital gains for A.Y.
2005-06.

1. The assessee received an
amount of Rs.2,50,000 as a gift from Mr. Rakesh Walia (donor), a resident of
Delhi. The donor was friend of the assessee’s father, and had received some help
from the assesse’s father earlier. So he had made a gift to the assessee.

2. The assessee, during
assessment, produced before the AO copy of deed of declaration of gift dated
24-1-2002 executed by the donor, his affidavit confirming the gift with his
complete address, a copy of his PAN Card and proof that he is an old income
tax-assessee, a photocopy of his ration card, a copy of accounts of the donor in
the books of Balaji Trading Corporation, Delhi (Balaji) and his Balance Sheet as
on 31-3-2001. Also the donor himself was produced before the AO and he confirmed
the gift and also gave reasons to the AO for giving the gift.

3. The AO observed that the
donor himself was a person of low financial status having monthly income of
Rs.5,000. He has no fixed assets of his own including any immovable property or
fixed deposits. He had a deposit of Rs.1,25,000 with Balaji, from which he
received Rs.2,46,000 which he forwarded to the assessee as gift. However the
reason of deposit with Balaji was not explained.

4. The Assessing Officer was
satisfied with the identity of the owner, however he was not satisfied with the
source of the income. So he invoked the provisions of S. 68 which was upheld by
the CIT(A).

1. The ITAT observed that
there could be two possibilities of the situation :

Genuiness of the gifts
stands to be proved in the lights of all the evidences brought on record by the
assessee (in the favour of the assessee).

Considering the
creditworthiness and capacity of the donor and closeness and natural love and
affection between the donor and the donee, the source of the gift is doubtful
(in the favour of Revenue).

2. S. 68 provides for
charging the sum credited in the books of the assessee as the income of the
assessee, if the assessee offers no explanation as to the nature and source of
the same.

3. Since the assessee has
explained the nature and sources of the credit by way of a gift, which
satisfactorily explains the genuineness of the gift, it cannot be added to the
income of the assessee as unexplained income u/s.68.

The assessee, a contractor,
was required to get work done through sub-contractors. While assessing the total
income of the assessee, the AO disallowed a sum of Rs.1,16,58,614 u/s.40(a)(ia)
of the Act on the ground that the amount of tax deducted at source was not
deposited before the last day of the previous year.

Aggrieved by the order of
the AO the assessee preferred an appeal to the CIT(A) who observed that the AO
has disallowed the amounts based on unamended provisions of S. 40(a)(ia). The
CIT(A) observed that the provisions of S. 40(a)(ia) have been amended by the
Finance Act, 2008 w.e.f. 1-4-2005, and the amended provisions provide that tax
deducted in the last month of the previous year can be deposited before due date
specified u/s.139(1) of the Act for furnishing return of income. Accordingly, he
granted relief to the extent of payments aggregating to Rs.53,02,227 in respect
of which tax was deducted in the month of March 2004 and was paid on 19-7-2005
i.e., before the due date of filing return of income.

Aggrieved the assessee
preferred an appeal to the Tribunal where it contended that the amendment made
by the Finance Act, 2010 to provisions of
S. 40(a)(ia) w.e.f. 1-4-2010 is clarificatory in nature and since the tax
deducted has been deposited before the due date of filing return of income, no
disallowance u/s.40(a)(ia) is called for.

The Tribunal after going
through the history of the provisions of S. 40(a)(ia) observed that the
amendments brought out in S. 40(a)(ia) of the Act from time to time were
clarificatory and when an amendment is declaratory and clarificatory in nature,
the presumption against its retrospectivity is not applicable and amendments of
this kind only declare. It observed that it is no doubt true that, ordinarily, a
statute, and particularly when the same has been made applicable with effect
from a particular date should be construed prospectively and not
retrospectively. But this principle will not be applicable in a case where the
provision construed is merely explanatory, clarificatory or declaratory.

The Tribunal held that the
provisions of S. 40(a)(ia) as amended by the Finance Act, 2010 w.e.f. 1-4-2010,
which has newly been inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005
to S. 40 of the Act is remedial in nature, designed to eliminate unintended
consequences which may cause undue hardship to the taxpayers and which made the
provision unworkable or unjust in a specific situation, and is of clarificatory
nature and, therefore, has to be treated as retrospective with effect from 1st
April, 2005, the date on which S. 40(a)(ia) has been inserted by The Finance
(No. 2) Act, 2004.

The Tribunal allowed the
appeal filed by the assessee.

30 (2010) TIOL 760 ITAT-Bang.

Addl. CIT v. Vijaya Bank

ITA No. 105/Bang./2009

A.Y. : 2002-03. Dated :
30-9-2010

The assessment of total
income of the assessee, a nationalised bank, was completed u/s.143(3) of the
Act. Aggrieved by the additions made by the Assessing Officer (AO) the assessee
preferred an appeal to the CIT(A) who partly allowed the appeal of the assessee.
While giving effect to the order passed by the CIT(A) the AO did not grant
interest u/s.244A on the self-assessment tax, amounting to Rs.15.50 crores, paid
by the assessee. The AO declined to pay interest on self-assessment tax on the
ground that there is no provision for allowing interest u/s.244A on the
self-assessment tax.

Aggrieved by the order of
the AO refusing to grant interest on self-assessment tax paid, the assessee
preferred an appeal to the CIT(A) who allowed the appeal filed by the assessee.
The AO pursuant to the CIT(A)’s order granted interest on self-assessment tax
paid from the date of regular assessment, as against the claim of the assessee
that the interest ought to have been calculated from the date of payment of
self-assessment tax.

Aggrieved by the order of
the AO granting interest on self-assessment tax paid from the date of regular
assessment, the assessee preferred an appeal to the CIT(A) who held that the
assessee is entitled to interest u/s.244A on the excess payment of
self-assessment tax with effect from the date on which it was paid by the
assessee and directed the AO to grant interest u/s.244A to the assessee
accordingly. He also held that the assessee is entitled to interest on interest
u/s.244A of the Act by following the decision of the SC in the case of Sandvik
Asia v. CIT, (280 ITR 643).

The Tribunal having
considered the Circular No. 549, dated 31st October, 1989 and also the decision
of the Delhi High Court in the case of CIT v. Sutlej Industries Ltd., (325 ITR
331) (Del.), which decision follows the decision of the Madras High Court in the
case of Cholamandalam Investment and Finance Co. Ltd., 294 ITR 438, upheld the
decision of the CIT(A) that the assessee is entitled to interest u/s.244A on
excess payment of self-assessment tax with effect from the date of payment of
self-assessment tax. The Tribunal held that the decision of the jurisdictional
High Court in the case of CIT v. MICO, (ITA No. 419 of 2003 dated 9th July,
2008), on which reliance was placed by the Revenue, is distinguishable on facts
since in that case the Court was dealing with payment of interest u/s.244A on
excess payment of advance tax, unlike the present case where interest is being
claimed on excess payment of self-assessment tax paid u/s.140A of the Act.

The assessee conducted
transportation business not only with two light commercial vehicles (LCVs) owned
by the assessee but also hired vehicles owned by others. The annual gross
receipts were Rs.91,33,192. The break-up of the turnover was : (a) on account of
two LCVs owned : Rs.63,93,234 and (b) other vehicles : 27,39,958. The Assessing
Officer levied penalty u/s.271B for not getting the books of accounts audited.
The CIT(A) also confirmed the order of penalty on the ground that the assessee,
who is engaged with the composite business employing both own as well as the
hired vehicles from others, is outside the ambit of S. 44AE.

The assessees with multiple
businesses are not barred entirely from availing the benefits of the provisions
of S. 44AE. The assessee with multiple businesses, which include the business of
plying etc. with their own goods carriage, are not only entitled to the benefits
of S. 44AE but also for the exclusion of the relevant turnover from the total
turnover of all the businesses of the assessee for the purpose of computation of
monetary limits for S. 44AB of the Act in view of the existence of S. 44AE(5).

27 ACIT 8(3) v. Vazir Glass
Works Ltd.

ITAT ‘F’ Bench, Mumbai

A.Y. : 2001-02. Decided on : 24-11-2008

Counsel for revenue/assessee : J. V. D. Langstein/ B. V.
Jhaveri

The assessee-company was engaged in the business of glass
vials and bottles. One of the issues before the Tribunal was whether the AO was
justified in levying a penalty u/s.271(1)(c) in respect of the assessment of
rental income under the head ‘Income from House Property’ as against the
assessee’s claim of it being chargeable under the head ‘Income from Business’.

The Tribunal found that out of the gross receipt of Rs.23.14
lacs, the sum of Rs.11.14 lacs received by the assessee was by way of
reimbursement of expenses incurred towards electricity and telephone. And the
balance sum of Rs.12 lacs was credited by the assessee to miscellaneous receipts
account and shown accordingly in the Profit and Loss Account. According to the
Tribunal this was a case of honest difference of opinion between the assessee
and the Department on whether rental income was assessable as ‘Income from House
Property’ or as ‘Business Income’. The Tribunal also observed that it was not
the case of the AO that the expenses incurred were not genuine. Thus, the
explanation of the assessee that the income was assessable as income from
business was found bona fide one. Therefore, the Tribunal held that this
case cannot be said to be a case of furnishing inaccurate particulars of income.
According to the Tribunal the assessee had not concealed any facts from the
Department and, therefore, no penalty can be levied u/s. 271(1)(c).

26 ACIT v. Mehul J. Somaiya

ITAT ‘B’ Bench, Mumbai

A.Y. : 2002-03. Decided on : 10-12-2008

Counsel for revenue/assessee : G. Gurusamy/

C. N. Vaze

During the year the assessee had returned income under the
head salary, business and income from other sources. In respect of income under
the head business, he had three different sources of income viz., (i)
Remuneration from partnership firm where he was a partner; (ii) income from
proprietary concern; and (iii) consultancy fee. In respect of the first two
sources of business income, the assessee was following mercantile system of
accounting, while in case of the latter, the assessee claimed that it was
following cash method of accounting. Accordingly, from the consultancy fee of
Rs.7.87 lacs receivable, he offered to tax the sum of Rs.41,344 i.e., the
sum equal to the tax deducted at source by the client and for which the TDS
certificate was received by him, for tax.

According to the AO, the assessee was not allowed to adopt
different methods of accounting for different sources of income falling under
the same head. Therefore, he brought to tax the entire consultancy fee of
Rs.7.87 lacs. On appeal, the CIT(A) allowed the appeal of the assessee.

The Tribunal noted that the object of the amendment of S. 145
made by the Finance Act, 1995 was only to do away with the mixed system of
accounting, by which certain transactions relating to a particular source
were recorded following one system and the other transactions following the
other system of accounting. According to the Tribunal, if there were more than
one sources of income falling under the same head of income, and the assessee
follows either cash or mercantile system of accounting for different sources
income, it cannot be said that the hybrid system of accounting for different
sources of income is being followed. According to it, so long as for a
particular source either cash or mercantile system was followed, there can be no
objection. Thus, as noted by the CIT(A), since the assessee was consistently
following the cash system of accounting for his consultancy income, it accepted
the submission of the assessee and dismissed the appeal filed by the Revenue.

ITAT Cochin

A.Y. : 2002-03. Decided on : 5-12-2008

Counsel for assessee/revenue : R. Sreenivasan/

V. M. Thyagarajan

The assessee is engaged in the business of processing frozen
foods. During the relevant assessment year, the assessee sold two of its units
for valuable considerations. Both the units were sold to two different buyers
and the consideration for both the units was arrived at based on the separate
valuations done for land, building and each of the items of plant and machinery.
The assessee regarded these transactions as sale of depreciable assets as per
provisions of S. 50 of the Act. The Assessing Officer by way of reassessment
u/s.148, brought these amounts to tax as slump sale within the meaning of S. 50B
of the Act. Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld
the action of the AO. Aggrieved by the order of the CIT(A), the assessee
preferred an appeal to the Tribunal.

The Tribunal observed that there is ample evidence which
shows that there is bifurcation of sale profits, splitting up of the value
between movable and immovable assets and the assets are depreciable assets. The
Tribunal held that this is a case where S. 50 is squarely applicable. It is not
the aggregate value taken as the net worth for the purpose of application of
slump sale provision as u/s.50B. The Tribunal found the decision of the Cochin
Tribunal in the case of International Creative Foods P. Ltd. to be squarely
applicable to the facts of the case. Accordingly, the Tribunal set aside the
order of the authorities below and following the decision of the Cochin Tribunal
in the case of International Creative Foods P. Ltd. allowed the claim of the
assessee.

ACIT v. International Creative Foods P. Ltd., ITA Nos.
227/Coch./2006 and 447/Coch./2007, dated 10-9-2008.