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Category: Tribunal News : PART B - Unreported Decisions

9 Section 11(4A) – Income from pharmacy shop run by a charitable hospital – Operation of pharmacy shop was intrinsic to the activities of running of hospital and hence, did not constitute business.

DCIT
(Exemption) vs. National Health & Education Society (Mumbai)

Members: Joginder Singh (J.M.) and Manoj
Kumar Aggarwal (A.M.)

I.T.A. No.1958/Mum/2016

Assessment Year: 2012-13.  Date of Order: 10th January, 2018

Counsels for Revenue / Assessee:  H. N. Singh / S. C. Tiwari and Rituja Pawar



FACTS

The assessee trust is registered u/s. 12A
with DIT (Exemptions) and also registered with Charity Commissioner,
Bombay.  During the assessment
proceedings, the AO noted that the trust was running a pharmacy shop in the
hospital and achieved turnover of Rs.42.83 crore with net surplus of Rs.16.73
crore. The turnover of the shop constituted about 12.82% of total hospital
collections. The income from the shop, in the opinion of the AO, constituted
business income in terms of section 11(4A). The assessee defended the same on
the ground that the drugs were supplied only to in-patients upon consultant’s
prescription and the charges of the drugs formed part of final patients’ bills.
However, the AO noted that the Trust Deed did not bar the hospital from selling
medicines to outsiders and the activity of pharmacy shop was systematic
business activity. The AO further noted that the trust was not maintaining
separate books of accounts for the shop. Finally, the net surplus of Rs.16.73
crore earned from the shop was assessed as business income against which
exemption under section 11 was denied.

 

Aggrieved, the assessee contested the same
successfully before the CIT(A), where the CIT(A), relying upon the order of its
predecessor in AYs 2010-11 & 2011-12, allowed the appeal of the assessee on
the premises that operation of the pharmacy shop was intrinsic to the
activities of the assessee and not incidental, and did not constitute business
and therefore, the provisions of section 11(4A) were not applicable.

 

In appeal filed before the Tribunal, the
revenue contested the findings of the CIT(A) on the ground that the assessee
had not maintained separate books of accounts for pharmacy shop and therefore,
failed to fulfill the conditions envisaged by section 11(4A).

 

HELD

The Tribunal noted that the issue had
already been decided in assessee’s favour by first appellate authority for AY
2010-11 & 2011-12. Also, it was noted that the Mumbai Tribunal, in the
assessee’s own case vide ITA No.87/Mum/2015 order dated 17/08/2016 for AY
2010-11, after considering the judgement of the Bombay High Court in Baun
Foundation Trust vs. CCIT [2012 73 DTR 45 (Bom)] and Mumbai Tribunal in
Hiranandani Foundation vs. ADIT [ITA Nos. 560-563/Mum/2016 order dated
27/05/2016] had upheld the stand of the CIT(A). Since the revenue was
unable to bring any contrary facts on record and distinguish the facts of
earlier years with that of the impugned assessment year, the Tribunal dismissed
the revenue’s appeal.

8 Sections 50C and 54F – For the purpose of section 54F net consideration is the amount of sale consideration and not the deemed consideration determined u/s. 50C.

ITO vs. Raj Kumar Parashar (Jaipur)

Members: Kul Bharat (J. M.) and Vikram Singh
Yadav (A. M.)

ITA No.: 11 / JP / 2016

AYs: 
2011-12.     Date of Order: 28th September, 2017

Counsel for Revenue / Assessee:  Prithviraj Meena / Hemang Gargieya


FACTS

During the year under consideration, the
assessee had sold a property for a consideration of Rs. 24.6 lakh and deposited
the sale consideration in the capital gain account scheme for the purpose of
purchasing a new house property.  The
entire capital gain earned by the assessee was claimed as exempt u/s. 54F. The
stamp authority    adopted    the   
value   of the property sold at Rs. 96.03 lakh.  Applying the provisions of section 50C, the
AO held the assessee was required to invest / deposit the deemed sale
consideration of Rs. 96.03 lakh. Since the assessee had deposited Rs. 24.6 lakh
only, the AO computed   capital   gain 
at  Rs. 70   lakh  
after allowing Rs. 24.6 lakh as deduction u/s. 54F.

 

On appeal, the CIT(A) referred to the
definition of ‘net consideration’ as given in Explanation to section 54F and
also relying on the decision of the Jaipur bench of Tribunal in the case of Gyanchand
Batra (ITA No. 9 / JP / 2010) dated 13.08.2010 held that the deeming
provision in section 50C would not be applicable to section 54F and
accordingly, allowed the appeal of the assessee.

 

Before the Tribunal, the revenue supported
the order of the AO and contended that the order of the CIT(A) was not in accordance with the express provisions of section 50C.

 

HELD

According to the Tribunal, as per the
provisions of section 54F, where the net consideration in respect of the
original asset is fully invested in the new asset, the whole of the capital
gains is exempt and no part of the consideration can be charged u/s. 45. The
Tribunal agreed with the CIT(A) that the consideration which is actually
received or accrued as a result of transfer has to be invested in the new
asset.  In the instant case, since the
consideration which had accrued to the assessee as per the sale deed was
Rs.24.6 lakhs and the whole of the said consideration was invested in the
capital gains accounts scheme for purchase of the new house property, the
provisions of section 54F(1)(a) were complied with and the assesse was eligible
for deduction in respect of the whole of the capital gains computed u/s.
45. 

 

8 Section 54F – If the assessee has invested sale consideration in the construction of a new residential house within three years from the date of transfer, deduction u/s. 54F cannot be denied on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed u/s. 139(1) of the Act.

[2017]
86 taxmann.com 72 (Kolkata)

Sunayana Devi vs. ITO

ITA No. : 996/KOL/2013

A.Y. : 2004-05    

Date of Order: 
13th September, 2017

Section 54F – If the assessee has invested
sale consideration in the construction of a new residential house within three
years from the date of transfer, deduction u/s. 54F cannot be denied on the
ground that he did not deposit the said amount in capital gain account scheme
before the due date prescribed u/s. 139(1) of the Act.

FACTS 

During the
previous year under consideration, the assessee, an individual, sold land for a
consideration of Rs. 20 lakh on 9.12.2003. 
The stamp duty value of the land sold was Rs. 41,00,000.  Of the Rs. 20 lakh received on sale of land,
the assessee utilised a sum of Rs. 3,50,000 on purchase of land for
construction of a new residential house, on 29.7.2004, and also paid Rs. 31,839
as stamp duty thereon.

The Assessing Officer with a view to verify
the details of deposit of balance consideration in Capital Gains Account called
for the required details.  The assessee
did not file the required details. In the circumstances, the AO proceeded to compute
long term capital gain at Rs. 38,94,750 by adopting stamp duty value of the
land transferred as full value of consideration. He denied allow exemption u/s.
54F of the Act.

Aggrieved, the
assessee preferred an appeal to CIT(A). 
In the course of appellate proceedings, photocopy of pay in slip was
furnished to substantiate that cash of Rs. 2,60,000 was deposited on 31.7.2004
in Capital Gains Account Scheme and a cheque of Rs.13,90,000 was deposited on
30.7.2004 which cheque was misplaced by the Bank and on 12.2.2005 a fresh
cheque was issued to the bank for deposit in Capital Gains Account Scheme.  The CIT(A) held that the assessee was
entitled to deduction of Rs. 2,60,000 u/s. 54F as this was the amount deposited
in Capital Gains Account Scheme by 31.07.2004 being due date of furnishing
return of income u/s. 139(1) of the Act. 
With regard to the balance sum of Rs. 13,90,000 ( Rs.16,50,000 – Rs.
2,60,000) since deposit was made after 31.07.2004, the CIT(A) held that the
assessee will not be entitled to deduction u/s. 54F of the Act.

Aggrieved, the
assessee preferred an appeal to the Tribunal.

HELD 

In the course
of appellate proceedings before the Tribunal, it was submitted that though the
completion certificate was not received within three years, the remand report
established that an Inspector was deputed to conduct spot inquiry and the
Inspector reported that the construction was completed within three years from
the date of transfer. 

The Madras High
Court has in the case of CIT vs. Sardarmal Kothari [2008] 302 ITR 286
(Mad.), held that it would be enough if the assessee establishes that he
has invested the  entire net
consideration within the stipulated period. The Chennai Bench of ITAT in the
case of Seetha Subramanian vs. ACIT [1996] 59 ITD 94 (Mad.) has taken a
view that investment of net consideration for construction of the house has
alone to be seen for allowing deduction u/s. 54F of the Act. The Tribunal held
that the absence of completion certificate cannot be a ground to deny the
benefit of deduction u/s. 54F of the Act. 

The Tribunal
observed that having come to the conclusion that the assessee had utilised the
net consideration in construction of a house within a period of 3 years from
the date of transfer, the question would be whether the absence of deposit of
unutilised net consideration in a specific bank account as is required u/s
54F(4) of the Act, should the assessee be denied the benefit of deduction u/s.
54F of the Act.

The Tribunal
noted that the Karnataka High Court has in the case of CIT vs. K.
Ramachandra Rao [2015] 567 taxmann.com 163 (Karn.) held that if the
assessee invests the entire consideration in construction of the residential
house within 3 years from the date of transfer, he cannot be denied deduction
u/s. 54F of the Act on the ground that he did not deposit the said amount in
capital gains account before the due date prescribed u/s. 139(1) of the Act.

Considering the
factual position that the assessee invested the sale consideration in
construction of a residential house within three years from the date of
transfer and also the decision of the Karnataka High Court in the case of CIT
vs. K. Ramachandra Rao (supra), the Tribunal held that the assessee should
be given the benefit of deduction u/s. 54F of the sum of Rs. 16,50,000 also and
this benefit cannot be denied on the ground that he had not complied with the
requirements of section 54F(4) of the Act. 

The Tribunal
held that in effect the assessee would be entitled to a deduction of Rs.
20,31,839 viz. for the investment of Rs. 3,50,000 in purchase of land, Rs.
31,839 stamp duty and registration charges and Rs. 16,50,000 utilised for
construction of a residential house within the period specified u/s. 54F(1) of
the Act.  It directed the AO to allow
deduction of Rs. 20,31,839 u/s. 54F of the Act.

7 Section 37 – Expenditure incurred on stamp duty and registration charges on sale of flats, to attract buyers, as an incentive scheme by duly advertising the same, is allowable as a revenue expenditure.

[2017] 87 taxmann.com 70 (Mum.)

Kunal
Industrial Estate Developers (P.) Ltd. vs. ITO

ITA No. :
307/MUM/2017

A.Y.: 2012-13

Date of
Order:  10th October, 2017

Section 37 –
Expenditure incurred on stamp duty and registration charges on sale of flats,
to attract buyers, as an incentive scheme by duly advertising the same, is
allowable as a revenue expenditure.

Interest on
delayed payment to creditors for payment beyond credit period is allowable
expenditure, since it is in relation to business carried on by the assessee.

FACTS-I 

During the
previous year under consideration, the assessee, a builder, with a view to
attract buyers came up with a scheme of bearing expenses on stamp duty and
registration charges. This offer was known as Monsoon Offer and was advertised
in the newspapers as such.  The assessee
incurred a sum of Rs. 2,28,400 as Stamp Duty and Rs. 1,28,450 as registration
charges in respect of flats registered and recorded as sales during the
year.   This amount was claimed as a
deduction. In the course of assessment proceedings, the assessee filed copies
of relevant extracts of the newspaper in which the scheme was advertised. The
Assessing Officer (AO) disallowed this expenditure without stating the ground
or reason for disallowance. 

Aggrieved, the
assessee preferred an appeal to CIT(A) who upheld the action of the AO without
mentioning any specific reason except mentioning that it is not a revenue
expenditure.

Aggrieved, the
assessee preferred an appeal to the Tribunal.

HELD-I  

The Tribunal
noted that the CIT(A) had not given any reasons for upholding the disallowance
except stating that it is not a revenue expenditure. It held that when the
assessee had made the expenditure on stamp duty and registration charges, as
the incentive scheme by duly advertising the same, it did not give any reason
as to how it could not be treated as a revenue expenditure. It observed that
this expenditure is in relation to the sale of the item in which the assessee
deals in and the same is stock-in-trade. 

Expenditure
related to the sale of the item in which the assessee deals in, can by no
stretch of imagination be deemed to be capital expenditure. The Tribunal set
aside the orders of the authorities below on this issue and decided this ground
in favour of the assessee.

FACTS-II 

During the
previous year under consideration, the assessee,  a 
builder,   incurred  and  
claimed  a  sum  
of Rs. 17,999 as
interest on delayed payments to parties. This interest, it was submitted, was
charged by the parties since their payments were delayed beyond the credit
period.  The AO disallowed this amount
claimed by the assessee.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who upheld the action of the AO on
the ground that this interest payment on delayed payment to creditors is not
compensatory in nature and therefore, not allowable.

Aggrieved, the
assessee preferred an appeal to the Tribunal.

HELD-II  

The Tribunal
noted that the AO made the disallowance by holding that this interest is penal
in nature and cannot be allowed as a business expenditure. However, there is no
discussion in the assessment order as to how this is penal payment, not
allowable as a business expenditure. The action of the CIT(A) was held to be
absolutely mechanical. The Tribunal held that when the assessee is paying the
creditors interest for payment made beyond the credit period allowed, the
expenditure is undoubtedly in relationship (sic relation) to the
business conducted by the assessee and is therefore allowable. The Tribunal set
aside the orders of the AO and CIT(A) on this issue and decided this ground in
favour of the assessee.

2 Section 43(1) – Grant / subsidy received for research – Assessee in books of account reduced it from the cost of plant and machinery but depreciation claimed on the original cost – Tribunal upheld the assessee’s action of claiming depreciation on the cost of fixed assets without deducting the grant / subsidy amount.

1.      
Spectrum Coal & Power Ltd.
vs. ACIT (Mumbai)

Members: P. K. Bansal (V. P.) and Pawan
Singh (J. M.)

ITA Nos.: 1295 and 1296 / Mum / 2012.

A.Ys.: 2000-01 and 2001-02,           Date of Order: 3rd August,
2017

Counsel for Assessee / Revenue: Salil Kapoor
/ Ram Tiwari

FACTS

The assessee
had received a sum of Rs. 9.97 crore from US Aid through ICICI under the
Program for Acceleration of Commercial Energy Research in the years 1996-97 and
1997-98, which was credited to the capital reserve in the balance sheet of the
Company’s accounts. In the F.Y. 1999-2000, the assessee company had adjusted
this amount against the investment in plant and machinery. However, the cost of
plant & machinery was not reduced to this extent while calculating the
written down value (WDV) for the purpose of determining the depreciation as per
the provisions of the Income-tax Act. The Assessing Officer treated the grant
received by the assessee from US Aid through ICICI as cost met directly or
indirectly by any other person or authority as per the provisions of Section
43(1) and in computation of WDV of the plant and machinery for the purpose of
calculation of depreciation the amount of grant received was reduced from the
cost of plant and machinery. On appeal, the CIT(A) confirmed the order of the Assessing
Officer.

Before the
Tribunal, the assessee submitted that the grant was not given to meet the cost
of any specific asset but to create an institutional environment for the
technology innovation in the energy sector. Further, it was pointed out that
this grant was repayable by the assessee. The repayment had to be made @2% of
the gross annual sales. The Revenue on the other hand, supported the decision
of the lower authorities and argued that the true nature of the amount received
by the assessee was not loan, but it was a grant. The ICICI had merely turned
this assistance into a conditional grant while extending this amount to the
assessee, repayable amount being twice the amount of conditional grant given as
royalty linked to the sales. It was contended that the assessee had merely
returned a sum of Rs 20 lakh. Thereafter, neither the ICICI Ltd. has recovered
the amount from assessee company nor the assessee has provided for any royalty
payable to ICICI Ltd. in its books of account. The conduct of the assessee
shows that it has treated this amount given by ICICI Ltd. as aid / assistance /
grant / subsidy and not as a loan.

HELD

The Tribunal
went through the agreement entered into between the assessee and ICICI Ltd.
under which the assessee was given the said amount. Based thereon, it noted
that the assessee was required to repay the said grant subject to the condition
that the maximum repayment amount will not exceed 200% of the grant received
and till then the assessee was to pay 2% of the gross annual sales of the coal
beneficiated under the proposed commercial project.

According to
the Tribunal, the grant from this agreement was conditional. It was a financial
arrangement and cannot be regarded to be a subsidy / grant. The Tribunal also
observed that the grant was to create an institutional environment for
technological innovations in the energy sector. Therefore, even if the grant is
not treated as the financial arrangement and was treated as a subsidy, as
contended by the revenue, it was not for a specific plant & machinery.

The Tribunal
further relied on the decision of the Visakhapatnam Tribunal in the case of Sasisri
Extractions Limited vs. ACIT (122 ITD 428) and noted that even after
insertion of Explanation 10 to section 43(1), the Tribunal has categorically
held that the basic principle underlying the decision of the Apex Court in the
case of CIT vs. P. J. Chemicals (210 ITR 830), still holds good.
Accordingly, it was held that financial grant received by the assessee could
not be reduced from the actual cost of fixed assets for computing the
depreciation under the Income-tax Act.

1 Section 11 – (i) Depreciation allowed on fixed assets cost of which was allowed as application of income; (ii) Assessee allowed the benefit of carry forward of deficit for future set-off.

1.      
DCIT vs. Gharda Foundation
(Mumbai)

Members: G. S. Pannu (A. M.) and Amarjit
Singh (J. M.)

ITA Nos.: 5962 & 5963/MUM/2016

A.Ys.: 2011-12 and 2012-13,

Date of Order: 30th August, 2017

Counsel for Revenue / Assessee: Saurabh
Deshpande / Hiro Rai

FACTS

The assessee
being a charitable organisation registered u/s. 12A was engaged in carrying on
activities of charitable nature. The dispute involved in the appeal was on two
issues – firstly, the Revenue was aggrieved by the decision of the CIT(A) in
directing the AO to allow the benefit of depreciation and secondly, the action
of the CIT(A) in allowing the assessee the benefit of carry forward of the
deficit of Rs. 3.5 crore for future set-off.

Before the
Tribunal, the revenue justified the AO’s action pleading that the decision of
the Bombay High Court in the case of CIT vs. Institute of Banking Personnel
Selection (264 ITR 110), which was relied on by the assessee, had not been
accepted by the Department on merits and on a similar issue, SLP (Civil) no.
9891 of 2014 has been filed before the Supreme Court in the case of Maharashtra
Industrial Development Corporation. Further, it was contended that allowing of
depreciation would amount to a double deduction, which was impermissible having
regard to the judgment of the Supreme Court in the case of Escorts Ltd. (199
ITR 43).

HELD

The Tribunal
noted that the decision in the case of Escorts Ltd. being relied upon by the
Revenue had been considered by the Delhi High Court in the case of Indraprastha
Cancer Society, (112 DTR 345), wherein it opined that the allowance of
depreciation in similar situation would not amount to a double deduction.
Further, it was noted that the Delhi High Court in the case of Vishwa Jagriti
Mission, ITA No. 140/2012 dated 29.3.2012 also allowed a similar claim after
analysing the judgment of the Supreme Court in the case of Escorts Ltd. It also
noticed that the Supreme Court had dismissed the SLP filed by the Department
against the said decision of the Delhi High Court vide SLP No. 19321 of 2013.
The Tribunal further noted that the Bombay High Court, subsequent to the
decision in the case of Institute of Banking Personnel Selection, had
considered a similar argument of the Revenue in the case of Mumbai Education
Trust, ITA No. 11/2014 dated 03.05.2016 and had allowed the claim of the
assessee. Therefore, the Tribunal dismissed the appeal filed by the revenue on
this ground and allowed the depreciation as claimed by the assessee.

 

As regards the
issue relating to carry forward of the deficit of Rs.3.50 crore to be set-off
against the future income, the Tribunal upheld the order of the CIT(A) relying
on the judgements of the Bombay High Court in the case of Mumbai Education
Trust.

1 Section 54 – Two separate contracts for purchase of flat viz. one for house property and the other for furniture, etc. considered, in substance, as the one only and deduction allowed in full.

Rajat B. Mehta vs. Income Tax Officer
(Ahmedabad)
ITA No. 19/Ahd/16
A.Y: 2011-12. Date of Order: 9th February, 2018
Members: Pramod Kumar (A.M.) and S. S.
Godara (J.M.)Counsel for Assessee / Revenue:  Urvashi Shodhan / V. K. Singh


FACTS
The assessee is a non-resident who sold off a house for a consideration of Rs 2.46 crore and earned long term capital gain of Rs. 1.9 crore. He invested a portion of the sale proceeds, Rs. 78 lakhs, in another residential unit and claimed a deduction u/s. 54. The AO noted that the assessee had entered into two separate contracts viz., for purchase of house property and another for purchase of furniture and fixtures therein. The payment of Rs. 60 lakhs was for the purchase of house property and Rs. 18 lakhs was for the purchase of furniture and fixtures. The AO was of the opinion that the assessee had executed two separate deeds to save stamp duty on it, (and) now the assessee is trying to evade income tax. He was further of the view that most of the furniture items are removable, and, that it cannot be said that furniture was purchased to make the house habitable. Therefore, the AO declined deduction u/s. 54 F to the extent of Rs 18 lakhs paid under a separate agreement for furniture and fixtures in the residential property purchased by the assessee.

HELD
Analysing the provisions of section 54, the Tribunal noted that the expression used in the statute is “cost of the residential house so purchased” which according to it does not necessarily mean that the cost of the residential house must remain confined to the cost of civil construction alone. A residential house may have many other things, other than civil construction and including things like furniture and fixtures, as its integral part and may also be on sale as an integral deal. Further, it noted that there are, for example, situations in which the residential units for sale come, as a package deal, with things like air-conditioners, geysers, fans, electric fittings, furniture, modular kitchens and dishwashers. If these things are integral part of the house being purchased, the cost of house has to essentially include the cost of these things as well. In such circumstances, what is to be treated as cost of the residential house is the entire cost of house, and it cannot be open to the AO to treat only the cost of only civil construction as cost of house and segregate the cost of other things as not eligible for deduction u/s. 54.

However, from the arrangement in which the transaction was entered into, the Tribunal noted that in substance and in effect the house was sold for Rs 78 lakhs. Even if the assessee was to buy the house, without the furniture, it would have been for Rs 78 lakhs – as was clearly specified in the agreement to sell. The cause or trigger for the splitting of the consideration was not relevant and it had no bearing on de facto consideration for purchase of house property. The two agreements, according to it, cannot be considered in isolation with each other on standalone basis, and have to be considered essentially as a composite contract, particularly in the light of the undisputed contents of the agreement to sale. Given these facts, the Tribunal held that the cost of the new asset has to be treated as Rs 78 lakhs. Accordingly, the Tribunal directed the AO to delete the disallowance of deduction u/s. 54 to the extent of Rs 18 lakhs.

Sections 45, 48 – The cost of construction incurred by the Builder cannot be the consideration for exchange of land in the scheme of Joint Development. It is the FMV, based on the value of the Sub-Registrar, on the date of JDA, which needs to be taken as full value of consideration

16.  Y. S. Mythily vs. ITO
(Bangalore)

Members : Inturi Rama Rao (AM) and Lalit
Kumar (JM)

ITA No. 235/Bang./2016

A.Y.: 2006-07.                                                                    
Date of Order: 9th June, 2017.

Counsel for assessee / revenue: H. Guruswamy / Swapna Das

FACTS  

The assessee owned vacant site in respect of which she
entered into a Joint Development Agreement (JDA) with M/s Sai Dwarka Builders
and Developers. As per the terms of JDA entered into by the assessee, the
assessee agreed to transfer to the developer 55% of the undivided portion of
the land measuring 3153 sq. ft. (sic mts) out of total 5733 sq. ft. (sic mts)
and the remaining undivided portion of 2580 sq. mts was retained by the
assessee. The proposed built up area to be constructed was about 19,836 sq. ft.
out of which the assessee was entitled to 45% of the built-up area measuring
8735 sq. ft. in exchange of 3153 sq. ft of undivided portion of land and
developer was entitled to 55% of the built-up area measuring 11000 sq. ft.

In the course of assessment proceedings, the Assessing
Officer (AO) proposed to adopt cost of construction incurred by the Builder as
consideration for exchange of 55% of the undivided portion of land measuring
3153 sq. ft. According to the AO, the cost of construction, as provided by the
Builder to the AO, was Rs. 1238 per sq. ft. The AO accordingly, determined the
consideration to be Rs. 1,08,13,930 in respect of 55% of undivided portion of
land transferred by the assessee in favor of the Builder. The assessee, relying
on the ratio of the decision of Karnataka High Court in the case of Sri. Ved
Prakash Rakhra (2015) 370 ITR 762 (Kar.) submitted that the cost of
construction incurred by the Builder cannot be the consideration for exchange
of land in the scheme of Joint Development. The AO did not accept the
contentions of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who
dismissed the appeal on the ground that the decision of the Karnataka High
Court in the case of Sri. Ved Prakash Rakhra (supra) is distinguishable
in as much as in the case of the assessee the agreement does not mention the
price of land transferred by the assessee.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD 

The Tribunal upon going through the relevant clauses of the
JDA observed that neither the AO nor the CIT(A) had adjudicated as to the date
of transfer i.e. as to when the property would be transferred in terms of JDA.
In the opinion of the Tribunal, prima facie, the property would not be
transferred to the assessee during the assessment year under consideration in
terms of JDA. However, since this was not urged before the Tribunal, it did not
adjudicate this issue on merit.

The Tribunal held that for the purposes of
determining the cost of construction, in identical facts and circumstances of
the case, the Hon’ble jurisdictional High Court has in the case of Ved Prakash
Rakhra (supra) held that the date of entering into the JDA would be “the
date” for the purposes of arriving at the cost of transfer i.e. cost of
structure as on the date of agreement would be the cost of transfer instead of
cost of actual construction in terms of JDA. Following the decision of the High
Court, the Tribunal allowed the appeal filed by the assessee.

5 Sections 2(24), 28 – Subsidy in the nature of entertainment tax / duty collected, but not to be paid, constitutes capital receipt as it is meant for promotion of new industries by way of multiplex theatres.

  DCIT vs. Cinemax Properties Ltd. (Mumbai)

   Members : P. K.
Bansal (VP) and Pawan Singh (JM)

    ITA No.
5227/Mum/2015

     A.Y.: 2011-12. 
    
Date of Order: 09th August, 2017

     Counsel for revenue
/ assessee: Saurabh Deshpande / None

FACTS 

The
Assessing Officer, while assessing the total income of the assessee, disallowed
the claim of entertainment tax of Rs. 6,45,79,148 collected and claimed as
capital subsidy.

Aggrieved,
the assessee preferred an appeal to the CIT(A) who allowed the appeal filed by
the assessee.

Aggrieved,
the revenue preferred an appeal to the Tribunal.

HELD 

The
Tribunal noted that the similar issue arose in the case of the assessee in the
assessment years 2007-08, 2008-09, 2009-10 and 2010-11.

The
Tribunal in ITA No. 394/Mum/2012 dated 24.01.2014 for AY 2008-09 while dealing
with the same issue held the amount under consideration to be capital in
nature. The Tribunal had while deciding the appeal noted that the Bombay High
Court has in the case of CIT vs. Chaphalkar Brothers (ITA Nos. 1342
& 1443 of 2006), order dated 08.06.2011, held that the subsidy of this kind
constitutes capital receipt as it is meant for promotion of new industries by
way of multiplex theatres. The Tribunal also noted that in the case of
assessee’s sister concern namely Vista Entertainment Pvt. Ltd. (ITA No.
8402/Mum/2011) for AY 2008-09, it has been held that similar additions are not
sustainable, since the same amount is capital in nature. Following these
decisions, the Tribunal had dismissed the revenue’s appeal for AY 2008-09 and
had decided the issue in favour of the assessee. This order for AY 2008-09 was
followed while deciding appeals for AY 2009-10 and AY 2010-11.

Facts
being the same, the Tribunal did not find any illegality or infirmity in the
order of the CIT(A) deleting the addition of Rs. 6,45,79,148.

The
appeal filed by the revenue was dismissed.

4 Section 37 – Expenditure incurred by the assessee in connection with the issue of FCCB is revenue in nature.

 DCIT vs. Reliance
Natural Resources Ltd.
(Mumbai)

Members : B. R. Baskaran (AM) and Ravish Sood (JM)

ITA No. 6712/Mum/2012

A.Y.: 2009-10.         Date
of Order: 11th August, 2017

Counsel for revenue / assessee: Darse S. / Jitendra Sanghavi


FACTS 

The
assessee was engaged in the business of providing fuel and facilitation
services in various forms to power plants and also engaged in the joint venture
operations for exploration and production of coal based Methane blocks.  The assessee incurred expenses aggregating to
Rs. 13,85,96,004 in connection with the issue of foreign currency convertible
bonds (FCCB). These expenses comprised of – Agency Fees (Barclays Bank) : Rs.
10,58,188; Commission & Fronting Fees (Paid to Barclays Bank) : Rs.
13,73,38,456; and   Trustee   Maintenance  
Fees    (Deutsche Bank) :Rs.
1,99,360.

The
Assessing Officer (AO) disallowed the expenses on the ground that identical
expenses incurred in earlier years were treated as capital expenses by the AO.
He held that the expenses have been incurred in connection with increasing the
capital base of the company and not for carrying on day-to-day business
activities. He treated the expenditure of Rs. 13,85,96,004 so incurred by the
assessee as capital expenditure.

Aggrieved,
the assessee preferred an appeal to the CIT(A) who, following the orders passed
in earlier years, allowed the appeal filed by the assessee.

Aggrieved,
the assessee preferred an appeal to the Tribunal.

HELD 

The
Tribunal noted that the co-ordinate Bench had considered identical issue in ITA
No. 1425/Mum/2011 dated 08.07.2016 relating to AY 2007-08 and also in ITA No.
6711/Mum/2012 dated 24.08.2016 relating to AY 2008-09. It observed that while
deciding the appeal filed by the revenue for AY 2007-08, the co-ordinate bench
has followed the decision rendered by the Tribunal in the case of Prime
Focus Ltd. vs. DCIT (ITA No. 836/Mum/2011 dated 04.02.2016). In the case of
Prime Focus Ltd., the Tribunal observed that the FCCB is akin to borrowings
made by issuing debentures and both of them are different types of debt
instruments only.

Accordingly,
in the case of Prime Focus Ltd, the Tribunal held that the expenses incurred in
connection with FCCB are revenue in nature. Further, in the instant case, the
FCCB holders never had any voting rights as the same were not converted into
equity shares during that year.

Since
there was no change in facts as regards claim of the assessee and also
considering that none of the FCCB has been converted into shares during this
year also, the Tribunal, following the view taken in earlier years, held that
the CIT(A) was justified in holding that the expenditure incurred in connection
with the issue of FCCB is deductible as revenue expenditure.

As
regards the second ground of the revenue that the assessee had issued FCCB for
the purpose of meeting its working capital requirement, but the same has been
issued in a manner contrary to the permitted use, the Tribunal held that since
it has already held that the expenses incurred in connection with the issue of
FCCB is revenue in nature, it is not necessary to adjudicate the alternative
contention of the revenue.

This
ground of appeal filed by the revenue was allowed.

11 Section 263 – Fringe Benefit Tax is not “tax” as defined in section 2(43) and cannot be disallowed u/s. 40(a)(v) or added back to “Book Profits” u/s. 115JB. Consequently, even if there is lack of inquiry by the AO and the assessment order is “erroneous” under Explanation 2 to section 263, the order is not “prejudicial to the interest of the revenue”.

Rashtriya Chemicals & Fertilizers Ltd. vs. CIT (Mumbai)
Members : Joginder Singh (JM) and Manoj Kumar Aggarwal (AM)
ITA No.: 3625/Mum/2017
A.Y.: 2012-13.   
Date of Order: 14th February, 2018.
Counsel for assessee / revenue: Ketan K. Ved / Narendra Singh Jangpangi

FACTS

The total income of the assessee, engaged as
manufacturer of fertilizers and chemical products was assessed to be Rs.198.12
crores under normal provisions and Rs.365.02 crores u/s. 115JB as against
returned income of Rs.193.66 Crores & Rs.365.02 Crores under normal
provisions and u/s. 115JB respectively.

 

Subsequently, the said assessment order was
subjected to exercise of revisional jurisdiction u/s. 263 by CIT on the
premises that corresponding adjustment of certain employee benefits expenses of
Rs.11.91 Crores being tax borne by the assessee on deemed perquisites on the
value of accommodation provided to employees and which were not admissible u/s.
40(a)(v), was omitted to be carried out while arriving at book profits u/s.
115JB. Therefore, the order being erroneous and prejudicial to the interest of
the revenue, required revision u/s. 263. After providing due opportunity of
being heard to the assessee, CIT directed the AO to re-compute Minimum
Alternative Tax [MAT] u/s. 115JB and raise demand against the assessee for the
same.

 

Aggrieved by the directions of Ld. CIT, the
assessee has by way of the appeal, challenged invocation of revisional
jurisdiction u/s. 263.

 

HELD 

The Tribunal observed that the said item of
expenditure viz. taxes borne by the assessee on deemed perquisites on the value
of accommodation provided to the employees was not allowable to assessee while
arriving at income under normal provisions in terms of provisions of section
40(a)(v) and the assessee himself, has added the same while computing income
under the normal provisions.

 

The Tribunal noticed that computation of
‘Book Profits’ was neither provided by the assessee during hearing before the
AO nor discussed in any manner. In the quantum order, the AO picked up the
figures of ‘Book Profits’ as per ‘Return of Income’ without applying any mind thereupon
and adopted the same as such without any iota of discussion in the quantum
assessment order. The Tribunal was of the opinion that, prima facie, this is a
case of ‘no inquiry’ by AO and not the case of ‘inadequate inquiry’ or ‘Lack of
Inquiry’ or ‘adoption of one of the possible views’. The statutory provisions
as contained in section 263 including Explanation-2 create a deeming fiction
that the order of Assessing Officer shall be deemed to be erroneous in so far
as it is prejudicial to the interests of the revenue if, in the opinion of CIT
the order is passed without making inquiries or verification which should have
been made.

 

The Tribunal observed that the only question
which survives for consideration is whether the omission to carry out the stated
adjustment in the Book profits as envisaged by CIT has made the quantum order
erroneous and prejudicial to the interest of the revenue and whether the stated
adjustment was tenable in law or not?

 

The Tribunal noted that computation of Book
Profits u/s.115JB has to be in the manner as provided in Explanation-1 to
section 115JB. The Minimum Alternative Tax [MAT] provisions as contained in
section 115JB, as per well-settled law, are a complete code in itself and
create a deeming fiction which is to be construed strictly and therefore,
whatever computations / adjustments are to be made, they are to be made
strictly in accordance with the provisions provided in the code itself. The
clause (a) of Explanation-1 envisages add-back of the amount of Income Tax paid
or payable and the provision therefor while arriving at Book Profits. Further,
in terms of Explanation-2 to section 115JB, the amount of Income Tax
specifically includes the components mentioned therein.  The Tribunal noticed the legislative intent
for introducing Explanation 2 from the Explanatory Memorandum to the Finance
Bill, 2008.

 

Taxes borne by the assessee on non-monetary
perquisites provided to employees forms part of Employee Benefit cost and akin
to Fringe Benefit Tax since they are certainly not below the line items since
the same are expressly disallowed u/s. 40(a)(v) and the same do not constitute
Income Tax for the assessee in terms of Explanation-2. The Tribunal observed
that this view is fortified by the judgment of Tribunal rendered in ITO vs.
Vintage Distillers Ltd. [130 TTJ 79] where the Tribunal has taken the view
that the term ‘tax’ was much wider term than the term ‘Income Tax’ since the
former, as per amended definition of ‘tax’ as provided in section 2(43)
included not only Income Tax but also Super Tax & Fringe Benefit Tax.
Therefore, without there being any corresponding amendment in the definition of
Income Tax as provided in Explanation-2 to section 115JB, Fringe Benefit Tax
was not required to be added back while arriving at Book Profits u/s. 115JB.
Similar view has been expressed in another judgement of Tribunal titled as Reliance
Industries Ltd Vs. ACIT [ITA No. 5769/M/2013 dated 16/09/2015] where the
Tribunal took a view that ‘Wealth Tax’ did not form part of Income Tax and therefore,
could not be added back to arrive at Book Profits since the adjustment thereof
was not envisaged by the statutory provisions.

 

The Tribunal held that the adjustment of
impugned item as suggested by CIT was not legally tenable in law which leads to
inevitable conclusion that the omission to carry out the said adjustment did
not result into any loss of revenue. Therefore, one of the prime condition viz.
prejudicial to interest of revenue to invoke the revisional jurisdiction under
the provisions of section 263 has remained unfulfilled and therefore, the
impugned order could not be sustained in law.

 

The Tribunal set aside the order
passed.  The appeal filed by the assessee
was allowed.

10 Section 54 – If agreement for purchase of residential flat is made and the entire amount is paid within three years from the date of sale, the basic requirement for claiming relief u/s. 54(1) of the Act is taken as fulfilled.

Seema Sabharwal vs. ITO (Mumbai)
Members : Sanjay Garg (JM) and Annapurna Gupta (AM)
ITA No. 272/Chd/2017
A.Y.: 2013-14.                              Date of Order: 5th February, 2018.
Counsel for assessee / revenue: M. S. Vohra / Manjit Singh

In a case where agreement is entered into
and amount paid within the period mentioned in section 54, the claim for relief
cannot be denied on the ground that as per the agreement with the builder, the
house was to be completed within 4 years, whereas, as per provisions of section
54 of the Act, the house should have been constructed within 3 years from the
date of transfer of original asset.

 

The procedural and enabling provisions of
s/s. (2) cannot be strictly construed to impose strict limitations on the
assessee and in default thereof to deny him the benefit of exemption
provisions.  If assessee at the time of
assessment proceedings proves that he has already invested the capital gains on
the purchase / construction of the new residential house within the stipulated
period, the benefit under the substantive provisions of section 54(1) cannot be
denied to the assessee.

 

FACTS  

The assessee sold a residential flat on
17.9.2012 for a consideration of Rs. 5,20,00,000.  Long term capital gain arising on sale of
this flat was Rs. 2,97,78,977.  The
Assessing Officer (AO) noticed that the assessee had claimed exemption for Rs.
3,00,00,000 on account of investment in another flat on 11.9.2014.  On perusal of the purchase deed, the AO
noticed that the assessee was to get possession of the flat on or before
August, 2016.  The AO concluded that the
assessee had only purchased the right to purchase the flat which was proposed
to be given after 4 years from the date of transfer in August 2016.  He held that the conditions of section 54 had
not been complied with and, therefore, he denied the claim of Rs. 2,97,78,977.

 

Aggrieved, the assessee preferred an appeal
to the CIT(A) where it contended that in various cases it has been held that if
assessee invests capital gains in a house which is under construction and due
to some reasons, the possession is delivered late to the assessee, even then
the investment of the amount will be considered towards the purchase /
consideration of the house and that the assessee will be eligible to claim
deduction u/s. 54 of the Act.

 

The CIT(A) held that the case laws relied
upon were distinguishable and were relating to claim of deduction u/s. 54F and
not under section 54 as is the present case. 
He held that while section 54F requires that the investment is to be
made, section 54 requires the purchase / construction to be completed. He
further observed that even the assessee was supposed to deposit the proceeds
from the sale of house property in specified scheme / capital gains account,
however, the assessee in this case did not deposit the same in the capital gain
account / scheme with the bank rather the assessee had deposited the amount in
FDRs. The assessee had failed to comply with the conditions stipulated u/s.
54(2) of the Act.  He confirmed the action
of the AO.

 

Aggrieved, the assessee preferred an appeal
to the Tribunal.

 

HELD  

The Tribunal observed that various courts
have held that if the assessee invests the amount in purchase / construction of
building within the stipulated period and the construction is in progress, then
the benefits of exemptions, cannot be denied to the assessee.  Reliance in this respect can be placed on the
decision of the jurisdictional High Court of Punjab & Haryana in the case
of Mrs. Madhu Kaul vs. CIT, ITA No. 89 of 1999 vide order dated 17.1.2014
and further on the decision of the Calcutta High Court in the case of CIT
vs. Bharati C. Kothari (2000) 160 CTR 165 and also on the decisions of the
various co-ordinate Benches of the Tribunal. 

 

On going through the provisions of sections
54 and 54F of the Act, the Tribunal did not find any such distinction as drawn
by CIT(A) or any such dissimilarity in the wordings of the provisions from
which any such conclusion can be drawn that u/s. 54F of the Act the investment
is to be considered and/or that u/s. 54 off the Act, the house must be
completed within the stipulated period of three years or that investment is not
to be considered. 

 

It observed that the decision of the
Calcutta High Court has categorically held that if the agreement for purchase
of residential flat is made and the entire amount is paid within three years
from the date of sale, the basic requirement for claiming relief u/s. 54(1) of
the Act is to be taken as fulfilled.  The
Tribunal held that this issue is squarely covered in favor of the assessee by
the various decisions of the Hon’ble High Court.

 

As regards non-deposit of the amount in
capital gains account scheme before the due date for filing of return u/s.
139(1) of the Act, the Tribunal held that sub-section (1) of section 54 is a
substantive provision enacted with the purposes of promoting purchase /
construction of residential houses. However, sub-section (2) of section 54 is
an enabling provision which provides that the assessee should deposit the
amount earned from capital gains in a scheme framed in this respect by the
Central Government till the amount is invested for the purchase / construction
of the residential house.  This
provision, according to the Tribunal, has been enacted to gather the real
intention of the assessee to invest the amount in purchase / construction of a
residential house.

 

S/s. (2) puts an embargo on the assessee to
casually claim the benefit of section 54 at the time of assessment, without
there being any act done to show his real intention of purchasing / constructing
a new residential unit. S/s. (2) governs the conduct of the assessee that the
assessee should put the amount of capital gains in an account in any such bank
or institution specifically notified in this respect and that the return of the
assessee should be accompanied by submitting a proof of such deposit, hence,
s/s. (2) is an enabling provision which governs the act of the assessee, who
intends to claim the benefit of exemption provisions of section 54. 

 

The enabling provision of s/s. (2) cannot
abridge or modify the substantive rights given vide sub-section (1) of section
54 of the Act, otherwise, the real purpose of substantive provision i.e. s/s.
(1) will get defeated. The primary goal of exemption provisions of section 54
is to promote housing.  The procedural
and enabling provisions of s/s.(2) thus cannot be strictly construed to impose
strict limitations on the assessee and in default thereof to deny him the
benefit of exemption provisions. 

 

The Tribunal held that if the assessee at
the time of assessment proceedings, proves that he has already invested the
capital gains on the purchase / construction of the new residential house
within the stipulated period, the benefit under substantive provisions of
section 54(1) cannot be denied to the assessee. 
Any different or otherwise strict construction of s/s. (2) will defeat
the very purpose and object of the exemption provisions of section 54 of the
Act.  The Tribunal observed that this
view is fortified by the decision of the Karnataka High Court in the case of CIT
vs. Shri K. Ramachandra Rao, ITA No. 47 of 2014 c/w ITA No. 46/2014, ITA No.
494/2013 and ITA No. 495/2013, decided vide order dated 14.7.2014 where the
High Court has directly dealt with this issue while interpreting the identical worded
provisions of section
54F(2) of the Act.

 

Since the assessee had invested the amount
and had complied with the requirement of substantive provisions, the Tribunal
held that the assessee is entitled to the claim of exemption u/s. 54 of the
Act. 

 

The appeal filed by the assessee was
allowed.

4 Section 80P – Interest earned by a co-operative society from deposits kept with co-operative bank is deductible u/s. 80P.

Marathon Era Co-operative Housing Society Ltd. vs. ITO
Members : B. R. Baskaran, AM and Pawan Singh, JM
ITA No. : 6966/Mum/2017
A.Y.: 2014-15    Dated:  06.03.2018
Counsel for assessee / revenue: Ajay Singh /
V. Justin


FACTS

The assessee, a co-operative housing
society, derives income from subscription, service charges, etc. from
members and interest income from savings and fixed deposits kept with various
banks.  In the return of income filed,
the assessee claimed that interest of Rs. 88,70,070, earned on fixed deposits
with co-operative banks as deductible u/s. 80P(2)(d) of the Act. The Assessing
Officer (AO) while assessing the total income of the assessee denied the claim
for deduction of Rs. 88,70,070 made u/s. 80P of the Act on the ground that
section 80P(4) has withdrawn deduction u/s. 80P to co-operative banks. 

Aggrieved, the assessee preferred an appeal
to the CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal
to the Tribunal.

HELD

The Tribunal observed that an identical
issue was considered in the case of ITO vs. Citiscape Co-operative Housing
Society Ltd. (ITA No. 5435 & 5436/Mum/2017 dated 8.12.2017). In the
said case the Tribunal has noted that there are divergent views on this
matter.  The Karnataka High Court has in
the case of Pr. CIT vs. The Totagars Co-operative Sale Society & Others
(ITA No. 100066 of 2016  dated 16.6.2017)
has held that interest income earned by a co-operative society from a
co-operative bank is not deductible u/s. 80P(2)(d) of the Act.  The  
Himachal   Pradesh   High 
Court has in the case of CIT vs. Kangra Co-operative Bank
(2009)(309 ITR 106)(HP) has held that interest
income from investments made in any co-operative society would also be entitled
for deduction u/s. 80P. Having noted the divergent decisions, the Tribunal in
the case of ITO vs. Citiscape Co-operative Housing Society Ltd. (supra)
held that if two reasonable constructions of a taxing statute are possible that
construction which favors the assessee must be adopted. The Tribunal held that
interest income earned by assessee from co-operative banks, which are basically
co-operative societies carrying on banking business, is deductible u/s.
80P(2)(d) of the Act.

Consistent with the view taken by the
co-ordinate bench in ITO vs. Citiscape Co-operative Housing Society (supra),
the Tribunal set aside the order passed by CIT(A) and directed the AO to allow
deduction of interest earned by the asseessee from co-operative banks u/s.
80P(2)(d) of the Act.

 

The appeal filed by the assessee was
allowed.

3 Section 69C – There is subtle but very important difference in issuing bogus bills and issuing accommodation bills to a particular party. The difference becomes very important when a supplier in his affidavit admits supply of goods. In a case where the assessee has proved the genuineness of the transactions and the suppliers had not only appeared before the AO but they had also filed affidavits confirming the sale of goods, addition cannot be sustained.

Shantivijay Jewels Ltd. vs. DCIT (Mumbai)

Members : Rajendra, AM and Ram Lal Negi, JM

ITA No. : 1045 (Mum) of  2016

A.Y.: 2011-12  Dated: 
13.04.2018

Counsel for assessee / revenue: R. Murlidhar
/

V. Justin


FACTS 

Assessee company, engaged in the business of
manufacturing of jewellery, filed its return of income declaring the total
income of Rs.60.56 lakh. During the assessment proceedings, the AO called for
details / evidences of purchases from three parties namely (i) M/s. Aadi Impex;
(ii) M/s. Kalash Enterprises and (iii) M/s. Maniprabha Impex Pvt Ltd, which all
essentially were controlled and managed by Rajesh Jain Group. He observed that
Dharmichand Jain (DJ) had admitted during the search and seizure proceedings
carried out u/s. 132 of the Act, that the group was merely providing
accommodation entries. He invoked the provisions of section 133(6) of the Act.
All the three suppliers relied on the book entries, bills, bank statements in
support of their claim of genuine sales made to the assessee.  However, the AO rejected the said explanation
and proceeded to make addition of Rs. 14.00 Crore to the income of the
assessee.

Aggrieved, the assessee preferred an appeal
to the CIT(A) and during the appellate proceedings, the assessee filed copies
of the affidavits of the suppliers and relied on various decisions against the
said additions on account of bogus purchases. After obtaining the remand report
of the AO on the said affidavits, the CIT (A) held that the addition of entire
purchases is not sustainable and relied on the jurisdictional High Court
judgment in the case of Nikunj Eximp Enterprises (372 ITR 619).  Relying on the decision of the Gujarat High
Court in the case of Simit P Sheth (356 ITR 451), he restricted the addition to
12.5% of the said purchases.  Thus, he
confirmed the addition of Rs. 1,75,04,222/- being 12.5% of Rs. 14,00,33,775/-
and deleted the balance of Rs. 12,25,29,553/-.

Aggrieved with the said decision of CIT(A),
the assessee filed appeal before the Tribunal with regard to bogus purchases. While
deciding the appeal the Tribunal restored back the issue of bogus purchase to
the file of the AO for fresh adjudication. In an order u/s. 254 of the Act, the
Tribunal held as under.

 

HELD  

The Tribunal noted that the assessee engaged
in the business of manufacturing of studded gold jewellery and plain gold
jewellery, had during the year under consideration exported its manufactured
goods, it did not sell goods locally, the AO had not doubted the sales, the
suppliers had appeared before the AO and admitted that they had sold the goods
to the assessee, and they had filed affidavits in that regard.  The Tribunal found that DJ had admitted of
issuing bogus bills.  But, nowhere he had
admitted that he had issued accommodation bills to assessee.  The Tribunal held that in its opinion, there
is a subtle but very important difference in issuing bogus bills and issuing
accommodation bills to a particular party. 
The difference becomes very important when a supplier in his affidavit
admits supply of goods. 

The Tribunal noted that the assessee had
made no local sales and goods were exported. 
There is no doubt about the genuineness of the sales.  It is also a fact that suppliers were paying
VAT and were filing their returns of income. 
In response to the notices issued by the AO, u/s. 133(6) of the Act, the
supplier had admitted the genuineness of the transaction.  The Tribunal referred to the order in the
case of Smt. Romila M. Nagpal (ITA/6388/Mumbai/2016-AY.2009-10, dated
17/03/17), wherein in similar circumstances, addition confirmed by the first
appellate authority were deleted. It observed that in that order, the Tribunal
had referred to the case of M/s. Imperial Imp & Exp.(ITA No.5427/Mum/2015
A.Y.2009-10) in which case also the assessee was exporting goods.  After referring to the portions of the
decision of the Tribunal in Imperial Imp & Exp., the Tribunal held that the
CIT(A) was not justified in partially confirming the addition.  It held that the assessee has proved the
genuineness of the transactions and the parties suppliers had not only appeared
before the AO but they had also filed affidavits confirming the sale of
goods.  The Tribunal reversed the
decision of the CIT(A) and decided this ground in favour of the assessee.

 

This ground of appeal filed by the assessee
was allowed.

2 Section 80IB(10) – Amendments made to s. 80IB(10) w.e.f. 1.4.2005 cannot be made applicable to a housing project which has obtained approval before 1.4.2005. Accordingly, time limit prescribed for completion of project and production of completion certificate have to be treated as applicable prospectively to projects approved on or after 1.4.2005.

Mavani & Sons vs. ITO (Mumbai)

Members : B. R. Baskaran, AM and Pawan
Singh, JM

ITA No. 1374/Mum/2017

A.Y.: 2007-08.   Dated: 16.03.2018.

Counsel for assessee / revenue: Ajay Singh /

V. Justin


FACTS 

During the previous year relevant to the
assessment year under consideration, assessee filed its return of income
claiming a deduction of Rs. 52,91,537 u/s. 80IB(10) of the Act, in respect of a
housing project, known as Maruti Mahadev Nagar. The housing project undertaken
by the assessee was approved by the local authority on 9.1.2003 but the project
commenced in October 2003. As per sanctioned plans, the project consisted of
four wings – Wing Nos. 1 to 3 consisted of Blocks A to G and Wing No. 4
consisted of blocks H to K.  The first
phase of completion certificate was issued vide occupation certificate dated
14.3.2007 and second completion certificate was issued on 26.3.2009. The
deduction of Rs. 52,91,537 was in respect of Blocks F and G under Building (sic Wing) No. 3.


The Assessing Officer (AO) while assessing
the total income u/s. 143(3) r.w.s. 147 of the Act denied the claim for
deduction u/s. 80IB(10) on the ground that the project was not completed within
a period of five years from the date of approval of the project and for this
purpose the period of five years has to commence with the date of approval of
the project and not from the date of commencement of work on the project.  The project was partially completed on
14.3.2007 and was finally completed on 26.3.2009.  According to the AO, partial completion was
not final completion as per provisions of section 80IB(10). 


Aggrieved, the assessee preferred an appeal
to CIT(A) who confirmed the action of the AO.


Aggrieved, the assessee preferred an appeal
to the Tribunal where it was contended, on behalf of the assessee, for grant of
deduction u/s. 80IB(10), the conditions prevalent at the time of commencement
of the project need to be satisfied.


HELD  

The Tribunal noted that the Madras High
Court has in the case of CIT vs. Jain Housing Construction Co [2013] 30
taxmann.com 131 (Mad.) while considering similar issues held that
furnishing of completion certificate to be produced as a condition for grant of
deduction u/s. 80IB(10) was introduced by Finance Act, 2004 w.e.f. 1.4.2005 and
prior thereto there was no such requirement and in the absence of any requirement
u/s. 80IB(10)(a) of the Act and going by the proviso as it stood during the
relevant year 2004-05, it is difficult to accept the contention of revenue that
claim for deduction rested on production of completion certificate.  It also noted that the Delhi High Court has
in the case of CIT vs. CHD Developers Ltd. 362 ITR 177 (Del.) held that
when approval related to the project was granted prior to 2005 i.e. before
amendment, the assessee was not required to produce the completion certificate
to avail deduction u/s. 80IB.  Similarly,
Hyderabad Bench of the Tribunal has in the case of ITO vs. Kura Homes (P.)
Ltd. [2004] 47 taxmann.com 161 held that furnishing of completion
certificate in respect of housing project was brought into statute only w.e.f.
1.4.2005 and would apply prospectively. The Apex Corut in CIT vs. Akash
Nidhi Builders & Developers [2016] 76 taxmann.com 86 (SC) has held that
assessee was entitled for proportionate profit in respect of different wings of
the project.

 

Considering the ratio of the decisions of
the Delhi High Court in CHD Developers (supra), Madras high Court in
Jain Housing & Construction Ltd. (supra) and Hyderabad Bench in
ITO vs. Kural Homes (P.) Ltd. (supra), the Tribunal held that condition
precedent for grant of deduction for seeking completion within the time
prescribed has to be treated as applicable prospectively and accordingly, the
assessee is not required to produce completion certificate as the project was
approved before the amendment to section 80IB(10).

 

The appeal filed by the assessee was
allowed.

Section 2 (22)(e) – Amount contributed by a company, in which assessee is substantially interested, towards capital contribution in a firm in which such company and the assessee is a partner, cannot be regarded as dividend in the hands of the assessee, though the capital contribution by the company was disproportionate to its profit sharing ratio.

17.  Lala Mohan
Ramchand vs. ITO (Mumbai)

Members : G. S. Pannu (AM) and Ravish Sood (JM)

ITA No. 5778/Mum/2012

A.Y.: 2006-07.                                                                    
Date of Order: 14th June, 2017.

Counsel for assessee / revenue: Hiro Rai / Durga Dutt

FACTS 

The assessee was holding 25.5% of share capital of M/s Elite
Housing Development Pvt. Ltd. (EHDPL) and was also a partner in M/s Elite
Corporation with 37.5% share in profits. EHDPL was also a partner in M/s Elite
Corporation (“the firm”) and was having 5% share in profits of the firm.

In the course of reassessment proceedings, the Assessing
Officer (AO) observed that EHDPL was having accumulated profit of Rs.
1,07,11,103 had made an investment of Rs. 73,75,221 in the firm, which
investment according to him was substantially excessive as compared to the
share of profits of EHDPL in the firm. Since the assessee had 37.5% share in
profits of the firm, the firm was characterised by the AO as an eligible
‘concern’ u/s. 2(22)(e) of the Act. The AO had a strong conviction that EHDPL
in the garb of `capital contribution’ had made available its accumulated
profits to the firm and he therefore called upon the assessee to show cause as
to why the investment of Rs. 73,75,221 made by EHDPL in the firm, of which
investment of Rs. 3,00,000 was made during the year under consideration, may
not be assessed as `deemed dividend’ in his hands. The assessee submitted that
EHDPL in its status as a partner of the said firm, had invested an amount of
Rs. 3 lakh on 1.4.2005 by way of its capital contribution and had neither given
any loan or advance to the firm nor the said amount was paid on behalf of the
individual benefit of the assessee, and therefore the provisions of section
2(22)(e) were not applicable. The AO rejected the submissions of the assessee
and assessed the sum of Rs. 3 lakh invested by EHDPL with the said firm as
deemed dividend in the hands of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who
upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD 

The Tribunal observed that now when it is alleged by the
revenue that the `capital contribution’ by EHDPL as a partner with M/s Elite
Corporation is a farce, then it is for the revenue to establish on the basis of
irrebuttable material that what is apparent is not real and thus dislodge and
disprove the claim of the assessee by proving to the contrary.

The Tribunal concurred with the submissions made on behalf of
the assessee viz. that there is no provision in the Indian Partnership Act,
1932, which therein contemplates that the partners’ `capital contributions’ in
the firm is required to be in proportion of their profit sharing ratios. It
held that in the absence of any such embargo on the capital contributions by
the partners having been placed on the statute, it was not persuaded to
subscribe to the adverse inferences drawn by lower authorities, who the
Tribunal found had observed that the substantial contribution by EHDPL as a
partner in the said firm when pitted against the latter’s meagre 5% share in
profit of the said firm was not found to be justifiable. It found merit in the
reasons furnished on behalf of the assessee as to why the capital contribution
by the partners in the firm was mentioned in clause 6 of the partnership deed
at Rs. 25 lakh. It held that it would be absolutely illogical and rather
impossible to expect that EHDPL could have managed to freeze its capital in the
firm at Rs. 25 lakh or any other figure, even if it would have resolved not to
introduce any fresh capital in the firm or withdraw any part of the same. The
Tribunal held that `capital contribution’ by a partner in a firm is differently
placed as against a loan or an advance to the firm. Loans and advances given by
a partner to the firm are substantially different from their `capital
contributions’. It observed that a perusal of section 48 of the Indian
Partnership Act, 1932 which contemplates the mode of settlement of the accounts
of the partners in the case of dissolution of a firm, in itself categorises the
same under different clauses. The Tribunal held that in the backdrop of
substantial turnover and income offered for tax by the firm, viz. Elite
Corporation, it would be incorrect to hold that the same was a dummy concern
which had been brought into existence with the intent to bypass the deeming
provisions contemplated u/s. 2(22)(e) of the Act. It observed that the funds
introduced by EHDPL by way of its capital contribution were utilised by the
firm in the normal course of its business and were not utilised for the
personal benefit of the assessee. It held that this fact supplements and
supports its view that the capital introduced by EHDPL as a partner in the said
firm cannot be characterised as `deemed dividend’ in the hands of the assessee.
The Tribunal set aside the order of CIT(A).

The appeal filed by the assessee was allowed.

3 Section 50C – Non-compliance of provisions of section 50C(2) cannot be held valid and justified even if no request was made by the assessee before the authorities below to refer the matter to the DVO for valuation u/s. 50C(2) of the Act.

Smt. Y. Hameeda Banu vs. ACIT (Bangalore)

Member : A. K.
Garodia

ITA No.
1681/Bang./2016

A.Y.: 2008-09.           Date of Order: 24th
August, 2017.

Counsel for
assessee / revenue: K. Mallaharao / Padma Meenakshi

FACTS 

The
assessee, in her return of income, computed capital gains by adopting actual
consideration received / receivable to be the full value of consideration. The
stamp duty value of the property transferred was greater than the consideration
accrued / arising to the assessee. The assessee, in the course of assessment
proceedings, did not request for a reference to be made to DVO. The Assessing
Officer (AO) completed the assessment and computed capital gains by adopting
stamp duty value to be the full value of consideration.

Aggrieved,
the assessee preferred an appeal to the CIT(A) and in the course of appellate
proceedings filed an affidavit requesting a reference to be made to DVO. The
CIT(A) without considering the affidavit and without making a reference to DVO
decided the appeal against the assessee.

Aggrieved,
the assessee preferred an appeal to the Tribunal where, on behalf of the
assessee, it was submitted that in view of the ratio of the decision of Delhi
Bench of the Tribunal in the case of ITO vs. Aditya Narain Verma (HUF)
(ITA No. 4166/Del/2013 dated 7.6.2017), non-compliance of provisions of section
50C(2) cannot be held to be valid and justified. It was also mentioned that the
Delhi Bench of the Tribunal had followed the judgement of the Allahabad High
Court in the case of Dr. Shashi Kant Garg vs. CIT (285 ITR 158), wherein
it is held that it is well settled that if under the provisions of the Act, an
authority is required to exercise powers or to do an act in a particular
manner, then that power has to be exercised and the act has to be performed in
that manner alone and not in any other manner. It was submitted that the issue
should go back to the file of the AO for a fresh decision after obtaining
report from DVO as required u/s. 50C(2) of the Act.

HELD

The
Tribunal following the ratio of the Delhi Bench of Tribunal in the case of ITO
vs. Aditya Narain Verma (HUF) (supra) set aside the order of CIT(A) and
restored the matter back to the file of the AO for fresh decision with the
direction that he should obtain valuation report from DVO u/s. 50C(2) and then
decide the issue afresh after affording adequate opportunity of being heard to
the assessee.

The
appeal filed by the assessee was allowed.

2. Quick Flight Limited vs. ITO (Ahmedabad) Members: R.P. Tolani (J. M.) & Manish Borad (A. M.) ITA No.: 1204/Ahd/2014 A.Y.: 2011-12. Date of Order: 4th January, 2017

Counsel for Assessee / Revenue:  Urvashi Shodhan / Rakesh Jha

Section 206AA – Payments to a non-resident in terms of section 115A(1)(b) can be made after deducting tax at source @ 10% plus surcharge and cess even where the deductee has no PAN.
 
FACTS
The assessee was engaged in the business of chartering, hiring and leasing aircraft. During the year payment was made to a non-resident not having PAN. Tax was deducted at source @ 10% + surcharge and education cess on the payment of fees for technical services as per provisions of section 115A.  However, the Assessing Officer was of the view that tax was required to be deducted @ 20% in view of the provisions of section 206AA, as the payee was not having PAN and accordingly raised demand of Rs.30,250/- towards short deduction and Rs.5750/- towards interest on short deduction. Being aggrieved, the assessee went in appeal before the CIT(A) and contended that the payment made towards fees for technical services was u/s. 115A and the assessee has rightly deducted TDS @ 11.33% and provisions of section 206AA of the Act cannot be applied to the assessee. However, according to the CIT(A), the rates prescribed in section 115A apply when the agreement pertains to a matter included in Industrial Policy. However, since no such evidence had been produced to show that agreement with the payee falls under the Industrial policy, he confirmed the order of the Assessing Officer.
HELD
The Tribunal noted that the assessee was able to show that the agreement pertains to a matter included in Industrial Policy.  Further, relying on the decision of the Ahmedabad tribunal in the case of Alembic Ltd. vs. ITO (ITA No.1202/Ahd/2014), the Tribunal held that the provisions of section 206AA cannot be invoked by the Assessing Officer and he cannot insist to deduct tax @ 20% for non-availability of PAN.

1.Kumari Kumar Advani vs. Asstt. CIT (Mum) Members: G.S.Pannu (A. M.) and Ram Lal Negi (J. M.) ITA No.: 7661 /MUM/2013 A.Y.: 2012-13.

Counsel for Assessee / Revenue:  Ajay R. Singh / A. K. Kardam Section 234C – Shortfall in payment of advance tax on account of impossibility to estimate income – Assessee not liable to pay interest.

FACTS
The assessee, an individual, had filed her return of declaring income of Rs. 13.91 crore.  While processing such return u/s. 143(1), interest u/s. 234C of the Act was levied on account of shortfall in payment of advance tax on first and second installments, due on 15/09/2011 and 15/12/2011, in respect of gift of Rs.10.00 crores claimed to have been received on 17/12/2011. On such deferment in payment of instalments, interest of Rs.7.66 lakh was charged. On appeal, the levy was confirmed by the CIT(A).  

Before the Tribunal, the assessee argued that the income in question, namely gift of Rs.10.00 crore received on 17/12/2011 was in the nature of a windfall gain and, therefore, it was not possible for the assessee to estimate its accrual or receipt at any time when the payment for first and second installments of advance tax were due.  However, the revenue justified the orders of the lower authorities on the ground that the charging of interest u/s. 234C of the Act was mandatory in nature and relied on the judgment of the Delhi High Court in the case of Bill and Peggy Marketing India Pvt. Ltd. vs. ACIT (350 ITR 465).

HELD
The Tribunal noted that section 209 provides the computational mechanism of calculating advance tax to be paid. According to it, section 209 envisages calculation of advance tax based on the ‘estimate of current income’. A reading of section 209 would reveal that in order to calculate the amount of advance tax payable, an assessee is liable to estimate his income. Considered in this light, the facts of the present case clearly show that the gift of Rs. 10 crore, which has been received by the assessee on 17/12/2011 could not have been foreseen by the assessee so as to enable him to estimate such income for the purpose of payment of advance tax on an anterior date viz., 15/09/2011 or 15/12/2011. In such a situation, according to the Tribunal, the decision of the Hyderabad Bench of the Tribunal in the case of ACIT vs. Jindal Irrigation Systems Ltd. (56 ITD 164) relied upon by the assessee clearly militates against charging of interest u/s. 234C. As per the Hyderabad Bench of the Tribunal, an assessee could not be defaulted for a duty, which was impossible to be performed. To the similar effect is the decision of the Chennai Bench of the Tribunal in the case of Express Newspaper Ltd (103 TTJ 122). Therefore, the Tribunal held that the levy of interest u/s. 234C was untenable.  

As regards the plea of the Revenue that charging of interest u/s. 234C is mandatory in nature, the Tribunal observed that the same cannot be allowed to lead to a situation where levy of interest can be fastened even in situations, where there is impossibility of performance by the assessee. Charging of interest would be mandatory, only if, the liability to pay advance tax arises upon fulfilment of the parameters, which in the present case is not fulfilled on account of the peculiar fact-situation. Thus, according to the Tribunal such plea of the Revenue was untenable. According to it, the judgment of the Delhi High Court in the case Peggy Marketing India Pvt. Ltd., relied on by the revenue, stands on its own facts and is not attracted to the facts of the present case.

13. Manish Ajmera vs. ITO ITAT ‘B’ Bench, Mumbai Before Shailendra Kumar Yadav (J. M.) and Rajesh Kumar (A. M.) ITA No.5700/Mum/2013 A.Y.:2010-11. Date of Order: 26th August, 2016 Counsel for Assessee / Revenue: Jayesh Dadia / Chandra Vijay

Section 14 – Income from transfer of shares
and securities taxed under the head short term capital gains based on the Board
circular.

FACTS

The assessee had filed return of income
declaring total income of Rs. 0.68 lakh. The AO in his order passed u/s. 143(3)
assessed at Rs. 83.04 lakh and taxed Rs. 82.36 lakh as business income instead
of as short term capital gains as claimed by the assessee. On appeal, the CIT
(A) confirmed the AO’s order.

HELD

The Tribunal referred to a clarificatory
Circular no. 6/2016 dated 29th February, 2016 wherein the Board had
clarified that where the assessee himself, irrespective of the period of
holding the listed shares and securities, opts to treat them as stock-in-trade,
the income arising from transfer of such shares would be treated as his
business income. Relying on the same, the Tribunal directed  the AO to treat the income in question as short term capital gain instead of as
business income as assessed  by the AO.

12. Y.V. Ramana vs. CIT ITAT Visakhapatnam Bench, Visakhapatnam Before V. Durga Rao (J. M.) and G. Manjunatha (A. M.) I.T.A.No.: 177/Vizag/2015 A.Y.: 2010-11. Date of Order: 9th December 2016 Counsel for Assessee / Revenue: C. Kameswara Rao / G. Guruswamy

Section 2(47) – Mere agreement for transfer
of shares does not cause effective transfer of shares unless it is accompanied
with delivery of share certificate and duly signed and stamped share transfer
form.

FACTS

During the year under appeal, the assessee
had sold 1,33,420 equity shares in Vijay Nirman Company Private Limited (VCPL)
for a consideration of Rs. 199.98 lakh. The transfer was in pursuant to an
investments agreement dated 12-08-2009 between transferee of the shares, VCPL
and its shareholders. The said investment agreement had prescribed certain
terms and conditions of share transfer and completion of statutory formalities
by filing necessary forms under the Companies Act, 1956 with concerned
authorities. As per the said agreement, the assessee received sales
consideration on 10-09-2009 from the transferee of the shares. The assessee
completed share transfer formality on 24-11-2009 by filing valid instrument of
transfer in form no. 7B duly stamped and signed by transferor and transferee
and presented to the company along with share certificates which was endorsed
by the company on 24-11-2009. The assessee invested part of sale consideration
of Rs. 50 lakh in NHAI bonds on 4-5-2010 and claimed exemption u/s 54EC. The
assessee also deposited sum of Rs. 150 lakh on 24-07-2010 in a scheduled bank
under Capital Gain Deposit Scheme (‘the Scheme’) before due date of filing
return of income and proof of which was furnished along with return of income,
and claimed exemption u/s. 54F of the Act. The assessee purchased a house
property on 31-10-2011 out of the amount deposited under the Scheme. The
assessment was completed u/s. 143(3) on 16-01-2013, determining total income as
returned by the assessee.

According to the CIT to claim exemption u/s.
54EC and 54F, the assessee ought to have invested sale consideration within six
months/2 years from the date of receipt of money and not the date of transfer
of shares by signing share transfer form. 
If the period of limitation is computed from the date of receipt of
money, then investments in 54EC and 54F was beyond the time limit specified under
the provisions, accordingly, the assessee was not eligible for exemption.
Accordingly, he held that the order of the AO was erroneous in so far as it is
prejudicial to the interest of the revenue.

According to the assessee, the A.O. had
examined the issue of computation of capital gain towards sale of shares and
exemption claimed u/s. 54EC and 54F of the Act, by specific questionnaire dated
13-12-2012 and 28-12-2012. The assessee had furnished complete details of
shares transfer and proof of investment in 54EC and 54F of the Act. The A.O. having
satisfied with details furnished by the assessee, had chosen to accept
computation of capital gain and hence, the assessment order cannot be termed as
erroneous within the meaning of section 263 of the Act.

According to the revenue, as per the investments
agreement dated 12-08-2009, the transfer got crystallised on the date of
payment of consideration towards transfer of shares by the purchaser to the
seller and subsequent execution of share transfer form and filing such form
with company is only a statutory requirement which is nothing to do with
transfer. It also referred to section 19 of sale of Goods Act, 1930 and
submitted that where there is a contract for the sale of specific or
ascertained goods the property in them is transferred to the buyer at such time
as the parties to the contract intended it to be transferred. The revenue also
referred to CBDT. Circular No. 704, dated 28-04-1995 and argued that in the
case the transactions take place directly between the parties and not through
stock exchanges, the date of contract of sale as declared by the parties shall
be treated as the date of transfer provided it is followed up by actual
delivery of shares and the transfer deeds.

HELD

According to the Tribunal, once, the A.O.
had called for details of the issue which is subject matter of revision
proceedings and the assessee furnished details called for, it is the general
presumption that the A.O. has examined the issue with necessary evidences,
applied his mind and took a possible view of the matter before completion of
assessment. The CIT cannot assume jurisdiction to review the assessment order
by holding the A.O. has conducted inadequate enquiry and also not applied his
mind. Thus, it held that that the assessment order passed by the A.O. is not erroneous
within the meaning of section 263 of the Act.

To examine whether the assessment order is
prejudicial to the interest of revenue – the Tribunal noted that the only
dispute is with regard to date of transfer. The assessee contends that transfer
had taken place on 24-11-2009, when valid instrument of share transfer in form
no. 7B is duly stamped and signed by the both the parties and presented to the
company along with original share certificates. According to the CIT, the
effective transfer took place on 10-09-2009 when sale consideration is passed
on to the seller.

According to the Tribunal, share transfer is
governed by section 108 of the Companies Act, 1956. As per section 108
registration of transfer of shares is possible only if a proper transfer deed
in form no. 7B duly stamped and signed by or on behalf of the transferor and by
or on behalf of the transferee and specifying the name, address and occupation,
if any of the transferee, has been delivered to the company along with share
certificates and endorsed by the Company. In the case of shares of listed
companies, effective transfer would take place when title to share is
transferred from one person to another through demat account in recognised
stock exchange. In the case of shares of unlisted companies, transfer would
take place, only when valid share transfer form in form no. 7B is delivered to
the company and endorsed by the company. Therefore, for effective transfer of
shares, a mere agreement for transfer of shares is not sufficient, unless it is
physically transferred by delivery of share certificate along with duly signed
and stamped share transfer form. The agreement to transfer share can give
enforceable right to the parties, but it cannot be a valid transfer unless it
is followed up by actual delivery of shares. Thus, in the case of the assessee,
the transfer as defined u/s. 2(47) took place on 24.11.2009 and not on the date
of receipt of money from the buyer to the seller, i.e. 0n 10-09-2009. In view
of the same, investments in NHAI bonds on 4-5-2010 and purchase of house
property on 31-10-2011 is well within the period of six months and 2 years from
the date of transfer as specified u/s. 54EC and 54F of the Act, and
accordingly, the assessee is eligible for exemption and thus, there no
prejudice is caused to the revenue from the order of the A.O. within the
meaning of section 263 of the Act. Therefore, it was held that the assessment
order passed by the A.O. u/s. 143(3) is not erroneous in so far as it is
prejudicial to the interest of the revenue.

15 Section 54 – Investment made in purchase of residential property outside India – Exemption can be claimed till 31.03.2015.

Income-tax Officer vs.
Nishant Lalit Jadhav

G.S.Pannu (A. M.) and
Pawan Singh (J. M.)

ITA No.: 6883/MUM/2014

A. Y.: 2011-12.    Date
of Order: 26th April, 2017

Counsel for Revenue / Assessee:  Suman Kumar / Hari S. Raheja

FACTS 

The assessee is a
Non-resident Indian (NRI) and during the year under consideration he, inter-alia,
earned a long term capital gain of Rs.67.07 lakh from sale of residential
property located at Mumbai. He claimed exemption u/s. 54 on the ground that the
capital gain arising on the sale of property was utilised in the purchase of a
residential property at New York, USA. The Assessing Officer denied the claim
of exemption as the property  was
acquired outside India. For the purpose he relied upon the decision of the Ahmedabad
Tribunal in the case of Smt. Leena J. Shah, (6 SOT 721). According to the
CIT(A), the requirement of making the investment in a property in India was
inserted by the Finance (No.2) Act, 2014 w.e.f. 01./04./2015 and, therefore, in
the instant assessment year the claim of exemption u/s. 54 could not be denied.
In coming to such conclusion, the CIT(A) also relied upon the decision of the
Mumbai Tribunal in the case of  Mrs.
Prema P. Shah & Sanjiv P. Shah vs. ITO (100 ITD 60), ITO vs. Girish
M. Shah in ITA No.3582/Mum/2009 and Vinay Mishra vs. CIT, in ITA
No.895/(Bang) of 2012.

Before the Tribunal, the revenue contended that even prior to amendment
by Finance (No.2) Act, 2014, it was to be implicitly understood that the
requirement of section 54 was to make investments in a new residential house
within India only.  The assessee pointed
out that the decision of the Ahmedabad Tribunal in the case of Smt. Leena J.
Shah, which was relied upon by the Assessing Officer has since been reversed by
the Gujarat High Court in its judgment in ITA No. 483 of 2006 dated
14./06./2016.

HELD

According to the Tribunal,
prior to the amendment made by Finance (Nos.2) Act, 2014 w.e.f. 01./04./2015,
the language of section 54 required the assessee to invest the capital gain in
a residential property.  It is only
subsequent to the amendment, which has come into effect from 01.04.2015, that
such investment is required to be made in a residential property in India.  Since the appeal was pertaining to the
assessment year which is prior to 01.04.2015, the amendment would not be
applicable. The Tribunal also relied on the decision of the Gujarat High Court
in the case of Smt. Leena J. Shah (supra).The Tribunal set aside the
finding of the CIT(A) and directed the AO to consider the allotment letter
dated 30.3.205 to determine the long term/short term capital gain and
accordingly the entitlement of exemption u/s. 54 of the Act.

14 Section 153A – Factum of gift which was already disclosed in the returns of income which was filed before the search took place cannot be assessed as income u/s. 153A

Nenshi L. Shah and 10
others  vs.
Dy. Commissioner of Income TaxIT

Mahavir Singh  (J. M.) and N.K. Pradhan (A.M)

ITA Nos.: 3735 to
3737,3575 to 3577, 3580 to 3584 /Mum/2011 and 7382 to 7385, 7387 to
7390/Mum/2013

A. Y: 2003-04.  Date of Order: 24th May, 2017

Counsel for Assessee /
Revenue:  Jignesh R. Shah and Haresh
Kenia / H.N. Singh

FACTS  

All these eleven assessees
had filed their returns of income on even date 11-08-2003 for the AY 2003-04.
All the assessees’ had received gift of Rs. 10 lakh each from one Gayanchand
Jain. This gift was declared in the original returns filed by the respective
assessees’ on 11.08.2003 in the form of capital accounts filed, wherein each of
the assessee had declared this gift. The assessment / processing of return of
income for the year under consideration was concluded much before the search,
which took place on 03-08-2006 and could not therefore abate as the returns
were filed by the respective assessees’ on 11-08-2003 and therefore, the last
date for issuing notices u/s. 143(2) of the Act were on 31-08-2004. The AO
during the course of assessment proceedings in consequence to search u/s.153A
read with section 143(2) of the Act noticed the factum of gift was already
disclosed in the capital accounts filed along with the returns of income by the
respective assessees’ and this is not the income discovered or unearthed during
the course of search by the department u/s.132 of the Act. But the AO assessed
the gifts as income from undisclosed sources of the assessees and CIT(A) also
confirmed the same. Aggrieved, all the assessees came in second appeal before
Tribunal.

Before the Tribunal, the
assessee contended that the assumption of jurisdiction by the AO and making
addition while framing assessment u/s.153A read with section 143(3) was without
jurisdiction in respect to assessment of gifts already disclosed.

HELD  

The Tribunal noticed that
notice u/s. 143(2) had become time barred on 31.08.2004 while the search took
place on 03.08.2006. As on the date of search, the assessments or processing of
return of income of the assessee u/s. 143(1) were completed. The A.O. brought
to tax a sum of Rs. 10 lakh, being the amount of gift, without any
incriminating material found during the course of search. Therefore, relying
on  the decision of the Bombay High Court
in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (374 ITR
645), the Tribunal held that the gift of Rs. 10 lakh received by each of the
eleven assesses and disclosed in the return of income and which has not been
abated, the same cannot be added. Accordingly, the Tribunal reversed the orders
of the CIT(A) as well as that of the AO and deleted the addition in all the
eleven appeals of the assessee.

13 Section 272A(2)(k) – Delay in filing of e-TDS return on account of requirement to mention PAN – No loss to the Revenue attributable to the delay in filing of the e-TDS returns – No penalty can be imposed.

Argus Golden  Trades vs. JCIT

Kul Bharat (J. M.)  and Vikram
Singh Yadav
(A. M.)

ITA No.: 522/JP/16

A. Y. : 2011-12.                  

Date of Order: 24th May, 2017

Counsel for Assessee / Revenue: 
Rajeev Sogani / Rajendra Jha

FACTS  

The AO imposed penalty u/s.
272A(2)(k)   holding that the assessee
has delayed  in filing  quarterly 
e-TDS return within the stipulated time frame.  The CIT(A) upheld the order of the AO as
according to him  the provisions of
section 272A(2)(k) uses the word “shall” indicating that if there is violation
of these provisions, the imposition of penalty is mandatory.  Also, the assessee was not having any genuine
ground or the compelling circumstances for not filing of TDS return in
time.  Before the Tribunal, the revenue
justified the order of the CIT(A).

HELD  

The Tribunal 
noted that the AO hads levied penalty u/s. 272A(2)(k)  which talks about the failure to deliver a
copy of the statement within the time specified in section 200(3) or proviso to
section 206C (3).  In the instant case, there
is a delay in filing of quarterly e-TDS returns which is covered under the
provisions of section 272A(2)(c). On this ground itself, the Tribunal held that
the levy of penalty cannot be sustained. 
On merit also, the Tribunal noted that during the financial year 2010-11
which is under consideration, a change was brought about in filing of e-TDS
returns and it was necessary to mention Permanent Account Numbers of all the
payee in the e-TDS return and thereafter only the e-TDS return could be
validated and uploaded. In assessee’s case, there were large numbers of
deductees scattered throughout India. 
The taxes were deducted and deposited at the prescribed rate with delay
of few days.  Thus, there was no loss to
the Revenue which could be attributed to the delay in filing of the e-TDS
returns.  Relying on the decision of the
Cuttack bench of Tribunal in the case of CIT Branch Manager (TDS), UCO Bank
vs. ACIT  (35 taxmann.com 45), the
Tribunal held that the assessee had a reasonable cause for delayed filing of
its e-TDS returns in terms of section 273B and hence, the penalty u/s. 272(A)(k)
was deleted.

Section 271(1)(c) – Penalty imposed on account of omission to offer correct income and the wrongful deduction deleted on the ground that auditors also failed to report.

9.  Wadhwa Estate &
Developers India Pvt. Ltd. vs.  Asstt.
Commissioner of Income Tax (Mumbai)

Members: Saktijit Dey (J. M.) and Rajesh Kumar (A. M.)

ITA no.: 2158/Mum./2016

A.Y.: 2011–12. Date of Order: 24th February, 2017

Counsel for Assessee / Revenue:  Jitendra Jain /  Pooja Swaroop

FACTS

In respect of the year under appeal, the assessee had filed
return of income declaring loss of Rs. 2.49 lakh. On the basis of AIR
information available on record, the AO found mismatch in the interest income
as per books of account and as per Form–26AS. The assessee submitted that due
to over sight the assessee had offered interest income on fixed deposit at Rs.
18.90 lakh (on the basis of audited accounts) as against actual interest
received of Rs. 24.83 lakh. Further, the AO noticed that the assessee had
debited the sum of Rs. 1.82 lakh on account of fixed asset written–off. Since
the same was of capital in nature, it was disallowed u/s. 37(1) of the Act. The
assessee accepted the aforesaid decision of the AO and did not contest the
additions. On the basis of these two additions, the AO initiated proceedings
for imposition of penalty u/s. 271(1)(c). Rejecting the explanation of the
assessee, the AO imposed the penalty which was confirmed by the CIT(A). 

Before the Tribunal, the assessee contended that the lapse
was due to oversight on the part of the accountant.  It was also submitted that, though the
assessee’s accounts were subjected to tax audit as well as statutory audit, the
mistake was not pointed out by either of the auditors. Further, it was pointed
out that the AO, in the order passed, had not recorded his satisfaction whether
the assessee had concealed the particulars of its income or had furnished
inaccurate particulars of income. Also, in the notice issued u/s. 274 r/w
271(1)(c), the AO had not specified which limb of section 271(1)(c) was attracted
by striking–off one of them.

HELD

According to the Tribunal, the assessee’s explanation that
non–disclosure of two items of income was on account of omission due to
oversight was believable since the auditors had also failed to detect such
omission in their audit reports. 
Therefore, relying on the ratio laid down by the Supreme Court in Price
Water House Coopers Pvt. Ltd. vs. CIT (348 ITR 306), it was held that
imposition of penalty u/s. 271(1)(c) was not justified.

The Tribunal also agreed
with the assessee that neither the assessment order nor the notice issued u/s.
274 indicated the exact charge on the basis of which the AO intended to impose
penalty u/s. 271(1)(c). Therefore, in the light of the principles laid down by
the Supreme Court in Dilip N. Shroff vs. JCIT (291 ITR 519), the
Tribunal held that the AO having failed to record his satisfaction, while
initiating proceedings for imposition of penalty u/s. 271(1)(c) as to which
limb of the provisions of section 271(1)(c) is attracted, the order imposing
penalty was invalid.

Section 14A read with Rule 8D – disallowance should be computed taking into consideration only those shares which yielded dividend income.

8.  Kalyani Barter Private Limited
vs. ITO (Kolkata)

Members: Waseem Ahmed (A. M.) S.S.Viswanethra Ravi (J. M.)

I .T.A. No.: 824 / Kol / 2015. 

A.Y.: 2010-11. Date
of Order: 3rd March, 2017

Counsel for Assessee / Revenue: 
Subash Agarwal / Tanuj Neogi

FACTS

The assessee is engaged in the business of trading in shares
& securities.  During the year the
assessee had earned dividend income of Rs. 0.41 lakh. In his assessment order
passed u/s. 143(3) the AO disallowed the following sum u/s. 14A read with rule
8D:

– Direct expenses Rs. 3.08 lakh;

– Interest expenses Rs. 34.42 lakh; and

– Administrative expenses Rs. 2.4 lakh
(restricted to actual expense incurred).

On appeal, the CIT(A), relying on the decision of DCIT vs.
Gulshan Investment Company Ltd. (31 taxman.com 113) (Kol), deleted the
addition made by the AO under the provisions of rule 8D(2)(ii) and (iii) by
observing that the assessee is engaged in the business of shares trading and
the shares were classified as stock in trade in its books of accounts.
Therefore, according to him, the assessee was entitled for the deduction of
interest expenses and administrative expenses. 

Before the Tribunal the revenue relied on CBDTs Circular No.
5/2004 dated 11.02.2014, wherein it has been clarified and emphasized that
legislative intent behind introduction of section 14A is to allow only that
expenditure which is relatable to earning of income.  Therefore, the revenue contended that the
expenses, which are relatable to exempt income, are to be considered for
disallowance. Thus, according to the revenue, the disallowance of expenses was
required u/s. 14A of the Act even in relation to the investment held as stock
in trade.

The assessee on the other hand, without prejudice to his main
argument and as an alternative, contended that the disallowance u/s. 14A had
been wrongly worked out by the AO under Rule 8D by taking the entire value of
stock-in-trade, instead of taking the value of only those shares, which
actually yielded dividend income during the year under consideration

HELD

The Tribunal relying on the decision of the
Calcutta High Court in the case of Dhanuka & Sons vs. CIT (339 ITR 319)
held that the provisions of section 14A are applicable to even those
investments which are held as stock in trade. However, the Tribunal by relying
on the decision of the Coordinate Bench in the case of REI Agro Ltd. vs. Dy.
CIT (35 taxmann.com 404 /144 ITD 141), (affirmed by the Calcutta High Court
vide its order dated 19.04.2014 in ITAT No. 220 of 2013) agreed with the
assessee that the disallowance as per Rule 8D should be computed by taking into
consideration only those shares which have yielded dividend income in the year
under consideration.

Section 37(1) – Loss on account of export proceeds realised short in subsequent year allowed as deduction in current year.

7.  ACIT vs. Allied
Gems Corporation (Bombay)

Members: G.S. Pannu (A. M.) and Ram Lal Negi (J. M.)

ITA No.: 2502/Mum/2014

A.Y.: 2009-10. Date
of Order : 20th January, 2017

Counsel for Revenue / Assessee:  A. Ramachandran / Jignesh A. Shah

FACTS

The assessee was engaged in the business of dealing in cut
and polished diamonds and precious and semi precious stones. During the course
of assessment proceedings, the AO noticed that assessee had claimed a loss of
Rs. 49.64 lakh on account of short realisation of export proceeds, which was
outstanding as on 31.03.2009.  According
to the AO, though the said loss pertained to export proceeds receivable as on
31.03.2009, but the actual realiation of the export proceeds took place in the
subsequent financial year, corresponding to assessment year 2010-11.  Hence, such loss could not be allowed. 

On appeal, the CIT(A) noted that the AO did not doubt the
amount short realied from the debtors. 
Therefore, relying on the decision of the Mumbai Tribunal in the case Voltas
Limited vs. DCIT, 64 ITD 232, he agreed with the assessee that applying the
principle of prudence, claim for was allowable.

Before the Tribunal, the revenue contended that the said loss
had not accrued as on 31.03.2009, since as on that date, the corresponding
export receivables were not actually realised, and that such realization
happened in the subsequent year and, therefore, it was only at the time of
actual realisation that said loss could be accounted for allowed.

HELD

The Tribunal noted that the
assessee was maintaining its accounts on mercantile system and that the Revenue
also did not dispute the short realisation from debtors of Rs. 49.64
lakhs.  Therefore, referring to the
principle of prudence as emphasised in the Accounting Standard -1 notified u/s.
145(2), it agreed with the assessee that though the export proceeds was
realised in the subsequent period, the loss could be accounted for in the
instant year itself, applying the principle of prudence. The Tribunal also
referred to a decision of the Allahabad high court in the case of CIT vs.
U.B.S. Publishers and Distributors (147 ITR 144).  In the said case, the issue related to the
A.Y. 1967-68 (previous year ending on 31.05.1966). In the assessment
proceedings, it was found that assessee therein had claimed expenditure by way
of purchases of a sum of Rs. 6.39 lakh representing additional liability
towards foreign suppliers in respect of books imported on credit up to the end
of 31.05.1966. The said additional claim was based on account of devaluation of
Indian currency, which had taken place on 06.06.1966 i.e. after the close of
the accounting year.  According to the
High Court, since the actual figure of loss on account of devaluation was
available when the accounts for 31.05.1966 ending were finalised, the same was
an allowable deduction in assessment year 1967-68 itself.  Applying the ratio of the said decision, the
Tribunal dismissed the appeal of the revenue.

Section 2(42A) – The holding period of an asset should be computed from the date of allotment letter.

6. Anita D. Kanjani vs. ACIT (Mumbai)

Members : D. T. Garasia (JM) and Ashwani Taneja (AM)

ITA No. 2291/Mum/2015

A.Y.: 2011-12. Date
of Order: 13th February, 2017.

Counsel for assessee / revenue: Viraj Mehta & Nilesh
Patel / Omi Ningshen

FACTS 

During the previous year
relevant to the assessment year under consideration, the assessee sold an
office unit located in Mumbai vide agreement dated 11.3.2011.  The office unit was allotted to the assessee
on 11.4.2005, the agreement to sell was executed on 28.12.2007 and was
registered on 24.4.2008. The capital gain arising on transfer of this office
unit (flat) was returned by the assessee as long term capital gain. The
Assessing Officer (AO) relying on the decision of the Supreme Court in the case
of Suraj Lamps & Industries Ltd. vs. State of Haryana 304 ITR 1 (SC),
held that the flat transferred was a short term capital asset and therefore,
the gain arising on transfer was assessed by him as short term capital gain.

Aggrieved, the assessee preferred an appeal to the CIT(A) who
confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal
where two-fold arguments were made viz. that the holding period should be
computed with reference to the date of allotment of the property and
alternatively, the same should be computed with reference to date of execution
of the agreement and not the date of registration of the agreement because the
document on registration operates from the date of its execution.

HELD 

The Tribunal noted that the allotment letter mentioned the
identity of the property allotted, the consideration and the part payment made
by cheque before the date of allotment. 

The Tribunal held that issue before the Apex Court in the
case of Suraj Lamps & Industries Ltd. (supra) was different from the
issue in the present case.

It noted that the ratio of the following cases where this
issue has been examined, by various High Courts –

i)    CIT vs. A Suresh Rao 223 Taxman 228
(Kar.) – in this case, the court held that for the purposes of holding an
asset, it is not necessary that the assessee should be the owner of the asset
based upon a registration of conveyance conferring a title on him;

ii)   Madhu Kaul vs. CIT 363 ITR 54 (Punj. &
Har.) – in this case, the Court analysed various circulars and provisions
of the Act and held that on allotment of a flat and making first instalment the
assessee would be conferred with the right to hold a flat which was later
identified and possession delivered on a later date. The mere fact that the
possession was delivered later would not detract from the fact that the
assessee was conferred a right to hold the property on issuance of an allotment
letter. The payment of balance amount and delivery of possession are
consequential acts that relate back to and arise from the rights conferred by
the allotment letter upon the assessee;

iii)   Vinod Kumar Jain vs. CIT  344 ITR 501 (Punj. & Har.) – in this
case, the Court held that the holding period of the assessee starts from the
date of issuance of the allotment letter;

iv)  CIT vs. K. Ramakrishnan 363 ITR 59 (Delhi)
– in this case, it was held that the date of allotment is relevant for the
purpose of computing the holding period and not date of registration of
conveyance deed;

v)   CIT vs. S. R. Jeyashankar 373 ITR 120
(Mad.) – in this case also the Court held that the holding period shall be
computed from the date of allotment.

Following the ratio of the abovementioned decisions of
various High Courts, the Tribunal held that the holding period should be
computed from the date of issue of the allotment letter. Upon doing so, the
holding period becomes more than 36 months and consequently, the property sold
by the assessee would become long term capital asset and the gain arising on
transfer thereof would be long term capital gain.

The Tribunal decided the appeal in favor of the assessee.

Section 250 – When addition made is on account of non-furnishing of sales-purchase bills, etc, if assessee comes forward and furnishes them as additional evidences, they deserve to be examined in proper perspective as the entire addition hinges on non-furnishing of evidences and that being the case, the evidences furnished by the assessee may have a crucial bearing on the issue.

5.  Devran N. Varn vs.
ITO (Mumbai)

Members : Saktijit Dey (JM) and N. K. Pradhan (AM)

ITA No.: 1874/Mum/2014

A.Y.: 2009-10.  Date of Order:
10th February, 2017.

Counsel for assessee / revenue: Dinkle Hariya / J Saravanan

FACTS  

The assessee, an individual, was a proprietor of M/s Moon
Apparel carrying on business of manufacture and sale of ready-made
garments.  In the course of assessment
proceedings, the Assessing Officer (AO) found that the assessee had made cash
deposits aggregating to Rs. 25,66,423 in his savings account with ICICI Bank.
The AO called upon the assessee to furnish the source of these cash
deposits.  The AO alleged that in spite
of repeated opportunities, the assessee could not furnish documentary evidence
to substantiate the source of cash deposits. 
He treated the amount of cash deposit of Rs. 25,66,423 as undisclosed
income and added the same to the total income.

Aggrieved, the assessee preferred an appeal to the CIT(A) who
upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal
where it was contended that the AO did not afford adequate opportunity to the
assessee to furnish evidence and that before the CIT(A) copies of sales and
purchase bills, vouchers, etc. were furnished as additional evidences
but the CIT(A) without examining the evidences on their own merit rejected to
admit the same and proceeded to confirm the addition.

HELD 

The Tribunal noted that the assessee had submitted before the
AO that the cash deposits came from cash sales and earlier withdrawals from the
bank. However, the AO rejected the explanation of the assessee by stating that
he has failed to furnish the sale / purchase bills, etc.  It also noted that the CIT(A) without examining
the evidences, refused to admit them as additional evidences and proceeded to
confirm the addition.

When the addition made is on account of non-furnishing of
sale/purchase bills, etc., if before the first appellate authority the assessee
comes forward and submits the same as additional evidences, they deserve to be
examined in proper perspective as the entire addition hinges upon
non-furnishing of such evidences and that being the case, the evidences
submitted by the assessee may have a crucial bearing on the issue. Therefore,
without properly verifying the authenticity / genuineness of the evidences
produced, they cannot be brushed aside / rejected.

The Tribunal restored the matter back to the
file of the AO for examining the assessee’s claim in the light of evidences
produced by the assessee with a direction that the AO must afford a reasonable
opportunity of being heard to the assessee on the issue.

Section 69C – Mere non-attendance of the supplier in the absence of any other corroborative evidence cannot be a basis to justify the stand of the revenue that the transaction of purchase is bogus.

4.  Beauty Tax vs. DCIT (Jaipur)

Members : Kul Bharat (JM)
and Vikram Singh Yadav (AM)

ITA No. 508/Jp/2016

A.Y.: 2007-08 Date of
Order: 10th April, 2017.

Counsel for assessee /
revenue: Dinesh Goyal / R A Verma

FACTS  

The assessment for AY 2007-08 was re-opened based on the
finding of the CIT(A), in his order for AY 2008-09, deleting the addition of
bogus purchases from M/s Mahaveer Textiles Mills of Rs. 13,39,969 on the ground
that the said purchases were for AY 2007-08 and not AY 2008-09.

In the assessment order passed u/s. 143(3) r.w.s. 147 of the
Act, the AO observed that during the year purchases have been made by the
assessee from Mahaveer Textiles on six occasions from January to March but no
payment has been made till the end of the year. 
The assessee was asked to produce the party for examination so that the
genuineness of the transaction can be ascertained.  On behalf of the assessee it was submitted to
the AO that the purchases from the said party are genuine and that the assessee
is not in a position to present the party for verification.  The AO drew reference to the assessment order
for AY 2008-09 and finally held that the assessee was accorded ample
opportunity to produce the party to establish the genuineness of the
transaction claimed to have been made. 
He held that in view of the conclusive evidence brought on record, it
can be safely held that the expenses of Rs. 13,39,969 debited as payable to
Mahaveer Textile Mills are bogus and deserve to be disallowed and the same are
being added back to the declared income of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who
confirmed the disallowance.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that –

(i)  the AO has blindly followed the findings given
in the assessment proceedings for AY 2008-09 while bringing the subject
transaction with Mahaveer Textiles to tax in the year under consideration;

(ii) the co-ordinate bench has deleted the addition
made in respect of other transactions which were held to be bogus in nature by
the AO in AY 2008-09;

(iii) the AO has referred to certain conclusive
evidences brought on record to treat the subject transaction as bogus but no
such evidence has been brought on record by the AO either during the assessment
proceedings for AY 2008-09 or during reassessment proceedings for AY 2007-08;

(iv) the only grievance of the AO is that the
assessee has failed to produce the party so as to establish genuineness of the
transaction and secondly, no payment has been made to the party till the year
end. 

It also observed that the CIT(A) has noted that the
confirmation was obtained from the party but has held that simple confirmation
is not sufficient to establish the fact of purchase.  However, the CIT(A) has not elaborated what
more is required to justify the claim.  
It further noted that the assessee had stated that since the supplier
was based in Delhi, he denied coming to Jaipur but submitted the confirmation
directly to the department.  The payment
outstanding on 31st March, was made in April by account payee
cheques and now there was no outstanding amount against the supplier.  As regards other details furnished by the
assessee, there is no finding by the AO as to reason for non-acceptance of the
said documents. 

The Tribunal held that merely non-appearance of the supplier
in absence of any other corroborate evidence cannot be a basis to justify the
stand of the Revenue that the transaction of purchase is bogus.  It held that the purchases made by the
assessee from M/s Mahaveer Textiles have not been proved to be bogus by the
Revenue and the said additions cannot be sustained in the eyes of law in
absence of any conclusive evidence brought on record.

The appeal filed by the assessee was allowed.

Section 263 – There is a distinction between “lack of enquiry” and “inadequate enquiry”. If the totality of facts indicate that assessment was made after obtaining necessary details from the assessee and further the same were examined, then, even if the same has not been spelt elaborately in the assessment order, it cannot be said that there is a “lack of enquiry” or `prejudice’ has been caused to the Revenue.

3.  Small Wonder Industries vs. CIT (Mum)

Members : Joginder Singh
(JM) and Ramit Kochar (AM)

ITA No.: 2464/Mum/2013

A.Y.: 2009-10.   Date
of Order: 24th February, 2017.

Counsel for assessee /
revenue: Prakash Jotwani / Debasis Chandra

FACTS  

The assessee, engaged in the business of manufacturing
feeding bottles and accessories, filed its return of income showing total
turnover of Rs. 2,40,72,048 and offered gross profit of Rs. 99,20,394, at the rate
of 41.21% of the total turnover. The assessee claimed deduction u/s. 80IB of
the Act at the rate of 25% of the total profit of Rs.65,39,181 after reducing
brought forward losses of Rs. 3,44,910. The assessee declared income of Rs.
49,04,386. 

The case of the assessee was selected for scrutiny.  Various details were called for vide
questionnaires issued which were complied with by the assessee.  The Assessing Officer (AO) in the assessment
order made an elaborate discussion with respect to disallowance of deduction
u/s. 80IB on interest income, disallowance out of interest u/s. 36(1)(iii), set
off of unabsorbed losses, etc. 

Subsequently, the CIT invoked revisional jurisdiction u/s.
263 with respect to commission of Rs. 2,12,136 @ Rs. 25 per piece to Rajendra
Jain and Kiran Jain by observing that no such commission was paid in earlier
year for similar sales.  The assessee
explained that commission was paid to these parties for looking after logistic
issues. 

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD  

The Tribunal noted that the assessee vide letter dated
11.7.2011, addressed to the DCIT, in response to notice u/s. 142(1) clarified
the factual matrix and again vide letter dated 26.7.2011, addressed to
DCIT, furnished the party-wise details of commission paid with name, address
and purpose.  The photocopies of the
agreements and credit notes were also enclosed along with the MOU dated 19.4.2008. 

The Tribunal observed that it is expected to ascertain
whether the AO had investigated / examined the issue and applied his mind
towards the whole record made available by the assessee during assessment
proceedings.  It held that since the
necessary details were filed / produced and the same were examined by the AO,
it is not a case of lack of enquiry by the AO. 

The Tribunal observed that the provisions of section 263
cannot be invoked to correct each and every type of mistake or error committed by
the AO.  It is only when the order is
erroneous and also prejudicial to the interest of the revenue that the
revisional jurisdiction is attracted.  It
noted that it is not the case that the assessment was framed without
application of mind in a slipshod manner. 

It held that there is a distinction between “lack of enquiry”
and “inadequate enquiry”. In the present case, the AO collected the necessary
details examined the same and framed the assessment u/s. 143(3) of the
Act.  Therefore, in such a case, the
decision of the Delhi High Court in CIT vs. Anil Kumar Sharma [2011] 335 ITR
83 (Delhi) comes to the rescue of the assessee. 

The Tribunal held that it was satisfied that the assessment
was framed after making due enquiry and on perusal / examination of documentary
evidence. It held that in such a situation, invoking revisional jurisdiction
u/s. 263 cannot be said to be justified. 
The Tribunal set aside the order of the CIT and decided the appeal in
favor of the assessee and observed that, by no stretch of imagination, the
assessment order can be termed as erroneous and prejudicial to the interest of
the revenue.

The Tribunal allowed the appeal filed by the
assessee.

17. Quick Flight Ltd. vs. ITO (International Taxation)(Ahd) Members: R. P. Tolani (JM) and Manish Borad (AM) ITA No. 1204/Ahd/2014 A.Y.: 2011-12. Date of Order: 4th January, 2017. Counsel for assessee / revenue: Urvashi Shodhan / Rakesh Jha

Sections 115A(1)(b), 206AA – Provisions of
section 206AA cannot be invoked in a case where the payment has been made to
deductees, not having PAN, on the strength of beneficial provisions of section
115A(1)(b).

FACTS  

The assessee company, engaged in the
business of chartering, hiring and leasing aircraft made payment of fees for
technical services to a non-resident viz. M/s Honeywell, USA, not having
PAN.  Tax was deducted at source @ 10%
plus applicable surcharge and cess as per provisions of section 115A of the
Act.  The Assessing Officer (AO) alleged
that tax was required to be deducted @ 20% in view of the provisions of section
206AA of the Act as the assessee was not having PAN and accordingly raised
demand of Rs. 30,250 towards short deduction and Rs. 5,750 towards interest on
short deduction.

Aggrieved, the assessee preferred an appeal
to CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal
to the Tribunal.

HELD  

The Tribunal noted that similar issue on
almost identical facts came up before the co-ordinate Bench in the case of Alembic
Ltd. vs. ITO (ITA No. 1202/Ahd/2014) wherein the co-ordinate Bench observed
that the issue is squarely covered by the decisions of Uniphos Envirotronic
Pvt. Ltd. vs. DCIT (ITA No. 1974/Ahd/2015 
for AY 2014-15) and the decision of Pune Bench of the Tribunal in the
case of DCIT vs. Serum Institute of India Ltd. and decided the appeal in
favor of the assessee.  The Bench has in
the case of Alembic Ltd. (supra) held that in case where payments have
been made to the deductees on the strength of the beneficial provisions of
section 115A(1)(b) of the Act or as per DTAA rates r.w.s. 90(2) of the Act,
then provisions of section 206AA cannot be invoked by the AO insisting to
deduct tax @ 20% for non-availability of  PAN.

The Tribunal following the decision of the
co-ordinate Bench in the case of Alembic Ltd. (supra) held that in the
present case as well, payment was made towards fees for technical services to a
non-resident through banking channel as approved by RBI and payment is well
covered u/s. 115A(1)(b) of the Act and therefore, special rate of TDS i.e.
11.33% was applicable and was rightly deducted and deposited by the assessee
and the provisions of section 206AA of the Act cannot be made applicable to
this payment.  The Tribunal set aside the
order of CIT(A) and deleted the claim of Rs. 30,250 towards short deduction.

The Tribunal allowed the appeal filed by the
assessee.

16. Gamzen Plast Pvt. Ltd. vs. ITO (Mum) Members: R. C. Sharma (AM) and Pawan Singh (JM) ITA No. 7449/Mum/2014 A.Y.: 2010-11 Date of Order: 28th October, 2016 Counsel for assessee / revenue: B. V. Jhaveri / Jeevanlal Lavedia

Section 80IC – Losses of the eligible unit
which have been fully set off in earlier years against profits of non-eligible
unit cannot be artificially carried forward.

FACTS  

The assessee company, engaged in the
business of manufacturing, assembling and repairing construction machinery and
piling equipments, started an additional unit in Uttarakhand in the previous
year relevant to AY 2008-09. Since the said unit was located in a declared
backward area it was entitled to Excise Duty exemption for 10 years and also
income-tax exemption u/s. 80IC(3)(ii) of the Act. The production in Uttarakhand
unit commenced in AY 2008-09.

In respect of the eligible unit at
Uttarakhand, the assessee incurred a loss of Rs. 51,55,665 in AY 2008-09 and a
loss of Rs. 2,38,08,961 in AY 2009-10. 
These losses were set off against the profits of non-eligible unit at
Mumbai in AY 2008-09 and AY 2009-10 respectively. Therefore, these losses were
not available to be carried forward and set off in AY 2010-11. However, the
Assessing Officer (AO) while completing the assessment of AY 2010-11 notionally
carried forward the losses of AY 2008-09 and 2009-10 which were already set off
against the profit of non-eligible unit at Mumbai and again set them off
against the profit of Rs. 4,48,33,073 of the eligible unit at Uttarakhand for
AY 2010-11 and allowed only the balance of Rs. 1,58,68,447 as deduction u/s.
80IC of the Act.  Thus, he reduced the
claim of deduction u/s. 80IC by Rs. 2,89,64,626.

Aggrieved, the assessee preferred an appeal
to the CIT(A) who held that assessee was not correct in setting off loss of
earlier years in the eligible unit against profit of non-eligible unit.  He upheld the action of the AO.

Aggrieved, the assessee preferred an appeal
to the Tribunal where reliance was placed interalia on the following
decisions –

i)   Velayudhaswamy Spinning
Mills Pvt. Ltd. vs. ACIT (340 ITR 477)(Mad);

ii)  ACIT vs. Hamilton
Houseware Pvt. Ltd. (ITA No. 988/Ahm/2009 dated 9.6.2015);

iii)  ACIT vs. Sanjeev Auto
Parts Manufacturers Pvt. Ltd. (ITA No. 1387/PN/2014 for AY 2011-12; dated
17.2.2016);

iv) DCIT vs. Bajaj
Electricals (ITA No. 909/Mum/2011; AY 2006-07; Order dated 15.5.2015).

HELD  

The undisputed
facts are that losses of AYs 2008-09 and 2009-10 have already been set off
against the income of unit at Mumbai. The said losses were not available to be
carried forward and set off during the year under consideration i.e. AY 2010-11
under these facts and circumstances, applying the legal propositions discussed
above as referred by learned AR, we do not find any merit in the action of
lower authorities for notionally carry forward and set off of losses which have
already been set off in the earlier years against the profit of eligible unit
during AY 2010-11 under consideration. 
The Tribunal also observed that the decisions relied upon by the CIT(A)
were rendered prior to the decision of Madras High Court in the case of Velayudhswamy
Spinning Mills Pvt. Ltd. vs. ACIT (supra). 
It also observed that the decision of ACIT vs. Goldmine Shares &
Finance Pvt. Ltd. (113 ITD 209)(Ahd SB) has been overruled by the Madras
High Court in the case of Velayudhswamy Spinning Mills Pvt. Ltd. (supra).

This ground of appeal filed by the assessee
was allowed.

Section 10A – Claim for deduction u/s. 10A cannot be denied merely beause the assessee has inadvertently omitted to furnish the relevant details relating to deduction u/s. 10A in the appropriate columns of the return of income filed electronically

10.  ACIT vs. Albert A. Kallati
ITAT  Mumbai `A’ Bench
Before B. R. Baskaran (AM) and Amit Shukla (JM)
ITA No.: 2888/Mum/2013
A.Y.: 2009-10. Date of Order: 3rd August, 2016.
Counsel for revenue / assessee: Reepal Tralshawala / Sachchidanand Dubey

FACTS
The assessee, a manufacturer of diamond studded gold jewellery having manufacturing unit located in SEZ, filed his return of income for the year under consideration on 30.9.2009.  Subsequently, he revised his return of income twice.  In all the three returns of income, the assessee did not show any claim for deduction u/s. 10A of the Act, even though the total income was shown at Rs. Nil in the original return. Hence, the Assessing Officer (AO) did not allow deduction u/s. 10A of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who called for a remand report wherein the AO submitted that the assessee had been allowed deduction u/s.10A of the Act in AY 2006-07 to 2008-09.  Before the CIT(A) the assessee submitted the relevant details relating to deduction u/s. 10A which were inadvertently omitted to be furnished int eh appropriate columns of the return of income filed electronically. The CIT(A) was convinced that there was a genuine mistake and accordingly, he directed the AO to allow the deduction.

Aggrieved, the revenue preferred an appeal to the Tribunal.

HELD
The Tribunal observed that there was no dispute with regard to the fact that the assessee is eligible for deduction u/s. 10A of the Act for the year under consideration.  The AO did not allow the claim, since it was not claimed in the return of income.  However, the conduct of the assessee shows that he assessee had intended to claim the same, but the relevant details were omitted to be entered in the return of income.  The Tribunal held that the inadvertent omission so made should not come in the way of the assessee to claim the deduction, which he is legally entitled to.  The Tribunal upheld the order of the CIT(A).

The appeal filed by the revenue was dismissed.

Sections 40(a)(ia), 194I – U/s. 194I tax is not required to be deducted on reimbursements and therefore, the amount so reimbursed cannot be disallowed u/s. 40(a)(ia)

9.  Aditya Birla Minacs Worldwide Ltd. vs. ACIT
ITAT Mumbai `A’ Bench
Before B. R. Baskaran (AM) and Amit Shukla (JM)
ITA No.: 4549/Mum/2014
A.Y.: 2007-08. Date of Order: 2nd August, 2016
Counsel for assessee / revenue: Ronak G. Doshi / A. Ramachandran

FACTS
The assessee reimbursed rent and parking charges amounting to Rs. 71.49 lakh to its holding company, PSI Data System Ltd.  The holding company had entered into a rent agreement with M/s Golf Links. The assessee entered into a Memorandum of Understanding with its holding company on 1.4.2006 pursuant to which the assessee company would occupy a portion of premises taken on lease by the holding company and the holding company shall apportion the rent payment with the assessee company in the ratio of space actually utilised by the assessee.  The MOU also provided that all statutory liabilities in relation to rental facilities such as TDS, service tax, are the responsibilities of the holding company.  

During the year under consideration, the assessee reimbursed a sum of Rs. 71,49,545 to its holding company as its share of rental expenditure incurred by the holding company. The assessee did not deduct tax at source from the said payment on the reasoning that the liability to deduct tax at source from the rent payment paid to the landlord was taken up by the holding company.  The landlord, M/s Golf Links, had obtained a certificate u/s. 197(1) for non-deduction of tax at source, therefore, the holding company did not deduct tax at source from the rent paid by it to the landlord.  The holding company had obtained no deduction certificate for payments covered by sections 194A, 194C and 194J.  It was also submitted to the AO that the holding company was of a bonafide belief that reimbursement of rent from the assessee would not form part of its income in its hands and hence it did not obtain  specific certificate for payments covered by section 194I.  

The AO held that the assessee should have deducted tax from rent payments made by the assessee to its holding company. He disallowed Rs. 71,49,545 by invoking provisions of section 40(a)(ia) of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
The Tribunal noted that the rental agreement has been entered into between the holding company and the land lord and hence the inference drawn by the tax authorities is against the facts available on record. The Tribunal observed that an identical issue was considered by the co-ordinate bench of the Tribunal in the case of Prime Broking Co. (I) Ltd. vs. ACIT (ITA No. 6627/Mum/2010 dated 19.10.2012) and the Tribunal held that the provisions of section 194I shall not apply to reimbursement of rent.  The decision rendered by the Tribunal has since been upheld by the Bombay High Court vide its order dated 9th June, 2015 reported in 2015-TIOL-1472-HC-Bom-IT.

The Tribunal further observed that the return of income of the holding company for the year under consideration has been accepted. Since the payment received from the assessee towards rent has been offered in the return of income filed by the holding company, the provisions of section 40(a)(ia) cannot be applied to the case of the assessee as per the second proviso thereto, which is held to be retrospective by the Delhi High Court in the case of Ansal Land Mark Township (P.) Ltd. (377 ITR 635)(Del).  

Considering the ratio of the judgments of the Bombay High Court and the Delhi High Court, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition made u/s. 40(a)(ia) of the Act relating to reimbursement of rent.

Section 41(1) – Amounts shown in Balance Sheet cannot be deemed to be cases of “cessation of liability” only because they are outstanding for several years. The AO has to establish with evidence that there has been a cessation of liability with regard to the outstanding creditors.

8.  ITO vs. Vikram A. Pradhan

ITAT  Mumbai `F’ Bench
Before Jason P. Boaz (AM) and Sandeep Gosain (AM)
ITA No.: 2212/Mum/2012
A.Y.: 2008-09.  Date of Order: 24th August, 2016
Counsel for revenue / assessee: M. V. Rajguru / None

FACTS

In the course of assessment proceedings the Assessing Officer (AO) observed that the assessee’s balance sheet reflected creditors of Rs. 33,44,827.  Upon enquiry, the assessee submitted that these are old creditors pertaining to the period when he carried out business in Indore and that these have been carried forward for past 7 to 8 years and are unpaid due to disputes with the creditors.

The AO considered the entire creditors balance outstanding aggregating to Rs. 33,44,827 as income of the assessee by invoking section 41(1) as cessation of liability for the reason that these are old amounts and pertain to assessee’s old place of business and still remain unpaid.

Aggrieved, the assessee preferred an appeal to the CIT(A) who after considering the material on record and also referring to the judicial pronouncements of the Apex Court in the case of CIT vs. Sugauli Sugar Works (P.) Ltd. 236 ITR 518 (SC) and UOI vs. J. K. Synthetics Ltd. (199 ITR 14)(SC) held that in the case on hand there was no write back of liability payable to creditors which is disclosed in the assessee’s balance sheet.  He also observed that no independent inquiries were carried out by the AO to establish that these creditors have written off the debts appearing in their respective account.  He held that the AO was not justified in unilaterally deciding that the amounts reflected as liabilities in the balance sheet of the assessee have ceased to exist within the meaning of section 41(1) of the Act.  He allowed the appeal.

Aggrieved, the revenue preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the AO has failed to cause enquiries to be made with or notices issued to creditors to ascertain from them whether they have remitted the dues from the assessees in their books of account.  The fact that the creditors outstanding balances were not written back in the assessee’s books of account, but rather stood reflected in the asseessee’s balance sheet clearly establishes that there is no cessation of liability.  On the contrary, it is an acknowledgement by the assessee of existing debts it owes to its creditors.  It further observed that no material has been brought on record by the AO to show that there was remission or cessation of liability.  When the AO was of the view that there was cessation of liability in the case on hand, it was incumbent upon him to cause necessary enquiries to be made in order to bring on record material evidence to establish the requirement for invoking the provisions of section 41(1) of the Act.  The very fact that the assessee reflects these amounts as creditors in his Balance Sheet is an acknowledgement of his liability to these creditors and this also extends the period of limitation u/s.18 of the Limitation Act.  Once the assessee acknowledges that the debts to creditors are outstanding in his Balance Sheet, that he is liable to pay his creditors, Revenue cannot suo moto conclude that the creditors have remitted their liability or that the liability has otherwise ceased to exist, without bringing on record any material evidence to the contrary.  Since the AO had not brought on record any material evidence to establish that there was cessation of liability in respect of the outstanding creditors reflected in the Balance Sheet, the Tribunal concurred with the finding of the CIT(A) that the addition of Rs. 33,44,827 u/s. 41(1) of the Act is unsustainable.

The Tribunal dismissed the appeal filed by the Revenue.

Sections 271(1)(c), 271AAA – Penalty levied u/s. 271(1)(c) to a case covered by section 271AAA is void

7.  Nukala Ramakrishna Eluru vs. DCIT
ITAT  Vishakapatnam Bench
Before V. Durga Rao (JM) and G. Manjunatha (AM)
ITA Nos.: 189 to 192/Vizag/2014
A.Ys.: 2005-06 to 2008-09.   Date of Order: 16th September, 2016.
Counsel for assessee / revenue: C. Subramanyam / T.S.N. Murthy

FACTS

On 16.11.2007,  a search u/s. 132 of the Act was conducted in the residential as well as business premises of the assessee, engaged in the business of rearing and trading of fish and other ancillary business activities.   During the course of search, department unearthed details of investments made in the purchase of immovable properties standing in the name of the assessee and his family members  including business concerns.  The assessee filed his return of income for AY 2008-09 on 30.09.2008 declaring total income of Rs. 75,39,560.  This return of income was revised on 14.9.2009 and a total income of Rs. 1,82,84,170 was declared in the revised return of income.  Subsequently, this return of income was again revised and in the final revised return of income the income disclosed was Rs. 4,10,32,920.

The AO assessed the total income of the assessee to be Rs. 4,10,32,990. He initiated penalty proceedings u/s. 271(1)(c) of the Act and after asking the assessee to explain why penalty should not be levied for concealment of particulars of income or furnishing inaccurate particulars of income, he levied penalty u/s. 271(1)(c).

Aggrieved, the assessee preferred an appeal to the CIT(A) who directed the AO to levy penalty on the difference between Rs. 1,82,84170 (being total income in first revised return) and Rs. 75,39,560 (being total income in the original return of income).

Aggrieved, the assessee preferred an appeal to the Tribunal where it was contended on his behalf that the levy of penalty for AY 2008-09 u/s. 271(1)(c) of the Act was void ab initio.

HELD

In the present case on hand, on perusal of the facts available on record we find that the search had taken place on 16.11.2007 which falls under the assessment year 2008-09 which is the year before us.  The year before us was therefore, covered by the Explanation of specified previous year as per Explanation (b) to section 271AAA of the Act.  It is not in dispute that the income in question has been assessed as income of the assessment year 2008-09 i.e. specified previous year.  The AO himself has treated the undisclosed income of the assessee as such.  Once we come to the conclusion that the year before us is a specified previous year and the undisclosed income belongs to this year, an inevitable finding in view of the discussions above is that the provisions of section 271AAA will come into play to deal with penalty for concealment of particulars of income.  It is clear from the above fact that the AO has not invoked the correct provisions of law for levying penalty for concealment of income.  Therefore, we are of the view that the AO erred in levying penalty u/s. 271(1)(c) of the Act, when a specific provision is provided by way of section 271AAA to deal with penalty provisions, in cases where search took place on or after 1.6.2007.

The Tribunal considering the facts and circumstances of the case and also the ratio of the decision of the Delhi Bench of the Tribunal in the case of DCIT vs. Subhash M. Patel in ITA No. 256/AHD/2012 dated 20.7.2012, held that the penalty order passed by the AO under s. 271(1)(c) of the Act, is void ab initio and liable to be quashed.

The Tribunal quashed the penalty order passed by the AO u/s. 271(1)(c) of the Act for AY 2008-09.

The appeal filed by the assessee was allowed.

15. Krishna Enterprises vs. Addl. CIT (Mum) Members: R. C. Sharma (AM) and Ravish Sood (JM) ITA No. 5402/Mum/2014 A.Y.: 2007-08. Dated: 23rd November, 2016. Counsel for assessee / revenue: Sashank Dandu / A. Ramachandran

Section 50C – AO is not justified in
substituting the value determined by DVO for the sale consideration disclosed
by the assessee in a case where the difference between the sale consideration
of the property as shown by the assessee and FMV determined by the DVO u/s.
50C(2) is less than 10 percent.

FACTS  

On 07.8.2006, the assessee sold four flats
for a consideration of Rs. 1,96,60,000. 
Since the sale agreements were not registered it was submitted that it
was not possible to determine the stamp duty value as per the provisions of
section 50C of the Act.  The Assessing
Officer (AO) referred the valuation of these flats to DVO who declared the
value of the flats to be Rs. 2,07,51,130. 
The difference between the valuation as done by the DVO and the amount
of consideration was added by the AO in assessee’s income u/s. 50C. 

Aggrieved, the assessee preferred an appeal
to CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal
to the Tribunal where it was argued on its behalf that the provisions of
section 50C are not applicable to the facts of the case in AY 2007-08 and since
the total addition is only a small percentage (5.5%) of the total consideration
it needs to be ignored for computing long term capital gain by relying on the
ratio of the decision of Pune bench of the tribunal in the case of Rahul
Constructions vs. DCIT (Pune)(Trib) 38 DTR 19 (2010)(ITA No. 1543 / Pn/2007). 

HELD  

Since the transactions were entered during
the financial year 2006-07 which is prior to 1.10.2009, being the date from
which the amendment to section 50C is effective, as per CBDT Circular No.
5/2010 dated 3.6.2010, the provisions of section 50C are not applicable in so
far as sales deed so executed were not registered with the Stamp Duty Valuation
Authority.  Also, since the difference
between the sale consideration of the property shown by the assessee and the
FMV determined by the DVO u/s. 50C(2) is less than 10%, AO was not justified in
substituting the value determined by the DVO for the sale consideration
disclosed by the assessee. 

The Tribunal allowed the appeal filed by the
assessee.

14. Kanungo Ferromet Pvt. Ltd vs. Addl. CIT (Mum) Members : Mahavir Singh (JM) and Ramit Kochar (AM) ITA No. 995/Mum/2014 A.Y.: 2005-06. Date of Order: 4th January, 2016. Counsel for assessee / revenue: Rajkumar Singh / Vikash Kumar Agarwal

Section 271E – Penalty u/s. 271E cannot be
levied in a case where repayment is made by an account payee cheque, though in
the name of the director of the company.

FACTS  

During assessment year 2004-05, the assessee
company, in the normal course of its business, advanced a sum of Rs. 15 lakh to
Shri R. Bhaskaran.  The advance was given
for intended business deal by the assessee company which could not materialise
and therefore the said advance payment was returned by Shri R. Bhaskaran, in
the assessment year 2005-06, through account payee cheque in the name of the
Director of the assessee company Shri Om Prakash Kanungo instead of paying it
back directly to the assessee company. 
The assessee company passed a journal entry debiting the loan account of
Shri Om Prakash Kanungo, Director of the company and credited the advance
account of Shri R. Bhaskaran.

The Assessing Officer (AO) held that the
provisions of section 269T are violated since according to him the assessee
company has received the repayment of the sum of Rs. 15 lakh advanced by it to
R. Bhaskaran in cash.  He levied penalty
u/s. 271E of the Act for violation of the provisions of section 269T of the
Act. 

Aggrieved, the assessee preferred an appeal
to the CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal
to the Tribunal.

HELD  

The repayment is made by account payee
cheque although in the name of one of the directors of the assessee company.
The Tribunal found that there is a reasonable cause rather the payment is
through account payee cheque.  In its
view, there was no violation of provisions of section 269T and consequential
penalty u/s. 271E was without any basis. 

The Tribunal deleted the penalty and allowed
the appeal filed by the assessee.

Sections 2(42A), 54 – Date of letter of allotment can be considered to compute the period of holding to assess the entitlement of exemption u/s. 54.

12. Nandita Patodia vs. ITO (Mumbai)

Members : G. S. Pannu (AM) and Amarjit Singh (JM)

ITA No.: 5982/Mum/2013

A.Y.: 2010-11.     
Date of Order: 31st March, 2017

Counsel for assessee / revenue: Anuj Kishnadwala / Pradeep
Kumar Singh

FACTS 

The assessee, an individual, filed return of income declaring
total income of Rs. 11,16,013. In the return of income, the assessee claimed
exemption u/s. 54 in respect of long term capital gain of Rs. 45,58,478 arising
on sale of two flats being flat nos. 801 and 802 in Neelkanth Palm Realty. The
exemption was claimed on the ground that the assessee has purchased a new
residential house for Rs. 68,26,400 being Flat No. 701 in Neelkanth Palm Thane.

In the course of assessment proceedings, the Assessing
Officer (AO) found that the agreements for purchase of the flats sold were
dated 26.3.2009 and 27.3.2009. Considering the holding period by adopting these
dates, the gain would be short term capital gain. The assessee had adopted
30.3.2005, being the date of letter of allotment, to be the date of acquisition
of these flats. The AO finalised the assessment by regarding the date of the
agreement as the date of acquisition of flats sold and charged to tax the
capital gain as short term capital gain. He denied exemption claimed u/s. 54 of
the Act.

Aggrieved the assessee preferred an appeal to the CIT(A) who
upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal
where it was contended that the Mumbai Tribunal in the case of Anupama
Agarwal vs. DCIT [ITA No. 472/Mum/2015 dated 23.9.2016], the assessee’s
sister has considered the holding period from 30.03.2005 being the date of
letter of allotment.

HELD

The Tribunal observed that from the order passed by the
Tribunal in the case of Anupama Agarwal (supra) it is quite clear that
in the case of the sister of the assessee the date of allotment and payment of
first installment was considered by ITAT for assessing whether the gain arising
on sale was short term gain or a long term gain. It held that –

(i)   the case of the assessee is squarely covered
by the case of Anupama Agarwal (supra); and

(ii)  the ratio given in the case of Madhu Kaul
vs. CIT and another [363 ITR 54 (Punj. & Har.)] and CIT vs. S. R.
Jeyshankar [373 ITR 120 (Mad)] are also quite applicable to the facts of
the present case in which the date of allotment letter was considered to assess
the holding period to ascertain the entitlement of exemption u/s. 54 of the
Act.

The Tribunal set aside the finding of the CIT(A) and directed
the AO to consider the allotment letter dated 30.3.205 to determine the long
term / short term capital gain and accordingly the entitlement of exemption
u/s. 54 of the Act.

The appeal filed by
the assessee was allowed.

Section 271(1)(c) – Taxability of compensation received by the assessee on account of hardship faced due to delay in delivery of flat is a debatable issue and therefore penalty cannot be levied.

11. Shri Laxmankumar R. Daga vs. ITO (Mumbai)

Members : Mahavir Singh (JM) and N. K. Pradhan (AM)

ITA No.: 3326/Mum/2014

A.Y.: 2004-05.     Date
of Order: 15th March, 2017

Counsel for assessee / revenue: Ms. Nikita Agarwal / Maurya
Pratap

FACTS  

In the course of assessment proceedings, the Assessing
Officer (AO) noticed that the assessee had received compensation of Rs.
16,50,000 on account of hardship faced due to delay in delivery of flat at
Suraj Apartments from the developer.  He
taxed this amount as compensation received on surrender of tenancy rights and
charged it to tax as long term capital gains. He levied a penalty of Rs.
4,80,725 u/s. 271(1)(c) of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A)
where it contended that he had disclosed the receipt on account of compensation
on the face of the balance sheet and the said balance sheet was a part of
return of income and the auditor in Form 3CD had specifically mentioned this
amount as a capital receipt. Reliance was also placed on the decision of Mumbai
Tribunal in the case of Kushal K. Bangia vs. ITO [ITA No. 2349/Mum/2011
dated 31.1.2012 for AY 2007-08], wherein the Tribunal has held that `receipts
during redevelopment are capital receipts and not revenue and such receipts
reduce the cost of assessee and should be taken into account when such
redeveloped properties are sold’. However, the CIT(A) upheld the action of the
AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD  

The Tribunal noted that the amount of compensation was duly
reflected in the balance sheet filed along with the return of income as
compensation / damage received from M/s MR & DR Thacker and was added to
the proprietor’s capital. Having noted the decision of the Tribunal in the case
of Kushal K. Bangia (supra), it held that the taxability of compensation
of Rs. 16,50,000 received by the assessee as long term capital gain by the AO
is a debatable issue. It held that an analogy may be drawn here from the decision
of the Delhi High Court in CIT vs. Mushashi Autoparts India Pvt. Ltd. [330
ITR 545 (Del)] where the court held that penalty cannot be levied in a case
where the assessee, prior to commencement of business had received interest,
which was capitalised as pre-operative expenses. In the assessment, the amount
was regarded as taxable. The Court held that treating the amount as taxable
income cannot by itself justify levy of penalty. The Tribunal deleted the
penalty levied by the AO u/s. 271(1)(c) of the Act.

The appeal filed by the assessee was allowed.

Section 251 – An order enhancing the assessment made, passed by CIT(A), without giving an opportunity of being heard to the assessee, violates the principles of natural justice and is bad in law and cannot be sustained.

10. Jagat P. Shah (HUF) v.
ACIT (Mum)

Members : Mahavir Singh
(JM) and Rajesh Kumar (AM)

ITA No.: 2584/Mum/2015

A.Y.: 2009-10.  Date of Order: 21st March, 2017

Counsel for assessee /
revenue: Rahul Hakani / M. C. Om Ningshen

FACTS  

The assessee disclosed net income in F & O transactions
amounting to Rs. 90,017. According to the assessee, the unexpired future &
option contract as on 1.4.2008 was Rs. 50,93,939 which was added to the
business loss of Rs. 5,82,655 thereby reducing the said loss to be carried forward. 

The AO in the remand report changed the valuation of
unexpired contract and came to the conclusion that the net profit should be
calculated at Rs. 6,48,780 by way of enhancement or net profit should be
sustained at Rs. 40,89,667 instead of Rs. 50,93,939 as made by the AO while
framing the original assessment.

The CIT(A), without giving any notice of enhancement u/s. 251
of the Act passed an order enhancing the net profit to Rs. 66,48,780.

Aggrieved, the assessee preferred an appeal to the Tribunal
where as an additional ground it was contended that the action of CIT(A) in
enhancing the assessment without giving an opportunity to the assessee violated
the principles of natural justice.

HELD  

The Tribunal noted that the CIT(A) has passed the order on
the basis of remand report of the AO enhancing the assessment by taking net
profit to Rs. 66,48,780 without issuing any show cause notice u/s. 251 of the
Act. The Tribunal held that CIT(A) should have given opportunity to the
assessee to present his case which was not given and therefore violated the
principles of natural justice. It held that, the order passed by CIT(A) without
giving opportunity to the assessee is bad in law and cannot be sustained. The
Tribunal set aside the order passed by CIT(A) and restored the matter back to
the file of the AO to decide the same as per law after providing fair and
reasonable opportunity to the assessee.

Compiler’s note: The amounts stated under the caption “Facts”
are not reconciling / clear but the same are as mentioned in the order of the
Tribunal.

Section 28, 41(1) – In a case where assessee has filed confirmation from creditors along with PAN number, amounts payable to creditors cannot be added to income merely on the ground that the assessee could not produce creditors

11.  ITO vs. Mahesh N. Manani
ITAT  Mumbai `B’ Bench
Before Shailendra Kumar Yadav (JM) and Rajesh Kumar (AM)
ITA No.: 389/Mum/2014
A.Y.: 2010-11.  Date of Order: 4th August, 2016.
Counsel for revenue / assessee: Shivaji Ghode / None

FACTS
During the course of assessment proceedings, the AO noticed that sundry liabilities at the end of the year were shown at Rs. 90,00,563 as against the previous years amount of Rs. 19,69,537.  He issued notice u/s. 133(6) of the Act, which were not returned back but there was no response received.  Therefore, assessee was asked to produce the creditors with their relevant income-tax records for verification. However, the creditors did not come before the AO. The AO added this sum of Rs.90,00,563 to the total income of the assessee.

Aggrieved, the assessee filed an appeal to the CIT(A) where elaborate reasoning was given for assessee not being able to produce creditors. The assessee also filed confirmatory letters from all the 8 creditors which contained complete names, addresses and even income tax particulars of the creditors. The CIT(A) remanded the matter to the AO with a direction to make enquiries/ investigation as he thinks fit to ascertain the facts of the matter.  

In the remand proceedings, the AO instead of making any enquiries asked the assessee to produce the creditors which the assessee could not do for the very reasons mentioned in the submissions filed before CIT(A). The CIT(A) observed that through the letter calling for remand report specifically directed the AO to make an enquiry, investigation as was necessary and thereafter submit a factual report, the AO did not do any enquiry at his end.  The CIT(A) allowed the appeal and held that that the assessee on his part has primarily discharged his onus cast upon him to establish the credits in his books whereas AO except harping on the point that the assessee has failed to produce them along with records has not brought any material to establish that the liabilities were fictitious.  

Aggrieved, the revenue preferred an appeal to the Tribunal.

HELD
The AO was not justified in rejecting the claim of the assessee mainly on the ground that assessee could not produce creditors. It is not in dispute that the assessee has filed confirmation from creditors along with PAN number.  This view is fortified by the decision of Hon’ble Apex Court in the case CIT vs. Orissa Corporation (P.) Ltd. [159 ITR 78 (SC)].  In view of this, CIT(A) was justified in deleting the addition.  

The Tribunal dismissed the appeal filed by the revenue.

Income Tax Officer vs. Kondal Reddy Mandal Reddy ITAT ‘B’ Bench, Hyderabad Before P. Madhavi Devi (JM) and B. Ramakotaiah (AM) ITA No. 848/Hyd/2015 A.Y.: 2010-11. Date of Order: 13th May, 2016 Counsel for Revenue / Assessee: B.R. Ramesh / K.C. Devdas

fiogf49gjkf0d
Section 50C and 54F – For the purpose of exemption u/s. 54F the consideration determined as per section 50C is to be adopted – For exemption entire investment in new house to be considered irrespective of source of funds
Facts

The issue before the Tribunal was whether the actual sale consideration mentioned in the sale deed or the deemed sale consideration u/s. 50C is to be adopted for allowing the deduction u/s. 54F.

During the assessment proceedings under section 143(3) of the Act, the A.O. observed that the assessee had sold a plot of land for a consideration of Rs.20 lakh as per sale deed while vendees had paid the stamp duty, registration charges etc., on the value of Rs.89.6 lakh. Therefore, he invoked the provisions of section 50C and brought the difference of Rs.69.6 lakh to tax as the capital gains. Against the same, the assessee claimed deduction u/s. 54F qua the investment of Rs.1.37 crore made by him for construction of a residential house. The A.O. however, held that the sale consideration of Rs.20 lakh mentioned in the sale deed alone was eligible for exemption under section 54F and not deemed consideration arrived at by invoking the provisions of section 50C. On appeal, the CIT(A) agreed with the assessee.

Being aggrieved, the revenue appealed before the Tribunal and placed reliance upon two court decisions in support of its contention that the “full value of the sale consideration” as mentioned in Section 54F refers to the “consideration” actually received by the assessee and not the deemed consideration received under section 50C. The cases relied upon were as under
• CIT vs. George Henderson & Co. Ltd. 66 ITR 622 (SC);
• CIT vs. Smt. Nilofer L Singh 309 ITR 233 (Del.)

Held

The Tribunal relied on the decision of the Mumbai tribunal in the case of Raj Babbar vs. ITO (56 SOT 1) and of the Karnataka High Court in the case of Gouli Mahadevappa vs. ITO (356 ITR 90). As held in the said decisions, the Tribunal observed that when the capital gain is assessed on notional basis, the entire amount invested, should get benefit of deduction irrespective of the fact that the funds from other sources were utilised for new residential house. Thus, in the case of the assessee, the sum of Rs. 1.37 crore invested was eligible for benefit u/s 54F and not the sum of Rs. 20 lakh as contended by the revenue. According to the Tribunal, the decision relied upon by the revenue in the case of George Henderson & Co. Ltd. and Nilofer L Singh were distinguishable on facts. Accordingly, the appeal filed by the revenue was dismissed and the order of the CIT(A) was upheld.

Baberwad Shiksha Samiti vs. CIT (Exemption) ITAT Jaipur Bench Before T. R. Meena (AM) and Laliet Kumar (JM) ITA No. 487/JP/2015 A.Y.: 2010-11. Date of Order: 12th February, 2016 Counsel for Assessee / Revenue: Mahendra Gargieya / D. S. Kothari & Ajay Malik

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Section 263 – Where the AO has accepted the claims by the assessee after making proper inquiry, the CIT cannot proceed to revise the order by holding another possible view.
Facts

The assessee, running educational institutes, had filed its return of income on 25.01.2011 declaring nil income. It had claimed exemption under section 10(23) (iiiad) and section 11. The assessment was completed under section 143(3) by the AO at the returned income. According to the CIT (Exemption) the order of the AO was erroneous and prejudicial to the interest of the revenue for the following reasons:

a) The assessee had applied for registration u/s 12A on 04.02.2011 and it was not registered u/s 12AA before completion of assessment;

b) The assessee had not included in its gross receipt the sum of Rs. 51.05 lakh received from the State Government on account of students’ scholarship. If the said amount is added to the total receipts declared by the assessee, the gross receipts were more than Rs. 1 crore and thus, the assessee won’t be eligible to claim exemption u/s 10(23)(iiiad);

c) The assessee was not entitled to depreciation of Rs. 7.62 lakh as the capital expenditure incurred by the assessee was already allowed in the year of purchase of assets as application of income;

The assessee claimed that the order passed by the AO was not erroneous and prejudicial to the interest of the revenue for the following reasons:

a) Proviso to section 12A(2) inserted w.e.f. 01.10.2014 provides that where registration has been granted to the trust u/s 12AA, then the provision of section 11 and 12 shall apply in respect of any income derived from the property held under trust of any assessment years for which assessment proceedings are pending before the AO as on the date of such registration. The assessee claimed, since it is a beneficial proviso which is to remove the un-intended hardship, the proviso has a retrospective effect;

b) Scholarship amount was received for disbursement to the students whose names were given by the Government. The assessee cannot retain any part of the scholarship for its benefit and any amount remaining unclaimed has to be returned back to the Government. The assessee was merely acting as a conduit. After examination of this issue the AO had allowed exemption u/s 10(23)(iiiad);

c) The assessee had not claimed any capital expenditure as application of income in as much as in all earlier years, the assessee had claimed exemption u/s 10(23) (iiiad). Even otherwise also, the assessee claimed that u/s 11, both, depreciation as well as capital expenditure are allowable citing several decisions;

However, the CIT(Exemption) did not agree with the assessee and restored the matter back to the AO for making proper enquiry. According to him the benefit under proviso to section 12A(2) inserted w.e.f. 01.10.2014 cannot be given to the assessee who has filed application for registration on 04.02.2011. As regards scholarship – according to him since the assessee had not fully disbursed the scholarship amount by the year end, the said receipt was includible in the gross receipts of the assessee. Thus, according to him, the assessee was not entitled to claim exemption u/s 10(23)(iiiad) as its gross receipt exceeded Rs. 1 crore. As regards depreciation, the CIT(Exemption) relied on the Supreme Court decisions in the cases of Escorts Ltd. vs. Union of India (199 ITR 43) and Lissie Medical Institutions vs. CIT (348 ITR 43) and held that it was a double deduction on the same assets.

Held

The Tribunal noted that before assessing the income of the assessee u/s 143(3 )a detailed questionnaire was issued by the AO and the assessee had furnished requisite details / information / accounts, etc. Thus, according to the Tribunal, the AO had concluded the matter after making detailed inquiry. Further, the Tribunal noted that on the issues raised by the CIT, there are decisions by the courts as well as the ITAT which have decided the matter in favour of the assessee. Thus, according to the Tribunal, the AO had formed one of the views while the CIT (Exemption) had formed another view on same facts and circumstances and therefore, change of opinion was not permissible under the law. Hence, the Tribunal set aside the order of the CIT(Exemption) and allowed the appeal of the assessee.

D. H. Patkar & Co. vs. ITO ITAT “D” Bench, Mumbai Before B.R.Baskaran (AM) and Ramlal Negi, (JM) I.T.A. No.: 4524/Mum/2013 A.Y.:2009-10. Date of Order: 18th March, 2016. Counsel for Assessee / Revenue: Jignesh R. Shah / B. S. Bist

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Explanation u/s. 37(1) – Payment of speed money to dock workers are not bribes or prohibited under the law hence cannot be disallowed.

Facts
The assessee, a partnership firm, was engaged in clearing and forwarding agency business. During the year it paid the sum of Rs. 34.6 lakh as speed money to the dock workers on behalf of its clients. The AO took the view that these payments are in the nature of bribes and hence the same cannot be allowed as deduction as per the Explanation given u/s. 37(1) of the Act. The CIT(A) also confirmed the order of the AO.

Before the Tribunal, the assessee submitted that these expenses have been incurred on behalf of its clients and in support produced the copies of bills raised upon its clients. It was further submitted that the assessee was constrained to incur these expenses upon the instructions of its clients in order to get their job of loading and unloading done quickly. The payment was also justified on the ground that it was a prevailing practice to incentivise the dock workers by paying some extra charges to get the job done quickly. He submitted that these kinds of payments are not prohibited by law and hence the tax authorities are not justified in invoking the Explanation to section 37(1) of the Act to disallow the claim of the assessee.

Held
According to the Tribunal, the impugned disallowance merits deletion for the following reasons:

these payments have been made by the assessee on behalf of its clients and hence the same does not constitute its own expenditure;

even though the assessee has routed the expenditure and reimbursement received from its clients through the Profit and loss account, yet it is settled principle that the books of accounts of the assessee cannot be the sole determinative factor to decide about the nature of expenditure;

the AO has invoked the provisions of Explanation to section 37(1), but he has not cited the relevant law, which prohibits such kind of payments;

the assessee’s claim that it was paid to the workers has not been disproved.

Therefore, the Tribunal set aside the order of the AO and directed him to delete the disallowance.

Oxford Softech P. Ltd. vs. ITO ITAT Delhi `E’ Bench Before J. Sudhakar Reddy (AM) and Beena A. Pillai (JM) ITA No. 5100/Del/2011 A.Y.: 2004-05. Date of Order: 7th April, 2016. Counsel for assessee / revenue: Salil Kapoor, Vinay Chawla & Ananya Kapoor / P. Damkanunjna

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Section 271(1)(c) – Making a claim for deduction under the provisions of section 80 IA of the Act which has numerous conditions attached, is a complicated affair. Since the assessee claimed deduction u/s. 80IA, based on legal advice, and filed the report of Chartered Accountant in Form No. 10CCB along with return of income and all details were also filed along with the return of income, it cannot be said that this is a case of furnishing of inaccurate particulars of income.

Facts
The assessee company, engaged in providing certain services including air conditioning, generator backup, interiors, electric, wooden fixtures and fittings etc., claimed deduction of 100% of its gross total income of Rs. 36,80,723 u/s. 80IA of the Act. The report of the Chartered Accountant in Form No. 10CCB was filed along with return of income.

The Assessing Officer denied claim of deduction u/s. 80IA of the Act. on the ground that the assessee was merely providing certain interiors, furniture, fixtures and generator back up power services etc., for BPO/Software companies which were lessees of the building owned by its director and that the assessee was not engaged in business of developing, operating and maintaining the infrastructure facilities as was specified in section 80IA of the Act.

Aggrieved by the denial of deduction u/s. 80IA of the Act, the assessee preferred an appeal to CIT(A) but when the appeal came up for hearing it withdrew the appeal filed.

The AO levied penalty u/s 271(1)(c) on the ground that the assessee had furnished inaccurate particulars.

Aggrieved by the levy of penalty, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved by the order passed by CIT(A), the assessee preferred an appeal to the Tribunal.

Held
The Tribunal observed that a perusal of audit report filed by the assessee along with his return of income, to support the claim of deduction u/s. 80IA(7), demonstrates that the auditors of the assessee also believed that the assessee was eligible for deduction u/s. 80 IA of the Act. It was a conscious claim made by the assessee supported by an audit report. It also noted that the assessee had also made an application to STPI for setting up the infrastructure facilities under the STPI Scheme. All details of the claim made u/s. 80 IA were filed by the assessee, along with the return of income. The Tribunal held the assessee was under a bonafide belief that it is entitled to the claim for deduction under provisions of section80 IA of the Act.

The provisions under the Income-tax Act are highly complicated and its different (sic, it is difficult) for a layman to understand the same. Even seasoned tax professionals have difficulty in comprehending these provisions. Making a claim for deduction under the provisions of section 80 IA of the Act which has numerous conditions attached, is a complicated affair. It is another matter that the assessing authorities have found that the claim is not admissible. Under these circumstances, the Tribunal held that it cannot be said that this is a case of furnishing of inaccurate particulars of income.

Applying the propositions laid down by the Delhi High Court in the case of CIT vs. Shyama A. Bijapurkar (ITA No. 842/2010; order dated 13.7.2010) and CIT vs. Smt. Rita Malhotra 154 ITR 550 (Del), the Tribunal cancelled the penalty levied u/s 271(1)(c) of the Act.

The Tribunal allowed the appeal filed by the assessee

ACIT vs. Rupam Impex ITAT, Rajkot bench, Rajkot Before Pramod Kumar (A.M.) and S S Godara (J.M.) I.T.A. No.: 472/RJT/2014 A.Y.: 2008-09 Date of Order: 21st January, 2016 Counsel for Assessee / Revenue : Vimal Desai / Yogesh Pandey and C S Anjaria

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Section 154 – Who is responsible for the mistake is not material for the purpose of proceedings u/s. 154; what is material is that there is a mistake – AO directed to rectify the mistake even though it was alleged to have been made by the assessee.

Facts
In the assessment order passed by the AO u/s. 143(3) of the Act, the assessee noted that the AO had erred in computing its assessed income on account of the following discrepancies in the order passed:

The AO was, accordingly, urged to rectify the mistake which was apparent on record. However, the AO rejected this request primarily on the ground that the assessee himself had computed the income on the basis of these figures. On appeal, the CIT(A) held the action of the AO as incorrect and directed the AO to rectify the mistakes u/s. 154.

Before the Tribunal, the revenue justified the stand of the AO and submitted that since the claim of the assessee, as made in the income tax return, was accepted, the assessee could not make a fresh claim without a revised return.

Held
According to the Tribunal, a lot of emphasis was placed by the AO on the fact that the mistake was committed by the assessee ignoring the fact of the complete non-application of mind by him to the facts of the case and making a mockery of the scrutiny assessment proceedings. According to the Tribunal who is responsible for the mistake was not material for the purpose of proceedings u/s. 154; what is material is that there is a mistake – a mistake which is clear, glaring and which is incapable of two views being taken. According to the Tribunal, the fact that mistake has occurred was beyond doubt. It is attributed to the error of the assessee does not obliterate the fact of mistake or legal remedies for a mistake having crept in. According to it, the income liable to be taxed has to be worked out in accordance with the law as in force. In this process, it is not open to the Revenue authorities to take advantage of mistakes committed by the assessee. Tax cannot be levied on an assessee at a higher amount or at a higher rate merely because the assessee, under a mistaken belief or due to an error, offered the income for taxation at that amount or that rate. It can only be levied when it is authorised by the law, as is the mandate of Article 265 of the Constitution of India. According to it, a sense of fair play by the field officers towards the taxpayers is not an act of benevolence by the field officers but it is call of duty in a socially accountable governance.

Dismissing the appeal of the revenue the Tribunal made it clear that it was not awarding any costs but put in a word of caution. It pointed out that there has to be proper mechanism to ensure that such frivolous appeals are not filed. And if that does not happen and the frivolous appeals continue to clog the system, it is only a matter of time that the Tribunal would start awarding costs, as a measure to deterrence to the officers concerned.

Mangal Keshav Securities Limited vs. ACIT ITAT “B” Bench, Mumbai Before Joginder Singh (J. M.) and Ashwani Taneja (A. M.) ITA No.: 8047/Mum/2010 A.Y.:2006-07, Date of Order:29th September, 2015 Counsel for Assessee / Revenue: Nishan Thakkar & Prasant J. Thacker / J. K. Garg

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Explanation to Section 37(1) – Fines, penalties paid for procedural non-compliances to regulatory authorities are compensatory in nature hence allowable as business expenditure.

Facts
The assessee is a closely held company engaged in the business of share/stock broking and is a member of BSE, NSE and is a DP for CDSL & NSDL and Mutual Fund Distribution.

During the course of assessment proceedings, it was noted by the AO from the Tax Audit Report that the assessee had paid penalty/fine levied by the Stock Exchange amounting to Rs.9.08 lakh. According to the assessee the fines, penalty etc. were paid for some procedural non-compliances, inadvertently done by the assessee and it had neither undertaken any activities which were in ‘violation’ or ‘offence’ of any law, nor has conducted any activities which were prohibited by law. But the AO was not satisfied and he disallowed the said amount by invoking Explanation to section 37. On appeal the CIT(A) confirmed the order of the AO.

Held
The Tribunal noted that the impugned amount was paid on account of minor procedural irregularities, in day- today working of the assessee. The assessee’s business involved substantial compliance requirements with various regulatory authorities e.g. BSE, NSE, CDSL, NSDL, & SEBI etc. According to it, in the regular course of the assessee’s business certain procedural non-compliances were not unusual, for which the assessee is required to pay some fines or penalties.

It further observed that these routine fines or penalties were “compensatory” in nature; these were not punitive. These fines were generally levied to ensure procedural compliances by the concerned authorities. Their levy depended upon the facts and circumstances of the case, and peculiarities or complexities of the situations involved. It further observed that under the income tax law, one is required to go into the real nature of the transactions and not to the nomenclature that may have been assigned by the parties. Further, relying upon the judgment of the Tribunal in assessee’s own case for A.Y. 2007-08 in ITA No.121/Mum/2010 dated 04.11.2010, the Tribunal allowed the appeal of the assessee.

Neela S. Karyakarte vs. ITO ITAT “B” Bench, Mumbai Before Joginder Singh (J. M.) and Ashwani Taneja (A. M.) ITA No.: 7548/Mum/2012 A.Y.: 2005-06, Date of Order:28th August, 2015 Counsel for Assessee / Revenue: Dr. K. Shivaram / Vijay Kumar Soni

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Section 54EC: The period of six months available for making investment means six calendar months and not 180 days. Payment by cheque dates back to date of presentation & not date of encashment

Facts
The assessee sold a row house on 27.04.2004 for Rs.18,50,000/-. After indexation, the assessee earned long term capital gain of Rs.10,90,176/-. The assessee invested this capital gain in NHB Capital Gain Bonds 2006 on 31st December, 2004 and claimed exemption u/s 54EC. However, the AO found that the assessee was not eligible for exemption u/s 54EC, since the investment was not made by the assessee within six months from the date of transfer of original asset, as per requirement of section 54EC. The AO observed that the sale of row house was executed on 27.04.2004, as per the registered sale agreement, whereas the assessee has invested the amount in NHB Bonds on 31.12.2004. Thus, as per AO, it was beyond the period of six months as stipulated in section 54EC. Accordingly, it was held by the AO that benefit of deduction u/s. 54EC was not allowable to the assessee.

Being aggrieved, the assessee filed appeal before the CIT(A) who after considering all the submissions and evidences placed by the assessee held that going by the date of full and final settlement, the date of transfer would be 29th June, 2004. However, according to him, since the assessee made investment in the bonds on 31.12.2004, it fell beyond the period of six months from the date of transfer and therefore, the assessee was not eligible for deduction u/s. 54EC.

Held
The Tribunal noted that the CIT(A) has held that the date of transfer of the original asset was 29th June, 2004 and the same is not disputed by the revenue. The Tribunal further took note of the decisions of the Special Bench of Ahmedabad in the case of Alkaben B. Patel (2014) (148 ITD 31) and the Mumbai Bench of Income Tax Tribunal in the case of M/s. Crucible Trading Co. Pvt. Ltd. (ITA No. 5994/Mum/2013 dated 25.02.2015) where the term “6 months” have been interpreted to mean 6 calendar months and not 180 days. Further, it also took note of the decision of the Supreme Court in the case of Ogale Glass Works Ltd. (1954) 25 ITR 529, where it was held that the cheques not having been dishonoured but having been cashed, the payment relates back to the dates of the receipt of the cheques and as per the law the dates of payments would be the date of delivery of the cheques. As per the facts, the assessee had filed an application with National Housing Bank on 23.12.2004 along with the cheque of even date. Thus, it was held that the assessee had clearly made investment within the period of 180 days also. Thus, the Tribunal held that viewed from any angle it can be safely said that the assessee has made investment within the period of six months. In the result, the appeal of the assessee was allowed.

Hiralal Chunilal Jain vs. Income tax Officer ITAT Mumbai “H” bench ITA No. 4547, 2545 & 1275/Mum/2014 A. Ys. 2009-10 & 2010-11. Date of Order: 01.01.2016

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Section 69C – Addition made only on the basis of bogus parties identified by the Sales tax department deleted.

Facts
The assessee, an individual, runs a proprietary business of trading in ferrous and non-ferrous metals. During the assessment proceedings, the AO found that the assessee had purchased goods worth Rs.7.21 lakh from Shiv Sagar Steel whose name was appearing in the list of bogus parties forwarded by the sales tax authorities and the name of the assessee was appearing as a beneficiary in the list. The AO directed the assessee to produce the party. However, the supplier was not produced by the assessee. Summons issued to the party could not be served on the given address. The AO held the purchase transaction as bogus and treated the entire purchase of Rs.7.21 lakh as unexplained expenditure u/s.69C.

Aggrieved by the order of the AO, the assessee appealed before the CIT(A) and submitted that the AO had relied upon the information supplied by the investigation wing of the Sales Tax Department (STD) but he had not supplied the copy of the statement of the party recorded by the STD. Further, the assessee was also not allowed to cross examine the party. According to the assessee, he had discharged his obligation by submitting details of purchases, sales and bank transactions. He had also produced stock register before the AO. There was no evidence that payments for the so called bogus purchases had come back to the assessee. All purchases and sales were recorded in the books of accounts, quantitative details were also maintained and the AO had also accepted the sales.

The CIT(A) noted that the STD had treated the suppliers of goods as suspicious dealer since during the investigation, the supplier had admitted that they had issued accommodation bills. Further, he also noted that the assessee was not able to produce the party. According to the CIT(A),it was quite possible that the assessee purchased the goods from the grey market and took accommodation bills from the said party. Therefore, he held that an addition of 20% of the purchase would be justified in order to fulfil the gap difference of Gross Profit (GP) for the alleged purchase as well to plug any leakage of revenue.

Before the Tribunal, in addition to what was submitted before the CIT(A), the assessee pointed out that the CIT(A) had ignored the vital fact that the Net Profit ratio was 1.7% and the GP ratio was about 7%. He also relied upon the decisions of the Mumbai Tribunal in the cases of Deputy Commissioner of Income Tax vs. Rajeev G. Kalathil (67 SOT 52) and Asstt. Commissioner of Income Tax vs. Tristar Jewellery Exports Private Limited (ITA 8292/Mum/2011 dated 31.07.2015) and the Bombay High Court in the case of CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. (372 ITR 619).

Held
The Tribunal noted that the AO had not rejected the sales made by the assessee and had made the addition only on the basis of the information received from the STD. The assessee was also maintaining the quantitative details and stock register. According to the Tribunal, the AO should have made an independent inquiry. He also did not follow the principles of natural justice before making the addition. It also noted that the CIT(A) had reduced the addition to 20%, but he had not given any justification, except stating that the same was done to plug the probable leakage of revenue. Considering the peculiar facts and circumstances of the case, the Tribunal reversed the order of the CIT(A) and allowed the appeal of the assessee.

C.R. Developments Pvt. Ltd. vs. JCIT ITAT `C’ Bench, Mumbai Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No. 4277/Mum/2012 A. Y.: 2009-10. Dateof Order: 13th May, 2015. Counsel for assessee / revenue : S. M. Bandi / Asghar Zain

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Sections 22, 28 – Notional income in respect of three unsold shops cannot be charged to tax under the head `Income from House Property’.

Facts
The assessee company, engaged in the business of construction and development, held 3 unsold shops as stock-in-trade. In the return of income, the assessee had not offered any notional income in respect of these shops on the ground that three shops held at the end of the year were its trading assets and therefore their annual value is not chargeable under the head `income from house property’ as profit on sale thereof shall be chargeable to tax under the head of income from business. The AO did not agree with the assessee’s contention and brought the notional rental income in assessee’s hands u/s.23.

Aggrieved, the assessee preferred an appeal to CIT(A) who restored the matter back to the file of the AO with the direction to make an enquiry as to what would be the possible rent that the property might fetch.

Aggrieved, the assessee preferred an appeal to the Tribunal where, on behalf of the assessee reliance was placed on the decision of the Mumbai Bench of ITAT in the case of M/s Perfect Scale Company Pvt. Ltd., [ITA Nos.3228 to 3234/Mum/2013, order dated 6-9-2013], wherein it was held that in respect of assets held as business, income from the same is not assessable u/s.23(1) of the Act whereas on behalf of the Revenue, reliance was placed on the order of Hon’ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd., 354 ITR 180 (Delhi) in support of the proposition that even in respect of unsold flats by the developer is liable to be taxed as income from house property.

Held
The Tribunal noted that the Hon’ble Supreme Court in the case of M/s Chennai Properties & Investments Ltd. vs. CIT, reported in (2015) 56 taxmann.com 456 (SC), vide judgment dated 9-4-2015 has held that the action of the AO in charging rental income received by an assessee engaged in the activity of letting out properties under the head Income from House Property was not justified. The Hon’ble Supreme Court held that since the assessee company’s main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business.

On the very same analogy in the instant case, the assessee is engaged in business of construction and development, which is main object of the assessee company. The three flats which could not be sold at the end of the year were shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by letting out the flats. The flats not sold were its stock-intrade and income arising on its sale is liable to be taxed as business income. The Tribunal held that it did not find any justification in the order of AO for estimating rental income from these vacant flats u/s.23 which is assessee’s stock in trade as at the end of the year. Accordingly, the Tribunal directed the AO to delete the addition made by estimating letting value of the flats u/s.23 of the Act.

Suvaprasanna Bhatacharya vs. ACIT ITAT Bench “B” Kolkata Before N. V. Vasudevan, (J. M.) and Waseem Ahmed (A. M.) ITA No.1303/Kol /2010 A. Y. : 2006-07. Date of Order: 06-11-2015 Counsel for Assessee / Revenue: A.K. Tibrewal and Amit Agarwal / Sanjit Kr. Das

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Section 271(1)(c) r.w 274 – For valid initiation of penalty proceedings it is essential that (i) Prima facie, the case may deserve the imposition of penalty should be discernible from the Order passed; and (ii) Notice must specify as to whether the Assessee was guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”.

Facts
The assessee is a professional artist having created many paintings. For AY 2006-07, the Assessee filed return of income declaring income of Rs.6.73 lakh. During the course of assessment proceeding, the AO found that the assessee had invested the sum of Rs. 68.79 lakh in units of mutual fund out of income from sale of paintings which was not disclosed in his return of income. The AO assessed the income of the assessee at Rs. 80.89 lakh and issued a show cause notice u/s.274. The assessee accepted the order of the AO and paid taxes due thereon. In his reply to Notice u/s. 274, the assessee submitted that the additional income assessed was out of the sale of art which was in the nature of personal effects and hence not a capital asset within the meaning of the definition of the said term u/s.2 (14) (ii). He explained that the paintings were kept for years over because of his aesthetic sense and also it gave him tremendous pleasure and pride of possession. Thus, the paintings were his “personal effects”. The assessee further explained that the sale of paintings was for the purpose of making investments in the units of mutual funds and to earn income from such investments for his livelihood. Therefore, it was contended by him that the incidence of sale cannot be construed as the adventure in the nature of trade. Thus, according to him, income earned out of the sales of paintings, which were nothing but the personal effects, was not taxable and the very basis of addition by the AO was not correct. It was pointed out that in the course of assessment proceedings, the facts were placed before the AO. However, to avoid litigation, the taxes were paid. It was contended that sine the assessment and penalty proceedings are two different proceedings, the Assessee is not precluded from urging the correct position in law during the penalty proceedings. The assessee thus submitted that imposition of penalty was unsustainable.

The above submissions did not find favour with the AO. The AO held that the assessee had deliberately tried to conceal his professional receipt by depositing it in the bank account not disclosed to the department. Such information was found out by the department. He had no option but to disclose it fully as the bank details were already with the department. The mistake was neither due to ignorance nor bona fide. The AO referred to the decision of the Supreme Court in the case of Dharmendra Textile Processors and others 306 ITR 277 and held that mens rea is not essential for attracting civil liabilities. Accordingly, he levied a penalty of Rs. 71.88 lakh u/s. 271(1)(c). On appeal by the Assessee, the CIT(A) confirmed the order of the AO.

Before the Tribunal, the assessee further submitted that the AO had not recorded his satisfaction in the order of assessment that the assessee is liable to be proceeded against u/s.271(1)(c). Further, the show cause notice issued u/s.274 did not specify as to whether the Assessee was guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”.

Held:
The Tribunal noted that the source of funds for making investments in units of mutual funds was the starting point of enquiry by the AO. It was not in dispute that the source of funds for making such investments was the sale of assessee’s own paintings. Thus, if the painting are considered as “personal effects” then they cannot be regarded as “capital assets” within the meaning of section 2(14)(ii). Consequently, the receipts on sale of paintings would not be chargeable to tax.

Referring to the meaning of the term “personal effects” as per section 2(14)(ii), it noted that by the Finance Act, 2007, the definition of the term “personal effects” was substituted w.e.f. the 1st day of April, 2008 to exclude from its meaning the items of amongst others, drawings and paintings. Thus, till 31st March, 2008, drawing and paintings were considered as “personal effects” and hence, not as capital assets till then.

The Tribunal further noted that the sale of paintings was not done by the assessee as an adventure in the nature of trade. The paintings were kept for years over because of his aesthetic sense. It gave him tremendous pleasure and pride of possession. This aspect had not been disputed by the AO. Therefore, according to the tribunal, the paintings were his “personal effects”. Further, in the statement recorded u/s.131, the assessee had stated that the paintings were made as per creation desire of the assessee. Therefore, it accepted the contention of the assessee that the paintings were his “personal effects” and held that the penalty imposed qua the income from the sale of painting was not sustainable.

As regards the alternate contention of the assessee, the Tribunal agreed with the assessee that the order of assessment nowhere spells out or indicates that the AO was of the view that the assessee was guilty of either concealing particulars of income or furnishing inaccurate particulars of income. The offer to tax of income by the assessee has just been accepted. Relying on the Delhi High Court decision in the case of Ms. Madhushree Gupta vs. Union of India 317 ITR 107, the Tribunal observed that the position of law, both pre and post introduction of section 271(1B) is similar, inasmuch, the AO has to arrive at a prima facie satisfaction during the course of assessment proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings. Prima facie, the case may deserve the imposition of penalty should be discernible from the Order passed.

As regards the contention of the assessee that the show cause notice u/s.274 which is in a printed form does not strike out as to whether the penalty is sought to be levied for “furnishing inaccurate particulars of income” or “concealing particulars of such income”, the tribunal, relying on the Karnataka High Court decision in the case of CIT & Anr. vs. Manjunatha Cotton and Ginning Factory, 359 ITR 565 agreed that the Notice did not satisfy the requirement of law in as much as that it had not struck out the irrelevant part. Thus the show cause notice u/s. 274 was defective hence, the order imposing penalty was invalid and therefore, the penalty imposed was cancelled.

ITO vs. Superline Construction Pvt. Ltd. ITAT “A” Bench, Mumbai Before Shailendra Kumar Yadav (J. M.) and Rajesh Kumar (A. M.) ITA No. 3645/Mum/2014 A. Y. : 2007-08. Date of Order: 30.11.2015 Counsel for Assessee / Revenue: A. Ramachandran / P. Danial

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Section 68 – In case of receipt of share application money from the alleged bogus shareholders, addition can only be made in the hands of the alleged bogus shareholders and not in the income of the company recipient.

Facts
This appeal, along with six others, by the Revenue is directed against respective orders of the CIT(A) in respect of seven different assessees. Since the appeals involve common issues, the same were heard together and disposed of by the Tribunal, by a consolidated order.

The assessee was a builder and a developer. The assessment was completed u/s. 143(3) r.w.s. 147. During the year, the assessee had received share application money to the tune of Rs.85 lakh from eight companies. After completing the assessment, the Assessing Officer received detailed report from the investigation wing alongwith copies of statement recorded from the concerned officials of the company. Based thereon, the assessment was re-opened and an addition of Rs.40 lakh was made on account of bogus share application money received from three different corporate entities, u/s. 68. On appeal, the CIT(A) deleted the addition.

Before the Tribunal, the revenue contended that the CIT(A) erred in deleting the addition without appreciating the fact that addition was made based on specific information provided by Investigation Wing of Income Tax Department. According to it, the investors had issued cheques towards alleged share application money in return of cash. It was submitted that the assessee had failed to discharge the onus cast upon it to prove the credit entries of share application money as required under the statute.

In reply, the assessee contended that it had fully discharged the burden of proof by establishing the identity, creditworthiness and genuineness of the transactions. It produced banking instruments as the documentary evidence and further substantiated the details regarding the investors with the documentary evidences as extracted from the website of the Ministry of Corporate Affairs. Further, the assessee relied on the Supreme court decision in the case of CIT vs. Lovely Exports (Pvt) Ltd., reported in [2008] 216 CTR 195 (SC) and few other tribunal decisions.

Held
The Tribunal noted that on similar issue of receipt of share application money, the Supreme Court had in the case relied on by the assessee, held that such receipt cannot be regarded as the undisclosed income of the assessee company and in case the department has information about the alleged bogus shareholders, then the department should proceed to reopen the individual assessments of the investors. Further, taking into account the facts and circumstances of the case and other decisions of the tribunals on a similar issue, the Tribunal upheld the order of the CIT(A) and the appeal filed by the Revenue was dismissed.

DCIT vs. Mahanagar Gas Ltd. ITAT Mumbai `B’ Bench Before R. C. Sharma (AM) and Mahavir Singh (JM) ITA No. 1945/Mum/2013 A.Y.: 2009-10. Date of Order: 15th April, 2016 Counsel for revenue / assessee: Sanjiv Jain / A. V. Sonde & P. P. Jayaraman

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Sections 40(a)(ia), 192 – Amounts paid by way of reimbursement of salary of employees, working with the assessee under a secondment agreement are not subject to TDS in assessee’s hands.

Facts
In the course of assessment proceedings, the Assessing Officer (AO) noticed from Schedule M forming part of P & L Account that the assessee had debited a sum of Rs. 193.46 lakh on account of secondment charges under the head `personnel cost’ but TDS had not been deducted on the same. He disallowed this sum u/s. 40(a)(ia) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who, relying on the decision of the co-ordinate bench in the case of IDS Software Solutions (India) Pvt. Ltd. 122 TTJ 410 (Bang.) and also the decision of the Bombay High Court in the case of CIT vs. Kotak Securities Ltd. (ITA No. 3111 of 2009) decided the appeal in favour of the assessee.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held
Upon going through the joint venture agreement entered into by the assessee with M/s GAIL and British Gas in respect of secondment charges paid by the assessee, it was observed that there was no mark up in payments made by them. Secondment agreement was entered into because the IPR rights were to remain with British Gas. The assessee also filed a letter from British Gas which clearly stated that all the taxes due in India of the employees seconded to the assessee have been deducted from salary paid to secondees and paid to the Government of India

The Tribunal observed that the issue is covered by the decision of ITAT Bangalore Bench in the case of IDS Software Solutions (India) (P.) Ltd. vs. ITO (supra). Following the ratio of the said decision, the Tribunal dismissed the appeal filed by the revenue.

The appeal filed by the Revenue was dismissed.

Gurpreet Kaur vs. ITO ITAT Amritsar Bench (SMC) Before A. D. Jain (JM) ITA No. 87/Asr/2016 A.Y.: 2011-12. Date of Order: 24th March, 2016 Counsel for assessee / revenue : J. S. Bhasin / Tarsem Lal

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Section 143(3), CBDT Instruction dated 8.9.2010 – As per CBDT instruction dated 8.9.2010, if a case is selected for scrutiny on the basis of AIR information then the scope of scrutiny is to be limited to verification of the said AIR information. AO is not entitled to widen the scope of scrutiny without approval of the CIT. Order passed by the AO in violation of the specific CBDT instruction is not legally sustainable.

Facts
The assessee filed his return of income on 17.10.2011. The Assessing Officer (AO) issued a notice dated 21.9.2012 seeking information in connection with return of income submitted by the assessee. This notice was marked “AIR Only”. Thereafter, the AO issued a notice, dated 15.7.2013, u/s. 142(1) of the Act, asking the assessee to produce accounts/or documents and information as per questionnaire to the said notice. The questionnaire called for details on various issues apart from the information of cash deposits made by the assessee in his savings bank account. The assessee, in his reply, stated that the notice was seeking information with evidence on various issues not covered by AIR information, though the first notice was marked “AIR Only” and that in accordance with instruction dated 8.9.2010 issued by CBDT scrutiny of cases selected on the basis of information received through the AIR returns would be limited only to aspects of information received through AIR.

In response to the query regarding the source of alleged cash deposit of Rs. 25 lakh in the assessee’s savings bank account with OBC, the assessee stated that she sold her residential house for Rs.32.25 lakh of which Rs. 25 lakh were received by cash which cash was deposited by her into her savings bank account. To substantiate her contention, copy of the sale deed was filed.

The AO noticed that the assessee had received a sum of Rs. 3,00,000 from Smt. Balbir Kaur under agreement dated 15.3.2009 entered into by the assessee with Smt. Balbir Kaur for sale of assessee’s property. Copy of the agreement was filed. He called upon the assessee to produce Smt. Balbir Kaur for his examination. Since the assessee had subsequently on 7.5.2010 sold this property to a different person, but had not refunded the amount received from Balbir Kaur to her, the AO added this sum of Rs. 3,00,000 as income of the assessee on the ground that it was forfeited by the assessee. He also denied exemption claimed by the assessee under section 54 of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the order of the AO.

Aggrieved, by the order passed by CIT(A), the assessee preferred an appeal to the Tribunal.

Held
The Tribunal observed that in the present case, the question is, whether while computing capital gain and denying benefit of section 54 to the assessee, the AO has contravened CBDT’s Instruction no. F.No. 225/26/2006- ITA –II(Pt.) dated 8.9.2010 thereby rendering the assessment order invalid. It was observed that the Delhi Bench of ITAT has in the case of Crystal Phosphates Ltd. vs. ACIT 34 CCH 136 (Del. Trib.) held that once CBDT has issued instructions, the same have to be followed in letter and spirit by the AO. It also noted that the Calcutta High Court has in the case of Amal Kumar Ghosh vs. Addl. CIT 361 ITR 458 (Cal.), held that when the department has set down a standard for itself, the department is bound by that standard and it cannot act with discrimination. It also noted that the operative word in section 119(1) is `shall’. It observed that in the present case, the assessee’s case was picked up for scrutiny on the basis of AIR information and the notice was stamped “AIR Only” in compliance with para 3 of the CBDT instruction dated 8.9.2010. The AIR information in the present case was regarding cash deposit of Rs. 25 lakh by assessee in her savings bank account with OBC. The assessee explained the same as sale proceeds of her residential house. This assertion of the assessee was supported by a copy of the sale deed. As per CBDT instruction, nothing further was to be gone into by the AO since the information received through AIR was the cash deposits. The act of the AO of asking the assessee to produce Smt. Balbir Kaur for examination to ascertain whether the agreement was finalised or cancelled was not covered by AIR information and therefore, was not within the purview of the AO. This act of the AO amounted to widening the scope of scrutiny, which as per para 2 of the CBDT instruction, could have been done with the approval of the administrative Commissioner. Since this approval was not taken, the Tribunal held that the action of the AO was violative of the CBDT instruction and therefore the order passed by the AO in violation of specific CBDT instruction was not legally sustainable.

The Tribunal allowed the appeal filed by the assessee.

Uday K. Pradhan vs. Income Tax Officer ITAT “F” Bench, Mumbai Before Jason P. Boaz (AM) and Sandeep Gosain (JM) ITA No. 4669/Mum/2014 A.Y.: 2005-06. Date of Order: 6th April, 2016 Counsel for assessee / revenue: Dharmesh Shah / Sandeep Goel

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Section 2(22)(d): Redemption of preference shares does not constitute “deemed dividend”

Facts
The assessee was a partner in a firm which was converted into a company. As per the books of the erstwhile firm, the assessee had a credit balance of Rs. 38.74 lakh and in lieu of the said credit balance, the assessee received two lakh equity shares and 2,07,417 redeemable preference shares. In the year under appeal, the said redeemable preference shares were redeemed at par and the assessee received Rs. 20.74 lakh. The AO was of the view that the assessee’s receipt of the sum of Rs. 20.74 lakh on redemption of preference shares resulted in reduction of the share capital and therefore, invoked the provisions of section 2(22)(d) of the Act to bring the same to tax as deemed dividend. On appeal, the CIT(A) was of the view that this was a colourable device for distribution of accumulated profits without any payment by the assessee and which benefitted the assessee/shareholder to the tune of Rs. 20.74 lakh therefore it was exigible to tax u/s. 2(22)(d).

Held
Based on the records, the Tribunal noted it was evident that the assessee received the 2,07,417 redeemable preference shares in lieu of his credit balance in capital account of Rs. 38.74 lakh in the erstwhile firm which had since been corporatised. Thus, the assessee was allotted the redeemable preference shares for valuable consideration and that there was no distribution of accumulated profits by the company to its shareholders on redemption of preference shares, which could result in reduction of share capital. Therefore the Tribunal held that the provisions of section 2(22) (d) of the Act would not apply. The Tribunal noted that even as per section 80(3) of the Companies Act, 1956, the redemption of preference shares is not considered as reduction of share capital. Therefore, according to the Tribunal, treating the redemption of preference shares as deemed dividend u/s. 2(22) (d) of the Act does not arise, as it can be treated so only when there is distribution of accumulated profits by way of reduction of share capital.

In coming to this finding the Tribunal relied on the decision of the Coordinate Bench in the case of Parle Biscuits Pvt. Ltd. In ITA Nos. 5318 & 5319/Mum/2008 and 447/ Mum/2009 dated 19.08.2001.

Glen Williams vs. Assistant Commissioner of Income Tax ITAT “A” Bench : Bangalore Before N. V. Vasudevan (J.M.) and Jason P. Boaz (A. M.) ITA No. 1078/Bang/2014 Assessment Year 2009-10. Decided on 07.08.2015 Counsel for Revenue / Assessee: T. V. Subramanya Bhat / P. Dhivahar

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Section 41(1) and 68 – Old liability of sundry creditors remaining unpaid – Since not arising from current year’s transaction not taxable u/s. 68 – Also nothing on record to show remission or cessation of liability hence, not taxable u/s. 41(1)

Facts:
The assessee who is a dealer in sale of bakery and confectionary products, filed his return of income declaring an income of Rs.29.07 lakh. In the course of assessment proceedings, the AO called for confirmations and names and addresses of sundry creditors totalling to Rs.68.59 lakh. The assessee could furnish the names & addresses of 12 creditors out of total 22 creditors. The letters sent u/s. 133(6) to these creditors returned with the endorsement “no such person”, except in the case of one creditor. The assessee explained that the creditors were old creditors and the addresses given were the address available in the records of the assessee and therefore the assessee was not in a position to confirm whether those creditors were residing in that address. The AO was not satisfied with this reply and made an addition of Rs.65.67 lakh. On appeal by the assessee, the CIT(A) confirmed the order of the AO.

Held:
The Tribunal noted that neither the order of the AO nor that of the CIT(A) was clear as to whether the impugned addition made was u/s. 68 or 41(1) of the Act. According to it, the provisions of section 68 will not apply as the balances shown in the creditors’ account did not arise out of any transaction during the previous year relevant to AY 2009-10. As regards the applicability of section 41(1) is concerned, according to it, in the case of the assessee it has to be examined whether by not paying the creditors for a period of four years, the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. It further observed that the words “remission” and “cessation” are legal terms and have to be interpreted accordingly. Referring to the observations of the Supreme court referred to by the Delhi High Court in CIT vs. Sri Vardhaman Overseas Ltd.(343 ITR 408) viz. “a unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt”, the tribunal noted that there was nothing on record or in the order of the AO or the CIT(A) to show that there was either remission or cessation of liability of the assessee. Accordingly, it held that the provisions of section 41(1) of the Act could not be invoked by the Revenue. Therefore, the appeal filed by the assessee was allowed.

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Smt. Shreelekha Damani vs. DCIT ITAT Mumbai `F’ Bench Before Vijay Pal Rao (JM) and N. K. Bhillaiya (AM) ITA No. 4061 /Mum/2012 A. Y. : 2007-08. Decided on: 19th August, 2015. Counsel for assessee / revenue : J. D. Mistry / Manjunath R. Swamy

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Sections 153A, 153D – If the approval granted by the Additional Commissioner is devoid of application of mind, mechanical and without considering the materials on record, such an approval renders the assessment order void.

Facts:
In the search carried out on Simplex group of companies and its associates, the office/residential premises of the company and its directors/connected persons were covered. On the basis of incriminating documents/books of account found during the course of search, assessment was completed u/s. 143(3) r.w.s. 153A of the Act. As per endorsement on page 11 of the assessment order, the assessment order was passed with the prior approval of the Addl. CIT, Central Range-7, Mumbai.

Aggrieved by the additions made, the assessee preferred an appeal to the CIT(A).

Aggrieved, by the order passed by CIT(A), the assessee preferred an appeal to the Tribunal.

In the Tribunal, the assessee preferred an application to raise additional ground viz., that the A.O. has not complied with the provisions of section 153D and hence the assessment u/s. 153A was bad in law.

Held:
The Legislative intent is clear inasmuch as prior to the insertion of section 153D, there was no provision for taking approval in cases of assessment and reassessment in cases where search has been conducted. Thus, the legislature wanted the assessments/reassessments of search and seizure cases should be made with the prior approval of superior authorities which also means that the superior authorities should apply their minds on the materials on the basis of which the officer is making the assessment and after due application of mind and on the basis of seized materials, the superior authorities have to approve the assessment order.

The Tribunal noted that the Addl. CIT had granted approval vide his letter dated 31.12.2010 where he mentioned that as per his letter dated 20.12.2010, the AOs were asked to submit the draft orders for approval u/s. 153D on or before 24.12.2010. He had also mentioned that since the draft order in the case of the assessee was submitted on 31.12.2010, there was not much time left for him to analyse the issues of draft order on merit. Therefore, he approved the draft order as it was submitted.

Having noted the language of the approval, it came to a conclusion that the language of the approval letter established that there has been no application of mind by the Addl. CIT. It held that the approval granted is devoid of any application of mind, is mechanical and without considering the materials on record. It held that in its opinion the power vested in the Joint Commissioner to grant or not to grant approval is coupled with a duty. The Addl CIT is required to apply his mind to the proposals put up to him for approval in the light of the material relied upon by the AO. The said power cannot be exercised casually and in a routine manner.

The Tribunal held the assessment order under consideration to be bad in law and annulled it.

The appeal filed by the assessee was allowed.

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Income Tax Officer vs. Late Som Nath Malhotra (through Raj Rani Malhotra) ITAT Bench ‘G’, New Delhi Before D. Manmohan, (V.P) and N. K. Saini, (A.M.) ITA No. 519/Del/2013 Assessment Year : 2003-04. Decided on 02.07.2015 Counsel for Revenue / Assessee: J. S. Minhas / Piyush Kaushik

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Section 148 & 292BB – Assessment made on the basis of notice issued in the name of the deceased is null and void despite the fact that the legal heir attended the proceeding.

Facts:
The AO on the basis of information received from DIT (Investigation), New Delhi that one Deepak Changia had given an accommodation entry of Rs. 2.01 lakh to the deceased assessee, issued notice dated 31.03.2010 u/s 148. In response to the said notice the legal heir, the wife of the deceased assessee, informed the AO that the assessee had expired on 06.12.2002 and she also furnished the death certificate and copy of Income Tax Return filed on 29.08.2003. The AO however framed the assessment in the name of the deceased assessee at an income of Rs. 23 lakh by making the addition of Rs. 19.94 lakh.

On appeal, the CIT(A) held that since the legal heir of the deceased assessee had informed the AO at the very beginning of assessment proceedings that the assessee had expired, the entire reassessment proceeding made in the name of the deceased was null and void. Against the order of the CIT(A), the revenue appealed before the Tribunal and contended that the CIT(A) erred in ignoring the provisions of section 292BB and holding the assessment not valid when the legal heir of the assessee had duly attended the proceedings and not objected to the same.

Held:
The Tribunal noted that in the present case the AO recorded the reasons for issuing the notice u/s. 148 of the Act in the name of the deceased assessee and got the approval of the Addl. CIT also in the same name. The AO issued notice dated 31.03.2010 u/s. 148 of the Act also in the name of the deceased assessee. In response when the legal heir informed him about the death of assessee, then also the AO did not issue any notice u/s. 148 of the Act or 143(2) of the Act in the name of the legal heir. Thus, according to the Tribunal, the entire assessment proceeding by the AO was on the basis of the notice which was invalid under the Act. Therefore, relying on the decision of the Allahabad High Court in the case of CIT vs. Suresh Chand Jaiswal (325 ITR 563), it was held that the assessment framed on the basis of the invalid notice was void ab initio.

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U.P. Electronics Corporation Ltd. vs. DCIT (TDS) ITAT Lucknow “A” Bench Before Sunil Kumar Yadav (J. M.) and A. K. Garodia (A. M.) ITA No.538/LKW/2012 Assessment Year:2009-10. Decided on 23.01.2015 Counsel for Assessee / Revenue: R. C. Jain / K. C. Meena

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Section 14A – Investments in wholly owned subsidiaries (WOS) – Before any disallowance can be made the AO must record objectively his satisfaction as regards the expenditure incurred by the assessee – With respect to investment in WOS no expenditure is generally incurred to earn dividend hence no disallowance u/s. 14A

Facts:
The assessee had made investment of Rs. 60.9 crore in the share capital of three wholly owned subsidiary companies. During the year under appeal, the assessee earned dividend income of Rs. 7.52 lakh. Applying the provisions of section 14A read with Rule 8D(2)(iii), the AO disallowed the sum of Rs. 40.31 lakh.

On appeal, the CIT(A) confirmed the order of the AO. Before the Tribunal, the assessee submitted that before applying the provisions of section 14A the Assessing Officer had failed to record objective satisfaction as regards the claims made by the assessee and secondly, the investment made is of long term and of strategic in nature, in the wholly owned subsidiaries. According to it, no decision is required in making the investment or disinvestment on regular basis and, therefore, there cannot be any direct or indirect expenditure.

Held:
The Tribunal agreed with the assessee that recording of objective satisfaction by the AO with regard to the correctness of the claim of the assessee is mandatorily required in terms of section 14A(2) of the Act. It also noted that in the instant case, the AO had simply recorded that the contention of the assessee is not acceptable. Further, it also noted that the entire investment by the assessee was made in the subsidiary companies, therefore, in those cases disallowance u/s. 14A(2) of the Act cannot be worked out unless and until it is established that certain expenditures are incurred by the assessee in these investments. Further, relying on the decisions of the Pune Bench of the Tribunal in the case of Kalyani Steels Ltd. vs. Addl. CIT (I.T.A. No. 1733/PN/2012), of the Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs. Dy. CIT (328 ITR 81) and of the Mumbai Bench of the Tribunal in the case of M/s. JM Financial Limited vs. Addl. CIT, I.T.A. No. 4521/Mum/2012, the Tribunal accepted the submission of the assesse and allowed its appeal.

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Proviso to section 3 and section 37(1) – Business is set-up on recruitment of employees and all expenditure incurred thereafter are allowable as business expenditure.

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5. Reliance Gems & Jewels Ltd. vs. DCIT
ITAT “D” Bench, Mumbai
Before N.K. Billaiya (A M) and Amarjit Singh (J. M.)
I.T.A. No.3855/Mum/2013
A. Y. : 2008-09. Date of Order: 28.10.2015
Counsel for Assessee / Revenue: F.V. Irani / Vivek Anand Ojha

Proviso to section 3 and section 37(1) – Business is set-up on recruitment of employees and all expenditure incurred thereafter are allowable as business expenditure.

FACTS

The assessee is in the business of trading and merchandising of diamonds and gold jewelleries. Return for the year was filed disclosing loss of Rs. 87.26 lakh. On perusal of the annual account, the Assessing Officer found that the assessee had not started its business therefore the entire expenditures were disallowed. The assessee carried the matter before the CIT(A) who upheld the order of the AO. Before the Tribunal, the assessee placed before it the details of employee-wise salaries alongwith job description and details of tax deducted at source as well as the details regarding other expenses. The assessee further submitted that the setting up of business is different from commencement of business and the expenditures are allowable on setting up of business. It also relied on the decision of the Delhi High Court in the case of Omniglobe Information Tech India Pvt. Ltd. vs. CIT (Income Tax appeal No. 257 of 2012). The Revenue strongly relied on the orders of the lower authorities and contended that the decision relied upon by the assessee relates to service industries and therefore same cannot be applied on the facts of the assessee’s case.

HELD

The Tribunal noted that the assessee had recruited the employees for the purpose of its business. According to the Tribunal, the type of business the assessee was engaged in, require persons who have expertise in understanding the jewellery, and without such recruitment, it would not be possible to commence the business. It also referred to the proviso to section 3 of the Act, which defines the term “previous year” in relation to a newly setup business (and not with reference to the commencement of business), thus as contended by the assessee, the setting up of business was more relevant than the date of commencement of business.

Therefore, relying on the decision of the Delhi High Court in the case of Omniglobe Information Tech India Pvt. Ltd., the Tribunal held that the recruitment of employees was indicative that business was set up by the assessee. Accordingly, the appeal filed by the assessee was allowed.

Section 10A – Unless the initial years claim is withdrawn, subsequent years claim cannot be denied.

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4. ACIT vs. Sitara Diamond Pvt. Ltd.
ITAT Mumbai `E’ Bench
Before N. K. Billaiya (AM) and Ram Lal Negi (JM)
ITA Nos. 4422/Mum/2012 and 6727/Mum/2011
A. Y.s: 2006-07 and 2007-08.  
Date of Order: 2.09. 2015.
Counsel for revenue / assessee: S. K. Mahapatra / Nitesh Joshi

Section 10A – Unless the initial years claim is withdrawn, subsequent years claim cannot be denied.

FACTS

Deduction u/s. 10A was first made by the assessee in assessment year 2005-06, which was allowed by the order dated 10.12.2008 passed u/s. 143(3) of the Act. For the assessment years 2006-07 and 2007-08, the Assessing Officer (AO) denied claim for deduction u/s. 10A. Aggrieved, the assessee preferred an appeal to CIT(A) who allowed the claim of the assessee on merits. Aggrieved, the revenue preferred an appeal to the Tribunal where on behalf of the assessee it was argued that while the CIT(A) has allowed the appeal on merits, the Revenue could not withdraw the claim of deduction since unless the initial years claim is withdrawn, subsequent years claim cannot be denied.

HELD

The Hon’ble High Court of Bombay has considered such issue in the case of CIT vs. Paul Brothers 216 ITR 548 wherein the Hon’ble High Court has held that “unless deductions allowed for the assessment year 1980-81 on the same grounds were withdrawn, they could not be denied for the subsequent years”. This decision of the Hon’ble High Court of Bombay was followed by the Hon’ble high Court in the case of CIT vs. Western Outdoor Interactive Pvt. Ltd. 349 ITR 309 wherein the Hon’ble High Court has held that “where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income-tax Act, 1961, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the Incometax Officer cannot withdraw the relief for subsequent years. More particularly so, when the Revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years.”

Following the ratio laid down by the High Court, the Tribunal declined to interfere with the order of CIT(A). The appeals filed by the Revenue were dismissed.

Section 88E – STT paid on speculation loss has to be considered if after setting off the speculation loss against speculation gain there is positive income which has been included in the computation of total income.

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3. Sanjay Mohanlal Mota (HUF) vs. ITO
ITAT Mumbai `E’ Bench
Before N. K. Billaiya (AM) and Ram Lal Negi (JM)
ITA No. 2988/Mum/2013
A. Y. : 2007-08.                                    
Date of Order: 3. 09. 2015.
Counsel for assessee / revenue : Jitendra Singh / S. K. Mahapatra

Section 88E – STT paid on speculation loss has to be considered if after setting off the speculation loss against speculation gain there is positive income which has been included in the computation of total income.

FACTS

The assessee was trading in shares and stocks and
also derived dividend income, interest income and rent which were
assessed under the head Income from Other Sources. While assessing the
total income, the Assessing Officer (AO) noticed that the loss in
respect of speculative transaction, though assessed, was carried forward
and did not form part of total income. He asked the assessee to show
cause why proportionate STT of Rs.1,79,722 should not be treated as STT
relating to speculative transactions and therefore, why this amount
should not be reduced from the total STT paid. The assessee filed a
detailed reply where it contended that when speculation income is taxed
there is no reason its claim should not be allowed when there is a
speculation loss. It was also contended that there is no provision for
bifurcating STT paid on each type of transaction. The AO rejected the
contentions of the assessee and disallowed the proportionate claim of
STT of Rs.1,79,722. Aggrieved, the assessee preferred an appeal to the
CIT(A) who confirmed the action of the AO. Aggrieved, by the order
passed by CIT(A), the assessee preferred an appeal to the Tribunal.

Held

A
perusal of the section 88E shows that the total income of the assessee
should include income chargeable under the head `profits and gains of
business or profession’ which arises from taxable securities
transactions. If this condition is fulfilled, then the assessee is
entitled to a deduction from the amount of income-tax on such income of
an amount equal to STT paid by him. Since the speculation loss is set
off against the speculation gain and thereafter if any positive income
remains that positive income is taken in the computation of total
income. Even the STT paid on speculation loss has to be considered while
giving effect to it. The Tribunal restored the issue to the file of the
AO with a direction to examine whether there is any positive income
remaining after giving set off to the speculation loss. The AO was
directed to allow the claim if positive income is found under this head
after giving reasonable and sufficient opportunity of being heard to the
assessee. The appeal filed by the assessee was allowed for statistical
purposes.

Rollatainers Ltd. vs. ACIT ITAT Delhi `F’ Bench Before R. S. Syal (AM) and C. M. Garg (JM) ITA No. 3134 /Del/2010 Assessment Year: 2003-04. Decided on: 6th August, 2015. Counsel for assessee / revenue : Gaurav Jain / Vikram Sahay

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Section 147 – Internal audit cannot perform functions of judicial supervision. Initiation of re-assessment on the basis of an interpretation of the provisions of law by the audit party is forbidden, the communication of law or the factual inconsistencies by the internal audit party, do not operate as a hindrance in the initiation of re-assessment proceedings.

Facts:
The assessee filed its return of income declaring a loss of Rs.12,48,92,067. The Assessing Officer (AO) completed the assessment u/s. 143(3) of the Act determining the loss at Rs.11,32,76,728. While assessing the total income the AO allowed deduction of Rs.3,61,75,597 out of unpaid interest of earlier year amounting to Rs.5,01,38,035 u/s. 43B on the basis of the claim of the assessee that it was discharged / paid.

The audit scrutiny of the assessment records revealed that out of the amount of Rs.3,61,75,597 which was allowed by the AO as a deduction, a sum of Rs.2,45,01,117 was transferred to a wholly owned subsidiary company. The audit party pointed out to the AO that this sum of Rs. 2,45,01,117 was not actually paid but only transferred to subsidiary company and consequently it ought to have been disallowed.

The AO, after recording reasons, issued notice u/s. 148 of the Act. In the order passed u/s. 143(3) r.ws. 147 of the Act, the AO disallowed the claim of Rs.2,45,01,117.

Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the action of the AO in reopening the assessment and also on merits.

Aggrieved, the assessee preferred an appeal to the Tribunal where interalia, it challenged the re-opening on the ground that in view of the ratio of the decision of the Apex Court in the case of Indian and Eastern Newspaper Society vs. CIT 119 ITR 996 (SC) initiation of reassessment on the basis of internal audit report was not sustainable.

Held:
The Tribunal noted that it had to examine whether the assessee’s case fell within the ratio laid down in the case of CIT vs. PVS Beedis Pvt. Ltd. 237 ITR 13 (SC) in which the initiation of reassessment proceedings on the basis of audit objection has been held to be valid or in Indian and Eastern Newspaper Society (supra) and further CIT vs. Lucas T.V.S. Ltd. 249 ITR 306 (SC).

The logic in not sustaining the initiation of reassessment on the basis of interpretation of law by the audit party is that the internal auditor cannot be allowed to perform the functions of judicial supervision over the Income-tax authorities by suggesting to the AO about how a provision should be interpreted and whether the interpretation so given by the AO to a particular provision of the Act is right or wrong. An interpretation to a provision given by the audit party cannot be construed as a declaration of law binding on the AO.When an internal audit party objects to the interpretation given by the AO to a provision and proposes substitution of such interpretation with the one it feels right, it crosses its jurisdiction and enters into the realm of judicial supervision, which it is not authorised to do. In such circumstances, the initiation of reassessment, based on the substituted interpretation of a provision by the internal audit party, cannot be sustained.

The Tribunal noted that the Madras High Court has in the case of CIT vs. First Leasing Co. of India Ltd. 241 ITR 248 (Mad) aptly explained the position that although, the audit party is not entitled to judicially interpret a provision, but at the same time, it can communicate the law to the AO, which he omitted to consider. It also noted that the Madras High Court has observed that the Supreme Court has made a distinction between the communication of law and interpretation of law.

Where the audit party interprets the provision of law in a manner contrary to what the AO had done, it does not lay down a valid foundation for the initiation of reassessment proceedings. If however, the audit party does not offer its own interpretation to the provisions and simply communicates the existence of law to the AO or any other factual inaccuracy, then the initiation of reassessment proceedings on such basis cannot be faulted with.

In a nutshell, whereas the initiation of reassessment proceedings on the basis of an interpretation to the provisions of law by the audit party is forbidden, the communication of law or the factual inconsistencies by the internal audit party, do not operate as a hindrance in the initiation of reassessment proceedings.

The Tribunal noted the audit objection, in this case, divulged that the audit party simply suggested that the interest of Rs.2.45 crore was not actually paid, but, only transferred to a subsidiary company and the same should have been disallowed and this omission on the part of the AO resulted in over assessment of loss of Rs.2.45 crore. This, according to the Tribunal, showed that the AO was simply informed of the fact which had escaped his attention during the course of assessment proceedings to the effect that the sum of Rs.2.45 crore was not allowable u/s. 43B of the Act which is nothing, but a communication of law to the AO. The Tribunal observed that it was not confronted with a situation in which the AO, after due consideration of the matter in the original assessment proceedings interpreted 43B as allowing deduction for a sum of Rs.2.45 crore in respect of interest not paid to financial institutions, but, transferred to assessee’s wholly owned subsidiary company, but, the audit party interpreted this provision in a different manner from the way in which it was interpreted by the AO and then suggested that the amount ought to have been charged to tax. According to the Tribunal, the instant case is fully covered by the decision in the case of PVS Beedis Pvt. Ltd. (supra) and consequently the audit objection in the instant case constituted an `information’ about the escapement of income to the AO, thereby justifying the initiation of reassessment.

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Malineni Babulu (HUF) vs. Income Tax Officer ITAT “A” Bench, Hyderabad P. Madhavi Devi (J.M.) and Inturi Rama Rao (A. M.) I.T.A. No.: 1326/HYD/2014 Assessment Year: 2009-10. Decided on 07-08-2015 Counsel for Assessee / Revenue: S. Rama Rao/ D. Srinivas

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Section 40(a)(ia) – Non deduction of tax at source on interest paid as payees furnished Form 15H – Mere non-filing of Form 15H would not entail disallowance of interest paid.

Facts:
One of the issues before the Tribunal was regarding addition of Rs.0.98 lakh made under the provisions of Section 40(a)(ia). During the year, the appellant had made interest payment of Rs.0.98 lakh to the coparceners of the appellant. It was claimed that the taxable income of the payees was below the taxable limit hence Form 15H were obtained from them and it was claimed to have been submitted to the CIT, Guntur by post, but no proof in support of the dispatch by post was furnished before the CIT. However, copies of Form 15H were filed before the AO. The CIT acting u/s. 263 directed the AO to disallow the same for failure to adduce evidence in support of dispatch of Form 15H by post.

Held:
According to the Tribunal, mere non-filing of Form 15H with the CIT does not entail disallowance of expenditure. It is only a technical breach of law and the Act provides for separate penal provisions for such default. Thus, according to the Tribunal, where the taxable income of the payees is below the taxable limit and Form 15H is obtained from them no disallowance under the provisions of section 40(a)(ia) can be made. Further, relying on the decision of the Delhi Bench of the Tribunal in the case of Vijaya Bank vs. ITO [2014] [49 Taxmann.com 533, the tribunal allowed the appeal filed by the assessee.

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Smt. Rekha Rani vs. DCIT ITAT Delhi `F’ Bench Before G. C. Gupta (VP) and Inturi Rama Rao (AM) ITA No. 6131 /Del/2013 Assessment Year: 2009-10. Decided on: 6th May, 2015. Counsel for assessee / revenue : None / Vikram Sahay

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Section 271(1)(b) – The provision of section 271(1)(b) is of
deterrent nature and not for earning revenue. Penalty u/s. 271(1)(b)
could not be imposed for each and every notice issued u/s. 143(2) of the
Act, which remains not complied with on the part of the assessee.

Facts:
The
Assessing Officer (AO) issued notice u/s. 143(2) of the Act on five
different dates and the assessee failed to comply with the same. The AO
invoked the provisions of section 271(1)(b) of the Act and imposed
penalty of Rs. 10,000 for each default on the ground that the assessee
had no reasonable cause for not appearing on the date fixed for hearing.
Thus, he levied a total penalty of Rs.50,000. Aggrieved, the assessee
preferred an appeal before CIT(A) who confirmed the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The
Tribunal observed that there was no reasonable cause on the part of the
assessee for not appearing on the different dates of hearing before the
AO in response to the notices issued u/s. 143(2) of the Act. The
Tribunal found that the default was the same in all the five cases and
therefore, it held, that penalty of Rs.10,000 could be imposed for the
first default made by the assessee in this regard. It held that the
penalty u/s. 271(1)(b) could not be imposed for each and every notice
issued under section 143(2), which remained not complied with on the
part of the assessee. It observed that the provision of section 271(1)
(b) is of deterrent nature and not for earning revenue. It held that any
other view taken shall lead to imposition of penalty for any number of
times (without limits) for the same default of not appearing in response
to the notice u/s.143(2) of the Act. This, according to the Tribunal,
does not seem to be the intention of the legislature in enacting the
provisions of section 271(1)(b) of the Act. It observed that in case of
failure on the part of the assessee to comply with the notice u/s.143(2)
of the Act, the remedy with the AO lies in framing “best judgement
assessment” under the provisions of section 144 of the Act and not to
impose penalty u/s. 271(1)(b) of the Act again and again.

The
Tribunal restricted the penalty levied u/s. 271(1)(b) of the Act to the
first default of the assessee in not complying with the notice issued
u/s. 143(2) of the Act.

The appeal filed by assessee was partly allowed.

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National Agricultural Co-operative Marketing Federation of India Ltd. vs. JCIT ITAT Delhi Special Bench `F’ Bench Before Justice (Retd.) Dev Darshan Sud (President), G. C. Gupta (VP) and R. S. Syal (AM) ITA Nos. 1999 & 2000/Del/2008 Assessment Years: 2001-02 & 2002-03. Date of Order: 16th October, 2015. Counsel for assessee / revenue : Hiren Mehta & Sanjeev Kwatra / Sulekha Verma

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Section 37(1) – If a claim of damages and interest thereon is
disputed by the assessee in the court of law, deduction cannot be
allowed for the interest claimed on such damages. Deduction can be
allowed only when an enforceable liability to pay the same arises
irrespective of the fact that it relates to earlier years.

Facts
For
assessment year 2001-02, the assessee filed its return of income and
the assessment was completed on 27.2.2004 u/s. 143(3) of the Act. During
the course of assessment proceedings for AY 2003-04, a special audit
u/s. 142(2A) was carried out which divulged interalia that the assessee
had claimed deduction for interest payable to M/s Alimenta SA
Switzerland (`Alimenta’) on account of arbitration award, which was
disputed by the assessee. The Assessing Officer (AO) observed that the
assessee claimed deduction of interest amounting to Rs. 7.92 crore
payable to Alimenta for AY 2001-02. Such interest was not debited to P
& L Account, but was directly reduced in the computation of total
income. He also observed that since tax was not deducted at source,
amount was not allowable u/s. 40(a)(i) as well. Notice u/s. 148 was
issued and duly served on the assessee.

In the course of
assessment proceedings, the AO noticed that the claim for deduction was
not backed by any corresponding liability to pay; the liability claimed
by the assessee as deduction was not acknowledged due to ongoing
litigation and proceedings for compromise. He also noticed that the
assessee had not deducted tax and therefore in view of provisions of
section 40(a)(i), as well, the amount was not allowable. He rejected the
assessee’s contention that there was a breach of contract on its part
for which the Delhi High Court held it liable for loss incurred by
Alimenta and also interest @ 18% per annum from the date of award till
the date of realisation; the judgment delivered by Delhi High Court was
binding, the liability was determined and ascertained because of the
decree of the Delhi High Court notwithstanding the assessee filing an
appeal against it.

The AO disallowed the assessee’s claim.
Aggrieved, by the additions made, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

Aggrieved,
by the order passed by CIT(A), the assessee preferred an appeal to the
Tribunal. Similar issue was decided in favor of the assessee, by the
Tribunal, for assessment years 2003-04 and 2004-05. The Division Bench
was not convinced with the reasoning given by the Tribunal in its order
for AY s 2003-004 and 2004- 05 in deleting the disallowance of interest
and made a reference for constitution of a Special Bench.

The President posted the following question for consideration of the Special Bench-

“Whether
on the facts and circumstances of the case, where claim of damages and
interest thereon is disputed by the assessee in the court of law,
deduction can be allowed for the interest claimed on such damages while
computing business income?”

Held
(i) Under the
mercantile system of accounting, an assessee gets deduction when
liability to pay an expense arises, notwithstanding its actual
quantification and discharge taking place subsequently. The relevant
criteria for the grant of a deduction is that the incurring of liability
must be certain. If the liability itself is uncertain, it assumes the
character of a contingent liability and ceases to be deductible. Thus, a
deduction can be allowed only when an assessee incurs liability to pay
an amount in the nature of an expense. The aspect of incurring a
liability needs to be understood in a correct perspective. It is here
that a distinction between a contractual and a statutory liability
assumes significance. A statutory liability is incurred on a mere
issuance of a demand notice against the assessee and becomes deductible
at that point of time. The factum of the assessee raising a dispute
against such a demand does not ruin the incurring of liability. On the
contrary, a contractual liability is not incurred on a mere raising of
demand by a claimant. It arises only when such a claim is either
acknowledged or in a case of non-acceptance, when a final obligation to
pay is fastened coupled with the claimant acquiring a legal right to
receive such an amount. Unless the claimant acquires an enforceable
right to receive, it cannot be said that the first person has incurred a
liability to pay such an amount. To put it simply, in the case of a
contractual dispute between the parties, liability of the assessee to
pay arises only when the claimant against the assessee acquires some
legal right to receive the amount. In the absence of the vesting of any
such right in the claimant, neither he earns any income nor the assessee
incurs a corresponding liability to pay, entitling him to claim
deduction for the same. The crux of the matter is that, except for the
assessee accepting a contractual claim, his liability to pay does not
arise until some legal obligation to pay is fixed on him. A legal
obligation to pay is attached on an assessee when a competent court
passes order and a suit is decreed against him and not during the
pendency of litigation. This difference between a contractual and a
statutory liability has been recognised by the Hon’ble Delhi High Court
in assessee’s own case since reported as National Agricultural
Co-operative Marketing Federation of India Ltd. vs. CIT (2011) 338 ITR
36 (Del).

(ii) On facts, the legally enforceable liability
against the assessee to pay interest at the rate of 18% to Alimenta,
which was created by the decree of the ld. Single Judge dated 28.1.2000,
remained suspended from the date of stay granted by the Division bench
of the Hon’ble High Court on 28.2.2001. It is only on the passing of the
consequential judgment and decree by the Hon’ble Delhi High Court in
September, 2010, subject to certain stays etc. granted against the
operation of this judgment, that the assessee incurred a legally
enforceable liability to pay such interest to Alimenta.

(iii)
Now the moot question is, whether the assessee is entitled to deduction
for interest at the rate of 18% decreed by the ld. Single Judge of the
Delhi High Court in the computation of income for the years under
consideration. The answer will be in affirmative if the assessee had any
legal obligation to pay such interest during the years in question and
vice versa. We can do this by ascertaining if any legally enforceable
liability existed against the assessee to pay interest in the years
under consideration. Per contra, was Alimenta legally entitled to
receive such interest income during the years in question? It is
pertinent that the stay order against the judgment and decree of the ld.
Single Judge was passed by the Division Bench on 28.2.2001, which is
well within the financial year relevant to the assessment year 2001-02
under consideration and remained operative in subsequent years including
the immediately succeeding year in appeal. This shows that the assessee
did not have any legal obligation to pay interest during these two
years. The hitherto obligation which was created by the judgment of the
ld. Single judge against the assessee was eclipsed and frustrated by the
later judgment of the Division bench and such obligation ceased to
exist for the time being.
iv)     Unless     there     is     a     specific     contrary     provision, deduction for an expense can be allowed in the year in which     liability     to     pay     finally     arises.    Once     a     person     has    not voluntarily accepted a contractual obligation and further there subsists no legal obligation to pay qua such contractual claim at a particular time, it cannot be said that the person incurred any liability to pay at that point of time so as to make him eligible for deduction on that count. Not withstanding the fact that obligation relates to an earlier year, the liability to pay arises only in the later  year,    when    a    final    enforceable    obligation    to    pay    is    settled    against that person. In our considered opinion, there is  no qualitative difference between the two situations, viz.,  first,     in    which     no     enforceable     liability     to     pay     is     created    in     the     first     instance,     and     second,     in     which     though     the enforceable liability was initially created but the same stands wiped out by the stay on the operation of such enforceable liability. In both the situations, claimant remains without any legal right to recover the amount and equally the opposite party without any legal obligation to pay the same. neither any income accrues to the claimant, nor any deduction is earned by the opposite party. We are instantly confronted with the second type of situation in which the obligation created against the assessee by the judgment of the ld. Single judge on 28.1.2000 was stayed by the judgment of the  division Bench on 28.2.2001, which position continued till the decree on the judgment dt. 6.9.2010 reviving the judgment of the ld. Single judge, became enforceable. even though the crystallization of liability of the assessee to pay interest pursuant to the developments after 6.9.2010 also covers earlier years including the years under consideration, but such liability of the assessee became due only on the acquisition of right by alimenta to enforce the decree issued on the advent of the judgment dated 6.9.2010. Consequently, the assessee can claim deduction for such interest only at such a later stage and not during the years under consideration.

(v)  The Special Bench answered the question posted before it in negative by holding that in the facts and circumstances of the case, where claim of damages and interest thereon is disputed by the assessee in the court of law, deduction can’t be allowed for the interest claimed on such damages in the computation of business income.

Preimus Investment and Finance Ltd. vs. DCIT ITAT, Mum-C Bench Before I. P. Bansal (J. M.) & Rajendra (A. M.) ITA No 4879/Mum/2012 Assessment Year-2006-07. Decided on 13-05- 2015 Counsel for Assessee / Revenue: Dr. K. Shivaram, & Ajay R. Singh / Premanand J.

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Section 37(1) – Business expenditure – Merely because the application for registration as NBFC is rejected by RB I the business carried on does not become illegal and expenditure incurred is allowable as deduction.

Facts:
Assessee-company was engaged in the business of leasing, financing and trading. Its application for registration to Reserve Bank of India to register it as NBFC was rejected as its net owned funds were below the prescribed minimum level. According to the AO the assessee was not authorised to carry on business of financing and thus the business carried on by the assessee was prohibited under the law. Therefore, he held that the interest income earned by the assessee cannot be said to be arising from business activity and he taxed the same as income from other sources. Further, various expenditure claimed by the assessee was also disallowed on the ground that the RBI had not recognised the assessee as NBFC and the claim for set-off of brought forward losses and unabsorbed depreciation was also denied. The first appellate authority, on appeal upheld the order of the AO.

Held:
According to the Tribunal permission/denial by the RBI to register an assessee as NBFC does not decide the issue of carrying on of business or make the business illegal. If the assessee had violated any provisions of law under the RBI Act, it would be penalised by the appropriate authority. But that does not mean that the systematic organized activity carried on by the assessee for earning profit would not be treated as business. The Tribunal further noted that in the scrutiny assessment in the earlier years, the AO had assessed the interest income as business income and had allowed all the expenditure related with the business activity. According to the Tribunal, the rule of consistency demanded that for deviating from the stand taken from the earlier years, the AO should bring on record the distinguishing feature of that particular year. The Tribunal found that the AO or the first appellate authority in their orders had not mentioned as to how the facts of the case were different from the facts in the earlier or subsequent years. As regards disallowance of other expenditure like audit fee, professional fee, general expenses, etc., the tribunal, relying on the decision of the Allahabad High Court in the case of Rampur Timber & Turnery Co. Ltd. (129 ITR 58), held that since the assessee is a corporate entity, even if it is not carrying on any business activity it has to incur some expenditure to keep up its corporate entity. Therefore, the expenditure incurred by it has to be allowed. Accordingly, it was held that the interest income earned by the assessee has to be taxed under the head business income and all the expenses related with it have to be allowed.

As far as the disallowance of carry-forward of loss and depreciation was concerned, the Tribunal relied on the decision of the Delhi high court in the case of Lavish Apartment Pvt. Ltd. vs. ACIT (23 taxmann.com 414) and held that the assessee was entitled to claim set-off.

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Prema G. Sanghvi vs. ITO ITAT Mumbai `C’ Bench Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No. 2109 /M/2011 Assessment Year: 2007-08. Decided on: 13th February, 2015. Counsel for assessee/revenue: Chetan Karia/ Premanand J.

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Section 56(2)(vi) – Payment of alimony amount by the ex-husband to his wife is nothing more than a gift and is exempt under the proviso to section 56(2)(vi).

Facts:
The assessee was a legally wedded wife of Mr. Zaun. The said marriage was performed as per the Hindu customary rights. The said marriage was dissolved on 20.06.1978 as per the provisions of Hindu Marriage Act. During the year under consideration the assessee received Rs. 73,60,787 from her ex-husband Mr. Siguar Erich Zaun, a German citizen. The assessee claimed the said amount to have been received as alimony on divorce with her husband and the same was claimed as exempt. The Assessing Officer (AO) however, held the said amount as taxable under the head `Income from Other Sources’.

Aggrieved, the assessee preferred an appeal to the CIT(A) who observed that the divorce granted by the City Civil Court is recognised by German law. Mr. Zuan had applied to German Court for approval of divorce already granted by City Civil Court. German court granted divorce on 17.07.2001. There was no evidence of any claim before the German court regarding alimony at the time of recognition of her divorce with her husband. The order of the German court did not have any reference of payment of alimony. Alimony was paid after a gap of five years. Since on the date of receiving the amount there was no relationship between assessee and Mr. Zaun, he held that the amount received by the assessee from Mr. Zaun was chargeable to tax u/s. 56(2)(vi) of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
Under the Hindu Law, a wife has a pre-existing right of maintenance and alimony. The said right exists even after divorce from the husband. So far the granting of divorce under the German Law is concerned, the CIT(A) has discussed at length about the German Law relating to marriage and divorces and thereafter has concluded that even under the German Law, the maintenance can be claimed, if any of the spouse is unable to maintain himself/herself. He has further held that under the German Law spouses are free to arrange for the financial consequences only in case of an eventual divorce possibly by way of prenatal agreement. However, the CIT(A) has not discussed, if there is any bar in paying alimony by the husband to his wife in lieu of her maintenance for the whole life.

In the proviso to section 56(2)(vi) any sum received from a relative is exempt from tax. In the definition of relative, the receipt from whom is exempt under the Act, inter alia not only the spouse but the brother and sister of the spouse have also been included. As we have observed above that the maintenance or alimony is paid by the husband to his wife in recognition of her pre-existing right, whether marriage relationship is still continuing or has been dissolved, does not bar the payment of alimony by the ex-husband, to the divorced wife. Under such type of circumstances, in our view, in the definition of spouse, exspouse is also included except where there is an evidence that the payment is not made as a gift or an alimony but for some other consideration or by virtue of some other transaction. In the absence of any such evidence, the payment of alimony amount by the ex-husband to his wife is nothing more than a gift and is exempt under proviso to section 56(2)(vi) of the Act.

The appeal filed by assessee was allowed.

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Paramount Health Services (TPA) Pvt. Ltd. vs. DCIT ITAT Mumbai `C’ Bench Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No. 5400/M/2013& 5269/M/2013 Assessment Year: 2010-11. Decided on: 13th February, 2015. Counsel for assessee / revenue: Rajesh S. Shah & Nalin Gandhi / Narendra Kumar Chand

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Section 40(a)(ia) – Disallowance u/s. 40(a)(ia) is not attracted if the payment on which tax has not been deducted at source has not been claimed as an item of deductible expenditure.

Facts:
The Assessing Officer (AO) while assessing the total income of the assessee disallowed a sum of Rs. 85,05,05,515, being payments by the assessee to various hospitals without deduction of tax at source u/s. 194J of the Act, by invoking the provisions of s. 40(a)(ia) of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who restricted the addition to Rs. 10,65,669 and deleted the remaining addition of Rs. 84,94,39,847 on the basis of certificates submitted by the payee hospitals u/s. 197 of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal and contended that the assessee had not claimed these payments as expenditure, hence there was no question of disallowance of any expenditure. Once an expenditure has not been claimed, no question of disallowance of the same can arise.

Held:
The Tribunal noted that in the assessee’s own case for assessment year 2009-10 vide ITA No. 2188/M/2013 dated 25.07.2014 the Tribunal, after detailed discussion, has observed as under –

“7. Though the assessee is under the obligation to deduct tax at source u/s. 194J however, the consequential liability is only u/s. 201 and 201(1A) and the disallowance u/s. 40(a)(ia) cannot be automatic when the assessee has not claimed this payment as expenditure against the income. The assessee has shown the income, only the service charges receivable from insurance companies for rendering services as 3rd party administrator and not having any margin or profit element in the payment received from the insurers for the purpose of remitting to the hospitals to settle medical claim of the insured. Therefore, when the said payment has not been claimed as expenditure incurred for earning the income by the assessee then the provisions of section 40(a)(ia) is not attracted for non deduction of tax at source in respect of the said payment. Following the decisions of the Tribunal as relied upon by the assessee and discussion above we hold that no disallowance can be made under section 40(a)(ia) in respect of the payment in question. Accordingly the ground raised in assessee’s appeal is allowed and ground raised in the revenue’s appeal is dismissed.”

The Tribunal, following the above stated observations, decided the issue in favor of the assessee and directed the lower authorities to delete the disallowance.

The appeal filed by assessee was allowed.

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MindaSai Limited vs. Income Tax Officer ITAT Delhi ‘E’ Bench Before Pramod Kumar AM and A. T. Varkey JM I.T.A. No.: 2974/Del/13 Assessment year: 2009-10. Decided on 09.01.2015 Counsel for Assessee/Revenue: AshwaniTaneja / J P Chandrakar

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(I ) Section 32(2) – Unabsorbed depreciationpertaining to assessment year 2002-03 or before can be set-off after a period of eight years.
(ii) Section 115JB – In the absence of exempt income addition to book profit applying provisions of section 14A cannot be made.

Facts:
Following issues amongst others were raised before the tribunal:

i). Whether the unabsorbed depreciation of Rs 4.39 crore which pertained to the assessment years 1999-2000 and 2000-01, can be set off against business income during the current assessment year;

ii) I n the absence of exempt income whether disallowance u/s. 115JB on the ground that the amount pertained to disallowance u/s.14A, can be made.

The assessee’s claim for set-off against business income of unabsorbed depreciation brought from the assessment year 1999-2000 and 2000-01, aggregating to Rs. 4.39 crore, was rejected by the AO as according to him the unabsorbed depreciation pertaining to the assessment years prior to the assessment year 2002-03 could only be carried forward for eight subsequent assessment years. For the purpose, he relied on a Special Bench decision of the Delhi Tribunal in thecase of DCIT vs. Times Guaranty Limited [(2010) 4 ITR (Trib) 210 MumbaiSB]. On appeal, the CIT(A) upheld the decision of the AO.

Applying the provisions of Clause (f) of Explanation to section 115JB(2) the AO disallowed expense of Rs. 2 lakh u/s. 14A. On appeal, the CIT(A) confirmed the order. Before the Tribunal, the assessee contended that since it has not earned any exempt income during the year, the disallowance u/s. 115JB was not called for. While the revenue relied on the orders of the lower authorities and contended that once the assessee has on its own accepted this disallowance, the adjustment u/s. 115JB in respect thereof was only a natural corollary thereto.

Held:
i) Re: Depreciation: The Tribunal referred to the decision of the Gujarat high court in the case of General Motors India Pvt. Ltd. vs. DCIT [(2013) 354 ITR 244(Guj)] and noted its “considered opinion” to the effect that “any unabsorbed depreciation available to an assessee on 1st day of April 2002 will be dealt with in accordance with the provisions of section 32(2) asamended by Finance Act, 2001”. Accordingly, it observed that the legal position is that the restriction of eightyears, which was in force till the law was amended by the Finance Act 2001 w.e.f. 2002-03, does not come into play. Further, relying on the decisions in the cases of Tej International Pvt.Ltd.vs. DCIT[(2000) 69 TTJ 650] and ACIT vs. Aurangabad Holiday Resorts Pvt. Ltd. [(2007) 118 ITD 1], the Tribunal accepted the plea of the assessee.

ii) Re: Disallowance u/s 14A: Relying on the Delhi High Court’s decision in the case of CIT vs. Holcim India Pvt. Ltd. [2014 TIOL 1586 HC DEL IT] wherein it is held that unless there is an exempt income, disallowance u/s. 14 A cannot be invoked, the Tribunal accepted the assessee’s pleas and held that adjustment under Clause (f) of Explanation to section 115JB (2) cannot be made.

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DCIT vs. Godrej Oil Palm Ltd. (now merged with Godrej Agrovet Ltd.) ITAT Mumbai `G’ Bench Before Vijay Pal Rao (JM) and B. R. KBaskaran (AM) ITA No. 5098 /Mum/2013 Assessment Year: 2011-12. Decided on: 14th January, 2015. Counsel for revenue / assessee: R. N. D’Souza / Akram Khan, Taher Khokhawala

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Section 115JAA – MAT credit has to be given against gross tax payable exclusive of surcharge/cess and only after the MAT credit tax liability, the surcharge and cess has to be calculated.

Facts:
The Assessing Officer (AO) computed the gross tax liability by granting MAT credit against tax liability inclusive of surcharge and cess.

Aggrieved, the assessee preferred an appeal before CIT(A) and contended that MAT credit has to be given against gross tax payable exclusive of surcharge and cess. The CIT(A) allowed the appeal preferred by the assessee.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The Tribunal observed that an identical issue has been considered by the co-ordinate Bench in the case of Wyeth Limited vs. ACIT (ITA No. 6682/Mum/2011 vide order dated 09.01.2015). The Tribunal had, in the case of Wyeth Limited (supra), following the decision of the Allahabad High Court in the case of CIT vs. Vacment India (394 ITR 304)(All), directed the AO to allow the MAT credit against the tax liability payable before surcharge and education cess or alternatively the amount of MAT credit should be inclusive of surcharge and education cess and then allow the credit against the tax payable inclusive of surcharge and education cess.

Following the earlier order of co-ordinate Bench in the case of Wyeth Limited (supra), the Tribunal upheld the order of CIT(A).

The appeal filed by revenue was dismissed.

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IVF Advisors Pvt. Ltd. vs. ACIT ITAT Mumbai `A’ Bench Before N. K. Billaiya (AM) and Amit Shukla (JM) ITA No. 4798 /Mum/2012 Assessment Year: 2009-10. Decided on: 13th February, 2015. Counsel for assessee/revenue: Kanchan Kaushal, Dhanesh Bafna and Ms. Chandni Shah/Azghar Zain

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Section 43(5) – Derivatives include foreign
currency and call/put option are transactions of derivative markets and
cannot be termed as speculative in nature.

Facts:
The
assessee, an investment management consultant, filed its return of
income for assessment year 2009-10 returning a total income of Rs. Nil.
In the course of assessment proceedings, the Assessing Officer (AO)
noticed that the assessee has claimed a loss of Rs. 93,63,235 on account
of foreign currency futures. The AO disallowed the loss of Rs.
93,63,235 by considering it to be a speculative transaction in view of
the provisions of section 43(5) r.w.s. 2(ac) of the Securities Contracts
(Regulation) Act, 1956.

Aggrieved, the assessee preferred an
appeal to the CIT(A) who observed that the assessee is not in the
manufacturing and merchanting business, and is also not a dealer or
investor in stocks and shares and therefore the loss on foreign currency
futures is not in the nature of hedging loss and that such loss was not
incurred in the course of guarding against loss through future price
fluctuation in respect of contract for actual delivery of goods
manufactured or in respect of stock of shares entered into by a dealer.
He held that the provisions of clause (d) of the proviso to section
43(5) were not applicable. He, accordingly, confirmed the order passed
by the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The
Tribunal considered the provisions of section 43(5) of the Act and
observed that clause (d) of the proviso to section 43(5) excludes the
transaction of trading in derivatives referred to in section 2(ac) of
the Securities Contracts (Regulation) Act, 1956 carried out on a
recognised stock exchange from the purview of the definition of the term
`speculative transaction’. Considering the definition of the term
`derivative’ in section 2(ac) of the Securities Contracts (Regulation)
Act, 1956, it observed that derivatives also includes securities. It
noted that the Madras High Court has in the case of Rajashree Sugar
& Chemicals Ltd. vs. Axis Bank Ltd. AIR (2011), Mad 144 has defined
the term derivative to include foreign currency as underlying security
of the derivative. It also noted the meaning of the term `derivative’ as
explained in the section `Frequently Asked Questions’ on the website of
SEBI. On going through the copies of the contract notes, it found that
the assessee had entered into either a call option or a put option and
on the settlement day, the transaction has been settled by delivery.
Either the assessee has paid US Dollar on the settlement day or has
taken delivery of the US Dollar.

The Tribunal held that there
remains no doubt that the transaction of the assessee cannot be treated
as a speculative transaction. Derivatives include foreign currency and
call/put option are transactions of derivative markets and cannot be
termed as speculative in nature. The Tribunal held that the transactions
entered into by the assessee were not speculative transaction and
therefore, the loss incurred had to be allowed.

The Tribunal allowed the appeal filed by the assessee.

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Jupiter Construction Services Ltd. vs. DCIT ITAT Ahmedabad `A’ Bench Before Pramod Kumar (AM) and S. S. Godara (JM) ITA No. 2850 and 2144/Ahd/11 Assessment Year: 1995-96 and 1996-97. Decided on: 24th April, 2015. Counsel for assessee / revenue: Tushar P. Hemani / Subhash Bains

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Section 255(4) – At the time of giving effect to the majority view, it normally is not open to the Tribunal to go beyond the exercise of giving effect to the majority views, howsoever mechanical it may seem. Even if the Third Member’s verdict is shown to be “unsustainable in law and in complete disregard to binding judicial precedents”, Division Bench has no choice but to give effect to it.

Facts:
There was a different of opinion between the members of Division Bench while deciding the appeal of the assessee relating to levy of penalty. The difference was referred to the Third Member who agreed with the Accountant Member and confirmed the levy of penalty.

At the stage of Division Bench giving effect to the order of the Third Member, the assessee claimed that the order of the Third Member could not be given effect to as it was unsustainable and in complete disregard to binding judicial precedents. The assessee claimed that the matter of whether effect could be given to such an order was required to be referred to a Special Bench.

Held:
Post the decision of the jurisdictional High Court in the case of CIT vs. Vallabhdas Vithaldas 56 taxmann.com 300 (Guj) the legal position is that the decisions of the division benches bind the single member bench, even when such a single member bench is a third member bench.

A larger bench decision binds the bench of a lesser strength because of the plurality in the decision making process and because of the collective application of mind. What three minds do together, even when the result is not unanimous, is treated as intellectually superior to what two minds do together, and, by the same logic, what two minds do together is considered to be intellectually superior to what a single mind does alone. Let us not forget that the dissenting judicial views on the division benches as also the views of the third member are from the same level in the judicial hierarchy and, therefore, the views of the third member cannot have any edge over views of the other members. Of course, when division benches itself also have conflicting views on the issues on which members of the division benches differ or when majority view is not possible as a result of a single member bench, such as in a situation in which one of the dissenting members has not stated his views on an aspect which is crucial and on which the other member has expressed his views, it is possible to constitute third member benches of more than one members. That precisely could be the reason as to why even while nominating the Third Member u/s. 255(4), the Hon’ble President of this Tribunal has the power of referring the case “for hearing on such point or points (of difference) by one or more of the other members of the Appellate Tribunal”. Viewed from this perspective, and as held by Hon’ble Jurisdictional high Court, the Third Member is bound by the decisions rendered by the benches of greater strength. That is the legal position so far as at least the jurisdiction of the Gujarat High Court is concerned post Vallabhdas Vithaldas (supra) decision, but, even as we hold so, we are alive to the fact that the Hon’ble Delhi High Court had, in the case of P. C. Puri vs. CIT 151 ITR 584 (Del), expressed a contrary view on this issue which held the field till we had the benefit of guidance from the Hon’ble jurisidictional High Court. The approach adopted by the learned Third member was quite in consonance with the legal position so prevailing at that point of time.

At the time of giving effect to the majority view, it cannot normally be open ot the Tribunal to go beyond the exercise of giving effect to the majority views, howsoever mechanical it may seem. In the case of dissenting situations on the division bench, the process of judicial adjudication is complete when the third member, nominated by the Hon’ble President, resolves the impasse by expressing his views and thus enabling a majority view on the point or points of difference. What then remains for the division bench is simply identifying the majority view and dispose of the appeal on the basis of the majority views. In the course of this exercise, it is, in our humble understanding, not open to the division bench to revisit the adjudication process and start examining the legal issues.

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ACIT vs. Ramila Pravin Shah ITAT Mumbai `D’ Bench Before B. R. Baskaran (AM) and Sanjay Garg (JM) ITA No. 5246 /Mum/2013 Assessment Year: 2010-11. Decided on: 5th March, 2015. Counsel for revenue / assessee: Love Kumar / Bhupendra Shah

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Section 69C – The fact that suppliers name appears in the list of havala dealers of sales tax departments and assessee is unable to produce them does not mean that purchases are bogus if the payment is through banking channels and the GP ratio becomes abnormally high. Statement by third parties cannot be concluded adversely in isolation without corroborating evidences against appellant specially when AO had not offered cross examination to the appellant.

Facts:
In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee has made purchases from certain parties whose names appeared in the list of parties provided by the sales-tax department who allegedly provide accommodation entries. The AO considered statements taken by the sales-tax department from some of the parties. The Inspector deputed to serve notices to these parties reported that these parties were not available at the given address.

The AO asked the assessee to submit delivery challans and stock register to prove the movement of stock and also to produce these parties. The assessee failed to furnish the details called for. Placing reliance on the statements given by these parties before the sales-tax authorities the AO took the view that purchases to the tune of Rs. 28.08 lakh have to be treated as unexplained expenditure. He added this amount to the total income of the assessee u/s. 69C of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A). The CIT(A) in his order noted that the jurisdictional High Court in the case of Nikunj Exim Enterprise Pvt. Ltd (ITA No. 5604 of 2010) has held that once sales are accepted, the purchases cannot be treated as ingenuine in those cases where the appellant had submitted all details of purchases and payments were made by cheques, merely because the sellers/suppliers could not be produced before the AO by the assessee.

He mentioned that he has also gone through the judgment in the case of Balaji Textile Industries (P) Ltd. vs. ITO 49 ITD 177 (Bom) which was made as long back as 1994 and which still holds good.

He took into consideration the G.P. Ratio/G.P. Margin of the assessee in the previous assessment year as well as subsequent assessment year and observed that if the addition made by the AO is accepted, then the GP ratio of the assessee during the previous year will become abnormally high and therefore, that is not acceptable because the onus is on the AO by bringing adequate material on record to prove that such a high GP ratio exists in the nature of business carried on by the assessee.

He further observed that it has to be appreciated that (i) payments were made through banking channel and by cheque; (ii) notices coming back does not mean those parties are bogus, they are just denying their business to avoid sales tax/VAT , etc, (iii) statement by third parties cannot be concluded adversely in isolation and without corroborating evidences against appellant; (iv) no cross examination has been offered by AO to the appellant to cross examine the relevant parties (who are deemed to be witness or approver being used by AO against the appellant) whose name appear in the website ww.mahavat. gov.in and (v) failure to produce parties cannot be treated adversely against the appellant.

He held that considering the facts and the binding judicial pronouncements of the jurisdictional ITAT Mumbai Bench as well as Mumbai High Court and other legal precedents the addition made by the AO cannot be sustained.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the CIT(A) had properly analysed the facts prevailing in the instant case. It extracted the relevant portion of the order of the CIT(A) and held that it did not find any infirmity in the same.

The appeal filed by the revenue was dismissed.

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Heranba Industries Ltd. vs. DCIT ITAT Mumbai `H’ Bench Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No. 2292 /Mum/2013 Assessment Year: 2009-10. Decided on: 8th April, 2015. Counsel for assessee / revenue: Rashmikant C. Modi / Jeetendra Kumar

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Section 271(1)(c) – If surrender is on the condition of no penalty and assessment is based only on surrender and not on evidence, penalty cannot be levied. The fact that surrender of income was made after issuance of a questionnaire does not mean that it was not voluntary.

Facts:
The assessee company was engaged in manufacture of pesticides, herbicides and formulations. It filed its return of income for assessment year 2009-10 returning therein a total income of Rs.1.49 crore. In the course of assessment proceedings, the Assessing Officer (AO) noticed that during the previous year under consideration, the assessee had received share application money of Rs. 89.50 lakh. He asked the assessee to furnish details with supporting evidences. In response, the assessee expressed its inability to provide the necessary details and stated that in order to buy peace, it agreed to offer the share application money of Rs. 89.50 lakh as its income.

The AO added Rs. 89.50 lakh to the assessee’s income u/s. 69A and also levied penalty u/s. 271(1)(c).

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to Tribunal.

Held:
The Tribunal noted that the assessee, at the very first instance, surrendered share application money with a request not to initiate any penalty proceedings. Except for the surrender, there was neither any detection nor any information in the possession of the department. There was no malafide intention on the part of the assessee and the AO had not brought any evidence on record to prove that there was concealment. No additional material was discovered to prove that there was concealment. The AO did not point out or refer to any evidence to show that the amount of share capital received by the assessee was bogus. It was not even the case of the revenue that material was found at the assessee’s premises to indicate that share application money received was an arranged affair to accommodate assessee’s unaccounted money.

The Tribunal noted that the Supreme Court in the case of CIT vs. Suresh Chandra Mittal 251 ITR 9 (SC) has observed that where assessee has surrendered the income after persistence queries by the AO and where revised return has been regularised by the Revenue, explanation of the assessee that he has declared additional income to buy peace of mind and to come out of vexed litigation could be treated as bonafide, accordingly levy of penalty u/s. 271(1)(c) was held to be not justified.

The Tribunal held that in the absence of any material on record to suggest that share application money was bogus or untrue, the fact that the surrender was after issue of notice u/s. 143(2) could not lead to the inference that it was not voluntary.

The amount was included in the total income only on the basis of the surrender by the assessee. It held that in these circumstances it cannot be held that there was any concealment. When no concealment was ever detected by the AO, no penalty was imposable. Furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax. The Tribunal did not find any merit in the levy of penalty u/s. 271(1)(c).

The appeal filed by the assessee was dismissed.

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DCIT vs. Aanjaneya Life Care Ltd. Income Tax Appellate Tribunal “A” Bench, Mumbai Before D. Manmohan (V. P.) and Sanjay Arora (A. M.) ITA Nos. 6440&6441/Mum/2013 Assessment Years: 2010-11 & 2011-12. Decided on 25.03.2015 Counsel for Revenue / Assessee: Asghar Zain / Harshavardhana Datar

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Section 221(1) – Penalty for delay in payment of self-assessment tax deleted on account of financial crunch faced by the assessee.

Facts:
Due to financial crunch the assessee was not able to pay the self-assessment tax within the stipulated period. However, according to the AO, the assessee could not prove its contention with cogent and relevant material. Further, he observed that substantial funds were diverted to related concerns. He therefore levied penalty u/s. 221(1) of the Act. On appeal, the CIT(A) allowed the appeal of the assessee and deleted the penalty imposed.

Held:
According to the Tribunal, the Revenue was unable to show that the assessee had sufficient cash/bank balance so as to meet the tax demand. Secondly, it also could not show if any funds were diverted for non-business purposes at the relevant point of time so as to say that an artificial financial scarcity was created by the assessee. In view of the same the tribunal accepted the contention of the assessee and upheld the order of the CIT(A).

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Dy. Director of Income Tax vs. Serum Institute of India Limited Income Tax Appellate Tribunal Pune Bench “B”, Pune Before G.S. Pannu (A. M.) and Sushma Chowla (J. M.) ITA Nos. 1601 to 1604/PN/2014 Assessment Year: 2011-12. Decided on 30-03-2015 Counsel for Revenue / Revenue: B. C. Malakar / Rajan Vora

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Section 206AA read with section 90(2) – Rate of deduction of tax at source where nonresidents do not have PAN – Held that the beneficial provisions of DTAAs override the provisions of section 206AA and tax to be deducted at the lower rate as prescribed in DTAA.

Facts:
The assessee company was engaged in the business of manufacture and sale of vaccines. In the course of its business activities, assessee made payments to non-residents on account of interest, royalty and fee for technical services. The assessee deducted tax at source on such payment in accordance with the tax rates provided in the Double Taxation Avoidance Agreements (DTA – As) with the respective countries. It was noted by the AO that in case of some of the non-residents, the recipients did not have Permanent Account Numbers (PANs). As a consequence, Revenue treated such payments, as cases of ‘short deduction’ of tax in terms of the provisions of section 206AA which require that the tax shall be deductible at the rate specified in the relevant provisions of the Act or at the rates in force or at the rate of 20%. On appeal, the CIT(A) held that where the DTAA s provide for a tax rate lower than that prescribed in 206AA , the provisions of the DTAA s shall prevail and the provisions of section 206AA would not be applicable. Therefore, he deleted the tax demand raised by the Revenue relatable to the difference between 20% and the actual tax rate provided by the DTAA s.

Before the Tribunal, the Revenue contended that section 206AA would override section 90(2) and therefore, the tax deduction was liable to be made @ 20% in absence of furnishing of PANs by the recipient non-residents.

Held:
The Tribunal, relying on the decisions of the Supreme Court in the cases of Azadi Bachao Andolan and Others vs. UOI, (2003) 263 ITR 706, CIT vs. Eli Lily & Co. (2009) 312 ITR 225 and the case of GE India Technology Centre Pvt. Ltd. vs. CIT (2010) 327 ITR 456 upheld the order of the CIT(A) and held that where the tax had been deducted on the strength of the beneficial provisions of DTAAs, the provisions of section 206AA cannot be invoked by the AO having regard to the overriding nature of the provisions of section 90(2).

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National Horticulture Board vs. Assistant Commissioner of Income Tax ITAT Delhi ‘E’ Bench Before Pramod Kumar(A.M.) and A. T. Varkey(J.M.) I.T.A. No.: 4521/Del/12 Assessment year: 2009-10. Decided on 16.01.2015 Counsel for Assessee/Revenue: Ved Jain and Rano Jain/J P Chandrakar

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Section 2(15) –First proviso to Section 2(15) will not apply where the services are rendered for fees but it is only subservient to the charitable objects of the institute and is not in the nature of business itself.

Facts:
The assessee is a society under the Societies Registration Act, 1860 and registered u/s. 12A(a). Its objectives include promoting, encouraging and developing horticultural activities in the country. As a part of pursuing its objective, one of the activities that the assessee was involved in was disbursement of subsidy received from the Ministry of Agriculture in respect of qualified horticulture projects. In the course of the assessment proceedings, the AO noticed that the assessee had received a sum of Rs. 2.21 crore on account of cost of application form and the brochure from the subsidy seekers. The AO was of the view that the amounts so received were for services rendered to the customers, which is in the nature of business, commerce and trade, and, therefore, the activities of the assessee cannot be treated as charitable activities of the nature as contemplated by section 2(15). On appeal, the CIT(A) confirmed the order of the AO, as according to him,the assessee’s claim was hit by second limb of first proviso to section 2(15).

Before the Tribunal, the revenue relied on the decision of the Andhra Pradesh High Court in the case of Andhra Pradesh State Seed Certification Agency vs.Chief Commissioner of Income Tax [(2013) 356 ITR360] and contended that as long as the services are rendered to a business, trade or commerce, irrespective of the motives of the person rendering such services, the services so rendered vitiate the charitable character of the assessee rendering such services.

Held:
The Tribunal noted that there is no dispute as regards the objects of the assessee viz., objects of general public utility, which is also a charitable purpose as per the law; and as confirmed by the lower authorities, the first limb of first proviso to section 2(15) is not attracted on the facts of the case of the assessee. As regards the revenue’s case, that the case is covered under the second limb of first proviso to section 2(15), on the basis that the assessee has rendered services “in relation to trade, commerce or business” for a consideration, the Tribunal relying on the decision of the Delhi High Court in the case of GS1 vs. Director General of Income Tax (Exemptions)[(2013) 360 ITR 138], observed that the scope of second limb extends only to such cases in which a business is carried out to feed the charitable activities. For invoking second limb of first proviso to section 2(15), it is sine qua non that the assessee extends services to business, trade or commerce and such services have been extended in the course of business carried on by the assessee. According to it, even in a situation in which an assessee receives a fees or consideration for rendition of a service to the business, trade or commerce, as long as such a service is subservient to the charitable cause and is not in the nature of business itself, the disability under second limb of first proviso to section 2(15) will not come into play. Further, it also noted that in another decision of the Delhi High Court in the case of The Institute of Chartered Accountants of India vs. DGIT (Exemptions) [(2013) 358 ITR 91], the rendition of services by the assessee was viewed in conjunction with the overall objectives of the assesse and once it was seen that those services were not in the nature of trade, commerce or business per se, the mere charging of fees for services so rendered, were held to be sub-servient to the charitable objectives and it was held to have no effect on the overall charitable objects of the assessee.

As regards the case law relied on by the revenue the tribunal preferred to follow the decision of the jurisdictional High Court.

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ANS Law Associates vs. Assistant Commissioner ofIncome Tax ITAT Mumbai ‘A’ Bench Before D. Karunakara Rao (A. M.) and Sanjay Garg (J. M.) ITA No.5181/M/2012 Assessment Year: 2008-09. Decided on 05.12.2014 Counsel for Assessee/Revenue: Kirit N. Mehta / Vivek Batra

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Section 285BA – Additions made solely on the basis of AIR information are not sustainable.

Facts:
The assessee is a registered partnership firm of advocates and solicitors. The AIR information showed that the assessee had received professional/technical fees from various persons aggregating to Rs.1.39 crore, which the AO required the assessee to reconcile. The assessee reconciled major portion of the amount, but could not reconcile the amount of Rs. 4.49 lakh allegedly received from one party viz., Allied Digital Services Ltd. The assessee stated before the AO that it had never received above amount. But the AO did not agree and made the addition of Rs. 4.49 lakh to the income of the assessee. In the appeal before the CIT(A), the assessee submitted bank statements of all its accounts. It was further submitted that only Rs.1 lakh was received during the year under consideration from Allied Digital Services Ltd.and a confirmation from the said party in this respect was also filed. The CIT(A),however, held that since the assessee had failed to reconcile the receipts from Allied Digital Services Ltd., the AO was justified in making the addition. According to him, the confirmation of Rs.1 lakh did not tally with the dates of receipts mentioned in the AIR information.

Held:
The Tribunal noted that the assessee had received only Rs.1 lakh from Allied Digital Services Ltd., for which there was no reference in the AIR information. Relying on the decision of the Tribunal in the case of DCIT vs. Shree G. Selva Kumar (ITA No.868/Bang/2009 decided on 22.10.10) and in the case of Aarti Raman vs. DCIT (ITA No.245/Bang/2012 decided on 05.10.12), it observed that time and again, it has been held that the additions madesolely on the basis of AIR information are not sustainable in the eyes of the law. If the assessee denies that he is in receipt of income from a particular source, it is for the AO to prove that the assessee has received income as theassessee cannot prove the negative. Accordingly, the matter was restored to the file of the AO.

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Arvind Kanji Chheda vs. ACIT ITAT Mumbai `A’ Bench Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No. 2295 /Mum/2012 Assessment Year: 2008-09. Decided on: 2nd December, 2014. Counsel for assessee / revenue: Madan Dedia / Rodolph N. D’souza

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Section 73 – Classification of business for the limited purpose of set off of past losses, into speculative and non-speculative is to be done on uniform basis and losses incurred in the same business in earlier assessment years are to be treated as eligible for set off against profit of the same business in the subsequent assessment years. Accordingly, brought forward loses from business of dealing in derivatives, incurred in assessment years prior to AY 2006-07 can be set off against profit of the same business from AY 2006-07 onwards.

Facts: During the previous year relevant to assessment year 2008-09, the assessee earned profit of Rs. 57,45,716 from transactions carried out in derivatives being futures and options. He had brought forward losses, amounting to Rs. 50,64,262, from this activity since AY 2004-05 to AY 2007-08. In the return of income filed, the assessee claimed set off of loss of earlier years incurred on derivative transactions out of profit of transactions of similar nature in the current year. The Assessing Officer (AO) while assessing the total income declined the claim on the plea that brought forward speculation loss cannot be set off against profit of a nonspeculative business in the current year.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held :
The Tribunal found that it was undisputed fact that during the year under consideration the assessee had entered into similar transactions as were entered into in the earlier years when the losses were suffered. The loss brought forward from the earlier years and the gain made in the current year is of the same nature. There is no change in the nature of income earned during the current year.

The classification of business for the limited purpose of set off of past losses into speculative and non-speculative is to be done on uniform basis and losses incurred in the same business in earlier assessment years are to be treated as eligible for set off against profit of the same business in the subsequent assessment years. The Tribunal held that for this reason also the assessee deserves to be allowed set off of brought forward losses from business of dealing in derivatives, incurred in assessment years prior to AY 2006-07 against profit of the same business in current assessment year. Thus, speculative losses made on future and option transactions in earlier years are eligible to be allowed to be set off against the business income of future option transactions of current year. The Tribunal also noted that the Mumbai Bench of ITAT in Gajendra Kumar T. Agarwal vs. ITO (2011) 40 (II) ITCL 324 (Mum-Trib) vide order dated 31.5.2011 has held that loss incurred in derivative transactions upto AY 2005-06 can be set off against income from derivative transactions for AY 2006-07. The Tribunal decided the appeal in favor of the assessee.

The appeal filed by assessee was allowed.

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ITA No. 6062 /Mum/2012 Assessment Year: 2008-09. Decided on: 2nd December, 2014. Counsel for assessee/revenue: V. C. Shah/ Vivekanand Prempurna

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Section 271(1)(c) – Reduction of interest income
from expenses / WIP being a debatable issue, penalty u/s. 271(1)(c) is
not leviable notwithstanding that the assessee had not filed an appeal
on quantum addition.

Facts:
During the previous
year relevant to the assessment year 2008-08, the assessee company
received interest income of Rs. 5,99,644. In the return of income filed
by the assessee, this income was reduced from expenses and the net
expenses were carried forward as work-in-progress.

The Assessing
Officer (AO) while assessing the total income treated this sum of Rs.
5,99,644 to be income of the assessee. The assessee accepted the
addition. On the said addition, the AO levied penalty, u/s 271(1)(c),
amounting to Rs. 1,82,289.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The
Tribunal found that the assessee has disclosed the relevant facts in
the return of income. The fact of not filing further appeal on quantum
addition should not come in the way of deciding the penalty proceedings.
The Tribunal was of the opinion that the issue whether interest income
was rightly set off against the development expenses or was to be
offered as income was a debatable issue. Accordingly, penalty u/s.
271(1)(c) is not sustainable. The Tribunal decided the appeal in favor
of the assessee. The appeal filed by assessee was allowed.

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Neelkanth Township & Construction Pvt. Ltd. vs. ITO ITAT Mumbai `B’ Bench Before D. Karunakara Rao (AM) and Amit Shukla (JM) ITA No. 6062 /Mum/2012 Assessment Year: 2008-09. Decided on: 2nd December, 2014. Counsel for assessee/revenue: V. C. Shah/ Vivekanand Prempurna

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Section 271(1)(c) – Reduction of interest income from expenses / WIP being a debatable issue, penalty u/s. 271(1)(c) is not leviable notwithstanding that the assessee had not filed an appeal on quantum addition.

Facts:
During the previous year relevant to the assessment year 2008-08, the assessee company received interest income of Rs. 5,99,644. In the return of income filed by the assessee, this income was reduced from expenses and the net expenses were carried forward as work-in-progress.

The Assessing Officer (AO) while assessing the total income treated this sum of Rs. 5,99,644 to be income of the assessee. The assessee accepted the addition. On the said addition, the AO levied penalty, u/s 271(1)(c), amounting to Rs. 1,82,289.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The Tribunal found that the assessee has disclosed the relevant facts in the return of income. The fact of not filing further appeal on quantum addition should not come in the way of deciding the penalty proceedings. The Tribunal was of the opinion that the issue whether interest income was rightly set off against the development expenses or was to be offered as income was a debatable issue. Accordingly, penalty u/s. 271(1)(c) is not sustainable. The Tribunal decided the appeal in favor of the assessee. The appeal filed by assessee was allowed.

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ACIT vs. Ajit Ramakant Phatarpekar and Neelam Ajit Phatarpekar ITAT Panaji Bench, Panaji Before P. K. Bansal (A. M.0 and D.T. Garasia (J. M) ITA NO. 145 & 146/PNJ/2014 Assessment Year 2010-11. Decided on 16/03/2015 Counsel for Revenue /Assessee: Jitendra Jain / B. Balakrishna

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Section 40(a)(i) r.w. Explanation to section 9 – Payments made without TDS prior to the amendment came into force is allowable

Facts:
The Assessee had paid a sum of Rs. 28.88 lakh towards sampling charges i.e. consultant/technical charges, to the parties in Hong Kong and Singapore but had not deducted any TDS on the belief that the services were rendered outside India and India is having DTAA with China and Singapore, therefore, these charges are taxable in those countries. According to him, the fee for technical services/ professional services is taxable in the hands of the party who received it outside India. According to the AO, the Finance Act, 2010 amended section 9(1)(vii) retrospectively w.e.f. 1.6.1976 and as per the amended provisions, income of non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of s/s. (1) and shall be included in the total income of the nonresident whether or not the non-resident has a residence or place of business or business connection in India or the non-resident has rendered the services in India. Therefore, according to him the Assessee was liable to deduct TDS as per the provisions of section 195.

Before the CIT(A) the assessee submitted that no income accrued in India. Explanation to section 9 inserted by the Finance Act, 2010 is not applicable as all the payments were made before the Finance Act received assent of the President on 8.5.2010. The CIT(A) allowed the appeal of the assessee.

Held:
The Tribunal noted that the Finance Act, 2010 received the assent of the President on 8.5.2010 and all the payments have been made by the Assessee to the non-resident party prior to receiving of assent of the President making the retrospective amendment by adding Explanation to section 9. At the time when the Assessee made the payment there was no provision u/s. 9 making the technical fees deemed to accrue or arise in India whether or not (a) the non-resident has residence or place of business or business connection in India or (b) the non-resident has rendered services in India. The source of the income in the hands of the non-resident was outside India. Even the place of business which earned the income was also outside India. Since the technical fees was not deemed to accrue or arise in India at the time when the Assessee made the payment as per the law then prevailing, the tribunal held that the payment made was not taxable in India.

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IDBI Capital Market Services Ltd. vs. DCIT ITAT “I” Bench, Mumbai Before N.K. Billaiya, (A. M.) & Amit Shukla (J. M.) I.T.A. No. 618/Mum/2012 Assessment Year: 2008-09. Decided on 18.02.2015 Counsel for Assessee/Revenue: N.C. Jain/Kishan Vyas

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Section 37(1) – Loss arising from valuation of interest rate swap contracts as at the end of the year is allowable as deduction.

Facts:
The assessee is engaged in the business of investment, share broking and dealing in Government securities and it is a member of Bombay Stock Exchange as well as National Stock Exchange. While scrutinising the return of income the AO noticed that as on 31st March 2008 the assessee had valued the outstanding interest swap contracts and the loss of Rs.18.3 crore determined was debited to P&L Account. According to the AO, the assessee had recognised only the loss and not the profit. Further, he observed that the assessee was not consistent and definite in making entries in the account books in respect of losses and gains and accordingly denied the claim of deduction. On appeal, the CIT(A) relied upon the decision of the Bombay High Court in the case of Bharat Ruia in ITA No.1539 of 2010 and treated the loss as speculation loss and confirmed the disallowance.

Held:
The Tribunal noted that it was an undisputed fact that the assessee had made the valuation of interest rate swap contracts as at the end of the year and had incurred losses on such valuation. Further, it also noted that the assessee had made the entries following Accounting Standard AS- 11 of the ICAI. The Tribunal further found the observations of the AO that the assessee had never accounted for the gains on such transactions as totally misplaced and against the facts of the case. Relying on the decision of the Tribunal Special Bench Mumbai in the case of Bank of Bahrain & Kuwait, ITA No.4404 & 1883/Mum/2004 and of the Supreme Court in the case of Woodward Governor India Pvt. Ltd. [2009] 179 Taxman 326 (SC), the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of Rs.18.3 crore.

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DCIT vs. L & T Infrastructure Finance Co. Ltd. ITAT Mumbai `A’ Bench Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No. 5329 /Mum/2013 Assessment Year: 2007-08. Decided on: 3rd December, 2014. Counsel for revenue / assessee: Asghar Jain / Heena Doshi

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Sections 35AD, 271(1)(c) – Following the decision of Apex Court in Waterhouse Coopers Pvt. Ltd. vs. CIT (348 ITR 306)(SC), penalty deleted on the ground that that the assessee had committed bonafide error and it was not a case of concealment of income.

Facts:
The assessee company was formed on 18.4.2006. The first return of income was filed for AY 2007-08. In the return of income the assessee had claimed, u/s. 35D, one-fifth of expenditure incurred towards ROC fees for increase in authorised share capital. In the course of assessment proceedings, on being called to explain the claim, the assessee withdrew the claim. The Assessing Officer (AO) thereafter levied penalty u/s. 271(1)(c) holding that the assessee had furnished inaccurate particulars of income.

Aggrieved, the assessee preferred an appeal to the CIT(A) and in the course of appellate proceedings contended that since it was the first return of income, the expenditure was erroneously claimed and the fact that expenditure was incurred after commencement of business operations. Upon the same being noticed, the claim was withdrawn. The claim was not willful and was made inadvertently. The CIT(A) observed that the assessee had committed a bonafide error and it was not a case of concealment of income or furnishing of inaccurate particulars. Relying on the decision of the Apex Court in the case of Waterhouse Coopers Pvt. Ltd. vs. CIT 348 ITR 306 (SC), he deleted the penalty levied by the AO.

Aggrieved, the revenue preferred an appeal to Tribunal.

Held: The Tribunal observed that the assessee had explained that the error committed by it was inadvertent and due to a bonafide mistake. This was not a case for attraction of provisions of section 271(1)(c). The Tribunal agreed with the CIT(A) that the levy of penalty was not justified. The Tribunal upheld the order passed by CIT(A).

The appeal filed by revenue was dismissed.

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ParmanandTiwari vs. Income-tax Officer “SMC(B)” ITAT bench: Kolkata Before Mahavir Singh, JM I.T.A No.2417/Kol/2013 Assessment Year: 2008-09. Decided on 02.09.2014 Counsel for Assessee / Revenue: None / David Z. Chawngthu

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Section 199 and Rule 37BA – Credit for TDS granted even though the certificates issued were not in the name of the assessee.

Facts:
The assessee is an individual and a professional Chartered Accountant. Earlier, the assessee was a partner in the firm M/s. Tiwari & Co.The said firm was dissolved w.e.f. 30.12.2006 and the assessee became proprietor of this firm fromthe said date. During the course of assessment proceedings the AO found that all the TDS certificates were issued in the name of M/s.Tiwari & Co. with PAN which belonged to the erstwhile partnership firm.The assessee contended before the AO that he has included the underlying income in the TDS certificates in his return of income and accordingly, the credit for TDS should also be allowed to him in accordance with Rule 37BA of the Rules.The AO disallowed the claim of the assessee by observing that Rule 37BA of the Rules was inserted w.e.f. 01.04.2009 only and hence, the credit in the hand of the assessee cannot be allowed.

On appeal the CIT(A) upheld the order of the AO stating that the credit of TDS cannot be given to the assessee as the deductee (in this case M/s. Tiwari & Co., partnership firm), had failed to file a declaration with the deductor as required under Rule 37BA.

Held:
The Tribunal noted that the total income of the assessee included income qua the TDS certificates which were issued in the name of M/s. Tiwari & Co., the erstwhile partnership firm. It also noted that these receipts were earned by M/s. Tiwari & Co., as proprietary concern of the assessee. Further, the AO had also completed the assessment including therein the said income. However, the AO did not allow the credit for TDS on the ground that the TDS certificate is not in the PAN of Parmanand Tiwari, in his individual capacity. According to the tribunal the TDS certificates not being in the name of the assessee was only a technical breach. According to it, wrong submission of PAN by deductor does not debar the assessee from claiming credit of TDS deducted particularly when the income is assessed in the hands of the assessee. Further, according to the Tribunal, the insertion of the proviso to sub-Rule (2) of Rule 37BA was to mitigate the hardship faced by assessee for claiming credit of TDS. As regards whether the amended Rule is a beneficial provision and in turn could be declared as retrospective and applicable to all pending matters, the Tribunal referred to the decision of the Supreme Court in the case of Allied Motors Pvt.Ltd. vs. CIT (1997) 224 ITR 677 and held that the said amended Rule was retrospective in nature and would apply to all pending matter. The Tribunal allowed the appeal filed by the assessee.

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DCIT vs. UAE Exchange & Financial Services Ltd. ITAT Bangalore `C’ Bench Before P. Madhavi Devi (JM) and Abraham P. George (AM) ITA No. 91/Bang/2014 Assessment Year: 2009-10. Decided on: 10th October, 2014. Counsel for revenue/assessee: Dr. K. Shankar Prasad/Cherian K. Baby

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Section 32 – Printers, scanners, port switches and projectors qualify for depreciation @ 60% being the rate applicable to computers.

Facts:
The assessee company was carrying on business of money transfer, money changing, travel and ticketing, insurance support services and gold loan. In the course of assessment proceedings the Assessing Officer (AO) noticed that the assessee had claimed depreciation @ 60% on printers, scanners, Port switches, projectors, etc. He was of the view that these items qualify for depreciation @ 15% since these do not suffer same rate of obsolescence as computers and they cannot be classified as computers. He rejected the argument of the assessee that these are parts of PCs and cannot independently work in isolation. He, accordingly, allowed depreciation on these @ 15%.

Aggrieved, the assessee preferred an appeal to the CIT(A) who allowed the appeal.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the CIT(A) has followed the decision of the Special Bench of the Tribunal in the case of DCIT vs. Datacraft India Ltd. (40 SOT 295)(Mum)(SB) wherein it is held that routers and switches are to be classified as computer peripherals and depreciation at the rate of 60% be allowed. The CIT(A) had also considered the decision of the Delhi High Court in the case of CIT vs. M/s. Bonanza wherein it is held that depreciation @ 60% is allowable on computer peripherals.

The Tribunal held that the printers, scanners, projectors as well as port-switches are all functionally dependent on computers and therefore, the order of CIT(A) is in consonance with the precedents on the issue. It observed that the DR was not able to place any other contrary decision before it. The Tribunal confirmed the order of the CIT(A).

The appeal filed by the revenue was dismissed.

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Lodha Builders Pvt Ltd. & five other group companies vs. ACIT ITAT“E” Bench, Mumbai Before D. Karunakara Rao, (A. M.) and VivekVarma, (J. M.) I.T.A. No.475 to 481/M/2014 A.Y. 2009-10. Decided on: 27-06-2014 Counsel for Assessee/Revenue: P.J. Pardiwala, Sunil MotiLala, Paras S. Savla and Gautam Thacker/Girija Dayal

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Section 269SS/269T and section 271D/E – Transactions involving the receipts and payments of loans and advances among the group settled by way of “journal entries” – Penalty imposed deleted on the ground of “reasonable cause.”

Facts:
The assessees and five other appellants belong to the Lodha group which is engaged in the business of land development and construction of real estate properties. There were large number of transactions aggregating to Rs. 495.23 crore involving the receipts and payments of loans and advances among the group settled by way of “journal entries”. During the assessment proceedings, the AO asked the assessee to show cause as to why loans were accepted/repaid otherwise than by the account payee cheque/draft.

In this regard, assessee informed that the said loans/advances were transacted with the sister concerns only by way of “journal entries” and there were no cash transactions involved. The core transactions were undertaken by way of cheques only. It was further explained that the assessees resorted to the journal entries for transfer/assignment of loan among the group companies for business consideration. Journal entries were passed to transfer/ assign liabilities or to take effect of actionable claims/ payments received by group companies on behalf of the assessee. It was contended by the assessee that the said transactions with the sister concerns were for commercial expediencies which should be kept outside the scope of the provisions of sections 269SS/269T of the Act. The journal entries were also passed in thebooks of accounts for reimbursement of expenses and for sharing of the expenses within the group to which the provisions of section 269SS of the Act have no application and for this, the assesses relied on the judgment of the Madras High Court in the case of CIT vs. Idhayam Publications Ltd. [2007] 163 Taxman 265. It also relied on the CBDT Circular No.387, dated 6th July, 1984 and contended that the purpose of introducing section 269SS of the Act was to curb cash transactions only and the same was not aimed at transfer of money by transfer/assignment of loans of other group companies.

The Addl. CIT relied on the decision of the Bombay High Court in the case of Triumph International (I) Ltd., dated 12-06-2012 reported in 22 taxmann.com 138/345 ITR 370 where it was held that where the loan/deposit were repaid by debiting the amount through journal entries, it must be held that the assessee has contravened the relevant provisions. According to him even bona fide and genuine transactions, if carried out in violation of provisions of section 269SS of the Act would attract the provisions of section 271D of the Act. Accordingly, he levied a penalty of Rs. 495.24 crore u/s. 271D.

On appeal, the CIT(A) relied on the judgment of the Bombay High Court in the case of Triumph International (I) Ltd. dated 17-08-2012, for the proposition that receiving loans and repayments through “journal entries” constitutes “violation” within the meaning of provisions of section 269SS and 269T of the Act.

Held:
According to the Tribunal, the CIT(A) ignored the finding of the Bombay High Court in the case of Triumph International (I) Ltd. which judgment was relied on by him viz., that “the transactions in question were undertaken not with a view to receive loans/deposits in contravention of section 269SS but with a view to extinguish the mutual liability of paying/receiving the amounts by the assessee and its sister concern to the customers. In the absence of any material on record to suggest that the transactions in question were not reasonable or bona fide and in view of section 273B of the Act, we see no reason to interfere with the order of the Tribunal in deleting the penalty..”. Further, referring to the judgment of the Bombay High Court in the case of Triumph International (I) Ltd. dated 12-06-2012, the Tribunal agreed with the revenue that the journal entries are hit by the relevant provisions of section 269SS of the Act. However, it added that as per the said judgment completing the “empty formalities” of payments and repayments by issuing/receiving cheque to swap/square up the transactions, was not the intention of the provisions of section 269SS of the Act, when the transactions were otherwise bona fide or genuine. Such reasons of the assessee constitute “reasonable cause within the meaning of section 273B of the Act. The Tribunal further noted that there is no finding of AO that the impugned transactions constituted unaccounted money and are not bona fide or not genuine. In the language of the Bombay High court, “neither the genuineness of the receipt of loan/deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business has been doubted in the regular assessment”.

According to the Tribunal, admittedly, the transactions by way of journal entries were aimed at the extinguishment of the mutual liabilities between the assessees and the sister concerns of the group and such reasons constitute a reasonable cause. The Tribunal further noted that the causes shown by the assessee for receiving or repayment of the loan/deposit otherwise than by accountpayee cheque/bank draft, was on account of the following, namely: alternate mode of raising funds; assignment of receivables; squaring up transactions; operational efficiencies/ MIS purpose; consolidation of family member debts; and correction of errors. According to it, all these reasons were, prima facie, commercial in nature and they cannot be described as non-business by any means. The tribunal agreed with the assessee as to why should the assessee under consideration take up issuing number of account payee cheques/bank drafts which can be accounted by the journal entries. What is the point inissuing hundreds of account payee cheques/account payee bank drafts betweenthe sister concerns of the group, when transactions can be accounted in books using journal entries, which is also an accepted mode of accounting? In its opinion, on the factual matrix of these cases under consideration, journal entries should enjoy equal immunity on par with account payee cheques or bank drafts. Therefore, the tribunal held that though the assessee had violated the provisions of section 269SS/269T of the Act in respect of journal entries, the assessee had shown reasonable cause and, therefore, the penalty imposed u/s. 271D/E of the Act were not sustainable.

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ACIT vs. Gopalan Enterprises. ITAT Bangalore ‘B’ Bench Before N. V. Vasudevan (JM) and Jason P. Boaz (AM) ITA No. 241/Bang/2013 A.Y.: 2004-05. Decided on: 13-06-2014. Counsel for revenue/assessee: L. V. Bhaskar Reddy/B. K. Manjunath.

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S/s. 28, 37, 80IB (10) – Even in an assessment u/s 143(3) r.w.s. 147 addition to income on account of bogus purchases will qualify for deduction u/s. 80IB (10).

Facts:
The assessment of total income of the assessee, a partnership firm, engaged in the business of property development was completed vide order dated 26-12-2006 passed u/s. 143(3) of the Act.

The Assessing Officer based on information received from AO of a sister concern of the assessee reopened the assessment u/s. 147 of the Act.

The assessee raised objections regarding validity of the service of notice u/s. 148 of the Act and non-furnishing of reasons recorded. The assessee was furnished with the reasons recorded by the AO on 24-12-2010.

The assessee did not participate in the proceedings for assessment and the assessment was completed u/s. 144 of the Act. In the assessment order, the AO having discussed about fictitious purchases found in the case of assessee’s sister concern concluded that an addition of Rs. 1,66,41,525 was required to be made on account of fictitious purchases. He also stated that since there was no reply from the assessee, the fictitious purchases are treated as debited to revenue/income for which section 80IB is not applicable. He, accordingly, added Rs. 1,66,41,525 to the total income of the assessee.

Aggrieved, the assessee preferred an appeal to CIT(A) where without prejudice to its contention that the expenditure is incurred for the purpose of business and therefore is allowable prayed that in view of the decision of Tribunal in the case of S. B. Builders & Developers vs. ITO (45 SOT 335)(Mum) the deduction u/s. 80IB(10) be allowed on enhanced profits. The CIT(A) upheld the addition but allowed the alternative claim of the assessee.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The AO came to the conclusion that the fictitious claim of purchases to the extent of Rs. 1,61,41,525 was considered as not relatable to the receipts which are eligible for deduction u/s. 80IB(10) of the Act because the assessee did not give any reply or participate in the assessment proceedings. In our view, such conclusion by the AO was without any basis. The AO ought to have identified it with reference to the evidence available on record as to whether fictitious purchases are relatable to the receipts which are eligible for deduction u/s. 80IB(10) of the Act.

Be that as it may, in the proceedings before the CIT(A), the assessee has categorically made a claim that the fictitious expenses are relatable to the receipts which are eligible for deduction u/s. 80IB(10) of the Act. The CIT(A), in our view, has only directed to verify the claim of the assessee and if it is found correct to allow deduction u/s. 80IB(10) of the Act in respect of enhanced income. In our view, the claim made by the assessee was that the expenses disallowed were inextricably linked with the profits on which the claim for deduction u/s. 80IB(10) was made. As rightly pointed out by the ld. Counsel for the assessee, the Hon’ble Supreme Court in its decision in the case of CIT vs. Sun Engineering Works Pvt. Ltd. (198 ITR 297) (SC) has visualised a situation where the assessee cannot be permitted to challenge reassessment proceedings at an appellate or revisional proceeding and seek relief in respect of items earlier rejected or claimed relief in respect of items not claimed in the original assessment proceedings. The Hon’ble Court has, however, given a rider that if such claims are relatable to escaped income, the same can be agitated. In our view, the claim for fictitious purchases if it is relatable to profits/receipts which are eligible for deduction u/s. 80IB(10) of the Act, the disallowance of such expenses will go to enhance the income/ profits eligible for deduction u/s. 80IB(10) of the Act on which the assessee will be entitled to claim deduction u/s. 80IB(10) of the Act. It cannot be said that the disallowed expenditure cannot be considered as profits derived from the housing project or as operational profit.

The Tribunal confirmed the directions given by CIT(A).

The appeal filed by the revenue was dismissed.

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K. Prakash Shetty vs. ACIT ITAT Bangalore ‘B’ Bench Before N. V. Vasudevan (JM) and Jason P. Boaz (AM) ITA No. 265 to 267/Bang/2014 A.Y.: 2006-07, 2008-09 and 2009-10. Decided on: 05-06-2014. Counsel for assessee/revenue: H. N. Khincha/ Farahat H. Qureshi

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S/s. 271(1)(c), 271AAA, 292BB – Show cause notice issued u/s. 274 of the Act not spelling out the grounds on which penalty is sought to be imposed is defective. Consequently, an order imposing penalty is invalid.

Facts:
The assessee was an individual who belonged to M/s. Gold Finch Hotel Group. There was a search u/s. 132 of the Act on 20-11-2009 in the case of the assessee. On 30-12-2011, assessment orders were passed u/s. 143(3) r.w.s. 153A for AY 2006-07, 2008-09 and 2009-10. In each of these years, the income returned in response to notice issued u/s. 153A exceeded the returned income declared in return of income filed u/s. 139. The difference between the income returned u/s. 139 and income returned u/s. 153A of the Act was due to disclosure made by the assessee consequent to search u/s. 132 of the Act.

For AY 2006-07, the Assessing Officer (AO) initiated penalty proceedings u/s. 271(1)(c) of the Act and for AY 2008-09, he initiated penalty proceedings u/s. 271(1) (c)/271AAA of the Act and for AY 2009-10, he initiated penalty proceedings u/s 271AAA of the Act. In respect of all the three years, the AO imposed penalty u/s. 271(1) (c) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the order passed by the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal, where it challenged the validity of orders imposing penalty on the ground that the show cause notice issued u/s. 274 of the Act was defective for AY 2006-07 and that for AY s 2008-09 and 2009-10 notice u/s. 274 of the Act had been issued for imposing penalty u/s. 271AAA of the Act, but the order imposing penalty was passed u/s. 271(1)(c) of the Act.

Held:
The show cause notice issued u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. The show cause notice is also bad for the reason that in A.Y.s 2008-09 and 2009-10 the show cause notice refers to imposition of penalty u/s. 271AAA whereas the order imposing penalty has been passed u/s. 271(1)(c) of the Act. It held that the aforesaid defect cannot be said to be curable u/s. 292BB of the Act, as the defect cannot be said to be a notice which is in substance and effect in conformity with or according to the intent and purpose of the Act. Following the decision of the Karnataka High Court in the case of CIT & Anr vs. Manjunatha Cotton and Ginning Factory (359 ITR 565) (Kar), the Tribunal held that the orders imposing penalty in all assessment years to be invalid and consequently it cancelled the penalty imposed.

The appeal filed by the assessee was allowed.

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Century Metal Recycling Pvt. Ltd. vs. DCIT ITAT Delhi `B’ Bench Before H. S. Sidhu (AM) and H. S. Sidhu (JM) ITA No. 3212/Del/2014 A.Y.: 2007-08. Decided on: 5th September, 2014. Counsel for revenue/assessee: Satpal Singh/ Sanjeev Kapoor

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Sections. 79, 271(1)(c) – Penalty u/s. 271(1)(c) is not leviable in a case where claim to carry forward capital loss was denied due to change in majority shareholding.

Facts:
For assessment year 2007-08 the Assessing Officer (AO) in an order passed u/s.143(3) of the Act assessed the returned income to be the total income. However, the claim of carry forward of loss of Rs. 23,09,722 was denied on the ground that there was a change in majority shareholding of the assessee and therefore by virtue of section 79 the said loss cannot be carried forward.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO. The assessee after receiving the order of CIT(A) did not carry forward the capital loss of Rs. 23,90,722 in its return of income for AY 2012-13. The AO levied a penalty of Rs. 8,05,000 u/s. 271(1)(c) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the carry forward of long term capital loss of AY 2005-06 and 2006-07 had been duly accepted as correct as per returns filed and assessment orders passed by the AO in the relevant years. In the AY 2006-07 the AO specifically mentioned that carry forward of long term capital loss is allowed.

The Tribunal also noted that in the assessment order of AY 2007-08 there was no mention that the assessee had furnished any inaccurate particulars of income or had made any wrong claim of carry forward of long term capital loss. The disallowance of carry forward of long term capital loss was on technical ground and not on account of any concealment of any particulars of income. The Tribunal noted that section 271(1)(c) postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. It observed that the conduct of the assessee cannot be said to be contumacious so as to warrant levy of penalty. The Tribunal held that the levy of penalty was not justified. It set aside the orders of the authorities below and deleted the levy of penalty.

The appeal filed by the assessee was allowed.

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Shri G. N. Mohan Raju vs. ITO ITAT Bangalore `C’ Bench Before P. Madhavi Devi (JM) and Abraham P. George (AM) ITA No. 242 & 243/Bang/2013 Assessment Years: 2006-07 and 2007-08. Decided on: 10th October, 2014. Counsel for assessee/revenue: Padamchand Khincha/ Dr. Shankar Prasad

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Sections. 143(2), 147 – AO cannot suo moto treat the return of income filed before issue of notice u/s. 148 to be a return filed in response to the said notice. Notice u/s. 143(2) issued before the assessee has filed a return in response to notice u/s. 148 cannot be treated as a valid notice.

Facts:
For the assessment year 2006-07 the assessee filed his return of income u/s 139 on 10.7.2007. In the computation filed along with the said return the assessee stated that it has received Rs. 97,80,000 which has been treated as capital receipt. The said return of income was processed u/s. 143(1) of the Act.

On 24.12.2009, a notice u/s. 148 of the Act was issued for reopening the assessment. In response to the said notice the assessee did not file any return of income. On 23.9.2010, a notice u/s. 143(2) dated 17.9.2010 was dispatched by registered post. On 5.10.2010, an authorised representative of the assessee appeared before the AO and stated that the return of income originally filed could be treated as return filed pursuant to the notice u/s. 148 of the Act. On 5.10.2010, the AO issued a notice u/s. 142(1) of the Act but there was no notice u/s 143(2) of the Act.

The AO completed the assessment u/s 143(3) r.w.s. 147 of the Act.

Aggrieved by the action of the AO in framing an assessment u/s. 143(3) r.w.s. 147 without issue of a notice u/s. 143(2) of the Act, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to Tribunal.

Held:
The Tribunal noted that in the case before it a notice u/s. 143(2) of the Act had been issued to the assessee, but on the date when such notice was issued viz. 23.9.2010, assessee had not filed any return pursuant to the reopening notice u/s. 148 of the Act. It, further, noted that the first instance when the assessee requested the AO to treat the returns originally filed by it as returns filed pursuant to the notices u/s. 148 of the Act, was on 5.10.2010 which was clear from the narration in the order sheet. It observed that the crux of the issue is whether notices u/s.143(2) is mandatory in a reopened procedure and whether notices issued prior to the reopening would satisfy the requirement specified u/s. 143(2) of the Act.

The Tribunal noted that in the case of M/s. Amit Software Technologies Pvt. Ltd. (ITA No. 540(B)/2012 dated 7.2.2014), the co-ordinate Bench has after considering the decision of the Madras High Court in the case of Areva T and D India Ltd. and also the decision of the Delhi High Court in the case of M/s. Alpine Electronics Asia PTE Ltd. (341 ITR 247)(Del), held that section 143(2) of the Act was a mandatory requirement and not a procedural one.

If the income has been understated or the income has escaped assessment, an AO is having the power to issue notice u/s. 148 of the Act. Notice u/s. 148 of the Act issued to the assessee required it to file a return within 30 days from the date of service of such notice. There is no provision in the Act, which would allow an AO to treat the return which was already subject to a processing u/s. 143(1) of the Act, as a return filed pursuant to a notice subsequently issued u/s. 148 of the Act. However, once an assessee itself declares before the AO that the earlier return could be treated as filed pursuant to a notice u/s. 148 of the Act, three results can follow. AO can either say no, this will not be accepted, you have to file a fresh return or he can say that 30 days time period being over I will not take cognisance of your request or he has to accept the request of the assessee and treat the earlier returns as one filed pursuant to the notice u/s. 148 of the Act. In the former two scenarios, AO has to follow the procedure set out for a best judgment assessment and cannot make an assessment u/s. 143(3). On the other hand, if the AO chose to accept assessee’s request, he can indeed make an assessment u/s. 143(3). In the case before us, assessments were completed u/s 143(3) r.w.s. 147. Or in other words AO accepted the request of the assessee. This in turn makes it obligatory to issue notice u/s. 143(2) after the request by the assessee to treat his earlier return as filed in pursuance to notices u/s. 148 of the Act was received. This request, in the given case, has been made only on 5.10.2010. Any issue of notice prior to that date cannot be treated as a notice on a return filed by the assessee pursuant to a notice u/s. 148 of the Act. In other words, there was no valid issue of notice u/s. 143(2) of the Act, and the assessments were done without following the mandatory requirement u/s. 143(2) of the Act. This, it held, renders the subsequent proceedings invalid. The Tribunal, quashed the assessment done for the impugned years.

The appeals filed by the assessee were allowed.

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Jai Surgicals Ltd. vs. ACIT ITAT “D”, New Delhi Before R. S. Syal, (A.M.) and C. M. Garg, (J.M.) ITA No.844/Del/2013 A.Y.: 2009-10. Decided on: 26-06-2014 Counsel for Assessee/Revenue: Sanjay Jain/S.N. Bhatia

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Explanation to section 37(1) – Payments to Related Party made without obtaining prior approval of the Central Government in accordance with the provisions of section 297 of the Companies Act, 1956 was merely an irregularity and cannot be disallowed treating the same as an offence or prohibited by law.

Facts:
The assessee is engaged in the business of manufacture and export of surgical blades. The AO noted that the assessee had entered into transactions of payment of job work charges to a related party, viz., M/s. Razormed Inc. during thefinancial year relevant to the assessment year under consideration without obtaining prior approval of the Central Government inaccordance with the provisions of section 297 of the Companies Act, 1956. The assessee submitted that the post facto approval for the said transactions was obtained from the Company Law Board on payment of compounding charges for the condonation of delay and hence, there was no violation of law. However, the AO opined that the facts of post facto approval and the condonation of delay were not relevant because on the day of payment of such expenditure, there was no prior approval of the job charges paid to M/s. Razormed Inc., which triggered the Explanation to section 37(1) of the Act. He accordingly, added the sum of Rs. 41.24 lakh paid by the assessee towards job work charges. On appeal, the CIT(A) confirmed the order of the AO.

Held:
The Tribunal referred to the provisions of section 297 of the Companies Act, 1956 more particularly s/s. (5) of the said provision. As per the said provisions if the consent is not accorded to any contract under the section, then anythingdone in pursuance of the contract is voidable at the option of the Board of the Company. Thus, according to the Tribunal, if the Board, despite no prior sanction, agrees to go ahead with the contract referred to in s/s. (1) of section 297 of the Companies Act, such contract would be valid. In the case of the assessee, the tribunal noted that the Board had not objected to the contracts between the assessee and Razormed Inc., thus making such contract for doing of job work valid. Thus, there was no violation of section 297 of the Companies Act inasmuch as the so-called violation as per s/s. (1) stood regularised by s/s. (5) of section 297 to the Companies Act, 1956, thereby making this transaction of payment of job charges in accordance with the provisions of the Companies Act.

Thus, according to the Tribunal, the payment made by the assessee was neither an offence nor prohibited by law, but it only committed a breach by not obtaining the necessary approval from the Central Government in time.Thus, the payment is otherwise for a lawful purpose. Further, referring to Explanation to section 37(1), the Tribunal observed that in order that the said provisions is applied, it is essential to examine the object and consideration for the expenditure incurred. If the purpose of the expenditure is either an offence or is prohibited by law, then it would suffer disallowance. If, however, the purpose of the expenditure is neither to commit an offence nor is prohibited by any law, then there can be no question of disallowance. Thus, according to it, if the expenditure is otherwise lawful and neither amounted to offence nor is prohibited by law, but the procedural requirements for incurring it were not complied with, only the irregularity will creep in, but such irregularity would not make the expenditureitself as unlawful so as to be brought within the scope of the Explanation.

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DCIT vs. Rajeev G. Kalathil ITAT Mumbai `D’ Bench Before Rajendra (AM) and Dr. S. T. M. Pavalan (JM) ITA No. 6727/Mum/2012 A.Y.: 2009-10. Decided on: 20th August, 2014. Counsel for revenue/assessee: J. K. Garg/Devendra Jain

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Section 28, 37 – Purchases cannot be disallowed, merely because the supplier is treated as a havala dealer by VAT authorities, if receipt of material is substantiated by delivery challan and other evidences and payment is by account payee cheque.

Facts:
In the course of assessment proceedings, the AO sent notices u/s. 133(6) to various parties at random. Of these, notices sent to two parties were returned unserved with the remarks not known. The AO asked the assessee to furnish correct address or explain why purchases of Rs. 13,69,417 (Rs. 5,05,259 from NBE and Rs. 8,64,158 from DKE) should not be treated as bogus purchases.

The assessee furnished its reply expressing inability to establish contact with the parties but furnished letter from its banker stating that the payment has been made to the two parties in subsequent year. Sample bills were also filed which had TIN Numbers.

The AO verified the TIN numbers from the official website and found that NBE was specifically mentioned as `Hawala Dealer’ and the search for DKE did not show any result. He, accordingly, added Rs. 13.69 lakh to total income of the assessee on account of bogus purchases.

Aggrieved, the assessee preferred an appeal to CIT(A) and contended that suppliers were registered dealers and were carrying proper VAT registration; bills were accounted and payments were made by cheque; certificate from banker giving details of payments made to said parties were furnished; copies of consignment note received from government approved transport contractor showing material was delivered at site were furnished to the AO; some of the items purchased from these parties were reflected in closing stock. The CIT(A) allowed the appeal.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The AO made addition because one of the supplier was declared a havala dealer by VAT Department. According to the Tribunal, this could be a good starting point for making further investigation and to take it to logical end. Suspicion of highest degree cannot take place of evidence. According to the Tribunal, the AO could have called for details of bank accounts of suppliers to find out whether there was any immediate cash withdrawl from their account. It observed that transportation of goods to the site is one of the deciding factors to be considered for resolving the issue. It noted the finding of fact given by CIT(A) that some of the goods received were forming part of closing stock.

The Tribunal held that the decision of the Mumbai Tribunal in the case of Western Extrusion Industries (ITA /6579/ Mum/2010 dated 13-11-2013) was distinguishable since in that case there was no evidence of movement of goods and also cash was withdrawn by the supplier immediately from the bank.

This ground of appeal filed by the revenue was dismissed.

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Raj Kumari Agarwal vs. DCIT ITAT, Agra Pramod Kumar (A.M.) and Joginder Singh (J.M.) I.T.A. No.: 176/Agra/2013 Assessment Year: 2008-09. Decided on July 18th, 2014 Counsel for Assessee/Revenue: Arvind Kumar Bansal/S D Sharma

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Section 57(iii) – Interest paid on loan taken against fixed deposit is deductible against interest earned on the fixed deposit.

Facts:
During the course of the assessment proceedings, the AO noticed that the assessee had made a fixed deposit of Rs. 1 crore with abank and earned interest of Rs 11.78 lakh thereon. However, whilecomputing the income from other sources, the assessee claimed a deduction of Rs. 4.37 lakh on account of interest paid on loan of Rs 75 lakh taken on the securityof deposits. When asked to justify this deduction, the assessee submitted that she needed her funds, as she had to give money to her son and with a view toavoid premature encashment of the fixed deposits, which wouldhave resulted in net loss to her, she took a loan against fixed deposit so as to keepthe fixed deposit intact and earn the interest income thereon. It was contended thatthe interest of Rs. 4.37 lakh paid on the borrowings from the Bank against security of fixed deposit, was thus made for the purpose of earning FDR interest. The AO rejected the claim of deduction observing that interest onloan has not been laid out or expended wholly and exclusively for the purpose ofmaking or earning income from FDR. On appeal the CIT(A) upheld the order of the AO.

Before the Tribunal, the assessee also justified her claim with the working showing that she has returned higher interest income of Rs. 7.41 lakh (Rs. 11.78 lakh minus Rs. 4.37 lakh paid) while if she had encashed the FDR then the interest income from FDR would had beenat lower sum of Rs. 5.38 lakh.

Held:
According to the Tribunal, the question that needs to be adjudicated was whether interest paid can be said to have been incurred “wholly and exclusively” for the purpose of earning interest income from fixed deposits.For this purpose, it referred to a decision by the coordinate bench of its own Tribunal in the case of AjaySingh Deol vs. JCIT [(91 ITD 196). Relying thereon, it observed that even in a situation in which proximate or immediate cause of an expenditure was an event unconnected to earning of the income, in the sense that the expenditure was not triggered by the objective to earn that income, but the expenditure was, nonetheless, wholly and exclusively to earn or protect that income,it will not cease to be deductible in nature (emphasis supplied). According to it, in order to protect the interest earnings from fixed deposits and to meet her financial needs, when an assessee raises a loan against the fixed deposit, so as to keep the source of earning intact, the expenditure so incurred is wholly and exclusively to earn the fixed deposit interest income. It further observed that the assessee could have gone for premature encashment of bank deposits, and thus ended the source of income itself as well, but instead of doing so, she resorted to borrowings against the fixed deposit and thus preserved the source of earning. The expenditure so incurred, according to the tribunal was an expenditure incurred wholly and exclusively for earning from interest on fixed deposits.

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ACIT vs. Iqbal M Chagala ITAT Mumbai “I” Bench Before Vijay Pal Rao (J.M.) and Rajendra (A. M.) ITA No. 877/Mum/2013 Assessment Year 2009-10. Decided on 30/07/2014 Counsel for Revenue/Assessee: Garima Singh/P J Pardiwala

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Section 14A and Rule 8D – Application of the Rule is not automatic. Disallowance cannot exceed the expenditure claimed and if no expenditure is claimed by the assessee then disallowance cannot be made

Facts:
During the assessment proceedings, the AO noted that the assessee had earned exempt income and the audit report did not show disallowance of any expenses relating to exempt income. According to the assessee, the investment transaction undertaken by him were managed by the investment advisors whose fees amounting to Rs. 5.64 lakh had been debited to the capital account of the assessee. Plus, demat expenses and security transaction tax amounting to Rs. 2.2 lakh was also debited to the capital account of the assessee. However, the AO held that looking into the fact that partof the expenses on account of salary, telephone and other administrative expenses must have been related to the activities for earning exempt income, he disallowed the sum of Rs. 16.36 lakh, being 0.5% of average investment of Rs. 32.72 crore.

On perusal of Profit and Loss Account of the assessee the CIT(A) noted that the assessee had not made any claim of expenditure incurred in relation to exempt income, therefore according to him, the provisions of section 14A (1) r.w.s.14A(2) were not attracted. Therefore, relying on the cases of Walfort Shares & Stock Brokers Pvt. Ltd.(326 ITR 1) and Godrej & Boyce Manufacturing Co. Ltd (328 ITR 81) he deleted the disallowance of Rs.16.36 lakh made by the AO.

Held:
The tribunal noted that as per the audit report filed by the assessee, expenses in respect of exempt income was Rs. Nil and the assessee had debited all expenses relating to exempt income in the capital account. The AO had merely presumed that the assessee must have incurred someexpenditure under the heads salary, telephone and other administrative charges for earning theexempt income. Further, it was noted that that the total expenditure claimed by the assessee for the year was about Rs. 13 lakh and the AO had made a disallowance of about Rs.16 lakh. According to it, the AO had just adopted the formula of estimating expenditure on the basis of investments. But, the justification for calculating the disallowance was missing. The onus was on the AO to prove that out of the expenditure incurred under various heads part related to earning of exempt income. Not only thatthe AO was required to give the basis of calculation. In any manner disallowance of Rs.16.36 lakh, as against the total expenditure of Rs.13 lakh claimed by the assessee was not justified. Provisions of Rule 8D cannot and should not be applied in a mechanical way. Facts of the case have to be analysed before invoking them. Accordingly, the appeal filed by the AO was dismissed and the order of the CIT(A) was confirmed.

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ACIT vs. Connaught Plaza Restaurants Pvt. Ltd. ITAT Delhi `B’ Bench Before G. D. Agrawal (VP) and H. S. Sidhu (JM) ITA No. 5466/Del/2013 A.Y.: 2003-04. Decided on: 1st September, 2014. Counsel for revenue / assessee: Parwinder Kaur / Rohit Gar and Tejasvi Jain

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S. 32 – Point of Sales (POS) systems qualify for depreciation @ 60% being the rate applicable to computers.

Facts:
In the course of assessment proceedings, the Assessing Officer (AO) noticed from the tax audit report that additions to Computers included a sum of Rs. 65,89,449 towards POS on which depreciation was claimed @ 60%. The AO held that POS could be regarded as computer accessories but not as computer. It is only computers and computer software which qualify for depreciation @ 60%. The rate of 60% cannot be extended to computer accessories and peripherals. He rejected the contention of the assessee that the POS systems are capable of performing the basic functions performed by a computer such as data processing, storage, etc and therefore are similar to computers. The AO allowed depreciation on POS @ 25% i.e. the rate applicable to normal plant and machinery.

Aggrieved, the assessee preferred an appeal to CIT(A) who following the decision of the Delhi High Court in the case of CIT vs. Rajdhani Powers Ltd. (ITA No. 1266/2010) decided the issue in favor of the assessee.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the CIT(A) had on perusing the technical specifications of POS from the brochure filed held that the POS terminal is akin to computer in terms of basic features and can be categorized as `Computers’. It also noted that he had followed the order of the jurisdictional High Court in the case of CIT vs. Rajdhani Powers Ltd. (supra) and therefore no interference was called for.

The appeal filed by the revenue was dismissed.

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Nitco Logistics Pvt. Ltd. vs. JCIT ITAT (Asr) Before A.D. Jain (J. M.) and B.P. Jain (A. M.) I.T.A. No. 437(Asr)/2012 Assessment Year:2009-10.Decided on 05-09-2014 Counsel for Assessee/Revenue: P.N. Arora/Saad Kidwai

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Section 2(24) – Collection of Dharmarth along with the assessee company’s freight income and used for charity is not part of the income of the assessee.

Facts:
The AO made an addition of Rs. 15.99 lakh on account of Dharmarth collected by the assessee along with freight receipt which was not reflected by it in its profit and loss account. According to the AO, the receipts were directly related to the business of the assessee; that the receipts were received not by a trust created for the purposes of charity, but by a company doing business and trading and that no evidence had been filed by the assessee that the receipts had been actually spent on charity. The CIT(A) upheld the addition inter alia on the ground that the assessee was unable to establish that the object of the assessee company, as per its memorandum and articles of association, was also to carry out charity.

Held:
The Tribunal noted that the stand of the assessee was entirely in line with its stand taken earlier in A.Y. 2001-02 to A.Y. 2008-09 which was never disputed by the revenue. According to the Tribunal, once the receipts are routed as such to a charitable trust by the assessee company and the nature of that trust has not been questioned, the receipts are Dharmarth receipts and nothing else. Further, it was noted that the memorandum and articles of association of the assessee company clearly showed that one of the objectives of the assessee company is charity. Further, relying on the decision of the Supreme Court in the case of CIT vs. Bijli Cotton Mills (P.) Ltd. (1979) 116 ITR 60 the tribunal allowed the appeal of the assessee.

Facts:
The assessee being a company is an association of various industrialists formed in the year 1925 for development of trade, industries and commerce.

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