Subscribe to the Bombay Chartered Accountant Journal Subscribe Now!

Category: Tribunal News : PART B - Unreported Decisions

Bhawanji Kunverji Haria vs. DCIT Income-tax Appellate Tribunal Mumbai Bench “F”, Mumbai Before Vijay Pal Rao (J. M.) and N. K. Billaiya (A. M.) ITA No. 4032/Mum/2009 A Y. 2006-07. Decided on 25.05.2012 Counsel for Assessee/Revenue: G. C. Lalka/M. Rajan

fiogf49gjkf0d
Sections 22 and 23—(i) Where on account of interior work being carried out during the year the property could only be leased out from the next financial year, no notional rent could be added as the income of the assessee in the current year; (ii) Income from house property which is used in the business carried out in the partnership firm in which the assessee was a partner eligible for exemption u/s. 22.

Facts:
The assessee owned two commercial properties. In his return of income filed, he had not offered income from house property. According to him, the possession of one of the properties was received in December 2005. He took three months to complete the furniture work and the property was let out from April 2006. The other property was used by the partnership firm in which he was the partner. As regards the first property, the AO held that as the property was in possession of the assessee, the provisions of section 23(1) were attracted and the annual value of the property was deemed to be the income of the assessee. As regards the second property, he held that the individual and partnership firm are two different entities, hence, the exemption claimed in respect of the same u/s. 22 was not available. On appeal, the CIT (A) confirmed the order of the AO.

Held:
In respect of the first property, the tribunal noted that the facts regarding the date of its possession and the time the assessee took to furnish the premises were not in dispute and that immediately thereafter, the premises was let out in April 2006. Therefore, it accepted the assessee’s submission and held that no notional rent could be added as the income of the assessee qua the said property.

As regards the second property which was let out to a partnership firm where the assessee was a partner, the tribunal relying on the decision of the Orissa High Court in the case of Commissioner of Income-tax v. Rabindranath Bhol (211 ITR 299) held that the income from the house property which is used in the business carried out in the partnership firm in which the assessee was a partner would qualify for the exemption provided u/s. 22.

levitra

Khar Gymkhana vs. DIT(E) In the Income-tax Appellate Tribunal Mumbai Bench ‘A’, Mumbai Before B. Ramakotaiah, (A. M.) and Vivek Varma, (J. M.) I.T.A. No.: 373/Mum/2012 Asst. Year: 2009-10. Decided on 10-07-2013 Counsel for Assessee/Revenue: A. H. Dalal/ Surinder Jit Singh

fiogf49gjkf0d
Section 12AA—Order cancelling Registration of the trust for carrying on activities in the nature of trade, commerce or business revoked. Registration restored.

Facts:
The assessee trust was granted registration under section 12A(a) since the year 1984. During the course of the assessment proceedings, the AO noticed that the assessee had earned income by the sale of liquor at Rs. 1.45 crore, canteen compensation at Rs. 20.67 lakh, Card and daily games, at Rs. 0.82 lakh, guest fees at Rs. 31.50 lakh and income from banquet. According to the AO these receipts were clearly in the nature of business income and were in excess of the monetary limit as laid down in the provisions of section 2(15) r.w. proviso which has come into effect from A.Y. 2009-10. Therefore, he concluded that such entity cannot be considered as for charitable purpose. Since the assessee is not for charitable purpose then the trust itself becomes non-genuine as it loses its public charitable status and accordingly the provision of section 12AA(3) of the Act gets attracted. Thus in view of the facts and circumstances the AO held that the assessee trust has become non-genuine and the registration as allowed to it in earlier years u/s. 12AA was cancelled/ withdrawn w.e.f A.Y. 2009-10.

Before the tribunal, the assessee contended that the rigours of section 12AA get attracted “if the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects of the trust, as the case may be.” According to the assessee just because the legislature has inserted section 2(15), registration, as allowed by the Income-tax Department cannot get cancelled, without the change of objects and character of the trust. He further placed reliance on the earlier decisions of the tribunal in ITAs no. 4315 & 4316/ Mum/2010 in assessee’s own case.

On the other hand, the revenue justified the order of the DIT and submitted that with the insertion of section 2(15), the character of the charitable trust has got very limited scope. It becomes ineligible for registration, if the trust gets into the field of trade or profit making.

Held:
The tribunal noted that the case of the department was that the assessee had crossed the twin conditions, as mentioned in section 12AA(3), viz., ”that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution”. However, it noted that in the instant case, the department had nowhere mentioned that “social intercourse among members” was not one of the objects of the trust, when it was originally formed on 04-10-1934. Further, it also noted that in the tribunal orders in the assessee’s own case which were relied on by the assessee, the aspect of section 2(15) had also been taken and adjudicated upon. Thus, noting that none of the revenue authorities have made any observation/comments on the objects recited as early as 04-10-1934 of the assessee trust, the twin conditions existing in section 12AA(3) and for ignoring the existing orders of the coordinate Bench in the case of the assessee and following the principles of judicial propriety, as well as the facts coming out of the documents placed before it, the tribunal held that the revenue has erred in cancelling the registration u/s. 12AA(3).

levitra

Knight Frank (India) Pvt. Ltd. v. Addl. CIT ITAT Mumbai `A’ Bench Before B. Ramakotaiah (AM) and Vivek Verma (JM) ITA No. 2021/Mum/2011 A.Y.: 2007-08. Decided on: 10th July, 2013. Counsel for assessee/revenue: M. M. Golvala/ Kalik Singh.

fiogf49gjkf0d
Sections 43B, 145A. Provisions of section 145A do not apply to service tax. Accordingly, service tax is not includible in cost of components.

Facts:
The assessee had not considered service tax for computing cost of components. In the course of assessment proceedings the Assessing Officer (AO) asked the assessee to explain why the same should not be included in view of the provisions of section 145A. Rejecting the submissions made by the assessee, the AO enhanced the trading profit by Rs. 69,20,599 and added the same to the total income returned by the assessee.

Aggrieved, the assessee preferred an appeal to CIT(A) who sustained the order of the AO on the point of inclusion of service tax by invoking the provisions of section 145A.

Aggrieved, the assessee preferred an appeal to the Tribunal where it placed reliance on the decision of Delhi High Court in the case of CIT vs. Noble & Hewitt (I) Pvt. Ltd. (305 ITR 324)(Del) and Chennai ITAT decision in the case of ACIT vs. Real Image Media Technologies Pvt. Ltd. (306 ITR 106)(AT-Chennai).

Held:
The Tribunal held that since the assessee is a service provider company patently the provisions of section 145A cannot be made applicable because the provision was specifically introduced for the purposes of manufacturing segment of the business. It noted that section 145A(a)(ii) mentions “…by the assessee being goods to the place of location & conditions as on the date of valuation are required to be included.” It also noted that the issue is now covered by the decisions relied upon by the assessee. Following the said decisions, the Tribunal set aside the order of CIT(A) and directed the AO to delete the addition.

This ground of appeal was decided in favour of the assessee.

levitra

DCIT v. Hemal Raju Shete ITAT Mumbai `H’ Bench Before P. M. Jagtap (AM) and Dr. S. T. M. Pavalan (JM) ITA No. 2198/Mum/2010 A.Y.: 2006-07. Decided on: 10th July, 2013. Counsel for revenue/assessee: P. K. Shukla/J. D. Mistry & M. A. Gohel.

fiogf49gjkf0d
Section 45, 48. What is to be taxed is the gain received or accrued. Accordingly, deferred consideration under the share sale agreement cannot be taxed. Maximum cap provided in the agreement cannot be equalled either with sale value nor with full value of consideration since the said maximum cap is neither received nor accrued for the purposes of calculating capital gains.

Facts:
The assessee filed its return of income for AY 2006-07 declaring total income of Rs. 11,68,470. The assessee had shown long term capital gain of Rs. 42,38,674 on sale of 75,000 shares of Unisol Infrastructures Ltd and had claimed exemption u/s. 54EC by investing the sale proceeds in bonds of SIDBI. In the course of assessment proceedings, on examining the agreement dated 25.1.2006 pertaining to transfer of shares the Assessing Officer (AO) noticed that the said agreement grants absolute right to the assessee as well as other transferors to receive the specified amount in a deferred manner with nomenclature of `initial’ and `deferred’ consideration being employed. The AO reworked the share of the assessee in the alleged total consideration `accrued’ to the transferors by clubbing the initial consideration and deferred consideration and thereby assessed the capital gain at Rs. 4,91,94,923. He therefore made an addition of Rs. 4,48,54,923 to the total income returned by the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who allowed the appeal filed by the assessee since according to him the deferred gain could not be taxed as the gain was not received nor accrued to the assessee.

Aggrieved, the revenue preferred an appeal to the Tribunal where on behalf of the assessee it was pointed out to the tribunal that clause 3 of the agreement dealing with consideration provided that Rs. 20 crore is the maximum limit. This clause served as a cap to the effect that the aggregate of initial and deferred consideration shall not exceed the cap of Rs. 20 crore. The manner of computation of deferred consideration was explained to demonstrate that the assessee may or may not get the deferred consideration. It was pointed out that since there was no certainty of receiving the amount and also that the quantum to be received was not known, taxing the maximum cap provided is not tenable.

Held:
On perusal of the agreement the tribunal found that the amount of Rs. 20 crore was the maximum amount which could be received by the assessee’s group. This amount comprised initial consideration and deferred consideration. There was no guarantee for receipt of this maximum amount by the assessee’s group. In view of these facts, the tribunal agreed that what is to be taxed is the gain received or accrued and not the notional/hypothetical income. It held that the decision of the Supreme Court in the case of CIT vs. George Henderson & Co. Ltd. and that of ITAT in Mrs. Alpana Piramal, relied upon by DR have no application as the ratio in the said cases is applicable when the dispute relates to adopting the full value of consideration visà- vis the sale consideration which is not the case in the present appeal. Maximum cap mentioned in the agreement cannot be equated either with sale value consideration (sic sale consideration) or with full value of consideration since the said maximum cap is neither received nor accrued for the purposes of claiming capital gains. The Tribunal upheld the order passed by CIT(A).

The appeal filed by the revenue was dismissed.

levitra

Pilot Construction Pvt. Ltd. v. ITO ITAT Mumbai `C’ Bench Before Rajendra Singh (AM) and Vivek Varma (JM) ITA No. 5307/Mum/2011 A.Y.: 2007-08. Dated: 21-11-2012. Counsel for assessee/revenue: Uttamchand Bothra / Vijay Kumar Jaiswal

fiogf49gjkf0d
6. Pilot Construction Pvt. Ltd. v. ITO
ITAT  Mumbai `C’ Bench
Before Rajendra Singh (AM) and Vivek Varma (JM)
ITA No. 5307/Mum/2011
A.Y.: 2007-08.  Dated: 21-11-2012.
Counsel for assessee/revenue: Uttamchand Bothra / Vijay Kumar Jaiswal

S/s 44AB, 271B – In case of an assessee following project completion method, advance received which is required to be adjusted against future income cannot be considered as gross receipt of business or turnover. Bonafide belief constitutes reasonable cause for non levy of penalty.

Facts:

The assessee company was engaged in business of construction. It was following project completion method of accounting. In respect of a SRA project taken up by the assessee, it had received a booking advance of Rs. 11.25 crore from M/s Welspun Gujarat Stahi Robern Ltd. The advance was subsequently returned in 2010 since the property had several encroachments.

The assessee did not get its accounts audited as required u/s. 44AB of the Act since it was of the view that the provisions of section 44AB would apply only when sales, turnover or gross receipts exceed Rs 40 lakh. Since the assessee had only received an advance which was later refunded and the assessee was following project completion method and the sales would be accounted in the year of completion of the project.

The Assessing Officer (AO) relying on the decision of Lucknow Bench of ITAT in the case of Gopal Krishan Builders (91 ITD 124) levied penalty u/s. 271B 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 assessee was following project completion method, the advance received has been subsequently returned, the project in respect of which advance was received had not commenced even when the matter was being heard by the Tribunal. It also noted that section 44AB applies only when sales, turnover or gross receipts of business exceed Rs. 40 lakh. The amount of advance received was only from one party and also this advance was subsequently returned.

The Tribunal relying on the decision of the Delhi High Court in the case of Dinesh Kumar Goel (239 ITR 46) held that the advance received which is required to be adjusted against future income cannot be considered as gross receipt of business or turnover. The decision of the Lucknow Bench of Tribunal in the case of Gopal Krishan (supra) cannot be followed in view of the decision of the Delhi High Court in Dinesh Kumar Goel. Moreover, the issue being debatable, the plea of the assessee that it was of the view that books were not required to be audited u/s 44AB has to be considered as bonafide. Bonafide belief constitutes a reasonable cause.

The Tribunal set aside the order of CIT(A) and deleted the penalty levied.

levitra

ITO vs. Bajaj Bhavan Owners Premises C.S.L. ITAT Mumbai `B’ Bench Before B. R. Mittal (JM) and Rajendra (AM) ITA Nos. 8067/M/2011 A.Y.: 2007-08. Decided on: 18th April, 2013. Counsel for revenue/assessee: Manjunath Karkihalli/M. A. Gohel

fiogf49gjkf0d
Section 22 – Rental receipts for letting out of
terrace for erecting of antenna are chargeable to tax under the head
`Income from House Property’ subject to deductions u/s 24.

Facts:
The
assessee had received Rs. 16,39,284 as rent for letting out terrace of
the building to six parties including Bharati Airtel, Hathway, etc. The
amount of rent was claimed to be chargeable to tax under the head
`Income from House Property’ subject to deduction u/s. 24(a). The
Assessing Officer (AO) relying on the decision of the Calcutta High
Court in the case of Model Manufacturing Co. Pvt. Ltd. (175 ITR 374)
held that the amounts received by the assessee from six parties was
chargeable under the head `Income from Other Sources’ and not `Income
from House Property’ as returned. He did not allow any deduction u/s. 57
of the Act.

Aggrieved, the assessee preferred an appeal to
CIT(A) who following the order of ITAT for earlier years for the same
issue in assessee’s own case held that rental of terrace has to be
assessed under the head `Income from House Property’ subject to
deduction u/s. 24.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted the following observations made by the `B’ Bench of
the Tribunal while deciding the appeals for the AY 2001-02, 2002-03 and
2003- 04 (ITA/5048/Mum/2004, 1433/Mum/2007 and 1434/ Mum/2007) in
assessee ‘s own case –

“35. Ground No. 5, 6,7 and 8 are against the sustenance of addition of rental income Rs. 5,93,700 as income from other sources.

36.
The brief facts of the above issue are that it was found by the
Assessing Officer that the assessee has allowed M/s. Hutchison Max
Telecom Ltd. to erect the tower on their terrace in consideration of an
amount of Rs. 5,93,700 and claimed as income from house property subject
to deduction u/s. 24 of the Act. However, the Assessing Officer while
observing that the assessee’s society has not provided any house
property to the company and it is only the open terrace which has been
let out, treated the same as assessable under the head income from other
sources without allowing any expenditure in this regard. On appeal the
ld. CIT(A) while confirming the Assessing Officer’s action treating the
income from other sources directed the Assessing Officer to allow 20% of
the gross receipts as expenses to earn such income.

39. After
carefully hearing the submissions of the rival parties and perusing the
material available on record we find that the facts are not in dispute.
We further find that in the case of Sharda Chamber Premises vs. ITO in
ITA No. 1234/M/08 dated 01-09-2009 for Assessment Year 2003-04 in which
JM was one of the party, on the similar facts, the Tribunal after
considering the decision in ITO vs. Cuffe Parade Sainara Premises
Co-operative Society Ltd. 7225/Mum/05 dated 28th April, 2008 for
Assessment Year 2002-03 and also the decision in the case of Sohan vs.
ITO (1986) 16 ITD 272 supra has held vide para 6 and 7 of its order
dated 01-09-2009 as under:

“6. We have carefully considered the
submissions of the rival parties and perused the material available on
record. We find merit in the plea of the ld. Counsel fo the assessee
that in the case of M/s. Dalamal House Commercial Complex Premises
Co-operative Society Ltd., the Tribunal while admitting the additional
ground being a legal issue has also held that the letting out of the
terrace, erection of antenna and income derived from letting out has to
be taxed as `income from house property’ and not as `income from other
sources’. The Tribunal while deciding the issue has followed the order
of the Tribunal in the case of M/s. Cuffe Parade Sainara Premises Co-op.
Society Ltd. (supra).

7. In the absence of any distinguishing
feature brought on record by the revenue we, respectfully following the
order of the Tribunal (supra) and keeping in view the consistency while
admitting the additional ground taken by the assessee hold that the
letting out of terrace has to be assessed under the head `income from
house property’ as against `income from other sources’ assessed by the
Assessing Officer and also allow deduction provided u/s. 24 of the Act
and accordingly the additional ground taken by the assessee is allowed.”

Respectfully following the order of the Tribunal supra, we are
of the view that the letting out of terrace has to be assessed under the
head income from house property subject to deduction u/s. 24 of the Act
as against income from other sources assessed by the Assessing Officer.
We hold and order accordingly. The grounds taken by the assessee are
therefore allowed.”

Following the above mentioned observations, the Tribunal decided the issue in favor of the assessee.

The appeal filed by the Revenue was dismissed.

levitra

Bhawanji Kunverji Haria vs. ACIT ITAT Mumbai `B’ Bench Before B. R. Mittal (JM) and N. K. Billaiya (AM) ITA No. 5642/Mum/2011 A.Y.: 2008-09. Decided on: 23rd April, 2013. Counsel for assessee/revenue: G. C. Lalka/ Roopak Kumar

fiogf49gjkf0d
Section 22 – Notional income in respect of property belonging to the assessee, but used by the firm in which the assessee is a partner, is not chargeable to tax under the head `Income from House Property’.

Facts:
The property of the assessee, located at Mahavir Market, Navi Mumbai, was utilised by the firm M/s Lakhmichand Cooverji & Co., in which assessee was a partner. The Assessing Officer (AO) charged to tax notional income in respect of this property. Accordingly, a sum of Rs. 1,68,000 was added to total income of the assessee.

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 issue was covered in favour of the assessee by the order of the Tribunal in the assessee’s own case for AY 2006-07 vide ITA No. 4032/Mum/2009. It noted the following observations in the said order –

“On the second issue of notional income in respect of property located at Mahalaxmi Market, Navi Mumbai. The Learned Counsel relied upon the decision of the CIT vs. Rabindranath Bhol (Ori) (1995) 211 ITR 299, in which on identical facts, the Hon’ble High Court of Orissa has held that the income from the house property owned by the assessee’s partner and used in the business carried out in the partnership firm in which the assessee is a partner would qualify for exemption u/s 22(2) (sic 22). We find that the facts of the present appeal are identical with the facts in as much as in the present appeal also the property of the assessee is being used by the firm in which the assessee is also a partner. Respectfully following the decision of the Hon’ble High Court, the addition of Rs.1,68,000 is deleted.”

Since the facts were identical the Tribunal deleted the addition made by the AO.

The appeal filed by the assessee was allowed.

levitra

L o n d o n S t a r D i a m o n d C o m p a n y ( I ) P . L t d . vs. D C I T In the Income Tax Appellate Tribunal “D” Bench, Mumbai Before Vijay Pal Rao, (J. M.) and D. Karunakara Rao, (A. M.) I.T.A. No.6169/M/2012 Assessment Year: 2009-2010. Date of Order: 11.10.2013 Counsel for Assessee/Revenue: Soli Dastur and Nikhil Ranjan/Dipak Ripote

fiogf49gjkf0d
Section 43(5) – Loss on forward exchange contracts held as incidental to export activity hence allowed as business loss.

Facts:
The assessee is engaged in the business of trading and manufacturing of rough and polished diamonds. It had entered into forward contracts with the banker to safeguard against the exchange fluctuations of export considerations/sale profits as per RBI guidelines. Total of forward contracts entered into during the was Rs. 135.99 crore and the cancellation thereof aggregated to Rs. 126.3 crore. The total exports during the year was Rs. 107.57 crore. Total outstanding receivable in foreign exchange was much higher than any of these figures. It filed its return of income declaring the total income of Rs. 35.29 lakh. The AO examined the applicability of the provisions of section 43(5) of the Act in general and clause (c) of the proviso to section 43(5) in particular and held that the foreign exchange contracts constituted speculative transactions under the said provisions and treated the loss on cancellation thereof of Rs. 4.69 crore as the speculation loss and assessed the income of the assessee at Rs. 5.04 crore. On appeal, the CIT(A) upheld the order of the AO.

Before the tribunal, the revenue relied on the orders of the AO and the CIT(A) and contended that the certain data showed that the total of Forward exchange Contracts on certain dates were more than the exports receivable and also questioned the asssessee‘s failure to demonstrate the paisa to paisa and date-wise correlation between the Forward Contracts and the Export Invoices.

Held:
The tribunal laid down the following principles:

• Considering the judgment of the Calcutta High court in the case of CIT vs. Sooraj Muill Magarmull (129 ITR 169) which was followed by the Bombay High Court in the case of CIT vs. Badridas Gauridu Pvt. Ltd. (261  ITR 256), it held that the Forward Contracts are commodities falling in the definition of speculative transactions governed u/s. 43(5);

• Forward exchange contracts when entered into with the banks for hedging the losses due to foreign exchange fluctuations on the export proceeds, are to be considered integral or incidental to the export activity of the assessee and therefore, the losses or gains constituted the business loss or gains and not the speculation activities. For the purpose it relied on the decisions of the Mumbai tribunal in the case of D. Kishorekumar and Co. (2 SOT 769), the Bombay High Court in the case of CIT vs. Badridas Gauridu (P) Ltd. (supra) and the Calcutta High Court in the case of CIT vs. Sooraj Muill Magarmull (supra).

The tribunal then noted that the loss suffered by the assessee on account of the cancellation of forward exchange contract was broadly of two types viz., loss suffered on cancellation of matured contracts (Rs. 4.15 crore) and loss suffered on cancellation of pre-matured contracts (Rs. 64 lakh). According to the tribunal, the former being related to the Forward exchange contracts which are integral or incidental to the exports of the diamonds, should be allowed as business loss in view of the binding High Court or Tribunal decisions/ judgments in the case of D. Kishore kumar and Co (supra), Badridas Gauridu Pvt. Ltd. (supra), Sooraj Muill Magarmull, (supra). In the case of loss suffered on cancellation of pre-matured contracts, the tribunal observed that the onus is on the assessee to explain satisfactorily why the assessee resorted to premature cancellation of some FCs. Further, it observed that it is not required that there must be 1:1 precise correlation between Forward exchange Contacts and the corresponding export invoice. So long as the total Contracts does not exceed the exports of the year plus outstanding export receivable, the Forward exchange Contracts can constitute hedging transaction‘. In the case of loss suffered on cancellation of pre-matured contracts, the tribunal allowed the loss of Rs. 42 lakh accepting the explanation of the assessee that the maturity date of those contracts fell during the weekend days and therefore, the assessee cancelled the contracts three days prior to the due date. As regards the other contracts cancelled prior to longer than three days it held that losses therefrom should also be allowed as business loss so long as the same are integral part of the exports. However, according to it, the assessee needs to answer as to why it went for premature termination and the onus was on the assessee as per the ratio of the Apex Court in the case of CIT vs. Josef John (67 ITR 74). Accordingly, to examine this part of the loss, the matter was remanded to the AO.

levitra

Green Infra Ltd. vs. ITO ITAT Mumbai `G’ Bench Before D. Manmohan (VP) and N. K. Billaiya (AM) ITA No. 7762/Mum/2012 A.Y.: 2009-10. Decided on: 23rd August, 2013. Counsel for assessee/revenue: Porus Kaka/ Abha Kala Chanda.

fiogf49gjkf0d
S/s. 56, 68. Share premium being a capital receipt cannot be charged to tax as income.

Facts:
In the course of assessment proceedings the Assessing Officer (AO) observed that an amount of Rs. 47,97,10,000 was credited under Share Premium. He observed that the assessee company was incorporated on 03-04-2008 and had collected share premium of Rs. 47,97,10,000 on allotment of shares of face value of Rs. 10 each at a premium of Rs. 490 per share. He asked the assessee interalia to justify the premium charged with specific reference to basis of valuation, furnish note on factors considered for allotting shares at a premium.

The assessee filed a detailed reply explaining that the subscribers to the Memorandum of Association have subscribed to 50,000 equity shares of Rs. 10 each amounting to Rs. 5,00,000. These shares were allotted at par and all remaining shares were allotted at a premium. The Companies Act, 1956 does not specify the price at which shares are to be issued. Also, it does not limit the premium at which shares are to be issued. Share premium is a capital receipt and has to be dealt with in accordance with section 78 of the Companies Act, 1956. The assessee also filed internal valuation report which was obtained prior to issuance of equity shares at a premium. It was also contended that the assessee company is not required to prove the genuineness, purpose or justification for charging premium on shares. As regards chargeability of share premium u/s. 56(1), it was submitted that the share premium being a capital receipt is not income in its ordinary sense.

The AO was of the belief that premium charged on allotment is not justified. He was of the opinion that these funds were introduced by the assessee through the shareholders in the guise of share premium. He held that there is no basis for the estimates made in the valuations and that the values adopted are nowhere near to the actual and achievements. He also observed that the assessee did not have any hidden assets in the form of patents, copy rights, intellectual property rights or even investments, etc belonging to the company based on which the assessee would be likely to substantially enhance its profits. He also observed that of the total receipts of Rs. 47,97,10,000 an amount of Rs. 45,36,95,212 was invested in units of IDFC Mutual Fund and balance amounts were utilised for investments in shares of subsidiary companies, bank FDRs, advances to subsidiaries, etc. He held that the assessee has entered into a sham transaction. Accordingly, he invoked the provisions of section 56(1) of the Act and taxed the share premium under the head `Income from Other Sources’.

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 the capital structure of the assessee company was explained. It was explained that IDFC Private Equity Fund-II is holding 98% shares in the assessee company and almost all the Directors of the assessee company are related with IDFC group.

Held: The Tribunal noted that the transaction of issue of shares at such a premium by a zero balance sheet company could raise eye brows but considering the subscribers to the assessee company, the test for the genuineness of the transaction goes into oblivion. It observed that 10,19,000 equity shares were subscribed and allotted to IDFC PE Fund II which company is a Front Manager of IDFC Ltd., in which company Government of India is holding 18% of shares. The contributors to IDFC PE Fund-II who is subscriber to the assessee’s share capital, are LIC, Union of India, Oriental Bank of Commerce, Indian Overseas Bank and Canara Bank all of which are public sector undertakings. Therefore, to raise eye brows to a transaction where there is so much involvement of the Government directly or indirectly does not make any sense.

No doubt a non-est company or a zero balance company asking for a share premium of Rs. 490 per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. Details of subscribers were before the Revenue authorities. The AO has also confirmed the transaction from the subscribers by issuing notice u/s 133(6) of the Act. The Board of Directors contains persons who are associated with IDFC group of companies, therefore their integrity and credibility cannot be doubted. The entire grievance of the Revenue revolves around the charging of such huge premium so much so that the revenue authorities did not even blink their eyes in invoking provisions of section 56(1) of the Act.

Having gone through the provisions of section 56(1), the Tribunal held that the emphasis in section 56(1) is on `income of every kind’, therefore, to tax any amount under this section, it must have some character of “income”. It is settled proposition of law that capital receipts, unless specifically taxed under any provisions of the Act, are excluded from income. The Supreme Court has laid down the ratio that share premium realised from the issue of shares is of capital nature and forms part of share capital of the company and therefore cannot be taxed as revenue receipt. It is also a settled proposition of law that any expenditure incurred for the expansion of capital base of a company is to be treated as a capital expenditure as has been held by the SC in the case of Punjab State Industrial Corporation vs. CIT 225 ITR 792 and in the case of Brooke Bond India Ltd. vs. CIT. Thus the expenditure and receipts directly relating to the share capital of a company are capital in nature and therefore cannot be taxed u/s. 56(1) of the Act.

In the course of hearing, the DR raised the plea that the nature of transaction should be judged from the parameters of section 68 as well. Though, the counsel of the assessee raised a strong objection to such a plea, the Tribunal in the interest of justice and fair play, drawing support from the decision of SC in Kapurchand Shrimal vs. CIT (131 ITR 451) allowed the DR to raise this issue.

Considering the arguments of the DR, the Tribunal held that the identity of the subscribers has been established beyond all reasonable doubts nor have the revenue authorities questioned the identity of the shareholders. On facts, it held that the capacity of the shareholders cannot be doubted. To counter the argument of the Revenue that charging of premium of Rs. 490 per share is beyond any logical sense and that the transaction is a sham transaction, the Tribunal looked at the application of the funds so raised. It held that the ultimate beneficiaries of the share premium may clear the clouds over the transaction being alleged to be a sham.

The Tribunal fund that the assessee company invested funds in its three subsidiary companies wherein the assessee is holding 99.88% of share capital which meant that the funds were not diverted to an outsider. This, according to the Tribunal, cleared the doubt about the application of funds and the credibility of the company in whom the funds were invested.

The Tribunal held that it could not find a single evidence which could lead to the entire transaction to be a sham. It held that the revenue authorities erred in treating the share premium as income of the assessee u/s. 56(1) of the Act. The Tribunal directed the AO to delete the addition of Rs. 47,91,00,000.

This ground of appeal filed by the assessee was allowed.

levitra

Umaben Shaileshbhai Sheth vs. DCWT ITAT Ahmedabad `D’ Bench Before A. Mohan Alankamony (AM) and Kul Bharat (JM) ITA No. 44 to 49/Ahd/2010 A.Y.: 2000-01 to 2005-06. Decided on: 4th October, 2013. Counsel for assessee/revenue: Vijay Ranjan/K. C. Mathews.

fiogf49gjkf0d
Proviso to section 5(1)(vi) of the Wealth-tax Act, 1957. If the assessee’s share in the plot of land is less than 500 sq. mts., the benefit of the proviso cannot be denied to the assessee on the ground that the area of the entire plot is more than 500 sq. mts.

Facts: The assessee had joint share in a plot of land, admeasuring 567 sq. mts., allotted by Urmi Society, along with her husband. She was a joint shareholder as well. The Assessing Officer (AO) accepted that the assessee is the owner of half portion of the land but he denied the benefit of exemption to section 5(1)(vi) in an order passed u/s 24 r.w.s. 17 r.w.s. 16(3) of the Wealth-tax Act, 1957 (WT Act).

Aggrieved, the assessee preferred an appeal to the CWT(A) who dismissed the appeal filed by the assessee on the ground that the assessee and her husband had disclosed the value of the plot of land in their taxable wealth while filing returns of net wealth for AYs 2006- 07 and 2007-08 and therefore, how can the value of the said plot be exempt in earlier years. He held that the market value of the plot of land allotted by Urmi Society is includible in taxable wealth.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held: The Tribunal noted that the CWT(A) had not given any basis as to how the proviso to section 5(1)(vi) is not applicable when there is a finding of fact by the AO that the assessee is treated owner of land less than 500 sq. mts. The only basis of denial of exemption by the CWT(A) was that the assessee had not filed the wealth-tax return for the earlier period. The Revenue had not placed reliance on any judicial pronouncement or on any provision of law to deny exemption. It further noted that as per proviso to section 5(1)(vi) of the WT Act, if plot of land is comprising an area of 500 sq. mts or less then no wealth-tax shall be payable by an assessee.

The Tribunal held that admittedly, the assessee has been treated as owner of one-half share in a plot of land admeasuring 567 sq. mts, therefore the right of the assessee is lesser than 500 sq. mts. The assessee cannot be fastened with a liability of tax which otherwise cannot be fastened under the WT Act. It held that on this piece of land, no wealth-tax is payable by the assessee in terms of proviso to section 5(1)(vi). It held that the CWT(A) erred in not granting exemption under proviso to section 5(1)(vi) of the WT Act. It directed the AO to allow exemption.

The appeal filed by the assessee was allowed.

levitra

ITO vs. Pritesh D. Shah (HUF) ITAT Ahmedabad `B’ Bench Before G. C. Gupta (VP) and T. R. Meena (AM) ITA No. 175/Ahd/2013

fiogf49gjkf0d
S/s. 40(a)(ia), 194C, 194IA – Provisions of S/s. 194C, 194IA are not applicable to amounts paid by Clearing & Forwarding Agent, on behalf of his client, receipts whereof are issued in the name of the client.

Facts:
The assessee, a clearing & forwarding agent, had charged service charges known as agency charges from its clients whose goods were exported through various ports mainly in Gujarat & Maharashtra. In respect of the amounts paid by the assessee on behalf of its clients, receipts whereof were issued by the recipients in the name of the clients, the assessee did not deduct tax at source. The assessee contended that it was merely a facilitator in the export business of its clients. The assessee received from its clients reimbursement of amounts paid on their behalf and also service charges/agency charges. It was only the agency charges which were credited as income to P&L account of the assessee.

The Assessing Officer (AO) made an addition of Rs. 1,69,11,269; Rs. 23,01,424 and Rs. 26,76,785 u/s. 40(a) (ia) r.w.s. 194C & 194I of the Act on the ground that the assessee had failed to deduct tax at source on payments made by it on behalf of its clients.

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

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the assessee received railway freight, shipping freight, ICD charges, etc from its clients by way of reimbursement of expenses. It held that the assessee is merely a facilitator in the export business of its clients and facilitates to and fro movement of client’s goods both in land and overseas using road, rail, air and sea routes including temporary storage of the goods in custom bonded warehbouse for legal and procedural purposes, etc. The assessee received reimbursement of expenses incurred and also service charges. The Tribunal noted that the receipts were issued by various parties in the name of clients of the assessee and not in the name of the assessee and that it is only the agency charges which are credited to the P & L account of the assessee.

The Tribunal held that for applicability of provisions of section 194C and section 194I, the relationship of contractor and payee pursuant to contract between the parties is essential. In the facts of the assessee’s case, the Tribunal held that such a relationship is missing.

The Tribunal noted the finding given by CIT(A) that the clients of the assessee are reimbursing monies paid by the assessee to such agencies along with the assessee’s commission or handling charges and also that the CIT(A) has referred to number of decisions where the Hon’ble Courts have held that TDS provisions are not attracted in cases involving reimbursement of expenses held that addition on account of payments made to various parties on behalf of its clients by the assessee could not be sustained and deserves to be deleted. The Tribunal confirmed the order passed by CIT(A).

The appeal filed by the revenue was dismissed.

levitra

Dilip Sambhaji Shirodkar vs. ITO ITAT “D” Bench, Mumbai Before P.M.Jagtap (A.M.) and Dr S.T.M. Pavalan (J. M.) ITA No.8899/Mum/2010 Assessment Year: 2006-07. Decided on 12.06.2013 Counsel for Assessee/Revenue: Jitnedra Jain & Sachin Romani / Rajarshi Dwivedy

fiogf49gjkf0d
Section 69 – Acquisition of a flat in lieu of the surrender of a tenancy right – Existence of difference in value between consideration for tenancy right acquired and the value of the new flat received in lieu thereof not sufficient ground for making addition.

Facts:
The assessee was an individual engaged in the occupation of goldsmith. In his return of income he had declared a total income at Rs. 0.80 lakh. The AO, in assessment made u/s.143(3) found that during the year under consideration the assessee had purchased a property worth Rs. 50.35 lakh. The AO treated this impugned investment as unexplained and made an addition of Rs.50.35 lakh u/s.69. On appeal, the CIT(A) confirmed the action of the AO.

Before the tribunal, the assessee submitted that he had acquired tenancy right as per Agreement dated 09-04-2001 for a sum of Rs. 4 lakh. Thereafter, pursuant to the agreement dated 07-10-2005, the assessee was allotted a flat in another building in lieu of surrender of his tenancy right. The value of the flat allotted in lieu of surrender of tenancy right was Rs. 50.35 lakh as per the valuation done by the Stamp Duty Authorities, while registering the agreement. He further submitted that the consideration on the surrender of the tenancy rights, equal to the value of the new flat, stood fully invested in a residential flat, the Long Term Capital Gain arising on the said transaction was not chargeable to tax u/s.54F. The contention of the revenue was that the assessee had not been able to prove that he had received the flat by virtue of the surrender of tenancy rights.

Held:
The tribunal agreed with the assessee that the agreement dated 07-10-2005 clearly indicated that the new flat was acquired by the assessee in lieu of surrender of his tenancy right in the old building. The perusal of the agreement dated 09-04-2001, also indicated that the old tenants transferred the tenancy rights in respect of the said property to the assessee for a consideration of Rs. 4 lakh. Secondly, as regards the reasoning of the CIT(A) that the acquisition value of Rs. 4 lakh had not been paid by the assessee, the tribunal found merit in the contention of the assessee that the same had been by way of constructive payment made by the builder on behalf of the assessee, which according to it was not a new practice of the developer in business of construction industry. Thirdly, regarding the finding of the lower authorities as to the difference in values between the consideration for relinquishment of rights by the old tenant (Rs.4 lakh) and the market value of the new flat (more than Rs.50 lakh), the tribunal opined that it was beyond the purview of the lower authorities to suspect a transaction solely on the ground of adequacy/inadequacy of consideration in the absence of any other corroborating evidence and thereby making any adverse inferences. Further, the value as adopted by AO was based on the valuation determined by the stamp duty authorities while registering the agreement dated 07-10-2005. Therefore, it held that mere suspicion without evidence on record could not be the basis for making an addition to income u/s. 69 and hence, the addition made was deleted.

levitra

MITC Rolling Mills P. Ltd. vs ACIT ITAT “B” Banch, Mumbai Before D. Manmohan, (V.P.) and Rajendra, (A. M.) ITA No.2789/Mum/2012 Assessment Year: 2009-10. Decided on 13.05.2013 Counsel for Assessee/Revenue: T. M. Gosher / Mohit Jain

fiogf49gjkf0d
Section 32(1)(iia) – Additional depreciation on Plant and Machinery – Where the plant and machineries were put into use for less than 180 days in the year of installation and hence, disentitled the assessee to the 50% of the additional amount of depreciation, the assessee was entitled to the balance 50% of the additional depreciation in the subsequent year.
Facts:
The assessee was engaged in the business of manufacture and sale of iron and steel. Assessee installed certain new plant and machinery after September, 2007. For the previous year relevant to A. Y. 2008-09 the plant and machinery having been put to operation for less than 180 days the assessee claimed only 50% of the additional depreciation and the balance 50% was claimed in the previous year relevant to A. Y. 2009-10, which is the year under appeal. The AO as well as the CIT(A) were of the opinion that the assessee was not entitled to claim balance 50% deprecation in the subsequent year u/s. 32(1)(iia) of the Act. The case of the assessee was that it is a onetime incentive allowed to the assessee under the Act where the object was to encourage establishment of industries and hence, balance 50% was allowable in the year under consideration.

Held:
The tribunal placed reliance upon the following decisions of the Delhi tribunal:

i. DCIT vs. Cosmo Films Ltd. 139 ITD 628

ii. ACIT vs. Sil Investment Ltd. 54 SOT 54

The tribunal noted that as per the Delhi tribunal, there was no restriction on allowing balance of one time incentive in the subsequent year if the provisions are constructed reasonably, liberally and in a purposive manner. According to it, the additional benefit was intended to give impetus to industrialisation and in that direction the assessee was entitled to get the benefit in full when there was no restriction in the statute to deny the benefit of balance 50% when the new plant and machinery was acquired and put to use for less than 180 days in the immediately preceding year. Accordingly, it was held that the assessee was entitled to depreciation in the subsequent year if the entire depreciation was not allowed in the first year of installation.

levitra

Apollo Tyres vs. DCIT ITAT Cochin Bench Before N. R. S. Ganesan (JM) and B. R. Baskaran (AM) ITA No. 31/Coch/2010 A.Y.: 2006-07. Decided on: 29th May, 2013. Counsel for assessee/revenue: Percy J. Pardiwala, T. P. Ostwal and Indra Anand, Madhur Agarwal/M. Anil Kumar

fiogf49gjkf0d
Section 40(a)(ia) – Section 40(a)(ia) does not envisage a situation where there was short deduction/lesser deduction as in case of section 201(1A) and therefore in case of short/lesser deduction of tax, the entire expenditure whose genuineness was not doubted by the AO cannot be disallowed.

Facts:
The assessee made payments on which tax deductible at source was deducted at a rate lower than the rate at which tax ought to have been deducted. The short deduction was due to surcharge not being considered in some cases and in some cases rate applicable to sub-contractors was applied instead of applying the rate for payment to contractors. The AO disallowed a sum of Rs. 68,68,556 u/s. 40(a)(ia) 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 after having considered the provisions of section 40(a)(ia) and section 201(1A) of the Act held as follows :

In section 201(1A) the legislature intended to levy interest even in case of short deduction of tax. In other words, if any part of the tax which was required to be deducted was found to be not deducted then interest u/s. 201(1A) can be levied in respect of that part of the amount which was not deducted whereas the language of section 40(a)(ia) does not say that even for short deduction disallowance has to be made proportionately. Therefore, the legislature has clearly envisaged in section 201(1A) for levy of interest on the amount on which tax was not deducted whereas the legislature has omitted to do so in section 40(a)(ia) of the Act. In other words, provisions of section 40(a)(ia) do not enable the AO to disallow any proportionate amount for short deduction or lesser deduction.

The Mumbai Bench found that short deduction of TDS, if any, could have been considered as liability under the Income-tax Act as due from the assessee. Therefore, the disallowance of the entire expenditure, whose genuineness was not doubted by the AO is not justified. A similar view was also taken by the Kolkatta Bench of the Tribunal in the case of CIT vs. S. K. Tekriwal. In this case, on appeal by the revenue, the Calcutta High Court confirmed the order of the Kolkatta Bench of the Tribunal (ITA No. 183 of 2012, GA No. 2069 of 2012 judgment dated 3.12.2012).

Section 40(a)(ia) does not envisage a situation where there was short deduction/lesser deduction as in case of section 201(1A) of the Act. Therefore, in case of short/lesser deduction of tax, the entire expenditure whose genuineness was not doubted by the AO cannot be disallowed.

This ground of appeal was decided in favour of the assessee.

levitra

ITO vs. Zinger Investments (P) Ltd. ITAT Hyderabad `A’ Bench Before Chandra Poojari (AM) and Saktijit Dey (JM) ITA No. 275/Hyd/2013 A.Y.: 2007-08. Decided on: 21st August, 2013. Counsel for revenue/assessee: M. H. Naik/ Inturi Rama Rao.

fiogf49gjkf0d
Sections 2(42C), 50B—Transfer of undertaking, with all its assets and liabilities under a scheme of amalgamation, where no monetary consideration is involved, cannot be considered to be a slump sale within the meaning of section 2(42C).

Facts:
The assessee filed return of income declaring nil income. In the course of assessment proceedings u/s. 147 of the Act, the Assessing Officer (AO) noticed that under the scheme of amalgamation approved by the Andhra Pradesh High Court u/s. 391 and 394 of the Companies Act the manufacturing division of the assessee company was transferred to M/s. Novopan Industries Ltd. with all its assets and liabilities as per the terms of scheme of amalgamation approved by the High Court. The assessee in return for the transfer of assets and liabilities received the investments of Rs. 25,24,05,000 besides the allotment of 38 equity shares of Rs. 10 each to the shareholders of the assessee company for every 100 equity shares held in the assessee company. The net worth of the assessee company as on 31-3-2006 was Rs. 681.22 lakh.

The AO held the transfer of manufacturing division to M/s. Novopan Industries Ltd to be a `slump sale’ within section 50B attracting liability of capital gains. He computed long-term capital gain by adopting full value of consideration to be Rs. 31,52,12,500 being aggregate of Rs. 6,28,07,500 (being shares issued to shareholders) and Rs. 25,24,05,000. He considered Rs. 6,81,22,000 to be the cost of acquisition. Accordingly, he determined long-term capital gain to be Rs. 24,70,90,500. He rejected the contention of the assessee that there was no monetary consideration and therefore the transfer under consideration was not a slump sale.

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

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held: The Tribunal, having noted the facts, observed that there is no monetary consideration received by the assessee company for transfer of manufacturing division. To qualify as a slump sale u/s. 2(42C), two conditions have to be satisfied viz., (1) there must be transfer of one or more undertaking as a result of sale and (2) the sale should be for a lumpsum consideration without values being assigned to the individual assets and liabilities. The Tribunal noted the ratio of the decisions of the Supreme Court in the case of CIT vs. Motors & General Stores Pvt. Ltd. 66 ITR 692 (SC) and also CIT vs. R. R. Ramakrishna Pillai 66 ITR 725 (SC) wherein it was held that where a person carrying on business transfers assets to a company in consideration of allotment of shares, it would be a case of exchange, but not sale.

The Tribunal held that since there is no monetary consideration involved in transferring the manufacturing division with all its assets and liabilities to M/s. Novapan Industries Ltd. under scheme of amalgamation approved by the Andhra Pradesh High Court, it cannot be considered to be a slump sale within the meaning ascribed u/s. 2(42C) of the Act so as to attract the liability of capital gains u/s. 50B of the Act. The Tribunal did not find any reason to interfere with the finding of CIT(A).

The appeal filed by the revenue was dismissed.

levitra

ITO vs. Gope M. Rochlani ITAT Mumbai `G’ Bench Before Rajendra Singh (AM) and Amit Shukla (JM) ITA No. 7737/Mum/2011 A.Y.: 2008-09. Decided on: 24th May, 2013. Counsel for revenue/assessee: D. K. Sinha/ Dr. P. Daniel.

fiogf49gjkf0d
Explanation 5A to section 271(1)(c). The expression “due date” in Explanation 5A encompasses a belated return filed u/s. 139(4). Even a belated return filed u/s. 139(4) will be entitled to the benefit of immunity from penalty.

Facts: The assessee, a partner of the firm M/s. Madhav Constructions, in its return of income for assessment year 2008-09, filed u/s. 139(4), returned a total income of Rs. 1,31,19,140. The returned income included a sum of Rs. 1,25,00,000 declared by it in the statement recorded u/s. 132(4) of the Act in the course of search action on Madhav Group. In an order passed u/s. 143(3) r.w.s. 153A, the income returned by the assessee was accepted by the Assessing Officer (AO). Thereafter, the AO initiated proceedings u/s. 271(1)(c) on the ground that the income was offered only as a consequence of search and the return of income in which it was declared was filed after due date u/s. 139(1). He held that the assessee’s case was covered by Explanation 5A to section 271(1)(c). He rejected the assessee’s contention that the sum of Rs. 1,25,00,000 declared was offered voluntarily on an estimated basis and the same was accepted in the assessment order and hence the provisions of section 271(1)(c) are not applicable.

Aggrieved, the assessee preferred an appeal to the CIT(A) who allowed the appeal filed by the assessee on the ground that income was offered on an estimated basis and therefore the additional income so offered and accepted could not be held to be concealed income nor could it amount to furnishing of inaccurate particulars.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
In Explanation 5A, the legislature has not specified the due date as provided in section 139(1) but has merely envisaged the words “due date”. This “due date” can be very well inferred as due date of filing of return of income filed u/s. 139 which includes section 139(4). Where the legislature has provided the consequences of filing of return of income u/s. 139(4), then the same has also been specifically provided for eg., section 139(3). Thus, the meaning of the words “due date” sans any limitation or restriction as given in clause (b) of Explanation 5A cannot be read as “due date as provided in section 139(1)”. The words “due date” can also mean date of filing of the return of income u/s. 139(4).

The Tribunal also noted that in the context of sections 54F and 54(2), in the case of CIT vs. Rajesh Kumar Jalan (286 ITR 276)(Gau); CIT vs. Jagriti Aggarwal (339 ITR 610)(P & H) and CIT vs. Jagtar Singh Chawla (ITA No. 71 of 2012, order dated 20th March, 2013), it has been held that provisions of section 139(4) are actually an extension of due date of section 139(1) and therefore due date for filing return of income can also be reckoned with the date mentioned in section 139(4).

The Tribunal held that the assessee gets the benefit/ immunity under clause (b) of Explanation to section 271(1)(c), because the assessee has filed its return of income within “due date” and therefore, the penalty levied by the AO cannot be sustained on this ground. It held that it is not affirming the findings and conclusions of CIT (A). However, the penalty levied was deleted in view of the interpretation of Explanation 5A to section 271(1)(c).

The appeal filed by the revenue was dismissed.

levitra

Om Stock & Commodities Pvt. Ltd. vs. DCIT ITAT Mumbai `C’ Bench Before Sanjay Arora (AM) and Vijay Pal Rao (JM) ITA No. 441/Mum/2011 A.Y.: 2008-09. Decided on: 10th July, 2013. Counsel for assessee/revenue: Prakash Jhunjhunwala/T. Roumuan Paite

fiogf49gjkf0d
Sections 44AB, 271B—Value of transactions of online trading in commodities through MCX without taking delivery do not constitute turnover for computing the limits u/s. 44AB of the Act. There is no element of turnover where there is no physical delivery of commodities given or taken.

Facts:
The assessee company, a member of Multi Commodity Exchange of India (MCX) was engaged in online business of trading in commodities. The transactions carried on by the assessee were speculative in nature. The bills issued by the Exchange on a daily basis represented mark to market bills and not actual sales/purchase turnover. The transactions were without taking delivery. The entire transaction was squared off at the end of the day or was carried forward to the subsequent day. The net amount, as per contract notes, was either debited or credited to the account of the assessee.

The Assessing Officer (AO), considering the value of the transactions carried out by the assessee on MCX to be the sales figure, invoked section 271B for violation of section 44AB. He held that the turnover of the assessee was more than Rs. 40 lakh, being the limit prescribed u/s. 44AB for getting the accounts audited and obtaining and furnishing the report as required by the Act.

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

Aggrieved, the assessee preferred an appeal to the Tribunal where it placed reliance on the following decisions:

Banwari Sitaram Pasari HUF vs. ACIT (29 Taxmann 137) (Pune ITAT)

Growmore Exports Ltd. vs. ACIT (72 TTJ 691) (Mum ITAT)

CIT vs. Growmore Exports Ltd. (Appeal No. 18 to 20 of 2001) (Mum HC).

Held:
The Tribunal noted that the Pune Bench of ITAT has in the case of Banwari Sitaram Pasari (supra), following the decision of Mumbai Bench of the Tribunal in the case of Growmore Exports Ltd. (supra) held that the transaction of buying and selling of commodities where no physical delivery is taken or given is a speculative activity and there is no element of turnover in such transactions.

The Tribunal also noted that the view taken by the Tribunal in the case of Growmore Exports Ltd. has been confirmed by the Bombay High Court vide decision dated 19-12-2007 and speaking order has been passed in the connected case of CIT vs. Harsh Estate Pvt. Ltd. where the Court has observed as under:

“In other words the finding by the Commissioner (Appeals) that the purchase was coupled with delivery has been reversed by the order of ITAT. Nothing has been brought to our attention from the record that the said finding of reversal is perverse warranting this court to take a view different from the view of the Tribunal. We, therefore, proceed on the footing that though there was transaction of shares it was not coupled with delivery. Once there was no delivery, the sale price of the shares could not have been considered as the turnover but only the difference between the price at which the shares were purchased and consequently sold by the broker…

Considering the findings on merits namely that there was no delivery and consequently the sales prices of the shares could not have been considered, it is not necessary to go into the other aspects. In the light of the above, we find no merit in this appeal which is accordingly dismissed.”

The Tribunal considering the above mentioned decisions held that the value of sale transaction of commodity through MCX without delivery cannot be considered as turnover for the purpose of section 44AB. It deleted the penalty levied u/s. 271B.

The appeal filed by the assessee was allowed.

levitra

Section 271(1)(c) r.w.s. 115JB of the Income-tax Act, 1961 — Penalty for concealment of income — Assessing returning income based on book profit — Pursuant to search action additional income declared — Total income as per normal provisions of the Act less

fiogf49gjkf0d

New Page 1

22 Ruchi Strips & Alloys Ltd. v. DCIT


ITAT ‘D’ Bench, Mumbai

Before N. V. Vasudevan (JM) and

T. R. Sood (AM)

ITA No. 6940 & 6941/Mum/2008

A.Ys. : 2003-2004 & 2005-2006

Decided on : 21-1-2011

Counsel for assessee/revenue :

Bhupendra Shah/Jitendra Yadav

 

Section 271(1)(c) r.w.s. 115JB of the Income-tax Act, 1961 —
Penalty for concealment of income — Assessing returning income based on book
profit — Pursuant to search action additional income declared — Total income as
per normal provisions of the Act less than the book profit — Whether the penalty
can be imposed — Held, No.

Per N. V. Vasudevan :

Facts:

The assessee was a company. During the years under appeal it
offered to tax its income computed u/s.115JB as its taxable income under the
normal provisions of the law was nil (on account of setting off of brought
forward losses). There was action u/s.132 of the Act and based on certain
incriminating documents found, the assessee offered to tax an additional income
of Rs.12 lakh and Rs.2.84 crores in the two years. However, on account of the
un-adjusted carried forward losses, its income under the normal provisions of
the Act still remained nil and the same amount of income, which was returned
earlier u/s.115JB, was assessed u/s.153A. The issue before the Tribunal was
whether the AO was justified in levying of penalty for concealment of
particulars of income by the assessee.

Held:

According to the Tribunal, the addition, in respect of which
the penalty was imposed, was made while computing total income under the normal
provisions of law. While ultimately, the total income of the assessee was
determined on the basis of book profit u/s.115JB of the Act. Therefore, relying
on the decision of the Delhi High Court in the case of CIT v. Nalwa
Investment Ltd., [(2010) 322 ITR 233] the Tribunal cancelled the penalty
imposed by the AO.

levitra

Income-tax Act, 1961 — Section 271(1)(c). Penalty u/s.271(1)(c) is not leviable on addition arising u/s.50C.

fiogf49gjkf0d

New Page 1

21 Renu Hingorani v. ACIT


ITAT ‘D’ Bench, Mumbai

Before R. S. Syal (AM) and

Vijay Pal Rao (JM)

ITA No. 2210/Mum./2010

A.Y. : 2006-2007. Decided on : 22-12-2010

Counsel for assessee/revenue : Vipul Joshi/

Jitendra Yadav

 

Income-tax Act, 1961 — Section 271(1)(c). Penalty
u/s.271(1)(c) is not leviable on addition arising u/s.50C.

Per Vijay Pal Rao :

Facts:

The assessee inter alia sold a residential flat for
a consideration of Rs.63,00,000, whereas the value of this flat as per the Stamp
Valuation Authorities was Rs.72,00,824. Thus, there was a difference of
Rs.9,00,824. The assessee in her return of income computed capital gains with
reference to sale consideration as per sale agreement. In the course of the
assessment proceedings, upon being asked to show cause why the difference should
not be added back to the total income, the assessee agreed to the same.
Accordingly, the said sum of Rs.9,00,824 was added to the total income of the
assessee by applying the provisions of section 50C of the Act. The AO initiated
penalty proceedings u/s.271(1)(c) and vide order dated 20-3-2009 levied the
penalty of Rs.1,98,181 (being 100% of tax sought to be evaded).

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

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

Held :

The Tribunal having noted that — (i) the AO had not
questioned the actual consideration received by the assessee, but the addition
was purely on the basis of deeming provisions of section 50C of the Act; (ii)
the AO had not given any finding that the actual sale consideration was more
than the sale consideration admitted and mentioned in the sale agreement; and
(iii) the assessee had furnished all the relevant facts, documents/material
including the sale agreement, the genuineness and validity whereof was not
doubted by the AO, observed that the assessee’s agreement to an addition on the
basis of valuation by the Stamp Valuation Authority would not be a conclusive
proof that the sale consideration as per agreement was incorrect and wrong. It
held that the addition because of the deeming provisions does not ipso facto
attract penalty u/s.271(1)(c). In view of the decision of the Apex Court in the
case of CIT v. Reliance Petroproducts Pvt. Ltd., (322 ITR 158) (SC), the
penalty levied was held to be not sustainable.

The appeal filed by the assessee was allowed.

levitra

Section 271B r.w. s. 44AB of the Income-tax Act, 1961 — Penalty for non-furnishing of Tax Audit Report — Assessee who was property developer, was following project completion method of accounting — During the year the project was not completed — Whether A

fiogf49gjkf0d

New Page 1

20 Siroya Developers v. DCIT

ITAT ‘I’ Bench, Mumbai

Before S. V. Mehrotra (AM) and

Asha Vijayaraghavan (JM)

ITA No. 600/Mum./2010

A.Y. : 2005-2006. Decided on : 12-1-2011

Counsel for assessee/revenue : B. V. Jhaveri/

S. K. Singh

Section 271B r.w. s. 44AB of the Income-tax Act,
1961 — Penalty for non-furnishing of Tax Audit Report — Assessee who was
property developer, was following project completion method of accounting —
During the year the project was not completed — Whether AO justified in holding
that since the advance received against the flats sold exceeded the prescribed
limit of Rs.40 lakh, the assessee was liable to get the accounts audited
u/s.44AB — Held, No.

Per Asha Vijayaraghavan :

Facts:

The issue before the Tribunal was whether on the
basis of the facts, the assessee was liable to get its accounts audited u/s.44AB
of the Act. The assessee, a property developer, was following project completion
method of accounting. As per its accounts, the work in progress as at the
beginning of the year was Rs.4.35 crores and as at the end of the year was
Rs.10.07 crores. During the year it had received advances against the sale of
flats of Rs.4.03 crores. Referring to the Board Circular (No. 387, dated 6-7-1984), the
authorities below contended that the legislative intent would be defeated if the
provisions were applied only in the year when the project was completed.
According to the Revenue, if the project takes the period as long as 10 years,
then as contended by the assessee, the audit report would be filed in the said
tenth year when it would not be possible for the AO to look into the details of
10 years. Secondly, during the year under appeal, the value of the work in
progress as well as the receipt of advances from the customers had exceeded the
prescribed limit of Rs.40 lakh.

Held:

According to the Tribunal, when the assessee was
following the project completion method of accounting, the advances received
against booking of flats could not be treated as sale proceeds/turnover/gross
receipts. For the purpose it relied on the Pune Tribunal decision in the case of
ACIT v. B. K. Jhala & Associates and the views of the Institute of Chartered
Accountants of India. Accordingly, the appeal filed by the assessee against the
order for levy of penalty u/s.271B was allowed.

levitra

Income-tax Act, 1957, section 50 — Provisions of section 50 are not attracted in a case where on the asset transferred depreciation was neither claimed nor allowed.

fiogf49gjkf0d

New Page 1

19 Divine Construction Co. v. ACIT


ITAT ‘D’ Bench, Mumbai

Before R. S. Syal (AM) and

Vijay Pal Rao (JM)

ITA No. 5396/Mum./2009

A.Y. : 2006-2007. Decided on : 20-12-2010

Counsel for assessee/revenue : Dr. P. Daniel & S.
M. Makhija/Jitendra Yadav

Income-tax Act, 1957, section 50 — Provisions of
section 50 are not attracted in a case where on the asset transferred
depreciation was neither claimed nor allowed.

Per R. S. Syal :

Facts :

The assessee transferred office premises and
returned the gain arising therefrom as long-term capital gain. Upon being called
by the Assessing Officer (AO) to explain why the provisions of section 50 are
not applicable, the assessee submitted that though the property was included in
the block of assets but since no depreciation was ever claimed or allowed
thereon, the provisions of section 50 are not applicable. The AO held that in
view of the provisions of section 50 read with Explanation 5 of section 32, the
contention of the assessee is not acceptable. He computed the short-term capital gain and charged the same to tax.

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:

Section 50 gets activated only on satisfaction of
twin conditions mentioned therein viz. (i) the capital asset should be an asset
forming part of block of asset; and (ii) depreciation should have been allowed
on it under this Act or under the Indian Income-tax Act, 1922. The Tribunal
noted that the property was reflected in the Schedule of Fixed Assets at its
original purchase price. Since depreciation was never claimed, nor allowed on
this property, the Tribunal overturned the order passed by the AO and held that
the long-term capital gain declared by the assessee be accepted as such, since
no infirmity was pointed out by the AO in the calculation shown by the assessee.

The appeal filed by the assessee was allowed.

levitra

Income-tax Act, 1961, section 244A — Interest u/s.244A(1)(b) is allowable and should be granted on refund of tax paid in pursuance of an order u/s.201 of the Act.

fiogf49gjkf0d

New Page 1

18 Reliance Infrastructure Ltd. v. DDIT


ITAT ‘D’ Bench, Mumbai

Before J. Sudhakar Reddy (AM) and

V. Durga Rao (JM)

ITA No. 7509/Mum./2010

A.Y. : 1999-2000. Decided on : 28-1-2011

Counsel for assessee/revenue :

Jitendra Sanghavi/Dr. S. Senthil Kumar

 

Income-tax Act, 1961, section 244A — Interest
u/s.244A(1)(b) is allowable and should be granted on refund of tax paid in
pursuance of an order u/s.201 of the Act.

Per J. Sudhakar Reddy:

Facts:

The assessee hired M/s. Jardine Flemming as lead
managers for the GDR issue and paid commission to them as well as to their
associates without deducting tax at source u/s.195. The Assessing Officer (AO)
in an order passed u/s.201, after issuing the requisite notice and considering
the submissions made by the assessee, held that the assessee was liable to
deduct tax at source and accordingly directed the assessee to pay USD 26,76,750.
Aggrieved by the order of the AO the assessee preferred an appeal to the CIT(A)
who partly allowed the appeal. On further appeal to the Tribunal, the Tribunal
set aside the matter to the file of the AO. Consequently, the AO passed the
impugned order dated 7-3-2008 and determined a refund but did not grant interest
u/s.244A.

The CIT(A) rejected the claim by holding that the
assessee could not show that TDS was voluntarily deposited by it or under
protest u/s.195(2) and hence was not eligible for interest u/s.244A.

Aggrieved the assessee preferred an appeal to the
Tribunal.

Held:

The Tribunal held that the assessee is entitled to
interest u/s.244A. It was of the opinion that the issue stands covered in favour
of the assessee by the judgment of the Supreme Court in the case of ITO v. Delhi
Development Authority, (252 ITR 772) (SC) and also by the following orders of
the Tribunal, on which reliance was placed on behalf of the assessee :


(1) Tata Chemicals v. DCIT, 16 SOT 481
(Mum.)

(2) ADIT (IT) v. Reliance Infocomm Ltd.,
(ITA No. 6100 to 6110/M/2008)

(3) ADIT (IT) v. Reliance Infocomm Ltd.,
(ITA No. 5581/M/2008 and 5585/M/2008)

(4) DDIT (IT) v. Star Cruises (India) Travel
Services Pvt. Ltd., (ITA Nos. 6498 & 6500/M/06, C.O.os. 10 &
12/Mum./2009.)


The appeal filed by the assessee was allowed.

levitra

Section 48 of the Income-tax Act, 1961 — Cost of acquisition for computation of Capital gains — Whether the payments of charges towards firefighting, generator and processing fees to a builder would be part of cost of acquisition — Held, Yes.

fiogf49gjkf0d

New Page 1

17 Praveen Gupta v. ACIT


ITAT ‘F’ Bench, New Delhi

Before G. E. Veerabhadrappa (VP) and

I. P. Bansal (JM)

ITA No. 2558/Del./2010

A.Y. : 2007-2008. Decided
on : 13-8-2010

Counsel for assessee/revenue
: Ved Jain, Rano Jain & Venkatesh Chourasia/Banita Devi Naorem


    (1) Section 48 of the Income-tax Act, 1961 — Cost of acquisition for computation of Capital gains — Whether the payments of charges towards firefighting, generator and processing fees to a builder would be part of cost of acquisition — Held, Yes.

    (2) Explanation (iii) to Section 48 of the Income-tax Act, 1961 — Indexed cost of acquisition — Whether the year of acquisition should be the year when the assessee entered into an agreement to purchase or the year when the conveyance deed was executed — Held that it is the year when the assessee entered into an agreement to purchase the flat.

Per I. P. Bansal:

Facts:

The assessee had sold a
flat and the following issues had arisen with reference to capital gains tax :

    1. Whether the following payments made by the assessee to the builder with reference to the flat could form part of its cost of acquisition/improvement:

  •      For firefighting charges Rs.0.35 lakh;
  •      For generator charges Rs.0.47 lakh; and
  •      For processing fees and other charges Rs.0.80 lakh.

   

    2. Year from which the indexed cost of acquisition was to be computed. According to the assessee, the year should be 1995-1996 when he entered into an agreement with the builder. While as per the Revenue, the same should be the year when the conveyance deed was executed i.e., 2001-2002.

Held:

According to the Tribunal the different charges
paid by the assessee were in respect of the flat purchased and the same were
made to the builder who sold the flat to the assessee. Without making these
payments, the assessee could not have obtained the conveyance in his favour.
Therefore, it held that the AO was in error in taking the cost of acquisition as
the only the amount stated in the conveyance deed. Thus, it held that all these
charges would form part of cost of acquisition of the flat sold.

As regards the year of acquisition, according to
the Tribunal, the assessee by entering into an agreement to purchase a flat had
identified a particular property which he was intending to buy from the builder
and the builder was also bound to provide the applicant with that property.
Referring to the provisions of S. 2(14) defining the term ‘capital asset’, it
observed that it was not necessary that to constitute a capital asset, the
assessee must be the owner for computing the capital gain. According to it, the
assessee had acquired a right to get a particular flat from the builder and that
right itself was a capital asset of the assessee. Therefore, it held that the
benefit of indexation had to be granted to the assessee from the date he entered
into an agreement to purchase the flat.

levitra

Section 14A and Rule 8D – Assessee engaged in the business of share trading – Shares held as stock-intrade – Held that the Rule 8D(2) (ii) & (iii) do not apply and only the direct expenses incurred by the assessee could be subjected to disallowance.

fiogf49gjkf0d
1. Deputy Commissioner of Income Tax vs.
Gulshan Investment Co. Ltd.
ITAT Kolkata ‘B’ Bench, Kolkata
Before Pramod Kumar (A. M.) and Mahavir
Singh (J. M.)
I.T.A. No.: 666/Kol./2012
Assessment year: 2008-09.  Decided on
March 11, 2013
Counsel for Revenue / Assessee: L K S Dahiya
and K N Jana / Girish Sharma

Section 14A and Rule 8D – Assessee engaged in the business of share trading – Shares held as stock-intrade – Held that the Rule 8D(2) (ii) & (iii) do not apply and only the direct expenses incurred by the assessee could be subjected to disallowance.

Facts

The assessee was engaged in the business of share trading. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that while the assessee had earned dividend income of Rs. 18.92 lakh, it had not made any disallowance u/s. 14A. The Assessing Officer computed the disallowance u/s. 14 A r.w.r. 8 D at Rs. 21.45 lakh. Being aggrieved, the assessee appealed before the CIT(A).

The CIT(A) in turn relied on the judgments of the Kerala High Court in CIT vs. Leena Ramchandran (ITA No.1784 of 2009) and of the Mumbai Tribunal in the case of Yatish Trading Co. P. Ltd. vs. ACIT (ITA No. 456/ Mum./2009 dt.10.11.2010) and held that Rule 8D was not applicable in the case of the assessee since there were no investments and all the shares were held as stock in trade. However, he held that since the assessee had earned exempt income, the provisions of section 14A were applicable. He estimated that expenditure equal to 10% of the dividend income was fair and reasonable and disallowed the sum of Rs. 1.89 lakh u/s 14A. The revenue did not agree with the CIT(A) and challenged his order before the tribunal.

Held:

According to the Tribunal, a plain reading of Rule 8D(2)(ii) & (iii) showed that the Rules can only be applied when shares are held as investments while in the case of the assessee, the shares were held as stock in trade. The tribunal came to this conclusion because it noted that, one of the variables on the basis of which the disallowance under the Rules are computed is “the value of investment, income from which does not form part of total income.” It further observed that when there are no investments, the Rule cannot have any application. According to it, when no amount can be computed in the light of the formula given in rule 8D (ii) and (iii), the computation provision fails and no disallowance can be made under the said Rules as held by the Supreme Court in the case of CIT vs. B C Srinivas Shetty (128 ITR 294). The tribunal further noted that where shares are held as stock in trade and not as investments, the disallowance, if any, would be restricted to the expenditure directly relatable to earning of exempt income.

Thus, the provisions of Section 14 A would be applicable, but the disallowance would be restricted to direct expenses incurred in earning of dividend income. For the said proposition, it also found support from the decision of the Special Bench of Tribunal in the case of ITO vs. Daga Capital Management Pvt. Ltd. (117 ITD SB 169).

levitra

Y. P. Trivedi vs. JCIT ITAT Mumbai `G’ Bench Before Vijay Pal Rao (JM) and Rajendra (AM) ITA No. 5994/Mum/2010 A.Y.: 2005-06. Decided on: 11th July, 2012. Counsel for assessee/revenue: Usha Dalal/A K Nayak

fiogf49gjkf0d
Delay in filing appeal due to CA’s fault is bonafide and must be condoned. Courts should take a lenient view on the matter of condonation of delay provided the explanation and the reason for delay is bonafide and not merely a device to cover an ulterior purpose or an attempt to save limitation in an underhand way.

Facts: The appeal filed by the assessee before the Tribunal was delayed by 496 days. The assessee filed an application for condonation of delay as well as affidavit of the assessee and his CA explaining the reasons for delay in filing the appeal. It was explained that the CA of the assessee on receiving the order of CIT(A) gave it to the person maintain records of appeal matters for taking photocopy and sending to assessee’s office for filing appeal. The said order got mixed up with other papers and the appeal could not be filed in time. Upon the same being noticed the appeal was filed after tracing the order. It was submitted that the delay is neither deliberate nor willful but due to misplacement of the order in the office of the CA and therefore, it was a bonafide mistake. Relying on the decision of the SC in the case of Collector, Land Acquisition v. Mst. Kajiji (167 ITR 471)(SC) it was contended that Justice oriented approach has to be taken by the Court while deciding the matter of condonation and the case should be decided on merits and not on technicalities.

Held: The Tribunal observed that the facts of the case do not suggest that the assessee had acted in a malafide manner or the reasons explained is only a device to cover an ulterior purpose. It is settled proposition of law that the Court should take a lenient view on the matter of condonation of delay. However, the explanation and the reason for delay must be bonafide and not merely a device to cover an ulterior purpose or an attempt to save limitation in an underhand way. The Court should be liberal in construing the sufficient cause and should lean in favour of such party. Whenever substantial Justice and technical considerations are opposed to each other, cause of substantial Justice has to be preferred.

Since the appeal could not be filed due to bonafide mistake and inadvertence, the Tribunal, in the interest of Justice, condoned the delay in filing the appeal.

levitra

Section 2(22)(e) – Share application money is not “loan or advance” for the purpose of section 2(22)(e).

fiogf49gjkf0d
4. DCIT vs. Vikas Oberoi
ITAT  Mumbai `F’ Bench
Before D. Karunakara rao (AM) and Vivek Verma (JM)
ITA Nos. 4362/M/2011  and 4 other appeals
A.Y.: 2002-03 and 2004-05 to 2007-08.     
Decided on: 20th  March, 2013.
Counsel for assessee/revenue: Murlidhar/A P Singh  

Section 2(22)(e) – Share application money is not “loan or advance” for the purpose of section 2(22)(e).


Facts
The assessee, was a partner/director/shareholder in various Oberoi Group entities. There was a search action on the assessee on 19-07-2007. In response to the notice issued u/s. 153A, the assessee filed return of income with no additional income as compared to return filed u/s. 139.

During the assessment proceedings u/s. 153A, the AO noticed that the assessee was a beneficial shareholder in both M/s Kingston Properties Pvt. Ltd (KPPL) and New Dimensions Consultants P. Ltd. (NDCPL). NDCPL had reserves and had contributed share application money into KPPL. KPPL was not the beneficial shareholder of NDCPL but the assessee was there in both the companies. NDCPL did not allot shares but the share application money was returned after the period of three years. The AO held that the assessee being a beneficial shareholder, had chosen this route to enrich his wealth by increasing net worth of KPPL, where he had beneficial interest. He rejected the book entries of both the companies by mentioning that it was a case of lifting of corporate veil. The AO assessed the sum of Rs. 1,40,03,700 as deemed dividend u/s. 2(22)(e) of the Act.

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

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held
Share application money or share application advance is distinct from ‘loan or advance’. Although share application money is one kind of advance given with the intention to obtain the allotment of shares/equity/preference shares etc, such advances are innately different form the normal loan or advances specified both in section 269SS or 2(22)(e) of the Act. Unless the mala fide is demonstrated by the AO with evidence, the book entries or resolution of the Board of the assessee become relevant and credible, which should not be dismissed without bringing any adverse material to demonstrate the contrary. It is also evident that share application money when partly returned without any allotment of shares, such refunds should not be classified as ‘loan or advance’ merely because share application advance is returned without allotment of share. In the instant case, the refund of the amount was done for commercial reasons and also in the best interest of the prospective share applicant. Further, it is self explanatory that the assessee being a ‘beneficial share holder’, derives no benefit whatsoever, when the impugned ‘share application money/advance’ is finally returned without any allotment of shares for commercial reasons. In this kind of situations, the books entries become really relevant as they show the initial intentions of the parties into the transactions. It is undisputed that the books entries suggest clearly the ‘share application’ nature of the advance and not the ‘loan or advance’. As such the revenue has merely suspected the transactions without containing any material to support the suspicion. Therefore, the share application money may be an advance but they are not advances which are referred to in section 2(22)(e) of the Act. Such advances, when returned without any allotment or part allotment of shares to the applicant/subscriber, will not take a nature of the loan merely because the same is repaid or returned or refunded in the same year or later years after keeping the money for some time with the company. So long as the original intention of payment of share application money is towards the allotment of shares of any kind, the same cannot be deemed as ‘loan or advance’ unless the mala fide intentions are exposed by the AO with evidence.

The appeal filed by the Revenue was dismissed.

Cases Relied upon :
1 Ardee Finvest (P) Ltd. vs. DCIT ITA No. 218/Del/2000 (AY 1996-97)(Del)
2 Direct Information P. Ltd. ITA No. 2576/M/2011 order dated 31.1.2012 (Mum)
3 CIT vs. Sunil Chopra ITA no. 106/2011 judgment dated 27-04-2011 (Del)(HC)
4 Subhmangal Credit Capital P Ltd. ITA No.7238/ Mum/2008 dtd 19-01-2010 (Mum)
5 Rugmini Ram Gagav Spinners P. Ltd 304 ITR 417 (Mad)(HC)

levitra

S/s. 148, 150, 153, 254 – A notice u/s. 148 may be issued at any time for the purpose of making a reassessment in consequence of or to give effect to any finding or direction contained in an order. For the purpose of section 150(2), the “order which was the subject matter of appeal” is the assessment order and not the order of CIT(A). Reassessment may be completed at any time where the reassessment is made in consequence of or to give effect to any finding/direction of an order passed u/s. 254(<

fiogf49gjkf0d
3. Sandhyaben A. Purohit vs. ITO
ITAT  Ahmedabad `C’ Bench
Before Mukul Kr. Shrawat (JM) and Anil
Chaturvedi (AM)
ITA No. 1536/Ahd/2011
A.Y.: 2004-05.   Decided on: 8th February, 2013.
Counsel for assessee / revenue: M. K. Patel /   D. K. Singh  

S/s. 148, 150, 153, 254 – A notice u/s. 148 may be issued at any time for the purpose of making a reassessment in consequence of or to give effect to any finding or direction contained in an order. For the purpose of section 150(2), the “order which was the subject matter of appeal” is the assessment order and not the order of CIT(A). reassessment may be completed at any time where the reassessment is made in consequence of or to give effect to any finding/direction of an order passed u/s. 254(1) of the Act i.e. an order of the ITAT.


Facts
The assessee sold a piece of land vide sale deed dated 21-05-2001. The consideration of sale was received before execution of the sale deed and possession was given simultaneous with the execution of the sale deed. However, the sale deed was registered on 30-07-2003. The Assessing Officer (AO) on getting information from the records of the purchaser, issued notice u/s. 148 for assessment year 2004-05. The AO collected information from the office of the Registrar and completed the assessment u/s. 144 by adopting the market value of the property sold.

Aggrieved the assessee preferred an appeal to CIT(A) who noted that the assessee had not offered capital gains on sale of property even in AY 2002-03. CIT(A) held that since the property was registered with the Registrar on 30-07-2003, transfer took place in AY 2004-05 and was correctly taxed by the AO.

Aggrieved the assessee preferred an appeal to the Tribunal and contended that the transfer u/s. 2(47) had taken place in the financial year relevant to assessment year 2002-03 and not 2004-05. Reliance was placed on decision in Arundhati Balkrishna & Anr. vs. CIT 138 ITR 245 (Guj) for the proposition that transfer is effective from the date of execution of the document and not from the date of registration. Revenue relied on the decision of the Apex Court in the case of Suraj Lamp & Industries 14 taxmann. com 103 (SC) for the proposition that transfer of an immovable property is enforceable only from the date of registration of the document.

On the possibility of making the assessment for AY 2002-03, it was submitted on behalf of the assessee that provisions of section 150 can only be attracted in respect of an order which is a subject matter of appeal and in this case order which is the subject matter of appeal is the order of cit9a0 which was dated 25-03-2011, hence the period of six years is to be computed considering the date of pronouncement of the order of CIT(A). Revenue contended that the assessment order is the subject matter of appeal which is dated 28-12-2007, hence direction can be given after considering the said date of assessment order.

Held
Considering the provisions of section 2(47)(v) and following the ratio of the decision of Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v CIT 260 ITR 491 (Bom) the tribunal held that transfer had taken place in previous year relevant to assessment year 2002-03. It observed that since the decision of the Apex Court in the case of Suraj Lamps (supra) has been decided in a different context and the income-tax provisions were not adjudicated upon, the reliance placed by the revenue on the said precedent was misplaced.

The Tribunal noted the ratio of the decision of the Gujarat High Court in the case of Kalyan Ala Barot vs. M. H. Rathod 328 ITR 521 (Guj) and also the provisions of section 150 and observed that a notice u/s. 148 may be issued at any time for the purpose of making a reassessment in consequence of or to give effect to any finding or direction contained in an order. Further, in s/s. (v) of section 150, a limitation is prescribed that the clause of re-opening in s/s. (1) of section 150 shall not apply where any such reassessment relates to an assessment year in respect of which an assessment could not have been made at the time of order, which was subject matter of appeal, or as the case may be, was made by reason of any other provision of limiting the time within which any action for reassessment may be taken. The Tribunal held that assessment order is the order which is the subject matter of appeal. It also clarified that a co-joint reading with section 153(3) reveals that a reassessment may be completed at any time where the reassessment is made in consequence or to give effect to any finding / direction of an order passed u/s. 254(1) of the Act i.e. an order of the ITAT.

The appeal filed by the assessee was allowed subject to the direction mentioned above.

levitra

Section 28 – Merely by initiating the compensation suit, the amount claimed therein cannot be treated as assessee’s income unless the other party admits the liability to pay compensation or there is a decree in favour of the assessee.

fiogf49gjkf0d
17. ACIT v. Trident Textile Mills Limited
ITAT Chennai `A’ Bench
Before Abraham P. George (AM)  
and S. S. Godara (JM)
ITA No. 1169/Mds/2012
A.Y.: 2008-09. Dated: 17-12-2012.
Counsel for revenue/assessee: Shaji P. Jacob /M. Karunakaran

Section 28 – Merely by initiating the compensation suit, the amount claimed therein cannot be treated as assessee’s income unless the other party admits the liability to pay compensation or there is a decree in favour of the assessee.


Facts

The assessee, manufacturer and domestic seller of grey fabric, filed its return of income for the AY 2008-09 declaring a loss of Rs. 31,31,568. In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had acquired a 1250 MW windmill, from M/s Suzlon Energy, for captive consumption. The purchase order contained compensation clause, which provided that the assessee was entitled to compensation in case of any loss of generation on account of non-availability of the machine below 95% @ 3.67/ KWH or as per the TNEB tariff during the warranty period. He also noticed that the generation of power unit did not touch the assured level of 37 lakh units. The assessee had filed a compensation case before the Jurisdictional High Court raising claim of Rs. 17,58,014 upto 15-9-2007 for shortfall in generation of power. Since the other party had not accepted the assessee’s claim for compensation and also the case was pending before the Court, the assessee had not declared the amount claimed as its income. The AO held that, since the assessee was entitled to compensation as per the agreement, he taxed the sum of Rs. 17,58,014 as the income of the assessee. Aggrieved, the assessee preferred an appeal to the CIT(A) who deleted the addition made by the AO. Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held

The Tribunal noted that the capacity assured was never achieved and the assessee had initiated compensation proceedings before the Honourable High Court. The High Court had referred the case to the Sole Arbitrator, who expired during the pendency of the arbitration proceedings. The Tribunal held that it is unable to concur with the stand of the Revenue that merely by initiating the compensation suit, the amount claimed therein is liable to be assessed as assessee’s income. It also noted that the other party has not admitted any compensation or its part as payable to the assessee nor there any decree in favour of the assessee so as to realise the amount. It held that once the arbitration proceedings are pending, the outcome of the assessee’s claim involved still hangs in balance. It observed that when there is no actual receipt of any amount or accrual, the same cannot be taken as income of the assessee. It held that the amount claimed by the assessee as compensation cannot be taken to be its income. The Tribunal upheld the order of CIT(A). The appeal filed by the Revenue was dismissed.

levitra

Section 80 HHE – Deduction respect of profits from export of computer software – For the purpose of computation of deduction only the total turnover and export turnover of the eligible business is to be considered.

fiogf49gjkf0d
2. Datamatics Technologies Ltd. vs. DCIT
ITAT Mumbai benches “D”, Mumbai
Before D. Manmohan (V.P.) and Sanjay Arora (A.M.)
ITA No. 5557 / Mum / 2011
Asst Year 2003-04.  Decided on 08-03-2013
Counsel for Assessee/revenue:  J. P. Bairagra /rupinder Brar

Section 80 HHE – Deduction respect of profits from export of computer software –  For the purpose of computation of deduction only the total turnover and export turnover of the eligible business is to be considered.


Facts
The assessee had claimed deduction of Rs. 55.99 lakh u/s. 80 HHE. The AO restricted the assessee’s claim to Rs. 8.02 lakh by taking into account the turnover of all the units of the assessee instead of the turnover of only the eligible units u/s. 80 HHE as claimed by the assessee. On appeal, the CIT(A) confirmed the AO’s order.

Before the tribunal, the revenue justified the orders of the lower authorities on the ground that if the contentions of the assessee were to be accepted, the whole premise or basis of the allocation of profits as prescribed per s/s. (3) of section 80 HHE would stand defeated inasmuch as the turnover of the assessee’s export unit would be its total turnover, rendering the apportionment as of no consequence. It also relied on the decisions of Kerala high court in the case of CIT vs. Parry Agro Industries Ltd. (257 ITR 41) and Mumbai tribunal decision in the case of Ashco Industries Ltd. vs. JCIT (ITA no. 2447 /Mum/2000 dt. 14-01-2003). The decisions in the above two decisions were rendered in the context of the provisions of section 80HHC. However, the revenue justified its reliance on the said two decisions on the ground that the two sections viz., 80 HHC and 80 HHE, are para material prescribing the same computational formula to compute profit attributable to the eligible export business.

Held
According to the tribunal, the issue to be decided was whether the ‘total turnover’ for the purpose of deduction u/s. 80 HHE would be the total turnover of only the eligible units or the total turnover of all the units.

The tribunal noted that unlike the provisions in section 10A, 10B, 80 IA, 80 IB, 80HH, etc. the deduction u/s. 80 HHE is not unit specific but is business specific, i.e. the business of export of computer software. Further, it referred to a decision of the Mumbai tribunal in the case of Tessitura Monti India Pvt. Ltd. (ITA No. 7127/Mum/2010 dt. 11- 01-2013 which decision was rendered in the context of section 10B. Relying on the said decision, the tribunal observed that the qualifying profit for the purpose of computing ‘profits and gains of business or profession’ as per Explanation (d) to the section would be the profits of the computer software business and correspondingly, it would be the export and the total turnover of the said business only that would stand to be considered for apportionment u/s. 80 HHE(3).

As regards the revenue’s contention that the formula to compute profit of the business should be given the same meaning as is given u/s. 80 HHC, the tribunal noted that the provisions of section 80 HHC also requires the adjustment of sales turnover of mineral resources from the total turnover or the adjusted total turnover, in case the assessee is also engaged in the said business. Further, referring to the various legislative amendments carried out in section 80 HHC, the tribunal observed that the same were only to neutralise the anomalies that arose in the wide variety of business situations.

levitra

Section 40(A)(3) – Once the addition has been made by increasing the gross profit rate then there is no further scope of making separate additions.

fiogf49gjkf0d
14. ITO vs. Nardev Kumar Gupta
ITAT Jaipur Bench ‘A’ Jaipur
Before B. R. Mittal (J. M.) and B. R. Jani (A. M.)
ITA No. 829/JP/2012
A. Y.: 2009-10.
Dated: 23-01-2013
Counsel  for  Revenue/Assessee:  Roshanta
Meena/Mahendra Gargieya

Section 40(A)(3) – Once the addition has been made by increasing the gross profit rate then there is no further scope of making separate additions.


Facts

The assesse derives income from newspaper agency. During the assessment, the AO rejected the books of accounts u/s. 145(3). While making the best judgment, the AO accepted the sales as declared by the assesse but applied the higher gross profit rate and made addition of Rs. 3.19 lakh. Besides, the addition of Rs. 21.6 lakh was also made u/s. 40A(3) on account of payments made in cash for purchase of newspaper. On appeal, the CIT(A) deleted the addition made u/s. 40A(3) and the addition of Rs. 3.19 lakh made by the AO was restricted to Rs. 1 lakh.

Before the tribunal, the revenue justified the order of the AO and placed reliance on the Gujarat high court decision in the case of CIT vs. Hynoup Food & Oil Ind. Pvt. Ltd. (290 ITR 702) and justified the disallowance made by the AO for the payments made in cash exceeding the prescribed limit u/s. 40A(3).

Held

The tribunal noted the ratio laid down in the decisions listed below, viz. that, once the addition has been made by increasing the gross profit rate then there is no further scope of making separate additions under different provisions. Based thereon, the tribunal upheld the decision of the CIT(A).
The decisions relied on by the tribunal were as under:
1. CIT vs. G. K. Contractor (19 DTR 305)(Raj);
2. CIT vs. Pravin & Co. 274 ITR 534 (Guj);
3. Choudhary Bros. (ITA No. 1177/JP/2010 dt. 31-5- 2010;
4. CIT vs. Banwari Lal Banshidhar 229 ITR 229 (All)

levitra

Section 14A, Rule 8D – No disallowance can be made in respect of expenses in relation to dividend received from trading in shares. In view of the judgment of Karnataka High Court in the case of CCI Ltd vs. JCIT, the decision of the Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd. cannot be followed.

fiogf49gjkf0d
16. Vivek Mehrotra v. ACIT
ITAT Mumbai `F’ Bench
Before Rajendra Singh (AM) and Amit Shukla (JM)
ITA No. 6332/Mum/2011 A.Y.: 2008-09.
Dated: 11-1-2013
Counsel for assessee/revenue: Rajiv Mehrotra/Om Prakash Meena

Section 14A, Rule 8D – No disallowance can be made in respect of expenses in relation to dividend received from trading in shares. In view of the judgment of Karnataka High Court in the case of CCI Ltd vs. JCIT, the decision of the Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd. cannot be followed.


Facts

The assessee received exempt income in the form of dividend from personal investments and also from shares held for trading. It also received tax free interest from relief bonds. The assessee maintained separate accounts including separate bank accounts and balance sheets for personal investments and trading activities in which expenses relating to these two activities were shown separately.

In the course of assessment proceedings, on being asked to show cause as to why expenses relating to such income should not be disallowed u/s. 14A of the Act, the assessee submitted that from the separate accounts maintained, it is clear that personal investments were made out of profit earned in the past and not from borrowings. It also contended that no expenses were incurred in respect of such investment. As regards shares held for trading it was contended that the provisions of section 14A are not applicable. The AO relying on the decision of the Special Bench in the case of Daga Capital Management Pvt. Ltd. (ITA No. 8057/Mum/2003) held that section 14A does apply even to shares held as stock-in-trade. The AO disallowed the expenses in respect of both shares held as personal investment as well as shares held for trading.

Aggrieved, the assessee preferred an appeal to CIT(A) who held that, on facts, no disallowance was to be made in respect of shares held as personal investments. As regards shares held for trading he held that the provisions of section 14A are applicable and disallowance made by the AO was confirmed by him.

Aggrieved, both the assessee and the Revenue, preferred an appeal to the Tribunal.

Held

The Tribunal noted that the CIT(A) had given a clear finding that the assessee maintained separate accounts including separate bank accounts and balance sheets for the two activities. He gave a finding that the personal investments were made out of own funds, investments in RBI Relief Bonds and LIC had been made in earlier years and since the assessee was having vast experience in these matters, he was personally handling these investments, there were no expenses required. Similarly, the shares which were of unlisted group companies held for the purpose of retaining control over these companies, did not require any day to day expenses. The Tribunal confirmed the action of the CIT(A) in holding that no disallowance is called for in relation to shares held as personal investments.

As regards the shares held for trading, the Tribunal noted that subsequent to the decision of the Special Bench of ITAT in the case of Daga Capital Management Pvt. Ltd. (supra), in which it has been held that section 14A would apply even to dividend income for trading in shares, the Karnataka High Court in the case of CCI vs. JCIT (250 CTR 290)(Kar) has in relation to trading shares held that the assessee had not retained shares with the intention of earning dividend income which was only incidental to shares which remained unsold by the assessee. The High Court held that no disallowance of expenses was required in relation to dividend from trading shares. The Tribunal also noted that the Mumbai Bench of the Tribunal in the case of DCIT vs. India Advantage Securities Ltd. (ITA No. 6711/Mum/2011, Assessment Year: 2008-09; order dated 14-9-2011) held that in view of the judgment of the Karnataka High Court in the case of CCI Ltd. vs. JCIT, the decision of the Special Bench in the case of Daga Capital Management Pvt. Ltd., could not be followed and no disallowance could be made of expenses in relation to dividend received from trading in shares. The Tribunal set aside the order of CIT(A) and deleted the disallowance upheld by him in relation to trading in shares.

 The appeal filed by the assessee was allowed and the appeal filed by the Revenue was dismissed.

levitra

ITO vs. Roche Goplani ITAT “G” Bench, Mumbai Before Rajendra Singh (A. M.) and Amit Shukla (J. M.) ITA No. 7737 / Mum / 2011 Asst. Year : 2008-09. Decided on 24-05-2013 Counsel for Assessee / Revenue: D. K. Sinha / Dr. P. Daniel

fiogf49gjkf0d
Explanation 5 to section 271(1)(c) – undisclosed income declared in return filed u/s. 139(4) and assessed as such entitled to immunity from penalty.

Facts:

In the order passed u/s 143(3) r.w. section 153A, the AO accepted the income of Rs. 1.31 crore retuned by the assessee. Thereafter, he initiated the penalty proceedings u/s. 271(1)(c) for the reasons that the assessee declared the additional income as a result of the search operation carried out by the department and secondly, the return of income was filed after the due date of filing of return. The assessee explained that the income was offered voluntarily which was on estimate basis and the same had been accepted in the assessment order as such. Therefore, the provisions of section 271(1) (c) was not applicable. However, the AO rejected the explanation offered and imposed a penalty of Rs. 42.41 lakh. Before the CIT(A) the assessee submitted that in view of clause (b) of Explanation 5A to section 271(1)(c), penalty cannot be levied as the assessee filed the return of income on the due date which can also be inferred as return of income filed u/s. 139(4). The CIT(A) however, didn’t accept the assessee’s explanation on Explanation 5A but deleted the penalty on the ground that the income which was offered was only on estimate basis, therefore, the additional income offered to tax can neither be held as concealed income or furnishing of inaccurate particulars of income.

Before the tribunal, the revenue submitted that it was not a case of estimate made by the AO in the regular assessment proceedings but it is a case of search and seizure, wherein the assessee has himself declared additional income in the statement recorded u/s. 132(4). Even if such surrender was based on estimate, then also it represents undisclosed income. Thus, the penalty cannot be deleted on the ground that it was based on the estimated income. Further it was submitted that as per the language of the Explanation 5A to section 271(1)(c), if any undisclosed income is found which is not shown in the return of income either prior to the date of search or before the due date of filing of return, penalty was levieable.

Held:

According to the tribunal, Explanation 5A to section 271(1)(c) provides that if during the course of search, the assessee is found to be the owner of any asset or income which has not been shown in the return of income which has been furnished before the date of search and the “due date” for filing the return of income has expired, the assessee is deemed to have concealed the particulars of his income or furnish inaccurate particulars of income and liable for penalty u/s. 271(1)(c). In other words, if the income is offered in the return which is filed by the “due date”, no penalty can be imposed.

The tribunal then examined whether the “due date” in Explanation 5A encompasses a belated return filed u/s. 139(4). It observed that the “due date” can be very well inferred as due date of filing of return of income u/s. 139(4) because wherever the legislature has provided the consequences of filing of the return of income u/s. 139(4), then the same has also been specifically provided. E.g., section 139(3) which denies the benefit of carry forward of losses u/s. 72 to 74A if the return of income is not filed within the time limit provided u/s. 139(1). In the absence of such a restriction, the limitation of time of “due date” cannot be strictly reckoned with section 139(1). Even a belated return filed u/s. 139(4) will be entitled to the benefit of immunity from penalty. For the said proposition the tribunal also relied on the decisions of the Gauhati high court in the case of Rajesh Kumar Jalan (286 ITR 276), the Punjab & Haryana high court in the cases of Jagriti Aggarwal (339 ITR 610) & of CIT vs. Jagtar Singh Chawla. In view of the above, the tribunal held that the assessee gets immunity under clause (b) of Explanation 5A to section 271(1) (c) because the assessee has filed return of income within due date.

levitra

DCIT vs. Kaushik Shah Shares & Securities Pvt. Ltd. ITAT Mumbai `A’ Bench Before B. Ramakotaiah (AM) and Vivek Varma (JM) ITA No. 2163/Mum/2013 A.Y.: 2008-09. Decided on: 10th July, 2013.

fiogf49gjkf0d
Counsel for revenue / assessee: Surinder Jit Singh/ Jinesh Doshi Section 88E, 115JB—It is the gross tax payable under normal provisions without deducting rebate u/s. 88E is to be compared with tax payable u/s. 115JB. From the higher of the two, rebate u/s. 88E is to be allowed. Rebate u/s. 88E is allowable even from tax payable on book profits u/s. 115JB.

Facts:
The Assessing Officer noticed that the assessee had made tax payment under normal provisions by comparing its tax liability (before claiming rebate u/s. 88E) on total income with income u/s. 115JB. The assessee submitted that tax rebate is a step which comes after determining income-tax payable on total income computed as per applicable provisions. It supported its view by income tax return ITR 6 prescribed by CBDT wherein gross tax liability before claim of rebate u/s 88E is first to be compared with tax credit under MAT and then from the higher of the MAT liability and tax liability under normal provisions of the Act, tax rebate u/s. 88E is to be reduced to arrive at a final tax payable by the assessee. The contention of the assessee was rejected by the AO.

Aggrieved, the assessee preferred an appeal to CIT(A) where it was contended that rebate u/s. 88E was also to be allowed while working out tax liability u/s. 115JB for the purpose of determining tax liability u/s. 115JB. Reliance was placed on decision of Bangalore Bench of ITAT in the case of Horizon Capital Ltd and also on the decision of Mumbai Bench of ITAT in the case of Naman Securities Finance Pvt. Ltd. The CIT(A) allowed the appeal of the assessee on this ground.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the issue is covered by the decision of the Karnataka High Court in the case of CIT vs. Horizon Capital Ltd. (ITA No. 434 of 2010 dated 24.10.2011) and by the following decisions of coordinate Bench –

1 Ambit Securities Broking P. Ltd. vs. ACIT (ITA No. 7856/M/2011, AY 2008-09, order dated 6.6.2013);
2 DCIT vs. Arcadia Share & Stock Brokers Pvt. Ltd. (ITA No. 1515/M/2012, AY 2008-09, order dated 20.3.2013);
3 SVS Securities Pvt. Ltd. (ITA No. 6149/M/2011, AY 2008-09, order dated 8.8.2012).
Since the CIT(A) had followed the decision of the co-ordinate Bench in the case of Horizon Capital Ltd which was confirmed by the Karnataka High Court and also the decision of the co-ordinate Bench in the case of Naman Securities Finance Pvt. Ltd. which in turn has been followed by other co-ordinate Benches, the Tribunal did not see any merit in the grounds raised by the revenue.
The appeal filed by the revenue was dismissed.

levitra

Narad Investments & Trading Pvt. Ltd. v. Dy. CIT ITAT ‘H’ Bench, Mumbai Before B. R. Mittal (JM) and Rajendra Singh (AM) ITA Nos. 3360/Mum./2010 A.Y.: 1996-97. Decided on: 19-10-2011 Counsel for assessee/revenue: Jayesh Dadia/ V. V. Shastri

fiogf49gjkf0d
Section 220(2) — Interest payable by assessee — Manner of computing default period — Original assessment set aside and fresh assessment made by the AO — Whether period of levy of interest is to be reckoned from the date of default as per the original assessment order or as per the fresh assessment order — Held that interest payable is to be computed from the date of fresh assessment order.

Issue: When original assessment has been set aside by the Tribunal and fresh assessment has been made by the AO, the period of levy of interest u/s.220(2) should be reckoned from the date of default as per the original assessment order or as per the fresh assessment order.

In the case of the assessee the original assessment was confirmed by the CIT(A) but on further appeal, the Tribunal set aside the order of the CIT(A) and the issue was restored back to the AO. In the fresh assessment, the AO repeated the addition raising the same demand but interest u/s.220(2) was levied from the date of demand notice issued as per the original assessment order. The assessee disputed the AO’s action relying on the Board Circular No. 334, dated 3-4-1982, and contended that as the original assessment had been set aside by the Tribunal, the interest u/s.220(2) could be charged only from the date when the demand become due as per the fresh assessment order and not from the date of original assessment order.

Held:
In terms of the Board Circular (supra), in case the assessment is set aside by the CIT(A) and setting aside become final, interest u/s.220(2) has to be charged only after expiry of 35 days from the date of service of demand notice pursuant to the fresh assessment order. In the case of the assessee, since the original order of assessment was confirmed by the CIT(A) but on further appeal, the Tribunal set aside the order of the CIT(A) and the issue restored to the AO, it was held that in terms of the Circular, the interest u/s.220(2) had to be charged only from the date of the fresh assessment order.

levitra

Haware Constructions Pvt. Ltd. v. ITO ITAT ‘H’ Bench, Mumbai Before N. V. Vasudevan (JM) and R. K. Panda (AM) ITA Nos. 5601/Mum./2009, 6861/Mum./2010 & 1547/Mum./2011 A.Ys.: 2005-06, 2006-07 & 2007-08 Decided on: 5-8-2011 Counsel for assessee/revenue: J. P. Bairagra/ Goli Sriniwas Rao

fiogf49gjkf0d
Section 80IB(10) — Deduction in case of housing project — (1) Whether an assessee builder can follow project completion method of accounting — Held, Yes; (2) Whether the AO justified in refusing to grant deduction on the ground that the commercial area exceeded the permissible limit and/or the area of the flat exceeded the permissible limit after considering balcony and terrace — Held that the limit as applicable as on the date when the project was approved should be applied and not as on the date of completion of the project and based thereon, the assessee had not exceeded the permissible limit as laid down in the Act;

Section 2(22)(e) — Deemed dividend — Loans and advances to related concern — Held that taxable in the hands of the shareholder and not in the hands of the assessee borrower.

Facts:
(1) A.Y. 2005-06:

The assessee was engaged in the business of construction and builder. On account of revision in AS-9, it changed its method of accounting in respect of projects which commenced after 1st April, 2003 from percentage completion method and started recognising revenue from the projects on completion of the projects, when the risk of ownership was transferred to the customer. However, the AO termed the change to project completion method as invalid. On appeal, the CIT(A) agreed with the AO and rejected the project completion method of accounting applied by the assessee to the new projects.

(2) A.Y. 2006-07:

The assessee was denied the benefit of deduction u/s.80IB(10) for the following reasons:

(a) The commercial area in the housing project exceeded 5% of the total project area;

(b) Some of the purchasers of flats had also purchased adjacent flats, the sum total of these two flats exceeded 1000 sq.ft.;

(c) Majority of the flats sold exceeded the area of 1000 sq.ft. after including balcony and terrace.

(3) A.Y. 2007-08:

The assessee had taken unsecured loan of Rs.8.02 crore during the year from HEB Pvt. Ltd., which had got free reserves of Rs.50.96 crore. According to the AO the provisions of section 2(22)(e) were attracted since one of the shareholders of the assesseecompany was holding more than 20% equity capital in HEB Pvt. Ltd. and the assessee-company.

Held:
(1) A.Y. 2005-06:
Relying on the various decisions (listed below), the Tribunal held that the project completion method was an accepted and recognised method of accounting. It also noted that the same was also accepted by the AO in the preceding as well as in the subsequent assessment year. According to it, an assessee can follow any recognised method of accounting and the condition was that the same method should be followed consistently. Since the assessee in the instant case was regularly following the project completion method and has offered the income in the year of completion of project, the Tribunal did not find any reason to reject the same. Accordingly, the assessee’s appeal was allowed.

(2) A.Y. 2006-07:

(a) Relying on the decision of the Special Bench of the Tribunal in the case of Brahma Associates reported in 122 TTJ 443 and the Co-ordinate Bench of the Tribunal in the case of Shri Girdharilal K. Lulla vide ITA No. 4207/Mum./2009 order dated 30-5-2011, the Tribunal found merit in the submissions of the assessee that when the approval was obtained prior to 31-3-2005, the condition of shopping area not exceeding 5% of built-up area or 2000 sq.ft. whichever is less, as introduced by the subsequent amendment are not applicable in respect of projects approved and commenced before 1-4-2005. Accordingly, the appeal filed by the assessee was allowed on this ground.

(b) As regards the second objection of the revenue that the assessee had sold two or more than two flats to one party, the combined area of which was more than 1000 sq.ft., the Tribunal accepted the submission of the assessee that the area of two flats should not be combined even though the two flats were sold to one person because:

  • the built-up area of each flat as approved by CIDCO was less than 1000 sq.ft.;
  • the assessee has sold each flat under separate agreement;
  • the assessee has not sold two flats by combining them together as one flat to one party;
  • there is no evidence with the Department that the assessee had sold the flat after combining the two flats together;
  • It is also not the case of the Revenue that each flat in the housing project undertaken by the assessee could not have been used as an independent or as a self-contained residential unit not exceeding 1000 sq.ft. of built-up area and that there would be a complete habitable residential unit only if two or more flats were joined with each other which would ultimately exceed 1,000 sq.ft. of built up area;
  • the condition that not more than one residential unit in the housing project was allotted to any person not being an individual, has been inserted by the Finance (No. 2) Act, 2009 w.e.f. 1-4-2010.

(c) The Tribunal agreed with the assessee that the definition of ‘built-up area’ as given in s.s 14(a) of section 80IB, whereby the balcony/terrace area was also considered as part of built-up area, was inserted by the Finance Act, 2004 w.e.f. 1-4-2005 and, therefore, the same was applicable only in respect of the projects approved after 1-4-2005. In the given case of the assessee, as the project was approved prior to 1-4-2005, the appeal filed by the assessee was allowed on this ground.

(3) A.Y. 2007-08:

The Tribunal noted that the assessee was not a registered shareholder in HEB Pvt. Ltd. Therefore, relying on the decision of the Special Bench of the Tribunal in the case of ACIT v. Bhaumik Colour P. Ltd., [313 ITR (AT) 146] where it was held that deemed dividend can be assessed only in the hands of the person who is a shareholder of the lender company and not in the hands of a person other than a shareholder and not in the hands of the borrowing concern in which such shareholder is member or partner having substantial interest, the appeal filed by the assessee was allowed and directed the AO to delet the addition.

Cases relied on (A.Y. 2005-06):
1. Awadesh Builders v. ITO, 37 SOT 122 (Mumbai);
2. Prestige Estate Projects (P) Ltd. v. DCIT, 129 TTJ (Bang) 680;
3. CIT v. Bilahari Investment (P) Ltd., 299 ITR 1 (SC);
4. H. M. Constructions v. CIT, 90 TTJ (Bang.) 510.

levitra

ITO v. Damodar Bhuvan CHS Ltd. ITAT ‘D’ Bench, Mumbai Before N. V. Vasudevan (JM) and T. R. Sood (AM) ITA No. 1610/Mum./2010 A.Y.: 2005-06. Decided on: 16-9-2011 Counsel for revenue/assessee : M. R. Kubal/ B. V. Jhaveri

fiogf49gjkf0d
Section 2(24) — Income — Taxability of receipt of transfer fees and non-occupancy charges from its members by the housing society — Amount received in excess of the limits prescribed under the law — Held that the sum received is exempt from tax on the principle of mutuality.

Facts:
The assessee was a co-operative housing society. During the year under appeal, its claim to treat the receipt of the sum of Rs.15 lac towards transfer charges (described as contribution to heavy repair fund) and Rs.1.31 lac towards non-occupancy charges as exempt was negatived by the AO. On appeal, the CIT(A) held that these receipts are exempt under the principle of mutuality.

Held:
As regards the receipt of Rs.15 lacs towards transfer charges, relying on the Bombay High Court decision in the case of the Sind Co-operative Housing Society v. Income-tax Officer, (317 ITR 47), which was also followed in the cases of Suprabhat Co-operative Housing Society Ltd. v. ITO, (ITA No. 1972 of 2009 dated 1-10-2009) as well as Shyam Co-operative Housing Society Ltd. v. CIT, (ITA Nos. 92, 93 and 206 of 2008, dated 17-7-2009), the Tribunal held that the principle of mutuality applies to the receipt of transfer fees. Similarly, in respect of the receipt of Rs.1.31 lac towards non-occupancy charges, the Tribunal relied on the decision of the Bombay High Court in the case of Mittal Court Premises Co-op Society v. ITO, (320 ITR 414) and held that the principle of mutuality equally applies to such receipt. It further held that the restriction on the quantum of receipt by an association from its members prescribed by any other law regulating the relationship between members and its association will not be relevant while taxing the receipts under the Act. Thus, according to it, the principle of mutuality will not cease to exist in respect of receipts from members by an association beyond the quantum restricted by any law regulating the relationship between members and its association.

levitra

Yahya E. Dhariwala v. DCIT ITAT ‘G’ Bench, Mumbai Before J. Sudhakar Reddy (AM) and V. Durga Rao (JM) ITA No. 5501/Mum./2009 A.Y.: 2005-06. Decided on: 25-11-2011 Counsel for assessee/revenue: K. Gopal/ A. K. Nayak

fiogf49gjkf0d
Section 54EC — Six months period, referred to in section 54EC, should be reckoned from the end of the month in which the transfer takes place.

Facts:
During the previous year relevant to the assessment year under consideration the assessee sold shares of two private limited companies. The assessee chose to invest the entire sale consideration in the bonds specified u/s.54EC of the Act. Of Rs.1,97,50,000 invested by the assessee in REC bonds, a sum of Rs.45,00,000 was invested on 30th August, 2005. The AO in an order passed u/s.147 r.w.s. 143(3) of the Act denied the claim for deduction of Rs.45,00,000 on the ground that the shares have been transferred on 24th February, 2005, whereas the investment was made on 30th August, 2005 which is beyond the period of six months from the date of sale. The assessee submitted that the sale of shares took place on 28th February, 2005, based on documents filed with the Registrar of Companies.

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

Aggrieved, the assessee preferred an appeal to ITAT.

Held:
The Tribunal noted that the subject-matter of transfer is shares of a private limited company. In case of shares of private limited company, the process of transfer of shares can be said to be completed only when the board of directors approves the transfer. The Annual Return filed before the ROC disclosed that the date of registration of transfer was 28th February, 2005. Board resolution approving the transfer of shares was passed on 25th February, 2005. Just because the stamping was done on 24th February, 2005 of blank forms, it cannot be concluded that there is transfer on 24th February, 2005. The Tribunal concluded that the date of transfer is 28th February, 2005. Hence, the investment made on 30th August, 2005 was within a period of six months as contemplated under the Act.

The Tribunal then held that even if the date of transfer is to be taken as 24th February, 2005, the wording used in the section is ‘at any time within a period of six months after the date of such transfer’. The Tribunal noted that the Madras High Court in the case of Kadri Mills Ltd. and the Calcutta High Court in the case of Brijlal Lohia and Mahabir Prasad Khema have held that since the term ‘month’ is not defined in the Income-tax Act, 1961, the expression used under the General Clauses Act, 1897 should be applied. Having noted the definition of the term ‘month’ as defined under The General Clauses Act, 1897 and also that the Act in certain sections has stated the period in number of days the Tribunal held that from the language in section 54EC the period of six months should be reckoned from the end of the month in which the transfer takes place. As the investment was made on 30th August, 2005, the Tribunal held that the assessee has invested a part of the capital gain within a period of six months after the date of transfer of the long-term capital asset in question in specified assets.

The Tribunal allowed the appeal filed by the assessee.

levitra

Section 199 – Assessee entitled to TDS credit based on the evidences even if the same is not shown in Form 26AS

fiogf49gjkf0d
Section 199 – Assessee entitled to TDS credit based on the evidences even if the same is not shown in Form 26AS

Facts:

In the original return filed the assessee claimed TDS of Rs. 165.21 crore. In the revised return, the assessee made further claim of TDS of Rs. 1.43 crore. Thereafter, during the course of the assessment proceedings, it claimed further sum of TDS of Rs. 3.57 crore by its letter dated 28-12-2010. The AO, however, gave credit of TDS only to the extent of Rs. 11.9 crore, the amount as appearing in Form 26AS. On appeal, the CIT(A) directed the AO to give credit of TDS as per original challans available and/ or the details available in the computer system of the department.

The assessee had also claimed petitioned that it is entitled to interest on excess amount of TDS and in case the interest is not granted by due date, it was entitled to interest on delayed payment of interest.

Held:

The tribunal referred to the Bombay high court decision in the case of Yashpal Sawhney vs. ACIT (293 ITR 539) where it was held that even if the deductor had not issued a TDS certificate, the claim of the assessee has to be considered on the basis of the evidence produced for deduction of tax at source. Further, the tribunal noted that the Delhi High Court has also in Court On Its Own Motion vs. CIT 352 ITR 273 directed the department to ensure that credit is given to the assessee even where the deductor had failed to upload the correct details in Form 26AS, on the basis of evidence produced before the department. Therefore, the tribunal allowed the appeal of the assessee on this point and held that the department is required to give credit for TDS once valid TDS certificate had been produced or even where the deductor had not issued TDS certificates on the basis of evidence produced by assessee regarding deduction of tax at source and on the basis of indemnity bond.

As regards the claim for interest on delayed payment of interest, the tribunal relying on the decision of the Supreme court in the case of Sandvik Asia Ltd. vs. CIT (280 ITR 643) held in favour of the assessee.

levitra

Crystal Phosphates Ltd. vs. ACIT ITAT Delhi `B’ Bench Before B. R. Mital (JM) and B. R. Jain (AM) ITA No. 3630/Del/2009 A.Y.: 2006-07. Decided on: November, 2012. Counsel for assessee / revenue: Gautam Jain / Deepak Sehgal

fiogf49gjkf0d
Notice issued u/s. 143(2) to initiate proceedings for scrutiny assessment needs to be quashed if the said notice does not comply with the instructions issued by CBDT for selection of cases for scrutiny. Instructions so issued have to be followed in letter and spirit.

Facts:
The assessee filed its return of income for AY 2006-07 on 28-11-2006 declaring the income of Rs. 3,97,17,920. The case was selected for scrutiny by notice dated 17-10-2007 issued u/s. 143(2) of the Act. The CBDT had issued instructions for selection of cases for corporate assessee in FY 2007-08. Clause 2(v)(b) of the Scrutiny Guidelines provided as under:

“2. The following categories of cases shall be compulsorily scrutinised:-

……
……

(vb) All cases in which an appeal is pending before the CIT(Appeals) against an addition/ disallowance of Rs. 5 lakh or above, or the Department has filed an appeal before the ITAT against the order of the CIT(Appeals) deleting such an addition/disallowance and an identical issue is arising in the current year. However, as in (i) above, the quantum ceiling may not be taken into account if a substantial question of law is involved.”

The assessee vide its letter dated 07-12-2007 challenged the assumption of jurisdiction on the ground that no addition/disallowance exceeding Rs. 5 lakh was made in an earlier year, which was pending in appeal before the CIT(A). Further, there was no identical issue arising in the current year as arising in the earlier year.

The Additional CIT and CIT vide orders dated 25- 11-2008 and 15-12-2008 respectively rejected the contention of the assessee and held that the notice issued was in accoundance with law on the ground that the aggregate of additions made in AY 2004-05 was Rs. 5,60,207 which was pending before CIT(A).

The CIT(A) held that the notice was valid.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The Tribunal noted from the assessment order for AY 2004-05 that no disallowance was made in excess of Rs. 5 lakh though aggregate of all the disallowances was Rs. 5,60,207. It noted that the AO had considered the aggregate of disallowances. It held that there has to be an addition or disallowance of Rs. 5 lakh or more against which an appeal is pending and such an issue must also arise in the year under consideration. All these facts must be available to the AO on the date of assumption of jurisdiction. The burden is on the assessing authority to establish that jurisdiction was assumed in accordance with the instructions of the Board. It held that the notice issued u/s. 143(2) was not in terms of the instructions issued by the CBDT.

As regards the question whether jurisdiction assumed, by issue of a notice which is not in terms of instructions issued by CBDT, was illegal so as to hold the entire proceedings as invalid. Relying on the decision of the Andhra Pradesh High Court in the case of CIT vs. Smt. Nayana P. Dedhia 270 ITR 572 (AP) it held that once the CBDT has issued instructions for assumption of jurisdiction for selection of cases of corporate assessees for scrutiny and assessment thereof, the same have to be followed in letter and spirit by the AO. The Tribunal quashed the notice issued u/s. 143(2) of the Act since assumption of jurisdiction was not in terms of the instructions of CBDT. The notice and the assessment framed  were held to be without valid jurisdiction and were quashed.

The appeal filed by the assessee was allowed.

levitra

Venkata Ramana Umareddy vs. DCIT ITAT Hyderabad `A’ Bench Before Chandra Poojari (AM) and Saktijit Dey (JM) ITA No. 552/Hyd/2012 A.Y.: 2008-09. Decided on: 18th January, 2013. Counsel for assessee / revenue: Roopanjali / M H Naik

fiogf49gjkf0d
Exemption u/s. 54 and 54F of the Act can be claimed with reference to investment in the same residential house purchased/constructed, if the other conditions are satisfied.

Facts:
During the previous year 2007-08 the assessee transferred land to a developer under a development agreement and also sold a house along with land. Long term capital gain earned on transfer of land to developer was Rs. 49,19,513 and long term capital gain on sale of house was Rs. 44,05,302. The assessee claimed the entire amount of long term capital gain of Rs. 93,24,815 to be exempt u/s. 54 and 54 F of the Act towards investment in a new house purchased for a total price of Rs. 1,43,26,665.

The Assessing Officer (AO) held that to claim exemption under both sections i.e. 54 and 54F the assessee has to invest in two houses. He disallowed exemption claimed u/s. 54 and added back an amount of Rs. 44,05,302 to the total income of the assessee.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held: Section 54 and 54F apply under different situations. While section 54 applies to long term capital gain arising out of transfer of long term capital asset being a residential house, section 54F applies to long term capital gain arising out of transfer of any long term capital asset other than a residential house. However, the condition for availing exemption under both sections is purchase or construction of a new residential house within the stipulated period. There is also no specific bar either u/s. 54 and 54F or any other provision of the Act prohibiting allowance of exemption under both the sections in case the conditions of provisions are fulfilled.

Since the assessee had invested long term capital gain arising from sale of two distinct and separate assets in purchase of a new residential house, the Tribunal held that he was entitled to claim exemption both u/s. 54 and 54F of the Act. The Tribunal directed the AO to delete the addition of Rs. 44,05,302.

This ground of appeal filed by the assessee was decided in favour of the assessee.

levitra

Section 40(a)(ia) — Disallowance of expenditure for failure to pay TDS within the time stipulated u/s.200(1) — Payment/expenditure was incurred throughout the year — Whether payment of TDS made after the end of the accounting year but before the due date for filing of return was allowable as deduction — Held, Yes.

fiogf49gjkf0d
Piyush C. Mehta v. ACIT
ITAT ‘C’ Bench, Mumbai Before N. V. Vasudevan (JM) &
N. K. Billaiya (AM)
ITA No. 1321/Mum./2009
A.Y.: 2005-06. Decided on: 11-4-2012
Counsel for assessee/revenue:
Prakash K. Jotwani/Pitambar Das

Section 40(a)(ia) — Disallowance of expenditure for failure to pay TDS within the time stipulated u/s.200(1)

— Payment/expenditure was incurred throughout the year — Whether payment of TDS made after the end of the accounting year but before the due date for filing of return was allowable as deduction — Held, Yes.


Facts:

The assessee is an individual engaged in the business of building repairs, and construction works contracts. In the course of assessment proceedings the AO noticed that the assessee had not paid the TDS deducted on the labour charges/ advances paid to various contractors within the time stipulated u/s.200(1). The assesses had made payments/advances to the contractors throughout the year, but had deposited the TDS only on 31-5-2005. According to the AO, the assessee was required to deduct TDS on the dates the payments were made. Since that was not done, he held that in terms of provisions of section 40(a)(ia) the payments of Rs.1.41 crore were not allowable. On appeal, the CIT(A) confirmed the order of the AO.

Held:

According to the Tribunal, the amendment to section 40(a)(ia) by the Finance Act, 2008 made two categories of defaults, causing disallowance on the basis of the period of the previous year in which tax was deductible. The first category of disallowances included the cases in which tax was deductible and was so deducted during the last month of the previous year, but there was failure to pay such tax on or before the due date specified in section 139(1). The second category included those cases where tax was deductible and was deducted during the first eleven months of the previous year, i.e., till February, 2005 in the case of the assessee. In such case, the disallowance was to be made if the assessee failed to pay it before 31st March, 2005.

Then came the amendment by the Finance Act, 2010. The said amendment dispensed with the earlier two categories of defaults brought about by the Finance Act, 2008. It has not made any change qua the first category described above. With reference to the second category, the Tribunal noted that the hitherto requirement of paying it before the close of the previous year has been eased to extend such time for payment of tax up to the due date u/s.139(1) of the Act. The effect of this amendment is that, now the assessee, deducting tax either in the last month of the previous year or first eleven months of the previous year, shall be entitled to deduction of the expenditure in the year of incurring it, if the tax so deducted at source, is paid on or before the due date u/s.139(1). As regards the applicability of the amendment by the Finance Act, 2010 to the case of the assessee, the Tribunal relied on the decision of the Calcutta High Court in the case of Virgin Corporation (ITA No. 302 of 2011 GA 3200/2011 decided on 23-11-2011), where it was held that the said amendment was retrospective from 1-4-2005 and accordingly, allowed the appeal of the assessee.

As regards the applicability of the decision of the Mumbai Special Bench in the case of Bharati Shipyard Ltd. v. DCIT, where it was held that the amendment by the Finance Act, 2010 was prospective and not retrospective from 1-4-2005, the Tribunal relying on the Delhi Tribunal decision in the case of Tej International (P) Ltd. v. Dy. CIT, (2000) 69 TTJ (Del) 650 read with the Bombay High Court decision in the case of CIT v. Godavaridevi Saraf, 113 ITR 589 (Bom.), held that as per the hierarchical judicial system in India, the wisdom of the Court below has to yield to the wisdom of the higher Court. The fact that the judgment of the higher judicial forum is from a non-jurisdictional High Court does not alter the position. Accordingly, the decision of the Calcutta High Court prevailed over the decision of the Mumbai Special Bench.

In view of the above, the Tribunal held that the Amendment to the provisions of section 40(a)(ia) of the Act, by the Finance Act, 2010 was retrospective from 1-4-2005. Consequently, any payment of tax deducted at source during the previous years relevant to and from A.Y. 2005-06 can be made to the Government on or before the due date for filing return of income u/s.139(1) of the Act.

levitra

Section 54EC — The limit of Rs.50 lakh referred to in the proviso to section 54EC is with reference to a financial year — If subscription for eligible investment was not available to the assessee during the period of six months, then investment made beyond a period of six months qualifies for deduction u/s.54EC.

fiogf49gjkf0d
Aspi Ginwala v. ACIT
ITAT ‘C’ Bench, Ahmedabad
Before D. K. Tyagi (JM) and
A. Mohan Alankamony (AM)
ITA No. 3226/Ahd./2011
A.Y.: 2008-09. Decided on: 30-3-2012
Counsel for assessee/revenue:
S. N. Soparkar/S. P. Talati

Section 54EC — The limit of Rs.50 lakh referred to in the proviso to section 54EC is with reference to a financial year — If subscription for eligible investment was not available to the assessee during the period of six months, then investment made beyond a period of six months qualifies for deduction u/s.54EC.


Facts:

The assessee sold a house property on 22-10-2007. The long-term capital gain arising on such sale was computed and returned at Rs.1,30,32,450 after claiming exemption of Rs.100 lakh u/s.54EC, on account of investment of Rs.50 lakh each made in REC bonds (invested on 31-12-2007) and bonds of NHAI (invested on 26-5-2008). During the period from 1-4-2008 to 26- 5-2008 no subscription for eligible investment was available to the assessee. The Assessing Officer (AO) held that the assessee is entitled to exemption of up to Rs.50 lakh u/s. 54EC of the Act. He, accordingly, allowed exemption in respect of amount invested in bonds of REC and did not allow exemption in respect of amount invested in bonds of NHAI. 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 there is no dispute about the fact that the assessee could have invested the amounts in eligible investment within six months of the date of transfer i.e., on or before 21-4-2008 to avail of exemption u/s.54EC of the Act. Also, there is no dispute that during the period from 1-4-2008 to 26-5-2008 subscription to eligible investment was not available to the assessee and the assessee had subscribed on the 1st day of reopening of subscription. It also noted that the dispute which remained to be decided was whether as per the provisions of section 54EC, the assessee is entitled for exemption of Rs.1 crore as six months period for investment in eligible investment involves two financial years. If the answer to this question is yes, whether investment made by the assessee on 26-5-2008 beyond six months period is eligible for exemption in view of the fact that no subscription for eligible investment was available to the assessee from 1-4-2008 to 26-5-2008. It is clear from the proviso to section 54EC that where the assessee transfers his capital asset after 30th September of the financial year, he gets an opportunity to make an investment of Rs.50 lakh each in two different financial years and is able to claim exemption up to Rs.1 crore u/s.54EC of the Act. The language of the proviso being clear and unambiguous, the benefit available to the assessee cannot be denied, the assessee is entitled to get exemption up to Rs.1 crore in this case. Various judicial authorities have taken a view that delay in making an investment due to non-availability of bonds is a reasonable cause and exemption should be granted in such cases. Relying on the observations of the Mumbai Bench of the ITAT in the case of Ram Agarwal v. JCIT, (81 ITD 163) (Mum.) the Tribunal held that the investment s made by the assessee on 26-5- 2008 beyond six months is eligible for exemption in view of the fact that no investment was available from 1-4-2008 to 26-5-2008. The Tribunal allowed the appeal filed by the assessee.

levitra

Section 40(a)(ia) — Per majority — Section 40(a)(ia) can apply only to expenditure which is outstanding as on 31st March and does not apply to expenditure which is paid during the previous year.

fiogf49gjkf0d
Merilyn Shipping & Transports v. ACIT ITAT Special Bench, Visakhapatnam
Before D. Manmohan (VP),
S. V. Mehrotra (AM) and Mahvir Singh (JM) ITA No. 477/Viz./2008

A.Y.: 2005-06. Decided on: 29-3-2012 Counsel for assessee/revenue: Subramanyam/T. L. Peter and D. Komali

Section 40(a)(ia) — Per majority — Section 40(a)(ia) can apply only to expenditure which is outstanding as on 31st March and does not apply to expenditure which is paid during the previous year.


Facts:

The assessee-firm incurred brokerage expenses of Rs.38,75,000 and commission of Rs.2,43,253without deducting TDS. Of the aggregate amount of Rs.41,18,253 incurred during the previous year, the amounts outstanding as on 31st March were Rs.1,78,025. In the course of assessment proceedings the assessee’s representative agreed for disallowance. The AO disallowed Rs.41,18,253 u/s.40(a)(ia).

Aggrieved, the assessee preferred an appeal before the CIT(A) and contended that on a careful reading of the provisions of section 40(a)(ia) and also on going through the expert opinion, the disallowance u/s.40(a)(ia) should be Rs.1,78,025, being the amount of brokerage and commission outstanding as on 31st March on which tax was not deducted at source, and not the entire sum of Rs.41,18,253. The CIT(A) rejected the contention made on behalf of the assessee and upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal. Since the Division Bench did not agree with the decision rendered by the Hyderabad Bench of the ITAT in the case of Teja Constructions, (ITA No. 308/Hyd./2009 relating to A.Y. 2005-06, order dated 23-10-2009), on which reliance was placed by the counsel of the assessee, it referred the matter to the President to constitute a Special Bench (SB). The President constituted the SB to decide the following question:

“Whether section 40(a)(ia) of the Income-tax Act can be invoked only to disallow expenditure of the nature referred to therein, which is shown as ‘payable’ as on the date of the balance sheet or it can be invoked also to disallow such expenditure which became payable at any-time during the relevant previous year and was actually paid within the previous year?”

Held:

The majority view (VP and JM) of the SB was as under:

By replacing the words ‘amounts credited or paid’, as proposed by the Finance Bill, 2004 with the ‘payable’, at the time of enactment (by the Finance Act, 2004), the Legislature has clarified its intent that only outstanding amounts or the provisions for expenses liable for TDS under Chapter XVII-B of the Act is sought to be disallowed in the event there is a default in following the obligations casted upon the assessee under Chapter XVII-B. Section 40(a)(ia) creates a legal fiction by virtue of which even genuine and admissible expenditure can be disallowed due to non-deduction of tax at source. A legal fiction has to be limited to the area for which it is created. The word ‘payable’ must be understood in its natural, ordinary or popular sense and construed according to its grammatical meaning. Such a construction would not lead to absurdity because there is nothing in this context or in the object of the statute to suggest to the contrary. The word ‘payable’ is to be assigned strict interpretation, in view of the object of the legislation which is intended from the replacement of the words in the proposed and enacted provision.

The majority view of the SB was that section 40(a) (ia) is applicable only to the amounts of expenditure which are payable as on 31st March of every year and it cannot be invoked to disallow the amounts which have been actually paid during the previous year, without deduction of tax at source.

The AM held that the object of section 40(a)(ia) is to ensure that the TDS provisions are scrupulously implemented without any default. The term ‘payable’ cannot be assigned a narrow interpretation. Section 40(ia) is to be interpreted harmoniously with the TDS provisions. Accordingly, section 40(a)(ia) applies to all expenditure which is actually paid and also which is payable as at the end of the year.

The SB, by a majority view, decided the question referred to it in favour of the assessee.

levitra

S. 14A — Assessee maintaining separate books of account for the purpose of business and the investments, from which the exempt income was earned — Held no disallowance.S. 36(2) — Bad debts in the business of vyaj badla — Held, allowable.

fiogf49gjkf0d
New Page 1Part B :
UNREPORTED DECISIONS

(Full texts of the following Tribunal decisions are available at
the Society’s office on written request. For members desiring that the Society
mails a copy to them, Rs.30 per decision will be charged for photocopying and
postage.)

16 Pawan Kumar Parmeshwarlal
v. ACIT

ITAT ‘C’ Bench, Mumbai

Before D. Manmohan (VP) and

B. Ramakotaiah (AM)

ITA No. 530/Mum./2009

A.Y. : 2005-06. Decided on :
11-1-2011

Counsel for assessee/revenue
: Assessee in person /P. N. Devdasan

(A)
S. 14A of the Income tax Act, 1961 —
Disallowance of expenditure to earn exempt income — Assessee maintaining
separate books of account for the purpose of business and the investments,
from which the exempt income was earned — No disallowance made on the ground
of personal expenditure while assessing business income — Held that no
disallowance can be made u/s.14A.


(B)
S. 36(2) of the Income-tax Act, 1961 — Bad
debts in the business of vyaj badla — Whether allowable — Held, Yes.


Per B. Ramakotaiah :

Facts :


The assessee was an
individual, the proprietor of M/s. Pawankumar Parmeshwarlal, dealing in shares
and securities. During the year under appeal, the assessee had claimed as exempt
the income earned by way of dividend Rs.3.19 lacs, interest on RBI bonds Rs.1.11
lacs and PPF interest of Rs.0.07 lac. According to the assessee, none of these
activities required any expenditure and as such no amount was disallowable
u/s.14A. However, the AO was of the view that assessee would have spent some
amount for earning the tax-free incomes and disallowed an amount of Rs.0.2 lac
u/s.14A.

The assessee had claimed the
sum of Rs.13.16 lacs as bad debts in the business of vyaj badla and the same was
disallowed by the AO.

On appeal before the CIT(A),
in respect of claim re : disallowance u/s.14A, the CIT(A) directed the AO to
compute deduction as per Rule 8D. In respect of the claim for bad debts, he
relied on the decision in the case of Arshad J. Choksi v. ACIT, (51 ITD 511),
and held that the conditions u/s.36(2) were not satisfied in the badla
transactions.


Held :


(A) In respect of
disallowance u/s.14A :

The Tribunal noted that the
assessee was maintaining separate books of account for the purpose of business
and the investments, from which the exempt income was earned, were made in his
personal capacity. Further, while assessing the business income, no part of
expenditure claimed by the assessee was treated or disallowed by the AO on the
ground of being of personal in nature. In view of this, it held that the
expenditure claimed in the business of share dealings cannot be correlated to
the incomes earned in personal capacity. Further, it noted that the Bombay High
Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT, (328 ITR 81) has
considered Rule 8D to be applicable prospective and since the assessment year
involved was before the introduction of Ss.(2) and Ss.(3) of S. 14A, it held
that there was no question of disallowing the amounts invoking Rule 8D.

(B) In respect of bad debts
:

According to the Tribunal,
the lower authorities were not correct in disallowing the claim of bad debts. It
noted that the assessee, being a stock-broker, had advanced money as part of his
business activity. Therefore, relying on the decision of the Special Bench
Mumbai Tribunal in the case of DCIT v. Shreyas S. Morakhia, (5 ITR TRIB.1), it
held that the amounts advanced by the assessee in the course of business
activity were to be treated as an allowable amount u/s.36(2).


levitra

Wealth-tax Act, 1957, S. 2(ea)(i)(5) — Where the assessee owns a warehouse which is let out on rental basis and used by the tenant for its business, the warehouse is to be excluded as an asset.

fiogf49gjkf0d
New Page 1Part B :
UNREPORTED DECISIONS

(Full texts of the following Tribunal decisions are
available at the Society’s office on written request. For members desiring that
the Society mails a copy to them, Rs.30 per decision will be charged for
photocopying and postage.)

15 Dy. CIT v. Hind Ceramics
Pvt. Ltd.

ITAT Kolkata ‘B’ Bench

Before B. R. Mittal (JM) and
C. D. Rao (AM)

WTA Nos. 42 & 43/Kol. of
2010

A.Ys.: 2003-04 and 2004-05

Decided on : 7-1-2011

Counsel for revenue/assessee
: D. R. Sindhal

& Piyush Kolhe/Rajeeva Kumar

Wealth-tax Act, 1957, S.
2(ea)(i)(5) — In a case where the assessee owns a warehouse which is let out on
rental basis and the same is not used by the assessee for the purposes of its
business but is used by the tenant for its business, the warehouse is to be
excluded as an asset in view of S. 2(ea)(i)(5) of the Act.

Per B R Mittal :

Facts :


The assessee was the owner
of a warehouse, a part of which was used by the assessee for the purposes of its
own business and a part was let out. Warehousing charges received were offered
for taxation under the head ‘Income from House Property’. The assessee
considered the let out portion of the warehouse as being used for commercial
activity and accordingly did not consider it as an ‘asset’ chargeable to tax.
The Assessing Officer (AO) relying on the decision of the Madras High Court in
the case of Indian Warehousing Industries Ltd. (269 ITR 203) (Mad.) held that
merely because warehouse is let it cannot be said that the assessee is using it
for its business purposes and commercially. He considered it to be an ‘asset’
chargeable to tax.

Aggrieved the assessee
preferred an appeal to CWT(A) who observed that the decision of the Madras High
Court was in the context of S. 40(3) of the Finance Act, 1983, whereas the
present case is covered by the law as amended by the Finance Act, 1992 w.e.f.
1-4-1993. He held that after the amendment, the moot point is how the property
is utilised and not who utilises it. Even if the lessee utilised the property as
a commercial establishment or complex it will be excluded from the list of
assets. He allowed the appeal filed by the assessee.

Aggrieved the Revenue
preferred an appeal to the Tribunal.


Held :


The Tribunal observed that
the decision of the Madras High Court in the case of Indian Warehousing
Industries Ltd. (supra) and also the decision of the Kolkata Bench of the
Tribunal in the case of T. P. Roy Chowdhury & Co. Ltd. (69 ITD 135) (Cal.),
dealt with the provisions of S. 40(3) of the Finance Act, 1983. The Tribunal
noted that the definition of asset as applicable to assessment years under
consideration has been amended by the Finance Act (No. 2), 1996 w.e.f. 1-4-1997
and subsequently items 4 and 5 were inserted by the Finance Act (No. 2) w.e.f.
1-4-1999. Upon considering the ratio of the decision of the Pune Bench of ITAT
in the case of Satvinder Singh v. DCWT, (109 ITD 241) (Pune), which dealt with
the amended Section, the Tribunal noted that since a part of the warehouse was
used by the assessee for the purposes of its own business and the part let out
was used by the lessee for commercial purposes, the entire warehouse is held to
be used by the assessee for commercial purposes and in view of the provisions of
S. 2(ea)(i)(5) of the Act the said property is to be excluded as an asset for
the purposes of computing taxable net wealth. The Tribunal upheld the order
passed by the CIT(A).

The appeals filed by the
Revenue were dismissed.

levitra

S. 23 (1)(a) — Municipal ratable value determining factor — Rent received more — Actual rent to be annual value — Notional interest on interest-free security deposit/rent received in advance not to be added.

fiogf49gjkf0d
New Page 1Part B :
UNREPORTED DECISIONS

(Full texts of the following Tribunal decisions are available at
the Society’s office on written request. For members desiring that the Society
mails a copy to them, Rs.30 per decision will be charged for photocopying and
postage.)

14 DCIT v. Reclamation
Realty India Pvt. Ltd.

DCIT v. Reclamation
Properties India Pvt. Ltd.

DCIT v. Reclamation Real
Estate Co. India Pvt. Ltd.

ITAT ‘D’ Bench, Mumbai

Before N. V. Vasudevan (JM)
and

Pramodkumar (AM)

ITA No. 1411/Mum./2007,
1412/Mum./2007 and 1413/Mum./2007

A.Y. : 2004-05. Decided on :
26-11-2010

Counsel for assessee/revenue
:

Aarati Vissanji/Jitendra
Yadav

 

Income-tax Act, 1961, S. 23
— For applying provisions of S. 23(1)(a) of the Act, municipal valuation/ratable
value should be the determining factor — Since the rent received by the assessee
was more than the sum for which the property might reasonably be expected to let
from year to year, the actual rent received should be the annual value of the
property u/s.23(1)(b) of the Act — Notional interest on interest-free security
deposit/rent received in advance should not be added to the same in view of the
decision of the Bombay High Court in the case of J. K. Investors (Bombay) Ltd.

Per Bench :

 

Facts :

M/s. Reclamation Real Estate
Co. Pvt. Ltd., the assessee, owned premises admeasuring 15,645 sq.ft. situated
on 9th floor of a building known as Mafatlal Centre (‘the property’). It had let
out the property to J. P. Morgan Chase Bank on an annual rent of Rs.2,87,87,660.
The lease commenced from 17-12-1998 for a period of 152 weeks up to November
2001. The lease was thereafter renewed for a further period of 156 weeks from
November 2001. The lease was to expire in November 2004. When the lease was
renewed in April 2002, the entire rent for the period of lease i.e., for 156
weeks, was paid by the tenant. This was a sum of Rs.8,58,91,050. In addition,
the tenant also paid a refundable interest-free security deposit of
Rs.2,60,00,000. Rate of rent at Rs.2,87,87,660 (being rent for the previous year
2003-04) in terms of rate per sq.ft. worked out to Rs.152.50 per month.
Municipal valuation of the property was Rs.27,50,835.

Since the amount of rent
received (Rs.2,87,87,660) was more than the municipal valuation of the property,
the assessee adopted actual rent received as the annual value of the property.

According to the AO, the
municipal valuation as adopted by the municipal authorities did not reflect the
true sum for which the property might reasonably be expected to let from year to
year. He held that the rent of Rs.152.50 per sq.ft. was too low and the rent was
reduced due to the fact that the rent for the entire period of lease was paid in
advance and tenant had also given an interest-free security deposit. He
estimated the annual value by allocating notional interest on rent received in
advance and interest-free security deposit and arrived at an annual value of
Rs.3,42,23,856. He held that he was not adding notional interest on security
deposit and rent received in advance to the actual rent received for determining
annual value u/s.23(1)(b) of the Act, but was treating the same as the sum for
which the property might reasonably be expected to let from year to year
u/s.23(1)(a) of the Act.

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

Aggrieved the Revenue
preferred an appeal to the Tribunal.

Held :

The Tribunal considered the
original provisions of S. 23 of the Act and the amendments made thereto by
Taxation Laws Amendment Act, 1975 w.e.f. 1-4-1976 and noted that :


(i) Circular No. 204,
dated 24-7-1976 gives an indication as to how the expression ‘the sum for
which, the property might reasonably be expected to let from year to year’
used in S. 23(1)(a) has to be interpreted;

(ii) the Calcutta High
Court in CIT v. Prabhabati Bansali, (141 ITR 419) concluded that the
municipal valuation and the annual value u/s. 23(1)(a) are one and the same;

(iii) the decision of
the Calcutta High Court has been followed by the Bombay High Court in the
case of M. V. Sonawala v. CIT, 177 ITR 246 (Bom.);

(iv) the Bombay High
Court has in the case of Smitaben N. Ambani v. CWT, 323 ITR 104 (Bom.) in
the context of Rule 1BB to the Wealth Tax Rules, which uses the same
expression ‘the sum for which the property might be reasonably expected to
let from year to year’ as is found in S. 23(1)(a) of the Act, held that
ratable value as determined by the municipal authorities shall be the
yardstick.


The Tribunal held that :


(i) the charge u/s.22 is
not on the market rent but is on the annual value and in the case of
property which is not let out, municipal value would be a proper yardstick
for determining the annual value. If the property is subject to rent control
laws and the fair rent determined in accordance with such law is less than
the municipal valuation, then only that can be substituted by the municipal
value;

(ii) the Bombay High
Court which is the jurisdictional High Court has held that ratable value
under the municipal law has to be adopted as annual value u/s.23(1)(a) of
the Act. The decision of the Mumbai Bench of ITAT in the case of Makrupa
Chemicals (108 ITD 95) (Mum.), following the decision of Patna High Court in
the case of Kashi Prasad Katarvk

Section 271(1)(c) – No penalty can be imposed if Assessing Officer has not pointed out any specific fact not disclosed by the assessee or any wrong particulars furnished by the assessee. Based on the primary facts disclosed by the assessee inference drawn by the AO could have been drawn.

fiogf49gjkf0d
Facts:

The assessee is a company incorporated in the USA. It was awarded three distinct contracts by a company in India viz., PGCIL. The contracts entered into were for on shore supply of goods and services as well as for off shore supply of goods. The assessee executed only the offshore supply contract and sub-contracted onshore supply and the major part of the onshore service contracts to an Indian party on cost to cost basis with approval of PGCIL. All the above contracts were being carried forward from preceding years. That in AY 2003-04, on the same facts, the Assessing Officer had accepted that the assessee was not having any PE in India and, therefore, no tax was levied on offshore supply of equipment and services rendered outside India. However, during the year under consideration, the Assessing Officer held that the assessee is having PE in India and accordingly, taxed the income from offshore supply of hardware equipment and also in respect of payment for onshore services. Since a small amount was involved, the assessee, with a view to buy peace and end the litigation, did not file any appeal against the assessment order. The AO then levied penalty u/s. 271(1)(c) of Rs. 13.12 lakh for furnishing inaccurate particulars of income. On appeal, however, the penalty order was struck down by the CIT(A).

Held:

The tribunal noted that the facts of the year under consideration and of assessment year 2003-04 are identical. In AY 2003-04, the Assessing Officer had accepted the assessee’s claim that the assessee company did not have any PE in India. However, on the basis of the same facts in the year under consideration, the Assessing Officer came to the conclusion that there was a PE. The Assessing Officer has not pointed out any specific fact which was not disclosed by the assessee or any wrong particulars furnished by the assessee. It was the question of inference to be drawn from the primary facts which were duly disclosed by the assessee.

The tribunal further observed that merely because the assessee’s claim that it was not having a PE in India was not accepted by the Revenue in the year under consideration, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. It further noted that on identical facts, the assessee’s claim that it was not having a PE was accepted by the Revenue in the immediately preceding year. In view of the above, the tribunal following the decision of the Apex Court in the case of Reliance Petroproducts Pvt. Ltd. [322 ITR 158 (SC)] upheld the order of the CIT(A).

levitra

Nirupama K. Shah v. ITO ITAT ‘B’ Bench, Mumbai Before D. Manmohan (VP) and Rajendra Singh (AM) ITA No. 348/Mum./2010 A.Y.: 2006-07. Decided on: 18-11-2011 Counsel for assessee/revenue: Dr. K. Shivaram/O. A. Mao

fiogf49gjkf0d
Section 54F — Amounts paid for completion of flat purchased in semi-finished condition, pursuant to a tripartite agreement entered into by the assessee with the contractors and the builder form part of cost of new house even though such agreement was entered prior to agreement for purchase of house.

Facts:
The assessee who was 50% co-owner of a flat at Walkeshwar sold the same for a sum of Rs.2.30 crores as per transfer deed dated 15-1-2006. The assessee invested sale proceeds in purchase of a house property vide agreement dated 26-5-2006 for Rs.45.60 lacs. The assessee had before completion of the building incurred expenditure of Rs.43 lakhs as per three supplementary agreements dated 22-4-2006. The assessee, therefore, treated the cost of the new house at Rs.88.60 lakhs for the purpose of claiming deduction u/s.54F.

The assessee explained to the AO that the flat purchased was in a semi-finished condition without flooring, plumbing, wiring, etc. Therefore, for providing internal basic amenities as mentioned in the main agreement, the assessee entered into a supplementary agreements which were also signed by the builder. The AO observed that the supplementary agreements were entered prior to the main agreement. The main agreement did not have reference of the supplementary agreements. The main agreement clearly provided that the builder was providing the flat with all basic amenities required for making the premises habitable. He did not allow the exemption with reference to this sum of Rs.43 lakhs and held the expenditure of Rs.43 lakhs incurred by the assessee to be cost of improvement of the flat, which could not be considered for deduction u/s.54F.

Aggrieved the assessee preferred an appeal to the CIT(A) where he submitted that since the assessee was in urgent need of the flat and the flat being purchased was in skeletal condition, the seller suggested that the assessee engage other contractors for finishing the work. It was because of this reason that the supplementary agreement was entered into before the main agreement. The assessee substantiated his contentions by referring to letter dated 29-3-2006 written by the builder. The CIT(A) confirmed the order passed by the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the assessee took possession of the flat on 15-5-2006 and thereafter the registered deed was executed on 26-5-2006. The Tribunal held that the claim of the assessee cannot be rejected only on the ground that the agreement had been entered into prior to taking over possession of the flat. The claim of the assessee to engage other contractors to expedite work as suggested by the builder cannot be held unjustified on the facts of the case. It held that all expenditure incurred for acquisition of the new flat prior to taking over possession has to be considered as part of the cost. However, in order to verify that the assessee has not claimed any bogus expenditure to inflate the cost so as to claim higher deduction or show double expenditure in respect of the same type of work, the Tribunal set aside the order passed by the CIT(A) and restored the matter to the file of the AO for passing a fresh order after necessary examination.

The Tribunal allowed the appeal filed by the assessee.

Note: It appears that the reference to section 54F should be a reference to section 54, since the assessee had sold a residential house.

levitra

Karwat Steel Traders vs. ITO Income tax Appellate Tribunal Mumbai Bench “A”, Mumbai Before B. Ramakotaiah (A. M.) and Vivek Varma (J. M.) ITA No. 6822 / Mum / 2011 A Y 2008-09. Decided on 10.07.2013 Counsel for Assessee / Revenue: K. S. Choksi / Manoj Kumar

fiogf49gjkf0d
Section 40(a)(ia) – No disallowance can be made merely on the ground of non filing of Form 15H / 15G to CIT as prescribed u/r 29C.

Facts:
The AO had disallowed interest paid to various parties amounting to Rs. 5.3 lakh u/s. 40(a)(ia) on the ground that the assessee had not filed Form 15H /15G to CIT as prescribed u/r 29C. On appeal, the CIT(A) upheld the order of the AO.

Held:
According to the tribunal, u/s. 40(a)(ia) the amount cannot be allowed as deduction only when tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid. In the case of the assessee, since the assessee had received the prescribed forms viz., Form 15H / 15G, from the parties to whom interest was paid, there was no liability to deduct tax. For nonfurnishing of Form 15H / 15G to the CIT as prescribed under the Act, according to the tribunal, it may result in invoking penalty provisions u/s 272A(2)(f). Since no tax was deductible, the tribunal held that the provisions of section 40(a)(ia) were not applicable to the facts of the case and the interest paid was allowable as deduction. In coming to the above conclusion the tribunal also relied on the decision of the co-ordinate bench in the case of Vipin P. Mehta vs. ITO (2011) [11 taxmann.com 342 (Mum)].
levitra

ACIT vs. Goodwill Theatres Pvt. Ltd. ITAT Mumbai `G’ Bench Before R. K. Gupta (JM) and N. K. Bllaya (AM) ITA No. 8185/Mum/2011 A.Y.: 2008-09. Decided on: 19th June, 2013. Counsel for revenue / assessee: D. K. Sinha / Vijay Mehta

fiogf49gjkf0d
Mesne Profits received, for unauthorized occupation of the premises, constitute capital receipt not chargeable to tax. The decision of the Madras High Court in the case of CIT vs. P. Mariappa Gounder (147 ITR 676) is distinguishable on facts.

Mesne profits, being capital receipts, were deductible while computing book profits u/s. 115JB.

Facts I :
During the year under consideration the assessee company received mesne profits for unauthorised occupation of the premises from Central Bank of India who was in possession of rented premises belonging to the assessee.

The tenancy of Central Bank of India (“the Bank”) ended on 01-06-2000. The Bank handed over possession of the premises to the assessee on 30-09- 2003 though the Supreme Court had vide its order directed the bank to handover the possession by 30- 06-2003. The Small Causes Court vide its order dated 28-03-2007 (received by the assessee on 30th June, 2007) disposed off the suit filed by the assessee company for mesne profit for the period 01-06-2000 to 30-09-2003 by fixing the compensation to be Rs. 3,33,38,960 plus interest thereon at 6% i.e. Rs. 8,33,474 per month.

The application of the Bank to stay execution and operation of the order dated 28-03-2007 was disposed of by the Small Causes Court by directing the Bank to pay Rs. 1,47,28,280. The Bank also filed an appeal against the determination of mesne profits, which appeal was admitted and was pending. In the meantime, the Bank paid assessee company Rs. 1,47,28,280 which the assessee regarded it as capital receipt. The Assessing Officer relying on the ratio of the decision of the Madras High Court in the case of P. Mariappa Gounder 147 ITR 676 (Mad) considered this amount to be chargeable to tax.

Aggrieved, the assessee preferred an appeal to CIT(A) who held that in the case before the Madras High Court which has been affirmed by the Supreme Court the issue was of the year of taxability of mesne profit. Relying on the ratio of the decision of Special Bench of Mumbai Tribunal in the case of Narang Overseas P. Ltd. 111 ITD 1, appeal against which was dismissed by Bombay High Court vide order dated 25-06-2009 (ITA No. 1797 of 2008), the CIT(A) allowed the appeal of the assessee.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Fact II : The assessee had treated the sum of Rs. 1,47,28,280 as capital receipt and had taken it directly to capital reserve account without crediting the profit & loss account. The AO held that since the receipt is revenue in nature the same needs to be added back to book profit in view of the provisions of section 115JB. He brought the same to tax while computing the book profits.

Aggrieved, the assessee preferred an appeal to CIT(A) who deleted the addition by observing that the receipt is capital in nature. However, while deleting the addition he observed that since the mesne profit is reflected in profit & loss account, it is rightly taxable for computing book profit, hence, on principle, the findings of AO were upheld. Aggrieved by these observations the assessee preferred an appeal to the Tribunal.

Held I: The Tribunal noted that the AO decided the issue against the assessee by following the decision of Madras High Court in the case of P. Mariappa Gounder (supra). The Special Bench of the Mumbai Tribunal has while deciding the case of Narang Overseas (supra) considered the decision of the Madras High Court and also the decision of the Supreme Court confirming the decision of the Madras High Court. It also noted that the decision of the Special Bench has been confirmed by the Bombay High Court vide order dated 25-06-2009. The Tribunal found the order of CIT(A) to be in consonance with the order of the Special Bench. The Tribunal confirmed the order of the CIT(A) on this issue.

Held II: The Tribunal held that since the mesne profit is capital in nature in view of the decision of the Special Bench, they cannot be brought to tax u/s. 115JB of the Act. Even Explanation 2 to section 115JB supports the case of the assessee. CIT(A) was justified in deleting the addition computed by the AO u/s. 115JB of the Act. The Tribunal observed that the assessee’s counsel is correct in objecting to the findings of the CIT(A).

levitra

Section 32, Appendix to Income-tax Rules – UPS being energy saving device is entitled for higher depreciation @ 80%.

fiogf49gjkf0d
Facts:

The assessee claimed depreciation on UPS @ 80% on the ground that it is employed by it as an energy saving device. The claim of the revenue was that the same is not an energy saving device but an energy supply device.
Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:

The Tribunal noted that the issue is covered by the decision of the Tribunal in assessee’s own case for A.Y. 2002-03 in ITA No. 2792/M/06; for AY 2003-04 in ITA No. 1071/M/2007; for AY 2004-05 in ITA No. 5569/M/2007 and for AY 2005-06 in ITA No. 6964/M/2008. The Tribunal noted the following observations in respect of AY 2002-03:

“13. We have heard the rival contentions. Short question is whether UPS is a `Automatic Voltage Controller’ falling within the heading of energy saving device in the Appendix to the Income-tax Rules, 1962 giving depreciation rates. Legislature in its wisdom has chosen to show an Automatic Voltage Controller as an electrical equipment eligible for 100% depreciation, falling under the broader head of energy saving devices. Once Legislature deemed that an `Automatic Voltage Controller’ is a specie falling within energy saving device, it is not for the Assessing Officer or Ld CIT(A) to further analyse whether such an item would (sic was) indeed be an energy saving device. In fact it is beyond their powers. Hence the only question to answer, in our opinion is whether an UPS is an `Automatic Voltage Controller’. It is mentioned in the product brochure (Paper Book Page 64) that the UPS automatically corrected low and high voltage conditions and stepped up low voltage to safe output levels. Thus in our opinion, there cannot be a quarrel that UPS was doing the job of voltage controlling automatically. Even when it was supplying electricity at the time of power voltage, the voltages remained controlled. Therefore in our opinion, a UPS would definitely fall under the head of `Automatic Voltage Controller’. We are fortified in taking this view by the decision of Jodhpur Bench in the case of Surface Finishing Equipment (supra). As for the decision of the Delhi Bench in the case of Nestle India (supra) referred by the Ld. DR, there the question was whether UPS could be considered as `computer’ for depreciation rate of 60%. There was no issue or question, whether it could be considered as an Automatic Voltage Controller and hence in our opinion that case would not help the Revenue here. Therefore, we are of the opinion that the assessee was eligible for claiming 100% depreciation on UPS. Disallowance of Rs. 6,82,443 therefore stands deleted. Ground number 3 is allowed.”

Following the above mentioned decision, the Tribunal decided the issue in favour of the assessee.

This ground was decided in favour of the assessee.

levitra

S. 2(24) — Income — Whether the receipts of non-occupancy charges, transfer fees and voluntary contribution from its members by the cooperative housing society is taxable — Held, No.

fiogf49gjkf0d
New Page 1

11. ITO v. Grand Paradi CHS
Ltd.


ITAT ‘G’ Bench, Mumbai

Before D. K. Agarwal (JM)
and

A. L. Gehlot (AM)

ITA No. 521/Mum./ 2010

A.Y. : 2005-06. Decided on :
27-8-2010

Counsel for revenue/assessee
: A. K. Nayak/Dharmesh Shah

S. 2(24) of the Income-tax
Act, 1961 — Income — Whether the receipts of non-occupancy charges, transfer
fees and voluntary contribution from its members by the cooperative housing
society is taxable — Held, No.

Per D. K. Agarwal :

Facts :

The assessee was a
co-operative housing society. During the year under appeal, it had shown
following receipts in its accounts which is the subject matter of dispute :


(i) Non-occupancy
charges (sub letting charges) — Rs.13.24 lakh;

(ii) Transfer fees of
Rs.1.95 lakh;

(iii) Voluntary
contribution (Donation) from outgoing members and incoming members Rs. 54.52
lakh;


The assessee contended that
all the above three receipts were exempt from tax on the principle of mutuality.
However, the AO, following the decisions of the Bombay High Court in the case of
Presidency Co-op. Housing Society Ltd. (216 ITR 321) taxed the above receipts.
On appeal, the CIT(A) relying on the decisions of the Bombay High Court in the
cases of Shyam Co-op. Housing Society Ltd. (ITA Nos. 92, 93 and 206, dated
17-7-2009) and Su Prabhat



Co-op. Housing Society Ltd. v. ITO, (ITA No. 1972 of 2009, dated 1-10-2009),
allowed the appeal of the assessee.

The Revenue challenged the
order of the CIT(A) before the Tribunal on the ground that the two decisions
relied on by the CIT(A) have not been accepted by the Department and the same is
challenged before the higher authority. Thus, according to it, the matter was
sub-judice.

Held :

As regards non-occupancy
charges — the Tribunal relying on the decision of the Bombay High Court in the
cases of Su Prabhat Co-op. Housing Society Ltd. upheld the order of the CIT(A).
With regard to transfer fee and voluntary contribution — it agreed with the
assessee and held that its case was covered in favour of the assessee by the
decision of the Bombay High Court in the case of Sind Co-op. Housing Society
Ltd. v. ITO, (317 ITR 47).

According to the Tribunal, the decision of
the Bombay High Court in the case of Presidency Co-op. Housing Society Ltd.
relied on by the Revenue, had been distinguished by the Bombay High Court in the
case of Sind Co-op. Housing Society Ltd. Further, it observed that the Revenue
was not able to show any other contrary decisions. As regards the Revenue’s
contention about the non-acceptance of the Bombay High Court decisions, since
the same have been challenged, the Tribunal based on the Bombay High Court
decision in the case of Bank of Baroda v. H. C. Srivastava and another, (256 ITR
385) held that the ground taken by the Revenue was devoid of any merit and
accordingly, the same was rejected.

levitra

Section 50C does not apply to transfer of immovable property held through company.

fiogf49gjkf0d
15. Irfan Abdul Kader Fazlani vs. ACIT ITAT Mumbai bench ‘I’ Mumbai BeforeI.P.Bansal(J.M.)andD.KarunakaraRao (A. M.)
ITA No. 8831/Mum/11
A.Y.: 2007-08.
Dated: 2-1-2013
Counsel for Assessee/Revenue: K. Shivaram & Paras S. Savla/P.K. Shukla

Section 50C does not apply to transfer of immovable property held through company.


Facts

The assessee was holding 306 equity shares of Rs. 100 each in a private company (‘the company’). The total share capital of the company was 3,813 equity shares of Rs. 100 each. The company owned two flats in a residential building and was earning rent income from the same. During the year under appeal the assessee sold the shares for Rs. 37.51 lakh and capital gain was offered on that basis. According to the AO the assesse engineered the sale of the shares of all other shareholders of the company and thereby effectively transferred the immovable property belonging to the company. According to him, it was an indirect way of transferring the immovable properties, being the flats in the building. He accordingly ‘pierced the corporate veil and invoked the provisions of section 50C and computed the capital gains by adopting the stamp duty value of the flats.

Held

The tribunal noted that the provisions of section 50C applies on fulfillment of two conditions viz., (i) when a transfer of “capital asset, being land or building or both” takes place; and (ii) the consideration for a transfer is less than the value “assessed” by any authority of a State Government for stamp duty purposes. It further observed that the term “transfer” as used in the provisions would only cover direct transfer. While in the case of the assesse, the assets transferred were shares in a company and not land and/or building. The flats were owned by the company who continues to remain its owner even after the transfer of the shares by the assesse. Secondly, the consideration for transfer received by the assesse is also not “assessed” by any authority. Thus, the other condition to attract the provisions of section 50C is also not complied with. According to it, since the provisions of section 50C are deeming provisions, the same have to be interpreted strictly in accordance with the spirit of the provisions. Therefore, the appeal filed by the assesse was allowed and it was held that the AO’s decision to invoke the provisions of section 50C to the tax planning adopted by the assessee was not proper and it does not have the sanction of the provisions of the Act.

levitra

S. 250(6) — An order passed by CIT(A) without mentioning point of determination as also without giving any reason for decision while dismissing the appeal is violative of S. 250(6).

fiogf49gjkf0d
New Page 1Part B :
UNREPORTED DECISIONS

(Full texts of the following Tribunal decisions are available at
the Society’s office on written request. For members desiring that the Society
mails a copy to them, Rs.30 per decision will be charged for photocopying and
postage.)

13 Rang Rasayan Agencies v.
ITO

ITAT ‘C’ Bench, Ahmedabad

Before Bhavnesh Saini (JM)
and

D. C. Agrawal (AM)

ITA No. 917/Ahd./2009

A.Y. : 2004-05. Decided on :
18-1-2011

Counsel for assessee/revenue
:

Ketan M. Bhatt/Ms. Anurag
Sharma

 


Income-tax Act, 1961, S.
250(6) — An order passed by CIT(A) without mentioning point of determination as
also without giving any reason for decision while dismissing the appeal is
violative of S. 250(6) of the Act and cannot be sustained in law.

Per Bhavnesh Saini :

 

Facts :


The assessee had preferred
an appeal to the CIT(A). Due to non-appearance by the counsel of the assessee
before the CIT(A), the CIT(A) dismissed the appeal of the assessee. In the order
passed by the CIT(A), he did not mention the point for determination and also
did not mention the reason for decision.

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


Held :


The Tribunal noted that S.
250(6) requires the CIT(A) to mention the point of determination in the
Appellate order and also the reason for decision. Since the order passed by the
CIT(A) did not mention any point of determination in the Appellate order and
also did not give any reason for decision while dismissing the appeal of the
assessee, the Tribunal held the order of the CIT(A) to be violative of S. 250(6)
of the Act and consequently unsustainable in law. The Tribunal observed that the
act of the CIT(A) in merely noting the default committed by the counsel for the
assessee in not putting appearance before him and dismissing the appeal cannot
be sustained. Accordingly, the Tribunal set aside the impugned order and
restored the appeal of the assessee to the file of the CIT(A) with a direction
to re-adjudicate the appeal of the assessee on merit by giving reasons for
decision in the Appellate order.

The appeal filed by the
assessee was allowed.


levitra

Section 246A, Rule 45(2) – Once the appeal filed by the assessee if found to be legally invalid and dismissed as such, the assessee can file another appeal which has to be considered along with condonation application, and if admitted has to be decided on merit.

fiogf49gjkf0d
Facts:

Aggrieved by the exparte order dated 31-12-2008 passed by the Assessing Officer (AO) u/s 144 of the Act the assessee filed an appeal to CIT(A). The memorandum of appeal was signed by CA, Shri S. U. Radhakrishnani, as authorised representative. Since the assessee neither submitted any valid power of attorney nor was there any explanation as to why the appeal was not signed by the assessee, CIT(A) vide order dated 11-10-2010 dismissed the appeal as invalid. Thereafter, the assessee filed a fresh appeal on 7-3-2011 along with application for condonation of delay. The CIT(A) in his order dated 22-12-2011 held that the appeal filed by the assessee against the assessment order had already been adjudicated by CIT(A) and dismissed. There was no provision for filing of an appeal when the first appeal had been dismissed. The appeal was also filed beyond the time limit. CIT(A) therefore dismissed the appeal in limine. Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:

Once the appeal was treated as invalid, the same became non-est. The assessee had the right to file another appeal which of course has to be considered as delayed appeal and, in case delay is condoned, the appeal has to be decided on merit. The Tribunal held that the view taken by CIT(A) does not represent the correct view and therefore, has to be rejected. Once the appeal filed by the assessee is found to be legally invalid and dismissed as such, the assessee can file another appeal which has to be considered along with condonation application and, if admitted after due consideration of condonation application, it has to be decided on merit.

The Tribunal restored the matter to CIT(A) for deciding the same afresh after necessary examination in the light of observations made by the Tribunal.

As regards the first appeal which was not signed by the assessee, disposal by CIT(A) was considered as just and fair and the same was upheld.

levitra

Tribunal News: PART B

Bomi  S. Billimoria    v. ACIT ITAT ‘F’ Bench, Mumbai Before  D. Manmohan (VP) and J. Sudhakar Reddy (AM)
ITA No. 2120/Mum./1998 A.Y. : 1993-94. Decided on:  30-6-2009

Counsel for assessee/revenue: Prakash Jotwani/ J. V. D. Langstieh

S. 48 – Amount received on transfer of shares under cashless option not liable to tax under the head ‘Income from Capital Gains’ since such option does not have cost of acquisition.

Per D. Manmohan :

Facts:

The assessee was an employee of Johnson & Johnson, Bombay which was a subsidiary of Johnson & Johnson, USA. Under stock option plan, the USA company granted to the assessee, on 7-12-1989, a cashless option to purchase 2500 shares of Johnson & Johnson, USA at a price of USD 57.88 per share which price was the fair market value of the stock on the day of granting the option. The Reserve Bank of India had approved the stock option scheme on the condition that there should not be any payment, either in India or abroad, for acquiring the shares.

During the previous year relevant to A.Y. 1993-94, on 13-8-1992, the assessee exercised his option to realise the value of the options under the scheme and accordingly sold 1000 shares in USA and received a sum of Rs.4,59,405 in Indian currency. After considering the amount retained in USD in EEFC Account and also the bank charges the net gain was computed at Rs.5,44,925. The assessee regarded this amount as a capital  receipt  not chargeable    to tax.

The Assessing Officer (AO) held the profit on sale of option to be chargeable either as salary or short term capital gains or as speculation profit.

The CIT(A) held that the shares obtained under the ESOP were a capital asset and as they were held for less than 3 years, the gain was assessable as short term capital gain. He rejected the argument that as there was no ‘cost of acquisition’, ‘the capital gains were not assessable.

Aggrieved, the assessee preferred an appeal to the Tribunal. The issue before the Tribunal was whether the amount received by the assessee was liable to tax under the head’ capital gains’ and if so whether there was any cost of acquisition so as to bring to tax the net receipts.

Held:

    1) As the CIT(A) had held that the shares acquired under ESOP amounted to acquisition of a capital asset one had to proceed on that premise;

    2) Since on the date of exercising the option there was no cost of acquisition of shares, in accordance with the ratio of the decision of the Apex Court in the case of B. C. Srinivasa Shetty (128 ITR 294) the gains could not be taxed;

    3) Even if it is assumed that the market value of the shares is the benefit given to the assessee, such benefit can be said to accrue to the assessee only on the date of exercise of the option. As the date of exercise of option as well as the date of sale is the same, there was no difference between the ‘deemed cost of acquisition’ and the actual price realised by assessee and thus there is no capital gain chargeable to tax.

The Tribunal allowed the appeal filed by the assessee.

2. Shree Capital Services Ltd. v. ACIT ITAT Special Bench Kolkata Before G. D. Agrawal (VP) and B. R. Mittal (JM) and C. D. Rao (AM) ITA No. 1294 (Kol.) of 2008

AY.  : 2004-05. Decided on: 31-7-2009

Counsel for assessee/revenue: Manish Sheth/ Sushil Kumar s. 43(5) – For a period prior to A. Y. 2006-07 transactions in futures and options are speculative transactions u/s.43(5) – S. 43 (5) (d) is not retrospective.

Per G. D. Agrawal :

Facts:

During the previous year relevant to A.Y. 2004-05 the assessee company, which was engaged in the business of financing and investment in shares and securities, suffered a loss of Rs.9,25,065 on account of futures and options. The Assessing Officer (Aa) treated the same as speculation loss as per S. 43(5) of the Act.

The CIT(A) confirmed the order of the Aa. Aggrieved, the assessee preferred an appeal to the Tribunal. The Special Bench (SB) of the Tribunal adjudicated two questions viz. (i) whether a transaction in derivatives falls within the meaning of ‘speculative transaction’ as provided u/s.43(5); and if the answer to the first question is in the affirmative, whether clause (d) of S. 43(5), introduced by the Finance Act, 2005 w.e.f. 1-4-2006, is clarificatory in nature and therefore retrospective in operation.

Held:

    1. Derivative is a security which derives its value from the underlying assets. When the underlying asset of any derivative is share and stock, for all practical purposes, the treatment given to such derivative should be similar to stock and securities.

    2. S. 43(5) uses the term ‘commodity’ in a very wide sense and covers ‘derivatives’.

    3. The fact that S. 43(5)(d) exempts certain derivatives from the ambit of the definition of ‘speculative transaction’ itself shows that they would otherwise have come within the term. If ‘derivatives’ are held to be not covered by the definition of ‘speculative transaction’ the amendment would be redundant.

    4. Since clause (d) of S. 43(5) does not exempt all transactions in derivatives but only the ‘eligible transactions’ on ‘recognised stock exchanges’ this clause cannot be held to be clarificatory. Further, Rules 6DDA and 6DDB which deal with ‘recognised stock exchanges’ were inserted w.e.f. 1-7-2005. Consequently, clause (d) of S. 43(5) applies to AY. 2006-07 and onwards.

The Tribunal dismissed the appeal filed by the assessee.

3. Western Coalfields Ltd. v. ACIT  ITAT Nagpur Bench
Before N. L. Dash (JM) and V. K. Gupta (AM)
IT A No. 289 and  290/N ag.l2006

AYs.  : 2002-03 and  2003-04. Decided on:  30-6-2009 Counsel for assessee/revenue: Nani Daruwala/ A K. Singh

Explanation to S. 37(1) – Penalty which is not of the nature of illegal! unlawful expenditure is not covered by the Explanation to S. 37(1).

Per V. K. Gupta :

Facts:

The assessee company was a colliery which trans-ported coal to Electricity Boards in railway wagons. Freight paid to the railways depended upon the carrying capacity of the wagons. In case the wagons were overloaded as compared to their carrying capacity, the railways charged ‘overloading charges’ at a rate which was generally six times the normal freight. The assessee’ claimed these overloading charges as a deduction on the ground that they have been incurred for a commercial purpose and were not for infraction of any law. The Assessing Officer (Aa), however, held these to be penal in nature and did not allow the same.

The CIT(A)  confirmed the  action of the AO.

Aggrieved, the assessee preferred-an appeal to the Tribunal.

Held:

The Tribunal observed that had the amounts been paid to a private carrier the same would have been allowable. The fact that the same are paid to Railways which is an institution owned by the Government, working under an Act of Parliament, the nature of overloading charges which are essentially of commercial nature cannot be characterised as of penal nature irrespective of the nomenclature given to such charges by the Railways. It held that:

    i. the substance of the matter has to be looked into and given preference over the form;

    ii. the amount was essentially of a commercial nature and incurred in the normal course of the business and was consequently allowable;

    iii. the object of Explanation 1 also supports the claim of the assessee as these expenses are not of the nature of any illegal/unlawful expenditure;

    iv. the decision of Punjab & Haryana High Court in the case of Hero Cycles Ltd. is squarely applicable.

This ground was decided in favor  of the assessee.

4. ACIT v. RPG Life Sciences Ltd. ITAT ‘C’ Bench, Mumbai Before P. M. Jagtap (AM) and V. D. Rao OM) ITA No. 1579/Mum.l2006

A.Y. : 2002-2003. Decided on:  31-8-2009
Counsel  for revenue/assessee:
Yashwant  V. Chavan/B. V. Jhaveri

S. SOB read with S. 2 (42 C) – Slump sale – Sale of one of the manufacturing divisions of the assessee
– Whether the transaction could be considered as slump sale – On the facts, Held: No.

Per P. M. Jagtap  :

Facts:

The assessee was engaged in the business of manufacturing pharmaceutical and agrochemical prod-ucts. During the year under consideration, its agro-chemical division was sold for an agreed consider-ation of Rs.72.70 crares. During the course of assessment proceedings, the assessee was asked to explain as to why the said sale be not treated as a slump sale and capital gain arising therefrom be not computed u/ s.50B. In reply, the assessee explained that it had sold the assets and liabilities of its agrochemical division by identifying the value of each and every item. In support, the break up of the agreed consideration of Rs.72.7 crore was given. The attention of the AO was drawn to the various schedules of the agreement where the fixed assets were valued item-wise by ascertaining the value of land, building, plant and machinery, furniture and fixtures and capital work-in-progress separately.

However, the assessee’s submissions were not found acceptable by the AO for reasons, amongst others, as under:

Assessee had transferred the entire undertaking as a going concern along with all existing employees.

The intention of the contracting parties was to sell the agrochemical undertaking and not the land, building, plant and machinery and furniture and fixtures and other intangible and current assets, all of which comprised the agro-chemical division separately.

The individual assets of agrochemical division I.were not separately valued but only group of assets were valued.

The valuation report valuing individual assets and/or schedules to the agreement listing out individual assets and value thereof have no relevance unless the consideration is determined on the basis of itemised value.

All the licences, old records of account books, vouchers pertaining to agrochemical business were also transferred by the assesses.

Accordingly, it was held that that the sale of the agrochemical division by the assessee was slump sale and the capital gain arising there from was chargeable to tax in its hand as per the provisions of S. SOB.

On appeal the CIT(A) accepted the stand of the assessee that sale of its agrochemical division was not a slump sale.

Held:

The Tribunal noted that as confirmed by the CIT(A) in his order – all the fixed assets as well as the current assets of agrochemical division were valued. The fixed assets were valued itemised by ascertaining the value of each and every asset separately and after adding non-compete fee of Rs.4 crores to the said value, the value of the fixed assets was worked out at Rs.54.33 crores. In a similar manner, net current assets were valued at Rs.58.38 crores and after deducting the value of net current liabilities therefrom, the total value was arrived at Rs.88.68 crores. As against the said value, the consideration finally agreed was Rs.72.70 crores and the reconciliation to explain the difference between the same was also furnished. The Revenue was not able to controvert or rebut the findings recorded by the CIT(A). Therefore, the Tribunal upheld the order of the CIT(A).