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DIRECT TAXESTribunals

554. S. 2(14) : Capital asset – Capital gains – Agricultural land – Outside municipal limits. (S. 45)

During the relevant assessment year, the assessee sold a piece of land. According to assessee the said land was agricultural land and did not fall within the definition of capital asset as defined in section 2(14)(iii) because it was located 9/9 kms., away from local municipality. The Assessing Officer treated the land as capital asset falling within the provisions of section 2(14)(iii). The Tribunal held that in the instance case the agricultural land of the assessee was out side the municipal limits and that also 2.5 kms. away from the outer limits of the said municipality, assessee’s land did not come within the purview of section 2(14)((iii) either under sub clause (a) or (b), hence, the same could not be considered as capital asset within the meaning, hence no capital gain tax could be charged on the sale transaction of the land entered by the assessee. (A. Y. 2007-08).

Dy. CIT v. Arjit Mitra (2011) 48 SOT 544 (Kol.)

555. S. 2(14) : Capital asset – Capital gains – Agricultural land – Beyond 5 Kms. municipal limits – Not notified. (S. 45)

Assessee company sold certain land which was claimed to be agricultural land and not liable for capital gains tax. Assessing Officer relying on the reply of Tehsildar, Samlakha, observed that the land was situated within the local; municipality limits and thus, it was a "capital asset" as defined in section 2(14), hence, liable to capital gains tax. The Tribunal held that where land belonging to assessee was not located in area falling with in 5 Kms. of local municipal limit as notified by Central Government, it was to be regarded as an agricultural land and ,thus capital gains arising on sale of it was not liable to tax. (A. Y. 2003-04).

ITO v. Gahlot Farmas (P) Ltd. (2011) 48 SOT 303 (Delhi)

556. S. 2(22)(e) : Deemed dividend –Share holder – Unsecured loan

Assessee company not being a shareholder in the company HEBPL, unsecured loan received by the assessee from that company can not be taxed as deemed dividend under section 2(22)(e) in the hands of the assessee company because a common share holder being more than 20 percent shares in both companies. (A. Ys. 2002-03 to 2005-06).

ACIT v. Bombay Real Estate Development Company (P) Ltd. (2011) 64 DTR 137 (Mum.)

557. S. 2(22)(e) : Deemed dividend –Share holder – Security deposit

Assessee company leased out its property to ‘M’ Ltd. for 22 years against an advance of Rs. 320 crores to be adjusted against rent payable by the lessee. A dispute arose between the assessee and M Ltd. and for amicable settlement, a new agreement was entered into between them agreeing thereby, that "M Ltd." would pay security deposit of Rs. 3.80 crores to the assessee to be refunded at the end of lease period and after handing over the possession of the property to the assessee. Assessing Officer treated the security deposit as deemed dividend under section 2(22)(e) on the basis that two of the beneficial shareholders of the lease company i.e. M Ltd were also shareholders and had substantial interest in the assessee company. The assessee submitted that it neither

held any share in" M Ltd. nor had any beneficial interest in the said company and that deemed dividend in terms of section 2(22)(e) can be assessed only in hands of a person who is a shareholder of the lender-company and not in the hands of a person other than a shareholder. The Tribunal accepted the contention of assessee and held that deemed dividend can be assessed only in the hands of a person who is a shareholder of lender company and not in hands of a person other than a share holder. Expression "share holder being person who is beneficial owner of shares" referred in first limb of section 2(22)(e), refers to both a registered share holder and beneficial share holder. If a person is a registered share holder but not beneficial then provision of section 2(22)(e) will not apply, similarly, if a person is a beneficial share holder but not registered shareholder then also provision of section 2(22)(e) will not apply. Accordingly the order of Commissioner (Appeals) who has deleted the addition was confirmed. (A. Y. 2003-04)

Dy. CIT v. Madusudan Investment & Trading Co. Ltd. (2011) 48 SOT 360 (Kol.)

558. S. 4 : Income – Chargeable – Interest on Income-tax refund – Set off against tax paid – Gross or net

Assessee earned interest income on income tax refund. It also paid interest on late payment of tax. Assessee claimed that interest paid by it was to be set off against interest received and it was only net interest was liable to tax. The assessing officer rejected the claim. The Tribunal confirmed the view of the Assessing Officer that the gross interest was liable to be assessed. (A. Y. 1992-93)

Dy. CIT v. Sandvik Asia Ltd. (2011) 133 ITD 126 (Pune)(TM)

559. S. 4 : Income – Accrual – Housing project – Project completion method – Certificate of completion – Occupancy certificate – Handing over of possession

Assessee following the project completion method of accounting having completed the construction of flats in all respect according to the specifications and handed over to same to the purchasers only after the end of the financial year 2006-07, revenue in respect of the said flats is to be recognized in assessment year 2008-09 and not in the relevant assessment year i.e. 2007-08, though the occupancy certificates were obtained on 26th June, 2006 and 29th September, 2006. (A. Ys. 2002-03 to 2005-06).


560. S. 4 : Income – Court decree – Capital receipt – Income from other sources – Easement. (S. 56)

In year 2004, the assessee had purchased certain land. On the eastern side of property, "P" a public company of developers, had trespassed assessee’s property by using a private road to reach their land located the said property. To get the encroached portion retrieved, the assessee filed civil suit for restraining that company’s entry on assessee’s land. As per the Court decree resulted in to by way of compromise between parties, the assessee permitted the use of private road enabling "P" to reach its property and in turn "P" paid certain amount to assessee. The assessee treated the said receipt as capital receipt. The assessing officer treated the said receipt as rent and taxable as income from house property. Commissioner (Appeals), reversed the finding of Assessing Officer. The Tribunal held that there being no relationship of land lord and tenant, between parties, amount received by assessee was only a capital receipt could not be taxed under the Act being an intangible asset having no cost. The Tribunal also held that the said receipt cannot be taxed as income from other sources. (A. Y. 2007-08).

Dy. CIT v. T. Kannan (2011) 48 SOT 374 (Chennai)

561. S. 4 : Income – Capital receipt –Business income – Capital gains. [S. 28(i), 45]

Assessee, administrator of the estate of deceased, having purchased the right to receive the sale proceeds of the estate by entering into an indenture with the legatee on account of close personal relations with her and not for overriding commercial considerations. The transaction cannot be construed as an adventure in the nature of trade. The said receipt cannot be taxed even as capital gains as the estate continued to be the owner of the properties and as such payment did not result in extinguishment of assessee’s right hence there was no transfer of any capital asset.(A.Y.2004-05).

Dy CIT v Nusli Neville Wadia (2011) 61 DTR 218/ 141 TTJ 521 (Mum)

562. S. 4 : Income – Cenvat credit

Cenvat credit available to the assessee does not constitute income in the hands of the assessee.

ACIT v. Mercury Rubber Mills (2011) 142 TTJ 1 (Delhi)

563. S. 4 : Income – Mutuality – Transfer fee – Non-occupancy charges – Members – Housing Society. [S. 2(24)]

Amount received in excess of the limits prescribed under the law from its members by the Housing Society is also exempt from tax on the principle of mutuality. (A. Y. 2005-06).

ITO v. Damodar Bhuvan CHS Ltd. ITA No. 1610/Mum/2010 dated 16-9-2011 Bench ‘D’. 421 (2012) 43-B BCAJ. (2012) Jan 33

564. S. 5 : Income – Accrual – Builder – Slum rehabilitation project – Sale of TDR – Project completion method – Method of accounting. (S. 145)

Assessee being a builder, had taken a slum rehabilitation project. Assessee had been allotted TDR in lieu of handing over possession of constructed transit building. Assessee has sold the TDR in two installments. Assessing Officer taxed the receipts of TDR as independent income. Assessee contended that as they are following project completion method as per AS. 7, income from project had to be computed in year of completion. The Tribunal directed the Assessing Officer to compute the income of project after taking into consideration entire expenditure and receipt from beginning of year including TDRs. In case the project was not found complete, Assessing Officer would set off TDR receipts against work in progress and no income would be assessed on account of TDR receipts separately. (A. Y. 2007-08).

ACIT v. Skylark Build (2011) 48 SOT 306 (Mum.)

565. S. 5 : Income – Accrual – Security deposit – Method of accounting. (S. 145)

Assessee company engaged in manufacturing of ice –creams, cheese, butter, etc., supplied freezers to venders after taking security deposits. On termination of agreement, assessee would own freezers and it would deduct certain percentage of cost of freezers from security deposit. Assessing Officer treated the deposit as income. The Tribunal held that the assessee could not treat these two amounts as receipts in nature of income unless agreement terminated. Tribunal accepted the method of accounting followed by assessee. (A. Y. 2007-08).

High Range Foods (P) Ltd. v. Dy. CIT (2011) 48 SOT 453 (Coch.)

566. S. 9 : Income deemed to accrue or arise in India – Royalties – Fees for included services – Permanent establishment – DTAA – India-USA. [Article 12(3)]

Assessee was non resident incorporated as corporation under Laws of USA. Main object of assessee was to provide high quality medical training and enhance quality of patient care and research by teaching training and sharing medical and technological knowhow with scientists and health care professionals in various countries. During the relevant assessment years the assessee received certain amount from hospitals located in India. Assessing Officer held that 90 per cent of receipts taxable as royalty under Article 12(3) of DTAA between India and USA and 10 percent of payment was in nature of Fees for included services (FIS) taxable under Article 12(4). The Tribunal held that consideration received by assessee could not be said to be royalty as it was not a payment for right to use any copyright, trade mark or industrial, commercial or scientific experience. Assessee also did not make available any technical knowledge, experience, skill for included services. Therefore, it could be concluded that entire payment received by assessee from WHL was in the nature of business profits and since assessee did not have permanent establishment in India, same could not be brought to tax in India. The assessee received certain amount as reimbursement of expenses. Assessing Officer was of the view that reimbursement of expenses was also part of consideration for rendering the services he applied the same ratio. The Tribunal held that if it is held to be business income the same cannot be taxable in India applying as the assessee does not have any permanent establishment. If it is held to be other income the same cannot be brought to tax in view of Article 23(1) of DTAA. Accordingly the Tribunal deleted the addition made by the Assessing Officer. (A. Ys. 2002-03 and 2003-04).

Jt. Director v. Harward Medical International, USA (2011) 48 SOT 623 (Mum.)

567. S. 9 : Income deemed to accrue or arise in India – Permanent establishment – Cargo consolidation – Agent – DTAA – India-Singapore. [S. 163, Article 5(9)]

One "W" Ltd. was engaged in the business of Cargo Consolidation. It received Cargo from various shippers / consignors at Mumbai Port / Container Freight Station Mumbai / JNPT for shipments to various destinations world wide. A delivery schedule of Cargo had to be strictly adhered to. Assessing Officer noticed that "W" Ltd. had payment to assessee, a company located at Singapore on which no tax was deducted at source. Assessing Officer issued show cause notice to "W" Ltd. calling upon to why it should not be treated as an agent of Non-resident under section 163. Assessing Officer estimated profitability at 10 percentage of freight income earned by assessee and same was treated as business income. Commissioner of (Appeals) confirmed the order of Assessing Officer. Tribunal found that "W" Ltd. was acting on behalf of several non-residents and therefore, Article 5(9) was not attracted as the "W" Ltd. had no permanent Establishment in India, even if income accrued or arose to it in form of business income, same could not be taxed in India. (A. Ys. 2002-03 and 2003-04).

WSA Shipping (Bombay) (P) Ltd. v. ADIT (IT) (2011) 48 SOT 551 (Mum.)

568. S. 9 : Income deemed to accrue or arise in India – Business connection – Permanent Establishment – DTAA – India-UK

Non-resident lessor does not have permanent Establishment (PE) or business connection in India on account of leased assets used in India but delivered outside India, provided the lease agreement is entered on principal to principal basis.

DCIT v. Calcutta Test House P. Ltd. (ITA No. 1782/Del/11) Dated 28-10-11, BCAJ, December – 2011, P. 37, Vol 43-B, Part 3

569. S. 9 : Income deemed to accrue or arise in India – Permanent establishment – Liaison office of non-resident – Permanent establishment

Liaison office of non-resident assessee in India carrying out activities of selection of right goods and negotiation of price as part of purchasing process as per instructions of assessee could not be considered as permanent establishment of assessee in India and therefore profit attributable to liaison office could not be held to have accrued or arisen in India. (A. Ys. 2004-05 and 2005-06).

Dy. DIT (International) v. M. Fabricant & Sons Inc. (2011) 48 SOT 576 (Mum.)

570. S. 9(1) : Income deemed to accrue or arise in India – Permanent establishment – Royalty and fees for technical services – DTAA – India – USA. [S. 9(1)(vii) & 90]

In the contract of the kind undertaken by the assessee, if there is a composite consideration, the same can be conveniently segregated in different components. If the profits from supply contract are held to be taxable separately, as the supply is a milestone in the whole contract, then the treatment meted out to profits on sale of equipment and consideration received for supply of software will have to be different, as the two assets are of different nature involving different profitabilities. The A.O. bifurcated in the ratio of 30 : 70. As the assessee was unwilling to give the details the bifurcation made by the A.O. was justified.

Raytheon Company v. DCIT (2011) 62 DTR 1 (Del)

571. S. 9(1)(vii) : Income deemed to accrue or arise in India – Royalties – Fees for technical services – DTAA – India–United Kingdom. [Article 13(4)(c)]

Assessee company, incorporated in London, operated as a recongnized insurance broker and it was licensed to intermediate insurance business by Financial Services Authority (FSA) of United Kingdom. It entered in to an agreement with "N" Ltd., in India to reinsurance on an excess loss basis, catastrophe risk arising from its primary insurance cover in conjunction with "J" "M" "A" and "G" Ltd. For services rendered, assessee along with other insurance brokers acting as an intermediary in reinsurance process for "N" Ltd. would be entitled to 10 % brokerage. Assessing Officer held that the service provided by assessee would be consultancy in nature and payments received by assessee would fall within definition of "fees for technical services". The Tribunal held that since the service rendered by the assessee did not involve technical expertise, nor assessee made available any technical know how, expertise, skill, etc., and was merely acting as an intermediary in process of finalization of reinsurance suggesting various options to Indian Insurance company for their consideration and acceptance, it could not be said that payment received by assessee from insurance company in India was fee for technical services, therefore, it could not be brought to tax in India. (A. Y. 2006-07).

Guy Carpenter & Co. Ltd. v. Addl. Income-tax (2011) 48 SOT 463 (Delhi)

572. S. 9(1)(vii) : Income deemed to accrue or arise in India – Permanent establishment – Fees for technical services – Double taxation relief – DTAA – India-Singapore. (S. 90, Article 5)

Assessee had no fixed place or service permanent establishment in India within the meaning of Article 5 of DTAA between India and Singapore and assessee’s receipts from PB production and generation of live television signals were in the nature of "fees for technical services" and not by way of "business income" since assessee had no PE in India, receipts were taxable at 10 per cent as per Article 12(2), advertisement revenue

received by the assessee in Singapore for matches played abroad was not taxable in India. (A. Ys. 2003-04 & 2004-05).

Nimbus Sport International Pte. Ltd. v. Dy. CIT (2011) 63 DTR 374 (Delhi)

573. S. 9(1)(vi) : Income deemed to accrue or arise in India – Payment for "live telecast" of event is not "royalty" nor arising from "business connection"

The assessee entered into an agreement with Nimbus, a Singapore entity, for receiving and broadcasting matches that were to be played in Bangladesh. The signals to be broadcasted were on account of live matches as well as recorded matches. The assessee applied for a certificate u/s 195 in which it had accepted that the payment on account of recorded matches was in the nature of "royalty" but claimed that the payment towards live matches was not "royalty". The AO held that there was no distinction between the payment for live matches and that for recorded matches and both were assessable as "royalty". He also held that as the matches were to be broadcasted in Indian Territory and the income by way of advertisements and subscription was to be received by the assessee, there was a "business connection" between Nimbus and receipt in India. On appeal, the CIT(A) upheld the AO’s finding on "business connection" though he reversed the finding that the payment for live matches was "royalty". On further appeal by the department, the assessee filed application under Rule 27, challenging, the issue of "business connection". The Tribunal held deciding both issues in favour of the assessee that :

(i) Expl 2 to 9(1)(vi) defines "royalty" to mean consideration for "the transfer of all or any rights in respect of any copyright." Under the Copyright Act, the term "copyright" means the exclusive right to use the "work" in the nature of cinematography. The question of granting exclusive right to do any work can arise only when such "work" has come into existence. The existence of "work" is a precondition and must precede the granting of exclusive right for doing of such work. Unless the work itself is created, there is no question of a copyright of such work. The result is that there is no copyright in live events and depicting the same does not infringe any copyright. Accordingly, the amount paid for broadcast of live matches is not assessable as "royalty" (clause 314 (220) of the Direct Tax Code Bill, 2010 referred to which proposes to define "royalty" to include "live coverage of any event");

(ii) The department’s argument that because the matches will be broadcasted in India and the assessee will earn advertisement & subscription income, Nimbus has a "business connection" in India is not correct because Nimbus has merely given a license for the live broadcast of the matches and continues to retain the rights in such broadcast. The mere act of allowing the assessee broadcast the matches for consideration does not constitute a "business connection" in India. In order to constitute a "business connection", it is necessary that some sort of business activity must be done by the non-resident in the taxable territory of India (CIT v. R.D. Agarwal 56 ITR 20 (SC) referred).

ADIT v. Neo Sports Broadcast Pvt. Ltd. (2011) 133 ITD 468 (Mum.)

574. S. 9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services

In the absence of revenue having brought anything on record to show that assessee was doing construction work, consideration received by assessee was not from doing

construction work and consequently, did not fall within the exclusion of Explanation 2 to sec. 9(1)(vii). Therefore, the income of assessee was liable to tax in terms of sec. 115A at 10%.

Joint Stock Company Zangas vs. ADIT, ITA No. 3399/Ahd/2010, Dated 19-8-11, BCAJ, December – 2011, P. 37, Vol 43-B, Part 3

575. S. 10B : Exempt Incomes –Export Oriented Undertaking – ‘Manufacturing’ includes ‘any Process’ – Conversion of gherkin in to gherkin pickles – Manufacture – Law applicable when business started

Assessee agricultural products processing company was engaged in manufacturing of gherkin pickles by purchasing raw gherkin and putting them through various process. Assessing officer held that the assessee is not doing the manufacturing hence not entitled to exemption under section 10B. The Tribunal held that the assessee started its business on 1-4-1999, and current assessment years fell within the permissible period of 10 years, therefore the provision of section 10B as it stood before its substitution, section 10B and explanation thereto had categorically held that manufacture include any ‘ process’, therefore assessee is entitled exemption under section 10B. (A.Ys. 2005-06 to 2007-08)

Sterling Agro Processing (P) Ltd v. Asst CIT (2011) 48 SOT 80 (Chennai)

576. S. 10(23FB) : Exemption – Income of venture capital company – Interest on deposits with banks

Assessee trust has been registered under the provisions of Registration Act, 1908 and also registered under SEBI as per Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. The assessee deposited certain amount on deposit with banks and earned interest on said deposits. The assessee contended that the entire income must be exempt. Assessing Officer held that investment in fixed deposit has violated the conditions. The Tribunal held that the assessee Trust registered under the provisions of Registration Act 1908, as well as under SEBI (Venture Capital Funds) Regulations, 1996 hence interest income from fixed deposit will be exempt under section 10(23FB) of the Income-tax Act. The Tribunal held that it is only from the Assessment year 2008-09 on wards the income from investment in specified undertakings would be exempt and other income will be taxable. (A. Ys. 2001-02 to 2005-06).

ITO v. Gujarat Information Technology Fund (2011) 64 DTR 169 (Hyd.)

577. S. 10(38) : Exemption – Capital gains – Income arising from transfer of shares – Security Transaction Tax (STT) not paid – Listed Security. (S. 45, 112)

Assessee was a promoter–director of a company "PLL". PLL issued shares for public subscription through initial public offer (IPO) as per SEBI guidelines, which permitted existing shareholders also to sell their shares in IPO for diluting their equity holding. Assessee sold certain shares of "PLL" and received certain amount as sale consideration. Assessee claimed that said gains were not includible in his total income. Assessee has not paid Securities Transaction Tax (STT) on said shares. Assessing Officer has not allowed the exemption on the ground that the assessee has not paid STT on said shares and the Shares of PLL were not listed on any stock exchange on the date of sale. The Tribunal confirmed the order of Assessing Officer and held that the assessee was liable to be taxed at 20 percent. (A. Y. 2006-07).

Uday Punj v. Dy. CIT (2011) 133 ITD 354 (Delhi)

578. S. 10(38) : Exemption – Capital gains – Income arising from transfer of shares – Security Transaction Tax – Stock-in-trade. (S. 112)

Exemption under section 10(38) can be allowed only on sale of shares held as capital asset which has suffered Securities Transaction Tax (STT). If on date of sale, shares are converted into stock-in-trade, exemption would not be available under section 10(38). Provisions of section 10(38) are applicable only to capital assets and not in case of business transaction. (A. Y. 2006-07).

Alka Agrwal v. Asst. Director of Income-tax (2011) 48 SOT 493 (Delhi)

579. S. 11 : Exemption – Charitable purpose – Accumulation of income – Form No. 10

Tribunal held that the filing of form No. 10 before assessment is not an empty formality, benefit of accumulation of income under section 11(2) cannot be availed in the absence of filing of form No. 10 before completion of assessment. (A. Y. 2007-08).

Hans Raj Samarak Society v. ITO (2011) 133 ITD 530 (Delhi)

580. S. 11 : Exemption – Charitable purpose – Income from property. (Ss. 2(15), 12AA)

Assessee authority was formed with object to promote and secure development of certain area according to plan. For said purpose assessee had power to acquire hold manage and dispose of land and other property. The assessee had the registration under section 12AA of the Income-tax Act. The assessee filed the return of income claiming exemption under section 11. Assessing Officer held that the nature of activities carried on by the assessee were in the nature of carrying on of business hence surplus of said activity was liable to tax. It was argued before the Tribunal that since assessee carried on a business which was incidental to attaining of its main object. The Tribunal held that in such situation, exemption under sub sections (1)(2)(3)(3A) of section 11 would be available to assessee only if it maintained separate books of account for said business. Since aforesaid aspect had not been examined by authorities below, matter was to be remanded back to Assessing Officer for fresh disposal. (A. Y. 2007-08).

ITO v. Moradabad Development Authority (2011) 133 ITD 485 (Delhi)

581. S. 11 : Exemption – Charitable purpose – Educational institution – Loan to another Society. [Ss. 12, 12AA, 13 (1)(d)]

Assessee running a educational institutions was registered under section 12A. It had filed its Income-tax return declaring nil income. Assessee had given loan of Rs. 1.28 crores to another society which was also engaged in charitable activities of education. Assessing Officer and Commissioner (Appeals) held that as assessee had violated provisions of section 13(1)(d) invoked the provisions of section 11(5) and denied the exemption under sections 11 and 12. Tribunal held that assessee neither invested impugned amount nor deposited same otherwise than in any one of forms or modes specified in section (5) of section 11 because loan was neither an investment nor a deposit, provisions of section 13(1)(d) were not applicable hence the Assessing Officer was directed to allow the exemption (A. Y. 2006-07).

Kanpur Subhash Shiksha Samiti v. Dy. CIT (2011) 133 ITD 182 (Luck.)

582. S. 11 : Exemption – Charitable trust – Survey – Capitation fee – Voluntary contribution – In Voluntary contributions – Denial of exemption. (S. 12)

During survey Assessing Officer observed that assessee had collected capitation fee from students and no receipt were given for such collection. Assessing Officer was of the view that what is exempted from taxation under sections 11 and 12 were only voluntary contributions and not contributions collected against allotment of seats. However, there was no material on record to show that assessee had accepted capitation fee against allotment of seats, in view of decision of earlier year the exemption was allowed. The Tribunal further held that there is no difference between voluntary contributions and involuntary contributions, only distinction is that voluntary contributions are to be treated as income under section 12 and corpus donations are to be treated as capital receipt under section 11. If the said income is applied for the charitable purpose the exemption to be allowed. (A. Ys. 2002-03 to 2008-09).

ACIT v. Balaji Educational & Charitable Public Trust (2011) 48 SOT 281 (Chennai)

583. S. 11 : Exempt incomes – Charitable Trust – Accumulation of income – Form No. 10 was filed before assessment

Form No. 10 was available with the Assessing Officer before passing of the original assessment order, hence claim of the assessee for accumulation of income cannot be rejected merely on the ground that form no 10 was not filed along with the return of income. Matter remanded with the direction to verify whether assessee has made investment in accordance with the condition of cl (b) of section 11 (2). (A.Y 1994-95).

Kandla Dock Labour Board v. ITO (2011) 62 DTR 234 (Rajkot)

584. S. 12A : Exemption – Charitable purpose – Registration – Cancellation. [S. 12AA(3)]

Objects of the assessee society having been considered and found to be charitable in nature when the registration under section 12A was granted, said registration could not be cancelled by Commissioner by invoking the provisions of section 12AA(3) in the absence of anything on record to show that there was any change in the objects of the society or that its activities were not in accordance with those objects. Proceedings under section 80G and proceedings under section 12A are separate distinct and independent of each other and therefore, proceedings under section 80G cannot form basis for initiation of proceedings under section 12AA(3).

Maulana Mohammad Ali Jauhar Trust v. CIT (2011) 63 DTR 416 (Luck.)

585. S. 12A : Exempt incomes – Charitable Trust – Registration. [S.11(4A)]

Assessee engaging manufacturing and trading activities. Assessee converting incidental objects as main objects. Assessee not satisfying first condition of section 11(4A) – Cancellation of registration valid.

Aurolab Trust v. CIT (2011) 12 ITR 74 (Chennai)

586. S. 12AA : Exemption – Charitable purpose – Registration – Educational institutions on commercial line. (Ss. 2(15), 11, 12)

Assessee trust was formed to run educational institutions. It applied for registration under section 12AA. DIT(E) rejected the application on ground that probable fees to be collected from students was having a component for future expansion of institution and same component was in nature of profit and thus ,objects of trust would also include profit motive. The Tribunal held that since the object of trust was to establish a number of educational institutions in a brand name and run those institutions on commercial line,

it could not be regarded as charitable activity, therefore, DIT (Exemption) was justified in rejecting assessee’s application seeking registration under section 12AA.

Rajah Sir Annamali Chettiar Foundation v. DIT (2011) 48 SOT 502 (Chennai)

587. S. 12AA : Exempt income – Charitable purpose – Registration of trust

The DIT(E) refused to grant registration for the reason that the assessee was claiming exemption u/s. 11 even though it had not complied with the mandatory provisions of registration. According to it, the lapse by the assessee cannot be visited with the consequence of its being declined registration later also, which approach was not supported either by any specific legal provisions or plain logic or rationale. The DIT was only required to examine if the objects of the trust were charitable and the activities were bona fide.

Sudhir Thackersey Charitable Trust v. DCIT, ITAT H Bench, dated 26-8-11, ITA No. 5031/M/10, BCAJ, October – 2011, P.26, Vol 43-B, Part 1

588. S. 13 : Exemption – Charitable purpose – Religious trust – Benefit of Dawoodi Bohra community. (S. 11)

The assessee was religious trust for benefit of Dawoodi Bohra community. The Commissioner rejected registration of trust on ground that assessee trust was not established for benefit of general public and had violated the provisions of sections 13(1)(a) and 13(1)(b). The assessee contended that said section 13(1)(b) would not be applicable to religious trust. The Tribunal held that since the benefit of Trust was available to all persons of Dawoodi Bohra community i.e., benefit was available to a section of people and was not confined to some specific individuals, it could not be said that assessee trust was established for private religious purpose, therefore assessee is entitled for registration.

Shiya Dawoodi Bohra Jamat v. CIT (2011) 133 ITD 271 (Ahd.)

589. S. 13 : Exemption – Charitable purpose – Religious purpose – Registration – Minorities and backward classes. (S. 12A)

The assessee trust were formed for charitable and religious purposes, the beneficiaries of the trust were the financially poor minorities and other backward classes in Tellicherry Municipality and its suburbs. The Assessee applied for registration under section 12A. The Commissioner found that the trust was established for the benefit of a particular religious community or caste and thus hit by section 13(1)(b). It was further held that Explanation (2) below section 13(7), which provides an exception to section 13(1)(b) for schedule castes, back word class schedule tribes or women and children, would not be applicable in the instant case as the word "minority" cannot be applicable in the instant case as the word "minority" cannot be categorized as either scheduled caste or backward community. He accordingly, rejected assessee’s application for grant of registration. The Tribunal held that by reading the Trust deed as a whole the word ‘Minority to mean the religious minorities hence section 13(1)(b) would stand automatically attracted, hence the order of Commissioner was upheld.

Tellicherry Minority Welfare Trust v. CIT (2011) 48 SOT 313 (Coch.)

590. S. 14A : Business expenditure – Exempted income – Proviso – First assessment – Reassessment. [Ss. 143(1), 147]

On facts of the assessee, assessment proceedings initially completed under section 143(1). Subsequently Assessing Officer initiated reassessment proceedings in course of

which he made certain disallowance under section 14A. Since notice under section 148 was issued to make an assessment at first instance, Assessing Officer was justified in dealing with issue arising under section 14A. Bar stated in proviso to section 14A does not operate in a case of first assessment. (A. Y. 1999-2000).

ACIT v. Tube Investments of India Ltd. (2011) 133 ITD 79 (Chennai)(TM)

591. S. 14A : Business expenditure – Exempted income – Interest free funds

If there were funds available, both interest free and interest bearing, then a presumption would arise that interest free funds have been generated for investments and no disallowance of interest could be made under section 14A. (A. Y. 2004-05).

Bunge Agribusiness (India) (P) Ltd. v. Dy. CIT (2011) 64 DTR 201 (Mum.)

592. S. 14A : Business expenditure – Exempted income – Dividend – Interest UTI Bonds – Rule 8D

Assessee claimed that no expenditure was incurred for earning tax free income. Assessing Officer held that some expenditure must have been incurred to earn said income and he estimated 1 per cent of tax free income and disallowed Rs. 42,130 under section 14A. Commissioner (Appeals) by applying Rule 8D retrospectively, disallowed Rs. 10.29 lakhs. Assessee before Tribunal challenged applicability of Rule 8D. The Tribunal held that Rule 8D was not applicable, however, went into reasonableness of estimation and quantification before Tribunal, estimation as made by Assessing Officer was to be upheld. (A. Y. 2004-05).

Dy. CIT v. Philips Carbon Black Ltd. (2011) 133 ITD 189 (Kol.)(TM)

593. S. 17(3) : Salaries – Profits in lieu of salary – Ex gratia payment

Assessee took up post retirement as secretary of a club for a period of three years. Club also provided accommodation to assessee. Disputes arose between club and assessee. Assessee filed a police complaint for forcibly removing from club premises. Employment was terminated after end of first year. Termination provided withdrawal of allegations vacate premises allotted to assessee as service accommodation and club would pay Rs. 7.5 lakhs which was equivalent to salary for rest of period of three years. Assessee claimed said amount as exgratia as capital receipt. The Tribunal held that since the amount given to assessee for compensating loss of salary for 25 months. same would fall with in the ambit of expression " any compensation" used in sub clause (i) of section 17(3) relating to "profits in lieu of salary" and taxable under said provisions. (A.Y. 2001-02).

Yatinder Kumar v ITO (2011) 133 ITD 237 (Pune)

594. S. 22 : Income from house property – Terrace rent

Income received on lease of a portion of terrace of the building and a wall of the building for the purpose of fixing of hoarding, neon sign, etc, is assessable under the head `Income from House property’

Mahalaxmi Sheela Premises CHS Ltd v. ITO, ITAT B Bench Mumbai, ITA No. 784, 785 and 786/M/2010 dated 30-8-2011, BCAJ, October– 2011, p.24, Vol 43-B, Part 1

595. S. 22 : Business income – Letting out premises

Rental income for letting out premises, which are duly notified as IT Park and can be used only for a specific purpose along with provision of complex service facilities and infrastructure for operation such business is chargeable to tax under the head `income from business’.

Krishna Land Developers P. Ltd vs. DCIT, ITAT G Bench, Mumbai, ITA No. 1057/M/10, dated 12-8-11, BCAJ, October – 2011, P.25, Vol 43-B, Part 1

596. S. 28 : Business income – Investment in shares – Shares held less than 30 days business income – More than 30 days capital gains. [S. 28(i)]

The Tribunal held that shares held more than 30 days then profit and loss arising from sale of such shares was to be considered as short term capital gains. Shares held less than 30 days was to be taxed as business income. Shares held more than a year were to be assesse as long term capital gains. (A.Y. 2003-04 to 2005-06)

Asst CIT v. Kavita Devi Agarwal ( 2011) 48 SOT 191 (Jaipur)

597. S. 28(i) : Business income – Income from purchase and sale of shares – Revision (S. 45, 263)

Assessee carried on the activity of buying and selling shares and units of mutual funds in a systematic and regular manner with high frequency and volumes and repetitive purchases and sales of the same scrip throughout the year, the Tribunal held it has to be assessees as business income and the revision order under section 263 directing the A.O. to be assess the same as business income was held to be justified. (A.Y. 2006-07)

Spectra Shares & Scrips (P) Ltd v. Dy CIT (2011) 62 DTR 411 (Hyd)

598. S. 28(i) : Business loss – Valuation of interest rate swap contract. (S. 145)

Loss on account of valuation of interest rate swap contract is allowable as deduction and it cannot be disallowed on the ground that it is a notional or imaginary loss. (A. Y. 2003-04).

ABN Amro Securities India (P) Ltd. v. ITO (2011) 133 ITD 343 (Mum.)

599. S. 28(va) : Business income – Non compete fees – Compensation for not carrying on activity in relation to any business for a period of 11 years

The assessee was one of the promoter of "TP Ltd." and together with other promoters held substantial shares in the company. By an agreement "I Ltd." (Acquirer) agreed to purchase share holding of the assessee along with other promoters of "TP Ltd". The Acquirer with a view to ensure that the promoters after sale of the shares did not indulge in competing business entered in to a non compete agreement whereby the assessee was paid Rs. 2 crores for agreeing not to carry or be engaged, concerned or interest in any competing business for a period of 11 years. The assessee treated the said receipts as capital receipt. The Assessing Officer held that the receipt in question was a fee received for not carrying out any activity in relation to any business and therefore, chargeable to tax under section 28(va). The Tribunal held that for proviso (i) to section 28(va)(a) to apply there must be transfer of the right to carry on any business. The assessee in the instant case was not carrying on any business on his own but was the promoter and director of the company whose shares were purchased by the acquirer. The provisions of section 45 would get attracted only when there is a capital gains arising as a result of transfer of a capital asset. The definition of transfer in given is section 2(47). In a agreement by which the assessee refrained form indulging in a business competing with the promoter, there cannot be transfer in any modes set out in section

2(47) therefore the payments on account of non compete fee cannot be brought to tax under section 45 hence in the instant case the proviso (i) to section 28(va)(a) will not apply. Consequently the receipt in question would be chargeable to tax as business income and not capital gains, accordingly the order of Commissioner was upheld. (A. Y. 2007–08).

Ramesh D. Tainwala v. ITO (2011) 48 SOT 324 (Mum.)

600. S. 32 : Depreciation – Unabsorbed – Business discontinued.

The business of assessee as carried on in earlier years had been discontinued, in view of provisions of section 32(2) as amended with effect from 1-4-2002, assessee’s claim of set off of unabsorbed depreciation pertaining to those years against income of current year was to be rejected. (A. Ys. 2002-03, 2004-05 and 2006-07).

Vidhyavihar Containers Ltd. v. Dy. CIT (2011) 133 ITD 363 (Mum.)

601. S. 32 : Depreciation – Quantification – Amalgamation of companies

Assessee amalgamating company having acquired assets on 29th Aug., 2003 and amalgamated with another company on 1st Oct., 2003 had rightly claimed the depreciation at fifty per cent which was allowable at 100 per cent as per second proviso to section 32(1).


602. S. 32 : Depreciation – Amalgamation – Second proviso – Quantification

The assets have been acquired and used from 29th August, 2003. In this case therefore proportion adopted by the assessee as fifty–fifty seems to be correct, however this apportionment has to be done out of total depreciation which was allowable at 100 percent in view of second proviso i.e. Amalgamating company has rightly claimed the depreciation for the first six months because only depreciation of six months has been claimed in the case of amalgamated company. The Tribunal set a side the order of Commissioner (Appeals) and directed the Assessing Officer to allow the depreciation for six months. ( A.Y. 2004-05).


603. S. 32 : Depreciation – Additional depreciation – Enhancement of installed capacity – Qua Business or Qua an Undertaking

Assessing Officer held that enhancement of installed capacity had to be considered in respect of whole business and not with reference to one single unit and disallowed additional depreciation. Tribunal held that one should consider increase in capacity of an undertaking in which additional machinery was installed. Since concerned unit was an independent unit which had increased its capacity by more than 10 percent, said undertaking, satisfied conditions prescribed in section 32, hence additional depreciation was to be allowed there on. (A. Y. 2005-06).

NRB Bearings Ltd. v. Dy. CIT (2011) 133 ITD 306 (Mum.)

604. S. 32(1)(ii) : Depreciation – Intangible assets – Leasehold rights over the land – User of brand name, Trade mark, Logo, design – Slump sale

Lease hold rights cannot be considered as an intangible asset as per the provisions of section 32(1) (ii), hence not entitled depreciation.

Where the assessee had purchased the user of brand name, trade mark, logo, design, drawings, manufacturing process and technical knowhow in respect of the products manufactured by unit which was acquired by assessee at a slump price , expenditure allocated by approved valuer is capital expenditure, assessee is entitled depreciation on the said amount. (A.Y. 2006-07).

Drilbits International (P) Ltd v. Dy CIT ( 2011) 62 DTR 171 (Pune)

605. S. 35D : Business expenditure – Preliminary expenses – Amortisation – Issue of shares capital base

Expenditure incurred on issue of shares so as to increase its capital base did not qualify to be amortised under section 35D. (A. Y. 2006-07).

Medreich Ltd. v. Dy. CIT (2011) 48 SOT 579 (Bang.)

606. S. 35E : Deduction for expenditure on prospecting, etc, for minerals

Where the assessee incurred a loss, the deduction under section 35E is not available. (A.Ys. 1997-98 & 2000-01 to 2004-05).

Singareni Collieries Company Ltd. v. Asst CIT (2011) 141 TTJ 593 (Hyd)

607. S. 35E : Business expenditure – Deduction – Prospecting, etc. – Minerals

Assessee which is engaged in prospecting and exploration of minerals, it also provided consultancy services in same field, expenditure incurred towards prospecting and exploring activities were capitalized and amortization of same was claimed under section 35E. Expenditure incurred to earn consultancy service were claimed as business expenditure under section 37(1). Assessing Officer held that all the expenditure were to treated as eligible for amortisation under section 35E. The Tribunal held that only such expenses which are incurred wholly and exclusively on any operations relating to prospecting as envisaged under provisions of section 35E(2) read with section 35(E)(5)(a), and rest of unconnected expenses which may have been incurred by an assessee are eligible deduction in normal course of computation of business income. (A. Y. 2005-06).

De Beers India (P) Ltd. v. Dy. CIT (2011) 48 SOT 506 (2012) 13 ITR 1 (Mum.)

608. S. 37(1) : Business expenditure – Loss on account of irrecoverable amount that were advanced to farmers

Assessee advanced the amount to framers as a measure to ensure continuous supply of raw materials, which was essential in nature of business of assessee, when raw materials were not received on such advances, it would be a loss in revenue field. Following the ratio of Apex court in CIT v. Wood ward Governor India (P) Ltd. (2009) 312 ITR 254 (SC), wherein the court held that the expression ‘any expenditure’ used in section 37 cover both ‘expression incurred’ as well as even if ‘loss’ amount had gone out of pocket of assessee , therefore the advances written off was allowable as business expenditure. (A.Ys. 2005-06 to 2007-08)

Sterling Agro Processing (P) Ltd v. Asst CIT (2011) 48 SOT 80 (Chennai)

609. S. 37(1) : Business expenditure –Alleged bogus purchases

Assessee contended that cash received by it against the cheque payments of Rs 30,80,730/- from two parties was utilized to purchase cloth from the grey market which was found recorded in the inventory of closing stock, the Tribunal has accepted that the assessee did make cash purchases of Rs 30,80,730/- and the said purchases cannot be treated as bogus purchases. (A.Ys. 2001- 02 to 2004-05).

Free India Assurance Services Ltd v. Dy CIT (2011) 62 ITR 349 (Mum)

610. S. 37(1) : Business expenditure – Capital or revenue – Renovation of office premises – Lease hold premises – Depreciation. (S. 32 (1)

The assessee has incurred huge expenditure on purchase of ply wood, furniture etc for making wooden partitions, cabins, cubicles, desks etc in its lease hold office premises, the tribunal held that the expenditure was capital in nature, however the assessee will be entitled depreciation in terms of expalnation1 to section 32. (A.Ys. 2001- 02 to 2004-05).


611. S. 37(1) : Business expenditure –Unaccounted commission – Seized materials

Assessee had explained that the commission paid by it to one Mr. V by correlating it with the seized material, though not accounted in regular books of account maintained by assesessee. The same is allowable as the payment was by cheque. (A.Ys. 2001-02 to 2004-05).


612. S. 37(1) : Business expenditure – Compensation – Drivers – Labour Court

As per the settlement arrived in the labour Court giving an undertaking to provide employment to drivers whose employment was terminated by the hire operators which were rendering services to the assessee, compensation paid by assessee to said drivers for giving up their rights in full and settlement of their claims is allowable as deduction, as the assessee got apparent advantage in the form of reduced car hire charges as a result of impugned payment. (A. Y. 2003-04).

ITO v. Taj Services (P) Ltd. (2011) 64 DTR 105 / (2012) 143 TTJ 70 (Mum.)

613. S. 37(1) : Business expenditure – Interest – Loans from its holding company

Assessee obtained loan from its holding company in year for its business of manufacturing, it was discontinued in year 1998-99 and there was no activity relating to said business in year under consideration. Since loan borrowed by assessee from its holding company was not utilized for business carried on by it in year under consideration, Interest on same could not be allowed as deduction. (A. Y. 2002-03, 2004-05 and 2006-07).


614. S. 37(1) : Business expenditure – Capital or revenue – Lease premises – Renovation expenses – Depreciation. (S. 32)

Expenditure incurred towards renovation of premises taken on lease will be capital in nature and assessee would be entitled depreciation on it. (A. Y. 2006-07).

ACIT v. Efftronics Systems (P) Ltd. (2011) 133 ITD 460 (Visakhapatanam)

615. S. 37(1) : Business expenditure – Provision for doubtful debts – Notional loss on valuation of shares – Provision for premium on debenture – Business loss. [S. 28(1)]

Provision for doubtful debt was not allowable as bad debt, however the same can not be allowed as business loss as the said amount was not crystallised during the year. Notional loss on revaluation of shares and there was no transfer of any share such loss can not be allowable. Option was given to redeem debentures in to equity shares after six months on payment of premium. Assessee company made ‘provision for premium debenture’ and claimed loss. Since an event had not yet occurred, there was no crystallization of liability and loss could not be allowed. (A .Y. 2000-01).

Mahindra Intertrade Ltd. v. Dy. CIT (2011) 133 ITD 597 (Mum.)

616. S. 37(1) : Business expenditure – Promotion of new products – Brands – Year of allowability

During relevant assessment year assessee incurred expenses on promotion of new products and brands which had been treated as deferred revenue expenditure in books and amortized for a period of six years, however, while computing the taxable income entire expenditure was claimed as revenue expenditure. Tribunal held that revenue expenditure is allowable in year in which liability had crystallized and accounting treatment given by assessee is not relevant for purpose of determining whether or not expenditure was allowable as deduction. (A. Ys. 2003–04 and 2004-05).

ACIT v. Kopran Ltd. (2011) 48 SOT 225 (Mum.)

617. S. 37(1) : Business expenditure – Bank services – Issue of shares to increase capital

Amount paid by assessee company for bank services rendered in connection with issue to increase capital base of company, could not be allowed as revenue expenditure under section 37(1). (A. Y. 2006-07).

Medreich Ltd. v. Dy. CIT (2011) 48 SOT 579 (Bang.)

618. S. 37(1) : Business expenditure – Capital or revenue – Software usage

Software usage and product development expenses incurred by the assessee company engaged in internet related services are allowable as revenue expenditure to the extent the same are routine and periodic expenses not resulting in creation of new assets. (A.Y. 2005–06).

Dy. CIT v. Rediff Com India Ltd ( 2011) 61 DTR 426/47 SOT 310 (Mum)

619. S. 37(1) : Business expenditure– Foreign tour expenses

Foreign travel expenses of doctor partner for obtaining the latest information on the technological advancements, concerning dental implants are allowable as business expenditure. (A.Y. 2004-05)

Dy. CIT v. B2C Implants (2011) 141 TTJ 638 (Mum)

620. S. 37(1) : Business expenditure –Capital or revenue expenditure – Construction on land belonging to Government

Expenditure on construction of approach road to a plant which was not operational during the year constituted capital expenditure.

Aditya Birla Nuvo Ltd. v. ACIT (2011) 141 TTJ 702/ 131 ITD 511/ 61 DTR 343 (Mum.)

621. S. 38 : Building – Partly used for the purpose of business – Depreciation

Assessee installed hub in its own premises and VSAT antenna and monitors were installed at premises of member brokers. Assessee was collecting only usage charges from members. Assessee claimed depreciation on said equipment. Assessing Officer held that VSAT network was being used by members for purpose of conducting their business, therefore by invoking provisions of section 38(2) he estimated that 40% of such net work could be said to have been used for the assessee’s business and he disallowed 60% of depreciation. The Tribunal held that installation of system was expedient for carrying on business of assessee and full depreciation was to be allowed. (A.Ys. 1997-98, 1998-99 and 2001-02).

National Stock Exchange of India Ltd. 2011) 133 ITD 27 (Mum.)

622. S. 40(a)(i) : Amounts not deductible – Non-resident – Certificate by a Chartered Accountant – Deduction of tax at source. (S. 195)

A certificate issued by a chartered accountant cannot be a conclusive determination of taxability of income in the hands of the recipient. Question of taxability in the hands of the recipient remains open and the assessee continues to have obligation to file all the relevant details, enabling determination of such liability, before the revenue authorities. Matter was remitted to the Assessing Officer to examine the taxability of the payments in the hands of recipients, on merits. (A.Y. 2005-06).

Dy CIT v. Rediff Com India Ltd (2011) 61 DTR 426/47 SOT 310 (Mum)

623. S. 40(a)(ia) : Amounts not deductible – Professional fees – Brokerage and commission – Deduction at source – Payments made before due date of filing of return. [S. 139(1)]

Tax deducted from the payments of professional fees in the month of March, 2005 having been deposited on 22nd June, 2005, within due date as per section 139(1), the payments can not be disallowed. As regards the brokerage and Commission payment on which tax was deducted in February, 2005, but deposited on 6th April 2005, i.e. after the end of relevant previous year, is to be disallowed under section 40(a)(ia). (A. Ys. 2002-03 to 2005-06).


624. S. 40(a)(ia) : Amounts not deductible – Lease rent for cranes – Works contract – Deduction at source. (S. 194C)

Payment made by the assessee for hiring of cranes to crane owners was with reference to the period of lease and not at all related to the work/ out derived from the cranes and therefore such payment cannot be said to be payment made for "works contract" covered by section 194C and therefore was not required to deduct tax at source under section 194C and consequently the payments could not be disallowed under section 40(a)(ia). (A. Y. 2006-07).

ACIT v. Sanjay Kumar (2011) 48 SOT 615 (Delhi)

625. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Contractor – Sub-contractor – Labour charges. (S. 194C)

Assessee paid labour charges to various labourers which included cash payments exceeding Rs. 50,000 to some labourers throughout year. Assessing Officer disallowed such payments by invoking provisions of section 40(a)(ia) for non-deduction of tax at source under section 194C. According to assessee the number of persons from one family worked as casual labourers at site on daily wage basis and due to practical difficulties for preparing individual vouchers for each labour payment, only one voucher was prepared in name of head of family who received the money and if individual labourers were taken into consideration, payment does not exceed Rs. 50,000 in a year to each person. Assessee also filed the confirmation from persons who received the sums on behalf of a number of members and same had not been repudiated by revenue. Tribunal held that the disallowance was not justified. (A. Y. 2006-07).

Nalawade C. Maruti v. Jt. CIT (2011) 48 SOT 566 (Pune)

626. S. 40(a)(ia) : Amount not deductible – Short Deduction of Tax at Source – No disallowance for short–deduction TDS default

Where it is a case of short deduction of payment as against non-deduction of TDS, disallowance u/s 40(a)(ia) could not be made. Though S. 40(a)(ia) provides for a disallowance if amounts towards rent, etc have been paid without deducting tax at source. It does not apply to a case of short-deduction of tax at source. As the assessee had deducted u/s 194C, it was not a case of "non-deduction" of TDS. If there is a shortfall due to difference of opinion as to which TDS provision would apply, the assessee may be treated as a defaulter u/s 201 but no disallowance can be made u/s 40(a)(ia). [Chandabhoy & Jassobhoy (ITAT Mumbai) followed]

Dy. CIT v. S. K. Tekriwal (2011) 48 SOT 515 (Kol.)

627. S. 40(b) : Amounts not deductible–Firm–Partner–Interest–Salary. (Ss. 28(i), 29, 32 145)

Assessee partnership firm paid interest to partners on their capital account and claimed the deduction. Assessing officer held that as the assessee has not claimed depreciation in books of account however claimed depreciation in the computation, he reworked the capital balances of partners by reducing the cumulative amount of depreciation therefrom and allowed the interest computed on such reduced capital balances. The Tribunal held that in terms of section 40(b), read with sections 28(i) and 29 Assessing Officer is not entitled to disallow payment of interest to partners by re working capital account balances of partners. (A.Ys 1999–2000 & 2002-03).

Swaraj Enterprises v ITO (2011) 132 ITD 488 (Visakhapatnam)

628. S. 40A(2) : Business expenditure – Disallowance – Managing Director – Remuneration

M is a Chartered Accountant from London and had quality experience as employee of AAF for ten years before joining the assessee Company. He is also stated to be running the entire business and other two directors are not so qualified and also did not take part in the business. Assessing Officer has not brought any evidence to show that the payment made to the Managing Director was is excessive or unreasonable having regard to the fair value of the services for which the payment was made or the benefits derived

from such services, the conditions of section 40A(2) are not satisfied and, therefore, no part of such payments made to other directors. (A. Ys. 2002-03 to 2005-06).


629. S. 40A(2) : Amounts not deductible– Purchase transaction from associate concerns

Assessing Officer did not call upon the assessee to furnish any evidence regarding purchase transaction from associate concern, no disallowance could be made applying provisions of section 40A(2)(b), when there were no comments upon the material placed before him during the course of remand proceedings. (A.Y. 2004-05)

Dy CIT v B2C Implants ( 2011) 141 TTJ 638 (Mum)

630. S. 40A(2) : Amounts not deductible – Payment of interest to associated concern

Obtaining the unsecured loan at 11% from associated concern was commercially expedient as assessee could earn more income from such borrowed funds and secured loans were neither available easily nor they were enough to cater the business needs of the assessee as it did not have enough security and/or provision of guarantee for obtaining such loan and therefore no disallowance u/s 40A(2) was called for.

Addl. CIT v Religare Finvest Ltd. (2011) 62 DTR 46 (Delhi)

631. S. 40A(3) : Business expenditure – Cash payments exceeding prescribed limit – Principal – Agent

The assessee was distributor of "R" communication products. During relevant assessment year, the assessee made payments to principal by directly depositing cash in his bank account aggregating to Rs. 46.39 lakhs. Assessing Officer invoked the provisions of section 40A(3) and disallowed the payments. The Tribunal held that since the relation ship between "R" communication and assessee was one of principal and agent, the payment cannot disallowed under section 40A(3), accordingly deleted the disallowance. (A. Y. 2007-08).

Koottummal Groups v. ITO (2011) 133 ITD 335 (Coch.)

632. S. 40A(3) : Expenses or payments not deductible – Cash payments – Presumption

The Tribunal held that in the absence of any material to show that the assessee had cash payments in violation of provisions of section 40A (3), disallowance could not be made on presumptions. (A.Ys. 2001-02 to 2004-05).


633. S. 43B : Business expenditure –Deduction on actual payment – Interest on FCNR loans from Schedule banks

Assessee had taken loans from HSBC and ICICI banks. Auditors in their audit report mentioned that since assessee had not paid interest on FCNR loans from schedule banks before due date of filing of return of income, same was liable for disallowance under section 43B (d). Assessing Officer did not made the disallowance. Subsequently

Assessing Officer reopened assessment and made disallowance under section 43B(d). The Tribunal held that since HSBC and ICICI banks did not fall under categories of State Financial Institutions, provisions of section 43B (d) were not applicable to case of assessee, hence the disallowance made by the assessing Officer was deleted. (A.Y. 2001-02).

Rabo India Finance Ltd v. Asst CIT (2011) 48 SOT 52 (Mum)

634. S. 44 : Insurance business – Insurance Act – Rule 5 First Schedule – Adjustment by the Assessing Officer

Section 44 read with Rule 5 of First Schedule makes figure of profit disclosed by Profit and loss account drawn as per Insurance Act as absolute and binding both on assessee Insurance company as well as revenue and it is amenable only for adjustments expressly sanctioned by mandate of clauses (a) and (c) of Rule 5, for computing total income. Insurance company is required to be strictly made as per Rule 5 of First Schedule and it is not open to authorities under the Act to examine items separately debited or credited to profit and loss account with a view to determine their deductibility or inclusion in total income of assessee as per provisions of Act. (A. Y. 2004-05).

New India Assurance Co. Ltd. v. Addl. CIT (2011) 133 ITD 131 (Mum.)

635. S. 45 : Capital gains – Business income – Investment in shares. [S. 28(i)]

During relevant assessment year assessee company sold shares of company "ICL" which were held by it since 1996 and had been shown in its balance sheets as investment. It treated income there from as long term capital gain and claimed exemption under section 10(38). The Assessing Officer treated the same as business income and denied the exemption. Commissioner (Appeals) upheld the view of assessee. The Tribunal upheld the view of Commissioner (Appeals). (A. Y. 2006-07).

ACIT v. Stargate Investments (P) Ltd. (2011) 48 SOT 379 / 10 ITR 211 (Chennai)

636. S. 45 : Capital gains – Investment in Land. [S. 28(i)]

Object of assessee company were to manufacture, produce, process, purchase, sell or deal in ice–cream etc. It made investment in land and same was shown as fixed assets. Assessee sold lands when it got good price, income from same was shown as capital gain. Assessing Officer treated the said income as business income being adventure in nature of trade. The Tribunal held that there was only transfer of capital assets and not any income from adventure in nature of trade, claim of assessee was justified. (A. Y. 2007-08).

High Range Foods (P) Ltd. v. Dy. CIT (2011) 48 SOT 453 (Coch.)

637. S. 45 : Capital gains – Transfer – Development agreement. [S. 2(47)(v)]

On the facts of the case the assessee neither received full consideration nor handed over possession of the property, capital gains cannot be assessed in the year of execution of development agreement. (A. Y. 2004-05).

B. V. Kodre (HUF) v. ITO, ITA No. 834/PN/2008 dated 4-10-2011. 174 (2011) 43-BCAJ (November-46) Bench – "B"

638. S. 45(2) : Capital gains – Land converted in to stock-in-trade – Cost of improvement – Payment made to State Government to change of user of land. (S. 48)

Assessee company which was engaged in the business of manufacturing of containers in the year 1999 and thereupon converted the factory land in to stock-in-trade. The land was converted in to stock-in-trade by passing a special resolution, in extraordinary general meeting of share holders approving the commencement of business of real estate. Assessing officer rejected the claim of the assessee and held that it was a simple transfer of said land as capital asset by assessee company for a stipulated consideration in terms of development agreement and rejected the claim of benefit under section 45(2) of the Income-tax Act. The Tribunal held that since the business of real estate development was duly carried on by assessee, it was entitled to benefit of provisions of section 45(2) in respect of conversion of factory land in to stock in trade. Payment made by the assessee prior date of conversion of land in to stock in trade, would constitute cost of improvement of land since land as a result of said expenditure had became fit for development / redevelopment. (A. Y. 2002-03, 2004-05 and 2006-07).


639. S. 45(6) : Capital gains – Investment made under Equity Linked Savings Scheme – Transfer – Switchover. [Ss. 2(47), 80CCB(1)]

Units of mutual funds by way of switchover not being units in respect of which assessee had claimed deduction under section 80CCB(1) nor those units were originally issued under a plan formulated under any equity linked savings scheme, they were not of the type of units mentioned in sub section (2) of section 80CCB and therefore, surplus arising to the assessee on account of switch over of the units cannot be assessed as capital gains under section 45(6). (A. Y. 2000-01).

A. Vadivel & Ors. v. Dy. CIT (2011) 142 TTJ 875 (Chennai)

640. S. 45 : Capital gains – Amount paid to bank by purchaser on behalf of assessee – Not deductible

Where the assessee had transferred plant and machinery, stores, spares, licenses, etc. alongwith certain specified liabilities under an agreement for a consideration and the purchaser had undertaken to pay a sum due by the assessee to a bank, such payment to the bank is only application of income and not charge on income and hence not deductible from total consideration.

Shree Changdeo Sugar Mills Ltd v. JCIT. (2011) 58 DTR 340 (Mum.)

641. S. 47(xiii) : Capital gains – Conversion of firm into company – Partners capital balance – Loan – Withdrawal of credit balance

Partners converted the firm into company and partners credit balance lying as their capital was converted in to loan and was repaid to them. Assessing Officer held that there was violation of proviso (c) to section 47 (xiii). The Tribunal held that merely because the partners’ credit balance lying as their capital converted in to loan and which was repaid to them, it cannot be said that there was any undue benefit directly or indirectly to the partners. As there was no violation, addition was deleted. (A.Y. 2005-06)

Vishal Containers P Ltd v. ACIT (2011) ACAJ Sept P. 399 (Ahd)

642. S. 48 : Capital gains – Deduction – Compensation – To free the encumbrance of lessee

Assessee purchased an Aircraft from MFL subject to the rights of MAL (lessee) under the lease agreement between MFL and MAL, compensation paid by assessee to MAL for surrendering its pre-existing rights in order to resell the Air craft and deliver the same to

the purchaser free of all encumbrances is inextricably connected to the transfer of air craft the same is allowable as deduction under section 48(1). (A. Y. 2003-04)

ITO v. Taj Services (P) Ltd. (2011) 64 DTR 105 / (2012) 143 TTJ 70 (Mum.)

643. S. 50 : Capital gains – Capital loss – Depreciable assets – Setoff of long term capital gains against short term capital gains. [Ss. 2(11), 74 (1) (b)]

Under section 74(1) (b), the assessee is entitled to claim of set off of long term capital loss against the capital gains income arising from the sale of office premises being depreciable asset , the gain of which is short term due to the deeming provisions of section 50 (2) but the asset is long term. (A.Y. 2005-06)

Komac Investments & Finance (P) Ltd. v. ITO (2011) 62 DTR 196 (Mum)

644. S. 50C : Capital gains – Special provision for full value of consideration in certain cases – Stamp valuation not challenged by assessee under section 50C(2)

Assessee sold a piece of land. Value of which sale deed was registered was found to be value below value determined by Stamp Valuation Authority. Assessing Officer invoked provisions of section 50C and brought to tax differential. As the assessee has accepted the valuation determined by Stamp Valuation Authority and not availed the opportunity under sub section(2) of section 50C for demonstrating that fair market value was less than stamp duty valuation, Tribunal held that Assessing Officer had rightly invoked the provision of section 50C.

Sanjaybhai Z. Patel v. ACIT (2011) 48 SOT 231 (Ahd.)

645. S. 50C : Capital gains – Special provision for full value of consideration in certain cases – Stamp valuation – Transfer took place on 28-12-2000

Transfer of land took place on 28-12-2000. Section 50C which applies to transfer of plot of land and considers value assessed by Stamp Valuation Authority to be deemed full value of sale consideration for purpose of computing capital gain was inserted by Finance Act, 2002 with effect from 1-4-2003 and hence not applicable to the facts of the assessee. (A. Y. 2005-06).

Rajshree Bihani (Smt) v. ITO (2011) 48 SOT 594 (Kol.)

646. S. 51 : Capital gains – Advance money received – Cost of acquisition. (S. 48)

The assessee was the co-owner of an immoveable property acquired prior to 31-3-1981. Both the co-owners agreed to sell the property in 1994 and they have received advances in installment. Transfer took place in the year 2003-04. Assessing Officer and Commissioner (Appeals) held that advance reduced by the assessee should be deducted from the value of property as on 1-4-1981, while computing cost of acquisition. The Tribunal held that the provisions of section 51 are applicable to an aborted transaction only. In the case of the assessee, the advances were received from transaction which was not aborted, therefore Assessing Officer was not justified in reducing the advance money received from cost of acquisition. (A. Y. 2004-05).

Upendra Shah v. ITO, ITA No. 1730/Mum/2009 dated 30-8-2011. 299 (2011) 43-B BCAJ (December P35) Bench "F"

647. S. 54 : Capital gains – Transfer – Purchase of new flat – Section 53A of Transfer of Property Act, 1882. [S. 2(47), 45]

Assessee sold a building on 30-4-2004 and claimed deduction under section 54 in respect of capital gain arising on sale of building as he has invested in a new flat on 25-6-2003. i.e. within one year from date of transfer of building. Assessing Officer was of the view that as registration of transfer deed of building was dated 26-8-2004 hence, claim under section 54 was denied. The Tribunal held that buyer had performed their part of their obligation as on 30-4-2004, in such a situation, mere non registration of transfer deed would not change date of transfer of building to 26-8-2004. Tribunal held that assessee was entitle to deduction under section 54. (A. Y. 2005-06).

Sureshchandra Agarwal v. ITO (2011) 48 SOT 210 (Mum.)

648. S. 54EC : Capital Gains – Sale proceeds of tenancy rights – Wife and daughters were co-holders

Assessee invested the sale proceeds of Tenancy rights in specified bonds in his name along with wife and daughters were co holders of said bonds. Exemption under section 54EC cannot be denied to the assessee. (A.Y. 2007-08).

Asst CIT v. Vijay S. Shirodkar (2011) 48 SOT 8 (Mumbai)

649. S. 54EC : Capital gains – Investment in Bonds – Six months from the end of month. (S. 45)

During the previous year relevant to the assessment year under consideration the assessee sold shares of two companies on 24th February 2005. The assessee invested entire sale consideration on 30th August 2005, in the bonds specified under section 54EC. i.e. REC Bonds. The Tribunal held that the word used in section is "any time with in a period of six months after the date of such transfer". The term "month" is not defined in the Income-tax Act, 1961. Applying the expression used in the General clauses Act, 1897, the term six months should be reckoned from the end of month in which the transfer takes place. On the facts as the invest were made on 30th August, 2005, the Tribunal held that the assessee is entitled to exemption under section 54EC. (A. Y. 2005-06).

Yahya E. Dhariwala v. Dy. CIT, ITA No. 5501/Mum/2009 dated 25-11-2011 Bench ‘G’ 420 (2012) 43B BCAJ (2012) Jan., P. 32

650. S. 54F : Capital gains – Exemption – Purchase price of new house adjusted – Construction of new house. (S. 45)

Assessee sold the land to MTDC on 31st March, 2005, and possession of new constructed bungalow has been given by the MTDC to the assessee on 31st March, 2008 and even otherwise as the entire purchase price of the new house property was adjusted on 31st March, 2005, itself i.e. the date of transfer of land in question to MTDC, assessee was entitled to exemption under section 54F. The contention of the revenue stating that as construction was not started prior to date of filing of return i.e. 31st July, 2005, the assessee should have deposited the consideration received on transfer of land in capital gains account with the bank which has not been done. The Tribunal held that there was no occasion for depositing the amount in question as it was not received by the assessee any point of time. According to the Tribunal the view of Assessing Officer was not correct. (A. Y. 2005-06).

Chetan Vithal Tupe v. ACIT (2011) 64 DTR 218 (Pune)

651. S. 54F : Capital gains – Exemption – Investment in residential house – Cost of acquisition – Advocate fee – Brokerage – Expenditure on laying tiles, white-washing, electrical rewiring, and wood work. (S. 45)

Tribunal held that expenses relating to advocate fee and brokerage of property would be included in cost of acquisition. Expenditure incurred by assessee on laying tiles, white-washing, electrical rewiring, and wood work after acquisition of property could not be treated as part of acquisition cost. (A. Y. 2008-09).

S. Sudha (Smt) v. ACIT (2011) 48 SOT 335 (Chennai)

652. S. 54F : Capital gains – Exemption – Investment in residential house – Two commercial properties. (S. 45)

Assessee sold two commercial properties/ capital assets and claimed deduction under section 54F on ground of purchase of two residential units being ground and first floor in a Group Housing Complex. Assessing Officer disallowed same on ground that deduction was not allowable as two distinct properties were purchased. Commissioner (Appeals) considering all the factors held that assessee had in possession was one single unit comprising of two floors of one and same double storeyed residential house having common stair case kitchen, etc. The Tribunal held that assessee would be entitled to exemption as claimed. (A. Y. 2005-06).

ACIT v. Sudha Gurtoo (2011) 48 SOT 393 (Delhi)

653. S. 54F : Capital gains – Exemption–Investment in residential house – [S. 2(47), 45, 50C]

Assessee transferred her 1/3 share in land which was sold vide agreement dated 28-12-2000, for a total consideration of Rs. 24-10 lakhs to orginal purchaser in part performance of contract. Possession was handed over on 28-12-2000. Subsequently on request of the purchaser conveyance deed was entered in to in favour of nominee during previous year 2005-06. Assessee purchased a residential flat for a total consideration of Rs. 23-50 Lakhs vide agreement for sale dated 23-3-2001 and possession of said property was delivered to assessee on 27-4-2001, it means that long term capital gain arising out of sale of land was invested in residential house, therefore exemption under section 54F would be allowable. (A. Y. 2005-06).

Rajshree Bihani (Smt.) v. ITO (2011) 48 SOT 594 (Kol.)

654. S. 54F : Capital gains – Exemption – Investment in two adjacent flats. (S. 45)

The assessee had purchased two adjacent flats which were interconnected and used as one residential house. Assessing Officer denied the exemption. On appeal the Tribunal held that the Assessing Officer shall allow the exemption in respect of both the flats if it is found that the flats are being used as one residential house and the investment was made by assessee himself. In appeal by revenue the Bombay High Court up held the decision of Tribunal.

CIT v. Joe B. Fernandes ITA No. 1467 of 2007 dt. 10-12-2008 429 (2012) 43. B. BCAJ (January- 2012 – P. 41)

Editorial:- Departmental SLP (C) No. 23581 of 2009 dated 7-9-2009 was rejected by Supreme Court (2010) 322 ITR (St.) 8 also refer CIT v. Rashmi Khanna (Smt.) SLP (C) No. 30894 of 2009 dt. 9/11/2009 (2010) 322 ITR (St.) 8.

655. S. 55 : Capital gains – Cost of acquisition – Determination of fair value as on 1-4-1981.

Assessee acquired 1/9th right in a property. She sold her share of property. She adopted 1 lakh per ground as fair market value of property as on 1-4-1981. Inspector visited concerned sub registrar Office and gathered the details on basis of fair market value of Rs. 15,000 per ground. The Assessing Officer adopted the guideline value of registrar’s office for computing capital gains. The Tribunal held that the guidline value collected from sub-registrar office is only a guiding factors for valuing a property and such guideline value need not be market value for all time. Market value has to be determined by so many external factors including prevelant market conditions hence detailed enquiry is needed for arriving at a reasonable market value of property. Accordingly the Tribunal remanded the matter for fresh consideration. (A. Y. 2007-08)

ITO v. Usha Ramesh (Smt) (2011) 133 ITD 67 (Chennai)

656. S. 56 : Income from other sources – Business income – Interest income

During the year under consideration, assessee company had taken loans amounting to Rs. 56.88 Crores from its holding company and same was advanced to four companies belonging to same group. Assessee claimed that the said interest is taxable as income from business income. The Tribunal held that since there was nothing on record to show that assessee company was in business of finance or money lending in year under consideration, net interest income earned by it was chargeable to tax under head income from other sources. (A. Y. 2002-03, 2004-05 and 2006-07).


657. S. 68 : Cash Credit – Share application money – Burden of proof

Mere submission of share application forms, PAN names and address and ROC registration etc was not sufficient in view of the fact that these companies were found to be non existent. On the facts the assessee failed to produce any of its directors or employees or the share applicants, as their identity was not proved ,the onus cast on the assessee was not discharged. Addition under section was confirmed. (A.Ys 2005-06 to 2006-07).

Agarwal Coal Corporation (P) Ltd. v. Additional CIT (2011) 63 DTR 201 (Indore)

658. S. 69 : Unexplained investments – Income from undisclosed sources – Statement on oath – Stamp duty valuation [S. 132(4)]

Price of the plots paid by the assessee being consistent with the circle rate which the stamp duty has been paid and the department having not found any document or evidence to establish that the assessee has made more payment than that found recorded in his accounts, the statement made by the assessee under section 132(4) surrendering the amount could not have been taken as basis for making addition as unexplained investments in plots. (A.Y. 2006-07).

Asst CIT v. Raj Dhaiwala (Dr) (2011) 63 DTR 113 (Jodhpur)

659. S. 69C : Unexplained expenditure – Statement of Director before Central Excise Authorities

Additions cannot be made merely on the basis of statement made by the Director before Central Excise Authorities, without any supporting evidence regarding suppression of production.(A.Ys. 2004-05, 2005-06).

ITO v. Arora Alloys Ltd. (2011) 12 ITR (Trib) 263 (Chandigarh)

660. S. 70(3) : Capital gains – Capital loss – Set off of indexed long term capital loss against non indexed long term capital gains. (Ss. 48, 55, 112)

Provisions of section 70(3) existed much prior to the mode of computation of capital gain without applying the benefit of indexation which were introduced later by an amendment in the year 2000. It cannot be therefore that the legislature would have contemplated while enacting the provisions of S. 70(3) a situation as contemplated by proviso to S. 112(1), when it used the expression ‘similar computation’ in S. 70(3). Expression ‘similar computation’ used in S. 70(3) refers to the computation u/s 48 to 55 and not the computation under section proviso to S.48 vis-à-vis proviso to S. 112(1). The Assessee was justified in setting off indexed long term capital loss against non-indexed long term capital gains. (A.Y. 2004-05)

Vipul A Shah v. Asst CIT (2011) 63 DTR 272 (Mum)

661. S. 72 : Carry forward and set off of business losses – Gains arising from "business assets" not eligible for set–off against brought forward business loss

The assessee sold land and building used for business purposes. Though the gain was offered as capital gains, the assessee claimed, relying on Cocanada Radhaswami Bank Ltd. 57 ITR 306 (SC) and other judgments, that as the assets were "business assets", the gains there from were eligible for set-off against the brought forward business loss under section 72. The issue was referred to a Special Bench. HELD by the Special Bench against the assessee:

Section 72(1) allows brought forward business loss to be set-off against the "profits & gains of any business or profession" of the subsequent year. The expression "profits & gains of business" means income earned out of business carried on by the assessee and not just income connected in some way to the business or profession carried on by the assessee. The land & building were fixed & capital assets used by the assessee for its business purposes. The gains arising there from were assessable as capital gains and were not eligible for set-off against the brought forward business loss u/s 72 (Express Newspapers 53 ITR 250 (SC) followed; Cocanada Radhaswami Bank 55 ITR 17(SC) distinguished; Steelcon Industries reversed)

Nandi Steels Ltd v. ACIT (2012) 66 DTR 1 / 13 ITR 494 (Bang.)(SB)

662. S. 72 : Carry forward and set off –Speculation business – Derivatives – Same business. [Ss. 43(5), 73, 263].

Loss from trading in derivatives treated as speculation loss in earlier years carried forward. The said loss can be set off against the profit from same business. i.e. allowable against the profit from trading in derivatives after amendment. Revision order of commissioner under section 263 was quashed on merit. A.Y 2006-07).

Gajendra Kumar T. Agrawal v ITO (2011) 11 ITR 640 (Mum)

663. S. 72A : Loss – Carry forward and set off – Amalgamation of Companies. (Ss. 72, 78, 79)

Amalgamating company was not having loss, and provisions of sections 72A, 78 and 79 not being applicable, benefit of carry forward of losses of amalgamated company cannot be denied. Provisions of section 72A, trigger only when the losses of the amalgamating company are to be carried forward by the amalgamated company. As the amalgamating company was a profit making company, section 72A is not applicable. Provisions of

section 79 are not applicable as more than 51 per cent of the share holdings is in the same hands. As provisions of section 78 are not applicable benefit of carry forward cannot be denied. (A.Y. 2006-07).

Wrigley India (P) Ltd. v. Addl CIT (2011) 62 DTR 201/ 142 TTJ 23

664. S. 73 : Loss in speculation business – Bills rediscounting business – Sale and purchase of shares

Assessee was mainly doing business of bill discounting /rediscounting, under contractual obligation between the assessee and parties to the bills. Bills were rediscounted and placed only as collateral security. The Tribunal held that activity of bills rediscounting would amount to granting of loans and advances and accordingly, Explanation to section 73 would not be applicable, hence loss on account of sale and purchase of shares could not be treated as speculation losses, though the object clause of memorandum of Association showed that advancing the money was only ancillary object.(A.Y. 1996-97).

Momaya Investments (P) Ltd v. ITO (132 ITD 604 (Mum)

665. S. 74(1)(b) : Set off of long term capital loss against short term capital gains – Depreciable assets. [Ss. 2(11), 50]

Under section 74(1) (b), the assessee is entitled to claim of set off of long term capital loss against the capital gains income arising from the sale of office premises being depreciable asset , the gain of which is short term due to the deeming provisions of section 50(2) but the asset is long term. (A.Y. 2005-06)

Komac Investments & Finance (P) Ltd. v. ITO (2011) 62 DTR 196 (Mum)

666. S. 79 : Carry forward and set off losses in case of certain companies – Company in which public are substantially interested – [S. 2(18)]

Although the assessee company was originally registered as a private company, it became public company by virtue of the provisions of S. 3(iv)(c) of the Companies Act when GT Ltd., a public company, acquired more than fifty percent shares of the assessee company in the preceding year. Assessee had satisfied condition of Item(B) of S. 2(18)(b) as well as in much as GT Ltd. held more than 50 per cent of the shares of the assessee company during the whole of the previous years in question. Therefore, assessee company became a company in which the public are substantially interested by fulfilling the requisite conditions and consequently, application of S. 79 is automatically ruled out. Hence, CIT was not justified in setting aside the orders allowing set off of brought forward losses of an earlier year against the income of the year under consideration.

Meredith Traders (P) Ltd. v. ITO (2011) 62 DTR 404 (Mum)

667. S. 80G : Deductions – Donations – Renewal of application – Failure to take any action

Where assessee Trust filed an application seeking renewal of approval under section 80G(5)(vi) and Commissioner failed to take any action on said application within time limit prescribed by Rule 11AA(6) of Income-tax Rules, 1962, it was held that assessee became legitimately entitled for approval of renewal, as applied for. (A. Y. 2010-11).

S. Lakha Singh Bahra Charitable Trust v. CIT (2011) 133 ITD 201 (Amritsar)

668. S. 80G : Deductions – Donation to certain funds – Charitable institutions – Salaries of preachers

Assessee church society incurred expenditure on T.V. telecast and salaries of preachers. Preachers were generally engaged to spread teachings of Lord Jesus Christ, therefore, salaries paid to preachers cannot be considered to be an expenditure incurred for charitable activities. If salaries to preachers was taken out from the category of expenditure for charitable activities, expenditure on religious activities would be more than 5 per cent of total income, thus assessee would be hit by sub-section 5(ii) read with sub section (5B) of section 80G. (A.Y. 2010-11).

Church of Christ Social Service Society, Amalapuram v. CIT (2011) 48 SOT 1 (Visakhapatnam)

669. S. 80HHC : Deduction – Export – Job work charges

Job work charges could not be excluded from profits of business under clause (baa) of Expl. to section 80HHC.

ACIT v. Wolkem India Ltd. (2011) 142 TTJ 888 (Jd.)

670. S. 80-IA : Deductions – Profits and gains from infrastructure under takings – Derived from – Fly ash – Generation and sale of electricity – Not eligible

Assessee was engaged in business of generation of and sale of electricity. Fly ash was a by product generated out of production of electricity. Assessee used Fly ash in making fly ash bricks. Assessee claimed that profit earned on sale of fly ash bricks is also eligible profits for the purpose of claiming of deduction under section 80-IA. The Tribunal held that brick making unit of assesee was a separate unit with a distinct set up and process, separate technology and manpower etc, profits derived from manufacture and trade of bricks, could not constitute "operational income" of" Power generating unit" of assessee, therefore assessing officer was justified in rejecting asseseee’s claim. (A.Ys. 2004-05 to 2006-07)

Asst CIT vs. Godavari Power & Ispat Ltd. (2011) 133 ITD 502 (Bilaspur)

671. S. 80-IA : Deduction – Industrial undertaking – Computation – Electricity

Electricity generated by assessee, collected by Electricity Board and releases to assessee when ever required. Assessee neither selling nor buying as far as captive consumption of power is concerned. Assessee paid consumption of power more than contribution. Market value to be taken for consumption. Under section 80-IA (8) market value means the value determined by market forces. In the captive consumption of power generated by the assessee company no market force was operating. Market forces came in to the picture only when the assessee bought power from Tamil Nadu Electricity Board like any another consumer. The value paid for such consumption was the market value and in the present case it was 3.50 per unit. Therefore the contention of the assessee was to be accepted and the assessing authority was to recomputed the profit and gains of the eligible unit for the purpose of section 80-IA on the basis of the unit price of electricity generated by the assessee company at 3.50 per unit. (A.Y. 2007-08).

Sri Velayidhaswamy Spinning Mills P. Ltd. v. Dy CIT (2011) 12 ITR 353 (Chennai)

672. S. 80-IA: Deductions – Development of infrastructure facility – Solid Waste Management – Organisation must participates in the policy making etc. – Cleaning the beaches

An activity can be considered as a solid waste management activity in a case where an organization involves it self in a comprehensive activity of not only collection, transport

and treatment of waste but also participates in the policy making, etc. The activity of the assessee i.e. clearing the beaches, without being involved in control of generation, disposal and policy, making cannot be considered as a solid waste management activity, hence the assessee is not eligible for deduction under section 80-IA though the activity carried on was approved by BMC (Solid Waste Management Department). (A.Y. 2004-05)

Anthony Motors (P) Ltd v. Asst CIT (2011) 64 DTR 470 (Mum.)

673. S. 80-IA(4)(ii) : Deduction – Industrial undertaking – Development of infrastructure

Assessee ran a proprietary business providing telecommunication services to her subscribers within a limited radius of 500 metres on the basis of an agreement entered with BSNL. In computing her total income for the Assessment years 2002-03 to 2006-07 the assessee claimed deduction under section 80-IA(4)(ii) of the Income-tax Act, 1961. The assessing authority held that the assessee herself had not developed any telecommunication service system nor was she operating and maintaining any system independently. Assessee was running the business as a franchise of BSNL. The Tribunal held that the assessee a private commercial venture not involving development of infrastructure not entitled to special deduction. (A.Ys. 2002-03 to 2006-07).

ITO v. A. Jayalakshmi (Smt) (2011) 12 ITR 371 (Chennai)

674. S. 80-IA(5) : Deduction – Profits and gains from Industrial undertakings – Initial assessment year – Loss & Depreciation of eligible unit prior to "initial assessment year", if set-off against other income, not notionally carried forward

In A.Y. 2006-07 the assessee installed a windmill, the profits of which were eligible for 100% deduction u/s 80-IA. Owing to depreciation and loss, the assessee did not claim s. 80-IA deduction in A.Y. 2006-07 & 2007-08 and set-off the loss and depreciation against other income. In AY 2008-09, the assessee earned profits from the windmill and claimed deduction u/s 80-IA. The AO & CIT (A) relied on the Special Bench decision in ACIT vs. Gold Mines Shares & Finance 116 TTJ (Ahd) (SB) 705 and held that in view of s. 80-IA(5), the loss and unabsorbed depreciation of the eligible unit, though set-off against the other income, had to be "notionally" carried forward for set-off against the profits of the eligible undertaking. On appeal by the assessee, HELD allowing the appeal:

Though in Gold Mines Shares & Finance 116 TTJ (Ahd) (SB) 705 it was held that in view of s. 80-IA(5), the eligible unit had to be treated as the only source of income and the profits had to be computed after deduction of the notionally brought forward losses and depreciation of the eligible business even though they were in fact set-off against other income in the earlier years, the Madras High Court held in Velayudhaswamy Spinning Mills P. Ltd. v. ACIT 38 DTR 57 held that such a notional exercise was not contemplated by s. 80-IA (5). It was held that the fiction in s. 80-IA (5) that the eligible unit is the only source of income begins from the "initial assessment year" which is not the same thing as the year of commencement of activity. The law contemplates looking forward to a period of ten years from the initial assessment and does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off has taken place in an earlier year against the other income, the Revenue cannot rework the set off amount and bring it notionally. The fiction in s. 80-IA(5) is for a limited purpose and does not contemplate to bring set off amount notionally. The judgment of a constitutional court has overriding effect over the decision of a Special Bench of the Tribunal and the latter cannot be followed. (A.Y. 2008-09)

Anil H. Lad v. Dy. CIT (Bang.) www.itatonline.org

675. S. 80-IA(8) : Deductions –Profits and gains from infrastructure undertakings – Generation and distribution of electricity – Captive consumption – Price at which SEB supplied to its consumer to be considered as market price

Assessee had two undertakings i.e. undertaking engaged in business of generation and distribution of electricity and other one was a steel division. Steel division drew the electricity from the undertaking which generated the electricity. The income of Electricity division is exempt under section 80IA.The assessing officer found that the assessee has charged more rate than it has charged to State Electricity Board (SEB). The assessing Officer took the view that the assessee has inflated the profit of eligible undertaking and deflated taxable profits of steel undertaking hence invoked the provision of section 80-IA (8). The Tribunal held that price at which SEB supplied to its consumer to be considered as market price in respect of electricity drawn for captive consumption of assessee’s steel division for the purpose of section 80-IA(8) and not price at which electricity was sold by assessee to SEB, accordingly upheld the order of Commissioner (Appeals). (A.Ys. 2004-05 to 2006-07)

Asst CIT v. Godavari Power & Ispat Ltd (2011) 133 ITD 502 (Bilaspur)

676. S. 80IB : Deductions – Profits and gains from Industrial undertakings – Manufacture – Ginning and processing of cotton – Derived – Interest; income from weigh bridges etc. – Not eligible

Assessee engaged in business of manufacturing activity of ginning and processing of cotton, cannot claim deduction under section 80IB with regard to excess cash, interest credited and income earned from weigh bridges, as said items of income could not be said to have been derived from or have nexus with eligible industrial undertaking. (A.Y. 2007-08)

Maa Vaishno Devi v. ITO (2011) 48 SOT 399 (Indore)

677. S. 80IB : Deduction – Industrial undertaking – Amalgamation of companies – Subsidiary company

Subsidiary company carried on business during intervening period from 1st April, 2005 till the order sanctioning amalgamation scheme, is deemed to have been carried on for on behalf of the assessee company, as per instruction No F. No. 15/5/63 –IT (AI) dt 13th December, 1963, the assessee is entitled to deduction under section 80-IB, if other conditions are satisfied. (A.Y. 2006-07).

Wrigley India (P) Ltd v. Addl CIT (2011) 62 DTR 201

678. S. 80-IB : Deduction – Industrial Undertaking – Derived – Modvat Credit – Modvat credit is "derived" from industrial undertaking

The assessee availed/set off Modvat credit of excise duty of earlier years amounting to Rs. 1.93 crores. The AO held that s. 80-IB deduction was not admissible on the said Modvat credit on the ground that the "source of the income was government policy imposing excise duty at differential rate" and it was not "derived" from the industrial undertaking. This was reversed by the CIT(A). On appeal by the department, HELD dismissing the appeal:

The payment of Central Excise duty has a direct nexus with the manufacturing activity and similarly, the refund of the Central Excise duty also has a direct nexus with the manufacturing activity. The issue of payment of Central excise duty would not arise in the absence of any industrial activity. There is, therefore, an inextricable link between the manufacturing activity, the payment of central excise duty and its refund.

Consequently, it is "derived" from the industrial undertaking and eligible for s. 80-IB deduction (CIT v. Meghalaya Steels 332 ITR 91 (Gau) and J.K. Aluminium v. ITO (ITAT, Delhi) followed)

ACIT v. The Total Packaging Services (Mumbai)www.itatonline.org

679. S. 80-IB(10) : Deductions – Housing project – Jointly development

Assessee entered in to an agreement for jointly developing a housing project on its land ,undertaking the responsibility of obtaining all statutory clearance permissions, etc for putting up the housing project on the land as well as responsibility to remove all structures and unauthorized occupants of the land, and agreeing to share the gross sale proceeds the housing project with the other company in an agreed ratio, the activities undertaken by the assessee are activities relating to development of housing project and therefore, it is to be treated as a developer entitled to deduction under section 80-IB (10). (A.Ys. 2002-03 to 2005-06 ).

Asstt CIT v. Bombay Real Estate Development Company (P) Ltd. (2011) 64 DTR 137 (Mum.)

680. S. 80-IB(10) : Deductions – Housing project – Combined area of flats – Built up area

When as per the approved plan the assessee has sold each flat under separate agreement which are less than 1000 sq. ft. deduction under section 80-IB cannot be denied to the assessee merely because some of the purchasers have purchased more than one flat and combined the same and area of such flats is more than 1000 sf. ft. of built up area. The definition of "Built up area" as given in sub-section 14 (a) of section 80-IB is inserted by the Finance (No. 2) Act 2004 w.e.f. 1st April 2005 and therefore the same is applicable only in respect of the projects approved after 1st April, 2005 and consequently, balcony / terrace cannot be included in the built up area of the flats in the hosing projects approved prior to 1st April, 2005. (A.Ys 2005-06 to 2007-08).

Haware Constructions (P) Ltd v. ITO (2011) 64 DTR 251 (Mum.)

681. S. 80-IB(10) : Deductions – Housing project – Land in the name of owner – Not in the name of developer –Built up area – Open terrace

Assessee having purchased land and developed a housing project consisting of residential flats having built up area of less than 1500 sq.ft. each by incurring all expenses and taking all the risk involved therein and received entire sale consideration from the buyers after completion of the housing project in its own right , deduction under section 80-IB(10) could not be denied on the ground that the permissions and approvals by the local authorities were in the name of the housing society (Land owner) and not in the name of the assessee. As per the definition given in section 80-IB (14)(a), built up area means, inner measurement of the residential unit at the floor level including the projections and balconies as increased by the thickness of the walls but does not include the common areas shared with other residential units. Open terrace is open to sky would not be part of the inner measurement of the residential unit at any floor level. The Assessing Officer was not justified in rejecting the assesee’s claim by taking the open terrace, the built up area of each of the 110 units less than 1500 sq.ft., therefore the claim of assesse was allowed. (A.Y. 2006-07)

Amaltas Associates v. ITO (2011) 64 DTR 329 / 142 TTJ 849 (Ahd.)

682. S. 90 : Double Taxation Relief – Permanent establishment – Agent – DTAA – India (Article 5)

Even though agents acts independently in ordinary course of business, if they devote their activities wholly or mostly on behalf of foreign enterprise, they would be considered as PE of foreign enterprise irrespective of whether they conclude contracts binding on their principal or not (A.Y. 1997-98).

Reuters Limited Construction House v. JCIT (2011) 62 DTR 322 / 48 SOT 246 (Mum)

683. S. 90 : Double taxation Relief – Permanent establishment – Offshore transportation – Installation of pipelines – DTAA – India – Mauritius Article 5(2)

Activities of off shore transportation and installation of pipelines carried out by assessee, a Mauritian company, through marine vessel amount to assembling definition of the Article 5(2) of the Indo Mauritius DTAA includes only those assembly projects which last for more than nine months. Matter was restored to the Assessing Officer to ascertain the period of existence of the assessee in India and thereafter to decide the existence of Permanent Establishment. (A.Y. 2007-08).

GIL Mauritius Holdings Ltd v. Asst Director of IT (2011) 63 DTR 282 (Delhi)

684. S. 90 : Double Taxation relief – Permanent Establishment – DTAA – India – France – Onus on Assessing Officer has to show foreign co has a Permanent Establishment in India. Under India-France DTAA, even dependent agent is not PE in absence of finding that transactions are not at ALP (Article 5)

The assessee, a French company, engaged in the operation of ships in international traffic, claimed that it did not have a PE in India and that no part of its income was chargeable to tax in India. The AO & DRP held that as the assessee had an agent in India which concluded contracts, obtained clearances and did the other work, there was a PE in India under Articles 5(5) & 5(6) of the DTAA. On appeal by the assessee, HELD allowing the appeal:

(i) In order to constitute a PE under Articles 5(1) & 5(2), three criteria are required to be satisfied viz; physical criterion (existence), functionality criterion (carrying out of business through that place of physical location) & subjective criterion (right to use that place). There must exist a physical "location", the enterprise must have the "right" to use that place and the enterprise must "carry on" business through that place. An "agency" PE will not satisfy this condition because the enterprise will not have the "right" to use the place of the agent. Under Article 5(6) of the India-French DTAA (which is at variance with the UN & OECD Model Conventions), even a wholly dependent agent is to be treated as an independent agent unless if it is shown that the transactions between him and the enterprise are not at arms’ length. The Department’s argument that as the AO had not examined whether the transactions were done in arm’s length conditions, the matter should be restored to him is not acceptable because the onus was on the Revenue to demonstrate that the assessee had a PE. The onus is greater where the very foundation of DAPE rested on the negative finding that the transactions between the agent and the enterprise were not made under at arms length conditions. A negative finding about transactions with the dependent agent not being at ALP is sine qua non for existence of a DAPE under the India-France DTAA. The AO could not be granted a fresh inning for making roving and fishing enquiries whether the transactions were at arm’s length conditions or not (Airlines Rotables 44 SOT 368 followed);

(ii) (Observed, on a conceptual note, taking note of revenue’s plea but without deciding) If as a result of a DAPE, no additional profits, other than the agent’s remuneration in the source country – which is taxable in the source state anyway de hors the existence of PE, become taxable in the source state, the very approach to the DAPE profit attribution seems incongruous. Further, before accepting the DAPE profit neutrality theory, as per Morgan Stanley 292 ITR 416 (SC), the arm’s length remuneration paid to the PE must take into account ‘all the risks of the foreign enterprise as assumed by the PE’. In an agency PE situation, a DAPE assumes the entrepreneurship risk in respect of which the agent can never be compensated because even as DAPE inherently assumes the entrepreneurship risk, an agent cannot assume that entrepreneurship risk. To this extent, there may be a subtle line of demarcation between a dependent agent and a dependent agency PE. The tax neutrality theory, on account of existence of DAPE, may not be wholly unqualified at least on a conceptual note.

Delmas, France v. ADIT (Mum.) www.itatonline.org

685. S. 92B : Avoidance of tax – Transfer pricing – International transaction

Where a transaction is incurred into by AEs being a resident and non resident, transaction shall amount to an international transaction falling under section 92B(1), therefore when either or both of AEs are non–resident, transaction entered into would amount to an international transaction within the meaning of section 92B(1), therefore it does not matter that transactions in question are not "cross border transaction". (A.Y. 2006-07)

ITO v. Tianjin Tianshi India (P) Ltd. (2011) 133 ITD 123 (Delhi)

686. S. 92C : Avoidance of tax – Transfer pricing – Computation – Arm’s length – Designing, developing and maintenance of websites

As per agreement between assessee and "Kll" assessee was to receive service charges as per specified direct cost plus mark up of 80 per cent. Assessing Officer took the view that said method of determining ALP was not reliable and thus he proposed to determine ALP under section 92C(3). Assessing Officer issued the notice to assessee asking to explain as to why net margin of 20 per cent should not be taken which was prevalent profit in said line of business. However subsequent to issue of notice, the Assessing Officer himself gathered data in respect of profitability of some companies engaged in providing software services and determined ALP on basis of cost plus mark up of 80 percent. In appeal CIT(A) called for remand report in which Assessing Officer admitted that business of three companies was different. CIT(A) deleted the addition. The Tribunal held that the Assessing Officer had relied upon uncomparable the CIT(A) was justified in deleting the addition. (A.Ys. 2002-03 to 2003-04).

ITO v. Kawin Interactive (P) Ltd. (2011) 133 ITD 29 (Ahd)(TM).

687. S. 92C : Avoidance of tax – Transfer pricing – Computation – Arm’s length – Most appropriate method – CUP – TNMM

Simply because the comparable transactions are available only in respect of 9 products, it does not mean that the CUP method is to be rejected. TPO was not justified in adopting CPM and in comparing the gross margin in export segment vis-à-vis gross margins in domestic segment of assessee without appreciating that the CUP or TNMM was the most proper method for determining the ALP. TPO is directed to accept claim of the assessee

regarding the ALP based on TNMM which method has been accepted in the succeeding year. (A.Y. 2006-07)

Drilbits International (P) Ltd v. Dy CIT (2011) 62 DTR 171/ 142 TTJ 86 ( Pune)

688. S. 92C : Avoidance of tax – Transfer pricing – Computation – Arm’s length – Cost plus method – Gross profit mark up – 5% adjustments

Assessee is selling the manufactured products both in the domestic as well as in the foreign market .Assessee is exporting completely finished products in the same manufacturing unit with the same raw material with mostly unrelated cost base, therefore, the cost plus method is most appropriate method to determine the ALP. In respect of assessee’s international transactions, internal cost plus method taking profit/ direct cost of production as PLI was justified, giving due weightage to the relevant factors including small market and credit risk, Assessing Officer is directed to adopt 60 percent as profit margin mark–up on the direct cost. Regarding applicability of proviso to section 92(C)(2), when variation exceeds 5 per cent of the ALP the assessee shall not get benefit. (A.Y. 2006-07).

Wrigley India (P) Ltd. v. Addl CIT ( 2011) 62 DTR 201/ 142 TTJ 23

689. S. 92C : Avoidance of tax – Transfer pricing – Computation – Arm’s length – Net margin- TNMM –Segmental financials – Bad debts – Foreign exchange fluctuations – Interest on foreign exchange loan – Corporate guarantee

For computing the net margin of assessee only the cost related to the transactions with AEs has to be considered and accordingly, segmental financials are to be used for arriving at the net margin on international transactions. Bad debts which are not being relatable to the transactions with AEs have to be excluded. Foreign exchange loss should be considered while computing the net margin for the international transactions. Rate of interest in respect of foreign currency loan in the international market is to be on LIBOR, matter was remitted to the Assessing Officer to verify the actual average LIBOR which prevailed in the financial year under consideration and adopt the same. Corporate guarantee provided by the assessee does not fall within the definition of international transaction, hence no adjustment is required in respect of corporate guarantee transaction, because corporate guarantee is incidental to assesses business and there is no guidelines provided. (A.Y. 2006-07)

Four Soft Ltd. v. Dy CIT ( 2011) 62 DTR 308/ 142 TTJ 358 ( Hyd)

690. S. 92C : Avoidance of tax – Transfer pricing – Computation – Arm’s length – Processing charges

The Tribunal held that the personnel cost of processing has gone up the same cannot be the basis for assuming that the processing income of the assessee also should go up. Accordingly the Tribunal deleted the substantial adjustment made by the TPO in the computation of ALP on the basis of labour cost to revenue ratio, of the previous year without citing any comparable case. (A.Y. 2005-06).

Dy CIT v. Hope (India) Polishing Works (P) Ltd. (2011) 62 DTR 449 (Mumbai)

691. S. 92C : Avoidance of tax – Transfer Pricing – Comparables – If TPO does not give cogent reasons to reject a comparable, it must be presumed to be comparable & DR cannot argue to the contrary

The assessee, a captive service provider rendering back office support services to its AEs, earned an adjusted Net Cost plus Margin of 7.90%. The assessee adopted TNMM and

computed the mean of margins earned by the comparables at 7.62%. The TPO held that "No companies were identified as comparables" by the assessee and after selecting 12 companies as comparables, determined an arithmetic mean of 27.80% and made an adjustment of Rs. 10.49 crores. The CIT(A) deleted the addition. On appeal by the department, HELD dismissing the appeal:

(i) The TPO was wrong in stating that the assessee has not provided any comparables. The initial prerogative of choosing comparable cases is always that of the assessee because it is the best judge to know the exact services rendered by it and finding the comparable cases from the data base. If the TPO wants to exclude any of such comparables, he has to justify the exclusion by adducing cogent reasons and cannot act on whims and fancies. If the TPO fails to show expressly as to how the cases are not comparable, a presumption has to be drawn that those cases are comparable;

(ii) The department’s argument that even if the TPO had not given reasons to exclude the assessee’s comparables, the CIT(A) ought to have done so is not acceptable. Going by the presumption of acceptability of such cases, the appellate authority is under no duty to check whether the work was properly done by the AO/TPO to the prejudice of the assessee. The fact that the CIT (A) has the power to enhance does not mean that he has a duty to do so;

(iii) The Dept Representative, while arguing the appeal, cannot improve the order of the AO/TPO by contending that the TPO was wrong in accepting a particular claim of the assessee. While the DR has the duty to defend the order of the TPO, he cannot find flaws in the order of the TPO in an attempt to show that the TPO failed to do what was required to be done by him. If the DR is allowed to fill in the gaps left by the TPO it would amount to conferring the jurisdiction of the CIT u/s 263 to the DR. The DR cannot be allowed to take a stand contrary to the one taken by the TPO. Accordingly, the DR cannot be allowed to argue that certain cases included by the assessee in the list of comparables, were in fact not comparable, when the TPO failed to point out as to how such cases were distinguishable (Mahindra & Mahindra 122 TTJ (Mum) (SB) 577 followed, Quark Systems 38 SOT 307 (Chd) (SB)distinguished).

ACIT v. Maersk Global Service Center India (P) Ltd. (2011) 133 ITD 543 (Mum.)

692. S. 92C : Avoidance of tax – Transfer pricing – Computation – Arm’s length – Import of coal – Not furnishing any comparable Data

Assessee has imported Coal from its Associate Enterprise, which according to the Assessing Officer were over invoiced. The assessee has not furnished any comparable data. The Transfer Pricing Officer has worked out the adjustment amount exactly on the basis of price variation between the companies. The Tribunal held that this was most simple and acceptable method. The Tribunal up held the addition. (A.Y. 2006-07).

Coastal Energy P Ltd. v. Asst CIT (2011) 12 ITR 347 (Chennai)

693. S. 92C: Avoidance of tax – Transfer pricing – International transaction – Computation – Arms length – Cost plus – Mark up-Resjudicata – Each assessment is a separate unit

When the Associated Enterprise is receiving the compensation at FOB value and the assessee which is providing critical functions with the help of tangible and unique

intangibles developed over the years and with the help of tangible and management which are important to achieve the strategic and pricing advantages, cost plus 5 percentage mark up is definitely not on arm’s length while working out the compensation for the services rendered by the assessee to the Associated enterprise; in such a situation, mark up on the FOB value of the goods sourced through the assessee shall be the most appropriate method to work out the correct compensation at ALP; distribution of compensation received by Associated Enterprise @ 5 percent of the FOB value of the exports between the assessee and Associated Enterprise should be in the ratio of 80: 20: ( A.Y. 2006-07)

Li & Fung (India) (P) Ltd v. Dy. CIT (2011) 64 DTR 73 (Delhi)

694. S. 92C : Avoidance of tax – Transfer pricing – International transaction – Motive to shift the profits out side India or to evade taxes in India is irrelevant

Where a transaction is entered in to by Associated enterprise being resident and a non resident, the transaction shall amount to an international transaction falling under section 92B(1) and Chapter X is applicable; once the transactions fall under the category of international transactions the transfer pricing mechanism gets activated and the fact that there is no motive to shift the profits out side India or to evade taxes in India, is irrelevant.( A.Y. 2006-07)

ITO v. Tianjin Tianshi India (P) Ltd (2011) 64 DTR 98/ 133 ITD 123 (Delhi)

695. S. 92C : Avoidance of tax – Transfer pricing– International transaction – Computation– Arm’s length price – Selection of comparables – Rule 10D.

The TPO has rejected the companies which are making losses as comparables. This shows that there is a limit for the lower end identifying the comparables. Similarly a big company would also be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better out put. When companies which are loss making are excluded from comparables, then the super profit making companies should also be excluded; for the purpose of classification of companies on the basis of net sales or turnover, a reasonable classification has to be made, matter remanded for reconsideration ,after providing an opportunity.(A.Y. 2006-07)

Genisys Integrating Systems (India) (P) Ltd v. Dy CIT ( 2011) 64 DTR 225 (Bang.)

696. S.92C: Avoidance of tax – Transfer pricing– International transaction– Computation– Arm’s length price– CUP methodTNM method.(Rule 10B)

Assessee was engaged in manufacturing and supply of additives. Raw materials and finished goods were purchased from foreign Associated Enterprise. Assessee computed arm’s length value of purchase of raw materials by adopting CUP method. No proper reason could be found as to why TPO rejected method adopted by assessee and applied TNM method based on financial of a company IIP, however, from fianancial of IIP it was found that its sales were of Rs. 14 lakhs against sales of Rs. 120 crores of assessee. Said IIP had not paid any excise duty and indirect taxes, but incurred only packaging cost in addition to cost of materials. IIP was not engaged in any major manufacturing activity nor had a comparable turn over. As there were substantial differences in financial data of two companies which eroded degree of comparability between two. Tribunal held that TPO had not only wrongly adopted TNM method without rejecting CUP method followed by assessee, but also made improper addition based on financial results of an uncomparable entity. As regards purchases from Associated enterprises the Tribunal held that assessee had committed fundamental mistakes in working out arm’s length price based on resale price method and, therefore matter was set back to file of Assessing Officer. Since 70 per cent of assessee’s sales were out of purchases sourced from associate enterprises,

working out gross profit margin internally, after excluding such transactions would be inappropriate due to negligible quantities of balance purchases and sales, hence, in such cases gross profit margin should be taken from comparable uncontrolled transactions entered into by similarly placed concerns.

Indian Additives Ltd v. Asst CIT (2011) 48 SOT 164 (Chennai)

697. S. 92C : Avoidance of tax – Transfer pricing – International transaction – Computation – Arm’s length price – Ship management – Foreign principals – Comparables

TPO after examining set of comparables given by assessee held that assessee had erred in including loss making entities in its comparables hence rejected the comparables and made adjustments to ALP. In appeal Commissioner (Appeals) deleted the addition. On Appeal Tribunal held that assessee in its transfer pricing study analysis had given set of comparables relating to financial years 2000-01 and 2001-02 contending that data for financial year 2002-03 was not available at time TP report was compiled. Tribunal set a side the matter to the Assessing Officer for fresh adjudication with a direction to give sufficient opportunity to assessee to file fresh comparables of financial year 2002-03 so that proper ALP could be determined in accordance with law. (A.Y. 2003-04)

Dy CIT v. Mitsui O.S.K. Lines Maritime (India) (P) Ltd ( 2011) 48 SOT 155 (Mum.)

698. S. 92C : Avoidance of tax – Transfer pricing – International transaction – Computation – Arm’s length price – Royalty

Assessee was engaged in business of manufacture of polystyrene and expandable polystyrene. It was wholly owned subsidiary of LG Chemicals India (P) Ltd (Holding Company). Said holding company was 100 per cent subsidiary of another company namely LG Chemicals Ltd Korea. Assessee entered in to an "Trade mark sub-licence agreement’ with its associated enterprise LG Chemicals Ltd Korea as per which assessee was given non exclusive sub licence for use "LG" trade marks for its business. The assessee had paid royalty for use of trade mark. On reference the TPO held that the transaction was a sham one and motive behind same was to shift profits of assessee company out of country. He determined the royalty as nil. Accordingly the Assessing Officer disallowed entire payment of royalty. Dispute Resolution panel upheld the view of TPO. The Tribunal held that company may use foreign brand /logo for not only increasing its market share, but also for maintaining its existing market share, it was to be held that there was a business necessity for assessee to make impugned royalty payment to its associated enterprise and, TPO/ DRP wrongly concluded that impugned royalty payment to its associated enterprise was a sham transaction. Accordingly the Tribunal set aside the order and directed the Assessing Officer to examine a fresh. (A.Y. 2006-07)

LG Polymers India (P) Ltd v. Additional CIT (2011) 48 SOT 269 (Visakhpatnam)

699. S. 92C : Avoidance of tax – Transfer pricing – International transaction – Computation – Arm’s length price – Tax haven – Comparison with domestic market

Assesseee was a manufacturer of fabrics. It exported fabrics to its Associated enterprise at Panama at rate of US $1.16 per metre and same fabric was also sold in domestic market at rate of Rs. 72 (US $ equivalent 1.515). Transfer Pricing Officer adopted domestic price as ALP for export sale to Associated Enterprise The assessee contended that while comparing the domestic price adjustments were required to be made like incentives on export, discount on sales promotion, advertisement expenses, etc. The Tribunal held that the Transfer Pricing Officer was in error in not taking into consideration the above factor hence the method adopted by the Assessee has to be accepted. The Tribunal further held that the fact that the associated enterprise is located in tax heaven

has no bearing in so far as method of application of ALP determination is concerned. (A.Y. 2002-03).

Arvia Industries Ltd v Asst CIT (2011) 48 SOT 418 (Mum.)

700. S. 92AC : Avoidance of tax – Transfer Pricing – CUP method will determine ALP of interest – Free loan

The assessee advanced Rs. 7.39 crores to its AE on interest-free terms. For transfer pricing purposes, it claimed that no external comparable uncontrolled price was available for benchmarking the transaction and so TNMM was applicable to determine the arm’s length basis of the loan. Applying TNMM, the assessee claimed that the notional interest was factored in the software development income and no separate addition could be made. This was rejected by the TPO & CIT(A) on the ground that the giving of interest-free loans to the AE was an entirely separate transaction not in conjunction with the activity of software development and hence merited a separate analysis. On appeal by the assessee, HELD by the Tribunal:

The assessee was required to comply with the transfer pricing provisions of Ss. 92 to 92F with respect to the transaction of interest-free loan to its subsidiary. The CUP method is the most appropriate method in order to ascertain the ALP of such international transaction by taking into account prices at which similar transactions with other unrelated parties have been entered into. For that purpose, an assessment of the credit quality of the borrower and estimation of a credit rating, evaluation of the terms of the loan e.g period of loan, amount, currency, interest rate basis, and additional inputs such as convertibility and finally estimation of arm’s length terms for the loan based upon the key comparability factors and internal and/or external comparable transactions are relevant. None of these inputs have anything to do with the costs; they only refer to prevailing prices in similar unrelated transactions instead of adopting the prices at which the transactions have been actually entered in such cases, the hypothetical arm's length prices, at which these associated enterprises, but for their relationship, would have entered into the same transaction, are taken into account. Whether the funds are advanced out of interest bearing funds or interest free advances or are commercially expedient for the assessee or not, is wholly irrelevant in this context. As the transaction is of lending money, in foreign currency, to its foreign subsidiary, the comparable transaction should also be of foreign currency lending by unrelated parties

Aithent Technologies Pvt Ltd v. ITO (Delhi). www.itatonline.org.

701. S. 92C : Avoidance of tax – Transfer pricing – International transaction – Computation – Arm’s length price – TNMM method – Profit Split Method

The assessee is doing business of manufacturing and trading of jewellery and precious and semi precious stones. The assessee applied TNMM to international transactions, whereas Assessing Officer held that split method is applicable. While applying profit split method the Assessing Officer has taken value of one doller at Rs. 78.44 .He has not explained how he adopted the said value. The Tribunal held that TNMM is the most appropriate method and the Assessing Officer was not justified in making addition on profit split method. (A.Y. 2004-05)

Asst CIT v. Shankar Exports (2011) 64 DTR 409 (Jp.)

702. S. 92C : Avoidance of tax – Transfer pricing – Computation – Arm’s length price – International transaction – Information – Impor-tant principles on scope, data and comparability. (S. 133(6), Rule 19 D(4)

In a transfer pricing matter, the Tribunal had to consider the following issues (i) whether transfer pricing adjustments have to be restricted to AE transactions only, (ii) whether a turnover filter can be applied and only companies with turnover within the range can be considered for comparison; (iii) whether the TPO is entitled to collect information u/s 133(6) for determining the ALP or he is confined to data available in public domain on the specified date, (iv) Whether the +/- 5% adjustment is a "standard deduction", (v) whether an adjustment to the ALP can be made for "low capacity utilization"? HELD by the Tribunal:

(i) Under Chapter X, only international transactions between AEs are required to be computed having regard to the ALP. Accordingly, the transfer pricing adjustments have to be restricted to the AE transactions by adopting the operating revenue and operating costs of only those transactions;

(ii) Though the Act and Rules does not provide for a turnover filter, there has to be an upper and lower limit because size does matter in business. A big company is in a position to bargain the price and attract more customers. It also has a broad base of skilled employees who are able to give better output. A small company may not have these benefits and the turnover would come down reducing profit margin. When, loss making companies are excluded from comparables, super-profit making companies should also be excluded. A reasonable classification of companies on the basis of net sales or turnover has to be made

(iii) While Rule 10D(4) requires that the information should be "contemporaneous" and exist latest by the "specified date", there is no "cut-off date" up to which only the information available in public domain can be considered by the TPO. Even data that becomes available in the public domain after the specified date can be considered. If the TPO collects information u/s 133(6), he is not required to inform the assessee about the process used by him nor is he required to furnish the entire information to the assessee. However, the assessee must be given proper hearing if any information is proposed to be used against it;

(iv) The +/-5% adjustment is a "standard deduction" and not merely the range within which if the ALP falls that the ALP of the assessee is required to be accepted

(v) All comparables have to be compared on similar standards and the assessee cannot be put in a disadvantageous position, when in the case of other companies adjustments for under utilization of manpower is given. The assessee should also be given adjustment for under utilization of its infrastructure.

Genisys Integrating Systems v. DCIT (Bang.) www. Itatonline.org

703. S. 112 : Capital gains – Income arising from transfer of shares – Security Transaction Tax (STT) not paid – Listed Security (S. 10(38), 45)

Assessee was a promoter – director of a company "PLL". PLL issued shares for public subscription through initial public offer (IPO) as per SEBI guidelines, which permitted existing shareholders also to sell their shares in IPO for diluting their equity holding. Assessee sold certain share of "PLL" and received certain amount as sale consideration. Assessee claimed that said gains were not includible in his total income. Assessee has not paid Securities Transaction Tax (STT) on said shares. Assessing Officer has not

allowed the exemption on the ground that the assessee has not paid STT on said shares and the Shares of PLL were not listed on any stock exchange on the date of sale. The Tribunal confirmed the order of assessing officer and held that the assessee was liable to be taxed at 20 per cent. (A.Y. 2006-07)

Uday Punj v. Dy CIT (2011) 133 ITD 354 (Delhi)

704. S. 112 : Capital gains – Long term capital gains – Non-resident–Investment – Stock-in-trade. [S.10 (38)45]

Assessee a non residents had converted shares purchased earlier years which were held as investment into stock-in-trade and out of such shares had sold some shares during the year through recognized stock exchange on which STT was paid, long term capital gain on sale of such shares would be taxed at a rate of 20 per cent in terms of section 112(1)(c). (A.Y. 2006-07)

Alka Agarwal (Smt) v. Asst Director of Income Tax (2011) 48 SOT 493 (Delhi)

705. S. 115JA : Book profit – Company – Carry forward and set off losses under the Act – More than 8 years. (Ss. 70 to 79)

Assessee company’s total income was less than 30 per cent of book profit. For purpose of MAT provision, assessee bifurcated its accumulated loss shown in books of account in to business loss and depreciation. As depreciation was less than business loss, he deducted same from profit. Assessing officer deducted business loss from same profits earned. While doing so, applying the provisions of Income-tax Act in respect of carry forward of business loss, he also ignored losses of years which were more than 8 years old as end of year. The tribunal held that loss incurred in a year cannot be ignored. i.e; it is not possible to omit past; loss from books of account under double entry system of accounting. The Tribunal held that principle prescribed in sections 70 to 79 is not applicable for computing accumulated losses shown in books of account following Accounting principles. There is drastic variation between income tax provisions and accounting provisions in respect of carry forward and set off losses. (A.Y. 2000-01).

Susi Sea Foods (P) Ltd v. Asst CIT (2011) 48 SOT 424 (Visakhapatnam)

706. S. 115JA : Company–Book profits– Company– Prior period expenses–Provision for bad and doubtful debt.(S. 115JB)

Prior period expenditure and any provision for bad and doubtful debt, cannot be deducted while computing book profit under sections 115JA, 115JB. (A.Ys. 1997-98 & 2000-01 to 2004-05).

Singareni Collieries Company Ltd v. ACIT (2011) 141 TTJ 593 (Hyd)

707. S. 115VA : Shipping business –Operating qualifying ships – Write back of sundry creditors – Interest on loans and advances to employees – Capital gains [Ss. 41(1), 45 56]

Provisions of sections 28 to 43C cannot override computation of profits and gains of under section 115VA hence the Assessing Office cannot make separate additions in respect of write back of sundry creditors, prior period adjustments, etc under section 41 (1). Loans were advanced to employees involved in core activity of assessee company hence interest income derived from such activity was taxable under the head "income from business" and therefore it cannot be brought to tax separately. Income earned by assessee from sale of ships will be taxable under the head capital gains hence receipt in

question cannot be considered as turnover as per provisions of section 115VA thus it was out of purview of Chapter XII-G. of the Act. (A.Y. 2007-08).

Shipping Corporation of India Ltd. v. Addl. CIT (2011) 133 ITD 290 (Mum)

708. S. 132(4) : Search and Seizure –Statement – Addition – Capitation fee

The Assessing Officer made addition towards capitation fees alleged collected from the students was solely based on the sworn statement recorded under section 132(4) of a Special Officer of Engineering College. There was no incriminating evidence regarding the receipt of capitation fee either found or seized. What was found the number of students who were admitted under different quotas in various courses. The Tribunal held the additions cannot be made in the hands of assessee on the basis of such evidence. The Tribunal held that the Central Board of Direct Taxes had issued instructions by Circular No. 286/2/ 2003–IT, wherein it had directed that the search party should not obtain confession. So the admission made under section 132(4) by the Special Officer of the college could not be treated even as a valid piece of evidence. Accordingly the order of Commissioner (Appeals) deleting the addition was confirmed. (A.Y. 2008-09).

Asst CIT v. Saveetha Medical and Educational Trust (2011) 12 ITR 376 (Chennai)

709. S. 144C : Dispute Resolution Panel – Power to "enhance"– Confined to issues raised in draft assessment order – "Future losses" allowable as deduction

U/s 144C (5), the DRP can issue directions only in respect of the objections raised by the assessee and the objections are to be in terms of the variation proposed in the draft order. S. 144C (8) restricts the powers of the DRP to "confirm, reduce or enhance the variations proposed in the draft assessment order". Hence, the DRP’s directions have to be with reference to the objections to the variations proposed in the draft order. (GE India Technology Centre v. DRP (Kar) followed);

As regards the deduction for "future losses", Accounting Standard AS-7 requires "expected loss" (difference between probable contract costs and contract revenues) to be "recognised as an expense immediately" irrespective of whether work has commenced and the stage of completion of activity. Accordingly, estimated or foreseeable losses are allowable as a deduction. (Jacobs Engineering Private Ltd (ITAT Mumbai) & Mazagon Dock 29 SOT 356 followed).

Dredging International NV v. ADIT (2011) 64 DTR 1 / 48 SOT 430 (Mum.)

710. S. 145 : Method of accounting –Project Completion Method – Housing project – Enhancement – Power of Commissioner (Appeals) [S. 251 (2)]

Assessee having regularly followed project completion method which is an accepted method of accounting and the Assessing Officer having accepted the same in the preceding as well as in the subsequent assessment years, there was no justification to reject the said method and apply the percentage completion method when the assessee has offered the income in the year of completion of the project. As the Commissioner of (Appeals) has not issued the enhancement notice as required under section 252 (2), while enhancing the income, the Commissioner of (Appeals) was not justified in enhancing the income by rejecting the project completion method followed by the assessee. (A.Ys. 2005-06 to 2007-08).

Haware Constructions (P) Ltd. v. ITO (2011) 64 DTR 251 (Mum.)

711. S. 145 : Assessment –Method of accounting – Estimation of income (S. 44AE)

Where the Assessing Officer had rejected the books of account of the assessee and estimated income by making various additions, the income of the assessee should be estimated as per formula prescribed under section 44AE.

Kesharbhai Ghamarbhai Choudhary v. ITO (2011) 14 TTJ 94 (Ahd.)(UO)

712. S. 145: Method of accounting – Valuation of stock – Excess stock found during Survey. (S. 133A)

A survey was conducted at assessee’s premises in course of which inventory of stock was prepared. There was discrepancy in value of stock as per books and as per inventory taken at the time of survey. After survey assessee filed its return wherein value of excess stock found at the time of survey was reduced by an amount of Rs. 5.18 lakhs. Assessee contended that assorted or mixed pipes valued at market price were merely scrap, and thus their scrap value was to be taken into account while valuing the stock. The Tribunal held that burden lied on assessee for changing value drastically in respect of valuation of stock. As the assessee has not filed any credible or reliable evidence to show that cost or market price was either of items mentioned was not proper at the time of survey, the contention of the assessee was not accepted. (A.Y. 2003-04)

K.G. Sharma v. Dy CIT (2011) 133 ITD 112 (Delhi)

713. S. 147 : Reassessment – Non disclosure of primary facts – Prima facie reason – Assessment under section 143(1) [Ss. 14A, 143(1)]

What is necessary to reopen an assessment is not final verdict but a prima facie reason. Once reason is recorded by Assessing Officer and subject to other conditions laid down in enabling provision, Assessing Officer assumes jurisdiction to issue notice under section 148. Merely because for earlier assessment years issue in dispute has been decided by Commissioner (Appeals) in favour of assessee cannot be a fetter to Assessing Officer in exercising his jurisdiction under section 147. (A.Y. 1999-2000)

Asst CIT v. Tube Investments of India Ltd. (2011) 133 ITD 79 (Chennai) (TM)

714. S. 147 : Reassessment – Brought forward business loss – Unabsorbed depreciation – Deduction – Export – Manner of computation. (S. 80HHC)

Assessee’s claim for deduction under section 80HHC was allowed on amount of income before reducing brought forward business loss and unabsorbed depreciation hence the Assessing Officer was justified in reopening assessment on that issue. Once assessment is reopened under section 147 on more than one point and one such point is finally taken in to consideration while determining the total income under section, read with section 147, it cannot be held that initiation of reassessment was illegal. Similarly when no escapement of income is found to have taken place on account of reasons which led to issuance of notice under section 148, then the Assessing Officer cannot assessee or reassess any other income which comes to his knowledge during course of reassessment proceedings, however if escapement of income is found in respect of any of reasons basis of which notice under section 148 was issued, then the jurisdiction of Assessing Officer to reassess any income which earlier escaped assessment and now comes to his notice during course of reassessment proceedings cannot be held to be invalid. In order to justify initiation of reassessment it is sine qua non that there must be some income which escaped assessment. Where the manner of computation done by assessee is incorrect but does not reduce total income or ultimate tax liability, it cannot be a case of escaping assessment covered under section 147. (A.Ys. 1999-2000 and 2000-2001).

Priya Ltd. v. ITO ( 2011) 133 ITD 38 (Mum.)

715. S. 147 : Assessment – Reassessment – First time before Tribunal

Assessee’s appeal allowed by the CIT(A) on merits. Held that the assessee can challenge the validity of reassessment proceedings in the appellate proceedings.

DCIT vs. Duratex Exports, ITA No. 3088/M/10, dated 15-6-2011, BCAJ, December – 2011, P. 34, Vol 43-B, Part 3

716. S. 148 : Reassessment – Notice – Reasons recorded

When notice under section 148 is issued, Assessing Officer is bound to furnish reasons recorded within a reasonable time after return has been filed so that assessee could file the objections if any. When so such reasons are furnished to assessee either along with notice under section 148 or at time when hearing are conducted but furnished only before assessment order is passed, such assessment is to be set-a- side and remanded back for re-adjudication after supplying copy of reasons recorded. (A.Y. 2005-06)

Kaushalendra Pratap Singh v. ITO (2011) 133 ITD 111 (Kol.)

717. S. 153C : Search and Seizure Computation – Undisclosed income – Presumption – Project completion method – On money. (S. 292C)

Assessee suo motu offered the entire alleged receipts of on money of Rs. 9.02 crores in its return of income filed under section 153C. The additions made by the revenue on estimate made for the Asst years 2002-03 to 2005-06 was deleted. (A.Ys. 2006-07 to 2008-09).

Fort Projects (P) Ltd v. Dy CIT (2011) 63 DTR 145 (Kol)

718. S. 154 : Rectification of mistake –Prima facie adjustment – Intimation [S. 143(1) (a)]

Where the issue involved of debatable , an intimation under section 143(1) (a) disallowing claim based on such debatable issue on ground that it is prima facie in admissible, cannot be sustained. When error is pointed out it is the duty of Assessing Officer to amend under section 154(1)(b).

Asst CIT v. Haryana Telecom Ltd. (2011) 133 ITD 99 (Delhi)

719. S. 158BB : Block assessment – Search and Seizure – Undisclosed income – Computation – Peak investment

Seized documents showed that the assessee has earned undisclosed income on account of unrecorded turnover in the books of account which was declared in the return for the block period, further additions towards peak investment could not be made in the absence of any document or evidence.

Asst CIT v. Saileshkumar Nathalal Patel (2011) 63 DTR 249 (Ahd)

720. S. 158BC : Block assessment – Search and Seizure – Computation – Post search enquiry – Materials not relating to evidence found

Additions which were made in the block assessment, on the basis of material and information available with the Assessing Officer pursuant to post search enquiry not

being relatable to any alleged evidence found in the course of search are not sustainable. Additions were deleted.

Shibu Soren v. Asst CIT (2011) 62 DTR 273 /12 ITR 540 (Delhi)

721. S. 158BC : Block assessment – Search and seizure – Anonymous donations. (S. 11)

Assessee society running a middle school received certain anonymous donations. The Tribunal held that such donations are liable to be taxed under section 158BC, where as in respected of other donations received receipts contains the details of name and addresses the said donations cannot be assessed under section 158BC. (A.Y 2007-08)

Hans Raj Samarak Society v. ITO (2011) 133 ITD 530 (Delhi)

722. S. 158BD : Block assessment –Search and seizure – Computation – Post search enquiry – Materials not relating to evidence found –Protective assessment. (S. 158BC)

Income Tax department had the information regarding the existence of the bank accounts of all the individual assessees and money deposited in these bank accounts along with relevant dates of such deposits, no incriminating material can be said to have been found as a result of search carried out in respect of their bank accounts and the money lying in the said bank accounts cannot be subject matter of addition in block assessments. Once it is accepted that no incriminating documents were found in the case of four MPs in their premises, which justified any addition under section 158BC, in their hands, protective addition in their party JMM invoking section 158BD also cannot be sustained.

Shibu Soren v. Asst CIT (2011) 62 DTR 273 / 12 ITR 540 (Delhi)

723. S. 158BFA(2) : Block assessment – Search and seizure – Penalty –Undisclosed income – Addition on estimate basis – Gross profit – Appeal admitted by High Court

The Tribunal confirmed the addition by the Assessing Officer on account of estimated gross profit merely on the basis that the entries found recorded in the ledger account found in the possession of a third party, and not on the basis of any material found in the possession of the assessee during the search, penalty under section 158BFA(2) is not leviable, more so when appeal against quantum has been admitted by the High Court.

Sadhu Ram Goyal v. Dy CIT (2011) 63 DTR 296 (Jaipur)

724. S. 158BFA(2) : Block assessment – Search and seizure – Penalty –Undisclosed income (S. 158BD)

The assessee did not file the return of income in response to notice under section 158BD read with section 158BC for the block assessment. The addition on account of money paid in cash was based on the seized material found during the course of search. The Tribunal held that levy of penalty was justified.

Madhuben R. Barot (Smt) v. Asst CIT (2011) 12 ITR (Trib) 465 (Ahmedabad)

725. S. 158BFA(2) : Block assessment – Search and seizure – Penalty –Undisclosed income –Statement – Quantum confirmed by Tribunal

In quantum appeal the Income Tax Appellate Tribunal has not accepted the retraction made by the assessee, in the absence of any contrary, material placed on record by the Assessee, the assessee was liable to penalty under section 158BFA (2).

Gunanath B. Thakoor v. Asst CIT (2011) 64 DTR 23/ 142 TTJ 770 (Mum.)

726. S. 168 : Executors – Income – Administrator (S. 4)

Amount received by the administrator (Assessee) on distribution out of the accumulated funds of the estate of the deceased in his capacity as a transferee of the legatee’s interest was not taxable in his hands, since the assessee had only acquired the rights to sale proceeds of the properties and the estate was continuing and was being administered by the assessee, he could not be treated as the residue legatee. (A.Y.2004-05).

Dy CIT v Nusli Neville Wadia (2011) 61 DTR 218 (Mum) / 141 TTJ 521 (Mum).

727. S. 194C : Deduction at source –Contractor – Sub-contractor – Service of security personnel

Service rendered by security personnel under a contract with agency would fall with in the meaning of section 194C, because security guards are skilled persons carrying out work of guarding premises from any untoward incidence therefore assessee was justified the deduction of tax at source at 2.26%. (A.Ys. 2006-07 to 2008-09.

Glaxo SmithKline Pharmaceuticals Ltd v. ITO (TDS) (2011) 48 SOT 643 (Pune)

728. S. 194C : Deduction at source – Contractor – Sub-contractor – Hiring of tractors and trolleys – Transport and octroi charges [S. 40(a) (ia)]

Assessee hired tractors and trolleys from nearby villages for purpose of business and debited payments were on a day basis under head "Transportation and Octroi charges". Assessing Officer disallowed the same on ground that said payments were transport charges and hence required deduction at source under section 194C. The Tribunal held that the nature of expenditure cannot be deduced merely on the basis treatment accorded in account books, but to be decided on basis of substantive character of transaction. As hiring of tractors /trolleys for purpose of using them in business could not be equated to a contract for transportation for carriage as contemplated under section 194C,therefore disallowance of expenses by invoking provisions of section 40(a)(ia) was unjustified. Even if such an arrangement is considered to be falling within the purview of section 194I of the Act, however for the period under consideration the requirement of deduction at source on machinery rentals are not applicable. (A.Y.2006-07).

Nalawade C. Maruti v. JCIT (2011) 48 SOT 566 (Pune)

729. S. 194C : Deduction at source – Transportation – Hire contract – Rent – Tests to distinguish "transportation contract" from "hire contract" (S. 194-I ).

The assessee entered into contracts with transporters for transporting petroleum products from the plant to various destinations. The assessee deducted TDS u/s 194C at 2% on the basis that the transportation contract was "work". The AO held that the contract was a "hiring" of vehicles on the basis that (i) the assessee had exclusive possession and usage, (ii) the use was for a fixed tenure, (iii) the tankers were customized to the assessee’s requirements and that TDS ought to have been u/s 194-I at 10%. The assessee was held to be in default u/s 201. On appeal, the CIT (A) reversed the AO. On appeal by the department, HELD dismissing the appeal:

To decide whether a contract is one for "transportation" or for "hiring", the crucial thing is to see who is doing the transportation work. If the assessee takes the trucks and does the work of transportation himself, it would amount to hiring. However, if the services of the carrier were used and the payment was for actual transportation work, the contract is for transportation of goods and not an arrangement for hiring of vehicles. On facts, the agreement was of the nature of transport agreement and not one for hiring of vehicles because the tank truck owners did not simply confine themselves to providing vehicles at the disposal of the assessee in lieu of rent but also engaged their drivers in driving such vehicles and thereby in transporting petroleum products from one place to the other. In effect, the truck remained in the possession of the staff of the carrier. Further, the assessee was required to pay for the transportation work on the basis of distance and no idle charges were payable. There was no transfer of the right to use the vehicle involved in the agreement. The agreement was merely for carriage of petroleum products and so s. 194-I was not applicable.

ITO v. Indian Oil Corporation (2012) 13 ITR 79 (Delhi)

730. S. 194H : Deduction at source – Commission or brokerage – "Principal – Agent". (S. 40(a)(i)

The assessee entered into agreements with hospitals etc. ("collection centres") in accordance with which the centres collected samples from patients seeking laboratory tests and forwarded it to the assessee. The centres raised a bill on the patient, retained their "discount" and paid the balance to the assessee. The assessee claimed that it had rendered "professional services" and that the centres had rightly deducted TDS u/s 194J. The AO held that in collecting the sample and forwarding it to the assessee, the centres acted as an "agent" of the assessee and that the "discount" retained by it was "commission" and that the assessee ought to have deducted TDS u/s 194H. He consequently disallowed the "discount" u/s 40(a)(i) in the hands of the assessee. This was upheld by the CIT(A). On appeal by the assessee, HELD reversing the AO & CIT(A):

(i) To fall within s. 194-H, the payment must be by a "person acting on behalf of another person". The element of "agency" has necessarily to be there. If the dealings between the parties is not on a "principal to agent" basis, s. 194-H does not get attracted;

(ii) On facts, the relationship between the assessee and the Centres was not on a "principal & agent" basis because (a) under the agreement, the Centres availed the professional services of the assessee to test the samples and were under no obligation to always forward these samples to the assessee; (b) The Centres issued its own bill to the patient, collected the fees and issued the receipt, (c) the assessee raised its invoice on the Centres after giving a "discount" over the standard price list; (d) the rates charged by the Centres from its customers were not decided by the assessee, (e) there was no privity of contract between the assessee and the patient, (f) the amounts collected by the Centres was not on behalf of the assessee. Consequently, the relationship between the assessee and the Centres was on principal to principal basis and s. 194H did not apply.

(iii) Further, the obligation of TDS u/s 194H arises only at the time of "payment" or "credit". As the assessee had not paid or credited any amount to the account of the Centres, s. 194H had no application. The assessee had only credited the net amount received from the Centres as its income.

SRL Ranbaxy Ltd. v. ACIT (2012) 65 DTR 185 / (2012) 143 TTJ 265 (Delhi)

731. S. 194H : Deduction at source-Commission or brokerage- Business expenditure – Disallowance under section 40(a)(ia) – Payment to consolidator of land

Assessee having appointed a consolidator to acquire land who, as per the terms of MOU, agreed to assign its right to purchase the land in favour of the assessee, the transaction between the assessee and the consolidator was on principal to principal basis and, therefore, provisions of section 194H were not applicable to the payments made by the assessee to the consolidator and consequently, same cannot be disallowed under section 40(a)(ia); provisions of section 40(a)(ia) are not applicable also for the reason that the assessee has reflected the impugned payments in purchases and closing stock and has not claimed any deduction for expenses on account of such payments.

ITO v. Finian Estates Developers (P) Ltd. (2011) 63 DTR 314 (Delhi)

732. S. 194J : Deduction at source – Fees for professional – Technical services – Service of security personnel. [Ss. 9(1) (vii), 194C]

The Tribunal held that payment made for services of security guard provided by a contractor cannot be kept in nature of managerial, technical or consultancy services to attract clause (vii) to section 9(1) reads with section 194J. For treating the payment for technical services to be covered under section 194J , should be a consideration for acquiring or using technical know how simpliciter provided or made available by human element and there should be direct and live link between payment and receipt /use of technical services information. The contention of assessee that payment is covered under section 194C is accepted. (A.Ys. 2006-07 to 2008-09.)

Glaxo SmithKline Pharmaceuticals Ltd. v. ITO (TDS)( 2011) 48 SOT 643 (Pune)

733. S. 201 (IA) : Deduction at source – Interest – Unequal deduction – Salary (S. 192)

If there were bona fide reasons in deducting a lesser tax during the earlier months of financial year and is made good immediately after noticing such short fall, then section 192 (3), would save the employer from liability of making payment of interest under section 201 (IA); however, if the Assessing Officer finds that employer has taken the deduction casually during the earlier months of the financial year, by not deducting the tax at the end of the financial year, then interest can be charged. (A.Y. 2004-05 ).

Madhya Gujarat Vij Co Ltd. v. ITO (2011) 64 DTR 127/ 133 ITD 89 (Ahd.)

734. S. 206C : Collection at source – Forest produce – Tax paid by purchaser

As per the provision of section 206C(6), the liability in respect of tax collection at source is fastened upon the person engaged in collection of forest produce and selling them whether or not he collects the Tax collection at source as per provision of section 206C (1) and therefore , the contention that the assessee should not be made liable to pay the tax collection at source on the impugned sales, since the purchasers have already paid the tax thereon was not sustainable. Accordingly the assessee was made liable to pay the demand. (A.Y. 2005-06)

Girijan Co–op. Corporation Ltd v. Asst CIT (2011) 64 DTR 433 (Visakhapatnam)

735. S.220 : Collection and Recovery– Interest–Assessee deemed in default

For the assessment year 1994-95, the assessment was completed under section 143 (3) on 28-2-1997. The original assessment order was set a side by Tribunal and fresh

assessment order was passed on 24-12-2006. Assessing Officer held that the interest under section 220(2) to commence after thirty days from the date of service of the original demand notice dated 28-2-1997. Tribunal held that interest would be applicable on the demand notice pursuant to fresh assessment order i.e. 24-12-2006 and question of demanding interest for the period prior to 24-2-2006 does not arise. Order of Tribunal was confirmed by High Court.

CIT v Chika Oversea Pvt Ltd. ITA No. 3737 of 2010 dated 18-11-2011. 429 (2012) 43-B. BCAJ. January 2012.- P. 41.

736. S. 221 : Penalty payable when tax in dispute – Appeal pending before Tribunal – Assessee deemed to be in default. (S. 156)

Assessing Officer levied the penalty after considering the explanation of assessee. The CIT(A) held that the no proper opportunity was given before levying the penalty. In cross objection assessee contended that the Assessing Officer should have waited to levy the penalty till the order of Tribunal. The Tribunal rejected the contention holding that there was no provision in the Act that penalty under section 221 (1) can be imposed only after order is passed by the Tribunal.

Asst CIT v. Catmoss Retail Ltd (2011) 63 DTR 1 (Delhi)

737. S. 234B : Interest- Interest for default in payment of advance tax. (S. 115JA/JB)

Interest under section 234B is chargeable after allowing adjustment of MAT credit under section 115JA/JB. (A.Y. 2000-01)

Singareni Collieries Company Ltd. v. ACIT (2011) 133 ITD 213 (Hyd.)

738. S. 249 (4) : Form of appeal and limitation – Recovery of amount –Hundi seized

Assessing Officer recovered amount out of Hundies seized from the assessee in excess of the admitted tax, the defect in the appeal before CIT(A) due to non-payment of admitted tax as required under section 249(4) can be treated to have been removed, the matter was remitted to CIT(A) to decide on merit. (Block period Ist April, 1966 to 26th June, 2002).

Mansukhlal v. CIT (2011) 62 DTR 356/ 245 CTR 111 (MP)

739. S. 251 : Powers of the Commissioner ( Appeals) – Omission to claim in the return

Where the assessee had not claimed deduction u/s 80-IB in the return of income and facts relating to that deduction have also not been shown to be existing on record, CIT was not justified in directing the A.O. to consider the claim in accordance with law.

ACIT v. Parabolic Drugs Ltd. (2011) 62 DTR 73 (Delhi)

740. S. 254 : Appellate Tribunal – Power – Stay – Deduction at source – Disallowance of interest – Commission – Interest. [Ss. 40(a) (ia), 220 (2), 234B, 234D]

Assessee moved the stay application before the Tribunal to stay the demand of tax and interest. Demand has arisen mainly because of disallowance of interest commission, etc.

due to failure to deduct tax at source. The Tribunal held that the assessee has failed to prove a prima facie case in his favour, hence the stay application was rejected. (A.Y. 2007-08)

Maharastra State Electricity Distribution Co. Ltd. v. Asst CIT (2011) 133 ITD 519 (Mum.)(SB)

741. S. 254 : Appellate Tribunal – Additional ground – Appeal against penalty

Tribunal can admit the additional ground while deciding the penalty appeal a pure question of law not involving investigation into the facts.

Dy. CIT v. B. J. D. Paper Products (2011) 141 TTJ 108 (Luck.)

742. S. 254 : Appellate Tribunal – Additional ground

If relevant facts are available on record Tribunal can admit a question of law as additional ground.

ACIT v. Wolkman India Ltd. (2011) 142 TTJ 888 (Jd.)

743. S. 254(2) : Orders of Appellate Tribunal – Powers – Rectification of Mistakes – Reference in log book

In the log book of the author of the order of the Tribunal there is reference to CIT(A)’s order which contains the relevant findings on the issue of agency PE, there is also a reference to Departmental Representative’s submission contesting the finding of the CIT(A) on this issue, therefore , assessee’s plea that the question of agency PE was never raised before the Bench at the time of hearing of the appeal cannot be accepted. Tribunal having given its finding on the issue of agency PE which was actually raised before the Bench at the time of hearing of the appeal and arrived at its conclusions based on relevant reasoning, miscellaneous Application filed by the assessee questioning the correctness of the view of the Tribunal without indicating any apparent error in the order of the Tribunal without indicating any apparent error in the order of the Tribunal is not maintainable.(A.Y. 1997-98).

Reuters Ltd v. JCIT ( 2011) 62 DTR 322 / 48 SOT 246 (Mum)

744. S. 254(2) : Orders of Appellate Tribunal – Rectification of mistakes – Powers – Jurisdiction of Income tax Appellate Tribunal, which originally heard matter, to recall its order

The Tribunal omitted to consider an issue. A Miscellaneous application was moved seeking to recall the order. The tribunal recalled the order and registry was directed to fix the appeal as far as ground regarding rent receipt was concerned. Assessee moved instant application seeking admission of additional ground that reopening was bad in law. Held that the statute permits bench, which originally heard the matter, to recall its order in its entirety or to recall in a limited way or to pass a corrigendum or correct certain mistakes apparent from record and bench has no jurisdiction to go into other issues other than one which was recalled. Hence, Assessee was not entitled to raise any additional ground. (A.Y. 1999-2000).

Tokhem Enterprises v ITO ( 2011) 132 ITD 375 (Mum)

745. S. 263 : Revision of orders prejudicial to Revenue – Business income –Capital gains – Income from purchase and sale of shares. [Ss. 28 (i), 45]

Assessing Officer accepted the income declared by the assessee under the head long term capital gains without any application of mind or enquiry though the assessee was investment company, the assessment was erroneous and revision order under section 263 was justified. (A.Y. 2006-07)

Spectra Shares & Scrips ( P) Ltd v. Dy CIT (2011) 62 DTR 411 ( Hyd)

746. S. 263 : Revision of orders prejudicial to revenue – Power – Sweeping manner – Cannot direct A.O. to frame entire assessment

While exercising revisional jurisdiction under section 263 Commissioner cannot ordinarily exercise this power in a sweeping manner directing Assessing Officer to frame entire assessment afresh, when assessment order indicates consideration of majority of relevant issues (A.Y. 2004–05)

New India Assurance Co Ltd v. Addl Commissioner (2011) 133 ITD 131 (Mum.)

747. S. 263 : Revision of orders prejudicial to revenue – Penalty – Concealment – Cannot initiate penalty proceeding. [S. 271(1)(c)]

The Tribunal held that once revision order is passed, it is for assessing authority to consider whether penalty is to be levied or not and if assessing authority has not levied penalty where it is imperative, then only, Commissioner can in his wisdom interfere in the matter. Therefore when there is no penalty order subsisting at time of passing of revision order it is not proper on part of Commissioner to initiate penalty proceedings under section 271(1)(c). (A.Y. 2008-09).

S. Sudaha (Smt) v. Asst CIT (2011) 48 SOT 335 (Chennai)

748. S. 263 : Revision of orders prejudicial to revenue – Lack of proper enquiry

Where all the details of expenditure was duly furnished by the assessee to the Assessing Officer the CIT cannot revise the return filed by the assessee on the basis of rack of enquiry.

Vodafone Essar South Ltd. v. CIT (2011) 141 TTJ 84 (Delhi)

749. S. 271(1)(c) : Penalty – Concealment – Search and seizure – Loss return

In the course of search it was found from records that some loose papers were found having jottings on them, no other valuable assets like money, bullion, jewellery etc were found and losses declared by assessee for four assessment years were accepted by Assessing Officer hence there was no tax liability on assessee. The Tribunal held that penalty cannot be levied by invoking Explanation 5 to section 5 to section 271(1)(c). (A.Ys. 2002-03 to 2005-06).

Lallubhai Amichand Ltd. v. Dy. CIT ( 2011) 133 ITD 205 (Mum)

750. S. 271(1)(c) : Penalty – Concealment – Failure to deduct tax at source – Royalty – Advertisement – Publicity [S. 40(a)(ia)]

The assessee not deducted the tax at source in respect of payments of royalty, advertisement and publicity, audit fee and recruitment expenses. In the audit report accompanying the return it was mentioned that the amount was not admissible under section 40(a)(ia). The assessee contended that due to inadvertently this amount was not reduced in the computation of income. The Tribunal held that the as the assessee

disclosed the amount in accounts, there was no concealment and hence levy of concealment penalty was not justified. (A.Y. 2005-06).

New Horizon India Ltd v Dy CIT (2011) 12 ITR 332 (Delhi)

751. S. 271(1)(c) : Penalty – Concealment – Wrong claim of deduction

Mere making a claim which is not sustainable in law will not amount to furnishing of inaccurate particulars for involving penalty under section 271(1)(c).

Dy. CIT v. Pathankot Primary Co-op. Development Bank Ltd. (2011) 142 TTJ 401 (Asr.)

752. S. 271(1)(c) : Penalty – Concealment – Bona fide belief that income not taxable

Assessee having not offered capital gains on the sale of agricultural land and the interest income earned thereon under the impression that the sale of agricultural land did not give rise to any capital gain, and later filed a revised return before any enquiry was initiated by the Assessing Officer, there was no deliberate attempt to conceal income on the part of the assessee, more so when only interest income was held taxable, and, therefore, levy of penalty under section 271(1)(c) was not justified.

Manjoor Ahmed v. ITO (2011) 62 DTR 70 (jd.)

753. S. 271(1)(c) : Penalty – Concealment – Survey – Additional income (S. 133A)

Assessing Officer has not given a clear finding in penalty order whether addition on account of concealment of income or furnishing in accurate particulars of income. The Tribunal held penalty was not justified. (A.Y. 2006-07).

Asst CIT v. Rmp Infotech P Ltd. (2011) 12 ITR 581 (Chennai)

754. S. 271 (1) (c) : Penalty – Concealment – Search and seizure – Revised return (S. 153A)

A Search and seizure operation was conducted at assesses premises. In response to notice under section 153A, the assessee filed return showing income of Rs. 2,11,297, without disclosing any unaccounted income. In response to further enquiry, assessee filed revised return disclosing additional income by way of declaring gross profit rate of 15% as against 6.93% which was declared in return filed under section 153A. Assessing Officer completed assessment by taking gross profit at 15%. The Tribunal held that since the assessee had failed to establish that disclosure of additional income in revised return under section 153A was made voluntarily and in good faith to buy peace with revenue and since, assessee filed the revised return only after concealment was detected by Assessing Officer, penalty under section 271(1)(c) was rightly imposed. (A.Y.2005-06).

Dy CIT v. Sushma Devi Agrwal (2011) 133 ITD 155 (Kol.) (TM)

755. S. 271(1)(c) : Penalty – Concealment – Search and seizure – Statement –Retraction – Unaccounted donation

There was a search in case of one of trustees, during course of which several incriminating documents were found which among other showed unaccounted transaction by trust. The Trustees had clearly stated that unaccounted donations were received, though retracted. The Tribunal held that assessee had concealed particulars of

income within meaning of provision of Explanation 1 to section 271(1)(c). (A.Ys. 1989 and 1990-91)

Dy. DIT v. St. Xavier’s Education Trust (2011) 133 ITD 576 (Mum.)

756. S. 271 (1) (c) : Penalty – Concealment – Survey – Stock – Addition (S. 69)

On the date of survey, as per physical verification stock found was of value of Rs 87,93 380, whereas stock as per books of account maintained works out Rs. 78,93 380. Assessee had agreed pay tax on excess stock so worked amounting to Rs. 9 lakhs. In the trading account for period ending 31-3- 2000 the assessee shown the said amount as other income, however the assessee increased the valuation of opening stock by Rs. 9 lakhs and nullified the effect of declaration. The Assessing Officer made addition of Rs. 9 lakhs as unexplained investment in stock under section 69 and also levied the penalty under section 271(1)(c). The Tribunal held that the assessee had deliberately prepared trading account in such away so as to nullify effect of excess stock found during survey, conduct clearly showed that assessee had concealed income hence justified the levy of penalty. (A.Y. 2000-01)

Tribhovandas Chelaram v. Asst CIT (20110 133 ITD 587 (Ahd.)

757. S. 271(1) (c) : Penalty – Concealment – Good will – Depreciation – Intangible asset

The assessee has goodwill as ‘certain other intangible assets’ and claimed depreciation. The Tribunal held that such a false claim could not be considered as a debatable or possible claim and assessee was liable to penalty under section 271(1)(c). (A.Y. 2000-01)

Mahindra Intertrade Ltd v. Dy CIT (2011) 133 ITD 597 (Mum.)

758. S. 271AA : Penalty – Transfer pricing – Failure to maintain and keep documents – International Transaction (S. 92D, Rule 1D)

Assessee was engaged in business of manufacturing and distributing non-pharmaceutical health care products. It had entered into an International transactions with its associated enterprises (AE). During the course of assessment proceedings the Assessing Officer observed that as the asssesse failed to maintain books of accounts for international transaction levied the penalty of Rs. 13,57,720. The Tribunal held that the Assessing Officer did not specify what was the failure on part of assessee under section 92D read with Rule 10D, secondly in the course of assessment proceedings assess had furnished all details required by Assessing Officer and International transaction with Associated Enterprise which had been accepted to be one confirming to arm’s length price by the Assessing Officer. The Tribunal held that the penalty levied by the Assessing Officer was without any basis hence cancelled the penalty order. (A.Y. 2003-04).

Asst CIT v. Smith & Newphew Healthcare (P) Ltd. (2011) 48 SOT 607 (Mum.)

759. S. 271G : Penalty – Transfer Pricing – No penalty for failure to respond to "omnibus" notice

S. 271G authorizes the levy of penalty if the information/ documents prescribed by s. 92D (3) are not furnished. Rule 10D prescribes a voluminous list of information and documents required to be maintained and it is only in rare cases that all clauses would be attracted. Some of the documents may not be necessary in case of some assessees. Before issuing a notice u/s 92D(3), the AO has to apply his mind to what information and documents are relevant and necessary for determining ALP. A notice u/s 92D(3) is not routine and cannot be casually issued but requires application of mind to consider the

material on record and what further information on specific points is required. The notice cannot be vague or call for unprescribed information.

DCIT v Leroy Somer & Controls (India) (P) Ltd. (Delhi) (ITAT) (www.itatonline.org)

760. S. 275 : Penalty – Concealment –Bar of limitation for imposing concealment penalty. [S. 271(1)(c)]

Assessee, a public Limited Company, filed a loss return. Assessing Officer completed assessment at positive income by making various additions and disallowances. The additions were confirmed by Commissioner (Appeals) and Tribunal on 30-8-2004 and 9-5-2008, respectively. Assessing Officer imposed penalty order under section 271(1)(c) on 30-1-2009. Assessee claimed that said order of penalty order of 30-1-2009 was barred by limitation in terms of section 275. The Tribunal held that where assessee had filed an appeal before Tribunal against quantum, section 275(1)(a) fixes time limit of six months from date of receipt of order of Tribunal by Commissioner /Chief Commissioner or passing an order of penalty, therefore penalty levied was proper.(A.Y. 2000-01)

Mahindra Intertrade Ltd v. Dy CIT (2011) 133 ITD 597 (Mum.)

Interpretations

761. Precedent – Decision of jurisdictional High Court – Binding nature

Tribunal has to follow the decision of the jurisdictional High Court without making any comment upon the said decision, it is not permissible for the Tribunal to sidetrack and/or ignore the decision of the jurisdictional high court on the ground that it did not take into consideration a particular provision of law.

Deputy Commissioner of Income Tax v. Gujarat Ambuja Cements Ltd (2011) 57 DTR 179 (Mum.)

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