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Monthly Digest of Case Laws (February 2011) http://www.itatonline.org 1

Monthly Digest of Case laws (February 2011) Compiled by: Ajay Singh, Paras Savla, Rahul Hakani, Sujeeth Karkal and Renu Choudhari, Advocates, KSA Legal Chambers (Journals Referred: ACAJ / BCAJ / BLR / CITC / CTR / DTR / ITD / ITR (Trib) / ITR / SOT / TTJ / TLR / Taxman / Taxation / Tax World, www.itatonline.org) S. 2(22)(e) : Deemed Dividend – Debenture – Loan - Investment Debenture is a loan account and therefore, debentures subscribed by the assessee shareholder are to be taken into account for ascertaining his indebtedness to the company vis-à-vis the loan or advance taken by him and determining deemed dividend under section 2(22)(e). Anil Kumar Agarwal vs. ITO (2011) 51 DTR 251 (Mum.)(Trib.) S. 4 : Income - Capital or Revenue Receipt – Compensation - Termination from land owner Compensation received from the land owner on termination of development agreement was the deprivation of potential income and loss of future profits as mentioned in the settlement agreement and not for divesting the assessee of its earning apparatus, as restrictive covenant in the said agreement only prohibited the assessee from undertaking a similar project in the vicinity of the existing project without consent of the land owner for the limited duration of three years, and therefore, the compensation was a revenue receipt. Ansal Properties & Industries Ltd. vs. CIT (2011) 238 CTR 126 (Del.) S. 4 : Charge of Income Tax – Assessment - Law Applicable - Financial Year - Assessment Year - (S. 143) Unless it is made clear in an amendment as to whether it comes in to effect for the assessment year or financial year, normally it is to be deemed that such benefit of the amendment is for the assessment year. Mukesh C. Patel vs. CIT (2011) 238 CTR 332 (Kar.) S. 9 : Income deemed to accrue or arise in India - Finance Act, 2010 Since by Finance Act, 2010, section 9 has been amended with effect from 1-6-1976, department was permitted to move to High Court by way of review petition against its judgment in Jindal Thermal Power Co. Ltd. vs. Dy. CIT (2009) 182 Taxman 252 (Kar.) Dy. CIT vs. Jindal Thermal Power Co. Ltd. (2011) 196 Taxman 495 (SC) S. 9(1)(i) : Income deemed to accrue or arise in India - Business Connection - Offshore supply of equipment - International Taxation Consideration for the offshore supply of equipment by the assessee, a Korean company, to an Indian company cannot be deemed to have accrued or arisen in India as the terms of the agreement stipulated transfer of title / property in the goods as soon as the goods were loaded on the ship at the port of shipment i.e. outside India, and there is no material to show that the accrual of income from this sale was attributable to any operations carried in India or that the PE of the assessee in India had any role to play in the off shore supply of equipment.


Director of Income Tax vs. LG Cable Ltd. (2011) 237 CTR 438 (Delhi) Editorial:- LG Cable Ltd. vs. Dy. DIT (2008) 119 TTJ 34 (Del.), affirmed. S. 9(1)(vii) : Income deemed to accrue or arise – Validity challenged - Parliament’s power to make laws with extra - Territorial effect The constitutional validity of section 9(1)(vii)(b) was challenged by way of an appeal to the Supreme Court so as to determine the extent to which laws enacted by Parliament can have extra-territorial effect under Article 245. The Constitution Bench held that Parliament is constitutionally restricted from enacting legislation with respect to extra-territorial aspects or causes that do not have, nor expected to have any, direct or indirect, tangible or intangible impact(s) on or effect(s) in or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. In all other respects, Parliament may enact legislation with extra-territorial effect. All that is required is that the connection to India be real or expected to be real, and not illusory or fanciful. Parliament can only make laws for India and any law which has no impact on or nexus with India would be ultra-vires. GVK Industries Ltd. vs. ITO (SC) 5 Member Bench, Source: www.itatonline.org S. 9(1)(vii) : Income deemed to accrue or arise in India – Royalty - Computer Software - Copyrighted Article - Tax Deduction at Source -International Taxation – DTAA - India-USA – Art. 7 and 12 - (S. 195) Where the payment is made in respect of the software which is granted on terms of non-exclusive, perpetual, irrevocable, royalty free worldwide license to use the number of copies of the software enumerated in the agreement solely for internal operation, and not directly accessible to third party could not be considered as a “Royalty” under the Act. As the payment was “business income” of the party receiving the payment, as that non-resident party did not have a Permanent Establishment in India and thus as per D.T.A.A. the same cannot be taxed in India. The assessee is not liable to deduct tax at source. Dy. DIT vs. Reliance Industries Ltd. (2011) 43 SOT 506 (Mum.)(Trib.) S. 9(1)(vii) : Income deemed to accrue or arise in India - Fees for Technical Services - International Taxation - DTAA - India-Denmark Amount received by assessee, a Danish shipping company, from its agents in India towards their share of cost of global telecommunication facility provided to the agents to enable them to have access to variety of information regarding tracking of cargo, transportation schedule, etc., to facilitate international shipping business being only reimbursement of cost and not involving any profit element, cannot be considered as fees for technical services. Dampskibsselskabet AF 1912 A/S Akties Iskabet vs. Addl. DIT (2011) 51 DTR 148 (Mum.) (Trib.) S. 10B(6) : Exemption – Depreciation – Unabsorbed - Carry forward and set off Unabsorbed depreciation of earlier assessment years in which no deduction was claimed under section 10B is available for set off against other taxable income of the subsequent assessment years. Patspin India Ltd. vs. Dy. CIT (2011) 51 DTR 57 / 129 ITD 35 / 136 TTJ 377 (Cochin)(Trib.)(TM) S. 12A : Charitable Purpose – Registration - Activity of giving micro finance and earning Interest – [S. 2 (15), 11]


Where an assessee is registered under section 25 of Companies Act, 1956, it in itself shows that the company intends to apply its profit in promoting charity. And where the object of the assessee states that it shall promote micro finance services to poor person and help them arise out of poverty, mere surplus from such micro finance service cannot by itself be a ground to say that no charitable purpose exists. Followed Thanthi Trust 247 ITR 785 (SC) and Agricultural produce and market committee 291 ITR 419 (Bom.) Dish India Micro Credit vs. CIT (ITAT - Delhi) Source: www.itatonline.org S. 14A : Business Expenditure - Exempted Income - Appellate Tribunal – Power - Applicability of provision of section 14A for the first time before Tribunal – [S. 254(1)] Issue of disallowance under section 14A, cannot be raised for the first time before the Tribunal where the provision of section 14A, was not invoked against the assessee by the Assessing Officer while making disallowance of interest expenditure under section 36(1)(iii) and CIT(A) also at no stage considered the application of section 14A. ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib.) S. 14A : Business Expenditure - Exempted Income - Despite Proviso to S. 14A, disallowance can be made for earlier years The protection of proviso to section 14A w.r.t. A.Y. 2001-02 & earlier years was inserted w.e.f. 11/05/2001. Thus, where order of CIT under section 263 was passed earlier i.e. on 29/12/1999, the protection under the proviso is not available. Mahesh G. Shetty & Ors. (2011) 51 DTR 104 (Kar.) / 238 CTR 440 (Kar.) S. 28(1) : Business Loss - Speculative Loss - Sale and purchase of Units of UTI - (S. 43(5), 70, 73) Assessee tea plantation company purchased units of UTI on cum dividend basis shortly before declaration of dividend and sold the same at a lower price i.e. ex-dividend immediately after receiving the dividend. Transaction of purchase and sale of units when done as a business in a speculative manner, the loss therefrom could be set off only against profit arising in speculation business. Assessee claimed set off of loss from speculation business against income from tea plantation which is not admissible due to the prohibition contained in section 73(1). However, in view of the Supreme Court decision in Appollo Tyres Ltd. vs. CIT (2002) 255 ITR 273 (SC) assessee’s claim was sustainable. CIT vs. Periakaramalai Tea & Produce Co. Ltd. (2011) 51 DTR 186 (Ker.) S. 28(v) : Business Income - Method of Accounting – Enhanced Rate - Sale of Flat - (S. 4, 145) Assessing Officer having not brought any material on record to prove that the assessee has sold the flats at a price higher than the price recorded in the books of account, addition made by the assessing officer by enhancing the selling rates cannot be sustained. ACIT vs. Dharti Estate (2011) 51 DTR 28 / 129 ITD 1 / 136 TTJ 263 (Mum.)(Trib.)(TM) S. 28(v) : Business Income - Income from Other Sources - Interest from Partnership Firm - (S . 56)


When there is a specific provision for treating interest and salary, etc. earned by a partner of from a firm as taxable under the head “Profits and gains or business or profession” there is no question of categorizing it under the residual head of income. ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib.) S. 28(v) : Business Income – Income from waiver of loan – Capital or Revenue Receipt - Depends on whether loan was used for Capital or Revenue purposes It was held that income from waiver of loan depends on the purpose for which loan is taken. In case the loan was taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible to tax under section 28(iv) or 41(1). Whereas, if the loan was taken for a trading purpose and was treated as such from the very beginning in the books of account, its waiver would result in income more so when it was transferred to the P&L A/c in view of Sundaram Iyengar 222 ITR 344 (SC). Logitronics Pvt. Ltd. vs. CIT (High Court - Delhi) (www.itatonline.org) S. 28(va) : Business Income - Capital or Revenue - Non–compete compensation - Prior to Asst. Year 2002-03. Section 28(va) inserted w.e.f. A.Y. 2002-03, non-compete compensation is a capital receipt The payment received as a non competition fee under a negative covenant was always treated as a capital receipt till AY 2003-04. There is a dichotomy between receipt of compensation received for loss of agency, which is treated as revenue receipt and receipt of compensation attributable to negative / restrictive covenant which is treated as capital receipt. It should be noted that it is only by section 28(va) inserted by Finance Act 2002 w.e.f. 1/4/2003, which is amendatory and not clarificatory that the said capital receipt is now made taxable. Guffin Chem P. Ltd. vs. CIT (Supreme Court) Source: www.itatonline.org S. 28(vi) : Business Income - Keyman Insurance Policy – [S. 10(10D)] Amount received on maturity of keyman insurance policy is liable to be taxed in hands of assessee for the Asst. Year 2005-06 in view of clarificatory amendment, by the Finance (No. 2) Act, 1996, w.e.f. 1st Oct., 1996, though policy was taken earlier. Binjrajka Steel Tubes Ltd. vs. ACIT (2011) 50 DTR 89 / 136 TTJ 113 (Hyd.)(Trib.) S. 28(iv) : Business Loss - Bad Debt - Claim for “Business loss” maintainable - Website Development Expense is not Capital Expenditure – [S. 37(1)] [Rule 27 of ITAT Rules’ The assessee, engaged in investment activities, advanced Rs. 27.97 lakhs for development of a website. As the advance was not recoverable, the assessee wrote off the amount and claimed it as a “bad debt” even though the conditions of section 36(1)(vii) & 36(2) were not satisfied. HELD, that

(i) Though the claim as a ‘bad debt’ is not allowable, the assessee is entitled under Rule 27 to support the CIT(A)’s order on the ground that the amount should be allowed as a ‘business loss’. Further as the expenditure was abortive, no capital asset has in fact been acquired and even if the website had materialized, it does not result in an advantage of an enduring nature or in the capital field as it is only for the day-to-day running of the business and provision of information.

Dy. CIT vs. Edelweiss Capital Ltd. (ITAT - Mumbai) Source: www.itatonline.org S. 32 : Depreciation - Asset used by the firm belong to partner - Insurance on building


Assessee is not entitled to depreciation on factory building owned by it but used in business of firm in which assessee was partner. Insurance charges paid on said building also not allowable. Karan Raghav Export (P) Ltd. vs. CIT (2011) 196 Taxman 504 (Delhi) S. 36(1)(iii) : Business Expenditure - Interest on Borrowed Capital -Investment as capital in partnership firm Interest paid on borrowed amount invested in as capital of partnership firm is allowable under section 36(1)(iii) and no disallowance can be made under section 14A. ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib.) S. 37(1) : Business Expenditure - Share of profit from firm - Exempt Income - Interest on Capital Borrowed - [S. 10 (2A)] Interest expenditure incurred on amount borrowed for purpose of contributing funds in form of capital in partnership firm can be allowed against interest income received from partnership firm on credit balance of capital. Karan Raghav Export (P) Ltd. vs. CIT (2011) 196 Taxman 504 (Delhi) S. 37(1) - Business Expenditure - Licence Fee - Parent Company Licence fee paid by the assessee–company to its parent company under technical assistance agreement is allowable business expenditure. Dy. CIT vs. Nestle India Ltd. (2011) 7 ITR 758 (Delhi)(Trib.) S. 37(1) : Business Expenditure - Capital or Revenue - Expenditure on production of film for advertisement Expenditure incurred by assessee on production of films by way of advertisement for promoting and marketing of products manufactured by it being in respect of ongoing business of assessee is allowable as revenue expenditure. CIT vs. Geoffrey Manners & Co. Ltd. (2011) 238 CTR 49 (Bom.) S. 37(1) : Business Expenditure - Expenditure on Foreign Education of managing director’s son - Allowable Amount spent towards educational expenses of a student, in which the assessee is carrying on its business was allowable expenditure under section 37(1) notwithstanding the fact that the student was son of managing director. CIT vs. Ras Information Technologies (P) Ltd. (2011) 238 CTR 76 (Kar.) S. 37(1) : Business Expenditure - Capital or Revenue Expenditure - Voluntary Retirement Scheme - (S. 35DDA) Even for the period prior to the introduction of section 35DDA, w.e.f. 1st April, 2001, the assessee was entitled to claim deduction of expenditure incurred under VRS only in a phased manner; however, in view of consistent views of various High Courts, the assessee had to be allowed deduction of entire expenditure, as revenue expenditure in respect of Asst. Year 1999-2000.


CIT vs. O.E.N. India Ltd. (2011) 238 CTR 340 (Ker.) S. 40(a)(ia) : Amounts not deductible - Tax deduction at source – Contractor – Amendment – Clarificatory - Tax deducted deposited before due date of filing of return Provisions of section 40(a)(ia), as amended by the Finance Act, 2010, w.e.f. 1-4-2010, which was been inserted by the Finance (No. 2) Act, 2004, w.e.f 1-4-2005 to section 40 of the Act is remedial in nature, designed to eliminate unintended hardship to the tax payers and which made the provision unworkable or unjust in a specific situation and is clarificatory in nature and, therefore, has to be treated as retrospective with effect from 1st April 2005, the date on which section 40(a)(ia) has been inserted by the Finance Act (No. 2) Act, 2004. Shri Kanubhai Ramji Makwana vs. ITO (2010) TIOL 765 ITAT–Ahm. (2011) BCAJ Feb P. 21 (569) (2011) 42-B. BCAJ S. 40(a)(ia) : Amounts not deductible - Tax deduction at source - Interest Commission – Sub-contractor - Freight Charges Assessee deducted the tax at source and paid to Government beyond date stipulated in section 200 but before the due date of filing of his return of income for the year under consideration. Finance Act 2010 had made amendments to provisions of section 40(a)(ia) as per which if tax has been deducted in relevant previous year and same has been paid on or before due date of filing of return of income for said previous year as specified in section 139(1), corresponding amount from which tax has been deducted shall be allowed as deduction. Said amendment was remedial / curative in nature, it would apply respectively with effect from 1-4-2005. Bansal Parivahan (India) (P) Ltd. vs. ITO (2011) 43 SOT 619 (Mum.)(Trib.) S. 40(a)(1) : Amounts not deductible - Interest - Branch of foreign Bank – Head office - Tax deduction at source - Permanent Establishment - (S. 195) It was held that as regards taxability in the hands of the HO & obligation for TDS under section 195, the same was not chargeable to tax in the hands of the HO. The PE being assessable as separate legal entity pursuant to provisions of DTAA there is no obligation to deduct tax under section 195 and consequently no disallowance under section 40(a)(i) can be made in the hands of the branch. Thus, interest paid by a branch of a Foreign entity to its HO is deductible in the hands of the branch. Such interest is not taxable in the HO’s hands ABN AMRO Bank NV vs. CIT (Calcutta High Court) Source: www.itatonline.org Editorial: Betts Hartley Huett (1979) 116 ITR 425 (Cal.) distinguished. Hyundai Heavy Industries (2007) 291 ITR 482 (SC) & Morgan Stanley (2007) 292 ITR 416 (SC) followed S. 40A(3) : Expenses or Payments not deductible - Block Assessment - GP – Estimated - (S. 158BC) Section 40A(3) applies to block proceedings. It is not accepted that the provisions of block assessment are special, and that they are a complete Code and the other provisions cannot apply. The argument that if income is assessed by estimation on GP rate, no other disallowance can be made is not of universal application. If expenditure which is legally not permissible has been taken into account that can certainly be disallowed even where income is estimated.


CIT vs. Sai Metal Works (High Court - P&H) Source: www.itatonline.org Editorial: Suresh Gupta 297 ITR 322 (SC) & M. G. Pictures 185 CTR 185 (Mad.) followed; Cargo Clearing Agency 218 CTR 541 (Guj.) not followed. S. 40A(3) : Expenses or payments not deductible - Business Expenditure – Disallowance - Payment to Government - (Rule 6DD) Cash payments made by the assessee to the State Government who granted the contract to collect royalty on behalf of the Government cannot be disallowed under section 40A(3) in view of Rule 6DD(b). CIT vs. Kalyan Prasad Gupta (2011) 51 DTR 191 (Raj.) S. 41(1) : Profits chargeable to tax – Depreciation - Balancing Charge -Benefit or Perquisite – [S. 28(iv), 41(2)] Where the cost of assets purchased by the assessee in earlier year was reduced by the seller on settlement of dispute benefit of depreciation obtained by the assessee in the earlier years cannot be termed as an allowance or expenditure claimed by the assessee in the earlier years to warrant invocation of provisions of section 41(1), or 41(2). However, Assessing Officer is directed to bring back to tax, the amount of depreciation granted to the assessee in the earlier years on the alleged excess amount of Rs. 2 crores under section 28(iv) and redetermine the closing WDV of the block assets in the year under consideration. Binjarjka Steel Tubes Ltd. vs. ACIT (2011) 50 DTR 89 / 136 TTJ 113 (Hyd.)(Trib.) S. 45 : Capital Gains - Business Income - Sale of Shares - Loan Borrowed - Interest Paid - Capital Gains – [S. 28(iv)] It was held that a capital investment and resale does not lose its capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment. Merely because shares are purchased by taking loan at high interest does not mean gains are taxable as business profits. CIT vs. Niraj Amidhar Surti (Gujarat High Court) Source: www.itatonline.org Editorial: Sutlej Cotton Mills Supply Agency Ltd 100 ITR 706 (SC) followed S. 45 : Capital Gains - Business Income – Shares - Despite high volume & short holding period - Shares Gain is STCG – [S. 28(iv)] The assessee offered income by way of Long Term Capital Gain, Short Term Capital Gain, speculative profit and profit from future trading. In such a case, where shares are held for several years and so assessee had acted as investor and not trader, the said the gain shall be assessable as long term capital gain. In similar manner where there is no intra-day trading, shares are held for period of 2 to 5 months and there are no borrowings, the same shall be assessed as Long Term Capital Gain. ACIT vs. Naishadh V. Vachharajani (ITAT - Mumbai) www.itatonline.org S. 45(2) : Capital Gains - Capital Asset – Stock-in-trade - Valuation When a partnership firm is dissolved and the erstwhile partner receives stock, it is a capital asset in his hands. When that asset is introduced into a business as stock, it gets converted into stock-in-trade. The


value of this stock will have to be the market value on the date of introduction. The same principle would apply if the assessee used her share of the stock obtained from the dissolved firm in the new business Madu Rani Mehra vs. CIT (Delhi High Court) Source: www.itatonline.org S. 50B : Slump Sale - Capital Gains - Transfer of Undertaking - Non money consideration - Cost of Acquisition not determinable – (S. 2(42C), 45) In order to constitute a “slump sale” under section 2(42C), the transfer must be as a result of a “sale” i.e. for a money consideration and not by way of an “Exchange”. The presence of money consideration is an essential element in a transaction of sale. As the undertaking was transferred in consideration of shares & bonds, it was a case of “exchange” and not “sale” and so section 2(42C) and section 50B cannot apply. As regards taxability under section 45 & 48, the “capital asset” which was transferred was the “entire undertaking” and not individual assets and liabilities forming part of the undertaking. In the absence of a cost/date of acquisition, the computation & charging provisions of section 45 fail and the transaction cannot be assessed. Bharat Bijilee Limited vs. ACIT (Mum.)(Trib.) www.itatonline.org Editorial: Premier Auto 264 ITR 193 (Bom) distinguished S. 54EC : Capital Gain - Investment in certain bonds - Cheque issued within six months – Cleared after six months For the purpose of computation of LTCG in case of NABARD bonds which were not specified asset as on 1/4/2006 and investment was not within 6 months of transfer. The assessee sold land on 09.08.2005 and invested in Nabard bonds which were allotted on 15.2.2006. The law has to be read as it stood on the date of transfer of capital asset. Thus, section 54EC relief is available even though cheque was encashed and bonds were allotted later. Kumarpal Amrutlal Doshi vs. Dy. CIT (ITAT - Mumbai) Source: www.itatonline.org S. 69 : Income from Undisclosed Sources - Genuineness of Sale of Shares - (S. 54F) Purchase and sale of shares said to have been made by the assessee being the solitary transaction in shares by him allegedly made through a broker who is not registered with the stock exchange and concerned company as well as the said broker having denied the transaction, Assessing Officer was justified in not accepting the said transaction as genuine by applying the test of human probabilities and treating the impugned amount as income from undisclosed sources. CIT vs. Hakumat Rai (2011) 237 CTR 513 (P&H) S. 72 : Carry forward and set off of Business Loss - Dividend Income - Shares held for business Section 72(1)(i) does not use the word “assessable under the ‘head‘ profits & gains of business”. The answer to the question as to whether the securities formed part of the trading assets of the business and the income there from was income from the business has to be decided on commercial principles and not on the basis of the classification of ‘heads of income’ in section 14. Though for the purpose of computation of the income, dividends are assessable under the head “Other Sources”, it does not cease to be part of the income from business if the securities are part of the trading assets. Accordingly, the assessee is eligible for set-off of dividend income as against business loss. Gangan Trading Co. Ltd. vs. Dy. CIT (ITAT - Mumbai) www.itatonline.org


Editorial: (Cocanada Radhaswmi Bank 57 ITR 306 (SC) & New India Investment 130 ITR 778 (Cal.) followed). S. 80IA(4)(iv) : Deduction - Income from Generation of Power - Captive consumption of electricity Assessee is entitled to deduction under section 80IA in respect of notional income from generation of electricity which was captively consumed by itself. Tamil Nadu Petro Products Ltd. vs. ACIT (2011) 51 DTR 67 (Mad.) S. 80IB : Deduction - Industrial Undertakings - Manufacture or Production – Job work - Compound Rubber - Interest from Customers - Belated Payments - Business Income Production of compound rubber on job work for the tyre manufacturing companies by the assessee amounts to “production of an article or thing” qualifying for deduction under section 80IB. There is nothing in section 80IB to indicate that article or thing produced or manufactured should be final product in itself. If the interest is assessable as business income then only it qualifies for deduction under section 80IB as profit earned. In the absence of relevant details of the interest received by the assessee from the customers for belated payment of job work charges matter remanded to the Assessing Officer for reconsideration. Midas Polymer Compounds (P) Ltd. vs. ACIT (2011) 237 CTR 401 / 331 ITR 68 / 50 DTR 139 (Ker.)(FB) S. 80IB : Deduction - Industrial Undertaking - Derived from Payments Disallowed – [S. 40(a)(ia)] Payments disallowed under section 40(a)(ia), has to be treated as part of “profits and gains of business or profession” and therefore, the same qualifies for deduction under section 80IB. ITO vs. Computer Force (2011) 136 TTJ 221 (Ahd.) S. 80IB(2) : Deduction - Industrial Undertaking – Reconstruction - New Unit Assessee having set up a new unit after closing the old unit at a new place for manufacturing new type of telephone instruments by employing new technology in a newly constructed business premises and making substantial investment in plant and machinery, it is not a case of splitting up of old business and therefore claim for under section 80IB could not be disallowed on the ground that the assessee has merely shifted its business from one place to another and not started a new business. ITO vs. Computer Force (2011) 136 TTJ 221 (Ahd.) S. 80IB(10) : Deduction - Housing Project - Disallowance on account of non-payment of tax deduction at source - (S. 80AB, 40(a)(ia), 29) Where the Assessing Officer makes additions to income of assessee under section 40(a)(ia), for non-compliance of tax deduction at source, such additional income also should be considered for the purpose of allowing deduction under section 80IB(10) as per section 80AB, read with section 29. S. B. Builders & Developers vs. ITO (2011) 50 DTR 299 (Mum.)(Trib.) 136 TTJ 42 S. 80IB(10) : Deduction - Housing Project - Date of Completion


Tribunal held that what is crucial is not the date of issue of letter by local authority, but date mentioned in the letter certifying completion of the project. Therefore, it rejected the contention of the revenue to the effect that the date of completion shall be taken as the date on which the certificate is physically issued by the local authority. D. K. Construction vs. ITO (2011) BCAJ Feb., 24 (ITAT - Indore) (572) (2011) 42 B. BCAJ) S. 80IB(10) : Deduction - Housing Project - Pre A. Y. 05-06, a project approved as “housing project” by local authority eligible for deduction under section 80-IB(10) irrespective of extent of commercial user Where the legislature has provided that the deduction under section 80IB(10) is available to all housing projects approved by a local authority, the result is that even projects with commercial user approved as a “housing project” are eligible for deduction. Thus, the Tribunal was justified in confirming the deduction only to projects having commercial area upto 10% of BUA. If the project is approved as a “housing project” deduction under section 80-IB(10) is allowable irrespective of the commercial area. It was further held that the insertion of clause (d) to section 80-IB(10) w.e.f. 1.4.2005 to deny section 80-IB(10) deduction to projects having commercial user beyond the prescribed limits is not retrospective. CIT vs. Brahma Associates (2011) 51 DTR 298 (Bombay High Court) Source: www.itatonline.org S. 80IB(10) : Deduction – Housing Project – Joint Development Agreement - Owners of land Assessee developer had entered into joint development agreement with owners of land for construction of residential flats consisting of four wings in consideration of giving 49% of the constructed area to land owners and all other conditions of section 80IB(10) having been found to be fulfilled, deduction under section 80IB(10) could not be denied. Mudhit Madanlal Gupta vs. ACIT (2011) 51 DTR 217 (Mum.)(Trib.) S. 80HHE : Deduction – Export - Computer Software – Non-resident - Discrimination Clause - DTAA As per Article 26(2) of India-USA DTAA Taxation of a PE of a USA resident shall not be less favorable than the taxation of a resident enterprise carrying on the same activities. Thus exemptions and deductions available to Indian enterprises would also be granted to the US enterprises if they are carrying on the same activities. Therefore, assessee was entitled to section 80HHE deduction as admissible to a resident assessee. Further where the provisions contained in the DTAA are capable of clear and unambiguous interpretation, it is not necessary to refer to the commentary on the OECD Model Convention, the US Technical Explanation or decisions of any foreign jurisdiction. Rajeev Sureshbhai Gajwani vs. ACIT (ITAT - Ahmedabad) (SB) Source: www.itatonline.org Editorial: (Automated Securities Clearance Inc. vs. ITO 118 TTJ 619 (Pune) reversed; Metchem Canada Inc. vs. Dy. CIT 99 TTJ 702 (Mum.) referred to); (CIT vs. PVAL Kulandagan Chettiar 267 ITR 654 (SC) followed). S. 91 : Double Taxation Relief - Countries with no agreement exists - Federal Taxes - Foreign State – DTAA - Tax Credit The view that State taxes cannot be allowed as a deduction and also cannot be taken into account for giving credit is incongruous and results in a contradiction. While section 91 allows credit for Federal &


State Taxes, the DTAA allows credit only for Federal Taxes. The result is that the section 91 is more beneficial to the assessee & by virtue of section 90(2) it must prevail over the DTAA. Though section 91 applies only to a case where there is no DTAA, a literal interpretation will result in a situation where an assessee will be worse off as a result of the provisions of the DTAA which is not permissible under the Act. Section 91 must consequently be treated as general in application and must prevail where the DTAA is not more beneficial to the assessee. Accordingly, even an assessee covered by the scope of the DTAA will be eligible for credit of State taxes under section 91 despite the DTAA not providing for the same. Tata Sons Ltd. vs. Dy. CIT (ITAT - Mumbai) Source: www.itatonline.org S. 92C : Avoidance of Tax - Transfer Pricing – Computation - Arm’s Length Price - Choice of Method - International Taxation Choice of method of determination of ALP is not an unaffected choice on the part of the tax payer and this choice has to be exercised on the touch stone of principles governing selection of most appropriate method set out in section 92C(1). Where the Assessing Officer finds that selection of most appropriate method is not correct, he has the powers as well as corresponding duty to select the most appropriate method and compute the ALP by applying that method. Serdia Pharmaceuticals (India) (P) Ltd. vs. ACIT (2011) 50 DTR 98 / 136 TTJ 129 (Mum.)(Trib.) S. 92CA: Avoidance of Tax - Transfer Pricing – Computation – Arm’s Length Price - Reimbursement of Expenses - International Taxation Payment received by the assessee company from its AE / parent company was in the nature of reimbursement of incentives paid to the employees of the assessee and it did not have any element of income and therefore, no adjustment could be made in the computation of ALP by notionally imputing a mark up on that amount, more so when no such adjustment has been made in the earlier or subsequent years wherein also similar incentives were paid and the facts were identical. Aricent Technologies (Holdings) Ltd. vs. Dy. CIT (2011) 51 DTR 17 (Delhi)(Trib.) S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation - Selection of Comparables - (S. 144C) Unless the functional profiles of assessee company are examined minutely and in detail, it is very difficult to say that the assessee is engaged in the business of software development as decided by TPO and not in the business of rendering support in respect of engineering designs and drawings as claimed by the assessee. Further DRP has neither examined assessee’s contention nor passed speaking and reasoned order. Matter is remanded back to the file of the AO / TPO for fresh adjudication. Bechtel India (P) Ltd. vs. Dy. CIT (2011) 136 TTJ 212 (Delhi)(Trib.) S. 92(C)(2) : Avoidance of Tax - Transfer Pricing – Computation - Arm’s Length Price - International Taxation Where only one price has been determined under “most appropriate method” for evaluation of ALP, the question of application of proviso to section 92C(2) does not arise, therefore, assessee was not entitled to the concession of 5 percent as prescribed in the said proviso. ACIT vs. Essar Steel Ltd. (2011) 51 DTR 177 / 136 TTJ 470 (Visakha)(Trib.) S. 92(C) : Avoidance of Tax - Transfer Pricing – Method - CUP Method –TNMM


The assessee sold automobile wipers to its associated enterprise and claimed that as per the “Comparable Uncontrolled Price” (CUP) method, the transactions were at arms’ length basis. The TPO rejected the CUP method on the basis that the comparability of controlled and uncontrolled transactions was not established with certain degree of reasonableness and accuracy and that the conditions prevailing in the market were not established to be identical. The TPO adopted the TNMM and directed that an adjustment be made by adopting the mean profit of comparables. This was confirmed by the DRP. On appeal, HELD:

(i) Under section 92C read with Rule 10B, the most appropriate method has to be applied for determination of arm’s length price. In principle, the CUP method (the traditional transaction method) is preferable to the other methods because all other things being equal, the CUP and traditional transactional methods lead to more reliable results vis-à-vis the results obtained by applying transaction profit method.

(ii) For the CUP method, the focus is on the market in which the products are sold by the assessee and any unique feature of the market in which assessee is situated is of no importance in relative terms. As the goods were sold by the assessee as well as the competitive Chinese manufacturers in the USA market, the market conditions in the territory of sale were the same. The buyer in the USA market will be more concerned with quality and price rather than economic conditions prevailing in China and India.

(iii) As regards the comparability of the products the assessee has to provide the sale data of the AE in terms of sale price of Chinese and assessee’s goods in the USA market and quantitative data of purchase of Chinese and Indian wipers by the AE and the terms of payment and the Assessing Officer shall compute the arm’s length price using this data on CUP method.

Clear Plus India Pvt. Ltd. vs. Dy. CIT (ITAT - Delhi) Source: www.itatonline.org Editorial: (UCB India 121 ITD 131 and Serdia Pharmaceuticals followed); (SNF (Australia) Pty. Ltd. vs. COT (2010) FCA 635 referred to); S. 115J : Company - Book Profit - Zero Tax Companies For the Asst. Year 1988-89, there was no provision in section 115J to compute book profit as per account prepared in a particular manner and therefore, it was open to assessee to compute book profit either on basis of profit and loss account prepared under provisions of part II and part III of schedule VI of Companies Act, or as per annual accounts placed before AGM. However, after insertion of sub-section (1A) in section 115J from assessment year 1990-91, accounts for the purpose of book profit have to be prepared as per Part II and Part III of Schedule VI of Companies Act. Dy. CIT vs. Anagram Finance Ltd. (2011) 43 SOT 433 (Mum.) S. 115JA : Company - Book Profits – Export - Set off of carried forward business loss and unabsorbed business loss - Negative Income - (S. 80AB, 80AB(5), 80HHC, 115JB) The assessee is entitled to deduction under section 80HHC computed in accordance with sub-section (3)(3A) of 80HHC because assessment under section 115JB is only an alternative scheme of assessment and what is clear from clause (iv) of the Explanation there to is that even in the alternative scheme of assessment under section 115JB, the assessee is entitled to deduction of export profit under section 80HHC. In other words, the export profit eligible for deduction under section 80HHC is allowable under both schemes of assessment. The restriction contained in section 80AB or section 80B(5) cannot be applied in as much as carried forward business loss or depreciation should not be first set off leaving the


gross total income at nil, which would disentitle the assessee for deduction under other provisions of Chapter VIA-C, which includes section 80HHC also. There is no provision in section 80HHC to determine the export profit with reference the profit and loss account maintained under companies Act, Therefore, the assessee would be entitled to deduction of export profit under section 80HHC and the relief is to be granted in terms of sub-section (3) and 3(A) of that section. CIT vs. Packworth Udyog Ltd. (2011) 331 ITR 416 (Ker.)(FB) / 51 DTR 251 (Ker)(FB)/ Kerala Chemicals and Proteins Ltd. (2011) 331 ITR 416 (Ker.)(FB) / 51 DTR 251 (Ker)(FB)/ G.T.N. Industries Ltd. (2011) 331 ITR 416 (Ker.)(FB) / 51 DTR 251 (Ker)(FB) S. 132(1) : Search and Seizure – Authorisation - Warrant in joint names -Validity What is required to be stated in search warrant is precise details about the assessee and the persons to be searched which contained in the warrants issued in these cases. The warrants authorizing search of a group of concerns by a warrant issued under section 132 is valid. Jose Cyriac vs. CIT (2011) 238 CTR 207 / 50 DTR 292 (Ker.) S. 133A: Survey - Unexplained Investment - Reports of Facts - Explanation and Reconciliation - (S. 69) The reports of facts collected at time of survey are always subject to explanation and reconciliation by assessee which can be explained either at the time of survey or after survey before Assessing Officer at the time of assessment, therefore, merely on the basis of that some differences were found at the time of survey in stock addition cannot be made automatic. Chawala Brothers (P) Ltd. vs. ACIT (2011) 43 SOT 651 (Mum.)(Trib.) S. 139 : Return - Revised Return - Amalgamation of Companies – BIFR - Unabsorbed Business Loss - Sick Company - The Sick Industrial Companies (Special Provisions) Act, 1985 - (S. 72A, 80) BIFR can specify date from which its scheme becomes effective. Amalgamation in January 1994, Scheme sanctioned by BIFR with effect from February 1, 1992. The assessee filed revised return on 31-3-1994, claiming unabsorbed business loss of sick company. Return held to be valid. Special provisions of the Act has overriding effect over Income Tax Act. CIT vs. J. K. Corporation Ltd. (2011) 331 ITR 303 (Cal.) S. 143(3) : Assessment - Ad hoc Disallowance - Business Expenditure Ad hoc disallowance without any basis out of carriage, labour and sealing expenses cannot be sustained particularly when the Tribunal has allowed similar expenses in totality in an earlier year. Friends Clearing Agency (P) Ltd. vs. CIT (2011) 237 CTR 464 (Delhi) S. 144C : Dispute Resolution Panel - Transfer Pricing - Order cannot be passed if no transfer pricing adjustments made by TPO - (S. 92CA) Where no transfer pricing adjustments had been made by the TPO, the assessee was not an “eligible assessee” and the Assessing Officer had no jurisdiction to pass the draft assessment order. Pankaj Extraction Ltd. vs. ACIT (Gujarat High Court) Source: www.itatonline.org


S. 145 : Method of Accounts - Valuation of Stock - Completion of Contract Method - Work in progress Assessee having followed percentage completion method consistently which has been accepted in earlier as well as in subsequent years valuation of closing work in progress made by it at historical cost cannot be disturbed particularly when the categorical findings of the CIT(A) highlighting that the assessee has not deviated from the guidelines issued by the ICICI under AS-7 has not been challenged by the revenue. Addition made by the Assessing Officer by reworking the closing work in progress at current rates rightly deleted. ACIT vs. Dharti Estate (2011) 51 DTR 28 / 129 ITD 1 / 136 TTJ 263 (Mum.)(Trib.)(TM) S. 147 : Reassessment – Scope - Items unconnected with escapement for which notice was issued - (S. 148) If in the course of reassessment, it comes to the notice of the Assessing Officer that any item or items other than the item of escaped income for which original assessment was reopened, have also escaped assessment, he is bound to assess such items of income also in the course of reassessment. CIT vs. Best Wood Industries & Saw Mills (2011) 237 CTR 404 / 331 ITR 63 / 50 DTR 143 (Ker.)(FB) S. 147 : Reassessment - Full and True Disclosure - After Four Years –Deduction - Captive Power Plant - Expansion of Project - (S. 80IA, 80IB) Assessee having claimed deduction under section 80IA, in respect of the profits made by its captive power plant disclosing the computation of profits and explaining the break up thereof and disclosed the basis on which it was claimed deduction under section 80IB, in respect of the refinery expansion project and lube unit, it cannot be said that there was a failure on the part of the assessee to disclose fully all material facts necessary for the assessment and therefore reopening of assessment beyond the period of four years from the end of the relevant year was not justified. Hindustan Petroleum Corporation Ltd. vs. Dy. CIT (2011) 238 CTR 28 (Bom.) S. 147 : Reassessment - Full and true disclosure - After four years - Change of Opinion Assessing Officer having reopened the assessment on the sole basis that the system of accounting adopted by the assessee which has been accepted while framing the original assessment is not appropriate, without making any allegation that there was non–disclosure of material facts by the assessee at that time of original assessment. It is a case of mere change of opinion and therefore, reopening of assessment after expiry of four years from the end of the relevant assessment years was not valid. CIT vs. Manish Ajmera (2011) 51 DTR 117 (Raj.) S. 147 : Reassessment - Reopening For A.Y. 2000-01 valid despite Proviso to section 14A - Material facts must be disclosed during assessment proceedings The Proviso to section 14A bars reassessment but not original assessment on the basis of the retrospective amendment. The object and purpose of the Proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases which have attained finality.


It is the duty of the assessee to bring to the notice of the Assessing Officer particular items in the books of account or portions of documents which are relevant. Material facts are those facts which if taken into accounts they would have an adverse affect on assessee by the higher assessment of income than the one actually made. Accordingly, the fact that there were section 154 proceedings is not a bar to the section 147 proceedings. It was further held that the scope of section 154 & 147 / 148 are different and it cannot be said as a general principle that if notice under section 154 is issued, then notice under section 147 / 148 is barred or prohibited. Honda Siel Power Products Ltd. vs. Dy. CIT (Delhi High Court) Source: www.itatonline.org Editorial: (Consolidated Photo 281 ITR 394 (Del.) followed); (Hindustan Unilever Ltd. 325 ITR 102 (Bom.) distinguished). S. 147 : Reassessment - Non issue of Notice - [S. 143(2)] It is mandatory not merely procedural for the Assessing Officer to issue notice under section 143(2). If the notice is not served within the prescribed period, the assessment order is invalid. UKT Software Technologies vs. ITO (ITAT - Delhi) Source: www.itatonline.org Editorial: (Pawan Gupta 318 ITR 322 (Del.), Hotel Blue Moon 321 ITR 362 (SC) & C. Palaniappan 284 ITR 257 (Mad.) followed). S. 148 : Reassessment - Service of Notice - Second Notice - Validity of Assessment - Limitation from first notice It was held that first notice sent by speed post as permitted by section 282 is presumed to have been duly served upon the assessee and was valid. As the first section 148 notice was valid and reassessment proceedings were pending, the second section 148 notice is not an irregularity but a nullity. (Ranchhodas Karsandas 26 ITR 105 (SC) and Jai Dev Jain 227 ITR 301 (Raj.) followed. Thus, the limitation period reckoned with reference to the first notice. Sanjay Kumar Garg vs. ACIT (ITAT - Delhi) Source: www.itatonline.org S. 148 : Reassessment - Sanction of Commissioner - Application of Mind - (S. 151) A material fact which is not in existence right up to the time of assessment cannot possibly be disclosed. Therefore, a fact which comes into existence subsequent to the making of the assessment cannot be a material fact within the purview of section 147. The duty to disclose material facts necessarily postulates existence of a thing or material. If a material is not in existence or if a material is such of which the assessee had no knowledge there would be no duty to disclose such material. The Central India Electric Supply Co. Ltd. vs. ITO (Delhi High Court) Source: www.itatonline.org Editorial: (Tirath Ram Ahuja (HUF) 306 ITR 173 (Del.) followed); S. 148 : Reopening of Assessment – Notice - AO entitled to drop notice issued under section 154 & issue notice under section 148 - (S. 154)


Though the principle of constructive res judicata was made applicable by the Madras High Court in EID Parry 216 ITR 489 (Mad.) that the Assessing Officer having initiated rectification proceedings under section 154 should stick to the same only and cannot drop that and proceed under section 147 is not acceptable. But the fact that the Assessing Officer invoked section 154 and dropped it does not affect the validity of re-assessment under section 147. CIT vs. India Sea Foods (High Court Kerala) Source: www.itatonline.org S. 154(7) : Rectification of Mistake - Notice of Demand - Limitation Order under section 154 purported to have been passed on 24th January 2000, and the consequential calculation of tax payable in Form No. ITNS -150 having been served on the assessee on 24th May 2005 and 6th June, 2005, respectively i.e. After expiry of limitation under section 154(7), it cannot be accepted that the order was in fact passed on 24th January 2000, especially when no notice of demand was issued and no recovery proceedings were initiated. V. B. Desai Financial Services Ltd. vs. Dy. CIT (2011) 51 DTR 205 (Mum.)(Trib.) S. 158BC : Block Assessment - Search and Seizure – Depreciation -(S. 158BH) Section 158BH, makes all other provisions applicable to the assessment under. Chapter XIV-B, unless it is otherwise provided for, therefore even in block assessment, the Assessing Officer must allow the claim of the assessee for the depreciation which is legally permitted under the provisions of the Act. CIT vs. C. Sabira (Smt.) (2011) 237 CTR 477 (Ker.) S. 158BC : Block Assessment - Search and Seizure - Computation of Undisclosed Income - Set off of excess income Assessee is not entitled to set off of excess income disclosed in a particular year falling within the block period against the undisclosed income of subsequent year falling within the same block period. CIT vs. Kamala Devi Jain (2011) 51 DTR 70 / 238 CTR 328 (Guj.) S. 158BD : Block Assessment - Search and Seizure - Undisclosed Income of any other person - Recording of Satisfaction Assessing Officer of searched person, having nowhere recorded any satisfaction that the assessees’ income of the relevant block period had escaped assessment nor forwarded the records of the case to the assessees’, Assessing Officer proceedings under section 158BD against the assessee were rightly set aside. CIT vs. Sunil Bhala (2011) 238 CTR 18 (Delhi) S. 194E : Payments to non-resident sports men or sports associations - Tax deduction at source - (S. 115BBA) Once income accrues to a non resident sports man or sports association on fulfillment of the condition as mentioned in section 115BBA, then the statutory obligation of the payer under section 194E comes into play irrespective of taxability thereof, payments including guarantee money made by the assessee a committee formed by three host members of World Cup Cricket, 1996 for the purpose of conducting the tournament to ICC as well as to cricket control boards / associations of member countries of ICC in relation to matches played in India were liable to TDS under section 194E read with section 115BBA.


PILCOM vs. CIT (2011) 51 DTR 147 (Cal.) 238 CTR 387 S. 250(5) : Appeal - CIT(A) – Powers - Validity of Assessment - Second round of appeal - Search and Seizure Assessee having not chosen to challenge the validity of assessments on the allegation of defect or irregularity in the warrant issued either before the Assessing Officer or in the first round of appeals and raised the contention after remand before the CIT(A) for the first time, is not permissible. Jose Cyriac vs. CIT (2011) 238 CTR 207 / 50 DTR 292 (Ker.) S. 254(1) : Appellate Tribunal – Power - Applicability of provision of section 14A for the first time before Tribunal - (S. 14A) Issue of disallowance under section 14A, cannot be raised for the first time before the Tribunal where the provision of section 14A, was not invoked against the assessee by the Assessing Officer while making disallowance of interest expenditure under section 36(1)(iii) and CIT(A ) also at no stage considered the application of section 14A. ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib) S. 254(1) : Appellate Tribunal – Recovery - Stay - (S. 220) Besides considerations like existence of strong prima facie case, financial constraints of the applicant are important, even if not sole or qualifying consideration in entertaining a stay application, and therefore stay granted to the assessee subject to certain conditions. KEC International Ltd. vs. Addl. CIT (2011) 136 TTJ 60 (Mum.) S. 254(1) : Appellate Tribunal – Precedent - Decision of Co-ordinate Bench When the issue is already covered by an earlier order of Tribunal, that too in assesse’s own case, a co-ordinate bench of Tribunal should not differ the earlier decision of the bench simply for the reason that a contrary view is possible. Patspin India Ltd. vs. Dy. CIT (2011) 51 DTR 57 / 129 ITD 35 / 136 TTJ 377 (Cochin)(Trib.)(TM) S. 254(2) : Appellate Tribunal - Rectification of Mistake - Mistake in order passed under section 254(2), cannot be rectified The miscellaneous application filed by the assessee against earlier order passed under section 254(2) is not maintainable only course open to the assessee is to file an appeal against the said order. Padma Prakash (HUF) vs. ITO (2011) 51 DTR 1 / 136 TTJ 257 / 8 ITR 135 (Delhi)(Trib.)(SB) S. 254(2) : Appellate – Tribunal - Rectification of Mistake - Power to Review - Additional Evidence Once the Tribunal has disposed the appeal on merits, it cannot review its order and therefore, miscellaneous application filed by the assessee seeking modification of the order of Tribunal so as to admit more additional evidence than that permitted by the order was rightly rejected by the Tribunal. Indrakumar Patodia vs. ITO (2011) 51 DTR 183 / 238 CTR 437 (Bom.) S. 260A : Appeal – Monetary Limit - CBDT Circular - Filing Appeals - Pending Appeals


The Department filed an appeal in the year 2008 where the tax effect was less than Rs. 10 lakhs. The question arose whether in view of Instruction No. 3/2011 Dated 9-2-2011 the appeal was maintainable. HELD dismissing the appeal: In view of CIT vs. P. S. Jain & Co. which followed Pithwa Engineering 276 ITR 519 (Bom.) & Ashok Patel 317 ITR 386 (MP) and where it was held that the CBDT Circular imposing limits on the filing of appeals by the department applied to pending appeals, Instruction No. 3/2011 Dated 9-2-2011 also applied to pending appeals and as the tax effect was less than Rs. 10 lakhs, the appeal was not maintainable. CIT vs. Delhi Race Club Ltd. (Delhi High Court) Source: www.itatonline.org S. 260A : Appeal - Monetary Limit - CBDT Circular - Pending Appeal Circular dated 15.5.2008 laying down monetary limit controls the filing of the appeals and not their hearing. Appeals filed as per applicable limit at the time of filing cannot be governed by circular applicable at the time of hearing. The object of the Circular u/s 268A is only to govern monetary limit for filing of the appeals. There is no scope for reading the circular as being applicable to pending appeals. [Abhinav Gupta 41 DTR 129 (P&H) (FB) reversed] CIT vs. Varinder Construction Co. (2011) 51 DTR 290 (P&H) (FB) / S. 260A : Appeal - High Court - Substantial Question of Law - Cash Credit - (S. 68) It is manifest from a bare reading of section 260A of the Income Tax Act, 1961, that an appeal to High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the order of Tribunal, it is mandatory that such questions must be formulated. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and / or while arriving at the said finding, relevant evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. On the facts the Tribunal has given a finding that the assessee has failed to prove the source of cash credit satisfactorily hence, the no question of law arise from the order. Vijay Kumar Talwar vs. CIT (2011) 330 ITR 1 (SC) S. 263 : Revision of Orders prejudicial to Revenue – Depreciation – Goodwill - (S. 32) Assessing Officer allowed depreciation on goodwill treating the same as intangible asset. Commissioner revised the order, the Tribunal quashed the order of revision. The Court held that where two views are possible and the assessing officer accepting one view which is plausible one, not appropriate to exercise power under section 263. CIT vs. Hindustan Coca Cola Beverages P. Ltd (2011) 331 ITR 192 / 238 CTR 1 (Delhi) Editorial:- Refer Hindustan Coca Cola Beverages (P) Ltd. vs. Dy. CIT (2010) 132 TTJ 602 (Delhi) S. 263 : Revision of orders prejudicial to Revenue - Exempted Income - Proviso to section 14A - Law on the passing of the order under section 263 has to be considered - (S. 14A)


Proviso to section 14A did not apply to the facts of the case as on date of orders of CIT under section 263 (29th December 1999), said proviso was not even existence, CIT was justified in revising the order of Assessing Officer and in directing him to compute the interest payable on such sum which has been invested in the partnership firm (Which was erroneously allowed by him earlier) and disallow those portions which can be attributable towards investment in partnership. Mahesh G. Shetty & Ors. vs. CIT (2011) 51 DTR 104 (Kar.) 238 CTR 440 GENERAL Transfer Pricing - Australian Tax Office Ruling on Transfer Pricing Implications The Australian Taxation Office has issued a ‘Taxation Ruling’ dated 9.2.2011 in which it has discussed the application of the transfer pricing provisions to business restructuring by multinational enterprises. The Ruling considers situations where such transfers occur between MNE members to implement changes in the MNE’s existing business arrangements or operations. Common examples are product supply chain restructurings involving conversion of a distributor into a sales agency arrangement or of a manufacturer into a provider of manufacturing services. Business restructurings also commonly involve the transfer of the ownership and management of intangibles such as patents, trademarks and brand names. The Ruling explains the following process for setting or reviewing transfer pricing Step 1: Characterize the international dealings between the associated enterprises in the context of the taxpayer’s business Step 2: Select the most appropriate transfer pricing methodology or methodologies Step 3: Apply the most appropriate method and determine an arm’s length outcome The Ruling refers extensively to the “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines)”. The Ruling also gives practical examples to explain the transfer pricing law. Source: www.itatonline.org Appeal - Inter Departmental Litigation - Public Sector Undertakings - Clearance from Committee on Disputes - Supreme Court recalls law requiring PSUs to obtain COD approval Larger Bench of Supreme Court recalled its order laid down in ONGC vs. CCE 104 CTR (SC) 31 and ONGC vs. CIDCO (2007) 7 SCC 39, that no litigation could be proceeded with in the absence of COD approval in case of dispute between Government and PSUs. It was held that the mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. Thus, in view of the said circumstances it was decided by Larger Bench to recall the directions of this Court. Electronics Corporation of India Ltd. vs. UOI / CCE vs. Bharat Petroleum Corpn. Ltd. (2011) 51 DTR 193 / 238 CTR 353 (SC) (5 Member Bench)


Transfer Pricing – Holding and Subsidiary Co. - Canada Court Ruling – “Implicit support” by holding company to subsidiary to be considered in determining “arms length” price In determining the arms length price, all economically relevant factors (including the “implicit support” that the subsidiary enjoys from the holding company) have to be considered. The explicit guarantee by the holding company also has a value to the subsidiary. The “yield method” can be adopted which requires a comparison between the credit rating which an arm’s length party, in the same circumstances as the assessee, would have obtained and the credit rating which would have been obtained without the explicit guarantee. The Queen vs. General Electric Capital Canada Inc. Source: www.itatonline.org Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org.

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digest case laws february 2011 - itatonline.orgitatonline.org/.../wp-content/files/digest_case_laws_february_2011.pdf · Monthly Digest of Case Laws (February 2011) 1 Monthly Digest