J. B. NAGAR CPE STUDY CIRCLE

KSA Legal Chamber, East-West Building, 2

nd Floor, 49-55, Bombay Samachar Marg,

Opp. Bombay Stock Exchange Building,

Fort, Mumbai – 400 023

Mob. No. 9892212125 Tel. No. 2269 8338 / 2265 8612 Tele Fax : 2263 1338

Email : ajaysingh.legal@gmail.com

RECENT CASE LAW

Ajay R. Singh

Advocate

1. S.2(47): Transfer–Capital Gains is assessable in the year of handing

over of possession and not on the date of registration. [S. 45, 50C]

Assessee having handed over the possession of the land to the purchaser on the

date of execution of sale deed itself i.e., 09th

July, 2001, the Capital Gains was

assessable in A.Y. 2002-03 and not in A.Y. 2004-05 notwithstanding the fact

that the said deed was registered on 30th

July, 2003.

Sandhyaben A. Purohit (Smt.) vs. ITO (2013) 87 DTR 42 (Ahd.)(Trib.)

2. S.4: Charge of income-tax–AIR information–Income offered to and taxed

in the hands of the HUF cannot be once again taxed in the hands of the

individual.

On the basis of the AIR information, the Assessing Officer noted that the

assessee has made investment in FDR, mutual fund and has entered into an

agreement for sale of a property for which he had received an advance, which

was invested in mutual funds. It was submitted before the Assessing Officer

that the assessee has disclosed the income in the hands of the HUF as the same

belongs to HUF. The Assessing Officer did not accept the contention of the

assessee and treated the capital gain as well as interest in the hands of the

individual. The CIT(A) upheld the findings of the Assessing Officer. On appeal

by the assessee the Tribunal allowing the appeal held: Since the income shown

by the HUF has been accepted by the department, the same cannot be assessed

in the individual capacity. (A.Y. 2008-09)

Jyotindra Natwarlal Naik v. ITO (2013) 21 ITR 252 (Mum.)(Trib.)

3. S.4: Charge of income-tax - Compensation on land acquisition – Hindu

Undivided Family-Amount belong to family members cannot be taxed

in the hands of individual.

A land belonging to the assessee was acquired by the State Electricity Board

for which compensation was paid. The acquisition notification was issued

in the name of the assessee. The consideration was invested in fixed deposits in

name of assessee, his wife and children on various dates. The Assessing Officer

taxed the amount of consideration in the individual capacity. The

Commissioner (Appeals) and the Tribunal, however, held that said amount

belonged to joint family and its members. Held that the question as to whether

compensation amount exclusively belonged to assessee or it belonged to joint

family and its members, was purely a question of fact and no substantial

question of law arose therefrom.

ACIT v. Sureschandra Mahagoankar (2013) 215 Taxman 143 (Mag.)

(Karn.) (HC)

4. S.4: Charge of income-tax–Hindu Undivided Family–Joint property-

Consideration received was held to be taxable as joint property and

not in individual capacity.

'L' got a property on taking his share in joint family properties. The assessee,

L's adopted son, distributed the property in favour of his wife and children. The

consideration received from developer in respect of said property was treated

as joint family property income by assessee. However, the Assessing Officer

treated it as the individual income of assessee and his wife. Held since the

property was not self acquired by assessee, it belonged to the HUF and since it

was given without a registered document, which is permissible only if it was

HUF property, the consideration received from developer was taxable as joint

family property income. (A.Y. 1995-96 to 1998-99)

CIT v. D.L. Nandagopala Reddy (Indl) (2013) 215 Taxman 636 (Karn.)

(HC)

5. S.10B: Hundred per cent export - Oriented undertakings – Initial year.

Once the deduction was allowed in the ‘initial year’ viz. the first year of claim

of the deduction, the same could not be disturbed in the subsequent years.

Eligibility has to be tested in the first year.

Tyco Valves & Control India (P) Ltd. v. Dy.CIT (2013) 81 DTR 48

(Ahd.)(Trib.).

6. S.12A: Trust or institution-Registration-Delay of 1660 days-Wrong advice.

There was delay of 1660 days in filing the appeal before the Tribunal. The

Tribunal found reasonable cause and condoned the delay on the basis that the

assessee was wrongly advised and also the persons who were managing the

institution were ignorant of law. It further held that:

The Registration has to be deemed to have been granted to the assessee-

institution from the date of its inception as claimed and not from a later date

where the CIT has passed the order under section 12A(a) beyond six months

from the date of receipt of application in Form No. 10A.

Nosegay Public School, Managing Committee v. CIT (2013) 153 TTJ 1

(UO)/58 SOT 185(Jodhpur)(Trib.)

7. S.10(23C): Exempt income-Educational institution-Test of profit motive.

Educational Institution – Trust / Institution established with its clear objection

for educational purposes and education alone.Test of clauses (iiiab) (iiad) or

(vi) of Section 10(23C) are fulfilled. If in a particular year, a surplus has

resulted will not render such as institution existing prima facie for profit motive

only. The exemption cannot, therefore, be denied.

Tolani Education Society v. Dy. DIT (2013) 259 CTR 26 (Bom.)(HC)

8. S.12A: Registration–Withdrawal of exemption –Registration granted

cannot be withdrawn merely because exemption under section

10(23C)(vi) has been denied. [S.10(23C)]

Proceeding u/s 10(23C)(vi),wherein exemption was denied on the ground that

the assessee trust was not formed solely for educational purposes, was an

independent proceeding and could not be sole ground for cancelling

registration granted u/s 12A.(AY 2004-05 and 2006-07)

CIT v. Society of Advanced Management Studies (2013) 215 Taxman

146(Mag.) (All)(HC)

9. S.14A: Disallowance of expenditure-Exempt income-Short term gain-Rule

8D does not apply to short-term investments gains from which is taxable.

[Rule 8D]

Some of the investments made by the assessee are short term. Since assessee is

paying capital gains tax on short term investments, Rule 8D will not apply on

them and the AO is directed to recompute disallowance u/s 14A read with Rule

8D after excluding short term investments ITA No. 1774/Mds/2012, dt.19

July, 2013) (A.Y.2008-09)

Sundaram Asset Management Co. Ltd v. DCIT (Chennai)(Trib.)

www.itatonline.org.

10. S.14A: Disallowance of expenditure-Exempt income-Interest-Interest on

loans for specific taxable purposes to be excluded. [Rule 8D]

In AY 2009-10, the assessee contended that in computing the disallowance to

be made u/s 14A and Rule 8D(2)(ii), the interest on bank loans and term loans

taken for specific taxable purposes had to be excluded. The AO rejected the

claim though the CIT(A) accepted it. On appeal by the department to the

Tribunal, HELD:

Rule 8D(2)(ii) refers to expenditure by way of interest which is not directly

attributable to any particular income or receipt. If loans have been sanctioned

for specific projects/expansion and have been utilized towards the same, then

obviously they could not have been utilized for making any investments having

tax-free incomes and have to be excluded from the calculation to determine the

disallowance under Rule 8D(2)(ii) (Champion Commercial Co. Ltd (ITAT

Kol.) followed)( ITA No. 1603/Mds./2012, dt. 16/07/2013) (A.Y.2009-10)

ACIT v. Best & Crompton Engineering Ltd (Chennai)(Trib.)

www.itatonline.org.

11. S.14A: Disallowance of expenditure-Exempt income-Shares held as stock-

in-trade-In arriving at the disallowance u/r.8D, the amount as per Rule

8D(2)(ii) qua shares held as stock-in-trade would be restricted to 20%

thereof. [Rule 8D].

In AY 2008-08, the assessee, a trader cum investor in shares, offered Rs. 10

lakhs as disallowance u/s 14A. It claimed that the amount invested in shares

was funded by its own, non-interest bearing funds and that there was no direct

expenditure relatable to the investments. The AO applied Rule 8D and

computed the disallowance at Rs. 1.40 crore. On appeal, the CIT(A) upheld the

stand of the assessee as to the quantum of the disallowance. On appeal by the

department, the Tribunal HELD :

(i) S. 14A gets attracted on incurring of expenditure in relation to tax-exempt

income. The purpose for which the shares are purchased and held would not

impact the applicability of s. 14A. S. 14A comes into play irrespective of the

head of income (on account of it arising qua a trading asset) under which the

income is assessable. The fact that the share trading business yields both

taxable income in the form of share trading profit and tax-exempt income by

way of dividend income makes no difference to the applicability of s.14A.

Accordingly, s.14A applies to shares held as stock-in-trade;

(ii) The argument that all expenditure has been incurred for the share trading

business and that there is no additional expenditure incurred for earning

dividend is not acceptable because though the expenditure is incurred for the

purpose of the business of share trading, the said business yields taxable and

non-taxable income. It is the integral activity of purchase and holding the

shares which generates two separate streams of income. Accordingly, some of

the expenditure has to be attributed to the dividend income;

(iii) The argument that investment in shares yielding tax-free dividend income

has been made out of own funds and so no interest expenditure has been

incurred in relation to the dividend income is not acceptable. No presumption

of investment of own funds, on ground of its sufficiency, on the basis of CIT v.

Reliance Utilities and Power Ltd (2009) 313 ITR 340 (Bom.) can be drawn;

(iv) If Rule 8D(2)(ii) which quantifies the interest on the investments, income

from which is not taxable, on a proportionate basis, is applied literally, it will

lead to absurd results because then the entire interest relatable to the average

share holding will be attributed to the tax exempt dividend income even though

the shares are bought and held primarily for share trading income. Rule

8D(2)(ii) needs to be scaled down by bifurcating the expenditure so arrived at

between the tax-free and the taxable incomes. Given that the dominant

objective of the share holding is to earn share trading income, an ad hoc ratio of

20% toward tax-exempt dividend income will be reasonable. Accordingly, in

arriving at the disallowance u/r 8D, the amount as per Rule 8D(2)(ii) qua shares

held as stock-in-trade would be restricted to 20% thereof;

(v) Rule 8D(2)(iii) which prescribes the ratio of indirect expenditure required

to support an investment need not be modified because though the expenditure

prescribed for disallowance is based only on one variable, i.e. the average value

of investments, the prescribed allocation ratio of 0.5% of the investment value

qua indirect expenditure is very nominal and not harsh;

(vi) Depreciation – an economic and accounting concept – statutorily

recognized and provided, is only a charge on capital account, i.e., a capital

expenditure. It has to be excluded in computing the s. 14A disallowance (ITO

v. Daga Capital management Pvt Ltd. ( 2009) 117 ITD 169 (Mum)(SB),

Dhanuka & Sons v. CIT (2011) 339 ITR 319 (Cal.) & American Express Bank

followed; CCI Ltd (2012)71 DTR (Kar) 141, CIT v. Leena Ramachandran

(2011) 339 ITR 296 (Ker) & Yatish Trading not followed; Godrej & Boyce

MFG Co. Ltd. v. Dy. CIT ( 2010) 328 ITR 81 (Bom) & CIT v. Walfort Share

and Stock Brokers (P) Ltd. ( 2010) 326 ITR 1 (SC) referred/ followed).( ITA

No. 3029/M/2012, A. Y. 2008-09, dt. 17/07/2013)

DCIT v. Damani Estates & Finance Pvt. Ltd. (Mum.)(Trib.)

www.itatonline.org.

12. S.14A: Disallowance of expenditure-Exempt income-Interest expenditure

has to be netted against interest income and only the difference, if any, can

be considered for disallowance. [Rule 8D]

In AY 2008-09, the assessee invested Rs. 95 lakhs in shares on which it earned

Rs. 300 as dividend. The AO applied Rule 8D and made a disallowance of Rs.

15 lakhs. The assessee claimed that no expenditure had been incurred to earn

the dividend income on the basis that while the interest expense was Rs. 1.83

crore, the interest income was Rs.1.86 crore and there was a net surplus interest

income of Rs.3.79 lakh. The CIT(A) held that the AO had not established a

nexus between the expenditure incurred and the tax free income and that as the

assessee had net positive interest income, there could be no disallowance of the

interest expenditure u/s 14A read with Rule 8D. He sustained the disallowance

at 0.5% of the average investment. On appeal by the department HELD

dismissing the appeal:

No nexus has been established by the AO between the expenditure incurred by

the assessee and the tax free income earned by him. Further, as the interest

income was more than interest expense and the assessee was having net

positive interest income, the interest expenditure cannot be considered for

disallowance u/s 14A and Rule 8D (Trade Apartment (ITAT Kol) & Morgan

Stanley (ITAT Mum) (both included in the file) followed)(ITA No.

2282/Ahd/2012, dt. 30/03/2012 (A.Y.2008-09)

ITO v. Karnavati Petrochmem Pvt. Ltd. (Ahd.)(Trib.) www.itatonline.org.

13. S.14A: Disallowance of expenditure-Exempt income-Borrowed money

invested in shares held as stock-in-trade.

Tribunal held that in view of the fact that shares in which the borrowed money

was invested are trading shares, disallowance of interest under section 14A

cannot be made in relation to stock-in-trade but the authorized representative

conceded that in respect of investment in shares, some administrative expenses

have been incurred by the assessee. Therefore, the disallowance was restricted

to 25% of the dividend income. (A.Y. 2007-08)

Oasis Securities Ltd. v. Dy. CIT (2013) 154 TTJ 17 (UO)(Mum.)(Trib.)

14. S.24: Income from house property – Deductions – Prepayment charges

paid for closure of loan are covered under the definition of interest and

deductible.

The assessee claimed deduction on account of repayment charges for the

closure of the loan which was taken for acquisition of the property. Assessing

Officer and Commissioner (Appeals) confirmed the disallowance .On appeal

the Tribunal held that repayment charges have live and direct link with

obtaining of loan which was availed for acquisition of property .Both the direct

interest and repayment charges are species of the term ’interest’ .Hence the

prepayment charges paid by assessee for closure of loan qualify for deduction

under section 24(b). (A.Y.2006-07)

Windermere Properties (P) Ltd. v. DCIT (2013) 88 DTR 150

(Mum.)(Trib.)

15. S.28(i): Business income - Commencement –Set –up- Acts of applying for

participation in tender, borrowing of fund on interest and deposit of

borrowed monies as earnest money clearly establish that business had

been set-up by assessee in relevant year.

Assessee, engaged in realty business, participated in an auction to acquire a

piece of land. It obtained loan from its holding company and deposited same

as earnest money to acquire land. However, it could not succeed in auction. As

the assessee had paid interest on borrowed fund and received interest on earnest

money, it claimed differential between interest as loss and claimed for carry

forward of said loss. The Assessing Officer found that current year was first

year of existence of assessee and since it failed to acquire land, it could not be

said that business was set up in relevant year, accordingly, he disallowed the

assesse’s claim. The High Court affirming the finding of the Tribunal held that

the acts of applying for participation in tender, borrowing of monies on interest

from holding company and deposit of borrowed monies on same day as earnest

money clearly established that business had been set-up and assessee’s claim of

loss cannot be disallowed. (A.Y. 2006-07)

CIT v. Dhoomketu Builders & Development (P) Ltd. (2013) 87 DTR 249

(Delhi)(HC)

16. S.28(i): Business income – Construction and sale of commercial complex

with a view to earn profit is to be assessable as business income and not

as income from other sources. [S. 56]

The assessee, a co-operative society, engaged in the business of purchase and

sale of agricultural implement, etc. demolished its office and godown and

constructed shops at that site and sold such shops to individual purchasers, after

permission of Registrar. The Assessing Officer treated the profit earned on

sale of shops as income from other sources as against business income claimed

by the assessee. Held that the construction and sale of shops was only with a

view to earn profit by assessee and, accordingly, concluded that income in

question should be treated as business income. (A.Y. 2006-07, 2007-08)

CIT v. Sabarkantha District Co-op. Purchase and Sales Union Ltd. (2013)

215 Taxman 149 (Mag.) (Guj.)(HC)

17. S.32: Depreciation - Trial Run of assets.

Assessee is entitled to depreciation on trial run of the assets.

Tata Communications Ltd. v. JCIT (2013) 81 DTR 36 (Mum.)(Trib.)

18. S.32: Depreciation-Block of asset-Discontinue of business.

The assessee claimed depreciation on its edible oil refinery. The auditor had

noted that the refinery had been discontinued during the year and management

has not planned any refinery activity. The Assessing Officer therefore held that

the refinery was not used for the purpose of business and was discontinued and

the assessee had no intention to utilise it in the future and therefore held that it

is not entitled to depreciation. The CIT(A) confirmed the disallowance. On

appeal the Tribunal allowing the ground of the assessee held that once the

concept of block of assets had been brought into the picture, the identity of any

new asset merges into the block. Therefore, even if some of the assets in the

block are functioning, the entire block gets depreciation. (A.Y. 2005-06 to

2007-08)

Sonic Biochem Extractions P. Ltd. v. ITO (2013) 23 ITR 447

(Mum.)(Trib.)

20. S.32: Depreciation–Goodwill–Depreciation is allowable on revalued

amount of good will.

The assessee purchased rights of distance learning division from another

company and the amount paid of Rs 51.63 crore was reflected in sale

agreement .The assessee revalued price of such rights at Rs 98.73 crore and

claimed depreciation on revalued rights. Assessing Officer held that excess

consideration paid over value of net assets was in the nature of goodwill paid

for future profits and allowed depreciation only on value mentioned in

agreement. The Court held that Supreme Court in CIT v.SMIFS Securities Ltd

(2012) 24 Taxman.com 222 has held that goodwill is an asset under

Explanation 3(b) to section 32(1) and therefore, depreciation is allowable even

on goodwill. Following the ratio the court held that depreciation was to be

allowed on revalued rights as well. (A.Y. 2003-04)

CIT v. Manipal Universal Learning (P.) Ltd. (2013) 215 Taxman 151

(Mag.) (Karn.)(HC)

21. S.32: Depreciation–Finance lessor-Rule of consistency depreciation is

allowable.

Where the assessee was a financer-lessor and revenue could not prove that

assessee did not have any interest in assets, depreciation claim was allowable

following rule of consistency.

DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 215 Taxman

616 (Guj.)(HC)

22. S.37(1): Business expenditure – Commission –when no defects were found

in the books of account disallowance cannot be made only on the ground

that percentage of commission paid was more in the relevant year.

The assessee had claimed commission expenses. The Assessing Officer

disallowed the same to tune of 20% on ground that in preceding year

commission expenses was claimed only at 0.7% of gross turnover whereas in

year under consideration it was 1.93% of the gross turnover. Held, in absence

of any defect in maintenance of books of account, disallowance could not be

made merely on ground that expenses incurred in current year were more than

that in preceding year. (A.Y. 2005-06)

CIT v. Shree Rama Multi Tech Ltd. (2013) 215 Taxman 157

(Mag.)(Guj.)(HC)

23. S.37(1): Business expenditure-Illegal purposes-Explanation- Expenditure

incurred for any illegal purpose or prohibited by law.

Misuse charges. Assessee wrongly utilised certain residential premises for

commercial purpose and for which a regularisation fee was paid to the civic

authority which was styled as ’misuse charges’. The said charges were claimed

as ‘business expenditure’. Held the misuse charges were paid for violating the

rules of use of premises and hence Explanation-1 to section 37 gets attracted.

Misuse charges and interest on misuse charges not eligible for deduction.

ACIT v. Mohan Exports (P) Ltd. (2013) 82 DTR 110 (Delhi)(Trib.)

24. S.37(1): Business expenditure-Prior Period Expenses-Transaction of an

earlier year.

Merely because an expense relates to a transaction of an earlier year, the same

does not amount to ‘prior period expenses’; assessee is entitled to the deduction

when the liability towards the expenditure crystallizes. Since the bill of the

party was received during the year under consideration, it was held that the

liability crystallised during the year under consideration.

Tata Communications Ltd. v. JCIT (2013) 81 DTR 36 (Mum.)(Trib.)

25. S.37(1): Business expenditure-Repairs-Civil work-Rented premises.

The assessee incurred expenditure on repair of a rented building. Repair and

construction work including roof work, plumbing, civil & carpentry work.

Assessee claimed it as revenue expenditure. The A.O. held it as capital

expenditure and he after allowing depreciation disallowed the balance amount.

The CIT(A) upheld the Assessing Officer’s order. The Tribunal allowing the

assessee appeal held the expenditure as revenue expenditure. (A.Y. 2005-06)

Cymorza Art Gallery v. ACIT (2013) 142 ITD 799/21 ITR 262

(Mum.)(Trib.)

26. S.37(1):Business expenditure–ad-hoc disallowance deleted.

The Assessing Officer disallowed 15% of the repairs and maintenance and 20%

of the vehicle expenses on the ground that the supporting evidence furnished

was not verifiable as they were self-serving vouchers. The CIT(A) confirmed

the disallowance made by the Assessing Officer. On appeal by the assessee the

Tribunal allowing the ground held that if the Assessing Officer was not

satisfied either about the maintenance of vouchers or the verifiable nature of

the vouchers, he could have identified them and disallowed the entire amount,

rather than resorting to ad hoc disallowance and that the reasons for

disallowance were general without any specific mistakes being pointed out by

the Assessing Officer. Accordingly, considering that the assessee was an agro-

based chemical company and also a public limited company, it was not

necessary to disallow the expenditure on ad hoc basis. (A.Ys. 2005-06 to 2007-

08)

Sonic Biochem Extractions P. Ltd. v. ITO (2013) 23 ITR 447

(Mum.)(Trib.)

27. S.40(a)(ia): Amounts not deductible-Deduction at source–Provision do not

apply where there is shortfall in deduction of tax at source. [S.194C, 194I]

In some cases the assessee treated the payment to be covered under section

194C of the Act, where as the authorities treated the same payment being

covered under section 194I of the Act, there by resulting in short deduction of

tax at source. Following the ratio of various judgments the Tribunal held that

provisions of section 40(a)(ia) do not apply to a case where there is short fall in

deduction of tax at source. (A.Y.2007-08)

Cinetek Telefilms P. Ltd. v. ACIT (2013) TIOL-641-(Mum)(Trib.)

28. S.40(a)(ia): Amounts not deductible-Deduction at source-Deposited before

the due date of filing of the return.

Tribunal held that of TDS is deposited before the due date of filing of the

return the provisions of section 40(a)(ia) cannot be invoked.

B.M.S. Projects (P) Ltd. v. Dy. CIT (2013) 153 TTJ 649/85 DTR 293

(Ahd.)(Trib.)

29. S.40(a)(ia): Amounts not deductible-Deduction at source-Disallowance

applies only to amounts “payable” as of 31st March and not to amounts

already “paid” during the year. Merilyn Shipping (SB) approved.

The assessee engaged Mercator Lines Ltd to perform ship management work

on behalf of the assessee for which it paid an amount of Rs. 1.17 crore. The

assessee claimed that the amount paid by it to Mercator was a ‘reimbursement

of salaries’ and that as Mercator had deducted TDS on the payments made by it

to the employees, the assessee was not required to deduct TDS. The AO

disagreed and disallowed the entire payment u/s 40(a)(ia). The Tribunal upheld

the assessee’s claim and held that no TDS was required to be deducted on a

reimbursement. It also relied on Merilyn Shipping and Transport Ltd v. Add.

CIT ( 2012) 136 ITD 23( vishkhapatam) (SB) where it was held that s.

40(a)(ia) applied only to amounts that were “payable” as at the end of the year

and not to amounts that had already been “paid” during the year. On appeal by

the department, HELD dismissing the appeal:

The revenue cannot take any benefit from the observations made by the Special

Bench of the Tribunal in Merilyn Shipping and Transport Ltd v. CIT (2012)

136 ITD 23 (Vishakhapatnam) (SB) to the effect that s. 40 (a) (ia) was

introduced by the Finance Act, 2004 w.e.f. 1.4.2005 with a view to augment

the revenue through the mechanism of tax deduction at source. S. 40(a)(ia) was

brought on the statute to disallow the claim of even genuine and admissible

expenses of the assessee under the head ‘Income from Business and

Profession’ in case the assessee does not deduct TDS on such expenses. The

default in deduction of TDS would result in disallowance of expenditure on

which such TDS was deductible. On facts, tax was deducted as TDS from the

salaries of the employees paid by Mercator Lines and the circumstances in

which such salaries were paid by Mercator Lines for the assessee were

sufficiently explained. It is to be noted that for disallowing expenses from

business and profession on the ground that TDS has not been deducted, the

amount should be payable and not which has been paid by the end of the year.

(ITA No. 122 of 2013, dt. 09/07/2013)

CIT v. Vector Shipping Services (P) Ltd (All)(HC)

30. S.40(a)(ia):Amounts not deductible-Deduction of tax at source-Interest

disallowance – “Paid” or “payable”-Question of law admitted-Pending for

final disposal. [S. 260A]

The decision of the Special Bench in the case of Merilyn Shipping &

Transports v. Addl. CIT (2012) 136 ITD 23(SB) (Visakhapatnam)(Trib.),

wherein it was held that s. 40(a)(ia) would apply only to expenditure which is

payable as on 31st March of year under consideration and not to expenditure

which had already been paid during year itself deals with an issue of recurring

nature, ratio requires a serious consideration.

CIT v. Odedara Construction (2013) 215 Taxman 161(Mag.) (Guj.)(HC)

31. S.40(a)(ia) : Amounts not deductible - Deduction at source- Amount paid

vis-à-vis payable

Section 40(a)(ia) covers not only the amounts which are payable as on 31st

March of a particular year but also which are payable at anytime during the

year. (A.Y. 2007-08)

CIT v. Sikandarkhan N. Tunvar(2013) 87 DTR 137 (Guj.)(HC)

32. S.43B: Deductions on actual payment – Employees' contribution to PF,

ESI, etc. –Payment before due date of filing return and beyond due dates

prescribed under respective statues is allowable as deduction. [S.2(24)(x),

36(1)(va), 139,264]

The assessee claimed deduction of Rs 22,91 lakhs ,being employee’s

contribution under the EPF Act , and ESI Act ,which were remitted beyond the

due dates prescribed under the statutes. An amount of Rs 20.76 lakhs was paid

during the financial year ending 31-03-2006 and balance was paid prior to last

date for filing return under section 139(1) , extended up to 30-11- 2006.

Assessing Officer disallowed the payment on the ground that section 43B(b)

allowed payment of only employer’s contribution till due date of filing of

return. The assessee filed revision application under section 264 , which was

dismissed. The assessee challenged the said order by filing writ petition.

Allowing the petition the Court held that where the assessee remitted

employees' contribution under EPF Act, and ESI Act after due dates prescribed

under said statutes, but before extended due date for filing return u/s 139(1),

deduction could not be disallowed. Followed the ratio in CIT v.Alom

Entrusions Ltd (2009) 319 ITR 306(SC) and CIT v. Sabari Enterprises (2008)

298 ITR 141 (Karn.)(HC) (A.Y. 2006-07)

Spectrum Consultants India (P.) Ltd. v. CIT (2013) 215 Taxman 597

(Karn.)(HC)

33. S.43B: Deductions on actual payment-Employees' provident fund-

Payments made after due date. [S.10A ]

The assessee claimed a deduction for payments made after due date to

employees' provident fund. Alternatively, it claimed that even if the amount

was disallowed, the sum has to be treated as a part of its business income which

is eligible for exemption under section 10A of the Act. The Assessing Officer

held that the employees' contribution of provident fund was paid after the due

date and hence treated it as deemed income of the assessee. The stand of the

Assessing Officer was confirmed by the CIT(A). The Tribunal allowing the

appeal of the assessee held that the addition could not be made under section

43B of the Act if the actual payment was made by the assessee before the due

date of filing of return. Further, the Tribunal following the decision of the

Bombay High Court in the case of CIT v. Gem Plus Jewellery India P. Ltd.

(2011) 330 ITR 175, also held that if the amount was disallowed the sum was

to be treated as part of the business income of the assessee eligible for

exemption under section 10A of the Act, (A.Y. 2006-07)

ITO v. Patni Telecom Solutions P. Ltd. (2013) 23 ITR 534 (Hyd.)(Trib.)

34. S.47: Capital gains-Transaction not regarded as transfer-Assessee

acquiring title directly or indirectly before 1/4/81, the FMV as on 1/4/81

was to be adopted as cost of acquisition for purpose of computing capital

gain on sale of said property. [S.2(42A,49(1)(ii) 55]

In this case, Ld. CIT(A) agitates the direction by the Ld. CIT(A) in taking the

fair market value of the capital asset as on 1/4/81, being prior to that date, as its

cost of acquisition, as against of the said value by the Assessing Officer. The

issue in dispute before Tribunal was whether from which date the cost inflation

index would apply in computing the LTCG under reference. Dismissing the

appeal, the Tribunal held that the conveyance of property through inheritance

or by will is not regarded as a transfer under section 47 of the Act. The cost of

acquisition to the previous owner i.e., the owner who comes to own the

property through inheritance by will is not regarded as a transfer under section

47 of the Act. The cost of acquisition to the previous owner i.e., to the owner

which comes to own the property in a manner other than these specified in

section 49(1)(ii), or succession or inheritance or devolution as per section

49(1)(iii) is to be deemed as the cost of acquisition in the hands of the assessee,

in whose hands the entire capital gains on the transfer of the property is to be

computed. The fiction extends to be holding period of the asset as well, so that

the lives of the testator and the legatee/s are combined for reckoning the

holding period (Expl. 19b) to section 2(42A). Further, where the date of

acquisition is prior to 1/4/81 i.e., the cut-off date, the assessee, may at its option

substitute the fair market value of the capital asset as on that date for its cost of

acquisition. Therefore the cost held that the treatment of FMV of the asset as

on 1/4/81 was to be treated as the cost of acquisition. (A.Y. 2006-07)

ITO v. Noella P. Perry(Ms) (2013) 56 SOT 495 (Mum.)(Trib.)

35. S.50C: Capital gains-Full value of consideration-Stamp valuation-lease

hold rights - MIDC Land.

It is settled position that the provisions of section 50C do not apply to lease

hold rights. However whether or not an assessee has mere lease hold rights or

has rights superior to lease rights would depend upon correct interpretation of

the deeds. Merely because the nomenclature given to the deed is of ‘Lease’, it

does not follow that the assessee has only lease rights. Matter remanded.

Shavo Norgren (P) Ltd v. Dy. CIT (2013) 81 DTR 434 (Mum.)(Trib.)

36. S.54: Capital gains-Profit on sale of property used for residence–Cost of

purchase-Additional expenditure incurred after purchasing the unit would

be eligible for qualifying investment. [S. 45, 55(1)(b)]

The assessee purchased the house and claimed the exemption in respect of cost

of purchase and the expenditure incurred on improvement. Assessing Officer

and Commissioner (Appeals) denied the exemption on cost of improvement.

On appeal, the Tribunal held that cost of purchase does include any capital

expenditure incurred by the assessee on such property to make it livable .Even

if the assessee has brought a readymade unit, as per his taste and requirements

the cost so incurred will form an integral part of the qualifying amount of

investment in the house property. The use of words ‘purchased or constructed ‘

does not mean that the property can either be purchased or constructed and not

a combination of both the actions. As long as the assessee has incurred

bonafide construction expenditure, even if after purchasing the unit, the

additional expenses so incurred would be eligible for qualifying investment

under section 54. (A.Y. 2007-08).

Shrinivas R. Desai v. ACIT ( 2013)-TIOL-632 (Ahd.)(Trib.)

37. Sec 54: Residential House – Two Adjacent flats:

The expression “a residential house” in s. 54 (1) has to be understood in the

sense that the building should be of residential nature and “a” should not be

understood to indicate a singular number. Where an assessee had purchased

two residential flats, he is entitled to exemption u/s 54 in respect of capital

gains on sale of its property on purchase of both the flats, despite the fact that

the flats were purchased by separate sale deeds. Deduction is allowable even if

the flats are on different floors. On facts, as the two flats purchased by the

assessee are adjacent to one another and have a common meeting point, the

deduction cannot be denied (D. Ananda Basappa 309 ITR 329 (Kar), K. G.

Rukminiamma 331 ITR 211 (Kar) followed; Susheela M. Jhaveri 107

ITD 327 (Mum) (SB) held not good law).

CIT vs. Syed Ali Adil (Andhra Pradesh High Court) June 7th, 2013

38. S.54: Capital gains-Profit on sale of property used for residence–

Construction of new house not completed within stipulated period due to

non-sanction of layout–Gains offered in third year–Cannot be taxed in

year of transfer.

The assessee had derived long term capital gain on sale of residential flat and

claimed exemption under section 54 of the Act towards purchase of a land for

constructing a residential house. Due to builder not being able to approve

sanction for layout, construction of the house could not be made within the

period of 3 years from the date of transfer of the original asset. The assessee

contended that if thecapital gains at all has to be taxed, it has to be taxed only

after the end of the period of 3 years. The assessee had duly offered the gains

after the said period. The CIT(A) rejected the assessee’s contention. On appeal,

allowing the appeal:

The Assessing Officer was directed to allow the exemption claimed by the

assessee under section 54 of the Act for the impugned assessment year. The

Assessing Officer was required to verify whether the assessee has offered the

capital gain for taxation in A.Y. 2011-12 (after the end of the 3 year period). If

on verification, the assessee’s claim is found to be incorrect, then the Assessing

Officer was required to being the gains to tax in A.Y. 2011-12. No addition

could be made in the present A.Y. (A.Y. 2008-09)

Sri Prasad Nimmagadda v. Dy. CIT (2013) 56 SOT 473 (Hyd.)(Trib.)

39. S.54EC: Capital gains-Investment in bonds–Limit of 50 lakhs.

The assessee sold the property for Rs.2.47 crores and claimed the exemption of

Rs.1 crore under section 54EC in respect of long term capital gain invested in

specified capital gain bonds. The Assessing Officer disallowed the claim on the

basis that the assessee having made a claim of Rs. 1 crore, exceeded the

investment limit prescribed in the proviso below section 54EC and therefore,

restricted the deduction up to Rs. 50 lacs. The CIT(A) decided in favour of

assessee upholding the claim of Rs. 1 crore. The Tribunal reversed the order of

CIT(A) and held that the learned CIT(A) was not justified in allowing

deduction to the assessee to the extent of Rs. 1 crore under section 54EC of the

Act. (A.Y. 2008-09)

ACIT v. Raj Kumar Jain & Sons (HUF) (2013) 153 TTJ 49

(UO)(Jp.)(Trib.)

40. S.68: Cash credits-Burden of proof not discharged by the assessee.

During the course of the assessment proceedings the Assessing Officer noticed

that the assessee had received unsecured loans from 8 parties. As the assessee

failed to establish the identity, creditworthiness and genuineness of the

transactions, the Assessing Officer treated the sum as unexplained cash credit

under section 68 of the Act. The CIT(A) while deleting the said addition held

the assessee had produced addresses of all the parties, that the identities of the

parties was proved and the bank accounts of four parties did not reveal

suspicious features. The Tribunal while allowing the appeal of the department

held that the assessee, in order to discharge the onus cast on it, was expected to

establish proof of identity of the creditors, capacity of the creditors and

genuineness of the transactions. It held that filing of bank account details of the

creditors, was not enough to hold that the assessee had satisfied the ingredients

of section 68 of the Act. (A.Y. 2005-06)

ITO v. Gayatri Associates (2013) 23 ITR 528 (Hyd.)(Trib.)

41. S.68: Cash Credits–Firm-Partner-Capital-No addition in the hands of the

firm where a partner introduces fresh capital which has been confirmed

and owned by him.

The assessee, a partner in a partnership firm, introduced fresh capital who had

confirmed and owned the same. The Assessing Officer made an addition under

section 68 of the Act on the ground that the partner failed to explain the source

of the sum. The CIT(A) upheld the addition made by the Assessing Officer. On

appeal by the assessee, the Tribunal held that the genuineness of the deposit

was discharged by the partner. Hence any addition in the hands of the firm as

unexplained cash credit could not have been made on the ground that the

partner failed to explain its source. (A.Y.2004-05)

Patel Vishnubhai Kantilal & Co. v. ITO (2013) 21 ITR 204 (Ahd.) (Trib.)

42. S.68: Cash Credits–Genuineness of share transaction.

Assessee purchased the shares of two companies. The Assessing Officer found

that the transactions were bogus as no actual purchases were made and that the

purchases were back dated so that unaccounted cash is brought into the

accounts in the form of long term capital gain.

The Assessing Officer made addition under section 68. The CIT confirmed the

order of Assessing Officer. The Tribunal held that income tax proceedings are

civil proceedings and the degree of proof required is by preponderance of

probabilities, therefore applying the test of preponderance of probabilities and

considering the entire sequence of events, the revenue authorities have rightly

concluded that the assessee’s claim about the long term capital gains from the

sale of shares is not genuine. (A.Y. 2004-05)

Arvind M. Kariya v. ACIT (2013) 153 TTJ 422/85 DTR 89 (Mum.)(Trib.)

43. S.69: Unexplained investments–Estimation of cost of construction merely

on the basis of statement recorded during the course of survey–not

justified. [S. 142A]

In the course of survey proceedings the statement of one of the partner of the

assessee-firm was recorded in which he had disclosed certain amounts on

account of undisclosed construction expenses which has not been recorded in

the books of the assessee-firm. The partner also stated that the unaccounted

expenses have been invested in work-in-progress. The Assessing Officer asked

the assessee to explain the source and the manner in which the amounts have

been generated. The assessee filed before the Assessee Office work-in-progress

and the bank statement as evidence for computing the work-in-progress. The

assessee also explained that the work-in-progress computed on the date of

survey was gross misunderstanding which did not tally with the facts and

figures. The partner of the assessee-firm also filed an affidavit to that effect.

However, the Assessing Officer has not accepted the contention of the assessee

and taxed the amount as Income from Other Sources. The Assessing Officer

also referred to the DVO for overall valuation of the projects. The CIT(A) after

considering the submissions of the assessee granted partial relief. The assessee

carried the matter further in appeal before the Tribunal. The Appellate Tribunal

after examining the evidences furnished by the assessee allowed the appeal by

observing that survey team having not found any incriminating documents

during the course of survey, it was not justified in estimating the cost of

construction simply on the basis of statement made by a partner of the

assessee-firm which has no evidentiary value; both Assessing Officer as well as

CIT(A) having not pointed out any defect in the assessee’s books of account

and rejected the same under section 145(3), the income could not be enhanced

simply on the basis of DVO's report. (A.Y. 2008-09)

Chanakya Developers v. Dy. CIT (2013) 86 DTR 203 /154 TTJ 601

(Ahd.)(Trib.)

44. S.68: Cash credits– Share application money – Details of applicants were

provided addition was not justified.

Where the assessee company had furnished complete details of receipt of share

application money along with share application forms, names, addresses, PAN

and other relevant details of share applicants, the share application money

could not be added as cash credit u/s 68.(A.Y. 2005-06)

CIT v. Shree Rama Multi Tech Ltd. (2013) 215 Taxman 157 (Mag.)

(Guj.)(HC)

45. S.69B: Amounts of investments not fully disclosed in books of account –

Purchase of land – Addition made without giving an opportunity of cross

examination was held to be bad in law.-No question of law.

The Assessing Officer made addition on account of undisclosed investment in

purchase of agricultural land on the ground that some lands in village were sold

at a higher price and that sellers had given statements to the Assessing Officer

having received higher sale consideration. The assessee objected the allegation

and requested for cross examination of the authors of such statement. The

Assessing Officer refused to grant such permission on premises that the sale

deed were executed . Court held that ,the CIT (A) and the Tribunal held that the

other lands were not shown to be comparable and witnesses were not offered

for cross examination and there was no evidence supporting the Assessing

Officer’s version that assessee had invested large amount in purchase of land,

no question of law arose.

ACIT v. Govindbhai N. Patel (2013) 215 Taxman 575 (Guj.)(HC)

46. S.70: Set off loss - One source against income from another source - Same

head of income-Set off of short term capital gains against capital loss of

same year cannot be branded as colourable device or method of tax

avoidance [S.4]

The assessee-company sold plant and machinery and earned short term capital

gains on one hand while on the other, sold cumulative convertible preference

shares and incurred capital loss and set off loss against capital gains earned.

Since both capital gains and loss co-existed during the same period, the

Assessing Officer concluded that assessee had adopted a colourable device for

tax avoidance. Held since both the transactions were genuine and traded at

proper valuation, even if same had been entered with a motive to avoid tax,

same would not become colourable device subject to any disqualification.

(A.Y. 2001-02)

CIT v. Special Prints Ltd. (2013) 215 Taxman 628 (Guj.) (HC)

47. S.80G: Donation -Where statute gives perpetuity to exemptions granted

under section 80G(5)-It could not be withdrawn without issuing show-

cause notice to the assessee

The assessee was granted exemption under section 80G of the Act, which was

valid upto financial year 2010-11. The assessee filed application for renewal of

exemption, however, the application was withdrawn, as Finance (No. 2) Act of

2009 provided that existing exemption as on 01.10.2010 would continue till

perpetuity. The Commissioner however, withdrew the exemption granted to the

assessee. On appeal High Court held that the assessee had valid exemption on

01.10.2010, when the provisions of section 80G were amended so as to

dispense with the periodic renewal of the exemptions. Once the statute had

given perpetuity to the exemptions granted under section 80G(5), the same

could not be withdrawn without issuing show-cause notice in terms of the

statutory provisions in the manner prescribed by law.

CIT v. Bhhola Bhandari Charitable Trust (2013) 87 DTR 215 / 259 CTR

279 (P&H)(HC)

48. S.80HHC: Export business –Survey-Surrender of income- Excess cash

found-On surrender disclosure during survey whether eligible profits

within the meaning of section 80HHC.[S. 133A ]

Income surrendered on the alleged excess cash found during the survey under

section 133A cannot be treated as business income. Hence, deduction under

section 80HHC can be allowed as the disclosure does not amount to turnover

there was complete absence of this intention when surrender was made as

Section 80HHC is part of Chapter VIA and provides deductee in respect of

income / profits derived from exports made out of India of any goods or

merchandise. (A.Y. 1997-98)

CIT v. Goel Jewellers (2013) 258 CTR 254 (Delhi)(HC)

49. S.80IB(10): Undertaking - Developing and building - Housing project-

Where housing project has both commercial and residential units –

Proportionate deduction, to extent of compliance of provisions under

section 80-IB(10), should be allowed.

Where a housing project eligible for deduction under section 80-IB(10) of the

Act, includes both commercial and residential units, proportionate deduction to

extent of compliance, would be allowed. (A.Y. 2003-04 and 2004-05)

CIT v. Arun Excello Foundation (P) Ltd. (2013) 86 DTR 99 )(Mad.)(HC)

50. S.80IB(10): Undertaking-Developing and building-Housing project–

Interest on delayed payments and amounts written off out of payment to

contractors is eligible for deduction.

Interest received from purchasers on delayed payments is part of assessee's

income derived from development of housing project and, thus, eligible for

deduction u/s 80IB (10). The court also held that the difference between the

bill amount and the payment actually made to suppliers during course of

business of development of housing project is eligible for deduction u/s 80IB

(10).

CIT v. Pratham Developers (2013) 215 Taxman 570 (Guj.) (HC)

51. S.80IB(10): Undertaking-Developing and building-Housing project-Date

of approval- Date of commencement-Date of commencement of project is

to be taken into consideration rather than date of approval for granting

deduction.

Assessee undertook a project under the scheme of slum Rehabilitation

Authority (SRA) framed by Governance of Maharashtra for carrying out a

housing project towards a slum area. Assessee claimed section 80IB(10)

deduction. Assessing Officer disallowed it contending that the conditions given

in the proviso to section 80IB(10), clearly states that the claim has to be

notified by the CBDT and in this case the scheme on which the assessee had

done its project had not been notified. On an appeal before CIT(A), the

assessee produced a copy of notification No. 67/2010 dated 3-8-2010 issued

by CBDT wherein by the scheme of SRA of the Government of Maharashtra

was notified. Accordingly the appeal was allowed by the CIT(A) relying on

this Notification. On further appeal filed by revenue in Tribunal, the Tribunal

held that the approval was given by the SRA on 4/8/2003 whereas the said

notification dated 3-8-2010 issued by CBDT categorically stated that the

benefit of the scheme would be available on the projects approved after

14/2004 and therefore benefit of provision to section 80IB(10) would not be

available to the assessee. The Tribunal dismissed the appeal of the revenue and

held that it cannot be said that the assessee’s project is not eligible for

deduction under section 80IB, once all the other conditions are fulfilled. In this

case, one can say that the date of commencement i.e., 1/10/2004, can be taken

as the date of approval as it was from this date the approval given by the SRA

becomes operative. (A.Y. 2007-08)

ITO v. Ms. Asha Kashiprasad Ringhia Pandurang Sadan (2013) 56 SOT

340 (Mum.)(Trib).

52. Sec 32- Owned - Vehicle:

S. 32 requires that the asset must be “owned, wholly or partly, by the assessee

and used for the purposes of the business”. The Department’s argument that the

assessee is not the “owner” of the vehicles is not acceptable because the lease

agreement specifically provided that the assessee was the exclusive owner of

the vehicle at all points of time and that it was empowered to repossess the

vehicle (and not merely recover money) if the lessee committed a default. At

the conclusion of the lease period, the lessee was obliged to return the vehicle

to the assessee. Also, the assessee had the right of inspection of the vehicle at

all times. As the assessee has a right to retain the legal title of the vehicle

against the rest of the world, it would be the owner of the vehicle in the

eyes of law. The fact that at the end of the lease period, the ownership of the

vehicle is transferred to the lessee at a nominal value not exceeding 1% of the

original cost of the vehicle does not make a difference. Also the fact that the

Motor Vehicles Act deems the lessee to be the “owner” has no relevance.

I. C. D. S. Ltd vs. CIT (Supreme Court) January 15th, 2013

53. S.119: Instructions –CBDT- Deduction of tax at source-Condonation of

delay –Hardship-Revised return filed beyond prescribed time limit was

directed to be considered and grant deduction of expenses in respect of

tax was deducted at source. [S.40(a)(ia), 264]

The assessee filed the return for the assessment year 2005-06 claiming

deduction of freight charges .The Assessing Officer disallowed the claim on the

ground that the assessee had not deducted the tax at source. On revision the

Commissioner held that the credit for tax deducted at source might be allowed

in the year in which the same was deposited in the Government treasury and

corresponding expenses may be allowed as a deduction in that year. While

proceedings were going on the assessee deposited tax deducted on 29-03

2008. The assessee field revised return for the assessment year 2008-09

claiming deduction of freight charges. As the return was time barred the

assessee filed petition before the Commissioner under section 119 requesting

that necessary orders may be passed admitting the claim of refund and admitted

the revised return. Commissioner held that the assessee’s application was not

maintainable . The Assessee filed the writ petition against the said rejection

order The court held that in view of fact that assessee had already deposited

amount of TDS during relevant year and, moreover, assessee being a small

time transport operator, disallowance of huge amount of freight expenses

would cause a genuine hardship, a case for condonation of delay in filing

revised return belatedly was made out u/s 119(2)(b). Therefore, the impugned

order was to be set aside and Commissioner was to be directed to admit

assessee's revised return for being processed in accordance with law. (A.Y.

2008-09)

Jay Vijay Express Carriers v. CIT (2013) 215 Taxman 562 (Guj.)(HC)

54. Sec 119 - CBDT Instruction – Scrutiny assessment:

The CBDT’s instructions for assumption of jurisdiction for selection of cases

of corporate assesses for scrutiny and assessment are issued u/s 119 and are

binding on the AO and have to be followed by him in letter and spirit. The

burden lies on the authority assuming jurisdiction to show and establish that

such instructions have duly been complied and satisfied in letter and spirit. On

facts, as there was no disallowance of Rs. 5 lacs or more in the earlier years and

as no identical issue had arisen in the present year, the notice issued u/s 143(2)

was not in terms of the CBDT’s Scrutiny Guidelines and consequently the

assumption of jurisdiction was illegal and the entire assessment proceedings

were invalid (Nayana P. Dedhia 270 ITR 572 (AP) followed)

Crystal Phosphates Ltd vs. ACIT (ITAT Delhi) May 30th, 2013

55. S.143(3): Assessment-Valuation of stock–Valuation adopted by sales tax

authorities is binding.

Valuation adopted by sales tax authorities is binding on income-tax authorities.

Department cannot make additions merely on the basis of statements of third

parties. (A.Y. 1998-99 & 2002-03)

CIT v. Sakuntala Devi Khetan (Smt.) (2013) 352 ITR 484(Mad.)(HC)

56. S.147: Reassessment-Alternative remedy-Writ petition to challenge a

reassessment order should not be entertained. [S.148, Art 226 ]

The Assessing Officer issued a notice u/s 148 reopening the assessment and

pursuant thereto passed a re-assessment order u/s 147. The assessee filed a Writ

Petition in the High Court to challenge the said notice and re-assessment order.

The High Court entertained the Writ Petition and quashed the re-assessment

order. On appeal by the department to the Supreme Court HELD reversing the

High Court:

The Income-tax Act provides a complete machinery for the assessment/re-

assessment of tax, imposition of penalty and for obtaining relief in respect of

any improper orders passed by the Revenue Authorities. The assessee cannot

be permitted to abandon that machinery and to invoke the jurisdiction of the

High Court under Article 226 of the Constitution when he has adequate remedy

open to him by an appeal to the Commissioner of Income-tax (Appeals). As the

said statutory remedy is an effectual and efficacious one, the Writ Court ought

not to have entertained the Writ Petition filed by the assessee.(Civil Appeal No

of 2013 dt 8-8-2013)(A.Y. 1995-96, 1996-97)

CIT v. Chhabil Das Agrwal (SC).www.itat online.org.

Editorial: This principle of alternate remedy ought not to apply to a case

where the Assessing Officer passes a reassessment order without following the

GKN Driveshafts (India) Ltd .v. ITO (2003) 259 ITR 19 (SC) procedure of

passing an order on objections and waiting 4 weeks thereafter as held in Allana

Cold Storage Ltd v.ITO(2006)287 ITR 1 (Bom.)(HC), Kamlesh Sharma

(Smt.) v. B.L.Meena, ITO (2006)287 ITR 337 (Delhi)(HC)

57. S.147: Reassessment- Transfer – Agreement to sell – Transfer of property-

Society has not transferred the property ,possession remained with

society ,there is no escapement of income. [S.2(47), 45, 143(1), 148,

Transfer of Property Act,1882. S.5, 19]

The assessment of the assessee completed under section 143(1) without

scrutiny. The Assessing Officer issued the notice to reassess the sale

consideration as short term capital gains. The asesseee raised the objection,

which was rejected by the Assessing Officer .Assesee challenged the rejection

order by filling writ petition .The Court allowing the petition held that, where

the society had not, by virtue of agreement, transferred property in favour of

assessee but had only agreed to do so on certain terms and conditions and most

important possession remained with society till final payment, it could not be

said that property had been transferred to assessee at time of agreement to sell.

Under these circumstances, there was no escapement of income under head

short term capital gain. Reassessment was quashed. (A.Y. 2005-06)

Ratna Trayi Reality Services (P.) Ltd. v. ITO (2013) 215 Taxman 650

(Guj.)(HC)

58. S.148: Reassessment–Recording of reasons–No mention of assessment year

in the recorded reasons–Reassessment held to be valid as the assessee

participated in the proceedings without raising any objections. [S. 147,

292B]

The assessee had participated in the reassessment proceedings without raising

any objections as to which assessment year the reasons recorded relate.

Tribunal set aside the re assessment order, as in the reasons there is omission of

assessment year. On appeal by revenue the Court held that after participating in

the reassessment proceedings in which the Assessing Officer made certain

additions, the assessee raised an objection before the Tribunal that the recorded

reasons did not mention the assessment year. Held, since it was not shown that

the assessee was misled by not mentioning the assessment year in the reasons

recorded and that the assessee participated in reassessment proceedings without

raising any such objection, hence the reassessment was valid , however the

additions made have to be decided on merits. Matter was restored back to

Tribunal. (A.Y. 2002-03)

CIT v. Shyam Cold Storage (2013) 215 Taxman 669 (All) (HC)

59. S.158BB: Block assessment–Computation of undisclosed income –

Estimation of inflated purchases of entire block period held to be not

valid- Inflated purchase price could be made only for period to which

document was related.

During search, a document seized disclosed that assessee had paid unusually

high purchase price to 'P' for period between April 1998 to July 1998.The

Assessing Officer, therefore made addition for undisclosed income on account

of estimated inflated purchase price for the entire block period. Held in the

absence of link between document found during search and assessee's activities

for the entire block period, addition for undisclosed income on account of

inflated purchase price could be made only for period to which document was

related and not for entire block period.(AY 1993-94 to 1998-99)

CIT v. Standard Tea Processing Co. Ltd. (2013) 215 Taxman 659

(Guj.)(HC)

60. S.158BC: Search & seizure – Block assessment – Search in premises of

father of assessees.[S.132,158BD ]

Search under section 132 was made at the premises of the father of the

assessees, during which some documents and other materials not belonging to

the assessees was seized, and on that basis block assessments were made

against the assessees. Assessees were issued notice under section 158BC.

Appeal was dismissed being void ab initio. In a situation when there was no

authorization in respect of the assessees, provisions of section 158BD would be

attracted and not provisions of section 158BC. (A.Y. 1985-86)

CIT v. Ram Singh and Ors. (2013) 351 ITR 391 (P&H)(HC)

61. S.132(4): Search and seizure-Statement on oath-Addition merely on the

basis of statement without having any cogent and corroborative evidence–

Unjustified. [S.158BB]

The Tribunal has held that the admission under section 132(4) was made under

the mistaken belief of law instead of the correct legal position. The revenue

cannot make the addition merely on the basis of statement without any

evidence found in the course of the search action or post search enquiries to the

effect that the assessee has undisclosed income. (Block period 1996-97 to

2002-03)

Jyotichand Bhaichand Saraf & Sons (P) Ltd. v. Dy. CIT (2013) 86 DTR

289 (Pune)(Trib.)

62. S.133A: Survey–Addition made on the strength of a statement recorded

during the survey cannot be sustained.

During the course of survey, the assessee made declaration and surrendered a

sum of Rs. 2 crore. The Assessing Officer found that the assessee had not filed

a revised return of income and had failed to incorporate the surrendered amount

to tax in the return. The assessee contended that he had not made any voluntary

disclosure. The statement recorded during the course of survey was not given

on oath and had no evidentiary value. Not being satisfied with the explanation

of the assessee the Assessing Officer made an addition of Rs. 2 crores which

addition was confirmed by the CIT(A). On appeal by the assessee, the Tribunal

deleting the addition held that:

• The department failed to collect any material during the course of

survey and the Assessing Officer was harping upon the statement of the

assessee.

• The statement recorded during survey had no evidentiary value and no

addition could be sustained on the strength of this statement. (A.Y. 2005-06)

Mahesh Ohri v. ACIT (2013) 23 ITR 522 (Delhi)(Trib.)

63. S.158BD: Block assessment - Undisclosed income of any other person –

Issuance of notice under section 158BD after expiry of one year and three

months is arbitrary and unreasonable.

Delay of one year and three months in issuing notice under section 158BD after

completion of the assessment in the case of searched person is unreasonable

and arbitrary; assessment order passed under section 158BD is quashed.

Dy. CIT v. Thomas N.C. (2013) 87 DTR 91 (Cochin)(Trib.)

64. S.245D : Settlement of cases –Search and seizure-Bogus purchases-Full

and true disclosure and the manner in which the undisclosed income

was derived is still open for discussion and debate and the Settlement

Commission would have to give its final decision on these aspects before an

order of settlement is passed under section 245D(4). [S.254C(1), 245D (2C,

Art 226]

Revenue challenged the order passed by the settlement commission under

section 245C(1) and 245D(2C) of the said Act being not valid because the

settlement applications failed to satisfy the pre-requisites stipulated in Section

245C of the Act. Those pre-requisites being, full and true disclosure, the

manner in which the undisclosed income had been derived and the additional

amount of income-tax payable. The Court observed that considering the

various provisions ,it is apparent that the settlement applications passes through

several stages before the final order providing for the terms of settlement is

passed by the Settlement Commission. The first stage is under section 245D(1)

.This is followed by the next step under section 245D(2C) and finally by the

order passed under section 245D(4) .In the present case ,the final order under

section 245D(4) is yet to be passed .The orders under section 245D(1) and

245D(2C) are not final orders and they are subject to the final orders that may

be passed under section 245D (4).It is therefore, clear that the issue of full and

true disclosure on the part of the applicants and the manner in which the

undisclosed income was derived is still open for discussion and debate and the

Settlement Commission would have to give its final decision on these aspects

before an order of settlement is passed under section 245D(4).Accordingly the

High Court dismissed the petition of the revenue. (WP(C) NO.1609/2013 dt 2-

07-2103)

CIT v. Income Tax Settlement Commission & Ors (Delhi)(HC)

(Unreported)

65. S.245D: Settlement of cases –Search and seizure-Bogus purchases-Full and

true disclosure-Manner in which the undisclosed income had been

derived-Matter set aside. [S.254C(1),245D(2C,Art 226]

A search and seizure action under section 132 of the Act was carried out in the

business premises of the assessee. Bogus purchase bills were found and the

assessee disclosed the income and thereafter retracted .The assessee filed the

petition before settlement commission and disclosed additional income. Before

the Commission the revenue contended that the assessee had failed to discloses

of income and the manner in which the income was earned .The Commission

has come to the conclusion that the application is not invalid and has allowed

it to further. Revenue challenged the order of settlement commission. Allowing

the petition the court held that the error of the Commission in the present case

lies in permitting the application to proceed without that satisfaction being

recorded by the Commission, which is a fundamental aspect which goes to the

root of its jurisdiction to entertain the application under section 245C.The

Court observed that the Commission has moved over to the stage of section

245D(4) without entering upon the fundamental issue as to whether the

application was or was not in valid .The Court observed that once a report is

received under section 2C of section 245D,the Commission has to consider as

to whether or not the application is invalid. The petition was allowed and the

Commission was directed to reconsider the order according to the direction.(

WPNO 3900 of 2013 dt 13-06-2013 )(A.Y. 2006-07 to 2012-2013)(ZF

Steering Gera Ltd )

CIT v. Income tax Settlement Commission (Bom.)(HC.)(Unreported)

66. S.145: Method of accounting–Valuation of closing stock.

Tribunal held that the method of valuation of stock followed by the assessee for

last 16 years is an accepted method in consonance with the law as well as

accounting standard and therefore there is no reason to discard the same. (A.Y.

2005-06)

ACIT v. Agrawal Enterprises (2013) 154 TTJ 12(UO) (Pune)(Trib.)

67. S.145: Method of accounting–Valuation of closing stock vis-a-vis inclusion

of incidental expenses–No specific defect found in the books– Rejection of

accounts not justified.

Expenses incurred by the assessee on insurance on goods in transit, freight and

handling, entry-tax (purchase) and channel finance interest being directly

linked to purchases having been already included in the cost of purchases,

proportionate amount of the said expenses could not be included in the

valuation of closing stock by invoking the provisions of section 145(3). (A.Ys.

2008-09, 2009-10)

Drillcon (Raj) (P) Ltd. v. Addl. CIT (2013) 87 DTR 159 / 154 TTJ 620

(Jodhpur)(Trib.)

68. S.145: Method of accounting–High Consumption of Electricity - Rejection

of books of accounts not valid.

The Assessing Officer, in the course of the assessment proceedings, on

examination of books of account and information filed noticed certain

discrepancies pertaining to uneven consumption of electricity and failure to

maintain record of month-wise details of consumption of chemicals or

consumables. Accordingly, the Assessing Officer invoked provisions of section

145(3) of the Act and made additions on account of unaccounted production

and alleged capital employed in the unaccounted production. Deduction under

section 80IB of the Act was also not granted on the said additions. The CIT(A)

upheld the findings of the Assessing Officer. On appeal by the assessee the

Tribunal held that:

• Books of account could not be rejected, on the ground of consumption

of electricity being abnormally high vis-à-vis the units of production, so far as

the consumption of steam chemicals and consumables was concerned, the

submissions filed by the assessee remained unrebutted.

• It was not proper on the part of the Department, to compute estimated

unaccounted production solely on the basis of higher consumption of

electricity, in the face of credible reasons assigned by the appellant, for such

variation in the consumption of electricity.

• The CIT(A) failed to bring on record material to demonstrate that the

assessee indulged in purchases of raw material and sales of manufactured

goods outside the books of account by way of higher consumption of

electricity. In the manufacturing world, there was no direct and uniform

correlation between consumption of electricity and production of manufactured

goods.(A.Y. 2007-2008)

ACIT v. Vishal Paper Inds. (2013) 21 ITR 220 (Chd.)(Trib.)

70. S. 271(1)(c) penalty is valid even if claim is disclosed and as per CA

certificate

While it is true that the Income-tax Act, 1961 is one of most vexed and

complicated legislation and requires highest degree of interpretative skills and

there are divergent views on interpretation of its provisions and while it is also

true that penalty for concealment cannot be imposed merely because assessee’s

interpretation or claim is rejected, such cases have to be distinguished from

cases where the claim of the assessee is farcical or farfetched. Dubious and

fanciful claims under the garb of interpretation, are a mere pretense and not

bona fide. Absurd or illogical interpretations cannot be pleaded and become

pretense and excuses to escape penalty. “Bona fides” have to be shown and

cannot be assumed. The fact that the claim for deduction u/s 80IA was duly

supported by the Chartered Accountant’s Certificate and prescribed forms

signed by the CA cannot absolve and protect an assessee who furnishes in-

accurate particulars because then in all cases where a form/certificate is

furnished by the CA but a wrong claim of deduction is made, no penalty u/s

271(1)(c) can be imposed. Merely because the assessee complies with the

statutory procedural requirement of filing the prescribed form and certificate of

the Chartered Accountant cannot absolve the assessee of its liability if the act

or attempt in claiming the deduction was not bona fide. On facts, the assessee’s

claim was not tenable due to the Explanation to s. 80IA (13) which stipulates

that benefit is not available to a contractor carrying on a works contract. The

assessee has not shown any “tangible material” or basis as to why a clear

statutory provision which excludes works contracts was ignored.

CIT vs. HCIL Kalindee ARSSPL (Delhi High Court) August 10th, 2013

71. As the assessee had disclosed all details in the return of income, at the highest

it can be said that the claim of the assessee was not sustainable in law. But as

there was no furnishing of inaccurate particulars or concealment of income on

the part of the assessee. penalty u/s.271(1)(c) could not be levied (Reliance

Petroproducts 322 ITR 158 (SC) referred).

CIT vs. Nalin P. Shah (HUF) (Bombay High Court) July 8th, 2013

72. S.154: Mistake Apparent - Mistake due to E-filing of return.

E-filing of return depends upon the software used and there is scope for errors

at the time of entering the data in the electronic form. On account of such

errors, the assessee’s claim of Short Term Capital Gains, taxable at

concessional rate did not find mention under the item where the short term

capital gain is to be shown. Held to be a clerical error and a mistake apparent

and hence should be rectified.

Shrikant Real Estates (P) Ltd. v. ITO (2013) 81 DTR 431 (Mum.)(Trib.)

73. S.254(2): Appellate Tribunal–Rectification of mistake apparent from the

record-Date of hearing on the acknowledgement.

The Tribunal in the acknowledgment of the filing of the appeals mentioned a

date of hearing which was ten months later. The assessee was under the belief

that this was a tentative date and hence did not appear on that date. The

Tribunal dismissed the appeals for want of representation. In the miscellaneous

application filed, the assessee contended that it was under a bona fide belief

that they would receive a fresh notice of hearing. The Tribunal allowing the

miscellaneous application held that there was reasonable cause for the failure to

appear on the date of hearing and in the interest of justice recalled the appeals

and restored them for hearing. (A.Y. 2007-08)

Dharmesh Pandit (HUF) v. ACIT (2013) 21 ITR 250 (Mum.)(Trib.)

74. S.263: Revision-Revision of orders prejudicial to revenue-Doctrine of

merger-Subject matter of appeal before the Commissioner (Appeals).

[S.153A]

The jurisdiction under section 263 of the Act cannot be invoked where the

issues raised under section 263 are subject matter of appeal before the

Commissioner (Appeals) . Further, orders passed after conducting inquiries

cannot be said to be ‘erroneous’. (A.Ys. 2004-05 to 2008-09)

Parminder Singh v. ACIT (2013) 81 DTR 321/58 SOT 67(URO)

(Amritsar)(Trib.)

75. S.271(1)(c): Penalty-Concealment- No Penalty–On an estimate basis.

Assessee filed Return of Income declaring business income and as well

agriculture Income. The Assessing Officer passed ex-parte order under section

144 by making various disallowances on Petition under section 264; the

Commissioner gave some relief to the assessee. The Assessing Officer levied

penalty under section 271(1)(c) upon the assessee. The CIT(A) deleted the

Penalty on the ground that the addition in dispute was made on an estimate

basis. On further appeal in Tribunal, the Tribunal held that the Assessing

Officer completed the assessment under section 144 and made the addition in

dispute on estimate basis without bringing any evidence establishing that the

assessee has concealed any income or furnished any inaccurate particulars of

Income in his return intentionally or malafidely. The Assessing officer has

levied the penalty on dispute of the addition made by the Assessing Officer on

an estimate basis which is against the law and facts and contrary to the various

decisions rendered by the courts. (A.Y. 2005-06)

ITO v. Sukramrit Singh (2013) 56 SOT 107 (Asr.)(Trib.)

76. Affidavit:

The affidavit produced by the AR is not a valid affidavit because there is no

verification appended on it and there is no mention as to which of the paras are

true to the knowledge of the deponent and which of the paras of the affidavit

are true to his belief. The affidavit is also not a duly sworn affidavit as required

under Rule 10 of the ITAT Rules 1963 because it has not been properly

endorsed by the notary regarding the oath of affirmation before him by the

executants of the affidavit. The notary has put his signatures under his name

seal but there is no mention whether the oath was administered to the signatory

or if done so, when and where it was administered. Even words “Sworn before

me” are missing. If the affidavit does not certify or endorse the fact that oath

has been administered, it remains a waste paper. On merits, the case is one

of gross negligence and inaction on the part of the assessee and the AR. The

explanation that the AR’s assistant kept the papers in his drawer and failed to

take necessary action is vague and evasive and not sufficient cause for

condonation. There is also no general principle saving the party from all

mistakes of its counsel. There is also total inaction and gross negligence on the

part of the assessee for not inquiring the status of the appeal from the AR.

Though courts adopt liberal view while condoning delay on the principle that

technicalities should not prevail over the cause of justice, litigants should not

take the courts for granted.

Kunal Surana vs. ITO (ITAT Mumbai) May 28th, 2013

77. Department’s practice of not giving prompt & full credit for TDS

condemned

Form 26AS, available on the department’s website, clearly reflects the

assessee’s entitlement to credit for TDS. Instead of giving credit for the TDS,

the department has adamantly continued to take the stand that there is a failure

on the part of the assessee to furnish details. We are not impressed with such a

stand. Computerization is with the object to facilitate easy access to the

assessee and make the system more viable and transparent. In the event of any

shortcoming of software programme or any genuine mistake, the Department is

expected to respond to such inadvertence spontaneously by rectifying the

mistake and give corresponding relief to the assessee. Instead of that, even

when it is being brought to the notice of the Department by the assessee, by a

rectification application and subsequent communication, not only it has

chosen not to rectify the mistake, but, the lack of inter departmental

coordination has driven the assessee to this Court for getting his legitimate due.

This attitude for sure does not find favour with the Court, as more responsive

and litigant centric system is expected; particularly in the era of

computerization. Tax payers friendly regime is promised in this electronic age.

For want of necessary coordination between the two departments, the assessee

cannot be expected to be sent from pillar to the post. If the Centralized

Processing Center meant for return processing, accounts, refund, storage of

data etc. adds to the difficulties of the Tax payers, due to lack of distribution of

work between back office and front office, and that too, after having been

pointed out the actual error, a serious re-look is expected.

Vaghjibhai S. Bishnoi vs. ITO (Gujarat High Court) August 10th, 2013

78. S.115JB: Company-Book profit-Loan admitted by assessee–To be included

in book profits for purpose of MAT.

Assessee took a loan in cash and subsequently the same was required in cash

and the accounts were squared up. The assessee admitted aforesaid loans and

cash as income. The Assessing Officer while computing book profit under

section 115JB added the amount admitted by assessee. CIT(A) upheld the order

of Assessing Officer. On further appeal in Tribunal, the Tribunal held that the

agreed addition was a part and parcel of net profit as shown by the assessee in

the Profit & Loss Account and therefore this was not as part of adjustment.

Further there was no restriction in calculating correct net profit as per Profit &

Loss A/c plus agreed addition that will be the net profit as per the assessee and

in the light of the fact. (A.Y. 2008-09)

Dream Shelters (P) Ltd. v. ITO (2013) 56 SOT 440 (Agra)(Trib.)

79. S.9(1)(vii): Income deemed to accrue or arise in India - Fees for technical

services-DTAA-India-Thailand-Royalty and fees for technical services

cannot be taxed under residual Article 22 of India-Thailand DTAA, unless

item of income does not fall under any other express provisions of

DTAA.[Art.22 ]

The assessee, a non-resident company of Thailand, entered into technical

assistance know-how agreement an India Company for transfer of technology

know-how. The assessee received technical know-how fees for five years,

which was treated as not taxable as per Article 12 of DTAA between India and

Thailand. The Assessing Officer took a view that what was transferred was

sharing of knowledge and not know-how, and therefore, consideration received

was not covered by definition of royalty under Article 12 of DTAA. Therefore,

he held that consideration could be taxed only or in the contracting State where

the income arose under the residual clause that is Article 22 of DTAA. On

appeal High Court held that residual clause of Article 22 of DTAA had no

relevance as far as royalty and fees for technical services were contemplated as

it would come into play only when item of income did not fall for consideration

under any express provisions of DTAA. (A.Y. 1991-92 to 1995-96)

Bangkok Glass Industry Co. Ltd. v. ACIT (2013) 82 DTR 326/215 Taxman

116(Mag.) (Mad.)(HC)

80. Transfer Pricing: Law on adjustment for notional interest on interest-free

loan & excess credit period to AE explained.

The question which really needs to be adjudicated is whether, in the context of

s. 92A, but for the management, capital or control being in the same hands, the

AE would have entered into the transaction on the same terms. In other words,

whether there is such a commercial justification for the values at which

transactions have been entered or not, so as not to attract the adjustment in the

arm’s length price, has to essentially depend on factors other than the factors

regarding management, capital or control. In still other words, merely because

the entity receiving interest free funds is a subsidiary wholly owned by the

assessee cannot be reason enough to justify such loans or advances being

interest free and not warranting an arm’s length price adjustment, so far as

transfer pricing provisions are concerned

Micro Inks Ltd vs. ACIT (ITAT Ahmedabad) August 7th, 2013

81. Transfer Pricing: Scope in the context of expenditure (royalty payment)

explained.

The TPO’s argument that the assessee need not have paid for the technology as

it did not derive any benefit therefrom is not acceptable. The assessee is free to

conduct business in the manner it deems fit and the commercial and business

expediency of incurring any expenditure has to be seen from the assessee’s

point of view. The Revenue cannot step into the shoe of the assessee and

decide what is prudent for the business. On facts, the very survival of the

assessee in the industry depended upon the licence and technology & know

how provided by the AE. There has been a considerable increase in the sales

figures and the growth in revenue clearly demonstrates the benefits derived by

the assessee from the use of technology.

Reebok India Co vs. ACIT (ITAT Delhi) August 6th, 2013

82. Transfer Pricing: Foreign associated enterprise can be taken as ‘Tested

Party’

While there is nothing in the transfer pricing law as to the selection of the

tested party, the tested party normally should be the party in respect of which

reliable data for comparison is easily and readily available and fewest

adjustments in computations are needed. It may be local or foreign entity, i.e.,

one party to the transaction. The object of transfer pricing exercise is to gather

reliable data, which can be considered without difficulty by both the parties,

i.e., taxpayer and the revenue. It is also true that generally least of the complex

controlled taxpayer should be taken as a tested party. But where comparable or

almost comparable, controlled and uncontrolled transactions or entities are

available, it may not be right to eliminate them from consideration because

they look to be complex. If the taxpayer wishes to take foreign AE as a tested

party, then it must ensure that it is such an entity for which the relevant data for

comparison is available in public domain or is furnished to the tax

administration. The taxpayer is not then entitled to take a stand that such data

cannot be called for or insisted upon from the taxpayer. This is supported by

the United Nation’s Practical Manual on Transfer Pricing for Developing

Countries which stated that a foreign entity (a foreign AE) could also be taken

as a tested party for comparison. The revenue’s argument that GMDAT should

not be selected as a ‘tested party’ as it does not fall within the ambit of TPO’s

jurisdiction and he can neither call for any additional information nor scrutinize

their books of accounts is not acceptable because the Revenue can get all the

relevant particulars around the globe by using the latest technology under its

thumb or direct the assessee to furnish the same (Ranbaxy Laboratories 110

ITD 428 (Del), Mastek Limited, Development Consultants 136 TTJ 129

& Sony India 114 ITD 448 (Del) followed; Onward Technologies (Mum)

& Aurionpro Solutions (Mum) not followed/ distinguished)

General Motors India Pvt. Ltd vs. DCIT (ITAT Ahmadabad)

August 6th, 2013

83. S.195 TDS: Application for refund of TDS due to cancellation of contract

with non-resident can be made vide s. 154 application

Before the CIT(A) the assessee filed copies of various invoices raised on it in

pursuance to the contract by the Taiwanese company and also filed copy of

credit note issued pursuant to the cancellation of the contract and documents

showing inward remittance of the amount earlier paid. The CIT(A) held that

the case of the assessee is covered by sub-clause (b) of clause 2 of Circular No.

7 dated 23.10.2007 and clause 2(b) of Circular No. 790 dated 20.04.2000. In

para 2.1 of Circular 7 dated 23.10.2007, it is clearly provided that once the

amount already remitted in pursuance of a contract has been refund back to the

remitted after cancellation of the contract, no income accrues to the non-

resident. It is also provided in the circular that the amount of tax paid u/s195

can be refunded to the deductor with prior approval of the CCIT. The detailed

procedure is provided in the said circular and certain pre-conditions are to be

satisfied, suitable undertaking from the deductor has to be obtained before the

refund can be issued. It is also specified that refund can be given only if the

non-resident has not filed any return and the time limit for filing of return has

already expired. It was held that as the contract has been cancelled and the

money has been received back, no tax is payable by the non-resident assessee.

The CIT (A) directed the AO to verify that the conditions laid down in Circular

No.7 of 2007 have been satisfied. There is no infirmity in the order of the

CIT(A) and it cannot be said that AO was not allowed any opportunity as he

has to verify the details before granting any refund of tax if any.

ITO vs. Sun Pharmaceutical Industries Ltd (ITAT Mumbai)

July 30th

, 2013

84. 92-B. Transfer pricing provisions are not applicable to transactions where

there is no income:

An amount paid for investment in share capital of subsidiaries outside India is

not in the nature of an “international transaction” as defined in s. 92-B.

Transfer pricing provisions are not applicable to transactions where there is

no income (Circular No. 14, dated 22/11/2011, Dana Corporation321 ITR

178 (AAR) & Amanita International 322 ITR 678 (AAR) referred).

Vijay Electricals Ltd vs. ACIT (ITAT Hyderabad) June 4th, 2013

THANK YOU

Ajay R. Singh, Advocate

KSA LEGAL CHAMBER,

East-West Building, 2nd

floor, 49-55, Bombay Samachar Marg,

Opp. Bombay Stock Exchange Building, Fort, Mumbai – 400 023.

Mob. No. 9892212125 Tel. No. 2269 8338 / 2265 8612 Telefax: 22631338 Email:

ajaysingh.legal@gmail.com