Thursday, July 24, 2014

Two Important Items Of News And Two Important Judgements


 

 Dear Subscriber,


Transfers Of Hon'ble Members Of The ITAT (July 2014)

Vide Order dated 18.07.2014 passed pursuant to consultations with the collegium of the ITAT constituting the President and two senior-most Vice Presidents available, two Hon'ble Members of the Tribunal have been transferred in public interest and with immediate effect. 


CBDT Stung By Judicial Strictures – Sets Up Committee To Study Filing Of Appeals

Pursuant to the severe strictures passed by the Courts in CIT vs. Sairang Developers (Bom High Court) and ITO vs. Growel Energy Co. Ltd (ITAT Mumbai) regarding the mindless manner in which appeals are filed by the department, without regard to the harassment caused to the taxpayers, the CBDT has issued an Office Memorandum dated 17.07.2014 by which a Committee to study the appellate orders to examine the filing of appeals by the department has been set up


CIT vs. Hindustan Organics Chemicals Ltd (Bombay High Court)

S. 43B covers employees' contribution to Provident Fund & deduction is allowable if paid before due date for filing ROI

On a plain reading of the second proviso to s. 43B, it is clear that the assessees – employers were entitled to deductions only if the contribution to any fund for the welfare of the employees stood credited on or before the due date given in the relevant Act. However, because the second proviso created difficulties for the assessees – employers, an amendment was inserted vide Finance Act, 2003 with effect from 1st April 2004 to delete the second proviso to s. 43B and to amend the first proviso to provide that the deduction would be allowed if the amount was paid on or before the due date for furnishing the return of income u/s 139(1). Therefore, the amendments introduced by the Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various Employee's Welfare Funds on the other. In Alom Extrusions Ltd 319 ITR 306 (SC) it was held that the amendment to the s. 43B by the Finance Act, 2003 w.e.f. 01.04.2004 was retrospective in nature and would operate from 01.04.1988. Consequently, the ITAT rightly deleted the addition of Rs.1.82 cr on account of delayed payment of Provident Fund of employees' contribution. Even otherwise, we fail to understand how this deduction could have been disallowed to the Assessee. Admittedly, the AY in question is 2006-07. The second proviso to s. 43B was deleted w.e.f. 01.04.2004 and simultaneously the first proviso was also amended bringing about a uniformity in deductions claimed towards tax, duty, cess and fee on the one hand and contribution to the employees' provident fund, superannuation fund and other welfare funds on the other. These deductions being claimed in the return of income filed for AY 2006-07, the amendments to s. 43B which came into force w.e.f. 01.04.2004 clearly applied to the assessee's case


CIT vs. HDFC Bank Ltd (Bombay High Court)

Loss on account of depreciation in value of securities held as stock is not notional & is allowable as a deduction

A method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping the accounts or on valuation. Financial institutions like bank, are expected to maintain accounts in terms of the RBI Act and its regulations. The form in which, accounts have to be maintained is prescribed under the aforesaid legislation. Therefore, the account had to be in conformity with the said requirements. The RBI Act or the Companies Act do not deal with the permissible deductions or exclusion under the Income Tax Act. For the purpose of the Income Tax Act, the method of valuation followed by the assessee was to value the investments at cost or market value whichever was lower. The assessee was entitled to claim a deduction for the depreciation in the value of the securities held by it. The fact that the losses were not sold to a third party did not mean that the loss was notional (United Commercial Bank 240 ITR 355 (SC), Bank of Baroda 262 ITR 334 (Bom) & Karnataka Bank Ltd 356 ITR 549 (Kar) followed)


 Regards,

 

Editor,

 

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JCIT vs. Kalanithi Maran (Madras High Court)

S. 147: In view of the verdicts of the Supreme Court in GKN Driveshafts & Chhabil Dass Agarwal a s. 148 notice & order on objections cannot be challenged in a Writ Petition

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Three Important Judgements Of The Tribunal On Controversial Issues


 

 Dear Subscriber,

 

The following important judgements are available for download at itatonline.org.


Mithila Credit Services Ltd vs. ITO (ITAT Delhi)

S. 68: Primary burden is on AO to show that share application money is assessable as unexplained cash credit. AO cannot sit back with folded hands & simply reject assessee's evidences

(i) Even if the reopening is sustained, the primary burden that income has escaped assessment is on the shoulder of the AO and after discharging this burden only, the onus shifts to the shoulder of the assessee. There are two types of cases. One in which the AO carries out the exercise which is required in law and the other in which the AO 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. On facts, nothing has been brought on record by the AO to substantiate his serious allegation that these two entries are accommodation entries which was the sole ground and basis for reopening;


G.K. Consultants Limited vs. ITO (ITAT Delhi)

S. 147: Retracted statement cannot form the basis of reopening. Protective assessment without substantive assessment is not permissible

(ii) The AO has not made any specific allegations against the assessee. He intended to make a protective assessment on the assessee. However, while there can be a substantive assessment without any protective assessment, there cannot be a protective assessment/addition without a substantive assessment/addition. As no substantive assessment/addition was made in the hands of Subodh Gupta, the protective reassessment assessment on the assessee is not permissible (M.P. Ramachandaran 32 SOT 592 (Mum) & Suresh K Jajoo 39 SOT 514 (Mum) followed)


Reuters Transaction Services Ltd vs. DDIT (ITAT Mumbai)

Fee received for "foreign exchange deal matching system services" constitutes "royalty" under Article 12 of India-UK DTAA & s. 9(1)(vi)

The assessee is facilitating its clients to use its system and application programming interface which is subscriber interface for use with the related services including Auto quote service. The assessee is also providing the equipment with pre-loaded software to its subscribers and network used for provision of the services. The assessee grants subscribers limited license of software to install and use at the site. The said license can be sub-licensed by the subscriber. The subscriber/user can also view, manipulate and create the derived data from information for their individual use. Further the subscriber can Store information, manipulate information for its use and also distribute or redistribute information and Drive Data to anyone to a limited extent so far as it is not done in a systematic manner. The subscribers are allowed to use the information and even to manipulate and Drive the Data to anyone for their individual use. Thus it is clear that it is subscribers who are using the information and system of the assessee for their commercial/business purposes. The information is made available by the assessee through its system and other equipments installed at the site of the subscriber to facilitate the connectivity with the assessee's system/reuter located in Geneva. The platform of transacting the purchase and sale is commercial equipment allowed to be used by clients/ subscribers for commercial purposes. The nature of service rendered by the assessee includes the information concerning commercial use by the subscriber. Further the entire system of the assessee including the equipments and connectivity facility is provided at the site of the subscriber. Therefore, the assessee is providing the service in the form of information and solution to the need of the subscribers by providing the matching party. Also, the Indian subscribers have been granted a license to use the software for their internal business, which can be sub-licensed by them. The Indian clients are paying for use and right to use of equipment (scientific, commercial) along with software for which license was granted by assessee. It is not a case of simplicitor payment for access to the portal by use of normal computer and internal facility but the access is given only by use of computer system and software system provided by the Assessee under license. Accordingly, by allowing the use of software and computer system to have access to the portal of the assessee for finding relevant information and matching their request for purchase and sale of foreign exchange amount to imparting of information concerning technical, industrial, commercial or scientific equipment work and payment made in this respect constitutes royalty


Regards,

 

Editor,

 

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Transfers Of Hon'ble Members Of The ITAT (July 2014)

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Mere Admission Of Appeal By High Court Sufficient To Disbar s. 271(1)(c) Penalty: Bom High Court


 

 Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.


CIT vs. M/s Nayan Builders and Developers (Bombay High Court)

Mere admission of Appeal by High Court sufficient to disbar s. 271(1)(c) penalty

In quantum proceedings, the Tribunal upheld the addition of three items of income. The assessee filed an appeal to the High Court which was admitted. The AO levied penalty u/s 271(1)(c) in respect of the said three items. The penalty was upheld by the CIT (A). The Tribunal deleted the penalty on the ground that when the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied u/s 271(1) (c). It held that the admission of substantial question of law by the High Court lends credence to the bona fides of the assessee in claiming deduction. It added that once it turns out that the claim of the assessee could have been considered for deduction as per a person properly instructed in law and is not completely debarred at all, the mere fact of confirmation of disallowance would not per se lead to the imposition of penalty. On appeal by the department to the High Court HELD dismissing the appeal:

This Appeal cannot be entertained as it does not raise any substantial question of law. The imposition of penalty was found not to be justified and the Appeal was allowed. As a proof that the penalty was debatable and arguable issue, the Tribunal referred to the order on Assessee's Appeal in Quantum proceedings and the substantial questions of law which have been framed therein. We have also perused that order dated 27.09.2010 admitting Income Tax Appeal No.2368 of 2009. In our view, there was no case made out for imposition of penalty and the same was rightly set aside.

Note: The same view is taken in Liquid Investment (Delhi High Court). See also Wander 358 ITR 408 (Bom)

 Regards,

 

Editor,

 

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Latest

Mithila Credit Services Ltd vs. ITO (ITAT Delhi)

S. 68: Primary burden is on AO to show that share application money is assessable as unexplained cash credit. AO cannot sit back with folded hands & simply reject assessee's evidences

Thursday, July 17, 2014

ITR (TRIB) Volume 33 : Part 1 (Issue dated : 14-7-2014)

TR'S TRIBUNAL TAX REPORTS (ITR (TRIB))--PRINT AND ONLINE EDITION

 

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Business expenditure --Direction by Commissioner (Appeals) to Assessing Officer to allow deduction of all expenses--Assessing Officer disallowing research and development expenses without verification--Assessing Officer to examine allowabilty of research and development expenses--Matter remanded--Income-tax Act, 1961-- Assistant DIT (International Taxation) v. Nortel Networks India International Inc . (Delhi) . . . 1

Scientific research expenditure --Conditions precedent for grant of deduction--Expenditure must be for scientific research and must relate to business carried on by assessee--Assessee in business of developing vaccines and bio-pharmaceuticals--Assessee carrying out research in respect of molecules--Expenditure on interest on loans and cost of chemicals consumed--Business carried on by assessee not research and development--Expenditure incurred on interest payment and consumables before completion of product development and commercialisation of product to be treated as capital--Expenditure having nothing to do with scientific research but incurred for setting up facilities for commercial production of new product--Not eligible for deduction--Income-tax Act, 1961, s. 35(1)(i), (iv)-- Deputy CIT v.Bharat Biotech International Ltd. (Hyd) . . . 7

 

PRINT EDITION

Volume 33 : Part 1 (Issue dated : 14-7-2014)

SUBJECT INDEX TO CASES REPORTED

Business expenditure --Disallowance--Payments liable to deduction of tax at source--Management fee and royalty paid to foreign associated enterprises--Assessee deducting tax at 10 per cent of net amount--Failure to furnish details about deduction of tax at source and its resultant payment--Order set aside and matter remanded for decision afresh--Income-tax Act, 1961, s. 40(a)(ia)-- Deputy CIT v. Sergi Transformer Explosion Prevention P. Ltd . (Delhi) . . . 118

----Disallowance--Payments liable to deduction of tax at source--Payments to overseas institutions towards examination fees and course material--Evidence that fees paid towards study curriculum including teachers textbooks, teaching aids, associated marketing tools and materials--Failure by Department to prove payments as fees for technical services--Disallowance not justified--Income-tax Act, 1961, s. 40(a)(i)-- Assistant CIT v. Myrind School of Catering and Computer Management P. Ltd. (Chennai) . . . 138

----Disallowance--Unlawful expenditure--Deeming fiction--Distinction between cases where purpose of expenditure unlawful and cases where purpose lawful but procedural provisions not complied with--Payment of job-work charges by assessee-company to firm in which directors interested as partners--Not unlawful purpose--Failure to obtain prior approval of Central Government but approval obtained ex post facto--Payment cannot be disallowed--Income-tax Act, 1961, s. 37(1), Expln. --Companies Act, 1956, s. 297-- Jai Surgicals Ltd. v. Assistant CIT (Delhi) . . . 86

----Payment for obtaining no objection certificate and payment towards extension fees--Expenses incurred in normal course of business--Not penalty--Income-tax Act, 1961-- ITO v. Growel Energy Co. Ltd. (Mumbai) . . . 1

----Travelling and communication expenses--Commissioner (Appeals) considering details furnished by assessee and remand report and allowing expenditure--No interference--Deputy CIT v. Sergi Transformer Explosion Prevention P. Ltd. (Delhi) . . . 118

Business income or capital gains --Transaction between husband and wife--Husband and wife are separate entities for purposes of Act--No material to show that sale of property made by assessee not in nature of business transaction--Income from sale to be assessed as business income--Income-tax Act, 1961, s. 50C-- R. Bhoopathy v. Assistant CIT(Chennai) . . . 20

Capital gains --Short-term capital loss--Sale of motor car at price less than written down value--Assessee failing to give explanation--Claim of depreciation to be restricted--Income-tax Act, 1961, s. 50-- Assistant CIT (OSD) v. Sarkar Jewellers P. Ltd. (Ahmedabad) . . . 16

Capital or revenue expenditure --Expenditure incurred for repairs and maintenance of rented building--No part of expenditure show to be capital--Expenses allowable-- Assistant CIT (OSD) v. Sahitya Mundranalaya P. Ltd. (Ahmedabad) . . . 108

----Expenditure incurred on renovation and repairs to business premises taken on lease--No new asset--Expenditure revenue in nature--Income-tax Act, 1961, s. 37(1)-- Assistant CIT (OSD) v. Sarkar Jewellers P. Ltd. (Ahmedabad) . . . 16

----Expenditure incurred on replacement of old software and annual maintenance--Revenue expenditure--Income-tax Act, 1961, s. 37(1)-- Assistant CIT (OSD) v. Sarkar Jewellers P. Ltd. (Ahmedabad) . . . 16

----Purchase of software--Expenses incurred under fees and subscription--Expenditure not relating to software purchase--Fees and subscriptions are revenue in nature-- Deputy CIT v. Sergi Transformer Explosion Prevention P. Ltd. (Delhi) . . . 118

Cash credit --Share application money--Duly authorised person signing confirmation letter--Payments by cheque and permanent account number details on record--Section 68 not applicable--Income-tax Act, 1961, s. 68-- ITO v. Growel Energy Co. Ltd. (Mumbai) . . . 1

Charitable purpose --Exemption--Disqualification for exemption--Trustee holding shares in company to which contract for construction of school given--Whether shareholding substantial--Matter remanded--Income-tax Act, 1961, s. 11-- DIT (Exemption) v. Shree Nirman Foundation Charitable Trust (Ahmedabad) . . . 56

Deduction of tax at source --Salary or professional fee--Remuneration of consulting doctors--Appointment of doctors is contract for service and not contract of service--Service of doctor a professional service--No employer-employee relationship between assessee and professionals--Tax to be deducted at source from payment to doctors under section 196J not under section 192(1)--Assessee not in default--Income-tax Act, 1961, ss. 192(1), 196J, 201-- Assistant CIT v. Usha Mullapudi Cardiac Centre (Hyderabad) . . . 72

Depreciation --Goodwill--Depreciation allowable on goodwill-- Assistant CIT (OSD) v. Sahitya Mundranalaya P. Ltd. (Ahmedabad) . . . 108

Export --Exemption--Rejection of claim to deduction under section 10B--Alternate claim to deduction under section 10A made before Commissioner (Appeals)--Can be entertained--Matter remanded to Assessing Officer to decide according to law--Income-tax Act, 1961, s. 10A-- Cronos Consulting India P. Ltd. v. Assistant CIT (Cochin) . . . 33

Fringe benefits tax --Conveyance expenses--Assessee in production of computer software entitled to include only 5 per cent. of conveyance expenses to fringe benefits tax--Income-tax Act, 1961-- Deputy CIT v. Intelenet Global Services P. Ltd . (Mumbai) . . . 30

----Conveyance expenses of employees from residence to office and back--Exempt from fringe benefits tax--Income-tax Act, 1961--Circular No. 14 of 2006 dated 28.12.2006-- Deputy CIT v. Intelenet Global Services P. Ltd. (Mumbai) . . . 30

Housing project --Special deduction--No requirement to furnish completion certificate from local authority for housing project approved by competent authority prior to April 1, 2005--Claim allowable if assessee able to prove completion of housing project within prescribed period--Matter remanded--Income-tax Act, 1961, s. 80-IB(10)-- ITO v. Kura Homes P. Ltd.(Hyderabad) . . . 37

Income --Accrual--Assessee managing owner of shipping companies--Freight income--To be assessed in hands of companies--Not in hands of assessee--Income-tax Act, 1961--Assistant DIT (International Taxation) v. A. P. Moller (Mumbai) . . . 123

----Disallowance of expenditure in relation to exempt income--Dividend--Interest-free funds far in excess of investment made by assessee at year end --No disallowance--Income-tax Act, 1961, s. 14A--Income-tax Rules, 1962, r. 8D-- Assistant CIT (OSD) v. Sahitya Mundranalaya P. Ltd. (Ahmedabad) . . . 108

Interpretation of taxing statutes --Deeming fiction--Restricted to purpose expressly stated--Jai Surgicals Ltd. v. Assistant CIT (Delhi) . . . 86

Non-resident --Fees for technical services--Payment of management fee between two non-resident companies--Not taxable in India--Income-tax Act, 1961-- Assistant DIT (International Taxation) v. A. P. Moller (Mumbai) . . . 123

----Permanent establishment--Entire activities of business enterprise of assessee managing by subsidiary in India--Subsidiary acting as service provider, sale outlet provider co-operating with after sale service and providing assistance requested by assessee--Activities of subsidiary in India constitute permanent establishment of assessee--Double Taxation Avoidance Agreement between India and the U. S. A, art. 5-- Nortel Networks India International Inc. v. Assistant DIT, International Taxation (Delhi) . . . 97

----Permanent establishment--Profit attributable to permanent establishment--Substantial deduction allowed for general and marketing expenses and research and development expenses--Attribution of 50 per cent. to permanent establishment justified--Income-tax Act, 1961-- Nortel Networks India International Inc. v. Assistant DIT, International Taxation(Delhi) . . . 97

Penalty --Concealment of income or furnishing of inaccurate particulars--Assessee declaring long-term capital gains and claiming exemption thereof in return--Denial of claim by Department does not make assessee liable for penalty of concealment of income--Facts disclosed by assessee not found to be incorrect--Imposition of penalty not justified--Income-tax Act, 1961, s. 271(1)(c)-- AAA Portfolios P. Ltd. v. Deputy CIT (Delhi) . . . 23

Revision --Condition precedent--Order should be erroneous and also prejudicial to Revenue--Failure by Assessing Officer to mention in body of assessment order all issues on which enquiry made--Not indication of lack of enquiry or non-application of mind--Order not erroneous and prejudicial to interests of Revenue--Income-tax Act, 1961, s. 263-- Lanco Kondapalli Power Ltd. v. Joint CIT (Hyd) . . . 142

----Condition precedent--Order should be erroneous and also prejudicial to Revenue--Amount received on sale of carbon emission reduction certificates--Capital receipt--Assessing Officer treating it as revenue income and allowing special deduction thereon--No prejudice to Revenue--Jurisdiction under section 263 cannot be invoked--Income-tax Act, 1961, ss. 80-IA, 263-- Lanco Kondapalli Power Ltd. v. Joint CIT (Hyd) . . . 142

----Condition precedent--Order should be erroneous and also prejudicial to Revenue--Reimbursement of advance tax--Not income of assessee--Not able to consider under provisions of section 115JB--Condition for invoking jurisdiction under section 263 not satisfied--Income-tax Act, 1961, ss. 115JB, 263-- Lanco Kondapalli Power Ltd. v. Joint CIT(Hyd) . . . 142

----Condition precedent--Order should be erroneous and also prejudicial to Revenue--View taken by Assessing Officer appearing incorrect to Commissioner--Jurisdiction under section 263 cannot be invoked--Income-tax Act, 1961, s. 263-- Lanco Kondapalli Power Ltd. v. Joint CIT (Hyd) . . . 142

Special deduction --Industrial undertaking--Assessment made allowing deduction on basis of auditor’s report in form 10CCB in old format--Revised audit report filed pursuant to notice of rectification--Should be taken into cognizance for examining allowability of claim for deduction--Matter remanded--Income-tax Act, 1961, s. 80-IB-- Oswin Plastics P. Ltd. v. Deputy CIT (Mumbai) . . . 133

Undisclosed investment --Discrepancies in cash, gold, silver and diamonds--Addition not permissible merely on conjectures or surmises--Shortage in gold, silver and diamond items can be treated as undisclosed sales not undisclosed investments--Section 69A not attracted--Income-tax Act, 1961, s. 69A-- ITO v. Subhas Brothers Jewellers P. Ltd. (Kolkata) . . . 66

Unexplained expenditure --Expenditure on professional fees shown under head capital work-in-progress--Deduction not claimed as business expenditure--Sum cannot be brought to tax as unexplained expenditure--Income-tax Act, 1961, s. 69C-- ITO v. Growel Energy Co. Ltd. (Mumbai) . . . 1

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Companies Act, 1956

S. 297 --Business expenditure--Disallowance--Unlawful expenditure--Deeming fiction--Distinction between cases where purpose of expenditure unlawful and cases where purpose lawful but procedural provisions not complied with--Payment of job-work charges by assessee-company to firm in which directors interested as partners--Not unlawful purpose--Failure to obtain prior approval of Central Government but approval obtained ex post facto--Payment cannot be disallowed-- Jai Surgicals Ltd. v. Assistant CIT (Delhi) . . . 86

Double Taxation Avoidance Agreement between India and the U. S. A

Art. 5 --Non-resident--Permanent establishment--Entire activities of business enterprise of assessee managing by subsidiary in India--Subsidiary acting as service provider, sale outlet provider co-operating with after sale service and providing assistance requested by assessee--Activities of subsidiary in India constitute permanent establishment of assessee--Nortel Networks India International Inc. v. Assistant DIT, International Taxation (Delhi) . . . 97

Income-tax Act, 1961

S. 10A --Export--Exemption--Rejection of claim to deduction under section 10B--Alternate claim to deduction under section 10A made before Commissioner (Appeals)--Can be entertained--Matter remanded to Assessing Officer to decide according to law-- Cronos Consulting India P. Ltd. v. Assistant CIT (Cochin) . . . 33

S. 11 --Charitable purpose--Exemption--Disqualification for exemption--Trustee holding shares in company to which contract for construction of school given--Whether shareholding substantial--Matter remanded-- DIT (Exemption) v. Shree Nirman Foundation Charitable Trust (Ahmedabad) . . . 56

S. 14A --Income--Disallowance of expenditure in relation to exempt income--Dividend--Interest-free funds far in excess of investment made by assessee at year end --No disallowance-- Assistant CIT (OSD) v. Sahitya Mundranalaya P. Ltd. (Ahmedabad) . . . 108

S. 37(1) --Capital or revenue expenditure--Expenditure incurred on renovation and repairs to business premises taken on lease--No new asset--Expenditure revenue in nature-- Assistant CIT (OSD) v. Sarkar Jewellers P. Ltd. (Ahmedabad) . . . 16

----Capital or revenue expenditure--Expenditure incurred on replacement of old software and annual maintenance--Revenue expenditure-- Assistant CIT (OSD) v. Sarkar Jewellers P. Ltd. (Ahmedabad) . . . 16

S. 37(1), Expln. --Business expenditure--Disallowance--Unlawful expenditure--Deeming fiction--Distinction between cases where purpose of expenditure unlawful and cases where purpose lawful but procedural provisions not complied with--Payment of job-work charges by assessee-company to firm in which directors interested as partners--Not unlawful purpose--Failure to obtain prior approval of Central Government but approval obtained ex post facto--Payment cannot be disallowed-- Jai Surgicals Ltd. v. Assistant CIT (Delhi) . . . 86

S. 40(a)(i) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments to overseas institutions towards examination fees and course material--Evidence that fees paid towards study curriculum including teachers textbooks, teaching aids, associated marketing tools and materials--Failure by Department to prove payments as fees for technical services--Disallowance not justified-- Assistant CIT v. Myrind School of Catering and Computer Management P. Ltd. (Chennai) . . . 138

S. 40(a)(ia) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Management fee and royalty paid to foreign associated enterprises--Assessee deducting tax at 10 per cent of net amount--Failure to furnish details about deduction of tax at source and its resultant payment--Order set aside and matter remanded for decision afresh--Deputy CIT v. Sergi Transformer Explosion Prevention P. Ltd . (Delhi) . . . 118

S. 50 --Capital gains--Short-term capital loss--Sale of motor car at price less than written down value--Assessee failing to give explanation--Claim of depreciation to be restricted--Assistant CIT (OSD) v. Sarkar Jewellers P. Ltd. (Ahmedabad) . . . 16

S. 50C --Business income or capital gains--Transaction between husband and wife--Husband and wife are separate entities for purposes of Act--No material to show that sale of property made by assessee not in nature of business transaction--Income from sale to be assessed as business income-- R. Bhoopathy v. Assistant CIT (Chennai) . . . 20

S. 68 --Cash credit--Share application money--Duly authorised person signing confirmation letter--Payments by cheque and permanent account number details on record--Section 68 not applicable-- ITO v. Growel Energy Co. Ltd. (Mumbai) . . . 1

S. 69A --Undisclosed investment--Discrepancies in cash, gold, silver and diamonds--Addition not permissible merely on conjectures or surmises--Shortage in gold, silver and diamond items can be treated as undisclosed sales not undisclosed investments--Section 69A not attracted-- ITO v. Subhas Brothers Jewellers P. Ltd. (Kolkata) . . . 66

S. 69C --Unexplained expenditure--Expenditure on professional fees shown under head capital work-in-progress--Deduction not claimed as business expenditure--Sum cannot be brought to tax as unexplained expenditure-- ITO v. Growel Energy Co. Ltd. (Mumbai) . . . 1

S. 80-IA --Revision--Condition precedent--Order should be erroneous and also prejudicial to Revenue--Amount received on sale of carbon emission reduction certificates--Capital receipt--Assessing Officer treating it as revenue income and allowing special deduction thereon--No prejudice to Revenue--Jurisdiction under section 263 cannot be invoked-- Lanco Kondapalli Power Ltd. v. Joint CIT (Hyd) . . . 142

S. 80-IB --Special deduction--Industrial undertaking--Assessment made allowing deduction on basis of auditor’s report in form 10CCB in old format--Revised audit report filed pursuant to notice of rectification--Should be taken into cognizance for examining allowability of claim for deduction--Matter remanded-- Oswin Plastics P. Ltd. v. Deputy CIT (Mumbai) . . . 133

S. 80-IB(10) --Housing project--Special deduction--No requirement to furnish completion certificate from local authority for housing project approved by competent authority prior to April 1, 2005--Claim allowable if assessee able to prove completion of housing project within prescribed period--Matter remanded-- ITO v. Kura Homes P. Ltd. (Hyd) . . . 37

S. 115JB --Revision--Condition precedent--Order should be erroneous and also prejudicial to Revenue--Reimbursement of advance tax--Not income of assessee--Not able to consider under provisions of section 115JB--Condition for invoking jurisdiction under section 263 not satisfied-- Lanco Kondapalli Power Ltd. v. Joint CIT (Hyd) . . . 142

S. 192(1) --Deduction of tax at source--Salary or professional fee--Remuneration of consulting doctors--Appointment of doctors is contract for service and not contract of service--Service of doctor a professional service--No employer-employee relationship between assessee and professionals--Tax to be deducted at source from payment to doctors under section 196J not under section 192(1)--Assessee not in default-- Assistant CIT v. Usha Mullapudi Cardiac Centre (Hyd) . . . 72

S. 196J --Deduction of tax at source--Salary or professional fee--Remuneration of consulting doctors--Appointment of doctors is contract for service and not contract of service--Service of doctor a professional service--No employer-employee relationship between assessee and professionals--Tax to be deducted at source from payment to doctors under section 196J not under section 192(1)--Assessee not in default-- Assistant CIT v. Usha Mullapudi Cardiac Centre (Hyd) . . . 72

S. 201 --Deduction of tax at source--Salary or professional fee--Remuneration of consulting doctors--Appointment of doctors is contract for service and not contract of service--Service of doctor a professional service--No employer-employee relationship between assessee and professionals--Tax to be deducted at source from payment to doctors under section 196J not under section 192(1)--Assessee not in default-- Assistant CIT v. Usha Mullapudi Cardiac Centre (Hyd) . . . 72

S. 263 --Revision--Condition precedent--Order should be erroneous and also prejudicial to Revenue--Amount received on sale of carbon emission reduction certificates--Capital receipt--Assessing Officer treating it as revenue income and allowing special deduction thereon--No prejudice to Revenue--Jurisdiction under section 263 cannot be invoked-- Lanco Kondapalli Power Ltd. v. Joint CIT (Hyd) . . . 142

----Revision--Condition precedent--Order should be erroneous and also prejudicial to Revenue--Failure by Assessing Officer to mention in body of assessment order all issues on which enquiry made--Not indication of lack of enquiry or non-application of mind--Order not erroneous and prejudicial to interests of Revenue-- Lanco Kondapalli Power Ltd. v. Joint CIT(Hyd) . . . 142

----Revision--Condition precedent--Order should be erroneous and also prejudicial to Revenue--Reimbursement of advance tax--Not income of assessee--Not able to consider under provisions of section 115JB--Condition for invoking jurisdiction under section 263 not satisfied-- Lanco Kondapalli Power Ltd. v. Joint CIT (Hyd) . . . 142

----Revision--Condition precedent--Order should be erroneous and also prejudicial to Revenue--View taken by Assessing Officer appearing incorrect to Commissioner--Jurisdiction under section 263 cannot be invoked-- Lanco Kondapalli Power Ltd. v. Joint CIT(Hyd) . . . 142

S. 271(1)(c) --Penalty--Concealment of income or furnishing of inaccurate particulars--Assessee declaring long-term capital gains and claiming exemption thereof in return--Denial of claim by Department does not make assessee liable for penalty of concealment of income--Facts disclosed by assessee not found to be incorrect--Imposition of penalty not justified--AAA Portfolios P. Ltd. v. Deputy CIT (Delhi) . . . 23

Income-tax Rules, 1962

R. 8D --Income--Disallowance of expenditure in relation to exempt income--Dividend--Interest-free funds far in excess of investment made by assessee at year end --No disallowance-- Assistant CIT (OSD) v. Sahitya Mundranalaya P. Ltd. (Ahmedabad) . . . 108

 

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Monday, July 14, 2014

Four Important Judgements Of The Bombay High Court And Kol ITAT

 

 Dear Subscriber,

 

The following important judgements are available for download at itatonline.org.


CIT vs. Devdas Naik (Bombay High Court)

S. 54/54F: Two flats, even though acquired under different agreements & from different sellers, are one residential unit if there is a common kitchen

The department's argument that the law laid down by the Tribunal in ITO v/s Sushila M. Jhaveri 107 ITD 327 (Mum)(SB) and confirmed by this Court in CIT v/s Raman Kumar Suri (Income Tax Appeal No.6962 of 2010, decided on 27.11. 2012) on the availability of exemption u/s 54 is applicable only when the house purchased is a single unit and not where two flats, one acquired in the assessee's name and another jointly in the names of the assessee and his wife but under two distinct agreements and from different sellers have been taken into consideration is not acceptable. Though these flats were acquired under two distinct agreements and from different sellers, the map of the general layout plan as well as internal layout plan in regard to flat Nos.103 and 104 indicate that there is only one common kitchen for both the flats. The flats were constructed in such a way that adjacent units or flats can be combined into one. The admitted fact is that the flats were converted into one unit and for the purpose of residence of the assessee. Thus, though the acquisition of the flats may have been done independently but eventually they are a single unit and house for the purpose of residence


DIT (IT) vs. Mahindra & Mahindra Limited (Bombay High Court)

S. 201 TDS: Even if the statute does not lay down a time limit, proceedings must be completed within a limited period

S. 201 of the Act does not prescribe any limitation period for the assessee being declared as an assessee in default. If no period of limitation is prescribed, a statutory authority must exercise its jurisdiction within a reasonable period. What should be the reasonable period depends upon the nature of the statute, rights and liabilities thereunder and other relevant factors. Insofar as the IncomeTax Act is concerned, s. 153(1)(a) prescribes the time limit for completing the assessment, which is two years from the end of the assessment year in which the income was first assessable. It is well known that the assessment year follows the previous year and, therefore, the time limit would be three years from the end of the financial year. This seems to be a reasonable period as accepted u/s 153 of the Act, though for completion of assessment proceedings. Even though the period of three years would be a reasonable period as prescribed by s. 153 of the Act for completion of proceedings, the Income Tax Appellate Tribunal has taken the view that four years would be a reasonable period of time for initiating action, in a case where no limitation is prescribed. The rationale for this seems to be quite clear if there is a time limit for completing the assessment, then the time limit for initiating the proceedings must be the same, if not less. Nevertheless, the Tribunal has given a greater period for commencement or initiation of proceedings (NHK Japan Broadcasting Corp 305 ITR 137 (Del) & Hutchison Essar Telecom323 ITR 230 (Del) followed; Bhura Exports (Cal HC) dissented from)

 

Shreenath Motors Pvt. Ltd vs. CIT (Bombay High Court)

S. 37(1): Expenditure on education of director is personal expenses & not allowable deduction. Assessee mto pay costs of Rs. 50,000 to dept

The expenditure incurred for the education of the Director of the assessee viz. Mr Krishna Kachalia was out of personal consideration and not commercial consideration. The judgement in Sakal Papers 114 ITR 256 (Bom) has been considered in D.C. Mehta v/s. ITO (Income Tax Appeal No.840 of 2012). In that case, the assessee, Mr. D. C. Mehta, an Advocate by profession claimed a deduction of Rs.22L as expenditure incurred for higher education for his daughter, Hemali. The justification for the said deduction was that she joined the Appellant's firm of Advocates and gave an undertaking that on attaining higher qualification and degree from the University abroad, she would join the firm for a minimum period of five years and thus, the said expenditure was incurred for the business of the assessee and was allowable as a deduction. It was found that the daughter Hemali joined the assessee and immediately was sent for education abroad. The assessee had not been able to bring on record anything and particularly the scheme for higher education abroad for employees and associates. Despite other associate Advocates working in the firm of the Assessee, none were given an opportunity to go abroad for higher education despite the fact that some were working with him for the last 15 years. Despite the aforesaid, within a period of two to three months, after the daughter Hemali became an Advocate and joined the firm as an Associate, she went abroad. In this view of the matter, the Division Bench upheld the contention of the authorities below in disallowing the deduction. The judgment in Sakal Papers must be seen in the peculiar facts and background and the cumulative impact of all events & circumstances must be seen. Only because there was no commitment or contract or bond taken from the trainee, the expenditure cannot be disallowed to the assessee, particularly when as a result of that expenditure, the trainee had secured both, a degree and training which would be of assistance to the assessee Company. The facts of the present case are totally different from that of Sakal Papers and almost identical to that in D. C. Mehta's case (Chandulal Keshavlal 38 ITR 601 (SC), S.A. Builders 288 ITR 1 (SC) distinguished). The assessee to pay costs of Rs.50,000 to the Respondents


Mohan Kant Bansal vs. ITO (ITAT Kolkata)

CPC hauled up for harassing assessee by imposing tax of 60% on LTCG & refusing to rectify

In the entire Income-tax Act, there is no provision charging a tax rate of 60% on long term capital gains. The Delhi High Court has issued remedial directions to improve hardships faced by tax payers while processing the e-returns at CPC, Bangalore. The Court has discussed the background that in order to fasten the processing of returns, the revenue has introduced electronic filing of income tax returns, TDS returns, e-tax payments and it operates Centralised Processing Centre (CPC) at Bangalore. This is manned by Higher Ranking Officers of Income Tax Department. The problem is faced by tax payers, when demand is raised or refund reduced on account of either suo motu adjustment by the Income Tax Department and refund against tax demands or mismatch of TDS credit or any other adjustment or disallowance of claim made by tax payer in the return and uploaded by the assessee in its e-returns. This is a general grievance among the tax payers that the AOs do not adhere to the time limit specified for the disposal of rectification applications and tax payers are invariably called upon to file duplicate application or new application. Further, no record or no receipt counters or registers for receipt of such applications are maintained. Thus, there is no record/register remained with the AO with details or particulars of rectification application made u/s. 154 of the Act as is evident from the present case. Similar directions were issued by the Delhi High Court in the case of its own motion Vs. CIT, WP(C) No. 2659/2012 dated 14.03.2013. The Delhi High Court vide para 18 has issued dictum as under: "18. Each application under Section 154 has to be disposed of and decided by a speaking order. This is the mandate of the Act. The order has to be communicated to the assessee and there is a relevant column to be filled in the register, which is now required to be maintained. The Board should issue specific directions to ensure that there is full compliance of the said requirements and directions by the Assessing Officers, Dak counters and Aayakar Sewa Kendras. This is the first mandamus or direction we have issued in the present judgment". As the facts in the present case are very clear that charging of long term capital gain can only be @ 20% in assessment year 2011-12 and not @ 60% as charged in intimation u/s 143(1) of the Act by CPC, Bangalore which according to the provisions of the Income Tax Act is not legal. Hence, we quash the intimation and appeal of assessee is allowed. The jurisdictional AO is directed to amend the intimation issued by CPC, Bangalore, while giving appeal effect to this order.


  Regards,

 

Editor,

 

itatonline.org

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