INCOME TAX REPORTS (ITR)
CA.RAJU SHAH
Volume 333 : Part 3 (Issue dated 9-5-2011)
Appeal to Appellate Tribunal --Notice--Service of notice--Assessee intimating change of address--Notice informing date of hearing sent to old address and returned with endorsement addressee not found--Appeal dismissed for absence of assessee--Breach of natural justice--Order dismissing appeal to be set aside--Matter remanded--Income-tax Act, 1961-- Jagjivandas Nandlal and Co. v. ITAT (Bom) . . . 374
----Powers of Tribunal--Question whether sales were genuine considered by Assessing Officer and Commissioner (Appeals)--Tribunal could not reduce sale price--Income-tax Act, 1961, s. 254-- S. A. Rahim v. CIT (AP) . . . 379
Assessment --Best judgment assessment--Notice under section 148--Opportunity given to assessee to file objections and time therefore extended--Failure to produce material particulars--Best judgment assessment not void ab initio--Income-tax Act, 1961, s. 144-- V. Lakshmi Reddy v. ITO (Mad) . . . 359
----Special audit--Scope of section 142(2A)--Assessing Officer has power to specify period for audit report--Assessing Officer can extend period on request by auditor--Income-tax Act, 1961, s. 142(2A)-- CIT v. Popular Automobiles (Ker) . . . 308
Business expenditure --Deduction only an actual payment--Law applicable--Proviso to section 43B applicable with retrospective effect--Sales tax collected in March 1985 and paid in April 1985--Amount was deductible--Income-tax Act, 1961, s. 43B-- CIT v. P. Glass Works (All) . . . 355
Capital gains --Computation--Expenditure incurred for rectifying defects in title to property and removing encumbrance to transfer--Assessee failing to raise issue before Tribunal--Question of law--Assessee to be given an opportunity to substantiate claim--Matter remanded--Income-tax Act, 1961, s. 48-- V. Lakshmi Reddy v. ITO (Mad) . . . 359
Capital or revenue receipt --Incentives scheme formulated by Central Government for Jammu and Kashmir to accelerate industrial development, generate employment and create opportunities for self-employment--Purpose in public interest--Excise duty refund and interest subsidy--Capital receipt--Income-tax Act, 1961, s. 80-IB-- Shree Balaji Alloys v. CIT (J&K) . . . 335
Depreciation --Actual cost--Government subsidy not part of actual cost--Income-tax Act, 1961-- CIT v. P. Glass Works (All) . . . 355
----Rate of depreciation--Generator--Not entitled to depreciation at 20 per cent.--No dispute regarding depreciation at 15 per cent. allowed by Assessing Officer--Rate could not be reduced by High Court--Income-tax Act, 1961, s. 256-- CIT v. P. Glass Works (All) . . . 355
Exemption --Educational institution--Condition precedent--No investment of funds other than those prescribed in section 11(5) for previous three years--Investment in chit fund in accounting year preceding assessment year for which exemption sought--Denial of exemption for assessment year--Justified--Income-tax Act, 1961, ss. 10(23C)(vi), 11(5)-- Priyadarshini Educational Academy v. Director General of Income-tax (Investigation) (AP) . . . 347
Housing project --Special deduction under section 80-IB(10)--Law applicable--Restriction inserted with effect from 1-4-2005 as to permissible limit of commercial use in project--Not retrospective--Housing project approved by local authority having residential and commercial units--Prior to 1-4-2005 entire profits entitled to special deduction under section 80-IB--Income-tax Act, 1961, s. 80-IB-- CIT v. Brahma Associates (Bom) . . . 289
Income --Business income--Investment company taking loan and investing for long-term in shares--No communication and no claim for many years by lender and unsecured loan written back--Remission of liability--No deduction claimed in respect of loan--Not income--Income-tax Act, 1961, s. 41(1)-- Logitronics P. Ltd. v. CIT (Delhi) . . . 386
----Business income--Waiver of loan taken by assessee for business activity--Assessable as business income--Income-tax Act, 1961, ss. 2(24), 28(iv), 41(1)-- Logitronics P. Ltd . v. CIT (Delhi) . . . 386
Industrial undertaking --Special deduction under section 80-IB--Assessee not claiming deduction for initial years--Does not disentitle assessee to claim benefit for remaining years if conditions are satisfied--Income-tax Act, 1961, s. 80-IB-- Praveen Soni v. CIT (Delhi) . . . 324
----Special deduction under section 80-IB--Registration under Industries (Development and Regulation) Act, 1951 not a condition for treating assessee as small scale industrial undertaking--Assessee fulfilling eligibility conditions stipulated in notification issued under section 11B of 1951 Act--Assessee entitled to benefit under section 80-IB--Income-tax Act, 1961, s. 80-IB--Industries (Development and Regulation) Act, 1951, s. 11B--Notification dated 10-12-1997-- Praveen Soni v. CIT (Delhi) . . . 324
Loss --Speculation business--Law applicable--Effect of amendment of section 73 by Taxation Laws (Amendment) Act 1975--Business of company consisting of purchase and sale of shares--Company deemed to be carrying on speculation business--No transaction of purchase and sale of shares in accounting year--Loss in book value of shares constitutes loss in speculation business--Income-tax Act, 1961, s. 73-- Prasad Agents (P.) Ltd . v. ITO (Bom) . . . 275
Precedent --Effect of decisions of Supreme Court in Allied Motors P. Ltd. v. CIT [1997] 224 ITR 677 and CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830-- CIT v. P. Glass Works (All) . . . 355
Presumptive tax --Foreign company engaged in turnkey projects--Deemed profit and gains--Section 44BBB applicable--Income-tax Act, 1961, s. 44BBB-- DIT v. DSD Noell GmbH (Delhi) . . . 304
Reassessment --Notice after four years--Conditions precedent--Failure to disclose material facts necessary for assessment--Income allegedly escaping assessment should not be subject-matter of appeal, reference or revision--No failure to disclose material facts necessary for assessment--Income allegedly escaping assessment subject-matter of appeal--Reassessment proceedings--Not valid--Income-tax Act, 1961, s. 147-- Pra-shant Projects Ltd . v. Asst. CIT (Bom) . . . 368
Search and seizure --Block assessment--Assessment of third person--Search in premises of managing partner--Same Assessing Officer having jurisdiction over managing partner and firm--Notice to firm under section 158BD read with 158BC--Assessing Officer need not record reasons--Block assessment of firm valid--Income-tax Act, 1961, ss. 158BC, 158BD-- CIT v. Panchajanyam Management Agencies and Services (Ker) . . . 281
----Block assessment--Block assessment of third person--Conditions precedent--Satisfaction of Assessing Officer that undisclosed income discovered during search belonged to third person--Satisfaction must be recorded--Finding regarding undisclosed income must be based on books or documents recovered in search--No satisfaction recorded--Mere statement of third person--Proceedings under section 158BD--Not valid--Income-tax Act, 1961, s. 158BD-- CIT v. Raj Pal Bhatia (Late) (Delhi) . . . 315
----Conditions precedent--Reasons for search--Assessee, a unit in special economic zone--Prima facie case made out against search--Assessee entitled to know reasons for search--Income-tax Act, 1961, s. 132-- MD Overseas Ltd . v. Director General of Income-tax (All) . . . 407
----Information regarding search--Right to Information Act not applicable--Income-tax Act, 1961, s. 132--Right to Information Act, 2005-- MD Overseas Ltd . v. Director General of Income-tax (All) . . . 407
----Jurisdiction to authorise search--Assessee having several businesses elsewhere and a warehouse in Noida--Director of Income-tax, Kanpur had jurisdiction to authorise search--Income-tax Act, 1961, s. 132-- MD Overseas Ltd. v. Director General of Income-tax (All) . . . 407
----Special Economic Zones Act--Law applicable--Search in SEZ area in September 2009--Section 22 of SEZ Act not applicable--Income-tax Act, 1961, s. 132--Special Economic Zones Act, 2005, s. 22-- MD Overseas Ltd. v. Director General of Income-tax (All) . . . 407
S. 2(24) --Income--Business income--Waiver of loan taken by assessee for business activity--Assessable as business income-- Logitronics P. Ltd . v. CIT (Delhi) . . . 386
S. 10(23C)(vi) --Exemption--Educational institution--Condition precedent--No investment of funds other than those prescribed in section 11(5) for previous three years--Investment in chit fund in accounting year preceding assessment year for which exemption sought--Denial of exemption for assessment year--Justified-- Priyadarshini Educational Academy v. Director General of Income-tax (Investigation) (AP) . . . 347
S. 11(5) --Exemption--Educational institution--Condition precedent--No investment of funds other than those prescribed in section 11(5) for previous three years--Investment in chit fund in accounting year preceding assessment year for which exemption sought--Denial of exemption for assessment year--Justified-- Priyadarshini Educational Academy v. Director General of Income-tax (Investigation) (AP) . . . 347
S. 28(iv) --Income--Business income--Waiver of loan taken by assessee for business activity--Assessable as business income-- Logitronics P. Ltd . v. CIT (Delhi) . . . 386
S. 41(1) --Income--Business income--Investment company taking loan and investing for long-term in shares--No communication and no claim for many years by lender and unsecured loan written back--Remission of liability--No deduction claimed in respect of loan--Not income-- Logitronics P. Ltd. v. CIT (Delhi) . . . 386
----Income--Business income--Waiver of loan taken by assessee for business activity--Assessable as business income-- Logitronics P. Ltd . v. CIT (Delhi) . . . 386
S. 43B --Business expenditure--Deduction only an actual payment--Law applicable--Proviso to section 43B applicable with retrospective effect--Sales tax collected in March 1985 and paid in April 1985--Amount was deductible-- CIT v. P. Glass Works (All) . . . 355
S. 44BBB --Presumptive tax--Foreign company engaged in turnkey projects--Deemed profit and gains--Section 44BBB applicable-- DIT v. DSD Noell GmbH (Delhi) . . . 304
S. 48 --Capital gains--Computation--Expenditure incurred for rectifying defects in title to property and removing encumbrance to transfer--Assessee failing to raise issue before Tribunal--Question of law--Assessee to be given an opportunity to substantiate claim--Matter remanded-- V. Lakshmi Reddy v. ITO (Mad) . . . 359
S. 73 --Loss--Speculation business--Law applicable--Effect of amendment of section 73 by Taxation Laws (Amendment) Act 1975--Business of company consisting of purchase and sale of shares--Company deemed to be carrying on speculation business--No transaction of purchase and sale of shares in accounting year--Loss in book value of shares constitutes loss in speculation business-- Prasad Agents (P.) Ltd . v. ITO (Bom) . . . 275
S. 80-IB --Capital or revenue receipt--Incentives scheme formulated by Central Government for Jammu and Kashmir to accelerate industrial development, generate employment and create opportunities for self-employment--Purpose in public interest--Excise duty refund and interest subsidy--Capital receipt-- Shree Balaji Alloys v. CIT (J&K) . . . 335
----Housing project--Special deduction under section 80-IB(10)--Law applicable--Restriction inserted with effect from 1-4-2005 as to permissible limit of commercial use in project--Not retrospective--Housing project approved by local authority having residential and commercial units--Prior to 1-4-2005 entire profits entitled to special deduction under section 80-IB-- CIT v. Brahma Associates (Bom) . . . 289
----Industrial undertaking--Special deduction under section 80-IB--Assessee not claiming deduction for initial years--Does not disentitle assessee to claim benefit for remaining years if conditions are satisfied-- Praveen Soni v. CIT (Delhi) . . . 324
----Industrial undertaking--Special deduction under section 80-IB--Registration under Industries (Development and Regulation) Act, 1951 not a condition for treating assessee as small scale industrial undertaking--Assessee fulfilling eligibility conditions stipulated in notification issued under section 11B of 1951 Act--Assessee entitled to benefit under section 80-IB--Notification dated 10-12-1997-- Praveen Soni v. CIT (Delhi) . . . 324
S. 132 --Search and seizure--Conditions precedent--Reasons for search--Assessee, a unit in special economic zone--Prima facie case made out against search--Assessee entitled to know reasons for search-- MD Overseas Ltd . v. Director General of Income-tax (All) . . . 407
----Search and seizure--Information regarding search--Right to Information Act not applicable-- MD Overseas Ltd . v. Director General of Income-tax (All) . . . 407
----Search and seizure--Jurisdiction to authorise search--Assessee having several businesses elsewhere and a warehouse in Noida--Director of Income-tax, Kanpur had jurisdiction to authorise search-- MD Overseas Ltd. v. Director General of Income-tax (All) . . . 407
----Search and seizure--Special Economic Zones Act--Law applicable--Search in SEZ area in September 2009--Section 22 of SEZ Act not applicable-- MD Overseas Ltd. v. Director General of Income-tax (All) . . . 407
S. 142(2A) --Assessment--Special audit--Scope of section 142(2A)--Assessing Officer has power to specify period for audit report--Assessing Officer can extend period on request by auditor-- CIT v. Popular Automobiles (Ker) . . . 308
S. 144 --Assessment--Best judgment assessment--Notice under section 148--Opportunity given to assessee to file objections and time therefore extended--Failure to produce material particulars--Best judgment assessment not void ab initio-- V. Lakshmi Reddy v. ITO (Mad) . . . 359
S. 147 --Reassessment--Notice after four years--Conditions precedent--Failure to disclose material facts necessary for assessment--Income allegedly escaping assessment should not be subject-matter of appeal, reference or revision--No failure to disclose material facts necessary for assessment--Income allegedly escaping assessment subject-matter of appeal--Reassessment proceedings--Not valid-- Prashant Projects Ltd . v. Asst. CIT (Bom) . . . 368
S. 158BC --Search and seizure--Block assessment--Assessment of third person--Search in premises of managing partner--Same Assessing Officer having jurisdiction over managing partner and firm--Notice to firm under section 158BD read with 158BC--Assessing Officer need not record reasons--Block assessment of firm valid-- CIT v. Panchajanyam Management Agencies and Services (Ker) . . . 281
S. 158BD --Search and seizure--Block assessment--Assessment of third person--Search in premises of managing partner--Same Assessing Officer having jurisdiction over managing partner and firm--Notice to firm under section 158BD read with 158BC--Assessing Officer need not record reasons--Block assessment of firm valid-- CIT v. Panchajanyam Management Agencies and Services (Ker) . . . 281
----Search and seizure--Block assessment--Block assessment of third person--Conditions precedent--Satisfaction of Assessing Officer that undisclosed income discovered during search belonged to third person--Satisfaction must be recorded--Finding regarding undisclosed income must be based on books or documents recovered in search--No satisfaction recorded--Mere statement of third person--Proceedings under section 158BD--Not valid-- CIT v. Raj Pal Bhatia (Late) (Delhi) . . . 315
S. 254 --Appeal to Appellate Tribunal--Powers of Tribunal--Question whether sales were genuine considered by Assessing Officer and Commissioner (Appeals)--Tribunal could not reduce sale price-- S. A. Rahim v. CIT (AP) . . . 379
S. 256 --Depreciation--Rate of depreciation--Generator--Not entitled to depreciation at 20 per cent.--No dispute regarding depreciation at 15 per cent. allowed by Assessing Officer--Rate could not be reduced by High Court-- CIT v. P. Glass Works (All) . . . 355
S. 11B --Industrial undertaking--Special deduction under section 80-IB--Registration under Industries (Development and Regulation) Act, 1951 not a condition for treating assessee as small scale industrial undertaking--Assessee fulfilling eligibility conditions stipulated in notification issued under section 11B of 1951 Act--Assessee entitled to benefit under section 80-IB--Notification dated 10-12-1997-- Praveen Soni v. CIT (Delhi) . . . 324
S. 22 --Search and seizure--Special Economic Zones Act--Law applicable--Search in SEZ area in September 2009--Section 22 of SEZ Act not applicable-- MD Overseas Ltd. v. Director General of Income-tax (All) . . . 407
Business expenditure --Administrative expenses--Matter remanded-- Deputy CIT v. Tata Sons Ltd. (Mumbai) . . . 154
----Overseas taxes paid by assessee--Income-tax paid abroad entitled to relief under section 90/91--Cannot be allowed as deduction under section 37--Income-tax Act, 1961, ss. 37, 40(a)(ii), 90, 91-- Deputy CIT v. Tata Sons Ltd. (Mumbai) . . . 154
Capital gains --Computation of capital gains--Exemption--Effect of section 50C and exemption provision--Gains to be computed under section 48 and fiction under section 50C to be taken into account--Exemption to be calculated without taking into consideration fiction under section 50C--Income-tax Act, 1961, ss. 45, 48, 50C, 54F--Circular No. 8, dated 27-8-2002-- Gouli Mahadevappa v. ITO (Bangalore) . . . 129
Deduction of tax at source --"Rent"--Definition--Not to be construed ejusdem generis--Emphasis on use of asset--No requirement of transfer of asset--Income-tax Act, 1961, s. 194-I, Expln. (i) -- Vodafone Essar Ltd. v. Deputy CIT (TDS) (Mumbai) . . . 182
----Assessee not in default where payees have brought income in question in computation of their income--Burden of proof--Assessee providing permanent account numbers of payees and confirmation letters from some of them--Treatment of assessee as in default placing burden of proof wholly on it--Not reasonable--Assessing Officer to verify payment of tax by payees--Income-tax Act, 1961, s. 201-- Vodafone Essar Ltd. v. Deputy CIT (TDS) (Mumbai) . . . 182
----Mobile telephone service provider--Payment to other mobile telephone service providers for national roaming facility--Whether payment for technical services--Matter remanded--Income-tax Act, 1961, s. 194J-- Vodafone Essar Ltd. v. Deputy CIT (TDS) (Mumbai) . . . 182
----Rent--Mobile telephone service provider--Payment to other mobile telephone service providers for national roaming facility--Not a payment for use of equipment--Income-tax Act, 1961, s. 194-I-- Vodafone Essar Ltd. v. Deputy CIT (TDS) (Mumbai) . . . 182
Depreciation --Actual cost--Cement units acquired by assessee in open tender--Cost of fixed assets adopted by assessee on basis of registered valuer's report--No evidence transaction a collusive one or to reduce tax liability--No clause in agreement for payment of goodwill--Difference between amount adopted by assessee and amount shown in books of seller treated as payment of goodwill--Not justified--Assessee entitled to depreciation--Income-tax Act, 1961, ss. 32, 43(1), Expln. 3 -- Lafarge India Ltd. v. Deputy CIT (Mumbai) . . . 118
Interpretation of taxing statutes --Rule of ejusdem generis-- Vodafone Essar Ltd. v. Deputy CIT (TDS) (Mumbai) . . . 182
S. 32 --Depreciation--Actual cost--Cement units acquired by assessee in open tender --Cost of fixed assets adopted by assessee on basis of registered valuer's report--No evidence transaction a collusive one or to reduce tax liability--No clause in agreement for payment of goodwill--Difference between amount adopted by assessee and amount shown in books of seller treated as payment of goodwill--Not justified--Assessee entitled to depreciation-- Lafarge India Ltd. v. Deputy CIT (Mumbai) . . . 118
S. 37 --Business expenditure--Overseas taxes paid by assessee--Income-tax paid abroad entitled to relief under section 90/91--Cannot be allowed as deduction under section 37-- Deputy CIT v. Tata Sons Ltd. (Mumbai) . . . 154
S. 40(a)(ii) --Business expenditure--Overseas taxes paid by assessee--Income-tax paid abroad entitled to relief under section 90/91--Cannot be allowed as deduction under section 37-- Deputy CIT v. Tata Sons Ltd. (Mumbai) . . . 154
S. 43(1), Expln. 3 --Depreciation--Actual cost--Cement units acquired by assessee in open tender--Cost of fixed assets adopted by assessee on basis of registered valuer's report--No evidence transaction a collusive one or to reduce tax liability--No clause in agreement for payment of goodwill--Difference between amount adopted by assessee and amount shown in books of seller treated as payment of goodwill--Not justified--Assessee entitled to depreciation-- Lafarge India Ltd. v. Deputy CIT (Mumbai) . . . 118
S. 45 --Capital gains--Computation of capital gains--Exemption--Effect of section 50C and exemption provision--Gains to be computed under section 48 and fiction under section 50C to be taken into account--Exemption to be calculated without taking into consideration fiction under section 50C--Circular No. 8, dated 27-8-2002-- Gouli Mahadevappa v. ITO (Bangalore) . . . 129
S. 48 --Capital gains--Computation of capital gains--Exemption--Effect of section 50C and exemption provision--Gains to be computed under section 48 and fiction under section 50C to be taken into account--Exemption to be calculated without taking into consideration fiction under section 50C--Circular No. 8, dated 27-8-2002-- Gouli Mahadevappa v. ITO (Bangalore) . . . 129
S. 50C --Capital gains--Computation of capital gains--Exemption--Effect of section 50C and exemption provision--Gains to be computed under section 48 and fiction under section 50C to be taken into account--Exemption to be calculated without taking into consideration fiction under section 50C--Circular No. 8, dated 27-8-2002-- Gouli Mahadevappa v. ITO (Bangalore) . . . 129
S. 54F --Capital gains--Computation of capital gains--Exemption--Effect of section 50C and exemption provision--Gains to be computed under section 48 and fiction under section 50C to be taken into account--Exemption to be calculated without taking into consideration fiction under section 50C--Circular No. 8, dated 27-8-2002-- Gouli Mahadevappa v. ITO (Bangalore) . . . 129
S. 90 --Business expenditure--Overseas taxes paid by assessee--Income-tax paid abroad entitled to relief under section 90/91--Cannot be allowed as deduction under section 37-- Deputy CIT v. Tata Sons Ltd. (Mumbai) . . . 154
S. 91 --Business expenditure--Overseas taxes paid by assessee--Income-tax paid abroad entitled to relief under section 90/91--Cannot be allowed as deduction under section 37-- Deputy CIT v. Tata Sons Ltd. (Mumbai) . . . 154
S. 194-I --Deduction of tax at source--Rent--Mobile telephone service provider--Payment to other mobile telephone service providers for national roaming facility--Not a payment for use of equipment-- Vodafone Essar Ltd. v. Deputy CIT (TDS) (Mumbai) . . . 182
S. 194-I, Expln. (i) --Deduction of tax at source--"Rent"--Definition--Not to be construed ejusdem generis--Emphasis on use of asset--No requirement of transfer of asset-- Vodafone Essar Ltd. v. Deputy CIT (TDS) (Mumbai) . . . 182
S. 194J --Deduction of tax at source--Mobile telephone service provider--Payment to other mobile telephone service providers for national roaming facility--Whether payment for technical services--Matter remanded-- Vodafone Essar Ltd. v. Deputy CIT (TDS) (Mumbai) . . . 182
S. 201 --Deduction of tax at source--Assessee not in default where payees have brought income in question in computation of their income--Burden of proof--Assessee providing permanent account numbers of payees and confirmation letters from some of them--Treatment of assessee as in default placing burden of proof wholly on it--Not reasonable--Assessing Officer to verify payment of tax by payees-- Vodafone Essar Ltd. v. Deputy CIT (TDS) (Mumbai) . . . 182
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