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Friday, January 16, 2015

ITR Volume 370 : Part 2 (Issue dated : 12-1-2015)

INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION

PRINT EDITION

ITR Volume 370 : Part 2 (Issue dated : 12-1-2015)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Search and seizure --Warrant of authorisation--Validity--Reason to believe existence of undisclosed assets--Writ--High Court--Can scrutinise file to find whether authority has appropriately recorded reasons for forming opinion--High Court without calling for file concluding warrant of authorisation issued without reason--Not sustainable--Matter remanded for decision afresh--Income-tax Act, 1961, s. 132(1)-- Union of India v. Agarwal Iron Industries . . . 180

HIGH COURTS

Accounting --Business of precious and semi-precious stones--What should be a reasonable profit on account of trading transactions--Question of fact--Rejection of accounts--Assessee recording bogus purchases and opening and closing stocks not capable of verification in books--Application of higher gross profit rate justified--Income-tax Act, 1961, s. 145(3)-- Vimal Singhvi v. Asst. CIT (Raj) . . . 275

Assessment --Amalgamation of companies--Effect--Amalgamating company ceases to exist--Order of assessment on amalgamating company--Not valid--Not a procedural irregularity to be cured by section 292B--Income-tax Act, 1961, ss. 170, 176, 292B-- CIT v. Dimension Apparels P. Ltd. (Delhi) . . . 288

Business --Capital gains--Adventure in the nature of trade--Assessee acquiring right to sell property--No intention to hold property--Sale of property subsequently--Transaction constituted adventure in the nature of trade--Gains assessable as business income--Income-tax Act, 1961, ss. 28, 45-- CIT v. Shahrooq Ali Khan (Karn) . . . 246

Business expenditure --Capital or revenue expenditure--Expenses incurred on transmission lines and contribution paid to State power corporation--Expenses for facilitating the efficient conduct of assessee’s business--Revenue expenditure--Income-tax Act, 1961, s. 37(1)-- Addl. CIT v. Dhampur Sugar Mill P. Ltd. (All) . . . 194

----Mercantile system of accounting--Expenditure on contract work shown as work-in-progress for assessment years 1999-2000 and 2000-01--Termination of contract in October, 2002--Amount spent on contract work--Could not be shown as work-in-progress--Amount deductible--Income-tax Act, 1961-- Asia Power Projects P. Ltd. v. Deputy CIT (Karn) . . . 257

Business income --Capital gains--Agricultural land--Whether land is agricultural or a non-agricultural land--Question of fact--No evidence by assessee to substantiate claim of carrying out agricultural operations--Sale deed clearly showing assessee as absolute owner of residential land having converted its use from agricultural--Surplus assessable as business income--Income-tax Act, 1961, s. 2(14)(iii)-- Vimal Singhvi v. Asst. CIT (Raj) . . . 275

Cash credits --Arrack business--Security deposit from retail dealers--Source of income properly explained--Not undisclosed credit--Income-tax Act, 1961, s. 68-- CIT v. M. Venkateswara Rao (T & AP) . . . 212

----Burden of proof--Onus on assessee to prove genuineness of transaction and creditworthiness of creditors--No satisfactory explanation--Addition under section 68 justified--Income-tax Act, 1961, s. 68-- CIT v. T. S. Kishan and Co. Ltd. (Delhi) . . . 163

----Finding that assessee had reasonable explanation for cash credits--No addition on that account could be made--Income-tax Act, 1961, s. 68-- CIT v. ABT Ltd. (Mad) . . . 159

----Firm--Partners’ contributions of capital for business of firm--Firm cannot be called upon to explain source of income of partners--Income-tax Act, 1961, s. 68-- CIT v. M. Venkateswara Rao (T & AP) . . . 212

----No proper explanation regarding loan transactions--Addition of 10 per cent. of value of credits--Justified--Income-tax Act, 1961, s. 68-- CIT v. Bellary Steels and Alloys Ltd. (Karn) . . . 226

Deduction of tax at source --Contractor--State Government undertaking to pay wages to leader of group of workmen--Leader of group whether contractor--Matter remanded--Income-tax Act, 1961, s. 194C-- Karnataka Rural Infrastructure Development Ltd. v. ITO(Karn) . . . 222

Depreciation --Condition precedent for allowance--Rate of depreciation--Option exercised in terms of second proviso to rule 5(1A) in return filed under section 139(1)--No separate procedure necessary--Assessee entitled to depreciation on windmills at 80 per cent.--Income-tax Act, 1961, s. 32--Income-tax Rules, 1962, r. 5-- CIT v. ABT Ltd. (Mad) . . . 159

Exemption --Industrial undertaking--Exemption under section 10A--Condition precedent--Manufacture or production of article in electronic technology park--Manufacture or production should have commenced in previous year--Registration as STPI unit not a requirement--Income-tax Act, 1961, s. 10A-- CIT v. Soffia Software Ltd. (Mad) . . . 146

Export --Special deduction--Computation--Pharmaceuticals company--Assessee processing raw materials supplied to it by other manufacturing companies and handing over end products to such companies--Conversion charges--Not deductible for purpose of determining “profits of the business†--Income-tax Act, 1961, s. 80HHC-- Aurobindo Pharma Ltd. v.CIT (T & AP) . . . 216

Housing project --Special deduction--Condition precedent--Built-up area should not exceed 1,500 sq. ft--Meaning of “built-up area†--Same construction must be there--Open courtyard within compound wall--Not a built-up area--Assessee entitled to special deduction--Income-tax Act, 1961, s. 80-IB-- Commonwealth Developers v. Asst. CIT (Bom) . . . 265

Income --Computation of income--Disallowance of expenditure incurred for earning non-taxable income--Tribunal finding interest expenditure attributable to business income assessable to tax and could not be disallowed--Finding consistent with provisions--Income-tax Act, 1961, s. 14A-- Addl. CIT v. Dhampur Sugar Mill P. Ltd. (All) . . . 194

----Expenditure in relation to income not includible in taxable income--Assessee could not have debited dividend amount and expenses on interest in profit and loss account--Assessing Officer not satisfied with correctness of claim of assessee on basis of accounts and making total disallowance--Justified--Income-tax Act, 1961, s. 14A-- Dhampur Sugar Mills Ltd. v. CIT (All) . . . 187

----Principle of real income--Excess billing discovered by assessee and rectified--Rectification by making appropriate entries in account books--No income arises--Income-tax Act, 1961-- CIT v. Tyco Sanmar Ltd. (Mad) . . . 173

Income from undisclosed sources --Amount claimed as lease rental on purchase and lease back of assets--Transaction of lease purchase and lease back found to be bogus--Addition of amount claimed as deduction to total income of assessee--Justified--Income-tax Act, 1961-- CIT v. Bellary Steels and Alloys Ltd. (Karn) . . . 226

Interest on borrowed capital --Disallowance of interest deleted in earlier years--No distinction warranting to take a different view--Deletion of addition justified--Income-tax Act, 1961, s. 36(1)(iii)-- Addl. CIT v. Dhampur Sugar Mill P. Ltd. (All) . . . 194

----Finding that amount borrowed had been used for non-business purposes--Interest not deductible--Income-tax Act, 1961, s. 36(1)(iii)-- CIT v. Bellary Steels and Alloys Ltd. (Karn) . . . 226

Investment deposit account --Scope of section 32AB--Assessing Officer has power only to examine whether books of account are certified by authorities under Companies Act--Principles for determination of income under the Income-tax Act--Not applicable--Income-tax Act, 1961, s. 32AB-- Jindal Aluminium Ltd. v. Deputy CIT (Assessment) (Karn) . . . 235

Reassessment --Notice after four years--Conditions precedent--Notice on basis that disallowance of interest paid on borrowings for subsequent year--No indication in reasons that assessee failed to disclose truly and fully material facts necessary for assessment--Notice to stand or fall on basis of reasons recorded at time of issue--Notices not valid--Income-tax Act, 1961, ss. 147, 148-- Business India v. Joint CIT (Bom) . . . 154

Refund --Interest--Only where delay is on part of Department--Failure by assessee to furnish tax deduction at source certificates--Refund directed after filing of affidavit and indemnity bond with particulars by assessee--No delay by Department after furnishing indemnity bond--No interest payable--Income-tax Act, 1961, s. 244A(2)-- L. Madanlal Steels Ltd. v. Chief CIT (T & AP) . . . 205

Search and seizure --Block assessment--Assessment of third person--Condition precedent--Satisfaction of Assessing Officer that seized material belonged to third person--Meaning of “belong†--Reference to documents in searched material--No indication in satisfaction note that documents belonged to third person--No disclaimer by person in respect of whom search conducted that documents did not belong to him--Notice under section 153C not valid--Income-tax Act, 1961, s. 153C.-- Pepsico India Holdings P. Ltd. v. Asst. CIT (Delhi) . . . 295

----Block assessment--Undisclosed income--Cash credits against assessee reflected in books referable to concerned assessment years--Block assessment unsustainable--Income-tax Act, 1961, s. 158BB-- CIT v. Tharmandal Builders P. Ltd. (T & AP) . . . 209

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 2(14)(iii) --Business income--Capital gains--Agricultural land--Whether land is agricultural or a non-agricultural land--Question of fact--No evidence by assessee to substantiate claim of carrying out agricultural operations--Sale deed clearly showing assessee as absolute owner of residential land having converted its use from agricultural--Surplus assessable as business income-- Vimal Singhvi v. Asst. CIT (Raj) . . . 275

S. 10A --Exemption--Industrial undertaking--Exemption under section 10A--Condition precedent--Manufacture or production of article in electronic technology park--Manufacture or production should have commenced in previous year--Registration as STPI unit not a requirement-- CIT v. Soffia Software Ltd. (Mad) . . . 146

S. 14A --Income--Computation of income--Disallowance of expenditure incurred for earning non-taxable income--Tribunal finding interest expenditure attributable to business income assessable to tax and could not be disallowed--Finding consistent with provisions-- Addl. CIT v. Dhampur Sugar Mill P. Ltd. (All) . . . 194

----Income--Expenditure in relation to income not includible in taxable income--Assessee could not have debited dividend amount and expenses on interest in profit and loss account--Assessing Officer not satisfied with correctness of claim of assessee on basis of accounts and making total disallowance--Justified-- Dhampur Sugar Mills Ltd. v. CIT (All) . . . 187

S. 28 --Business--Capital gains--Adventure in the nature of trade--Assessee acquiring right to sell property--No intention to hold property--Sale of property subsequently--Transaction constituted adventure in the nature of trade--Gains assessable as business income-- CIT v.Shahrooq Ali Khan (Karn) . . . 246

S. 32 --Depreciation--Condition precedent for allowance--Rate of depreciation--Option exercised in terms of second proviso to rule 5(1A) in return filed under section 139(1)--No separate procedure necessary--Assessee entitled to depreciation on windmills at 80 per cent.-- CIT v. ABT Ltd. (Mad) . . . 159

S. 32AB --Investment deposit account--Scope of section 32AB--Assessing Officer has power only to examine whether books of account are certified by authorities under Companies Act--Principles for determination of income under the Income-tax Act--Not applicable-- Jindal Aluminium Ltd. v. Deputy CIT (Assessment) (Karn) . . . 235

S. 36(1)(iii) --Interest on borrowed capital--Disallowance of interest deleted in earlier years--No distinction warranting to take a different view--Deletion of addition justified-- Addl. CIT v.Dhampur Sugar Mill P. Ltd. (All) . . . 194

----Interest on borrowed capital--Finding that amount borrowed had been used for non-business purposes--Interest not deductible-- CIT v. Bellary Steels and Alloys Ltd. (Karn) . . . 226

S. 37(1) --Business expenditure--Capital or revenue expenditure--Expenses incurred on transmission lines and contribution paid to State power corporation--Expenses for facilitating the efficient conduct of assessee’s business--Revenue expenditure-- Addl. CIT v.Dhampur Sugar Mill P. Ltd. (All) . . . 194

S. 45 --Business--Capital gains--Adventure in the nature of trade--Assessee acquiring right to sell property--No intention to hold property--Sale of property subsequently--Transaction constituted adventure in the nature of trade--Gains assessable as business income-- CIT v.Shahrooq Ali Khan (Karn) . . . 246

S. 68 --Cash credits--Arrack business--Security deposit from retail dealers--Source of income properly explained--Not undisclosed credit-- CIT v. M. Venkateswara Rao (T & AP) . . . 212

----Cash credits--Burden of proof--Onus on assessee to prove genuineness of transaction and creditworthiness of creditors--No satisfactory explanation--Addition under section 68 justified-- CIT v. T. S. Kishan and Co. Ltd. (Delhi) . . . 163

----Cash credits--Finding that assessee had reasonable explanation for cash credits--No addition on that account could be made-- CIT v. ABT Ltd. (Mad) . . . 159

----Cash credits--Firm--Partners’ contributions of capital for business of firm--Firm cannot be called upon to explain source of income of partners-- CIT v. M. Venkateswara Rao(T & AP) . . . 212

----Cash credits--No proper explanation regarding loan transactions--Addition of 10 per cent. of value of credits--Justified-- CIT v. Bellary Steels and Alloys Ltd. (Karn) . . . 226

S. 80HHC --Export--Special deduction--Computation--Pharmaceuticals company--Assessee processing raw materials supplied to it by other manufacturing companies and handing over end products to such companies--Conversion charges--Not deductible for purpose of determining “profits of the business†-- Aurobindo Pharma Ltd. v. CIT (T & AP) . . . 216

S. 80-IB --Housing project--Special deduction--Condition precedent--Built-up area should not exceed 1,500 sq. ft--Meaning of “built-up area†--Same construction must be there--Open courtyard within compound wall--Not a built-up area--Assessee entitled to special deduction-- Commonwealth Developers v. Asst. CIT (Bom) . . . 265

S. 132(1) --Search and seizure--Warrant of authorisation--Validity--Reason to believe existence of undisclosed assets--Writ--High Court--Can scrutinise file to find whether authority has appropriately recorded reasons for forming opinion--High Court without calling for file concluding warrant of authorisation issued without reason--Not sustainable--Matter remanded for decision afresh-- Union of India v. Agarwal Iron Industries (SC). . . 180

S. 145(3) --Accounting--Business of precious and semi-precious stones--What should be a reasonable profit on account of trading transactions--Question of fact--Rejection of accounts--Assessee recording bogus purchases and opening and closing stocks not capable of verification in books--Application of higher gross profit rate justified-- Vimal Singhvi v. Asst. CIT (Raj) . . . 275

S. 147 --Reassessment--Notice after four years--Conditions precedent--Notice on basis that disallowance of interest paid on borrowings for subsequent year--No indication in reasons that assessee failed to disclose truly and fully material facts necessary for assessment--Notice to stand or fall on basis of reasons recorded at time of issue--Notices not valid--Business India v. Joint CIT (Bom) . . . 154

S. 148 --Reassessment--Notice after four years--Conditions precedent--Notice on basis that disallowance of interest paid on borrowings for subsequent year--No indication in reasons that assessee failed to disclose truly and fully material facts necessary for assessment--Notice to stand or fall on basis of reasons recorded at time of issue--Notices not valid--Business India v. Joint CIT (Bom) . . . 154

S. 153C --Search and seizure--Block assessment--Assessment of third person--Condition precedent--Satisfaction of Assessing Officer that seized material belonged to third person--Meaning of “belong†--Reference to documents in searched material--No indication in satisfaction note that documents belonged to third person--No disclaimer by person in respect of whom search conducted that documents did not belong to him--Notice under section 153C not valid-- Pepsico India Holdings P. Ltd. v. Asst. CIT (Delhi) . . . 295

S. 158BB --Search and seizure--Block assessment--Undisclosed income--Cash credits against assessee reflected in books referable to concerned assessment years--Block assessment unsustainable-- CIT v. Tharmandal Builders P. Ltd. (T & AP) . . . 209

S. 170 --Assessment--Amalgamation of companies--Effect--Amalgamating company ceases to exist--Order of assessment on amalgamating company--Not valid--Not a procedural irregularity to be cured by section 292B-- CIT v. Dimension Apparels P. Ltd. (Delhi) . . . 288

S. 176 --Assessment--Amalgamation of companies--Effect--Amalgamating company ceases to exist--Order of assessment on amalgamating company--Not valid--Not a procedural irregularity to be cured by section 292B-- CIT v. Dimension Apparels P. Ltd. (Delhi) . . . 288

S. 194C --Deduction of tax at source--Contractor--State Government undertaking to pay wages to leader of group of workmen--Leader of group whether contractor--Matter remanded-- Karnataka Rural Infrastructure Development Ltd. v. ITO (Karn) . . . 222

S. 244A(2) --Refund--Interest--Only where delay is on part of Department--Failure by assessee to furnish tax deduction at source certificates--Refund directed after filing of affidavit and indemnity bond with particulars by assessee--No delay by Department after furnishing indemnity bond--No interest payable-- L. Madanlal Steels Ltd. v. Chief CIT (T & AP) . . . 205

S. 292B --Assessment--Amalgamation of companies--Effect--Amalgamating company ceases to exist--Order of assessment on amalgamating company--Not valid--Not a procedural irregularity to be cured by section 292B-- CIT v. Dimension Apparels P. Ltd.(Delhi) . . . 288

Income-tax Rules, 1962 :

R. 5 --Depreciation--Condition precedent for allowance--Rate of depreciation--Option exercised in terms of second proviso to rule 5(1A) in return filed under section 139(1)--No separate procedure necessary--Assessee entitled to depreciation on windmills at 80 per cent.-- CIT v. ABT Ltd. (Mad) . . . 159

 



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