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

 

ITR (TRIB) Volume 37 : Part 2 (Issue dated : 12-1-2015

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

 

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Co-operative society --Special deduction--Scope of section 80P--Cottage industry--Huge capital outlay, high turnover and large number of workers not reasons to deny deduction--Income-tax Act, 1961, s. 80P(2)(a)(ii)-- Asst. CIT v. Vengamedu WCS Ltd . (Chennai) . . . 53

International transactions --Arm's length price--Determination--Selection of comparables--Company carrying out work of different nature, having different model of business and registering exceptionally high profits--To be excluded from set of comparables--Income-tax Act, 1961-- Techbooks International P. Ltd. v. Asst. CIT (Delhi) . . . 34

PRINT EDITION

Volume 37 : Part 2 (Issue dated : 12-1-2015)

SUBJECT INDEX TO CASES REPORTED

Accounting --Rejection of accounts--No difference between sales and quantitative details of assessee--Factors pointed out by assessee for not being able to make sales not refuted--Failure by Assessing Officer to point out discrepancy--Failure to establish that assessee charging sale price higher than that in books of account--Income-tax Act, 1961-- Yamaha Motor India P. Ltd. v. Asst. CIT (Delhi) . . . 208

----Rejection of accounts--That assessee had not accounted for additional customs duty paid and short span of time available for verification of books--Not grounds for rejection of accounts--Dispute Resolution Panel allowing submission of books of account--Assessing Officer bound by them--Action of Assessing Officer rejecting books of account of assessee not justified--Income-tax Act, 1961-- Tianjin Tianshi Biological Development Co. Ltd. v. Deputy CIT (Delhi) . . . 260

Assessment --Estimate of income--Additions for suppressed sales--Maximum retail price used by Customs and Excise Department cannot be adopted to estimate sales effected by assessee--Order of Transfer Pricing Officer not making adjustment as price paid by assessee for purchases lower than arm's length price worked out--Assessing Officer duty bound to pass an order in conformity with value determined by Transfer Pricing Officer--Estimation of suppressed sale made by Assessing Officer not justified--Income-tax Act, 1961-- Tianjin Tianshi Biological Development Co. Ltd. v. Deputy CIT (Delhi) . . . 260

Business expenditure --Amortisation of preliminary expenses--Expenditure incurred on stamp duty paid on issue of share certificates to shareholders--Existing unit and no extension of undertaking--Stamp duty paid on shares not enumerated in provision--Expenditure not allowable--Income-tax Act, 1961, s. 35D-- Yamaha Motor India P. Ltd. v. Asst. CIT (Delhi) . . . 208

----Rejection of books of account by Assessing Officer held not valid--Ad hoc disallowance of 10 per cent. of expenditure not sustainable--Income-tax Act, 1961-- Tianjin Tianshi Biological Development Co. Ltd. v. Deputy CIT (Delhi) . . . 260

----Royalty--International transactions--Transfer Pricing Officer deciding royalty payment--Sections 40(a)(i) and 2(22)(e) not applicable--Income-tax Act, 1961-- Yamaha Motor India P. Ltd. v. Asst. CIT (Delhi) . . . 208

Depreciation --Building--Owner of property--No registered sale deed executed in favour of assessee--Assessee in possession of property in his own title--Income-tax Act, 1961, s. 32-- Indian Renewable Energy Development Agency Ltd. v. Joint CIT (Delhi) . . . 250

Exemption --Income of financial institution from investments in infrastructure facility--Exemption can be allowed only if income in nature of "Business income"--Income from interest on deposit, staff loan, Government securities--Whether business income or income from other sources--No proper explanation as to true nature of income--Matter remanded--Income-tax Act, 1961, s. 10(23G)-- Indian Renewable Energy Development Agency Ltd. v. Joint CIT (Delhi) . . . 250

Housing project --Special deduction under section 80-IB(10)--Specification of area of residential unit--Meaning of "built-up area"--Projected terrace (open to sky) to be excluded from built-up area for computation--Conditions fulfilled under section 80-IB(10)--Assessee eligible for deduction--Income-tax Act, 1961, s. 80-IB(10)(c)-- Naresh T. Wadhwani v. Deputy CIT (Pune) . . . 179

International transactions --Transfer pricing--Arm's length price--Determination--Transactional net margin method--Resale price method--Transfer Pricing Officer rejecting resale price method and applying transactional net margin method--Failure by Transfer Pricing Officer to point out error in analysis made by assessee--Most appropriate method best suited to facts and circumstances of case to be applied--Transfer Pricing Officer erred in rejecting resale price method--Income-tax Act, 1961, s. 92C-- Yamaha Motor India P. Ltd. v. Asst. CIT(Delhi) . . . 208

Loss --Unabsorbed depreciation--Carry forward and set-off--No bar on set off of brought forward loss for assessment year 2001-02 against income for assessment year 2006-07--Assessing Officer to allow set off of brought forward losses and unabsorbed depreciation to assessment year 2006-07--Income-tax Act, 1961-- Yamaha Motor India P. Ltd. v. Asst. CIT (Delhi) . . . 208

Search and seizure --Undisclosed income--Income earned in course of development and execution of housing project--To be treated as business income--Assessee eligible for deduction--Income-tax Act, 1961, s. 80-IB(10)-- Naresh T. Wadhwani v. Deputy CIT (Pune) . . . 179

----Undisclosed income--Peak negative balance in cash book--Addition cannot be made to undisclosed income already declared--Income-tax Act, 1961-- Naresh T. Wadhwani v. Deputy CIT (Pune) . . . 179

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961

S. 10(23G) --Exemption--Income of financial institution from investments in infrastructure facility--Exemption can be allowed only if income in nature of "Business income"--Income from interest on deposit, staff loan, Government securities--Whether business income or income from other sources--No proper explanation as to true nature of income--Matter remanded-- Indian Renewable Energy Development Agency Ltd. v. Joint CIT (Delhi) . . . 250

S. 32 --Depreciation--Building--Owner of property--No registered sale deed executed in favour of assessee--Assessee in possession of property in his own title-- Indian Renewable Energy Development Agency Ltd. v. Joint CIT (Delhi) . . . 250

S. 35D --Business expenditure--Amortisation of preliminary expenses--Expenditure incurred on stamp duty paid on issue of share certificates to shareholders--Existing unit and no extension of undertaking--Stamp duty paid on shares not enumerated in provision--Expenditure not allowable-- Yamaha Motor India P. Ltd. v. Asst. CIT (Delhi) . . . 208

S. 80-IB(10) --Search and seizure--Undisclosed income--Income earned in course of development and execution of housing project--To be treated as business income--Assessee eligible for deduction-- Naresh T. Wadhwani v. Deputy CIT (Pune) . . . 179

S. 80-IB(10)(c) --Housing project--Special deduction under section 80-IB(10)--Specification of area of residential unit--Meaning of "built-up area"--Projected terrace (open to sky) to be excluded from built-up area for computation--Conditions fulfilled under section 80-IB(10)--Assessee eligible for deduction-- Naresh T. Wadhwani v. Deputy CIT (Pune) . . . 179

S. 92C --International transactions--Transfer pricing--Arm's length price--Determination--Transactional net margin method--Resale price method--Transfer Pricing Officer rejecting resale price method and applying transactional net margin method--Failure by Transfer Pricing Officer to point out error in analysis made by assessee--Most appropriate method best suited to facts and circumstances of case to be applied--Transfer Pricing Officer erred in rejecting resale price method-- Yamaha Motor India P. Ltd. v. Asst. CIT (Delhi) . . . 208

 

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Four Important Verdicts From ITAT + Four Important Directives From CBDT

 

Dear Subscriber,

Schrader Duncan Limited vs. ACIT (ITAT Mumbai)

S. 271(1)(c): If the High Court admits the appeal u/s 260A, it means that the issue is debatable and penalty cannot survive

When the Hon'ble jurisdictional High Court has admitted substantial question of law on the addition, it becomes apparent that the addition so made has become debatable. The penalty was imposed on the basis of addition so made, therefore, when the addition on the basis of which the penalty was imposed has become doubtful/debatable, therefore, penalty imposed u/s 271(1)(c) of the Act cannot survive

Gera Developments Pvt. Ltd vs. JCIT (ITAT Pune)

(i) S. 40(a)(ia) disallowance cannot be made if the assessee has not claimed a deduction. (ii) S. 80-IB(10) deduction cannot be denied on the ground that the completion certificate has not been issued by the Municipality if the assessee has completed construction before the due date

Explanation (ii) to section 80IB(10)(a) of the Act prescribes that the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority

Ashoka Education Foundation vs. CIT (ITAT Pune)

S. 12AA/80G(5): CIT, while granting registration or renewal, can only look at the nature of activities and is not concerned with violation of s. 11(5) or s. 13

While granting the exemption or renewal of exemption under section 80G(5) of the Act, the role of CIT is limited to look into the nature of activities being carried on by the institution or fund and the violation if any, of the provisions of section 13 of the Act and its various subsections are to be looked into by the Assessing Officer while deciding the issue of grant of deduction under sections 11 and 12 of the Act

Yahoo Software Development India P.Ltd vs. DCIT (ITAT Bangalore)

Transfer Pricing: Comparables have to be excluded by the turnover filter without a FAR analysis being required to be conducted. The AO cannot rely on information obtained u/s 133(6)

Turnover is an important filter which has to be adopted for determination of the ALP. The FAR analysis would not alter the turnover of the company. The TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO

CBDT Order On Transfers And Postings Of CsIT And DsIT

Vide Order No. 5 of 2015 dated 05.01.2015, the CBDT has ordered the transfer/ posting (local changes) of several officers in the grade of Commissioner of Income-tax and Director of Income-tax with immediate effect and until further orders

CBDT Creates Standard Operating Procedure For TDS Credit Mechanism

The CBDT has issued a document setting out the "Standard Operating Procedure" (SOP) for adminstering TDS credit by the CPC-TDS. The SOP deals with the following issues in great detail

CBDT Directs Holding Of 'Public Meeting Days' To Resolve Grievances Of Public

The CBDT has issued an Office Memorandum dated 06.01.2014 stating that as part of the Prime Minster's 'Good Governance Day' promise to provide an "open and accountable administration" it has been decided to observe 'Public Meeting Day' during 10.00 am to 1.00 pm every Wednesday to listen to and try to resolve the grievances of […]

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Important Appointment, Transfer Orders Etc From CBDT

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Four Important Verdicts Of The ITAT On Highly Debatable Issues

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

Pradeep Kumar Chowdhry vs. DCIT (ITAT Hyderabad)

S. 54F: Amount paid to builder for house is equivalent to amount spent by assessee for construction. Fact that only advance is given and construction is delayed beyond 3 years does not deprive assessee of exemption

A flat which is newly constructed by a builder on behalf of the assessee is in no way different from a house constructed. Section 54F being a beneficial provision has to be interpreted so as to give the benefit of residential unit viz., flat instead of house in the present state of affairs. Even if only advance is given the benefit still will be available for exemption u/s. 54F

Cummins India Limited vs. ACIT (ITAT Pune)

Transfer Pricing: Closely linked international transactions can be aggregated to determine the ALP

On a combined reading of Rule 10A(d) and 10B of the Rules, a number of transactions can be aggregated and construed as a single 'transaction' for the purposes of determining the ALP, provided of course that such transactions are 'closely linked'

Varroc Engineering Pvt. Ltd vs. ACIT (ITAT Pune)

Transfer Pricing: ALP of interest on funds advanced to AEs has to computed on LIBOR and not as per domestic Prime Lending Rate (PLR)

While benchmarking the international transactions what has to be seen is the comparison between related transactions i.e. where the assessee has advanced money to its associated enterprises and charged interest then the said transaction is to be compared with a transaction as to what rate the assessee would have charged, if it had extended the loan to the third party in foreign country. Once there is a transaction between the assessee and its associated enterprises in foreign currency, then the transaction would have to be looked upon by applying the commercial principles with regard to the international transactions. In that case, the international rates fixed being LIBOR+ rates would have an application and the domestic prime lending rates would not be applicable

The A. P. Mahesh Coop. Urban Bank Ltd vs. DCIT (ITAT Hyderabad)

Distinction between 'diversion of income by over-riding title' and 'application of income' explained. Contribution of 1% of net profit to the Cooperative Education Fund maintained by National Cooperative Union is an application of income

Diversion of income has multi-facets. Diversion arises where income is applied in a particular manner under statutory or contractual obligation or under the provisions of a document under which the company is constituted viz., memorandum of article of association or a firm has come into existence. In these circumstances, the principle that has emerged is that if a person has alienated or assigned the source of his income so that it is no longer remains his income, he cannot be taxed upon the income arising after the assignment of the source. In such event, it is not income of the assessee at all

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Schrader Duncan Limited vs. ACIT (ITAT Mumbai)

S. 271(1)(c): If the High Court admits the appeal u/s 260A, it means that the issue is debatable and penalty cannot survive

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Five Important Judgements Of ITAT Mumbai On Current Issues

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

ACIT vs. M/s G V Sons (ITAT Mumbai)

Bogus purchases: Merely because a party has admitted to indulging in sham/ accommodation transactions does not mean that all his transactions with the assessee should be treated as sham

We cannot accept a bald statement made by the AO that any transaction/business done with a party would be sham, simply because the opposite party besides doing regular business was also indulging in providing accommodation entries. Simply on the basis of statement given by the third party, that they were also providing accommodation entries as well, the conduct of the assessee cannot be doubted and held to be sham

M/s. ANS Law Associates vs. ACIT (ITAT Mumbai)

Additions made solely on the basis of AIR information are not sustainable in law. The AO has to prove that assessee has received income from a particular source. The assessee cannot be expected to prove the negative

It has been held time and again by this Tribunal that the additions made solely on the basis of AIR information are not sustainable in the eyes of the law. If the assessee denies that he is in receipt of income from a particular source, it is for the AO to prove that the assessee has received income as the assessee cannot prove the negative

ACIT vs. Sunland Metal Recycling (ITAT Mumbai)

S. 50C/ 271(1)(c): Even if s. 50C is applicable, computing capital gain de hors it does not amount to furnishing inaccurate particulars of income or concealment of income for levy of penalty u/s 271(1)(c)

The Assessing Officer has not given any finding that the sale consideration disclosed by the assessee is not actual amount received as per the agreement of sale. The addition was made by invoking the deeming provisions of section 50C whereby the full value of consideration was adopted as per the valuation of the stamp duty authority for levy of stamp duty. The assessee has disclosed all relevant details as well as documents in support of its computation of Short term Capital Gain by taking into consideration the actual sale consideration received by the assessee. Consequently penalty u/s 271(1)(c) cannot be levied

Sannidhi C. Patel vs. ITO (ITAT Mumbai)

S. 56(2)(vi): Amounts received under a Power of Attorney for making investments cannot be treated as income in the hands of the recipient

Section 56 of the Act deals with income from other sources. Sub-clause (vi) to section 56 (2) was inserted by taxation laws (amendment) Act, 2006, with effect from 01/04/2007. The plain reading of the aforementioned statutory provisions reveals that it is intended to tax a receipt of money without consideration. The impugned amount was received by the assessee for making the investment on behalf of Ustad Zakir Hussain, on the basis of Power of Attorney. If the provisions of the Act and the content of the Power of Attorney are kept in juxtaposition and analyzed then it can be concluded that the mutual funds, purchase and sold by the assessee were made on behalf of Shri Zakir Hussain

ITO vs. Indore Steel and Iron Mills Ltd (ITAT Mumbai)

S. 43B/ 36(1)(va): High Court verdict in Hindustan Organics Chemicals 270 CTR 478 (Bom) decides that employees' contribution to PF is eligible for s. 43B even though that was not the issue before it. It also does not refer to any judicial precedents. Also, the Q framed by the dept and its representation before the High Court leaves much to be desired. However, the judgement is binding and has to be followed

However, again, it cannot be denied that per the said decision, which is judicially binding on us, the hon'ble court has abundantly clarified that the deduction in respect of the employee's contribution (to the employee welfare funds) in the hands of the assessee-employer is governed by the provision of section 43B, so that where deposited by the due date of the filing of the return for the relevant year, shall be valid in terms of the amended s.43B, i.e., by Finance Act 2003, with effect from 01.04.2004, which amendment stands held by the apex court in Alom Extrusions Ltd. (supra) to the retrospective, so that it shall apply even to years prior to A.Y.2004-05. The hon'ble court, we note, does not discuss nor refer to any judicial precedents. The question of law framed by the Department, as well as its representation before the hon'ble court, leaves much to be desired. That, however, would not in any manner detract from or dilute its binding nature on us as a subordinate forum

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Pradeep Kumar Chowdhry vs. DCIT (ITAT Hyderabad)

S. 54F: Amount paid to builder for house is equivalent to amount spent by assessee for construction. Fact that only advance is given and construction is delayed beyond 3 years does not deprive assessee of exemption

No Capital Gains On Transfer Of TDR/ FSI: Bombay High Court + Other Imp Updates

 

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CIT vs. Sambhaji Nagar Coop. Hsg. Society Ltd (Bombay High Court)

S. 45/ 48: Gains on sale of TDR received as additional FSI as per the D. C. Regulations has no cost of acquisition and is not chargeable to capital gains

Only an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head "Capital gains" as opposed to assets in the acquisition of which no cost at all can be conceived. In the present case as well, the situation was that the FSI/TDR was generated by the […]

P. C. Joshi vs. UOI (Bombay High Court)

Article 19(1)(g): Levy of service-tax on Advocates is constitutional

A Writ Petition was filed to challenge the levy of service-tax on advocates. It was claimed that an advocate renders services which cannot be said to be commercial or business like. They cannot be equated with the service providers mentioned in the Finance Act 1994. It was also contended that advocacy is not a business […]

CBDT Press Release: Suggestions By SIT On How To Control Black Money

RELEVANT PORTIONS OF THE SECOND REPORT OF THE SPECIAL INVESTIGATION TEAM (SIT) ON BLACK MONEY RELEASED; ON THE DIRECTIONS OF SIT, CBDT DIRECTS VARIOUS ASSESSING OFFICERS TO FINALIZE THE ASSESSMENTS FOR ALL ACTIONABLE CASES (427), WHOSE NAMES ARE APPEARING IN THE HSBC LIST RECEIVED BY THE DEPARTMENT

Companies (Amendment) Bill, 2014 Is Available For Download

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has approved the introduction of the Companies (Amendment) Bill, 2014 in Parliament to make certain amendments in the Companies Act, 2013.

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Complete Guide To The Law Of Disallowance U/s 14A And Rule 8D

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