CAs Five Imp Verdicts On Bogus Purchases, Penalty, Cash Credits, Loose Paper Additions Etc

 

Dear Subscriber,

 

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

Shoreline Hotel Pvt. Ltd vs. CIT (ITAT Mumbai)

Bogus purchases: Manner of computing profits in the case of bogus purchases by an assessee who is not a dealer in the goods but has consumed the goods in his business explained

As per our considered view, since the purchases so made were not sold by the assessee, the AO was not justified in estimating 15% profit on such bogus purchases. However, such bogus purchases/expenses were going to reduce the assessee's profits by the equal amount of such expenses and not only by 15% as taken by the AO. It was not a case where purchases so made were actually sold by the assessee. Where assessee is found to have sold the goods out of the bogus purchases, under those circumstances it is reasonable to estimate profit out of such sales so as to make appropriate addition. However, in the instant case the assessee was engaged in the business of hotel wherein the expenditure alleged to be incurred on plumbing, electrical items, furniture, printing and stationary etc appears to have reduced directly the profit earned by assessee

Ketan V. Shah vs. ACIT (ITAT Mumbai)

S. 132(4A) presumption does not apply to loose papers found in some other person's possession. While the AO can make a protective assessment, the appellate authority cannot confirm a protective order. It has to either make it substantive or quash it

It is settled that when there is a doubt as to which person amongst the two was liable to be assessed, parallel proceedings may be taken against both and alternative assessments may also be framed. It is also equally true that while a protective assessment is permissible, it is not open to the income-tax appellate authorities constituted under the Act to make a protective order

Parin K. Rajwani vs. JCIT (ITAT Mumbai)

S. 271D penalty: The limitation period has to be computed from the date of issue of the show-cause notice by the AO. Penalty should be levied if circumstances show no intention to contravene the law

The six month period for the purpose of clause (c) of section 275(1) of the Act is to be computed from the date of issue of first show cause notice by the AO and not from the date of issue of first show cause notice issued by the Joint Commissioner

KLR Industries Ltd vs. DCIT (ITAT Hyderabad)

S. 68: If the assessee has furnished the details of the creditors with their PAN, the onus is on the AO to examine their credit-worthiness and source of payment to assessee

If at all the A.O. or CIT(A) had any doubt with regard to creditworthiness of the creditors, it should have triggered an enquiry by the A.O. to find out the real facts. When the identity of the creditors along with their income tax particulars including PAN and assessment details were available with the A.O. it would not have been difficult on the part of the A.O. to verify their bank accounts and other details to ascertain whether the advances were from explained sources. Even the A.O. could have taken up the issue with the concerned A.Os with whom the creditors are assessed

Color Craft vs. ITO (ITAT Mumbai)

S. 282B: Law on validity of service of notices by "Speed Post" instead of "Registered Post A/D" explained

Registered post would take within its sweep not only 'speed post' but also all other mails forming part of the establish system of mails in which their receipt and movement is recorded to assure safe delivery. All the principal attributes of 'registered post' were inherently present in 'speed post', so that the two were of the same genus. The term registered post being not defined, it could only be so in terms of its elements, which the tribunal gathered from the dictionary meaning of the word 'registered'; its common parlance meaning; and its substance

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R. W. Promotions P. Ltd vs. ACIT (Bombay High Court)

Reliance on statements of third party without giving the assessee the right of cross-examination results in breach of principles of natural justice

CAs Six Imp Verdicts On TDS Disallowance + Transfer Pricing + Taxing Fees For Technical Services Etc

 

Dear Subscriber,

 

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

R. W. Promotions P. Ltd vs. ACIT (Bombay High Court)

Reliance on statements of third party without giving the assessee the right of cross-examination results in breach of principles of natural justice

There has been a breach of principles of natural justice in as much as the Assessing Officer has in his order placed reliance upon the statements of representatives of M/s Inorbit and M/s Nupur to come to the conclusion that claim for expenditure made by the appellant is not genuine. Thus the appellant was entitled to cross examine them before any reliance could be placed upon them to the extent it is adverse to the appellant

CIT vs. DLF Commercial Project Corp (Delhi High Court)

S. 40(a)(ia): The obligation to deduct TDS is only with respect to "income". As amounts paid as "reimbursement of expenses" do not have the character of income, there is no obligation to deduct TDS

Section 194C (TDS for "work") and Section 194J (TDS of income from "professional services"- the latter expression defined expansively by Section 194J (3) Explanation (a)). Neither provision obliges the person making the payment to deduct anything from contractual payments such as those made for reimbursement of expenses, other than what is defined as "income". The law thus obliges only amounts which fulfil the character of "income" to be subject to TDS in such cases; for other payments towards expenses, the deduction to those entitled (to be made by the payeee) the obligation to carry out TDS is upon the recipient or payee of the amounts

Tecnimont ICB House vs. DCIT (ITAT Mumbai)

Transfer Pricing: Important principles on benchmarking transactions of advances/ credit period tp AEs reiterated

Since sale price of the product or service was always influenced by the credit period allowed by the seller, the transaction of sale to the AE and credit period allowed in realization of sale proceeds are closely linked and the price determined for such sale is after consideration of the credit period provided by the seller. Further, it was also held that for the purpose of determining the ALP of sale transaction, the transaction of excess credit period provided by the seller to the AE is required to be aggregated with the sale transaction by the seller to the AE and cannot be benchmarked separately

HCL Technologies BPO Services Ltd vs. ACIT (ITAT Delhi)

Transfer Pricing: For the purpose of benchmarking the international transactions, the effect of underutilization of capacity/excess fixed costs has to be eliminated while computing the operating margins of the assessee

Under-utilization of production capacity in the initial years is a vital factor which has been ignored by the authorities below while determining the ALP cost. The TPO should have made allowance for the higher overhead expenditure during the initial period of production. The claim of the assessee with respect to idle capacity adjustment during the relevant period while determining the ALP cost. Economic adjustment on account of under capacity utilization when the assessee was in start up phase has to be considered

ITO vs. Nokia India Pvt. Ltd (ITAT Delhi)

Entire law on taxability of "fees for technical services" under the "make available" clause of the DTAA explained

Services can be said to 'make available' technical knowledge etc, where such technical knowledge is transferred to the person utilizing the service (i.e. the appellant in the instant case) and such person is able to make use of the technical knowledge etc, by himself in his business or for his own benefit and without recourse to the performer of services (i.e OlofGranlund) in the future. The mere fact that provision of service may require technical knowledge by the person providing the service would not per se mean that knowledge has been made available

Barjinder Singh Bhatti vs. ITO (ITAT Chandigarh)

S. 55A: If the AO is not satisfied with the valuation made by the assessee's valuer, he must refer the issue to the DVO. He cannot reject the assessee's valuation without any basis

The Assessing Officer, if was not satisfied with the report of the Registered Valuer, could have made a reference to the Departmental Valuation Officer under section 55A of the Act for the purpose of computing income from capital gains. The Assessing Officer has thus, not acted in accordance with law and without any basis or evidence in his possession, did not accept report of the Registered Valuer. In the absence of any material on record, Assessing Officer should not have made his own calculation for the purpose of computing the capital gains

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Top CA Firms, E&Y, Deloitte, KPMG & PWC, Hauled Up For Alleged Illegal Practice Of law

ITR (TRIB) Volume 41 : Part 3 (Issue dated : 27-7-2015)

 

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

PRINT EDITION

Volume 41 : Part 3 (Issue dated : 27-7-2015)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Advance tax --Interest--Computation of interest--Assessee not liable to pay interest on returned income when assessed income below returned income--Assessing Officer to recompute interest on assessed income--Income-tax Act, 1961, s. 234C-- Abhishekh Cotspin Mills Ltd. v . Asst. CIT (Pune) . . . 293

Appeal to Appellate Tribunal --Competency of appeal--Monetary limits for appeals by Department--Instruction No. 5 of 2014 revising monetary limits--Applicable to pending cases--Tax effect less than prescribed limit--Appeal not maintainable--Instruction No. 5 of 2014 dated 10-7-2014--Income-tax Act, 1961, s. 268A-- ITO v . Chemex India P. Ltd. (Delhi) . . . 403

Bad debts --Writing off--Goods becoming obsolete--Goods shown as closing stock in books of account of assessee in subsequent years--Special additional duty paid in relation to obsolete goods cannot be claimed as deduction--Income-tax Act, 1961-- Toshiba India P. Ltd. v . Deputy CIT (Delhi) . . . 300

Business expenditure --Disallowance--Non-resident--Royalty--Sum liable to deduction of tax at source--Purchase of software for utilisation of computers not purchase of royalty--No payment of royalty--No requirement to deduct tax at source--Depreciation allowable--Income-tax Act, 1961, ss. 9(1)(vi), Expln. 2 , 40(a)(ia)-- Deputy CIT v . WS Atkins India P. Ltd.(Bang) . . . 397

----Provision for warranty--Assessee suo motu disallowing in return and claiming deduction during course of assessment proceedings--Circumstances under which assessee disallowing claim and thereafter claiming deduction not clear--Assessing Officer to examine matter--Matter remanded--Income-tax Act, 1961-- Toshiba India P. Ltd. v . Deputy CIT (Delhi) . . . 300

Deduction of tax at source --Salary or professional fees--Consultant doctors rendering services under consultancy agreement--No element of employer and employee relationship in consultancy agreement--No control and supervision by assessee over professional work done by doctors--Personal perquisites and other benefits absent in consultancy agreement--Payment treated as professional fees in earlier assessment years--Principle of consistency applicable--Tax to be deducted under section 194J--Income-tax Act, 1961, ss. 192, 194J, 201(1A)-- Deputy CIT v . Artemis Medicare Service Ltd. (Delhi) . . . 361

Exemption --Export--Computation of deduction--Expenses excluded from export turnover to be excluded from total turnover--Income-tax Act, 1961, s. 10A-- Deputy CIT v . WS Atkins India P. Ltd. (Bang) . . . 397

----Export of computer software--Computation of deduction--Communication expenses to be borne by customer in accordance with agreement between assessee and its customers overseas--Assessee incurring no expenses for delivery of computer software outside India--Assessee excluding 10 per cent. of telecommunication expenses from export turnover--No warrant for excluding higher sum--Income-tax Act, 1961, s. 10A-- Deputy CIT v . WS Atkins India P. Ltd. (Bang) . . . 397

----Export oriented unit--Appeal to Commissioner (Appeals)--Power to admit fresh evidence--Assessee filing evidence without filing petition under rule 46A--Failure by authority to point out discrepancies and give opportunity to file application to admit fresh evidence--Matter remanded to Assessing Officer to consider documents afresh--Income-tax Act, 1961, s. 10B--Income-tax Rules, 1962, r. 46A-- SECOVA e Services P. Ltd. v . Deputy CIT (Chennai) . . . 357

Housing project --Special deduction--Assessee offering additional receipts in revised return against housing project undertaken during previous year--Assessee entitled to deduction--Income-tax Act, 1961, s. 80-IB(10)-- ITO v . Gajraj Constructions 
(Pune) . . . 425

Income from undisclosed sources --Income-tax survey--Excess stock of gold--Failure by assessee to disclose source of excess stock with corroborative evidence--Order of Commissioner (Appeals) confirming addition justified--Income-tax Act, 1961, s. 133A(3)--Radhakrishna Gold Jewellary P. Ltd. v . Joint CIT (OSD) 
(Ahd) . . . 349

International transactions --Arm’s length price--Determination--Advertising, marketing and promotion expenses--Details of advertising, marketing and promotion functions performed by assessee not available--Failure by assessee to bring material indicating advertising, marketing and promotion functions performed by assessee and comparables--Matter remanded to Transfer Pricing Officer for decision in accordance with manner laid down by Delhi High Court--Matter remanded--Income-tax Act, 1961-- Toshiba India P. Ltd. v . Deputy CIT (Delhi) . . . 300

----Arm’s length price--Information technology enabled services--Selection of comparables--Companies functionally dissimilar to assessee--To be excluded from final set of comparables--Income-tax Act, 1961 s. 92CA-- BNY Mellon International Operations (India) P. Ltd. v . Deputy CIT (Pune) . . . 407

Non-resident --Deduction of tax at source--Interest--Payments liable to deduction of tax at source--Arranger fee for facilitating loan for borrower from lender--Not part of debt or loan payable to lender--Not interest under section 2(28A)--Arranging of loan not lending of managerial services or provision of consulting services--Not taxable under section 9(1)(vii)--Assessee not liable to deduct tax at source--Income-tax Act, 1961, s. 2(28A)-- Idea Cellular Ltd. v . Asst. DIT (International Taxation) 
(Mumbai) . . . 338

Penalty --Concealment of income--Search and seizure--Depreciation on intellectual property rights claimed and allowed by Commissioner (Appeals) in appeal arising out of regular assessment--Withdrawal of claim to depreciation in assessment proceedings arising from search operations--No incriminating material found during search--Levy of penalty on basis of statement under section 132(4) not sustainable--Depreciation allowable--Income-tax Act, 1961, ss. 132(4), 153A, 271(1)(c)-- Financial Technologies (I) Ltd. v . Asst. CIT (Mumbai) . . . 330

Refund --Interest--Self-assessment--Interest payable from date of payment of tax on self-assessment to date of refund of amount--Income-tax Act, 1961, s. 244A-- Abhishekh Cotspin Mills Ltd. v . Asst. CIT (Pune) . . . 293

Revision --Commissioner--Charitable purpose--Exemption--Accumulation of income--Failure by Assessing Officer to examine issue relating to accumulation of income--Order erroneous and prejudicial to interests of Revenue--Revision proper--Income-tax Act, 1961, ss. 11, 263--Willingdon Charitable Trust v . DIT (Exemptions) (Chennai) . . . 317

----Commissioner--Charitable purpose--Exemption--Assessing Officer bringing entire income from marriage halls and auditorium to tax--Order of Assessing Officer erroneous being based on wrong assumption of facts but not prejudicial to interests of Revenue--No loss to Department--Income from marriage halls subject-matter of appeal before Commissioner (Appeals)--Revision not permissible--Income-tax Act, 1961, s. 2(15), 263-- Willingdon Charitable Trust v . DIT (Exemptions) 
(Chennai) . . . 317

----Condition precedent--Order must be erroneous as well as prejudicial to interests of Revenue--Failure by Assessing Officer to examine issues relating to accumulation of income--Commissioner justified in exercising revisional jurisdiction under section 263--Income-tax Act, 1961, s. 263-- Willingdon Charitable Trust v . DIT (Exemptions) 
(Chennai) . . . 317

Words and phrases --†Arranger fee†--“Interest†-- Idea Cellular Ltd. v . Asst. DIT (International Taxation) (Mumbai) . . . 338

----†Erroneous†--Meaning of-- Willingdon Charitable Trust v . DIT (Exemptions)(Chennai) . . . 317

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961

S. 2(15) --Revision--Commissioner--Charitable purpose--Exemption--Assessing Officer bringing entire income from marriage halls and auditorium to tax--Order of Assessing Officer erroneous being based on wrong assumption of facts but not prejudicial to interests of Revenue--No loss to Department--Income from marriage halls subject-matter of appeal before Commissioner (Appeals)--Revision not permissible-- Willingdon Charitable Trust v . DIT (Exemptions) (Chennai) . . . 317

S. 2(28A) --Non-resident--Deduction of tax at source--Interest--Payments liable to deduction of tax at source--Arranger fee for facilitating loan for borrower from lender--Not part of debt or loan payable to lender--Not interest under section 2(28A)--Arranging of loan not lending of managerial services or provision of consulting services--Not taxable under section 9(1)(vii)--Assessee not liable to deduct tax at source-- Idea Cellular Ltd. v . Asst. DIT (International Taxation) (Mumbai) . . . 338

S. 9(1)(vi), Expln. 2 --Business expenditure--Disallowance--Non-resident--Royalty--Sum liable to deduction of tax at source--Purchase of software for utilisation of computers not purchase of royalty--No payment of royalty--No requirement to deduct tax at source--Depreciation allowable-- Deputy CIT v . WS Atkins India P. Ltd. 
(Bang) . . . 397

S. 10A --Exemption--Export--Computation of deduction--Expenses excluded from export turnover to be excluded from total turnover-- Deputy CIT v . WS Atkins India P. Ltd. (Bang) . . . 397

--Exemption--Export of computer software--Computation of deduction--Communication expenses to be borne by customer in accordance with agreement between assessee and its customers overseas--Assessee incurring no expenses for delivery of computer software outside India--Assessee excluding 10 per cent. of telecommunication expenses from export turnover--No warrant for excluding higher sum-- Deputy CIT v . WS Atkins India P. Ltd.(Bang) . . . 397

S. 10B --Exemption--Export oriented unit--Appeal to Commissioner (Appeals)--Power to admit fresh evidence--Assessee filing evidence without filing petition under rule 46A--Failure by authority to point out discrepancies and give opportunity to file application to admit fresh evidence--Matter remanded to Assessing Officer to consider documents afresh-- SECOVA e Services P. Ltd. v . Deputy CIT 
(Chennai) . . . 357

S. 11 --Revision--Commissioner--Charitable purpose--Exemption--Accumulation of income--Failure by Assessing Officer to examine issue relating to accumulation of income--Order erroneous and prejudicial to interests of Revenue--Revision proper-- Willingdon Charitable Trust v . DIT (Exemptions) (Chennai) . . . 317

S. 40(a)(ia) --Business expenditure--Disallowance--Non-resident--Royalty--Sum liable to deduction of tax at source--Purchase of software for utilisation of computers not purchase of royalty--No payment of royalty--No requirement to deduct tax at source--Depreciation allowable-- Deputy CIT v . WS Atkins India P. Ltd. 
(Bang) . . . 397

S. 80-IB(10) --Housing project--Special deduction--Assessee offering additional receipts in revised return against housing project undertaken during previous year--Assessee entitled to deduction-- ITO v . Gajraj Constructions (Pune) . . . 425

S. 92CA --International transactions--Arm’s length price--Information technology enabled services--Selection of comparables--Companies functionally dissimilar to assessee--To be excluded from final set of comparables-- BNY Mellon International Operations (India) P. Ltd.v . Deputy CIT (Pune) . . . 407

S. 132(4) --Penalty--Concealment of income--Search and seizure--Depreciation on intellectual property rights claimed and allowed by Commissioner (Appeals) in appeal arising out of regular assessment--Withdrawal of claim to depreciation in assessment proceedings arising from search operations--No incriminating material found during search--Levy of penalty on basis of statement under section 132(4) not sustainable--Depreciation allowable-- Financial Technologies (I) Ltd. v . Asst. CIT 
(Mumbai) . . . 330

S. 133A(3) --Income from undisclosed sources--Income-tax survey--Excess stock of gold--Failure by assessee to disclose source of excess stock with corroborative evidence--Order of Commissioner (Appeals) confirming addition justified-- Radhakrishna Gold Jewellary P. Ltd. v . Joint CIT (OSD) (Ahd) . . . 349

S. 153A --Penalty--Concealment of income--Search and seizure--Depreciation on intellectual property rights claimed and allowed by Commissioner (Appeals) in appeal arising out of regular assessment--Withdrawal of claim to depreciation in assessment proceedings arising from search operations--No incriminating material found during search--Levy of penalty on basis of statement under section 132(4) not sustainable--Depreciation allowable-- Financial Technologies (I) Ltd. v . Asst. CIT 
(Mumbai) . . . 330

S. 192 --Deduction of tax at source--Salary or professional fees--Consultant doctors rendering services under consultancy agreement--No element of employer and employee relationship in consultancy agreement--No control and supervision by assessee over professional work done by doctors--Personal perquisites and other benefits absent in consultancy agreement--Payment treated as professional fees in earlier assessment years--Principle of consistency applicable--Tax to be deducted under section 194J-- Deputy CIT v . Artemis Medicare Service Ltd. (Delhi) . . . 361

S. 194J --Deduction of tax at source--Salary or professional fees--Consultant doctors rendering services under consultancy agreement--No element of employer and employee relationship in consultancy agreement--No control and supervision by assessee over professional work done by doctors--Personal perquisites and other benefits absent in consultancy agreement--Payment treated as professional fees in earlier assessment years--Principle of consistency applicable--Tax to be deducted under section 194J-- Deputy CIT v . Artemis Medicare Service Ltd. (Delhi) . . . 361

S. 201(1A) --Deduction of tax at source--Salary or professional fees--Consultant doctors rendering services under consultancy agreement--No element of employer and employee relationship in consultancy agreement--No control and supervision by assessee over professional work done by doctors--Personal perquisites and other benefits absent in consultancy agreement--Payment treated as professional fees in earlier assessment years--Principle of consistency applicable--Tax to be deducted under section 194J-- Deputy CIT v . Artemis Medicare Service Ltd. (Delhi) . . . 361

S. 234C --Advance tax--Interest--Computation of interest--Assessee not liable to pay interest on returned income when assessed income below returned income--Assessing Officer to recompute interest on assessed income-- Abhishekh Cotspin Mills Ltd. v . Asst. CIT (Pune) . . . 293

S. 244A --Refund--Interest--Self-assessment--Interest payable from date of payment of tax on self-assessment to date of refund of amount-- Abhishekh Cotspin Mills Ltd. v . Asst. CIT(Pune) . . . 293

S. 263 --Revision--Commissioner--Charitable purpose--Exemption--Accumulation of income--Failure by Assessing Officer to examine issue relating to accumulation of income--Order erroneous and prejudicial to interests of Revenue--Revision proper-- Willingdon Charitable Trust v . DIT (Exemptions) (Chennai) . . . 317

--Revision--Commissioner--Charitable purpose--Exemption--Assessing Officer bringing entire income from marriage halls and auditorium to tax--Order of Assessing Officer erroneous being based on wrong assumption of facts but not prejudicial to interests of Revenue--No loss to Department--Income from marriage halls subject-matter of appeal before Commissioner (Appeals)--Revision not permissible-- Willingdon Charitable Trust v . DIT (Exemptions) (Chennai) . . . 317

--Revision--Condition precedent--Order must be erroneous as well as prejudicial to interests of Revenue--Failure by Assessing Officer to examine issues relating to accumulation of income--Commissioner justified in exercising revisional jurisdiction under section 263--Willingdon Charitable Trust v . DIT (Exemptions) 
(Chennai) . . . 317

S. 268A --Appeal to Appellate Tribunal--Competency of appeal--Monetary limits for appeals by Department--Instruction No. 5 of 2014 revising monetary limits--Applicable to pending cases--Tax effect less than prescribed limit--Appeal not maintainable-- ITO v . Chemex India P. Ltd. (Delhi) . . . 403

S. 271(1)(c) --Penalty--Concealment of income--Search and seizure--Depreciation on intellectual property rights claimed and allowed by Commissioner (Appeals) in appeal arising out of regular assessment--Withdrawal of claim to depreciation in assessment proceedings arising from search operations--No incriminating material found during search--Levy of penalty on basis of statement under section 132(4) not sustainable--Depreciation allowable--Financial Technologies (I) Ltd. v . Asst. CIT 
(Mumbai) . . . 330

Income-tax Rules, 1962

r. 46A --Exemption--Export oriented unit--Appeal to Commissioner (Appeals)--Power to admit fresh evidence--Assessee filing evidence without filing petition under rule 46A--Failure by authority to point out discrepancies and give opportunity to file application to admit fresh evidence--Matter remanded to Assessing Officer to consider documents afresh-- SECOVA e Services P. Ltd. v . Deputy CIT 
(Chennai) . . . 357

 

Five Imp Verdicts On Allowability Of FX Derivatives Loss, Taxability Of Unclaimed Bogus Liabilities Etc

 

Dear Subscriber,

 

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

M/s. Majestic Exports vs. JCIT (ITAT Chennai)

Loss suffered on account of forex derivative contracts (Exotic Cross Currency Option Contracts) cannot be treated as speculative loss to the extent that the derivative transactions are not more than the total export turnover of the assessee. If the derivative transaction is in excess of export turnover, the loss in respect of that portion of excess transactions has to be considered as speculative loss because the excess derivative transaction has no proximity with export turnover

We make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than the total export turnover of the assessee for the assessment year under consideration and if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly

Perfect Paradise Emporium Pvt. Ltd vs. ITO (ITAT Delhi)

S. 41(1)/ 68: Unclaimed liabilities to creditors, even if fictitious and bogus, cannot be assessed u/s 41(1) in the absence of a write-back. The bogus credits can be assessed u/s 68 only in the year the credits were made and not in the year they are found to be not payable

Applying the ratio in the cases mentioned supra, the amount in question cannot be brought to tax in the year under appeal under the provisions of Section 41(1) of the Act. It is trite law that an addition under Section 68 can be made only in the year in which credit was made to the account of the creditors in the books of account maintained. Admittedly, in this case the credit to the account of creditors was made in the earlier years and therefore, the amount even cannot be brought to tax under Section 68 in the year under appeal. However, it is open to the Department to levy tax on such amount by resorting to the remedies available under the provisions of Act by duly following the procedure known to the law

Outotec India Pvt. Ltd vs. ACIT (ITAT Delhi)

Articles 13 & 15 of DTAA: Law on whether if a sum cannot be assessed as "fees for technical services" under the "make available" clause of Article 13, it can still be assessed as "Independent personal services" under Article 15 explained

The assessee's contention that since the services contracted for the by the assessee with non-residents fall within the meaning of Article 13 but get excluded because of not `making available' any technical knowledge etc., then such services cannot be once again considered under Article 15 is not acceptable. The precise question is that which of the two Articles, namely, 13 or 15, should have primacy in the facts and circumstances as are instantly prevailing?

Cheil India Pvt. Ltd vs. ITO (ITAT Delhi)

S. 40(a)(ia): In an appeal against an order passed by the AO to give effect to the ITAT's order, the CIT(A) has no jurisdiction to enhance the assessee with respect to a new source of income or disallowance of expenditure

The direction to the Assessing Officer by the CIT(Appeals) to disallow payments made by the assessee under sec. 40(a)(ia) of the Act was a question of taxability of income from a new source of income which has not been considered by the Assessing Officer, hence it was exceeding of jurisdiction by the CIT(Appeals) in a set aside matter by the ITAT in the present case. Though the CIT(Appeals) has co-terminus powers as of the Assessing Officer and is empowered to do what an Assessing Officer can do for the assessment, the directed disallowance was new source of income, which was not the subject matter of setting aside order by the ITAT

CIT vs. Bharat Hotels (Delhi High Court)

S. 32: A licensee who is in full control of the building and can exercise the rights of the owner in his own right is entitled to depreciation

The very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time

Regards,

 

Editor,

 

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Latest:

Shoreline Hotel Pvt. Ltd vs. CIT (ITAT Mumbai)

Bogus purchases: Manner of computing profits in the case of bogus purchases by an assessee who is not a dealer in the goods but has consumed the goods in his business explained

Two Imp Verdicts On Taxability Of Development Agreements And TDS Obligation On Provisions

 

Dear Subscriber,

 

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

C. S. Atwal vs. CIT (Punjab & Haryana High Court)

S. 2(47)(v)/(vi): Entire law on whether the entering into a joint development agreement with an irrevocable power of attorney in favour of the developer results in a "transfer" for purposes of capital gains explained

The concept of possession to be defined is an enormous task to be precisely elaborated. "Possession" is a word of open texture. It is an abstract notion. It implies a right to enjoy which is attached to the right to property. It is not purely a legal concept but is a matter of fact. The issue of ownership depends on rule of law whereas possession is a question dependent upon fact without reference to law. To put it differently, ownership is strictly a legal concept and possession is both a legal and a non-legal or pre-legal concept. The test for determining whether any person is in possession of anything is to see whether it is under his general control. He should be actually holding, using and enjoying it, without interference on the part of others. It would have to be ascertained in each case independently whether a transferee has been delivered possession in furtherance of the contract in order to fall under Section 53A of the 1882 Act and thus amenable to tax by virtue of Section 2(47)(v) read with Section 45 of the Act

Dishnet Wireless Limited vs. DCIT (ITAT Chennai)

S. 194C/ 194J: No obligation to deduct TDS at stage of making provision for expenditure if payee cannot be identified. No obligation to deduct TDS if services (roaming charges) are rendered without human intervention and are not "technical services"

The assessee has to issue Form 16A prescribed under Rule 31(1)(b) of the Income-tax Rules, 1962 for the tax deducted at source. The assessee has to necessarily give the details of name and address of deductee, the PAN of deductee and amount or credited. In this case, the assessee could not identify the name and address of deductee and and his PAN. The assessee also may not be in a position to quantify the amount required for incurring the expenditure for dismantling and restoration of site to its original position. In those circumstances, the provision which requires deduction of tax at source fails. Hence, the assessee cannot be faulted for non-deduction of tax at source while making a provision

Regards,

 

Editor,

 

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M/s. Majestic Exports vs. JCIT (ITAT Chennai)

Loss suffered on account of forex derivative contracts (Exotic Cross Currency Option Contracts) cannot be treated as speculative loss to the extent that the derivative transactions are not more than the total export turnover of the assessee. If the derivative transaction is in excess of export turnover, the loss in respect of that portion of excess transactions has to be considered as speculative loss because the excess derivative transaction has no proximity with export turnover

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Five Imp Verdicts On S. 271(1)(c) Penalty, S. 221 TDS Penalty, Strictures On Advocates And Top Brass Of Dept Etc

 

Dear Subscriber,

 

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

CIT vs. Dalmia Dyechem Industries (Bombay High Court)

S. 271(1)(c): The rigors of penalty provisions cannot be diluted only because a small number of cases are picked up for scrutiny. No penalty can be levied unless if assessee's conduct is "dishonest, malafide and amounting concealment of facts". The AO must render the "conclusive finding" that there was "active concealment" or "deliberate furnishing of inaccurate particulars"

Conditions under Section 271(1)(c) must exist before the penalty can be imposed. Mr.Chhotaray tried to widen the scope of the appeal by submitting that the decision of the Apex Court should be interpreted in such a manner that there is no scope of misuse especially since minuscule number of cases are picked up for scrutiny. Because small number of cases are picked up for scrutiny does not mean that rigors of the provision are diluted. Whether a particular person has concealed income or has deliberately furnished inaccurate particulars, would depend on facts of each case

Reliance Industries Ltd vs. CIT (Bombay High Court)

S. 221: Penalty for failure to pay TDS in time can be levied even if the assessee voluntarily pays the TDS. Financial hardship, diverse locations and lack of computerization are not good excuses. The fact that CIT(A) decided in favour of the assessee & deleted the penalty does not necessarily mean that two views are possible

Parliament treats a person who has deducted the tax and fails to pay it to revenue as a class different from a person who has not deducted the tax and also not deposited the tax with revenue. This is for the reason that in the first class of cases the assessee concerned after deducting the tax, keep the money so deducted which belongs to another person for its own use. In the second class of cases, the assessee concerned does not take any advantage as he pays the entire amount to the payee without deducting any tax and does not enrich itself at the cost of the government. Therefore, although penalty is also imposable in the second class of cases, yet in view of the proviso to Section 201(1) of the Act, it is open to such assessee to satisfy the Assessing Officer that as they have good and sufficient reasons no penalty is imposable. It is in the above view that in the first class of assessees the Parliament has provided for prosecution under Section 276B of the Act for failing the pay the tax deducted at source

DIT vs. Credit Agricole Indosuez (Bombay High Court) (No. 1)

Strictures passed regarding the "casual and callous" and "frivolous" manner in which senior officers of the dept authorize filing of appeals. Strictures also passed against counsel for acting as a "mouthpiece" of the Dept in persisting with unmeritorious appeals. CBDT directed to take appropriate action

Undoubtedly, an Advocate has to fearlessly put forth his client's point of view, however the same has to be tempered /guided by truth and justice of the dispute. In matters of tax, justice requires that there must be certainty of law which presupposes equal application of law. Thus where the issue in controversy stands settled by decisions of this Court or the Tribunal in any other case and the Revenue has accepted that decision, then in that event the Revenue ought not to agitate the issue further unless there is some cogent justification such as change in law or some later decision of an higher forum etc

DIT vs. Credit Agricole Indosuez (Bombay High Court) (No. 2)

S. 244A: Interest on income-tax refund received by a non-resident is not effectively connected with the PE (Permanent Establishment) either on asset test or activity test. Accordingly such interest cannot be assessed as business profits but has to be assessed as "interest" under Article 11/ 12

Interest on income tax refund is not effectively connected with the PE (Permanent Establishment) either on asset test or activity test. Therefore, taxable under the Article 11(2) of Indo Netherlands tax treaty

CIT vs. Bisleri Sales Ltd (Bombay High Court)

S. 28(va)/ 115JA: non-compete consideration received prior to insertion of s. 28(va) is not taxable. Amount credited to reserves without a corresponding debit to the P&L A/c cannot be added to the "book profits"

To invoke clause (b) of the Explanation below Section 115JB (identical to Section 115JA) of the Act, two conditions must be satisfied cumulatively viz. there must be a debit of the amount to the Profit and loss account and the amount so debited must be carried to Reserves. Admitted position in this case is that there is no debit to the Profit and loss account of the amount of Reserves. The impugned order has in view of the self evident position taken a view that in the absence of the amount being debited to Profit and Loss account and taken directly to the reserve account in the balance sheet, the book profits as declared under the Profit and Loss account cannot be tampered with

Regards,

 

Editor,

 

itatonline.org

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Latest:

C. S. Atwal vs. CIT (Punjab & Haryana High Court)

S. 2(47)(v)/(vi): Entire law on whether the entering into a joint development agreement with an irrevocable power of attorney in favour of the developer results in a "transfer" for purposes of capital gains explained

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High Court Raps ITAT For Arbitrariness And Failure To Discharge Basic Judicial Functions

 

Dear Subscriber,

 

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

Hinduja Global Solutions Ltd vs. UOI (Bombay High Court)

Action of the ITAT in disregarding its own order without reason and remanding matter to AO for fresh consideration is "arbitrary" and "failure to perform basic judicial function" and a "lapse" which should not occur again.

The Tribunal should not completely disregard its earlier order without some reason. This is the minimum expected of any quasi judicial / judicial authority. If the Tribunal has failed to perform it's basic judicial functions in such arbitrary manner, the approach of the Tribunal must be corrected, so as to ensure that such lapses do not occur again

Regards,

 

Editor,

 

itatonline.org

---------------------

Latest:

CIT vs. Dalmia Dyechem Industries (Bombay High Court)

S. 271(1)(c): The rigors of penalty provisions cannot be diluted only because a small number of cases are picked up for scrutiny. No penalty can be levied unless if assessee's conduct is "dishonest, malafide and amounting concealment of facts". The AO must render the "conclusive finding" that there was "active concealment" or "deliberate furnishing of inaccurate particulars"