ITR Volume 367 : Part 5 (Issue dated : 13-10-2014)

 

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

ONLINE EDITION

STATUTES AND NOTIFICATIONS

NOTIFICATIONS

Income-tax Act, 1961 : Notification under section 90 : Agreement between the Government of the Republic of India and the Royal Government of Bhutan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income . . . 257

PRINT EDITION

ITR Volume 367 : Part 5 (Issue dated : 13-10-2014)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Appeal to Commissioner (Appeals) --Powers of Commissioner (Appeals)--Power to admit additional evidence--Assessing Officer given opportunity to consider such evidence--Admission of additional evidence valid--Income-tax Act, 1961--Income-tax Rules, 1962, r. 46A-- CIT v. Kamlaben Sureshchandra Bhatti (Guj) . . . 692

Capital or revenue expenditure --Prior period expenses--Expenses on project work-in-progress--No change in method of accounting--Revenue expenditure--Income-tax Act, 1961, s. 37-- CIT v. Gaja Advisors (P.) Ltd. (Delhi) . . . 726

Cash credits --Source of credits satisfactorily explained--Deletion of addition under section 68--Justified--Income-tax Act, 1961, s. 68-- CIT v. Kamlaben Sureshchandra Bhatti (Guj) . . . 692

Charitable purpose --Charitable trust--Exemption--Will bequeathing entire property including immovable property and shares to assessee-trust--Will challenged in probate proceedings--Trust acquiring no legal right--No violation of section 11(5)--Income-tax Act, 1961, s. 11(5)--Director of Income-tax (Exemption) v. Khetri Trust (Delhi) . . . 723

Deduction of tax at source --Payment to sub-contractor--Contract for transportation of employees of client--Amount paid for hire of vehicles--No sub-contract--Tax not deductible at source on such amount--Income-tax Act, 1961, s. 194C-- CIT v. Mukesh Travels Co. (Guj) . . . 706

Income --Accrual--Time of accrual--Work executed under contract--Retention of part of consideration to ensure proper performance of work--Modification of contract--Assessee allowed to withdraw retained consideration on furnishing bank guarantee--Modification of contract did not make any difference--Amount retained did not accrue to assessee--Income-tax Act, 1961-- Amarshiv Construction P. Ltd. v. Deputy CIT (Guj) . . . 659

Income from undisclosed sources --Deletion of addition after considering facts--Deletion justified--Income-tax Act, 1961-- CIT v. Jayendra N. Shah (Guj) . . . 686

Interest-tax --Chargeable interest--Difference between finance and hire-purchase agreements--Finding that transaction was one of hire-purchase--Interest-tax cannot be levied--Interest-tax Act, 1974, s. 8(3)-- CIT v. N. K. Leasing and Construction P. Ltd. (T & AP) . . . 720

International transactions --Arm’s length price--Determination--Jurisdiction of Transfer Pricing Officer and Assessing Officer--Distinct--Fees for services paid by assessee to associated enterprise--Order of Transfer Pricing Officer as regards arm’s length price binding on Assessing Officer--But Assessing Officer to decide whether work or services actually rendered and expenditure was for business purpose--Payment must be subjected to transfer pricing study--No inference that merely because reimbursement was at cost, it was at arm’s length--Reimbursement of costs--Basis for costs incurred, activities for which incurred, benefit accruing to assessee must be proved to determine whether, and how much, of expenditure was for purpose of benefit of assessee and whether that amount subjected to proper transfer pricing analysis--Income-tax Act, 1961, ss. 37, 92, 92CA(3)--Income-tax Rules, 1962, r. 10C-- CIT v. Cushman and Wakefield (India) Pvt. Ltd. (Delhi) . . . 730

Precedent --Effect of decision of Supreme Court in CIT v. Harprasad and Co. P. Ltd. [1975] 99 ITR 118 (SC)-- Fenoplast Ltd. v. Asst. CIT (T & AP) . . . 761

Reassessment --Notice--Assessing Officer--Powers--Power to make additions on grounds other than those on which assessment reopened--Assessing Officer assessing income which come to his notice subsequently in course of proceedings under section 147--Reassessment valid--Income-tax Act, 1961, ss. 147, 148-- CIT v. Mehak Finvest Pvt. Ltd.(P&H) . . . 769

----Notice--Reasons to believe that assessee failed to fulfil conditions required to claim deduction under section 10B--Assessing Officer following due procedure and recorded sufficient reasons--Only remedy of assessee is to file an appeal after reassessment--Income-tax Act, 1961, s. 148-- Jeans Knit P. Ltd. v. Deputy CIT (Karn) . . . 773

----Notice--Validity--Failure to issue notice under section 143(2)--Notice not valid--Income-tax Act, 1961, ss. 143, 147-- CIT v. Sukhini P. Modi (Guj) . . . 682

----Notice after four years--Validity--Failure to disclose material facts necessary for assessment--Amortised deduction spread over ten years--Claim accepted in first year in scrutiny assessment--Notice in fifth year on ground that claim was excessive--No failure to disclose material facts necessary for assessment--Notice not valid--Income-tax Act, 1961, ss. 35D, 147, 148-- Gujarat Narmada Valley Fertilizers Co. Ltd. v. Deputy CIT (Guj) . . . 677

Search and seizure --Block assessment--Undisclosed income--Meaning of income in Chapter XIV-B--Undisclosed income having effect of reducing losses--Not assessable under Chapter XIV-B--Income-tax Act, 1961, Chapter XIV-B-- Fenoplast Ltd. v. Asst. CIT (T & AP) . . . 761

----Block assessment--Undisclosed income--Undisclosed income to be treated as part of total income--Depreciation deductible from such undisclosed income--Income-tax Act, 1961, Chapter XIV-B-- Fenoplast Ltd. v. Asst. CIT (T & AP) . . . 761

----Seizure of assets--Release of seized assets--Effect of proviso to section 132B(1)(i)--Release only if source of acquisition of asset is explained satisfactorily--Contradictory stands regarding acquisition of asset--Refusal to release asset--Justified--Income-tax Act, 1961, s. 132B-- Jinkal Dineshbhai Virvadiya v. Asst. CIT (Guj) . . . 713

Settlement of cases --Application for settlement--Interest under sections 234B and 234C not chargeable beyond stage of section 245D(1)--Income-tax Act, 1961, ss. 234B, 234C, 245D--C. M. Smith and Sons v. Asst. CIT (Guj) . . . 701

Unexplained investment --Explanation regarding investment satisfactory--Deletion of addition under section 69--Justified--Income-tax Act, 1961, s. 69-- CIT v. Kamlaben Sureshchandra Bhatti (Guj) . . . 692

Writ --High Court--Delay in filing writ petition--Reasonable cause for delay--Petition cannot be rejected--Constitution of India, art 226-- C. M. Smith and Sons v. Asst. CIT (Guj) . . . 701

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Art. 226 --Writ--High Court--Delay in filing writ petition--Reasonable cause for delay--Petition cannot be rejected-- C. M. Smith and Sons v. Asst. CIT (Guj) . . . 701

Income-tax Act, 1961 :

S. 11(5) --Charitable purpose--Charitable trust--Exemption--Will bequeathing entire property including immovable property and shares to assessee-trust--Will challenged in probate proceedings--Trust acquiring no legal right--No violation of section 11(5)-- Director of Income-tax (Exemption) v. Khetri Trust (Delhi) . . . 723

S. 35D --Reassessment--Notice after four years--Validity--Failure to disclose material facts necessary for assessment--Amortised deduction spread over ten years--Claim accepted in first year in scrutiny assessment--Notice in fifth year on ground that claim was excessive--No failure to disclose material facts necessary for assessment--Notice not valid-- Gujarat Narmada Valley Fertilizers Co. Ltd. v. Deputy CIT (Guj) . . . 677

S. 37 --Capital or revenue expenditure--Prior period expenses--Expenses on project work-in-progress--No change in method of accounting--Revenue expenditure-- CIT v. Gaja Advisors (P.) Ltd. (Delhi) . . . 726

----International transactions--Arm’s length price--Determination--Jurisdiction of Transfer Pricing Officer and Assessing Officer--Distinct--Fees for services paid by assessee to associated enterprise--Order of Transfer Pricing Officer as regards arm’s length price binding on Assessing Officer--But Assessing Officer to decide whether work or services actually rendered and expenditure was for business purpose--Payment must be subjected to transfer pricing study--No inference that merely because reimbursement was at cost, it was at arm’s length--Reimbursement of costs--Basis for costs incurred, activities for which incurred, benefit accruing to assessee must be proved to determine whether, and how much, of expenditure was for purpose of benefit of assessee and whether that amount subjected to proper transfer pricing analysis-- CIT v. Cushman and Wakefield (India) Pvt. Ltd. (Delhi) . . . 730

S. 68 --Cash credits--Source of credits satisfactorily explained--Deletion of addition under section 68--Justified-- CIT v. Kamlaben Sureshchandra Bhatti (Guj) . . . 692

S. 69 --Unexplained investment--Explanation regarding investment satisfactory--Deletion of addition under section 69--Justified-- CIT v. Kamlaben Sureshchandra Bhatti (Guj) . . . 692

S. 92 --International transactions--Arm’s length price--Determination--Jurisdiction of Transfer Pricing Officer and Assessing Officer--Distinct--Fees for services paid by assessee to associated enterprise--Order of Transfer Pricing Officer as regards arm’s length price binding on Assessing Officer--But Assessing Officer to decide whether work or services actually rendered and expenditure was for business purpose--Payment must be subjected to transfer pricing study--No inference that merely because reimbursement was at cost, it was at arm’s length--Reimbursement of costs--Basis for costs incurred, activities for which incurred, benefit accruing to assessee must be proved to determine whether, and how much, of expenditure was for purpose of benefit of assessee and whether that amount subjected to proper transfer pricing analysis-- CIT v. Cushman and Wakefield (India) Pvt. Ltd. (Delhi) . . . 730

S. 92CA(3) --International transactions--Arm’s length price--Determination--Jurisdiction of Transfer Pricing Officer and Assessing Officer--Distinct--Fees for services paid by assessee to associated enterprise--Order of Transfer Pricing Officer as regards arm’s length price binding on Assessing Officer--But Assessing Officer to decide whether work or services actually rendered and expenditure was for business purpose--Payment must be subjected to transfer pricing study--No inference that merely because reimbursement was at cost, it was at arm’s length--Reimbursement of costs--Basis for costs incurred, activities for which incurred, benefit accruing to assessee must be proved to determine whether, and how much, of expenditure was for purpose of benefit of assessee and whether that amount subjected to proper transfer pricing analysis-- CIT v. Cushman and Wakefield (India) Pvt. Ltd. (Delhi) . . . 730

S. 132B --Search and seizure--Seizure of assets--Release of seized assets--Effect of proviso to section 132B(1)(i)--Release only if source of acquisition of asset is explained satisfactorily--Contradictory stands regarding acquisition of asset--Refusal to release asset--Justified-- Jinkal Dineshbhai Virvadiya v. Asst. CIT (Guj) . . . 713

S. 143 --Reassessment--Notice--Validity--Failure to issue notice under section 143(2)--Notice not valid-- CIT v. Sukhini P. Modi (Guj) . . . 682

S. 147 --Reassessment--Notice--Assessing Officer--Powers--Power to make additions on grounds other than those on which assessment reopened--Assessing Officer assessing income which come to his notice subsequently in course of proceedings under section 147--Reassessment valid-- CIT v. Mehak Finvest Pvt. Ltd. (P&H) . . . 769

----Reassessment--Notice--Validity--Failure to issue notice under section 143(2)--Notice not valid-- CIT v. Sukhini P. Modi (Guj) . . . 682

----Reassessment--Notice after four years--Validity--Failure to disclose material facts necessary for assessment--Amortised deduction spread over ten years--Claim accepted in first year in scrutiny assessment--Notice in fifth year on ground that claim was excessive--No failure to disclose material facts necessary for assessment--Notice not valid-- Gujarat Narmada Valley Fertilizers Co. Ltd. v. Deputy CIT (Guj) . . . 677

S. 148 --Reassessment--Notice--Assessing Officer--Powers--Power to make additions on grounds other than those on which assessment reopened--Assessing Officer assessing income which come to his notice subsequently in course of proceedings under section 147--Reassessment valid-- CIT v. Mehak Finvest Pvt. Ltd. (P&H) . . . 769

----Reassessment--Notice--Reasons to believe that assessee failed to fulfil conditions required to claim deduction under section 10B--Assessing Officer following due procedure and recorded sufficient reasons--Only remedy of assessee is to file an appeal after reassessment-- Jeans Knit P. Ltd. v. Deputy CIT (Karn) . . . 773

----Reassessment--Notice after four years--Validity--Failure to disclose material facts necessary for assessment--Amortised deduction spread over ten years--Claim accepted in first year in scrutiny assessment--Notice in fifth year on ground that claim was excessive--No failure to disclose material facts necessary for assessment--Notice not valid-- Gujarat Narmada Valley Fertilizers Co. Ltd. v. Deputy CIT (Guj) . . . 677

Chapter XIV-B --Search and seizure--Block assessment--Undisclosed income--Meaning of income in Chapter XIV-B--Undisclosed income having effect of reducing losses--Not assessable under Chapter XIV-B-- Fenoplast Ltd. v. Asst. CIT (T & AP) . . . 761

----Search and seizure--Block assessment--Undisclosed income--Undisclosed income to be treated as part of total income--Depreciation deductible from such undisclosed income--Fenoplast Ltd. v. Asst. CIT (T & AP) . . . 761

S. 194C --Deduction of tax at source--Payment to sub-contractor--Contract for transportation of employees of client--Amount paid for hire of vehicles--No sub-contract--Tax not deductible at source on such amount-- CIT v. Mukesh Travels Co. (Guj) . . . 706

S. 234B --Settlement of cases--Application for settlement--Interest under sections 234B and 234C not chargeable beyond stage of section 245D(1)-- C. M. Smith and Sons v. Asst. CIT(Guj) . . . 701

S. 234C --Settlement of cases--Application for settlement--Interest under sections 234B and 234C not chargeable beyond stage of section 245D(1)-- C. M. Smith and Sons v. Asst. CIT(Guj) . . . 701

S. 245D --Settlement of cases--Application for settlement--Interest under sections 234B and 234C not chargeable beyond stage of section 245D(1)-- C. M. Smith and Sons v. Asst. CIT(Guj) . . . 701

Income-tax Rules, 1962 :

R. 10C --International transactions--Arm’s length price--Determination--Jurisdiction of Transfer Pricing Officer and Assessing Officer--Distinct--Fees for services paid by assessee to associated enterprise--Order of Transfer Pricing Officer as regards arm’s length price binding on Assessing Officer--But Assessing Officer to decide whether work or services actually rendered and expenditure was for business purpose--Payment must be subjected to transfer pricing study--No inference that merely because reimbursement was at cost, it was at arm’s length--Reimbursement of costs--Basis for costs incurred, activities for which incurred, benefit accruing to assessee must be proved to determine whether, and how much, of expenditure was for purpose of benefit of assessee and whether that amount subjected to proper transfer pricing analysis-- CIT v. Cushman and Wakefield (India) Pvt. Ltd. (Delhi) . . . 730

R. 46A --Appeal to Commissioner (Appeals)--Powers of Commissioner (Appeals)--Power to admit additional evidence--Assessing Officer given opportunity to consider such evidence--Admission of additional evidence valid-- CIT v. Kamlaben Sureshchandra Bhatti (Guj) . . . 692

Interest-tax Act, 1974 :

S. 8(3) --Interest-tax--Chargeable interest--Difference between finance and hire-purchase agreements--Finding that transaction was one of hire-purchase--Interest-tax cannot be levied-- CIT v. N. K. Leasing and Construction P. Ltd. (T & AP) . . . 720

 

__._,_.___

Four Important Verdicts On s. 41(1) Remission, Capital Gains And Transfer Pricing

 

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

ITO vs. Sajjankumar Didwani (ITAT Mumbai)

S. 41(1): Unclaimed & unproven liabilities are deemed to have ceased and are assessable as income

(i) When the liability continues to subsist year after year, for several years, serious and valid doubts as to its existence or as representing an existing liability, may arise. This is as in the very nature of the events, nobody would ordinarily, i.e., without justifiable reason, not claim his dues, representing his hard earned money […]

HSBC Electronic Data Processing India vs. ACIT (ITAT Hyderabad)

Transfer pricing principles on right of TPO to collect info u/s 133(6), exclusion of high profit comparables, adjustment for limited risk environment, exclusion of reimbursement costs for computing operation margins explained

(i) The TPO conducted search in the data bases for finding additional comparable by applying 25% employee cost filter. After examining the information obtained from the company u/s 133(6) of the Act the TPO treated it as comparable by observing that the company is engaged in IT enabled services and qualifies all the filters adopted […]

DCIT vs. M. Kalyan Chakravarthy (ITAT Hyderabad)

S. 2(1A): Gains from sale of agricultural land is exempt even though purchaser intends to use the land for commercial purposes

The only reason the A.O. treated the land as non-agricultural land was that 'agreement of sale' read with 'Irrevocable GPA' does not indicate that land retained the character of agriculture at the time of transfer. This was also the ground raised by Revenue in the appeal that M/s. Ramky Estates and Farms P. Ltd., may […]

AMD Research & Development Center vs. DCIT (ITAT Hyderabad)

In view of the finding of the service-tax authorities that services were rendered, argument that amount paid is a reimbursement of actual cost without profit element is not acceptable and it is chargeable as "fee for included services"

Having held that the amount in question was remitted by the assessee company to ATI Technologies, Canada for certain benefits received by it in the form of services procured by ATI Technologies, Canada from Soctronics India Private Limited and provided to the assessee company, and it was not a case of either gratuitous payment made […]

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Harsha L. Tahilramani vs. ACIT (ITAT Mumbai)

Law on the tests to distinguish whether gains on sale of shares is short-term or business profits explained

ITAT Explains Entire Transfer Pricing Law On Trading + S. 40(a)(ia) TDS Disallowance

 

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

Mitsubishi Corporation India Pvt. Ltd vs. DCIT (ITAT Delhi)

In a case of "sogo shosha" business model (high volume, low risk, trading of goods), the "berry ratio" (benchmarking gross profit and/ or net revenues (after subtraction of cost of sales) against operating expenses is an appropriate PLI. To avoid discrimination under Article 24(3) of the India-Japan DTAA, the benefit of no disallowance u/s 40(a)(ia) (in the cast of residents) for want of TDS if the recipient has paid the tax has to be extended to non-residents u/s 40(a)(i)

(iii) In case the normal PLI of operating profit to operating costs (including inventory costs) or operating profit to sales was applied, every comparable which is picked up for comparing trading activity of the assessee, which is admittedly an integral part of sogo shosha activities of the MCJ group, will, therefore, have its inherent limitations because functional profile of the assessee's trading activity is, and cannot be, the same as that of the comparables. It is, therefore, important to find out a way, by selecting the appropriate profit level indicator, to eliminate this critical difference between sogo shosha activity of the assessee and any other trading activity that the comparables may have. As a matter of fact, it is the level of inventory which is crucial factor in determining the kind of trading activity an assessee has carried out. The CBDT has defined wholesale trader with reference to, inter alia, its monthly inventory level being less than 10% and prescribes a lower tolerance range at one third the level of normal tolerance range. This notification is in the context of tolerance range, prescribing lesser tolerance range for the whole traders implying that the margin of profits for wholesalers must move in a lower range which can only happen when margins are also lower vis-à-vis margins in wholesale trading, but this also indicates that lower inventory levels lead to lower inventory risks and generally resultant lower profit levels also. There is thus a direct relationship between the normal inventory levels and the normal profitability;

(ix) In typical cases of pure international trading, there is neither any processing of goods involved nor is there use of any significant trade or marketing intangibles. The inventory levels are also extremely low, at least with respect to the goods traded, since the nature of activity does not require maintenance of inventories and there is sufficient lead time between order being received and the actual procurement activity. There are no other factors, in addition to the operating costs, which affect direct relationship between operating costs and operating profits. Therefore, except in a situation in which significant trade or marketing intangibles are involved or in a situation in which there is further processing of the goods procured before selling the same or in a situation which necessitates employment of assets in infrastructure for processing or maintenance of inventories, the use of berry ratio does seem to be quite appropriate;

(xii) As regards cases where the non-resident has filed a ROI, as s. 40(a)(i) does not have an exclusion clause similar to the second proviso to s. 40(a)(ia), payments made to non-residents, without deduction of tax at source will be disallowable even in a situation when the non-resident recipient has taken into account such payments in computation of his income, has paid taxes on the same and filed the income tax return. However, this creates discrimination in terms of Article 24(3) of the India Japan DTAA in the deductibility of payments made to resident entities vis-à-vis non-resident Japanese entities. Accordingly, the relaxation under second proviso to s. 40(a)(ia) is to be read into s. 40(a)(i) as well and it is required to be treated as retrospective in effect in the same manner as second proviso to s. 40(a)(i) has been treated. Such an interpretation will lead to the deduction parity as envisaged in Article 24(3) of Indo Japan DTAA.

If you have a practice in Transfer Pricing, check out our growing collection of important judgements. You can search on the basis of Court, Judge, Counsel, Section, Catch Words etc. 

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Latest:

DCIT vs. Spaze Tower Pvt. Ltd (ITAT Delhi)

Expl 2 to S. 132B, though inserted w.e.f. 1.6.2013, is retrospective and seized cash cannot be adjusted against advance-tax liability

Important Verdicts On S. 14A Rule 8D + Other Controversial Issues

 

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

Harsha L. Tahilramani vs. ACIT (ITAT Mumbai)

Law on the tests to distinguish whether gains on sale of shares is short-term or business profits explained

(i) The assessee wonders as to why should she be not allowed her claim of the delivery-based transactions as being not trade, which stands admitted by her qua non-delivery based transactions? However, that precisely defines the controversy which is to be resolved (with reference to and on the basis of the facts), so that nothing […]

HSBC Invest Direct (India) Ltd vs. DCIT (ITAT Mumbai)

Various arguments on the applicability of s. 14A & Rule 8D where the AO has not recorded satisfaction, where the shares are held in strategic/ subsidiary companies, held as stock-in-trade, where there are surplus funds and the quantum of disallowance under Explanation (f) to s. 115JA/ 115JB considered

(i) When it is said that rule 8D is mandatory (i.e., AY 2008-09 onwards), all that is meant is where the said expenditure cannot be reasonably ascertained with reference to the assessee's accounts, toward which the AO is to issue his satisfaction or, as the case may be, dissatisfaction, he has no discretion in case […]

Anuj Kumar Varshney vs. ITO (ITAT Jaipur)

Bogus purchases: Filing of confirmation of suppliers with PAN and TIN number are not sufficient to prove the purchases are genuine if they are not supported by other facts including delivery of goods & presence of suppliers

The department had gathered the information through survey and search seizure in above parties and they categorically admitted that they have provided entries and not doing any purchase and sale of gems and jewellery. Even then Assessing Officer asked to produce these parties for verification which could not be produced by it. The Assessing Officer […]

Global Signal Cables (I) Pvt. Ltd vs. DCIT (Delhi High Court)

S. 147: The reasons must specifically indicate as to which material fact was not disclosed by the petitioner in the course of its original assessment

In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe […]

ITO vs. Reliance Share and Stock Brokers (P) Ltd (ITAT Mumbai)

No S. 14A/ Rule 8D Disallowance if accounts not examined. Consent fee paid to SEBI is not penalty for infraction of law

Re Disallowance made u/s 14A r.w. rule 8D (i) It is now settled principle that the assessing officer has to examine the disallowance made by the assessee by having regard to the accounts of the assessee and only thereafter the AO, if he is not satisfied with the correctness of the claim, shall determine the […]

Mathewsons Exports & Imports vs. ACIT (ITAT Cochin)

charter hire payment is not assessable as royalty, there is no obligation to deduct TDS and no disallowance u/s 40(a)(i) can be made

It is very clear that the payments made by the assessee company were in the nature of simple payments for chartering ships on hire for doing the business outside India. Therefore, the payments do not satisfy the test laid down in s.9 of the IT Act, 1961. When s. 9 is not satisfied, there cannot […]

DCIT vs. Baljit Securities Private Limited (ITAT Kolkata)

Rule 8D(ii) & 8D(iii) do not apply to shares held as stock-in-trade. Loss arising out of derivatives from the income arising out of buying and selling of shares

(i) Both trading of shares and derivative transactions are not coming under the purview of Section 43(5) of the Act which provides definition of "speculative transaction" exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both delivery based transaction in shares and derivative transactions are non-speculative as far as […]

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Latest:

Mitsubishi Corporation India Pvt. Ltd vs. DCIT (ITAT Delhi)

In a case of "sogo shosha" business model (high volume, low risk, trading of goods), the "berry ratio" (benchmarking gross profit and/ or net revenues (after subtraction of cost of sales) against operating expenses is an appropriate PLI. To avoid discrimination under Article 24(3) of the India-Japan DTAA, the benefit of no disallowance u/s 40(a)(ia) (in the cast of residents) for want of TDS if the recipient has paid the tax has to be extended to non-residents u/s 40(a)(i)

Three Important Verdicts On S. 43B, S. 50C And S. 40(a)(ia) Controversies

 

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

CIT vs. Ghatge Patil Transports Ltd (Bombay High Court)

S. 2(24)(x) r.w.s 36(1)(va) & 43B: Even employees' contribution to PF etc is allowable if deposited before due date of filing ROI

Section 43B made it mandatory for the department to grant deduction in computing the income under section 28 in the year in which tax, duty, cess, etc. is actually paid. However, Parliament took cognizance of the fact that the accounting year of a company did not always tally with the due dates under certain statutes […]

ITO vs. Onkarmal Kajaria Family Trust (ITAT Kolkata)

S. 50C: AO cannot straightaway adopt stamp duty value as consideration for capital gains but must offer assessee benefit of reference to DVO for valuation

It is difficult to accept the proposition that the assessee had accepted that the price fixed by the District Sub Registrar was the fair market value of the property. No such inference can be made as against the assessee because he had nothing to do in the matter. Stamp duty was payable by the purchaser. […]

G. Shankar vs. ACIT (ITAT Bangalore)

Second proviso to s. 40(a)(ia) inserted w.e.f. 1.4.2013 should be treated as retrospectively applicable from 1.4.2005 and no disallowance for want of TDS can be made if payee has paid tax thereon. Assessee must be given opportunity to file Form 26A

The undisputed fact is that the assessee has not deducted tax at source on the payments made to Uday Kumar Shetty. The fact that the payee has accounted for these payments in his books of account, financial statements and the same have been offered for tax in his return of income for the period relevant […]

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Latest:

ITO vs. Sajjankumar Didwani (ITAT Mumbai)

S. 41(1): Unclaimed & unproven liabilities are deemed to have ceased and are assessable as income

Section 68 Helps Nail Jayalalitha’s Corruption Cash Credits

 

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S. 68 Helps Nail Jayalalitha's Corruption Cash Credits

The Hindu has made available a copy of the judgement of John Michael Cunha J. in the case of State vs. Selvi. J. Jayalalitha (pdf). The judgement exposes the intricate arrangements that were made to launder the huge amount of cash credits that were received by J. Jayalalitha (former Chief Minister of Tamil Nadu) from alleged corrupt means. The judgement also raises disturbing questions as to the role of the auditors of the front companies in seeking to camouflage the true nature of the transactions. A few passages from the judgement are noteworthy.

(i) As in s. 68 of the Income-tax Act, the onus is on the accused to explain the nature and source of the investment & cash credits because he has special knowledge about how a particular asset was acquired or an investment therein was made. Such proof includes proof of the identity of the person who according to the accused provided the source, capacity of such person to advance or spend the money, and lastly, the genuineness of the transaction. On facts, the accused have failed to offer any satisfactory explanation as to the enormous unexplained credits entered into their bank accounts. Whatever explanation offered by the accused by way of confirmatory letters are proved to be false and bogus. The identity of the persons who provided the source is not proved. The transactions which resulted in the cash credit is also not established (Kale Khan Mohammed Hanif (1963) 50 ITR 1 (SC) followed);

(ii) The auditors examined by the accused are found to be propped up to support the false defence set up by the accused. It is proved in evidence that the auditors examined by the accused did not handle their accounts during the check period and they were not conversant with the true facts. It is also proved in evidence that, the returns and the balance sheet and the profit and loss account were maneuvred solely with a view to offer an explanation to the huge unexplained credits entered in their respective bank accounts;

(iii) Mere declaration of property in the Income Tax returns does not amount to showing the same was acquired from the known source of income. The prosecution could show that, there was no real source of income with the assessees and the public servant is the real source. In the instant case, the prosecution has succeeded in proving beyond reasonable doubt that the only source for the acquisition of the large assets is A-1 (J. Jayalalitha) herself.

Regards,

 

Editor,

 

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SC Comes To Rescue Of ‘Wait-Listed’ ITAT Member Candidate Overlooked By UOI For 7 Years

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

Inturi Rama Rao vs. UOI (Supreme Court)

As the UOI has continued the process of appointment of Tribunal Members without amending the Rules, the Petitioner, who was wait-listed in 2007, deserves to be considered for appointment within 30 days

The Selection Committee finalized a list of 18 persons, 13 for the post of Accountant Member and 5 for the post of Judicial Member. The Petitioner, Inturi Rama Rao, was placed in a 'Waiting List' appointment as Accountant Member. The Select List was approved by the Appointment Committee of the Cabinet (ACC) and 11 vacancies of Accountant Members were filled up whereas 5 vacancies of Judicial Members were also filled up. Two vacancies of Accountant Members remained vacant as the two candidates who were selected were not cleared by the Vigilance. The Petitioner, who was in the Waiting List, perceived a right to be appointed against one of the vacant posts of Accountant Member. As appointment was not forthcoming, the Petitioner moved the Central Administrative Tribunal. Appropriate relief was granted by the CAT. The order of the CAT was affirmed by the Delhi High Court. However, the appeals filed by the UOI against the said order of the CAT and High Court were allowed by the Supreme Court on the ground that there was a difference between the main list of selected candidates and the wait-listed candidates. As appointments of the candidates in the main list (16 in number) had already been made, the Supreme Court thought it proper not to affirm the directions for appointment of the wait-listed candidates as made by the CAT and the High Court. It accepted the contentions made by the UOI that further appointments would be made only after amendment of the Rules pertained to the eligibility of the candidates. However, as the amendment to the Rules has not been effected till date and instead, the UOI initiated fresh selection process in the year 2013 on the basis of the unamended Rules and the selection process was completed and the appointments are awaited, the Petitioner filed a fresh Writ Petition. HELD by the Court allowing the Petition:

What we find is that notwithstanding the statement made on behalf of the Union of India before this Court that vacancies in the future will be made only after the amendments in the Rules are carried out, the Union of India has initiated a process to make further appointments without amending the Rules. If persons eligible under the then existing Rules which are in force even today are to be considered for appointment, surely, the petitioner, who is a wait-listed candidate, will also have to be considered for appointment by consideration of his entitlement for appointment as in the year 2007 when the appointments on the main-list were made and the two vacancies arose giving rise to the issue of operation of the waiting list. What follows from the above is that even accepting the order dated 17.11.2011 passed by this Court, in view of the subsequent facts and events that have occurred, namely, action of the Union of India in resorting to a fresh process of selection and appointment without amendment of the Rules, the right of the petitioner to be considered for appointment on the basis of his position in the Waiting List has once again come to fore which needs to be resolved by an appropriate order. We, therefore, allow this writ petition and direct consideration of the case of the petitioner for appointment on the basis of his position in the Waiting List against one of the two vacancies that had arisen on account of two of the candidates in the merit list not having been granted the vigilance clearance. This will be done by the concerned Authority within 30 days from the date of receipt of a copy of this order.

Regards,

 

Editor,

 

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