case (july 2011) s. 2 (ia) -...

Monthly Digest of Case laws (July 2011) http://www.itatonline.org 1

Monthly Digest of Case laws (July 2011)

(Journals Referred: ACAJ / BCAJ / BLR / CITC / CTR / DTR / ITD / ITR (Trib.) / ITR / SOT / SSC / TTJ /TLR / Taxman / Taxation / Tax World, www.itatonline.org)

S. 2 (IA): Agricultural Income‐ Sale of Rubber scrap‐ Scrap generated in Industrial activity.

Sale of scrap rubber which is generated in course of extraction of rubber latex from trees can not be brought to Income tax by applying rule 7A because scrap is generated in course of taking yield which is purely an agricultural operation. However, income from scrap generated in industrial activity of processing latex in to products referred to in rule 7A (1) has to be brought to income tax under rule 7.

CIT v State Farming Corporation Ltd (2011) 199 Taxman 371 ( Ker) (High Court).

S. 2 (15): Charitable Trust‐ Production of television and radio programmes‐ Registration ( s. 12A).

Production of television and radio programmes for purpose of telecasting and broad casting through assessee’s own network or through one hired by it would not constitute advancement of any object of general public utility with in the meaning of section 2 (15).Application for registration has to be considered with reference to objects of assessee available as on end of previous year during which registration is sought under section 12A.

CIT v A.Y. Broad Cast Foundation (2011) 199 Taxman 376 ( Ker) (High Court).

S.2 (22) (e): Deemed dividend‐Security deposit‐Date of deposit.

Since on the date on which the security deposit was given by the company to the assessee , the assessee held less than 10 percent beneficial interest in the company , the amount of security deposit can not be treated as deemed dividend under section 2 (22) (e) , merely on the ground that share holding increased to 44% on issue of shares by the company in lieu of security deposit.( A. Y. 1998‐99)

CIT v Late C.R.Das (2011) 57 DTR 201 (Delhi) (High Court).

S. 2 (22) (e): Deemed dividend‐ Loan to a concern in which share holder is a partner‐ Security deposit.

Partners of the assessee firm and not the assessee firm being a share holder of the company AG ltd. Amount received by the assessee firm from the company as security deposit can not be regarded as deemed dividend . Even other wise ,the amount received from AG Ltd being security deposits under an agreement between the parties coupled with certain obligations , it can not be regarded to be payment by the company by way of advance or loan and hence , it can not be assessed to tax under section 2 (22) (e).( Assst year 2006‐07).


DY CIT v Atul Engineering Udyog ( 2011) 57 DTR 433 ( Agra) (Trib).

S. 2 (31) (V). Association of persons‐ Individual‐Assessment‐ HUF‐ Capital gains. (S.4, 45).

After the death of sole male member of the family, the only person left in the family was the widow of the deceased and three daughters were already married. The property of the deceased would devolve on the window and three married daughters in equal shares, since the property of the deceased was sold without dividing the same among the assessee and her three married daughters, the capital gains on the sale of the property would be assessable in the hands of the BOI consisting of the assessee and her three married daughters (Asst Year 2005‐06)..

ITO v Shanti Dubey (2011) 139 TTJ 502/ 58 DTR 422 (Jab) (Trib).

S.4. Income –Interest earned – Performance guarantee.

Interest income earned by the assessee on the fixed deposit for performance of guarantee of contract was held to be capital in nature and cannot be assessed as income from other sources.

CIT vs. Jaypee DSC Ventures Ltd. (2011) 53 DTR 305 (Del)( High Court).

S.5. Income – Accrual.

Hypothetical income credited by the assessee in the profit and loss account in respect of excise refund based on a Supreme Court decision in case of a third party cannot be said to have accrued to the assessee.( A. Y. 1988‐89)

CIT vs. Nuchem Ltd. (2011) 55 DTR 14 (P&H)( High Court).

S. 5. Income‐ Accrual of Income‐ Earnest money‐ Sale of land.

Earnest money received for transfer of land . Transaction not taking place in year. Earnest money received not to be treated as income in year under consideration.( Asst year 2004‐05).

DY CIT v Shiv Sai Developers ( 2011) 10 ITR 80 (Mumbai ) (Trib).

S. 9 (i).– Income deemed to accrue or arise in India – India US DTAA.

On facts, Liaison office purchasing diamonds for export to HO does not constitute PE under India‐US DTAA and it was covered under explanation 1(b) to section 9(1)(i) of Income Tax Act.

ADIT vs. M. Fabrikant & Sons Ltd., dt.28‐01‐2011, A.Y. 1999–2000 to 2002‐03 & 2003 – 2004, BCAJ pg. 42, Vol. 43‐A, Part 2, May 2011.


S.9(i).: Income deemed to accrue or arise in India‐Sale of shares by Mauritius Co can be treated as sale by 100% USA parent. Sale of shares of foreign company taxable if object is to acquire the Indian assets ( S.148, 163 ,195.).

(i) The argument that s. 163 applies only with respect to income “deemed to accrue or arise” in India u/s 9 and not to income “accruing or arising” is not acceptable. Pursuant to Eli Lily 312 ITR 225 (SC), the income accruing or arising in India to NCWS, USA on transfer of a capital asset situate in India, (shares of Idea Cellular) is deemed to accrue or arise in India to NCWS and can be assessed either in the hands of NCWS or in the hands of the payer as agent of the non‐resident u/s 163;

(ii) The argument that the AO having issued a NOC u/s 195(2) permitting Aditya Birla Nuvo to remit the sale proceeds without TDS could not recover the tax from the payer by treating it as agent is not acceptable because the said order was obtained by “suppressing material facts” relating to the circumstances in which the shares of Idea Cellular were issued in the name of AT&T Mauritius. As the payer had obtained the s. 195(2) Certificate by making a representation which was incorrect to its knowledge, it could not claim that the s. 195(2) Certificate was validly issued. Further, the proceedings u/s 163 & 195 operate in different fields;

(iii) The argument that once the AO exercises his option u/s 166 to assess the non‐resident NCWS USA directly by issuing notice u/s 148, the proceedings initiated against the payer must come to an end is not acceptable because there is nothing in the Act to suggest that the option to assess either in the hands of the representative assessee or in the hands of the non‐resident must be exercised at the threshold itself and not at the end of the assessment proceedings. While ordinarily, the AO must not proceed against the representative assessee once proceedings are initiated against the non‐resident, in exceptional cases like the present one where complex issues are involved and the AO is unable to make up his mind on account of suppression of material facts, it is open to the AO to continue with the assessment proceedings against the representative assessee and the non‐resident simultaneously till he decides to assess either of them;

(iv) NCWS’ argument that the s. 148 notice is without jurisdiction is not acceptable because the prima facie belief of the AO that the transaction was in fact a transaction for transfer of a capital asset situate in India (shares of Idea Cellular) was with substance. It is open to NCWS to prove to the contrary by placing all material facts in the assessment proceedings;

(v) Tata Industries’ argument that no gains are taxable in India as the subject matter of sale were shares of AT&T Mauritius and not the shares of Idea Cellular is not acceptable because prima facie it appears that the transaction for sale of shares of AT&T Mauritius was a “colourable transaction” and was in fact for sale of the shares of Idea Cellular.

Adiya Birla Nuvo Limited vs DDIT ( 2011) 200 Taxman 437/ 59 DTR 1( Bombay) ( High Court) www.itatonline.org.

S. 9 (i): Income deemed to accrue or arise in India‐ Business connection‐Activities of liaison office in India.( S. 5 (2) (b ))


Since the Indian Office of the non resident assessee –company practically carry out all operations of the business of the commission agent except the formation of the contract between the vendors and the buyers , it can not be argued that no income accrues or arise in India from the commission , however as the CIT (A) has overstated the role of the Indian Offices in the overall conduct of business , instead of allocation of commission at 30 percent commission income is allocated to the Indian operations at 50 percent.( Asst Years 1999‐2000 to 2005‐06).

Linmark International ( Hong Kong) Ltd v Dy CIT ( 2011) 57 DTR 340 ( Delhi)( Trib)

S. 9(i): Income deemed to accrue or arise in India‐ Non‐Resident, with “business connection”, taxed only in respect of business operations carried out in India – canvassing agent – not `business connection’, fair fee extinguishes non‐residents liability to tax.

(i) The expression ‘business connection’ does not cover mere canvassing for business by an agent in India. It postulates a real and intimate relation between business activity carried on outside India and business activity within India, the relation between the two contributing to the earning of income by the non‐resident in his business activity. The business operations carried out outside India and inside India must have such a relationship as to contribute to business operations as a whole.

(ii) The scope of deeming fiction u/s 9 (1)(i) which prima facie appears to be an extension of the classical source rule of taxation is in fact confined to the simpliciter taxability of an income earned in a tax jurisdiction because ‘while the main provision of the deeming fiction seems to be taking a rather aggressive view of the source rule, the Explanations to the deeming fiction considerably narrow down the scope of the same’ and to that extent there is overlapping of s. 9(1)(i) and s.5(2)(b). Further, while s. 9(1)(i) provides that an income with ‘business connection’ in India is chargeable to tax no matter in which part of the world it accrues or arises, the income which can be subjected to tax in India can never exceed the income attributable to operations carried out in India – by the non‐resident or by the agent. This is made clear by clause (a) of Explanation 1 to s. 9(1)(i) and Explanation 3. The result is that if the agent (“the business connection”) has been compensated with fair remuneration, there cannot be further income of the non‐ resident which can be brought to tax u/s 9(1)(i) r.w.s. 5(2)(b).

ADCIT vs Star Cruise India Travel Services ( Mumbai)( Trib). www.itatonline.org.

S. 9(1) (Vii).Income deemed to accrue or arise in India‐ Fees for technical services.

Income received by a US company , by way of fees for technical services could not be deemed to have accrued or arisen in India as the services under the agreement were not rendered with in India even though services received from it may have been utilized by the Indian company in India.( Asst year 1991‐92).

Grasim Industries Ltd & Ors v CIT ( 2011) 58 DTR 47 / 242 CTR 166( Bom) (High Court).


S.9(1)(vii): Income deemed to accrue or arise in India‐ Deduction of tax at source‐ Payment to non resident‐ Training its personnel‐Fees for technical service‐ Income deemed to accrue or arise in India. ( S, 40 (a) )(i),195. )

Assessee company during relevant assessment year made payment to non resident party for training its personnel or customers to explain proposed buyers salient features of products imported by assessee in India and to impart training to customers to use equipment . The payment made could not be said to be fees for technical services and not liable for deduction of tax at source. ( Asst Year 2007‐08).

Asst CIT v PCI Ltd ( 2011) 46 SOT 183 ( Delhi ) (Trib).

S. 10 (22):Educational Institution‐ Purpose of profit. ( S. 11 (1)(a) , 13( 1) (c ), 13 (3).

Exemption under section 10 (22) is available only if the assessee is running an educational institution solely for educational purposes and not for purposes of profit : Exemption under section 10 (22) is not allowable to the assessee as its objects include establishing small –scale industries of all kind and to aid and assist the poor , the grief –stricken ,the destitute , and persons and animals suffering from calamities.( Asst years 1983‐84 to 1985‐86).

CIT v Gurukul Ghatkeswar Trust ( 2011) 58 DTR 122 ( AP) (High Court).

S. 10 (23FB): Exemption‐Venture Capital fund‐Income from other sources .

It was held that exemption claimed with respect of any income from any VCF prior to 1/4/2008 was exempt as the amendment to s. 10(23FB), which restricted to the exemption to income from investment by VCF, is with effect from 1/4/2008 and is prospective.

ITO v Kshitij Capital Fund ( 2011) 131 ITD 290 ( Mumbai ) (Trib).

S. 10A: Exemption‐ Free Trade Zone‐Adjustment of loss against taxable profit of other unit.‐ Export turn over.

From Assessment year 2001‐02 section 10A is no longer an exemption provision and it allows only deduction from total income , loss from 10A unit has to be adjusted against taxable profit of other unit after deduction under section 10A has been allowed in respect of eligible units. Assessee had incurred data line cost being telecommunication charges in respect of its unit and same was included in export turnover for purpose of deduction under section 10A. Assessing Officer excluded the data line cost from export turnover. Since expenses incurred on development of software in India could not be considered as expenses attributable to delivery of computer soft ware out side India , such expenses could not be excluded from export turn over.( Asst Year 2006‐07).

Capgemini India ( P) Ltd v Addl CIT ( 2011) 46 SOT 195 ( Mumbai) (Trib).


S. 10B: Deduction‐Splitting up or reconstruction of existing business – Lease of undertaking.

Assessee company claimed the deduction under section 10B on the basis of the lease arrangement between the assessee company and the predecessor , the tribunal held that such claim of benefit under section 10 B for the balance unexpired period was not allowable because the claim was not based on the establishment of new industrial undertaking. ( Asst Years 2006‐07 & 2007‐08).

Synergies Casting Ltd v Dy CIT ( 2011) 57 DTR 503 ( Hyd) (Trib).

S.10B: Deduction‐Export of computer software‐ Back office operation‐Computation‐ Transaction with related concerns. ( S. 80IA (10).

Activities of software programming carried on by the assessee company to render quality and testing assurance services to foreign clients and transmitting the same through internet are in the nature of back office operations covered by CBDT Notification no 890 (E) dt 26 th September , 2000 issued for the purpose of Explanation 2 to section 10B and therefore , assessee company registered as a 100 percent EOU with STPI is entitled to deduction under section 10B. The assessee company had raised the bills for the services rendered by it in consonance with the terms of agreement settled between it and its clients from time to time and STPI having certified that such services , it can not be said that profits shown by the assessee are on the higher side and therefore , profits of the assessee company could not be reworked by applying the provisions of section 80IA (10) for the purpose of allowing exemption under section 10B.( Asst years 2005‐06 to 2007‐08).

Bebo Techlogies (P) Ltd v JCIT ( 2011) 57 DTR 402 ( Chd) (Trib).

S. 11: Charitable trust‐ Property sub let.

In order to carry out the charitable activity of the trust in effective manner if the property of the trust is sub – let and rental income is received thereon the exemption under section 11 cannot be denied by the assessing officer invoking provisions of section 11 (4A) of the Act.(A. Y. 1991‐92)

Director of Income tax (Exemption) vs. Sahu Jain Trust (2011) 56 DTR 402 (Cal) (High Court).

S. 12A: Charitable purpose‐ Stock exchange‐ benefit to individual stock broker or members or employees – no exemption granted u/s. 11.

When a stock exchange carries out any activity for sole benefit of its members or ex members or employees or ex employees or their dependents and not for benefit of general public which is distinguished from class or community consisting of its members , ex members , employees or ex employees or their dependents and connections , it would not be entitled for exemption under section 11.Members of exchange being integral part of constitution of exchange who are interested persons as


per provisions of section 13 (1) (c ), they are precluded from taking any undue advantages from assessee exchange. Assessee being registered under section 12A, benefit of assessee –exchange would be for public at large and not for benefit of individual stock brokers or members of Governing body of stock exchange . Since the assessee incurred expenditure for benefit of its members and subsidiary company only, provisions of section 13 (1) (C) read with section 13 (2) (b) and 13 (3) (cc) was applicable to fact of case and consequently , assessee was not entitled for exemption under section 11.( Asst years 2001‐02 to 2006‐07).

Hyderabad Stock Exchange Ltd v Asst Director of Income Tax ( 2011) 46 SOT 1 (Hyd) (Trib).

S. 12A: Charitable Trust‐ Registration of Trust .( S. 80G)

Application for renewal of exemption certificate rejected for the reason that changes made in object clause of trust without following the required procedure, hence the trust became invalid. The Tribunal observed that only one addition was made in the object clause, and even that remained charitable and did not cause any detriment to original object. There was no statutory requirement of intimating the changes except the one mentioned in the Form 10A, and even there was no time limit. Held that revenue was not justified in refusing to renew exemption certificate.

Mehta Jivraj Makandas & Parekh Govindaji Kalyanji Modh Vanik Vidyarthi Public Trust vs. DIT(E), ITA No. 2212/Mum/2010, dt. 11‐03‐2011, `G’ Bench, Mumbai ITAT, BCAJ pg. 32, Vol. 43‐A, Part 1, April 2011.

S. 22: Income from House property‐ Business Income‐ Rental income ( S. 28 (i).

Assessee letting out flats in a multi storeyed complex . Assessee was nether in possession of the property nor doing any business there . Income was rightly taxes as income from house property.

CIT v Sran Holdings (P) Ltd ( 2011) 57 DTR 82 (Pat) (High Court).

S. 22: Income – Income from house property‐Compensation.

Where the assessee was assessed to tax under the head income from house property with respect to notional income of rent deemed to have earned by the assessee after the expiry of lease period, year after year. Thereafter, the compensation actually received by the assessee from the lessee under a settlement agreement, for the occupation of the leased premise after lease period cannot be taxed under a different head than income from house property.

Jasmine Commercials Ltd. vs. CIT (2011) 56 DTR 159/ 200 Taxman 338 (Cal)( High Court).

S. 22:Income from House Property – Ownership.


Where the builder had received full consideration against the sale of shops and flat the annual value of the property cannot be assessed in the hands of the builder even though the sale deed of the shops and flat were not registered.

CIT vs. Babu Khan Builders & Ors. (2011) 55 DTR 329 (AP)( High Court).

S. 22: Income from House property‐ Business income‐ Business of construction and development of residential –Commercial unit. [ ( S. 28 (i). ]

In case where assessee who is engaged in constructions and development of residential/commercial units and where there was no material on record to show that leasing of residential/commercial units was one of the principal objects of the company and that lease rent received by it was from exploitation of property by way of complex activities, the rent income derived as owner of property will be assessed as `Income from House Property’.

Roma Builders (P) Ltd v JCIT ( 2011) 131 ITD 91 ( Mumbai) (Trib).

S. 23: Income from house property‐ Annual value‐ Property let out – Licencee‐ Sub let Higher value‐Tax Planning transaction not “Sham” if parties assessed‐ Double taxation.

The assessee let out its premises to Minicon pursuant to a leave and license agreement. Minicon thereafter let out the said premises to various third parties. One director was common between the assessee and Minicon.

It was held that save and except the fact that one of the directors of the assessee company was also a director in Minicon, there is nothing on record to show that the transaction between the assessee and Minicon is a sham transaction. Accordingly, the decision of the Tribunal that the amounts received by Minicon on account of letting out the premises is liable to be assessed in the hands of the assessee on the ground that the transaction between the assessee and Minicon is a sham and bogus transaction cannot be accepted.

Akshay Textile Trading 304 ITR 401 (Bom) followed

Sahney Kirwood Pvt. Ltd vs ACIT ( Bombay ) (High Court) www.itatonline.org

S.24. Income from house property‐Deduction‐Brokerage.

Brokerage paid was not an admissible expenditure under sec. 24 (Asst Year 1997‐98)

Aravali Engineers P .lTD v CIT ( 2011) 335 ITR 508 ( P& H).( High Court).

S. 24: Income from house property‐Deduction‐Interest on Loans raised for repayment of original loan‐ Maintenance charges‐Lift‐ Lighting – Sweeping Charges. ( S. 22, 23 ).

Loan raised for repayment of original loan taken to purchase house property partakes the character of original loan and therefore interest paid on such subsequent loan is


deductible under section 24 from the rental income of property. Charges paid to the society for the facilities of generator, lift , lighting etc were deductible from the gross rent received by the assessee.( Asst Year 2004‐05).

CIT v Sunil Kumar Agrawal (2011) 139 TTJ 49 (Luck) (UO) (Trib).

S. 24 (1) (iv).Income from house property‐ Deduction‐Annual charge.

Remuneration payable to Shebaits by the assessee deity does not amount to annual charge on the property and thus, no deduction under section 24 (1) (iv) is permissible. (Asst year 1997‐98).

Estate of Sree Sree Raddha Kishan Jew v CIT & Anr (2011) 58 DTR 131 ( Cal) (High Court).

S. 32: Depreciation – Actual Cost.

Where the assessee paid custom duty under protest on imported machinery, the assessee would be entitle to add the same to the cost of the plant and machinery for computing depreciation thereon

CIT vs. Orient Ceramics & Industries Ltd. (2011) 56 DTR 397 (Del)(High Court).

S. 32: Depreciation –UPS. 60%.

Depreciation is allowable at the rate of sixty percent (60 %) on U.P.S.

CIT vs. Orient Ceramics & Industries Ltd. (2011) 56 DTR 397 (Del)(High Court).

S. 32: Depreciation – User of asset –Kept ready for production.

Where the plant and machinery were kept ready for production, the assessee would be entitle to claim depreciation under the provisions of section 32 of the Act even though such plant and machinery were not actually put to use by the assessee during the year. (A. Y. 1995‐96)

CIT vs. Shahbad Co – operative Sugar Mill Ltd. (2011) 56 DTR 414 (P&H)(High Court).

S. 32: Depreciation – Poultry shed.

Poultry shed is a building and not a ‘plant’, as such not eligible for higher rate depreciation as applicable to plant and machinery.(A. Y. 1991‐92 & 92‐93)

Padmavathi Hatcheries (P) Ltd. & Ors. (2011) 55 DTR 105 (AP)( High Court)

S.32: Depreciation ‐‐ intangible asset ‐‐ goodwill ‐‐ depreciation allowable .

The assessee had purchased a hospital with its land, building, equipment, staff, name, trademark and goodwill as a going concern. Under the sale deed the value of the


goodwill included the name of the hospital, its logo and trademark was 2 crores. The AO disallowed the depreciation on the goodwill on the ground that it was not covered under section 32(1)(ii). The CIT(A) and tribunal held in favour of the Department. On appeal to the High Court by the assessee, the High Court while allowing the appeal held that though goodwill is not specifically mentioned in section 32(1)(ii) of the Income‐Tax Act, depreciation is allowable not only on tangible assets covered by clause (i) of section 32(1), but also on the intangible assets specifically enumerated in clause (ii) and such other business or commercial rights similar to the items specifically covered there in. The High Court held that, by transferring the right to use the name of the hospital itself, the previous owner had transferred the goodwill to the assessee and the benefit derived by the assessee was retention of continued trust of the patients who were patients of the previous owner. The amount paid for the goodwill for ensuring retention and continued business in the hospital, it was one acquiring a business and commercial rights and the same was comparable with trademark, franchise, copyright etc., the High Court held that goodwill was covered by the provisions of section 32(1)(ii) entitling the assessee for depreciation.( AY2004‐05).

B. Raveendran Pillai v. CIT [2011] 332 ITR 531 (Ker)( High Court).

S. 32: Depreciation‐ Sale and lease back‐.Despite Tax Avoidance, 100% Depreciation on Sale & Lease Back Allowable.

The assessee purchased equipment from the Haryana State Electricity Board (“HSEB”) which was already installed at the Board’s Thermal Power Station at Faridabad and immediately leased the equipment back to the HSEB. The assessee claimed 100% depreciation on the said equipment. The AO disallowed depreciation on the ground that the transaction was not one of purchase and lease but was a pure financial and loan transaction.

The Hon’ble High Court held dismissing the dept. appeal that

(i) The real intention of the parties in entering into the sale and lease agreement has to be gathered from the words in the agreement in a tangible and in an objective manner and not upon a hypothetical assessment of the supposed motive of the assessee to avoid tax. (Industrial Development Corporation of Orissa 268 ITR 130 (Ori), Rajasthan State Electricity Board 204 CTR 415 (Raj) and Gujarat Gas Company 308 ITR 243 (Guj) followed);

(ii) In order to deny the claim of depreciation, it would have to be held that the transaction was not genuine and that the same was a subterfuge. Merely because an assessee gets a commercial advantage because of the factoring in of a tax benefit, it cannot be said that the transaction is not genuine. There is no finding or evidence to indicate that the transaction was not genuine. The observations of Chinappa Reddy, J in McDowell is not good law in view of UOI vs. Azadi Bachao Andolan 263 ITR 706 (SC) where it was held that “tax planning may be legitimate provided it is within the framework of law”;


(iii) The observations in Asea Brown Boveri Ltd with regard to the nature of a financial lease are not of much use to the revenue in view of the factual backdrop that the transaction has been found to be genuine. Once it is established that the ownership of the equipment is that of the assessee, it is clear that the assessee is entitled to claim depreciation.

CIT vs Cosmo Films Ltd. ( Delhi) ( High Court).www.itatonline.org.

S. 32 : Depreciation‐ Computer peripherals‐ Printers – Scanners‐ servers‐ UPS.

Computer peripherals such as printers scanners , servers , UPS etc , form integral part of computer system on which higher depreciation of 60% is allowable.( Asst Year 2005‐06).

ITO v Omni Globe Information Technologies India (P) Ltd ( 2011) 131 ITD 280 ( Delhi) (Trib).

S. 32 : Depreciation‐ Trust – Cost of asset allowed as Application of income.

Claim of depreciation by assessee trust in respect of assets , cost of which had been claimed as an application of income towards its objects , would amount to double deduction which is prohibited by law. ( Asst year 2006‐07).

Dy Director of Income tax ( Exemption) v Adi Sankara Trust ( 2011) 46 SOT 230 ( Coch) (Trib).

S. 36 (1) (iii) : Business expenditure‐ Interest on borrowed capital‐ Suit filed by creditor bank.

Interest payable on loans raised by assessee from bank can not be treated as a contingent liability and can not be disallowed merely because the bank has instituted a suit and not shown the accrual of interest in its books of account , more so , when there is nothing to show that the bank has not claimed interest for all three years period .ie., pre suit pendent lite and future interest. ( Asst year 1992‐93).

Friends Clearing Agency (P) Ltd v CIT ( 2011) 58 DTR 109 ( Delhi) ( High Court).

S. 36 (1) (Vii): Business expenditure‐ Bad debt‐ Non financial company‐ Bank Guarantee.

Assessee being a non banking financial company ,its activity of giving guarantee on behalf of another company was part of its money lending business and ,therefore the security amount adjusted by the bank against the dues of the said company following default on the part of the latter which has became irrecoverable is allowable as bad debt.( Asst Years 1998‐99, 1999‐2000 & 2003‐04).

CIT v Tulpi Star Hotels Ltd ( 2011) 57 DTR 210 ( Delhi) (High Court).

S. 36 (1) (viii): Bad Debts – Write off in the books.


Where the assessee had written off certain debts as bad in its books of accounts, there is no further requirement to prove that the debts was a trade debt or the fact that it is irrecoverable.(A. Y. 1996‐97 & 98‐99)

CIT & Anr. vs. Krone Communication Ltd. (2011) 53 DTR 120 (Kar)( High Court).

S.36 (2) (i) Bad debt: Share broker‐ entire amount of debt need not be taken into account.

In the present case following the Special Bench decision in the case of Shreyas Morakhia { 40 SOT 432}, it was held that in order to satisfy the conditions stipulated in section 36(2)(i), it is not necessary that the entire amount of debt has to be taken into account in computing the income of the assessee and it will be sufficient even if part of such debt is taken into account in computing the income of the assessee. This principle applies to a share broker. The amount receivable on account of brokerage is a part of debt receivable by the share broker from his client against purchase of shares and once such brokerage is credited to the profit and loss account and taken into account in computing his income, the condition stipulated in section 36(2) (i) of the Act gets satisfied. The bad debt therefore claimed by the broker was allowed.( A.Y.2003‐2004.)

DCIT v/s IIT Investrust Ltd ( 2011) 45 SOT 1( Mumbai) (Trib).

S. 37 (1) Business expenditure‐ Key man insurance premium. ( S. 10 (10D).

Assessee is a Chartered Accountant had debited an amount of Rs 50 Lakhs towards Keyman Insurance Premium , which was taken in one of the his employee who was the head of the financial consultancy division and looking after the financial consultancy for corporate finance. The appeal of the assessee was allowed by the Tribunal. On appeal by the revenue the Court held that it is the prerogative of the businessman to consider and decide as to which of the employees is important for the business and it is for him to take life insurance policy for such an employee keeping in mind various factors and circumstances.. The High Court confirmed the order of Tribunal.

CIT v Kamlesh M. Solanki – Tax appeal no 2421 of 2009 dt 26‐4‐2011 ( ACAJ Vol 35 part 03 June 2011 P. 165 ( Guj) (High Court).

S. 37 (1): Business expenditure—Foreign studies of person appointed as trainee in company‐ Son of president.

Fact that trainee happens to be son of President does not make the expenditure personal in nature. Since son of President was appointed by resolution and an agreement as been entered into, that the trainee after completion of the education from abroad will be obliged to resume service in the company as a technical executive at least for ten years. Expenses incurred on foreign studies of person appointed as trainee in company are business expenditure.

Gournitye Tea & Industries Ltd v CIT ( 2011) Tax LR 315 ( Cal ) (High Court).


S.37 (I). Business expenditure‐Foreign Travelling expenditure of Managing Director and his wife‐ Authorised by resolution.

When the board of directors of the assessee had thought it fit to spend on foreign tour of the accompanying wife of the managing director for commercial expediency for reasons reflected in its resolution , it was not with in the province of the income tax authority to disallow such expenditure. There was resolution of company authorizing foreign travel of managing director and his wife for business purposes. The Court applied the ratio of CIT v Walchand and co P.Ltd ( 1967) 65 ITR 381 (SC). However , as there was no resolution authorizing the wife of the deputy managing director, the expenditure on such travel were rightly disallowed.(A. Y. 200‐01)

J.K.Industries Ltd v CIT ( 2011) 335 ITR 170 ( Cal) (High Court).

S. 37 (1):Business Expenditure‐ Parties found non existence after three years‐ Expenditure can not be disallowed.

Where the assessee took care to purchase materials for his business by way of account payee cheque from third party and subsequently the parties do not appear before the assessing authorities as they had discontinued their business, the assessee’s claim of genuine business expenditure cannot be disallowed for their non existence after three years of transactions.( A. Y. 1998‐99)

Diagnostics vs. CIT (2011) 56 DTR 317 (Cal)( High Court).

S. 37 (1): Business Expenditure – Capital or Revenue – Glow sign board.

Expenditure incurred by the assessee on glow signboard was held to be an allowable business expenditure.

CIT vs. Orient Ceramics & Industries Ltd. (2011) 56 DTR 397 (Del)( High Court).

S. 37(1): Business Expenditure –Company‐Personal use.

In case of Company there cannot be disallowance of car expense for personal use of car.(A. Y. 1988‐89)

CIT vs. Nuchem Ltd. (2011) 55 DTR 14 (P&H)( High Court)

S; 37(1). Business Loss‐Abandoned project‐ Capital asset.

Amount paid as advance for acquisition of a capital asset for a project which was abandoned, did not qualify for deduction as a business loss since the amount spent was in relation to acquisition of a capital asset.

CIT V/s. Southern Gas Ltd. {2011} 198 Taxman 165 (Ker.) (Mag.)( High Court).

S. 37(1). Business Expenditure‐ Expenses prohibited on account of being illegal.


Where the assessee paid sums to local goons and the police for maintenance of law & order, it was held that such expenditure being prohibited by law, did not qualify for deduction.( A. Y. 1992‐93)

CIT V/s. Swaminathan {2011} 198 Taxman 140 (Kar.) (Mag.)( High Court).

S.37 (I ): Business expenditure – assessee requesting AO to summon person – addition without summoning – not proper.

In the instant case the assessee had a paid a sum in cash and cheque, being tractor charges to D. During the assessment proceeding the assessee had made a mention of his inability to produce D for verification of the transaction, but had also requested the AO to issue summons to the D, so as to enable the AO to determine for himself the veracity of the assessee claim. The AO, however made the additions without issuing summons to D. The CIT(A) and ITAT both ruled in favour of the assessee. On appeal to the High Court, the High Court while deciding the issue in favour of the assessee held that the CIT(A) and ITAT had given a finding that the AO had made additions without any material whatsoever, and the AO could have enforced the presence of D especially since a substantial part of the payments were made by the assessee by banking channels.

CIT v. Grij Pal Sharma [2011] 333 ITR 229 (P&H)( High Court).

S. 37 (1). Business expenditure‐ capital or revenue‐ ERP Software Package Allowable As Revenue Expenditure.

The assessee, engaged in manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products, incurred expenditure of Rs. 23 lakhs on purchase of “Enterprises Resources Planning (ERP) package”. The AO treated the expenditure as capital in nature. The Tribunal applied the functional test laid down by the Special Bench (presumably Amway India Enterprise vs. CIT 111 ITD 112 (Del)) and held that the expenditure was allowable as a deduction on the basis that the software facilitated the assessee’s trading operations or enabling the management to conduct the assessee’s business more efficiently or more profitably but it is not in the nature of profit making apparatus. The department filed an appeal before the High Court. HELD dismissing the appeal:

“In our view, no fault can be found in the aforesaid order of ITAT holding that software expenditure was allowable as revenue expenditure.”

CIT vs Raychem RPG LTd. (Bombay) ( High Court). www.itatonline.org.

S. 37 (1): Business expenditure‐ Secret Commission for providing contract

Secret commission paid by the assessee to directors of the company giving construction contract to the assessee can not be allowed as expenditure in view of Explanation 1 to section 37(1).( Asst years 1983‐84 & 1984‐85).

J.K.Panthaki & Co v ITO ( 2011) 57 DTR 233/ 139 TTJ 337 ( Bang) (Trib).


S.37(1): Capital or Revenue Expenditure‐Entrance fee to a club, for membership of its director.

The company had taken membership in the name of the director of the assessee company and none of the executives of the company appeared to have been made members of the club. The expenditure incurred for club membership was disallowed on the ground that the assessee failed to produce any evidence and prove that the benefit of membership was utilized wholly or exclusively for the purpose of business.

New India Exclusions (P) Ltd V/s. Asst C.I.T. ( 2011) 46 SOT (Mum) URO)

S. 37(1) : Business Expenditure – Payment of Compensation.

Payment made by the assessee to close family members for getting vacant and peaceful possession of premises was held capital expenditure as there was no dispute going on between the parties to show that the payment was necessary for taking peaceful possession. ( A. Y. 2003‐04)

ITO vs. Pritam Juice (2011) 138 TTJ 294 (Mum.( Trib).

S. 40(a) (ia): Amounts not deductible‐ Payments to Indian Agents of foreign shipping lines‐Deduction of tax at source‐ ( S.194C.)

Transportation of goods by railways does not fall with in the ambit of “work” with in the meaning of section 194C and therefore , there was no obligation on the assessee to deduct tax at source under section 194C from the payments made to Indian agents of foreign shipping lines for inland haulage of goods by railways and accordingly , no disallowance can be made under section 40 (a) (ia)( Asst year 2006‐07).

Airtech (P) L td v Dy CIT ( 2011) 57 DTR 169 (DelhI) (Trib).

S. 40 (a) (ia): Amounts not deductible –Payment to contractors‐ Section is applicable in respect of amount paid and payable.

Assessee contended that the section 40 (a) (ia) is not applicable in case where sum has been paid as the section refers the “sums payable” . The Tribunal held that section is applicable in respect of amount paid also hence the assessee failed to deduct the tax under section 194 C , disallowance was justified.( Asst Year 2007‐08)

Dy CIT v Ashika Stock Broking Ltd ( 2011) 139 TTJ 192 ( Kol) (Trib).

Editorial – Contrary View was taken by Jaipur Bench in Jaipur Vidyut Vitran Nigam Ltd v Dy CIT ( 2009) 123 TTJ 88 8 (JP) (Trib).

S.40(a) (ia):Business disallowance‐Payable to a contractor or sub contractor‐Adjustment of Refund‐ Deduction of tax at source.


Irrespective of fact that an assessee is entitled to claim refund of excess tax paid or get adjusted against tax liability under provisions of Act, assessee can not with hold TDS deducted from payment made to a contractor so as to adjust same against excess taxes paid earlier and if an assessee does so then provisions of section 40(a) (ia) are attracted in respect of payment so made. ( Asst Year 2005‐06).

HCC Pati Joint Venture v Asst CIT ( 2011) 46 SOT 263 ( Mumbai) (Trib).

S. 40(a) (ia): Amounts not deductible ‐ Interest payment additional cost‐ Tax deduction at source. ( S 194A).

When the amount of interest paid has been considered to be part of the purchase price and not interest under section 194A, such payment cannot be disallowed under section 40a(ia). ( Asst year 2005‐06) .

Parag Manshuklal shah v ITO ‐ ITA no 2075 /Ahd/ 2008 CO no 120/Ahd /2008 Bench A dt. 30‐6‐2011. ACAJ Vol 35 –Part 3. June 2011 P.166

S. 40A (2) (b): Expenses or payments not deductible‐Technical know –how –Parent Company.( S.92).

Once it is found that having n regard to the nature , quantum and quality assurance aspects of technical know how and other services provided to the assessee by the parent/ foreign company , compensation paid in the form of royalty / consideration can not be treated as excessive or unreasonable . Tribunal was justified in deleting the addition made by AO by relying upon section 40A (2) (b) and section 92. ( Asst Year 1997‐98).

CIT v Nestle India Ltd ( 2011) 57 DTR 65 ( Del) (High Court).

S. 41(1):Profits chargeable to tax‐ Business Income – Unclaimed insurance premium.

Unclaimed insurance premium credited to profit and loss account which was the amount collected by the assessee from the hirers as insurance premium as unclaimed balance becomes income of the assessee and liable to be tax as business income.( A. Y. 1997‐98 & 2003‐04)

Motor General Finance Ltd. vs. CIT (2011) 53 DTR 273/ 199 Taxman 51 (Del)( High Court)

S.41 (1): Profits chargeable to tax‐Income‐ Capital or revenue receipt – Waiver loan. s. 2 (24), 28(iv)

Principal amount of loan, which is taken for the purpose of business or trading activity, on its waiver by the creditor, would constitute income chargeable to tax; however, if the loan is utilized for the purpose of acquiring any capital asset, the same, on its waiver, would not constitute income chargeable to tax either under s. 41(1) or s. 28(iv) or s. 2(24).(A. Y. 2006‐07)


Dy. CIT vs. Logitronics (P) Ltd.(2011) 53 DTR73 (Del) (Trib).

S. 41 (1):Profits Chargeable to tax‐Remission or cessation of trading liability‐Outstanding Credit.

For treating amount of outstanding credit as taxable under section 41 (1) ,there has to be a positive act on part of creditor in current year which would provide benefit to assessee by way of remission; merely because certain amount is outstanding for number of years will not be a case for holding that there is a cessation or remission. The Tribunal dismissed the appeal of revenue.( Asst year 2007‐08).

ITO v Bhavesh Prints ( P) Ltd ( 2011) 46 SOT 268 ( Ahd) (Trib).

S. 43(5).: Speculative transaction‐ loss‐ Set off of loss –Property income. ( S.73._

Loss from speculative transaction can not be set off against income from property.( Asst year 1997‐98).

Aravali Engineers P.Ltd v CIT ( 2011) 335 ITR 508 ( P & H).( High Court).

S. 43 (5): Speculative transactions‐ Derivatives‐ Foreign institutional investors

(S. 115AD).

Transactions in derivatives , both index based and individual share based , are to be considered as speculative transactions with in the meaning of section 43 (5) and they can not be treated as normal business or non speculative transactions. Section 43 (5) has no application to FIIs in respect of securities as defined in Explanation to section 115AD, income from sale of securities to be considered as short term or long term gains. (Asst Year 2004‐05).

LG Asian Plus Ltd v Asst CIT (2011) 46 SOT 159 (Mum) (Trib).

S. 43 (5): Speculative Transactions‐ Derivatives.

Derivative transactions carried out form 1‐4‐2005 to 25‐1‐2006 through stock exchanges , which were recognised by notification issued by CBDT on 25‐1‐2006 , would be eligible for being treated as non speculative transactions with in the meaning of clause ( d) of proviso to section 43 (5) . ( Asst year 2006‐07).

Asst CIT v Hiren Jaswantrai Shah ( 2011) 46 SOT 276 ( Ahd ) (Trib).

S. 43B‐ Business Expenditure –Actual payment.‐Licence fee.

License fees payable under the Abkari Act for grant of right/ privilege to sell liquor if not paid within the period specified in section 43 B of the Act cannot be disallowed, as the same is consideration payable to the Government only for grant of right / privilege to


sell liquor and not in the nature of any tax, duty, cess or fees as provided in section 43 B (a) of the Act.( 1999‐2000)

CIT vs. G. Soman (2011) 53 DTR 220 (Ker)( High Court).

S. 44BB: Business of exploration, etc. of mineral oils

Applicant, incorporated in Norway provides geophysical services to oil and gas exploration industry and is awarded contract by Cairn Energy Pvt. Limited (Cairn), India to conduct seismic surveys and provide onshore seismic data acquisition and other associated services. Revenue contends that services extended by the applicant fall under Explanation 2 of section 9(1)(vii) and not under S.44BB as the applicant is not undertaking a mining or like project but is undertaken by someone else and certain technical services are rendered by the applicant to the business enterprise that takes up the project. AAR held that S. 44BB will apply relying on its ruling in Geofizyka Torun Sp.zo.o, in AAR/813 of 2009 where it was held that if all the services that are in the nature of technical services within the meaning of Explanation 2 to section 9(1)(vii) are to be computed in accordance with 44DA, very little purpose will be served by incorporating special provision in 44BB for computing the profits in relation to the services connected with the exploration and extraction of mineral oils.

V Bergen Oilfield Services AS, Norway ‐ AAR No 857/2009 dt.16.05.2011(AAR).

S. 44BB: Business of exploration, etc. of mineral oils‐Non resident‐ ( S.9(1)(vii) , 44DA ).

Applicant, incorporated in Singapore has entered into a time charter vessels hiring agreement for provision of its offshore service vessels to Transocean Offshore International Ventures Ltd. (TOIVL) in India who in turn is providing various offshore drilling and support services to ONGC. Being a time charter agreement, the entire operation, navigation and management of the vessel provided on hire is under the exclusive command and control of the applicant though the vessel is operated and services are rendered as requested by TOIVL. AAR observed that for the purposes of section 44BB of the Act, the vessels provided are covered under the definition of “plant”. The consideration received for supply of “plant” i.e. the vessels on hire when used in the prospecting for or extraction or production of oil and gas is covered under the special provision for computing profits and gains under said section. AAR further held that said section will apply relying on its ruling in Geofizyka Torun Sp.zo.o, in AAR/813 of 2009 where it had held that if all the services that are in the nature of technical services within the meaning of Explanation 2 to section 9(1)(vii) are to be computed in accordance with 44DA, very little purpose will be served by incorporating special provision in 44BB for computing the profits in relation to the services connected with the exploration and extraction of mineral oils.

Bourbon Offshore Asia Pte. Ltd, Singapore ( 2011) 242 CTR 225 / 58 DTR 155/ 200 Taxman 408( AAR).

S.45: Capital gains‐ Trade marks , brands , copyright and goodwill‐ Business income . (S. 28 (va), 55).


Trade marks brands, copyright and goodwill constitute of business and are profit earning apparatus. Assessee was owner of brand name of journals which were also registered /indexed with Indian National Scientific Documentation Centre (INSDOC). Assessee company entered in to a “specified Assets Transfer Agreement” with one CMP for sale of all its rights titles and interest in specified assets of its health care journals and communication business. In consideration the assessee received certain amount from CMP which it showed as income from long term capital gains in its return. Assessing Officer , however held that amount received by assessee taxable as income from business under section 28(va). High Court held that the consideration received would be computed as capital gains.( Asst year 2006‐07)

CIT v Mediworld Publications (P) Ltd ( 2011) 200 Taxman 1 ( Delhi )( High Court).

S. 45: Capital Gain –Compensation‐ Specific performance.

Compensation received by the assessee for giving up the right to specific performance of an agreement to sell was held to be a capital asset chargeable to capital gain tax.( A. Y. 1998‐99)

CIT & Anr. vs. H. Anil Kumar (2011) 56 DTR 384 (Kar)( High Court).

S. 45: Capital gains‐ Transfer‐Part performance of contract‐

Assessee company purchased a piece of agricultural land on 20‐11‐1999 . It entered in to an agreement for sale of said land with “K “ on 5‐9‐2002 and similarly executed a power of attorney in favour of “M” a , representative of “K” .authorising him to cultivate said land and to sell agricultural produce grown on it . The said power of attorney was registered before sub –registrar on 21‐11‐2002 . Sale consideration had been paid to assessee through cheque prior to 5‐9‐2002 . Assessee claimed that transfer of land got completed on 21‐11‐2002 and therefore , capital gains arising on sale of land was to be assessed as long term capital gains . However the assessing officer took date of execution of power of attorney and agreement to sell . ie. 5‐9‐2002, to be date of transfer and assessed capital gains as short term capital gains .The Tribunal held that , once a document is registered , its effective from date ,when it was executed, therefore ,power of attorney ,event though registered on 21‐11‐2002 , could be effective with the effect from 5‐9‐2002 and as such ,it could be held that possession of land had been given on 5‐9‐2002 when the power of attorney was executed, therefore , all ingredients as are required to be complied with for applicability of section 53A Of 1882 Act were satisfied in instant case on 5‐9‐2002 and accordingly it was to be held that transfer of land had duly taken place on 5‐9‐2002 ,itself and , therefore order of assessing Officer assessing the same as short term capital gain was up held.( Asst Year 2003‐04).

V. Ram Chandra Construction ( P ) Ltd v Asst CIT ( 2011) 131 ITD 71 ( Agra) (TM ) (Trib).

S. 45: Capital gains‐ Business income – Shares‐Even gains on shares held for 30 days & less is STCG & not business profits. [ S. 28 (i) ]


To decide whether a capital gain is short term or long term, it was held that holding period is one of the criteria. The principles that have to be applied are (a) the intention of the assessee at the time of purchase, (b) whether borrowed funds were used, (c) the frequency of purchase and sales, (d) the treatment in the books etc. No single criteria is conclusive and an overall view has to be taken (Associated Industrial Development 82 ITR 586 (SC) & Holck Larsen 160 ITR 67 (SC) followed);

Hitesh Satishcandra Doshi vs JCIT (2011) 58 DTR 258/ 140 TTJ 32/ 46 SOT 336( Mumbai) (Trib). www.itatonline.org.

S. 48: Capital Gain – Rectifying the defect in title.

Amount incurred by the assessee for rectifying the defect in title to the property and removing encumbrance on the property were held to be amount spent in connection with the transfer of the property and allowable as deduction while computing capital gain.

V. Lakshmi Reddy vs. ITO (2011) 55 DTR 241 (Mad)( High Court).

S. 48: Capital gains‐Computation‐ Fair market value.

Provision contained in section 48 regarding computation of capital gains contemplates ascertainment of full value of consideration received or accruing as a result of transfer capital asset , said provision does not contain words to effect “ fair market value” etc. Where there was no evidence on record that transferees were related to directors of assessee company and that assessee had received amount more than stated consideration , income was to be computed by Assessing Officer on basis of consideration actually received. ( Asst Year 2006‐07).

Dy CIT v Jindal Equipment Leasing & Consultancy Services Ltd ( 2011) 131 ITD 263 ( Delhi) ( Trib).

S. 50 – Capital gains – Depreciable asset ‐ Long term

Capital gains arising on transfer of a capital asset (Flat) on which depreciation was allowed for two years but thereafter the assessee stopped claiming deprecation and also gave the flat on rent is chargeable as long term capital gains after allowing the benefit of indexation.

Prabodh Investment & Trading Company Pvt. Ltd., ITA No. 6557/Mum/2008, dt.28‐02‐2011, A.Y. 2004 – 2005, `C’ Bench, Mumbai ITAT, BCAJ pg. 24, Vol. 43‐A, Part 1, April 2011.

S. 50: Capita gains‐ Capita loss‐ Set off of brought forward long term capital loss.( S. 74 ).

Prescriptions of section 50 are to be extended only up to the stage of computation of capital gains and therefore, capital gain resulting from transfer of depreciable assets which were held for a period of more than three years would retain the character of


long term capital gain for all other provisions and consequently qualify for set off against brought forward loss from long term capital assets.(Asst year 2005‐06).

Manali Investments v Asst CIT ( 2011) 139 TTJ 411 ( Mumbai) ( Trib).

S. 50C: Capital gains‐ Stamp valuation‐ Reference to valuation.

Assessing Officer can refer for valuation of capital assets to valuation officer under section 50C if he finds that consideration received is less than value adopted by stamp valuation authority for purpose of stamp duty.( Asst year 2006‐07).

ITO v Chandrakant R. Patel (2011) 13 ITD 1 (Ahd)( Trib).

S.50C – Capital gains – special provision for full value consideration‐ Value adopted by AO.

The assessee pointed out strong reasons that sale consideration is less than value determined for stamp duty, such cases have to be referred to DVO and in such cases sale consideration which has been deemed to be value adopted for stamp duty purposes as per main provisions, would be value adopted by DVO. As such the matter when once referred to the DVO, the valuation given by the DVO had to be adopted as deemed consideration (A.Y. 2006‐2007)

Nandita Khosla (Mrs)V/s. I.T. O. (2011) 46 SOT 90 (Mumbai) (Trib).

S. 50C: Capital gains – Computation – valuation by stamp valuation authority vis‐à‐vis DVO.

AO cannot disregard the value determined by the DVO under s. 50C(2) r.w.s 16A of WT Act, and proceed to compute long term capital gain in accordance with the value determined by stamp valuation authority.( A. Y. 2005‐06)

Bharti Jayesh Sanghani (Smt) vs. ITO.(2011) 55 DTR212 (Mum) (Trib)

S.50C : Capital gains‐ special provision for full value consideration‐ May‐Valuation by stamp authority.

If stamp valuation adopted by stamp authority is disputed before Assessing Officer, then Assessing Officer is bound to refer matter to DVO for determining fair market value of property. The term “may” used in sub section (2) of section 50C is to be read as “shall”. (Asst year 2004‐05).

Manjula Singhal v ITO ( 2011) 46 SOT 149 ( Jodh) ( Trib).

S. 54EC: Capital Gains ‐ Exemption – Date of payment ‐ considered date of delivery/investment.


The Tribunal held that since the assessee had delivered the cheque to NABARD by 09‐02‐2006, the date of payment would be the date of delivery of the cheque. The date when the cheque was encashed by NABARD cannot be said to be the date of investment.

Kumar Amrutlal Doshi vs. DCIT, ITA No. 1523/Mum/2010, dt. 09‐02‐2011, A.Y. 2006 – 2007, `G’ Bench, Mumbai ITAT,BCAJ pg. 31, Vol. 43‐A, Part 1, April 2011.

S. 54F‐ Capital gains‐ Investment in house Property sale proceeds from out of transfer of an asset other than a residential house acquisition of property prior to transfer of asset – deduction allowed.

The assessee purchased a residential house and within one year of such purchase, sold his insurance survey business and claimed deduction u/s. 54F against the purchase of residential house. The Assessing Officer rejected the same on the ground that the property was not purchased out of sale consideration of the transferred asset. It was held that the assessee was entitled to the deduction u/s. 54F since the section itself provides for acquisition of property prior to transfer of asset.

CIT V/s. R. Srinivasan {2011} 198 Taxman 26 (Mad.) (Mag.)( High Court).

S. 55(2)(b) – Capital gains ‐ Cost of acquisition – S.2(22B), 50C

Cost of acquisition of the property u/s 55(2)(b)(i) will be its fair market value as on 01‐04‐1981 as determined by the registered valuer and not the circle rate.

Pyare Mohan Mathur HUF vs ITO, ITA No. 471/Agra/2009, dt.21‐04‐2011, A.Y. 2005 – 2006, Agra ITAT, BCAJ pg. 28, Vol. 43‐A, Part 3, June 2011.

S.55A: Capital gains‐ Reference to valuation Officer‐Fair market value‐ (S.48)

Section 55A, is meant only to ascertain fair market value of a capital asset but not meant to determine full value of consideration received as result of transfer and therefore it has its own limitation for its operation. Since section 48 do not prescribe determination of capital gain on fair market value it is out of ambit of reference prescribed under section 55A.( Asst Year 2006‐07).

ITO v Chandrakant R.Patel ( 2011) 131 ITD 1 (Ahd) (Trib).

S. 56: Income from Other source‐Fixed deposit placed with Bank as performance guarantee.

Fixed deposit placed with Bank as performance guarantee as condition for being awarded contract work. Interest on fixed deposits not assessable as income from other sources.( Asst Year 2003‐04).

CIT v Jaypee Dsc Ventures Ltd (2011) 335 ITR 132 ( Delhi) (High Court)

S. 56 (2)(v)‐ Income from other sources amount received and repaid as loan


Amount received and repaid as a loan cannot come within the ambit of section 56(2)(v).

CIT V/s. Saranapal Singh (HUF) {2011} 198 Taxman 202 (P & H.) (Mag.)(High Court).

S. 68: Cash Credit‐ Work in progress.‐ Partners capital account.‐Burden of proof..

WIP in a construction project transferred by a contractor firm to the Assessee firm and credited to the Capital Accounts of partner. Such credit could not be treated as Cash Credit since the transactions are genuine and identity of parties are established.

CIT vs. S. K. Banerjee J.V. Transport Plaza (2011) 241 CTR 152 / 335 ITR 563 (Bom) (High Court).

S. 68: Cash Credit – Share application.

Where the assesse had provided to the assessing authority the name, age, address, date of filing the share application and number of shares applied by each shareholder, addition under section 68 of the Act cannot be made.( 2000‐01 & 2002‐03)

CIT vs. STL Extrusion (P) Ltd. (2011) 53 DTR 97 (MP)( High Court)

S. 68: Cash Credits‐Share Application money‐

Assessee company having filed letters of the share applicant companies written to the Asstt CIT confirming that they had applied for shares in the assessee company giving details of drafts , copies of acknowledgment of returns , certificates of incorporation and balance sheets of the said companies where in investment made in the assessee company is shown , it has discharged the onus which lay upon it under section 68 establishing the identity and credit worthiness of each share holder. The Tribunal held that addition can not be made under section 68.( Asst year 2005‐06).

Dy CIT v Dolphine Marbles (P) LTD ( 2011) 57 DTR 58 ( Jab) (TM ) (Trib).

S. 68: Cash Credits ‐ Confirmation ‐ Satisfaction of AO – to be based on proper appreciation of materials and surrounding circumstances available on record.

Assessee had filed confirmation and copy of bank statement as well as cash book. It could be said that assessee had proved genuineness of loan and no addition could be made under section 68 of the Income Tax Act. Opinion of Assessing Officer for not accepting explanation offered by assessee under section 68 as not satisfactory. It must be based on proper appreciation of material and other surrounding circumstances available on record and Assessing Officer can not reject each and every explanation of assessee. (Asst Year 2000‐01)

Umesh Electricals v Asst CIT ( 2011) 131 ITD 127 ( Agra ) (TM ) (Trib).

S. 69: Undisclosed investment‐ Search and seizure‐ Jewellery‐ CBDT Circular.


The court held that the CBDT circular had been issued for the purpose of non seizure on the basis of recognized customs prevailing in Hindu Society , and unless the revenue showed anything to the contrary , it could safely be presumed that source to extent as stated in Circular no 1916 stands explained , accordingly the order of Tribunal deleting the addition was confirmed.

CIT v Ratanlal Vyaparilal Jain ( 2011) 199 Taxman 90 ( Guj) ( Mag) (High Court).

S.72: Hotel business ‐ agreement with another company for running hotels ‐‐ disputes ‐‐ hotel business run by court receiver ‐‐ no cessation of business ‐‐ brought forward losses:

The assessee was in the business of running hotels and for that purpose had entered into an agreement with another company to run the same. Disputes arose between the assessee and the company, the court pending adjudication of dispute appointed a court receiver to run the hotel business of the assessee. The dispute was decided by the court and the possession of the hotel was handed over to the assessee, the assessee ran the hotel business on its own. The Hon’ble High Court held that there was no cessation of business by the assessee, as the business was managed by the court receiver, who was none other than its own directors, and the business and assets were also never divested with the receiver, and therefore the assessee was entitled to carry forward and set off losses and depreciation relating to earlier years( AY 1990‐91)

CIT v. Dencomar Hotels (Goa) Ltd. [2011] 332 ITR 441 (Bom) (High Court).

S. 73: Speculation loss‐ Explanation‐ Grant of loans.

When in respect of the assessment of the assessee of the for Asst years 1998‐99, 1996‐97 and 1995‐96 , the Tribunal specifically held that the principal business of the assessee was grant of loans ,the assessee comes within the exception to the Explanation under section 73 , and therefore the Tribunal was not justified in holding that the business loss was to be treated as speculation loss.( Asst Year 1997‐98).

PCBL Industries Ltd v CIT (2011) 58 DTR 25 ( Cal) (High Court).

S. 80HHC: Deduction – Export‐– Interest on Loan given to employees‐ Business income.

Interest earned on loans given to employees is to be treated as part of business income for the purpose of computation of deduction under section 80HHC.

Kirloskar Ebara Pumps vs. Dy. CIT (2011) 138 TTJ 211 (Pune)(Trib).

S. 80HHD: Deduction‐ Shopping commission‐ Foreign tourists.

Assessee was receiving the commission, from shopkeepers and not in foreign exchange from the tourists directly. Assessee was not eligible for deduction under section 80HHD.


CIT v Le Passage to India Tour and Travels (P ) Ltd ( 2011) 57 DTR 98/ 241 CTR 535 (Del) / 335 ITR 69 (High Court).

S. 80HHD: Deduction‐Interest‐ Tour operator‐ Foreign tourists‐ Income derived.

Interest earned by assessee tour operator by making deposits of advances received from foreign tourists can not be said to have been derived from the services provided to foreign tourists and, therefore, such interest income did not qualify for benefit of section 80HHD , more so as it was received from banks in India in Indian currency and not in foreign exchange .

Lotus Trans Travels (P) Ltd v CIT (2011) 241 CTR 530 (Del) (High Court).

S. 80‐IA(4): Deductions‐Infrastructure development‐ Industrial undertakings‐ Deduction available even to contractor who merely develops but does not operate & maintain the infrastructure facility.

Relying on the judgement of the Larger Bench in B. T. Patil & Sons 126 TTJ 577 (Mum), the assessee’s claim for deduction u/s 80‐IA(4) was denied by the Tribunal on the ground that the assessee was only a contractor and had not complied with all the conditions specified in sub‐clauses (a), (b) & (c) of clause (i) of s. 80‐IA(4). The order was recalled pursuant to the assessee’s MA claiming that the judgement of the Bombay High Court in ABG Heavy Industries Ltd 322 ITR 323 covered the issue in its favour. HELD deciding the issue afresh:

The contractor who merely develops but does not operate or maintain the infrastructure facility is eligible for deduction u/s. 80IA(4). Harmonious reading of s. 80‐IA(4) led to the conclusion that the deduction was available to an assessee who (i) develops or (ii) operates and maintains or (iii) develops, operates and maintains the infrastructure facility. The 2001 amendment made it clear that the three conditions of development, operation and maintenance were not intended to be cumulative in nature. A developer who is only developing the infrastructure facility cannot be expected to fulfill the condition in sub‐clause (c) which is impossibility and requiring it to be fulfilled will be an absurdity. (B.T.Patil & Sons Belgaum vs. ACIT 126 TTJ 577 (Mum) impliedly held not good law).

Laxmi Civil Engineering Pvt. Ltd. vs ACIT (Pune)(Trib). www.itatonline.org.

S. 80 IA‐Deduction – Transport subsidy‐Industrial undertaking.

Transport subsidy received by the assessee under the scheme framed by the Central Government cannot be profits derived from the industrial undertaking and is not eligible for deduction under section 80 IA of the Act

CIT vs. Maharani Packaging (P) Ltd. (2011) 55 DTR 340 (HP)( High Court).

S.80IA (4) (iii): Deduction‐Income from developing ,operating or maintaining industrial park.


Assessee having constructed multistoried buildings for the purpose of developing infrastructure facilities as approved by the Ministry of Industry and Commerce and leased out to five /four floors to some tenants who are carrying on their diverse operations as functionally independent units, each floor could be taken as independent unit, and deduction under section 80 IA (4) (iii) could not be denied on the ground that all the floors of the same building occupied by same tenant cannot be construed as one unit and that it was not operating five units in asst year 2007‐08 and four units in the next year as stipulated in the approval granted by the said Ministry. Once the projects are approved and notifications are made by the appropriate authorities the approval and notification run back to the date of commencement of the activities and therefore, deduction under section 80IA (4)(iii) cannot be declined on the ground that the assessee has started functioning even before the formal order of approval and notification.( Asst Year 2007‐08 & 2008‐09 ).

Primal Projects (P) Ltd v Dy CIT ( 2011) 139 TTJ 233 ( Bang) (Trib) / 56 DTR 291

S.80 IB: Deduction‐Profits and gains derived from industrial undertakings‐ Sale of scrap‐ Manufacture‐ Labour charges.

Activity of forging which involves heat treatment of material to produce automobile parts is “manufacture “ and therefore , labour charges and job work charges earned by the assessee for doing the job of forging for customers are gains derived from industrial undertakings and the same are entitled for deduction under section 80IB. Sale of scrap which generated in the process of manufacturing activity and proximate there to constitute gains derived from Industrial undertaking for the purpose of computing deduction under section 80IB.(A. Y. 2004‐05)

CIT v Sadhu Forgings Ltd ( 2011) 57 DTR 194/242 CTR 158 ( Delhi) (High Court).

S.80‐IB‐ Deduction‐ Profits of undertaking‐Job work‐ Miscellaneous receipts.

Deduction u/s. 80‐IB is allowable on profits of job work and also on miscellaneous receipts, rebate/discounts and balances written off‐.

CIT V/s. Metalman Auto P. Ltd. {2011} 199 Taxman 149 (P & H.) (Mag.)( High Court).

S. 80HHC: Deduction –Export‐Composite services.

Professional charges received by the assessee for procuring order and rendering composite services are to be reduced while computing deduction under section 80 HHC of the Act as the same do not form part of export sales proceeds.( A. Y. 2001‐02)

Anil Dang vs. ITO (2011) 55 DTR 349 (Kar)( High Court).

S.90: Double Taxation Avoidance Agreement.‐liaison office.

Liaison office of a South Korean company carrying on activities of identifying the buyers, negotiating with them, procuring purchase orders, forwarding the same to head


office in Korea, following up with the customer for realisation of payments and offering after sales services was held to be a Permanent Establishment (P.E.) and the profits earned in India through this liaison office are taxable in India as per Article 5 of the DTAA between India and South Korea (A. Y. 2001‐02 to 2006‐07)

Jebon Corporation India Liaison Officer vs. CIT (Int. Taxation) & Anr. (2011) 55 DTR 113 (Kar)( High Court).

S. 92: Avoidance of tax‐ Transfer Pricing‐Royalty‐ Deductibility of expenses.

Section 92 does not apply in respect of “payments of royalty etc which are not the part of regular business carried on between a resident and Non resident.( A. Y. 1997‐98 & 1998‐99)

CIT v Nestle India Ltd (2011) 57 DTR 65 (Del) (High Court).

S.92C: Avoidance of tax‐ Transfer pricing‐Computation –Selection of comparables and maintenance of documents.( Rule 10D).

Each transaction of sale made by the assessee to its AE in UK being a separate transaction and there being no subsisting agreement between the assessee and the AE from beginning in 1996 , proviso to rule 10(4) is not applicable to the facts of the case and therefore , assessee was required to maintain documents as per rule 10D . Cases relied upon by the TPO not being comparable cases, matter is restored to the AO to obtain data of comparable cases so as to come to an informed decision as to whether the price charged by the assessee from its AE is arm’s length or not.(A.Y. 2006‐07 ).

Airtech (P) Ltd v Dy CIT ( 2011) 57 DTR 169 (Delhi) (Trib).

S. 92C: Avoidance of tax – Transfer Pricing –Comparables‐ Domestic‐ External.

Assessee having cited six comparables, TPO /AO was not justified in rejecting the same and applying domestic transactions of the assessee when the AO/TPO has accepted said six external comparables in the subsequent assessment year and there is similarity of facts in both the years, further the assessee is entitled to economic adjustments in the circumstances of under capacity utilization of the company, matter is set a side for examining the issue de novo. (Asst Year 2006‐07)

Bringtons Carpets Asia (P) Ltd v Dy CIT (2011) 57 DTR 121 (Pune) (Trib).

S. 92C: Avoidance of tax‐ Transfer Pricing‐Computation‐ Arm’s Length Price‐ One price determined‐ Concession prescribed in proviso.

The Hon’ble Tribunal held that, where there was shortage of price in respect of transactions entered with AE vis‐à‐vis NAE the AO was right in rejecting the contention that price need not be disturbed as one declared by assessee was less than 5% variation in transaction with AE and NAE relying on CBDT circular No.12 dated 23/8/2011. The Tribunal further observed that Proviso, for which Circular no 12 was issued had never


come in to operation and hence question of administration of said proviso to section 92 C (2) did not arise at all. Subsequent amendment brought in Finance Act , 2002 , said circular had became otiose therefore the assessee could not place reliance on circular no 12 and for relevant year under consideration only proviso to section 92C (2) as amended by Finance Act , 2002 was applicable. Since in the instant case, only one price had been determined under “most appropriate method” assessee was not entitled to concession , as prescribed in proviso to section 92C(2), hence the order of Assessing Officer was confirmed. ( Asst year 2004‐05).

Asst CIT v Essar Steel Ltd (2011) 131 ITD 22 (Visakh) (Trib).

S. 92C: Avoidance of tax‐ Transfer pricing‐ International transaction‐ Comparable‐ Financial information‐ Bad debt. ( S. 36 (1) (vii))

TPO can use financial information available at the time of assessment, though it was not available at the time of study. It is impossible to have a perfect comparable without any difference or variation regarding turnover , risk profile and functional differences and therefore , legislature has provided a margin of +5% while determining the ALP ; therefore , when assessee is having such benefit of choice /option provided by second proviso to section 92(C ) (2) , no separate adjustment is required on account of risk and functional differences .Further ,amendment in second proviso to section 92 C (2) is not retrospective but is prospective from day from which this amendment is effected . i.e. 1‐10‐2009.There is no difference between first and second limb of proviso to section 92 C (2) as far as right of assessee to challenge determined price concerned: Second limb only allows marginal relief to an assessee at his option to take ALP not exceeding 5 percent of arithmetic mean and therefore , benefit of second limb of proviso to section 92C (2) is available to all assessees irrespective of fact that price of international transaction disclosed by them exceeds margin provided in said proviso. During the year assessee had written off certain amount as bad debt, which represented excess commission charged by it from its foreign associated enterprise and claimed deduction of same, the tribunal held that it is irrelevant for purpose of determining arm’s length price for international transaction whether actual price charged by an assessee in relation to international transaction is less or excessive and therefore , deduction of bad debt was not allowable.( A. Y. 2004‐05)

Symantec Software Solutions (P) Ltd v Asst CIT ( 2011) 46 SOT 48 (Mumbai) (Trib)

S.92C: Avoidance of tax‐ Transfer Pricing‐ Arm’ s length price‐Transfer Pricing‐Selection of comparables.

Exact nature of the business needs to be taken in to consideration vis –a –vis the nature of business activity carried on by other parties so as to ascertain whether the said parties can be selected as comparable cases for transfer pricing analysis ; Four companies included by the assessee company , there was no justifiable reason to select the same as comparables; however , exclusion of companies showing supernormal profits as compared to other comparable is fully justified.( Asst Year 2004‐05).

Teva India (P) Ltd v Dy CIT ( 2011) 57 DTR 212 ( Trib) (MumbI).


S.92C:Avoidance of tax‐ Transfer Pricing‐Computation‐ of arm’s length price‐ Adjustment of 5% to single price determined by the assessee.

Adjustment of 5 % is not applicable if a single price is determined by the assessee . Circular no 12 dated 23‐8‐2001 does not apply to the case under consideration as the price variation is more than 5 % .( Asst Year 2004‐05).

ADP (P) ltd v Dy CIT ( 2011) 57 DTR 310 ( Hyd) ( Trib) .

S. 92C: Avoidance of Tax‐ Transfer Pricing‐Comparable.

In view of the fact that annual reports / data base extracts of three companies which were selected as comparable cases were not available earlier in the public domain and having regard to the fact that these documents are essential for determining ALP , these additional evidences are admitted for consideration : TPO is directed to make a fresh transfer pricing order by taking in to account database of said companies now submitted and also to decide as to whether all the comparables selected by the assessee are proper comparables for the purpose of determining ALP after considering the relevant parameters.( Asst year 2005‐06).

Asst CIT v NIT Ltd ( 2011) 57 DTR 334 ( Del) (Trib).

S. 92C: Avoidance of Tax‐ Transfer Pricing‐Computation – Arm’s length price‐ 5% variation in ALP.

When assessee showed the price charged was with in 5 % variation of ALP , no addition was required to be made.( Asst Year 2006‐07)

Capgemini India ( P) Ltd v Addl CIT ( 2011) 46 SOT 195 ( Mumbai) (Trib).

S. 92C.: Avoidance of tax‐ Transfer Pricing: Important Principles on comparability & +/‐5% adjustment stated.

(i) The expression “shall” in Rule 10B(4) makes it clear that it is mandatory to use the current year data first and if any circumstances reveal an influence on the determination of ALP in relation to the transaction being compared than other data for period not more than two years prior to such financial year may be used. If the current year’s data of comparables is not available at the time of filing the ROI a fresh search of comparables during the transfer pricing proceedings is permissible;

(ii) The +/‐5% tolerance band in s. 92C is not a standard deduction. If the arithmetic mean falls within the tolerance band, then there should not be any ALP adjustment. If it exceeds the said tolerance band, ALP adjustment is not required to be computed after allowing the deduction at 5%. That means, actual working is to be taken for determining the ALP without giving deduction of 5%;

(iii) The transfer pricing rules apply when one of the parties to the transaction is a non‐resident, even if the transaction takes place within India. There is no need to find out


the legislative intent behind the transfer pricing provision when the provisions were unambiguous. The existence of actual cross border transactions or motive to shift profits outside India or to evade taxes is not a pre‐condition for transfer pricing provisions to apply.

DCIT vs Deloitte Consulting India Pvt. Limited (Hyderabad)( Trib). www.itatonline.org.

S. 92C: Avoidance of tax‐Transfer Pricing: Disallowance of costs on ground that AE also benefited not permissible.

(i) A continuing debit balance per se, in the account of the associated enterprises, does not amount to an international transaction u/s 92B in respect of which ALP adjustments can be made. It is a result of international transaction. The factum of payment has to be considered vis‐à‐vis terms of payment set out in the transaction arrangement, and not in isolation with the commercial terms on which transaction in respect of which payment is delayed. (Nimbus Communications followed);

(ii) U/s 92B(1), the apportionment of cost is permissible only where there exists a “mutual agreement or arrangement” between two or more Associated Enterprises for apportionment of cost incurred in connection with a benefit, service or facility provided to any one or more of such Enterprises. In the absence of such an agreement to share the costs incurred on the McKinsey study, the costs cannot be apportioned. The bare allegation that the AE’s had received “specific and identifiable benefits” is not sufficient to justify apportionment. Further, even assuming that the AEs were liable to compensate the assessee, the TPO ought to have determined the ALP of such “international transaction” after taking into consideration all the rights obtained and obligations incurred by the two entities, including the advantages obtained by the AEs. He ought to have identified comparables and recorded a finding that the consultancy charges were higher than what a similarly situated and comparable independent domestic entity would have incurred.

Patni Computer Systems Ltd. DCIT ( Pune)( Trib). www.itatonline.org.

S.92C.: Avoidance of tax‐ Transfer Pricing: CBDT’s view that +/‐5% variation amendment applies to pending proceedings incorrect.

In respect of AY 2006‐07, the assessee entered into international transaction with its associate enterprises for a sum of Rs. 14.33 crores. The TPO applied the TNMM and determined the ALP at Rs. 15.08 crores and made an adjustment of Rs. 75 lakhs. The assessee claimed that as the said adjustment was within +/‐5% of the ALP, no adjustment could be made under the proviso to s. 92C(2) as it stood pre‐amendment by the F (No. 2) Act, 2009. The Department relied on Circular No.F.142/13/2010‐SO (TPL) dated 30.9.2010 (Corrigendum) where the view was expressed that as the amendment came into effect from 1.10.2009, it would apply in relation to all cases in which proceedings are pending before the Transfer Pricing Officer on or after such date. HELD disagreeing with the Department’s contention:


While the Finance (No.2) Act, 2009 provides that the substituted Proviso shall come into effect on 1.10.2009 and applies in respect of AY 2009‐10 & subsequent years, the Explanatory Notes to the Finance (No.2) Act, 2009 issued vide Circular No.5/2010 dated 3.6.2010 incorrectly states that the amendment comes into effect on 1.4.2009. In the Corrigendum, it is stated that the amendment shall apply to proceedings pending before the TPO on or after 1.10.2009. It is difficult to accept the argument of the Department that retrospective or prospective applicability of a provision should be decided in the manner explained by the CBDT. A procedural provision resulting in creating a new disability or which imposes a new duty in respect of transactions already completed cannot be applied retrospectively. As the amended Proviso brings about a substantial change in the relief available to an assessee, it cannot be treated as being retrospective in nature. Kuber Tobacco Products 117 ITD 273 (Del) (SB) & Ekta Promoters 113 ITD 719 (Del) (SB) followed

iPolicy Network Pvt. Ltd. vs ITO ( Delhi)( Trib). www.itatonline.org.

S. 115AD: Foreign Institutional Investors‐ Capital gains‐ Business income‐ Investment in securities.( S, 43 (5 )).

Foreign institutional investors (FIIs) can only make investment in securities in country’s capital market and they can not undertake trade in them .Income arising to a FII from transfer of securities falls within ambit of section 115AD , as per which income arising from transfer of such securities is held to be falling under head ‘ capital gains’, it can not be considered as ‘ business income’ whether speculative or non speculative . Section 43(5) has no application to FIIs in respect of securities as defined in Explanation to section 115AD , income from sale of securities is to be considered as short term or long term capital gains. ( Asst Year 2004‐05).

LG Asian Plus Ltd v Asst DIT (International Taxation)( 2011) 46 SOT 159 ( Mumbai) (Trib).

S. 115 F: Capital gains‐Foreign exchange assets‐Bonus shares eligible for s. 115F relief if original shares acquired in foreign currency.

The assessee, a NRI, purchased shares in foreign currency. On the sale of bonus shares, the assessee claimed relief u/s 115F. The department’s objection that the assessee has received bonus shares without investing any convertible foreign exchange is not correct because as the original shares were acquired by investing convertible foreign exchange, it cannot be said that the bonus shares were acquired without taking into consideration the original shares. In accordance with Dalmia Investment 52 ITR 567 (SC) the cost of acquisition of the original shares is closely interlinked with the bonus shares. Once bonus shares are issued, the averaging out formula has to be followed with regard to all shares. Accordingly, bonus shares are covered by s. 115C(b) and eligible for benefit u/s 115F.

Sanjay Gala vs ITO (Mumbai)( Trib). www.itatonline.org.

S. 115JB: Book profit‐ Company‐ Minimum alternative tax‐ Provision for diminution in value.


Reflection of amount of provision for diminution in value of investment separately on liability side of balance sheet or by way of reduction from figure of investment on asset side of balance sheet is totally alien for computing book profit and only requirement is that if any provision for diminution in value of any asset has been debited to profit and loss account same will automatically stand added to amount of net profit for working out book profit .Therefore, once provision is made for diminution in value of any asset , same has to be added for computing book profit, regardless of fact whether or not there is any balance value of asset. ( Asst Year 2004‐05).

ITO v TCFC Finance Ltd ( 2011) 131 ITD 103 ( Mumbai) (Trib).

S. 115JB – MAT ‐ Book Profit – Revaluation of assets

The amount on account of revaluation of assets sold and taken to the balance sheet as revaluation reserved cannot be added to book profits.

ITO vs. Galaxy Saws P. Ltd., ITA No. 3747/Mum/2009, dt.11‐03‐2011, A.Y. 2005 – 2006, `G’ Bench, Mumbai ITAT, BCAJ pg. 40, Vol. 43‐A, Part 2, May 2011.

S. 119: CBDT‐Circulars‐ Administrative relief.

Benevolent circulars providing administrative relief to the assessee have to be given effect to even if they are issued subsequent to the decision of an authority under the Act.( A. Y. 1995‐96 & 1996‐97)

Chhabil Dass Agarwal vs. UOI (2011) 56 DTR 19 (Sikkim)( High Court).

S. 132B: Retention of seized assets‐ Delay in payment of refund‐ Interest.

Delay in paying refund interest payable under section 132B.( A. Y. 1995‐96)

Vishwanath Khanna v UOI ( 2011) 335 ITR 548 ( Delhi ) (High Court).

S. 142A: Reference to District Valuation Officer.

Where the assessment is framed by the assessing officer and the appeal is decided by the CIT (A) prior to 30.09.2004 it is not open to the assessing officer to order valuation of property by District Valuation Officer (DVO) as the provision of section 142 A are not retrospective.

CIT vs. Naveen Gera (2011) 56 DTR 170 (Del) (High Court).

S.143 (2) ‐Assessment‐ Notice .

Where notice u/s. 143(2) was served upon the assessee after a period of 12 months from the end of the month in which the return was filed, it was held that the proceedings in pursuance of such notice was invalid and liable to be quashed.


DCIT V/s. Maxima Systems Ltd. {2011} 198 Taxman 192 (Guj.) Mag.)( High Court).

S. 143 (3): Assessment‐Opportunity to Cross‐examine.

The AO passed the order without granting an opportunity to cross‐examine. The High Court set aside the assessment order in the writ petition. Held, the High Court ought not to have set aside the assessment order but should have granted the assessee an opportunity to cross‐examine the witness.( A. Y. 2004‐05)

ITO v. M. Pirai Choodi [2011] 334 ITR 262 (SC)

S. 143(3) ‐ Assessment‐ Additions.

Where the assessee himself offered Rs. 20 Lacs as income purportedly on account of deficit in stocks but apart from the assessee’s offer, there was no other material pointing towards such deficit, it was held that addition was not justified.

CIT V/s. C. Jayantilal {2011} 199 Taxman 34 (Mad.) (Mag.)( High (Court).

S. 144C: Dispute resolution panel‐ Transfer Pricing‐ Jurisdictional CIT should not be part of DRP to avoid likelihood of bias‐ Reassessment (S.147.).

Where DIT‐II was exercising supervisory functions over the AO, the real likelihood of “official bias” cannot be ruled out. Even if the officer is impartial and there is no personal bias or malice, nonetheless, a right minded person would think that in the circumstances, there could be a likelihood of bias on his part. In that event, the officer should not sit and adjudicate upon the matter. He should recuse himself. This follows from the principle that justice must not only be done but seen to be done. In order to ensure that no person should think that there is a real likelihood of bias on the part of the officer concerned, the CBDT is directed to ensure that a jurisdictional Commissioner is not nominated as a member of the DRP under Rule 3 (2) of the Rules. By doing this, the principle that justice must not only be done but seen to be done would be ensured. Nonetheless the constitutional validity of S. 144C and R.3(2) of the Rules was upheld.

Hyundai Heavy Industries Ltd. vs UOI (Uttarakhand) (High Court) www.itatonline.org.

S. 145.Accounts – Valuation of unquoted Govt. securities – basis of RBI guidelines. Sustainable method of valuation.

In case where the securities are not quoted in market, market price is not known under these circumstances Valuation done by assessee of the unquoted Government securities on the basis of Reserve Bank of India guidelines was held to be a sustainable method of valuation.(A. Y. 1994‐95)

CIT vs. The Lord Krishna Bank Ltd. (2011) 55 DTR 277 (Ker)( High Court)

S. 145A:Method of Accounting‐ Accounts‐ Valuation of closing stock‐Excise duty.


Excise duty on sugar manufactured but not sold is not to be included in the value of closing stock. In respect of excisable goods manufactured and lying in stock excise duty liability would get crystallized on date of clearance of goods and not on date of manufacture and therefore, till date of clearance of excisable goods, assessee cannot be said to have incurred excise duty liability (Asst year 2001‐02).

CIT v Loknete Balasaheb Desai S..S.K.Ltd ( 2011) 200 Taxman 238 ( Bom)

S. 145 (3): Assessment‐ Account – Rejection of Books.

Where discrepancy in stock found during the survey was negligible and no other incriminating documents or material was found. The Hon’ble High Court confirmed the order of the Tribunal, that merely on because the assessee had not maintained stock register book of accounts maintained by the assessee in the ordinary course of business cannot be rejected.(A. Y. 1999‐2000)

CIT vs. Bindals Apparels (2011) 56 DTR 202 (Del)( High Court)

S. 147: Reassessment‐Exempted income‐Despite bar in Proviso to s. 14A, s. 147 reopening for earlier years valid. ( S.14A.)

For AY 2000‐01, the assessee filed a return on 30.11.2000. As s. 14A was inserted subsequently by FA 2001 (w.r.e.f 1.4.62) and was tabled in Parliament on 28.2.2001, the assessee did not make any disallowance u/s 14A. The AO also did not make a disallowance in the s. 143 (3) order passed on 7.3.2003. After the expiry of 4 years, the AO sought to reopen the assessment to make a disallowance u/s 14A. The assessee challenged the reopening on the ground that (i) under the Proviso to s. 14A, a reopening u/s 147 for AY 2001‐02 & earlier years was not permissible, (ii) as s. 14A was not on the statute when the ROI was filed, there was no failure to disclose & (iii) as the AO had also sought to rectify u/s 154, he could not reopen u/s 147. The High Court (197 TM 415) dismissed the Writ Petition inter alia on the ground that “the Proviso to s. 14A bars reassessment but not original assessment on the basis of the retrospective amendment. Though the ROI was filed before s. 14A was enacted, the assessment order was passed subsequently. The AO ought to have applied s. 14A and his failure has resulted in escapement of income. The object and purpose of the Proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases which have attained finality“. On appeal by the assessee to the Supreme Court, HELD dismissing the SLP:

In our view, the re‐opening of assessment is fully justified on the facts and circumstances of the case. However, on the merits of the case, it would be open to the assessee to raise all contentions with regard to the amount of Rs.98.46 lakhs being offered for tax as well as it’s contention on Section 14A of the Income Tax Act, 1961.

Honda Siel Power Products Ltd vs DCIT ( SC) .www.itatonline.org.

S. 147: Reassessment – Reason to believe –Supreme Court.


Decision of Supreme Court forming the law from the very beginning of the existence of provision forms the material belief on escapement and therefore, becomes a valid reason to reopen.( A. Y. 2005‐06 & 2006‐07)

Kartikeya International Vs. CIT(2011) 241 CTR 489 (All)( High Court).

S. 147: Reassessment ‐ change of opinion.

On the claim of 80‐IB, the Assessee had furnished all the informations during assessment proceeding regarding the alleged manufacturing process involved on the basis of which the assessment was concluded by the Assessing Officer. On the same set of facts and materials, the Assessing Officer cannot take a different view by taking recourse to Sec. 147 which will amount to change of opinion. (A. Y. 1998‐99 to 2001‐02)

Anrit fees Ltd. Vs. CIT (2011) 239 CTR 82 (Cal)( High Court).

S. 147: Reassessment –After four years‐ Internal auditor.

Notice issued after expiry of four years from the end of the relevant assessment year merely based on the report of the internal auditors was held to be bad in law when all the particulars were duly disclosed by the Appellant during the original assessment proceedings under section 143 (3) of the Act.( 1997‐98)

CIT vs. Simbhaoli Sugar Mills Ltd. (2011) 55 DTR 233 (Del)( High Court).

S. 147: Reassessment – After four years‐Exemption.

Notice issued under section 148 of the Act to reassess the income of the assessee after expiry of four (4) years was held to be bad in law where the assessee had duly disclosed all the fact relating to sale of shares, working of capital gain and exemption claimed under section 54 F of the Act in his return of income and in the course of original assessment proceedings under section 143 (3) of the Act. (A. Y. 1996‐97)

Vikram Kothari (HUF) vs. State of Uttar Pardesh & Ors. (2011) 56 DTR 43 (All)( High court).

S. 147:Reassessment – Merger‐Deduction‐ With in four years.( S. 80HHC, 80I, 80IA ).

Where the assessing officer after due application of his mind allowed the assessee’s claim of deduction under section 80 HHC, 80 I and 80 IA of the Act after some modification, for which assessee preferred an appeal before the appellate authority. Reopening the assessment within four (4) years on the ground that deduction under section 80 HHC, 80 I and 80 IB of the Act was excessive was held to be bad in law for the reason that the assessment order has merged with the order of the CIT (A) and had no independent existence.(1996‐97)

United Phosphorus Ltd. vs. Addl. CIT (2011) 56 DTR 193 (Guj)( High Court).


S. 147: Reassessment‐ Block assessment.

Block assessment framed under chapter XIV – B of the Act can be reopened under section 147 of the Act.( A. Y. 1995‐96)

CIT & Anr. vs. Rinku Chakraborthy (2011) 56 DTR 227/ 242 CTR 425( Kar)

S.147: Reassessment‐Reason to believe‐Development agreement‐Capital gains.( S.148 ).

Assessee entered in to development agreement on 17‐9‐2004, on a consideration of Rs 4 crores. As the developer failed to pay the agreed consideration, of Rs 30 lakhs before 31‐10‐1994 , the assessee terminated the agreement .Thereafter issuing the cheques for Rs 30 lakhs on 30‐6‐2005, the development agreement was restored. In view of further default on the part of developer, on 19‐5‐2010 , the development agreement was once again terminated .The developer has filed the suit before Bombay High Court , which was ultimately settled on 2‐5‐2011 , where in the consideration was enhanced from 4 crore to 7.5.crores . It was ordered the possession of the property to the developer on 2‐5‐2011.In the mean while the Assessing Officer issued notice under section 148 dated 25‐3‐2010 , proposing to tax the capital gain tax arising from development agreement in the Asst year 2005‐06 . In a petition filed by the assessee the Honourable Bombay, High court allowed the petition and quashed the notice issued under section 148.

Amar R.Shanbag v ITO ( WP NO 552 of 2011 dt 18‐7‐2011 ( 593 ( 2011) 43A BCAJ‐ August –p 29.)

S. 147: Reassessment‐Double taxation avoidance‐ India‐ Malaysia. ( S.90).

Assessee having permanent establishment in Malaysia . Income earned in Malaysia is taxable there under the provisions of Double taxation Avoidance Agreement between India and Malaysia. No Tax actually levied because amount had not been brought in to Malaysia . The Amount not taxable in India. Reassessment proceedings to tax amount in India not valid . There is no Rule that assessee should pay tax in at least one jurisdiction to be eligible for relief.

(Asst Years 2001‐01 to 2002‐03 and 2005‐06 ).

Sivagami Holdings P. Ltd v Asst CIT ( 2011) 10 ITR 48(Chennai) Trib).

S. 147: Reassessment‐ Reason to believe‐ Change of opinion‐ With in period of Four years.

Once an assessment has been completed under section 143 (3) after raising a query on a particular issue and accepting assessee’s reply to the query. Assessing Officer has no jurisdiction to reopen the assessment merely because the issue in question is not specifically adverted in the assessment order , unless there tangible material before the Assessing Officer to come to the conclusion that there is escapement of income.( Asst Year 1998‐99).


Asst CIT v Rolta India Ltd ( 2011) 57 DTR 370 / 139 TTJ 385(Mumbai) ( TM ) (Trib).

S. 148: Reassessment‐ To decide whether s. 148 notice is “issued” in time, date of handing over by AO to post office to be seen.

For purposes of s. 149, the expression “notice shall be issued” means that the notice should go out of the hands of the AO. Merely signing the notices on a particular date cannot be equated with “issuance of notice” as contemplated u/s 149. The date of issue would be the date on which the same was handed over for service to the proper officer, which in the present case would be the date on which the notices was actually handed over to the post office for the purpose of booking for the purpose of effecting service on the assessee. Till the point of time the envelopes are properly stamped with adequate value of postal stamps, it cannot be stated that the process of issue is complete.

Kanubhai M. Patel HUF vs Hiren Bhatt( Guj) (High Court). www.itatonline.org.

S. 148: Reassessment‐ Sanction to issue notice‐ Chief commissioner – Commissioner‐ After four years. ( S.151.)

Original assessment was completed under section 143 (3) on 29‐1‐2001.Subsequently , Assessing Officer who of rank of Assistant Commissioner (ACIT) initiated proceedings under section 147 vide notice dated 24‐3‐2005 issued under section 148 , after obtaining approval from Joint Commissioner ( JCIT). As proceedings under section 147 were initiated after 4 years from relevant assessment year , assessee objected to jurisdiction of Assessing Officer in issuing notice under section 148 on ground that Assessing Officer had not obtained sanction of Chief Commissioner (CCIT) or Commissioner (CCIT).In view of Shashi Kant Garg (Dr) v CIT ( 2006) 285 ITR 158 (All) , objection raised by assessee was to be up held and consequently ,impugned notice was quashed. ( Asst Year 1998‐99).

ITO v Bhavesh Kumar ( 2011) 131 ITD 1 (Agra) (TM ) (Trib).

S. 153A: Search and Seizure ‐ Assessment in case of search or requisition.

Once the warrant of authorization or requisition is issued and search is conducted, Panchanama is drawn, all the relevant six assessment years would get reopened irrespective of any incriminating material is found or not in respect of any particular assessment year falling within the relevant six assessment years.( 2002‐03 to 2005‐06)

Mansukh Kanjibhai Shah (Dr) v. Asstt. CIT (2011) 129 ITD 376 (Ahd)( Trib).

S. 153A: Search and Seizure‐Abatement‐Assessment pending.

Only the assessments pending before the Assessing Officer for completion shall abate and under section 153A the issues decided in the assessment can not be reconsidered and readjudicated unless there is some fresh material found during the course of search in relation to such points. ( Asst Years 2003‐04 to 2005‐06 & 2007‐08 ).


Guruprerana Enterprises v Asst CIT ( 2011) 57 DTR 465 ( Mumbai) (Trib).

S. 153C: Search and Seizure‐ Assessment‐ Computation of undisclosed income‐ Cash Credit.

Where the assessee has proved identity of the person the genuineness of the transaction as well as the capacity of the lenders and departmental authorities have not found any falsity in the evidences no addition could be made under section 68. ( Asst Years 2003‐04 to 2005‐06 & 2007‐08 ).

Guruprerana Enterprises v Asst CIT ( 2011) 57 DTR 465 ( Mumbai) (Trib).

S. 158BC: Block assessment‐Search and Seizure‐Warrant of authorization‐ Joint names‐ Assessment in the name of Individual is not invalid.

Warrant of authorization issued in the names of three companies including assessee , separated only by a comma without the word “and” between the names of the companies is a common warrant in the case of said three companies and not a warrant in the joint names of three companies and therefore ,the block assessment order framed in the individual name of the assessee company is not in valid.

Radan Multimedia ltd v Dy CIT ( 2011) 58 DTR 129 (Mumbai) ( Trib).

S.158BC:Block assessment‐Transactions which are subject matter of regular assessment‐ Can not be treated as undisclosed income‐ Depreciation‐ Finance charges.

Assessee having disclosed all the transactions relating to its claim for depreciation on plant and machinery as well as payment of finance charges by filing all details in the return filed prior to the date of search which has been subject matter of enquiry in a regular assessment and all the machineries having been physically found at the time of survey as well as search at the business premises of the assessee , depreciation and finance charges could not be disallowed and treated as undisclosed income in the block assessment in the absence of detection of any material as a result of search.

Radan Multimedia ltd v Dy CIT ( 2011) 58 DTR 129 (Mumbai) ( Trib).

S.158BD: Block assessment‐ Search and Seizure‐ Assessment of third person‐Action under section 158BD must be taken before completion of search assessment of searched person . ( S. 158BC).

Action under section 158BD must be taken before completion of assessment of searched person. Block assessment under section 158BC , was completed on 30‐3‐2005 . Satisfaction under section 158BD recorded on 15‐7‐2005 . The court held proceedings held to be not valid.( Block Period1998 to 2003)

CIT v Mridula, Prop Dhruv Fabrics ( 2011) 335 ITR 266 ( P &H) (High Court)


Editorial. Refer Manoj Aggarwal vs. DCIT (2008) 113 ITD 377 (Del)(SB) / 117 TTJ 145 / 11 DTR 1.

S:158BD‐Block assessment‐ Search and seizure‐ Assessment of undisclosed income of other person.

The assessment of the person put to search was completed on 28‐2‐2005 and proceedings u/s. 158BD were initiated on 02‐12‐2006 by issue of notice. The satisfaction u/s. 158BD was recorded 31‐03‐2006. Since the satisfaction u/s. 158BD was recorded after the completion of proceedings u/s. 158BC, it was held that proceedings u/s. 158BD are time‐barred‐

CIT V/s. Parveen Fabrics P. Ltd. {2011} 198 Taxman 463 (P & H.)( High Court)..

S, 158BH‐Block Assessment –Search and Seizure‐ Disallowance – Rule 6DD. ( S. 40(A)(3).

While computing the income of the Appellant under chapter XIV – B of the Act if the assessee fails to bring his case within the ambit of exceptional circumstance as provided in rule 6 DD of the Income tax Rules, 1962 expenditure can be disallowed invoking provisions of section 40 A (3) of the Act.( Block Period 1990 to 2000)

CIT vs. Sai Metal Works (2011) 54 DTR 327 (P&H)( High Court).

S. 194 C: Deduction of tax at source ‐Contractual payment –Freight charges‐ Disallowance u/s. 40(a)(ia).

In the absence of any oral or written agreement for payment of any freight charges to truck owners, it does not become a case u/s. 40(a)(ia) r.w.s. 194C. Therefore, the disallowance made is not sustainable.( A. Y. 2006‐07)

CIT vs. Bhagwati Steels (2011) 241 CTR 480 (P&H)( High Court).

S.194 E: Deduction of tax at source‐Payments to non resident sportsman or sports association‐ Umpires‐ Match referees are neither sports men nor are they on resident sports association or institution ( S. 115BBA ).

Amounts paid to foreign team for participation in match in India in any shape , either as prize money or as administrative expenses , is income deemed to have accrued in India and is taxable under section 115BBA and thus , section 194E is attracted. However ,payments made to umpires or match referees do not come with in purview of section 115BBA because umpires and match referee are nether sportsmen (including an athletic) nor are they non resident sports association or institution so as to attract provisions contained in section 115BBA and therefore , liability to deduct tax at source under section 194E does not arise.( Asst Year 1996‐97).

Indcom v CIT ( 2011) 200 Taxman 40/ 58 DTR 1 / 335 ITR 485/ 242 CTR 337( Cal) (High Court).


S. 194H: Deduction of tax at source‐ Commission‐ Discount.

Where agreement between assessee and distributor was on principal to principal basis , payments made by the assessee to the distributor were incentives and discounts and not commission , there was no need to deduct tax under section 194H on such payments.( Asst year 2004‐05).

CIT v Jai Drinks ( P) Ltd ( 2011) 57 DTR 261 ( Delhi ) (High Court).

S. 194 –I : Deduction of tax at source‐ Rent for Hire of Machinery‐( S. 194C.

Amendment of section 194I to include rent for hire of machinery w.e.f. 1‐6‐2007 Assessee paying hire charges for Millers and Rollers for laying Roads , there is no liability to deduct tax at source in accounting year relevant to assessment year 2005‐06 . Operation of machinery by owner of Machinery not a case of composit contract for labour and hire of machinery.. Section 194I of the Act came to provide for deduction of tax at source in respect of machinery /equipment with effect from June 1 , 2007 , and the relevant assessment year was 2005‐06 , there was no scope to disallow the expenditure applying the provisions of section 40 (a) (ia). ( Asst Year 2005‐06 ).

CIT v D.Rathinam ( 2011) 335 ITR 101 / 55 DTR 382( Mad ) (High Court).

S. 195: Deduction of tax at source‐Non –Resident‐ Commission paid out side India‐ Fees for technical services‐ DTAA‐ India‐ Russia.( S. 9 (1) (i), 40 (a) (ia),. Art 7 ,13).

Commission was paid out side India for services rendered out side India , tax was not deductible at source. The definition of “fees for technical services” in article 13 of the Double taxation Avoidance Agreement does not include managerial service . Hence the definition of the technical services as given in the Double Taxation Avoidance Agreement is to be applied and it was beneficial . Hence the sales commission in respect of parties situated in the U.K. could not have been subjected to tax at source because it was business profits and not fees for technical services . More over the , non residents had not made available technical knowledge or experience . Hence clause 13 of the Double Taxation Avoidance Agreement between India and the U.K was not applicable. ( Asst years 2007‐08 to 2010‐ 2010‐ 11).

Asst CIT v Modern Insulator Ltd ( 2011) 10 ITR 147 ( Jaipur) (Trib).

S.195: Deduction of tax at source‐ Payment to non resident‐ Training its personnel‐Fees for technical service‐ Income deemed to accrue or arise in India. ( S.9 ).

Assessee company during relevant assessment year made payment to non resident party for training its personnel or customers to explain proposed buyers salient features of products imported by assessee in India and to impart training to customers to use equipment . The payment made could not be said to be fees for technical services and not liable for deduction of tax at source. ( Asst Year 2007‐08).

Asst CIT v PCI Ltd ( 2011) 46 SOT 183 ( Delhi ) (Trib).


S. 195: Deduction of tax at source‐Remittances of sale proceeds of shares by bank – UAE resident‐ DTAA‐ India‐ UAE.( S. 201, 201 (1A), Article 13 (3).

Abu Dahbi Commercial Bank,(ADCB) was engaged in the business of banking and operated through branch in India. ADCB made remittances to individuals being UAE residents , in respect of sale proceeds of shares which resulted in short term capital gain in India. Remittance was made without deducting tax at source. AO treated the ADCB as an assessee in default , under section 201 and also levied interest under section 201(IA).On appeal CIT (A) held that though ADCB could be regarded as payer under section 204 , there was no with holding tax obligation due to availability of treaty benefit. The tribunal held that Liability to deduct tax on remittance , does not arise as bank is only acting as an authorized dealer in transferring the funds on behalf of the share broker in absence of liability to deduct tax , the bank could not be treated as an assessee in default.

ITO v Abu Dhabi Commercial Bank ( 2011) TII 103 ITAT –Mum‐ITNL dated 12‐5‐2011 ( 591 ( 2011) 43‐A BCAJ –August P. 27.( Mumbai) (Trib).

S. 195: Deduction of tax at source‐ Non –Resident‐ Data Processing Services‐

Services involving routine data entry ,application sorting , document handling and data capturing service not involving use of sophisticated technology . Services rendered non managerial , technical or consultancy service . Fees based on invoice from non resident . Not Fees for technical services . Not taxable in India.

R.R.Donnelley India Out source P. Ltd ( 2011) 335 ITR 122 ( AAR).

S.199: Deduction of tax at source‐Credit for tax deducted .

Credit for TDS ,under section 199 is to be allowed in year in which corresponding income is assessable to tax.( Asst Year 2006‐07).

ITO v Shri Anupallavi Finance & Investments ( 2011) 131 ITD 205 ( Chennai) (Trib).

S. 234B: Interest‐Search and seizure‐Retention of seized Asserts.( S. 234C.).

Assets seized were released on deposit of money. Assessing Officer failing to accede to request of assessee and adjust advance tax against deposits . Interest under section 234B and 234C for default in payment of advance tax can not be levied.( A. Y. 1995‐96)

Vishwanath Khanna v UOI ( 2011) 335 ITR 548 ( Delhi)( High Court).

S. 234D: Interest‐ Chargeability.

Section 234D is applicable only from Ist June , 2003 and therefore , no interest under that section could be levied from earlier date.( Asst Year 1999‐2000).

CIT v Faunc India Ltd ( 2011) 57 DTR 340 ( Kar) (High Court).


S. 244A. Refunds‐ Interest‐MAT Credit.

From the tax payable by assessee under section 115JA ,MAT credits is to be adjusted first ,then what becomes refundable after adjustment of MAT credit is excess advance tax , paid by assessee and on such refundable advance tax interest under section 244A has to be calculated and paid.( Asst Year 1988‐99).

CIT v Bharat Aluminium Co Ltd ( 2011) 200 Taxman 57/58 DTR 113/ 242 CTR 366 ( Delhi) (High Court).

S. 250 (4). Appeal – Commissioner ( Appeals)‐ Additional evidence. ( Rule 46A).

Assessing Officer never directed the assessee company to produce any evidence to prove the genuineness of share holdings by the subscribing companies nor expressed any doubts regarding the genuineness of share holdings of these companies prior treating the assessee’s capital as unexplained CIT (A) correctly admitted the additional evidence produced before him and there is no question of giving an opportunity to the AO to examine the additional evidence. ( Asst Year 2005‐06).

Dy CIT v Dolphine Marbles (P) lTD ( 2011) 57 DTR 58 ( Jab) (TM ) (Trib).

S. 251 (1) (C ): Appeal – Commissioner of Income tax ( Appeals)‐New claim‐Non filing of revised return‐ Power of CIT (A).

When the assessee , during the course of assessment claimed the cost of acquisition of the capital asset as per the valuation report stating the fair market value as on Ist April 1981, the Assessing Officer should have entertained the said claim and CIT (A) also erred in not considering the claim , which is a legally permissible claim. (Asst Year 2005‐06).

Gopi S. Shivnani ( Mrs)v ITO ( 2011) 139 TTJ 308 (Mumbai) (Trib).

S. 253 (1): Appellate Tribunal‐ Appeal‐ Power‐ Penalty. ( S. 246A (1) (q) , 271FA ).

Income tax Appellate Tribunal has no power to entertain the appeal against the order passed under section 271FA ie delay in filing information.. An appeal against the order passed under section 271FA can be preferred before the CIT (A) .( A. Y. 2005‐06 to 2008‐09)

Sub Registrar Nakoar v Director of Income tax ( 2011) 57 DTR 497 ( Asr) (Trib).

S. 254(1) : Appeal – Tribunal – Duty.

The assessee had raised a specific ground challenging the jurisdiction of the assessing officer on framing the assessment order beyond limitation before the CIT (A) and succeeded before him in appeal. The Tribunal was held not justified in deciding the issue on merits and reversing the order of the CIT (A) without deciding the issue on jurisdiction under section 147 of the Act.( A. Y. 1990‐91)


Kumudam Printers (P) Ltd. vs. CIT (2011) 56 DTR 61 (Mad)( High Court).

S. 254(1 ):Appellate Tribunal ‐ Even issues “sub‐judice” before High Court can be heard by Tribunal.

The objection to the Special Bench hearing the issue only on the ground that the High Court has admitted the appeal is not acceptable for two reasons. Firstly, the mere fact that a superior authority is seized of an issue identical to the one before the lower authority does not create any impediment on the powers of the lower authority in disposing off the matters involving such issue as per prevailing law. If the suggestion is accepted, there would be chaos and the entire working of the Tribunal will come to standstill. Secondly, the Special Bench was constituted at the assessee’s request because it then wanted an “escape route” from a potential adverse view. The assessee cannot now argue that the Special Bench be deconstituted. Such “vacillating stand” cannot be approved.

DCIT vs Summit Securities Limited ( Mumbai) ( Special Bench)( Trib) . www.itatonlne.org.

S. 254 (1) : Appellate Tribunal‐ Additional evidence‐ Data of comparables‐ Annual reports.

In view of the fact that annual reports / data base extracts of three companies which were selected as comparable cases were not available earlier in the public domain and having regard to the fact that these documents are essential for determining ALP , these additional evidences are admitted for consideration.( Asst Year 2005‐06).

Asst CIT v NIT ltd ( 2011) 57 DTR 334 ( Delhi) (Trib).

S. 254 (2) : Appellate Tribunal‐Second rectification application‐ Power.

The Tribunal has no power to adjudicate upon subsequent application filed under section 254 (2) . Only course permissible to assessee in such a case is to file an appeal against that order .( Asst year 1995‐96).

Shri Padma Prakash (HUF) v ITO ( 2011) 131 ITD 121 (DelhI ) (SB) (Trib).

S. 260A: Appeal – High Court‐Condonation of Delay.

The department delayed in filing appeal in the matter involving huge stakes. The High Court dismissed the appeal. Held, considering the amount of tax involved, the High Court ought to have decided the appeal before it on the merits. The matter was remanded to the High Court to decide de novo in accordance with law.

CIT v. West Bengal Infrastructure Development Finance Corp. Ltd. [2011] 334 ITR 269(SC)

S. 260A: Appeal – High Court‐Question of Law .


Where though the appeal was admitted on the question, as to whether the Dy. Director of Inspection has power to make reference to the Valuation Officer under section 131 (1A) of the Act. The Hon’ble High Court dismissed the appeal of the revenue holding that the question did not arise for consideration of the High Court, as non of the lower authorities recorded the finding that the Dy. Director of Inspection was having no power to make reference to Valuation Officer.( A. Y. 1998‐99)

I.T.O. vs. Hotel Shyama (2011) 56 DTR 174 (MP)( High Court).

S. 260A:Appeal – Abatement of Appeal.

If the assessee dies, the question of abatement of appeal filed under section 260 A of the Act would not arise. Further, the Hon’ble High Court condoned delay of 523 day in filing the application for bringing the legal heirs on record by the Revenue, rejecting the objection taken by the assessee under Order 22 of Civil Procedure Code, which provides that, if there is delay in bringing legal heirs on record the proceedings abates does not apply to an appeal filed under section 260 A of the Act.

CIT & Anr. vs. V. Rukmini (Smt)s By LR’s (2011) 53 DTR 30 (Kar)( High Court).

S. 260A: Appeal‐ Small tax effect‐ Below 2 lakhs‐ Appeal before Tribunal. ( S. 253 (2).)

In cases where tax effect is below Rs 2,00,000, Revenue can not file appeal contrary to the terms of circular which is binding on the department.( A.Y. 1997‐98 & 1998‐99)

CIT v Mangilal Jain ( 2011) 58 DTR 20 ( MP) (High Court).

S. 263: Revision‐ Block Assessment‐ Documents seized.

In the block assessment order the assessing Officer made an addition of Rs 90 Lakhs on the basis of the documents seized from the premises of Viswas R. Bhoir . The said addition was deleted by the Tribunal and the appeal is pending before the Bombay High court. In the mean time the CIT passed a revision order under section 263 on 16‐0‐ 2005 , directing the Assessing Officer to consider the tax implication of page nos 1 to 13 of bundle no 12seized from the residence of Viswas R.Bhoir. The Tribunal held that once taxability under both the documents has been considered by the Assessing Officer and the CIT (A), it is not open to CIT to invoke the jurisdiction under section 263 . On appeal to the High Court , the High Court confirmed the order of Tribunal

CIT v Mukesh J .Upadhyaya ( Bom) ( High Court) (. ITA no 428 of 2010 dated 13‐6‐2011.(594 ( 2011) 43A‐ BCAJ – August –P. 30).

S. 263: Revision – Jurisdiction/Power of CIT – Absence of notice under s. 143(2) vis‐à‐vis limitation for completion of assessment.

When the assessment for asst. year 1987‐88 was completed under S. 143(1)(a) and notice under s. 143(2) had not been issued and time for completing asst. under s. 143(3) expired on 31st March 1990, CIT could not direct asst. under S. 143(3) by his revision order under


S. 263 dated 22nd March, 1991, the order was held to be contrary to provisions of S. 143(2), 143(3) and 153(1) (a).

V. Narayanan vs. Dy. CIT(2011) 53 DTR188 (Chennai) ( T M) (Trib)

S. 271 (1) (C ). Penalty‐ Concealment‐ Failure to file return‐ Explanation 3.

For the purpose of invoking the provisions of Expln. 3 to section 271 (1), the conditions enumerated therein are required to be to be satisfied cumulatively : Assessing Officer having issued a notice under section 148 to the petitioner with in the period specified under section 153 (1), the third condition , namely , the notice under section 142 (1) or 148 should have been issued with in the period specified under sub section (1) or of section 153 is clearly not satisfied and therefore , the failure on the part of the petitioner to furnish return with in the specified period can not be deemed to be concealment with in the meaning of Explanation 3 to section 271 (I ) (c), and penalty under section 271 (1) (c ) could not be levied.( Asst Year 1994‐95).

Chhaganlal Suteriya v ITO ( 2011) 58 DTR 89 ( Guj).( High Court).

S. 271 (1) (C ): Penalty‐ Concealment‐Non genuine gift claimed as capital gains‐Transfer of tenancy right.

In the return of income the assessee declared of Rs 17 lakhs as long term capital gains arising from transfer of tenancy right and paid tax @ 20% applicable to long term capital gains. Claim of assessee was that amount paid for receiving the gift was from the cash received on surrender of tenancy right . Assessing officer held that as there was no supporting evidence the amount was assessed as income from undisclosed sources.

The Tribunal held that as tax sought to be evaded is very clear as the tax rate applicable on the impugned receipt of Rs.17 lakhs is 30 % being income from undisclosed sources, whereas the assessee has paid 20% claiming the same to be capital gain on transfer of tenancy right, provisions of Explanation 1 are not applicable to the instant case as tax sought to be evaded was because of the lower rate of tax paid and not because of any addition to the income and, therefore, penalty is imposable under the main provisions of s.271(1)(c).

Harish P.Mashruwala v Asst CIT ( 2011) 139 TTJ 563 ( Mumbai ) (SB ) (Trib).

S. 271 (1) (C ): Penalty‐ Concealment‐ Survey‐ Surrender of additional income.

Assessee having surrendered additional income following detection of certain discrepancies in the documents found during the survey proceedings at its premises despite filing an explanation and AO proceeded to assess the said income on the basis of the surrender made by the assessee Penalty under section 271 (1) (C ) is not leviable.( Asst Year 2005‐06).

Ajay Sangari & Company v Additional CIT ( 2011) 57 DTR 397 ( Chd) (Trib).


S. 271 (1) (c ). Penalty‐ Concealment‐AO reprimanded for harassing the assessee by wrongly levying penalty.

In the instant case, the assessment order supplied by AO to assessee did not contain any direction for initiation of penalty though assessment order filed by dept. with memo of appeal had a reference to issue of notice u/s. 271(1)(c ). The Tribunal considering the case fit for awarding cost u/s. 254(2B) of the Act, held that they were inclined to record over here that AO should have confined himself in making just and proper assessment only, as per the provisions of the law and harassment of assessee, which is not permitted under the statute should have been avoided at all cost.

ITO vs Audyogik Tantra Shikshan ( Pune)( Trib).www.itatonline.org.

S. 271 C:Penalty for failure to deduct tax at source‐Failure to deduct tax attract penalty and also imprisonment. – ( S.192, 200, 206, 271C, 276B and 276BB , S. 482 of CrPC.

Where the materials show that the proceeding is of a civil nature and cannot be adjudicated by the criminal court or, if it is an abuse of the process of the court, the High Court would be well within its power to exercise its inherent jurisdiction and quash the same. – In view of the provisions of the Income‐tax Act and the assertion of the appellants that deductions were being made for all the persons liable to pay tax in terms of the Income‐tax Act, the proper remedy for the respondents was to approach the authority/officer concerned and not by filing a complaint.

Rajeswar Tiwari and Ors. v. Nanada Kishore Roy [2011] 333 ITR 534 / 59 DTR 75(SC)

S.276C: Offences and Prosecution Proof of signing of return by accused.( S. 277, 278 ).

Accused partner of the assessee firm not having raised any objection at any point of time that the return did not bear his signature or that it was not filed by him and paid the penalty levied in the assessment , the accused could not be acquitted of the offences under sections 276C, 277 AND 278 on the ground that the prosecution has not been able to prove that the return was signed by the accused partner : the impugned orders are set a side and the judgment of conviction passed by the Chief Magistrate is restored.

ITO v Mangat Ram Norata Ram Narwana and another ( 2011) 57 DTR 257 / 242 CTR 113(SC).

Wealth tax.

S.17: Reassessment – Wealth – tax Act, 1957 –Reasons‐ Notice.

Reasons for initiation of reopening proceedings need not be made known to the assessee by reflecting the same in the notice issued under section 17 of the Wealth tax Act, 1957.

I.K. Agencies (P) Ltd. vs. CWT (2011) 55 DTR 138 (Cal)(High Court).


S.17.Reassessment –Non existing person‐ Wealth – tax Act, 1957.

Reassessment notice under section 17 of the Wealth tax Act issued in the name of a person who is not in existence at the time when the notice was issued, notice issued on such non existing person was held to be invalid and such defect which goes to the root of the jurisdiction to reopen the proceedings cannot be cured.

I.K. Agencies (P) Ltd. vs. CWT (2011) 55 DTR 138 (Cal)(High Court).

General:

Appeal‐ CBDT directed to formulate uniform policy with strict parameters on appeal filing.

It is high time when the Central Board of Direct and Indirect Taxes comes out with a uniform policy, laying down strict parameters for the guidance of the field staff for deciding whether or not an appeal in a particular case is to be filed. We are constrained to observe that the existing guidelines are followed more in breach, resulting in avoidable allegations of malafides etc on the part of the officers concerned.

CCE vs Doaba Steel Rolling Mills ( SC) . www.itatonline.org.

Prosecution‐FERA, 1973 – Ss. 8, 9, 50, 51 and 56 –

Adjudication proceedings and criminal proceedings can be initiated simultaneously and independent of each other – finding in the adjudication proceeding is not binding in the criminal proceeding – adjudication proceedings does not attract the provisions of Art. 20(2) of the Constitution or S. 300 of the CrPC – if the exoneration in the adjudication proceeding is on the merit, a criminal prosecution on the same facts cannot be allowed to continue

Standard Chartered Bank v. Directorate of Enforcement [2006] 130 Comp Cas 341 (SC) distinguished.

Radheshyam Kejriwal v. State of West Bengal and Anr. [2011] 333 ITR 58 / (266) ELT 294 (SC)

INTERPRETATION OF TAXING STATUES – term not defined under income tax act – definition in different acts and meaning common parlance to be taken

The High Court held that though specific provisions are made in respect of investment in bonds of financial corporation state or central govt. that would not mean that one has to give restrictive meaning to the term debenture more particularly when the term is not defined under the Act. The principle of interpretation is that in the absence of any definition given to a particular term in a statute, the meaning which is to be given to the term is the meaning in which it is understood in common parlance.


DIT v. Shree Visheshwar Nath Memorial Public Charitable Trust [2011] 333 ITR 248 (Delhi) (High Court).

Precedent‐ Dismissal of appeal by Supreme Court.

Though the appeal is dismissed by Supreme Court in one line order, High Court’s order stand merged and operates as binding precedent.

Binani Industries Ltd v CIT ( 2011 ) Tax LR. 343 ( Cal ) (High Court).

General Anti Avoidance Rule (GAAR) Law Explained

The assessee, a Canadian Co controlled by its sole director Peter Cohen, earned capital gain of $7.7M from the transfer of property. Another company named “Rcongold Systems Inc” which was controlled by the assessee issued 8,000 voting “common shares” for a consideration of $8M to the assessee. Thereafter, Rcongold issued 80,000 Class “E” non‐voting preferred shares with a redemption price of $100 each to the shareholders (the assessee) by way of dividend. The redemption price of the Class “E” non‐voting preferred shares was identical to the fair market value (“FMV”) of the common shares. The said 8,000 “common shares” of Rcongold were sold by the assessee to “the Peter Cohen Trust” for an amount of $65, which resulted in the assessee reporting a capital loss of $7.9 M. The assessee’s claim to set‐off the said capital loss of $7.9M against the capital gain of $7.9M was denied by the AO on the ground that the scheme was one for “tax avoidance” and hit by the “General Anti Avoidance Rule” (“GAAR”) in s. 245 of the Canadian Income‐tax Act. HELD upholding the stand of the AO:

(i) For the GAAR in s. 245 to apply, three aspects have to be satisfied

(a) the assessee must obtain a “tax benefit” from a “transaction” or “series of transactions”,

(b) the transaction(s) must be an “avoidance transaction” in the sense of not having been “arranged primarily for bona fide purposes other than to obtain the tax benefit” and

(c) the avoidance transaction(s) must be abusive of the provisions of the Act, the burden being on the AO to establish the abuse;

(ii) On facts, all three requirements were satisfied because

(1) there were a “series of transactions” comprising of (a) the incorporation of Rcongold, (b) the subscription for shares of Rcongold by the assessee, (c) the declaration of a stock dividend by Rcongold, (d) the creation of the trust and (d) the sale by the assessee of shares of Rcongold to the trust and there was a “tax benefit” as a result of the transactions;


(2) the primary purpose of each transaction in the series was the avoidance of tax. While the incorporation of Rcongold and the issuance by it of common shares were not avoidance transactions in and of themselves, they were necessary steps taken in furtherance of the scheme. The primary purpose of the entire series of transactions was to obtain a tax benefit and so the entire series of transactions is an avoidance transaction;

(3) The transactions amounted to “abusive tax avoidance” because they sought to defeat the underlying rationale of the capital loss provisions in the Act. The assessee sought to create an “artificial capital loss” without incurring any “real economic loss”.

Triad Getsco Ltd vs H. M. the Queen (Canada Tax Court). www.itatonline.org.

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