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INCOME TAX APPELLATE TRIBUNAL ORDER

2010-TIOL-150-ITAT-DEL

Nokia Corporation Vs ACIT, New Delhi (Dated: March 19, 2010)

Income tax - Stay of demand - Sec 9(1)(vi) - India-Finland DTAA - Article 13 - Whether demand raised in respect of attribution of profit to the activity of supply of hardware and software taken at 50 percent ,profit attributed to the PE on account of R & D activities,income assessed on account of vendor financing and interest charged u/s. 234B should be stayed pending disposal of appeal.

Assessee is incorporated in Finland - engaged in the business of supply of telecom equipments for use in fixed and cellular networks - files NIL returns - AO takes the view that it constitutes a PE in India - AO argues in the assessment order that revenue from supply of hardware was to be allocated at 60% of the total supply revenues and 100% of the global profit margins was to be attributed to the PE in India - revenue from supply of software was allocated at 40% of the total supply and taxed as royalty under the DTAA - a sum was also imputed as income from vendor financing and in the case of R & D, attribution of 125-130% of profits was made by the AO

Also see analysis of the Order


DCIT, New Delhi Vs M/s Jackson Ltd (Dated: February 15, 2010)

Income Tax - Sec 80IB(7), 80IB(13) - Assessee manufactures DG Sets and runs two units - one is export oriented and the other is non-export oriented - claims deduction u/s 80IB - Assessee maintains separate book of accounts for the two units and inflates certain expenses of non export oriented unit - AO allocates the total expenses on both units and thereby reduces the deduction of eligible unit - CIT(A) following the order of earlier year apportions the expenses in correct manner - held, there being no change in facts the CIT(A) correctly apportioned the expenses.


DCIT, New Delhi Vs M/s Power Plant Performance & Improvement Ltd (Dated: February 12, 2010)

Income tax - Section 37 - Nature of Royalty payment - capital vs revenue expenditure - The assessee company is in the business of renovation and modernization of old power plants since its incorporation in May, 1997. Till financial year 2000-01, the assessee paid royalty in pursuance of the foreign collaboration agreement entered into between the assessee company, BHEL and Siemens Aktengesellschaft, Germany. The agreement was effective from/ on 1st September, 1997. The assessee company debited certain sums in the profit and loss account on account of royalty paid on the basis of net sales/ turnover – AO disallowed the payment of royalty on the basis of Supreme Court decision in the case of Southern Switchgear Ltd. vs. CIT - CIT(A),

distinguishing the case of Southern Switchgear Ltd allowed the appeal of the assessee - On further appeal by the revenue, ITAT takes the view that the payment of royalty since directly proportional to the turnover of sale is a revenue expense - Revenue's appeal dismissed

2010-TIOL-147-ITAT-MAD-TM

M/s Sical Logistics Ltd Vs ACIT, Chennai (Dated: November 27, 2009)

Income Tax - Consistency is undoubtedly a sound principle but it cannot be in violation of the express provision of the Act. Valuation fixed by Municipal authorities is quite relevant for the determination of the ALV. This property was let out by the assessee on a monthly rental of Rs.3500/- and hence the sum of Rs.42,000/- was offered for tax. The annual value fixed by the Corporation of this property was Rs.2,04,968/- for the purpose of levy of property tax. The A.M. upheld the contention of the assessee on the ground that the value of Rs.42,000/- was accepted by the revenue in the earlier years. He held that though the principle of res judicata was not applicable to Income-tax proceedings, consistency should be maintained when there is no change in facts. It is expressly provided in sec.23(1) that the ALV of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. However, if the property is let out, then the actual rent received or receivable shall be the ALV if it is in excess of the sum referred to earlier. It is also trite that the valuation fixed by Municipal authorities is quite relevant for the determination of the ALV.

When the Assessing Officer, who is both, an adjudicator as well as an investigator, is acting in a quasi judicial capacity, it is his perception which counts and not that of the CIT sitting in revisionary proceedings: The Assessing Officer in the present case did not find anything startling in the marginal drop in profits and for that reason the CIT held his order to be erroneous. This is not envisaged under sec.263 of the Act; there must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. In the present case, no such material is there for the CIT to hold the order to be erroneous. The various points noted by him are mere illustrations which according to him should have been looked into by the Assessing Officer. As a matter of fact, while dealing with the aspect of profits, the CIT has not been able to snow a single error in the order of the Assessing Officer



DCIT, Delhi Vs M/s Jindal Dyechem Industries Pvt Ltd (Dated: February 26, 2010)

Income Tax - Sec 92CA - Transfer Pricing - Assessee advances interest-free loans to wholly owned subsidiary outside the country - AO raises objection and invokes TP provisions - applies CUP method and makes additions - Assessee objects on the ground that the case has to be referred to the TPO for computing arm's length price - CIT(A) agrees with the assessee and holds that the assessee has been receiving dividend payments from the subsidiary and the same has been offered to tax at the highest marginal rate - held, it is not mandatory for the AO to refer all the cases to

the TPO - it can also computer arm's length price on its own - case remanded to the CIT(A) for fresh adjudication

Section 37 - Assessee is engaged in the business of trading in bullion - During the course of assessment AO disallows claim of foreign exchange loss - CIT(A) holds that any loss on account of fluctuation in the rate of foreign exchange on the last day of the financial year is not a notional loss and has to be allowed as deduction u/s 37 - Held, the advance was given by the Assessee to subsidiary company for trading purpose. In such a case loss on account of foreign exchange fluctuation has to be dealt with in accordance with the decision of the Jurisdictional High Court in the case of CIT vs. Woodword Governor . This decision has also been affirmed by the Apex Court. As per the ratio emanating from this case, loss on account of foreign exchange fluctuation is not a notional loss and if the loss is on revenue a/c it has to be allowed as revenue loss. Assessee's claim upheld


DCIT, New Delhi Vs Bharat Aluminium Co Ltd (Dated: February 19, 2010)

Income tax - Sec 115JAA, 244 - AO holds that assessee is entitled to MAT Credit u/s 115JAA but not eligible to interest u.s 244 - held, in view of the Delhi HC decision in Jindal Exports, MAT credit falls within the meaning of 'advance tax' and since interest u/s 244 is admissible on advance tax, the same applies to MAT Credit - Revenue's appeal dismissed

2010-TIOL-144-ITAT-MUM

National Refinery Private Limited Vs DCIT, Mumbai (Dated: March 5, 2010)

It is simple and plain that the edifice of the assessment cannot be created on the foundation of a time barred notice - no notice u/s.143(2) , as claimed by the Revenue authorities, was issued – assessment quashed: Return filed on 15.5.2000; notice said to be issued on 16.5.2000. Block return was filed on 15.5.2000. The filing of return on a Receipt counter on one day and the issuance of notice u/s.143(2) on the very next day would mean that all the steps from the receipt of return on the Receipt counter till the issuance of notice got completed within one day's time. Such steps would include the receipt of return on the Receipt counter of the department; the Receipt clerk, after entering the necessary particulars in the relevant register, handing over the same to the office of the concerned Assessing Officer; the office of the AO receiving it from the receipt clerk; placing of such return before the AO; the AO pursuing the return and all the accompanying documents; jotting down the points on which the explanation of the assessee is required ; finalizing such points and accordingly sending the notice. When it is claimed that a particular notice or order or other document was not contained in the letter, claimed to have been sent through registered post, it is for the sender to lead evidence to demonstrate that such notice, order or other documents etc. was in the letter so sent. It can be proved with the help of some internal record or dispatch register etc. maintained by the sender. Even the presumption that the notice, as contended by the Revenue, was actually issued on 16.5.2000 is accepted, then it would have contained some requirements of the Assessing Officer supposed to be furnished in support of certain claims made by the assessee. Along with the said notice u/s.143(2) dated 16.5.2000, copy of which is available in the Departmental Paper Book, there is no reference for the production of any accounts / document or any particular information. Except for mentioning the date on which the attendance is required on 6.6.2000, it is

silent on the documents or evidence required from the assessee in support of the claims made in the block return.


2010-TIOL-143-ITAT-BANG

ACIT, New Delhi Vs M/s Vaishno International (Dated: December 11, 2009)

Income Tax - Section 158BD - In a search and seizure action u/s. 132 certain documents seized which reveals that the cash drawn from the various concerns of Raheja Group and various expenses relating to the projects developed by these concerns has been incurred, but such expenses are not accounted for in the books of the respective concerns. Block assessment proceedings initiated by issuing notice u/s. 158BD – Assessee objects to the issuance of notice u/s. 158BD - CIT(A) rejects Assessee objection - Held, the Assessees' technical plea that the AO who had passed the order in the case of the Assessee had no jurisdiction as contemplated under the law dismissed.. The Assessees' technical plea that the order passed u/s. 158BD r.w.s. 158BC had not complied with the mandatory requirement to assume jurisdiction u/s. 158BD dismissed. The appeals by the Assessees on this ground dismissed.


ACIT, New Delhi Vs M/s Vaishno International (Dated: January 22, 2010)

Income tax - Sec 80I, 80IB - Assessee files nil return - AO finds assessee has claimed deduction u/s 80I in place of 80IB - questionnaire served - assessee files revised return dening the benefits on the ground that revised return cannot be filed after expiry of deadline - assessee pleads the necessary conditions for claiming benefits under both the Sections are the same and it was a typo error whereby Sec 80IB was typed as Sec 80I - CIT(A) allows the appeal - held, wrong mention of Section cannot be used to deny legitimate deduction - CIT(A) order upheld - Revenue's appeal dismissed


Panchsheel Pharmaceuticals Pvt Ltd Vs ACIT, Meerut (Dated: January 29, 2010)

Income Tax - Assessee receives commission as per TDS Certificate and claims the same but the income is not credited to the Profit & Loss account as per the AO. - AO makes addition - CIT (A) confirms the action of the A.O - Held, the explanation submitted by the Assessee has not been considered by any of the authorities below. In the interest of justice, the matter remanded to the AO who will examine the explanation given by the Assessee and decide the issue accordingly. Assessee's Appeal allowed.


ACIT, Sonepat Vs M/s Atlas Cycles (Haryana) Ltd (Dated: February 26, 2010)

Income Tax - Section 36(1)(va) r/w 2(24) - CIT(A) deletes the addition made on account of late deposit of employee's contribution to ESI and EPF - Held, as per the details of these deposits available on assessment order, last deposit was made on 22.2.2005 which is within the accounting year itself and hence admittedly these deposits were before the due date of filing of return of income by the assessee and hence as per two judgments of Delhi High Court in the case of P.M. Electronics and also in CIT v. Dharmender Sharma no interference with the order of CIT(A) on this issue is called for. Revenue's ground rejected.


DCIT, New Delhi Vs M/s Vestargaard Frendsen (India) Pvt Ltd (Dated: February 12, 2010)

Income Tax - AO treats the commission payment as bogus and makes additions - CIT (A) deletes it - Held, issue should also go back to the file of the AO for a fresh decision and the Assessee should furnish the confirmation from the Agencies and should also explain the discrepancy in the amount of sales. AO rejects the claim of the Assessee regarding bad debts on the basis that the provisions of sec. 36(2) are not complied with - CIT(A) accepts this claim of the Assessee - Held, the CIT(A) has rightly accepted the claim of the Assessee that the two amounts are allowable as business loss. Revenue ground rejected.


M/s Airline Financial Support Services (India) Pvt Ltd Vs ITO, Mumbai (Dated: February 4, 2010)

Income tax - Sec 10A, 80HHE - Assessee is engaged in the activity of processing, documenting and recording revenue accounts of foreign airlines - located in Export Processing Zone - claims Sec 10A benefits - AO disallows - Assessee pleads before the CIT(A) with an alternative benefit u/s 80HHE - matter remanded but AO again denies benefits u/s 80HHE - Tribunal allows the Sec 10A benefits - however, assessee pursues the case of benefits u/s 80HHE as well for merely academic interest - held, since the Sec 10A benefits have been allowed, the petition is rejected and the assessee advised to file Misc Application for re-considering the benefits u/s 80HHE - Assessee's appeal rejected


DCIT, Mumbai Vs Late Shri Yash B Johar (Dated: February 5, 2010)

Income Tax -Section 37 - Assessee is a film producer - AO disallows claim of medical expenses incurred on the treatment of the Assessee during the course of outdoor

shooting of film - CIT(A) allows the – Held, the issue stands covered in favour of the assessee by the decision of the jurisdictional High Court in the case of Mehaboob Productions Pvt. Ltd. vs. CIT. Revenue ground dismissed.


Devaki Multifilms Pvt Ltd Vs ITO, Mumbai (Dated: December 10, 2009)

Income Tax Act, 1961 – Guidelines to be followed while disallowing expenditure u/s 36(1)(iii) of the Act

Section 36(1)(iii) – Whether interest on loans and advances on loans given to sister concern on interest-free basis can be disallowed under Section 36(1)(iii)?

During assessment, the AO noticed that the assessee had applied funds amounting to Rs. 3,79,750/- into investment in shares of sister concern. It was further noticed that the loans and advances to its sister concern and others were given to the tune of Rs. 76,40,480/- on interest-free basis. The AO held that borrowed funds, for which the assessee has incurred expenses were not for the purpose of business, therefore, he made the addition of Rs. 15,84,284/- by disallowing assessee's claim of financial charges. The CIT(A) partly accepted the assessee's contention and directed the AO to disallow proportionate interest on interest-free advances of Rs. 8,37,588/- and Rs. 66,74,060/- given to Devaki Polyfilm P. Ltd. and Om Lamipack P. Ltd.

On appeal to the ITAT, it was held:

++ that the case was to be remitted back to the files of the AO with a direction to calculated the disallowance as per the ratio in the case of H.P. Shah & Co. in ( 2009-TIOL-338-ITAT-MUM ) . In that case, it was held that “ if an assessee having sufficient interest free funds, in the form of capital reserves and other funds without interest bearing from relatives and friends not related to business, to cover funds given interest free or utilized other than for business purposes, no disallowance is warranted. If the own funds are not sufficient to cover interest free advances, a proportionate disallowance is warranted. While examining interest free funds available with assessee and interest free funds given a care is required to be taken that these funds were not related to business of the assessee”


SMS Demag Pvt Ltd Vs DCIT, New Delhi (Dated: January 29, 2010)

Income tax - Sec 195, 32, 147, 40(a)(i) - Indo-German DTAA - Article 24 - Assessee is a subsidiary of a German company - engaged in the business of supply of assemblies of metallurgical equipment and technical service in design and engineering - makes payments to parent company for software installation - whether TDS u/s 195 is deductible on such payment of royalty - whether it is fee for technical services or outright sale of software - whether the assessee cannot be discrimianted against as per Article 24(1) of DTAA



M/s Comet Leasing & Finance Ltd Vs ACIT, New Delhi (Dated: February 26, 2010)

Income Tax - Penalty - Sec 271(1)(c) - Assessee is engaged in the business of leasing and financing - claims depreciation @ 100% in respect of one sugar mill roller leased out - AO disallows depreciation on the ground of inflation of the cost of asset to reduce tax liability - CIT(A) upholds the order - Tribunal holds that the entire transaction is a financing transaction and not a lease transaction and hence the Assessee is not entitled to depreciation - the entire lease rent received by the assessee cannot be taxed and only the interest component is to be taxed over a period of 3 years - AO initiates penalty proceedings - Held, in the ultimate analysis the income offered by the Assessee is the same as directed to be computed by the Tribunal, the Assessee cannot be fastened with further liability of penalty merely because the income in one year is higher than that offered but in subsequent year the income offered by the Assessee is higher. It is not the case that higher income was offered in subsequent years on receipt of order of the Tribunal. Income was offered in regular course by showing the entire lease rental as income. Therefore, the Assessee having offered an explanation which is also substantiated, which is bona fide and since all the facts relating to same and material to the computation of total income have been disclosed by him, even in terms of Explanation 1 to section 271(1)(c) the amount disallowed by way of depreciation will not result into income in respect of which particulars have been concealed. Penalty levied u/s 271(1)(c) canceled - Assessee's appeal allowed.


ITO, Mumbai Vs M/s Coral Granites Pvt Ltd (Dated: December 11, 2009)

Income Tax Act, 1961 – Initiation of Penalty proceedings against assessee for unexplained expenditure and investment Section 271(1)(c) – Whether the AO was justified in commencing penalty proceedings against the assessee when the latter was unable to explain certain expenditures and investments made by it The penalty proceedings were initiated on two issues: unexplained commission paid by the assessee for upto INR 70,000/- and unexplained purchases made by the assessee for INR 91,612/-. In the former, the assessee in its return had claimed that it had paid money to certain persons as commission. However, on notice being issued to the persons u/s 133(6), four were unanswered and one was returned. The AO thus rejected the claim of the assessees and disallowed the amount. This was upheld by the ITAT. In the latter issue, the assessee claimed that it had made cash payments to purchase certain granite blocks form a party. Upon examining the party in question, the AO was informed that the party had had no outstanding amounts receivable from the assessee. The assessee objected to this and produced an affidavit stating that it had made cash payments. However, the AO rejected the claim of the assessee, which was upheld by the ITAT. Subsequently, the AO started penalty proceedings against the assessee. On appeal to the CIT(A), the CIT(A) rejected the initiation of the penalty proceedings on the ground that the assessee had produced sufficient evidence to show back its claim and that the claims had been rejected merely because of a difference of opinion with the AO


ACIT, Mumbai Vs Meridian Enterprises Computing Solutions P Ltd (Dated: March 8, 2010)

Income tax - Sec 10A, 10B - Assessee is into software exports - AO studies the agreement and holds that the assessee is into supply of IT manpower and not eligible for deductions u/s 10A or 10B - CIT(A) goes for in-depth study and holds that the assessee hires IT professionals who are paid on manhour basis for developing onsite software at the importer's premises and is eligible for deductions - held, no infirmity in the CIT(A) order as there are clear findings that the assessee is a small software developer and hires staff as and when it has assignments in hand - does not keep many employees on payrolll but is very much involved in export of software - Sec 10A/10B benefits cannot be denied - Revenue's appeal dismissed


DCIT, Faridabad Vs Shri Pawan Kumar Malhotra (Dated: January 8, 2010)

Income Tax - Assessee is in the business of manufacturing of sheet metal components - claims long term capital gains on sale of shares that is 70 times the purchase price in one year– AO issues commission u/s 131(1)(d) and makes additions holding it to be a sham transaction - CIT(A) takes the view that the transaction in question cannot be held to be colourable device - Held, AO has carried out meticulous enquiries, and non-availability of relevant supporting materials clearly questions the veracity of purchase and sale transaction of shares - The same is further strengthened by the fact that the Assessee in his return for A.Y 2004-05 has not reported the cash purchases of shares. On the sale front also, except cheque payments, nothing worthwhile is forthcoming - its trading activities still remain mysterious and exorbitant share price is unbelievable on the facts - merely on the broker's note, it cannot be held that the transaction was infallible. The totality of facts, surrounding circumstances and human probabilities militate against the stand of the Assessee. Revenue Ground allowed.


Sanjay Kumar Keshary Vs ACIT, New Delhi (Dated: December 31, 2009)

Income Tax - Penalty u/s 271(1)(c) - assessee is an individual and derives income from salary as director - AO makes addition in respect of deposits in the bank account as Assessee fails to explain any source for the said deposits - AO also levies penalty at 100% of the tax sought to be evaded - CIT(A) directs AO to recompute the quantum of penalty - Held, it is not that the claim of the opening balance of cash in hand should always be accepted without there being a ''cognizable or corroborative" material in support of such claim. The paper book filed does not contain any such evidence. It is the clear case of failure to give explanation which a reasonable man could accept having regard to the attending circumstances or available sources of income. It is pure and simple case of concealment of income and the department has proved the concealment with reference to the actual deposits in the bank account and the penalty has rightly been levied by the assessing officer and sustained by the CIT(Appeals). Asessee Appeal dismissed.


DCIT, Faridabad Vs Smt Seema Singh (Dated: January 21, 2010)

Income Tax - Sec 148, 45(5) - Assessee's husband receives compensation on land acquisition which is subsequently enhanced by appellate authority - before proceeding u/s 147 could be initiated to assess the compensation the husband dies and thereafter notice served in name of the assessee – CIT(A) nullifies and cancels the assessment on the ground that out of 4 legal heirs, assessment has been made only on one heir - Held, here in the assessment, there is confusion as both capital gain and enhanced compensation u/s 45(5) has been assessed. However, this issue was not examined by the CIT(A) as he cancelled the assessment order. This can now be examined in accordance with law. The matter remanded to the CIT (A) for passing a fresh order in accordance with law and in the-light of observation.


DCIT, Mumbai Vs M/s Suyash Chemicals (Dated: January 29, 2010)

Income Tax - Deductions u/s 80HHC and 80IA - Asessee engaged in manufacturing of bulk drugs and chemicals - claims deduction u/s 80IA and 80HHC(1) as a supporting manufacturer on the basis of Disclaimer Certificate - AO forms the opinion that deduction u/s 80IA has to be given only after allowing deduction u/s 80HHC on a priority basis and it should be allowed on the remainder amount of profit of the business. - CIT(A) directs the AO to compute deductions u/s 80HHC and 80IA separately on stand alone basis – Held, in view of the decision of the Special Bench in the case of ACIT vs. Hindustan Mint & Agro Products Pvt. Ltd. matter remanded to the AO Section 147 - On the issue of the CIT(A) not justified in upholding the validity of the reassessment proceedings - Held, no new facts or information has come to the notice of the AO after the completion of assessment u/s 143(3). Therefore, once the AO passed the assessment order u/s 143(3) it is deemed that the AO has already applied his mind and after forming the opinion the claim of the assessee is allowed. In view of the decision of the jurisdictional High Court in the case of Asian Paints Ltd. vs. DCIT. CIT(A) not justified in upholding the re-assessment order. cross objections allowed


ITO, Chennai Vs M/s Accurum India Pvt Ltd (Dated: November 27, 2009)

Income Tax – Whether the profits earned by an assessee from its parent company in USA for providing recruitment and training services to software professionals qualifies for deduction u/s 10A of the Act or not – ITAT by majority held that it is eligible for deduction u/s 10A



ADIT, Mumbai Vs M/s GE Asset Mgt Inc (Dated: February 5, 2010)

Income tax - Sec 244A - Assessee pays advance tax and self-assessment tax - regular assessment - AO grants interest on refund arising out of regular assessment but not on tax paid as self-assessment - CIT(A) disagrees with the AO - held, interest is payable even on tax paid as self-assessment as CIT(A) has rightly followed the decision of the co-ordinate bench of the tribfunal - AO has not given any reason for denying interest u/s 244A - Revenue's appeal dismissed


M/s Fabindia Overseas Pvt Ltd Vs DCIT, New Delhi (Dated: February 26, 2010)

Income tax - Sec 143(2), 263, 92C - Assessee is in the business of exports and local trading of various products, including readymade garments - notice u/s 143(2) - assessee files replies to show cause notice - assessment order passed - CIT invokes powers u/s 263 on finding that the AO has failed to investigate the assessee's international transactions with its overseas Associated Enterprise (AE) and also in allowing various commissions and brokerages - whether AO can investigate international transactions of less than Rs 5 Crore in view of the Board's direction that it may be referred to the TPO only if it is more than Rs five crore - whether the order of the CIT is sustainable in the light of the settled view that AO may take one of the possible views

AO makes additions by effecting disallowance out of repair, disallowance u/s 40(a)(i) and disallowance out of foreign travel expenses - CIT invokes Sec 263 on the ground that the AO has failed to examine whether the assessee had international transactions at arm's length price (ALP) and also failed to make inquiry relating to certain commissions and brokerages

The counsel for the assessee argues that the total volume of international transaction was less than Rs 5 crores. The assessee has been maintaining its accounts properly in Form No. 3CEB. The details are maintained on the basis of cost plus method. Since the total value of the transaction is less than Rs. 5 crores, there was no necessity to verify these transactions under sec. 92-C of the Act. He made a reference to a Board's Circular dated 23rd August, 2001 issued on transfer pricing



M/s Eldeco Infrastructure & Properties Ltd Vs DCIT, New Delhi (Dated: October 16, 2009)

Income Tax - Deduction u/s 80-IB - Assessee is engaged in the business of construction and sale of residential and commercial complexes - claims deduction u/s

80-IB(10) - AO disallows the amount credited under the head 'other income' for the purpose of calculating deduction u/s 80-IB on the ground that the same is not derived from the undertaking - CIT(A) confirms AO order on the ground that income earned from the activities like maintenance charges, club subscription charges, electricity charges, interest on fixed charges, interest on delayed payments, Misc. income, registration receipts, refund charges/ transfer charges are not from the housing projects - Held, Assessee had earned income by way of maintenance charges, club subscription, electricity charges, Misc. income, refund charges, transfer charges and interest on FDRs. The income received under these heads by no stretch of imagination can be treated to have been derived from the business of developing and building housing projects approved by the local authority. The Assessee is not eligible for deduction u/s 80-IB(10). As regards interest on delayed payments from customers could be part of sale proceeds, but it is incidental to the developing and building the housing projects and is attributable to the business of the Assessee. As regards the registration charges, this amount is also attributable to the business of the Assessee. The registration charges will be attributable to the business of building and development of housing project and not derived from it. On alternative ground that net income after adjusting the expenses relating to the earning of the said 'other income' should be reduced from the business profit eligible for deduction u/s 80-IB and not the gross income - Held, the Assessee has not produced any evidence to indicate that FDRs were not purchased from surplus funds. No nexus has been proved that FDRs, were purchased from money borrowed. In the absence of any such nexus, the claim of the Assessee cannot be considered. Assessee Appeal dismissed.


DCIT, Mumbai Vs K K Shah (Dated: February 22, 2010)

Income Tax - extrapolation - AO and CIT(A) draw an inference that since unrecorded transactions have been recorded from 1.1.2002 to 11.8.2002; there is a presumption that there must be some transactions before 1.1.2002 and after 11.8.2002 – Held, if there are transactions of sale or purchase on a particular date and thereafter, after a gap of some time there are some transactions recorded, then in that case, it can be said that in the intervening period there must be similar transactions i.e. from a particular date to another particular date on which transactions were recorded. This is a case of search and in the case of search, addition can be made only on the basis of material found during the course of search; there is no scope of extrapolation for the purpose of estimating turnover. Assessee's ground allowed. On the issue of turnover - Held, that there is no question of estimating the turnover further because the turnover itself has been noted in the loose paper found during the course of search. On the issue in respect to bifurcation of transaction of jewellery and bullion - AO has not allowed any bifurcation - treats the total turnover as jewellery transaction. However, the CIT(A) observes that there is evidence showing sale of jewellery and bullion; therefore, he directs the AO to treat 25% of turnover of bullion transaction and 75% of turnover as jewellery transaction - Held, there is no point in bifurcating the transaction at the end of the AO or to bifurcate at the ratio of 25% and 75% of bullion transaction and jewellery transaction respectively at the end of the CIT(A). There was no other material before the AO or before the CIT(A) to hold that this reconciliation filed by the assessee was not correct. AO directed to treat 54% of jewellery transaction and 46% of bullion transaction. On the issue of GP profit - Held, it is also a fact that in wholesale transactions there is less margin of profit as compared to retail business. if 2 % rate of profit is applied on jewellery transactions and 0.4% is applied on bullion transaction then it will meet the

end of justice to both sides


DCIT, Mumbai Vs Jehangir H C Jehangir (Dated: January 25, 2010)

Income Tax - Section 2(47), 271(1)(c) - Assessee owns a piece of land and obtains permission to develop it - converts the land into stock-in-trade and enters into joint venture agreement and starts construction work - AO takes the view that the capital gains on the proportionate land pertaining to the Building which is completed and sold, are to be shown as income during the year - Assessee contends that the capital gains or profit of the whole project consisting of three buildings could be ascertained only on completion of the whole project and hence the capital gains pertaining to the proportionate land occupied by one building could not be taxed in this year but they are taxable in the year when construction of the flats in all the three buildings are completed in the subsequent year - AO rejects the contention – CIT (A) as well as the ITAT confirm the view of the AO - AO initiates penalty proceedings u/s 271(1)(c) - CIT(A) cancels the penalty - Held, the issue whether the sale of stock-in-trade, which is not a capital asset, is governed by section 2(47) or not is a debatable issue - When the Assessee follows the opinion of a Senior Advocate on the interpretation of law and offers to tax, capital gains in the year of transfer of the land by way of a conveyance deed in favour of the society, it cannot be said that the Assessee was not under the bonafide belief that capital gains in question does not arise in the impugned assessment year. When the two views are possible and there is a difference in opinion on interpretation of a statute, no penalty can be levied. Revenue's appeal dismissed.


Gemni Exports Vs ACIT, Mumbai (Dated: January 29, 2010)

Income Tax - assessee claims deduction u/s 80HHC on DEPB - Held, in view of decision of the Special Bench of the Tribunal in the case of Topman Exports vs. ITO, the matter is remanded to AO for fresh adjudication. Assessee's ground allowed. On the issue of charging of interest u/s 234B - Held, charging of interest u/s 234B is mandatory and consequential in nature. Assessee ground dismissed.


Smt Geetha S Murthy Vs WTO, Mysore (Dated: December 11, 2009)

Wealth Tax - Assessee owns four sites - shows the same as stock-in-trade for its proprietary business - WTO rejects the contention that the sites in question are the stock-in-trade of her proprietary business - WTO also enhances the fair market value on the basis of the information received from the Sub-Registrar's office - CIT(A) dismisses the Appeal of the Assessee - Held, although it is stated in the assessment order that the value is adopted on the basis of Sub-Registrar's valuation, details of such valuation were not provided to Assessee for her rebuttal. Registered sale dated

26.11.2005 of a property near impugned sites is very relevant material supporting the stand of Assessee. In the interest of substantive justice and for a proper adjudication of the matter, the sale deed dt.26.11.2005 is to be admitted on record. Since fresh materials are admitted on record, matter remanded to AO for his examination to pass fresh orders. Assessee Appeal allowed.


M/s Solomon Exports India Vs ITO, New Delhi (Dated: December 23, 2009)

Income Tax - Section 263, 80HHC, 80IB - AO while completing the assessment allows deduction u/s 80HHC without reducing the amount of deduction allowed u/s 80IB on the entire income - CIT invokes jurisdiction u/s 263 and cancels the order - Assessee submits that the issue before the CIT (A) related to quantification of deduction u/s 80-IB and 80-HHC and the assessment order has merged in the order of the CIT (A) and after that Revenue came up in appeal before the Tribunal which has annulled the assessment. The order passed by the AO is merged with the order passed by the Tribunal - Held, the amount or deduction allowed u/s 80-IB was not considered by the AO nor by the CIT(A) and, therefore, the assessment order had not merged with the order of CIT(A) and consequently the order passed by the CIT directing the AO to allow deduction u/s 80-HHC after reducing the amount of deduction u/s 80-IB cannot be said to be bad in law. The AO has passed order ignoring the provisions of section 80-IA(9), which was inserted in the statute with effect from 1/04/1999. The order is erroneous and prejudicial to the interest of Revenue. The AO had not examined the matter at all - there is non-application of mind on the part of the AO while allowing deduction u/s 80-HHC without reducing the amount of deduction allowed u/s 80-IB - Assessee's Appeal dismissed.


M/s Paramount Metal Factory Vs ACIT, Moradabad (Dated: December 31, 2009)

Income Tax - Assessee is a manufacturer exporter - entitled to 100% deduction u/s 80-IB - incurs expenses on foreign traveling of different partners of the firm - AO disallows 10% of expenses attributing it to personal entertainment - CIT(A) reduces the said disallowance to 5% - Held, action of the department in making ad hoc disallowance without any basis is not valid - It is nobody's case that any expenditure incurred by the Assessee is for non-business purposes. They were incurred abroad for business purposes only. The element of any personal entertainment in such an expenditure is not borne from the records. Moreover, the Assessee is an hundred percent exporter and all the expenses are incurred for the purpose of Assessee's business. The disallowance deleted


Climate Systems India Ltd Vs ACIT, New Delhi (Dated: December 17, 2009)

Income Tax - AO disallows royalty expenses by treating the same as capital expenditure - CIT(A) upholds the disallowance - Held, since facts of the case are

identical to the facts of the case for A.Y 2002-03, the issue is covered in favour of the Assessee by the decision of Delhi High Court. On the issue of AO treating expenses incurred for ISO certification, as capital expenditure - Held, the issue is covered by the decision of I.T.A.T. Jodhpur Bench in the case of ACIT vs. Tirupati Mircrotech (P) Ltd. The amount is allowable as revenue expenditure.


M/s Elder Pharmaceuticals Ltd Vs ITO, Mumbai (Dated: January 21, 2010)

Income Tax - Deduction u/s 80HHC - AO while computing deduction u/s. 80HHC does not allow netting off of interest income against interest expenditure despite the claim of the Assessee that there is direct nexus between the interest income and interest expenditure - CIT(A) following the order of his predecessor for previous A.Ys. and the order of the Tribunal holds that 90% of interest receipts on loan given to employees, deposits with MSEB, FDR (margin money) and ICD are not to be reduced from the profits of the business for the purpose of computing deduction u/s. 80HHC. Items of interest such as interest on overdue debts and interest from credit society has rightly been reduced for the purpose of computing deduction u/s. 80HHC - Held, issue remanded to AO with a direction to decide the issue afresh in the light of the decision of the Special Bench of the Tribunal in the case of Topman Exports vs. ITO and Kalpataru Colours and Chemicals vs. Addl. CIT (2009-TIOL-531-ITAT-DEL-SB ) . On the issue of CIT(A) confirming the AO's action of reducing of 90'% of the marketing fee, manufacturing and distribution charges from the profits of the business for the purpose of computing deduction u/s. 80H - Held, in view of the Apex Court decision inCIT vs. K. Ravindranathan Nair (2007-TIOL-202-SC-IT) where Apex Court held that independent income having no nexus with the export turnover of the assessee are required to be deducted from the business profit under clause (baa). No infirmity in order of CIT(A). Assessee's ground dismissed. On the issue of CIT(A) holding that 90% of insurance claim, scrap sale and sundry balances written off should not be reduced from the profits of the business for the purpose of computing deduction u/s. 80HHC - Held, principle of Apex Court in case of in CIT vs. K. Ravindranathan Nair will apply to other items such as insurance claim and sundry balance written off. Revenue Appeal allowed.


DCIT, Mumbai Vs Hindustan Essential Oil Co (Dated: December 2, 2009)

Income Tax- Sections 10B, 80HHC- Whether a new unit set up as a 100% export oriented unit in Tamilnadu was formed by splitting up of an existing business in Mumbai- what amounts to splitting up of an existing business- whether production of 'attar' amounts to manufacture or is it mere processing-whether apportionment of profit on the basis of turnover of the units was justified when there was attempt to increase the expenditure of the Mumbai unit- whether deduction u/s 80HHC was available on exchange gains- whether 90% of profits not considered u/s 10B would be entitled to deduction u/s 80HHC



Shri Suresh K Jajoo Vs ACIT, Mumbai (Dated: January 21, 2010)

Income Tax - Section 263 - CIT invokes jurisdiction u/s 263 on the ground that AO has not conducted any inquiry into the nature of the transaction vis-à-vis multiplicity and frequency of the transaction and had the AO given a correct finding in the current year, the profit arising out of several transactions would have been taxed as business income and then question of adjusting the brought forward loss under the head short term capital gain against this business income would not have been arisen - CIT rejects the contention of the assessee that if the transaction in shares are treated as business activity in this year, then in the past also it should have been treated as business income and set aside the order to the file of the AO with a direction to enquire and verify all issues and reframe the assessment order - Held, on the basis of various submissions by the Assssee before the AO it cannot be said that the AO has not made proper enquiries. In view of the decision of the Tribunal in assessee's own case for A.Y. 2002-03 and 2003-04 and the order of the AO passed on the basis of the decision of the Tribunal for A.Y. 2002-03, the CIT is not justified in assuming the jurisdiction u/s. 263 - Assesee's appeal allowed.

2010-TIOL-113-ITAT-MAD

M/s Tube Investments Of India Ltd Vs JCIT, Chennai (Dated: December 4, 2009)

Income Tax - Sec 94(7) - Assessee invests in Mutual Fund units and receives dividend - claims short term capital loss in transaction of purchase and sale of the units but AO disallows capital loss on the ground that the Assessee has purchased the units on the date, which is also the record date for declaration of dividend. Thus, the AO is of the view that the units are purchased by the Assessee within three months from the record date and as per provisions of section 94(7), the loss arising on such purchase and sale of units shall be ignored for the purpose of computing the income - CIT(A) confirms the order of the AO - Held, as per the general rule of computation of period as well as the General Clauses Act, the day on which cause of action arises is excluded and the limitation reckons from the next day for counting the period of limitation but it does not mean that if an action is taken on the day when cause of action arises, then it would not be said that the said action is not within limitation. The object and purpose of excluding the day on which cause of action arises is to make available clear days of limitation prescribed under the Statute and, therefore, the said day is excluded for the purpose of counting the latest or the outer limit of period of limitation and not for the earliest or nearest point of time to the cause of action. The units purchased on the record date falls very much within the period of three months as prescribed u/s 94(7). The redemption is also a transfer though transferability is limited. It cannot be said that the units are not at all transferable and if that is so, then there would be no loss as claimed by the Assessee. This issue is decided against the Assessee and in favour of the Revenue.


ACIT, Dehradun Vs M/s State Urban Develoment Agency (Dated: January 22, 2010)

Income Tax - Section 10(26B), 139(1) - Assessee, State Urban Development Agency, is a registered society - claims income as exempt u/s 10(26B) - AO denied it by recording a finding that Assessee-society is not specifically established or formed for promoting the members of SC or ST or BC of the society. The AO assesses it as AOP. The AO also finds that Assessee has been granted registration u/s 12A only w.e.f. 24.4.2006, therefore income of the society is not eligible for exemption u/s 12A and bring to tax surplus as per income and expenditure account and the amount of grant not utilized during the year - Held, in view of various objects mentioned in the memorandum of association, the Assessee society was not doing any work in the interest of SC or ST or backward classes, but doing the work for general urban public interest as a whole. Hence, not entitled for claim of exemption u/s 10(26B). Once the CIT(A) has also confirmed the finding with respect to wrong claim of exemption u/s 10(26B) there was no reason with the CIT(A) for holding that Assessee was not liable to file return of income and that it had filed return of income under misconception. Since the Assessee-society had been granted registration u/s 12A only w.e.f. 24.4.2006, no exemption can be granted u/s 12A. CIT(A) order set aside - Revenue's appeal allowed


ITO, New Delhi Vs M/s Teamasia Marketing Pvt Ltd (Dated: December 8, 2009)

Income Tax - Section 68 - AO makes additions for share application money on the ground that the Assessee has failed to discharge its onus of proving the identity and creditworthiness of concerned party and genuineness of transaction - CIT(A) deletes addition following the decision of the Apex Court in Lovely Exports - Held, the first and foremost aspect of assessment is to complete the enquiry and thereupon to hold whether the share applications are genuine or bogus. Matter remanded to AO to decide the same afresh. Revenue's appeal allowed.


Pride Foramer Vs ACIT, Dehradun (Dated: October 30, 2009)

Income Tax - Sections 163, 10(6)(viii), 234B, 9(1)(ii), 44BB, 5(2)(b), Indo-French DTAA - Art 16



ITO, Mumbai Vs Mr Jayendra P Jhaveri (Dated: January 8, 2010)

Income Tax - Section 143(2), 254(2) - In the proceeding u/s. 254(2) the assessee challenges the legality and validity of the assessment proceedings on the reason of non-issue of the notice u/s 143(2) - Tribunal does not accept the Assessee's plea on the ground that non-issue of the notice u/s. 143(2) is only a procedural lapse which is curable and restores the entire matter to the A.O to complete the same after

observance of procedural law relating to the issue of various notices under the Act. The Tribunal accepted the plea of the assessee that in respect of the said issue, the decisions cited at bar has not been considered - Held, admittedly, A.O did not issue the notice u/'s. 143(2) when he decided to select the return filed by the assessee for the block period for verification. Following the decision of the jurisdictional High Court in the case of Mrs. Mudra G. Nanavati issue decided in favour of the Assessee . The order passed by the A.O is void ab initio. Assessee's objection allowed.


ITO, Bangalore Vs Smt Jyothi K Mehta (Dated: November 27, 2009)

Income Tax - Section 54 - Assessee is an individual - earns capital gains from sale of residential property - While determining the taxable capital gains Assessee claims deduction u/s 54 by paying advance towards one Residential Apartment and deposits the balance amount in Bank, under designated capital gain account to be utilized within a period of 3 years, as provided u/s 54(2) for further investment into residential property - AO holds that Assesee is not entitled for deduction u/s 54 for both the houses –Before CIT(A) Assessee submits that both the flats purchased are intended for use as a single unit of residence - CIT(A) allows Assessee Appeal - Held, in view of the decision of the jurisdictional High Court in the case of CIT vs D Ananda Basappa ( 2008-TIOL-254-HC-KAR -IT ) the issue is decided in the favour of the Assessee - Revenue's appeal dismissed


Syndicate Bank, Manipal Vs ACIT, Udupi (Dated: October 9, 2009)

Income Tax - If the business of an assessee is in the nature of indivisible, then expenditure cannot be disallowed; "In view of the fact that a perusal of the question itself discloses that income from various ventures is earned in the course of one indivisible business, the impugned order upholding the apportionment of the expenditure and allowing deduction of only that proportion of it which is referable to taxable income, is unsustainable,"

Assessee cannot be penalised for following RBI instructions: The assessee is bound to follow the RBI guidelines and secondly the same method of account was being followed by the assessee consistently which was always accepted by the revenue. Since the assessee is bound to follow and has only followed the RBI guidelines, the reversal of the entry cannot be faulted with



DCIT, New Delhi Vs M/s Cosmo Films Ltd (Dated: October 23, 2009)

Income Tax - Sec 80HHC – CIT (A) directs the A.O. to recompute deduction on the basis of net income arrived at after allowing only the brought forward losses relating to the export business and not the losses from other businesses - Held, the gross total income has to be worked out for the purpose of computing deduction u/s 80HHC. Provisions of section 80HHC are to be applied to find out the amount to be deducted so however that the amount to be deducted does not exceed the gross total income. Revenue ground allowed. On the issue of CIT(A) directing the A.O. to compute deduction u/s 80HHC on the interest income - Held, the interest on the margin money and the interest from the deposits with the Electricity Board, MIDC, the employees and inter-corporate deposits are not derived from the business of the assessee and the same cannot be treated as the profits of the business of the assessee. The interest from the customers is liable to be treated as the business income in so far as it has direct nexus of the business of the assessee. In view of the decision of High Court of Delhi in the case of Sriram Honda Power Equipments, as the A.O. had treated the interest income as income from other sources, the same is also outside the purview of the profits & gains of the business and profession and consequently cannot be considered for computation of deduction u/s 80HHC. Revenue's appeal partly Allowed.


ACIT, Mumbai Vs M/s Backbone Unity (Dated: December 2, 2009)

Income Tax - Assessee is a joint venture (JV) between two partners each having profit sharing ratio of 50% - Contract receipts received in the same financial year - AO makes addition on account of suppression of gross profit - CIT (A) deletes the addition on the ground that the opening work in progress for this A.Y is nothing but the closing working in progress of the preceding A.Y - In case the AO doubted the opening work in progress, the proper course of action before AO is to resort to the provisions of section 147/148 - Impugned A.Y do not constitute a proper forum to make investigations or to give finding in respect of the matter pertaining to A.Y. 2002-03 - Held, since one of the partners has been assessed to tax and has paid tax on their income on account of bills raised by them on the joint venture in the preceding assessment year, bringing the same to tax in the current assessment year, is also not justified. No distinguishable features brought on record by the Revenue to controvert the findings given by the CIT (A) - Revenue's ground dismissed.


M/s Akistex World Wide (Impex) Ltd Vs DCIT, Mumbai (Dated: February 8, 2010)

Income Tax - Section 144 - Assessee submits its business is closed at present and the office premises are sealed by the bank and therefore, no books of account are available - further submits that due to various actions taken by the Excise Department, one of the Directors, of the Assessee company is put behind bars for a month and he is ill – In the absence of details AO completes the assessment u/s. 144 and makes addition for unexplained cash credit on account of interest income and other expenses - Held, there was a reasonable cause on the part of the Assessee for non-appearance before the CIT(A). Therefore, no details were furnished before the AO. Matter restored to the file of the AO with a direction to give one more opportunity to the Assessee to substantiate with documentary evidence to the satisfaction of the AO regarding the income declared by the Assessee. Assessee Appeal allowed.


ACIT, New Delhi Vs Harashima Naoki Tashio (Dated: February 8, 2010)

Income tax - Assessee is not an ordinary resident in India - works with a Japanese MNC - AO adds contribution made by Employer towards social security scheme - Assessee pleads since such contribution is to be made under statutory provision, it is not a perquisite - it is a contingent benefit - CIT(A) reverses the order - held, the issue is no longer res integra as it has been settled in favour of the assessee by several decisions of the Tribunal - as regards the tax effect, interest not to be taken into account - Revenue's appeal dismissed


M/s Siemens Aktiengesellschaft Vs DDIT, Mumbai (Dated: December 7, 2009)

Income tax - Sec 9 - Circular No 23 of 1969, 786 dt 7.2.2000, Circular No 7 of 2009 dt 22.10.2009

Assessee is a German Company - enters into two contracts with an Indian client - one for supply of equipment and the other is relating to design and engineering of erection equipment - receives certain sum for offshore supply of equipment contract - whether such payments received / receivable by the assessee are taxable in India - Whether the payments received are taxable only when there is a PE in India



M/s Fortune Secfin Pvt Ltd Vs ACIT, New Delhi (Dated: January 29, 2010)

Income Tax - Section 68 - AO takes the view that the Assessee has failed to discharge its onus of proving the identity and creditworthiness of persons who have invested in the company and makes addition u/s 68 as unexplained credits in the books of accounts - also initiates Penalty proceedings u/s 271(1)(c) for concealing particulars of income - CIT(A) confirms the action of the AO - Held, matter needs to be ascertained as to whose coffers the investments have actually come from - extensive enquiry is called for to find out the source of money - AO directed to examine and then take appropriate action


JCIT, New Delhi Vs The Bank Of Tokyo Mitsubisi Ltd (Dated: January 20, 2010)

Income tax - TDS u/s 194I - Assessee fails to deduct surcharge while deducting tax at source - AO holds the assessee in default and passes order u/s 201(1) and 201(1A) - CIT(A) disagrees with the AO - Issue goes to the Tribunal - assessee argues that in view of the Apex Court decision in the Hindustan Cocacola Breweries if the deductee has deposited the tax, no surcharge is to be demanded from the deductor, and in case there is any delay in payment of surcharge, assessee will pay the interest - held, case remanded to the AO to find out whether deductee has paid tax and if yes, whether it has been paid with some delays


ACIT, Puducherry Vs M/s Vinayagar Silks Pvt Ltd (Dated: August 21, 2009)

Income Tax Act, 1961 – Production of herbal powder amounting to manufacture

Section 80IB – Whether the grinding of raw materials to make herbal powder amounts to ‘manufacture' within the meaning of Section 80IB of the Income Tax Act?

The assessee is a domestic company engaged in the making of herbal powder and coconut shell powder. The assessee claimed INR 6,19,697 as deduction u/s 80IB. The AO, however, was of the view the that activity of the assessee was not manufacturing within the meaning of Section 80IB since it merely involved the mixing and cleaning of different raw materials.

The assessee went in appeal to the CIT(A). Before the CIT(A), it was contended that in as much as the finished product produced by the assessee by subjecting the raw materials to various processes, was different from the original commodities commercially, the Assessing Officer was not correct in coming to the conclusion that the assessee was not carrying any manufacturing activity. The CIT(A) observed that the raw materials are mixed in a particular proportion and then they are ground and the aroma of the final product is different and also the final product has got a different commercial use which cannot be interchanged with the raw materials. Thus, the CIT(A) held that the end product was commercially different from the raw materials and thus manufacturing activity was involved. On department's appeal to the ITAT, it was held:

++ that in the activity of the assessee, the identity of original ingredients are lost and can never be brought back to its original form and the output has a aroma, which was absent at the time when the raw materials are either received or mixed before the beating process. Therefore, in view of the decision of the Supreme Court in the case of Aspinwall and Co. Ltd. vs. CIT (2001) (251 ITR 323) = ( 2002-TIOL-592-SC-IT-LB ) , it was held that there is a complete transformation of original raw materials so as to produce a commercially different product, therefore, the assessee is engaged in manufacturing activity and is entitled to deduction u/s 80 IB.


ITO, Mumbai Vs M/s Vaibhav Gems (Dated: November 30, 2009)

Income Tax Act, 1961 – Valuation of closing stock of polished diamonds

Section 145(3) – Whether the AO was correct in applying the average method of valuation in trying to determine the value of closing stock of polished diamonds

Assessee declared the value of closing stock of polished diamonds at INR 20,250/- per carat. The AO, however, found that average value of polished diamond per carat after considering the value of opening stock of polished diamonds and cost of product of manufactured polished diamond was at Rs 25,506/-. On appeal to the CIT(A), the assessee stated that it had used the Net Realisable Value method to value the closing stock of diamonds, and that according to that method, the value per carat was coming to INR 25, 250/-. Before the CIT(A), the assessee contended that in the absence of homogeneity of the diamonds, valuation of the polished diamond at a average cost was not possible. The CIT(A), however, held that the average method of valuation used by the AO was the correct method of valuation. However, since this method of valuation would give the assessee a GP ratio much higher than that of earlier years, the AO was directed to substitute Rs 3,71,673/- in place of Rs 77,88,183/- as added in the impugned order.

On appeal to the ITAT, it was held:

++ the same method of valuation was being used by the assessee in earlier years, without it being challenged by the department. Further, in the year in question, there was a very small change in the GP ratio of the assessee. It was held that such a small change in the GP ratio of the assessee was not enough to reject the books of accounts of the assessee. Thus, assessee's appeal was allowed.


DCIT, Muzaffarnagar Vs M/s R A Castings Pvt Ltd (Dated: January 8, 2010)

Income Tax - Sec 56 - Assessee receives commission and claims it as business income - AO treats it as 'income from other sources' - CIT(A) after considering the reasoning given by his predecessor and the Tribunal in the case of Doaba Rolling Mills Pvt. Ltd. holds that the commission income is to be assessed as business income - Held, the assessee has not provided the copy of Memorandum of Association so as to verify whether the income earned by way of commission was to be assessed under the head “Business”. In the absence of any such findings recorded by the CIT(A), the matter is remanded to CIT(A) with the direction to examine the objects clause of the Assessee and decide whether the commission income was earned during the course of regular business activities or it was an isolated transaction


DCIT, Bangalore Vs M/s Sobha Renaissance Information Technology P Ltd (Dated: December 11, 2009)

Income tax - Sec 10A - AO disallows inclusion of travel and telecommunication expenditure from export turnover - held, the issue is well settled by the Special Bench decision in the case of M/s Sak Soft Ltd 2009-TIOL-187-ITAT-MAD-SB in favour of

the assessee - Revenue's appeal dismissed


Wipro BPO Solutions Ltd Vs DCIT, New Delhi (Dated: January 29, 2010)

The set off of loss as mentioned in section 72 says that carry forward of the loss is to be set off against the profits and gains of any business or profession carried on by the assessee and assessable for the subsequent asst, year: Thus, 90% of the deduction as computed u/s 10B is admissible as per second proviso for the asst. year 2003-04 and 10% of such deduction becomes assessable for the asst. year 2003-04. Once such income becomes assessable for the asst. year 2003-04, then loss of earlier year can be set off in view of section 72(1)( i ). Hence, the loss of asst. year 2001-02 is required to be set off as claimed by the assessee. Thus, it is held that the CIT( A) was not justified in disallowing the carry forward loss of asst, year 2001-02.



ACIT, Faridabad Vs M/s Faridabad Entertainment Pvt Ltd (Dated: December 31, 2009)

Income tax - Sec 37 - Assessee is a Cable TV Signal distributor - distributes signals to cable operators on behalf of Siti Cable Network Ltd - also acts as a collection agent and gets management charges from Siti Cable - files loss return - Revenue disallows operational expenses - CIT(A) deletes the disallowance - held, the CIT(A) has also examined the month-wise details of operational expenses with respect to the agreement between Siti Cable Network Limited and the assessee company, and found that operational expenses have been genuinely and accurately arrived at as per various clauses of the agreement. Since no defect in the regular books of account was pointed out by the AO, nor any discrepancy in the operational charges arrived at by the assessee company, in terms of these agreements were pointed out, the CIT(A) deleted the disallowance - no infirmity in the CIT(A) order - Revenue's appeal dismissed


British Airways Plc Vs ADIT, New Delhi (Dated: October 30, 2009)

Income tax - Sec 90(2) - India-UK DTAA - Article 8 - Assessee is a non-resident airline - engaged in the business of transpiration of passengers in international traffic - also earns income by providing engineering and ground handling services to third party airlines - whether such income is also exempt as per Article 8 of the DTAA - whether the assessee can avail tax treaty benefits on income resulting from activities not listed in the DTAA


Income Tax Officer, Mumbai Vs M/s Big Apple Clothing Pvt Ltd (Dated: December 18, 2009)

Income Tax - Sec 10(33), 14A, 147 - Assessee files loss return - notice u/s 148 - AO holds that in the instant case, the exemption u/s 10(33) on the dividend income is claimed without deducing the expenditure which is related to dividend income, meaning thereby the 'gross dividend' is claimed as exempted, which is not correct. The AO observed that the expenditure is to be allowed against the each head of income separately, irrespective of the fact whether or not the income from the particular head is taxable/exempt. Thereafter, the AO disallows interest component relating to dividend income from the business income and the same has been allowed against the income from other sources. In respect of unsecured loan, the AO adds the same in the income of the Assessee in absence of any proof. Likewise, the addition is also made on account of sundry creditors - CIT(A) holds the assessment void ab-initio on the ground that the AO cannot resort to Section 147 only for making disallowance u/s 14A and once the reasons fail to empower the AO to take action u/s 14A, the whole basis of the assessment goes away and that no other additions made by the AO are warranted - Held, the AO has clearly mentioned that income is always taxable after deducting the expenditure relating to the earned income. Since interest expenditure on the loan taken for investment in exempt securities were not reduced out of dividend income, he reduced the interest income and allowed exemption u/s 10(33) with respect to the net dividend income earned. Nowhere the AO has invoked provisions of Section 14A for disallowing the interest expenditure. In the reasons recorded for reopening, the AO has not stated the reasons with regard to escapement of income on account of unsecured loans and the creditors for which addition was made during the course of reassessment proceedings. No valid basis for the CIT(A) for annulling the assessment. Matter remanded to CIT(A) for deciding the issue afresh, in terms of the observations. Revenue's appeal allowed.


ITO, Mumbai Vs M/s IAL Shipping Agencies (Mumbai) Ltd (Dated: January 19, 2010)

Income tax - Assessee is an agent of a UK-based shipping company - AO treats it as an independent company and makes additions - CIT(A) disagrees with the AO and deletes the additions - held, since another Bench of the Tribunal has ruled against the Revenue in assessee's case only for earlier years, CIT(A) order upheld - Revenue's appeal dismissed


DSD Noell Gmbh Vs DDIT, New Delhi (Dated: August 31, 2009)

Income Tax - profits and gains of foreign companies engaged in the business of civil construction - section 44BBB mandates that income of the assessee is to be computed at 10%.



ITO, New Delhi Vs M/s Sahasra Electronics Pvt Ltd (Dated: January 29, 2010)

Income Tax Act, 1961 – Deletion of interest on bank overdraft account – Allowance of deduction u/s 10A on recomputed profit

Section 10A, 37 – Whether deduction u/s 10A is to be allowed on recomputed profits of the assessee by the AO


DCIT, New Delhi Vs M/s Umang Dairies Ltd (Dated: December 4, 2009)

Income tax - Sec 193, 43B, 40(a)(ia), 36(1)(iii) - Assessee claims deduction for accured interest on debentures - AO finds assessee has not accounted for such interest in books and it is also not ascertained liability - also holds that such expenditure cannot be allowed as per provisions of Sec 40(a)(ia) as assessee has failed to deduct tax at source - CIT(A) takes the view that as per terms of debenture issued, interest was accruing year to year, therefore, the ascertainability of the amount of interest was never in doubt and, therefore, it was not contingent - expenditure is allowable as per provisions of Section 36(1)(iii)



DCIT, New Delhi Vs Shri Yogendra Chandra Kurele (Dated: October 16, 2009)

Income Tax – Disallowability of expenditure in agricultural activities when agricultural income itself is exempt from taxation – Allowability of exemption u/s 10A


M/s Western India Marine Corp Vs DCIT, Mumbai (Dated: November 10, 2009)

Income Tax Act, 1961 – Allowability of ‘Speed Money' paid to labourers' – Allowability of Bad Debts

2010-TIOL-85-ITAT-MUM-TM

Kailashnath Malhotra Vs JCIT, Mumbai (Dated: October 12, 2009)

Income tax - Sec 132, 254(2) - Assessee is searched u/s 132 - Revenue finds a note detailing certain expenditures with the balance amount - Assessee terms it as a Planner of expenditure to be made - AO makes addition - CIT(A) and Tribunal go with the AO - Assessee files Misc application u/s 254(2) - same is rejected - assessee files another Misc application - differencet of opinion among the Members of the Tribunal - held, application u/s 254(2) can be entertained only when the two conditions prescribed by the law - the presence of mistake, and the mistake being apparent on record - are fulfilled - once the first misc application was rejected, the Tribunal has no powers to enterain the second misc applicaiton on the same set of facts - assessee's appeal dismissed


M/s Tata Securities Ltd Vs DCIT, Mumbai (Dated: January 28, 2010)

Income tax - Sec 147 - Assessee deals in stock broking and share trading - files return and assessment order passed - revises return and claims depreciation on BSE Membership Card - notice u/s 148 - AO disallows depreciation and software expenses - Held, since the Revenue has gone to the High Court on the depreciation issue relating to BSE Card, the reason to file an appeal can be a reason for reopening assessment with four year time-frame - as regards software the assessee had given some advance but the software developed could not be integrated with the existing system, it was scrapped and such an expenditure is revenue in nature - Assessee's appeal partly allowed


M/s Tata Engineering & Locomotive Co Ltd Vs DCIT, Mumbai (Dated: January 23, 2009)

Income tax - Sec 195 - India-UK DTAA - Assessee floats Euro Issue - hires specialised services of lead managers - payments made to non-residents without TDS - AO takes the view that the services provided by lead managers who provided management, underwriting and consultancy services, are technical in nature and the payments made to non-resident are fees for technical services, taxable u/s 9(1)(vii) and also as per Article 13.4 of the tax treaty - whether the payments for services received by the assessee are fees for technical services - whether the payments are taxable in India - whether such payments can be taxed in the absence of a PE in India


DCIT, Mumbai Vs M/s Leela Scottish Lace Pvt Ltd (Dated: February 4, 2010)

Income tax - Penalty u/s 271(1)(c) - Assessee is in the business of manufacture and exports of garments - gives garment stitching job to job workers - AO makes 1% disallowance on ad hoc basis based on earlier years assessments - AO reopens assessment u/s 147 to disallow interest expenditure as it was noticed that the assessee had given interest-free loans to some jobworkers but had claimed deduction for the huge interest outgo - CIT(A) and Tribunal agree with the AO - penalty - held, merely because some additions were confirmed, it is not enough to impose penalty. Since all the payments were made by cheque to small textile units, there is no fact which was concealed by the assessee - Revenue's appeal dismissed


ACIT, Bangalore Vs M/s Igate Global Solutions Ltd (Dated: December 18, 2009)

Income tax - Sec 10A - Assessee is exporter of computer software - Reduction of expenditure incurred in foreign currency on travel and telecommunication charges from export turnover and total turnover is a settled issue by Special Decision in M/s Sak Soft Ltd - Revenue's appeal dismissed


ITO, New Delhi Vs M/s Ethno Financial Research Pvt Ltd (Dated: October 30, 2009)

Income tax - Sec 73 - Assessee is engaged in the business of sale and purchase of shares of other companies - claims business loss - AO holds that trading in shares is speculative loss and makes disallowances - CIT(A) relies on explanatory notes of the Finance Act and deletes disallowances and allows assessee's appeal - held, since the assessee's case does not fall under any of the exclusionary clauses prescribed in the provisions to Explanation to Sec 73, it is a case of speculative loss - it is settled law that explanatory notes cannot be relied on for interpreting the provisions of law - CIT(A) order set aside - Revenue's appeal allowed


M/s Crompton Greaves Ltd Vs DCIT, Mumbai (Dated: December 23, 2009)

Income tax - Sec 195 - Assessee issues GDR for international investors - appoints lead managers and pays them 1% for management and underwriting commission and 2% on selling commission - fails to deduct tax at source - order u/s 201 and 201(1A) passed treating the assessee-in-default - Since Special Bench hearing on the same issue was going on, stay granted - Revenue now initiates recovery proceedings - Assessee pleads since the Special Bench has already held that such incomes are not business profits for the non-residents and cannot be taxed in India for lack of PE - held, since the assessee has already deposited 70% of the demand and pleads hardship for more deposit and the Special Bench decision prima facies applies to it, stay on recovery granted - Assessee's appeal allowed


M/s Swati Synthetics Ltd Vs ITO, Mumbai (Dated: December 17, 2009)

Income Tax – depreciation is allowable on entire block even if some of the assets of block have not been used – that use of individual asset for the purpose of business can be examined only in the first year when the asset is purchased. In subsequent years use of block of assets is to be examined. Existence of individual asset in block of asset itself amounts to use for the purpose of business. This view is fully supported by various provisions of the Act which were amended consequence to the scheme of depreciation on block of asset including to proviso to section 32 of the Act



M/s Pneumech Engineers Vs ITO, Mumbai (Dated: January 28, 2010)

Income tax - Sec 44AB - Assessee files return without audit report - AO levies penalty - Assessee pleads all records were destroyed in floods and it took time to get duplicate copies of the bills and that is why there was delay - held, merely because assessee fails to furnish audit report, quasi-criminal proceedings cannot be initiated unless AO establishes that it was a deliberate act to avoid it obligation - Assessee's appeal allowed


DCIT, Mumbai Vs M/s Edelweiss Securities Pvt Ltd (Dated: January 13, 2010)

Income Tax - Section 43(5)(d) - Assessee deals in shares and securities and derivative instruments - AO disallows the loss in trading of derivative instrument and also disallows proportionate expenditure attributable to speculative business - also disallows the penalty levied by the Stock Exchange on the Assessee for violation of margins - CIT(A) partly allows the appeal - Held, on the issue whether loss on derivatives transaction is a speculation loss or not and whether the provisions of section 45(5)(d) are clarificatary and hence retrospective in nature, the issue is squarely covered against the Assessee and in favour of the Revenue by a decision of the Special Bench of the Tribunal in the case of Shree Capital Services Ltd wherein it is held that section 43(5)(d) is prospective in nature and loss incurred on account of futures and options in shares is speculative in nature and cannot be treated as a business loss. On the issue of disallowance of penalty levied by the Stock Exchange for margin violation - Held, this penalty is not levied for violation of any law. The Tribunal in the case of Classic Shares and Stock Broking Services Ltd. vs. DCIT has held that the penalty levied by the Stock Exchange for short comings in margin money cannot be held to be that which is levied for infringement of law and hence cannot be deleted. Following the same, Revenue Ground allowed. Revenue Appeal is allowed in part.


M/s Asianet Communications Ltd Vs The DCIT, Chennai (Dated: December 11, 2009)

Income tax - Sec 40(a)(i), 195, 263 - Indo-US DTAA Art 26(3), Indo- UK DTAA Art 26(4)- Assessee is a TV broadcasting and software development company - makes payments to non-residents for hiring satellite transponders utilised for uplinking and downlinking of signals through earth stations - fails to deduct tax at source u/s 195 on the ground that the recipients had no PE in India and the payments made are not royalty as per Explanation 2 to Sec 9(1)(vi) - AO invokes provisions of Sec 40(a)(i) to make disallowance - Whether there is a process involved in uplinking and downlinking of TV programmes which attracts royalty provisions - Whether disallowance of such payments are discriminatory in terms of the DTAAs.



M/s A R Chadha & Co India (P) Ltd Vs DCIT,Co Circle - 1 (1), New Delhi (Dated: November 30, 2009)

Income Tax - Section 2(22)(e) - AO after considering the fact that the Assessee had taken an advance from the company where the Assesee is having holding of 47.5% of shares which is covered by the accumulated profit of the said company, the AO treats the amount as deemed dividend in the hands of the Assessee company and added the same to the total income - CIT(A) confirms AO's order - Held, loans and advances taken in earlier years ending on 31.03.2001 being the reserve and surplus for the year ended on 31.03.2001 could be treated as deemed dividend u/s. 2(22)(e) for the year ended on 31.03.2001. It is, clear that Assessee had received loans and advances. Issue remanded to AO for working out actual amount of loans or advances which could be treated as deemed dividend u/s. 2(22)(e) on the basis of observation made. Section 2(22)(e) - On the issue of CIT(A) confirming the action of the AO in making an addition on account of deemed dividend u/s. 2(22)(e) in respect of amount received from another company indirectly related - Held, Assessee company cannot be said to be a registered share holder and a beneficiary. This issue is settled by the decision of Special Bench of Income Tax Appellate Tribunal Bombay Bench in the case of ACIT vs. Bhaumik Colour (P) Ltd. Addition deleted. Issue decided in favour of the Assessee On the issue of CIT(A) confirming the AO action of not allowing the deduction on account of house tax against the Income From House Property.-Held, it is clear that Assessee has adopted a contradictory stand in claiming the house tax paid as, on the one hand, Assessee claimed the deduction on the date when the cheques were cleared, but, on the other hand, the Assessee claimed deduction on the basis of handing over the cheque to the MCD though the same was not cleared on 30.03.2002.CIT(A) order upheld. Assessee Ground rejected.Appeal partly allowed.


M/s Axis Capital Markets (India) Ltd Vs ITO,Mumbai (Dated: November 30, 2009)

Income Tax Act, 1961 – AY 2004-05 - Treatment of income from investment business of the assessee as speculation income Section 73 – Whether the income of a public company from its investment business can be treated as business income from speculation business when the income of the same company for the same investment business has been treated as capital gains in the previous and subsequent assessment years The assessee is a public company engaged in the investment business. In the present assessment years, it showed its income as income from capital gains. Before the AO, the assessee submitted that in the AY in question is hot not treated the shares as stock in trade. Further, the shares had been purchased and sold with the intention of investment and not with the intent of speculation. Further, the income from the same business had been treated as long term capital gains in the previous and subsequent assessment years. The AO, however, rejected the arguments of the assessee. The AO found that in the same year, the assessee had claimed expenditure as business expenditure. Based on this and other observations, the AO held that the income of the assessee was speculation income and rejected the set-off of brought forward long term capital loss against the income of the assessee for AY 2004-05. On appeal to the CIT(A), the order of the AO was upheld. The CIT(A) observed that the assessee had claimed expenditure as business expenditure for AY 2004-05. Further, the assessee had shown short term capital loss from shares, which showed that the assessee was frequently involved in the buying and selling of shares. This pointed to speculation business. The CIT(A), however, agreed with the assessee that if the that if the profits from long term capital gain have to be treated as speculative income within the meaning of Explanation to section 73, then brought forward long term capital loss on similar transaction should be allowed as set off as speculative loss by the Assessing Officer.


M/s Tanu Health Care Ltd Vs Addl.CIT, Mumbai (Dated: January 19, 2010)

Income Tax - Sec 269SS, 269T, 271D and 271E - Assessee is engaged in manufacturing and marketing of Ayurvedic & Allopathic medicines, chemical raw materials, shares as well as into business of financing, investment and consultancy services - On the observation that on a number of occasions, Assessee has shown receipts and repayments in cash from four persons, including a company AO levies penalty u/s 271D and 271E for violations of section 269SS and section 269T - CIT(A) confirms the penalty - Held, the two terms - Loan and Advances - are not the same and connote different nature of transactions. The amount received as an advance for the purchase of shares and declared as such in the books of account is different from a loan transaction. Third party evidences cannot be rejected without verification or further enquiry. Mere rejection of submissions made by the Assessee and third party evidences produced by him, does not authorise either the AO or the Addl. Commissioner of Income to come to a conclusion that the explanation is not genuine - conclusion drawn both by the AO as well as by the CIT(Appeals) is based on surmises and conjectures. The penalties in question quashed - Assessee's appeal allowed.


M/s Tricom India Ltd Vs ACIT, Mumbai (Dated: December 1, 2009)

Income Tax Act, 1961 – Deduction of interest income u/s 10B of the IT Act Section 10B – Whether interest income generated from surplus of profits can be claimed for deduction u/s10B of the Act – Whether such interest income is ‘derived from' profits Assessee in the business of providing IT enabled services and claimed deduction u/s 10B of the Act. The AO noticed that the profit declared by the assessee included certain interest income and miscellaneous income. AO held that u/s 10B, profits included only profits from export and did not include the interest generated therein. Thus, the AO added the interest income to tax under the head of other sources of income. On appeal, the order of the AO was upheld by the CIT(A).


M/s Vatika Hotels Pvt Ltd Vs Addl.CIT, New Delhi (Dated: January 22, 2010)

Income Tax Act, 1961 – Imposition of penalty for receiving loan or deposit without account payee check Section 271D, 269SS – Whether by allocating shares in lieu of transfer of land, the assessee had contravened the provisions of Section 269SS r/w Section 271D? Land worth INR 50.5 crore was transferred to the assessee by another company (Vatika Ltd.). The consideration for this transfer was not paid in cash, but was adjusted by allocating shares worth 50.5 crore. The AO was of the view that the sum of Rs. 50.00 crore shown as share application money in financial year 2005-06 was received otherwise than by account payee cheque or account payee draft i.e. the provisions of Section 269SS were contravened by the assessee . Thus, the AO initiated proceedings u/s 271D of the Act. On appeal, the CIT(A) upheld the levy of penalty by the AO.

2010-TIOL-69-ITAT-MAD-SB

M/s Scientific Atlanta India Technology Pvt Ltd Vs ACIT, Chennai (Dated: February 5, 2010)

Income tax - Sec 10A - Assessee sets up two undertakings at Chennai and Delhi - Chennai unit is registered with the STPI for export of computer software - Delhi unit is engaged in trading of video communication equipments - STPI unit makes profits but trading unit suffers losses - claims set-off of business loss of trading unit against the profits of STPI unit which is eligible for Sec 10A benefits - AO disagrees with the method of computation of benefits u/s 10A - CIT(A) allows set off of business loss of trading unit against profits of Sec 10A unit - Issue goes to the Tribunal which has held that



CA Computer Associates Pvt Ltd Vs DCIT, Mumbai (Dated: January 28, 2010)

Income tax - Transfer Pricing - Sec 92 - Assessee is a 100% subsidiary of a USA-based software company - engaged in business of licensing infrastructure software products of the parent company - also sets up Technical Support Centre to provide support services to end users on behalf of the parent company - also develops customised software - file loss return - Scrutiny - AO finds cross-border transactions with AEs and refers the case to TPO u/s 92A(1) for determining ALP - royalty payment to the parent company - TPO reduces the quantum of royalty payment on the ground that when some of sales did not fructity for various reasons, and the same were written off by the assessee in the same financial year, there is no question of paying royalty on such sales merely on the basis of raising invoices - assessee tries to justify the same but the AO makes adjustments in ALP based on TPO's report as regards the royalty payment - CIT (A) agrees with the AO



Larsen & Toubro Infotech Ltd Vs DCIT, Mumbai (Dated: December 8, 2009)

Income tax - Sec 10A, 72, 263 - Assessee is in the business of software development - AO determines its total income in negative figure and allows carry forward of the same to the subsequent years - CIT invokes powers u/s 263 and disallows the carry forward of excess deduction and restricts the deduction u/s 10A to the extent of total income available - held, no infirmity in the CIT order as the excess deduction does not have the same character as the loss which is contemplated by Sec 72. If the deduction exceeds the total income, the excess simply lapses and there is no provision which permits carry forward of the same - to be eligible to carry forward a loss u/s 72(1), the loss is to be computed as per the provisions of Sec 30 to 43D - Assessee's appeal dismissed.


Shri Navratan Mistry Vs ITO, Mumbai (Dated: January 21, 2010)

Income Tax - Sec 145(3) - Assessee is a proprietor of a firm which acts as a furniture contractor - AO rejects the book results - Considering the GP rate of 25.09% for the A.Y. 2001-02, 22.77% for the A.Y. 2002-03, 10.19% for the A.Y. 2003-04 and 8.69% shown by the Assessee for the A.Y. 2004-05, the AO holds that estimation of GP rate at 13.88% being the average GP for A.Ys. 2002-03 to 2004-05 on a turnover and makes addition to the total income of the Assessee being the difference in gross profit - CIT(A) directs the AO to adopt the GP rate of 10.19% as declared by the Assessee for the A.Y. 2003-04 as reasonable for the impugned A.Y - Held, CIT(A) is justified in upholding the action of the AO as regards the rejection of the book result is concerned. Adoption of 10% GP rate as against 10.19% held by the CIT(A), will meet the ends of justice.. The ground raised by the Revenue dismissed and that of Assessee is partly allowed.

Section 68 - On the issue of CIT(A) confirming the addition on account of gift being considered as unexplained cash credit - Held, there is immediate cash deposit before making the gift to the Assessee. It is also a fact that the donor does not have any immovable property or any valuable movable property. Therefore, the gift is against human probability. Decisions of the Apex Court in the case of Sumati Dayal vs. CIT and CIT vs. Durga Prasad are squarely applicable. No infirmity in the order of the CIT(A) in confirming the addition made by the AO u/s. 68 - Assessee's ground dismissed.


Shri Om Prakash Bhargava Vs CIT, Haldwani (Dated: December 4, 2009)

Income Tax - Section 263 - The Assessee is an individual, engaged in the business of trading of vehicles - assessment order u/s 143(3) passed whereby total income is determined after making various disallowances/additions - CIT invokes sec 263 on the ground that Assessee's agricultural income receipts not being verifiable, the payment of commission to his daughter not inquired by the AO and same allowed without making any discussion in the order and no further investigation has been made in respect of sundry creditors - cancels the assessment order and directs the AO to frame a fresh assessment examining the case de novo in toto – Held, AO has accepted the accounting entry as it is without any inquiry in respect of commission paid by the Assessee to an individual who is covered under sec. 40A(2)(b). Certainly this would make the assessment order erroneous and prejudicial to the interest of the revenue in view of the Apex Court's decision in the case of Malabar Industries . The issue in respect of agricultural income CIT has made the observations after verification of the record and these observations are not disproved. AO has not decided the issue logically rather he has recorded contradictory findings. If any show-cause notice in respect of these issues were issued by the AO and Assessee has filed detailed submissions, those submissions were considered by the AO and thereafter he accepted the stand of the Assessee without making any discussion in the order but the Assessee at the time of hearing was unable to demonstrate this position. Asessee's appeal dismissed.


M/s Super Oil Seals India Ltd Vs ACIT, New Delhi (Dated: January 8, 2010)

Income tax - Sec 32, 271(1)(c) - Assessee manufactures oil seals - turns sick company - claims depreciation on assets treated as 'kept ready' for use - AO disallows and initiates penalty proceedings - CIT(A) confirms the order - held, merely for claiming depreciation on 'ready to use' assets, penalty cannot be imposed as there is no wrong furnishing of information nor concealment of income - Assessee's appeal allowed


M/s Herbalife International India Pvt Ltd Vs ITO, Bangalore (Dated: December 23, 2009)

Income tax - Sec 195(2) - Assessee is a subsidiary of a US-based parent company - files application u/s 195(2) for no TDS certificate for payment of administrative service fee to its parent company - Revenue rejects it and holds that the full payment is liable to TDS - out of three AYs involved, for one AY the Assessing Officer holds that only 90% payment is to be treated as income for levying TDS - Assessee argues that for earlier AYs, the assessee and the Revenue had gone for MAP and only 25% of the administrative service fee was determined to be the income - CIT(A) goes with the AO - held, since both the assessee and Revenue had opted for MAP in earlier years and even for the latest AYs they have agreed for only 25% of the payment as income, there is no valid reason for a different treatment being meted out for certain AYs in between these two cases - unless there is a reason for deviation, there should be consistency in appraoch on part of the Revenue - Case remanded


M/s Everwin Export Corpn Vs ITO, Tiruppur (Dated: September 18, 2009)

Income tax – hyper technical objections – Members of the Bench differ even on the points of difference - Even oral plea can also be made for raising an additional ground – The two Members of the ITAT Bench did not agree on an issue. As there was a difference of opinion, it had to be referred to a third Member. The two members also did not agree on what the difference of opinion was. It is well known that there is no prescribed proforma to raise an additional ground. There is no specific procedure to be followed to raise an additional ground. What all is required is that the appellant needs to take leave of the Tribunal before raising additional ground and the Tribunal needs to give an opportunity of being heard to the affected party.

Order by one Member of the Bench cannot be given effect to: the J.M. did not adjudicate on the merits of the issue as he did not admit the additional ground. On the other hand, since the ld. A.M. admitted the additional ground, he adjudicated on the merits as well. There is nothing wrong in what the ld. A.M. has done. However, so far as granting of relief is concerned, it cannot be granted in the absence of a decision by the Bench.


2010-TIOL-61-ITAT-HYD

M/s Kishoresons Surfactants Hyderabad Vs ACIT, Circle 7(1), Hyderabad (Dated: October 23, 2009)

Income Tax – revision by CIT - To invoke the provisions of sec.263 of the Act, the order in question should be erroneous as well as prejudicial to the interests of the revenue, both requirements are mandatory: To invoke the provisions of sec.263 of the Act, the order in question should be erroneous as well as prejudicial to the interests of the revenue. If an order is erroneous but not prejudicial to the interests of the revenue, then the power of revision u/s 263 cannot be invoked by the CIT. Similarly, an order is prejudicial and not erroneous, and then also the same cannot be subject matter of revision because both the requirements u/s 263 are mandatory to be fulfilled to invoke the said provisions Further, the assessing officer has taken one possible view permitted in law which cannot be found fault with by the CIT.



M/s Cello Plast Vs DCIT, Mumbai (Dated: January 19, 2010)

Income Tax - AO makes disallowance on the ground that the assessee has sold factory building and has also surrendered its electricity meter – CIT(A) partly allows expenses on account of bank charges, ESIC, Insurance, rebate and discount but disallows legal and professional charges and depreciation – Held, the CIT(A) has confirmed the disallowance for the reason that details of legal and professional charges were not filed. In the details filed before the CIT(A) it has been clearly mentioned that these expenses were incurred on account of legal and professional charges. The payments are not in dispute. The other expenses which were not allowed by the AO have been allowed by the CIT(A);, the disallowance of expenses on account of legal and professional charges was not justified. On the issue of depreciation – Held, the depreciation disallowed by the lower authorities was claimed on the assets which were not sold by the assessee during the year under consideration. These assets were part of block of assets. Depreciation claimed by the Assessee is allowable. Ground allowed. On the issue of not allowing deduction u/s 54EC - Held, it is clearly established that there was reasonable cause in not purchasing these specified bonds within the specified time allowed as they were not available in the market. As soon as the bonds were available in the market, the assessee immediately purchased the same. Under these circumstances, assessee is eligible for deduction u/s 54EC - Assessee's appeal allowed.


BBC Worldwide Ltd Vs DDIT, New Delhi (Dated: January 15, 2010)

Income tax – India-UK DTAA - Article 5 - PE - if the correct arms length price is applied and paid, nothing further would be left to be taxed in the hands of the foreign enterprise. Morgan Stanley - ( 2007-TIOL-125-SC-IT ) and SET Satellite - 2008-TIOL-414-HC-MUM-IT correctly followed . CBDT Circular No. 23 of 1969 is eloquently clear providing that if the value of the profit attributable to the services rendered by the agent is fully represented by the commission paid, it should, prima facie extinguish the assessment .



ITO, New Delhi Vs M/s Omega Biotech Ltd (Dated: December 31, 2009)

Income Tax - Sec 68 - Assessee is engaged in the business of manufacturing of medicines. During the relevant financial year the Assessee receives share application money - AO holds that it is not a normal transaction. The amount received as share capital is a camouflaged transaction and adds the same as unexplained cash credit u/s 68 – CIT(A) deletes the addition - Held, no further evidence available to give a finding that the cash credit during the year has been proved, and since the authorities below also failed to conduct necessary enquiries in this regard, matter remanded to AO to examine the nature of credit and then to satisfy whether the credit is properly explained or not. The Assessee directed to place necessary evidence so as to justify the identity and creditworthiness of the creditor and genuineness of the transaction.


Smt Manisha Sharma Vs ITO, Muzaffarnagar (Dated: September 18, 2009)

Income Tax - Sec 147, 148 - Assessee is a partner in partnership firm - claims loss being 70% share in the loss of firm's business - sets off loss against short-term capital gains and interest income - AO notes that the share of loss of a person from a partnership firm is not to be included in the total income of the person u/s 10(2A) - loss cannot be set off against the other income. After recording reasons u/s 147 notice issued - AO makes assessment and concludes that the loss cannot be set off against other incomes - CIT(A) after considering the submissions of the Assessee and the provisions contained in sections 75 and 78, concludes that the loss from a partnership firm cannot be set off in the hands of the assessee - Held, following the ratio of the decision in the case of Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT of Delhi High Court and Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd, of Apex Court the learned CIT(Appeals) was right in upholding the reopening of the assessment. Assessee's ground dismissed.


Smt Kannan Nachal Vs ITO, Bangalore (Dated: November 27, 2009)

Income Tax – non payment of TDS – prior to 1.6.2007, individuals were not liable to deduct TDS; outright purchase of goods is not contract, not liable for TDS – when TDS was not deductible, disallowing expenditure is not correct: the provisions of s.194C (1) do not apply to the case of the present assessee being an individual for the assessment year under dispute; the amended provisions of s.194C (1)(k) brought on the Statute applicable prospectively w.e.f 1.6.2007 & the assessee was under no obligation to deduct tax while making the payment (s). Since the assessee was under no obligation to deduct tax, her case doesn't fall within the ambit of s. 40 (a) ( ia ) of the Act. the lower authorities were not justified in disallowing the sum of Rs.30,33,838 /-.



VVF Ltd Vs DCIT, Mumbai (Dated: January 8, 2010)

Income tax - Sec 92 - Assessee is a registered company - has two wholly-owned subsidiaries in Canada and Dubai - gives interest-free loans to its subsidiaries - case referred to TPO who determines 14% interest rate per annum as ALP interest on the sum advanced - CIT(A) agrees with the AO - assessee argues it has given loans out of its own funds and also as per commercial expediency, and therefore, Revenue cannot levy tax on notional interest - held, this is not a question of whether the loan was given from its own fund or borrowed fund - TP regulations are to nullify the impact of inter-relationship between the AEs - the CUP method adopted by the assessee seeks to ascertain arms length price by taking into account prices at which similar transactions have been entered into by the assessee with unrelated parties (Internal CUP) or at which other unrelated parties have entered into similar transactions inter se (External CUP) - The comparable transaction is of foreign currency lending by unrelated parties - matter remanded for fresh computation


M/s Pioneer Overseas Corpn Vs ADIT, New Delhi (Dated: November 30, 2009)

Income Tax – Sec 2(1A), 10(1) - agricultural income - assessee is tax resident of the USA - sets up branch office in India to conduct agri- genetic research to develop new products and to make available parent seed to JV company under a parent seed charge arrangement - files return - claims exemption u/s 10(1) - AO disallows it - Appeal to Tribunal - held,

++ Creation and sale of hybrid parent seeds not agricultural activity. The expression "agriculture", has got to be understood as connoting the integrated activity of basic operations upon the land.

++ From the nature of activity carried out by the assessee, it is clear that the breeder seeds developed or produced by the assessee are sown to obtain large quantities of parent seeds, which are being supplied to joint venture Company for a price. The assessee undertakes the production of parent seed through multiplication of breeder seed, which are developed by the assessee after a long drawn process of combining two or more traits of different seeds into one seed.

++ The assessee was allowed permission under section 29(1)(a) of the Foreign Exchange Regulation Act, 1973 for opening a branch office in India by the Reserve Bank of India vide letter dated 18 November, 1992. The CIT(A) has rightly held that the assessee's activity of producing the parent seeds, which were of hybrid nature and were sold to joint venture company for producing hybrid commercial seeds, are non-agricultural activity.



Schenectady Specialities Asia (P) Ltd Vs ACIT, Mumbai (Dated: September 10, 2009)

Income Tax - Sec 41(1) - Rectification of mistake - assessee sets up unit in a backward area eligible for sales tax incentive scheme - deferment of sales tax payment - Assessee files Miscellaneous Application for rectification of the Tribunal order on the ground that section 41(1) is not attracted in the present case since there is no cessation of liability - Held, the view taken by the Tribunal is a possible one and, if this view is disturbed based on a Misc. Application filed, it would in effect result in a review and not a rectification of mistake. Once the arguments advanced by the assessee before the various authorities are recorded by the Tribunal and thereafter a conclusion reached by the Tribunal, it can only be considered that such arguments and pleadings were indeed considered while reaching such a conclusion, though specifically not commented upon or explicitly dealt with in the order, at length. The thought process that took place while disposing of the grounds of the assessee, definitely included the aspects of the two issues viz., Sales-Tax Tribunal Order and benefit in settlement of a future dues at its NPA, now argued to have been not considered. The assessee is effectively seeking a review of the order of the Tribunal under the guise of a rectification proceeding. The arguments taken by the assessee has been recorded by the Tribunal in its order. No mistake apparent from record warranting any rectification. Assessee Misc. Application dismissed.


Messee Dusseldorf India Pvt Ltd Vs DCIT, New Delhi (Dated: December 14, 2009)

Income tax - Assessee claims deduction for interest paid u/s 75 of Finance Act, 1994 on delayed payment of service tax - AO disallows on the ground that it is penal in nature - CIT(A) disagrees and holds that the interest payment is compensatory in nature and therefore a permissible business deduction - held,

++ interest payment u/s 75 of the Finance Act, 1994 has the same character as that of the service tax;

++ it is compensatory in nature and cannot be held to be penal in character; it is a permissible deduction.

Assessee also claims deduction for payment made for use of 'trade mark' / 'Logo' of a non-resident company in a trade fair - AO holds since the assessee got enduring benefits it is not revenue expenditure - held, since the logo was used only during the trade fair, no enduring benefits were reaped by the assessee - it is an allowable business expenditure



Perot Systems Tsi (India) Ltd Vs DCIT, New Delhi (Dated: October 30, 2009)

Income tax - Transfer pricing - Sec 92, 14A - assessee is incorporated in India - a part of MNC Group - extends foreign currency loan to two of its associated enterprises located in Bermuda and Hungary - loans are advanced interest-free - whether the loan advanced to the AEs is capital contribution by a Group company - whether notional interest is to be attributed and taxed in such arrangement - whether such transactions

tantamount to transfer of profits to AEs located in tax haven - whether ALP is to be computed in such cases



DCIT, New Delhi Vs M/s PEC Ltd (Dated: January 8, 2010)

Income Tax - Sec 271(1)(c) - AO makes disallowances on account of Foreign Usance Bill Interest paid and Prior Period expenses - CIT(A) dismisses appeal but directs AO to verify claims relating to the amount of interest paid and applicability of DTAAs - AO gives appeal effect of the order u/s 250/154/143(3) and allows relief as per the direction of the CIT (A), being the amount of foreign usance bill interest paid by the Associates of the assessee company. On the balance amount addition made confirmed by the CIT (A) - AO initiates penalty proceedings - CIT(A) observes that it cannot be held that the assessee has furnished inaccurate particulars of income for the purpose of concealment of income. Accordingly, penalty u/s 271 (1)(c) on this issue does not appear justifiable - Held, AO has not been able to prove that the explanation offered by the assessee is false. Even under explanation 1 to section 271(1)(C) penalty is not leviable. It is now settled law that only because addition is sustained, the penalty is not automatic. Revenue's appeal dismissed.


Shri Anuj Goel Vs ACIT, New Delhi (Dated: January 8, 2010)

Income Tax - Section 80HHC - CIT(A) confirms disallowance of claim for DEPB entitlement - Held, assessee is having export turnover of above Rs.10 crores and hence 90% of DEPB was reduced from profit of business for the purpose of computation of deduction allowable to the assessee u/s 80 HHC but the same was not added back as per the amended provision of section 80HHC. Now, as per the decision of the Special Bench of the Tribunal rendered in the case of Topman Exports, 90% of profit on sale of DEPB is to be excluded and not 90% of total DEPB receipts. Special Bench of the Tribunal has also decided the manner of computation of profit on sale of DEPB and as per the Special Bench, face value of DEPB is to be reduced from sale proceeds of DEPB and if the sale proceeds is higher than the face value, such excess is profit on sale of DEPB. Matter restored to the file of the AO for a fresh decision in the light of the decision of Special Bench in the case of Topman Exports .Ground of Assessee allowed. Section 80HHC -On the issue of CIT(A) confirming the disallowance of the claim of the assessee u/s 80HHC on the Export sale - Held, matter restored to the file of the AO for a fresh decision in the light of the master RBI Circular on Export of Goods & Service dated July Ist, 2005. If the AO finds that this RBI Master Circular is applicable in the present case and the export proceeds were realized as per this RBI Master circular, then such export proceeds should not be reduced from export turnover for the purpose of computation of deduction allowable to the assessee u/s 80HHC.Ground allowed.


Aryan Management Service Pvt Ltd Vs ITO, New Delhi (Dated: January 8, 2010)

Income Tax - Section 68 - AO reopens assessment on receipt of information in the form of Investigation Report from the office of Additional Director of I.T (Investigation), through proper channel that the Assessee company is one among the hundreds of beneficiaries which has taken accommodation entries from various entry operators – After consideration AO holds that the amount stated to be received by the Assessee from the companies as share application money is un-accounted money - additions u/s 68 made - CIT(A) deletes the addition on the ground that the AO has not gathered and brought on record any material evidence to controvert or disprove the contention of the Assessee regarding the genuineness of the share application money received by it and supported by necessary documentary evidence - Held, matter remanded to the AO for a de novo assessment after providing an opportunity to the Assessee to cross examine. The AO should also allow the Assessee to furnish necessary evidence to establish the identity and creditworthiness of the persons/companies from whom the share application money has been received by the Assessee and also to establish the genuineness of the transaction. Assessee's appeal allowed.


ACIT, Mumbai Vs M/s Diamond Dye Chem Ltd (Dated: January 27, 2010)

Income tax - Sec 80HHC - Assessee is a manufacturer of brightening agents - claims deduction on write back from customers, sales tax refund, tender fee and write back provision of refund of excise duty - AO disallows - CIT(A) allows the appeal - held, no infirmity in CIT(A) order - when the expenditure was incurred, it has gone to reduce the profits of business and when the entry is reversed, profits of business goes up. None of the receipts can be considered as a receipt by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature. All these items are connected with the operations of the assessee - Revenue's appeal dismissed


Meera Bhatia Vs ITO, Mumbai (Dated: October 29, 2009)

Indo-UAE DTAA - Articles 4, 13 - Whether an individual resident of UAE is entitled to treaty benefits


2010-TIOL-45-ITAT-MUM-SB

The Maharashtra State-Co-Operative Bank Ltd Vs ACIT, Mumbai (Dated: January 22, 2010)

Income tax - Sec 80P, 244A - assessee is a cooperative bank - claims deduction for certain investments made out of statutory reserve fund - AO initially allows the same but later invokes powers u/s 147 and denies the same - assessee deposits tax but later the issue is settled by the Tribunal in assessee's favour - assessee receives huge interest u/s 244A on income tax refund - claims deduction for the same u/s 80P by holding that since it arises out of normal banking fund which would have otherwise generated normal profits of the business, the interest income will also have the character similar to the 'profits and gains of business' - AO disallows and CIT(A) holds that the interest income falls under the head 'income from other sources'



ACIT, Gurgaon Vs M/s Texsa India Ltd (Dated: December 4, 2009)

Income Tax - Sec 36(1)(vii) and section 3(1)(vii) r/w Section 36 (2) - Assessee carries out water proofing work - writes off an amount as bad debt - A.O. observes assessee has cleverly tried to use coloulrable device to hoodwink the Department by not paying legitimate taxes - makes addition - CIT(A) holds that the assessee has reconciled the differences and there is no difference in the amount accounted for - also holds addition cannot be made for bad debt - Held, existence of the statement of understanding has not been controverted by bringing any material on record. It also cannot be disputed that the assessee had accounted for all the receipts received by it. The CIT (A) has given a finding that the assessee has been able to reconcile all the differences. The conditions for allowability of bad debt has been described of the order of CIT (A) which are stated to be fulfilled. In view of the decision of High Court in the case of Autometers Ltd the requirement of the assessee to prove that a bad debt has become bad debt is dispensed with by 1989 amendment in Section 36(1)(vii) and, thereafter, all that assessee has to do is to write off a bad debt as irrecoverable in its account. There is no infirmity in the order of the CIT (A) - no addition called for - Revenue's appeal dismissed.


Pioneer Overseas Corpn Vs Dy Asst Director Of Income Tax , New Delhi (Dated: December 24, 2009)

Income Tax- Sections 2(1A), 5(2),9(1)(i), 10(1), 143(1), 147,148, Indo-US DTAA- Articles 5(3)(e),7(1),7(2) - AY 1997-98, 1999-2000, 2000-01 & 2001-02

Whether assessment for assessment year 1997-98 could have been validly reopened based on findings given in the assessment of the A.Y 1998-99 - Whether income from the sale of parent seeds represents agricultural income or not - Whether in a reopened assessment A.O can consider an issue which has not been specifically mentioned in the reason recorded- whether research activities are preparatory and auxiliary in nature - whether there is a business connection and a PE - whether ALP should be used in determining the profits of a branch.



ACIT, Mumbai Vs Shri K K Goel - Huf (Dated: September 14, 2009)

Income Tax - Section 69B - Assessee is HUF - AO makes additions on the basis of documents seized during search and contradictions in the affidavit filed by the karta - CIT(A) holds since the karta has accepted the bogus purchase and declared it as their undisclosed income, no addition can be made in the hand of assessee (HUF) - held, the undisclosed income has already been taxed in the hands of a company related to the Karta of the Assessee in the AY 2003-04 and that has not been controverted by the Revenue. Once the said amount is taxed in the hands of a company, the same again cannot be taxed in the hands of the assessee as the source of the said amount has been explained by the assessee. CIT(A) order upheld. Ground dismissed. On the issue of deemed dividend u/s. 2(22)(e) - Held, the amount, presuming the same is in the nature of advance or loan cannot be taxed in the hands of the assessee u/s 56 treating the same as a deemed dividend within the meaning of the Section 2(22)(e). CIT(A) order upheld. Revenue Appeal dismissed.


ITO, New Delhi Vs Spice Communications Ltd (Dated: October 9, 2009)

Income Tax - Section 37 - Assessee claims advertisement and sales promotion expenses - AO allocates 10 per cent of the total expenditure on advertisements and sales promotion towards capital expenditure and makes addition - CIT(A) deletes additions - Held, the expenditure does not lead to create any capital asset to the Assessee. Even there is no benefit of enduring nature so to treat the expenses as capital expenditure. Since by incurring expenditure on advertisement and sales promotion, the Assessee has not acquired any fixed capital asset, but these expenditures were incurred for earning better profits, and for facilitating Assessee's operation of providing cellular mobile services, there exists direct nexus between the advertisement and sales promotion expenses and the carrying out of the business activity of the Assessee. CIT(A) order upheld. Revenue's ground rejected. On the issue of software expenses claimed by the Assessee as revenue expenditure - Held, it is admitted position that these software need regular up-gradation. Further, the Assessee has paid rental charges towards rent for use of software for the prepaid customers. These facts have not been disputed by the AO. CIT(A) view treating the software expenses as of revenue in nature upheld. The amount spent towards application software and not for the acquisition of any asset of capital nature or asset giving any enduring benefit to the Assessee. Revenue's appeal rejected.

Assessee claims expenses under the head of Management service charges - AO treats entire payment to be of capital in nature as against which the CIT(A) treats the whole of the payment as revenue expenditure - Held, it is a case where the payment made by the Assessee is composite payment for supply of technical know-how services, and use of Intellectual Property Rights for setting up cellular telecommunication networks or business, and also for operating and carrying on efficiently and profitably the Assessee's business of providing cellular telecommunication services., there exists no embargo on the Assessee in carrying on business of providing telecommunication services even after expiry of agreement entered. Thus, the payment of lump sum fee specified in the agreement payable in installments is to be allocated partly towards capital expenditure and partly towards

revenue expenditure. The entire payment made by the assessee is to be considered as paid towards set-up of the business as well as for efficiently carrying on the business after the same was being set-up. Revenue Appeal partly allowed.


ITO, New Delhi Vs Smt Usha Aggarwal (Dated: November 20, 2009)

Income Tax - Gift - AO finds there is no relationship between the assessee and the donor nor is there any occasion to make a gift - donor's creditworthiness suspected - additions made - CIT(A) disagrees with the AO - held, it is for the assessee to establish identity and financial capacity of the donors, and he has also to establish the fact that the gift was genuine. In arriving at conclusion regarding genuineness of the gift, attendant circumstances as past conduct of the donors of having received or given gifts to others, including gifts received from the present donee, relationship, occasion etc. have to be considered and an opinion has to be formed as to whether it could be said that the behaviour of the donor was that of a normal human being. In case of a loan as the former is a gratis payment and involves consideration of human conduct. When the whole of the evidence is weighed and the conduct of a normal human being is taken into account, it can be said that the financial capacity and genuineness of the gifts do not stand established in this case in a manner to shift the onus onto the revenue to prove that the gifts were bogus. Revenue Appeal allowed.


M/s Abhijit Trading Co Ltd Vs ACIT, New Delhi (Dated: January 8, 2010)

Income Tax - Sec 56 - Assessee is into the business of trading shares and making investments - earns interest income - claims deduction for administrative and financial expenses - AO treats the interest income as income from other sources on the ground that the assessee is not into money lending - also reduces the interest paid from interest received - CIT(A) allows part expenditure u/s 57(iii) - held, since the Assessee is not engaged in any business activity and entire surplus funds available with the Assessee company has been advanced as loans, the interest income earned by the Assessee company is assessable as income from other sources and not as income from business. Assessee's appeal dismissed.


ITO, New Delhi Vs Vidya Tech Solutions (P) Ltd (Dated: September 11, 2009)

STPI unit – Deduction under Sec 80HHE and Sec 10A eligible for two different periods of the same Asst Year: The principle of apportionment of income or expenditure is well entrenched in the taxation laws. The assessee computed profits for the two periods on a reasonable basis by taking receipt on actuals and expenditure on a proportionate basis. The Assessing Officer has not found any fault with the allocation of profit in the two periods. It is settled that in law, the profits of a business accrue on the last date of the previous year. However, that does not mean that allocation of profits of the year in two different periods is an impossibility because of the aforesaid principle of

law. Such an apportionment was necessary as the assessee became entitled to deduction under two different provisions for the two periods. The principle of accrual of profit does not come in the way of allocation of profit in the two periods. What can be done at best is to ensure that the allocation is made on a proper basis so as to avoid excessive claim of deduction under one or the other provision.



Adarsh Shiksha Sansthan Vs DCIT, New Delhi (Dated: January 8, 2010)

Income Tax - Sec 11, Form No 10 - Assessee is a registered educational society - repays loan from accumulation of income - AO disallows on the ground that the assessee fails to file Form No 10 - CIT(A) goes with the AO - held, CIT(A) should have decided this issue in the light of the Board's Circular cited by the assessee after examining necessary evidence as to whether any repayment of loan was made by the assessee in the present year and whether such loan was taken by the assessee to fulfill one of the objects of the trust. Matter remanded to CIT(A) for fresh decision.


ACIT, New Delhi Vs M/s Citi Corpn Maruti Finance Ltd (Dated: November 13, 2009)

Income Tax - Section 36 - Assessee shows loss on sale of repossessed assets - AO holds that the loss on repossessed assets cannot be held as revenue loss for the assessee company and accordingly disallows the same - CIT(A) holds that the deduction claimed by the assessee admissible u/s 36 on the ground that there is no dispute that the appellant is a NBFC and is in the business of money lending giving finance for purchase of vehicle under hire purchase scheme. The owner of the vehicle is the purchaser and appellant is only lender of money – Held, CIT(A) order is well reasoned and does not call for any interference. On the issue of depreciation claimed by the assessee on computers - Held, CIT(A) by relying upon the decision of ITAT in the case of Simorn Majumdar has rightly allowed the depreciation @ 60% as claimed by the assesee and so the well reasoned order do not call for any interference. Revenue Appeal dismissed.


M/s Biotech International Ltd Vs DCIT, New Delhi (Dated: January 8, 2010)

Income Tax - AO disallows development and license expenses written off by holding that the same is capital expenditure - CIT(A) goes with the AO - Held, the claim of the assessee on account of expenses for registration of the product cannot be held to be capital expenditure but expenses on acquisition of technical knowhow of a new product has to be treated as capital expenditure - Assessee ground partly allowed.

Assessee claims R&D expenses under the head Misc. expenses in P&L A/c - AO disallows the same - CIT(A) upholds AO order - Held, expenses are regarding product fess including payment to research fellow, cost of accessories, chemicals, brass-wares and other misc. expenses. In the absence of any finding that any new product was developed by incurring these expenses, the authorities below were not justified in treating these expenses as capital in nature. Assessee's ground allowed. On the issue of traveling expenses - Held, to meet the ends of justice, the disallowance should be of 25% of such expenses for which supporting vouchers and details could not be produced by the assessee. Assessee Appeal partly allowed.


Mr Sameer Kela Vs ITO, Mumbai (Dated: December 18, 2009)

Income tax - Sec 271(1)(c) - assessee is an NRI - sells its ESOP shares in the US markets - fails to declare the long-term capital gains in his return on the ground that since the shares were sold abroad, his income is not liable to capital gains tax in India - receives notice u/s 143(2) - assessee revises return and declares the capital gains - AO imposes penalty - held, since the assessee has deposited the tax with interest before the same was detected by the Revenue and also the fact that there were two possible views on the issue prevailing at a particular point of time, the assessee cannot be faulted with mala fide intention - penalty not sustainable - Assessee's appeal allowed


M/s Hindustan Petroleum Corporation Ltd Vs DCIT, Mumbai (Dated: January 11, 2010)

Income tax – reassessment - mere non-discussion of an issue in the assessment order does not conclusively mean that the AO did not form his opinion over that – there is no hard and fast rule to determine the question of the AO forming his opinion or not. It will depend upon the facts of each case. But one thing is certain that mere non-discussion of an issue in the assessment order does not conclusively mean that the AO did not form his opinion over that.

reassessment based on change of opinion is not valid: In the instant case we find that the Assessing Officer had properly applied his mind qua deductibility of interest of Rs.14.65 crores and administrative expenses of Rs.16.85 crores in the original assessment order passed u/ s.143 (3) on 28.1.2004. In the absence of any further material coming to the possession of the Assessing Officer indicating the fallacy in the assessee's claim, the Assessing Officer could not have assumed jurisdiction u/ s.147 to re-examine such deductions already allowed in the original assessment.



ITO, Mumbai Vs Smt Rukhsana S Contractor (Dated: December 30, 2009)

Income tax - Sec 68 - Assessee receives gifts from NRI husband and brother - AO makes additions on the ground that the assessee fails to substantiate the creditworthiness of donors - CIT(A) disagrees and deletes the additions - held, CIT(A) findings clearly establish the financial prowess of the donors who are close relatives of the assessee - Revenue's appeal dismissed

2010-TIOL-31-ITAT-CHD-SB

M/s Quark Systems Pvt Ltd Vs ITO, Chandigarh (Dated: October 22, 2009)

Income tax - Transfer Pricing - Sec 92 - Assessee is a fully owned subsidiary of a Switzerland-based company - it is a captive unit working exclusively for the parent compamny - enters into contract with the parent company to provide technical and advisory services - parent company makes specialised software for the Media companies which is used for page layout of newspapers and periodicals - assessee caters to technical requirements of the parent company's clients in India - for the services rendered, it earns costs plus 13.5% mark up - transactions with AE - computation of Arm's Length Price (ALP) - whether selection of comparables with negative net worth, low turnover, start-up status and also extraordinatory profit is fair for determining mean profits required for ALP - whether FAR analysis parameter can be loosely applied to select comparables

Assessment proceedings - reference made to TPO for determining ALP - TPO notices assessee has employed TNM Method - also notices one of the comparabales chosen by the assessee has suffered huge net loss - SCN issued for exclusion of the continuously loss-making comparable which is also a start-up company - CIT(A) goes with the AO - issue goes to the Tribunal where the assessee pleads for admission of an additional ground to reject one of the comparables suggested by it on the ground that the same has shown extraordinary profits which is another extreme if loss-making is one extreme



M/s Sheth Developers Pvt Ltd Vs DCIT, Mumbai (Dated: October 12, 2009)

Income Tax - Section 158BC, 80IB(10) - Assessee group is one of leading builders and developers carrying out its business activity - During the course of search operations, a large number of papers found with notings indicating transactions involving the sale of flats and shops at different sites and complexes developed by the assessee - AO after considering the seized material and assessee's submission computed the undisclosed income of the assessee vide order passed u/s 158BC for the block period - CIT(A) holds that deduction u/s.80IB is admissible on the on money receipts received from the sale of flats and shops, partly confirms the addition of unaccounted expenses and partly allows the Assesee's Appeal - Held, the assessee has not given any working on the basis of the said seized material to show the exact amount of undisclosed income according to the assessee. The onus has not been discharged by the assessee. In the absence of any ground the AO was justified in invoking the provisions of section 145. AO was not justified in assessing the whole

receipts of on-money on the sale of flats and shop as undisclosed income instead of applying the project-wise net profit ratio on the said receipts of on-money. keeping in view that there is no dispute that various building projects carried on by the assessee are eligible for deduction u/s. 80IB(10), and in the absence of any material to show that the said projects are not eligible for deduction u/s 80IB(10). CIT(A) fully justified in directing the AO to restrict the undisclosed income as disclosed by the assessee after allowing deduction u/s. 80IB(10). The grounds taken by the assessee partly allowed and Revenue's ground rejected.

2010-TIOL-29-ITAT-AHM-TM

Shri Dharamshibhai B Shah Vs ITO, Bhavnagar (Dated: October 9, 2009)

Gift Tax – inadequate consideration - if the consideration itself is incapable of being determined, there is no question of ascertaining whether it is adequate or inadequate: in the case of Sunil Sidharthbhai , it was held by the Supreme Court that when a partner introduces his assets into the partnership firm as his capital contribution, his exclusive interest in the assets becomes a shared interest and to this extent there was a transfer. It was however held that at that point of time, considering the features of a partnership and the position of the partners, it was not possible to conceive of any consideration for the transfer of the assets and therefore it was not possible to charge capital gain on the partner. Relying on this principle, the contention advanced on behalf of the assessee is that if the consideration itself is incapable of being determined, there is no question of ascertaining whether it is adequate or inadequate and therefore there can be no deemed gift under Section 4(1)(a) of the Gift Tax Act. This contention is correct and sound.



ITO, Mangalore Vs M/s Pragathi Mechatronics Pvt Ltd (Dated: September 9, 2009)

Income tax - Sec 154 - Assessee claims set-off of interest income against loss arising out of capital expenses - AO accepts the return and sends intimation u/s 143(1)(a) - later invokes Sec 154 to withdraw the same benefit - Tribunal holds that a debatable benefit cannot be withdrawn by rectifying the order u/s 154 - review petition - held, as per provisions of law existing at that time, the AO could have rectified only arithmetical mistakes. What could not have been done directly cannot be done indirectly. The remedy with the Revenue was to either issue notice u/s 143(2) or take action u/s 148 after collecting the facts. Revenue's petition dismissed


M/s Aristocrat Luggage Ltd Vs DCIT, Mumbai (Dated: November 9, 2009)

Income Tax - assessee claims expenses incurred on foreign travel expenses of directors - AO disallows substantive amount on the ground that the disallowed amount

does not relate to business of the assessee but are incurred for exploring export possibility and the assessee could not identify as to what type of exports were done as a result of foreign tour conducted - CIT(A) agrees with the AO - Held, no such evidence was furnished before the CIT(A) or even before the Tribunal to substantiate that assessee has incurred the expenditure for exploring the possibility of expansion of business. It is only a general statement - Assessee's ground dismissed


DDIT, New Delhi Vs M/s Sutron Corpn (Dated: November 20, 2009)

Income tax - Sec 92, 271(1)(c) - Indo-USA DTAA - PE under Article 7 - Assessee is an US-based company - provides hydrological and metrological data for managing water resources - enters into contracts with AP Government for supply, installation, erection and commissioning of the project with four-year AMC - seeks advance ruling - ruling says income attributable to the PE is taxable in India - hires E&Y Pvt Ltd for transfer pricing study which suggests cost + 10% mark-up - files return and declares 30% profit of its global gross profit - AO disagrees and hikes the magnitude of profit to 60% on estimate basis - also initiates penalty proceedings - CIT(A) disagrees with the AO - held,

++ where there is no admission of the assessee that the amount added was its income or concealed income, the mere fact that the addition had been agreed to cannot justify the imposition of penalty.

++ Thus it is a case of one estimate against the another estimate but the basis of estimate are the facts as declared by the assessee itself and not something new found out by the AO which results into higher estimate of income.

++ there is complete disclosure in respect of contracts entered into by the assessee. There is no attempt by the assessee to conceal any particulars of income or furnish inaccurate particulars thereof. No incorrect particulars of any expenditure have been submitted by the assessee either in the tax return or during the course of the assessment proceedings. Further, no finding is recorded by the AO either in the assessment order or in the penalty order that incorrect particulars of income were submitted by the assessee. Accordingly, the penalty is not leviable.

++ the assessee has demonstrated that he has acted honestly as well as exercised reasonable care, so as to satisfy the conditions prescribed under section 271(i)(c), therefore the penalty cannot be imposed.

++ It is by now settled law that the considerations that arise in penalty proceedings are different from those in assessment proceedings. As such, the findings given in assessment proceedings, though relevant and admissible material in penalty proceedings cannot operate as 'res judicata'.

++ non-filing of appeal itself does not justify levy of penalty u/s 271 (1)(c). There is no revised computation filed before AO but in the original return itself, the assessee estimated the profit at 30% of global operation. Thus it is incorrect on the part of DR to contend that the assessee filed revised return before AO.



M/s Jindal Drugs Ltd Vs ACIT, Mumbai (Dated: December 24, 2009)

Income Tax -Sec 80HHC - AO disallows deduction in respect of profit earned on account of DEPB scheme - Held, the issue in respect of DEPB profit for the purpose of deduction u/s 80HHC has been decided by the Special Bench in the case of Topman Exports. AO directed to allow deduction u/s 80HHC. AO treats interest income under the head income from other sources against business income shown by the assessee. By treating interest income as income from other sources, the AO disallows deduction u/s 80HHC - CIT(A) confirms the action of the AO - Held, funds were required for business purposes and as per pre-conditions of the bank, margin money was deposited in the shape of FDRs for availing overdraft facility and therefore, it has direct nexus with business activity and accordingly, it has to be treated as income from business income and since there is a direct nexus between the earning of interest and expenditure of interest then netting of interest has also to be allowed in view of the decision of the Special Bench in the case of Lalsons Enterprises AO directed to recalculate the deduction u/s 80HHC - Assessee's ground allowed.


Global Vantedge Pvt Ltd Vs DCIT, New Delhi (Dated: December 17, 2009)

Income tax - Transfer Pricing - Sec 92 - Assessee is a subsidiary of Mauritius-based company which is in turn a wholly-owned subsidiary of a Bermuda-based company - provides IT-enabled services and is eligible for Sec 10A benefits as a STPI unit - enters into an agreement with an US-based company in which parent company holds more than 26% stake - as per provisions of Sec 92, they become AEs - US-based company gets BPO business and passes on the same to the assessee as it does not have requisite infrastructure - Once work order is obtained by the US company the same is handled by the assessee - gets 90.6% of revenue earned by US-based company - also earns income from independent clients which is computed to be 18% of its total revenue earned in FY 2002-03 - AO makes a reference u/s 92CA(1) to the TPO for computation of ALP - TPO holds that AE not to be treated as tested party rather the assessee be treated as tested party - TPO makes adjustments by taking into account the average operating margins of 11 comparables and the loss percentage of the assessee - AO makes adjustments on the basis of TPO report - CIT(A) partly rules in favour of the assessee by holding that the total adjustment together with the ALP cannot exceed the total revenue earned by the appellant and its associated enterprise from third party independent clients - held, since the assessee and the Revenue fail to controvert the findings of the CIT(A), and no flaw in determination of ALP is pointed out, the CIT(A) order is upheld

Unabsorbed depreciation or unabsorbed business loss in respect of eligible 10A unit or division or undertaking is to be set off against the profit of the same eligible 10A unit or undertaking for the purpose of determining the amount of deduction available u/s 10A: the tribunal did not find any justification cause to interfere with the order of the CIT(A) whereby he has upheld the order of the A.O. in setting off of unabsorbed business losses or unabsorbed depreciation in respect of eligible unit brought forward from assessment year 2002-03 against the profit of same eligible unit for the purpose of determining the amount of deduction available u/s 10A to the assessee in the present assessment year 2004-05.



M/s Carol Info Services Ltd Vs ACIT, Mumbai (Dated: December 10, 2009)

Income tax - Sec 194C, 133A - Assessee manufactures bio agro products and nutrition products - Revenue conducts a Survey u/s 133A - finds purchases of finished products and packing materials made as per specifications given in a contract - Revenue treats it as a manufacturing contract and insists on TDS u/s 194C - Assessee pleads it is a principal to principal transaction as the assessee has its own infrastructual facilities, licence and directly pays excise duty and sales tax - further argues such transactions cannot be treated as works contract - CIT(A) goes with the AO - held, given the fact that the assessee has its own plant and machinery, purchases raw matrials through competitive bidding, own labour force and marketing setup it cannot be treated as works contract liable to TDS - it is a contract for sale - assessee's appeal allowed


Maruti Udyog Ltd Vs ADIT, New Delhi (Dated: August 31, 2009)

Income tax - Sec 9(1)(vii), 195(2) - India-France DTAA - Article 13(4) - Assessee is a leading automobile manufacturer - ties up with French company for Impact Testing of its vehicles as per statutory requirements of the French Govt - pays testing charges - whether TDS is deductible on such payments - whether the services provided by the French company are technical in nature and the payments made for the same qualify as 'fees for technicla services' as per Article 13(4) of the DTAA



ACIT, Dehradun Vs M/s Hyundai Heavy Industries Co Ltd (Dated: October 16, 2009)

Indo-Korean DTAA- Article 25;Income tax-Sections 147,90 - Whether assessment can be reopened on the basis of a decision of the AAR- whether business income of the Korean Company could be charged to tax at a rate higher than that applicable to a domestic company-Non-discrimination article-Effect of clarification issued under MAP- Effect of legislative amendment



Cable News Network LP, LLLP Vs ADIT, New Delhi (Dated: November 6, 2009)

Income tax - Sec 90, Rule 44H - Indo-USA DTAA - MAP - Assessees are non-resident broadcasting companies - operate in India through PEs - earn advertising and subscription revenue through agent - pay commission to the agent based on the collections - Revenue for 30% tax on net revenue - both parties agree for Mutual Agreement Procedure for resolution of dispute - 10% deemed profit determined by US Competent Authority - whether 10% profit is leviable on gross revenue or net revenue - whether an assessment order passed under MAP is appealable under Sec 246A(1)(a)



M/s Xerox India Ltd Vs ADIT, New Delhi (Dated: October 9, 2009)

Income Tax - Sec 32 - Assessee write off value of fixed assets, not found on physical verification - AO takes the view that depreciation cannot be allowed on non-existent assets - makes disallowance @ 20% - CIT(A) reduces it to 10% - held, Revenue not justified in working out depreciation on a block of assets by reducing the value of any asset/assets which have either been discarded or destroyed or sold or written off. It means that in a case, some asset, which formed part of the block of assets, is discarded or destroyed or sold or written off their WDV is to be reduced from the WDV of the block of assets for the purposes of computing depreciation and not the WDV of individual assets by working out the same itemwise. AO should recompute the depreciation only after ascertaining the scrap value of the assets, which have been discarded or written off in the books during the year under consideration. Revenue's ground rejected. On the issue of deduction claimed by the assessee u/s 10A - AO holds that the assessee company is not entitled for deduction u/s 10A - CIT (A) holds that the assessee fulfills all the requirements of section 10A and is covered within the definitions given in Explanation 2(vii) to this section - Held, CIT (A) in his well-reasoned and well-discussed order after analyzing the provisions of section 10A as well as the notification and subsequent approvals of the Government of India in the case of assessee has rightly concluded that the assessee fulfils all the requirements of section 10A and is covered within in the definitions given in Explanation 2(vii) to this section. Revenue's appeal rejected.


ACIT, New Delhi Vs China Trust Commercial Bank (Dated: Novenber 13, 2009)

Income tax - Sec 37 - Assessee is a non-resident bank - buys government securities to maintain SLR - Securities are kept with the RBI but are tradable - RBI pays interest every half year on May 12 and November 12 - any transaction in between these dates results in broken period interest - Assessee has been following the practice of deducting the broken period interest from the sale price of securities at the time of sale - change in practice following some judicial decisions - assessee claims deduction for broken period interest expenditure and also claim deduction for any loss arising out of sale of securities - AO treats it as double benefits and makes addition - CIT(A) directs the AO to examine whether the claim of the assessee results in double

deductions - held, the method of accounting is at the discretion of assessee and not AO. In the year of change of method of accounting, there is bound to be effect on ultimate income computed. However so long as the method followed by the assessee is one of the recognized method and thereafter consistently followed the same cannot be found fault with. Revenue's appeal dismissed


Shri M R Kubendrappa Vs ITO, Davangere (Dated: September 11, 2009)

Income tax - Sec 144, 68, 69 - Assessee is a retail dealer in gold and silver ornaments - declares agriculture income - AO partly allows it - CIT(A) makes addition of the entire sum and also disallows the gift received from NRI - held, when a major part of agricultural income has been allowed by the AO, the CIT(A) is not fair in disallowing the entire sum and taxing the same u/s 68- if such an income is to be taxed as unexplained credit, the assessee must be given ample opportunity to explain the same - issue remanded

As regards the disallowance of gift, since the creditworthiness, identity and genuinness of the donor is established, the same cannot be disallowed and added as undisclosed income u/s 68 - Assessee's appeal allowed

2010-TIOL-16-ITAT-DEL-SB

DLF Universal Ltd Vs DCIT, New Delhi (Dated: January 4, 2010)

Income tax - surplus arising to the assessee from the transaction of contribution of land held by it to a firm as capital contribution shall be assessable to tax as profit or gains under the head “capital gain” : Held that the surplus arising from making over assessee's personal asset, i.e. said plot of land in question, to the firm as his contribution to its capital account is a profit or gain accrued to the assessee and is chargeable to tax. The surplus arising to the assessee from the transaction of contribution of land held by it to a firm as capital contribution shall be assessable to tax as profit or gains under the head “capital gain” under section 45 of the Income Tax Act, and for that purpose, the amount of 11.50 crore recorded in the books of accounts of the partnership firm as the value of the land shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the land as so provided under sub-section (3) of the section 45 of the Act, effective from the A.Y. 1988-89. Even otherwise, the surplus arising to the assessee from the transaction of contribution of land as capital contribution to a firm in which the assessee became a partner shall be chargeable to tax. even in case it is otherwise held that the land contributed by the assessee to a firm towards capital contribution should be treated as stock in trade even during the course of making the transaction of transferring or contributing the land to the partnership firm as capital contribution, the surplus arising to the assessee from the said transaction of contributing stock in trade to a firm shall then be assessable under the head “business” in the view of the colourable device or ruse adopted by the assessee to convert stock in trade into money for its own benefit.



DCIT, Mumbai Vs M/s Tower Capital Securities Pvt Ltd (Dated: December 23, 2009)

Income tax - Deemed dividend - Sec 2(22)(e) - AO notices from the return of the assessee that one Natwarlal Ambani holds 48.78% shares of PHPL and 35.47% equity in the assessee's company - therefore holds that the loan received by the assessee company from PHPL is hit by the provisions of Sec 2(22)(e) - CIT(A) deletes the addition - held, in view of the Special Bench decision in Bhaumic Colour Pvt Ltd [ 2008-TIOL-641-ITAT-MUM-SB ] , 'deemed dividend' can only be taxed u/s 56 in the hands of a shareholder - Revenue's appeal dismissed


K K Goel (HUF) Vs ACIT, Mumbai (Dated: December 8, 2009)

Income tax - Sec 269SS, 69B, 271D and 2(22)(e) - Assessee is an HUF - it earns income from house property and other sources - Search u/s 132 conducted - AO notices the assessee has purchased a flat and received huge cash payment from a company - Assessee pleads that the cash payment was towards purchase of 40% share in the flat and the sum was given for interior decoration work - Revenue treats the same as unexplained cash u/s 69B and makes additions and imposes penalty u/s 271D - AO further treats the same in the assessment order as loan from the company till the time the share is transferred to the company - CIT(A) deletes the addition - held,

++ There is a contradiction in the assessment order in the sense that the cash payment cannot be a loan as well as the assessee's income at the same time. This contradiction invalidates the satisfaction or belief of the Assessing Officer that the assessee committed a violation of section 269SS. The very initiation of penalty proceedings on such contradictory findings is invalid.

++ it is not possible to treat the cash payment by the company for purchase of the property as a loan made to the assessee in cash even by implication. Generally, a loan or deposit of money would carry interest but in the present case there is no such finding. One of the essential characteristics of a loan is absent.

++ Even assuming that the company made the cash payment to enable the assessee to acquire the flat in its own name, still it cannot be said to be a loan since it was never intended to be repaid. An essential feature of a loan is that there is an agreement to repay the same. Thus, there is no justification for holding the same to be a loan given by the company to the assessee in contravention of section 269SS.

++ It would appear that the CIT(A) had not only deleted the addition made under section 69B, but had also held that the addition cannot be made even under section 2(22)(e) of the Act as deemed dividend. The Tribunal affirmed the finding of the CIT(A) to the effect that, since the assessee HUF was not a shareholder in the company . The Tribunal had also affirmed the decision of the CIT(A) to delete the addition made under section 69B.

++ Penalty imposed u/s 271D is not sustainable.



Anand & Anand Vs ACIT, New Delhi (Dated: July 17, 2009)

Income Tax - Section 32(1), 43(6)( c ) - assessee is a firm of advocates having its principal place of profession at a leased building - vacates the said leased premises and hands over the possession of the premises to the landlord together with all the additions or alterations made thereto by assessee by way of capital expenditure incurred thereupon - Assessee after adjusting the amount it receives towards the capitalized value of the leased premises against the opening amount of the WDV of the leased premises, writes off the balance amount in its accounts as 'assets written off' and claims short-term capital loss to that extent - AO disallows assessee's claim of short-term capital loss and adjusted the shortfall against the aggregate WDV of Block of Assets of Building comprising of ( i ) building owned by the assessee and ( ii ) the capitalized expenditure incurred on leased premises, which have been treated as a building owned by the assessee vide Explanation 1 to section 32(1), and after considering the current year's depreciation on resultant WDV, a net addition made to the returned income shown by the assessee by disallowing the assessee's claim on account of assets written off - CIT(A) confirms AO action - Held, the action of the AO in disallowing the assessee's claim of deduction on account of difference between the individual WDV of the leased office structure and recovery made in respect thereof is justified. The AO is further justified in computing the depreciation on the opening WDV of block of assets comprising both building owned by assessee as well as lease office structure, which is deemed building owned by assessee, as adjusted by the additions and reductions provided in section 43(6)( c ). CIT(A) order confirming the order of the AO upheld. Assessee's appeal dismissed.


ACIT, Faridabad Vs M/s O K Auto Engg Works (Dated: December 7, 2009)

Income tax - Sec 68 - AO notices from cash book register and bank statement that the entry in the books for cash withdrawal is one day before the actual withdrawl as shown in the bank statement - Assessee attributes it to wrong entry by the accountant - CIT(A) deletes additions - held, merely because the accountant makes a wrong entry, it does not make the cash withdrawal unaccounted - CIT(A) order upheld - Revenue's appeal dismissed


ACIT, New Delhi Vs M/s Sahara India Financial Corpn Ltd (Dated: November 30, 2009)

Income Tax - Sec 143(3) - assessee challenges CIT(A) order upholding re-assessment and also the direction to the AO to grant only 7.5% deduction towards self supervision charges in respect of Properties while estimating the cost of construction of the property - Assessee submits that it maintains its books of accounts in respect of cost of construction and no defect has been pointed out in the books - further contends that the final variation in the cost of construction between the total investment as declared by the assessee and as estimated by the DVO is only marginal - Held,

assessee is maintaining books of accounts in respect of construction and the A.O. has not pointed out any defect or falsity in the accounts - Further, it has been fairly agreed upon by both the sides that the addition on account of the difference in the cost of constriction has been made only in respect of two A.Ys years. The addition as made by the A.O. on the basis of estimation made by the DVO in respect of the cost of construction is not sustainable and is liable to be deleted in toto. The final variation in the cost of construction between the total investment as declared by the assessee and as estimated by the DVO is less man 1%. Further if the difference as considered by the A.O. between the DVO's report and the investment as disclosed by the assessee, is considered then the total investment in respect of the property itself would far exceed the total investment estimated by the DVO. No addition is called for. The issue of granting the assessee self supervision charges @ 7.5% or @ 10% does not arise for consideration and consequently, the same is not adjudicated upon. Assessee's appeal allowed.


Besix Kier Dabhol S A Vs ADIT, Mumbai (Dated: December 9, 2009)

Income tax - Sec 263 - Assessee is a non-resident - AO passes assessment order u/s 143(3) - DIT finds the order erroneous and prejudicial to Revenue's interest - AO frames fresh assessment order as per the order - meanwhile, the order passed under Sec 263 is set aside by the Tribunal - held, in view of the fact that the basis of fresh assessment which was the order sec 263 itself does not survive, the fresh assessment does not stand - Assessee's appeal allowed


Mr Dharamsingh M Popat Vs ACIT, Mumbai (Dated: January 6, 2009)

Income tax - A firm and its partners are consequently separate entities under the Income tax Act: Though in general law, a firm and its partners are not distinct, this is subject to statutory exceptions. Under the scheme of assessment of firms applicable from AY. 1993-94 a firm is treated as an independent entity and the expenditure by way of remuneration, interest, commission etc. paid to partners is allowable to it as a deduction subject to ceilings and such interest, salary etc is taxable in the hands of the partners. A firm and its partners are consequently separate entities under the Act; Accordingly, the fact that the profits are charged to tax in the hands of the firm does not mean that the share of such profits is non – exempt in the hands of the partner. The profits being exempt in the hands of the partner, s. 14-A does apply in computing his total income.

The assessee, a partner in a firm, received ‘share of profit' and ‘salary' from the firm. While the ‘share of profit' was exempt u/s 10(2A), the ‘salary' was taxable as business income u/s 28 (v). The assessee claimed deduction for business expenditure incurred by him. The AO held that as the assessee had exempt income, s. 14A applied and a part of the expenditure had to be disallowed. This was confirmed by the CIT (A). Before the Tribunal, the assessee argued that as a partnership firm was merely a compendium of partners having no independent legal personality, the share of profit was not an exempt income in the hands of partner as the firm had paid tax thereon.

HELD rejecting the plea:

(i) Though in general law, a firm and its partners are not distinct, this is subject to statutory exceptions. Under the scheme of assessment of firms applicable from AY. 1993-94 a firm is treated as an independent entity and the expenditure by way of remuneration, interest, commission etc. paid to partners is allowable to it as a deduction subject to ceilings and such interest, salary etc is taxable in the hands of the partners. A firm and its partners are consequently separate entities under the Act;

(ii) Accordingly, the fact that the profits are charged to tax in the hands of the firm does not mean that the share of such profits is non – exempt in the hands of the partner. The profits being exempt in the hands of the partner, s. 14-A does apply in computing his total income.

(iii) The disallowance has to be worked out as per Rule 8D in view of Daga Capital 119 TTJ 289 (Mum) having held it to be retrospective.



M/s Mascon Global Ltd Vs ACIT, Chennai (Dated: October 23, 2009)

Income Tax – Deduction of Interest paid on US withholding tax – Additional Grounds admitted and matter remanded: the taxes paid by the assessee are not Indian taxes. The assessee has some activities in USA in the course of which it had to make payments to its employees there. From these payments the assessee was required by the US Tax Laws to deduct taxes. These are called "withholding taxes" in USA, which is the equivalent of "tax deducted at source" in India. The assessee is a custodian on behalf of the Government of USA and the taxes withheld will have to be remitted to that Government by a specified date. If it is not so remitted and there is a delay, interest is payable for the delay.

Held: the AM had rightly admitted additional grounds and rightly remanded the matter to the CIT for fresh consideration and decision.


2010-TIOL-07-ITAT-AHM

ACIT, Ahmedabad Vs Precision Drilling (Cyprus) Ltd (Dated: September 17, 2009)

Income tax - Sec 271(1)(c), 44BB - Assessee is a Cyprus-based company - also an indirectly wholly owned subsidiary of Canada-based Drilling company - revises return - Scrutiny - AO makes disallowances and additions - also imposes penalty by rejecting the explanation furnished - CIT(A) finds that the assessee has furnished detailed explanation for claiming deduction disallowed by the AO - deletes penalty - held, merely because some disallowances are made, penalty cannot be made. When penalty is levied, the onus to prove that no information was concealed, shifts on the assessee and the assessee in this case has successfully rebutted the charge levied - CIT(A) order upheld and Revenue's appeal dismissed


Aricent Technologies (Holdings) Ltd Vs CIT, New Delhi (Dated: October 16, 2009)

Income Tax - Section 263- CIT(A) invokes jurisdiction u/s 263 on three grounds i.e. (a) project expenses allowed by the AO is not allowable because it relates to project which is yet to take off, (b) Deduction u/s 10B not allowable because assessee has claimed deduction u/s 80HHE in earlier years - CIT refers to provisions of sub-section (5) to say that the same debars deduction under any provisions once the deduction is claimed u/s 80HHE; (c) In respect of Foreign Exchange fluctuation loss, AO is wrong in restricting such disallowance to the extent as against the total disallowance in this respect - Held , in view of the decision of the Tribunal in for the A.Y 2003-04 the decision of the Tribunal related to item (a) and (b) will apply motatis-mutandis to the present year - CIT was wrong in invoking power u/s. 263 as the AO's Order u/s. 143(3) was neither erroneous nor prejudicial to the interest of revenue. In respect of item no.3, in view of the decision of the Delhi High Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd which. has been confirmed by Apex Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd, the power u/s. 263 was not rightly invoked by l CIT as assessment order passed by the AO was neither erroneous nor prejudicial to the interest of revenue. Assessee Appeal allowed.


ACIT, Bangalore Vs M/s Srinivasa & Brothers (Dated: July 24, 2009)

Income tax - Sec 132 - Assessee is a partnership firm having two partners – search conducted and certain documents seized – notice u/s 158 BD & 142(1) to tax undisclosed income - Assessee contends that notice is illegal as no reliable material found in the course of search – AO rejects the plea – CIT(A) holds notice was issued without satisfaction being reached and recorded - held, no infirmity in CIT(A) order as the satisfaction contemplated under sec 158BD is a judicious one and not subjective and the same has to be recorded - Appeal filed by Revenue dismissed.


DDIT, Mumbai Vs M/s Star Cruises (India) Travels Services Pvt Ltd (Dated: November 30, 2009)

Income tax - Sec 195, 5, 44B - Assessee is an Indian company, engaged in the business of providing travel and tour packages - enters into an agreement with M/s Star Cruises Management Ltd, of Isle of Man which has no DTAA with India - as per agreement, the assessee company sells cruise tickets to Indian customers, collects sale proceeds, deducts its own commission and remits the money to the non-resident company after taking RBI approval - the contracts for sale of tickets i.e. booking confirmations and printing etc. are from Malaysia- which is outside India- whether income of the non-resident company is chargeable to tax in India as per Sec 44B of the Act - whether the remittances are liable to TDS u/s 195



ITO, Bangalore Vs M/s Iqura Technologies Pvt Ltd (Dated: August 21, 2009)

Income Tax – Sec 10A - assessee is engaged in software business - claims deduction – AO denies the same on the ground that the assessee company was already in existence and the newly formed unit was using the same assets – CIT(A) observes that AO miscalculated the fact and information given by the Assessee – observes that having obtained the eligibility for 100% EOU, assessee is entitled to claim benefit u/s 10A & 10B - held, deduction u/s 10A is available to existing units when conditions laid down in sec 10A(2)(A)(i)(b) and sec. 10A(2)(ii)and (iii) are fulfilled - Revenue's appeal dismissed.


Oriental Insurance Co Ltd Vs ACIT, New Delhi (Dated: October 30, 2009)

Income Tax – Penalty u/s 271(1)(c) – Recording of satisfaction – A.O. had at the end of the assessment order specifically stated that penalty proceedings are initiated separately – Held that in view of the decision of Madhushree Gupta it would have to be held that the A.O. has recorded his satisfaction. AO levied penalty on Foreign TDS income for which was not offered to tax on gross basis - Held that the issue of exclusion from the total income the TDS in foreign countries was an issue which has been coming right from the Assessment Year 1974-75 and it has been a subject matter of substantial litigation. The breakup of the claim of the deduction was specified in the return of income and a note to the effect had also been enclosed along with the return of income – AO had disallowed the claim of the assessee by basically following the assessment order of the earlier year – Held that on mere disallowance of the claim cannot be said that the assessee had furnished inaccurate particulars of his income or concealed its income – Held further that though the claim of the assessee is not allowable on merits, still it does not fall within the mischief of the provisions of Section 271(1)(c) of the Act. Income Tax Act – Section 275 – Limitation for levy of penalty – Held that the issue of disallowance of excess provision of interest tax was decided in the assessment order dated 28.11.2003 and this order has not been made a subject matter of appeal – Held that the period of limitation would apply from the assessment order in which the item was dealt with - Held that the penalty on the issue of the provisions of interest tax has been levied vide order dated 31.01.2006 which is beyond the period of limitation provided u/s 275(1)(c) of the Act in view of the principles laid down by the Supreme Court in the case of Alagendran Finance Ltd. ( 2007-TIOL-136-SC-IT ).


DCIT, New Delhi Vs M/s Tel-Abridge International Ltd (Dated: September 11, 2009)

Income Tax - Sec 147, 271(1)(c) - Assessee company files loss return which is reopened - AO makes addition by holding that assessee has wrongly claimed expenses towards filing fee paid to ROC and stamp duty for the increase in authorized share capital as revenue expenditure and also imposes penalty u/s 271(1)(c) - CIT(A)

deletes the penalty - Held, assessee has not explained as to why it has made the claim for expenditure in the return when similar expenditure claimed by the assessee was held to be capital in many earlier cases - claim of expenditure made by the assessee even against the law laid down by the Apex Court can be called to be ex-facie bogus and hence cannot be called bonafide - Revenue's appeal allowed.

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