landmark judgments - 2017pimprichinchwad-icai.org/image/ca.chitale sir.pdf · 2018. 1. 23. ·...
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Landmark Judgments - 2017 1. Precedence
2. ICDS
3. Reopening of Assessment
4. Section 14A
5. Section 40CA / 50C
6. Self made vouchers
7. Clerical Errors S 292BB
8. House Property
9. Penalty
10.No Confirmation
1. Precedence
1. Precedence
SPAN SM DEVELOPERS vs. INCOME
TAX OFFICER
(2017) 49 CCH 0195 PuneTrib
CIT vs. Vandana Properties (2013) 353 ITR
36 (Bom) – 1plot – number of projects
CIT vs. Sarkar Builders (2015) 277 CTR 301
(SC) – Sanction before 1-2-2005
1. Precedence
Article 141 of the Constitution :
‘The law declared by the Supreme Court
shall be binding on all courts within the
territory of India’.
1. Precedence
“It is implicit in the power of supervision conferred
on a superior tribunal that all the tribunals
subject to its supervision should conform to the
law laid down by it. Such obedience would also
be conducive to their smooth working: otherwise,
there would be confusion in the administration of
law and respect for law would irretrievably suffer.
We, therefore, hold that the law declared by the
highest court in the State is binding on
authorities or tribunals under its
superintendence.”
1. Precedence
• If the Revenue has not challenged the
correctness of the law laid down by the High
Court and has accepted it in the case of one
assessee, then it is not open to the Revenue to
challenge its correctness in the case of other
assessee without just cause
• (Berger Paints India Ltd. vs. CIT Calcutta (2004)
26 SITC 28 (SC).
1. Precedence
• Union Of India And Others vs Kamlakshi
Finance Corporation [AIR 1992 SC 711, 1994
(46) ECC 129, 1991 ECR 486 SC]
• The Supreme Court of India has refused to
remove strictures passed by High Court on the
revenue authorities for not following the
precedence.
1. Precedence
• If the Revenue has not challenged the
correctness of the law laid down by the High
Court and has accepted it in the case of one
assessee, then it is not open to the Revenue to
challenge its correctness in the case of other
assessee without just cause
• (Berger Paints India Ltd. vs. CIT Calcutta (2004)
26 SITC 28 (SC).
2. ICDS
2. ICDS
Chamber of Tax Consultants
v. UOI [2017] 87 taxmann.com 92 (Delhi)
1. ICDS not to override
(a) Act, (b) Rules and (c) Court
Judgments
2. ICDS valid
2. ICDS
I Significant Accounting Policies
a) Concept of prudence
is not recognized
(followed on case to
case basis).
Non-acceptance of
the concept of
prudence in ICDS I
is per se contrary to
the provisions of the
IT Act and
therefore, cannot be
accepted.
2. ICDS
I Valuation of Inventories
a) Stock-in-trade in case of
dissolution of firm to be
valued at market price
irrespective of whether the
business discontinues.
Section 145A of the IT Act
providing valuation of
inventory in accordance
with the method of
accounting regularly
employed by the taxpayer
is independent and
irrespective of section
145(2) (ICDS).
2. ICDS
III Construction Contract
a) Retention money
(being part of the
contract revenue)
would be recognized
based on
proportionate
completion method.
The treatment to
retention money will
have to be determined
on a case to case
basis by applying
settled principles of
accrual of income.
2. ICDS
IV Borrowing Cost
a) Construction cost to
include borrowing cost
Incidental income
cannot be reduced
from borrowing cost.
The treatment of ICDS
is contrary to the law
settled by the various
court decisions.
Hence, cannot be
sustained.
2. ICDS
V Revenue Recognition
a) Recognition of income
from export incentive
in the year of making
of the claim if there is
'reasonable
certainty' of its
ultimate collection.
Relied on law
explained by the
Supreme Court that
only in the year of
acceptance of claim
by the government,
income from export
incentive can be said
to have accrued and
thus recognized as
income.
2. ICDS
V Revenue Recognition
b)
ICDS IV permits only
proportionate completion
method.
ICDS is not inconsistent
with judicial precedents.
The proportionate
completion method as
well as the contract
completion method have
been recognized as valid
method of accounting.
2. ICDS
V Revenue Recognition
c)
Interest on non-
performing assets would
be taxable on time basis
(accrual) though interest
is not recoverable.
However, ICDS permitting
only one of the methods is
contrary to the court
decisions.
Circular clarifies that
deduction of irrecoverable
amount can be claimed
under section 36(1)(vii) of
the IT Act.
2. ICDS
V Revenue Recognition
Therefore, this ICDS
provision cannot be
held to be ultra vires
the IT Act. The
treatment of ICDS is
not contrary to any
judgement.
2. ICDS
VI The effects of changes in foreign
exchange rates
a) Treatment as income
or expense of
exchange gain/loss on
conversion of loan
utilized for capital
purpose.
ICDS VI is contrary to
the decision.
2. ICDS
VI The effects of changes in foreign
exchange rates
b) Marked to market
loss/gain in case of
foreign currency
derivatives held for
trading or speculation
purpose are not to be
allowed.
This is not in
consonance with the
decisions.
2. ICDS
VI The effects of changes in foreign
exchange rates
c) Foreign Currency
Translation Reserve
Account balance as
on 1 April 2016 to be
recognized as
income/loss of the
fiscal year 2016-17.
Such losses/gains
cannot be treated as
real income. Such
hypothetical or
notional income
cannot otherwise be
subjected to tax.
2. ICDS
VI The effects of changes in foreign
exchange rates
d) Recognition of loss/
gains on valuation of
monetary assets and
liabilities of the foreign
operations as at the
end of the year.
.
2. ICDS
VII Government Grants
a) Recognition cannot
be postponed beyond
the date of accrual
receipt.
Non-fulfilment of
conditions attached to
the grant may lead to
return of such grant.
Therefore, there
cannot be said to any
accrual of income
though grant is
received.
2. ICDS
VII Government Grants
ICDS treatment is
contrary to and in
conflict with the
accrual system of
accounting.
2. ICDS
VII Valuation of securities (Part A)
a) Valuation under
‘bucket approach’
(comparison of cost
and NRV for all
categories of
securities taken
together).
Separate approaches
adopted for valuation
of securities at
different places (eg:
ICDS II).
2. ICDS
GODAVARI DEVI SARAF 13 ITR 589 (BOM.)
icds & income computation
• Section 4, 5
• Real Income v. Books of Account
• Substantive v. Machinery provisions
• Godhra Electricity Co. Ltd.
v.
Commissioner of Income-tax
[1997] 091 TAXMAN 351 (SC)
Are ICDS mandatory?
• Delegated Legislation
• Binding on the Department
• COMMISSIONER OF CUSTOMS
ETC., ETC. VS. INDIAN OIL
CORPORATION LTD. & ANR.
• 187 CTR (SC) 297 : 267 ITR 272
(SC) : (2004) 136 TAXMAN 491 (SC)
CA Chandrashekhar V. Chitale 29
Are ICDS mandatory?
• Cannot override the Act
• Circular falls within the parameters of
powers exercisable by the CBDT under s.
119 it is valid
• UOI vs. AZADI BACHAO ANDOLAN &
263 ITR 706 (SC)
CA Chandrashekhar V. Chitale 30
3. Reopening of Assessment
3. Reopening of Assessment
Pr. CIT v. Jagat Talkies Distributors
398 ITR 13 (Del)
Assessee was not given copy of reasons
for issuing notice under section 148 by
AO, assessment proceedings and
resultant assessment order u/s 143(3)
r.w.s. 148 was to be quashed
3. Reopening of Assessment
If the AO is Income Tax Officer, Asst. CIT
Or Dy. CIT, he needs to get an approval
from Jt. CIT [Jt. CIT includes Addl. CIT
– S. 2(28C)]
Approval of Higher Authority cannot be
mechanical CIT Vs Suman Waman
Chaudhari 321 ITR 495 Bom
3. Reopening of Assessment
Procedure to be followed by assessee and
AO in view of Supreme Court in the case
of GKN Driveshafts (India) Pvt Ltd. Vs
DCIT (2003) 259 ITR 19 (SC)
If challenged, department must prove the
date of despatch [CIT Vs Major Tikku
Khushwant Singh 212 ITR 658 SC, CIT
Vs Tayablli Mulla 66 ITR 147]
3. Reopening of Assessment
• Change of opinion Asteroids Trading
and Investment 308 ITR 190 (Bom)
Asian Paints Ltd 308 ITR 195 (Bom)
Balakrishna H. Wani v. ITO 321 ITR 519
(Bom) - principle of ‘difference between
reason to believe Vs reason to suspect’.
Cash deposited
3. Reopening of Assessment
Reasons cannot be improved
Hindustan Lever Ltd. v. R. B. Wadkar 268
ITR 332 (Bom)
CIT v. Indo Arab Air Services (2016)
130 DTR 78/ 283 CTR 92 (Delhi)(HC)-
mere information of huge cash deposit
cannot lead to income escapement
3. Reopening of Assessment
• S. 147/ 292B: Sanction for issuing a reopening
notice cannot be mechanical. On due application
of mind. Sanction accorded despite mention of
non-existent section in the notice is prima facie
evidence of non application of mind on the part
of the sanctioning authority. S. 292B cannot cure
such defect
Kalpana Shantilal Haria vs. ACIT
(Bombay High Court)
4. Section 14A
4. Section 14A
H.T. Media Ltd. v. Pr. CIT
[2017] 85 taxmann.com 113 (Delhi)
Where there was a failure by AO to comply with
mandatory requirement of S. 14A(2) r.w.r. 8D(1)(a)
and record his satisfaction as required thereunder,
question of applying rule 8D(2)(iii) did not arise
4. Section 14A
Demonstration of ‘own funds’ – No Disallowance
DCIT v. Bombay Oxygen Corporation Ltd
[2017] 86 taxmann.com 88 (Mumbai - Trib.)
Section 14A will not apply if no exempt income is
received or receivable during the previous year
Cheminvest Ltd.v. CIT [2015] 61 taxmann.com 118
(Delhi)
4. Section 14A
Disallowance u/s.14A r.w. Rule 8D disallowance is
restricted to 5% of amount
Ramkumar Venugopal Investments V. ACIT I.T.A.
No. 6324/Mum/2012
14A r.w.r. 8D not automatic. Cannot invoked without
recording the satisfaction that voluntary
disallowance made by the assessee was
unreasonable and unsatisfactory. Cit vs. I.P.
SUPPORT SERVICES INDIA (P) LTD. (2015) 94
CCH 0037 DelHC
5. Section 40CA / 50C
5. Section 43CA / 50C
• Krunal Industrial Estate Developers (P.) Ltd.
v. ITO
[2017] 87 taxmann.com 70 (Mumbai - Trib.)
Where assessee had made expenditure on account
of stamp duty and registration charges on flats to
attract buyers, as incentive scheme by duly
advertising same, it was allowable as revenue
expenditure
5. Section 43CA / 50C
• NEW MAHALAXMI SILK MILLS PVT. LTD. v CIT
• 206 ITR 0302
Wherever an impost is found to be of a composite
nature, i.e., partly of compensatory nature and partly
of penal nature, to bifurcate the two components and
give deduction for compensatory levy interest
Organo Chemical Industries vs. Union of India AIR
1979 SC 1803
Prakash Cotton Mills Pvt. Ltd. 201 ITR 684 (SC)
5. Section 43CA / 50C
• CIT vs. R.D. SHARMA & CO.
• 137 ITR 0333 (Bom)
Mercantile system—Provision for penalty on
assessee for non-completion of work within
stipulated time—Penalty described as compensation
payable and such compensation to be adjusted
against future sums payable to contractor—Same
incidental to business—The provision was allowable
as a deduction in the year in which the liability
accrued
5. Section 43CA / 50C
• MEGHRAJ BAID vs. INCOME TAX OFFICER
• (2008) 114 TTJ (Jd) 841 : (2008) 4 DTR 509
In case the AO does not agree with the explanation
of assessee with regards to lower sale consideration
than the value adopted by stamp valuation authority,
he should refer the matter to DVO under sub-s. (2)
of s. 50C. The word ‘may’ in s. 50(2) has to be read
as ‘should’ so that the provision is not rendered
reduntant
6. Self made vouchers
6. Self made vouchers
• Resonance Eduventures (P.) Ltd. v. CIT
• [2017] 83 taxmann.com 232 (Jaipur - Trib.)
In case of assessee, running coaching institutions
across country, various expenses such as travelling,
staff welfare and office expenses could not be
disallowed on mere ground that said expenses were
supported by self made vouchers when what was
improper in vouchers, had not been spelt out
6. Self made vouchers
• Vijayashanthi Builders Ltd. v. JtCIT
• [2016] 69 taxmann.com 31 (Chennai - Trib.)
Assessee-builder made payment to labourers for
construction activity on self-made vouchers
obtaining proper voucher from such kind of
unorganized labourers was beyond control of
assessee, action of Assessing Officer to disallow
said payment without showing that assessee had
inflated expenditure was not justified.
Advance for plot forfeited - Allowed
6. Self made vouchers
• Varun Exports v.Addl CIT
• [2014] 51 taxmann.com 85 (Mumbai - Trib.)
Assessing Officer made disallowance at 20% in
respect of claim of travelling expenses and sundry
expense on ground that these expenses had been
incurred on basis of self-made vouchers and
complete verification was not possible - Considering
nature of business of sundry expenditure was to be
held for purpose of business of assessee and,
hence, would not call for any disallowance
6. Self made vouchers
• MEGHRAJ BAID vs. INCOME TAX OFFICER
• (2008) 114 TTJ (Jd) 841 : (2008) 4 DTR 509
Adhoc addition will not be made without giving any
specific findings on issue in question in case of
assessee which is directed to be deleted.
7. Clerical Errors S 292BB
7. Clerical Errors
• Smt. Kalpana Shantilal Haria v. ACIT
• WRIT PETITION (L) NO. 3063 OF 2017 BOM
There can be no dispute with regard to the
application of S. 292B of the Act to sustain a notice
from being declared invalid merely on the ground of
mistake in the notice.
It is not to cure clerical defects while sanctioning
7. Clerical Errors
• SANJAY BADANI AND ANOTHER vs. DCIT
• (2014) 35 ITR (Trib) 0536 (Mumbai)
Non-compliance of notice u/s. 143(2), Assessee filed
objection against jurisdiction u/s 292BB—Objection
had not been disposed by AO and he proceeded
with assessment.
Assessee’s appeal allowed on legal issue, court did
not discuss merits of addition made
8. Property Income
8. Property Income
• Premier Electrical Industries v. JCIT (2017)
162 ITD 45 (Chd.)(Trib.)
Allowing the appeal the Tribunal held that; the
assessee had let out land and building to tenant
with super structure, therefore, rental income
received by it would be in nature of income from
house property therefore claim for deduction was
also to be allowable. (AY. 2011 – 2012)
8. Property Income
• Ansal Housing & Construction
• [2013] 29 taxmann.com 303 (Delhi)
Assessee, engaged in business of construction of
house property, would be liable to pay tax on ALV of
flats lying unsold during year
8. Property Income
• Chennai Properties & Investments Ltd. v. CIT
• [2015] 56 taxmann.com 456 (SC)
Where in terms of memorandum of association,
main object of assessee-company was to acquire
properties and earn income by letting out same, said
income was to be brought to tax as business income
and not as income from house property
• Ansal Housing & Construction
• [2016] 72 taxmann.com 254 (Delhi)
8. Property Income
• Section 23(5) w.e.f. 1-4-2018 :
(5) Where the property consisting of any building or
land appurtenant thereto is held as stock-in-trade
and the property or any part of the property is not let
during the whole or any part of the previous year, the
annual value of such property or part of the property,
for the period up to one year from the end of the
financial year in which the certificate of completion of
construction of the property is obtained from the
competent authority, shall be taken to be nil.
8. Property Income
• DCIT vs. Yogen D. Sanghvi (ITAT Mumbai)
S. 23 House Property Income: Common Area
Maintenance Charges and non-occupancy charges
paid by the assessee to the Society are deductible
from the rent while computing the 'Annual Letting
Value' u/s 22
9. Penalty
9. Penalty
• RAJESH KUMAR KUKREJA VS DEPUTY
COMMISSIONER OF INCOME TAX (TDS) :
(2017) 51 CCH 0577 DelTrib
AO is not empowered to charge fees u/s 234E by
way of intimation issued u/s 200A in respect of
defaults before 01.06.2015.
9. Penalty
• ITO vs.SUNFLOWER PHARMACY
• (2017) 51 CCH 0575 AhdTrib
Section 271(1)(c)
Mere rejection of claim of expenditure does not
amount to concealment of income or furnishing of
inaccurate particulars of income.
10. No Confirmation
10. No Confirmation
• DEPUTY COMMISSIONER OF INCOME TAX
VS ANKIT BUILDERS PVT. LTD. : (2017) 51
CCH 0561 DelTrib
Addition on account of unverified and unconfirmed
advances cannot be made where assessee
furnishes sufficient evidence to prove the receipt of
advances.
10. No Confirmation
• J.K. CHEMICALS LTD. v CIR
• 62 ITR 34 (Bom)
Mere fact that three years have elapsed since the
accrual of liability and that the debts have become
unenforceable under general law does not constitute
cessation of liability
10. No Confirmation
• CIT vs. INDIAN RAYON & INDUSTRIES LTD.
• 336 ITR 479 (Bom)
There is no remission or cessation of liability within
the meaning of s. 41(1) on unilateral entry of write
back of the unclaimed credit balances by the
assessee.
CIT vs. Sugauli Sugar Works (P) Ltd.
(1999) 236 ITR 518 (SC)
• Thank You