S.2(22)(e):Dividend-Deemed dividend-Loans and advances-Legal fiction does not extend to broaden the concept of shareholder to make tax loans or advances as deemed dividend in the hands of deemed share holder. (Companies Act, S.153, 187C)

During search various papers relating share holding pattern of Amod Stampings Pvt Ltd were seized . It was found that said company had granted loans to various companies wherein share holdings and voting power exceeded 10 percent .It was explained that on creation of Trust a part of said company were settled in favour of Trust and after excluding of shares the assessee did not have more than 10 percent voting power and the assessee had no beneficial interest in the said Trust. The Assessing Officer held that creation of Trust was an afterthought and taxed the amount as deemed dividend .Before Commissioner (Appeals) it was contended that as per section 153 of the Companies Act a company is not permitted to include the name of the trust in the register of members. It was also contended that the provision of section 187C have been made ineffective w.e.f.13 th December , 2000 and therefore there is no requirement at present to declare beneficial interest etc , therefore such beneficial interest was is not declared in the register of the Company or the Registrar of the Companies. However Commissioner (Appeals) up held the addition. On appeal the Tribunal held that since the said Company was not permitted to include name of Trust in its register , name which was earlier noted as share holders remained same, however through a Board meeting it was resolved to acknowledge change in vesting of shares, hence in view of the facts deemed dividend could not be taxed in hands of assessee.Legal fiction created under section 2(22)(e) does not extend further for broadening concept of shareholder so as to tax loans or advances as ‘deemed dividend’ in hands of a ‘deeming shareholder’.(.AY. 2006-07)

Krupeshbhai N. Patel v. Dy. CIT (2013) 140 ITD 176 (Ahd.)(Trib.)

S.2(22)(e):Dividend- Deemed dividend – Credit balance in Capital account – Non-encashment of cheque the amount is credited back to company’s account cannot be assessed as deemed dividend.

The assessee is running a proprietorship concern which was converted into private limited company. There was credit balance in capital account of the assessee in proprietorship concern against which payment was made by proprietorship concern to the assessee. However, because of conversion, cheque could not be encashed and same was returned to company which was credited to the assessee’s account by company. Subsequently money was withdrawn by the assessee. It was held that the said amount could not be treated as deemed dividend. (A.Y. 2008-09)

Dy. CIT v. Radhe Shyam Jain (2013) 140 ITR 244 (Chandigarh)(Trib.)

S.2(22)(e):Dividend-Deemed dividend – Accumulated profits – Share premium account does not partake nature of commercial profit hence not be treated as accumulated profit.

Share premium account would not partake nature of commercial profits and thus cannot be treated as accumulated profit. (A.Y. 2008-09)

Dy. CIT v. Radhe Shyam Jain (2013) 140 ITR 244 (Chandigarh)(Trib.)

S.2(22)(e):Dividend-Deemed dividend – Advance given to company in which assessee holds substantial stake is held to be deemed dividend.

AO treated advance taken by assessee from a company in which having substantial stake as deemed dividend. It was case of assessees that since they had mortgages their properties with bank to enable company to avail finance facilities from bank, advance by company was not a gratuitous loan or advance but in return for an advantage which company had already availed on account of mortgaging of properties done by assessee. However, it was a fact on record that assessee had not produced any documents to prove fact that personal properties of assessee were actually mortgaged with the bank for sake of availing loans by company. Assessee had also not produced any correspondence made either with bank or with company towards release of properties mortgaged. Thus, revenue rightly considered advances given by company to assessee as deemed dividend. (A.Y. 2002-03, 2003-04 & 2006-07)

Dy. CIT v. B. DhanunjayaRao (2013) 140 ITD 443 (Hyd.)(Trib.)

S.2(22)(e):Dividend-Deemed dividend—Advance towards Sale of Property -Matter remanded.

The assessee is engaged in real estate development. The assessee received advance towards sale of property . The Assessing Officer treated the said amount as deemed dividend . Commissioner (Appeals) deleted the addition . On appeal by department the Tribunal seta-side the order of Commissioner(Appeals) as he failed to pass as speaking order. Matter remanded. (A.Y. 2006-07, 2007-08)

ITO v. Nam Estates P.Ltd (2013) 21 ITR 109 (Bang.)(Trib.)

S.4: Chargeability of Income-Tax- Capital or revenue– Refund of excise duty is capital receipt hence not chargeable to tax. [S.28(i)]

The question before the Special Bench was “whether in the facts and circumstances of the case, the excise duty refund set off is a capital receipt.” “If the excise duty refund /set off is held to be revenue receipt, whether the said amount is to be included in the business profits for the purpose of deduction under section 80IB of the Income –tax Act.” The Special Bench held that refund of excise duty is to be treated as capital receipt in the hands of the assessee, which is not chargeable to tax. As the first question is decided in favour of assessee the second question was not decided.(A.Y. 2006-07)

Vinod Kumar Jain v. ITO (2013) 140 ITD 1(SB) (Asr.)(Trib.)

S.9: Income deemed to accrue to or arise –Business connection-DTAA- India – Germany – Supply of imported equipments and materials from Germany and supervision of erection, start-up and commissioning of power project – Income be taxed as business Profit. (S. 44D, 115A, Art.7)

The assessee a company was awarded a contract by State Government for renovation, modernization and up gradation of a power house. The scope of work included supply of imported equipments and materials from Germany and supervision of erection, start-up and commissioning of power project. The assessee offered the amount for taxation at the rate of 10% of contract value as per section 44BB of the Income-tax Act. The revenue taxed the consideration in respect of these activities as Business Profit. It was held that there was neither any other contrary view nor the assessee brought on record any material controverting the findings of the AO in this regards. Thus, the consideration be taxed under article 7 of DTAA r.w.s. 44D and S. 115A. Accordingly the appeal of assessee was dismissed. (A.Y. 2007-08)

Voith Seimens Hydro Kraftwerkstechnik Gmbh & Co. KG (2013) 140 ITD 216 (Delhi.)(Trib.)

S.9(1)(vi): Income deemed to accrue or arise in India- Royalty-Royalty earned by non-resident from another non-resident is not taxable in India even if payer uses the know-how for sale of products to India.

The assessee, a USA based company, held patents to the CDMA mobile technology which it licensed to various unrelated wireless Original Equipment Manufacturers (OEMs) located outside India. The OEMs used the assessee’s technology to manufacture CDMA handsets outside India which were sold to telecom companies in India (e.g. Reliance Com). The Indian telecom companies sold the handsets to Indian consumers. The AO and CIT(A) held that as the OEMs sold the handsets to customers in India, they were “carrying on a business in India” or had a “source of income in India” and so the royalty paid by them to the assessee was taxable in India u/s 9(1)(vii)(c). On appeal by the assessee to the Tribunal, held by the Tribunal allowing the appeal:

(i) U/s 9(1)(vi)(c) royalty payable by a person who is a non-resident is deemed to arise in India where the royalty is payable in respect of any right etcutilised for the purposes of a business carried on by such person in India or for the purposes of earning any income from any source in India. S. 9(1)(vi)(c) is a deeming provision and the burden is on the Revenue to prove that the payer has a business/ source of income in India. What is important for s. 9(1)(vi)(c) is not whether the right to property is used “in” or “for the purpose of” a business, but to determine whether such business is “carried on by such person in India”;

(ii) The first question is whether the OEMs have carried on business in India and used the assessee’s patents for that purpose. The mere fact that the products manufactured by the OEMs outside India were sold to parties in India does not mean that the OEM’s carried on business in India. For a business to be carried out in India there should be some activity carried out in India. A mere purchase and sale with an Indian party is not sufficient. The fact that the OEMs customized the handsets so as lock them to a specific operator and included Hindi and regional languages, etc was irrelevant as such customization was not connected with the assessee’s patents. There was no customization of the hand set qua the CDMA technology. Further, even if the OEM customized the handsets to Indian specifications that did not mean that the OEM was “carrying on business in India”. The assessee’s role ended when it licensed its patents to the OEMs and the OEMs role ended when they sold the handset to the Indian customer. The sale was of a chattel as a chattel and though the product is a combination of hardware and technology, the revenue’s attempt to break down the sale into various components is not supported by the terms of the agreement and the facts and it cannot be said that every item other than software was sold and that the embedded software has been separately licensed. There is also no evidence on record to show that title to the handsets passed in India or that certain further activity was done by the OEMs in India after the sale. On the other hand, title to the equipment passed to the Indian customer on high seas and the profits made by the OEMs would not be chargeable to tax in India. The taxability of the assessee directly depends on the taxability of the OEMs and if the OEM is not taxable, the assessee cannot be made taxable (Ericsson AB 246 CTR 433 (Del), Skoda Export, Nokia Net Works followed). Even otherwise, the mere passing of title in imported goods in India does not mean that the OEM is carrying on business in India. It is “business with India” and not “business in India”;

(iii) The second question is whether the OEMs have used the asssessee’s technology to earn or make income from a “source” in India. A “source of income” is the activity that gives raise to income. The source of the royalty income for the assessee is the activity of manufacturing by the OEMs, which is carried out outside India (Rhodesia Metals 9 ITR (Suppl) 45 &Havells India followed). The department’s argument that the assessee had made available the CDMA technology (software) to the OEMs in the form of chip sets and that OEMs have inserted these chip sets into the handsets manufactured by them and that these in turn have been licensed to Indian operators for which OEMs have received a consideration and hence they have a source of income in India is contrary to the facts. It is also not the basis on which the assessment was made by the AO &CIT(A). What was brought to tax is the royalty earned from the licensing of patents and not royalty earned on software embedded in the chip sets.(A. Y. 2000-01 to 2004-05)

Qualcomm Incorporated v. ADIT (Delhi) (Trib.) www.itatonline.org

S.9(1)(vii): Income deemed to accrue or arise in India – Fees for technical services- Dependent agent-Market supportive services-DTAA –India- Switzerland-In the absence of Permanent Establishment , article 7 pertaining to business profits would cease to operate in assessee’s case hence not liable to tax. (S. 90,115A, Art. 5, 7 )

Assessee, a Swiss company, operated India specific websites. For this purpose, it entered into Marketing Support Agreement with two group companies in India. Assessee claimed that though it earned revenue from its websites in India, same was not taxable as business profits as it did not have PE in India. The Indian group companies at no stage negotiated or entered into contract for or on behalf of assessee. They simply provided marketing services to assessee or making collection from customer and forwarding same to assessee. Indian group companies were not required to manufacture or process goods or merchandise on behalf of foreign assessee. Further goods or merchandize were delivered by seller to buyer directly who enter into contract through assessee’s website. It was held that though group companies were dependent agents as per article 5(6) because they exclusively assisted assessee in carrying on business in India, they could not be considered as ‘Dependent agent PE’ because they did not perform any function specified in clauses (i) to (iii) of article 5(5). Thus, in absence of PE, article 7 pertaining to taxing business profits would cease to operate in assessee’s case.

eBay International AG v. ADIT (2013) 140 ITD 20/82 DTR 89 (Mum.)(Trib.)

S.9(1)(vii): Income deemed to accrue or arise in India – Fees for technical services-Website-DTAA-India – United Kingdom – Payment for subscription made by garment manufacturer to an online fashion store is royalty matter remanded back to Commissioner (Appeals). (S.90, 195, Art.7, 13 )

Assessee, a resident, was engaged in business of fashionable ready to wear garments. In order to get international trend analysis and other information relating to fashion design and style, it subscribed to internet site of a company located in United Kingdom and paid subscription charges of £ 17,000. Assessee sought certificate for payment without deduction of tax at source under section 195. Assessing Officer rejected application and directed deduction of tax at 15.30 per cent holding said payment as royalty. It was held that subscription made by garment manufacturer to online fashion website is royalty or not, to be decided in light of judgment of Karnataka High Court in CIT (International Taxation) v. Wipro Ltd. [2011] 203 Taxman 621/16 taxmann.com 275. Matter remanded to Commissioner (Appeals) for a specific finding on point of transfer of right to use copy right in the light of Karnataka High Court’s decision. (AY 2005-06)

ADIT v. Globus Stores P. Ltd. (2013) 140 ITD 103/81 DTR 225 (Mum.)(Trib.)

S.9(1)(vi): Income deemed to accrue or arise in India –Fees for technical services-Permanent establishment-DTAA- India – USA – Creative fees and Database cost is held as Fees for Included Services and client coordination fees is held as business profit could not be taxed in India. (Art 7, 12 )

Assessee, USA based company, acted as a communication interface between its group concerns and group concerns and multinational clients. The assessee provided services to one of its group concern and received fees as creative fees, database cost and client coordination fees. It was held that fees under the head creative fees and database cost amounted to Fees for included services as per Art. 12 of DTAA and chargeable at the rate of 15%. However, client coordination fees which was taxed as business profit, could not be taxed in India, due to non existence of PE . (A.Y. 2010 – 11)

DDIT (IT) v. Euro RSCG Worldwide Inc. (2013) 140 ITD 210 (Mum.)(Trib.)

S. 10(23C): Exempt incomes– Educational institution – Annual receipts is to be taken into consideration and not total income of society.

The assessee society is running a school activities. The Assessing Officer held that the annual receipts of the assessee including interest exceeded Rs. 1 crore ,but the assessee had not obtained prior approval of Chief Commissioner under section 10(23C)(vi). He accordingly the rejected the claim under section 10(23C)(iiid). Commissioner (Appeals) up held the order of Assessing Officer. On appeal, the Tribunal held that, in terms of provisions of section 10(23C)(iiiad), annual receipts of school or university may be taken into consideration and not total income of society running that school or university.However, income from interest on FDRs is an additional income of the society and it cannot be considered to be part of annual receipts of the school. Accordingly the appeal of assessee was allowed. (A.Y. 2006-07)

Param Hans Swami Uma Bharti Mission v. ACIT (2013) 140 ITD 429 (Delhi)(Trib.)

S.10A: Free trade zone- Newly established undertaking- Export turnover—Total turnover-Expenditure incurred by assessee not forming part of export turnover is excludible from total turnover.

Court held that when computing the relief under section 10A of the Income-tax Act, 1961, the expenditure incurred by the assessee should be excluded from the total turnover if they are reduced from the export turnover. CIT v. Tata Elxsi Ltd. [2012] 349 ITR 98 (Karn) followed. ( A. Y. 2005-2006 )

CIT v. Samsung Electronics Co. Ltd. (2013) 350 ITR 65 (Karn.)(High Court)

Editorial: The Supreme Court has granted special leave to the Department to appeal against this judgment : (2013) 350 ITR (St.) 3

S.10A:Free trade Zone- Newly established undertaking-Apportionment of income and Expenditure – Method consistently Accepted by Department -Satellite charges not telecommunication charges to be excluded from export turnover.

Assessee having two units, one of which qualifying for exemption. Apportionment of income and expenditure on basis of head-count of employees in two units. Method consistently used and accepted by department is not to be disturbed. U. K. company providing training to employees of assessee in India. Payment for services rendered by U. K. company. Technical services is not provided outside India. Expenses relating to technical services not to be deducted. Satellite charges not telecommunication charges to be excluded from export turnover. (A. Y.2006-2007)

Wills Processing Services (India) P. Ltd. v. Dy. CIT [2013] 21 ITR 1/ 151 TTJ 555(Mum.)(Trib.)

S.10B: Hundred per cent export-oriented undertakings- Newly established- Computation of profits-Set off of loss- Losses of eligible units during tax holiday period is not be allowed to be set-off against income of non-eligible units. (S.2 (45), 10A)

Assessee had three units, two were section 10B eligible units and one was non- eligible unit. There were losses incurred in eligible units during the year which were sought to be set-off from profits of non-eligible unit. It was held that losses of eligible units during tax holiday period could not be allowed to be set-off against income of non-eligible units as per provisions of S. 10B(6) allow such losses to be kept in suspense to be set-off only after tax holiday period is over. Therefore the claim of set off made by assessee was disallowed. Appeal of assessee was dismissed.(A.Y. 2008-09)

Karle International (P.) Ltd. v. ACIT (2013) 140 ITD 261 (Bang.)(Trib.)

S.11:Property held for charitable purposes-Registration-Maintenance Public lavatories is incidental to object which is eligible for exemption (S.2(15), 12, 13)

Object of society is construction of public lavatories. Maintenance of public lavatories being incidental to object of society ,amounts spent on such maintenance is entitled to exemption. As there was no evidence of diversion of funds to founder of society, section 13 is not applicable, hence the Society is entitled for registration.(A.Y. 2006-07)

Dy. CIT v. Sulabh International Social Service Organisation (2013) 350 ITR 189 (Patna)(High Court)

S.11: Property held for charitable purposes- Exemption of income from property treated as Business – Income is exempt if there is no profit motive. [S.2(15), 28(iii)]

Receipts derived by a Chamber of Commerce and industry for performing specific services to its members, though treated as business income, would still be entitled to exemption under section 11, provided there is no profit motive. Issue is decided in favour of assessee.(A.Y.2006-07, 2007-08)

PHD Chamber of Commerce & Industry v. DIT (2013) 212 Taxman 194 (Delhi)(High Court)

S.12A: Registration- Trust or institution- Cancellation of registration is held to be not justified. (S.10 (23C), 11, 12AA)

Assessee was granted registration under section 12A being a charitable institution. Chief Commissioner disallowed assessee’s claim of exemption under section 10(23C)(vi) on ground that it had not solely been established for educational purposes .Commissioner relying on said order cancelled registration granted to assessee under section 12A.Tribunal restored registration. On appeal by revenue the Court held that since (i) exemption under section 10(23C)(vi) could be claimed by an assessee without applying for registration under section 12A, and (ii) in order of Commissioner there was no whisper that assessee had not fulfilled any of conditions of section 11, Tribunal had rightly restored registration. Appeal of revenue was dismissed .

CIT v. Jeevan Deep Charitable Trust (2013) 212 Taxman 19 (All.)(High Court)

S.14A:Disallowance of expenditure–Exempt income- No dividend income- NO disallowance -(Income-tax Rules, 1962, R. 8D)

Tribunal held that as no dividend income was declared by assessee during the relevant assessment year hence disallowance held to be not proper. (A.Y.2008-09)

Gurudas Mann v. Dy.CIT ( 2013 ) 21 ITR 57 (Chandigarh)(Trib.)

S.14A: Disallowance of expenditure–Exempt income- Banking business-Interest expenditure. [S.10(15)]

Assessee, carrying on banking business, maintainingnostro accounts for receipt and payment of money in foreign currency. Interest earned from overseas branches chargeable hence no disallowance of interest expenditure paid by assessee. Interest on foreign currency loans.Allowable on gross interest and not on net interest.Assessee utilising interest-free funds at its disposal for investment in interest-free securities. No disallowance qua the investment in tax-free securities.( A. Y.1997-1998 )

Asst. DIT (IT v. Credit Agricole Indosuez (2013) 21 ITR 345(Mum.)Trib.)

S.24: Deductions- Income from house property- Interest–Interest on borrowed capital utilised for purchase of flats to be allowed in equal proportions in hands of assessee and her husband.

The assessee claimed deduction against the rental income of Rs. 10,49,604 on account of interest paid to the bank on borrowed capital, under the head “Income from house property”. the Assessing Officer disallowed the claim. The Commissioner (Appeals) upheld this. On appeal the Tribunal held that admittedly, the total interest paid by the assessee with her husband on the borrowed loans during the year under consideration was Rs.10,39,604 out of which deduction of Rs. 5,14,802 had been allowed in the hands of the husband. When the rental income from the individual flats owned by the assessee and her husband had been included in their respective hands, deduction on account of the interest paid on borrowed capital utilised for the purchase of the flat was to be allowed in equal proportions in the hands of the assessee and her husband. (A.Y. 2006-07)

Gurudas Mann v. Dy. CIT (2013) 21 ITR 57 (Chandigarh)(Trib.)

Manjit Mann (Smt) v. Dy.CIT (2013) 21 ITR 57(Chandigarh) (Trib.)

S.32: Depreciation-Method of accounting-Duty of tax officials-Claim of depreciation against interest income held to be allowable. (S.145)

Assessee claimed set-off of depreciation on assets used for construction of National Highway against interest income. Assessing Officer found that assessee itself had capitalized all expenditures incurred on construction of Highway and in audited profit and loss account, no expenditure or depreciation had been claimed by assessee; he, thus, disallowed assessee’s claim under section 145(3).Section 145(3) had no manner of application as uniform accounting system was followed by assessee, therefore depreciation was allowable. While making assessment of any returns, if any deduction is sought for, it is duty of revenue official to examine not only account but also substantive right of claiming deduction under Act. Matter decided in favour of assessee.(A.Y.2003-04).

Mapex Infrastructure (P.) Ltd. v.CIT [2013] 212 Taxman 23/81 Taxman 202 (Cal.)(High Court)

S.32: Depreciation-Ownership of asset-No requirement of usage of assessee himself-Registration in the name of lessee-A “Financier” satisfies the “ownership” and “user” test for depreciation. [Motor Vehicles Act 1988 S. 2(30), 2 (13), 2(24)]

The assessee, a NBFC, bought vehicles and leased it out to its customers. The vehicles were registered in the names of the customers. The AO held that as the vehicles were registered in the names of the customers and were used by them, the assessee was not eligible for depreciation u/s 32 as it was not the “owner” of the vehicles nor had it “used” the vehicles for purposes of business. The CIT(A) & Tribunal allowed the assessee’s claim. However, the High Court reversed the Tribunal on the ground that the assessee was only a “financier” and not the “owner” of the vehicles and so was not eligible to claim depreciation. On appeal by the assessee to the Supreme Court, held reversing the High Court:

(i) S.32 requires that the asset must be “owned, wholly or partly, by the assessee and used for the purposes of the business”. The Department’s argument that the assessee is not the “owner” of the vehicles is not acceptable because the lease agreement specifically provided that the assessee was the exclusive owner of the vehicle at all points of time and that it was empowered to repossess the vehicle (and not merely recover money) if the lessee committed a default. At the conclusion of the lease period, the lessee was obliged to return the vehicle to the assessee. Also, the assessee had the right of inspection of the vehicle at all times. As the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eyes of law. The fact that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding 1% of the original cost of the vehicle does not make a difference. Also the fact that the Motor Vehicles Act deems the lessee to be the “owner” has no relevance;

(ii) The Department’s argument that the assessee had not “used” the vehicles is also not acceptable because the vehicle was “used” by the assessee in its’ business of leasing. Once it is held that leasing out of the vehicles is one mode of doing business by the assessee and the income derived from leasing out is treated as business income it would be contradictory, in terms, to say that the vehicles are not used wholly for the purpose of the assessee’s business. The physical user of the vehicles is not necessary (CIT v Shaan Finance (P) Ltd. (1998) 231 ITR 308 (SC) followed)(A.Y. 1991-92 to 1996-97)

I. C. D. S. Ltd v. CIT(2013) 350 ITR 527/212 Taxman 550/255 CTR 449/82 DTR 33(SC)

S. 32: Depreciation- Rate –Leasing business-Higher rate for Vehicles used in business of hire.

Assessee in business of leasing vehicles is entitled to depreciation at higher rate.(A.Y. 1991-92 to 1996-97)

I.C.D.S. Ltd v. CIT ( 2013) 350 ITR 527/212 Taxman 550/255 CTR 449/82 DTR 33 (SC)

S.32: Depreciation-Office–Depreciation is to be allowed.

The authorities below disallowed depreciation in the hands of the assessee on the ground that the office was not being utilised for business purpose, as it was given for re-development. The claim of the assessee was that the re-development agreement was signed on January 18, 2010 and re-development started in the assessment year 2009-10. The assessee claimed to have utilised the office during the year under consideration. On appeal the Tribunal held that the claim of depreciation was to be allowed to the assessee.(A.Y.2006-07)

Manjit Mann (Mrs) v.. Dy. CIT ( 2013) 21 ITR 57 ( Chandigarh) (Trib.)

S.35AB: Expenditure on know-how- Depreciation-Acquired prior to 1-4-1998-Allowable deduction. [S.32(1)(ii), 43(2)]

The assessee acquired the technical know-how from a foreign company as per the terms of Joint Venture Agreement dt. 25/11/1994. However, the payment for the same was made in installments during the period 1998-99 to 2001-02. The assessee claimed deduction in respect of the know-how fee under S. 35AB. It was held that in view of harmonious interpretation of the provisions of S. 32(1)(ii) and section 35AB, in respect of technical know-how acquired prior to 1/4/1998, deduction u/s 35AB will be allowed even if payment is made after 1/4/1998.(A.Y. 2002-03 to 2004-05)

Hindustan Colas Ltd. v. ACIT (2013) 140 ITD 277/151 TTJ 421 (Mum.)(Trib.)

S.35D: Amortisation of preliminary expenses-Financial institutions-Not allowable.

A financial institution recognized by the RBI guidelines cannot be treated as an industrial undertaking . Words ‘industrial undertaking’ have a definite meaning in taxation, therefore a non banking financial company cannot be treated as an industrial undertaking and it is not entitled to deduction under section 35D.(A.Y. 2005-06)

Instant Holdings Ltd v. Dy.CIT (2013) 81 DTR 1 (Mum.)(Trib.)

S.36(1)(iii): Deductions-Interest on borrowed capital-Matter remanded.

The tribunal held that ,if loans relatable to specific purpose and not part of general pool of funds available to assessee, no disallowance of any part of interest relatable to such secured loans to be disallowed. Assessee advancing interest-free loans. Matter remanded for finding on nature of secured loans raised by assessee.(A.Y.2008-09)

Gurudas Mann v. Dy. CIT (2013) 21 ITR 57 (Chandigarh)(Trib.)

S.36(1)(va): Deductions-Any sum received from employees--Deduction only on actual payment-Employee’s Contribution – Provident fund and ESI contributions made before filing return held allowable.(S.43B )

The Court held that the deletion of the second proviso to section 43B which specifically made a reference to section 36(1)(va) was curative in nature and, hence, would apply with retrospective effect from April 1, 1988. The second proviso to section 43B(b) specifically referred to the due date under section 36(1)(va) of the Act and as such, it cannot be urged that the provisions of section 43B and section 36(1)(va) should not be read together. The law was enacted to ensure that the payment of the contributions towards the provident funds, the ESI funds or other such welfare schemes must be made before furnishing the return of income under sub-section (1) of section 139. On a conjoint reading of section 36(1)(va) and section 43B it is obvious that earlier section 43B made reference to the due date as prescribed under section 36(1)(va). There was a conflict between the first and the second provisos and the second proviso was deleted. The benefit of this amendment must be extended to the employees’ contribution also. Appeal of revenue was dismissed. ( A. Y. 2001-2002 )

CIT v. Nipso Polyfabriks Ltd. (2013) 350 ITR 327 (HP)( High Court)

S.36(1)(vii): Deductions-Bad debt- Inter-corporate deposits- -Resolution for writing off interest in May 2002,would relate back to accounting year relevant for assessment year 2002-03.-Interest assessed on basis of accrual in earlier years hence deductible. Inter-corporate deposits part of business of assessee hence loss on investment is allowable as business loss. [S.28(i)]

The assessee had debited a sum of Rs. 1,94,49,012, as interest receivable written off during the year under consideration. The Assessing Officer disallowed the claim and this was confirmed by the Commissioner (Appeals).The Assessing Officer further disallowed the claim for loss of inter-corporate deposits along with interest written off. This was also upheld by the Commissioner (Appeals). On appeal to the Tribunal The Tribunal held that there is no condition in section 36(1)(vii) that the decision for treating a debt as bad or irrecoverable should be taken in the previous year itself. If the books of account are not closed and completed, it is permissible to make adjustments before they are finally closed. The board resolution passed in May 2002, with regard to the approval of writing off the amount as irrecoverable in the accounts, would relate back to that previous year in which it was treated as irrecoverable. In the earlier years the assessee’s interest income shown under the head "Business income", had been accepted by the Department. Thus, on these facts, once the interest income had been offered on accrual basis, which had been credited in the profit and loss account as business income in the earlier years and the sum had been written off as irrecoverable in the accounts in this year, the sum had to be allowed as bad debt.The assessee had shown accrued interest on inter-corporate deposits in the profit and loss account and had offered it for tax as business income. This had been accepted by the Department also. The corollary, therefore, was that interest was earned during the course of business. The interest which had been written off was deductible . Tribunal also held that investment in inter-corporate deposits was part of the business activities as the interest accrued there from had been treated as business income. The loss arising on such investment was thus consequently allowable as business loss and therefore, the sum of Rs. 32 lakhs was deductible as business loss. (A. Y. 2001-2002 )

Jindal Iron and Steel Co. Ltd.v. Dy. CIT [2013] 21 ITR 414 (Mum.)(Trib.)

S.37(1): Business expenditure- Capital or revenue- Operating license fee-PSTN charges –Dealers commission- After–Setting up of business- before Commencement of business- Allowable as revenue expenses-Foreign tour Expenses – revenue expenditure.(S. 35ABB)

The Court held that the operating license fee for providing cellular mobile service paid by assessee to J.T.Mobiles Ltd who had received telecom license from Government is allowable as business expenditure. The fact that the assessee had in its books of accounts spread over the expenditure over a period of 10 years would not change the nature of expenditure . Provisions of section 35ABB would not apply. Expenses incurred on account of PSTN charges and dealers commission after setting up of a business and before the commencement of business is allowable as revenue expenditure. Expenditure on foreign travel did not give rise to any enduring benefits but only enabled the assessee to run its business to achieve higher profits and therefore the said expenditure is allowable as revenue expenditure. The appeal of revenue was dismissed . (A.Y. 1998-99)

CIT v. Evergrowth Telecom Ltd ( 2013) 81 DTR 412/256 CTR 84 (Bom.) (High Court)

S.37(1): Business expenditure – Capital or revenue – Nature of expenditure based on -Statement of managing partner- Not correct – Matter remanded.

Assessee-firm filed return claiming depreciation on iron rolls of machinery. Later on it filed revised return contending that during production rolls were used to avoid friction and such rolls suffer damage necessitating frequent replacement and hence, be treated as ‘current repairs’. However, only on basis of no objection of managing partner to treat rolls as depreciable assets, Assessing Officer held same as capital expenditure .When a specific question was raised before Tribunal as regards nature of expenditure, Tribunal should have adverted to issues raised viz., to consider whether expenditure was, in fact, a ‘revenue’ or ‘capital expenditure’; it should not have based its decision on statement of managing partner ,matter remanded(A.Y.1992-93)

Chamundi Steel Rolling Mills v. ACIT[2013] 212 Taxman 30 (Mad.)(High Court)

S.37(1): Business expenditure–Capital or revenue-Repairs and renovation – Leased business premises – revenue expenditure.

The assessee is in occupation of leased premises, carried out renovation work by providing false ceiling and furniture modification spending Rs. 1.71 lakhs and Rs. 9.19 lakhs. The assessee claimed that the sums were eligible for depreciation at 100 per cent. However, this expenditure was treated as capital expenditure eligible for depreciation at 10 per cent. This was upheld by the Tribunal. On appeal to the High Court,held, that the temporary structure by means of false ceiling and office renovation had not resulted in any capital expenditure.Appeal of assessee allowed.(A. Y. 1995-1996)

Thiru Arooran Sugars Ltd. v. Dy. CIT (2013) 350 ITR 324(Mad)(High Court)

S.37(I): Business expenditure–Capital or revenue – Selling of diamonds under the brand name –Expenditure not capital in nature as profit derived from selling of premier product,no right either on mark or in IPR or goodwill of mark.

The assessee company is engaged in the business of licensing, manufacturing, distribution and selling of diamonds under the brand “Nakshatra”. ‘B’, a Swiss-diamond manufacturer was owner of mark “Nakshatra” B’ licensed said mark to ‘D’, who in turn, had sub-licensed to assessee. Assessee sold diamonds under brand name “Nakshatra”. Assessee made payment to ‘D’ for its share on promotion of mark ‘N’ and claimed sales promotion expenses. Assessing Officer disallowed 20 per cent of payment holding same to be capital in nature.It was held that facts revealed that entire rights and goodwill through marketing campaign and advertisement would be owned by ‘B’ and ‘D’; assessee had no right either on mark or in intellectual property right or goodwill of mark; and what assessee was enjoying was only profit from selling of premium products under said mark. Therefore, expenditure incurred was revenue in nature and was to be allowed. (A.Y. 2006-07)

Brightest Circle Jewellery (P.)Ltd. v. ACIT (2013) 140 ITD 11 (Mum.)(Trib.)

S.37(I): Business expenditure –Capital or revenue- – Warranty expenditure – Deduction allowed if provision made on scientific basis.

Assessee had acquired personal computer and laptops division of IBM India and continued business of trading and manufacture of PCs and MCs. It provided either 1 year or 3 years warranty on sale of PCs and laptops made to its customers in India. Assessee debited actual warranty expenditure incurred during year and also made additional provision on basis of assessment of warranty liability on sales made for unexpired period to profit and loss account and claimed it as deduction. It was held that since IBM was carrying on business in India in earlier assessment years and it was making provision for warranty on basis of its global data, assessee could use data used by IBM for past years for making estimation and if assessee had made provision on a scientific basis, it had to be allowed as deduction. (A.Y. 2006-07)

Lenovo India P. Ltd. v. ACIT (2013) 140 ITD 127 (Bang.)(Trib.)

S.37(I): Business expenditure – Capital or revenue – Fees for services rendered as per market support agreement – Payment for efficient running of business and deriving revenues there from, fees allowable as deduction.

Assessee acquired personal computer business from IBM. As IBM had well-established enterprise sales force and established global sales infrastructure, such as client representation centre, etc., for more than 52 years, assessee wanted to take support from IBM and for that purpose had entered into market support agreement with IBM. Assessee paid certain feed to IBM for services rendered under market support agreement. Assessing Officer treated same as payment for acquisition of goodwill and considered it to be in nature of capital expenditure not allowable under section 37. It was held that since support services were for purpose of sale of products manufactured by assessee, it was clearly established that it was for efficient running of business and deriving revenues therefrom and, therefore, fee paid by assessee for marketing support services rendered by IBM was allowable as deduction under section 37(1). (AY 2006-07)

Lenovo India P. Ltd. v. ACIT (2013) 140 ITD 127 (Bang.)(Trib. )

S.37(I): Business expenditure – Capital or revenue –Payments made to maintain dealership / business relationship revenue expenditure.

Assessee acquired business of PCs and laptops division from IBM during previous year, and continued to carry on manufacturing and trading operations of PCs using same facility and same dealership network as used by IBM in its business prior to acquisition. Future billing adjustment reserve of certain amount was a liability towards various claims/special discounts payable to distributors/dealers of IBM India, whereas actual pay outs relating to period up to effective date of takeover was much higher amount and, accordingly, amount of difference was charged to profit and loss account and claimed as revenue expenditure. It was held that since assessee was to carry on business with said dealers in future, it was bound to make payments to maintain business relations with dealers and such payments had to be considered as business expenditure of assessee. (A.Y. 2006-07)

Lenovo India P. Ltd. v. ACIT (2013) 140 ITD 127 (Bang.)(Trib.)

S.37(I):Business expenditure –Capital or revenue –Duty free replenishment certificates (DFRC) written off as not utilized – Deduction allowable as assessee was in same line of business.

As part of personal computer business acquired by assessee from IBM, assessee had also taken over duty free replenishment certificates (DFRC) receivable from IBM India and same were available for utilization against import of inputs used in manufacture of goods without payment of customs duty. However, Government of India vide Notification No. 24/2005 – Customs dated 1-3-2005 exempted custom duty on all imports of computer parts and, therefore, DFRC receivable was no longer utilizable and was, hence, written off and charged to profit and loss account as revenue expenditure, since assessee was also in same line of business, assessee was entitled to deduction of aforesaid expenditure as revenue expenditure. (A.Y. 2006-07)

Lenovo India P. Ltd. v. ACIT (2013) 140 ITD 127 (Bang)(Trib.)

S.37(1):Business expenditure-Sharing of expenses- Debit note from parent Company – In the absences of vouchers and bills 50% of disallowance is held to be justified.

The Assessee claimed the expenditure on the basis of debit note received from its parent company without producing any evidence to establish that the said expenditure was incurred for the purpose of business . Considering the facts the Tribunal held that disallowance of 50% expenses is held to be justified.(A.Y. 2005-06)

Instant Holdings Ltd v. Dy.CIT ( 2013) 81 DTR 1(Mum)(Trib.)

S.37(1):Business expenditure—Provision-Assessee engaged in development and maintenance of roads – provision for road renewal is held to be not deductible.

The assessee-company is engaged in the business of development, operation and maintenance of toll roads. For the assessment year 2002-03, it claimed deduction of Rs. 1,61,37,960 being expenditure on road overlay or renewal. It was observed by the Assessing Officer that a certain sum was debited to the profit and loss account. When the details were called for the assessee explained it to be provision made on a scientific basis. The Assessing Officer disallowed the claim and this was confirmed by the Commissioner (Appeals). On appeal to the Tribunal held that it was evident that the entire expenses claimed by the assessee were a provision made in the books of account and did not pertain to actual expenses incurred by the assessee during the year. The expenses were not deductible.(A. Y. 2002-2003, 2005-2006)

Dy. CIT v. Gujarat Road and Infrastructure Co. Ltd. (2013) 21 ITR 88 (Ahd.)(Trib.)

S.37(1): Business expenditure-Project completion method-Expenses and title registration expenses not attributable to common expenditure for running business is held to be not allowable.

The assessee is a film maker and an event manager. The assessee followed the project completion method, showed loss from film business and profit from music albums. In addition to this, the assessee showed receipts from old films, i. e., royalty, telecast rights of films, satellite rights of movies and corresponding expenditure in respect of each of her ventures separately. Over and above this the assessee claimed common expenditure under various heads like Diwali expenditure, printing and stationery, professional fee, conveyance, credit card charges, depreciation, dress and costume, interest on loan, miscellaneous expenses and telephone charges. The Assessing Officer held that the expenditure booked on account of professional fee, publicity, business promotion, dress and costume, etc. was not in any way linked to old film income and was not allowable. The Commissioner (Appeals) upheld the order of the Assessing Officer. On appeal the Tribunal held that expenses and title registration expenses not attributable to common expenditure for running business is held to be not allowable. (A.Y. 2006-07)

Gurudas Mann v. Dy. CIT ( 2013) 21 ITR 57 ( Chandigarh) (Trib.)

S.37(1):Business expenditure-Vehicle –Telephone-Conveyance-Personal use – Disallowance not proper.

Tribunal held that vehicle related expenses and telephone expenses, disallowance of 20 per cent. for personal use is proper. Conveyance, lodging and boarding, travelling staff welfare, business promotion and publicity expenses no disallowance can be made for personal use.(A.Y. 2008-09)

Manjit Mann (Mrs.) v. Dy.CIT (2013) 21 ITR 57 (Chandigarh)(Trib.)

S.37(1): Business expenditure—Ad hoc disallowance- Not proper.

The tribunal held that disallowance for bills and vouchers not verifiable made after discussion with assessee is cannot be challenged. Ad hoc disallowance without pointing out nature of discrepancies and head of to which expenditure related disallowance is not proper. (A.Y. 2008-09).

Manjit Mann (Mrs.) v. Dy.CIT ( 2013 ) 21 ITR 57 (Chandigarh)(Trib.)

S.37(1): Business expenditure-Foreign shows- Disallowance confirmed.

The Tribunal held that the Assessee unable to explain nature of expenditure and date of incurrence of foreign show.- Expenditure booked by assessee on dates at variance with dates of foreign shows. Disallowance was confirmed.(A.Y. 2006-07)

Gurudas Mannv. Dy.CIT ( 2013 ) 21 ITR 57 (Chandigarh)(Trib.)

S.37(1):Business expenditure- Capital or revenue- Repair and maintenance- Not in nature of replacement is capital in nature .

The Tribunal held that expenditure on purchase of new furniture not replacement hence capital expenditure, not allowable. The Tribunal also held that there was no material to show replacement of electric installation or nature of electric installation replaced hence deduction is not allowable.(A.Y.2007-08)

Gurudas Mann v. Dy.CIT ( 2013 ) 21 ITR 57 (Chandigarh)(Trib.)

S.37(1):Business expenditure-Expenditure on levelling and fencing land- Expenses not verifiable – Disallowance of part of expenditure is held to be justified.

Assessee engaged in real estate development. The Assessing Officer made an ad hoc disallowance of 25 per cent. of the expenditure claimed on levelling and fencing charges. After examining details the Commissioner (Appeals) held that such expenses appeared to be genuine and were generally incurred in the course of the assessee’s line of business. He also found that some of such expenses were supported only by self vouchers and cash receipts which were not verifiable, and therefore restricted the disallowance. On appeal to the Tribunal held that the assessee had not furnished any cogent evidence to establish that the expenses, which stood disallowed, were verifiable. The disallowance was justified.(A. Y.2006-2007, 2007-2008 )

ITO v. Nam Estates P. Ltd [2013] 21 ITR 109(Bang.)(Trib.)

S.37(1):Business expenditure—Brokerage-Commission- TDS deducted allowable balance disallowance was confirmed.

Assessee is engaged in real estate development. Out of the total expenses claimed under the head “Brokerage and commission”, the Assessing Officer holding that in this line of business of land transactions the average percentage of commission and brokerage was one per cent., disallowed the balance. The Commissioner (Appeals) examined the matter in detail and came to the view that expenses on commission and brokerage charges, on which tax had been deducted at source and remitted to the treasury, were genuine according to the facts placed before him and accordingly allowed the assessee relief and Confirmed the disallowance of Rs 4,44, 342. Tribunal confirmed the order of Commissioner (Appeals) and dismissed the cross appeal of assessee. (A. Y.2006-2007, 2007-2008 )

ITO v. Nam Estates P. Ltd [2013] 21 ITR 109(Bang.)(Trib.)

S.37(1):Business expenditure-Foreign tour expenses of accompanying spouse- Disallowance held to be proper.

The assessee claimed the foreign tour expenses of accompanying spouse of directors of assessee-company. As the assessee failed to provide any evidence disallowance of such expense, was held to be proper.( A. Y.2005-2006 )

Harinagar Sugar Mills Ltd. vACIT[2013] 21 ITR 383(Mum.)(Trib.)

S.37(1): Business expenditure–Club expenses—Allowable.

Tribunal held that the disallowance under the head "club expenditure" was not justified. ( A. Y. 2001-2002 )

Jindal Iron and Steel Co. Ltd.v. Dy. CIT [2013] 21 ITR 414 (Mum.)(Trib.)

S.40(a)(i): Amounts not deductible- Deduction at source- Outside India-Non-resident- Interest- Discount charges is not interest. [S. 2(28A)]

Discount charges earned by assessee-financial service provider by way of discounting bill of exchange and promissory notes in favour of Indian companies is to be treated as business income, and not as interest income, hence provisions of section 40(a)(i) cannot be applied .(A.Ys. 2005-06 to 2007-08)

DIT ( IT) v.Cargil TSF PTE Ltd. (2013) 212 Taxman 16 (Delhi)(High Court)

S.40(a)(ia): Amounts not deductible –Deduction at source-Matter remanded.

The tribunal following the judgment of Special Bench in Merilyn Shipping and Transports v. Addl CIT ( 2012) 16 ITR 1(Trib.) (SB) held that if the amounts paid during the year under consideration,

No disallowance warranted. Matter remanded.(A.Y.2007-08)

Gurudas Mann v. Dy.CIT ( 2013 ) 21 ITR 57 (Chandigarh)(Trib.)

S.40(a)(ia): Amounts not deductible-Royalty-Satellite link charges- Not liable to deduction of tax at source. (S.201)

Payments for satellite link charges for use of standard facility-is not royalty hence not liable to deduction of tax at source. Tribunal holding in favour of assessee in proceedings arising out of section 201 proceedings same is followed in proceedings arising out of assessment.(A. Y.2006-2007)

Wills Processing Services (India) P. Ltd. v. Dy. CIT [2013] 21 ITR 1/151 TTJ 555 (Mum.)(Trib.)

S.40(b): Amounts not deductible-Firm-Book profit- Income from Other Source included in P&L a/c – Cannot be discarded qua book profit for computation of remuneration payable to partners.

The assessee-firm derived its income from profession as an advocate. In the profit and loss account, the assessee-firm credited certain amount received as licence fee and compensation for use of shared facilities. In the course of assessment, the Assessing Officer opined that since the aforesaid income was not a professional income, the same could not form part of ‘book profit’ for computation of allowable remuneration to partners under section 40(b). It was held that Income from other sources included in profit and loss account to ascertain net profit cannot be discarded qua book profit for computation of remuneration payable to partners. The Tribunal allowed the appeal of assessee.s (A.Y. 2005-06)

Suresh A. Shroff& Co. v. JCIT (2013) 140 ITD 1 (Mum.)(Trib.)

S.40A(3): Expenses or payments not deductible- Cash payments exceeding prescribed limits-Assessee purchasing goods and depositing amount in bank account of seller–No disallowance in hands of assessee.(Income-tax Rules, 1962, R. 6DD.)

The Assessing Officer made an addition of Rs. 60,19,000 ,on the ground that the assessee had violated the provisions of section 40A(3) of the Income-tax Act, 1961. The Tribunal partly allowed the appeal by the assessee. On appeal by revenue high Court, dismissing the appeal, held that the Tribunal categorically held that the amount in question was directly deposited in the bank account of the seller. The Tribunal had considered the factor that the assessee was only an agent of the seller and held that no disallowance could be made in the hands of the assessee. The findings had not been shown to be perverse. Therefore, the addition was not justified.(A. Y. 2008-2009 )

CIT v. Shelly Passi (Smt)[2013] 350 ITR 227( P & H)(High Court)

S.40A(3):Expenses or payments not deductible- Cash payments exceeding prescribed limits- Cash payments-Held proper.

The tribunal held that the assessee has not produced any material to controvert finding of Assessing Officer that no cash payment was made above over and above Rs 20000 by way of a single payment or aggregate of payments in a single day .As no evidence to establish claim that no single payment in cash made was blow of Rs. 20,000 disallowance was held to be proper.(A.Y. 2008-09)

Manjit Mann (Mrs.) v. Dy.CIT (2013) 21 ITR 57 (Chandigarh)(Trib.)

S.40A(3): Expenses or payments not deductible- Cash payments exceeding prescribed limits- Cash payment-Disallowance justified.

Tribunal held that there is no evidence of exceptional circumstances, hence disallowance is held to be justified.(A. Y.2006-2007, 2007-2008 )

ITO v. Nam Estates P. Ltd [2013] 21 ITR 109(Bang.)(Trib.)

S.43B: Deduction on actual payment- Interest- Schedule bank-Co-operative bank- Interest payable to SMM Co-operative Bank Ltd could not be disallowed under section 43B.

The assessee claimed in respect of interest payable to Shree Mahalaxmi Mercantile Co-operative Bank ltd. The Assessing Officer disallowed the interest under section 43B on the ground that the interest was not paid up to the date of filing of the return. On appeal the Commissioner (Appeals) confirmed the order of Assessing Officer. On appeal to the Tribunal the Tribunal held that section 43B would not apply in case of payment of interest to a co-operative bank for the reasons that section is applicable only in respect of interest payable to on a loan taken from a schedule bank . Under terms of Explanation 4(aa) to section 43B of the Act , a schedule Bank would have a meaning assigned to it in the Explanation to cl.(iii) of sub.s.(5) of section 11 of the Act . The Tribunal held that ShreeMahalaxmi Mercantile Co-operative bank is not covered with in the definition of scheduled bank under section 43B,therefore the appeal of assessee was allowed. On appeal to High Court the High Court confirmed the view of Tribunal and the appeal of revenue was dismissed.(A.Y. 200-05)

CIT v. UpendraT.Kapadia ( 2013) 81 DTR 279/ 256 CTR 201 (Bom.)(High Court)

S.43B: Deduction on actual payment- Employees State Insurance-Contribution made to provident fund and Employees’ State insurance, the amount deposited within grace period is allowable.

The Tribunal held that the disallowance under section 43B is not required when the amounts are paid within the grace period allowed ; this is so not only on legal principles but also on the fact that the entire amount was paid before the closure of the financial year or within the due date for filing the return as provided. (A. Y. 2004-2005 )

ACIT v. UPS Jetair Express P. Ltd.(2013) 21 ITR 82 (Mum.)(Trib.)

S.44: Insurance business – Actuarial Valuation –Income to be assessed as work out as per provisions of Insurance Act and not IRDA Act .

Assessee declared surplus deficit from life insurance business under Form –I as prescribed under the Insurance Act after adjusting share holder and policy holder account thereby neutralizing transfer of funds from shareholder’s account to policy holders account .Assessing Officer gave credence to new Form-I, prescribed under IRDA Regulation and took ‘total surplus’ as surplus of Life Insurance business ignoring transfer from share holder’s account and accordingly brought to tax the surplus or deficit under the said Regulation. On appeal Commissioner (Appeals) confirmed the order of Assessing Officer. On appeal to Tribunal it was held that , the Assessee engaged in insurance business should workout actuarial surplus/deficit in accordance with provisions of Insurance Act, and not as per IRDA Act or it’s regulations. Accordingly the appeal of assessee was allowed. (A.Y. 2005-06 to 2008-09)

ICICI Prudential Insurance Co. Ltd. v. ACIT (2013) 140 ITD 41 (Mum.)(Trib.)

S.44C: Non-residents- Head office expenditure--Direction to deduction of independent of provisions of section 44C is justified-Rate of tax–Foreign bank–Rate applicable to non-resident companies is justified.

Commissioner (Appeals) directed the Assessing Officer to allow the assessee deduction of Rs. 48,60,008 independent of the provisions of section 44C of the Act Tribunal held that the order of the Commissioner (Appeals) was justified. Where the assessee’s income was taxed at the higher rate of 55 per cent.as applicable to non-resident companies ,held, that the order was justified. (A.Y.1997-1998)

Asst. DIT (Int.) v. Credit Agricole Indosuez (2013) 21 ITR 345 (Mum.)(Trib.)

S.44C:Non-residents- Head office expenditure-- Permanent establishment-Interest and commission received from head office and other overseas branches and paid to other overseas branches and head office-Mutuality between overseas head office and branch in India-Interest received from overseas head office or branches not chargeable-Interest paid by Indian permanent establishment to overseas head office or branches not allowable as deduction. (S.143)

The assessee received interest and commission from its head office and other overseas branches and at the same time also paid interest and commission to other overseas branches and head office. The assessee, in its computation of total income, reduced the interest or commission received and added back the interest or commission paid. The Assessing Officer held that the interest or commission earned by the assessee from its head office or overseas branches should be charged to tax. The Commissioner (Appeals) upheld in principle the assessment order on this issue. On appeal the Tribunal held that (i) that once mutuality is found between overseas head office and branch in India, there can be no interest income by the Indian branch from its overseas head office or branches under the provisions of the Act. No interest or commission received by the Indian branch from the head office can be charged to tax.Sumitomo Mitsui Banking Corporation v. Deputy DIT [2012] 16 ITR (Trib) 116 (Mumbai) [SB] followed.

(ii) That the interest paid by the Indian permanent establishment to its overseas head office or branches should also not be allowed as deduction.( (A. Y.1997-1998 )

Asst.DIT (Int.) v. Credit Agricole Indosuez (2013) 21 ITR 345(Mum.)(Trib.)

S.45: Capital gains-Computation- MOU-Sale consideration-Amount actual received.

The inherited property was sold for Rs 14 crores but as per MOU reached between the assessee and his brother , the assessee received only Rs 6 Crores as his share , the Court held that Assessing Officer was not justified in taking the sale value at Rs 7 Crores in the hands of assessee. Appeal of revenue was dismissed. (A.Y.2006-07)

CIT v. Raman Kumar Suri (2013) 81 DTR 33 (Bom.)(High Court)

S.45: Capital gains- Adverse possession-No cost of acquisition –Not liable to capital gain tax.

The Income tax Appellate Tribunal held that when an assessee get the property by adverse possession there is no cost of acquisition. The consideration is not liable to capital gain tax. Revenue challenged the said order before High Court. High court dismissed the appeal stating that no question of law arises.

ITANO 1110 OF 2009 and 1153 of 2009 dt 11-8-2009

CIT v. Star Chemicals(Bom.) Pvt. Ltd. (Bom)(High Court) (Un reported)

Editorial: Order of Mumbai Tribunal in DCIT vs. Star Chemicals (Bom)(P) Ltd. (2007) 110 TTJ 753 (Mum.) is confirmed.

S.45: Capital gains – Transfer – Development Agreement – Irrespective of when physical possession was given, capital gain was assessable in year in which development was entered into. [S. 2(47)(v), Transfer of Property Act. 1882, S. 53A]

Assessee entered into development agreement on 14/2/2002 for construction of multi-storeyed building by developer on assessee’s land. Possession was given only on 21/4/2004. The assessee contended that capital gain was assessable in the year 2005-06 and not in the Assessment year 2003-04.It was held that irrespective of when physical possession was given, capital gain was assessable in year in which development was entered into. (A.Y. 2003-04)

G. Sreenivasan v. Dy. CIT (2013) 140 ITD 235 (Cochin)(Trib.)

S.45: Capital gains-Capital asset-licensee of looms-Transfer of land-Amount paid to assessee for surrender of rights in land. Assessee deemed tenant by virtue of amendment of Rent Control Act. Right of assessee a capital asset within the meaning of section 2(14).Amount received assessable as capital gains and not as income from other sources. (S.2(14), 54EC, 55, 56 )

The assessee in the return for the assessment year 2009-10, it declared long-term capital gains on surrender of sub-tenancy rights and claimed exemption under section 54EC, by making investment in NHAI bonds. The Assessing Officer found that possession of a portion of the shed was incidental to the licence granted to it for the use of machinery. Therefore, the Assessing Officer came to the conclusion that the amount received by the assessee were merely gratuitous. He held that the assessee could not be said to have had sub-tenancy rights particularly with regard to land for which the compensation had been received by the assessee and, therefore, the amount received by the assessee was not assessable under the head “Capital gains”. He taxed it under “Other sources”. This order was confirmed by the Commissioner (Appeals). On appeal to the Tribunal The Tribunal held that the assessee had entered into an agreement for licence to use looms and machinery. It was entitled to use the shed in which the looms were situated by way of permissible use on licence basis only as incidental to the use of the looms and machinery. Incidental right to use the premises was provided by the agreement itself. The fact also remained that the assessee had been referred to as a licensee in the agreement. The Bombay Rent Hotel and Lodging and House Rates Control Act, 1947 (Rent Control Act), which was amended by the Amendment Act of 1973, had converted the status of the assessee from “licensee” to “deemed tenant” under section 5(11)(bb). Under section 15A, which was inserted by the Maharashtra Act 17 of 1973, certain licensees in occupation on February 1, 1973 would become tenants. By the provisions of section 55(2) of the Income-tax Act, tenancy rights have been considered to be a capital asset. Moreover, the definition of capital asset under section 2(14) of the Act is wide enough to cover “property of any kind” and the type of right acquired by the assessee in the property used by it could not in any manner be said to be less than “any kind of property” held by the assessee. The assessee in fact was enjoying possession of the property and for peaceful vacation thereof it had received the amount which was described by the parties as amount paid for surrender of tenancy rights. The right of the assessee was undisputed and the nature thereof was “property of any kind” which was held by the assessee and was a capital asset within the meaning of section 2(14). The amount received by the assessee was assessable under the head “Capital gains” and eligible for exemption under section 543EC.( A. Y. 2009-2010 )

Kewal Silk Mills v. ACIT [2013] 21 ITR 121 (Mum.)(Trib.)

S.48: Capital gains- Computation- Cost of acquisition – Will-Relevant year.

The property was acquired by mother in the year 1974, assessee acquired the property in accordance with mother’s will dated 11th October , 1987 and sold in 2005 , benefit of indexation is to be given from 1 st April, 1981 and not from 1987.(A.Y.2006-07)

CIT v. Raman Kumar Suri (2013) 81 DTR 33 (Bom.) (High Court)

S.50C: Capital gains-Full value of consideration- Stamp valuation-Sale of shares- Section 50C does not apply to transfer of immovable property held through company. (S.45)

The assessee held shares in a company called Kamala Mansion Pvt. Ltd. The company owned flats in a building known as Om Vikas Apartments, Walkeshwar Road, Mumbai. The shares were sold by the assessee for Rs. 37.51 lakhs and capital gains were offered on that basis. The AO & CIT(A) held that by the sale of shares in the company, the assessee had effectively transferred the immovable property belonging to the assessee and that it was an indirect way of transferring the immovable properties being the flats in the building. He accordingly ‘pierced the corporate veil‘, invoked s. 50C and computed the capital gains by adopting the stamp duty value of the flats. On appeal by the assessee to the Tribunal, held allowing the appeal:

S.50C applies only to the transfer of a “capital asset, being land or building or both”, “assessed” by any authority of a State Government for stamp duty purposes. The expression “transfer” has to be a direct transfer as defined u/s 2(47) which does not include the tax planning adopted by the assessee. S. 50C is a deeming provisions and has to be interpreted strictly in accordance with the spirit of the provision. On facts, the subject matter of transfer is shares in a company and not land or building or both. The assessee did not have full ownership on the flats which are owned by the company. The transfer of shares was never a part of the assessment of the Stamp duty Authorities of the State Government. Also, the company was deriving income which was taxable under the head ‘income from property’ for more than a decade. Consequently, the action of the AO &CIT(A) to invoke s. 50C to the tax planning adopted by the assessee is not proper and does not have the sanction of the provisions of the Act.(A. Y. 2007-08, 2008-09)

Irfan Abdul Kader Fazlani v. ACIT (Mum)(Trib.) www.itatonline.org

S.50C: Capital gains-Full value of consideration- Stamp valuation- FSI-TDR- Section 50C does not apply to transfer of FSI & TDR. (S.45).

The assessee owned a plot of land admeasuring 2244.18 sq. mts of which 2110 sq. mts was acquired by the Municipality for development purposes. The assessee was entitled to receive TDR/ FSI in lieu of the land acquired. The assessee sold the development rights to the said property for Rs. 20 lakhs and computed capital gains on that basis. However, for purposes of stamp duty, the property was valued at Rs. 1.19 crores. The AO held that the value of the property as adopted by the stamp duty authorities had to be taken as the consideration u/s 50C for purposes of capital gains. This was reversed by the CIT(A). On appeal by the department to the Tribunal, held:

S.50C applies only to the transfer of “land or building” and not to the transfer of all “immovable property“. Accordingly, though FSI and TDR is “immovable property” as held in Chedda Housing Development vs. Babijan Shekh Farid 2007 (3) MLJ 402 (Bom), it is not “land or building” and so cannot be the subject matter of s. 50C. The property acquired for development (in lieu of which the FSI/TDR was granted) also cannot be considered even though the property continues to stand in the assessee’s name in the property records. The property should be valued by the DVO net of the land transferred to the Developer by the assessee after considering the acquisition made by the Govt& the Municipal Corporation and also excluding the value of TDR or additional FSI included in the consideration shown in the Development Agreement (A. Y. 2006-2007)

ITO v. Prem Rattan Gupta (Mum.)(Trib.)www.itatonline.org

S.54: Capital gains- Exemption- Investment in two flats which is used as one house.

Assessee purchased two flats which were joined together before the purchase , exemption under section 54 was rightly allowed in respect of both the flats treating them as one residential house .The Tribunal decided the issue in favour of assessee following the ratio of ITO v.SushilM.Jhaveri (2007) 292 ITR 1(SB)(Trib.). On appeal by revenue the High Court affirmed the view of Tribunal. (A.Y. 2006-07)

CIT v. Raman Kumar Suri (2013) 81 DTR 33 (Bom.)(High Court)

S.54: Capital gains-Property used for residence–Exemption-Deemed owner-Tenancy rights-Sale of residential property and investment of gains in acquiring tenancy rights in perpetuity in another residential property, Assessee is not entitled to exemption under section 54. (Bombay Stamp Act 1958 )

The assessee sold his bungalow and purchased tenancy rights in two flats in the third floor. The assessee computed the long-term capital gains from sale of residential bungalow which he claimed as exempt because of the investments made in acquisition of the tenancy rights in the new two flats. The Assessing Officer rejected the claim of the assessee of exemption under section 54 of the Income-tax Act, 1961, in respect of tenancy rights acquired in the new flat. Accordingly, the claim under section 54 was disallowed. This was confirmed by the Commissioner (Appeals). On appeal to the Tribunal held that the exemption under section 54 from capital gains is available to an assessee, who invests the capital gains in a similar asset being a residential house which would obviously mean that acquisition of the house should be as an owner, as the capital gains covered under section 54 are the capital gains arising from transfer of a residential house owned by the assessee. The principle that in case of ambiguity a taxing statute should be construed in favour of the assessee would not apply to the construction of an exception or an exempting provision ; these have to be construed strictly. That the person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the provision. In case of doubt or ambiguity, benefit must go to the State. In section 54 there is no ambiguity. The provision refers to purchase or construction of a new residential house and it is quite obvious that the same should be as an owner and not as perpetual tenant. The argument of deemed ownership was relevant only in connection with computation of income from house property and not in relation to exemption under section 54. Similarly, treating the tenancy as conveyance under the Bombay Stamp Act, 1958, was only for the purpose of payment of stamp duty and cannot be considered as conveyance of the title of the property to the assessee as an owner. Taking possession could not be considered as ownership as possession had been taken as a tenant and not as an owner of the flat. The assessee was permitted to sub-let the flat, to bequeath it and to raise loan but such powers were only in relation to tenancy rights of the assessee and not as an owner of the flat. All these facilities to which the assessee was entitled were only against right of the assessee as tenant in the flat and not as owner. Further the agreement provided that the tenant was not entitled to make any structural changes in the flat which showed that the assessee was not the owner because an owner had full right in relation to his property. The assessee was not entitled to exemption under section 54.( A, Y. 2008-2009 )

Yogesh Sunderlal Shah v. ACIT [2013] 21 ITR 97 (Mum.)(Trib.)

S.55(2)(b):Capital gains-Cost of acquisition-Fair market value as on 1st April, 1981-Valuation as per valuation report is accepted.

The assessee valued the property for computing the capital gains at fair market value as on 1-4-1981 and filed the approved valuation report of registered valuer. Assessing Officer valued the value of property as per Nabhi’s Guide to House Tax in new Delhi . On appeal the Commissioner (Appeals) held that registered valuer’s valuation take precedence over Nabhi’s guide to House tax .Tribunal accepted the finding of Commissioner (Appeals). On appeal by revenue , High Court up held the order of Tribunal.(A.Y. 2006-07)

CIT v. Raman Kumar Suri (2013) 81 DTR 33 (Bom.)(High Court)

S.56: Income from other sources - Composite or inseparable letting –Income from house property (S.22, 24 )

The assessee claimed deduction in respect of its rental income under the head ‘Income from house property. The Assessing Officer perused rent agreements and found that premises were let out on condition that the assessee would provide certain facilities like furniture and fixtures, plant and machinery, etc. He held that the letting out of the machinery, plant and furniture and the letting out of buildings being inseparable, the rental income be taxed under the head ‘Income from other sources’, which resulted in disallowance under section 24..Commissioner (Appeals) confirmed said order The Tribunal held that the letting out of the plant, machinery or furniture and the premises constituted a single, composite and inseparable letting rental income be assessable as ‘income from other sources’. On appeal High Court also held that letting of building and letting of fixture, furniture, etc., was inseparable and, therefore, rental income was assessable as income from other sources. Appeal of assessee was dismissed.. (A.Y. 2007-08)

Garg Dyeing & Processing Industries v. ACIT [2013] 212 Taxman 160 (Delhi)(High Court)

S.68: Cash credits-Firm-Capital-Partner-First year of business- Contribution of capital by partner cannot be added in hands of firm.

One of the partners who was a minor introduced Rs. 2,62,000 as his capital. The Assessing Officer disputed the capital contribution made by the minor. The explanation offered was not found satisfactory and the Assessing Officer added the sum in the hands of the assessee. This was confirmed by the Tribunal. On appeal the Court held that (1) the authorities below had failed to take into account that this was the first year of business of the assessee. The Tribunal was not justified in holding that the unexplained cash credit recorded in the assessee’s books be added in the hands of the assessee. There was no material before the Tribunal to hold that the capital introduced by the minor partner at the time of starting of the business, was income of the assessee-firm. The Tribunal erroneously came to the conclusion that the deposits represented undisclosed income of the assessee-firm. Accordingly the appeal of assessee was allowed. (A. Y.1991-1992 )

Abhyudaya Pharmaceuticals v. CIT( 2013) 350 ITR 358 (All) (High Court)

S.68: Cash credits –Identity proved-Creditworthiness not proved hence addition was held to be justified.

Assessee HUF claimed to have received a loan of Rs. 2.15 lakhs in cash from karta’s wife, who was a State Government employee. She claimed to have received gifts of Rs. 2 lakh from her parents who had supposedly earned amount by leasing agricultural land .However, no evidence about such source was submitted. Further, no evidence was filed taking State Government’s permission as required before accepting gifts of such an amount by a government servant. Creditworthiness of creditor and genuineness of transaction was not proved in instant case, even though identity of creditor was established. therefore, addition of impugned amount was appropriate. Appeal of assessee was dismissed.(A.Y.2002-03)

D. Siva Sankara Rao (Dr.) v.ITO (2013) 212 Taxman 151(AP)(High Court)

S.68: Cash credits-Share application money-Assessee producing tax returns and also producing confirmation of shareholders – Burden of proving source of share application money discharged addition was deleted.

Assessee produced the names, addresses and permanent account numbers of the shareholders the onus on the assessee to prove the source of share application money stands discharged. If the assessing authority is not satisfied with the creditworthiness of the shareholders, it is open to the assessing authority to verify the same in the hands of the shareholders concerned. The Tribunal recorded the findings that the assessee had produced the returns filed by the shareholders who had paid share application money. The assessee had also produced confirmations from the shareholders indicating the details of their addresses, permanent account numbers and particulars of cheques through which the amounts were paid towards the share application money. The Tribunal treated the deposits of share application money as genuine. On appeal high Court also confirmed the order of Tribunal.

CIT v. Jay Dee Securities and Finance Ltd. (2013) 350 ITR 220( All.)(High Court)

S.69: Unexplained investments-Share application money – Assessee producing relevant evidence and establishing that all share applicants not fictitious persons deletion of addition held to be justified.

The assessee is engaged in the business of running a cold storage. For the assessment year 1988-89, the Assessing Officer made additions on account of unexplained share capital, unexplained share application money, unexplained sundry creditors, difference in the cost of construction being unexplained investment, fixed deposit receipts purchased by the assessee and loading and unloading expenses. The Commissioner (Appeals) deleted the addition of Rs.15,07,920 made against the unexplained share capital, Rs. 3,13,500 out of the addition made against the unexplained share application money of Rs.4,68,100, and Rs. 46,500 out of the addition made against the difference in the cost of construction of Rs. 2,47,994, and confirmed the other additions made by the Assessing Officer. The Commissioner (Appeals) rectified his order allowing further relief of Rs. 54,800 and Rs. 20,848 out of the total addition of Rs. 3,05,493 made on account of unexplained sundry creditors for goods and expenses. The appeals filed by the Department and the assessee were partly allowed by the Tribunal. On further appeal by the Department the High Court also confirmed the order of Tribunal and held that additions was rightly deleted.(A.Y. 1988-89)

CIT v. Misra Preservers (P.) Ltd (2013) 350 ITR 222 (All) (High Court)

S.69: Unexplained investments-Source of investment-Tribunal ought to have returned a specific finding whether explanation offered by assessee satisfactory-Matter remanded.

Section 69 of the Income-tax Act, 1961, envisages two situations when an addition can be made on account of unexplained investments. The first situation is where the assessee does not offer any explanation about the nature and source of the investment. The second situation is where the explanation offered by him is, in the opinion of the Assessing Officer, not satisfactory. The Court allowing the appeal held that the assessee had offered an explanation but there was no express finding of the Commissioner (Appeals) or of the Tribunal as to whether the explanation offered by the assessee was satisfactory. Although an inference could possibly be gathered that the Commissioner (Appeals) had found the explanation to be satisfactory the matter could not be decided on inferences. The Tribunal is the final fact finding authority and, therefore, it is incumbent on the Tribunal to return a finding in clear and express terms. This is so, because it is only when the finding is clear that a question of law based on those findings can be examined by the court. Therefore, the matter was remitted to the Tribunal to return a clear finding as to whether or not the explanation offered by the assessee was satisfactory. (A. Y. 2008-2009)

CIT v. AjaiShukla (2013) 350 ITR 594(Delhi)(High Court)

S.69B: Undisclosed investments – Investment in property – Seized from the premises of assessee-Addition held to be justified. (S.132)

Documents pertaining to a property were found and seized from assessee’s premises. Assessee submitted that said property papers were given by a property dealer for verification. Name of purchaser of property was not mentioned in documents ,further no one came forward to claim these documents .Even summons served on owner of property came back being un served. In view of aforesaid, addition under section 69B was justified.

CIT v. Jai Pal Aggarwal [2013] 212 Taxman 1(Delhi)(High Court)

S.69B:Undisclosed investments – Deposits –Dumb documents- Addition was not justified.

Assessing Officer found that interest on said FDRs had not been shown in return. Accordingly, he made addition under section 69B. However, figures in seized documents did not correlate with any date or details nor was document signed and, thus, it was a dumb document, therefore, addition under section 69B was not justified.

CIT v. Jai Pal Aggarwal [2013] 212 Taxman 1(Delhi)(High Court)

S.69B: Undisclosed investments – Investment in companies –Addition was held to be justified. (S.132).

Certain documents seized showed that assessee had made investments in a company from 26-11-1993 to 10-2-1994.Seized papers contained date-wise receipts of amount from assessee – Assessee took a plea that said company belonged to his son. However, it was found that assessee’s son had not started any business before 26-12-1994,there was no reason for assessee to make investment before 26-12-1994,therefore, addition under section 69B to assessee’s income was justified.

CIT v.Jai Pal Aggarwal [2013] 212 Taxman 1 (Delhi)(High Court)

S.73: Losses – Speculation business – Dealing in shares –Sham transaction – Justified in disallowing thee loss. [S.43(5)]

Assessee was engaged in business of sale and purchase of shares and government securities. It sold shares of JP and HFCL at loss and set off loss against profit from sale of shares. Sale and purchase were made through a sister concern. There was no physical delivery of shares and shares were sold on dates when prices were lowest. The court held that the Assessing Officer was justified in disallowing loss on sale of shares of JP on ground that it was a sham transaction. And also the Assessing Officer was right in treating loss in sale of shares of HFCL as speculation loss. Appeal of revenue was allowed. (A.Y. 2001-02)

CIT v.Vachanband Investment Ltd.(2013) 212 Taxman 131 (Delhi)(High Court)

S.80HHC: Deduction-Export business-Computation-Profits of the business-Interest from money lending is not excludible for purpose of applying formula for computing export profits for earlier year- law is amended with effect from Assessment year 1992-93. (S.80AB)

The assessee is an individual engaged in export business. For the assessment year 1991-92, he claimed deduction of Rs. 33,63,149 under section 80HHC of the Income-tax Act, 1961. The income-tax authorities objected that the interest income, even if it was assessed as business income on the footing that the assessee was carrying on money lending business, represented domestic profits and not export profits and, therefore, a mechanism should be devised by which the domestic profits were excluded from the profits of the business for the purpose of applying the formula prescribed by section 80HHC. The Tribunal held that the domestic business need not have any nexus with the export business for the purpose of deduction under section 80HHC and hence interest income could not be excluded from the profits of the business. On appeal the Court held that the amendment made to clause (baa) of the Explanation below section 80HHC defined "profits of the business" in such a manner as to exclude receipts like interest, commission, etc., which did not have an element of turnover, was introduced prospectively by the Finance (No. 2) Act, 1991, with effect from the assessment year 1992-93 and the amendment did not operate retrospectively. Therefore, for the assessment years prior to the assessment year 1992-93, it would not be permissible to exclude interest receipts even if the business from which interest arose did not have an element of turnover. Appeal of revenue was dismissed. (A.Y.1991-92)

CIT v. Anil Chanana (2013) 350 ITR 247(Delhi) (High Court)

S. 80IA: Deduction –Industrial undertakings-Computation-Provisions of section 80A(2) and 80AB shall apply.

The assessee owned a hotel which was eligible for deduction u/s 80IA. Since sub-sec. (7) of S. 80IA provide for determination of amount of deduction whereas section 80AB and S. 80A(2) provide for amount actually allowable while computing total income, assessee’s contention that provisions of S. 80A(2) and 80AB shall not be applicable, cannot be accepted. Matter remanded. (A.Ys.1999-2000 to 2005-06)

Hotel & Allied Trades P. Ltd. v. Dy.CIT (2013) 140 ITD 309 (Cochin)(Trib.)

S.80IB: Deduction – Industrial undertakings – Additional ground – Claim not made in return – Claim cannot be entertained in view of specific provision of section 80A(5) which was inserted by Finance Act , 2009 which is applicable retrospectively from the Assessment year 2003-04. [S.80IB (5)]

Assessee did not make a claim of deduction in AY 2003-04 and 2004-05, rather made the claim for the first time before CIT (A) by filing an additional ground. It was held that the provisions of S. 80IB(5) inserted by Finance Act, 2009 which are applicable retrospectively from AY 2003-04, clearly provides that in case assessee fails to make a claim in the return of income, the claim could not be allowed. The provision was applicable for AY 2003-04 and 2004-05. Therefore, in the view of these provisions which are quiet unambiguous and clear, claim of assessee cannot be allowed. (A.Ys. 2003-04, 2004-05)

Hindustan Colas Ltd. v. ACIT (2013) 140 ITD 277/151 TTJ 421(Mum)(Trib.)

S.80IB(10): Deduction-Undertaking-Development and construction-Housing project- Open terrace-Certificate of completion- Deduction allowed.

Assessee has undertaken the development and construction of housing project hence eligible deduction. Assessee completed the construction on 6th march 2006, corporation certified the completion on 28th Dec. 2007, one of the authorities namely CMDA had issued a letter on 13th June, 2008 cannot be ground to reject the claim of assessee. The Court also held that open terrace could not be the subject – matter of inclusion as a built up area to deny the benefit under section 80IB (10). Appeal of revenue was dismissed. (A.Y. 2005-06, 2006-07)

CIT v. Sanghvi&Doshi Enterprises ( 2013) 81 DTR 75 (Mad.) (High Court)

Editorial: Sanghvi&Doshi Enterprise v.ITO( 2011) 141 TTJ 1 (TM )(Chennai)(Trib.) affirmed.

S.80IB(10): Deduction-Undertaking-Development and construction-Housing project-Matter remanded to determine accrual of income.

Assessee company is engaged in the business of civil construction. It entered into contract with land owners for development of residential cum commercial complex on land. The assessee claimed deduction u/s 80IB(10). It was noted from the records that neither aggregate amount of sale agreement entered into nor advance received there against had been mentioned. It was held that reasonable certainty as to the realization of sale proceeds were crucial to income recognition, and both sale agreement as well as advance received in pursuance thereof were vital thereto. Matter was thus, remanded back to AO. (A.Y. 2008-09)

Dy. CIT v. Vertex Homes P. Ltd. (2013) 140 ITD 300 (Hyd.)(Trib.)

S.80JJA: Deduction-Bio-degraded waste-Fuel briquettes from bagasse-Derived from-Eligible deduction.

The Assessee is engaged in the business of fuel briquettes from bagasse .The assessee claimed the deduction under section 8OJJAA.The Assessing Officer disallowed the claim on the ground that (1) bagase is not waste,(2), it is not generated in municipal /urban limits i.e. , by local authorities ;(3) it is not collected but it is purchased ; and (4) the process does not involve any treatment or recycling of a biodegradable waste. In appeal the Commissioner (Appeals) allowed the appeal of assessee. The Tribunal also confirmed the order of Commissioner (Appeals). On appeal by the revenue , the Court held that bagasse is a biodegradable waste of sugar factory and therefore , deduction under section 80J is allowable on the profits derived from the business of manufacturing fuel briquettes from bagasse; requirement of collecting biodegradable waste as provided under section 80JJA is satisfied whether such waste is collected on payment of consideration or without consideration. Accordingly the appeal of revenue was dismissed.(A.Y. 2003-04 , 2004-05)

CIT v. Padma S. Bora (Smt) (2013) 81 DTR 99 (Bom.)(High Court)

Editorial: Judgment of Pune Tribunal in CIT v. Padma S.Bora ( 2010) 133 TTJ 108(Pune)(Trib.) is affirmed.

S.92C: Avoidance of tax – Transfer Pricing – The “Bright Line test” can be applied to determine whether AMP expenses incurred by assessee are excessive and for the benefit of the brand owner- Adjustment in relation to advertisement, marketing, and sale promotion expenses incurred by assessee for creating or improving, marketing intangible for and on behalf of foreign AE is permissible. Expenses in connection with sales which do not lead to brand promotion cannot be brought within ambit of ‘advertisement, marketing and promotion expenses’. Correct approach under TNMM is to consider operating profit from each international transaction in relation to total cost or sales or capital employed ,etc of such international transaction and not net profit , total costs sales , capital employed of assessee as a whole on entity level. (S. 92B , Rule 10A, 10B )

L.G. Electronics Inc, a Korean company, set up a wholly owned subsidiary in India (the assessee) to which it provided technical assistance. The assessee agreed to pay royalty at the rate of 1% as consideration for the use of technical know-how etc. The Korean company also permitted the assessee to use its brand name and trade marks to products manufactured in India on a royalty-free basis. The AO, TPO & DRP held that as the Advertising, Marketing and Promotion (“AMP expenses”) expenses incurred by the assessee were 3.85% of its sales and such percentage was higher than the expenses incurred by comparable companies (Videocon & Whirlpool), the assessee was promoting the LG brand owned by its foreign AE and hence should have been adequately compensated by the foreign AE. Applying the Bright Line Test, it was held that the expenses up to 1.39% of the sales should be considered as having been incurred for the assessee‘s own business and the remaining part which is in excess of such percentage on brand promotion of the foreign AE. The excess, after adding a markup of 13%, was computed at Rs. 182 crores. On appeal by the assessee, the Special Bench had to consider the following issues: (i) whether the TPO had jurisdiction to process an international transaction in the absence of any reference made to him by the AO? (ii) whether in the absence of any verbal or written agreement between the assessee and the AE for promoting the brand, there can be said to be a “transaction“? (iii) whether a distinction can be made between the “economic ownership” and “legal ownership” of a brand and the expenses for the former cannot be treated as being for the benefit of the owner? (iv) whether such a “transaction“, if any, can be treated as an “international transaction“? (v) whether the “Bright Line Test” which is a part of U. S. legislation can be applied for making the transfer pricing adjustment? (vi) whether as the entire AMP expenses were deductible u/s 37(1) despite benefit to the brand owner, a transfer pricing adjustment so as to disallow the said expenditure could be made? (vii) what are the factors to be considered while choosing the comparable cases & determining the cost/value of the international transaction of AMP expenses? (viii) whether, if as per TNMM, the assessee’s profit is found to be as good as the comparables, a separate adjustment for AMP expenses can still be made? (ix) whether the verdict in Maruti Suzuki India Ltd. v Add. CIT/Transfer Pricing Officer( 2010) 328 ITR 210 (Del) has been over-ruled/ merged into the order of the Supreme Court so as to cease to have binding effect?

By the Majority (Hari Om Marathe, JM, dissenting)

(i) Though s. 92CA (2A), inserted w.e.f. 1.6.2011, which permits the AO to consider international transactions not specifically referred to him does not apply as the TPO’s order was passed before that date, sub-sec (2B) to s. 92CA inserted by the Finance Act 2012 w.r.e.f. 1.6.2002 (which provides that the TPO can consider an international transaction if the assessee has not furnished the s. 92E report) cures the defect in the otherwise invalid jurisdiction at the time of its original exercise. The assessee’s argument that jurisdiction has to be tested on the basis of the law existing at the time of assuming jurisdiction and that s. 92CA (2B) cannot regularize the otherwise invalid action of the TPO is farfetched and not acceptable because it will render s. 92CA(2B) redundant. The argument that s. 92CA(2B) should be confined only to such transactions which the assessee perceives as international transactions but fails to report is also not acceptable;

(ii) The assessee’s contention that in the absence of any mutual agreement between the assessee and its foreign AE, there is no “transaction” is not acceptable in view of the definition of that term in s. 92F(v) which includes an “arrangement or understanding“. An informal or oral agreement, which is latent, can be inferred from the attending facts and circumstances and the conduct of the parties. As long as there exists some sort of understanding between two AEs on a particular point, the same shall have to be considered as a “transaction“, whether or not it has been reduced to writing. However, the department’s contention that the mere fact that the assessee spent proportionately higher amount on advertisement in comparison with other entities shows an understanding is also not acceptable. On facts, as it was seen that the assessee not only promoted its name and products through advertisements, but also the foreign brand simultaneously, and the fact that the assessee‘s AMP expenses were proportionately much higher than those incurred by other comparable cases, lent due credence to the inference of the transaction between the assessee and the foreign AE for creating marketing intangible on behalf of the latter;

(iii) The assessee’s contention that a distinction should be made between the “economic ownership” of a brand and its “legal ownership” and that AMP expenses towards the “economic ownership” of the brand, which are routine in nature, cannot be allocated as being for the benefit of the brand owner is not acceptable as it will lead to incongruous results. While the concept of economic ownership of a brand is relevant in a commercial sense, it is not recognized for the purposes of the Act;

(iv) The assessee’s argument that there is no “international transaction” is not acceptable because the definition of that term in s. 92B(1) is inclusive. Under clause (i) of the Explanation to s. 92B, a transaction of brand building is in the nature of “provision of service” by the assessee to the AE. Clause (ii) of the Explanation defines “intangible property” to include “marketing related intangible assets, such as, trademarks, trade names, brand names, logos“. Consequently, brand building is a “provision of service”. The fact that no consideration is paid by the foreign AE is irrelevant;

(v) While a provision from a foreign legislation cannot be imported into the Indian legislation, there is an inherent fallacy in the assessee’s argument that the bright line test cannot be adopted to determine the ALP of the international transaction as it is not one of the recognized methods u/s 92C. The bright line test is a way of finding out the cost/value of the international transaction, which is the first variable under the TP provisions and not the second variable, being the ALP of the international transaction. Bright line is a line drawn within the overall amount of AMP expense. The amount on one side of the bright line is the amount of AMP expense incurred for normal business of the assessee and the remaining amount on the other side is the cost/value of the international transaction representing the amount of AMP expense incurred for and on behalf of the foreign AE towards creating or maintaining its marketing intangible. If the assessee fails to give any basis for drawing this line by not supplying the cost/value of the international transaction, and further by not showing any other more cogent way of determining the cost/value of such international transaction, then the onus comes upon the TPO to find out the cost/value of such international transaction in some rational manner. On facts, the cost/value of the international transaction was determined at Rs. 161.21 crore while its ALP (after the 13% markup) was Rs. 182.71 crore. The assessee was not entitled to claim a deduction for Rs. 161.21 crore and it was liable to be taxed on the markup of Rs. 21.50 crore;

(vi) The assessee’s contention that once the entire AMP expense is found to be deductible u/s 37(1), then, no part of it can be attributed to the brand building for the foreign AE notwithstanding the fact that the foreign AE also got benefited out of such expense is not acceptable because the whole purpose of transfer pricing is to provide a statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India in the case of multinational enterprises. The TP provisions prevail over the general provisions. The exercise of separating the amount spent by the assessee in relation to international transaction of building brand for its foreign AE for separately processing as per s. 92 cannot be considered as a case of disallowance of AMP expenses u/s 37(1)/ 40A(2). s. 37(1)/40A(2) & s. 92 operate in different fields;

(vii) In principle, it is necessary that properly comparable cases should be chosen before making comparison of the AMP expenses incurred by them. However, the argument that only such comparable cases should be chosen as are using the foreign brand is not acceptable. The correct way to make a meaningful comparison is to choose comparable domestic cases not using any foreign brand. Also, several factors have to be considered for determining the cost/value of the international transaction of brand/logo promotion through AMP expenses (14 illustrative issues set out). On facts, the TPO restricted the comparable cases to only two without discussing as to how other cases cited by the assessee were not comparable. Also, a bald comparison with the ratio of AMP expenses to sales of the comparable cases without giving effect to the relevant factors cannot produce correct result (matter remanded);

(viii) There is a basic fallacy in the assessee’s contention that if the TNMM is adopted and the net profit is at ALP, there is no scope for making an adjustment for AMP expenses. TNMM is applied only on a transactional level and not on entity level though it can be correctly applied on entity level if all the international transactions are of sale by the assessee to its foreign AE and there is no other transaction of sale to any outsider and also there is no other international transaction. Where there are unrelated international transactions, it is wrong to apply TNMM at an entity level. Further, even assuming that in applying the TNMM on entity level for the transaction of import of raw material the overall net profit is better than other comparables, an adjustment can still be made by subjecting the AMP expenses to the TP provisions. There is no bar on the power of the TPO in processing all international transactions under the TP provisions even when the overall net profit earned by the assessee is better than others. Earning an overall higher profit rate in comparison with other comparable cases cannot be considered as a licence to the assessee to record other expenses in international transactions without considering the benefit, service or facility out of such expenses at arm‘s length. All the transactions are to be separately viewed. Also, the contention fails if any of the other methods (CUP etc) are adopted instead of TNMM;

(ix) Maruti Suzuki 328 ITR 210 (Del) lays down the law that (a) brand promotion expenses are an “international transaction”, (b) AMP expenses incurred by a domestic entity which is an AE of a foreign entity are required to be compensated by the foreign entity in respect of the brand building advantage obtained by it & (c) the factors required to be considered by the TPO. This verdict has not be overruled by the Supreme Court except to the extent that directions were given to the TPO to proceed in a particular manner. The verdict has also not merged into that of the Supreme Court because the principles of law laid down by the High Court have not at all been considered and decided by the Supreme Court. Consequently, the law laid down therein continues to have binding force.

Per Hari Om Maratha, JM (dissenting):

(i) Before making any transfer pricing adjustments, it is a pre-condition that there must exist an ‘international transaction’ between the assessee and its foreign AE. The Department has proceeded on a presumption that because the AMP expenses are supposedly higher than that incurred by other entities, there is an ‘international transaction’ discernible and a part of these expenses have to be treated towards building of the LG Brand owned by the foreign AE. It is not permissible to proceed on such presumption in the absence of a written agreement or evidence to suggest any oral agreement between the parties;

(ii) Further, the assessee had not paid any ‘brand-royalty’ to the foreign AE though it got the benefit of the brand and earned revenue there from which has been taxed. The AMP expenses have been paid to an unrelated entity in India which has in turn paid tax thereon. As there is no shifting of income to a different jurisdiction, neither Chapter X not the bright line method has any application;

(iii) Also, the concept of commercial ownership of a brand is a reality in modern global business realm and it is as good as a legal ownership in so far as its effects on sale of products in India is concerned. Any advertisement which is product-centric and even entirely brand-centric will only enhance the sales of the products of that brand in India. In no way is the brand owner benefited. Consequently, the AMP expenses is not a case of brand-building/ promotion and no ‘covert transaction’ between the Indian entity and its foreign AE can be presumed or inferred. The Revenue has no power to re-characterize the AMP expenditure as routine and non-routine expenditure;

(iv) MarutiSuziki India Ltd v. Add. CIT /Transfer Pricing Officer ( 2010) 328 ITR 210 (Del) cannot be regarded as a binding precedent after the verdict of the Supreme Court in Maruti Suzuki India Ltd. v Add. CIT ( 2011) 335 ITR 121 (SC). The fact that a reference was made to the Special Bench itself shows that because a covered issue cannot be referred to a Special Bench. (A. Y. 2007-2008)

L.G. Electronics India Pvt. Ltd v. .ACIT(2013)140 ITD 41/ 22 ITR 1/83 DTR 1/152 TTJ 273(SB)(Delhi)(Trib.)

S.92C: Avoidance of tax- Transfer pricing –Computation of Arm’s Length Price – Sale Price realized from AE much higher than ALP fixed by TPO – No recommendation by TPO for adjustment – AO is not required to make any adjustment. (S.10B(7), 80IA (10)

The Assessee is engaged in sale and export of pasteurized crab meat. The Assessee entered in to international transactions with its associated enterprise and showed sale price at Rs 24 Crores. TPO on reference made by the Assessing Officer , fixed arm’s length price of goods at Rs 18 Crores. Assessing Officer opined that receipts of assessee from sales to AE was in excess of arm’s length price and such excess was nothing but income from other sources . The Assessing Officer relying on provisions of section 10B(7) read with section 80IA (8) and 80(IA)(10) added excessive receipts to income of assessee. On appeal Commissioner (Appeals) deleted the addition. On appeal by revenue , the Tribunal held that,where sale price realised from AE was much higher than ALP fixed by TPO and there was no recommendation by TPO for making any adjustment, Assessing Officer was not at all required to make any adjustment in ALP. Accordingly the appeal of revenue was dismissed.(A.Y. 2007-08)

ACIT v. Handy Waterbase India (P.) Ltd. (2013) 140 ITD 112 (Chennai)(Trib.)

S.92C: Avoidance of tax- Transfer pricing- Computation of ALP – Assessing officer deducted from operating cost, only material cost relatable to purchases from AEs – Not from Non AE’s – Computation of ALP of purchases from non-AEs erroneous – Matter remanded back

Assessee, engaged in auto components manufacturing and sale, had international transactions with four Associated Enterprises (AE). International transactions comprised of import of raw materials, import of machinery and payment for royalty and technical assistance. The Assessing officer divided total operating cost between material cost relatable to AEs and cost relatable to non-AEs, which included both material cost as well as other costs. Thus, Assessing officer deducted from operating cost, only material cost relatable to purchases from AEs and not operating cost attributable to such material cost. It was held that if along with material cost paid to AEs, operational cost attributable to such cost was also considered, then amount considered by TPO as ALP of AE purchases, would have gone up significantly, and hence work out of ALP of purchases from non-AEs had been erroneously done. Matter remanded back (A.Y. 2007-08)

SL Lumax Ltd. v. ACIT (2013) 140 ITD 158 (Chennai)(Trib.)

S.92C: Avoidance of tax- Transfer pricing – Computation of ALP – Similar transactions with AE for subsequent years accepted by TPO without any ALP adjustment – TP analysis be considered as ALP.

Where similar transactions with associated enterprises for subsequent years have been accepted by TPO without any ALP adjustment, he should adopt TP analysis conducted by assessee for relevant assessment year also to be at ALP. Revenue could not be permitted to take a different approach in the relevant assessment year. Matter Remanded back. (A.Y. 2006-07)

Lenovo India P. Ltd. v. ACIT (2013) 140 ITD 127 (Bang.)(Trib.)

S.92C: Avoidance of tax- Transfer pricing–Arm’s length price—Secret information not be used against the assessee without giving an opportunity.-Matter remanded.(S.133(6) )

Information relied upon by Transfer Pricing Officer is not available in public domain. Secret information not to be used against assessee. No uniformity in rejection of assessee’s comparables and selection of comparables by Transfer Pricing Officer. Proper and appropriate functions, assets and risk analysis required to be done. Transfer Pricing Officer and Dispute Resolution Panel to deal with assessee’s objections and discuss them in order. Matter remanded.. (A. Y.2006-2007)

Wills Processing Services (India) P. Ltd. v. Dy. CIT [2013] 21 ITR 1/151 TTJ 555(Mum.)(Trib.)

S.92CA: Avoidance of tax –Transfer pricing-Arm’s length price–Comparables–Reference to Transfer Pricing Officer-Commissioner (Appeals) deleting addition after considering revised Transfer Pricing Officer’s remand proceedings- held to be Justified-

The assessee-company is engaged in the business of international transportation and domestic pickup and delivery services. During the assessment year, the assessee entered into international transactions with its associated enterprises . The transactions were reported by the assessee in Form 3CEB which was filed along with the return. The Assessing Officer referred the case to the Transfer Pricing Officer for determining the arm’s length price in respect of the international transactions entered into by the assessee. The Transfer Pricing Officer rejected the comparable uncontrolled price method adopted by the assessee. He held that the transactional net margin method was the appropriate method. Therefore, he made an upward adjustment of Rs. 9.35 crores of the international transactions of the assessee. The Commissioner (Appeals) considered that the Transfer Pricing Officer wrongly considered the entity-wise margin of one of the comparable companies for the purpose of benchmarking the assessee’s margin under the transactional net margin method. The matter was referred to the Commissioner (TPO-II). He agreed with the assessee’s contention and concluded that consistency needed to be followed while calculating the margins of comparables of the assessee. Considering this, the Commissioner (Appeals) deleted addition made by the Assessing Officer. On appeal the Tribunal held that (i) that once the Transfer Pricing Officer accepted and adjusted the computations on the basis of which the Commissioner (Appeals) deleted the addition there was no ground to interfere with the order of the Commissioner (Appeals), which was to be upheld.(A. Y. 2004-2005 )

ACIT v. UPS Jetair Express P. Ltd. (2013) 21 ITR 82 (Mum.)(Trib.)

S.94(7):Avoidance of tax –Adventure in the nature of trade-Loss on units -Purchase of units of mutual funds and sale thereof after realization of dividend at a loss- Matter remanded to give finding in the course of business. [2(13)]

The court held that ultimately the intention and the circumstances alone have to have a bearing on the question as to whether the transaction is only of investment or in the nature of trade. Disallowance of a claim on the ground that the transactions were for tax avoidance or evasion, could be considered only after the in-depth investigation and proper recording and marshalling of all relevant facts, so as to establish the motive of tax avoidance. Matter remanded for reconsideration. (A. Y. 2001-2002)

CIT v. Allu Arvind Babu (2013) 350 ITR 387/ 212 Taxman 260(Mad)(High Court)

S.94(7): Avoidance of tax – Transaction in securities –Loss on sale of mutual funds- Units purchased within a period of three months prior to record date – Sale made within a period of nine months from record date – Conditions in section 94(7) were cumulatively satisfied – Disallowance of short-term capital loss suffered by assessee justified.

Assessee purchased mutual fund units on 20-10-2005. The Record date in respect of mutual fund units was 20-1-2006. The assessee sold said mutual fund units at a loss on 6-2-2006. It was held that since units had been purchased within a period of three months prior to record date and, thereupon, their sale was made within a period of nine months from record date, relevant conditions mentioned in section 94(7) were cumulatively satisfied and, thus, revenue authorities were justified in disallowing short-term capital loss suffered by assessee. Matter decided in against the assessee. (A.Y. 2006-07 )

Krupeshbhai N. Patel v. Dy. CIT (2013) 140 ITD 176 (Ahd.)(Trib.)

S. 115JB: Company-Book Profit – MAT – Unabsorbed depreciation – No carry forward loss – Not eligible to claim deduction of brought forward depreciation while computing book profit under section 115JB

It was held that in terms of clause (iii) of Explanation 1 to S. 115JB, while computing book profit, assessee is entitled to deduct amount of loss brought forward or unabsorbed depreciation whichever is less as per books of accounts. It was therefore held that where there was no carry forward loss as per books of account, assessee was not eligible to claim deduction of brought forward depreciation while computing book profit under section 115JB. (A.Y.2003-04)

Hotel Allied Trades (P. ) Ltd. v. Dy.CIT (2013) 140 ITR 309 (Cochin)(Trib.)

S.132. Search and seizure–Warrant of authorization—Reason to believe-Existence of tangible material a pre-requisite-Mere reason to suspect not sufficient, articles seized to be released to assessee,

The assessee challenged the search action. Allowing the petition the court held that the so-called information was undisclosed and what exactly that information was, was also not known. At one place in the affidavit of the Deputy Director of Income-tax, it had been mentioned that he got information that there was a "likelihood" of the documents belonging to the DS group being found at the residence of the assessee. That by itself would amount only to a surmise and conjecture and not to solid information and since the search on the premises of the assessee was founded on this so-called information, the search would have to be held to be arbitrary. When the search was conducted on January 21, 2011, no documents belonging to the DS group were, in fact, found at the premises of the assessee. The warrant of authorization was not in the name of the DS group but was in the name of the assessee. In other words, the warrant of authorization under section 132(1) had been issued in the name of the assessee and, therefore, the information and the reason to believe were to be formed in connection with the assessee and not the DS group. None of clause (a), (b) or (c) mentioned in section 132(1) stood satisfied in the assessee’s case and, therefore, the warrant of authorization was without any authority of law. Had the warrant of authorization been issued in the name of the DS group and in the course of the searches conducted by the authorized officer, the premises of the assessee had also been searched, the position might have been different. But that had not happened in the case of the assessee. The warrant of authorization was in the name of the assessee and, therefore, it was absolutely necessary that the pre-conditions set out in section 132(1) ought to have been fulfilled. Since those pre-conditions had not been satisfied, the warrant of authorisation would have to be quashed. Once that was the position, the consequence would be that all proceedings pursuant to the search conducted at the premises of the assessee would be illegal and, therefore, the prohibitory orders would also be liable to be quashed. The jewellery/other articles/documents were to be unconditionally released to the assessee.

Madhu Gupta v. DIT(Inv (2013) 350 ITR 598/256 CTR 21/82 DTR 116( Delhi)(High Court)

S.132A: Income tax authorities-Powers-Requisition-Cash seized by police authorities, reasonable explanation regarding cash, no evidence that amount would not be disclosed to income-tax authorities, Order of requisition held to be not valid.

The assessee, a cotton broker, carried with him cash of Rs. 11 lakhs collected from A in respect of the sale of cotton through him. The cash was seized by the police authorities. The assessee furnished an explanation but the police authorities did not accept the explanation and seized the cash. An order was passed under section 132A and the amount was requisitioned by the income-tax authorities. The income-tax officials recorded the statement of the assessee wherein he stated that the amount had been arranged by RS through a shroff of Kalupur against purchase of cotton. The income-tax officials surveyed the business premises of RS and examined his books of account. RS corroborated the statement of the assessee. RS’s accounts showed issuance of five cheques in favour of STC. The accounts of the shroff showed that the five cheques issued by RS had been deposited with them for discounting against which Rs. 11 lakhs in cash had been handed over to the assessee. The assessee requested for release of the cash but this was refused. On a writ petition :


Held, allowing the petition, that in view of the factual background, no reasonable person could have come to the conclusion that the amount of Rs. 11 lakhs belonged to the assessee or that he would not disclose the amount to the income-tax authorities under the provisions of the Act. In the circumstances, on the basis of the material before him, the Director of Income-tax could not have formed the requisite opinion as required under section 132A of the Act. The warrant of authorisation issued by him, therefore, was vitiated as having been issued without the condition precedent for exercise of powers under section 132A being satisfied. The warrant of authorisation as well as the order under section 132A were liable to be quashed. The assessee was entitled to the seized amount along with interest.

Prakash Jaichand Shah v.DIT (Investigations) (2013) 350 ITR 336 (Guj)(High Court)

S.142(2A): Assessment-Enquiry before assessment-Special audit-Natural justice-Complexity of accounts and safeguarding interests of revenue is conditions cumulative, notice on basis of notes of accounts is not valid.

In order to direct special audit under section 142(2A) of the Income-tax Act, 1961, the Assessing Officer must form an opinion with regard to twin conditions, viz., nature and complexity of accounts and the interests of the revenue. Additionally, special audit requires approval of the Chief Commissioner or the Commissioner. Further, the power under section 142(2A) is not to be lightly exercised, and it is to be based on the foundation of available material. A genuine and honest attempt must be made to understand the accounts since an order under the provisions not only entails a heavy monetary burden but it also causes a lot of inconvenience to the assessee. Section 142(2A) is not a provision by which the Assessing Officer delegates his powers and functions, which he can perform, to the special auditor. The provision has been enacted to enable the Assessing Officer to take the help of a specialist, who understands accounts and accounting practices to examine the accounts when they are complex and the Assessing Officer feels that he cannot understand them and comprehend them fully, till he has help and assistance of a special auditor. Interest of the revenue is the other consideration. An order under section 142(2A) directing special audit entails civil consequences and, therefore, the principles of natural justice in the form of hearing have to be complied with, albeit this does not require an elaborate hearing. The notice under the section may contain briefly the issues that the Assessing Officer thinks to be necessary and need not be detailed ones. An order of approval by the Commissioner/Director should not be granted or passed mechanically but should be done having regard to materials on record. Questions should be raised with regard to accounts and entries and only when the explanation offered is not satisfactory, or verification is not possible without the help and assistance of a special auditor, action under section 142(2A) is required. For the assessment year 2005-06, the recommendation for special audit was made on October 17, 2007, within two days after the books of account were produced on October 15, 2007. The Assessing Officer had not obtained comments/findings on the Comptroller and Auditor-General’s report but he had directed the special auditor to obtain it and then give his opinion. Considering the facts of the case the notices under section 142(2A) relating to the assessment years 2003-04 to 2009-10 were not valid and were liable to be quashed.(A. Y. 2003-2004 to 2009-2010 )

Delhi Development Authority v. UOI (2013) 350 ITR 432 (Delhi) (High Court)

S.142(2A): Assessment—Enquiry before assessment-Special audit–Limitation–Failure to record reasons, High Court giving liberty to Department to pass a fresh order-Fresh order cannot be challenged on ground of limitation-Reference to special audit is held to be justified. (S.153A, 153B)

The Assessing Officer is required to find out the income to be brought to tax. He has to apply the accepted methods of accounting and if there are any inaccuracies, he may direct the assessee to assist him by explaining and to reconcile such accounts. He is not a specialist accountant or an auditor to find out the methods adopted by the assessee for assessing the income to be taxed. He is not required to act as an investigator or a specialist auditor nor does he have a team of assistants to enter into the web to decipher the codes and to demystify the procedures adopted in the accounting methods to find out and arrive at the aggregate income to be assessed to tax. The assessees challenged the directions under section 142(2A) of the Income-tax Act, 1961, for special audit on the ground that no reasons were given in the order. The assessee relied on the principles of natural justice to challenge the order. Held, dismissing the petitions, (i) that the assessees not having challenged the observations of the High Court, giving liberty to the Department to proceed with a fresh order in accordance with law they could not be permitted now on the principles of equity to challenge the fresh order on the ground of limitation. Any advantage gained in such circumstances must be neutralised. The prescription of limitation by itself should not be permitted to confer an advantage on the assessees for such delay. The defect complained of in the notice was at best a lapse, which could be corrected by serving a proper notice and recording of reasons. The court did not hold that the reasons were not sufficient. It held that the reasons were not recorded. It observed that reasons must be recorded in the order to show application of mind on the part of the officer concerned on the basis of the material available on record. The submissions that after the earlier notice was set aside, a fresh notice could not be issued, was thus devoid of any substance and must be rejected. On facts reference to special audit held to be justified.( A. Y. 2002-2003, to 2008-2009)

ATS Infrastructure Ltd. v. ACIT (2013) 350 ITR 563/256 CTR 46 (All.)( High Court)

Prateek Resorts &Builders (P) Ltd. v. ACIT ( 2013) 256 CTR 46(All.)(High Court)

S.142A: Assessment – Valuation Officer – DVO – AO did not reject books of account maintained by assessee – Made reference to DVO – Reference without jurisdiction (S.145 )

Assessing Officer without rejecting books of account maintained by assessee made reference under section 142A to DVO, for valuation of factory building of assessee. Assessing Officer made addition on basis of cost of construction estimated by DVO. Commissioner (Appeals) confirmed the addition and reduced some addition. On appeal to Tribunal the held that Commissioner (Appeals) for estimation of construction cost on basis of DVO’ s report could not be approved particularly when Assessing Officer made reference to DVO without rejecting books of account . Assessee’s appeal was allowed. (A.Y. 2004-05)

Prahalad Kumar Jindal v. ACIT (2013) 140 ITD 147 (Agra.)(Trib.)

S.143(3): Assessment – Loose papers-Addition to total income of certain amounts as sale consideration – No direct evidence of receiving money – Loose papers merely in nature of an offer which was made to assessee – Addition not sustainable.

Assessee sold certain land at a consideration of Rs. 10.62 crores. In course of search, Assessing Officer recovered certain documents which showed two figures of Rs. 22.61 crores and Rs. 14.75 crores. Assessing Officer opined that those figures related to sale of land.Therefore, in absence of any direct evidence about receiving on money, it was to be concluded that such loose papers were merely in nature of an offer which was made to assessee. Hence, addition made by Assessing Officer on basis of those loose papers was not sustainable. (AY2006-07 to 2009-10)

Krupeshbhai N. Patel v. Dy. CIT (2013) 140 ITD 176 (Ahd.)(Trib.)

S.143(3): Assessment-Income-Computation-Interest-Broken period-

Interest paid in respect of broken period to be set off against interest received in respect of broken period.( A. Y.1997-1998 )

Asst. DIT (IT )v. Credit Agricole Indosuez [2013] 21 ITR 345(Mum.)Trib.)

S.144C: Assessment-Reference to Dispute Resolution panel –Transfer pricing- Non Speaking Order – Order violation of provisions –Set aside

Where DRP confirmed addition made by Assessing Officer without passing a speaking order, said order being in violation of provisions of section 144C, was to be set aside. Matter was remanded back to decide both on TP and non TP issues . (A.Y. 2006-07)

Ford India (P.) Ltd. v. Dy. CIT (2013) 140 ITD 171 (Chennai)(Trib.)

S.145: Assessment – Method of accounting – Hire – purchase – Indexing system followed by assessee there cannot be Mercantile system for purposes of assessment, appeal dismissed.

The assessee which is engaged in the business of leasing, hire-purchase and finance. Finance charges represented the interest component of the hire-purchase monthly instalments paid by hirers to the assessee. The assessee had itself credited Rs. 12,33,700 under this head in its profit and loss account for the assessment year 1987-88. However, in its return of income the finance charges were reduced to Rs. 6,71,326 on the ground that the amount of Rs. 5,62,374 did not accrue as income though credited as such in the profit and loss account during the assessment year. The Assessing Officer did not accept this deduction and took into account the credited amount of Rs. 12,33,700 while computing the income under this head. The assessee credited Rs. 12,33,700 towards finance charges in its books of account and this figure was arrived at by adopting the "indexing" or "sum of digits" system of accounting. The Assessing Officer’s order was upheld by the Tribunal. On appeal to the High Court :Held, dismissing the appeal, that there was no indication of the assessee’s hire-purchase agreements reflecting bifurcation of the equated monthly installments into principal and interest components. In the absence thereof, the common and accepted usage of the indexing system of accounting in the hire-purchase trade must be held to be valid as otherwise the rate of interest under the mercantile system in so far as the later equated monthly installments are concerned would be far higher and contrary to the rate prescribed in the assessee’s agreements. Further, as the assessee had itself employed this system of accounting in its books of account, applying the law laid down in Sanjeev Woolen Mills case [2005] 279 ITR 434,the Department was bound to accept the same for the assessment proceedings. Appeal of assessee was dismissed. (A. Y.1987-1988)

Chakra Financial Services Ltd. v CIT(2013) 350 ITR 396(AP) (High Court)

S.147: Reassessment- Change of opinion-Within period of four years-If there is no fresh tangible material reassessment is not valid-Reasons cannot be supplemented /improved upon later. (S.148)

When assessee disclosed all relevant facts ,even in case of reopening of assessment within period of four years from the end of the relevant assessment year , the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment on the basis of tangible material , there being no fresh tangible material which would warrant taking a view different from one taken during the regular assessment proceedings , reopening was not sustainable. The reasons recorded at the time of issuing notice cannot be supplemented /improved upon later. Writ petition of assessee was allowed and notice was quashed.(A.Y. 2007-08)

NDT Systems v.ITO( 2013) 81 DTR 1 (Bom.)(High Court)

S.147: Reassessment- Change of opinion- Beyond four years-Third proviso- Merger-There was no failure on part of assessee to disclose full and true particulars, and order of original assessment was merged with order of the appellate Authority, hence the reassessment held to be invalid. [S.80IA (8)].

The assessee is in the business of generation of distribution of electricity. Deduction under section 80IA was allowed under section 143 (3).Reassessment notice was issued on the ground that the assessee has claimed excess deduction under section 80IA.Reasseswsment order was challenged before the Commissioner (Appeals) . Commissioner (Appeals) held that there was no failure on the part of assessee hence the reassessment was not valid. Tribunal also confirmed the order of Tribunal. On appeal by revenue the court held that order of Maharastra Electricity Regulatory Commission was passed by MERC on 1st July , 2004 and that order specifically dealt with fixation of tariff rate for consumer and had nothing to do with the actual profits earned by a power generation plant ; The Court held that reopening of assessment was also barred by in view of the third proviso section 147 since the quantum of deduction under section 80IA was subject matter of appeal before the Commissioner (Appeals) and the Tribunal and consequently , the order of original assessment had merged with the order of the appellate authority. Accordingly the appeal of revenue was dismissed.(A.Y. 2001-02)

CIT v. Reliance Energy Ltd ( 2013) 81 DTR 130 /255 CTR 357(Bom.)(High Court)

S.147: Reassessment-Change of opinion-Third proviso- Merger-Order of original assessment was merged with order of the appellate Authority, hence the reassessment held to be invalid. [S.80IA(8)].

The Court held that reopening of assessment was barred by in view of the third proviso section 147 since the quantum of deduction under section 80IA was subject matter of appeal before the Commissioner (Appeals) and the Tribunal and consequently , the order of original assessment had merged with the order of the appellate authority. Accordingly the appeal of revenue was dismissed.(A.Y. 2003-04)

CIT v. Reliance Energy Ltd ( 2013) 81 DTR 138/255 CTR 365 (Bom.)(High Court)

S.147: Reassessment-Non-disclosure of primary facts-losses – Facts is different recorded reasons was held to be not valid hence reassessment held to be in valid.

While making assessment for assessment year 1996-97, Assessing Officer held that loss in shares had been fraudulently claimed. Accordingly assessment for relevant year was reopened assigning reasons that position mentioned in assessment year 1996-97 also existed in relevant year. As facts of subsequent year was altogether different from facts of relevant year, reasons recorded by Assessing Officer was not valid. Thus accordingly, reassessment proceedings were to be quashed.(A.Y. 1995-96)

CIT v. Kanodia & Sons (2013) 212 Taxman 55 (Mag.)(All.)(High Court)

S.147: Reassessment-Notice after four years – Change of opinion – Inspection report indicating two different units-Reopening on basis of report to withdraw deduction under section 80-IA is a change of opinion held to be not valid. (S.80IA, 148)

The assessment was completed under section 143(3) and deduction under section 80IA was allowed. The assessment was reassessed after four years on the inspection report indicating different units to withdraw the deduction under section 80IA . The assessee challenged the reassessment proceedings allowing the petition, the Court held that this was not a case where the assessee has failed to disclose fully and truly all material facts and the pre- conditions for triggering the exception in the proviso to section 147 were not satisfied, thus reassessment was set aside. (A. Y. 2000-2001)

NTPC Ltd. v. Dy. CIT (2013) 350 ITR 614( Delhi)(High Court)

S.147: Reassessment – Notice after four years – on the basis of complaint of Director of assessee – Held to be valid. (S.148)

The assessee is engaged in the business of running hotels consisting of five independent units. For the assessment year 2003-04, the assessee’s case was selected for scrutiny and after issuing notices under sections 143(2) and 142(1) of the Income-tax Act, 1961, and after examining the details furnished by the assessee, an assessment order was passed under section 143(3). Thereafter, notice under section 148 was issued to reopen the assessment. The assessee challenged the reassessment dismissing the writ petition the court held that; Director of assessee complaining before statutory authority that assessee had siphoned off monies as foreign travelling expenses and under agreement no obligation of assessee to incur such expenses. No details furnished at time of original assessment towards travelling expenses. No denial of such a clause in agreement. On facts failure to disclose fully and truly all material facts on the basis of Complaint constituting tangible material hence reassessment held to be valid.(A.Y. 2003-04)

Rambagh Palace Hotels P. Ltd. v. Dy. CIT (2013) 350 ITR 660 (Delhi)(High Court)

S.147: Reassessment-Notice after four years – Travelling and repair and maintenance- Reassessment held to be invalid. (S.148)

For the assessment year 2004-05, the return declaring loss of the assessee was first processed and accepted under section 143(1) but was later selected for scrutiny and notice was issued under sections 143(2) and 142(1). Questionnaires were also issued calling for details relating to fixed assets, loans and advances, opening and closing inventory, sundry debtors, loss on sale of fixed assets, repairs and maintenance expenses, details of travelling expenses for foreign visits, etc., and these queries were answered by the assessee and the information was submitted. The assessment was completed. The notice under section 148 was issued beyond the period of four years on the ground that the expenditure was debited under the head "repairs and maintenance of building and additions to fixed assets", but the amounts were actually siphoned off by illegal withdrawals. On a writ petition:


Held, allowing the petition, that not only did the assessee furnish all the relevant details relating to the purchase of fixed assets, repairs and maintenance of buildings but also the details relating to the foreign travel expenses. The proceedings relating to the original assessment also showed that the Assessing Officer had raised queries regarding repairs and maintenance of building, plant and furniture which were answered by the assessee. No query would appear to have been raised in relation to the foreign travel expenses in regard to which the assessee had furnished the relevant details. Therefore, it could not be said that there was any failure on the part of the assessee to submit full and true particulars at the time of the original assessment. It was for the Assessing Officer to examine the details and draw the appropriate inferences. The notice under section 148 issued for the assessment year 2004-05 was, therefore, without jurisdiction. (A.Y.2004-05)

Rambagh Palace Hotels P. Ltd. v. Dy. CIT (2013) 350 ITR 660(Delhi)(High Court)

S.147: Reassessment-Complaint by director –Reassessment held to be valid. (S.143(1), 148)

For the assessment year 2005-06, the return of the assessee declaring nil income was processed under section 143(1) and an intimation was issued on June 6, 2006. On March 30, 2012, notice under section 148 was issued reopening the assessment on the ground that the complaint filed by one of the directors before the Company Law Board regarding irregularities in the accounts of the assessee. On a writ petition:

Held, dismissing the petition, that there was no scrutiny assessment under section 143(3) in the first instance ; the return filed by the assessee was merely processed under section 143(1). The most basic and indispensable requirements for the validity of the notice under section 148 were satisfied. There was a complaint filed by one of the directors before the Company Law Board alleging irregularities such as illegal siphoning off of the company’s funds by the other two directors in the guise of fixed assets, repairs and maintenances, travelling expenses, etc. This complaint constituted tangible material on the basis of which action to reopen the assessment could be taken in good faith ; the belief entertained by the Assessing Officer on the basis of the complaint which had been filed with some responsibility by one of the directors of the assessee, could not be said to be a mere pretence nor could the belief be said to be divorced from the material. The complaint constituted relevant material for the belief. Therefore, the notice issued under section 148 was within the jurisdiction. The fact that the assessee submitted all the details to the Assessing Officer along with the return was not relevant where only an intimation under section 143(1) was issued after merely processing the return without any scrutiny. There should, however, be reason to believe that income had escaped assessment and this condition had been satisfied in respect of the (A. Y,.2005-06.)

Rambagh Palace Hotels P. Ltd. v. Dy. CIT (2013) 350 ITR 660(Delhi)(High Court)

S.147: Reassessment-Within four years-Tangible material-No query was raised in the course of assessment hence as there is no application of mind by Assessing Officer notice held to be valid. (S.148)

When an assessment is sought to be reopened within a period of four years from the end of the relevant assessment year, the test to be applied is whether there is tangible material to do so. What is tangible is something which is not illusory, hypothetical or a matter of conjecture. Something which is tangible need not be something which is new. An Assessing Officer who has plainly ignored the relevant material in arriving at an assessment acts contrary to law. If there is an escapement of income in consequence, the jurisdictional requirement of section 147 of the Income-tax Act, 1961, would be fulfilled on the formation of a reason to believe that income has escaped assessment. The reopening of the assessment within a period of four years is in these circumstances within the jurisdiction. The Court held, dismissing the petition that no query was raised during the course of the assessment and the assessment order would ex facie disclose that the Assessing Officer had not applied his mind to any of the points on the basis of which the assessment was reopened. Therefore, there was tangible material for the Assessing Officer to reopen the assessment. Reassessment held to valid on facts. (A.Y. 2006-2007 )

Export Credit Guarantee Corporation of India Ltd. v. Add. CIT (2013) 350 ITR 651 (Bom.) (High Court)

S.147: Reassessment–Notice–Single judge permitting assessee to file objections to notice and directing Assessing Officer to take decision after considering objections-Failure to file objections-Assessee to file objections and order to be passed after considering objections. (S.133A, 148)

The assessee was engaged in jewellery business. During the survey conducted under section 133A of the Income-tax Act, 1961, in the assessee’s premises on February 1, 2006, the managing partner of the assessee admitted certain irregularities in the books of account and offered Rs. 1.5 crores as additional income for investments made by the partners in the business of the assessee for the assessment year 2006-07. The income already projected for advance tax payment in 2006-07 was Rs.1 crore and the amount of Rs. 1.5 crores was over and above the estimated income for the year 2006-07 so that the total income projected was Rs. 2.5 crores and the assessment was completed. Notice was issued for reassessment. On a writ petition, the single judge found that the proceedings were only at the notice stage and it was for the assessee to submit objections and it was for the officer to take the proceedings to the logical conclusion by passing appropriate orders in accordance with law, after considering the objections. Since the time for submitting objections was over, the single judge granted a further period of one month. On appeal held dismissing the appeal, that this was a case where the assessee had not cared to file any objection to the notice. It was in the exercise of discretionary jurisdiction that the single judge permitted the assessee to file objections. In fact, the stand of the Revenue was that the objections would certainly be considered. Therefore, the objections which the assessee had filed must necessarily be considered and reasons must be given. In the above circumstances, interference is declined and the writ petition is dismissed. However, since the time for submitting the objections is already over, the petitioner is granted a further period of "one month" to submit the same. The proceedings shall be finalised in accordance with law, as expeditiously as possible, at any rate, within three months thereafter. (A. Y. 2006-2007)

Alappat Jewels v. Asst. CIT (2013) 350 ITR 471( Ker)(high Court)

S.147:Reassessment-Audit objection-Royalty-Beyond four years-Change of opinion-Audit objection that royalty payment resulted in capital benefit cannot constitute tangible material hence reassessment held to be not valid. (S.148)

Allowing the writ petition of the petitioner the Court held that (i) the assessing authority cannot keep improving his case from time to time and that the reassessment proceedings have to stand or fall on the basis of what was stated in the reasons recorded under section 148(2) of the Income-tax Act, 1961, and nothing more. No failure to furnish full and true particulars relating to the royalty payments, including the failure to file the relevant agreements, had been alleged in the reasons recorded. If anything, the reasons are an admission that it was the Assessing Officer who did not draw the inference that the royalty payments were capital in nature. It was for him to draw the appropriate inference and not for the assessee to tell him what inference of fact or law should be drawn from the primary facts furnished. Therefore, the reassessment notices after four years from the end of the assessment years 2002-03 and 2003-04 were quashed as also the consequent proceedings. The court also held that opinion expressed by audit that payment of royalty resulted in a capital benefit could not constitute a tangible material on the basis of which the assessment could be reopened. (A. Y.2002-2003, to 2004-2005)

Xerox Modicorp Ltd. v.Dy. CIT (2013) 350 ITR 308/81 DTR 321/255 CTR 342 (Delhi) (High Court)

S.147: Reassessment – Notice – Assessing Officer has power to issue notice of reassessment. (S. 143(1), 143(2), 148)

In Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC)the Supreme Court held that so long as the ingredients of section 147 of the Income-tax Act, 1961, are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.( A. Y. 2000-2001)

D.T.T.D.C. Ltd. v. Dy. CIT (2013) 350 ITR 216 (Delhi)(High Court)

S.147:Reassessment – Issue not mentioned in recorded reasons – Explanation 3 -Reassessment held to be justified. (S.35D, 148)

The assessment was completed under section 143(3).The assessment was reopened on the ground that the assessee had debited Rs.44,90,600 towards ‘loss on sale of investment’ allowed as business expenditure though it is a capital in nature. In the reassessment proceedings the Assessing Officer disallowed the preliminary expenses though the said expenses were not referred in he reasons record. On appeal the Tribunal held that Explanation 3 to section 3 to section 147 inserted by the Finance (No 2) Act , 2009 , provides that the Assessing Officer may assessee or reassess the income in respect of any issue , which has escaped assessment , if such issue comes to his notice subsequently in the course of the proceedings under section 147 notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub section (2) of section 148 . Therefore in view of explanation 3 to section 147 inadmissible claim of deduction of miscellaneous expenses under section 35D could be disallowed by the Assessing Officer in the course of reassessment even though the same did not find in the reasons recorded under section 148(2). Appeal of assessee dismissed. (A.Y. 2005-06)

Instant Holdings Ltd v. Dy.CIT ( 2013) 81 DTR 35(Mum.)(Trib.)

S.147: Reassessment – Merger – Rectification – Merger of rectification proceeding with reassessment proceedings – validity of proceedings –Reassessment was held to be valid. (S.143(1), 148, 154)

Assessment was completed under section 143(1) of the Act. Thereafter the notice was issued under section 154/155 of the Act for rectifying certain mistakes. Subsequently the Assessing Officer issued notice under section 147/148 .Before Commissioner (Appeals) it was contended that no reopening can be made after due date of completing scrutiny assessment under section 143(3) has been allowed to be lapsed by the Assessing Officer . It was also contended that there should not be simultaneous action under section 154 and 147 . Commissioner (Appeals) held that reassessment was void ab-initio. On appeal by revenue the Tribunal up held the validity of reassessment and directed the Commissioner (Appeals) to decide on merits. The Tribunal held that reassessment proceedings, validity of those proceedings could not be challenged on ground that there could not be a simultaneous action by Assessing Officer u/s 154 and 147. (A.Y. 2002-03)

Hotel Allied Trades (P. ) Ltd. v. Dy.CIT (2013) 140 ITR 309 (Cochin)(Trib.)

S.147:Reassessment – Income escaping assessment – Consideration for development agreement spread over in three years – Capital Gain to be taxed only in final year – Reassessment Valid

Assessee entered into development agreement with builder and received consideration in installment, spread over three financial years. Assessing Officer issued a notice for reopening for three assessment years . It was held that issue of notice for all three years were valid though finally A.O. brought capital gains to tax only in AY 2003-04. Thus, the reopening of assessment held to be valid. (A.Y. 2003-04)

G. Sreenivasan v. Dy.CIT (2013) 140 ITD 235 (Cochin)(Trib.)

S.147: Reassessment – Export business-Original reason dropped – Assessing Officer cannot assess other escaped income if original reason dropped. (S.80HHC, 148)

The AO issued a notice u/s 148 to reopen the assessment for AY 2003-04 on the ground that the assessee had wrongly computed s. 80HHC deduction. However, in the reassessment order, the AO did not make any addition for the s. 80HHC claim and made additions in respect of other unconnected issues. The Tribunal held that as the AO had made no addition in respect of the issue for which the s. 148 notice was issued, he had no jurisdiction to assess any other income. On appeal by the department to the High Court, HELD dismissing the appeal:

S.147 empowers the AO to reopen an assessment if he has reason to believe that income has escaped assessment. If the requirements of giving jurisdiction to the AO to reopen the assessment are satisfied, he may also assess any other escaped income which comes to his notice subsequently in the course of the proceedings. Prior to the insertion of Explanation 3 to s. 147 by the Finance Act 2009 w.e.f. 1.4.1989, it was clear that if the reason for which the assessment is reopened fails, the AO could not proceed to assess other income which had escaped assessment. For assuming jurisdiction to frame an assessment u/s 147 what is essential is a valid reopening. If the very foundation of the reopening is knocked out, any further proceeding in respect to such assessment naturally would not survive. Explanation 3 to s. 147 does not change this position. Explanation 3 to s. 147 was inserted to counter the view taken by some courts (CIT v. Atlas Cycle Industries (1989) 180 ITR 319 (P&H) & Travancore Cements Ltd. v. ACIT (2008) 305 ITR 170 (Ker.) that even if the jurisdiction was validly exercised, the AO could not assess the other escaped income that was not referred to in the reasons. It merely clarifies the existing law and does not expand the powers of the AO u/s 147. If the AO drops the ground for which the notice for reopening was issued, it means he had no “reason to believe” that income had escaped assessment and so he has no jurisdiction to assess the other escaped income (CIT v. Jet Airways(I) Ltd. (2011) 331 ITR 236 (Bom), Ranbaxy Laboratories Ltd. v. CIT (2011) 336 ITR 136 (Del.) &Major Deepak Mehta 344 ITR 641 (Chhattisgarh) followed; Majinder Singh Kang v. CIT (2012) 344 ITR 358 (P & H) not followed)(A.Y.2003-04)

CIT v. Mohmed Junded Dadani (Guj.)(High Court)

S.148:Reassessment – Notice Failure to issue notice – Reassessment not valid, section 292BB does not have retrospective effect. [S.143(2)]

The A.O. issued a notice u/s 148 to make a reassessment. However, as a notice u/s 143(2) was not issued, the Tribunal quashed the reassessment. The Department filed an appeal before the High Court where it relied on s. 292BB (which provides that the failure to issue notice cannot be objected to if the assessee has appeared in the proceeding), inserted by the Finance Act 2008 w.e.f. 1.4.2008 and argued that the said provision was retrospective in operation and the reassessment was valid. Held by the High Court dismissing the appeal:

The issue of a notice u/s.143(2) is mandatory. The failure to do so renders the reassessment void (CWT v. HUF of H. H. Late Shri. J.M. Scindia (2008) 300 ITR 193 (Bom.) followed). S.292BB was inserted w.e.f. 1.4.2008 and came into operation prospectively for AY 2008 – 2009 and onwards.

CIT v Salman Khan (Bom.)(High Court) www.itatonline.org.

S.153A: Assessment-Search or requisition-Assessment is mandatory even if no incriminating material is found. Distinction between “developer” and “works contractor” in s. 80-IA(4) explained.(S. 80IA (4) )

A search and seizure action u/s.132 was conducted on the premises of the assessee. No incriminating material or evidence was found to indicate that there was any undisclosed income. The AO passed an order u/s. 153A for AY 2000-01 to 2005-06 in which he took the view that the assessee was not entitled to claim deduction u/s 80IA(4) on the ground that it was a contractor and not a developer of infrastructure projects. The Tribunal had to consider two issues: (a) whether if the assessments for the concerned years have attained finality and no incriminating material is found in the course of the search, the AO has jurisdiction to proceed u/s 153A and (b) how to distinguish between a “developer” and a “works contractor” for purposes of s. 80-IA(4). HELD by the Tribunal:

(i) Three possible circumstances emerge on the date of initiation of search u/s 132(1): (a) proceedings are pending; (b) proceedings are not pending but some incriminating material is found in the course of search, indicating undisclosed income and/or assets and (c) proceedings are not pending and no incriminating material has been found. Circumstance (a) is answered by the Act itself, that is, since the proceedings are still pending, all those pending proceedings are abated and the AO gets a free hand to make the assessment. Circumstance (b) has been answered in Anil Bhatia to hold that while there is no question of any abatement since no proceedings are pending, the AO is entitled to reopen the assessment (without having to comply with the strict conditions of s. 147, 148 and 151) and bring the undisclosed income to tax. Also, in All Cargo Global Logistics Ltd v. Dy. CIT ( 2012) 137 ITD 287 (Mum)(SB) it was held that in the case of a non-abated assessment, an assessment u/s 153A has to be made on the basis of incriminating material. Circumstance (c) has been kept open and left unanswered. Circumstance (c) has to be answered to say that even where there is/are no pending proceedings and no incriminating material has to be found, the AO is still required to pass an order u/s 153A though the assessed income will have to be the same as the originally assessed income as there was no incriminating material. Accordingly, the assessee’s argument that when there is no incriminating material or assets, then there is no jurisdiction to proceed u/s 153A is not acceptable. S. 153A contains a non-obstante clause and is triggered automatically whenever a search is undertaken. The fact that no incriminating material was found has no bearing on the applicability of s. 153A;

(ii) S. 80IA(4) allows deduction to “any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility”. The Explanation provides that it shall not apply to “business which is in the nature of a works contract”. Whether an assessee is a developer or works contractor depends on the nature of the work undertaken by the assessee. The word ‘contractor’ is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer is a contractor. Contracts involving design, development, operating and maintenance, financial involvement, and defect correction and liability period cannot be called as simple works contract. A case where in an undeveloped area, infrastructure is developed and handed over to the Government cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. If the contract is composite, it will have to be segregated so as to allow deduction on the parts that involve design, development, operating and maintenance, financial involvement etc and to deny on those which are pure works contracts. On facts, the assessee had made substantial investments in fixed assets and was exposed to various kinds of risks. It was not a mere contractor. It is enough if the assessee is a developer. It need not also maintain & operate the infrastructure facility (Patel Engineering Ltd v. Dy. CIT ( 2004) 94 ITD 411 (Mum) &GVPR Engineers Ltd (included in file) followed)( A. Y. 2000 – 01 to 2005-06)

ACIT v. Pratibha Industries Ltd.( Mum.)(Trib.)www.iatonline.org.

S.153C: Assessment-Income of any other person- Search and seizure-Approval-Failure to Obtain JCIT’s Approval Renders s. 153C Assessment Order Void. (S.132, 144, 153D)

Pursuant to search & seizure action u/s 132 on the premises of a third party, certain documents belonging to the assessee were found and seized pursuant to which a notice u/s 153C was issued to the assessee and assessment u/s 153C r.w.s. 144 were framed. In passing the assessment orders, the A.O. (ITO) omitted to obtain the consent of the JCIT as mandated by S.153D. Before the Tribunal, the assessee argued that the failure to obtain the JCIT’s consent rendered the assessment a nullity. The Tribunal {Akil Gulamali Somki v. ITO (2012) 137 ITD 94 (Pune)} upheld the plea on the basis that as the heading to s. 153D refers to a “prior approval” and uses negative wording and the word “shall”, compliance of s. 153D is mandatory and cannot be waived by the assessee. Reliance was also placed on Clause 9 of the Manual of Office Procedure which makes it clear that an assessment order under Chapter XIV-B can be passed only with the previous approval of the JCIT and that the approval must be in writing and stated to have been obtained in the body of the assessment order. On appeal by the Department to the High Court, held dismissing the appeal:

Though the question raised proceeds on the basis that approval of the JCIT was given as he had corrected the draft assessment order and the changes were incorporated by the AO in the final assessment order, the finding of fact was recorded by the Tribunal is that no prior approval of the Joint Commissioner was taken before the ITO passed the order. In view of the above, there is no reason to entertain the proposed question and the appeal is dismissed.

CIT v. Akil Gulamali Somji (Bom)(High Court) www.itatonline.org.

S.154: Assessment – Rectification of mistake – Tax on STCG – Clerical error – Assessee did not showed STCG under Schedule CG of e-return – Depicted same under Schedule SI – Gain taxable at special rate 10% appeal of assessee was allowed. [S. 111A, 143(1)]

The assessee filed e. return. The Assessing Officer received the intimation under section 143(1). The Assessing Officer computed the tax payable on short term capital gain at 30 percent as against at the rate of 10 percent under section 111A. The assessee moved application under section 154. The Assessing Officer held that short term capital gains had not been shown under section 111A at Schedule CG of e. return. Commissioner (Appeals) up held the order of Assessing Officer. On appeal the Tribunal held that where due to clerical error, assessee did not showed STCG under Schedule CG of e-return, but depicted same under Schedule SI. It was held that Income chargeable at special rates, gains would be taxable at special rate of 10 per cent. (A.Y. 2008-09)

Shrikant Real Estates (P.)Ltd. v. ITO (2013) 140 ITD 155/152 TTJ 30/22 ITR 266 (Mum.)(Trib.)

S.154: Assessment- Rectification of mistakes- Free Trade Zone – Depreciation and brought forward losses –Held benefit of tax holiday availed from AY 1999-2000, its exemption period was continuing hence, S. 10A(6) not applicable, hence rectification was not justified. (S.10A)

Assessee, a S.10A unit claimed deduction for depreciation and brought forward losses which were allowed. Assessing Officer found that claim for depreciation and brought forward business loss for AY had been wrongly allowed as assessee, a section 10A unit, had violated S.10A(6). Assessing Officer passed the order under section 154 and rejected the claim. In appeal Commissioner (Appeals) confirmed the order of Assessing Officer. On appeal the Tribunal held that since assessee chose to avail benefit of tax holiday from AY 1999-2000, its exemption period was continuing and therefore S. 10A(6) would not apply. Accordingly the rectification order was quashed and appeal of assessee was allowed. (A.Y. 2003-04 & 2004-05)

Tata Consultancy Services Ltd. v. ACIT (2013) 140 ITD 325 (Chennai)(Trib.)

S.158BC: Block assessment – Procedure-Undisclosed income-Fixed deposits.

FDRs in names of employees found to be bogus, addition to income is held to be justified. Deletion of amounts representing FDRs in names of friends and relatives of managing director as there was no evidence regarding genuineness of FDRs–Matter remanded. (Block period 1-4-1986 to 28-11-1996)

Hastalloy India Ltd. v. Dy. CIT (2013) 350 ITR 52 (AP) (High Court)

S.158BD:Block assessment-Undisclosed income of any other person-Recording of satisfaction-Satisfaction -Block assessment made without such satisfaction is held to be invalid. (S.158BC)

The Tribunal held that mere forwarding of such books of account by itself was insufficient to conclude that the Assessing Officer, having jurisdiction over the Mody group of cases, was satisfied that any undisclosed income was found or detected, as a result of the search, on the basis of which, proceedings under section 158BD of the Income-tax Act, 1961, could have been initiated against the assessee. On appeal the Court dismissing the appeal held that in the communication from the Assessing Officer of the searched person to the Assessing Officer of the assessee, there was no recording of any satisfaction that any undisclosed income belonged to the assessee. The communication merely indicated that the books of account pertaining to the assessee were seized and were lying in the custody of the Assessing Officer in respect of the Mody group of cases. There was no satisfaction recorded by the Assessing Officer of the Mody group of companies that any undisclosed income belonged to the assessee. The very first mandatory condition precedent for assuming jurisdiction under section 158BD and subsequently under section 158BC had not been satisfied. Thus, the entire proceedings were without jurisdiction. (Block period 1-4-1986 to 2-11-1996)

CIT v.Intercontinental Trading and Investment Co. Ltd. (2013) 350 ITR 316/81 DTR 314 (Delhi)(High Court)

Editorial: Ratio of Manish Maheshwari v. ACIT (2007) 289 ITR 341 (SC) applied.

S.194A: Deduction at source – Interest – Firm – Partner – Interest paid by partner to firm, tax is deductible at source on such interest.

The assessees borrowed money from the firms in which they were partners and paid interest to the firms. The Dy. CIT (TDS) noticed that the assessee did not deduct tax at source under the provisions of section 194A on the interest so paid to the firms. After hearing the assessees, the Dy. CIT (TDS) levied penalty under section 201(1) of the Act equivalent to the amount of tax liable to be deducted at source and levied interest under section 201(1A) of the Act for the period from the closing of the relevant financial year to May 31, 2009 for the assessment years 2005-06 to 2007-08. The Commissioner (Appeals) confirmed the penalties and interest. On appeal to the Tribunal held that t the Income-tax Act recognises a partner and a firm as different "persons", despite the legal relationship between them as prevailing under the Partnership Act. Further section 194A provides exemption from the obligation imposed under that section only in respect of interest paid or credited by a firm to its partner. The Act does not provide such exemption to the interest paid or credited by a partner to his firm. Tax is deductible at source on the interest paid by the partner to the firm. Penalty levied was directed to be deleted after verification of facts. (A.Y.2005-2006 to 2008-2009 )

Thomas Muthoot v. Dy. CIT [2013] 21 ITR 133/55 SOT 390(Cochin.)(Trib.)

S.194C: Deduction at source-Lorry booking business-Not liable to deduct tax at source.

Assessee collecting freight charges from clients who intended to transport their goods through separate transporters and paying to transporters entire amount collected from clients after deducting his commission. There is noprivity of contract of carriage of goods between assessee and his clients, assessee is not a person responsible but only a facilitator hence not liable to deduct tax at source. Appeal of revenue was dismissed.(A. Y.2007-2008)

CIT v. Hardarshan Singh (2013) 350 ITR 427(Delhi) (High Court)

S.194H: Deduction at source – Commission or brokerage – Relation of principal and agent – Discount was treated as commission for provision of S. 194H hence the assessee was held to be liable to deduct tax at source.

Assessee was engaged in the business of providing telecom services across country. To market its products and services, assessee appointed persons called “channel Partners (CP)”. To enable its customer to use its services, assessee gave starter packs as well as recharge vouchers to its CPs. While MRP value of the products were fixed at time of raising invoices, product was priced at discounted price agreed to between assessee and CP. It was held that the relationship between the assessee and its distributors was that of principal and agent and thus, difference between MRP of product and price actually charged constituted commission which would fall under realm of provisions of section 194H. The Assessee was held to be liable to deduct tax at source on such payment .Appeal of assessee was dismissed. (A.Y. 2005-06 & 2008-09)

Tata Teleservices Ltd. v. Dy.CIT (2013) 140 ITD 451 (Bang.)(Trib.)

S.194H:Deduction at source – Commission or brokerage – Bank Charges – Payment to bank for utilization of credit card facilities is not in nature of commission hence section 194H is not applicable.

Assessee had arrangement with several banks whereby customers of assessee, who also held credit card of such banks, could make payment for communication service utilized by them from assessee through credit cards. It was held that the payment to bank for utilization of credit card facilities would be in nature bank charge and not in nature of commission within meaning of section 194H.Assessee is not liable to deduct tax at source on such payments. Appeal of assessee was allowed. (AY 2005-06 & 2008-09)

Tata Teleservices Ltd. v. Dy.CIT (2013) 140 ITD 451 (Bang.)(Trib.)

S.201: Deduction tax at source – Failure to deduct or pay – Firm – Partner – Penalty – Matter remanded.

The Tribunal held that penalty under section 201(1) is compensatory in nature. Failure to deduct tax at source on interest paid by partner to firm. Penalty is not leviable if no tax is payable by firm. Matter remanded. (A.Y. 2005-2006, to 2008-2009)

Thomas Muthoot v. Dy. CIT [2013] 21 ITR 133/55 SOT 390 (Cochin.)(Trib.)

S.201(IA): Deduction at source-Failure to deduct or pay-Interest-Firm-Partner-Matter remanded.

No tax was deducted at source on interest paid by partner of firm. The Tribunal held that interest is not payable if no tax is payable by firm. Matter remanded. (A.Y. 2005-2006 to 2008-2009)

Thomas Muthoot v. Dy. CIT [2013] 21 ITR 133 / 55 SOT 390(Cochin.)(Trib.)

S.215: Advance tax-Interest payable by assessee-Application of mind is necessary-Order of Tribunal deletion of interest held to be justified. (S.217)

That even if any provision of law is mandatory and provides for charging of tax or interest, such charge by the Assessing Officer should be specific and clear and the assessee must be made to know that the Assessing Officer had applied his mind and had ordered the charging of interest. The mandatory nature of charging of interest and the actual charging of interest by application of mind and the mention of the provision of law under which such interest is charged are two different things. The appeal filed by the department is dismissed. (A.Y.1988-1989)

CIT v. Misra Preservers (P.) Ltd (2013) 350 ITR 222(All)(High Court)

S.220: Collection and recovery – Waiver of interest – Hardship – Attachment of entire properties – Entire liabilities subsequently satisfied by appropriation of compensation, Authorities to reconsider waiver application.

The application for waiver of interest liability of Rs.8,54,476 under section 220(2A) of the IT Act, 1961, was rejected and subsequently the entire interest liability of the assessee was satisfied by appropriating amounts from out of Rs.18,06,402 remitted by a corporation which was due to the assessee in a land acquisition proceedings. The reasons for rejecting the application were (i) that the assessee did not produce any proof that he had no other business or source of income, and (ii) there had not been any co-operation extended to the Department during the recovery proceedings. On a writ petition the Court held that the assessee prima facie, proved by the fact that the entire properties of the assessee were under attachment and that the entire liabilities were subsequently cleared by making appropriation of the compensation. Therefore, the order rejecting the application could not be sustained. Commissioner directed to pass the order according to law.

Anto Nitto v.CIT [2013] 350 ITR 305(Ker.)(High Court)

S.220: Collection and recovery-Interest-Waiver-Partial waiver can be given.

In a writ petition filed in the High Court the Court held that section 220(2A) of the Income-tax Act, 1961, is an incentive to defaulter/Assessees to co-operate with the Department and to remit the tax voluntarily at the earliest and, therefore, compliance should be rewarded by taking a liberal view and approach. The Commissioner or the Chief Commissioner need not always waive the amount of interest in full but can grant waiver or reduction partially. What is indicated by the provision is that relief to be granted under section 220(2A) should be proportionate to the extent of satisfaction of the conditions stated therein. In other words, if the conditions are partially satisfied the assessee should be given partial relief, i.e., partial waiver which should be in proportion to the extent of satisfaction of the conditions and Application for stay of recovery proceedings cannot be construed as non-co-operation as entire arrears paid within six months, partial relief under section 220(2A) granted. The Writ petition was allowed.( A. Y.2006-2007 )

Arun Sunny v. Chief CIT [2013] 350 ITR 147(Ker.)(High Court)

S.220: Collection and recovery-Interest-Rejection of waiver application for interest held to be justified.

Assessee partner in two firms and having substantial agricultural income. Assessment was necessitated on account of addition to taxable income of firm of which assessee was a partner. Assessee not satisfying conditions. Payment of interest would not cause genuine hardship Rejection of application for waiver of interest was held to be justified

K. C. Mohanan vChief CIT( 2013) 350 ITR 461( Ker)(High Court)

S.234A: Advance tax – Interest – Waiver of interest – Commissioner waiving one-third of interest – No further waiver of interest (S.234B )

That interest under sections 234A and 234B could be waived by the Chief Commissioner, only if the conditions specified in Notification F. No. 400/29/2002-IT (B), dated June 26, 2006, are satisfied. The first condition requires seizure of documents in search and seizure operations and the second condition was applicable only where interest is charged under section 234C. The third condition was applicable only in cases where the statute has been amended retrospectively and the fourth condition was applicable only where the return is filed voluntarily. None of these grounds were applicable and in spite of this, one-third of the interest had been waived up to the assessment year 1992-93. Since the conditions specified in the notification were not available, the assessee could not seek waiver of interest levied under sections 234A and 234B. Therefore, the order rejecting waiver of interest had to be sustained.

K. C. Mohanan v. Chief CIT (2013) 350 ITR 461 (Ker)(High Court)

S.234B: Advance tax – Interest – Notice of demand – Specific order-Levy of interest was deleted. (S.156)

Interest under section 234B cannot be charged in notice of demand issued under section 156 in absence of any specific order demanding interest in assessment, reassessment or rectification order. (A.Y. 1996-97)

CIT v.Ruchira Papers Ltd. (2013) 212 Taxman 9 (HP)(High Court)

S.234C: Advance tax – Interest – Mandatory – Waiver of interest – Assessee not filing application for waiver of interest hence no opinion could be expressed whether assessee’s case is covered by circulars.

During the assessment year 2004-05, the assessee contended that its principal informed it by letter dated November 4, 2004, that it was entitled to the additional incentive of Rs. 6,07,44,583. The incentive was paid in view of the sale of Rs. 636 crores in the previous year 2003-04 in which the growth of 9.8 per cent. over the last year was recorded. Prior thereto, the assessee was not aware that the income towards the growth incentive would become payable and could not have presumed that it would be entitled to the substantial payment towards growth incentive before the letter dated November 4, 2004, was received by it. The assessee had paid the advance tax of Rs. 1.25 crores on December 14, 2004. The Tribunal upheld the interest charged by the Assessing Officer under section 234C amounting to Rs. 4,17,074. On appeal Held, dismissing the appeal, that the Central Board of Direct Taxes had issued circulars in this regard and the Chief Commissioners and the Director General have been given power to reduce the interest payable under sections 234A, 234B and 234C in specified and specific cases. Since the assessee had not filed any application no opinion could be expressed whether the assessee’s case was covered under the circulars. If deemed appropriate, the assessee could make an application. (A.Y.2004-2005)

Bill and Peggy Marketing India Pvt. Ltd. v. ACIT (2013) 350 ITR 465(Delhi)(High Court)

S.244: Interest – Interest on refund – Intimation – DTAA – India – France [S.143(1)].

Interest assessable in year in which refund granted and not in year in which proceedings under section 143(1)(a) attain finality.If interest reduced on account of assessment under section 143(3) reduced interest to form part of income of that year.Assessing Officer to adopt rate at which interest on income-tax refund charged under Double Taxation Avoidance Agreement between India and France. (A.Y.1997-1998)

Asst. DIT (IT) v. Credit Agricole Indosuez [2013] 21 ITR 345(Mum.)(Trib.)

S.253: Appeal – Appellate Tribunal – Duty of Tribunal – Duty to examine facts carefully.

That the order of the Tribunal did not disclose the facts considered on the basis of which it arrived at the conclusion in respect of the fixed deposits made by the friends and relatives of the managing director to the tune of Rs. 21,60,000. Admittedly, reasons are the links between the materials on which certain conclusions are based on the actual conclusions. In the absence of reasons based on consideration of facts by the Tribunal in the order to support its conclusion as regards the fixed deposit receipts of Rs. 21,60,000 its order could not be sustained. Matter remanded.

Hastalloy India Ltd. v. Dy. CIT (2013) 350 ITR 52(AP) (High Court)

S.254(1): Appellate Tribunal – Order – Duty of Tribunal to give its own reason.

The Court observed that there was no discussion in the order of the Tribunal about the respective arguments of the parties. It did not contain the points for determination and its findings thereon. Even an order of affirmation by a higher authority requires that the authority should give its own reasons, may be, in brief for its concurrence with the order appealed. The Tribunal is under a legal obligation to record its own finding on the submissions of the parties, may be in brief, depending upon the facts and circumstances of the case. But if it does not contain any reason such an order is no order in the eyes of law and cannot be allowed to stand. In the opening portion of the order, the Tribunal noticed the grounds raised by the assessee in the memo of appeal. It had taken trouble to reproduce them but left them undecided. Definitely, the case merited a different treatment at the hands of the Tribunal. (A.Y. 1991-1992 )

Abhyudaya Pharmaceuticals v. CIT( 2013) 350 ITR 358 (All) (High Court)

S.254(1):Appellate Tribunal-Powers – Additional evidence – No power to declare retrospective effect of amendment.-Additional evidence after hearing is also permissible. (Appellate Tribunal) Rules 1963 Rule 29)

The Tribunal has no power to declare retrospective effect of amendment unconstitutional The Tribunal suomotu require additional evidence even after conclusion of hearing .(A.Y. 2007-08)

L.G. Electronics India P. Ltd. v. ACIT (2013) 140 ITD 41 / 22 ITR 1/83 DTR 1/152 TTJ 273 (SB)(Delhi)(Trib.)

S.260A: Appeal-High Court-Substantial question of law-Meaning-Principle of consistency in tax matters.

An appeal under section 260A of the Income–tax Act 1961, will lie before the High Court if the appellant is able to satisfy the Court that it involves a substantial question of law. In order to be substantial, a question of law must be debatable, not previously settled under the law of the land or binding precedent, and must have a material bearing on the decision of the case, if answered either way ,in so far as the rights of the parties before it are concerned. The High Court in exercise of its second appellate jurisdiction should normally accept all findings of facts recorded by the first appellate court, being form of facts. Adequacy of materials or possibilities of another view on facts, is no ground for High Court to entertain a second appeal. The High Court can on facts interfere only after it reaches the conclusion that, in view of the materials on record , no person duly instructed in law can reach that conclusion.

Dy. CIT v. Sulabh International Social Service Organisation (2013) 350 ITR 189 (Patna) (High Court)

S.263: Commissioner – Revision of orders prejudicial to revenue – Error of Assessing Officer should be "unsustainable"-Disallowance under section 14A, debatable, hence revision held to be not warranted. (S.10(33), 14)

Whether the deduction under section 14A was warranted, was a debatable fact. In any event, even if it were not debatable, the error by the Assessing Officer was not "unsustainable". Possibly he could have taken another view; yet, that he did not do so, would not render his opinion an unsustainable one, warranting exercise of section 263.(A. Y. 2002-2003)

CIT v. DLF Ltd. (2013) 350 ITR 555 (Delhi)(High Court)

S.263: Commissioner-Revision of order prejudicial to revenue-Non-residents – Mineral oil, business for prospecting/exploration, etc. (S.44BB)

Where Assessing Officer did not analyse as to whether payment received by assessee was in respect of services rendered or facilities provided in connection with prospecting for extraction or production of mineral oils or it was received only by way of sale price of goods/materials sold by assessee, may be outside India and, thus, there was failure on part of Assessing Officer to ascertain whether said revenue would or could come under provisions of section 44BB, Commissioner rightly revised said order under section 263.Appeal of assessee was dismissed. (A.Y.2006-07)]

M-I Overseas Ltd. v.DIT (IT) [2013] 212 Taxman 190 (Uttarakhand)(High Court)

S.263: Commissioner – Revision of order prejudicial to revenue – Business expenditure -Capital or revenue – Revision held to be not justified.

Assessee paid certain amount towards regulatory fee and stamp duty and claimed deduction of same as a revenue expenditure. Assessing Officer allowed claim of deduction. Commissioner issued on assessee a notice under section 263 stating that license fee, loan arrangement charges and stamp duty were capital expenditure. Assessing Officer before passing assessment order made an enquiry and directed his mind on all aspects. View adopted by him was clearly one among two plausible views that could have been taken. Commissioner did not specifically furnish any reasons to say why original assessment order was unsupportable in law .Commissioner could not have validly exercised his revisionary power under section 263 in instant case.(A.Y. 2004-05)

CIT v.Vodafone Essar South Ltd. (2013) 212 Taxman 184 (Delhi)(High Court)

S.263: Commissioner – Revision of order prejudicial to revenue – Capital gains – Exemption – Investment in bonds – Beyond Prescribed time limit – As no evidence to justify the delay, order under section 263 was held to be justified. (S.54EC.)

Assessee sold agricultural land on 10-1-2006 and invested the sale consideration in Rural Electrification Corporation Ltd. bonds on 27-1-2007 which is beyond the prescribed time limit. The assessee claimed exemption u/s.54EC. The claim was allowed by the Assessing Officer under section 143(3). Commissioner under section 263 directed the Assessing Officer to disallow the claim. The Assessee filed an appeal before the Tribunal .The assessee submitted that delay was due to unavailability of applied forms. However, it was held that there was no evidence to show that assessee had applied for bonds but due to their unavailability, failed to invest within time. The Tribunal also held that it could be accepted that the time-limit for investment extended by Notification up to 31-12-2006 can be stretched up to 27-01-2007 by exercising jurisdiction under the Act. Hence, in the view of above stated legal position withdrawal of exemption u/s 54EC by commission was justified. Note: Notification No. S.O. 2146(E) dated 22/12/2006. (A.Y. 2006-07)

Anuradha Venkatesan (Smt) v. ITO (2013) 140 ITD 421 (Chennai)(Trib.)

S.251: Commissioner (Appeals) – Powers – Revision – Commissioner under section 264 has no power to pass an order prejudicial to assessee, issues which are not subject matter of revision under section cannot be enhanced by the Commissioner (Appeals)(S.35AB, 264)

The Assessing officer allowed the claim of assessee for deduction under section 35AB in respect of technical know- how fees. The Assessee filed petition under section 264 in respect of claim under section 80IB which the assessee had omitted to make in the original return. Commissioner restored the issue regarding allowability of claim under section 80IB of the Act to the Assessing Officer .Assessing Officer in fresh assessment proceedings disallowed the claim under section 80IB. On appeal the Commissioner (Appeals) suomotu disallowed the claim under section 35AB.In appeal before the Tribunal it was argued that Commissioner (Appeals) could not have consider the deduction under section 35AB which is beyond his jurisdiction. The Tribunal held that the Assessing Officer was correct in not considering any issue other than the claim of deduction under section 80IB made by assessee in the application under section 264 before Commissioner as he had no such jurisdiction. No doubt it is true that Commissioner (Appeals) while deciding an appeal has plenary power and can also consider any issue which has been omitted by the Assessing Officer. On the facts the Commissioner (Appeals) can not consider any issue which is beyond the jurisdiction of Assessing Officer .In the fresh Assessment proceedings the Assessing Officer had no jurisdiction to consider any issue other than the claim under section 80IB and therefore, it cannot be said that in not considering the claim of deduction under section 35AB, the Assessing Officer had failed to do something which was necessary in the assessment. Commissioner (Appeals) has no power to act on which the Assessing Officer has no jurisdiction. Accordingly the order of Commissioner (Appeals) was set aside on this issue. (A.Y.2003-04)

Hindustan Colas Ltd. v. ACIT (2013) 140 ITD 277/151 TTJ 421 (Mum.)(Trib.)

S.269SS: Deposits – loans – Mode of repayment – Penalty was deleted. (S.269T, 271D, 271E)

Assessing Officer found that assessee-hostel had accepted and repaid amounts of loans/deposits otherwise than by cross – cheques / drafts in contravention of provisions of sections 269SS and 269T. Assessee contended that some expenditure was incurred by hostel or school students and amount was reimbursed to hostel by managing trustee of school, and it did not become a deposit or loan given or taken by way of cash. It therefore contended that there was no contravention of provisions of sections 269SS and 269T and they were not liable to pay penalty under sections 271D and 271E. Assessing Officer did not accept submission of assessee and imposed penalty under sections 271D and 271E, respectively. Since there was nothing on record to show that above transactions were attached with certain conditions or stipulation as to period of repayment, rate of interest, manner of payment, etc., so as to treat transactions as loan or deposits, penalty could not be levied upon assessee. Appeal of revenue was dismissed.

ITO v. V S Hostel (2013) 212 Taxman 61 (Mag.)(Guj.)(High Court)

S.271(1)(c): Penalty-Concealment- Survey-Surrender of income without explanation attracts penalty. (S.133A)

A survey u/s.133A was conducted on the assessee’s premises in the course of which certain documents belonged to certain entities who had applied for shares in the assessee company were found. The AO called upon the assessee to prove the nature and source of the monies received as share capital, the creditworthiness of the applicants and the genuineness of the transactions. The assessee offered Rs. 40.74 lakhs as income from other sources “to avoid litigation and to buy peace”. It was made clear that in making the surrender, there was no admission of concealment. The A.O. completed the assessment by adding the said sum and levied penalty u/s 271(1)(c) for furnishing inaccurate particulars of income u/s. 271(1)(c). This was upheld by the CIT(A) though reversed by the Tribunal (included in file) on the ground that there was no material to show any concealment and even in the penalty order it was not specified as to the particular credit in respect of which the penalty was being imposed. It was also emphasized by the Tribunal that the assessee had made it clear while surrendering that there was no admission of concealment and that the offer was made in a spirit of settlement. On appeal by the Department to the High Court, HELD reversing the Tribunal:

When the AO called upon the assessee to produce evidence as to the nature and source of the amount received as share capital, the creditworthiness of the applicants and the genuineness of the transactions the assessee simply folded up and surrendered the sum of Rs. 40.74 lakhs by merely stating that it wanted to “buy peace“. In the absence of any explanation in respect of the surrendered income, the first part of clause (A) of Explanation 1 to s. 271(1)(c) is attracted because the nature and source of the amount surrendered are facts material to the computation of total income. The absence of any explanation regarding the receipt of the money, which is in the exclusive knowledge of the assessee leads to an adverse inference against the assessee and is statutorily considered as amounting to concealment of income under the first part of clause (A) of the Explanation to s. 271(1)(c) and penalty has to be levied.

CIT v. MAK Data Ltd (Delhi)( High Court)www.itatonline.org.

S.271(1)(c): Penalty – Concealment – False claims – Levy of penalty was held to be justified.

An amount was Rs 10.81 lakhs was paid to PM (P) Ltd which was assessees sister concern. These payments were made through a debit note raised at the close of the year. Tribunal has given the finding that no such amounts were paid. This finding of Tribunal was accepted by assessee . On appeal by the assessee against the confirmation of penalty the court held that where Tribunal had reached a finding of fact that appellant had filed inaccurate particulars regarding its income by showing false/exaggerated expenses, it would be concluded that there was a concealment of income on part of appellant, leading to imposition of penalty under section 271(1)(c) upon appellant .Appeal of assessee was dismissed..(A.Y.1989-90)

Sanghvi Swiss Refills (P.) Ltd. v. ACIT (2013)81 DTR 40/ 212 Taxman 66 (Mag.) (Bom.) (High Court)

S.271(1)(c): Penalty – Concealment-As there was no clarity on law levy of penalty was held to be not justified. [S.78(2), 170(1)]

Assessee succeeded to business of a partnership firm by way of family settlement. He claimed set off of losses of erstwhile firm. Claim of assessee was disallowed by Assessing Officer, Commissioner and Tribunal on ground that section 78(2) did not entitle assessee to set off losses. High Court however, held that such claim was not allowable in view of section 170(1). Meanwhile, penalty was imposed on ground that assessee had made a false claim .High Court, on appeal, noted that there was absolutely no discussion of section 170 in order of Commissioner (Appeals) and Tribunal which was applicable provision as regards succession. Moreover, Assessing Officer as also Commissioner (Appeals) was under misapprehension that assessee was not a successor .There was lack of clarity by income-tax authorities right up to Tribunal itself and, hence, imposition of penalty was not warranted. Appeal of assessee was allowed.

Pramod Mittal v.CIT [2013] 212 Taxman 64 (Mag.)(Delhi)(High Court)

S.271(1)(c): Penalty –Concealment- AOP- Deletion of penalty held to be justified.(S.167B)

Assessee, an AOP, was constituted for carrying on business of procuring orders on behalf of RIL for supply of purified trephthalic acid. In respect of assessment years in question, assessee filed a return of income at nil. During course of assessment proceeding, assessee was required to explain as to why income should not be charged to tax in hands of AOP by applying provisions of section 167B(2). According to assessee, it had distributed profit amongst its members as per their respective shares which were defined in joint venture agreement and all of them had shown their respective shares as income under provisions of section 167A, and, therefore, section 167B(2) was not applicable. Assessing Officer rejected assessee’s explanation and assessed entire income in hands of AOP under section 167B(2).On second appeal, Tribunal referred matter to Special Bench which upheld order passed by Assessing Officer. Thereupon, Assessing Officer taking a view that assessee had deliberately shown income in hands of members of AOP in order to evade taxes, passed a penalty order under section 271(1)(c).Tribunal, however, set aside penalty order. On revenue’s appeal, it was noted that when assessee had filed nil return, there were two views possible inasmuch as Tribunal itself was in doubt as to which of two views were to be preferred and it was for this very reason that Tribunal had passed referral order requiring matter to be considered by a Special Bench. In view of above, it could not be said that assessee could not have had such a doubt in its mind when it had indeed filed its return. Therefore, Tribunal was justified in setting aside penalty order. Appeal of revenue was dismissed. (A.Y.2003-04,2004-05).

CIT v.Pradeep Agencies Joint Venture (2013) 212 Taxman 72 (Mag.)(Delhi)(High Court)

S.271(1)(c): Penalty – Concealment – No explanation was filed – Penalty was held to be justified. [S.94(7)].

Assessee-company engaged in business of sale and purchase of shares claimed certain loss on sale of shares. Assessing Officer disallowed amount for not complying with provisions of section 94(7) and assessed it as income of assessee. Assessing Officer, thereafter imposed penalty under section 271(1)(c).On appeal, Commissioner (Appeals) deleted penalty but on appeal by revenue Tribunal reversed order of Commissioner (Appeals).When assessee-company had been availing services of a chartered accountant and in spite of that no reply was filed by it for non-compliance with provisions of section 94(7) while working out income shown in income-tax return, Explanation 1 to section 271(1)(c) was directly applicable and penalty was rightly imposed by Assessing Officer. Appeal of assessee was dismissed. (A.Y. 2005-06 )

VSB Investment (P.) Ltd. v. CIT (2013) 212 Taxman 59 (Mag.)(P&H)(High Court)

S.271(1)(c): Penalty – Concealment – Revised return – After detection – Levy of penalty was justified.

Assessee’s case was taken up for scrutiny and concealment of income had been detected by Assessing Officer. Assessee filed revised return. An amount was surrendered on ground of buying peace with department. However, it was a specific concealment for a particular month which was detected by Assessing Officer and not a case where addition was made in income on estimate and surmise. Since it was clear case of concealment of income and furnishing of wrong particulars of income, penalty was correctly imposed. Appeal of assessee was dismissed.(A.Y..1993-94)

Standard Hind Co. v. CIT(2013) 212 Taxman 74 (Mag.)(All.)(High Court)

S.271(1)(c): Penalty – Concealment – Transfer pricing – Computation of ALP – Debate at the time of filing return as to whether current year data can be used or multiple year data has to be used – Assessee adopting multiple year data, bona fide exercise levy of penalty held to be not justified. (S.92C)

Assessee, engaged in providing market support services, returned nil income and computed arm’s length price of its transactions on basis of multiple year data. TPO being of opinion that current year data was to be used, added some comparables and made transfer pricing adjustment. The Assessing Officer made addition to assessee’s income and initiated penalty proceedings. It was held that where at time of filing return, there was a legal debate as to whether current year data can be used or multiple year data has to be used, assessee’s adopting multiple year data was a bona fide exercise. The assessee acted in bonafide manner in conducting its transfer pricing study and arriving at arm’s length price . The explanation is bonafide hence levy of penalty under section 271(1)(c ) is not warranted. (A.Y. 2006-07)

Verizon Communication India (P.) Ltd. v. Dy. CIT (2013) 140 ITD 122 (Delhi)(Trib.)

S.271(1)(c): Penalty – Concealment – surrender of income – Levy of penalty held to be valid.

During the course of assessment proceedings, the Assessing Officer after obtaining details of creditors, issued notice under section 133(6) of the Act to N and G. In the light of the details reflected in the copy of account of the assessee received from these parties vis-a-vis the books of account of the assessee, the Assessing Officer noticed differences. The assessee surrendered the amount. Accordingly in terms of the surrender of the amount, the Assessing Officer added the amount and initiated penalty proceedings under section 271(1)(c). This was upheld by the Commissioner (Appeals). On appeal to the Tribunal held that as a result of enquiries made by the Assessing Officer, the assessee did not reconcile the difference in the account of the two parties and instead surrendered the amount as income of the year under consideration. In the course of penalty proceedings, the assessee did not bring any material before the Assessing Officer to rebut the inferences drawn by the Assessing Officer in the course of assessment proceedings. The assessee claimed before the Assessing Officer and the Commissioner (Appeals) that the addition was accepted in order to purchase peace of mind and to bring an end to the issue. But this explanation was tendered only after the Assessing Officer confronted the evidence in the form of copies of account of the assessee in the books of the two parties. Apparently, only when the assessee was cornered, the assessee surrendered the amount. The surrender was not voluntary. The levy of penalty was valid.(A. Y.2007-2008 )

Ajay Jain v.ACIT [2013] 21 ITR 41 (Delhi)(Trib.)

S.271B: Penalty – Penalty – Failure to get accounts audited – Business Income – Tax Audit – Turnover – Online buying and selling of commodities being speculative in nature not liable for penalty. (S.44AB)

Assessee is engaged in online buying and selling commodities through commodity exchange, as a speculative activity, wherein no physical delivery was taken or given, total transaction booked with such commodity exchange could not be considered as ‘turnover’ for purpose of considering liability of assessee to get accounts audited u/s.44AB. Buying and selling the units was a speculative transaction .No delivery has taken place hence Levy of penalty was deleted . (A.Y.2006-07)

Banwari Sitaram Pasari HUF v. ACIT (2013) 140 ITD 320 (Pune)(Trib.)

S.281B: Provisional attachment- There is no provision in statute which gives preferential rights to dues of State under Act. – (S.13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.)

A company availed loan from petitioner and mortgaged certain property to secure loan advanced to it .Since said company defaulted in making payments of loan, petitioner initiated proceedings under section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.Thereupon, petitioner took possession over property and put it on sale. Impugned property had been provisionally attached under section 281B with prior approval of Commissioner and, it was on said basis, revenue claimed preferential right to realize its dues being crown debt. There is no provision in statute which gives preferential rights to dues of State under Act. therefore, petitioner as secured creditor had preference over dues of department in respect of secured assets. In view of aforesaid, instant writ petition was to be disposed of with a direction to petitioner to remit any excess amount, after adjusting its dues, to revenue being preferential creditor amongst unsecured creditors. Writ petition of assessee was allowed.

Axis Bank Ltd. v. CIT (2013) 212 Taxman 19 (Mag.)(P & H)(High Court)

S.281B: Provisional attachment – Validity period – Extinguish after passing of assessment order. (S.144C)

Provisional attachment order passed under section 281B and notices/letters issued to bank and sundry debtors of petitioner for not to make payment to petitioner would cease to operate after passing of assessment order. Validity period of six months of provisional attachment order would be extinguished after passing of assessment order.(A.Y.2008-09)

Motorola Solutions India (P.)Ltd. v. CIT [2013] 212 Taxman 35 (P & H)(High Court)

S.292BB: Notice deemed to be valid in certain circumstances – Reassessment-Section 292BB does not have retrospective effect. (S.143(2), 148)

The AO issued a notice u/s 148 to make a reassessment. However, as a notice u/s.143(2) was not issued, the Tribunal quashed the reassessment. The Department filed an appeal before the High Court where it relied on s. 292BB (which provides that the failure to issue notice cannot be objected to if the assessee has appeared in the proceeding), inserted by the Finance Act 2008 w.e.f. 1.4.2008 and argued that the said provision was retrospective in operation and the reassessment was valid. HELD by the High Court dismissing the appeal:

The issue of a notice u/s 143(2) is mandatory. The failure to do so renders the reassessment void ( CWT v. HUF of H. H. Late Shri. J.M.Scindia (2008) 300 ITR 193 (Bom.) followed). S. 292BB was inserted w.e.f. 1.4.2008 and came into operation prospectively for AY 2008 – 2009 and onwards.

CIT v Salman Khan (Bom)(High Court) www.itatonline.org.

S.292C: Presumption as to assets, books of account, etc. - Search and Seizure – Addition on the basis of documents is held to be justified.

Pursuant to a search at assessee’s premises, certain documents were found and one of such documents contained working of interest at rate of 3 per cent on total sum of Rs. 3 lakh . Assessee was directed to explain contents of document found during course of search – Assessee explained that contents of said document were rough working and no loan was given out. Assessing Officer rejected assessee’s explanation and brought to tax principal amount of Rs. 3 lakh and interest thereon. Commissioner (Appeals) and Tribunal confirmed order of Assessing Officer. On basis of material recovered during search, lower authorities had rightly drawn presumption in terms of section 292C .therefore, impugned addition was to be confirmed. Appeal of assessee was dismissed. (A.Y.1998-99)

Hiren Vasantlal Shah v. ACIT (2013) 212 Taxman 23 (Mag.)(Guj.)(High Court)


Gift-tax Act, 1958

S.4(1)(c): Deemed gift – Revocable gift of shares – Donor revoking gift but bonus shares continued with donee- Matter remanded [S.11, 16(1)]

The assessee owned 6000 shares of Hero Cycles. On 20.02.1982, he executed a deed of revocable transfer in favour of M/s. Yogesh Chandra. The deed permitted the assessee to, after completion of 74 months from the date of transfer but before the expiry of 82 months from the said date, exercise the power of revoking the gift. In other words, there was a window of 8 months within which the gift could be revoked. The deed of revocable transfer specifically stated that the gift shall not include any bonus shares or right shares received and/or accruing or coming to the transferee from Hero Cycles by virtue of ownership of the said shares. Effectively, therefore, only a gift of 6000 equity shares was made by the assessee to the transferee. On 29.09.1982 & 31.5.1986, the company issued 4000 and 10,000 bonus shares to the transferee. On 15.6.1988, the assessee revoked the gift with the result that the 6000 shares gifted to the transferee came back to the assessee. However, the 14,000 bonus shares allotted to the transferee while it was the holder of the equity shares of the company continued with the transferee. In AY 1982-83, the GTO relied on McDowell and Co. Ltd. v. Commercial Tax Officer ( 1985)154 ITR 148 (SC) and held that the revocable transfer was only for the purpose of reducing the wealth tax liability and was void. He, however, made a protective gift-tax assessment. The Tribunal and the High Court (CGT vs. Satya Nand Munjal (2002) 256 ITR 516 (P&H)) reversed the AO and held that a revocable transfer was valid even if its object was to avoid wealth-tax. The assessee was held liable to pay gift-tax u/r 11 of the Gift-tax Act. In AY 1989-90 the AO & CIT(A) held that the 14,000 shares belonged to the assessee and as the revocation was only with respect to the 6,000 shares and the 14,000 bonus shares continued with the transferee, there was a chargeable gift to that extent. The Tribunal reversed the AO & CIT(A). On appeal by the department, the High Court reversed the Tribunal and held that the assessee was liable to gift tax on the value of the bonus shares gifted by him to the transferee applying the principles of Escorts Farms (Ramgarh) Ltd. v CIT (1996) 222 ITR 509 (SC). On appeal by the assessee to the Supreme Court, held:

The fundamental question is whether there was in fact a gift of 14,000 bonus shares made by the assessee to the transferee. The answer to this question lies in s. 4(1)(c) of the Gift-tax Act which provides that “where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or abandonment to the extent to which it has not been found to the satisfaction of the AO to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment“. On facts, the assessee had made a valid revocable gift of 6000 equity shares in the company on 20.2.1982 to the transferee. The only event that took place in AY 1989-90 was the revocation of the gift by the assessee on 15.6.1988. The question whether the revocation of the gift of the original shares in AY 1989-90 constitutes a gift of the bonus shares that were allotted to the transferee on 29.09.1982 and 31.05.1986 requires to be answered in the light of s.4(1)(c). The question of applicability of Escorts Farms has to be decided after a finding is reached on the applicability of the first part of s. 4(1)(c) (matter remanded).(A.Y.1989-90)

SatyaNandMunjal v. CGT( 2013) 350 ITR 640/256 CTR 121/82 DTR 284(SC)

Om PrakashMunjalv.CIT( 2013) 256 CTR 121/82 DTR 284(SC)

S.16B: Revocable gift-Interest-Matter remanded.

The High Court held inter alia, that since gift-tax was leviable on the revocable transfer of equity shares by the assessee to Y , interest was liable to be paid by the assessee on the gift -tax levied. On appeal, the Supreme Court set aside the judgment of the High Court and remanded the matters for fresh consideration on the merits of the case.(A.Y. 1989-90)

Satya Nand Munjal v. CGT (2013) 350 ITR 649/256 CTR 127/82 DTR 275(SC)

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Interest –tax Act, 1974.

S.2(5): Interest –Credit institution.-Chargeable interest.

Interest tax collected by a credit institution cannot partake character of chargeable interest and, thus no interest tax would be exigible on it.

CIT v. Haryana Financial Corpn. (2013) 212 Taxman 25 (Mag.) (P&H) (High Court)

S.2(5): Interest – Non banking financial institution – Financial transaction – Hire purchase –Matter remanded.

Tribunal has remitted the matter to original authority to have a fresh look, in to matter both aspect of relevance of board circular and judgment of Supreme Court in case of Sundaram Finance v. State of Kerala, AIR 1966 SC 1178. Appeal of revenue was dismissed.(A.Y.1998-99)

CIT v. Standard Chartered Finance Ltd ( 2013) 212 Taxman 24 (Mag.) (Karn.)(High Court)

S.2(5B): Financial Company -Lease charges-Discounting charges.

Where factual aspect as to whether assessee was a financial company and whether interest earned under three heads namely, lease charges, hire purchase charges and bill discounting charges, were chargeable to tax under Interest-tax Act being not clear, matter was to be remanded back to lower authorities for reconsideration -Matter remanded.

CIT v.Motor & General Finance Ltd. (2013) 212 Taxman 76( Mag.)(Delhi)(High Court)

S.2(7): Interest –Finance charges-Separate Accounts.

Assessee-bank received finance charges in case of lease transactions entered into by it with its customers where customers purchased machinery from finances provided by assess. Assessing Officer held that amount received by assessee was liable to interest tax. On appeal, Appellate Authorities held that amount collected by assessee was hire purchase charges and not interest and, therefore, there was no liability to pay tax as such. In view of concurrent finding of fact recorded by Appellate Authorities, no case for interference was made out. Appeal of revenue was dismissed. When assessee had maintained a separate account in respect of amounts collected from customers towards interest-tax, amounts so collected by assessee were not ‘interest’ within meaning of section 2(7) and, hence, could not be treated as chargeable interest. Appeal of revenue was dismissed.

CIT v. Karnataka Bank Ltd. (2013)212 Taxman 78( Mag.)(Karn.)(High Court)

S.10: Reassessment – Non – disclosure of primary facts-Reassessment held to be valid. (S.8, 10A).

Assessee filed return of chargeable interest voluntarily, which had not been processed / finalized by Assessing Officer. Later on, Assessing Officer issued a notice under section 10 to reopen assessment on ground that certain interest chargeable to tax had escaped assessment on account of non-disclosure by assessee. Assessing Officer passed a reassessment order and brought to tax certain amount of interest. Appellate authorities having found that Assessing Officer had not processed original return filed by assessee within limitation period of two years from end of assessment year under consideration, held that reopening of assessment was barred by time. Situations may develop where Assessing Officer may be inactive, may be indecisive or may be for justifiable reasons or deliberately does not conclude assessment, but to hold or opine that even a re-assessment is not possible in such situations will be virtually amounting to re-writing contents of section 10 .Since a reopening is permitted even in a situation where an assessment order is passed, but that has resulted in escapement of some chargeable interest to tax, reopening is also permitted where a return is filed, but no assessment order is passed within time permitted for passing an assessment order under section 10A .Section 10 is a specific enabling provision only to remedy such situations and only criteria is escapement of such chargeable interest to tax for whatever reason may be; while invoking section 10 it can only be within parameters mentioned in section 10 and not with reference to time stipulations provided for concluding an assessment or passing assessment order under section 8.Reopening held to be justified.(A.Y.1997-98).

CIT v. Standard Chartered Finance Ltd. (2013) 212 Taxman 79 (Mag.)(Karn.)(High Court)

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Wealth-tax Act, 1957

S.2(ea): Assets –Lease for 99 years-Used for the purpose of business-Land is exempt.

Assessee had been allocated land in question on 99 years lease by State Industrial Corporation. WTO denied exemption under section 2(ea)(i)(3) and subjected land to wealth tax on ground that assessee was not doing any business therefrom for last number of years. In fact it was found that assessee had carried on its business utilizing aforesaid asset for this purpose, and this position was even accepted by department as well.On facts land in question held by assessee was exempt from wealth-tax under section 2(ea)(i)(3).(A.Y.2001-02 to 2004-05)

CIT v. Sohna Forge (P.) Ltd. [2013] 212 Taxman 82 (Mag.)(Delhi)(High Court)

S.2.(ea): Assets-Surplus of income-Presumption-Exception-No presumption -Addition of income from undisclosed sources in earlier years is not treated as surplus available in assessee’s hands to be treated as wealth for purpose of wealth-tax for latter years.

The Income-tax Officer, for the assessment years 1985-86 to 1988-89, found that the total surplus available with the assessee by way of income being Rs. 21,15,164 and the total wealth disclosed by the assessee being Rs.97,25,000, the increase in the wealth was to the tune of Rs. 76,09,836. That income of Rs. 76,09,836 was taken to be income from undisclosed sources. The total available surplus available with the assessee during the assessment years 1973-74 to 1976-77 was declared to be Rs. 21,15,164 based on the assessed income of the assessee for the three years. The Tribunal upheld the assessment. On appeals :

Held, dismissing the appeals, that the addition of Rs. 23,59,461 made from the assessment years 1963-64 to 1970-71 could not be held to be assets in the hands of the assessee after the period of more than eight years and, therefore, no tax could be imposed on the basis of such addition of Rs. 23,59,461 treating it to be wealth for the purpose of wealth-tax for the years 1985-86 to 1988-89 and onwards.(A. Y. 1985-1986, to 1988-1989)

Gyan Chand Jain v. CWT (2013) 350 ITR 353 (Jharkhand)(High Court)

S.4: Deemed wealth-Asset-’belonging to’-Allotment of land-Liable to wealth tax.

Assessee was allotted certain land by State Government. It constructed sheds thereon and rented out same to industrialists. Assessing Officer observed that though income from those sheds had been reflected in income of assessee, in return of wealth tax aforesaid shed were not shown as ‘assets’ of assessee. Assessing Officer, therefore, added value of those sheds towards assets of assessee – On appeal, Tribunal held that property in question could not be treated to be assets of assessee since same had only been allotted to it and was actually transferred in its favour in a later year. Since assessee was deriving rental income from sheds, property should be deemed to be belonging to assessee and was liable to be included in its assets.

CIT v.H. P. Small Industries & Export Corp. (2013) 212 Taxman 84 (Mag.) (HP.) (High Court)

S.5(i): Exemptions – Property held by charitable and religious trust –Exemption is held to be available.

Assessee trust was constituted with object to provide educational facilities in catering .One ‘K’ transferred movable and immovable properties of hotel ‘V’ to assessee-trust for providing catering education therein .Said transfer was treated as gift in hands of ‘K’ but on appeal levy of gift tax was set aside by Tribunal holding that there was no gift and it was only a permission granted for a college to manage same free of rent. In case of assessee, Assessing Officer treated assets of hotel ‘V’ as assessee’s wealth and computed wealth tax liability payable by assessee .when assessee was not liable to pay any income-tax on income derived by it from activity carried on by it and ‘K’ was held not liable to pay gift-tax for transfer of property in assessee’s favour, levy of wealth tax on very same property on ground that activity conducted by assessee in respect of property did not constitute a charitable or religious purpose was unjustified. Appeal of revenue was dismissed.(A.Y. 1986-87)

CIT v.Manipal Hotel & Restaurant Management College Trust [2013] 212 Taxman 86 (Mag.)(Karn.)(High Court)

S.7: Valuation of assets – Immovable property – Let out property – Interest free deposits-Annual rent-Addition was up held:

Assessee let out its property on annual rent of Rs. 4.42 lakhs. It also received interest free deposits of Rs. 31.50 lakhs from tenant – While computing fair market value of property let out, Assessing Officer added interest at rate of 14 per cent on Rs. 31.50 lakhs to figure of annual rent. Commissioner (Appeals) as well as Tribunal held that interest amount could not be added to annual rent to compute fair market value of property. It is undisputed that as per Schedule III, rule 5, where an owner has accepted an amount or deposit, not being an advance payment towards rent for a period of 3 months or less, an amount calculated at rate of 15 per cent per annum on amount of deposit outstanding from month to month shall be added to compute annual rent. In view of aforesaid, computation made by Assessing Officer by adding interest on security deposit to figure of annual rent was to be upheld. Appeal of revenue was up held. (A.Y.1985-86 to 1987-88)

CWT v.M G Builders Co. (2013) 212 Taxman 15 (Mag.) (Delhi) (High Court)

S.7: Value of assets – Immovable property – Slums on property has to be considered for the purpose of valuation of property.

Assessee acquired 50 per cent of share in a property. He acquired same under registered sale deed .AAC accepted valuation of assessee whereunder apart from consideration mentioned in sale deed and market value of the property, impediments like ownerships slums on property were also taken into consideration in coming to fair market value. On appeal, Tribunal declined to interfere with finding recorded by AAC .On facts, valuation accepted by Tribunal was just and proper and represented true market value of property. (A.Y.1996-97 to 2003-04)

CIT v. S.K. Ramprasad (2013) 212 Taxman 15 (Mag.)(Karn.)(High Court)

S.16: Assessment –Notice- Reassessment-Order passed without issuing mandatory notice held to be in valid. (S.16(2), 16(4), 17)

A notice under section 17 was issued to assessee on ground that authority had reason to believe that wealth had escaped assessment – Assessee did not file any return, in response to said notice. Assessing Authority issued a notice under section 16(4) calling upon assessee to produce accounts books and other documents for verification. Instead of producing books as sought for in said notice, assessee filed returns under section 16(4)(i).Thereafter, Assessing Authority passed assessment order .Assessee challenged said order before Appellate Commissioner on ground that notice under section 16(2) was not issued before passing an order of assessment which was mandatory. Appellate Commissioner taking a view that notice issued under section 16(4) would satisfy requirement of law as well as principles of natural justice, dismissed assessee’s appeal. On further appeal, Tribunal held that impugned order of assessment passed without complying with requirement of section 16(2) was invalid. On appeal by revenue the Court held that since Assessing Officer had neither given a notice under section 16(2) nor a notice as contemplated in proviso to section 16(5) and passed impugned order, order so passed was violative of principles of natural justice , therefore, Tribunal was justified in setting aside impugned assessment order.(A.Y.1999-2000 to 2003-04)

CWT v. Prameela Krishna (Smt) (2013) 212 Taxman 16 (Mag.) (Karn.)(High Court)

S.24: Appellate Tribunal –Power- Appeal-Rectification of mistake-No power to review.

Assessee is an individual belonging to royal family of Patiala. In course of wealth-tax proceedings, department had bifurcated residential land bounded by four walls of property into different segments and adopted different rates of land . On appeal, Tribunal considered facts of case and proceeded to hold that value of residential house and land appurtenant to residential house might be valued as per provisions of section 7(4). However, in same order, Tribunal proceeded to hold that classification of land into different categories, area of land and valuation of land, was fair and reasonable . In view of apparent contradictions in Tribunal’s order, assessee filed a miscellaneous application .Tribunal thus recalled its order for a limited purpose of determining valuation of land appurtenant to residential house in question. Subsequently, Tribunal concluded that there was no contradiction in findings recorded On facts, approach adopted by Tribunal in impugned order smacked review of earlier order. therefore, impugned order was to be set aside and, matter was to be remanded back with a direction to Tribunal to reconcile figuring in earlier order instead of writing a perfunctory order. Matter remanded (A.Y.1972-73 to 1984-85)

Raja Malwinder Singh v. CWT (2013) 212 Taxman 17 (Mag.) (P & H)(High Court)


Excise and Customs.

Excise and Customs-Stay- Recovery-CBEC Circular that demand should be recovered even if stay application is not disposed of for no fault of assessee is arbitrary, unjustified & unlawful-Digital data records- For better administration and control to safe guard the interest of revenue as well as fairness to assessees, Union of India Ministry of Finance requested to give these suggestions serious and urgent consideration.

The Central Board of Excise and Customs (CBEC) issued Circular No. 967/01/ 2013 – CX dated 01.01.2013 to deal with recovery of demand. The Circular provided that (i) even if a stay application is pending, steps for recovery must be initiated thirty days after the filing of the appeal if no stay is granted, (ii) if the Commissioner (Appeals) has confirmed a demand, recovery has to be initiated immediately despite s. 35F permitting the assessee to move the Tribunal for a dispensation of the requirement of deposit and (iii) if the Tribunal has confirmed the demand, recovery should be initiated immediately despite the statute providing a time period for filing an appeal to the High Court. The Circular was challenged by the assessees on the ground that recovery of the demand even when the assessee is not responsible for the delay in disposal of the stay application/ appeal and during the pendency of the time period for filing an appeal was arbitrary and violative of Article 14 of the Constitution. Held by the High Court upholding the plea:

(i) Though in Krishna Sales (Collector of Customs Bombay v. Krishna Sales (P) Ltd.(1994) 73 ELT 519 (SC) it was held that the mere filing of an appeal does not operate as a stay or suspension of the order appealed against, where the delay in the disposal of an appeal or a stay application arises due to a failure of the Appellate Authority to dispose of the appeal or the stay application and the assessee is not at fault, there is no reason or justification to penalize the assessee by recovering the demand in the meantime. Administrative reasons for non-disposal of the stay application may include lack of adequate infrastructure, unavailability of the officer concerned before whom the stay application has been filed, absence of a Bench before the CESTAT for the decision of an application for stay or the sheer volume of work. In such a situation, where an assessee has done everything within his control by moving an application for stay and which remains pending because of the inability of the Commissioner (Appeals) or the CESTAT to dispose of the application within thirty days, it would be a travesty of justice if recovery proceedings are allowed to be initiated in the meantime. The protection of the revenue has to be necessarily balanced with fairness to the assessee. That was why, even though a specific statutory provision came to be introduced by Parliament in s. 35C(2A) to the effect that an order of stay would stand vacated where the appeal before the Tribunal was not disposed of within 180 days, the Supreme Court held in COC &C.Ex.(Ahd) v. Kumar Cotton Mills Pvt. Ltd.( 2005) 180 ELT 434 (SC) that this would not apply to a situation where the appeal had remained pending for reasons not attributable to the assessee.

(ii) Also initiation of recovery proceedings without allowing the assessee, the time which is allowed by the statute for filing an appeal and for applying for a waiver of pre-deposit or for filing an appeal to the High Court is not justified. The circular is in terrorem and its plain effect and consequence is to deprive the assessee of the remedy which is provided under the law of moving, as the case may be, the CESTAT, the High Court or the Supreme Court against an order of adjudication of the competent appellate forum. There is no justification to commence recovery immediately following an order in appeal where the limitation period for challenging the decision of the Appellate Authority has not expired. The Circular is to that extent patently arbitrary and violative of Article 14 of the Constitution. The Department’s argument that the field officers who initiate recovery action have no means of verifying the status of the stay application is not justified. The Ministry of Finance should take steps to ensure that proceedings before all the authorities are recorded in the electronic form. This will provide transparency and accountability in the functioning of all authorities. However, if the failure to dispose of the stay application is because of the conduct of the assessee, the revenue would be justified in commencing recovery action.

Larsen & Toubro Limited v. UOI(2013) (288) E.L.T. 481 (Bom.) (High Court)
Service Tax .

Service tax – CBEC Circulars on CA’s liability to pay higher service tax rate on services rendered/ invoice raised before 01.04.2012 but payment received thereafter is ultra vires.

Rule 2(e) of the Point of Taxation Rules, 2011 inserted w.e.f. 01.04.2011 defined “point of taxation” as the point in time when a service shall be deemed to have been provided. Consequent to the insertion of s. 66B, the rate of service tax was enhanced from 10% to 12% w.e.f. 01.04.2012. The High Court had to consider what would be the rate of tax where (a) the service is provided by the chartered accountants prior to 01.04.2012 (b) the invoice is issued by the CAs prior to 01.04.2012 but (c) the payment is received after 01.04.2012. On facts, as the services were rendered before 01.04.2012 and even the invoices were raised before that date and it was only that the payment was received after the said date, the Petitioner claimed that Rule 4(a)(ii) of the Point of Taxation Rules, 2011 applies and the point of taxation shall be the date of issuance of the invoice. However, the service tax authorities issued Circular No.154 dated 28.03.2012 and Circular No.158 dated 08.05.2012 that in respect of invoices issued on or before 31st March 2012 the point of taxation shall be the date of payment. The Petitioner filed a Writ Petition to challenge the said Circulars. HELD by the High Court upholding the plea:

Rule 4 of the Point of Taxation Rules, 2011 which has continued even after 01.04.2012 is clearly the answer. It provides for a specific situation namely determination of the point of taxation in case of change in effective rate of tax. As per Rule 4, whenever there is a change in the effective rate of tax in respect of a service, the point of taxation shall be determined in the manner set out in the Rule. Sub-clause (ii) of Clause (a) of Rule 4 provides that where the taxable service has been provided before 01.04.2012 and the invoice was also issued before 01.04.2012, but the payment is received after 01.04.2012, then the date of issuance of invoice shall be deemed to be the date on which the service was rendered and, consequently, the point of taxation. The result is that where the services of the chartered accountants were actually rendered before 01.04.2012 and the invoices were also issued before that date, but the payment was received after the said date, the rate of tax will be 10% and not 12%. The circulars in question have not taken note of this aspect, and have proceeded on the erroneous assumption that the old Rule 7 continued to govern the case notwithstanding the introduction of the new Rule 7 which does not provide for the contingency that has arisen in the present case. Consequently, the circulars are quashed as being contrary to the Finance Act, 1994 and the Point of Taxation Rules, 2011. A Circular which is contrary to the Act and the Rules cannot be enforced (Ratan Melting & Wire Industries followed)

Delhi Chartered Accountants Society v. UOI (Delhi)(High Court) www.itatonline.org

Allied Laws.

Service matter – Promotion of income-tax Inspectors – Direct recruits – promotes.

where examination and selection process of direct recruits could not be completed within recruitment year itself, modification/amendment in manner of determining inter se seniority between direct recruits and promotees, carried out through Office Memorandum dated 7-2-1986, and compilation of instructions pertaining to seniority in Office Memorandum dated 3-7-1986 leave no room for any doubt that ‘rotation of quotas’ principle would be fully applicable to direct recruits. Direct recruits will, therefore, have to be interspaced with promotees of same recruitment year. Claim of promotees that direct recruit Income-tax inspectors in such a case should be assigned seniority with reference to date of their actual appointment in Income-tax Department; and not date of original/first examination/selection, was to be declined.

UOI v. N.R. Parmar [2013] 212 Taxman 97 (SC)


Interpretation of taxing statues.

Precedent- Judgment of Foreign Courts- Persuasive value.

The judgment of Foreign Courts have only persuasive value.

L.G. Electronics India P. Ltd v. ACIT (2013)140 ITD 41/ 22 ITR 1/83 DTR 1/152 TTJ 273 (SB) (Delhi) (Trib.)


Circulars

10 of 2012dated 31st December, 2012(2013) 350 ITR (ST) 31.

Reg- Certificate Search and seizure, 132, read with 153A, 153C etc.

1 of 2013 dated 17th January, 2013 – Issues relating to export of computer software –Direct tax benefits –Clarification (2013) 350 ITR (St) 34.

Service Tax-Circular no 967/01/2013 –CX. dt 1st January, 2013 –Recovery of confirmed demand during pendency of stay application –Reg –(201) 255 CTR (Statutes) 25
Income -tax Appellate Tribunal.

ITATs Practice note, dt 1st Jan., 2013 – Section 255 of the IT Act, 1961—E. Bench-Procedure of-Practice note for hearing appeals & applications fixed before ITAT Allahabad Bench, Allahabad (2013) 255 CTR (Statutes ) 30

ITAT’s note on department’s General Grienvances in the matter of representation and adjudication of cases fixed before each bench of ITAT Delhi (2013) 212 Taxman 102 (ST).

Life centenary celebration of Shri K. Sadgoplachari (Former president of ITAT) – Speech Justice Sri S. Ranganthan (2013) 21 ITR (Trib.)(Journal) P. 1

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Articles-Sections.

S. 2(19AA): Demerger- Some critical aspects of company and income tax laws by Dr. K.R. Chandatre (2013) 255 CTR (Articles) 65

S.5(2)(b): Commission to non-resident agents-Whether Accruing or Arising in India by Pradip Kapashi, Gautam Nayak (2013 ) BCAJ –January –P.40

S.9(1)(vi): Controversy around software royalty refuses to settle-An analysis of the decision of Delhi High Court in Nokia net works by Abhishekworah ( 2013) 212 Taxman 1 (Mag)

S. 11: Non –Profit organizations under DTC an appraisal ( 2013) 350 ITR ( Journal) 41

S.14A: Business expenditure-Applicability of section 14A to income covered by deductions under chapter VI-A by R. Raghunathan (2013) 255 CTR (Articles) 30.

S.37(1): Business expenditure- How convincing is the Calcutta High Court decision under section 37(1) of the Income-tax Act , 1961 by T.N. Pandey (2013) 350 ITR (Journal) 51

S.37(1): Business expenditure-Explanation to section 37(1) of the IT Act 1961 by T.N. Pandey (2013) 255 CTR (Articles) 53

S.40(a)(ia): Amounts not deductible- Amendments to section 40(a)(ia) does it apply to pending assessments by R. Raghunathan ( 2013) 255 CTR(Articles) 73

S.44BB: Oil and natural gas- Income-tax assessment of non-resident oil and natural gas exploration companies? by Tarun Jain (2013) 350 ITR (Journal) 77

S.45: Does sale of self-generated ‘copyrights’ invite capital gains tax? By T.N. Pandey (2013) 350 ITR (Journal) 33

S.45: Capital gains-When tax planning goes haywire by T.C.A. Sangeetha (2013) 255 CTR 26.

S.45: Is goodwill received by a retiring partner taxable as capital gain.? By O.P. Srivastav (2013) 350 ITR (Journal) 58

S.52: Capital gains- Understatement- Understatement of sale price in property deals –A case for reincarnation of section 52 by Gopal Nathani (2013) 350 ITR (Journal) 73

S.139(5): Revised return-Withdrawal of claim by letter –Not a case of revised return –by Gopal Nathani (2013)350 ITR (Journal) 66

S.143(3): Assessment- Section 143(3) verses section 115JB-The plight of AO by Minu Agrwal (2013) 255 CTR (Articles)1

S.145: Event occurring after the end of accounting year vis-vis revised return by V.K. Subramani (2013) 212 Taxman 9 (Mag.)S.147: Reopening of assessment vis-à-vis Finance Minister’s Assurance and CBDT Instruction- by Tarun Jain, ( 2013) 350 ITR (Journal) 12.

S.154: Rectification- Judicial resentment for consecutive amendments, by Minu Agarwal (2013) 255 CTR (Articles) 49

S.179: Company-Recovery- Tax interest and penalty by T.C.A. Ramanujam (2013) 255 CTR (Articles) 51

S.179: Recovery – Even a Director of public Limited company can be held liable for recovery of tax dues of the company – An analysis, by Krishna Malhotra, Vinayak Srivastava, (2013) 212 Taxman 91 (Mag.)

S.194J: Deduction at source- Fees for professional or technical services-Are liable to Authors for Articles by T.N. Pandey (2013) 350 (Journal) 69

S.195: “TDS liability spread up on whole of the sale consideration and not just limited to the amount of estimated capital gains on sale of immoveable property…..” .the legal position revisited by Amit Aggarwal, Alok Pareek (2013) 212 Taxman 5 (Mag)

S.195: Deduction at source- TDS on commission paid tp Foreign Agents divergent views by Raghav Kumar Bajaj (2013) 212 Taxman 109 (Mag.)

S.237: Refund: Does section 237 contemplate a refund assessment-by Minu Agarwal (2013) 255 CTR (Articles) 25

S.271(1)(c): A land mark judgment from the Apex court on penalty for concealment of income by V. Pattabhiraman (2013) 212 Taxman 27 (Mag.)

S.271(1)(c): Penalty-Concealment-Human error in filing ITRs –Is PWC case a guarantee against penalty by Gopal Nathani ( 2013)350 ITR (Journal) 89

Articles-Subjects.

A.

Accounts- Other comprehensive income- Some points to ponder- by S. Ramachnadran (2013) 255 CTR (Articles) 4

B.

Budget 2013-14-Extension of tax neutrality for mergers to also LLPs by T.N. Pandey (2013) 350 ITR (Journal) 93.

F.

Fringe Benefit tax (FBT): -No fringe benefit tax leviable on expenditure for non-employees like entertainment, sales promotion, etc by Mukesh Patel ( 2013) 212 Taxman 89 (Mag.)

G.

GAAR-An Indian and International perspective by Sumit Singh Bagri and Uzma Naseem (2013) 212 Taxman 30 (Mag.)

General- Revisiting of the earlier decisions by the Supreme Court- ByT.N.Pandey (2013) 255 CTR 44 (Articles) 44.

I.

Interpretation /Statutes- The literal rule revisited by S. Narayana (2013) 255 CTR (Articles) 57

S.

Service tax- Concept of bundled services under the new service taxation scheme from I st July , 2012 by T.N. Pandey (2013) 255 CTR (Article) 14

Service Tax – Services by foreign diplomatic mission located in India by Dr. Sanjay Agarwal (2013) 255 CTR (Article) 22

Service tax- Exemption on inpute services to exporters. By Dr. Sanjiv Agarwal (2013) 255 CTR (Articles) 46

T.

A tally of the tax law- by V. Pattabiraman, Audit Officer (2013) 350 ITR (Journal) 1 Tax world.