Apr 252014
 

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Estimated and adhock disallowances are not proper- must be avoided to avoid un-necessary litigation. – Income Tax – Direct Tax Code – DTC – By: – CA DEV KUMAR KOTHARI – Dated:- 25-4-2014 – Reference of recent judgment: Commissioner of Income Tax Versus The Lakshmi Vilas Bank Ltd. Tax Case (Appeal) No. 896 of 2013 Dated – 16 April 2014 2014 (4) TMI 827 – MADRAS HIGH COURT Estimated disallowances: In scrutiny assessment it is general tendency of some tax authorities , including appellate authorities to disallow / confirm disallowance of certain expenses just on estimated or adhock basis for several reasons like some vouchers are self made vouchers or claim for expenses, expenses are excessive or unreasonable, some expenses are not fully supported, to plug any lacunae in spending, personal element, capital element, …. etc. Certain specific heads of general nature: We find disallowances under different heads like out of repairs expenses, telephone expenses, advertisement expenses, miscellaneous expenses, general expenses, other expenses etc. Miscellaneous expenses or general expenses are residual type of accounting heads. When an expenditure is of petty nature and there is no specific accounting head for the same, it is generally debited to such residuary head of expenses. Expenses claimed by recipient: Some expenses are claimed by recipient in form of a claim for costs, or reimbursement or privilege receivable, expenses for having any work done or supply made or expenses incurred or for some entitlements under contact of employment etc. When a claim is made by a person who is entitled to receive certain payment, the claim is verified by concerned persons and then payment is made. In this way expense are verified to be payable by the organization. Internal check and control: In large organizations where work is carried through employees, suitable system of internal check and control is in place. Any expenditure incurred and claimed by another is verified by concerned staff and officers. Depending on nature and amount different officers may be authorized to pass such claims for payment. Therefore, even small sums of expenses are checked and then accounted for and paid. For all expenses there cannot be perfect document however, even a claim on plain paper which gives details of claim or expenses, work done/ goods supplied which is verified and paid and is accounted for can be considered a reasonable evidence, depending on its nature and amount at a time or at several times. Petty disallowances are just for making disallowances:It can be said that some petty disallowances out of larger part of expenses is just for making disallowances. When a major part of expenses say 1485 lakh is allowed a disallowance of 15 lakh or 1% can only be considered as disallowance made just for sake of disallowing something. If we look at from other point of view, then we find that when 99% of expenses are allowed, why a 1% disallowance is made. If the tax authority rely for 1485 lakh on books of account and internal check and control , then disallowing 1% on adhock and estimated basis is nothing but making a disallowance just for sake of disallowance. Case of The Lakshmi Vilas Bank Ltd. As is clear from the name of assessee, and is known to commercial persons The assessee is a banking company and have many branches spread over all over India. Some branches are big , some small and some medium sized branches. Generally banks have branches in all type of cities and some villages also. As per recent report on website of bank at present bank is working with a network of 362 branches and 8 extension counters, spread over 15 states and the union territory of Puducherry. The Bank also has an ATM network of 688. For assessment year 2004-05 (Previous year ended 31.03.2004) the Assessing Officer found that the assessee had claimed deduction of a sum of Rs.8,43,35,691/- ( per author- such expenses were charged under residuary head of expenditure as petty expenses). The assessee explained that the expenditure is of petty cash nature like data entry charges at some of the branches, ticket collection charges, branch cleaning charges, wax, candle, paper cups, plates, bags for carrying cheque/cash etc., which could not included under the other broad heads. At relevant time the bank had 224 branches, 8 divisional offices and Head Office and the amount per branch/office would be insignificant. The Assessing Officer considered this claim and disallowed 10% of the total expenditure claimed holding that it would be of personal nature not exclusively necessary for business. Thus The AO disallowed a sum of Rs.84,33,569/- on estimated basis and added to the total income of the assessee. On appeal before the Commissioner of Income Ta………………

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Apr 252014
 

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Commissioner of Income Tax-IV Versus M/s. D & M Components Ltd. – Income Tax – DELHI HIGH COURT – HC – Dismissal of claim of LTCG – Held that:- The Tribunal was of the view that the income or profits gained were business income, having regard to the normal business activities of the assessee and given the pattern of sale and purchase transactions, especially since no books were separately maintained for the purpose – the purchases were shown as investments in the balance sheets for several years before their sale and claim for long term capital gains – There is nothing on the record to show that these were purchased with borrowed funds – the findings of the ITAT with respect to the amount claimed as long term capital gains are sound and do not call for interference – Decided against Revenue. Allowability of claim of STCG – Held that:- Having regard to the short duration of holding of the shares, and the lack of clarity in the account books, the overall effect would be to reveal that the sale and purchase of shares in respect short term capital gain cannot be sustained – thus, the order of the ITAT is set aside to the that extent – the amount shall be treated as business income and not capital gains – Decided in favour of Revenue. – 2014 (4) TMI 866 – DELHI HIGH COURT – TMI – ITA 561/2012, ITA 566/2012, C.M. No. 16325/2012 – - Dated:- 21-4-2014 – S. Ravindra Bhat And R. V. Easwar,JJ. For the Appellant : Sh. N. P. Sahni, Sr. Standing Counsel and Sh. Nitin Gulati, Advocate For the Respondents : None ORDER Mr. Justice S. Ravindra Bhat 1. These two appeals by the Revenue question a common order of the Income Tax Appellate Tribunal ( ITAT ) by which the assessee s appeal in respect of its claim for short term capital gain was allowed and the Revenue s appeal in respect of the claim for long term capital gain was dismissed. The question of law which arises for consideration is whether the amounts claimed as long term and short term capital gains by the assessee could have been treated as such by the ITAT in its impugned order. 2. During the year under consideration (AY 2006-07) the assessee was engaged in the business of dealing in the auto spare pails and investment in bonds, mutual funds and other securities. On scrutiny of the accounts, the Assessing Officer felt that assessee has disclosed long term capital gains to the tune of Rs. 31,13,006.51/- and Rs. 26,82,115.35/- claimed as short term capital gain was not permissible. The assessee claimed that the amounts were not business income, but towards capital gains from sale of investments, as stated in its returns. The AO held that the income or profits gained were, in truth, business income, having regard to the normal business activities of the assessee and given the pattern of sale and purchase transactions, especially since no books were separately maintained for the purpose. The assessee s appeal was partly accepted to the extent that the Commissioner (Appeals) ( CIT(A) ) held that the claim for long term capital gains was established. However, the contentions with respect to short term capital gains were rejected. Both the assessee and the Revenue appealed to the ITAT. The assessee s appeal was allowed by the ITAT, in its impugned order; the Revenue s appeal, however, was rejected. 3. The CIT (A), on being approached, accepted the assessee s plea with respect to long term capital gain, but upheld the decision of the AO, in regard to the claim for short term capital gain being really business income. The Commissioner (Appeals) held that: …On going through a sample of the total share transactions, which has been reproduced above, it is apparent that the appellant has also been frequently buying and selling a large variety of shares on which income has also been earned in most cases. Apart from the above sample transactions, the appellant has transacted in a large number of Shares involving substantial amount of money and the overall circumstances indicate that these shares had not been purchased by the appellant with the intention of investment even though they had been shown as investment in the balance sheet. It is important to keep in mind that whenever any share is purchased with the intention of investment, it cannot be sold of within a very short span of time, since the share market is always fluctuating. Since in the present case, very frequent purchase and sale of shares have been done it indicates that the main intention of the appellant was to earn income out of these shares which have been claimed to be under the head of short term capital gains. The argument of the appellant that in the earlier years also such a contention has been accepted by the department is not sufficient to decide the issue in its favour, keeping in view the specific facts and circumstances and the nature of frequent share transactions of various companies, sample of which have been reproduced above. The most important aspect which needs to be highlighted is the nature and purpose for which the shares were purchased and subsequently sold. Since with regard to the shares claimed under short term capital gain, these indicate the intention of the appellant to trade in these shares, I am of the firm opinion that in the present circumstances, such transactions have rightly been held as income from business by the AO. Therefore, the claim of the appellant that these shares transactions were in the nature of investment does not appear to be convincing and to that extent this ground of the appellant is dismissed. Accordingly, subject to the above observations, I am inclined to hold that while the claim of long term capital gains amounting to Rs 31,13,006/- by the appellant is valid, the claim regarding short term capital gain amounting to Rs. 26,82,115/- does not appear to be logical and convincing. As a result, this ground of the appellant is partly allowed and relief is allowed only to the extent of amount of long term capital gain of Rs 31,13,006/- while the amount of Rs. 26,82,115/- shown as short term capital gain is held to be business income. As a result, this ground is partly allowed…. 4. The ITAT, in its impugned order, differed with the Appellate Commissioner s conclusions and found that the assessee s claim that it had derived short term capital gain of Rs. 26,82,115/- was justified. It was held that: 9. Let us examine the facts of present case in the light of these tests. In the books of account, assessee has shown its purchases of shares as investment. The copies of the balance sheet ending as on 31.3.2005 as well as on 31.3.2006 are available. Assessee has not used borrowed funds for the purchase of shares. Assessing Officer has pointed out that assessee is not maintaining separate bank account and it has used the business funds. The assessee pointed out that share capital of more than Rs.304 crores is available with the assessee. The nonmaintenance of separate bank account, would not be a very material fact. The next test is about the frequency of purchases and disposal of particular item. Yes, there are frequent transactions and this test goes against the assessee. The value of the shares at the close of the year has been taken at cost and not at market price cost whichever is lower. It indicates that the shares available with the assessee were not treated as stock in trade. The Memorandum of Association; investment in shares is one of the line of activity assessee has to take. Thus, on an examination of the facts on record in the light of these tests, we find one test i.e. frequency of the transactions all are in favour of the assessee. In the tests, it has been observed that explanation of an assessee based on number of facts supported by evidence and circumstances whenever required consideration, whether the explanation is sound or not must be determined not by considering the weight to be attached to each single facts in isolation but by assessing the cumulative effect of all the facts in the setting as a whole. In assessment year 2005-06 the purchases of the shares by the assessee have been treated as investment. Some of the shares which were treated as investment is the opening balance of this year. The assessment order has been posted under Section 143(3) and it is available at pages 5 and 6 of the paper book. No doubt, Assessing Officer has not discussed this issue in that year but that does not obliterate the concept that books of account were before him and he must have considered all the aspects. The frequency of front is one factor which may goad to the adjudicating authority to construe the transaction as a business transaction but i.e. not be absolute criteria. This has been considered by the ITAT in a number of orders referred by us in the foregoing paragraphs. Thus taki………………

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Apr 252014
 

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The Commissioner of Income Tax Versus M/s. Mysore Premier Investment Co. Ltd. – Income Tax – MADRAS HIGH COURT – HC – Admission of appeal – Nature of income – Income from Business or capital gains – Whether the Tribunal was right in that the sum of Rs.2 crores received by the assessee pursuant to the MOU entered into by it for joint development of its property is assessable under the head income from capital gains and not income from business – Held that:- The AO in adopting the view had not spelt out any material based on which such conclusion was reached – The Revenue does not dispute the fact that the assessee was carrying on business only in insurance, the income returned from business as negative – the assessee had gone for a joint venture agreement for development of the property itself would not lead to the inference that the joint venture was more in the nature of business and that the assessee was engaged in property development – the Revenue had not placed any material to show that the property was to be treated as business asset or the assessee converted it into stock-in-trade for the purpose of carrying business with it – thus, there is no ground for admitted the appeal – Decided against Revenue. – 2014 (4) TMI 865 – MADRAS HIGH COURT – TMI – Tax Case (Appeal). No. 66 of 2014 – - Dated:- 16-4-2014 – Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Appellant : Mr. T. R. Senthil kumar, Standing Counsel for Income Tax Department JUDGMENT (Judgment of the Court was made by Chitra Venkataraman, J.) Following is the question of law raised by the Revenue seeking admission of the Tax Case (Appeal) filed for the assessment year 2007-08. " Whether under the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in that the sum of Rs.2 crores received by the assessee pursuant to the MOU entered into by it for joint development of its property is assessable under the head income from capital gains and not income from business?" 2. The assessee herein, a company, entered into Memorandum of Understanding on 14.08.2002 for development of its property on joint venture. Pursuant to the agreement, the assessee received a sum of Rs.2 crores, which was offered under the head 'capital gains'. The Assessing Officer, however, stated that the said income was income from business and profession. 3. The assessee filed appeal before the Commissioner of Income Tax (Appeals), who concluded that the transaction was not in the nature of business, hence, the income could not be assessed under the head "income from business". Thus, the Commissioner of Income Tax (Appeals) agreed with the assessee's contention that the income was to be assessed under the head "capital gains". Aggrieved by this, Revenue went on appeal before the Income Tax Appellate Tribunal. 4. On an overall material consideration, the Income Tax Appellate Tribunal came to the conclusion that there was………………

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Apr 252014
 

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Commissioner of Income Tax- I Versus Muktaben N. Sanghvi – Income Tax – GUJARAT HIGH COURT – HC – Remission to the Tribunal – Cessation of liability u/s 41(1) of the Act – Held that:- It is not a case where the Tribunal did not refer to facts – Section 41(1) of the Act would apply in a case where there has been remission or cessation of liability subject to the conditions contained in the statute being fulfilled – cessation or remission has to be during the previous year relevant to the assessment year – but, both the elements are missing – there was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration – there was no cessation or remission of liability – thus, the amount cannot be added back as a deemed income u/s 41(c) of the Act – thus, the remand proceedings to the Tribunal cannot be granted – Decided against Revenue. – 2014 (4) TMI 864 – GUJARAT HIGH COURT – TMI – Tax Appeal No. 169 of 2014 – - Dated:- 22-4-2014 – Akil Kureshi And Sonia Gokani,JJ. For the Appellant : Mrs. Mauna M. Bhatt For the Respondent : Mr. Manish J. Shah, Advocate ORDER (Per : Honourable Mr. Justice Akil Kureshi) 1. We had issued notice for final disposal on the contention of the Revenue that the Tribunal without discussing the facts relied on the decision of this Court in case of CIT vs. G.K.Patel & Co. reported in [2013]212 Taxman 384 (Guj.). 2. In response to such notice learned counsel Shri M.J.Shah appeared for the assessee and opposed the appeal contending that the Tribunal has recorded the facts in brief, thereafter, referred to the discussion of the assessing officer as well as CIT(Appeals) before applying the ratio of the decision in case of CIT vs. G.K.Patel & Co.(supra). 3. Having thus heard learned counsel for the parties and having perused the judgment of the Tribunal under challenge, we notice that issue pertains to cessation of liability under section 41(1) of the Income Tax Act, 1961. The Tribunal in facts of the case referred to the decision of this Court in case of CIT vs. G.K.Patel & Co.(supra). We do not find that it is a case where the Tribunal did not refer to facts. In fact the counsel for the assessee drew our attention to the later judgment dated 4.2.2014 in case of Commissioner of Income-tax-III vs. Bhogilal Ramjibhai Atara passed ………………

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Apr 252014
 

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Commissioner of Income Tax Circle – II Versus M/s. Ankit Garments Manufacturing Co. – Income Tax – DELHI HIGH COURT – HC – Validity of revisional jurisdiction u/s 263 of the Act – Search u/s 142(1) of the Act – Unaccounted sales – Held that:- The assessee was required to produce the copies of the accounts or confirmation in excess of Rs. 1 lakh which had not been filed, in the opinion of the Court displays grave error in the approach of the Tribunal – the note to the extent it is material cited that since there was pressure of time, the AO would finalize the assessment and invoke the powers to reopen the assessment later, if necessary, and so required – such approach is clearly erroneous and betrays an injudicious approach. Completion of the assessement without obtaining the full and complete information asked for by the AO himself would amount to a serious error in procedure and causes prejudice to the interest of the Revenue – When the CIT directed the AO to get the full information before taking a view, he was certainly not directing a fishing or roving enquiry nor was he directing the AO to follow a particular line of enquiry or investigation – in the final order all that the Commissioner did was to set aside the original assessment order and restored back the matter for reconsideration by the AO after granting opportunity of hearing to the assessee – The final order balanced the interest of the Revenue with the rights of the assessee who was afforded an opportunity to back its claim that such loans, deposits etc. were legitimate and genuine – Decided in favour of Revenue. – 2014 (4) TMI 863 – DELHI HIGH COURT – TMI – ITA 511/2013 – - Dated:- 16-4-2014 – S. Ravindra Bhat And R. V. Easwar,JJ. For the Appellant : Ms. Suruchi Aggarwal, Sr. Standing Counsel with Mr. Judy James, Jr. Standing Counsel. For the Respondent : None. ORDER Mr. Justice S. Ravindra Bhat (Open Court) 1. Service is complete upon the respondent/assessee. However, there is no appearance on its behalf. Appeal is admitted. The following question of law arises for consideration: – Did the Tribunal fall into error in setting aside the Commissioner s order made in exercise of the revisional jurisdiction under Section 263 of the Income Tax Act in the given circumstances of the case? 2. A search and seizure operation was conducted on 16.10.2007 in the establishment of one Shri Dwarka Das Aggarwal (TNG Group). Notice under Section 142 (1) was issued to the assessee – whose accounts too were centralized on 17.02.2009. Later jurisdiction was transferred along with cases of that group to the ACIT, Central Circle IX. In response to a notice under Section 142 (1), the assessee filed a return declaring income of Rs.2,94,87,060/-. The original return of 13.10.2008 was in the same terms. Notices under Section 143 (2) along with the questionnaire was issued calling for detailed information. The AO on the basis of the material placed before him was of the opinion that the stock of finished goods was short by Rs.86,25,505/- and stock of raw material found was in excess by Rs.3,64,696/- as compared with the stock as per the books of account and no satisfactory explanation is given. In these circumstances, an addition to the extent of Rs.11,94,982/- by reason of unaccounted sales was made and the assessment order framed on 31.12.2009. 3. The Commissioner after considering the materials thought it fit to issue notice calling for explanation as to why his revisional powers ought not to be invoked to set aside the assessment order since the AO s order was prima facie erroneous and prejudicial to the interest of Revenue. 4. The assessee/respondent resisting the move for revision contended that all the information sought for by the AO had in fact been furnished and that the assessment was framed on 31.12.2009 after taking into consideration these materials. The Commissioner by his order of 27.03.2012 set aside the order of the AO after noticing that contrary to the observations made in the course of the assessment order by the AO, there was incomplete information and that full disclosure of all the materials and information sought for from the assessee had not been made. The CIT relied upon an "office note appended to the assessment order which set out these circumstances. Invoking the ruling of the Supreme Court in Malabar Industrial Co. Ltd. v. CIT, 243 ITR 83 (SC), the Commissioner felt that the approach and order of the AO were both erroneous and prejudicial to the interest of the Revenue. 5. The assessee s appeal was successful. The ITAT in its impugned order recorded as follows: – 8. To this letter were enclosed a number of accounts copies of various parties. These account copies have been countersigned by the creditors/parties. The PAN numbers have been furnished. This means that confirmation of accounts have been furni………………

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Apr 252014
 

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National Bank of Agriculture And Rural Development Versus The Dy. Commissioner of Income Tax & Others – Income Tax – BOMBAY HIGH COURT – HC – Validity of notice u/s 148(1) of the Act – Mere-change of opinion – Bar of limitation – Deduction on interest income – u/s 36(1)(viii) of the Act – Held that:- The words “interest income received” can only be the gross interest received – it is not fit to disallow the deduction claimed u/s 36 (1) (viii) – there was no failure on the part of the assessee to disclose fully and truly all material facts as contemplated under the 1st proviso to section 147 of the Act – the initiation of reassessment proceedings u/s 147 of the Act was only based on a “change of opinion” which is impermissible in law – there was no failure on the part of the assessee to disclose fully and truly all material facts in relation to the A.Y. 2005 -2006 – Even in the scrutiny proceedings u/s 143 (3), all disclosures were made by the assessee regarding its claim for a deduction u/s 36 (1) (viii) of the Act – Thus, the reassessment proceedings were initiated only on the basis of a “change of opinion” and had no jurisdiction to reopen the assessment proceedings – Decided in favour of Assessee. – 2014 (4) TMI 862 – BOMBAY HIGH COURT – TMI – Writ Petition No. 1497 of 2013 – - Dated:- 16-4-2014 – S. J. Vazifdar And B. P. Colabawalla,JJ. For the Petitioner : Mr. S. E. Dastur, Senior Counsel with Mr. Nishad Thakkar i/b Mr. Atul K. Jasani For the Respondent : Mr. Vimal Gupta, Senior Counsel with Ms. Padma Divakar JUDGMENT (Per B. P. Colabawalla, J.) 1. Rule. By Consent of Parties made returnable forthwith and heard finally. 2. By this Petition, the Petitioner seeks the quashing of the notice dated 28th March 2012 (impugned notice) issued by the Respondent No. 1 under section 148 of the Income Tax Act, 1961 (the Act) in relation to the A.Y. 2005 -2006. 3. There are two principal grounds of challenge. Firstly, as more than four years had elapsed from the end of the relevant assessment year 2005 -2006 Respondent No. 1, could not have issued the impugned notice without coming to the conclusion that he had reason to believe that income had escaped assessment by virtue of the fact that the Petitioner had failed to disclose fully and truly all material facts necessary for its assessment. In the present case, there was not even an allegation in the reasons recorded for reopening the assessment, that the Petitioner had failed to disclose any facts as required under the first proviso to section 147 of the Act and hence the initiation of re-assessment proceedings was bad in law. Secondly, the original assessment order was passed under section 143(3) after the Assessing Officer had considered all the relevant aspects of the matter. Hence, the purported reopening of the assessment was based merely on a change of opinion which was impermissible in law. 4. The brief facts are as follows: – (a) The Petitioner is incorporated under the The National Bank of Agriculture and Rural Development Bank Act, 1981 (NABARD Act) for providing and regulating credit and other facilities for the promotion and development of agriculture and small scale industries with a view to promoting integrated rural development, and for matters connected therewith and/or incidental thereto. (b) The Petitioner filed its return of income for the A.Y. 2005 -2006 on 31st October 2005 claiming a deduction under section 36 (1) (viii) of the Act of Rs.544,63,94,200/. It is the case of the Petitioner that the said claim was supported by a detailed computation of the said deduction in a tabular format giving details of the longterm and shortterm finance provided by the Petitioner and the claim for deduction was restricted only in respect of the income from the longterm finance (i.e. finance given for a period of more than 5 years). (c) Section 36 deals with other deductions . Section 36 (1) (viii) at the relevant time, read as under:- 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (viii) In respect of any special reserve created and maintained by a financial corporation which is engaged in providing longterm finance for industrial or agricultural development or development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing longterm finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing longterm finance (computed under the head "Profits and gains of business or profession" before making any deduction under this clause) carried to such reserve account: Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paidup share capital and of the general reserves of the corporation or, as the case may be, the company, no allowance under this clause shall be made in respect of such excess. Explanation – In this clause, – (a) "financial corporation" shall include a public company and a Government company; (b) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (c) "Government company" shall have the meaning assigned to it in section 617 of the Companies Act, 1956 (1 of 1956); (d) "infrastructure facility" means- (i) an infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80IA, or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfills the conditions as may be prescribed; (ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) of sub-section (4) of section 80IA; and (iii) an undertaking referred to in sub-section (10) of section 80IB; (e) "longterm finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; It is not in dispute that the Petitioner is entitled to claim a deduction under this section as it is a financial corporation as defined therein. (d) The return of income of the Petitioner for the A.Y. 2005 -2006 was selected for scrutiny assessment under section 143 (3) of the Act. During the course of this scrutiny assessment, Respondent No. 1 vide its detailed questionnaire dated 10th February, 2006 specifically enquired about the Petitioner s claim for deduction under section 36 (1) (viii) of the Act. In reply to the queries of the 1st Respondent, the Petitioner by it's letter dated 6th March 2006 gave a detailed explanation to the various questions raised by Respondent No. 1. At paragraph 10 of the said letter, the Petitioner gave details of the deduction under section 36 (1) (viii) including how it was quantified, with supporting calculations. In fact, the same computation was again given as was submitted with the original return of income filed on 31st October, 2005 which clearly indicated the interest received, less interest paid, the net interest received, the establishment expenses claimed and the net business income arrived at. (e) Thereafter, Respondent No. 1 passed an order on 30th November, 2007 under section 143 (3) of the Act accepting the Petitioner s claim for deduction under section 36 (1) (viii) of the Act as he did not disallow the deduction claimed by the Petitioner. This fact has been admitted by Respondent No. 1 at paragraph 4(ii) of his affidavit in reply to this writ petition. (f) Thereafter, after a period of more than 4 years from the end of the A.Y. 2005 -2006, Respondent No. 1 issued the impugned notice dated 28th March, 2012. The impugned notice stated that Respondent No. 1 had reason to believe that income chargeable to tax for the A.Y. 2005 -2006 had escaped assessment within the meaning of section 147 of the Act and therefore proposed to initiate reassessment proceedings. The reasons for initiating the reassessment proceedings were also enclosed along with the impugned notice which read as under: – "In the computation of the income for the year under consideration, the assessee has claimed deduction u/s 36(1)(viii) of the IT Act for Rs.544,63,94,200/- (@ 40% of the profits of income from long term finance). It is observed that the total interest income from long term and short term finance is Rs.1840,14,91,376/-, while the total establishment expenses claimed against the same are Rs.305,53,10,218/- or 16.6% of the total income. During the year under consideration, the gross receipts from long term finance are Rs.1556,73,38,994/. The net receipts from long term finance after deduction of 16.6% of establishment expenses from the gross receipts would be Rs.1298,31,60,721/. Accordingly, the allowable deduction u/s 36(1)(viii) of IT Act on net receipts from long term finance would be Rs.519,32,64,288/. However, the assessee has claimed a deduction of Rs.544,63,94,199/-. Hence, the assessee has claimed excess deduction of Rs.25,31,29,910/. In view of the fact that the assessee has claimed excess deduction of Rs.25,31,29,910/- u/ s 36(1) (viii) of the IT Act, in my view the amount of Rs.25,31,29,910/- has escaped assessment. Based on above I have reason to believe that income of Rs.25,31,29,910/- has escaped assessment in the hands of assessee for AY 2005-06 within the meaning of section 147 of the IT Act. Issue notice u/s 148 of the IT Act." It is pertinent to note that there is not even an allegation in the said reasons that the Petitioner had failed to disclose fully and truly any material fact, as required under the first proviso to section 147 of the Act. (g) On receipt of the said notice and the reasons, the Petitioner filed its return of income under protest on 17th April 2012. Thereafter, by their letter dated 6th November 2012, the Petitioner raised detailed objections to the validity of the reopening of the assessment for the A.Y. 2005 -2006. The three basic objections raised were:- (i) that the reasons recorded for reopening the assessment did not in any manner bring out or demonstrate or even suggest or allege that there had been any failure on the part of the Petitioner to disclose any material fact; (ii) that in fact, there had been no failure on the part of the Petitioner to disclose any material fact as required under the 1st proviso to section 147; and (iii) that the reopening was on the basis of a mere change of opinion which was impermissible in law. In view thereof, the Petitioner requested the 1st Respondent to drop further proceedings in the matter. (h) By an order dated 19th November 2012, Respondent No. 1 rejected the objections of the Petitioner and upheld the initiation of the re-assessment proceedings under section 147 of the Act. Even in this order, we do not find any allegation of failure on the part of the Petitioner to disclose any material fact, or the details thereof. 5. Section 147 of the Act inter alia provides that if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, sub………………

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Apr 252014
 

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ASIATIC COLOUR CHEM INDUSTRIES LTD Versus CHIEF COMMISSIONER OF INCOME TAX & 2 – Income Tax – GUJARAT HIGH COURT – HC – Notice of final disposal by the Tribunal – Held that:- The contention of the assessee would be raising submissions and contentions before the Tribunal on the basis of materials already on the record – it would be appropriate for the Tribunal to decide the issue arising in the appeal on the basis of law applicable – When necessary material is already on record, remanding the proceedings to the AO would needlessly add new stages to the proceeding, which could be avoided – Decided in favour of Assessee. – 2014 (4) TMI 861 – GUJARAT HIGH COURT – TMI – TAX APPEAL No. 2241 of 2010 With CIVIL APPLICATION No. 491 of 2010 In TAX APPEAL No. 2241 of 2010 With TAX APPEAL No. 317 of 2014 With TAX APPEAL No. 318 of 2014 – - Dated:- 15-4-2014 – Akil Kureshi And Sonia Gokani,JJ. ORDER (Per : Honourable Mr. Justice Akil Kureshi) In response to the notice issued by us for final disposal of the Tax Appeal No. 2241/2010, learned counsel Shri M.R Bhatt appeared for the Revenue. In such order dated 25th January 2012, we had recorded as under :- Placing reliance on the decision of the Apex Court reported in 327 ITR 456, counsel for the appellant submitted that on the assessee s payment to its foreign commission agent, there was no requirement to deduct tax at source since the income of the agent was not taxable in India. Counsel submitted that the Tribunal despite necessary material available on record remanded the proceedings to the Assessing Officer. Counsel drew our attention to the order of the CIT [A], where while allowing assessee s appeal, he had come to the conclusion that income in question is not char………………

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Apr 252014
 

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Commissioner of Income Tax-II Versus Vijaykumar D. Gupta – Income Tax – GUJARAT HIGH COURT – HC – Addition u/s 69B of the Act – Unexplained investment in house property – Reference made to DVO – Held that:- The Tribunal rightly deleted the entire addition primarily on the ground that the AO could not have made reference to the DVO without reference to the books of accounts and such reliance on the DVOs books of accounts was not justified – GOODLUCK AUTOMOBILES PVT LTD Versus ASSTT COMMISSIONER OF INCOME TAX [2012 (9) TMI 157 - Gujarat High Court] – there was no material, what to say an incriminating material, in the possession of the Revenue Department – the entire addition being merely based upon the estimation of DVO was baseless is set aside – thus, there is no need to interfere in the findings arrived at by the authorities – Decided against Revenue. – 2014 (4) TMI 860 – GUJARAT HIGH COURT – TMI – Tax Appeal No. 293 of 2014 With Tax Appeal No. 294 of 2014 – - Dated:- 15-4-2014 – Akil Kureshi And Sonia Gokani,JJ. For the Petitioner : Mrs. Mauna M. Bhatt, Advocate For the Respondent : Mr. B. S. Soparkar, Advocate ORDER (Per : Honourable Mr. Justice Akil Kureshi) 1. These appeals arise out of a common judgment of the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') dated August 23, 2013, for the assessment year 200506. Though the dispute is common, since they were crossappeals before the Tribunal, that the assessee's appeal having been allowed and that of the Revenue's having been rejected, the Revenue has preferred these two separate appeals. 2. The sole question raised by the Revenue for our consideration is as under : Whether the Appellate Tribunal has substantially erred in law in deleting the addition of Rs.10,77,724/made u/s 69B being unexplained investment in house property ? 3. From the record it emerges that the Assessing Officer after making a reference to DVO for ascertaining assessee's investment in house property on the basis of such return added a sum of Rs.10,77,724/under section 69B of the Act being assessee's unexplained investment. 4. The assessee carried the matter in appeal. The CIT (Appeals) on facts analysed the case of the assessee again and retained part of the addition, but granted partial relief. This order of CIT (Appeals) gave rise to two appeals to the Tribunal. The Tribunal deleted entire addition primarily on the ground that the Assessing Officer could not have made reference to the DVO without reference to the books of accounts and such reliance on the DVO's books of accounts was not justified. The Tribunal held and observed as under : 12.1 Admitted factual position is that the AO had not referred any incriminating evidence which was found during the course of search. Although the Revenue Department had found the existence of a building but there was no evidence that the assessee had in fact incurred expenditure on construction of the said property over and above the amount already declared in the books of accounts. This is not an assessment which was made in the ordinary course of proceedings but admittedly a search under Section 132 was carried therefore it is expected that the addition consequent thereupon should be corroborated with evidence detected at the time of search. As far as the books of accounts of the assessee and the recording of the investment in the construction of the house were concerned, the AO had not found any discrepancy. For this legal proposition, a decision of jurisdictional High Court pronounced in the case of Goodluck Automobiles, 26 Taxman.com 264 has been cited wherein the Court has held that unless the books of accounts are rejected the AO cannot make a reference to the Valuation Officer. An another case law relied upon was Sargam Cinema, 197 Taxman 203 [328 ITR 513 (SC)]. Our attention has again been drawn on few case laws which was referred before learned CIT(A), viz. Bajranglal Bansal, 241 ITR 64 (Del.), Ushakant N. Patel Vs. CIT 282 ITR 553 (Guj). In the light of these case laws and considering the totality of the facts and circumstances of the case, we are of the considered opinion that learned CIT(A) has not considered the fundamental questions as pointed out by the assessee that there was no material, what to say an incriminating material, in the possession of the Revenue Department, therefore, the entire addition being merely based upon the estimation of DVO was baseless; hence, deserves to be deleted. We hold accordingly. The part addition sustained by learned CIT (A) is hereby deleted. 5………………

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Apr 252014
 

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Commissioner of Income Tax Versus M/s. Mangal & Mangal – Income Tax – MADRAS HIGH COURT – HC – Restriction of addition of excess stock of silver – Investment in excess stock of gold jewellery – Held that:- As regards the gold jewellery item, the Tribunal pointed out that the degree of error found in the weighing scales, warranting a reasonable deduction of 5% – the weighing of jewellery along with tax was also held to be not bad – the tax could not be included in the stock – as regards the stone studded jewellery 20% rebate as against 10% was allowed – as against the Silver articles the Tribunal pointed out that there was an incorrect weighment of silver articles – The available scales could weigh articles only up to 6kgs at a time, whereas the serial numbers of the inventory list of the silver articles indicated the weight of items far exceeding the said upper limit – The order of the Tribunal shows a detailed discussion on the various aspects on the stock seized and the variations worked out by the AO – the appellate authority recorded its findings based on materials and this was considered and confirmed in toto by the Tribunal – the factual finding by the Tribunal is based on material and no exception could be taken to that – thus, the question is a pure question of law – Decided against Revenue. – 2014 (4) TMI 859 – MADRAS HIGH COURT – TMI – Tax Case (Appeal) No. 968 of 2013 – - Dated:- 10-4-2014 – Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Petitioner : Mr. M. Swaminathan ORDER (The Order of the Court was made by Chitra Venkataraman, J.) Following questions of law raised by the Revenue seeking admission of the Tax Case (Appeal):- 1.Whether on the facts and in the circumstances of the case, the Income-Tax Appellate Tribunal was right in law in restricting the addition to Rs.39,44,959/- on account of excess stock of silver especially when no objection was raised by the assessee at the time of search when inventorisation of stock took place? 2.Whether on the facts and in the circumstances of the case, the Income Tax Tribunal was right in restricting the addition made on account of investment in excess stock of gold jewellery amounting from Rs.1,44,53,361/- to Rs.4,92,364/-. 2. The assessee is a partnership firm engaged in retail business of gold and diamond jewellery, silver wares, stainless steel articles and furniture and home appliances. A search operation was conducted by the Investigation Wing of the Department on 19.02.2003. According to the Revenue, during this search at 25 NSC Bose Road, Trichy, they seized 24,992.885 grams of gold ornaments on 19.02.2003, but no books of accounts, documents and other assets were effected. However in the search conducted at 19 & 20 Double Mall Road, Trichy, certain books of accounts and documents were seized. Based on the materials thus seized, a notice under Section 158BC was issued to the assessee. As the assessee filed its return on 23.09.2003 showing undisclosed income of Rs.25,00,000/-, pertaining to the assessment years 2001-02 to 2003-04, the block assessment order was framed on total undisclosed income of Rs.2,65,94,099/-. The assessee challenged the block assessment before the Commissioner of Income Tax (Appeals), however, granted a partial relief to the assessee after analyzing the materials placed before it. Aggrieved by the part relief granted, the Revenue went on appeal before the Income Tax Appellate Tribunal as against the relief granted by the Commissioner of Income Tax (Appeals) in favour of the assessee. The main grievance of the Revenue in the appeal before the Income Tax Appellate Tribunal was as regards the deletion of addition made on account of gold jewellery and silver items. 3. In paragraph 3 of the order, the Income Tax Appellate Tribunal dealt with the issue on the addition made on account of gold jewellery. It pointed out that at the time of search, jewellery weighing 126.759kg, was found accounted for the stock of gold, as per books of accounts was 102.120 kg. When the assessee was asked to explain the difference between the stock found and stock as per the books of accounts, it gave the explanation thereon in detail and this was considered by the First Appellate Authority. Going by the detailed explanation given, the First Appellate Authority restricted the addition to a sum of Rs.4,92,395/-, holding that the claim of the assessee was not properly appreciated by the Assessing Officer. The Income Tax Appellate Tribunal referred to the remand report from the Assessing Officer which dealt with the various additions. After going through the remand report as well as the consideration by the Commissioner's report, the Income Tax Appellate Tribunal pointed out that the assessee had received gold jewellery for repair from the customers as well as for re-making and after receipt of these items, they were finally delivered to the customers, which were found in the various seized documents like control ledgers, receipt, vouchers, bill book issue ledgers marked as S-23, S-24, S-26, S-39, S-40, S-41, and S-42. Further, the Income Tax Appellate Tribunal pointed out that the re-made jewellery were also delivered on a receipt voucher i………………

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Apr 252014
 

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Commissioner of Income Tax Versus Smt. Sushila Devi – Income Tax – MADRAS HIGH COURT – HC – Service of notice to proper person – Order u/s 143(2) of the Act – Onus to prove – Held that:- Sashi Prakash Khemka had been consistently representing the case of the assessee and he had also acknowledged the receipt of the notices, photocopy of the acknowledgement for the service of notice and there being no denial by the assessee that the Sashi Prakash Khemka was representing the interests of the assessee before the Income Tax Authorities – it is too late in the day for the assessee to state that the service of notice was not on a proper person. The burden is on the assessee to show that the person who received the notice was not an authorised representative – even in the absence of a written authorisation, when in all the earlier proceedings, the assessee was represented by a particular person and all action had been taken based on the representation of the said person and the said person alone was representing the interest of the assessee, it is not open to the assessee in future to contend that there was no authorisation on such person to represent the case of the assessee. Non-production of original files – Held that:- Inspite of earnest efforts made by the revenue, they could not get the original records and only photocopy of the acknowledgement was produced before the Tribunal – the acknowledgement in photocopy produced before the Tribunal was not denied by the assessee as not pertaining to the assessee – the photocopy could only be of the secondary evidence on the service of notice, yet when there was no denial from the assessee as regards the photo copy of the acknowledgement as relatable to the assessees case and that in subsequent communication between the assessee and the Revenue, the notice sent by the Revenue was also acknowledged by the said Sashi Prakash Khemka, the contention of the assessee that there was no proper service on the assessee can only be seen as an afterthought to wriggle out of the assessment proceedings – thus, the order of the Tribunal is set aside – Decided in favour of Revenue. – 2014 (4) TMI 858 – MADRAS HIGH COURT – TMI – Tax Case (Appeal) No. 2720 of 2006 – - Dated:- 7-4-2014 – Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Appellant : Mr. T. Ravikumar Standing Counsel for the Income Tax Department For the Respondent : No appearance JUDGMENT (The Judgment of the Court was made by Chitra Venkataraman.J.,) Revenue is on appeal as against the order passed by the Income Tax Appellate Tribunal relating to the assessment year 1994-95 and the Tax Case (Appeal) is admitted on the following substantial questions of law: 1. Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in quashing the assessment for the assessment year 1994-95 on the ground that the notice under section 143(2) has not been served on the assessee within the statutory time limit, when in fact it had been served at the address given by her in her return? 2. Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in holding that no service of notice under Section 143(2) had been made on the assessee even though the notice had been served at the address mentioned in the return of income for assessment year 1994-95 and no change of address had been intimated to the Income Tax Authorities? 3. Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in accepting the contention of the assessee that due to family dispute the notice under Section 143(2) did not reach the assessee and on this ground cancelling the assessment made by the Assessing Officer? 4. Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in ignoring the fact that the Assessing Officer had issued the notice under Section 143(2) in time and at the given address and that the assessee had not intimated that the notice should not be served at the given address in view of the family dispute and also failed to furnish any alternative address? 5. Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in placing the onus on the Assessing Officer for receipt of notice by the assessee even though the Assessing Officer had no means of knowing that the service at the given address would be infructuous? 2. Inspite of service of notice on the assessee and the vakalat filed through an Advocate, who represented her interest, there is no representation as of today or on any other day earlier. The assessment year under question is 1994-95. 3. It is seen from the order of assessment that on a service of notice under Section 143(2) of the Income Tax Act, 1961 on 15.12.1994, the assessee represented by one V.D.Agarwal filed a letter on 07.10.1996 objecting to the service of notice under Section 143(2). The assessee was informed that the notice was served in the address given by her. Subsequently, the assessee's representative filed a letter on 12.03.1997 and after hearing the assessee's representative the assessment was finalised. 4. For the purpose of considering the merits of the Tax Case (Appeal), we are not going into the details of the assessment made since the question raised is purely on the service of the notice. Aggrieved by the said order, the assessee went on appeal before the Commissioner of Income Tax (Appeals) where the assessee was represented by M/s.Sashi Prakash Khemka and V.D.Agarwal, CA. In the written submission filed, the assessee pointed out that the assessee was not having any records and due to personal dispute with one Ravi Prakash Khemka, the assessee could not receive the earlier records. Then on inspection of the Assessing Officer's records the assessee contended that there was no valid service of notice on the assessee and the certified copy of the document in evidence of service of notice was not submitted; that the service was not made either at the old address or at the new address of the assessee; that the Department was aware of the new address of the assessee at M-47, Greater Kailash Part I, New Delhi; since no valid notice was served at the known address of the assessee, the assessee contended that the entire assessment was non-est in the eye of law. To this, the Assessing Officer filed written submission pointing out that notice under Section 143(2) of the Act was served on the assessee within the period of limitation and it was served on 16.12.1994 enclosing a copy of the acknowledgement as evidence of service. The Assessing Officer pointed out that the same was served in the address given by the assessee. The assessee had not notified any change of address and the notice under section 142(1) of the Act, for the assessment year 1992-93 along with the letter dated 15.07.1997 was sent to the address given in the returns filed and the same was received by the person who had acknowledged the receipt of notice under Section 143(2) of the Act for the year under consideration. The notice sent to the assessee as well as to other family members in the given address was received by them through the same person, who was representing them in all the proceedings before the Assessing Officer. The assessee and the other family members complied with the directions to the various letters given in the notice. However, in order to escape the liability the present plea had been taken by the assessee. Thus, on the basis of the address given in the return, the notice was rightly served on the assessee. The First Appellate Authority considered the entire matrix and on going through the relevant notice, the documents and the objections of the assessee, held that notice under Section 143(2) of the Act was served on the assessee on 25.03.1995 at the address given in the return of income; that th………………

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Apr 252014
 

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SRI VENKATESH MURTHY Versus INCOME TAX OFFICER WARD 5(3) AND COMMISSIONER OF INCOME TAX BANGALORE – Income Tax – KARNATAKA HIGH COURT – HC – Penalty u/s 271(1)(c) of the Act – LTCG – Non-furnishing of information – Denial of exemption u/s 54F of the Act – Held that:- The AO quoted wrong provision of law viz., Section 54 when, the exemption was claimed u/s 54F of the Act – The assessee had not deposited the long term capital gain in the capital gain account, and he had deposited the amount in his savings account with Vijaya Bank – he paid Rs.26,70,000/- to the owner of the property from the said account – the AO ought to have exercised the discretionary powers, while considering to impose penalty u/s 271(1)(c) – the assessee in response to the notice u/s 148 of the Act had paid LTCG tax and interest – the AO ought not to have imposed any penalty in exercise of the discretion vested in him – Decided in favuor of Assessee. – 2014 (4) TMI 857 – KARNATAKA HIGH COURT – TMI – I.T.A.No. 720/2007 and I.T.A.No. 719/2007 – - Dated:- 4-4-2014 – Dilip B Bhosale And B Manohar, JJ. For the Appellant : Sri A Shankar and Sri M Lava, Advs. For the Respondent : Sri K V Aravind, Adv. JUDGEMENT Per: Dilip B Bhosale: 1. These two Income Tax Appeals, filed under Section 260-A of the Income Tax Act, 1961, (for short the Act ), arise from the common order dated 18.05.2007, whereby, ITA No.836/2006 pertaining to the Assessment year 2003-04, has been dismissed by the Income Tax Appellate Tribunal, Bangalore Bench- B (for short the Tribunal ). The Tribunal upheld the Long Term Capital Gain Tax (for short LTCG ) and denied exemption under Section 54-F of the Act and so also penalty under Section 271(1)(c) of the Act. 2. Both the appeals before the Tribunal were filed by the appellant-assessee against two different orders passed by the 1st Appellate Authority, both dated 11.08.2006. By the first order, the Appellate Authority upheld the order of the Assessing officer, whereby, he brought capital gain of Rs.5,15,970/- to LTCG tax and initiated penalty proceedings under Section 271(1)(c) separately. In view thereof, a separate order imposing penalty under Section 271(1) (c) came to be passed by the Assessing Officer vide order dated 30.05.2006. By this order, he imposed penalty equal to the amount of LTCG tax. That order was also carried in appeal, which the 1st Appellate Authority confirmed vide order dated 11.08.2006 in ITA No.64/CIT(A)-II/2006-07. 3. Mr. Shankar, learned counsel appearing for the appellant-assessee, at the outset, submitted that, if he succeeds in satisfying this Court for setting aside the order of penalty passed under Section 271(1)(c) of the Act, he has instructions not to press the appeal, rejecting his claim for exemption under Section 54-F of the Act, though according to him, he has good case on merits. 4. In view thereof, first we would like to examine the legality and correctness of the order passed under Section 271(1)(c) of the Act, impugned in ITA No.720/2007. 5. The appellant had filed return of income on 30.09.2003. In the return, he left a note regarding capital gain stating that he deposited the said amount in his savings account with Vijaya Bank. He did not open capital gain account as contemplated by Section 54-F(4) of the Act. In view thereof, the Assessing Officer reopened the assessment under Section 148 of the Act to bring to tax the capital gains on the ground that the bank account, in which the amount was deposited was not capital gains scheme account. The assessee, in the return of income had declared Rs.24,57,000/- as capital gains liable to tax and paid the tax accordingly with interest, in response to the notice under Section 148 of the Act. The assessment, thereafter, was completed accepting the return, so filed in regard to the capital gains and the penalty proceedings under Section 271(1)(c) were initiated. 6. The Assessing officer initiated penalty proceedings under Section 274 r/w Section 271(1)(c) of the Act against the assessee by issuing notice dated 25.11.2005. In response to the notice, the assessee filed reply dated 25.05.2006. It would be advantageous to reproduce the reply for better appreciation of the case pleaded by the assessee. The reply dated 25.05.2006 reads thus:- 1. In my case the assessment year 2003- 04 has been completed on 25.11.2005 by bringing to tax the long term capital gain of Rs.24,57,000/- by reopening the assessment after issue of notice under Section 148 on 14.11.2005. Immediately after receipt of notice u/S 148 and after discussion with the ITO, I have paid the sum of Rs.5,15,970/- on 15.11.05. 2. In this connection, I would like to mention that my proprietory business is an age old concern of 16 years and I have been filing my returns regularly for the last 10 years approximately and I am a regular assessee and I am a layman and do not know the full provision of the IT Act and my tax matters have been handled by my Auditor. 3. For the financial year relevant to assessment year 2003-04 though I sold the landed property, the sale consideration was put in my Bank account at Vijaya Bank instead of capital gains account. I should have deposited the sale consideration into Capital Gains account. However, the sale consideration has been used for investment for purchase of vacant land. The bank account i.e., Vijaya Bank transaction has been reflected in my statement of accounts. ………………

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Apr 252014
 

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The Commissioner of Income Tax Versus M/s. American Power Conversion (India) Pvt. Ltd. – Income Tax – MADRAS HIGH COURT – HC – Nature of Liability – Contingent or not – Loss of fluctuation of foreign exchange – Whether the Tribunal was right in holding that loss arising out of fluctuation in foreign exchange for restatement liabilities is not the contingent liability is valid in law – Held that:- The decision in Oil and Natural Gas Corporation Ltd., vs. Commissioner of Income Tax [2010 (3) TMI 81 - SUPREME COURT] followed – the assessee was entitled to adjust the actual cost of imported assets claimed in foreign currency on account of fluctuation in the rate of exchange at each of the relevant balance-sheet dates, pending actual payment of the liability u/s 43A – the loss claimed on revenue account was allowable u/s 37(1) and the assessee was entitled to adjust the actual cost acquired in foreign exchange in terms of Section 43A – the restatement of the liability itself came at the end of the accounting year on account of the foreign exchange rate fluctuation and thereby the assessee was stated to have been saddled with the loss arising out of the restatement of the liability – the restatement had come at the end of the accounting year and that the present liability itself was on account of the exchange fluctuation – Decided against Revenue. – 2014 (4) TMI 856 – MADRAS HIGH COURT – TMI – Tax Case (Appeal) No. 1373 of 2007 – - Dated:- 4-4-2014 – Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Appellant : Mr. T. Ravikumar Standing Counsel for the Income Tax Department For the Respondent : No appearance JUDGMENT (The Judgment of the Court was made by Chitra Venkataraman.J.,) In spite of service of notice on the assessee as early as 10.12.2007, there is no representation on behalf of the assessee either in person or through the counsel. However, after hearing learned Standing Counsel for the Revenue and on going through the records placed before us, the present order is passed. 2. Revenue is on appeal as against the order passed by the Income Tax Appellate Tribunal and the Tax Case (Appeal) is admitted on the following substantial question of law: "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in setting aside the order of the Commissioner of Income Tax and hold that loss arising out of fluctuation in foreign exchange for restatement liabilities as at the end of the financial year is not the contingent liability is valid in law?" 3. The assessment year under consideration is 2000-01. The assessee is engaged in the business of manufacture and sale of UPS. The assessee effected sales both locally as well as in foreign market. After making adjustment in its return on inadmissible items, the assessee showed foreign exchange loss and furnished a note that the loss had arisen on account of the restatement of the outstanding balance as on the date of the balance sheet; on account of rate difference between rate prevailing on the day of actual purchase/sale and on the day of payment/realization. Thus, the assessee claimed that the loss thus shown on account of the restatement merited consideration. Since the claim of the assessee was accepted by the Assessing Officer, in exercise of power under Section 263 of the Income Tax Act, 1961, the Commissioner of Income Tax issued proceedings calling upon the assessee to show cause as to why the claim of foreign exchange loss of Rs.39,12,520/- being the difference arising out of restatement of creditors as on 31.03.2000 and Rs.7,52,312/- being restatement of ELB loan repayable taken for purchase of materials should not be raised since both the liabilities related to transaction of earlier years and were in the nature of contingent liability. Apart from this, there were other issues on the deduction under Section 80HHC of the Income………………

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Apr 252014
 

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The Commissioner of Income Tax, Bhopal Versus Shri Jaswant Singh Raghuwanshi – Income Tax – MADHYA PRADESH HIGH COURT – HC – Appeal u/s 260A of the Act – Assessment of individual income – Civil construction work – Production of adequate evidences – Held that:- Tribunal was rightly of the view that it would be appropriate and reasonable to assess the income by estimating net profit of 10% of the gross contract – the Tribunal have exercised their discretion and jurisdiction in the matter of permitting the assessee to adduce additional evidence in accordance to the requirement to the statutory rules i.e. under rule 46(A) of the Act and have adopted the reasonable approach and based on the documents and additional evidence filed particularly work order and the payments after deduction of TDS came to the conclusion – thus, the findings are neither perverse, illegal nor contrary to law warranting reconsideration now in this proceedings u/s 260A of the Act – there is no need to interfere in the order of the Tribunal – Decided against Revenue. – 2014 (4) TMI 855 – MADHYA PRADESH HIGH COURT – TMI – I.T.A. No. 195/2012 – - Dated:- 25-3-2014 – Rajendra Menon And Anil Sharma,JJ. For the Appellant : Shri Sanjay Lal, learned counsel ORDER This is revenues appeal under Section 260A of the Income Tax Act, 1961 calling in question the concurrent orders passed by the Commissioner of Income Tax (Appeal) and the Appellate Tribunal in the matter of assessment of individual income of the respondent assessee for the assessment year 2008-09. Respondent assessee is engaged in civil construction work and on 29/09/2010 submitted a return of income to the tune of Rs. 1704329/. The case was taken up in scrutiny and notice under Section 143(2) of IT Act was issued and after conducting the process the Assessing Officer found that the assessee has not produce adequate evidence in the matter of income derived by him from contractorship business and therefore the entire receipt of Rs. 34086575/was added to the individual income of the respondent and orders of assessment was passed. It was held by Assessing Officer that no evidence, book of accounts or material was produced by the assessee and therefore, penalty was imposed. When the matter was taken up in appeal at the instance of the assessee before the Commissioner of Income Tax (Appeals), additional evidence under Rule 46A was adduced by the assessee, produced work orders, invoices, payment slips and other materials with regard to construction work carried out by the assessee for M/s. Lupin Ltd. and M/s. Moenus Textile P. Ltd and certain other establishments like M/s. Bhaskar Industries Ltd., the entire material which formed the additional evidence was transferred to the Assessing Officer………………

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Apr 252014
 

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Sachin Joshi Versus Commissioner of Income Tax & Others – Income Tax – BOMBAY HIGH COURT – HC – Order u/s 127 of the Act to be set aside – Validity of the transfer of the case to different jurisdiction – Opportunity of being heard – Held that:- The assesseee had filed an affidavit – The affidavit was forwarded under cover of the assessee’s Chartered Accountants letter – The MOU referred to in the order was between the assessee and one Gill for the sale of the assessees property – There is not even an attempt to explain the relevance or significance of the MOU – He was faced with it for the first time only in the order – The reasons in support of the order were not mentioned in the show cause notice – The assessee ever had an opportunity of responding to the MOU – assessee rightly contended that the impugned order is clearly in breach of the principles of natural justice, contrary to the provisions of section 127 and the judgments of Shikshana Prasaraka Mandali Sharda Sabhagruha Versus The Commissioner of Income Tax ] (Central) and others [2013 (3) TMI 153 - BOMBAY HIGH COURT] – the entire proceeding transferring the case from Pune to Mumbai is in breach of principles of natural justice – Decided in favour of Assessee. – 2014 (4) TMI 854 – BOMBAY HIGH COURT – TMI – Writ Petition No. 1333 of 2013 – - Dated:- 14-3-2014 – S. J. Vazifdar And A. K. Menon,JJ. For the Petitioner : Mr. R. Murlidharan With Mr. Madhur Aggrwal And Mr. Atul K. Jasani For the Respondent : A. R. Malhotra JUDGMENT P. C. :- 1. Rule. Rule is made returnable and heard forthwith. 2. The petitioner seeks to have quashed and set-aside an order dated 07.03.2013 under section 127 of the Income Tax Act, 1961, passed by respondent No.1 transferring the petitioner's case from the present jurisdiction DCIT, Mumbai to the jurisdiction of respondent No.2 i.e. Deputy Commissioner of Income Tax, Hyderabad. 3. The petitioner, an individual has been filing his returns in Mumbai. The jurisdiction qua the petitioner is that of the Deputy Commissioner of Income Tax – 15(3) in Mumbai. 4. Respondent No.2 by a notice dated 12.10.2012 informed the petitioner that a search was initiated under section 132 of the said Act in respect of the group companies of Sureshchandra Agarwal and others and that pursuant to the provisions of section 153-C, it was necessary to assess or reassess the petitioner's total income of six assessment years immediately preceding assessment year relevant to the previous year in which search was conducted or requisition made. The petitioner was called upon to furnish the return of income in respect of each of the six assessment years. 5. The petitioner by his letter dated 26.10.2012 inter-alia stated that it would be difficult for him to get his income assessed in Hyderabad, as he is based in Mumbai and has been filing his return in Mumbai. He requested respondent No.2 to provide him the material / documents / accounts etc. seized during the search conducted on 29.10.2012 which allegedly belongs to him and based on which the said notice dated 12.10.2012 was issued. There was no response to the letter. 6. The petitioner was served with a show cause notice dated 05.12.2012 issued by the Income Tax Officer, Mumbai. The notice informed that a search and seizure operation was conducted on Sureshchandra Agarwal and others ; that the petitioner's case is related to the searched group ; that the searched group is being assessed in the charge of CIT (Central), Hyderabad and that the petitioner's case was proposed to be centralized with DCIT, Hyderabad, respondent No.2, for the purpose of co-ordinated investigation and administrative convenience. The petitioner was directed to submit his objections, if any to the proposed transfer of his case to Hyderabad (inadvertently mentioned as Pune). 7. The petitioner by a letter dated 10.12.2012 forwarded his objections to respondent No1. The petitioner stated that he had not received any response to his said letter dated 26.10.2012 by which he had inter-alia requested respondent No.2 to provide the material and documents seized during the search from the possession of Sureshchandra Agarwal and others. 8. In the impugned order dated 07.03.2013, respondent No.1 apart from recording some of the aforesaid facts merely held as under :- 3. I have carefully considered the submissions of the assessee and found that this is not entirely correct. During the search at the residence of Shri Rajendrakumar in the group Shri Sureshchandra Agarwal, a MOU was found and seized. This MOU referred to sale of property bearing door No.8-2-277 at Banjara Hills, Hyderabad for a consideration of Rs.11,47,50,000/- after paying an advance of Rs.51,00,000/-. The MOU is required to be investigated and as all the group cases are assessed at Hyderabad, I consider it necessary to transfer the jurisdiction over the case of the assessee to DCIT (CC)-4, Hyderabad for co-ordinated investigation. 9. The impugned order was thus based only upon the MOU being found during the search. The petitioner was however, not furnished with a copy of the MOU referred to in the impugned order. The MOU was not even referred to in the show cause notice. Nor was it forwarded by respondent No.2 at any time. As we noted earlier, the petitioner by his letter dated 26.10.2012 requested respondent No.2 for copies of the material / documents / accounts etc. seized during the search based on which the notice dated 12.10.2012 was served upon him by respondent No.2. There was no response from respondent No.2 to the said letter. It is of vital importance to note that even during the personal hearing, the petitioner was not furnished with a copy of the MOU. The MOU was not even referred to by respondent No.1. The MOU was referred to for the first time only in the impugned order. It is pertinent to note that the petitioner had filed an aff………………

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Apr 252014
 

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Navratan Techbuild Pvt. Ltd. Versus Commissioner of Income Tax-I – Income Tax – MADHYA PRADESH HIGH COURT – HC – Review of the order u/s 260A of the Act – Claim of deduction u/s 80IB(10) of the Act – Presence of substantial question of law – Held that:- All Courts in India are bound to follow the decision of the Supreme Court and the law laid down by the Supreme Court is binding on all Courts and Tribunals – When some principle of law has been laid down by the Supreme Court, it is the duty of the High Court or Subordinate Courts to follow the decision of the Supreme Court and to ignore the well settled law by a judicial pronouncement of the Supreme Court and to pass order contrary to it would be gross impropriety – It amounts to judicial adventurism as has in Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. [1997 (5) TMI 421 - SUPREME COURT]. The contention of the assessee that even raising infrastructural development entitled them to deduction u/s 80IB(10) of the Act is not sustainable – assessee have not constructed residential flats and as such barely raising infrastructural facilities would not raise any substantial question of law requiring adjudication by the Court – the assessee have sold the plots instead of constructing the residential houses which was essential for the purpose of claiming deduction, was not entitled to deduction – appeal before the High Court is maintainable with respect to any judgment where the High Court is satisfied that the case involves the substantial question of law – section 260A(3) of the Act leaves no room for doubt that if the appeal before the HC does not involve any substantial question of law or that High Court is not satisfied that the appeal involves any substantial question of law, then there is no necessity for the High Court to frame substantial question of law and to answer the same thereafter – the entire controversy raised by the assessee was factual in nature and does not contain any legal issue – Decided against Assessee. – 2014 (4) TMI 853 – MADHYA PRADESH HIGH COURT – TMI – Review Petition No. 79/2014 – - Dated:- 14-3-2014 – Shantanu Kemkar And M. C. Garg,JJ. For the Appellant : Mr. P. M. Choudhary, learned counsel JUDGMENT Per M. C. Garg, J. Present Review Petition has been filed by the petitioner who was appellant in I.T.A no. 83/2013 and was aggrieved of the judgment passed by the Income Tax Appellate Tribunal, Indore Bench dismissing their appeal vide order dated 30th July, 2013. 2. It is not disputed that the petitioner is a Private Limited Company engaged in the business of real estate and construction of residential/housing projects. They filed e-return for the assessment year 2008-09 declaring NIL income basically by claiming deduction of Rs. 13,37,31,420/- under section 80IB (10) of the Income Tax Act 1961 (in short "the Act"). It is also not disputed that except for creating any infrastructural development in the area in question, residential flats were not constructed by the petitioner and residential plots were sold. 3. The Assessing Officer did not agree with the petitioner that they were entitled to deduction as claimed under section 80IB (10) of the Act vide order dated 31st December, 2010 on the ground that petitioner was not entitled to claim deduction having not constructed residential flats on the plots in question. It was this order which was assailed before the CIT (A) where also, the petitioner did not meet with any success and the appeal filed before the CIT(A) was dismissed vide order dated 01st of August, 2012. It is thereafter, the petitioner approached the Income Tax Appellate Tribunal, Indore Bench where also the order of the Assessing officer and the CIT (A) were maintained and the second appeal filed before the Income Tax Appellate Tribunal was dismissed vide order Judgment dated 30th of July, 2013 holding that the petitioner was not entitled to claim deduction under section 80IB(10) of the Act. 4. It was against that judgment, the petitioner approached this High Court which stands dismissed by this High Court vide judgment dated 27th January, 2014. 5. The petitioner is seeking review of the aforesaid judgment passed by us primarily by stating that the appeal filed by them raises substantial question of law and this Court without framing substantial question of law involved in the appeal dismissed the appeal. It is submitted that it was necessary for this Court to have first frame the substantial question of law and then answer it. 6. Some facts to which reference has been made to this Review Petition are reproduced hereunder for the sake of reference: "That the petitioner is a Private Limited Company engaged in the business of Real Estate Development and construction of residential/housing projects. The company filed its return of income for AY 2008-09 electronically on 29th Sept, 2008 declaring its total income as NIL. While filing the said return, th80IB (10) of the Income Tax Act, 1961, in respect of the Income derived by the company from the eligible housing project of Omaxe City Indore at village Mayakhedi, Dist Indore. The assessee had undertaken the development and construction of the housing project at Indore in collaboration with M/s Omaxe Ltd and Shradha Buildcon Pvt ltd. on an area of land admeasuring 36.074 Hectare i.e. 89.14 acre. The housing project undertaken by the petitioner company consisted of development of housing sites as well as development and construction of the residential units. Since the assessee company was following percentage completion method of accounting, revenue was recognized only on sale of housing sites during the impugned assessment year. Since according to petitioner, it satisfied all the conditions of section 80IB (10) of the Act, it was eligible for deduction under that section. The petitioner claimed that the petitioner was eligible for deduction in respect of the profits derived on the activity of development and construction of the housing sites as also on the constructions of the residential units". 7. It is not the case of the petitioner that they constructed residential houses which were necessary for claiming deduction under section 80IB (10) of the Act. The said section is reproduced hereunder for the sake of reference: "Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. 80-IB. (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in subsections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. – [(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,- (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction, - (i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008; (ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, but not later than the 31st day of March, 2005 within four years from the end of the financial year in which the housing project is approved by the local authority. (iii) In a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority. Explanation. -For the purposes of this clause,- (i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority; (ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority; (b) the project is on the size of a plot of land which has a minimum area of one acre: Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf; (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place; and (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate built-up area of the housing project or five thousand square feet, whichever is higher.] (e) not more than one residential unit in the housing project is allotted to any person not being an individual and (f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons namely – (i) The individual or the spouse or the minor children of such individual (ii) The Hindu divided family in which such individual is the karta. (iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta. Explanation – for the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government)… (14) For the purposes of this section,- [(a) "built-up area" means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units;] 8. The Assessing Officer taking note of the provisions contained under section 80IB (10) of the Act held that the said section confirms 100% tax deduction only in respect to profit derived from the housing project undertaken by the assessee subject to following conditions. "a) Development and construction of the housing project must commence on or after 01st October, 1998 and such construction must be completed as under: (i) In case where the housing project is approved before 01st April, 2004, on or before 31st March, 2008. (ii) In case where the housing project is approved between 01st of April, 2004 and 31st March, 2005, within 4 years from the end of the financial year in which the project is approved. (iii) In case, where the housing project is approved after 01st April, 2005, within 5 years from the end of the relevant financial year in which housing project is approved. (b) The housing project must be on the size of a plot of one acre or more (c) The residential units in the project should have maximum built up area of 1000 sq. ft in respect of projects in Delhi, Mumbai and within 25 kms thereof, and 1500 sq ft at other places. (d) The built up area of shops and other commercial shops included in the housing project should not exceed 3 % of the aggregate built up area of the housing project or 5000 sq ft. whichever is more. Prior to amendment, by the Finance Act, 2010, w.e.f. 1.4.2010, the condition was that the built up area of shops and other commercial establishments should not exceed 5 % of the aggregate built up area or 2000 sq ft whichever is less. 9. It is not in dispute that the aforesaid conditions with respect to raising residential flats in terms of the aforesaid section were not complied with by the petitioner. What they did, only raised infrastructural facilities i.e. building of roads etc and not raised residential houses, in as much as, admittedly they sold the residential plots inspite of constructing residential houses. It was in these circumstances, the Assessing Officer held that since the petitioner did not comply with the conditions qualifying them to claim exemption, rejected their plea of exemption. It was this order, which was upheld by CIT(A) as well as by the Income Tax Appellate Tribunal in second appeal. 10. The submissions made before us by the petitioner was that since they had carried out infrastructural development, that question ought to have been considered by framing the substantial question of law, that even carrying the infrastructural development could also be a ground for claiming exemption, but this ground is not tenable in law, because bare perusal of section 80IB (10) of the Act on the basis of which exemption was sought, clearly goes to show that what was required, was completion of the residential units, which admittedly has not been done in this case. 11. This was consistent view taken not only by the Assessing Officer, but also by CIT(A) and then by the Income Tax Appellate Tribunal. 12. In view of the aforesaid findings that no substantial question of law was involved in this case, we dismissed the appeal filed by the appellant. Paras 15 and 16 of our judgment are reproduced hereunder for the sake of reference: 15. In this case, the grant of permission with respect ………………

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Apr 252014
 

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The Commissioner of Income Tax-III, Hyderabad Versus Swarna Andhra IJMII Integrated Township Development Private Limited, Hyderabad – Income Tax – ANDHRA PRADESH HIGH COURT – HC – Validity of order u/s 143 r.w. section 147 of the Act – Held that:- The Explanation-3 to Section 147 of the Income Tax Act does not apply – Explanation-3 will be applicable in case where live issue, which was subsisting at the time of original assessment and if such issue has escaped the determination of the AO0, can be a ground for reopening – any new issue that has cropped up subsequently on new set of facts, the Explanation has no application – the Explanation-3 has not really diluted cardinal object of Section 147 of the Income Tax Act for reopening – The Explanation-3 has been given a retrospective effect with an idea there are so many assessment orders, which were passed earlier without deciding the issue subsisting at the time of original assessment – Decided against Revenue. – 2014 (4) TMI 852 – ANDHRA PRADESH HIGH COURT – TMI – I.T.T.A.No.165 of 2014 – - Dated:- 12-3-2014 – SRI KALYAN JYOTI SENGUPTA AND SRI SANJAY KUMAR, JJ. JUDGEMENT (Per Hon ble the Chief Justice Sri Kalyan Jyoti Sengupta ) This appeal is sought to be preferred and admitted against the judgment and order of the learned Tribunal dated 21st June 2013 in relation to the assessment year 2005-06 on the following suggested question of law: In the facts and circumstances of the case, Whether the Hon ble Tribunal (ITAT) is correct in law in annulling the assessment order passed under Section 143 read with Section 147 of the Income Tax Act 1961, when the said assessment order is valid and sustainable on the facts and merits of the case? We have heard Mr. B. Narasimha Sarma, learned Counsel for the appellant, and have gone through the judgment and order of the learned Tribunal. It appears that the learned Tribunal has found that the reasons recorded for reopening the assessment has no nexus with the income ultimately assessed under Section 147 of the Income Tax Act, 1961. The finding of the learned Tribunal is reproduced hereunder: Thus, it is very much clear that the reassessment has been made for assessment of income othe………………

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Apr 252014
 

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Tilak Exports and Imports Pvt. Ltd. Versus Assistant Commissioner of income Tax – Income Tax – MADHYA PRADESH HIGH COURT – HC – Claim of deduction u/s 80HHC of the Act – Excess deduction to interest income – Held that:- The Tribunal was of the view that once the income is assessed as income from other sources, the profits of the business to be calculated for the purpose of deduction u/s 80HHC (3) will automatically get reduced by the amount of the interest and the benefit of Section 80 HHC was applicable only in the case in which the interest income is assessed under the head “income from profit and gains of the business” – following Pandian Chemicals Vs. CIT [2003 (4) TMI 3 - SUPREME Court] – the interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the special deduction u/s 80HH – the decision of the ITAT is based on the judgment of the SC – thus, no substantial question of law arises for consideration – Decided against Revenue. – 2014 (4) TMI 851 – MADHYA PRADESH HIGH COURT – TMI – ITA No. 11/2011 – - Dated:- 6-3-2014 – S. K. Gangele And G. D. Saxena,JJ. For the Petitioner Shri Ankur Mody, Advocate. For the Respondent Shri D. P. S. Bhadoriya, Advocate. ORDER Heard. The appellant has filed this appeal against the order dt.17.6.2011 passed by the Income Tax Appellate Tribunal (ITAT). The appellant filed its original return of income tax on 29.11.1996 for the financial year 1996-97. It claimed deduction under Section 80 HHC of Income Tax Act 1961. The Assessing Officer disallowed the claim of amount of Rs.11,82,665/- being excess deduction with reference to the interest income of Rs.13,14,708/-. The officer allowed netting of interest. The assessee filed an appeal against the aforesaid order. The appellate authority allowed the appeal. Against the aforesaid order, another appeal was filed before the Tribunal. The Tribunal set aside the finding of the appellate authority and remanded the matter back to the assessing officer to consider the nature of receipt of interest. Thereafter, the assessing officer disallowed the claim after treating the interest income as income from other sources. An appeal was filed against the aforesaid order a………………

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Apr 252014
 

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The Chief Commissioner Of Income Tax And Others Versus Shri George P. Mathews Partner, M/s. Paul Mathews & Sons And Others – Income Tax – KERALA HIGH COURT – HC – Waiver of Interest u/s 234B of the Act – Entitlement to claim unabsorbed depreciation – Held that:- The decision in Garden Silk Weaving Factory Versus Commissioner of Income-Tax [1991 (3) TMI 1 - SUPREME Court] followed – Depreciation of a firm cannot be allocated to the benefit of partners personally and it shall revert back to the firm, the assessees should have been careful enough to file their returns without claiming such unabsorbed depreciation – though 1989-90 assessment of the firm did allocate such unabsorbed depreciation, law of the land declared such allocation as bad – the returns ought to have been filed showing the correct income – the advance tax was not paid, therefore, automatically they are liable to pay interest chargeable u/s 234B of the Act – Decided in favour of Revenue. – 2014 (4) TMI 850 – KERALA HIGH COURT – TMI – WA. No. 560 of 2010 – - Dated:- 11-2-2014 – Dr. Manjula Chellur, CJ And A. M. Shaffique,JJ. For the Appellant : Sri. Jose Joseph, SC For the Respondent : Sri P. Balakrishnan, Adv JUDGMENT Manjula Chellur,CJ. Revenue is before us challenging the judgment of the learned Single Judge in O.P. No.14606 of 2002. 2. We are concerned with the assessment years 1991-92 and 1992-93 pertaining to the party respondents. The facts leading to the present appeal in brief are as under:- One M/s.Paul Mathews & Sons, Eloor Muri, Kalamassery consist of 5 partners. Assessment of the firm for the year 1989-90 came to be completed on 25.9.1990 wherein unabsorbed depreciation came to be allocated to all the five partners of the firm. Subsequently, Ext.P1 rectification order came to be passed by the Assessing Officer pertaining to the very same firm in the light of the decision of the Supreme Court in its judgment dated 22.03.1991 reported in Garden Silk Weaving Factory vs. Commissioner of Income-tax (1991) 189 ITR 512) wherein their Lordships held that unabsorbed depreciation in the case of a firm cannot be set off at the hands of the partners and it has to be reverted back to the firm's case. This order of rectification came to be made under Section 154 of Income Tax Act (for short the Act) on 21.01.1994. 3. While completing the assessments of the partners for the years 1991-92 and 1992-93, the Assessing Officer disallowed the claim of set off of unabsorbed depreciation pertaining to the firm and determined the tax payable, so also levied interest under Section 234B for non-payment of advance tax. Assessees admittedly filed several representations seeking waiver of interest levied under Section 234B contending that by virtue of the assessment orders pertaining to the assessment year 1989-90 they are entitled to claim unabsorbed depreciation and there was no mistake on their part, so far as claim of such depreciation. 4. Exts.P2, P4 and P7 are the orders rejecting the claim of waiver of interest by the respondents/partners. Aggrieved by the said orders, all partners filed OP No.14606 of 2002 when recovery proceedings came to be initiated as per Ext.P9. Said matter was disposed of opining that petitioners were entitled to the benefit of unabsorbed depreciation, therefore, the impugned orders deserve to be quashed. It was further declared that petitioners were not liable to pay any interest under Section 234B of the Act for the assessment years 1991-92 and 1992-93. Aggrieved by the said judgment of the learned Single Judge, Department is before us. 5. According to learned Standing Counsel for the Revenue, if any of the assessees was to get benefit of waiver of interest, it has to be in accordance with the circulars issued under Section 119(2)(a) of the Act by the Department from time to time. So far as present case is concerned, though we are concerned with circular dated 23.5.1996, there is reference to circular dated 02.5.1994 in some of the impugned orders which were under challenge before learned Single Judge. As a matter of fact, in Ext.P2, circular dated 02.05.1994 was referred to and according to the department, the said circular is not at all applicable to the facts of the case as there was no income that had accrued or arose. So far as 1996 circular, at the time of Ext.P2 it was not in existence. Ext.P………………

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Apr 252014
 

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M/s. Sunny Jacob Jewellers Versus Commissioner of Income Tax – Income Tax – KERALA HIGH COURT – HC – Validity of order u/s 263 of the Act – Held that:- The entire discussion of A.L.A Firm case refers to different situations depending upon continuance of business or discontinuance of business – Though all partners are members of one family, so far as their tax liability, as an individual or as partners will not depend upon their relationship with each other, but depends upon the income they derive as their individual income whether through partnership or through other sources – if the firms were to transfer closing stock especially an item like gold, to an outsider, definitely book value will not be the value at which the stock would be transferred – partners are members of the same family, their liabilities and assets would depend upon their share capital etc.- it is not open to them to say that one of the partners being head of the family is continuing Dona Gold business as a proprietary concern at their choice, at what value they transfer the entire closing stock they have transferred – there is no justification in the stand of the assessee in contending that only the book value of closing stock has to be taken into consideration – the Tribunal was justified in rejecting the appeals – Decided against Assessee. – 2014 (4) TMI 849 – KERALA HIGH COURT – TMI – ITA. No. 7 of 2014 – - Dated:- 10-2-2014 – Dr. Manjula Chellur, CJ And A. M. Shaffique,JJ. For the Petitioner : Sri Raju Joseph, Sr. Adv, Sri K. T. Poulose For the Respondent : Sri Jose Joseph, SC, Income Tax JUDGMENT Manjula Chellur,CJ. We are concerned with assessment order of 2008-2009 in all these appeals. A common order was passed by the appellate Tribunal pertaining to these three appeals. Therefore, these appeals are heard and are disposed by a common order. The brief facts that led to filing of the present appeals are as under: All the appellants/assessees were running partnership business in gold and also other items. Assessment for the above year came to be completed under Section 143(3) of the Income Tax Act (hereinafter referred to as 'the Act'). Commissioner of Income Tax invoking the powers under Section 263 of the Act cancelled the assessment on the ground that assessment orders passed by the assessing authority were erroneous and prejudicial to the interest of the revenue. Aggrieved by the same, appellant firms approached the Appellate Tribunal which confirmed the orders of Commissioner. Therefore, appellants are before us. 3. We heard learned counsel for appellant firms and also learned Standing Counsel for the revenue. According to learned counsel arguing for appellant firms, opinion of the Commissioner which came to be confirmed by the Tribunal is based on a wrong interpretation so far as judgment in A.L.A Firm v. Commissioner of Income Tax [(1991) 189 ITR 285). According to appellants, appellant/assessee firms were never dissolved, therefore, question of working out assets and liabilities would not arise. The decision in A.L.A Firm (supra) pertains to a situation of dissolved firm and profit was worked out for the purpose of distribution among the partners. In that view of the matter, the principle laid down in the said decision is not at all applicable to the facts of the present case. So far as factual situation to support the above contention, learned counsel for appellant submits, all partnership firms consist of only family members as partners. On account of various reasons, the firms decided to discontinue the business carried on by them in gold. Therefore, as all the partners, being members of one family, decided to transfer the stock in all the firms to one of the partners Mr.Sunny Jacob who was carrying on gold business in proprietary concern by name M/s.Dona Gold. Therefore, it cannot be considered as a situation on par with the dissolved firm, hence, there is no justification in the orders of the Commissioner which came to be confirmed by the Tribunal. He further contends that even if the Commissioner were to cancel and remand the matter to the assessing authority for fresh consideration, it was not open to the Commissioner to indicate any formula how the calculations have to be adopted in order to compute the tax liability. Therefore, viewed from any angle, the orders of the Tribunal deserve to be set aside. 4. As against this argument of appellants/assessees, learned Standing Counsel for Department contends that though the factual situation discussed in A. L. A Firm (supra) is different from the factual situation of the present cases, the fact remains, the business of gold is discontinued in the assessees' firm. Therefore, irrespective, whether it is by virtue of dissolution or otherwise, once a particular business is discontinued, the stock transfer has to be valued based on market value and not on book value. He further reiterates that the principle laid down in A.L.A Firm (supra) is applicable to the facts of the present appeal. 5. We have gone through the above said judgment and also orders of the Commissioner under Section 263 of the Act as well as orders of the Appellate Tribunal. The genesis for the present situation seems to be a search conducted in the business premises and residences of the appellants on 21/08/2007. According to them, subsequent to the search, from 05/12/2007, appellant firms discontinued their gold business and closing stock of gold was transferred to the proprietary concern belonging to one of the partners by name Mr. Sunny Jacob. It is also contended by the appellants/assessees before Commissioner as well as Tribunal that though no amount becomes taxable in the hands of partnership firms, proprietary concern doing business in gold will be liable to pay tax depending upon the profit and income earned from the same goods which are transferred from partnership firms to proprietary concern. Therefore, no loss as such is caused to the revenue. The substantial questions of law raised in these appeals are as under: "i) Has not the Tribunal gone wrong in relying on the decision of the Honourable Supreme Court in ALA firms Vs. Commissioner of Income Tax reported in (1991) 189 ITR 285 to come to the conclusion that the order passed by the assessing officer was erroneous and prejudicial to the revenue? ii) Has not the Tribunal gone wrong in omitting to notice that the appellant firm was ………………

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Apr 252014
 

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Tellicherry Minority Welfare Trust Versus The Commissioner of Income Tax – Income Tax – KERALA HIGH COURT – HC – Rejection of registration u/s 12A of the Act – Nature of activity – Charitable or not – Held that:- It is not clear as to what exactly is the object and aim of the trust in mentioning minorities and backward classes of Tellicherry Municipality and its suburbs – no material is brought on record which minority groups in Tellicherry Municipality represent religion, language or culture – In the absence of details by referring to minorities living in Tellicherry Municipality and its suburbs, the real intention of using the word minorities in the trust deed, according to the authorities, with reference to a particular religious minority seems to be justified. If it is a charitable and religious trust, especially in the case of charity, having regard to several restrictions under Section 13 (1) of the Act (especially 13(1)(b)) if benefit is restricted to a particular religion or class, exemption benefit will not be attracted – as long as 12A registration is in existence, the assessee can claim the benefit – Without 12A registration, even if the assesee were to spend money on charitable activities, they are not entitled for the benefit – registration u/s 12A is like an entry document to secure exemption – The observation of the authorities with reference to the contents of the trust deed persuaded them to opine that the meaning and import of the word apply, having regard to the denominational character of the trust on the holistic approach to conclude that the intention was not to extend the benefit to all minorities, but to a particular religious minority – Decided against Assessee. – 2014 (4) TMI 848 – KERALA HIGH COURT – TMI – ITA. No. 115 of 2011 – - Dated:- 7-2-2014 – Dr. Manjula Chellur, CJ And A. M. Shaffique,JJ. For the Petitioner : Sri. K. I. Mayankutty Mather, Adv Smt. Rukhiyabi Mohd. Kunhi For the Respondent : Sri. P. K. R. Menon Sr. Counsel, GOI. (Taxes), Sri Jose Joseph, SC JUDGMENT Manjula Chellur,CJ. Appellant was the unsuccessful trust who failed in getting registration certificate under Section 12A of the Income Tax Act (hereinafter referred to as the Act). An application came to be filed on 21.07.2008 for registration under Section 12A of the Income Tax Act which came to be rejected on 15.01.2009. According to the appellant, the said order was unsustainable; therefore, he preferred an appeal before the Appellate Tribunal. Aggrieved by the order of Tribunal, the appellant is before us. 2. The main contention of the appellant is, the authorities while considering or processing the application for registration under Section 12A of the Act are not entitled to examine the said application with reference to Section 13(1)(b) of the Income Tax Act. Therefore, the reasoning for the orders of Commissioner as well as Tribunal is unsustainable. He also relies upon the following three decisions of various High Courts to substantiate his arguments. Fifth Generation Education Society v. Commissioner of Income-tax (1990) 185 ITR 634 (All); Commissioner of Income Tax v. Jodhpur Chartered Accountants Society (2002) 258 ITR 548 (Raj) and un reported judgment of High Court of Punjab and Haryana at Chandigarh dated 5.10.2011 in ITA Nos.701 of 2010 and 189 of 2011. Placing reliance on these decisions, appellant/assessee contends, Commissioner was not required to examine the application of income while processing the application for registration under Section 12A of the Act. Therefore, the order of Commissioner as well as Tribunal clearly indicates how they analysed the application of assessee for registration under Section 12A which has led to the present erroneous order under challenge. 3. According to them, anticipating expenditure with reference to a particular minority community, by referring to certain clauses in the trust, there was no justification to prejudge the issue. Even before computation of tax was undertaken by the authorities, the intention of the trust in question cannot be anticipated. It cannot be held that the intention is to help only one religious minority, therefore, hit under Section 13(1)(b) of the Income-Tax Act. 4. As against this, learned Standing Counsel submitting arguments for the Department contends that the clauses and the words used in the entire document of trust, especially, the name of the trust, restriction of beneficiaries at clause 9 of the trust deed clearly indicates that the intention of the trust is only to extend benefits to a particular religious minority, therefore, there was justification in rejecting the application of the assessee. 5. He further contends, issuance of registration under Section 12A is mandatory, if anyone intends to seek exemption under Section 11 of the Act. Then Section 13 refers to conditions which have to be looked into while granting exemption of tax under Section 11 of the Act. Therefore, unless the activities undertaken by applicant indicate that the activities are meant for general public without reference to any particular religious group, no registration certificate could be issued. As the very rejection of application is with reference to Clauses in the document, appeal deserves t………………

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