Home Case Index All Cases Income Tax Section Wise 2005 2005 (6) This

Law	-- All -- GST Income Tax Benami Property Customs Corporate Laws Securities / SEBI Insolvency & Bankruptcy FEMA Law of Competition PMLA Service Tax Central Excise CST, VAT & Sales Tax Wealth tax Indian Laws
Court	-- Any -- Supreme Court SC Orders / Highlights High Court Appellate Tribunal Tribunal Appellate authority for Advance Ruling Advance Ruling Authority National Financial Reporting Authority Competition Commission of India ANTI-PROFITEERING AUTHORITY Commission Central Government Board DISTRICT/ SESSIONS Court Commissioner / Appellate Authority Other
Citation	--Year-- 2025 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 1959 1958 1957 1956 1955 1954 1953 1952 1951 1950 Upto 1949 - -Volume- 1 2 3 4 5 6 7 8 9 10 11 12 -
Landmark	Nil - N/A Referred in >= 2 Cases Referred in >= 4 Cases Referred in >= 5 Cases Referred in >= 10 Cases Referred in >= 15 Cases Referred in >= 25 Cases Referred in >= 50 Cases Referred in >= 100 Cases
Order by	TMI Citation Date of Decision

Advanced Search Options

Case Laws

Showing 321 to 340 of 497 Records

• 2005 (6) TMI 229
  
  Issues Involved:
  1. Incorrect finding regarding assessment on the legal heir.
  2. Omission to consider judicial pronouncements.
  3. Non-service of appeal memo to the assessee.
  4. Failure to restore the matter to CIT(A) for adjudication on merits.
  
  Issue-wise Detailed Analysis:
  
  1. Incorrect Finding Regarding Assessment on the Legal Heir:
  The assessee contended that the ITAT erroneously recorded a finding that the assessment was made on the legal heir of the deceased assessee. The assessee argued that the notice under section 148 was served only to one legal representative and not all. The Tribunal found no apparent mistake in its order dated 12-12-2003, noting that the facts and case law were duly considered, and the assessee failed to point out any material evidence ignored by the ITAT. The Tribunal concluded that the assessee was seeking a review, which is not permissible under section 254(2).
  
  2. Omission to Consider Judicial Pronouncements:
  The assessee claimed that the Tribunal omitted to deal with certain judicial pronouncements supporting the contention that the assessment order made after the death of the assessee was nullity in law. The Tribunal examined the order and found that the case law cited by the assessee was discussed in detail in the original order. Therefore, the Tribunal found no omission or mistake in relation to the judicial pronouncements.
  
  3. Non-service of Appeal Memo to the Assessee:
  The assessee argued that the memo of appeal was not served, preventing the filing of a cross-objection to support the CIT(A)'s order. The Tribunal acknowledged the assessee's plea but found no apparent mistake in its original order. The Tribunal noted that the assessee did not file cross-objections or cross-appeal before ITAT, and thus could not claim further opportunity to do so.
  
  4. Failure to Restore the Matter to CIT(A) for Adjudication on Merits:
  The Tribunal found merit in the assessee's contention that the CIT(A) did not adjudicate the grounds on merits. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in National Thermal Power Co. Ltd. v. CIT, which emphasized the Tribunal's broad powers to pass orders necessary for adjudicating the subject matter. The Tribunal concluded that it had a legal obligation to restore the matter to CIT(A) for adjudication on merits, which it failed to do in its original order. This omission amounted to a mistake apparent from the record, warranting rectification under section 254(2).
  
  Conclusion:
  The Tribunal allowed the miscellaneous application in part. While maintaining its order on the legal issue, the Tribunal amended its order dated 12-12-2003 to include directions for the CIT(A) to adjudicate the grounds on merits. This amendment was necessary to rectify the mistake of not restoring the matter to the CIT(A) for a comprehensive adjudication. The Tribunal emphasized its duty to ensure substantial justice and prevent miscarriage of justice by issuing appropriate directions for the proper adjudication of the subject matter of the appeal.

  ---

• 2005 (6) TMI 228
  

  Speculative Loss - loss claimed on purchase and sale of share - HELD THAT:- During the course of hearing before us, the learned counsel placed reliance on the decision of Tribunal,Bombay, in the case of Aakrosh Investment & Leasing (P) Ltd. [2003 (8) TMI 544 - ITAT MUMBAI]. We find that judgment to be against the contentions of the assessee and in favour of the Revenue. We are also at loss to understand as to how dividend earned on one's own stock-in-trade of shares can be treated at par with brokerage income earned on the business transactions of the third parties. The assessee also placed reliance on the decision of Tribunal, Mumbai, in the case of Samba Trading & Investment (P) Ltd............. In that case the assessee disclosed profit in share business, but loss in speculation of shares. But there was no claim in that case that loss in share business should be set off against brokerage income.

  We are now left with the other reasons given by the learned CIT(A) for deletion of the addition of Rs. 38.09 lakhs made by the AO after invoking the Explanation to s. 73 of the Act. It has been held that the loss arising on the holding of 30,000 shares pledged with NSCCL should have been charged against the brokerage amount. We find this contention to be entirely illogical. It is admitted fact that in the case of the assessee the loss has arisen on account of depreciation in the market value of shares vis-a-vis cost of acquisition even though the assessee continued to be the owner of the shares. The assessee has been able to work out loss for the reason only that those shares have been treated by the assessee as his stock-in-trade. If those shares are to be treated as an investment made by the assessee as part of its brokerage business, there is no loss incurred by the assessee in the first instance to be charged against the brokerage amount. We, therefore, do not see any force in that contention of the assessee.

  There is also the question of expenses to be allocated to the business of sale and purchase of shares, the dividend income and brokerage income. We find that this issue has not been addressed to in proper manner by the learned AO as well as the learned CIT(A). We, therefore, remand this issue to the file of the learned AO for decision afresh after allowing the assessee reasonable opportunity of being heard.

  In the result, the order of the learned CIT(A) is set aside and the matter is restored to the file of the learned AO for the limited purpose of allocation of expenses between deemed speculation loss and other income of the assessee.

  For statistical purposes this appeal shall be treated as partly allowed.

  ---

• 2005 (6) TMI 227
  
  Issues Involved:
  
  1. Disallowance of Rs. 32,28,152 under Section 35(1)(iv) of the Act.
  2. Disallowance of Rs. 15,443 under Section 35(1)(iv) of the Act for research and development assets.
  3. Investment allowance on account of foreign exchange fluctuations.
  4. Deduction under Section 80HHC for rebate of duty on material imported against advance license.
  5. Disallowance of expenditure on gifts and presents.
  6. Disallowance of sales promotion expenses under Section 37(2A) of the Act.
  
  Detailed Analysis:
  
  1. Disallowance of Rs. 32,28,152 under Section 35(1)(iv):
  The assessee did not press this ground as the necessary relief was already granted by the AO in accordance with the CIT(A)'s order. Consequently, this ground was disposed of without further deliberation.
  
  2. Disallowance of Rs. 15,443 under Section 35(1)(iv) for research and development assets:
  The AO disallowed the claim related to the addition to the cost of assets used for research and development due to exchange fluctuation on a foreign currency loan. The CIT(A) upheld that deduction should be allowed only upon actual payment. The Tribunal, however, referenced its previous decisions and concluded that the increased liability due to exchange rate fluctuation should be added to the actual cost of the asset under Section 43A, thereby allowing the claim on an accrual basis.
  
  3. Investment Allowance on Account of Foreign Exchange Fluctuations:
  The assessee claimed investment allowance by enhancing the actual cost of the asset due to exchange rate fluctuations. The AO and CIT(A) denied the claim, stating that the enhancement could only be considered upon actual repayment. The Tribunal, referencing its prior decisions and other judicial precedents, held that the investment allowance was allowable on the enhanced cost due to exchange rate fluctuations, even if the repayment had not occurred. The Tribunal dismissed the Departmental Representative's argument that Section 32A was not applicable for the year under consideration, as the assets were installed before the cutoff date of 31st March 1990.
  
  4. Deduction under Section 80HHC for Rebate of Duty on Material Imported Against Advance License:
  The assessee claimed that the rebate of Rs. 66,29,757 on custom duty should be considered under Section 28(iiic) for deduction under Section 80HHC. The AO and CIT(A) denied this, arguing it was not covered under the specified rules. The Tribunal, however, referenced its decision in the assessee's own case for a later year and other precedents, concluding that the rebate on custom duty, which reduces production costs and increases profit margins, should be considered as 'profits of business' for Section 80HHC purposes. The Tribunal also distinguished this case from the Supreme Court decision in Hindustan Lever Ltd., where the facts were different.
  
  5. Disallowance of Expenditure on Gifts and Presents:
  The assessee did not press this ground, and it was accordingly dismissed.
  
  6. Disallowance of Sales Promotion Expenses under Section 37(2A):
  Similarly, the assessee did not press this ground, and it was dismissed.
  
  Conclusion:
  The appeal of the assessee was partly allowed. The Tribunal ruled in favor of the assessee on the issues of disallowance under Section 35(1)(iv) for research and development assets and the investment allowance on account of foreign exchange fluctuations. The Tribunal also allowed the deduction under Section 80HHC for the rebate of duty on material imported against advance license. The grounds related to expenditure on gifts and presents and sales promotion expenses were dismissed as they were not pressed by the assessee.

  ---

• 2005 (6) TMI 226
  
  Issues Involved:
  1. Validity of Notice under Section 142(1).
  2. Existence of Business Connection in India.
  3. Existence of Permanent Establishment (PE) in India.
  4. Attribution of Income to PE.
  5. Taxation of Software Payments as Royalty.
  6. Addition of Notional Interest on Vendor Financing.
  
  Summary:
  
  1. Validity of Notice under Section 142(1):
  The notice issued u/s 142(1) was beyond the prescribed time limit and thus invalid. Consequently, the assessments made pursuant to such notices were also invalid.
  
  2. Existence of Business Connection in India:
  - Ericsson: No business connection in India as the Indian company (ECI) did not carry out any activities on behalf of Ericsson.
  - Motorola: Business connection established through the Indian subsidiary (MINL) which carried out activities of a preparatory or auxiliary character for Motorola.
  - Nokia: Business connection established through the Indian subsidiary (NTPL) which carried out marketing and technical support activities for Nokia.
  
  3. Existence of Permanent Establishment (PE) in India:
  - Ericsson: No PE in India as the Indian company (ECI) did not provide a right to the employees of Ericsson to use its office as a fixed place of business.
  - Motorola: Fixed place PE in India through the office of the Indian subsidiary (MINL) as employees of Motorola worked in the office of MINL and were paid perquisites by MINL.
  - Nokia: No PE in India through the Liaison Office (LO) but PE established through the Indian subsidiary (NTPL) as it carried out significant activities beyond preparatory or auxiliary character.
  
  4. Attribution of Income to PE:
  - Ericsson: No income attributed to PE as there was no PE in India.
  - Motorola: Income attributed to PE based on the activities carried out in India. The CIT(A) reduced the income to 5% of the sales to Indian parties.
  - Nokia: Income attributed to PE based on the activities carried out in India. The CIT(A) attributed 5% and 7.9% of the sales to Indian parties for the respective assessment years.
  
  5. Taxation of Software Payments as Royalty:
  - Ericsson, Motorola, and Nokia: Payments for software were not considered as royalties but as part of the sale of the GSM equipment. The software was treated as a copyrighted article and not as a copyright right.
  
  6. Addition of Notional Interest on Vendor Financing:
  - Nokia: Addition of notional interest on vendor financing was justified as the agreement provided for charging interest and there was no evidence to show that the clause was not activated or that the financial position of the cell operators was bad.
  
  Conclusion:
  - Ericsson: Appeal allowed, no PE in India, no business connection, and software payments not taxable as royalties.
  - Motorola: Appeal partly allowed, fixed place PE in India, income attributed to PE, and software payments not taxable as royalties.
  - Nokia: Appeals partly allowed, PE established through NTPL, income attributed to PE, software payments not taxable as royalties, and addition of notional interest justified.

  ---

• 2005 (6) TMI 225
  
  Issues Involved:
  1. Disallowance of expenses and depreciation claimed by the assessee under the head "Business".
  2. Determination of whether the business was set up and entitled to claim expenses and depreciation.
  3. Applicability of Section 28 of the IT Act regarding computation of income chargeable under the head "Profits and Gains of Business or Profession".
  
  Issue-wise Detailed Analysis:
  
  1. Disallowance of Expenses and Depreciation:
  The assessee's appeal was against the order of CIT(A) confirming the AO's disallowance of expenses and depreciation claimed under the head "Business". The assessee, a company formed with foreign collaboration, aimed to manufacture and supply railway wheels to Indian Railways. The AO disallowed the claims on the grounds that the assessee did not carry on any business during the relevant period as there were no sales or orders from Indian Railways, and the company lacked manufacturing facilities and ISI standardization.
  
  2. Determination of Whether the Business was Set Up:
  The CIT(A) upheld the AO's decision, stating that the business could only be considered carried on if commercial production had commenced. The CIT(A) noted that the balance sheet showed no production of finished goods and no sales or orders were made during the relevant period. The assessee contended that the business was set up as wheels were purchased, processed, and tenders were submitted to the Railways. The Tribunal observed that the business is considered set up when it is ready to commence, even if commercial production has not started. The Tribunal referenced several cases, including Western India Vegetable Products Ltd. vs. CIT and Sarabhai Management Corpn. Ltd. vs. CIT, to support this distinction.
  
  3. Applicability of Section 28 of the IT Act:
  The Tribunal held that the Revenue authorities erroneously applied the test of commercial production commencement rather than business setup. The Tribunal noted that the assessee had procured raw wheels, processed them, and submitted tenders, indicating that the business was set up. The Tribunal emphasized that expenses incurred between setting up and commencement of business are deductible. The Tribunal also addressed the AO's incorrect emphasis on ISI marking, noting that the Railways had their own specifications which the assessee's wheels could meet.
  
  Conclusion:
  The Tribunal concluded that the assessee had set up its business and was entitled to claim expenses and depreciation. The Tribunal set aside the impugned orders and remanded the matter to the AO to examine the claims in accordance with the law, allowing expenses and depreciation as permissible. The appeal was allowed, and the matter was to be decided after affording the assessee a reasonable opportunity of being heard.

  ---

• 2005 (6) TMI 224
  

  Appellate Tribunal - undisclosed income for the block period - warrant of authorization - assumption of jurisdiction - Whether the Appellate Tribunal has powers to adjudicate upon the issue relating to the validity of the search conducted u/s 132 while disposing the appeal against block assessment - Period of limitation u/s 158BE - HELD THAT:- It is well-settled that as a general rule, the issue of validity of exercise of power by an authority can be raised in any proceedings including a collateral proceedings. However, it is also well-settled that the validity of exercise of power by an authority can be set up in the collateral proceedings only when there is lack of inherent jurisdiction on the part of the authority exercising the power. If the authority possesses the necessary power but while exercising the power exceeds or abuses the power, then it cannot be said that the authority lacks inherent jurisdication. In the first category of cases, challenge to the validity of the exercise of power can be raised in collateral proceedings also. In the second category of cases collateral attack was not to be allowed.

  The authority issuing a warrant of authorization has the necessary power to do so by virtue of the provisions of section 132. If in exercising that power the authority acts without material or comes to conclusions about existence of conditions mentioned in clause (a), (b) or (c) of section 132(1) of the Act based on extraneous reasons or irrelevant material then it would be a case of an error within the jurisdiction of the authority. It is an error within the jurisdiction because the statute has already conferred the jurisdiction to the designated officers to issue warrant. Hence, an error or arbitrariness in issuing a warrant is within the jurisdiction and not without. Such error can be rectified only in appropriate proceedings and not in any collateral proceedings.

  Our conclusion that remedy against improper exercise of power in initiating search by issuance of warrant of authorization lies in the form of seeking issue of a writ also gets support from the decision of Hon'ble Delhi High Court in the case of Ajit Jain [2003 (1) TMI 97 - SC ORDER] which has been subsequently affirmed by the Hon'ble Supreme Court. In the said case, similar action was challenged by the assessee in a writ petition filed before the Hon'ble Delhi High Court and their Lordships of Delhi High Court entertained the writ petition filed by the assessee observing that his case does fall in the category where an action is wholly without jurisdiction and results in infringement of fundamental right. Hon'ble Delhi High Court further observed that while sufficiency or otherwise of the information cannot be examined by the Court in writ jurisdiction, the existence of information and its relevance to the formation of the belief is open to the judicial scrutiny because it is the foundation of this condition precedent for exercise of a serious power of search of a private property or person which involves violation of privacy of a citizen. These observations recorded by Hon'ble Delhi High Court explicitly show that a power of search of a private property or a person is a serious power and exercise of the same without jurisdiction results in the infringement of the fundamental right since it involves violation of the privacy of a citizen.

  Keeping in view this legal position, it can appropriately be held that it is only the High Court which can examine the validity of search by ascertaining whether the pre-conditions for the issuance of a warrant of authorization based on existence of reasons to believe as recorded were satisfied or not in a given case in exercise of power of writ vested in them under article 226.

  To sum up, we hold that the Income-tax Appellate Tribunal has no powers, either express or incidental/implied, to adjudicate upon the issue relating to the validity of the search conducted u/s 132 while disposing of the appeal against block assessment. As already discussed, the search action u/s 132 has three limbs, i.e., initiation of search, conduct of search and conclusion of search. Insofar as the validity of search is concerned, the first limb, i.e., initiation of search, which includes all the actions culminating into issue of warrant of authorization assumes significance and relevance and the same, in our opinion, are not justiciable in an appeal before the Tribunal. The only remedy in this matter lies in the form of seeking issue of a writ from the Hon'ble High Court. We, therefore, answer the question referred to this Special Bench in negative, i.e., in favour of the Revenue and against the assessee.

  As regards the remaining two limbs, i.e., conduct of search and conclusion of search, anomalies and infirmities therein, if any, do not go to vitiate the search action and the Tribunal can look into these aspects to the extent relevant for disposing of the appeal against the block assessment as discussed above. In our opinion, the Tribunal also has the power to call for the production of warrant of authorization and other documentary evidence to ascertain that the search in fact was initiated and conducted in a given case to verify this jurisdictional fact, if so challenged by the assessee and if so thought fit by the Tribunal in the facts and circumstances of the case.

  Before we part with this order, we may touch upon one incidental issue raised by Shri C.S. Aggarwal. Relying on the decision of the Hon'ble Andhra Pradesh High Court in the case of V. V. Trans-Investments (P.) Ltd. v. CIT [1993 (12) TMI 52 - ANDHRA PRADESH HIGH COURT] and that of the Hon'ble Supreme Court in the case of ITAT v. Dy. CIT [1996 (1) TMI 5 - SUPREME COURT], he has contended that an appeal has to be disposed of by the Tribunal as a whole and not in a piecemeal manner. He has also contended that whenever reference is made by the Hon'ble President to the Special Bench, it is the entire appeal which has to be disposed of by the Bench and not just a particular issue raised therein. Shri G.C. Sharma, on the other hand, has contended that it is a convention followed by the ITAT, which is evident from a number of Special Bench decisions, to decide only a particular question or questions as per the reference made by the Hon'ble President to the Special Bench and not the entire appeal. He has further contended that this convention needs to be followed or otherwise it will give rise to many practical problems in the matter of constitution of Special Bench by the Hon'ble President. Be that as it may, what has been referred to by the Hon'ble President in the present case for the consideration and decision of this Special Bench is only one question as stated above and not the entire appeal/case.

  We, therefore, confine ourselves to answer the said question specifically referred to us u/s 255(3). The matter will now go to the regular Bench for disposing of the appeal of the assessee keeping in view the decision of Special Bench rendered hereinabove.

  ---

• 2005 (6) TMI 223
  
  Issues:
  - Imposition of penalty under s. 271B for failure to get accounts audited under s. 44AB
  - Whether transportation receipts form part of total turnover
  - Applicability of case law in the given scenario
  
  Imposition of Penalty under s. 271B:
  The appellant appealed against the penalty imposed by the AO under s. 271B, contending that the penalty was unjustified as they believed that transportation receipts from sister-concerns were not to be accounted towards their income. The AO observed that the appellant's gross receipts, including transportation receipts, exceeded Rs. 40 lakhs, necessitating audit under s. 44AB. As the appellant failed to get the accounts audited and furnish the audit report, the penalty was imposed. The CIT(A) upheld the penalty, stating that the transportation receipts form part of the total turnover, and the appellant was in default under s. 44AB. The Tribunal concurred with the CIT(A) and upheld the penalty, rejecting the appellant's appeal.
  
  Inclusion of Transportation Receipts in Turnover:
  The appellant argued that transportation receipts from specific mills should not be considered part of the turnover as no profit was earned from those transactions. However, the CIT(A) held that the transportation receipts, regardless of profit earned or passed on to other concerns, form part of the total turnover. The Tribunal agreed with the CIT(A) that the transportation was directly done by the appellant, making the receipts integral to the turnover calculation. As the total turnover exceeded Rs. 40 lakhs and the accounts were not audited as required by s. 44AB, the penalty under s. 271B was deemed justified.
  
  Applicability of Case Law:
  The appellant cited case law to support their argument that since their turnover was below Rs. 40 lakhs, audit under s. 44AB was not mandatory. However, the Tribunal found that the case law referenced was not applicable to the specific circumstances of the appellant's case. The absence of documented proof or agreements to exclude the transportation receipts from turnover led to the rejection of the appellant's argument. The Tribunal upheld the CIT(A)'s decision and confirmed the penalty imposed by the AO, emphasizing the direct involvement of the appellant in transportation activities and the consequent inclusion of receipts in the turnover calculation.
  
  In conclusion, the Tribunal dismissed the appellant's appeal, upholding the penalty imposed under s. 271B for failure to comply with the audit requirements of s. 44AB and confirming that transportation receipts formed part of the total turnover.

  ---

• 2005 (6) TMI 222
  
  Issues:
  1. Addition of Rs. 26,845 against a loss of Rs. 5,245 declared in jeep account without specific deficiency in accounting being pointed out.
  2. Interpretation and application of provisions under section 44AE of the Income Tax Act regarding declaration of lower profit.
  
  Analysis:
  1. The case involved a dispute where the Assessing Officer (AO) made an addition of Rs. 26,845 to the total income declared by the assessee due to the observation that the transaction involving the hiring of a jeep to Vikas Industrial Works Association was not genuine. The CIT(A) confirmed this action. The assessee contended that the transaction was genuine and that invoking the provisions of section 44AE(2) was incorrect. However, the CIT(A) upheld the addition, citing the overriding nature of section 44AE and the omission of sub-section (6) which allowed for declaration of lower profit if books of account were maintained. The tribunal found that the assessee did not produce vouchers for expense verification, leading to the AO invoking section 44AE. As the assessee did not rebut the non-genuineness of the transaction, the tribunal upheld the CIT(A)'s decision, stating that the plea regarding non-application of section 44AE would have been accepted if there was a rebuttal regarding expense verification. Therefore, the tribunal dismissed the appeal and upheld the addition of Rs. 26,845.
  
  2. The interpretation and application of provisions under section 44AE of the Income Tax Act were crucial in this case. The tribunal highlighted the newly inserted sub-section (6) of section 44AE which allowed for the declaration of lower profit if the assessee maintained books of account. The tribunal emphasized that in cases where the assessee did not produce evidence to prove lower profits, the AO was justified in invoking the provisions of section 44AE. It was noted that the assessee's failure to provide vouchers for expense verification led to the rejection of book results and the application of section 44AE by the AO. The tribunal concluded that since there was no rebuttal regarding expense verification, the CIT(A)'s decision to invoke section 44AE was justified. Therefore, the tribunal upheld the CIT(A)'s order based on the non-maintenance of books of account by the assessee.
  
  In conclusion, the tribunal dismissed the appeal, affirming the addition made by the AO under section 44AE due to the non-genuineness of the transaction and the failure of the assessee to provide evidence for expense verification. The decision emphasized the importance of maintaining books of account and providing necessary documentation to support claims under relevant tax provisions.

  ---

• 2005 (6) TMI 221
  

  Chargeable as capital gain - Income from sale of shops computed under the head 'profits and gains of business and profession' Or 'capital gain' - Property for the purpose of trade or for investment - rental income - whether in computation of income from house property annual value should be reduced by the amount of brokerage paid - HELD THAT:- From the facts of the case, it becomes clear that assessee's intention was to hold the property as investment and not as a stock-in-trade. No prudent trader would sit on stock for so long. Also facts in the cited cases which have been relied upon by the Assessing Officer are clearly distinguishable from the facts of the present case.

  As already discussed, the assessee is engaged in running of hotel and cinema hall, he acquired the SCOs and kept it as investment for a long period of nine years before selling of in the relevant years. The CIT(A) also found that the SCOs were acquired by paying advance and the balance was paid in instalments and possession taken over. we have mentioned regarding submissions of the assessee that in the assessment year 1994-95, the Assessing Officer has also treated the income from sale of SCOs as capital gain, whereas in the years under appeal he has changed his opinion regarding character of the transactions and also brought it under the head 'business income'.

  Even on this plea, the assessee finds support that principle of res judicata does not apply to income-tax proceedings but to deviate from it, there should be change in the facts and circumstances, as observed in the case of CIT v. Dalmia Dadri Cement Ltd. [1969 (11) TMI 16 - PUNJAB AND HARYANA HIGH COURT]. Therefore, we are of the considered view that the CIT(A) was justified in directing the Assessing Officer to compute the income arising from sale of SCOs under the head 'capital gain' after necessary indexation. We uphold her order and do not find any merit in the common ground raised by the revenue in all the three appeals. The ground stands rejected.

  Conversely, it can be inferred that ALV is not to be disturbed which is coming out as a result of computation, as per formula u/s 23. Also the plea of the ld. AR regarding overriding title cannot be accepted as no obligation has been cast on the assessee to pay brokerage. Brokerage is one time expenditure for procuring the tenant. It is up to the assessee whether he needs the services of a broker or not. There is a difference between an amount which a person is obliged to pay out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee.

  Hence, on this account also, the plea of the assessee fails. Also the assessee's alternative plea that the brokerage should be allowed to be deducted from the business income is not tenable in law, as the said brokerage as not paid for the purpose of its existing business. Law provides only the expenditure incurred wholly and exclusively for the purposes of business. Hence on this account also, the plea of the assessee fails. Accordingly, we set aside the order of the CIT(A) in this regard and restore that of the Assessing Officer, by accepting the ground of the revenue. The appeal stands partly allowed.

  In the result, I.T.A. Nos. 533 and 535 are partly allowed and I.T.A. No. 534 is dismissed.

  ---

• 2005 (6) TMI 220
  
  Issues Involved:
  1. Disallowance of interest on borrowed capital claimed under section 36(1)(iii).
  2. Disallowance of technical know-how fees claimed under section 35AB.
  
  Detailed Analysis:
  
  1. Disallowance of Interest on Borrowed Capital Claimed Under Section 36(1)(iii):
  
  The assessee claimed a deduction of Rs. 84,64,767 for interest on borrowed capital under section 36(1)(iii). The Assessing Officer disallowed the claim, treating it as capital expenditure, a view upheld by the CIT(A). The assessee argued that the interest was for the expansion of an existing business, not for setting up a new business, and cited the decision in CIT v. Alembic Glass Industries Ltd. and Alembic Chemical Works Co. Ltd. v. CIT. The revenue authorities distinguished these cases, stating the interest was for acquiring new plant and machinery, thus capitalizing it was appropriate, referencing CIT v. Associated Cement Co. Ltd.
  
  The assessee's counsel contended that the amendment to section 36(1)(iii) by the Finance Act, 2003, effective from 1-4-2004, should not apply retrospectively. The counsel cited the Rajasthan High Court's decision in CIT v. Hindustan Zinc Ltd. supporting prospective application, while the revenue relied on the Calcutta High Court's decision in JCT Ltd. v. Dy. CIT for retrospective application.
  
  The Tribunal, considering the principle of law laid down by the Supreme Court in CIT v. Vegetable Products Ltd., adopted the view favorable to the assessee, holding that the amendment to section 36(1)(iii) is prospective. The Tribunal referred to several decisions, including India Cements Ltd. v. CIT, Challapalli Sugars Ltd. v. CIT, and CIT v. Associated Fibre & Rubber Industries (P.) Ltd., supporting the deduction of interest on borrowed money for business purposes, including the expansion of existing business.
  
  The Tribunal concluded that the assessee is entitled to the deduction under section 36(1)(iii) for interest on borrowed money used for business expansion. However, if the interest was paid to the supplier of machinery for deferred payment, it must be capitalized. The Tribunal remanded the matter to the Assessing Officer for verification and decision in accordance with these directions.
  
  2. Disallowance of Technical Know-How Fees Claimed Under Section 35AB:
  
  The assessee claimed a deduction of Rs. 33,333 under section 35AB for technical know-how fees. The deduction was initially allowed in the assessment year 1992-93 and was to be spread over six years. The assessee argued for an extension of the deduction period since it was not claimed in the assessment year 1993-94. The Tribunal upheld the disallowance, stating that the deduction under section 35AB is limited to six consecutive years, and the failure to claim it in one year does not extend this period.
  
  Conclusion:
  
  The appeal was partly allowed. The Tribunal directed the Assessing Officer to verify and decide the claim for interest on borrowed capital under section 36(1)(iii) based on the Tribunal's directions. The disallowance of the technical know-how fees under section 35AB was upheld.

  ---

• 2005 (6) TMI 219
  
  Issues Involved:
  1. Liability to deduct tax from interest paid on enhanced compensation for land acquisition.
  2. Application of Section 194A and Section 201/201(1A) of the Income Tax Act.
  3. Validity of the Assessing Officer's (AO) demand for non-deduction of tax.
  4. Consideration of bona fide belief and legal precedents.
  5. The role of affidavits/statements from recipients regarding non-taxable income.
  6. The impact of recipients already paying tax on the interest received.
  
  Detailed Analysis:
  
  1. Liability to Deduct Tax from Interest Paid on Enhanced Compensation:
  The central issue was whether the appellant was liable to deduct tax from the interest paid on enhanced compensation for land compulsorily acquired by the Municipal Committee, Sirsa. The AO held the appellant as a defaulter for failing to deduct tax under Section 194A, invoking Section 201 read with Section 201(1A).
  
  2. Application of Section 194A and Section 201/201(1A) of the Income Tax Act:
  The CIT(A) referenced the Supreme Court decision in *Rama Bai vs. CIT*, which held that interest on enhanced compensation is taxable as a revenue receipt. The CIT(A) also cited the Punjab & Haryana High Court's decision in *Tuhi Ram vs. Land Acquisition Collector* and the CBDT Circular No. 526, which clarified that tax must be deducted at source from compensation/interest payments for compulsory land acquisition.
  
  3. Validity of the Assessing Officer's Demand for Non-Deduction of Tax:
  The learned counsel for the assessee argued that based on the Allahabad High Court decision in *Bihari Lal vs. ITO* and legal opinions obtained, no tax was to be deducted from the interest on enhanced compensation. The counsel also pointed out that most payments were made before the CBDT Circular No. 526 dated 5th Dec 1988, and relied on various High Court decisions which held that if the payee had already paid tax, the AO should not create a demand under Section 201.
  
  4. Consideration of Bona Fide Belief and Legal Precedents:
  The Tribunal considered the bona fide belief of the Municipal Committee that no tax was to be deducted, supported by legal opinions and the timing of payments relative to the CBDT circular. The Tribunal noted that the AO's demand might not be justified if the payees had already paid the tax, referencing decisions from the Madhya Pradesh High Court and other cases, which supported this view.
  
  5. The Role of Affidavits/Statements from Recipients Regarding Non-Taxable Income:
  The Tribunal emphasized that the Municipal Committee should have obtained affidavits or statements from recipients declaring that their income did not exceed the non-taxable limit. The Tribunal restored the issue to the AO to allow the Municipal Committee to obtain such affidavits/statements, which could absolve them from the responsibility of deducting tax.
  
  6. The Impact of Recipients Already Paying Tax on the Interest Received:
  The Tribunal acknowledged that in several cases, the recipients had already paid tax on the interest received. Citing various High Court decisions, the Tribunal held that if the tax had already been paid by the recipient, the Revenue should not demand the tax again from the person responsible for deducting it. The Tribunal directed the AO to verify the details of tax payments by recipients and reconsider the demand accordingly.
  
  Conclusion:
  The Tribunal set aside the orders of the CIT(A) and the AO, restoring the issue to the AO for fresh decision in accordance with law, considering the bona fide belief of the Municipal Committee, the possibility of obtaining affidavits/statements from recipients, and the verification of tax payments already made by the recipients. The appeals of the assessee were partly allowed for statistical purposes.

  ---

• 2005 (6) TMI 218
  

  Deduction of tax component and salary of expatriate employees - Assessee-in-default - Deduction of interest levied u/s 201(1A) - Operational loss - claimed deduction on account of sum refunded to the Punjab Housing Board (PHB) on account of the investment - difference of opinion between ld members - Third Member Oder - Whether the assessee is entitled to deduction of tax component of salary of expatriate employees relating to assessment years 1990-91 and 1991-92 in assessment year 1995-96 in which the tax has been paid by the assessee, not claimed in the respective assessment years before any authority.

  Assessee is a bank, incorporated in Netherlands with limited liabilities having its original office at Singapore -branches in India at Mumbai, Kolkata and New Delhi and is registered as a Scheduled Bank in terms of Schedule II of the Reserve Bank of India (RBI) Act, 1934 - agreement for Avoidance of Double Taxation between India and Netherlands (DTA)

  Tax component in respect of expatriate employees for assessment years 1990-91 and 1991-92 - HELD THAT:- Vice President in his proposed order has held that in principle the assessee is entitled to deduction of tax component of salary relating to expatriate employees in assessment years 1992-93 to 1994-95 but for the operation of the provisions of section 40(a)(i) the deduction is not permissible in such year the tax not having been paid by the assessee. However, since the payment of tax has been made in assessment year 1995-96, the Vice President has, accordingly, allowed the deduction of the entire claim pertaining to assessment years 1992-93 to 1995-96 in assessment year 1995-96.

  In assessment year 1995-96, the assessee had also claimed deduction in respect of tax component of salary of the expatriate employees pertaining to assessments for 1990-91 and 1991-92. The said assessment years were not in appeal before the Tribunal. The Vice President in para 27 of the order has held that the assessee not having claimed any deduction in respect of the tax component of salary in the assessment years 1990-91 and 1991-92 either before the Assessing Officer or before any other authority, the mere fact that the tax has been paid in assessment year 1995-96 does not entitle the assessee to claim deduction in the year of payment, i.e. in assessment year 1995-96 when the assessee is following the mercantile system of accounting.

  On the other hand, the AM in the dissenting order has held that the assessee would be entitled to deduction in respect of tax component of the salary for assessment years 1990-91 and 1991-92 paid in assessment year 1995-96 notwithstanding the fact that no claim was either made in assessment year 1990-91 or 1991-92 by the assessee before any authority. According to the AM, section 40(a)(i) permits deduction in the year of payment. Therefore, the omission of the claim in relevant years, i.e. in assessment years 1990-91 and 1991-92 is of no consequence. Hence the point of difference.

  Business loss - Vice President expressed the view that the assessee is not entitled to deduction on account of refund to PHB as that was not the event of loss. The Vice President has also pointed out that facts relating to the loss are disputed by the parties and the matter is sub judice. The Vice President in his proposed order has given liberty to the assessee to claim the loss as and when it is established to have been incurred.

  The AM in his dissenting order has disagreed with the view and on the reasons recorded in the order held that the assessee is entitled to deduction.

  Third Member Order - It is evident from provisions that such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid if tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200. No restriction is placed for allowability of deduction of the remuneration paid in the subsequent year that it should have been claimed in the earlier year.

  As aforesaid, it will also not stand to logic that when a deduction is not allowable under a particular provision of the Act, in this case section 40 of the Act, that the assessee should make a claim and that should be rejected at the first instance in the relevant year. The proviso does not contemplate any such restriction. On the contrary it would be futile rather exposing the assessee to penal consequences if he made a wrong claim which is not allowable due to specific prohibition. Such a restriction, therefore, cannot be read in the language of section 40(a)(i) of the Act nor could it be inferred so. The deduction for assessment years 1990-91 and 1991-92 has also to be allowed similarly as an admissible deduction with similar direction as were given for allowing the claim for assessment years 1992-93 to 1994-95.

  Allowability of interest paid under section 201(1A) - Vice President (JM) held that the assessee had committed a default in discharge of its obligation of deduction of tax and payment to the Government in respect of salary paid to expatriate employees as a result of which it had to pay interest under section 201(1A) of the Act. No deduction according to him, would be permissible to the assessee in respect of interest payable as an assessee-in-default for its failure to discharge its statutory obligation of non-deduction of tax and nonpayment thereof to the Government in contrast to the obligation of the assessee as an employer.

  The AM, on the other hand, expressed an opinion that interest charged u/s 201(1A) is part of the cost of employment to the assessee and, accordingly, on the same parity of reasoning of allowability of the remuneration and taxes, the interest, would also be permissible deduction. On a combined reading of the definition of tax in article 3(d) of the DTA in conjunction with the provisions of sections 192 and 195 of the Act, the interest, in my opinion, would not be an allowable deduction. It has nothing to do with carrying on the business of the assessee. It may be that the tax was deducted for and on behalf of the employees but it was an obligation of the assessee itself under the Income-tax Act, 1961, to deduct the tax within the prescribed time and, therefore, it was a personal liability of the assessee-bank.

  In the decision of Jubilee Investments & Industries Ltd. v. Asstt. CIT [1999 (5) TMI 574 - CALCUTTA HIGH COURT], the Calcutta High Court dealt with the scope of levy of penalty u/s 221 of the Act for failure to deposit the tax deducted at source in time and in that connection, the Calcutta High Court observed that when the assessee is found to be in default in depositing the amount of TDS within the time prescribed, he is liable to pay interest as well as he is liable to pay penalty and the fact that he has suffered loss or financial stringency and, therefore, could not deposit the amount in time has nothing to do with the liability to deposit TDS.

  It might be true that the payment of salary and the liability for payment of tax thereon are part of the pay package or employment cost of the assessee and that they are in the nature of expenses wholly and exclusively for the purpose of business of the assessee but a part of that liability has partaken a character of a statutory liability. That part is, that as an employer the assessee was under an obligation under Sections 192 and 195 of the Act to deduct the tax and deposit the same with the Government of India. This statutory liability was a personal liability of the assessee and on failure to deduct that tax, the assessee becomes an assessee-in-default. Interest is paid for the failure of discharging that liability under the Act.

  The interest, therefore, was levied upon the assessee for the failure in discharging a personal liability and, therefore, cannot be allowed as a deduction. The fact that such tax deducted at source would ultimately be adjusted against the liability of the payee in computing its income-tax liabilities does not, in my opinion, convert the liability of the assessee and consequently, in my opinion, the payment of interest u/s 201(1A) cannot be allowed as a deduction.

  Allowability of an amount being the operational loss claimed to have arisen on account of transaction in securities - In my opinion, therefore, the loss was incurred by the assessee as such on its own account, and not on account of its client PHB, on whose behalf and specifically in whose name, the assessee was trying to acquire securities. The assessee stated to have agreed to bear this loss because of commercial expediency and one important factor contributing to this commercial expediency is stated to be that the RBI declined to issue a licence for opening a new branch office at Chennai by its letter dated 16th June, 1993. It might be a fact that within three weeks of this communication, the assessee-bank entered into settlement with PHB but that does not have any bearing or influencing factor for settling the issue with PHB. RBI's refusal or suspension of decision to issue licence was for the reason that dispute in security investment with Andhra Bank was to be settled first. PHB was not in picture at all. Settlement for payment of Rs. 9.57 crores is with PHB and not Andhra Bank. Nainital Bank's case, therefore, is of no help to the assessee, I, therefore, hold that the refund of money to PHB was not a loss to the assessee. Loss, if any, which could be said to have been suffered by the assessee was on account of the decision to invest in NPC Bonds through Shri N.K. Agarwal.

  Here, the broker Shri N.K. Agarwal had played a mischief and consequently taken that upon himself by offering another security in IRFC Bonds, Andhra Bank has transferred the money on the instructions of Shri N.K. Agarwal, stated to be on behalf of the assessee. That fact is disputed by the assessee. The assessee had not pursued the matter vis-a-vis Andhra Bank. It had carried the matter further accepting the alternative security in the form of IRFC Bonds, the registration for which was refused on the ground that they have already been registered in the name of another bank. The matter of registration of alternative security ended in 1998 whereas the matter visa-vis Shri N.K. Agarwal is pending even on date. In these circumstances, in my opinion there was no loss which can be said to have arisen to the assessee in the year under consideration.

  On a reference, the High Court held that the loss was suffered by the assessee in the accounting year relevant to the assessment year 1953-54 and if, as a result of the litigation, it was found entitled to less amount than the amount claimed, the difference could be included in the assessable income of the assessee for the year during which the final decision of the litigation was made. Similarly, if the assessee had been successful in obtaining the entire amount of the loss from the company, the amount could be included in the income of the assessee for the year during which the amount was actually recovered.

  The pendency of litigation about the loss suffered cannot militate against the fact that the loss was suffered by the assessee during the accounting year relevant to the assessment year 1953-54 when the company did not take delivery and the assessee had sold the goods in the open market for a lesser amount. All these cases could have helped the assessee in the present case if the claim was made in the appeal for assessment year 1993-94 when the assessee got the information that the cheques issued for investment in NPC Bonds were diverted to the account of Shri Hiten Dalal or when the alternative security in IRFC Bonds was found to be registered in some other bank's name. Both these dates were falling in assessment year 1993-94 and consequently, the assessee cannot claim the loss in the year under consideration even on the basis of the three decisions referred to above. In view of the above, in my opinion, the CIT(A) was right in disallowing the claim of the assessee.

  Majority decision - The Hon'ble V.P. Sri R.P. Garg, sitting as Third Member vide his opinion dated 17-6-2005 has concurred with the view of Ld. AM with regard to question No. (a) for assessment year 1995-96 i.e., in favour of the assessee and on question No. (b) for assessment year 1995-96, he agreed with the view of Ld. V.P. i.e., against the assessee and in favour of the revenue. With regard to the question No. (c) for the assessment year (sic) by the Ld. V.P. has decided the issue against the assessee is in favour of revenue. According, the grounds taken by the assessee are partly allowed.

  In the result, the appeals stand partly allowed.

  ---

• 2005 (6) TMI 217
  
  Issues:
  Rectification of Tribunal's order regarding the application of Article 7 of the Indian Mauritius DTAA and the taxability of the assessee's income in India.
  
  Analysis:
  The assessee filed a rectification application seeking correction of the Tribunal's order, which erroneously held that the provisions of Article 7 of the Indian Mauritius DTAA were not applicable to the case. The lower authorities had already determined that Article 7 applied to the facts of the case. The AO and CIT(A) had concluded that the assessee's income was taxable in India due to the existence of a Permanent Establishment (PE) in India. The Tribunal erred in disregarding the uncontested findings of the lower authorities and reaching a different conclusion. The Tribunal should have focused on whether the assessee had a PE in India and whether the income could be taxed on a gross basis under section 44B, despite the applicability of Article 7.
  
  The Tribunal wrongly declined to adjudicate on the taxability of the assessee's income under Article 7 after concluding that Article 8 was inapplicable. The Tribunal's observation that Article 4, 5, and 7 of the DTAA were irrelevant was incorrect, as it was essential to determine the taxability of the income under Article 7. The Tribunal's decision to tax the income under the Indian IT Act without considering the application of Article 7 was a mistake. The Tribunal was required to assess whether the income fell under Article 7 and if it could be taxed on a gross basis under section 44B, as determined by the lower authorities.
  
  In light of the above, the Tribunal decided to recall its previous order to reevaluate whether the assessee's income, even under Article 7 of the India Mauritius DTAA, was taxable in India and on what basis. The Tribunal aimed to address the grounds raised by the assessee in their appeal. Consequently, the miscellaneous application for rectification was allowed, and the Tribunal was directed to reconsider the taxability of the assessee's income under Article 7.
  
  This detailed analysis highlights the errors in the Tribunal's original order, the significance of applying the relevant DTAA articles, and the need for a proper assessment of the taxability of the assessee's income in India.

  ---

• 2005 (6) TMI 216
  
  Issues Involved:
  1. Addition of Rs. 3,65,200 for unexplained cash.
  2. Addition of Rs. 4,00,960 for diamond jewelry.
  3. Lack of specific direction for relief of Rs. 15,88,668.
  4. Disallowance of depreciation for office premises.
  5. Addition of Rs. 7,05,193 for creditor written back.
  6. Addition of Rs. 1,18,237 for credits in SBI account.
  7. Addition of Rs. 10,28,404 for credits in Maharashtra State Co-operative Bank.
  8. Alleged utilization of Rs. 5,00,000 and Rs. 2,00,000 for property and interior decoration.
  9. Addition of Rs. 50,00,000 for unexplained investment in La-mer flat.
  10. Addition of Rs. 7,25,000 for cash payment to carpenter.
  11. Addition of Rs. 25,79,000 for prize money and remuneration from Miss World (Jersey) Ltd.
  12. Addition of Rs. 3,214 for credits to capital account.
  13. Addition of Rs. 13,11,210 for bonus, interest, and other receipts.
  14. Enhancement of Rs. 9,85,461 for excess credit in Royal Bank of Scotland.
  
  Summary:
  
  1. Addition of Rs. 3,65,200 for unexplained cash:
  The Tribunal found that the cash found during the search was explained by the assessee through cash books and withdrawals from Maharashtra State Co-op. Bank Ltd. The Tribunal accepted the explanation and deleted the addition of Rs. 3,65,200.
  
  2. Addition of Rs. 4,00,960 for diamond jewelry:
  The Tribunal held that the acquisition of the jewelry items was explained through purchase invoices and past assessments. The appreciation in value due to the passage of time cannot be a subject matter of addition. The addition of Rs. 4,00,960 was deleted.
  
  3. Lack of specific direction for relief of Rs. 15,88,668:
  The Tribunal did not find any specific issue or direction related to this amount in the judgment.
  
  4. Disallowance of depreciation for office premises:
  The Tribunal found that the premises were used for professional purposes and the claim for depreciation was justified. The addition of Rs. 24,17,297 was deleted.
  
  5. Addition of Rs. 7,05,193 for creditor written back:
  The Tribunal held that the addition was not based on any seized material and the amount was already offered for tax in the regular return. The addition was deleted.
  
  6. Addition of Rs. 1,18,237 for credits in SBI account:
  The Tribunal found that the addition was not based on any seized material and the existence of the bank account was disclosed to the department. The addition was deleted.
  
  7. Addition of Rs. 10,28,404 for credits in Maharashtra State Co-operative Bank:
  The Tribunal held that the correct amount of undisclosed income should be Rs. 17,28,404 as declared by the assessee and not Rs. 10,28,404. The addition was modified accordingly.
  
  8. Alleged utilization of Rs. 5,00,000 and Rs. 2,00,000 for property and interior decoration:
  The Tribunal accepted the explanation that the amounts were utilized from the withdrawals from Maharashtra State Co-op. Bank Ltd. and deleted the addition of Rs. 7,25,000.
  
  9. Addition of Rs. 50,00,000 for unexplained investment in La-mer flat:
  The Tribunal found that the statement of the assessee's father was corrected during post-search inquiries and no cash payment was made. The addition was deleted.
  
  10. Addition of Rs. 7,25,000 for cash payment to carpenter:
  The Tribunal accepted the explanation that the payment was made from the cash withdrawals from Maharashtra State Co-op. Bank Ltd. and deleted the addition.
  
  11. Addition of Rs. 25,79,000 for prize money and remuneration from Miss World (Jersey) Ltd.:
  The Tribunal held that the amount was already disclosed in the regular assessments and no material was found in the search to warrant the addition. The addition was deleted.
  
  12. Addition of Rs. 3,214 for credits to capital account:
  The Tribunal found that the addition was not based on any seized material and the amount was already disclosed in the regular return. The addition was deleted.
  
  13. Addition of Rs. 13,11,210 for bonus, interest, and other receipts:
  The Tribunal held that the amount was already disclosed in the regular assessments and no material was found in the search to warrant the addition. The addition was deleted.
  
  **14. Enhancement of

  ---

• 2005 (6) TMI 215
  
  Issues:
  Imposition of penalties under section 271(1)(c) of the IT Act for the assessment years 1993-94 and 1994-95.
  
  Analysis:
  The appeals under consideration were related to the imposition of penalties under section 271(1)(c) of the IT Act for the assessment years 1993-94 and 1994-95. The assessee, engaged in the business of publishing pre-share issue stationery, had surrendered additional incomes during a survey operation conducted in 1996. The penalties were imposed based on the grounds that the surrendered income constituted concealed income. However, it was noted that no penalty was imposed for the assessment year 1995-96, despite similar facts. The tribunal found it perplexing that penalties were imposed for certain years while dropped for others without any distinguishing features being pointed out. The tribunal highlighted that the mere surrender of income during a survey does not automatically indicate concealment of income. The explanations provided by the assessee regarding the additional income were disregarded by the authorities below. The tribunal concluded that the penalties imposed were not sustainable in law and decided to delete the penalties imposed for the assessment years 1993-94 and 1994-95, providing relief to the assessee.
  
  In conclusion, the tribunal allowed both appeals, emphasizing that the imposition of penalties based solely on the surrender made during a survey operation was not justified. The tribunal held that the mere surrender of income does not establish concealment of income, and the explanations provided by the assessee were not properly considered by the authorities. Therefore, the tribunal deemed it appropriate to delete the penalties imposed for the respective assessment years, providing relief to the assessee.

  ---

• 2005 (6) TMI 214
  

  Addition as deemed dividend under the provisions of section 2(22)(e) - Whether an advance or loan in lieu of business venture or a commercial obligation fall within the purview of section 2(22)(e) - HELD THAT:- There is no dispute as to the fact that the assessee is a shareholder of SPPL having substantial interest in it. There is also no dispute that SPPL is a company in which the public are not substantially interested. The main objects of the provisions of section 2(22)(e) of the Act are to treat the loan granted by a closely held company to any of the shareholders in the same manner as it treats dividend distributed by it to them. The justification is that SPPL is a company, there is a group of members controlling its affairs and possessing a block of majority shares, since there are accumulated profits in g the company, this group, if they choose can have distribution arranged on such profit to its shareholders in which event the shareholders will not be liable to pay any tax. In order to avoid such a tax liability the company may grant loan. When such loan is advanced to shareholder who has substantial interest in the company, the inference is irresistible that the loan is a made up affair and there is every reason for treating such loan as dividend." The provisions of section 2(22)(e) themselves carve out certain exceptions in the same clause. One such exemption is that the term 'dividend' does not include 'any advance or loan made to a shareholder or the said concern by a company in the course of its business and the lending of money is a substantial part of the business of the company'

  Nowhere in section 2(22)(e)(ii) there is a requirement that assessee should only receive a return in the income or interest for the loan advanced. So what requires is that the loan must have been granted to a shareholder in the ordinary course of its business, where the lending of the money is a substantial activity of the company. The material placed before us in the form of agreements and other information, as discussed in the two impugned orders, clearly show that the loans have been lent by the company to the assessee, who is a shareholder, in the ordinary course of the business of the former and the lending of the money is only business activity of the company. The fact that the company did not have any valid money-lending licence, in our view, does not make any difference. The phrase "in the ordinary course of its business" implies that where loans are granted by a company to its shareholders not in the ordinary course of its business but are so arranged just to defeat the tax liability, such a loan shall be dividend and would be liable to tax. In our view, on the facts that are stated before us it cannot be said that the loans are arranged just to defeat the tax liability and not in the ordinary course of business of money lending.

  When it is manifest and evident that the advance was made in the ordinary course of its business, in our view, the revenue authorities are not justified in treating the loan as dividend. Accordingly, the addition made on this count is deleted.

  In the result, the appeal is partly allowed.

  ---

• 2005 (6) TMI 213
  
  Issues Involved:
  1. Whether the payment made by the assessee to M/s. Raytheon-Ebasco Overseas Limited (REOL) constitutes "fees for technical services" under section 9(1)(vii) of the Income-tax Act, 1961.
  2. Whether the payment is chargeable to tax in India under the Double Tax Avoidance Agreement (DTAA) between India and the USA.
  3. Whether the assessee was required to deduct tax at source under section 195 of the Act.
  4. Whether the assessee can be treated as an assessee-in-default under section 201 of the Act for failure to deduct tax.
  
  Detailed Analysis:
  
  1. Fees for Technical Services under Section 9(1)(vii):
  The tribunal examined whether the payments made by the assessee to REOL fall under "fees for technical services" as defined in section 9(1)(vii) of the Income-tax Act. The agreement between the assessee and REOL included project management, project support services, project engineering, and supply of various equipment. The Assessing Officer and CIT(A) held that the payments were for technical services chargeable to tax in India. The tribunal agreed, noting that the services provided were not for any construction, assembly, or mining project but for setting up a power plant. Hence, the payments were considered fees for technical services under section 9(1)(vii).
  
  2. Chargeability under DTAA between India and USA:
  The tribunal evaluated whether the payments were chargeable to tax under the DTAA. Article 12 of the DTAA defines "fees for included services" and allows taxation in the state where the services arise. The tribunal found that REOL made available technical knowledge, experience, and processes to the assessee, which falls under Article 12(4)(b). The services were not ancillary and subsidiary to the sale of property, thus not excluded under Article 12(5)(a). Therefore, the payments were chargeable to tax in India under the DTAA.
  
  3. Requirement to Deduct Tax at Source under Section 195:
  Section 195 mandates tax deduction at source on payments to non-residents if the sums are chargeable under the Act. The tribunal noted that the assessee initially deducted tax but later ceased, influenced by the payee's stance. The tribunal emphasized that the payer's obligation to deduct tax is independent of the payee's opinion on taxability. Since the payments were chargeable to tax, the assessee was required to deduct tax under section 195.
  
  4. Assessee-in-Default under Section 201:
  The tribunal upheld the Assessing Officer's decision to treat the assessee as an assessee-in-default under section 201 for failing to deduct tax. The tribunal reiterated that the payer's duty to deduct tax is not contingent on the payee's tax liability assessment. The tribunal dismissed the assessee's appeals, affirming the CIT(A)'s orders.
  
  Conclusion:
  The tribunal concluded that the payments made by the assessee to REOL constituted fees for technical services under section 9(1)(vii) and were chargeable to tax in India under the DTAA. The assessee was required to deduct tax at source under section 195 and was correctly treated as an assessee-in-default under section 201 for failing to do so. All appeals were dismissed.

  ---

• 2005 (6) TMI 212
  
  Issues Involved:
  1. Validity of reassessment and jurisdiction under section 16 of the Gift-tax Act.
  2. Whether alteration in the partnership agreement amounts to relinquishment of rights and deemed gift.
  3. Evaluation of taxable gift and its reduction.
  4. Charging of interest under section 16B of the Gift-tax Act.
  
  Detailed Analysis:
  
  1. Validity of Reassessment and Jurisdiction under Section 16 of the Gift-tax Act:
  The assessee contested the reassessment's validity, arguing that the mandatory requirements for assuming jurisdiction under section 16 of the Gift-tax Act were not met. The Assessing Officer initiated gift tax proceedings based on the reduction in the assessee's profit-sharing ratio and the relinquishment of rights in the appreciation of property value. The CIT(A) upheld the validity of the notice issued under section 16, confirming that the procedural requirements were complied with. Consequently, the Tribunal dismissed the ground challenging the reassessment's validity.
  
  2. Alteration in Partnership Agreement and Deemed Gift:
  The core issue was whether the alteration in the partnership agreement, which reduced the appellant's profit-sharing ratio and relinquished its rights in property appreciation, constituted a deemed gift. The appellant argued that the reduction was due to its failure to meet the capital contribution requirement, thus negating any gift tax liability. However, the Assessing Officer and CIT(A) found that the appellant had maintained substantial amounts in the current account, fulfilling its capital contribution obligation. The Tribunal noted that the appellant's relinquishment of rights without adequate consideration resulted in a deemed gift, referencing various judicial precedents supporting this view, including B.T. Patil & Sons v. CGT and CGT v. Ayyanadar.
  
  3. Evaluation of Taxable Gift:
  The appellant contended that no surplus was ascertained on the date of the alteration of the partnership deed, thus no right was relinquished. However, the CIT(A) observed that the revaluation of assets on 31-1-1993, which led to the appreciation being apportioned among the partners, substantiated the gift's occurrence. The Tribunal agreed with the CIT(A) that the benefit of the gift made on 1-10-1992 was realized through the revaluation on 31-1-1993. The Tribunal upheld the CIT(A)'s finding that the appellant was liable for gift tax, as the relinquishment of rights was without adequate consideration.
  
  4. Charging of Interest under Section 16B:
  The appellant denied liability for interest under section 16B of the Gift-tax Act. The Assessing Officer had mentioned the charging of interest in the order, and the CIT(A) confirmed this. The Tribunal found no reason to interfere with the CIT(A)'s decision, thereby upholding the charging of interest under section 16B.
  
  Conclusion:
  The Tribunal dismissed the appeal, affirming the CIT(A)'s findings that the reassessment was valid, the alteration in the partnership agreement constituted a deemed gift, the taxable gift evaluation was appropriate, and the interest under section 16B was correctly charged. The case emphasized the importance of adequate consideration in partnership reconstitutions to avoid gift tax implications.

  ---

• 2005 (6) TMI 211
  

  Challenged the Revision Order passed u/s 263 - barred by limitation - Powers Of Commissioner - Error in computation of tax - Mistake Apparent From Record - credit for Canadian tax - whether the claim is in accordance with relevant provision of DTAA with Canada and Thailand - Power u/s 154 invoked by AO - HELD THAT:- It is settled policy of law that there must be point of finality in all legal proceedings, that settled issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity. These principles are required to be observed by all concerned in administration of statutory enactments.

  It is not the case that there is any mistake in giving effect to appellate order by Commissioner (Appeals). Thus, under section 263(2), an order sought to be revised cannot be so revised after expiry of two years from the end of the financial year in which such order was passed. We accordingly hold that since the CIT has sought to revise an assessment order dated 27-2-1997, the same is outside the limitation period prescribed u/s 263(2).

  In this case, it is seen that before the order u/s 143(3) was passed, the assessee was required to explain how he has claimed the credit in respect of Canadian tax and Thailand tax by its letter dated 17-3-1999.

  In revision, learned CIT has merely set aside the order to re-work the credit in respect of Canadian and Thailand tax claimed under DTAA provision without mentioning any error in the original order sought to be revised. In our opinion, this is not permissible course under the provision of section 263 of the Act. The order cannot be set aside for making roving enquiry without pointing any error in the order. Similar view has been adopted by the Hon'ble High Court of Bombay in the case of CIT v. Gabriel India Ltd.[1993 (4) TMI 55 - BOMBAY HIGH COURT]. The power of revision is not meant to be exercised for the purpose of directing the officer to hold another investigation when the order of Assessing Officer is not found to be erroneous. Similar view has been adopted by the Hon'ble Madras High Court in the case of CIT v. Sakthi Charities [2000 (2) TMI 75 - MADRAS HIGH COURT].

  For making a valid order u/s 263(1), it is essential that Commissioner has to record an express finding to the fact that the order sought to be revised, is erroneous as well as prejudicial to the interest of the revenue. In absence of any such finding, the order u/s 263 is liable to be set aside. It is pertinent to note that the Assessing Officer has not given the credit without verifying the details. The Assessing Officer not only once but twice called for the details as well as to what extent the claim is allowable. After satisfying himself, the Assessing Officer has allowed the claim. It is a different thing that the Commissioner may not agree with such a view, but if the view adopted by Assessing Officer is one of the possible views, revision cannot be resorted to on the ground that the Commissioner do not accept such view or that necessary enquiry has not been made in this regard.

  An order of revision by Commissioner cannot be upheld on a different ground than the ground on which it has been revised. If the Commissioner has revised on the ground that the Assessing Officer has not verified the details and the facts reveal that the claim has been properly verified after necessary application of mind, the power of revision is not available.

  It is true that if a claim has been allowed without making necessary enquiry required for the purpose, the Commissioner can revise the order by setting aside the original order and directing the Assessing Officer to make further enquiries. However, if necessary enquiry has been made and satisfaction of Assessing Officer has been arrived at, though not clearly mentioned in the assessment order, such order cannot be revised on the ground that the claim has been allowed without verifying the relevant provision of law. We once again mention that without pointing out an error in the assessment order, the Commissioner is not justified in passing an order in revision directing the Assessing Officer to make further enquiries. We accordingly set aside the order of learned CIT for assessment year 1996-97.

  In the result, all the appeals are allowed.

  ---

• 2005 (6) TMI 210
  
  Issues Involved:
  1. Allocation of corporate and group overheads.
  2. Claim of deduction under Section 10A of the IT Act.
  3. Provision for bad and doubtful debts.
  4. Provision for bad and doubtful advances.
  5. Provision for warranty expenses.
  6. Claim under Section 43B of the IT Act in respect of excise duty.
  7. Claim under Section 43B of the IT Act in respect of customs duty.
  8. Deduction under Section 80-IA relating to various units.
  9. Deduction under Section 80HH relating to Amalner unit.
  10. Deduction under Section 80-I relating to Tumkur unit.
  11. Deduction under Section 80-IA relating to Peenya unit.
  12. Impact of Modvat credit.
  13. Deduction under Section 80HHC in respect of excise duty and sales-tax.
  14. Disallowance of expenditure claimed on imported software.
  15. Interest under Section 234B.
  16. Interest under Section 244A.
  17. Foreign tax credit.
  
  Detailed Analysis:
  
  1. Allocation of Corporate and Group Overheads:
  The CIT(A) deleted the additional allocation of Rs. 4.2 crores and Rs. 8.27 crores made by the AO to the Section 10A units for the assessment years 1998-99 and 1999-2000 respectively. The Tribunal upheld the CIT(A)'s decision, noting that the issue was already decided in favor of the assessee in the earlier year by the Tribunal.
  
  2. Claim of Deduction under Section 10A of the IT Act:
  The Tribunal addressed various components under this issue:
  - Liquidated Damages, Retention Money, Sales-tax Recoveries, Credit Balances, Foreign Exchange Gain: The Tribunal reversed the orders of the authorities below and directed the AO to include these receipts/income in the profits of business of industrial undertakings under Section 10A.
  - Miscellaneous Income from Sale of Scrap: The Tribunal followed its earlier decision and directed the AO to include the income from the sale of scrap in the profits of Section 10A units.
  - Royalty Income: The Tribunal held that royalty income is part of the export turnover of the undertaking and is entitled to relief under Section 10A.
  - Lease Rental Income: The Tribunal dismissed the ground as no details were furnished.
  - Loss of Discontinued Business: The Tribunal allowed the loss claimed by the assessee, including operational loss, valuation of stock, and bad debts.
  
  3. Provision for Bad and Doubtful Debts:
  The CIT(A) directed the AO to verify the correctness of the claims made by the assessee regarding the provision for bad and doubtful debts and decide in accordance with the Tribunal's directions. The Tribunal upheld this decision.
  
  4. Provision for Bad and Doubtful Advances:
  The CIT(A) directed the AO to verify the correctness of the claims made by the assessee regarding the provision for bad and doubtful advances and decide accordingly. The Tribunal upheld this decision.
  
  5. Provision for Warranty Expenses:
  The CIT(A) allowed the provision for warranty expenses based on the Tribunal's earlier decision in the case of Wipro GE Medical Systems Ltd. The Tribunal upheld this decision.
  
  6. Claim under Section 43B of the IT Act in Respect of Excise Duty:
  The CIT(A) directed the AO to verify the claim of excise duty and allow it if the conditions are fulfilled. The Tribunal upheld this decision.
  
  7. Claim under Section 43B of the IT Act in Respect of Customs Duty:
  The CIT(A) directed the AO to verify the claim of customs duty and decide accordingly. The Tribunal upheld this decision.
  
  8. Deduction under Section 80-IA Relating to Various Units:
  The Tribunal upheld the CIT(A)'s decision to delete the allocation of expenditure made by the AO to the peripherals unit at Mysore, Tumkur unit, and Peenya unit, noting that the allocation was without any rational basis.
  
  9. Deduction under Section 80HH Relating to Amalner Unit:
  The Tribunal upheld the CIT(A)'s decision to delete the allocation of expenditure made by the AO to the Amalner unit, noting that the allocation was without any rational basis.
  
  10. Deduction under Section 80-I Relating to Tumkur Unit:
  The Tribunal upheld the CIT(A)'s decision to delete the allocation of expenditure made by the AO to the Tumkur unit, noting that the allocation was without any rational basis.
  
  11. Deduction under Section 80-IA Relating to Peenya Unit:
  The Tribunal upheld the CIT(A)'s decision to delete the allocation of expenditure made by the AO to the Peenya unit, noting that the allocation was without any rational basis.
  
  12. Impact of Modvat Credit:
  The Tribunal upheld the CIT(A)'s decision to direct the AO to verify the Modvat claim of the assessee and add back any unavailed Modvat credit to the income.
  
  13. Deduction under Section 80HHC in Respect of Excise Duty and Sales-tax:
  The Tribunal upheld the CIT(A)'s decision to exclude sales-tax and excise duty from the total turnover while computing the deduction under Section 80HHC, based on the decision of the Karnataka High Court in CIT vs. Bharat Earth Movers Limited.
  
  14. Disallowance of Expenditure Claimed on Imported Software:
  The Tribunal upheld the CIT(A)'s decision to allow the expenditure on imported software, noting that the issue was already decided in favor of the assessee in the earlier year by the Tribunal.
  
  15. Interest under Section 234B:
  The Tribunal directed the AO to grant consequential relief in the levy of interest under Section 234B.
  
  16. Interest under Section 244A:
  The Tribunal remitted the matter back to the AO for fresh consideration, directing that the interest should not be brought to tax unless it accrues irrevocably to the assessee.
  
  17. Foreign Tax Credit:
  The Tribunal admitted the additional ground raised by the assessee and directed the AO to verify whether the income earned in the United States of America was included in the return filed in India and to grant credit as per the applicable provisions of the DTAA between India and the USA.

  ---

1 ....131415161718192021........ 25