- Assessment years 1997-98 and 1998-99 - Assessee was carrying on business of clearing and forwarding agent - A survey was carried out at premises of assessee, wherein certain papers/documents were seized - All said documents/papers related to assessment year 1996-97 and when confronted, assessee offered a sum of Rs. 12 lakhs as additional income on account of expenses like labour stitcher, boat hire and transport charges and various other miscellaneous expenses - Assessee made similar declaration in assessment year 1997-98 amounting to Rs. 10 lakhs and in assessment year 1998-99 amounting to Rs. 8 lakhs - But in returns of income for assessment years 1997-98 and 1998-99, assessee had not included said additional income offered during survey proceedings - Assessing Officer, however, made addition of said additional income to income of assessee - Whether since assessee had incurred said expenditure in course of carrying on of its business and moreover, Assessing Officer had failed to bring on record any documentary evidence to prove non-genuineness of expenses, in such circumstances, Assessing Officer was not justified in making addition of additional income offered during survey proceedings - Held, yes - Dy. CIT v. Samta Marine Kakinada (Mum.)

- Assessment year 1996-97 - Assessee-company had set up ferro-chrome and alloys manufacturing plant - In relevant year, it set up a sugar manufacturing unit and commenced it’s trial production - It incurred expenditure amounting to Rs. 5.6 crores on purchase of material consumed in trial production and claimed deduction of same - Assessing Officer held that sugar project was a new source of income and was not same business as that of manufacturing ferro-chrome or trading in it and, accordingly, disallowed assessee’s claim - Whether since assessee-company was having a common management which was looking after and was responsible for affairs of both units and further since source of fund was common for both ferro-alloys unit and sugar unit, it could be said that sugar manufacturing plant was a mere extension of existing business of ferro-alloy and its trading and sugar division was in same line of business of assessee - Held, yes - Whether since out of expenditure of Rs. 5.6 crores expenditure of financial charges amounting to Rs. 3,50,83,472 was incurred for purpose of setting up sugar division, same was allowable as deduction under section 36(1)(iii) - Held, yes - Whether allowability of any other expenditure like administrative expenses, power and fuel expenses, etc., would depend upon question whether expenditure was capital or revenue in nature, and, therefore, matter was to be restored to Assessing Officer for passing a fresh order in that context - Held, yes - ITO v. Monnet Industries Ltd. (Delhi)

Business income

Chargeable as

- Assessment year 1999-2000 - Whether in cash system of accounting, only those receipts which have been received by assessee are includible as income from business in hands of assessee - Held, yes - Whether, therefore, any sum of money on account of bills receivable cannot be treated as income of assessee in cash system of accounting - Held, yes - Dy. CIT v. Samta Marine Kakinada (Mum.)

Value of any benefit or perquisite, arising from business or exercise of profession

- Assessment year 2001-02 - Whether where assessee had rendered help to a person on various occasions, who in return had gifted certain sum to assessee, such gifted amount would fall outside scope of income within meaning of section 28(iv), as such benefit was not received in course of business of assessee - Held, yes - ITO v. Sunil Mittal (Delhi)

Business loss/deductions

Allowable as

- Assessment year 2001-02 - Assessee entered into various transactions in shares through three Kolkata based brokers - For relevant assessment year, assessee claimed deduction of Rs. 26.44 crores as business loss stating that Kolkata based brokers had defaulted in making payments - Assessing Officer, however, disallowed assessee’s claim - Whether since assessee’s transactions in shares through aforesaid brokers were supported by movement of shares as reflected in demat account; movement of money, as reflected in bank account; entries in books of account of assessee; prevalent market quotations of CSE; contract notes and delivery bills issued by Kolkata brokers and their statements in response to enquiries made by Assessing Officer, it could not be said that these transactions were shown only in order to generate loss or profit and were not genuine share transactions - Held, yes - Whether further, since loss, in question was no longer recoverable, denial of deduction of loss on ground that loss had not crystallized during relevant financial year was also untenable - Held, yes - Whether, therefore, deduction of loss in question was to be allowed - Held, yes - Asstt. CIT v. Claridges Investments & Finances (P.) Ltd. (Mum.)

- Assessment year 2001-02 - Whether any bona fide loss arising in ordinary course of carrying on of business which is of a revenue nature is to be allowed as a business loss even if provisions relating to deduction of bad debt do not apply - Held, yes - Assessee-company purchased shares of a company ‘C’ on behalf of another company CCL and total amount receivable on this account was Rs. 2,47,69,500.69 - Assessee claimed that it did not receive said amount as two cheques issued by CCL of Rs. 1,25,00,000 each bounced - Assessee, therefore, claimed that amount of Rs. 2,47,69,500 be allowed as business loss/bad debt - Assessing Officer disallowed assessee’s claim holding that since assessee had in its custody 6,40,000 shares of ‘C’ worth Rs. 74,56,000 and also had with it margin money of Rs. 15 lakhs, loss of Rs. 2,47,69,500 could not be claimed by assessee - Assessing Officer further held that assessee’s claim for allowing this amount was not acceptable, as amount had not been written off also in books of account and requirements of provisions of section 36(2) were not met with - Whether since assessee had purchased shares on behalf of ‘CCL’ in ordinary course of its profit-making activity, it was entitled to deduction of money lost - Held, yes - Whether however, since assessee had with it security deposit of Rs. 15 lakhs and also had 6,40,000 shares of company ‘C’ worth Rs. 74,56,000, disallowance to extent of Rs. 27,80,000 was justified and balance amount was allowable as a business loss - Held, yes - Asstt. CIT v. Claridges Investments & Finances (P.) Ltd. (Mum.)

Capital gains

Chargeable as

- Assessment year 1999-2000 - Whether goodwill arising on transfer of business is assessable under head ‘Income from capital gains’ and method of accounting whether mercantile or cash system is not applicable while determining income under head ‘Income from capital gains’ - Held, yes - Dy. CIT v. Samta Marine Kakinada (Mum.)

- Assessment year 2001-02 - Assessee-company disclosed investments in equity shares at Rs. 1,332.48 lakhs - It had converted said investments into stock-in-trade by passing a journal entry in account books and market value of said shares on date of conversion was Rs. 1,064.74 lakhs - Assessing Officer, in terms of provisions of section 45(2), treated difference between cost of investments and market value of shares as capital loss as against assessee’s claim of business loss and, accordingly, did not allow benefit of set-off of loss against business income of assessee - Whether Assessing Officer was justified in his action - Held, yes - Asstt. CIT v. Claridges Investments & Finances (P.) Ltd. (Mum.)

Cash credits

- Assessment year 2002-03 - Assessing Officer made certain addition to income of assessee on account of unexplained cash credit deposited in bank account of assessee - Commissioner (Appeals) on verification of cash flow statement of assessee found that amounts deposited were received by assessee from his mother and wife who were also income-tax assessees - Further, all credit entries were duly explained by assessee - He, therefore, considered cash credits as genuine and deleted addition - Whether Commissioner (Appeals) was justified in deleting addition - Held, yes - ITO v. Dr. Bobby Anand Chaurasia (Delhi) (SMC)

Central Board of Direct Taxes

Instruction to subordinate authorities

- Assessment year 2002-03 - Whether where tax effect in appeal, filed by revenue was less than Rs. 2 lakhs, in view of CBDT Instruction No. 2, dated 24-10-2005, such appeal was not maintainable - Held, yes - ITO v. Dr. Bobby Anand Chaurasia (Delhi) (SMC)

Circulars and Notifications

- CBDT Circular No. 2, dated 24-10-2005

Depreciation

Allowance/rate of

- Assessment year 1996-97 - Assessee-company had purchased a flameless induction furnace and claimed depreciation on same - Assessing Officer disallowed claim of depreciation on ground that assessee had failed to discharge its onus regarding genuineness of transaction of purchase of impugned assets - Whether since assessee had filed complete details of assets along with copy of purchase details and moreover purchase of impugned assets had been accepted by revenue in preceding assessment year, in such circumstances, Assessing Officer was wrong in disallowing claim of depreciation - Held, yes - ITO v. Monnet Industries Ltd. (Delhi)

Expenditure incurred in relation to income not includible in total income

- Assessment year 2001-02 - Whether provisions of section 14A apply only when there is expenditure in relation to an exempt income and it does not create any legal fiction to deem any expenditure as expenditure incurred in relation to exempt income - Held, yes - Assessee-company which was dealing in securities in stock exchanges, required substantial funds to deal in same which was met from borrowed funds in addition to own funds - Thereafter, assessee had invested certain sum in mutual funds and shares and earned dividend income on same - Department held that as dividend income was earned by assessee which was exempt under section 10(33) expenditure relatable to such income was disallowable under section 14A - Whether since dividend income was merely an incidental income for which no borrowing was made, impugned disallowance made by Assessing Officer was not justified and was liable to be deleted - Held, yes - Asstt. CIT v. Claridges Investments & Finances (P.) Ltd. (Mum.)

House rent allowance

- Assessment year 2002-03 - Assessee was a doctor - His claim for house rent allowance under section 10(13A), at Rs. 54,000 was partly disallowed to extent of Rs. 21,500 - Commissioner (Appeals), however, on finding that landlord was in receipt of Rs. 54,000, considered claim of assessee as genuine and deleted disallowance of Rs. 21,500 - Whether Commissioner (Appeals) was justified in his action - Held, yes - ITO v. Dr. Bobby Anand Chaurasia (Delhi) (SMC)

Income-tax Act, 1961

- Section 10(13A)

- Section 14A

- Section 28(i)

- Section 28(iv)

- Section 32

- Section 37(1)

- Section 45

- Section 68

- Section 119

SELECTED ORDERS OF ITAT