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SELECTED ORDERS OF ITAT |
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Vol. 21, Part 3, for the week
April 15 - April 21, 2008 |
List of Cases
Aruna Jain (Mrs.) v. Dy.
CIT (
Asstt. CIT v. Alembic Ltd. (Ahd.)
(URO)
Dy. CIT v. Kanchanjunga Advertising (P.) Ltd. (
MTR (P.) Ltd. v. WTO (Mum.)
Mafatlal Securities Ltd. v. Jt. CIT (Mum.)
Megji Mathradas v. Asstt. CIT (Mum.)
Mittal Metal v. ITO (
Rohan Software (P.) Ltd. v. ITO
(Mum.)
Sankar Krishnan v. Asstt. CIT (Mum.)
Shashikant Shah HUF v. Asstt. CIT (Hyd.)
subject index
Agricultural income
- Assessment year 1997-98 - Whether where assessee was holding agricultural land and planted nursery
on same wherein agricultural operations were being carried on, seeds were being
sowed and other agriculture operation were being done with help of human skill
and labour and plants after they attained their
growth were sold to customers, income earned by this process would be treated
as agriculture income - Held, yes - Mrs. Aruna
Jain v. Dy. CIT (Delhi)
Appellate Tribunal
Powers of
- Assessment year 1996-97 - Whether though
Tribunal is not akin to a Court but functions discharged by it are similar to a
Court, and, hence, in addition to its expressed statutory powers it has got inherent
power to pass such orders as may be necessary for ends of justice - Held,
yes - Whether Tribunal has inherent power to refix
case for hearing to prevent miscarriage of justice or to grant substantial
justice, and only condition which is required to be satisfied is that aggrieved
party must be given an opportunity of hearing - Held, yes - Mafatlal Securities Ltd. v. Jt. CIT (Mum.)
Bad debts
- Assessment year 2000-01 - Assessee-company
was engaged in business of advertising, money lending and investment - Assessee deposited Rs. 50 lakhs as share application money with a company ‘D’ - Since
company ‘D’ did not allot shares, assessee exercised
option to convert share application money into a loan - ‘D’ did not entertain
request of assessee and did not convert share
application money into a loan - Assessee, therefore,
treated share application money of Rs. 50 lakhs as irrecoverable - Further, assessee
had written off said amount in its books of account and claimed deduction of
same as bad debts under section 36(1)(vii) - Whether since memorandum of
association of assessee-company, only authorised assessee to invest
surplus funds and did not authorize it to trade in shares and also provided
that any loan granted to any person on any terms whatsoever would not
tantamount to carry on business of banking within meaning of Banking Regulation
Act, 1949, deposit of Rs. 50 lakhs
as share application money and subsequent attempt of assessee
to get same converted into loan would not amount to money lent in ordinary
course of business of money lending carried on by assessee
- Held, yes - Whether, moreover, accounting entries made by assessee without consent of ‘D’ could not change character
of share application money into a loan so as to fall within money lending business
carried on by assessee, and, therefore, amount of Rs. 50 lakhs could not be treated
as a proper debt of revenue nature or incurred in ordinary course of money
lending business carried on by assessee - Held,
yes - Whether, therefore, assessee was not eligible
for deduction under section 36(1)(vii) as claimed - Held, yes - Dy. CIT v. Kanchanjunga
Advertising (P.) Ltd. (
Best judgment
assessment
- Assessment year 1997-98 - Assessee
filed her return of income for assessment year 1997-98, on 2-11-1998 -
Assessing Officer in course of assessment proceedings issued notices dated
18-9-1999 and 23-12-1999, which were not complied with - Assessee
appeared in response to notice dated 17-2-2000 and sought an adjournment for
4-3-2000 - On this date too, she did not appear - Thereafter, a show-cause
notice dated 15-3-2000 was issued along with a notice under section 142(1) and,
in response to which, part reply was furnished on 20-3-2000 and further time
was sought for filing balance details on 27-3-2000 - On this date also, assessee failed to appear and, accordingly, Assessing
Officer framed assessment under section 144, on 30-3-2000 - On appeal, assessee submitted that reply to show-cause notice was
filed before Assessing Officer on 30-3-2000 at around 6 PM but reply was not
considered by Assessing Officer and, hence, he was not justified in passing an
order under section 144 - Commissioner (Appeals) held that since assessee had not appeared before department on 27-3-2000
and merely filed a letter on 30-3-2000 at 6.15 PM, that was, after office
hours, and after passing of assessment order, Assessing Officer was justified
in not taking cognizance of said letter and making assessment under section 144
- Whether since evidence on record clearly suggested that letter dated
30-3-2000 was filed after order of assessment had already been made, which
evidence had not been rebutted by any evidence, assessment made under section
144 was justified - Held, yes - Mrs. Aruna
Jain v. Dy. CIT (Delhi)
Business
disallowance
Excessive or
unreasonable payments
- Assessment year 2005-06 - Whether under
provisions of section 40A(2), Assessing Officer can disallow only that portion
of total expenditure, which in his opinion is excessive or unreasonable, and he
cannot disallow total expenditure by invoking provisions of section 40A(2),
read with section 37(1) - Held, yes - Whether, reasonableness of
expenditure has to be judged having regard to (a) fair market value of
goods, services or facilities for which payment is made, (b) legitimate
needs of business or profession, (c) benefit derived by or accruing to
taxpayer from expenditure - Held, yes - Assessee
trading in metals borrowed money from six related and unrelated parties - Assessee paid interest to one of related parties at rate of
12 per cent, whereas it paid interest to other related and unrelated parties at
rate of 18 per cent - Assessee claimed deduction of
interest paid to aforesaid parties - Assessing Officer having noticed that assessee paid interest to one of related parties at rate of
12 per cent, treated interest paid to other related parties over and above 12
per cent as unreasonable and, accordingly, invoking provisions of section
40A(2) disallowed same - Whether since interest at rate of 18 per cent per
annum was being paid to other unrelated parties, fair market value of services
or facilities could be reasonably estimated at 18 per cent per annum - Held,
yes - Whether since interest was not paid to related parties over and above 18
per cent per annum, it could not be said that payment made was either excessive
or unreasonable having regard to fair market value of services or facilities - Held,
yes - Mittal Metal v. ITO (Delhi)
(SMC)
Capital gains
Slump sale
- Assessment year 2000-01 - Assessee-company
was engaged in business of software development and related services - It
entered into a Memorandum of Understanding (MoU) with
‘IISL’ whereby it transferred its business assets, viz., intellectual
properties, code, formulae, design, etc., to IISL for a consideration - Assessee claimed that amount received by it from IISL was
for sale of its business as a going concern which had to be treated as a slump
sale and accordingly computed capital gains under section 50B - According to
revenue assessee had not transferred building, motor
car and assets and liabilities relating to income-tax matters which fell short
of slump sale for slump consideration and, therefore, held that consideration
for transfer of business to IISL was not made on account of slump sale of
business as a going concern but a revenue receipt chargeable under section 28(i) as business income - Whether since assessee’s business assets, viz., intellectual
properties, code, formulae, design, computer, furniture, etc., were transferred
for a consideration to IISL by aid of which IISL could very well carry on its
business without purchasing any independent items, non-transfer of items like
motor car and building would not make any difference to transaction as it had
nothing to do with assessee’s business - Held,
yes - Whether, therefore, consideration received by assessee
on sale of its business to IISL was to be treated as sale of a going concern
for slump price - Held, yes - Rohan
Software (P.) Ltd. v.
ITO (Mum.)
Cash credits
- Assessment year 1998-99 - Assessee-HUF
filed its return of income for assessment year 1998-99 and declared long-term
capital gains arising on sale of diamonds - Assessee
submitted that said diamonds had been declared under voluntary disclosure of
income scheme (VDIS) and produced VDIS certificate issued by Commissioner - Assessee further submitted that sale was effected in five
lots to four different parties at Surat, and that
total sale consideration of diamonds was received by way of demand drafts and
was deposited in savings bank account of assessee and
he also placed before Assessing Officer confirmation letters from buyers of
diamonds; sale invoices; copy of extract of bank account and valuation report
of diamonds - Assessing Officer, however, found that (i)
main activity of purchasing parties was of providing accommodation entries; (ii)
demand drafts were purchased by depositing equivalent amounts of cash in bank
account; (iii) assessee travelled
to Surat alone in unreserved compartment carrying
diamonds and stayed in dharamshala under a fictitious
name; (iv) ‘G’ who was connected with purchasing parties in his
statement had stated that he was doing only billing work without actually
delivering or taking delivery of goods and earning commission in between - In
view of said details Assessing Officer concluded that assessee
had not travelled to Surat
and that it was merely a cooked up story of having sold diamonds to Surat based parties and he, accordingly, rejected claim of
capital gains of assessee and made addition under
section 68 - Whether since diamonds were declared in VDIS which was supported
through certificate issued by Commissioner and further, buyers had confirmed to
have purchased diamonds and sale invoices; copy of bank account giving full
description and details had been placed on record, which were not controverted by Assessing Officer, it could be said that
there was a strong presumption in favour of assessee - Held, yes - Whether, therefore, merely
because assessee travelled
in an unreserved compartment carrying diamonds, it would not affect transaction
which was otherwise duly supported by documentary evidence - Held, yes -
Whether, moreover, since assessee had not been given
an opportunity to cross-examine ‘G’ and there was neither any direct nor
indirect evidence to show that assessee was
accommodated by him in any manner, his statement could not be taken into
consideration, and, hence, impugned addition was to be deleted - Held,
yes - Shashikant Shah HUF v. Asstt. CIT (Hyd.)
Circulars and
Notifications
- Circular No. 6P (LXXVI-66) of 1968, dated
6-7-1968
- Circular No. 762, dated 18-2-1998
- Circular No. 772, dated 23-12-1998
Commissioner
(Appeals)
Procedure of
- Assessment year 1997-98 - Certain cash credit
was appearing in books of account of assessee in name
of one ‘V’ - Assessing Officer asked assessee to file
confirmation of firm ‘V’ - As assessee failed in
doing so, Assessing Officer made addition under section 68 - Before
Commissioner (Appeals), assessee filed confirmation
of ‘V’ - Commissioner (Appeals) rejected said evidence on ground that same was
not produced in course of assessment proceedings - Whether Commissioner
(Appeals) was justified in not admitting said confirmation as additional
evidence - Held, no - Mrs. Aruna Jain v.
Dy. CIT (Delhi)
Income-tax Act,
1961
- Section 2(1A)
- Section 2(42C)
- Section 17(2)
- Section 36(1)(vii)
- Section 40A(2)
- Section 68
- Section 73
- Section 144
- Section 234B
- Section 234D
- Section 250
- Section 254
Interest, chargeable
as
- Assessment year 2002-03 - Whether interest
under section 234D can be charged only on such portion of refund which exceeds
amount refundable on regular assessment - Held, yes - Assessee filed its original return of income for relevant
assessment year on 30-10-2002 and had also paid advance tax and TDS amounting
to Rs. 9,39,63,517 against which tax ultimately found
to be leviable was Rs.
7,28,43,945 - Subsequently, assessee had filed three
revised returns on 20-11-2003, 11-2-2004 and 11-3-2004, respectively -
Assessing Officer processed original return of income under section 143(1)(a)
and granted refunds of Rs. 29,21,604 and Rs. 6,33,807, aggregating to Rs.
35,55,411, on 25-3-2003 and 30-7-2003, respectively - Assessing Officer also
processed revised return under section 143(1)(a) and granted a refund of
Rs. 3,26,37,466 on 19-3-2004 - Thereafter, Assessing
Officer made regular assessment of assessee under
section 143(3) on 29-3-2004 and taking into consideration advance tax and TDS
paid in original return worked out refund at Rs.
2,01,22,225 - Thereafter, Assessing Officer levied interest under section 234D
on refunds so granted - Whether since refund payable to assessee
on regular assessment was in excess of first two refunds but less than third
refund granted on 19-3-2004, interest under section 234D could not be charged
in respect of first two refunds but could be charged only in respect of third
refund from date of third refund to date of regular assessment - Held,
yes - Asstt. CIT v. Alembic Ltd. (Ahd.) (URO)
- Assessment year 1998-99 - Whether as per Explanation
2 to sub-section (1) of section 234B, assessment done for first time under
section 147 is regular assessment for purposes of section 234B and not
re-assessment/recomputation under section 147 - Held,
yes - For assessment year 1998-99, assessee’s return
was initially processed under section 143(1)(a) and regular assessment
was completed under section 147 read with section 143(3) on 31-12-2002 -
Assessing Officer initially charged interest under section 234B from 1-4-1998
to 31-12-2002 - Subsequently, Assessing Officer rectified said order under
section 154 and charged interest from date of intimation under section 143(1)(a)
(i.e., 24-9-2000) to date of regular assessment (i.e., 31-12-2000)
- Thereafter, Assessing Officer issued notice for rectifying assessment order
for second time by holding that interest under section 234B(3) was wrongly
charged from 24-9-2000 and instead it was to be charged from 1-4-1998 as per
section 234B(1) - Whether assessee’s contention that
since intimation under section 143(1)(a) is an assessment order,
assessment made under section 147 in his case was a reassessment and,
therefore, provisions of section 234B(3) were applicable, could not be accepted
- Held, yes - Megji Mathradas v. Asstt. CIT
(Mum.)
Losses
In speculation
business
- Assessment year 1996-97 - Whether business
loss being negative profit cannot be ignored in determining applicability of
exception clause of Explanation to section 73 - Held, yes - Mafatlal Securities Ltd. v. Jt. CIT (Mum.)
Salaries
Perquisites
- Assessment year 2001-02 - Whether as per
amended provisions of rule 3 effective from 1-4-2001 actual amount of lease
rent paid or payable by employer or 10 per cent of salary, whichever is lower,
as reduced by rent, if any, actually paid by employee, is value of perquisites
for rent free residential accommodation provided by employer and fair rental
value has no role to play in ascertaining value of perquisite for rent free
accommodation - Held, yes - Sankar
Krishnan v. Asstt. CIT (Mum.)
Wealth-tax
Assets
- Assessment years 1997-98 and 1998-99 - Assessee had constructed a factory building on leasehold
land - Assessee was using a portion of building for
carrying on its business and had rented out surplus area to one ‘M’ for its
business activities - Assessee had not filed any
return of wealth under belief that rented portion of building owned by it was
outside purview of Act - Whether, in view of amended provision of section 2(ea)
with effect from 1-4-1997, commercial properties are to be included in net
wealth of assessee and same can be exempted if assessee carries its business or profession in said
premises - Held, yes - Whether since in instant case assessee
was not carrying on his business or profession in portion of property let out
to ‘M’, in such circumstances, portion of building, which was occupied by
tenant ‘M’, was liable to be included as an asset for purposes of computing net
wealth of assessee - Held, yes - MTR (P.) Ltd. v. WTO (Mum.)
Wealth-tax Act,
1957
- Section 2(ea)