TAXMAN
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Vol. 166, Part 1, for the week of January 5 – January 11, 2008
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CONTENTS
CONTENTS
Tax Reports
Table of cases
CIT v. Ashok Khetrapal (Delhi)
CIT v. Deltron Ltd. (Delhi)
CIT v. DLF Universal Ltd. (Delhi)
CIT v. Eicon International (P.) Ltd. (Delhi)
CIT v. Giza Impex (P.) Ltd. (Mad.)
CIT v. Gujarat Maritime Board (SC)
CIT v. Hari Machines Ltd. (Delhi)
CIT v. Ideal Sheet Metal Stampings & Pressing (P.) Ltd. (Guj.)
CIT v. J.S. Electronics (P.) Ltd. (Delhi)
CIT v. Kwality Restaurant & Ice Cream Co. (Delhi)
CIT v. Ludhiana Steel Rolling Mills Ltd. (Punj. & Har.)
CIT v. Meera Chatterjee (Smt.) (Delhi)
CIT v. Noble & Hewitt (I) (P.) Ltd. (Delhi)
CIT v. Rajesh Rakheja (Delhi)
CIT v. Satish Kumar Chandna (Delhi)
CIT v. South India Corpn. (Agencies) Ltd. (Mad.)
CIT v. Sterlite Chemical (Delhi)
CIT v. Turner International India (P.) Ltd. (Delhi)
Janatha Cashew Exporting Co. v. CIT (SC)
Jay Engg. Works Ltd. v. CIT (Delhi)
Jaya Securities Ltd. v. CIT (All.)
Phatela Cotgin Industries (P.) Ltd. v. CIT (Punj. &
Har.)
Prem Kumari Mudria (Smt.) v. Asstt. CIT (Raj.)
Smarts (P.) Ltd. v. CIT (Delhi)
Union of India v. Dharamendra Textile Processors (SC)
subject index
Appellate Tribunal
Orders of
- Block assessment period
1-4-1985 to 22-2-1996 - Whether where Tribunal’s conclusions were based merely on
estimates and it had not given any basis on which it had arrived at those
estimates, order of Tribunal could be said to be perverse in law and,
therefore, matter should be remanded to Tribunal for reconsideration afresh - Held,
yes - CIT v. Satish Kumar Chandna (Delhi)
Block assessment in search cases
Undisclosed income
- Assessment year 1999-2000 -
Whether where no incriminating material whatsoever was found during search that
might show that assessee had made more investment in properties than their
declared value, addition could not be made by treating investment as
undisclosed on basis of any DVO’s report - Held, yes - CIT v.
Ashok Khetrapal (Delhi)
Business disallowance
Certain deductions to be only on actual payment
- Assessment year 1999-2000 -
Assessee was following mercantile system of accounting - Assessee did not
deposit part of service tax collections with concerned authorities - Assessee
neither claimed any deduction in this regard nor did it debit said amount as an
expenditure in profit and loss account - Assessing Officer after disallowing
said amount, made addition to assessee’s income - Whether in view of facts any
question of disallowing deduction not claimed would arise - Held, no - CIT
v. Noble & Hewitt (I) (P.) Ltd. (Delhi)
- Assessment year 1986-87 -
Whether where assessee collected excise duty and instead of paying same to
Government, it kept separately in excise deposit account in books of account on
ground that in dispute between assessee and Government, High Court had stayed
its payment, provisions of section 43B were attracted - Held, yes - CIT
v. Ideal Sheet Metal Stampings & Pressing (P.) Ltd. (Guj.)
Excessive or unreasonable payments
- Assessment year 1992-93 -
Assessee-company was dealing in shares - Pursuant to an information that there
was a joint venture agreement between erstwhile HCL and HP and that in terms
thereof shares of erstwhile HCL were to be effectively transferred to HCL Ltd.
and HCL HP Ltd., assessee purchased shares of erstwhile HCL at a high price -
For payment of such a high price, assessee explained that it had purchased a
large number of shares in large blocks from Delhi Stock Exchange; that
transaction was confirmed by brokers and payments made to them were through
account-payee cheques - However, Assessing Officer rejected assessee’s
explanation and made addition to income of assessee on account of such high
price paid by assessee - Commissioner (Appeals) as well as Tribunal examined
explanation of assessee and accepting same concluded that transaction was not
sham transaction and that section 40A(2) was not applicable - Whether
explanation given by assessee was a plausible explanation and could not be
termed as perverse - Held, yes - Whether, therefore, orders of
Commissioner (Appeals) as well as Tribunal were justified - Held, yes - CIT
v. J.S. Electronics (P.) Ltd. (Delhi)
Business expenditure
Allowability of
- Assessment year 1980-81 -
Tribunal disallowed assessee’s claim with regard to discretionary expenses -
For assessment years 1978-79 and 1979-80, a similar expenditure was allowed by
Tribunal and decisions of Tribunal were accepted by revenue - Whether since
there was no reason for taking a different view for year under consideration,
Tribunal was unjustified in disallowing assessee’s claim - Held, yes - Jay
Engg. Works Ltd. v. CIT (Delhi)
- Assessment year 1994-95 -
Assessee paid incentives to Dock Labour Board workers in order to achieve
maximum output - Assessing Officer found that payments were not fully vouched
by persons stated to have received amounts and, thus, disallowed 50 per cent of
same - Appellate authorities found that said payments were essentially
incidental to carrying on of assessee’s business with a view to earning profits
and that there was no breach of law in making said payments - Accordingly, they
directed deletion of disallowance - Whether order of appellate authorities was
justified - Held, yes - CIT v. South India Corpn. (Agencies)
Ltd. (Mad.)
- Assessment year 1994-95 -
Assessee had debited certain expenditure as loose tools written off - Assessing
Officer while permitting write off in principle, held that 20 per cent of value
of tools so written off was realizable as scrap value, and, accordingly,
disallowed claim of assessee to that extent - Commissioner (Appeals) deleted
disallowance observing that assessee had not sold such tools and if and when
such tools would be sold, same would be brought into profit and loss account -
Tribunal upheld order of Commissioner (Appeals) - Whether finding of Commissioner
(Appeals) was based on appreciation of facts and warranted any interference of
Court - Held, no - CIT v. South India Corpn. (Agencies) Ltd. (Mad.)
Capital gains
Cost with reference to certain modes of acquisition
- Assessment year 1992-93 -
Pursuant to an information that erstwhile HCL had entered into a joint venture
agreement with HP and that in terms thereof, shares of erstwhile HCL were to be
effectively transferred to HCL Ltd. and HCL HP Ltd., assessee purchased certain
shares of erstwhile HCL - In terms of said joint venture agreement, assessee
was allotted certain shares of HCL HP Ltd. and certain shares of HCL Ltd. -
Assessee worked out average cost of shares of HCL HP Ltd. at Rs. 55.82 per
share - However, Assessing Officer held that market price for shares of said
company was Rs. 100 per share and on this basis made an addition to closing
stock of shares held by assessee - Whether assessee was well within its rights
to value closing stock at cost price which was lower than market price - Held,
yes - CIT v. J.S. Electronics (P.) Ltd. (Delhi)
Cash credits
- Assessment years 1996-97 and
1997-98 - Whether any addition under section 68 can be made in respect of
investment made by different persons in share capital of assessee-company, limited
by shares, whether public or private - Held, no - Jaya Securities
Ltd. v. CIT (All.)
Central Excise Act, 1944
Penalty
For short-levy or non-levy of duty in certain
cases
- Assessee contended that mens
rea is an essential requirement for attracting penalty under section 11AC
of 1944 Act particularly when that section refers to intention in matter of
evading payment of duty; that provisions of section 271(1)(c) of 1961 Act is
identically worded to section 11AC of 1944 Act, and it placed reliance on
decision of Division Bench of Supreme Court in Dilip N. Shroff v. Jt.
CIT [2007] 161 Taxman 218 - It was case of department that section 11AC of
1944 Act should be read as penalty for statutory offences and executing
authority had no discretion in matter of penalty and he was bound to impose
penalty equal to duty so determined - In this connection department relied on
decision of Division Bench of Supreme Court in Chairman, SEBI v. Shriram
Mutual Fund [2006] 5 SCC 361 - Whether since judgment in case of Dilip
N. Shroff (supra) has ramifications not only regarding provisions of
1961 Act but also with regard to sections 3A and 11AC of 1944 Act and rule
96ZQ(5) of 1944 Rules, said decision needed consideration by Larger Bench - Held,
yes - Union of India v. Dharamendra Textile Processors (SC)
Central Excise Act, 1944
- Section 11AC
Charitable or religious trust
Exemption of income from property held under
- Assessee was a Statutory
Authority established under provisions of Gujarat Maritime Board Act, 1981 for
predominant purpose of development of minor ports within State of Gujarat -
Management and control of assessee was essentially with State Government having
no profit motive - Whether assessee was not precluded from claiming exemption
under section 11(1) in light of definition of words ‘charitable purposes’ as
defined under section 2(15), even if it had ceased to be a local
authority under section 10(20) - Held, yes - CIT v.
Gujarat Maritime Board (SC)
Collection and recovery of tax
Penalty payable when tax in default
- Assessment years 1992-93 and
1993-94 - Revenue imposed penalty on assessee under section 221, even though
its two applications for stay of recovery of tax were pending before Assessing
Officer - Tribunal held that it was not permissible for Assessing Officer to
have imposed penalty without disposing of stay application pending before him -
Whether Assessing Officer being a quasi-judicial authority, should have acted
in accordance with law rather than keeping only interest of revenue in mind
without bothering about interest of assessee - Held, yes - CIT v.
DLF Universal Ltd. (Delhi)
Deductions
Exporters
- Assessment years 1994-95 to
1997-98 - Whether transfer/export of master copies of film songs and music
along with rights to make copies and sell cassettes outside India would be a
sale of goods or merchandise for purpose of deduction under section 80HHC - Held,
yes - Whether merely because section 80HHF was not on statute book during
assessment years in question and it came to be inserted with effect from
1-4-2000, that, by itself, does not mean that benefit of section 80HHC could be
denied to assessee in respect of transactions which are governed under section
80HHF - Held, yes - CIT v. Giza Impex (P.) Ltd. (Mad.)
- Whether interest income earned
by assessee from FDR was required to be assessed as Income from other sources
and not as its business income - Held, yes - Whether, therefore,
interest income was outside purview of section 80HHC and 100 per cent of
interest was required to be excluded from profits of business in terms of Explanation
(baa) to section 80HHC - Held, yes - CIT v. Rajesh Rakheja
(Delhi)
- Assessment year 1992-93 -
Assessee, a cashew exporter had made direct and indirect exports and claimed
total deduction under section 80HHC(1) and 80HHC(1A) - Assessing Officer
granted deduction; however, while granting deduction under section 80HHC(3) he
excluded sales to export houses from export turnover - Tribunal took view that
Assessing Officer should recompute income of assessee and allow benefits
admissible to export house if such export house had issued a disclaimer
certificate - High Court, however, set aside order of Tribunal - No factual
finding was recorded by High Court as to whether sales made through export
houses by assessee was supported by a disclaimer certificate from such export
houses - Whether matter was to be remitted to Assessing Officer - Held,
yes - Janatha Cashew Exporting Co. v. CIT (SC)
Profits and gains from hotels or industrial undertakings, etc., in
backward areas
- Assessment year 1997-98
-Whether interest received on belated payments on account of sale to customers
of manufactured goods can clearly be termed to be an income derived from
industrial undertaking and distinct from income on account of interest received
from fixed deposit and assessee is entitled for deduction under sections 80HH
and 80-I in respect of said interest income - Held, yes - Phatela
Cotgin Industries (P.) Ltd. v. CIT (Punj. & Har.)
Profits and gains from new industrial undertakings, ships or hotels,
etc.
- Assessment year 1981-82 -
Whether in view of decision of Supreme Court in P.J. Chemicals Ltd.’s
case (supra), Tribunal was correct in holding that value of subsidy
should not be reduced from cost of plant and machinery for purpose of allowing
relief under section 80J - Held, yes - CIT v. Sterlite
Chemical (Delhi)
Depreciation
Allowance/rate of
- Assessment year 2001-02 -
Assessee was engaged in business of providing satellite signals, distribution
of satellite channels and was also an advertisement representative of foreign
telecasting channels - Some of decoders owned by assessee were sold while some
of them were given on loan to cable operators - Whether these loan transactions
formed a part of business of assessee in distribution of satellite channels and
signals relating to satellite channels, and, therefore, provisions of section
32 were applicable to facts of case so as to allow depreciation to assessee - Held,
yes - CIT v. Turner International India (P.) Ltd. (Delhi)
- Assessment year 1981-82 -
Whether in view of decision of Supreme Court in CIT v. P.J. Chemicals
Ltd. [1994] 210 ITR 830/76 Taxman 611, Tribunal was correct in holding that
value of subsidy should not be reduced from cost of plant and machinery for
purpose of allowing depreciation and investment allowance - Held, yes - CIT
v. Sterlite Chemical (Delhi)
Entertainment expenditure
- Assessment year 1980-81 -
Tribunal disallowed claim of assessee under section 37(2A) in respect of
entertainment expenditure pertaining to employees - For assessment years
1978-79 and 1979-80, 20 per cent of such expenditure was allowed by Tribunal in
view of Explanation 2 to section 37(2A) and decisions were accepted by
revenue - Whether since there was no reason to take a different view, assessee
would be entitled to 20 per cent of said expenditure - Held, yes - Jay
Engg. Works Ltd. v. CIT (Delhi)
Income
Chargeable as
- Assessment year 1979-80 - Whether
in view of decision of Supreme Court in Polyflex (India) (P.) Ltd. v. CIT
[2002] 257 ITR 343/124 Taxman 373, Tribunal was not correct in law in
confirming deletion of addition of Rs. 37,058 on account of sales tax refund as
not taxable during previous year - Held, yes - CIT v. Kwality
Restaurant & Ice Cream Co. (Delhi)
Income from house property
Chargeable as
- Assessment year 1980-81 -
Assessee earned income by sub-letting premises in its occupation, which was assessed
by Assessing Officer as ‘Income from house property’ whereas assessee claimed
it to be assessed as ‘Business income’ on ground that property must be owned by
assessee before rent received therefrom could be treated as ‘Income from house
property’ - Whether since assessee was in full control of property in capacity
as a tenant and earned income from sub-letting of house property and there was
nothing to suggest that ownership of premises was essential for purposes of
levying income-tax, Assessing Officer was justified - Held, yes - Smarts
(P.) Ltd. v. CIT (Delhi)
Income-tax Act, 1961
- Section 4
- Section 11
- Section 22
- Section 32
- Section 32A
- Section 35
- Section 36(1)(iii)
- Section 37(1)
- Section 37(2A)
- Section 40A(2)
- Section 43B
- Section 49
- Section 68
- Section 69
- Section 80HH
- Section 80HHC
- Section 80J
- Section 145
- Section 158B
- Section 221
- Section 254
- Section 271(1)(c)
Interest on borrowed capital
- Assessment year 1994-95 -
Assessee-company advanced certain amounts to its subsidiary-company free of
interest - Assessing Officer found that subsidiary company had made substantial
profits during relevant assessment year and there was no reason for assessee to
advance interest-free loans by borrowing funds from market incurring heavy
outlay on interest and, accordingly, disallowed 12 per cent interest paid on
borrowings - Tribunal, however, deleted disallowance on finding that no fresh
loan was given by assessee to its sister concern during relevant assessment
year and, moreover, similar claim of allowance of interest paid on borrowing as
interest referable to advances given to its subsidiary company was allowed
during earlier assessment years, which remained unchallenged till date -
Whether finding given by Tribunal was based on valid material and, therefore,
Tribunal was justified in deleting addition - Held, yes - CIT v.
South India Corpn. (Agencies) Ltd. (Mad.)
- Assessment year 1994-95 -
Assessee had advanced certain interest free amount to firm ‘S’ - Assessing
Officer finding that for earlier assessment years interest at 18 per cent was
disallowed on sum advanced, disallowed interest claim on borrowings of assessee
- In assessee’s own case in earlier assessment year, similar kind of addition
made towards interest was deleted on finding that there was no correlation made
by revenue that money borrowed was actually given to its subsidiaries - Whether
addition made was to be deleted - Held, yes - CIT v. South
India Corpn. (Agencies) Ltd. (Mad.)
Investment allowance
- Assessment year 1979-80 -
Whether in view of decision in CIT v. KIC Food Products (P.) Ltd.
[IT Reference No. 227 of 1992, dated 12-7-2007], Tribunal was correct in law in
deleting disallowance of Rs. 1,01,756 by holding that investment allowance was
available for ice cream machinery, amounting to Rs. 4,07,025 - Held, yes
- CIT v. Kwality Restaurant & Ice Cream Co. (Delhi)
Method of accounting
Rejection of accounts
- Assessment year 1999-2000 -
Assessing Officer on examination of books of account of assessee allegedly
found various discrepancies which when confronted to assessee, no satisfactory
explanation was filed by it - Further as trading results declared by assessee
were much variable, by applying provisions of section 145(3), Assessing Officer
rejected books of account and by applying GP rate of 8.5 per cent on enhanced
sale, made an addition - Commissioner (Appeals) as well as Tribunal deleted
additions - Whether since Commissioner (Appeals) as well as Tribunal had gone
into detail in discussing evidence and recording conclusion after appreciating
same, and on basis of evidence, they concluded that no discrepancy could be
found in maintenance of accounts and even Assessing Officer who was present
before Commissioner (Appeals) could not point out any such discrepancy,
conclusion reached by Commissioner (Appeals) and Tribunal was correct - Held,
yes - CIT v. Ludhiana Steel Rolling Mills Ltd. (Punj. &
Har.)
System of accounting
- Assessment year 1994-95 -
Assessee-company had been maintaining its books of account on mercantile system
of accounting except for interest, clearing and handling receipts, stevedoring
receipts, agency fees and service charges, which were maintained on receipt
basis - Assessing Officer holding that accrual basis of accounting was to be
compulsorily followed, brought income under those heads on mercantile basis -
Tribunal, following its earlier decision in assessee’s own case, directed
deletion of addition made by Assessing Officer - Whether since Tribunal had
consistently held above issue in favour of assessee and revenue had accepted
earlier order and had not produced any material or evidence to take a different
view, impugned order of Tribunal required any interference of High Court - Held,
no - CIT v. South India Corpn. (Agencies) Ltd. (Mad.)
Penalty
For concealment of income
- Assessment year 2001-02 -
Assessee filed return claiming deduction under section 80HHB - Assessing
Officer in absence of requisite evidence regarding various conditions to be met
for allowing a deduction under section 80HHB, found claim to be not bona fide -
Assessing Officer while making assessment order, also levied a penalty under
section 271(1)(c) - Whether even if assessee was not entitled to claim a
deduction under section 80HHB, it did not necessarily mean that assessee had
concealed its income with a view to gain any unforeseeable benefit - Held,
yes - CIT v. Eicon International (P.) Ltd. (Delhi)
- Assessment year 2001-02 -
Whether where even on a detailed perusal of assessment order no satisfaction of
Assessing Officer that penalty proceedings were required to be initiated against
assessee was discernible, penalty proceeding could be sustained - Held,
no - CIT v. Smt. Meera Chatterjee (Delhi)
- Whether penalty under section
271(1)(c) is civil liability and for attracting such civil liability, wilful
concealment is not an essential ingredient as is case in matter of prosecution
under section 276C - Held, yes - Union of India v. Dharamendra
Textile Processors (SC)
- Assessment year 1974-75 -
Assessee-company, with permission of Calcutta High Court, in accordance with
provisions of the Companies Act, reduced its share capital by cancelling
specified number of fully paid-up equity shares - Assessing Officer was of view
that reduction of share capital did not represent a loss incurred by assessee
and, therefore, taxed that amount, which was upheld by Tribunal - Assessing
Officer also levied penalty under section 271(1)(c) - Whether, on facts,
Assessing Officer was justified - Held, no - CIT v. Hari
Machines Ltd. (Delhi)
Scientific research expenditure
- Assessment year 1999-2000 -
Assessee had incurred certain expenditure on purchase of Axial machine along
with machinery spares and computers and claimed same as research and
development expenditure allowable under section 35(1) - Assessing Officer, by
merely having a look at brochure of machine, came to conclusion that machine
was not used for research and development work and on that basis disallowed
expenditure - Commissioner (Appeals) held that Assessing Officer could not have
disallowed expenditure without referring issue to prescribed authority for
determining as to whether asset was being used for research and development -
Tribunal confirmed this view - Whether Tribunal was justified - Held,
yes - CIT v. Deltron Ltd. (Delhi)
Unexplained investments
- Assessment year 1995-96 -
Assessee constructed a house and declared cost of construction of same -
Assessing Officer in order to find out real value of cost of construction,
referred matter to DVO - DVO determined cost of construction at much higher
figure than that declared by assessee and, therefore, Assessing Officer made
addition on basis of difference between cost of construction determined by
Valuation Officer and that declared by assessee - Commissioner (Appeals)
accepting assessee’s submission that Valuation Officer had estimated cost of
construction on basis of CPWD rates and had ignored local PWD rates, granted
deduction of 20 per cent from cost so determined by Valuation Officer -
Tribunal accepted view taken by Commissioner (Appeals) - Whether Tribunal was
justified - Held, yes - Smt. Prem Kumari Mudria v. Asstt. CIT (Raj.)
Words and phrases
- ‘any other object of general
public utility’ as occurring in section 2(15) of the Income-tax Act,
1961
q international
taxation
g.n. gupta, Ex-Chairman, CBDT
- Capital gains - An
International Issue
n. vijia kumar, Advocate
- The Income-tax Act, 1961 and
international taxation
q personal taxation
rajeev khandelwal, Chartered Accountant
- New rules for valuation of
perquisites
case digest/itat
table of cases
Dream Land Educational Trust v. CIT (Asr. - Trib.)
ITO v. Thanwar Das Hariyani (Jp. - Trib.)
Subject Index
Income-tax
Assessment
Additions to income
- Assessment year 2001-02 -
Keeping in view status and size of assessee’s family, Assessing Officer
estimated assessee’s household expenses at Rs. 1,80,000 and after reducing
declared withdrawals of Rs. 85,500 added balance amount Rs. 94,500 to income of
assessee - Commissioner (Appeals) reduced estimation to Rs. 1,20,000 and after
considering withdrawals sustained addition of Rs. 34,500 - Whether since
assessee along with three other adult members of family who were taxpayers was
residing in ancestral house and leading a simple life, estimation of Rs. 1 lakh
as household expenses would be justified - Held, yes - ITO v. Thanwar
Das Hariyani (Jp. - Trib.)
Capital gains
Computation of
- Assessment year 2001-02 - On
sale of a house property for Rs. 12 lakhs, assessee did not declare any gain on
ground that, as per report of valuer, indexed cost of acquisition and indexed
cost of improvement (construction) was Rs. 18.60 lakhs, that was more than sale
consideration - Assessing Officer did not allow to assessee deduction of
indexed cost of acquisition and indexed cost of improvement and treated entire
amount of Rs. 18.60 lakhs as capital gains on ground that no documentary
evidence was produced by assessee with regard to cost of acquisition and cost
of improvement - Commissioner (Appeals) deleted addition by, inter alia,
observing that Assessing Officer should have taken figure declared by assessee
based on sale agreement instead of taking indexed amount of estimated cost by
valuer which was meant for purpose of raising loans from banks and financial
institution - Whether, on facts, Commissioner (Appeals) was justified - Held,
yes - ITO v. Thanwar Das Hariyani (Jp. - Trib.)
Charitable or religious trust
Registration procedure
- Whether for grant of registration
under section 12AA, only relevant consideration is satisfaction of Commissioner
regarding objects of trust and genuineness of its activities - Held, yes
- Dream Land Educational Trust v. CIT (Asr. - Trib.)
Income-tax Act, 1961
- Section 12AA
- Section 143
- Section 48
special leave
petitions decided by supreme court of india
Table of cases
Addl. DIT v. M.D.R. Jewellers
CIT v. Bhushan Metallics Ltd.
CIT v. Haldor Topose
CIT v. Harig India Ltd.
CIT v. Lovely Investment (P.) Ltd.
CIT v. Pravin O. Patel