- During search and seizure operation carried out at business premises of assessee, lehngas of two different qualities were found - Search team decoded value of each piece of lehnga of one quality at Rs. 12,000 and Rs. 25,000 of another quality and, accordingly, assessed total value of thirty-eight pieces at Rs. 5,60,000 - Assessee claimed that there was a mistake in calculation of stock value of those two items and items were, in fact, of value of Rs. 1,200 and Rs. 2,500 per piece and, accordingly, total value of lehngas was only Rs. 56,000 - Tribunal upheld version of assessee and considered that decoding in respect of these two types of lehngas was not correctly done and assessee was entitled to reduction of value of excess calculation amounting to Rs. 5,04,000 - Whether no substantial question of law arose for consideration - Held, yes - CIT v. Kashmiri Lal (Delhi)

- Assessment years 1994-95 and 1996-97 - Assessee was manufacturing chewing tobacco - With a view to ascertain percentage of silver used by assessee in aforesaid product, Assessing Officer sent samples of said product to a research institute - On basis of report of such institute, total consumption of silver by assessee was estimated - Assessee filed objections to said report and sought permission to cross-examine analyst - However, Assessing Officer paid no heed to such request and proceeded with assessment order - Whether since correctness or otherwise of report, on basis of which assessment order was passed against assessee, was itself under challenge, said report could not be automatically accepted and Assessing Officer committed violation of principles of natural justice in not permitting cross-examination of analyst and relying upon his report to detriment of assessee - Held, yes - CIT v. Dharam Pal Prem Chand Ltd. (Delhi)

Bad debts

- Assessment year 1995-96 - Whether no prudent businessman would write off a debt which he has a hope of recovering - Held, yes - Whether where assessee had written off debt as irrecoverable in relevant previous year, it must be presumed, unless contrary was shown, to be a bad debt - Held, yes - CIT v. D.C.M. Ltd. (Delhi)

Business expenditure

Allowability of

- Assessment year 1987-88 - Whether where Tribunal had recorded a finding that expenses relating to obtaining fixed deposits from public were closely linked with business requirement of assessee, such expenses should be held to be revenue in nature - Held, yes - CIT v. Southern Petrochemical Industries Corpn. Ltd. (Mad.)

- Assessing Officer disallowed assessee-company’s claim for deduction of interest paid to its trade creditors on ground that assessee had not recovered interest from its trade debtors, one of whom happened to be its own sister concern - Whether just because assessee had not charged interest from its trade debtors, it did not mean that interest paid by it to its trade creditors should not be allowed as a deduction - Held, yes - Whether, moreover, since there was no direct linkage between interest paid by assessee to its creditors and debts which it had to recover from other parties, including its sister concerns, assessee’s claim was to be allowed - Held, yes - CIT v. Indo Kopp Ltd. (Delhi)

- Assessment year 2001-02 - Whether expenditure on replacement of machinery is revenue expenditure - Held, yes - CIT v. Saravana Spinning Mills (P.) Ltd. (Mad.)

- Assessment year 1975-76 - Whether whenever an assessee has indicated any amount, which had been paid either by way of damages or penalty, to be an allowable expenditure under section 37(1), assessing authority is obliged to discover nature of such amount vis-a-vis two prominent aspects, whether it is compensatory or penal; he would thereupon permit amount as an allowable deduction that may be discovered to be purely of compensatory nature as payment for damages - Held, yes - Whether, however, any statutory amount paid by assessee which is sought to be claimed as an allowable expenditure on account of penalty, in that eventuality, same shall be disallowed being payment for infraction of law - Held, yes - Whether in a situation where an assessee might have to make a composite payment being compensatory or penal character both, assessing authority would, of course, be required to segregate amount containing two characters and after undertaking that exercise, amount that is held to be of compensatory nature shall be countenanced as allowable expenditure whereas other portion of amount, which is penal in nature, shall be refused to be an allowable expenditure - Held, yes - Jamna Auto Industries v. CIT (Punj. & Har.) (FB)

- Assessee had borrowed foreign currency loan from IDBI which in turn was refinanced by foreign company - Assessee paid commitment charges and finance charges to said foreign company and claimed deduction of same under section 36(1)(iii) - Whether commitment charges were deductible under section 37(1) - Held, yes - Whether finance charges having been treated as interest/commitment charges were deductible either under section 36(1)(iii) or 37(1) - Held, yes - Dy. CIT v. Gujarat Alkalies & Chemicals Ltd. (SC)

Cash credits

- Assessment year 1995-96 - Assessee had received two gifts of certain amount from NRE accounts of two donors - However, assessee had not placed on record anything to show as to what was financial capacity of donors, what was creditworthiness of donors, what kind of relationship donors had with assessee, what were sources of funds gifted to assessee and whether donors had capacity of giving large amount of gift to assessee - Whether Tribunal was justified in deleting addition on account of gifts alleged to have been received by assessee - Held, no- CIT v. Anil Kumar (Delhi)

Circulars and notifications

- Circular No. 551, dated 23-1-1990

Deductions

Exporters

- Assessment year 1991-92 - Whether commission cannot be included in total turnover for purposes of section 80HHC - Held, yes - CIT v. Eureka Sales Corpn. (Delhi)

Winnings from lotteries

- Assessment year 1976-77 - Pursuant to order passed by Commissioner (Appeals) and upheld by Tribunal - Assessing Officer framed assessment by including prize money from winning from lottery, which was accepted by assessee - Whether nothing survived in instant matter and reference was to be returned unanswered - Held, yes - CIT v. Smt. Rama Rani Ghai (Delhi)

Depreciation

Allowance/rate of

- Assessment years 1986-87 and 1987-88 - Whether depreciation should be allowed on spare parts which are stand-by items even though they are not put to use during accounting year - Held, yes - CIT v. Southern Petrochemical Industries Corpn. Ltd. (Mad.)

Gift-tax

Assessment

- Assessment year 1997-98 - Whether where notice under section 15(2) was issued to assessee after more than 12 months from end of month in which return was filed, said notice was clearly without jurisdiction - Held, yes - CIT v. Access Securities Credits (P.) Ltd. (Delhi)

Gift-tax Act, 1958

- Section 15

High Court, appeals to

- Whether appeal in question could not be preferred contrary to instructions issued by CBDT as tax effect was admittedly less than Rs. 4 lakhs - Held, yes - Whether where issues raised were purely factual in nature, no substantial question of law arose for consideration - Held, yes - CIT v. Dhnad Financial Services (P.) Ltd. (Delhi)

Income

Accrual of

- Assessment year 1972-73 - Pursuant to MCD’s claim, assessee collected terminal tax from its customers in assessment years 1969-70 and 1970-71 - Civil Court held that assessee was not liable to pay terminal tax - MCD’s appeal against said order was dismissed on 19-7-1971 - Subsequently, assessee issued advertisement intimating its customers that they could collect terminal tax from assessee on production of sale bills/cash memos - However, no one came forward to collect terminal tax - Department brought said amount to tax in assessment year 1972-73 - Assessee’s case was that since said amount was collected in assessment years 1969-70 and 1970-71, same was taxable in said years - Whether since liability of handing over amount to MCD ceased only on 19-7-1971, sum was assessable as income in assessment year 1972-73 - Held, yes - Abdul Majid Paramjit Singh v. CIT (Delhi)

Definition of

- Assessment year 1997-98 - Assessee director of company, utilized his credit cards and incurred huge personal expenditure - Credit card amounts were finally settled by issue of cheques by company - Assessing Officer treated expenses incurred by assessee through credit card as income of assessee in terms of section 2(24)(iv) - Expenses had nothing to do with any of business activities of company and no materials were furnished as regards activities of company which necessitated said payments - Whether Assessing Officer was justified - Held, yes - Ravi Prakash Khemka v. CIT (Mad.)

Income escaping assessment

General

- Assessee had repeatedly requested for supply of copies of documents on basis of which section 147 proceedings had been initiated - Assessing Officer framed reassessment without furnishing to assessee copies of those documents - However, in response to notice by Court, Assessing Officer produced copy of ledger account and also handed over same to assessee - Whether in absence of justifiable reason as to why same thing could not have been done during reassessment proceedings itself, reassessment order could not be sustained - Held, yes - Whether in view of Supreme Court’s decision in Dhakeswari Cotton Mills Ltd. v. CIT [1955] SCR 941, direction was to be issued to Assessing Officer to provide assessee any other document or material on which revenue wanted to rely - Held, yes - Reach Cable Networks Ltd. v. Dy. DIT (Delhi)

Non-disclosure of primary facts

- Assessment year 2003-04 - Whether once explanation given by assessee is accepted and regular assessment is made, said assessment cannot be reopened for considering very same issue, unless Assessing Officer has some material on basis of which he forms a prima facie opinion that regular assessment passed by accepting explanation given by assessee is erroneous and, consequently, income chargeable to tax has escaped assessment - Held, yes - Whether Explanation 2(c) to section 147 empowers Assessing Officer to reopen an assessment if he has reason to believe that excessive relief has been granted to assessee under Act but said belief must be based on definite material - Held, yes - M.J. Pharmaceuticals Ltd. v. Dy. CIT (Bom.)

- Assessment year 2003-04 - Assessee had made provision for deferred taxation in profit and loss account - On being questioned as to why said provision should not be taken into account for determining book profit under section 115JB, assessee explained that this provision was made in accordance with accounting standards and same could not be taken into account for determining book profit - On being satisfied with explanation given by assessee, Assessing Officer passed an order without making any addition to book profit on account of provision for deferred taxation - Subsequently, Assessing Officer on finding that there was under assessment of book profit which was on account of provision for deferred taxation, issued a show-cause notice under section 148 - Assessee objected to reopening of assessment inter alia by relying upon judgment of Tribunal Kolkata Bench in Asstt. CIT v. Balarampur Chini Mills Ltd. [2007] 14 SOT 372 - However, Assessing Officer rejected objection raised by assessee without assigning any reasons - Whether in absence of any decision to contrary, decision of Tribunal which was directly on point was binding upon Assessing Officer and, therefore, proceedings for reopening of assessment in contravention of order passed by Tribunal were liable to be quashed and set aside - Held, yes - M.J. Pharmaceuticals Ltd. v. Dy. CIT (Bom.)

Income-tax Act, 1961

- Section 2(1A)

- Section 2(24)

- Section 5

- Section 17(2)

- Section 32

- Section 36(1)(iii)

- Section 36(1)(vii)

- Section 37(1)

- Section 41(1)

- Section 44C

- Section 68

- Section 69

- Section 80HHC

- Section 80TT

- Section 143

- Section 147

- Section 260A

- Section 263

- Section 271(1)(c)

Interest on borrowed capital

- Amount of term loan availed by assessee from a foreign bank for being utilised for a particular project was invested in equity shares of another company, since said project could not take off for certain reasons - Amount paid by assessee on account of interest on term loan was disallowed by assessing authority on ground that amount of term loan was not utilised for purpose for which it was sanctioned and, therefore, it could not be said to have been utilised for business purpose - Whether since in memorandum and articles of association of assessee, investment in shares was specified and assessee under law could be treated to be doing business of investment in shares, interest paid by it to foreign bank was to be allowed - Held, yes - CIT v. Gorawara Plastics & General Industries (P.) Ltd. (All.)

- Assessment year 1992-93 - Whether proviso inserted in section 36(1)(iii) with effect from 1-4-2004 has to be read as prospectively - Held, yes - Whether what section 36(1)(iii) emphasizes on is user of capital and not user of asset which comes into existence as a result of borrowed capital, unlike section 37(1) which expressly excludes an expense of a capital nature - Held, yes - Whether Legislature has, therefore, made no distinction in section 36(1)(iii) between ‘capital borrowed for a revenue purpose’ and ‘capital borrowed for a capital purpose’ and an assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purpose irrespective of what may be result of using such borrowed capital - Held, yes - Whether Explanation 8 to section 43 as well as concept of determination of ‘actual cost’ have no application to section 36(1)(iii) as this section does not incorporate concept of depreciation - Held, yes - Assessee had a running business of manufacturing and selling of intravenous solutions - It installed new machineries on which production was not started during relevant year - Assessee claimed deduction of interest on borrowings made for purchasing these machineries - Whether assessee’s claim was to be allowed - Held, yes - Dy. CIT v. Core Health Care Ltd. (SC)

Non-residents

Head office expenditure, in case of

- Assessee, a non-resident company, had its head office at Singapore and a branch office in India - Assessee incurred certain expenses at its head office and claimed deduction of same - Assessing Officer disallowed assessee’s claim - Assessee’s case was that since it did not carry on any business outside India, entire head office expenses attributable to business in India had to be allowed - Whether in view of decisions of Calcutta High Court in Rupenjuli Tea Co. Ltd. v. CIT [1990] 186 ITR 301/[1991] 54 Taxman 269 and Bombay High Court in CIT v. Emirates Commercial Bank Ltd. [2003] 262 ITR 55, assessee’s claim was to be allowed - Held, yes - DIT v. Ravva Oil (Singapore) (P.) Ltd. (Delhi)

Penalty

For concealment of income

- Assessment year 1998-99 - Whether where it was not discernible from assessment order that Assessing Officer was satisfied that penalty proceedings should be initiated against assessee, penalty proceedings could be sustained - Held, no - CIT v. Monika Consultants (P.) Ltd. (Delhi)

- Assessment year 1990-91 - Whether in view of decision of Delhi High Court in quantum appeal being IT Appeal No. 342 of 2007, impugned order of Tribunal deleting penalty under section 271(1)(c) was to be set aside and matter was to be remanded to Tribunal for a fresh decision on merits - Held, yes - CIT v. Hi-Tech Flexotext (P.) Ltd. (Delhi)

Remission or cessation of trading liability

- Assessment year 1980-81 - Whether assessee was not right in contending that prior to amendment in section 41(1) with effect from 1-4-1997 a unilateral writing off of a liability could not be treated as an income of assessee inasmuch as position in law, which already existed, and was settled by Supreme Court in CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344/88 Taxman 429 has only been made explicit by said amendment - Held, yes - Jay Engineering Works Ltd. v. CIT (Delhi)

Revision

Of orders prejudicial to interests of revenue

- Assessment year 2001-02 - Assessee purchased units of mutual funds and sold them subsequently - Although it received declared dividend, yet it suffered an overall loss - Assessee filed a return adjusting its short-term capital loss against a long-term capital gain - Assessing Officer accepted assessee’s return by taking a view that it was not a colourable device - Commissioner invoking section 263 set aside assessment on ground that assessee had resorted to colourable device to evade tax, knowing fully well that it was going to incur a loss on sale of units of mutual funds - Whether since view of Assessing Officer was a plausible view, it could not be said to be erroneous - Held, yes - Whether since disallowance of loss under section 94(7) in respect of transaction in question was effective only from assessment year 2002-03, same could not be involved in assessment year in question - Held, yes - CIT v. Vikram Aditya & Associates (P.) Ltd. (Delhi)

- Assessment years 1978-79 and 1979-80 - Tribunal held that provision of section 263 could be applied to an assessment order passed by Inspecting Assistant Commissioner under section 146(3) in respect of assessment years in question - Delhi High Court in CIT v. Smt. Asha Primlani [IT Reference No. 532 of 1986, dated 6-9-2007] has held that by virtue of amendment in section 263 by Taxation Laws (Amendment) Act, 1984, Commissioner could exercise powers under section 263 in respect of an order passed by Inspecting Assistant Commissioner only with effect from 1-10-1984 - Whether Tribunal was justified - Held, no - Mitsui & Co. Ltd. v. CIT (Delhi)

Salaries

Perquisites

- Assessment year 2003-04 - Assessee-school was providing free education to children of staff - Assessing Officer took cost of education for other students in same school, as perquisite value in hands of employee - Tribunal held that later part of rule 3(5) which requires Assessing Officer to determine cost of education in a similar institution in or near locality, was completely overlooked by Assessing Officer and, therefore, he proceeded on an entirely incorrect proposition - Whether Tribunal was justified - Held, yes - CIT (TDS) v. Delhi Public School (Delhi)

Unexplained investments

- Assessment year 1997-98 - During course of assessment proceedings, on verification of original share certificate produced by assessee’s bank, it was found that one lakh shares of ‘S’ with face value of Rs. 10 were actually issued in name of assessee on 31-1-1997 - Assessing Officer assessed a sum of Rs. 10 lakhs as unexplained investment under section 69 - Assessee’s case was that share certificates produced by bank represented shares allotted to him as early as on 18-10-1995, in marketable lot form and that copy produced was only a jumbo certificate for one lakh shares issued on 31-1-1997 - Whether since no evidence was let in as regards fact that jumbo certificate issued was in consolidation of shares held already, Assessing Officer was justified in making addition - Held, yes - Ravi Prakash Khemka v. CIT (Mad.)

- Assessment year 1997-98 - Assessee constructed flats on roof purchased by him and sold them - Assessee had filed a report of an approved valuer, which was based on land rates fixed by L&DO - Assessing Officer did not take said report into consideration and worked out value of flats on basis of report of DVO and made addition under section 69 - Whether since Assessing Officer had not been able to show from any cogent material that assessee had received anything over and above sale price declared by it, addition made on basis of report of DVO was not justified - Held, yes - CIT v. S.K. Construction Co. (Delhi)

magazine

features

q appeals

Gopal Nathani, Chartered Accountant

- Dismissal of an appeal by the Tribunal

q wealth-tax

Surendra Bhargava, Chief CIT (Retd.) and kapil goel, Chartered Accountant

- Wealth-tax Act : Section 2(ea)(i)(5) and Commercial establishment or complexes

q Miscellanea

T.N. Panday, Ex-Chairman, CBDT

- SEBI (Informal Guidance) Scheme, 2003 - Income-tax Department needs to think of a similar scheme for taxpayers’ assistance

- Article browser

q business income

ranvir singh, Jt. CIT (Retd.) and ankur kumar agarwala, Chartered Accountant

- Property income vis-à-vis business income

q personal taxation

ajay kumar garg, Chartered Accountant

- Supreme Court on valuation of ESOPs - A Case Analysis

case digest/itat

q table of cases digested

Asha Devi (Mrs.) v. Asstt. CIT (Delhi - Trib.)

ITO v. Purushottam Das Chopra (Delhi - Trib.)

Shirish S. Maniar v. ITO (Mum. - Trib.)

q subject index to cases digested

Income-tax

Block assessment in search cases

UNDISCLOSED INCOME

- Block assessment period 1-4-1995 to 26-2-2002 - During search conducted upon group to which assessee was connected, certain amount of jewellery was seized - In a statement assessee deposed that she had received jewellery at time of her silver jubilee marriage celebration - Assessing Officer, however, treated a part of such amount of jewellery as unexplained and made addition - Parties had filed affidavits to effect that assessee had received aforesaid jewellery as gift on her silver jubilee marriage celebration - Said affidavits were forwarded by Commissioner (Appeals) to Assessing Officer for examination and comments but Assessing Officer offered no comments thereupon - Whether addition made by Assessing Officer was erroneous - Held, yes - Mrs. Asha Devi v. Asstt. CIT (Delhi - Trib.)

Capital gains

TRANSFER

- Assessment year 2003-04 - Assessee had transferred a flat to his son in a family arrangement - Assessing Officer found that said transfer was without consideration of money; that there was no dispute in family, which was required to be settled by giving said flat to assessee’s son; that assessee had a bank liability and because of some share scam, said bank was in liquidation and RBI had taken up administrative control of same and since assessee had some apprehension that his flat might be attached by RBI, he entered into this family arrangement - Accordingly, Assessing Officer held that family arrangement made between family members was not bona fide one and transaction of said flat actually amounted to transfer under section 2(47) and, thus, section 45 was attracted - Whether since in respect of family arrangement it was found that same was not entered only between assessee and his son but among all members of family; that in said family arrangement not only aforesaid flat was divided but there were business assets and liabilities, which were also divided between family members; that assessee had not received any notice from RBI or from bank to whom assessee owed some liability; and that nothing was brought on record by Assessing Officer to establish that family arrangement entered among members was not acted upon actually, presumption that family arrangement was not bona fide and it was a colourable device to save tax or to protect flat from RBI was not correct and justified - Held, yes - Whether, therefore, transfer of assets under family arrangement did not attract provisions of section 2(47) for levy of capital gains tax - Held, yes - Shirish S. Maniar v. ITO (Mum. - Trib.)

Cash credits

- Assessment year 2003-04 - Whether if a party on instruction of a third party disturbs its accounts or passes any entry, no action can be taken against person whose account was credited or debited - Held, yes - Shirish S. Maniar v. ITO (Mum. - Trib.)

Penalty

FOR CONCEALMENT OF INCOME

- Assessment year 1998-99 - Whether where Assessing Officer imposed penalty under section 271(1)(c) without recording satisfaction as to concealment of particulars of income or furnishing of inaccurate particulars of income either in assessment proceedings or in assessment order, said order of penalty was liable to be set aside - Held, yes - Assessee had let out his premises to two of his sons at rate of Rs. 20,000 p.m. aggregating to Rs. 4,80,000 - There was other rental income on this property amounting to Rs. 30,000 and, thus, in all total rental income was Rs. 5,10,000 - Assessee had a third son also, who insisted upon his father that a sum of Rs. 2,40,000 be paid to him as well - Assessee as father directed his both tenant sons to give him in aggregate an amount of Rs. 2,40,000 to be paid over to his third son - But before this could happen in reality, third son died - Assessee under some wrong advice treated this additional agreed amount as ‘rent’ and showed same as rental income - At same time he claimed deduction of an equal amount to be paid over to his third son as annual charge under section 24 - Assessing Officer held that annual charges claimed should not be a charge created by assessee voluntarily to reduce taxable income from house property - Accordingly, Assessing Officer opined that assessee had made a wrong claim under section 24(1)(iv) intentionally, and, therefore, he disallowed same and also imposed penalty under section 271(1)(c) - Whether since assessee had disclosed all facts relating to computation of total income claiming aforesaid deduction on bona fide belief that same was not taxable, it could be said that there was neither deliberate concealment of particulars of income by assessee nor deliberate furnishing of inaccurate particulars of income - Held, yes - Whether, therefore, penalty imposed on assessee was not justified - Held, yes - ITO v. Purushottam Das Chopra (Delhi - Trib.)

- Assessment year 1998-99 - In his return of income, assessee had declared interest earned on FDR as Rs. 10,432 - Assessing Officer found that earned interest on FDR by assessee was in fact Rs. 1,04,299 and, thus, there was deliberate concealment of income of Rs. 93,867 - Accordingly, he made addition and imposed penalty under section 271(1)(c) - Interest declared by assessee was on receipt basis and he had been following same system from earlier years - Said interest on FDR was not received by him in year under appeal but bank had issued TDS certificate for TDS deducted on said FDR and since TDS received constitutes income on receipt basis, said TDS amount was offered as income by assessee - Whether since full particulars of income was disclosed with return by way of TDS certificate and Assessing Officer had not found any falsity in material facts disclosed by assessee, penalty imposed on assessee on account of aforesaid addition was not justified - Held, yes - ITO v. Purushottam Das Chopra (Delhi - Trib.)

Income-tax Act, 1961

- Section 2(47)

- Section 68

- Section 158B

- Section 271(1)(c)

special leave petitions decided by supreme court of india

q Table of cases

CIT v. Belgaum Distt. Cent. Co-op. Bank Ltd.

CIT v. Bharat Rasayan Ltd.

CIT v. Canara Bank

CIT. v. Corporation Bank

CIT v. Eastman Industries

CIT v. Mohan Impex Ltd.

CIT v. Nestle India Ltd.

CIT v. New Link Overseas Finance Ltd.

CIT v. Nitinbhai T. Bhupatani

CIT v. Paintex & Mercantiles

CIT v. Patel Kelavani Mandal

CIT v. Prasar Bharti

CIT v. Star Developers

CIT v. Swaraj Engines Ltd.

CIT v. United Leasing Ltd.

Durga Dass Aggarwal v. CIT

Sahkar Enterprises (P.) Ltd. v. CIT

TAXMAN