Monthly Digest of Case laws (February 2011)

Compiled by: Ajay Singh, Paras Savla, Rahul Hakani, Sujeeth Karkal and Renu Choudhari, Advocates,
KSA Legal Chambers

(Journals Referred: ACAJ / BCAJ / BLR / CITC / CTR / DTR / ITD / ITR (Trib) / ITR / SOT / TTJ /
TLR / Taxman / Taxation / Tax World, www.itatonline.org)

S. 2(22)(e) : Deemed Dividend – Debenture – Loan - Investment

Debenture is a loan account and therefore, debentures subscribed by the assessee shareholder are to be
taken into account for ascertaining his indebtedness to the company vis-à-vis the loan or advance taken by
him and determining deemed dividend under section 2(22)(e).
Anil Kumar Agarwal vs. ITO (2011) 51 DTR 251 (Mum.)(Trib.)

S. 4 : Income - Capital or Revenue Receipt – Compensation - Termination from land owner

Compensation received from the land owner on termination of development agreement was the
deprivation of potential income and loss of future profits as mentioned in the settlement agreement and
not for divesting the assessee of its earning apparatus, as restrictive covenant in the said agreement only
prohibited the assessee from undertaking a similar project in the vicinity of the existing project without
consent of the land owner for the limited duration of three years, and therefore, the compensation was a
revenue receipt.
Ansal Properties & Industries Ltd. vs. CIT (2011) 238 CTR 126 (Del.)

S. 4 : Charge of Income Tax – Assessment - Law Applicable - Financial Year - Assessment Year -
(S. 143)

Unless it is made clear in an amendment as to whether it comes in to effect for the assessment year or
financial year, normally it is to be deemed that such benefit of the amendment is for the assessment year.
Mukesh C. Patel vs. CIT (2011) 238 CTR 332 (Kar.)

S. 9 : Income deemed to accrue or arise in India - Finance Act, 2010

Since by Finance Act, 2010, section 9 has been amended with effect from 1-6-1976, department was
permitted to move to High Court by way of review petition against its judgment in Jindal Thermal Power
Co. Ltd. vs. Dy. CIT (2009) 182 Taxman 252 (Kar.)
Dy. CIT vs. Jindal Thermal Power Co. Ltd. (2011) 196 Taxman 495 (SC)

S. 9(1)(i) : Income deemed to accrue or arise in India - Business Connection - Offshore supply of
equipment - International Taxation

Consideration for the offshore supply of equipment by the assessee, a Korean company, to an Indian
company cannot be deemed to have accrued or arisen in India as the terms of the agreement stipulated
transfer of title / property in the goods as soon as the goods were loaded on the ship at the port of
shipment i.e. outside India, and there is no material to show that the accrual of income from this sale was
attributable to any operations carried in India or that the PE of the assessee in India had any role to play
in the off shore supply of equipment.

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Director of Income Tax vs. LG Cable Ltd. (2011) 237 CTR 438 (Delhi)
Editorial:- LG Cable Ltd. vs. Dy. DIT (2008) 119 TTJ 34 (Del.), affirmed.

S. 9(1)(vii) : Income deemed to accrue or arise – Validity challenged - Parliament’s power to make
laws with extra - Territorial effect

The constitutional validity of section 9(1)(vii)(b) was challenged by way of an appeal to the Supreme
Court so as to determine the extent to which laws enacted by Parliament can have extra-territorial effect
under Article 245. The Constitution Bench held that Parliament is constitutionally restricted from
enacting legislation with respect to extra-territorial aspects or causes that do not have, nor expected to
have any, direct or indirect, tangible or intangible impact(s) on or effect(s) in or consequences for: (a) the
territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of
inhabitants of India, and Indians. In all other respects, Parliament may enact legislation with extra-
territorial effect. All that is required is that the connection to India be real or expected to be real, and not
illusory or fanciful. Parliament can only make laws for India and any law which has no impact on or
nexus with India would be ultra-vires.
GVK Industries Ltd. vs. ITO (SC) 5 Member Bench, Source: www.itatonline.org

S. 9(1)(vii) : Income deemed to accrue or arise in India – Royalty - Computer Software -

Copyrighted Article - Tax Deduction at Source -International Taxation – DTAA - India-USA – Art.
7 and 12 - (S. 195)

Where the payment is made in respect of the software which is granted on terms of non-exclusive,
perpetual, irrevocable, royalty free worldwide license to use the number of copies of the software
enumerated in the agreement solely for internal operation, and not directly accessible to third party could
not be considered as a “Royalty” under the Act. As the payment was “business income” of the party
receiving the payment, as that non-resident party did not have a Permanent Establishment in India and
thus as per D.T.A.A. the same cannot be taxed in India. The assessee is not liable to deduct tax at source.
Dy. DIT vs. Reliance Industries Ltd. (2011) 43 SOT 506 (Mum.)(Trib.)

S. 9(1)(vii) : Income deemed to accrue or arise in India - Fees for Technical Services - International
Taxation - DTAA - India-Denmark

Amount received by assessee, a Danish shipping company, from its agents in India towards their share of
cost of global telecommunication facility provided to the agents to enable them to have access to variety
of information regarding tracking of cargo, transportation schedule, etc., to facilitate international
shipping business being only reimbursement of cost and not involving any profit element, cannot be
considered as fees for technical services.
Dampskibsselskabet AF 1912 A/S Akties Iskabet vs. Addl. DIT (2011) 51 DTR 148 (Mum.) (Trib.)

S. 10B(6) : Exemption – Depreciation – Unabsorbed - Carry forward and set off

Unabsorbed depreciation of earlier assessment years in which no deduction was claimed under section
10B is available for set off against other taxable income of the subsequent assessment years.
Patspin India Ltd. vs. Dy. CIT (2011) 51 DTR 57 / 129 ITD 35 / 136 TTJ 377 (Cochin)(Trib.)(TM)

S. 12A : Charitable Purpose – Registration - Activity of giving micro finance and earning Interest –
[S. 2 (15), 11]

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Where an assessee is registered under section 25 of Companies Act, 1956, it in itself shows that the
company intends to apply its profit in promoting charity. And where the object of the assessee states that
it shall promote micro finance services to poor person and help them arise out of poverty, mere surplus
from such micro finance service cannot by itself be a ground to say that no charitable purpose exists.
Followed Thanthi Trust 247 ITR 785 (SC) and Agricultural produce and market committee 291 ITR 419
(Bom.)
Dish India Micro Credit vs. CIT (ITAT - Delhi) Source: www.itatonline.org

S. 14A : Business Expenditure - Exempted Income - Appellate Tribunal – Power - Applicability of

provision of section 14A for the first time before Tribunal – [S. 254(1)]

Issue of disallowance under section 14A, cannot be raised for the first time before the Tribunal where the
provision of section 14A, was not invoked against the assessee by the Assessing Officer while making
disallowance of interest expenditure under section 36(1)(iii) and CIT(A) also at no stage considered the
application of section 14A.
ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib.)

S. 14A : Business Expenditure - Exempted Income - Despite Proviso to S. 14A, disallowance can be
made for earlier years

The protection of proviso to section 14A w.r.t. A.Y. 2001-02 & earlier years was inserted w.e.f.
11/05/2001. Thus, where order of CIT under section 263 was passed earlier i.e. on 29/12/1999, the
protection under the proviso is not available.
Mahesh G. Shetty & Ors. (2011) 51 DTR 104 (Kar.) /
238 CTR 440 (Kar.)

S. 28(1) : Business Loss - Speculative Loss - Sale and purchase of Units of UTI - (S. 43(5), 70, 73)

Assessee tea plantation company purchased units of UTI on cum dividend basis shortly before declaration
of dividend and sold the same at a lower price i.e. ex-dividend immediately after receiving the dividend.
Transaction of purchase and sale of units when done as a business in a speculative manner, the loss
therefrom could be set off only against profit arising in speculation business. Assessee claimed set off of
loss from speculation business against income from tea plantation which is not admissible due to the
prohibition contained in section 73(1). However, in view of the Supreme Court decision in Appollo Tyres
Ltd. vs. CIT (2002) 255 ITR 273 (SC) assessee’s claim was sustainable.
CIT vs. Periakaramalai Tea & Produce Co. Ltd. (2011) 51 DTR 186 (Ker.)

S. 28(v) : Business Income - Method of Accounting – Enhanced Rate - Sale of Flat - (S. 4, 145)

Assessing Officer having not brought any material on record to prove that the assessee has sold the flats at
a price higher than the price recorded in the books of account, addition made by the assessing officer by
enhancing the selling rates cannot be sustained.
ACIT vs. Dharti Estate (2011) 51 DTR 28 / 129 ITD 1 / 136 TTJ 263 (Mum.)(Trib.)(TM)

S. 28(v) : Business Income - Income from Other Sources - Interest from Partnership Firm - (S . 56)

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When there is a specific provision for treating interest and salary, etc. earned by a partner of from a firm
as taxable under the head “Profits and gains or business or profession” there is no question of categorizing
it under the residual head of income.
ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib.)

S. 28(v) : Business Income – Income from waiver of loan – Capital or Revenue Receipt - Depends on
whether loan was used for Capital or Revenue purposes

It was held that income from waiver of loan depends on the purpose for which loan is taken. In case the
loan was taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible
to tax under section 28(iv) or 41(1). Whereas, if the loan was taken for a trading purpose and was treated
as such from the very beginning in the books of account, its waiver would result in income more so when
it was transferred to the P&L A/c in view of Sundaram Iyengar 222 ITR 344 (SC).
Logitronics Pvt. Ltd. vs. CIT (High Court - Delhi) (www.itatonline.org)

S. 28(va) : Business Income - Capital or Revenue - Non–compete compensation - Prior to Asst. Year
2002-03. Section 28(va) inserted w.e.f. A.Y. 2002-03, non-compete compensation is a capital receipt

The payment received as a non competition fee under a negative covenant was always treated as a capital
receipt till AY 2003-04. There is a dichotomy between receipt of compensation received for loss of
agency, which is treated as revenue receipt and receipt of compensation attributable to negative /
restrictive covenant which is treated as capital receipt. It should be noted that it is only by section 28(va)
inserted by Finance Act 2002 w.e.f. 1/4/2003, which is amendatory and not clarificatory that the said
capital receipt is now made taxable.
Guffin Chem P. Ltd. vs. CIT (Supreme Court) Source: www.itatonline.org
S. 28(vi) : Business Income - Keyman Insurance Policy – [S. 10(10D)]

Amount received on maturity of keyman insurance policy is liable to be taxed in hands of assessee for the
Asst. Year 2005-06 in view of clarificatory amendment, by the Finance (No. 2) Act, 1996, w.e.f. 1st Oct.,
1996, though policy was taken earlier.
Binjrajka Steel Tubes Ltd. vs. ACIT (2011) 50 DTR 89 / 136 TTJ 113 (Hyd.)(Trib.)

S. 28(iv) : Business Loss - Bad Debt - Claim for “Business loss” maintainable - Website
Development Expense is not Capital Expenditure – [S. 37(1)] [Rule 27 of ITAT Rules’

The assessee, engaged in investment activities, advanced Rs. 27.97 lakhs for development of a website.
As the advance was not recoverable, the assessee wrote off the amount and claimed it as a “bad debt”
even though the conditions of section 36(1)(vii) & 36(2) were not satisfied. HELD, that

(i) Though the claim as a ‘bad debt’ is not allowable, the assessee is entitled under Rule 27 to
support the CIT(A)’s order on the ground that the amount should be allowed as a ‘business loss’.
Further as the expenditure was abortive, no capital asset has in fact been acquired and even if the
website had materialized, it does not result in an advantage of an enduring nature or in the capital
field as it is only for the day-to-day running of the business and provision of information.

Dy. CIT vs. Edelweiss Capital Ltd. (ITAT - Mumbai) Source: www.itatonline.org

S. 32 : Depreciation - Asset used by the firm belong to partner - Insurance on building

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Assessee is not entitled to depreciation on factory building owned by it but used in business of firm in
which assessee was partner. Insurance charges paid on said building also not allowable.
Karan Raghav Export (P) Ltd. vs. CIT (2011) 196 Taxman 504 (Delhi)

S. 36(1)(iii) : Business Expenditure - Interest on Borrowed Capital -Investment as capital in

partnership firm

Interest paid on borrowed amount invested in as capital of partnership firm is allowable under section
36(1)(iii) and no disallowance can be made under section 14A.
ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib.)

S. 37(1) : Business Expenditure - Share of profit from firm - Exempt Income - Interest on Capital
Borrowed - [S. 10 (2A)]

Interest expenditure incurred on amount borrowed for purpose of contributing funds in form of capital in
partnership firm can be allowed against interest income received from partnership firm on credit balance
of capital.
Karan Raghav Export (P) Ltd. vs. CIT (2011) 196 Taxman 504 (Delhi)

S. 37(1) - Business Expenditure - Licence Fee - Parent Company

Licence fee paid by the assessee–company to its parent company under technical assistance agreement is
allowable business expenditure.
Dy. CIT vs. Nestle India Ltd. (2011) 7 ITR 758 (Delhi)(Trib.)

S. 37(1) : Business Expenditure - Capital or Revenue - Expenditure on production of film for

advertisement

Expenditure incurred by assessee on production of films by way of advertisement for promoting and
marketing of products manufactured by it being in respect of ongoing business of assessee is allowable as
revenue expenditure.
CIT vs. Geoffrey Manners & Co. Ltd. (2011) 238 CTR 49 (Bom.)

S. 37(1) : Business Expenditure - Expenditure on Foreign Education of managing director’s son -

Allowable

Amount spent towards educational expenses of a student, in which the assessee is carrying on its business
was allowable expenditure under section 37(1) notwithstanding the fact that the student was son of
managing director.
CIT vs. Ras Information Technologies (P) Ltd. (2011) 238 CTR 76 (Kar.)

S. 37(1) : Business Expenditure - Capital or Revenue Expenditure - Voluntary Retirement Scheme -

(S. 35DDA)

Even for the period prior to the introduction of section 35DDA, w.e.f. 1st April, 2001, the assessee was
entitled to claim deduction of expenditure incurred under VRS only in a phased manner; however, in view
of consistent views of various High Courts, the assessee had to be allowed deduction of entire
expenditure, as revenue expenditure in respect of Asst. Year 1999-2000.

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CIT vs. O.E.N. India Ltd. (2011) 238 CTR 340 (Ker.)

S. 40(a)(ia) : Amounts not deductible - Tax deduction at source – Contractor – Amendment –

Clarificatory - Tax deducted deposited before due date of filing of return

Provisions of section 40(a)(ia), as amended by the Finance Act, 2010, w.e.f. 1-4-2010, which was been
inserted by the Finance (No. 2) Act, 2004, w.e.f 1-4-2005 to section 40 of the Act is remedial in nature,
designed to eliminate unintended hardship to the tax payers and which made the provision unworkable or
unjust in a specific situation and is clarificatory in nature and, therefore, has to be treated as retrospective
with effect from 1st April 2005, the date on which section 40(a)(ia) has been inserted by the Finance Act
(No. 2) Act, 2004.
Shri Kanubhai Ramji Makwana vs. ITO (2010) TIOL 765 ITAT–Ahm. (2011) BCAJ Feb P. 21 (569)
(2011) 42-B. BCAJ

S. 40(a)(ia) : Amounts not deductible - Tax deduction at source - Interest Commission – Sub-
contractor - Freight Charges

Assessee deducted the tax at source and paid to Government beyond date stipulated in section 200 but
before the due date of filing of his return of income for the year under consideration. Finance Act 2010
had made amendments to provisions of section 40(a)(ia) as per which if tax has been deducted in relevant
previous year and same has been paid on or before due date of filing of return of income for said previous
year as specified in section 139(1), corresponding amount from which tax has been deducted shall be
allowed as deduction. Said amendment was remedial / curative in nature, it would apply respectively with
effect from 1-4-2005.
Bansal Parivahan (India) (P) Ltd. vs. ITO (2011) 43 SOT 619 (Mum.)(Trib.)

S. 40(a)(1) : Amounts not deductible - Interest - Branch of foreign Bank – Head office - Tax
deduction at source - Permanent Establishment - (S. 195)

It was held that as regards taxability in the hands of the HO & obligation for TDS under section 195, the
same was not chargeable to tax in the hands of the HO. The PE being assessable as separate legal entity
pursuant to provisions of DTAA there is no obligation to deduct tax under section 195 and consequently
no disallowance under section 40(a)(i) can be made in the hands of the branch. Thus, interest paid by a
branch of a Foreign entity to its HO is deductible in the hands of the branch. Such interest is not taxable
in the HO’s hands
ABN AMRO Bank NV vs. CIT (Calcutta High Court) Source: www.itatonline.org

Editorial: Betts Hartley Huett (1979) 116 ITR 425 (Cal.) distinguished. Hyundai Heavy Industries (2007)
291 ITR 482 (SC) & Morgan Stanley (2007) 292 ITR 416 (SC) followed

S. 40A(3) : Expenses or Payments not deductible - Block Assessment - GP – Estimated - (S. 158BC)

Section 40A(3) applies to block proceedings. It is not accepted that the provisions of block assessment are
special, and that they are a complete Code and the other provisions cannot apply. The argument that if
income is assessed by estimation on GP rate, no other disallowance can be made is not of universal
application. If expenditure which is legally not permissible has been taken into account that can certainly
be disallowed even where income is estimated.

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CIT vs. Sai Metal Works (High Court - P&H) Source: www.itatonline.org
Editorial: Suresh Gupta 297 ITR 322 (SC) & M. G. Pictures 185 CTR 185 (Mad.) followed; Cargo
Clearing Agency 218 CTR 541 (Guj.) not followed.

S. 40A(3) : Expenses or payments not deductible - Business Expenditure – Disallowance - Payment

to Government - (Rule 6DD)

Cash payments made by the assessee to the State Government who granted the contract to collect royalty
on behalf of the Government cannot be disallowed under section 40A(3) in view of Rule 6DD(b).
CIT vs. Kalyan Prasad Gupta (2011) 51 DTR 191 (Raj.)

S. 41(1) : Profits chargeable to tax – Depreciation - Balancing Charge -Benefit or Perquisite – [S.
28(iv), 41(2)]

Where the cost of assets purchased by the assessee in earlier year was reduced by the seller on settlement
of dispute benefit of depreciation obtained by the assessee in the earlier years cannot be termed as an
allowance or expenditure claimed by the assessee in the earlier years to warrant invocation of provisions
of section 41(1), or 41(2). However, Assessing Officer is directed to bring back to tax, the amount of
depreciation granted to the assessee in the earlier years on the alleged excess amount of Rs. 2 crores under
section 28(iv) and redetermine the closing WDV of the block assets in the year under consideration.
Binjarjka Steel Tubes Ltd. vs. ACIT (2011) 50 DTR 89 / 136 TTJ 113 (Hyd.)(Trib.)

S. 45 : Capital Gains - Business Income - Sale of Shares - Loan Borrowed - Interest Paid - Capital
Gains – [S. 28(iv)]

It was held that a capital investment and resale does not lose its capital nature merely because the resale
was foreseen and contemplated when the investment was made and the possibility of enhanced values
motivated the investment.
Merely because shares are purchased by taking loan at high interest does not mean gains are taxable as
business profits.
CIT vs. Niraj Amidhar Surti (Gujarat High Court) Source: www.itatonline.org

Editorial: Sutlej Cotton Mills Supply Agency Ltd 100 ITR 706 (SC) followed
S. 45 : Capital Gains - Business Income – Shares - Despite high volume & short holding period -
Shares Gain is STCG – [S. 28(iv)]

The assessee offered income by way of Long Term Capital Gain, Short Term Capital Gain, speculative
profit and profit from future trading. In such a case, where shares are held for several years and so
assessee had acted as investor and not trader, the said the gain shall be assessable as long term capital
gain. In similar manner where there is no intra-day trading, shares are held for period of 2 to 5 months and
there are no borrowings, the same shall be assessed as Long Term Capital Gain.
ACIT vs. Naishadh V. Vachharajani (ITAT - Mumbai) www.itatonline.org

S. 45(2) : Capital Gains - Capital Asset – Stock-in-trade - Valuation

When a partnership firm is dissolved and the erstwhile partner receives stock, it is a capital asset in his
hands. When that asset is introduced into a business as stock, it gets converted into stock-in-trade. The

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value of this stock will have to be the market value on the date of introduction. The same principle would
apply if the assessee used her share of the stock obtained from the dissolved firm in the new business
Madu Rani Mehra vs. CIT (Delhi High Court) Source: www.itatonline.org

S. 50B : Slump Sale - Capital Gains - Transfer of Undertaking - Non money consideration - Cost of
Acquisition not determinable – (S. 2(42C), 45)

In order to constitute a “slump sale” under section 2(42C), the transfer must be as a result of a “sale” i.e.
for a money consideration and not by way of an “Exchange”. The presence of money consideration is an
essential element in a transaction of sale. As the undertaking was transferred in consideration of shares &
bonds, it was a case of “exchange” and not “sale” and so section 2(42C) and section 50B cannot apply. As
regards taxability under section 45 & 48, the “capital asset” which was transferred was the “entire
undertaking” and not individual assets and liabilities forming part of the undertaking. In the absence of a
cost/date of acquisition, the computation & charging provisions of section 45 fail and the transaction
cannot be assessed.
Bharat Bijilee Limited vs. ACIT (Mum.)(Trib.) www.itatonline.org
Editorial: Premier Auto 264 ITR 193 (Bom) distinguished

S. 54EC : Capital Gain - Investment in certain bonds - Cheque issued within six months – Cleared
after six months

For the purpose of computation of LTCG in case of NABARD bonds which were not specified asset as
on 1/4/2006 and investment was not within 6 months of transfer. The assessee sold land on 09.08.2005
and invested in Nabard bonds which were allotted on 15.2.2006. The law has to be read as it stood on the
date of transfer of capital asset. Thus, section 54EC relief is available even though cheque was encashed
and bonds were allotted later.
Kumarpal Amrutlal Doshi vs. Dy. CIT (ITAT - Mumbai) Source: www.itatonline.org

S. 69 : Income from Undisclosed Sources - Genuineness of Sale of Shares - (S. 54F)

Purchase and sale of shares said to have been made by the assessee being the solitary transaction in shares
by him allegedly made through a broker who is not registered with the stock exchange and concerned
company as well as the said broker having denied the transaction, Assessing Officer was justified in not
accepting the said transaction as genuine by applying the test of human probabilities and treating the
impugned amount as income from undisclosed sources.
CIT vs. Hakumat Rai (2011) 237 CTR 513 (P&H)

S. 72 : Carry forward and set off of Business Loss - Dividend Income - Shares held for business

Section 72(1)(i) does not use the word “assessable under the ‘head‘ profits & gains of business”. The
answer to the question as to whether the securities formed part of the trading assets of the business and
the income there from was income from the business has to be decided on commercial principles and not
on the basis of the classification of ‘heads of income’ in section 14. Though for the purpose of
computation of the income, dividends are assessable under the head “Other Sources”, it does not cease to
be part of the income from business if the securities are part of the trading assets. Accordingly, the
assessee is eligible for set-off of dividend income as against business loss.
Gangan Trading Co. Ltd. vs. Dy. CIT (ITAT - Mumbai) www.itatonline.org

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Editorial: (Cocanada Radhaswmi Bank 57 ITR 306 (SC) & New India Investment 130 ITR 778 (Cal.)
followed).

S. 80IA(4)(iv) : Deduction - Income from Generation of Power - Captive consumption of electricity

Assessee is entitled to deduction under section 80IA in respect of notional income from generation of
electricity which was captively consumed by itself.
Tamil Nadu Petro Products Ltd. vs. ACIT (2011) 51 DTR 67 (Mad.)

S. 80IB : Deduction - Industrial Undertakings - Manufacture or Production – Job work -

Compound Rubber - Interest from Customers - Belated Payments - Business Income

Production of compound rubber on job work for the tyre manufacturing companies by the assessee
amounts to “production of an article or thing” qualifying for deduction under section 80IB. There is
nothing in section 80IB to indicate that article or thing produced or manufactured should be final product
in itself. If the interest is assessable as business income then only it qualifies for deduction under section
80IB as profit earned. In the absence of relevant details of the interest received by the assessee from the
customers for belated payment of job work charges matter remanded to the Assessing Officer for
reconsideration.
Midas Polymer Compounds (P) Ltd. vs. ACIT (2011) 237 CTR 401 / 331 ITR 68 / 50 DTR 139
(Ker.)(FB)

S. 80IB : Deduction - Industrial Undertaking - Derived from Payments Disallowed – [S. 40(a)(ia)]

Payments disallowed under section 40(a)(ia), has to be treated as part of “profits and gains of business or
profession” and therefore, the same qualifies for deduction under section 80IB.
ITO vs. Computer Force (2011) 136 TTJ 221 (Ahd.)

S. 80IB(2) : Deduction - Industrial Undertaking – Reconstruction - New Unit

Assessee having set up a new unit after closing the old unit at a new place for manufacturing new type of
telephone instruments by employing new technology in a newly constructed business premises and
making substantial investment in plant and machinery, it is not a case of splitting up of old business and
therefore claim for under section 80IB could not be disallowed on the ground that the assessee has merely
shifted its business from one place to another and not started a new business.
ITO vs. Computer Force (2011) 136 TTJ 221 (Ahd.)

S. 80IB(10) : Deduction - Housing Project - Disallowance on account of non-payment of tax

deduction at source - (S. 80AB, 40(a)(ia), 29)

Where the Assessing Officer makes additions to income of assessee under section 40(a)(ia), for non-
compliance of tax deduction at source, such additional income also should be considered for the purpose
of allowing deduction under section 80IB(10) as per section 80AB, read with section 29.

S. B. Builders & Developers vs. ITO (2011) 50 DTR 299 (Mum.)(Trib.) 136 TTJ 42
S. 80IB(10) : Deduction - Housing Project - Date of Completion

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Tribunal held that what is crucial is not the date of issue of letter by local authority, but date mentioned in
the letter certifying completion of the project. Therefore, it rejected the contention of the revenue to the
effect that the date of completion shall be taken as the date on which the certificate is physically issued by
the local authority.
D. K. Construction vs. ITO (2011) BCAJ Feb., 24 (ITAT - Indore) (572) (2011) 42 B. BCAJ)

S. 80IB(10) : Deduction - Housing Project - Pre A. Y. 05-06, a project approved as “housing project” by
local authority eligible for deduction under section 80-IB(10) irrespective of extent of commercial user
Where the legislature has provided that the deduction under section 80IB(10) is available to all housing
projects approved by a local authority, the result is that even projects with commercial user approved as a
“housing project” are eligible for deduction. Thus, the Tribunal was justified in confirming the deduction
only to projects having commercial area upto 10% of BUA. If the project is approved as a “housing
project” deduction under section 80-IB(10) is allowable irrespective of the commercial area. It was
further held that the insertion of clause (d) to section 80-IB(10) w.e.f. 1.4.2005 to deny section 80-IB(10)
deduction to projects having commercial user beyond the prescribed limits is not retrospective.
CIT vs. Brahma Associates (2011) 51 DTR 298 (Bombay High Court) Source: www.itatonline.org

S. 80IB(10) : Deduction – Housing Project – Joint Development Agreement - Owners of land

Assessee developer had entered into joint development agreement with owners of land for construction of
residential flats consisting of four wings in consideration of giving 49% of the constructed area to land
owners and all other conditions of section 80IB(10) having been found to be fulfilled, deduction under
section 80IB(10) could not be denied.
Mudhit Madanlal Gupta vs. ACIT (2011) 51 DTR 217 (Mum.)(Trib.)

S. 80HHE : Deduction – Export - Computer Software – Non-resident - Discrimination Clause -

DTAA

As per Article 26(2) of India-USA DTAA Taxation of a PE of a USA resident shall not be less favorable
than the taxation of a resident enterprise carrying on the same activities. Thus exemptions and deductions
available to Indian enterprises would also be granted to the US enterprises if they are carrying on the
same activities. Therefore, assessee was entitled to section 80HHE deduction as admissible to a resident
assessee.

Further where the provisions contained in the DTAA are capable of clear and unambiguous interpretation,
it is not necessary to refer to the commentary on the OECD Model Convention, the US Technical
Explanation or decisions of any foreign jurisdiction.

Rajeev Sureshbhai Gajwani vs. ACIT (ITAT - Ahmedabad) (SB) Source: www.itatonline.org
Editorial: (Automated Securities Clearance Inc. vs. ITO 118 TTJ 619 (Pune) reversed; Metchem
Canada Inc. vs. Dy. CIT 99 TTJ 702 (Mum.) referred to); (CIT vs. PVAL Kulandagan Chettiar 267
ITR 654 (SC) followed).

S. 91 : Double Taxation Relief - Countries with no agreement exists - Federal Taxes - Foreign State
– DTAA - Tax Credit

The view that State taxes cannot be allowed as a deduction and also cannot be taken into account for
giving credit is incongruous and results in a contradiction. While section 91 allows credit for Federal &

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State Taxes, the DTAA allows credit only for Federal Taxes. The result is that the section 91 is more
beneficial to the assessee & by virtue of section 90(2) it must prevail over the DTAA. Though section 91
applies only to a case where there is no DTAA, a literal interpretation will result in a situation where an
assessee will be worse off as a result of the provisions of the DTAA which is not permissible under the
Act. Section 91 must consequently be treated as general in application and must prevail where the DTAA
is not more beneficial to the assessee. Accordingly, even an assessee covered by the scope of the DTAA
will be eligible for credit of State taxes under section 91 despite the DTAA not providing for the same.
Tata Sons Ltd. vs. Dy. CIT (ITAT - Mumbai) Source: www.itatonline.org

S. 92C : Avoidance of Tax - Transfer Pricing – Computation - Arm’s Length Price - Choice of
Method - International Taxation

Choice of method of determination of ALP is not an unaffected choice on the part of the tax payer and
this choice has to be exercised on the touch stone of principles governing selection of most appropriate
method set out in section 92C(1). Where the Assessing Officer finds that selection of most appropriate
method is not correct, he has the powers as well as corresponding duty to select the most appropriate
method and compute the ALP by applying that method.
Serdia Pharmaceuticals (India) (P) Ltd. vs. ACIT (2011) 50 DTR 98 / 136 TTJ 129 (Mum.)(Trib.)

S. 92CA: Avoidance of Tax - Transfer Pricing – Computation – Arm’s Length Price -

Reimbursement of Expenses - International Taxation

Payment received by the assessee company from its AE / parent company was in the nature of
reimbursement of incentives paid to the employees of the assessee and it did not have any element of
income and therefore, no adjustment could be made in the computation of ALP by notionally imputing a
mark up on that amount, more so when no such adjustment has been made in the earlier or subsequent
years wherein also similar incentives were paid and the facts were identical.
Aricent Technologies (Holdings) Ltd. vs. Dy. CIT (2011) 51 DTR 17 (Delhi)(Trib.)

S. 92C : Avoidance of Tax - Transfer Pricing - International Taxation - Selection of Comparables -

(S. 144C)

Unless the functional profiles of assessee company are examined minutely and in detail, it is very difficult
to say that the assessee is engaged in the business of software development as decided by TPO and not in
the business of rendering support in respect of engineering designs and drawings as claimed by the
assessee. Further DRP has neither examined assessee’s contention nor passed speaking and reasoned
order. Matter is remanded back to the file of the AO / TPO for fresh adjudication.
Bechtel India (P) Ltd. vs. Dy. CIT (2011) 136 TTJ 212 (Delhi)(Trib.)

S. 92(C)(2) : Avoidance of Tax - Transfer Pricing – Computation - Arm’s Length Price -

International Taxation

Where only one price has been determined under “most appropriate method” for evaluation of ALP, the
question of application of proviso to section 92C(2) does not arise, therefore, assessee was not entitled to
the concession of 5 percent as prescribed in the said proviso.
ACIT vs. Essar Steel Ltd. (2011) 51 DTR 177 / 136 TTJ 470 (Visakha)(Trib.)

S. 92(C) : Avoidance of Tax - Transfer Pricing – Method - CUP Method –TNMM

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The assessee sold automobile wipers to its associated enterprise and claimed that as per the “Comparable
Uncontrolled Price” (CUP) method, the transactions were at arms’ length basis. The TPO rejected the
CUP method on the basis that the comparability of controlled and uncontrolled transactions was not
established with certain degree of reasonableness and accuracy and that the conditions prevailing in the
market were not established to be identical. The TPO adopted the TNMM and directed that an adjustment
be made by adopting the mean profit of comparables. This was confirmed by the DRP. On appeal, HELD:

(i) Under section 92C read with Rule 10B, the most appropriate method has to be applied for
determination of arm’s length price. In principle, the CUP method (the traditional transaction
method) is preferable to the other methods because all other things being equal, the CUP and
traditional transactional methods lead to more reliable results vis-à-vis the results obtained by
applying transaction profit method.
(ii) For the CUP method, the focus is on the market in which the products are sold by the assessee
and any unique feature of the market in which assessee is situated is of no importance in relative
terms. As the goods were sold by the assessee as well as the competitive Chinese manufacturers
in the USA market, the market conditions in the territory of sale were the same. The buyer in the
USA market will be more concerned with quality and price rather than economic conditions
prevailing in China and India.
(iii) As regards the comparability of the products the assessee has to provide the sale data of the AE
in terms of sale price of Chinese and assessee’s goods in the USA market and quantitative data
of purchase of Chinese and Indian wipers by the AE and the terms of payment and the
Assessing Officer shall compute the arm’s length price using this data on CUP method.

Clear Plus India Pvt. Ltd. vs. Dy. CIT (ITAT - Delhi) Source: www.itatonline.org

Editorial: (UCB India 121 ITD 131 and Serdia Pharmaceuticals followed); (SNF (Australia) Pty. Ltd.
vs. COT (2010) FCA 635 referred to);

S. 115J : Company - Book Profit - Zero Tax Companies

For the Asst. Year 1988-89, there was no provision in section 115J to compute book profit as per account
prepared in a particular manner and therefore, it was open to assessee to compute book profit either on
basis of profit and loss account prepared under provisions of part II and part III of schedule VI of
Companies Act, or as per annual accounts placed before AGM. However, after insertion of sub-section
(1A) in section 115J from assessment year 1990-91, accounts for the purpose of book profit have to be
prepared as per Part II and Part III of Schedule VI of Companies Act.
Dy. CIT vs. Anagram Finance Ltd. (2011) 43 SOT 433 (Mum.)

S. 115JA : Company - Book Profits – Export - Set off of carried forward business loss and
unabsorbed business loss - Negative Income - (S. 80AB, 80AB(5), 80HHC, 115JB)

The assessee is entitled to deduction under section 80HHC computed in accordance with sub-section
(3)(3A) of 80HHC because assessment under section 115JB is only an alternative scheme of assessment
and what is clear from clause (iv) of the Explanation there to is that even in the alternative scheme of
assessment under section 115JB, the assessee is entitled to deduction of export profit under section
80HHC. In other words, the export profit eligible for deduction under section 80HHC is allowable under
both schemes of assessment. The restriction contained in section 80AB or section 80B(5) cannot be
applied in as much as carried forward business loss or depreciation should not be first set off leaving the

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gross total income at nil, which would disentitle the assessee for deduction under other provisions of
Chapter VIA-C, which includes section 80HHC also. There is no provision in section 80HHC to
determine the export profit with reference the profit and loss account maintained under companies Act,
Therefore, the assessee would be entitled to deduction of export profit under section 80HHC and the relief
is to be granted in terms of sub-section (3) and 3(A) of that section.

CIT vs. Packworth Udyog Ltd. (2011) 331 ITR 416 (Ker.)(FB) / 51 DTR 251 (Ker)(FB)/ Kerala
Chemicals and Proteins Ltd. (2011) 331 ITR 416 (Ker.)(FB) / 51 DTR 251 (Ker)(FB)/ G.T.N.
Industries Ltd. (2011) 331 ITR 416 (Ker.)(FB) / 51 DTR 251 (Ker)(FB)

S. 132(1) : Search and Seizure – Authorisation - Warrant in joint names -Validity

What is required to be stated in search warrant is precise details about the assessee and the persons to be
searched which contained in the warrants issued in these cases. The warrants authorizing search of a
group of concerns by a warrant issued under section 132 is valid.
Jose Cyriac vs. CIT (2011) 238 CTR 207 / 50 DTR 292 (Ker.)

S. 133A: Survey - Unexplained Investment - Reports of Facts - Explanation and Reconciliation - (S.
69)

The reports of facts collected at time of survey are always subject to explanation and reconciliation by
assessee which can be explained either at the time of survey or after survey before Assessing Officer at
the time of assessment, therefore, merely on the basis of that some differences were found at the time of
survey in stock addition cannot be made automatic.
Chawala Brothers (P) Ltd. vs. ACIT (2011) 43 SOT 651 (Mum.)(Trib.)

S. 139 : Return - Revised Return - Amalgamation of Companies – BIFR - Unabsorbed Business

Loss - Sick Company - The Sick Industrial Companies (Special Provisions) Act, 1985 - (S. 72A, 80)

BIFR can specify date from which its scheme becomes effective. Amalgamation in January 1994, Scheme
sanctioned by BIFR with effect from February 1, 1992. The assessee filed revised return on 31-3-1994,
claiming unabsorbed business loss of sick company. Return held to be valid. Special provisions of the Act
has overriding effect over Income Tax Act.

CIT vs. J. K. Corporation Ltd. (2011) 331 ITR 303 (Cal.)

S. 143(3) : Assessment - Ad hoc Disallowance - Business Expenditure

Ad hoc disallowance without any basis out of carriage, labour and sealing expenses cannot be sustained
particularly when the Tribunal has allowed similar expenses in totality in an earlier year.
Friends Clearing Agency (P) Ltd. vs. CIT (2011) 237 CTR 464 (Delhi)

S. 144C : Dispute Resolution Panel - Transfer Pricing - Order cannot be passed if no transfer
pricing adjustments made by TPO - (S. 92CA)

Where no transfer pricing adjustments had been made by the TPO, the assessee was not an “eligible
assessee” and the Assessing Officer had no jurisdiction to pass the draft assessment order.
Pankaj Extraction Ltd. vs. ACIT (Gujarat High Court) Source: www.itatonline.org

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S. 145 : Method of Accounts - Valuation of Stock - Completion of Contract Method - Work in

progress

Assessee having followed percentage completion method consistently which has been accepted in earlier
as well as in subsequent years valuation of closing work in progress made by it at historical cost cannot be
disturbed particularly when the categorical findings of the CIT(A) highlighting that the assessee has not
deviated from the guidelines issued by the ICICI under AS-7 has not been challenged by the revenue.
Addition made by the Assessing Officer by reworking the closing work in progress at current rates rightly
deleted.
ACIT vs. Dharti Estate (2011) 51 DTR 28 / 129 ITD 1 / 136 TTJ 263 (Mum.)(Trib.)(TM)

S. 147 : Reassessment – Scope - Items unconnected with escapement for which notice was issued -
(S. 148)

If in the course of reassessment, it comes to the notice of the Assessing Officer that any item or items
other than the item of escaped income for which original assessment was reopened, have also escaped
assessment, he is bound to assess such items of income also in the course of reassessment.
CIT vs. Best Wood Industries & Saw Mills (2011) 237 CTR 404 / 331 ITR 63 / 50 DTR 143 (Ker.)(FB)

S. 147 : Reassessment - Full and True Disclosure - After Four Years –Deduction - Captive Power
Plant - Expansion of Project - (S. 80IA, 80IB)

Assessee having claimed deduction under section 80IA, in respect of the profits made by its captive
power plant disclosing the computation of profits and explaining the break up thereof and disclosed the
basis on which it was claimed deduction under section 80IB, in respect of the refinery expansion project
and lube unit, it cannot be said that there was a failure on the part of the assessee to disclose fully all
material facts necessary for the assessment and therefore reopening of assessment beyond the period of
four years from the end of the relevant year was not justified.
Hindustan Petroleum Corporation Ltd. vs. Dy. CIT (2011) 238 CTR 28 (Bom.)

S. 147 : Reassessment - Full and true disclosure - After four years - Change of Opinion

Assessing Officer having reopened the assessment on the sole basis that the system of accounting adopted
by the assessee which has been accepted while framing the original assessment is not appropriate, without
making any allegation that there was non–disclosure of material facts by the assessee at that time of
original assessment. It is a case of mere change of opinion and therefore, reopening of assessment after
expiry of four years from the end of the relevant assessment years was not valid.
CIT vs. Manish Ajmera (2011) 51 DTR 117 (Raj.)

S. 147 : Reassessment - Reopening For A.Y. 2000-01 valid despite Proviso to section 14A - Material
facts must be disclosed during assessment proceedings

The Proviso to section 14A bars reassessment but not original assessment on the basis of the retrospective
amendment. The object and purpose of the Proviso is to ensure that the retrospective amendment is not
made as a tool to reopen past cases which have attained finality.

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It is the duty of the assessee to bring to the notice of the Assessing Officer particular items in the books of
account or portions of documents which are relevant. Material facts are those facts which if taken into
accounts they would have an adverse affect on assessee by the higher assessment of income than the one
actually made.

Accordingly, the fact that there were section 154 proceedings is not a bar to the section 147 proceedings.
It was further held that the scope of section 154 & 147 / 148 are different and it cannot be said as a
general principle that if notice under section 154 is issued, then notice under section 147 / 148 is barred or
prohibited.

Honda Siel Power Products Ltd. vs. Dy. CIT (Delhi High Court) Source: www.itatonline.org
Editorial: (Consolidated Photo 281 ITR 394 (Del.) followed); (Hindustan Unilever Ltd. 325 ITR 102
(Bom.) distinguished).

S. 147 : Reassessment - Non issue of Notice - [S. 143(2)]

It is mandatory not merely procedural for the Assessing Officer to issue notice under section 143(2). If the
notice is not served within the prescribed period, the assessment order is invalid.
UKT Software Technologies vs. ITO (ITAT - Delhi) Source: www.itatonline.org

Editorial: (Pawan Gupta 318 ITR 322 (Del.), Hotel Blue Moon 321 ITR 362 (SC) & C. Palaniappan
284 ITR 257 (Mad.) followed).

S. 148 : Reassessment - Service of Notice - Second Notice - Validity of Assessment - Limitation from
first notice

It was held that first notice sent by speed post as permitted by section 282 is presumed to have been duly
served upon the assessee and was valid. As the first section 148 notice was valid and reassessment
proceedings were pending, the second section 148 notice is not an irregularity but a nullity. (Ranchhodas
Karsandas 26 ITR 105 (SC) and Jai Dev Jain 227 ITR 301 (Raj.) followed. Thus, the limitation period
reckoned with reference to the first notice.

Sanjay Kumar Garg vs. ACIT (ITAT - Delhi) Source: www.itatonline.org

S. 148 : Reassessment - Sanction of Commissioner - Application of Mind - (S. 151)

A material fact which is not in existence right up to the time of assessment cannot possibly be disclosed.
Therefore, a fact which comes into existence subsequent to the making of the assessment cannot be a
material fact within the purview of section 147. The duty to disclose material facts necessarily postulates
existence of a thing or material. If a material is not in existence or if a material is such of which the
assessee had no knowledge there would be no duty to disclose such material.

The Central India Electric Supply Co. Ltd. vs. ITO (Delhi High Court) Source: www.itatonline.org
Editorial: (Tirath Ram Ahuja (HUF) 306 ITR 173 (Del.) followed);

S. 148 : Reopening of Assessment – Notice - AO entitled to drop notice issued under section 154 &
issue notice under section 148 - (S. 154)

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Though the principle of constructive res judicata was made applicable by the Madras High Court in EID
Parry 216 ITR 489 (Mad.) that the Assessing Officer having initiated rectification proceedings under
section 154 should stick to the same only and cannot drop that and proceed under section 147 is not
acceptable. But the fact that the Assessing Officer invoked section 154 and dropped it does not affect the
validity of re-assessment under section 147.
CIT vs. India Sea Foods (High Court Kerala) Source: www.itatonline.org

S. 154(7) : Rectification of Mistake - Notice of Demand - Limitation

Order under section 154 purported to have been passed on 24th January 2000, and the consequential
calculation of tax payable in Form No. ITNS -150 having been served on the assessee on 24th May 2005
and 6th June, 2005, respectively i.e. After expiry of limitation under section 154(7), it cannot be accepted
that the order was in fact passed on 24th January 2000, especially when no notice of demand was issued
and no recovery proceedings were initiated.
V. B. Desai Financial Services Ltd. vs. Dy. CIT (2011) 51 DTR 205 (Mum.)(Trib.)

S. 158BC : Block Assessment - Search and Seizure – Depreciation -(S. 158BH)

Section 158BH, makes all other provisions applicable to the assessment under. Chapter XIV-B, unless it
is otherwise provided for, therefore even in block assessment, the Assessing Officer must allow the claim
of the assessee for the depreciation which is legally permitted under the provisions of the Act.
CIT vs. C. Sabira (Smt.) (2011) 237 CTR 477 (Ker.)

S. 158BC : Block Assessment - Search and Seizure - Computation of Undisclosed Income - Set off of
excess income

Assessee is not entitled to set off of excess income disclosed in a particular year falling within the block
period against the undisclosed income of subsequent year falling within the same block period.
CIT vs. Kamala Devi Jain (2011) 51 DTR 70 / 238 CTR 328 (Guj.)

S. 158BD : Block Assessment - Search and Seizure - Undisclosed Income of any other person -
Recording of Satisfaction

Assessing Officer of searched person, having nowhere recorded any satisfaction that the assessees’
income of the relevant block period had escaped assessment nor forwarded the records of the case to the
assessees’, Assessing Officer proceedings under section 158BD against the assessee were rightly set
aside.
CIT vs. Sunil Bhala (2011) 238 CTR 18 (Delhi)

S. 194E : Payments to non-resident sports men or sports associations - Tax deduction at source - (S.
115BBA)

Once income accrues to a non resident sports man or sports association on fulfillment of the condition as
mentioned in section 115BBA, then the statutory obligation of the payer under section 194E comes into
play irrespective of taxability thereof, payments including guarantee money made by the assessee a
committee formed by three host members of World Cup Cricket, 1996 for the purpose of conducting the
tournament to ICC as well as to cricket control boards / associations of member countries of ICC in
relation to matches played in India were liable to TDS under section 194E read with section 115BBA.

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PILCOM vs. CIT (2011) 51 DTR 147 (Cal.) 238 CTR 387

S. 250(5) : Appeal - CIT(A) – Powers - Validity of Assessment - Second round of appeal - Search
and Seizure

Assessee having not chosen to challenge the validity of assessments on the allegation of defect or
irregularity in the warrant issued either before the Assessing Officer or in the first round of appeals and
raised the contention after remand before the CIT(A) for the first time, is not permissible.
Jose Cyriac vs. CIT (2011) 238 CTR 207 / 50 DTR 292 (Ker.)

S. 254(1) : Appellate Tribunal – Power - Applicability of provision of section 14A for the first time
before Tribunal - (S. 14A)

Issue of disallowance under section 14A, cannot be raised for the first time before the Tribunal where the
provision of section 14A, was not invoked against the assessee by the Assessing Officer while making
disallowance of interest expenditure under section 36(1)(iii) and CIT(A ) also at no stage considered the
application of section 14A.
ACIT vs. Delite Enterprises (P) Ltd. (2011) 135 TTJ 663 / 50 DTR 193 (Mum.)(Trib)

S. 254(1) : Appellate Tribunal – Recovery - Stay - (S. 220)

Besides considerations like existence of strong prima facie case, financial constraints of the applicant are
important, even if not sole or qualifying consideration in entertaining a stay application, and therefore
stay granted to the assessee subject to certain conditions.
KEC International Ltd. vs. Addl. CIT (2011) 136 TTJ 60 (Mum.)

S. 254(1) : Appellate Tribunal – Precedent - Decision of Co-ordinate Bench

When the issue is already covered by an earlier order of Tribunal, that too in assesse’s own case, a co-
ordinate bench of Tribunal should not differ the earlier decision of the bench simply for the reason that a
contrary view is possible.
Patspin India Ltd. vs. Dy. CIT (2011) 51 DTR 57 / 129 ITD 35 / 136 TTJ 377 (Cochin)(Trib.)(TM)

S. 254(2) : Appellate Tribunal - Rectification of Mistake - Mistake in order passed under section
254(2), cannot be rectified

The miscellaneous application filed by the assessee against earlier order passed under section 254(2) is
not maintainable only course open to the assessee is to file an appeal against the said order.
Padma Prakash (HUF) vs. ITO (2011) 51 DTR 1 / 136 TTJ 257 / 8 ITR 135 (Delhi)(Trib.)(SB)

S. 254(2) : Appellate – Tribunal - Rectification of Mistake - Power to Review - Additional Evidence

Once the Tribunal has disposed the appeal on merits, it cannot review its order and therefore,
miscellaneous application filed by the assessee seeking modification of the order of Tribunal so as to
admit more additional evidence than that permitted by the order was rightly rejected by the Tribunal.
Indrakumar Patodia vs. ITO (2011) 51 DTR 183 / 238 CTR 437 (Bom.)

S. 260A : Appeal – Monetary Limit - CBDT Circular - Filing Appeals - Pending Appeals

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The Department filed an appeal in the year 2008 where the tax effect was less than Rs. 10 lakhs. The
question arose whether in view of Instruction No. 3/2011 Dated 9-2-2011 the appeal was maintainable.
HELD dismissing the appeal:

In view of CIT vs. P. S. Jain & Co. which followed Pithwa Engineering 276 ITR 519 (Bom.) & Ashok
Patel 317 ITR 386 (MP) and where it was held that the CBDT Circular imposing limits on the filing of
appeals by the department applied to pending appeals, Instruction No. 3/2011 Dated 9-2-2011 also
applied to pending appeals and as the tax effect was less than Rs. 10 lakhs, the appeal was not
maintainable.

CIT vs. Delhi Race Club Ltd. (Delhi High Court) Source: www.itatonline.org

S. 260A : Appeal - Monetary Limit - CBDT Circular - Pending Appeal

Circular dated 15.5.2008 laying down monetary limit controls the filing of the appeals and not their
hearing. Appeals filed as per applicable limit at the time of filing cannot be governed by circular
applicable at the time of hearing. The object of the Circular u/s 268A is only to govern monetary limit for
filing of the appeals. There is no scope for reading the circular as being applicable to pending appeals.
[Abhinav Gupta 41 DTR 129 (P&H) (FB) reversed]
CIT vs. Varinder Construction Co. (2011) 51 DTR 290 (P&H) (FB) /

S. 260A : Appeal - High Court - Substantial Question of Law - Cash Credit - (S. 68)

It is manifest from a bare reading of section 260A of the Income Tax Act, 1961, that an appeal to High
Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where
the High Court comes to the conclusion that a substantial question of law arises from the order of
Tribunal, it is mandatory that such questions must be formulated. A finding of fact may give rise to a
substantial question of law, inter alia, in the event the findings are based on no evidence and / or while
arriving at the said finding, relevant evidence has been taken into consideration or legal principles have
not been applied in appreciating the evidence, or when the evidence has been misread. On the facts the
Tribunal has given a finding that the assessee has failed to prove the source of cash credit satisfactorily
hence, the no question of law arise from the order.
Vijay Kumar Talwar vs. CIT (2011) 330 ITR 1 (SC)

S. 263 : Revision of Orders prejudicial to Revenue – Depreciation – Goodwill - (S. 32)

Assessing Officer allowed depreciation on goodwill treating the same as intangible asset. Commissioner
revised the order, the Tribunal quashed the order of revision. The Court held that where two views are
possible and the assessing officer accepting one view which is plausible one, not appropriate to exercise
power under section 263.
CIT vs. Hindustan Coca Cola Beverages P. Ltd (2011) 331 ITR 192 / 238 CTR 1 (Delhi)

Editorial:- Refer Hindustan Coca Cola Beverages (P) Ltd. vs. Dy. CIT (2010) 132 TTJ 602 (Delhi)

S. 263 : Revision of orders prejudicial to Revenue - Exempted Income - Proviso to section 14A -

Law on the passing of the order under section 263 has to be considered - (S. 14A)

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Proviso to section 14A did not apply to the facts of the case as on date of orders of CIT under section 263
(29th December 1999), said proviso was not even existence, CIT was justified in revising the order of
Assessing Officer and in directing him to compute the interest payable on such sum which has been
invested in the partnership firm (Which was erroneously allowed by him earlier) and disallow those
portions which can be attributable towards investment in partnership.

Mahesh G. Shetty & Ors. vs. CIT (2011) 51 DTR 104 (Kar.) 238 CTR 440

GENERAL

Transfer Pricing - Australian Tax Office Ruling on Transfer Pricing Implications

The Australian Taxation Office has issued a ‘Taxation Ruling’ dated 9.2.2011 in which it has discussed
the application of the transfer pricing provisions to business restructuring by multinational
enterprises.

The Ruling considers situations where such transfers occur between MNE members to implement
changes in the MNE’s existing business arrangements or operations. Common examples are product
supply chain restructurings involving conversion of a distributor into a sales agency arrangement or of a
manufacturer into a provider of manufacturing services. Business restructurings also commonly involve
the transfer of the ownership and management of intangibles such as patents, trademarks and brand
names.

The Ruling explains the following process for setting or reviewing transfer pricing

Step 1: Characterize the international dealings between the associated enterprises in the context of the
taxpayer’s business
Step 2: Select the most appropriate transfer pricing methodology or methodologies
Step 3: Apply the most appropriate method and determine an arm’s length outcome
The Ruling refers extensively to the “Transfer Pricing Guidelines for Multinational Enterprises and
Tax Administrations (OECD Guidelines)”.

The Ruling also gives practical examples to explain the transfer pricing law. Source:
www.itatonline.org

Appeal - Inter Departmental Litigation - Public Sector Undertakings - Clearance from Committee
on Disputes - Supreme Court recalls law requiring PSUs to obtain COD approval

Larger Bench of Supreme Court recalled its order laid down in ONGC vs. CCE 104 CTR (SC) 31 and
ONGC vs. CIDCO (2007) 7 SCC 39, that no litigation could be proceeded with in the absence of COD
approval in case of dispute between Government and PSUs. It was held that the mechanism was set up
with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of
revenue. Thus, in view of the said circumstances it was decided by Larger Bench to recall the directions
of this Court.

Electronics Corporation of India Ltd. vs. UOI / CCE vs. Bharat Petroleum Corpn. Ltd. (2011) 51 DTR
193 / 238 CTR 353 (SC) (5 Member Bench)

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Transfer Pricing – Holding and Subsidiary Co. - Canada Court Ruling – “Implicit support” by
holding company to subsidiary to be considered in determining “arms length” price
In determining the arms length price, all economically relevant factors (including the “implicit support”
that the subsidiary enjoys from the holding company) have to be considered. The explicit guarantee by the
holding company also has a value to the subsidiary. The “yield method” can be adopted which requires a
comparison between the credit rating which an arm’s length party, in the same circumstances as the
assessee, would have obtained and the credit rating which would have been obtained without the explicit
guarantee.

The Queen vs. General Electric Capital Canada Inc. Source: www.itatonline.org

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute
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