Case Laws – Income Tax

If nothing was brought on record to substantiate that any contribution towards purchase of house was made by any person other than the assessee, entire investment was made by assessee and instalments of loan were also paid by him, the income / loss from the house property was to be allowed to the assessee only

ITAT Delhi in the case of Sh. Ankit Mittal versus ITO in ITA No. 1511/Del/2016 dated 23.08.2016

  • In this case, assessee claimed loss from house property on the property which was in joint name of the assessee and his wife having 50% share each.
  • It was submitted by the assessee that all the instalments of housing loan were paid by him out of his taxable income and the property was purchased in joint name for family safety purposes.
  • However, the AO restricted the loss claimed by the assessee to 50% and the balance was disallowed.
  • The Tribunal observed that nothing was brought on record to substantiate that the wife of the assessee made any contribution towards purchase of the house. Furthermore, the claim of the assessee that entire investment was made by him was not rebutted.
  • Therefore, the Tribunal held that if loss from house property was there, the benefit was to be given towards that loss to the assessee only, since the house was shown by the assessee in joint ownership with his wife for safety purposes.

Where the assessing officer has acted in a mechanical manner on the receipt of report from the Investigation Wing and has not even satisfied himself to prima facie make out that income has escaped assessment, the initiation of proceedings u/s 147 of the Act is not sustainable

ITAT Delhi in the case of ITO versus Navodaya Castles Pvt. Ltd. in ITA No. 4613/Del/2010 dated 24.08.2016

  • In this case, on the basis of material placed before the AO, the AO came to a conclusion that the assessee has failed to disclose fully and truly all material facts relating to the income of Rs.54,00,000/- received on account of share application money.
  • In the first round of appeal, the CIT(A) deleted the addition. Thereafter, the revenue as well as the assessee challenged the order of the CIT(A) before the Tribunal. The Tribunal dismissed the appeal of the revenue on merits and the cross objection filed by the assessee as infructuous.
  • Revenue challenged the order passed by the Tribunal before the Hon’ble jurisdictional High Court, which has remitted the case back to the Tribunal to decide the issue afresh, along with cross objection.
  • The sole question for determination framed by the Tribunal in this case was as to whether the AO is empowered to initiate the proceedings u/s 147 of the Act, merely on the basis of report received from the Investigation Wing, without applying his own mind.
  • The Tribunal, after considering the facts and circumstances of the case and the settled principles of law, was of the view that:

(i)        the AO has merely acted in mechanical manner on receipt of the report from the Investigation Wing that “he has reason to believe that income of Rs.54,00,000/- has escaped assessment for the assessment year 2002-03 due to failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment”;

(ii)       the AO has not even satisfied himself to prima facie make out that income of Rs.54,00,000/- has escaped assessment in the year under assessment by pursuing record, if any;

(iii)      that when the AO has been provided with copies of share application forms containing names, addresses, PAN, bank details and confirmation of the investors, he was required to conduct the independent investigation to satisfy himself that such and such income has escaped assessment before assuming jurisdiction u/s 147 of the Act;

(iv)     that even on merits when the assessee had provided copies of share application forms containing names, addresses, PAN, bank details and confirmation of the investors, the onus stood shifted to the AO to prove that these are the shell companies and not to fasten the liability of the assessee on the ground that assessee has failed to produce the aforesaid six investor companies, moreso assessee cannot be called upon to prove negative;

(v)      that forming an opinion merely on the basis of information supplied by Investigation Wing of the revenue that such and such company has provided an accommodation entries to the assessee to the tune of Rs.54,00,000/- does not amount to the satisfaction of the AO in any manner whatsoever to reopen the case u/s 147 of the Act;

(vi)     that when the AO has sufficient material to conduct the independent investigation to assume the jurisdiction u/s 147/148 of the Act, which he has not used for the reasons best known to him rather proceeded on the basis of report of Investigation Wing without applying his mind, which is not permissible under law;

(vii)    that in view of the law laid down by the Hon’ble Supreme Court and Hon’ble jurisdictional High Court in the judgment cited as Chhugamal Rajpal vs. S.P. Chaliha and G & G Pharma India Ltd.(supra) respectively when the initiation of proceedings u/s 147 of the Act in this case is itself bad in law, consequent assessment framed u/s 143(3)/147 of the Act is also not sustainable, hence hereby quashed.

Where the assessee company paid professional consultancy management fee for support services provided by its AE, and proves that the charges were paid in respect of services availed from the AE which were actual expenditure incurred by the AE; no adjustment on account of arm’s length price could be made

ITAT Delhi in the case of Knorr Bremse India Pvt. Ltd. versus ACIT in ITA No. 5886/Del/2012 dated 23.08.2016

  • The appellant assessee made payment to its AE for the services on account of professional management fee for support services. The TPO proposed adjustment on account of arm’s length price in professional consultancy and management fee.
  • The claim of the appellant assessee was that the service charges were paid in respect of services availed from the AE which were the actual expenditure incurred by the AE and no element of profit was involved in the said payment. Assessee company, in this regard, furnished various details relating to segmental account, details of recovery of expenses, valuation of capital assets purchased from the AE, justification of technical assistance service, management and other service and professional consultancy services.
  • The Hon’ble Tribunal considered the fact that the export of the assessee increased by 59% during the year under consideration. The Tribunal further observed the fact that the ratio of increase in the export was much higher than the amount of services availed by the assessee from its AE.
  • The Tribunal further held that the transfer pricing provisions can be inferred only if there is a related party payment, but in the present case, the expenses incurred by the assessee were paid to the third party employees, although those employees were the employees of the AE. In the instant case, the assessee was in need of employees which were provided by its AEs, without any charge of profit accruing to the AE itself. In the present case, the TPO was unable to provide any cogent reason for the determination of arm’s length value of professional consultancy at Nil. On the contrary, the assessee explained the benefits received by it on account of the services received from AE.
  • As regards the applicability of TNMM, the Tribunal observed that the assessee rightly applied the TNMM method as most appropriate method because it was difficult to apply the CUP method or the cost plus method. Therefore, the TNMM was the most appropriate method in the absence of a CUP which is applicable where the nature of the activities involved, assets used, and risk assumed are comparable to those undertaken by an independent enterprise.

Surcharge and Education Cess not to be considered to be included in the word ‘tax’ for the purpose of examining the tax effect involved in an appeal

Dome Bell Electronics India Ltd. versus DIT – Mumbai ITAT

In this case, it was brought to the notice that the tax effect is for Rs.9,35,762/-, and therefore, the appeal was not maintainable in view of CBDT Circular No. 21/2015 dated 10.12.2015. But, it was also submitted that on the amount of tax, amounts of surcharge and education cess were also payable amounting to Rs.93,576/- and Rs.30,880/- respectively, however, the surcharge and education cess are not to be considered for the calculation of tax effect. The Hon’ble Tribunal, after considering the decision of Hon’ble Chennai Bench in the case of ACIT vs. Shri R. Viswanathan, agreed with the view that surcharge and education cess shall not be included in the word ‘tax’ for the purpose of examining of tax effect, as envisaged in CBDT Circular No. 21/2015 dated 10.12.2015.

Travelling expenses having direct linkage with the transfer of property is an allowable deduction under section 48(i) of the Act

Smt. Annu Tribhuvan Khandelwal versus Addl. CIT – Jaipur ITAT

The appellant, living in Japan had filed her return of income in the status of an NRI disclosing the capital gains on sale of a property. She had travelled to India from Japan on number of occasions in connection with transfer of the subject property. The detailed breakup of such visits in terms of travel dates, purpose and place of visits had been submitted during the course of assessment proceedings and was on record. The appellant had also submitted that she had to meet her advisors and prospective buyers from time to time requiring her to travel. Being the co-owner and holding 1/3rd share in the property, she was present in India to execute various documents such as execution of MOU, conveyance deed, sale deed etc. The necessity of her presence in India and execution of the various documents related to sale of the property were not disputed by the lower authorities. It was, thus, seen that the appellant had proved the direct linkage / nexus between her travel to India and the corresponding travel expenditure with the transfer of the property, capital gains arising out of which have been duly offered to tax. The Hon’ble Tribunal, therefore, deleted the disallowance of the travelling expenditure and held the same as an allowable deduction under section 48(i) of the Act.

As the words “derived from” are absent in section 80IA(2A), there is no requirement to prove “first degree nexus” of the receipts with the eligible business. All receipts of the undertaking are eligible for 100% deduction

High Court of Delhi in the case of Pr. CIT versus Bharat Sanchar Nigam Ltd. in ITA No. 476-479, 481-483 and 490 of 2016 dated 01.08.2016

  • In these cases, the common question that was sought to be urged in all these appeals by the Revenue was whether the ITAT had erred in interpreting Section 80-IA(2A) of the Income Tax Act, 1961.
  • The Revenue was aggrieved by the decision of the ITAT that the first degree nexus implicit in the words “derived from” used in section 80IA is not required for computation of deduction in the case of an undertaking engaged in providing telecommunication services, since the words “derived from” do not occur in sub-section (2A) of Section 80IA.
  • The Hon’ble Court, however, has held that the decision of the ITAT in allowing the deduction u/s 80IA of the Act to the assessee company is correct. The Court has held that the legislature does not intends that an assessee falling under the provisions of section 80IA(2A) may meet the stringent requirement that the profits so contemplated may be “derived from” the said business.
  • The Court has further held that the requirements of the first degree nexus of the profits from the eligible business does not come into play under the provisions of section 80IA.

Exemption u/s 11 of the Act cannot be denied by invoking the provisions of section 13(3), in the absence of any specific finding that the expenditure on salaries or facilities provided is in excess of the fair market value of the services provided

Income Tax Appellate Tribunal, Delhi Bench in the case of Anand Education Society vs. Asstt. Director of Income Tax (E) in ITA No. 761/Del/2013 dated 15.07.2016

  • In this case, survey and inspection was carried out on the premises of the assessee u/s 133A of the Act.
  • The AO was of the view that there was an escapement of income, as the assessee had employed persons specified under section 13(3) and has wrongly claimed the exemption u/s 11, and therefore, the case was reopened u/s 147 of the Act.
  • The AO made an addition on account of development fund by observing that the assessee violated the provisions of section 13(3), by giving undue benefit to the family members of the specified persons.
  • The CIT(A) further held that the findings of the AO were very specific that the assessee had violated the provisions of section 13(3) by giving undue benefit to the family members, which had cost a huge financial loss to the assessee. The CIT(A) further stated that the explanation given by the assessee in this regard was not convincing.
  • As per the provisions of section 13(2)(c), there are two conditions. Firstly, the salary, allowances have to be paid to the persons specified in section 13(3), and secondly, the amount paid should be in excess of what may be reasonably paid for such services.
  • In the present case, it was not the case of the AO that the amount was paid in excess of what may be reasonably paid for such services. Contrary to that, the salary was paid in accordance to the pay scale fixed by the Directorate of Education. Further, a proper selection procedure had been followed by the Selection Committee. There was no violation of section 13(3) of the Act was there as there was no prohibition in appointing the relatives of the trustees.
  • Further, nothing was brought on record to substantiate that excessive   salary was paid to the Principal. Nothing was brought on record as to how much salary was excessive in comparison to the salary paid to another person working in the same capacity and in the similar circumstances, in another institution.
  • Also, the AO did not bring any material on record to substantiate that the facilities provided to Mrs. Anita Mann (Director) were not used to achieve the objects of the assessee Society or it was misused for personal benefits.
  • Considering the above facts of the case, the Hon’ble ITAT has held that in the present case, the AO has not brought anything on record to substantiate that the expenditure on salary or facilities provided to the relatives of the trustees of the assessee society were excessive having regard to fair market value of the services provided by them. Therefore, the AO wrongly invoked the provisions of Section 13(3) of the Act and the CIT(A) was not justified in confirming the action of the AO.

No disallowance on account of change in accounting policy with regard to devaluation of spares / non-moving / slow moving / obsolete parts or spares

ITAT Delhi in the case of National Fertilizers Ltd. in ITA No. 3947-3949/Del/2013 and ITA No. 3517-3520/Del/2013 dated 31.05.2016

  • The assessee, a public sector undertaking, was engaged in the business of manufacturing of fertilizers and other related products.
  • If a particular item of stores / spare part was not found to be useful for several years, or items have been specifically determined as surplus / obsolete, such stores / spare parts could not have been carried for consumption in lieu of non-usability of the company and carrying higher value of such inventory would become an unnecessary burden. Therefore, the assessee company devalued such items and claimed the said amount in its Profit and Loss account, which was disallowed by the Assessing Officer in the order passed under Section 143(3) of the Act.
  • The Hon’ble Tribunal in this case has held that the change in the method of valuation was on the basis of the valuation report of an Engineering Valuer and on the basis of the remarks given by CAG in the Annual Report of the assessee for the previous year. It was also held that in the instant case, the amount written off was not an arbitrary one and the claim of loss on this account was actual.
  • The Tribunal further held that it is an established principle that ‘Regular’ does not mean ‘Permanent’ for the system of accounting. The statute stipulates that the income shall be computed on the system of accounting ‘regularly’ followed by the assessee. However, the provision under Section 145 cannot be interpreted to mean that once a system of accounting is adopted, it can never be changed.
  • Therefore, assessee’s claim in respect of valuation of spares / non-moving / slow moving / obsolete parts and spares was accepted by the Tribunal.

ITA 314 & 314/2012

Deletion on account of claim of bad debts u/s 36 (1) (viia) r.w.s. 36 (2) of the Income Tax Act and Deduction u/s 80P of the Income Tax Act.

Provision for doubtful debts written back has to be seen in the context of whether the provision had been allowed as deduction in order to determine the taxability at the later point of time of write back – Relying upon Commissioner Of Income-Tax Versus Lal Textile Finishing Mills Pvt. Limited [1989 (5) TMI 30 – PUNJAB AND HARYANA High Court] – thus, the deduction was not allowed – the condition precedent for application of Section 36 (1) (viia) and 36 (2) on the one hand are applicable and the Section 41 (4) would not apply – Decided against Revenue.

The circumstance that the provision for bad debts was either added back or not added back would be irrelevant, since the deduction is with reference to the income from the activities listed in Section 80P (2) which is part of the gross total income – the decision in Commissioner of Income Tax vs. Nagpur Zilla Krishi Audyogik Sahakari Sangh Ltd. [1992 (9) TMI 18 – BOMBAY High Court] followed – the words “gross total income” referred to in section 80P(1) must be given the defined meaning which means total income computed in accordance with the provisions of the Act, but before making any deduction under Chapter VI-A or section 280-O – Computation in accordance with the provisions of the Act must mean computation in accordance with section 29 – the expression “the amount of profits and gains” used in sub-section (2) of section 80P cannot be understood in a different sense – The expression must mean income as computed under section 29 – thus, there is no substantial question of law arises – Decided against Revenue.


Rule 9B of the Income Tax Act, 1961


Rule 9B deals only with the deduction in respect of the expenditure on acquisition of distribution rights. However, it does not put any restriction on the deduction in respect of any expenses relating to the cost of positive prints and publicity expenses. Since this expenditure is incurred wholly and exclusively for the purpose of business of the assessee, therefore additon stands deleted.


Penalty u/s 271(1)( c)


“The assessee did not disclose book profits at the time of filing of return of income. It was the argument of the assessee that it was an inadvertant ommission as it had filed P&L A/c & Balance Sheet with the return, which clearly showed the book profit at Rs. 22,02,447/-. Thus there was no concealment of any primary fact.
The ITAT held the facts of the case to be identical to the case of Price Water House Cooper Pvt. Ltd. (2012) 348 ITR 306 (SC). In that case also, the assessee did not add the provision for gratuity which is disallowable under Section 40A(7) though the same was disclosed in the audit report. Before the Hon’ble Apex Court, it was pleaded on behalf of the revenue that the assessee is a reputed firm of Chartered Accountants and, therefore, its claim that it made in a mistake in claiming the deduction for provision of gratuity cannot be accepted. Hon’ble Apex Court did not accept the argument put forth on behalf of the department and cancelled the penelty. The facts of the assessee’s case are identical to the facts before the Hon’ble Apex Court in the case of PricewaterCoopers Pvt. Ltd. (supra). We, therefore, respectfully following the same, cancel the penalty levied under Section 271(1)(c) of the Act.”

Lovlesh Jain Vs. ACIT

Penalty u/s 271(1)( c)


Mere making a wrong claim does not tantamount of concealment or furnishing of inaccurate particulars

Rajatdeep Overseas (P) Ltd.

Section 80IC of the Income Tax Act, 1961


AO disallowed claim u/s 80IC to the extent of 20% of turnover attributing it to market value of brand which CIT(A) reduced to 10%. Held that, there is no condition of brand ownership in allowing deduction u/s 80IC and merely because the industrial undertaking earned higher profits does not call for inference that claim of deduction is to be reduced on presumptions- Entire claim u/s 80IC was allowed

ACIT Vs. Panchanan International Private Limited, ITA no. 50/Del/2011

Nova Promoters is not applicable in the absence of any enquiry by the AO during assessment/reassessment stage

In the recent judgment in the case of Panchanan International (P) Ltd., ITA No. 50/Del/2011 decided on 23rd November, 2012, the Delhi Tribunal has held that no addition can be made on account of the share capital merely on the basis of the statement of the entry operators. In this case the assessee has accepted the share application money through banking channel and it filed details/documents regarding these companies. The AO without going into the documents and without conduct any enquiry made the addition on the basis of an allegation made by the Director Investigation of assessee having accepted accommodation entries. The Delhi Tribunal after analyzing the judgment in the case of Goel Sons Golden Estate Pvt. Ltd. held that the AO has failed to conduct necessary enquiry, verification and deal with the matter in depth and as such no addition made by the AO can be sustained.

Commissioner of Income Tax Vs Fair Invest Ltd, ITA 232 of 2012, Dated November 22, 2012

Lovely Exports Pvt. Ltd. judgment is still a good law and nova promoters & Finlease (P) Ltd. judgment is not applicable in all cases of share capital/share premium
(as in Delhi High Court)

In the case of CIT vs. Fair Finvest Ltd., ITA No. 232/2012 decided by the Delhi High Court on 22nd November, 2012 it has been held that where the assessee adduced evidences in support of the share application money the AO is supposed to examine the same and reject these evidences on tenable ground. Further in case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators.
In the absence of these, the decision of the Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd. 216 CTR (SC) 195 will be applicable and the case of the Nova Promoters & Finlease (P) Ltd. will not be applicable despite the fact of the case being identical to the extent that entries have been received from the same companies of Mr. Mahesh Garg as was in the case of Nova Promoters. Accordingly in all those cases where the AO has not conducted an enquiry independently during the assessment proceedings, the judgment of the Supreme Court in Lovely Exports will be applicable and judgment of the Delhi High Court in the case of Nova Promoters & Finlease (P) Ltd. will not be applicable.

Director of Income Tax vs. Foundation of Ophthalmic & Optometry Research Education Centre, ITA no. 1687 of 2010, Dated 16-08-2012; (Delhi HC)

Brief Facts
The assessee applied for registration under Section 12AA and which was refused by DIT (Exemption) on the ground that no charitable activity had in fact taken place since the society was a newly established one.

Issue involved :
“Whether while examining the application under Section 12AA (1) (b) read with Section 12A of the Income Tax Act, 1961, the concerned Commissioner/Director is required to examine the question whether the Trust has actually commenced and has, in fact, carried on charitable activities?”

Decided in favour of Assessee:

It has been held by Hon’ble Delhi High Court that at the time of granting registration u/s 12AA the Income Tax Act, 1961, the concerned Commissioner/Director is not required to examine the question whether the trust has actually commenced and has carried on charitable activities or not and at that time the objects of the trust/society from the trust deed/memorandum of objects have to be taken into consideration.

In the case of newly established society, objects of the trust have to be taken into consideration by the authority and the objects of the trust could be read from the trust deed itself. In the subsequent returns filed by the trust, if the Revenue comes across that factually trust has not conducted any charitable activities, it is always open to the authorities concerned to withdraw the registration already granted or to cancel the said registration under s.12AA (3) of the Act.

Further, held that the statute does not prohibit or enjoin the Commissioner from registering Trust solely based on its objects, without any activity, in the case of a newly registered Trust. The statutory time limit does not prescribe a waiting period, for a trust to qualify itself for registration.

In holding so, Hon’ble Court followed the interpretation given to Section-12AA by the Karnataka High Court in Director of Income Tax (Exemptions) v. Meenakshi Amma Endowment Trust, (2011) 50 DTR (Kar) 243.

NTPC SAIL Power Company Ltd. V. CIT (Delhi HC)
If the receipt of pre construction interest is “inextricably linked” to the setting up of the project, it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project. The funds invested by the assessee and the interest earned being inextricably linked with the setting up of the power plant cannot be treated as a revenue receipt.

M/s SMC Share Brokers Ltd.Vs. DCIT
(2007) 109 TTJ (Del)

Search and seizure—Block assessment—Proceedings under s. 158BD
A satisfaction note by AO of the searched person regarding undisclosed income of any other person within the meaning of s. 158BD can be validly recorded even after completion of assessment of the searched person—There is no period of limitation for recording satisfaction under s. 158BD and the only requirement is that it must be in writing

Shri Sain Ji Dharmarth Trust Vs. CIT
(2006) 8 SOT 446 (Del)

Charitable trust—Registration under s. 12A
Relevant considerations—While disposing of an application under s. 12A CIT is only required to examine whether objects of trust or institution are for charitable purpose—He could have examined documents or information supplied by assessee along with the application r could have called such documents or information unnecessary to satisfy himself regarding object and genuineness of activities of trust—Documents viz., copy of audit report, income and expenditure account and statement of affairs for the period prior and port constitution of the trust, copy of trust deed, will etc. filed by assessee-trust before CIT, were therefore, sufficient to satisfy him as to objects and genuineness of its activities—His failure in examining such documents, thus resulted into wrong refusal of grant of registration to assessee—At the stage of granting or refusing registration, CIT is not required to examine as to what amount should form corpus of trust, in what manner accounts were maintained and what should appear in balance sheet

M/s Dynamik Universal Ltd. Vs. DCIT
(2005) 4 SOT 825 (Del)

Search and seizure—Block assessment
Assessment of undisclosed income of any other person under s. 158BD—Scope and applicability of s. 158BD—Even though arriving at satisfaction under s. 158BD is necessary, such satisfaction need not be recorded in writing—Further, what s. 158BD provides for is to hand over the books of account, other documents or assets seized or requisitioned by the AO having jurisdiction over the person raided, to the AO having jurisdiction over the other person to whom they belong—It is only on administrative action of the first mentioned AO and not a judicial order or action—As the name of the assessee was finding place in certain pages regarding certain transactions of cheque as well as cash, that would be sufficient material for satisfaction of the first mentioned AO to proceed under s. 158BD and to hand over the record to the other AO—In this case, however, a satisfaction note was recorded

M/s Anupam Synthetics Pvt. Ltd. Vs. JCIT
(2006) 104 TTJ (Del) 119

Business expenditure—Allowability—Commission to agent for procuring Government contract
Business of the assessee-company got a big boost on account of said contract—Assessee made supplies of uniform cloth worth Rs. 5 crores within two months and the payments were released timely—All this was possible only through effective services rendered by agent V—Assessee has filed confirmation of V that the fee was charged and received by him for guiding the assessee in the matter of participating in the business, making timely supplies and in securing full payment—Circumstances of the case establish that the assessee could not achieve such business result without the services of V—Thus, the payment of business development expenses was fully justified and the same is allowable as business expenditure

M/s Bindal Apparels Ltd. Vs. ACIT
[2006] 8 SOT 498 (DELHI)/[2006] 104 TTJ 950 (DELHI)

Section 2(7A), read with section 120, of the Income-tax Act, 1961 – Assessing Officer – Assessment year 1999-2000
Whether in view of definition of ‘Assessing Officer’ contained under section 2(7A), an Additional Commissioner cannot be an authority to exercise or perform all or any of powers and functions of an Assessing Officer to make assessment of income – Held, yes

Mrs. Kamlesh Bansal Vs. ITO
(2007) 109 TTJ (Del) 417

Capital gains—Exemption under s. 54F—Absence of registered deed
Assessee investing capital gains in construction of residential house on the land owned by her husband and under agreement having 50 per cent share therein, was eligible for exemption under s. 54F notwithstanding absence of registered deed in her favour—In the context of IT Act, it is not necessary for someone to hold registered title in respect of house property in order to become an owner and such a situation is taken care of by s. 27(iiia) r/w s. 53A of the Transfer of Property Act, 1882—There is no requirement of s. 54F that assessee should be exclusive owner of the newly constructed house—Further, as both the contracting parties are husband and wife living together, division is immaterial

M/s Beekay Appliances(P) Ltd. vs DCIT
[2007] 158 Taxman 67 (DELHI)(MAG.)

Section 143 of the Income-tax Act, 1961 – Assessment – Additions to income – Assessment year 1995-96
Noticing difference between stock shown in assessee’s balance sheet and stock shown to bank from whom assessee was enjoying credit facilities against hypothecation of stock, Assessing Officer took stock as shown to bank to be true stock with assessee and added difference to income of assessee on account of unaccounted stock – Assessee’s case was that stock shown to bank was inflated to get maximum credit facility – Assessing Officer, apart from relying on stock statement given to bank, had brought no other evidence on record to show that assessee in fact possessed a larger quantity of stock – Whether, on facts, addition made by Assessing Officer could be sustained – Held, no

DCIT Vs. M/s Airport Authority Of India
(2013) 154 TTJ (Del) 191 : (2013) 86 DTR (Del)(Trib) 222 : (2013) 143 ITD 319 (Delhi

Appeal (Appellate Tribunal)—Power and Jurisdiction
Recall of order—Bar of limitation—Revenue had filed miscellaneous application on 26/07/2011 for recall of Tribunal’s order dated 01/02/2007 dismissing Department’s appeal in accordance with directions of Hon’ble Supreme Court for want of COD Approval—Tribunal dismissed appeal filed by Department on ground that appeal could not be proceeded with, in absence of COD approval—However, it had given liberty to revenue to seek adjudication of appeal on merits if COD approval was obtained after praying for recall of order—Held, present petition had been filed by department after expiry of four years from date of order of Tribunal—Further, tribunal had put a rider for recalling of its order on getting COD approval-COD approval was awaited on 17/02/11—Therefore, orders of tribunal dismissing appeal for want of COD approval had to be recalled particularly when dismissal of appeal was effectively under first limb of Rule 12 which was primarily procedural in nature giving power to tribunal to pass interim orders in order to regulate its procedure for imparting justice—Therefore, interim orders passed under Rule 12 were not orders as contemplated u/s 254(1) but order under Rule 12 read with Section 255(5) —Consequently, limitation u/s 254(2) not applicable to such orders-Miscellaneous application filed by department allowed

Airport authority of IndiaVS DCIT
(2012) 134 ITD 34 (Del) : (2011) 12 ITR (Trib) 482 (Del) : (2013) 153 TTJ (Del) 676

“I Section 10(29) of the Income-tax Act, 1961 – Marketing societies, income from letting of godowns
II Section 32 of the Income-tax Act, 1961 – Depreciation – Allowance/Rate of – Assessment years”
“(1)  Whether assessee-society, constituted under Airports Authority of India Act, 1994, was engaged in letting out godowns and warehouses at airports for storage, processing or facilitating marketing of commodities was entitled to exemption – Held, yes [In favour of assessee]

(2) Whether where terminal building of assessee – Airport Authority of India was a tool of business and was being used for regulation of air traffic and communicational and navigational control and use of said building for passengers was only incidental, Assessing Officer was justified in treating entire terminal building as ‘plant’ and allowing depreciation thereon accordingly – Held, yes [In favour of assessee]”

M/s National Thermal Power Vs ACIT
[2008] 114 ITD 138 (DELHI)

Assessee-company was engaged in electricity generation business at various places by using coal and gas – For generating electricity from steam turbine, assessee had showed no fuel cost as according to it, steam turbine did not consume any fuel except waste hot gases released by its gas unit – Assessing Officer, however, was of view that waste hot gases used by assessee were value-added product received from gas units, having commercial utility – Thus, he estimated value of hot gases used in this steam unit and allocated a portion of expenditure incurred by gas unit to steam unit and, accordingly, reduced assessee’s claim of deduction under section 80-I/80-IA – Tribunal, however, held that hot gases were waste products and same could be used to generate electricity by using advanced technology; that there was no material on record to show that released hot gas was a marketable product; and that provisions of sections 80-I(6), 80-I(8) and 80-IA(9), could not be applied to support allocation of expenses as done by Assessing Officer – Revenue filed application under section 254(2) contending that those findings of Tribunal were contrary to law – However, in entire application, it had not been specifically pointed out that which particular mistake had crept in Tribunal’s order – Whether, on facts, there was no mistake in order of Tribunal to fall within purview of section 254(2) and, hence, application filed by revenue deserved to be dismissed – Held, yes

Airport authority of India Vs. JCIT
(2012) 134 ITD 34 (Del) : (2011) 12 ITR (Trib) 482 (Del) : (2013) 153 TTJ (Del) 676

“I Section 10(29) of the Income-tax Act, 1961 – Marketing societies, income from letting of godowns
II Section 32 of the Income-tax Act, 1961 – Depreciation – Allowance/Rate of – Assessment years”
“(1)  Whether assessee-society, constituted under Airports Authority of India Act, 1994, was engaged in letting out godowns and warehouses at airports for storage, processing or facilitating marketing of commodities was entitled to exemption – Held, yes [In favour of assessee]

(2) Whether where terminal building of assessee – Airport Authority of India was a tool of business and was being used for regulation of air traffic and communicational and navigational control and use of said building for passengers was only incidental, Assessing Officer was justified in treating entire terminal building as ‘plant’ and allowing depreciation thereon accordingly – Held, yes [In favour of assessee]”

ACIT Vs National Thermal Power Corporation
(2007) 111 TTJ (Del) 1 : (2008) 114 ITD 138

Appeal (Tribunal)—Rectification under s. 254(2)—Mistake apparent
No particular mistake pointed out from which the order of Tribunal allegedly suffered—Mistakes pointed out by the Department might constitute an error in the judgment but that does not become error in the decision itself so as to constitute ‘mistake’ within the meaning of s. 254(2)—Findings having been given after considering all the aspects of the matter, the Department, by contending that those findings are contrary to law, is seeking review of the order which is not permissible under s. 254(2)—Further, the High Power Committee on Disputes having denied permission to the Department to contest appeal before High Court against the impugned order of the Tribunal, the Department is precluded from contesting this miscellaneous petition also

Smt. Zubi Kochar vs ACIT
(2007) 112 TTJ (Del) 297

Revision—Erroneous and prejudicial order—Lack of proper enquiry
CIT holding the assessment made by AO as without proper enquiries and the proper enquiries which the AO ought to have made having been precisely identified by him in his notice under s. 263, assumption of revisional jurisdiction by the CIT was valid—It is immaterial if ultimately it was found on merits after conducting such enquiries that there was in fact no loss to the Revenue

(2006) 100 TTJ (Del) 1 : (2006) 8 SOT 376 (Del)

“I. Section 37(1) of the Income-tax Act, 1961, read with sections 4 and 8, of the Indian Telegraph Act, 1885 – Business expenditure
II. Section 80-IA of the Income-tax Act, 1961 – Deductions – Profits and gains from infrastructure undertaking
III. Section 145, read with section 37(1), of the Income-tax Act, 1961 – Method of accounting – Rejection of accounts
IV. Section 143 of the Income-tax Act, 1961 – Assessment – Additions to income
V. Section 41(1) of the Income-tax Act, 1961 – Remission or cessation of trading liability ”
“(1)  Assessee-corporation was incorporated on 28-2-1986 for providing telecommunication services – It took over management, control and operation of Delhi and Mumbai Telecommunication districts with effect from 1-4-1986 – Department of Telecommunication (DOT), in exercise of power conferred under section 4(2) of Indian Telegraph Act, 1885, granted licence to assessee for establishing, maintaining and working of telecommunication services within territorial jurisdiction of Union Territory of Delhi and areas covered by Municipal Corporation of Bombay, New Bombay and Thane – This licence was effective from 1-4-1986 and was for a period of 5 years – Licence fee fixed for same was Rs. 101 per annum – Assessee purchased fixed assets for a total consideration of Rs. 900 crores – Later on DOT, vide letter dated 2-3-1989 imposed upon assessee a rural levy, which was discontinued from assessment year 1993-94 onwards – Licence of assessee had been renewed by DOT from time to time and licence fee had been increased substantially and was fixed in terms of order granting licence – Whether payment of licence fee by assessee at increased rate was wholly and exclusively incurred for purpose of business carried on by it and was an allowable deduction under section 37 – Held, yes

(2) Assessee-corporation, which was incorporated on 28-2-1986 for providing telecommunication services, claimed deduction under section 80-IA(4C) – Assessing Officer rejected claim holding that section 80-IA applied to a company which started providing telecommunication services on or after 1-4-1995 and assessee had not done so – Commissioner (Appeals) upheld impugned order – Whether since lower authorities had not passed any speaking order on assessee’s claim as to whether assessee could be held an undertaking after it had put up new exchanges for new subscribers and met essential requirement of section 80-IA, matter required afresh decision – Held, yes [Case remanded to Assessing Officer]

(3) Assessee had shown prior-period expenditure at Rs. 40,73,75,787 for current year – Assessing Officer having noticed that figure of Rs. 33,50,34,346 of prior period expenses of last year had been reduced to Rs. 17,81,16,661 because of change in accounting policy, applied ratio of 17.81 crores to Rs. 33.50 crores to current year’s prior-period expenditure of Rs. 40,73,75,787 and worked out a figure of Rs. 77.64 crores and added same to income of assessee – Whether since figure of Rs. 17,81,16,661 was only a presentation in figures, Assessing Officer was not justified in proportionately increasing expenditure of Rs. 40,73,75,787 and then making disallowance of Rs. 77.64 crores even though assessee had itself added back amount of Rs. 33,50,34,346 in its computation of income – Held, yes

(4) Assessing Officer made certain addition to income of assessee by picking up just two of comments from report of Controller and Accountant General given under section 619(4) of Companies Act – Whether Assessing Officer was unjustified in considering only one part of report and ignoring other part – Held, yes

(5) Assessing Officer, invoking provisions of section 41(1), made addition of certain amounts representing bad debts recovered and other liabilities written back during year, to income of assessee – Whether since auditor in tax audit report had clearly stated that these amounts had been credited to profit and loss account, there was no justification to make these additions – Held, yes”

Space Financial Services vs ACIT
(2008) 115 TTJ (Del) 165 : (2008) 5 DTR 276

Business expenditure—Bad debt
Debts written off—Debts in question have been written off in the relevant previous year—In view of amended s. 36(2), claim for deduction of bad debts could not be denied merely on the ground that Court cases were pending against the debtors and it was premature to write off the debts

The Pocket Testament League (India) vs DDIT
(2008) 19 SOT 150 (Del)

Charitable trust—Exemption under s. 11—Allowability
Since the assessee trust was carrying a charitable purpose also, even if part of the income was applied for religious activities, the benefit of exemption under s. 11(1)(a) cannot be denied—CIT vs. Social Service Centre (2001) 169 CTR (AP) 130 : (2001) 250 ITR 39 (AP) followed

M/s Ashirwad Steels & Alloys (P) Ltd. vs ACIT
(2008) 2 DTR (Del)(Trib) 351

Business income—Business loss—Genuineness of share transactions
Assessee allegedly purchased shares from DKG and sold them to VB at profit of Rs. 1,47,92,129 and claimed it as business profits eligible to be set off against brought forward business loss and unabsorbed depreciation—AO treated the transaction as non-genuine and charged the profits as income from other sources—Even though existence of DKG and VB had been established and both had confirmed the transactions, there was inordinate delay in settlement of payments against the said transactions and failure of the assessee to produce the relevant details such as copy of demat account—It must also have been shown that before purchase, shares were registered in the name of DKG and after sale they were duly transferred in the name of VB—Further, if the shares were acquired and sold on blank transfer without transferring them in assessee’s name, the assessee must have established the same on evidence—Shares being listed on a stock exchange, it has to be seen whether such blank transfer was permissible without the assistance of stock brokers as per stock exchange rules—Neither the assessee company has brought the relevant documentary evidence on record to establish its case nor the AO has made sufficient enquiry in the matter before drawing an adverse inference against the assessee in the matter of genuineness of the relevant share transactions—Matter restored to the file of AO for decision afresh after making necessary enquiries and after giving the assessee an opportunity of leading evidence

Sh. Tahil Ram Moolchandani Vs. ACIT
(2008) 115 TTJ (Del) 692 : (2008) 6 DTR 327

Search and seizure—Block assessment—Limitation vis-a-vis issue of notice under s. 158BD
AO of the assessee issuing notice under s. 158BD to the assessee after a period of 23 months and 10 days from the time when he received intimation from the AO of the person who was subjected to a search, the order of block assessment under s. 158BD is liable to be annulled on the ground of inordinate delay in initiating proceedings—R.S. Bansal vs. Asstt. CIT [IT(SS)A No. 12/Del/2007] followed

M/s NTPC Ltd. Employees Provident Fund Trust Vs. ITO
(2008) 113 TTJ (Del) 285 : (2008) 2 DTR 140

TDS—Under s. 194A—Payments by employees provident fund trust
Status of the assessee, an employees provident fund trust, is to be taken as an individual—Provisions of s. 194A are not applicable to an individual—Therefore, provisions of s. 194A are not attracted to the credits made by the assessee trust to the account of its members—Consequently, assessee has not committed any default under s. 194A by not deducting tax, and liability under s. 201(1) and 201(1A) is not attracted—Ganesh Chhababhai Vaalabhai Patel family Trust vs. ITO (1994) 51 ITD 544 (Ahd), Asstt. CIT vs. Guru Trust (1996) 56 TTJ (Bang) 73 : (1996) 52 ITD 247 (Bang), CIT vs. T.S.K. Enterprises (2005) 274 ITR 41 (Mad), CIT vs. Marsons Beneficiary Trust (1990) 87 CTR (Bom) 71 : (1991) 188 ITR 224 (Bom), ITO vs. Arihant Trust & Ors (1995) 127 CTR (Mad) 448 : (1995) 214 ITR 306 (Mad) and M.L. Family Trust & Ors. vs. State of Gujarat & Anr. (1995) 127 CTR (Guj) 407 : (1995) 213 ITR 152 (Guj) relied on

ACIT VS. Shri Shyam Sunder Mosun
(2008) 11 DTR (Del)(Trib) 277

Search and seizure—Block assessment
Computation of undisclosed income—Assessee having declared an amount of Rs. 11.46 lakhs in his return for block assessment as undisclosed investment in stock as per bills found in the course of search and Rs. 12 lakhs towards profits, AO was not justified in adding a sum of Rs. 5.9 lakhs towards peak investment as on 15th Jan., 2003 for carrying out undisclosed business of sale of jewellery as the assessee has offered the initial investment and the profits from the dealing in the stock outside the books of accounts

M/s CPR Capital Services Ltd. Vs. DCIT
(2008) 115 TTJ (Del) 528 : (2008) 6 DTR 70

Search and seizure—Block assessment—Validity
Notice under s. 143(2) not issued/served—It being admitted by the Revenue that no notice under s. 143(2) has been issued and served upon the assessee within 12 months from the end of the month in which the return has been filed by the assessee as provided under proviso to s. 143(2), the block assessment framed by the AO is invalid in the eye of law and the same is accordingly quashed—Smt. Bandana Gogoi vs. CIT & Anr. (2007) 209 CTR (Gau) 31 : (2007) 289 ITR 28 (Gau), Naresh Kumar Arora vs. Asstt. CIT [IT(SS)A No. 46/Del/2005], Tulika Mishra vs. Jt. CIT [IT(SS)A No. 81/Del/2003, dt. 21st March, 2007] and Asstt. CIT vs. R.P. Singh (2007) 111 TTJ (Del) 880 followed

M/s. Citizen Cooperative Bank Ltd. Vs Add CIT
[2010] 122 ITD 43 (DELHI)/[2009] 122 TTJ 281 (DELHI)

Section 80P of the Income-tax Act, 1961 – Deductions – Income of Co-operative societies – Assessment year 2003-04
For relevant assessment year, assessee claimed exemption of its income under section 80P(2)(a)(i) on ground that it was engaged in carrying on business of banking – Assessing Officer rejected assessee’s claim, holding that since it carried on banking business in relation to both members and non-members, income earned therefrom was not eligible for exemption – Whether in view of provisions of section 80P(2)(a)(i), condition that activity should be restricted to members of society can be read into only in business of providing credit facilities whereas business of banking can be carried out with both members and non-members – Held, yes – Whether since, in instant case, assessee was carrying on business of banking under licence issued by Reserve Bank of India, its claim for exemption was to be allowed – Held, yes – Whether, even if it was presumed that assessee was carrying on business of providing credit facility, in view of fact that when loan was actually disbursed to an applicant, he had already become a member of assessee-society, interest income earned from said member was entitled to exemption under section 80P(2)(a)(i) – Held, yes

M/s. Ambica steels Ltd. Vs. DCIT
(2008) 119 TTJ (Del) 531 : (2009) 118 ITD 116 : (2008) 15 DTR 294

Reassessment—Reason to believe—Information received from Investigation Wing
Information/material having been received by AO directly from the Investigation Wing which had conducted the search and not from the AO of the person searched, requisite condition for proceeding under s. 158BD was not satisfied and proceedings under s. 147/148 were rightly initiated after recording reasons on the basis of said information

Yamaha Motor India Pvt. Ltd. Vs. ACIT
(2008) 118 TTJ (Del) 395 : (2008) 24 SOT 76 : (2008) 11 DTR 229

Depreciation—Allowability—Sale/writing off some assets forming part of the block of assets
Assessee writing off some assets forming part of block of assets during the relevant assessment year—AO reducing the WDV of block of assets by WDV of individual assets by working out the same on the basis of asset-wise depreciation—Not justified—Such reduction is not in accord with the manner provided in s. 43(6)(c)—As no money was payable in respect of assets written off, it is their scrap value which is to be reduced from the WDV of block of assets for granting depreciation—AO to recompute the depreciation accordingly

Indo German International Pvt. Ltd. Vs. DCIT
[2009] 185 Taxman 103 (DELHI)(MAG.)

Section 14A, read with section 10(33), of the Income-tax Act, 1961 – Expenditure incurred in relation to income not includible in total income
Whether there has to be a direct nexus between incurring of expenses and earning of exempt income so as to disallow same as per section 14A – Held, yes – Whether where assessee had all along been claiming that no expenditure was incurred for earning exempt dividend income and Assessing Officer had not been able to co-relate any expenditure, which was incurred strictly for earning exempt income, he was not justified in estimating and disallowing a part of business expenses by attributing same to exempt income – Held, yes

JCIT Vs. M/s. Ambica Steels Ltd.
(2008) 119 TTJ (Del) 531 : (2009) 118 ITD 116 : (2008) 15 DTR 294

Reassessment—Reason to believe—Information received from Investigation Wing
Information/material having been received by AO directly from the Investigation Wing which had conducted the search and not from the AO of the person searched, requisite condition for proceeding under s. 158BD was not satisfied and proceedings under s. 147/148 were rightly initiated after recording reasons on the basis of said information

National Fertilizers Ltd. Vs. DCIT
[2009] 120 ITD 259 (DELHI)

“(1) Section 5 of the Income-tax Act, 1961, read with section 49 of the Arbitration and Conciliation Act, 1996 – Income – Accrual of
(2) Section 145 of the Income-tax Act, 1961 – Method of accounting – Valuation of stock – Assessment year 2004-05
(3) Section 145, read with section 32, of the Income-tax Act, 1961 – Method of accounting – Change of”
“(1) An agreement entered into by assessee- company with foreign supplier ‘K’ for import of urea in year 1995-96 was cancelled due to failure of ‘K’ on its part to ship goods to assessee – In terms of agreement, assessee initiated arbitration proceedings against ‘K’ in International Court of Arbitration [ICA] – ICA delivered judgment on 3-12-1998 in favour of assessee to effect that assessee was entitled to receive amount advanced to ‘K’ along with interest at rate of 5 per cent with effect from 14-11-1995 till date of payment and also litigation costs – ‘K’ filed suit challenging said award before District Court at Amsterdam in March, 1999, but same was rejected on 12-12-2001 – Thereafter, ‘K’ filed appeal against this judgment before Dutch High Court, which was also rejected on 22-1-2004 – Assessee’s attorney confirmed that ‘K’ thereafter had not pursued case further in Dutch Supreme Court – Assessing Officer opined that litigation between assessee and ‘K’ came to an end on 22-1-2004 and further since assessee was following mercantile system of accounting, litigation costs and interest receivable from ‘K’ accrued to assessee on that date and, therefore, Assessing Officer brought to tax impugned amount of litigation costs and interest in assessment year 2004-05 – It was found that on 21-7-2004, ‘K’ had moved a petition in Court of Appeal in Amsterdam for revocation of award and that petition was dismissed by Court of Appeal on 14-12-2006 – Assessee had applied before competent Court of Monaco for execution of award, but said application was rejected because it was not complete in all respects – Assessee had also filed petition before City Judge, Hyderabad, to pass a decree in its favour, on basis of award and decision of that Court was pending – Whether since award was not made a rule of Court either at Monaco or Hyderabad in relevant assessment year, no enforceable right could be said to have vested in assessee in that year, which could lead to conclusion that interest income and litigation charges accrued to assessee – Held, yes – Whether, therefore, impugned addition made to income of assessee was not justified and deserved to be deleted – Held, yes

(2) Government, realizing that subsidy granted on fertilizers was more than intended subsidy wherever capacity utilization was more than 100 per cent leading to lower cost of production, issued an instruction that subsidy would be granted on principle of Import Parity Price (IPP) with prior approval of Department of Fertilizers – Assessee-company, engaged in manufacture of fertilizers, had undervalued stock during relevant previous year and in this regard explained to Assessing Officer that in view of revised policy of Government, relating to regulation of subsidy, it had valued closing stock of urea (beyond 100 per cent of plant capacity) at IPP, being lower than cost of production – Assessing Officer held that changes in policy by Government did not oblige assessee to change its accounting policy and that in absence of any approval from Department of Fertilizers, assessee was obliged to value stock at cost price or market price, whichever was lower – Assessing Officer, therefore, made an addition to income of assessee on account of undervaluation of closing stock – Commissioner (Appeals) upheld order of Assessing Officer – Whether since assessee had taken into account IPP and it could not have realized higher price in terms of sale price per metric tonne and subsidy per metric tonne, available in respect of such stock, there was no infirmity in method used by assessee, even in absence of any approval from Department of Fertilizers – Held, yes – Whether, therefore, Commissioner (Appeals) erred in upholding order of Assessing Officer – Held, yes

(3)During previous year, relevant to assessment year in question, assessee changed its accounting policy in respect of writing off of loose tools from a period of three years to one year and in this regard explained to Assessing Officer that change was made in view of AS-2, effective from 1-4-1999, which was mandatory – Assessing Officer held that loose tools are part of machinery under section 32 and, therefore, should have been written off at rate of 25 per cent on written down value – Assessing Officer, therefore, recomputed depreciation and made certain addition to income of assessee – Commissioner (Appeals) held that loose tools are not items going directly in production process, rather they are used for repair of all kinds of plant and machinery, electrical installation and other infrastructure in factory premises, i.e., are used only in connection with items of fixed assets and, therefore, they could not be treated as part of inventory – Those loose tools were to be treated as per AS-10, Accounting Standard for fixed assets, and, therefore, change made by assessee as per AS-2 was not proper – Commissioner (Appeals), thus, upheld addition made by Assessing Officer – Whether under AS-10, asset has to be written off over its useful life – Held, yes – Whether since assessee earlier had considered useful life of tools to be three years and nothing was shown to Tribunal as to how useful life of loose tools became one year, Commissioner (Appeals) was justified in upholding order of Assessing Officer – Held, yes”

M/s. Kishan lal Jewels Pvt. Ltd. Vs. ACIT
(2012) 147 TTJ (Del) 308

Assesment—Remand Order—Directions issued by Tribunal—Scope of AO’s jurisdiction
In assessment proceedings, Tribunal found that nature of the credit entries of the assessee had not been examined and assessee had not been allowed to explain them—Hence, matter was remanded to AO for re-examination and application of section 68 of the Act on affording adequate opportunity to the assessee to explain the credit entries—AO recomputed profit of assessee at at different amount than that computed by the assesse, ignored purchases declared by him and allowed a deduction under s. 80HHC of the Act—CIT (A) rejected the objection filed by assesse that AO had transgressed the directions issued by Tribunal—Held, directions given by the Tribunal were clearly very specific to the effect that in the remanded assessment proceedings, AO was to restrict the examination to be conducted, to the credit entries of the assessee—AO’s jurisdiction in the remand proceedings was confined to this only and to no more—In his second order, by invoking provisions of section 69C of the Act and making addition thereunder, which had not been done in the original assessment, AO has gone beyond the directions of the Tribunal—Where the directions contained in the order of remand are specifically restrictive, the AO would be exceeding his jurisdiction under the remand if he transgresses those precise directions—AO erred in passing Assessment Order by transgressing the directions issued by the Tribunal

ITO Vs. Shri Krishan Kumar Gupta
(2008) 16 DTR (Del)(Trib) 1

Reassessment—Validity—Proceedings initiated by AO not having jurisdiction
ITO, Ward 25(4) actually had no jurisdiction over the assessee and thus the notice under s. 148 issued by him was beyond his jurisdiction—He then transferred the file to ITO, Ward 33(2), who did not issue any fresh notice under s. 148 to the assessee and completed the assessment on the basis of the notice issued by the ITO, Ward 25(4)—Same not valid as ITO, Ward 25(4) was not having valid jurisdiction—Fact that the ITO, Ward 24(1) completed the assessment for the same assessment year and then passed an order under s. 154 clearly shows that the jurisdiction over the assessee’s case was with ITO, Ward 24(1)—Thus, notice under s. 148 issued by ITO, Ward 25(4), was without jurisdiction—Moreover, ITO, Ward 33(2) exercised jurisdiction merely on the basis of intimation given by the ITO, Ward 25(4), and transfer of file by the said ITO, and the case was not transferred to him by any order passed under s. 127 by any competent authority—Therefore, reassessment made by the ITO, Ward 33(2) is invalid

DCIT Vs. shri Ghanshyam Dass Seth
(2009) 121 TTJ (Del) 805 : (2008) 26 SOT 166 : (2009) 20 DTR 457

Capital gains—Capital loss—Sale of bonds vis-a-vis bonus stripping transaction
Assessee purchased certain bonds in December, 2002, sold them at a loss in that month itself and claimed the loss as short-term capital loss—In the interregnum, assessee received some bonus units by virtue of holding said bonds—AO disallowed claim of assessee by invoking s. 94(7) treating the transaction as dividend stripping strategy—Not justified—Bonus units were covered under sub-s. (8) of s. 94 which was inserted by the Finance (No. 2) Act, 2004, w.e.f. 1st April, 2005—‘Dividend stripping’ transactions mentioned in sub-s. (7) of s. 94 are distinct from ‘bonus unit stripping’ transactions as mentioned in sub-s. (8) thereof

Bharat Bhushan Jain Vs. ACIT
(2009) 17 DTR (Del)(Trib) 498

Search and seizure—Block assessment
Even though no limitation is prescribed for initiating proceedings under s. 158BD, the same should be initiated within a reasonable time—Proceedings under s. 158BD initiated after 19 months of completion of proceedings under s. 158BC cannot be sustained—Radhey Shyam Bansal vs. Asstt. CIT [IT(SS)A No. 12/Del/2007] followed; Vikrant Tyres Ltd. vs. ITO (2001) 166 CTR (SC) 1 : (2001) 247 ITR 821 (SC) distinguished

M/s Haryana Power generation Vs. ACIT
(2006) 103 TTJ (Del) 584

TDS—Under s. 194C—Composite contract or separate contracts
Primary and dominant object of assessee being to purchase the material i.e. two ESPs for its power plant, the contract for supply of material, freight, insurance and supply of spare parts constituted separate contract from the contract for civil work of erection and commissioning of the plant though there is only one common purchase order—AO was not justified in treating the assessee-in-default by treating the two contracts as composite contract—AO directed to rework the TDS accordingly—Further, if the tax has already been paid by the contractor, the assessee could not be treated in default under s. 201

M/s Urban Improvement Co. (P) Ltd. vs ITO
[2009] 177 Taxman 104 (DELHI)(MAG)

Section 37(1), read with section 145, of the Income-tax Act, 1961 – Business expenditure – Year in which deductible
Assessee-company was engaged in business of land development – It had accepted money from certain educational societies/trusts, in pursuance of memorandum of understanding (MOU), dated 13-6-1997 for construction of a school – MOU provided that if approval to construct school building was declined by concerned authority, assessee would refund entire amount with interest – Since MOU could not materialize, it refunded amount along with interest in relevant previous year as per board resolution dated, 8-9-2002 – Assessing Officer denied deduction of interest amount, treating same as prior period expenses – Whether on facts, assessee’s liability to pay interest had crystallized only when it was found that required approval had not been obtained and it had made itself liable to refund entire earnest money along with interest and, therefore, liability to pay interest had accrued in relevant previous year, when resolution was passed and not prior to that – Held, yes

ACIT vs M/s Vision Inc.
(2010) 130 TTJ (Del) 696 : (2010) 37 DTR 263

Assessment—Validity—Absence of valid service of notice under s. 143(2)—
As per the remand report of the AO, the notice was served on the person who was available at the assessee’s address when partner M was out of station—Name of the person on whom this notice is said to be served is not available and there is no mention of the other partner S—Hence, it is apparent that the notice was not served on any partner of the assessee firm—It can, at best, be said that the notice was served on an employee of the assessee—It is not the case of the Revenue that the person on whom the notice was served was authorized to accept notices on behalf of the assessee—Hence, there was no valid service of notice under s. 143(2) on the assessee—Sec. 292BB was inserted w.e.f. 1st April, 2008, and is not applicable to the instant case relating to asst. yr. 2003-04—Hence, the objection of the assessee is valid in spite of the fact that it has participated in the assessment proceedings—Assessment is invalid and liable to be quashed

M/s Kaashni Sarees Pvt. Ltd. vs DCIT
(2010) 127 TTJ (Del)(UO) 94

Search and seizure—Block assessment—Validity vis-a-vis absence of notice under s. 143(2)
Admittedly, notices under s. 143(2) were issued in the names of the directors of the assessee companies and not in the names of assessee companies—Notice issued in individual capacity of the director would not amount to issue of notice to the company—Where notice under s. 143(2) is not issued in the name of the assessee company, the assessment proceedings cannot be proceeded with—Said defect cannot be cured at this stage in view of the limitation provided in s. 143(2)—Thus, the impugned assessments are bad in law and are quashed

DCIT Vs. M/s Kaashni Sarees Pvt. Ltd.
(2010) 127 TTJ (Del)(UO) 94

Search and seizure—Block assessment—Validity vis-a-vis absence of notice under s. 143(2)
Admittedly, notices under s. 143(2) were issued in the names of the directors of the assessee companies and not in the names of assessee companies—Notice issued in individual capacity of the director would not amount to issue of notice to the company—Where notice under s. 143(2) is not issued in the name of the assessee company, the assessment proceedings cannot be proceeded with—Said defect cannot be cured at this stage in view of the limitation provided in s. 143(2)—Thus, the impugned assessments are bad in law and are quashed

ACIT VS. Smt. Zubi Kochar
(2007) 112 TTJ (Del) 297

Revision—Erroneous and prejudicial order—Lack of proper enquiry
CIT holding the assessment made by AO as without proper enquiries and the proper enquiries which the AO ought to have made having been precisely identified by him in his notice under s. 263, assumption of revisional jurisdiction by the CIT was valid—It is immaterial if ultimately it was found on merits after conducting such enquiries that there was in fact no loss to the Revenue

M/S Multiplex Trading & Industrial Co. Ltd. Vs. ITO
[2009] 33 SOT 123 (DELHI)

Section 73, read with section 43(5), of the Income-tax Act, 1961 – Losses – In speculation business
Assessee-company was engaged in multifarious activities like purchase and sale of shares; making investments in mutual funds; rendering services of management consultancy – It invested certain amount in purchase of units of a mutual fund under dividend reinvestment scheme – Dividend received on such units was also reinvested in units of said fund in accordance with aforesaid scheme – On redemption of such units, assessee suffered loss – Said loss was shown in books as short-term capital loss and was accepted by Assessing Officer – Assessee also had earned short-term capital gains on purchase and sale of some shares – However, Assessing Officer assessed said income as income from speculative business in view of provisions of Explanation to section 73 and, accordingly, disallowed short-term capital loss incurred on redemption of mutual fund units to be set off against such speculative income – Whether receipt of dividend and its reinvestment in units of mutual fund showed that assessee held units as investments and not as stock-in-trade and, hence, loss suffered on sale of such investments would be assessable as capital loss – Held, yes – Whether, therefore, Assessing Officer was justified in accepting loss from units of mutual fund as short-term capital loss – Held, yes – Whether since settlement of contracts in respect of shares traded had been made otherwise than by actual delivery or transfer, transactions of purchase and sale of such shares were to be treated as speculative in nature within meaning of section 43(5) – Held, yes – Whether units of mutual fund cannot be equated with shares of a company for purposes of Explanation to section 73 – Held, yes – Whether, therefore, income earned by assessee from speculative business could not be set off against short-term capital loss from purchase and sale of units of mutual fund – Held, yes

Shri Ram Kishan Dass vs. DCIT
(2010) 38 SOT 102 (Del)

Extension of time for completion of special audit by the AO—As per proviso to s. 142(2C) the term “suo motu or’ had been inserted w.e.f. 1st April, 2008 and hence the power to suo motu extend the period for completion of the special audit was available to the AO only w.e.f. 1st April, 2008 and before such date, the extension can be made only at the request of the assessee on an application made in this behalf by the assessee—Since in the present case the period is before 1st April, 2008 and as the assessee has not made any application for the extension of the period, the extensions made by the AO are without jurisdiction and consequently, such extensions as made vide cannot be said to extend the limitation—Assessment is barred by limitation—Orders in cross appeals by the assessee for asst. yrs. 2004-05 and 2005-06, in ITA Nos. 149 and 150/Del/2009 dt. 6th Nov., 2009 Followed—Bishan Saroop Ram Kishan Agro (P) Ltd. vs. Dy. CIT (2010) 35 SOT 240 (Del) relied upon

Mangal Singh (HUF) Vs. ACIT
(2010) 132 TTJ (Del)(UO) 17 : (2010) 36 SOT 394 : (2010) 42 DTR 58

Capital gains—Transfer—Court decree vis-a-vis receipt of payment
Agricultural land beyond distance of 2 kms. on either side of Delhi-Gurgaon Road was excluded from the definition of “capital assets” in terms of s. 2(14)(iii)(b) by notification issued on 29th March, 1973—Assessee claimed that the land was transferred on 9th Feb., 1993 when in civil suit the decrees were passed—These decrees were executed and mutation sanctioned—There was a transfer of land within the meaning of s. 2(47) when the decrees were executed and possession of land was handed over to the vendees—Since at the time of transfer of the impugned land, notification dt. 29th March, 1973 was applicable, the lands were not capital assets and hence no capital gain was chargeable—Subsequent notification of 1994 enhancing the distance of 2 kms. would not apply to tax the capital gain on the ground that there was a dispute between the assessee and the vendee with regard to the plots to be allotted to the assessee by the vendee which was resolved in 1996 when the new notification of 1994 was in force—Incidence of transfer of agricultural land by virtue of a decree and sanction of mutation cannot be postponed or linked to the actual receipt of sales consideration—This incidence cannot be postponed to a subsequent date only for the reason that full consideration was not received by the assessee

M/s Baldev Woolen International Vs. ITO
(2010) 131 TTJ (Del) 338 : (2010) 39 DTR 12

Penalty under s. 271(1)(c)—Concealment—Debatable claim for deduction under s. 80-IB
While computing deduction under s. 80-IB, assessee included duty drawback/DEBP in the amount eligible for deduction—Same reduced from eligible profit and penalty under s. 271(1)(c) levied on the assessee for claiming incorrect deduction—Not justified—There was a debate regarding allowability or otherwise of such claim when the return was filed by the assessee on 29th Oct., 2001—Thus, it cannot be said that the claim of deduction under s. 80-IB in respect of export incentive was altogether baseless—Even after the pronouncement of the decision by the jurisdictional High Court in 2006, the Delhi High Court has taken a contrary view—No material has been brought on record by the Department to show that the particulars submitted by the assessee were wrong—Therefore, penalty for concealment was not justified

DCIT Vs. M/s Shivalik Global Ltd.
(2011) 8 ITR (Trib) 761 (Del)

Penalty—Furnishing of inaccurate particulars
Sustainability—AO making additions of repairs of plant and machinery expenses by treating part expenses of repair as capital in nature and the net amount was added after allowing depreciation—AO also initiated penalty proceedings under s. 271(1)(c)—Expenses under consideration was very much of revenue nature as the items purchased as spare parts were having short span of life and these are commonly needed parts only for operating machineries—Penalty is not justified because this issue is always debatable as to whether the particular repair expenses is of revenue nature or of capital nature

DCIT Vs. M/s Maharashtra Seamless Ltd.
(2010) 36 DTR (Del)(Trib) 36

Penalty under s. 271(1)(c)—Concealment
Disallowance of deduction under s. 80HHC—Admittedly assessee disclosed complete details of its claim for deduction under s. 80HHC and there was no mala fide in the claim—AO disallowed assessee’s claim for deduction on the basis of subsequent Supreme Court decision—Judgment of the Supreme Court came much after the date of filing of the return by the assessee—This indicates that the issue was contentious—Thus, the claim cannot be said to be false—It is certainly not the intention of the legislature to make such claim of deductions punishable under s. 271(1)(c) if they are not accepted—Penalty under s. 271(1)(c) rightly deleted by CIT(A)

M/s SRJ Securities Ltd. Vs. ITO
(2011) 8 ITR (Trib) 41 (Del)

(2011) 8 ITR (Trib) 41 (Del)
AO treated loss on sale of shares as speculation loss by invoking s. 73 and did not allow adjustment of loss against business income—Penalty levied under s. 271(1)(c) confirmed by CIT(A)—CIT(A) not justified—Assessee has placed all the details of share transaction done by the assessee—Fact that the assessee has incurred a loss is not disputed and the quantum of the loss is also not disputed—Only issue is whether the deeming provisions of Explanation to s. 73 hit the assessee insofar as the business loss as incurred by the assessee is treated as speculation loss for the purpose of computation of taxable income—Where all the requisite information as required by the AO was furnished by the assessee and there is nothing on record to show that in furnishing its return of income the assessee has concealed his income or furnished any inaccurate particulars of such income, just on account of the treatment of business loss as speculation loss by the AO does not automatically warrant the inference of concealment of income—CIT vs. Auric Investment & Securities Ltd. (2007) 163 Taxman 533 (Del) followed

Dr.(Mrs.)K.B.Kumar Vs. ITO
(2010) 131 TTJ (Del) 511 : (2010) 41 DTR 423

Reassessment—Validity—Proceedings initiated by AO not having jurisdiction
Assessee was assessed to tax in Delhi—Reassessment notice issued by ITO, Ghaziabad—Assessee submitted that she had filed her return with ITO, New Delhi and that the notice issued by ITO, Ghaziabad was without jurisdiction—AO, New Delhi issued a notice under s. 143(2) and assessed the income ignoring the objection of the assessee—Not justified—Notice issued by ITO, Ghaziabad being without jurisdiction, reassessment framed by the AO, New Delhi is invalid and quashed—ITO vs. Krishan Kumar Gupta (2008) 16 DTR (Del)(Trib) 1, Ranjeet Singh vs. Asstt. CIT (2009) 120 TTJ (Del) 517 : (2008) 10 DTR (Del)(Trib) 181 and CIT vs. Smt. Anjali Dua (2008) 219 CTR (Del) 183 : (2008) 11 DTR (Del) 93 : (2008) 174 Taxman 72 (Del) followed

ITO Vs. M/s Flora Exports
(2010) 40 DTR (Del)(Trib) 70

Penalty under s. 271(1)(c)—Concealment
Disallowance of claim for deduction under s. 80-IB—Penalty under s. 271(1)(c) is not leviable on assessee for wrongly claiming deduction under s. 80-IB on export incentive i.e., DEPB and duty drawback—Flora Exports (ITA Nos. 12 & 13/Del/2009, dt. 11th Sept., 2009) and Oriental Rug Co. (ITA Nos. 3629 & 3630/Del/2008) followed

Goyal Impex & Industries Ltd. Vs. CIT
(2010) 40 DTR (Del)(Trib) 278

Revision—Erroneous and prejudicial order
Non-observance of Tribunal’s directions—Tribunal had restored the matter to the file of the AO with a direction to examine the allowability of deduction under s. 80HHC afresh in view of amendments made by the Taxation Laws (Amendment) Act, 2005 retrospectively—AO however, did not consider the amendments but allowed the deduction—Since AO did not consider the amendments in spite of specific direction of the Tribunal, the order was erroneous and prejudicial to the interest of Revenue—CIT was justified in revising the order—CIT did not traverse beyond the issues raised in the second show-cause notice—AO directed to recompute the deduction following decision of the Special Bench in the case of Topman Exports vs. ITO (2009) 125 TTJ (Mumbai)(SB) 289 : (2009) 29 DTR (Mumbai)(SB)(Trib) 153

Mahanagar Telephone Nigam Ltd. Vs. ACIT
(2010) 130 TTJ (Del) 497 : (2010) 38 SOT 24 : (2010) 39 DTR 57

Deduction under s. 80-IA—Income from providing telecommunication services—Apportionment of income between old and new exchanges
Unlike provisions of sub-s. (2) of s. 80-IA in respect of industrial undertaking which imposes a condition that it should be a new undertaking and that it should not be formed by splitting up or reconstruction of a business already in existence, there is no condition in sub-s. (4) that the undertaking should not be formed by transfer to a new business of machinery or plant previously used for any purpose—Therefore, the profit accruing from telecommunication services is required to be taken into account while granting claim of deduction under s. 80-IA—After 1995, there is a complete revolution in telecommunication industry and old exchanges, if any, had been totally revamped and there was entire change in the set up, technology, instruments and equipments—Exchanges which were earlier operating on old technology have been revamped and most of the income generated is attributable to such new technology exchanges—Merely on the number of old exchanges which were not in operation at all or had been totally revamped, income cannot be attributable to such old exchanges—Seventy-five per cent of the income from various services to be treated as earned by virtue of new exchanges and 25 per cent of the income to be attributed to the old exchanges—Matter is restored back to the file of the AO for recomputing the claim of deduction under s. 80-IA with reference to 75 per cent of the income being eligible for deduction, whereas balance 25 per cent is not eligible for deduction in all the years under consideration

M/s Jindal Drilling & Industries Ltd. Vs. ACIT
(2010) 29 CCH 941 DelTrib

Loss—Sale of units—Allowability
AO noticed that assessee showed short-term capital gain which amount was arrived at after setting off of short-term capital loss incurred on transaction relating to TATA Gilt Securities Fund—AO disallowed loss of certain sum of amount as against which he assessed income by taking profit from transaction at certain sum of amount as short-term capital gain on transaction of sale of units in question—On an appeal, CIT(A) upheld findings of AO—Held, cost of units originally acquired would be amount of purchase or cost paid by Assessee at time when same were acquired and same would not spread over original units and bonus units—Thus position in this respect applicable from A. Y. 1996-97, was different from years prior to that—Therefore, it was held that, cost of original units sold by Assessee during year under consideration shall be taken at certain sum of amount, being cost of acquisition of original units, and this cost should not spread over original units and bonus units, and cost of bonus units should be taken at NIL—Assessee had incurred a loss of certain sum of amount i.e. difference between sale consideration of units of and cost of its acquisition—Hence, AO was directed to allow assessee’s claim of loss on sale of units claimed at amount in question and assessment order accordingly modified—Appeal filed by Assessee allowed

M/s Simplex Pharma Pvt. Ltd. Vs. DCIT
(2011) 11 ITR (Trib) 576 (Del)

Drug registration fee paid by the assessee for sale in foreign market has been held to be genuinely incurred.AO however on ad hoc basis held that Rs. 52,000 only is revenue expense pertaining to this year, clearly implying that AO treated it as deferred revenue expenditure—Imposition of penalty under s. 271(1)(c) not justified

M/s Poysha Investments Pvt. Ltd. Vs. ITO
(2011) 136 TTJ (Del)(UO) 57

Reassessment—Full and true disclosure—Notice after expiry of four years
Assessee has disclosed fully and truly all material facts necessary for the assessment which is clear from the assessment order itself—Neither in the reasons recorded nor in the notice issued for reopening one finds any whisper regarding non-disclosure of material facts fully and truly by the assessee and the reopening was merely on the basis of subsequent information from the Investigation Wing—Reassessment not valid

Mr. Praveen Gupta ACIT
(2011) 137 TTJ (Del) 307 : (2011) 52 DTR 334

Capital gains—Cost of acquisition—Stamp duty, interest, fire fighting charges, generator charges, processing fee, etc. paid to builder
Assessee has shown the total cost incurred by him for the relevant property which included the base price of the flat, stamp duty paid for having the conveyance deed in his name, interest paid thereon, fire fighting charges, generator charges processing fee and other miscellaneous charges—Without making these payments to the builder, assessee could not have obtained the conveyance deed—There is no material on record to suggest that the said payments were not incurred by the assessee as the cost of the flat—Therefore, all the aforesaid payments made by the assessee formed cost of acquisition of the flat and assessee is entitled to deduction thereof under s. 48(ii)

(2011) 136 TTJ (Del) 548 : (2011) 50 DTR 409

Revision—Erroneous and prejudicial order
Lack of proper enquiry vis-a-vis exemption under s. 10(23C)(iv)—CIT invoked s. 263 on the ground that assessee was earning income and incurring expenditure on coaching classes, whereas Chartered Accountants Act, 1949 nowhere provides for such coaching classes and further running of coaching classes is a business and not a charitable activity and for this purpose, the assessee ought to have maintained separate books of account in respect of coaching classes—CIT also observed that s. 10(23C) provides that application of income for charitable purpose has to be in India only and in view of the expenditure incurred by the assessee on overseas relations, the AO ought to have examined whether assessee is carrying on any charitable activity outside India—Accordingly, order of the AO was set aside by holding the same as erroneous insofar as prejudicial to the interest of the Revenue and AO was directed to reassess the income of the assessee—Not justified—Various regulations of ICAI inter alia provide that no candidate shall be admitted to the professional examination unless he produces a certificate from the head of the coaching organization and complied with the requirements of the theoretical education scheme—Candidate is also required to pay such fees as may be fixed by the council for such professional education—For this purpose, the institute is also conducting classes for chartered accountancy students registered with it for which nominal fee is charged from the students registered with the institute—Thus, institute is discharging its statutory function as required by the Parliament, which does not amount to any commercial activity—Major activity of the institute revolves around chartered accountancy education and training and as such the observation to the effect that coaching activity is not allowed under the Act is incorrect and against the facts—As regards allegation that assessee has not obtained permission of the CBDT which is required under s. 11(1)(c) before incurring expenditure on overseas relations, there is no such condition as being stated by the Director of IT (Exemption) in s. 10(23C)(iv) and s. 11(1)(c) is applicable only with reference to those trusts which are claiming exemption under s. 11, and it is not have any object of international applicable to exemption under s. 10(23C)(iv)—Institute does not have any welfare nor any expenditure has been incurred for that purpose and mere fact that expenditure has been incurred on foreign travel will not mean that institute has incurred such expenses for purposes which are not for India—Whether it is exemption under s. 10(23C)(iv) or exemption under s. 11, overseas expenses will not come in the way of allowing exemption—CIT was not therefore justified in setting aside the order of AO

ITO Vs. M/s Gahlot Farms Pvt. Ltd.
(2011) 138 TTJ (Del)(UO) 13 : (2011) 48 SOT 303

Capital gains—Agricultural land
Land situated outside municipal limits—As per Notification of the Government, the notified area for the purpose of s. 2(14)(iii)(b) in the case of Tehsil Samalkha, District Karnal is area upto a distance of 5 kms. from the municipal limit in all directions—Thus, land situated beyond the distance of 5 kms. from the municipal limit cannot be treated as capital asset as defined in s. 2(14)—Report of the Tehsildar of Samalkha confirms the fact that the land in question is situated 7 to 8 kms. from Samalkha—Therefore, sale proceeds of the land are not taxable as capital gains

M/s Cincom System infia Pvt. Ltd. Vs. DCIT
[2011] 45 SOT 33 (DELHI)(URO)

Section 144C, read with section 92C, of the Income-tax Act, 1961 – Dispute resolution panel, reference to – Assessment year 2006-07
Assessee had filed objections relating to transfer pricing issues before Dispute Resolution Panel (DRP) against draft assessment order of TPO – However, DRP did not at all considered assessee’s submissions and issued a direction – Pursuant to such direction issued by DRP, TPO passed assessment order – Whether since assessee’s submissions had been set aside without giving proper consideration by DRP, issue was to be remitted to DRP to consider it once again to pass a proper and speaking direction under section 144C – Held, yes

Shri Sanjay Kumar Garg Vs. ACIT
(2012) 144 TTJ (Del) 77 : (2012) 134 ITD 82 : (2012) 66 DTR 281

Reassessment—Validity—Second notice vis-a-vis pendency of proceedings
Notice issued by AO had not been received back and since the assessee had not brought any material on record to rebut the presumption of effective service, CIT(A) was justified in holding that effective service of notice under s. 148 was made on the assessee—However, for asst. yrs. 2001-02 to 2004-05, AO had issued notices under s. 148 during pendency of assessment proceedings under s. 147 initiated on the basis of notices issued and served earlier which had not been terminated either by way of assessment or by way of dropping of assessment proceedings—Same invalid and barred by limitation

Sukumar Buildwell Pvt. Ltd Vs. ITO
(2012) 31 CCH 354 DelTrib

Income—Determination of—AO made addition of Rs 2,17,85,000/- to the income of assessee holding that expenditure was unverifiable
CIT(A) held transaction to be sham and held that entire exercise was to divert profit of PACL India Ltd. to assessee concern and later withdraw same in cash and enhanced the assessee’s income to Rs. 2,37, 930/-—Held, both authorities failed to meet requirement of law of assessing/determining correct income of assessee—Once the agreement was not held to be ingenuine, and the expenditure claimed was disallowed, AO ought to have computed income on basis of estimation by referring to income normally earned in line of business carried on by assessee—In view of transaction being held sham, CIT(A) ought to have added service charge and percentage of profit for accommodation provided to PACL—In such a case, only the service charges could be added as the income of the assessee, as having been charged for providing the accommodation to PACL which was not done by either of the authorities below—Therefore, matter remitted back to AO—Assessee’s appeal allowed

ACIT Vs. Murli Manohar Dokania
(2012) 31 CCH 388 DelTrib

Books of accounts—Rejection—Validity
Assessee is an individual, engaged in business of trading in bullion, rice, shares, etc. and has three proprietary concerns—AO rejected book results by invoking provisions of section 145(3) holding that books of account were not being maintained in a manner to enable AO to correctly compute profit—AO made various additions in income of assessee—CIT(A) deleted additions made by AO after admitting additional evidences under Rule 46A of Income Tax Rules, 1962—Held, CIT(A) had recorded that for sufficient reason being shortage of time assessee was prevented from presenting evidence before AO—CIT(A) had obtained remand report from AO and thereafter adjudicated issue—In remand report, AO had accepted contention of assessee and veracity of evidences and documents submitted—In remand proceedings all relevant books and documents were submitted before AO, who has duly considered same—Hence, AO being appellant on behalf of revenue, cannot be said to be aggrieved by his own action

DCIT Vs. M/S CMYK Printech Limited
(2011) 53 DTR (Del)(Trib) 59

Website—In view of the amendment of Appendix I w.e.f. asst. yr. 2003-04 allowing depreciation @ 60 per cent on software, depreciation is allowable on expenditure for development of website @ 60 per cent

DCIT Vs .Widex India Pvt Ltd
(2012) 66 DTR (Del)(Trib) 57

Business expenditure—Allowability—Genuineness of advertisement expenses
AO disallowed Rs. 1,00,00,000 out of advertisement expenses on the ground that the expenses claimed in the relevant year have gone up by 200 per cent from the immediately preceding year and that it is not possible to verify the genuineness of such expenses—Not justified—Neither the AO nor the CIT(A) has made out a case that full facts and particulars were not disclosed by the assessee—Admittedly, the books of account of the assessee have not been rejected—AO has not pointed out any defect in the vouchers—No steps were taken by the AO to show that the expenses are not genuine—There are ample powers with the AO to cross-check the genuineness—Assessee has explained the reason for increase in expenditure that it had launched a new product in the relevant year and that it also incurred inauguration expenses, business promotion expenses, general advertising expenses, packaging charging, and expenses on account of brand ambassador, etc.—Expenses are duly vouched and the audited accounts duly supported by vouchers were made available to the AO who has not rejected the same—Thus, apart from general suspicion, there is no material or fact on record to justify the disallowance—Prayer of the Departmental Representative that issue should be restored to the AO is not tenable as it is not a case where something new is placed on record by the assessee or there has been a failure on its part to lead necessary evidence to satisfy the AO regarding the nature and extent of the claim when the assessee was specifically required to do so—All evidence was available before the AO who made no effort to point out any specific defect—Disallowance purely on estimate cannot be upheld

Hemant Plastic Industries Vs. ACIT
(2012) 31 CCH 414 DelTrib

Income—Valuation of stocks
Difference in value of stock under hypothecation—Addition—Assessee was dealing in imported plastic powders, PVC resin, etc.—Business premises of assessee were surveyed wherein assessee surrendered Rs. 5 lakhs during survey operations—Assessee had taken bank loans/advances against pledge of documents of imported goods in transit, pledge of stock and hypothecation of stock—AO made addition of difference to income of assessee—CIT(A) confirmed AO’s action—Held, AO had not pointed out any defects in books of account maintained by assessee with reference to purchases and sales recorded in month of February, 1990—Difference had been determined by AO purely on basis of his own calculation instead of examining and verifying actual purchases and sales made during month of February, 1990 and actual profit earned by assessee during that month—CIT(A) confirmed addition without verifying amount of actual purchases and sales made during the month of February, 1990—Hence, there was no basis for impugned addition—Assessee’s appeal allowed

M/s Caneron Concrete Industries Pvt. Ltd. Vs. ITO
(2012) 31 CCH 376 DelTrib

Cash Credit—Share transaction—Genuineness of transaction—Discharge of burden of proof
Assessee received amount towards share capital from four companies share capital though cheque—AO made addition u/s.68 holding assessee failed to establish identity and creditworthiness of the aforesaid four companies nor established genuineness of the transactions—AO also relied on the statement of director of two companies ‘S’ that they were engaged in providing accommodation entries—CIT(A) confirmed action of AO—Held, assessee submitted confirmations of the companies along with copies of acknowledgment of their returns during the course of assessment proceedings—Merely because the assessee could not produce the directors or controlling persons, there is no justification to draw an adverse inference—Assessee had given the names , addresses and PAN of the investors—AO, apart from issuing notices under s. 133(6) did not pursue the matter further—Since share capital was received by cheque statement of S is not relevant—Assessee discharged the primary onus establishing identity of the aforesaid four companies, no such addition can be made—Addition made on account of share capital is deleted—Appeal allowed

Universal Precision Screws Vs. ACIT
(2012) 31 CCH 355 DelTrib

Income—Deduction u/s. 10B—Assessee claimed deduction of Rs. 1,29,96,359/- u/s 10B
CIT(A) confirmed order of AO holding that assessee was entitled to deduction of Rs. 1,16,96,723/- only, being 90 percent of profit of Rs.1,29,96,359/- hence, claim of deduction was reduced while computing total income—Held, proviso to s. 10B is applicable only in respect of assessment year 2003-04—This exception is not applicable to subsequent years—Therefore, assessee is entitled to deduction of whole of profits and gains derived by undertaking from export of articles or things or computer software, as mentioned in sub-section(1) of s.10B of the Act—Impugned order of CIT(A) restricting the deduction to 90 percent is set aside—Appeal allowed

M/s GSJ Envo Limited Vs. DCIT
(2013) 35 CCH 371 DelTrib

Penalty u/s 271(1)(c)—Concealment of income—Leviability
Assessee was civil contractor engaged in civil works of constructing sewage treatment plant, storm water development, construction of underground reservoirs and booster pumping stations on turnkey basis at various sites at different stations of civil contract—During year under consideration, assessee had given interest free advance to one of directors of assessee company without any interest—AO held that same was not in nature of trade advance and he disallowed 11 percent of interest paid to bank and also initiated penalty proceedings u/s 271(1)(c) on ground that assessee had furnished inaccurate particulars of its income and levied penalty of Rs. 4,833—CIT(A) sustained penalty—Held, assessee had disclosed all relevant particulars of its income—There was no concealment of facts or filing of inaccurate particulars of income—Income declared was duly supported by copy of audited financial statement and audit report u/s 44AB—Authorities below had not brought any material to show that assessee had concealed any income—Following judgment in case of Reliance Petroproducts Pvt. Ltd, penalty imposed u/s 271(1)(c) deleted

Shri Ram Narain Bansal Vs. ITO
(2012) 32 CCH 449 DelTrib

Addition—Benami Ownership—Burden of proof
Burden of proof—AO on basis of statements of dummy persons and ADIT reports held that assessee was the benami owner of various business entities and their transactions and after working out peak investments and estimated profits he made additions—In appeal, CIT(A) upheld the order of AO—Held, AO while carrying out enquiries or investigations has not collected adequate material, evidence to ascertain the alleged Benami transactions—There are neither statements on record in respect of remaining 8 persons, nor further evidence collected by AO by investigations or enquiries on any other material aspect—Mere 6 statements, which are shaky, leading to no conclusive ascertainment of any fact cannot be solely be applied against assessee without any corroborative material—The statements are replete with inconsistencies about the salary, vocation, no of vehicles possessed by assessee—Thus, the allegation of Benami has not been proved by the revenue against assessee on cogent material or evidence—No correlation of human conduct, preponderance of probabilities and human conduct with material available on record has been established—Therefore, all the additions of peak investment and estimated profits from these alleged Benami concerns are deleted—Assessee’s appeals are allowed

ACIT Vs .Smt. Manju Bansal
(2012) 31 CCH 166 DelTrib

Capital Gain—Short term Capital Gain on sale of Agricultural land
Assessee claimed of exemption of the capital gains from sale of agricultural land as the land was situated at a distance of more than 8 kms. from outer limits of Gurgaon—AO treated the lands as capital asset within the meaning of sec. 2(14) of the Income-tax Act, 1961 and brought the profits to tax as short-term capital gains—CIT (A) allowed the exemption—Held, apprehension and possibility that any other shortest distance could be ruled out to a nearby municipality cannot form basis for denial of the claim of the assessee for exemption of capital gain on agricultural land

Shri Jag Mohan Singh Rawat Vs. ITO
(2012) 31 CCH 421 DelTrib

Income—Cash credits—Capital gain—Deductions in respect of long term capital gains in the case of assesses other that companies
AO selected case of assesse for scrutiny under CASS on basis of AIR information—As per AIR information, assessee had deposited cash of Rs.43,66,894/- in two bank accounts—Assessee denied having any account in one of the branch—Addition of Rs. 24,48,500/- u/s 68 was made by AO—CIT(A) upheld addition of Rs. 24,48,500/- as unexplained cash credit—Held, deposits of Rs.22,64,500/- in bank account were not supported by any evidence—No evidence was filed in support of contention that opening balance of Rs. 6,85,227/- was with assessee in books of Roop Systems—In absence of any such evidence, no set off could be given—Onus was on assessee to prove his contention with evidence—Therefore, set off of Rs. 2,20,000/- only against deposit of Rs. 24,48,500/- could be given—Hence, addition of Rs. 22,28,500/- was upheld as against Rs.24,48,500/- made by and confirmed by CIT(A)

ACIT Vs. Smt. Ashi Agarwal
(2012) 31 CCH 047 DelTrib

Capital Gains–Gains from the sale proceeds of agricultural lands–Claim of exemption
Claim of exemption on ground that sale proceeds of agricultural lands were exempt because the land was situated at a distance of more than 8 kms, from the outer municipal limit of Gurgaon–AO made addition on the basis of possibility of any other shortest distance from the outer limit of Gurgaon with the land in question–Held, no material has been brought on record by the Assessing Officer to support his contention that the impugned lands were situated within the 8 kms. from the outer limits of Municipal Corporation of Gurgaon–Profits arising on sale of such lands would not constitute capital asset–Appeals filed by the revenue dismissed

(2012) 134 ITD 576 (DELHI)

Commissioner (Appeals)—Procedure of—Reasoned order
Requirement to pass—Addition on account of unaccounted cash receipts made by AO on the basis of sale bills found during search—To a query by AO, assessee replied that these pages did not relate to the assessee but were concerned with ATI—Similarly, in pages describing number of pieces purchased, container number , type of timber in cubic feet, rate, total purchase amount was split into invoice amount and cash amount—Assessee did not submit any explanation nor even responded to query made by AO—AO made addition of Rs. 17,98,377—CIT(A) directed AO to delete addition, holding that all the receipts were accounted for in ATI—Held, order passed by CIT(A) is cryptic and violative of rules of natural justice—CIT(A) did not make even a whisper in his order nor took cognizance of the finding of the AO that no reply had been filed before the AO regarding amount of Rs. 17,98,377/- despite specific queries raised—Requirement of recording of reasons and communication thereof by the quasi—judicial authorities has been read as an integral part of the concept of fair procedure and is an important safeguard to ensure observance of the rule of law—Non speaking order passed by CIT(A) on various issues relating to addition of Rs. 17,98,377—Matter remitted back to the file of AO to be decided afresh—Amount of Rs. 2,25,000/- is accounted for in the books of ATL and no material is placed by revenue contravening the findings of facts recorded by CIT(A) in relation to the said amount, no interference is called for—Appeal filed by the revenue is partly allowed allowed

(2012) 33 CCH 202 DelTrib

Books of accounts—Rejection of—Trading addition by adopting higher rate of Gross Profit (GP)
Assessee derived income from purchase and sale of timber —For AY 2007-08, assessee declared GP rate of 3.63%—AO rejected books of accounts and applied GP rate of 4.90%—CIT(A) upheld rejection of books of accounts but reduced GP rate to 4%—Held, the GP rate disclosed by the assessee is better as compared to earlier two years of assessee’s case and also the comparable case of Sat Paul & Sons quoted by the Assessing Officer for AY 2007-08—No justification for sustaining part of the trading addition by applying GP rate of 4%—Trading addition made deleted

(2012) 33 CCH 190 DelTrib

Unexplained investments—Unexplained money
During the course of assessment proceedings, Assessing Officer referred the valuation of certain premises to DVO u/s 142A—The valuation report of the DVO was handed over to the assessee—In his report, DVO determined value of the property higher than what was declared by the assessee—AO added the difference u/s 69 of the Act—CIT(A) deleted the additions—Revenue is in appeal—Held, the issue is as to whether reference made by the AO to DVO u/s 142A is valid reference and whether the AO was justified in making addition on the basis of report of the DVO—In the instant case, there is nothing to suggest that any incriminating document was found and seized during the course of search or survey on 26-04-2007 in the premises of the aforesaid group—A mere glance at the assessment order reveals that there is no reference to any material/evidence/information on the basis of which it could be said that the cost of construction shown by assessee was understated or anything above what was disclosed by assessee—The burden is on the Revenue to prove that the real investment exceeds the investment shown by the assessee and that burden has to be discharged objectively—AO did not adduce any reasons as to why the report of registered valuer submitted by the assessee was faulty nor even cared to analyse the said report vis-a-vis report of the DVO—Reference made by the AO by invoking the provisions of section 142A is without justification

(2013) 55 SOT 226 (Delhi)

Income deemed to accrue or arise in India
Export Commission paid to a non-resident agent for services rendered outside India—No requirement to deduct tax at source—Disallowance u/s 40(a)(ia) unsustainable—Assessee paid sales commission on export to the agents who operated out of India and provided their services outside India—AO observed that assessee had to sell its goods offshore, he had to engage the acumen and expertise of the outsiders/non-residents, fee paid by the assessee to the outsiders/non-residents for the services rendered amounted to fee for technical services u/s 9(1) (vii)—Addition was made u/s 40(a) (ia) on account of non-deduction of tax at source on sales commission paid to agents—CIT(A) deleted the addition made by AO following the first appellate order for Assessment Year 2008-09—Held, CIT (A), while deciding the matter in favour of the assessee, has followed the first appellate order for Assessment Year 2008-09, wherein, it was held that sales commission was not a sum chargeable to tax within the provisions of the Indian Income Tax Act, thus, assessee could not have deducted tax at source under Chapter XVII-B and therefore, the necessity of invoking the provisions of section 40(a)(ia) would not arise—While deleting the addition for Assessment Year 2008-09, it was taken into account that the relationship between the assessee and its agents was on a principal to principal basis who did not have any PE in India—Since the services rendered by the agent outside India, payment could not be considered for technical services for providing managerial service—Since the transaction was of payment of commission for services rendered, no agreement between the assessee and the agents was even required—Assessee was held not to be liable for TDS under Chapter XVII-B—Facts for the year under consideration also remained much the same as for Assessment Year 2008-09—No error in the order passed by CIT (A)—Appeal filed by the revenue dismissed

(2012) 20 ITR (Trib) 494 (Delhi) : (2013) 57 SOT 53 (Delhi)(URO)

Interest payable and receivable—Interest on Refund
Delay not attributable to assessee—Entitlement—AO observed that assessee company was not able to produce original documents and these were procured by assessee company much later to assessment proceedings—Hence, no interest u/s 244A was to be granted to assessee—CIT (A) directed AO to allow interest on excess tax paid by assessee from date of receipt of order of ITAT setting aside assessment till date of giving effect to such order—Held, AO took considerable time in passing order giving effect to tribunal order which resulted in refund to assessee—Assessee was granted interest on refund from date of ITAT order—No interest was granted from date of payment to date of ITAT order on ground that assessment proceedings were delayed due to assessee, as assessee had failed to furnish requisite detail before AO & CIT (A)—However, no cogent basis for this was brought on record—Proceedings before AO, CIT (A) and ITAT are a continuous process—Thus, assessee should also be granted interest on refund from date of payment of tax to date of ITAT order—Assessee’s appeal allowed

(2013) 35 CCH 075 DelTrib

Notice u/s 143—Reassessment proceedings initiated
No notice u/s 143(2) issued—Assessment completed—Sustainability—Assessee’s assesment was originally computed u/s 143(1) which was later on reopened u/s 147/148 –AO completed reassessment proceeding without issuing notices u/s 143(2)—Held, tribunal had already adjudicated that issuance of notice u/s 143(2) was mandatory while remanding file to CIT (A) to record as to whether notice u/s 143(2) was issued or not—CIT (A) had recorded a finding that notice u/s 143(2), was not issued, thus, it had traveled beyond his jurisdiction—Provisions of Section 292BB are applicable only from A.Y. 2008-09 and also do not apply where there is failure to issue notice as jurisdiction to assess arises only after notice has been issued—It was held that notice u/s 143(2) is mandatory in reassessment proceedings and it is not a procedural requirement—Therefore, reassessment proceedings completed without issuing of necessary notice u/s 143(2) were bad in law and hence were void ab initio

(2013) 35 CCH 349 DelTrib

Charitable trust—Exemption u/s 11—Allowability
Assessee, a Registered Trust u/s 12A, filed its return for A.Y. 2004-05 at Nil taxable income, however, showing total income/receipts from donations and others and claimed as exempt u/s 11—Assessee also had a project approved u/s 35AC—AO noted that a sum was shown as donations received from two parties for which assessee had issued certificate for enabling them to claim 100 percent deduction u/s 35AC—A survey u/s 133A was conducted and AO stated that various incriminating documents and papers were found to establish that activities of assessee were not charitable in nature—Hence, exemption u/s 11 or 12 was not available to assessee—AO concluded that donation received u/s 35AC were not actually meant for charitable activities and added above receipt in taxable income of assessee Trust—CIT(A) partly allowed appeal of assessee—Held, CIT(A) had not given any specific finding regarding violation of Section 13 by assessee and non-availability of exemption under Sections 11 and 12 to assessee—Assessee had contended that amount was received in May and June, 2004 and cheques were encashed in period from 20.07.2004 to 10.09.2004, and no addition in this year on this account could be made—CIT(A) had also not examined this issue—Matter remitted to file of CIT(A)—Revenue’s appeal allowed

(2013) 35 CCH 261 DelTrib

Non Resident—Fees for Technical Services—Export Commission
Assessee debited an amount on account of commission paid but had neither deducted nor deposited TDS on the said amount of export commission on the reason that the commission had been paid to non resident parties not having any PE in India for services rendered and utilized outside India—Thus, the commission was not taxable and therefore no TDS was required to be deducted as per the provisions of Section 9 of the Act read with Circular 23 dated 23/07/1969 and Circular No. 786 dated 7/2/2000 issued by the Board—AO referred to the provisions of Section 9(1)(vii) of the Act and stated that as per the said provisions, all incomes as accruing and arising in India which partake the character of payment on account of ‘fee for technical services’ would be taxable—He was of the opinion that the payment made by the resident assessee in connection with his business in India to a person outside India making uses of his expertise in sale of goods is nothing but a fee which has been paid by the resident assessee to the non resident for the services rendered by him and can be construed as ‘fee for technical services’—Thereafter, he referred to the provisions of section 195 of the Act and made an addition u/s 40(a) of the Act—Held, the relationship between the assessee and its agents was on a principal to principal basis; that the agents of the assessee did not have any PE in India and it was on account of services rendered b the agents that the payments were made by the assessee to them, which payment could not be considered as if for technical services, nor could be taken as a job which was managerial in nature—There was no agreement between the assessee and the agents and no such agreement was even required, since the transaction was of payment of commission for services rendered—The assessee was held not to be liable for TDS under Chapter XVII-B of the Act—Respectfully following the same ITAT upheld the order of the CIT (A)

(2013) 154 TTJ (Del) 74 : (2013) 85 DTR (Del)(Trib) 66 : (2013) 143 ITD 297 (Delhi)

Charitable Purpose—Charitable Trust
Educational institution—Registration u/s 12AA—Assessee/Society filed application for grant of registration u/s 12AA (1)(b)(ii) as charitable trust—CIT(A) rejected assessee’s application for registration holding that assessee Society does not satisfy essence of charity, since it was charging hefty and indiscriminate amount of fees from public at large, fees received were outside scope of Sections 11 and 12 and thus taxable—Held, CIT did not raise any objection against objects of assessee Society that was education, which, undeniably, was of charitable nature, as per provisions of Section 2(15)—What was required while considering application for grant of registration, was if object of applicant was charitable and as if its activities were genuine—Jurisdiction and competence to examine issue under Right of Children to Free and Compulsory Education Act, 2009, obviously lied with authorities mentioned therein—CBDT Circular No.11 of 2008 clearly stated, that proviso to Section 2 (15) did not apply in case of education and where purpose of Trust or institution was education, as it would constitute ‘charitable purpose’ even if it was incidentally involved in carrying on of commercial activities’—Hence, order passed by CIT was cancelled—CIT(A) directed to grant registration to assessee trust u/s 12AA–Assessee’s appeal allowed.

(2013) 22 ITR (Trib) 438 (Delhi)

Transfer Pricing—Arm’s Length Price—Loan to Associated Enterprises
Assessee company, a leading manufacturer of rider apparel, entered into international transaction, viz. Equestrian Apparel sold to JPC Equestrian Inc and Loan provided to JPC Equestrian—As per the TP document, CUP method has been chosen to bench mark the sale of apparel as well as interest received on loan—As regards interest the assessee mentioned that it has received interest at a rate of 4 percent which was comparable with the export packing credit rate obtained from independent banks in India—The TPO observed that it is to be seen that what the assessee would have earned by giving loans in the Indian market—He noted that lending or borrowing is not one of the main business of the taxpayer—TPO opined that what is to be considered is the prevalent interest that could have been earned by advancing a loan to an unrelated party in India with the same financial health as that of the tax payer’s subsidiary—TPO further noted that while deciding the interest rate that may be charged on receivables from AE’s, Libor rate for calculating interest is not proper and opined that instead of US rate, Indian rate is to be adopted—DRP opined that Arm’s length interest rate may be taken as the PLR of RBI for the financial year 2007-08—In accordance with the above decision, the TPO adopted 13.25 percent as the rate of arms length interest rate—Held, CUP method is the most appropriate method in order to ascertain arms length price of the international transaction as that of the assessee—Where the transaction was of lending money in foreign currency to its foreign subsidiaries the comparable transactions, therefore, was of foreign currency lended by unrelated parties—The financial position and credit rating of the subsidiaries will be broadly the same as the holding company—In such a situation, domestic prime lending rate would have no applicability and the international rate fixed being LIBOR should be taken as the benchmark rate for international transactions—Assessee’s profits are exempt u/s. 10B, hence, there is no case that assessee would benefit by shifting profits outside India—Hence, adjustment as made by the TPO is not warranted

(2013) 143 ITD 659 (Delhi)

Capital gain
Case of assessee was selected for scrutiny and notices u/s 143(2) and 142(1) were served—AO held that assessee showed short term capital gain on sale of property—From perusal of sale deed, AO noted that stamp duty on sale of property was as per circle rate of area at time of sale—AO took view that as per Section 50C(1) for calculating capital gain, sale price of property was to be deducted on which stamp duty has been paid—AO made addition—CIT(A) confirmed action of observing that that assessee had not brought any substantial material to controvert finding of AO—Held, as per Section 50C(2) where assessee claims before AO or authority that value adopted or assessed by stamp valuation authority exceeds fair market value of property as on date of transfer and value so adopted and assessed by stamp valuation authority has not been disputed in any appeal or revision or otherwise provided, AO may refer valuation of capital asset to Valuation Officer and in that event, relevant and corresponding provisions of Wealth Tax Act shall, with necessary modifications, will apply—Therefore, it was incumbent upon AO to refer matter for valuation to Valuation Officer as provided in Section 50C(2)—Thus, orders of authority below are set aside—Matter restore to file of AO for fresh adjudication after referring matter to Valuation Officer u/s 50C(2)—Appeal allowed

(2013) 36 CCH 067 DelTrib

Loss—Stock of obsolete material—Allowability
Assessee had debited loss on account of obsolete material—AO raised query to explain it with supportive documentary evidence—AO was not satisfied with reply of assessee & disallowed loss claimed—CIT (A) observed that similar claims of assessee were allowed in previous as well as succeeding A.Ys., hence claim was allowed—Held, assessee had a proper system in operation for identification of obsolete stocks—Obsolescence of stock was not a new phenomenon in line of business assessee was involved—During A.Ys. 2003-04 & 2006-07 assessee had claimed stock obsolescence & no disallowance was made by AO—Thus, AO’s observation that assessee had made claim of obsolete stock without proper basis was not sustainable—Further, CIT (A) had given a finding that assessee had produced evidence to prove that said stock had become obsolete during year like quality test reports of Indian & Foreign Laboratories, copies of complaints of customers, etc.—These items were also furnished in form of paper book—It was further agreed with CIT (A) that considering volume of assessee’s business, wherein assessee’s turnover was to extent of Rs.23crores, possibility of some stock become obsolete could not be ruled out—AO had drawn adverse inference that there was no realization of scrap value in assessee’s books—In this regard, assessee had duly explained that assessee had sold obsolete stock as scrap & same have been accounted for in A.Y.—It was held that there was no infirmity in order of CIT (A), same was upheld

(2013) 24 ITR (Trib) 474 (Delhi)

Transfer pricing—Arms’ Length Price
Computation of—Asssessee company was engaged as a service provider to its AEs for providing sales support and business information—Assessee services can be classified into two groups—indent sales and proper sales—Commission earned by assessee in indent sales accounts for around 88.67 percent of its total turnover—Assessee benchmarked its international transaction relating using TNMM method, with operating profit/total cost as profit level indicator—Assessee computed itself as tested party showing a margin of 5.47 percent and the margin of the 13 comparables taken was computed at 9.15 percent and claimed its international transaction to be at arms’ length—Gross profit margin (commission) for indenting on AE sales was 1.48 percent while GP margin on trading was 1.81 percent— TPO applied trading margin of 1.81 percent to indenting sales—TPO discarded method and computed ALP on basis of profit earn by assessee in its trading activity and margin earned thereon was applied on basis of total FOB value of goods—Issue is TPO was justified in treating indenting activity at par with trading activity ; margins earned in the trading activity by assesssee with non AEs to indenting activity with AEs ; ‘costs’ referred to in Rule 10B (1) (e) (i) be FOB value of goods or would it be the operating cost of the assessee—Held, TPO erred in considering that activity of a service provider as similar to activity of a trader—Assessee is merely providing indenting services and at no point of time title in goods or possession of merchandise was in assessee’s hands—Contract was entered into by SCJ and Indian customers directly and assessee merely functions as a facilitator—Thus assessee does not incur cost either for maintaining or storing inventory or for the transportation as the title in goods is never held by the assessee for its indenting activity as a service provider—Consequently assessee was not exposed to any credit risk in maintaining inventory nor was assessee exposed to price risk or risk linked with offering credit sales—Asssessee’s business was low risk business and assessee has also shown profits on its own trading with non AEs—TPO was not justified in re—characterizing assessee’s indenting activities as a trading activity—TPO was not jsutified in applying margins earned in trading activity to indenting activity as two are distinct and separate—Costs would mean the FOB value of goods referred to in Rule 10B(1)(e)(i)—Assessee has not created human assets and supply chain intangibles and was rendering services utilizing network of AE—Simple performance of a low risk activity of facilitator does not lead to conclusion that a human intangible is being created—TPO was not justified in applying margins of trading activity to indenting activity—Assessee’s appeal allowed

(2013) 36 CCH 320 DelTrib

Income—Expenditure incurred in relation to income not includible in total income—Allowability
Assessee had filed his ROI—AO had completed assessement by making disallowance u/s 14A read with Rule 8D on grounds of expenditure in relation to income that does not form a part of total income of assessee—CIT(A) restricted disallowance under Rule 8D of the IT Rules—Held, application of Rule 8D was not automatic—Assessee had not disallowed any amount u/s 14A on grounds that no expenditure was incurred—No satisfaction was recorded by AO that factual claim made by assessee that no expenditure was incurred for earning concerned exempt income was wrong—AO was not justified in applying Rule 8D without giving any finding with regard to correctness or otherwise of claim of assessee—Revenue’s ground dismissed

(2013) 36 CCH 535 DelTrib

Assessee incurred loss on chit and claimed as expenses which was disallowed by AO on ground that chit amount was not utilized for purpose of business—Held, as per statement of utilization of funds, it stood established that funds received by assessee under chit fund had been procured and utilized for its business purposes—Assessee was following completed contract method for loss/gain on funds accrued under chit funds scheme which was consistently followed by assessee—CIT (A) has correctly taken into consideration decision in Billahari Investment Pvt. Ltd—Appeal filed by revenue is dismissed

(2013) 35 CCH 412 DelTrib

An amount was received by assesse from ‘X’ and same was invested in purchase of property—AO had treated amount received by assesse as commission from ‘X’ and thus as income of assessee and had made addition thereof—CIT(A) had confirmed additions and had directed AO to verify claim of assessee with respect to cash available for purchase of property and for deposit of amounts in bank account—Assessee had claimed that concerned amount was loan from ‘X’ and not income of assessee—Held, both AO and CIT(A) had ignored vital facts of case—AO had relied upon agreement between assessee and ‘X and had treated cheque received by assessee as his income but failed to confirm same from Income Tax records of ‘X’—CIT(A) had not adjudicated on additions made by AO and had only given directions to AO regarding certain additions which was beyond his powers—AO was directed to make proper and detailed enquiries before arriving at any conclusion regarding additions—Assesse’s appeal was allowed

(2013) 37 CCH 043 DelTrib

Income—Cash Credits—Previous year—Addition—Validity of
AO made addition on account of creditors appearing in assessee’s books for last three years—AO u/s 133(6) called for information from four creditors—Two of them denied to have done any business with assessee during A.Y. and other two did not reply—AO treated creditors as bogus and added balance amount to income of assessee—CIT(A) confirmed addition—Held, it was evident from ledger accounts of creditors that amounts were outstanding for last three years—No credit having given in books of assessee during year under consideration, provisions of Section 68 were not attracted—Since amounts were still outstanding, it could not be said that they have been either written off or that any benefit had been derived by assessee—For doing so, provisions of Section 41 (1) were also not attracted and no addition therein was envisagable—Amounts of sundry creditors were on account of purchases of assessee—No addition was called for, since purchases or sales have not been disputed by AO—In books of account of assessee, no mistake or defect, was pointed by AO—Since purchases had been accepted as genuine, balance remaining outstanding at end of year against such purchase could not be treated as a bogus liability and addition made on that basis cannot be sustained—In case of CIT vs. Smt. P.K. Noorjehan’, 237 ITR 570 (SC), it was held that as per provisions of Section 68, it is not mandatory that in case assessee fails to satisfy AO about outstanding credits, same are mandatorily required to be added as income of assessee and Section 68 gives a discretion to AO in this regard—AO has to take into account overall facts—In present case, provisions of Section 68 were not attracted, therefore no addition was called for under Section—Further, it was not scrutiny assessments for previous A.Ys. 2007-08 and 2008-09, that u/s 143 (3), these creditors were accepted by department—Therefore, facts and circumstances for present AY remaining entirely unchanged, consistency was required to be maintained for AY.

M/s Dumez Sogea Borie -SAE Vs. DCIT
(2009) 33 SOT 123 (Del)

Loss—Revenue loss or capital loss—Determination—Meaning of ‘business’
Assessee engaged in multifarious activities like purchase and sale of shares, making investments in mutual funds and rendering services of management consultancy—On 22nd Feb., 2001 asseseee making huge investment in Sun F&C Value Fund by obtaining bank overdraft facility—Dividend received immediately thereafter also invested in the said fund—On 23rd Feb., 2001 assessee getting all the units redeemed and redemption, proceeds on 26th Feb., 2001—As a result of the investment and redemption assessee suffering a loss of over Rs. 48 lakhs which was shown in the books as short-term capital loss—AO also accepting the loss as short-term capital loss—CIT(A) however treating the said loss as business loss and rejecting the claim for set off—During the year under consideration, the assessee had earned loss in trading in units of mutual funds and profits from trading in shares and had treated these two as two separate activities reflecting short-term capital loss under trading in units of mutual fund and profits from trading in shares—Intention of the assessee at the time of purchase of original units was to hold them as investments—Purchase and sale of units does not fall in speculative transactions within the meaning of s. 43(5) as the assessee had taken and given the actual delivery of units—In its P&L a/c, assessee itself had treated the loss as short-term capital loss—Therefore, the AO was justified in treating the loss on purchase and sale of units as short-term capital loss—Order of CIT(A) holding purchase and sale of units of mutual fund as business activity accordingly set aside