Consolidated Digest of Case Laws Jan 2013 May 2013

ConsolidatedDigestofCaseLaws(Jan2013toMay2013)http://www.itatonline.
org
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CONSOLIDATEDDIGESTOFCASELAWS(JANUARY2013TOMAY2013
(Journals Referred: ACAJ/AIR/AIFTPJ/BCAJ/BLR/IT Review//Comp Cas/CTR/CCH/DTR /E.L.T.
/GSTR /ITD /ITR /ITR (Trib) /JT /SOT /SCC /TTJ /Tax LR/Taxman/Tax World/ VST/
www.itatonline.org)
S.2(1A):AgriculturalIncomeAssesseefilingletterexplainingownershipofagriculturallandpurchased
in 198687 and disclosing capital gains on sale thereof in subsequent yearSeized material not
suggestinginflationofagriculturalincomeIncomenottobetreatedasincomefromothersources.[S.
153A]
The Assessing Officer made an addition on the ground that no agricultural lands were recorded in the
balancesheet and the assessee had not shown any documentary evidence in support of his claim. He
accordingly treated the income claimed as not agricultural income but as income from other sources.
Before the Commissioner (Appeals) the assessee contended that complete details of agricultural
holdingswerefiledbeforetheAssessingOfficerandthathehadalsoofferedcapitalgainstotaxonsale
of agricultural lands in the financial year 200506, which was accepted by the Assessing Officer. The
Commissioner (Appeals) held that this sort of addition could not be made in an assessment completed
undersection153Awithoutanyreferencetotheseizedmaterialandthatitwasalsonotthecaseofthe
Assessing Officer that the seized material, if any, suggested inflation of agricultural income. The
Commissioner (Appeals) treated the income as agricultural income and not as income from other
sources as the assessee had filed a letter explaining that the ownership of the agricultural land
purchasedintheyear198687bywayofproperevidenceandtherequirementofusingmaterialbeing
foundduringthecourseofsearchoperationwasnotofanyrelevanceandthatitwasnotthecaseofthe
Assessing Officer that the seized material, if any, suggested inflation of agricultural income. On appeal
:Held,thattheorderoftheCommissioner(Appeals)wascorrect.(A.Ys.20022003to20082009)
ACITv.MirMazharuddin(2013)22ITR314(Hyd.)(Trib.)
S.2(14):CapitalassetRuralagriculturallandDistanceof5Kmisheldtobecapitalassetand
liabletobeassessedascapitalgain.
The Central Government has published a notification dated 611994 contemplating that the
areauptoadistanceof5kmfromthemunicipallimitsofPanchkulainalldirectionsshallnotbe
an agricultural land. Since the impugned land fell outside the 5 km limit, it was held to be
capital Asset.The expression 'Municipality' in section 2(14) of the Act is very wide. It is not
restricted to a Municipality constituted under the relevant Municipal Laws such as Haryana
MunicipalAct,butitwouldincludeanyotherareaknownbyanyothername.Subclause(a)of
clause (iii) of section 2 (14) deals with an area which falls within the jurisdiction of a
Municipality, whereas clause (b) enable the Central Government to declare an area situated
within 8 kms from the local limits of any Municipalityreferred to inclause (a) to notify having
regardtoextentandscopeforurbanizationofthatarea.TheNotificationdated611994takes
into its ambit an area within 5 kms of the Municipality in the expression 'capital asset'.
ConsolidatedDigestofCaseLaws(Jan2013toMay2013)http://www.itatonline.org
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Therefore, the urban area developed by the Authority forms part of a Municipality. The
expression 'by any other name' appearing in item (a) of clause (iii) of Section 2 (14) has to be
readejusdem generiswith the earlier expressions i.e. municipal corporation, notified area
committee, town area committee, town committee. In view of the above, it is held that the
land, subject matter of acquisition, is a capital asset falling within the scope of clause (iii) of
section2(14).(AY200405)
CITv.RaniTaraDevi(Smt.)(2013)214Taxman321/85DTR374/258CTR225(P&H)(HC.)
S.2(14):CapitalassetPersonaleffectInheritedassetsSaleconsiderationisnotliableto
capitalgaintax.(S.45)
Assessee sold certain items such as furniture, carpets, paintings, watches and crystal items
inheritedfromhisfatherinassessmentyearinquestion,saiditemsbeinginnatureof'personal
effects,'TheCourtheldthattheassesseewasnotliabletopaycapitalgaintaxonsaleofthose
items. Amendment to section 2(14), which has been brought about by the Finance Act, 2007
with, effect from 142008 and which alters the clause pertaining to 'personal effects,' has
prospective application. With effect from 142008 even paintings, sculptures, works of art,
archaeologicalcollectionsanddrawings,inadditiontojewellery,havebeenexcludedfromthe
expression'personaleffects'whichwouldbeapplicablefrom142008.(A.Y.200203)
FaizMurtazaAliv.CIT(2013)214Taxman30/85DTR33(Delhi)(HC)
S.2(14):Capital assetAgricultural land situated beyond 8 kms from municipal limits and beyond 19
kms from centre of cityNot a capital assetLand shown in revenue records as agricultural
compensationisnotassessableascapitalgains.(S.45)
The assessee's lands were acquired by Reliance Projects Engineering Association Ltd through the
Government of Gujarat and the assessee received compensation. He claimed the same as the
agriculturalincomeconsideringitsagriculturalnature.TheAssessingOfficerrejectedtheclaimholding,
thattheassesseefailedtoprovideproofthatthelandwasagriculturalanddidnotsubstantiatethatthe
land was outside the purview of the definition of "capital asset" under section 2(14) of the Act, and
treated the income as longterm capital gains. The Commissioner (Appeals) held that the land was
locatedinavillagewhichwas19.34kmsawayfromthemaincity.Further,theCommissioner(Appeals)
opined that the Assessing Officer invoked the powers conferred by the Act and have obtained the
Government records from the Land Revenue Department for ascertaining whether the land fell within
theboundariesof8kmsfromthemunicipallimitsornot.Accordingly,theCommissioner(Appeals)held
thatthelandwaslocatedoutsidethevillage,whichwaslocatedatadistanceofmorethan19kmsaway
fromcityandgrantedrelieftotheassessee.OnappealbytheDepartment:
Held, dismissing the appeal, that the land was located beyond 8 kms of the Municipal limits of the
Jamnagar and was also located beyond 19 kms from the centre of the city of Jamnagar. On this issue,
thedefinitionofcapitalassetprovidedinsection2(14)(iii)wasnotmet.Therewasnonotificationissued
by the Central Government regarding the same being a capital asset. Therefore, the land held by the
assessee was agricultural land. It was borne out from the records of the Revenue Department that the
landsweredescribedbytheDistrictCollector,Jamnagar,asagriculturallands.Therewasnomaterialin
the possession of the Assessing Officer to hold that the land was a capital asset within the meaning of
section2(14)oftheAct.ThedecisionoftheCommissioner(Appeals)didnotcallforanyinterference(A.
Y.20072008).
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ITOv.AmrutilalB.Shah(2013)22ITR668(Mum)(Trib)
S.2(15): Charitable purposeTrade business or commercePublic utilityActivity of evolving,

prescribing, standards Activities cannot be termed as business activityExemption was
granted.(S.10)(23C).
The Bureau of Indian Standards (BIS), a sovereign entity created under the Bureau of Indian
StandardsAct,1986,hadbeengrantedexemptionundersection10(23C).
The Director of Incometax (Exemption) withdrew the said exemption on the ground that
activities of BIS were in the nature of business and hence, covered by the proviso to section
2(15).TheassesseechallengedthesaidorderbywayofWrittotheHighCourt,whereinitwas
held that, activities of Bureau of Indian Standards (BIS) in prescribing of standards of
goods/articlesandenforcingthosestandardsthroughaccreditationandcontinuingsupervision
throughinspection,etc.,cannotbeconsideredastrade,businessorcommercialactivitymerely
becausetestingproceduresinvolveschargingoffees.AccordinglyallowingthePetitiontheDIG
wasdirectedtoissuetheexemptioncertificateundersection10(23C)oftheAct.
Bureau of Indian Standards v DGIT (Exemptions) (2013) 212 Taxman 210/89 DTR 93 (Delhi)
(HC)
S.2(22)(e): Deemed dividendAccumulated profits do not include current years business

profits since it accrues only at the end of year Deemed dividend assessable should be
reducedfromtheaccumulatedprofits.
Purposeofsection2(22)(e),accumulatedprofitsdonotincludecurrentyear'sbusinessprofit.it
accrues only at end of year. deemed dividend assessable in any of earlier years has to be
reduced from accumulated profits. it was not assessed in that year, amount of accumulated
profithastobedeterminedondateonwhichloansweregivenbycompanyandnotatendof
year. Deemed dividend assessable should be reduced from the accumulated profits, even if it
wasnotassessedinthatyear.(A.Y.200708)
P.SatyaPrasadv.ITO(2013)141ITD403(Visakhapatnam)(Trib.)
S.2(22)(e): Dividend Deemed dividendShare application money Colour device Not loan
oradvance,cannotbeassessedasdeemeddividend.
The assessee was a beneficial shareholder of three companies named Kingston Properties P
Ltd. (KPPL), New Dimensions Consultants P Ltd (NDCPL) & R. S. Estate Developers P Ltd
(RSEDPL). NDCPL & RESEDPL advanced various sums of money to KPPL towards share
application money. However, some of the advances werereturned by KPPL while some were
adjusted towards allotment of shares. The AO held that the transaction was a colourable
deviceandaloanandadvancewhichfellwithintheambitofs.2(22)(e).Thesaidloanand
advance was assessed as deemed dividend in the hands of the assessee beneficial
shareholder following Universal Medicare Pvt. Ltd. (2010) 324 ITR 263 (Bom). The CIT (A)
reversedtheAO.OnappealbythedepartmenttotheTribunalHELDdismissingtheappeal:
Share application money or share application advance is distinct from loan or advance.
Althoughshareapplicationmoneyisonekindofadvancegivenwiththeintentiontoobtainthe
allotment of shares/equity/preference shares etc., such advances are different form the
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normalloanoradvancesspecifiedbothinsection269SSor2(22)(e)oftheAct.Unlessthemala
fide is demonstrated by the AO with evidence, the book entries or resolution of the Board of
the assessee become relevant and credible, which should not be dismissed without bringing
any adverse material to demonstrate the contrary. It is also evident that share application
money when partly returned without any allotment of shares, such refunds should not be
classified as loan or advance merely because share application advance is returned without
allotment of share. In the instant case, the refund of the amount was done for commercial
reasons and also in the best interest of the prospective share applicant. Further, it is self
explanatorythattheassesseebeingabeneficialshareholder,derivesnobenefitwhatsoever,
when the impugned share application money/advance is finally returned without any
allotmentofsharesforcommercialreasons.Inthiskindofsituations,thebooksentriesbecome
really relevant as they show the initial intentions of the parties into the transactions. It is
undisputedthatthebooksentriessuggestclearlytheshareapplicationnatureoftheadvance
and not the loan or advance. As such the revenue has merely suspected the transactions
without containing any material to support the suspicion. Therefore, the share application
moneymaybeanadvancebuttheyarenotadvanceswhicharereferredtoinsection2(22)(e)
oftheAct.Suchadvances,whenreturnedwithoutanyallotmentorpartallotmentofsharesto
the applicant/subscriber, will not take a natureof the loan merely because the same is repaid
orreturnedorrefundedinthesameyearorlateryearsafterkeepingthemoneyforsometime
with the company. So long as the original intention of payment of share application money is
towardstheallotmentofsharesofanykind,thesamecannotbedeemedasloanoradvance
unlessthemalafideintentionsareexposedbytheAOwithevidence.(A.Y.200203to200708)
DCITv.VikasOberoi(Mum.)(Trib.)www.itatonline.org.
S.2(22)(e):DividendDeemed dividendLoans and advancesLegal fiction does not extend to

broadentheconceptofshareholdertomaketaxloansoradvancesasdeemeddividendinthe
handsofdeemedshareholder.(CompaniesAct,S.153,187C)
Duringsearch various papers relatingshare holding pattern of Amod Stampings Pvt Ltd were
seized.Itwasfoundthatsaidcompanyhadgrantedloanstovariouscompanieswhereinshare
holdings and voting power exceeded 10 percent.It was explained that on creation of Trust a
partofsaidcompanyweresettledinfavourofTrustandafterexcludingofsharestheassessee
didnothavemorethan10percentvotingpowerandtheassesseehadnobeneficialinterestin
the said Trust. The Assessing Officer held that creation of Trust was an afterthoughtand taxed
theamount as deemed dividend.Before Commissioner (Appeals) it was contended that as per
section153oftheCompaniesActacompanyisnotpermittedtoincludethenameofthetrustin
the register of members. It was also contended that the provision of section 187C have been
madeineffective w.e.f.13th December, 2000 and therefore there is no requirement at present
to declare beneficial interest etc., therefore suchbeneficial interest was is not declared in the
register of the Company or the Registrar of the Companies. However Commissioner (Appeals)
up held the addition.On appeal the Tribunal held that since the said Company was not
permitted to include name of Trust in its register, name which was earlier noted as
shareholdersremainedsame,howeverthroughaBoardmeetingitwasresolvedtoacknowledge
change in vesting of shares, hence in view of the facts deemed dividendcould not be taxed in
hands of assessee.Legal fiction created under section 2(22) (e) does not extend further for
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broadening concept of shareholder so as to tax loans or advances as deemed dividend in
handsofa'deemingshareholder'.(.AY.200607)
KrupeshbhaiN.Patelv.Dy.CIT(2013)140ITD176(Ahd.)(Trib.)
S.2(22)(e):DividendDeemeddividendCreditbalanceinCapitalaccountNonencashment
of cheque the amount is credited back to companys account cannot be assessed asdeemed
dividend.
The assessee is running a proprietorship concern which was converted into private limited
company.Therewascreditbalanceincapitalaccountoftheassesseeinproprietorshipconcern
againstwhichpaymentwasmadebyproprietorshipconcerntotheassessee.However,because
of conversion, cheque could not be encashed and same was returned to company which was
credited to the assessees account by company. Subsequently money was withdrawn by the
assessee. It was held that the said amount could not be treated as deemed dividend. (A.Y.
200809)
Dy.CITv.RadheShyamJain(2013)140ITD244/86DTR42(Chandigarh)(Trib.)
S.2(22)(e):DividendDeemed dividend Accumulated profits Share premium account does

notpartakenatureofcommercialprofithencenotbetreatedasaccumulatedprofit.
Share premium account would not partake nature of commercial profits and thus cannot be
treatedasaccumulatedprofit.(A.Y.200809)
Dy.CITv.RadheShyamJain(2013)140ITR244(Chandigarh)(Trib.)
S.2(22)(e):DividendDeemed dividend Advance given to company in which assessee holds

substantialstakeisheldtobedeemeddividend.
AO treated advance taken by assessee from a company in which having substantial stake as
deemed dividend. It was case of the assessee that since they had mortgages their properties
withbanktoenablecompanytoavailfinancefacilitiesfrombank,advancebycompanywasnot
agratuitousloanoradvancebutinreturnforanadvantagewhichcompanyhadalreadyavailed
onaccountofmortgagingofpropertiesdonebyassessee.However,itwasafactonrecordthat
assessee had not produced any documents to prove fact that personal properties of assessee
were actually mortgaged with the bank for sake of availing loans by company. Assessee had
also not produced any correspondence made either with bank or with company towards
releaseofpropertiesmortgaged.Thus,revenuerightlyconsideredadvancesgivenbycompany
toassesseeasdeemeddividend.(A.Y.200203,200304&200607)
Dy.CITv.B.DhanunjayaRao(2013)140ITD443(Hyd.)(Trib.)
S.2(22)(e):DividendDeemeddividendAdvancetowardsSaleofPropertyMatterremanded.
The assessee is engaged in real estate development. The assessee received advance towards
sale of property. The Assessing Officer treated the said amount as deemed dividend.
Commissioner(Appeals)deletedtheaddition.OnappealbydepartmenttheTribunalsetaside
the order of Commissioner(Appeals) as he failed to pass as speaking order. Matter remanded.
(A.Y.200607,200708)
ITOv.NamEstatesP.Ltd(2013)141ITD659/21ITR109(Bang.)(Trib.)
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S.2(22)(e):DividendDeemed dividendLoans and advancesBusiness of financeLoans would
notberegardedasdeemeddividend.
The company from whom the assessee had obtained loan was engaged in the business of
finance and hence it was contended that the loan transaction from the company fell in the
exclusionary clause and the amount of loan was out of the purview of section 2(22) (e). The
Departments contention was that financing was not a major part of the business of the
company and hence the assessee could not take shelter under theexclusionary clause. Before
the Tribunal the assessee relied upon the decision of the Honble Bombay High Court in
CITv.Parle Plastics Ltd (2011) 332 ITR 63 (Bom.) (HC) wherein it was held that the said
expressionsubstantialpartofthebusinessins.2(22)(e),clause(ii),doesnotconnoteanidea
of being the "major part" or the part that constitutes majority of the whole.It was further
explained by the Hon'ble Bombay High Court that any business of a company which the
company does not regard as small, trivial or inconsequential as compared to the whole of the
businessissubstantialbusinessandvariousfactorsandcircumstanceswouldberequiredtobe
looked into while considering whether a part of the business of a company is its substantial
business. It was held that sometimes a portion which contributes a substantial part of the
turnover,thoughitcontributesrelativelysmallportionoftheprofit,wouldbeasubstantialpart
ofthebusiness.Similarly,aportionwhichisrelativelysmallascomparedtothetotalturnover,
butgeneratesalargeportion,saymorethan50%ofthetotalprofitofthecompanywouldalso
be a substantial part of his business. In view of the said decision of the Honble Bombay High
Court, it was held that the assessees case fell in the exclusionary clause and hence section
2(22)(e)wasnotapplicable.(A.Y.200607)
JayantH.Modi(2013)56SOT84(Mum.)(Trib.)
S.2(24):IncomeLotteryPrizeContessa carDraw of lots under the incentive scheme of the

NationalSavingsSchemewasnotlotteryandwasnotliabletotax.
TheassesseewasallottedaContessacarasthefirstprizeundertheNationalSavingsScheme.
TheAssessingOfficertreatedtheprizeaswinningsfromlotterieswithinthemeaningofsection
2(24)(ix),subjecttothespecialratesenvisagedundersection115BB.Heldthatthecarwonby
the assessee on draw of lots under the incentive scheme of the National Savings Scheme was
notalotteryandwasnotliabletotax.
CITv.S.P.SugunaSeelan(Dr.)(2013)353ITR391(Mad.)(HC)
S.2(28A):InterestDiscountchargesDeductionatsourceBusinessincomehencenotliableto
deducttaxatsource.[S.40(a)(i)]
The Court held that discount charges earned by assesseefinancial service provider by way of
discounting bill of exchange and promissory notes in favour of Indian companies is to be
treated as business income, and not as interest income In favour of assessee. (A.Y.200506 to
200708)
DIT(IT)v.CargilTSFPTELtd.(2013)212Taxman16(Delhi)(HC)
S:2(29B):CapitalgainsShorttermorlongtermPurchaseofpropertybytenantwasheldto
belongterm.(S.(2(42A),45)
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Assesseeboughtthepropertyofwhichshewasoneofthetenants.Allthetenantsenteredinto
an agreement on 10
th
June 1999 and formed a cooperative society. The old building was
demolished and a new building was constructed thereon. The tenants got possession in A.Y.
200203. Assessee sold her property on 17
th
September 2004. Held that the agreement dated
10
th
June 1999 itself gave interest and right in the impugned property to the assessee along
withothertenants,thetransactionclearlyinvolvedlongtermcapitalgains.(A.Y.200506)
NilaV.Shah(Mrs)v.ITO(2013)83DTR218(Mum.)(Trib.)
S.2(47): Transfer Shares pledged with groupcompanyA transaction in respect of transfer of

sharepledgedwithabanktoagroupcompanycanberegardedasTransferforincometax
purposesofarasrequirementofs.2(47)arecompliedwithLosssufferedisallowable.
A transaction in respect of sale of shares pledged with a bank to a group company cannot be
saidtobeacolorabledevicemerelyonthegroundsthatsuchatransactionresultedintolossto
the assessee and that the requirements of section 108 of The Companies Act, 1956 regarding
registration of transfer of shares have not been complied with since the share were in
possessionofabankowingtowhichsuchsharescouldnothavebeensaidtobetransferred.So
far as the requirements of section 2(47) of the Act are complied with the transaction is to be
regarded as Transfer for the incometax purposes. There is no restriction that such a
transaction cannot be effected with a group company. Also it is not open for the revenue to
doubtthelosssufferedbytheassesseeunlessitdoubtsthesalepricesoftheshares.(T.A.No.
260of2000,dated07/08/2012)]
BirajInvestmentPvt.Ltd.(2012)BCAJNovemberPg.402/(2013)86DTR69(Guj.)(HC)
S.2(47):TransferHandingoverofpossessionYearoftransfer.[S.45,TheTransferofproperty
Act,1882S.53A]
Even if some part of consideration remains to be paid, the transaction shall not affect the
liability to capital gains tax so as to postpone it indefinitely. What is meant in clause (v) is the
"transfer" which involves allowing possession so as to allow developer to undertake
developmentworkonthesite.Itisageneralcontroloverthepropertyinpartperformanceof
the contract. The date of that transaction determines the date of transfer. It is enough if the
transferee has, by virtue of the transaction, a right to enter upon and exercise the act of
possession effectively and such an act amounts to legal possession over the property. The
completion of transfer of an immoveable property under general law was not required for
theapplicabilityoftheprovisionsofsubclause(v)ofsection2(47).Capitalgainisassessableon
handingoverofpossession.(A.Y.20052006)
DurdanaKhatoon(Mrs.)v.ACIT(2013)24ITR55(Hyd.)(Trib)
S.2(47):TransferCapitalgainsAgreementforsaleIncompletetransaction.[S.45]
TheassesseeenteredintoagreementforsaleoflandforconsiderationofRs.2.24croreoutof
whichitreceivedRs.8lakh.Theassesseewasstillownerofpropertyandhadnotpartedwith
possessionofsame.Hence,thetransactioncouldbetreatedastransfer.(A.Y.200809)
MaliFlorexLtd.v.DCIT(2013)57SOT37(URO)(Hyd.)(Trib.)
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S.2(47):TransferSurrenderoftenancyrightsIncomefromothersourcesConsentgivenby
land lord for transfer of tenancy rights would not result in transfer of any capital asset
exemptionundersection54ECisnoteligible.[S.45,54EC,56]
Theassesseewasownerofaproperty,whichwaspartlyoccupiedbyhimandpartlyrentedto
'V'. As per the tripartite agreement between the assessee, 'V' and new tenant, the tenancy
rights and possession of the said property was surrendered in favour of new tenants. The
assessee claimed that the amount so received by it in respect of the surrender was capital
receipt.Heclaimedexemptionundersection54ECbyinvestingtheamountinNABARDBonds.
TheAOrejectedtheassessee'sclaimofexemptionundersection54ECongroundsthat'V'had
surrendered the tenancy rights in favour of new tenants and not in favour of assessee.
Therefore, the amount received was not a capital receipt and consequently the claim of
exemption under section 54EC did not arise, instead the amount was chargeable to tax under
thehead'Incomefromothersources'.
Held that there is no evidence to infer that the house is in vacant possession of the assessee
even after the alleged end of the tenancy of 'V' and, therefore, it can be stated that the
assesseehasnevergotthepropertyinvacantcondition.Theconsiderationforconsentimplies
notransferofanycapitalassetbythelandlordtothenewtenant.Further,theagreementrules
outthattheimpugnedconsiderationforconsentisfortherentortowardstherentaladvance.
Further also, considering the rentoriented terms and conditions specified in the tripartite
agreement,itcannotbeinferredthatthenewtenantreceivedmerelyrentalrightsandthereis
notransferofanycapitalrightstothenewtenantbythelandlord.Thereforetheconsideration
received by the assessee is neither a capital receipt nor a rental receipt. Hence, the action of
theAssessingOfficerwassustained.(A.Y.200607)
VinodV.Chhapiav.ITO(2013)56SOT465(Mum.)(Trib.)
S.4:Charge of incometaxAccrual IncomeInterest on arbitration awardWhen arbitration

awardisaliveandispendingincomedoesnotaccrue.[S.5,197]
The court held that so long as the challenge to the arbitral award is alive and is pending, and
thelegalityofthearbitralawardhasnotattainedfinality,theamountwhichhasbeenawarded
has not attained finality, the amount which has been awarded does not represent income
which has accrued; no interest income can also be said to accrue; the Assessing Officer was
directedtoissuethecertificateundersection197.(F.Y.201213)
DSLEnterprises(P)Ltdv.N.C.Chandratre(Mrs.)ITO(2013)258CTR156(Bom.)(HC)
S.4:Charge of incometaxAccrual Income Interest on loanDebtor declared sick company
NomaterialtosubstantiatetheclaimInterestaccruedandassessableasincome.[S.2(24)]
The material on record showed that the company court ordered winding up of the debtor
company based on the recommendation of the BIFR. However, the debtor company went on
appealbeforetheDivisionBench,whereinitwascontendedthattheorderofwindingupbased
on the recommendation of the BIFR was bad in law. In that event, in the absence of any
materialtosubstantiatethattheinterestontheborrowedamountcouldnotberecoveredand,
hence, had not accrued. Thus, interest was held to have accrued and was assessable. (A.Y.
199293)
CITv.PeriaKaramalaiTeaandProduceCo.Ltd.(2013)353ITR22(Mad.)(HC)
9
S.4:Chargeable to taxMercantile systemAccrualInterest on non performing assetsNon

banking financial company Characterisation as nonperforming assets alone not sufficient
UncertaintyinrealizationofincomeorinteresttobeprovedMatterremanded.[S.5,145]
The assessee has to prove in each case that interest not recognised or not taken into account
was in fact due to uncertainty in collection of interest and it is for the Assessing Officer to
examine the facts of each individual case. Mere characterisation of an account as a non
performing asset would not by itself be sufficient to say that there is uncertainty as regards
realizabilityofincomeorinterestthereon.Accrualofinterestisamatteroffacttobedecided
separatelyforeachcaseonthebasisofexaminationofthefactsandcircumstances.Thesystem
of accounting followed only recognises it, bringing the income into the books. The adopted
accountingpolicy,i.e.,recognisingincomeonthenonperformingassetsaccountsonlysubject
to realisation does not serve as a standard category. Since, the Assessing Officer had not
recordedfindingswhethertherewasanyuncertaintyincollectionofincomeandthattherewas
nothing to indicate that the interest was nonrecoverable, the matter was remitted to the
AssessingOfficertodecideissueafresh.(A.Ys.19992000,20002001)
CITv.SakthiFinanceLtd.(2013)352ITR102/86DTR59/258CTR433/214Taxman21(Mad.)
(HC)
S.4:ChargeofincometaxAssociationofpersonsJoiningofresourcesCoinheritors
Assessableasindividuals.(S.2(13),167B)
Five persons including assessee were coowners of agricultural land inherited from their
forefathers.Theyexecutedageneralpowerofattorneyinfavourofassesseeappointinghimto
constructplinthsontheirjointagriculturallandinnamesofallownersandtofurtherleaseout
such open plinths to any party on their behalf. An agreement was executed by coowners
leasingoutplinthsto'P'Ltd.Assesseefiledhisreturnshowingrentalincomeandalsopaidtax
accordingly.Similarreturnswerefiledincasesofothercoownerswherevertheyweretaxable.
Assessing Officer, however, assessed coowners as an association of persons treating entire
incomefromplinthsasincomefromothersources.Whetherinordertoassessindividualstobe
forming 'association of persons', individual coowners should have joined their resources and
thereafteracquiredpropertyinnameofassociationofpersonsandpropertyshouldhavebeen
commonly managed, since coowners had inherited property from their ancestors and there
wasnothingtoshowthattheyhadactedasassociationofpersons,incomewastobeassessed
in status of 'individual', therefore, impugned order passed by Assessing Officer framing
assessment in status of association of persons was not sustainable. Once it is held that the
incomewastobeassessedasindividualandnotan'associationofpersons',therefore,section
167Bisnotattracted.
SudhirNagpalv.ITO(2013)214Taxman13(Mag.)/84DTR110/257CTR253/349ITR636(P&H)
(HC)
S.4:ChargeofincometaxAdditionIncomedisclosedinthereturnamountreflectedinthe
TDScertificate,additionwasheldtobejustified.
All authorities below arrived at similar conclusion that the assessee claimed higher credit for
TDS by annexing TDS certificates but had not reflected all of them in its return. Held that
10
Tribunalwasjustifiedinconcluding thatnousefulpurpose wouldbeservedbyremandingthe
matterbacktotheAO.(A.Y.199899)
LaxmiVentures(Bombay)(P)Ltd.v.Dy.CIT(2013)83DTR36/257CTR232(Bom.)(HC)
S.4:Charge of incometax Capital or revenue receipt Sale of trees is held to be capital

receipt.
Assessee, an agriculturist, cut and sold trees to the forest department. Trees were cut in a
mannersuchthattheywouldnotregenerateinnearfutureasthespecieshadnospontaneous
growth.Thereceiptsfromthetransactionwereheldtobeinthenatureofcapitalreceipt.(A.Y.
199495)
CITv.MahendraKarma(2013)83DTR153(Chattisgarh)(HC)
S.4:Charge of incometax Interest on behalf of GovernmentIf an assessee company cannot

allot share immediately in favor of State Government against investment made be it in
AssesseeCompany,theninterestearnedondepositsmadeoutofsuchfundsshallbelongto
theStategovt.andshallnotbetaxedinthehandsofassessee.
The assessee company received certain funds from govt. of Gujarat as contribution toward it
equitysharecapital.Tillthetimetheassesseecompanyallottedsharestogovt.ofGujarat,the
saidfundswereparkedinshorttermdepositswithaschedulebankonwhichitearnedcertain
interest. The assessee company and govt. of Gujarat had entered into as arrangement
according to which the said interest should belong to and be received on behalf of Govt. of
Gujarat.ItwasheldbytheHonbleHighCourtthatduringthependencyofallotmentofshares,
thefundsreceivedtowardequitysharecapitalwereheldbytheassesseecompanyintrustfor
andonbehalfofgovt.ofGujaratandhence,anyinterestaccruedbyinvestmentofsuchfunds
mustbelongtothegovt.ofGujaratandtillitremaindinthehandsoftheassesseecompany,it
mustbetreatedtohavebeenheldintrust.(A.Y.199293
GujaratPowerCorporationLtd.(2012)BCAJNovemberP.402/(2013)354ITR201)(Guj.)(HC)
Editorial: The SupremeCourt has dismissed the special leave petition filed by the Department
againstthisjudgment.ITOv.GujaratPowerCorporationLtd(2013)354ITR82(St)
S.4:ChargeofincometaxSubsidyEntertainmenttaxCapitalreceiptHeldtobecapitalin
nature.
The question raised before the Court on behalf of the revenue was the benefit of exemption
fromentertainmenttaxwasavailabletoassesseeonlyoncethemultiplexwasinoperationand
it is revenue receipt. High Court followed the Judgment of Bombay High Court in CIT v.
Chaphalkar Brothers, (2013) 351 ITR 392 (Bom)(HC),and held that such exemption of
entertainmenttaxwasofcapitalreceipt.Appealofrevenuewasdismissed.(A.Y.200304)
DCITv.InoxLeisureLtd(2013)351ITR314/213Taxman160/85DTR103(Guj.)(HC)
S.4:ChargeofincometaxNoncompetefeeAssessableascapitalreceipt.
Payment received by assessee as noncompete fee under a negative covenant is a capital
receiptnottaxableunderAct(A.Y.200102)
CITv.RealImage(P.)Ltd.(2013)213Taxman169(Mad.)(HC)
11
S.4:ChargeofIncometaxCompensationforlossofsourceofincomeCapitalreceipt
CompensationtoCAFirmforlossofreferralworkisanontaxablecapitalreceipt.
Theassessee,afirmofCharteredAccountants,wasoneoftheassociatemembersofDeloitte
Haskins&Sellsfor13yearspursuanttowhichitwasentitledtopracticeinthatname.Deloitte
desired to merge all the associate members into one firm. As this was not acceptable to the
assessee,itwithdrewfromthemembershipandreceivedconsiderationofRs.1.15croresfrom
Deloitte.Thesaidamountwascreditedtothepartnerscapitalaccounts&claimedtobeanon
taxable capital receipt by the assessee. The AO rejected the claim. The CIT (A) reversed the
order of AO. The Tribunal reversed the CIT (A) order. On appeal by the assessee to the High
Court,reversingtheTribunalorderheldthat:
(i) There is a distinction between the compensation received for injury to trading operations
arising from breach of contract and compensation received as solatium for loss of office. The
compensation received for loss of an asset of enduring value would be regarded as capital. If
thereceiptrepresentscompensationforthelossofasourceofincome,itwouldbecapitaland
it matters little that the assessee continues to be in receipt of income from its other similar
operations(KettlewellBullenandCo.Ltd.V.CIT(1964)53ITR261(SC)&OberoiHotel(P)Ltd.v.
CIT(1999)236ITR903(SC)followed);
(ii)Onfacts,thecompensationwasforlossofasourceofincome,namelyreferredworkfrom
Deloitte because it is somewhat difficult to conceive of a professional firm of chartered
accountantsenteringintosucharrangementswithinternationalfirmsofCAs,astheassesseein
the present case had done, with the same frequency and regularity with which companies
carrying on business take agencies, simultaneously running the risk of such agencies being
terminated with the strong possibility of fresh agencies being taken. In a firm of chartered
accountants there could be separate sources of professional income such as tax work, audit
work,certificationwork,opinionworkasalsoreferredwork.UnderthearrangementwithDHS
there was a regular inflow of referred work from DHS through the Calcutta firm in respect of
clientsbasedinDelhiandnearbyareas.Thereisnoevidencethattheassesseehadenteredinto
similararrangementswithotherinternationalfirmsofcharteredaccountants.Thearrangement
with DHS was in vogue for a fairly long period of time 13 years and had acquired a kind of
permanency as a source of income. When that source was unexpectedly terminated, it
amounted to the impairment of the profitmaking structure or apparatus of the assessee. It is
for that loss of the source of income that the compensation was calculated and paid to the
assessee.ThecompensationwasthusasubstituteforthesourceandtheTribunalwaswrongin
treating the receipt as being revenue in nature (CIT v. Best & Co (1966) 60 ITR 11 (SC)
distinguished).(A.Y.199798)
Khanna and Annadhanam v. CIT(2013)/351 ITR 110/213 Taxman 347/258 CTR 72/85 DTR
164(Delhi)(HC).
S.4:ChargeofincometaxIncomeorcapitalPowersubsidyreceivedfromState
GovernmentSubsidygivenyearafteryearonactualpowerconsumptionisrevenuereceipt.
The power subsidy was granted after the commencement of production, and it was to the
extent of 10 per cent. or 12.5 per cent., as the case may be. This was given on actual power
consumption and had nothing to do with the investment subsidy given for establishment of
industries or expanding industries in backward areas. The power subsidy given as part of an
12
incentive scheme, after commencement of production, should be treated as subsidy linked to
production,andtherefore,arevenuereceipt(A.Y.19831984to19901991)
CITv.RassiCementsLtd.(2013)351ITR169/215Taxman144(Mag.)(AP)(HC)
CITv.DeccanCementsLtd(2013)351ITR169(AP)(HC)
S.4:Charge of IncometaxMutualityClubsInterest on fixed depositConcept of mutuality

cannotbeextended.
Assessee, a club, received interest on fixed deposit with banks. It claimed that principle of
mutuality applied in instant case and, hence, interest income was not taxable. In instant case,
contributors/members of assessee made contributions, which had been kept in fixed deposit
with third party banks and those third party banks had contributed to members fund, since
members'fundhadbeenexpendednotbycontributors/membersbutbyathirdparty,interest
income could not be said to have been derived from any activity based on principle of
mutuality. In order to be an income derived from activities based on principle of mutuality, it
must be shown that contributions have been made by contributors and same can only be
expandedorreturnedtocontributors.Infavourofrevenue.(A.Y.19992000)
CITvDehradunClubLtd.(2013)212Taxman269/258CTR443/86DTR86(Uttarakhand)(HC)
S.4:Charge of incometax Hindu undivided family IndividualIncome from agricultural land

which was received on partition assessable as HUF income and income from remaining
agriculturallandassessableasanindividual.
AssesseefiledreturninhiscapacityaskartaofHUF.Heclaimedthatheowned20.88acresof
agriculturallandinthestatusofHUFandtheentireincomeearnedfromagriculturallandwas
income from HUF property. Assessing Officer rejected the claim of assessee and assessed the
entire income from the agricultural lands in the status as individual. He also made protective
assessment at the hands of the assessee in the capacity of HUF. In appeal Commissioner
(Appeals) held that inclusion of the income from the land in the individual assessment of the
assessee was not correct. He also held that the assessment made in the hands of HUF as
protectiveassessmentshouldbetreatedasasubstantiveassessment.Inappealbyrevenuethe
Tribunal reversed the finding of Commissioner(Appeals). On appeal toHigh Court,it was held
that Agricultural land to an extent of 4.63 acres was originally joint family property and vide
partitiondeeddated2421981executedbetweenassessee,hisbrotherandtheirfathersame
wasallottedtoassessee.Nomaterialonrecordtoshowthatbalance16.25acresoflandwasin
fact HUF property of assesse. Only agricultural income earned from 4.63 acres of land was
assessableathandsofassesseeinstatusofHUFandremainingagriculturalincomeearnedfrom
balance16.25acresoflandwasassessableatindividualhandsofassessee.(A.Y.198485,1985
86)
K.P.NachimuthuvCIT(2013)212Taxman584(Mad.)(HC)
S.4:ChargeofincometaxReceiptsfromheadofficePaymenttoselfCannotbeassessedas
income.
In view of order of Special Bench of Mumbai Tribunal rendered in case of Oman International
Bank S.A.O.G. v. Asstt. CIT [IT Appeal Nos. 19811982 (Mum.) of 2001, dated 2962012],
13
addition of interest received by assessee from its head office and overseas branches, being
paymenttoself,wasnotjustifiedinaddingthesameasincome.(A.Y.19992000)
DresdnerBankAGv.ACIT(2013)57SOT203(Mum.)(Trib.)
S.4:ChargeofincometaxAIRinformationOfferedtotaxinthehandsofHUF,sameincome
cannotbeassessedinthehandsofindividualonthebasisofAIRinformation.
OnreceivingsomeAIRinformation,AssessingOfficerassessedcapitalgainonsaleofaproperty
and interest on mutual fund in hands of assessee, an individual. The assessee submitted that
capital gain and interest income had been offered for taxation in his HUF capacity. Held that,
once capital gain on sale of property and interest income shown in hands of HUF had been
acceptedbyrevenue,samecouldnotbeassessedagaininhandsofindividual.(A.Y.200809)
JyotindraNatwarlalNaikv.ITO(2013)57SOT114(Mum.)(Trib.)
S.4:IncomeMutualconcernSportsclubNodisputesastoidentitiesofcontributorsandparticipators,
principleofmutualityisapplicable.
During the financial year relevant to the assessment year the assesseeclub claimed exemption on the
principle of mutuality. The Assessing Officer held that the club premises were allowed to be used by
private parties and the assessee had no control on the receipts which were directly made by the
contractors or professionals and that the amount collected at the rate of 20 per cent was directly
enjoyed by the members of the club, that in order to get the benefit of the principle of mutuality the
assessee should confine its activities only among the members. Therefore he rejected the claim of the
assessee that its income was exempt on the ground of principle of mutuality and treated the total
receipts of the assessee as income from business activities and taxed them accordingly. On appeal the
Commissioner (Appeals) held that the club was registered under section 12A of the Incometax Act,
1961,thattheAssessingOfficerintheearlieryearshadnotquestionedtheapplicabilityoftheprinciples
of mutuality. On appeal, the Tribunal held that there was no dispute as to the identities of the
contributorsandtheparticipatorsoftheclub.Further,theAssessingOfficerdidnotdisputethefactthat
only the members and their families and guests were allowed to participate in club activities. Because
some professionals were engaged in organising the club activities from whom the club derived
commission,itcouldnotbesaidthattheclubwasnoteligibleforexemptiononprincipleofmutuality.
Therefore,theorderoftheCommissioner(Appeals)wascorrect.(A.Ys.20072008,20082009)
ITOv.KamalaViharSportsClub(2013)23ITR104(Mum.)(Trib.)
S.4:ChargeofincometaxAccrualBankGuaranteecommissionIfrefundableonrevocationof
guarantee,commissiontobespreadoverperiodofguarantee.Matterremanded.
TheTribunalheldthatiftheguaranteecommissionisrefundableontherevocationof
guarantee,itcannotbesaidthattheabsoluterighttothecommissionhasaccruedtothe
assesseeatthetimeofexecutionofthecontractforfurnishingtheguarantee,andthe
commissionistobespreadovertheperiodforwhichtheguaranteeisgiven.Inallothercases,
theamountistobetaxedintheyearinwhichtheguaranteehasactuallybeengiven
irrespectiveoftheperiodofguarantee.Matterremanded.(A.Y.199899)(A.Y.19981999to
20032004)
SocieteGeneralev.Dy.DIT(IT)(2013)21ITR606/57SOT101(Mum.)(Trib.)
14
S.4:ChargeofincometaxMutualityInterestpaidtoheadofficeoroverseasbranchesnot
considered as expenditure in hands of Indian branchInterest received is also not to be
consideredasincomeinhandsofheadofficeoroverseasbranches.
Theassesseereceivedinterestfromitsheadofficeoroverseasbranches,whichwasnotoffered
fortaxationtheTribunalheldthatontheprincipleofmutualitytheinterestincomereceivedby
the assessee from its head office or overseas branches was not chargeable to taxand interest
paid to the head office or other overseas branches was not deductible. (A.Y.199899) (A. Y.
19981999to20032004)
S.4:Charge of incometax Mutuality NonGovernment organisations managing selfhelp

groups of villagers and their families principle of mutuality is applicable income is not liable
totax.
AnallIndianationalapexbodycalledtheAssociationofSarvaSevaFarms,anationalleveltrust,
formed for the upliftment of poor villagers who had received in the past, parcels of land
distributedbytheBoodhanmovementbutwerenotinapositiontoraiseresourcestocarryon
agricultural and other related activities in the land allotted to them, arranged for funds for
distribution among the Boodhan land allottees, on the security of the Boodhan land. The
national apex body was a charitable institution and a nonprofit organisation. The assessee
trusts were nonGovernment organisations registered in Tamil Nadu, to manage selfhelp
groupsofvillagersandtheirfamiliesandundertakingprogrammestogenerateincomeforthe
benefit of the members of that selfhelp group. The assesseetrusts were under a common
umbrella micro financing company, which obtained loans from statutory corporations and
nationalised banks and distributed them to the assessees. The assessees, in turn, lent the
moneytotheselfhelpgroupsunderthem.Theumbrellacompanychargedinterestattherate
of12percentonthenetbalancemethodfortheamountadvancedbyittotheassessees.The
assessees, in turn, advanced these loans to their selfhelp groups at a flat rate of 12 per cent.
Thisdifferentialmethodgeneratedsurplusincomeinthehandsoftheassessees.Thebyelaws
of the assesseetrusts provided that 95 per cent of such surplus would be distributed among
themembersoftheselfhelpgroupsworkingunderthemand5percentofthesurplusretained
by the assesseetrusts for their own maintenance and other administrative overheads. Field
organisations like the umbrella company, the assesseetrusts and individual selfhelp groups
worked under the overall guidance and policy formulation of the national apex body. In the
courseoftheassessmentsoftheseassesseetrusts,theAssessingOfficerheldthatbecausethe
distribution of 95 per cent made by the assesseetrusts to member selfhelp groups was not
determinate with reference to individual recipients 95 per cent of surplus distributed by the
assesseetruststotheirmemberselfhelpgroupshadtobetreatedasincomeoftherespective
trusts.Tribunal held thatmonies obtained by assesseetrusts from umbrella micro financing
organisation lent to selfhelp groups under them 95 per cent of surplus income of assessees
distributedamongmembersofselfhelpgroups.Detailsofeverymemberbelongingtoselfhelp
group available on record. Details of loans availed of by various selfhelp groups properly
recorded. Distribution of funds by selfhelp groups to individual members properly
documented. Tribunal held that finding that share of every selfhelp group or share of every
15
individualmemberindeterminatewithoutanybasis.Distributionbyassesseetruststoselfhelp
groupsunderthemwasassessableasincomeofthoseselfhelpgroupsthemselves.Assesseeis
governedbyprinciplesofmutualityhenceisnottaxableincome.(A.Ys.20072008,20082009)
ITOv.SarvodayaMutualBenefitTrust(2013)22ITR277/56SOT507(Chennai)(Trib.)
S.4:Charge of incometax Capital or revenue Refund of excise duty is capital receipt hence
notchargeabletotax.(S.28(i))
ThequestionbeforetheSpecialBenchwaswhetherinthefactsandcircumstancesofthecase,
theexcisedutyrefundsetoffisacapitalreceipt.Iftheexcisedutyrefund/setoffisheldtobe
revenue receipt, whether the said amount is to be included in the business profits for the
purpose of deduction under section 80IB of the Income tax Act.The Special Bench held that
refund of excise duty is to be treated as capital receipt in the hands of the assessee, which is
notchargeabletotax.Asthefirstquestionisdecidedinfavourofassesseethesecondquestion
wasnotdecided.(A.Y.200607)
VinodKumarJainv.ITO(2013)140ITD1/83DTR258/152TTJ445/22ITR567(SB)(Asr.)(Trib.)
BalajiRosinIndustriesv.ITO(2013)140ITD1/83DTR258/152TTJ445(SB)(Asr.)(Trib.)
S.5: Scope of total incomeAccrualGuarantee commissionCancellation before expiry

periodIncomehasnotaccrued
Theassesseereceivedcommissiononguaranteeprovidedtoitsclient.Thesaidcommission,to
extentattributabletoperiodended3132001wasofferedbyassesseetotaxinAY200102on
accrualbasisandbalanceamountattributabletofinancialyearended3132002wasofferedin
AY200203.TheAssessingOfficerbroughttotax,theentireguaranteecommissioninhandsof
assessee for AY 200102. The Commissioner (Appeals) and the Tribunal found that guarantee
which had been issued for a certain period of time was cancelled by client before expiry of
tenureofguaranteeresultingintoassesseereturningtoitsclientpartofguaranteecommission
attributable to unexpired period of guarantee. Hence, the order of the Assessing Officer was
notsustainable.OnappealHighCourtalsoconfirmedtheorderofTribunal.(AY200203)
DITv.BNPParibasSA(2013)214Taxman548(Bom.)(HC)
S.5:ScopeoftotalincomeMercantilesystemofaccountingAccrualofdisputedpayments
Amountreceivedtaxableasrevenuereceipt.(S.145)
The assessee was maintaining mercantile system of accounts. In earlier years it supplied
rectifiedspirittovariousretailvendorsonbehalfofGovernment.Consequenttoagovernment
order, the amount to be received by the assessee stood enhanced. The assessee had shown
saidamountasoutstandingliabilityinbalancesheetfiledalongwithreturnforassessmentyear
199394 and was continued to be shown as liability even during assessment year 199798. A
publicinterestlitigationwasfiledchallengingtheaforesaidGovernmentorderandHighCourt
allowed writ petition. There upon, the Government vide its order dated 1892000 had
withdrawn its earlier order of enhancement. The assessee challenged the withdrawal order of
Governmentandthematterwaspendinginwritappeal.Held,sincetheaforesaidamountpaid
to assessee was definite and ascertained amount, it was in the nature of revenue receipt and
waschargeabletotaxinhandsofassesseeinAY199394.(A.Y.199394)
CITv.SapthagiriEnterprises(2013)214Taxman458(Karn.)(HC)
16
S.5: Scope of total income Accrual of Interest Certificate of depositInterest received on

maturityistaxableintheyearofmaturity.
Assesseecompany purchased three certificates of deposit from three banks on 3131997.
Certificates of deposit issued by respective banks showed period of deposit as 92 days. In
return filed for assessment year 199798, assessee offered a sum of Rs. 3.37 lakhs as interest
relatable to3131997, i.e., date of purchase of certificatesof deposit, and balance interest of
Rs.3.07croreswasofferedinnextassessmentyear199899.AssessingOfficerassessedentire
interestincome,i.e.,Rs.3.10croresinassessmentyear199798itself.TheCourtheldthatsince
assessee received interest only on maturity date, i.e., on 171997, Assessing Officer would be
entitled to assess a sum of Rs. 3.37 lakhs alone for assessment year 199798 and balance
amount of Rs. 3.07 crores had to be assessed in next assessment year 199899. In favour of
assessee.(A.Y.199798)
Infrastructure Development Finance Co. Ltd. v. Jt. CIT (2013) 213 Taxman 28(Mag.) (Mad.)
(HC)
S.5: Scope of total Income Accrual Stock broker Income by overriding title Amount paid
onbehalfofpublicsectorcompaniescannotbeincludedasincomeofassessee.[S.37(1)]
Assessee a registered stock broker he claimed to be a broker of Indian bank which purchased
securities of different public sector undertakings (PSUs) at a particular rate quoted by Indian
Bank and sold them to said bank through Bank of Madura, which acted as routing bank and
chargedservicecharges.Assesseewaspaidcommissionfortransaction.Assesseeclaimedthat
his role was only of a conduit for taking demand drafts of Rs.14.79 crores favouring PSUs in
respectofadditionalinterestpayablebybanktoPSUsondepositskeptbythem.Thisclaimwas
confirmed by Indian BankThe Assessing Officer found that neither public sector orgainsations
norIndianBankhadanyagreementwiththeassessee.Outof8Publicsectorcompaniesonly3
had confirmed receipt of demand drafts. The Assessee also took alternative plea that the
amount may be treated as business expenditure under section 37(1). The Assessing Officer
included the amount in the assessees income holding that the payments made to the public
sector undertakings were not falling under the category of diversion of income by overriding
title at source. On appeal Commissioner (Appeals) accepted the claim of assessee. In the
meantime,thecriminalprosecutionwaslaidagainsttheassesseeandtheBankChairman.The
CBI acquitted them as the charges had not been proved beyond reasonable doubt. In appeal
before theTribunal the Tribunal set aside theorder of Commissioner (Appeals) on the ground
that the criminal Courts decision was not binding on the Tribunal and had no relevance in
decidingtheissue.OnappealbyassesseetheCourtheldthatquestionwithreferencetostatus
ofassesseeasabrokerhadbeenclearlyspokentobywitnesseswhowereofficersofbank,who
had understood role of assessee and, accordingly, instructed assessee to act. Court held that
since evidence recorded clearly proved status of assessee as a broker only, even going by
theory of preponderance of probabilities, assessee could not be mulcted with any liability as
regards sum of Rs. 14.79 crores as his income. In favour of assessee. (A.Ys. 199192, 199293,
199394)
T.Jayachandranv.Dy.CIT(2013)212Taxman620(Mad)(HC)
17
S.5: Scope of total incomeIncomeAccrualMembership fee60% as income in the first year
andbalance40%asincomeinremaining24years.[S.145]
Assessee is engaged in business of running holiday homes on time share basis. It provided
holiday home facility to its members for a period of 25 years. In a 25 years plan, 60 per cent
membershipfeeswastreatedasincomeofassesseeoffirstyearandbalance40percentwas
treatedasincomeofremaining24yearsonaproratabasis.AssessingOfficertreatedhundred
percentofmembershipcollectionasincomeliablefortaxationforimpugnedassessmentyear.
On appeal following the special bench inACIT v. MahindraHoliday &Resorts (India) Ltd (2010)
39SOT438(SB)(Chennai)(Trib.),TheTribunalheldthattheassesseewasjustifiedintreatingonly
60percentofitsmembershipfeecollectionasitsincome.(A.Y.20062007)
MahindraHolidaysandResortsIndiaLtd.vDy.CIT(2013)141ITD363(Chennai)(Trib.)
S.5: Scope of total incomeInterest on securitiesAccrued but not due should not be treated
asincome.
Foryearendingon3131999,ithadcreditedincomefrominterestonsecuritiesondaytoday
accrualbasis.However,itdidnotoffersaidinterestfortaxationandclaimedthatinterestwhich
hadnotbecomedueforpaymentduringpreviousyearshouldnotbetreatedasincome.Held,
in view of judgment of Bombay High Court rendered in case of DIT (International Taxation) v.
CreditSuisseFirstBaston(Cyprus)Ltd.[2012]209Taxman234,theinterestinquestiondidnot
constitute income of assessee for assessment year under consideration as the same was not
due.(A.Y.19992000)
S.5:ScopeoftotalincomeAccrualRetentionmoneyAccruesonperformanceofconditions
intheagreement.
Customer retained money in respect of a completed contract for satisfactory performance of
contract, for which due diligence was undertaken. Only on demonstration of satisfactory
performance of contract, money was to be released finally to assessee, otherwise it had to
repairfaultorpayliquidateddamages.Tribunalheldthatsuchretentionmoneydidnotaccrue
asincometoassesseeonraisingbillaftercompletionofproject,incomearoseonperformance
of conditionalities of agreement and, thus, it did not accrue as income in current year. (A. Y.
200910)
Dy.CITv.AngeliqueInternationalLtd.(2013)55SOT226(Delhi)(Trib.)
S.5: Scope of total income Accrual Revenue for services Unused prepaid cards sold to
usersoftelecomservicesisassessableintheyearwhentalktimeisactuallyused.
Talk time charges received by the assessee, a telecom service provider, on the sale of prepaid
cards are to be recognized as income of the relevant yearonly to theextent the talk time has
beenactuallyusedbythecustomers,andtheamountreferabletotheunusedtalktimeistobe
recognizedasincomeinthesubsequentyearwhenthetalktimeisactuallyused.
ACITv.ShyamTelelinkLtd(2013)151TTJ464(Delhi.(Trib.))
S.5:ScopeoftotalincomeAmountpayabletoforeignentitydidnotconstitutetheincomeof
foreignentityintheabsenceofpermissionobtainedfromRBIasrequiredbyFERA
18
The assesse, M/s. Broz Allen & Hamilton (BAH) India, is a foreign partnership firm and it has a
branchofficeinIndiathroughwhichitrendersmanagementandtechnicalconsultancyservices.
BAHIndiahasavailedtheservicesfromvariousgroupentitiesandmadethepaymentsforthe
same. According to Assessing Officer, the payments made by BAH India to the group entities
abroadwerechargeabletotaxasfeesfortechnicalservices.TheAssessingOfficercompleted
assessments under section 143(3) r.w.s. 148 treating BAH India as agent of group entities and
the amount paid were taxable as fees for technical services. The CIT (A) upheld the validity of
assessmentsmadebytheAssessingOfficer.
The Tribunal held that the amounts payable by BAH India to three group entities in Germany,
IndiaandPanama(SEAsia)didnotconstitutetheirincomechargeabletotaxintheyearunder
consideration as there was no accrual of income in the absence of permission obtained from
RBI as required by FERA. Tribunal followed the two decisions of Honble Bombay High Court
namely,1.CITvs.KirloskarTractorsLtd.(1998)231ITR849(Bom.)2.CITvs.JohnFowler(I)Ltd.,
(1999)239ITR312(Bom.).(A.Y.199899)
Booz Allen & Hamilton (India) Ltd. v. ADIT (2013) 152 TTJ 497/83 DTR305/56 SOT 96
(Mum.)(Trib.)
S.6(1):ResidenceinIndiaIndividualConditionscumulativeIndividualresidinginIndiafor
morethan365daysinimmediatelyprecedingfouryearsbutresidingforlessthan182daysin
previousyearisnotaresident.
Section 6(1)(a) makes it clear that an individual would be a resident of India in any previous
yearifhewasinIndiainthatyearforaperiodorperiodsamountinginallto182daysormore.
Section 6(1)(c) applies to citizens of India as well as to persons of Indian origin. In the case of
citizensofIndia,thelengthofstayinIndiainaparticularyearhasbeenextendedto182daysas
comparedto60daysforforeigners.
Althoughtheassesseehadinthepreceding4yearsstayedinIndiaforaperiodinexcessof365
daysinIndia,innoneoftheyearshadhebeeninIndiaforaperiodinexcessof182days.
Therefore,theassesseewasnotaresidentofIndia(A.Ys.20012002to20032004).
CITv.SureshNanda(2013)352ITR611(Delhi)(HC)
S.6(6):ResidenceinIndiaNotordinarilyresidentAccrualofIncomeAssesseehastoprove
thatincomehadaccruedorarisenoutsideIndia.(S.5(1)(c)
Thecourtheldthatforavailingbenefitsofprovisotosection5(1)(c),mereclaimthatassessee
isaperson'notordinarilyresidentinIndia,isnotsufficient.Inabsenceofanyproofthatincome
thathadaccruedorarisenoutsideIndiawasnotonaccountofanybusinessinterestortradein
India, benefits of proviso to section 5(1) (c) could not be taken advantage of by a person 'not
ordinarilyresident'inIndia.Infavourofrevenue.(B.P.198687to199697)
KumariKanagam(Mrs)v.CIT(2013)213Taxman154(Mad.)(HC)
S.9(1)(i):IncomedeemedtoaccrueorariseinIndiaBusinessconnectionliaisonofficeNo
income is attributable to Liaison Offices activity of sourcing manufactured products from
Indiaeveniffeeforserviceisreceivedfromoverseasbuyer.(S.5)
19
The assessee, a USA company, setup a liaison office in India whose main activitywas to liaise
with Indian manufacturers for purchase of apparels from India by the assessees HO and
overseas subsidiaries. It employeda large variety of staff whose task was to create awareness
amongst the Indian manufacturers of the need to maintain quality control and adhere to
standards. The price for each apparel was negotiated with the manufacturer and the samples
wereforwardedtotheUSoffice.Theliaisonofficegaveitsopinionaboutthereasonablenessof
thepriceandallrelatedissuesetc.TheUSofficedecidedabouttheprice,quality,quantity,to
whom to be shipped and billed. The liaison office kept a close watch on the progress, quality,
time schedule etc at the manufacturing workshop. The AO held that the activities of the
assessee of identifying exclusive manufacturers, designing the products, supervising the
manufacture and quality of the and marketing the products were beyond that required by a
liaisonofficeandresultedinincomeaccruingorarisinginIndiau/s5(2)readwiths.9(1)(i).He
accordinglyheldthat5%oftheexportvalueofthegoodswasattributabletoIndiaoperations
and was chargeable to tax. This was upheld by the CIT(A). On appeal, the Tribunal (G.G. Dhi(
Dr.)v.ACIT(2010)125ITD35(Bang)heldthattheactivityoftheliaisonofficewasmerelythat
of purchasing goods for the purpose of exports as the agent of the buyer and that under
Explanation(1)(b)tos.9,noincomecanbesaidtobederivedbytheassesseeinIndiathrough
the operations of the liaison office. On appeal by the department to the High Court, HELD
dismissingtheappeal:
(i) U/s 9(1)(i) income accruing or arising from any business connection in India is deemed to
accrueorariseinIndia.TheexpressionbusinessconnectionisdefinedinExplanation2tos.9
to include any business activities carried out by a person who is habitually acting on behalf of
thenonresidentinIndia.However,thisdoesnotincludeanauthoritytoconcludecontractson
behalf of the nonresident if the activities are limited to the purchase of the goods or
merchandise for the nonresident. Under Explanation 1(b) to s. 9(1)(e) a nonresident is not
liabletotaxinIndiaonanyincomeattributabletooperationsconfinedtopurchaseofgoodsin
Indiaforexport,evenifthenonresidenthasanofficeoragencyinIndiaforthatpurposeand
the goods are subjected by him to any manufacturing process before being exported from
India. The result is that no income is deemed to accrue or arise in India to a nonresident,
whether directly or indirectly through or from any business connection, if the activities are
confinedforthepurposeofexport.
(ii) On facts, the assessee is not carrying any business in India. The object of the liaison
office is to identify manufacturers, give them technical knowhow and see that they
manufacture goods according to the assessees specification which would be sold to the
assesseesaffiliates.Thepersonwhopurchasesthegoodspaysmoneytomanufacturerandin
the said income, the assessee has no right. The said income cannot be said to be a income
arising or accruing in India visavis the assessee. As the entire operations are confined to the
purchaseofgoodsinIndiaforthepurposeofexport,theincomederivedtherefromcannotbe
deemedtoaccrueorariseinIndia.Thenonresidentbuyermayinturnpaysomeconsideration
to the assessee outside India but as that contract between the assessee and the buyer is
entered outside India, that income arises or accrues to the assessee outside India and is not
chargeabletotaxinIndia(AngloFrenchTextileCompanyLtd.vCIT(1953)23ITR101(SC)&CIT
v.R.D.AgarwalandCo.(1965)56ITR20(SC)referred)
20
CITv.NikeInc(Karn.)(HC)www.itatonline.org.
S.9(1)(i): Income deemed to accrue or arise in India Business connectionOff shore supply
equipmentDespite retrospective amendment to section 9(1) with effect from 161976
assessee would not be liable to tax under Explanation to said section.DTAAIndia Japan
[S.9(vii),90Art.7]
As per earlier Supreme Court decision in assessee's own case in Ishikawajima Harima Heavy
Industries Co Ltd (2007) 288 ITR 408(SC),amount receivable by assessee in respect of offshore
supply of equipment and offshore services was not liable to tax in view of article 7 of DTAA
between India and Japan. Court held that, despite retrospective amendment to section 9(1)
witheffectfrom161976assesseewouldnotbeliabletotaxinrespectofsuchamountunder
Explanationtosaidsection.Infavourofassessee.(A.Y.200304)
DIT(IT)vIshikawjimaHarimaHeavyInds.Co.Ltd.(2013)212Taxman273/258CTR335/86
DTR330(Bom.)(HC)
S.9(1)(i): Income deemed to accrue or arise in India Business profitsStrategic consultancy
servicestoclientsAssessableasbusinessincomeneitherroyaltynorasotherincomeDTAA
IndiaIndonesia.[S.9(1)(vi),56,57,Art.7,12,22]
Assesseeisaforeigncompanywhichisengagedinbusinessofprovidingstrategicconsultancy
services to clients. It provided its Indian group company various information as required.
AssesseeclaimedthatthechargesreceivedfromIndiangroupcompanywastobeassessedas
business profits .The Assessing Officer held that the fees received by the assessee fell in the
categoryofRoyaltyintermsofarticle12oftheDTAA.TheDRPheldthatprovisionsofarticle
22(3) of DTA treaty were applicable and the receipt in question was to be taxed as other
income.TheTribunalheldthatinformationsuppliedwasinnatureofdataanddidnotariseout
ofexploitationofknowhowgeneratedbyskillsandinnovationofpersonswhopossessedsuch
talent. Amount received by assessee from Indian group company did not fall in category of
royalty.TheTribunalalsoheldthatincomecanbetaxedunderanyotherarticle,provisionsof
article22willnotbeapplicable.TheArticle22residuaryarticlesimilartoprovisionsofsection
56and57oftheIncometaxAct1961i.e.Incomefromothersources.(A.Y.200708)
P.T.McKinseyIndonesia.vDy.CIT(2013)141ITD357/88DTR324(Mum.)(Trib.)
S.9(1)(i): IncomedeemedtoaccrueorariseinIndiaBusinessincomeAmount receivedfor

testingsolutionsisassessableasbusinessincomeandnotasfeesfortechnicalservicesDTAA
IndiaSingapore.[S.9(1)(vii),Art.12]
Assessee a Singaporean company provided services to an Indian company rendering services
relatingtotestingsolutions,sampleanalyticaltestingoffoodandfeedsamples.Itclaimedthat
receipttherefromwastaxableasbusinessincomeandthusnottaxableinIndia.TheAssessing
Officer held that the amount received was taxable as technical services as per article 12(4)
between India and Singapore. Tribunal held that services provided by assessee could not be
said to 'make available' any technical knowledge, experience, skill, knowhow or processes to
assessee. The receipts of the assessee would not amount to be fees for technical services.
(A.Y.200506)
RomerLabsSingaporePte.Ltd.vADIT(2013)141ITD50(Delhi)(Trib.)
21
S.9(1)(i):IncomedeemedtoaccrueorariseinIndiaBusinessconnectionInterestPermanent
establishmentDTAAIndiaFrance.[Art.5]
Assessee, a foreign company incorporated in France was engaged in business of operation of
ships in India. It filed its return of income claiming tax and interest payable at 'nil' on ground
that it was entitled to benefit under DTAA. Assessing Officer held that business of assessee in
India was carried out through a fixed place through its agent in India and agent of assessee in
IndiawasdependentonassesseeandhencesuchdependentagentconstitutedaPEofassessee
inIndia.Tribunalinassesseesowncasefortheassessmentyear200607heldthatsincethere
wasnonegativefindingthattransactionsbetweenassesseeandagentwerenotmadeunderat
arm'slengthcondition,agentwasofindependentstatus,standofAssessingOfficerwithregard
to existence of PE was not sustainable in law. Tribunal held that assessee had no PE in India,
andhence,notliabletotax.Followedearlieryearorder.(A.Y.200708)
DelmasFranceS.A.vADIT(2013)141ITD67/86DTR145/154TTJ561(Mum.)(Trib.)
S.9(1)(i): Income deemed to accrue or arise in India Business connection Directly or indirectly
attributable to permanent establishmentDTAAIndia UKTaxation of foreign professional firms &
concept of force of attraction under IndiaUK DTAA explained. Linklaters LLP(2010) 40 SOT 51
(Mum)heldtobenotgoodlawIncomeattributabletoservicesrenderedoutsideIndiaisnottaxable
in IndiaExplanation to section 9(1) of the Income tax Act, 1961, was amended by the Finance Act,
2010withretrospectiveeffectfromJune1,1976isapplicableinthecaseofincomeofanonresident
coveredbyclause(v)orclause(vii)ofsubsection(1)ofsection9.[Arts.5,7,15]
The assessee, a U.K. partnership firm of Solicitors, provided legal consultancy services in
connectionwithdifferentprojectsinIndiaandclaimedthatthetaxabilityoftheincomearising
there from had to be processed under Article 15 (independent professional services) of the
IndiaUKDTAA.TheAOrejectedtheclaimregardingapplicabilityofArticle15andheldthatas
the assessee had a PE in India as per Article 5and as the services hadbeen rendered in India,
the entire income was chargeable to tax in India under Article 7. In AY 199697, the Tribunal
{Cliffordchance,UnitedKingdomv.Dy.CIT(2002)82ITD106(Mum)}acceptedtheclaimofthe
assessee that if the aggregate period of stay of the employees/ partners did not exceed 90
days,theincomewasnottaxableunderArticle15 oftheDTAAandifitexceededthatperiod,
onlytheIndianactivitywastaxableu/s9(i).ThesaidverdictwasaffirmedbytheBombayHigh
Court in 176 Taxman 485. Later, another Bench in Linklaters LLP vs. ITO (2010) 40 SOT 51
(Mum)heldthatastheaforesaidverdictsoftheTribunal&HighCourtinCliffordChanceturned
onthebasisthatfeesfortechnicalservicesrenderedoutsideIndiawerenotchargeabletotax
u/s9(1)(vii)andthattheywerenotgoodlawinviewoftheretrospectiveamendmenttos.9(1)
bytheFinanceAct,2010w.e.f.1.6.1976whichprovidedthatfeesfortechnicalserviceswould
be taxable in India even if they were rendered outside India. In Linklaters LLP it was also held
that the expression directly or indirectly attributable in Article 7(1) triggered the force of
attraction rule and that the entire earnings relatable to the projects in India would be
chargeable to tax in India. As there was doubt as to the correctness of the view in Linklaters,
the Special Bench was constituted to consider two issues (i) whether the verdict of the High
CourtinCliffordChancewasgoodlawaftertheretrospectiveamendmenttos.9&(ii)whether
the expression directly or indirectly attributable to the PE in Article 7(1) meant that the
22
consideration attributable to the services rendered in the State of residence is taxable in the
sourceState.HELDbytheSpecialBench:
(i)TheviewtakenbytheTribunalandtheHighCourtinCliffordChancewasthatifArticle15of
the IndiaUK Treaty is not applicable because the stay of the partner exceeded 90 days, then
the taxability of the income would be determined by s. 9(1)(i) of the Act. It was held that for
determinationofincomeu/s9(1)(i),theterritorialnexusdoctrineplaysanimportantpartandif
the income arises out of operations in more than one jurisdiction, it would not be correct to
contend that the entire income accrues or arises in each of the jurisdictions. The High Court
applied the law laid down by the Supreme Court in the context of s. 9(1)(i) that if all the
operations are not carried out in the taxable territories, the profits and gains of business
deemed to accrue in India through and from business connection in India shall be only such
profits and gains as are reasonably attributable to the operations carried out in the taxable
territories. Accordingly, the viewexpressed in Linklaters LLP that the judgment of the Bombay
HighCourtisbasedonthepremiseofs.9(1)(vii)andthatthesaidpremisenolongerholdsgood
in view of the retrospective amendment is not correct. The law laid down by the High Court
continuestobegoodlaw;
(ii) As regards the rule of force of attraction, Article 7(1) provides that the profits of the UK
enterprise directly or indirectly attributable to the PE may be assessed in India. The
connotation of what is directly attributable to the PE is set out in Article 7(2) while the
connotation of what is indirectly attributable to the PE is set out in Article 7(3). When the
connotation of profits indirectly attributable to the PE is defined specifically in Article 7(3),
onecannotrefertoArticle7(1)oftheUNModelConventionwhichismateriallydifferentfrom
Article 7(1) & 7(3) of the IndiaUK DTAA. The reliance placed in Linklater on the UN Model
Conventiontocometotheconclusionthattheconnotationofprofitsindirectlyattributableto
PE in Article 7(1) incorporates the force of attraction rule thereby bringing an enterprise
having a PE in another country within the fiscal jurisdiction of that another country to such a
degree that such another country can properly tax all profits that the enterprise derives from
that country, whether the transactions are routed and performed through their PE or not, is
clearlymisplacedandnotacceptable.(A.Ys.199899to200304)
ADIT(IT)v.CliffordChance(2013)24ITR1/87DTR210/154TTJ537(SB)(Mum.)(Trib.)
S.9(1)(i):IncomedeemedtoaccruetoorariseBusinessconnectionDTAAIndiaGermany
SupplyofimportedequipmentandmaterialsfromGermanyandsupervisionoferection,
startupandcommissioningofpowerprojectIncomebetaxedasbusinessprofit.(S.44D,
115A,Art.7)
The assessee a company was awarded a contract by State Government for renovation,
modernization and up gradation of a power house. The scope of work included supply of
imported equipment and materials from Germany and supervision of erection, startup and
commissioning of power project. The assessee offered the amount for taxation at the rate of
10% of contract value as per section 44BBof the Incometax Act.The revenue taxed the
considerationinrespectoftheseactivitiesasBusinessProfit.Itwasheldthattherewasneither
any other contrary view nor the assessee brought on record any material controverting the
findings of the AO in this regards. Thus, the consideration be taxed under article 7 of DTAA
r.w.s.44DandS.115A.Accordinglytheappealofassesseewasdismissed.(A.Y.200708)
23
VoithSeimensHydroKraftwerkstechnikGmbh&Co.KG(2013)140ITD216(Delhi.)(Trib.)
S.9(1)(i):Income deemed to accrue or arise in India Business connection Service rendered

abroadDeductionatsourceDTAAIndiaUKPolandBrazilCanadaAustraliaBusinessprofit
AssesseewasnotliabletodeducttaxatsourcefromsaidpaymentsandAssessingOfficerwas
not liable to deduct tax at source, hence the assessee cannot be treated as in default under
section201.(S.9(1)(vii),195,201)
Assesseecompanywasengagedinbusinessofproductionoffilms,shootingofwhichwasoften
doneoutsideIndia.ForshootingfilmsoutsideIndia,itsproductionunitusedtogoabroadand
services required in connection with work of shooting abroad were availed from various
overseas providers. The assessee made payment to five such overseas service providers for
services availed in connection with shooting of different films. It was held that the services
rendered by overseas service providers would not fall within ambit of technical services as
given in Explanation 2 to section 9(1) (vii) instead they were in nature of commercial services
andamountreceivedforsuchservicesconstitutedbusinessprofit.(AY200506&200607)
YashRajFilmsP.Ltd.v.ITO(IT)(2013)140ITD625/23ITR125(Mum.)(Trib.)
S.9(1)(i): Income deemed to accrue or arise in India Business connectionDeduction at

sourceCommissionForeignagentNotliabletodeducttaxatsource.(S.40(a)(ia),195)
Assessee paid commission to foreign agents for services rendered by them in connection with
effectuatingexportsales.AssessingOfficerobservedthatsuchforeignagentswerepaidbyway
oftelegraphictransferobtainedfrombanksinIndiaandformedanopinionthatbanksinIndia
acted as agents of foreign agents and received payment on their behalf in India. Assessing
OfficeronsuchfactsheldcommissionsopaidtobedeemedtohavebeenreceivedinIndiaand
charged tax thereupon. Tribunal held that merely because commission were paid to foreign
agentsintheirbankaccountsbytelegraphictransferthroughbanksinIndia,itcouldnotbesaid
thatincomeweredeemedtohavebeenarisentosuchforeignagentsinIndiawhentherewas
no material on record to show that such foreign agents had rendered any part of services in
IndiaorhadapermanentestablishmentandbusinessconnectioninIndia.Infavourofassessee.
(A.Y.200506)
ACITv.AvonOrganicsLtd.(2013)55SOT260(Hyd.)(Trib.)
S.9(1)(i): Income deemed to accrue or arise in India Business connection Deduction at

sourceOECD Model Tax Convention Commission paid out side India is not liable to deduct
taxatsource.(S.40(a)(ia),195).
In the course of its export business activities, the assessee paid commission to its foreign
agents for their services. The assessee submitted that the agents operated out of India and
providedtheirservicesoutsideIndiaandnoneofthemhadanyofficeorplaceofprofitorany
other business connection in India. Thus, no part of the income of the foreign agents arose in
India and, consequently, no tax was to be deducted from the commission payments. The
Assessing Officer held that the exporter utilizes the information, data and know how, as
gathered by the agent, to further his business activities and thus, there was an element of
consultancy,technicalandmanagerialservicesforwhichthecommissioninquestionwaspaid
for services rendered regarding the nature of products and inspection, timing and prices of
24
products and detailed technical and other formalities; that thus, the provisions of section 9
wouldcomeintoplay.Sincetheassesseehadnotdeductedtaxatsourceundersection195,the
Assessing Officer disallowed the amount of commission paid under section 40(a) (ia). On
appeal,theCommissioner(Appeals),followingthefirstappellateorderfortheassessmentyear
200809 in favour of the assessee, deleted the addition of Rs. 37,87, 26,158 made by the
Assessing Officer. On appeal by revenue, the tribunal held that where the export commission
paidtoanonresidentagentforservicesrenderedoutsideIndiaisnotchargeabletotaxinIndia
favourofassessee.(A.Y.200910)
Dy.CITv.AngeliqueInternationalLtd.(2013)55SOT226(Delhi)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyReimbursementofleaseline
charges Force of attraction rule. Marketing and management servicesDTAAIndiaUK
(Art.5).
Theamountreceivedbyassesseeasreimbursementofleaselinechargesandwouldnotclassify
eitherasroyaltyorasincomeattributedtoapermanentestablishment.Lowerauthoritiesheld
thatfeesreceivedbyassesseeforprovidingmarketingandmanagementservicesoutsideIndia
could not be subjected to tax in India, as same was not attributable to Permanent
Establishment(PE)inIndia.RevenuecontendedbeforetheCourtthatincomeinquestionwas
attributable to a Permanent EstablishmentinIndia by virtue of force of attraction rules, since
revenue had not canvassed force of attraction rules before authorities and decision of lower
authoritiesbeingbasedonfindingoffact,itdidnotwarrantanyinterference.(A.Y.200405)
DITv.WNSGlobalServices(UK)Ltd.(2013)214Taxman317(Bom.)(HC)
S.9(1)(vi):Income deemed to accrue or arise in India Beneficial ownerRoyaltyDTAAIndia

Netherlands.(Art.12)
Assessee, a company incorporated under laws of Netherlands, claimed benefit of article 12 of
DTAA between India and Netherlands and sought to pay tax at concessional rate in respect of
royaltyincomereceivedfromanIndiancompany.AssessingOfficerdeniedbenefitofarticle12
ofDTAAongroundthatassesseewasnotbeneficialownerofmusicaltracksinrespectofwhich
royalty income was earned. Tribunal on basis of certificates issued by revenue authorities of
Netherlands held that assessee was beneficial owner of royalty received in respect of musical
tracks given to aforesaid company and, therefore, it was entitled to benefit of article 12 of
DTAATheCourtheldthatthedecisionofTribunalbeingbasedonafindingoffactdeservedto
beupheld.
DITv.UniversalInternationalMusicB.V(2013)214Taxman19(Bom.)(HC)
S.9(1)(vi): Income deemed to accrue or arise in India Marketing and managerial services is
nottaxableasperarticle12DTAAIndiaUSA[Art.12]
Assessee a US company entered into agreement with WNS India for providing marketing and
sales services. Assessing Officer held that assessee's personnel visited WNS India to provide
managerial services which amounted to rendering of expertise and technical knowledge for
conduct of Indian concern, therefore ,marketing and management services rendered by
assessee were in nature of technical services as per section 9(1)(vii) same would not become
FIS as per IndoUS DTAA. DRP up held the order of Assessing Officer. Tribunal held that
25
assessee in the instant case has not made available any technical knowledge, experience, skill
etctoWNSIndia,thesamecannotbesubjectedtotaxaspersection9(1)(vi).Astheprovisions
of article 12(4)(b) shall apply which is more beneficial to assessee which shall apply
supersession of section 9(1)(vi) of the Act. It is therefore held that the marketing and
managerial services rendered by the assessee to WNS India were not chargeable to tax as FIS
undertheArticle12oftheDTAA.(A.Y.20062007)
WNSNorthAmericaInc.v.ACIT(2013)141ITD117(Mum.)(Trib.)
S.9(1)(vi): Income deemed to accrue or arise in India RoyaltyBusiness profits

ReimbursementofleaselinechargesisnottaxableDTAAIndiaUSA.[S.9(1)(i),Art.7,12]
Assessee a US company received reimbursement of lease line charges from WNS India. WNS
India was in business of providing software and IT enabled services to clients located outside
India. transmitting data from unit of WNS India to customers located outside India. Assessing
Officer treated payment received towards reimbursement of international telecom
connectivity charges as royalty taxable as perArticle 12of IndoUS DTAA. Assessee was not
ownerorlessorofequipments,amountreceivednotberegardedas'royalty'withinmeaningof
section 9(1)(vi). Tribunal held that Lease line charges recovered by assessee from WNS India
werewithoutanymarkuporprofitelementandsaidamountcouldnotbetaxevenasbusiness
profitsunderarticle7ofDTAA.(A.Y.200607)
WNSNorthAmericaInc.v.ACIT(2013)141ITD117(Mum.)(Trib.)
S.9(1)(vi): Income deemed to accrue or arise in India Royalty Live telecast of cricket
matchesBusinessprofitDTAAIndiaSingapore[S.9(1)(i),195,Art.12]
Assessee entered into an agreement with a foreign company for obtaining licence for live
telecastrightofcricketseriestobeplayedoutsideIndia.Assesseesoughtforacertificateofnil
deduction of TDS on ground that fees for live coverage would not be in nature of royalty.
However,theAssessingOfficerheldthatpaymentoffeesforlivetelecastingwasinnatureof
royalty and assessee was liable to deduct tax at source. Held, that the procedure of live
telecasting, does not give birth to a 'work' capable of copyright and any consideration for live
broadcastingcannotbeconsideredas'royalty'.Whereanonresidentonlyallowsaresidentto
exploit some rights vested in it on commercial basis, it cannot be said that nonresident has
carried out any business activity in India. Non resident only allows a resident to exploit some
vestedinitoncommercialbasis,itcannotbesaidthatnonresidenthascarriedhascarriedout
anybusinessactivityinIndia.(A.Y.200910)
DCITv.NimbusCommunicationsLtd.(2013)57SOT92(Mum.)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyLawonwhatconstitutesaPEandhowto
attributeprofitstoaPEexplained.
TheTribunalhadtoconsiderthefollowinglegalissues:(i)whethertheassesseecouldbesaidto
have a PE in terms of Article 5(1) and 5(2) of the DTAA? (ii) what is the correct method to
allocate profits to the PE? (iii) whether fees for software is assessable as royalty after the
retrospectiveamendmenttos.9(1)(vi)and(iv)whetherthepaymentforlinkchargesistaxable
asequipmentroyalty?HELDbytheTribunal:
26
(i) The assessees argument that it does not have a PE under Article 5(1) cannot be accepted
because its employees frequently visited the premises of CIS to provide supervision, direction
andcontrolovertheoperationsofCISandsuchemployeeshadafixedplaceofbusinessattheir
disposal. CIS was practically the projection of assessees business in India and carried out its
businessunderthecontrolandguidanceoftheassesseeandwithoutassuminganysignificant
riskinrelationtosuchfunctions.Besidestheassesseehasalsoprovidedcertainhardwareand
softwareassetsonfreeofcostbasistoCIS.However,itdoesnotconstituteadependentagent
PEintermsofArticle5(4)and5(5)oftheDTAA;
(ii) The correct approach to arrive at the profits attributable to the PE should. be as under: (i)
computetheGlobaloperatingIncomepercentageofthecustomercarebusinessasperannual
report/10Kofthecompany,(ii)thispercentageshouldbeappliedtotheendcustomerrevenue
with regardto contracts/projects where services were procured from CIS. The amount arrived
at is the Operating Income from Indian operations, (iii) the operating income from India
operations is to be reduced by the profit before tax of CIS. This residual is now attributable
between US and India, (iv) the profit attributable to the PE should be estimated on residual
profitsasdeterminedunderStep3above;
(iii)Asregardsthetaxabilityofsoftwarelicensefees,theretrospectiveamendmenttos.9(1)(vi)
by the Finance Act, 2012 widens the scope of the term royalty but does not impact the
provisionsoftheDTAAinanymanner.Consequently,thepurchaseofsoftwarefallswithinthe
categoryofcopyrightedarticleandnottowardsacquisitionofanycopyrightinthesoftwareand
hencetheconsiderationisnotassessableasRoyalty.Evenotherwise,asthepaymentisinthe
nature of reimbursement of expenses, it is not taxable in the hands of the assessee (B4U
InternationalHolding&NokiaNetworksOYfollowed);
(iv) As regards the payment of link charges as equipment royalty, there is no transfer of the
right to use, either to the assessee or to CIS. The assessee has merely procured a service and
provided the same to CIS, no part of equipment was leased out to CIS. Even otherwise, the
payment is in the nature of reimbursement of expenses and accordingly not taxable in the
handsoftheassessee.(A.Ys.200607&200809)
ConvergysCustomerManagementGroupIncv.ADIT(Delhi)(Trib.)www.itatonline.org.
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyDeductionatsourceRightforsatellite
broadcastingPurchase and sale of rights in satellite and movies is liable to deduct tax at source.
[S.40(a)(ia),194J].
Assesseeisengagedinpurchaseandsaleofrightsinsatelliteandmovies.Assesseehaddebited
initsaccountasumforpurchasingsatelliterightsoffilmsandprograms.Sinceassesseedidnot
purchase cinematographic films as such rather it had only received right for satellite
broadcasting,insuchacase,amountpaidforacquiringsaidrightwouldfallwithindefinitionof
'royalty'inviewofExplanation2tosection9(1)(vi),therefore,assesseewasliabletodeducttax
at source under section 194J on payments effected. However, the additional ground raised by
the assessee that the rigours of section 40(a)(ia) are attracted only on amounts standing
payableattheendoftheyear,isjustifiedinviewofthedecisionofSpecialBenchofTribunalin
the case ofMerilyn Shipping & Transportsv.Addl. CIT(2012)136 ITD 23/20 taxmann.com 244
(Visakha)(SB).Intheresult,theappealofrevenueisallowedbutatthesametime,theissueis
27
remitted back to the file of the Assessing Officer for applying section 40(a)(ia) as per
law.(A.Y.200809)
ACITvShriBalajiCommunications.(2013)140ITD687(Chennai)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltySoftwareservicesDTAAIndia
USA.[S.195,Art12]
Assesseeengaged'I',USAtoprovidesoftwareservicesinrelationtocertainaccountingsystems
ofassesseeforwhichitmadepaymentswithoutdeductingtaxatsource.AssessingOfficerwas
of view that payments made for services rendered by 'I' USA amounted to fees for technical
services as it fulfilled conditions contemplated in article 12(4) of IndiaUSA DTAA and was
therefore, taxable in India. On appeal, it was noted that in assessment proceedings issue was
confined to holding as to whether payment was taxable in India under article 12 of IndiaUSA
DTAA,however,therewasnodeterminationastowhetherornotpaymentmadetoconsultant
'I',USA,forservicesrenderedwasinnatureofroyaltyascontemplatedbyprovisionsofsection
9(1)(vii) thereby attracting provisions of TDS. In view of above, impugned order was to be set
aside and, matter was to be remanded back for disposal afresh. Matter remanded. (A.Y.2007
08)
GoldmanSachsServices(P.)Ltd.v.Dy.DIT(2013)140ITD434(Bang.)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyRoyaltyearnedbynonresident
fromanothernonresidentisnottaxableinIndiaevenifpayerusestheknowhowforsaleof
productstoIndia.
The assessee, a USA based company, held patents to the CDMA mobile technology which it
licensed to various unrelated wireless Original Equipment Manufacturers (OEMs) located
outside India. The OEMs used the assessees technology to manufacture CDMA handsets
outside India which were sold to telecom companies in India (e.g. Reliance Com). The Indian
telecomcompaniessoldthehandsetstoIndianconsumers.TheAOandCIT(A)heldthatasthe
OEMs sold the handsets to customers in India, they were carrying on a business in India or
hadasourceofincomeinIndiaandsotheroyaltypaidbythemtotheassesseewastaxable
in India u/s 9(1) (vii) (c). On appeal by the assessee to the Tribunal, held by the Tribunal
allowingtheappeal:
(i) U/s9(1)(vi)(c)royaltypayablebyapersonwhoisanonresidentisdeemedtoarisein
India where the royalty is payable in respect of any right etc. utilised for the purposes of a
businesscarriedonbysuchpersoninIndiaorforthepurposesofearninganyincomefromany
sourceinIndia.S.9(1)(vi)(c)isadeemingprovisionandtheburdenisontheRevenuetoprove
thatthepayerhasabusiness/sourceofincomeinIndia.Whatisimportantfors.9(1)(vi)(c)is
not whether the right to property is used in or for the purpose of a business, but to
determinewhethersuchbusinessiscarriedonbysuchpersoninIndia;
(ii) The first question is whether the OEMs have carried on business in India and used the
assessees patents for that purpose. The mere fact that the products manufactured by the
OEMs outside India were sold to parties in India does not mean that the OEMs carried on
businessinIndia.ForabusinesstobecarriedoutinIndiathereshouldbesomeactivitycarried
28
out in India. A mere purchase and sale with an Indian party is not sufficient. The fact that the
OEMs customized the handsets so as lock them to a specific operator and included Hindi and
regional languages, etc. was irrelevant as such customization was not connected with the
assessees patents. There was no customization of the hand set qua the CDMA technology.
Further, even if the OEM customized the handsets to Indian specifications that did not mean
thattheOEMwascarryingonbusinessinIndia.Theassesseesroleendedwhenitlicensedits
patents to the OEMs and the OEMs role ended when they sold the handset to the Indian
customer. The sale was of a chattel as a chattel and though the product is a combination of
hardware and technology, the revenues attempt to break down the sale into various
componentsisnotsupportedbythetermsoftheagreementandthefactsanditcannotbesaid
that every item other than software was sold and that the embedded software has been
separately licensed. There is also no evidence on record to show that title to the handsets
passedinIndiaorthatcertainfurtheractivitywasdonebytheOEMsinIndiaafterthesale.On
the other hand, title to the equipment passed to the Indian customer on high seas and the
profits made by the OEMs would not be chargeable to tax in India. The taxability of the
assessee directly depends on the taxability of the OEMs and if the OEM is not taxable, the
assessee cannot be made taxable (Ericsson AB 246 CTR 433 (Del), Skoda Export, Nokia Net
Worksfollowed).Evenotherwise,themerepassingoftitleinimportedgoodsinIndiadoesnot
meanthattheOEMiscarryingonbusinessinIndia.ItisbusinesswithIndiaandnotbusiness
inIndia;
(iii) ThesecondquestioniswhethertheOEMshaveusedtheasssesseestechnologytoearn
ormakeincomefromasourceinIndia.Asourceofincomeistheactivitythatgivesraiseto
income. The source of the royalty income for the assessee is the activity of manufacturing by
the OEMs, which is carried out outside India (Rhodesia Metals 9 ITR (Suppl) 45 &Havells India
followed). The departments argument that the assessee had made available the CDMA
technology(software)totheOEMsintheformofchipsetsandthatOEMshaveinsertedthese
chipsetsintothehandsetsmanufacturedbythemandthattheseinturnhavebeenlicensedto
IndianoperatorsforwhichOEMshavereceivedaconsiderationandhencetheyhaveasource
ofincomeinIndiaiscontrarytothefacts.Itisalsonotthebasisonwhichtheassessmentwas
madebytheAO&CIT(A).Whatwasbroughttotaxwastheroyaltyearnedfromthelicensingof
patentsandnotroyaltyearnedonsoftwareembeddedinthechipsets.(A.Y.200001to2004
05)
QualcommIncorporatedv.ADIT(2013)23ITR239/85DTR156/153TTJ513/56SOT72(URO)
(Delhi)(Trib.)
S.9(1)(vi):Income deemed to accrue or arise in India Fees for technical servicesPermanent

establishmentDTAA India USA Creative fees and Database cost is held as Fees for
Included Servicesandclient coordination feesis held as business profit could not be taxed in
India.(Art7,12)
Assessee,USAbasedcompany,actedasacommunicationinterfacebetweenitsgroupconcerns
andgroupconcernsandmultinationalclients.Theassesseeprovidedservicestooneofitsgroup
concern and received fees as creative fees, database cost and client coordination fees. It was
held that fees under the head creative fees and database cost amounted to Fees for included
29
servicesasperArt.12ofDTAAandchargeableattherateof15%.However,clientcoordination
feeswhichwastaxedasbusinessprofit,couldnotbetaxedinIndia,duetononexistenceofPE.
(A.Y.201011)
DDIT (IT) v. Euro RSCG Worldwide Inc. (2013) 140 ITD 210/84 DTR 29/153 TTJ 378
(Mum.)(Trib.)
S.9(1)(vi):Income deemed to accrue or arise in India Royalty Consideration received for

supplyofshrinkwrapsoftwareisnotroyaltyDTAAIndiaUSA.(Art12(3))
Amount received for supply of shrink wrap software was not royalty within the meaning of
Article 12(3) of the DTAA between India and USA. Tribunal held that the receipt would
constitutebusinessreceiptsinthehandsofassesseeandtheassesseewhoisnonresidentdoes
not have a PE. Therefore, business income of the assessee cannot be taxed in India in the
absenceofPE.(A.Y.200607)
Dy.DIT(IT)v.SolidWorksCorporation(2013)152TTJ570/82DTR316(Mum.)(Trib.)
S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyComputersoftwareDeduction
atsource.(S.40(a)(ia))
Payment made for use of computer software does not amount to royalty under Explanation 2
tosection9(1)(vi)andthussection40(a)(i)doesnotapplytosuchpayment.(A.Y.200708)
SKOLBreweriesLtdv.ACIT(2013)142ITD49/84DTR271/153TTJ257(Mum.)(Trib.)
S.9(1)(vii): Income deemed to accrue or arise in India Fees for technical services Royalty
Software licenceRight to use said confidential information in form of computer programme
softwarewoulditselfconstituteroyaltyandattracttax.DTAAIndiaIreland(Art12)
Assessee granted a nonexclusive nontransferable software license without right of sub
licence. Licensee might make a reasonable number of copies of licensed software for backup
and/orarchivalpurposesonly,evenifitwasnottransferofexclusiverightincopyright,rightto
useconfidentialinformationembeddedinsoftwareintermsofaforesaidlicensewhichmakesit
abundantly clear that there was transfer of certain rights which owner of copyright possessed
in said computer software/programme in respect of copyright owned. Therefore in terms of
DTAA consideration paid for use or right to use said confidential information in form of
computerprogrammesoftwarewoulditselfconstituteroyaltyandattracttax.Courtheldthatit
is not necessary that there should be a transfer of exclusive right in copyright and where
considerationpaidwasforrightsinrespectofcopyrightandforuserofconfidentialinformation
embeddedinsoftware/computerprogramme,itwouldfallwithinmischiefofExplanation(2)of
section 9(1) (vi) and there would be a liability to pay tax. In favour of revenue. (200102 to
200304)
CITv.SynopsisInternationalOldLtd.(2013)212Taxman454(Karn.)(HC)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesITsupport
servicestoitsgroupcompaniesNottaxableinIndiaDTAAIndiaAustralia[S.5(2),9(1)(vi),90,
Art12]
Assessee an Australian company, it was providing the IT support services to its group
companiesintheAsiaSpecificregion.Theservicesprovidedbytheassesseewereinthenature
30
ofhelpdesk,administrativeandmaintenanceITsupport.It receivedcertainamountfromtwo
IndiangroupcompaniesforprovidingITsupportservicesandclaimedthatinviewoftheTreaty
between India and Australia , as no technical services were made available to its group
companies in India , the payment was exempt. The Assessing Officer rejected the assesses
claimandheldthatthepaymentreceivedbyassesseewastaxableundersection9(1)(vii)asthe
assesseecouldnotgetthebenefitevenundertheTreaty.AsperdirectionofDRPtheAssessing
Officer passed the assessment order bringing to tax entire amount received by the assessee
from its two affiliates in India. On appeal the Tribunal held that assessee had not made
available any technical knowledge or expertise to Indian company. Services rendered by
assesseecompanytoitsIndiangroupcompanythoughwereinnatureoftechnicalservices,but
were not covered by para (3)(g) of article 12 of India Australia Treaty. Hence, same were not
taxableinIndia.(A.Y.200708)
SandvikAustraliaPty.Ltd.vDy.CIT(2013)141ITD598(Pune)(Trib.)
S.9(1)(vii): Income deemed to accrue or arise in IndiaFees for technical servicesAnnual

maintenancecontractsDTAAIndiaGermany[S.195,Art.7,12]
Assesseeisamanufacturingcompanywithbothimportedandindigenousplantandmachinery.
Assessee made payment of repair charges to German company without deducting tax at
source.TheAssessingOfficerandCommissioner(Appeals)heldthatthepaymentsmadebythe
assesseetothenonresidentstowardsrepairandMCwerenottheirbusinessprofitsbutwere
feesfortechnicalserviceshencetheassesseewasliabletodeducttaxatsourceattherateof
20 percent. On appeal the Tribunal held that payment of repair charges to recipients in
Germany did not come within purview of fee for technical services. As German company did
not have PE in India, its business income was not chargeable to tax in India there was no
obligation on assessee to deduct tax at source while making payments of repair charge to
GermanCompany.(A.Y.201112)
BoschLtd.v.ITO(2013)141ITD38(Bang.)(Trib.)
S.9(1)(vii): Income deemed to accrue or arise in IndiaFees for technical servicesRepair of

machineryAnalyzing and solving technical problem and preventive maintenance is liable to
deducttaxatsourcePermanentaccountnumberGrossingupDTAAIndiaGermany[S.195,
195A,206AA,Art.12]
Assessee availed services of repairs of its machinery from nonresidents which included
assistance for preventive maintenance. Assessee made payment of repair charges without
deducting tax at source .Assessing Officer held that the payments amounted to fees for
technical services hence the assessee was held liable deduct tax at source. The Assessing
Officer also held that since nonresident recipients did not furnish its PAN to assessee
deductor , tax at source was required to be deducted at higher rate under section
206AA.Commissioner (Appeals) up held the order of Assessing Officer. On appeal the Tribunal
held that, services in question were not mere repairs but were towards preventive
maintenance German company was providing technical assistance and services, payments
madeforsaidservicesamountedto'feefortechnicalservices'Assesseewasliabletodeducttax
at source while making payments to nonresident. Tribunal also held that the provisions of
section 206AA are applicable and the assessee is liable to deduct tax at the higher rate
31
prescribed under section 206AA .ie 20% .As regards the grossing up is concerned the Tribunal
heldthatthegrossingupoftheamountistobedoneattheratesinforceforthefinancialyear
in which such income is payable and not at 20 percent as specified under section 206AA.
(A.Y.201112)
BoschLtd.v.ITO(2013)141ITD38(Bang.)(Trib.)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesDeveloping
printersDeductionatsourceLiabletobetaxedat15%DTAAIndiaUK.(S.115A,Art.13)
Assessee Company had entered into agreement with 'X', a UK based company for developing
printers.Assesseewastopay25000asstartupfees.AssessingOfficerheldthatpaymentwas
in nature of fees for technical services as intellectual property developed was owned by
assessee, to be taxed accordingly in terms of IndoUK treaty. On appeal Commissioner
(Appeals)heldthattheassesseewasliabletodeducttaxatsourcetreatingthesaidpaymentas
royalty/fees for technical services under section 9(1)(vi) and article 13 of the IndiaUK treaty.
On appeal the Tribunal held that after going through the agreement it is to be opined that it
was not about purchase of printer alone . The Assessee company had purchased a particular
technologyfromXandhadexclusiverightoverit,impugnedagreementwasnotforpurchase
ofmachinebuthadpurchasedtechnologyalso,saidpaymentwasliabletodeductionatsource.
As regards the additional grounds regarding lower rate of tax the matter was set aside to the
Assessing Officer for limited purpose for deciding the question of applicability of lower rateof
tax.(A.Y.200809)
BajajHoldings&InvestmentsLtd.v.ADIT(2013)141ITD62(Mum.)(Trib.)
S.9(1)(vii):Income deemed to accrue or arise in IndiaFees for technical servicesBoth non

residents did not havePE in India,amount paid to themwas not taxable in India, inviewof
above, assessee was not liable to deduct tax at source while making payments to non
residents.[S.40(a)(i),195]
Assesseehadtwoproprietaryconcerns.Oneofsaidconcernwasengagedinsupplyingbuilding
material to resorts in Maldives. For said purpose, an agent i.e. 'M' Ltd. was appointed in
Maldives who received material, got it cleared from customs and delivered it to purchasers.
Second proprietary concern of assessee also appointed an agent i.e. 'H' in Maldives who
received clients on assessee's behalf and left them in resorts or hotels for which he was paid
commission. On facts, services rendered by nonresidents could not be said to be technical
services under section 9(1)(vii) and thus, amount paid for rendering said services was to be
taxed as business income. Since both nonresidents did not have PE in India, amount paid to
themwasnottaxableinIndia,inviewofabove,assesseewasnotliabletodeducttaxatsource
whilemakingpaymentstononresidents.(A.Y.200809)
SriSubbaramanSubramanianv.ACIT(2013)140ITD707(Bang.)(Trib.)
S.9(1)(vii):Income deemed to accrue or arise in IndiaFees for technical servicesPayments to non

resident derives under contract for provision of underwater services in Saudi ArabiaTechnical fee
paidtocarryoutbusinessoutsideIndiaforearningincomefromasourceoutsideIndiaAssesseenot
liablefortaxdeductedatsource.[S.40(a)(ia)]
32
The assessee was in the business of providing underwater diving services in Saudi Arabia under a
contract with M and K and paid divers fees outside India. It claimed that this amount was paid in
connection with the business of underwater diving services provided outside India and therefore, fell
withintheexceptionofsection9(1)(vii)(b)oftheActandwasnottaxableinIndia.TheAssessingOfficer
disallowed the deduction on account of professional charges paid to divers and held that the services
were technical services and fell under section 9(1)(vii) of the Act and the assessee having failed to
deduct tax deducted at source, the provisions of section 40(a)(i) were applicable. The Commissioner
(Appeals)heldthattheassesseedidnothaveanybranchorpermanentestablishmentoutsideIndiaand
therefore,sincethepaymentsweremadetononresidentsfromIndiathebusinesscouldnotbesaidto
becarriedonoutsideIndiasoastofallwithintheambitofexceptionsprovidedinsection9(1)(vii)(b)of
the Act. He, therefore, upheld the order of the Assessing Officer. On appeal the Tribunal held that
serviceswereprovidedbytheassesseeoutsideIndiaandforthisbusinessunderwaterdivingservicesof
nonresidentswereutilisedtowhomtechnicalfeewaspaid.Therefore,theservicesofnonresidentsto
whom the technical fee was paid by the assessee were utilised for the business which was carried out
outsideIndiaforearningincomefromasourceoutsideIndia.Theassesseewasnotliabletodeducttax
deductedatsourceonsuchpayments.(A.Y.20082009)
AquaOmegaServicesP.Ltd.v.ACIT(2013)23ITR191(Chennai)(Trib.)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesDependent
agentMarket supportive servicesDTAA India SwitzerlandIn the absence of Permanent
Establishment, article 7 pertainingto business profits would cease to operate in assessees
casehencenotliabletotax.(S.90,115A,Art.5,7)
Assessee, a Swiss company, operated India specific websites. For this purpose, it entered into
Marketing Support Agreement with two group companies in India. Assessee claimed that
thoughitearnedrevenuefromitswebsitesinIndia,samewasnottaxableasbusinessprofitsas
itdidnothavePEinIndia.TheIndiangroupcompaniesatnostagenegotiatedorenteredinto
contract for or on behalf of assessee. They simply provided marketing services to assessee or
making collection from customer and forwarding same to assessee. Indian group companies
were not required to manufacture or process goods or merchandise on behalf of foreign
assessee. Further goods or merchandize were delivered by seller to buyer directly who enter
into contract through assessee's website. It was held that though group companies were
dependent agents as per article 5(6) because they exclusively assisted assessee in carrying on
business in India, they could not be considered as 'Dependent agent PE' because they did not
performanyfunctionspecifiedinclauses(i)to(iii)ofarticle5(5).Thus,inabsenceofPE,article
7pertainingtotaxingbusinessprofitswouldceasetooperateinassessee'scase.
eBayInternationalAGv.ADIT(2013)140ITD20/82DTR89/151TTJ769(Mum.)(Trib.)
S.9(1)(vii):Income deemed to accrue or arise in India Fees for technical services Services
rendered by machines is not fees for technical servicesDTAAIndiaGermany. (S.90, 195,
Art7,12.)
TheassesseemadepaymenttoalaboratoryinGermanyforcarryingoutcertaintestsoncircuit
breakers manufactured by the assessee and to certify that the said circuit breakers met with
international standards. The assessee claimed that as the said tests were carried out by
sophisticated machines without human intervention, the services did not constitute fees for
technical services as defined in s. 9(1) (vii) of the Act. The AO &CIT (A) rejected the claim on
33
the ground that the services were technical in nature and that even assuming human
intervention was necessary, the same was present in the form of humans observing the
process, preparing the report, issuance of certificate and monitoring the machines. On appeal
bytheassesseetotheTribunal,HELDallowingtheappeal:
(i) Explanation2tos.9(1)(vii)definestheexpressionfeesfortechnicalservicestomean
anyconsiderationfortherenderingofanymanagerial,technicalorconsultancyservices.The
word technical is preceded by the word managerial and succeeded by the word
consultancy. Applying the principle of noscitur a sociis, as the words managerial and
consultancyhaveadefiniteinvolvementofahumanelement,thewordtechnicalhastobe
construedinthesamesenseinvolvingdirecthumaninvolvement.Ifservicesareprovidedusing
an equipment or sophisticated machine or standard facility, it cannot be characterized as
technicalservicessoastofallwithins.9(1)(vii)(CITv.BharatiCellularLtd(2009)319ITR139
(Del) & Skycell Communications Ltd. v. Dy. CIT (2001) 251 ITR 53 (Mad) followed; fact that
Bharati Cellular has been set aside by the SC in Bharat Cellular Ltd 330 ITR 239 (SC) does not
affectthisprinciple);
(ii)Onfacts,theservicesprovidedbytheGermanlaboratoryfortestingthecircuitbreakerswas
astandardservicedoneautomaticallybymachinesandnotrequiringhumanintervention.The
fact that humans are required for observing the process, preparing the report, issuance of
certificate and for monitoring of machines is not a relevant criterion. The test is whether the
services are rendered by a human or by a machine. If a human renders the technical services
withtheaidofamachine,theservicesaretechnicalservices.Butiftheservicesarerendered
by a machine without human interface or intervention, then it is not technical services as
defined.Themerefactthatcertificateshavebeenprovidedbyhumansafterthetestiscarried
outbythemachinesdoesnotmeanthatserviceshavebeenprovidedbyhumanskills.
SiemensLimitedv.CIT(2013)142ITD1/23ITR86/84DTR1(Trib.)(Mum.)
S.9(1)(vii):Income deemed to accrue or arise in IndiaFees for technical servicesBuying

agency service commissionProcurement and incidental services rendered is not managerial
ortechnicalservices,itbeingnatureofCommissionisnottaxableinIndia.
The assessee is a tax resident of Hong Kong. Its sourcing division provided buying agency
services to various customers including an Indian company, an associate enterprise. For such
services the assessee entered into a "buying agency services agreement" with the Indian
company for sourcing of merchandise in respect to which the assessee received buying
commission at 8.25 per cent. of the value of merchandise. The assessee provided services
which included centralised media and advertisement planning, market research, public
relations, sports marketing and other marketing services such as catalogue production,
development of retail shop systems, etc. Another division of the assessee's group, provided
certain regional marketing and administrative support services to the group's AsiaPacific
distribution entities (including the Indian company). Under the buying agency services
agreement,theassesseewasrequiredtoprovideservicestotheIndiancompanyinrelationto
purchase of goods from outside India, for and on behalf of the Indian company in accordance
with the terms of the agreement. For the year under consideration, the assessee received
remunerationintheformofbuyingcommissionat8.25percentoftheinvoiceamountofthe
34
merchandise.Duringthecourseoftheassessmentproceedings,theAssessingOfficerheldthat
thebuyingcommissionincomereceivedbytheassesseewasinthenatureoffeesfortechnical
servicesandshouldbetaxableinIndiainthehandsoftheassessee.Accordingly,itconsidered
tobetaxableongrossbasisat30percentonthegroundthattheagreementforprovidingsuch
serviceswasenteredintoonJune18,1999.TheDisputeResolutionPanelconfirmedtheviewof
the Assessing Officer. On appeal to the Tribunal, held, that the assessee was to receive
commission for procuring the products for the Indian company and rendering incidental
services for purchases. The services rendered by the assessee in this case were purely in the
natureofprocurementservicesandcouldnotbecharacterisedas"managerial","technical"or
"consultancy" services. Accordingly, the consideration received by the assessee was
appropriately classified as "commission" as against "fees for technical services". It was not
taxableinIndia.(A.Y.20072008)
AdidasSourcingLtd.v.ADIT(2013)21ITR697/55SOT245/(2012)150TTJ801/80DTR396
(Delhi)(Trib.)
S.9(1)(vii):Income deeded to accrue or arise in India Fees for technical servicesEffective

management DTAAIndia DenmarkPayment for procuring a global telecommunications
facilityisnotforfeesfortechnicalservices.(S.28(i),115A)
Assessee a Denmark company was engaged in shipping business. It had procured a global
telecommunication facility. It claimed that without this facility assessee could not conduct
international shipping business nor would its agent be able to act as agent to the assessee.
Since the assessee wasrecoveringa share of total cost incurred for setting up system from its
Indian agents, assessee contended that said amount just represented cost sharing
arrangementandhencepaymentsoreceivedwasinnatureofreimbursementofexpenses.In
lightofjudgementDampskibsselskabetv.ADIT(IT)(2011)130ITD59(Mum),whereitwasheld
that such payment was only reimbursement of cost for shipping and not in business of
providing any technical services, it was held that payment so made by assessee was not FTS.
Issuewasdecidedinfavourofassessee.Assesseeraisedalternativepleatoconsiderpayments
receivedfromIndianagentsforsharingassessesglobaltelecommunicationsfacilityasincome
from business of shipping is not chargeable to tax in India by virtue of article 9. Following the
judgment in Dampskibsselskabet v. ADIT (IT) (2011) 130 ITD 59 (Mum),the Tribunal held that
amountreceivedfromIndianagentswaspartofincomefromshippingandhencenottaxablein
Indiaasperarticle9sinceplaceofeffectivemanagementofassesseecompanywassituatedin
Denmark.Accordinglytheadditionwasdeled.(A.Ys.200102to200405)
AktieselskabetDampskibsselskabetSvendborgv.ADIT(IT)(2013)140ITD515(Mum.)(Trib.)
S.9(1)(vii):Income deemed to accrue or arise in IndiaFees for technical servicesDTAAIndia

SingaporeTesting of dog food and similar productsNo technical knowledgeis made
available,paymentsreceivedbyassesseenotfeesfortechnicalservices.(Art.12(4).
Theassesseecompany,incorporatedunderthelawsofSingapore,isengagedinthebusinessof
rendering services relating to testing solutions, sample analyses and analytical testing of food
and feed samples. During the year, the assessee provided services to Indian companies for
testingofdogfoodandsimilarproducts.Aftertesting,thetestreportsweresenttotheIndian
companies and the assessee received service fee therefor. The assessee claimed that these
35
receipts were its business income. The Assessing Officer held that the assessee had made
available technical knowledge, skill or knowhow to the Indian customer and the payments
madetoitwereinthenatureoffeesfortechnicalservicesasdefinedunderarticle12(4)ofthe
Double Taxation Avoidance Agreement between India and Singapore. The Commissioner
(Appeals) confirmed this. On appeal the Tribunal held that, the assessee provided testing
servicesandissuedtestreports.Thesereportscouldnotbesaidtomakeavailableanytechnical
knowledge, experience, skill, know how or processes which enabled the Indian company to
acquiretheservicestoapplythetechnologycontainedtherein.Therefore,thesereceiptswould
not amount to fees for technical services under the "make available" clause in article 12(4) of
theDoubleTaxationAvoidanceAgreementbetweenIndiaandSingapore.(A.Y.20052006)
RomerLabsSingaporePte.Ltdv.ADIT(IT)(2013)141ITD50/22ITR224(Delhi)(Trib.)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesDeductionat
sourceDTAAIndiaUKFabric designDesign supplied by consultant becoming property of
assessee, payment is fees for technical service, assessee isliable to deduct tax at source
[S.195,Art.13(4)(c)]
The assessee entered into an agreement with a consultant in the U. K.,which wasrequired to
deliver 9,000 fabric designs for cotton shirting to the assessee every quarter. The consultant
was also required to show or make available all documents and reports in respect of the
transactionrelatingtothisagreementandtoprovidedetailedquantityreportinwritingtothe
assessee, along with specific or new design developed by the consultant. The compensation
was payable by the assessee to the consultant for each design supplied by the consultant. On
expiry or termination of this agreement, the consultant was required to return all the
documents and other internal documents of the assessee but there was no clause in the
agreementtosaythattheclient,i.e.,theassesseeisrequiredtoreturnthedesignssuppliedby
the consultant. On the question whether the payment to be made to the consultant was
coveredbythedefinitionoftheterm"feesfortechnicalservices"underarticle13oftheDouble
Taxation Avoidance Agreement between India and the U. K. and hence is taxable in India and
accordinglytaxisrequiredtobedeductedatsourceundersection195oftheAct:Onappealby
assessee Tribunal held that the design supplied by the consultant to the assessee became the
propertyoftheassesseeandcouldbeusedbytheassesseeforitsownbusinessandbesoldby
theassesseetoanyoutsiderforconsideration.Theservicesrenderedbytheconsultanttothe
assesseecompanyfellwithinarticle13(4)(c)oftheDoubleTaxationAvoidanceAgreementand,
therefore, the payment therefore was fees for technical services. According to the
memorandumofunderstandingbetweenIndiaandtheU.S.A.,itwasprovidedthattherewillbe
no fees for technical services if technology is not made available to the person acquiring the
services. It was also specified that technology will be considered "made available" when the
person acquiring the services is enabled to apply the technology. In the present case, fabric
design was made available to the assessee and the assessee could apply such fabric design to
processandproducegarmentsanditcouldalsosellandtransfersuchfabricdesigntooutsiders
forconsiderationandtherewasnorestrictionontheassesseeinthisregardintheagreement
between the assessee and the consultant. Considering all these facts, the services received by
theassesseeandprovidedbytheconsultantwerenothingbuttechnicalservicesandhence,tax
36
was deductible by the assessee from the payments made by the assessee, to the consultant.
(A.Y.20092010,20102011)
SintexIndustriesLtd.v.ADIT(IT)(2013)141ITD98/22ITR182(Ahd.)(Trib.)
S.9(1)(vii):Income deemed to accrue or arise in India Fees for technical services Royalty
TelevisionnewsservicesDTAAIndiaMatterremanded.(Art13)
Assessee, a tax resident of UK, is engaged in business of providing television news services
including audiovisual feed together with textural scripting information, desktop library
services, etc. Assessee received certain amount for rendering 'location special' service to
customers in India. According to assessee 'location special' was a service wherein a customer
requestedassesseetofilmaparticularevent,meeting,etc.,and,thus,paymentwasinrespect
ofservicesforproducingatelevisionfilmWhichdidnotqualityasroyaltyorfeesfortechnical
servicesunderarticle13ofIndoUKtreaty.AssessingOfficer,however,tookaviewthatamount
received for rendering said service was covered as 'fees for technical services' under section
9(1)(vii)(b)readwithExplanation2.Tribunalheldthatinabsenceofrelevantmaterialaswellas
agreementonrecordintermsofwhichassesseehadrenderedservicesandreceivedpayment,
it was not possible to determine real nature of activity carried out /services rendered by
assessee. Therefore, matter was to be remanded back for disposal afresh remanded. (A.Y.
200102)
Dy.CIT(IT)v.ReutersTelevisionLtd.(2013)55SOT235/82DTR27(Mum.)(Trib.)
S.9(1)(vii):Income deemed to accrue or arise in India Fees for technical servicesWebsite

DTAAIndiaUnitedKingdomPaymentforsubscriptionmadebygarmentmanufacturerto
an online fashion storeis royalty matter remanded back to Commissioner (Appeals). (S.90,
195,Art.7,13)
Assessee,aresident,wasengagedinbusinessoffashionablereadytoweargarments.Inorder
togetinternationaltrendanalysisandotherinformationrelatingtofashiondesignandstyle,it
subscribed to internet site of a company located in United Kingdom and paid subscription
chargesof17,000.Assesseesoughtcertificateforpaymentwithoutdeductionoftaxatsource
undersection195.AssessingOfficerrejectedapplicationanddirecteddeductionoftaxat15.30
per cent holding said payment as royalty. It was held that subscription made by garment
manufacturertoonlinefashionwebsiteisroyaltyornot,to bedecidedinlightofjudgmentof
Karnataka High Court in CIT (International Taxation) v. Wipro Ltd. [2011] 203 Taxman 621/16
taxmann.com275.MatterremandedtoCommissioner(Appeals)foraspecificfindingonpoint
oftransferofrighttousecopyrightinthelightofKarnatakaHighCourtsdecision.(AY200506)
ADITv.GlobusStoresP.Ltd.(2013)140ITD103/81DTR225/153TTJ248(Mum.)(Trib.)
S:9(1)(vii):Income deemed to accrue or arise in India Fees for technical servicesAbsence of

permissionvisvisamountpayabletooverseasgroupentities.(S.5)
Incomeonaccountoftheamountpayablebytheassesseetotheoverseasgroupentitieswould
accruetothesaidentitiesonlyonreceiptoftherequiredapprovalfromRBI;assuchapproval
was not received during the year under consideration, the amount could not be taxed as
incomeintherelevantyear.(A.Y.200506)
37
Welspun Zuchhi Textiles Ltd. v. ACIT (2013) 83 DTR293/23 ITR 53/56 SOT 444/153 TTJ 153
(Mum.(Trib.)
S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesAmountnot
paidduringrelevantyeararenotliabletotaxinIndiaAbsenceofpermissionofRBIAmount
payabletooverseasgroupentities.(S.5)
Amounts not paid during the relevant year are not liable to tax in India as fees for technical
services.AdditionsmadebytheAssessingOfficerandconfirmedbytheCIT(A)onaccountofthe
amountspayablebyBAHIndiatothethreeoverseasgroupentitiesinGermany,Singaporeand
UKweredeletedbytheTribunal.Tribunalheldthattheamountscouldnotbebroughttotaxin
India during the year under consideration as fees for technical services as per the relevant
provisions of DTAAs. Since the same had not been paid to the said entities, Tribunal followed
threedecisionsnamely1.DIT(Intl.Taxation)vs.SiemensAktionqesellSchaft(ITAppealNo.124
of2010dt.22102012,HighCourtofBombay)2.CITvs.UHDEGmbH(1996)54TTJ355(Mum.)
(Trib.)3.CSCTechnologySingaporeP.Ltd.vs.ADIT(2012)50SOT399(Delhi).(A.Y.199899)
BoozAllen&Hamilton(India)Ltd.v.ADIT(2013)152TTJ497/83DTR305/56SOT96(Mum.)
(Trib.)
S.10(11):ExemptincomeProvidentfundInterestonProvidentfunds.
Theassesseeinthereturnofincomefiled,whichwasrevisedontwooccasions,aswellasinthe
two revised returns filed by him, offered for taxation under the head income from other
sources, Rs.3,81,565 being interest on PPF. The Assessing Officer (AO) completed the scrutiny
assessmentbyacceptingthereturnedincome.InanappealtoCIT(A),theassesseecontended
that he should be allowed exemption in respect of interest on PPF deposit u/s. 10(11) of the
Act.TheCIT(A),relyingonthedecisionoftheApexCourtinthecaseofGoetzeIndiaLtd(284
ITR323)heldthatnofreshclaimcanbemadebytheassessee.Hedismissedtheappealfiledby
the assessee. ITAT can consider a new deduction which, inadvertently, was not claimed in the
return filed by the assessee. Assessee is entitled to claim interest on PPF to be exempt even
though the same was not claimed in the income tax return. (A.Y.200809) ( ITA No.
7314/M/2011,datedon17102012)
ShriRumiK.Paliv.Dy.CIT(2013)BCAJPg.19,Vol.44BPart4,January2013(Mum.)(Trib.)
S.10(13A):Exempt income House rent allowanceMaster and servantExemption to be

allowed.
In return of income, assessee disclosed salary received from 'S' Assessee claimed deduction
under section 10(13A) on basis of rent paid by him which had been debited from his salary
directly. Assessing Officer rejected assessee's claim taking a view that income received by
assessee was not taxable under head 'salary' but under head 'income from other sources'.
Court held that since it was not case of Assessing Officer that relationship between 'S' and
assessee was not that of a master and servant, impugned order passed by him was to be set
asideand,assessee'sclaimfordeductionwastobeallowed.Infavourofassessee.(200102)
CITvUKBose(2013)212Taxman399(Delhi)(HC)
38
S.10(22):ExemptincomeEducationalinstitutionDenialofexemptionRightofcross
examinationDepartmentdisputinggenuinenessoftransactionContributortoassessee
denyingtransactionOpportunityshouldbegiventoassesseetocrossexaminedisputant
Mattersetaside.(S.68,148)
Fortheassessmentyear199899,theAssessingOfficermadeadditionsdenyingtheexemption
undersection10(22).Fortheassessmentyear200001,anadditionwasmadeinrespectofthe
loan.TheCommissioner(Appeals)upheldtheadditions.TheTribunalheldthattheassesseedid
nothavetherighttocrossexaminethewitnesswhomadetheadversereport,especiallywhen
therecordsdidnotindicatethattheassesseehadmadeanyattempttoproducewitnesses.On
appeals by the assessee the Court held that, when the authorities entertained a doubt about
the genuineness of the transaction, the Tribunal ought to have afforded the assessee an
opportunity to crossexamine the disputant. The Revenue had not accepted the explanation
given by the assessee. The assessee would not have expected one of the contributors to have
denied the factum of contribution. This view was inevitable because but for this the assessee
would not have opted to crossexamine the contributor. Therefore, when there was
unexpected change of facts, the party should not be deprived of the opportunity to cross
examine the witness branded as the assessee'switness. The EvidenceAct also permits a party
to crossexamine his own witness under stated circumstances. Unless it is proved that the
incomederivedwascoveredundersection10(22)itcouldnotbedecidedwhethertheaddition
under section 68 was possible or not. Therefore, the matter was remitted to the Assessing
Officerforfurtherconsiderationinthelightofthelegalposition.(A.Ys.19981999,20002001)
SriKrishnaEducationalandSocialTrustv.ITO(2013)351ITR178(Mad.)(HC)
S.10(22):ExemptincomeEducationalinstitutionsCommercialoperations.[S.11,13]
Where education is imparted by an institution with purpose of profit, that is, purely on
commercialbasis,suchinstitutionwouldnotbeentitledtoexemptionundersection10(22)but
it can claim exemption under section 11 if it applies 75 per cent of its income for charitable
purposes and surplus, if any, has been invested in specified bonds and, further, provisions of
section13arenotviolated.(A.Y.201213)
SaivaniEducationalSocietyvDIT(2013)57SOT84(Hyd.)(Trib.)
S.10(22):ExemptincomeEducationalinstitutionPurposeofprofit.
Anemployeeoftheassesseehadgainedpersonalbenefitfromtheoperationsoftheassessee.
It was held that merely because the employee has gained personal benefit, it cannot change
the character of the institution as a whole from nonprofit institution to a profit making
institution.Exemptioncouldnotbedisallowed.(A.Ys.199798,199899)
ACITv.JamiaUrdu(2013)56SOT517(Agra)(Trib.)
S.10(23C): Exempt incomeApplication Profits earned cannot be the basis for rejection of
application.
The application under section 10(23C) was rejected on the ground that the educational
institutions run by the assessee were generating surplus out of their gross receipts year after
year. Held, the rejection of the application solely on the ground that there had been some
profitwasnotjustified.(A.Ys.20062007to20082009)
39
BaptistEducationalSocietyv.ChiefCIT(2013)353ITR320(Delhi)(HC)
St.LawrenceEducationalSociety(Regd.)v.CIT(2013)353ITR320(Delhi)(HC)
S.10(23C): Exempt incomeApplicationSurplus generated cannot be the only ground for

rejectionofapplicationMatterremanded.
The Chief Commissioner declined to approve the assessee under section 10(23C)(vi) on the
ground it had accumulated huge income during the financial years 200304 to 200607 and it
generated profit. Generating surplus and accumulation of income will not disqualify an
institutiontothebenefitsofsection10(23C).Surplusistobeunderstoodincontradistinctionto
generation of income with the sole motive of profit if one has to properly understand the
legislative intent of section 10(23C)(vi). There were certain questions of fact which had to be
gone into by the Chief Commissioner and hence, the matter was remitted to him for fresh
consideration.
MaaSaraswatiEducationalTrustv.UOI(2013)353ITR312(HP)(HC)
S.10(23C): Exempt incomeEducational institution Application for approval Conditions

precedentAdmissionprocedureundertakenbyinstitutionisnotarelevantconsideration.
The sanction under section 10(23) was to be granted within the parameters laid down under
that sectionwhich are relevant and not the admission procedure undertaken by the assessee.
The nexus between the profit motive and the alleged illegal admission was too remote and
couldnotbepresumedwithoutanyotheradversematerialonrecordagainsttheassessee,for
drawing such adverse inference. If the alleged illegal admissions made by the assessee in the
year200809couldbeavalidcriteriaorrelevantconsiderationfordenyingtheapprovalunder
section10(23C),suchallegedillegaladmissionscontinuedinthesubsequentyearsalsoasthose
students continued to be in the college for subsequent years also and the same authority on
the same set of facts, subsequently granted such approval for the subsequent years. This
ground alone as such could not be relevant and a valid basis for refusing the approval under
section 10(23C) to the assessee especially since the matter was still pending before the
Supreme Court. The authority was free to decide afresh the proceedings for the assessment
year 200809 and onwards till the assessment year 201011 by a fresh speaking order under
section 10(23C) after affording opportunity of hearing to the assessee.(A.Ys. 20082009 to
20102011)
GeetanjaliUniversityTrustv.CCIT(2013)352ITR427/257CTR239/84DTR337(Raj)(HC)
S.10(23C): Exempt incomeEducational institutionApplication for approvalInstitution solely

for educational purpose and not for profitDefect in admission procedure, Assessee will not
losecharacterasentityexistingsolelyforpurposeofeducation.
Theassesseetrust,fortheassessmentyear200809,filedanapplicationseekingexemptionof
its income under section 10(23C)(vi) of the Incometax Act, 1961. The application of the
assessee was rejected on the ground that the assessee did not satisfy the essential conditions
for exemption under section 10(23C). For the assessment year 201011 and onwards, the
assesseewasgrantedapprovalundersection10(23C)(vi).Onawritpetitionthesinglejudgeset
aside the order passed by the Chief Commissioner under section 10(23C) and directed the
authority to decide afresh the proceedings for the assessment year 200809 and onwards till
40
the assessment year 201011 by passing a fresh speaking order after affording opportunity of
hearingtotheassessee.Onappealheld,dismissingtheappeal,thatundersection10(23C)(vi)
and (via), what is required for the purpose of seeking approval is that the university or other
educational institution should exist "solely for educational purposes and not for purposes of
profit". It was nowhere the case or the finding of the Chief Commissioner that on account of
the defect in the admission procedure, the assessee ceased to exist solely for educational
purposes or it existed for the purposes of profit. Further, it was not the case of the Revenue
thatthestudentswhowereadmittedwerenotimpartededucationinthecollegeinwhichthey
were admitted or the admissions granted were fake or nonexistent or that the income
generated by admitting the students was not used for the purpose of the assessee. The
emphasis on the part of the Chief Commissioner that the purpose of education would not be
served if the education is for students who have been illegally admitted and the purpose of
education as contemplated in the section would be served only if the students have been
legally admitted and not otherwise, went beyond the requirements of the section. Of course,
therequirementofaneducationalinstitutiontoprovideadmissionsstrictlyinaccordancewith
the prescribed rules, regulations and statute needs to be adhered to in letter and spirit, but
violationcouldnotleadtoitslosingthecharacterasanentityexistingsolelyforthepurposeof
education.Therefore,therewasnointerferencewiththeorderofthesinglejudge.(A.Ys.2008
2009,20092010,20102011)
ChiefCITv.GeetanjaliUniversityTrust(2013)352ITR433/214Taxman11(Raj.)(HC)
S.10(23C): Exempt income Educational institution Exemption can be claimed without

applyingforregistration.Bothareindependentproceedings.[S.11,12A]
Exemption under section 10(23C) (vi) can be claimed by an assessee without applying for
registration under section 12A as it is not required to fulfil the conditions mentioned under
section 11 while claiming the exemption under section 10(23C)(vi).Registration under section
12Acouldnotbecancelledmerelyonthegroundofdisaalowanceofexemptionundersection
10(23C)(vi)
CITv.SocietyofAdvancedManagementStudies(2013)352ITR269/88DTR182(All)(HC)
S.10(23C): Exempt incomeEducational institutionIncidental surplus Upgrading facilities of

collegeincludingforpurchaseoflibrarybooksandimprovementofinfrastructurecannotbea
groundfordenialofexemption.
The Chief Commissioner denied the benefit of the exemption under subclause (vi) of section
10(23C)onthegroundthattheassesseewasinreceiptoftheGovernmentgrantswhichformed
a substantial part of the total receipts and, consequently, the case of the assessee would not
fallwithinthepurviewofsection10(23C)(vi)forthereasonthataninstitutionwhichiswholly
or substantially financed by the Government falls within the ambit of subclause (iiiab). Sub
clause(vi)appliestothoseinstitutionswhichdonotfallwithintheambitofsubclause(iiiab)or
subclause (iiiad). He was of the view that an institution which was in receipt of substantial
grants from the Government would consequently not fall within the ambit of subclause (vi).
The Chief Commissioner held that the fees which were collected by the assessee for the year
endingonMarch31,2011,wouldindicatethattheassesseedidnotexistsolelyforeducational
purposes. The Chief Commissioner had also noted that the assessee had collected from
41
students utility fees, project work fees, industrial visit fee and a magazine fee from which it
was sought to be deduced that the assessee did not exist solely for educational purposes.
Moreover,therewasanincreaseintheassetbasewithagenerationofsurpluswhichindicated
thattheactivitiesoftheassesseewerenotdevotedsolelyforeducationalpurposes.TheChief
Commissionerheldonthatbasisthattheassesseeexistedforthepurposesofprofit.Onawrit
petition,allowingthepetitionthecourtheldthat,thoughtheChiefCommissionerinquiredinto
thequestionforthepurposesofhisdeterminationundersubclause(vi)ofsection10(23C),the
requirement that an institution must exist solely for educational purposes and not for the
purposesofprofitiscommonbothtosubclause(iiiab)aswellassubclause(iiiad).Hence,the
grievanceoftheassesseewasthatwhileontheonehandtheChiefCommissionerhadheldthat
subclause (vi) would not be applicable to an institution which was in receipt of substantial
grants from the Government (such an institution being governed by subclause (iiiab), at the
same time, the finding that the assessee did not exist solely for educational purposes and not
for the purposes of profit would, in effect, not merely lead to the rejection of the exemption
under subclause (vi) but would also affect the claim of the assessee to the grant of an
exemption under subclause (iiiab) as well. The sole and dominant nature of the activity was
education and the assessee existed solely for the purposes of imparting education. An
incidentalsurpluswhichwasgenerated,andwhichhadresultedinadditionstothefixedassets
wasutilizedasthebalancesheetwouldindicatetowardsupgradingthefacilitiesofthecollege
including for the purchase of library books and the improvement of infrastructure. With the
advancement of technology, no college or institution can afford to remain stagnant. The
assesseewasentitledtoexemptionundersection10(23C(vi).(A.Y.20112012)
Tolani Education Society v. Dy. DIT (Exemptions) (2013) 351 ITR 184/214 Taxman 58/85 DTR
1/259CTR26(Bom.)(HC)
S.10(23C):Exempt incomeEducational institutionRegistrationCancellationHeld to be

notvalid.(S.12A,12AA)
Assessee was granted registration under section 12A being a charitable institution. Chief
Commissioner disallowed assessee's claim of exemption under section 10(23C) (vi) on ground
thatithadnotsolelybeenestablishedforeducationalpurposes.Commissionerrelyingonsaid
order cancelled registration granted to assessee under section 12A.Tribunal restored
registration.Highcourtheldthatsince(i)exemptionundersection10(23C)(vi)couldbeclaimed
by an assessee without applying for registration under section 12A, and (ii) in order of
Commissionertherewasnowhisperthatassesseehadnotfulfilledanyofconditionsofsection
11,Tribunalhadrightlyrestoredregistration.Infavourofassessee.
CITv.JeevanDeepCharitableTrust(2013)212Taxman19(All.)(HC)
S.10(23C):Exempt incomeEducational institutionObject of general public utilityPetitioner

hadnotrendereditsservicesdirectlytofarmersbutwasrenderingitsservicesdirectlytoits
clients/agentswhowereengagedintradinghencerejectionofexemptionwasvalid.[S.2(15)]
Petitioner is registered under Andhra Pradesh (Telangana Area) Public Societies Registration
Act,1350Fasli.ItwascarryingonfunctionsofcertificationagencyunderSeedsAct,1966.Seed
growers were entering into contract with a society/agent, which approached petitioner for
certification of seeds and after securing certification, they were selling certified seeds to
42
farmersatamarketpricedeterminedbythem.Petitionerwasalsocollectingfeeforproviding
certification. Its application for approval under section 10(23C) (iv) was rejected by Chief
Commissioner. The court held that thepetitioner had not rendered its services directly to
farmersbutwasrenderingitsservicesdirectlytoitsclients/agentswhowereengagedintrading
ofcertifiedseedswithprofitmotiveand,therefore,itsactivitieswerenotfor'advancementof
any other object of general public utility' and hence not for 'charitable purpose' in view of
second limb of first proviso to section 2(15). Therefore, its application for approval under
section10(23C)(iv)wasrightlyrejected.Infavourofrevenue.(A.Y.201011)
Andhra Pradesh State Seed Certification Agency v CCIT (2013) 212 Taxman 493 / 83 DTR
23/256CTR380(AP)(HC)
S.10(23C):ExemptincomeEducationalinstitutionEarnedprofitmorethancrores,exemption
wasdenied.[IncometaxRules,1962Rule2BC])
AssesseeisaRegisteredSocietyformedbyStateGovt.forpromotionanddevelopmentofopen
school system in State. Relevant assessment years assessee filed return declaring NIL income
afterclaimingexemptionundersection10(23C)(iiiab).AssessingOfficerheldthatassesseewas
generatingprofitandthereforeitwasnotexistingforbenefitofpublicatlarge,accordinglythe
claim was rejected. The Commissioner (Appeals) affirmed the view of Assessing Officer. On
appeal Tribunal held that the assessee earned huge profits exceeding monetary limits
prescribedbyrule2BC.Intermsofrule2BtheamountprescribedisRs1crorewhereasthe
surplus generated by the assessee is in crores. As the assessee has not complied with two
essential conditions as stipulated in the Act , therefore there is no infirmity in the conclusion
drawn in the impugned order. Accordingly the order of Assessing Officer was up held.(A.Ys.
200304to200809)
M.P.RajyaOpenSchool,Bhopal.vDy.CIT(2013)141ITD721/89DTR71(Indore)(Trib.)
S.10(23C):ExemptincomeEducationalinstitutionRegistrationisconditionprecedent.(S.11,
12AA)
Assesseeinstitution was formed to provide education to weaker sections of society.It claimed
exemptionundersection10(23C)(iiiad)inrespectofdonationsreceivedfromvariousparties.It
wasnotedthatassesseedidnotexistsolelyforeducationalpurposeand,moreover,amountof
donations exceeded prescribed limit of Rs. one crore, further, there was neither any
registration under section 12AA nor any evidence on record showing that donations were
received with a specific direction that it would form part of corpus of assesseeinstitution.
Tribunal held thatin view of above, assessee's claim for exemption could not be allowed. In
favourofrevenue.(A.Y.200708)
ManasSewaSamitiv.Add.CIT(2013)55SOT217(Agra)(Trib.)
S.10(23C):ExemptincomeEducationalinstitutionAnnualreceiptsistobetakeninto
considerationandnottotalincomeofsociety.
The assessee society is running school activities. The Assessing Officer held that the annual
receipts of the assessee including interestexceeded Rs. 1 crore ,but the assessee had not
obtained prior approval ofChief Commissioner under section 10(23C) (vi). He accordingly the
rejected the claim under section 10(23C) (iiid). Commissioner (Appeals) up held the order of
43
Assessing Officer. On appeal, the Tribunal held that, in terms of provisions of section 10(23C)
(iiiad), annual receipts of school or university may be taken into consideration and not total
incomeofsocietyrunningthatschooloruniversity.However,incomefrominterestonFDRsis
anadditionalincomeofthesocietyanditcannotbeconsideredtobepartofannualreceiptsof
theschool.Accordinglytheappealofassesseewasallowed.(A.Y.200607)
ParamHansSwamiUmaBhartiMissionv.ACIT(2013)140ITD429/154TTJ531/87DTR204
(Delhi)(Trib.)
S.10(23G): Exempt income Infrastructure activitySale of sharesInterest incomeDTAA India

Netherlands.[S.9(1),Art13(1),13(5)]
Sale of shares of an Indian company by a Netherlands company to a Singapore company not taxable
under the Act or India Netherlands DTAA. Shares in the Indian company engaged in the infrastructure
activity is not immoveable property, so as to be taxed under Article 13(1) of Netherlands DTAA
.Interest for delay in payment of sale consideration by the Netherlands company which was received
outsideIndia,didnotaccrueorariseinIndiaandcannotbetaxedundersection9oftheAct.(A.Y.2005
06)
VanenburgFacilitiesB.V.v.ADIT(2013)BCAJMayP.52(Hyd.)(Trib.)
S.10A: Free trade zoneCondition precedentApproval granted by director of the Software
Technology Parks India would be deemed approval of the interministerial standing
committee.
TheAssessingOfficerrejectedtheregistrationissuedbytheSoftwareTechnologyParksofIndia
(STPI) in support of the assessees claim under S. 10A on the ground that the approval by a
DirectorofSTPIwasnotavalidapprovalfromaspecifiedauthority.Tribunaldecidedtheissue
infavourofassessee.OnappealbyrevenuetheCourtheldthattheviewtakenbytheAssessing
Officerwasthatonlytheinterministerialstandingcommitteewascompetenttograntapproval
to units functioning within STPI. Held, it was apparent from the CBDT Instruction No. 1/06,
dated 3132006 that it had been decided by the Board that the claim of deduction under S.
10A should not be denied to the Software Technology Park units only on the ground that the
approval/registration to such units had been granted by Directors of the Software Technology
Parks.TheCourtheldthatapprovalgrantedbydirectoroftheSoftwareTechnologyParksIndia
would be deemed approval of the interministerial standing committee and , therefore , the
conditionstipulatedundersection10A(2)wouldstandcompliedwith.Hence,theassesseewas
entitledtodeduction.(A.Y.200304)
CITv.TechnovateESolutions(P)Ltd.(2013)214Taxman125(Mag.)(Delhi)(HC)
S.10A: Free trade zone Export turnoverTotal turnoverExpenditure incurred by assessee

notformingpartofexportturnoverisexcludiblefromtotalturnover.
Courtheldthatwhencomputingthereliefundersection10AoftheIncometaxAct,1961,the
expenditure incurred by the assessee should be excluded from the total turnover if they are
reducedfromtheexportturnover.CITv.TataElxsiLtd.[2012]349ITR98(Karn)followed.(A.Y.
20052006)
CITv.SamsungElectronicsCo.Ltd.(2013)350ITR65(Karn.)(HC)
44
Editorial:TheSupremeCourthasgrantedspecialleavetotheDepartmenttoappealagainstthis
judgment:(2013)350ITR(St.)3
S.10A: Free trade zone Newly established undertakingsTransfer pricing Operational

efficiencyofanassesseecanbeconsideredasearningofsuperprofits.[80IA,92C(7)]
Assessee a Software Technology Park unit providing back office services to US Associated
Enterprise. Claimed 10A exemptions on its profits, Gross receipts were shared in ratio 85:15.
Transfer Pricing Officer accepted assessee's value of international transactions to be at arm's
length.A.O.invokedthesection10A(7)readwithsection80IA(10)anddeniedthededuction
oftheassesseeu/s.10Aongroundthatassesseehadearnedmoreprofitthanordinaryprofit.
On appeal the Commissioner (Appeals) confirmed the order of the Assessing Officer on the
ground that the risk & responsibility of company to its AE was minimal & substantially lower.
The Tribunal held that operational efficiency of an assessee can be considered as earning of
super profits. where there was no passing of profits by parent company to assessee to avoid
tax,andreceiptswerealsoatarm'slengthsodenyingsection10Aexemptionwasnotjustified.
(A.Y.200405)
ZavataIndia(P.)Ltd.v.ITO(2013)141ITD456/154TTJ96/86DTR10(Hyd.)(Trib.)
S.10A:FreetradezoneExpensesincurredExportturnoverTotalturnover.
Telecommunication expenses and travelling expenses were excluded from export turnover,
corresponding reduction from total turnover should be made for purpose of computation of
deductionundersection10A.(A.Ys.200405,200607)
GEIndiaTechnologyCentre(P.)Ltd.vDY.CIT(2013)141ITD245(Bang.)(Trib.)
S.10A: Free trade zone Newly established undertakings Computation of profits losses of
non10Aunitscannotbesetoffagainstprofitsof10Aunit.
Lossesofnon10Aunitscannotbesetoffagainstprofitsof10Aunitandbroughtforwardlosses
of 10A units for previous assessment years cannot be set off against current years 10A profits
butcanbesetoffagainstprofitsofposttaxholidayperiod.(A.Y.20042005)
GEIndiaTechnologyCentre(P.)Ltd.v.Dy.CIT(2013)141ITD245(Bang.)(Trib.)
S.10A: Free trade zoneNewly established undertakingsDeduction u/s.10A is allowed from

current business income prior to setting of brought forward losses and unabsorbed
depreciation.[S.70,71,72]
The assessee an 100 percent export oriented STPI unit claimed deduction under section 10A
fromthetotalincome,beforesettingoffbroughtforwardlosses.Assessingofficerrejectedthe
claim , which was confirmed by Commissioner (Appeals) . On appeal Tribunal held that
deductionu/s.10Aisallowedfromcurrentbusinessincomepriortosettingofbroughtforward
lossesandunabsorbeddepreciation.(A.Y.200708)
ValueprocessTechnologies(I)(P.)Ltd.v.ITO(2013)141ITD447(Mum.)(Trib.)
S.10A: Free trade zone Newly established undertakings Export business Computer
software Deduction under section 80HHHE was claimed in second year of productionFor
subsequentyearexemptionundersection10Aisallowable.[S.80HHHE]
45
Theassesseesetupaunitinanexportprocessingzoneandstarteditscommercialoperations
in the previous year relevant to the assessment year 199798 ,but it suffered losses it did not
claim exemption in that year. In the previous year relevant to the assessment year 199899
(The second year of operation) the assessee claimed deduction under section 80HHE of the
Act.Frompreviousyearrelevanttotheassessmentyear19992000,theassesseeclaimedand
allowed exemption under section 10A of the Act .For the assessment year 200203, the
assessee was denied the exemption under section 10A of the Act on the ground that since
assessmentyear198889theassesseehadclaimedandwasalloweddeductionundersection
80HHE, the assessee was not entitled to claim exemption 10A of the Act . Commissioner
(Appeals)upheldtheclaimofassesseefordeductionundersection10AoftheAct.Onappeal
theTribunalheldthatsubsequentyearstheclaimofdeductionundersection10Awasupheld
byTribunal.TribunalorderwasupheldbytheHighCourt,claimoftheassesseeforexemption
undersection10AoftheActwasallowable.(A.Ys.20062007,20082009)
InterraInformationTechnologies(India)P.Ltd.v.DCIT(2013)24ITR140(Delhi)(Trib.)
S.10A:FreetradezoneClaimunderrevisedreturnOriginalreturnintime,claimunderrevisedreturn
isvalid.[S.139(1),139(5)]
Assesseeis100percentEOUregisteredwithSTP,wasexportingsoftware.Forrelevantassessmentyear
assesseefileditsreturnwithinduedateclaimingdeductionundersection10B.Subsequently,onfinding
thatitwasentitledfordeductionundersection10A,assesseefiledrevisedreturnundersection139(5).
AssessingOfficerdisallowedsaidclaimongroundthatprovisotosection10Arequiressaiddeductionto
be claimed in return filed under section 139(1). Commissioner (Appeals) upheld the decision of
Assessing Officer. On appeal Tribunal held that, reading of the aforesaid proviso made it clear that
requirementforclaimingdeductionundersection10Awasfilingofareturnofincomeonorbeforethe
due date specified under subsection (1) of section 139. In the instant case, the assessee had filed a
return of income under section 139(1) within the due date claiming deduction under section 10B.
Therefore, the reasoning of the Commissioner (Appeals) that the proviso to section 10A operated as a
barinallowingdeductionclaimedintherevisedreturnwasnotacorrectinterpretation.Itwasafacton
recordthattheassesseeuptotheassessmentyear200607wasclaimingdeductionundersection10B
andthedepartmentwasallowingthesameevenunderscrutinyassessments.Keepinginviewtheorders
oftheTribunalfortheearlierassessmentyears200607and200708,directingtheAssessingOfficerto
considerassessee'sclaimfordeductionundersection10A,mattersentbacktothefileoftheAssessing
Officerdirectinghimtoconsiderassessee'sclaimofdeductionundersection10A.(A.Y.200809)
VNSMakroTechnologies(P.)Ltd.vDy.CIT(2013)140ITD714(Hyd.)(Trib.)
S.10A:FreetradezoneBlendingofteaismanufacture.
Deduction under section 10A was deniedon the ground that blending and packing of tea was
not"manufacture".TheCommissioner(Appeals)allowedtheclaim.Onappealbytherevenue,
theTribunalheldthattheCommissioner(Appeals)hadrightlyallowedtheclaimoftheassessee
undersection10A.(A.Y.20042005to20062007)
AlGayathriTradingCo.P.Ltd.v.Dy.CIT(2013)22ITR214(Trib.)(Cochin)(Trib.)
S.10A:FreetradezoneExportofcomputersoftwareisentitledtodeduction.
46
Theassesseecompanyprovidedcomputersystemconsultancyservicestoprivatesector,public
sector, Government and other organisations, undertaking studies on matters relating to
feasibility of computerisation, evaluating and selecting appropriate hardware and software,
installingandassistinginusingmainframe,miniandmicrocomputers,etc.Tribunalheldthatthe
assesseecompanyisentitledtothebenefitofdeductionavailableundersection10AoftheAct.
(A.Ys.20032004,20042005)
ACITv.SRASystemsLtd.(2013)22ITR205(Chennai)(Trib.)
S.10A:FreeTradeZoneExportturnover
Tribunal held that whatever is excluded from export turnover has to be excluded from total
turnoveralsowhilecomputingdeductionundersection10A.(A.Y.200405)
SITELIndia(P.)Ltdv.ACIT(2013)55SOT541(Mum.)(Trib.)
S.10A:Free Trade ZoneForeign exchange gain and amounts written off is eligible for
exemptionundersection10A.
Tribunal held that foreign exchange fluctuation gain in respect of export proceeds was to be
includedinincomeeligiblefordeductionundersection10A.Excessprovisionmadeinrelation
to export proceeds in earlier years and written back in relevant assessment year was also
includibleintotalincomeeligiblefordeductionundersection10A.(A.Y.200708)
HeadstrongServicesIndia(P.)Ltd.vACIT(2013)55SOT481(Delhi)(Trib.)
S.10A:FreetradeZoneApportionmentofincomeandExpenditureMethodconsistently
AcceptedbyDepartmentSatellitechargesnottelecommunicationchargestobeexcluded
fromexportturnover.
Assessee had two units, one of which qualified for exemption. There was apportionment of
income and expenditure on basis of headcount of employees in two units. This method
consistently used and accepted by department and is not to be disturbed. UK company was
providing training to employees of assessee in India. Payment for services rendered by UK
company. Technical services are not provided outside India. Expenses relating to technical
services are not to be deducted. Satellite charges not telecommunication charges to be
excludedfromexportturnover.(A.Y.20062007)
WillsProcessingServices(India)P.Ltd.v.Dy.CIT(2013)21ITR1/151TTJ555/81DTR353/
57SOT34(URO)(Mum.)(Trib.)
S.10B:Hundred per cent exportoriented undertakings Local sales Not eligible for
exemptionundersection10B.
Assessee is engaged in business of purchase of textile material, stitching and exporting
garments.Apartfromexportreceipts,itreceivedcertainamountbywayofstitchingcharges.It
claimed exemption under section 10B in respect of receipts of stitching charges. It submitted
that whenever stitching machines were relatively free, same were utilized for purpose of
undertaking job work for outsiders. Assessing Officer disallowed claim of exemption.Tribunal
treated receipts of stitching charges as local sales and held that since said receipts were less
than 25 per cent of total sales, assessee was entitled to exemption under section 10B. On
appealbyrevenuetheCourtheldthatinviewofprovisionsofsecondprovisotosection10B(1)
47
and section 10B(4) Tribunal committed error in treating receipts of stitching charges as
amounting to local sales for purpose of granting exemption. Assessee was not eligible for
exemptionundersection10B.Infavourofrevenue(A.Y.200102)
CIT v. First Garments Mfg. Co. India (P.) Ltd. (2013) 81 DTR 372/ 212 Taxman 142(Mag.)/256
CTR212(Mad.)(HC)
S.10B: Hundred per cent exportOriented undertakingsProfit derived fromInterest on

moneysheldforcreditfacilities,interestonsurplusfunds,salestaxrefund,excisedutydraw
back.
Revenue authorities while considering assessee's claim for exemption under section 10B
excluded interest on money held with banks for availing credit facilities, interest on surplus
funds, sales tax refund and excise duty drawback, etc. Tribunal held that Interest earned on
surplus funds could not be said to be derived from assessee's business same was rightly
excluded, salestax refund and excise duty draw back were concerned, since section 10B(1)
readwithsection10B(4)doesnotadmitofreceipt,immediatesourceofwhichisnoteconomic
activity itself, but a fiscal incentive, assessee's claim in respect of aforesaid items was rightly
rejected. As regards interest on money held with bank for extending nonfund based credit
facilitiestoitsconstituentsonlythensamecanberegardedasintegraltoassesseesbusiness,
forming part of profits of business of assessees elegible undertaking. Partly in favour of
TessituraMontiIndia(P.)Ltd.v.ITO(2013)141ITD531(Mum.)(Trib.)
S.10B: Hundred per cent exportOriented undertakings Manufacture Food products, like
paratha,samosa,dhokla,etc.
Assessee is a 100 per cent EOU engaged in business of manufacturing and export of various
food products, like paratha, samosa, dhokla, etc. Deduction under section 10B was denied to
assessee on ground that foodstuffs prepared by assessee was not manufacturing. Production
was done by a particular set process and various raw materials when consumed lost their
individualandindependentidentity.Manufacturingofsaideatablesconstitutedmanufacturing
activityandassesseewaseligiblefordeductionundersection10B.(A.Y.200809)
DeepkiranFoods(P.)Ltd.vACIT(2013)141ITD85(Ahd.)(Trib.)
S.10B:Hundred per cent exportOriented undertakingsProfits derived from undertakingsInterest

SalestaxrefundExcisedutydrawbackSaleofscrapFinefromworkersDiscount.
(1)Interest on fixed deposits and bank accounts on surplus funds not derived from assessee's business
andtobeexcluded.
(ii)Thatsalestaxrefundandexcisedutydrawbackforanearlierperiodweretoprovideanincentiveto
the export business by making it more competitive in the international market, by reducing the input
costandwould,thus,havetoberegardedasaneligiblereceiptoftheeligiblebusiness.However,itwas
not the business of the undertaking per se but the relevant policy of the Government that led to a
different treatment of the assessees engaged in exports visavis those in domestic business and, thus,
responsiblefortheprofit.Thesumsinquestionwerenot"derived"fromsuchbusiness,astheword"of"
intheexpressionof"profitsofthebusinessoftheundertaking"assignifiesarelationshipoffirstdegree,
48
i.e., flowing from the economic activity comprising the business of the undertaking, but from a
Governmentpolicy.
(iii) That scrap arose out of the manufacturing operations, and went to reduce the cost of production.
Thus, the assessee's business was itself the direct source of the profit from scrap sales. It was not
necessary that every credit or receipt of the export business must arise directly from the export itself,
for it to qualify for inclusion, and it would be suffice that it arises in the course of the assessee's
business.Theveryfactthatsection10B(4)providesforanapportionmentintheratioofexportturnover
tototalturnoverimpliesthatreceiptsotherthanthosecomprisedinexportturnoverarecontemplated
for inclusion in total turnover. They are eligible and would go to form part of the total turnover. The
scrapsalesformedpartofthereceiptoftheassessee'sexportbusiness,sothattheprofitswerederived
fromsuchbusiness.
(iv)That"canteenrecovery"or"finefromtheworkers"couldnotbeconsideredasforminganintegral
part of the assessee's business. However, the assessee's contention was that the credit did not
constitute an income per se, but only represented recovery out of canteen expenses already debited
andreducedinarrivingattheeligibleprofits.TheAssessingOfficerwastoverifythis,andallowreliefto
the extent the amount went to reduce expenditure already claimed and allowed. No case for allowing
thefinefromworkerswas,however,madeout.
(v)Thattheamountclaimed,itcomprisedRs.1.04lakhsreceivedbywayofaonepercent.discounton
purchases from a supplier against purchase of raw material there from, it was not an independent
receipt but only reduces the purchase cost to that extent, though accounted for separately. The
assessee's claim, where found to be so, would be a part of the profits derived from the eligible
business.(A.Y.20052006)
TessituraMontiIndiaP.Ltd.v.ITO(2013)22ITR329/141ITD531(Mum.)(Trib.)
S.10B:Hundred per cent exportOriented undertakingsRegistered with Software Technology Park of
IndiaRatification of Board of approval required to obtain benefit under section 10B.Matter
remanded.
The Assessing Officer disallowed the assessee's claim for deduction under section 10B, on the ground
that it had failed to obtain ratification from the Board of approval as envisaged under section 10B and
that it had also failed to submit the ratification by the Development Commissioner as envisaged in the
InstructionFileNo.178/19/2008ITA01datedMarch9,2009,insupportofitsclaimundersection10Bof
theAct.TheCommissioner(Appeals)allowedtheexemptiononthegroundthattheapprovalof100per
cent exportoriented undertaking by the Board and by the Software Technology Park of India was one
andthesame.OnappealbytheDepartment,theTribunalheldthatbeforetheCommissioner(Appeals),
the assessee produced the registration from the Software Technology Park of India which had been
notified by the Ministry of Commerce, Government of India by Notification No. 33/(RE)/9297 dated
March22,1994.ThenotificationstatedthattheSoftwareTechnologyParkSchemewasa100percent
exportoriented scheme. The assessee had also produced copy of the order of the Tribunal in another
case.TheAssessingOfficerhadnoopportunitytoconsiderthesedocumentsandtheorder.Thematter
wastoberemittedbacktothefileoftheAssessingOfficerforpassingadenovoorderinthelightofthe
materialproducedbytheassessee.(A.Y.20082009)
ITOv.SelectsysIndiaP.Ltd.(2013)22ITR493(Hyd.)(Trib.)
49
S.10B:HundredpercentexportorientedundertakingsComputationofprofitsSetoffofloss
Lossesofeligibleunitsduringtaxholidayperiodisnotbeallowedtobesetoffagainst
incomeofnoneligibleunits.(S.2(45),10A)
Assessee had three units, two were section 10B eligible units and one was non eligible unit.
There were losses incurred in eligible units during the year which were sought to be setoff
from profits of noneligible unit. It was held that losses of eligible units during tax holiday
periodcouldnotbeallowedtobesetoffagainstincomeofnoneligibleunitsasperprovisions
ofS.10B(6).Suchlossestobekeptinsuspensetobesetoffonlyaftertaxholidayperiodisover.
Therefore the claim of set off made by assessee was disallowed. Appeal of assessee was
dismissed.(A.Y.200809)
KarleInternational(P.)Ltd.v.ACIT(2013)140ITD261(Bang.)(Trib.)
S.11: Property held for charitable purposesApproval of Charity CommissionerViolation in

earlieryearsExemptioncannotbedenied.[BombayPublicTrustAct,1950.S.32(3)]
The assesseetrust, engaged in charitable activities, claimed exemption under S. 11. However,
said claim was disallowed on ground that assessee had raised unsecured loans without taking
prior approval of Charity Commissioner and, thus, had violated S. 32(3) of the Trust Act. Held,
therewasnobarintrustdeedtoraiseunsecuredloans.Further,allegedviolationtookplacein
earlieryearbutnoproceedingswereinitiated.Therefore,thetrustwasentitledtoexemption.
(A.Y.200708)
DITv.G.K.R.Charities(2013)214Taxman555(Bom.)(HC)
S.11: Property held for charitable purposes Business held by trust There being no
connectionbetweenthecarryingonofthebusinessandtheobjectofthetrust,theAssessee
isnotentitledtoexemptionundersection11.
Wherebusinesswascommencedbythetrusteesafterformationofthetrustwiththefinancial
aid and assistance from relatives and banks, it cannot be said to be held under trust and the
businessalsocannotbeincidentaltotheattainmentofobjectsofthetrustwhicharedirected
towards promotion of education, running hospitals, etc. and the assessee is not entitle to
exemptionundersection11oftheAct.(A.Y.199293to9495,0102and0506to07
08)
CITv.MehtaCharitablePrajnalayTrust(2013)81DTR104/214Taxman88/255CTR232(Delhi)
(HC)
S.11:PropertyheldforcharitablepurposesBusinessheldintrustTrustentitledtoexemption
whichwascreatedformainlyeducationalandcharitablepurposes.
Assesseetrust was created mainly for educational and charitable purposes. Founders gifted
land and running business with a stipulation that said business shall be run by trustees and
income therefrom shall be utilized for charitable objects. Assessee claimed exemption under
section 11 in respect of income earned from aforesaid business. Assessing Officer denied
exemptiononpleathattherewasnoevidencetoholdthatbusinesscarriedonbytrustwasin
courseofactualcarryingonofprimaryobjects.ThecourtheldthatsinceAssessingOfficerhad
alsorecordedafindingoffactinassessmentorderthatprimaryobjectsoftrustwerecharitable
innature,hewaswrongindenyingexemption.Infavourofassessee.(A.Ys.199091,199192)
50
CITv.JanakiammalAyyanadarCharitableTrust(2013)212Taxman274(Mad)(HC)
S.11:PropertyheldforcharitablepurposesAccumulationofincomeFormno10canbefiled
in the course of assessment proceedings. [S.147,Income tax Rules, 1962,Rule 17, Form no
10]
TheTribunalrejectedtheassessee'sclaimforaccumulationofincomeonthegroundthatForm
No. 10 had not been furnished along with the return but was filed during the course of
reassessment proceedings. The Court held that form No. 10 could be furnished by assessee
trust for purposes of section 11 (2), i.e., for accumulation of income, during reassessment
proceedings.Infavourofassessee.(A.Ys.199899,200001,200102)
Association of Corporation & Apex Societies of Handlooms v ADTI(2013)/351 ITR 286/ 213
Taxman15(Delhi)(HC)
S.11:Property held for charitable purposesBusiness held in trustTrust is entitled to

exemption.(S.13(1)(bb))
Assesseetrust was formed to aid and assist in establishment, maintenance of hospitals,
educational institutions, houses for poor, to conduct poor feeding, etc. Subsequently, a unit
dealing in safety matches got settled in favour of assessee through a trust deed. Trust deed
enabled assessee to exploit proprietary trademark 'camel' which was a wellknown brand of
safety matches. Subsequently, assessee leased out said business. It claimed exemption under
section 11. Assessing Officer viewed that even though trust had as its object relief of poor,
education, medical relief and advancement of general public utility, assessee's activities in
exploitingtradeconstitutedbusinessincomeandhence,claimofassesseewashitbyprovisions
under section 13(1) (bb); consequently, it was not entitled to deduction. Court held that since
primary purpose of trust was to afford relief to poor, education and medical relief, means
employed by exploitingits assets to earn income to achieve objects, could not in any manner,
defeatclaimofassesseeundersection11.Infavourofassessee.(A.Y.198182to198384,1989
90,199293,199596).
CITvP.IyaNadarCharitableTrust(2013)213Taxman48/87DTR118(Mad)(HC)
S.11:Property held for charitable purposesRegistrationMaintenance Public lavatories is

incidentaltoobjectwhichiseligibleforexemption(S.2(15),12,13)
Object of society is construction of public lavatories. Maintenance of public lavatories being
incidentaltoobjectofsociety,amountsspentonsuchmaintenanceisentitledtoexemption.As
there was no evidence of diversion of funds to the founder of society, section 13 is not
applicable.Hence,theSocietyisentitledforregistration.(A.Y.200607)
Dy.CITv.SulabhInternationalSocialServiceOrganisation(2013)350ITR189/(2011)242CTR
70/57DTR8(Patna)(HC)
S.11:Property held for charitable purposes Exemption of income from property treated as
BusinessIncomeisexemptifthereisnoprofitmotive.(S.2(15),28(iii))
ReceiptsderivedbyaChamberofCommerceandindustryforperformingspecificservicestoits
members, though treated as business income, would still be entitled to exemption under
51
section 11, provided there is no profit motive. Issueis decided in favourof assessee. (A.Y.2006
07,200708)
PHDChamberofCommerce&Industryv.DIT(2013)212Taxman194(Delhi)(HC)
S.11:PropertyheldforcharitablepurposesSubscriptiontoChitfundcannotbeconsideredas
investment,exemptioncannotbedenied.[S.13]
Assessee Trust claiming exemption under s. 11.Assessing Officer noticed that assessee had
investedcertainamountwithachitfund.Accordingtohimitwasnotanapprovedinvestment
under section 11(5), it resulted in violation of section 13(1)(d) and claim for exemption was
rejected. The Tribunal held that subscription to chit funds utilized for only to prize a chit or
participate in a draw of lots and it was not an investment or deposit of a money which was
availableassurpluswithassessee.TribunalheldthatAssessingOfficerfellinerrorinconcluding
that such subscriptions were investments which violated modes specified under section 11(5).
Claimforexemptionwasallowed.(A.Y.200809)
SethuValliammalEducationalTrustv.ITO(2013)141ITD712/89DTR42(Chennai)(Trib.)
S.11:PropertyheldforcharitablepurposesExemptionObjectsMerelyonbasisofoneortwo
objectstrustcannotbeheldpurelyreligioustrust.Exemptionallowedforearlieryearsasthe
factsaresameexemptioncannotbedeniedfortherelevantyear.(S.13(1)(b))
Assessing Officer denied the benefit of exemption under section 11 of the Act on the ground
that the objects of the assesseetrust included propagation of the Islamic faith and promotion
ofreligiousactivitiesoftheIslamicfaith,thatthetrustwasamixedtrustandtheprovisionsof
section 13(1) (b) were applicable. On appeal, the Commissioner (Appeals) took the view that
the objects of the trust did not reveal that the benefits were meant only for a particular
religiouscommunitybutwereavailabletothegeneralpublicatlargeandthattheprovisionsof
section 13(1) (b) were not applicable. On appeal : The Tribunal held that major expenses of
TrustwasonconductingpeaceconferenceandmerelyonthebasisofoneortwoobjectsTrust
cannot be heldpurely religious trust. Even if the assessee was a mixed trust, section 13(1) (b)
couldnotbeappliedasitwasapplicabletoapurelycharitabletrustthereforebenefitofsection
11 could not be denied to the assessee under section 13 (1) (b). Exemption was allowed in
earlier yearsthe principle of consistency was also applicable. Accordingly the appeal
ofdepartmentwasdismissed.(A.Y.20082009)
Add.DIT(Exemption)v.IslamicResearchFoundation(2013)21ITR588(Mum.)(Trib.)
S.11:Property held for charitable purposesApplication of incomeCapital expenditure

Depreciationisallowed.(S.32)
Tribunalheldthatgrantingexemptioninrespectofcapitalexpenditureasapplicationofincome
under section 11 and claiming ofdepreciationunder section 32 is valid. Appeal of revenue was
dismissed.(ITAno2658/Ahd/2012BenchA.dt3112013(A.Y.200910)
ADIT(Exemption)v.FriendsofWWB,India(2013)BCAJMarchP.604(Ahd.)(Trib.)
S.12:VoluntarycontributionsTrustorinstitutionsCorpusdonationisnottaxable.
Assesseetrust received donation of agricultural land from 'M'. Assessing Officer taking a view
thatdonorhadnotmadeanyspecificstipulationingiftdeedindicatingthatitwouldbetowards
52
corpusoftrust,heldthatsaidgiftwasnotentitledtoexemptionundersection11.Tribuanlheld
thatinviewoffactthatdonationwasmadebydonorinordertoestablishanengineeringand
management college in name of his grandfather, donation in question was a corpus donation
and,itwasnotataxableincomeinhandsofassesseeundersection12(1).Infavourofassessee.
(A.Y.200809)
Add.CITv.ChaudharyRaghubirSinghEducational&CharitableTrust(2013)55SOT211(Delhi)
(Trib.)
S.12A:RegistrationTrust or institutionCondonation of delay in making application was held

tobevalid.(S.80G(5))
Tribunalcondonedthedelayinmakingapplicationu/ss.12Aand80Gastheassesseewasledto
believe that appropriate applications were already filed with the income taxauthorities on
account of irregularities and illegalities committed solely by its treasurer who owned up the
responsibility for having misled the assessee representing that the necessary application was
madeintimeandthattheassesseehasfiledpolicecomplaintagainstthesaidtreasurerforhis
unscrupulous activities and also taken prompt remedial action by filing applications for
registration both u/s. 12A as well as s. 80G, the order of the Tribunal cannot be said to be
perverse,unreasonableorirrational.
DIT(Exemption.)v.VishwaJagritiMission(2013)83DTR47Delhi)(HC)
S.12A:RegistrationTrustorinstitutionRestorationofapplicationAnapplicationsubmittedfor
registrationundersection12Aoncerejected,itcannotberestored.
The assessee, an educational institution, submitted application for registration under section
12A.The Commissioner issued communication requiring the assessee to rectify the defects
mentioned therein. For noncompliance ofhe rejected the application Thereafter the assessee
submittedan application stating that the defects were rectified and requested for
reconsideration of its application. The Commissioner issued communication requiring the
assessee to cure the defects mentioned thereinand also asked it to attend his office. Further,
theCommissionerhavingnoticedthattheassesseehadalsofiledanapplicationforthebenefit
undersection10(23C)(vi)beforetheChiefCommissioner,presumedthattheassesseewasnot
pursuing the application and on that basis, closed the said application as withdrawn. In the
meanwhile,theassesseeappliedforregistrationundersection12Afortheyear201011,which
was granted.The assessee also filed a writ petition before the High Court contending that
applicationwaspendingbeforetheCommissioner.TheHighCourtdisposedofthewritpetition.
It held that the stand taken by the assessee regarding pendency of the application for
registrationundersection12Awasnottrueandcorrect.Therefore,thereliefsoughtforcould
notbegranted.Ithavingnoticedthatregistrationundersection12Ahadalreadybeengranted
totheassesseeonthebasisofasubsequentapplicationwitheffectfromtheassessmentyear
201011 onwards permitted the assessee to seek appropriate remedy for applying for
registration under section 12A with respect to the periods prior to the assessment year 2010
11. Thereupon the assessee approached the Commissioner by submitting fresh application
under section 12A. The Commissioner held that since application was not disposed of as
providedundersection12(AA)(b)(ii),afreshapplicationwasnotmaintainable.Thereafterthe
High Court by judgment modified its earlier judgment dated 2812011 and permitted the
53
assessee to seek appropriate remedy to restore application, if permissible under law. The
assesseeagainapproachedtheCommissioner.TheCommissionerconsideredthematterafresh
andpassedorderholdingthatapplicationcouldnotberestoredinlaw.Thecourtheldthatan
applicationsubmittedforregistrationundersection12Aoncerejected,itcannotberestored.In
favourofrevenue.
KadakkalEducationalTrust.v.CIT(2013)213Taxman7/81DTR345(Kerala)(HC)
S.12A:RegistrationTrustorinstitutionWhilegrantingtheregistrationobjectsofTrustisonly
tobeseen.(S.12AA)
The Trust has made an application u/s12A, as it is supposed to do the same within one year
fromthecommencementofitsactivities.TheHonblecourtheldthat,undertheprovisionsofs.
12AA, satisfaction regarding the genuineness of the activities of the trust is to be seen at the
stageforapplicationofincome,thatis,whenthetrustorinstitutionfilesitsreturn,andnotat
the stage of commencement stage when the activities have not commenced in full, therefore
held that the trust was not entitled to benefit of registration was not sustainable. Therefore,
where the trust was in nascent stage and was yet to work towards its object, Commissioner
could not deny registration on ground that it was not utilizing its income for charitable
purposes; at stage of granting registration, objects of trust only had to be considered by
Commissioner.Infavourofassessee.
CITvB.K.K.MemorialTrust(2013)213Taxman1/82DTR299/256CTR424(P&H)(HC)
S.12A:RegistrationTrustorinstitutionCancellationofregistrationisheldtobenotjustified.
(S.10(23C),11,12AA)
Assessee was granted registration under section 12A being a charitable institution. Chief
Commissioner disallowed assessee's claim of exemption under section 10(23C) (vi) on ground
that it had not solely been established for educational purposes.Commissioner relying on said
order cancelled registration granted to assessee under section 12A.Tribunal restored
registration. On appeal by revenuethe Court held that since (i) exemption under section
10(23C) (vi) could be claimed by an assessee without applying for registration under section
12A,and(ii)inorderofCommissionertherewasnowhisperthatassesseehadnotfulfilledany
of conditions of section 11, Tribunal had rightly restored registration. Appeal of revenue was
dismissed.
CITv.JeevanDeepCharitableTrust(2013)212Taxman19(All.)(HC)
S.12A: RegistrationTrust or InstitutionMaintain and develop existing gaushala and live

stocksConversion of sole proprietorship into trust Registration cannot be denied. [S. 2(15),
12AA]
Assesseetrustwasformedonbasisoftransferringofassetsofsoleproprietorshipconcernof
one'M',M'wasmanagingtrustee.TheObjectsoftrustweretomaintainanddevelopexisting
gaushala and live stocks received from 'M' and to do all such acts and things for development
and maintenance of animal welfare, other gaushala. Assessee applied for registration u/s.
12A.Commissioner refused to grant registration on the ground that the trust was not carrying
on any charitable activities. On appeal Tribunal restored the matter for granting the matter
according to law.The Commissioner once again held that the activities of the assessee that
54
maintenanceoflivestockdidnotcomeunderthedefinitionofcharitablepurposeandalsodid
notcomewithinthemeaningofanyotherobjectsofgeneralpublicutility,asregularbusiness
of selling of milk for maintenance of gaushala was being carried on by assessee. He again
denied the registration under section 12AA.On appeal Tribunal held that it is immaterial that
the trust had been formed on basis of transferring of assets of sole proprietorship concern of
'M'andthisfactnowayinterferedwithgrantingofregistration.Theassesseetrustwaseligible
for12Aregistration.
SriGomandirSevaTrustv.CIT(2013)141ITD472(Cuttack)(Trib.)
S.12A:RegistrationTrust or institutionDenial of registration it was premature for

Commissioner to judge its activities and deny registration by glancing through its statement
ofaccountsofaveryshortperiod.[S.12AA,80G(5)]
The assessee trust was created for purpose of spreading education and had applied for
registration u/s 12AA. The assessee had given details regarding school and had submitted
account statements of trust. The Commissioner rejected the application as genuineness of
charitable activities carried out in accordance with trust deed had not been established. The
Commissioner prejudged the activities of the trust and the school, run by it. However, no
questionsregardingobjectsoftrustwereraised.Tribunalheldthatsinceassesseetrustwasyet
toworktowardsitsobjects,rejectionofregistrationbyjudgingitsactivitieswaspremature.As
per the Board's Circular No. 11/2008, dated 19122008, where the purpose of the trust or
institutionisreliefofthepoor,educationormedicalrelief,itwillconstitutecharitablepurposes
even if it incidentally involves commercial activities. Thus, the object of providing education is
charitableactivityevenifconsequenttocarryingonofsuchactivitythetrustearnsanybenefit
out of it. A perusal of the order passed undersection 12AA shows that the Commissioner had
notcommentedontheobjectsoftheTrust.TheCommissioner,afterexamining,thestatement
of accounts formed an opinion that since no expenditure towards any charitable activity was
showninthestatementofaccounts,therefore,carryingoutofgenuinecharitableactivitieswas
absent in this case. It would be relevant to mention here that the trust was formed on 111
2012, the application for registration under section 12AA was submitted by the appellant on
2732012,i.e., within a period of three months of its creation. The school activities started in
June, 2012. The appellant submitted its books of account up to September, 2012 before the
Commissioner.TheCommissioner,afterexaminingthestatementofaccounts,forsuchashort
period formed its opinion that the activities of trust were not charitable in nature. The
Commissionerdidnotraiseanyobjectionontheobjectsofthetrust.Itwasprematureforthe
Commissioner to judge the activities of the trust by just glancing through the statement of
accountsofthetrustofsuchashortperiod.
Therefore, the Commissioner is directed to grant registration to the assessee trust under
section12AA.Consequenttotheregistrationundersection12AA,theCommissionerisfurther
directedtoconsidertheapplicationoftheassesseeforgrantofinitialcertificateofexemption
undersection80G(5).
A.V.S.EducationalTrust.vITO(2013)140ITD681(Chennai)(Trib.)
55
S.12A:RegistrationTrust or institutionAssessee collecting subscription fee and providing
opportunities for students of an institute to seek employmentNot charitable activityTrust is not
entitledtoregistration.[S.80G]
The assessee trust was created to provide opportunities for the students of the Department of
Economics, Delhi School of Economics to seek employment. It collected fees from enrolled students as
well as companies who appeared for campus recruitment. It filed two applications for seeking
registrationandexemptionundersections12Aand80G.TheCommissionerheldthatthepublicatlarge
wasneither eligible tobecomemembersnorwereprovidedanybenefitofthetrustactivities,asallits
activitieswereforthemembersenrolled.Moreover,theactivitiescouldnotbeclassifiedascharitablein
nature.Furtherapartfromadministrativeheadsofexpenditure,nootherexpenseswereshowntohave
been incurred on any charitable activity. In the absence of documentary evidence, it could not be held
thattheactivitieswerecharitableinnature.Accordingly,herejectedtheregistrationandexemptionon
appeal.
DSEEconomicsPlacementCellv.DIT(Exemption)(2013)23ITR121(Delhi)(Trib.)
S.12A:Registration Trust or institutionCancellationAmendment of section 2(15) barring

exemption where receipts exceed Rs. 10 lakhs is not sufficient reason for cancellation of
registration.(2(15),11)
Theobjectsoftheassesseeclub,aregisteredsociety,weretopromotesportsrelatedtomotor
carandmotorcycleandconductmotorraces,competitions,etc.Fortheassessmentyear2009
10, the Assessing Officer recommended cancellation of registration granted to the assessee
undersection12A(a)oftheIncometaxAct,1961.TheDirectorofIncometax(Exemptions)held
that the motor sports were for the purpose of promotion of business of sponsors. The
sponsorship proceeds were commercial receipts in the hands of the assessee. Therefore, the
assessee was hit by the proviso to section 2(15) inserted from April 1, 2009. Accordingly, the
objects and activities of the assessee could not be considered charitable in nature. Therefore,
hecancelledregistrationgrantedtotheassessee.OnappealtheTribunalheldthattheorderof
the Director (Exemptions) mentioned that the assessee's objects were in the nature of
advancementofobjectofgeneralpublicutilitycomingwithintheambitofsection2(15)ofthe
Act. The Director (Exemptions) cancelled registration on the ground that receipts exceeded
Rs.10 lakhs. If the receipts exceeded Rs. 10 lakhs under the second proviso to section 2(15) of
theAct,theAssessingOfficerwouldbejustifiedindenyingexemptionundersections11and12
oftheAct;however,thiswouldnotbesufficientreasonforcancellingtheregistrationgranted
totheassesseeundersection12A(a)oftheAct.Ifintheverynextyear,theassessee'sreceipts
werelessthanRs.10lakhs,itwouldhavetobegrantedtheexemptionundersections11and
12oftheAct,ifotherconditionsweresatisfied.Inotherwords,thenatureoftheobjectsofthe
assessee could not fluctuate in tandem with the quantum of receipts mentioned in the first
proviso.Therefore,theDirector(Exemptions)fellinerrorincancellingtheregistrationgranted
totheassesseeundersection12A(a)oftheAct.(A.Y.20092010)
MadrasMotorSportsClubv.DIT(Exemptions)(2013)/141ITD1/22ITR175(Chennai)(Trib.)
S.12A:RegistrationTrust or institutionTrust of primary purpose of public welfare is

predominantthenthetrustisentitledforregistration.(S.2(15))
56
TheassesseetrustwasestablishedundertheRajasthanUrbanImprovementAct,1959withthe
main object to construct roads, provide water and electricity facilities, construct drainage
system, improve gardens and open spaces and to provide housing facilities by allotting the
residentialplots.TheTribunalheldthattheprimarypurposeofpublicwelfarewaspredominant
objectoftheassessee,therefore,theassesseewasentitledforregistrationundersection12A.
(A.Y.200304to200708)
UrbanImprovementTrustv.CIT(2013)152TTJ507/83DTR282/24ITR622(Jodh.)(Trib.)
S.12A: RegistrationTrust or institution Cancellation of registration under section 12AA(3)

(S.12AA(3),13(1)(C).)
Tribunal held that a mere finding that the objects of the appellant have been altered without
the consent of the department would not be sufficient to exercise the power under section
12AA(3) without giving a finding that the objects of the trust are no longer charitable. On this
score the impugned order is liable to be set aside. None of the reasons given in order under
section 12AA(3) can be the basis to cancel the registration already granted to the assessee.
Assessee was already granted registration under section 12A, it shows that the revenue was
satisfied that the objects of the assessee trust was charitable, the amendment in the deed
makesitclearthatthebenefitsofthetrustisopentoallcaste,creedandreligion.Onefailsto
see how the amendment will make the assessee not existing for the purpose of education or
not existing for charitable purpose. Thus, the assessee is entitled to registration under section
12Aanditcannotbecancelledundersection12AA(3)withoutgivingafindingthattheobjects
arenolongercharitable.(A.Y.200910)
KrupanidhiEducationalTrustv.DIT(Exem.)(2013)152TTJ673/84DTR120(Pune)(Trib.)
S.12AA: Procedure for registrationPeriod of disposal of application within period of six
monthsisdirectoryItcannotbepresumedthatthedeemedregistrationwasgranted.
Held, that the period of six months provided in S.12AA(2) for disposal of application seeking
registrationisonlydirectoryand,therefore,notpassinganorderwithinsaidperiodwouldnot
automaticallyresultingrantingregistrationtotrust.Matterwassetasidetodecidetheissueon
merits.
CITv.KarimangalamOnriyaPengalSemipuAmaipuLtd.(2013)214Taxman665(Mad.)(HC)
S.12AA: Procedure for registrationCommencement of charitable activityRefusal for

registration.
Whereatrust,setuptoachieveitsobjectsofestablishingeducationalinstitution,isinprocess
of establishing such institutions, and receives donations, registration under section 12AA
cannotberefused,ongroundthattrusthasnotyetcommencedcharitableorreligiousactivity.
Held, that the enquiry of Commissioner at such preliminary stage should be restricted to
genuinenessofobjectsandnotactivities,unlesssuchactivitieshavecommenced.
HardayalCharitable&EducationalTrustv.CIT(2013)214Taxman655(All.)(HC)
S.12AA: Procedure for registrationTrust or institutionCommissionerwas not justified in

refusingregistrationwhenactivitiesoftheTrusthavenotcommenced.
Assessee made an application for registration under section 12A(1) (a). Commissioner noted
from trust deed that objectives of trust were mainly religious. Commissioner called upon
57
assesseetoproduceevidenceregardingexpensesincurredtowardsobjectsoforganization.On
failure of assessee to bring on record any such evidence, Commissioner rejected assessee's
applicationforregistration.Tribunal,however,grantedregistrationtoassesseetrust.
OnappealthecourtheldthateventhoughCommissionerhaspowertocallforsuchdocuments
orinformationfromtrustashethinksnecessary,yetitdoesnotmeanthatifactivitiesoftrust
have not commenced, Commissioner has authority to reject its application for registration on
groundthattrustfailedtoconvincehimaboutgenuinenessofactivities.Therefore,theTribunal
wasjustifiedinsettingasideimpugnedorderofCommissioner.Infavourofassessee.
CITvKutchiDasaOswalMotoPariwarAmbamaTrust(2013)212Taxman435(Guj.)(HC)
S.12AA:ProcedureforregistrationTrustorinstitutionCondonationofdelayMistakeof
charteredaccountantdelaywascondoned.(S.12A,80G)
Assessee, a charitable institution, filed an application seeking registration under section 12A
withdelay.Assesseeattributeddelayinfilingregistrationapplicationtoitserstwhiletreasurer
'S', who was a chartered accountant.DIT (Exemption) rejected assessee's application. Tribunal
found that it was because of irregularities, illegalities and misrepresentations of 'S' that
assesseesociety was led to believe that appropriate applications under Act were already filed
withrevenueauthoritiesforregistration.Tribunalfurtherfoundthatassoonasassesseesociety
cametoknowaboutirregularitiesonacomplaintfromdonorandonfurtherenquiryconducted
by governing body, it hastened to take remedial action by filing applications for registration
bothundersections12Aand80G.Tribunalthuscondoneddelayinfilingregistrationapplication
andgrantedregistrationtoassesseesociety.OnappealbyrevenuetheCourtheldthatonfacts,
impugned order passed by Tribunal granting registration did not require any interference. In
favourofassessee.
DIT.V.VishwaJagritiMission(2013)213Taxman65(Delhi)(HC)
S.12AA: Procedure for registrationTrust or institutionBachelor degree course in the field of

architectureGenuinenessofobjectsandactivitiesofTrust.[S.2(15),12]
The assessee trust had started a bachelor degree in the field of architecture. The college was
affiliatedtotheUniversityofNagpurandthefeestructureoftheapplicanttrustwasdecided
andmonitoredbyaCentralGovernmentdepartmentandadmissiontothecoursewasthrough
acommonEntranceExamination.TheTrustmadeanapplicationforregistrationundersection
12A. The Commissioner observed that there are some accounting irregularities and held that
institutionwasnotbeingoperatedwhollyforeducationalpurposeandrejectedapplicationfor
registration. On appeal the Tribunal held that to grant registration to a charitable trust,
Commissioner is only to examine genuineness of objects and activities of trust and not
applicationofincomeforcharitablepurposes.Section12AA,doesnotspeakanywherethatthe
Commissioner,whileconsideringapplicationforregistration,shallalsoseethatincomederived
by Trust or institution is either not being spent for charitable purposes or such institution is
earningprofits.Registrationwasallowed.
SwargiyaJagannathJattewarShikshanSansthav.CIT(2013)141ITD543/155TTJ104/89DTR
51(Nag.)(Trib.)
58
S.12AA: Procedure for registrationTrust or institutionPower to cancel registration under
section 12AA(3) having been brought on statute with effect from 162010 prospectively,
cancellation made with effect from assessment year 200910 would be invalid and not in
accordancewithlaw.[S.2(15,12A]
Theassesseewasgrantedregistrationundersection12A,witheffectfrom1042003.Till313
2003 the assessee was claiming exemption under section 10(20A) which had been omitted by
theFinanceAct,2002witheffectfrom142003.Inordertoexaminethecaseoftheassessee
in the light of change in definition of charitable purpose under section 2(15) , notice for
cancellation of registration with effect from assessment year 200910 was issued to the
assessee on 632002 under section 12AA(3) and thereafter commissioner cancelled the
registration under section 12A with effect from assessment year 200910 by holding that the
assesseewasrenderingserviceinrelationtotrade,commerceorbusinessforacess,feeorany
otherconsideration.OnappealtoTribunal,theTribunalheldthat,powertocancelregistration
undersection12AA(3)havingbeenbroughtonstatutewitheffectfrom162010prospectively,
cancellation made with effect from assessment year 200910 would be invalid and not in
accordancewithlaw.(A.Y.200910)
AgraDevelopmentAuthority.vCIT(2013)141ITD336/85DTR296(Agra)(Trib.)
S.12AA:ProcedureforregistrationProfitelementEnquiryregardingactivities.[S.11,12,13]
Where application for grant of registration is made after commencement of activities by
assessee trust, Director of Incometax (Exemption) justified to enquire about its activities.
Merely because some profit has been earned by an educational institution, registration under
section12AAcannotbedeniedsolongasprovisionsofsections11,12and12AAarecomplied
with and its income has been applied for purpose of education in terms of section 11(2) and
thereisnoviolationofsection13.(A.Y.201213)
SaivaniEducationalSocietyvDIT(2013)57SOT84(Hyd.)(Trib.)
S.12AA:ProcedureforregistrationTrustorinstitutionDegreecourseinfieldofarchitecture.
[S.2(15),12]
Assessee Trust had started a bachelor degree course in field of architecture. It filed an
applicationforregistrationu/s.12AA,Noneofobjectsoftrustwasagainstpublicpolicyandits
main activity was to provide education to student. Institution was covered by provisions of
section2(15),registrationu/s.12Awasallowed.
Swargiya Jagannath Jattewar Shikshan Sanstha. v CIT (2013) 141 ITD 543 / 155 TTJ 104 / 89
DTR51(Nag.)(Trib.)
S.12AA:ProcedureforregistrationRetrospectiveamendmentRevocation.[S.2(15),12A]
The retrospective amendments was made to section 2(15) that advancement of any other
objectofgeneralpublicutilityshallnotbeacharitablepurpose,ifitinvolvesthecarryingonof
anyactivityinthenatureoftrade,commerceorbusiness.Inviewofthesame,theDIT(E)found
that the assessee was carrying on commercial activity and he, by invoking section 12AA(3),
cancelledregistrationgrantedtotheassessee.ItwasheldthatifthereceiptsarebelowRs.25
lakhs,itwillstillbeconsideredas'charitablepurpose'.Also,itisnotopentoDIT(E)inanaction
undersection12AA(3)toexaminetheobjectsofthetrusttoseeifthesamewerecharitablein
59
nature. That has already been done when a registration was granted to the assessee under
section12AA(1).(A.Y.200910)
KodavaSamajav.DIT(2013)57SOT73(Bang.)(Trib.)
S.12AA:ProcedureforregistrationTrustorInstitutionCancellationofregistrationAuthorities
under Incometax Act cannot presume to sit in judgment over authorities empowered to
implement policiesCancellation of registration for failure to implement Government policy
isnotsustainablehenceregistrationrestored.(S.(2(15),12A)
Theassesseesocietywasformedtoestablishprogressiveschoolsorothereducationalinstitutionsin
DelhioroutsideDelhiopentochildrenofofficersofAllIndiaandCentralServices.Itwasgranted
registrationundersection12A.TheDirectorofIncometax(Exemptions)wasoftheviewthatthoughthe
objectsofthetrustwerecharitable,theregistrationdeservedtobecancelledonthegroundsthatthe
activitiesresultedin(a)violationofconditionsimposedbytheGovernment;(b)promotionofahigh
costeducationalinstitutionexcludingthestudentsfromtheeconomicallyweakersectioncategoryand
thatsuchactivitieswouldnotformapartofcharitableactivity,asdefinedinsection2(15)ofthe
IncometaxAct,1961.Onappealagainstcancellationofregistrationfromtheassessmentyear200809
onwards:Held,allowingtheappeal,Therewasnotasingleevidenceofdenialtoanystudentseeking
admissionbelongingtotheeconomicallyweakersectioncategory.Therewasnoevidenceonrecord
thattheDirectorateofEducationhadtakenanyactionagainsttheassesseefornotimplementingthe
Governmentpolicyorthatithadinformedthelandallottingauthoritytoproceedagainsttheassessee
schoolforviolationofthetermsofthelandleaseagreement.Therewasnowhisperofanallegationby
theDepartmentinregardtoanyviolationofthetermsandconditionssetoutneitherintheallotment
letterissuedbyMinistryofUrbanDevelopmentnorbythemonitoringauthorityinregardtothe
GovernmentpolicynamelybytheDepartmentofEducation,GovernmentofNationalCapitalTerritoryof
Delhi.Therewassufficientevidenceavailableonrecordthattheobjectsofthesocietywerecharitable
innatureandafindingtothateffecthadbeengivenintheorderitself.Wheretherewasnoalleged
violationofanyoftherequirementseitheroftheMinistryofUrbanDevelopmentoroftheDirectorate
ofEducationtheauthoritiesundertheIncometaxActcouldnotpresumetositinjudgmentoverthe
judgmentoftheauthoritiesempoweredtoimplementthepolicies.TheDirectorofIncometax
(Exemptions)inthefactsofthepeculiarcasecouldnotcancelregistrationforthereasonssetoutinthe
orderasthatamountedtousurpingtheroleofanauthorityconstitutedtoimplementGovernment
policy.Onlywhentherewasanyinstanceofviolationoftermsandconditionspointedoutbythe
DirectorateofEducationortheMinistryofUrbanDevelopmentontheinformationofderecognitionof
theschoolbytheDirectorateofEducationcouldthetaxauthoritiestakenotice.Thecancellationofthe
registrationoftheassesseewastobesetasideandregistrationundersection12Arestored.(A.Y.2008
2009)
TheCivilServicesSocietyv.DIT(Exemption)(2013)22ITR627(Delhi)(Trib.)
S.12AA: Procedure for registrationTrust or institutionAssessee formed for promotion of cricket
Carrying activities of commercial nature and generating huge revenues cancellation was held to be
justified.
TheassesseesocietywastomaintainageneralcontrolofthegameofcricketintheStateofTamilNadu
andintheUnionTerritoryofPuducherryandgiveitsdecisiononallmattersconcerningthegameeither
when referred to or suo motu. The Assessing Officer held that the assessee had deviated from its
declaredobjectsandthatatpresentitwascarryingonactivitiesofcommercialnatureandtherewasno
60
justificationincontinuingtheregistrationgrantedu/s.12AA.Therefore,hesubmittedaproposaltothe
Director of Incometax (Exemptions) for cancellation of registration under section 12AA(3) of the Act.
The Director of Incometax (Exemptions) held that the assessee was not pursuing objects of general
public utility, but was carrying on activities in the nature of business, resulting in huge turnover year
after year and, therefore, the object of the assessee no longer fell under the definition of "charitable
purpose" explained in section 2(15) with effect from April, 1, 2009. He accordingly cancelled the
registrationundersection12AA(3)oftheIncometaxAct,1961.Onappeal:
Held, dismissing the appeal, that the case of the assessee was covered by both limbs stated in section
12AA(3) of the Act. The entire income of the assessee was generated out of activities of commercial
nature towards earning hyper profits. The genuineness of the activities carried on by the assessee
stoppedwiththephysicalaspectsofthegame.Theobjectoftheassesseewastocarryonanactivityfor
advancement of an object of general public utility by promoting the cricket game. But, it had deviated
from the stated objective by carrying out the game as an entertainment industry, generating huge
revenue.Therefore,theDirectorofIncometax(Exemptions)hadrightlycancelledtheregistrationunder
section12AAoftheAct.
TamilNaduCricketAssociationv.DIT(Exemptions)(2013)22ITR673(Chennai)(Trib.)
S.12AA:Procedure for registrationTrust or institutionInstitution incorporated under section
25ofCompaniesActandengagedinfacilitatingliteracyprogrammes,rejectionofapplication
basedonassumption,ordersetasidewithdirectiontograntregistration.[S.2(15)].
The objects of the assesseecompany were providing education and facilitating social and
economic empowerment, economic development programs, literacy programs, training
programsforvillagersanddowntroddenpeople.Itappliedforregistrationundersection12AA
oftheAct.TheDirectorofIncometax(Exemptions)rejectedtheapplicationonthegroundthat
theobjectsandactivitiesoftheassesseewerenotinconformitywiththedefinitionofcharitable
purpose under section 2(15) and hence did not qualify for registration under section 12AA of
theAct.Onappeal,theTribunalheldthatrejectionofregistrationbytheDirectorofIncometax
(Exemptions) was based on assumption. The fact that the assessee had been incorporated
under section 25 of the Companies Act, 1956 showed that it had been formed for promoting
charity or any other useful object and intended to apply its profits, if any or other income in
promoting its objects. In other words, it was a nonprofit earning organisation. Therefore, the
order of the Director ofIncometax(Exemptions) was to beset aside with a direction to grant
registrationtotheassesseeundersection12AA.
SocialPediaKnowledgeFoundationv.DIT(Exemptions)(2013)141ITD398/22ITR238/154TTJ
780(Chennai)(Trib.)
S.12AA:Procedure for registration Institution Registration is condition precedent for

claimingexemption.(S.10(23C),11)
Tribunalheldthatgrantofregistrationundersection12AAisaconditionprecedentforclaiming
exemptionundersection11.(A.Y.200708)
ManasSewaSamitiv.Add.CIT(2013)55SOT217(Agra)(Trib.)
S.14A: Disallowance of expenditureExempt income Investment from own fundsNo

disallowance.
61
TheCIT(A)recordedafindingoffactthatdividendearnedonsharesbyassesseewasfromits
investments in shares out of its own funds and consequently question of invoking S. 14A to
disallow expenditure would not arise. Since the revenue did not challenge this finding of fact
beforetheTribunal,noquestionoflawaroseforconsiderationbeforeHighCourt.(AY200203)
DITv.BNPParibasSA(2013)214Taxman548(Bom.)(HC)
S.14A:DisallowanceofexpenditureExemptincomeNoexpenditurewasincurredforearning
exemptincome,disallowancecannotbemade.
High court up held the view of Tribunal wherein the finding has been recorded that no
expenditurewasincurredbytheassesseetoearnthedividendincome,hencethedisallowance
undersection14Awasnotjustified.(A.Y.200102)
CITv.GlenmarkPharmaceuticalLtd.(2013)351ITR359/85DTR169(Bom.)(HighCourt)
S.14A:Disallowance of expenditureExempt incomeAssessee using own funds for

investments in shares and using borrowed funds entirely for its business purposes No
expenditurebywayofinterestwasincurredinrespectofinvestmentsdisallowancewasnot
justified.
Held, dismissing the appeal, that the assessee had sufficiently explained that the loan was
obtained when majority of its investment in taxfree securities were already made. The
assesseehaddemonstratedthatithadothersourcesofinvestmentandthat,therefore,nopart
of the borrowed funds could be stated to have been diverted to earn taxfree income. When
theCommissioner(Appeals)andtheTribunalhadonthefactsfoundthattheassesseedidnot
investtheborrowedfundsforearningthetaxfreeincome,theinvocationoftheprovisionsof
section14Afortaxingsuchinterestwasnotjustified.
CITv.GujaratPowerCorporationLtd.(2013)352ITR583(Guj.)(HC)
S.14A: Disallowance ofexpenditure Exempt incomeDisallowance onreasonablebasis to be

made.[IncometaxRules,1962,Rule8D]
During relevant assessment year assessee had neither invested in securities fetching exempt
incomenorwasanyexemptincomeearned.AssessingOfficer,relyingonprescriptionofsection
14A read with rule 8D, computed disallowance. Disallowance under section 14A is warranted
even if there is no exempt income, disallowance was required on some reasonable basis and
notasperrule8D.Matterremanded.(A.Y.20062007)
StreamInternationalServices(P.)Ltd.vACIT(2013)141ITD492(Mum.)(Trib.)
S.14A: Disallowance of expenditureExempt incomeApplicability of provision was not

challenged.(IncometaxRules,1962,Rule8D).
Assessee earned exempt dividend income. Assessing Officer invoked section 14A, Once the
assessee itself computed the disallowance, instead of challenging the applicability of the
provisions, there is no force in the crossobjections. It could not object to its addition to
income.(A.Y.20092010)
Dy.CITvVinbros&Co.(2013)141ITD626(Chennai)(Trib.)
62
S. 14A: Disallowance of expenditure Exempt income Tribunal order in assesses own

case.[S.10(33)]
The assessee had shown dividend income which was claimed as exempt under section 10(33).
The AO, by invoking section 14A, disallowed five per cent of dividend income. Held, since in
subsequent assessment years, the Tribunal, on identical facts, had estimated disallowance at
Rs.2lakhs,forrelevantassessmentyearalso,disallowancewastoberestrictedtoRs.2lakhs.
(A.Y.200203)
HSBCSecurities&CapitalMarkets(India)(P.)Ltd.v.ACIT(2013)57SOT194(Mum.)(Trib.)
S.14A:DisallowanceofexpenditureExemptincomeRule8Ddisallowancewithoutshowing
howassesseeiswrongisnotpermissible.
In AY 200910, the assessee earned taxfree dividend of Rs. 32 lakhs on investments that had
beenmadeinearlieryears.Theassesseeclaimedthatashehadnotincurredanyexpenditure
to earn the dividend income, no disallowance u/s.14A was permissible. The AO rejected the
claimandmadeadisallowancebyapplyingRule8D.TheCIT(A)deletedthedisallowanceonthe
groundthattheAOhadmechanicallyappliedRule8Dtocomputethedisallowance.Onappeal
bythedepartmenttotheTribunal,HELDdismissingtheappeal:
TheAOhasnotbroughtonrecordanythingwhichprovesthatthereisanyexpenditureincurred
towards earning of dividend income. The AO has not examined the accounts of the assessee
and there is no satisfaction recorded by the AO about the correctness of the claim of the
assessee and without the same he invoked Rule 8D. While rejecting the claim of the assessee
with regard to expenditure or no expenditure, as the case may be, in relation to exempted
income, the AO has to indicate cogent reasons for the same. The AO has not considered the
claimoftheassesseeandstraightawayembarkeduponcomputingdisallowanceunderRule8D
oftheRulesonpresumingtheaveragevalueofinvestmentat%ofthetotalvalue.Thisisnot
permissible(J.K.Investors(Bombay)(followed)(A.Y.200910)
DCITv.AshishJhunjhunwala(Kol.)(Trib.)www.itatonline.org
S.14A:Disallowance of expenditureExempt incomeRule 8D cannot be invoked without

showinghowassesseesclaimiswrong.
In AY 200809, the assessee had PMS investments in shares of Rs. 202 crores and other
investments on which it earned dividends of Rs.8.14 crores. The assessee claimed that the
dividendswerereceivedonlyonafewscripsandcomputeds.14Adisallowancebyidentifying
specific expenditure at Rs. 1.55 crores. The AO, without showing how the assessees method
waswrong,invokedRule8DandmadeadisallowanceofRs.2.39crores.Thiswasupheldbythe
CIT(A).OnappealbytheassesseetotheTribunal,HELDreversingtheAO&CIT(A):
The condition precedent for the AO to invoke Rule 8D is that he first must examine the
accountsofassesseeandthenrecordbygivingcogentreasonswhyheisnotsatisfiedwiththe
correctness of the assessees claim. In the absence of an examination of accounts and the
recording of satisfaction, Rule 8D cannot be invoked. On facts, the assessee had itself
disallowedinterest,Dematchargesandadministrativeexpenses.TheAOhadnotexaminedthe
accounts or given a finding how the assessees computation was wrong. Consequently, the
63
invocationofRule8Dwasimproperandthedisallowancewasnotpermissible(Godrej&Boyce
Mfg. Co. Ltd. v. Dy. CIT (2010) 328 ITR 81 (Bom), Maxopp Investment Ltd. & Ors. v. CIT (2012)
247 CTR 162 (Del), Walfort Share and Stock Brokers P. Ltd. (2010) 326 ITR 1 (SC), CIT v. Hero
CyclesLtd.(2010)323ITR518(P&H),JusticeSamPBharucha&PawanKumarParameshwarLal
followed)(A.Y.200809)
JKInvestors(Bombay)Ltd.v.ACIT(Mum.)(Trib.)www.itatonline.org
S.14A:Disallowance of expenditureExempt incomeFor years prior to introduction of rule 8D

disallowanceofexpensestobeonsomereasonablebasis.
Theassesseehadmadeinvestmentsinpastyearsandnofreshinvestmentinsecuritieswasmadeinthe
currentyear,relevanttotheassessmentyear200607yieldingincomewhichwasexempt.Tribunalheld
thatexpendituretobedisallowedonsomereasonablebasis.Matterremanded.(A.Y.20062007)
StreamInternationalServicesP.Ltd.v.ADIT(IT)(2013)23ITR70/152TTJ553/141ITD492/83DTR394
(Mum.)(Trib.)
S.14A:Disallowance of expenditureExempt incomeInterest on borrowed capitalShares not
purchased with intention of earning dividendsInterest on money borrowed cannot be disallowed
undersection14ANotdisallowableundersection36(1)(iii).[S.36(1)(iii)]
TheAssessingOfficerwasoftheopinionthatinterestonborrowedfundsinsofarasitwasutilisedfor
acquiringsharesandgivingshareapplicationmoneycouldnotbeconsideredasbusinessexpenditure.A
proratadisallowancewasmade.TheAssessingOfficeralsofoundfromtheprofitandlossaccountthat
the assessee had received dividend income, which was exempt from tax. According to the Assessing
Officer, applied the rule The assessment was completed accordingly. This was confirmed by the
Commissioner(Appeals).OnappealtotheTribunal:
Held, that the assessee was in the business of dealing in shares and investment consultancy. When
sharesheldbyitasinvestmentsweresold,ithadadmittedcapitalgainsalso.Againstaninvestmentfor
equity share in SCPL and share application money placed with the same company, the total dividend
earnedwasaminisculeamount.Therewasnofindingwhethereventhisdividendhadcomefromsuch
shareholding.Thus,thefactsindicatedthattheassesseehadnotacquiredorpurchasedtheshareswith
an intention of earning any dividend. Disallowance under section 14A was not warranted. The
acquisitionofsharesandplacingshareapplicationmoneywereinthecourseofbusinessoftheassessee
and a disallowance under section 36(1)(iii) of the Act also could not have been made. Interest paid on
loans also could not be considered as capital nature, since it was not in the nature of any pre
incorporation or preoperative expenses. The disallowance made had to be deleted. The interest was
deductible.(A.Y.20082009)
MSASecuritiesServicesP.Ltd.v.ACIT(2013)22ITR400(Chennai)(Trib.)
NMSConsultancyP.Ltdv.Dy.CIT(2013)22ITR400(Chennai)(Trib.)
S.14A:Disallowance of expenditureExempt incomeDividend and interest on taxfree bonds claimed
exempt.
Yearpriortointroductionofrule8DExpensestobedisallowedtobequantifiedbyadoptingreasonable
method.(A.Y.20022003)
64
KansaiNerolacPaintsLtd.v.Dy.CIT(2013)22ITR424/57SOT10(URO)(Mum.)(Trib.)
S.14A:DisallowanceofexpenditureExemptincomeEffectofrule8D.
Aassesseetoproveithadsufficientfundstofinancetaxexemptinvestmentsandthatnodisallowance
wouldariseonbasisofgeneralpooloffundshypothesis.MatterremandedtoAssessingOfficertoallow
assesseeopportunitytoshowwhydisallowanceundersection14A(1)shouldnotbeworkedout
following,proportionatemethod.(A.Y.200506to200809)
HerculesHoistsLtd.v.ACIT(2013)22ITR527(Mum.)(Trib.)
S.14A:Disallowance of expenditureExempt incomeInterest on borrowed capitalInvestment in
sharesInvestment out of own fundsBorrowed capital used for purposes of businessDisallowance
cannotbemadeundersection14A.
The Assessing Officer noted that the assessee had made an investment in shares to the extent of Rs.
2.37 crores, from which dividend was earned. Further, the Assessing Officer noticed from the balance
sheetthattheassessee'sownfundsweretotheextentofRs.96.15croresandborrowedfundswereRs.
3.48crores,whereastotalinterestexpensesdebitedintheprofitandlossaccountwereRs.2.73crores.
InresponsetotheAssessingOfficer'sproposaltomakedisallowanceundersection14A,theassessee's
submissionwasthatduringtheyear,additionalinvestmentsofRs.27.2lakhsalonehadbeenmadeand
allotherinvestmentsofRs.209.96lakhshadbeenmadeintheearlieryears.TheAssessingOfficerheld
thattheprovisionsofsection14A(2)wereattractedandmadedisallowanceundersection14Areadwith
rule 8D. The assessee carried the matter in appeal before the Commissioner (Appeals) who had
confirmed the same.The Tribunal held that no disallowance was called for under section 14A out of
interest expenditure because the assessee's own funds were many times more than the amount
investedinsharesandnodirectnexuswasestablishedbytheAssessingOfficerbetweeninvestmentand
interestbearingborrowedfunds.Butsomedisallowancewasjustifiedoutofadministrativeexpenses.A
disallowanceofRs.1lakhwouldmeettheendsofjustice.(A.Y.20072008)
EimcoElecon(India)Ltd.v.Add.CIT(2013)22ITR380(Ahd.)(Trib.)
S.14A:Disallowance of expenditureExempt incomeTaxable incomeExpense specifically
relatabletotaxableincomecannotbedisallowed.(Rule8D)
ForAY200809,theAOcomputedthes.14AdisallowanceunderRule8Dbyexcludingfromthe
totalgeneralexpenditureofRs.1,16,94,912,anamountofRs.19,96,228beingexpensesrelated
tohousepropertyincome,interestexpenditureanddematcharges.Thebalanceexpenseswere
allocatedasrelatingtotaxexemptincomeintheratiooftaxexemptreceiptstototalreceipts.
Onthisbasis,46.68%ofthebalanceexpenditurewasdisallowedu/s14AreadwithRule8D.In
appeal before the CIT (A), the assessee claimed that an amount of Rs. 57,14,450 was incurred
exclusively on building maintenance and service expenses and as no part of these expenses
could be attributed to tax exempt income, it had to be taken out of computation of 14A
disallowance. This was upheld by the CIT (A). On appeal by the department to the Tribunal,
HELDdismissingtheappeal:
Onceitisfoundthatanexpenseisspecificallyrelatabletoataxableincome,noportionofsuch
anexpensecanbedisallowedu/s14A.Theallocationofgeneralexpensesvisvistaxexempt
incomeandtaxableincomecanonlybemadeinrespectofexpenditurewhichcannoteitherbe
wholly allocated to taxable income, then or which cannot be wholly allocated to tax exempt
income;theallocationcanbemade,evenonthebasisofformulasetoutinRule8D(iii)(should
65
beRule8D(2)(iii),inrespectofsuchexpenseswhichdonotfallwithinanyofthesecategories.
(A.Y.200809)
JCITv.PilaniInvestment&IndustriesCorpn.Ltd(Kol.)(Trib.)www.itatonline.org
S.14A:Disallowance of expenditure Exempt income Stock in tradeSharesRule 8D(2) (ii) &

(iii)donotapplytosharesheldasstockintrade.
For AY 200809, the assessee, a dealer in shares, received dividend of Rs. 18.91 lakhs but did
notofferanydisallowanceu/s14AandRule8Donthegroundthattheywerenotapplicableto
sharesheldasstockintrade.TheAOrejectedtheclaimandcomputedthedisallowanceunder
Rule8DatRs.21.45lakhs.Onappeal,theCIT(A)heldthatevenifRule8Dwasnotapplicableto
shares held as stockintrade, a disallowance had still to be made u/s 14A and this was
estimatedat Rs. 1.89 lakhs. On appeal by the department to the Tribunal HELD dismissing the
appeal:
Thoughs.14Aappliestosharesheldasstockintrade,Rule8D(2)(ii)&(iii)cannotapplyifthe
shares are held as stockintrade because one of the variables on the basis of which
disallowanceunderrules8D(2)(ii)&(iii)istobecomputedisthevalueofinvestments,income
fromwhichdoesnotorshallnotformpartoftotalincome.Iftherearenosuchinvestments,
the rule cannot have any application. When no amount can be computed under the formula
giveninrule8D(ii)and(iii),nodisallowancecanbemadeunderrule8D(2)(ii)&(iii)either.As
heldinCITvB.C.SrinivasShetty(1981)128ITR294(SC),whenthecomputationprovisionsfail,
the charging provisions cannot be applied, and by the same logic, when the computation
provisionsunderrule8D(2)(ii)and(iii)fail,disallowancethereundercannotbemadeeitheras
the said provision is rendered unworkable. However, this does not exclude the application of
rule 8 D(2) (i) which refers to the amount of expenditure directly relating to income which
does not form part of total income. Accordingly, in a case where shares are held as stockin
trade and not as investments, the disallowance even under rule 8 D is restricted to the
expenditure directly relatable to earning of exempt income. The result is that the scope of
disallowanceunderRule8DisnarrowerthanthatofS.14A.(A.Y.200809)
DCITv.GulshanInvestmentCoLtd(2013)142ITD89/154TTJ273/86DTR262(Kol.)(Trib.)
S.14A:Disallowance of expenditureExempt income BankInterest on taxfree securities

Interestfree funds available with assessee as capital and reserves in excess of amount
invested in bonds hence no disallowance of interest, however administrative and other
expensestobedisallowableonreasonablebasis.[S10(15)(iv)(h)]
The assessee earned interest on taxfree securities which it claimed as exempt under section
10(15)(iv)(h)oftheActongrossbasis.TheAssessingOfficerheldthatthegrossinterestfrom
taxfreesecuritieswasnoteligibleforexemptionundersection10.Hecomputedtheamountof
netinterestapplyingrateof20.61percentaftertakingintoaccounttheincomeafterreducing
interest cost but before indirect expenses. This led to restriction of the exemption under
section10(15).OnappealtheCommissioner(Appeals)heldthattheinvestmentsinthetaxfree
bonds being much less than the available capital and reserve, the Assessing Officer failed to
establishnexusbetweeninvestmentsindepositsanddeploymentofinterestbearingfunds.He,
therefore, set aside the action of the Assessing Officer restricting the amount of exemption
undersection10(15)(iv)(h).OnappealbytherevenuetheTribunalheldthattheCommissioner
66
(Appeals) had recorded a categorical finding that the interestfree funds available with the
assessee in the shape of capital and reserves were far in excess of the amount invested in
bonds.Inthatviewofthemattertherecouldbenodisallowanceofanyinterestundersection
14A. However, the administrative and other expenses were required to be disallowed under
section14Aonsomereasonablebasis.Appealofrevenuewaspartlyallowed(A.Y.199899)(A.Y.
19981999to20032004)
S.14A:Disallowance of expenditureExempt incomeQuantum of disallowance Restricted to

2.5%.
AssesseeearnedexemptincomefromitsinvestmentinsharesandmutualfundstotuneofRs.
3.24croreand8.51crorerespectively.AssesseequantifieddisallowanceofRs.82.80lakhunder
section14Aasexpenditureincurredtoearnsuchexemptincomeonbasisoftimespentbystaff
for managing said investments. Assessing Officer found that assessee's reserves and surplus
stood at Rs. 6135.60 crore and its investment stood at Rs. 3459.50 crore; and on such fact
Assessing Officer opined that management would have certainly devoted more time to
safeguard earnings deployed in investments Accordingly Assessing Officer estimated 5 per
cent of exempt income as expenditure disallowable under section 14A.Tribunal held
thatestimation made by Assessing Officer was to be upheld but quantum of disallowance was
to be restricted to 2.5 per cent, 5 per cent being on higher side. Decided partly in favour of
revenue.(A.Y.200607)
WiproLtd.v.Add.CIT(2013)55SOT3(URO)(Bang.)(Trib.)
S.14A:Disallowance of expenditureExempt income No dividend income NO disallowance

(IncometaxRules,1962,R.8D)
Tribunal held that as no dividend incomewas declared by assessee during the relevant
assessmentyearhencedisallowanceheldtobenotproper.(A.Y.200809)
GurudasMannv.Dy.CIT(2013)21ITR57/(Chandigarh)(Trib.)
S.14A:Disallowance of expenditureExempt income Banking businessInterest expenditure.

[S.10(15)]
Assessee, carrying on banking business, was maintaining nostro accounts for receipt and
payment of money in foreign currency. Interest earned from overseas branches chargeable
hence no disallowance of interest expenditure paid by assessee. Interest on foreign currency
loans was allowable on gross interest and not on net interest. Assessee was utilising interest
free funds at its disposal for investment in interestfree securities. No disallowance qua the
investmentintaxfreesecurities.(A.Y.19971998)
ADIT(ITv.CreditAgricoleIndosuez(2013)21ITR345(Mum.)(Trib.)
S.14A:Disallowance of expenditure Exempt income Rule 8D is applicable only from A.Y.

200708(Rule8D.)
Disallowance u/s. 14A for the years prior to A.Y. 200708 has to be made by adopting some
reasonablemethod.ImpugnedorderoftheCIT(A)wassetasideandthematterwasrestored
67
totheAOwithadirectiontorecomputethedisallowanceofexpensestobemadeu/s.14Aby
applyingsomereasonablemethod.(A.Y.200506)
Welspun Zuchhi Textiles Ltd. v. ACIT (2013) 83 DTR 293/23 ITR 53 /56 SOT 444/153 TTJ
153(Mum.)(Trib.)
S.14A:Disallowance of expenditure Exempt incomeInterest free funds are more no
disallowance can be madeNo disallowance of administrative expenses unless the Officer
identifies.
Iftheinterestfreefundsavailablewithassesseearemorethantheimpugnedinvestmentsthen
no disallowance can be made under section 14A of the Act.The Tribunal held that no
disallowance could be made out of interest, management or administrative cost as the
Assessing Officer has not identified any expenditure which has been actually incurred by the
assesseeforearningtheexemptincome.(A.Y.200203)
Dy. CIT v. Jammu and Kashmir Bank Ltd. (2013) 152 TTJ 522/ 142 ITD 553/83 DTR 187 (Asr.)
(Trib.)
S.14A:Disallowance of expenditure Exempt income Interest on borrowings has to be
treatedasbusinessexpenditure,itcannotbedisallowedundersection14A,eventhoughthe
dividendearnedfromtheunitisexemptundersection.(S.10(33),36(1)(iii)).
The assessee has incurred interest expenses for purchase of shares and units of mutual fund
and the borrowed funds, have been used for acquisition of units are not in dispute. The
Assessing Officer has held that the assessee is in business of purchase and sale of shares and
also while framing the assessment under section 143(3), the loss incurred on the sale /
purchase of units has been treated as business loss. The Tribunal held that once the purchase
andsaleofsharesisheldtobeabusinessactivity,theinterestpaidthereonhastobetreated
asbusinessexpensesandnodisallowancecanbemadeundersection14A.(A.Y.200405)
ZaveriVirjibhaiMandaliav.ACIT(2013)152TTJ20(UO)(Ahd.)(Trib.)
S.14A:DisallowanceofexpenditureExemptincomeSharesheldasstockintrade.(Rule8D.)
The assessee received exempt income in the form of dividend from personal investments and
also from shares held for trading. It also received tax free interest from relief bonds. The
assessee maintained separate accounts including separate bank accounts and balance sheets
for personal investments and trading activities in which expenses relating to those two
activities were shown separately. The Tribunal held that no disallowance can be made in
respect of expenses in relation to dividend received from trading in shares. In view of the
judgment of Karnataka High Court in the case of CCI Ltd vs. JCIT, the decision of the Special
BenchoftheTribunalinthecaseofDagaCapitalManagementP.Ltd.cannotbefollowed.(A.Y.
20082009)(FITANo.6332/M/11,dated1112013)
VivekMehrotrav.ACIT(2013)BCAJPg.17,Vol.44BPart6,March2013(Mum.)(Trib.)
S.14A:DisallowanceofexpenditureExemptincomeRule8Disnotapplicable.(Rule8D)
TheAssessingOfficerallocatedexpensesrelatingtoexemptincomeonproportionatebasis.In
appeal before the CIT (A), the CIT (A) directed the Assessing Officer to recompute the
disallowancebyapplyingRule8DofIncomeTaxRules.Onappeal,theTribunalheldthatRule8D
isapplicableonlyfromA.Y.200809andthedisallowancehadtobemadeonreasonablebasis
after hearing the assessee fresh in the light of the decision of Honble Bombay High Court in
caseofGodrej&BoyceMfg.Co.Ltd.vs.Dy.CIT(2010)328ITR81(Bom.)(A.Y.200405)
68
ForeverDiamonds(P)Ltd.v.Dy.CIT(2013)152TTJ682/83DTR411(Mum.)(Trib.)
S.14A:Disallowance of expenditure Exempt incomeNo exempt was earned in the relevant
year.(Rule8D)
The Assessing Officer made disallowances under section 14A towards expenditure on
investment by applying Rule 8D. The Tribunal upheld the action of Assessing Officer on the
point that disallowanceunder section 14A can be made inthe absence of any exempt income
butsentthematterbacktothefileofAssessingOfficertocomputethedisallowanceonsome
reasonablebasisnotasperRule8D.(A.Y.200607)
StreamInternationalServicesv.ADIT(2013)152TTJ553/141ITD492/23ITR70/83DTR394
(Mum.)(Trib.)
S.16:Deductions from salaries Director of the Company No Employer employee
relationshipclaimofstandarddeductionundersection16(i)rightlydenied.
Adirectorofthecompanyholdsofficeunderthecompany,but,asadirectorheisnotaservant
or employee of the Company and being so the assessing officer had rightly disallowed the
assesseesclaimofstandarddeductionundersection16(i)oftheAct.(A.Y.199394to199798)
SandeepKohliv.CIT(2013)81DTR307(All)(HC)
VishelKholi(Dead)throughLRsv.CIT(2013)81DTR307(All)(HC)
S.17(1):SalaryNoncompetefeeNoncompetecommissionreceivedfromemployerisLiable
tobetaxedasSalary.(S.28(va)).
Non Compete commission received by the employee for not competing with the employer is
liable to be taxed under the inclusive definition of salary under section 17 of the Act.Even
otherwisetheamountwasliabletobetaxedundersection28(va)oftheAct.(A.Y.200304)
CITv.KanwaljitSingh(2013)81DTR208(Delhi)(HC)
S.17(2):PerquisiteRent free accommodationAs the assessee was not provided with any
accommodationbyhisemployer,thatnofurnitureorsecurityguardsorcookswereprovided
to him and that telephone was provided in name of firm in which assessee was a partner
additiononthebasisofestimationwasdeleted.
Assesseewasanemployeeofone'S'Ltd.Inassessmentproceedings,AssessingOfficernoticed
that assessee was provided with several perquisites by his employer. He thus made certain
additiontoassessee'sincome.Commissioner(Appeals)deletedadditionongroundthatitwas
madeonhypotheticalandestimatedbasis.Tribunalnotedthatassesseewasnotprovidedwith
any accommodation by his employer, that no furniture or security guards or cooks were
provided to him and that telephone was provided in name of firm in which assessee was a
partner.Tribunal thus held that Commissioner (Appeals) rightly deleted perquisites brought to
assessment.Courtheldthatsincetherewasnomaterialtoshowthatfindingoffactrecordedby
Tribunal was contrary to record or was untenable, impugned order passed by Tribunal was to
beupheld.Infavourofassessee.(A.Y.200001)
S.17(3)(iii):ProfitsinlieuofsalaryDearnessreliefreceivedbyretiredHighCourtJudge.
Dearness relief received by a retired High Court Judge constitutes profits in lieu of salary u/s.
17(3)(iii).(A.Y.199899)
69
JusticeG.K.Mathur(Retd.)v.CIT(2013)83DTR178(All)(HC)
S.22:Income from house propertyBusiness incomeRental income from unsold flats

Assessableasincomefromhouseproperty.[S.28(i)]
The sections of the Act are all specific and mutually exclusive and deal with various heads in
which an item of income of an assessee falls.Where an item of income falls specifically under
onehead,ithastobechargedunderthatheadandnoother.Theincomebywayofrentfrom
unsoldflatsheldbytheassesse,apropertydeveloperandbuilder,wastaxableunderthehead
housepropertyandnotundertheheadprofitsandgainsofbusinessandprofession.(A.Y.1998
1999)
AzimganjEstatePvt.Ltd.v.CIT(2013)352ITR82(Cal.)(HC)
S.22:Income from house property Annual valueUnsold flats held as stock in tradeAnnual
valueofunsoldflatstotaxedasincomefromhouseproperty.
Assessee is in construction business. Some flats constructed by assessee were lying unsold.
Assessing Officer assessed ALV of those flats as income from house property. Assessee
contended that said flats were its stockintrade and, therefore, ALV of flats could not be
broughttotaxunderhead'Incomefromhouseproperty'.AssessingOfficerdidnotacceptstand
of assessee. Commissioner (Appeals) has deleted the addition, which was confirmed by
Tribunal.OnappealtoHighCourtbyrevenue,theCourtheldthatlevyofincometaxincaseof
one holding house property is premised not on whether assessee carries on business as
landlord,butonownership.Theincidenceofchargeisbecauseoffactofownership,therefore,
AssessingOfficerrightlybroughtALVofunsoldflatstotaxasincomefromhouseproperty.
CIT.v.AnsalHousingFinance&LeasingCo.Ltd.(2013)354ITR180/213Taxman143/88DTR
227(Delhi)(HC)
CITv.AnsalPropertiesandIndustriesLtd(2013)354ITR180/88DTR227(Delhi)(HC)
CITv.AnsalHousingandConstructionLtd(2013)354ITR180/88DTR227(Delhi)(HC)
Editorial: The Supreme Court has granted the special leave to the assessee against this
judgmentonthispoint.AnsalPropertiesandIndustriesLtdv.CIT(2013)354ITR81(St)
S.22:IncomefromhousepropertyAnnuallettingvalueVacancyallowanceValuationtobeonbasisof
sumforwhichpropertymaybeletAssessingOfficerfixingannuallettingvaluebasedonrentfetched
uptoApril,2004Reasonable.[S.23(1)(c)].
Theassesseedidnotreturnanyincomeunderthehead"Incomefromhouseproperty"inrespectofits
propertylyingvacant,theleaseinrespectthereofhavingexpiredinApril,2004.Thepremiseshadbeen
continuouslyletoutsincetheyear1997.Theyclaimedanotionalamounttotaxasannuallettingvalue
ofthesaidpropertyandinthealternativethattheannuallettingvaluecouldonlybecomputedinterms
of section 23(1)(a) of the Act, so that the standard rent under the rent control had to be applied in
determiningtherentatwhichpropertymayreasonablybeexpectedtobeletoutfromyeartoyear.The
AssessingOfficerrejectedbothcontentionsinviewoftheprovisionofsection23(1)(a),anddetermined
the income assuming the annual letting at Rs. 18,58,116. On appeal, Commissioner (Appeals) affirmed
this.Onappeal:
Held, (i) that the assessee's claim of the property being used for the purposes of its business was not
onlynotborneoutbytherecord,andwasadvancedforthefirsttimewithoutanymaterialandwasalso
70
contrarytotheassessee'sconsistentstandthroughoutthatthepropertywasvacantsinceApril,2004as
itcouldnotfindasuitabletenant.
(ii)Thatthevacancyallowanceundersection23(1)(c),whichisinbuiltintheworkingoftheannual
lettingvalue,isonlyinrespectofapropertythevalueofwhichwouldotherwisestandtobebroughtto
taxundersection23(1)(b),i.e.,onthebasisofactuallettingand,further,atarenthigherthanthefair
marketrent,andnotundersection23(1)(a),i.e.,onthebasisofnotionalletting.Theprovisionofsection
23(1)(a),i.e.,oftheannuallettingbeingdeterminedonthebasisofnotionalletting,isapplicableeven
wherethepropertyisactuallylet,thoughonlywhereitisatarentlowerthanthefairrent.Ifthe
conceptofvacancyweretobeincorporatedintheconceptofnotionalletting,thelatterwouldstand
defeatedandincapableofbeingapplied.Itbeingtheadmittedpositionthatthepropertywasnotletfor
therelevantyear,therewasnoquestionofapplicationofsection23(1)(b)and,consequently,section
23(1)(c),andtheannuallettingvaluewouldhavetonecessarilybedeterminedonlywithreferenceto
section23(1)(a).
(iii)Thatwhatwasrelevantwastherentforwhichthepropertymayreasonablybeletfromyeartoyear.
Therewasnoevidencetosupporttheannuallettingvaluebasedonthemunicipalrateablevalueonthe
basisthatthepropertywassubjecttorentcontrollegislation.Theassessee'sargumentthatthe
propertybeingnotactuallylet,thenotionalrentcouldnotbebroughttotaxwasnotsustainable.The
propertywasletatanannualrentofRs.18,58,116continuouslyfromtheyear1997to2004.Therewas
nothingonrecordtoshoworinferthattheproperty,which,aslateasApril,2004,yieldedarenttothe
tuneofRs.18lakhsperannum,becameincapableoffetchingasmuchand,rather,plummetedtoabout
1percent.thereof.TheAssessingOfficerhadkepttheannuallettingvalueatRs.13,00,681,i.e.,netof
standarddeductionat30percent.,constantforalltheyears,i.e.,uptoassessmentyear200809,and
wasreasonable.(A.Y.200506to200809)
S.22:Income from house property Business income Leasing of hotel Assessable as
propertyincome.[S.28(i)]
As assessee is incurring losses in hotel business run by it, it gave hotel along with furnishings
and fittings on license basis for seven years. This period of seven years was to stand
automaticallyextendedinacertaincontingency.Assessee'sclaimthatlicencefeereceivedbyit
was assessable as business income was rejected by Assessing Officer who assessed it as
property income. Tribunal held that intention of parties had to be considered to decide
whetherlease/rentalincomewasassessableashousepropertyincomeorbusinessincome.On
factsthoughitwasmentionedinagreementthatoperationofhotelwasleasedout,itwasonly
leasing out of hotel building along with furniture, fittings etc. therefore license fee was rightly
assessable as property income rather than as business income. In favour of revenue. (A. Y.
200506)
ACITv.PalmshoreHotels(P.)Ltd.(2013)55SOT198(Cochin.)(Trib.)
S.22:Income from house propertyRental income from lease hold premisesIncome from
othersources.(S.27(iiib),28(i),56.)
The assessee had taken property on lease for a period of 3 yrs. The assessee is neither owner
nor a deemed owner within the meaning of section 27(iiib). The Tribunal held that the rental
income derived by subletting property cannot be charged to tax under the head income from
71
house property or as business income. It is assessable under the head income from other
sources.(A.Y.200607)
StreamInternationalServicesv.ADIT(2013)152TTJ553/141ITD492/23ITR70/83DTR394
(Mum.)(Trib.)
S.24:DeductionsIncomefromhousepropertyInterestInterestonborrowedcapitalutilised
for purchase of flats to be allowed in equal proportions in hands of assessee and her
husband.
The assessee claimed deduction against the rental income of Rs. 10,49,604 on account of
interestpaidtothebankonborrowedcapital,undertheheadIncomefromhouseproperty.
TheAssessingOfficerdisallowedtheclaim.TheCommissioner(Appeals)upheldthis.Onappeal,
the Tribunal held thatadmittedly, the total interest paid by the assessee with her husband on
the borrowed loans during the year under consideration was Rs.10,39,604 out of which
deduction of Rs. 5,14,802 had been allowed in the hands of the husband. When the rental
incomefromtheindividualflatsownedbytheassesseeandherhusbandhadbeenincludedin
their respective hands, deduction on account of the interest paid on borrowed capital utilised
forthepurchaseoftheflatwastobeallowedinequalproportionsinthehandsoftheassessee
andherhusband.(A.Y.200607)
GurudasMannv.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
ManjitMann(Smt)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.24:DeductionsIncomefromhousepropertyExpenditureonrepairsoflodge.
Assessing Officer disallowed the claim for deduction stating that the expenditure on repairs
could not be allowed from estimated income. Tribunal held that claim of repairs cannot be
denied in so far as specific repairs were carried out on the lodge. The assessee is entitled to
deduction of expenditure on repairs of lodge under section 24(a) from the estimated income
fromthelodge.
DineshChandraDasv.ACIT(2013)152TTJ25(UO)(Ctk.)(Trib.)
S.28(i):BusinesslossLossonsaleofrawmaterialHeldasallowable.
Held,inabsenceofanyevidenceledbyrevenuetorebutfactumofassesseehavingsustained
loss onsaleofrawmaterials,additionmadeonaccountof disallowanceoflosson saleofraw
materialwasrightlydeletedbyTribunal.
CITv.ShreeRamaMultiTechLtd.(2013)214Taxman129(Mag.)(Guj.)(HC)
S.28(i): Business incomeAdventure in the nature of trade Sale of land after plotting and
developmentwasrightlyassessedasbusinessincome.(S.2(13),45(2).)
Assesseepartlyinheritedfromhisfather,landinurbanareaforwhichZamindariwasabolished
on 1
st
July 1961 and the remaining part of the land was purchased by him between 16
th
December 1958 and 16

th
May 1959. He sold the land between1984 to 1991. Held that the
income tax authorities rightly concluded that capital asset was converted into stockintrade
andsaleofplotswouldbetreatedasbusinessactivity;s.45(2)wasrightlyinvoked.(A.Y.1989
90,1990,91199192)
RajendraKumarDwivediv.CIT(2013)83DTR65/257CTR263(All.)(HC)
72
S.28(i):BusinessincomeJointventureAdditionwithoutanyadditionalevidencewasdeleted.
Assessee and one, KM, agreed to form a joint venture andmake investment in 60:40 ratio for
carryingoutconstructionworkjointlyundertakenbythem.Outoftheirrelationandinviewof
robust nature of undertaking, receipts were divided in ratio which was not strictly in 60:40
ratio.TheCourtheldthatsamecannotbeagroundforanyadditioninhandsofassessee,that
too without any additional material evidencing that assessee had actually received additional
paymentsnotreflectedinbooks.Infavourofassessee
CITv.G.K.Patel&Co(2013)213Taxman44(Mag.)(Guj.)(HC)
S.28(i):BusinessincomeEstatebusinessPurchaseandsaleagriculturallandasper
memorandumofunderstandingisassessableasbusinessincome.
Assessees, engaged in real estate business, had entered into an Memorandum of
Understanding(MOU)withNforacquiringanddeliveringagriculturallandof63acresatrateof
Rs.4lakhsperacreAssesseespurchased39.9acreslandatrateofRs.1,61,000peracreandas
part performance of said MoU, delivered it to 'N' at rate of 4 lakh per acre 'N' confirmed
completion of transaction.The court held that thedifference in purchase and sale price would
be assessable as assessee's income from real estate business ,since for remaining portion of
landtobeacquired,therewasnoevidencethatanyadvancewasmade,saidsumcouldnotbe
treatedasassesseesincome.Partlyinfavourofassessee.(A.Y.199697)
CIT.v.Krishnappa(2013)213Taxman137(Karn.)(HC)
S.28(i):Business income Construction of software technology parkCompany Rental

incomeAssessableasbusinessincome.
WhenassesseecompanyhadtakenlandonleasewithobjectsofconstructingITcompanywith
allinfrastructuralfacilitiesandsamewasaccordingtoobjectsofMemorandumofAssociation,
incomereceivedbyassesseebywayofleaserentalswouldbeassessableasbusinessincome.In
favourofassessee.(A.Ys.199596,1996,97,200102)
CIT.v.ElnetTechnologiesLtd.(2013)213Taxman129(Mad.)(HC)
S.28(i):BusinessincomeIncomefromhousepropertyleaserent,licensefeefromlettingout
saidpremisestoITcompaniesisheldtobeassessableasbusinessincome.[S.22]
Assessee is engaged in construction business. It had constructed a premises in Cyber City
consistedofITPark,commercialcomplexes,schoolsandresidentialcomplexes,etc.ITParkhad
been for use to various software/other companies and it was recognized/sanctioned under
section 80IA. IT Park was shown as business assets in schedule of fixed assets. Assessee
received lease rent, license fee from letting out said premises to IT companies and offered
rental income to tax as income from business. Assessing Officer, held that rent was
predominantly for space and prime intention was to let out property on a monthly rent and
therewasnocomplexcommercialactivityinvolvedinthislettingout.Held,thatintentionand
objectofassesseewastodevelopITParkasasystematiccommercialactivitytoearnprofitand
not just earning of rental income. Income derived from letting out of premises was to be
assessedasbusinessIncome.(A.Y.20072008)
Dy. CIT v. Magarpatta Township Development & Construction Co. (2013) 141 ITD 682 (Pune)
(Trib.)
73
S.28(i):Business incomeEntertainment taxSubsidyNature of subsidy to be seen in light of
policiesofrespectiveStateGovernmentsMatterremanded.
The assessee collected total entertainment tax in respect of its various multiplexes. The
assessee got subsidy from State Governments by way of exemption from payment of
entertainment tax and it had been granted exemption from payment of entertainment tax in
respectofmultiplexesatthreeplaces.Theentireamountofentertainmenttaxcollectedbythe
assessee was included in the profit and loss account, but the assessee claimed that the
entertainmenttaxincentive/subsidywaswronglyofferedtotaxbecauseitwasacapitalreceipt
not chargeable to tax. The Commissioner (Appeals) did not allow the assessee to raise this
ground because the issue had not been deliberated upon by the Assessing Officer. Held, that
therespectiveStateGovernmentPoliciesandtheordersrequiredtobeexaminedtodetermine
whether the contentions of the assessee were correct. The matter was to be remanded for
examinationofthefacts.(A.Y.20052006)
ECityEntertainment(India)Pvt.Ltd.v.ACIT(2013)24ITR73(Mum.)(Trib.)
S.28(i):BusinessincomeCapitalgainsSaleofplotsAgriculturalland.[S.2(13),45]
The assessee sold plots of agricultural land and the surplus arising thereon was taxed under
head 'capital gain'. The Assessing Officer held that the assessee was regularly trading in
agriculturallandwithanintentionnottohold suchlandbuttoreapbenefitwhenthepriceof
landwasatpeakand,therefore,saleproceedsweretobetaxedasadventureinthenatureof
trade under section 2(13). It was observed that the Assessing Officer had not produced any
evidence that assessee was purchasing and selling plots of land in subsequent and earlier
assessment years. Furthermore, having accepted the capital gains in respect of certain lands
during the previous year under consideration, the Assessing Officer should not have taken a
differentviewinrespectofotherplotsofagriculturallands.(A.Y200708)
ACITv.BhopindersinghR.Arneja(2013)57SOT225(Nagpur)(Trib.)
S.28(i):BusinessincomeSharedealingsCapitalgains.[S.45]
Incomefrompurchaseandsaleofshareswouldbeassessedasbusinessincomeifintentionof
assessee behind their purchase and sale is to quickly realize profits. However, if intention of
assessee behind purchasing and holding shares is to earn dividend and not to realize profit by
turningoversharesasitisdoneincourseofbusiness,profitarisingonsaleofshareswouldbe
assessableascapitalgains.Stockturnoverratioofassesseewas1:16andcapitalturnoverratio
was1:14whichisnormallyfoundinbusinessandnotininvestment.Dividendaspercentageof
average capital worked out to 0.05 per cent. Considering all these factors, the income was
taxableasbusinessincome.(A.Y.200809)
DCITvMukeshbhaiBabulalShah(2013)57SOT45(Rajkot)(Trib.)
S.28(i):BusinesslossPercentagecompletionmethodExpectedlossisnotallowable.[S.37(I)]
Assessee is a contractor recognizing revenue based on percentage completion method. It
claimedexpectedlossongroundsthatcontractshadnoescalationclauseandpriceofsteeland
costofwagesandspareshadincreasedmanifold.Tribunalheldthatbookingofexpectedloss
when, circumstances are adverse,might be warranted interms of Accounting Standards , as a
matter of conservatism , but for tax purposes it is a cardinal principle that only expenses
74
incurred or losses suffered could be allowed. Assessee based on percentage completion
methodclaimedexpectedloss.Therewasnolegalrightonanypersonforclaimingacostwhich
wasstilltobeincurred,saidlosscouldnothavebeenallowed.(A.Y.200405)
EDACEngineeringLtd.vDy.CIT(2013)141ITD231(Chennai)(Trib.)
S.28(i): Business loss Bad debtsAdvances to suppliers is allowable as business loss.

[S.36(1)(vii)]
Sincebaddebtsarisingfromadvancestosupplierscannotbeallowedundersection36(1)(vii),
samecanalternativelybeallowedasbusinessloss.(A.Y.200304)
GreavesCottonLtd.v.ITO(2013)57SOT158(Mum)(Trib.)
S.28(i):BusinessincomeNoncompetefeesLawapplicableSection28(va)insertedw.e.f.14
2003Noncompetefeetaxableforperiodafteramendment.
TheassesseedeclaredRs.5croresunderthehead"longtermcapitalgains"representing"noncompete
fees"receivedfromT,againstwhichtheassesseeclaimeddeductionofRs.50lakhsundersection54EC
of the Act and deposited the balance of Rs. 4.50 crores in capital gain savings account. The Assessing
Officerheldthatthe"noncompetefees"receivedbytheassesseeweretaxableundersection28(va)of
theAct.Heaccordingly,rejectedtheclaimoftheassesseeandtreatedtheamountasfallingunderthe
head"Profitsandgainsofbusinessorprofession'.Onappeal,theCommissioner(Appeals)decided this
issueagainsttheassessee.Onappeal,.Held,dismissingtheappeal,thataftertheamendmenttosection
28withtheinsertionofclause(va),thenoncompetefeereceivedbytheassesseewasliabletobetaxed
under thehead"profitsandgainsof businessorprofession".TheorderoftheCommissioner(Appeals)
needednointerference.(A.Y.20092010)
AnuragToshniwalv.Dy.CIT(2013)23ITR112(Mum.)(Trib.)
ArunToshniwalav.Dy.CIT(2013)23ITR112(Mum.)(Trib.)
S.28(i):BusinessincomeTradingInvestmentSharesPurchaseofsharesininitialpublicoffer
andsalethereofwithinfewdaysafterallotment,profitstobetreatedasbusinessprofitsnot
shorttermcapitalgains.(S.45)
The assessee earned shortterm capital gains on sale of shares, which the Assessing Officer
treated it as business income of the assessee rejecting the assessee's claim that similar
transactionscarriedoutbytheassesseeinearlieryearswereheldtobetaxableunderthehead
"Capitalgains".Onappeal,theCommissioner(Appeals)foundthattheassesseehadappliedfor
andwasallottedsharesin40companiesandtheseshareswereimmediatelysoldonallotment
after an average period of holding of 34 days, that the intention of the assessee was not to
hold the allotted shares but to sell them on allotment to take advantage of market
imperfectionsandthattheAssessingOfficerwasrightinholdingthatthiswasabusinessasset
and treating the shortterm capital gains as business profit. On Tribunal also confirmed the
orderoflowerauthorities.(A.Y.20062007)
ShreyasM.Jhaveriv.ITO(2013)21ITR644(Mum.)(Trib.)
S.28(i):BusinessincomeCapitalgainsSaleofsharesNomaterialconsideredtoverifywhether
sharesheldasinvestmentorstockintradeMatterremanded.(S.45)
75
The assessee sold certain shares and offered for taxation the resultant profit twice, that is, a
sum of Rs. 66.57 lakhs as business income and longterm capital gains at Rs. 63.10 lakhs. The
AssessingOfficerdeletedthelongtermcapitalgainsfrominclusioninthetotalincomeallowing
as business income to continue. The claim of the assessee was that the converse should be
done.TheCommissioner(Appeals)upheldtheassessmentorderobservingthatnomaterialwas
placedbeforetheAssessingOfficerorhimtoprovethattheassessee'sclaimwasonaccountof
investment in shares resulting in longterm capital gains and not business income. On appeal
the Tribunal held that no material had been considered or referred to verify whether such
shares were held as investment orstockintrade. The matter was to be restored to the file of
theAssessingOfficertodeterminewhethersuchshareswereheldbytheassesseeasstockin
trade or investment. If such verification showed that the shares were held as investment, the
income from their transfer should be considered under the head "Capital gains", if not as
"Businessincome".Matterremanded(A.Y.:20032004,20042005)
BayerMaterialScienceP.Ltd.v.ACIT(2013)142ITD22/22ITR287(Mum.)(Trib.)
S.28(i):BusinessincomeAmountclaimedincompensationsuit,cannotbetreatedasincome.
Theassessee,manufactureranddomesticsellerofgreyfabric,fileditsreturnofincomeforthe
AY 0809 declaring a loss of Rs.31,31,568/ in the course of assessment proceedings, the AO
noticed that the assessee had acquired a 1250 MW windmill, from M/s. Suzlon Energy, for
captiveconsumption.Thepurchaseordercontainedcompensationclause,whichprovidedthat
theassesseewasentitledtocompensationincaseofanylossofgenerationonaccountofnon
availability of the machine below 95% @ 3.67/ KWH or as per the TNEB tariff during the
warranty period. He also noticed that the generation of power unit did not touch the assured
levelof37lakhunits.TheassesseehadfiledacompensationcasebeforetheJurisdictionalHigh
Court raising claim of Rs.17,58,014 up to 1592007 for shortfall in generation of power. Since
theotherpartyhadnotacceptedtheassesseesclaimforcompensationandalsothecasewas
pendingbeforetheCourt,theassesseehadnotdeclaredtheamountclaimedasitsincome.The
AOheldthat,sincetheassesseewasentitledtocompensationaspertheagreement,hetaxed
the sum of Rs.17,58,014 as the income of the assessee. The Tribunal held that merely by
initiating the compensation suit, the amount claimed therein cannot be treated as assessee's
income unless the other party admits the liability to pay compensation or there is a decree in
favouroftheassessee.AY0809(ChennaiABench,ITANo.1169/Mds/12,dated171212)
ACIT v. Trident Textile Mills Ltd. (2013) BCAJ Pg. 17, Vol. 44B Part 6, March 2013(Chennai)
(Trib.)
S.28(1): Business incomeBusiness expenditure General principle Section 28 does not itself
provideforexpenditure.(S.37(1),2930to43D,40(a)(ia))
TheAssessingOfficerdisallowedtheinterestbyapplyingtheprovisionsofsection40(a)(ia).On
appealthe Commissioner (Appeals) held that interest expenses in the hands of the assessee
trustsaredeductibleundersection28itselfandtherefore,section40(a)(ia)doesnotapplyas
that section covers only the expenses claimed by assessee under sections 30 to 38. He
accordinglydeletedthosedisallowancesmadebytheassessingofficerundersection40(a)(ia).
On appeal by revenue,the Tribunal did not agree with legal proposition of Commissioner
(Appeals).Tribunalheldthat,section28isanexplanatorysectionwhichdescribesvarioustypes
76
ofreceiptsofincomewhicharetobeincludedunderthehead"Profitsandgainsofbusinessor
profession". Apart from this general description, section 28 does not provide for deduction of
anyexpenditureincurredbyanassesseeinearningprofitsandgainsofbusinessorprofession.
Section29providesthattheincomereferredtoinsection28shallbecomputedinaccordance
withtheprovisionscontainedinsections30to43D.Lawhasprovidedacomprehensivesystem
for deciding what are profits and gains of business or profession and how profits and gains of
businessorprofessionwillbecomputed.WhensuchanexhaustiveprovisionismadeintheAct,
it is not possible to hold that section 28 itself provides for expenditure and, therefore, the
assesseecanclaimtheexpenditureofinterestpaymentasanexpendituredeductibleatsource
itself under section 28. However the Tribunal deleted the disallowance on principle of
mutuality.(A.Y.20072008,20082009)
S.28(i):BusinessincomeCapitalgainsSharedealingHeldasbusinessincome.(S.45)
Where assessee has made several transactions of purchase of shares during year under
consideration, and if there is high volume, frequency and regularity of activity carried on by
assesseeinasystematicmanner,itwouldpartakecharacterofbusinessactivitiescarriedonby
assesseeinshares.Appealrevenuewasallowed.(A.Y200708)
ACITv.AnilKumarJain(2013)55SOT77(Hyd.)(Trib.)
S.28(i):Business incomeCapital gainCapital assetReal estate business Sale ofagricultural

landheldtobebusinessincome.(S.2(14)(iii),45)
Assessee was engaged in real estate business.It had made purchase of lands at frequent
intervals during the earlier years. Subsequently, in the return the assessee has declared profit
of Rs. 69,00, 224 on sale of agricultural lands and claimed the same as exempt from tax. The
Assessing Officer noted that purchase of lands at frequent intervals during the earlier years
points to the intention of the assessee of engaging in business activity. He stated that such
purchasesmadebytheassessee,werewithamotivetoearnprofitfromsaleofsuchlandsata
laterdate.Thesaidlandspurchasedbytheassesseeweredrylandsandfrommeredeclaration
ofleaserentalfromthesameduringtheearlieryearsatRs.15,000,itcouldnotbesaidthatthe
assessee was actually having agricultural income from such lands. He further, noted that the
intentionoftheassesseeatthetimeofpurchaseofsaidlandswastoearnprofitbysellingthem
subsequently and it was a fact that real estate activity being carried out in the vicinity of the
saidlands.TheAssessingOfficerheldthattheprofitfromsaleofthoselands,hadtobetaxedas
business income. Accordingly, he rejected the claim of the assessee for exemption of such
profit from tax. After adding the said amount of Rs. 69,00, 224 treating the same as income
frombusiness,tothereturnedincomeoftheassessee,hecompletedtheassessmentonatotal
income of Rs. 75, 21,624. On appeal, the Commissioner (Appeals) confirmed the order of the
Assessing Officer. Tribunal held that though assessee had taken plea that land was leased for
agriculturaloperations,evidencebroughtonrecorddidnotsuggestthatagriculturaloperation
wasactuallycarriedonsaidland,insteadfactsofcasesuggestedthatintentionofassesseewas
todealinlandandearnprofitandtherefore,incomearisingoutofthisactivitywasnothingbut
business income and it had to be taxed accordingly. In favour of revenue. Principle of res
judicatadoesnotapplyinincometaxproceedings.(A.Y.200708).
77
G.K.Properties(P.)Ltd.v.ITO(2013)55SOT86(Hyd.)(Trib.)
S.28(i):Business income Capital gainsShare dealing Shares sold after a short duration of
holdingAssessedasbusinessincome.(S.45)
Assessee declared income arising from sale of shares as shortterm capital gain. Assessing
Officer finding that number of transactions was very large with high frequency, opined that
assessee was engaged in trading of shares. Accordingly, Assessing Officer treated shortterm
capital gain declared by assessee as business income.Tribunal noted that in most of cases
shares had been sold on very date of purchase which showed that sales had been made even
without taking delivery. In fact, assessee while giving details of transactions had himself
mentioned'SpeculativeShorttermCapitalGain'Besides,othershareshadalsobeensoldafter
ashortdurationofholding.Tribunalheldthataforesaidpatternoftransactionsclearlyshowed
that assessee was trading in shares and was not an investor.Therefore, the impugned order
passed by Assessing Officer was to be upheld assessing the income as business income. (A. Y.
200708)
DevjiNenshiPalaniv.ITO(2013)55SOT192(Mum.)(Trib.)
S.28(1):Business lossBad Debt Intercorporate deposit Main business of the assessee,
telecom venture Deduction of amount non recoverable inter corporate deposit not trade
debt or part of any money lending business Not allowable as bad debts or business loss.
(S.36(1)(vii).)
Where the assessee was engaged in telecom business, and not engaged in money lending
business, loss of inter corporate deposit due to nonrecovery of some amounts, did not fall
within parameters of provisions of section 36(1) (vii) therefore not allowed as bad debts nor
allowableasbusinessloss.
BhartiTeleventuresLtd.v.Addl.CIT(2013)81DTR225/213Taxman320(Delhi)(HC)
S.28(i):Business lossObsolete stockDisallowance of claim at 25% of costwas held to be

justified.
Theassesseewroteoffinthebooksofaccountstores/spareswhichareofobsoletehavingzero
value.TheAssessingOfficerdisallowedtheclaim.InappealCommissioner(Appeals)considered
thescrapvalueofsuchobsoleteitemsat25%ofcostanddisallowedtheassesseesclaimtothe
extentof25%ofcotofstores/spares.OnappealbyrevenueandassesseetheTribunalaffirmed
theorderofCommissioner(Appeals).TheTribunalalsoheldthatthescrapvalueofstockhasto
beconsideredasopeningstockintheyearofsale.(A.Ys.200102to200203)
GujaratMineralDevelopmentcorp.Ltd.v.ACIT(2013)140ITD603(Ahd.)(Trib.)
S.28(i):BusinesslossWritingofinterestonshareloantostaffallowableasbusinessloss.
Assesseecompanygaveshareloantostaffmembersforsubscribing200sharesofcompany.It
offered interest charged on such loan for tax in earlier years. Subsequently on representation
made by employees in current year had written off such interest and debited same to profit
and loss account. Lower authorities disallowed the said interest written off. On appeal to
TribunaltheTribunalheldthatoncetheinterestonsuchloanwasofferedtotaxbyassesseein
earlieryearandsamewaswrittenoffincurrentyear,thedisallowancewasnotjustified.Appeal
ofassesseewasallowed.(AY200102to200203)
78
S.28(i):Business lossForeign currencyForward contractLoss on account of revaluation of

contractonlastdateofaccountingperiodisallowableasdeduction.
TheTribunalheldthattheforwardcontractisenteredintobytheassesseetobuyorsellforeign
currency at an agreed price at a future date falling beyond the last date of the accounting
period, the loss incurred by the assessee on account of revaluation of the contracton the last
date of the relevant accounting period is an allowable deduction. (A. Y. 19981999 to 2003
2004)
S.28(i):BusinesslossTransferofbusinessSlumpsaleYearoftaxabilityTransactionoftransfer
ofbusinesstookplaceinpreviousyearrelevanttoassessmentyear200304andincomefrom
transfertobeconsideredinthatyearAdditionscannotbemadeonpresumption.
The assessee sold a part of its business to S on September 30, 2002 for a lump sum
consideration of Rs. 7,12,41,450 resulting in loss of Rs. 2,10, 26,593. Pending certain legal
formalities, the assessee agreed to carry out the business on behalf of the buyer S, as its
custodianinIndiawiththeclearunderstandingthatanyloss/profitarisingoutoftheoperations
would belong to the buyer. It contended that the loss of Rs. 2.10 crores should be allowed
underthehead"Profitandgainsofbusinessorprofession".TheAssessingOfficerheldthatthe
transaction was not a slump sale transaction. From the total sale consideration of Rs. 7.12
crorestowardsthebusiness,theAssessingOfficerreducedasumofRs.5.97crores,beingthe
consideration for transfer of all other items of assets at their book value. He worked out that
the inventory valuing Rs. 3.24 crores was transferred to the transfereeonly at Rs. 1.18 crores,
thattheclosingstockwasrequiredtobevaluedatthemarketrate.Consideringthegrossprofit
rateof36.50percentasdeclaredbytheassesseefortheyearinquestion,theAssessingOfficer
computedthemarketvalueofinventoriesatRs.4.43crorescomparedwiththeactualvalueof
transferofinventoriesatRs.1.18crores,andheldthattheassesseesuppressedtheincomeof
Rs. 3.28 crores. Taking into consideration the fact that the business was transferred on
September 30, 2002 and thereafter it was carried on by the assessee as a custodian of the
transferee, the Assessing Officer held that the income of Rs. 3.28 crores was required to be
included in the total income for the assessment year 200304. He, therefore, disallowed the
assessee's claim of loss of Rs. 2.10 crores in the year under consideration and initiated
reassessment proceedings for the assessment year 200304 and completed the assessment
accordingly.WhentheappealsforboththeyearscameupbeforetheCommissioner(Appeals),
heupheldtheactionoftheAssessingOfficer. OnappealtheTribunalheldthatadmittedly,the
assessee's business was transferred to S on September 30, 2002. The assessee in fact, carried
out business on behalf of S as its custodian in India from October 1, 2002 till March 31, 2004
andtransferredprofit/lossarisingoutofsuchoperationstothebuyer.Theassesseecouldnot
be considered simultaneously as agent of the buyer and also the owner of the business
betweenOctober1,2002toMarch31,2004.Thetransactionoftransferofbusinesstookplace
inthepreviousyearrelevanttotheassessmentyear200304andaccordinglyincomefromsuch
transferofbusinesswastobeconsideredinthatyearalone.Thebusinessoftheunitwithallits
assets including stockintrade was transferred by the assessee to S, an altogether different
79
concern. The assessee discontinued the business of the unit, thereby necessitating the
valuation of stock at market price. The assessee agreed to sell the assets of its unit including
stockintrade for a total sum of Rs. 7.12 crores. The Assessing Officer computed the market
value of stock in the assessment order for the assessment year 200405 applying the gross
profitrateof36.50per centforthatyear.He,however,madeadditionintheyearrelevantto
the assessment year 200304 holding that the transaction of transfer of stockintrade of the
business along with assets took place in such earlier year. The transaction of transfer of the
business including stockintrade actually took place on September 30, 2002, which was
relevant to the assessment year 200304. The calculation of market value of the stock at Rs.
4.43croresonthedateoftransferofsuchstockwasnotcorrect.
That even if such a value was presumed to be correct, the authorities had nowhere held that
suchvalueofstockactuallyrealisedbytheassesseedidnotrepresentitstruemarketpriceor
thatthemarketvalueofstockwasmorethanwhatwasactuallyrealisedfromthebuyerofthe
business. The transferor and transferee companies were unrelated to each other. In such
circumstances, the only logical conclusion was that the assessee transferred its stock at the
marketvaluerecordedintheagreementatRs.1.18crores.Whenthetransfereecompanyhad
paid a total sale consideration of Rs. 7.12 crores, which included a sum of Rs. 1.18 crores
towardsthevalueofinventories,theAssessingOfficercouldnotpresumethemarketvalueof
suchinventoriesatRs.4.43croreswithoutanycogentreason.
ThatitwasnotpossibletomakeadditionofRs.3.28croresbytakingthemarketvalueofstock
transferred as on the date of transfer without considering the second part of the transaction,
being the transfer of stock at actual price realised at Rs. 1.18 crores, which event also took
place in the relevant year. There was a net loss as claimed by the assessee on the composite
transactionoffirstlyvaluingthestockatmarketpriceonSeptember30,2002andthenitssale
during the year. The Assessing Officer considered only the first part of the transaction
overlooking the second part, which also ought to have been considered. Therefore, the
AssessingOfficer'scomputationofincomeofRs.3.28croreswastobereversed.
The assessee claimed that the profit or loss from the transaction of transfer of stock of the
businesswastobeconsideredunderthehead"Profitsand gainsofbusinessorprofession"as
against the Commissioner (Appeals) and the Assessing Officer including it under the head
"Capitalgains".TheAssessingOfficertooktheitemwisevalueofassets(bothfixedandcurrent)
of the business. He considered all other assets of the business as having been transferred by
theassesseeatbookvalue.Inthatviewofthematter,heheldthatnochargeableincomearose
fromthetransferofotherassets.Thereafter,hecomputedincomefromthetransferofstock
intradebyassigningsomemarketvaluetoit.Theresultantprofitwasheldtobechargeableto
taxascapitalgain.Onappeal
Held,thatprofitorgainchargeableunderChapterIVEcanariseonlyonthetransferofcapital
asset. Stockintrade is not a "capital asset". Resultantly, no profit or gain from the transfer of
stockcouldbechargedtotaxunderthehead"Capitalgains".Thelossfromthetransferofstock
amounting to Rs. 2.10 crores was deductible under the head "Profits and gains of business or
profession"inrelationtotheassessmentyear200304.(A.Y.:20032004,20042005)
BayerMaterialScienceP.Ltd.v.ACIT(2013)142ITD22/22ITR287(Mum.)Trib.)
80
S:28(i):Business lossForeign exchange forward contracts Loss on revaluation of unmatured
forexcontractsHeldtobeallowable.
Assessee claimed deduction of Rs. 7.14 crore on account of loss on revaluation of unmatured
foreign exchange forward contracts on basis of valuing such contracts at rate of exchange
prevailingatendofyear.AssessingOfficerdenieddeductionongroundofitbeingcontingentin
nature.TheTribunalheldthatinviewofdecisionofTribunalinDy.CIT(IT)v.BankofBahrain&
Kuwait [2010] 41 SOT 290 (Mum.) (SB) deduction so claimed by assessee was allowable,
however, with a rider that loss so allowed should not be allowed again in succeeding
assessmentyear.Appealwasdecidedinfavourofassessee(A.Y.198889)
Dy. CITv.Banque Indosuez (Known as Credit Agricole Indosuez) (2013) 55 SOT 38 (Mum.)
(Trib.)
S.28(i):BusinesslossBaddebtsExpensesonbehalfofprincipalwasheldtobebusinessloss.
[S36(1)(vii)]
Assessee incurred exhibition expenses on behalf of its principal. On failure of assessee to
recover said amount from principal, it was writtenoff as bad debt. Assessing Officer rejected
assessee's claim. Tribunal held that the Assessing Officer rightly concluded that exhibition
expensescouldnotbeallowedasbaddebtundersection36(1)(vii),howeverhavingregardto
fact that exhibition expenditure was incurred by assessee on behalf of its principal in ordinary
courseofbusiness,nonrecoveryofsamecouldbeallowedasbusinessloss.(A.Y.200304)
A.T.E.Enterprises(P.)Ltd.v.Dy.CIT(2013)55SOT175(Mum.)(Trib.)
S.28(iv): Business incomeValue of any benefit or perquisitesCapital reserve on

amalgamationcannotbetaxedasvalueofanybenefitsorperquisite.
Theassesseecompanyshowedcapitalreserveinitsbalancesheetonaccountofamalgamation.
The Assessing Officer treated the capital reserve as income of the assessee company under
section 28(iv), holding amalgamation as an adventure in the nature of trade and the capital
reserve as a benefit accruing by way of amalgamation. The Commissioner (Appeals) held that
thecapitalreserveonaccountofamalgamationwasacapitalnature,nottaxableundersection
28(iv),andthatamalgamationwasnotanadventureinthenatureoftrade.OnappealTribunal
held that capital reserve arising on amalgamation cannot be taxed as a benefit or perquisite
arising from business under section 28(iv) under head 'Profits and gains of business or
profession'.(A.Y.200809)
ITOv.ShreyansInvestments(P.)Ltd.(2013)141ITD672(Kol.)(Trib.)
S.30: Rent rates, taxes, repairs and insurance for buildingsLeasehold premises Design,
layout,materialconstructionandfabricationworkisrevenueexpenditure.
The assessee was only a lessee in respect of the premises in which it was setting up its office.
Lease period was 30 months. The assessee incurred expenditure mainly towards charges for
design, layout, materialconstruction and fabrication work. The assessee was required to incur
such expenditure for providing partitions, vinyl flooring and interior decoration in order to
provide business ambience and achieve functional utility. Assessing Officer treated the said
expenditureascapitalinnature.TheCIT(A)heldthattheexpendituremadebytheassesseeto
make the premises more useful and enhance its functional utility, would not come under the
81
purviewofcapitalexpenditureexceptinrespectofasumpaidforcarryingoutairconditioning
work like providing ducts for split type air conditioner, etc., as those things are of enduring
nature.TribunalconcurredwiththeviewoftheCommissioner(Appeals).OnappealHighCourt
held that the expenditure on designing, lay out and other temporary constructions, to make
functionalwasallowableasrepairandmaintenance,andnotcapitalinnature.(A.Y.200405)
CITv.ArmourConsultants(P.)Ltd.(2013)214Taxman444(Mad.)(HC)
S.32: DepreciationOwnership of assetNo requirement of usage by assessee himself

RegistrationinthenameoflesseeAFinanciersatisfiestheownershipandusertestfor
depreciation.[MotorVehiclesAct1988S.2(30),2(13),2(24)]
The assessee, a NBFC, bought vehicles and leased it out to its customers. The vehicles were
registered in the names of the customers. The AO held that as the vehicles wereregistered in
the names of the customers and were used by them, the assessee was not eligible for
depreciationu/s32asitwasnottheownerofthevehiclesnorhaditusedthevehiclesfor
purposes of business. The CIT (A)& Tribunal allowed the assessees claim. However, the High
CourtreversedtheTribunalonthegroundthattheassesseewasonlyafinancierandnotthe
owner of the vehicles and so was not eligible to claim depreciation. On appeal by the
assesseetotheSupremeCourt,heldreversingtheHighCourt:
(i)S.32requiresthattheassetmustbeowned,whollyorpartly,bytheassesseeandusedfor
the purposes of the business. The Departments argument that the assessee is not the
owner of the vehicles is not acceptable because the lease agreement specifically provided
that the assessee was the exclusive owner of the vehicle at all points of time and that it was
empoweredtorepossessthevehicle(andnotmerelyrecovermoney)ifthelesseecommitteda
default. At the conclusion of the lease period, the lessee was obliged to return the vehicle to
the assessee. Also, the assessee had the right of inspection of the vehicle at all times. As the
assesseehasarighttoretainthelegaltitleofthevehicleagainsttherestoftheworld,itwould
betheownerofthevehicleintheeyesoflaw.Thefactthatattheendoftheleaseperiod,the
ownershipofthevehicleistransferredtothelesseeatanominalvaluenotexceeding1%ofthe
originalcostofthevehicledoesnotmakeadifference.AlsothefactthattheMotorVehiclesAct
deemsthelesseetobetheownerhasnorelevance;
(ii) The Departments argument that the assessee had not used the vehicles is also not
acceptablebecausethevehiclewasusedbytheassesseeinitsbusinessofleasing.Onceitis
held that leasing out of the vehicles is one mode of doing business by the assessee and the
income derived from leasing out is treated as business income it would be contradictory, in
terms,tosaythatthevehiclesarenotusedwhollyforthepurposeoftheassesseesbusiness.
The physical user of the vehicles is not necessary (CIT v Shaan Finance (P) Ltd. (1998) 231 ITR
308(SC)followed)(A.Y.199192to199697)
I.C.D.S.Ltdv.CIT(2013)350ITR527/212Taxman550/255CTR449/82DTR33(SC)
S.32:DepreciationRateLeasingbusinessHigherrateforVehiclesusedinbusinessofhire.
Assesseeinbusinessofleasingvehiclesisentitledtodepreciationathigherrate.(A.Y.199192to
199697)
82
I.C.D.S.Ltdv.CIT(2013)350ITR527/212Taxman550/255CTR449/82DTR33(SC)
S.32:DepreciationSoftware.
DepreciationwouldbeallowableonSoftwaredevelopedandinstalledbyassessee.
S.32:DepreciationBrandRoyalty
Payment of royalty for acquisition of brand paid to LLB LTD was a part of the acquisition of
brand, therefore form part of cost of assets namely brand hence the assessee is entitled to
depreciationontheamountofroyalty.(A.Y.200102)
S.32:DepreciationLeasedvehiclesNonregistration/commercialpermitVehiclewasready
tousedepreciationwasallowable.
Themomenttheassesseeenteredintotheagreementwiththelesseesforleasingthevehicles
to them and transferred possession for that purpose to the lessees, the assessee would be
deemed to have utilized those vehicles for the purposes of its business, which was leasing of
vehicles.ProvisionsoftheMotorVehiclesAct,1988neednotbereferredbecauseitisnotthe
assessee's business who is plying those vehicles. Depreciation was held to be allowable. (A.Ys.
198990to199394)
CITv.KandCo.(2013)214Taxman1/88DTR166(Delhi)(HC)
S.32:DepreciationOwnerFindingbeingnotperverseDepreciationisnotallowable.
TheTribunalafterexaminingthefactualmatrixonpreponderanceofprobabilitieshadheldthat
the assessee was not the owner. The finding was a finding of fact, which was not under
challenge. It was not a finding which was perverse. Hence, the assessee was not entitled to
depreciation. (A.Y. 19951996)
SaiIndustriesLtd.v.ACIT(2013)353ITR213(Delhi)(HC)
S.32:DepreciationMotor cars used outside India for business and commercial activities
Expensesforupkeepofvehicles,depreciationisallowable.
Expenses incurred for the upkeep of the vehicles, was business expense. Depreciation,
therefore, was directly relatable to business rather than the use of foreign or luxury cars by
executivesoftheassessee.Thus,thedepreciationclaimedonmotorcarspurchasedandusedin
foreigncountrywasallowabletotheassessee.(A.Ys.198788,198889)
CITv.AnsalPropertiesandIndustriesLtd.(2013)352ITR637/87DTR360(Delhi)(HC)
S.32:Depreciation Motor cars used outside India for business and commercial activities
Expensesforupkeepofvehicles,depreciationisallowable.
Expenses incurred for the upkeep of the vehicles, was business expense. Depreciation,
therefore, was directly relatable to business rather than the use of foreign or luxury cars by
executivesoftheassessee.Thus,thedepreciationclaimedonmotorcarspurchasedandusedin
foreigncountrywasallowabletotheassessee.
83
227(Delhi)(HC)
S.32:DepreciationScaffoldingandshutteringConstructionbusiness100%depreciationis
alloable.
Theassesseeclaimed100percent.depreciationinrespectofeachsectionoftabularscaffolding
,usedinitsconstructionbusiness.TheAssessingOfficerallowed33percent,holdingthateach
sectiondidnotqualifyfolrplantandentirescaffoldingandshutteringhadtobetakenasplant
for the purpose of 100 perecnt depreciation only if its cost was below Rs 5000.The
Commissioner(Appeals) and Tribunal reversed the view of the Assessing Officer. On appeal,
dismissingtheappealofrevenuethecourtheldthatthevalueofthesuttringwouldhavebben
written off with in a couple of years . Therefore , the assessee was entitled to 100 percent
.depreciation on shuttering and scaffolding , for purchase of parts or sections of such
equipment
227(Delhi)(HC)
S.32:DepreciationBlockofassetsOncetheassetsareputtouseinearlieryearsandformpart
of block of assets, depreciation can be claimed on the same in subsequent years even if all
theitemsinblockarenotusedsimultaneously.(S.2(11))
Oncetheassetshavebeenputto useinearlieryears,suchassetsformpartofblockofassets
anddepreciationthereonhasbeenallowedinthepastthendepreciationontheassetscantbe
restrictedordisallowedinsubsequentyearsonthepretextthatonlyaportionthereofhasbeen
put to use. Items falling within the block of assets cannot be segregated for the purpose of
granting or restricting depreciation. Once the assets are used for business, it is not necessary
that all the items falling within the concerned block have to be simultaneously used for being
entitledtodepreciation.(T.ANo.84of200,dt19/06/2012)
S.K.PatelFamilyTrust.(2012)BCAJNovemberP.401)(Guj.)(HC)
S.32:DepreciationLease backPurchase of electric meters from RSEB and leasing back the
sametoRSEBisgenuinetransactionanddepreciationcanbeclaimedonsuchelectricmeters:
The assessee bought eclectic meters form Rajasthan state Electricity board(RSEB) and leased
them back to RSED on hire purchase basis. The Department didnt allowassessees claim of
depreciation on the said electric meters as it was of the view that the said transaction was a
shamtransactioninlightoftheratiolaiddowninMcDowellscase(154ITR148).Itwasheldby
the Honble High Court that the said transaction was a genuine transaction and the assessee
waseligiblefordepreciationonthesaidelectricmeters.(T.A.No.166of2000,dt,17/07/12)
ParampountPollutionControlLtd.(2012)BCAJNovemberP.399)(Guj.)(HC)
84
S.32:DepreciationLease transactions LPG Cylindersfinance Assessee could not prove
purchases of cylinders directly purchased by the lessee,hence depreciation could not be
allowed.
Assessee claimed depreciation on LPG Cylinders, Air Jet Spindle Assembly and Positar Disc
whichwereclaimedtohavebeenleasedout.AssessingOfficerdisalloweddepreciationforming
a view that assessee did not purchase said assets, but merely financed their purchase. It was
heldthatincaseofLPGcylinders,transactionwasonlyafinancingtransactionandnotalease,
withnomaterialtoshowthatassesseebecameownerofcylindersandleasedthem.Incaseof
air jet spindles and Positar Disc, the very existence of assets and genuineness of purchase of
assetsbyassesseewasnotproved,and,therefore,assesseewasnotentitledtodepreciation.In
favourofrevenue.(A.Y.199596)
CITv.GanapatiFinanceLtd.(2013)212Taxman278/82DTR49(Delhi)(HC)
S.32:Depreciation Succession of businessWritten down valueBlock of assetsTransfer to

subsidiaryNumberofdaysofpredecessorandsuccessorwastobetaken.(S.43(6),170)
Assesseecompanyhadtwounitsviz.unitAandunitB.IttransferredunitBtoits100percent
subsidiary company with all assets and liabilities at book value on 1111996.It claimed
depreciation on written down value of assets of unit B proportionately for period from 14
1996 to 31101996. Tribunal rejected claim of assessee. Court held that the assessee was
entitled to depreciation as provided for in fourth proviso to section 32(1), in working out
depreciationnumberofdaysforwhichassetswereusedbypredecessorandsuccessorwasto
betakenintoconsiderationandapportionmentwastobeworkedoutbasedonnumberofdays
for which assets were used by predecessor and successor company respectively. Matter
remanded(A.Y.199798)
SreeJayajothi&Co.Ltd.vCIT(2013)212Taxman238/87DTR205(Mad.)(HC)
S.32:DepreciationHigherrateMouldsMouldingtoolsMatterremanded.
Assessee is engaged in manufacture of electrical equipment used in power generation. It
claimed depreciation at rate of 40 per cent as per rule 5 in respect of moulds and moulding
toolsusedinmanufactureofplasticcovers,seals,shrouds,etc.Saidclaimwasdisallowedon
ground that no material was produced to show that assessee had a separate unit to
manufacture plastic parts when it was manufacturing heavy electrical equipment. Assessee
submitted that it had separate unit and it had also applied for recognition of its unit before
Government. In earlier year, Commissioner (Appeals) had allowed depreciation finding that
though assessee did not have rubber or plastic goods factory, but it had a unit where moulds
were installed.In interest of justice, matter be remitted back to find out whether recognition
hadbeengrantedtoassesseeasseparateunit.Matterremanded.(A.Y.199596to199899)
ArevaT&DIndiaLtd.v.Jt.CIT(2013)212Taxman429(Mad)(HC)
S.32:DepreciationLeasedassetsPurchasenotdisputedhencedepreciationtobeallowed.
Assessee purchased machinery and leased back same to 'B' Ltd. Assessee's claim for
depreciation was rejected by revenue authorities on ground that there were discrepancies in
payment of rental by lessee and received by assessee. Court held that when revenue had not
85
disputed purchase by assessee from 'B' Ltd., in such a case, mere discrepancy in lease rental
paymentpersedidnotnegateclaimofassesseeasownerofmachinery.Therefore,assessee's
claimfordepreciationwastobeallowed.Infavourofassessee.(A.Y.199697)
Dy.CITvFirstLeasingCo.ofIndiaLtd.(2013)212Taxman417(Mad.)(HC)
S.32:DepreciationOwnerLeasebackFinanceleaseMatterremanded.
Assessee purchased and leased back MPP Shut Capacitors to 'A' Ltd. which was engaged in
manufacturing of capacitors 'A' Ltd. sub leased those capacitors to MSEB. Assessing Officer
rejected assessee's claim of depreciation on capacitors holding that it was merely a financial
transaction. Tribunal pointed out that to claim ownership of assets, assessee should produce
purchase invoice and mere furnishing of insurance certificate was not sufficient. Accordingly,
Tribunal upheld order of Assessing Officer. On instant appeal, documents produced before
Courtinformofpurchaseinvoiceshowedinstallationandcommissionofcapacitorsinlessee's
premises,whichweregivenforusebyMSEB,inviewofabove,therewasnojustifiableground
to reject case of assessee on ground that purchase invoice was not filed before authorities
below. Therefore, matter was to be remanded back to Assessing Officer so as to enable
assessee to produce other evidence on record for purpose of satisfying him as regards
ownershipofmachinery.Matterremanded.(A.Y.199697)
Dy.CITv.FirstLeasingCo.ofIndiaLtd.(2013)212Taxman417(Mad.)(HC)
S.32:DepreciationMethod of accountingDuty of tax officialsClaim of depreciation against

interestincomeheldtobeallowable.(S.145)
Assessee claimed setoff of depreciation on assets used for construction of National Highway
against interest income. Assessing Officer found that assessee itself had capitalized all
expenditures incurred on construction of Highway and in audited profit and loss account, no
expenditure or depreciation had been claimed by assessee; he, thus, disallowed assessee's
claimundersection145(3).Section145(3)hadnomannerofapplicationasuniformaccounting
system was followed by assessee, therefore depreciation was allowable. While making
assessment of any returns, if any deduction is sought for, it is duty of revenue official to
examine not only account but also substantive right of claiming deduction under Act. Matter
decidedinfavourofassessee.(A.Y.200304).
MapexInfrastructure(P.)Ltd.v.CIT(2013)212Taxman23/81Taxman202/255CTR272(Cal.)
(HC)
S.32: DepreciationCharitable or religious trustApplication of income and depreciation is

permissible.[S.11,12A]
Assesseeacharitabletrustregisteredundersection12Amadeinvestmentinbuilding,onwhich
it claimed benefit under section 11 in the form of application of funds as well as depreciation
under section 32. Assessing Officer disallowed depreciation on ground that it amounted to
double deduction. Commissioner (Appeals) allowed the depreciation. On appeal the Tribunal
confirmedtheviewofCommissioner(Appeals).(A.Ys.200708,200809)
ACITv.ShriAdichunchanagiriShikshanaTrust(2013)141ITD575(Bang.)(Trib.)
86
S.32: DepreciationFly ash handling systemEligible 100% depreciation. [Income tax Rules
1962,Rule5]
Assesseeamanufacturerofasbestossheetsusingflyashasrawmaterialformanufacturingthe
asbestossheets.Accordingtoassessee,ithadsetupaflyashHandlingsystemforthepurpose
ofprocessingflyashinthemanufactureofasbestossheets.InAppendixIprovidedunderrule
5ofIncometaxRules,1962,whereunderdepreciationscheduleisprovided,thereisaspecial
rate of depreciation of 100 percent for items coming under AIR pollution control equipment
.Airpollutioncontrolequipmentalsoincludedflyashhandlingsystemandevacuationsystem
.On the above premises, the assessee claimed depreciation at 100% on its fly ash handling
system. The Assessing Officer did not agree with the contention of assessee and allowed only
15% on said system like other items of plant and machinery .Commissioner (Appeal) allowed
100% depreciation. On appeal Tribunal held that in case of assessee, a manufacturer of
asbestos sheets using fly ash as raw material, a fly ash handing system was installed, said
system was to be regarded as 'air pollution control equipment' for purpose of granting
depreciationathigherrateof100percent.(A.Ys.200506,200607&200809)
Dy.CITvUALIndustriesLtd.(2013)141ITD1/87DTR247/154TTJ580(TM)(Kolkata)(Trib.)
S.32: Depreciation User of asset As machineries were not put to use during the relevant
yeardepreciationwasnotallowable.
Assessee purchased a new machine for an expansion and diversification project and got it
installed in 199697. Due to various reasons the, said project could not take off. Assessee
claimed 100 per cent depreciation on said machine. Tribunal held that there is nothing on
record to suggest that machine was ever put to use during year hence no depreciation was
allowable.(A.Y.19981999)
SuperfilProductsLtd.v.ACIT(2013)141ITD567(Chennai)(Trib.)
S.32:DepreciationUPS60%rateofdepreciation.
UPS forms part of computer system and, therefore, entitled to 60 per cent depreciation. (A.Y.
200708)
AmericanExpressServicesIndiaLtd.v.DCIT(2013)57SOT22(URO)(Delhi)(Trib.)
S.32:DepreciationTestrunEarthstationdepreciationisallowable.
Where assessee had successfully test run earth station before close of relevant financial year,
depreciationwasallowableonsuchassets.(A.Y.199899)
TATACommunicationsLtd.v.JCIT(2013)57SOT1(Mum.)(Trib.)
S.32:DepreciationPartownershipCablenetworkdepreciationisallowable.
The assessee had acquired part ownership of optical fibre cable pursuant to capacity sales
agreement and claimed depreciation on the same. The Assessing Officer disallowed claim on
ground that assessee was not complete owner of asset in question. Tribunal held that the
words 'wholly' or 'partly' have been inserted in section 32 w.e.f. 1441997 and hence, the
assessee was eligible to claim depreciation on cable network even though the entire network
wasnotownedbyit.(A.Y.199899)
TATACommunicationsLtd.v.JCIT(2013)57SOT1(Mum.)(Trib.)
87
S.32: DepreciationOwnershipAs per the terms of sale agreement the assessee being not
ownerofthedredgereitherwhollyorpartlydepreciationwasnotallowable.
The agreement for sale of dredger indicated that the seller had not parted with its right of
ownershipofthedredgerinfavouroftheassesseeastheagreementmadeitveryclearthatin
case of failure on the part of the assessee as per the terms of the agreement or if bank
guaranteeisnotextended,thesellerhasrighttoterminatetheagreement,takepossessionof
the dredger and forfeit the amount already paid. Until the last instalment was paid, the seller
shallhaveexclusivechargeoverthedredger.'Effectivedate'asdefinedintheadditionalclause
isclearenoughtoindicatethatthepartiestotheagreementintendedthedateofapprovalby
theRBItobetheeffectivedateofagreement.Clause(2)ofCircularNo.9dated2331943,on
which the assessee relied makes itexplicit that the circular is applicable to such hire purchase
agreementunderwhichtheownershipofthesubjectisatoncetransferredtothelesseewhich
inotherwordsmeansthatthelessorobtainsarighttosueforfailureinpaymentofinstalments
but no right to recovery of the asset. However, the sale agreement of the assessee confers a
right on the seller to terminate the agreement and take back possession of the dredgers and
forfeitthepaymentsalreadymadeincaseofviolationoftheconditionsofpaymentandfailure
toextendthebankguarantee.Inviewofthis,thecircularNo.9 does notapplytothefactsof
theinstantcase.Hence,theclaimofdepreciationwasnotavailable.(A.Y.200809)
DhartiDredgers&InfrastructureLtd.v.ACIT(2013)57SOT31/24ITR538(Hyd.)(Trib.)
S.32:DepreciationPuttouseBifurcationofareaputtouseCapitalorrevenueRepairand
maintenance.[S.37(1)]
The Assessing Officer worked out an area of 53,589 sq.ft. as unutilised space and disallowed
depreciationonthecorrespondingpercentageofplantandmachineryat14.53percentonthe
groundthatthisareawasnotputtobusinessuse.Held,therewasnobasisforworkingoutthe
utilised and unutilised areas as was done by the Assessing Officer when the entire multiplex
wasputtouse.Oncetheentireprojecthadcommencedbusinessoperations,justbecausepart
of it was not leased out or commercially exploited that could not be a basis for disallowing
depreciation and expenditure. Similarly, the Assessing Officer was wrong in disallowing the
claimofrevenueexpenditureonrepairsandmaintenanceonunutilisedarea.(A.Y.20052006)
ECityEntertainment(India)Pvt.Ltd.v.ACIT(2013)24ITR73(Mum)(Trib.)
S.32:DepreciationManufacturingactivityAssetsusedonmanufacturingactivity.
Assessing Officer disallowed depreciation on building, roads and culverts, water system, office
appliance etc. on ground that assessee had not undertaken any manufacturing activity during
relevant years. In previous assessment year 200405, Assessing Officer had allowed
depreciationonassetsinquestion.Sincefactsofassessmentyearsinquestionwereidenticalto
those of assessment year 200405, Assessing Officer was to be directed to allow depreciation
onsuchassets.(A.Ys.200708,200809)
ACITvHindustanFertiliserCorpn.Ltd.(2013)140ITD719(Delhi)(Trib.)
S.32:DepreciationBlockofassetsDiscontinueofbusinessofoneunit.[S.2(11)]
88
Operations of manufacture discontinued at one factory. Assets of unit having already entered block of
assetsofassessee,depreciationnottobedisallowedongroundofnonuser.(A.Y.20022003)
S.32:DepreciationDeduction at source Disallowance of expensesCapital expenses. (S. 40(a)
(i),195,200)
During the relevant year the assessee made payments to a foreign company for acquiring its
tradename.Theamountsopaidwascapitalizedanddepreciationwasclaimedinrespectofit.
The Assessing Officer held that the said payment attracted the provisions of section 195 read
withsection200.Sincetheassesseefailedtodeducttaxatsourcewhilemakingsaidpayment
said payment, it was disallowed under section 40(a) (ia). The DRP also confirmed the said
disallowance. On appeal the Tribunal held that the depreciation is a statutory deduction and
notanoutgoingexpenditurethereforeprovisionsofsection40(a)(ia)arenotattractedonsuch
deduction.(A.Y.200708)
S.32:DepreciationSale and lease backSpecial Bench verdicts on Sale & Lease Back & lease
financearenotgoodlawAssesseeentitledfordepreciation.
The assessee, a Bank, bought assets from its customers and leased itback to them (sale and
leaseback).Italsopurchasedassetsidentifiedbyitscustomersandleasedittothem(finance
lease). The assessee claimed depreciation on the assets on the ground that it was the owner
and had used the assets for business purposes. The AO, relying on MidEast Portfolio
Management Ltd. v. Dy. CIT (2003) 87 ITD 537 (Mum) (SB) and IndusInd Bank Ltd. v. Add. CIT
(2012) 135 ITD 165 (Mum) (SB), disallowed depreciation on the ground that the transactions
wereaneyewashandcolourabledevice.TheCIT(A)partlyconfirmedthedisallowance.On
appealbytheassesseetotheTribunal,HELDallowingtheclaim:
Theissueofwhetherthelessorisentitledtoclaimdepreciationinthecaseofasaleandlease
back transaction as well as in a finance lease have been laid to rest by the judgements in
ICDS v. CIT (2013) 350 ITR 527 (SC), CIT v. Kotak Mahindra Finance (2009) 317 ITR 236 (Bom)
andCITv.CosmoFilmsLtd.(2011)338ITR266(Del)whereitwasheldthatthelessoriseligible
to claim depreciation. The judgements of the Special Bench in MidEast Portfolio Management
Ltd.v.Dy.CIT(2003)87ITD537(Mum)(SB)andIndusIndBankLtd.v.Add.CIT(2012)135ITD
165(Mum)(SB)areimpliedlyoverruled.(A.Y.9697)
DevelopmentCreditBankLtd.v.DCIT(Mum.)(Trib.)www.itatonline.org.
S.32:DepreciationWindmillsRateofdepreciation.
Following the judgment of Tribunal in K. Ravi v. ACIT (2010) 2 ITR 752 (Chennai) (Trib.) the
Tribunal held that the Assessee is entitled to depreciation at higher rate. (A. Y. 20052006,
20082009)
ABTLtd.v.ACIT(2013)21ITR534/83DTR178/56SOT42(Chennai)(Trib.)
S.32:DepreciationBuildingsBusinessLeased
Depreciation in respect buildings used for purpose of business to be allowed and depreciation
pertaining to portion let out alone to be disallowed. Depreciation in respect of flats given to
89
directors for purpose of business to be reexamined, matter remanded. (A. Y.20042005 to
20062007)
AlGayathriTradingCo.P.Ltd.v.Dy.CIT(2013)22ITR214(Cochin)(Trib.)
S.32:DepreciationOfficeDepreciationistobeallowed.
Theauthoritiesbelowdisalloweddepreciationinthehandsoftheassesseeonthegroundthat
theofficewasnotbeingutilisedforbusinesspurpose,asitwasgivenforredevelopment.The
claimoftheassesseewasthattheredevelopmentagreementwassignedonJanuary18,2010
and redevelopment started in the assessment year 200910. The assessee claimed to have
utilised the office during the year under consideration. On appealthe Tribunal held that the
claimofdepreciationwastobeallowedtotheassessee.(A.Y.200607)
ManjitMann(Mrs)v.Dy.CIT(2013)21ITR57(Chandigarh)(Trib.)
S.32:DepreciationCinemahallIncomeshownonestimatebasisdepreciationisallowable.
Depreciationisachargeonanasset,ithasto begrantedinaccordancewiththeprovisions of
the Act. Depreciation is allowable irrespective of the fact that the assessee has shown
estimated income which is less than the amount of depreciation. Depreciation is held to be
allowableoncinemahallownedbytheassessee.(A.Y.200910)
S.32:Depreciation Non compete fee NonCompete Fee not eligible for depreciation or
amortization.
TheassesseeacquiredthebusinessofmanufactureofglassfromPiramalEnterprisesLtd.Italso
entered into a noncompeteagreement withPiramal Enterprises whereby it agreed to payRs.
18croresfortheselleragreeingnottocarryonacompetingbusinessforaperiodof18years.
The assessee claimed the said payment as a revenue deduction and in the alternate as a
depreciableasset.TheAOrejectedbothclaims.TheCIT(A)heldthatthoughthenoncompete
fee was not a depreciable asset, the amount paid for it was entitled to be amortized over the
periodoftheagreement.TheassesseefiledanappealbeforetheTribunalchallengingthenon
grant of depreciation while the department filed an appeal challenging the grant of
amortization.Inthefirstround,theTribunalrejectedtheassesseespleabyrelyingontheThird
Member verdict in Paper Products. However, as this verdict was not put to the assessee, the
matter was reposted for hearing. In the second round, the assessee relied on CIT v. Smifs
Securities Ltd. (2012) 348 ITR 302 (SC) where goodwill was held to be eligible for depreciation
andseveralotherjudgements.HELDbytheTribunalrejectingtheplea:
Theexpressionanyotherbusinessorcommercialrightsofsimilarnatureinthedefinitionof
intangibleassetins.32(1)(ii)showsthattheinitialpart,i.e.knowhow,patents,copyrights,
trademarks, license, franchises, has been disjointed by the conjunction or. The use of the
disjunction or has a very relevant role, because, the legislature accepts the difference and
distinctionofintangiblesandrights.Thelegislaturehasusedorintheprovisionforexplaining
thedistinctionofapplicationoflikenaturewiththatoftheunlikenature,whichisanaccepted
principlei.e.doctrineofejusdemgeneris.Takingnoteofthewordor,usedasadisjunctionis
essential to carve out a meaningful genus. The argument whether non compete rights
constituteisarightinremorarightinpersonamisamattertobedecidedbyanappropriate
90
higherjudicialforum.ThejudgementoftheSupremeCourtinCITv.SmifsSecuritiesLtd.(2012)
348ITR302(SC)thatgoodwillisanintangibleasseteligiblefordepreciationisnotapplicableto
anoncompeteright.Noncompetefeedoesnotfallwithintheambitofanyothercommercial
orbusinessrights.Asregardstheclaimofamortization,sincethepaymentofRs.18croresisa
capitalexpenditure,itcannotbeallowedasanexpenseandalsocan(not)beamortized(Sharp
Business System v. CIT (2012) 254 CTR 233(Del) followed. ACIT v. Real Image Tech (P.) Ltd.
(2009) 120 TTJ 983) (Che),ITO v. Medicorp Technologies India Ltd. (2009) 30 SOT 506 (Che),
Bunge Agribusiness (India) (P) Ltd. v. DCIT (2011) 132 lTD 549 (Mum), Serum Institute of India
Ltd.v.Add.CIT(2012)135ITD69(Pune)treatedasnotgoodlaw).(A.Y.199900)
GujaratGlassPrivateLimitedv.ACIT(Mum)(Trib.)www.itatonline.org
S.32:DepreciationUPSEntitledto80%depreciation.
UPS being energy saving device is entitled for higher depreciation @ 80 percent. (A.Y. 2006
07,20072008)(GITANo.7682/M/10andITANo.8549/M/10,Dated22102012.)
Godfrey Phillips India Ltd. v. Addl. CIT(2013) BCAJ Pg. 25, Vol. 44B Part 5, February
2013(Mum.)(Trib.)
S.32:DepreciationGoodwillRetail clientele On amount paid to purchase clientele,

depreciationisallowable.
Theassessee,asharebrokerpurchasedclientelebusinessofoneparty;thesaidpartyassigned
all its clients to the assessee for a consideration of Rs.2.50 crores. The assessee treated this
purchase consideration as purchase of goodwill and claimed depreciation. The AO as well as
theCIT(A)disallowedthesameonthegroundthatthepaymentofRs.2.50croreswasnotfor
goodwillbutforpurchaseofclientelebusiness.TheHonbleTribunalheldthattheassesseewas
entitledtodepreciation,byvirtueofsec.32(1)(ii),underwhichanassetinthenatureofany
other business or commercial rights of similar nature was entitled for depreciation. The said
expression any other business or commercial rights of similar nature would include all kinds
of commercial rights and the principle of Ejusdem generis ought to be applied while
interpreting the said expression. Mere fact that the assessee had treated the said amount as
goodwill in its books, does not disentitle the assessee from claiming depreciation. (A.Y.2006
07).
IndiaCapitalMarkets(P.)Ltd.v.DCIT(2013)56SOT32(Mum.)(Trib.)
S.32:DepreciationAdditionaldepreciationonplantandmachineryacquiredduringrelevant
periodbutinstalledduringthesubsequentperiod.[S.32(iia)]
Theassesseehadclaimedadditionaldepreciationonplantandmachinerywhichwereacquired
in year relevant to A.Y 200506, but its installation was completed on 31.1.2006. The AO and
the CIT (A) held that the assessee was ineligible for claiming additional depreciation since the
assetwasnotinstalledandthemandateofs.32(iia)isthattheassetshouldbebothacquired
andinstalledduringtherelevantperiod.OnAppealbeforetheTribunal,theHonbleTribunal
held that the requirement of s.32(iia) was that both the conditions had to be satisfied viz.
acquired as well as installed. Since the machinery was not acquired after 3132005, the
assesseewasnotentitledforadditionaldepreciationu/s.32(iia).(A.Y.200607)
InternationalCars&MotorsLtd(2013)56SOT50(Delhi.)(Trib.)
91
S.32(2):DepreciationUnabsorbed depreciation Setoff Set off against income from other

sourcesSection 72(2) does notcontrol operation of section 32(2) to have set off of
unabsorbeddepreciationagainstincomefromothersources.[S.72(2)]
The assessee had unabsorbed depreciation as well as unabsorbed loss. The Assessing Officer
adjusted loss brought from earlier years against business income and arrived at the business
incomeasNIL.Theassesseesoughtforadjustmentofcarriedforwardunabsorbeddepreciation
in the income from other sources. The claim of the assessee was negatived by the Assessing
Officer for reason that the assessee should have exhausted first the unabsorbed carried
forward loss for earlier years before claiming any set off on unabsorbed depreciation. The
Commissioner (Appeals) upheld the order of the Assessing Officer. The Tribunal held that the
assessee was entitled to set off unabsorbed depreciation as against the income from other
sources.OnappealHighCourtheldthatincaseswhereafterhavingsetoffofbusinesslossas
againstcurrentyearincomefrombusiness,thereexistednofurtherbusinessincome,assessee
was entitled to set off unabsorbed depreciation against income from other sources. The court
held that section 72(2) does notcontrols operation of section 32(2) to have set off of
unabsorbed depreciation against income from other sources. In favour of assessee.A.Y.1998
99)
CITv.SPELSemiConductorLtd.(2013)212Taxman506(Mad.)(HC)
S.32(2):DepreciationUnabsorbed Depreciationdepreciation for Block of assessment year

which could not have been setoff earlier is cannot be allowed in subsequentAssessment
year.
In view of amendment brought out in section 32(2) w.e.f. 1/4/1997 by Finance Act (No. 2) of
1996 and again on 1/4/2002 Finance Act, 2001 unabsorbed depreciation for block of
assessment years 199798 to 200102 which could not have been setoff earlier, cannot be
allowedtobesetoffinsubsequentAY.(A.Y.200506)
LibertyPlywood(P.)Ltd.v.ACIT(2013)140ITD490(Chd.)(Trib.)
S.32AB:Investment Deposit accountComputation of deductionInterest on margin money

assessableasbusinessincomeandeligiblefordeduction.
Where income is received from deposits made by the assessee, and deposits are inextricably
linkedtothebusinessoftheassessee,suchincomecannotbetreatedasincomereceivedfrom
othersources.Theassesseeiseligibletodeductionundersection32AB.(A.Y.199091)
CITv.KandCo.(2013)214Taxman1(Delhi)(HC)
S.32AB:InvestmentdepositaccountInterestConstructionbusinessElegibiltytoclaimbenefit
wasnotissuebeforeAuthoritieshencedeductiononinterestwasjustified.
The assessee claimed the benefit under section 32AB(1)(b) contending that it had utilized the
amounts during the previous year for purchase of new machinery or plat . The Commissioner
(Appeals) had allowed its claim and in some instances , the Tribunal did so, On appeal the
Revenue contending that the assessee was not entitled to claim the benefit , since it did not
carry on eligible business at the relevant time . The Court dismissing the appeal held that the
approachofthetaxauthorities,asellastheTribunalwastocomputethebenefitofsetoff,in
92
the manner described. The eligibility or entitlement of the assessee to claim the benefit was
neverquestionedintheproceedingsbeforethelowerauthorities.Theerefore,thededuction
permittedtotheassesseeundersection32ABoninterestwasjustified.
227(Delhi)(HC)
S.33AC:ShippingbusinessReservesInsuranceclaimMatterremanded.
Assessee claimed deduction under section 33AC on insurance claim amount received towards
repairs carried out in respect of a vessel. Assessing Officer held that such insurance receipt
could not be taken to be assessee's business income and, therefore, same was not eligible for
deduction under section 33AC Commissioner (Appeals) however allowed assessee's claim.
Tribunal held that only if insurance claim was found to be assessee's profits derived from
businessoperationofships,amountsoreceivedshallbetakenasaneligibleprofitforpurpose
of creating reserve and allowing deduction in terms of provision of section 33AC. Matter
remanded.(A.Y.200304)
Dy.CITv.MercatorLinesLtd.(2013)55SOT187(Mum.)(Trib.)
S.35: ExpenditureScientific researchDevelopment of TelematicsOther institutionsMatter

remanded.
The PetitionerCentre for Development of Telematics had been catagorised as 'other
institutions' partly engaged in scientific research. It claimed that it should be treated as
scientific research association as its sole object was of undertaking research. The Respondent
submitted that the Petitioner had been categorised as 'other institution' by the Central
Government. However, the records did not indicate that any reference was made to Central
Government to decide category of assessee. Held, the issue was to be considered by Central
Government.Matterremanded.
CentreforDevelopmentofTelematicsv.UnionofIndia(2013)214Taxman653(Del.)(HC)
S.35:ExpenditureScientificresearchPaymentmadebythirdpartyAllowedasdeduction.
The Assessing Officer disallowed weighted deduction under S.35(1)(ii) as payment had been
madebytwootherrelatedcompanies,inwhosenamesreceiptswereissuedbydoneeinitially
and assessee had only made journal entries for crediting parties who made payment. The
assesseeclaimedthatitdidnothavesufficientfundsandtherefore,amountwaspaidbyother
companies.Itwasfurtherclaimedthatbypassingjournalentries,liabilitywasincurredbyitand
hence, it was eligible for deduction. The Commissioner (Appeals) and Tribunal allowed
assessee's claim as other two companies had not claimed deduction for donation. Held, since
actualpayershadnotclaimeddeduction,theassesseewaseligiblefordeduction.(AY200405)
CITv.ArmourConsultants(P.)Ltd.(2013)214Taxman444(Mad.)(HC)
S.35: Expenditure Scientific research Expenses incurred outside the approved R&D facility
wouldalsogetweighteddeduction.
93
The issue raised before the High Court was whether the expenses incurred outside the
approved R&D facility would also get weighted deduction based on the word under on in
house.TheHighCourtheldthatifsucharestrictedmeaningisgivenwouldleadtocompletely
diluting the deduction envisaged under sub section (2AB) of section 35 and on the other
makingtheexplanationmeaningless.Theactivitiesofobtainingapprovalsfromtheregulatory
authority or in filing anapplication for grant ofpatent necessarily shallhave to beoutside the
in house research facility .The Court also observed that merely because the prescribed
authority segregated the expenditure in to two parts, viz those incurred the in house facility
and those incurred outside, it would not by itself be sufficient to deny the benefit to the
assessee under section 35(2B) of the Act. The Certificate issued as only for the purpose of
listingthetotalexpenditureunderRules.Therefore,Tribunalhasnotcommittedanyerrorand
noquestionoflawarises.(TaxAppealno752of2012)dt2032013)
CIT v. Cadaila Healthcare Ltd. (2013) ACAJApril. P. 27/ (2013) 214 Taxman 672/86 DTR
337/350ITR555(Guj.)(HC)(Guj.)(HC)
S.35: Expenditure Scientific research Drug trialExplanation does not require that the
expensesareessentiallytobeincurredinsideaninhouse.
Explanation to section 35(2AB)(1) does not require that the expenses are essentially to be
incurred inside an inhouse research facility because it is not possible to incur these expenses
insideinhouseresearchfacility.Thus,expenditureonclinicaldrugtrial,ifincurredinrelationto
drugdevelopedinaninhouseresearchanddevelopmentfacility,thesamebecomeeligiblefor
deductionundersection35(2AB)(1).(A.Y.200708)
CadilaHealthcareLtd.v.ACIT(2013)56SOT89(URO)(Ahd.)(Trib.)
S.35:ExpenditureScientificresearchCapitalisationofexpenditure.
Assesseeincurredcertainexpensesonscientificresearchwhichwasshowninbooksofaccount
ason3132003waitingcapitalization.AssessingOfficerdisallowedclaimofassesseeonground
thatassesseehadnotcapitalizedsaidexpenditureinbooksofaccountandshownsameasitem
waiting capitalization. Tribunal held that when Assessing Officer had found that expenditure
incurredonresearchanddevelopmentcentrewasallowablefordeductionundersection35in
subsequent assessment, then expenditure incurred for assessment year under consideration
could not be disallowed merely on ground that assessee had not capitalised same because
research centre was not completed during year under consideration, therefore, impugned
disallowancewastobedeleted.(A.Ys.200304to200607)
HindustanConstructionCo.Ltd.v.Dy.CIT(2013)140ITD642(Mum.)(Trib.)
S.35:ExpenditureScientific researchWeighted deductionFigure cannot be tampered by

Tribunal.
ExpenditureasapprovedbyDSIRincertificategivenbytheminForm3CLaloneistobegranted
weighteddeduction.OnceDSIRhascertifiedquantumofeligibleR&Dexpenditureforpurposes
of weighted deduction under section 35(2AB) figure cannot be tampered by Tribunal, even if
there is a mistake in certificate issued by DSIR, same can only be rectified by DSIR and not by
Tribunalinappellateproceedings.(A.Y.200708)
94
ElectronicsCorpn.ofIndiaLtd.v.ACIT(2013)140ITD221(Hyd.)(Trib.)
S.35AB:ExpenditureKnowhowProvisionofS.35ABisnotapplicabletorevenueexpenditure.
ProvisionofSection35ABdealingwithexpenditureonknowhowshallbeapplicableonlyifany
suchexpenditureincurrediscapitalinnature.Therevenueexpenditureonknowhowwouldbe
continued to be governed by the provision of S.37(1) of the Act. Provision of S. 35AB wont
applytorevenueexpenditureevenifthesameisinrespectofknowhow,(T.A.No.326of2000,
dt.03/07/2012)
SayajiIndustriesLtd.(2012)BCAJNovemberP.400/(2013)81DTR418(Guj.)(HC)
S.35AB:Expenditure on knowhow DepreciationAcquired prior to 141998Allowable

deduction.[S.32(1)(ii),43(2)]
The assessee acquired the technical knowhow from a foreign company as per the terms of
Joint Venture Agreement dt. 25/11/1994. However, the payment for the same was made in
installmentsduringtheperiod199899to200102. Theassesseeclaimeddeductioninrespect
of the knowhow fee under S. 35AB. It was held that in view of harmonious interpretation of
theprovisionsofS.32(1)(ii)andsection35AB,inrespectoftechnicalknowhowacquiredprior
to1/4/1998,deductionu/s35ABwillbeallowedevenifpaymentismadeafter1/4/1998.(A.Y.
200203to200405)
HindustanColasLtd.v.ACIT(2013)140ITD277/151TTJ421/81DTR296(Mum.)(Trib.)
S.35B:ExportmarketsdevelopmentallowanceInsurancebusiness(S.44,Sch.I,r.5)
Tribunalrightlyrejectedassesseesclaimforweighteddeductionu/s.35B.CITv.HeroCycles
Ltd.&Ors.(1997)228ITR463(SC)followed.(A.Y.198081&198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)351ITR270/83DTR185/213Taxman498(Delhi)
(HC)
S.35B:Export markets development allowance Insurance business Reserve for export. (44
&&Sch.I,r.5)
Reserveforexportmarketdevelopmentallowancecouldnotbeaddedtothebalanceofprofits
disclosed by the annual accounts of assessee insurance company. CIT v. Oriental Fire General
InsuranceCo.Ltd.(2007)291ITR370(SC)applied.(A.Y.198081&198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)351ITR270/83DTR185(Delhi)(HC)
S.35D:AmortisationofpreliminaryexpensesShareapplicationmoneySetoffofinterest
The Tribunal had allowed benefit of set off of interest income from share application money
against public issue expenses. Court held that interest earned was inextricably linked with
requirement of company to raise share capital and thus adjustable towards expenditures
involvedforshareissue.
CITv.ShreeRamaMultiTechLtd.(2013)214Taxman650(Guj.)(HC)
S.35D:AmortisationofpreliminaryexpensesExpandingproductioncapacity.
Expenditure incurred by assesseecompany for expanding production capacity of vehicles at
two of its plants was eligible for deduction under section 35D, however, types of expenditure
95
which would go for amortisation under section 35D, particularly with reference to subclause
(c)(iv)ofsubsection(2)ofsection35D,wouldbeonlythoseexpenditurewhicharespecifically
mentionedthereinandnothingbeyond.Partlyinfavourofassessee.(A.Y.199596)
CIT.v.AshokLeylandLtd.(2013)213Taxman204(Mad.)(HC)
S.35D:AmortisationofpreliminaryexpensesRightshares.
Expensesincurredinrelationtoissueofrightsshares.Deductionofonetenthofexpenditureallowable.
(A.Y.20022003)
S.35D:Amortisation of preliminary expensesExpenditure not for expansion of industrial
undertaking or for setting up new industrial undertakingDeduction is not available
InterpretationGeneral principlesPrinciple of consistency not applicable to perpetuate
mistake.
The assessee claimed deduction under section 35D of expenses comprising fee to Registrar of
Companies, stamp fee and printing charges. The Assessing Officer held that fee paid to
RegistrarofCompanieswasnotfeeforextensionofthecompanybutforexpansionofcapital.
TheAssessingOfficerheldthattheassesseehadnotfulfilledtherequirementofsubsection(1)
and(2)ofsection35Dandtherefore,theassesseewasnoteligiblefordeductionundersection
35D. The Commissioner (Appeals) observed that the deduction under section 35D claimed in
thisyearwasinrespectofexpenseincurredinthefinancialyears199495and200001andthe
assesseewasclaimingamortizationoftheseexpensesundersection35Danditwasallowedin
theassessmentyears199596and200203and,therefore,inthepresentyear,therecouldnot
be any disallowance on this account. On this basis, the Commissioner (Appeals) deleted this
disallowance in all the three years. On appeal to the Tribunalthe Tribunal held that the
Assessing Officer had given a specific finding that the assessee had not fulfilled the conditions
under subsections (1) and (2) of section 35D and there was no finding given by the
Commissioner (Appeals) in his order that the assessee fulfilled these conditions. The order of
the Commissioner (Appeals) was on this basis that since the deduction was allowed in the
earlier years, the same could not be disallowed in the present year. The assessment order for
the assessment year 199596 was available in the paper book and there was no discussion in
the assessment order on this aspect. Regarding the rule of consistency followed by the
Commissioner(Appeals)indeletingthisdisallowance,iftheviewtakenbytheAssessingOfficer
intheearlieryearwasapossibleviewthentheremaybeacasefortakingthesameviewinthe
present year under the rule of consistency. But if the view taken in the earlier year was not a
possible view then a mistake could not be perpetuated in the name of consistency. The
Commissioner (Appeals) was not justified in deleting the disallowance made by the Assessing
Officerundersection35D.(A.Y.20032004to20062007)
GujaratPowerCorporationLtd.v.Add.CIT(2013)21ITR683(Ahd.)(Trib.)
S.35D:AmortisationofpreliminaryexpensesFinancialinstitutionsNotallowable.
A financial institution recognized by the RBI guidelines cannot be treated as an industrial
undertaking. Words industrial undertaking have a definite meaning in taxation, thereforea
96
nonbanking financial companycannot be treated as an industrial undertaking andit is not
entitledtodeductionundersection35D.(A.Y.200506)
InstantHoldingsLtdv.Dy.CIT(2013)81DTR1(Mum.)(Trib.)
S.35DDA:Amortisation of expenditureVoluntary retirement scheme Only 1/5th of the

paymentmadeunderVSSintheyearunderconsiderationisallowable.[S.37(1)]
The assessee made a payment of certain sum under the Voluntary Separation Scheme (VSS).
Entire payment was claimed as business expenditure. The Assessing Officer, following the
provisionsofsection35DDA,allowed1/5thofthepaymentmadeunderVSSintheyearunder
consideration. The Commissioner (Appeals) directed the Assessing Officer to allow the entire
paymentonthegroundthatsection35DDApresupposesthatthereshouldbecontinuanceand
existenceofbusinessforthenextfiveyearsandtheschemewasnotvoluntarybutcompulsory.
Tribunal held that from the finding of the Commissioner (Appeals) it cannot be said that the
scheme was not voluntary. If the scheme is compulsory, there is no question of any option to
the employees. It may be a different thing that the Government persuaded or pressurized all
the employees to accept the scheme giving threat of retrenchment. However, so far as the
natureofschemeisconcerned,itisvoluntarybecauseonlywhenaschemeisvoluntary,there
isquestionofanybodyoptingtoavailornottoavail.Therefore,theschemewasvoluntaryand
condition No.(iii) for applicability of section 35DDA was duly fulfilled. From the perusal of
section 35DDA, the Tribunal does not find any condition that there should be continuous
existenceofbusinessforthenextfiveyears.Inviewoftheabove,onthefactsoftheassessee's
case,section35DDAisclearlyapplicableinrespectofpaymentunderVSS.Therefore,theorder
oftheCommissioner(Appeals)onthispointisreversedandtheAssessingOfficerisdirectedto
allowdeductionaspersection35DDA.(A.Ys.200708,200809)
ACITv.HindustanFertiliserCorpn.Ltd.(2013)140ITD719(Delhi)(Trib.)
S.36(1)(iii):DeductionsInterestonborrowedcapitalHeldallowable.
Courtheldonfacts,inviewofdecisionofSupremeCourtincaseofCITv.AlomExtrusionsLtd.
[2009]319ITR306,theTribunalwasrightindeletingadditionmadeonaccountofdisallowance
ofinterestundersection36(1)(iii).
S.36(1)(iii): DeductionInterest on borrowed capital Utilisation of borrowed money No

evidencethatinterestfreeloanstosisterconcernsInterestallowable.
The Assessing Officer noticed that the assessee had incurred heavy interest expenses and, on
the other hand, it had given interestfree loans to parties. The Commissioner (Appeals) set
aside the order of the Assessing Officer and deleted the addition holding that the amounts
advanced to the two parties were not given during the year under consideration, but in the
earlier years. The Commissioner (Appeals) and the Tribunal had noted that there funds on
which no interest liability had been incurred were in excess of the loans given. Therefore, the
disallowancewasdeleted.TheorderwasupheldbytheHighCourt.(A.Y.20012002)
CITv.RaghuvirSyntheticsLtd.(2013)354ITR222(Guj.)(HC)
97
S.36(1)(iii): DeductionsInterest on borrowed capitalAssessee allowing its directors and
family members to use funds for personal benefitsNo attempt by directors to repay loan
Interestisnotallowable.
Theassesseedidnothaveitsowncapitalbutborrowedthefundsfromthemarketoninterest
at20percentandpaidheavyinterestandthereturnswerefiledbyshowingloss.Ontheother
hand,thedirectorsmadenoattempttorepaytheloanusedbythemforpersonaluse.Hadthey
repaid the interestfree loans, proportionately, borrowing liability might have been reduced.
The assessee had not acted as a prudent businessman. Nothing was available from the record
that the loans without interest were ever given for business purposes. Hence, the interest
amountwasnotallowable.(A.Ys.19951996,19971998)
CITv.SahuEnterprisesPvt.Ltd.(2013)352ITR8/214Taxman225/87DTR221(All.)(HC)
S.36(1)(iii): DeductionsInterest on borrowed capitalTrade advanceDisallowance of

proportionateinterestwasnotjustified.
During the year assessee incurred expenditure towards payment of interest. It had advanced
huge amount to a proprietary concern 'A' who was a promoter of assessee company. No
interest was charged by assessee on huge outstanding. Assessing Officer asked toexplain why
proportionate interest should not be disallowed under section 36(1)(iii). Assessee explained
that advance to 'A' was in nature of trade advance. Assessing Officer rejected the explanation
andmadeproportionatedisallowanceofinterest.OnappealCommissioner(Appeals)heldthat
since there was business consideration between parties and the advance made was towards
purchases, the Assessing Officer was not justified in disallowing the proportionate interest.
Tribunal held that Assessee had brought material on record to discharge onus cast upon it for
proving that advance made by was purely a trade advance and for purposes of its business.
ImpugneddisallowancemadebyAssessingOfficerwasnotsustainable.(A.Y.200809)
Dy.CITv.AgarwalGlobalSteelsLtd.(2013)141ITD76(Hyd.)(Trib.)
S.36(1)(iii): DeductionsInterest on borrowed capitalInterest free advances to concern was

notfromborrowedcapitalNodisallowancecanbemade.
Assessee firm claimed deduction on account of interest paid on loan. Assessing Officer
disallowedthepartofinterestonthegroundthatinterestfreeadvancesweremadetoitssister
concern. In appeal Commissioner (Appeals) held that advances to sister concern was of old
balances and brought forward and loan in question was raised subsequent to debit of said
advancesinaccountofsisterconcernandutilisedtowardsadditiontofixedassets.Accordingly
deleted the addition. Tribunal held in absence of any nexus of borrowed funds with interest
free advances to sister concern, Commissioner (Appeals) rightly deleted the addition of
interest.(A.Y.200809)
ACITv.Anand&Anand(2013)141ITD326(Delhi)(Trib.)
S.36(1)(iii):DeductionsInterestonborrowedcapitalInvestinsharesforacquiringcontrollinginterest
Commonfunds.
98
The assessee made Investment in shares for acquiring controlling interest in subsidiary companies.
Tribunal held that in case involving common funds, presumption that investments made from non
interestbearingfunds.Interestpaidtobanksandonfixeddepositstobeallowed.(A.Y.20022003)
S.36(1)(iii):DeductionsInterest on borrowed capital Setting of new unit for production of

newproduct,interestisnotallowable.
Theborrowedfundswerenotusedforsettingofanewunitofexistingrunningbusiness,butit
wassettingupofanewunitforproductionofanexistingbusiness,butitwassettingupanew
unit for production of altogether new product, interest paid on borrowing was not allowable
(A.Ys.200102to200203)
S.36(1)(iii):DeductionsInterestonborrowedcapitalFirm
Funds were advanced to firm in which directors of assesseecompany had interest matter
remandedtoverifywhetherfundsusedbyfirmforbusinessorforpersonalneedsofpartners
tobeexamined.(A.Ys.20042005to20062007)
AlGayathriTradingCo.P.Ltd.v.Dy.CIT(2013)22ITR214(Cochin)(Trib.)
S.36(1)(iii):DeductionsInterest on borrowed capitalDebit balance due to loss Disallowance

wasnotjustified.
Tribunal held that,where outstanding debit balance in names of partners was on account of
losses suffered by assesseefirm and not because of withdrawal of borrowed funds, Assessing
Officer was not justified in disallowing assessee's claim of interest paid on borrowed capital.
(A.Y.200607)
ACITv.MeerutRubberFactory(2013)55SOT325(Delhi)(Trib.)
S.36(1)(iii):DeductionsInterestonborrowedcapitalMatterremanded.
Thetribunalheldthatifloansrelatabletospecificpurposeandnotpartofgeneralpooloffunds
availabletoassessee,nodisallowanceofanypartofinterestrelatabletosuchsecuredloansto
be disallowed. Assessee was advancing interestfree loans. Matter remanded for finding on
natureofsecuredloansraisedbyassessee.(A.Y.200809)
S.36(1)(iv):DeductionsContributiontorecognizedprovidentfundContributiontodeferred
compensationplanheldtobenotallowableasbusinessexpenditure.(S.36(1)(v),37(1),
40A(9)).
Assesseecompanyconstitutedadeferredcompensationplanforitswholetimedirector(WTD)
employedinUS.UndersaidplanassesseecontributedaproportionofbasicsalaryofWTDtoa
grantor trust which accumulated to Rs. 12.15 crore.Said sum was released to WTD on his
separation from assesseecompany and such released sum of Rs. 12.15 crore was claimed as
deduction under section 37(1). Tribunal held that since trust so formed did not fall under
provisionsofsection36(1)(iv)/(v)andspecificprohibitioncontainedinsection40A(9)attracted
99
in instant case, contribution so released could not be allowed. Further, in view of principle of
law that when there are specific provisions governing a deduction under section 40A(9) read
with section 36(1) (iv)/(v), general deduction under section 37(1) can not be invoked, and,
hence, claim of assessee under section 37(1) could not be sustained.Decided in favour of
S.36(1)(va):DeductionsAny sum received from employeesDeduction only on actual

paymentEmployees Contribution Provident fund and ESI contributions made before filing
return held allowable.There is no reason to make any distinction between the employees
contributionortheemployersscontribution.(S2(24)(x).43B)
TheCourtheldthatthedeletionofthesecondprovisotosection43Bwhichspecificallymadea
reference to section 36(1) (va) was curative in nature and, hence, would apply with
retrospective effect from April 1, 1988. The second proviso to section 43B(b) specifically
referredtotheduedateundersection36(1)(va)oftheActandassuch,itcannotbeurgedthat
the provisions of section 43B and section 36(1) (va) should not be read together. The law was
enactedtoensurethatthepaymentofthecontributionstowardstheprovidentfunds,theESI
funds or other such welfare schemes must be made before furnishing the return of income
undersubsection(1)ofsection139.Onaconjointreadingofsection36(1)(va)andsection43B
it is obvious that earlier section 43B made reference to the due date as prescribed under
section 36(1) (va). There was a conflict between the first and the second provisos and the
second proviso was deleted. The benefit of this amendment must be extended to the
employees' contribution also. Appeal of revenue was dismissed.(A.Y.20012002).
CIT v. Nipso Polyfabriks Ltd. (2013) 350 ITR 327/84 DTR 424/ 258 CTR 216/213 Taxman
376/256CTR34(HP)(HighCourt)
S.36(1)(vii):DeductionsBaddebtBusinesslossGivingreasonsisnotnecessaryforbaddebt
Partofgoodswererejectedasunfitforhumanconsumptionthelossisallowableasbusiness
loss.(S.28(i).
The Assessing Officer recorded that no reasons were given for writing off the bad debt in the
books of account. The Commissioner (Appeals) and the Tribunal found that under section
36(1)(vii)itwasnotnecessaryfortheassesseetogivereasonsandwritingofftheamountitself
wassufficient.Insofarastheadditiontowardsqualityrejectionofmaterialwasconcerned,it
washeldthatthecorrespondencebetweentheassesseeandRwaspartoftherecordandthe
authenticity of the debit note filed by the assessee was not questioned or challenged by the
AssessingOfficer.EventherejectionofmaterialwasnotnegatedbytheAssessingOfficer.The
documentsfiledbytheassesseeclearlyshowedthatpartofthematerialsuppliedwasrejected
bytheauthoritiesinUkraineasbeingunfitforconsumption.Theclaimsoftheassesseeforbad
debtandlossongoodswereallowed.(A.Ys.20042005to20062007)
CITv.MakparExportsPvt.Ltd.(2013)352ITR401(MP)(HC)
S.36(1)(vii):Deductions Bad debt Insurance business Provision forbad and doubtful debts.
(S.44)
100
Provisionforbadanddoubtfuldebtscouldnotbeaddedtothebalanceofprofitsdisclosedby
theannualaccountsoftheassesseeinsurancecompany.CITv.OrientalFireGeneralInsurance
Co.Ltd.(2007)291ITR370(SC)followed.(A.Y.198081&198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)351ITR270/83DTR185(Delhi)(HC)
S.36(1)(vii):DeductionsBad debt Business loss Contribution of assessee as a foreman in

placeofdefaultingsubscriber.(S.28(i).)
Contributionoftheassesseeasaforemanintheplaceofadefaultingsubscriberwasdeductible
asabaddebtu/s.36(1)(vii)orabusinesslossu/s.28(i).(A.Y.199293to199495)
CITv.ShriramChits&InvestmentsLtd.(2013)83DTR208(Mad.)(HC)
S.36(1)(vii):DeductionsBaddebtTotheextentofamountdue.
AssesseeclaimedasumofRs.3,47,419asbaddebt.RecordsshowedthatonlyanamountofRs.
1,65,794 was due from concerned party. Tribunal held sum to extent recorded only could be
allowedasbaddebt.(A.Y.200405)
EDACEngineeringLtd.vDy.CIT(2013)141ITD231(Chennai)(Trib.)
S.36(1)(vii):BaddebtsWrittenoffinbooksAllowability.
The assessee claimed deduction of a certain sum as bad debts which was written off as
irrecoverable in the books of accounts. The Assessing Officer rejected the claim. Held, since
the assessee had written off the amount in its books of account since it was not recoverable,
theadditionmadebytheAssessingOfficerwastobedeleted.(A.Y.20062007)
IndianResearchManifestationLabsP.Ltd.v.ACIT(2013)24ITR30(Ahd.)(Trib.)
S.36(1)(vii):DeductionsBaddebtsWrittenoffinaccountsofassessee.[S.36(2)].
Consequent to amendment to provisions of section 36(1) (vii), assessee is not required to
establish that debt has become bad; it is enough if bad debt is written off as irrecoverable in
accounts of assessee. Where amounts receivable from debtors were taken into account as
incomeinearlieryearsandwerewrittenoffasirrecoverable,suchamountwouldbeallowedas
baddebt.Inthestockbrokingbusinessamountspayabletoclientsisconsideredastakeninto
account under provisions of section 36(2) and any nonrecovery can be claimed as bad debt.
(A.Y.200203)
S.36(1)(vii):DeductionsBad debtNot allowable unless produced some relevant material. [S.

36(2)]
Revenue authorities rejected assessee's claim pertaining to old debit balances written off on
groundthatassesseehadnotproducedrelevantmaterialinsupportofitsclaim.Tribunalheld
thatsinceassesseehadnotbroughtonrecord evidenceshowingthat amountinquestionhad
already been included in income of assessee in earlier year, there was no compliance of
mandatory condition prescribed under section 36(2) and, therefore, authorities below were
justifiedinrejectingassessee'sclaim.(A.Ys.200304to200607)
HindustanConstructionCo.Ltd.vDy.CIT(2013)140ITD642(Mum.)(Trib.)
101
S.36(1)(vii):DeductionsBaddebtAdvancestoemployeesnotallowableasbaddebt.
Assesseegavecertainamountastouradvancetoitsemployees.Subsequently,saidemployees
leftcompanywithoutsettlingtheirdues.Assesseethuswroteoffamountoftouradvanceand
claimed same as bad debt. Revenue authorities rejected assessee's claim. Tribunal held that
sinceassesseecouldnotbringanyevidenceonrecordshowingthattouradvancehadgoneinto
computation of its income, revenue authorities were justified in rejected assessee's claim.
(A.Ys.200506,200607)
NatcoPharmaLtd.vDy.CIT(2013)140ITD502(Hyd.)(Trib.)
S.36(1)(vii):DeductionsBad debtBurden of proofAssessee has to satisfy the genuine of bad

debt.
Tribunalheldthatmerelyonthestrengthofamendmentmadetosection36(1)(vii)witheffect
from141989,itcannotbesaidthatanenquiryisnotpermissibletoseeandsatisfythatthere
issomesemblanceofgenuinenessinentrywhichhasbeenmadetoclaimdeductioninrespect
of bad debt. On the facts, the Assessing Officer as well as the appellate authority have
examinedtheclaimoftheassesseeandheldthattheassesseehasfailedtoprovethatthedebt
in question had actually become irrecoverable during the previous year in question. The
assesseeonlyfurnishedlistofdebtsandthedetailscalledforbytheauthoritieshavenotbeen
furnished. The claim of the bad debts has been disallowed by considering the material on
recordbyfindingasafactthatthedebthasnotbeenprovedasbaddebt.Inviewofaforesaid,
therevenueauthoritieswerejustifiedtorejectingassessee'sclaim.(A.Ys.200506,200607)
NatcoPharmaLtd.v.Dy.CIT(2013)140ITD502(Hyd.)(Trib.)
S.36(1)(vii):DeductionsBad debtBurden of proofAssessee has to satisfy the genuine of bad

debt.
Tribunalheldthatmerelyonthestrengthofamendmentmadetosection36(1)(vii)witheffect
from141989,itcannotbesaidthatanenquiryisnotpermissibletoseeandsatisfythatthere
issomesemblanceofgenuinenessinentrywhichhasbeenmadetoclaimdeductioninrespect
of bad debt. On the facts, the Assessing Officer as well as the appellate authority have
examinedtheclaimoftheassesseeandheldthattheassesseehasfailedtoprovethatthedebt
in question had actually become irrecoverable during the previous year in question. The
assesseeonlyfurnishedlistofdebtsandthedetailscalledforbytheauthoritieshavenotbeen
furnished. The claim of the bad debts has been disallowed by considering the material on
recordbyfindingasafactthatthedebthasnotbeenprovedasbaddebt.Inviewofaforesaid,
therevenueauthoritieswerejustifiedtorejectingassessee'sclaim.(A.Ys.200506,200607)
NatcoPharmaLtd.v.Dy.CIT(2013)140ITD502(Hyd.)(Trib.)
S.36(1)(vii):DeductionsBaddebtAfter141989itisnotnecessarytoestablishthatdebthad
in fact become irrecoverable in previous year. Amount written off in accounts allowable as
deduction.[S.36(2)]
Tribunal held that after April 1, 1989, it is not necessary for the assessee to establish that the
debtinfacthasbecomeirrecoverable.Itisenoughifthebaddebtiswrittenoffasirrecoverable
inaccountsoftheassessee.Theamountsweredeductible.Appealofassesseewasallowed.(A.
Y.20022003)
102
HSBCSecuritiesandCapitalMarkets(India)P.Ltd.v.ACIT(2013)21ITR445(Mum.)(Trib.)
S.36(1)(vii):Dedcutions Bad debtAfter 141989 no requirement that assessee should

establishdebttohavebecomebad.
The assesseecompany derived income from carrying out the activity of designing
advertisements.Intheprofitandlossaccountforthepreviousyearrelevanttotheassessment
year 200809, the assessee debited a certain sum as bad debts written off and claimed
deductionthereofincomputingitstotalincome.TheAssessingOfficerdisallowedtheclaimof
the assessee on the ground that the assessee had not established that the debts had become
bad. The Commissioner (Appeals) allowed the deduction. Held, dismissing the appeal, (i) that
after April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has
becomeirrecoverable.Itisenoughifthebaddebtiswrittenoffasirrecoverableintheaccounts
of the assessee. That the Assessing Officer was not justified in disallowing the claim for
deduction on account of bad debts on the ground that the debts in question had not been
establishedtohavebecomebad.Theassesseehadgivenallthedetailsanditwasnotthecase
oftheAssessingOfficerthatanyotherconditionforgrantofdeductionundersection36(1)(vii)
of the Act, had not been satisfied. The order of the Commissioner (Appeals) called for no
interference.(A.Y.:20082009)
Dy.CITv.RayKeshavanDesignAssociatesP.Ltd.(2013)22ITR259(Bang.)(Trib.)
S.36(1)(vii):DeductionsBaddebtIntercorporatedepositsResolutionforwritingoffinterest
in May 2002,would relate back to accounting year relevant for assessment year 200203.
Interest assessed on basis of accrual in earlier years hence deductible. Intercorporate
depositspartofbusinessofassesseehencelossoninvestmentisallowableasbusinessloss.
[S.28(i)]
TheassesseehaddebitedasumofRs.1,94,49,012,asinterestreceivablewrittenoffduringthe
yearunderconsideration.TheAssessingOfficerdisallowedtheclaimandthiswasconfirmedby
theCommissioner(Appeals).TheAssessingOfficerfurtherdisallowedtheclaimforlossofinter
corporate deposits along with interest written off. This was also upheld by the Commissioner
(Appeals). On appeal to the Tribunal, the Tribunal held that there is no condition in section
36(1) (vii) that the decision for treating a debt as bad or irrecoverable should be taken in the
previous year itself. If the books of account are not closed and completed, it is permissible to
make adjustments before they are finally closed. The board resolution passed in May 2002,
with regard to the approval of writing off the amount as irrecoverable in the accounts, would
relate back to that previous year in which it was treated as irrecoverable. In the earlier years
theassessee'sinterestincomeshownunderthehead"Businessincome",hadbeenacceptedby
the Department. Thus, on these facts, once the interest income had been offered on accrual
basis,whichhadbeencreditedintheprofitandlossaccountasbusinessincomeintheearlier
years and the sum had been written off as irrecoverable in the accounts in this year, the sum
had to be allowed as bad debt. The assessee had shown accrued interest on intercorporate
deposits in the profit and loss account and had offered it for tax as business income. This had
beenacceptedbytheDepartmentalso.Thecorollary,therefore,wasthatinterestwasearned
duringthecourseofbusiness.Theinterestwhichhadbeenwrittenoffwasdeductible.Tribunal
also held that investment in intercorporate deposits was part of the business activities as the
103
interest accrued there from had been treated as business income. The loss arising on such
investmentwasthusconsequentlyallowableasbusinesslossandtherefore,thesumofRs.32
lakhswasdeductibleasbusinessloss.(A.Y.20022003)
JindalIronandSteelCo.Ltd.v.Dy.CIT[2013]21ITR414/57SOT317(Mum.)(Trib.)
S.36(1)(viia):DeductionsProvision for bad and doubtful debtsSchedule bankBad debts.(S.

36(1)(vii),119)
Revenue contended that by virtue of proviso, claim of assesseebank for deduction for debts
writtenoff,shouldbereducedbyclosingbalanceofassesseebankinitsaccountforprovision
of bad and doubtful debts. The assessee contended that such diminution should be limited to
opening balance of such account. Court held that statutory provision is silent on precise
methodofworkingoutdeduction;however,CBDTclarifiedissuevideInstructionNo.17/2008,
dated 26112008,following same, assessee's contention was to be admitted. In favour of
CITvUTIBankLtd.(2013)212Taxman296/82DTR168/256CTR76(Guj.)(HC)
S.37(1):BusinessexpenditureRepairstomachinery
Court held on facts, the addition made on account of disallowance of machinery repair
expenseswasrightlydeletedbyTribunal.
S.37(1): Business expenditureCompensationAgainst withdrawal of claims against assessee

isrevenueexpenditure.
Theassesseehadcontractedwithalandlordtotakepremisesonleaseforopeningitsbranch,
but no formal agreement was entered into. The landlord started the construction of the
premises as per assessee's requirements. However, before completion of construction,
assessee came to know of the proposed construction of an overbridge over the said property
which would cause hindrance to conduct its business and services. The assessee, therefore,
terminatedtheunderstandingwiththelandlordandpaidcompensationtothelandlordforthe
workdone,inlieuofwithdrawingallclaimsagainsttheassesseeandclaimedsuchamountpaid
as revenue expenditure. Held, that in applying the test of commercial expediency for
determining whether expenditure was wholly and exclusively laid out for the purpose of the
business,reasonablenessoftheexpenditurehastobeadjudgedfromthepointof viewofthe
businessmanandnotoftheITdepartment.Thedeductionwasallowed.(A.Y.200304)
CITv.UTIBankLtd.(2013)214Taxman124(Mag.)(Guj.)(HC)
S.37(1):BusinessexpenditureProvisionforconsultancychargesisallowableExcessprovision
reversedinsubsequentyear
The assessee made provision for consultancy charges and professional fees in relevant
assessment year, which was found to be in excess and reversed in subsequent year. The
Assessing Officer disallowed provision, as it did not correlate to actual figures. The Assessee
claimed that provision was made at year end when accounts were to be finalized, based on
originalclaimsofconsultants/professionals,asnegotiationswerestillunderway.Held,where
consultant/professional fees were under negotiation at year end when accounts were to be
104
finalized, provision made on basis of original claims were allowable, since, on amount being
settled for lesser figure, excess provision had been reversed and offered to income in
subsequentyear.(A.Y.200405)
CITv.ArmourConsultants(P.)Ltd.(2013)214Taxman444(Mad)(HC)
S.37(1):BusinessexpenditureCapitalorrevenueProductregistrationTrademark
registrationRevenueinnature.
TheissuebeforetheHighCourtaswhethertheexpensesmadetoDrugRegulationAuthorities
invariouscountriesforproductregistrationarerevenueinnature.TheTribunalheldthat,such
productswereinexistenceandnothingnewwereacquiredbytheassessee,theexpenditure
only enabled the assessee to run the existing business smoothly hence the said expenses are
revenue in nature. As regards the expenditure in respect of Trade mark and patent following
the ratio of Supreme Court in CIT v. Finlay Mills Limited (1951)20 ITR 475 (SC), wherein it is
observed that the advantage derived by the owner of the trade mark registration falls within
this class of expenditure , which is revenue in nature. The fact that a trade mark after
registrationcouldbeseparatelyassignedandnotasapartofthegoodwillofthebusinessonly
does not also make the expenditure for registration as a capital expenditure, that is only an
additionalandincidentalfacilitygiventotheowneroftheTrademark.Itaddsnothingtotrade
markitself.Theappealofrevenuewasdismissed.(TaxAppealno752of2012)dt2032013)
CITv.CadailaHealthcareLtd.(2013)ACAJAprilP.27/214Taxman672/86DTR337/350ITR555
(Guj.)(HC)
S.37(1):BusinessexpenditureCapitalorrevenueNoncompetefeeMatterremanded.
HighCourtobservedthatTribunalupheldthatfindingoftheCIT(A)thatthenoncompetefees
paid by the assessee was revenue expenditure without any discussion on the issue. Matter
remandedtotheTribunaltopassareasonedorder.(A.Y.200102)
S.37(1):Business expenditureCapital or revenueExpenditure on marketing knowhow is

revenueexpenditure.
Expenditure incurred for acquisition of marketing know how which would lead to
improvement in its existing business resulting in higher sales and consequently higher
profitabilityastheknowledgeacquiredbytheassesseewouldassistinimprovingthemarketing
strategy,expensesincurredwereallowableasrevenueexpenditure.(A.Y.200102)
S.37(1):BusinessexpenditureUnlawfulpurposeCircularExpenditurewhichisnotin
violationoftheIndianMedicalCouncil(ProfessionalConduct,EtiquetteandEthics)
Regulations,2002,thenhemaylegitimatelyclaimadeduction.
ThesumandsubstanceofCircularNo. 5of2012,datedAugust1, 2012,issuedbytheCBDTis
that any expenditure incurred by an assessee for any purpose which is prohibited by law shall
not be deemed to have been incurred for the purpose of business or profession. Therefore, if
the assessee satisfies the assessing authority that the expenditure is not in violation of the
IndianMedicalCouncil(ProfessionalConduct,EtiquetteandEthics)Regulations,2002,thenhe
105
maylegitimatelyclaimadeduction,butitisfortheassesseetosatisfytheAssessingOfficerthat
theexpenseisnotinviolationoftheRegulations.
Confederation of Indian Pharmaceutical Industry (SSI) v. CBDT (2013) 353 ITR 388/ 258 CTR
332/86DTR34(HP)(HC)
S.37(1):BusinessexpenditureForeigntravelexpensesdisallowanceof20%expenseswas
justified.
The Assessing Officer disallowed such foreign travel expenses on ground that these were not
incurred for purpose of business. The Tribunal found that substantial expenditureon tour and
travelhadbeenincurredandallowedbyrevenueinearlieryearsaswellasinsubsequentyear.
However, since full details and evidence were not available to quantify as to how much
expenditure had been incurred wholly and exclusively for purpose of business, the Tribunal
disallowedtwentypercentofthesaidexpenditure.Held,nosubstantialquestionoflawarose.
(A.Y.20022003)
CITv.SuperiorCrafts(2013)353ITR101/82DTR209(Delhi)(HC)
S.37(1):Business expenditure Provision for installation and service charges payable under
warrantyinrespectofofficeequipmentProvisionnotmadeonanyscientificdataandpast
experiencetheprovisionbeingadhocthesameisnotallowable.
Theprovisionfortheservicechargespayablebytheassesseebywayofwarrantyprovisionwas
not made on any scientific data. The provision made was on ad hoc basis. Even though the
warrantyperiodwasoneyearandtheassesseehadtomakepaymenttotheserviceprovideras
andwhenademandwasmade,normally,suchpaymentclaimhadtocomeduringtheperiodof
warranty or within a reasonable time. Since more than 60 per cent of the provision remained
unpaid even after more than two years since the date of sale, the assessee had not made the
provision after taking stock of the situation properly. Thus, such an ad hoc provision made by
theassesseewouldnotbeentitledtodeduction.(A.Ys.19901991to19971998)
CITv.ForbesCampbellFinanceLtd.(2013)352ITR602/86DTR406(Delhi)(HC)
S.37(1):Business expenditureAccountingProvision for completed expenses and expenses

incurredoncompletedproject.
Expenses claimed by the assessee under the heads provisions for completed expenses and
expensesincurredoncompletedprojectwereallowable.(A.Ys.19871988,19881989)
S.37(1):Business expenditureFact that payment is used for illegal purpose does not attract
Explanationtos.37(1).
TheassesseeexportedteatoIraqundertheOilforFoodProgram,assanctionedbytheUnited
Nations.ItpaidcommissionofRs1.28crorestooneAliaTransportation,aJordaniancompany.
The Volcker Committee, which was set up to expose the Oil for Food scam found that this
companywasafrontcompanyfortheIraqiregime,meanttoreceiveillegalkickbacks,anddid
not render any services. The AO, acting on the report, held that the commission paid by the
assesseewasillegalandnotallowableundertheExplanationtos.37(1).Thiswasreversedby
the CIT (A). On appeal by the department, the Tribunal (72 DTR 425) upheld the stand of the
106
assessee on the ground that even if the amounts paid to Alia were actually kickbacks to Iraqi
regime,thatfactpersewouldnotattractExplanationtos.37(1).Itwaspointedoutthatwhile
the transactions between Alia and the Iraqi regime may be contrary to the UN sanctions, the
transactions between the assessee and Alia were not hit by the UN sanctions and that there
was no specific violation of law by the assessee. It was emphasized that what the recipient of
the payment does is not important because the assessee has no control over the matter. The
onus of demonstrating that the assessee was aware that the payments were intended for
kickbacks is on the AO which has not been discharged. It was held that the purpose of the
expenditurehastobeseenandifthepaymentisforbonafidebusinesspurposes,thefactthat
theyendupbeingusedasillegalkickbacks,willnotattractExplanationtos.37(1).Onappealby
thedepartmenttotheHighCourt,HELDdismissingtheappeal:
ThedepartmentcouldnotsatisfyusastowhywerethefindingsrecordedbytheCIT(A)andthe
Tribunal are incorrect either on factor in law. There is, as such, no reason why the appeal
shouldbeentertained.Theappealis,therefore,dismissed.
CITv.RajaraniExportsPvt.Ltd(Cal)(HC)www.itatonline.org.
Editorial: DCIT v. Rajarani Exports Pvt. Ltd (2012) 72 DTR 425/147 TTJ 171 (Kol.)(Trib.) is
affirmed.
S.37(1):BusinessexpenditureCapitalorrevenueExpenditurerelatingtovoluntary
retirementschemeinrespectoftwounitsExpenditureincurredforpurposeofrestructuring
toachievemodernizationisallowableasrevenueexpenditure.
Theclosureoftwounitshadnotresultedinclosureofbusiness.Thiswasdoneforthepurposes
ofrestructuringsoastoachievemodernisation.Thevoluntaryretirementschemeoffereddue
to labour problems or as part of the restructuring process would not make a difference. The
incidentalexpensesincurredinrestructuringthebusinesshadtobeconsideredasexpenditure
incurredinthecourseofconductingthebusinessandallowableundersection37(1).(A.Y.1999
2000)
CITv.FosecoIndiaLtd.(2013)352ITR320(Bom.)(HC)
S.37(1):BusinessexpenditureDistributionexpensesFailuretoverifyentries.
TheAssessingOfficerhimselfhadnotverifiedtheentriesthoughherecordedafindingthatthe
distribution expenses to the extent of Rs. 75 lakhs were genuine. Thus, there was no reason
without verification of the record to decline the remaining amount of distribution expenses.
OrderofTribunalwasconfirmed.(A.Y.200708)
CITv.ShreeKrishnaEnterprises(2013)214Taxman221(Punj&Har.)(HC)
S.37(1):BusinessexpenditureClubmembershipfeesCorporatemembershipRevenue
expenditure.
Corporatemembership,forrunningthebusinesswithaviewtoproduceprofit,doesnotbring
into existence an asset or an advantage for the enduring benefit of the business. It is
expenditureincurredfortheperiodofmembershipandisnotlonglasting.Bysubscribingtothe
membershipofaclub,nocapitalassetiscreatedorcomesintoexistence.Hence,expenditure
wasallowableasrevenueexpenditure.
107
CITv.GrozBeckertAsiaLtd.(2013)351ITR156/256CTR1/214Taxman205/84DTR1(FB)
(Punj&Har)(HC)
S.37(1):BusinessexpenditureleaserentGenuinenessofleaseLeaserentwasallowedas
deduction.
Theassesseehadnorighttotransferthemachineryinanyform,wasobligedtoredeliverthe
equipment upon termination of lease agreement, was not to part with possession and not to
make alteration in the equipment with the stipulation that additions would belong to the
lessor; and the lessor was entitled to claim depreciation during the lease period. Hence, lease
rentwasallowedasdeduction.(A.Y.200001)
CITv.BanswaraSyntexLtd.(2013)351ITR419/214Taxman214/84DTR127(Raj.)(HC)
S.37(1):BusinessexpenditureRentPaidtononownerHeldnotallowableasdeduction.
Assessee is engaged in manufacturing and exporting soya deoiled cake. It entered into
agreementwith CRLinterms of which CRL agreed to provide godown spaceat four places. As
per said agreement, assessee was obliged to pay godown rent irrespective of whether such
godowns were utilised or not. Assessee filed its return claiming deduction of godown rent.
AssessingOfficerfindingthatCRLwasneitherownernorinpossessionofthosegodownswhen
rent agreement was made or at any time thereafter, rejected assessee's claim. Tribunal
confirmedorderofAssessingOfficer.TheCourtheldthattheTribunalalsonotedthatassessee
wastoexecuteitsexportcontractslatestby1521992.Assesseehowever,rentedthegodown
for more than a full year thereafter, till 3131993. The observations and conclusions of the
Tribunal being purely factual in nature and also otherwise supported by documents and other
evidenceonrecord,thereisnoreasontointerferewiththesame.(A.Y.199293)
GujaratAmbujaProtiensLtd.v.ACIT(2013)214Taxman310(Guj.)(HC)
S.37(1):BusinessexpenditureMetodofaccoutingProviiosnProvisionforcompleted
expensesandexpensesincurredoncompletedprjectisallowable.[S.145]
Thequestionraisedbeforethecourtwastheexpensesclaimedbytheassesseeunderthehead
provisions for completed expenses and expenses incurred on completed project is alloable
even though the Department has not accepted the system of accounting followed the
assessee.Folling the ratio in CIT v.Ansal Properties and Industries (2013) 352 ITR 637 (Delhi)
(HC),theissueisdecidedinfavourofassessee.
227(Delhi)(HC)
S.37(1):BusinessexpenditureInstallationchargesincurredforinstallationofplantand
machineryarecapitalinnature.
Installationchargesandotherchargesnecessarytobringanassetintoexistenceandtoputthe
machinery in a working condition would constitute capital expenditure.Moreso, when the
amountisreflectedinbalancesheetunderhead'Plantandmachinerygivenonlease'.
BhartiTeleventuresLtd.v.Addl.CIT(2013)81DTR225(Delhi)(HC)
108
S.37(1):BusinessexpenditureProvisionforWarrantyallowableasdeduction.
Provisionforwarrantyisallowableasdeduction.(199495to199697)
CITv.MarutiSuzukiIndiaLtd.(2013)212Taxman603/81DTR152/255CTR140(Delhi)(HC)
S.37(1):Business expenditureForfeiture of the bank guarantee is compensatoryNo

disallowancecanbemadebyapplyingtheExplanationtoS.37(1)inrespectofcompensatory
payments.
Theassessee,amanufacturerofgarments,wasgrantedanentitlementbytheApparelExport
Promotion Council (APEC) for export of garments and knit wares. In consideration for the
exportentitlementtheassesseefurnishedabankguaranteeinsupportofitscommitmentthat
itshallabidebythetermsandconditionsandproduceproofofshipment.Itwasalsoprovided
that failure to fulfill the export obligation would render the bank guarantee to being
forfeited/encashed. The assessee did not utilize the export entitlement which led APEC to
encashthebankguarantee.Theassesseerecordedthesaidpaymentaspenaltyinitsbooksof
accountandclaimeddeductionu/s37(1).TheAOrejectedtheclaimonthegroundthatasthe
payment was by way of penalty it could not be allowed under the Explanation to s. 37(1).
However, the CIT (A) and ITAT allowed the claim. On appeal by the department to the High
Court,dismissingtheappeal,theHighCourtheldthat,theassesseetookabusinessdecisionnot
tohonouritscommitmentoffulfillingtheexportentitlementinviewoflossbeingsufferedby
it.Thegenuinenessoftheclaimofexpenditurebeingforbusinesspurposeisnotdisputed.The
assesseehasnotcontravenedanyprovisionoflawandtheforfeitureofthebankguaranteeis
compensatoryinnatureanddoesnotattracttheExplanationtos.37(1).
CIT v. Regalia Apparels Pvt. Ltd(2013) 352 ITR 71/214 Taxman 123(Mag.)/88 DTR 151 (Bom.)
(HC)
S.37(1):BusinessexpenditureFreebiestomedicalpractitionersCBDTcircularCBDTCircular
disallowingexpenditureonfreebiestomedicalpractitionersisheldtobevalid.
TheCBDTissuedCircularNo.5/2012dated1.8.2012statingthatastheIndianMedicalCouncil
had imposed a prohibition on medical practitioners taking any Gift, Travel facility, Hospitality,
Cash or monetary grant from pharmaceutical and allied health sector Industries, the
expenditure incurred by the assessee in providing such freebies had to be regarded as
incurredforapurposewhichiseitheranoffenceorprohibitedbylawanddisallowedunder
the Explanation to s. 37(1) of the Act. The assessees challenged the validity of the Circular on
the basis that it went beyond s. 37(1) and was invalid. HELD by the High Court rejecting the
contention:
TheregulationoftheMedicalCouncilprohibitingmedicalpractitionersfromavailingoffreebies
isaverysalutaryregulationwhichisintheinterestofthepatientsandthepublic.ThisCourtis
not oblivious to the increasing complaints that the medical practitioners do not prescribe
genericmedicinesandprescribebrandedmedicinesonlyinlieuofthegiftsandotherfreebies
granted to them by some particular pharmaceutical industries. Once this has been prohibited
bytheMedicalCouncilunderthepowersvestedinit,s.37(1)comesintoplay.ThePetitioners
contention that the circular goes beyond the section is not acceptable. In case the assessing
authoritiesarenotproperlyunderstandingthecircular,thentheremedyliesforeachindividual
109
assesseetofileanappealbutthecircularwhichistotallyinlinewiths.37(1)cannotbesaidto
beillegal.Iftheassesseesatisfiestheassessingauthoritythattheexpenditureisnotinviolation
oftheregulationsframedbythemedicalcouncilthenitmaylegitimatelyclaimadeduction,but
itisfortheassesseetosatisfytheAOthattheexpenseisnotinviolationoftheMedicalCouncil
Regulations.
ConfederationofIndianPharmaceuticalIndustryv.CBDT(H.P.)(HC)www.itatonline.org
S.37(1):Business expenditureCapital or revenue expenditureBrand nameRoyaltyAssessee

allowedtouseknowhowandinformationroyaltyisdeductible.
For use of the brand name of MMB and for the technical assistance rendered by MMB to the
assesseeformanufacturingbeer,theassesseepaidroyaltytoMMB.TheAssessingOfficer,held
that they were capital expenditure. The Commissioner (Appeals) and the Tribunal held that
they were revenue expenditure. On appealthe Court held that in terms of the technical
assistanceagreement,theassesseewasentitledtousetheknowhowsuppliedbyMMBforthe
manufacture of the products. The knowhow and the information received by the assessee
directly or indirectly from MMB was to be kept strictly confidential. The assessee was entitled
to use the trade mark Golden Eagle of MMB. The payment of royalty was, therefore, in the
nature of expenditure incurred for carrying on business with the available knowhow rather
than for accretion to the capital base or gaining an advantage in the capital field of the
assessee. Moreover, for assessment years 198081 to 198283, the Assessing Officer himself
had come to the conclusion that the payment of royalty made by the assessee was in the
natureofrevenueexpenditure.Thepaymentofroyaltywasdeductibleintheassessmentyears
198384to198889.(A.Y.19831984to19881989)
CITv.ArtosBreweriesLtd.(2013)351ITR133/83DTR277/215Taxman80(Mag.)(AP)(HC)
S.37(1):Business expenditureBogus purchasesEstimation of profitTribunal applying twelve

andhalfpercentheldtobejustified.
The assessee isin the business of trading in iron and steel. During the reassessment
proceedings, it was found that purchases worth Rs. 61.40 lakhs were not supported by
sufficient evidence. Purchase of such goods from various suppliers was verified, but it was
found that such parties had not supplied the goods as named by the assessee. The Assessing
Officer made an addition of the entire amount of purchase of Rs. 61.40 lakhs. The
Commissioner(Appeals)foundthatthoughthepurchaseswerenotmadefromthepartiesfrom
whom the assessee claimed, there was complete quantitative tally of the materials purchased
and sold. He was of the view that such materials were purchased from the open market
incurringcashpaymentandbillswereprocuredfromvarioussources.Headdedonlytheprofit
elementandnottheentireamountofthepurchases,forthelimitedadditionto30percentof
thetotalamountandreducedtheamounttoRs.18.42lakhs.TheTribunalallowedfurtherrelief
totheassesseeandretainedtheadditiontotheleveloftwelveandhalfpercentinpursuance
of the various purchases. On appeal, dismissing the appeal, the Court held that the assessee
wasatraderandtheTribunalhavingretainedtwelveandhalfpercentofthepurchasetowards
its possible profit, there was no reason to interfere in the order of the Tribunal. (A. Y. 2003
2004)
CITv.SathyanarayanP.Rathi(2013)351ITR150(Guj.)(HC)
110
S.37(1):BusinessexpenditureLossonaccountofchangeinratesofforeignexchangeNotional
lossMatterremandedtoAssessingOfficertodecidewhetherclaimallowable.
The assessee claimed deductions by way of loss in its business income, due to fluctuations in
therateofexchangeontheoutstandingduespayableinforeignexchange,whichtheassessee
hadraisedforthepurposeofbuyingitsstockintrade.TheAssessingOfficerrejectedtheclaim
on the ground that it was notional loss and, therefore, not allowable. The Commissioner
(Appeals) and the Tribunal held that the assessee could claim deduction on notional basis. On
appeal:
Held,allowingtheappeal,suchclaimwouldhavetobeexaminedinthelightofthefulfillment
of the conditions as indicated by the Supreme Court, for which purpose, the matter was
remittedtotheAssessingOfficer,whohadtoapplytheteststotheclaimmadebytheassessee
and then either admit the claim or reject it depending upon the assessee satisfying the
conditions.
TheCourtheldthattheclaimofnotionalcanbeentertainedsubjecttothefulfillmentofthesix
conditionsthat(i)thesystemofaccountingfollowedbytheassesseeisthemercantilesystem;
(ii) the same system is followed by the assessee from the very beginning and if there was a
changeinthesystem,thechangewasbonafide;(iii)theassesseehasgiventhesametreatment
tolossesclaimedtohaveaccruedandtothegainsthatmayaccruetoit;(iv)theassesseehas
been consistent and definite in making entries in the account books in respect of losses and
gains;(v)themethodadoptedbytheassesseeformakingentriesinthebooksbothinrespect
oflossesandgainsisinaccordancewithnationallyacceptedaccountingstandards;and(vi)the
system adopted by the assessee is fair and reasonable and not adopted only with a view to
reducingtheincidenceoftaxation.TheratioofCITv.WoodwardGovernorIndiaPvt.Ltd.[2009]
312ITR254(SC)applied.(A.Y.20002001)
CITv.WiproFinanceLtd.(2013)351ITR153/213Taxman293(Karn.)(HC)
S.37(1):Business expenditure Capital or revenue Additions cannot be made only on the

basisofstatementofdirectorMatterremanded.
Assesseefirm filed return claiming depreciation on iron rolls of machinery. Later on it filed
revisedreturncontendingthatduringproductionrollswereusedtoavoidfrictionandsuchrolls
suffer damage necessitating frequent replacement and hence, be treated as 'current repairs.
However,onlyonbasisofnoobjectionofmanagingpartnertotreatrollsasdepreciableassets,
AssessingOfficerheldsameascapitalexpenditure.whenaspecificquestionwasraisedbefore
Tribunal as regards nature of expenditure, Tribunal should have adverted to issues raised viz.,
toconsiderwhetherexpenditurewas,infact,a'revenue'or'capitalexpenditure';itshouldnot
havebaseditsdecisiononstatementofmanagingpartner.Matterremanded.(A.Y.199293)
ChamundiSteelRollingMillsv.ACIT(2013)212Taxman30(Mad.)(HC)
S.37(1):BusinessexpenditureSalespromotionexpensesHeldtobeallowable
Amount paid by assessee to sales/field organisers who rendered specific services under sales
agreementsaftersaleofcementwasdecontrolled,wastobeallowedasbusinessexpenditure.
Infavourofassessee.(A.Y.198586)
111
CITvDalmiaCement(Bharat)Ltd.(2013)212Taxman126(Mag.)(Delhi)(HC)
S.37(1):Business expenditurePooja expensesAt temple located inside the factory is

allowable.
ExpenditureincurredbyassesseeonPoojaperformedattemplelocatedinsidefactorypremises
wastobeallowedasbusinessexpenditure.Infavourofassessee(A.Y.198586)
CIT.v.DalmiaCement(Bharat)Ltd.(2013)212Taxman126(Mag.)(Delhi)(HC)
S.37(1):Business expenditure Capital or revenue Operating license feePSTNcharges

Dealers commission AfterSetting up of business before Commencement of business
AllowableasrevenueexpensesForeigntourExpensesrevenueexpenditure.(S.35ABB)
The Court held that the operating license fee for providing cellular mobile service paid by
assessee to J.T.Mobiles Ltdwho had receivedtelecom license from Government is allowable as
business expenditure. The fact that the assessee had in its books of accounts spread over the
expenditureoveraperiodof10yearswouldnotchangethenatureofexpenditure.Provisions
ofsection35ABBwouldnotapply.ExpensesincurredonaccountofPSTNchargesanddealers
commission after setting up of a business and before the commencement of business is
allowable as revenue expenditure. Expenditure on foreign travel did not give rise to any
enduring benefits but only enabled the assessee to run its business to achieve higher profits
andthereforethesaidexpenditureisallowableasrevenueexpenditure.Theappealofrevenue
wasdismissed.(A.Y.199899)
CITv.EvergrowthTelecomLtd(2013)81DTR412/256CTR84/213Taxman299(Bom.)(HC)
S.37(1):Business expenditure Commission paid to middle man to supply to Government
departmentbeingOpposedtopublicpolicyisallowable.
Supply to Government Department does also not require any middleman or agent as the
Government Department is having sufficient infrastructure in this regard. It is not the case of
theassesseethatpaymentofsuchcommissionisasperprevailingpracticeofthetrade.Hence,
theexpenditure,beingopposedtopublicpolicy,wasnotallowedasexpenditure.(A.Y.200506)
ACITvBrijbasiHitechUdyogLtd.(2013)57SOT11(Agra)(Trib)
S.37(1): Business expenditure Provision for salaries being not contingent allowable as
deduction.
Theassessee,apublicsectorundertaking,madeprovisionofsalariesinviewofimpendingpay
revision of salary of its employees. However, the Assessing Officer disallowed said provision
observing that liability was not determinable during relevant previous year and that such
liabilityaroseinJune1999whenPayCommissionsubmitteditsreport.Held,sincetheprovision
forsalarywasnotacontingentliability,isallowablededuction.(A.Y.199899)
TATACommunicationsLtd.vJCIT(2013)57SOT1(Mum.)(Trib.)
S.37(1): Business expenditure Prior period expenses bills received during current financial
yearisallowable,astheliabilitycrystallizedduringyear.
Theassesseeclaimeddeductioninrespectofprovisionofopticalfibrecablechargesonaccount
ofpaymenttodepartmentoftelecom.However,theAssessingOfficerheldthatsuchprovision
pertained to prior period expenses and, therefore, same could not be allowed. The Tribunal
112
heldthatsincethebillwasreceivedduringcurrentfinancialyearwhichmeantthatexpenditure
crystallizedduringyearunderconsideration,theexpenditurewasallowable.(AY199899)
TATACommunicationsLtd.vJCIT(2013)57SOT1(Mum.)(Trib.)
S.37(1):Business expenditure Travelling expenses of foreign national employee is
allowable.
Wherecompanyemployedforeignnationalsforitsbusiness,expenseonreturnjourneytotheir
respectivehomecountriesoncompletionofassignment,wasallowable.(A.Y.200708)
Sumitomo Corporation India (P.) Ltd. v DCIT (2013) 57 SOT 18(URO)/24 SOT 385/85 DTR 1
(Delhi)(Trib.)
S.37(1):BusinessexpenditurePenaltyViolationofbyelawsofstockexchangeisallowable
asbusinessexpenditure.
Payment made to stock exchange for violation of byelaws of stock exchange cannot be
consideredaspaymentprohibitedbylaworinconnectionwithanoffenceandisallowableas
businessexpenditure.(A.Y.200203)
S.37(1):BusinessexpenditureLitigationexpensesAbsenceofbill.
In absence of bill or receipt issued by advocate, the fees paid to advocate for defending
acquisition proceedings of company's plot of factory land is not allowable as revenue
expenditure.(A.Y.200304)
GreavesCottonLtd.v.ITO(2013)57SOT158(Mum.)(Trib.)
S.37(1):BusinessexpenditureAcquisitionofsoftwareRevenueexpenditure.
Theassesseespentcertainamounttowardsvariouslicensefeespaidforacquiringsoftwarefor
runningitscomputersandclaimedsameasrevenueexpenditure.Held,sincenoassethadbeen
createdbypayinglicensefeesforutilizationofsoftware,expenditurewasallowableasrevenue
expenditure.(A.Y.200203)
S.37(1):Business expenditureMOUSubagentExpenditure incurred wholly and exclusively

for the purpose of business must be allowed though it was not stipulated in the
memorandumofunderstanding.
Held, where the assessee had incurred expenditure wholly and exclusively for purpose of
business, it could not be disallowed on reason that it was not stipulated in memorandum of
understanding. Furthermore, in the case of payments to subagents, the payments were not
doubted by the revenue andthe same was subjected to TDS, and subagents had filed their
returnsofincomeafterpaymentofadvancetaxasapplicable.Hence,theamountscouldnotbe
disallowed.(A.Y.200809)
MaliFlorexLtd.v.DCIT(2013)57SOT37(URO)(Hyd)(Trib.)
S.37(1):BusinessexpenditureArchitectsfeesSiteplanetc.
The assessee, engaged in real estate business, claimed payment of architect fee in respect of
land sold.It was observed that the expenditure was incurred towards consulting services
113
provided by architect with regard to site plan, SEZ specific building plan, etc. Also, since the
payment was made by cheque and also subjected to TDS, the expenditure was allowable as
businessexpenditure.(A.Y.200809)
S.37(1):BusinessexpenditureVideosurveillancechargesallowableasbusinessexpenditure.
The assessee, a real estate developer, claimed certain expenses towards video surveillance
charges. The revenue authorities allowed part of expenses in proportion of land sold. Held,
since the expenditure incurred by assessee was for the purpose of business, it had to be
allowed in full though entire property was not sold by assessee in year under
consideration.(A.Ys. 20072008,200809)
S.37(1):BusinessexpenditureMaintenanceofbuildingandmachineryNoenhancementin
existingcapacityAllowableasrevenueexpenditure.
The assessee claimed deduction of a certain sum under the head building and machinery
repairs. The Assessing Officer disallowed the claim. The Commissioner (Appeals) held that
these expenses appeared to have been incurred towards maintenance of building and
machinery.Further,theAssessingOfficernotbroughtonrecordanymaterialtoshowthatthe
expenditurehadresultedinbringingintoexistenceanewitemorenhancementoftheexisting
capacity of the assessee. Therefore,the disallowance was not justified. Held, that nothing had
been brought on record by the Department to controvert the findings of the Commissioner
(Appeals).Therefore,theorderneedednointerference.(A.Y.20062007)
IndianResearchManifestationLabsP.Ltd.v.ACIT(2013)24ITR30(Ahd.)(Trib.)
S.37(1):BusinessexpenditureVouchersPetrolanddieselexpensesEstimateat10%washeld
tobereasonable.
The assessee was engaged in the business of travels, moneychanging, cargo, facility
management, tea estate, etc. It claimed deduction of expenditure on petrol and diesel
expenses. The Assessing Officer held that the assessee failed to produce vouchers and
substantiate the claim and disallowed 20 per cent of expenses, which was reduced to 10 per
centbytheCIT(A).Held,thatonemoreopportunitybegrantedtotheassesseetosubstantiate
its claim by producing the vouchers and other details. Therefore, the Assessing Officer was
directed to verify the details after affording the assessee a reasonable opportunity of being
heard. The assessee claimed business promotion and advertising expenses on travel business.
The Assessing Officer held that considering the nature of business the expenses on business
promotion was excessive and also that the assessee had not produced any evidence to justify
itsclaim.Therefore,hedisallowed25percentofthebusinesspromotionexpenses,whichwas
reducedto10percentbytheCIT(A).Held,bytheTribunalthat,theorderoftheCIT(A)needed
nointerference.(A.Y.20062007)
Indian Research Manifestation Labs P. Ltd. v. ACIT (2013) 24 ITR 30 (Ahd.)(Trib.)
S.37(1):BusinessexpenditureExigencyRecipientnottaxed.
114
Litigation expenditure incurred by assessee on account of business and commercialexigencies
for purpose of business could not be disallowed merely on ground of deletion of addition in
handsofrecipient.(A.Y.200809)
S.37(1):Business expenditure Setting up of business Not allowable as business

expenditure.
Afterenteringintomemorandumofunderstandingwithathirdparty,theassesseecommenced
its business activity of procuring land for the third party and in that process incurred
administrativeexpenditureoverpastthreeyears.TheprojectgotcompletedinJune2007and
the assessee claimed the expenditure in AY 200809. Held, the impugned expenditure was
incurrednotforcarryingonbusinessofassesseebutforsettingupbusinessandaccordinglyit
couldnotbeconsideredasbusinessexpendituretoallowdeduction.(A.Y.200809)
MaliFlorexLtd.v.DCIT(2013)57SOT37(URO)(Hyd)(Trib.)
S.37(1): Business expenditureCapital or revenueBusiness incomeCommercial Production

SetupofbusinessAdministrativeexpensesallowable.[S.28(i)]
Assessee engaged in exploration, invested in requisite plant and machinery, employed skilled
personnel,obtainednecessaryapprovalsandsuccessfullyprocuredReconnaissancePermit(RP)
from Government, but did not commence commercial production. Assessing Officer held that
businesscouldnotbeconsideredassetupandcommencedtillcommerciallyviableblockwas
identified and commercial production was started. He disallowed administrative expenses,
holding it to be preoperative expenses. Tribunal held that, assessee had procured machinery,
recruitedpersonnelandobtainedpermit,butnotcommencedcommercialproduction,business
of exploration could be said to be set up and commenced. Administrative expenses were not
preoperativeexpensesandwereallowable.(A.Y.200506)
DeccanGoldminesLtd.vACIT(2013)141ITD579(Mum.)(Trib.)
S.37(1): Business expenditure Bifurcation between revenue and capital Expenditure on

headoffice.
The assessee owned multiplexes and was in the business of screening films. Some of the
multiplexeswereinoperationandsomeinvariousstagesofconstruction.Theassesseeclaimed
68 per cent of head office expenditure as revenue on the ground that it was in the process of
construction of commercial complexes in more than four areas in addition to developing a
gaming centre and that substantial time, resources and devotion of the personnel and other
infrastructure in the head office was invariably devoted to the newer projects under
implementation.However,AssessingOfficerestimatedtheexpenditureattwothirdcapitaland
onethird revenue. Held, there was justification in the claim of the assessee as the newly
operational projects also would require more attention and in some projects there was no
activityexceptpurchaseofland.Intheabsenceofanydetailsofmanpowerallocationandtime
spent on each project, the only rational method adopted by the assessee was capital cost
allocation.TheallocationmadebytheAssessingOfficerhadnobasisorlogic.(A.Y.20052006)
115
S.37(1):BusinessexpenditurePriorperiodexpenditureAllowabilityExpenditurecrystalised
duringtheyeararetobeallowed.
Theassesseehaddebitedpriorperiodexpendituretotheprofitandlossaccount.Thisincluded
the difference on account of short provision of depreciation computed under the Companies
Actinearlieryearsanddepreciationwrittenback.Theassesseeexplainedthatthenetamount
was reduced from the total income in the computation as these were only notional entries to
rectifydepreciationwronglycalculatedintheearlieryearsandhadnotaximplicationasthese
wereadded/deductedfromprofitunderbooksforcomputationofincome.Hencethebalance
creditwasofferedfortaxbytheassessee.Otheritemsinthiscategorywereprofessionalfees
and travelling expenses transferred by VSD with whom the assessee had a joint development
agreement, on termination of the agreement. The Assessing Officer disallowed the expenses
including depreciation holding that the assessee had not brought conclusive proof that these
expenses crystallised during the year and disallowed it. The Commissioner (Appeals) held that
the expenses claimed by the assessee were actually not prior period expenses but lump sum
payments made by the assessee to VSD for the termination of the joint development, which
wereofcapitalnatureandnotallowable.Held,thattheAssessingOfficerhadnotexaminedthe
natureofexpenditureinspiteoftheassesseehavinggiventhedetails.Otherwise,hewouldnot
have disallowed the depreciation which was actually disallowed by the assessee in its
computation. Just because the income and expenditure were classified as prior period, they
need not be excluded or disallowed. The Assessing Officer had to examine whether the
expenditure crystallised during the year. Hence, the matter was remanded back to the
AssessingOfficer.(A.Y.20052006)
S.37(1):BusinessexpenditureStaffwelfareexpensesBreakupofexpenditure.
Assessee incurred staff welfare expenditure and claimed deduction. Assessing Officer
disallowedclaimongroundthatbreakupofexpenditurewasnotgiven.Tribunalheldthatthe
assessee had explained expenses and there was no finding of Assessing Officer that assessee
hadnotrecordedsuchexpenditureinitsbooks.AccordinglythetribunalheldthatJustbecause
break up of expenditure had not been produced, disallowance could not have been made.
MatterremandedtoAssessingOfficer.(A.Y.200405)
EDACEngineeringLtd.v.Dy.CIT(2013)141ITD231(Chennai)(Trib.)
S.37(1):Business expenditureCapital or revenueRepairs and renovation Leased business

premisesrevenueexpenditure.
Theassesseeisinoccupationofleasedpremises,carriedoutrenovationworkbyprovidingfalse
ceiling and furniture modification spending Rs. 1.71 lakhs and Rs. 9.19 lakhs. The assessee
claimedthatthesumswereeligiblefordepreciationat100percent.However,thisexpenditure
was treated as capitalexpenditureeligible fordepreciation at 10 percent. This was upheld by
theTribunal.OnappealtotheHighCourt,held,thatthetemporarystructurebymeansoffalse
ceiling and office renovation had not resulted in any capital expenditure. Appeal of assessee
allowed.(A.Y.19951996)
ThiruArooranSugarsLtd.v.Dy.CIT(2013)350ITR324/213Taxman90(Mad)(HC)
116
S.37(1): Business expenditureCapital or revenuePurchase of new transformer installed in
leasepremisesiscapitalinnature.
Assessee incurred expenses towards purchase of a new transformer installed in a premises
takenonleasereplacingtheexistingtransformer.Theassesseeclaimedthesaidexpenditureas
revenue in nature. The Assessing Officer treated the said expenditure as capital in nature and
allowed the depreciation @ 15%.Commissioner (Appeals) confirmed the order of Assessing
Officer.OnappealtheTribunalheldthatforpurposeofdeterminationofnatureofexpenditure
it should be assumed that premises belonged to assessee. Expenditure incurred towards
purchaseofaltogethernewtransformerwasdefinitelycapitalexpenditure.(A.Y.200809)
ACITv.Anand&Anand(2013)141ITD326(Delhi)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueFurnitureunderconstruction.
The assessee claimed the construction of furniture as revenue expenditure. Assessing Officer
disallowed the said expenditure. On appeal Commissioner (Appeals) directed assessing Officer
to verify expenditure incurred by assessee. On appeal by the revenue the Tribunal held that
expenses incurred for procuring furniture could not be allowed as a deduction in nature of
revenueexpenditureand,therefore,directionofCommissioner(Appeals)wastobevacated.As
the furniture was not used for the purpose of business for the relevant year even the
depreciationwasnotallowable.(A.Y.20062007)
MahindraHolidaysandResortsIndiaLtd.v.Dy.CIT(2013)141ITD363(Chennai)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueLicencefeeSoftwareforthreeyears.
Assesseehadacquiredlicencetousesoftwareforaperiodofthreeyears.Everyyearassessee
wasmakingpaymentaslicenecefees.SinceAssesseewashavingonlyapermissiverighttouse
software and it was not enjoying any copyright, amount of licence fee would be allowed as
Businessexpenditure.(A.Y.20062007)
S.37(1): Business expenditureCapital or revenueMarket research expenses Project

abandonedCapitalinnature.
Assessee incurred certain amount towards market research expenses for launching a new
holiday concept 'zest.' Project did not take place and it was abandoned. Tribunal held that
expenses were incurred in experimenting with a new venture, same were capital in nature.
(A.Y.200607)
S.37(1):Business expenditureCapital or revenueAbandoned projectExpansion of new

project.
Assessee a manufacturer claimed deduction on expenditure incurred towards expansion of a
newproject.AssessingOfficerfoundthatapartofexpenditurewasincurredinearlieryearand
disallowed expenditure to that extent. Since expenditure remanded for verification was
incurred for expansion of a project which had to be abandoned, expenditure was capital in
natureanditwasnotallowed.(A.Y.19981999)
SuperfilProductsLtd.vACIT(2013)141ITD567(Chennai)(Trib.)
117
S.37(1):BusinessexpenditureSoftwareexpensesDepreciationat60%.
Assessee purchased a software programme for its specific business needs. It was undisputed
thatexpenditurehadbeenlaidoutforacquiringanintangibleassettobeusedbyassesseefora
numberofyearsand,thus,samewouldhaveanenduringbenefit.Onfacts,softwareexpenses
could not be allowed as revenue expenditure, however, since intangible asset i.e., software
programme was part and parcel of computation of income, assessee was entitled to
depreciationatrateof60percentonexpenditureinquestion.(A.Ys.200304to200607)
S.37(1):BusinessexpenditurePoojaexpenditureTherequirementofcommercialexpediency
mustbejudgedinthecontextofcurrentsocioeconomicthinking.
Tribunalheldthatitisanundisputedfactthatnobusinesscanbeconductedinhostile,socio
economic environment. The expenses incurred on the activities which create a suitable
environment and impression with reference to image and smooth functioning of the business
activity of the assessee by gainingthe trust of the employees as wellas the localpublic in the
affairs of the assessee company. Therefore expenses incurred by assessee in respect of pooja,
donation for local festivals and other such local activities, were to be allowed as business
expenditure. The requirement of commercial expediency must be judged in the context of
currentsocioeconomicthinking.(A.Ys.200304to200607)
S.37(1):Business expenditureArrears of wagesAllowable as per agreement though the final

agreementwasreachedinlatteryear.
Assesseeenteredintowageagreementforaperiodof10yearsfrom111997to31122006.Therefore,
duedateforrevisionofwagesandsalarieswerefrom112007.Workmenhadsubmittedtheircharter
ofdemandson3062006duringpreviousyearrelevanttoassessmentyearunderappeal.Eventhough
final memorandum of settlement was reached on 2492009 increase in salary was effective from 11
2007.Assessing Officer and Commissioner (Appeals) disallowed provision for wage revision arrears
treating same as contingent liability. Tribunal held that enhanced salary was accrued and crystallized
liabilityfrom112007to3132007andwouldbeanallowablededuction.(A.Y.200708)
S.37(1):Business expenditureAccrualSecurity expenses liability on estimate basis is

allowable.[S.145]
Assessee's liability to pay security expenses to Nuclear Fuel Complex (NFC) accrued during
relevant financial year and it was not contingent upon any other happening mere fact that it
was not quantified during year by way of raising of bills by NFC could not alter fact that such
liabilityeventhoughonanestimatedbasiswasanaccruedandallowableliability.(A.Y.200708)
S.37(1):Business expenditureProvision for expensesProvisions for unascertained liabilitiesAmount

actuallypaidbyclubisallowable.
118
The Assessing Officer disallowed a sum shown as provisional expenses. The Commissioner (Appeals)
held that vouchers and copy of accounts showed that the amount was actually paid by the club.
Therefore he deleted the addition. On appeal by the Department the Tribunal confirmed the order of
Commissioner(Appeals).(A.Ys.20072008,20082009)
ITOv.KamalaViharSportsClub(2013)23ITR104(Mum.)(Trib.)
S.37(1):Business expenditureCapital or revenueLiquidated damages paid for delay in delivery of
goodssuppliedundercontractisallowableasrevenueexpenditure.
Liquidated damages paid by the assessee under a contractual obligation to the purchasers of electrical
equipment, which was a daytoday business activity of the assessee, and was not an expenditure of
capitalinnature.Thecontractbetweentheassesseeanditspurchasersspecificallymentionedthatthe
payment of liquidated damages would not be considered as penalty. Admittedly, the assessee paid
liquidated damages to the Railway department and other Government undertaking enterprises in
accordancewiththecontractandduetothedelayincompletionofthesupplycontract.Therefore,this
is an allowable expenditure. The finding of the Commissioner (Appeals) that the payment of liquidated
damageswascapitalinnaturewasnotsustainable.TheAssessingOfficerwastocalculatetheamountof
liquidated damages allowable for the year under consideration after verifying the quantum of claim of
theassesseeandallowthededuction.(A.Y.20072008)
HuberSuhnerElectronicsP.Ltd.v.Dy.CIT(2013)22ITR596(Delhi)(Trib.)
S.37(1):Business expenditureCapital or revenueAmounts paid by assessee for purchase of master
plateofaudiosongswithcopyrightisrevenueexpenditure.
The assessee purchased copyright for mechanical reproduction of sound recordings of various films in
the form of audio cassette tapes, compact discs or any other format. According to the agreement the
assessee acquired a master plate containing the agreed sound track with copyright to commercially
exploit it. The assessee claimed the cost of purchase of the master plate with copyright as revenue
expenditure.TheAssessingOfficerrejectedtheclaimandtreatedthecostofpurchaseofaudiorightsas
capital expenditure. On appeal, the Commissioner (Appeals) held the said expenditure as revenue
expenditure. On appeal by the Department, the order of commissioner (Appeal) was confirmed. (A.Y.
20042005)
ITOv.FiveStarAudio(2013)22ITR707(Chennai)(Trib.)
S.37(1):BusinessexpenditureDiscontinueofoneunitExpensesisallowable.
The assesseecompany is engaged in the manufacture of paints and varnishes. Assessing Officer
disallowed expenses in relation to the assessee's factory at K on the ground that the assessee had
discontinued its operation of pigment manufacturing at that factory. The Commissioner (Appeals)
directedtheAssessingOfficertoallowthedeductionclaimedbytheassesseeinrespectoftheKunitin
respect of power, fuel and electricity, rent, rates and taxes and watch and ward expenses, but
disallowedtheotherexpensesholdingthattheassetsofthesaidunitwerenotutilisedbytheassessee
for the purpose of its business. On appeal :Held, that expenses incurred to protect the business assets
shouldbeallowedasdeduction.ThedisallowanceofvariousexpensesinrelationtotheKunitwastobe
reversed.(A.Y.20022003)
KansaiNerolacPaintsLtd.v.Dy.CIT(2013)22ITR424/57SOT10(URO)(Mum)(Trib.)
119
S.37(1):Business expenditureCapital or revenue expenditureSoftware licence feesSoftware to
enablebusinesstoberunmoreefficientlyisdeductible.
TheassesseepaidRs.51.18lakhstoGTLLtd.towardslicencefeesforuseroffinance,purchasing,order
managementand manufacturing.The AssessingOfficerobservedthatlumpsumpaymentforpurchase
ofOraclelicences,madeforthefirsttimecouldnotbein the natureofrevenueexpenditureandeven
thoughthebenefitderivedbyincurringsuchexpendituremaynotbeforever,itwasspreadoverseveral
yearsanditthusfellintothecategoryofbenefitofenduringnature.Hedisallowedtheexpenditureand
thiswasupheldbytheCommissioner(Appeals).OnappealtotheTribunal:Thattheassesseewasinthe
business of manufacturing mining machinery and the software in question was for the purpose of
finance, purchase order management and manufacturing. This software would help the assessee in
increasingtheefficiencyandcouldnotbetreatedasformingpartoftheprofitmakingapparatusofthe
assesseecompany and, therefore, the expenditure on this software could not be treated as capital
expenditure. Out of this total expenditure of Rs. 62,30,245 claimed by the assessee as revenue
expenditure,theAssessingOfficerhadalreadyalloweddeductionofRs.51.18lakhsbeingdepreciation
at60percent.anddisallowancewasmadeamountingtoRs.20.47lakhsbeingthe40percent.ofsuch
expenditureandsinceitwasnotacapitalexpenditure,thisdisallowancehadtobedeleted.(A.Y.2007
2008)
EimcoElecon(India)Ltd.v.Add.CIT(2013)22ITR380(Ahd)(Trib.)
S.37(1):Business expenditureAssessee failing to produce proper bills and vouchers for direct and
indirectexpensesAssessingOfficerwastorestrictdisallowanceto5percentofcashpayments.
The Assessing Officer disallowed expenses on the ground that the assessee could not produce proper
billsandvouchersformostoftheexpenditureclaimedandforthedirectandindirectexpensesincurred.
He made an estimated disallowance for each of the assessment years. The Commissioner (Appeals)
directed the Assessing Officer to restrict the disallowance to 8 per cent. of the cash expenses claimed
andallowthebalanceofexpenditureforalltheyearsunderappeal.TheRevenueappealedagainstthe
restriction of the disallowance to 8 per cent. and the assessee appealed against the sustenance of the
disallowance of 8 per cent. : Held, that since the issue under consideration was identical to that
considered in the case of the company the Assessing Officer was to restrict the disallowance to 5 per
cent.ofthecashpayments.(A.Y.20022003to20082009)
S.37(1):BusinessexpenditureCateringbusinessDisallowanceongroundofduplicationofexpenditure.
Inastatementrecordedduringthecourseofoperationsundersection132oftheAct,atthepremisesof
a company of which the assessee was the managing director and at the residential premises of the
assessee,oneoftheemployeesoftheassesseeadmittedthatthekitchenfacilitiesofthecompanywere
utilizedbythecateringbusinessoftheassessee,whichdidnothaveaseparatekitchen.Forthisreason,
the Assessing Officer felt that there were duplication of expenditure claimed by the assessee in his
cateringbusinessanddisallowedpaymentsofelectricitymetersinthenameoftheassessee,rentpaid
foradministrativeoffice,andexpenditureondifferentheads.TheCommissioner(Appeals)heldthatthe
finding of claim of duplication of expenses was not properly supported. On appeal :Held, that the
Departmentdidnotbringanymaterialtosuggestthatthesameexpenditurewasclaimedinthecaseof
thecompanytoestablishthattheassesseehadmadedoubleclaimofexpenses.Theassesseehadalso
filedhisreturnofincomeandhaddisclosedprofitoncateringservicesafterclaimingvariousexpenses.
Hence,theexpensesclaimedbytheassesseehadbeenincurredforthepurposeofhiscateringbusiness
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and there was no duplication of the expenses in the case of the assessee. (A.Y. 20022003 to 2008
2009)
S.37(1):BusinessexpenditureProfessionalchargesDirectorDeductionatsourceSalaryOnce
commercialexpediencyisacceptedandtaxdeductionatsourceeffecteddeductiontobe
allowed.(S.40(a)(ia),192,194J)
The assessee made a certain payment as professional charges to director of the assessee
company, after deduction of tax at source under section 194J of the Act,treating the payment
as a payment for professional services rendered. According to the Assessing Officer, the
payment should have been considered as salary paid to an employee and that the assessee
company had misrepresented the salary as professional charges specifically to give an undue
advantage to claim additional expenses in her return of income. He disallowed the sum. On
appeal the Commissioner (Appeals) held that once the commercial expediency of a payment
was not questioned, and the tax deduction at source was actually effected, the question of a
perceived misapplication of the particular provision was academic and that the provisions of
section192beingoutsidethepurviewofsection40(a)(ia),theadditionwasunsustainable.On
appeal by revenue the Tribunal held that once the commercial expediency of a payment was
accepted and tax deduction at source had been effected, the deduction would have to be
allowed. There was a consultancy agreement and the payment in question prima facie was a
paymentforprofessionalservicesrendered.Thepaymentcouldnotbetreatedasapaymentof
salary. In any event, the disallowance of this legitimate business expenses in the hands of the
assesseewaswithoutanybasisandcouldnotbesustained.(A.Y.:20082009)
Dy.CITv.RayKeshavanDesignAssociatesP.Ltd.(2013)22ITR259(Bang.)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueExpenditureonentirelynewlineofbusiness
isheldtobeascapitalexpenditure.
Assessee was engaged in the manufacture of lignite. It set up a new project and claimed
deduction of expenditure incurred as revenue expenditure. The power project was a new line
of assessees business. The product manufactured in power project was an altogether new
product. Hence the expenditure was not allowable as revenue expenditure. (AY 200102 to
200203)
GujaratMineralDevelopmentCorp.Ltd.v.ACIT(2013)140ITD603(Ahd.)(Trib.)
S.37(1):Business expenditureSalary paid to staff at residence of chairman was held to be

allowableasbusinessexpenditure.
Assessee claimed deduction of salary paid to staff appointed at residence of companys
chairman. Lower authorities disallowed the claim on the ground that it was in violation of
guidelinesissuedbyGovernmentofGujaratdated2881998andwasalsoagainstarticle192of
association of Corporation and thus Explanation to section 37(1) was attracted. The Tribunal
heldthatthesaidexpenditurewasnotforanypurposewhichwasanoffenceandalsodidnot
tantamount to an expenditure which was prohibited by law, disallowance of same was not
justified.(A.Ys.200102to200203)
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S.37(1):BusinessexpenditureCapitalorrevenueSoftwareLicencefeeisrevenue.
Theassesseehadspentacertainsumtowardsvariouslicencefeespaidforacquiringsoftware
for running its computers. The Assessing Officer was of the view that the software expenses
gaveanenduringbenefitandwerecapitalinnature.TheCommissioner(Appeals)deletedpart
of the disallowance. On appeal to the Tribunal held that, even though the expenditure on
softwaremightgiveanenduringbenefit,sincenoassethadbeencreatedbypayinglicencefees
for utilisation of the software, the expenditure was allowable as revenue expenditure. Appeal
ofassesseewasallowed.(A.Y.20022003)
HSBCSecuritiesandCapitalMarkets(India)P.Ltd.v.ACIT(2013)21ITR445(Mum.)(Trib.)
S.37(1):Business expenditureCapital or revenueExpenditure on acquiring softwareMatter

remanded.
Assessee claimed thepurchase of computer software as revenue expenditure. The Assessing
Officerrejectedtheclaim.TheCommissioner(Appeals)heldthattheexpenditureinrelationto
warranty module, sales module and parts module were revenue in nature while the
expenditure in relation to the factory module was capital in nature. On appeal to the
Tribunalthe Tribunal held that there is no single definitive criterion which, by itself, is
determinativewhetheraparticularoutlayiscapitalorrevenue.The"onceforall"paymenttest
is also inconclusive. What is relevant is the purpose of the outlay and its intended object and
effect,consideredinacommonsensewayhavingregardtothebusinessrealities.TheTribunal
in Amway India Enterprises v. Deputy CIT [2008] 301 ITR (AT) 1 (Delhi) [SB] laid down the
following tests: (a) where the assessee acquires a computer software or licence to use such
software,theassesseeacquiresatangibleassetandbecomesownerthereof;(b)wherethelife
of computer software is shorter, it may be treated as revenue expenditure. Any software
having its utility to the assessee beyond two years can be considered as accrual of benefit of
enduringnature;(c)oncethetestofownershipandenduringbenefitissatisfied,thequestion
whetherexpenditureoncomputersoftwareiscapitalorrevenueistobeseenonacasetocase
basisfromthepointofviewofitsutilitytoabusinessmanandhowimportantaneconomicor
functionalroleitplaysinhisbusiness.Thelicensingagreementintheinstantcasehadnotbeen
placed before the Tribunal. The Commissioner (Appeals) had not examined as to how the
assessee carried on its functions before acquiring the integrated software and nor even as to
whetherornotthesoftwarewaspartofinfrastructureforcommencingthebusinessoperations
inIndiaandwhetherornoteachofthefourmodulescouldfunctionindependentlyinthelight
of the economic and functional test while confirmation dated September 6, 2012 of H, Japan
wasnotbeforethelowerauthorities.Matterremanded.(A.Y.19992000)
Dy.CITv.HondaSielCarsLtd.(2013)142ITD783/21ITR497(Delhi)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueSoftwareMaintenanceofsoftwareis
revenueexpenditure.
AssessingOfficerdisallowedtheexpenditureincurredonsoftware.Onappealitwassubmitted
by the assessee that the expenditure was not incurred for purchase of software but for
maintenanceofsoftwareandtechnicalsupportservices.TheCommissioner(Appeals)setaside
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thedisallowance.OnappealtotheTribunaltheTribunalheldthatthesoftwareexpenseswere
revenueinnatureandhencedeductible(A.Y.20072008)
Dy.CITv.OviraLogisticsP.Ltd(2013)21ITR436/57SOT185(Mum.)(Trib.)
S.37(1):Business expenditureCapital or revenueRenovationLeas hold premises Renovation

expenses is capital expenditureand the assessee is entitle to depreciation. Expenditure on
demolishinganddismantlingisrevenueinnature.(S.32)
The assesseecompany had a Maruti dealership and service station and for the purpose of
setting up the service station took premises on lease throughout the State of Tamil Nadu. To
makethebuildingssuitableaccordingtoitsrequirements,theassesseecarriedoutrenovations,
interior decoration, new construction and repairs to the buildings taken on lease and claimed
theentireexpenditureincurredontheleasedpremisesasrevenueexpenditure.TheAssessing
Officer treated the said expenditure as capital in nature and allowed depreciation at 10 per
cent. In appeal, Commissioner (Appeals) partly confirmed the order of Assessing Officer.On
appealtotheTribunal,theTribunalheldthatitcouldnotbeascertainedwhethertheassessee
was getting an enduring benefit of a revenue nature from the additional structure or
renovation/repairs undertaken by the assessee on the leased out premises. The case of the
assessee fell within the ambit of Explanation 1 to section 32(1) of the Act. The Commissioner
(Appeals)hadrightlydisallowedexpenditureonconstructionofoverheadtank,washingramp,
oilchange,finalinspectionandwheelpitandextensionofshedfromtheexistingworkshopfor
the front office.The expenditure on renovation of existing shed and new electricalfittings was
capital in nature. The expenditure on demolition, dismantling etc. alone, was revenue.
Therefore,theorderoftheCommissioner(Appeals)wastobemodifiedtoexcludeexpenditure
incurred on renovation of existing shed and electrical fittings from revenue and treat it as
capitalinnature.(A.Y.20052006,20082009)
S.37(1):Business expenditureBusiness incomeInterest for brokenperiod received on

Government securities charged to tax as business incomeInterest for brokenperiod paid at
timeofpurchaseofsecuritiesallowable.(S.28(1))
The Tribunal held that once the brokenperiod interest received by the assesseebank on
Government securities was charged to tax as business income under section 28 of theAct,
deduction for payment made for brokenperiod interest at the time of purchase of these
securitiescouldnotbedeniedwhentheassessee'smethodofaccountingdoesnotresultinloss
ofrevenuefortheDepartment.(A.Y.199899)(A.Y.19981999to20032004)
S.37(1):BusinessexpenditureCommencementofbusinessCommercialproductionExpenses
incurredbeforecommencementofbusinessisnotdeductible.(S.35E)
Theassesseeclaimeddeductionundersection35EoftheAct.TheAssessingOfficercametothe
conclusion that the assessee had not complied with the requirement of section 35E because,
mining work was carried out by the Commissioner Geology and Mining in respect of lease
grantedintheyear1988andtheexpenditureincurredonaccountofpaymenttothispartyhad
been shown under the head "consultancy fee" towards project, pending allocation. He also
123
observed that there was no evidence of commercial production and, therefore, held that the
assessee was not eligible for deduction under section 35E of the Act. The assessee appealed
beforetheCommissioner(Appeals)butwithoutsuccess.OnappealtotheTribunalitcontended
thateveniftheclaimwasnotallowableundersection35E,itshouldbeallowedundersection
37 because the assessee proposed to sell the project and recover the expenses. The Tribunal
held that the assessee claimed deduction under section 37 because the assessee proposed to
selltheprojectandrecovertheseexpensesfromthebuyer.Noevidencehadbeenproducedin
supportofthisargumentthattheassesseehadultimatelysoldtheprojectinasubsequentyear
andrecoveredtheseexpensesfromthebuyer.Moreover,evenifthiswasdone,nodeduction
was allowable in the present year because even if the expenditure was to be debited in the
profitandlossaccount,ithadtobeconsideredinthecreditsideoftheprofitandlossaccount
also as the closing stock of workinprogress and there could be no resultant deduction in the
presentyear.TheTribunalalsoheldthatthelandwaspurchasedfortheproposedjointventure
power project and none of the power projects had commenced business. In the present case,
theAssessingOfficerhadgiventhis findingthat theratesandtaxesbeforecommencementof
production in a project were capital expenditure. The basis of the order of the Commissioner
(Appeals)wasthatthisexpendituredidnotenhancethevalueoftheasset,i.e.,thelandinthe
presentcase.Evenifitdidnotenhancethevalueofthelandinquestionitcouldnotbeallowed
asrevenueexpenditurebecausethebusinesshadnotcommencedandtherefore,itwasapre
operationalexpenditure.Itwasnotdeductible.(A.Y.20032004to20062007)
GujaratPowerCorporationLtd.v.Add.CIT(2013)21ITR683(Ahd.)(Trib.)
S.37(1):Business expenditureAdvertisementDisallowance merely on ground that instead of

products,chairmanwasbeingpromotedisnotproper.
TheassesseeincurredadvertisementexpenditurewhichtheAssessingOfficerconsideredhigh.
The Assessing Officer disallowed the expenditure on the ground that an attempt has been
made by the company to promote the chairman and not the product. The Assessing Officer
therefore,disallowed20percent.oftheadvertisementexpenditure.(A.Y.20052006to2007
2008)
MahashianDiHattiLtd.v.Dy.CIT(2013)21ITR731(Delhi)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueExpenditureondevelopmentofsoftwareis
revenue.
Tribunal held that the Commissioner (Appeals) had rightly allowed the claim to deduction of
expenditureondevelopmentofsoftware.(A.Y.:20032004,20042005)
S.37(1):BusinessexpenditureCapitalorrevenueRepairsHeldtobecapitalinnature.
Assessee had incurred expenditure on repairs and maintenance of plant and machinery and a
building.AssessingOfficerrejectedassessee'sclaiminrespectofsaidexpenditureholdingitto
becapitalinnature.Tribunalheldthatsinceassesseefailedtobringonrecordevidenceshowing
that expenditure incurred was on purchase of spare parts of plant and machinery and
miscellaneousworkdonetobuildingandtherewasnonewcapitalassetacquiredbyassessee
124
as a result of said expenditure, impugned disallowance made by Assessing Officer was to be
upheld.Infavourofrevenue.(A.Y.200405)
DresserRandIndia(P.)Ltd.v.Dy.CIT(2013)55SOT167(Mum.)(Trib.)
S.37(1):BusinessexpenditureSoftwareexpensesAllowableasrevenueexpenditure.
Assessee made payments for availing email infrastructure, which was owned by its parent
company.Itwasusingemailinfrastructurefacilitiesforcommunicationbetweenitsemployees
and outside business partners. It had debited said payments in profit and loss account under
head 'software expenses' and claimed deduction for same Whether said expenditure was
purelyrevenueinnatureandwasallowable.Infavourofassessee(A.Y.200708)
EvonikDegussaIndia(P)Ltdv.ACIT(2013)55SOT566(Mum.)(Trib.)
S.37(1):BusinessexpenditureCustomdutyCapitalgoodsNotallowableasbusiness
expenditure.
Tribunal held that payment of custom duty for debonding of capital goods increases value of
those goods and, therefore, same cannot be allowed as business expenditure. In favour of
S.37(1):BusinessexpenditureElectricityconnectionExpenditureoninitializationofelectricity
connectioniscapitalinnature.
Expenditure incurred on initialization of electricity connection granted benefit of enduring
naturetoassesseeand,therefore,samewasnotallowablebeingcapitalinnature.Infavourof
S.37(1):BusinessexpenditureWarrantyprovisionAllowableasdeduction.
In course of assessment, assessee claimed deduction in respect of provision created for
warrantysupportonproductssoldduringrelevantyear.AssessingOfficerdisallowedprovision
treating it as an unascertained liability. It was noted from records that assessee took into
account warranty liability for accounting period after bifurcating likely cost on account of
labour,materialetc.Itwasalsoapparentthatwhereverexcessprovisionwasmadeinanearlier
year, same was reversed in subsequent period. Tribunal held that on facts, estimate made by
assesseeinrespectofwarrantyliabilitywasonscientificandreasonablebasisand,thus,same
wastobeallowedasdeduction.Infavourofassessee.(A.Y.200607)
TextronixIndia(P.)Ltd.vDy.CIT(2013)55SOT512(Bang.)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueSellingofdiamondsunderthebrandname
Expenditurenotcapitalinnatureasprofitderivedfromsellingofpremierproduct,noright
eitheronmarkorinIPRorgoodwillofmark.
Theassesseecompanyisengagedinthebusinessoflicensing,manufacturing,distributionand
selling of diamonds under the brand Nakshatra. B, a Swissdiamond manufacturer was
owner of mark Nakshatra B' licensed said mark to 'D', who in turn, had sublicensed to
assessee.AssesseesolddiamondsunderbrandnameNakshatra.Assesseemadepaymentto
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'D' for its share on promotion of mark 'N' and claimed sales promotion expenses. Assessing
Officerdisallowed20percentofpaymentholdingsametobecapitalinnature.Itwasheldthat
facts revealed that entire rights and goodwill through marketing campaign and advertisement
wouldbeownedby'B'and'D';assesseehadnorighteitheronmarkorinintellectualproperty
right or goodwill of mark; and what assessee was enjoying was only profit from selling of
premiumproductsundersaidmark.Therefore,expenditureincurredwasrevenueinnatureand
wastobeallowed.(A.Y.200607)
Brightest Circle Jewellery (P.)Ltd. v. ACIT (2013) 140 ITD 11/154 TTJ 571/86 DTR 280 (Mum.)
(Trib.)
S.37(1):Business expenditure Capital or revenue Warranty expenditure Deduction

allowedifprovisionmadeonscientificbasis.
Assessee had acquired personal computer and laptops division of IBM India and continued
business of trading and manufacture of PCs and MCs. It provided either 1 year or 3 years
warranty on sale of PCs and laptops made to its customers in India. Assessee debited actual
warranty expenditure incurred during year and also made additional provision on basis of
assessmentof warrantyliability on sales made for unexpired period to profit and loss account
and claimed it as deduction. It was held that since IBM was carrying on business in India in
earlier assessment years and it was making provision for warranty on basis of its global data,
assessee could use data used by IBM for past years for making estimation and if assessee had
madeprovisiononascientificbasis,ithadtobeallowedasdeduction.(A.Y.200607)
LenovoIndiaP.Ltd.v.ACIT(2013)140ITD127(Bang.)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueFeesforservicesrenderedaspermarket
support agreement Payment for efficient running of business and deriving revenues there
from,feesallowableasdeduction.
Assessee acquired personal computer business from IBM. As IBM had wellestablished
enterprisesalesforceandestablishedglobalsalesinfrastructure,suchasclientrepresentation
centre, etc., for more than 52 years, assessee wanted to take support from IBM and for that
purpose had entered into market support agreement with IBM. Assessee paid certain fees to
IBM for services rendered under market support agreement.Assessing Officer treated same as
paymentforacquisitionofgoodwillandconsideredittobeinnatureofcapitalexpenditurenot
allowableundersection37.Itwasheldthatsincesupportserviceswereforpurposeofsaleof
products manufactured by assessee, it was clearly established that it was for efficient running
ofbusinessandderivingrevenuestherefromand,therefore,feepaidbyassesseeformarketing
supportservicesrenderedbyIBMwasallowableasdeductionundersection37(1).(A.Y.2006
07)
S.37(1):Business expenditure Capital or revenuePayments made to maintain dealership/

businessrelationshiprevenueexpenditure.
Assessee acquired business of PCs and laptops division from IBM during previous year, and
continued to carry on manufacturing and trading operations of PCs using same facility and
same dealership network as used by IBM in its business prior to acquisition. Future billing
126
adjustment reserve of certain amount was a liability towards various claims/special discounts
payabletodistributors/dealersofIBMIndia,whereas,theactualpayoutrelatingtoperiodupto
effective date of takeover was a much higher amount.Accordingly, the amount of difference
was charged to profit and loss account and claimed as revenue expenditure. It was held that
since assessee was to carry on business with said dealers in future, it was bound to make
paymentstomaintainbusinessrelationswithdealersandsuchpaymentshadtobeconsidered
asbusinessexpenditureofassessee.(A.Y.200607)
S.37(1):Business expenditure Capital or revenue Duty free replenishment certificates

(DFRC) written off as not utilized Deduction allowable as assessee was in same line of
business.
AspartofpersonalcomputerbusinessacquiredbyassesseefromIBM,assesseehadalsotaken
over duty free replenishment certificates (DFRC) receivable from IBM India and same were
availableforutilizationagainstimportofinputsusedinmanufactureofgoodswithoutpayment
ofcustomsduty.However,GovernmentofIndiavideNotificationNo.24/2005Customsdated
132005 exempted custom duty on all imports of computer parts and, therefore, DFRC
receivable was no longer utilizable and was, hence, written off and charged to profit and loss
accountasrevenueexpenditure,sinceassesseewasalsoinsamelineofbusiness,assesseewas
entitledtodeductionofaforesaidexpenditureasrevenueexpenditure.(A.Y.200607)
LenovoIndiaP.Ltd.v.ACIT(2013)140ITD127(Bang)(Trib.)
S.37(1):Business expenditureSharing of expenses Debit note from parent Company In the

absencesofvouchersandbills50%ofdisallowanceisheldtobejustified.
The Assessee claimed the expenditure on the basis of debit note received from its parent
company without producing any evidence to establish that the said expenditure was incurred
for the purpose of business.Considering the facts the Tribunal held that disallowance of 50%
expensesareheldtobejustified.(A.Y.200506)
InstantHoldingsLtdv.Dy.CIT(2013)81DTR1(Mum)(Trib.)
S.37(1):BusinessexpenditureProvisionAssesseeengagedindevelopmentandmaintenance
ofroadsprovisionforroadrenewalisheldtobenotdeductible.
Theassesseecompanyisengagedinthebusinessofdevelopment,operationandmaintenance
of toll roads. For the assessment year 200203, it claimed deduction of Rs. 1,61,37,960 being
expenditureonroadoverlayorrenewal.ItwasobservedbytheAssessingOfficerthatacertain
sumwasdebitedtotheprofitandlossaccount.Whenthedetailswerecalledfortheassessee
explained it to be provision made on a scientific basis. The Assessing Officer disallowed the
claim and this was confirmed by the Commissioner (Appeals). On appeal to the Tribunal held
thatit was evident that the entire expenses claimed by the assessee were a provision made in
thebooksofaccountanddidnotpertaintoactualexpensesincurredbytheassesseeduringthe
year.Theexpenseswerenotdeductible.(A.Y.20022003,20052006)
Dy.CITv.GujaratRoadandInfrastructureCo.Ltd.(2013)141ITD642/21ITR88(Ahd.)(Trib.)
127
S.37(1):Business expenditureProject completion methodExpenses and title registration
expenses not attributable to common expenditure for running businessis held to be not
allowable. (S.145)
The assessee is a film maker and an event manager. The assessee followed the project
completionmethod,showedlossfromfilmbusinessandprofitfrommusicalbums.Inaddition
to this, the assessee showed receipts from old films, i. e., royalty, telecast rights of films,
satellite rights of movies and corresponding expenditure in respect of each of her ventures
separately. Over and above this the assessee claimed common expenditure under various
headslikeDiwaliexpenditure,printingandstationery,professionalfee,conveyance,creditcard
charges, depreciation, dress and costume, interest on loan, miscellaneous expenses and
telephone charges. The Assessing Officer held that the expenditure booked on account of
professional fee, publicity, business promotion, dress and costume, etc. was not in any way
linkedtooldfilmincomeandwasnotallowable.TheCommissioner(Appeals)upheldtheorder
of the Assessing Officer. On appeal, the Tribunal held that expenses and title registration
expenses not attributable to common expenditure for running business is held to be not
GurudasMann(Mrs)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.37(1):BusinessexpenditureVehicleTelephoneConveyancePersonaluseDisallowance
notproper.
Tribunal held that vehicle related expenses and telephone expenses, disallowance of 20 per
cent for personal use is proper. Conveyance, lodging and boarding, travelling staff welfare,
businesspromotionandpublicityexpensesnodisallowancecanbemadeforpersonaluse.(A.Y.
200809)
ManjitMann(Mrs.)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.37(1):BusinessexpenditureAdhocdisallowanceNotproper.
The tribunal held that disallowance for bills and vouchers not verifiable made after discussion
with assessee cannot be challenged. Ad hoc disallowance without pointing out nature of
discrepanciesandheadoftowhichexpenditurerelateddisallowanceisnotproper.(A.Y.2008
09).
S.37(1):BusinessexpenditureForeignshowsDisallowanceconfirmed.
The Tribunal held that the Assessee unable to explain nature of expenditure and date of
incurrenceofforeignshow.Expenditurebookedbyassesseeondatesatvariancewithdatesof
foreignshows.Disallowancewasconfirmed.(A.Y.200607)
GurudasMann.(Mrs)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueRepairandmaintenanceNotinnatureof
replacementiscapitalinnature.
The Tribunal held that expenditure on purchase of new furniture not replacement hence
capital expenditure, not allowable. The Tribunal also held that there was no material to show
128
replacementofelectricinstallationornatureofelectricinstallationreplacedhencedeductionis
notallowable.(A.Y.200708)
GurudasMann(Mrs)v.Dy.CIT(2013)21ITR57/57SOT55(Chandigarh)(Trib.)
S.37(1):Business expenditureExpenditure on levelling and fencing land Expenses not

verifiableDisallowanceofpartofexpenditureisheldtobejustified.
Assessee engaged in real estate development. The Assessing Officer made an ad hoc
disallowanceof25percent.oftheexpenditureclaimedonlevellingandfencingcharges.After
examiningdetailstheCommissioner(Appeals)heldthatsuchexpensesappearedtobegenuine
andweregenerallyincurredinthecourseoftheassesseeslineofbusiness.Healsofoundthat
someofsuchexpensesweresupportedonlybyselfvouchersandcashreceiptswhichwerenot
verifiable, and therefore restricted the disallowance. On appeal to the Tribunal held thatthe
assessee had not furnished any cogent evidence to establish that the expenses, which stood
disallowed,wereverifiable.Thedisallowancewasjustified.(A.Y.20062007,20072008)
ITOv.NamEstatesP.Ltd[2013]141ITD659/21ITR109(Bang.)(Trib.)
S.37(1):BusinessexpenditureBrokerageCommissionTDSdeductedallowablebalance
disallowancewasconfirmed.
Assessee is engaged in real estate development. Out of the total expenses claimed under the
headBrokerageandcommission,theAssessingOfficerholdingthatinthislineofbusinessof
land transactions the average percentage of commission and brokerage was one per cent.,
disallowedthebalance.TheCommissioner(Appeals)examinedthematterindetailandcameto
theviewthatexpensesoncommissionandbrokeragecharges,onwhichtaxhadbeendeducted
atsourceandremittedtothetreasury,weregenuineaccordingtothefactsplacedbeforehim
and accordingly allowed the assessee relief and Confirmed the disallowance of Rs 4,44, 342.
Tribunal confirmed the order of Commissioner (Appeals) and dismissed the cross appeal of
assessee.(A.Y.20062007,20072008)
S.37(1):BusinessexpenditureForeigntourexpensesofaccompanyingspouseDisallowance
heldtobeproper.
The assessee claimed the foreign tour expenses of accompanying spouse of directors of
assesseecompany. As the assessee failedto provide any evidence disallowance of such
expense,washeldtobeproper.(A.Y.20052006)
HarinagarSugarMillsLtd.v.ACIT[2013]21ITR383/57SOT145(Mum.)(Trib.)
S.37(1):BusinessexpenditureClubexpensesAllowable.
Tribunalheldthatthedisallowanceunderthehead"clubexpenditure"wasnotjustified.(A.Y.
20012002)
JindalIronandSteelCo.Ltd.v.Dy.CIT[2013]21ITR414/57SOT317(Mum.)(Trib.)
S.37(1):BusinessexpenditureCapitalorrevenueRepairsofflatsorbuildings.
129
Expenditure incurred in connection with sofa, recreation central table, electrical fittings and
designconsultancyandsupervisionchargeswasinthenatureofcapitalexpenditure,whilethe
remaining amount of the impugned expenditure was revenue in nature as it was incurred for
maintenance/repairsofthefixedassetsviz.,buildingsorstructures.(A.Y.200203)
LintasIndia(P)Ltd.v.ACIT(2013)83DTR263(Mum.)(Trib.)
S.37(1):Business expenditure Commission to dealersAgreement and addendum not

disputed,commissionpaidheldtobeallowable.
TheAssessingOfficerdisallowedthecommissiononthebasisthattheassesseehadpaid
commissiontoitschannelpartnerinexcessoftheslabratesmentionedintheagreement.In
appeal,theCommissioner(Appeals)deletedtheadditiononthebasisofaddendumtothe
agreementwhichwasfiledasadditionalevidencebeforetheCommissioner
Appeals).Commissioner(Appeals)referredtheadditionalevidenceforthecommentsof
AssessingOfficer.OnappealtotheTribunalbyrevenuetheTribunalheldthatastheAssessing
Officerhasnotdisputedtheveracityoftheaddendumtotheagreementbetweentheassessee
anditschannelpartnerwhichwasfiledasadditionalevidence,orderofCommissioner(Appeals)
deletingthedisallowancewasheldtobejustified.(A.Y.200304,200405,200607)
ACITv.ShyamTelelinkLtd(2013)151TTJ464(Delhi)(Trib.))
S.37(1):Business expenditure Repair and maintenance of machineryAd hoc disallowance

washeldtobenotjustified.
The Assessing Officer made adhoc disallowance of 20% of the expenditure incurred on repair
and maintenance of machinery as capital expenditure. The Tribunal deleted the disallowance
on the basis that similar disallowances for Asst. Years 200304 & 200405 were deleted by
Tribunal.(A.Y.200607)
GoodyearIndiaLtd.v.Dy.CIT(2013)143ITD35/152TTJ458/83DTR233(Delhi)(Trib.)
S.37(1):BusinessexpenditureProvisionforwarrantyisallowableasdeduction.
Tribunalheldthatcourtshaveconsistentlyheldtheviewthatliabilityforprovisionforwarranty
for replacement on account of manufacturing defects arises at the time of sale and is to be
allowedasdeductioninthatyearonthebasisofrational/scientificestimate,notwithstanding
thattheexactamountofliabilityisascertainedatalaterdate.Tribunalfollowedthedecisionof
HonbleApexCourtinthecaseofRotakControlsIndiaP.Ltd.vs.CIT(2009)314ITR62(SC)and
heldthatprovisionforwarrantymadebytheassesseeisallowable.(A.Y.200607)
GoodyearIndiaLtd.v.Dy.CIT(2013)143ITD35/152TTJ458/83DTR233.(Delhi)(Trib.)
S.37(3):BusinessexpenditureTransithouseNotdeductible.[S.37(4),(37(5)]
Following the ratio in Britania Industries Ltd v. CIT (2005) 278 ITR 546(SC), theCourt held that
the expenditure on maintenance of a transit house was not deductible. (A.Y. 19831984 to
19901991)
CITv.RassiCementsLtd.(2013)351ITR169(AP)(HC)
CITv.DeccanCementsLtd.(2013)351ITR169(AP)(HC)
130
S.37(4):Business expenditureMaintenance of accommodation for employees and executives
for duration of projects outside India is not Guest house expenses the said expenses is
allowable.
The assessee had to execute a project outside India. It had contracted for supply of labour
servicesespeciallyprovidingfortemporaryaccommodationtoitsworkersandemployees.The
intention of the assessee was not to provide "guest house" accommodation for those who
visited the project site on "tour" or "visit". In other words, even though the accommodation
providedwasfortheentiredurationoftheproject,whatwassoughttobecoveredbysection
37(4) and 37(5), was the type of accommodation provided to the employee who merely used
them on transitory or temporary basis and not in the circumstances of the assessee's case.
Therefore, the expenses incurred by the assessee on the maintenance of accommodation
providedtoitsemployeesandexecutivesoutsideIndiawasallowable.
S.37(4):BusinessexpenditureInsurancebusinessExpenditureonguesthouse.(S.44,Sch.I,
r.5)
Payment on account of expenditure on lease rent, taxes and repairs and maintenance of a
guest house was not allowable. Britannia Industries Ltd. v. CIT & Anr. (2005) 278 ITR 546 (SC)
followed.(A.Y.198081,198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)83DTR185(Delhi)(HC)
S.37(4):BusinessexpenditureGuesthouserentcannotbeallowedasdeduction.
Rentofguesthousepaidcannotbeallowedasdeduction(A.Y.199394)
CITv.ForbasEwart(P)Ltd.(2013)81DTR436(Ker.)(HC)
S.40(a)(i): Amounts not deductible Deduction at source Outside IndiaNonresident

InterestDiscountchargesisnotinterest.(S.2(28A))
Discount charges earned by assesseefinancial service provider by way of discounting bill of
exchange and promissory notes in favour of Indian companies is to be treated as business
income, and not as interest income, hence provisions of section 40(a) (i) cannot be applied.
(A.Ys.200506to200708)
DIT(IT)v.CargilTSFPTELtd.(2013)212Taxman16(Delhi)(HC)
S.40(a)(i): Amounts not deductible Deduction at source Outside India Fes for technical
services Income deemed to accrue or arise in IndiaFess for technical services
[S.9(1)(vii)(b),195]
AssesseeisinbusinessofprovidingunderwaterdivingservicesinSaudiArabiaunderacontract
andpaidfeestononresidentdiversthere.BusinesscarriedonoutsideIndiaforearningincome
from a source outside India, no deduction at source liability would arise, hence disallowance
undersection40(a)(i)couldnotbemade.(A.Y.200809)
AquaOmegaServices(P.)Ltd.v.ACIT(2013)141ITD434(Chennai)(Trib.)
S.40(a)(i):Amounts not deductibleDeduction at sourceReimbursement of expenses routed

throughholdingcompanytothirdpartyProvisionsofwithholdingtaxwillapply.[S.195]
131
TheTaxpayer,anIndiancompany,wasasubsidiaryofacompanyincorporatedinNetherlands
(Parent company). During the relevant assessment year , the Tax payer made two types of
payments to the parent company on which taxes were not with held on the ground that the
same amounted to reimbursement, Viz (1) Payment in respect of common expenses borne by
the parent company for various group companies in respect of accounting services, legal and
professional services, communication, R&D etc. These payments were incurred by the parent
companyonbehalfoftaxpayerandothergroupcompaniesandthesamewererecovered.(ii)
Payments in respect of expenses for training services availed by the tax payer from
independentthirdpartyandforwhichthepaymentwasroutedthroughparentcompany.Such
trainingserviceswerearrangedbytheparentcompanywhichpaidtothirdpartiesandlateron
received the amount from the tax payer on actual basis. The Assessing Officer held that the
assesseewasliabletodeducttaxatsource.TheCommissioner(Appeals)upheldtheactionof
Assessing Officer. On appeal the Tribunal held that reimbursement of expenses to holding
company is not an income under the Act and hence not chargeable to tax. Expenses routed
through holding company for payment to third party not in the nature of reimbursement of
expenses and liable to withholding by evaluating tax implications in the hands of the third
party.(A.Y.200607)
C.U.Inspections(I)PvtLtdv.DCIT(2013)BCAJMayP.54/142ITD761(Mum.)(Trib.)
S.40(a)(i):Amounts not deductibleDeduction at sourceInterestDTAAIndiaUSAPayment of

developmentexpensesisnotliabletodeducttaxatsource.(S.195,Art.12(4))
Assessee made payment of development expenses to 'D' Ltd., a US based company, without
deducting tax at source. Assessing Officer thus, invoked provisions of section 40(a) (i) and
disallowed development expenses claimed by assessee. Commissioner (Appeals) deleted said
disallowance taking a view that since amount paid to nonresident company was not
chargeable to tax in its hands in India, there was no obligation to deduct tax at source from
amount in question. Commissioner (Appeals) also held that 'D' Ltd. was covered by IndoUS
DTAAandasperarticle12(4)ofsaidtreaty,technicalandconsultancyserviceswerenottaxable
in India and, thus, there was no obligation to deduct tax at source from payment of such
technical and consultancy services. Tribunal held that in view of specific finding recorded by
Commissioner (Appeals), there was no justification to interfere with impugned order deleting
disallowancemadeundersection40(a)(i).(A.Y.200405)
S.40(a)(ia):AmountsnotdeductibleReimbursementsofsalarySisterconcern.
The Assessing Officer disallowed the amount paid by the assessee to its sister concern for
payment of salaries to the latters employees deputed to assessee, since assessee did not
deducttaxatsourcewhilemakingsaidpayment.Itwasnotcaseofrevenuethatassesseehad
made any payment for consideration extraneous to cost of employees deputed to it nor was
thereanyallegationthatamountpaidtoitssisterconcernswasoverandabovesalariesdueto
employees.Thus,theTribunalconcludedthatexpenditurewasincurredforsalariesand,there
wasnooccasiontoinvokeS.40(a)(ia).Sincethiswasafindingoffact,nosubstantialquestionof
lawarosetherefrom.
CITv.OCBEngineers(2013)214Taxman121(Mag.)(Bom.)(HC)
132
S.40(a)(ia): Amounts not deductible Deduction at source Interest CommissionPayable

SpecialBenchverdictinMerilynShippingisnotgoodlaw.
The assessee incurred expenditure on which TDS ought to have been deducted but was not.
The AO disallowed the expenditure u/s 40(a)(ia). On appeal, the Tribunal relied on Merilyn
Shipping&TransportsvAdd.CIT(2012)146TTJ1(Viz)(SB)andheldthatthedisallowanceu/s
40(a)(ia)couldbemadeonlyfortheexpenditurethatispayableasof31stMarchandnotfor
the amounts that have already been paid during the year. On appeal by the department to
theHighCourt,HELDreversingtheSpecialBench:
The key words in s. 40(a)(ia) are on which tax is deductible at source under Chapter XVII B
and this makes it clear that it applies to all expenses. Nothing turns on the fact that the
legislatureusedthewordpayableandnotpaidorcredited.Unlessanyamountispayable,it
canneitherbepaidnorcredited.Ifanamounthasneitherbeenpaidnorcredited,therecanbe
nooccasionforclaiminganydeduction.TheSpecialBenchwaswronginmakingacomparison
between the draft Bill and the enacted law to determine the intention of the Legislature. A
comparison is permissible only between the preamendment and post amendment law to
ascertain the mischief sought to be remedied or the object sought to be achieved by the
amendment.Thefactthattheimpactofs.40(a)(ia)isharshisnogroundtoreadthesameina
manner which was not intended by the legislature. The law was deliberately made harsh to
secure compliance of the provisions requiringdeductionsof tax at source. It is not the caseof
aninadvertenterror.Forthesamereason,thesecondprovisosoughttobecomeeffectivefrom
1st April, 2013 cannot be held to have already become operative prior to the appointed date.
Consequently,themajorityviewinMerilynShipping&Transportsisnotacceptable.
CITv.CrescentExportSyndicate(Cal.)(HC)www.itatonline.org.
S.40(a)(ia):Amounts not deductible Deduction at source Interest CommissionPayable

SpecialBenchverdictinMerilynShippingisnotgoodlaw.
Theassessee,engagedinthebusinessoftransportcontractorandcommissionagent,incurred
expenditureofRs.8.74croresonpaymenttocontractorswherenoTDSwasdeducted.TheAO
&CIT(A)heldthattheexpenditurehadtobedisallowedu/s40(a)(ia).Onappeal,theTribunal,
relyingonMerilynShipping&Transportsv.Add.CIT(2012)146TTJ1(Viz)(SB)heldthatasthe
saidamounthadalreadybeenpaidandwasnotpayableasof 31st March,thedisallowance
u/s 40(a)(ia) could not be made. On appeal by the department to the High Court, HELD
reversingtheTribunal:
InMerilynShipping&TransportsvAdd.CIT(2012)146TTJ1(Viz)(SB)themajorityheldthatas
theFinanceBillproposedthewordsamountcreditedorpaidandastheFinanceActusedthe
words amounts payable, s. 40(a)(ia) could only apply to amounts that are outstanding as of
31st March and not to amounts already paid during the year. This view is not correct for two
reasons.Firstly,astrictreadingofs.40(a)(ia)showsthatallthatitrequiresisthatthereshould
be an amount payable of the nature described, which is such on which tax is deductible at
source but such tax has not been deducted or if deducted not paid before the due date. The
provision nowhere requires that the amount which is payable must remain so payable
throughout during the year. If the assessees interpretation is accepted, it would lead to a
situationwheretheassesseewhothoughtwasrequiredtodeductthetaxatsourcebutnosuch
133
deductionwasmadeormoreflagrantlydeductionthoughmadeisnotpaidtotheGovernment,
wouldescapetheconsequenceonlybecausetheamountwasalreadypaidoverbeforetheend
of the yearin contrast to another assessee who would otherwise be in similar situation but in
whose case the amount remained payable till the end of the year. There is no logic why the
legislature would have desired to bring about such irreconcilable and diverse consequences.
Secondly, the principle of deliberate or conscious omission is applied mainly when an existing
provision is amended and a change is brought about. The Special Bench was wrong in
comparing the language used in the draft bill to that used in the final enactment to assign a
particularmeaningtos.40(a)(ia).Accordingly,MerilynShippingdoesnotlaydowncorrectlaw.
Thecorrectlawisthats.40(a)(ia)coversnotonlytotheamountswhicharepayableason31th
Marchofaparticularyearbutalsowhicharepayableatanytimeduringtheyear.
CITv.SikandarkhanN.Tunvar(Guj.)(HC)www.itatonline.org.
S.40(a)(ia):AmountsnotdeductibleTaxdeductedatsourceTaxdeductedbutnotpaidTax
deducted during MarchDeduction was allowedAmendment by Finance Act 2008 was held
retrospectivewitheffectfrom142005.
TheassesseefirmclaimeddeductionofthepaymentmadetoitscontractorsforFinancialyear
200405. The Assessing Officer found that the tax deducted at source was not paid within the
stipulated period. He invoked provisions of section 40(a)(ia) and disallowed the claim. The
Commissioner (Appeals) allowed the claim on the basis of amendment in section 40(a)(ia) by
Finance Act, 2008 giving retrospective effect from 142005.The Tribunal held that as per the
amendment,iftaxdeductedduringthelastmonthofpreviousyearwaspaidonorbeforethe
duedatespecifiedinsection139(1)disallowancecouldnotbemade.He,therefore,upheldthe
orderofCommissioner(Appeals).Itisnotindisputethatonthedatetheassesseedeductedthe
tax, he had to pay/remit the money within seven days from that date and if the amount is
actuallypaidwhenthecreditisgiven,thenthetaxispayablewithintwomonths.Intheinstant
case, assessee did not comply with the legal requirement; therefore, the Assessing Authority
wasjustifiedinmakingthedisallowance,butonthedatetheappealwasfiled,thesectioncame
to be amended, giving retrospective benefit. Therefore, the appellate authority extended the
benefitoftheamendedprovisionandheldthatthedisallowanceispaidandtheorderhasbeen
upheldbytheTribunal.ByFinanceAct,2008whichisgivenretrospectiveeffectfrom142005,
the benefit of that provision had been extended to the assessee, though no fault was found
with the assessment order passed initially. With change of law, when the effect of the
amendment is to give benefit to the assessee, the appellate authority and the Tribunal were
justifiedinextendingthesaidbenefit.Thus,orderpassedbytheTribunalisinaccordancewith
lawanddoesnotcallforinterference.Therefore,thesubstantialquestionoflawisansweredin
favouroftheassessee.(A.Y.200506)
ITOv.AnilKumar&Co.(2013)354ITR170/214Taxman202(Karn.)(HC)
S.40(a)(ia):Amounts not deductible Deduction at source Amount paid during the year
FreightchargesSpecialBenchverdictinMerilynShippingisnotgoodlaw.(S.194C)
The assessee incurred expenditure of Rs. 31 lakhs on freight but did not deduct TDS thereon
u/s194C.TheAOheldthatastherewasafailuretodeductTDS,theexpenditurecouldnotbe
allowedasadeductionu/s40(a)(ia).However,theCIT(A)allowedtheclaimonthegroundthat
134
thefreightchargewasapartofthepriceofthegoodsandtherewasnocontractbetweenthe
assesseeandthetransporter.Onappealbythedepartment,theTribunaldismissedtheappeal
by relying on the Special Bench verdict in Merilyn Shipping & Transports Ltd. (2012) 146 TTJ 1
(Viz)(SB)whereitwasheld(byamajority)thats.40(a)(ia)hadnoapplicationtoamountsthat
werealreadypaidduringtheyearbutitwasconfinedtoamountsremainingpayableasat
theendoftheyear.Onfurtherappealbythedepartment,HELDreversingtheTribunal:
Wealreadyhavedeliveredajudgmenton3rdApril,2013inITATNo.20of2013,G.A.No.190
of2013(CIT,KolkataXIVs.CrescentExportSyndicates)holdingthattheviewsexpressedinthe
case of Merilyn Shipping & Transports (ITA.477/Viz./2008 dated 20.3.2012) were not
acceptable. That is one reason why the matter should be remanded to the Tribunal. Another
reasonforremandingthemattertotheTribunalisthatthefindingoffactsrecordedbytheCIT
(Appeal)wasnottestedbytheTribunal.Fortheaforesaidreasons,theorderunderchallengeis
setasideandthematterisremandedtotheTribunalforadecisiondenovo.
CITv.Md.JakirHossainMondal(Cal.)(HC).itatonline.org
S.40(a)(ia): Amounts not deductible Deduction at source InterestCooperative societies

areexemptfromprovisionsofsection194A.[S.2(19),194A]
The Assessing Officer disallowed the interest for failure to deduct tax at source under section
194A,whichwasconfirmedbytheCommissioner(Appeals).OnappealtoTribunal,Theassessee
contendedthatbeingagriculturalcooperativesocieties,theprovisionsofsection194Aarenot
applicable.Departmentcontendedthattheassesseepaidinteresttomembersaswellasnon
members hence liable to deduct tax at source on interest payment .Tribunal held that the
assessee is registered under the Kerala State CoOpeartive Societies Act and no approval was
obtainedfromtheRBIforcarryingoutbankingactivities.Thereforeforallpracticalpurposes,
the assessee have to be treated as primary agricultural cooperative societies within the
meaningofsection2(19)oftheIncometaxAct.FollowingthejurisdictionalHighCourtinITOv
ThodupuzhaUrbanCooperativeBank(2003)264ITR36(Ker)(HC),theassesseeisexemptfrom
deduction of tax at source under section 194A. Order of lower authorities were set aside and
additionundersection40(a)(ia)isdeleted.
KadachiraServiceCoop.BankLtd.vITO(2013)141ITD270/153TTJ129(Cochin)(Trib.)
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceAirfreightpaidtoforeignAirlines
DTAAIndiaSingaporeUAE / Switzerland / Bahrain / Qatar / UK / ChinaMatter remanded.
[S.90,195,197,Art8]
Assessee firm is engaged in business of export of gift articles and promotional items. It made
payments of air fare to freight agents located abroad without deducting tax at source.
AssessingOfficerdisallowedsaidpayments,onthegroundthatthepaymentswerenotmade
directlybytheassesseetoairlinesbutthensamewasmadetodifferentpartieswhoactedas
freight agents. The Assessing officer also held that said parties had also not furnished any
certificate issued under section 197 for non deduction of tax at source. He disallowed the
freight charges under section 40(a)(ia).Commissioner (Appeals) relying on Circular No. 723
dated1991995andarticle8ofconcernedDTAAs,heldthatsaidpaymentswereexemptfrom
tax and assessee was not obliged to deduct tax at source. On appeal the Tribunal held that
sinceCommissioner(Appeals)didnotshowastohowpaymentinquestionwereexempteither
135
underrelevanttaxtreatiesorBoardscircular,impugnedorderwassetasideand,matterwas
toberemandedbackfordisposalfresh.(A.Y.200607)
ACITv.S.R.Brothers(2013)141ITD194(Mum.)(Trib.)
S.40(a)(ia): Amounts not deductible Deduction at source Software web chargesPaid to

residentsReimbursementofexpenses.[S.194J]
Assesseefirmpaidcertainsumtoacompanytowardssoftware/webcharges.Sincenotaxwas
deductedonsaidpayment,AssessingOfficerdisallowedexpensesinvokingsection40(a)(ia).The
assessee contended that said payment was made by another person through credit card on
behalfofassesseeandsinceassesseehadjustreimbursedsaidpayment,notaxwasrequired
to be deducted. Tribunal held that mode of payment is immaterial and since the provision of
section 194J were attracted on said payment , disallowance under section 40(a)(ia) was
justified.(A.Y.200809)
ACITvAnand&Anand(2013)141ITD326(Delhi)(Trib.)
S.40(a)(ia):AmountsnotdeductibleIdentityoflabourersDeductionatsourcePaymentto
sardarsDisallowancewasnotjustified.[S.80P,194C]
The assesseesociety was a civil contractor and filed return claimed deduction under section
80P.Thelabourchargespaidbytheassesseeweremeantnotforthelabourersdirectlybutfor
thesardars,whoweretoidentifythelabourersbeingpaidlessthanRs.50,000each.Thesum
couldnotbeconsideredfordisallowanceundersection40(a)(ia),insofarasitcouldnotbesaid
that the sardars were to be subjected to deduction of tax at source only on that part of their
paymentsmeantforthelabourerswhomtheyhadidentified.(A.Y.20082009)
AristoconEngineersCooperativeSocietyLtd.v.DCIT(2013)24ITR42(Kol.)(Trib.)
S.40(a)(ia): Amounts not deductible Deduction at source. For default of shortdeduction of

deductionatsourcenosection40(a)(ia)disallowancecanbemade.[S.201(IA)]
Theassesseemadepaymentstovariouscontractors.Thoughtaxwasdeductedatsource,itwas
ataratelowerthanthatprescribedundertheAct.TheAssessingOfficerandCIT(A)heldthatas
there was a default by the assessee, the expenditure had to be disallowed u/s 40(a)(ia). On
appealbytheassesseetotheTribunal,HELDallowingtheappeal:
Acombinedreadingofs.201(1A)ands.40(a)(ia)showsthatwhileacaseofshortdeductionof
TDS is covered by s. 201(1A), it is not covered by s. 40(a)(ia). There is an obvious omission to
include short deduction / lesser deduction in s. 40(a)(ia). Therefore, in case of short /lesser
deductionoftax,theentireexpenditurewhosegenuinenesswasnotdoubtedbytheassessing
officer, cannot be disallowed (S.K. Tekriwal (Cal) HC) & Chandabhoy and Jassobhoy (2012) 49
SOT448(Mum)followed(A.Y.200607)
ApolloTyresLtdv.DCIT(Cochin)(Trib.)www.itatonline.org.
S.40(a)(ia):Amounts not deductibleDeduction at sourceDTAAIndia IrelandOnline

advertisement charges on websiteAdvertisement charges paid to Google & Yahoo is not
chargeabletotaxinIndia.[S.5(2)(b),9(1)(i),90,195,Art.12].
The assessee, a florist, paid a sum of Rs. 30.44 lakhs to Google Ireland Ltd and Yahoo USA for
onlineadvertising.TheAOheldthattheassesseeoughttohavedeductedTDSandsincethere
136
wasafailure,theexpenditurewasnotallowableu/s40(a)(i).ThiswasdeletedbytheCIT(A)on
thegroundthatGoogleandYahoodidnothaveaPEinIndia.Onappealbythedepartmentto
theTribunal,HELDdismissingtheappeal:
U/s5(2)(b),incomeaccruingorarisinginIndiaischargeabletotaxinIndia.Awebsitedoesnot
constitute a permanent establishment unless the servers on which websites are hosted are
also located in the same jurisdiction. As the servers of Google and Yahoo are not located in
India, there is no PE in India. As regards the second limb of s. 5(2) (b) of income deemed to
accrue or arise in India, one has to consider s. 9. S. 9(1) (i) does not apply as there is no
business connection in India nor are the online advertising revenues generated in India
serviced by any entity based in India. As regards s. 9(1) (vi), it is held in Yahoo India (P) Ltd.
(2011)140TTJ195(Mum)andPinstormTechnologies(P)Ltd.(2012)54SOT78(Mum)thatthe
advertisingrevenuesarenotassessableasroyalty.Asregardss.9(1)(vii),theservicesarenot
managerial or consultancy in nature as both these words involve a human element.
Applyingtheruleofnosciturasociis,eventhewordtechnicalinExplanation2tos.9(1)(vii)
wouldhavetobeconstruedasinvolvingahumanelement.Ifthereisnohumaninterventionin
atechnicalservice,itcannotbetreatedasatechnicalserviceu/s9(1)(vii).Onfacts,theservice
renderedbyGoogle&Yahooisgenerationofcertaintextonthesearchengineresultpage.This
is a wholly automated process. In the services rendered by the search engines, which provide
these advertising opportunities, there is no human touch at all. The results are completely
automated. Consequently, the whole process of actual advertising service provided by Google
& Yahoo, even if it be a technical service, is not covered by the limited scope of s. 9(1) (vii).
Consequently, the receipts in respect of online advertising on Google and Yahoo cannot be
brought to tax in India under the provisions of the Act or the India US and India Ireland tax
treaty.(A.Y.200506)
ITOv.RightFloristsPvt.Ltd.(2013)86DTR165/154TTJ142(Kol.)(Trib.)
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceDumperhirechargesContractor
SpecialBenchverdictbindingdespitesuspensionbyHighCourt.(S.194C)
TheassesseepaiddumperhirechargesofRs.36.37lakhsandclaimeditasadeduction.TheAO
disallowed the claim u/s 40(a) (ia) on the ground that the assessee had not deducted TDS
thereonu/s194C.BeforetheTribunal,theassesseearguedthatitwasnotliabletodeductTDS
u/s194Castherewasonlynocontractualagreement.Inthealternative,itwasarguedthatin
accordance with the Special Bench judgement in Merilyn Shipping& Transports v. Add. CIT
(2012) 136 ITD 23 (SB), the disallowance u/s 40(a) (ia) had to be confined to the amounts
payableasattheendoftheyearanditdidnotapplytotheamountsalreadypaidduringthe
year. The assessee also argued that though the Andhra Pradesh High Court had granted an
interimsuspensionagainstthesaidjudgementoftheSpecialBench,itwasstillbinding.Held
bytheTribunal:
Theargumentthats.194Cdoesnotapplyintheabsenceofawrittencontractualagreementis
not acceptable. Even a verbal contract is sufficient. As regards the judgement of the Special
Bench in Merilyn Shipping& Transports v Add. CIT (2012) 136 ITD 23 (SB) where the view was
taken that s. 40(a) (ia) can apply only to the amounts remaining payable as at the end of the
year and not to the amounts paid during theyear,though the AndhraPradesh High Court has
granted interim suspension of the said judgement, the said stay/ suspension applies only to
137
thepartiestothatproceedinganddoesnotdestroythebindingeffectofthejudgementofthe
SpecialBench.Thereisadifferencebetweenstayofoperationofanorderandquashingof
anorder.While,inthecaseofaquashing,theorderofthelowercourtceasestoexist,inthe
case of a stay, the order of the lower court continues to operate and have binding effect.
Accordingly,thejudgementoftheSpecialBenchinMerilynShippingstillholdsgroundandthe
TDS provisions will apply, for purposes of invocation of s. 40(a) (ia), only on the amounts
remaining payable at the end of the year and not on the amounts paid (Shree Chamund
MopedsLtd.vs.ChurchofSouthIndiaTrustAssociationAIR1992SC1439,1444&PijushKanti
Chowdhuryvs.StateofWestBengal2007(3)CHN178followed).(A.Y.200708)
ITOv.MGBTransport(2013)23ITR391(Kol.)(Trib.).
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceContractorTransportationcharges
paidbeforeendoffinancialyearrelevanttoassessmentyeardisallowanceofchargesfor
failuretodeducttaxatsourcenotproper.(S.194C)
Theassesseeclaimeddeductionofexpendituretowardstransportation charges.TheAssessing
Officerdisallowedthetransportationchargespaidundersection40(a)(ia)oftheAct,asnotax
was deducted at source while making the payment. The Commissioner (Appeals)set aside the
Assessing Officer's order. On appeal by the Department the Tribunal held that the entire
expenditureinrespectoftransportationchargeswaspaidduringthefinancialyearrelevantto
the assessment year under consideration. The balancesheet as on March 31, 2007 indicated
that there were no liabilities which meant that the assessee had paid the transportation
charges before the end of the financial year relevant to the assessment year under
consideration.Therefore,therewasnojustificationinmakingthedisallowancebytheAssessing
Officer under section 40(a) (ia) of the Act. Merilyn Shipping and Transports v. Addl. CIT [2012]
16ITR(Trib)1(Visakhapatnam)[SB]followed.(A.Y.20072008)
ITOv.VinodDatta(2013)22ITR243(Mum.)(Trib.)
S.40(a)(ia):Amounts not deductibleDeduction at sourceRentForm no 15G was filed hence

nodisallowancecanbemade.(S.194I,197A,formno.15G)
Assessee paid rent to land lady, which was below taxable limit, without deduction of tax at
source under section 194I. It filed form No. 15G being given by land lady. Assessing Officer
havingfoundthattherewereinfirmityinFormNo.15Gdisallowedrentpaidbyapplyingsection
40(a) (ia). Tribunal held that since assessee had reason for nondeduction of tax at source,
disallowance under section 40(a) (ia) of rent paid was unjustified.In favour of assessee.
(A.Y.200809)
PareekElectricalsv.ACIT(2013)55SOT338(Cuttack)(Trib.)
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceMatterremanded.
ThetribunalfollowingthejudgmentofSpecialBenchinMerilynShippingandTransportsv.Addl
CIT (2012) 16 ITR 1 (Trib.) (SB) held thatif the amounts paid during the year under
consideration,
Nodisallowancewarranted.Matterremanded.(A.Y.200708).
138
S.40(a)(ia):AmountsnotdeductibleRoyaltySatellitelinkchargesNotliabletodeductionof
taxatsource.(S.201)
Paymentsforsatellitelinkchargesforuseofstandardfacilityisnotroyaltyhencenotliableto
deductionoftaxatsource.Tribunalholdinginfavourofassesseeinproceedingsarisingoutof
section201 proceedingssameisfollowedinproceedingsarisingoutof assessment.(A.Y.2006
2007)
WillsProcessingServices(India)P.Ltd.v.Dy.CIT[2013]21ITR1/151TTJ555/57SOT34(URO)
(Mum.)(Trib.)
S.40(a)(ia):AmountsnotdeductibleDeductionatsourceRoyaltyPaymentforpurchaseof
softwareassesseeisnotliabletodeducttaxatsource.(S.9(1)(vi).)
Assessee is engaged in the business of purchase and sale of software. While computing its
income from business the assessee had claimed expenditures on account of service charges
paidtoSSC(SonataSoftwareLtd.)anddeputationchargesinrespectofpersonneldeputedby
SSC (Sonata Software Ltd.). Book the expenses were allowed by Tribunal by following the
Tribunal decision in assessees own case for earlier years. The assessee made payment for
purchase of software from persons who are resident in India. The assessee did not deduct tax
at source while making payment towards such purchases. The Assessing Officer treated the
paymentasroyaltyonthebasisthattheassesseeasapurchaserofthesoftwarehadarightto
usethesoftware.TheCIT(A)deletedtheadditionmadebyAssessingOfficer.TheTribunalheld
thatthepaymentmadebyassesseeforpurchaseofsoftwarefromvariousresidententitieswas
not in nature of royalty and therefore, there was no obligation on the part of assessee to
deduct tax at source from such payment and consequently no disallowance of the payments
canbemadeundersection40(a)(ia)fornondeductionoftaxatsource.(A.Y.200607)
ACIT v. Sonata Information Technology Ltd. (2013) 152 TTJ 590 / 55 SOT 455/ 82 DTR 337
(Mum.)(Trib.)
S.40(a)(ia):Amounts not deductible Deduction at sourcePayable at the end of previous

year.
Tribunal held that section 40(a)(ia) could be applied only to amounts standing payable at the
endofpreviousyear;matterremandedforreconsideration.(AY200506)
Dy.CIT v. Macro Marvel Projects Ltd. (2013) 140 ITD 472 / 154 TTJ 242 / 87 DTR 234
(Chennai)(Trib.)
S.40(a)(ii):AmountsnotdeductibleRatesortaxDividendtaxInterestfordelayinremitting
taxdeductedatsourceExpensesincurredfordelayinUTIdividendpaymentsisnot
deductible.[S.2(43,37(1)].
TheTribunalheldthatthedelaychargesattributabletodividendtaxpartookofthecharacterof
dividendtaxitself.Dividendtaxassuchisnotdeductible.Thereforethedelaychargesalsowere
notdeductible.Thesamewasthecaseinrespectofinterestfordelayinremittingtaxdeducted
at source. There cannot be a different view on expenses incurred for delay in UTI dividend
payments. Therefore, these expenses claimed by the assessee were not deductible in
computingitsincome.(A.Ys.20032004,20042005)
139
S.40(b):AmountsnotdeductiblePartnerSalaryHeldtobeallowable.
TheassesseefirmclaimedsalaryofRs2.20lakhspaidtoitsfulltimeworkingpartner,whowas
47 years age and graduate. The Assessing Officer allowed Rs 36,000 and the Commissioner
(Appeals) allowed Rs 1,20,000.The statement of partner was recorded under section 131
proved that the partner knew the operation of business. Tribunal held that partner's salary
couldnotbeestimatedwithoutconsideringanycomparativecaseorlayingfoundationforsuch
estimation.Deductionofsalarypaidtoapartnerwasrestrictedtoloweramountongroundof
age factor and qualification. She was full time working partner, she knew operations of firm's
business,amountpaidassalarywasallowable.(A.Y.200506)
S.B.Agenciesv.ACIT(2013)141ITD669(Cal)(Trib.)
S.40(b):AmountsnotdeductibleFirmBookprofitIncomefromOtherSourceincludedinP&L
a/cCannotbediscardedquabookprofitforcomputationofremunerationpayableto
partners.
The assesseefirm derived its income from profession as an advocate. In the profit and loss
account, the assesseefirm credited certain amount received as licence fee and compensation
foruseofsharedfacilities.Inthecourseofassessment,theAssessingOfficeropinedthatsince
the aforesaid income was not a professional income, the same could not form part of 'book
profit'forcomputationofallowableremunerationtopartnersundersection40(b).Itwasheld
that Income from other sources included in profit and loss account to ascertain net profit
cannotbediscardedquabookprofitforcomputationofremunerationpayabletopartners.The
Tribunalallowedtheappealofassessee.(A.Y.200506)
SureshA.Shroff&Co.v.JCIT(2013)140ITD1/153TTJ666/85DTR446(Mum.)(Trib.)
S.40(b)(v):AmountsnotdeductiblePartnerRemunerationPartnershipdeedspecifically
providingforpaymentofremunerationtoworkingpartners,remunerationpaidto
partnerswerewithinstatutoryfixedlimithencenodisallowanceongroundexpenditure
excessive.(S.40A(2))
Whileconsideringtheprovisionsofsection40(b)(v)readwithsection40A(2)(a),theCourtheld
thattheAssessingOfficerisonlyrequiredtoseewhetherthepartnersaretheworkingpartners
mentioned in the partnership deed, the terms and conditions of the partnership deed provide
forpaymentofremunerationtotheworkingpartnersandwhethertheremunerationprovided
iswithinthelimitsprescribedundersection40(b)(v).Ifalltheconditionsarefulfilledhecannot
disallowanypartoftheremunerationonthegroundthatitisexcessive.(A.Y.200506)
CITv.GreatCityManufacturingCo.(2013)351ITR156/256CTR420/83DTR13(All)(HC)
S.40A(2):ExpensesorpaymentsnotdeductibleDirectorsremunerationcomparingwithjob
profileisheldtobeallowable.
The job profile was of one of the directors was client management whereas the job profile of
another was that of media consultant. Therefore, these cases were not comparable. The
assessee was in the business of advertising and media. In such a business, the role of a media
consultant was much more important than the role of a client management. Thus, the
disallowancemadewasthustobedeleted(A.Y.20052006)
140
HiveCommunicationsP.Ltd.v.CIT(2013)353ITR200(Delhi)(HC)
S.40A(2):Expenses or payments not deductible Excess or unreasonable Payment to sister

concernAsnoinvestigationisdone,disallowancewasnotsustainable.
In the instant case the AO held that the assessee had made payments to its sister concern
without citing any cogent reasons. The High Court held that the AO had not carried out any
investigationastoifthepaymentsmadetothesisterconcernwereexcessivewithreferenceto
third parties or fair market charges payable for similar nature of work. In the absence of the
same,disallowancecannotbesustained.(A.Y.200203)
S.40A(2):ExpensesorpaymentsnotdeductibleReasonablenessofexpenditureNoadhoc
disallowancecanbemade.
IntheROI,theassesseeclaimedthatcertainresourceslikestaff,officepremises,etc.,hadbeen
used commonly both by the assessee company and its parent company and expenses relating
totheseresourcedhadbeenshared.TheRevenueauthoritiesheldthatsinceassesseefailedto
prove that expenses incurred through associate companies were reasonable and at arm's
length,consideringservicesrenderedbyassessee,apartofsaidexpenseswastobedisallowed.
Held, since it was apparent from records that arrangement of expenses was correct and bona
fide and was in accordance with terms of agreement between both parties, no ad hoc
disallowanceofanyamountwascalledfor(A.Y.200708)
GlobalInnovsourceSearchSolutions(P.)Ltd.vITO(2013)57SOT139(Mum.)(Trib.)
S.40A(2):Expenses or payments not deductibleExcess or unreasonableDirectors

remunerationallowedwhichwasbasedonboardresolution.
Where payments were made by assesseecompany to its directors was supported by a Board
resolution which authorised payment being in appreciation of directors' services and
encouragingoperationalresultsofcompany,deductionshouldbeallowedtoassessee.Appeal
ofrevenuewasdismissed.(A.Y.200102)
ACITv.BhiwadiCylinders(P.)Ltd.(2013)55SOT32(URO)(JP)(Trib.)
S.40A(2):ExpensesorpaymentsnotdeductibleExcessorunreasonableCommission
DisallowancemadebytheAssessingOfficerwasdeleted.
Assessee is carrying on business of job work and sale of ceramic catalyst items. It paid sales
commission to a partnership firm 'R' in which assessee was also a partner. According to
assessee, marketing services rendered by 'R' included obtaining orders, visiting parties,
collection of payment etc. Assessing Officer took a view that receipt of job work by assessee
was a repetitive process and, in such a case, third party services were not required. He thus
disallowed payment of sales commission by invoking provision of section 40A(2) (b). Tribunal
heldthat,Itwasundisputedthatsalespromotioncommissionpaidto'R'wasallowedinearlier
years. Moreover, revenue failed to bring on record evidence showing that expenses incurred
wereexcessiveorunreasonable,inviewofabove,impugneddisallowancemadeundersection
40A(2)(b)wastobedeleted.Infavourofassessee.(A.Y.200607)
141
Dy.CITv.RaviCeramics.(2013)55SOT160(Ahd.)(Trib.)
S.40A(3):ExpensesorpaymentsnotdeductibleCashpaymentsexceedingprescribedlimits
SalaryExceedingprescribedlimitDisallowancewasheldtobejustified.(S.147)
Return of assesseecompany was processed under section 143(1) Subsequently, Assessing
Officer having found that assessee had paid salary to its managing director in cash exceeding
Rs. 20,000 and also claimed nonbusiness expenses initiated reassessment proceedings and
thereafter disallowed said expenses. Tribunal upheld finding of Assessing Officer. Court held
that no substantial question of law arose out of order of Tribunal. In favour of revenue.
(A.Y.200203)
RajasthanTelematicsLtd.v.ACIT(2013)213Taxman44(Mag.)(Raj)(HC)
S.40A(3):Expenses or payments not deductible Cash payments exceeding prescribed limits

AssesseepurchasinggoodsanddepositingamountinbankaccountofsellerNodisallowance
inhandsofassessee.(IncometaxRules,1962,R.6DD.)
The Assessing Officermade an addition of Rs. 60,19,000 ,on the ground that the assessee had
violated the provisions of section 40A(3) of the Incometax Act, 1961. The Tribunal partly
allowed the appeal by the assessee. On appealby revenue high Court, dismissing the appeal,
heldthat the Tribunal categorically held that the amount in question was directly deposited in
the bank account of the seller. The Tribunal had considered the factor that the assessee was
only an agent of the seller and held that no disallowance could be made in the hands of the
assessee. The findings had not been shown to be perverse. Therefore, the addition was not
justified.(A.Y.20082009)
CITv.ShellyPassi(Smt)[2013]350ITR227/86DTR78/213Taxman213(P&H)(HC)
S.40A(3): Expenses or payments not deductible Cash payments exceeding prescribed limit
AgriculturalproduceKachchaArahtia.[IncometaxRules1962,Rule6DD]
Assessee acted as Pakka Arahtia and made cash purchases of agricultural produce through
Kachcha Arahtias who in order to facilitate , sale o agricultural produce, with farmers brought
toMandi,hadtakencommissionfromPakkaArathia.ie.Assessee.KachchaArahtiashadfiled
affidavitsthatcashpaymentsweremadeattheirinsistenceastheydidnotmaintainanybank
accounts.Furthertheyhadtomakepaymentstofarmersincash.Tribunalheldthatthecase
of assesseewas clearlycovered byexceptions provided under rule 6DD no disallowancecould
bemadeundersection40A(3)(A.Y.200607)
ITOv.SunilKumarAgarwal(2013)141ITD309(Agra)(Trib.)
S.40A(3): Expenses or payments not deductible Cash paymentPurchase considerationSelf

madevouchersdisallowancewasjustified.
Assesseeengagedinrealitybusiness,purchasedapropertybymakingcashpayment.Itclaimed
that payments were made in parts and each payment was either less than or of
Rs.20000.Assessee also contended that payments were made at different hours of same day
and on a different dates. The Assessing Officer held that provisions of section 40A(3) is
applicable as there was neither any business exigency nor any reasonable cause was shown.
Commissioner (Appeals) confirmed the addition. On appeal the Tribunal held that vouchers
142
were self made to come out of clutches of section 40(A)(3) and assessee had failed to
substantiateitsclaim,disallowancemadebytheAssessingOfficerwasjustified.(A.Y.200708)
RamanMahajan,HUFv.ITO(2013)141ITD485(Asr.)(Trib.)
S.40A(3):Expenses or payments not deductibleCash payments exceeding prescribed limits

BestjudgmentNodisallowanceundersection40(A)(3).(S.144,145)
The assessee derived income from newspaper agency sales and purchases of commission. He
filedhisreturnonMarch31,2010.TheAssessingOfficerobservedthattheassesseemadesales
in cash and while making the best judgment assessment accepted the sales showed by the
assessee but applied a higher gross profit rate and made addition in respect of income from
newspaper business. He also made trading addition under section 40A(3) of theAct, on the
groundthattheassesseemadecashpaymentstothenewspapercompany.TheCommissioner
(Appeals)deletedtheadditiononthegroundthatwhenincomewasassessedbyestimatingthe
profitafterrejectionofthebooksofaccountnodisallowancecouldbemadeseparatelyunder
section 40A(3) of the Act. On appeal by the Department the Tribunal held, that the
Commissioner (Appeals) rightly deleted the separate addition made by the Assessing Officer
undersection40A(3)oftheAct.(A.Y.20092010)
ITOv.NardevKumarGupta(2013)142ITD303/22ITR273(Jaipur)(Trib.)

CashpaymentsHeldproper.
The tribunal held that the assessee has not produced any material to controvert finding of
AssessingOfficerthatnocashpaymentwasmadeaboveoverandaboveRs20000bywayofa
singlepaymentoraggregateofpaymentsinasingleday.Asnoevidencetoestablishclaimthat
nosinglepaymentincashmadewasblowofRs.20,000disallowancewasheldtobeproper.(A.Y.
200809)
CashpaymentDisallowancejustified.
Tribunalheldthatthereisnoevidenceofexceptionalcircumstances,hencedisallowanceisheld
tobejustified.(A.Y.20062007,20072008)
S.40A(8):Expenses or payments not deductibleInterest on depositsFixed depositsInterest

cannotbedisallowedundersection40(A)(8).
Fixed deposits securedby a floating charge on specific assets of company amounts to secured
fixed deposits and, therefore, interest paid on them cannot be disallowed under section
40A(8).Infavourofassessee.(A.Y.198586)
CITv.DalmiaCement(Bharat)Ltd.(2013)212Taxman126(Mag.)(Delhi)(HC)
S.40A(9):ExpensesorpaymentsnotdeductibleNonstatutoryfundsEvidence.
Where the contribution to employees welfare trust etc. being nonstatutory funds were
claimed to have been made as per agreement with workers' union under Industrial Disputes
143
Act, 1947, but there was no evidence of such agreement, amount of contributions were not
S.41(1): Profits chargeable to tax Remission or cessation of trading liabilityWriting back of

gratuityallowedastradingliabilityinassessmentyear197273Noremissionorcessationof
liability.
A unilateral act of the assessee in writing back the amount of gratuity of Rs. 32,39,929 which
wasallowedasexpenditureintheassessmentyear197273couldnotbetreatedasremission
or cessation of the trading liability so as to attract the provisions of section 41(1).The said
amountcouldnotbetaxedintheAsstyear19761977.(A.Y.19761977)
CITv.ElginMillCo.Ltd.(2013)352ITR153/213Taxman311(All.)(HC)
S.41(1):ProfitschargeabletotaxRemissionorcessationoftradingliabilitySincetherewasno
declaration by assessee that it did not intend to honour its liabilities nor was there any
dischargeofdebt,provisionsofsection41(1)couldnotbeinvoked.
Assessing Officer finding that assessee had not paid money to many of creditors for years
together added same as income under provisions of section 41 (1).Court held that since there
wasnodeclarationbyassesseethatitdidnotintendtohonouritsliabilitiesnorwasthereany
dischargeofdebt,provisionsofsection41(1)couldnotbeinvoked.Cessationofliabilityhasto
be either by reason of operation of law, i.e., on liability becoming unenforceable at law by
creditor and debtor declaring unequivocally his intention not to honour his liability when
payment is demanded by creditor, or a contract between parties, or by discharge of debt. In
CITv.G.K.Patel&Co.(2013)212Taxman384(Guj.)(HC)
S.41(1):Profits chargeable taxRemission or cessation of trading liabilityAdjustment of

liabilitiesAdditionwasdeleted.
Assessee imported goods from IMC, a US company on credit. Assessee also rendered some
services to IMC for commission. However, IMC withheld said commission payable. Assessing
Officer found that no confirmation regarding credit was given by IMC and concluded that
assesseehadadjustedamountpayablebyittowardsgoodsagainstcommissionreceivableand
madeadditionundersection41(1).TribunalheldthatnoconfirmationwasfiledfromIMCcould
not lead to conclusion that there was a cessation or remission of liability of assessee to IMC
warranting invocation of provisions of section 41 (1).Since no evidence was forthcoming to
showthatanysuchadjustmentwasmadebyassessee,additionmadebyAssessingOfficerwas
deleted.Infavourofassessee.(A.Y.200809)
VictoriaRoberts(Smt.)v.ACIT(2013)55SOT130(Bang.)(Trib.)
S.41(1):ProfitschargeabletaxRemissionorcessationoftradingliabilityUnclaimedliability
Entirecreditcannotbebroughttontax.
Assesseeconsistentlyfollowedamethodofaccountingwherebyitismaintainingprovisionfor
unclaimedliabilitiesandofferingtheunclaimedamountstotaxaftertheendofthethreeyear
144
limitation period, entire credit in the said account cannot be brought to tax as income of the
relevantyear.(A.Y.200203)
LintasIndia(P)Ltd.v.ACIT(2013)83DTR263(Mum.)(Trib.)
S.42:Business of prospecting, etc.OversightNot mentioning of section 42 in the contract

deductionisnotallowable.
The tender given by the petitioner did not specifically stipulate or include any clause with
regard to the benefit under section 42 of the Act. Written production sharing contracts were
signed and executed between the petitioner and the Ministry of Petroleum and Natural Gas.
Therewasnoletterorcorrespondencewrittenbythepetitionerfrom1995onwardsstipulating
that, by mistake or due to oversight, section 42 benefit was not mentioned in the written
productionsharingcontracts.TheletterwrittenbytheDeskOfficer,MinistryofPetroleumand
NaturalGasreferringtosection42andtherequirementtotablethecontractinbothHousesof
Parliamentwaswrittenasamatterofroutineandbyitselforevenwithotherletters,etc.,did
notjustifytheclaimofthepetitioner.Inthesecircumstances,thecontentionofthepetitioner
that the benefit under section 42 of the Act was inadvertently missed out, or due to an
oversight, not included in the written contract, was not tenable. (A.Ys. 20012002 to 2005
2006)
JoshiTechnologiesInternationalInc.v.UOI(2013)353ITR86(Delhi)(HC)
S.43(1):ActualCostCustomsdutyDepreciationCustomdutypaidtobeconsideredaspartof
actualcostforthepurposeofallowingdepreciation.(S.32)
AssseseepurchasedmachineryfromacompanylocatedinUSA.Itclaimeddepreciationatrate
of 25 per cent on actual cost of machinery worth Rs. one crore. Assessing Officer pointed out
that written down value of machinery in books of account of assessee was Rs. 75.73 lakhs,
which was to be taken as actual cost for purpose of granting depreciation. Tribunal upheld
order of Assessing Officer. On appeal, assessee furnished copies of invoices and pointed out
that Assessing Officer had omitted to take note of payment of ad valorem custom duty which
was to be included in actual cost of machinery for purpose of allowing depreciation. On facts,
totalcostclaimedbyassesseeasRs.onecrorestoodexplainedand,therefore,assessee'sclaim
wastobeallowed.Infavourofassessee.(A.Y.199697)
Dy.CITv.FirstLeasingCo.ofIndiaLtd.(2013)212Taxman417(Mad.)(HC)
S.43(5):Speculative transactionLoss on foreign currency forward contracts by a

manufacturer/exporterisahedginglossandnotaspeculationloss.
Theassessee,anexporter,enteredintoforwardcontractswithBankstohedgeagainstanyloss
arising out of fluctuation in foreign currency. The forward contract provided that the assessee
would buy some quantity of dollars at a particular rate to cover export bill payment. The
contractgavedeliveryoptiondatesandtheassesseehadtheoptiontocancelthecontractand
paythelosstotheBank.TheassesseesufferedalossofRs.15lakhsonsuchcancellation.The
AO & CIT(A) held that the loss constituted a speculation loss u/s 43(5) and could not be
allowedasadeduction.Onappeal,theTribunalupheldtheassesseesclaim.Onappealbythe
department,HELDdismissingtheappeal:
145
Thoughtheassesseeisnotadealerinforeignexchange,itenteredintoforwardcontractswith
banks for the purpose of hedging the loss due to fluctuation in foreign exchange while
implementing the export contracts. The transactions in foreign exchanges were incidental to
theassesseesregularcourseofbusinessandthelosswasthusnotaspeculativelossu/s43(5)
but was incidental to the assessees business and allowable as such. The fact that there may
have been no direct corelation between the exchange document and the precise export
contract cannot be seen in isolation if there are in fact several separate contracts with the
bankers(CITv.SoorajmullNagarmull(1981)129ITR169(Cal)&CITv.BadridasGauridu(P)Ltd.
(2004)261ITR256(Bom)followed;M.G.Brothersv.CIT(1985)154ITR695(AP)distinguished)
CITv.FriendsAndFriendsShippingPvt.Ltd(Guj.)(HC)www.itatonline.org.
S.43(5):SpeculativetransactionLossonforeigncurrencyforwardcontractsbyamanufacturer
/exporterisaspeculationlossandnotahedgingloss.
The assessee, a dealer in diamonds, entered into forward contracts in US dollars. Some of the
contracts were cancelled during the year and some were outstanding at the end of the year.
The assessee suffered a loss of Rs. 4.02 crores on account of the cancellation and marked to
market of the said forward contracts and claimed that sum as a deduction. The AO & CIT(A),
reliedonInstructionNo.03/2010dated2332010andheldthatthesaidlossaroseonaccount
of a speculative transaction while the assessee claimed that it arose out of a hedging
transaction.HELDbytheTribunal:
Thereisadifferencebetweenaspeculativetransactionandahedgingtransaction.S.43(5)
definesaspeculativetransactiontomeanatransactioninwhichacontractforthepurchase
or sale of any commodity, including stocks and shares, is periodically or ultimately settled
otherwise than by the actual delivery or transfer of the commodity or scrips. Proviso (a) to s.
43(5)referstoahedgingtransactionasacontractinrespectofrawmaterialsormerchandise
enteredintobyapersoninthecourseofhismanufacturingormerchandisingbusinesstoguard
against loss through future price fluctuations in respect of his contracts for actual delivery of
goods manufactured by him or merchandise sold by him. In order for a transaction to be a
hedgingtransaction,thecommoditydealtinshouldbethesame.Ifthesubjectmatterofthe
transaction is different, it cannot be termed a hedging transaction. Also, the merchandise in
respectofwhichtheforwardtransactionshavebeenenteredintobytheassesseemusthavea
direct connection with the goods sold by him. On facts, as the assessee was not dealing in
Foreign Exchange, the forward transactions entered into by it cannot be held to be hedging
transactions. As the assessee is dealing in diamonds, only the forward contracts entered into
for diamonds would be covered by Proviso (a) to s. 43(5). Consequently, the loss suffered by
theassesseeisaspeculativeloss.(200809)
S.VinodkumarDiamondsPvt.Ltd.v.CIT(Mum.)(Trib.)www.itatonline.org.
S.43(5):Speculative transaction Speculative loss Losses from share trading activity and
futureandoptionstransactions.(S.28(i))
Assesseefiledalltheevidenceforclaiminglossfromsharetradingactivityincludingcopyofthe
timestampedcontractnotesissuedbythebrokerscontainingtheuniqueclientcodeandPAN
oftheassessee,theclaimoflosscannotbedisallowedmerelyonthegroundthatitisdirectly
146
taken to the capital account without routing it through the P&L a/c nor it can be treated as a
speculation loss; matter is restored to the AO for the limited purpose of verifying whether
deliveryofshareshasbeentakenornot.(A.Y.200809)
ACITv.NaishadI.Parikh(2013)83DTR227(Ahd.)(Trib.)
S.43B:DeductionsonactualpaymentDuedateins.36(1)(va)forpaymentofemployees
Provident Fund, ESIC etc contribution should be read with s. 43B(b) to mean due date for
filingreturnofincome.[S.2(24(X),36(1)(va)]
The assessee collected employees Provident Fund contribution for payment to the provident
fund authorities. However, the amount was not paid to the provident fund authorities within
the due date specified in the Provident Fund Act though it was paid before the due date of
filing the return of income. The AO assessed the amounts received as income u/s 2(24)(x) but
refused to allow a deduction u/s 36(1)(va) on the ground that the amounts were not paid
within the prescribed due date. The CIT(A) and Tribunal allowed the assessees claim for
deductionu/s43B(b).TheDepartmentfiledanappealintheHighCourtclaimingthats.43Bdid
notapplytoemployeescontribution.HELDbytheHighCourtdismissingtheappeal:
S.2(24)(x) provides that the amounts of employees contribution to PF etc collected by the
employer shall be assessed as his income. S. 36(1)(va) provides that the said employees
contribution shall be allowed as a deduction if paid within the due date specified in the
relevantlegislation.S.43(B)(b)providesthatanysumpayablebytheassesseeasanemployer
bywayofcontributiontoanyprovidentfundetcshallbeallowedifpaidbeforetheduedateof
filing the ROI. The due date referred to in s. 36(1)(va) must be read in conjunction with s.
43B(b) to mean the due date of filing the ROI. The AO wrongly proceeded on the basis that
the due date in s. 36(1)(va) is the due date fixed by the Provident Fund authority, whereas
readinthecontextofs.43B(b)itistheduedatefixedforfilingtheROI.
CITv.KichhaSugarCompanyLtd.(Uttarakhand)(HC)www.itatonline.org.s
S.43B:Deductions on actual payment Payment of sales tax made beyond time provided
undertheprovisotosection43BoftheActAssesseenotentitletothebenefitprovidedby
proviso.(S.139(1))
Where the assessee does not make the payment of sales tax dues before filing its return of
incomeundersection139(1)oftheAct,theamountisliabletobedisallowedundersection43
BoftheAct.(A.Y.199394)
CITv.ForbasEwart(P)Ltd.(2013)81DTR436(Ker.)(HC)
S.43B:Deductions on actual paymentDisallowance cannot be made on the ground that the

paymentwasnotinrespectofmanufacturedgoods.
The assessee, a car manufacturer, had to comply with the requirements of the Excise Act, in
order to clear the goods, by paying duty. The duties are collected in the form of a regular
paymentintothe"PersonalLedgerAccount(PLA)"intermsofRule173GoftheCentralExcise
Rules.TheAOtookthepositionthattheamountspaidinto,andremainingoutstanding,atthe
endofthefinancialyear,wastobedisallowedbyreasonofsection43B.However,theTribunal
acceptedtheassessee'scontentions.Onappealthecourtheldthatwhereassesseemaintained
147
"sufficient"amountsinExcisePLA,asperRule173GofExciseRulestocovertheremovals,such
amounts related to assessee's duty liability, falling within the description under section 43B;
thus,revenue'scontentionthatamountsincreditalsorelatedtogoodsnotmanufactured,and
therefore, not relatable to any "liability incurred" had no basis. Thus, the Tribunal rightly held
that the amounts deposited by the assessee in the Excise PLA could not be disallowed under
section43B.(A.Y.199495).
CITv.MarutiSuzukiIndiaLtd.(2013)212Taxman603/81DTR152(Delhi)(HC)
S.43B: Deduction on actual payment Interest Schedule bankCooperative bank Interest

payabletoSMMCooperativeBankLtdcouldnotbedisallowedundersection43B.
The assessee claimed in respect of interest payable to Shree Mahalaxmi Mercantile Co
operative Bank ltd. The Assessing Officer disallowed the interest under section 43B on the
ground that the interest was not paid up to the date of filing of the return. On appeal the
Commissioner(Appeals)confirmedtheorderofAssessingOfficer.OnappealtotheTribunalthe
Tribunalheldthatsection43Bwouldnotapplyincaseofpaymentofinteresttoacooperative
bankforthereasonsthatsectionisapplicableonlyinrespectofinterestpayabletoaloantaken
froma schedule bank.Under terms of Explanation 4(aa) to section 43B of the Act,a schedule
BankwouldhaveameaningassignedtoitintheExplanationtocl.(iii)ofsub.s.(5)ofsection11
oftheAct.TheTribunalheldthatShreeMahalaxmiMercantileCooperativebankisnotcovered
with in the definition of scheduled bank under section 43B,therefore the appeal of assessee
was allowed. On appeal to High Court the High Court confirmed the view of Tribunal and the
appealofrevenuewasdismissed.(A.Y.20005)
CITv.UpendraT.Kapadia(2013)81DTR279/256CTR201/213Taxman384(Bom.)(HC)
S.43B:Deductions on actual payment Employees PF/ESI Contribution is not covered by

section 43B & is only allowable as a deduction u/s.36(1)(va) if paid by the due date
prescribedtherein.[S.36(1)(va)]
In AY 200809 the assessee collected employees contribution to the Provident Fund and ESIC
butdidnot payitwithintheduedateprescribedbytherelevantlegislation. Theamountwas,
however, paid before the due date of filing the ROI. The AO assessed the said amounts as
income u/s 2(24)(x) but declined to grant a deduction u/s 36(1)(va) as the amount had been
paid after the due date. The CIT(A), relying on CIT v. Alom Extrusions (2009) 319 ITR 306 (SC)
and AIMIL Ltd. (2010) 321 ITR 508 (Del) held that the amounts had to be allowed as a
deductionu/s43BastheyhadbeenpaidbeforefilingtheROI.Onappealbythedepartmentto
theTribunal,HELDreversingtheCIT(A):
S.43Bcoversonlythesumspayablebywayofcontributionbytheassesseeasanemployer,i.e.,
the employers contribution to the PF and ESI funds. It does not cover the employees
contribution. While the employers contribution is allowable u/s 37(1), the employees
contributioncollectedbytheemployerisdeemedtobehisincomeu/s2(24)(x)andisallowable
asadeductionu/s36(1)(va)onlyifitispaidtotherelevantfundbytheduedateasprescribed
intherelevantlegislation.Evenifoneassumesthats.43B(b)appliestos.36(1)(va)payments,a
deduction would not be admissible because the s. 36(1)(va) payments are not otherwise
allowableiftheyarepaidbeyondtheduedate.ThedecisionsinCITv.VinayCement(2007)
213CTR(SC)268&AlomExtrusions(2009)319ITR306(SC)arenotanauthorityonthepoint
148
that employees contributions are also coveredby s. 43B. Though in AIMIL Ltd. (2010) 321 ITR
508(Del)itwasheldthatemployeescontributiontoEPFandESIfundsarecoveredbys.43B,it
cannotbefollowedbecause(i)theCourtmovedonthepremisethatemployeescontributionis
subjecttoclause(b)ofs.43Banddidnotnoticetheconditionins.36(1)(va),(ii)thedecisionby
thetribunal,whichwasapprovedbytheHighCourtinAIMILwasrenderedwithoutconsidering
thedecisionoftheSpecialBenchinITCLtd&(iii)itisinconsistentwithCITvGodaveri(Mannar)
Sahakari Sakhar Karkhana Ltd.(2008) 298 ITR 149 (Bom). Accordingly, AIMIL cannot be
followedandthedeductibilityofemployeescontributionhastobeseenonlywithreferenceto
s.36(1)(va)(togetherwithgraceperiod)(BengalChemicals&Pharmaceuticals(includedinfile)
&JCITv.ITCLtd(2008)112ITD57(Kol)(SB)followed)(A.Y.200809)
ITOv.LKPSecuritiesLtd.(Mum.)(Trib.)www.itatonline.org.
S.43B:Deductions on actual payment Provision for leave encashmentDisallowance under section

43B(f)heldinvalidbyHighCourtDisallowancenotvalid.
The Assessing Officer had made disallowance by invoking the provisions of section 43B(f) and this was
confirmedbytheCommissioner(Appeals)alsoonthebasisofsection43B.TheCalcuttaHighCourtheld
inthecaseofExideIndustriesLtd.thatsection43B(f)isnotvalid.Therefore,disallowanceonthebasis
ofsection43B(f)couldnotbesustained.Theprovisionwasdeductible.BharatEarthMoversv.CIT[2000]
245ITR428(SC)andExideIndustriesLtd.v.UnionofIndia[2007]292ITR470(Cal)followed.(A.Y.2007
2008)
EimcoElecon(India)Ltd.v.Add.CIT(2013)22ITR380(Ahd)(Trib.)
S.43B:DeductionsonactualpaymentOctroidutyInterest.[S.139(1)]
Assessing Officer made disallowance under section 43B in respect of octroi duty and interest
payment to UTI on ground that said payment had not actually been made before due date of
filingofreturnofincomeunderS.139(1).Tribunalheldthattheassesseehadmadepaymentof
octroi duty in advance and, subsequently, when goods entered into municipal limit,
adjustmentsweremadeagainstadvancepaymenttooctroiagent.Asregardsinterestpayment
to UTI, in terms of agreement between parties, interest did not become due for payment till
due date of filing of return of income, in view of above, impugned disallowance made under
section43Bwastobedeleted.(A.Ys.200304to200607)
S.43B:Deductionson actual paymentService taxAmount paid before due date for filing
returnSection43Bisnotapplicable.
The assessee showed liabilities which included service tax payable in respect of which no
documentaryevidenceforpaymentwasfiled.TheAssessingOfficerpresumedthatsuchservice
taxhadnotbeenpaidanddisallowedtheservicetaxpayableundersection43BoftheAct.The
Commissioner(Appeals)deletingpartofthedisallowanceonthegroundthattheamountwas
paidbeforetheduedateoffilingofreturn,observedinrespectofthebalancethatservicetax
had not become payable and deleted the disallowance. Tribunal held that order of the
Commissioner(Appeals)wasjustified.(A.Y.20072008)
Dy.CITv.OviraLogisticsP.Ltd(2013)21ITR436/57SOT185(Mum.)(Trib.)
149
S.43B:Deduction on actual payment Employees State InsuranceContribution made to

providentfundandEmployeesStateinsurance,theamountdepositedwithingraceperiodis
allowable.
The Tribunal held that the disallowance under section 43B is not required when the amounts
arepaidwithinthegraceperiodallowed;thisissonotonlyonlegalprinciplesbutalsoonthe
factthattheentireamountwaspaidbeforetheclosureofthefinancialyearorwithinthedue
dateforfilingthereturnasprovided.(A.Y.20042005)
ACITv.UPSJetairExpressP.Ltd.(2013)21ITR82/57SOT239(Mum.)(Trib.)
S.43D:PublicFinancialinstitutionInterestCreditingtoreserveaccountProvisionIntereston
badordoubtfuldebtscouldbeclaimedasdeductionundersection43D.
Merecreditingofinteresttoareservecannotbesaidtobeanincidencebywhichsaidinterest
could be charged to tax. Where interest on loans granted by assesseebank remained unpaid
whichwereclassifiedasnonaccrualloansandwerereversedtoanaccountcalledReservefor
DoubtfulInterestaccount,assesseewouldbeentitledtoclaimdeductionundersection43Din
respect of said interest and simply on ground that interest had been credited on such type of
debtsinreserveaccount,deductioncouldnotbetakenaway.Appealofassesseewasallowed.
(A.Y.199899)
AmericanExpressBankLtd.v.Add.CIT(2013)55SOT136(Mum.)(Trib.)
S.44:InsurancebusinessProvisionfortaxanddeductionoftaxatsource.(Sch.I,r.5)
ProvisionfortaxandTDScouldnotbeaddedtothebalanceofprofitsdisclosedbytheannual
accountsofassesseeinsurancecompany.CITv.OrientalFireGeneralInsuranceCo.Ltd.(2007)
291ITR370(SC)followed.(A.Y.198081,198182)
OrientalInsuranceCo.Ltd.v.CIT(2013)83DTR185(Delhi)(HC)
S.44:Insurance business Actuarial Valuation Income to be assessed as work out as per

provisionsofInsuranceActandnotIRDAAct.
AssesseedeclaredsurplusdeficitfromlifeinsurancebusinessunderFormIasprescribedunder
the Insurance Act after adjusting share holder and policy holder account thereby neutralizing
transfer of funds from shareholders account to policy holders account.Assessing Officer gave
credencetonewFormI,prescribedunderIRDARegulationandtooktotalsurplusassurplusof
LifeInsurancebusinessignoringtransferfromshareholdersaccountandaccordinglybroughtto
tax the surplus or deficit under the said Regulation. On appeal Commissioner (Appeals)
confirmed the order of Assessing Officer. On appeal to Tribunal it was held that, the Assessee
engaged in insurance business should workout actuarial surplus/deficit in accordance with
provisionsofInsuranceAct,andnotasperIRDAActorit'sregulations.Accordinglytheappeal
ofassesseewasallowed.(A.Y.200506to200809)
ICICIPrudentialInsuranceCo.Ltd.v.ACIT(2013)140ITD41(Mum.)(Trib.)
S.44BB:MineraloilsComputationNonResidentprovidinggeophysicalsurveyservicestooil
andgasexplorationindustry,provisionsofsection44BBisapplicableandnotsection44DA.
(S.9(1)(vii),44DA).
150
Assessee, a nonresident, which is engaged in providing geophysical survey services to oil and
gas exploration industry by way of electromagnetic survey, processing and interpretation of
data. The court held that, assessee is engaged in activities mentioned in specific provisions of
section44BBand,henceitsprofitswillbecomputedaspersection44BBandnotsection44DA.
Infavourofassessee.
DTIv.OHMLtd.(2013)352ITR406/212Taxman440/84DTR142/259CTR407(Delhi)(HC)
S.44BB:MineraloilPermanentestablishmentRemunerationreceivedisnottaxable.DTAA
IndiaUSA.(Art.7)
Assessee,aUSenterprisenothavingpermanentestablishmentinIndia,wouldnotcomewithin
purviewofsection44BBeveninrespectofremunerationreceivedbyitinconnectionwithany
matterprovidedinsection44BB.Infavourofassessee.
CIT v. Enron Oil & Gas Expat Services Inc. Dehradun (2013) 213 Taxman 44/29 Taxman.com
419(Uttarakhand)(HC)
S.44BB:Mineral oils Income deemed to accrue or arise in India Business profits

RemunerationhasbeenreceivedoutsideIndiahencewillnotcomewithinsection5(2)read
withsection9(1)(i).,accordinglyisnottaxableinIndia.(S.5,9(1)(i))
Assessee is a nonresident company. It entered into agreement with 'E' Ltd. an Indian
company, operating in field of oil and gas. In terms of said agreement, assessee agreed to
provide administrative and personnel support outside India. During relevant year, assessee
received certain amount in respect of said contract. Assessing Officer included said receipt as
taxableincomeanddeterminetaxpayablethereonbytakingrecoursetosection44BB.Tribunal
took a view that since there was nothing on record indicating that agreement in question had
any nexus with projects carried out by 'E' Ltd. in India income derived from said agreement
could not be brought to tax in India. Court held on facts, that the impugned order passed by
Tribunaldidnotrequireanyinterference.Infavourofassessee.
CITvJ.RayMc.DermottMiddleEastInc.(2013)212Taxman582(Uttaranchal)(HC)
S.44C:Nonresidents Head office expenditure DTAAINDIAOmanRevised return. (Art.7,

40(a)(ia)).
Where assessee had filed revised return and claimed deduction under section 44C at higher
level than that claimedin original return, Assessing Officer was duty bound to consider higher
claim.Therefore,matterwastoberemandedbacktoAssessingOfficertoconsiderclaimasper
revised return filed by assessee. It was alsoheld that transaction charges on NOSTRO account
withbankoutsideIndiaareallowableundersection40(a)(i).(A.Ys.200001,200102)
ACIT(IT)v.OmanInternationalBankS.A.O.G(2013)55SOT32(Mum.)(Trib.)
S.44C:NonresidentsHeadofficeexpenditureApplicationofprovision.
TheassesseeclaimeddeductionforheadofficeexpensesatRs.1.06croreonthegroundthatit
wasdirectlyattributabletotheIndianbranch.Assesseeclaimedthattheceilingprovidedunder
section 44C would not apply. The Assessing Officer, however, observed from the invoices
submittedbytheassesseethattheexpensesinquestionwere'allocated'totheassesseebythe
head office; that in some cases the basis of allocation was not given. The Assessing Officer,
151
therefore,heldsuchamountofRs.1.06croretobecoveredwithintheceilingprescribedunder
section44C.Onappealbytheassessee,theCommissioner(Appeals)directedAssessingOfficer
toallowindependentdeductiondistinctfromsection44C.Beingaggrievedagainstorderofthe
Commissioner (Appeals), the revenue raised instant ground of appeal. Tribunal heldthat
sincetheassesseecouldnotproduceanyevidencetoprovethatheadofficeexpensestotuneof
Rs.1.06croreweredirectlyattributabletoIndianbranch,suchexpensescouldonlybeallowed
within ceiling prescribed under section 44C Decided in favour of revenue (A.Y. 199495 1998
99to200001)
(Trib.)
S.44C:NonresidentsHeadofficeexpenditureDirectiontodeductionofindependentof
provisionsofsection44CisjustifiedRateoftaxForeignbankRateapplicabletonon
residentcompaniesisjustified.
Commissioner (Appeals) directed the Assessing Officer to allow the assessee deduction of Rs.
48,60,008 independentof the provisions of section 44C of the ActTribunal held that the order
of the Commissioner (Appeals) was justified. The assessee's income was taxed at the higher
rateof55percentasapplicabletononresidentcompanies.Held,thattheorderwasjustified.
(A.Y.19971998)
ADIT(Int.)v.CreditAgricoleIndosuez(2013)21ITR345(Mum.)(Trib.)
S.44C:Nonresidents Head office expenditure Permanent establishmentInterest and

commission received from head office and other overseas branches and paid to other
overseas branches and head officeMutuality between overseas head office and branch in
IndiaInterestreceivedfromoverseasheadofficeorbranchesnotchargeableInterestpaidby
Indian permanent establishment to overseas head office or branches not allowable as
deduction.(S.143)
The assessee received interest and commission from its head office and other overseas
branches and at the same time also paid interest and commission to other overseas branches
and head office. The assessee, in its computation of total income, reduced the interest or
commission received and added back the interest or commission paid. The Assessing Officer
held that the interest or commission earned by the assessee from its head office or overseas
branches should be charged to tax. The Commissioner (Appeals) upheld in principle the
assessmentorderonthisissue.OnappealtheTribunalheldthat(i)thatoncemutualityisfound
between overseas head office and branch in India, there can be no interest income by the
Indian branch from its overseas head office or branches under the provisions of the Act. No
interest or commission received by the Indian branch from the head office can be charged to
tax.SumitomoMitsuiBankingCorporationv.DeputyDIT[2012]16ITR(Trib)116(Mumbai)[SB]
followed.
(ii)ThattheinterestpaidbytheIndianpermanentestablishmenttoitsoverseasheadofficeor
branchesshouldalsonotbeallowedasdeduction.(A.Y.19971998)
ADIT(Int.)v.CreditAgricoleIndosuez(2013)21ITR345(Mum.)(Trib.)
152
S.44D: Foreign companies Computation of gross receipt Service tax is not part of gross
receipt.[S.115A]
Service tax was not part of gross receipt that was to be taxed under section 44D, read with
section115A.(A.Y.200708)
DCITv.EgisBCEOMInternationalSA(2013)57SOT134(Del)(Trib.)
S.45: Capital gainsDisputes among family membersArbitration and family arrangement

Adjustment of shares among family members does not amount to transfer hence not liable
forcapitalgain.
Apartitionisnotatransfer.Whatisrecordedinafamilysettlementisnothingbutapartition.
Everymemberhasananteriortitletothepropertywhichisthesubjectmatterofatransaction.
When there is no transfer there is no capital gain and consequently no tax on capital gains is
liabletobepaid(A.Y.19931994).
CITv.R.NagarajaRao(2013)352ITR565(Karn.)(HC)
S.45:Capital gains No transfer of possession of land during previous year Only receipt of
advanceAmountreceivedinadvanceisnottaxable.[2(47)]
There was no agreement to sell between the parties in the year in question and the only
documentwhichpertainedtothetransferofpropertywasthesaledeedwhichwasexecutedin
the subsequent year. There was no transfer of possession in the year in question, the sum
received was only an advance and no transaction stood concluded in the year in question.
Therefore,thedeletionoftheTribunalwasjustified.(A.Y.20062007)
CITv.DelhiApartmentsPvt.Ltd.(2013)352ITR322/215Taxman113(Delhi)(HC)
S.45:CapitalgainsBusinessincomeAssesseetreatinglandasfixedassetforalongtimeand
usingitforagriculturalpurposesSaleproceedsassessableascapitalgains.[S.28(i)]
Thelandwaspurchasedandwasshownasanassetinthebalancesheetandthatthelandhad
alsobeenusedforagriculturalpurposes.Italsonotedthefactthatthelandhadbeenheldfora
longperiodoftime,havingbeenpurchasedin199496.Therewasnoevidencethatborrowed
capitalhadbeenusedforthepurchase.Therefore,theassesseehadappropriatelyoffereditfor
taxationunderthehead"Capitalgains".(A.Y.20062007)
CITv.DelhiApartmentsPvt.Ltd.(2013)352ITR322/215Taxman113(Delhi)(HC)
S.45:Capital gains Transfer Family settlement A family settlement does not result in a
transfer and compensation received to equalize inequalities in family settlement is not
taxableasincome.[S.(2(47),4.]
There was a dispute between two groups of a family. During the pendency of litigation, the
parties agreed to divide the assets and businesses of the family into two lots i.e. lot1
containing the Jalandhar and Ambala units and lot2 containing the Delhi and Jaipur units. In
termsofsuchsettlement,lot1felltotheshareofGroupAandlot2felltotheshareofGroup
B with the condition of payment of Rs.24 crores. A dispute regarding the date of split of the
saidamountwaspending.TheAOassessedthesaidsuminthehandsoftheassessee.Thiswas
reversedbytheCIT(A)andTribunalonthegroundthatthedistributionofassetsincludingthe
sum of Rs.24 crores was not complete as the matter was subjudice and the amount did not
153
accrue to the income of the group A. On appeal by the department to the High Court, the
Court had to consider whether the compensation paid to the assessee to settle inequalities in
partition, being a provision of owelty i.e. compensation deposited to equalize partition
representsimmovablepropertyandisnotanincomeexigibletotax.Onappealbytherevenue,
HighCourtdismissingtheappealheldthatafamilypartitionwhichresultsinanadjustmentof
sharesandoftherespectiverightsinthefamilypropertiesisnotatransferintheeyesoflaw.
Whenthereisnotransferofasset,thereisnocapitalgainandconsequentlythereisnoliability
topaytaxoncapitalgains.Inafamilypartition,asituationariseswhereanitemofpropertyis
notcapableofphysicalpartitionorissuchthat,ifdivided,itwillloseitsintrinsicworth.Insuch
acase,withaviewtoensureanequitablepartition,theitemisallottedtoonepartyandheis
askedtopaycompensationinmoneyvaluetotheotherparty.Thisamountiscalledowelty.
Astheamountofcompensationisonlytoequalizetheinequalitiesinthepartitionitisnothing
but a share in the immovable property itself (though paid in cash) and cannot be treated as
incomeliabletocapitalgain.Ifsuchamountistobetreatedasincomeliabletotax,inequalities
would set in as the share of the recipient will diminish to the extent of tax. On facts, the
payment of Rs.24 crores to Group A is to equalize the inequalities in partition of assets. The
amountsopaidisimmovablepropertyandisnotincomeliabletotax(T.S.SwaminathaOdayar
vs.OfficialReceiverAIR1957SC577,CITvs.A.L.Ramanathan(2000)245ITR494(Mad),CITvs.
Kay Arr Enterprises (2008) 299 ITR 348, CIT vs. R. Nagaraja Rao (2012) 207 Taxman 74 (Kar) &
Ziauddin Ahmed vs. CGT (1976)102 ITR 253 (Gau), Parvathi Amma Vs. Makki Amma AIR 1962
Kerala85reviewed)(A.Y.200708)
CITv.AshwaniChopra(2013)352ITR620/85DTR40/213Taxman490(P&H)(HC)
CITv.ArvindChopra(2013)352ITR620/85DTR40/213Taxman490(P&H)(HC)
S.45:CapitalgainsSharesForeigncompanyNonresidentIndianassetsDTAAIndiaFrance
GainsarisingonsaleofsharesofforeigncompanybyNRtoNRnottaxableinIndiaunder
IndiaFranceDTAAeveniftheforeigncoonlyheldIndianassets.(S.9(1),2(47),90,195,201,
245R(2)(iii),Art14(5))
Two French companies named Murieux Alliance (MA) and Groupe Industrial Marcel
Dassault (GIMD) held shares in another French company named ShanH. MA & GIMD
acquired shares in an Indian company named Shantha Biotechnics Ltd (Shantha). The
shares in Shantha were transferred to ShanH. MA and GIMD subsequently sold the shares in
ShanH to another French company named Sanofi Pasteur Holding. The assessee filed an
applicationforadvancerulingclaimingthatasthetwoFrenchcompanieshadsoldthesharesof
another French company to a third French company, the gains were not chargeable to tax in
India.ThedepartmentopposedtheapplicationonthegroundthatShanHwasformedwithno
purpose other than to hold the shares of the Indian company and that the transaction was
taxable in India. The AAR upheld the departments plea on the ground that the French
companys(ShanH)onlyassetwerethesharesintheIndiancompany&sowhenitsshareswere
sold,whatreallypassesweretheunderlyingassetsandthecontroloftheIndiancompanyand
so the French company was a facade and a scheme for avoidance of tax. On appeal by the
assesseetotheHighCourt,HELDreversingtheAAR:
154
(i) ShanH was incorporated as part of the policy that all offshore investments must be made
throughasubsidiaryincorporatedinFrance.ItisnotthecaseoftheRevenuethatin2006itself
ShanHwasconceivedasapreordainedschemetoavoidtaxinIndia.TheRevenuescaseabout
whenShanHbecameataxavoidanceschemeisambivalentandincoherent.ShanHisanentity
of commercial substance and business purpose. Though a subsidiary of MA/GIMD, it is not a
mere nominee or alter ego of MA/GIMD and there is nothing to show that they exercised
overriding control over it. The creation of subsidiaries for investment is a legitimate practice.
ShanH is accordingly the true and beneficial owner of the Indian companys shares. When the
sharesofShanHweresold,itwasthesaleofsharesofaFrenchcompanyanditcannotbesaid
that the control, management or underlying assets of the Indian company were sold so as to
attract tax on capital gains in India (UOI v. Azadi Bachao Andolan(2003) 263 ITR 706 (SC) &
VodafoneInternationalHoldingB.V.v.UOI(2012)341ITR1(SC)followed);
(ii)Article14(5)oftheIndiaFranceDTAAwhichexemptscapitalgainsfromsharesrepresenting
more than 10% holding from tax in India does not permit a see through on whether the
alienation of shares by ShanH is an alienation of the control, management or assets of the
Indian company. It cannot be said that an actual alienation of the ShanH shares amounts to a
deemed alienation of the Indian companys shares. The fact that the value of the shares of
ShanHwasbecauseofthevalueoftheIndiancompanysassetsisirrelevant;
(iii) The retrospective amendment to s. 9(1) so as to supersede the verdict in Vodafone

International and to tax offshore transfers does not impact the provisions of the IndiaFrance
DTAAbecausetheDTAAoverridestheAct;
(iv)TheRevenuesargumentthatasthetermalienationisnotdefinedintheDTAA,itshould
have the meaning of the term transfer in s. 2(47) as retrospectively amended is not
acceptablebecauseasperArticle31oftheViennaConvention,atreatyhastobeinterpretedas
pergoodfaithandinaccordancewiththeordinarymeaning.ThoughArticle3(2)providesthata
term not defined in the treaty may be given the meaning in the Act, this is not applicable
becausethetermalienationisnotdefinedintheAct.InsomeDTAAs,thetermalienationis
definedtoincludethetermtransferbutnotintheIndiaFranceDTAA;
(v)EvenassumingthatthecontrollingrightsorassetsinIndiaheldbytheIndiancompanywere
transferredonthealienationoftheFrenchcompanysshares,thecostofacquiringthoserights
andassetsintheIndiancompanyandtheirdateofacquisitioncannotbedetermined.Itisalso
not possible to determine the exact or rationally approximate consideration (out of the total
consideration for the transaction in issue), apportionable to these assets/rights. As the
computation provisions fail, the charging provisions also fail (CIT v. BC Srinivasa Shetty(1981)
128 ITR 294 (SC), PNB Finance Ltd. v. CIT (2008) 307 ITR 75 (SC) & Dana Corporation(2009) 32
DTR1(AAR)followed);
(v) The AAR has no power to review its own order. Having admitted the application, the
AARcannotatalaterstageinvokeclause(iii)oftheProvisotos.245R(2)(iii)&declinetorule
ontheapplication.
155
Sanofi Pasteur Holding SA v. Dept of Revenue, Ministry of Finance (2013) 354 ITR 316/257
CTR401/84DTR185/213Taxman504(AP.)(HC).
Groupe Industrial Marcel Dassault v. UOI (2013) 354 ITR 316/257 CTR 401/84 DTR 185/213
Taxman504(AP.)(HC)
Merieux Alliance v. UOI (2013) 354 ITR 316/257 CTR 401/84 DTR 185/213 Taxman 504 (AP.)
(HC)
S.45:CapitalgainsComputationMOUSaleconsiderationAmountactualreceived.
TheinheritedpropertywassoldforRs14croresbutasperMOUreachedbetweentheassessee
and his brother, the assessee received onlyRs 6 Crores as his share, the Court heldthat
Assessing Officer was not justified in taking the sale value at Rs 7 Crores in the hands of
assessee.Appealofrevenuewasdismissed.(A.Y.200607)
CITv.RamanKumarSuri(2013)81DTR33/255CTR257/212Taxman411(Bom.)(HC)
S.45:CapitalgainsAdversepossessionNocostofacquisitionNotliabletocapitalgaintax.
The Income tax Appellate Tribunal held that when an assessee gets the property by adverse
possession there is no cost of acquisition. The consideration is not liable to capital gaintax.
Revenue challenged the said order before High Court. High court dismissed the appeal stating
thatnoquestionoflawarises.(ITANO1110OF2009and1153of2009dt1182009.)
CITv.StarChemicals(Bom.)Pvt.Ltd.(Bom.)(HC)(Unreported)
Editorial:OrderofMumbaiTribunalinDCITv.StarChemicals(Bom)(P)Ltd.(2007)110TTJ753
(Mum.)isconfirmed.
S.45:Capital gainsBusiness incomeTransaction in sharesShares held ranging from exceeds one

monthassessableasshorttermcapitalgains.[S.28(i)]
The assessee was investor in shares and also had speculation loss. The Assessing Officer assessed the
shorttermandlongtermasbusinessincome.OnappealtheCommissioner(Appeals)heldthatthegain
isassessableascapitalgain.AppealofrevenuewasdismissedbyTribunal.OnappealtoHighCourtthe
courtheldthattheassesseehadnotborrowedfunds,93%ofshorttermgain/losswasattributablefor
periods ranging in excess of one month. There is no bar for an assessee to maintain two separate fort
folios,onerelatingtoinvestmentinsharesandanotherrelatingtobusinessactivitiesrelatingtoshares
.Following the ratio of CIT v. Gopal Purohit (2010) 228 CTR 582 (Bom.) (HC), the order of Tribunal was
affirmed.(A.Y.200607)
CITv.SureshR.Shah(2013)258CTR376(Bom.)(HC)
S.45:CapitalgainsFairmarketvalueValuefixedbysubregistrarisonlyaguidelinevalueto
ascertainmarketvalueoflandforcollectionofstampdutiesanditcannotbeasolebasisfor
fixingfairmarketvalueason141981.
Tribunalheldthatvaluefixedbysubregistrarisonlyaguidelinevaluetoascertainmarketvalue
oflandforcollectionofstampdutiesanditcannotbeasolebasisforfixingfairmarketvalueas
on 141981. Fair market value may fluctuate depending upon area of land, location,
assessability to infrastructure facilities, potentiality for future development, etc. therefore, for
purposeofestimatingfairmarketvalueason141981factorstobetakenintoconsiderationis
156
locality, accessability to infrastructure facilities, comparative sale in locality, potentiality for
futuredevelopment,distancebetweenlandandbusstand,railwaystation,airport,etc.Matter
remandedtoreconsidertheissueinallfactorsmentionedabove.(A.Y.20082009)
R.Vidhyadharan.Dy.CIT(2013)141ITD7/154TTJ41(UO)/155TTJ100(Cochin)(Trib.)
Santhadharan(Smt)v.Dy.CIT(2013)155TTJ100(Cochin)(Trib.)
S.45:CapitalgainsCapitalassetIndexationTransferofrighttousesuitinaHotelisacapital
asset and consideration is taxable as capital gain and not as income from other sources. [S.
2(14),48,56]
Assessee had long term advance booking of a hotel suite, permanently reserved for use. She
treated profit on its transfer as long term capital gains, deducting indexed cost of acquisition.
Assessing Officer did not hold long term advance booking to be capital asset and taxed it as
income from other sources, deducting only amount of installments. Commissioner (Appeals)
held long term advance booking as capital asset, but did not allow deduction of maintenance
charges. Long term advance booking of hotel suite, which gave assessee perpetual right of
possession and right to transfer capital asset under section 2(14). Profit on its transfer was
taxable as capital gain. Maintenance charges paid to Hotel cannot be considered for cost of
indexation. On appeal by revenue Tribunal confirmed the order of Commissioner (Appeals).
(A.Y.200708)
ACITv.ShabnamSachdev(2013)141ITD730(Delhi)(Trib.)
S.45:Capital gainsCost of acquisitionTenancy rightsCompensation on surrender of tenancy rights

Assesses right in property constituted "tenancy rights" under section 55(2)Matter remanded.
[S.55(2)]
The assessee was in possession of certain property since 1975 and acquired the right to remain in
possession.HetransferredtherighttoRforasumofRs.84lakhsbyagreementdatedAugust14,2006.
He computed capital gains in accordance with provisions of amended section 55(2). The assessee
invested the gains in a residential house and claimed the benefits of section 54 of the Act and did not
payanytaxofRs84lakhs.TheAssessingOfficerdidnotaccepttheassessee'sclaimandmentionedthat
theassesseewasneveratenant,butwasmerelyoccupyingthepremisesillegallyandtherefore,didnot
have the rights of tenancy. Therefore, the rights sold by him are not tenancy rights, consequentially
provisionsofsection55(2)didnothaveanyapplicationtothepresentcase.Theincomewasbroughtto
the tax under the head "income from other sources." The Commissioner (Appeals) confirmed this. On
appeal: Held, that there was need for interpreting the facts of the present case in the light of the
amendedlaw,wherethe"tenancyrights"attainedlegalcognizancebytheamendedsection55(2)ofthe
Act.Therewasneedforfirstdecidingwhethertheassessee'srightinthepropertyconstituted"tenancy
rights" within the meaning of section 55(2). Further, the Commissioner (Appeals) was to consider the
fact that the assessee transferred some rights, whose exact nature was yet to be determined by the
Department with the help of concrete basic facts. Thus, Commissioner (Appeals) was to pass an order
aftergrantingtheassesseeareasonableopportunityofbeingheard.(A.Y.20072008)
KishoriLalBasantiLalPatodiav.ACIT(2013)23ITR42(Mum.)(Trib.)
157
S.45:CapitalgainsTransferDevelopmentAgreementSubstanceshallprevailovertheform
Capitalgainisassessableintheyearofdevelopmentagreementandnotintheyearof
possession.[S.2.47),292B,TransferofPropertyAct,1882S53A]
Theassesseehadenteredintoadevelopmentagreementwiththatcompanyon1442002for
construction of a multistoried building consisting of residential apartments on land owned by
him.Theassesseewastoreceivecertainconstructedareaandcarparkingareainadditiontoa
sumofRs.18lakhs.ThesaidamountofRs.18lakhswasreceivedbytheassesseefromthesaid
company spread over financial years 200203, 200304 and 200405.As the assessee had not
filed his return of income, the Assessing Officer issued notice under section 148 for three
assessment years i.e. 200304, 200405 and 200506. Thereafter, the Assessing Officer
completedtheassessmentbydeterminingthelongtermcapitalgainfortheassessmentyearin
question,i.e.200304.Healsoheldthatsincehandingoverofpossessionwhichtookplaceon
2142004, capital gain had to be assessed for the assessment year 200506.On appeal the
Commissioner (Appeals) upheld Assessing Officer's for the assessment year in question i.e.
200304. Before Tribunal it was contended that since the Assessing Officer having decided to
assessthecapitalgainintheassessmentyear200506,hecouldnothaveassessedthesamein
the assessment year 200304.The possession was given only on 2142004 and, hence, the
capitalgainwasassessableintheassessmentyear200506only.Itwasarguedthatsection53A
oftheTransferofPropertyActhadundergoneachangewitheffectfrom2492001,i.e.about
eight months prior to the date of agreement and according to the said amendment;
unregistered agreements shall not have any effect for the purposes of section 53A of the Act.
Hence, the Assessing Officer was wrong in invoking the provisions of section 2(47)(v) for the
purposeofassessingcapitalgainsduringtheassessmentyear200304.Tribunalheldthatitisa
wellsettled proposition of law that the substance shall prevail over the form. Though it is
mentioned in the agreement that the possession of land shall be handed over only after
handing over of the assessee's portion of constructed area, yet the builder, under practical
circumstances,cannotstartconstructionunlessthephysicalpossessionoflandishandedover
to him. Hence, for all practical purposes, the physical possession was handed over to the
builderafterenteringintotheagreementdated1442002.Intheinstantcase,thebuildershall
commenceconstructionwithin30daysfromthedateofenteringtheschedulepropertyforthe
purpose of construction. Further it is the responsibility of the builder to obtain necessary
approvals. It is also mentioned that the assessee has executed a registered general power of
attorney in favour of the builder on the very same date,i.e., on 1442002. Hence, the
impugned agreement, being a development agreement, a mere mentioning in one of the
clauses of the agreement to the effect that there is no handing over of possession, shall not
take away the actual fact that the physical possession was handed over to the builder.
Accordingtotheassessee,section53AoftheTransferofPropertyActhasundergonechanges
andaccordingtoamendedsection,theunregistereddocumentsshallnotfallinthepurviewof
section 53A of the Transfer of Property Act. If one carefully read clause (v) of section 2(47) of
theAct,onecannoticethatthereferenceistothe'transactions.ofthenature'referredtoin
section53AoftheTransferofPropertyAct,1882,i.e.,clause(v)talksaboutthetypeornature
of transaction only and it does not mandate invoking of the provisions of section 53A of the
Transfer of Property Act fully. Thus, the stress in clause (v) given to the Incometax Act is
concerned with the type or nature of transaction referred to in section 53A of the Act and
158
hence the amendment brought into that section with regard to the registration of the
document, shall not have any effect on clause (v) of section 2(47) of the Act. Even otherwise
thecontractenteredintobytheassesseewouldbehitbyclause(vi)ofsection2(47)andasper
section 292B the Act, the impugned assessment, being in substance and effect in conformity
with or according to the intent and purpose of the Incometax Act, the assessment order is
saved by the provisions of section 292B of the Act. Tribunal held that The Commissioner
(Appeals) was right in law in confirming the action of the Assessing Officer in assessing the
capital gain in the assessment year 200304, since the development agreement was entered
into on 1442002. The Tribunal alo observed that since the capital gain is assessable in
assessment year 200304, the right course for the assessee would be to approach the tax
authorities for exclusion of the income, which was wrongly offered by him in the subsequent
assessment years. In the interest of natural justice, the tax authorities may consider any such
requestmadebytheassesseeinaliberalmanner.(A.Y.200304)
G.Sreenivasanv.Dy.CIT(2013)140ITD235/153TTJ640/86DTR34(Coch.)(Trib.)
S.45:CapitalgainsAgreementfordevelopmentrightsPowerofattorney.[S,2(47)]
Agreement for development of property cancelled and agreement for sale and irrevocable power of
attorney executed with same party. Advance received under first agreement and forfeited and sums
receivedasdamagestogetherconstitutepartofconsiderationforsaleandistaxableascapitalgains.(A.
Y.20052006)
HyderabadBottlingCo.Ltd.v.Dy.CIT(2013)23ITR175(Hyd.)(Trib.)
S.45:CapitalgainsFirmPartnerPurchaseofpropertybypartnerinpersonalcapacityandsale
thereofbydocumentexecutedinpersonalcapacityShowninthebalancesheetoffirmLong
termcapitalgainsnottobetaxedinhandsoffirm.(S.54F)
Oneofthepartnersoftheassesseefirmpurchasedapieceoflandwithmoneywithdrawnfrom
the Firm. The purchase deed was registered in his personal name. In the books of account of
the assesseefirm the purchase of the land was shown as an asset. In the accounts of the
assesseefirm, the property was shown as purchased by the firm. Accordingly, the landed
propertywasreflectedinthebalancesheetoftheassesseefirm.Thepartnersoldthisproperty
onJune17,2005toathirdpersonbyexecutingthesaledocumentinhispersonalcapacity.The
partner purchased another property for claiming deduction under section 54F of the Income
taxAct,1961inrespectofthecapitalgainsarisingoutofthesaleofthepropertypurchasedon
June 17, 1999. The assesseefirm did not disclose any capital gains arising in its hands. On the
otherhand,thepartnerofferedthelongtermcapitalgainsinhispersonalassessmentwithhis
claim. The Assessing Officer held that the funds necessary for purchasing the property were
withdrawn by one of the partners of the assesseefirm from the partnership fund and on the
sale of the property also the funds were brought back to the assesseefirm and during all the
relevant period, the property was shown in the balancesheet of the assesseefirm as its own
property and in such circumstances the property was owned by the assesseefirm and
accordingly brought the longterm capital gains to taxation in the hands of the assesseefirm.
On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On
further appeal, the Tribunal held that the purchase document was registered in the name of
159
oneofthepartnersofthefirm.Thedocumentwasexecutedinhispersonalcapacityandinhis
individual name. There was no recital in the purchase deed that the property was being
purchased for and on behalf of the firm. Likewise, the property was sold by a sale deed
executed by the partner individually and in his independent capacity as the owner of the
property. There was also no mention that theproperty belonged to the assesseefirm and the
firm was actually selling the property. Even though the books of account of the assesseefirm
containedentriesregardingthepurchaseandsaleofthepropertyandthebalancesheetofthe
assesseefirm showed the property as its own asset for some time, the accounting entries
reflectedinthebooksofaccountoftheassesseefirmcouldnotundotheruleoflaworthelaw
ofland.Inordertobringthepropertyintotheownershipoftheassesseefirm,itwasnecessary
tohaveaconveyancedeedregisteredinthenameoftheassesseefirm.Asnosuchdocument
wasavailable,nosuchconveyancecouldbepresumedanditwasnotpossibletoholdthatthe
propertywaseverownedbytheassesseefirm.Consequentlythelongtermcapitalgainscould
not be assessed in the hands of the assesseefirm. It was one of the partners of the assessee
firm,whowasboundtoaccountforthelongtermcapitalgainsarisingfromthetransactionand
theAssessingOfficerastoprocessthereturnfiledbyhiminaccordancewithlaw.Theaddition
madeintheassessmentoffirmwasdeleted.(A.Y.20062007)
RajaFertilizersv.ITO(2013)21ITR658(Chennai)(Trib.)
S.45:Capital gainsCapital assetTransferable Development Rights Transfer of 'transferable

development rights' available under Development Control Regulation of Greater Mumbai,
1991, amounts to 'transfer' of a 'capital asset, however, since no cost of acquisition can be
ascribed to such a right, computational provisions of section 48 cannot be applied and,
therefore,suchtransfercannotbesubjectedtotaxunderhead'capitalgain.(S.2(14),48)
In the return of income, assessee showed the above receipts as 'compensation received' on
accountofgrantofpermissionandtowardssettlementofdisputesbetweenthedeveloper,the
society and its members. The Assessing Officer, however, observed that the assesseesociety
was entitled to utilize the transferable development rights (TDRs) in respect of the land
admeasuring 3367 square meters owned by them, in the ratio of 1:1 in accordance with the
provisionsofDevelopmentControlRights,1991.AspertheAssessingOfficer,theassesseehad
transferred such right (TDRs) to the Ariel View under the terms of consent. The Assessing
Officerexpressedthatlandisabundleofrightsandwhenlandadmeasuring3367squaremeter
was purchased all rights, present and future, embedded in it were also acquired. As per the
Assessing Officer, the assessee had transferred its TDR entitlement to the Ariel View under
termsofconsentwhichwasnothingbutanagreementtowardstransferoftheTDRentitlement
of the assessee. The Assessing Officer, therefore, held that the benefit in the form of TDR
arisingoutoftheexistinglandwasanimmovableproperty,thetransferofwhichtantamounted
to transfer of long term capital asset and hence liable to be taxed as income under the head
'capital gain'. Thereafter, the Assessing Officer computed the capital gain under section 48 by
spreading over the cost of acquisition of land admeasuring 3367 sq. metre over the increased
TDR provided by the Development Control Regulation, 1991. Commissioner (Appeals), under
appeal from the assessee, confirmed the order of Assessing Officer. Being aggrieved, the
assessee preferred instant second appeal. Itwascontended that there was no transfer in the
instant case, as just permission was given to use TDR and no part of the land was ever
160
transferred.Computationalprovisionsofsection48wouldnotbeapplicableincaseoftransfer
of TDRs as there is no cost of acquisition in such cases. The Tribunal held that, the concept of
TDRs originates from the regulation of 'Development Control Regulation of Greater Mumbai'
i.e., 'DCR, 1991' wherein it was provided that the owner or a lessee of a plot, which was
reservedforpublicpurposeunderthedevelopmentplanofDCR,wouldbeeligibleforawardof
compensationbywayofdevelopmentrightcertificateofequivalentFloorSpaceIndex(FSI).In
other words, the Govt. decided to grant Transferable Development Rights to the land owners,
whoagreedtosurrendertheirlandsonFSIforpublicpurposes.TheseTDRscanbetransferred
tootherlandownersorbuildingforconstructingofthebuildingoradditionalfloors.Theplots
on which those development rights could be used were termed as 'Receiving Plots' and on
theseplotsinadditiontowhateverFSIwereoriginallyavailabletotheownerorlessorofsuch
plots, additional FSI can be allowed to the owner or lessor on using the transferable
developmentrightscontainedinDRCsforthepurposeofconstructionofthebuilding.Thus,the
TDRisavailabletotheowner/lesseeofthelandwhichsurrenderstotheGovt.and,therefore,
the acquisition of such TDRs are to detriment the land surrendered by the owner/lessee, and
suchTDRscanbeutilizedonanyplotvacantoralreadydevelopedorbyerectionofadditional
storeys subject to the FSI available in the DCR. TDR entitlement is capital asset and transfer
thereof is 'transfer'. The contentions and reasoning of the Assessing Officer to the extent that
the word 'Property' not only includes tangible asset but also intangible asset and, therefore,
additionalFSIavailabletotheassesseeinviewofDCR,1991,wasarightacquiredbyvirtueof
being owner of the plot, is correct. Thus, such a right is definitely a 'Capital Asset' held by the
assessee and assignment of such a right in favour of the developer amounts to transfer of
capitalasset.ItisheldthattransferofTDRsamountstotransferofa'CapitalAsset'.However,it
hastobeseenastowhethertherewasanykindofcostinacquiringtheserights.Thisrightwas
acquiredautomaticallybyvirtueofDCR,1991,andwhattheassesseehastransferredisnotthe
plot or the building but a right, parting with which, did not result in parting with land or
building. Therefore, such a right cannot be said to be embedded in the land as held by the
Assessing Officer and the Commissioner (Appeals), because there was no detriment to cost of
land by granting such rights. Even though, there was a transfer of a capital asset, however,
therewasnocostofacquisitionoranycostcanbeascribedtosuchright,becausethelandand
the building continued with the possession of the assessee even when transfer of TDR was
made to the developer. The reasoning and the logic given by the Assessing Officer and the
Commissioner (Appeals) that these development rights were embedded with the land and,
therefore,thesumchargeabletocosthastobeascribed,itisheld,isnottenableforthereason
thatthesedevelopmentrightshavebeenavailabletotheassesseeaspertheDCR,1991,andis
separate and distinct from the original right in land and, hence, it cannot be held that such a
rightwasembeddedintheland.Therefore,theconclusiondrawnbytheAssessingOfficerand
the Commissioner (Appeals) on this score gets failed. In such a situation, computational
provisions of section 48, also gets failed because no cost of acquisition can be ascribed to a
rightwhichhasemanatedfromDCR,1991.Thisissuehascomeupseveraltimesandhasbeen
dealtanddiscussedindetailbyvariousdecisionsofMumbaiCoordinateBenchoftheTribunal.
Respectfullyfollowingtheratiolaiddowninthesuchdecisionsandalsoasperinstantfindings
and observations given above, it is held that even though the transfer of TDR amounts to
transfer of a capital asset, however, the same cannot be subjected to tax under the head
161
'CapitalGain'forthereasonthatthereisnocostofacquisitioninacquiringtherightwhichhas
beentransferredandcomputationalmodegiveninsection48,thusfailsinthiscase.Therefore,
taxingofthereceiptfromtransferofTDRsunderthehead'capitalgain'bytheAssessingOfficer
for a sum of Rs. 10,70,46, 274 cannot be sustained. Accordingly, the same is directed to be
deletedandorderoftheCommissioner(Appeals)isthusreversed.(A.Y.200708)
Land Breeze Co. Operative Hosing Society Ltd. v. ITO (2013) 55 SOT 103 / 21 ITR 467(Mum.)
(Trib.)
S.45:Capital gainsCapital assetlicensee of loomsTransfer of landAmount paid to assessee

for surrender of rights in land. Assessee deemed tenant by virtue of amendment of Rent
Control Act. Right of assessee a capital asset within the meaning of section 2(14).Amount
receivedassessableascapitalgainsandnotasincomefromothersources.(S.2(14),54EC,55,
56)
Theassesseeinthereturnfortheassessmentyear200910,itdeclaredlongtermcapitalgains
on surrender of subtenancy rights and claimed exemption under section 54EC, by making
investmentinNHAIbonds.TheAssessingOfficerfoundthatpossessionofaportionoftheshed
was incidental to the licence granted to it for the use of machinery. Therefore, the Assessing
Officer came to the conclusion that the amount received by the assessee was merely
gratuitous. He held that the assessee could not be said to have had subtenancy rights
particularlywithregardtolandforwhichthecompensationhadbeenreceivedbytheassessee
and, therefore, the amount received by the assessee was not assessable under the head
Capital gains. He taxed it under Other sources. This order was confirmed by the
Commissioner(Appeals).OnappealtotheTribunal,heldthattheassesseehadenteredintoan
agreementforlicencetouseloomsandmachinery.Itwasentitledtousetheshedinwhichthe
loomsweresituatedbywayofpermissibleuseonlicencebasisonlyasincidentaltotheuseof
theloomsandmachinery.Incidentalrighttousethepremiseswasprovidedbytheagreement
itself. The fact also remained that the assessee had been referred to as a licensee in the
agreement. The Bombay Rent Hotel and Lodging and House Rates Control Act, 1947 (Rent
ControlAct),whichwasamendedbytheAmendmentActof1973,hadconvertedthestatusof
theassesseefromlicenseetodeemedtenantundersection5(11)(bb).Undersection15A,
which was inserted by the Maharashtra Act 17 of 1973, certain licensees in occupation on
February 1, 1973 would become tenants. By the provisions of section 55(2) of the Incometax
Act, tenancy rights have been considered to be a capital asset. Moreover, the definition of
capitalassetundersection2(14)oftheActiswideenoughtocoverpropertyofanykindand
thetypeofrightacquiredbytheassesseeinthepropertyusedbyitcouldnotinanymannerbe
said to be less than any kind of property held by the assessee. The assessee in fact was
enjoying possession of the property and for peaceful vacation thereof it had received the
amountwhichwasdescribedbythepartiesasamountpaidforsurrenderoftenancyrights.The
rightoftheassesseewasundisputedandthenaturethereofwaspropertyofanykindwhich
was held by the assessee and was a capital asset within the meaning of section 2(14). The
amountreceivedbytheassesseewasassessableundertheheadCapitalgainsandeligiblefor
exemptionundersection54EC.(A.Y.20092010)
KewalSilkMillsv.ACIT[2013]21ITR121(Mum.)(Trib.)
162
S.45(4):Capital gains Admission of partner Admission of a new partner in partnership firm
doesnotattractprovisionsofsection45(4).(S.2(47))
Assesseefirm was engaged in business of builders and developers. It admitted a new partner.
AssessingOfficerfoundthatassesseeownedaplotofland50percentofwhichwastransferred
in favour of new partner. He thus, opined that assesseefirm was liable to be taxed under
section45(4).Onappeal,itwasnotedthatfromverybeginningofpartnership,plotinquestion
was treated as stockintrade and even at end of relevant assessment year it was shown as
currentassetinbalancesheetoffirm.Inviewofabove,therewasnoextinguishmentofrightas
envisaged by section 2(47) in case of assesseefirm.Admission of a new partner in partnership
firm does not attract provisions of section 45(4). In the instant case no capital asset was
transferred by the assessee during the relevant assessment year. From the very beginning of
the partnership the plot of land in question was treated stockintrade by the assessee firm.
Evenon3132008itwasshownascurrentasset(i.e.WIP)inthebalancesheet.TheAssessing
Officer has nowhere rebutted/ doubted this factual position. Considering the above, the
Commissioner(Appeals)rightlyheldthatnocapitalassetwastransferredbytheassesseefirm
and, hence, provisions of section 45(4) should not have been invoked. In the result, the
revenue'sappealhastobedismissed.(A.Y.200809)
ITOv.FineDevelopers.(2013)55SOT122(Mum.)(Trib.)
S.47(ii):Capital gains Transfer Amount received by partner on dissolution of firm is not

liabletocapitalgaintax.(S.2(47),45(1),45(4).)
Payment to assessee partner on dissolution of firm towards his capital contribution did not
constitutetransfersoastoattractcapitalgainstax.(A.Y.198990)
ChalasaniVenkateswaraRaov.ITO(2013)83DTR200/257CTR39(AP.)(HC)
S.47(ii):Capital gains Capital assetTransferAssociation of persons Distribution of assets on

dissolution of Association of persons prior to omission of clause 47(ii) w.e.f 141988.
[S.2(31),2(47),45)]
The question before the High Court was whetheron distribution of capital asset on the
dissolution of the firm, body of individuals or association of personsdid not constitute
transfer of a capital asset for the purpose of attracting the provisions of capital gains.The
court held that when the status of an assessee is treated as an association of persons, on the
dissolution or distribution of assets as a natural corollary, section 47(ii) would ensure to the
benefitoftheassesseetoexcludetheoperationofsection45.Section47(ii)wasomittedbythe
FinanceAct,1987,witheffectfromApril1,1988andsubsections(3)and(4)ofsection45were
inserted by the Finance Act, 1987, with effect from April 1, 1988.The Court held that
distribution of assets on dissolution ofassociation of personsprior to omission of clause is not
transfer.Theassesseeisentitledtothebenefitofsection47(ii)oftheAct.(A.Y.198586,1986
87)
MidlandTheatersv.ACIT(2013)350ITR676/258CTR183(Mad)(HC)
A.R.Srinivasan(BYLRS)v.ACIT(2013)350ITR676/258CTR183(Mad)(HC)
A.R.Srinicasan(HUF)v.ACIT(2013)350ITR676/258CTR183(Mad)(HC)
163
S.48: Capital gains Full value of consideration Relying on the sale agreement recovered
from the assessees premises and the incometax return of purchaser, the Department was
justifiedinenhancingthefullvalueofconsideration.[S.45]
AssesseesoldanimmovablepropertyundersaledeedforasumofRs.2.33lakh.Asurveywas
carried out at assessee's premises in course of which a sale agreement was found disclosing
that assessee's wife had agreed to sell said property for a sale consideration of Rs. 6.48 lakh.
AssessingOfficerrelyingonsaleagreement,enhancedamountofcapitalgainarisingfromsale
of property. Tribunal confirmed order of Assessing Officer. On appeal, it was noted that
agreement of sale was executed by assessee's wife which was substantiated by income tax
returnsfiledbypurchaseralso.ItwasinsuchcircumstancessaleconsiderationofRs.6.48lakhs
was confirmed by Commissioner (Appeals) and Tribunal. High Court held that on facts, there
wasnolegalinfirmitywarrantinginterferencewithTribunal'sorder.
M.BasheerAhamedv.CIT(2013)352ITR157/214Taxman302(Mad.)(HC)
S.48:Capital gainsComputationInherited propertyMemorandum of understanding (MOU)

ConsiderationstatedintheMOUcannotbeignoredaspersonalarrangement.(S.45)
Assessee and his brother sold an inherited property for Rs.14 crores.A memorandum of
understanding (MOU) was entered into by them as per which assessee received only Rs. 6
crores for sale of his rights and he offered same to tax. Sale document also showed that
assessee had received Rs. 6 crores as sale consideration. The Court held that the Assessing
Officer was not justified in assessing sale consideration at Rs. 7 crores treating, said MOU as
personalarrangement.Infavourofassessee.(A.Y.200607)
S.48:CapitalgainsComputationCostofacquisitionWillRelevantyear.
The property was acquired by mother in the year 1974,assessee acquired the propertyin
accordancewithmotherswilldated11
th
October,1987andsoldin2005,benefitofindexation
istobegivenfrom1stApril,1981andnotfrom1987.(A.Y.200607)
S.48:CapitalgainsSemifinishedbuildingCostofimprovementofproperty.[S.45]
Theassessee,aplaybacksinger,carriedouttheunfinishedconstructionofthebuildingwithout
which he could not have used that property as dubbing and recording theatre. Since the
contractors left without completing the work, the assessee completed the work himself. He
paid amounts to contractors deducting tax at source. Held, the assessee could not be denied
cost of improvement for the purpose of computing capital gains because the contractors to
whomthepaymentsweremadedidnotcarryoutthework.(A.Y.20072008)
S.P.Balasubramaniyamv.ITO(2013)24ITR47(Chennai)(Trib.)
S.48: Capital gains Cost of acquisition Tenancy rights Demolishing old property and
constructionofnewpropertyCostpaidbyassesseeandnotonthebasisofvaluationreport.
(S.55(2))
164
Assessee bought the property of which she was one of the tenantsfor Rs 4.75,000. All the
tenants entered into an agreement on 10
th
June 1999 and formed a cooperative society. The
old building was demolished and a new building was constructed thereon. The tenants got
possession in A.Y. 200203. Assessee sold her property on17
th
September 2004. Held that the
agreementdated10
th
June1999itselfgaveinterestandrightintheimpugnedpropertytothe
assessee along with other tenants, the transaction clearly involved longterm capital gains.
Assessee claimed cost of acquisition at Rs 10.04475 based on approved valuer. The Tribunal
held that, cost of acquisition of impugned property would be taken at Rs. 4,75,000/ being
payment made by the assessee and not as per the higher value declared by the approved
valuer.(A.Y.200506)
NilaV.Shah(Mrs.)v.ITO(2013)83DTR218(Mum.)(Trib.)
S.48:Capital gains Cost of acquisition Fair market value as on 1

st
April 1981 of a leasehold
landisalsotobedetermined.(S.55(2)(a).)
Assesseeacquiredleaseholdlandfornilvaluepriorto1
st
April1981,andsoldthesamein2006.
Theprovisionsofs.48wereheldtobeapplicableandthefairmarketvalueofthelandason1
st
April1981alongwiththeindexedcostofacquisitionhastobedeterminedinordertoarriveat
thelongtermcapitalgain.Costofacquisitionoflandcannotbetakenasnilinaccordancewith
theprovisionsofs.55(2)(a)(ii).Approvedvaluerhavingestimatedthefairmarketvalueofthe
land at Rs. 1, 200 per sq. yd. as on 1
st
April 1981, disregarding the fact that it was leasehold
land,itwouldbefairandreasonabletovaluetheleaseholdrightsoftheassesseeatRs.800per
sq.yd.ason1
st
April1981,andtodeterminethelongtermcapitalgain.(A.Y.200708)
Natrajv.Dy.CIT(2013)83DTR201/56SOT23(Ahd.)(Trib.)
S.48:Capital gains Cost of acquisition Fair Market value as on 1

st
April, 1981. (S.2(22B),
2(28)45,55(2)(b)(i))
ItwasheldthataveragevalueoflandasadoptedbytherevenueatRs.27,030peracreonthe
basis of registered sale deeds cannot be considered as the fair market value of the land in
questionason1stApril,1981,withinthemeaningofs.2(22B)r/w/s55(2)(b)(i)whenthefair
marketvalueatRs.5lacsperacreadoptedbytheassesseeissupportedbythecertificateissued
bythePatwarianddulyendorsedbytheTehsildarandtheAOhasadoptedfairmarketvalueof
similarlandatRs.1,80,000peracreintheasst.orderforAsst.year200506passedu/s.143(3).
Onthefactsofthecase,thefairmarketvalueofthelandinquestionason1stApril,1981isto
betakenatRs.3.50lacsperacreforthepurposeofcomputationofcapitalgains.(A.Y.200809)
ManjitSinghv.Dy.CIT(2013)141ITD21/151TTJ1(UO)(Chd.)(Trib.)
S.49: Capital gainsPrevious ownerCost of acquisitionCost incurred by successor cannot be

addedtocost.[S.48]
TheassesseesoldaresidentialflatforsumofRs1.75crores.Whilecomputingcapitalgain,the
assessee claimed a deduction of Rs 35 lakhs on the ground that said sum was paid as a
condition precedent subject to which only the said property stood bequeathed to, among
others, her. The Assessing Officer rejected assessees claim holding that amount claimed fell
neitherofclause(i)orclause(ii)ofsection48oftheAct.Commissioner(Appeal)alsoconfirmed
theorderofAssessingOfficer.OnappealTribunalheldthatincaseofacquisitionofpropertyby
165
succession it is only cost to previous owner, that would stand to be considered as cost of
acquisition, and there is no scope for adding thereto cost, if any, incurred on acquisition by
successor. The same has again been found as well settled by the court, the law does not
recognizedtransferbywayofWillsothatevenifitweresoconditionprecedent,entitlingacost
to the legatee/s it is only cost to the previous owner. Appeal of assessee was dismissed. (A.Y.
200607)
SoniaMariaMistry.vITO(2013)141ITD508(Mum.)(Trib.)
S.50C:CapitalgainsFullvalueofconsiderationStampvaluationAssessableamendmentis
prospective.
The assessee transferred a property in pursuance of an agreement of sale. Since the sale was
not registered, the Assessing Officer invoking provisions of S. 50C computed long term capital
gain adopting guideline value as sale consideration, instead of consideration admitted by
assessee. The contention of revenue was that word 'assessable' inserted by way of Finance
(No.2)Act,2009witheffectfrom1102009hadtobetreatedasapplicableincaseofassessee.
Held,sincetheBoardhasissuedCircularNo.5/2010,dated362010clarifyingthatamendment
has been made applicable with effect from 1102009, is prospective, therefore revenue
cannotcanvasssameissuewhichineffectisagainstcircularissuedbyBoard.(A.Y.200506)
CITv.R.SuganthaRavindran(2013)214Taxman543(Mad)(HC)
S.50C: Capital gains Full value of consideration Stamp valuation Amendment of section
50Cw.e.f.1102009isnotretrospective[CircularNo.5of2010,dated362010].
The insertion of the words "or assessable" in section 50C of the Incometax Act, 1961, with
effect from October 1, 2009, is neither a clarification nor an explanation to the existing
provision and it is only an inclusion of new class of transactions, namely, the transfer of
properties without or before registration. Before the amendment, only transfer of properties
where the value was adopted or assessed by the stamp valuation authority were subjected to
section 50C application. However, after introduction of the words "or assessable" such
transfers where the value is assessable by the valuation authority are also brought into the
ambit of section 50C. Thus, such introduction of a new set of class of transfer would certainly
have prospective application only. In Circular No. 5 of 2010, dated June 3, 2010, issued by the
Board, it is made clear that the amendment made by the Finance (No. 2) Act, 2009, is
prospectiveinnatureandcannotbeappliedretrospectively(A.Y.20052006).
CITv.R.SuganthaRavindran(2013)352ITR488(Mad.)(HC)
S.50C:CapitalgainsFullvalueofconsiderationRegistrationinsubsequentyearProvisions
ofsection50Cisapplicable.[S.2(47)].
Theassesseewasownerofapartofland.Intheyear1996heagreedtosellhislandtoseveral
buyers.Theassesseeclaimedtohavebeengivenpossessionoflandinthatyear.However,the
conveyance deeds were executed in the year relevant to assessment year 200607, while
registration was done in the year relevant to assessment year 200708.The assessee offered
sale proceeds for taxation in the year of receipt 200506 of sale consideration. The assessee's
furthercasewasthatsection50Chadnoapplicationinthe instantcase.TheAssessingOfficer
held that the provision of section 50C was applicable for determining full value consideration.
166
He applied the valuation made by the stamp valuation authority for calculation of stamp duty
for the assessment year 200607. The assessee's appeal was accepted by the Commissioner
(Appeals).Onrevenue'sappeal,theTribunalreversedtheorderofCommissioner(Appeals)and
applied section 50C by taking the value of land assessed by the Stamp Valuation authority for
the relevant assessment year. The Court held that where the land or building or both are sold
or otherwise transferred, such transfer shall be deemed to have taken place only after the
stamp duty has been assessed by the State Government, because it is on the valuation made
forthepurposeofstampdutythatthetaxispayable.Theassesseecannotcontendthatsection
50CwouldnotbeapplicablemerelybecausetheDeedofConveyancehadnotatthattimebeen
executedorregistered(A.Y.200607)
BagriImpex(P.)Ltd.v.ACIT(2013)214Taxman305/89DTR89(Cal)(HC)
S.50C: Capital gains Delayed registration Bonafide reasonsStamp duty on the date of
agreementandnotonthedateofregistrationisrequiredtobeadopted.[S.2(47)]
The assessee sold property and transferred possession vide sale agreement on 1362005, but
sale deed was registered only on 25112005.The Assessing Officer took stamp duty value on
dateofregistrationasfullvalueofconsiderationundersection50Cforcomputingcapitalgains.
Held, where the transfer was completed in terms of section 2(47) by giving possession of
property on date of sale agreement, but registration was delayed on bonafide reasons and
executionofsaledeedwasonlyalegalformality,stampdutyvalueondateofsaleagreement
and not on date of registration was required to be adopted for computing capital gains.(A.Y.
200607)
DCITv.S.VenkatReddy(2013)57SOT117(Hyd)(Trib.)
S.50C:CapitalgainsFullvalueofconsiderationValueforstamppurposesAppliesmandatorily
when consideration stated by assessee less than guideline valueAppellate authority not
bound by valuation by Valuation OfficerEntitled to fix value below that determined by
ValuationOfficer.
The assessee sold a portion of the land of its factory property for a consideration of Rs.2,
22,64,409. At the time, the guideline value adopted by the registering authority was Rs.
3,95,91,000. In the computation of longterm capital gains the assessee adopted the
considerationatRs.2,22,64,409but,theAssessingOfficerheldthattheguidelinevalueofRs.
3,95,91,000 must be adopted in computing the longterm capital gains. On the assessee's
requesttheAssessingOfficerreferredthemattertotheValuationCellundersection50Cofthe
Incometax Act, 1961. But since the Assessing Officer had to complete the assessment before
the limitation period expired he completed the assessment before the Valuation Report was
available adopting the guideline value of Rs.3,95,91,000. The District Valuation Officer finally
valued the property at Rs.3,54,73,536. On appeal, the Commissioner (Appeals) held that the
valuationreportwasnotbindingontheappellateauthoritiesanddeterminedtheconsideration
at Rs. 2.25 crores. On appeal by the Department, the Tribunal held thatthe document
consideration was less than the guideline value. The deeming provision of section 50C(1)
operated,howeveritwaswithintheauthorityoftheappellateauthoritytoheartheassesseeon
the question of value of consideration and grant appropriate relief, depending upon the facts
and circumstances of the case. The Commissioner (Appeals) determined the valuation at Rs
167
2.25crores.OnappealbyrevenueTheTribunalheldthatwhenallthesevariableswerechanging
fromtimetotime,fromauthoritytoauthority,itwasnotpossibletorejectthecontentionsof
theassesseeasawhole.NorcouldthevaluationreportedbytheValuationOfficerbeaccepted
assacrosanct.Takingintoallaspectsofthecase,theconsiderationaccountableinthehandsof
theassesseecompanyforthepurposeofsection50CwastobefixedatRs.2.5croresandthe
longtermcapitalgainsassessableinthehandsoftheassesseecompanywastobeaccordingly
modified.Departmentalappealwaspartlyallowed.(A.Y.20052006)
ACITv.MILIndustriesLtd.(2013)21ITR627/142ITD428(Chennai)(Trib.)
S.50C:Capital gainsFull value of considerationStamp valuationReference to DVOReference

tovaluationismandatorywhenassesseeobjectsforvaluation.
Tribunal held thatwhere assessee objected to valuation adopted by stamp valuation authority
andalsofiledcopyofvaluationreportbyanapprovedvaluer,AssessingOfficerwasrequiredto
makeareferencetovaluationofficerintermsofsection50C(2)toascertaincorrectfairmarket
valueofproperty.(A.Y.200506)
S.50C:Capital gains Full value of consideration Stamp valuation Depreciable asset

Assessee had not challenged valuation adopted by stamp valuation authority, impugned
additionmadebyAssessingOfficerwastobeupheld.
Assesseecompanydeclaredshorttermcapitalgainsonsaleofflatsundersection50.Assessing
OfficernoticedthatStampValuationAuthorityhadadoptedahigherstampvalueforaflat.He
thus having invoked provisions of section 50C, made addition on basis of value adopted for
stamp duty purposes. Assessee challenged said addition contending that in respect of
depreciable asset, i.e., flat, provisions of section 50 were applicable in which event method
prescribed under section 50C could not be invoked. Tribunal held thatsections 50 and 50C
operateintwodifferentfieldsandifvalueadoptedbyStampValuationAuthorityisacceptedby
purchaser/seller,therecannotbeanyvariationforlimitedpurposesofcomputingconsideration
received under section 50C. Since, in instant case, assessee had not challenged valuation
adoptedbystampvaluationauthority,impugnedadditionmadebyAssessingOfficerwastobe
upheld.(A.Y.200607)
RallisIndiaLtd.v.Add.CIT.(2013)55SOT288(Mum.)(Trib.)
S.50C:Capital gainsFull value of consideration Stamp valuationSale of shares Section 50C

doesnotapplytotransferofimmovablepropertyheldthroughcompany.(S.45)
The assessee held shares in a company called Kamala Mansion Pvt. Ltd. The company owned
flatsinabuildingknownasOmVikasApartments,WalkeshwarRoad,Mumbai.Theshareswere
sold by the assessee for Rs. 37.51 lakhs and capital gains were offered on that basis. The AO
&CIT(A)heldthatbythesaleofsharesinthecompany,theassesseehadeffectivelytransferred
the immovable property belonging to the assessee and that it was an indirect way of
transferring the immovable properties being the flats in the building. He accordingly pierced
thecorporateveil,invokeds.50Candcomputedthecapitalgainsbyadoptingthestampduty
valueoftheflats.OnappealbytheassesseetotheTribunal,heldallowingtheappeal:
168
S.50Cappliesonlytothetransferofacapitalasset,beinglandorbuildingorboth,assessed
byanyauthorityofaStateGovernmentforstampdutypurposes.Theexpressiontransferhas
tobeadirecttransferasdefinedu/s2(47)whichdoesnotincludethetaxplanningadoptedby
the assessee. S. 50C is a deeming provisions and has to be interpreted strictly in accordance
withthespiritoftheprovision.Onfacts,thesubjectmatteroftransferissharesinacompany
and not land or building or both. The assessee did not have full ownership on the flats which
are owned by the company. The transfer of shares was never a part of the assessment of the
StampdutyAuthoritiesoftheStateGovernment.Also,thecompanywasderivingincomewhich
wastaxableundertheheadincomefrompropertyformorethanadecade.Consequently,the
action of the AO &CIT (A) to invoke s. 50C to the tax planning adopted by the assessee is not
properanddoesnothavethesanctionoftheprovisionsoftheAct.(A.Y.200708,200809)
IrfanAbdulKaderFazlaniv.ACIT(2013)56SOT12(Mum)(Trib.)
S.50C:Capital gainsFull value of consideration Stamp valuation FSITDR Section 50Cdoes

notapplytotransferofFSI&TDR.(S.45).
The assessee owned a plot of land admeasuring 2244.18 sq. metres of which 2110 sq. metres
was acquired by the Municipality for development purposes. The assessee was entitled to
receive TDR/ FSI in lieu of the land acquired. The assessee sold the development rights to the
saidpropertyforRs.20lakhsandcomputedcapitalgainsonthatbasis.However,forpurposes
of stamp duty, the property was valued at Rs. 1.19 crores. The AO held that the value of the
propertyasadoptedbythestampdutyauthoritieshadtobetakenastheconsiderationu/s50C
forpurposesofcapitalgains.ThiswasreversedbytheCIT(A).Onappealbythedepartmentto
theTribunal,held:
S.50Cappliesonlytothetransferoflandorbuildingandnottothetransferofallimmovable
property.Accordingly,thoughFSIandTDRisimmovablepropertyasheldinCheddaHousing
Developmentvs.BabijanShekhFarid2007(3)MLJ402(Bom),itisnotlandorbuildingandso
cannotbethesubjectmatterofs.50C.Thepropertyacquiredfordevelopment(inlieuofwhich
the FSI/TDR was granted) also cannot be considered even though the property continues to
stand in the assessees name in the property records. The property should be valued by the
DVO net of the land transferred to the Developer by the assessee after considering the
acquisitionmadebytheGovt&theMunicipalCorporationandalsoexcludingthevalueofTDR
or additional FSI included in the consideration shown in the Development Agreement (A. Y.
20062007)
ITOv.PremRattanGupta(Mum.)(Trib.)www.itatonline.org
S.51:CapitalgainsForfeitureofearnestmoneyCapitalreceipt.[S.4,56(2)(vi)]
Theassesseeenteredintoanagreementtosellhishousepropertytoacompanyandinterms
of agreement received certain sum as earnest money. Since purchaser failed to pay balance
considerationbystipulatedperiod,theassesseeforfeitedtheearnestmoneyandclaimedsame
as capital receipt. The Assessing Officer, however, held that entire transaction was a shame
transactioninwhichpurchaserattemptedtobookboguslosses.He,accordingly,madeaddition
of forfeited amount. The Commissioner (Appeals) set aside impugned order of the Assessing
Officer.The Tribunal upheld the order of Commissioner (Appeals) observing that the earnest
169
money was received through banking channels and genuineness of the receipt was not in
dispute.Thecourtheldthat,theprovisionsofsection51wouldcomeintoplaywhenthereis
forfeitureofadvance.Oncethetransactionhasbeenheldtobegenuine,thereisnoquestionof
thetransactionbeingwithoutanyconsideration.(A.Y.200708)
CITv.MeeraGoyal(2013)214Taxman298/88DTR277(Delhi)(HC)
S.51:Capital gains Advance money received If transaction is not genuine section 51 is not
applicable.
Where transaction is not genuine, provisions of section 51 is not applicable. In favour of
AshwaniOberoivCIT(2013)212Taxman392/256CTR301/82DTR277(Punj&Har)(HC)
S.54: Capital gainsProfit on sale of property used for residenceDeduction allowable for
purchaseofmultipleindependenthouseunits.[S.54F]
Theassesseeofferedlongtermcapitalgainsonsaleofpropertyandclaimeds.54deductionon
thegroundthathehadpurchasetwoadjacentresidentialflats.TheAssessingOfficerheldthat
the deduction could not be given for both flats on the ground that they were independent
units, separated by a strong wall. The CIT(A) and Tribunal allowed the claim on the basis that
section 54 deduction was available for purchase of multiple flats, even if the flats were on
differentfloors.OnappealbythedepartmenttotheHighCourt,HELDdismissingtheappeal:
The expression a residential house in s. 54 (1) has to be understood in the sense that the
buildingshouldbeofresidentialnatureandashouldnotbeunderstoodtoindicateasingular
number.Whereanassesseehadpurchasedtworesidentialflats,heisentitledtoexemptionu/s
54 in respect of capital gains on sale of its property on purchase of both the flats, despite the
fact that the flats were purchased by separate sale deeds. Deduction is allowable even if the
flatsareondifferentfloors.Onfacts,asthetwoflatspurchasedbytheassesseeareadjacentto
oneanotherandhaveacommonmeetingpoint,thedeductioncannotbedenied(CITandors.
vD.AnandaBasappa(2009)309ITR329(Kar),CITvK.G.Rukminiamma(Smt.)(2011)331ITR
211(Kar)followed;ITOv.Ms.SusheelaM.Jhaveri(2007)107ITD327(Mum)(SB)heldnotgood
law)(A.Y.200708)
CITv.SyedAliAdil(AP)(HC).(2013)352ITR418/215Taxman283(AP)(HC)
S.54:CapitalgainsExemptionInvestmentintwoflatswhichisusedasonehouse.
Assessee purchased two flats which were joined together before the purchase, exemption
under section 54 was rightly allowed in respect of both the flats treating them as one
residentialhouse.TheTribunaldecidedtheissueinfavourofassesseefollowingtheratioofITO
v.SushilM.Jhaveri (2007) 292 ITR 1 (SB) (Trib.). On appeal by revenue the High Court affirmed
theviewofTribunal.(A.Y.200607)
S.54: Capital gains Development agreement Long Consideration for land is assessable as
long term Profits arising of super structure is assessable as short term gain. [S.2(42A),45,
54F]
170
Held, the assessee had entered into an agreement for development of the land in question in
thefinancialyear200405.Theincomearisingfromsaleoflandtotheextentof57.5percent
share arose to the assessee in the financial year in which the agreement was executed.
According to the assessee's computation, the assessee had earned the longterm capital gain
fromthesaleoflandtothedeveloperofandlongtermcapitalgainarisingoutofsaleofshare
of undivided land at the time of sale of builtup area. The assessee had invested a sum of Rs.
1,60,00,000 in capital gains bonds and Rs. 1,15,00,000 in capital gains scheme totaling Rs.
2,75,00,000 and had claimed deduction under section 54 and 54F.Assessing Officer held that
sincetheagreementwasexecutedinthefinancialyear200405,thesaidlongtermgainwasto
beassessedintheassessmentyear200506andshorttermgainwastobeassessedduringthe
financialyear200607.i.e.A.Y.200708.Onappeal,theCommissioner(Appeals)heldthatsale
consideration received towards land should be assessed as long term capital gain and the
profitsarisingoutofthesuperstructurewastobeassessedasshorttermcapitalgain.Benefitof
exemption under section 54 and 54F will be available to long term capital gain. Tribunal
confirmedtheviewofCommissioner(Appeals)(A.Y.20072008)
ACITv.V.RamMohan(2013)24ITR50(Chennai)(Trib.)
S.54:CapitalgainsFundsnotutilisedtowardsconstructionWithdrawalofexemptionisin
year which three years expires . Exemption cannot be denied in year in which funds were
invested.[S.45]
TherevenuehadnotdisputedthefactthattheassesseehasinvestedRs.84lakhinpurchaseof
land towards construction of the house, which could not be constructed within the stipulated
periodof3yearsasthepossessionofthelandcouldnotbedeliveredbythedeveloper.Inthese
circumstances, the assessee's claim of exemption under section 54 of the Act could not be
deniedinviewofprovisotosection54forA.Y. 200809.TheAssessingOfficershallalsoverify
whether the assessee has offered the capital gain for taxation in the subsequent assessment
year201112.(A.Y.200809)
SriPrasadNimmagaddav.DCIT(IT)(2013)56SOT473(Hyd.)(Trib.)
S.54: Capital gainsProperty used for residenceExemptionDeemed ownerTenancy rights

Saleofresidentialpropertyandinvestmentofgainsinacquiringtenancyrightsinperpetuity
in another residential property, Assessee is not entitled to exemption under section 54. [S.
22,26,27(iib),269UA(f),BombayStampAct1958,S.2(9)]
Theassesseesoldhisbungalowandpurchasedtenancyrightsintwoflatsinthethirdfloor.The
assessee computed the longterm capital gains from sale of residential bungalow which he
claimedasexemptbecauseoftheinvestmentsmadeinacquisitionofthetenancyrightsinthe
new two flats. The Assessing Officer rejected the claim of the assessee of exemption under
section 54 of the Incometax Act, 1961, in respect of tenancy rights acquired in the new flat.
Accordingly, the claim under section 54 was disallowed. This was confirmed by the
Commissioner (Appeals). On appeal to the Tribunalheld that the exemption under section 54
from capital gains is available to an assessee, who invests the capital gains in a similar asset
beingaresidentialhousewhichwouldobviouslymeanthatacquisitionofthehouseshouldbe
as an owner, as the capital gains covered under section 54 are the capital gains arising from
transferofaresidentialhouseownedbytheassessee.Theprinciplethatincaseofambiguitya
171
taxing statute should be construed in favour of the assessee would not apply to the
construction of an exception or an exempting provision; these have to be construed strictly.
That the person invoking an exception or an exemption provision to relieve him of the tax
liabilitymustestablishclearlythatheiscoveredbytheprovision.Incaseofdoubtorambiguity,
benefit must go to the State. In section 54 there is no ambiguity. The provision refers to
purchase or construction of a new residential house and it is quite obvious that the same
should be as an owner and not as perpetual tenant. The argument of deemed ownership was
relevant only in connection with computation of income from house property and not in
relationtoexemptionundersection54.Similarly,treatingthetenancyasconveyanceunderthe
Bombay Stamp Act, 1958, was only for the purpose of payment of stamp duty and cannot be
considered as conveyance of the title of the property to the assessee as an owner. Taking
possessioncouldnotbeconsideredasownershipaspossessionhadbeentakenasatenantand
notasanowneroftheflat.Theassesseewaspermittedtosublettheflat,tobequeathitand
toraiseloanbutsuchpowerswereonlyinrelationtotenancyrightsoftheassesseeandnotas
an owner of the flat. All these facilities to which the assessee was entitled were only against
right of the assessee as tenant in the flat and not as owner. Further the agreement provided
thatthetenantwasnotentitledtomakeanystructuralchangesintheflatwhichshowedthat
theassesseewasnottheownerbecauseanownerhadfullrightinrelationtohisproperty.The
assesseewasnotentitledtoexemptionundersection54.(A,Y.20082009)
YogeshSunderlalShahv.ACIT[2013]21ITR97/154TTJ309/86DTR269(Mum.)(Trib.)
S.54B:Capital gains Land used for agricultural purposesAssessee not establishing land was
being used for agricultural purpose for a period of two years prior to date of transfer,
exemptionwasnotavailable.(S.54F)
The assessee had a onefourth share in a property.She sold her share andclaimed exemption
under section 54F of the Act. During the course of the assessment proceedings, the assessee
contended that she was entitled to exemption under section 54B. The Tribunal affirmed the
findings of the authorities that the assessee was not entitled to the benefit of section 54B on
thegroundthatthepropertywhichshesoldwasnotusedforagriculturalpurposesforaperiod
oftwoyearspriortothedateofthesaleasrequiredundersection54B.TheTribunalfoundthat
theassesseewasentitledonlytotakeRs.2lakhsasthecostofacquisitionoverandaboveRs.1
lakhallowedasvalueofsuperstructureundersection54F.OnappealtheCourtalsoheldthat,
the property in the hands of the purchaser was used for putting up anapartment complex, as
the document did not establish that the land was being used for agricultural purpose for a
periodoftwoyearspriortothedateofthetransfer.Appealoftheassesseewasdismissed.(A.Y.
20052006)
AshaGeorge(Smt)v.ITO(2013)351ITR123/83DTR217/214Taxman236(Ker.)(HC)
S.54EA:Capital Gains Investment in Fixed deposit cannot be construed as investment in

bonds.
For claiming exemption under section 54EC a taxpayer has to deposit amount in capital gain
bond.Depositofmoneyinfixeddepositcannotbeconstruedasdepositincapitalgainbondfor
claimingsaidexemptionundersection54EC.(A.Y.200809)
R.Vidhyadharan.Dy.CIT(2013)141ITD7(Cochin)(Trib.)
172
Santhadhadhran(Smt)v.Dy.CIT(2013)155TTJ100(Cochin)(Trib.)
S.54EC:Capital gains Sale of depreciable assets Investment in bondsAvailability of

benefit.(S.50,48).
Exemptionundersection54ECwouldbemadeavailableincaseoftransferoflongtermcapital
assets. However, once such condition is fulfilled, by virtue of the fact that asset was such on
which the depreciation was allowed and, therefore, computation would be done as provided
undersection50,byapplyingmodificationsinsection48andsection49wouldnotchangethe
natureofcapitalassetoravailabilityofexemptionspecifiedundersection54EC.(AY200304)
Dy.CITv.HimalayaMachinery(P.)Ltd.(2013)214Taxman291/88DTR175(Guj.)(HC)
S.54EC:CapitalgainsInvestmentinbondsFullvalueofconsiderationStampvaluation
Deemedvaluecannotbeconsideredforthepurposeofsection54EC.(S.50C.)
TheactualsaleconsiderationwasRs160000,thestampauthoritiesvaluedthesaidpropertyat
Rs24,48,118.TheTribunalheldthatdeemingfictionofs.50Ccannotbeimportedintos.54EC
and, therefore, the deemed value cannot be considered for the purpose of exemption u/s.
54EC.Howeverfortheworkingofthelongtermcapitalgainthesaleconsiderationwillbetaken
upasperthevaluedeterminedundersection50C.(A.Y.200506)
NilaV.Shah(Mrs.)v.ITO(2013)83DTR218(Mum.)(Trib.)
S.54F:Capital gains Investment in a residential house Deposit in capital gains account

schemebys.139(4)duedatesufficient.[S.45,139(1),(139(4)]
The assessee sold property on 20.06.2006 (AY 200708) for a consideration of Rs. 2.24 crores.
Thesaidamountwasnotinvestedinthecapitalgainsaccountschemebytheduedateoffiling
the return u/s 139(1) (31.07.2007) and was instead used to purchase a new residential house
on31.3.2008.Theassesseeclaimedexemptionu/s54FwhichwasdeniedbytheAO&CIT(A)on
the basis that u/s 54F(4) the amount of the consideration which is not appropriated for
purchaseofthenewassetbeforethedateoffurnishingthereturnofincomeu/s139hadtobe
deposited in the capital gains account scheme before the due date for filing the return of
incomeu/s139(1).Onappealbytheassessee,theTribunalallowedtheclaim.Onappealbythe
departmenttotheHighCourt,HELDdismissingtheappeal:
Though s. 54F(4) provides that the amount not appropriated towards purchase of the new
assethastobedepositedinthecapitalgainsaccountschemebeforetheduedateforfilingthe
return u/s 139(1), subsection (4) of s. 139 is in the nature of a proviso to s. 139(1). S. 139(4)
providesthatapersonwhohasnotfurnishedareturnwithinthetimeallowedtohimunders.
139(1) may furnish the return at any time before the expiry of one year from the end of the
relevantassessmentyearorbeforethecompletionoftheassessmentwhicheverisearlier.For
AY200708,thelastdateforfilingthereturnu/s139(4)is31.3.2009.Thisextendedtimelimitis
availableformakingdepositinthecapitalgainsaccountscheme.Astheassesseehadinvested
the consideration in purchase of a new house before that date, the exemption has to be
allowed(CITv.JagritiAggarwal(2011)339ITR610(P&H),CITv.RajeshKumarJalan(2006)286
ITR274&FathimaBaiv.ITO(2009)32DTR243(Kar)followed)(A.Y.200708)
CIT.v.JagtarSinghChawla(2013)87DTR217/215Taxman154/259CTR388(P&H)(HC)
173
S.54F:Capital gains Investment in residential houseExemption Several independent units
canconstitutearesidentialhouse(S.54)
The assessee entered into a development agreement pursuant to which the developer
demolished the property and constructed a new building comprising of three floors. In
consideration of granting the development rights, the assessee received Rs. 4 crores and two
floorsofthenewbuilding.TheAOheldthatincomputingcapitalgains,thecostofconstruction
of Rs. 3.43 crores incurred by the developer on the development of the property had to be
addedtothesumofRs.4croresreceivedbytheassessee.Theassesseeclaimedthatasthesaid
capitalgainswasinvestedinthesaidtwofloors,shewaseligibleforexemptionu/s54.TheAO
rejected the claim on the basis that the units on the said floors were independent & self
contained and not a residential house and granted exemption for only one unit. The CIT (A)
andTribunalupheldtheassesseesclaimbyrelyingonCITv.D.AnandaBasappa(2009)309ITR
329 (Kar.) and CIT v K.G. Rukminiamma (Smt.) (2011) 331 ITR 211 (Kar). On appeal by the
departmenttotheHighCourtHELDdismissingtheappeal:
AsheldinB.AnandaBassappa(SLPdismissed)&KGRukminiamma,theRevenuescontention
that the phrase a residential house would mean one residential house is not correct. The
expression a residential house should be understood in a sense that building should be of
residential in nature and a should not be understood to indicate a singular number. Also, s.
54/54Fusestheexpressionaresidentialhouseandnotaresidentialunit.S.54/54Frequires
the assessee to acquire a residential house and so long as the assessee acquires a building,
which may be constructed, for the sake of convenience, in such a manner as to consist of
several units which can, if the need arises, be conveniently and independently used as an
independentresidence,therequirementoftheSectionshouldbetakentohavebeensatisfied.
There is nothing in these sections which require the residential house to be constructed in a
particularmanner.Theonlyrequirementisthatitshouldbefortheresidentialuseandnotfor
commercial use. If there is nothing in the section which requires that the residential house
should be built in a particular manner, it seems to us that the income tax authorities cannot
insist upon that requirement. A person may construct a house according to his plans,
requirements and compulsions. A person may construct a residential house in such a manner
that he may use the ground floor for his own residence and let out the first floor having an
independent entry so that his income is augmented. It is quite common to find such
arrangements,particularlypostretirement.Onemaybuildahouseconsistingoffourbedrooms
(all in the same or different floors) in such a manner that an independent residential unit
consistingoftwoorthreebedroomsmaybecarvedoutwithanindependententrancesothatit
canbeletout.Hemayevenarrangeforhischildrenandfamilytostaythere,sothattheyare
nearby, an arrangement which can be mutually supportive. He may construct his residence in
suchamannerthatincaseofafutureneedhemaybeabletodisposeofapartthereofasan
independenthouse.Theremaybeseveralsuchconsiderationsforapersonwhileconstructinga
residentialhouse.Thephysicalstructuringofthenewresidentialhouse,whetheritislateralor
vertical,cannotcomeinthewayofconsideringthebuildingasaresidentialhouse.Thefactthat
the residential house consists of several independent units cannot be permitted to act as an
impediment to the allowance of the deduction u/s 54/54F. It is neither expressly nor by
necessaryimplicationprohibited.(A.Y.200708)
CITv.GitaDuggal(2013)214Taxman51/84DTR346/257CTR208(Delhi)(HC)
174
S.54F:Capital gainsInvestment in residential houseExemptionAssessee purchasing

residentialhouseinnameofhiswifeisentitledtoexemption.(S.45)
Theassessee,anindividual,inherited50percentshareinaresidentialhousefromhisfather.In
computing the capital gains, the assessee claimed exemption under section 54F of the Acton
the ground that the sale proceeds were invested in the acquisition of a vacant plot and
purchasedaresidentialhouseinthenameofhiswife.TheAssessingOfficertooktheviewthat
under section 54F, the investment in the residential house should be made in the assessee's
nameandinasmuchastheresidentialhousewaspurchasedbytheassesseeinthenameofhis
wife,theclaimwasnotallowable.Herestrictedtheexemptionandcomputedthecapitalgains.
TheCommissioner(Appeals)allowedtheclaim.ThiswasconfirmedbytheTribunal.Onappeal
by revenuedismissing the appeal,the court held thatfor the purposes of section 54F, the new
residential house need not be purchased by the assessee in his own name nor is it necessary
thatitshouldbepurchasedexclusivelyinhisname.Moreover,theassesseehadnotpurchased
thenewhouseinthenameofastrangerorsomebodywhowasunconnectedwithhim.Hehad
purchaseditonlyinthenameofhiswife.Therewasalsonodisputethattheentireinvestment
hadcomeoutofthesaleproceedsandthattherewasnocontributionfromtheassessee'swife.
Therefore, the Tribunal was right in law in allowing the claim of the assessee under section
54F.(A.Y.20082009)
CITv.KamalWahal(2013)351ITR4/214Taxman287/86DTR37258CTR251(Delhi)(HC)
S.54F:Capital gainsInvestment in a residential houseDuplex flatTwo flats purchased asone

unitexemptionisavailableasonehouse.
Assessee purchased a flat and claimed exemption under section 54F. Assessing Officer found
that it was not one flat but two flats which had been joined into one flat and restricted
exemptiontohalfofinvestment.Courtheldthattwoflatswerejoinedbeforeassesseebecame
owner of said property and certificate from society also established fact that these two flats
were considered as one residential house property, therefore, exemption was fully allowable.
Infavourofassessee.(A.Y.200607)
CITv.RamanKumarSuri(2013)212Taxman411/81DTR33/255CTR257(Bom.)(HC)
S.54F:Capital gains Investment in a residential house Land appaurtenantFarm house with

adjoininglandValueofentirelandpurchasedisnoteligbleforexemptionundersection54F.
(S.54B)
TheassesseesoldlandforRs11lakhsandclaimedexemptionundersection54Fbypurchasing
afrm house with 1.92 acres of land with entire sale proceeds.During the assessment
proceedings the assessee the assessee contended that she was eligble exemption under
section54B,whichwasdeniedbytheAssessingOfficeronthegroindthatthelandwhichwas
sold was not used for agricultural purposes for period of two years prior to the date of
transfer.TheAssessingOffocerallowedonlyRs2lakhasthecostofacquisitionofthelandpver
and above Rs 1 lakh as value of super structure under section 54F.On appeal to Tribunal the
tribunalmadeanestimationanddirectedthatthevalueoftheplotonwhichtheframhouse
was located and the land appautenant be fixed as Rs 2 lakhs . On appeal to High Court. High
175
Courtdismissedtheappealofassesseeholdingthatnosubstantialquestionoflaw,thefinding
beingperversewasnotraised.(A.Y.200506)
AshaGeorge(Smt)v.ITO(2013)351ITR123/83DTR217/214Taxman236(Ker.)(HC)
S.54F:Capital gains Investment in a residential house New residential house acquired

situatedoutsideIndiaisalsoeligibletoclaimexemption.
The assessee invested the entire capital gains in the acquisition of a house property in the
united States of America and claimed exemption under section 54F. Assessing Officer denied
theexemption,whichwasupheldbytheCommissioner(Appeals).OnappealtheTribunalheld
that on a plain reading of the provisions of section 54F one does not find anything therein to
suggest that the new residential house acquired should be situated in India . The words in
India cannot be read into section 54F,when Parliament in its legislative wisdom has
deliberatelynotusedthewordsinIndiainsection54F,thereoreexemptionundersection54F
cannot be denied on ground that residential house acquired was situated outside India. (A.Y.
200910)
VinayMishra.v.ACIT(2013)141ITD301(Bang.)(Trib.)
S.54F:CapitalgainsHousedemolishedExtinguishment.[S.2(47)]
Deduction under section 54F is available for purchase of residential house and such house
shouldberealandnotsymbolic.Ifoldhouseisonlymeantfordemolition,itmaynotsatisfythe
test of purchase of residential house, more particularly when it was demolished within two
years.Itwasheldthatvoluntarydemolitionofhouseamountstotransfer.Matterremandedto
Commissioner(Appeals)(A.Y.200708)
ACITv.DilipManharParekh(2013)56SOT487(Mum)(Trib.)
Editorial:RatioisnotgoodlawinviewofjudgmentinthecaseofCoownerCITv.Mrs.Abhhay
B.ParikhtheBombayHighCourtheldthatthevoluntarydemolitionofhousewillnotamountto
transferandtheassesseeiseligibleexemptionundersection54F.AB.ITAno1583ofdt24th
January,2013(Bom.)(HighCourt)(ACITv.MsChhayaB.ParekhITA4956/Mum/2010BenchB
A.Y.200708dt16052012
S.54F:CapitalgainsPurchaseofhousepropertyTwohousesExemptiondenied.[S.45]
Theassesseehadsoldtwoplotsoflandon2272005and2232006respectivelyandinvested
the sale consideration in purchase of two houses. Before the sale of first plot, the assessee
entered into an agreement in January, 2005 to purchase a house in Chandigarh and the said
housewaspurchasedvidesaledeeddated1872005.Furthershehadbrokendownthishouse
andcommencednewconstructionon1952006whichwascompletedbefore26122008.She
had also purchased a flat at Manimajra on 2872006.The Assessing Officer disallowed the
claim of exemption on the ground that the assessee had purchased another house other than
the first house (new asset). Since the assessee had purchased another residentialhouse other
thanthenewassetwithintheperiodofoneyearafterthedateoftransferoftheoriginalasset
and is hit by clause (a)(ii) of the proviso to section 54F(1) and hence, the assessee was not
entitledtodeduction.(AY200607)
KuldipKaurChatha(Smt)v.ITO(2013)56SOT478(Chd)(Trib.)
176
S.54F:Capital gainsInvestment in residential houseFailure to Construct newhouse property
within specified period is not entitled to not entitled to deduction claimed under section
54F,taxableintheyearof200809andnotintheyear201112.
Theassesseehadsoldapropertyduringtheyearandcapitalgainwasworkedout.Theassessee
invested that sum in purchasing a plot on which residential house was to be constructed. The
assesseeclaimedproportionatedeductionundersection54F.However,thehousecouldnotbe
constructed. The Assessing Officer disallowed the deduction claimed under section 54F by the
assessee as no construction had taken place within specified time. On appeal, the
Commissioner(Appeals)upheldorderoftheAssessingOfficerobservingthattheassesseehad
not started the work of construction on the said plot, therefore, theclaim of deduction under
section 54F was not acceptable. Assessee only after a period of three years and, therefore, if
theconstructioncouldnotbecompleted,thesaidcapitalgaincouldbetaxedonlyafteralapse
ofperiodofthreeyears.Sincetheassesseehadfiledreturndeclaringcapitalgaininassessment
year201112,thesamecouldnotbetaxedagaininassessmentyear200809.Tribunalheldthat
Plainreadingofsection54Fclearlyshowsthatdeductionunderthissectionisallowableonlyin
case where the assessee within a period of one year before or two years after the date on
which the transfer took place purchases, or has within a period of three years after that date
constructedtheresidentialhouse.Therefore,iftheassesseehasnotpurchasedorconstructed
the house within the specified period the deduction is not available. No doubt the proviso to
subsectionprovidesthatincasetheamountofcapitalgainhasbeendepositedinthespecified
account as provided in subsection (4) and the same could not be used for construction then
such capital gain would be charged in the previous year in which the period of three years
expires from the date of transfer of original asset. It is a settled position of law that proviso
provide exception to the rule. In the instant case, the proviso carves out an exception only in
those cases where the amount had been deposited in the specified account and could not be
usedforthepurposeofconstruction.Thisexceptioncannotbemadepartoftherulewherethe
assessee fails to purchase or construct within specified period. In the instant case, admittedly
noplansweremade,therefore,thereisnoquestionofgettingthesameapproved.Apartfrom
this, assessee admitted that assessee has no evidence to prove that assessee wanted to start
construction.Ifthetaxisallowedtobepostponedmerelyonthebasisofpurchaseofplotthen
no assessee would pay correct taxes during the year and postpone the payment of taxes by
merely purchasing the plot and that cannot be intention of the provisions of section 54F.
Therefore, the Commissioner (Appeals) is right in denying the deduction under section 54F to
theassesseeandaccordinglyhisorderistobeupheld.Theassesseehasvoluntarilyfiledreturn
declaring capital gain in assessment year 201112, therefore, the tax paid in that year would
amount to double taxation if the capital gain is also taxed in assessment year 200809. The
taxes paid in 201112 needs to be adjusted against the capital gain liability during assessment
year200809.Accordingly,theAssessingOfficerisdirectedtoadjustthetaxesalreadypaidby
the assessee in assessment year 201112 regarding the same capital gain after verification
duringthecurrentyearagainstthecapitalgainliability.Intheresult,appealoftheassesseeis
tobepartlyallowed.(A.Y.200809)
AnuAgarwal(Smt.)v.ITO(2013)55SOT294(Chd.)(Trib.)
177
S.54F:CapitalgainsInvestmentinaresidentialhouseConstructionofadditionalfloorswould
bepartofexistinghouseDeemingfictionundersection50C.(S.45,48,50C)
The assessee sold a plot of land and computed capital gains. In computing capital gain, the
assessee claimed deduction u/s 54F on the ground that the sale consideration (FVC) was
utilizedforconstructionofresidentialhouse.TheLd.AO,whileinvokingsection50Cdisallowed
the deduction on the ground that the requirements of section 54F were not met. The actual
amountutilizedforthenewhousewasmorethantheFVCevenaspersection50C.Inappeal,
the CIT (A) upheld the application of section 50C but also held that the assessee was entitled
forthe deduction u/s 54F. However, the CIT (A)restricted the same to the figure computed by
theassessee.AccordingtotheCIT(A)thefullvalueofconsiderationwastobeadoptedasper
section 50C but benefit of section 54F was to be restricted to the amount declared by the
assessee.Inotherwords,thedifferencebetweenfullvalueofconsiderationaspersection50C
andtheactualamountdeclaredbytheassesseewastobetaxedascapitalgain;thebenefitof
section 54F being restricted to the amount declared (which was also to be presumed to be
investment/utilizationfors.54F)claimedbytheassessee.TheHonbletribunalheldthatsince
the actual investment was more than eventhe FVC as per section 50C, there was no taxable
capitalgain.Inthepresentcase,theasssesseeshouseincludesgroundplus4floors,wherethe
groundfloorisabiglivingroom,1stfloorhasakitchenplus2bedrooms,2ndfloorhasthree
bedrooms,3
rd
floorhasthreebedroomsandfourthfloorhas3bedrooms.Thus,thesaiddetails
suggestthatfunctionally.TheCommissioner(Appeals)restrictingtheexemptionofcapitalgains
toRs5,84,837/isnotproper.(A.Y.200809)
RajBabbarv.ITO(2013)56SOT1(Mum.)(Trib.)
S.55:CapitalgainsCostofacquisitionSelfgeneratedassetAmountreceivedonterminationof
tenancy.[S.45,54EC,131,132(4)]
Inthereturnfiledtheassesseeclaimedexemptionundersection54ECinrespectofcapitalgain
receivedonsurrenderoftenancyrights.Theassesseereducedfromthesaleconsiderationan
indexcostofRs16,80,000onamarketvalueofRs3,50,000asonApril1,1981.TheAssessing
Officer held that the cost of tenancy right being self generated , it had to be taken as nil in
termsofsection55.TheAssessingOfficerheldthattheassesseehadnotproducedanyproofof
payment of pugree for Rs 20000. The view of Assessing Officer confirmed by Commissioner
(Appeals) and Tribunal. On appeal the High court held that in the statement in the course of
Search the assessee had not stated that he had paid pugree of Rs 20,000.He only stated that
forgettingtenancyin1969hehadtopaythreemonthsadvancerentofRs390.TheCourtalso
observed that the assessee had maintained receipts of Rs 335 however not produced any
evidenceforpaymentofpugree.Astherewasnoproofentiresumwasheldtobetaxable.
P.KunhiramanNairv.CIT(2013)354ITR141(Ker.)(HC)
S.55:Capital gains Cost of improvement Cost of acquisition Registered value report

ValuationreportwillhaveprecedenceoverGuidehousetax.
Thecourtheldthatvaluationdonebyaregisteredvalueriswithregardtospecificpropertyand
takesintoaccountitsvariousadvantagesanddisadvantagesallofwhichinfluencevaluationof
property,whereasanyGuidetoHousetaxisgeneralizedguideanddoesnottakeintoaccount
peculiar features of property being valued and therefore, valuation done by an empanelled
178
registeredvaluerofIncometaxDepartmentwouldcertainlytakesprecedenceoveranyGideto
HouseTax.Infavourofassessee.(A.Y.200607)
CITvRamanKumarSuri(2013)212Taxman411/81DTR33/255CTR257(Bom.)(HC)
S.55:CapitalgainsCostofacquisitionPropertydevolvedonassesseeBenefitofIndexationis
eligibleifpropertiesacquiredpriorto141981.[S.2(42A),48,49]
Whereownerthroughwhomassesseederivedhertitledirectlyorindirectly,acquiredproperty
priorto141981,itsfairmarketvalueason141981wastobeadoptedascostofacquisition,
for purpose of computing capital gain. In such a situation, the benefit of cost inflation index
since 141981 was to be granted even though property devolved on assessee on 2051998.
(A.Y.200607)
ITOv.NoellaP.Perry(Ms)(2013)56SOT495(Mum)(Trib.)
S.55:Capital gains Cost of AcquisitionLeasehold land for 99 years.IndexationFair market

valueason141981istodetermined.(S.48)
Theassesseehadacquiredlandonleasefor98yearsintheyear1966.Undertheagreementto
lease,theassesseewasobligedtoconstructaCinemaHallonorbefore31stDecember,1966at
minimum cost of Rs.4 lakhs. The assessee claimedthis amount of four lakhs as cost of
acquisition.TheDepartmenttookthecostofacquisitionasNILbyinvokingtheprovisions of
Section48r.w.s.55(2)(a)(ii).TheHonbleTribunalheldthatlanddoesnotfindanymentionin
Section55(2(a),andhencesection55(2)(a)(ii)willnotbeapplicablewhilevaluingthecostof
acquisitionoftheland.Andhence,thecostofacquisitionoftheleaseholdrightsintheland
inthehandsoftheassessee,hastobedeterminedaspersection48andaccordinglysuchcost
wouldbethefairmarketvalueofthelandason1.4.1981.ItwasheldthatthecostwasRs.4
Lakhsandindexationhadtobepermittedaccordingly.(A.Y.200708)
NatrajV.Dy.CIT(2013)83DTR201/56SOT23(Ahd.)(Trib.)
S.56:Income from other sources Composite or inseparable letting Income from house
property(S.22,24)
The assessee claimed deduction in respect of its rental income under the head 'Income from
houseproperty.TheAssessingOfficerperusedrentagreementsandfoundthatpremiseswere
letoutonconditionthattheassesseewouldprovidecertainfacilitieslikefurnitureandfixtures,
plantandmachinery,etc.Heheldthatthelettingoutofthemachinery,plantandfurnitureand
the letting out of buildings being inseparable, the rental income be taxed under the head
'Income from other sources', which resulted in disallowance under section 24.Commissioner
(Appeals)confirmedsaidorderTheTribunalheldthatthelettingoutoftheplant,machineryor
furniture and the premises constituted a single, composite and inseparable letting rental inco
mebeassessableas'incomefromothersources'.OnappealHighCourtalsoheldthatlettingof
buildingandlettingoffixture,furniture,etc.,wasinseparableand,therefore,rentalincomewas
assessableasincomefromothersources.Appealofassesseewasdismissed.(A.Y.200708)
GargDyeing&ProcessingIndustriesv.ACIT[2013]212Taxman160(Delhi)(HC)
179
S.56:IncomefromothersourcesBusinessincomeSublettingofpropertyIncomefromhouse
property.[S.22,27,28(i),269UA(f)]
Assesseehadtakenpremisesonleaseforperiodofthreeyears,firstfloorofpremiseswassub
leasedandamountofreceiptwasconsideredasbusinessincome.AssessingOfficertreatedthe
amountearnedfromsublettingasincomefromhouseproperty.OnappealTribunalheldthat
itwasacaseofsimplesublettingofproperty,notfacilitatingcarryingonofassessee'sbusiness
and could not be considered as 'business income', it should be included under head 'Income
fromothersources.(A.Y.20062007)
StreamInternationalServices(P.)Ltd.vACIT(2013)141ITD492(Mum.)(Trib.)
S.56:Income from other sourcesCommencement of business Set off Interest against

businessexpenditure.[S.37(1)]
Assessee set off interest received on term deposits against business expenditure. Assessing
Officerholdingthatbusinesshadnotyetcommenced,taxedinterestunder'incomefromother
sources'. On appeal Tribunal held that interest received could not be set off against business
expensesandwastaxableunder'incomefromothersources'.(A.Y.200506)
DeccanGoldminesLtd.vACIT(2013)141ITD579(Mum.)(Trib.)
S.56:IncomefromothersourcesInterestCapitalisation.
The assessee credited interest income to the capital expenditure account of projects under
completion. The assessee did not give any specific reason why this amount should be allowed
asinterestcapitalised.Held,theinterestwasrightlytreatedasincomeoftheyear.(A.Y.2005
2006)
S.56:Income fromothersourcesIncomefromhousepropertySublettingofpropertyisassessableas
incomefromothersources.[S.22,27(iiib),28(i),269UA(f)]
The assessee had taken three floors of a building on lease for its business purpose. Due to the
availabilityofexcesscapacityoutofthethreefloors,theassesseesubletoneofthefloorsandreceived
rent which it treated as business income. The assessee claimed deduction for expenses of rent and
maintenance and depreciation on leasehold improvements. The Assessing Officer treated the sum
earned from subletting of leasehold premises as "Income from house property" consequently
disallowingtheexpensesclaimed.Held,thatinordertobecoveredundersection22,itissinequanon
that the assessee must be the owner of the house property in terms of section 27 read with section
269UA(f). The assessee was not the owner of the property. It could not also be deemed the owner of
house property within the meaning of section 27 because it took the property on lease for a period of
three years. Since the assessee was neither the owner nor the deemed owner of the house property,
applyingtheprovisionsofsection22,theannualvalueofsuchpropertycouldnothavebeenchargedto
taxunderthehead"Incomefromhouseproperty".Asitwasacaseofsimplesublettingorproperty,not
facilitatingthecarryingonoftheassessee'sbusinessinanymanner,therentalincomesorealisedbythe
assesseeinthepresentcircumstancescouldnotbeconsideredas"businessincome".Insuchasituation,
it was to be included under the head "Income from other sources" and the Assessing Officer was to
alloweligibledeductionsandallowancesinaccordancewiththerelevantprovisionsunderChapterIVF.
(A.Y.20062007)
180
(Mum.)(Trib.)
S.56(2):IncomefromothersourcesGiftofresidentialflatsthroughtransferofsharesby
foreigncompanytoIndiancompanyCannotbeassessedasbusinessincomeorincomefrom
othersources.[S.4,9(1)(i),28(iv),47(ii),CompaniesAct1956S.82,TransferofPropertyAct
,1882S.5,122]
The Assessee had received by way of gift, three residential flats in Hill Park from its sister
concern viz., BISNCL, a UK based company. BISNCL was holding shares of Hill Park Ltd which
entitleditforuseandoccupationofthesaidthreeflatsandthegiftwaseffectedbytransferof
the said shares. Both, the assessee and BISNCL, were 100% subsidiary of a U.K.based entity
whichinitsturnwas100%subsidyofaDubaibasedentity.
According to the tribunal, sucha transfer maytriggercapital gains ramifications inIndia, since
the shares of an Indian company were situated in India and when the transferor is a non
resident, the deeming provisions of sec. 9(1) (i) of the I.T. Act. 1961 came into play However,
referring to sec. 47(ii), the tribunal noted that the transfer of a capital asset, amongst others,
under a gift is not treated as transfers for the purposes of sec. 45 of the Act. Referring to the
provisions of sec. 5 andsection 122 of the Transfer of Property Act (TPA), the tribunal noted
that therewas no requirement in the TPA that a `gift can be made only between two natural
loveandaffectionwhichmeansthataslongasadonorcompanyispermittedbyitsArticlesof
Associationtomakea`gift,itcandoso.Incasewheredonorisaforeigncompany,thetribunal
notedthattherelevantcorporate/commerciallawofthejurisdictionwherethedonorisbased
needstobeconsidered.ReferringtotheCertificateandAttestationbytheNotaryPublicofthe
City of London, England, wherein the authority has inter alia certified and attested that the
Deed of Gift was binding on BISNCL in accordance with the relevant provisions of English law,
the tribunal concluded that BISNCL was regally authorised to give gift of shares. Therefore, it
held that the gift of shares of an Indian company by a foreign company without consideration
hastobetreatedasgiftwithinthemeaningofsec47(iii)oftheAct.
Simply because both the donor and the done happened to belong to the same group cannot
ipso facto establish that they have any business dealings to attract the provisions of section
28(iv).
The Tribunal noted that a plain reading of the provisions of sec. 56(2) show that no every
receipt is taxable under the head ìncome from other sources but only those which can be
shownasÌncomecanbebroughttotaxunderthishead,ifitdoesnotfalldirectlyunderother
headsofincomespecifiedinsection14oftheAct.Accordingtoit,theissueinvolvedunderthe
present appeal got covered under the clause (viia) of sec. 56(2). However, the saidclause was
introduced with effect from 1
st
day of June, 2010, hence, not applicable to the case of the
DP World P. Ltd. v. D CIT (2013)140 ITD 694/ BCAJ Pg. 22, Vol. 44B Part 4,
January2013(Mum.)(Trib.)
S.57:Income from other sourcesDeductionsInterestWhen nexus isestablished the principle

ofnettingmustbeapplied.
181
Assessee received interest from 'S' Ltd. against which it claimed deduction of certain amount
being interest paid to same entity and declared net interest as his income. According to
assessee, he had received interest from 'S' Ltd. in respect of land sold to them against which
sales proceeds were received late and, on other hand, he had also paid interest on loan
obtained from 'S' Ltd. earlier for purchase of said land. Court held thatsince right to receive
interestandliabilitytopayinterestaroseinrespectofsameperiodandoutofsameevent,i.e.,
nonpaymentofsaleproceedsintime,itaffordedsufficientnexusbetweentwosoastojustify
applicability of principle of netting, therefore, claim raised by assessee was to be allowed. In
S.57:IncomefromothersourcesDeductionsInterestDirectorOrderofTribunalissetaside
andmatterwastoberemandedbackfordisposalafresh.
Assessee was a director in various companies belonging to 'S' groupIn course of assessment
proceedings, Assessing Officer noticed that assessee had declared certain loss under head
'incomefromothersource'.Hefurthernotedthatlossrepresentedamountofinterestonloans
borrowed from one company belonging to 'S' group for purchase of shares in several other
companies belonging to same Group. According to Assessing Officer, method adopted by
assesseeamountedtoacolourabledevicefortransferringfundsofsomeconcernsof'S'Group
to other concerns of same Group, himself acting as a conduit. He thus disallowed assessee's
claimfordeductionofinterestonborrowedfunds.Tribunal,however,allowedassessee'sclaim.
TheCourtheldthatonfacts,itwasworthexaminingwhycompaniesbelongingtosamegroup
could not have helped each other directly and why assessee was introduced as a conduit.
therefore, impugned order of Tribunal was to be set aside and, matter was to be remanded
backfordisposalafresh.Matterremanded.(A.Y.199495)
CITv.J.B.Roy(2013)212Taxman591(Delhi)(HC)
S.57:IncomefromothersourcesInterestCommencementofbusinessDeductions[S.28(i)]
The assesseecompany was implementing a multiproducts special economic zone. It had
obtained secured loan from banks for business purposes the said loan could not be deployed
immediately and was kept in fixed deposits. The Assesssee earned interest income on fixed
depositsanditpaidinterestonsecuredloan.Theamountofinterestearnedwasnettedofand
the netted amount was shown as preoperative expenses. Assessing Officer taxed the interest
asincomefromothersourcesastheassesseehadnotcommencedthebusinessoperationyet.
Commissioner (Appeals) confirmed the decision of assessing Officer. On appeal the Tribunal
heldthatinterestearnedfromFDswastaxableasIncomefromothersources.Interestpaidon
borrowedfundshadnoconnectionwithreceiptofinterestincomeandinterestonsuchloans
could not be deductible under section 57(1)(iii) from interest earned on fixed deposits.
(A.Y.200809)
KakinadaSEZ(P.)Ltd.v.ACIT(2013)141ITD635(Hyd.)(Trib.)
S.64:ClubbingofincomeSpouseQualificationBurdenisonassessee.
Theassessee,engagedinthebusinessofcivilconstruction,claimeddeductionofsalarypaidto
his wife. According to him she was an engineer by profession and looked after plans for
182
executing work allotted to the assessee and helped in making administrative decisions.The
Assessing Officer disallowed the salary. On appeal, the Commissioner (Appeals) allowed the
deduction.Onappealbyrevenue,theTribunaldisallowedthededuction.OnappealHighCourt
held that, the assessee's wife though, was in possession of technical qualification but the
assessee was required to prove conclusively that his wife was in fact looking after plans for
execution work and was taking administrative decisions. The assessee cannot be given benefit
merely on the ground that the deduction had been allowed in the earlier assessment years.
(A.Y.200304,200405)
YashwantChhajtav.Dy.CIT(2013)214Taxman280/85DTR26(HP)(HC)
S.67A:Association personsBody of individualsMembers share Computation of a share of a

memberofSetoffofloss.
Assesseeenteredintojointventurewithotherconcernsforexecutionofvariousprojects.Joint
venture was assessed as AOP. Assessee claimed set off of share of loss from AOP against its
business income. Tribunal held that share in loss of AOP could not be set off against other
income of assessee when profit of AOP was not includible in total income of assessee,even
otherwise,whenlosswaseligibleforcarryforwardandsetoffasperprovisionsofChapterVIof
Act in hands of AOP, then no such claim could be allowed in hands of individual member of
AOP.(A.Ys.200304to200607)
S.68:Cash creditsMeagre balance in bank accountCash was deposited before issue of

cheque, addition as justified on the ground that genuineness of the transaction was not
established.
Incaseofallthedepositors,theirbankaccountscontainedmeagerbalances.Sizeableamount
of Rs. 1 lakh or above were deposited in cash in their accounts and immediately the entire
amountswerewithdrawnthroughissuanceofchequesinfavourofassessee.Furthermore,the
depositorscapacitytoraisesuchcashamountwasalsonotestablished.Thiswasacasewhere
Revenuemadeadditiononassesseefailingtoestablishsourceofsourcewhichwasheldtobe
justified.(AY200506)
BlessingConstructionv.ITO(2013)214Taxman645(Guj.)(HC)
S.68:CashcreditsGiftPartnerCapitalaccountAssesseeneedtoprovethesourceofsource,
ororiginoforigin.
The assessee was a partnership firm, in which 'K' and 'Z' were partners, who had deposited
amountsintheircapitalaccountsinthefirm.Itwasexplainedthat'K'hadreceivedtheamount
fromsixpersonsand'Z'fromfivepersonsbywayofgiftandallofthemhadfiledtheirincome
tax return and gifttax returns.Thus, the assessee had explained the nature and source of the
depositanddischargeditsburden.Theassesseecouldnothavebeenaskedtoprovethesource
ofsource/originoforigin.(A.Y.199293)
ZafaAhmad&Co.v.CIT(2013)214Taxman440(All.)(HC)
S.68:Cash credits Capital gains Sale transaction of shares cannot be disbelieved only for
reasonsthattheassesseecouldnotgivetheidentityofpurchasers.
183
Theassesseesoldsharesandclaimedtohaveearnedcapitalgains.Heproducedpurchasebills
ofshares,letteroftransfer,salebills,accountswithbrokers,purchaseandsalechartandcopy
of quotations from stock exchange showing rate of shares at relevant time and letters from
brokersconformingsaleofshares.Also,paymentofsalepricewasmadethroughbankchannel
and not in cash. Held, in view of mass of documentary evidence, sale transactions of shares
couldnotbedisbelievedonlyforreasonthatassesseecouldnotgiveidentityofpurchasersand,
therefore, income there from could not be treated as income from undisclosed source.(AY
200405)
CITv.SudeepGoenka(2013)214Taxman418(All.)(HC)
S.68:CashcreditsShareapplicationmoneyEvidencefurnishedbyassesseeAdditionwasnot
justified.
The assessee received certain amount as share application money. In order to prove
genuinenessoftransaction,theassesseebroughtonrecordvariousdocumentssuchasnames
andaddressesofshareapplicants,confirmatorylettersofshareapplicants,copiesoftheirbank
statements etc. The Assessing Officer found the assessee's explanation to be unacceptable
and,consequently,addedtheamountofshareapplicationmoneytoassessee'staxableincome
which was deleted by the Commissioner(Appeals). The Tribunal upheld the order of the
Commissioner (Appeals).On appeal High Court held that , there was a clear lack of inquiry on
the part of the Assessing Officer once the assessee had furnished all the relevant material. In
suchaneventualitynoadditioncanbemadeunderS.68.(A.Y.200405)
CITv.GangeshwariMetal(P.)Ltd.(2013)214Taxman423(Del)(HC)
S.68:Cash creditsShare application moneyShare applicants did not attend investigation

proceedingsdespitesummonsundersection131,additionwasjustified.[S.131].
The assesseecompany, a share broker, claimed that during year it received certain amount
fromsevenshareapplicants.Thisadditionwasdeletedbytheappellateauthorities.Theshare
applications were received on 1822004 but shares were sent to parties only on 1562004,
share applicants did not attend investigation proceedings despite summons under S. 131,
assessee did not show any transactions in stocks and shares, assessee was receiving dividend
butitdidnotdeclareanydividendtoitsinvestors,andassessee'sbankaccountsshowedlarge
amounts of cash debits and credit entries. Having to regard to facts and circumstances of
case,the appellate authorities were wrong in deleting impugned addition made by the
CITv.N.R.Portfolio(P.)Ltd.(2013)214Taxman408(Del.)(HC)
S.68:Cash creditsCash deposit in bankAmount received from another branch which was
VerifiedbyCommissioner(Appeals),additionwasnotjustified.
During assessment proceedings, Assessing Officer made certain addition on account of
undisclosed cash deposit in bank. In appellate proceedings, assessee's explanation was that it
had received said amount from another branch. The Commissioner (Appeals) having verified
saidfact,deletedtheaddition,whichwasupheldbytheTribunal.Courtheld,thattheTribunal
didnotcommitanyerrorinlawandhence,itsorderwasliabletobeupheld.
CITv.MeghaIndustries(2013)214Taxman400(Guj.)(HC)
184
S.68:CashcreditsGiftConfirmationwasfiledFornotfurnishingofinformationundersection
133(6)additioncannotbemade.[S.133(6)]
The assessee received gifts from different persons through demand drafts. The Assessing
Officer doubted genuineness of gift and issued letters to all donors under S. 133(6).Although
confirmationswerereceived,noreplywasreceivedandhence,theamountofgiftswasadded
to income of assessee. It was noted that the assessee had furnished all other requisite
documentslikecopiesofDD,giftdeed,copyofPANcards,copyofacknowledgementofreturns
ofdonorsalongwithcomputationandbalancesheet.Held,onfacts,thattheassesseehadduly
established identity of donors so also creditworthiness and genuineness of transaction and,
thus,Tribunalwasjustifiedindeletingimpugnedaddition.
CITv.BhanwarlalSharma(2013)214Taxman122(Mag.)(Guj.)(HC)
S.68:Cash credits Share application money Genuineness of transactionAddition was

confirmed.
When the Tribunal itself concluded that the assessee was noncooperative, it could naturally
besafelyconcludedthattheassesseedidnotwanttoproduceevidence.Thiswasacasewhere
adverse inference should have been drawn. Thus, the additions made by the Assessing Officer
wererestored.(A.Y.19951996)
CITv.GoldLeafCapitalCorporationLtd.(2013)253ITR163(Delhi)(HC)
Editorial: Order of Tribunal in Gold Leaf Capital Corporation of India v.JCIT (2009) 308 ITR
94(AT)(Delhi)(Trib.)setaside.
S.68:Cash credits Share application money Where most of the share applicants had
deposited money a few days before the issue of shares and also not responded to the
summonsAdditionundersection68heldtobejustified.(S.131)
Where most of the investors deposited monies in the accounts a few days before the issue of
shares and they also did not respond to the summons issued by the assessing officer under
section 131 of the Act, the assessing officer was held justified in making the additions under
section68oftheAct.(A.Y.200607)
CITv.NeelkanthIspatUdyog(P)Ltd.(2013)81DTR214(Delhi)(HC)
S.68:Cash credits SharesDemat account Shares held in Demat account and consideration
received through demand draft,transaction genuine and addition under section 68 is not
calledfor.
Wheretheshareswereheldbytheassesseeinademataccountandsaleconsiderationofthe
same was also received through bank draft transaction held to be genuine, addition under
section68heldtobejustified.(A.Y200405)
CITv.UditNarainAgrawal(2013)81DTR63/213Taxman178/255CTR102S(All)(HC)
S.68:CashcreditsSaleproceedsNoaddition u/s.68canbemadeinrespectofsaleproceeds
alreadyofferedasincome.
Once the sale proceeds have been offered as income by the assessee and the same has been
accepted by AO, no addition in respect of the same can be justified u/s.68 or else. It shall
185
tantamount to double taxation of the same income. (T.A.No.2471/ 2475/2475 & 2476of 2009
dt03/07/12.)
VishalExportsOverseasLtd.(2012)BCAJNovemberP.400(Guj.)(HC)
S.68:Cash creditsShare application moneyOnus Pvt. CompanyBurden is on assesseeOn

factstheadditionwasconfirmed.Reassessmentwasheldtobevalid.(S.131,143(1),147)
TheAssessing Officer on thebasis of report of investigation Wing of the department the
assessmentwasreopenedundersection147,whichwascompletedundersection143(1)ofthe
Act on the ground that the alleged share application money was mere accommodation
entriesAll the notices were come back. It was contended that the registered offices of the
companycouldbefoundinthewebsitewww.mca.gov.inandtheassessingofficermayvisitthe
site for further verification. The Assessing Officer has not accepted the submission and made
addition under section 68 and also commission of 2.5% on the said amount. In appeal
Commissioner (Appeals) following the ruling of Supreme Court in CIT v. Lovely Exports (P) Ltd
(2008)216CTR195,(2009)319ITR(St.)5(SC)heldthattheadditionwasnotjustified.Revenue
appeal was dismissedby the Tribunal. On appeal to High Court the Court held that there is no
onus on the Assessing Officer to visit website for address of share application for verification,
onus on assessee to prove genuineness. Mere furnishingofbank statements of share
applications is not sufficient to prove the creditworthiness. Failure to furnish report of
investigationwingdoesnotaffectvalidityofaddition.Onfactsandonreassessmenttheappeal
of revenue was allowed and the addition made by the assessing Officer was confirmed. (A.Y.
200405)
CIT v. Nipun Builders and Developers Pvt. Ltd. (2013) 350 ITR 407/82 DTR 145/214 Taxman
429(Delhi)(HC)
S.68:Cash creditsAdvancesForfeitureOn facts it was held that the assessee routed

undisclosedincomeinhiscapitalaccountasforfeitedamount.
Theassesseehadshownadvanceofasumagainstlandinhiscapitalaccount.Heclaimedthat
this amount was on account of forfeiture of earnest money from 'L' for sale of his plot. The
Assessing Officer held an enquiry into the matter and found that said amount came from the
account of one 'D' whose account with the Bank was found to be shady. Accordingly, the
Assessing Officer treated said amount as undisclosed income. The Commissioner (Appeals) as
well as theTribunal upheld the order of the Assessing Officer holdingthat theassessee routed
hisundisclosedincometohiscapitalaccount.TheCourtupheldtheorderofTribunal.Infavour
ofrevenue.(A.Y.200203)
AshwaniOberoiv.CIT(2013)212Taxman392(Punj&Har)(HC)
S.68:CashcreditsFirmCapitalPartnerFirstyearofbusinessContributionofcapitalby
partnercannotbeaddedinhandsoffirm.
One of the partners, who was a minor, introduced Rs. 2,62,000 as his capital. The Assessing
Officer disputed the capital contribution made by the minor. The explanation offered was not
found satisfactory and the Assessing Officer added the sum in the hands of the assessee. This
was confirmed by the Tribunal. On appeal the Court held that (1) the authorities below had
failedtotakeintoaccountthatthiswasthefirstyearofbusinessoftheassessee.TheTribunal
186
was not justified in holding that the unexplained cash credit recorded in the assessee's books
beaddedinthehandsoftheassessee.TherewasnomaterialbeforetheTribunaltoholdthat
thecapitalintroducedbytheminorpartneratthetimeofstartingofthebusiness,wasincome
of the assesseefirm. The Tribunal erroneously came to the conclusion that the deposits
represented undisclosed income of the assesseefirm. Accordingly the appeal of assessee was
allowed.(A.Y.19911992)
AbhyudayaPharmaceuticalsv.CIT(2013)350ITR358(All)(HC)
S.68:Cash credits Identity provedCreditworthiness not proved hence addition was held to
bejustified.
Assessee HUF claimedto have received a loan of Rs. 2.15 lakhs in cash from karta's wife, who
was a State Government employee. She claimed to have received gifts of Rs. 2 lakh from her
parentswhohadsupposedlyearnedamountbyleasingagriculturalland.However,noevidence
about such source was submitted. Further, no evidence was filed taking State Government's
permission as required before accepting gifts of such an amount by a government servant.
Creditworthiness of creditor and genuineness of transaction was not proved in instant case,
eventhoughidentityofcreditorwasestablished.Therefore,theadditionofimpugnedamount
wasappropriate.Appealofassesseewasdismissed.(A.Y.200203)
D.SivaSankaraRao(Dr.)v.ITO(2013)212Taxman151(AP)(HC)
S.68:CashcreditsShareapplicationmoneyAssesseeproducingtaxreturnsandalsoproducing
confirmation of shareholders Burden of proving source of share application money
dischargedadditionwasdeleted.
Assesseeproducedthenames,addressesandpermanentaccountnumbersoftheshareholders
theonusontheassesseetoprovethesourceofshareapplicationmoneystandsdischarged.If
theassessingauthorityisnotsatisfiedwiththecreditworthinessoftheshareholders,itisopen
to the assessing authority to verify the same in the hands of the shareholders concerned. The
Tribunal recorded the findings that the assessee had produced the returns filed by the
shareholders who had paid share application money. The assessee had also produced
confirmations from the shareholders indicating the details of their addresses, permanent
accountnumbersandparticularsofchequesthroughwhichtheamountswerepaidtowardsthe
share application money. The Tribunal treated the deposits of share application money as
genuine.OnappealhighCourtalsoconfirmedtheorderofTribunal.
CITv.JayDeeSecuritiesandFinanceLtd.(2013)350ITR220/214Taxman62(Mag.)(All.)(HC)
S.68:CashcreditsAdvancereceivedPANandbankaccountnumber.
AssessingOfficermadeadditiononaccountofunexplainedadvancesfrom'J'and'M',fornon
furnishing of PAN and bank account number. During appellate proceedings assessee filed
detailed submission including assessee's account in books of 'J' and 'M' as well as PAN.
Commissioner (Appeals) found submissions to be plausible explanation within meaning of
section 68 and deleted addition. On appeal by revenue Tribunal, confirmed the order of
Commissioner(Appeals)(A.Y.200708)
ITOv.SainsEngg.Works(2013)141ITD294(Chd.)(Trib.)
187
S.68:CashcreditsFirmpartnersCapitalContributionpriortocommencementofbusiness.
Twopartnershaddepositedcertainamountinassesseefirmastheircapital.Assesseehadnot
furnished necessary evidence about source of said amount. Assessing Officer treated said
amountasunexplainedcashcreditundersection68andaddedsametoincomeofassessee.On
appeal Tribunal held that since the amount deposited was from partners at the most the
impugned amount could have been added in the hands of the partners, if they failed to
dischargetheonusbutnotinthehandsoftheassesseefirm.Moreoverthecontributionofthe
capitalbythepartnerswaspriortothecommencementof thebusinesshencecouldnothave
beentreatedasincomeoftheassessee.(A.Y.199495)
LaxmiImaging&MedicalResearch.v.ACIT(2013)141ITD297(Jodh.)(Trib.)
S.68:Cash creditsDealer depositsLoan Dealers deposit and loans received earlier yearsadditions
cannot be madeAssessee need not prove the source if genuineness is establishedCreditors not
producedthematterwasremanded.
Dealer deposits received in assessment years 200304 and 200405.Addition cannot be made for
subsequent year. Assessee producing creditors and creditors filing bank accounts. Assessing Officer
satisfied as to genuineness of transaction and creditworthiness of creditors. Credits to be accepted.
Onus on assessee to prove identity, creditworthiness of creditor, genuineness of transaction. Not to
prove source of creditor. Where creditor neither attending office of Assessing Officer nor assessee
producing creditor. Transaction not established. Loan obtained during financial year 199596 and still
outstanding.Credit could have been added in year of receipt but not during this year. Creditor not
produced before Assessing Officer and remand report of Assessing Officer silent on this issue. Matter
HarishKawadmalBajajv.ITO(2013)22ITR411(Pune)(Trib.)
S.68:Cash creditsIncome was not estimated by Assessing OfficerAddition under section 68
permissibleMatterremanded.
Tribunal held that when the income of the assessee was not estimated but was determined after
considering the returned income and making further disallowance for discrepancies in voucher/bills
producedbytheassessee.However,sincethelowerauthoritieshadnotexaminedtheissuerelatingto
section 68 in proper perspective the matter was to be remanded to the Assessing Officer for fresh
consideration.(A.Ys.20022003to20082009)
S.68.Cashcredits:IdentityCapacityisprovedAdditionsdeleted.
Tribunal held thatduring the course of appellate proceedings, the assessee produced
documents and the details of repayment made through cheque and bank confirmations
showingthatthechequesissuedbytheassesseewereencashedbytherespectiveparties.The
assesseehadalsofurnishedtheidentityofpersonswithcompletedetailsofaddressesandthe
fixed deposit applications showing details. After satisfying himself with the documents, the
Commissioner(Appeals)hadallowedthegroundofappealoftheassessee.Nointerferencewas
warranted.Appealofrevenuewasdismissed.(A.Ys.20052006,20082009)
188
S.68:CashcreditsGiftsSearchandseizureBlockassessmentFailingtoprovegenuinenessof
gifts,additionisheldtobeproper.(S.158BC)
Pursuant to a search conducted at the residential premises of the assessees who were father
and son, it was found that the assessees received gifts from certain parties. The Assessing
Officernotedthatmostofthedonorswerefriendsandnotrelatives,asclaimed,andthegifts
werenotreceivedonanyspecialorceremonialoccasion.Headdedtheamountsasundisclosed
income under section 68 of the Incometax Act, 1961. The first appellate authority deleted on
the basis that, firstly, they could not be said to be undisclosed and, secondly, no material to
doubt the genuineness of the credits or gifts was found during the search. On appeal by the
Department, it was held that there was no mention of the credits in the returns of income
furnished by the assessee from year to year. It was only as a result of search that the credit
transactions were found, and which the assessee was unable to satisfactorily explain to the
Assessing Officer. No gifts had been given by the assessees to any of their close friends and
relatives, including those from whom gifts were being regularly received over the years.
Further, none of the donors were produced for examination before the Assessing Officer. No
evidenceinsupportoftheirfinancialcapacitywassubmitted.Thereceiptofthecreditthrough
thebankingchannel,orconfirmationbythecreditorordonor,wasitselfnotsufficienttoprove
thegiftsintermsofsection68. Therewasnothingtoexplaintowhythegiftsshouldbemade
by the assessee's father's friends and exemployees. There were materials and information
found as a result of search to discredit the gifts as not genuine. The additions made by the
AssessingOfficerweretobeupheld.(Blockperiod141990to12102010)
ACITv.DwarakaPrasadMalpani(2013)21ITR719(Cochin)(Trib.)
S.68:Cash credits Sale of propertyLong term capital gainsAddition was deleted as un

explainedcashcredits.
Incourseofassessment,assesseedeclaredcertainamountaslongtermcapitalgainarisingon
saleofflat.AssessingOfficertreatedsaidamount,asdeemedincomeundersection68,which
was credited in books of account on ground that assesseehad failed to bring anyevidence on
recordthatitwasonaccountofsaleofsaidproperty.Tribunalnotedthatassesseehadfileda
copy of sale agreements in respect of sale of flat wherein it had been mentioned that said
propertyhadbeensoldforatotalsaleconsiderationofRs.13.80lakhs.Tribunalheldthatsince
moneyhadbeenreceivedbywayofsaleofapropertydulymentionedinsaleagreement,same
could not be treated as unexplained, consequently, impugned addition made by Assessing
Officerwastobedeleted.(200506)
S.68:CashCreditsWithdrawalfrombankSourceexplainedadditioncannotbemade.
Duringpreviousyear,assesseehaddepositedasumofRs.13lakhsinhisbankaccountbyway
of cash. It was submitted that all deposits had been made out of cash withdrawn from cash
book. Tribunal held that since sources of amount deposited in bank account were clearly
explained,noadditioncouldbemadeundersection68.(A.Y.200506)
DeoraTradingCo.v.ITO.(2013)55SOT349(Mum.)(Trib.)
189
S.68:CashCreditsWhereAssessingOfficerfailedtobringonrecordcogentandcorroborative
materialtosupporthisconclusion,additionisdeleted.
Tribunalheldthattheassesseehasdischargedonuswithinthemeaningofsection68oftheAct
andalsoinconsonancewiththegeneralprinciplesoflaw.Inthepresentcasetheassesseefiled
evidences before the Assessing Officer and the CIT (A) showing identity of the shareholders,
creditworthiness of such parties and the genuineness of the transactions. In view of this the
onusstandsshiftedtorevenuetobringcrediblematerialonrecordtoshowthenonexistence
of such shareholders and nongenuineness of such transactions. The Tribunal confirmed the
orderofCIT(A)andtheadditionmadeundersection68byAssessingOfficerwasdeleted.(A.Y.
200607)
ACITv.KiscoCastingP.Ltd.(2013)152TTJ629/82DTR63(Chd.)(Trib.)
S.68: Cash Credits Income from undisclosed sources Liability towards outstanding sale
consideration for acquisition of cinema hall, additions cannot be made either under section
68or69,unlessliabilityisheldtobebogus.(S.69)
Theassesseehadpurchasedthecinemahalllock,stockandabarrelwhichwasregisteredand
registration was granted for the assessee to enjoy possession. The seller has acknowledged
parphentasmentionedinthesaledeeddulyregisteredin2007ofhavingreceivedtheamount
in cheque in 2012. The Assessing Officer made the addition of the amount on account of
unexplained sundry creditors. The Tribunal set aside the CIT (A) order and directed the
Assessing Officer to delete the addition and held that addition cannot be made either under
section68orundersection69unlesstheassessingauthoritycomestothefindingthatanasset
has been created on account of bogus liability or the bogus liability exists which has been
adjustedincash.(A.Y.200910)
S.69:UnexplainedinvestmentsCreditworthinessofdonorswasnotprovedadditionwasheld
tobejustified.
Assessee advanced Rs. 78 lakhs to partnership firm and claimed that said amount was sent
from Singapore by her nonresident mother, brother and sisterinlaws.On enquiry, from
Singapore Revenue Authorities, it was found that donors did not have sufficient income to
makes gift of Rs. 13 lakhs each. Assessee also could not place proof to show source of
funds.Since creditworthiness of donors was not proved, whole amount was to be added to
incomeofassesseeasherincomefromundisclosedincomeInfavourofrevenue.(B.P.198687
to199697)
KumariKanagam(Mrs)v.CIT(2013)213Taxman154(Mad.)(HC)
69:Unexplained investmentsSearch and seizureValuation of propertyReference to District

Valuation OfficerTribunal finding valuation based on incomparable sales hence addition as
unexplainedinvestmentisheldtobenotvalid.(S.132,153C)
The Assessing Officer referred the question of valuation of the properties purchased by the
assesseetotheDistrictValuationOfficer.Thedifferenceinthevaluesofthetwoproperties,as
between that declared by the assessee and as opined by the District Valuation Officer, was
addedbytheAssessingOfficerundersection69.However,theCommissioner(Appeals)andthe
190
Tribunalconcluded,onfacts,thattherewasnomaterialfoundduringthesearchtojustifythe
referencetotheDistrictValuationOfficerforvaluationoftheproperties.TheTribunalheldthat
there must be some material to show that the investment made by the assessee was outside
the books and in any event the District Valuation Officer's report was based on incomparable
sales and, therefore, could not be relied upon. The Tribunal also held that the burden was on
theRevenuetoshowthattherealinvestmentinthepropertieswasgreaterthantheapparent
investment, as disclosed by the assessee and the burden had not been discharged by the
Revenue.Onappealbyrevenuedismissingtheappeal,theCourtheldthattherewasnomaterial
foundinthesearchandseizureoperations,whichwouldjustifytheAssessingOfficer'sactionin
referring the matter to the District Valuation Officer for his opinion on valuation of the
properties.Therefore,thevaluationarrivedatbytheDistrictValuationOfficerwouldbeofno
consequence. In any event, the Tribunal had also, on facts, held that the District Valuation
Officer'svaluationwasbasedonincomparablesales,whichisnotpermissibleinlaw.Appealof
revenuewasdismissed(A.Y.20062007)
CITv.AbhinavKumarMittal(2013)351ITR20/87DTR69/213Taxman54(Delhi)(HC)
S.69:Unexplained investmentsShare application money Assessee producing relevant

evidence and establishing that all share applicants not fictitious personsdeletionof addition
heldtobejustified.
The assessee is engaged in the business of running a cold storage. For the assessment year
198889, the Assessing Officer madeadditions on account of unexplained share capital,
unexplained share application money, unexplained sundry creditors, difference in the cost of
construction being unexplained investment, fixed deposit receipts purchased by the assessee
and loading and unloading expenses. The Commissioner (Appeals) deleted the addition of
Rs.15,07,920madeagainsttheunexplainedsharecapital,Rs.3,13,500outoftheadditionmade
against the unexplained share application money of Rs.4,68,100, and Rs. 46,500 out of the
additionmadeagainstthedifferenceinthecostofconstructionofRs.2,47,994,andconfirmed
the other additions made by the Assessing Officer. The Commissioner (Appeals) rectified his
order allowing further relief of Rs. 54,800 and Rs. 20,848 out of the total addition of Rs.
3,05,493 made on account of unexplained sundry creditors for goods and expenses. The
appeals filed by the Department and the assessee were partly allowed by the Tribunal. On
furtherappealbytheDepartmenttheHighCourtalsoconfirmedtheorderofTribunalandheld
thatadditionswasrightlydeleted.(A.Y.198889)
CITv.MisraPreservers(P.)Ltd(2013)350ITR222/213Taxman196(All)(HC)
S.69:Unexplained investmentsSource of investmentTribunal ought to have returned a

specificfindingwhetherexplanationofferedbyassesseesatisfactoryMatterremanded.
Section69oftheIncometaxAct,1961,envisagestwosituationswhenanadditioncanbemade
onaccountofunexplainedinvestments.Thefirstsituationiswheretheassesseedoesnotoffer
anyexplanationaboutthenatureandsourceoftheinvestment.Thesecondsituationiswhere
theexplanationofferedbyhimis,intheopinionoftheAssessingOfficer,notsatisfactory.The
Courtallowingtheappealheldthattheassesseehadofferedanexplanationbuttherewasno
expressfindingoftheCommissioner(Appeals)oroftheTribunalastowhethertheexplanation
offeredbytheassesseewassatisfactory.Althoughaninferencecouldpossiblybegatheredthat
191
theCommissioner(Appeals)hadfoundtheexplanationtobesatisfactorythemattercouldnot
be decided on inferences. The Tribunal is the final fact finding authority and, therefore, it is
incumbentontheTribunaltoreturnafindinginclearandexpressterms.Thisisso,becauseitis
onlywhenthefindingisclearthataquestionoflawbasedonthosefindingscanbeexamined
bythecourt.Therefore,thematterwasremittedtotheTribunaltoreturnaclearfindingasto
whetherornottheexplanationofferedbytheassesseewassatisfactory.(A.Y.20082009)
CITv.AjaiShukla(2013)350ITR594/214Taxman404(Delhi)(HC)
S.69:Unexplained investmentsSearch and seizureAffidavitGold and gold ornaments

Assesseefilingaffidavitscontainingdetailsofgiftedjeweleradditiontobedeleted.(S.132)
The Assessing Officer made addition of the value of gold jewellery, and gold ornaments found
inthelockerownedjointlybytheassesseeandhiswife.Theywereexplainedtobelongtothe
assessee`s wife, giving the breakup thereof. The Assessing Officer did not accept this as the
assessee`swifewasawealthtaxpayerfortherelevantyear,i.e.,inwhichthegiftwasreceived,
andalsoforthesubsequentyears,whilethisgiftwasnotverifiablewithreferencetohertotal
wealth.TheCommissioner(Appeals)deletedtheadditionholdingthattheaffidavitscontained
full details of the gifted jewellery, the genuineness of which had not been doubted by the
AssessingOfficer.OnappealbytheDepartment:
Held,(i)thatoncetheassesseehadfurnishedtheaffidavits,itwasincumbentontheAssessing
Officer to crossexamine the deponents. The quantity claimed to be received in gift was not
highinrelationtothestatusoftheassessee'sfamilyorofthedonors.Also,areferencetothe
wealthtaxreturnsoftheassessee`swifewasnotrelevantinviewofachangeinthewealthtax
lawwitheffectfromassessmentyear199596.TheorderoftheCommissioner(Appeals)wasto
beupheldinthecaseoftheassessee.
S.69A:Unexplained moneySet off of undisclosed income against trade addition is

permissible.
In course of assessment, Assessing Officer opined that assessee had failed to explain
genuinenessofdepositsreceivedfromtendifferentpartiesandonthatbasisRs.1.90lakhwas
addedtoitstaxableincome.Onappeal,assesseeraisedapleathatadditionconfirmed,ifany,
in trading results should be allowed to be set off against unaccounted income introduced in
garb of cash deposits. The Commissioner (Appeals) accepted the plea of the assessee and this
wasupheldbytheTribunal.OnappealCourtheldthattherewasnoerrorintheorderofthe
Tribunalandhence,couldnotbeinterferedwith.
CITv.MeghaIndustries(2013)214Taxman400(Guj.)(HC)
S.69B:Unexplained investmentInvestment in property Addition based solely on report of

DistrictValuationOfficerheldtobenotjustified.
Unlessanduntilthereissomeotherevidencetoindicatethatextraconsiderationhadflowedin
thetransactionofpurchaseofproperty,thereportoftheDistrictValuationOfficercannotform
thebasisofanyadditiononthepartoftheRevenue(A.Y.20072008).
CITv.SadhnaGupta(2013)352ITR595/214Taxman540(Delhi)(HC)
192
S.69B:AmountsofinvestmentsnotfullydisclosedinbooksofaccountInvestmentinproperty
DocumentsseizedfromassesseespremisesAdditionasundisclosedinvestmentwasheldto
bejustified.(S.132).
Documentspertainingtoapropertywerefoundandseizedfromassessee'spremises.Assessee
submitted that said property papers were given by a property dealer for verification. Name of
purchaserofpropertywasnotmentionedindocuments.Furthernoonecameforwardtoclaim
these documents. Even summons served on owner of property came back being unserved. In
viewofaforesaid,additionundersection69Bwasjustified.Infavourofrevenue.
CITv.JaiPalAggarwal(2013)212Taxman1(Delhi)(HC)
S.69B:Amounts of investments not fully disclosed in books of account DepositsDumb

documentsAdditionasundisclosedinvestmentwasheldtobenotjustified.(S.132)
A document had been seized which showed that some FDRs were made. Assessing Officer
foundthatinterestonsaidFDRshadnotbeenshowninreturn.Accordingly,hemadeaddition
under section 69B. However, figures in seized documents did not correlate with any date or
detailsnorwasdocumentsignedand,thus,itwasadumbdocument,therefore,additionunder
section69Bwasnotjustified.Infavourofassessee.
S.69B:Amounts of investments not fully disclosed in books of account Investment in

companiesDocuments seizedAddition as undisclosed investment was held to be justified.
(S.132)
Certaindocumentsseizedshowedthatassesseehadmadeinvestmentsinacompanyfrom26
111993 to 1021994. Seized papers contained datewise receipts of amount from assessee.
Assessee took a plea that said company belonged to his son. However, it was found that
assessee's son had not started any business before 26121994. There was no reason for
assessee to make investment before 26121994. Therefore, addition under section 69B to
assessee'sincomewasjustified.Infavourofrevenue.
S.69B:Amounts of investments not fully disclosed in books of account Undisclosed

investmentsInvestmentinpropertySeizedfromthepremisesofassesseeAdditionheldto
bejustified.(S.132)
Documentspertainingtoapropertywerefoundandseizedfromassessee'spremises.Assessee
submitted that said property papers were given by a property dealer for verification. Name of
purchaserofpropertywasnotmentionedindocuments,furthernoonecameforwardtoclaim
these documents.Even summons served on owner of property came back being un served. In
viewofaforesaid,additionundersection69Bwasjustified.
CITv.JaiPalAggarwal[2013]212Taxman1(Delhi)(HC)

investmentsDepositsDumbdocumentsAdditionwasnotjustified.
Assessing Officer found that interest on said FDRs had not been shown in return. Accordingly,
he made addition under section 69B. However, figures in seized documents did not correlate
193
with any date or details nor was document signed and, thus, it was a dumb document,
therefore,additionundersection69Bwasnotjustified.

investmentsInvestmentincompaniesAdditionwasheldtobejustified.(S.132).
Certaindocumentsseizedshowedthatassesseehadmadeinvestmentsinacompanyfrom26
111993 to 1021994.Seized papers contained datewise receipts of amount from assessee
Assessee took a plea that said company belonged to his son. However, it was found that
assessee's son had not started any business before 26121994,there was no reason for
assessee to make investment before 26121994,therefore, addition under section 69B to
assessee'sincomewasjustified.
S.69B:IncomefromundisclosedsourcesNotingonseizedpaperCostoflandAdditionmade
withoutgivinganopportunityofcrossexaminationwasheldtobebadinlaw.
Intheabsenceofanypositivematerialonrecordtoprovethatthebaldfigurefoundnotedona
seized paper actually represents the cost/purchase price of the land, addition u/s. 69B cannot
be made simply by rejecting assessees explanation; supporting evidence, i.e., statements of
original landowners admitting additional consideration which was neither taken into
considerationbytheAOnorfiledbythedepartmentbeforetheCIT(A)cannotbeacceptedby
the Tribunal, same being totally new evidence, more so when these statements were neither
confrontedtotheassesseenoranycrossexaminationwasallowed.(A.Y.200708)
Dy.CITv.CountrywideBuildestate(P)Ltd.(2013)83DTR346/154TTJ422(JP)(Trib.)
S.69C:UnexplainedexpenditureCashpaymentsDieselexpensesonthebasisofconfirmation
letterbyofficerinchargeheldtobeallowable.
Assessing Officer made addition on account of diesel expenses paid in cash to BP, Sanchor, a
company pump of BPCL. Tribunal on basis of confirmatory letter given by Officerincharge of
BP,Sanchorwhereinitwasstatedthatdieselwassuppliedbyittoassesseedeletedadditions.
Letterclearlymentionedthatbillsissuedtoassesseehadalsobeenverifiedbeforeissuanceof
certificate Whether since conclusion arrived at by Tribunal was based upon concurrent
findings of fact and there was no material to contrary so as to dislodge findings of Tribunal,
samewastobeupheld.Infavourofassessee.(A.Y.200607)
CITvG.K.Patel&Co.(2013)212Taxman384(Guj.)(HC)
S.70:Set off lossOne source against income from another sourceSame head of income
SurveyIncomesurrenderedduringsurveyisnotallowableforsetoff.(S.71,133A)
During the course of survey assessee surrendered an additional income. The Assessing Officer
held that since income surrendered during survey was not recorded in the books of account
thereforenodeductionofsetofflossondepreciationcouldbeallowed.AccordinglytheIncome
surrendered during the course of surveywas assessed separately. On appealCommissioner
(Appeals) also confirmed the order of Assessing Officer. On appeal the Tribunal relying on the
judgementofPunjabandHaryanaHighCourtinKimPharma(P)Ltd.(ITAppealno106of2011
194
(O&M ) the Tribunal held thatbrought forward loss cannot be set off against surrendered
incomeundersection70&71.Appealofassesseewasdismissed.(AY200506)
LibertyPlywood(P.)Ltd.v.ACIT(2013)140ITD490(Chd.)(Trib.)
S.72A:CarryforwardandsetoffAccumulatedlossUnabsorbeddepreciationAmalgamation:
Two separate companies, BTPU and another company, got amalgamated with the assessee
company in the previous year relevant to the assessment year 200405. The Assessing Officer
denied set off of the brought forward loss of BTPU on the grounds that (i) 43.79 per cent. of
assetsoftheamalgamatingcompanyhadbeendisposedofbytheassesseeintheveryfirstyear
of the amalgamation; (ii) the assesseecompany was not able to substantiate that the scheme
of amalgamation was with a view to revive the business of the amalgamating company and
amalgamationwasforagenuinebusinesspurposes;(iii)theassesseecompanydidnotachieve
the level of production of at least 50 per cent. of the installed capacity of the amalgamating
companybeforetheendoffouryearsfromthedateofamalgamationandthatitfurtherfailed
todemonstratethatitcontinuedtomaintainthesaidminimumlevelofproductiontilltheend
of five years from the date of amalgamation ; (iv) the assesseecompany failed to furnish a
certificate in the prescribed Form 62 duly verified by an accountant showing particulars of
production, which was one of the prerequisite conditions for availing of the allowance under
section72A,aslaiddowninrule9C(b).TheCommissioner(Appeals)affirmedthis.Onappeal:
Held,(i)thattwocompanies,BTPUandBSPPLamalgamatedwiththeassesseecompanyinthe
relevantpreviousyear.TheassesseeclaimedsetoffofbroughtforwardlossofBTPUalone.In
ordertoclaimsuchbenefit,itwasincumbentupontheassesseenottodisposeofmorethan25
percent.oftheassetsofBTPUalone.Thedisposalofassetsbytheassesseeinallthethree
yearscombinedwasaround10percent.ofthebookvalueoftotalassetsofBTPU.The
AssessingOfficer,whilecalculatingthepercentageof43.79percent.,erredinincludingthe
disposalofassetsofBSPPLwiththedisposalofassetsofBTPU.TheobjectionoftheAssessing
Officerfornotgrantingsetoffandcarryforwardofaccumulatedlossandunabsorbed
depreciationofBTPUthattheassesseedisposedmorethan25percent.oftheassetsofBTPU
was,thereforenot,sustainable.
(ii)ThattheamalgamationtookplaceonApril1,2003.Theperiodoffouryearshadnotexpired
atthetimeofcompletionoftheassessment.TheAssessingOfficerwasrequiredtorestrict
himselftotheyearbeforehimforconsideringastowhethertherewasanyviolationofsection
72A(2).Asthepreviousyearrelevanttotheassessmentyearunderconsiderationwasnotthe
fourthyearfromthedateofamalgamation,theAssessingOfficerwasnotrequiredtoexamine
thisaspectatthatstage.
(iii)Thatitwasprematuretorequirethematerialfordemonstratingeffortstakenbythe
amalgamatedcompanyforrevivingthebusinessofamalgamatingcompany.
(iv) That as the assessee admittedly did not achieve the production at the desired level of the
installed capacity and it was not the fourth year from the date of amalgamation, the
requirementoffurnishingcertificateinForm62waspremature.
(v) That, therefore, there was no failure on the part of the assessee to fulfill the requisite
conditionsforclaimingsetoffofbroughtforwardbusinesslossesandunabsorbeddepreciation
ofBTPUinyearunderconsideration.(A.Y.20032004,20042005)
195
BayerMaterialScienceP.Ltd.v.ACIT(2013)142ITD22/22ITR287(Mum.)(Trib.)
S.73:LossesSpeculativebusinessBuyingandsellingofsharesDeemingfictioncanbeapplied
onlylossesinspeculationbusinessorintendtocarryforwardnonobservedloss,itcannotbe
appliedwhenthereisincomeonsaleofshares.
The assessee received certain income by sale of shares. The assessee shown the income as
capitalgains.TheAssessingOfficerappliedExplanationtoS.73andheldthatincomearoseout
of speculative business of assessee and taxed income as business income. On appeal
Commissioner (Appeals) and Tribunal up held that contention of assessee. On appeal by
revenue the Court held that, section 73 has application when assessee has incurred loss or
intendstocarryforwardnonabsorbedloss.Hence,theAssessingOfficercommittedanerrorin
resorting to Explanation 73 as said Explanation only provides for deeming fiction in certain
circumstances where assessee would be deemed to be carrying on a speculative business and
suchdeemingfictionwouldnotapplyinsituationsnotcoveredunderS.73.Courtalsoclarified
that the Assessing Officer has not given any finding on merit whether buying and selling of
shareswasassessableasbusinessincome,henceappealofrevenuewasdismissed.(A.Y.2005
06)
CITv.AppolloVikasSteels(P)Ltd.(2013)214Taxman642(Guj.)(HC)
S.73: LossesSpeculation business Explanation to section 73 Major portion of gross total

income of assessee did not consist of income from granting of loans and advances, but of
purchase and sale of shares of other companies.Share trading loss to be treated as
speculativeloss.
Where the assessee claimed its principal business was of granting loans and advances, as at
yearend,62percentofitsfundswereinvestedinthatbusinessHowever,theassessingofficer
observedthatformorethan10monthsofwholeyear,lessthan50percentofavailablefunds
were utilized in business of granting loans and advances He accordingly, treated share trading
lossasspeculativelossinvokingtheprovisionsofExplanationtosection73.Thefindingoffact
was confirmed by appellate authorities Therefore, the High Court did not interfere with the
consistentfindingoffactofthelowerauthoritiesanddismissedtheAppeal.(A.Y.200001)
AlfaTieup(P)Ltd.v.CIT(2013)81DTR336/214Taxman7(Mag.)/256CTR90(Cal.)(HC)
S.73:Losses Speculation business Dealing in shares Sham transaction Justified in

disallowingtheeloss.[S.43(5)]
Assesseewasengagedinbusinessofsaleandpurchaseofsharesandgovernmentsecurities.It
sold shares of JP and HFCL at loss and set off loss against profit from sale of shares. Sale and
purchase were made through a sister concern. There was no physical delivery of shares and
shares were sold on dates when prices were lowest. The court held that theAssessing Officer
wasjustifiedindisallowinglossonsaleofsharesofJPongroundthatitwasashamtransaction.
AndalsotheAssessingOfficerwasrightintreatinglossinsaleofsharesofHFCLasspeculation
loss.Appealofrevenuewasallowed.(A.Y.200102)
CITv.VachanbandInvestmentLtd.(2013)212Taxman131(Delhi)(HC)
S.73:LossesSpeculationbusinessExplanationslossincurredonbuyingandsellingofshares.
196
Assessee claimed deduction in respect of loss incurred on buying and selling of shares as
business loss. Revenue authorities held that the principal business of the assessee company
was not advancing loans and buying and selling of shares. Principal business of assessee was
manufacture,sale,dealinginexportandimportalltypesofchemicalsanddrugs,thereforeloss
incurred by assessee was speculation loss. On appeal Tribunal held that Assessee's principal
business was to manufacture, sell, export and import of chemicals and drugs, Explanation to
section73appliedtoassessee'scase.Hencetherevenueauthoritieswerejustifiedinrejecting
assessee'sclaim.(A.Ys.199798to19992000)
Dr.Reddy'sLaboratoriesLtd.v.ACIT(2013)141ITD650(Hyd.)(Trib.)
S.79:CarryforwardandsetofflossesChangeinshareholdingsCompanieswhichpublicare
notsubstantiallyinterestedBeneficialownerLossisallowedtobecarriedforward.
In the absence of any material to hold that Tribunal accepted the assessees contentions and
that PM and Mrs. DR were in fact holding the shares on behalf of foreign investors and the
foreign investors fell within the description of beneficial owner u/s. 79, Tribunal was not
justifiedinallowingcarryforwardandsetoffofloss.Matterwasremandedforreconsideration.
(A.Y.200203,200304.)
CITv.SNetFreightIndia(P)Ltd.(2013)83DTR243(Delhi)(HC)
S.80G:Donation Eye hospital Hospital not startedRejection of renewal application was

heldtobenotvalid.
The assessee was in process of establishing an eye hospital which was enjoying exemption
under S. 80G.Theassessee's claim for renewal of exemption was rejected by Commissioner on
groundthatgrantgivenbyStateGovernmentforspecificpurposewasnotutilizedwithintime
stipulated by State Government. It was noted that there was no occasion to misuse funds as
hospitalhadnotyetstartedand,thus,plantandmachinerycouldnotbepurchasedfromgrant.
Therefore,theassessee'sapplicationforrenewalofexemptionwastobeallowed.
CIT v. Association for the Prevention of Blindness (2013)351 ITR 287/ 214 Taxman 535 (All.)
(HC)
S.80G:DonationCancellationofcertificateCharitablepurposeCancellationwithoutnotice
washeldtobeillegal.[S.2(15)].
No notice was issued by the Commissioner to the assessee calling upon it to show cause with
regard to violation committed by it to cancel the exemption certificate granted under section
80G.Sincenoprofitwasmadebytheassesseeduringtherelevantassessmentyear.Therefore,
itcannotbesaidthattheactivityoftheassesseetrustisnotcharitable.Thus,thecancellation
ofcertificatewasheldillegal.
CITv.RajasthanJainCharitableTrust(2013)351ITR354/214Taxman198/84DTR420(Karn.)
(HC)
S.80G:Donation Renewal of exemption Furnishing of information Matter remanded to

allowonemoreopportunity.
Assessee, an educational society, applied for renewal of exemption granted under section
80G.Commissioner directed assessee to furnish certain information. Assessee did not furnish
197
information, Commissioner declined renewal of exemption. Assessee submitted before High
Courtthatitsentirestaffwasbusyinexaminationworksoondateofhearingsuchinformation
could not be furnished, resulting an order jeopardizing its interest. Court held that since
assesseewasenjoyingbenefitofsection80Gsincelongtimebutbecauseoflapseonpartofits
employeesexemptionhadbeenrefused,itwastobeallowedonemoreopportunitytofurnish
allinformationbeforeCommissioner.Matterremanded.
Guru Gobind Singh Educational Society v. CIT (2013) 354 ITR 517/ 214 Taxman 194/354 ITR
517(MP)(HC)
S.80G:DonationApproval of institutionCircular clarifying that existing approvals deemed to have

beenextendedinperpetuityunlessspecificallywithdrawnCircularbindingApprovaltocontinue.
The Commissioner rejected the application of the assessee for grant of renewal of registration under
section80G(5)oftheAct,onthegroundthatitwouldbeapplicabletothosetrustsorinstitutionswhich
hadreceivedtheregistrationundersection80GsubsequenttoOctober1,2009andsincetheassessee
was granted the last registration on June 25, 2008, it was not entitled to approval in perpetuity. On
appeal, held, allowing the appeal, the Tribunal held that the approval under section 80G(5) of the Act
already granted to the assessee would continue unless and until the concerned authority took
appropriate action in accordance with law. On appeal by revenue to High Court , held dismissing the
appeal,thattheassesseehadvalidexemptiononOctober1,2010,whentheprovisionsofsection80G
amended so as to dispense the periodic renewal of the exemptions.Such statutory provisions were
clarified by Cicular no 5 of 2010 and Cicular no 7 of 2010 issued by the Central Board of Direct Taxes.
Once the stute has given perpetuity to the exemptions granted under section 80G(5) the exemption
could not be with drawn without issuing show cause notice in terms of the stutory provisions in the
mannerprescribedbylaw.
CITv.BholaBhandariCharitableTrust(2013)351ITR469/215Taxman138(Mag.)(P&H)(HC)
Editorial.Order of Tribunal in Bhole Bhandari Charitable Trust v. CIT (2013) 22 ITR 661
(Chandigarh)(Trib.),affirmed.
S.80G:DonationCharitablepurposeCharitabletrustApplicationforrenewalofdeductionFindingthat
trust created by mutual club of masonsMother body not surrendering its mutual statusNot to be
treatedasindependentcharitableinstitution.
The assessee, a registered trust, was granted recognition under section 80G for a period from June 2,
1995 to March 31, 1996. Thereafter, recognition under section 80G was renewed from time to time
uponapplicationputinbytheassessee.TheassesseeenjoyedapprovalfromApril1,1996toMarch31,
2007 and filed a renewal application on March 26, 2012. The Director (Exemptions) rejected the
application.Onappeal:
Held,thatthetrustwasanextensionofthemutualClubofMasons.Themotherbodyhadnotsacrificed
or surrendered its mutual status. Therefore, the status of mutuality reflected on the assesseetrust
whichcouldnotclaimthestatusofacharitableinstitution.Asthemotherbodywasnotsurrenderingits
status of mutuality, it was not possible to treat the assessee as an independent charitable institution.
Eventhoughtheassesseewasregisteredunderthelawrelatingtotrusts,itcouldnotbeconstruedasa
charitableinstitutionforthepurposeoftheIncometaxAct.Thereforetheapplicationwasrejected.
198
The Lodge of Universal Charity 273 EC Charitable Trust v. DIT (Exemptions) (2013) 23 ITR 25
(Chennai)(Trib.)
S.80G:DonationCharitable InstitutionsApproval of institutionRenewalCircular clarifying that
existingapprovalsdeemedtohavebeenextendedinperpetuityunlessspecificallywithdrawnCircular
bindingApprovaltocontinue.
The assessee filed an application for renewal of approval for purposes of the deduction under section
80GoftheAct.Itmadearequesttotreattheapplicationforrenewalofexemptionundersection80Gas
withdrawn in view of Circular No. 5 dated June 3, 2010 (2010) 324 ITR (St.) 293, which provided that
approvals under section 80G were deemed to be in perpetuity. The Commissioner did not accept the
requestoftheassessee,observingthatthesocietydidnotfulfilltheconditionsnecessaryforexemption
under section 80G(5). On appeal: Held, allowing the appeal, that approval under section 80G(5) of the
Act already granted to the assessee would continue unless and until the concerned authority took
appropriateactioninaccordancewithlaw.(A.Y.20112012)
VishavNamdhariSangatv.CIT(2013)22ITR468(Chandigarh)(Trib.)
S.80G:Donation Recognition of Institution etc. u/s. 80G(5) Trust created exclusively for a
particularreligion:
Assesseetrustwascreatedfortheconstructionofatempleofadeityandworshipofthesaid
deity under a trust deed which provided that the income of the trust shall be applied in the
maintenance and repair of the temple properties and spent on the daily worship of the said
deity and on defraying the usual expenses of holding festivals of the said deity and the
aforesaidobjectswerestillintactevenaftertheunauthorizedamendmentofthetrustdeedby
the founders and trustees, it was held that it is atrust expressed to be for the benefit of a
particular community i.e. Hindu religious community, which contravenes the provisions of s.
80G(5)(iii)r/wExpln.3toS.80Gand,therefore,assesseetrustwasnotentitledtorenewalof
approvalu/s.80G(5).
RamanujamSpiritualPublicCharitableTrustv.CIT,(2013)151TTJ682(TM)(Asr.)(Trib.)
S.80HH:Newly established industrial undertakings Backward areasInfrastructure

developmentComputationLossinnoneligibleunit(S.80A(2),80AB,80B(5),80IA.)
While calculating the deduction u/ss. 80HH and 80IA, the profits of each unit have to be
calculatedseparately.lossofaneligibleunithastobetakenintoaccountwhilecalculatingthe
deductionbutnotthelossofnoneligibleunit.
CITv.HimTeknoforgeLtd(2013)83DTR117/256CTR393(HP)(HC)
S.80HHC:Export business Directory for relating to time for furnishing of audit report Audit
reportsubmittedduringassessmentproceedingsdeductioncannotbedenied.
TheAssessingOfficerdisallowedtheclaimoftheassesseeundersection80HHContheground
that the assessee failed to file Form No. 10CCAC along with the return. Held, that the
expression along with the return of income occurring in section 80HHC(4) is directory in
nature in so far it relates to the time for furnishing. If it is furnished during the course of
assessmentproceedings,deductioncannotbedenied.(A.Y.200304)
199
CITv.GodhaChemicalsPvt.Ltd.(2013)353ITR679/83DTR190/257CTR10(Raj)(HC)
S.80HHC:Export business Survey Stock valuation found during the course of survey and
surrenderedasbusinessincomeoftheassesseewaseligibleforthedeductionundersection
80HHCtotheextentprescribed.[S.133A]
TheAssessingOfficer,fortheAY200203,disallowedthedeductionundersection,inrespectof
a sum representing excess stock valuation surrendered by the assessee as income during the
courseofsurvey.TheCommissioner(Appeals)andtheTribunalheldthatbecausetheassessee
was doing business in handicraft items and nothing contrary was found by the Department
duringthesurveyproceeding,whichcouldshowthattheassesseewasdoingbusinessinitems
other than handicraft items, the Assessing Officer ought to have allowed the deduction under
section80HHC.
Held,dismissingtheappeal,thattheassesseehadexportedhandicraftitemsmanufacturedby
it during the AY 200203 and had realized the convertible foreign exchange therefor and had
thus satisfied the requisite condition for grant of the deduction under section 80HHC to the
extent of excess closing stock valuation also. The income added in the hands of the assessee
was merely on account of surrendering the amount as income by the assessee on account of
excess valuation of the closing stock made by the assessing authority on account of survey
conducted under section 133A. Hence, the excess stock valuation found during the course of
survey and surrendered as business income of the assessee was eligible for the deduction
undersection80HHCtotheextentprescribed.(A.Y.20022003)
CITv.HaswaniArts(2013)352ITR574/83DTR81/256CTR335(Raj.)(HC)
S.80HHC:Export business Cut and polished marble blocks Extent of cutting and polishing
notprescribedEligiblefordeduction.
The Act does not prescribe the degree or extent of cutting and polishing to be applied to the
marble blocks for claiming deduction under section 80HHC. The Act does not specifically
mentionthatthemarbleshouldbegivenfinalcutandfinalpolishbeforebeingexported.When
roughmarbleiscutintodimensionalblocksofuniformcolourandsizeandacertainamountof
dressing and polishing is done, which would remove various natural flaws such as colour
variations, etc., it would certainly amount to "processing" of the marble and add value to its
marketability.CircularNo.693,datedNovember17,1994,didnotadverselyaffecttheclaimsof
theassesseesandtheassesseeswereentitledtothebenefitofdeductionundersection80HHC.
(A.Y.20032004)
CIT v. Arihant Tiles and Marbles Pvt. Ltd. (2013) 352 ITR 20/215 Taxman 140(Mag.)/257 CTR
169/84DTR58(Raj.)(HC)
S.80HHC:Export business Dividend and interest receipts Ninety per cent of net receipts,
includedinprofits,andnotofgrossreceipts.
That the Tribunal was correct in excluding 90 per cent of the dividend receipts and interest
receipts for arriving at the business profits attributable to such receipts for the purpose of
arrivingattheprofitsofthebusinessoftheassesseeingeneralandnotthegrossreceipts.The
decisionofACGAssociatedCapsulesPvt.Ltd.v.CIT(2012)343ITR89(SC)wasapplied.
200
CITv.InfosysTechnologiesLtd.(2013)352ITR74(Karn.)(HC)
S.80HHC:ExportbusinessTotalturnoverMiscellaneousincomeispartoftotalturnover.
Miscellaneous income under the residuary head necessarily had to be part of the total
turnover.
S.80HHC:ExportbusinessComputationAdjustmentofunabsorbeddepreciationDeduction
isallowabletoanexporteronlyafteradjustmentofunabsorbeddepreciationofearlieryears
fromcurrentyearprofit.[S.32,80AB].
Inthecontextofcomputingtotalincomeoftheassesseeandevenincomputationofthetotal
income, the depreciation allowance whether for the current year or unabsorbed depreciation
ofearlieryearsnecessarilyisfactored.Itisonlyaftermakingadjustmentsagainstthesecarried
forward losses or unabsorbed depreciation allowance the true profits and positive profits can
bearrivedat.(A.Y.199798)
J.K.IndustriesLtd.v.ACIT(2013)351ITR434/85DTR225/214Taxman52(Mag.)(Karn.)(HC)
S.80HHC:ExportbusinessLossinoneunittobeadjustedagainstprofitsofanother.
Differentunitsoftheassesseecompanywereengagedinthemanufacturingofdifferentgoods.
This does not make separate units of the assessee company as separate and different
assessable units for the purposes of the Income tax Act, 1961 or for that matter for the
purposesofs.80HHC.Deductionu/s.80HHCcouldbeallowedtotheassesscompanyonlyafter
adjustmentoflossinunitIIIagainstprofitsofunitI.(A.Y.200304)
MadhavMarbles&GranitesLtd.v.ACIT(2013)352ITR331/83DTR17/256CTR329(Raj.)(HC)
S.80HHC:ExportbusinessReceiptofexportincentivespertainingtoearlieryears.
Assessee was following cash system of accounting in respect of export incentives. It received
suchincentivespertainingtoearlieryearsintherelevantfinancialyear.Heldthatitwasentitled
todeductionundersection80HHCbytakingtheexportturnoverandthetotalturnoverofthe
yearinrelationtowhichtheexportincentivehasbeenreceived.(A.Y.199293)
BarcleysInternationalv.CIT(2013)83DTR159/257CTR166(P&H)(HC)
S.80HHC:ExportbusinessThirdandfourthprovisosConstitutionality.(Constitutionof
India.Art226)
Amendment of s. 80HHC(3) by insertion of certain conditions in the third and fourth provisos
theretowithretrospectiveeffectbyTaxationLaws(SecondAmendment)Act,2005,violatesArt.
14oftheConstitutionasitdeniesthebenefitofdeductionu/s.80HHCtotheclassofassessees
havingexportturnoverofmorethanRs.10croreswhoseassessmentwerestillpending,while
allowing such benefit to the same class of assessees whose assessments have already been
concluded. It is also invalid for the reason that its retrospective operation takes away the
benefit from one class of assessees. Impugned assessment is quashed to the extent that the
operation of section could be given effect from the date of amendment and not in respect of
earlier assessment years in the case of assessees whose export turnover is more than Rs. 10
crores.
201
VijayaSilkHouse(Bangalore)Ltd.UoI&Ors.(2013)83DTR241/257CTR67(Bom.)(HC)
S.80HHC:ExportbusinessProfitsofthebusinessDEPBcreditnottransferredProvisionsof
section28(iiid)isnotattracted.
TheassesseeitselfhadutilisedtheDEPBcreditforitsbusinessandhadnottransferred/soldthe
same to any third party, then the provisions of section 28(iiid) would not be attracted, and
therefore the second, third, fourth provisos of 80HHC(3) are not attracted to the assessees
case.SinceAOwasdirectedtorecomputethedeductionsundersection80HHC,inaccordance
withthelawasheldbytheSupremeCourtinTopmanExportsv.CIT(2012)342ITR49(SC)
CITv.K.R.B.L.LTD.(2013)82DTR241/257CTR32(Delhi)(HC)
S.80HHC:ExportbusinessComputationProfitsofthebusinessInterestfrommoneylendingis
not excludible for purpose of applying formula for computing export profits for earlier year
lawisamendedwitheffectfromAssessmentyear199293.(S.80AB)
The assesseeis an individual engaged in export business. For the assessment year 199192, he
claimed deduction of Rs. 33,63,149 under section 80HHC of the Incometax Act, 1961. The
incometax authorities objected that the interest income, even if it was assessed as business
income on the footing that the assessee was carrying on moneylending business, represented
domestic profits and not export profits and, therefore, a mechanism should be devised by
which the domestic profits were excluded from the profits of the business for the purpose of
applying the formula prescribed by section 80HHC. The Tribunal held that the domestic
businessneednothaveanynexuswiththeexportbusinessforthepurposeofdeductionunder
section 80HHC and hence interest income could not be excluded from the profits of the
business. On appeal the Court held that the amendment made to clause (baa) of the
Explanation below section 80HHC defined "profits of the business" in such a manner as to
excludereceiptslikeinterest,commission,etc.,whichdidnothaveanelementofturnover,was
introducedprospectivelybytheFinance(No.2)Act,1991,witheffectfromtheassessmentyear
199293 and the amendment did not operate retrospectively. Therefore, for the assessment
years prior to the assessment year 199293, it would not be permissible to exclude interest
receipts even if the business from which interest arose did not have an element of turnover.
Appealofrevenuewasdismissed.(A.Y.199192)
CITv.AnilChanana(2013)350ITR47/214Taxman62(Delhi)(HC)
S.80HHC:ExportbusinessTotalturnoverInsuranceclaim,interest,renttobeexcludedfromprofitsof
business.Amountofsaleofrawmaterialtobeincludedintotalturnoverforpurposeofcomputation
ofdeduction.
In the computation of deduction under section 80HHC the Assessing Officer included the sale of raw
materialsinthetotalturnoverandexcluded90percent.ofinsuranceclaims,salestaxrefund,interest
and lease rental receipts from the profits of the business. This was affirmed by the Commissioner
(Appeals).Onappeal:
Held,(i)that90percent.ofotherincomesuchas,insuranceclaim,interest,rent,etc.,wasliabletobe
excludedfromtheprofitsofthebusinesswhilecomputingdeductionundersection80HHC.(ii)Thatthe
amount of sale of raw material was liable to be included in the total turnover of the assessee for the
202
purpose of computation of deduction under section 80HHC according to the formula given in the
statute.(A.Y.20022003)
S.80HHC:ExportbusinessNetinterest90percentthereof.
Tribunal held that when there is a nexus between interest receipts and interest payment
interestreceiptshouldbesetoffagainstinterestpaymentbeforeexcluding90percentthereof
in terms of Explanation (baa) to section 80HHC, it is 90 per cent of net interest and not gross
interest which has to be deducted under clause (i) of Explanation (baa) to section 80HHC for
determiningprofitsofbusinessinordertocomputedeductionundersection80HHC.Infavour
ofassessee(A.Y.200405)
ACITv.AvonOrganicsLtd.(2013)55SOT260(Hyd.)(Trib.)
S:80HHC:ExportbusinessBlockassessment(S.158BC,158BH)
Incourseofappellateproceedings,assesseeraisedanobjectionthatrevenueauthoritieswere
not justified in denying deduction claimed under section 80HHC. Tribunal held thatsince book
resultswereneitheralterednorrejectedbyrevenueauthoritieswhichshowedexportproceeds
being received by assessee, deduction claimedunder section 80HHC was to be allowed within
premiseofsection158BH.Infavourofassessee.(.Blockperiod141987to23101997)
HindustanPolyamides&FibresLtd.v.Dy.CIT(2013)55SOT52(URO)(Mum.)(Trib.)
S.80HHE: Export business Transfer of film software Export turnoverTotal turnover

Expenditure incurred in foreign exchange by providing technical services outside India
Whethertobereducedfromexportturnoverandtotalturnover.
TheorderoftheTribunalreversingthefindingsoftheAssessingOfficerthatforthepurposeof
computing deduction under section 80HHE, the expenditure incurred in foreign exchange by
providing technical services outside India were to be reduced from the export turnover and
total turnover before granting such deduction was liable to be set aside. The matter was
remitted to the Tribunal for decision afresh in the light of the material to be placed by the
assesseebeforehim.
S.80HHE:ExportbusinessComputersoftwareDataentryExportofcustomizedelectronicdata
iseligiblefordeduction.
Theassesseeisengagedinthebusinessofinformationvending.Theactivitiesundertakenbythe
assessee is transmission of customized data through internet to its clients abroad and that of
dataentryprocessing.Theassesseeclaimedthedeductionundersection80HHE.TheAssessing
Officer disallowed the claim on the ground that department has not accepted theorder of
Tribunalwhich has allowed the claim of assessee for the assessment year 200001.On appeal
theCommissioner(Appeals)andTribunalallowedtheclaimofassessee.Onappealbyrevenue
the Court held that the job data entryhas been notified as computer software service, vide
notification dt 26
th
Sept, 2000by the CBDT the assessee is eligible to deduction under section
80HHE.Accordinglytheappealofrevenuewasdismissed.(A.Y.200304)
203
CIT v. Malhar Information Services (2013) 351 ITR 119/ 83 DTR 44/257 CTR 69/213 Taxman
45(Mag.)(Bom.)(HC)
Editorial:ReferACITv.MalharInformationServices(2008)119TTJ346(Mum.)(Trib.)
S.80HHE:ExportbusinessComputersoftwareReimbursementofexpensesTotalturnover.
Tribunal held that reimbursement of expenses are to be reduced from total turnover for
purposeofcomputingdeductionundersection80HHE(A.Ys.200405,200506)
ACITv.BechtelIndia(P.)Ltd.(2013)141ITD200/85DTR50/153TTJ416(Delhi)(Trib.)
S.80HHE:Export businessComputer softwareTotal turnoverExport turnoverTurnover of eligible

businesstobeconsideredandnottheturnoverofalltheunits.
Theassesseehadclaimeddeductionundersection80HHEtakingintoconsiderationtotalturnoverand
exportturnoverofeligiblebusiness.TheAssessingOfficerrestrictedtheassesseesclaimbytakinginto
accounttheturnoverofalltheunitsoftheassesseeinsteadoftheturnoverofonlytheeligibleunits.In
appeal the Commissioner (Appeals) confirmed the order of Assessing Officer. On appeal the Tribunal
heldthatthequalifyingprofitforthepurposeofcomputingprofitsandgainsofbusinessorprofession
as per explanation (d) to the section would be the profits of the computer software business and
correspondingly, it would be the export and the total turnover of the said business only that would
standtobeconsideredforapportionmentundersection80HHE.TheTribunalreliedonthejudgmentof
MumbaiTribunalinTessituraMontiIndiaPvt.Ltd.(ITAno7127/Mum/2010dt.11012013.(A.Y.2003
04)
DatamaticsTechnologiesLtd.v.DCIT(2013)BCAJMay.P.49(Mum.)(Trib.)
S.80I:IndustrialundertakingsAmalgamationofonecompanywithanotherNotatransfer
as defined in section 2 (47) of the Act Disallowance of deduction u/s. 80 I of the Act not
calledfor.[2.(47)]
When a company is amalgamated into a company it does not amount to transfer within the
meaning ofsection 2 (47) of the Act.Thereforededuction under section 80 I of the Act cannot
be denied on the ground that it was a case of transfer of machinery to a new business. (A.Y.
199596)
CITv. Bhuwalka Steel Industries Ltd. (2013) 81 DTR 348/214 Taxman 392/255 CTR 516 (Karn)
(HC)
S.80I:Industrial undertakings While computing deduction under section 80 I of the Act,

deduction granted under section 80 HH of the cannot be deducted from the gross total
income.
Whilecomputing deduction under section 80 Iof the Act,deduction granted under section 80
HHoftheActcannotbereducedfromthegrosstotalincome.
CITv.HindustanPipeUdyogLtd.(2013)81DTR175/214Taxman9(Mag.)/255CTR389(All)
(HC)
204
S.80IA:Industrial undertakings Infrastructure undertaking Approval of industrial park
DelayinissuingnotificationExemptioncannotbedenied.[IncometaxRules1962Rule18C]
The claim of assessee for deduction under S. 80IA was denied on ground that assessee was
recognised as an industrial park under rule 18C on 562006; and, thus, benefit of S. 80IA
wouldnotbeavailable.ItwasobservedthattheMinistryofCommerceandIndustryhadfinally
approved assessee as industrial park by 31122004 and in terms of rule 18C, once industrial
park is so approved, the CBDT has to suomotu issue concerned notification. Held, merely
because delay in issuing concerned notification occurred on part of CBDT, deduction under S.
80Ishouldnotbedeniedtoassesseesinceallotherrequisiteconditionsforclaimingdeduction
werecompliedwith.(A.Y.200506)
CITv.AckrutiCityLtd.(2013)214Taxman398(Bom.)(HC)
S.80IA:Industrial undertakings Miscellaneous incomeSale of import licence, interest,

insuranceclaim,weighbridgeincomeisnoteligiblefordeduction.
Miscellaneous income like ,sale of import licence, interest, insurance claim, weighbridge
incomeisnoteligiblefordeductionundersection80IA.(A.Ys.199495,199596)
KohinoorFoodsLtd.v.CIT(2013)353ITR264(Delhi)(HC)
S.80IA:Industrial undertakings Different manufacturing units Attributable expenses

Corporate expenses which has direct nexus is deductible while computing the deduction of
eligiblebusiness.
Withregardtooneofthefivemanufacturingunitsoftheassessee,theoriginalassessmentfor
the AY 199899 was completed. Subsequently, pursuant to an order under section 263, the
AssessingOfficermadeafreshassessmentaddingRs.1,75,73,406onaccountofproportionate
corporateexpensesoutoftheprofitofoneoftheunits,andthusreducedthedeductionunder
section 80IA. The Tribunal held that the corporate expenses incurred by the assessee at its
registered and head office during the financial year relevant to the assessment year 200001
were essential expenses and had a direct nexus with the running of that unit and were,
therefore, deductible in computing the profits and gains derived from the eligible business.
Held, that the Assessing Officer had to implement the earlier two decisions of the Tribunal
callingfortheauditedaccountsofboth,theunitaswellasthecorporateofficeandtofindout
the expenses incurred essentially for the unit. The amount of such expenses found should be
deducted from the profit earned at the unit.(A. Y. 19992000, 20002001)
TideWaterOilCo.(India)Ltd.v.CIT(2013)353ITR300(Cal.)(HC)
S.80IA:Industrial undertakings Manufacture Production Activity undertaken by a

diagnosticcentredoesnotresultinmanufactureorproduction,thereforediagnosticcentreis
noteligiblefordeductionundersection80IA.
Facilities provided by a diagnostic centre viz, X rays, MIR, CT scan, NMI etc. do not result in
manufacture or production of article or thing therefore, a diagnostic centre is not entitle an
industrialundertakingeligiblefordeductionundersection80IAoftheAct.(A.Y.199596,98
99&9900)
CITv.DewanChandSatyapal(2013)81DTR382/212Taxman370/256CTR356(Delhi)(HC)
205
S.80IA:Industrial undertakings Infrastructure development Process of converting semi

finished bags into laminated HDPE bags amounts to manufacture and hence, deduction can
beavailedu/s.80IA.
The process of converting semifinished bags into Laminated HDPE bags amounts to
Manufacture since both the product are entirely distinct, have different identity, have
different utilities and both fetch different prices in the market. The assessees unit being
engaged in an activity of manufacture, fall within the ambit of Industrial Undertaking as
definedu/s.80IA(12)(b)andisthereforeeligiblefordeductionu/s.80IBoftheAct(T.A.No.96of
2000,dt19/06/2012/T.A.No.98of2000,dt19/06/12)].
JhaveriCoaters(P)Ltd.(2012)BCAJNovemberP.401(Guj.)(HC)
S.80IA:IndustrialundertakingsinfrastructuredevelopmentWorkscontractExplanationthats.
80IA(4)doesnotapplytoworkscontractsisclarificatoryanditsretrospectiveoperationis
valid,amendmenrdidnotimposefreshlevyhencethesameisnotvilativeofArtcicle14and
19(1)(g)oftheConstitution.[Art.14(19(1)(g),ConstitutionofIndia)]
By the Finance Act No.2 of 2009 an Explanation was added to s. 80IA(4) with retrospective
effectfrom1.4.2000toprovidethats.80IA(4)wouldapplytoabusinesswhichisinthenature
ofaworkscontractawardedbyanypersonandexecutedbyanundertakingorenterprise.The
saidretrospectiveamendmentwaschallengedonthegroundthat(i)itwasafreshlevyoftax,
(ii) no reasons were given to support the retrospective levy, (iii) the period of retrospective
operation was long and so it violated Article 19(1) (g) of the Constitution. HELD by the High
Courtdismissingthechallenge:
(i)Anenactmentcanbequestionedonlyonthegroundoflackofcompetenceorontheground
that the statute violates the fundamental rights or any other constitutional provisions. An
enactment cannot be struck down by just saying that it is arbitrary or unreasonable. Some or
otherconstitutionalinfirmityhastobefoundbeforeinvalidatinganAct.Asalltaxesareraised
forpublicgood,thereisconsiderablelatitudetoParliamentinframingataxingstatute.Thereis
always a presumption of constitutionality and the burden is on the Petitioner bringing such a
challenge;
(ii) Onmerits, the argument that the Explanation below s. 80IA (13) provides fora levy of tax
which was hitherto unknown is not acceptable. It cannot be said that the Legislature in
introducing the explanation materially changed the exemption which existed till such
explanationwasintroduced.Theexplanationwasintroducedfortheremovalofdoubtsandis
declaratory in nature. By the Explanation, the Legislature has distinguished between cases of
developing/operatingetc.fromaworkscontract.Itcannotbedisputedthatthereisanintrinsic
difference between developing an infrastructure facility and executing a works contract. The
Explanation merely aims to clarify that deduction u/s 80IA(4) is not available in case of
executionofworkscontract.Suchaninterpretationispossibleevenonthebasisoftheexisting
provisionsofs.80IA(4).
Katira Construction Ltd v. UOI(2013) 352 ITR 513/258 CTR 337/86 DTR 1/214 Taxman 599
(Guj)(HC)
206
S.80IA:IndustrialundertakingsInfrastructuredevelopmentTelecommunicationservices
VSATservicesMatterremanded.
Assessee,apubliclimitedcompany,wasprovidingsatellitebasedtelecommunicationsolutions
including VSAT services, and broadband service through satellite. It claimed deduction under
section 80IA in respect of income derived from providing broadband/internet services.
AssessingOfficerrejectedassessee'sclaimongroundthatsatellitewasnotadomesticsatellite
becauseitwasownedbyDepartmentofspace,GovernmentofIndia,whichwasnotanIndian
company and, moreover, it was being operated by 'B' Ltd. i.e. a foreign company. Court held
thatas long as assessee was providing stipulated services and had received payments for
specified services, income earned would qualify for deduction under section 80IA(4)
(ii);however, in absence of any details regarding nature and character of service rendered by
assessee through satellite, matter was to be remanded back for disposal afresh. Matter
remanded.(A.Y200506)
EsselShyamCommunicationLtd.v.CIT(2013)212Taxman328(Delhi)(HC)
S.80IA:IndustrialundertakingsInfrastructuredevelopmentTelecommunicationservices
VSATservicesIncomederivedSalesofvariousitemssuchasantenna,RFT,computerprinter,
videoconferencingsystemsetc.Matterremanded.
In course of assessment, Assessing Officer noted that assessee's claim for deduction under
section 80IA included amount received from sales of various items such as antenna, RFT,
computer printer, video conferencing systems etc. Assessing Officerrejected assessee's claim
holding that it was not income derived from specified services. Courtheld thatassessee's claim
for deduction could be allowed only if sale of goods was inextricably connected with primary
purposeofprovidingtelecommunicationservices,therefore,matterwastoberemandedback
fordeterminingtruenatureofsaleofgoods.Matterremanded.
EsselShyamCommunicationLtd.v.CIT(2013)212Taxman328(Delhi)(HighCourt)
S.80IA:Industrial undertakings Infrastructure development Tax component of sales price

Deductionisavailable.
The assessee NLC was engaged in the business of mining and production of lignite and using
them in the generation of electricity. Under Bulk Power Supply Agreement entered into
between the assessee and State electricity board, the assessee agreed to sell the electricity
generated by it. The tariff that was arrived at between the parties consisted of various
components including tax liability on the income streams from the core activity of NLC. A
readingoftheagreementmadeitclearthatinstrictsense,therewasnoreimbursementofthe
taxliabilitybytherecipient,butwastreatedaspartofthetariffandwhateverwasdoneonthe
receiptofthestatementofthetaxpayablebytheassesseewasthatthetariffpricepayableon
the electricity sold was finally reckoned with reference to the above said tax payment. In the
proceedings under section 263, the Commissioner pointed out that the income tax liability of
theassesseehadbeenpaidbytheelectricityboardsandtheamountreceivedbytheassessee
was shown as receipt of the income and included for claiming deduction under section 80IA.
TheCommissionerviewedthatthereceiptoftheincometaxbywayofreimbursementwasnot
an income from the manufacturing or production activity. Consequently, no deduction under
section 80IA.Tribunal confirmed the view of Commissioner under section 263. . On appeal to
207
the High Court, held thatUnder a bulk power supply agreement between assesseeelectricity
generatingcompanyandStateElectricityBoard,variouscomponentsoftariffwastobecharged
for sale of electricity. Said agreement as well as relevant notification by Ministry of Power
clarifiedthattaxliabilitywouldbepartofthetariffchargedforsaleofelectricityfromThermal
Power Generating Stations and it would not stand independent of the tariff charge. Further,
there was no reimbursement from State Electricity Board of tax paid by assessee. tariff could
notbedissectedtoconcludethattaxcomponentspecifiedaspartoftariffwasreimbursement
ofliabilityofassesseeand,hence,itwouldnotformpartofincome.relieftobegrantedunder
section80IA,wouldnotcallforexclusionoftaxcomponentinsalepriceofelectricity.Infavour
ofassessee.(A.Y.200102).
NeyveliLigniteCorpn.Ltd.vACIT(2013)212Taxman318(Mad.)(HC)
S.80IA:IndustrialundertakingsInfrastructuredevelopmentPowergenerationCaptive
consumptionSupply,rateatwhichconsumersgetelectricityismarketrateofelectricity.
Assessee is engaged in business of power generation. It captively consumed power generated
and balance was procured by TamilNadu Electricity Board [TNEB] from assessee atrate of Rs.
2.70 per unit. TNEB, in turn charged Rs. 3.50 per unit from its consumers. Assessing Officer
took market value of power consumed at RS 2.70 PER unit and made addition accordingly,
computed profits and gains of eligible unit for purpose of section 80IA. Commissioner
(Appeals)confirmedtheaddition.OnappealTribunalheldthatMarketrateofelectricitybeing
regulated by Government not by forces of demand and supply, rate at which consumers get
electricity is market rate of electricity; and, therefore, Assessing Officer was directed to
recompute profits and gains on basis of price of Rs. 3.50 per unit for purpose of section 80IA
deduction.(A.Y.200708)
SriMathaSpinningMills(P.)Ltd.vDy.CIT(2013)141ITD238(Chennai)(Trib.)
S.80IA:IndustrialundertakingsInfrastructuredevelopmentDeductionsWorkscontract.
Assessee made a claim of deduction under section 80IA with respect to business income
earned from execution of projects relating to development of infrastructure facility such as
dams, roads, power projects etc. Revenue authorities took a view that assessee was merely
engaged in works contract executed for Government authorities for development of
infrastructure facility. Accordingly, revenue authorities concluded that assessee was not
entitled for deduction under section 80IA(4).Tribunal held that since assessee could not
controvert aforesaid finding recorded by authorities below, impugned disallowance was to be
confirmed.(A.Ys.200304to200607)
S.80IA:Industrial Undertakings Infrastructure DevelopmentInitial assessment yearOverriding effect

of section 80IA(5) limited to where allowance not already setoff against other income is applicable
forcurrentyear,setoffofloss/allowanceagainstotherincomeallowable.[S.32(2),70,71]
Section80IA(5)oftheIncometaxAct,1961,whichbeginswithanonobstanteclause,subjecttowhich
thedeductionundersection80IA(1)istobegranted,deemstheeligiblebusinesstobetheonlysource
of income for the previous year relevant to the initial assessment year, up to the assessment year of
determination of deduction under section 80IA(1). The deeming, thus, commences with the previous
208
yearrelevanttotheinitialassessmentyear.CircularNo.281datedSeptember22,1980([1981]131ITR
(St.) 4) issued by the Board on introduction of section 80I by the Finance (No. 2) Act, 1980, which
contained a like provision in section 80I(6) explains that the losses, depreciation and investment
allowance of earlier years in respect of the new industrial undertaking will be taken into account in
determining the quantum of deduction admissible under the new section 80I even though they may
actuallyhavebeensetoffagainsttheprofitsoftheassesseefromothersources.Thewholepurportand
intentofsection80IA(5)istowardsprovidingaseparateandparallelbasisfortheaggregationandcarry
forward of unabsorbed depreciation and/or loss of the eligible business for the purpose of
determination of the quantum of deduction admissible under the section. To the same effect and
purportaretheNotesonClausesoftheFinance(No.2)Bill,1980andtheMemorandum Explainingthe
ProvisionsoftheBill,clarifyingthelegislativeintent.Ifthefirstyearofclaimofdeductionundersection
80IA(1) is itself taken as the initial assessment year, the whole purpose of the provision gets defeated
andwherethereisanunabsorbeddeprecationorlossincurredpriortothatyear,thereisnoscopeforit
tobecarriedforwardandsetoff.Thereisnorationaleforsuchanembargoorrestrictionnorisitborne
outbytheclearlanguageoftheprovision.Thoughtheperiodofdeductionundersection80IA(1)over
which the deeming of section 80IA(5) is to be applied commences with the previous year relevant to
the initial assessment year, and up to the year of determination of deduction, its stated purpose is
determinationofthequantumofdeductionundersection80IA(1)fortheyearimmediatelysucceeding
the initial assessment year and not the initial assessment itself and for every subsequent year because
therecouldbenobroughtforwardallowanceorlosspriortotheinitialassessmentyear.Ifso,thefirst
year for which there could be a loss or unabsorbed depreciation is the first year of operations, so that
thequestionofaggregationofincomeforthepurposeofdeterminationofquantumofdeductioncould,
at the earliest, be the immediately succeeding assessment year. Therefore, while the aggregation is
applicablefromtheinitialassessmentyearitself,thedeterminationofquantumofdeductionistobefor
or begins from the year immediately succeeding the initial assessment year. Also, once the deeming
commences with the initial assessment year, the aggregation of income is to continue over every
subsequentyear,i.e.,irrespectiveofwhetherthedeductionundertheprovisionisexigibleforthatyear
ornot.Thedeemingwouldthuscontinuetobeoperative,andisnotdependentonwhetherdeduction
foraparticularyearisbeingclaimedornot.Thefirstyearofdeterminationofdeductionundersection
80IA(1),orofreturningprofitsoftheeligiblebusiness,ignoringthelosses,ifany,incurredpriortothat
yearcannot,thus,beconsideredastheinitialassessmentyear.
The absence of a definition of the initial assessment year in section 80IA, as amended by the Finance
Act, 1999 with effect from April 1, 2000 is deliberate. The year marking the commencement of
operations of the eligible undertaking or enterprise is the initial assessment year. Any other reading of
the initial assessment year would render the provision internally inconsistent, besides considerably
dilutingitspurportofgivingtaxshelteronlytotheprofitsoftheeligibleundertaking/business.
The option to the assessee to choose a period of ten consecutive years from a block of fifteen years
commencing the year in which the undertaking begins its operations has nothing to do with the
quantum of deduction per se. The deduction under the provision is to be computed considering the
eligible source to be the only source of income throughout. The tax holiday period has nothing to do
withtheaggregationprincipleperse,thewholepurportofwhichistoextendthetaxshelteronlytothe
profitsoftheeligibleundertakingorenterpriseoverthetaxholidayperiod.Theaggregationprescribed
bythesectionislimitedonlytoquantifyingthedeductionundersection80IA(1),andwhichwouldonly
be on the unit turning positive, returning profits. As a corollary, the losses/unabsorbed depreciation
wouldstandtobesetoffagainsttheotherincomesundertheregularprovisionsoftheAct.
209
Oncethedepreciation/lossofaneligibleunitissetoffagainsttheassessee'sotherincome(noneligible
businessincome),itisnolongeravailableforbeingcarriedforwardandsetoff,i.e.,onanotionalbasis.
Section80IA(5),doesnotrestorelifetoanonexistentallowance/losssoastopermitasetoffthereof
on a notional basis. In other words, the overriding effect of section 80IA(5) would only be limited to
wheretheallowancedoesnotstandalreadysetoffagainsttheotherincome.
Section 80IA(5) is a separate provision, which was incorporated with a specific purpose, treating the
profits from the eligible source as the only source of income to determine the quantum of deduction
that could be allowed under the provision. All the other applicable provisions of the Act, including
sections 32(2) and 72, would apply in the computation of such income. It, thus, presents a parallel
method for arriving at the profits of the eligible business, and is to be given full play. That being the
mandateofthesection,carryforwardandsetoffofthelossforearlieryearsfromsuchasourcewould
hold, considering it as the only source of income, in terms of section 72. It may or may not have been
already setoff against other income, but that is irrelevant. A deeming provision or a legal fiction, it is
even otherwise trite, to be taken to its logical end/conclusion. This also agrees with the avowed
objectiveoftheprovision,i.e.,torestrictthetaxshelterundertheprovisiononlytotheprofitsfromthe
eligible source. The grant of the deduction is, however, circumscribed by the condition of section 80
IA(1),whichmustinanycasebesatisfied.Inotherwords,thegrosstotalincomewouldcontinuetobe
computedintermsofsection80B(5),andwouldnotstandrestrictedbysection80IA(5)inanymanner.
Heldaccordingly,thattheinitialassessmentyearwouldbetheassessmentyear200506andsection80
IA(5) being applicable for the current year, the assessee's claim for setoff of loss/allowance under
sections 32(2), 70 and 71, i.e., against other income, admittedly from a noneligible business / source,
wassustainable.(A.Ys.200506to200809)
S.80IA:Industrial undertakings Infrastructure development Civil contractorDeveloping,
maintaining and operating the facilityThe assessee is eligible for benefit u/s. 801A even if
only part of the Infrastructural Project work is executed by it. Larger Bench verdict in B. T.
Patilv.ACIT(2009)32DTR1isnotgoodlaw.
The assessee, a civil contractor, claimed deduction u/s 80IA (4) in respect of the profits from
infrastructure projects executed by it. The lower authorities rejected the claim on the ground
that the assessee was a mere contractor and not a developer. Before the Tribunal, the
MembersoftheDivisionBenchdissentedandsotheissuewasfirstreferredtoaThirdMember
and then to a Larger Bench of three Members. The Larger Bench (32 DTR 1) rejected the
assesseesclaimonthegroundthatinordertobeeligibleu/s80IA(4),theassesseehadtobe
directlyengagedindeveloping,maintainingandoperatingthefacilityandthattherehadtobe
acompletedevelopmentofthefacilityandnotjustapartofit.Whenthemattercamebefore
the Division Bench for giving effect to the Larger Benchs verdict u/s 255(4), the assessee did
not appear and hence, the Bench dismissed the appeal in limine for nonappearance. The
assesseefiledaMAbeforetheTribunaltorecallthesaidorderandalsofiledanappealbefore
the High Court. The Tribunal recalled its order dismissing the appeals and refixed the matter
for hearing. Consequently, the assessee withdrew the appeal filed in the High Court. In the
order permitting the withdrawal, the High Court directed the Tribunal to consider the
judgement in CIT v. ABG Heavy Industries Ltd. & ors. (2010) 322 ITR 323 (Bom). HELD by the
Tribunal:
210
The view of the Larger Bench that the assessee had to be directly engaged in developing,
maintainingandoperatingthefacilityandthattherehadtobeacompletedevelopmentofthe
facility andnot just a part of it is contrary to the law laiddown in CIT v. ABG Heavy Industries
Ltd.&ors.(2010)322ITR323(Bom).TheHighCourtheldthattheeffectoftheamendmentby
theFinanceActof1999isthatthebenefitofs.80IA(4)isavailabletoanyenterprisecarryingon
thebusinessof(i)developing,(ii)maintaining&operating,or(iii)developing,maintainingand
operating an infrastructure facility. It was also held that the assessee did not have to develop
the entire project in order to qualify for deduction u/s 80IA and that Parliament did not
legislateaconditionimpossibleofcompliance.TheExplanationbelow80IA(13)insertedbyFA
2007 & 2009 w.r.e.f 1.4.2000 which provides that s. 80IA(4) shall not apply to a person
executingaworkscontractdoesnotapplytoacasewheretheassesseeexecutestheworkby
shouldering Investment & technical risk by employing team of technically & administratively
qualified persons and it is liable for liquidated damages if failed to fulfill the obligation laid
down in the agreement and also securing by Bank guarantee. On facts, the assessee had
shoulderedtheinvestment&technicalriskinrespectoftheworkexecutedanditwasliablefor
liquidated damages if failed to fulfill the obligation laid down in the agreement. The liabilities
which had been assumed by the assessee were obligations involving the development of an
infrastructure facility. Consequently, it is not correct to say that the assessee is merely a
contractor&notadeveloper.Theassesseeiseligibleforbenefitu/s801Aevenifonlypartof
theInfrastructuralProjectworkisexecutedbyit.(A.Y.200001&200102)
B.T.Patil&SonsBelgaumConstructionsPvt.Ltd.v.ACIT(Pune)(Trib.)www.itatonline.org.
S.80IA:Industrial undertakings Infrastructure development ManufactureActivity of

repairingtheOldgascylinderfittouseisnotmanufacture.
Rendering a particular thing fit for being used for which it stand already produced or
manufactured,i.e.,restoringittogoodandworkableconditiononceagainisessentiallyarepair
andnotmanufacture.Activityofrenderingoldgascylindersfitforuseaspersafetystandards
andalsofittingperipheralspartsasrequired,wouldberepairandnotmanufactureforpurpose
ofallowingdeductionundersection80IA.Appealofrevenuewasallowed.(A.Y.200102)
S.80IA:IndustrialundertakingsComputationProvisionsofsection80A(2)and80ABshall
apply.
The assessee owned a hotel which was eligible for deduction u/s 80IA. Since subsec. (7) of S.
80IA provide for determination of amount of deduction whereas section 80AB and S. 80A(2)
provide for amount actually allowable while computing total income, assessees contention
that provisions of S. 80A(2) and 80AB shall not be applicable, cannot be accepted. Matter
remanded.(A.Y.19992000to200506)
Hotel & Allied Trades P. Ltd. v. Dy.CIT (2013) 140 ITD 309/87 DTR 49/154 TTJ 503 (Cochin)
(Trib.)
211
S.80IA:Industrial undertakings InfrastructureDevelopment of projectsDeveloperWorks
contractDeductionwasallowed.(S132,153A)
S.80IA(4)allowsdeductiontoanyenterprisecarryingonthebusinessof(i)developingor(ii)
operating and maintaining or (iii) developing, operating and maintaining any infrastructure
facility.TheExplanationprovidesthatitshallnotapplytobusinesswhichisinthenatureofa
works contract. Whether an assessee is a developer or works contractor depends on the
nature of the work undertaken by the assessee. The word contractor is used to denote a
person entering into an agreement for undertaking the development of infrastructure facility.
Everyagreemententeredintoisacontract.Therefore,thecontractorandthedevelopercannot
be viewed differently. Every contractor may not be a developer but every developer is a
contractor. Contracts involving design, development, operating and maintenance, financial
involvement, and defect correction and liability period cannot be called as simple works
contract.Acasewhereinanundevelopedarea,infrastructureisdevelopedandhandedoverto
theGovernmentcannotbeconsideredasamereworkscontractbuthastobeconsideredasa
developmentofinfrastructurefacility.Ifthecontractiscomposite,itwillhavetobesegregated
so as to allow deduction on the parts that involve design, development, operating and
maintenance,financialinvolvementetc.andtodenyonthosewhicharepureworkscontracts.
On facts, the assessee had made substantial investments in fixed assets and was exposed to
variouskindsofrisks.Itwasnotamerecontractor.Itisenoughiftheassesseeisadeveloper.It
need not also maintain & operate the infrastructure facility (Patel Engineering Ltd v. Dy. CIT
(2004) 94 ITD 411 (Mum) &GVPR Engineers Ltd (included in file) followed).Deduction under
section80IAwasallowed.(A.Y.200001to200506)
ACITv.PratibhaIndustriesLtd(2013)141ITD151/23ITR766(Mum.)(Trib.)
S.80IA:Industrial undertakings Infrastructure development Initial assessment year

AbsorbedlossesWindmillAbsorbedlossespreinitialassessmentyearneednotbesetoff.
The assessee set up a Wind Mill and commenced operations on 29.09.2006 (AY 200708). In
thatyeartheassesseesufferedalossofRs.3.5croresonaccountofdepreciationandinterest
whichwassetoffagainsttheotherincome.InAY200809,theassesseeearnedprofitofRs.7
lakhsfromtheWindMillandclaimed100%deductionu/s80IAbytreatingAY200809asthe
initial assessment year. The AO allowed the claim. However the CIT, relying on ACIT v.
GoldmineSharesandFinanceP.Ltd.(2008)302 ITR(AT)208(SB)(Ahd)&HyderabadChemical
SuppliesLtd.v.ACIT(2011)137TTJ732(Hyd),revisedtheorderu/s263onthegroundthatas
u/s80IA(5),theeligibleunitwasdeemedtobetheonlysourceofincome,theearlieryears
losses of the unit had to be setoff against the profits before allowing s. 80IA deduction. On
appealbytheassessee,HELDreversingtheCIT:
The fiction created by s. 80IA(5) is that the eligible business is the only source of income and
thedeductionwouldbeallowedfromtheinitialassessmentyearoranysubsequentassessment
year. It nowhere defines as to what is the initial assessment year. Prior to 1.4.2000, s. 80
IA(12) defined the initial assessment year for various types of eligible assessees. However,
after the amendment by the Finance Act, 1999, the definition of initial assessment year has
been specifically taken away. Now, when the assessee exercises the option of choosing the
initial assessment year as culled out in s. 80IA(2) from which it chooses its 10 years of
deductionoutof15years,thenonlythelossesoftheyearsstartingfromtheinitialassessment
212
year alone are to be brought forward as stipulated in s. 80IA(5). The loss prior to the initial
assessment year which has already been setoff cannot be brought forward and adjusted into
the period of ten years from the initial assessment year as contemplated or chosen by the
assessee.Itisonlywhenthelosshavebeenincurredfromtheinitialassessmentyear,thenthe
assesseehastoadjustlossinthesubsequentassessmentyearsandithastobecomputedasif
the eligible business is the only source of income and then only deduction u/s 80IA can be
determined.Thisisthetrueimportofs.80IA(5)(VelayudhaswamySpinningMillsP.Ltd.v.ACIT
(2012) 340 ITR 477 (Mad), CIT v. Emerala Jewel Industry (P) Ltd. (2011) 53 DTR 262 (Mad)
followed, ACIT v. Goldmine Shares and Finance P. Ltd. (2008) 302 ITR (AT) 208 (SB) (Ahd),
Hyderabad Chemical Supplies Ltd.v. ACIT (2011) 137 TTJ 732 (Hyd) &Pidilite Industries
Ltd.v.DCIT(2011)46SOT263(Mum)distinguished)(A.Y.200809)
ShevieExportsv.JCIT(Mum.)(Trib.),www.itatonline.org
S.80IA:Industrial undertakings Infrastructure development Loss of eligible unit Loss of

eligible unit, even if setoff against noneligible profits, has to be aggregated & carried
forwardforsetoffagainstfutureeligibleprofits.
Theassesseesetuptwowindmills,theincomefromwhichwaseligiblefordeductionu/s80IA.
TheassesseesufferedalossinthesaidWindMillsandclaimedasetoffofthesameagainstits
otherincome.TheAOandtheCIT(A)rejectedtheclaimbyrelyingonACITvGoldMineShares
andFinance(P)Ltd.(2008)113ITD209(SB)(Ahd)whereitwasheldthatinviewofs.80IA(5),
thelosssufferedbytheeligibleunitcannotbesetoffagainsttheprofitsofotherunits/other
businessintheinitialyearofassessmentorsubsequentyearsofeligibleyearsofassessments.
TheTribunalhadtoconsiderthefollowinglegalissues:(i)whatistheinitialassessmentyear?,
(ii) whether the loss/ depreciation from the eligible unit is entitled to be setoff against the
other income?, (iii) whether the said loss/ depreciation of the eligible unit is, after setoff
against the other income, still required to be notionally carried forward for setoff against the
futureprofitsoftheeligibleunit?HELDbytheTribunal:
(i)Theinitialassessmentyearistheyearinwhichtheeligibleunitcommencesoperations.It
isnottheyearinwhichtheassesseechoosestoclaimdeduction.Therequirementofs.80IA(5)
isthatthelossandunabsorbeddepreciationoftheeligibleunitshouldbegintobeaggregated
from the initial assessment year to the last allowable year. The aggregation has to continue
foreveryyearirrespectiveofwhethers.80IA(1)deductionforthatyearisexigibleornot;
(ii)Iftheeligibleunithasnoprofit,theloss&depreciationoftheeligibleunitisentitledtobe
setoff against the other income. However, despite such setoff, the loss and depreciation has
to be aggregated and notionally carried forward for setoff against the future profits of the
eligibleunit.(A.Y.200506to200809)
HerculesHoistsLimitedv.ACIT(2013)22ITR527(Mum)(Trib.)
S.80IA:IndustrialundertakingsInfrastructuredevelopmentProductionofteaInfrastructure
developmentactivityofprocessingwasnotincludedinsection80IA.Assesseeisnotentitled
fordeductionundersection80IA.
Section 80IA mandates that the industrial undertaking should manufacture or produce any
article or thing. The activity of the assessee is blending of tea amounts to processing only and
does not amount to manufacture or production. Tribunal held that activity of processing was
213
not included in section 80IA as it stood in Asst. Year 19992000, therefore assessee is not
entitledfordeductionundersection80IA.(A.Y.19992000,200001)
Dy. CIT v. Sunrise Tea Processing (P) Ltd. (2013) 152 TTJ 661/84 DTR 333/23 ITR 398 (Pune)
(Trib.)
S.80IB:Industrial undertakingsDerived fromIncome from other sourcesInterest income on

FDRsisnottobeincludedincomputingdeductionundersection80IB.
CourtheldthatabarelookofS.80IB(4)wouldrevealthatreferencemadeto'profitsandgains
derived from such industrial undertakings' and not to 'profit and gains derived from any
businessoftheindustrialundertaking'.InterestincomeonFDRscannotbesaidtobeanincome
flowing from the business activity of Industrial Undertaking, thus, it cannot be computed for
deductionunderS.80IB.Assessingtheinterestincomeasincomefromothersourceswasheld
tobejustified.
AsianCementIndustriesv.ITAT(2013)214Taxman365(J&K)(HC)
S.80IB:IndustrialundertakingsNewUnitnotexpansionofbusiness.
The assessee company which is engaged in the business of manufacture and sale of
pharmaceutical products .It set up a new tablet manufacturing unit and claimed deduction
undersection80IB.TheAssessingOfficerdisallowedtheclaimonthegroundthatitisexpansion
ofunit.TheCommissioner(Appeals)andtheTribunalhaverecordedconcurrentfindingoffact
thatfromthematerialwhichwasonrecord,theassesseehadestablishedthatitwasentitledto
claim the deduction under S. 80IB and as such, it will not be possible to interfere with the
findingoffactrecordedbyboththeauthoritiesbelow.(A.Y.200708,200809)
ACITv.GenoPharmaceuticalsLtd.(2013)214Taxman83(Mag.)(Bom.)(HC)
S.80IB:Industrial undertakingsOther than Infrastructure developmentSmall Scale industries
inbackwardareasEleventhschedule.
Assessee'sindustrialundertakingwasrecognizedassmallscaleindustryanditwaslocatedinan
industrially backward State. It was engaged in manufacturing of ophthalmic instruments and
equipments included in the eleventh schedule. It claimed deduction under section 80IB.
AssessingOfficerheldthatastheitemmanufacturedbytheassesseewasanarticlespecifiedin
Schedule XI, it was not eligible for deduction under section 80IB.On appeal, Commissioner
(Appeals) allowed the claim of assessee. On appeal Tribunal also confirmed the order of
Commissioner(Appeals).(A.Y.200910)
Dy.CITv.EyePhotonicsIndia(P.)Ltd.(2013)141ITD617(Chennai)(Trib.)
S.80IB:IndustrialundertakingsManufacturingorproductionMasalapowder.
The manufacturing of masala was manufacturing activity eligible for deduction under section
80IB.(A.Y.20052006)
ACITv.NavasM.Meeran(2013)24ITR111(Cochin)(Trib.)
S.80IB:Industrial undertakingsEleventh scheduleBackward stateSmall Scale industrial

UndertakingManufactureofIndianMadeForeignLiquor.
The assessee firm is engaged in manufacture and sale of IMFL.(Indian Made Foreign Liquor).It
claimed deduction under section 80IB. Assessing Officer disallowed the claim on the ground
214
thatIMPLwasanarticlespecifiedintheeleventhschedule.Sincetheassesseewasnotasmall
scaleindustry(SSI)underIndustries(DevelopmentandRegulation)Act,1951,itcouldnotclaim
benefit of proviso to section 80IB(2)(iii). On appeal, Commissioner (Appeals) held that as the
assesseesIndustrialundertakingwaslocatedintheindustriallybackwardstateofPondicherry
and manufactured article specified in the Eleventh Schedule. There was no need to fulfil
requirement of SSI for claiming deduction under section 80IB.On appeal to Tribunal by
revenue,TribunalconfirmedtheviewofCommissioner(Appeals).(A.Y.20092010)
Dy.CITv.Vinbros&Co.(2013)141ITD626(Chennai)(Trib.)
S.80IB:IndustrialundertakingsAdditionalgroundClaimnotmadeinreturnClaimcannotbe
entertainedinviewofspecificprovisionofsection80A(5)whichwasinsertedbyFinanceAct,
2009whichisapplicableretrospectivelyfromtheAssessmentyear200304.[S.80IB(5)]
AssesseedidnotmakeaclaimofdeductioninAY200304and200405,rathermadetheclaim
forthefirsttimebeforeCIT(A)byfilinganadditionalground.Itwasheldthattheprovisionsof
S.80IB(5)insertedbyFinanceAct,2009whichareapplicableretrospectivelyfromAY200304,
clearly provides that in case assessee fails to make a claim in the return of income, the claim
could not be allowed. The provision was applicable for AY 200304 and 200405. Therefore, in
theviewoftheseprovisionswhicharequietunambiguousandclear,claimofassesseecannot
beallowed.(A.Ys.200304,200405)
HindustanColasLtd.v.ACIT(2013)140ITD277/151TTJ421(Mum)(Trib.)
S.80IB(10):Undertaking Developing and buildingHousing projectDisallowance of labour

expenseswillalsoqualifyforexemption.[(S.40(a)(ia)]
The Assessing Officer disallowed deduction claimed by assessee under section 80IB(10) as it
didnotfurnishfullandcompletedetailregardingschemeforwhichdeductionwasclaimed.He
alsodisallowedlabourexpenditureundersection40(a)(ia).Withrespecttoassessee'sclaimfor
deduction under section 80IB(10), the Tribunal found that there was insufficient evidence to
decideissue and observed that disallowance oflabour expenses undersection 40(a)(ia)would
alsoqualifyfordeductionundersection80IB(10).Ittherefore,remandedproceedingsforfresh
consideration to Assessing Officer in light of its own decision. The Tribunal order was upheld.
(A.Y.200506)
CITv.SahjanandAssociates(2013)214Taxman132(Mag.)(Guj.)HC)
S.80IB(10):UndertakingDevelopingandbuildingHousingprojectAssesseeneednotownthe
landforclaimingthedeductionundersection80IB(10).
TheAssessingOfficerdisallowedclaimofdeductionongroundthatassesseehadnotdeveloped
housing project, as land was not owned by it. The Tribunal having noticed that (i) as per
developmentagreementassesseehadtoincurandbearallexpensesfordevelopmentofland,
and(ii)ithadrighttoallotpossessionofconstructedunitstomembersofhousingprojectafter
developing housing project, allowed claim of deduction. Held, the Tribunal order was liable to
beupheld.
CITv.MahadevDevelopers(2013)214Taxman130(Mag.)(Guj.)(HC)
CITv.PrathamaDevelopers(2013)214Taxman131(Mag.)(Guj.)(HC)
215
S.80IB(10):Undertaking Developing and building Housing projectHead room constructed
by flat owner after sale and occupation certificate issued by local authority, there is no
contravention of conditions, exemption cannot be denied The definition of builtup area,
cannot be held to be retrospectiveRestriction of size of shops and commercial
establishmentsisnotretrospective.
Basedonthematerialonrecord,itwasdisclosedthataheadroomwasconstructed.Thehead
roomwasnotincludedinthesaledeed.Thelocalauthority,afterconstructionofthebuilding,
inspected the building and granted the occupancy certificate. Therefore, the construction put
up by the assessee prima facie could be said to be in accordance with the sanctioned plan. If
after issue of the occupancy certificate and after sale of these residential flats, the owners of
theflatsonthetopfloordecidedtoputupaheadroomandengagedtheverysamecontractor
and the engineer may have put up identical structures, it could not be said that the assessee
had put up the construction and, thus, contravened the requirement of section 80IB. The
definitionofbuiltuparea,asinsertedinsubsection(14)(a)ofsection80IBbytheFinance(No.
2)Actof2004,whichcameintoeffectfromApril1,2005,cannotbeheldtoberetrospective.It
appliesonlytosuchhousingprojects,whichareapprovedsubsequenttoApril1,2005.Thatthe
interpretation placed by the assessing authority and the Appellate Commissioner, that the
approval was for a housingcumcommercial complex and, therefore, the assessee was not
entitledtothebenefitofsection80IB(10)wasunwarranted.
CITv.G.R.Developers(2013)353ITR1(Karn.)(HC)
S.80IB(10):Undertaking Developing and building Housing project Commercial units

Proportionatedeductiontoextentofcompliance,wouldbeallowed.(S.80HHBA,133A).
The assessee, engaged in business of developing and constructing housing projects, claimed
deduction under section 80IB(10) in respect of two projects. Survey under section 133A
revealed that built up commercial area was 9.31 per cent. Therefore, the Assessing Officer
disallowed deduction since provisions under section 80IB(10) were not satisfied in his
opinion.The assessee, on appeal, before Commissioner (Appeals), submitted thatdisallowance
made by Assessing Officer, at best, could be restricted to the area exceeding limit prescribed
under section 80IB(10) (c) and relief onpro ratabasis should be granted. The Commissioner
(Appeals)rejectedtheappealongroundsthatsection80IBdidnotcontemplateanyflexibility
till 200405 for partly residential and partly commercial projects. There could be no liberal
constructionofdeductionprovisionevenonproratabasis.TheTribunalallowedtheassessee's
appeal and allowed deduction on residential units on apro ratabasis. Deduction was
disallowed for the commercial area, being 9.31 per cent, as the residential units had been
converted into commercial units by the Managing Director and his relatives. Onappeal by
revenue the Court held that, in the face of the clear provisions and going by the strict
construction, one cannot read any limitation into the expression "housing project" to mean
residential project alone and that if and when the projects have mixed builtup area of
commercial and residential, the question of disallowance will arise only if and when the
residential flats are beyond the limit as provided under subclause (c) of section 80IB(10) and
nototherwise.Evenherein,thedisallowancecouldbeonlyproportionatetotheextentofunits
in violation of the area prescribed under clause (c). In a pure commercial housing project, the
216
questionofapplicabilityofsubclause(c)doesnotariseatall.Goingbythebackgroundofthe
expression 'housing project' and various clauses contained in section 80IB of the Act, read in
thecontextofsubsequentinsertionofclause(d),insertedprospectivelyundertheFinanceAct,
2005, the term 'housing project' has to be understood as a building project and need not be
restricted to residentialproject alone, meaningthereby, user of the unit is not of relevance in
the matter of grant of relief. The project may be either out and out residential project or
commercial project or mix up of both for, a housing project, purely of commercial nature,
approvedbytheLocalAuthority,isalsoahousingproject,entitledto100%deduction.Sotoo,
inprojectscontainingresidentialunitsalone,wherethereisapartialcompliance,proportionate
tothecompliance,theassesseewouldbeentitledtohavethededuction.Inthecaseofmixed
projects,theassessee'sclaimhastobeallowedinfull,ifalltheresidentialunitssatisfiedclause
(c);otherwise,totheextentofcompliance,thereliefhastobeworkedout.Ahousingprojectof
commercial premises is entitled to 100% deduction, there being no necessity of looking at
clause(c) for compliance. Thus, the assessee would be entitled to thebenefit of deduction on
satisfaction of clauses (a), (b) and (c) of section 80IB(10) and that the requirement as regards
clause(c)wouldarise,wherein,inagivenbuilding,wherethereisaresidentialunit,thesame
has to satisfy the maximum builtup area specified under sub clause (c) of section 80IB(10).
Even though the provisions under subclauses (d), (e) and (f) of section 80IB(10) are
prospectiveinnature,yet,forthepurposeofunderstandingthescopeofdeductionunderthe
provisions of the Act, there is no hesitation in drawing assistance from these provisions to
decide on the scope of section 80IB, as it stood at the material point of time. In the
circumstances, the Revenue's appeal is to be rejected and the order of the Tribunal is to be
confirmed.(A.Y.200405)
CITvArunExcelloFoundations(P.)Ltd.(2013)212Taxman342/86DTR99(Mad.)(HC)
S.80IB(10):UndertakingDevelopingandbuildingHousingprojectEachblockInrespectof
eachblock,theassesseeisentitledtohavebenefitofdeductioninrespectofunitssatisfying
therequirementsofsection80IB(10)oftheAct.[S.80HHBA]
Within a composite housing project, where there areeligible and ineligible units, the assessee
can claim deduction in respect of eligible units in the project and even within the block, the
assessee is entitle to claim proportionate relief in the units satisfying the extent of the built
uparea.(A.Y.200405to200809)
Viswas Promoters (P) Ltd. v. A CIT (2013) 81 DTR 68/214 Taxman 524/255 CTR 149 (Mad.)
(HC)
S.80IB(10):Undertaking Developing and building Housing project Filing of completion

certificate Amendment came into effect fromA.Y. 200506.No such requirement to file
completioncertificateforearlierassessmentyears.
TheAssesseewasengagedinthebuildinganddevelopinghousingsociety,forA.Y.200405.The
departmentdisallowedtheclaimoftheAssesseeonthegroundthattheCompletioncertificate
was not filed. The High Court held that, prior to amendment of S.80IB(10), w.e.f. 142005,
there was no obligation on the part of the assessee to file completion certificate. Appeal of
revenuewasdismissed.(A.Y.200405)
217
CIT v. Jain Housing & Construction Ltd. (2013) 82 DTR 135/214 Taxman 178/256 CTR 408
(Mad.)(HC)
S.80IB(10):DeductionUndertakingDevelopment and constructionHousing project Open

terraceCertificateofcompletionDeductionallowed.
Assessee has undertaken the development and construction of housing project hence eligible
for deduction. Assessee completed the construction on 6
th
march 2006, corporation certified
the completion on 28
th
Dec. 2007, one of the authorities namely CMDA had issued a letter on
13
th
June,2008cannotbegroundtorejecttheclaimofassessee.TheCourtalsoheldthatopen
terrace could not be the subject matter of inclusion as a built uparea to deny the benefit
undersection80IB(10).Appealofrevenuewasdismissed.(A.Y.200506,200607)
CIT v. Sanghvi & Doshi Enterprises (2013) 81 DTR 75/255 CTR 156/214 Taxman 463 (Mad.)
(HC)
Editorial:Sanghvi&DoshiEnterprisev.ITO(2011)141TTJ1(TM)(Chennai)(Trib.)affirmed.
S.80IB(10):UndertakingDevelopment and buildingHousing projectAmounts disallowed

constitute the income derived from the undertaking hence eligible for deduction.
[S.40(a)(ia)]
Theassesseeisengagedinthebusinessofconstructionanddevelopmentofhousingproject.It
claimed deduction under section 80IB(10) of the Act. Assessing Officer made disallowance of
certain payment under section 40(a)(ia) and made addition to income. However he did not
allow deduction under section 80IB(10) in respect of such amount. On appeal, Commissioner
(Appeals) allowed the claim of assessee. On appeal to Tribunal by revenue, the Tribunal held
thatonceanamountwasdisallowedundersection40(a)(ia),sameconstitutedpartandparcel
of profits and gains from business and also a part of gross total income and would be eligible
fordeductionundersection80IB.(A.Y.200708)
ITOv.KalbhorGawadeBuilder(2013)141ITD612/155TTJ124(Pune)(Trib.)
S.80IB(10):UndertakingDeveloping and buildingHousing projectDisallowance of expenses

Deductionisavailableonenhancedincome.[S.35,40(a)(ia),43B.]
Assesseeclaimeddeductionu/s.80IB(10)inrespectofincomeearnedfromahousingproject.
Assessing Officer, in course of assessment proceedings had disallowed certain amounts under
sections40(a)(ia),43Band35(1)(va).Assesseeclaimedthatduetosuchdisallowancesbusiness
incomeincreasedandhencedeductionundersection80IB(10)shouldbeallowedonenhanced
business income. Assessing Officer has not accepted the claim of assessee. On appeal
Commissioner(Appeals)heldthatturnoverwasfromthesamesourceinrespectoftheclaim
under section 80IB(10). Hence the assessee was entitled for deduction after including the
statutory disallowances. On appeal Tribunal held that deduction u/s. 80IB(10) was also
available in respect of amounts which were disallowed under section 40(a)(ia), 43B and
35(i)(va).(A.Y.20072008)
Dy. CIT v. Magarpatta Township Development & Construction Co. (2013) 141 ITD 682 (Pune)
(Trib.)
218
S.80IB(10):UndertakingDevelopingandbuildingHousingprojectCombiningthetwoflatsby
thebuyersaftersaleexemptioncannotbedenied.
Assesseehadconstructedahousingprojectandthisprojectconsistedof25buildingsincluding
'Primebuilding'and'Ibuilding'.Assesseeclaimeddeductionundersection80IB(10)inrespect
of profits derived from 24 buildings excluding Prime building. Assessing Officer disallowed
claim on grounds that (i) all flats in Prime building were having builtup area exceeding 1500
sq.ft., and (ii) two flats in 'I building' were combined and after combining builtup area of
combined units exceeded 1500 sq.ft. Order of Assessing Officer was confirmed by the
Commissioner(Appeals).On appeal Tribunal held that the assessee itself had excluded Prime
building and deduction had been claimed on remaining 24 buildings and (ii) two flats in 'I'
buildingwerenotcombinedattimeofsaleandcustomershadcombinedsamelater,hencethe
assesseewasentitledtodeductionundersection80IB(10).(A.Y.200708)
Dy.CIT v. Magarpatta Township Development & Construction Co. (2013) 141 ITD 682 (Pune)
(Trib.)
S.80IB(10):Deduction UndertakingDeveloping and buildingHousing project

Revisedcomputation in the course of assessment proceedingsProportionate deductionFive
projectsAllprojectstobeconsideredasasingleunit.
Assesseewasengagedinthebusinessofpropertydevelopment.IntheROIitclaimeddeduction
u/s80IB(10)onitsfivehousingprojects.Inrevisedcomputationitclaimeddeductionforthose
dwellingunitswhichwerehavingbuiltuparealessthan1500Sq.feetonaproportionatebasis.
It was held that deduction originally claimed in the return of income filed could be revised in
course of assessment proceedings. Even though some of the dwelling units of assessee had
builtupareaexceeding1500sq.ft.itwasentitledfordeductionu/s80IB(10)inrespectofthose
flats having builtup area not exceeding 1500 sq. ft. It was further held that since there was
nothingonrecordtoshowthateachoftheprojectofassesseewasindependent,allthesefive
projects together had to be considered as a single unit for purpose of working out deduction
u/s80IB(10).(AY200506)
Dy.CIT v. Macro Marvel Projects Ltd. (2013) 140 ITD 472 / 154 TTJ 242 / 87 DTR 234
(Chennai)(Trib.)
S.80IB(10):DeductionUndertakingDeveloping and buildingHousing projectShops Amount

not deductibleAmount disallowed cannot be taken in to account to determine profit of
businessforthepurposeofcomputation.[S.40(a)(ia)]
TheassesseedeductedtaxatsourcebutdepositedthesameintoGovernmentafterduedate.
The Assessing Officer disallowed the said payment under section 40(a) (ia). The assessee in
appealcontendedthattheadditiononaccountofdisallowanceofexpenditurewouldresultin
increasedbusinesswhichwouldbeeligiblefordeductionundersection80IB(10).Commissioner
(Appeals) has accepted the contention of assessee and allowed the deduction. On appeal by
revenue the tribunal held that legal fiction created by virtue of section 40(a) (ia) cannot be
extended to determine the profit of the business for the purpose of computing deduction
under section 80IB (10).Accordingly the amount disallowed u/s 40(a) (ia) cannot be taken into
accounttodetermineprofitofbusinessforpurposeofcomputingdeductionu/s.80IB.Finding
219
ofCommissioner(Appeals)wasthat shopslocatedongroundfloor covered2percentofbuilt
upareahencedeductionisavialble.(A.Y.200607)
Dy.CITv.RameshbhaiC.Prajapati(2013)140ITD486/23ITR516(Ahd.)(Trib.)
S.80IB(10):DeductionUndertakingDevelopment and constructionHousing projectMatter

remandedtodetermineaccrualofincome.
Assesseecompanyisengagedinthebusinessofcivilconstruction.Itenteredintocontractwith
land owners for development of residential cum commercial complex on land. The assessee
claimed deduction u/s 80IB(10). It was noted from the records that neither aggregate amount
ofsaleagreemententeredintonoradvancereceivedthereagainsthadbeenmentioned.Itwas
held that reasonable certainty as to the realization of sale proceeds were crucial to income
recognition, and both sale agreement as well as advance received in pursuance thereof were
vitalthereto.Matterwasthus,remandedbacktoAO.(A.Y.200809)
Dy.CITv.VertexHomesP.Ltd.(2013)140ITD300(Hyd.)(Trib.)
S.80IC:SpecialcategorystatesManufactureAssemblyprocessAssessingOfficerwasdirected
tocallexpertanddecide.
The assessee claimed deduction under S. 80IC in respect of one of its unit which was
manufacturing 'microprocessor based fast bus transfer scheme penal' for power generation
segment.Thedeductionwasdeniedongroundthatproductinquestionwasnotmanufactured
by assessee. It was held that how product namely Fast Bus Transfer Scheme Panel, was
manufactured or assesmbled could not be ascertained until and unless some technical expert
person examines this aspect. Since it could not be ascertained whether this was a
manufacturing process or was an assembling process, the matter was remanded to the
AssessingOfficertocallanopinionofexpertinsubjectandthendecideissueinquestion.
AartechSolonicsLtd.v.CIT(2013)214Taxman133(Mag.)(MP.)(HC)
S.80IC:Special category states Manufacture or production production of advanced

microprocessor based on fast bus transfer scheme panel Expert opinion not sought or on
record,matterremanded.
Theassesseewasengagedintheactivityofmanufacturingadvancedmicroprocessorbasedon
fast bus transfer scheme panel, on which the assessee had claimed deduction u/s80IC. There
was a dispute as to the activity of the assessee amounted to manufacture or assembly. The
Honble high court held that, due to the complexity in the production, the assessee or the
departmentoughttohavetakenanexpertsopinionontheissueinvolved.Inviewofthesame
the issue is remanded to the file of the AO for fresh adjudication with a direction to give an
opportunitytotheassessee.(A.Y.200607)
AartechSolonicsLtd.v.CIT(2013)82DTR9/214Taxman133(Mag.)/256CTR293(MP)(HC)
S.80IC:Special category states No interunit transfer of goodsprovisions of section 80IA(8)

cannotbeinvoked.[S.80IA(8)]
When the product was being manufactured through supplier 'P', the assessee was having
marginofabout80.12percentwhichhadincreasedtoabout86.32percentwhentheassessee
started to manufacture the product itself. The Assessing Officer invoked the provisions of
220
section80IA(8)andalloweddeductionundersection80IConlyontheadditional6.2percent
profit.ItwasheldthatintheabsenceofanyinterunittransferofgoodsbyBunittoanyunit
oftheassesseecompany,theprovisionsofsection80IA(8)werenotapplicableandtherewas
nooccasionfortheAssessingOfficertocomputetheprofitsonreasonablebasis.(A.Y.200708)
CadilaHealthcareLtd.v.ACIT(2013)56SOT89(URO(Ahd.)(Trib.)
S.80IC:Special category states Set off of lossesEligible to claim set off losses in its 80IC
undertakingagainstitsothertaxableincome.[S.70,80(IA(5)]
TheTribunalheldthatprovisionsofsection80IA(5)onlyprescribesmethodbywhichquantum
ofadeductionhastobearrivedatanditdoesnotbaranassesseetoclaimsetoffoflossesof
eligible business against undertaking which is not entitled to claim a deduction. Therefore,
assessee is eligible to claim setoff of loss incurred in its section 80IC eligible industrial
undertakingagainstitsothertaxablebusinessincome.Infavourofassessee.(A.Y.200607)
S.80JJA:DeductionBiodegraded wasteFuel briquettes from bagasseDerived fromEligible

deduction.
The Assessee is engaged in the business of fuel briquettes from bagasse.The assessee claimed
the deduction under section 8OJJAA.The Assessing Officer disallowed the claim on the ground
that (1) bagase is not waste; (2) it is not generated in municipal /urban limitsi.e., by local
authorities;(3) it is not collected but it is purchased; and (4) the process does not involve any
treatmentorrecyclingofabiodegradablewaste.InappealtheCommissioner(Appeals)allowed
the appeal of assessee. The Tribunal also confirmedthe order of Commissioner (Appeals). On
appeal by the revenue, theCourt held that bagasse is a biodegradable waste of sugar factory
and therefore, deduction under section 80J is allowable on the profits derived from the
business of manufacturingfuel briquettes from bagasse; requirement of collecting
biodegradablewasteasprovidedundersection80JJAissatisfiedwhethersuchwasteiscollected
on payment of consideration or without consideration. Accordingly the appeal ofrevenue was
dismissed.(A.Y.200304,200405)
CITv.PadmaS.Bora(Smt)(2013)81DTR99/255CTR1/214Taxman505(Bom.)(HC)
Editorial: Judgment ofPune Tribunal in CIT v. Padma S.Bora(2010) 133 TTJ 108(Pune) (Trib.) is
affirmed.
S.80M:IntercorporatedividendsDeductionsShares.
Assesseeclaimeddeductionundersection80Mwithrespecttodividendreceivedfromshares.
AssessingOfficerwasofviewthatdeductionwasallowableonnetincomeafterapportionment
of expenses. Assessing Officer having apportioned interest expenses, worked out net dividend
at a negative figure. He thus rejected assessee's claim. Tribunal held that when Assessing
Officer had accepted entire expenditure as business expenditure under section 36, then
apportionmentofinterestwithoutestablishingnexusbetweenborrowedfundsandinvestment
was not justified. Even otherwise, since investments on which dividend income had been
earnedbyassesseewasnotmadeduringyearunderconsideration;butsamehadbeencarried
forward in earlier year, in such a case, apportionment made by Assessing Officer towards
interestexpenditureagainstdividendincomewasnotsustainable.(A.Ys.200304to200607)
221
HindustanConstructionCo.Ltd.vDy.CIT(2013)140ITD642(Mum)(Trib.)
S.80M:IntercorporatedividendsDeductionsMutualfunds.
Whereassesseehadfailedtoprovethatdividendonmutualfundwasreceivedfromdomestic
company,disallowanceofdeductionundersection80Mhadtobeconfirmed(A.Ys.200304to
200607)
S.80P:Cooperative societiesInterest incomeNonStatutory liquid ratio (SLR) funds is also

qualifyforexemption.
ThequestionastowhetherthebusinessisderivedfromorattributabletoSLRornonSLRfunds
would not make any difference for the purposes of qualifying the interest earned by the
cooperative bank under S.80P(2)(a)(i) as the deposits of surplus idle money available from
working capital, including reserves, excess collection of interest tax and other incomes are all
attributabletothebusinessofbanking.Held,theTribunaldidnotcommitanyerrorinarriving
at findings that the interest earned on deposits of nonSLR funds will qualify for exemption
underS.80P(2)(a)(i).
CITv.GulshanMercantileUrbanCoOperativeBankLtd.(2013)214Taxman510(All.)(HC)
CITv.MuzaffarnagarDistrictCoOperativeBankLtd.(2013)214Taxman498(All.)(HC)
CIT v. Muzaffarnagar Kshetriya Gramin Bank Ltd. (2013) 214 Taxman 177(Mag.)/81 DTR
145/256CTR322(All.)(HC)
S.80P:Cooperative societies Interest earned on deposits of non SLR fund Eligible for deduction
undersection80PoftheAct.
Interest earned by the co operative society on the deposits of its non SLR funds is income
frombankingbusinessandeligiblefordeductionundersection80P(2)(a)(i)oftheAct.
CITv.MuzaffarnagarKshetriyaGraminBankLtd.(2013)81DTR145/256CTR322/214Taxman
177(Mag.)(All)(HC)
S.80P: Cooperative societies Return Belated return beyond time limit prescribed
deductionundersection80Pisnotavailable.[S.80A(5),139(1),139(4),142(1),148]
Theassesseecooperativesocietyclaimeddeductionundersection80P.TheAssessingOfficer
denied deduction on the ground that the assessee having not filed the return, they were not
entitled for deduction under section 80P.Commissioner (Appeals) up held the order of the
Assessing Officer. On appeal to Tribunal the Tribunal held that in view of the mandatory
provisions contained in section 139(1) read with section 80A(5) it is mandatory for every co
operative society for claiming deduction under section 80P to file Return of Income and to
make a claim of deduction under section 80P in the return itself .If the return was not filed
eitherundersection139(1),or139(4)orinpursuanceofnoticeissuedundersection142(1)or
undersection148thetaxpayerisnotentitledforanydeductionundersection80P.(A.Y.2009
10)
KadachiraServiceCoop.BankLtd.v.ITO(2013)141ITD270/153TTJ129(Cochin)(Trib.)
222
S.80VV:Expenses Incurred in Connection with IncomeTax Proceedings Retainership fee
Disallowancecannotbemade.
Whereassesseepaidretainershipfeetoanadvocatewhichwasnotinconnectionwithincome
tax proceedings but for general advice relating to other laws, provisions of section 80VV were
notattracted,,therefore,disallowanceofretainershipfeemadebyauthoritiesbelowwastobe
deleted.Infavourofassessee.(A.Y.198586)
CIT0020v.DalmiaCement(Bharat)Ltd.(2013)212Taxman126(Mag.)(Delhi)(HC)
S.90:DoubletaxationreliefEffectivemanagementofitsenterprisesDTAAIndiaNetherlands.
[Art.8A]
'M', a shipping company was incorporated in Netherlands. It was represented in India by the
assesseecompany. For the relevant AY, the assessee filed its return claiming benefit under
IndiaNetherlands DTAA. The Assessing Officer rejected the assessee's claim holding that the
assessee had failed to supply documents necessary to avail the benefit as claimed. The
Commissioner (Appeals), on basis of material produced on record, opined that effective
managementofitsenterpriseswassituatedinNetherlandsand,thus,requirementofcondition
as mentioned in Article 8A of DTAA was met. The Tribunal, finding that revenue had failed to
point out any contrary material either from record or at time of hearing before it, confirmed
orderoftheCommissioner(Appeals).CourtheldthatsincethefindingrecordedbytheTribunal
was a finding of fact, the impugned order passed by the Tribunal did not require any
interference.(A.Y.200708)
DITv.MitsutorShippingAgency(P.)Ltd.(2013)214Taxman532(Guj)(HC)
S.90: Double taxation reliefTreaty shopping Transfer of 74% share holding in an Indian
company.[S.10(38),94(7)]
US company proposed transfer its 74% share holding in an Indian company to its 100 percent
Singapore subsidiary. Revenue contended that , if shareholding would remain with US
company,onanyfuturetransfer,incomewouldbetaxedbothinIndiaandUSasperIndoUS
DTAAwhereasifshareholdingwouldremainwithSingaporecompany,onanyfuturetransfer,
income would be taxed only in Singapore and not in India as per Indo Singapore DTAA.
Revenue contended that the transfer was designed for treaty shopping so as to avoid tax in
India, the AAR held that since shares of Indian company were listed, income arising from any
futuretransferwoulditselfbeexemptbyvirtueofsection10(38)andhence,therewasnoneed
fortreatyshopping.OnwritbyrevenuetheCourtheld,therevenue'scontentionwascorrectly
answeredbyAARandtherewasnoreasontointerferewithorderofAAR.
DITv.GoodyearTire&RubberCompany(2013)214Taxman669(Del)(HC)
S.90:Double taxationreliefLimited partnershipRoyaltyFees for technical servicesDTAA

PayingtradetaxIndiaGermanyBenefitofDTAAisavailabletoapersonwhoisliabletopay
taxinGermany.[S.234B,Art.2(3),3(d),4,12(2)]
The Assessee is a nonresident (Foreign company).In the return of income, it claimed the
benefit of Article 12 (2) in respect of royalties and technical fees received by it. The Assessing
OfficerdeniedthebenefitofDTAAonthegroundthattheassesseebeingalimitedpartnership
whichisnotliabletotaxatGermany.InappealtheCommissioner(Appeal)allowedtheappeal
223
of assessee. Appeal of revenue was dismissed by Tribunal. On appeal to High Court, the Court
held that the Assessee, a limited partnership, paying tax in Germany is considered as taxable
unitunderthetaxationlawsofGermanyasevidentfromthetaxresidencecertificateissuedby
the German Authorities and the trade tax being one of the taxes to which IndoGerman
DTAAapplies,intermsofarticle2(3),thereofisapplicabletotheassesseeandtherefore,benefit
of Article 12(2) thereof cannot be denied. The Court held that the Tribunal was correct in
holding that no interest was chargeable under section 234B. Assessee, a limited liability
partnership,waspayingtradetaxinGermany.Assesseewasissuedataxresidentcertificateby
German authorities and considered a taxable unit. Held that DTAA applicable to the assessee
andbenefitofart.12(2)cannotbedenied.(Appealofrevenuewasdismissed.(A.Y.200203)
DIT(IT) v. Chiron Bearing Gmbh & Co. (2013) 351 ITR 115 / 256 CTR 342 / 83 DTR 1 / 213
Taxman174(Bom.)(HC)
Editorial: Asst DIT(IT) v. Chiron Behring Gmbh & Co. (2009) 120 TTJ 329 (Mum.) (Trib.) is
affirmed.
S.90: Double taxation reliefInterest from an Indian partnership firm is not taxable as business
incomeDTAArateisnottobefurtherenhancedbysurchargeandeducationalCessDTAAIndiaUAE.
[Art.2,7(7),11(2)]
The Tax payer RESIDENT OF UAE, received interest income from partnership firms in India in which he
wasapartner.TheTaxpayerofferedsuchinterestincometotaxinIndiaaspertheprovisionsofIndia
UAEDTAA.Thetaxauthority,inadditiontotaxingtheinterestincomeattherateprescribedinArticle
11 of DTAA , also levied education cess and surcharge. In appeal Commissioner (Appeals) held that
interest income was assessable as business income as per normal rates and the concessional rate as
prescribed in Article 11 was not applicable. On appeal Tribunal held that though interest may be
assessed as business income under the Act , in view of specific interest Article i.e. Article 11, interest
incomeshouldbegovernedbythesaidArticle11.ThetermincomeTaxhasbeendefinedinArticle2of
theUAEDTAAtoincludesurcharge.Therefore,taxrateprovidedinArticle11(2)dealingwithinterest
income also include surcharge. The Tribunal also held that educational cess is in the nature of
surcharge.Accordinglybotheducationcessandsurchargecanberegardedasincludedinthetreatyrate
of12.5%.(A.Y.200809)
SunilV.Mitianiv.ITO(2013)BCAJMay33(Mum.)(Trib.)
S.91:Countries with which no double taxation agreement existsKuwaitCredit for taxes was
given.
During previous year 199697, assessee paid taxes in Kuwait on income earned there and
sought benefit of deduction from tax payable in India under section 91 (1). Assessing Officer
denied benefit of section 91 (1) on ground that payment of taxes in Kuwait was not made in
previous year 199697.Court held that since payment of taxes on income earned in Kuwait
during previous year had been found to be correct by Commissioner (Appeals), assessee was
entitled to benefit of section 91 (1). Object of section 91 (1) is to give relief from taxation in
India to extent taxes have been paid abroad for relevant previous year and this relief is not
dependent upon payment also being made in previous year. In favour of assessee. (A.Y.1997
98)
CITv.PetroleumIndiaInternational(2013)351ITR295/213Taxman41(Bom.)(HC)
224
S.91:Countries with which no double taxation agreement existsRelief under section 91 was
allowableatrateofaveragetaxpaidinBhutan.
Assessee earned income from hydroelectric project in Bhutan and paid tax under Bhutan Tax
Law. Since said income was again subjected to tax in India by virtue of residential status of
assessee,reliefwasclaimedundersection91.AssessingOfficercomputedreliefatrateof8.53
percentbeingaveragerateoftaxpaidinBhutanontotalincomecomputedatRs.36.41crores
and not on income from Bhutan operations which stood at Rs. 68.63 and subjected to double
taxation. Tribunal held that since average rate of tax in India was higher than Bhutan, relief
undersection91wasallowableatrateofaveragetaxpaidinBhutan,however,reliefwastobe
computed on amount of income earned from Bhutan operations because it was said income
which was subjected to tax in both countries. Matter was to be remanded back to Assessing
Officertorecomputequantumofreliefallowableundersection91.(A.Ys.200304to200607)
S.92B:Avoidance of tax Transfer pricing International transactionReimbursement of

expenses.[S.92C]
Tribunal held that a pure reimbursement of expenses by one Associated Enterprise(AE) to
another Associated Enterprise(AE) not involving any profit element or markup is very much a
'transaction'aspersection92F(v)and,consequently,isequallyaninternationaltransactionas
persection92Brequiringconsiderationaspersection92CRE.(A.Y.20062007)
StreamInternationalServices(P.)Ltd.v.ACIT(2013)141ITD492(Mum.)(Trib.)
S.92C:Avoidance of taxTransfer Pricing Arms length priceInstaaltion/commissioning and

maintainnace services to domestic customersAll related transactions cannot be considered
forPLIdetermination.[S.92B(2)]
The assessees parent company, Digital Microwave Corporation USA, supplied equipment to
Indiancustomersforwhichtheassesseereceivedcommission.Thesaidequipmentwascovered
by warranty and the service relating thereto was provided by the assessee. The assessee also
undertook installation of the said equipment and provided annual maintenance. The assessee
claimed that while the receipt of commission and the provision of warranty service were
international transactions with the AE and subject to transfer pricing regulations, the
installation & maintenance service was an independent transaction and could not be
considered while computing the PLI for determining the ALP. The TPO rejected the claim and
held that in computing the profit level indicator of the international transactions involving
warranty services and commission income, the operating revenue and operating costs of the
installation/commissioning and maintenance services had to be taken. The CIT(A) & Tribunal
upheld the assessees claim. On appeal by the department to the High Court, HELD dismissing
theappeal:
Thedepartmentsargumentthattheinstallation,commissioning&maintenanceserviceswere
intricately connected with the international transactions of warranty support services and
commissionincomeandthattheiroperatingcostandoperatingrevenuehadtobeconsidered
while computing the profit level indicator is not acceptable because the installation/
commissioningandmaintenanceagreementswereindependentagreementsunconnectedwith
225
thetransactionsofwarrantysupportservicesandcommissionincome.Thisisshownbythefact
thatwhiletheequipmentwassuppliedto40customersbytheAE,onlythreeofthemavailedof
the installation services from the assessee. Also, a corroborative circumstance for construing
the transactions of installation/commissioning and maintenance as domestic transactions was
that the TPO had made no adjustment in respect of these transactions. The transactions
pertaining to the installation/commissioning and maintenance services were also not deemed
international transactions u/s 92B(2) because none of the conditions stipulated therein of a
prior agreement existing between the customers of the assessee and the AE have been
established as a fact. Moreover, there is no finding that the terms of the transaction of
installation/commissioningaswellasmaintenancehadbeendeterminedinsubstancebetween
thecustomersandtheassesseebytheAE.Intheabsenceofsuchfinding,itcannotbedeemed
thatthetransactionofinstallation/commissioningaswellasprovisionofmaintenanceservices
bytheassesseetoitsdomesticcustomersinIndiawereinternationaltransactionsfallingwithin
s.92B(2).
CITv.StratexNetWorks(India)Pvt.Ltd.(2013)354ITR304/215Taxman533(Delhi)(HC)
S.92C:Avoidance of taxTransfer Pricing In computing arms length price, interest &

abnormalcoststobeexcluded.
The assessee rendered marketing support services to its foreign AE for which it earned a
commission. The assessee claimed that in determining the ALP, the interest earned by it on
shorttermdepositsarosefromacoretreasuryfunctionandhadtobeincludedintheoperating
profit and the expenses incurred by it on closure of business were abnormal and had to be
excluded from the operating profit. The TPO, CIT(A) and Tribunal (144 TTJ 474) rejected the
assesseescontention.OnappealbytheassesseetotheHighCourt,HELD:
(i) The question whether a particular activity of the assessee such as the interest generating
activityshouldbetakenintoconsiderationinthedeterminationoftheALPisaquestionwhich
needs to be decided considering the nature of the business of the assessee and its business
model. The Tribunal rightly held that as the earning of interest income was only the result of
investment of surplus funds and was not a primary incomegenerating activity, the interest
incomehadtobeexcludedfromtheoperatingprofitforpurposesofdeterminationofALP;
(ii) It is not possible to lay down a formula that would be applicable universally to determine
whetheraparticularexpenditureorcostincurredbytheassesseeisanormalorabnormalitem
ofexpenseincasesrelatingtotransferpricing.Iftheassesseeiscompensatedforitsserviceon
the basis of cost plus 10%, the question may arise as to whether the compensation paid for
closure of the Indian units can be considered to be normal or abnormal cost, because the
compensationwoulddirectlydependorvaryaccordingtothequantumofthecosts.Butifthe
assesseeisbeingcompensatedbyafeeorcommissionwhichhasnoconnectionwiththecosts
incurred, such costs would be treated as abnormal. On facts, as the assessee was being
compensated by way of a commission of fees by the AE and not on cost plus basis, the
compensationpaidinconnectionwiththeclosureoftheIndianunitsrepresentsabnormalcosts
whichhavetobeexcludedfordeterminingtheALP.(A.Y.200203,200304)
226
MarubeniIndiaPvt.Ltdv.DIT(2013)354ITR638/259CTR169/87DTR281/215Taxman
122(Mag.)(Delhi)(HC)
Editorial:Order of Tribunal in Marubeni India P.Ltd v. ADDL.CIT (2012) 15 ITR 297(Delhi)(Trib),
affirmed.
S.92C:Avoidance of tax Transfer pricing Arms length price Selection of comparable

Revenuesappealwasdismissed.
Transfer Pricing Officer rejected all comparables except one comparable chosen by the
assessee and selected 8 more comparables. Tribunal held that 8 comparble selected by the
TPOwerenotcomparabletotheassesseecompany.OnappealbyrevenuetheCourtheldthat
comparablesselectedbytheTPOwerenotfunctionallycomparabletotheassessee,thenno
questionoflawarises.Appealofrevenuewasdismissed.(A.Y.200708)
CITv.CarlyleIndiaAdvisors(P)Ltd.(2013)32Taxman.com23/214Taxman492(Bom.)(HC)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceCostplusmethod.
For the relevant assessment year the Transfer Pricing Officer did not accept CPM as most
appropriate method and instead chose Transaction Net Margin Method (TNMM) to compute
the arms length price of the international transaction. In subsequent years the Assessing
OfficerhadacceptedCPMasmostappropriatemethodandcomputedthearmslengthprice.In
appeal Commissioner (Appeals) up held that CPM was correctly chosen as the most
appropriate method. The appeal of revenue was dismissed by Tribunal. On appeal to High
CourtbyrevenuetheCourtheldthattheTribunalwasrightinacceptingtheCostplusmethod
adopted by assessee . The Court held that the revenue could not prove that the facts in
subsequent years were materially different . Appeal of revenue was dismissed.(A.Y.200203)
(TS58HC2013(Bom.TP)
CITv.LOrealIndiaPvtLtd(2013)TheChambersJournalMayP.103(Bom.)(HC)
S.92C:AvoidanceoftaxTransferpricingSelectionofcomparablesArmslengthpriceIfmore
than one price is determined by the most appropriate method, the ALP has to be the
arithmeticalmeanofsuchprices.
The assessee was engaged in providing software development support services by which it
developed software upon the instructions of its parent associated enterprise (IKOS Systems
Inc). The entire software developed by the assessee was used by the parent AE captively for
integrating the same with other software components developed by it. The assessee adopted
the TNMM and claimed that its transactions were at ALP. The TPO rejected the assessees
comparables on general grounds and selected his own comparables and used figures for a
subsequentyear.HedeterminedtheALPatamuchhigherfigureandmadeanadjustment.On
appealbytheassessee,theTribunal[ACITv.AdaniExportLtd.(2007)109ITD101]heldthatthe
criteriaadoptedbytheTPOforsearchingcomparableswasnotcorrect.ItheldthattheTPOwas
wrong in selecting his own comparables without first rejecting the assessees comparables. It
alsoheldthatwhereoneofthepricesdeterminedbythemostappropriatemethodislessthan
the price as indicated by the assessee, that may be selected and there would be no need to
adopt the process of taking the arithmetical mean of all the prices arrived at through the
227
employmentofthemostappropriatemethod.OnappealbythedepartmenttotheHighCourt,
HELD:
TheTribunalwaswronginholdingthatifoneprofitlevelindicatorofacomparable,outofaset
of comparables, is lower than the profit level indicator of the taxpayer, then the transaction
reported by the taxpayer is at an arms length price and there is no need to take the
arithmetical mean. The proviso to s. 92C(2) is explicit that where more than one price is
determined by most appropriate method, the arms length price shall be taken to be the
arithmetical mean of such prices. The Tribunal was also wrong in the finding that unless and
until the comparables drawn by the taxpayer were rejected, a fresh search by the TPO could
notbeconductedbecauses.92C(3)whichstipulatesfoursituationswhereundertheAO/TPO
may proceed to determine the ALP in relation to an international transaction. If any one of
thosefourconditionsissatisfied,itwouldbeopentotheAO/TPOtoproceedtodeterminethe
ALPprice.Also,thequestionofapplyingOECDguidelinesdoesnotariseatallbecausethereare
specific provisions of Rule 10B (2) & (3) and the first proviso to s. 92C(2) which apply. The
Tribunalwasalsonotrightinreducingthelistofcomparablestomerelyfour.Havingheldthat
the comparables given by the assessee were to be accepted and those searched by the TPO
were to be rejected, the only option then left to the Tribunal was to derive the arithmetical
mean of the profit level indicators of the comparables which were accepted by it. It erred in
selectingonlyoneprofitlevelindicatoroutofasetofprofitlevelindicators.However,onfacts,
thismakesnodifferencebecauseevenifthearithmeticalmeanofthecomparablesasaccepted
by the Tribunal are taken into account, the profit level indicator would be less than 6.99 %
whichistheprofitlevelindicatoroftheassessee.Mattersetasidepartly.(A.Y.200203)
CITv.MentorGraphics(Noida)Pvt.Ltd(2013)354ITR586/86DTR283/259CTR1/215Taxman
539(Delhi)(HighCourt).
Editorial:ReferMentorGraphics(Noida)(P)Ltdv.Dy.CIT(2007)112TTJ408(Delhi)(Trib.)
S.92C:Avoidance of taxTransfer pricingArms length priceTNM methodComparable and

5%adjustments.
Assesseecompanyisengagedinbusinessofmanufacturingandsellingautomobilecatalystsin
India. It purchased raw material from its AEs located abroad in respect of international
transactions. Assessee Company adopted TNM method for determination of ALP. For
applicationofTNMM'Rateofreturnoncapitalemployed'wasselectedasProfitLevelIndicator
('PLI'). TPO adopted operating profit/total cost ratio method as PLI, certain addition to ALP
determined by assessee. On appeal Commissioner (Appeals) confirmed the order of Assessing
Officer.OnappealtheassesseecontendedthattheTPOwasnotjustifiedinadoptingoperating
profit/Total cost ratio PLI. It was further contended that revenue authorities were required to
allow margin of 5 percent as provided in proviso to section 92C(2) while determining ALP.
Tribunalheldthatinviewoffactthataccountingofassesseeshowedthatcostofrawmaterial
was a value added cost and not a pass through cost, operating profit as a percentage of total
costhadtobeappropriatebasisinsteadofoperatingprofitasapercentageoftotalcostminus
raw material cost as claimed by assessee. In view of above, impugned addition made by TPO
was upheld. Tribunal also held that the tolerance band of 5 per cent provided in proviso to
section 92C(2) cannot be construed as a standard deduction. If arithmetic mean of more than
one ALP falls within range of tolerance band than there may not be any adjustment to ALP
228
determined by assessee but if it exceeds, then ultimate adjustment is not required to be
computedafterreducingarithmaticmeanby5percent.(A.Y.200304)
JohnsonMattheyIndia(P.)Ltd.v.Dy.CIT(2013)141ITD375(Delhi)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceSelectionofcomparables
Assessee company while conducting its TP study had adopted comparables which were all in
field of development and export of computer software. The TPO . however held that the
assessee was providing Research and Development services and not computer software
developmentservicesasclaimedbyassesseeandthattheserviceagreementsoftheassessee
with its affiliates did not speak of software development and therefore , the enterprises
developingsoftwarecouldnotbeusedascomparables.TheTPOselectedcomparablesLurggi
IndiaVimtaLabsetchavingengineeringservicesanddeterminedtheALPbyadoptingTNMM
as the most appropriate method. Commissioner (Appeals) confirmed the adjustment made by
theTPO.OnappealTribunalheldthatasperassessee'ssubmissionsitwasconductingresearch
and development through its multidisciplinary R&D centre and its activities were for several
streams/areasincludingInformationTechnology.TPOhadrightlyrejectedTPstudyconducted
by assessee and had rightly proceeded to select his own comparables in field of Research and
Development and redetermine ALP. However TPO had not conducted FAR analysis before
selecting comparables, issue of selection of comparables were to be remanded back to
AssessingOfficer.(A.Ys.20042005to20062007)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceCommercialborrowings.
AssesseeobtainedtwoCommercialBorrowingsfromitsAEsatfixedrateofinterestat7.5%and
8.9% respectively Tribunal held that, since Assessing Officer for earlier assessment year had
accepted rate of interest as fixed in loan agreement, TP adjustment on account of interest on
external commercial borrowings for this assessment year was not called for. (A.Ys. 20042005
to20062007)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceAdjustmentsExportComputer
IncreasingtheturnoverNotpermissible.[S.80HHE)
The assesseecompany is engaged in the business of designing engineering projects. It had
entered into International Transaction with its AEs.The TPO had made certain additions in
relation to said transaction. Based on addition made by the TPO the Assessing Officer
recomputedthedeductionpermissibleundersection80HHEbyincreasingthetotalturnover;(i)
bytheamountofadjustmentmadebytheTPOand(ii)reimbursementofexpenses.Onappeal
Commissioner(Appeals)allowedtherelieftotheassessee.OnappealbyrevenueTribunalheld
that, Proviso to section 92C(4) prohibits deduction under Chapter VIA to be allowed on
enhancementmadeasperTPO'sorder,thereforenoeffectistobegiventoadditionmadeby
AssessingOfficerasperTPO'sorderwhilecomputingdeductionunderChapterVIA(A.Ys.2004
05,200506).
ACITv.BechtelIndia(P.)Ltd.(2013)141ITD200/85DTR50/153TTJ416(Delhi)(Trib.)
S.92C:AvoidanceoftaxTransferpricingComparablesResalepricemethod.
229
TheassesseeimportedcomponentsfromitsAssociatedEnterprises.Itadoptedtheresaleprice
method.Sinceitsgrossmarginwasmorethanaveragegrossmarginoftwoofitscomparables,
the transactions were claimed to be at arm's length. However, the TPO did not take one
comparable as its product range included various other items. Therefore, taking the higher
grossprofitmarginoftheothercomparable,thearm'slengthpriceofassesseewasworkedout
and addition was made by way of Transfer Pricing adjustment. Held, since the comparable
rejectedbytheTPOwasacceptedbyhiminlateryears,thesameshouldhavebeenacceptedin
A.Y.200304 as well. However, the working to arrive at arm's length price on the basis of
comparability analysis should be done by taking into consideration the gross margin of the
assesseecompanyaswellasthetwocomparables.Therefore,theissueisrestoredtothefileof
the Assessing Officer/TPO for the limited purpose of doing this exercise. Matter remanded.
(A.Y.200304)
S.92C:Avoidance of taxTransfer pricingNo motive to divert profit Matter remanded to

decidefresh.[S.10A]
Thefactthattheincomeoftheassesseecompanyisexemptundersection10Aisnotaground
for the assessee to claim that the transfer pricing adjustment should not be made for the
reasonthatthereisnomotivetodivertprofit.NeithertheActnortheRulesprovideforcapping
ofatransferpricingadjustmentsothatitdoesnotexceedthetotalprofitsearnedbythegroup.
Suchanexerciseisnotpracticalastheprofitsoftheentiregrouparenotsubjecttoscrutinyof
the Indian tax authorities. Transfer pricing adjustments by the Revenue Officer of another
jurisdiction have no bearing on the decisions that Indian authorities have to take under the
Indian law. Even otherwise, if the profit of a transaction should be allocated to different
jurisdictions,thentheprofitsplitmethodhasbeenprescribedundertheRulesanditisopento
theassesseetofollowthemostappropriatemethod.(A.Ys.20062007,20082009)
InterraInformationTechnologies(India)P.Ltd.v.DCIT(2013)24ITR140(Delhi)(Trib.)
S.92C:Avoidance of taxTransfer pricing Arms lengthNet margin methodRBI approved

rate.(Rule10B)
Theassesseepaidroyaltyateffectiverateof1.87percenttoitsAssociatedEnterpriseforuse
of technical knowhow. Since the rate was lower than rate approved by RBI and Government
authorities,itwasclaimedtobeatarm'slength.However,theTPOaddedentireamountpaid,
as assessee did not furnish details of rate of royalty paid by other associated enterprises.
However, the CIT (A) deleted the addition. Held, where arm's length price for royalty was not
determinedbyoneofmethodsprescribedundersection92C,readwithrule10B,arm'slength
pricewastoberecomputed.Matterremanded.(A.Y.200304)
GreavesCottonLtd.v.ITO(2013)57SOT158(Mum)(Trib.)
S.92C:AvoidanceoftaxTransferpricingExtraordinaryfactorsComparables.
If certain extraordinary factors materially affected profit in a particular year then that aspects
has to be taken into consideration and due adjustment is required to be made to net profit
margin for bringing comparable on same platform at which an assessee is performing its
functions.Anassesseeiswellwithinhisrighttodemonstratethatacomparablesuppliedbyit
230
intransferpricinganalysiswasnotcorrectandhadtobeexcludedandthisrightofassesseeis
notcurtailedinanymanner.(A.Y.200708)
AmericanExpressServicesIndiaLtd.v.DCIT(2013)57SOT22(URO)(Delhi)(Trib.)
S.92C:AvoidanceoftaxTransferpricingExtraordinaryfactorsSelectionofcomparables.
Following guidelines laid down by the Tribunal to select the comparables; (a) Companies with
extraordinary circumstances, like those which suffered events like merger/demerger,
impacting financial results, could not be treated as comparables; (b) Companies having
supernormal profit could not be considered as comparable; (c) Companies which were
functionally dissimilar could not be taken as comparables; (d) Companies acting merely as
intermediaryhavingoutsourceditsactivitycannotbecomparedascomparable;(e)Companies
whosedirectorswereinvolvedinfraudcannotbetakenascomparable,astheirfinancialresults
are not reliable; (f) Companies, who were industrial giants and market leaders having
substantiallyhighturnovercouldnotbetakenascomparables.(A.Y.200708)
CapitalIQInformationSystems(India)(P.)Ltd.v.DCIT(2013)57SOT14(URO)(Hyd.)(Trib.)
S.92C:Avoidance of taxTransfer pricingNo impact on profitsDisallowance made by

assessee.
TheassesseemadepaymentofRs.7.42croretoitsAEforsettingupanewbusinesscentrein
India. Assessee claimed that said transaction did not assume character of international
transaction and, moreover, it did not have any bearing on income or profit of assessee since
assessee itself had disallowed said expenditure while computing taxable profit. Since the
assessee had suomotu added amount while computing its taxable income for impugned
assessment year and no benefit of same had been taken either by capitalizing it and claiming
depreciationonit,noadjustmentcouldbemadetoassessee'sALPinrespectoftransactionin
question.(A.Y.200708)
EatonTechnologies(P.)Ltd.v.DCIT(2013)57SOT8(URO)(Pune)(Trib.)
S.92C:AvoidanceoftaxTransferpricingComparablesBenefitof5%.
Intheabsenceofanychangeinbusinessprofileandotherfactsandcircumstancesasexistedin
A.Ys. 200607 and 200708 as well as functions of sole comparable company, contention of
revenuethatcomparablefoundforAY200708couldnotbesuitablecomparisonforA.Y.2006
07wasdevoidofanymerit.
Since only one comparable was considered to determine ALP, benefit of 5 per cent as
providedunderprovisotosection92C(2)wouldnotbeavailabletoassessee.Thecurrentyear
data would be taken into consideration until and unless some exceptional circumstances are
brought on record to show that one year data of comparable do not give true picture being
influentbysuchcircumstances.(A.Y.200607)
GeneralAtlantic(P.)Ltd.v.DCIT(2013)57SOT27(URO)/89DTR81(Mum.)(Trib.)
S.92C:AvoidanceoftaxComparablesBenefitof5%.
In the course of transfer pricing proceedings, ALP determined byassessee has to be seen only
withregardtointernationaltransactionwithAEsandnotonentireturnover/sales.Thus,since
the TPO had applied mark up at entity level after taking into account entire transactions, the
231
impugned working was incorrect. Even otherwise, since it was apparent from working of TPO
thatassessee'stransactionsfellwithinpermittedrangeof5percentasmentionedinproviso
tosection92C,impugnedadjustmentmadebyTPO,wastobesetaside.(A.Y.200607)
HindustanUnileverLtd.v.ACIT(2013)57SOT1(URO)(Mum.)(Trib.)
S.92C:AvoidanceoftaxAvoidanceoftaxArmslengthpriceFluctuationofforeignexchange.
Thepropositionthatgainonforeignexchangeifitrelatestothebusinessoftheassesseeispart
and parcel of operating income is well established. Nothing has been brought on record to
suggest that the gain made by the assessee on fluctuation of foreign exchange was not on
accountofbusinesstransactionsoftheassessee.Hence,itshouldbeincludedforthepurpose
ofcomputingtheprofitmarginoftheassessee.(A.Y.200809)
S.Narendrav.ACIT(2013)57SOT32(URO)(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingComparablesDifferenceinturnover.
The Assessee claimed that it was merely a facilitator for indenting transactions, on which it
earned commission. It considered commission percent of nonAE indenting segment as arm's
lengthcommissionforindentsales,afterdeducting50%discountonbasisofvolume.However,
the TPO took gross profit margin of nonAE trading segment as arm's length commission. The
Tribunal held that since the nature of assessee's indenting transactions was different from its
trading transactions and gross profit margin of latter could not be taken as arm's length
commission for indenting transactions. However, held that, mere difference in turnover is not
sufficient for treating two entities or two transactions as not comparable or warranting any
adjustment.(A.Y.200708)
Sumitomo Corporation India (P.) Ltd. v DCIT (2013) 57 SOT 18(URO) / 24 ITR 385 / 85 DTR 1
(Delhi)(Trib.)
S.92C: Avoidance of taxComparablesArms length priceTNM methodImport of raw

material.
AssesseeinitsTPstudyusingTNMmethodinrespectofpurchaseofmaterialfromAEsinwhich
12comparableswereselected.Ithadconductedstudyonbasisofdataoflastthreeyears.TPO
havingnoticedthatfourout of12comparablesselectedbyassesseewerenotcomparableto
businessofassesseeexcludedsaidcomparablesandincludedonemorecomparablewhichwas
in same business as that assessee. A.O. therefore computed ALP in relation to international
transactionsonbasisofninecomparablesandmadeadjustmentmadebyTPO.Commissioner
(Appeals)confirmedtheadjustmentmadebyAssessingOfficer.Tribunalinasseseesowncase
for earlier assessment year 200607 had held that enterprise level profit margin had been
applied in relation to international transactions with AEs which was not correct and restored
issue to file of Assessing Officer for fresh adjudication .Since the facts of current assessment
yearwereidenticalwithfactsofearlierassessmentyear,whichhadbeenrestoredtothefileof
theAssessingOfficer.Hence,thesameactionhadtobefollowedforthisAYaswell.(A.Y.2007
08)
GivaudanFlavours(India)(P.)Ltd.Dy.CIT(2013)56SOT105(URO)/22ITR732(Mum)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceComparablesandadjustments
232
TheassesseecompanyisengagedinbusinessofprovidingITenabledservicestoitsassociated
enterprises in US and Europe and entered into certain international transactions. It applied
TransactionalNetMarginMethod(TNNM)fordeterminationofarmslengthpriceinrespectof
international transactions. It chose 15 comparable cases for working out operating profit on
totalcost(OP/TC)at7.31percentaspercurrentyearsdata.TPOincludedcertainnewcasesof
his own and ignored certain cases considered by assessee. In selection of comparables, the
TransferPricingOfficer(TPO)appliedfilterof:(i)comparableswithlessthan25percentrelated
partytransactions,and
(ii)comparableswithexportrevenuemorethan25percentoftherevenue.
Theassesseeobjectedtoinclusionoffourcasesinthelistofcomparables.ApplyingtheOP/TC
at 24% the TPO recommended an adjustment of 2.20 crore which came to be made by the
AssessingOfficerinthefinalorder,afterconsiderationofthematterbytheDRP.
On appeal Tribunal held that assessee had inadvertently included a case in its list of
comparablesforcomputingarm'slengthprice,itcouldbeallowedtoexcludesameifitdidnot
pass through filter adopted by TPO. A case should be excluded from list of comparables for
computingarm'slengthpriceongroundofunreliabilityofdata,whenitsreputationwasunder
serious indictment. Pertinent criteria for selection of comparable cases should be similarity in
nature of services and not higher or lower margin of profit in one case visvis other. When
here is a vast difference in cases where services are outsourced and where services are
provided inhouse, there cannot be any comparison between them. Decided in favour of
assessee.A.Y.20062007)
StreamInternationalServices(P.)Ltd.v.ACIT(2013)141ITD492(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingarm'slengthpriceComparablesandadjustments.
Theassessee,anIndiancompany,wasengagedinthebusinessofprovidingcallcentreservices
exclusively to its US Associated Enterprise. The TPO passed an order making an upward
adjustmentofRs.15.23crores.TheAssessingOfficerdeterminedtheincomeoftheassesseeat
Rs. 15.41 crores making the disallowances of telecommunication charges and leased hire
charges both of which were incurred in foreign exchange from 'export turnover' but not from
'total turnover' while computing deduction under section 10A. On appeal, the Commissioner
(Appeals) allowed the assessee partial relief. On appeal to Tribunal the Tribunal held that; TP
provisionsdonotrequireTPOtoestablishamotiveoftransferringprofitsoutofIndiapriorto
finding out as to whether assessee's international transactions are at arm's length or not. For
conducting comparability analysis and determining ALP, it is mandatory to use current year
data; and not data of multiple year. +/ 5 per cent variation is allowed only to justify price
chargedininternationaltransactionsandnotforadjustmentpurposes.Aanentitycanbetaken
as uncontrolled if its related party transactions do not exceed 10 to 15 per cent of total
revenue.Whereentireservicesofacomparablecompanyarerenderedtoasingleenterprise,it
would become an AE and as such all its transactions would assume character of controlled
transactions making it ineligible to be a comparable. A company having exorbitantly high
turnovercannotbetakenascomparable.Whereacomparablecompanyhaddevelopeditsown
unique software for performing specialized services, from which it would derive substantial
benefits/advantages when compared with assessee which had undertaken pure call centre
233
services, applying principle that companies which were on similar standards only should be
taken as comparables, this company which had unique intangibles could not be taken as a
comparableforassessee.Whereassesseewascarryingoutitsworkbyitselfwhereasincaseof
a comparable, it was outsourcing most of its work, said company could not be a comparable.
Even where comparable with highest margin had different functional segment, since it had a
clearly demarcated call centre segment and segmental results were available in audited
financial statements of company, it could be considered as a comparable. In case assessee
catered to export market, whereas comparable companies catered to domestic market, these
companiesaretoberejectedascomparables.(A.Y.200405)
24/7Customer.Com(P.)Ltd.v.Dy.CIT(2013)140ITD344/21ITR514(Bang.)(Trib.)
S.92C:Avoidance of taxTransfer Pricing: High End Cos in ITES/BPO sector comparable to

LowEndones.
TheassesseeraisedthreecontentionsinsupportofthecontentionthatitschargeswereatALP:
(i)thattheassesseewasengagedinthelowendactivityofvoicebasedcallcentreandthat
thecomparableschosenbytheTPOwerenotfunctionallycomparableastheywereengagedin
thehighendactivityofknowledgeprocessoutsourcing(KPO),softwaredevelopmentetc,
(ii)thatthemarginhastobecomputedonthebasisofreturnonassetemployed(ROA)oron
capital employed (ROCE) and not on the basis of operating cost & (iii) that as its income was
exempt u/s 10A, there was no tax avoidance and the transfer pricing provisions could not
apply.HELDbytheTribunal:
(i) The argument that the ITES/BPO industry has several segments starting from low end
segment such call centre, customer care to high end segments such as KPO, content
developmentetc.inwhichthereiswidevariationinthebillingratesandthathighendservices
are not comparable to the low end services is not acceptable because under Rule 10B(2) the
comparabilityofaninternationaltransactionwithanuncontrolledtransactionhastobejudged
with the reference to the services provided, functions performed, asset employed and risk
assumed. All companies which are in the ITES segment are providing similar services and
difference is in the internal working which is reflected through difference in qualifications and
skills of the employees. The difference in skill/ qualification of the employees and their
payment structure and the difference in billing rate does not affect the comparability in any
significantmannerunderTNMM;
(ii) Though Rule 10B(1)(e) gives the option of computing the margin in relation to asset
employed(ROAorROCE),theOECDandtheUnitedNationsTPmanualprovidethatROCA/ROA
are suitable only for manufacturing and other capital or asset intensive industries and not for
the service sector. In the case of service companies, the main asset is employees which is not
reflectedinthebalancesheetand,therefore,ROCA/ROAwillnotbeanappropriatemethodfor
thepurposeofcomputationofmargin;
(iii)Theargumentthatastheassesseesincomeisexemptu/s10A,therewasnotaxavoidance
in transferring profit to a low tax jurisdiction is not acceptable because the law has to be
appliedasenacted.Thereisnoprovisioninthetransferpricingregulationsthatforapplyingthe
said provisions the revenue has to prove tax avoidance. Once there is a international
transaction,theALPhastobecomputedaspertheprescribedmethods.(A.Y.200708)
234
VodafoneIndiaServicesPvt.Ltdv.DCIT(Mum.)(Trib.)www.itatonlin.org.
S.92C:Avoidance of taxTransfer pricing Domestic leg of crossborder deal, even if

consequentialtooverseasdealbyparentAE,notcoverediftermsnotdictatedbyparentAE.
Eastman Kodak, USA, entered into an agreement with Onex Healthcare Holdings, USA, for the
globalsalebyEastmanofthemedicalbusinesstoOnexforaconsiderationofUSD23.5Billion.
Pursuanttothis,theassessee,theIndiansubsidiaryofEastmanKodak,soldtheIndianbusiness
totheIndiansubsidiaryofOnexforaconsiderationofUSD13.54Million.Theassesseeclaimed
that as it was not an Associated Enterprise of the buyer and as both the seller and the buyer
were residents, the transfer pricing provisions did not apply. However, the TPO invoked s.
92B(2) and held that though the transaction was with a person other than an AE, it attracted
thetransferpricingprovisionsastherewasaprioragreementinrelationtothesaidtransaction
between such other person and the AE and/or the terms of the relevant transaction were
determinedinsubstancebetweensuchotherpersonandtheAE.TheTPOcomputedtheALPby
applyingtheratioofrevenuemethodanddeterminedtheALPatUSD32.9millionandmade
an adjustment of Rs. 79.96 crores. This was upheld by the DRP. On appeal by the assessee to
theTribunal,HELDreversingtheTPO&DRP:
(i) Though s. 92B(2) provides for a situation where even a transaction between two non
associatedenterprisescanbesubjecttothetransferpricingprovisions,itisessentialthatthere
should first be an AE with whom there exists an international transaction before it can be
examined whether the international transaction with the the nonAE exists or not. On facts,
the agreement between the two foreign companies was independent of the agreement
between the two Indian domestic companies. The assessee had full authorization to perform
andtakeitsowndecisionwithregardtothesaleoftheimagingsegmenttothebuyer.Evenif
one accepts that the sale agreement by the assessee was as the result of prior agreement or
was consequential upon the agreement between the two non resident companies, yet, as the
holdingcompanyhadnotdictatedthetermsandconditionsofthesaleandtheentireexercise
oftransferofimagingsegmentwasindependentlydoneonitsowntermsbytheassesseeand
thebuyer,thedeemingprovisionofs.92B(2)doesnotapply.TheDepartmentsargumentthat
thelegalcharacteroftheassesseeandtheotherenterprisebedisregardedduetotheinfluence
oftheagreementbetweentheforeignholdingcompaniesisnotacceptable(Vodafonevs.UOI
341ITR1(SC)followed);
(ii) Further, the TPO was not justified in adopting an alien method for arriving at the ALP. U/s
92C(1)readwithRule10B,theALPcanbedeterminedonlybyadoptingoneoftheprescribed
methodsandbynoother(LGElectronics(SB)followed).(A.Y.200809)
KodakIndiaPvt.Ltdv.ACIT(Mum.)(Trib.)www.itatonline.org.
S.92C:Avoidance of taxTransfer pricingArms length price DeterminationAppropriate methodNet

margin method not to be used without making adjustments for such differencesPower to collect
information under section 133(6)Information so collected and proposed to be utilized to be
confronted to assesseeofficer has to prove shifting of profits by assessee to associated enterprise.
ProvisionintroducedwithretrospectiveeffectfromApril1,2002Benefitofplusorminus5,percent.
standarddeductionnottobeallowed.[S.10A,133(6)]
235
Theassessee,awhollyownedsubsidiaryofHIncoftheU.S.A.,itsassociatedenterprise,wasengagedin
thebusinessofdevelopmentofsoftwareonbehalfofitsholdingcompanyandtransferredthesoftware
to the holding company for marketing and licencing to its customers. For this purpose, the assessee
enteredintoanagreementwithitsholdingcompanyaccordingtowhichfortheservicesrenderedbythe
assessee the holding company would reimburse all the cost incurred plus 8 per cent. markup. The
assessee adopted the cost plus method for computing the arm's length price for its international
transaction. The assessee claimed deduction under section 10A of the Incometax Act, 1961. The
AssessingOfficerreferredthemattertotheTransferPricingOfficerundersection92CA(2)oftheActfor
computing the arm's length price. The assessee produced all the documents called for by the Transfer
PricingOfficer.TheTransferPricingOfficerrejectedthecostplusmethodadoptedbytheassesseeand
heldthatthetransactionalnetmarginmethodwasthemostappropriatemethodtocomputethearm's
length price of the international transaction of the assessee. The Transfer Pricing Officer also rejected
the transfer pricing study report of the assessee. The Transfer Pricing Officer also found some of the
filtersadoptedbytheassesseetobeinadequate.TheTransferPricingOfficerthereforeadoptedcertain
additional filters. Out of the 22 companies selected as comparables by the assessee in the transfer
pricing study report the Transfer Pricing Officer rejected 20 companies. The Transfer Pricing Officer
selected15companiesasadditionalcomparablesrejectingtheassessee'sobjectionstothecompanies.
The Transfer Pricing Officer determined the arithmetic mean profit level indicator of the comparables
selectedat26.88percent.andafterallowingworkingcapitaladjustmentof2.09percent.determined
the adjusted arithmetic mean profit level indicator at 24.79 per cent. Applying the arithmetic mean
profitlevelindicatortheTransferPricingOfficer determinedthe arm'slength priceoftheinternational
transactions by the assessee with its holding company at Rs.15,26,61,330. Since the assessee had
disclosed the price received by it at Rs.13,37,43,661 the shortfall of Rs. 1,89,17,669 was proposed as
adjustment under section 92CA of the Act. On appeal, the Commissioner (Appeals) upheld the
transactional net margin method adopted by the Transfer Pricing Officer as the most appropriate
method but accepted the assessee's contention that large companies having turnovers more than Rs.
100crorescouldnotbetreatedascomparables.Hefurtherheldthatthe"employeecosttosale"filter
adoptedbytheTransferPricingOfficerwasnotappropriateasrelevantdatawasnotavailableinrespect
of all the companies available on the database. Moreover, part of the employee cost was included by
certaincompaniesunderdifferentheadslikesoftwarepackagecostoroperatingexpensesasaresultof
which the filter could not be uniformly and objectively applied for selection of comparables. He
accepted the assessee's contention that the Transfer Pricing Officer was not correct in excluding
companies whose onsite income was more than 75 per cent. He held that lossmaking companies and
companies having super profits could not be treated as comparables. He selected 11 companies as
comparables and directed the Assessing Officer to find out the arithmetic mean of those eleven
companies and compute the adjusted average profit level indicator after allowing working capital
adjustmentandriskadjustmentat3percent.andbenefitof5percent.undertheprovisotosection
92C(2).Onappeal:
Held, (i) that while the assessee had a turnover of about Rs. 13.57 crores many of the comparables
selectedbytheTransferPricingOfficerhadhighturnoversofmorethanRs.100crores.Therefore,those
companies could not be considered as comparables. The decision of the Commissioner (Appeals)
excluding companies whose turnover was more than Rs. 100 crores was correct. The Commissioner
(Appeals)wasequallycorrectinnotsustainingtherejectionofcomparablesselectedbytheassesseeby
applying the "employee cost to sale" filter as relevant information for this filter was not available.
Selectionofcomparablesapplyingthe"onsiteincome"filteralsostoodonthesamefootingasrelevant
information was not available in respect of all the companies in the database. Though the Transfer
PricingOfficerhadhimselfnotappliedthisfilterobservingthatcompanieshavingonsiteincomeofmore
236
than75percent.couldnotbetreatedascomparables,twoofthecompanies selectedascomparables
by the Transfer Pricing Officer had onsite income/expenses of more than 75 per cent. The
Commissioner (Appeals) was correct in holding that rejection of comparables selected by the assessee
by applying this filter was not correct. Lossmaking companies and companies having super normal
profits could not be considered as comparables. Therefore, the selection of companies by the
Commissioner (Appeals) as comparables was rational and appropriate and the order of the
Commissioner (Appeals) directing the Assessing Officer to compute the arithmetic mean of 11
comparables selected by him and determine the arm's length price after computing the adjusted
averageprofitlevelindicator,wasproper.
(ii)ThattheFinanceAct,2012amendedtheprovisionofsection92CoftheActbyinsertingsubsection
(2A)withretrospectiveeffectfromApril1,2002madeitclearthatanassesseeshallnotbeentitledto
exercise its option as referred to in the proviso to subsection (2) if the variation between the
arithmeticalmeanandthepriceatwhichsuchtransactionhadactuallybeenundertakenexceeded5per
centofthearithmeticalmean.Inviewoftheretrospectiveoperationoftheprovision,thebenefitof5
per cent as a standard deduction could not be allowed. The direction given by the Commissioner
(Appeals)wastobemodifiedtothisextent.
(iii) That the materials on record clearly proved the fact that the assessee was a captive service
provider. It had transactions only with its associated enterprise. It was also a fact that all the risks lay
with the associated enterprise. Different Benches of the Tribunal having taken divergent views on this
issue the view favourable to the assessee had to be taken and the direction of the Commissioner
(Appeals)inthisregardinallowingthebenefitofriskadjustmentsatonepercent.wasaffirmed.
(iv)Thattheassesseehaditselfacceptedthatthetransactionalnetmarginmethodwassimilartothe
costplusmethodexceptingthatthecostplusmethodwasbasedongrossmarginswhereasthe
transactionalnetmarginmethodwasbasedonnetmargins.Theassesseehadalsoacceptedthatif
properselectioncriteriawereadheredto,theapplicationofthetransactionalnetmarginmethodwould
alsoresultinthefactthatthepriceatwhichtheassesseehadundertakentheinternationaltransactions
wereatarm'slength.Theassesseehadnotdisputedadoptionofthetransactionalnetmarginmethod
bytheTransferPricingOfficerintheearlierassessmentyears.
(v)Thatthoughtheassessee'sincomewasexemptundersection10AoftheActthatdidnotnecessarily
meanthattheAssessingOfficerhadtoprovetheshiftingofprofitsbytheassesseetoitsassociated
enterprisebeforeapplyingtransferpricingprovision.
ThoughtheTransferPricingOfficerisempoweredundertheprovisionsoftheActtocollectinformation
under section 133(6) of the Act, at the same time, the principles of natural justice demand that the
informationsocollected,andproposedtobeutilised,beconfrontedtotheassessee.(A.Ys.20052006,
20062007)
Dy.CITv.HellosoftIndiaPvt.Ltd.(2013)23ITR1/57SOT4(URO)/84DTR153(Hyd.)(Trib.)
S.92C:Avoidance of taxTransfer pricingArm's length priceDeterminationTransactional net margin
methodComparablesJudged primarily on functional similarity"Transaction"Reimbursement of
expensesbyoneassociatedenterprisetoanotheris"transaction"Nottobeignoredinapplyingfilters
basedonquantumofrelatedpartytransactions.
The assessee is engaged in the business of providing information technology enabled services to its
group companies in the U. S. A. and Europe through its call centre located in Mumbai. It entered into
internationaltransactionswithitsassociatedenterprises.Areferenceundersection92CA(1)wasmade
237
by the Assessing Officer to the Transfer Pricing Officer for determination of the arm's length price in
respect of international transactions undertaken by the assessee during the year under consideration.
The assessee declared operating profit on total cost at 15 per cent. It applied the transactional net
margin method as the most appropriate method. The arm's length percentage of operating profit to
totalcostwasworkedoutat7.31percent.onthebasisofcurrentyear'sdataand9.93percentonthe
basisofmultipleyeardata.Theassesseechose15comparablecasesforworkingoutthepercentageof
operatingprofitontotalcostat7.31percent.accordingtothecurrentyear'sdata.TheTransferPricing
Officer included certain new cases at his own and ignored certain cases considered by the assessee.
Eventually,theTransferPricingOfficertook13casesascomparablesanddeterminedthepercentageof
operating profit on total cost at 24 per cent. applying filters of companies with less than 25 per cent.
relatedpartytransactions,andcompanieswithexportrevenuemorethan25percent.oftherevenues.
TheTransferPricingOfficerrecommendedanadjustmentofRs.2.20croreswhichtheAssessingOfficer
made. On appeal: Held, (i) that section 92F(v) defines "transaction" in the context of transfer pricing
provisionstoincludeanarrangement,understandingoractioninconcertwhetherornotitisformalor
in writing or whether or not it is intended to be enforceable by legal proceeding. Since the Transfer
Pricing Officer applied the filter of having companies with less than 25 per cent. related party
transactions, it was not open to ignore the transactions duly reported by the comparable D as
international transactions within the meaning of section 92B simply because they represented
reimbursement of expenses. A pure reimbursement of expenses by one associated enterprise to
another associated enterprise is very much a "transaction" within the meaning of section 92F(v) and
consequently is equally an international transaction under 92B requiring consideration in terms of
section 92 of the Act. In any case, the Department did not demonstrate that such reimbursement of
expenses was without any markup. Therefore, D was liable to be excluded as it involved related party
transactionsatamuchhigherlevel,asagainstthefilteradoptedbytheTransferPricingOfficerhimself,
beingcompanieswithlessthan25percent.relatedpartytransactions.
(ii)ThattheTransferPricingOfficer,interalia,appliedfilterofcompanieswithexportrevenuesmore
than25percent.oftherevenuestoincludeG.ItstotalrevenuewasRs.30.89croresfromthree
segmentsandthebreakupofsuchrevenueshowedearningsinforeigncurrencyatRs.4.24lakhs.This
casetherefore,didnotpassthroughthefilteradoptedbytheTransferPricingOfficer.Althoughthe
assesseehadearlierincludedthecaseofGwithinitstransferpricingstudyandtheTransferPricing
Officeralsoincludeditinhisfinallistofcomparables,thepurposeofincometaxassessmentisto
determinethecorrectincomeoftheassessee.AstheRevenuecannotallowanassesseetodepresshis
income,inthesamemanner,itisnotpermissibletotheRevenuetotakeadvantageoftheignoranceor
mistakeoftheassesseeinofferingmorethandueincomeandtheassesseewasentitledtoargueat
leastbeforetheappellateauthoritiesthatawrongstandtakenatthetimeoffilingthereturnofincome
shouldbeallowedtobemodified.TheTransferPricingOfficerwastoexamineinfreshproceedingsthe
correctnessofthefiguresplacedonrecordbytheassesseeinsupportofitscontentionthatthecaseof
Gwaswronglyincludedbyitinthelistofcomparablesanddecidethequestionofinclusionorexclusion
ofthiscaseafreshindependentoftheTribunal'sobservations,albeitkeepinginmindthefilterof
companieswhoseexportrevenuesweremorethan25percent.oftherevenues.
(iii)Thatthereputationofthegroup,owningMwasunderseriousindictmentandotherBenchesofthe
TribunalhaddirectedMtobeexcludedfromthelistofcomparablesforthisreason.Mwastobe
excludedfromthefinallistofcomparables.
(iv)ThatthepredominantviewtakenbyvariousBenchesoftheTribunalwastoexcludethecaseofVon
thereasoningthatprofitmargininselfprovisionandoutsourcingofserviceswasdifferent.Thereforeon
238
thiscomparablecasethematterwastobedecidedafreshbytheTransferPricingOfficerinconsonance
withtheTribunal'sobservations.
(v) ThatsincetheTribunal hadexcludedtwocasesandthedecisionastoinclusionorotherwiseofthe
remaining two cases had been restored to the Transfer Pricing Officer it would only be when the
TransferPricingOfficerdecidedthefateofthesetwocasesthatanydecisioncouldbearrivedatabout
the mean of the operating profit/total cost of the remaining cases. The Transfer Pricing Officer was to
giveeffecttotheprovisionsofsection92Cafterdecidingthedestinyofsuchtwocasesafterallowinga
reasonableopportunityofbeingheardtotheassesseeinsuchfreshproceedings.(A.Y.20062007)
(Mum.)(Trib.)
S.92C:Avoidance of taxTransfer pricing Arms length priceCost of providing services by German
company to all entities of group worldwide and basis of allocation of cost to various group entities
across the world to be submitted to enable Transfer Pricing Officer to ascertain whether there was
profitormerereimbursementofactualcostMatterremanded.
The assessee company, engaged in the business of manufacture and trading of pneumatic equipment,
entered into international transactions with its associated enterprises under which, inter alia, the
assesseepaidasumofRs.2,28,65,807totheGermangroupcompany,anassociatedenterprise,forSAP
service charges. The assessee explained that the F group had implemented a standard ERP software,
namely SAP R/3, that the cost incurred to implement the software and the ongoing cost towards user
licenseandmaintenancewasallocatedtoeachofthegroupcompaniesonthebasisofuse,thatforthe
financial year 200607, that the German company had allocated the actual cost incurred in relation to
useofsuchsoftwareamountingtoRs.2,28,65,807totheassessee,thattheGermancompanyallocated
or apportioned the costs pertaining to the assessee without any markup and the charges for the
implementation activity were based on actual costs incurred by them without any markup. The
AssessingOfficerreferredtothedeterminationofthearm'slengthpriceinrespectofthetransactionto
theTransferPricingOfficerundersection92CAoftheAct.TheAssessingOfficerwasoftheviewthatthe
assessee was not able to demonstrate the services rendered by the German company for which the
paymentwasmadeandthateveniftheserviceswereincurred,thequantumofsuchserviceswouldnot
betotheextentofRs.2.28crores.Moreover,whenexpenditureisincurredforthebenefitofthegroup
asawhole.TheTransferPricingOfficerproceededontheassumptionthatnoserviceswererenderedby
theGermancompanyforwhichSAPchargeswerepaidbytheassessee.Forthisreasonandalsoforthe
reason that no comparable instances had been provided by the assessee, the Transfer Pricing Officer
treatedtheentirepaymentasnotatarm'slength.TheDisputeResolutionPanelconfirmedtheorderof
the Assessing Officer rejecting the stand of the assessee that the Transfer Pricing Officer had no
jurisdiction to go into the question as to whether the assessee received services for which a payment
had been made by the taxpayer. On appeal. Held, that the transfer pricing study done by the assessee
did not give out any comparable instances of similar transactions between the unrelated parties. The
assesseehadtosubstantiatethepricethatispaidtoitsassociatedenterprisewasatarm'slengthwithin
one of the methods prescribed. The transfer pricing study of the assessee was not in tune with the
provisionsofsection92CoftheAct.TheorderoftheAssessingOfficeronthisissuewastobesetaside
and the question of determination of arm's length price remanded to the Transfer Pricing Officer for
freshconsideration.TheTransferPricingOfficershallnottakeintoconsiderationthepaymentsmadefor
SAP modules which were not the subjectmatter of the international transactions in dispute in this
appeal. The assessee was to file the transfer pricing study in accordance with the provisions of the Act
and substantiate that the price paid by it to the German company was at arm's length within the
239
methodslaiddownintheAct.ThecostofprovidingSAPchargesbytheGermancompanytoallentities
of the group worldwide and the basis of allocation of cost to various group entities across the world
shouldbesubmittedbytheassesseewithaviewtoenabletheTransferPricingOfficertoascertainasto
whethertherehadbeenanyprofitelementinvolvedorwasitacaseofmerereimbursementofactual
costincurredfortheassesseebytheparentcompany.(A.Y.20072008)
FestoControlsP.Ltdv.Dy.CIT(2013)22ITR574(Bang.)(Trib.)
S.92C:Avoidance of taxTransfer pricingRoyaltyArm's length priceComparable Commissioner
(Appeals) reliefto theassesseebyrevisingtherateupwardly at4.5 percent.asfair andreasonable
withoutgivinganybasisasrequiredbytheprovisionsofsection92CAaswellastherelevantrules,no
furtherreliefwaswarrantedonthisissue.
Duringtheyearunderconsideration,theassesseehadenteredintotwointernationaltransactionswith
its associate enterprise in Japan. One of the two transactions involved a payment of royalty for use of
technical knowhow by the assesseecompany to the Japanese company for supply of technical know
howat5percent.ofthedomesticsalesand8percent.oftheexport.Theassesseehavingenteredinto
agreementswithothernonrelatedforeignpartiesforsupplyoftechnicalknowhowandsincethedata
relating to the said non related foreign parties was available, it had considered the comparable
uncontrolled price method the most appropriate method for its transfer pricing study and keeping in
viewtherateofroyaltypaidtothenonrelatedparties,itcontendedthattherateatwhichroyaltywas
paidbytheassesseetoitsassociatedenterprisewasatarm'slength.TheTransferPricingOfficerfound
thatroyaltywaspaidbytheassesseetotherelatedandnonrelatedpartiesonlyinrespectofdomestic
sales and not exports. He therefore, proceeded to compare the rate at which royalty was paid by the
assessee to the related and nonrelated parties on domestic sales. Since the arithmetic mean of the
royalty rates of the nonrelated parties of 3 per cent. and 5 per cent. worked out at 4 per cent., he
adoptedthisasthearm'slengthrateoftheroyaltypayableondomesticsalesintheorderpassedunder
section 92CA(3). According to the said order, addition was made by the Assessing Officer. The
Commissioner (Appeals) held that it would be fair and reasonable to take 4.5 per cent. as the arm's
lengthrateoftheroyalty.Onappeal:
Held, that the comparable uncontrolled price method was followed by the assessee to determine the
arm'slengthpriceoftheroyaltypaidtoitsassociatedenterprise,namelyonthegroundthattherebeing
similar payment of royalty made to two unrelated parties, the internal comparable uncontrolled prices
were available. Since the royalty paid to the two unrelated parties on domestic sales for supply of
technicalknowhowwas3percent.and5percent.,thearithmeticmeanofroyaltyratewasworkedout
bytheTransferPricingOfficerat4percent.undertherelevantprovisionofsection92CA.Theassessee
itselfhavingtakenthetwononrelated partiesascomparablesinitstransferpricingstudy,itcouldnot
now turn back and say that one of the parties was not comparable without giving any cogent or
convincing reason. Although the assessee contended that the use of technology availed from D had
restrictedapplicationthedomesticsalesgeneratedbytheassesseeusingthetechnologyofDwasquite
comparable withthedomesticsales generatedfromtheuseoftechnologyofitsassociatedenterprise.
Theroyaltyof5percent.paidtoOwasalsoforuseofaparticulartrademarkofthatcompanytowhich
theTransferPricingOfficerattributedtheroyaltypaymenttotheextentofonepercent.onthebasisof
Government policy of automatic route. Whether any product with the trade mark was actually
manufactured by the assessee or was simply imported by it from O was irrelevant because use of the
trademarkwasundoubtedlyallowedbyOtotheassesseealongwithsupplyoftechnologyforaroyalty
payment of 5 per cent. of the domestic sales and irrespective of whether the assessee had
manufactured the goods with the trade mark or not, it was entitled to do so on payment of royalty at
240
therateof5percent.asagreedbetweentheparties.Therewasnothingtopointoutanyinfirmityinthe
rate of 4 per cent. determined by the Transfer Pricing Officer as the arm's length rate of royalty
paid/payable by the assessee to its associate enterprise and since the Commissioner (Appeals) had
alreadyallowedafurtherrelieftotheassesseebyrevisingtherateupwardlyat4.5percent.asfairand
reasonablewithoutgivinganybasisasrequiredbytheprovisionsofsection92CAaswellastherelevant
rules,nofurtherreliefwaswarrantedonthisissue.(A.Y.20022003)
S.92C:Avoidance of tax Transfer pricing RBI approval FDI policy RBI approval has no
relevanceonissueofArm'slengthpriceCUPMethodTNMMethodMattersetasideand
AssessingOfficertodecidethematterbyadoptingCUPmethod.
The assessee was engaged in the manufacturing and marketing of beer using technical know
how provided by SAB Miller. The assessee paid royalty for the technical knowhow and the
questionarosewhetherthesamewasatarmslength.Oneoftheargumentsadvancedbythe
assessee was that as under Press Note no. 9 of 2000 issued by the Ministry of Commerce and
IndustryinrelationtoFDIpolicy,remittanceofroyaltynotexceed5%ofdomesticsalesand8%
of export sales was permitted, the royalty paid by it which was within those limits should be
consideredasbeingatarmslengthfortransferpricingpurposes.HELDbytheTribunalrejecting
theplea:
Press Note no.9 of 2000 issued by the Ministry of Commerce and Industry in respect of FDI
policy and prescribing the percentage of royalty to the sales allowed under automatic route
cannotsubstituteasALPtobedeterminedundertheprovisionsoftheActandRules.FDIpolicy
permitting certain percentage of payment of royalty is only for remittance of the amount in
foreign exchange and therefore, such permission given in an entirely different context and
purposecannotbeconsideredasrelevantfordeterminationoftheALPunderI.T.Act.TheRBI
is only concerned with the foreign exchange and, therefore, would look into the matter from
that point of view. The RBI, at the time of giving such permission would not keep in mind the
provisionsoftheITAct,whichisthefunctionoftheincometaxauthoritiesand,hence,cannot
validlygointosuchanissue.Whenapropermechanismisprovidedundertheprovisionsofthe
I. T. Act and Rules for determination of the ALP, then the approval by other than the I. T.
Authorities,forthepurposeofremittance/outflowoftheforeignexchange,doesnotipsofacto,
partake the character of ALP, which has to be determined as per TP regulations (CIT v. Nestle
IndiaLtd(2011)337ITR103(Del)followed).(A.Y.200708)
S.92C:Avoidance taxTransfer Pricing Automatic RBI approval means transaction is at Arms

LengthPrice.
The ITAT had to consider two legal issues in the context of transfer pricing (i) whether if a
royaltyagreementfallswithintheautomaticapprovalschemeandisapproved/deemedtobe
approved by the RBI, the royalty can be treated to be at arms length just because it is
approved/ deemed approved and (ii) what are the parameters to be applied while applying
InternalTNMM.HELDbytheTribunal:
241
(i)TheassesseescollaborationagreementwithitsAEforpaymentof2%ofcontractvaluefor
manufacturing, drawing and engineering services and 5% of the selling price as royalty falls
undertheautomaticapprovalschemeoftheRBI.Whentherateofroyaltypaymentandfee
fordrawingsetc.hasbeenapprovedordeemedtohave beenapprovedbytheRBI,thensuch
paymenthastobeconsideredatALP;
(ii)Rule10B(1)(e)(i)requirestheprofitmarginrealisedbytheenterprisefromaninternational
transactionenteredintowithanAEtobeascertainedfordeterminingastowhetherornotitis
at arms length. The margin with which such margin earned by the assessee is compared with
for determining the ALP, can be internally available from comparable transaction(s) or from
externally available cases. If the enterprise has entered into similar transactions with third
partiesasareunderconsiderationwiththeAE,thentheprofitrealizedfromsuchtransactions
with third parties is a good measure to benchmark the margin from international transaction.
Thus, on one hand we need to have profit margin which is to be compared from transactions
with the AEs and on the other hand, we need to find out the profit margin from similar
transactions with nonAEs with which comparison is to be made. Both these figures should
come from separate watertight compartments. No overlapping is permissible in the
composition of such compartments. In other words, neither the first compartment of profit
margin from AE transactions should include profit margin from the transactions with nonAEs,
nor the second compartment should have profit margin from the transactions with the AEs. If
such an overlapping takes place, then the entire working is vitiated, thereby obliterating the
finer line of distinction of the profit margin to be compared and the profit margin to be
compared with. On facts, as the assessee had not maintained segmentwise accounts and as
the figures of AE and NonAE transactions were segregated from the common pool of figures,
the margins derived therefrom were not reliable and the claim of internal TNMM was not
acceptable.(A.Y.200809)
ThyssenKruppIndustriesIndiaPvt.Ltdv.ACIT(2013)87DTR65/154TTJ689(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferPricingALPshouldbedeterminedonsegmentwiseprofits
&notatanentitylevel.Adjustmentcannotbemadetotheentireentityturnover/profits.
TheassesseeenteredintoseveralinternationaltransactionswithitsAEandclaimedthatthere
wereatarmslengthonthebasisofasegmentwiseTNMManalysisforeachofthem.TheTPO
rejected the claim on the ground that the segmentwise accounts were not audited. He
adopted an entity method approach for purposes of determining the ALP. However, while
rejecting the segmental analysis undertaken by the assessee, the TPO accepted 4 segments of
the assessees operations and identified comparables. He arrived at different arithmetical
means of appropriate profit level indicators by taking operating profit by cost of various
identifiedcomparablesineachsegment.Hethereaftergaveweightedaveragetotheassessees
percentageofturnoveroutofthetotalturnoveranddeterminedtheweightedaverageofthe
arithmeticmeanineachsegmentsandarrivedattheoperatingprofitat18.09%atentitylevel.
This was taken as the arms length profit margin and as the assessees operating margin of
4.78% operating cost was less than the ALP sodetermined, an adjustment of Rs. 82 crore was
made to the assessees income. Before the DRP, the assessee furnished audited segmental
accountsthoughthesewereignoredbyit.OnappealbytheassesseetotheTribunal,HELD:
242
As the assessees operates in four different & independent segments and it submitted
segmentalaccountsforeachofitsoperation,thecorrectapproachunderTNMMshouldbeto
determinetheALPofeachofthesegmentsbycomparingwiththecorrespondingcomparables
involvedinsimilarlinesoffunctioningafterproperFARanalysis.AstheTPOhaddetailsofeach
segmentwiseprofitmarginofthecomparables,heoughttohavecomparedtherelevantprofit
marginswiththatoftheassesseesprofitmarginsineachsegment.Hisapproachoftakingthe
weighted average method of arriving at entity based profit margin is not correct. Also, his
approach of making the adjustment on the entire turnover of the assessee including
transactions with nonAEs instead of restricting it to the AEs transactions is not supported by
the transfer pricing provisions. Further, in arriving at the segmentwise profit margin, the TPO
should carry out an analysis of each companys business activity, why they are selected as
comparable and what are the functions of the company, operating margins, etc. He should
adopt proper parameters/filters in respect of each segment. If the assessee opposes the
selection of comparables by the TPO, it is the responsibility of the TPO to furnish necessary
details.Theonuscannotbeshiftedtotheassesseewhenitiscontendingthatproperdataisnot
availableinpublicdomaininthisregard.(A.Y.200809)
SandozPrivateLimited.v.DCIT(Mum.)(Trib.)www.itatonline.org.
S.92C:AvoidanceoftaxTransferPricingALPofloantransactionhastobedeterminedasper
CUP&LIBOR.
The assessee, an Indian company, gave a loan of $ 10,50,000 to its USA based Associated
Enterprise(AE)at4%rateofinterest.TheTPOadoptedtheIndiancompanyasthetestedparty
andheldthatthecomparableratesforbenchmarkingtheinteresthadtobeselectedfromthe
Indian domain and the rate that the assessee would have earned by giving loans in the Indian
markethadtobetakenastheALP.Itwasalsoheldthatanadditiontotheinterestratehadto
be made for the risk factor. The interest rate was determined at 17.25%. On objection by the
assessee,theDRPheldthattheALPhadtobetakenatthePLRofRBIbeing13.25%.Onappeal
bytheassesseetotheTribunal,HELDreversingtheTPO&DRP:
(i) CUP is the most appropriate method for ascertaining the arms length price of an
international transaction of lending money. Where the transaction is of lending money in
foreign currency to its foreign subsidiaries, the comparable transactions have to be of foreign
currency lent 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
ratewouldhavenoapplicabilityandtheinternationalratefixedbeingLIBORshouldbetakenas
the benchmark rate for international transactions. On facts, the assessee had an arrangement
for loan with CitiBank for less than 4% and on the loan provided to its AEs it had charged 4%
interest.Hence,theadjustmentmadebytheTPOwasnotwarranted(SivaIndustries&Holding
Ltd.(2011)59DTR182(Che),FourSoftLtd.v.Dy.CIT(2011)62DTR308(Hyd),Dy.CITv.Tech
Mahindra Ltd. (2011) 46 SOT 141 (Mum) & Tata Autocomp Systems ltd. v. ACIT (2012) 73 DTR
220(Mum)followed);
(ii) Further, the assessees profits are exempt u/s 10B and so there was not a case where
the assessee would benefit by shifting profits outside India (Philips Software Centre (P) Ltd. v.
243
Asst.CIT(2008)26SOT226(Bang)&Itov.ZydusAltanaHealthCare(P)Ltd.(2011)44SOT132
(Mum)followed).(A.Y.200809)
CottonNaturals(I)Pvt.Ltd.v.DCIT(2013)22ITR438(Delhi)(Trib.)
S.92C:Avoidance of taxTransfer Pricing: No notional interest addition for delayed payments

byAE.
The assessee raised invoices on its Associated Enterprise (AE) and gave 30 days credit for
payment.AstherewasdelaybytheAEinmakingpaymentbeyondthestipulatedcreditperiod,
theTPOheldthattheassesseeoughttohavechargedinterestattherateof1%permonth.A
notional addition towards the said interest wasmade. This was upheldby the DRP. On appeal
bytheassesseetotheTribunal,HELDreversingtheAO&DRP:
Theassesseehasnoborrowingsandsothereisnointerestliability.Evenifthepaymentshave
beenmadebytheAEbeyondthenormalcreditperiod,thereisnointerestcosttotheassessee.
Moreover, there is no such agreement whereby interest is to be charged on such a delayed
payment. The assessee does the billing on a quarterly basis and accordingly, the payment is
beingreceived.Therefore,thedelayisnotwhollyonaccountoflatepaymentbytheAEsonly.
Moreover, the T.P. adjustment cannot be made on hypothetical and notional basis until and
unless there is some material on record that there has been under charging of real income.
Consequently,anadditionanaccountofnotionalinterestrelatingtoallegeddelayedpayment
incollectionofreceivablesfromtheA.Esisuncalledfor.(A.Y.200708)
EvonikDegussaIndiaP.Ltd.v.ACIT2013)55SOT566/81DTR143(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceMatterremanded.
Arm's length price not to be determined without proper comparables. Failure by assessee to
file transfer pricing report on ground no public domain comparable in assessee's line of
business.Matter remanded for fresh transfer pricing study for determination of fair arm's
lengthprice.(A.Y.20052006to20072008)
S.92C:Avoidance of taxTransfer pricing Arm's length price Discount granted to AE

Additionwasnotjustified.
Assesseecompany had granted 10 per cent discount on sales made to its associated
enterprise.Incourseofassessment,AssessingOfficerheldthatpricechargedbyassesseetoits
AEwasnotatarm'slengthandTPadjustmenttoextentofdiscountgrantedwasmadebyhim
onbasisofreportobtainedfromTPO.Commissioner(Appeals)setasideTPadjustmentholding
that TPO and Assessing Officer had arrived at price difference not on basis of any established
methodof determiningarm'slengthpricebutsimplyonbasisof10percentdiscountgranted
byassesseecompanytoitsassociateenterprise.Tribunalfollowingorderpassedbycoordinate
BenchofTribunalinassessee'sowncaserelatingtoassessmentyear200607,impugnedorder
passedbyCommissioner(Appeals)deletingadditionmadebywayofTPadjustmentwastobe
upheld.(A.Y.200405)
244
S.92C:Avoidance of taxTransfer pricing Arms length priceTNMM Method cannot be
discardedinpreferenceovertransactionalprofitmethods,withoutanyvalidreasons.
Assesseecompany determined ALP of its international transactions with AE on basis of Cost
PlusMethod(CPM).TPO,however,madeadjustmenttoALPdeterminedbyassesseerelyingon
Transactional Net Margin Method (TNMM).It was noted that TPO had not assigned any valid
reason for rejecting method adopted by assessee for determination of ALP. Further, if four
companies earning super normal profits were excluded from list of comparables selected by
TPO, average OPM would come to 18.91 per cent whereas net profit margin of assessee was
18.11 per cent, in view of above, impugned adjustment made to ALP determined by assessee
wastobesetaside.Tribunalheldthatwhereanassesseehasfollowedoneofstandardmethods
ofdeterminingALP,suchamethodcannotbediscardedinpreferenceovertransactionalprofit
methods, unless revenue authorities are able to demonstrate fallacies in application of
standardmethods.(A.Y.200506)
CITv.SonataSoftwareLtd.(2013)55SOT533(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceMatterremanded.
Assessee belonged to a multinational group of companies which undertook IT project named
Common Operating Environment System (COE3). It received IT support from its Associated
Enterprises (AEs).Costs incurred in respect of said project were allocated to group companies.
AssesseesharedrelatedcostandreimbursedcosttoitsAEs.TPOobservedthatrelevantdetails
regardingallocationofcostswerenotfurnishedbyassessee.Hedeterminedarmslengthprice
atnilanddisallowedentirecostbornebyassessee.Significantcostswereincurredinrespectof
said project. Assessee had also furnished relevant invoices raised in this regard. Tribunal held
that TPO was not justified in ignoring these details and computing ALP at nil and, therefore,
matter be remanded to TPO to workout ALP of relevant transaction. Matter remanded.
(A.Y.200203)
CastrolIndiaLtdv.ACIT(2013)55SOT521(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceComparablesWhilecarryingout
comparabilityanalysisfordeterminingALP,onehastoexaminefunctionalprofileofcompany
andattributesofproductsandservicesprovided.
Assesseeincourseofinternationaltransactionsprovidedtestingandanalyticalsupportservices
in connection with research and development to its associate enterprise. In transfer pricing
study report for comparability analysis, assessee had identified 12 comparable companies.
Dispute resolution panel for determining arm's length price selected six companies for
comparability analysis.These six comparable companies were arrived after rejecting three
diagnostic companies, which were selected by assessee, and two new comparable companies
wereadded.Tribunalheldthatsincefunctionalprofileoftwonewcomparablecompanieswas
different with that of assessee, inclusion of said companies in set of comparables was not
justified, since functional profile of three diagnostic companies was not only different but
characteristic of services rendered was also different, these three companies had rightly been
rejectedfromsetofcomparables.Therefore,onlyfoursetofcompaniesshouldbeincludedfor
purposesofcomparabilityanalysisandarithmeticmeanofthesecompaniesshouldbetakenfor
purposeofdeterminingALP.Partlyinfavourofassessee.Tribunalheldthatwhilecarryingout
245
comparability analysis for determining ALP, one has to examine functional profile of company
andattributesofproductsandservicesprovided.(A.Y.200708)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceNotionalinterestAdditionwas
deleted.
AssesseehadinternationaltransactionswithitsAE.Ithadgivencreditofthirtydaysininvoices
raisedagainstAE.AEmadepaymentstoassesseebeyondstipulatedcreditperiod.Assesseehad
notchargedanyinterestondelayedpayment.TPOworkedoutnotionalinterestatrateofone
per cent per month for period of delay beyond thirty days and added same to income of
assesseeWhethersincetherewasnoagreementbetweenassesseeandAEtochargeinterest
ondelayedpayment,impugnedadditionwasnotjustified.(A.Y.200708)
S.92C:Avoidance of taxTransfer pricingArms length priceComparable by TPO was not

properhenceadjustmentwasdeleted.
Assesseecompany engaged in business of software development services and information
technologyenabledservices(ITES)enteredintoaninternationaltransactionswithitsassociated
enterprise.TPO made transfer pricing adjustment by selecting certain comparable companies.
Since comparables selected by TPO were super profit making companies and functionally
different as they were not in same line of business as that of assessee, and, there were many
othersignificantdifferencesincompaniesselectedbyTPO,sameweretobeexcludedfromlist
of comparables for purpose of making transfer pricing adjustment. In favour of assessee.
(A.Y.200607)
GoogleIndia(P.)Ltd.v.Dy.CIT(2013)55SOT489(Bang.)(Trib.)
S.92C:Avoidance of taxTransfer pricing Arms length price ComparablesAdjustments

cannotbemadewithoutgivinganopportunity.(S.133(6)).
Tribunal held that where Assessing Officer inexercise of power under section 133(6) obtained
informationfromcomparablesandonbasisofsaidinformationmadeadjustmenttoassessee's
ALP without obtaining objections from assessee, said adjustment was to be set aside and,
matterwastoberemandedbackfordisposalafresh.(A.Y.200708)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceMattersetaside.
Assessee is required to support its claim for any adjustment with robust data and full details
andevidencesandburdenofproofisonitwheneveritmakessuchaclaim.Assesseecompany
was a 100 per cent subsidiary of a US based company. It was registered under Software
Technology Park Scheme of Government of India and was primarily engaged in software
development for its parent company. It entered into international transactions with its
associate enterprise It also entered into direct contracts with domestic customers. For
purpose of computing arm's length price, it adopted transactional net margin method and
relied upon internal comparables.TPO rejected internal comparables on ground that internal
uncontrolledtransactionswerejust1.4percentoftotalrevenueearnedbyassesseeandhence
246
comparison with such transactions would not provide meaningful benchmarking.He also
rejected some other claims of assessee and computed arm's length price at a margin of 16.3
per cent being arithmetic mean of final set of four comparables. since assessee had
uncontrolled comparables transactions with third parties in export segment to tune of 15 per
centoftotalturnoverandhaduncontrolledtransactionswiththirdpartiesindomesticsectorto
tuneof10percentoftotalturnover,domesticuncontrolledtransactionsweresignificantpart
of total turnover of assessee. In case domestic uncontrolled transactions were functionally
comparable,samecouldbeusedforbenchmarking.therefore,matterrequiredtobesentback
toTPOtoconsiderinternalcomparablesgivenbyassesseeandarriveatfreshdecision.Matter
remanded. Tribunal held that It cannot be laid down as a proposition that transfer pricing
adjustment could not exceed total profits earned by group. Assessee as well as revenue
authorities are bound to determine ALP by applying law and rules laid down and cannot be
guidedbyextraneousparameters,anyclaimforadjustmentonbasisofriskoranyotherfactors
has to be based on proper data and sound calculation and ad hoc adjustments should not be
granted. Where material available with TPO in current year is vastly different to material
available with TPO in earlier year, principle of consistency does not hold water(A.Y.200607,
200708)
Interra Information Technologies (India) (P.) Ltd. v Dy.CIT (2013) 55 SOT 585/81 DTR 70
(Delhi)(Trib.)
S.92C:Avoidance of taxTransfer pricing Arms length price TNM Method Matter

remanded.
Assesseehadprovidedsoftwaredevelopmentservicestoitsoverseasenterprise.Ithadapplied
TNMM and in comparison with profits earned by comparables, assessee had benchmarked
itself. As it had lost a major contract during year it claimed idle capacity cost so as to justify
profits earned by it. TPO disallowed said claim and on basis of operating profit margin of
comparables, fixed arm's length margin at 11.96 per cent. However, Commissioner (Appeals)
shiftedmethodtoprofitsplitmethodandchangedtestedpartyandconsideredprofitmarginof
6 per cent as appropriate No reason for adopting arms length margin at 11.96 per cent was
assigned by TPO. Further even Commissioner (Appeals) had accepted only profit making AEs,
and arbitrarily fixed margin at 6 per cent. Neither TPO's order could be considered as
appropriatenororderofCommissioner(Appeals),and,therefore,issuewastoberestoredfor
reconsideration.Matterremanded.(A.Y.200405)
SITELIndia(P.)Ltd.v.ACIT(2013)55SOT541(Mum.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceResalePriceMethodAdjustment
heldtobenotjustified.
Assesseecompanyisengagedinbusinessofdistributionoftelecomequipment,logicanalysers
andothertestandmeasurementequipmentonbehalfofitsAssociatedEnterprise(AE).Besides,
if any customer in India wanted to purchase equipment directly from AE, assessee acted as
intermediary and derived commission income for services rendered. In transfer pricing
proceedings, TPO asked for segmental data of trading activity and commission agency activity
separatelyandthereafterworkedoutmargininbothactivitiesandarrivedatadjustment.Itwas
noted that by applying resale price method (RPM), GP as percentage of sales in case of
247
comparablesselectedbyTPOwas12.90percentwhereasGPaspercentageofsalesincaseof
assessee was much higher at 35.60 per cent. Tribunal held that in view of above, impugned
adjustmentmadetoALPdeterminedbyassesseewasnotsustainable.(A.Y.200607)
TextronixIndia(P.)Ltd.vDy.CIT(2013)55SOT512(Bang.)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArm'slengthpriceComparablesandadjustments
ValueofInternationaltransactionandnotentireturnover.
TribunalheldthatwhateverbemethodfollowedoradoptedforarrivingatALP,ALPcanonlybe
determinedonvalueofinternationaltransactionsaloneandnotonentireturnoverofassessee
atentitylevel.(A.Y.200708)
ThyssenKruppIndustriesIndia(P.)Ltd.vACIT(2013)55SOT497(Mum.)(Trib.)
Tribunalheldthatsolongasexpenditureorpaymenthasbeendemonstratedtohaveincurred
orlaidoutforpurposeofbusiness,itisnoconcernofTPOtodisallowsameonanyextraneous
reasoningHeld,yesWhetherTPOcannotdetermineALPatnilasjurisdictionprovidedtohim
istodetermineALPoftransactionsundermethodsprovidedundertheAct.(A.Y.200708)
liquidateddamages
AssesseemadepaymenttoitsAEonaccountofliquidateddamagespaidbyAEtoathirdparty.
TPO determined arm's length price at nil and made adjustment. Question as to whether
liquidateddamagesweretobepaidbyassesseeornotwasoutsidepurviewofTPprovisionsas
that was a business decision taken by assessee, as far as TP provisions were concerned, since
assesseereimbursedexactamountwhichwasrecoveredbythirdparty,noadjustmentcouldbe
made.A.Y.200708)
S.92C:AvoidanceoftaxTransferPricingTheBrightLinetestcanbeappliedtodetermine
whether AMP expenses incurred by assessee are excessive andfor the benefit of the brand
owner Adjustment in relation to advertisement, marketing, and sale promotion expenses
incurred by assessee for creating or improving, marketing intangible for and on behalf
offoreign AE is permissible. Expenses in connection with sales which do not lead to brand
promotion cannot be brought within ambit of advertisement, marketing and promotion
expenses. Correct approach under TNMM is to consider operating profit from each
international transaction in relation to total cost or sales or capital employed etc. of such
internationaltransactionandnotnetprofit,totalcostssales,capitalemployedofassesseeas
awholeonentitylevel.(S.92B,Rule10A,10B)
L.G.ElectronicsInc,aKoreancompany,setupawhollyownedsubsidiaryinIndia(theassessee)
towhichitprovidedtechnicalassistance.Theassesseeagreedtopayroyaltyattherateof1%
as consideration for the use of technical knowhow etc. The Korean company also permitted
the assessee to use its brand name and trade marks to products manufactured in India on a
royaltyfree basis. The AO, TPO & DRP held that as the Advertising, Marketing and Promotion
248
(AMP expenses) expenses incurred by the assessee were 3.85% of its sales and such
percentage was higher than the expenses incurred by comparable companies (Videocon &
Whirlpool),theassesseewaspromotingtheLGbrandownedbyitsforeignAEandhenceshould
havebeenadequatelycompensatedbytheforeignAE.ApplyingtheBrightLineTest,itwasheld
that the expenses up to 1.39% of the sales should be considered as having been incurred for
the assessees own business and the remaining part which is in excess of such percentage on
brandpromotionoftheforeignAE.Theexcess,afteraddingamarkupof13%,wascomputedat
Rs. 182 crores. On appeal by the assessee, the Special Bench had to consider the following
issues: (i) whether the TPO had jurisdiction to process an international transaction in the
absenceofanyreferencemadetohimbytheAO?(ii)whetherintheabsenceofanyverbalor
written agreement between the assessee and the AE for promoting the brand, there can be
said to be a transaction? (iii) whether a distinction can be made between the economic
ownership and legal ownership of a brand and the expenses for the former cannot be
treatedasbeingforthebenefitoftheowner?(iv)whethersuchatransaction,ifany,canbe
treatedasaninternationaltransaction?(v)whethertheBrightLineTestwhichisapartof
U.S.legislationcanbeappliedformakingthetransferpricingadjustment?(vi)whetherasthe
entireAMPexpensesweredeductibleu/s37(1)despitebenefittothebrandowner,atransfer
pricing adjustment so as to disallow the said expenditure could be made? (vii) what are the
factorstobeconsideredwhilechoosingthecomparablecases&determiningthecost/valueof
the international transaction of AMP expenses? (viii) whether, if as per TNMM, the assessees
profitisfoundtobeasgoodasthecomparables,aseparateadjustmentforAMPexpensescan
still be made? (ix) whether the verdict in Maruti Suzuki India Ltd. v Add. CIT/Transfer Pricing
Officer(2010) 328 ITR 210 (Del) has been overruled/ merged into the order of the Supreme
Courtsoastoceasetohavebindingeffect?
BytheMajority(HariOmMarathe,JM,dissenting)
(i)Thoughs.92CA(2A),insertedw.e.f.1.6.2011,whichpermitstheAOtoconsiderinternational
transactions not specifically referred to him does not apply as the TPOs order was passed
before that date, subsec (2B) to s. 92CA inserted by the Finance Act 2012 w.r.e.f. 1.6.2002
(which provides that the TPO can consider an internationaltransactionif the assessee has not
furnishedthes.92Ereport)curesthedefectintheotherwiseinvalidjurisdictionatthetimeof
its original exercise. The assessees argument that jurisdiction has to be tested on the basis of
thelawexistingatthetimeofassumingjurisdictionandthats.92CA(2B)cannotregularizethe
otherwise invalid action of the TPO is farfetched and not acceptable because it will render s.
92CA(2B) redundant. The argument that s. 92CA(2B) should be confined only to such
transactionswhichtheassesseeperceivesasinternationaltransactionsbutfailstoreportisalso
notacceptable;
(ii) The assessees contention that in the absence of any mutual agreement between the
assesseeanditsforeignAE,thereisnotransactionisnotacceptableinviewofthedefinition
ofthattermins.92F(v)whichincludesanarrangementorunderstanding.Aninformalororal
agreement,whichislatent,canbeinferredfromtheattendingfactsandcircumstancesandthe
conductoftheparties.AslongasthereexistssomesortofunderstandingbetweentwoAEson
a particular point, the same shall have to be considered as a transaction, whether or not it
hasbeenreducedtowriting.However,thedepartmentscontentionthatthemerefactthatthe
assessee spent proportionately higher amount on advertisement in comparison with other
249
entities shows an understanding is also not acceptable. On facts, as it was seen that the
assessee not only promoted its name and products through advertisements, but also the
foreign brand simultaneously, and the fact that the assessees AMP expenses were
proportionatelymuchhigherthanthoseincurredbyothercomparablecases,lentduecredence
to the inference of the transaction between the assessee and the foreign AE for creating
marketingintangibleonbehalfofthelatter;
(iii) The assessees contention that a distinction should be made between the economic
ownership of a brand and its legal ownership and that AMP expenses towards the
economicownershipofthebrand,whichareroutineinnature,cannotbeallocatedasbeing
forthebenefitofthebrandownerisnotacceptableasitwillleadtoincongruousresults.While
the concept of economic ownership of a brand is relevant in a commercial sense, it is not
recognizedforthepurposesoftheAct;
(iv) The assessees argument that there is no international transaction is not acceptable
becausethedefinitionofthattermins.92B(1)isinclusive.Underclause(i)oftheExplanation
to s. 92B, a transaction of brand building is in the nature of provision of service by the
assessee to the AE. Clause (ii) of the Explanation defines intangible property to include
marketing related intangible assets, such as, trademarks, trade names, brand names, logos.
Consequently, brand building is a provision of service. The fact that no consideration is paid
bytheforeignAEisirrelevant;
(v) While a provision from a foreign legislation cannot be imported into the Indian
legislation, there is an inherent fallacy in the assessees argument that the bright line test
cannotbeadoptedtodeterminetheALPoftheinternationaltransactionasitisnotoneofthe
recognized methods u/s 92C. The bright line test is a way of finding out the cost/value of the
internationaltransaction,whichisthefirstvariableundertheTPprovisionsandnotthesecond
variable, being the ALP of the international transaction. Bright line is a line drawn within the
overall amount of AMP expense. The amount on one side of the bright line is the amount of
AMP expense incurred for normal business of the assessee and the remaining amount on the
other side is the cost/value of the international transaction representing the amount of AMP
expense incurred for and on behalf of the foreign AE towards creating or maintaining its
marketingintangible.Iftheassesseefailstogiveanybasisfordrawingthislinebynotsupplying
the cost/value of the international transaction, and further by not showing any other more
cogent way of determining the cost/value of such international transaction, then the onus
comes upon the TPO to find out the cost/value of such international transaction in some
rationalmanner.Onfacts,thecost/valueoftheinternationaltransactionwasdeterminedatRs.
161.21crorewhileitsALP(afterthe13%markup)wasRs.182.71crore.Theassesseewasnot
entitledtoclaimadeductionforRs.161.21croreanditwasliabletobetaxedonthemarkupof
Rs.21.50crore;
(vi) The assessees contention that once the entire AMP expense is found to be deductible
u/s 37(1), then, no part of it can be attributed to the brand building for the foreign AE
notwithstanding the fact that the foreign AE also got benefited out of such expense is not
acceptable because the whole purpose of transfer pricing is to provide a statutory framework
which can lead to computation of reasonable,fair andequitable profits and taxinIndia in the
case of multinational enterprises. The TP provisions prevail over the general provisions. The
exerciseofseparatingtheamountspentbytheassesseeinrelationtointernationaltransaction
250
ofbuildingbrandforitsforeignAEforseparatelyprocessingaspers.92cannotbeconsidered
asacaseofdisallowanceofAMPexpensesu/s37(1)/40A(2).s.37(1)/40A(2)&s.92operatein
differentfields;
(vii) In principle, it is necessary that properly comparable cases should be chosen before
making comparison of the AMP expenses incurred by them. However, the argument that only
suchcomparablecasesshouldbechosenasareusingtheforeignbrandisnotacceptable.The
correct way to make a meaningful comparison is to choose comparable domestic cases not
using any foreign brand. Also, several factors have to be considered for determining the
cost/valueoftheinternationaltransactionofbrand/logopromotionthroughAMPexpenses(14
illustrative issues set out). On facts, the TPO restricted the comparable cases to only two
without discussing as to how other cases cited by the assessee were not comparable. Also, a
bald comparison with the ratio of AMP expenses to sales of the comparable cases without
givingeffecttotherelevantfactorscannotproducecorrectresult(matterremanded);
(viii) ThereisabasicfallacyintheassesseescontentionthatiftheTNMMisadoptedandthe
net profit is at ALP, there is no scope for making an adjustment for AMP expenses. TNMM is
applied only on a transactional level and not on entity level though it can be correctly applied
on entity level if all the international transactions are of sale by the assessee to its foreign AE
andthereisnoothertransactionofsaletoanyoutsiderandalsothereisnootherinternational
transaction. Where there are unrelated international transactions, it is wrong to apply TNMM
at an entity level. Further, even assuming that in applying the TNMM on entity level for the
transactionofimportofrawmaterialtheoverallnetprofitisbetterthanothercomparables,an
adjustmentcanstillbemadebysubjectingtheAMPexpensestotheTPprovisions.Thereisno
baronthepoweroftheTPOinprocessingallinternationaltransactionsundertheTPprovisions
even when the overall net profit earned by the assessee is better than others. Earning an
overallhigherprofitrateincomparisonwithothercomparablecasescannotbeconsideredasa
licence to the assessee to record other expenses in international transactions without
considering the benefit, service or facility out of such expenses at arms length. All the
transactionsaretobeseparatelyviewed.Also,thecontentionfailsifanyoftheothermethods
(CUPetc.)areadoptedinsteadofTNMM;
(ix) Maruti Suzuki 328 ITR 210 (Del) lays down the law that (a) brand promotion expenses
areaninternationaltransaction,(b)AMPexpensesincurredbyadomesticentitywhichisan
AE of a foreign entity are required to be compensated by the foreign entity in respect of the
brandbuildingadvantageobtainedbyit&(c)thefactorsrequiredtobeconsideredbytheTPO.
This verdict has not be overruled by the Supreme Court except to the extent those directions
weregiventotheTPOtoproceedinaparticularmanner.Theverdicthasalsonotmergedinto
thatoftheSupremeCourtbecausetheprinciplesoflawlaiddownbytheHighCourthavenot
at all been considered and decided by the Supreme Court. Consequently, the law laid down
thereincontinuestohavebindingforce.
PerHariOmMaratha,JM(dissenting):
(i) Before making any transfer pricing adjustments, it is a precondition that there must
exist an international transaction between the assessee and its foreign AE. The Department
has proceeded on a presumption that because the AMP expenses are supposedly higher than
that incurred by other entities, there is an international transaction discernible and a part of
theseexpenseshavetobetreatedtowardsbuildingoftheLGBrandownedbytheforeignAE.It
251
is not permissible to proceed on such presumption in the absence of a written agreement or
evidencetosuggestanyoralagreementbetweentheparties;
(ii) Further, the assessee had not paid any brandroyalty to the foreign AE though it got
the benefit of the brand and earned revenue there from which has been taxed. The AMP
expenseshavebeenpaidtoanunrelatedentityinIndiawhichhasinturnpaidtaxthereon.As
there is no shifting of income to a different jurisdiction, neither Chapter X nor the bright line
methodhasanyapplication;
(iii) Also, the concept of commercial ownership of a brand is a reality in modern global
businessrealmanditisasgoodasalegalownershipinsofarasitseffectsonsaleofproductsin
India are concerned. Any advertisement which is productcentric and even entirely brand
centricwillonlyenhancethesalesoftheproductsofthatbrandinIndia.Innowayisthebrand
ownerbenefited.Consequently,theAMPexpensesarenotacaseofbrandbuilding/promotion
and no covert transaction between the Indian entity and its foreign AE can be presumed or
inferred. The Revenue has no power to recharacterize the AMP expenditure as routine and
nonroutineexpenditure;
(iv) MarutiSuziki India Ltd v. Add. CIT /Transfer Pricing Officer (2010) 328 ITR 210 (Del)
cannot be regarded as a binding precedent after the verdict of the Supreme Court in Maruti
SuzukiIndiaLtd.vAdd.CIT(2011)335ITR121(SC).Thefactthatareferencewasmadetothe
SpecialBenchitselfshowsthatbecauseacoveredissuecannotbereferredtoaSpecialBench.
(A.Y.20072008)
L.G. Electronics India Pvt. Ltd v.A CIT (2013)140 ITD 41/ 22 ITR 1/83 DTR 1/152 TTJ 273(SB)
(Delhi)(Trib.)
HaierTelecomP.Ltd(Intervenor)(2013)22ITR1(SB)(Delhi)(Trib)
S.92C:Avoidance of tax Transfer pricing Computation of Arms Length Price Sale Price
realized from AE much higher than ALP fixed by TPO No recommendation by TPO for
adjustmentAOisnotrequiredtomakeanyadjustment.(S.10B(7),80IA(10)
The Assessee is engaged in sale and export of pasteurized crab meat. The Assessee enteredin
tointernational transactions with its associated enterpriseand showed sale price at Rs 24
Crores.TPOonreferencemadebytheAssessingOfficer,fixedarmslengthpriceofgoodsatRs
18Crores.AssessingOfficeropinedthatreceiptsoftheassesseefromsalestoAEwereinexcess
ofarmslengthpriceandsuchexcesswasnothingbutincomefromothersources.TheAssessing
Officer relying on provisions of section 10B(7) read withsection 80IA (8) and 80(IA) (10) added
excessive receipts to income of assessee. Onappeal Commissioner (Appeals) deleted the
addition. On appeal by revenue, the Tribunal held that, where sale price realised from AE was
muchhigherthanALPfixedbyTPOandtherewasnorecommendationbyTPOformakingany
adjustment, Assessing Officer was not at all required to make any adjustment in ALP.
Accordinglytheappealofrevenuewasdismissed.(A.Y.200708)
ACITv.HandyWaterbaseIndia(P.)Ltd.(2013)140ITD112(Chennai)(Trib.)
S.92C:Avoidance of tax Transfer pricing Computation of ALP Assessing officer deducted

fromoperatingcost,onlymaterialcostrelatabletopurchasesfromAEsNotfromNonAEs
ComputationofALPofpurchasesfromnonAEserroneousMatterremandedback
252
Assessee,engagedinautocomponentsmanufacturingandsale,hadinternationaltransactions
with four Associated Enterprises (AEs). International transactions comprised of import of raw
materials,importofmachineryandpaymentforroyaltyandtechnicalassistance.TheAssessing
officerdividedtotaloperatingcostbetweenmaterialcostrelatabletoAEsandcostrelatableto
nonAEs, which included both material cost as well as other costs. Thus, Assessing officer
deducted from operating cost, only material cost relatable to purchases from AEs and not
operatingcostattributabletosuchmaterialcost.Itwasheldthatifalongwithmaterialcostpaid
toAEs,operationalcostattributabletosuchcostwasalsoconsidered,thenamountconsidered
byTPOasALPofAEpurchases,wouldhavegoneupsignificantly,andhenceworkoutofALPof
purchasesfromnonAEshadbeenerroneouslydone.Matterremandedback(A.Y.200708)
SLLumaxLtd.v.ACIT(2013)140ITD158(Chennai)(Trib.)
S.92C:AvoidanceoftaxTransferpricingComputationofALPSimilartransactionswithAE
for subsequent years accepted by TPO without any ALP adjustment TP analysis be
consideredasALP.
Where similar transactions with associated enterprises for subsequent years have been
accepted by TPO without any ALP adjustment, he should adopt TP analysis conducted by
assessee for relevant assessment year also to be at ALP. Revenue could not be permitted to
take a different approachin the relevant assessment year. Matter Remanded back. (A.Y. 2006
07)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceSecretinformationnotbeused
againsttheassesseewithoutgivinganopportunity.Matterremanded.(S.133(6))
Information relied upon by Transfer Pricing Officerisnot available in public domain. Secret
information not to be used against the assessee. No uniformity in rejection of assessees
comparables and selection of comparables by Transfer Pricing Officer. Proper and appropriate
functions, assets and risk analysis required to be done. Transfer Pricing Officer and Dispute
Resolution Panel to deal with assessees objections and discuss them in order. Matter
Wills Processing Services (India) P. Ltd. v. Dy. CIT [2013] 21 ITR 1/151 TTJ 555/57 SOT
34(URO)(Mum.)(Trib.)
S.92C:Avoidance of tax Transfer pricing: Turnover filter must be applied to exclude giant
companiesfromcomparison.
The assessee, a provider of software development services, claimed that in determining the
ALP under TNMM, Infosys Technologies & Wipro were not comparable entities given their
extremelargeturnoverincomparisontothatoftheassessee.Toopposethis,theDepartment
reliedonCapgeminiIndia(ITATMum)whereitwasheldthattheconceptofeconomyofscale
was not applicable to service oriented companies and that the turnover filter could not be
appliedtoexcludecompanieswithanextremelylargeturnover.HELDbytheTribunal:
Though in Capgemini it was held that the concept of economy of scale is relevant only for
manufacturing concerns, which have high fixed assets, and not for service concerns and that
the turnover filter cannot be applied to exclude companies with an extremely large turnover
fromcomparison,acontraryviewhasbeentakeninDy.CITv.DeloitteConsultingIndia(P)Ltd.
253
(2012) 145 TTJ 589 (Hyd) that giant companies like Wipro are not at all comparable with
smaller pygmy companies. Consequently, giant companies line Wipro and Infosys cannot be
takenascomparablesastheirturnoverismultiplenumbersoftimeshighercomparedtothatof
theassesseeandtheTPOerredinconsideringtheirPLItoarriveatthearithmeticmean.(A.Y.
20082009)
PatniTelecomSolutionsPvt.Ltd.v.CIT(Hyd)(Trib.).itatonline.org
S.92C:Avoidance of taxTransfer pricingBusiness advances Even business advances have to
bebenchmarkedonLiborALP.
The assessee, an Indian company, gave loans of Rs. 15.65 crores to its AEs in USA, Singapore
and Bahrain. It claimed that the said loans were working capital advances given for
commercial consideration to secure business and that no interest was recoverable on it. The
TPO applied the CUP method and determined the ALP of the advances at LIBOR plus 3% mark
up.TheDRPheldthatonlyinboundloans(ECBs)takenbytheIndianentitiesfromoutsideIndia
could be benchmarked with LIBOR and that outbound loans had to be benchmarked on the
interestrateprevailinginIndiaoncorporatebonds.Ittreatedtheadvanceasanunratedbond
having very high risk and enhanced the assessment by directing the TPO to adopt 14% as the
ALPrate.Onappealbytheassessee,HELDreversingtheDRP:
The assessees argument that the noncharging of interest on the working capital advances to
AEs from whom the assessee was getting good business was justified by commercial
considerations and thatno transferpricing adjustment is warranted isnot acceptable because
theexistenceornonexistenceofcommercialconsiderationbetweentheassesseeandtheAEs
isnotarequiredconditionforapplicabilityoftheTPregulationsFurther,theadvancewasnot
thecreditperiodextendedtotheAEsinrespectofbusinesstransactionsbutwasatransaction
of advancing loans to the AEs which falls under the ambit of international transaction u/s
92B.Inprinciple,theDRPisjustifiedinitsviewthattheALPshouldbedeterminedonthebasis
of the interest rate that would have been earned by the assessee by advancing loans to an
unrelatedthirdparty(inIndia)suchasaFixedDepositwiththeBank.However,sinceLIBORhas
been accepted by the Tribunal in other cases, the ALP should be determined on the basis of
LIBOR + 2% (Siva Industries & Holding Ltd.v. ACIT (2011) 59 DTR 182 (Che), Dy. CIT Tech
Mahindra Ltd. (2011) 46 SOT 141 (Mum) &Tata Autocomp Systems 73 DTR 220 (Mum)
referred).(A.Y.200708)
AurionproSolutionsLtdv.ACIT(Mum).(Trib.)www.itatonline.org
S.92C:Avoidance of taxTransfer pricing Arms length priceBenefit of tolerance margin
available only when variation between arms length price determined under section 92C(1)
and price at which transaction actually undertaken with in specified marginScope of +/ 5%
toleranceadjustment toALPexplained.(AsamendedbyFinanceAct, 2012w.r. e.f.April 1,
2002)(S.92C(2)
The Special Bench was constituted to consider whether prior to the insertion of the second
provisotos.92C(2),thebenefitof5%tolerancemarginasprescribedunderprovisotos.92C(2)
for the purposes of determining the arms length price of an international transaction is
allowableasastandarddeductioninallcases,orisallowableonlyifthedifferenceislessthan
5%. In the meanwhile the second proviso to s. 92C(2) was amended by the Finance Act, 2012
withretrospectiveeffectfrom1.4.2002.Theassesseeclaimed,relyingonPiagioVehicleP.Ltd.
vs.DCITthatevenaftertheretrospectiveamendmentbytheFinanceAct,2012,itwasentitled
254
to the benefit of adjustment of +/ 5% variation while computing the ALP. It was also argued
thattheamendmentwasunconstitutional.HELDbytheSpecialBench:
Therewasacontroversyonwhether+/5%toleranceadjustmentwasastandarddeductionor
not. After the retrospective amendment to the second proviso to s. 92C by the Finance Act,
2012 with retrospective effect from 1.4.2002, it is evident that if the variation between the
arms length price and the price at which international transaction was actually undertaken
does not exceed the specified percentage, then only the price at which the international
transaction has actually been undertaken shall be deemed to be arms length price. Thus, the
benefit of tolerance margin would be available only if the variation is within the tolerance
margin. Once the variation exceeded the tolerance margin, then there would be no benefit
evenuptotolerancemargin.Then,theALPasworkedoutunders.92C(1)shallbetakenasALP
without any benefit of tolerance margin. The view taken in Piagio Vehicle was without
considering the amendment and is per incuriam and not good law. The challenge to the
constitutionalvalidityoftheretrospectiveamendmentcannotbemadebeforetheTribunalas
itisacreationoftheActandnotaconstitutionalauthority.(A.Y.200607)
IHGITServices(India)Pvt.Ltd.v.ITO(2013)23ITR608/86DTR257/154TTJ137(SB)(Delhi(Delhi)
(Trib.)
S.92C:Avoidance of taxTransfer pricing: Foreign AE cannot be the tested party. TP additions
canexceedoverallgroupprofits.
The Tribunal had to consider the following important transfer pricing issues: (i) whether the
foreignAEcanbetakenasthetestedparty&ifthesalepricereceivedbytheforeignAEsfrom
theservicesultimatelysoldtocustomersisequaltothatchargedbytheassesseefromitsAEs,
it would show that the international transaction between the assessee and the AEs is at ALP?
(ii) whether the transfer pricing additions can result in the overall profit of the group of AEs
being breached? & (iii) whether if the assessee has consistently followed a method for
determination of the ALP and the same has been accepted by the TPO in the past, he cannot
rejectthatmethodforthecurrentyear?HELDbytheTribunal:
(i) The argument that the foreign AE should be selected as the tested party and the profit
earnedbytheforeignAEfromoutsidecomparablesshouldbecomparedwiththepricecharged
by the assessee from the AE to determine whether they are at ALP is not acceptable because
under the scheme of s. 92C, the profit actually realized by the Indian assessee from the
transaction with its foreign AE has to be compared with that of the comparables. There is no
questionofsubstitutingtheprofitrealizedbytheIndianenterprisefromitsforeignAEwiththe
profit realized by the foreign AE from the ultimate customers for the purposes of determining
theALPoftheinternationaltransactionoftheIndianenterprisewithitsforeignAE.Thescope
ofTPadjustmentundertheIndiantaxationlawislimitedtotransactionbetweentheassessee
and its foreign AE. The contention that the profit earned by the foreign AE should be
substitutedfortheprofitofthecomparablesispatentlyunacceptable.Thefactthatthismaybe
permissibleundertheUSandUKtransferpricingregulationsisirrelevant;
(ii) The contention of the assessee that the authorities cannot go beyond the overall profit of
thegroupofAEsindeterminingtheALPoftheinternationaltransactionisalsonotacceptable
becauseitwillconstituteanewmethod/yardstickfordeterminingtheALP.Thetransferpricing
255
adjustments made in India may result in the overall profit earned by all the AEs taken as one
unitbeingbreached;
(iii) The contention that as the assessee consistently followed the same method for
determinationoftheALPanditwasacceptedbytheTPOinthepast,hecannottakeadifferent
view is not acceptable. A delicate balance needs to be maintained between the principle of
consistencyandtheruleofresjudicata.ThereisnoestoppelagainsttheprovisionsoftheAct.
As the method employed by the assessee for determining the ALP is contrary to the statutory
provisions,theinadvertentacceptanceofthewrongmethodbytheTPOinanearlieryeardoes
not grant a license to the assessee to continue calculating the ALP in the grossly erroneous
mannerinperpetuity.Itneedstobediscontinuedforthwith.(A.Y.200607)
OnwardTechnologiesLtdv.Dy.CIT(Mum.)(Trib.).www.itatonline.org
S.92C:Avoidance of taxTransfer Pricing: Important principles on turnover filter &
comparisonexplained.
TheTribunalhadtoconsiderthefollowingimportanttransferpricingissues:(i)whetheraone
time and extraordinaryitem ofexpenditure (ESOP cost) debited to the assesseesP&L A/c has
to be excluded while comparing the margins, (ii) whether for the purpose of comparison of
margins,theconsolidatedresultsofcomparableshavingprofitfromdifferentoverseasmarkets
can be considered? (iii) whether extreme profit and loss cases should be excluded or in case
extreme profit cases are included, the case of losses should also be included? (iv) whether a
turnoverfiltercanbeadoptedtoexcludecompanieswithextremelyhighturnover?(v)whether
theassesseecanseektoexcludeitsowncomparables?(vi)whetheranadjustmentforworking
capitalispermissible?(vii)whetheriftheassesseecanshowthatbecausetheAEisinahightax
jurisdiction and that there is no transfer of profit to a low tax jurisdiction, a transfer pricing
adjustmentneednotbemade?HELDbytheTribunal:
(i) A comparison of margin between the assessee and the comparables has to be made under
identicalconditions.Asthecomparableshadnotclaimedanyextraordinaryitemofexpenditure
onaccountofESOPcost,forthepurposeofmakingpropercomparisonofthemargin,onetime
ESOP cost incurred by the assessee has to be excluded. There is nothing in the Rules that
prohibits adjustment in the margin of the assessee to remove impact of any extraordinary
factors (Skoda Auto India(P) Ltd. v. ACIT (2009) 30 SOT 319 (Pune), Demag Cranes &
Components (India) (P) Ltd. (2012) 49 SOT 610 (Pune), Transwitch, Toyota Kirloskar Motors
followed);
(ii) Under Rule 10B(2) (d), the comparability of transactions has to be considered after taking
into account the prevailing market conditions including geographical locations, size of market
and cost of capital and labour etc. Therefore, consolidated results which include profit from
differentoverseasjurisdictionshavingdifferentgeographicalandmarketingconditionswillnot
be comparable. Only standalone results should be adopted for the purpose of comparison of
margins(AmericanExpressfollowed);
(iii)Comparablecasescannotberejectedonlyonthegroundofextremelyhighprofitorloss.In
casethecompaniessatisfythecomparabilitycriteria,anddonotinvolveanyabnormalbusiness
conditions, the same cannot be rejected only on the ground of loss or high profit. The OECD
guidelines also provide that loss making uncontrolled transactions should be further
investigatedanditshouldberejectedonlywhenthelossdoesnotreflectthenormalbusiness
conditions;
256
(iva) In certain Tribunal decisions, various reasons have been given for applying the turnover
filter for comparison of margins such as economy of scale, greater bargaining power, more
skilledemployeesandhigherrisktakingcapabilitiesincasesofhighturnovercompanies,which
increase the margins with rise in turnover. However, in these decisions, no detailed
examination has been made as to how these factors increase the profitability with rising
turnover. The concept of economy of scale is relevant to manufacturing concerns, which have
highfixedassetsand,therefore,withtheriseinvolume,costperunitoftheproductdecreases,
whichisthereasonofincreaseinmarginasscaleofoperationsgoesupbecausewiththesame
fixed cost there is more output when the turnover is high. The same is not true in case of
service companies, which do not require high fixed assets. In these cases employees are the
main assets, who in the case of the assessee are software engineers, who are recruited from
project to project depending upon the requirement. The revenue in these cases is directly
relatedtomanpowerutilized.Withriseinvolumecostgoesupproportionately.Therefore,the
concept of economy of scale cannot be applied to service oriented companies. On facts, it is
shownbythedepartmentthatinthecaseofthecomparablesselectedbytheassessee,thereis
no linear relationship between margin and turnover and that that the margin has come down
with the rise in turnover in some cases. Such detailed study was not available before the
variousBenchesoftheTribunalwhichhaveappliedtheturnoverfilterandconsequentlythose
decisionscannotbefollowed;
(ivb) Under Rule 10B(2), comparability of international transactions with uncontrolled
transactions has to be judged with reference to functions performed,asset employed and risk
assumed. The functions performed by all comparable companies are same as it is because of
same functions they have been selected by the assessee as comparables. The asset employed
hastwodimensionsi.e.quantityandquality.Moreemployeeswouldmeanmoreturnover,but
there is no linear relationship between margin and turnover. As regards quality of employees,
this will depend upon the nature of projects and since the comparables are operating in the
samefieldhavingsimilarnatureofwork,andemployeecostbeingmoreincaseofmoreskilled
manpower, it will not have much impact on the margins. As for the bargaining power, the
assessee is part of a multinational group and well established in the field and, therefore, it
cannot be accepted that it has less bargaining power than any of the Indian Companies,
however big it may be. Therefore, it would not be appropriate to apply turnover filter for the
purpose of comparison of margins. However, for the purpose of comparison, the turnover
wouldberelevantonlyfromthelimitedpurposetoensurethatthecomparableselectedisan
established player capable of executing all types of work relating to software development as
the assessee is also an established company in the field (Genesis Integrating Systemnot
followed);
(v)TheassesseehadselectedInfosysandWiproascomparablesonthebasisofitsowntransfer
pricing study after being fully aware of its work profile. The assessee raised no plea either
before the TPO or DRP for excluding these comparables though it had added some more
comparables. The assessee, therefore, cannot raise any grievance before the Tribunal to
exclude these comparables, without giving any cogent and convincing reason. The reasons
given by the assessee (turnover filter) are not found convincing and so it cannot be permitted
toexcludeInfosysandWipro(KansaiNerolacPaintfollowed)
257
(vi) Working capital adjustments are required to be made because these do impact the
profitability of the company. Rule 10B(2) (d) also provides that the comparability has to be
judgedwithrespecttovariousfactorsincludingthemarketconditions,geographicalconditions,
costoflabourandcapitalinthemarket.Accountsreceivable/payableeffectthecostofworking
capital.Acompanywhichhasasubstantialamountblockedwiththedebtorsforalongperiod
cannotbefullycomparabletothecasewhichisabletorecoverthedebtpromptly.Theaverage
ofopeningandclosingbalanceintheaccountreceivable/payablefortherelevantyearmaybe
adoptedwhichmaybroadlygivetherepresentativelevelofworkingcapitalovertheyear.Even
if there is some difference with respect to the representative level, it will not affect the
comparability as the same method will be applied to all cases. Working capital adjustment
cannotbedeniedtotheassesseeonlyonthegroundthattheassesseehadnotmadeanyclaim
in the TP study if it is possible to make such adjustment. Working capital adjustment will
improvethecomparability.
(vii)Theargumentthatnoadjustmentneedbemadebecausetheparentcompanyissituatedin
USwheretaxrateishighandthattherewasnoreasonfortheassesseetotransferprofittothe
parentcompanyisnotacceptable.Thearmslengthpriceofaninternationaltransactionhasto
be calculated with respect to similar transaction with an unrelated party as per the method
prescribed and the revenue is not required to prove tax avoidance due to transfer of profit to
lower tax jurisdiction. Arguments such as that the parent company was incurring loss or had
shown lower margin are not relevant (Aztek Software & Technology Service Ltd. v. A CIT
(2007)107ITD141(SB)&24/7Customers.comfollowed)(A.Y.200708)
CapgeminiIndiaPrivateLimitedv.ACIT(Mum)(Trib),www.itatonline.org
S.92C:AvoidanceoftaxTransferpricingArmslengthAdjustmentforexportCostofgoods
soldDeductionofrebate/discountreceived.
Export incentives cannot be deducted from cost of goods sold in the transfer pricing analysis.
Assessee entitled to deduct rebate received upon purchase of goods from the value of goods
sold in transfer pricing analysis; issue of verification of netting off of rebate from cost of
purchasewasremittedtotheAO.(A.Y.200607)
GoodyearIndiaLtd.v.Dy.CIT(2013)143ITD35/152TTJ458/83DTR233(Delhi)(Trib.)
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceSelectionofcomparables.
Assessee cannot be said to have charged any commission from E, a client, as it had entered
into fixed fees arrangement with that company and, therefore, E could not be considered as
comparable, more so it was earning commission at 7% whereas, as per the industry policy
mediaagenciesearnedcommissionof2.5%.(A.Y.200203)
LintasIndia(P)Ltd.v.ACIT(2013)83DTR263(Mum.(Trib.)
S.92C:Avoidancve of taxTransfer pricing Arms length price Adjustment for interest on

creditperiodallowedtoforeigncompany.
Since assessee did not charge any interest from any client, Indian or foreign, for the delay in
payments for the services rendered, debit notes provided, no interestis to be charged for the
creditperiodmadeavailabletotheAEinthecomputationoftheALP.(A.Y.200203)
LintasIndia(P)Ltd.v.ACIT(2013)83DTR263(Mum.(Trib.)
258
S.92C:AvoidanceoftaxTransferpricingArmslengthpriceCUP.TNMM.(Rule.10B(1)(a),
10B(1)(e)&10B(2)(d))
Intheabsenceofavailabilityofexactdatatocomparetheprocessofsimilarproductssupplied
to AEs and nonAEs, CUP method cannot be applied as the most appropriate method for
transfer pricing exercise; assessee having manufactured and exported wide variety of
bathrobestoitsAEsaswellasnonAEscannotbetakenasCUPand,therefore,AOwasjustified
inapplyingTNMMforbenchmarkingandnotCUPmethod.(A.Y.200506)
Welspun Zuchhi Textiles Ltd. v. ACIT (2013) 83 DTR 293/23 ITR 53 /56 SOT 444/153 TTJ
153(Mum.(Trib.)
S.92C:Avoidance of taxTransfer pricing Computation of arms length price Inclusion of
DEPBbenefitforcomputationofprofitmargin(Rule.10B(1)(e))
Once the DEPB benefit is taken into account in the comparable cases while working out their
profitmarginDEPBbenefitreceivedbytheassesseeduringtheyearunderconsiderationshould
alsobeconsideredaspartoftheturnoveroftheassesseeforworkingouttheprofitmarginto
makethecomparisonofliketolikeandsimilartosimilar.(A.Y.200506)
Welspun Zuchhi Textiles Ltd. v. ACIT (2013) 83 DTR 293/23 ITR 53/56 SOT 444/153 TTJ
153(Mum.)(Trib.)
S.92CA:Avoidance of taxTransfer pricingArm's length pricePowersReference to Transfer
Pricing Officer validAssessing Officer need not consider objections of assesseeThe Transfer
Pricing Officeris not called upon to and is not competent to decide the issue which is sole
jurisdictionoftheAssessingOfficer.(S.144C)
The assessee is engaged in the business of purchasing rough diamonds, manufacturing of
polished diamonds and sale/export of such polished diamonds. During the assessment
proceedings for the assessment year 200809, the Assessing Officer issued a notice under
section142statingthatonaperusaloftheassessmentrecordsfortheassessmentyear2007
08, it was observed that the assessee had filed an audit report in the prescribed form as
required under section 92E of the Act as there were international transactions with an
associatedconcern,BG.Theassessmentproceedingsfortheassessmentyear200708werein
progress. The audit report showed that during the previous year relevant to the assessment
year 200809, the assessee had international transactions with the associated concern
amounting to Rs. 78.63 crores. However, the record did not show that the assessee had filed
theauditreportundersection92EoftheActintheprescribedform.Therewascorrespondence
between the assessee and the Assessing Officer. The Assessing Officer referred the matter to
theTransferPricingOfficer.OnawritpetitionchallengingthereferencetotheTransferPricing
Officer and also the notice from the Transfer Pricing Officer,the Court dismissing the petition,
held that,admittedly, between the assessee and the associated enterprise there was an
international transaction in the preceding year and the assessee had admittedly filed a report
under section 92E of the Act. In the current year also the assessee had entered into
transactions worth Rs. 78.63 crores. In the affidavitinreply it was further stated that the
assessee had made substantial purchases from the associated enterprise. The partners of the
assessee were three brothers and their wives/sons together holding the entire partnership
stake.Thefourthbrotheralongwithhiswifeandhissoncontrolledtheentireshareholdingof
theassociatedenterprise,thefourthbrotherandhissonbeingdirectorsoftheassessee.Itwas
clearthatboththeentitieswerebeingcontrolledbythesamefamilyoffourbrothersandtheir
259
close relatives. It was clear that the associated concern was closely related with the assessee
andfellwithintheparametersofsection92A(2)(j),(k)and(m).Therefore,itwasnotnecessary
or appropriate to judge, in the present petition, whether there was any international
transaction between the assessee and the associated enterprise during the previous year
relevant to the assessment year 200809 and such issue must be left to be judged by the
competentauthoritywhileframingthefinalassessment.(A.Y.20082009)
VeerGemsv.ACIT(2013)351ITR35(Guj.)(HC)
S.92CA:Avoidance of tax Transfer PricingPowersNo power to determine arm's length of

transaction not referred to himProvision empowering Transfer Pricing Officer to determine
arm's length price of any international transaction other than that referred to him is
prospectiveinoperation.
The activity of the assessee is to provide connectivity to the host system by its computer
programmes online. The assessee entered into international transactions with associated
enterprises. The Assessing Officer referred only the international transactions mentioned in
Form 3CEB but not the issue of advertisement, marketing and promotion expenses to the
TransferPricingOfficer.TheTransferPricingOfficertookuponhimselftheconsiderationofthe
question as to whether the advertisement, marketing and promotion expenditure was in the
nature of an international transaction. Having concluded that it was an international
transaction, he adjusted an amount of Rs. 32,92,83,589 attributable to the difference. On a
question whether the Transfer Pricing Officercould have determined the arm's length price in
respect of an international transaction which was not specifically referred to him by the
Assessing Officer, the Tribunal took the view that the Transfer Pricing Officer could not have
done so. On appeal by revenue the Court dismissing the appeal, held that(i) that it was not
withinthedomainoftheTransferPricingOfficertodeterminewhetheraparticulartransaction,
which had come to his notice, but which had not been referred to him, was or was not an
internationaltransactionandthentogoonanddeterminethearm'slengthpricethereof.
(ii) That there is nothing in the statute to indicate that subsection (2A) was introduced in
section92CAinamannersoastooperatewithretrospectiveeffect.Subsection(2A)expands
the jurisdiction of the Transfer Pricing Officer by empowering him to determine the arm's
lengthpriceofanyinternationaltransactionotherthananinternationaltransactionreferredto
himbytheAssessingOfficerundersubsection(1)ofsection92CA.Thisisclearlyanexpansion
ofthejurisdictionoftheTransferPricingOfficerand,therefore,subsection(2A)canonlyhave
prospective effect from June 1, 2011, and would have no application to the assessee's case
whichwasinrespectoftheassessmentyear200607.OrderofTribunalisaffirmed.(A.Y.2006
2007)
CITv.AmadeusIndiaPvt.Ltd.(2013)351ITR92(Delhi)(HC)
S.92CA:Avoidance of taxReference to transfer pricing officer Determination of arm's length price

Finding that comparison of transaction was possibleTransactional net margin method cannot be
adoptedMatterremanded.
260
Theassesseecompanywasmanufacturingfuelinjectionequipmentusedinvehicles.Foritstransactions
with associated enterprises, it arrived at the arm's length price, adopting the transactional net margin
method. The Transfer Pricing Officer rejected the method adopted by the assessee and adopted the
comparable uncontrolled price method. The Transfer Pricing Officer concluded that the assessee had
paid an excess amount for imports to the associated enterprises when compared to the price at which
nonassociated enterprises supplied such items to it and recommended upward adjustment of
internationaltransactionpricesasstipulatedinsection92C.TheTransferPricingOfficerlaterrevisedthe
sum, Assessment was accordingly completed. The Dispute Resolution Panel confirmed the proposed
addition.OnappealtotheTribunal:
Held, that if transaction to transaction or item to item comparison is possible, that should always be
preferred, if proper adjustment can be carried out to account for the differences that could materially
affectthepricesintheopenmarketoftherelateditems.Theassesseehadpreferredthe transactional
netmarginmethod.Butitwasamatteroffactthatthereweresubstantialrelatedpartytransactionsin
twoofthecomparablesselectedbytheassessee.TheOECDguidelinesdonotsaythatevenwherethere
weresubstantialdifferencesbetweentheitemsmanufactured,acandidatefortransactionalnetmargin
method could be selected. Therefore, the Transfer Pricing Officer was justified in rejecting the
transactional net margin method having found that the comparable entities selected by the assessee
had substantial related party transactions and the difference in functionality eroded the comparability
materially.Asagainstthis,theassesseeitselfhadadmittedthatithadsimilaritemsofimportfromboth
associated enterprises and nonassociated enterprises. The adoption of the comparable uncontrolled
price method was appropriate especially when such items could be identified. There was substance in
the argument of the assessee that items imported from associated enterprises required further
processing, since the processing required at least in the case of four items had been identified and
described. The assessee was unable to prove the actual effect of such processing on the prices, by
producingevidenceinsupport.Similarly,theclaimoftheassesseethatthecomponentsfromassociated
enterprisescouldbeimportedatlowernumberswhencomparedtothatofnonassociatedenterprises
and this automatically led to more items being ordered from nonassociated enterprises resulting in
higher inventory carrying cost, also was a factor that could materially affect the comparability of the
prices. No doubt, rule 10B(1)(a)(ii) requires prices to be adjusted for differences. The Transfer Pricing
Officerhadtoassessthepricesthatcouldbeadoptedunderthecomparableuncontrolledpricemethod
forcomparisonaftercarryingouttheadjustmentrequired.(A.Y.20062007)
DelphiTVSDieselSystemsLtd.v.ACIT(2013)22ITR478(Chennai)(Trib.)
S.92CA:Avoidance of taxTransfer pricingArm's length priceList of comparable companies

reliedonbyassesseerejectedbyTransferPricingOfficerwithoutstatinganyreason.Factual
matrixexactlythesameinallyearsheldArm'slengthpriceadjustmentisnotjustified.
Theassesseecompanyprovidedcomputersystemconsultancyservicestoprivatesector,public
sector, Government and other organisations, undertaking studies on matters relating to
feasibility of computerisation, evaluating and selecting appropriate hardware and software,
installing and assisting in using mainframe, mini and microcomputers, etc. For the assessment
years 200304 and 200405, the question of determining the arm's length price of its
international transactions with its associated enterprise was referred to the Transfer Pricing
Officer under section 92CA(1) of the Act, The assessee filed a detailed transfer pricing study
report in which it had adopted the transactional net margin method as the most appropriate
261
methodtoarriveatthearm'slengthprice.Ithadselectedalistof6comparablecompaniesand
had determined arm's length price on the basisof the ratioof operating profit to total cost of
the assesseecompany worked out at 18.04 per cent., the average profit level indicator of the
six companies. The Transfer Pricing Officer approved the transactional net margin method
adopted by the assesseecompany and agreed with the assesseecompany's adoption of the
ratio of operating profit to total cost as the profit level indicator. The Transfer Pricing Officer,
however, made his list of comparable companies and worked out the ratio of operating profit
to total cost at 27.52 per cent. This revised profit level indicator worked out by the Transfer
Pricing Officer brought out an operating profit of Rs. 8.73 crores. But the operating profit
returnedbytheassesseewasRs.4.15crores.TheAssessingOfficermadeanadditionofRs.4.58
crores, the differential amount, to the income of the assessee towards arm's length price
adjustment. On appeal, the Commissioner (Appeals) deleted the said arm's length price
additionofRs.4.58croresanddirectedtheAssessingOfficertoallowexemptionundersection
10A of the Act. The Commissioner (Appeals) also confirmed the disallowance of dividend tax
delay charges, interest for delay in remitting tax deducted at source, expenses incurred for
delay in UTI dividend payments, and directed the Assessing Officer to allow the claim of
expenses towards development of software as allowable business expenditure. On appeals by
theDepartmentandcrossobjectionsbytheassessee,theTribunalheldthat(i)thatthelistof
comparablecompaniesrelieduponbytheassesseecompanyhadbeenrejectedbytheTransfer
PricingOfficerwithoutstatinganyreason,eventhoughtheTransferPricingOfficerhad,byand
large, agreed with the general premises on which the assessee had computed its arm's length
price. The Transfer Pricing Officer had not made any finding that the price charged or paid in
thetransactionsenteredintowiththeassociatedenterprisewasnotinaccordancewithrules.
TheTransferPricingOfficerhadnocasethattheassesseecompanyhadnotmaintainedproper
information and documentation relating to the international transactions. There was also no
dispute on the information and data used in the computation of arm's length price, which
relatedtothefinancialyear200203.Thearbitraryselectionofcomparableshadinfactinflated
the operating profit in the computation made by the Transfer Pricing Officer. There was no
factual basis for the addition of the differential amount of Rs. 4.58 crores worked out by the
Transfer Pricing Officer and adopted by the Assessing Officer. Moreover, for the immediately
succeeding assessment year 200405, the Commissioner (Appeals) had held in the assessee's
own case that the Transfer Pricing Officer should not have rejected the arm's length price
disclosedbytheassesseeandinthesubsequentassessmentyear200506,theTransferPricing
Officerhimselfhadacceptedthearm'slengthpricereturnedbytheassesseecompany.Forall
these assessment years, the factual matrix of the case remained exactly the same. Therefore,
theCommissioner(Appeals)wasjustifiedindeletingthearm'slengthpriceadditionofRs.4.58
crores.(A.Y.:20032004,20042005)
S.92CA:Avoidance of tax Transfer pricing Arm's length priceTNMMCUP methodMatter

sentbackforgettingcomparable.
Assessee, shipping agent of French holding company and Singapore AE, received commission
container control fees, detention collection fees, intermodal container handling fees. It also
recovered communication expenses and insurance premium paid in course of service.TPO
262
applied CUP method.TPO merely compared data with that of a third party agent of holding
companywhichworkedforitearlierandmadeadjustmentinrespectofsocalledundercharged
container control fees and recovery of communication expenses. TPO had neither examined
comparables nor TNMM for benchmarking ALP in relation to international transactions.In
appeal Commissioner (Appeals) had not called for comment upon comparable short listed by
assessee. Tribunal held thatCUP method and data of erstwhile third party could not be
applied.However ,since there was no occasion to examine comparables and applicability of
TNMM, matter was to be restored back to file of TPO, who would require assessee to furnish
comparables into similar line of business and activities and examine same for benchmarking
ALP.(A.Y.200506)
Dy.CITv.CMACGMGlobalIndia(P.)Ltd.(2013)55SOT20/81DTR421(Mum.)(Trib.)
S.92CA:AvoidanceoftaxTransferpricingArm'slengthpriceCUPmethodMatterremanded.
Assessee had procured green coffee beans from coffee planters and traders and sold same to
one of its associated enterprises. It selected CUP method for determining arm's length price
and relied on monthly prices quoted by Coffee Board. TPO found that transfer pricing
documentsdidnotcontaindetailsastohowCUPmethodwasappliedandpricechargedtoAE
was less than price charged by Coffee Board. Accordingly, he worked out ALP and made
addition.The Tribunal held thatsince for earlier assessment year, Tribunal, on identical facts,
hadrestoredissuetoTPOforfreshconsideration,itwouldbeappropriatetoremandmatterto
TPO.Matterremanded.(A.Y.200708)
EcomGillCofeeTrading(P.)Ltd.v.Dy.CIT.(2013)55SOT23(URO)(Bang.)(Trib.)
S.92CA:Avoidance of tax Transfer pricing Arm's length price Advance to AEsInterest

Matterremanded.
Assessee gave advances to its AEs which were its wholly owned subsidiaries but charged no
interest.Such issue was also raised in earlier years where assessee took plea of commercial
expediency for not charging interest and while TPO sought to make TP adjustment at 14 per
centrateofinterestbasedonLIBORasreasonablerateunderCUPmethod,Tribunalheldthat
TP adjustment is possible only in cases where comparable uncontrolled transactions entered
into between two enterprises are established. Tribunaldirected theAssessing Officer to
followearlieryears.Matterremanded.(A.Y.200607)
WiproLtd.v.Add.CITv(2013)55SOT3(URO)(Bang.)(Trib.)
S.92CA:Avoidance of tax Transfer pricingArms length priceComparablesReference to

Transfer Pricing OfficerCommissioner (Appeals) deleting addition after considering revised
TransferPricingOfficersremandproceedingsheldtobeJustified
The assesseecompanyis engaged in the business of international transportation and domestic

pickup and delivery services.During the assessment year, the assessee entered into
internationaltransactionswithitsassociatedenterprises.Thetransactionswerereportedbythe
assesseeinForm3CEBwhichwasfiledalongwiththereturn.TheAssessingOfficerreferredthe
case to the Transfer Pricing Officer for determining the arms length price in respect of the
international transactions entered into by the assessee. The Transfer Pricing Officer rejected
263
the comparable uncontrolled price method adopted by the assessee. He held that the
transactionalnetmarginmethodwastheappropriatemethod.Therefore,hemadeanupward
adjustment of Rs. 9.35 crores of the international transactions of the assessee. The
Commissioner (Appeals) considered that the Transfer Pricing Officer wrongly considered the
entitywise margin of one of the comparable companies for the purpose of benchmarking the
assesseesmarginunderthetransactionalnetmarginmethod.Thematterwasreferredtothe
Commissioner (TPOII). He agreed with the assessees contention and concluded that
consistency needed to be followed while calculating the margins of comparables of the
assessee.Consideringthis,theCommissioner(Appeals)deletedadditionmadebytheAssessing
Officer. On appealthe Tribunal held that(i) that once the Transfer Pricing Officer accepted and
adjusted the computations on the basis of which the Commissioner (Appeals) deleted the
additiontherewasnogroundtointerferewiththeorderoftheCommissioner(Appeals),which
wastobeupheld.(A.Y.20042005)
ACITv.UPSJetairExpressP.Ltd.(2013)21ITR82/57SOT239(Mum.)(Trib.)
S.94(7):AvoidanceoftaxAdventureinthenatureoftradeLossonunitsPurchaseofunitsof
mutualfundsandsalethereofafterrealizationofdividendatalossMatterremandedtogive
findinginthecourseofbusiness.(2(13))
Thecourtheldthatultimatelytheintentionandthecircumstancesalonehavetohaveabearing
on the question as to whether the transaction is only of investment or in the nature of trade.
Disallowanceofaclaimonthegroundthatthetransactionswerefortaxavoidanceorevasion,
couldbeconsideredonlyaftertheindepthinvestigationandproperrecordingandmarshaling
of all relevant facts, so as to establish the motive of tax avoidance. Matter remanded for
reconsideration.(A.Y.20012002)
CITv.AlluArvindBabu(2013)350ITR387/212Taxman260(Mad)(HC)
S.94(7):Avoidance of tax Transaction in securities Loss on sale of mutual funds Units

purchasedwithinaperiodofthreemonthspriortorecorddateSalemadewithinaperiodof
nine months from record date Conditions in section 94(7) were cumulatively satisfied
Disallowanceofshorttermcapitallosssufferedbyassesseejustified.
Assessee purchased mutual fund units on 20102005. The Record date in respect of mutual
fundunitswas2012006.Theassesseesoldsaidmutualfundunitsatalosson622006.Itwas
heldthatsinceunitshadbeenpurchasedwithinaperiodofthreemonthspriortorecorddate
and,thereupon,theirsalewasmadewithinaperiodofninemonthsfromrecorddate,relevant
conditions mentioned in section 94(7) were cumulatively satisfied and, thus, revenue
authorities were justified in disallowing shortterm capital loss suffered by assessee. Matter
decidedinagainsttheassessee.(A.Y.200607)
S.113:TaxBlockassessmentSearchandseizureSurcharge.
Surcharge, held, leviable at the rate of 15% on the block assessment made in respect of the
searchconductedon29
th
August1996(A.Y.199798),notwithstandingthefactthatprovisoto
s.113wasnotintheexistenceatthetimeofsearch.
CITv.D.D.GearsLtd.(2013)83DTR88(Delhi)(HC)
264
S.113:TaxBlockassessmentSearchandseizureSurcharge.
Theamendmenttosection113cameintoeffectfromJune1,2002.Althoughthesearchwason
12th and 13th October, 2000 the levy of surcharge on the tax quantified on the assessee`s
undisclosedincomewastobeupheld.
S.115AD:CapitalgainsForeignInstitutionalInvestorsSecuritiesFIIssecuritiestransactions
profitsnotassessableasbusinessprofits.
Theassessee,aForeignInstitutionalInvestor(FII),sufferedalossofRs.41crore onaccount
of derivative transactions. The AO & CIT(A) relied on the AAR Ruling inRoyal Bank of
Canada(2010) 323 ITR 380 and held that as thesaid loss arose out speculative transactions, it
had to be treated as a business loss and could not be setoff against STCG. On appeal by the
assesseetotheTribunalHELDallowingtheappeal:
UnderthepolicyoftheCentralGovernmentandtheSEBI(FII)Regulations,1995aFIIcanonly
invest in securities and cannot do business in securities. S. 115AD also provides that all
income arising to a FII from securities, whether from their retention or from their transfer, is
taxable as a capital gain. This is also the view expressed in Press Note F. No. 5(13)SE/91FIV
dated 24.03.1994 issued by the Ministry of Finance. If the Revenue is permitted to make a
distinctionbetweenthesecuritiesheldbyaFIIbyclassifyingthemasacapitalassetorasstock
in trade, s. 115AD will become otiose. The result is that all income arising to a FII, including
fromdealingsinderivativeshastobeassessedascapitalgains.ThecontraryviewoftheAARin
Royal Bank of Canadacannot be followed (LG Asian Plus Ltdv. ADIT (International Taxation)
(2011)46SOT159followed)(A.Y.200708)
PlatinumInvestmentManagementLtd.v.DDIT(Mum.)(Trib.)www.itatonline.org.
S.115J:Company Book profit Revalued assets Assessing officer not justified in disallowing
depreciationonrevaluedfigurewhilecomputingbookprofitundersection115JoftheAct.
The Assessing Officer, while computing book profit under S. 115J, disallowed depreciation on
revaluedassets.TheCommissioner(Appeals)andtheTribunalheldthatintermsofclause(1),
readwithprovisotheretooftheExplanationtoS.115J,theassesseewasentitledtodeduction
oftheequalamountfromthebooksprofit.TheassesseereferredtoAS6'Accountingforfixed
assets' issued by the Institute of Chartered Accountants of India which provides for the
revaluation of fixed assets and the guidance note GN(A) 3 (issued 1982) on the treatment of
reservescreatedonrevaluationoffixedassets.ThisAS6wasapplicablebyvirtueofS.211(3)(c)
oftheCompaniesAct.OnappealHighcourtheldthattheTribunaldidnotcommitanyerrorin
lawinallowingthedepreciationontherevaluationreserve,whichisaprescribedandstatutory
methodofaccounting.(A.Y.199091)
CITv.RampurDistillery&ChemicalsCo.Ltd.(2013)214Taxman483/81DTR181/255CTR394
(All.)(HC)
265
S.115J:CompanyBookprofitChangeinmethodofchargingdepreciationBookprofittobe
computedbyallowingdepreciationasperthechangedmethod.(S.32)
WheretheassesseehadchangedthemethodofaccountingfromStraightLineMethod(SLM)to
WrittenDownValue(WDV)method,bookprofithastobecomputedbyallowingdepreciation
asbethechangedmethod.
CITv.HindustanPipeUdyogLtd.(2013)81DTR175/214Taxman9(Mag.)(All.)(HC)
S.115JA:CompanyBookprofitMinimumAlternateTaxProvisionforbaddebts.
The assessee, a banking company, made provision for bad debts. The AO added the provision
forbaddebtstonetprofitofassesseewhilecomputingbookprofitundersection115JA.Held,
in view of amendment in clause (g) of Explanation to section 115JA(2) by Finance (No.2) Act,
2009, with retrospective effect from 141998, Assessing Officer was justified in making
addition of said provision to net profit of assessee while computing book profit under section
115JA.(A.Y.19992000)
S.115JB:CompanyBookprofitWarrantyprovisionsDiminutioninvalueofasset.
Assessee claimed that provision made for warranty in respect of sale of medical consumable
devices and diagnostic equipment would be deducted for calculating book profit . Assessing
Officer added back the amount by applying the Explanation 1(i) to section 115JB (2). Tribunal
held that such provision could not be treated as a provision for diminution in value of asset.
CourtupheldtheorderTribunal.(A.Y.200001,200203,200405and200506)
CITv.BectonDickinsonIndia(P.)Ltd.(2013)214Taxman636(Delhi)(HC)
S.115JB:CompanyBookprofitComputationProvisionforgratuitynottobeadded.
Though the actual payment of gratuity might be made at a later point of time upon the
periodicalreleaseoftheemployeesfromservice,itwasaprovisionbeenmadeontheactuarial
basis,andcouldnotbestatedtobeanunascertainedliabilitysoastobeaddedbackinterms
ofclause(c)toExplanation1tosection115JBoftheIncometaxAct,1961.(A.Y.200304)
DCITv.InoxLeisureLtd(2013)351ITR314/213Taxman160/85DTR103(Guj.)(HC)
S.115JB:CompanyBookprofitComputationMatterremanded.[S.143(3)].
Assesseecompanyfiledreturnshowingtotalincomeasnil.However,ithadshownbookprofit
undersection115JB.AssessingOfficerrejectedaccountbooksofassesseeongroundthatitwas
unable to prove genuineness of transactions made with other parties. He treated said
transactions as unexplained and added relevant amount to total income/book profit of
assessee.He also examined assessee's claim of deduction under section 40(a)(ia) and after
rejectingclaimaddedrelevantamounttototalincome/bookprofitofassessee.Heinoperative
part of order ordered 'assessed under section 143(3).He also ordered 'computation as per
section 115JB was modified accordingly'. Commissioner (Appeals) considered each and every
component which had been considered by Assessing Officer and deleted above addition. He
held that Assessing Officer had added back aforesaid amount to book profit for purpose of
chargingtaxundersection115JBwithoutgivinganyreason.TribunalheldthatAssessingOfficer
266
had not made impugned addition under provisions of section 143(3).It upheld deletion of
impugned addition by Commissioner (Appeals). It further restored matter to Assessing Officer
forrecomputingdemandundersection115JB.OnappealHighCourtheldthatmatterrequired
to be remanded back to Assessing Officer for fresh consideration obviously to decide whether
assessment was required to be made under section 115JB or under section 143(3).Matter
CITv.InternationalAutoLtd.(2013)214Taxman67(Mag.)/254CTR298(Jharkhand)(HC)
S.115JB:CompanyBookprofitBankProvisionActuarialvaluationCannotbeadded.
The Court held that provision is made on the basis of actuarial valuation it cannot besaid that
the provision for gratuity is not ascertained liability hence cannot be added back while
computingbookprofitundersection115JB.
DCITv.InoxLeisureLtd.(2013)213Taxman260(Guj.)(HC)
S.115JB:CompanyBookprofitExemptincomeDisallowanceofexpenditure.[S.14A]
Expenditure which is disallowed under section 14A and attained finality has to be added back
whilecomputingbookprofitundersection115JB.(A.Ys.200304to200607)
S.115JB:CompanyBook profitBankProfit and loss accountNot to be altered Net interest

earned by assessee from placement of funds with head office or other overseas branches is
not covered by any of clauses (i) to (ix) of Explanation to section 115JA hence Includible in
computing"bookprofit".Foreignbankwhethergovernedbysection115JBContentionraised
forfirsttimeMatterremanded.(S.115A)
For the purposes of section 115JA, the amount of net profit according to the profit and loss
account is immune from alteration irrespective of whether the alteration is ventured by the
Assessing Officer or the assessee. Just as the Assessing Officer has no authority to go beyond
the profit and loss account prepared by the assessee and tinker with the figure of profit so
disclosed,thisisequallytruefortheassesseeaswell.Onceanamount asshowntothecredit
sideoftheprofitandlossaccountoftheassesseeanditisnotcoveredbyanyoftheclauses(i)
to(ix)oftheExplanationtosection115JA,itcannotbereduced.
AccordinglytheTribunalheldthatthattheinterestearnedbytheassesseefromitsheadoffice
oroverseasbrancheswaspartandparcelofthecreditsideoftheprofitandlossaccountofthe
assessee.Thisamountwasnotcoveredbyanyoftheclausesfrom(i)to(ix)oftheExplanation.
Thenetinterestearnedbytheassesseefromplacementoffundswiththeheadofficeorother
overseasbranchesamountingwasincludibleincomputingthe"bookprofit"forthepurposesof
section 115JA of the Act. Appeal of assessee was dismissed. Before the Tribunal for the first
timeonthebasisofJudgmentofTribunalinKrungThaiBankPCL(2012)49SOT70(Mum)(URO)
theassesseehasraisedtheissuestatingthattheassesseebeingforeignbankisnotrequiredto
draw its profit and loss account as per CompaniesAct and very applicability of provision of
section 115JAis not valid. As the issue was raised for the first time the matter was directed to
the Assessing Officer to decide accordance with law. (A.Y. 20002001) (19981999 to 2003
2004)
267
S.115JB:CompanyBook profitComputationProvision for doubtful debtsis to be added in

computationofbookprofits.
Theassesseemadeprovisionforbadanddoubtfuldebtswhichwasnotaddedtotheprofitand
loss account for computing the book profits for the purpose of section 115JB of the Act. The
Assessing Officer` held that provision for an unascertained liability as litigation was going on
betweentheassesseeandCCLoverthepowertariffandthatprovisionfordoubtfuldebtswas
covered by clause (i) of Explanation 1 to section 115JB which had been made effective by the
Finance (No. 2) Act, 2009 retrospectively from April 1, 2001. The Commissioner (Appeals) also
confirmed.OnappealtoTribunaltheTribunalheldthatinviewoftheinsertionofclause(i)to
Explanation1tosection115JBtheAssessingOfficerhadnochoicetomakeadditionstoarriveat
thebookprofits.Nowwheretheassesseestatedthatitwasaprovisionforunaccruedincome,
appealsoftheassesseewasdismissed.(A.Y.20052006to20072008)
EasternIndiaPowertechLtd.v.Add.CIT(2013)21ITR542(Delhi)(Trib.)
S.115JB:CompanyBookprofitMATUnabsorbeddepreciationNocarryforwardlossNot
eligible to claim deduction of brought forward depreciation while computing book profit
undersection115JB
Itwasheldthatintermsofclause(iii)ofExplanation1toS.115JB,whilecomputingbookprofit,
assessee is entitled to deduct amount of loss brought forward or unabsorbed depreciation
whicheverislessasperbooksofaccounts.Itwasthereforeheldthatwheretherewasnocarry
forward loss as per books of account, assessee was not eligible to claim deduction of brought
forwarddepreciationwhilecomputingbookprofitundersection115JB.(A.Y.200304)
Hotel & Allied Trades (P. ) Ltd. v. Dy.CIT (2013) 140 ITR 309/87 DTR 49/154 TTJ 503 (Cochin)
(Trib.)
S.115JB:CompanyBookProfitAdjustmentsu/s.115JB(2)explanation.
Assessing Officer cannot tinker with the accounts prepared under Companies Act and have
been certified by the authorities except making adjustment as provided in explanation to
section115JB(2).(A.Y.200405)
ForeverDiamonds(P)Ltd.v.Dy.CIT(2013)152TTJ682(Mum.)(Trib.)
S.115JB:CompanyBookprofitNonresidentcompaniesLiabletobookprofit.
Provisions of section 115JB is not confined to a domestic company but it applies to both
residentcompanyandanonresidentcompany.Infavourofrevenue.(AARno1098of2011dt
862012)
ZD,Inre(2013)212Taxman246(AAR)
S.115VA:Shipping companies Qualifying ships Computation Slot charter Assessee is

requiredtoproduce'validcertificateinrespectofsuchships.
The assesseeshipping company was operating its own ships and had also chartered in ships
under 'slot charter' (part of ship) agreement. In order to avail benefit of Chapter XIIG, the
assesseesubmittedthe'validcertificate'onlyforitsownshipsandnotinrespectofchartered
ships,asaccordingtoit'validcertificate'wasrequiredonlyforownshipandshipscharteredin
268
fullyandtherewasnorequirementtosubmitthe'validcertificate'inrespectofshipschartered
under'slotcharter'agreement,sinceincomeforfullcharteredshipswascomputedonbasisof
'net tonnage' shown in valid certificate and income from ships chartered under 'slot charter'
was computed on deemed tonnage. The Assessing Officer did not accept said submission and
denied the benefit of Chapter XIIG to slot charter income. On appeal, the Commissioner
(Appeals)upheldthedenial.OnsecondappealtheTribunalheldthatThebenefitofprovisions
ofChapterXIIGcanbeavailedonlybya'tonnagetaxcompany'(shippingcompany)inrespect
of the business of operating 'Qualifying ships'. 'Operation of Qualifying ships' is a mandatory
condition for availing the benefit of Chapter XIIG. Undoubtedly, the assessee opting to avail
the benefit of Chapter XIIG has to necessarily show that it has generated income from the
business of operation of 'Qualifying ships'. It is necessary to show that the ships chartered in
under'SlotCharter'arrangementarealso'Qualifyingships'byproducingthe'Validcertificate'.
The assessee heavily placed reliance on the provisions of section 115VG,'Deemed tonnage'
defined in section 115VA and 'Specific shipping trades' defined in section 115VI and also on
clause10ofFormNo.66tocontendthatthereisnonecessitytofurnishthe'Validcertificate'in
respect of ships chartered in under 'slot charter' arrangement. The net result of the said
contention is that the ship chartered in under 'slot charter' arrangement need not be a
'Qualifyingship'.(A.Y.200506&200809)
TransAsianShippingServices(P.)Ltd.v.Dy.CIT(2013)55SOT1(Cochin)(Trib.)
S.115VD:ShippingbusinessQualifyingshipOffshoreinstallationTonnagetaxscheme.
The assessee, being owner of ships/vessels, engaged in drilling operations, opted for tonnage
taxscheme.TheAssessingOfficerrejectedtheassessee'sclaimholdingthatvessel'D'wasnota
qualifying ship, but was an offshore installation. The court held, that offshore installations are
fixed for a specific purpose and after finishing purpose are dismantled and shifted to other
site.Since 'D' had been registered under Merchant Shipping Act, 1958, it was held to be a
qualifyingship.
CITv.JaggonInternationalLtd.(2013)214Taxman630(Delhi(HC)
S.119:InstructionsCBDTBindingnatureCircularcontrarytothedecisionofHighCourtsor
Supremecourtistobeignoredbyjudicialfunctions.
IfanexistingcircularisinconflictwiththelawofthelandlaiddownbytheHighCourtsorthe
Supreme Court, the Revenue authorities while acting quasijudicially, should ignore such
circularsindischargeoftheirquasijudicialfunctions.(A.Y.19981999)
BhartiaIndustriesLtdv.CIT(2013)353ITR486(Cal.)(HC)
S.119:InstructionsCBDTCircular passed by CBDT as per S.119 beyond its authority is not

consideredtobeeffective.(S.194A(3)(v))
AspertheprovisionofSection194A(3)(v)acooperativesocietyisnotsupposedtocomplywith
therequirementsofTDSasprescribedu/s.194Aatthetimeofpayinginteresttoitsmembers
or toany other cooperative society. The said section makes no distinction between different
classesofmembers.However,CBDTissuedacirculardate11/09/02makingcertaindistinction
betweendifferentclassesofmembersandnarroweddownthescopeofmembersinrespectof
whomthesaidexemptionwasavailable.Onchallengingthesaidvalidityofthesaidcircular,the
269
HonblehighcourtheldthatCBDThadcrosseditsauthorityunderthegarbofsection119ofthe
Act. And hence, the said circular is not effective. SCA 11209 of 2000 / 1465 of 2003
dt12/06/2012]
GujaratUrbanCooperativeBankFederation.(2012)BCAJNovemberP.401)(Guj.)(HC)
S.119:InstructionsCBDTBindingnatureBaddebtsBankProvisionforbaddebtInstructionis
bindingonrevenue.(S.36(1)(vii),36(1)(viia)).
TheInstructionNo.17/2008,dated26112008issuedundersection119clarifiesthepositionin
respect of working out the deduction under section 36(1) (vii) ,It is well settled that such
instructions issued by the Board in exercise of its statutory powers under section 119(2) may
have the effect of relaxing the rigours of a statutory provision. Hence, there is no reason to
entertain the appeal of the revenue. Therefore, the appeal of the revenue was dismissed. In
CITvUTIBankLtd.(2013)212Taxman296/82DTR168/256CTR76(Guj.)(HC)
S.124:Jurisdiction of Assessing Officer Assessee participated in proceedings and filed return

voluntarilyatDelhi,assessmentorderpassedatAgrawasheldtobevalid.
The petitioner, a share broker, was incorporated in U.P. After shifting its corporate office to
Delhi, the petitioner, as per CLB order of 2412003, also shifted its registered office. It was
allegedthatuptoAY200001,filingofincometaxreturnsandassessmentthereofweremade
at Agra. For the year 200203, the return was filed at Delhi. Through the instant writ petition,
thepetitionerprayedforquashingoftheassessmentorderdated2832005passedatAgrafor
AY200203andforissuingofdirectionstotherespondentstorestraintoproceedwithpenalty
proceedings. The petitioner submitted that the writ was maintainable in as much as entire
proceedings of assessment by the AO at Agra were without jurisdiction. On the facts, the
petitionercouldnothavechangedtheplaceofhisassessmentandproceededtofilethereturn
unilaterally at Delhi. He participated in the assessment proceedings and acquiesced to the
jurisdiction of the Assessing Authority, Agra but it was only when the assessment order was
made on protective basis against the company and on substantive basis against its director,
who was found to have indulged in large scale fictitious and bogus transactions, that the
petitioner filed writ petitions. The Court held that, section 124 provides for jurisdiction of AO.
Subsection(1)and(5)ofsection124,whenreadtogetherprovidethatwheretwoormoreAOs
have territorial jurisdiction in respect of same income, they exercise concurrent jurisdiction in
the matter of issuing notice to the assessee and where notices have been issued by any one
office, it is unnecessary for the other office to issue the same notice again. In respect of
petitioner,a surveywas conductedunder section 133A on 2442001 in which a large number
ofincriminatingdocumentswerefound.Afterenquiries,theAOfoundthattherewereserious
defects in the books of account. The director had created large number of fictitious concerns,
which were not doing any business and therefore, the AO completed the assessment on
protective basis. The director appeared and filed reply to the notice and clearly stated before
theAOthathiscompanywasassessedtotaxwithCompanyCircle1(2)atAgra.Thepetitioner
thusacquiescedtothejurisdiction,whichtheAOatAgraalreadypossessed,andallowedhimto
complete the assessment proceedings for the assessment year 200102.In the circumstances,
270
therewasnoerrorinexerciseofjurisdictionbytheACIT,CircleIV(1)Agra.Thewritpetitionwas
accordingly,dismissed.(A.Y.200203)
AayushiStockBrokers(P.)Ltd.v.ACIT(2013)213Taxman192/87DTR394(All)(HC)
S.127:PowertotransfercasesFailuretoinformassesseeofreasonsfortransferOpportunity
ofhearingismandatory.
The court held that under section 127(2), the requirement of giving an assessee a reasonable
opportunityofbeingheardwhereveritispossibletodoso,ismandatory;transferofassessees
cases from Mumbai to Delhi without affording an opportunity of hearing was liable to be set
aside.(A.Ys.200304to201112)
SaharaHospitality&Anr.v.CIT(2013)258CTR275/85DTR331(Bom.)(HC)
S.127:PowertotransfercasesFailuretoinformassesseeofreasonsfortransferObjections
ofassesseetobeconsidered.
Unless a party is informed of the reasons for the proposed action, it would be impossible for
thenoticetoputforthitspointofviewwithregardtothereasonsfortheproposedaction.The
viewsofthenoticearetobeconsideredbytheauthoritybeforetakinganydecisiontoconfirm
ordropthenotice.Ashowcausenoticetobeeffectivemustbeadequatesotoenableaparty
to effectively object/respond to the notice and the authority concerned is obliged to consider
the objections, if any. Merely because the assessee had not specifically asked for a personal
hearing it would not absolve the Revenue of its obligation to ordinarily grant such a hearing.
Shikshana Prasaraka Mandali v. CIT (2013) 352 ITR 53 / 258 CTR 289/85 DTR 345 / 215
Taxman191(Bom.)(HC)
S.127:PowertotransfercasesOpportunitytobeheardPersonalhearingnecessary.
Though the reasons for transferring the case of the assesse from Mumbai to New Delhi were
furnished to the assessee and the basis on which the transfer was sought to be effected was
indicated, no personal hearing was afforded. The requirement of a personal hearing in the
assessee's case was of some significance because the assessee had submitted objections both
on the need to transfer the case to New Delhi and on the hardships that would be caused if
suchatransferweretobeeffected.Thefurnishingofapersonalhearingwasnecessary.
However,becauseofthedelayonthepartoftheassesseeinmovingthecourtinrelationtothe
transferpertainingtoproceedingsfortheassessmentyear201011whichwouldbecometime
barredonMarch31,2013,theCommissioner,Mumbai,wastofurnishanopportunityofbeing
heard to the assessee and for that purpose treat the order dated January 5, 2012, as a notice
callingupontheassesseetoshowcausewhythecaseshouldnotbetransferred.
AambyValleyLtd.v.CIT(2013)352ITR48/258CTR284/85DTR341(Bom.)(HC)
S.132:Search and seizure Cash seized from third person adjusted towards his tax liability
Nomaterialtoshowthatcashseizedfromhimbelongstoassessee.
ThemoneyseizedwasalreadyadjustedtowardsthetaxliabilityofBandtherewasnomaterial
onrecordtoshowthatthemoneyseizedinthehandsofBbelongedtotheassessee.Further,
there was no finding by the Commissioner (Appeals) that the money seized in the hands of B
belonged to the assessee and under such circumstances the direction issued by the
271
Commissioner (Appeals) to give credit to the assessee to the extent of Rs. 10 lakhs which was
seizedfromBwasnotsustainableinlaw.(A.Y.19921993)
CITv.B.Sumangaladevi(Smt.)(2013)352ITR143(Karn.)(HC)
S.132:SearchandseizureRetentionofseizedarticlesPaymentofentiredemand,retention
ofseizedarticlesheldtobenotvalid.
Since there is no outstanding demand of tax and penalty against the petitioner due to be
recovered from the assessee, there is no justification for detention of seized assets. Pendency
of appeal before the ITAT on the issue of penalty which is already deposited by the assessee,
canonlyresultinfurtherrelieftopetitionertotheextent,whichmaybeallowedbytheITATif
theappealisallowed.Hence,detentionofassetswasnotjustified.Assesseecannotbeaskedto
give bank guarantee to extent of seized articles. Circular no F.NO 286/6/2008IT(Inv.II) dt 21
January,2009wasreferred.(BP200102to200607)
BhawnaLodha(Smt.)v.DGIT(2013)354ITR134/214Taxman273/257CTR176(Raj.)(HC)
S.132:SearchandseizureAuthorisationforsearchInformationinpossessionofcompetent
authoritySearchandseizureisheldtobeillegalgoldseizedwasdirectedtobedeleted.
Assesseecompany was engaged in business of wholesale trading in bullion. Director of
assessee, along with other were found carrying about 23 kilos of gold ornaments by air from
AhmedabadtoChennai.Departmentseizedsaidgoldornamentsundersection132.Directorof
assessee at spot gave statement that 25 kilos of gold was received by assessee from MGHUF
onleaseandgoldornamentsinquestionweremadeoutofsaidgold.Saidstatementsgivenby
director of assessee at airport matched with that of MGHUF and goldsmith supported by
relevantbooksofaccount.Onfacts,competentauthoritycouldnothaveformedareasonable
beliefthatsuchgoldjewelleryhadnotbeenorwouldnotbedisclosedforpurposeofIncome
tax. Therefore, search and seizure operation was to be declared illegal and seizure of gold
ornamentwasalsotobequashed.
LKSBullionImport&Export(P.)Ltd.v.DGIT(2013)214Taxman68/88DTR95(Guj.)(HC)
S.132:Search and seizure Validity of searchWarrant of authorizationSatisfactionAuthority

entertaining belief that assessee secreted certain documents relevant for purpose of
investigationofmatterrelatingtoevasionoftaxAssesseecannotstallproceedingsonground
of lack of jurisdiction to issue warrantAssessee to raise all grounds available in his defense
duringenquiryandsubsequentproceedings.(ConstitutionofIndia,art.226.)
Theassesseechallengedtheactionundersection132oftheActbywayofwritbeforetheHigh
Court.TheCourtdismissedthepetitionbyobservingthattherewerematerialsavailablebefore
the authority concerned, for the formation of his belief to issue such a warrant. Further, the
authorityhadalsoreasontobelievethatsuchdocumentsandthingswouldnotbeproducedby
the persons concerned, in the normal course,to enable the Department to conduct necessary
inquiriesinthematter.Therefore,itwasprematureonthepartoftheassesseestostallfurther
proceedingsrelatingtotheallegationsofevasionofpaymentoftaxbytheassessees,byraising
theissuesrelatingtothejurisdictionoftheDepartmenttoissuethesearchwarrants.Ofcourse,
itwouldbeopentotheassesseestodefendthemselvesbyshowing,attheappropriatestageof
theproceedings,thattheywerenotliabletopaythetax,asassessedbytheauthoritiesofthe
272
Department. The belief of the authorities that the assessees had secreted certain documents
relevant for the purpose of investigation of the matter relating to the evasion of tax by the
assessees,wasbasedonmaterialsavailablebeforetheauthorities.Whenseriousallegationsof
taxevasionbytheassessees,tothetuneofseverallakhsofrupees,havebeenmade,itwould
notbeappropriateforthecourttoscuttletheprocessbyplacingundueemphasisonthehyper
technicalpleasputforthonbehalfoftheassessees,withregardtotheproceduralformalitiesin
theissuanceofthesearchwarrants.(Blockperiod141996to1292002)
P.G.Viswanathan(Dr.)v.DIT(Inv.(2013)351ITR217/214Taxman105/88DTR33(Mad.)(HC)
V.Muthulakshmiv.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
K.ViaswanthanaliasKumarv.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
ArunaViswanthan(Dr.)v.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
AnjanaViswanthan(Dr.)v.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
VikramViswanathn(Dr.)v.DIT(Inv.)(2013)351ITR217(Mad.)(HC)
S.132.Search and seizureWarrant of authorizationReason to believeExistenceof tangible

material a prerequisiteMere reason to suspect not sufficient, articles seized to be released
toassessee,
The assessee challenged the search action. Allowing the petition the court held that the so
calledinformationwasundisclosedandwhatexactlythatinformationwas,wasalsonotknown.
AtoneplaceintheaffidavitoftheDeputyDirectorofIncometax,ithadbeenmentionedthat
he got information that there was a "likelihood" of the documents belonging to the DS group
beingfoundattheresidenceoftheassessee.Thatbyitselfwouldamountonlytoasurmiseand
conjecture and not to solid information and since the search on the premises of the assessee
was founded on this socalled information, the search would have to be held to be arbitrary.
WhenthesearchwasconductedonJanuary21,2011,nodocumentsbelongingtotheDSgroup
were, in fact, found at the premises of the assessee. The warrant of authorization was not in
thenameoftheDSgroupbutwasinthenameoftheassessee.Inotherwords,thewarrantof
authorizationundersection132(1)hadbeenissuedinthenameoftheassesseeand,therefore,
the information and the reason to believe wereto be formed in connection with the assessee
andnottheDSgroup.Noneofclause(a),(b)or(c)mentionedinsection132(1)stoodsatisfied
intheassessee'scaseand,therefore,thewarrantofauthorizationwaswithoutanyauthorityof
law. Had the warrant of authorization been issued in the name of the DS group and in the
course of the searches conducted by the authorized officer, the premises of the assessee had
alsobeensearched,theposition mighthavebeendifferent.Butthathadnothappenedinthe
case of the assessee. The warrant of authorization was in the name of the assessee and,
therefore,itwasabsolutelynecessarythatthepreconditionssetoutinsection132(1)oughtto
have been fulfilled. Since those preconditions had not been satisfied, the warrant of
authorisation would have to be quashed. Once that was the position, the consequence would
bethatallproceedingspursuanttothesearchconductedatthepremisesoftheassesseewould
be illegal and, therefore, the prohibitory orders would also be liable to be quashed. The
jewellery/otherarticles/documentsweretobeunconditionallyreleasedtotheassessee.
MadhuGuptav.DIT(Inv(2013)350ITR598/256CTR21/82DTR116/214Taxman246(Delhi)
(HC)
273
S.132(4): Search and seizure Statement on oath Evidentiary valueAddition was held to be
justified.[S.131]
Asearchwasconductedintheresidentialpremisesoftheassessee,whichrevealeddepositsof
Rs. 8 lakhs in cash, in three bank accounts. The assessee was examinedon oath under section
131whereheofferedRs.3lakhsasconsultationchargesreceived.Later,heexplainedthatthe
amount of Rs. 3 lakhs was not his income and belonged to his daughter employed in a bank.
TheamountwastreatedashisincomeandthiswasconfirmedbytheCIT(A)andtheTribunal.
Held,theassessee,atthetimeofsearch,hadgivenastatementandhehadnocasethathehad
retractedfromthestatementonthebasisthatthestatementwasprocuredbyunlawfulmeans.
Furthermore,circumstancesalsoindicatedthatthefindingsoftheTribunalaffirmingtheorders
oftheauthoritieswereprobableinthisregard.Hence,theappealwasdismissed.
P.KunhiramanNairv.CIT(2013)354ITR141(Ker.)(HC)
S.132(4):Search and seizure Statement on oath Block assessment Seizure of cash

Retractionofstatementafterfouryearswasheldtobeafterthought.[S.132,158B]
The Authorized officer conducted search under S. 132 upon assessee and seized certain cash
from his possession. At time of search,the assessee surrendered said cash amount as his
undisclosed income but after four years, he retracted confessional statement and submitted
that aforesaid amount was cashinhand as reflected from books of account. The Assessing
Officer disbelieved the retraction made by assessee and treated amount in question as
undisclosedincomeofassessee.Held,theretractionmadeafterfouryearswasanafterthought
and therefore, the action of the Assessing Officer in treating cash amount as undisclosed
incomewasjustified.(Blockperiod141988to1451998)
RavindraKumarVermav.CIT(2013)214Taxman117(Mag.)(All.)(HC)
S.132(4):Search and seizure Statement on oathAddition Loose papersOn the basis of

admission of third person and jointly signed by assessee addition was held to be justified.
[S.143(3)]
SearchwasconductedatthepremisesofHundersection132.Simultaneously,searchwasalso
carriedoutinthecaseofB.Ontheverysamedate,Bpassedaway.Hewassurvivedbyhislegal
heir,theassessee.AnadditionwasmadebytheAssessingOfficertothetuneofRs.30,16,000
intheincomeoftheassessee,basedonaloosepaper.ThiswasdoneonthegroundthatHand
the late father of the assessee had jointly signed the document. The statement of H under
section132(4)revealedthathehadreceivedthisamountfromtheassesseeandheowedthis
amounttotheassessee.Held,theloosepaperhadclearlyindicatedtheamountgivenbyBby
way of loan. Based on facts, there was no perversity in the conclusion of the Tribunal. The
amounthadtobeaddedtotheincomeoftheassessee.
BhanuvijaysinghM.Vaghela(Decd.)v.ITO(2013)353ITR146(Guj.)(HC)
S.132(4):SearchandseizureStatementonoathRetractioninthereturnStatementonoath
is a piece of evidence and when there is incriminating admission against himself, then it is
required to be examined with due care and cautionAddition made only the basis of
statementwasdeleted.
274
During course of search conducted under section 132 upon assesseefirm, a partner made a
statement under section 132(4) and surrendered a sum of Rs. 20 lakhs for assessment year
198889 as income. In return filed after search assesseefirm did not declare income of Rs. 20
lakhsonpleathatdeclarationmadebypartnerwasmisconceivedanddivorcedfromrealfacts
and that firm or individual had no undisclosed income. Lower authorities did not accept
assessee'ssaidretractionongroundthatstatementgivenbypartnerappearedtobevoluntarily
given statement disclosing undisclosed income of Rs. 20 lakhs and added said amount to its
income as undisclosed income. No specific reason had been given for rejection of assessee's
contention by which it had retracted for admission of partner. During course of search there
was no recovery of assets or cash by department, having regard to facts and circumstances of
case a wrong inference had been drawn by authorities below in holding that there was
undisclosedincometotuneofRs.20lakhsofassessee.Additionwasdeleted.(A.Y.199899)
Shree Ganesh Trading Co. v CIT (2013) 214 Taxman 262/257 CTR 159/84 DTR 94
(Jharkhand)(HC)
S.132(4):SearchandseizureStatementonoathRetractionNoevidencetoestablishthat
admissionwasincorrectinanyway,henceadditionmadeonbasisofstatementwasheldto
bejustified.
During the course of search the assessee surrendered a sum of Rs. 1 crore in respect of the
financial year 200506 for buying peace of mind and to avoid litigation. He also requested the
Incometax Department not to initiate any penalty proceedings against him. After ten days,
during the further search conducted by the Incometax Department, the assessee made
anotherstatementonNovember21,2005,whereinhesurrenderedanadditionalsumofRs.75
lakhsonbehalfofhimselfandallfamilymembers,familyfirmsandthecompanies.Therequest
for no penal measures was reiterated. In the statement, however, he indicated that after
receiving all the seized documents from the Incometax Department he would provide the
breakupofthevoluntarydisclosureofRs.1.75croresinvarioushands.Healsopromisedtopay
the due tax as soon as possible. The sum of Rs. 1.75 crores which was surrendered by the
assessee was bifurcated by him into sums of Rs. 1.5 crores and Rs. 25 lakhs. The former sum
was,accordingtohim,tobetreatedasundisclosedbusinessincomeinhishandswhereasthe
latter sum of Rs. 25 lakhs was to be considered in the hands of different family members or
business concerns of the assessee's group. The Tribunal reversed the decision of the
Commissioner (Appeals) and sustained the decision of the Assessing Officer in making an
additionofRs.1.75croresonthebasisofthestatementsmadebytheassesseeundersection
132(4).OnappealbytheassesseetheCourtdismissingtheappeal,heldthatitwasincumbent
uponhimtoshowthathehadmadeamistakeinmakingthatadmissionandthattheadmission
was incorrect. He had access to all the documents which had been seized inasmuch as copies
had been supplied to him. However, he did not produce anything to establish that the
admissionwasincorrectinanyway.Thus,theassesseecouldnotreconcilefromhisstatements
made on November 10,11, 2005, and November 21, 2005. The statements recorded under
section132(4)wereclearlyrelevantandadmissibleandtheycouldbeusedasevidence.Infact,
once there was a clear admission, voluntarily made, on the part of the assessee, that would
constitute a good piece of evidence for the Revenue. Appeal of assesse was
275
BhagirathAggarwalv.CIT(2013)351ITR143/215Taxman229(Delhi)(HC)
S.132(4):SearchandseizureStatementonoathRetractionsNoadditioncanbemademerely
onthebasisofstatement.(S.132,143(3).
The Tribunal held thatin the absence of any discrepancy in inventory, no addition could be
made.AsthefiguresofdiscrepancywerenotavailablewiththeDepartmentandthedirectorof
the assesseecompany had retracted the surrender made by him on account of stock
difference, no addition could be made on the basis of a statement recorded under section
132(4)oftheAct.IftheAssessingOfficerwantedtoaddtheamountofRs.11croresonaccount
ofstockinventory,heshouldhavebroughtmaterialonrecord.(A.Y.20052006to20072008)
S.132(8):Search and seizure Retention of seized documents beyond 30 days Non
communicationofCITsapprovaltoassessee.
Booksofaccount,seizedunders.132(1),wereretainedbytheofficerforaperiodexceeding30
days from the date of order of assessment passed u/s. 153A without communicating to the
assesseereasonsrecordedforthesameandapprovalobtainedfromtheCCIT,DirectorGeneral,
or Director, as the case may be, for such retention. Held that the requirements of s. 132(8)
werenotsatisfiedandtherefore,theretentionofdocumentsbeyond30daysaftercompletion
ofassessmentwasillegal.(A.Y.200203to200708)
JoshiP.Mathewv.Dy.CIT(2013)83DTR5/214Taxman267(Ker.)(HC)
S.132A:PowersRequisitionofbooksofaccountCashseizedbypoliceauthorities,reasonable
explanation regarding cash, no evidence that amount would not be disclosed to incometax
authorities,Orderofrequisitionheldtobenotvalid.
Theassessee,acottonbroker,carriedwithhimcashofRs.11lakhscollectedfromAinrespect
of the saleof cotton through him. The cash was seized bythe policeauthorities. The assessee
furnished an explanation but the police authorities did not accept the explanation and seized
the cash. An order was passed under section 132A and the amount was requisitioned by the
incometax authorities. The incometax officials recorded the statement of the assessee
wherein he stated that the amount had been arranged by RS through a shroff of Kalupur
against purchase of cotton. The incometax officials surveyed the business premises of RS and
examined his books of account. RS corroborated the statement of the assessee. RS's accounts
showed issuance of five cheques in favour of STC. The accounts of the shroff showed that the
five cheques issued by RS had been deposited with them for discounting against which Rs. 11
lakhsincashhadbeenhandedovertotheassessee.Theassesseerequestedforreleaseofthe
cash but this was refused. On a writ petition :Held, allowing the petition, that in view of the
factualbackground,noreasonablepersoncouldhavecometotheconclusionthattheamount
of Rs. 11 lakhs belonged to the assessee or that he would not disclose the amount to the
incometaxauthoritiesundertheprovisionsoftheAct.Inthecircumstances,onthebasisofthe
materialbeforehim,theDirectorofIncometaxcouldnothaveformedtherequisiteopinionas
requiredundersection132AoftheAct.Thewarrantofauthorisationissuedbyhim,therefore,
was vitiated as having been issued without the condition precedent for exercise of powers
under section 132A being satisfied. The warrant of authorisation as well as the order under
276
section 132A was liable to be quashed. The assessee was entitled to the seized amount along
withinterest.
Prakash Jaichand Shah v.DIT (Investigations) (2013) 350 ITR 336/255 CTR 403/81 DTR 396
(Guj)(HC)
S.132B(4):Search and seizure Delayed Refund Assessee entitled to interest under section
132B(4).(S.132)
Where the assessment of the assessee was concluded resulting in a refund to the assessee
whichwasnotgiventotheassesseeforalongtimeassesseewasentitledtointerestonrefund
undersection132B(4)oftheAct.
OmPrakashAgrawalv.UOI(2013)81DTR341/214Taxman5(Mag.)/255CTR445(MP)(HC)
S.133A:SurveyStatementonoathEvidentiaryvalue.[S.132(4)]
In contradistinction to the power under section 133A, section 132(4) enables the authorised
officer to examine a person on oath and any statement made by such person during such
examination can also be used in evidence. Since the statement recorded under section 133A
was not recorded on oath, such statement was not at par with the statement recorded under
section 132(4) and did not have any evidentiary value. Addition made merely on the basis of
statementinthecourseofsurvetwasheldtobenotvalid.(A.Y.200304)
CITv.P.Balasubramanian(2013)354ITR116/215Taxman288(Mad.)(HC)
S.139:ReturnofincomeEreturnErrorsNotignoranceoflawbutignoranceofusageoflatest
technology, direction to Assessing Officer to examine interest paid and if satisfied, positive
interesttobeaddedtotaxableincome.(S.143(1)
Theassesseesfiledereturnsshowinginterestincomeearnedaswellasinterestpaidunderthe
head "Income from other sources". The assessees did not realise that the server would not
accept a negative figure and therefore the interest paid was rejected by the server while
processingthereturns.TheCommissioner(Appeals)observedthatitwasanincorrectclaimon
account of the assessees failing to reflect the correct details in the returns, under the
computerised processing programme. The Assessing Officer made adjustments for this
incorrect claim for deduction and held that there was no mistake in the processing of returns
and further concluded that no appeals would lie against such processing where adjustments
hadbeencorrectlymadeduringprocessingundersection143(1)(a)(ii)oftheIncometaxAct,
1961. On appeal the Tribunal held thatno one cared to educate the taxpayers about the
nuances of preparing an ereturn compared with filing details in the return forms. This had
resulted in many clerical errors because of the ignorance of the taxpayers in acclimatising
themselves with the latest technology. This was not ignorance of law but ignorance of the
usageofthelatesttechnology.Therefore,theAssessingOfficerwastoexaminetheassessee's
claim of the interest paid and if satisfied with the claim, he was to deduct it from the positive
interestfiguretobeaddedtothetaxableincome.(A.Y20092010)
SumanchandraG.Mehtav.ITO(2013)22ITR270(Mum.)(Trib.)
TarulataS.Mehtav.ITO(2013)22ITR270(Mum.)(Trib.)
277
S.139(5):Return of incomeRevised returnServices charges which was shown as income in
theoriginalreturnwaswithdrawnbyfilingrevisedheldwasheldtobevalid.
Assessee was a State Government owned company, acting as a development financial
institution for assisting cause of medium and large scale industries in State of Gujarat. In the
SalesTaxDefermentscheme,achargewastobecreatedinfavourofSalesTaxDepartmentand
the deferred amount of sales tax was considered as a 'deemed loan' and assessee acted as a
nodalagencyforscheme.Duringtheyearunderconsiderationprovisionwasmadeforreceipt
ofservicechargesforabovereferredfeebasedactivitiesandadditionalincomewasaccounted
for and offered to tax while filing original return of income .Subsequently, Government of
Gujarat cancelled Sales Tax Deferment Scheme and due to this withdrawal of earlier
Government Resolution, no income was receivable by assessee and accordingly return had
beenrevised.TheTribunalacceptedrevisedreturnofincomefiledunderS.139(5)andtheHC
heldthattheorderoftheTribunaldidnotmeritinterference.(A.Y.200405)
CITv.GujaratIndustrialDevelopmentCorpn.(2013)214Taxman118(Mag.)(Guj.)(HC)
S.142:EnquirybeforeassessmentNoticePersonValidityofnoticetocooperativebankheld
tobevaild.[S.2(31),133(6)]
S. 142(1) read with s. 2(31) leads to the only conclusion that cooperative societies are also
personasdefinedintheIncometaxAct.Therefore,theimpugnednoticeu/s.142(1)cannot
beheldissuedwithoutjurisdiction.
Mangalam Service Cooperative Bank Ltd. & Anr. V. ITO & Ors. (2013)351 ITR 312/ 83 DTR
198/86DTR399/258CTR449(Ker.)(HC)
Editorial:OrderofsinglejudgeinMangalamServiceCooperativeBankLtd.&Anr.V.ITO&Ors.
(2013)351ITR312(Ker((HC)isaffirmedinMangalamServiceCooperativeBankLtd.&Anr.V.
ITO&Ors.(2013)354ITR601/258CTR452/213Taxman406t(Ker.)(HC)
S.142:Inquiry before assessment Special audit Approval without application of mindon

samedayheldtobenullity.(S.142(2A)
Assessing Officer issued notice for assessee to show cause why special audit should not be
ordered. Assessee filed replies and Assessing Officer wrote to Commissioner saying that
assesseehadansweredqueriesregardingcomplexitiesinaccounts.Howevernextdaychanging
hismindhewrotealettertoCCITseekingapprovalforgrantofspecialauditwhograntedsuch
approvalonsameday.CourtheldthattherewasnoapplicationofmindbyCCITtoproposalof
special audit sent by Assessing Officer, further in absence to any further development and
another notice to assessee under section 142(2A) after Assessing Officer changed his mind,
orderofspecialauditwasnullity.Infavourofassessee.(A.Y.200910)
DLFCommercialProjectsCorpn.v.ACIT(2013)212Taxman43/257CTR298(Delhi)(HC)
S.142:Enquiry before assessmentSpecial auditNatural justiceComplexity of accounts and

safeguarding interests of revenue is conditions cumulative, notice on basis of notes of
accountsisnotvalid.[S.142(2A)]
Inordertodirectspecialauditundersection142(2A)oftheIncometaxAct,1961,theAssessing
Officer must form an opinion with regard to twin conditions, viz., nature and complexity of
accounts and the interests of the revenue. Additionally, special audit requires approval of the
278
Chief Commissioner or the Commissioner. Further, the power under section 142(2A) is not to
belightlyexercised,anditistobebasedonthefoundationofavailablematerial.Agenuineand
honestattemptmustbemadetounderstandtheaccountssinceanorderundertheprovisions
not only entails a heavy monetary burden but it also causes a lot of inconvenience to the
assessee.Section142(2A)isnotaprovisionbywhichtheAssessingOfficerdelegateshispowers
andfunctions,whichhecanperform,tothespecialauditor.Theprovisionhasbeenenactedto
enable the Assessing Officer to take the help of a specialist, who understands accounts and
accountingpracticestoexaminetheaccountswhentheyarecomplexandtheAssessingOfficer
feels that he cannot understand them and comprehend them fully, till he has help and
assistance of a special auditor. Interest of the revenue is the other consideration. An order
under section 142(2A) directing special audit, entails civil consequences.And therefore, the
principlesofnaturaljusticeintheformofhearinghavetobecompliedwith.However,thisdoes
not require an elaborate hearing. The notice under the section may contain briefly the issues
that the Assessing Officer thinks to be necessary and need not be detailed ones. An order of
approval by the Commissioner/Director should not be granted or passed mechanically but
shouldbedonehavingregardtomaterialsonrecord.Questionsshouldberaisedwithregardto
accountsandentriesandonlywhentheexplanationofferedisnotsatisfactory,orverificationis
notpossiblewithoutthehelpandassistanceofaspecialauditor,actionundersection142(2A)
isrequired.Fortheassessmentyear200506,therecommendationforspecialauditwasmade
onOctober17,2007,withintwodaysafterthebooksofaccountwereproducedonOctober15,
2007. The Assessing Officer had not obtained comments/findings on the Comptroller and
AuditorGeneral's report but he had directed the special auditor to obtain it and then give his
opinion. Consideringthe facts of the casethe notices under section 142(2A) relating to the
assessmentyears200304to200910werenotvalidandwereliabletobequashed.(A.Y.2003
2004to20092010)
Delhi Development Authority v. UOI (2013) 350 ITR 432/214 Taxman 130/89 DTR 54 (Delhi)
(HC)
S.142:Enquiry before assessmentSpecial auditLimitationFailure to record reasons, High

CourtgivinglibertytoDepartmenttopassafreshorderFreshordercannotbechallengedon
groundoflimitationReferencetospecialauditisheldtobejustified.(S132,153A,153B)
The Assessing Officer is required to find out the income to be brought to tax. He has to apply
the accepted methods of accounting and if there are any inaccuracies, he may direct the
assessee to assist him by explaining and to reconcile such accounts. He is not a specialist
accountant or an auditor to find out the methods adopted by the assessee for assessing the
incometobetaxed.Heisnotrequiredtoactasaninvestigatororaspecialistauditornordoes
hehaveateamofassistantstoenterintothewebtodecipherthecodesandtodemystifythe
proceduresadoptedintheaccountingmethodstofindoutandarriveattheaggregateincome
to be assessed to tax. The assessees challenged the directions under section 142(2A) of the
IncometaxAct,1961,forspecialauditonthegroundthatnoreasonsweregivenintheorder.
Theassesseereliedontheprinciplesofnaturaljusticetochallengetheorder.Held,dismissing
the petitions, (i) that the assessees not having challenged the observations of the High Court,
giving liberty to the Department to proceed with a fresh order in accordance with law they
could not be permitted now on the principles of equity to challenge the fresh order on the
279
ground of limitation. Any advantage gained in such circumstances must be neutralised. The
prescription of limitation by itself should not be permitted to confer an advantage on the
assessees for such delay. The defect complained of in the notice was at best a lapse, which
couldbecorrectedbyservingapropernoticeandrecordingofreasons.Thecourtdidnothold
that the reasons were not sufficient. It held that the reasons were not recorded. It observed
that reasons must be recorded in the order to show application of mind on the part of the
officerconcernedonthebasisofthematerialavailableonrecord.Thesubmissionthatafterthe
earlier notice was set aside, a fresh notice could not be issued, was thus devoid of any
substance and must be rejected. On facts reference to specialauditheld to be justified. (A. Y.
20022003,to20082009)
ATS Infrastructure Ltd. v. ACIT (2013) 350 ITR 563/256 CTR 46/81 DTR 249/ 215 Taxman 302
(All.)(HighCourt)
PrateekResorts&Builders(P)Ltd.v.ACIT(2013)350ITR563/256CTR46/81DTR249(All.)(HC)
S.142(2A):Enquiry before assessment Special audit False statementsCost was levied on the
petitioner.
Proceedings under section 142(2A) are not strictly judicial proceedings. The satisfaction regarding
complexity of the accounts is not required to be arrived at by discussing the accounts in meticulous
detail.Wheretheapprovingauthorityhasconsideredtheaccountbooksalongwiththeauditor'sreports
and finds that there was a mala fide intention to avoid verification of the books of account and that
therewerevariouscommentsbytheauditorsregardinggrossneglectandmisappropriationoffunds,an
order under section 142(2A) would be justified. Cost of Rs 1 lakh levied on the petitioner. (A. Y. 2008
2009)
U.P.StateIndustrialDevelopmentCorporationLtd.v.ChiefCIT(2013)353ITR176(All.)(HC)
S.142A:EstimatebyValuationOfficerReferencewasheldtobenotvalid.[S.69,69B]
During relevant assessment year, assessee made additional construction of cold storage. Assessing
Officer did not accept cost disclosed by assessee and referred matter to DVO. DVO estimated figures.
AssessingOfficerthendeterminedcost.TribunalheldthatreferencemadetoDVObyAssessingOfficer
in assessment proceedings was beyond power of Assessing Officer in view of judgment of Supreme
CourtincaseofSmt.AmiyaBalaPaulv.CIT[2003]262ITR407.Revenuecontendedthatinviewofnew
provisions of section 142A introduced retrospectively w.e.f 15111972 by the Finance Act, 2004,
Assessing Officer can require Valuation Officer to make an estimate of value of movable/immovable
property. impugned amendment authorises Assessing Officer only for purposes of making an
assessmentorreassessment,whereanestimateofvalueofanyinvestmentreferredtoinsection69or
section69Borvalueofanybullion,jewellery,etc.,isrequiredtobemade,torefermattertovaluation
officertomakeanestimateofsuchvalueandreportsametohim.Inviewofabove,findingofTribunal
infavourofassesseewascorrect.Theamendmenttosection142A,introducedretrospectivelyw.e.f15
111972 by the Finance Act, 2004, authorises Assessing Officer only for purposes of making an
assessmentorreassessment,whereanestimateofvalueofanyinvestmentreferredtoinsection69or
section69Borvalueofanybullion,jewellery,etc.isinquestion(AY199798).
CITv.BehariColdStorage(P.)Ltd.(2013)214Taxman48(Mag.)(All.)(HC)
280
S.142A:Estimate by Valuation Officer Assessing Officer did not reject books of account
maintainedbyassesseeMadereferencetoDVOReferencewithoutjurisdiction(S.145)
Assessing Officer without rejecting books of account maintained by assessee made reference
under section 142A to DVO, for valuation of factory building of assessee. Assessing Officer
made addition on basis of cost of construction estimated byDVO.Commissioner (Appeals)
confirmed the addition and reduced some addition. On appeal to Tribunal the held that
Commissioner(Appeals)forestimationofconstructioncostonbasisofDVOsreportcouldnot
be approved particularly when Assessing Officer made reference to DVO without rejecting
booksofaccount.Assesseesappealwasallowed.(A.Y.200405)
PrahaladKumarJindalv.ACIT(2013)140ITD147(Agra.)(Trib.)
S.143(2):AssessmentNoticeBlock assessmentViolation of the mandatory provision then the

assessmentorderpassedisillegalandliabletobesetaside.[143(2),(143(3),158BC]
Fordeterminationoftheundisclosedincomefortheblockassessmentundertheprovisionsofsection
158BC,theprovisionsofsection142andsubsections(1)and(3)ofsection143areapplicable.Where
theAssessingOfficer,inrepudiationofthereturnfiledundersection158BC,proceedstomakean
enquiry,hehastonecessarilyfollowtheprovisionsofsection142andsection143(2)/(3).Ifthereis
violationofthemandatoryprovisionthentheassessmentorderpassedisillegalandliabletobeset
aside.
Dy.CITv.PaiVinod(2013)353ITR622(Karn.)(HC)
S.143(3):AssessmentDifferenceinbalanceReconciliationAdditionswasdeleted.
The Tribunal after considering the explanation of assessee and finding of the Commissioner
(Appeals) recorded the reconciliation statement substantiated by necessary evidence which
hadbeenfurnishedbyassessee.RemandreportoftheAssessingOfficerwasalsocalledforand
intheabsenceofanydifferenceindetailsandreconciliationstatementfurnishedbyassessee,
the Commissioner (Appeals) deleted addition and same came to be confirmed by Tribunal.
Held,theordersoflowerauthoritiesneedednointerference.
S.143(3):AssessmentBalanceofcreditorsUnverifiedcreditorsofopeningbalance.
TheAssessingOfficernoticedthatopeningandclosingbalanceofsomeofcreditorsweresameandno
businesstransactionshadtakenplaceduringyearinquestion.He,accordingly,addedbacksaidamount
toincomeasunverifiedcreditors.TheCIT(A)andtheTribunalheldthatmerelybecauseassesseehadno
transactionswithsomecreditorsandtheiropeningandclosingbalancesremainedsame,couldnotbea
groundtoaddsaidamount.Heldthat,theorderoftheTribunalcouldnotbeinterferedwith.(A.Y.2005
2006)
S.143(3):AssessmentValuation of stockStatement of third partiesValuation adopted by sales tax
authoritieshastobeacceptedadditionscannotbemadebymerelyrelyingonthebasisofstatement
ofthirdparties.
281
UnlessanduntilthecompetentauthorityundertheSalesTaxActdiffersorvarieswiththeclosingstock
of the assessee, the return accepted by the Commercial Tax Department is binding on the incometax
authoritiesandtheAssessingOfficerhasnopowertoscrutinisethereturnsubmittedbytheassesseeto
the Commercial Tax Department and accepted by the authorities. The Assessing Officer has no
jurisdiction to go beyond the value of the closing stock declared by the assessee and accepted by the
CommercialTaxDepartment.
Since the assessee had placed sufficient materials before the AO in respect of the relevant assessment
years which had been accepted by the authorities, the Department could not have made the addition
merelyonthebasisofthestatementofthirdparties(A.Ys.19981999to20022003).
CITv.SakuntalaDeviKhetan(Smt.)(2013)352ITR484(Mad)(HC)
S.143(3):AssessmentUndisclosed incomeAverage rate of surgery based upon number of surgeries
performed by assessee in one year and income earned there fromOnce it was admitted earning of
averagerateofsurgeryearned,assesseecannotdisputetheflatrateappliedbyTribunal.(S.260A)
Theassessee,asurgeon,hadadmittedto247undisclosedsurgeries.Thestatementoftheassesseewas
thatRs.6,000persurgeryshouldbeappliedtodeterminetheundisclosedincome,whereastheTribunal
had reduced the rate of the addition at Rs. 10,147 applied by the Assessing Officer to Rs. 8,000 per
surgery.Oncetheassesseehadhimselfstatedbeforethe Tribunalthattheaveragerateofthesurgery
bereducedtoRs.6,000persurgery,itwasnotopentotheassesseetodisputethattheflatrateapplied
bytheTribunalwasarbitrary.Nosubstantialquestionoflaw.(AY20062007)
GurvinderSinghRandhawa(Dr.)v.CIT(2013)352ITR616/84DTR41(P&H)(HC)
S.143(3):AssessmentScrutinyguidelinesCBDTIncometaxdepartmentmustmakereturn
scrutinyguidelinespublic
The Petitioner, an advocate, filed an application with the CBDT under s. 6 of the Right to
Information Act, 2005 seeking information pertaining to cases excluded from scrutiny, where
thedisclosurewasmadeduringsurvey.Healsosoughtinformationquathescrutinyguidelines
for the financial year 200910. The Department opposed the disclosure of the scrutiny
guidelines on the ground that it would prejudice the economic interest of the Country and
enable assessees to configure their return to avoid scrutiny. The refusal to supply the
informationwasupheldbytheCIC.ThePetitionerfiledaWritPetitiontochallengetheorderof
the CIC. HELD by the High Court reversing the CIC:The Incometax department has issued
instructionswithregardtoprocedureforselectionofcasesforscrutinyfromtimetotimeboth
qua corporate assessees as well as noncorporate assessees. These instructions give detailed
procedure on the basis on which the concerned officers are required to make a random
selection of assessees whose cases are taken up for scrutiny. These instructions are in public
domainevenpriortotheenactmentoftheRTIAct.Mostoftheseinstructionshavebeenissued
in the middle of the financial year and not in the beginning and they are applied to pending
returns as well. Therefore, the argument, that assessees would configure their returns in the
manner, which would impact the economic interest of the country, cannot be accepted. The
expressioneconomicinteresttakeswithinitssweep,matterswhichoperateatamacrolevel
and not at an individual, i.e., micro level. By no stretch of imagination can scrutiny guidelines
impacttheeconomicinterestofthecountry.Theseguidelinesareissuedtopreventharassment
282
toassesseesgenerally.Itisnotasif,dehorsthescrutinyguidelines,theI.T.Departmentcannot
take up a case for scrutiny, if otherwise, invested with jurisdiction, in that behalf. This is
information which hasalways been in public realm, and therefore, there is no reason why the
department should keep it away from the public at large. The department shall supply the
relevant scrutiny guidelines to the petitioner for the financial year 200910 and hereafter
uploadtheguidelineswithregardtoscrutinyontheirwebsite.
JoginderPalGulativ.OSDCPIO(Delhi)(HC).www.itatonline.org
S.143(3):AssessmentUndisclosedincomeGrossreceiptOnlyProfitelementembeddedin
grossreceiptsaddedasundisclosedincomeshouldbechargedtotaxifthesamearein
respectofbusinesstransaction.
AO made addition of the gross receipts as Undisclosed Income The Honble ITAT held that
onlyProfitelementembeddedinsuchgrossreceiptsshouldbechargedtotaxsincethesaid
receiptswere in respect of business transactions. Honble High Court dismissed the tax appeal
preferred by the revenue since it didnt give rise to any substantial question of law. (T. A. No
2280of2009,dt,17/07/12)(2012)/(T.A.No.323/325Of2000,dt,16/06/12)
JinendraS.Jain(2012)BCAJNovemberP.399)(Guj.)(HC)
PannaCorporation.(2012)BCAJNovemberP.399)(Guj.)(HC)
S.143(3):AssessmentCBDTGuidelinesAssessment void if case picked up contrary to CBDTs

ScrutinyGuidelines.
For AY 200607, the assessee filed a ROI declaring income of Rs. 3.97 crore. The case was
selected for scrutiny under clause 2(v)(b) of the Scrutiny Guidelines issued by the CBDT. The
said clause of the Scrutiny Guidelines provided that a case had to be selected for compulsory
scrutiny if an addition/ disallowance of Rs. 5 lacs or more was pending in appeal before the
CIT(A) and such identical issue also originated in the year under consideration. The assessee
claimedthatasthisconditionstipulatedintheScrutinyGuidelineswasnotsatisfied,theAOhad
nojurisdictiontoselectthecaseforscrutiny.TheAO&CIT(A)rejectedtheclaim.Onappealby
theassesseetotheTribunal,HELDallowingtheappeal:
The CBDTs instructions for assumption of jurisdiction for selection of cases of corporate
assessesforscrutinyandassessmentareissuedu/s119andarebindingontheAOandhaveto
befollowedbyhiminletterandspirit.Theburdenliesontheauthorityassumingjurisdictionto
show and establish that such instructions have duly been complied and satisfied in letter and
spirit.Onfacts,astherewasnodisallowanceofRs.5lacsormoreintheearlieryearsandasno
identicalissuehadariseninthepresentyear,thenoticeissuedu/s143(2)wasnotintermsof
theCBDTsScrutinyGuidelinesandconsequentlytheassumptionofjurisdictionwasillegaland
the entire assessment proceedings were invalid (CIT v. Nayana P. Dedhia (Smt.)(2004)270 ITR
572(AP)followed).(A.Y.200607)
CrystalPhosphatesLtd.v.ACIT(Delhi)(Trib.)www.itatonline.org.
S.143(3):AssessmentValuation of closing stockDispute before Civil courtAddition on account of

undervaluationofclosingstock.
283
Land purchased by assessee in dispute before civil court. Dispute having adverse impact on market
value. No change in method of valuation. Department accepting value as value of opening stock in
subsequentyear.Additionsmadetovaluenotproper.(A.Y.20062007)
ACITv.SatishEstateP.Ltd.(2013)22ITR349(Chand.)(Trib.)
S.143(3):AssessmentCrossexaminationOpportunitymustbegiven.
IftheaccountantofSTstatedthathewasacceptingsumsofmoneywithoutrecordingthemin
the books of account, addition could be made in the hands of ST and not in the hands of the
assessee. No material had been brought on record to suggest that the amount of Rs. 73,000
waspaidbytheassesseetoSTwithoutrecordingitinthebooks ofaccount. Itisa settledlaw
that third party evidence cannot be the base of addition unless crossexamination is allowed.
The assessee could not be condemned without a hearing. In the absence of any such
evidence/crossexamination,noadditioncouldbemade.(A.Y.20052006to20072008)
S.143(3):AssessmentSearchandseizureUndisclosedincomeEntriesinpapers.
Entries in papers seized from person making purchases for assessee. No material to show
difference between sales recorded there and according to books of account, no additionis
warranted.(A.Y.20052006to20072008)
S.143(3):AssessmentAdditiontoincomeMatterremanded.
Where there is categorical findings by assessing authority in respect profit rate for preceding
year which differed from what assessee claimed, Commissioner (Appeals) should have called
forassessee'sassessmentrecordsforprecedingyearaswellascurrentyear,andissueddefinite
findingsafterhearingbothparties,matterremanded.(A.Y.2001002)
S.143(3):AssessmentAdditionstoincomeChargingofdifferentialinterestwasnotjustified.
Assessee kept certain deposits received from clients abroad in NOSTRO account by way of
ForeignCurrencyNonResident(Bank)Deposit.Suchaccountwasmaintainedbyheadofficeof
assessee which was used by head office for its global operations. Assessing Officer noted that
interestpaidbyassesseeforabovedepositswashigherthaninterestearnedbyassesseefrom
its domestic deposits held with head office.Assessing Officer held such differential interest to
benotdeductibleandchargedsametotax.Tribunalheldthatsincedecisionastowhenabove
foreign deposits were to be brought into India was with assessee on consideration of factors
like foreign exchange rate prevailing at time of receipt of deposits, and further since such
deposits were not with head office but were in NOSTRO account, action of Assessing Officer
chargingdifferentialinteresttotaxcouldnotbesustained.(A.Y.199899)
(Trib.)
S.143(3):AssessmentAdditionUnderstatementofincomeadditionwasdeleted.
284
It was noted from audit of CAG that assessee, State Electricity Distribution Company did not
recognizeunbilledrevenue,i.e.,revenuefromenergysuppliedbutbillsnotissuedtillMarchin
respectiveyears.Tribunalheldthatfindingsthatassesseehadbeenfollowingspecifiedmethod
of accounting consistently which was in agreement with changed accounting policies and
principlesunderESSAR,1985,weretobeupheld,hencenoadditioncouldbemadeonaccount
ofunderstatementofIncome.Infavourofassessee.(A.Y.A.Y.200708,200809)
Maharashtra State Electricity Distribution Co. Ltd.v. ACIT. (2013) 55 SOT 84(URO) (Mum.)
(Trib.)
S.143(3):Assessment Loose papersAddition to total income of certain amounts as sale

considerationNodirectevidenceofreceivingmoneyLoosepapersmerelyinnatureofan
offerwhichwasmadetoassesseeAdditionnotsustainable.
AssesseesoldcertainlandataconsiderationofRs.10.62crores.Incourseofsearch,Assessing
Officer recovered certain documents which showed two figures of Rs. 22.61 crores and Rs.
14.75 crores. Assessing Officer opined that those figures related to sale of land. Therefore, in
absence of any direct evidence about receiving on money, it was to be concluded that such
loose papers were merely in nature of an offer which was made to assessee. Hence, addition
made by Assessing Officer on basis of those loose papers was not sustainable. (AY200607 to
200910)
S.143(3):AssessmentIncomeComputationInterestBrokenperiod
Interest paid in respect of broken period to be set off against interest received in respect of
brokenperiod.(A.Y.19971998)
ADIT(IT)v.CreditAgricoleIndosuez[2013]21ITR345(Mum.)(Trib.)
S.144:BestjudgmentassessmentRectificationofmistakeDisallowanceofinterestpaidon
capitalaccountandremunerationtopartnersOpportunityofhearingContentionsnot
raisedbeforeappellateauthoritycannotberaisedforfirsttimebeforeHighCourt.(S.143(3),
143(2),154ConstitutionofIndia,art.226.)
Theassesseefirmconsistedoffourpartnersengagedincivilandelectricalcontractworks.Ona
writ petition contending that for the assessment year 199596 its taxable income was
determinedatRs.35,930andtheassessmentorderwasrectifiedundersection154oftheAct,
and disallowances were made in respect of interest paid by them on capital deposit and
remuneration paid to the partners and subsequently without any notice the assessment was
completed under section 144 determining the taxable income at Rs. 1,36,500.Held, dismissing
the petition, that in so far as the absence of notices under section 143(2) and the proviso to
section 144(1) were concerned, a reading of the order passed by the revisional authority
showedthatsuchacontentionwasneverurgedbytheassesseebeforetherevisionalauthority.
Similarly the inapplicability of section 144 for want of the circumstances specified in section
144(1)(a)to(c)wasalsonoturgedbeforetherevisionalauthority.Acontentionwhichwasnot
urged before the statutory authorities and which the authority had no occasion to deal with,
cannot be allowed to be raised for the first time before the High Court. Therefore, these
contentionscouldnotbeurgedbeforethecourtforthefirsttime.(A.Y.19951996)
285
P.P.AbdulKhaderandCov.CIT(2013)351ITR17/83DTR41/215Taxman71(Mag.)(Ker.)(HC)
S.144:BestjudgmentassessmentCivilcontractworkIncomeestimatedat6%ofgross
receipt.[S.44AD,145]
In view of nonmaintenance of proper books of account by assesseecontractor, revenue
authorities estimated its net income at 8 per cent of gross receipts.It was found that assessee
made purchases more than 80 per cent which were billed and were forming part of gross
receipts from contractees, remaining amount could not fetch 8 per cent as per provisions of
section44ADwhenassesseerenderedcivilcontractworkwithoutmaterial.Itwasalsonotcase
ofassesseetomakeprofitof8percentonmaterialcostandinthisviewofmatter,itwouldbe
reasonabletoestimateincomeongrossreceiptsatrateof6percent.(A.Y.200708)
GirishChandraNayakv.ITO(2013)140ITD1430(Cuttack)(Trib.)
S.144:Best judgment assessmentCivil contract work Income estimated at 7% of gross receipt.

[S.44AD,145]
Assessing Officer estimated assessee's income at 8 per cent of gross receipts.He made additions on
account of disallowance of sundry creditors which had increased not in proportion to increase in
material cost thereby indicating that assessee had raised bills on contractees when material cost was
still to be borne by assessee. Tribunal held that estimation of 8 per cent after deleting additions and
disallowancewasnotproperand7percentprofitongrossreceiptswouldbereasonable.[A.Y.200809]
GirishChandraNayakv.ITO(2013)140ITD1430(Cuttack)(Trib.)
S.144C:Reference to dispute resolution panel Draft assessment orderDenial of deduction

undersection80IAWritpetitionAlternativeremedyMatterremanded.(Art226,80IA)
The assessee claimed deduction under section 80IA. In scrutiny assessment, though the
assesseesubmittedthattherewasnointerunittransfer,butitwasfoundthatmachinerywas
transferred to one of its units. Draft assessment order was passed making some additions.
Thereafter, final assessment order was passed which completely denied benefit of deduction
though it was allowed in principal in draft assessment order. The assessee in a writ petition
contendedthat once a draft order was made and served upon the assessee, the Assessing
Officer had no jurisdiction to make any additions thereto and that by passing the impugned
assessment order, the assessee had been denied an opportunity of availing the provisions of
section 144C with respect to the additions that were not made in the draft order. The Court
heldthatalthoughthiswritpetitionismaintainable,butitisviewedthatthepetitioneroughtto
pursue its alternate remedy which it had already availed of by filing an appeal before the
Commissioner (Appeals), albeit without prejudice to this petition. Therefore, no opinion was
expressedonthemeritsofthematter.Bynotentertainingthiswritpetition,itisnotsuggested
that assessee's submissions are without substance. These indeed are important issues which
willundoubtedlyrequireadecisionoftheCourtatsomestageinagivenmatteroreveninthe
presentcaseatanotherstageinappropriateproceedings.Theycertainlyarepointsandaspects
thatrequireseriousconsiderationbytheauthoritiesandthisCourt.TheCourtheldthatdespite
286
thesame,jurisdictionunderarticle226isnotexercisedforthismatterinvolvesseveralpoints,
some of which require a detailed consideration on disputed questions of fact including as to
whether the petitioner had made false statements as indicated earlier. It would serve no
purpose and would indeed be cumbersome to have these issues decided in different
proceedings.Inthecircumstances,thewritpetitionisdismissedonlyonthegroundthatthisis
not a fit case to exercise jurisdiction under article 226. Needless to add that the rights and
contentions of the parties are kept open in any proceedings that have been adopted and that
maybeadoptedhereafter.Matterremanded.
PiramalHealthcareLtdv.Addl.CIT(2013)213Taxman27(Mag.)(Bom.)(HC)
S.144C:Reference to Dispute Resolution Panel Order of Dispute Resolution Panel should give
reasonsNonspeakingorderisnotvalid.
OnanappealonthegroundthattheDisputeResolutionPanel`sorderwasagainstthejudicialprinciples
which required judicial orders to be speaking order. Held, that the draft assessment order no where
suggestedthattheDisputeResolutionPanelhadconsideredthefactsandcircumstancesofthecase,the
nature of dispute and what was the defense. The order was of a few lines and did not disclose
applicationofmindbytheadjudicators.Itwasanonspeakingorder.TheDisputeResolutionPanelhad
notapplieditsmind.Theassessee'sobjectionhadnotbeenconsideredbytheDisputeResolutionPanel.
The order of the Dispute Resolution Panel was not valid. Roadmaster Industries of India P. Ltd. v.
InspectingAssistantCommissionerofIncometax[2008]303ITR138(P&H)followed.(A.Y.20062007)
PanasonicConsumerIndiaP.Ltd.v.ACIT(2013)22ITR390(Delhi)(Trib.)
S.144C:Reference to dispute resolution panel Consequential order of Assessing Officer
Directedtopassconsequentialorder.
The draft order was passed by the Assessing Officer. The assessee filed objection against the
draft order before the DRP. Subsequently, on basis of circular dated 2012010, the assessee
sought to withdraw objection filed so as to file an appeal before the Commissioner (Appeals).
The Assessee also informed the Assessing Officer about that withdrawal of objection. The
AssessingOfficerpassedassessmentorderundersection144C(3).Ontheotherhand,theDRP
sent letter to the assessee fixing hearing. The assessee informed DRP about the Assessing
Officer'sorderInviewoftheDRP'sdirectionforhearing,theCommissioner(Appeals)dismissed
the appeal filed against order by the Assessing Officer. The DRP ultimately passed order
acceptingtherequestoftheassessee.Subsequently,theAssessingOfficerpassedorderunder
section 144C(13) which was identical to his earlier order under section 144C(3) which the
assessee challenged. On appeal Tribunal held that, Where DRP after taking note of fact that
assessee desired to exercise option to file appeal before Commissioner (Appeals) against
assessmentorder,acceptedrequestofassesseeforwithdrawalofobjectionraised,nodirection
persecouldbesaidtohavebeenpassedbyDRPonmeritofdisputesoastoenableAssessing
Officer to pass an assessment order on basis of DRP'S order. Appeal of assessee was allowed.
((A.Y.200607)
BankofAmericaNAv.ADIT(2013)55SOT30(URO)(Mum.)(Trib.)
S.144C:Reference to dispute resolution panel Transfer pricing Non Speaking Order Order
violationofprovisionsSetaside
287
Where DRP confirmed addition made by Assessing Officer without passing a speaking order,
said order being in violation of provisions of section 144C, was to be set aside. Matter was
remandedbacktodecidebothonTPandnonTPissues.(A.Y.200607)
FordIndia(P.)Ltd.v.Dy.CIT(2013)140ITD171(Chennai)(Trib.)
S.144C:Reference to dispute resolution panel PowerDRP is entitled to enhance by

questioningtheveryexistenceoftransaction.
The assessee entered into international transactions with its AE by way of payment of
management fees, reimbursement of tender cost and payment of R&D expenses and claimed
thatthetransactionswereatALP.TheTPO&AOdidnotdisputethatthetransactionshadbeen
entered into for business purposes and determined the ALP by making adjustments. The
assesseefiledobjectionsbeforetheDRP.TheDRPheldthattheassesseehadtofirstshowthat
the services had been rendered by the AE and that some tangible and direct benefit was
derived by the assessee as a result of such payment and called upon the assessee to produce
proof. As the assessee failed to do so, the DRP held that no tangible and direct benefit was
derivedbytheassesseeanddirectedthatamuchlargeradjustmentbywayofdisallowanceof
the entire amount be made. The assessee appealed to the Tribunal and claimed that the DRP
couldnothaveenhancedtheassessment.HELDbytheTribunal:
S.144C(8)empowerstheDRPnotonlytoconfirmorreducethevariationproposedinthedraft
ordertothebenefitoftheassesseebutalsotoenhanceittotheprejudiceoftheassessee.This
powerofenhancementwhichisimpliedlyembeddedinthematterofissuingdirections,dueto
theuseofexpressionàsitthinksfitins.144C(5)isexpresslysetoutins.144C(8).IftheDRP
reachestheconclusionthattheTPOerredindeterminingtheALPcorrectly,warrantingfurther
adjustment,theassessee,objectingtothevariationintheincomeduetotheorderoftheTPO,
may land in difficulty, and end up with the enhancement of variation. But, for the DRP to
exerciseitspowertherehastobesomevariationproposedinthedraftorder.TheExplanation
to s. 144C(8) inserted by the Finance Act, 2012 with retrospective effect from 01.04.2009 has
widened the DRPs power of enhancement to all the matters arising out of the assessment
proceedings irrespective of whether they were raised or not by the assessee. With this
amplificationofthepower,eventhemattersnotagitatedbytheassesseebeforetheDRPcan
also be considered for the purposes of enhancement. Accordingly, in principle, the DRP was
entitled to embark upon the question of enhancement of the TP adjustments. However, on
facts as the DRP did not give reasonable opportunity to the assessee, the matter has to be
remandedtoitforfreshconsideration.(A.Y.200708)
HamonShriramCottrellPvt.Ltdv.ITO(Mum)(Trib.)www.itatonline.org
S.145: Method of accountingValuation of stock Deduction on actual paymentExcide duty

ModvatAccounts Valuation of closing stockAmount lying credit at the end of year is
allowable.[S.37(1),43B].
The assessee followed the net valuation of closing stock.Dismissing the departments appeal
the Apex court held that the amount lying credited in the Modvat account at the end of the
accounting year was expenditure allowable under section 37 read with section 43B of the
Income tax Act 1961. DelHi High Court decision affirmed following the judgment of Supreme
courtinCITv.IndoNipponChemicalsCoLtd.(2003)261ITR275(SC).(A.Y.199596,199798)
288
CITv.ShriRamHondaPowerEquipmentLtd(2013)352ITR481/258CTR329/85DTR390(SC)
S.145:Method of accountingValuation of stock'Slow moving finished goodsRealisable

valueNoadditioncanbemade.
The Assessing Officer made a disallowance in respect of 'slow moving finished goods'. The
Tribunalsetasidethedisallowanceandheldthattheassesseehadbeenconsistentlyfollowing
method of accounting over a period of time and had a fool proof method of identification of
slow moving or dead stock and had put realizable value for purpose of valuing same. Held,
therewasnoreasontodisturbfindingsofTribunalandsameweretobeupheld.(A.Y.200102,
200203,200405and200506)
CITv.BectonDickinsonIndia(P)Ltd.(2013)214Taxman636(Delhi)(HC)
S.145:Method of accounting Rejection of accountsEstimationSales outside the bookGross

profit.
Whenthesalesdeclaredbytheassesseehadbeenacceptedbythesalestaxauthoritiesandthe
Assessing Officer failed to bring on record any cogent material to show the quantum of sales
outsidethebooksofaccount,hisestimateatmorethanoneandhalftimesthesalesdeclared
bytheassesseecouldnothavebeenconsideredjustified.Sofarasthegrossprofitrateofthe
other company was concerned, the Assessing Officer was in error in taking the case as a
comparable one, while omitting to consider the basic difference that the concern had worked
for the whole of the year whereas the assessee had worked only for a period of about nine
monthsduringtheyear.Estimationofmorethanoneandhalftimessalesdeclaredbyassessee
was held to be not justified. Estimate of Gross profit of twenty five percent was held to be
proper.(A.Y.199697)
CITv.MahanMarblesPvt.Ltd.(2013)354ITR238(Raj.)(HC)
S.145:MethodofaccountingRejectionofbooksProfitratiolowMatterremanded.
The entire basis of rejection of the account books was that the profit ratio was low in
comparison to the earlier year though it was submitted by the assessee that the purchase of
coal in both the years 199394 and 199495 as recorded by the Assessing Officer was not
correct.Thefactualpositioncouldbeascertainedonlyfromaperusaloftheaccountbooksand
hence,thematterwasremanded.(A.Y.19941995)
MahakoshalPottariesv.CIT(2013)354ITR149/88DTR286(MP)(HC)
S.145:Method of accounting Failure to maintain stock register Rejection of books justified,

estimateofGPisproper.
The assessee had not been maintaining daytoday account of stock but had been determining closing
stock items on physical verification at end of year. However, no efforts had been made by revenue to
gather any other material to establish that closing stock on last day of accounting period was higher
than declared value. Even if Assessing Officer rejected closing inventory on ground that no day to day
stock register was maintained, he had to determine gross profit only on estimate either on basis of
assessee'sownpastrecordoronbasisofacomparablecase;thatnocomparablecasehadbeenbrought
289
onrecord.Thus,thefindingsoftheTribunalwerenotperverseandnosubstantialquestionoflawarose.
(A.Y.20022003)
S.145:MethodofaccountingRejectionofaccountsDefectinbooks.
There was no specific evidence to prove any defects in maintenance of books of account by assessee.
Merely because loss declared by assessee from its business was held to be very high, books cannot be
rejectedwithoutpointingoutspecificdefects.
CITv.JananamandalLtd.(2013)214Taxman49(Mag.)(All.)(HC)
S.145:MethodofaccountingChangeinmethodClosingstock.
Change in the method of accounting adopted by the assessee tends to distort the picture for the
purpose of taxable income of the assessee. Consequently, the Assessing Officer has to recompute the
income by treating unsold lottery tickets as part of the closing stock of the assessee. (A.Y. 198990,
199091)
CITv.KandCo.(2013)214Taxman1/88DTR166(Del)(HC)
S.145:Method ofaccountingValuation of stockIf liability to pay Excise duty is not incurred
excisedutyisnottobeincludedinclosingstock:
Undertheschemeofexciseduty,anassesseeincursliabilitytopayexcisedutyonlyuponboth
theeventstakingplace,namelymanufactureofexcisablegoodsandremovalofexcisablegoods.
Accordingly,ifsuchaliabilityinnotincurred,excisedutyisnottobeincludedinthevaluation
ofclosingstock.(T.A.No.436/437of2011,dt13/06/2012)]
BellGranitoCermicaLtd(2012)BCAJNovemberP.402)(Guj.)(HC)
S.145:Method of accounting Hire purchase Indexing system followed by assessee there

cannotbeMercantilesystemforpurposesofassessment,appealdismissed.
The assessee which is engaged in the business of leasing, hirepurchase and finance. Finance
chargesrepresentedtheinterestcomponentofthehirepurchasemonthlyinstalmentspaidby
hirers to the assessee. The assessee had itself credited Rs. 12,33,700 under this head in its
profit and loss account for the assessment year 198788. However, in its return of income the
finance charges were reduced to Rs. 6,71,326 on the ground that the amount of Rs. 5,62,374
did not accrue as income though credited as such in the profit and loss account during the
assessmentyear.TheAssessingOfficerdidnotacceptthisdeductionandtookintoaccountthe
credited amount of Rs. 12,33,700 while computing the income under this head. The assessee
credited Rs. 12,33,700 towards finance charges in its books of account and this figure was
arrived at by adopting the "indexing" or "sum of digits" system of accounting. The Assessing
Officer's order was upheld by the Tribunal. On appeal to the High Court :Held, dismissing the
appeal, that there was no indication of the assessee's hirepurchase agreements reflecting
bifurcationoftheequatedmonthlyinstallmentsintoprincipalandinterestcomponents.Inthe
absencethereof,thecommonandacceptedusageoftheindexingsystemofaccountinginthe
hirepurchase trade must be held to be valid as otherwise the rate of interest under the
290
mercantilesysteminsofarasthelaterequatedmonthlyinstallmentsareconcernedwouldbe
far higher and contrary to the rate prescribed in the assessee's agreements. Further, as the
assesseehaditselfemployedthissystemofaccountinginitsbooksofaccount,applyingthelaw
laid down in Sanjeev Woolen Mills case [2005] 279 ITR 434,the Department was bound to
acceptthesamefortheassessmentproceedings.Appealofassesseewasdismissed.(A.Y.1987
1988)
ChakraFinancialServicesLtd.v.CIT(2013)350ITR396/214Taxman15(Mag.)(AP)(HC)
S.145:Method of accounting Valuation of stock Valuation of securities purchased at

premiumWriteoffofpremiumwasnotallowed.
Assessee purchased securities from marketat a premium. It wrote off premium so paid which
was amortised over life of investment. Commissioner (Appeals), however, rejected
amortization on ground that when securities were purchased as stock from market at market
value,therecouldbenoquestionofcarryingstockatalowerpricebywritingoffpremiumpaid.
Tribunalup heldtheorderofCommissioner(Appeals),butwithariderthatsecuritiescouldbe
soldormatureoveraperiodandonceamortizationwasnotallowed,purchasepricewastobe
takenassuchirrespectiveoffactastowhethersecuritiesweresoldorgotmatured.Infavour
ofrevenue(A.Y.19992000)
(Trib.)
S.145A:Method of accounting Valuation of closing stock Purchase tax hasto be taken in to

forvaluation.
Tribunalheldthatvalueofpurchasetaxhastobetakenintoaccountwhilevaluingclosingstock;
however, in such a case, opening stock valuation has to be correspondingly adjusted.Matter
remanded(A.Y.200607)
RallisIndiaLtd.v.Add.CIT.(2013)55SOT288(Mum.)(Trib.)
S.147:ReassessmentTransfer pricingReopening on the basis of order passed of earlier year,

reopeningwasheldtobevalid.[S.92C,143(3)]
The assesseecompany was engaged in the business of development and export of computer
softwaretoitsaffiliateenterpriseslocatedabroad.Theassesseefileditsreturnandassessment
orderwaspassedunderS.143(3).Onbasisoftheorderpassedintransferpricingproceedings
in earlier AY, the Assessing Officer initiated reassessment proceedings. It was noted from
records that even though assessee had reflected said transactions in its return, yet same had
escapednoticeofassessingauthorityand,thus,assessee'scasesquarelyfellunderS.147.(A.Y.
200607)
Sysarris Software (P.) Ltd. v. DCIT (2013) 214 Taxman 493/352 ITR 448/84 DTR 138/257 CTR
204(Karn.)(HC)
S.147:ReassessmentSpecial category statesNegative list of articlesPET bottles

manufacturerAssessee cannot be held to have failed to fully and truly disclose all material
facts necessary for its assessment. Reassessment was held to be bad in law. [S.80IC, 143(3)
148]
291
The assessee was engaged in the manufacture of PET bottles in industrial area, Barotiwalan,
district Solan, Himachal Pradesh.It was allowed deduction under S. 80IC for the assessment
years200506to200809,undersection143(3).Subsequently,theAssessingOfficerissuedthe
notice under section 148 to reopen the assessment on the ground that the claim of the
assesseebeinginrespectofmanufacturingofPETbottlesintheStateofHimachalPradesh;PET
bottles being an article specified in the Thirteenth Schedule, the assessee was not entitled to
deduction under S. 80IC despite which assessee claimed deduction under S. 80IC. He,
accordingly,heldthattherewasafailureonthepartoftheassesseetodisclosefullyandtruly
all material facts necessary for his assessment for the said assessment year and income
chargeabletotaxhadescapedassessment.Onwritchallengingthenoticetheassesseeargued
that the product manufactured by them falls under, subheading 39.23.30.90 of the Central
Excise Classification which is not within the range of products specified in the 13th schedule
thatis,withinheadings39.09to39.15.Therefore,theassesseecannotbeheldtohavefailedto
fullyandtrulydiscloseallmaterialfactsnecessaryforitsassessment.Thecourtheldthat,the
reassessmentnoticewasliabletobequashed.(A.Ys.200606to200809)
AjayKumarSharmav.CIT(2013)214Taxman518(Del.)(HC)
S.147:Reassessment Change of opinion Ignorance of Assessing OfficerNature of

expenditure examined in original assessment and allowed as revenue expenditure
Reassessmentinpermissible.[S.148]
TheRevenue'scontentionthattheAssessingOfficerhavingframedtheassessmentignoringthe
SupremeCourt'sdirectives,nowtheassesseemustappearbeforetheappellateauthority,was
not tenable. The Assessing Officer, having ignored the Supreme Court's directives of disposing
of the objections before finalising the assessment at least could not hope to capitalize on his
ownwrongsayingthattheassesseenowmustgoinappeal.Thiswouldamounttoallowingthe
Assessing Officer to take advantage of his own wrong. Also, it was not open to the Assessing
Officertoreexaminethequestionwhichhadalreadybeenexaminedintheoriginalassessment
proceedings.(A.Y.200607)
VishwanathEngineersv.ACIT(2013)354ITR211(Guj.)(HC)
S.147:ReassessmentBogus donationCharitable TrustShock & Anguish expressed at mal

administration by Assessing Officer and Commissioner. CBDT directed to take action against
erringofficials.[S.148]
The assessee, a charitable trust registered u/s 12A, received donations of Rs. 5.23 crore in AY
200607. The assessee filed a ROI offering Nil income and the same was accepted by the
Assessing Officer u/s 143(3) without making any inquiry. Subsequently, the Commissioner
initiatedproceedingsu/s12AA(3)forcancellationofregistrationoftheassesseeasacharitable
trust. However, this was dropped without assigning any reasons. Thereafter, the Assessing
Officerissuedanoticeu/s148seekingtoreopentheassessmentonthegroundthatthesaid
donation was bogus as the donor had no financial capacity to give the donation. The assessee
filedaWritPetitiontochallengethereopening.HELDbytheHighCourtdismissingthePetition:
It is a shocking to note that as a matter of fact, the said assessment order is no assessment
orderintheeyesoflaw.Thereisnotevenawhisperwithregardtothereceiptofdonationof
Rs. 1.57 crore. It is really not understandable under what circumstances the said assessment
292
ordercameintoexistence.Theassessmentorderisbereftofanydiscussionwithregardtothe
genuineness of the donation given or the creditworthiness of the donor to part with such a
huge amount. It is also shocking to note that the Commissioner passed an order dropping the
proceedings for cancellation of registration without assigning any reason. One fails to
understandwhatimpelledhimtodoso.Theorderbeingbereftofanyreasonisnoorderinthe
eyes of law and is liable to be ignored being illegal and void. The income tax authorities are
required to administer the Act. The right to administer cannot obviously include the right to
maladminister. Thus, we find no words to express anguish as what kind of governance it had
been. Failure to give reasons amounts to denial of justice. It is a case where the Assessing
Officer,theAddl.CommissionerandtheCommissionerhaveabdicatedtheirduties.TheCourt
intheexerciseofsupervisoryjurisdictionunderArticles226and227oftheConstitutionofIndia
cannot be a mute spectator. Such actions on the part of the department not only bring
disrepute to the department but also encourages the dishonest assessees and promotes the
nefarious activities which not only causes loss to revenue but also promotes dishonestly. An
honest tax payer feels cheated. Let the matter be examined by the Chief Commissioner of
Incometax and appropriate departmental proceedings may be taken out against the erring
officials.AcopyofthisjudgmentmayalsobesenttotheChairmanoftheCBDTforappropriate
action.
FatehChandCharitableTrustv.CIT(All)(HC)www.itatonline.org.
S.147:ReassessmentChange of opinionWithin two yearsCalling information and not

discussingontheissueintheassessmentorder,reassessmentheldtobenotvalid.[S.148]
TheAssessingOfficerframedtheassessmentundersection143(3),andmadedisallowanceof
certain expenses. He called the information about unutilized CENVAT credit as well as the
treatment of indirect taxes ,with provisions of section 145A, which was duly complied with
,however the Assessing Officer chose not to deal with the same in his order under section
143(3).He issued the notice under section 148 in the recorded reasons he mentioned that
assesseefollowingexclusivemethodofaccountingforCENVAT.Aspertheprovisionsofsection
145A of the Act the difference of Rs 4,69, 54,465 is to be included in the closing stock of the
assessee.Astheassesseehasnotincludedthesaidamountinitsclosingstock,theincomewas
under assessed. On writ the court held that the Assessing Officer has called the details and
chose not to deal with in his order hence the same issue cannot be reopen the assessment
.Accordingly the order under section was quashed.(A.Y.200809) (SCAno 3463 of 2013 dt 22
nd
April,2013)
HeavyMetal&TubesLimitedv.Dy.CIT(2013)ACAJMayP.93(Guj.)(HC)
S.147:ReassessmentMutualityTDR premiumAppellate TribunalEffect to Tribunals order

In reassessment proceedings the income assessed on reassessment could not be less than
thenincomeoriginallyassessed.Incomelessthanthatoriginallyassessed[S.143(3),254(1)]
The assessee was a plot owner society. It received certain amount of TDR premium from its
members. In original return of income, assessee had offered TDR premium to tax after
deducting expenditure incurred by it. Subsequently, the Assessing Officer initiated
reassessment proceedings on ground that expenditure incurred on TDR premium was not
allowable.Incourseofsaidreassessmentproceedings,assesseecontendedthatTDRpremium
293
was not taxable at all, on the principles of mutuality. The Assessing Officer rejected the
assessee'scontention.However,theTribunalheldthatTDRpremiumreceivedbytheassessee
was not taxable on account of principles of mutuality. In an appeal before the High court ,
revenue contended that income assessed on reassessment could not be less than the income
originallyassessed.Courtheldthatthatsincetheincomeassessedinreassessmentproceedings
aftergivingeffecttoorderofTribunalbecamelessthanincomeoriginallyassessed,saidorder
passed by Tribunal was not sustainable, being contrary to decision of Apex court in CIT v.Sun
Engg.Works(P)Ltd(1998)198ITR297(SC).MatterwasrestoredtothefileoftheTribunalfor
freshdecision.(A.Y.19992000)
CITv.JaihindCooperativeHousingSocietyLtd.(2013)214Taxman134(Mag.)/259CTR501
(Bom.)(HC)
S.147:ReassessmentProperty held for charitable purposes Accumulation of income Form

no 10 can be filed in the course of assessment proceedings. [S.11,,Income tax Rules,
1962,Rule17,Formno10]
TheTribunalrejectedtheassessee'sclaimforaccumulationofincomeonthegroundthatForm
No. 10 had not been furnished along with the return but was filed during the course of
reassessment proceedings. The Court held that form No. 10 could be furnished by assessee
trust for purposes of section 11 (2), i.e., for accumulation of income, during reassessment
proceedings.(A.Ys.199899,200001,200102)
Association of Corporation & Apex Societies of Handlooms v ADTI(2013)/351 ITR 286/ 213
Taxman15(Delhi)(HC)
S.147:ReassessmentObjections of assesseeParticipation in proceedings Objections were not dealt

with speaking order Reassessment proceedings held to be valid as no steps having been taken for a
yearafterprovidingreasonsforreopeningandassesseeparticipatedintheproceedings.(S.148,263)
The assessee has taken no steps for a year after providing reasons for reopening and assessee having
participated in assessment proceedings , it could not be alleged now that its objections to the reasons
forreopenwerenotdealtwithbyaspeakingorder.Assesseealsoparticipatedintheproceedingsunder
section263readwithsection143(3).Accordinglythewritpetitionwasdismissed.(A.Y.200506)
NTUC Income Insurance Cooperative Ltd v.DDIT(IT) (2013) 351 ITR 372/ 258 CTR 370/85 DTR 77
(Bom.)(HC)
S.147:ReassessmentAuditobjectionFormingofopinionReassessmentheldtobeinvalid.
Thoughanauditobjectionmayserveasinformation,onthebasisofwhichtheIncometaxOfficercan
act,ultimateactionmustdependdirectlyandsolelyontheformationofbeliefbytheIncometaxOfficer
onhisown.TheAssessingOfficerinheraffidavitdidnotdenythatsheheldnoindependentbeliefthat
incomechargeabletotaxhadescapedassessmentandthatshewasundercompulsionbytheaudit
partytoissuenoticeforreopeningofassessment.Therefore,thenoticewasquashed.(A.Y.200001)
GujaratFluorochemicalsLtd.v.ACIT(2013)353ITR398(Guj.)(HC)
294
S.147:ReassessmentCommissionallowedinoriginalassessmentNoticetodisallowcommissionto
failuretodeducttaxatsourceReassessmentheldtobenotvalid.
During the original assessment proceedings, the Assessing Officer disallowed export commission
paymentmadebytheassesseetoS.ItwasspecificallybroughttothenoticeoftheAssessingOfficerthat
acertificatehadbeenissuedbytheassessee,wherebytheassesseewaspermittedtomakepaymentof
commission to S without deducting tax under section 194H. However, the Tribunal allowed it. The
Department had issued a certificate under section 197(1) for the financial years 200304 and 200405
indicatingthattheassesseecompanywaspermittedtomakethepaymentofcommissiontoSforboth
assessment years without deducting tax under section 194H. Since, there was no violation of the
provisions of section 194H, the decision of the Assessing Officer to reopen the assessment on the
violationoftheprovisionslaiddownundersection40(a)(ia)oftheActonthepremisethattaxwasnot
deductedatsourceundersection194HoftheActwasnottenableinlaw.(A.Y.20052006)
RubaminLtd.v.LoveKumar(2013)353ITR432(Guj)(HC)
S.147:ReassessmentBeyondfouryearsScrutinyofDepreciationCommercialvehiclegivenonlease
Reassessmentwasnotvalid.
Duringthecourseofscrutinyassessment,theassesseemadedetailedsubmissionsregardinghigherrate
of depreciation. Therefore, it was not a case where income chargeable to tax could be stated to have
escaped assessment for the reason of the assessee failing to disclose truly and fully all material facts.
Therefore,thereopeningoftheassessmentbeyondtheperiodoffourwasinvalid.(A.Y.19961997)
GardenFinanceLtd.v.ACIT(2013)353ITR522(Guj)(HC)
S.147:ReassessmentBeyondfouryearsAuditobjectionReassessmentheldtobenotvalid.
During the course of the scrutiny assessment, these claims which were the subjectmatter of reasons
recorded were examined by the Assessing Officer. The assessee pointedly brought to the notice of the
Assessing Officer such claims. It may be that in the ultimate order of assessment that the Assessing
Officer passed, these specific issues were not recorded. Additionally, in the petition, the assessee had
averredthat theAssessingOfficerhadissuedthenoticeat thebehestof theauditparty callingfor the
explanationoftheassessee.Itwasfurtheraverredthattheletterwasissuedundertheauditobjection
only.Thishadnotbeendeniedbythe Department. Thus,thenoticewasnotvalidandwasliabletobe
quashed.(A.Y.19961997)
FagBearingsIndiaLtd.v.Dy.CIT(2013)353ITR405(Guj.)(HC)
S.147:Reassessment Material on record Original assessmentClaim not examined in the original
assessmentReassessmentheldtobevalid.[S.80IA,143(1),148]
Theassessmentundersection143(1)(a)doesnotenvisageconsiderationofanypointandformationof
anyopinionforassessmentpurposes.Intheoriginalassessment,theassesseehadpreferredaclaim
undersection80IAoftheAct.However,theAssessingOfficerdidnotexaminetheclaimonthemerits.
Therefore,itcouldnotbesaidthatitwasacaseofmerechangeofopinionwhennoopinionwasformed
inthefirstinstance.Therefore,therecoursetosection147/148wasvalidandjustified.(A.Y.199495,
199596)
KohinoorFoodsLtd.v.CIT(2013)353ITR264(Delhi)(HC)
295
S.147:ReassessmentBeyondfouryearsCapitalgainsExemptiongrantedintheoriginalproceedings
reassessmentonthegroundthatproofofinvestmentisnotsufficientisnotvalid.(S.54)
Theassesseehadbeenallowedexemptionundersection54forthepurchaseofaresidentialhouse
whilecomputinghisincome.Insupportofsuchpurchase,hehadproducedreceiptsshowingdepositof
theamountwithtwodifferentparties.Theassessmentwasreopenedafterfouryearsontheground
thatthereceiptsfiledcouldnotprovetheinvestmentmadeforpurchaseofflat,andalsonoevidence
likepurchasedeed,etc.,wereobtainableonrecord,thisamountedtofailureonthepartoftheassessee
todisclosefullyandtrulyallmaterialfacts.Held,merelybecausetheAssessingOfficerwhohadsought
toreopentheassessmentfoundtheproofsubmittedbytheassesseeatthetimeofassessment
proceedingstobenotsufficientforthepurposeofadmittingtheclaim,itcouldnotbesaidthatthere
wasanyfailureonthepartoftheassesseesoastoinvoketheprovisionsofsection147.Hence,the
noticecouldnotbesustained.
ShirishC.Parikhv.ITO(2013)353ITR505(Guj.)(HC)
S.147:ReassessmentBeyondfouryearsReasonsnotrecordedreassessmentsetasideSecondnotice
afterrecordingreasons,reassessmentheldvalid.
TheearlierassessmentwassetasideonthegroundthattheAssessingOfficerhadnotrecordedreasons
forreopeningtheassessmentwhichisaconditionprecedentforissuingnoticeundersection148(2).In
these circumstances, there was no bar against reopening the assessment once again on the same
groundsafterfollowingdueprocedureinaccordancewithlaw(i.e.afterrecordingthereasons).
Further,sinceincomehadescapedassessmentbecausetheassesseehadsuppressedtheclosingstock,
such escapement was by reason of failure on the part of the assessee to disclose fully and truly all
material facts necessary for its assessment and hence, the notice of reassessment after four years was
valid.(A.Y.199495)
AGGroupCorporationv.HarshPrakash(2013)353ITR158(Guj.)(HC)
S.147:Reassessment Beyond four years No failure to disclose facts hence reassessment is bad in
law.[S.80HHC]
Theoriginalassessmentwasframedafterscrutiny.Therewasnotaniotaofsuchallegationeitherinthe
reasonsrecordedoranywhereelsethattheincomechargeabletotaxhadescapedassessmentforthe
reasonoftheassesseefailingtodisclosefullyandtrulyallmaterialfactsforthepurposeofthe
assessment.Intheoriginalassessmenthadexaminedtheclaimoftheassesseepertainingtodeduction
undersection80HHC,atconsiderablelength.Hence,thenoticeofreassessmentwasnotvalid.(A.Y.
20042005)
ILAGIndustriesP.Ltd.v.ACIT(2013)353ITR393(Guj)(HC)
S.147:Reassessment Subsequent information that lease agreement was not genuine Reassessment
washeldtobevalid.[S.148]
The assessee was a manufacturer of television sets and it also ran a business in leasing of computers.
During assessment year 199091, it purchased computers from PCL and on the same date leased them
to AIL, which in turn subleased to PCL, this being a lease back transaction. In the original assessment,
the assessee had disclosed the lease rent received and it was assessed as such. The Assessing Officer
came to know during the course of assessment proceedings for the assessment year 199394, that
substantialamountofdeductionclaimedbywayofleaserentalshadbeensurrenderedfortaxationby
296
thelessees.Theleaserentpaidtotheassesseewasalsoincludedintheamount.TheAssessingOfficer
had come to know that PCL had sold the same computers to the assessee which on paper had been
leased out it. On enquiry, it was found that PCL had not delivered the computers to the assessee nor
weretheydeliveredtoAIL.TheAssessingOfficeralsocametoknowthattheleaserentalswerenotpaid
totheassesseebyAILbutbyPCL.Thereassessmentproceedingswerevalid.(A.Y.19901991)
VideoElectronicsLtd.v.JCIT(2013)353ITR73(Delhi)(HC)
S.147:Reassessment Duty of assessee to disclose facts Depreciation claimed on building on the
ground that it constituted plantTwo issues one issue one issue was held validReassessment cannot
beheldtobeinvalid.[S.148]
Omission of the assessee to bring to the assessing authority's attention particular items in the account
books, or to particular portions of the documents which are relevant, will amount to omission to
disclose fully and truly all material facts necessary for his assessment. Nor will he be able to contend
successfullythatbydisclosingcertainevidence,heshouldbedeemedtohavedisclosedotherevidence,
which might have been discovered by the assessing authority if he had pursued investigation on the
basis of what has been disclosed. Where reassessment proceedings are started with regard to more
than one issue if the reopening is sustainable on one issue, even if on the other issues the exercise of
power under section 147 of the Incometax Act, 1961, is not justified, it would not render the
assumption of jurisdiction under section 147 of the Act invalid. (A. Y. 20062007)
AquagelChemicalsP.Ltd.v.ACIT(2013)353ITR131(Guj)(HC)
S.147:Reassessment Beyond four yearsFailure to disclose facts Loan accepted in subsequent
yearsReassessment was not validAlternative remedy is not a bar for issue of writ. [Art
226.ConstitutionofIndia]
ItwasnotthecaseoftheRevenuethattheassesseedidnotexplainthesourcefromwhichtheloanwas
funded, even though it was called upon to do so. It was also not the case of the Revenue that any
informationfurnishedbytheassesseewithregardtothesourceoffundsfortheloanwasfalse.Theloan
was disclosed in the return of income for AY 198384. The Assessing Officer upon consideration of all
relevantrecordsacceptedtheloan,notonlyinthatyearbutinsubsequentyearsaslateasin198990.
Therefore, the Assessing Officer lacked jurisdiction to reopen the assessment after four years. (A. Y.
19831984)
Mimec(India)P.Ltd.v.Dy.CIT(2013)353ITR284(Cal.)(HC)
S.147:Reassessment Beyond four years Subjectmatter of appeal Reassessment was not valid.
[S.148]
TheAssessingOfficerreopenedtheassessmentonthegroundthatwhilecomputingthetaxableincome,
from the net profit and income and expenditure account, the assessee had deducted under the head
"provision written back. The second ground was based on the fact that, in view of the retrospective
introduction of Explanation 6(b) to section 43 of the Act by the Finance Act, 2008, w.e.f 1
st
April 2003,
theassessee'sclaimrequiredtoberestricted.Thesecondgroundwasthesubjectmatterofappeal.By
virtueofthesecondprovisotosection147,incomeinvolvingmatterswhicharesubjectmattersofany
appeal,referenceorrevisionhasexpresslybeentakenoutofthepurviewofthesection147.(A.Y.2003
2004)
NationalDairyDevelopmentBoardv.Dy.CIT(2013)353ITR538(Guj.)(HC)
297
S.147:ReassessmentAssessmentsetasideReassessmentwasheldtobenotvalid.
Held,that thematerialonwhichtheAssessingOfficerhadformedthebeliefasregardsescapementof
income, was the assessment order for the year 200607, which on the date of reopening of the
assessmentfortheyearunderconsiderationwassetasidebytheCIT(A)andassuchhadnoexistencein
theeyesoflaw.Therefore,thenoticecouldnotbesustained.(A.Y.20052006)
P.G.FoilsLtd.v.Dy.CIT(2013)353ITR548(Guj.)(HC)
S.147:ReassessmentSubject of appealSecond provisoDepreciation was not subject matter of
appealReassessmentwasheldtobeinvalid.[S.32]
Held,dismissingthewritpetitionthat,theamountofdepreciationwhichwasallowedbytheAssessing
Officer,whilecompletingtheassessmentundersection143(3)wasneverbeforethehigherauthorities.
Therefore, the second proviso to section 147 upon which reliance was placed was wholly inapplicable.
SincethenoticecontainedthereasonandtheassesseewaspresentbeforetheAssessingOfficerthere
wasnoneedforinterferencebythecourt.(A.Y.20062007)
IndianMetalsandFerroAlloysLtd.v.ACIT(2013)353ITR561(Orissa)(HC)
S.147:Reassessment Deduction of expenses on voluntary retirement scheme Subsequent CBDT
circularReassessmentwasheldtobenotvalid.[S.148]
During the assessment, after considering the submissions of the assessee, the Assessing Officer
accepted the assessee's stand and did not disallow the expenditure incurred on the voluntary
retirementscheme.AsubsequentBoard'scirculardtJanuary23,2001(2001)248ITR257(St)laiddown
general guidelines for the Assessing Officer to follow while examining the claims of the assessee for
deduction as revenue expenditure, the amount expended as ex gratia payment for retrenchment of
employees under the voluntary retirement scheme. The Assessing Officer, therefore, could not have
blindlyreliedonsuchcirculartoholdabeliefthatintheassessee'scase,incomechargeabletotaxhad
escapedassessment.Thenoticeofreassessmentwasnotvalid.(A.Y.19971998)
ArvindPolycotLtd.v.ChandraRam(2013)353ITR511/214Taxman156(Guj.)(HC)
S.147:ReassessmentNoticeFullfactsdisclosedReassessmentwasheldtobeinvalid.[S.148]
Sincetheassesseehadenclosedthedetailsofvaluationofpolisheddiamondsandthemethodologyfor
workingouttheaveragecostofpolisheddiamondspercaratandafterthisdetailedexerciseundertaken
by the Assessing Officer, original assessment. Was framed, there was no failure on the part of the
assessee to disclose fully and truly all material facts for the purpose of assessment. The notice of
reassessmentafterfouryearswasheldinvalid.(A.Y.20032004)
BalarExportsv.Dy.CIT(2013)353ITR422(Guj.)(HC)
S.147:ReassessmentLimitationNotice on the ground to give effect to appellate order would result
inescapementofincome.Reassessmentnoticewasquashed.[S.150]
HeldthattheassessmenthadnotbeenreopenedtogiveeffecttotheorderoftheCIT(A),butbecause,
accordingtotheAssessingOfficer,givingeffecttotheordermadebytheCIT(A)wouldresultin
escapementofincome.Thus,ineffectandsubstancetheAssessingOfficerwassittinginappealoverthe
orderpassedbytheCommissioner(Appeals).Theingredientsforinvokingsection150oftheActwere
298
clearlynotsatisfied.Hence,thereassessmentnoticewasliabletobequashed.(A.Y.19891990)
HarsiddhSpecificFamilyTrustv.JointCIT(2013)353ITR500(Guj.)(HC)
S.147:ReassessmentBeyond four yearsAccounting treatmentChange in treatment of subsidy
Reassessmentheldtobenotvalid.[S.148]
In 1995, the assessee received subsidy at the rate of 30 per cent of the investment in eligible assets.
Noticeundersection148wasissuedforAY200405totheassesseeonthegroundthatthesubsidyhad
beenwronglydistributedamongstthepartnersinsteadofbeingutilizedforbusinesspurpose.Held,that
eitheronaccrualoractualreceipt,thetaxableeventdidnotariseduringtheyearunderconsideration.
Intherelevantyear,nothinghadhappenedwhichwouldpermittheDepartmenttocollecttaxonsuch
receipt. The fact that for accounting purposes the assessee changed the nature of treatment of such
subsidy amount received in the year 1995, would not permit the Revenue to examine the taxability of
suchreceipt.(A.Y.20042005)
ChimanlalandSonsv.Dy.CIT(2013)353ITR344(Guj.)(HC)
S.147:ReassessmentChangeofopinionInteresttopartnerReassessmentwasnotvalid.[S.148]
Aperusaloftheassessmentorderasoriginallyframedundersection143indicatedthatwhilecomputing
the profit as per the profit and loss account, the Assessing Officer had added interest to partners and
remunerationtopartnersandthereafter,allowedthededuction,whichclearlyexhibiteddueapplication
of mind on the part of the Assessing Officer. The view taken by the Assessing Officer was a plausible
view.OncetheviewtakenbytheAssessingOfficerwasaplausibleview,thenoticeissuedundersection
148 based on a change of opinion was not valid. (A. Y.20052006)
TulsiDevelopersv.Dy.CIT(2013)353ITR530(Guj.)(HC)
S.147:ReassessmentRecorded reasonsDifferent groundsNotice cannot be held to be valid on
different groundBeyond four years Failure to disclose interest at higher rateReassessment on this
groundwasheldtobevalid.[S.37(1),80HHC,80IA,148]
When the assessee objected to the grounds of reopening of assessment and pointed out in detail that
the claims were valid and that no double claims, as alleged, were made, the Assessing Officer in the
orderrejectingtheobjectionswentonyetdifferentaspectaltogether.Thiswasnotpermissibleandthis
wouldnotformavalidbasisforreopeningtheassessment.
In this case, it could not be said that the assessee failed to fully and truly disclose all material facts. In
the original assessment, the Assessing Officer scrutinized the claim of the assessee under section
80HHC.Evenintheorderdisposingoftheobjections,theAssessingOfficerhadnowherestatedthatthe
assesseefailedtodisclosefullfactswithrespecttosuchclaim.Thisgroundofreopeningtheassessment,
therefore,wasnotvalid.
MerelybecausetheAssessingOfficerdidnotdisallowtheclaimoftheassesseeundersection80IA,that
wouldnotbeagroundtopermitreopeningofsuchallegedunderassessedincomebeyondtheperiodof
fouryears.
Fromthefactsonrecord,itwasnotpossiblefortheAssessingOfficertoascertainthattheassessee
receivedinterestfromsisterconcernwhichwashigherthanthenormalrateofinterest.Sincethisfact
wasrelevanttotheprovisionsofsection80IA(10),thenoticeonthisgroundwasvalid.(A.Y19971998)
SunPharmaceuticalIndustriesLtd.v.Dy.CIT(No.1)(2013)353ITR450(Guj.)(HC)
299
S.147:ReassessmentRecorded reasonsWithin four years Sufficiency of reasonsInterest from sister
concernathigherrateReassessmentwasvalid.[S.37(1),80IA,148.]
Inquiryatthestageoffindingoutwhetherthereassessmentnoticeundersection148isvalidisonlyto
seewhethertherearereasonablegroundsfortheIncometaxOfficertobelieveandnotwhetherthe
omission/failureandtheescapementofincomeisestablished.SincethebeliefisthatoftheIncometax
Officer,thesufficiencyofreasonsforformingthebeliefisnotforthecourttojudge.Theassesseehad
failedtodisclosefullyandtrulyallmaterialfacts.Theonlydisclosuremadewasthattheassesseehad
earnedinterestincomeofRs.3,03,48,973.Therewasnofurtherinformationavailableonrecordthat
suchinterestincludedoverduepaymentchargesattherateof24percent.receivedfromitssister
concernviz.,AM.Threeessentialfacts,namely,thattheassesseereceivedinterestonoverdue
paymentsfromAM,thatAMwasasisterconcernoftheassesseeandthatsuchinterestwaschargedat
therateof24percent.perannum,werenotdiscerniblefromtherecordatall.Underthe
circumstances,fromthematerialonrecord,itwasnotpossiblefortheAssessingOfficertomake
adjustmentundersection80IA(10)evenifitwasrequired.Itmaybethattheassesseedidgivethetotal
figureofinterestreceived.However,fromsuchfigures,itwasnotpossiblefortheAssessingOfficerto
ascertainthesevitalfacts.Evenfromtheaccountbooksandotherevidencewhichtheassesseehad
produced,evenafterduediligence,itwasnotpossiblefortheAssessingOfficertodiscoverthesethree
vitalfacts.Thenoticeofreassessmentissuedwithinfouryearswasvalid.(A.Y.19992000)
SunPharmaceuticalIndustriesLtd.v.Dy.CIT(No.2)(2013)353ITR474(Guj.)(HC)
S.147:ReassessmentDirection for assessmentAssessment in pursuance of direction. [S. 144A, 148,
263]
The petitioner invoked the provisions of section 144A. Pursuant thereto, the Additional Commissioner
passedanorderundersection144AdirectingtheAssessingOfficernottotreatthesharetradinglossof
as deemed speculation loss, after which the assessment was framed. After the assessment was made,
theAssistantCommissionerissuednoticeundersection148oftheAct.Held,sincetheDepartmentdid
nottakestepstorevisetheorderpassedundersection144Abyinvokingtheprovisionsofsection263,
the notice under section 148 issued by the Assistant Commissioner could not be sustained. (A. Y.2001
02)
AmritSalesPromotionPvt.Ltd.v.UOI(2013)353ITR68(Cal.)(HC)
S.147:ReassessmentAbatementofproceedingsDeathoflegalrepresentativebroughtonrecord
Applicationforsubstitutionoflegalrepresentativeswasnotconsideredwhilepassingtheorder.
Orderwasrecalledonareviewpetition.[S.148]
The Assessing Officer completed the reassessment against the deceased assessee without issuing
notices to all his legal representatives. The CIT(A) accepted the contention of the assessee that since
noticeshadnotbeenissuedtoallthelegalrepresentativesoftheassessee,theproceedingswerewholly
withoutjurisdiction.TheTribunalandtheHCaffirmedtheviewsoftheCIT(A).Onareviewpetition,held
allowingthepetitionthatthecoordinateBenchproceededtoconsidertheappealashavingabated,for
thelegalrepresentativesoftheassesseehavingnotbeenbroughtonrecord.Theobservationshadbeen
made even to the effect that the Revenue had not moved any application seeking substitution of the
legal representatives of BPB. It was clear that while passing the order dated September 16, 2011, the
factthattheRevenuehadindeedmovedanapplicationseekingsubstitutionofthelegalrepresentatives
oftheassessee,hadbeenoverlooked.Theappealcouldnothavebeenconsideredashavingabatedand,
hence,theorderdatedSeptember16,2011,wasrequiredtoberecalled.
300
CITv.MangiLal(2013)352ITR422(Raj.)(HC)
S.147:ReassessmentNoticeafterfouryearsInformationregardingtransportsubsidyavailablein
auditedaccountsandstatementsReassessmentwasnotvalid.
Theassesseehaddisclosed,veryclearlyandthoroughly,itstransportsubsidyreservewas.TheRevenue
couldnotsaythattheassesseedidnotdiscloseallsuchmaterialfacts.Therewasnoomissionorfailure
onthepartoftheassessee.Reassessmentwasnotvalid.(A.Y.19971998)
CITv.SonitpurSolvexLtd.(2013)352ITR305/258CTR420/215Taxman87/85DTR262(Gauhati)(HC)
S.147:ReassessmentRetrospective amendmentNotice beyond four yearsReassessment held to be
invalid.[S.80HHC]
Whether when Legislature amends provisions of Act with retrospective effect, it cannot be said that
therewasfailureonpartofassesseetodisclosefullyandtrulyallmaterialfactsrelevantforpurposeof
assessment.Therefore,reassessmentproceedingswereliabletobesetaside.
CITv.K.MohanandCo.(Exports)(Regd.)(2013)349ITR653/214Taxman17(Mag.)(Bom.)(HC)
S.147:ReassessmentGrounds for reopeningNo opinion in assessment order regarding allowability
Reassessmentwasheldtobeinvalid.[S.80IB].
Inspiteoffulldisclosure,theAssessingOfficergavebenefitoftheprovisionbyconsideringthematerials
onrecord.ThefactthattheAssessingOfficer,intheassessmentproceedingsundersection143(3),did
notgiveanyopinionregardingtheallowabilityorotherwiseofdeductionundersection80IB(10)isnot
agroundforinvokingsection147
GaneshHousingCorporationLtd.v.Dy.CIT(2013)350ITR131/214Taxman18(Mag.)(Guj.)(HC)
S.147:ReassessmentNondisclosure of primary factsChange of opinion One year within two years
otheryearsbeyondfouryearsReassessmentwasheldtobeinvalid.[S.80IB,143(3)].
Since the AO had also noted that the eligibility of the assessee for claiming a deduction under section
80IBhasbeendulyverified,itwouldbetotallycontrarytotherecordforhimtostatethatthenatureof
the activity of the assessee was not verified during the course of the assessment proceedings. For
assessment years 200708 and 200809, reopening the assessment on this ground would amount to
changeofopinion(A.Ys.200506to200809).
DynacraftAirControlsv.SnehaJoshi(Smt.)(2013)214Taxman183(Bom.)(HC)
S.147:ReassessmentGroundofreassessmentdroppedOtherincomecannotbeassessed.[S.148].
Wheregroundonwhichreassessmentnoticeunder section148wasissuedwasdroppedwhilepassing
reassessmentorder,AssessingOfficercouldnotreassessorassessanyotherincomewhichhasescaped
assessment and comes to his notice in reassessment proceedings. Hence, the reassessment order was
liabletobesetaside(A.Y.199900).
CITv.DoubleDotFinanceLtd.(2013)214Taxman47(Mag.)(Bom.)(HC)
301
S.147:ReassessmentQuaantum of escaped tax Reopening invalid if reasons silent on
quantumofescapedtax.(S.148,149,151)
InAY20002001theassesseesoldaplotoflandafterconvertingleaseholdlandintofreehold.
The capital gains arrived at was offered as LTCG and the same was accepted by the AO. After
the expiry of 4 years, the AO issued a notice u/s 148 for reopening the assessment on the
groundthatasthepropertywassoldwithinthreeyearsofconversionintofreehold,thegains
were assessable as STCG. The approval of the Joint/ Addl. CIT was obtained. However, in the
recorded reasons, it was not stated whether the amount of income escaping assessment
exceededRs.1lakh.Theassesseechallengedthereopeningonthegroundthatastherecorded
reasonsdidnotstatethattheincomeescapingassessmentisRs.1lakhormore,thereopening
wasinvalid.HELDbytheHighCourtupholdingtheplea:
S.149(1)(b)providesthatnonoticeu/s148shallbeissuedaftertheexpiryof4yearsfromthe
end of the relevant AY unless the income chargeable to tax which has escaped assessment
amountstoRs.1lakhormore.Undertheprovisotos.151(1),nonoticeu/s148canbeissued
aftertheexpiryoffouryearsfromtheendoftherelevantAYunlesstheCCIT/CITissatisfiedon
the reasons recorded by the AO that it is a fit case for issue of such notice. Accordingly, it is
imperativethattheAOshouldstateintherecordedreasonsthattheescapedincomeislikelyto
beRs.1Lakhormoresothatthesanctioningauthorityisawarethatithasexercisedpowerof
extendedperiodoflimitationu/s149(1)(b)andappliesitsmindaccordingly.Asanctiongiven
without being aware of this fact is not valid. On facts, as there is nothing in the recorded
reasonstosuggestthattheincomechargeabletotaxwhichhasescapedtheassessmentisRs.
onelakhormore,thereopeningisnotvalid.(A.Y.20002001)
MaheshKumarGuptav.CIT(2013)215Taxman114(Mag.)(All)(HC)
S.147:ReassessmentReasontobelieveReopeninghastobeonthebasisofsometangible
materialavailabletotheAssessingOfficer.Onthesamematerialreassessmentheldtobenot
valid.(S.80IA(4)
Exerciseofreopeninghastoonthebasisofsometangiblematerialbecomingavailablewiththe
Assessing Officer. There has to be a rational connection and a live link between the material
discoveredandtheformationofbeliefbytheAssessingOfficer.OncetheAssessingOfficerhad
applied his mind and allowed deduction u/s. 80IA(4) to the assessee on the basis of material
before him, it was not permissible for him to reopen the assessment u/s. 147 on the same
materialonthegroundthatcertainaspectswerenotconsideredorthattheywereoverlooked;
achangeofopinionisnogroundforexerciseofpowersu/s.147.(A.Y.200708)
AgrawalJVv.ITO(2013)83DTR101/257CTR112(Guj.)(HC)
S.147:ReassessmentProviso Full and true disclosure Notice after expiry of four years.
(S.80M,148.)
Assesseehadclaimeddeductionu/s.80MwhichtheAOgrantedwithoutdiscussingtheissuein
the order and without looking into the provisions of the Act. The AO had erred while framing
the original assessment. Therefore, merely by adding a line in the reasons recorded that the
assesseehadfailedtodisclosefullyandtrulyallmaterialfacts,therequirementsoftheproviso
tos.147wouldnotbesatisfied.Reassessmentwasheldtobeinvalid.(A.Y.199596)
302
Himson Textile Engineering Industries Ltd. v. N.N. Krishnan or His Successor to Office (2013)
83DTR132(Guj.)(HC)
S.147:Reassessment Change of opinionReassessment on same set of facts was held to be
badinlaw.(S.148)
AdifferentviewtakenonthesamesetoffactsamountstochangeofopinionReopeningon
changeofopinionisbadinlaw.(AY.200607)
PraveenP.Bharcuhua(Mrs)v.Dy.CIT(2013)256CTR346(Bom)(HC)
S.147:ReassessmentThe expression reason to believe cannot be restrictively construed
The formation of belief by the assessing officer must always be tentative and not a firm or
finalconclusionReassessmentwasheldtobevalid.
Oncetherearereasonsfortheassessingofficertobelieve,whethersuchreasonsoriginateout
oftherecordalreadyscrutinizedorotherwise,heshallbewithinhiscompetencetoinitiatethe
reassessment proceedings. The formation of belief by the assessing officer must always be
tentativeandnotafirmorfinalconclusionasthelatterwillnegatetheveryobjectofgivingan
opportunity of hearing to the assessee. Reassessment based on agreement to sale which was
signedbybothpartiesisheldtobevalid.(A.Y.200102)
ArunKumarGoyalv.CIT(2013)81DTR123/215Taxman692/255CTR330(P&H)(HC)
S.147:Reassessment Notice beyond four years At the time of original assessment no

failuretodiscloseReopeningnotsustainable.
Where the assessee had furnished full and true particulars at the time of original assessment
under section 143 (3) and there was no failure on his part to disclose.The reopening of
assessment made after four years from the end of the relevant previous year was held to be
invalid.(A.Y.200304)
CITv.ConvertechEquipmentP.Ltd.(2013)81DTR409(Delhi)(HC)
S.147:ReassessmentFullandtruedisclosureNoticeafterexpiryoffouryearsNoticewithin
four yearsChange of opinion Remuneration to directorsNo tangible material Reopening is
badinlaw.(S.36(1)(ii),148)
Assessee company in the course of original assessment proceedings, has explained the nature
ofthepaymentbasisofcomputationandrationaleforcomputingtheremunerationpaidtothe
directors partly with reference to fixed amount and partly as a proportion of the net profit,
whichwasacceptedundersection143(3).TheAssessingOfficerreopenedthesaidassessment
on the ground that the payment made to a director who is a shareholder is not covered by
section 36((1) (ii) to be eligible for deduction. The Assessee challenged the said notice by writ
petition,theCourtquashingthenoticeheldthatthereassessmentwasbasedonapurechange
ofopinionandnotontangiblematerialandhenceitisimpermissibleinlaw.Inrespectofnotice
issued after four years the notice was quashed on the ground that in the absence of any
allegationinthenoticethattherewasfailureonthepartoftheassesseetodisclosurefullyand
trulymaterialfactsfortheassessment,reopeningofassessmentdoesnotfulfilltherequirement
setoutintheprovisotosection147,thereforethenoticewasquashed.(A.Y.200506,200607,
200708,200809))
OHM Stock Brokers (P) Ltd v.CIT(2013) 351 ITR 443/258 CTR 90/85 DTR 111/215 Taxman 53
(Bom.)(HC)
303
S147:ReassessmentDeductionatsource194Cisnotapplicableinthefirstyearofoperation
Consequently,noticeissuedu/s148todisallowexpenditurefornoncomplianceofs.194Cis
liabletobequashed.(S.143(3),194C)
Anoticeu/s148wasissuedwithinaperiodoffouryearsformtheendofrelevantAsst.Yearso
as to disallow an amount of Rs. 3,07,59,872/ in respect of labour charge on the pretext that
the assessee failed to deduct tax at source u/s. 194C at the time of making the said payment.
Assessmentwasframedearlieru/s.143(3)withoutmakingdisallowanceinrespectofthesame.
According to Proviso to Section 194C(2) an individual or HUF is supposed to deduct tax at
sourceonlyifitstotalsales,grossreceiptsorturnoverfromitsbusinessorprofessionexceeds
monetary limits specified under clauses (a) or (b) of Section 44AB during the financial year
immediately preceding the financialyear in which such sum is creditedor paid. This being the
firstyearofoperation,thesaidconditionisnotfulfilledandhencetheassesseeisnotsupposed
todeducttaxu/s.194CHenceAOsreasontobelievethatincomechargeabletotaxincaseof
assessee has escaped assessment is without foundation andlacks validity. Accordingly, the
impugnednoticeissuedu/s.148isquashed.(SCA12243of2009,dt,16/07/2012)](2012)
HarshadbhaiNaranbhaiBagadia.(2012)BCAJNovemberP.399/(2013)86DTR89(Guj.)(HC)
S.147:ReassessmentNoticeReturnnonestOnceDepartmentacceptsthetaxpaidunder
returnsofincomefiledbyanassesseewithouteverquestioningthatsuchreturnswerefiled
beforeawrongofficer,itcannotlatercontendthatsuchofficerhadnojurisdictiontoaccept
thesame.[S.143(1),143(3,148]
Assessee had filed its return of income before his normal Assessing Officer which were
accepted by such officer u/s.143(1) whereas hewas actually supposed to file the same before
the special Assessing officer designated as such consequent to search action at the assessees
premisesinthepastHence,theassessmentwassoughttobereopenedonthesolegroundthat
assesseehadfiledreturnofincomewithotherwardswithmalafideintentions.Itwasheldby
the Honble High Court that the assessee had discharged his liabilities by filling returns of
income and the same being accepted vide intimation u/s.143(1)Since the Department has
acceptedthetaxpaidundersuchreturnswithouteverquestioningfillingofsuchreturnbeforea
wrongofficer,itcannotnowbeallowedtocontendthatsuchreturnswerefiledbeforewrong
officerswhohadnojurisdictiontoacceptthesame.Sincethesolegroundforsuchreopening
oftheassessmentwasnotsustainablenoticeu/s.148werequashed.(A.Y.199798)
BipinkumarP.Khandheria(2012)BCAJNovemberP.402/(2013)354ITR268(Guj.)(HC)
S.147:ReassessmentAdvanceRulingBindingPrecedentReassessmentbasedonsomeother
casethedecisionwasoverruledcannotbethegroundforreassessment.(S.245S,263).
Theassessee,aforeigncompanyhavingresidentialstatusofnonresident,hadapproachedthe
AuthorityforAdvanceRulings,wherebyitwasheldthatprofitsarisingtoitfromrealizationof
portfolio investments in India will be treated as business profits. The loss on sale of shares
claimed by the assessee under the head 'profits and gains from business or profession' was
accepted by the Assessing Officer under section 143(3).A notice to reopen assessment under
section 147 was issued on grounds that the Advance Ruling in assessee's own case was
overruled by a subsequent Advance Ruling in another case, which held that earnings on
304
purchaseandsaleofshareswouldbetaxableunderthehead'capitalgains'andnot'profitsand
gainfrombusinessorprofession.Consequently,areassessmentorderwaspassed. The
TribunalsetasidetheorderoftheAssessingOfficerongroundsthatfortwootherassessment
years, the Director of Incometax had initiated proceedings under section 263 on identical
grounds which had been set aside in a writ petition, the Court held thatAdvance Ruling in
assessee's own case cannot be overruled by a subsequent Advance Ruling in case of another
assessee ,accordinglyreopening of assessment under section 147 on above ground was not
valid, particularly when there was no failure on part of assessee to make full and true
disclosure.Infavourofassessee.(A.Y.200304)
DIT.v.PrudentialAssuranceCo.Ltd.(2013)352ITR66/213Taxman111(Bom.)(HC)
S.147:ReassessmentExchangeofinformationDTAAIndiaJapan.Reassessmentproceedings
initiated on basis of information received from Government were held to be valid.
(S.90,148,Art.26)
For the assessment year 200607, the assessee's return was processed under section 143(1).
Subsequently, the Assessing Officer received information from the Government of India that
the assessee had received certain amount from a Japanesecompany. Since said amount was
not shown in books of account by the assessee, a notice was issued under section 148.The
assesseechallengedtheimpugnednoticeininstantwritpetition.Revenuecontendedthatthe
informationwasreceivedfromtheforeigntaxauthoritiesundertheaegisoftheOECDonwhich
the respondent had no control and hence, the credibility of the information could not be
questioned. Assessee contended that the Japanese authorities had no authority to verify the
accountsoftheassesseetofindoutwhethertheamountinquestionhadbeenaccountedforin
its books and, therefore, the Assessing Officer was not right in stating that the information
receivedfromtheJapaneseauthoritiesrelatedonlytotheamountnotdisclosedinthebooksof
accountoftheassessee.ThematerialinthepossessionoftheAssessingOfficercouldnotinany
case constitute 'reason to believe' so as to clothe him with jurisdiction to reopen the
assessment.The court held that the very fact that this information was received from a
Governmentagencyunderarticle26ofDTAA,samewouldconstitutelivelinkornexusbetween
material and formation of belief that income to that extent had escaped assessment. (A.Y.
200607)
Mitsui&CompanyIndia(P.)Ltd.v.ITO(2013)213Taxman32(Delhi)(HC)
S.147:ReassessmentNoticeShare application moneyInformation from Investigation Wing

that assessee one of beneficiaries of accommodation entriesShare applicants confirming
factum of application for shares and of funds for such shares in response to notice under
section 133(6) at time of original assessmentReassessment on ground information neither
available with Department nor did assessee disclose information at time of assessment
proceedings,noticewasheldtobenotvalid.(S.143(3),148)
In the course of the assessment proceedings under section 143(3) of the Act, the Assessing
Officer issued a questionnaire to furnish the details of the share capital introduced and the
share application money received but there was no response from the assessee to the
questionnairetillDecember,2009.OnAugust24,2009,theAdditionalCommissionercirculated
a letter to all Assessing Officers including the Assessing Officer of the assessee. The letter was
305
onthesubjectofalistofbeneficiariesofaccommodationentries.Thereafter,onNovember9,
2009,theassesseefurnishedareplytothequestionnaireandgavedetailsofthesharecapital
raised by it and furnished confirmations from the parties. The Assessing Officer, in order to
furtherverifyandconfirmthefacts,issuednoticesundersection133(6)totheshareapplicant
companiesdirectlyandallthefivecompaniesrespondedtothosenoticesandreaffirmedtheir
respective confirmations. Thereafter, assessment was framed on December 30, 2012. The
assessment was reopened and the main reason for reopening the assessment of the assessee
was that there were bogus accommodation entries and the assessee was one of the
beneficiariesoftheaccommodationentriestotheextentofRs.1,35,00,000.Thereasonsalso
indicatedthattheinformationthattheentrieswereaccommodationentriesandwereprovided
by bogus companies were not available with the Assessing Officer at the time the assessment
was done under section 143(3). On a writ petition : Held, allowing the petition, that the plea
taken in the reasons that the information was "neither available with the Department nor did
theassesseedisclosetheinformationatthetimeofassessmentproceedings"wasfactuallynot
correct. The information was available with the Department and it had been circulated to all
theAssessingOfficers.TherewasnothingtoshowthattheAssessingOfficerdidnotreceivethe
information. There was also nothing to show that the Assessing Officer had not applied his
mind to the information received by him. On the contrary, it was apparently because he was
mindfuloftheinformationthatheissuednoticesundersection133(6)directlytothepartiesto
confirmthefactumofapplicationofsharesandthesourceoffundsofsuchshares.Therefore,
the very foundation of the notice under section 148 was not established even ex facie.
Consequently, it could not be said that the Assessing Officer had the requisite belief under
section 147 and, as a consequence, the notice and the order rejecting the objections were
liabletobequashed.(A.Y.20072008)
Pardesi Developers and InfrastructurePvt.Ltdv.CIT(2013) 351 ITR 8/258 CTR 411/86 DTR 120
(Delhi)(HC)
S.147:ReassessmentNotice After four yearsIncorrect allowance of deduction Assessing

Officer raising specific queries and considering material before him, reassessmentheldto be
invalid.(S.148)
Theassesseeisengagedinthebusinessofmanufacturingandsaleofvarioustypesof
pharmaceuticalproducts.Noticeundersection148oftheAct,wasissuedtotheassesseeafter
theexpiryoffouryearsfromtheendoftheassessmentyear200304forthereasonsthat
incorrectallowanceofdeductionhadbeengranted(i)inrespectofroyaltyreceivedfrom
foreignenterprise;(ii)inrespectofexportprofits;(iii)inrespectofprofitsandgainsfrom
newlyestablishedundertakings;and(iv)ofnonbusinessexpenditure.Detailedobjectionswere
givenbytheassesseeexplainingeachofthereasons.However,theAssessingOfficerdidnot
accepttheobjectionsandrejectedthem.Onawritpetition:
Held,allowingthepetition,thatinsofarasallthereasonsotherthanthereasonpertainingto
clubexpenseswereconcerned,specificquerieshadbeenraisedandtheAssessingOfficerhad
consideredthematerialplacedbytheassesseebeforehiminthecourseoftheoriginal
assessment.Asregardstheclubexpenses,itwasstatedthatsincenospecificqueryhadbeen
raised,Explanation1wouldgetattracted.Thiscouldnotbeacceptedbecausetheclub
expenseswerespecificallymentionedinthetaxauditreportinForm3CDwhichwasannexed
306
alongwiththereturn.Thiswasaclearstatutorydisclosureonthepartoftheassesseewith
regardtotheclaimofclubexpenditure.Itwasnotapieceofevidencewhichwashiddenin
somebooksofaccountandwhichtheAssessingOfficercouldhavepossibly,withduediligence,
discovered.Onthecontrary,thiswasmaterialwhichwasplacedbeforetheAssessingOfficer
alongwiththereturnwhichtheAssessingOfficerwasdutyboundtogothroughbefore
completingtheassessment.Therefore,thecasecouldnotfallinthecategoryofmaterialwhich
wasreferredtoinExplanation1tosection147.(A.Y.20032004)
RanbaxyLaboratoriesLtd.v.Dy.CIT(2013)351ITR23/213Taxman91(Delhi)(HC)
S.147:ReassessmentNoticeDutytodiscloseprimaryfactsLicencefeeforuseofgoodwill
Claim based on terms and conditions of licence agreementFailure on part of assessee to
furnish primaryfactsfullyandtrulyattimeoforiginalassessmentnoticeisheldtobevalid
Notice need not contain list of documents required to be furnished, but not actually
furnished,bytheassessee.(S.143(1),148.)
Fortheassessmentyears200203to200607,amountspaidbytheassesseeunderalicence
agreementforuseofgoodwillwereclaimedandallowedasdeduction.Inthecourseofthe
assessmentproceedingsfortheassessmentyears200304,200405,200506and200607the
assesseedidnotfurnishthelicenceagreementbeforetheAssessingOfficer.Inthecourseof
theassessmentproceedingsfortheyear200708thelicenceagreementwasexaminedbutthe
claimfordeductionofthelicencefeepaymentwasfoundnotallowable.Thereafter,notices
wereissuedonthegroundthattheassesseehadnotdisclosedallmaterialfactscorrectlyand
fullyandtherewasfailureonitsparttodisclosefullyandtrulyallmaterialfactsnecessaryfor
itsassessmentintermsoftheprovisotosection147oftheIncometaxAct,1961,byreasonof
whichtherewasescapementofincomechargeabletotax.Onawritpetitioncontendingthat(i)
thereasonsrecordedforreopeningtheassessmentdidnotallegethattheassesseefailedto
filethelicenceagreementnorwasthereanythinginthecounteraffidavittothateffectand,
therefore,itwasnotopentotheRevenuetotakeupthatpointforthefirsttimebeforethe
court;and(ii)thepartnershipdeedwhichwasfiledinthecourseoftheoriginalassessment
proceedingsnarratedthehistoryofthefirminthepreamblewhereintherewasareferenceto
thepaymentofthelicencefeeasalsototheagreement,whichwouldamounttosufficient
disclosure.Held,dismissingthepetitions,(i)thatitwasnotnecessaryfortheAssessingOfficer
tolistthedocumentsthatwererequiredtobefurnished,butnotactuallyfurnished,bythe
assesseeinthecourseoftheoriginalassessmentproceedings.Theprimaryconditionfor
reopeningassessmentisthatthereshouldbereasontobelievethatincomechargeabletotax
hadescapedassessment.Theclaimfordeductionofthelicencefeepaymentundeniablywas
basedonthetermsandconditionsofthelicenceagreement.Neitherthepartnershipdeednor
theletterinquestioncouldbeconsideredtobeprimaryfactsonthebasisofwhichan
inferenceastotheallowabilityofthelicencefeepaymentcouldbeproperlydrawnbythe
AssessingOfficer.Theprofitandlossaccount,thetaxauditreportanditsannexuresandthe
repliestothequestionnaireissuedbytheAssessingOfficerinthecourseoftheoriginal
assessmentproceedingsdidnotcontainanythingwithregardtothelicencefeeagreement.
Thisdisclosurewasonlyforthepurposeofsection40A(2)(b)whichpermitstheAssessing
Officertodisallowsuchpaymentstotheextenttheywerefoundtobeunreasonablehaving
regardtothevariousfactorsspeltoutinthesection.Furnishingoftheseparticularscouldinno
307
waybeconsideredasfurnishingtheprimaryfactsinrelationtotheallowabilityofthepayment
ofthelicencefeeswhichcouldbeadjudicatedupononlyifthetermsandconditionsstipulated
intheagreementweremadeknowntotheAssessingOfficer.
(ii)ThatitisdifficulttoattributeanyknowledgetotheAssessingOfficerwhileheisdealingwith
a return for a particular year under section 143(1), as to what he had done in the case of the
same assessee in the earlier assessment years. Therefore, it would not be correct to say that
the Assessing Officer consciously allowed the licence fee payment as a deduction when he
accepted the return under section 143(1). There is nothing in section 147 prohibiting the
reopening of an assessment completed under section 143(1) on the ground that the assessee
failedtofurnishtheprimaryfactsfullyandtruly.Therefore,failuretofurnishtheprimaryfacts
would constitute reason to believe authorising the issue of notice under section 148 also in a
case where the first assessment was made by a mere processing of the return under section
143(1).(A.Y.20022003to20062007)
RemfryandSagarv.CIT(2013)351ITR75/84DTR65/213Taxman268(Delhi)(HC)
S.147:ReassessmentChange of opinionSpeculative transactionHedging LossCommodity

exchangeReopeningofassessmentonthebasisthattheExchangewasrecognizedonlywith
effectfrom2252009thetransactionwouldnotbecoveredundersection43(5)(d)washeld
tobenotvalidduetochangeofopinion.(S.43(5),143(3)
Theassessee, engaged in wholesale business of gold and silver, claimed losson hedging of
metalsincommodityexchangetoinsureagainstpricefluctuation.Thesaidlosswasallowedin
thecourseofassessmentproceedingsundersection143(3).TheAssessingOfficerproposedto
reopen the assessment on the ground thatexchange was recognized in a subsequent year. In
assessment it was not case of Assessing Officer that impugned hedging transactions did not
satisfy condition of section 43(5) (a). Court held thatany postassessment attempt on part of
AssessingOfficertofallbackonconditionsrequiredtobesatisfiedforapplicationofsubclause
(a)wouldamounttochangeofreasonsrecordedforreopening;andanysuchinquirywouldbe
whollyafishinginquiry,therefore,noreopeningwastobeallowed.Infavourofassessee(A.Y.
200708,200809)
JayeshRaichandShahvACIT(2013)212Taxman306(Guj.)(HC)
S.147:ReassessmentIncome deemed to accrue or arise in IndiaDTAA India USA Failure to

file return of income would invite action to reopen assessment on ground of escapement of
income.(S.9(1)(i))
PetitionerUScompanyoutsourceditscorebusinesstoitsIndiansubsidiaryCISPL.CISPLworked
exclusively for petitioner. According to revenue default in filing return would per se attract
provisionofsection147,readwithExplanation2(a).Courtobservedthatapartfromprimafacie
existence of a business connection there was also material to entertain belief that Indian
subsidiarywasapermanentestablishmentofforeigncompanyinIndia. Therewasprimafacie
material in possession of Assessing Officer to form a tentative belief that section 9(1) (i) was
attracted and this reason by itself would constituted a relevant ground to reopen petitioner's
assessments,thereforemerefailuretofilereturnofincome(thoughassesseeisliabletodoso)
would invite action to reopen assessment on ground of escapement of income and this has
beenprovidedinExplanation2(a)belowsection147.(A.Y.200203to200405)
308
ConvergysCustomerManagementvADIT(2013)212Taxman613/255CTR482(Delhi)(HC)
S.147:ReassessmentNondisclosure of primary facts Notice after Expiry of four years Tax

royalties under section 44DWhere agreements were on record, reassessment were not
justified, however where agreements were not available on record the assessments were
justified.(S.44D)
Assessee, a Singapore based company, had a Branch Office (B.O.) in India. It is engaged in
providing technical consultancy in area of road construction to NHAI in India. Assessee also
entered into a subconsultancy contract with respect to same NHAI project with one 'Q'
Assessee filed its returns wherein gross receipts from NHAI were offered to tax under section
44D.Assessmentwascompletedundersection143(3).SubsequentlyAssessingOfficerinitiated
reassessment proceedings holding that payments made to 'Q' a subcontractor, were to be
included in taxable income of assessee. It was noted from records that as regards assessment
years 200405 and 200506 agreement between assessee and NHAI and agreement between
assesseeand'Q'wereavailableonrecords.However,forassessmentyears200203and2003
04, agreement between assessee and 'Q' was not in assessment records and, thus, there was
concealmentoffactonpartofassessee.Courtheldthatonfacts,reopeningofassessmentfor
assessment years 200405 and 200506 was not sustainable however, said proceedings were
validlyinitiatedforassessmentyears200203and200304.((A.Y.200203to200506)
MeinhardtSingaporePteLtd.vADIT(2013)212Taxman637/81DTR283/256CTR143(Delhi)
(HC)
S.147:Reassessment Export oriented undertakingReason to be liveSetting off loss of one

eligibleunitagainstprofitofanothereligibleunitReassessmentwasnotvalid.(S.10B)
Inoriginalassessmentassesseedeclaredprofitinrespectofitstwounitsandclaimeddeduction
undersection10A/10Bbutonaccountoflosssituationitclaimednildeductioninrespectofits
third unit and had also submitted Forms 56F/56G along with return. Assessing Officer
specifically examined said claim in detail and allowed deduction with some modifications.
Subsequentlyon2372010i.e.afterexpiryoffouryearsfromendofrelevantassessmentyear,
Assessing Officer reopened assessment by invoking proviso to section 147 on ground that
assesseeactedincorrectlyinnotsettingofflossesofoneeligibleunitagainstprofitsofanother
eligible unit. On challenge to reassessment by way of writ the Court held thatsince 'reason to
believe' note was silent as to what tangible materials had persuaded revenue to invoke
extraordinarypowersunderprovisotosection147,reopeningwasunjustified.(A.Y.200405)
Moser Bare India Ltd. v. Dy. CIT (2013) 81 DTR 10 / 212 Taxman 139(Mag.)/255 CTR 128
(Delhi)(HC)
S.147:Reassessment DTAA IndiaUSASince all facts relating to royalty income had been
placedonrecordincourseofassessment,initiationofreassessmentproceedingsonbasisof
changeofopinionwasnotsustainable.(S.9,44D,115A,Art.12).
The assessee, a nonresident company, had entered into a master licensing agreement (MLA)
with MIPL. In terms of said arrangement the MIPL was granted nonexclusive right to use the
assessee'ssystematagreedlocationsinIndia.ThetermsalsorequiredMIPLtopaytheassessee
initialfranchisefeeupontheopeningofeachrestaurantandroyaltyonrecordedmonthlysales
309
of each restaurant during the period. For the relevant assessment years, scrutiny assessments
werecompletedaftertherelevantdocumentsandmaterialswereconsidered.Subsequently,a
noticewasissuedundersection148proposingtoreopentheproceedings.Theassesseefiledits
return and assessment was completed. On said occasion, the Assessing Officer accepted the
assessee's submissions that the rate of taxation applicable was 15 per cent as originally held
andassessedtheroyaltyreceiptsinrespectoftherelevantassessmentyears.Aftercompletion
of reassessment proceedings, again in respect of the same assessment years the Assessing
Officersoughttoinitiateproceedingsafresh.Thereasonforreopeningtheassessmentwasthat
article 12(6), read with article 7 of DTAA between India and USA provides that where an
assesseewasearningincomeinthenatureofRoyaltyorFeesforTechnicalServicesthrough a
permanent establishment situated in the other State, such income was taxable as business
income in accordance with the domestic provisions of the State of source. Therefore, in such
case section 44D, read with section 115A should be applied. The assessee filed its return in
response to notice issued under section 147. The income was held to be taxable in terms of
section 115A, read with section 44D at the rate of 30 per cent. On appeal, the Commissioner
(Appeals)acceptedtheassessee'scontentionthatsincebasicfactsrelevantforroyaltyincome
had been disclosed with other material, inference sought to be drawn could hardly be
characterized as 'reasons to believe'. He thus set aside the reassessment proceedings. The
Tribunal upheld the decision of the Commissioner (Appeals). On appeal by revenue the Court
held thatsince all facts relating to royalty income had been placed on record in course of
assessment, initiation of reassessment proceedings on basis of change of opinion was not
sustainable.(A.Y.200001,200102)
DITv.McDonaldsCorporation(2013)213Taxman26(Delhi)(HC)
S.147:Reassessment proceedings Property held for charitable purposes Accumulation of

income Entire accumulated income shall be deemed to be income of assessee of previous
year in which breach of conditions or contingency occurs, reassessment for all assessment
yearswasheldtobeinvalid.(S.11,13,35,47)
Assessee is a scientific research society approved by competent authority under section 35(1)
(ii). For relevant assessment years, assessee's income was held as exempt from tax. On 14
2000, assessee transferred its properties to its sister concern. Assessing Officer thus taking a
viewthatassesseeviolatedprovisionsofsection13(2)(g),readwithsection13(3)(b),initiated
reassessmentproceedings.Duringreassessmentproceedings,AssessingOfficerhavinginvoked
provisions of section 11 (3), brought, balance of accumulated income at end of each relevant
year, to tax.The assessee challenged the reassessment proceedings by filing the writ petition.
Allowing the writ petition the court held thatin view of provisions of section 11 (3), entire
accumulated income shall be deemed to be income of assessee of previous year in which
breachofconditionsorcontingencyoccurs,therefore,itwasimpermissibleinlawforAssessing
Officertoentertainareasontobelievethatincomechargeabletotaxforallassessmentyears
in question had escaped assessment, in view of above, impugned addition made in
reassessmentproceedingswastobedeleted.Infavourofassessee.(A.Y.199899to200001)
EscortsHeartInstitute&ResearchCentre.v.CIT(2013)213Taxman11(Delhi)(HC)
310
S.147:Reassessment Change of opinionWithin period of four yearsIf there is no fresh
tangiblematerialreassessmentisnotvalidReasonscannotbesupplemented/improvedupon
later.(S.148)
When assessee disclosedall relevant facts,even in case of reopening of assessment within
period of four years from the end of the relevant assessment year, the Assessing Officer has
reasontobelievethatincomechargeabletotaxhasescapedassessmentonthebasisoftangible
material, there being no fresh tangible material which would warrant taking a view different
fromonetakenduringtheregularassessmentproceedings,reopeningwasnotsustainable.The
reasons recorded at the time of issuing noticecannot besupplemented /improved upon later.
Writpetitionofassesseewasallowedandnoticewasquashed.(A.Y.200708)
NDTSystemsv.ITO(2013)81DTR1/255CTR113(Bom.)(HC)
S.147:ReassessmentChangeofopinionBeyondfouryearsThirdprovisoMergerTherewas
no failure on part of assessee to disclose full and true particulars, and order of original
assessment was merged with order of the appellate Authority, hence thereassessment held
tobeinvalid.(S.80IA(8)).
The assessee is in the business of generation of distribution of electricity. Deduction under
section80IAwasallowedundersection143(3).Reassessmentnoticewasissuedontheground
that the assessee has claimed excess deduction under section80IA.Reasseswsment order was
challengedbeforetheCommissioner(Appeals).Commissioner(Appeals)heldthattherewasno
failure on the part of assessee hencethe reassessment was not valid. Tribunal also
confirmedtheorderofTribunal.OnappealbyrevenuethecourtheldthatorderofMaharashtra
Electricity Regulatory Commission was passed by MERCon 1
st
July, 2004 and that order
specificallydealtwithfixationoftariffrateforconsumerandhadnothingtodowiththeactual
profitsearnedbyapowergenerationplant;TheCourtheldthatreopeningofassessmentwas
also barred by in view of the third proviso section 147since the quantum of deductionunder
section 80IA was subject matter of appeal before the Commissioner (Appeals) and the
Tribunaland consequently, the order of original assessment had merged with the order of the
appellateauthority.Accordinglytheappealofrevenuewasdismissed.(A.Y.200102)
CITv.RelianceEnergyLtd(2013)81DTR130/255CTR357/214Taxman64(Mag.)(Bom.)(HC)
S.147:ReassessmentChange of opinionThird proviso MergerOrder of original assessment

merged with order of the appellate Authority, hence thereassessment held to be invalid.
(S.80IA(8)).
The Court held that reopening of assessment wasbarred in view of the third proviso section
147sincethequantumofdeductionundersection80IAwassubjectmatterofappealbeforethe
Commissioner (Appeals) and the Tribunaland consequently, the order of original assessment
had merged with the order of the appellate authority. Accordingly the appeal of revenue was
CIT v. Reliance Energy Ltd (2013) 81 DTR 138/255 CTR 365/213 Taxman 185 (Mag.) (Bom.)
(HC)
S.147:ReassessmentNondisclosureofprimaryfactslossesFactsdifferentfromrecorded
reasonswasheldtobenotvalidhencereassessmentheldtobeinvalid.
311
While making assessment for assessment year 199697, Assessing Officer held that loss in
shareshadbeenfraudulentlyclaimed.Accordinglyassessmentforrelevantyearwasreopened
assigningreasonsthatpositionmentionedinassessmentyear199697 alsoexistedinrelevant
year.Asfactsofsubsequentyearwerealtogetherdifferentfromfactsofrelevantyear,reasons
recordedbyAssessingOfficerwasnotvalid.Thusaccordingly,reassessmentproceedingswere
tobequashed.(A.Y.199596)
CITv.Kanodia&Sons(2013)212Taxman55(Mag.)(All.)(HC)
S.147:ReassessmentNoticeafterfouryearsChangeofopinionInspectionreportindicating
two different unitsReopening on basis of report to withdraw deduction under section 80IA
isachangeofopinionheldtobenotvalid.(S.80IA,148)
The assessment wascompleted under section 143(3) and deduction under section 80IA was
allowed. The assessment was reassessed after four yearson the inspection report indicating
different units to withdrawthe deduction under section 80IA. The assesseechallenged the
reassessment proceedingsallowing the petition, the Court held that this wasnota case where
the assessee has failed to disclosefully and truly all material facts and the pre conditionsfor
triggeringtheexceptionintheprovisotosection147werenotsatisfied,thusreassessmentwas
setaside.(A.Y.20002001)
NTPCLtd.v.Dy.CIT(2013)350ITR614/256CTR217(Delhi)(HC)
S.147:Reassessment Notice after four years on the basis of complaint ofDirector of

assesseeHeldtobevalid.(S.148)
Theassesseeisengagedinthebusinessofrunninghotelsconsistingoffiveindependentunits.
Fortheassessmentyear200304,theassessee'scasewasselectedforscrutinyandafterissuing
noticesundersections143(2)and142(1)oftheIncometaxAct,1961,andafterexaminingthe
details furnished by the assessee, an assessment order was passed under section 143(3).
Thereafter, notice under section 148 was issued to reopen the assessment. The assessee
challenged the reassessment dismissing the writ petition the court held that; Director of
assessee complaining before statutory authority that assessee had siphoned off monies as
foreign travelling expenses and under agreement no obligation of assessee to incur such
expenses. No details furnished at time of original assessment towards travelling expenses. No
denialofsuchaclauseinagreement.Onfactsfailuretodisclosefullyandtrulyallmaterialfacts
on the basisof Complaint constituting tangible material hence reassessment held to be valid.
(A.Y.200304,200405,200506)
Rambagh Palace Hotels P. Ltd. v. Dy. CIT (2013) 350 ITR 660/214 Taxman 166/82 ITR 177
(Delhi)(HC)
MaharajJaiSinghv.ITO(2013)350ITR660/82DTR177(Delhi)(HC)
MaharajPritvirajSinghv.ITO(2013)350ITR660/82DTR177(Delhi)(HC)
S.147:ReassessmentNotice after four years Travellingand repair and maintenance

Reassessmentheldtobeinvalid.(S.148)
Fortheassessmentyear200405,thereturndeclaringlossoftheassesseewasfirstprocessed
and accepted under section 143(1) but was later selected for scrutiny and notice was issued
undersections143(2)and142(1).Questionnaireswerealsoissuedcallingfordetailsrelatingto
312
fixedassets,loansandadvances,openingandclosinginventory,sundrydebtors,lossonsaleof
fixedassets,repairsandmaintenanceexpenses,detailsoftravellingexpensesforforeignvisits,
etc.,andthesequerieswereansweredbytheassesseeandtheinformationwassubmitted.The
assessmentwascompleted.Thenoticeundersection148wasissuedbeyondtheperiodoffour
years on the ground that the expenditure was debited under the head "repairs and
maintenanceofbuildingandadditionstofixedassets",buttheamountswereactuallysiphoned
off by illegal withdrawals. On a writ petition:Held, allowing the petition, that not only did the
assessee furnish all the relevant details relating to the purchase of fixed assets, repairs and
maintenance of buildings but also the details relating to the foreign travel expenses. The
proceedings relating to the original assessment also showed that the Assessing Officer had
raised queries regarding repairs and maintenance of building, plant and furniture which were
answered by the assessee. No query would appear to have been raised in relation to the
foreign travel expenses in regard to which the assessee had furnished the relevant details.
Therefore,itcouldnotbesaidthattherewasanyfailureonthepartoftheassesseetosubmit
fullandtrueparticularsatthetimeoftheoriginalassessment.ItwasfortheAssessingOfficer
to examine the details and draw the appropriate inferences. The notice under section 148
issuedfortheassessmentyear200405was,therefore,withoutjurisdiction.(A.Y.200405)
RambaghPalaceHotelsP.Ltd.v.Dy.CIT(2013)350ITR660(Delhi)(HC)
MaharajJaiSinghv.ITO(2013)350ITR660(Delhi)(HC)
MaharajPritvirajSinghv.ITO(2013)350ITR660(Delhi)(HC)
S.147:ReassessmentComplaintbydirectorReassessmentheldtobevalid.(S.143(1),148)
For the assessment year 200506, the return of the assessee declaring nil income was
processed under section 143(1) and an intimation was issued on June 6, 2006. On March 30,
2012, notice under section 148 was issued reopening the assessment on the ground that the
complaintfiledbyoneofthedirectorsbefore theCompanyLawBoardregardingirregularities
intheaccountsoftheassessee.Onawritpetition:
Held,dismissingthepetition,thattherewasnoscrutinyassessmentundersection143(3)inthe
firstinstance;thereturnfiledbytheassesseewasmerelyprocessedundersection143(1).The
most basic and indispensable requirements for the validity of the notice under section 148
were satisfied. There was a complaint filed by one of the directors before the Company Law
Board alleging irregularities such as illegal siphoning off of the company's funds by the other
two directors in the guise of fixed assets, repairs and maintenances, travelling expenses, etc.
This complaint constituted tangible material on the basis of which action to reopen the
assessmentcouldbetakeningoodfaith;thebeliefentertainedbytheAssessingOfficeronthe
basisofthecomplaintwhichhadbeenfiledwithsomeresponsibilitybyoneofthedirectorsof
the assessee, could not be said to be a mere pretense nor could the belief be said to be
divorced from the material. The complaint constituted relevant material for the belief.
Therefore, the notice issued under section 148 was within the jurisdiction. The fact that the
assessee submitted all the details to the Assessing Officer along with the return was not
relevantwhereonlyanintimationundersection143(1)wasissuedaftermerelyprocessingthe
return without any scrutiny. There should, however, be reason to believe that income had
escapedassessmentandthisconditionhadbeensatisfiedinrespectofthe(A.Y.200506.)
RambaghPalaceHotelsP.Ltd.v.Dy.CIT(2013)350ITR660(Delhi)(HC)
313
S.147:ReassessmentWithinfouryearsTangiblematerialNoquerywasraisedinthecourseof
assessment hence as there is no application of mind by Assessing Officer notice held to be
valid.(S.143(3),148)
Whenanassessmentissoughttobereopenedwithinaperiodoffouryearsfromtheendofthe
relevantassessmentyear,thetesttobeappliediswhetherthereistangiblematerialtodoso.
What is tangible is something which is not illusory, hypothetical or a matter of conjecture.
Somethingwhichistangibleneednotbesomethingwhichisnew.AnAssessingOfficerwhohas
plainlyignoredtherelevantmaterialinarrivingatanassessmentactscontrarytolaw.Ifthereis
anescapementofincomeinconsequence,thejurisdictionalrequirementofsection147ofthe
Incometax Act, 1961, would be fulfilled on the formation of a reason to believe that income
has escaped assessment. The reopening of the assessment within a period of four years is in
these circumstances within the jurisdiction. The Court held, dismissing the petition that no
querywasraisedduringthecourseoftheassessmentandtheassessmentorderwouldexfacie
disclosethattheAssessingOfficerhadnotappliedhismindtoanyofthepointsonthebasisof
which the assessment was reopened. Therefore, there was tangible material for the Assessing
Officertoreopentheassessment.Reassessmentheldtovalidonfacts.(A.Y.20062007)
Export Credit Guarantee Corporation of India Ltd. v. Add. CIT (2013) 350 ITR 651 / 87 DTR
154/259CTR465(Bom.)(HC)
S.147:ReassessmentNoticeSinglejudgepermittingassesseetofileobjectionstonoticeand
directing Assessing Officer to take decision after considering objectionsFailure to file
objectionsAssessee to file objections and order to be passed after considering objections.
(S.133A,148)
The assessee was engaged in jewellery business. During the survey conducted under section
133A of the Incometax Act, 1961, in the assessee's premises on February 1, 2006, the
managing partner of the assessee admitted certain irregularities in the books of account and
offered Rs. 1.5 crores as additional income for investments made by the partners in the
business of the assessee for the assessment year 200607. The income already projected for
advancetaxpaymentin200607wasRs.1croreandtheamountofRs.1.5croreswasoverand
above the estimated income for the year 200607 so that the total income projected was Rs.
2.5 crores and the assessment was completed. Notice was issued for reassessment. On a writ
petition, the single judge found that the proceedings were only at the notice stage and it was
for the assessee to submit objections and it was for the officer to takethe proceedings to the
logical conclusion by passing appropriate orders in accordance with law, after considering the
objections.Sincethetimeforsubmittingobjectionswasover,thesinglejudgegrantedafurther
period of one month. On appealheld dismissing the appeal, that this was a case where the
assesseehadnotcaredtofileanyobjectiontothenotice.Itwasintheexerciseofdiscretionary
jurisdictionthatthesinglejudgepermittedtheassesseetofileobjections.Infact,thestandof
the Revenue was that the objections would certainly be considered. Therefore, the objections
whichtheassesseehadfiledmustnecessarilybeconsideredandreasonsmustbegiven.Inthe
abovecircumstances,interferenceisdeclinedandthewritpetitionisdismissed.However,since
thetimeforsubmittingtheobjectionsisalreadyover,thepetitionerisgrantedafurtherperiod
314
of"onemonth"tosubmitthesame.Theproceedingsshallbefinalisedinaccordancewithlaw,
asexpeditiouslyaspossible,atanyrate,withinthreemonthsthereafter.(A.Y.20062007)
Alappat Jewels v. ACIT (2013) 350 ITR 471/257 CTR 358/87 DTR 102/215 Taxman 680 (Ker)
(HC)
S.147:ReassessmentAudit objectionRoyaltyBeyond four yearsChange of opinionAudit

objectionthatroyaltypaymentresultedincapitalbenefitcannotconstitutetangiblematerial
hencereassessmentheldtobenotvalid.(S.37,148)
AllowingthewritpetitionofthepetitionertheCourtheldthat(i)theassessingauthoritycannot
keep improving his case from time to time and that the reassessment proceedings have to
stand or fall on the basis of what was stated in the reasons recorded under section 148(2) of
the Incometax Act, 1961, and nothing more. No failure to furnish full and true particulars
relatingtotheroyaltypayments,includingthefailuretofiletherelevantagreements,hadbeen
alleged in the reasons recorded. If anything, the reasons are an admission that it was the
Assessing Officer who did not draw the inference that the royalty payments were capital in
nature. It was for him to draw the appropriate inference and not for the assessee to tell him
whatinferenceoffactorlawshouldbedrawnfromtheprimaryfactsfurnished.Therefore,the
reassessmentnoticesafterfouryearsfromtheendoftheassessmentyears200203and2003
04 were quashed as also the consequent proceedings. The court also held that opinion
expressed by audit that payment of royalty resulted in a capital benefitcould not constitute a
tangiblematerialonthebasisofwhichtheassessmentcouldbereopened.(A.Y.20022003,to
20042005)
XeroxModicorpLtd.v.Dy.CIT(2013)350ITR308/81DTR 321/255CTR342/213Taxman285
(Delhi)(HC)
S.147:Reassessment Notice Assessing Officer has power to issue notice of reassessment.
(S.143(1),143(2),148)
In Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC)the Supreme Court
heldthatsolongastheingredientsofsection147oftheIncometaxAct,1961,arefulfilled,the
AssessingOfficerisfreetoinitiateproceedingundersection147andfailuretotakestepsunder
section 143(3) will not render the Assessing Officer powerless to initiate reassessment
proceedingsevenwhenintimationundersection143(1)hadbeenissued.(A.Y.20002001)
D.T.T.D.C.Ltd.v.Dy.CIT(2013)350ITR216(Delhi)(HC)
S.147:Reassessment Export businessOriginal reason dropped AssessingOfficercannot

assessotherescapedincomeiforiginalreasondropped.(S.80HHC,148)
The AO issued a notice u/s 148 to reopen the assessment for AY 200304 on the ground that
theassesseehadwronglycomputeds.80HHCdeduction.However,inthereassessmentorder,
theAOdidnotmakeanyadditionforthes.80HHCclaimandmadeadditionsinrespectofother
unconnected issues. The Tribunal held that as the AO had made no addition in respect of the
issueforwhichthes.148noticewasissued,hehadnojurisdictiontoassessanyotherincome.
OnappealbythedepartmenttotheHighCourt,HELDdismissingtheappeal:
S.147 empowers the AO to reopen an assessment if he has reason to believe that income has
escaped assessment. If the requirements of giving jurisdiction to the AO to reopen the
assessment are satisfied, he may also assess any other escaped income which comes to his
315
noticesubsequentlyinthecourseoftheproceedings.PriortotheinsertionofExplanation3to
s. 147 by the Finance Act 2009 w.e.f. 1.4.1989, it was clear that if the reason for which the
assessment is reopened fails, the AO could not proceed to assess other income which had
escapedassessment.Forassumingjurisdictiontoframeanassessmentu/s147whatisessential
is a valid reopening. If the very foundation of the reopening is knocked out, any further
proceeding in respect to such assessment naturally would not survive. Explanation 3 to s. 147
doesnotchangethisposition.Explanation3tos.147wasinsertedtocountertheviewtakenby
somecourts(CITv.AtlasCycleIndustries(1989)180ITR319(P&H)&TravancoreCementsLtd.
v.ACIT(2008)305ITR170(Ker.)thatevenifthejurisdictionwasvalidlyexercised,theAOcould
notassesstheotherescapedincomethatwasnotreferredtointhereasons.Itmerelyclarifies
theexistinglawanddoesnotexpandthepowersoftheAOu/s147.IftheAOdropstheground
for which the notice for reopening was issued, it means he had no reason to believe that
income had escaped assessment and so he has no jurisdiction to assess the other escaped
income (CIT v. Jet Airways(I) Ltd. (2011) 331 ITR 236 (Bom), Ranbaxy Laboratories Ltd. v. CIT
(2011)336ITR136(Del.)&MajorDeepakMehta344ITR641(Chhattisgarh)followed;Majinder
SinghKangv.CIT(2012)344ITR358(P&H)notfollowed)(A.Y.200304)
CITv.MohmedJundedDadani(2013)214Taxman38/85DTR12/258CTR168(Guj.)(HC)
S.147:ReassessmentRevenue auditReopening of assessment due to revenue audits
compulsionisvoid.(S.148)
The AO passed a s. 143(3) assessment order in which he allowed the assessees claim for
business expenses. The Revenue Audit raised an objection that as the assessees business had
ceased,theincomehadtoassessedasothersourcesandtheexpendituredisallowed.TheAO
replied to the Audit stating that the objection was not correct and that the assessment order
wascorrect.TheRevenueAuditthereafterwrotetotheCITthattheAOsstandwasnotcorrect.
Basedonthis,theAOissuedas.148notice(within4yearsfromtheendoftheAY)toreopen
the assessment and disallow the expenditure. The assessee challenged the reopening on the
basisthattheAOwascompelledbytheauditpartytoreopentheassessmentthoughhewas
of the belief that no income had escaped assessment. HELD by the High Court upholding the
plea:
If the audit party brings certain aspects to the notice of the AO, he is entitled to reopen the
assessmentafterforminghisownbelief.However,iftheAOactsundercompulsionoftheaudit
party and not independently, the action of reopening would be vitiated. On facts, it is clearly
established that the AO was under compulsion from the audit party to issue notice for
reopeningbecauseaftertheauditpartybroughtthecontroversialissuetothenoticeoftheAO,
he did not agree to the proposal for reexamination of the issue and wrote a letter and gave
elaborate reasons why the assessment order was correct. The s. 148 notice was issued only
after the Revenue Audit wrote to the CIT reiterating its stand that income had escaped
assessment. Consequently, the s. 148 notice had to be quashed [Cadila Healthcare Ltd v. ACIT
(2012) 65 DTR 385(Guj) followed; CIT v. P.V.S Beedies Pvt. Ltd. (1999) 237 ITR 13 (SC)
referred].(A.Y.200708)
VijayRameshbhaiGuptav.ACIT(2013)215Taxman465(Guj.)(HC).
S.147: ReassessmentNondisclosure of primary factsBeyond four yearsReassessment was

heldtobeinvalidonfactsandlaw.[S.48,143(3),148]
316
Assessee is a nonresidential banking company having its headquarters in France. It was
involved in normal banking activities which included financing of foreign trade and foreign
exchange transactions. Assessment was completed under section 143(3).Assessing Officer
initiated reassessment proceedings for three reasons, i.e. loss on sale of investment was a
capital loss, profit on sale of shares was not identifiable in profit and loss account and thirdly
firstprovisotosection48,assesseehadwronglydeductedindexedcostofacquisition.Tribunal
held that deposits in Government securities was not an option of assesseebank. Business
compulsionasperdirectionsofRBIandlossclaimedbybankeitheronvaluationofsecuritiesor
salethereofwastobeallowedasbusinessloss.Asregardssecondreasonnoinfirmityinprofit
andlossaccountasassesseehadaddedbackprofitonsaleofsharesincomputationofincome.
As regard the benefit of indexation under section 48 was undisputed fact that assessee had
purchased shares in Indian currency, first proviso and second proviso to section 48 was not
applicable to assessee's case. Assessing Officer was not justified in initiating reassessment
proceedings.Tribunalalsoheldthatreassessmentproceedingwasinitiatedafterexpiryoffour
yearsfromendofrelevantassessmentyear.Assesseehaddisclosedallmaterialfactsattimeof
assessment.Impugnedreassessmentproceedingswerebarredongroundoflimitationaswell.
(A.Y.200001)
CalyonBankv.Dy.CIT(2013)141ITD521(Mum.)(Trib.)
S.147:ReassessmentIncome escaping assessmentNonDisclosure of primary factsCapital gains

Reassessmentasheldtobevalid.[S.148]
Assesseeenteredintoadevelopmentagreementwithbuilderandreceivedconsiderationininstallments
spread over financial years 200203, 200304 and 200405. On this fact coming to notice of Assessing
Officer during a search, Assessing Officer issued reassessment notices for assessment years 200304,
200405 and 200506. Tribunal held that issue of notice for all three years was valid though finally
AssessingOfficerbroughtcapitalgainstotaxonlyinassessmentyear200304.Tribunalalsoheldthatit
isnotnecessaryforAssessingOfficertocometoadefiniteconclusionastoyearoftaxabilityofcapital
gainattimeofissueofnotice.(A.Ys.200304,200405,200506).
G.Sreenivasanv.Dy.CIT(2013)140ITD235/153TTJ640/86DTR34(Coch.)(Trib.)
S.147:ReassessmentNoticeafterfouryearsNofailureonthepartofassesseeReassessment
was held to be bad in law. Order of Commissioner (Appeals) was held to be malafide
AssesseewasallowedcostofRs25000forunnecessarymentalandfinancialharresment.[S.
10B148,234B,234C]
The assessment was completed under section 143(3) and claim under section 10B was allowed. The
assessment was reopened beyond four years ,which was confirmed in appeal .On appeal to Tribunal
the Tribunal held that the reason for reopening given by the Assessing Officer did not fall within the
ambitoftheprovisionsleadingtoescapementofassessment.Itwasachangeofopiniononthepartof
the Assessing Officer. The Assessing Officer had applied his mind while passing the assessment order
and thereafter at the time of passing of revision order. The Department had not alleged that the
assessee had withheld any material information or document at the time of assessment proceedings
whichhadresultedintheescapementofassessment.Accordinglythereassessmentwasquashed.The
Tribunal also held that the assessee was not liable to pay interest under section 235B, 234C. The
Tribunal also held that the order had been passed by the Commissioner (Appeals) in a nonjudicious
317
andarbitrarymanner.TheorderoftheCommissioner(Appeals)wasnotonlyagainstthelawlaiddown
bytheHighCourtbutsmackedofmalafideonthepartoftheCommissioner(Appeals).TheDepartment
had to compensate the assessee for causing the latter unnecessary mental and financial harassment.
ThereforetheappealoftheassesseewasallowedwithcostsofRs.25,000.(A.Y.20042005)
QmaxTestEquipmentsP.Ltd.v.ACIT(2013)22ITR690(Chennai)(Trib.)
S.147:ReassessmentJurisdictionSearch and seizureNon obstante clauseOriginal assessments
completed and no proceedings pending when search action takenAdditional ground was allowed to
be first time before the TribunalThereafter notice of reassessment for years falling within six year
periodNotpermissibleduringpendencyofassessmentproceedingspursuanttosearch.[S.148,153A]
For the A.Y. 200102 and 200203 regular assessments of the assessee, a banking company, were
completed on February 13, 2004 and December 30, 2004, respectively. A search action u/s. 132 of the
Act,wasconductedatthepremisesofoneofthebranchesoftheassesseeonJuly2,2005pursuantto
whichtheAssessingOfficerissuednoticeundersection153AoftheActonMay4,2007.Meanwhile,the
Assessing Officer also took proceedings u/s. 148 for the A.Y. 200102 and 200203 by notices dated
August28,2006andJuly25,2006respectivelyandinvokingtheprovisionsofsection145(3)oftheAct
disallowedtheexcessdepreciationbyassessmentscompletedonOctober31,2006.Healsocompleted
the assessments for these two assessment years at the very same income by the assessment orders
u/s.143(3) read with section 153A of the Act. The Commissioner (Appeals) upheld the action of the
Assessing Officer. On appeal raising the additional ground that the reassessment proceedings for the
twoyearsinquestionwerewithoutjurisdiction:Held,allowingtheappeals,
(i) that a question of law which arose from the facts found by the incometax authority could be
raisedatanystage.Theadditionalgroundraisedbytheassesseewastobeadmitted.
(ii) That the original assessments for the assessment years in question were completed u/s.143(3) on
February 13, 2004 and December 30, 2004, respectively. Thereafter, a search and seizure action was
initiatedintheassessee'scasebytheDepartmentonJuly2,2005onwhichdatetheassessmentsforthe
two assessment years were not pending. Therefore, in view of the non obstante clause with which
section 153A(1) opens, the Assessing Officer had no jurisdiction to issue notice u/s. 148 of the Act in
respectof thosesixassessmentyears whichfellwithintheexclusivejurisdictionofsection153Aofthe
ActandaccordinglytheAssessingOfficerwasnotjustifiedinissuingnoticesu/s.148andincompleting
theassessmentsu/s.143(3)readwithsection147oftheActonOctober31,2006.TheAssessingOfficer
instead of complying with the requirement of section 153A proceeded with the provisions of sections
147and148whichwerenotapplicableintheassessmentundersection153AoftheAct.Therefore,the
assessmentscompletedu/s.143(3)readwithsection147oftheActwerewhollywithoutjurisdictionand
liabletobequashed.(A.Ys.20012002,20022003)
StateBankofIndiav.Dy.CIT(2013)22ITR609(Mum.)(Trib.)
S.147:ReassessmentWithinfouryearsNothingtoshowconsiderationofprovisionofsection80IA(5)
by Assessing Officer while framing original assessmentsReassessment proceedings rightly initiated.
[S.80IA(5),148].
Wherethereopeningofassessmentsisbeforetheexpiryofaperiodoffouryearsfromtheendofthe
relevantassessmentyears,thefirstprovisotosection147isnotapplicableandtrueandfulldisclosure
ofthematerialfactsisnotarelevantconsideration.Thequestionofchangeofopinion,whichwouldbar
reopening of an assessment, would come into play only where there has been an expression or
318
formation of opinion by assessing authority while framing the assessment being subject to
reassessment. The assessment must show an application of mind and a conscious decision by the
Assessing Officer in the matter. Held accordingly, that there was nothing to show consideration of the
provisions of section 80IA(5) by the Assessing Officer while framing the original assessments. This
aspect of assessment remained to be considered by the assessing authority. The reassessment
proceedingsstoodrightlyinitiatedinlaw.(A.Ys.20052006to20082009)
S.147:ReassessmentExistence of material and rational beliefTax deducted at sourceNo
return was filed, reassessment was validLimitationReasons for reopening were furnished
aftersixyearsfromtheendoftherelevantassessmentyearwasheldtobevalidSanctionby
Addl.Directorofincometaxwasheldtobevalid.Duetotypingerrorsanctioncannotbeheld
tobeinvalid.(S.2.(28C),149,151)
Atthestageofformationofbeliefthefinaloutcomeoftheproceedingsisnotrelevantandthe
fact of escapement of income need not be established. The phrase reason to believe cannot
be said to mean that the AO shouldhave finally ascertained the fact by legal evidence or
conclusion.OncetheAOhadformedaprimafaciebeliefonthebasis ofrelevantmaterial,any
factswhichsubsequentlysurfaceinthecourseofassessmentproceedingswhichcontradictthe
basisonwhichthebeliefwasformedcannotvitiatethereassessmentproceedingsisvalid.The
contention that since tax was deducted at source for assessment years 200203 and 200304,
thepresumptionisthatthereisnoescapementofincomeisnottenable.Nosuchpresumption
can be there. The fact remains that for the Assessment year 200203 and 200304 there was
incomefromFTSderivedbytheassesseewhichwassubjecttotaxatsourceandthatnoreturn
of income was filed.Reassessment was held to be valid. Reassessment proceedings cannot be
heldtobebarredbylimitationonthegroundthatreasonsforreopeningwerefurnishedafter
the expiry of six years from the end of the relevant assessment year. Sanction under section
151 given by an Add.Director of ITwho is authorized to exercise the power of an Addl.CIT is a
sanctionbyanappropriateauthority.Sanctionundersection151accordedbytheAddl.Director
cannot be said to have given without application of mind simply because the findings of the
Addl.Directoraretyped.(A.Y.200101to200405)
Qualcomm Incorporated v. ADIT (2013) 23 ITR 239/85 DTR 156/153 TTJ 513/56 SOT
72(URO)(Delhi)(Trib.)
S.147:ReassessmentBlock assessmentReassessment based on same material requisitioned

undersection132Awasheldtobeinvalid.(S.132A,148,158BC)
The police authorities intercepted a car in which assessee was travelling with two other
persons. A sum of Rs. 32.34 lakhs was recovered from them. The police authorities recorded
the statement of occupants of the car and the information was passed on to incometax
department. Consequently case was requisitioned by the Department under section 132A. As
per the Assessing Officer the assessment proceedings in the name of AOP consisting of three
persons including assessee were initiated under the provisions of Chapter XIVB. In pursuance
of those proceedings, the amount recovered was added to taxable income of AOP on ground
that same remained unexplained. The Commissioner (Appeals) confirmed said addition. On
319
further appeal, the Tribunal opined that whether the cash was explained or unexplained, the
factremainedthatactioncouldbetakenonlyinthehandsofindividualsandnotinthehands
of AOP'. Accordingly, the addition made in the hands of AOP was deleted. On receipt of the
Tribunal's order, the Assessing Officer initiated proceedings under section 148 in case of
assessee. The assessee filed an appeal before the Commissioner (Appeals) challenging the
validityofreopeningonthegroundthatincaseofdocumentsoranyassetrequisitionedunder
section 132A, then the Assessing Officer shall proceed to assess the undisclosed income in
accordancewiththeprovisionsofChapterXIVBoftheAct.TheCommissioner(Appeals)having
accepted assessee's submission set aside reassessment proceedings taking a view that said
proceedings were void ab initio. On revenue's appealthe Tribunal held thatonce Assessing
Officer proceeds to make block assessment under section 158BC based on material gathered
during search under section 132, he cannot proceed to make reassessment under section 147
onbasisofsamematerial,therefore,wherematerialonbasisofwhichAssessingOfficersought
toreopenaregularassessmentwasmaterialpertainingtorequisitionundersection132A,such
materialcouldbesubjecttoonlyblockassessmentanditcouldnotformbasisforreopeningan
assessment.(A.Y.19992000).
ACITv.ViditKumarAgarwal(2013)55SOT48(URO)(Agra)(Trib.)
S.147:ReassessmentIssuenotmentionedinrecordedreasonsExplanation3Reassessment
heldtobejustified.(S.35D,148)
The assessment was completed under section 143(3).The assessment was reopened on the
groundthattheassesseehaddebitedRs.44,90,600towardslossonsaleofinvestmentallowed
asbusiness expenditurethough it is a capital in nature. In the reassessment proceedings the
Assessing Officer disallowed the preliminary expenses though the said expenses were not
referred in the reasons record. On appeal the Tribunal held thatExplanation 3 to section 3 to
section 147 inserted by the Finance (No 2) Act, 2009, provides that the Assessing Officer may
assesseeorreassesstheincomeinrespectofanyissue,whichhasescapedassessment,ifsuch
issue comes to his notice subsequently in the course of the proceedings under section 147
notwithstandingthatthereasonsforsuchissuehavenotbeenincludedinthereasonsrecorded
under sub section (2) of section 148. Therefore in view of explanation 3 to section 147
inadmissible claim of deduction of miscellaneous expenses under section 35Dcould be
disallowedbytheAssessingOfficerinthecourseofreassessmenteventhoughthesamedidnot
findinthereasonsrecordedundersection148(2).Appealofassesseedismissed.(A.Y.200506)
InstantHoldingsLtdv.Dy.CIT(2013)81DTR35(Mum.)(Trib.)
S.147:Reassessment Merger Rectification Merger of rectification proceeding with

reassessment proceedings validity of proceedings Reassessment was held to be valid.
(S.143(1),148,154)
Assessment was completed under section 143(1) of the Act. Thereafter thenotice was issued
under section 154/155of the Actfor rectifying certain mistakes. Subsequently the Assessing
Officer issued notice under section 147/148.Before Commissioner (Appeals) it was contended
thatnoreopeningcanbemadeafterduedateofcompletingscrutinyassessmentundersection
143(3)hasbeenallowedtobelapsedbytheAssessingOfficer.Itwasalsocontendedthatthere
shouldnotbesimultaneousactionundersection154and147.Commissioner(Appeals)heldthat
320
reassessment was void abinitio. On appeal by revenue the Tribunal up held the validity of
reassessmentanddirectedtheCommissioner(Appeals)todecideonmerits.TheTribunalheld
that reassessment proceedings, validity of those proceedings could not be challenged on
ground that there could not be a simultaneous action by Assessing Officer u/s 154 and 147.
(A.Y.200203)
Hotel & Allied Trades (P. ) Ltd. v. Dy.CIT (2013) 140 ITR 309/87 DTR 49/154 TTJ 503 (Cochin)
(Trib.)
S.147:Reassessment Information from investigation wingReassessment held to be valid. (

S.148)
Where the information is factual and not false one and the same has merely been
communicated to the Assessing Officer, he would be within his statutory right to invoke the
provisions of section 147 r.w.s. 148.The Tribunal held that information from the investigation
wing being factually correct and the assessee failed to refuse the same in any proceedings
undertheAct,thentheAssessingOfficerhasjurisdictionundersection147r.w.s.148oftheAct
and there is no infirmity and illegality in issuance of notice under section 148 of the Act by
ACITv.KiscoCastingP.Ltd.(2013)152TTJ629(Chd.)(Trib.)
S.148:ReassessmentNoticeMandatory.[S.80IB,143(2)]
Notice under S. 143(2) is mandatory and in the absence of such service, the Assessing Officer
cannot proceed to make an inquiry on the return filed in compliance with the notice issued
under S. 148. Order of Tribunal quashing the reassessment proceedings was held to be valid.
(AY200506,200607)
ACITv.GenoPharmaceuticalsLtd.(2013)214Taxman83(Bom.)(Mag.)(HC)
S.148:ReassessmentNoticeReopening assessment based on order of Transfer Pricing Officer

AlternativeremedyAppealpendingbeforeDRP,noticeheldtobevalid.[S.147]
ThereasonsforreopeningtheassessmentforA.Y.200607werethatfortheA.Y.200506,theassessee
had international transactions with associated enterprises to the extent of Rs. 9.77 crores and the
adjustment suggested to the arm's length price was Rs. 5.13 crores which was 52 per cent of such
turnover.Theassessee,fortheassessmentyear200607also,hadtransactionstotheextentofRs.6.99
crores.Theadjustmenttothearm'slengthpricefortheassessmentyear200506clearlyindicatedthat
thepartieswithwhomthetransactionsweremaderemainingthesame,therewouldbeadjustmentto
thearm'slengthpriceinsimilarproportionintheassessmentyear200607also,held,dismissingthewrit
petition that, the assessee was already before the DRP against the orders of the TPO for both years.
Undoubtedly,iftheproceedingswentagainstitbeforetheDisputeResolutionPanel,itwasalwaysopen
to it to file an appeal before the Tribunal wherein all contentions available to it could be raised.
Therefore,thequestionofinterferencedidnotarise(A.Ys.20022003to20042005).
SysarrisSoftwarePvt.Ltd.v.Dy.CIT(2013)352ITR443/84DTR135/257CTR201(Karn.)(HC)
S.148:ReassessmentNoticeFor failure to issue notice, reassessment held to benot valid,
section292BBdoesnothaveretrospectiveeffect.(S.143(2),292BB)
321
TheA.O.issuedanoticeu/s148tomakeareassessment.However,asanoticeu/s143(2)was
notissued,theTribunalquashedthereassessment.TheDepartmentfiledanappealbeforethe
HighCourtwhereitreliedons.292BB(whichprovidesthatthefailuretoissuenoticecannotbe
objected to if the assessee has appeared in theproceeding), inserted by the Finance Act 2008
w.e.f. 1.4.2008 and argued that the said provision was retrospective in operation and the
reassessment was valid. Held by the High Court dismissing the appeal:The issue of a notice
u/s.143(2) is mandatory. The failureto do so renders the reassessment void (CWT v.HUF ofH.
H. Late Shri. J.M. Scindia (2008) 300 ITR 193 (Bom.) followed). S.292BB was inserted w.e.f.
1.4.2008andcameintooperationprospectivelyforAY20082009andonwards.
CITvSalmanKhan(Bom.)(HC)www.itatonline.org.
S.153:AssessmentReassessment Limitation In case where ITAT remands a matter to the

file of AO, if AO doesnt pass Asst. Order within one year from the end of financial year in
whichsuchorderisreceivedbyCCITorCIT,suchasst.Proceedingsbecometimebarred:
WheneverHonbleITATremandsamattertothefileofAOwithcertainspecificdirections,AO
must pass an Asst. Order within a period of two years from the end of financial year( One
Year instead of two years w.e.f.01/06/2001) in which such order passed by Honble ITAT is
received by the Chief Commissioner or Commissioner as prescribed u/s. 153(2A) of the Act. If
AOdoesntpassanAsst.Orderwithintheprescribedtimelimitsuchproceedingbecometime
barredandtheassessmentplacedbeforeAObyHonbleITATsordermustbetreatedashaving
abated.AnyexcesstaxpaidbytheassesseeunderoriginalassessmentframedbytheAOmust
berefundedwithconsequentialeffect[SCA10330of2003,dt18/06/2012)]
InstrumentsandControlCompany.(2012)BCAJNovemberP.401)(Guj.)(HC)
S.153A:AssessmentSeizure of articlesReleaseWrit to quash the proceedings held to be not

maintainable.[S.153C,Art.226]
Theassesseewasengagedinthebusinessofpurchaseandsaleofjewellery,etc.Theentireconsignment
of bullion sent by the assessee was seized from the custody of the assessee's courier by police. The
assessee applied for release of the bullion. The assessee's Incometax Officer passed an order under
section132B,toreleasetheentirequantityinfavouroftheassessee,afterexamininghisaccountbooks
andallotherrelevantmaterials,andafterrecordingfindingsthatthesilverbullionwaspartofthestock
intrade, and was duly disclosed by the assessee. The entire seized bullion had been released to the
assessee and the couriers assessment was completed under section 153B(1)(b) read with section
143(3). However, the Assessing Officer of the courier referred the matter along with the satisfaction
noteundersection153CtotheAssessingOfficeroftheassessee.Onreceiptofthesatisfactionnote,the
assessee'sIncometaxOfficeractingundertheprovisionsofsection153CoftheActinitiatedassessment
proceedings for seven assessment years 200304 to 200910 by issuing a separate order directing the
assessee to file the return on the prescribed form. On a writ petition challenging the initiation of the
assessmentproceedingsagainsttheassessee,heldthatifthereispowertodosomethingundertheAct,
the action taken in fiscal matters cannot be set aside in exercise of the writ jurisdiction on the ground
that such power has been exercised needlessly, without any purpose. The exercise of power in such a
casecanonlybechallenged,ifthepowerisbeingexercisedwithulteriormotiveandmalafideintention.
Itwasnotopentotheassesseetocontendbeforethecourtthattheexerciseofpower,whichultimately
existed in the authority, would expose the assessee to assessment for the same period on which the
assessingauthorityhadalreadyrecordedsatisfaction.(A.Y.20092010)
322
SaveshKumarAgarwalv.UOI(2013)353ITR26(All.)(HC)
S.153A:AssessmentSearchAfter expiry of S.143(2) time limit, S.143(1) assessment is final &
additionu/s.153Acanbemadeonlyifincriminatingmaterialisfoundinsearch.[S.143(1)]
For AY 200506, the AO passed an intimation u/s 143(1) accepting the return as filed.
Subsequently, there was a search u/s 132. The AO noticed that an amount of Rs. 93 lakhs
receivedbytheassesseeasaloaninearlieryearshadbeentreatedasagiftandcreditedtothe
capitalaccount.Hepassedanassessmentorderu/s153Ainwhichheheldthatthesaidamount
was assessable as a cash credit u/s 68. The CIT(A) partly confirmed the addition. Before the
Tribunal, the assessee argued that as no incriminating material was found during the search,
theadditioncouldnotbemadeu/s153A.HELDbytheTribunalupholdingtheplea:
In All Cargo Global Logistics v. Dy. CIT (2012) 137 ITD 287 (Mum)(SB), the Special Bench held
thatinacasewheretheassessmenthasabatedtheAOcanmakeadditionsintheassessment,
evenifnoincriminatingmaterialhasbeenfound.However,inacasewheretheassessmenthas
not abated, an assessment u/s 153A can be made only on the basis of incriminating material
(i.e.booksofaccount&otherdocumentsfoundinthecourseofsearchbutnotproducedinthe
courseoforiginalassessmentandundisclosedincomeorpropertydisclosedduringthecourseof
search).Onfacts,astheassessmentwascompletedu/s143(1)andthetimelimitforissueofs.
143(2) notice had expired on the date of search, there was no assessment pending and there
was no question of abatement. Therefore, the addition could be made only on the basis of
incriminating material found during search. As the addition u/s 153A was made on the
information/material available in the return of income (i.e. the information regarding the gift
was available in the return of income as capital account had been credited by the assessee by
theamountofgift)andnotonthebasisofanyincriminatingmaterialfoundduringthesearch,
theAOhadnojurisdictiontomaketheadditionu/s153A.(A.Y.200506)
GurinderSinghBawav.DCIT(Mum.)(Trib.)www.itatonline.org.
S.153A: AssessmentSearch or requisitionAssessment is mandatory even if no incriminating

material is found. Distinction between developer and works contractor in s. 80IA(4)
explained.[S.80IA(4)]
A search and seizure action u/s.132 was conducted on the premises of the assessee. No
incriminating material or evidence was found to indicate that there was any undisclosed
income.TheAOpassedanorderu/s.153AforAY200001to200506inwhichhetooktheview
that the assessee was not entitled to claim deduction u/s 80IA(4) on the ground that it was a
contractor and not a developer of infrastructure projects. The Tribunal had to consider two
issues: (a) whether if the assessments for the concerned years have attained finality and no
incriminating material is found in the course of the search, the AO has jurisdiction to proceed
u/s 153A and (b) how to distinguish between a developer and a works contractor for
purposesofs.80IA(4).HELDbytheTribunal:
(i) Three possible circumstances emerge on the date of initiation of search u/s 132(1): (a)
proceedings are pending; (b) proceedings are not pending but some incriminating material is
foundinthecourseofsearch,indicatingundisclosedincomeand/orassetsand(c)proceedings
arenotpendingandnoincriminatingmaterialhasbeenfound.Circumstance(a)isansweredby
theActitself,thatis,sincetheproceedingsarestillpending,allthosependingproceedingsare
323
abated and the AO gets a free hand to make the assessment. Circumstance (b) has been
answered in Anil Bhatia to hold that while there is no question of any abatement since no
proceedings are pending, the AO is entitled to reopen the assessment (without having to
comply with the strict conditions of s. 147, 148 and 151) and bring the undisclosed income to
tax.Also,inAllCargoGlobalLogisticsLtdv.Dy.CIT(2012)137ITD287(Mum)(SB)itwasheld
that in the case of a nonabated assessment, an assessment u/s 153A has to be made on the
basis of incriminating material. Circumstance (c) has been kept open and left unanswered.
Circumstance (c) has to be answered to say that even where there is/are no pending
proceedings and no incriminating material has to be found, the AO is still required to pass an
orderu/s153Athoughtheassessedincomewillhavetobethesameastheoriginallyassessed
incomeastherewasnoincriminatingmaterial.Accordingly,theassesseesargumentthatwhen
thereisnoincriminatingmaterialorassets,thenthereisnojurisdictiontoproceedu/s153Ais
notacceptable.S.153Acontainsanonobstanteclauseandistriggeredautomaticallywhenever
asearchisundertaken.Thefactthatnoincriminatingmaterialwasfoundhasnobearingonthe
applicabilityofs.153A;
(ii) S. 80IA(4) allows deduction to any enterprise carrying on the business of (i) developing or
(ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure
facility.TheExplanationprovidesthatitshallnotapplytobusinesswhichisinthenatureofa
works contract. Whether an assessee is a developer or works contractor depends on the
nature of the work undertaken by the assessee. The word contractor is used to denote a
person entering into an agreement for undertaking the development of infrastructure facility.
Everyagreemententeredintoisacontract.Therefore,thecontractorandthedevelopercannot
be viewed differently. Every contractor may not be a developer but every developer is a
contractor. Contracts involving design, development, operating and maintenance, financial
involvement, and defect correction and liability period cannot be called as simple works
contract.Acasewhereinanundevelopedarea,infrastructureisdevelopedandhandedoverto
theGovernmentcannotbeconsideredasamereworkscontractbuthastobeconsideredasa
developmentofinfrastructurefacility.Ifthecontractiscomposite,itwillhavetobesegregated
so as to allow deduction on the parts that involve design, development, operating and
maintenance,financialinvolvementetc.andtodenyonthosewhicharepureworkscontracts.
On facts, the assessee had made substantial investments in fixed assets and was exposed to
variouskindsofrisks.Itwasnotamerecontractor.Itisenoughiftheassesseeisadeveloper.It
need not also maintain & operate the infrastructure facility (Patel Engineering Ltd v. Dy. CIT
(2004) 94 ITD 411 (Mum) &GVPR Engineers Ltd (included in file) followed) (A. Y. 2000 01 to
200506)
ACITv.PratibhaIndustriesLtd(2013)141ITD151/23ITR766(Mum.)(Trib.)
S.153C:AssessmentIncomeofanyotherpersonSearchandseizureDocumentsbelongto
assessee.[S.153A]
InordertoinitiateanyactionunderS.153C,itisessentialthatanymoney,bullion,jewelleryor
othervaluablearticleorthingorbooksofaccountordocumentsseizedorrequisitionedshould
belongtoapersonotherthanpersonreferredtoinS.153A.TheassesseesoldcertainlandtoS
group. Subsequently, 'S' group was subjected to search during which sale deeds of land in
question and agreements entered into by and between tenants of said property and assessee
324
on various dates regarding eviction of tenants were seized. Held that the action against the
assesseeunderS.153Cwasjustifiedonthebasisoftheseizeddocuments.
KamleshbhaiDharamshibhaiPatelv.CIT(2013)214Taxman558(Guj.)(HC)
S.153C: AssessmentIncome of any other person Search and seizureApprovalFailure to

ObtainJCITsApprovalRenderss.153CAssessmentOrderVoid.(S.132,144,153D)
Pursuanttosearch&seizureactionu/s132onthepremisesofathirdparty,certaindocuments
belonging to the assessee were found and seized pursuant to which a notice u/s 153C was
issued to the assessee and assessment u/s 153C r.w.s. 144 were framed. In passing the
assessment orders, the A.O. (ITO) omitted to obtain the consent of the JCIT as mandated by
S.153D. Before the Tribunal, the assessee argued that the failure to obtain the JCITs consent
rendered the assessment a nullity. The Tribunal {Akil Gulamali Somki v. ITO (2012) 137 ITD 94
(Pune)}upheldthepleaonthebasisthatastheheadingtos.153Dreferstoapriorapproval
and uses negative wording and the word shall, compliance of s. 153D is mandatory and
cannotbewaivedbytheassessee.ReliancewasalsoplacedonClause9oftheManualofOffice
Procedure which makes it clear that an assessment order under Chapter XIVB can be passed
onlywiththepreviousapprovaloftheJCITandthattheapprovalmustbeinwritingandstated
to have been obtained in the body of the assessment order. On appeal by the Department to
theHighCourt,helddismissingtheappeal:
ThoughthequestionraisedproceedsonthebasisthatapprovaloftheJCITwasgivenashehad
correctedthedraftassessmentorderandthechangeswereincorporatedbytheAOinthefinal
assessmentorder,thefindingoffactwasrecordedbytheTribunalisthatnopriorapprovalof
theJointCommissionerwastakenbeforetheITOpassedtheorder.Inviewoftheabove,there
isnoreasontoentertaintheproposedquestionandtheappealisdismissed.
CITv.AkilGulamaliSomji(Bom)(HC)www.itatonline.org.
S.154:Rectification of mistake Debenture redemption reserveBook profitAdjustment

cannotbemadeundersection154.(S.115JB,143(1))
Returnofassesseewasprocessedundersection143(1).Thereafter,anorderundersection154
was passed on ground that assessee did not include debenture redemption reserve and short
provision for expenses for earlier years while determining book profits under section
115JB.Tribunal held that thedisputed issues as to whether or not debenture redemption
reserve is for ascertained liability and whether or not such reserve is deductible while
determining book profits under section 115JB and also as to whether or not liability for prior
periodexpensescrystallizedinyearunderconsiderationcannotbeadjudicatedinproceedings
undersection154.Infavourofassessee.(A.Y.200809)
ACITv.UflexLtd.(2013)55SOT43(URO)(Delhi)(Trib.)
S.154:RectificationofmistakeCommissioner(Appeals)PowersExemptincomeRectification
applicationdenialofexemptionundersection10Awasheldtobenotjustified.(S.10A,251)
Assesseecompanyclaimeddeductionundersection10A.AssessingOfficerallowedsameafter
reducing 'internet expenses' from export turnover. The assessee went in appeal against said
order. The Commissioner (Appeals) dismissed the appeal as infructuous. The Assessee sought
rectification in said order, by filing rectification application, under section 154. Disposing the
325
saidapplication,theCommissioner(Appeals)acceptedtheexistenceoftheassesseecompany;
however,heentirelydisallowedtheclaimofassesseeundersection10Aongroundthatactivity
carried out by the assessee was not manufacture. On appeal to Tribunal held thatissue of
eligibility for deduction under section 10A required examination of facts, business activity and
relevant provisions and, therefore, same could not be considered as mistake apparent from
recordsundersection154.Therefore,theCommissioner(Appeals)wasnotjustifiedindenying
deduction in order pursuant to rectification application under section 154. In favour of
NuanceTranscriptionServicesIndia(P.)Ltd.v.Dy.CIT.(2013)55SOT39(URO)(Bang.)(Trib.)
S.154:Rectification of mistake Tax on STCG Clerical error Assessee did not showed STCG
under Schedule CG of ereturn Depicted same under Schedule SI Gain taxable at special
rate10%appealofassesseewasallowed.(S.111A,143(1))
Theassesseefilede.return.TheAssessingOfficerreceivedtheintimationundersection143(1).
The Assessing Officer computed the tax payable on short term capital gain at 30 percent as
against at the rate of 10 percent under section 111A. The assessee moved application under
section154.TheAssessingOfficerheldthatshorttermcapitalgainshadnotbeenshownunder
section 111Aat Schedule CG of e. return. Commissioner (Appeals) up held the order of
AssessingOfficer.OnappealtheTribunalheldthatwhereduetoclericalerror,assesseedidnot
showedSTCGunderScheduleCGofereturn,butdepictedsameunderScheduleSI.Itwasheld
that Income chargeable at special rates, gains would be taxable at special rate of 10 per cent.
(A.Y.200809)
Shrikant Real Estates (P.)Ltd. v. ITO (2013) 140 ITD 155/152 TTJ 30/22 ITR 266/ 81 DTR 431
(Mum.)(Trib.)
S.154:Rectification of mistake Free trade zone Depreciation and brought forward losses
Held benefit of tax holiday availed from AY 19992000, its exemption period was continuing
hence,S.10A(6)notapplicable,hencerectificationwasnotjustified.(S.10A)
Assessee, a S.10A unit claimed deduction for depreciation and brought forward losses which
wereallowed.AssessingOfficerfoundthatclaimfordepreciationandbroughtforwardbusiness
loss for AY had been wrongly allowed as assessee, a section 10A unit, had violated S.10A(6).
Assessing Officer passed the order under section 154 and rejected the claim. In appeal
Commissioner(Appeals)confirmedtheorderofAssessingOfficer.OnappealtheTribunalheld
that since assessee chose to avail benefit of tax holiday from AY 19992000, its exemption
period was continuing and therefore S. 10A(6) would not apply. Accordingly the rectification
orderwasquashedandappealofassesseewasallowed.(A.Y.200304&200405)
TataConsultancyServicesLtd.v.ACIT(2013)140ITD325(Chennai)(Trib.)
S.158BB:Block assessmentSearch and seizureNo undisclosed income was found, block assessment
wasinvalid.
Since the Tribunal had found that during search proceedings there was no evidence found and there
werenomaterialsfoundshowingundisclosedincomeitrightlyheldthattheblockassessmentwasnot
valid.
326
CITv.SooraSubramaniamHUF(Individual)(2013)353ITR298(Mad.)(HC)
S.158BB:BlockassessmentComputationofundisclosedincomeUnexplainedinvestmentin
stockCashreceiptsandexpensesnotedonseizedmaterial.
TribunaldeletedtheadditionsmadebytheAOtowardstheallegeddiscrepancyinstocksonthe
groundthattheentireprocessofinventorisationfollowedbytheItauthoritieswasinaccurate
as it was humanly impossible to complete the entire exercise in a single day and that the AO
has not examined the reconciliation of stock filed by the assessee and ignored the value
additionmadetothesemifinishedgoodsandthediscountandprofitelementinarrivingatthe
value of stocks coupled with the fact that there was no evidence of sale of stocks outside the
books.Findings of the Tribunal are findings of facts and, therefore, no substantial question of
lawarisesoutofthefindingsoftheTribunal.AOhavingmadeadditionofunaccountedreceipts
noted on seized handwritten slips without allowing deduction for the unaccounted expenses
recordedinthesamematerial,andtheTribunalhavingdeletedtheadditiononthegroundthat
the seizedmaterial should be followed in its entirety and that the said expensewere incurred
bytheassesseeforthepurposesofthebusiness.FindingsoftheTribunal,bothoffactsandlaw,
donotsufferfromanyperversityand,therefore,nosubstantialquestionoflawarises.
CITv.D.D.GearsLtd.(2013)83DTR88(Delhi)(HC)
S.158BB:BlockassessmentUndisclosedincomeAbsenceofanymaterialadditiondeletedby
theTribunalwasheldtobejustified.[S.158B(b)]
Documents on record having indicated that the assessee has in fact, not received any royalty
w.e.f. October 1999, for the user of his trademark from the company. Once the trademark
stood assigned to the company by virtue of the shareholders agreement entered into by the
assessee with another company which is not shown to be sham and bogus, the finding of the
TribunalthatnoroyaltyincomewasassessableunderChapterXIVBdoesnotraiseasubstantial
questionoflaw.
In the absence of any material to show that the assessee had actually received the
reimbursement of marketing expenses from the company using his trademark which he was
entitled to receive only on demand but was not demanded by him, the question of
undisclosed income does not arise and no substantial question of law arises. (Block period
1.4.1999to1.11.2000)
CITv.M.P.Ramchandran(2013)83DTR143(Bom.)(HC)
S.158BB:BlockassessmentComputationUndisclosedincomeMoneyrequisitionedunder
section 132 A of the Act from police beyond the block period cannot treated as undisclosed
income.(S.132A.)
Moneyrequisitionedundersection132AoftheActfromPolicewhichwasreceivedbeyondthe
block period cannot be included while computing undisclosed income in block assessment.
(BlockPeriod:25.08.84to26.10.95&01.04.85to14.11.95)
CITv.NirankarNathMittal(2013)81DTR233/255CTR488/215Taxman43(Mag.)(All.)(HC)
327
S.158BB:Block assessment Undisclosed income Assessee following cash system of
accountinginterestonIndiraVikasPatraaccruedonyeartoyearbasiscannotbeassessed
asundisclosedincome.
Where the assessee is following cash system of accounting it cannot be said that interest on
IndiraVikas Patra accrued to the assessee on year to year basis so as to assess the same as
undisclosedincomeoftheassesseeinblockassessment.(BlockPeriod:01.04.90to06.04.2000)
CITv.RoshanSingh(2013)81DTR58(P&H)(HC)
S.158BB:Block assessmentComputationUndisclosed incomeSalaryTDSIncome from salary

whichhasbeensubjectedtoTDScantbecategorizedasundisclosedincome.(S.192)
Income from salary which has been subjected to deduction of tax at source cannot be
categorizedasUndisclosedIncomeasdefinedu/s158B(b)Suchanincomecannotbetaxedas
incomeduringtheblockperiodbyvirtueofcomputationprovisionsofsection158BBinSearch
cases.
Harishkumar J. Gupta (2012) BCAJ NovemberP. 399 / (2013) 215 Taxman 41(Mag.) (Guj.)
(HC)
S.158BB:Block assessment ComputationUndisclosed incomeCash creditsGiftsValue

ofpropertyGiftsheldtobegenuineDocumentsfoundexplainedadditionwasnotjustified.
(S.68,69)
The assessee has receivedgifts amounting to Rs 22.75 lacs.In the assessment proceedings the
assessee had filed thedetails of capacity of donors, Income tax details, PAN no, copies of pass
book. Commissioner (Appeals) and Tribunal have given the finding that gifts are genuine. On
appealbyrevenuetheHighCourtalsoconfirmedtheviewofTribunalbyholdingthattheorderis
not perverse. Accordingly the appeal of revenue was dismissed. A document was foundat the
premises of assessee in the course of search. The assessee explainedthat the said document
was in the hand writing of the assessees father which contained the resale value of property
for the purpose of distribution of property within family. The Commissioner (Appeals), and
Tribunalhasaccepted the explanation of assessee that no cash consideration in excess of Rs
71.35lacswaspaidforthepurchaseoftheproperty.OnappealbyrevenuetheHighCourtalso
confirmedthe order ofTribunal Hence no addition is called for. (Block period 1
st
April, 1997 to
29
th
Jan,2003)
CITv.SunitaMakhija(2013)256CTR197/82DTR140/214Taxman50(Mag.)(Bom.)(HC)
S.158BB:BlockassessmentComputationUndisclosedincomeDeductionunderChapterVIA
isavailableAmountconsideredinregularassessmentcannotbeassessedasundisclosed.
(S.158B)
Assessing Officer disallowed deduction under Chapter VIA while computing undisclosed
incomeofassesseeforrelevantblockperiod.ThecourtheldthatdeductionunderChapterVIA
has to be given while computing total income or loss. The court also held that the amount in
question had been taken into consideration in regular assessment order under section 143(3),
saidamountcouldnotbeincludedundersubclause(b)ofsection158B.(B.P.141985to14
111995)
CITv.AnilSarin(2013)212Taxman108(Mag.)(All)(HC)
328
S.158BC:BlockAssessmentUndisclosedincome
Amount received from policy which was in fact received by the Assessee beyond block period
could not possibly be included in the computation of undisclosed income in the Block
Assessment.(BlockPeriod1984to1995)
CITv.NirankarNathMittal(2013)81DTR233/255CTR488/215Taxman43(Mag.)(All.)(HC)
S.158BC:Block assessmentUndisclosed incomeDonation to political parties Statement on

oathNoadditioncanbemademerelyonthebasisofswornstatementofthirdpartywithout
givenanopportunityofcrossexamination.[S.132,132(4)]
The Assessing Officer made addition in respect ofadvanceby assessee as donation to political
party.TheTribunaldeletedtheadditionbyobservingthattheassesseeestablishedthesourceof
fund collected and given to the Political party. Asregards the noting in thediary the assessee
stated that the entries were not written by him.Theaddition was made consequence to
swornstatement of one Mr. J.A. Richrdswhich was taken fromthe personal assistant of the
assesse. The assessee asked for cross examinationand opportunity was not given.The Tribunal
held that his statement cannot be used as evidence against the assessee. Accordingly, the
Tribunaldeleted the addition. On appeal by revenue the Court also affirmed the order of
Tribunal.(Blockperiod198788to199798)
CITv.M.Chinnasamy(2013)350ITR694(Mad.)(HC)
S.158BC:Block assessmentUndisclosed incomeRevenue accepting Commissioner (Appeals)

finding in case of assessee's wife from assessment year 199798 that she was owner of
business and on that basis filed her returnNo addition as undisclosed income in hands of
assesseeongroundbusinessbelongedtohim.
Pursuantto asearchoftheassessee'sbusinessandresidentialpremises,theAssessingOfficer
madeanadditionfortheassessmentyears199596to199798onthebasisthatthebusinessin
question belonged to the assessee rejecting the assessee's claim that the business had been
transferredtohiswifeafter1994and,thereafter,wasrunbyherand,thattherefore,theentire
income from that business should be assessed in her hands. In support of the claim the
assessee had filed an affidavit from the assessee's wife before the Assessing Officer. The
affidavit was, however, rejected and it was noted that the statement given by the assessee's
wife on oath earlier before the incometax authorities should be given more weight. The
assessee also claimed before the Assessing Officer that the income from the business was
declared in the returns filed in the name of his wife. This claim was also rejected by the
Assessing Officer as irrelevant. The Commissioner (Appeals) deleted the addition following his
predecessor'sorder.Hispredecessorhaddeletedtheadditionsonthegroundthattheincome
from the business had been disclosed in the returns filed by the assessee's wife. The Tribunal
confirmed the decision of the Commissioner (Appeals). On appealby revenue dismissing the
appeal,theCourtheldthatthefindingastotheownershipofaparticularbusinessisafindingof
fact.TheCommissioner(Appeals)foundasafactthatfromtheassessmentyear199798itwas
theassessee'swife,whowastheowneroftheconcern.Itwasonthatbasisthatshehadfiled
her return and the finding of the Commissioner (Appeals) was accepted by the Revenue. The
findingoffacthadnotbeenchallengedasperverse.TheRevenue,havingacceptedthefinding
329
in the assessee's wife case, could not take a different view in the assessment of the husband.
That would amount to taking contradictory or inconsistent stands without any just cause.
Therefore,theadditionswererightlydeletedbytheTribunal.(A.Y.19981999)
CITv.KuldeepSood(2013)351ITR166/214Taxman134(Mag.)(Delhi)(HC)
S.158BC:BlockassessmentProcedureUndisclosedincomeFixeddeposits.
FDRs in names of employees found to be bogus, addition to incomeis held to be justified.
DeletionofamountsrepresentingFDRsinnamesoffriendsandrelativesofmanagingdirector
astherewasnoevidenceregardinggenuinenessofFDRsMatterremanded.(Blockperiod14
1986to28111996)
HastalloyIndiaLtd.v.Dy.CIT(2013)350ITR52(AP)(HC)
S.158BC:Block assessment Non recording of transaction Valuation No variation in overall

stockAdditionwasdeleted.
A search and seizure operation was undertaken by department in assessee's case wherein
department disputed valuation and quantities of raw materials, work in progress and finished
products, within factory premises. Assessee filed its return showing nil undisclosed income.
Assessing Officer completed block assessment making addition on account of discrepancies in
stock quantities. Tribunal held that there was no variance in overall stocks. Further, revenue
failed to prove that assessee had indulged in either investments made from outside books or
anysaleshadbeenmadeoutsidebooks,whichcouldleadtoanelementofincomehavingbeen
generated,andwhichcouldcomeunderpurviewofChapterXIVB,inviewofabove,impugned
additionmadebyAssessingOfficerwastobesetaside.Infavourofassessee.(Blockperiod14
1987to23101997)
HindustanPolyamides&FibresLtd.v.Dy.CIT(2013)55SOT52(URO)(Mum.)(Trib.)
S.158BD:BlockassessmentUndisclosedincomeofanyotherpersonRecordingofsatisfaction
SatisfactionBlockassessmentmadewithoutsuchsatisfactionisheldtobeinvalid.(S.158BC)
The Tribunal held that mere forwarding of such books of account by itself was insufficient to
conclude that the Assessing Officer, having jurisdiction over the Mody group of cases, was
satisfied that any undisclosed income was found or detected, as a result of the search, on the
basisofwhich,proceedingsundersection158BDoftheIncometaxAct,1961,couldhavebeen
initiated against the assessee. On appeal the Court dismissing the appeal held that in the
communication from the Assessing Officer of the searched person to the Assessing Officer of
theassessee,therewasnorecordingofanysatisfactionthatanyundisclosedincomebelonged
to the assessee. The communication merely indicated that the books of account pertaining to
theassesseewereseizedandwerelyinginthecustodyoftheAssessingOfficerinrespectofthe
Modygroupofcases.TherewasnosatisfactionrecordedbytheAssessingOfficeroftheMody
group of companies that any undisclosed income belonged to the assessee. The very first
mandatory condition precedent for assuming jurisdiction under section 158BD and
subsequently under section 158BC had not been satisfied. Thus, the entire proceedings were
withoutjurisdiction.(Blockperiod141986to2111996)
CIT v.Intercontinental Trading and Investment Co. Ltd. (2013) 350 ITR 316/81 DTR 314/255
CTR350/213Taxman59(Delhi)(HC)
330
Editorial:RatioofManishMaheshwariv.ACIT(2007)289ITR341(SC)applied.
S.172:Shipping business Non residents AgentDTAAIndiaUAEAssessment made under

section 172(4) was held to be null and void and the assesseewas assessable under section
172(7).(S.172(4),172(7))
Assessee,anagentoffreightbeneficiaryofits foreignprincipal,fileditsreturnwithoutpaying
freight tax. The AO held that principal having occasional shipping business was not entitled to
benefit of DTAA and worked out income and tax payable thereon u/s.172(4). It was thus held
that, Principal had filed its return with Director (IT) and thus, it had accepted its liability to be
dealtwithundertheprovisionsofsection172(7).Thus,theAOwasdirectedtotakeactionu/s.
172(7)toensurethattheincomeoftheassesseefrom86voyagesdoesnotescapeassessment
aspernormalprovisionsoftheAct.Appealofrevenuewasdismissed.(A.Y.201011)
ITO(IT)v.AlbatrossShippingLtd.(2013)140ITD585(Rajkot)(Trib.)
S.172:ShippingbusinessNonresidentsSummaryproceedings.(S.139,44B)
Tribunal held that where French shipping company undertook a huge number of 40 voyages
through Indian agent and had exercised its option under section 172(7) by filing return of
income under section 139(1), summary proceedings of assessment under section 172(4) could
not be applied; regular assessment proceedingwas required. In favour of assessee. (A.Y.2010
2011)
ITO(IT)v.CMACGMAgencies(India)(P.)Ltd.(2013)55SOT61(URO)(Rajkot)(Trib.)
S.179:Private companyRecovery of tax dues from directorPublic company Lifting of corporate veil
wouldbejustified.
DespiteseveralattemptsmadebytheRevenue,norecoverycouldbemadefromtheprivatecompany.
Once it was established that tax dues could not be recovered from it and that a certain person was a
directoroftheprivatecompanyattherelevanttime,hisjointandseveralliabilitywouldariseunlesshe
establishes that the nonrecovery cannot be attributed to any gross neglect, misfeasance or breach of
duty on his part. The observations of the Assistant Commissioner require further scrutiny and
investigationastheordersufferedfromgrossviolationoftheprinciplesofnaturaljustice.Inhisnotice
under section 179(1), he only put the petitioner to notice that he proposed to hold him liable for
recovery of the tax dues of the company. Therefore, the proceedings were remitted to the Assistant
Commissioner for proceeding further in accordance with law after giving a notice to the petitioner
indicatinghistentativegroundswhyhedesiredtoinvoketheconceptofliftingofcorporateveil,giving
sufficientopportunitytothepetitionertomeetsuchallegations.
PravinbhaiM.Kheniv.ACIT(2013)353ITR585/213Taxman85(Guj.)(HC)
S.179:PrivatecompanyLiabilityofdirectorsRecoveryoftaxNotliableforrecoveryofinterestand
penalty[S.2(43),234A,234B,271(1)(b),(271(1)(c)].
The assessee, a director in a company, was intimated that the tax authorities had computed the
outstandingtaxliabilityofthecompanyandbyorder,directedthattherefundpayabletotheassessee
besetoffagainstthetaxliabilityofthecompanyinaccordancewiththeprovisionsofsection179(1).On
anapplicationforrectification,thetaxauthoritiesenhancedtheoutstandingduesofthecompany,and,
consequently, of the assessee on account of interest due under section 234A/B and penalty leviable
331
under section 271(1)(b)/(c). It was held that the assessee could not be made liable for anything more
than the tax as defined under section 2(43) which did not include interest and penalty.(A.Y.1999
2000,20032004)
SanjayGhaiv.ACIT(2013)352ITR468/256CTR241/82DTR248(Delhi)(HC)
S.184:FirmAssessmentAssociationofpersonsStatusAssessmentinthestatusofAssociation
ofpersonswasheldtobevalid.[S.2(31)(v)]
The Assessing Officer held that there was no firm and the status to be held as Association of
persons.Commissioner(Appeals)andTribunalupheldtheorderofAssessingOfficer.Onappeal
to High Court the court held that the question of treating it asunregistered firm would arise
onlyiftheassesseewasabletoprovetheexistenceofavalidpartnershipdeedtoconstitutea
firm. The assessee has not produced any evidence of partnership therefore assessment in the
statusofAssociationofpersonswasheldtobevalid.(A.Y.198586,198687)
MidlandTheatersv.ACIT(2013)350ITR676/258CTR183(Mad.)(HC)
A.R.Srinivasan(BYLRS)(2013)350ITR676/258CTR183(Mad)(HC)
A.R.Srinivasan(HUF)(2013)350ITR676/258CTR183(Mad)(HC)
S.192:DeductionatsourceSalarySecondedemployeesSecondedpersonnelbeingnot
employeesHence,notliabletodeducttaxatsource.[S.40(a)(iii),91(1)].
Assessee, an association of persons consisting of nine public sector oil companies as its
members, was engaged in doing business abroad and for that purpose deployed trained man
power to foreign companies at contracted rate. Trained man power deployed abroad was
drawn by assessee from employees of its member companies. Such deployed man power
continuedtobeemployeesofitsmembercompanies,butweresecondedtoprojectsabroadby
assessee. Assessee paid certain amount as foreign allowance to seconded personnel and
claimed deduction of same. Assessing Officer disallowed claim of deduction on plea that
assessee failed to deduct tax at source under section 192 on such payment and, therefore,
payment was hit by section 40(a) (iii). In view of fact that seconded personnel were not
employeesofassessee,amountpaidtosecondedpersonnelwasnotliablefordeductionoftax
atsource.Infavourofassessee.(A.Y.199798)
CITv.PetroleumIndiaInternational(2013)351ITR295/213Taxman41(Bom.)(HC)
S.192:Deduction of tax at sourceSalaryPerquisiteFringe benefits taxReimbursement of expenses.

[S.17(2),115W,201]
Uniformand washingallowanceprovidedtoemployeesonwhichfringebenefitstaxpaidbyemployer.
Not taxable as perquisite in employee's hands and no tax deductible at source. Reimbursement of
conveyanceandmaintenanceexpenditureincurredbyemployeesonmaintenanceanduseoftheirown
vehicles in performance of official duties. Fringe benefits tax paid on such expenditure. No tax
deductible at source. Payments to employees under holiday home scheme. Reimbursement of actual
expenses incurred. Not taxable as perquisite for tax deduction at source during operation of fringe
benefits tax scheme as not specified as fringe benefit. Assessee could not be held to be assessee in
default.(A.Ys.20062007to20092010)
OilandNaturalGasCorporationLtd.v.ACIT(2013)22ITR587(Ahd.)(Trib.)
332
S.194A:DeductionatsourceInterestotherthaninterestonsecuritiesMutuality[S.40(a)(ia)]
TheAssessingOfficerheldthatsincetheassesseetrustspaidinteresttotheumbrellacompany
withoutdeductingtaxatsourceundersection194AoftheAct,section40(a)(ia)wasattracted
and payments of interest made by the assesseetrusts to the umbrella company were to be
disallowed. The Commissioner (Appeals) came to a finding that the assessees were mutual
concerns and not taxable. The Commissioner (Appeals) also held that interest expenses in the
hands of the assesseetrusts were deductible under section 28 itself and, therefore, section
40(a) (ia) did not apply and deleted the disallowance under section 40(a) (ia) of the Act. On
appeal the Tribunal held that the assessees availed of loans from the umbrella company and
passed over the loans to various selfhelp groups working under them. In fact, the loans were
not utilised by the assesseetrusts but by the selfhelp groups working under the trusts. The
selfhelp groups were mutual concerns and ultimately the interest burden was shared by the
individualmembersofthegroup.Therefore,theexpenditurebywayofinterestwasincurredby
themembersoftheselfhelpgroupsandinfacttheinterestwaspaidbythosemembersofself
help groups to the umbrella company. These individuals, not being liable for audit under
section 44AB, section 194A was not applicable to them. All the assesseetrusts were
representative assessees of the members constituting the selfhelp groups. What was not
applicable to the members, would not apply to representative assessees. Therefore, the
Commissioner (Appeals) was justified in holding that the assessees were not bound to deduct
anytaxatsourcewhilemakingtheinterestpaymentstotheumbrellacompany.Theadditions
made by the assessing authorities under section 40(a) (ia) of the Incometax Act, 1961 were
liabletobedeleted.(A.Ys.20072008,20082009)
S.194A:Deduction at source Interest other than interest on securities Not obtaining the
form15Gand15Honorbeforelastdayofrelevantfinancialyear,disallowancewasjustified.
[S.40(a)(ia)]
Assessee paid interest without deducting tax at source. It was submitted by assessee that
persons had filed form No. 15G and 15H on basis of which tax was not deducted on interest
payment.AssessingOfficerfindingthatFormNos.15Gand15Hwerefiledafterendofrelevant
financial year, disallowed payment of interest under section 40(a) (ia). Tribunal heldthat for
allowance of deduction under section 40(a) (ia) assessee should have obtained Form No.
15G/15H on or before last day of relevant financial year. Since assessee failed to do so,
impugneddisallowancemadebyAssessingOfficerwastobeupheld.(A.Y.200607)
ACITv.MeerutRubberFactory(2013)55SOT325(Delhi)(Trib.)
S.194A:Deduction at sourceInterest other than interest on securitiesTrading liability

PurchaseofbillsNotliabletodeducttaxatsource.[S.2(28A),40(a)(ia)].
Tribunalheldwhereapaymentwhichhasdirectlinkandimmediatenexuswithtradingliability
being connected with delayed payments of purchase bills, will not fall within category of
interestasdefinedinsection2(28A)and,therefore,whilepayinginterestondelayedpayment
ofpurchasebills,assesseeisnotliabletodeducttaxatsourceundersection194A.(A.Y.2005
06)
333
SriVenkateshPaperAgencies(Hyd.)(P.)Ltd.v.Dy.CIT(2013)55SOT332(Hyd.)(Trib.)
S.194A:DeductionatsourceInterestFirmPartnerInterestpaidbypartnertofirm,taxis
deductibleatsourceonsuchinterest.
Theassesseesborrowedmoneyfromthefirmsinwhichtheywerepartnersandpaidinterestto
the firms. The Dy. CIT (TDS) noticed that the assessee did not deduct tax at source under the
provisionsofsection194Aontheinterestsopaidtothefirms.Afterhearingtheassessees,the
Dy. CIT (TDS) levied penalty under section 201 (1) of the Act equivalent to the amount of tax
liable to be deducted at source and levied interest under section 201 (1A) of the Act for the
periodfromtheclosingoftherelevantfinancialyeartoMay31,2009fortheassessmentyears
200506 to 200708. The Commissioner (Appeals) confirmed the penalties and interest. On
appeal to the Tribunal held that t the Incometax Act recognises a partner and a firm as
different "persons", despite the legal relationship between them as prevailing under the
Partnership Act. Further section 194A provides exemption from the obligation imposed under
thatsectiononlyinrespectofinterestpaidorcreditedbyafirmtoitspartner.TheActdoesnot
provide such exemption to the interest paid or credited by a partner to his firm. Tax is
deductibleatsourceontheinterestpaidbythepartnertothefirm.Penaltyleviedwasdirected
tobedeletedafterverificationoffacts.(A.Y.20052006to20082009)
ThomasMuthootv.Dy.CIT[2013]21ITR133/55SOT390(Cochin.)(Trib.)
S.194C:DeductionatsourceContractorsWorkDeductionatsourcedoesnotapplyto
contractmanufacturingagreements.[S.201(1),201(1A)]
The assessee, a manufacturer of pharmaceutical products, entered into agreements with
various manufacturers who manufactured the said items according to the specifications
providedbytheassessee.TheAssessingOfficerheldthatthetransactionbetweentheassessee
andthemanufacturerwasinthenatureofaworkscontractandfellwithinthepurviewofs.
194CandthattheassesseeoughttohavedeductedTDSthereon.Theassesseewasheldtobe
in default and liable to pay the tax and interest u/s 201(1) & 201(1A). On appeal by the
assessee,theTribunalheldthatthetransactionwasoneofsalesimplicitorandwasnotinthe
nature of a work contract and that the assessee was not liable to deduct TDS u/s 194C. The
departments appeal to the High Court was dismissed by following CIT v Reebok India Co.
(2008)306ITR124(Del).OnappealbythedepartmenttotheSupremeCourt,HELDdismissing
theSLP:
On examining the terms and conditions, invoices, purchase orders and challans indicating
payment of excise duty, there is no material on record to indicate that the transaction in
question is a contract for carrying out works. Hence, s. 194C is not attracted. S. 194C has
been amended by the Finance (No.2) Act, 2009, w.e.f. 1.10.2009 to provide that work
includesmanufacturingorsupplyingaproductaccordingtotherequirementorspecificationof
acustomerbyusingmaterialpurchasedfromsuchcustomer.Itisclarifiedthatthedefinitionof
the word work will not include manufacturing or supplying a product according to the
requirement or specification of a customer by using material purchased from a person other
thansuchcustomer.
CITv.SilverOakLaboratoriesP.Ltd(SC)www.itatonline.org.
334
S.194C:DeductionatsourceLorrybookingbusinessNotliabletodeducttaxatsource.
Assesseecollectingfreightchargesfromclientswhointendedtotransporttheirgoodsthrough
separate transporters andpaying to transporters entire amount collected from clients after
deductinghiscommission.Thereisnoprivityofcontractofcarriageofgoodsbetweenassessee
and his clients, assesseeis not a person responsible butonly a facilitator hence not liable to
deducttaxatsource.Appealofrevenuewasdismissed.(A.Y.20072008)
CITv.HardarshanSingh(2013)350ITR427(Delhi)(HC)
S.194C:Deduction at sourceContractorsRentHire charges for machinery Explanation (i), the words

"machinery or plant or equipment" had been added with effect from July 13, 2006 by the Taxation
Laws(Amendment)Act,2006.[40(a)(ia),194I]
For the assessment year 200607 the assessee made payments under the head "Machinery hire
charges" without deduction of tax at source. Assessing Officer observed that though the provisions of
section194IoftheActwereapplicableonlyfromJuly13,2006section194CoftheActwasapplicable.
Therefore,hemadeadditionundersection40(a)(ia)oftheAct.Onappeal,theCommissioner(Appeals)
finding that section 194I of the Act had been in existence since 1994, the assessee was not under the
legal obligation to deduct tax on the hire charges of machinery because the words "machinery, plant
and equipment" were specifically added with effect from July 13, 2006. The Commissioner (Appeals)
heldthathiringmachinerywasnotacontractforworkandcouldnotbecoveredundersection194Cof
the Act. Accordingly, he deleted the addition under section 40(a)(ia) of the Act. On appeal by the
Department. Held, dismissing the appeal, that the contract was a machinery hire contract and not a
contract for carrying out any work, therefore, the provisions of section 194C of the Act were not
applicable. The provisions of section 194I of the Act were applicable for the payment of rent and tax
wastobedeductedatsourceonpaymentofspecifiedrent.Themeaningof"rent"forthepurposesof
thissectionhasbeenmentionedinExplanation(i)appendedtosection194IoftheAct.InExplanation
(i),thewords"machineryorplantorequipment"hadbeenaddedwitheffectfromJuly13,2006bythe
Taxation Laws (Amendment) Act, 2006. The previous year relevant to the assessment year under
considerationendedonMarch31,2006whileinsertionofthewords"machineryorplantorequipment"
hadbeenmadeeffectivefromJuly13,2006i.e.,muchaftertheendofthepreviousyearrelevanttothe
assessment year under consideration. Therefore, the provisions of section 194I were not applicable.
(A.Y.20062007)
ACITv.KiranConstructions(2013)22ITR356(Hyd.)(Trib.)
S.194C:Deduction at sourceContractorsubcontractor Companies agreed to depute their
employees, would not mean that it was a works contract, hence thedisallowance was
deleted.
AssesseecompanywaspromotedasJointVentureCompanybyHPCLandGAIL.Itwasengaged
inbusinessofdistributingandmarketingofCNG,LPGandNaturalGas.AssesseepaidGAILand
HPCL certain amounts towards reimbursement of cost of salaries of employees who were on
deputation, toassessee company without deducting tax at source. It was noted that deputed
employees worked under the control and management of assessee and, their salaries were
charged on assessees profit. Thus, in aforesaid circumstances merely because companies had
agreed to depute their employees it would not mean that it was a works contract covered
u/s.194C.Hence,impugneddisallowancewasdeleted.(A.Ys.200708&200809)
BhagyanagarGasLtd.v.ACIT(2013)140ITD591(Hyd.)(Trib.)
335
S.194C:Deduction at sourceContractorsubcontractor Companies agreed to depute their

employeeswouldnotmeanthatitwasaworkscontract,hencethedisallowancewasdeleted.
[S.194I,40(a)(ia)].
Assessee a transport contractor, hired lorries/ truck from lorry owners and further gave them
on hire to L who used same for carriage of goods. Since no work of carriage of goods was
entrusted either with assessee or with lorry trucks owners from whom assessee hired
lorries/trucks,assesseewasnotliabletodeducttaxatsourcefrompaymentofhirechargesto
lorry/truck owners.At the most the hire charges may fall within theprovision of section 194I,
however section 194I is not applicable for the relevant year. More over the tax payer
hasadmittedly paid hire charges to lorry owners. Following the Special Bench in Merlyn
Shipping & Transporters v. ACIT (2012) 136ITD 23 (SB) (Visakha) (Trib.) the provision of
section40a(ia)isapplicableonlyinrespectoftheamountwhichremainstobepaidattheend
ofthefinancialyearandisnotapplicabletotheamountalreadypaid.(A.Y.200607)
Dy. CIT v. Shri Reez Karakkattil Raghavan Friends Transport Co. (2013) 140 ITD 598 (Cochin)
(Trib.)
S.194C:DeductionatsourceContractorsSubcontractorsBIFRNoreliefcanbegiventoBIFR
companyfordeductiontaxatsource.
Tribunal held thatwhere payment has been made by manufacturer of clothes for processing
andweaving,liabilitytodeductTDSarisesundersection194C(1).Evenwhererecipientcompany
was under BIFR, no relief could be given in terms of TDS liability. Partly in favour of assessee.
(A.Y.200506)
DeoraTradingCo.v.ITO.(2013)55SOT349(Mum.)(Trib.)
S.194C:Deduction at sourceContractorssubcontractorsViolation of provident fund act

cannotbethegroundtodisallowpaymenttocivilcontractor.[S.40(a)(ia)]
Assessee,acivilcontractormadelabourpaymentstovariouspersonsbutfailedtodeductTDS.
Assessing Officer invoking provisions of section 40(a) (ia), disallowed said charges. On appeal,
assessee produced some registers, namely, labour register, wage register, etc., which were
acceptedbyCommissioner(Appeals)andadditionsweredeleted.Revenueraisedanobjection
that labour registers were not maintained properly and,moreover, there was no deduction of
provident fund; hence, there was no direct payment to labourers, but to subcontractor who
made labour payments. Thus, TDS liability under section 194C was violated. Tribunal held that
whether violation of provisions of Provident Fund Act and labour laws had nothing to do with
proceedings under Incometax Act, therefore, revenue's objection was to be set aside and
impugnedorderpassedbyCommissioner(Appeals)wastobeupheld.(A.Y.200607)
Dy.CITv.ArjunBhowmick(2013)55SOT82(URO)(Kol.)(Trib.)
S.194C:Deduction at source ContractorsSubcontractorsAgents of truck ownersDid not

haveobligationtodeducttaxatsource.(S.40(a)(ia))
Assesseeisengagedinbusinessoftransportationofgoods.Duringcourseofbusiness,assessee
had to take several trucks on hire. Assessee did not deduct tax at source under section 194C,
while making payments to agents of truckowners, which inter alia, resulted in disallowance
336
under section 40(a) (ia). Tribunal held that since assessee made payments for hiring of trucks
simplicitor and not for transporting goods which he received from other parties, it was not a
case of subcontracting work and, thus, assessee did not have any obligation to deduct tax at
sourcewhilemakingsaidpayments,therefore,impugneddisallowancewastobedeleted.(A.Y.
200607)
LokeshDuggalv.ITO.(2013)55SOT78(URO)(Kol.)(Trib.)
S.194C:DeductionatsourceContractorsSubcontractorsPrintingmaterialonpaperWorks
contractSaleContractforsaletheassesseeisnotliabletodeducttaxatsource.[S.201,201
(IA)]
Tribunal held that if a person has given specifications for printing and has supplied his own
paper or ink and printer is only printing such material on paper, then it would constitute a
works contract and provisions of section 194C would be attracted. However, if a person has
only given specifications for printing and such material is delivered to such person after
specified printing, it would be a contract of sale. Assessee had specified printing material for
printing to 'F' 'F' had rendered services as specified by assessee and in many cases had
chargedevenVAT/CST.Itwasnotallegedorprovedthatassesseehadsuppliedpaperorinkto
printer,itwascontractforsaleorpurchaseandprovisions ofsection194Cwerenotattracted
and,thus,assesseewasnotindefaultundersection201(1).(A.Y.200607to200910)
PunjabTractorsLtd.v.ITO(2013)55SOT75(URO)(Chd.)(Trib.)
S.194C:DeductionatsourceContractorsSubcontractorsSupervisingMatterremanded.
(S.194J)
Tribunal held that,where contractor merely provided service simpliciter for supervising
construction work of assessee, tax was not to be deducted under section 194C.In respect of
applicability of section 194J to such payment Commissioner (Appeals) had to specify in
appellate order as to which of clauses of section 194J would apply in case of assessee and he
hadtogivereasonsforsameinappellateorder,merelybecauseassesseeoriginallymentioned
section194JinTDSreturn,thatbyitselfwasnotsufficienttoputassesseeindefaultforshort
deduction and late payments of taxes with interest, in case payee had paid tax on same
payment to revenue department, tax could not be recovered once again from assessee,
althoughchargingofinterestwasmandatoryinnaturefordelay.Matterremanded.(A.Y.2008
09)
RadheyshyamBhakar&Co.v.ITO(2013)55SOT80(URO)(Agra)(Trib.)
S:194H:DeductionatsourceCommissionBrokeragePrincipalAgentrelationship
DistributorsMatterremanded.
The assessee has contended that discount given to the distributors is not subjected to the
provisions of section 194H on the ground that the relationship between the assessee and the
distributorisonprincipaltoprincipalandnotprincipaltoagent.TheTribunalheldthatsection
194Hdoesnottalkabouttherelationshipbetweenthepayerandpayeenecessarilybetheofa
principalandagent,theprovisionsdonotrequireanyformalcontractofagency.Onfacts,the
Tribunal held that the assessee has failed toproduce any material such as scheme under
whichthe benefit had been given to the distributors. Accordinglythe matter was set aideto
decideaccordancewithlaw.
337
(A.Y.200708)
S:194H:DeductionatsourceCommissionSIMcardsRechargecouponswholesaledealers
discountCommissionDiscountallowedonsaleofrechargecouponsisnotdiscountbut
commission,taxisdeductibleatsourceonsuchamount.(S.201)
TheassesseecompanywassellingSIMcardsandrechargecouponsoftheChennaiTelephones
towholesaledealersandpayingcommissiontothemuptothefinancialyear200708.Fromthe
financial year 200809 onwards the assesseecompany distinguished the sale of SIM cards and
recharge coupons. It treated the commission paid to dealers on sale of recharge coupons as
discount and did not deduct tax at source under section 194H of the Incometax Act, 1961
thereon. The Assessing Officer treated the company as an assesseeindefault under section
201.ThiswasconfirmedbytheCommissioner(Appeals).OnappealtotheTribunalheldthatthe
payment amounted to commission and tax was deductible at source on such amount. (CIT v.
IdeaCellularLtd.[2010]325ITR148(Delhi)followed.)Appealofassesseewasdismissed.(A.Y.
200910,20102011).
CellularMobileTelecomServicesv.ITO(2013)21ITR456(Bang.)(Trib.)
S.194H:DeductionatsourceCommissionTravelagentDistributionofamount,theassessee
isnotliabletodeducttaxatsource.(S.40(a)(ia)
Assessee isengaged inbusiness of travel agents. It entered into a consortium agreement with
12othermemberswhoweretravelagentsforbookingairticketsthroughplatformprovidedby
'A' Ltd. In terms of said agreement all members travel agents except assessee, rendered
services of booking airline tickets and utilized computerized electronic reservation system
platformprovidedby'A',whoofferedpreferentialratessubjecttobulkbusinessbeingoffered
by all travel agents as one entity. Consortium members agreed that assessee would act as a
lead member and authorized it to enter into contracts with 'A' to make collections and
distribute monies to each of consortium travel agents in proportion to segment bookings
effectedbyeachoftravelagents.Leadmember,i.e.,assesseecollectedcommissionforservices
rendered by other members and distributed said commission amongst members on priority
basis. Though TDS certificate issued by 'A' reflected commission of Rs. 65,71,690, assessee
distributed amount of Rs. 52, 22,326 amongst members for services rendered by them in
booking tickets etc. Since assessee did not deduct tax at source while making payment of
commission to travel agents, referring to provisions of section 40(a) (ia), Assessing Officer
disallowedamountofRs.52,22,326.Tribunalheldthatsinceassesseeonlydistributedmonies
amongstmembersintermsofagreementforservicesrenderedbytheminbookingticketetc.,
and had not claimed said amount as expenditure in its account, it could not be treated as
incomeofassesseesoastoattractprovisionsofsections194Hand40(a)(ia).(A.Y.200607)
ITOv.InterserveTravels(P.)Ltd.(2013)55SOT356(Delhi)(Trib.)
S.194H:Deduction at sourceCommissionTrade discountAssessee is not liable to deduct tax

atsource.(S.40(a)(ia))
AssesseeisafranchiseeofBSNL.Itreceivedcommissionongrossvalueofpurchaseandonsaid
commission BSNL had deducted tax at source under section 194H. It had also appointed sub
338
franchisees for selling products of BSNL. It, out of its own commission, allowed trade discount
to subfranchisees. Assessing Officer treated trade discount as commission and disallowed
samebyapplyingsection40(a)(ia)onpleathatassesseehadnotdeductedtaxatsourceunder
section 194H on trade discount. Tribunal held thattrade discount made available to sub
franchisees was a compensation by foregoing part of commission already subjected to tax at
source by BSNL and it could not have suffered taxation under section 194H. Therefore, the
disallowanceundersection40(a)(ia)wasunjustified.(A.Y.200809)
PareekElectricalsv.ACIT(2013)55SOT338/81DTR342(Cuttack)(Trib.)
S.194H:Deduction at source Commission or brokerage Relation of principal and agent

Discount was treated as commission for provision of S. 194H hence the assessee was held
tobeliabletodeducttaxatsource.
Assesseewasengagedinthebusinessofprovidingtelecomservicesacrosscountry.Tomarket
itsproductsandservices,assesseeappointedpersonscalledchannelPartners(CP).Toenable
itscustomertouseitsservices,assesseegavestarterpacksaswellasrechargevoucherstoits
CPs. While MRP of the products were fixed at time of raising invoices, product was priced at
discountedpriceagreedtobetweenassesseeandCP.Itwasheldthattherelationshipbetween
the assessee and its distributors was that of principal and agent and thus, difference between
MRP of product and price actually charged constituted commission which would fall under
realmofprovisionsofsection194H.TheAssesseewasheldtobeliabletodeducttaxatsource
onsuchpayment.Appealofassesseewasdismissed.(A.Y.200506&200809)
TataTeleservicesLtd.v.Dy.CIT(2013)140ITD451/87DTR346(Bang.)(Trib.)
S.194H:Deduction at source Commission or brokerage Bank Charges Payment to bank

for utilization of credit card facilities is not in nature of commissionhence section194H isnot
applicable.
Assessee had arrangement with several banks whereby customers of assessee, who also held
credit card of such banks, could make payment for communication service utilized by them
from assessee through credit cards. It was held that the payment to bank for utilization of
credit card facilities would be in nature bank charge and not in nature of commission within
meaning of section 194H.Assessee is not liable to deduct tax at source on such payments.
Appealofassesseewasallowed.(AY200506&200809)
TataTeleservicesLtd.v.Dy.CIT(2013)140ITD451/87DTR346(Bang.)(Trib.)
S.194I:Deduction at sourceRentWagon Investment scheme'Not liable to deduct tax at

source.(S.40(a)(ia))
Assessee is engaged in business of mining and processing of iron ore. For its logistical
requirement, it entered into an agreement with Indian Railway where under, it made an
investmentin'WagonInvestmentscheme'whereunderitwasentitledtogetassuredsupplyof
particular number of rakes on monthly basis and was charged with regular freight. Such
entitlementifremainedunusedcouldbesecondedtootherconcernsandviceversa.Assessee
used entitlement rights of two companies, FGCP and RSP and made payments to them as
wagonfacilitationcharges.AssessingOfficerformedanopinionthatsuchchargeswerepaidas
hire charges under an arrangement entered with said two companies on which tax was to be
339
deducted under section 194I As assessee failed to deduct tax, payments were disallowed
undersection40(a)(ia).Itwasnotedthatwagonsprocuredunderschemeweretomergeand
operate in general pool of wagons of Indian Railways and were to be reverted back to Indian
Railways after 10 years. Tribunal held thatrent as defined under section 194I has to be
understood from point of view of ownership and Assessing Officer could not correlate WI
Scheme in question and rent. Assessing Officer misdirected himself by holding arrangement
with two companies asarrangement under section 194I. therefore, order of Assessing Officer
wastobesetaside.Infavourofassessee.(A.Y.200809)
BonaiIndustrialCo.Ltd.v.Dy.CIT(2013)55SOT363(Cuttack)(Trib.)
S.194J:Deduction at sourceTechnical services feeRoyaltyPurchase of computer software

hencenotliabletodeducttaxatsource.(S.9(1)(vii),40(a)(i))
Assesseeisacompanyengagedinbusinessofpurchaseandsaleofcomputersoftware.Itmade
apaymentforpurchaseofsoftwarefrompersonswhowereresidentinIndia.Assesseedidnot
deducttaxatsourcewhilemakingpaymentstowardssuchpurchases.AssessingOfficeropined
that payment was made for acquiring a right to use software which was in nature of royalty.
According to Assessing Officer, since assessee did not deduct tax at source while making
payments in question, same were to be disallowed. Commissioner (Appeals), however, took a
viewthatamountpaidbyassesseetowardspurchaseofcomputersoftwareasagoodcouldnot
be treated as payment of royalty and, therefore, disallowance made by Assessing Officer was
not sustainable. Tribunal held that on facts, impugned order of Commissioner (Appeals)
deletingadditionwasjustifiedandcalledfornointerference.(A.Y.200708)
ACITv.SonataInformationTech.Ltd.(2013)152TTJ590/55SOT455(Mum.)(Trib.)
S.194J:Deduction at sourceFees for professional or technical serviceswheeling and

transmissionchargesNotliabletodeducttaxatsource.(S.194C.)
Tribunal held that wheeling and transmission charges paid by assessee state electricity
distribution company in case of which provisions of Electricity Act, 2003 is applicable are not
liable for deduction of tax either under section 194J or section 194C. In favour of assessee.
(A.Ys.200708,200809)
Maharashtra State Electricity Distribution Co. Ltd.v. ACIT (2013) 55 SOT 84(URO) (Mum.)
(Trib.)
S.195:Deduction at sourceNonresidentForeign agentCommissionNot liable to deduction

oftaxatsource.(S.40(a)(ia))
Tribunal held that where foreign agents were appointed to act as a selling agents of assessee
outside India, commission earned by them for services rendered by them outside India could
not be considered as income chargeable to tax in India, therefore, when commission paid to
nonresidents were not chargeable to tax under provisions of Act, no deduction of tax was
required to be made under section 195(1) warranting disallowance under section 40(a) (i).
(A.Y.199899)
ACITv.PriyadarshiniSpinningMills(P.)Ltd.(2013)55SOT432(Hyd.)(Trib.)
340
S.195:Deduction at source Nonresident Reinsurance premium Matter remanded.
(S.40(ia)).
Assesseecompany paid reinsurance premium to nonresident reinsurance companies.
Assessing Officer finding that assessee did not deduct tax at source while making said
payments, disallowed same. On appeal, assessee relied on order passed by Supreme Court in
case of GE India Technology Cent. (P.) Ltd. v. CIT [2010]193 Taxman 234to contend that
reinsurance premium paid to nonresident reinsurance companies was not taxable in their
handsand,therefore,questionofdeductingtaxatsourcedidnotarise.Assesseealsobrought
on record details of reinsurance premium ceded to nonresident insurance companies, profit
margin of assesseecompany, explanation on concept of unexpired risk reserve, etc. Tribunal
heldthatsinceaforesaiddetailswerenotavailablebeforelowerauthorities,itwasappropriate
to remit matter back to concerned assessing authority to reframe assessments in light of the
newmaterialsandlatestjudicialpronouncements.Matterremanded.(A.Y.200102to201011)
RoyalSundaramAllianceInsuranceCo.Ltd.v.ACIT(2013)55SOT429(Chennai)(Trib.)
S.195:Deduction at source NonResident NRI purchasing flat, seller is liable to deduct tax
at source as the tax was not deducted liable to be held as assessee in default under
sectionn201(1).[S.201(I)]
NRI assessee purchased a residential flat at Bangalore from one G whose Hong Kong address
giveninsaledeedindicatedthatshewasNRIseller.AssessingOfficeropinedthatassesseehad
failed to make TDS at prescribed rate on sale consideration as required by section 195 before
makingpaymenttoNRIsellerandtherefore,hewasassesseeindefaultundersection201(1).
Assesseeclaimedthathewasunawareofprovisionsofsection195andalsothoughtthatseller
wasresidentinIndia.Tribunalheldthatassessee'ssaidclaimwouldnotabsolvehimofdutyto
make TDS under section 195 when seller's address given in sale deed clearly established that
shewasNRIandtherefore,heoughttohavemadeTDS.therefore,assesseewasrightlyheldas
assesseeindefaultinaccordancewithprovisionsofsection201(1).(A.Y.200708)
SyedAslamHashmiv.ITO(2013)55SOT441(Bang.)(Trib.)
S.195:DeductionatsourceNonResidentSaleconsiderationPurchaseofflatCapitalgain
LiabletodeducttaxonentireconsiderationunlessapplicationismadetotheAssessing
Officerundersection195(2).
NRIassesseecontendedthatAssessingOfficerhadwronglyquantifiedTDSundersection195by
applyingspecifiedrateonentiresaleconsiderationpaidtoNRIsellerforpurchaseofresidential
flat and not on capital gain arising on this transaction. Assessee also stated that tax on said
capital gain was duly paid, However, it was found that assessee did not fulfill requirement of
section 195(2) vide which he was required to make application to Assessing Officer to
determine amount chargeable if he had considered that whole or part of sale consideration
wouldnotbeincomeinhandsofNRIseller.Tribunalheldthatwhenassesseedidnotapplyfor
lower or no deductionof tax, he was statutorily duty bound to have deducted tax at specified
rateonentiresaleconsiderationbeforemakingpaymenttoNRIseller,therefore,quantification
ofTDSasmadebyAssessingOfficerwastobeupheld.Infavourofrevenue.(A.Y.200708)
SyedAslamHashmiv.ITO(2013)55SOT441(Bang.)(Trib.)
341
S.195:Deduction at sourceNonresident Other sums SurchargeEducational cessIf DTAA is
silent,noobligationtodeductsurcharge&educationcess.
The assessee made a remittance of management fee and interest to a resident of France. The
AOheldthatindeductingTDSthereonu/s195,theassesseeoughttohavedeductedsurcharge
and education cess. The assessee claimed that as the IndiaFrance DTAA was silent about
inclusion of surcharge & education cess, it was under no obligation to do so. HELD by the
Tribunalupholdingtheassesseesplea:
The IndiaFrance DTAAdoes not say anything about inclusion of surcharge and education cess
forthepurposeofdeductionoftaxatsource.Therefore,thereisanapparentconflictbetween
the Incometax Act and the DTAA between the two sovereign countries with regard to
deduction of tax at source on surcharge and education cess. U/s 90(2) if the provisions of the
DTAA are more beneficial to the taxpayer, the DTAA prevails over the Act. Since the DTAA is
silentaboutthesurchargeandeducationcessforthepurposeofdeductionoftaxatsource,the
taxpayermaytakeadvantageofthatprovisionintheDTAAfordeductionoftax.(A.Y.200304
to200809)
ITOv.M.FarHotelsLtd(Cochin)(Trib.),www.itatonline.org
S.197:Deduction at sourceCertificate at lower rateIncomeInterest on arbitration awardWhen

arbitration award is alive and is pending income does not accrueAssessing Officer was directed to
issuethecertificate.[S.4,5,CivilProcedureCode,1908,S.144]
Thecourtheldthatsolongasthechallengetothearbitralawardisaliveandispending,andthelegality
of the arbitral award has not attained finality, the amount which has been awarded has not attained
finality,theamountwhichhasbeenawardeddoesnotrepresentincomewhichhasaccrued,nointerest
income can also be said to accrue, the Assessing Officer was directed to issue the certificate under
section197.(F.Y.201213)
DSLEnterprises(P)Ltdv.N.C.Chandratre(Mrs.)ITO(2013)258CTR155/84DTR451(Bom.)(HC)
S.197:Deduction at sourceCertificate for lower rateShort deduction of taxCertificate for
deductionatlowerrateissuedtoprincipalofficerofMunitAssesseeisnotindefaultmerely
on ground certificate not issued in name of B unit. (S.194C, 204 ,Income tax Rules, 1962,
Rule28AA).
Theassesseehadappointedvariouspersonsforexecutingtheworks,makingitliabletodeduct
tax at the rate prescribed under section 194C of the Act. The assessee's Mumbai unit had a
separate tax deduction account number from its Bahadurgarh unit. The Mumbai unit held a
certificateundersection197permitteddeductionoftaxatalowerrate.Onthegroundthatthe
two units were separate entities for the purpose of deduction of tax at source the Assessing
Officerrecordedafindingofshortdeductionoftaxatsourceandpassedanorderundersection
194C. The Commissioner (Appeals) held that since the genuineness of the issue of certificates
undersection197hadnotbeendoubtedbytheAssessingOfficer,therewasnojustificationto
holdthattheassesseewasindefaultmerelyonthegroundthatthecertificatewasnotissued
inthenameoftheBahadurgarhunit.ThiswasaffirmedbytheTribunal.Onappealbyrevenue
the Court dismissing the appeal, held that the Assessing Officer of the contractors had
furnishedacertificateundersection197totheprincipalofficeroftheMumbaiunitintermsof
342
clause(iii)ofsection204mandatingthepersonstowhomsuchcertificatewasissuedtodeduct
tax at a rate lower than the prescribed rate under section 194C. Merely because the assessee
hadgotseparatetaxdeductionaccountnumbersfortheBahadurgarhunitandfortheMumbai
unit, that would not render the certificate issued under section 197(2) redundant. Such
certificatewastobeissuedtotheprincipalofficerofthecompanyasthepersonresponsiblefor
deduction of tax and not to any other person or unit of the assessee. Therefore, the order
passedbytheCommissioner(Appeals)andaffirmedbytheTribunalcouldnotbesaidtosuffer
fromanyillegalityinanymanner.
CIT(TDS)v.ParleBiscuitsPvt.Ltd.(2013)351ITR138/88DTR77(P&H)(HC)
S.200:Deduction at source Duty of person deducting taxAuthorised personProcedural(S.

201(1))
Tribunal held thatsubsection (3) of section 200 as inserted by Finance (No 2) Act, 2004 with
effect from 142005, mentioning that authorised person to initiate proceedings is DGIT
(System)/NSDL,isaproceduralsectiontostreamlineprocessofstatementsincomputerisedset
up; however, this section does not take away powers of Assessing Officer to initiate
proceedingsundersection201(1).Matterremanded.(A.Ys.201011to201213)
KingfisherAirlinesLtd.v.ACIT(2013)55SOT370(Bang.)(Trib.)
S.201:DeductionatsourceFailuretodeductorpaySurveyMattersetaside.(S.133A)
AssesseecompanyisengagedinbusinessandoperatingasaschedulepassengerairlineinIndia
A survey under section 133A was conducted in assessee's premises on 1832011 in order to
verifyTDScompliance.IncourseofsurveyAssessingOfficernotedthatassesseecompanyhad
deductedTDSfromemployee'ssalariesbutithadnotremittedsametoGovernment'saccount
within due dates. Assessing Officer, though issued a showcause notice, passed order in haste
treating assessee to beassesseeindefault without providing assesseereasonable opportunity
of being heard. Moreover, it was not clear how liability for default in terms of section 201 (1)
and levy of interest under section 201 (1A) had been determined andas to whether remedies
available to assessee for making adjustments had been exhausted. Order passed by Assessing
Officer was to be set aside and, matter was to be remanded back for disposal afresh. (A.Y.
201011to201213)
KingfisherAirlinesLtd.v.ACIT(2013)55SOT370(Bang.)(Trib.)
S.201:DeductionatsourceFailuretodeductorpayRecoveryprovisionsundersection201
(1)canbeinvokedonlywhenlosstorevenueisestablished,matterremanded.
AssessingOfficertreatedassesseeasassesseeindefaultfornondeductionoftaxatsourceon
several payments made. Assessee contended that since recipients had paid tax on income
embedded in such payments, taxes could not once again be recovered.However, Assessing
Officer held that assessee was not able to prove that taxes had been duly been paid by
recipients. Further, assessee's request to Assessing Officer to 'use his statutory powers to
corroboratefrompayerswhethertheyhadpaidtaxontheiraccount'wasalsorejected.Tribunal
heldthatrecoveryprovisionsundersection201(1)canbeinvokedonlywhenlosstorevenueis
established, once assessee furnishes lawfully maintained information about recipients,
Assessing Officer should first ascertain related facts about payment of taxes directly from
343
recipients before invoking section 201 (1). Matter remanded. (A.Ys. 200506, 200607 & 2008
09)
RamakrishnaVedantaMathv.ITO(2013)55SOT417(Kol.)(Trib.)
S.201:Deduction at source Failure to deduct or pay PerquisitesStay order of High Court

assesseeisnotliableundersection201.(S.192,200)
Tribunal heldwhere during assessment years, assesseeemployer could not deduct TDS under
section 192 on account of stay order of High Court for nondeduction of TDS on perquisites
granted to employees, assessee could not be held liable under section 201.(A.Y. 20003 to
200809)
StateBankofIndorev.ITO(2013)55SOT422(Indore)(Trib.)
S.201:Deduction at source Failure to deduct or pay Firm Partner Penalty Matter

remanded.
The Tribunal held that penalty under section 201 (1) iscompensatory in nature. Failure to
deduct tax at source on interest paid by partner to firm. Penalty is not leviable if no tax is
payablebyfirm.Matterremanded.(A.Y.20052006,to20082009)
S.201(IA):Deduction at sourceFailure to deduct or payInterestFirmPartnerMatter

remanded.
No tax was deducted at source on interest paid by partner of firm. The Tribunal held
thatinterest isnot payable if no tax is payable by firm. Matter remanded. (A.Y. 20052006 to
20082009)
S.206AA: Requirement to furnish Permanent Account NumberNonresidentsHigher rate of

taxGrossingup.[S.195A]
WhereincomeischargeabletotaxinIndiairrespectiveofresidentialstatusofrecipient,ithas
to obtain PAN and provide same to assesseedeductor. In case of failure of recipient to do so
assesseeisliabletowithholdtaxathigherratesasprescribedundersection206AA.Grossingup
oftheamountistobedoneattheratesinforceforthefinancialyearinwhichsuchincomeis
payableandnotat20percentasspecifiedundersection206AA.(A.Y.201112)
BoschLtd.vITO(2013)141ITD38(Bang.)(Trib.)
S.206C:CollectionatsourceStateGovernmentPersonCollectorAmaravtiisrequiredto
collecttaxatsource.[S.2(31),133A].
In the course of survey the Assessing Officer found that Tax collected at source (TCS) was not
collectedfromthelessesorthelicenseeswhiledebitingtheiraccountwiththeamountpayable
by them for the lease or license or at the time of receipt of amounts so payable during the
financial year 200405, 200506 and 200607.by them to them . Assessing Officer held that
GovernmentisalsopersonhencefailuretocollecttaxatsourceCollectorwasheldliabletopay
taxwithinterest.Commissioner(Appeals)confirmedtheorderofAssessingOfficer.Onappeal
Tribunalheldthat,
344
StateGovernmentisapersonforpurposeofcollectingtaxatsourceasperprovisionsofsection
206C.Appellant representing State Government had allowed licenceholders to excavate
minerals,hewasrequiredtocollectTCSfromthem.(A.Ys.200506,200708)
Collectorv.ITO(2013)141ITD550(Nag.)(Trib.)
S.215:Advance taxInterest payable by assesseeApplication of mind is necessaryOrder of

Tribunaldeletionofinterestheldtobejustified.(S.217)
Thatevenifanyprovisionoflawismandatoryandprovidesforchargingoftaxorinterest,such
chargebytheAssessingOfficershouldbespecificandclearandtheassesseemustbemadeto
knowthattheAssessingOfficerhadappliedhismindandhadorderedthechargingofinterest.
Themandatorynatureofchargingofinterestandtheactualchargingofinterestbyapplication
ofmindandthementionoftheprovisionoflawunderwhichsuchinterestischargedaretwo
differentthings.Theappealfiledbythedepartmentisdismissed.(A.Y.19881989)
CITv.MisraPreservers(P.)Ltd(2013)350ITR222(All)(HC)
S.220:CollectionandrecoveryWaiverofinterestGenuinehardship.
The Assessing Authority had found that the assessee was partner in two firms and also had
substantial agricultural income Whether since assessee had not established that payment of
interest would cause genuine hardship to him, application for waiver of interest was rightly
rejected.
K.C.Mohananv.ChiefCIT(2013)214Taxman127(Mag.)(Ker.)(HC)
S.220:Collection and recoveryAssessee deemed to be in default Stay of recovery

Commissioner(Appeals)Appealpending.[S.250(6A)]
Against the order of the Assessing Officer, the assessee filed an appeal before the
Commissioner (Appeals). Thereafter, the assessee filed two applications and while they were
pending before the Commissioner (Appeals) without any adjudication the Incometax Officer
initiatedproceedingsforrecoveryandtakingcoerciveaction,attachedthebankaccountofthe
assessee.Held,thattheassesseeshallmoveanapplicationbeforetheCommissioner(Appeals)
to decide the appeal expeditiously and also to consider the applications filed by the assessee
for staying the recovery. The Incometax Officer shall not take any coercive action but shall
awaitthedecisionoftheCommissioner(Appeals)onthestayapplicationandduringtheperiod
the Incometax Officer shall release the bank account of the assessee and the amount
transmittedtotheRevenueshallbesubjecttothedecisionoftheappealbytheCommissioner
(Appeals).
SanjayKumarSahuv.ITO(2013)354ITR177(MP)(HC)
S.220:Collection and recoveryAssessee deemed in defaultWaiver of interest Retention of seized
assetsDisputebetweenassesseeanditspartnersOdersetasideforredetermination.[S.132,132B,
220(2)]
Search and seizure operations under section 132 of the Incometax Act, 1961, were conducted at the
businesspremisesoftheassesseefirmandtheresidentialpremisesofitspartners,whowerebrothers.
Therewasadisputebetweenthetwobrothersastowhetherthejewellerybelongedtotheassesseeor
oneofitspartners.OnawritpetitionattheinstanceoftheassesseetheHighCourtsetasidetheorder
345
of the Commissioner entrusting the jewellery to one partner and remanded the matter for
redetermination.IncompliancewiththedirectionstheCommissionerpassedanorderholdingthatthe
entirejewellerybelongedtothatpartnerandleviedinterestundersection220(2).
HeldthattheCommissioneroverlookedsection220(2A)whichexpresslyvestspowertowaiveorreduce
the amount of interest with the Chief Commissioner or the Commissioner. Since the existence of
circumstanceswhichmayjustifyreductionorwaivingoftheinterestliabilityisaquestionoffactandthis
aspect had not been discussed in the order by the Commissioner the matter was remanded to the
Commissionertoredeterminetheinterestliabilityoftheassesseewithoutprejudicetotherightofthe
assesseeoritspartnersafterafreshdetermination.
RoxyIndustrialCorporationv.CIT(2013)352ITR569/86DTR313(P&H)(HC)
PawanKumarMittalv.CIT(2013)352ITR569/86DTR313(P&H)(HC)
S.220:CollectionandrecoveryAssesseedeemedindefaultStayDemandshouldbestayedif
strong prima facie case made out. Demand on covered issues cannot be recovered by
adjustmentofrefunds.[S.237,245]
TheAssessingOfficerpassedanassessmentorderu/s143(3)andraisedademandofRs.1719
crores. In response to the assessees stay application, the Assessing Officer accepted that
demand of Rs. 1370 crores had to be kept in abeyance as they were covered in favour of the
assesseebyappellateordersforearlieryears.However,hestillheldthatthesaiddemandhad
to be adjusted against refunds of Rs. 560 crores determined for earlier years. He demanded
that the balance demand of Rs. 377 crores on the other issues be paid by the assessee. The
assessee filed a Writ Petition to challenge the adjustment of refunds against the demand on
coveredissuesandthenongrantofstayontheotherissues.HELDbytheHighCourt:
The manner in which and the ground on which an adjustment of the refund was made is
arbitrary and contrary to law. The stay order states that the assesseewould not be treated as
anassesseeindefaultinrespectofcoveredissues.Yetthedepartmenthasproceededtoadjust
therefunddueandpayabletotheassesseemerelyonthegroundthatthedepartmentsappeal
ispending.Theadjustmentofarefundisamodeofeffectingrecovery.Onceanissuehasbeen
covered in favour of the assessee in respect of another assessment year on the same point, it
was wholly arbitrary on the part of the department to proceed to make an adjustment of the
refund. If the adjustment was not made, there can be no manner of doubt that the assessee
would have been entitled to a stay on the recovery of the demand. The demand cannot be
adjusted by the department in this manner merely because it is in possession of the funds
belongingtotheassesseetowhichtheassesseeislegitimatelyentitledtoandhasbeengranted
arefund.Themakingofanadjustmentinthesefactsistotallyarbitraryandcontrarytolaw.As
regardstheotherissues,theassesseehasmadeoutastrongprimafaciecaseforastayofthe
recovery of the demand. As the action of the department in adjusting the refunds due to the
assessee was contrary to law, the interests of justice would be served if the department is
permitted to make an adjustment to an extent of Rs.60 crores and refund the balance with
interest.(A.Y.20102011)
HDFCBankLimitedv.ACIT(2013)354ITR77/86DTR393/259CTR20(Bom)(HC)
346
S.220:Collection and recovery Assessee deemed in default Garnishee proceedings under
226(3) AO did not pass a speaking order u/s220(6),order of attachmentwas squashed.
(S.226(3))
TheassesseewasdeniedclaimofdeductionU/S10B,andsubstantialdemandwasraised.The
assessee had made an application u/s220(6) to the AO stating that the demand should be
stayedtilldisposalofappealbytheCIT(A).TheAOrejectedthestaywithoutcitinganyreasons,
and the bank accounts and rents were attached of the assessee.The assessee filed a writ with
the High Court, and while allowing the writ, held that nonspeaking order under section
s.220(6)withoutassigninganyreasonsneedstobequashed,andthereforetheorderattaching
theaccountsandrentofassesseeisalsoliabletoquashed.(A.Y.200910)
LalitWadhwav.CIT(2013)82DTR130(P&H)(HC)
S.220:Collection and recovery Assessee deemed in default Appeal before Commissioner

(Appeals)pendingDemandstayedpendingdisposalofappeal.
The assessee, a joint venture company,claimed deduction of Rs. 103.04 crores towards
softwaredevelopmentandinformationtechnologyrelatedservicestoitsassociatedenterprise.
It incurred a sum of Rs. 5.86 crores towards reimbursement of expenses incurred by its
associatedenterprise.TheAssessingOfficermadeareferencetotheTransferPricingOfficerto
investigate into the reasonableness of the international transactions of the assessee with its
associated enterprise. The Transfer Pricing Officer came to the conclusion that no services
whichwouldbenefittheassesseehadbeenrenderedbyitsassociatedenterpriseandthatthe
assesseeshouldnothavemadetheclaimforreimbursement.TheTransferPricingOfficermade
anadditionofRs.5.86croresundersection92CA(3)oftheAct,.TheAssessingOfficerpassedan
order under section 143(3) (iii) determining a total income of Rs. 6.41 crores after making an
adjustmentintermsofthefindingsoftheTransferPricingOfficer.Noticeundersection271(1)
(c)wasissuedtotheassesseeandthereafterpenaltywasimposedinasumofRs.2.05crores.
An appeal was filed before the Commissioner (Appeals) against the order of penalty. On an
applicationmadebeforetheAssessingOfficerundersection220(6),theapplicationforstayof
demandwasrejectedandtheassesseewasdirectedtodeposit50percentoftheoutstanding
demand. Thereafter, the assessee moved the Additional Commissioner who similarly rejected
the application observing that the quantum addition on the basis of which penalty was
imposed, had been confirmed by the Commissioner (Appeals). Upon an application made
before the Commissioner the request for stay of demand was rejected. The quantum appeal
was in the meantime also dismissed by the Tribunal. Against the order of the Tribunal, the
assessee filed an appeal before the court which was pending admission. On a writ petitionthe
Court held that the Assessing Officer as well as the Commissioner had failed to exercise their
jurisdiction in accordance with law. The Commissioner adverted to the fact that the quantum
appeal had been rejected by the Commissioner (Appeals) and the Tribunal. The order for the
depositoftheentirepenaltywasnotjustified.TheassesseewastodepositanamountofRs.50
lakhs in two instalments each of Rs. 25 lakhs. Conditional on the payments, recovery of the
demandwastobestayedpendingdisposaloftheappealbeforetheCommissioner(Appeals).If
anorderadversetotheassesseewaspassedbytheCommissioner(Appeals),nocoercivesteps
fortherecoveryofthebalancedemandweretobepursuedforaperiodoftwoweeks.
347
By the court : "When the statute confers a discretion on the Assessing Officer, that is a
discretionwhichiswieldedintheexerciseofaquasijudicialfunction.AssessingOfficersreject
stayapplicationsinacavalierfashionmakingabaldstatementtotheeffectthat`lookingtothe
factsandcircumstancesofthecase',nocaseforstayhasbeenmadeout.Thisdoesnotamount
toavalidorproperexerciseofdiscretion.WhatisexpectedofanAssessingOfficerisatleasta
briefstatementintheorderofthereasonsonthebasisofwhichheformedhisdecisionunder
section 220(6). Otherwise recourse to section 220(6) is a meaningless formality. Assessing
Officers when they dispose of applications under section 220(6) are required to act fairly.
FairnessasaconceptdoesnotundergoachangeinthehandsofanAssessingOfficer.Fairness
requiresobjectivity.ObjectivitythatisguidedbytheneedtoprotecttheRevenuewhileatthe
same timebeing fair to the assessee whose case has to be tested in a statutory appeal. (A.Y.
20042005)
DeloitteConsultingIndiaPvt.Ltd.v.ACIT(2013)351ITR160/84DTR437/258CTR164(Bom.)
(HC)
S.220:Collection and recovery Waiver of interest Hardship Attachment of entire

properties Entire liabilities subsequently satisfied by appropriation of compensation,
Authoritiestoreconsiderwaiverapplication.
TheapplicationforwaiverofinterestliabilityofRs.8,54,476undersection220(2A)oftheITAct,
1961,wasrejectedandsubsequentlytheentireinterestliabilityoftheassesseewassatisfiedby
appropriating amounts from out of Rs.18,06,402 remitted by a corporation which was due to
theassesseeinalandacquisitionproceedings.Thereasonsforrejectingtheapplicationwere(i)
thattheassesseedidnotproduceanyproofthathehadnootherbusinessorsourceofincome,
and(ii)therehadnotbeenanycooperationextendedtotheDepartmentduringtherecovery
proceedings.OnawritpetitiontheCourtheldthattheassesseeprimafacie,provedbythefact
thattheentirepropertiesoftheassesseewereunderattachmentandthattheentireliabilities
weresubsequentlyclearedbymakingappropriationofthecompensation.Therefore,theorder
rejecting the application could not be sustained. Commissionerdirected to pass the order
accordingtolaw.
AntoNittov.CIT(2013)350ITR305/258CTR100/85DTR94/214Taxman37(Mag.)(Ker.)(HC)
S.220:CollectionandrecoveryInterestWaiverPartialwaivercanbegiven.
InawritpetitionfiledintheHighCourttheCourtheldthatsection220(2A)oftheIncometax
Act, 1961, is an incentive to defaulter/Assessees to cooperate with the Department and to
remit the tax voluntarily at the earliest and, therefore, compliance should be rewarded by
taking a liberal view and approach. The Commissioner or the Chief Commissioner need not
alwayswaivetheamountofinterestinfullbutcangrantwaiverorreductionpartially.Whatis
indicated by the provision is that relief to be granted under section 220(2A) should be
proportionate to the extent of satisfaction of the conditions stated therein. In other words, if
the conditions are partially satisfied the assessee should be given partial relief, i.e., partial
waiver which should be in proportion to the extent of satisfaction of the conditions and
Applicationforstayofrecoveryproceedingscannotbeconstruedasnoncooperationasentire
arrears paid within six months, partial relief under section 220(2A) granted. The Writ petition
wasallowed.(A.Y.20062007)
348
ArunSunnyv.ChiefCIT[2013]350ITR147(Ker.)(HC)
S.220:CollectionandrecoveryInterestRejectionofwaiverapplicationforinterestheldtobe
justified.
Assessee partner in two firms and having substantial agricultural income. Assessment was
necessitatedonaccountofadditiontotaxableincomeoffirmofwhichassesseewasapartner.
Assessee not satisfying conditions. Payment of interest would not cause genuine
hardshipRejectionofapplicationforwaiverofinterestwasheldtobejustified
K. C. Mohanan v. Chief CIT (2013) 350 ITR 461/258 CTR 103/85 DTR 125/214 Taxman
127(Mag.)(Ker)(HC)
S.226:CollectionandrecoveryModesofrecoveryStayStayApplicationsarenota
MeaninglessFormality.Norecoveryduringpendencyofastayapplication.S.226(3)notice
mustordinarilybepreservedonassessee.(S.226(3))
Theassessee,anageoldcharitabletrust,amendeditsobjects.Becauseofthischange,theAO
passedanorderu/s143(3)denyingexemptionu/s11andraisedademandofRs.11crores.The
assessee filed a stay application and requested a hearing. During the pendency of the stay
application,theAOissuedanoticeu/s226(3)andattachedtheassesseesbankaccounts.The
noticespecificallystatedthatthebankshouldnotcontacttheassesseetillpaymentwasmade.
Acopyofthesaidnoticewasnotservedontheassessee.TheassesseefiledaWritPetitionto
challengetherecoveryactionundertakenbythedepartment.HeldbytheHighCourtallowing
thePetition:
(i)Theactionofattachingtheassesseesbankaccountu/s226(3)duringthependencyofastay
application and without giving it notice was arbitrary and high handed. The whole object of
serving a notice on the assessee is to enable the assessee to have some recourse. While in a
given case, it may not be feasible to serve a prior notice on the assessee if there is an
apprehension that the monies would be spirited away, this was not a case of that type. In a
situationsuchasthepresentwhereappealsfiledbytheassesseearependingbeforetheCIT(A)
andtheassesseehadsoughtanopportunityofbeingheardandfiledapplicationsforstay,there
wasnojustificationwhatsoevertoproceedhastilywiththeenforcementoftherecoveryofthe
demandwithoutdisposingoftheapplicationforstay;
(ii) Applications for stay cannot be treated by the AOs & appellate authorities as meaningless
formalities.Quasijudicialauthoritieshavetoapplytheirmindinanobjectiveanddispassionate
manner to the merits of each application for stay. While the interests of the Revenue have to
be protected, it is necessary for AOs to realize that fairness to the assessee is an intrinsic
element of the quasijudicial function conferred upon them by law. Applications for stay must
be disposed of at an early date. Such applications cannot be kept pending to obviate
compliance with the need to evaluate the contentions of the assessee until after monies are
recovered using the coercive arm of the law. Appellate authorities must set down time
schedules for disposal of stay applications with reasonable expedition. The manner in which
recourse has been made to the coercive process of law, leaves much to be desired and the
action which was pursued was completely high handed and arbitrary. There could have been
349
absolutely no apprehension that the assessee in the present case was likely to spirit out the
monieswhichwereinvestedinFixedDeposits.Apartofthemoneyhastoberefundedtothe
assesseetocarryoutitsdaytodayactivities.
SocietyoftheFranciscan(Hospitaller)Sistersv.DDIT(2013)351ITR302(Bom.)(HC)
S.226:Collection and recovery Modes of recovery Stay Stay of demand can be granted
evenifthereisnofinancialhardship.[S.10(23D),161,177]
TheAOraisedademandontheassesseeonthesamelinesashadbeendoneinthepreceding
AY.ThoughintheprecedingAY,theassesseehadobtainedastayfromtheHighCourt(seeUTI
MutualFundvs.ITO(2012)345ITR71(Bom),theAOrefusedtofollowthatforthepresentAY.
TheassesseefiledaWritPetitiontochallengetherefusaltograntstay.Toopposethegrantof
stay, the department relied on CIT vs. IBM India Pvt. Ltd where the Karnataka High Court had
held that in matters involving large amounts due to the Revenue, an interim order of stay
wouldbegrantedonlyincaseofgenuinefinancialhardshipoftheassesseeandnototherwise.
The Department argued that as the assessee did not have any financial hardship, the stay
shouldberejected.HELDbytheHighCourtrejectingthedepartmentspleaandgrantingstayof
thedemand:
TheorderoftheKarnatakaHighCourtinCITvs.IBMIndiaPvt.Ltdcannotbereadtomeanthat
consideration of whether an assessee has made out a strong prima facie case for stay of
enforcement of a demand is irrelevant. Nor is the law to the effect that absent a case of
financial hardship, no stay on the recovery of a demand can be granted even though a strong
primafaciecaseismadeout.Inconsideringwhetherastayofdemandshouldbegranted,the
Court is duty bound to consider not merely the issue of financial hardship if any, but also
whether a strong prima facie raising a serious triable issue has been raised which would
warrantadispensationofdeposit.Thatisasettledpositioninthejurisprudenceofourrevenue
legislation. In CEAT Limited v. UOI 2010 (250) ELT 200 (Bom) it was held that If the party has
made out a strong prima facie case, that by itself would be a strong ground in the matter of
exercise of discretion as calling on the party to deposit the amount which prima facie is not
liable to deposit or which demand has no legs to stand upon, by itself would result in undue
hardship of the party is called upon to deposit the amount. Where a strong prima facie case
hasbeenmadeout,callingupontheassesseetodepositwoulditselfoccasionunduehardship.
Wheretheissuehasraisedastrongprimafacecasewhichrequiresseriousconsiderationasin
the present case, a requirement of predeposit would itself be a matter of hardship. Also the
mannerinwhichtheRevenuehassoughttobrushasideabindingdecisionoftheCourtinthe
case of the assessee on the issue of a stay on enforcement for the previous year has to be
serious disapproved. The rule of law has an abiding value in our legal regime. No public
authority, including the Revenue, can ignore the principle of precedent. Certainty in tax
administration is of cardinal importance and its absence undermines public confidence.(A.Y.
201011)
UTIMutualFundv.ITO(2013)86DTR301(Bom.)(HighCourt).
S.234A:InterestAdvancetaxWaiverConditions.[S.220,234B]
Interest under S. 234A and S. 234B could be waived by Commissioner, only if the conditions
specified inthe Notification F. No. 400/29/2002IT(B) dated 2662006 are satisfied . Since the
350
conditions specified in notification were not available, assessee could not seek waiver of
interest.
K.C.Mohananv.ChiefCIT(2013)214Taxman127(Mag.)(Ker.)(HC)
S.234A:InterestAdvancetaxDefaultinfurnishingreturn ofincomeWaiverorreduction
DelayinfilingreturnattributabletoassesseeChiefCITcorrectinonlypartiallywaivingthe
interest.
Where there was a delay on the part of the assessee in seeking copies of the impounded
documentsforfilingreturn,theChiefCITwascorrectinonlypartiallywavingtheinterestunder
section234AoftheActfordelayinfilingreturnofincome.(A.Y.200102&200203)
ShebinJewelleryv.ChiefCIT(2013)81DTR329(Ker.)(HC)
S.234A:InterestAdvance taxNo interest canbe levied u/s.234A if entire amount of tax has
been paid on or before due date of filling return of income even if return is filed after due
date.
Ifentireamountoftaxontaxableincomeshasbeenpaidonorbeforeduedateoffillingreturn
of income then even if return of income is filed after due date of filling return of income, no
interest can be levied u/s.234A.If tax on total income has been paid in part on or before due
dateoffillingreturnofincometheninterestu/s.234Acanbeleviedonlyondifferentialamount
of tax (i.e. on total tax less tax already paid on or before due date )and not on the entire
amountoftaxorelse,itshallrendertheprovisions ofsection234Apenalinnaturewhichthe
statuedoesnotprovidefor.(SCA9820of2002,dt18/06/2012)]
Bharatbhai B.Shah(2012) BCAJ NovemberP. 400/(2013) 214 Taxman 36(Mag.)/255 CTR 278
(Guj.)(HC)
S.234A:InterestAdvance tax Default in furnishing return of income Waiver of interest

CommissionerwaivingonethirdofinterestNofurtherwaiverofinterest(S.234B)
Thatinterestundersections234Aand234BcouldbewaivedbytheChiefCommissioner,onlyif
the conditions specified in Notification F. No. 400/29/2002IT (B), dated June 26, 2006, are
satisfied.Thefirstconditionrequiresseizureofdocumentsinsearchandseizureoperationsand
the second condition was applicable only where interest is charged under section 234C. The
third condition was applicable only in cases where the statute has been amended
retrospectively and the fourth condition was applicable only where the return is filed
voluntarily.Noneofthesegroundswereapplicableandinspiteofthis,onethirdoftheinterest
had been waived up to the assessment year 199293. Since the conditions specified in the
notification were not available, the assessee could not seek waiver of interest levied under
sections234Aand234B.Therefore,theorderrejectingwaiverofinteresthadtobesustained.
K. C. Mohanan v. Chief CIT (2013) 350 ITR 461/258 CTR 103/85 DTR 125/214 Taxman
127(Mag.)(Ker)(HC)
S.234B:InterestAdvancetaxBookprofitCompany.[S.115JB,234C]
Interestundersection234Band234Cispayableonfailuretopayadvancetaxinrespectoftaxpayable
undersection115JB.(A.Y.200102)
351
CIT v. Glenmark Pharmaceutical Ltd. (2013) 351 ITR 359/ 85 DTR 169/213 Taxman 315 (Bom.) (High
Court)
S.234B:InterestAdvance taxNonresidentIncome is liable to tax deduction at source no liability to
payadvancetax.
Theamountreceivedbytheassessee,anonresident,wassubjectedto100percenttaxdeductionat
sourceandtherewasnoliabilityontheassesseetopayadvancetax.Hence,thequestionoflevyof
interestundersection234Ballegingshortpaymentdidnotarise.(A.Ys.19911992,19941995)
CITv.ReiterInglostadtSpinnersImaechinanbauA.G.(2013)353ITR349(Mad.)(HC)
S.234B:InterestAdvance taxBook profitIndustrial undertakingsImpracticability of giving effect to
amendedprovisionsLevyofinterestwasnotjustifiedfortheAsst.year200203andjustifiedforthe
Asst.years200304and200405.[S.80IB,115JB,234C].
Section 115JB of the Incometax Act, 1961, is a special charging. Therefore, there is absolutely no
questionofsection80IBhavinganybearingoreffectorcontrolovertheprovisionsofsection115JB.
Though the provisions of section 115JB had come on the statute book with effect from April 1, 2000,
according to the Finance Act, 2000, and is applicable for the assessment year 200102 onwards, it was
amended by the Finance Act, 2002, and though the amending Act, in fact, received the assent of the
PresidentonlyonMay11,2002,itwasmadeapplicablefroman anteriordate,i.e.,fromApril1,2001,
itself.Fortheassessmentyear200203,taxliabilitydeterminedagainsttheassesseeinaccordancewith
section115JBasamendedwitheffect fromApril1, 2001bythe FinanceAct, 2002.Fortheassessment
years 200304 and 200405, the assessee being fully aware of the provisions of section 115JB filed
returns, and assessments were made. Held, that in view of the impracticability existing on the date of
amendmentoftheprovisionsrelatingtotheadvancetaxinrespectoftheassessmentyear200203,the
levyofinterestundersections234Band234Cwasnotjustified.Thelevyofinterestunderthesections
wasjustifiedfortheassessmentyears200304and200405(A.Ys.200203to200405).
SankhlaPolymers(P.)Ltd.v.ITO(2013)352ITR452/215Taxman175/257CTR185(Karn.)(HC)
S.234B:InterestAdvance taxNonresidentDeduction of tax at sourceNot liable to pay interest.
[S.195,234C].
TheassesseebeingnonresidentandentireincomeofassesseewassubjectedtoTDSundersection195
hence,itwasnotliabletopayinterestundersections234Band234C.(A.Y.200405)
DITv.WNSGlobalServices(UK)Ltd.(2013)214Taxman317(Bom.)(HC)
S.234B:InterestAdvancetaxWaiverofinterestTaxleviedinconsequenceofjudgementor
retrospectiveamendmentWaiverisnotpermissible.[S.234C,Rule119(2)].
Since assessment was reopened and tax was reassessed following judgment of High Court, interest
couldnotbewaived.(A.Ys.199596,199697)
P.G.Maniv.CIT(2013)214Taxman34(Mag.)(Ker.)(HC)
352
S.234B:InterestAdvancetaxMATcreditAmendmentinsection234BbyFinanceAct,2006
Retrospective in nature Therefore, MAT credit to be considered before calculation of
interestu/s.234BoftheAct.(S.115JAA)
Amendmentinsection234BoftheActw.e.f.01.04.2007washeldtobeclarificatoryinnature
which is retrospective in nature.Therefore, MAT credit is to be considered before calculating
interestundersection234BoftheAct.(A.Y.199900)
Chief CIT v. Gujarat Mitra P. Ltd. (2013) 81 DTR 25 /214 Taxman 35 (Mag.)/255 CTR 18(Guj.)
(HC)
S.234B:InterestAdvance taxNo interest u/s. 234B can be levied unless AO give specific
directionintheAssessmentorder.
No interest can be levied through a notice of demand unless there is any specific direction
givingreferencetothesectioncharginginterestintheAssessmentOrder.(T.ANo.84of200,dt
19/06/2012]
S.K.PatelFamilyTrust.(2012)BCAJNovemberP.401)(Guj.)(HC)
S.234B:InterestAdvance taxDeduction at sourceEntire income is subject to deduction at

source.
WhenentireincomeissubjecttoTDS,itwasnotliabletopayadvancetax,thereforenointerest
couldbechargedundersection234B.(A.Y.200203)
DIT(IT)v.ChironBearingGmbh&Co(2013)351ITR115/256CTR342/83DTR1(Bom.)(HC)
S.234B:InterestAdvancetaxWithoutaspecificordercannotbecharged.(S.156)
Interestundersection234Bcannotbechargedinnoticeofdemandissuedundersection156in
absence of any specific order demanding interest in assessment, reassessment or rectification
order.(A.Y.199697)
CITv.RuchiraPapersLtd.(2013)212Taxman9/259CTR153(HP)(HC)
S.234B:InterestAdvancetaxNoticeofdemandSpecificorderLevyofinterestwasdeleted.
(S.156)
Interestundersection234Bcannotbechargedinnoticeofdemandissuedundersection156in
absence of any specific order demanding interest in assessment, reassessment or rectification
order.(A.Y.199697)
CITv.RuchiraPapersLtd.(2013)212Taxman9(HP)(HC)
S.234B:InterestAdvancetaxForeigncompany.[S.234C]
Assessee is a foreign company not liable to tax in India, interest charged under sections 234B
and234Cwasliabletobedeleted.(A.Y.200708)
DelmasFranceS.A.v.ADIT(2013)141ITD67/86DTR145/154TTJ561(Mum.)(Trib.)
S.234B:InterestAdvancetaxCompanyBookprofitsLevyofinterestismandatory.(S.115JB)
Charginginterestundersection234BoftheActismandatory.(A.Ys.20052006to20072008)
EasternIndiaPowertechLtd.v.Add.CIT(2013)21ITR542(Delhi)(Trib.)
353
S.234B:InterestAdvancetaxDeductionatsourceNonresidentLiabletoincometaxandnot
advancetax.(S.195,209(1)(d))
The assessee, a tax resident of USA, supplied telecom equipment to customers in India. The
customerswhilemakingpaymenttononresidentassesseedidnotdeducttaxatsourceunder
section195.Inthecourseofassessmentproceedings,theAssessingOfficeropinedthatinview
of failure of payers to deduct tax at source while making payments, assessee being payee in
instantcase,wasindefault.Accordingly,theAssessingOfficerpassedanorderlevyinginterest
under section 234B from the assessee. On appeal, the Commissioner (Appeals) deleted the
interestleviedundersection234B.Onrevenue'sappealtheTribunalheldthatinthiscaseitis
anundisputedfactthatthetaxontheentireincomereceivedbytheassesseewasrequiredto
bedeductedatsourceattheappropriateratesbytherespectivepayersundersection195.The
revenue have not placed any material on record controverting these findings of the
Commissioner (Appeals) nor pointed out any contrary decision so as to enable the Tribunal to
takeadifferentviewinthematter.Inviewofaforesaid,itistobeheldthattheassesseeisnot
liable to pay any interest under section 234B accordingly.the revenue's appeal wasdismissed.
(A.Y.200405to00809)
ADIT(IT)v.AlcatelLucentUSAInc.(2013)55SOT72(URO)(Delhi)(Trib.)
S.234B:InterestAdvancetaxDeductionatsourceNonresidentNoliabilitytoadvancetax
interestundersection234Bcannotbelevied.(S.195,208)
The assesseecompany registered in U.S.A. belonged to ALU group, a leading manufacturer of
telecom equipment in the world ALU group had a substantial presence in India and started its
Indian operations in the year 1982 when it entered into an agreement with Indian Telecom
Industries Ltd. During the year under consideration, the assessee supplied telecomequipment
to various Indian companies. Assessing Officer found that ALU overseas entities including the
assessee had a permanent establishment (PE) in India. The Assessing Officer determined net
income chargeable to tax as attributable to PE in India at the rate of 2.5 per cent of the sales
made by the assessee in India. Accordingly, assessment was framed at an income of Rs.
6,55,033 and also levied the interests under section 234A, 234B and 234C. Before the
Commissioner(Appeals)theassesseequestionedthelevyofinterestundersection234Bbythe
Assessing Officer at Rs. 3,46,360. The Commissioner (Appeals) being convinced with the
contention of the assessee had deleted the interest levied under section 234B.Tribunal held
that combined reading of the provisions of section 209(1) (d) with the provisions of section
234B makes it clear that the liability to pay interest under section 234B would arise only if
advancetaxispayableaftermakingthenecessaryadjustmentfortaxdeductibleatsources.The
amount of (Tax deductible) would obviously mean the tax as was required to be deducted in
respect of a particular income and not the tax which has actually being deducted at source.
Responsibilityofanassesseetopayadvancetaxarisesundertheprovisionsofsection208read
withsections209and210themodeofcomputationofadvancetaxisgiveninsection209.As
long as the assessee has discharged its obligation to pay advance tax as per the provisions of
section208readwithsections209and210hecannotbeheldliablefordefaultinginpayment
of advance tax. Section 234B and section 234C only provide a method of computation of
interestincaseofdefaultbyanassesseetopayadvancetaxasstipulatedinsections208,209
and 210. The undisputed fact in the present case remained that the tax on the entire income
354
received by the assessee was required to be deducted at appropriate rates by the respective
payersundersection195(2).Hadthepayermadethedeductionoftaxattheappropriaterate,
the net tax payable by the assessee would have been Nil. Thus, there was no liability to pay
advance tax by the assessee. Under similar facts, the High Court of Delhi in the case of Jacabs
Civil Incorporated/Mitsubishi Corpn. (supra) held that section 195 puts an obligation on the
payer i.e. any person responsible for paying any tax at source at the rates in force from such
paymentsandifpayerhasdefaultedindeductingtaxatsource,thedepartmentcantakeaction
againstthepayerundertheprovisionsofsection201.Insuchacase,thenonresidentisliable
topaytaxbutthereisnoquestionofpaymentofadvancetaxand,therefore,itcannotbeheld
liabletopayinterestundersection234Bonaccountofdefaultofthepayerindeductingtaxat
source from the payments made to the nonresident. Appeal of revenue was dismissed.
(A.Y.200203)
Dy.CIT(IT)v.LucentTechnologiesInternationalSalesLtd.(2013)55SOT271(Delhi)(Trib.)
S.234B:InterestAdvancetaxOrdergivingeffectDeductionatsourceSelfassessmenttax.
(S.234A,234C)
TheAOwhilecharginginterestu/s.234Bcalculatedinterest@2%permonthfor19monthson
Rs.8,44,797/ (i.e. Rs.5,63,906/ month of tax worked out after giving credit of Rs and self
assessmenttax(+)Rs.1,09,440amountofinterestchargedu/s.234A(+)Rs.1,70,230amountof
interest u/s. 234B up to 15.5.1994 and Rs.1221 amount of interest charged u/s. 234C).
According to the assessee, the interest u/s. 234B was chargeable only on Rs.5,63,906 which is
amountoftaxworkedoutaftergivingcreditofTDSandselfassessmenttax.Thus,accordingto
the assessee interest u/s. 234B worked out to Rs.2,14, 284 as against Rs.8,44,797 charged by
theAO.Theassesseefiledanapplicationu/s.154oftheActobjectingthatinterestchargedu/s.
234B is not correctly computed. The AO rejected the claim of the assessee vide order dated
15.4.2010.TheTribunalheldthat,atthetimeofpassinganordergivingeffecttoorderofITAT,
interest u/s. 234B is to be computed on tax on total income finally determined under regular
assessmentasreducedbytheamountofTDSandselfassessmenttax.Interestu/s234Bcannot
be levied on amount of interest chargeable u/s. 234A and 234C. (A.Y.199394) (ITA No.
4913/M/11,dated17102012CMum.)
ChandrakantS.Shahv.ITO(2013)BCAJPg.20,Vol.44BPart4,January2013(Mum.)(Trib.)
S.234C:Interest Deferment of advance tax Mandatory Waiver of interest Assessee not

filing application for waiver of interest hence no opinion could be expressed whether
assessee'scaseiscoveredbycirculars.
During the assessment year 200405, the assessee contended that its principal informed it by
letter dated November 4, 2004, that it was entitled to the additional incentive of Rs.
6,07,44,583. The incentive was paid in view of the sale of Rs. 636 crores in the previous year
200304inwhichthegrowthof9.8percent.overthelastyearwasrecorded.Priorthereto,the
assesseewasnotawarethattheincometowardsthegrowthincentivewouldbecomepayable
and could not have presumed that it would be entitled to the substantial payment towards
growth incentive before the letter dated November 4, 2004, was received by it. The assessee
had paid the advance tax of Rs. 1.25 crores on December 14, 2004. The Tribunal upheld the
interest charged by the Assessing Officer under section 234C amounting to Rs. 4,17,074. On
355
appealHeld,dismissingtheappeal,thattheCentralBoardofDirectTaxeshadissuedcircularsin
this regard and the Chief Commissioners and the Director General have been given power to
reducetheinterestpayableundersections234A,234Band234Cinspecifiedandspecificcases.
Since the assessee had not filed any application no opinion could be expressed whether the
assessee's case was covered under the circulars. If deemed appropriate, the assessee could
makeanapplication.(A.Y.20042005)
BillandPeggyMarketingIndiaPvt.Ltd.v.ACIT(2013)350ITR465(Delhi)(HC)
S.234C:InterestDeferment of advance tax Assessed income was loss, assessee is not liable
forinterestundersection234C.
Assessment was subjected to modifications due to findings of appellate authorities regarding
earlier assessment years and allowing toset off loss carried forward against income of current
assessment year. Accordingly, Assessing Officer determined loss for relevant assessment year
andrefundedTDS,advancetaxandinterestpaidundersection234B. He,however,refusedto
refund interest paid under section 234C. Tribunal held thatinterest paid under section 234C is
for deferment of advance tax and when income of assessee having finally been arrived at loss
advance tax was refunded, there was no logic in making assessee liable for interest under
section234C.(A.Y.199697)
Dy.CITv.MysorePaperMillsLtd.(2013)55SOT56(URO)(Bang.)(Trib.)
S.234C:InterestDefermentofadvancetaxBookprofit.[S.115JA]
Assessee is laible interest under section 234C on short payment of advance tax even on the
incomecomputedundersection115JA.(A.Y.19992000to200506)
Hotel & Allied Trades P. Ltd. v. Dy.CIT (2013) 140 ITD 309/87 DTR 49/154 TTJ 503 (Cochin)
(Trib.)
S.237:Refunds:NongrantofrefundsSearchandseizureRefundofseizedamountStrictures
passedagainstDeptforharassinghonesttaxpayers.(S132,.245)
AsearchwasconductedatthepremisesoftheassesseeduringwhichcashofRs.25lakhswas
seized. The assessee succeeded in the block assessments and the said amount of Rs. 25 lakhs
became refundable to the assessee. However, the said amount was not refunded to the
assessee on the ground that there were demands outstanding against a third party who was
alsonamedinthesearchwarrant.Theassesseeclaimedthathehadnorelationwiththethird
partyandthefactthatthereweredemandsoutstandingtheredidnotmeanthattheassessees
refund could be blocked. The department refused to pass an order on the assessees
applicationforrefund.HELDbytheHighCourtallowingtheplea:
Itisbutevidentthatthedepartmenthasfailedtodischargeitslegalobligationinnotrefunding
the seized amount. The argument of the department that unless a direction is issued, a
speaking order shall not be passed on the application for refund of the amount due to him is
not appreciated. It shows that the officers of the Incometax Department are shirking their
responsibilities. Speedy and affordable justice is the requirement of the day. But it cannot be
achieved until the executive including taxman discharge their duties faithfully honestly within
the four corners of law. The revenue official failed to take any decision right or wrong on the
refund application filed by the assessee and passed on the buck on the Court. Time has come
for the heads of the departments to keep a strict vigil on such shirkers and to fix their
356
responsibility. While it is no doubt true that collection of revenue is a serious matter for the
State and the bounden duty of the authorities functioning under the Act is to implement the
provisions of theAct, there should be safety and assurance to an honest taxpayer. An honest
taxpayer should not be subjected to unnecessary harassment and an action not warranted in
law,whichcanbeofveryseriousconsequencetothetaxpayerifisallowedtoremainwithout
correction,suchharassmentandbrowbeatingofanhonesttaxpayerwillotherwisedriveeven
such honest taxpayers to become cynical and lead to a situation where taxpayers will get a
feeling that paying taxes honestly is not a worthwhile exercise; that the tax authorities are a
menace to the society rather than simply being representatives of the State for enforcing the
taxprovisions.ThedepartmentshallpaycostsofRs.15,000totheassessee[SandikAsiaLtd.v.
CIT (2006) 280 ITR 643 (SC), CIT v. Gujrat Flouro Chemicals (2012) 348 ITR 319(SC)
&RaghavendraSherrigar(2005)142STC153)followed]
VijayPrakashAgrawalv.CIT(All)(HC).www.itatonline.org
S.237:RefundDeduction at sourceDeposited by mistakeRefund entitled with interest.

(S.195,244A.)
TDS under mistake and deposited with the government was liable to be refunded without
referencetoanycircular;further,thecaseofthepetitionerwascoveredundercl.(i)(c)ofpara
(1) of Circular No. 769 dt. 6
th
August 1998 and not under subsequent Circular No. 790 dt. 20
th
April2000;refunddirectedwithinterest.
FagBearingsIndiaLtd.v.CCIT(2013)83DTR136/256CTR413(Guj.)(HC)
S.237:Refunds Circular On the date of applicationRefund claim of an assessee must be
examinedinlightofcircularinforceasofthedateofapplicationforsuchrefund.
PetitionmovedasapplicationforrefundarisingtoitwhichwasappropriateinlightoftheCBDT
circular prevalent at the point of time. Since, the Department did not respond to the said
applicationforaconsiderabletime,anotherletterremainingaboutthesamewasaddressedto
AO.Duringthependencyofsuchapplication,CBDTcameoutwithanothercircularsuperseding
the earlier circular andaccording to provisions of the said circular Petitioner was ineligible for
thesaidrefundandtheDepartmentdeniedthesaidrefundonthestrengthofsuchsubsequent
circular. It was held that the Department cannot process application of an assessee after an
indefinite periodof timeand apply a rule that may have changed in the meantime by virtue of
change in circular. Hence the refund claim of the Petitioner must be examined in light of the
circular in force as of the date of application. (SCA 4141 of2001, dt, 23/07/12/(SCA11132 of
2002,dt23/07/12)
MardiaChemicalsLed.(2012)BCAJNovemberP.399)(Guj.)(HC)
FAGBearingIndiaLtd.(2012)BCAJNovemberP.399)(Guj.)(HC)
S.244:RefundsInterestonrefundIntimationDTAAIndiaFrance[S.143(1)].
Interestassessableinyearinwhichrefundgrantedandnotinyearinwhichproceedingsunder
section 143(1) (a) attain finality. If interest reduced on account of assessment under section
143(3)reducedinteresttoformpartofincomeofthatyear.AssessingOfficertoadoptrateat
which interest on incometax refund charged under Double Taxation Avoidance Agreement
betweenIndiaandFrance.(A.Y.19971998)
ADIT(IT)v.CreditAgricoleIndosuez(2013)21ITR345(Mum.)(Trib.)
357
S.244A:RefundsInterestRectificationoforderWithdrawalofinterest.(S.115JB,143(3),154)
Aftercompletingoriginalassessment,AssessingOfficerpassedorderundersection154togive
effecttoamendedclauseofsection115JB(2)(h)andrecomputedincomeathigherfigurethan
originally assessed.Assessing Officer also withdrew interest granted to assessee under section
244A.OnappealbyassesseetheTribunalheldthatinviewofsection244A(3),AssessingOfficer
was justified in withdrawing interest already allowed to assessee. In favour of revenue. (A. Y.
200607)
AartiSteelsLtd.v.Dy.CIT(2013)55SOT59(URO)(Chandigarh)(Trib.)
S.244A:RefundsInterestSelf assessment taxEntitle to interest on refund of self assessment

tax.(S.140A)
Tribunal held that in terms of section 244A interest is payable where refund of any amount
becomes due to assessee under Act and, therefore, assessee is entitled to receive interest
undersection244Aonrefundofselfassessmenttax.Infavourofassessee.(A.Y.199697)
Dy.CITv.MysorePaperMillsLtd.(2013)55SOT56(URO)(Bang)(Trib.)
S.245:RefundsSet off of refunds against tax remaining payableTDS creditStrict guidelines

issued to end Depts TDS credit & refund adjustment harassment. (S.143(1), 154, 200, 244A,
245)
AnandParkash,FCA,addressedaletterdated30.4.2012totheHighCourtinwhichhesetout
the numerous problems being faced by the assessees across the Country owing to the faulty
processing of the Income Tax Returns and nongrant of TDS credit & refunds. He claimed that
because of the departments fault, the assessees were being harassed. The High Court took
judicial notice of the letter, converted it into a public interest writ petition and directed the
CBDT to answer each of the allegations made in the letter and certain other queries that the
Court raised. The Court also appointed eminent senior counsel to assist it. The department
accepted that tax payers are facing difficulties in receiving credit of TDS & refunds on account
of adjustment towards arrears. Thereafter, as an interim measure to provide immediate relief
to the assessees, the Court passed an order dated 31.08.2012 by which it gave detailed
directions.Afterfurtherhearing,HeldbytheCourt:
(i) Re Uploading of wrong or fictitious demand: The CBDT has accepted that incorrect and
wrongdemandshavebeenuploadedontheCPCarrearsportal.Inhisletterdated21.08.2012,
the CIT, CPC, has expressed his concern and anguish on account of uploading of incorrect and
wrong data in the CPU and the problem faced by them and by the assesses. The CBDT has
issuedCircularNo.4of2012inwhichtheburdenisputontheassesseetoapproachtheAOsto
get their records updated and corrected by filing s. 154 applications. While this may be the
easiest option available, it should not be a ground for the AO not to suo motu correct his
records and upload correct data. Each assessee has a right and can demand that correct and
true data relating to the past demands should be uploaded. Asking the assessee to file s. 154
applications entails substantial expenses and defeats the main purpose behind
computerisation.Also,theAOsdonotadheretothetimelimitprescribedfordisposalofthes.
154 applications. To ensure transparency (and accountability), a register must be maintained
358
withdetailsandparticularsofeachapplicationmadeu/s154,thedateonwhichitwasmade,
date of disposal and its fate. The s. 154 application has to be disposed of by a speaking order
andcommunicatedtotheassessee.Theremustbefullcomplianceofthesaidrequirements;
(ii)ReAdjustmentofrefundcontrarytos.245:S.245postulatestwostageaction;firstaprior
intimation to the assessee and then, if warranted, the subsequent adjustments of the refund
towardsarrears.ThisisnotbeingfollowedbytheCPCbecausethecomputeritselfadjuststhe
refund due against the existing demand. To prevent this breach of the law, the department
must follow the procedure prescribed u/s 245 and give the assessee an opportunity to file a
reply which should be considered by the AO before giving the direction for adjustment. As
regardsthecaseswheresuch(illegal)adjustmenthasbeenmadeinthepast,thecasesmustbe
transferred to the AOs for issue of notice to the assessee seeking adjustment of refund. The
assesseeswillbeentitledtofileareplytothenoticeandtheAOwillthenpassanorderu/s245
allowing the refund. The CBDT has to fix a time limit and schedule for completing the said
process.Thoughtheprocessinvolvesexpenditureandpaperwork,thesituationhasarisendue
tothelapsesonthepartoftheAOsandtheassesseescannotbemadetosufferforthewrong
uploading of arrears and wrong adjustment of refund. The question of the assessees
entitlementto intereston the SA tax is left open though when the delay is due to the fault of
the Revenue, interest should be paid u/s 244A. False uploading of past arrears and failure to
followthemandateofs.245isalapseonthepartoftheAO;
(iii) Re noncommunication of adjusted s. 143(1) intimations: The noncommunication of s.

143(1) intimations, where adjustments on account of rejection of TDS or tax paid has been
made, is a matter of grave concern. When there is failure to despatch the intimation within a
reasonable time to the assessee, the return shall be deemed to have been accepted and the
intimation will be treated as non est or invalid for want of service. The onus to show that the
orderwasservedontheassesseeisontheRevenueandnotupontheassessee.IfaTDSortax
creditclaimhasbeenrejectedonatechnicalitybutthereisnocommunicationtotheassessee
of the order/intimation u/s 143(1), the AO cannot enforce the demand created by the said
order/intimation;
(iv) Re nongrant of credit for TDS: The problem regarding rejection of TDS credit is in two
categories. The first is those where the deductors fail to upload the correct particulars of the
TDSwhichhasbeendeductedandpaidandthesecondiswherethereisamismatchbetween
the details uploaded by the deductor and the details furnished by the assessee in the ROI. As
regards the first, the CBDT had earlier directed that the AOs to accept the TDS claims without
verification where the difference between the TDS claimed and the TDS as per AS26 did not
exceedrupeesonelakh.ThisfigurehasnowbeenreducedtoamereRs.5,000.Exfacie,thereis
no justification for the reduction because credit is being given only if the three core fields
match.TheCBDTmustreexaminethisaspectandtakesuitableremedialstepsiftheyfeelthat
unnecessary burden or harassment will be caused to the assessees. As regards cases of
mismatchbecauseofdifferentmethodsofaccounting,orofferingincomeindifferentyears,the
departmentmusttakeremedialstepsandensurethatinsuchcasesTDSisnotrejectedonthe
groundthattheamountsdonottally.Thedepartmentshouldalsofixatimelimitwithinwhich
359
they shall verify and correct all unmatched challans. An assessee as a deductee should not
suffer because of fault made by deductor or inability of the Revenue to ask the deductor to
rectifyandcorrect.OncepaymenthasbeenreceivedbytheRevenue,creditshouldbegivento
the assessee. The CBDT should issue suitable directions in this regard. The departments
response on the action taken against deductors for noncompliance is unfortunate and
unsatisfactoryanditpurportstoexpresscompletehelplessnessonthe partoftheRevenueto
take steps and seeks to absolve them from any responsibility. Denying benefit of TDS to a
taxpayer because of the fault of the deductor causes unwarranted harassment and
inconvenience. The deductee feels cheated. The Revenue cannot be a silence spectator, wash
theirhandsandpretendhelplessness.S.234EhasnowbeeninsertedbytheFinanceAct,2012
tolevyafeeofRs.200perdayfordefaultofthedeductortofileTDSstatementwithinduedate.
It is unfortunate that the Board did not take immediate steps after even noticing lacuna and
waitedtillFA2012.ThestandoftheRevenuethattheycanonlywritealettertothedeductor
topersuadehimtocorrecttheuploadedentriesortouploadthedetailsisnotacceptable.The
AOmustusehispowerandauthoritytoensurethatthedeductorcomplieswiththelaw.
CourtOnItsOwnMotion(AnandParkash)v.CIT(2013)352ITR273/214Taxman335/85DTR
301/258CTR113(Delhi)(HC)
All India Federation of tax Practioners v.UOI(2013) 352 ITR 273/ 85 DTR 301/258 CTR 113
(Delhi)(HC)
Courtonitsownmotionv.CIT(2013)85DTR289/258CTR143(Delhi)(HC)
S.245C:Settlement Commission Application MaintainabilityWhen there is no pendency of

proceedings,applicationisnotmaintainable.(S.245A)
The assessee had filed returns in respect of assessment years 200405, 200506, 200708 and
200809.On582011theassesseefiledanapplicationbeforeSettlementCommissionseekinga
settlement of its cases. The revenue opposed application contending that application was not
maintainable as no case was pending before any Incometax Forum. The settlement
commission overruled objection of revenue and decided to entertain the settlement
application.Therevenuefiledthewritpetitionandraisedthequestion.
Whether proceedings are to be deemed to remain 'pending' for the purposes of section
245A(b)whenthetimelimitforcompletionofassessmentundersection143orsection144has
expired.
TheCourtheldthatsincenoproceedingsunderIncometaxActwerependingattimeoffilingof
application,SettlementCommissionwasnotrightinadmittingassessee'sapplication.Whereby
application of section 153, an assessment order can no longer be made, proceeding, for
purposesofsection245A,wouldhavetobeconstruedasterminated.(A.Ys.200405,200506,
200708,200809)
CITv.IncometaxSettlementCommission(2013)212Taxman511/87DTR178(Delhi)(HC)
S.245D:SettlementCommissionDutyofsettlementcommissiontoexaminematerialsandadmissions
referredtoinreportofcommissionerOrderofSettlementCommissionbeingnonapplicationofmind
theorderwasquashed.[S.245D]
360
HavingdueregardtotheseriousnessoftheobjectionstakenbytheCommissionerandthenatureofthe
documentsfoundduringthesurveyoftheassessee'spremises,theSettlementCommissionoughtto
haveactivelyapplieditsmindtothereportoftheCommissionerandthecopiousmaterialsadvertedto.
TheSettlementCommissionlostsightofthefactthatthereportsoftheJointDirectorwerevagueand
didnotthrowlightastowhatwastheexplanationoftheassesseewhichmeritedacceptance.The
SettlementCommissioncouldnothavebeensatisfiedastotheapplicabilityoftheassessee's
explanationwithregardtothevariousissuesraisedbeforeitinthereportoftheCommissionermerely
onthebasisofthereportsoftheJointDirector.Itthusignoredtherelevantevidenceandmaterial
whichitoughttohavetakenintoaccountwhileprocessingtheassessee'sapplication.Hence,itsorder
wasnotvalidandwasliabletobequashed.
CITv.GodwinSteelsP.Ltd.(2013)353ITR353(Delhi)(HC)
S.245D:Settlement CommissionOrder passed by commission after considering the information
availablehencetheordercannotbeinterfered.
TheSettlementCommissionhastoconsiderthematerialbroughtonrecordbeforeit."Consideration"
meansindependentexaminationoftheevidenceandthematerialonrecord.Sincethematerialwas
availablebeforetheCommissionandsuchmaterialhadbeentakenintoconsiderationforreturninga
findingwhichwasrelevantfordeterminingtheundisclosedincomeoftheassessee,theorderofthe
Commissioncouldnotbeinterferedwith.
SupremeAgroFoodsPrivateLtd.v.IncometaxSettlementCommission(2013)353ITR385(P&H)(HC)
S.245D:Settlement commissionWaiver of interestRectification of mistakeOrder of Commission
charging interest contrary to Circular and decision of Supreme CourtRectification order is not
permissible.[S.154,234A,234B].
The Settlement Commission, for the A.Y. 199192 to 199394, granted waiver of interest under section
234A for the A.Y. 199293 and 199394. It charged interest without waiver for the A.Y.199192. It
grantedwaiverofinterestundersection234Banddirectedthebalanceofinteresttobelevieduptothe
date of proceedings under section 143(3). On miscellaneous applications by the Revenue, the
Commission held that the error could be rectified in the light of the Supreme Court decision; that as
regards the interest under section 234A there was no entitlement for waiver for the AY 199394,
consequentlyinterestfortheAYmustbechargedfully;andthattheinterestundersection234Bwasto
be charged up to the date of the order of the Settlement Commission under section 245D(4). On writ
petitionsfiledbytheassessee,itwasheldthattheearlierorderoftheCommissionthoughcontraryto
theBoardCircularandconsideredinthelightofthedecisionoftheSupremeCourtwasanerrorwithin
the jurisdiction of the Commission it was not an error that went to the root of its jurisdiction. An
applicationforrectificationundersection154was,however,impermissibleandbeyondthejurisdiction
oftheCommission.Thus,therevisedorderoftheSettlementCommissioncouldnotbesustained.(A.Ys.
19911992to19931994)
U.Narayanamma(Smt.)v.GovernmentofIndia(2013)352ITR598(AP)(HC)
V.CH.RamaRaov.GovernmentofIndia(2013)352ITR598(AP)(HC)
T.Uma(Smt.)v.GovernmentofIndia(2013)352ITR598(AP)(HC)
A.P.MetEngg.Ltdv.GovernmentofIndia(2013)352ITR598(AP)(HC)
361
S.245H:SettlementCommissionImmunityfromprosecution/penaltyRemandingthematter
tosettlementcommissionfordenovoadjudicationbyasinglejudgeheldtobevalid.(S.245C,
245D)
Assessee approached Settlement Commission under section 245C(1) for settlement of its
cases.SettlementCommissiongrantedimmunitytoassesseefromlevyofpenaltyandinitiation
of prosecution. Single Judge of High Court quashed order of Settlement Commission and
remandedmattertoitforreconsideration.Whetherasperprovisionsofsection245Dprevalent
atrelevantassessmentyearsSettlementCommissiononreceiptofapplicationhadtocallfora
report from Commissioner and onbasis of such report granting of immunity from prosecution
and penalty ought to have been scrutinized, since Settlement Commission had not done so,
order of Single Judgeremanding matter to Settlement Commissioner for de novo adjudication
didnotsufferfromanymaterialirregularityorillegality.(A.Y.199495to19992000)
ING Vysya Bank Ltd. v CIT (2012) 76 DTR 193/ (2013) 213 Taxman 115/255 CTR 311 (Karn.)
(HC)
S.245R:Advance rulingsCommissioner or his representative need not be heard at admission stage

Hearing Commissioner or his representative before pronouncing advance ruling only if necessary
Admission of application for advance ruling without hearing Department No infringement of legal
rights.[ConstitutionofIndiaArt.226]
Section 245R(1) contemplates forwarding of a copy of such application to the Commissioner, if
necessary,callinguponhimtofurnishtherelevantrecords,doesnotcontemplatethefilingofobjections
orresponsetotheapplicationsomade.Nowheredoessection245RstatethattheCommissionerfrom
whomrecordswerecalledforistobecalledupontomakehisobjectionstotheadmissionofapplication
andrecordreasonswhenitallowedtheapplicationforanadvanceruling.SincetheDirectorofIncome
taxandtheAdditionalCommissionerfailedtosubstantiatetheinfringementoflegalrightconferredon
them under the statute while allowing the applications for advance ruling, the writ petitions were
devoidofmeritandwereaccordinglydismissed.
DIT(IT)v.AAR(2013)352ITR185/215Taxman130(Mag.)(AP)(HC)
S.245R:Advance rulingsProcedureApplicationRuling is transaction related; seeking a ruling
onlyonpartoftransactioncannotbesaidtobeproper.(S.10(38),115JB)
The applicant, a company registered under the laws of Panama, holds shares in two Indian
companies,bothgovernedbytheCompaniesAct,1956.Theapplicantproposestotransferthe
shares held by it in the two companies through recognized stock exchanges. As per applicant,
shares held by it in the Indian companies are longterm capital assets in terms of section
2(29A), read with section 2(42A) thereof. According to it, the capital gains arising out of the
sales through the stock exchanges in India on which securities transaction tax would be paid,
would be exempt under section 10(38).At the hearing under section 245R(4), the applicant
emphasisedthatitwasnotseekingarulingonthequestionwhetherthetransactionwouldbe
exemptfromtaxationundersection10(38),butwasseekingarulingonlyontheapplicabilityof
section 115JB to the proposed transaction. According to the applicant, section 115JB had no
application to a foreign company which had no presence in India and its application was
confined to companies that are resident in India. Authority held that where proposed
362
transactionrequiresrulingonquestionofapplicabilityofsection10(38)andalsosection115JB
but applicant does not seek ruling on applicability of section 10(38), ruling on applicability of
section115JBistobedeclined.Infavourofrevenue.
ZD,Inre(2013)212Taxman246(AAR)
S.246A:AppealCommissioner(Appeals)Appealableorders(S.144,Rule45(2))
Aggrievedbytheexparteorderdated31122008passedbytheAssessingOfficer(AO)u/s.144
of the Act the assessee filed an appeal to CIT (A). The memorandum of appeal was signed by
CA, Shri S.U. Radhakrishnani, as authorised representative. Since the assessee neither
submittedanyvalidpowerofattorneynorwasthereanyexplanationastowhytheappealwas
notsignedbytheassessee,CIT(A)videorderdated11102010dismissedtheappealasinvalid.
Thereafter, the assessee filed a fresh appeal on 732011 along with application for
condonation of delay. The CIT (A) in his order dated 22122011 held that the appeal filed by
the assessee against the assessment order had already been adjudicated by CIT (A) and
dismissed. There was no provision for filing of an appeal when the first appeal had been
dismissed. The appeal was also filed beyond the time limit CIT (A) therefore dismissed the
appeal inlimine. Once the appeal was treated as invalid, the same became nonest. The
assessee had the right to file another appeal which of course has to be considered as delayed
appealand,incasedelayiscondoned,theappealhastobedecidedonmerit.TheTribunalheld
that the view taken by CIT (A) does not represent the correct view and therefore, has to be
rejected. Once the appeal filed by the assessee is found to be legally invalid and dismissed as
such,theassesseecanfileanotherappealwhichhastobeconsideredalongwithcondonation
application and, if admitted after due consideration of condonation application, it has to be
decided on merit. (A.Y. 2006 2007) (G Bench, ITA No.1133/M/12 and ITA No.5490/M/11,
Dated11122012)
YusufHusainv.ITO(2013)BCAJPg.25,Vol.44BPart5,February2013(Mum.)(Trib.)
S.249: Appeal Commissioner (Appeals) Admitted taxAppeal was dismissed in limine as

nonmaintainable was admitted tax as not paid. At the time of filing petition before the
Commissioner(Appeals)admittedtaxwaspaid.Appealheldtobemaintainable.
TheCIT(A)dismissedtheappealasnonmaintainableduetononpaymentoftax.However,at
thetimeoffilingthepetitionbeforetheCIT(A)forrestorationoftheappeal,theadmittedtax
hasbeenpaid.TheCIT(A)rejectedthepetition.
It was held that the assessee has discharged the huge tax liability. Thus, it would be totally
unfairfornotprovidinganopportunitytohimfordisputingtheadditionmadebytheAssessing
Officeronmerit.Itwasfurtherobservedthattheexpression'sufficientcause'forcondonation
of a delay should receive a liberal construction so as to advance substantial justice when no
negligence or inaction or want of bona fide is imputable to a party because the judiciary is
expectednotonaccountofitspowertolegalizeinjusticeontechnicalgrounds.(A.Y.199697to
200203)
T.Kishanv.CIT(2013)56SOT114(URO)(Hyd)(Trib.)
S.251: AppealCommissioner (Appeals) Powers Remand by CIT (A) for failure by AO to

complywithdirectionsofTribunal.
363
Even after amendment of s. 251 (1) (a) w.e.f. 1
st
June 2001, divesting CIT (A) of power to
remand,CIT(A)wasjustifiedinremittingthemattertotheAOinappealagainstgivingeffectto
orderoftheTribunal,wheretheAOfailedtomakeassessmentasperdirectionsoftheTribunal.
Orderbarredbylimitation.Appealofrevenuewasdismissed.(A.Y.197980to198182)
CITv.HindustanZincLtd.(2103)83DTR231/257CTR22(Raj.)(HC)
S.251:AppealCommissioner(Appeals)PowersPowerofenhancementNoticeismandatory
beforeenhancement.
Assesseecompany was incorporated on 3011997. Promoters subscribed to equity shares of
assessee and also made advances to it towards allotment of additional equity shares. Since
allotmentofadditionalequitysharesagainstsubscriptionmoneycouldnotbecompletedby31
31997,assesseepaidinteresttosubscribersandclaimeddeductionofsame.Assessingofficer
accepted assessee's claim for deduction of interest payment. Commissioner (Appeals), on
appeal filed by assessee on some other issues, considered payment of interest too and held
that assessee was not entitled to deduction for payment of interest.Tribunal upheld order of
Commissioner(Appeals)onenhancementofassessment.TheCourtheldthatsaidissuewasto
be sent back to Commissioner (Appeals) with a direction to issue notice to assessee before
consideringanysuchenhancement.Matterremanded.(A.Y.199798)
Infrastructure Development Finance Co. Ltd. v. Jt.CIT (2013) 213 Taxman 28 (Mag.) (Mad.)
(HC)
S.251:AppealCommissioner(Appeals)PowersAdditionalevidenceSufficientcause.
[IncometaxRules,1962Rule46A]
Theassesseesurrenderedanamountinrelationto23creditors,insteadofaskingforadditional
time, when the Assessing Officer asked the assessee to furnish the confirmations of all the
creditors. There is nothing on record to suggest that the Assessing Officer did not allow
sufficient opportunity to the assessee to submit confirmations. When the assessee expressed
itsinabilitytofurnishfurtherconfirmationsortoproducethepersons,itofferedtheamountto
tax; and the Assessing Officer accepted the said offer and completed the assessment. The
powers of the Commissioner (Appeals) in terms of rule 46A to admit fresh evidence, entail an
element of discretion which is required to be exercised in a judicious manner. Additional
evidence was admitted and accepted as genuine without the Assessing Officer furnishing his
commentsandwithoutverification.Hence,thematterwassetasideandrestoredtothefileof
theCommissioner(Appeals).(A.Y.200809)
ACITv.NirulaHandicraftsBazar(P.)Ltd.(2013)56SOT97(URO)(Del.)(Trib.)
S.251:AppealCommissioner (Appeals)PowersAdditional evidence was admitted without

giving an opportunity to the Assessing OfficerMatter remanded. (Incometax Rules, 1962
Rule46A)
Inspiteofspecificopportunitiesgiventotheassessee,itfailedtofileanyevidencebeforethe
AssessingOfficerastowhytheprovisionsofTDSwerenotapplicable.BeforetheCommissioner
(Appeals),theassesseesubmittedadditionalevidencewhichwereinformofcircularoftheRBI,
audit report of RBI and other details. On revenues appeal, it was held that the Commissioner
(Appeals), without application under rule 46A and without recording any reason for admitting
364
thedocumentsandexplanationfiledbeforehimandwithoutaffordingreasonableopportunity
toexaminesuchevidenceordocumentsfiledbeforehimbytheAssessingOfficerhaddecided
theissueinfavouroftheassessee,whichisclearviolationofprincipleofnaturaljustice.Hence,
thematterremanded.(A.Y.200708)
DCITv.GurdaspurCentralCoop.BankLtd.(2013)56SOT(URO)100(Asr)(Trib.)
S.251:AppealCommissioner(Appeals)PowersEnhancementIncomefromsamesourceof
incomeHeldtobevalid.
Assessee having derived royalty income from licensing of CDMA patents hand sets and
equipment cannot be treated as two different source of royalty and therefore, AO having
concluded the assessment by taxing only the royalty income from handsets, CIT (A) was
competenttoexercisehisjurisdictionundersection251toenhanceincomeoftheassesseeby
includingroyaltyincomefromnetworkequipment.(A.Y.200101to200405)
QualcommIncorporatedv.ADIT(2013)23ITR239/85DTR156/153TTJ513/56SOT72(URO)
(Delhi)(Trib.)
S.251:AppealCommissioner(Appeals)PowersRevisionCommissionerundersection264
hasnopowertopassanorderprejudicialtoassessee,issueswhicharenotsubjectmatterof
revisionundersectioncannotbeenhancedbytheCommissioner(Appeals)(S.35AB,264)
TheAssessingofficerallowedtheclaimofassesseefordeductionundersection35ABinrespect
of technical know howfees. The Assessee filed petition under section 264 in respect of claim
under section 80IB which the assessee had omitted to make in the original return.
Commissionerrestoredtheissueregardingallowabilityofclaimundersection80IBoftheActto
the Assessing Officer.Assessing Officer in fresh assessment proceedings disallowed the claim
undersection80IB.OnappealtheCommissioner(Appeals)suomotudisallowedtheclaimunder
section 35AB.In appeal before the Tribunal it was argued that Commissioner (Appeals) could
not have consider the deduction under section 35AB which is beyond his jurisdiction. The
TribunalheldthattheAssessingOfficerwascorrectinnotconsideringanyissueotherthanthe
claim of deduction under section 80IBmade by assessee in the applicationunder section
264before Commissioneras he had no such jurisdiction. Nodoubt it is true that Commissioner
(Appeals)whiledecidinganappealhasplenarypowerandcanalsoconsideranyissuewhichhas
beenomittedbytheAssessingOfficer.OnthefactstheCommissioner(Appeals)cannotconsider
any issue which is beyond the jurisdiction of Assessing Officer.In the fresh Assessment
proceedingstheAssessingOfficerhadnojurisdictiontoconsideranyissueotherthantheclaim
under section 80IBand therefore, it cannot be said that in not considering the claim of
deduction under section 35AB, the Assessing Officer had failed to do something which was
necessary in the assessment. Commissioner (Appeals) has no power to act on which the
Assessing Officer hasno jurisdiction. Accordingly the order of Commissioner (Appeals) was set
asideonthisissue.(A.Y.200304)
HindustanColasLtd.v.ACIT(2013)140ITD277/151TTJ421(Mum.)(Trib.)
S.253:Appellate Tribunal Condonation of delay Delay in filing appeal against the original
orderoftheCIT(A)aftertheTribunalallowedtheappealoftheRevenueholdingthattheCIT
(A)wasnotjustifiedinrectifyinghisoriginalordertechnicalandhadtobecondoned.
365
PendingtheassesseesappealbeforetheTribunaltheassesseefiledarectificationapplication
beforetheCIT(A)whichwasallowedbyhimgivingsubstantialrelieftotheassessee.Thereafter,
the assessee withdrew its appeal before the Tribunal.However, the revenue authorities
challenged the order of the CIT (A) in rectification which was allowed by the Tribunal.The
Assessee therefore filed an appeal before the Tribunal against the CIT (A)s original order and
also filed an application for condonation of delay.The delay was held to be condonable as the
assessee had filed fresh appeal before the Tribunal once the entire reason for challenging the
CIT(A)sorderhadchanged.(A.Y.199394)
UmakantLeasing&Finance(P)Ltd.v.Dy.CIT(2013)81DTR197(Guj.)(HC)
S.253:AppellateTribunalAppealCondonationofdelayHighCourtcondonedthedelayof
morethanoneyearduetonegligenceoflawyer.
Assesseerunningatuitioncentre,anassessmentorderwaspassed.Againstsaidorder,assessee
filed anappeal before Tribunal with a delay ofover one year. Tribunaldismissed appeal being
barred by limitation. On appeal, it was noted that on account of negligence of assessee's
lawyer,appealcouldnotbefiledwithinprescribedtime.Further,sicknessofmotherwasalsoa
contributing factor as assessee was engaged in attending her. The Court heldonfacts, cause
shown by assessee for delay in filing appeal was genuine and bona fide, therefore, impugned
order was to be set aside and, matter was to be remanded back for disposal on merits. (A.Y.
19992000to200102)
MukeshJesangbhaiPatel.v.ITO(2013)213Taxman37(Mag.)(Guj)(HC)
S.253:AppellateTribunalAppealDismissingthecrossobjectionwassetaside.(Rule46A)
Assessing Officer made reassessment and added certain amount to total tax liability of
assessee.Assessee, in appeal, objected to said addition which was accepted. On appeal before
Tribunal by revenue, assessee did not file any appeal or crossobjections. It was disputed
whethernoticeofappealwasinfactreceivedbyassessee.Tribunalpassedorderanddirected
remandtoAssessingOfficeronquestionofconsiderationofadditionalevidencerelieduponby
assessee. Assessee filed appeal before High Court. High Court did not go into question as to
whether notice of appeal was served on assessee. High Court directed Tribunal to adjudicate
matterafreshonapplicabilityofrule46Aandwhetherinobtainingfactualmatrix,onlyoption
was to remand matter to Assessing Officer. Assessee filed its crossobjection before Tribunal
under section 253(4). Tribunal dismissed cross objection on assumption that assessee did not
choose to file crossobjections despite service of notice. The Court heldthat Tribunal was
unjustifiedinrejectingcrossobjectionwhenititselfwassatisfiedthatappellanthadnot,infact,
filedcrossobjectionattimewhenitcouldhaveoriginallyfileditwhenappealswerefiledearlier
before Tribunal. The Court also held that Tribunal should have examined whether cross
objections could be entertained in facts and circumstances of case having regard to
independent power to entertain them contained under section 253(5), therefore, Tribunal's
impugnedorderdismissingcrossobjectionwasunsustainableandwastobesetaside.Infavour
ofassessee.
AshianNeedles(P.)Ltd.v.CIT(2013)213Taxman38(Mag.)(Delhi)(HC)
366
S.253:AppellateTribunalAppealDutyofTribunalDutytoexaminefactscarefully.
ThattheorderoftheTribunaldidnotdisclosethefactsconsideredonthebasisofwhichit
arrivedattheconclusioninrespectofthefixeddepositsmadebythefriendsandrelativesof
themanagingdirectortothetuneofRs.21,60,000.Admittedly,reasonsarethelinksbetween
thematerialsonwhichcertainconclusionsarebasedontheactualconclusions.Intheabsence
ofreasonsbasedonconsiderationoffactsbytheTribunalintheordertosupportitsconclusion
asregardsthefixeddepositreceiptsofRs.21,60,000itsordercouldnotbesustained.Matter
remanded.
HastalloyIndiaLtd.v.Dy.CIT(2013)350ITR52(AP)(HC)
S.253:AppellateTribunalJurisdictionLocationofAssessingOfficeratthepassingofOrder
isrelevant[S.127]
Since the office of the Assessing Officer who passed assessment orders was located in Delhi,
and order under section 127 was passed by Commissioner transferring his jurisdiction to
Kanpur after passing assessment order, Delhi Bench of Tribunal had jurisdiction over assessee
tohearappealsandnotLucknowBenchofTribunal.(A.Ys.200607200708)
ACITv.LataJain(Smt.)(2013)56SOT102(URO)(Luck.)(Trib.)
S.253:Appellate TribunalMaintainabilityWhere DRP has not given any direction to

AssessingOfficer,appealisnotmaintainable.[S.144C]
Theassesseeneitherfiledacceptanceofthedraftordernorfiledanyobjectionagainstthedraft
assessmentorder. However, the assessee filedan objection against the draft order before the
DRP after the expiry of 30 days. The DRP declined to issue any direction in pursuance to the
objectionoftheassesseeonthegroundthatsection144C(2)didnotgrantlibertytothepanel
to condone the delay. After that, the Assessing Officer passed the order on 1562012. The
assessee submitted that no direction was given by the DRP and consequently provisions of
section144C(13)werenotapplicableintheinstantcaseand,therefore,aspertheprovisionsof
section144C(3),theassessmentordershouldhavebeenpassedonorbefore3132012andin
view of that, the impugned order 1562012 was barred by limitation. The Tribunal held that
theDRPgavenodirectioninrespectofobjectionsoftheassesseeanddidnotgiveanydirection
to pass the order as per the draft assessment order. In the above circumstances, the instant
appeal is not covered by the provisions of section 253(1)(d) and the instant appeal is not
maintainable.(A.Y.200809)
IntimateFashions(India)(P.)Ltd.v.ACIT(2013)56SOT103(URO)(Chennai)(Trib.)
S.253:Appellate Tribunal AppealLiability of director Appeal is not maintainable on the

basisofletterofAssessingOfficer.[S.179]
The assessee was erstwhile directors of 'K' Ltd. In case of 'K' Ltd., the Assessing Officer had
passed an assessment order raising demand. The Assessing Officer served a notice on the
assesseethatbalancedemandincaseof'K'wasstayedtill3042008inappealpreferredby'K'
and no further stay would be considered unless 50 per cent of demand was paid by 155
2008.Theassessee,onbasisofaforesaidletter,challengedtheassessmentorderincaseof'K',
before the Commissioner (Appeals) submitting that the tax due from 'K' was sought to be
recovered from the assessees under section 179 and, therefore, the assessee was aggrieved.
367
The Commissioner (Appeal) upheld the action of the Assessing Officer. On appeal by the
AssesseetheITATheldthat,byvirtueofsection179,itcouldnotbesaidthattheassesseehas
been made liable to pay tax due on behalf of 'K'. Also the appeal was decided in favour of K
andhence,nodemandissubsistingagainstthecompanyasondate.Thus,therewasnocause
ofactionthatisexistingfortheerstwhileDirectorsoftheCompanytochallengetheordersof
assessmentof'K'andtheappealwasdismissedasnotmaintainable.TheTribunalalsoheldthat
on the basis of letter the assessee was no justified in challenging the assessment order.(A.Y.
200112)
N.Gowrishankarv.ACIT(2013)56SOT119(URO)(Bang)(Trib.)
S.253:AppellateTribunalAppealDepartmentcannotarguethatregistrationgrantedby
Commissionerundersection12AAisnotproper.(S.12AA).
Tribunalheldthatorderundersection,12AA,isanorderpassedbycompetentauthorityandif
any irregularity has crept in the order, the same can be rectified by the competent authority
itself. No appeal has been provided for the revenue against this order before the Tribunal.
Therefore,therevenuecannotraiseanyobjectionquatheirregularity,ifany,creptintheorder
oftheCommissionerwhilegrantingregistration.Decidedinfavourofassessee.
Add.CITv.ChaudharyRaghubirSinghEducational&CharitableTrust(2013)55SOT211(Delhi)
(Trib.)
S.253:AppellateTribunalAppealCondonationofdelayCrossobjectiondelayof1529days
wasnotcondoned.
Assessee filed cross objections after a delay of 1529 days. Assessee explained that it was an
oversight which was discovered only in conference with its counsel after expiry of four years.
Tribunal heldthat therewas no sufficient cause for delay within meaning of section 253(5) to
justifycondonationofdelay.Decidedinfavourofrevenue.(A.Y.200102)
ACITv.PetroleumIndiaInternational.(2013)55SOT69(URO)(Mum.)(Trib.)
S.253:Appellate TribunalAppealCondonation of delayDelay of 557 in filing appeal before

Tribunalbytherevenuewasnotcondoned.
AgainstorderofCommissioner(Appeals)revenuedepartmentpreferredonappealafteradelay
of 557 days with condonation of delay application assigning cause as to that due to oversight
andpressureofworkloadappealcouldnotbefiledwithinprescribedtimeof60days.Tribunal
held thatcause shown by department was neither reasonable nor sufficient and, therefore,
condonation of delay had to be declined.Tribunalalsoobserved that ithas power to condone
delayinfilinganappealonlywhensufficientcauseisshownwithaviewtoadvancesubstantial
justice and even after sufficient cause has been shown party is not entitled to condonation of
delayasamatterofright,andTribunalhasstilltoexerciseitsdiscretionafterconsideringbona
fidesofpartiesorduediligenceexercisedbyparties.Appealofrevenuewasdismissed.Infavour
ofassessee.(A.Y.200708)
ACITv.VimalMehra(2013)55SOT67(URO)(Delhi)(Trib.)
S.253:Appellate TribunalAppealTax effecttax effect in a 'case' means overall tax effect in

respectofdisputedissuesinaparticularassessmentyear.(S.172(7))
368
During previous year 40 voyages were undertaken by a French shipping company through its
Indianagentand40returnswerefiledInsteadofpassing40orders,acompositeassessment
order under section 172(4) was passed by Assessing Officer assessing total income at Rs. 2.72
crore.Tribunalheldthatsincetaxeffectunderappealininstantcasewasmorethanstipulated
taxeffectofRs.3lakhs,eventhough30outof40appealshadtaxeffectsoflessthanRs.3lakhs
each,all40appealsweremaintainablebeforeTribunal.Taxeffectina'case'meansoveralltax
effect in respect of disputed issues in a particular assessment year. In favour of revenue.
CircularsandNotifications:CBDT'sInstructionNo.3/2011,dated922011.(A.Y.201011)
ITO(IT)v.CMACGMAgencies(India)(P.)Ltd.(2013)55SOT61(URO)(Rajkot)(Trib.)
S.253:Appellate TribunalAppealCondonation of delayDelay of 902 days not condoned as

theassesseehadnotcomewithcleanhands.
TribunalheldthatwhenassesseehadnotcomewithcleanhandsbeforeTribunalandhadalso
failed to establish with cogent and proper evidence that there existed sufficient cause for not
presenting appeal within stipulated period, delay of 902 days in filing appeal, could not be
condoned;appealwouldbebarredbylimitationand,hence,deservedtoberejected.Infavour
ofrevenue(A.Y.200506)
ShreeBalajiWoollenMillsv.ACIT(2013)55SOT65(URO)(Delhi)(Trib.)
S.253:AppellateTribunalMaintainabilitySmalltaxeffect.(S.268A)
Since the tax effect in the case is less than 3 lacs, the appeal filed by the revenue before the
Tribunalisnotmaintainable.Thelimitisalsoapplicabletopendingcases.(A.Y.200304)
ITOv.SaraswatiDeviGehlot(Smt)(2013)152TTJ17(UO)(Jodh.)(Trib.)
S.253(5):Appellate TribunalDelay of 890 days was CondonedPursuing remedy as per the

legaladvice.
Assesseefiledtheappealbelatedlyashewaspursuingoneremedyortheotherasperthelegal
advice obtained. The delay of 890 days in filing the appealbefore theTribunal was condoned.
AppealwasrestoredtotheTribunal.(A.Y.200506)
FaisalHameedv.ITAT(2013)83DTR10/256CTR429/215Taxman81(Mag.)(J&K)(HC)
S.254(1):Appellate Tribunal Orders Non speaking order matter remanded for

reconsideration.(S.36(1)(vii))
Where the Tribunal allowed deduction under section 36 (1) (vii) of the Act in respect of bad
debts written off without reasons and by a non speaking order is remanded back to the
Tribunalforreconsideration.
CITv.MetallurgicalEngineeringConsultants(India)Ltd.(2013)81DTR22/255CTR194/213
Taxman193(Jharkhand)(HC)
S.254(1):AppellateTribunalOrdersFindingofCIT(A)wasnotconsideredbyTribunalOrderheldtobe
unsustainable.[S.68]
On failure of the production of creditors, summons were issued under section 131. But none of the
creditors appeared and in some cases summons were returned with the endorsement made by the
369
postalauthority"nosuchpersonconcernedwasfound".However,afteranalysingeverything,theCIT(A)
accepted the explanation and also the evidence of the creditworthiness of the creditors and granted
relief.However,theTribunalfoundthattheCIT(A)haderroneouslyheldthatthesummonswereissued
aftertheassessmentwasdone.Onlyonthatgrounditwasheldthattheassesseecouldnotestablishby
producingevidencethatthecreditwasreceivedfromcustomers.TheHighCourtheldthattheTribunal
hadnotadjudicateduponthecaseoftheassesseeinthelightoftheevidencewasfoundbytheCIT(A)
andhence,itsorderwasunsustainable.(A.Y.19941995)
CrystalNetworksP.Ltd.v.CIT(2013)353ITR171(Cal.)(HC)
S.254(1):Appellate Tribunal PowerPartial disallowance accepted by assesseeTribunal cannot set
asideentiredisallowanceAgreedadditionappealisnotmaintainable.[S.80IB]
Theassessmentwasanagreedassessmentandtheassessee'srepresentativedidnotopposethepartial
disallowancebytheAssessingOfficer.Aftermakingaclaimundersection80IB,theassesseerequested
theAssessingOfficertomakenecessaryadjustmentintheclaim.Thisobviouslymeantthattheassessee
himselfwasadmittingthattheclaimwashighandtheAssessingOfficerwasfreetorefixtheclaim
eligiblelimit.ItwasthereafterthattheAssessingOfficerinconsultationwiththeassessee'sauditor
madeapartdisallowanceadjustingtheprofitattributabletofinalproductstransferredtotheeligible
unit.TheCourtheldthattheTribunalhadnoauthoritytointervenewiththisorderconfirmedinfirst
appeal.TheassesseesrepresentativedidnotopposethepartialdisallowancebytheAssessingOfficer
.Thereforetheassesseehadnorightofappealagainsttheorderandtheappealchallengingthe
disallowanceitselfwasnottenable.
CITv.M.E.Meeran(2013)353ITR281(Ker.)(HC)
S.254(1):Appellate TribunalOrdersWrit to restrain ITAT Members from discharging statutory
functionsnotmaintainable.[Art.226ConstitutionofIndia]
The Petitioner, a Chartered Accountant practicing before the Amritsar Bench of the Tribunal,
filedaWritPetitionallegingthathewasfacingalotofharassmentatthehandsoftheJudicial
Member(Shri.H.S.Sidhu)andtheAccountantMember(Shri.B.P.Jain)oftheAmritsarBench.
He alleged that the said Members were totally prejudiced against him as he had made a
complaint against the Judicial Member to the Tribunal andalso because he had not been able
tomeettheexpectationsandillegaldemandsofthesaidMembers.Itwasalsoallegedthat
theBenchwasdelayingthemattersofthePetitionerorpassingunreasonedordersorbytotally
ignoringhim.AWritofMandamuswassoughtforrestrainingthesaidJudicialandAccountant
Members of the Amritsar Bench from discharging their functions. HELD by the High Court
dismissingthePetition:
ItappearsthatthewritpetitionistosettlescoreswhichthePetitionermighthaveraisedduring
the course of his conduct as representative of the assessees. The Petitioner has asserted that
he is not able to meet the expectations and illegal demands raised by the Members but there
arenodetailsastowhenandhowthedemandswereraised.Notonlythewritpetitionisbereft
of any material particulars but also the Petitioner has no right to claim mandamus for
restraininganauthorityconstitutedundertheActfromdischargingthefunctionsentrustedtoit
by the Statute. The present writ petition is gross abuse of process of law and, therefore, it is
dismissed.
370
YoginderKumarSudv.President,ITAT(P&H)(HC)www.itatonline.org.
S.254(1):AppellateTribunalPowersPowertoremandDirectionshouldbeverycautious.
While remanding issues for fresh consideration by Assessing Officer, Tribunal should be very
cautiousinissuingdirections,evenifitisonlyforguidanceofAssessingOfficer,directionissued
by Tribunal should not give rise to a situation where assessing authority is likely to feel
disturbedbyit.Matterremanded
CITv.RBGInvestment&FinanceLtd.(2013)213Taxman39(Mag.)(Delhi)(HC)
S.254(1):AppellateTribunalOrdersPowerAdditionalevidenceTribunalcanremitmatterto
AssessingOfficertoconsideradditionalevidence.(AppellateTribunal)Rules,1963,29)
The assessee incurred certain expenses in the form of management expenses paid by it to its
groupcompanies.TheAssessingOfficerrejectedtheclaimonthegroundthattheassesseewas
notabletoprovethatthegroupcompanieshadrenderedanyservicestotheassessee.Before
the Commissioner (Appeals) the assessee had filed copies of certain agreements entered into
between the assessee and its group companies to whom the management fee was given. The
Commissioner (Appeals) admitted this fresh evidence but came to the conclusion that the
assesseewasunabletoleadanycredibleevidencetoprovethatforcarryingonthebusinessit
had received any inputs from the group companies and the money to them became payable.
The assessee preferred an appeal before the Tribunal. Along with the appeal application for
leading additional evidence under rule 29 was filed as the assessee wanted to produce some
further evidence which he did not produce before the Assessing Officer and even the
Commissioner(Appeals).TheTribunaladmittedtheadditionalevidenceandremittedthecase
totheAssessingOfficertodecidetheissueafreshafterconsideringtheadditionalevidence.On
appeal by revenue dismissing the appeals, the Court held that the reason which was given by
the assessee in support of its plea for admission of additional evidence was that the assessee
could not produce these records before the lower authorities due to nonirretrievability of e
mailonthedatebecauseoftechnologicaldifficulties.Thisreasonwasspecificallymentionedin
the application filed. No reply to this application was filed refuting this averment, though the
Departmental representative had opposed the admission of the additional evidence. The
groundpleadedbytheassesseewasnotconfronted.Inthisbackdrop,theTribunallookedinto
the entire matter and arrived at a conclusion that the additional evidence was necessary for
deciding the issue at hand. It was, thus, clear that the Tribunal found the requirement of the
evidenceforproperadjudicationofthematterandintheinterestofsubstantialcause.Rule29
categoricallypermitstheTribunaltoallowsuchdocumentstobeproducedforanysubstantial
cause. Once the Tribunal has predicated its decision on that basis, there was no reason to
interferewiththesame.(A.Y.20042005)
CITv.TextHundredIndiaPvt.Ltd.(2013)351ITR57(Delhi)(HC)
S.254(1):Appellate TribunalOrders Right of respondentPowersUnder rule 27 the

respondent is permitted to support the order appealed against, though he may not have
appealed against the order, on any of the grounds decided against him, however set side of
entireorderisnotpermitted.[S.253(4),Incometax(AppellateTribunal)Rules,1963Rule27]
371
TheassesseehadmadeaclaimonaccountofbaddebtsintheamountofRs.28.69lakhsunder
section 36(2). The Assessing Officer disallowed the claim. In appeal, the Commissioner
(Appeals)confirmedthedisallowancemadebytheAssessingOfficertotheextentofRs.14.96
lakhs. However, the assessee was granted relief to the extent of Rs. 13.73 lakhs under section
36(2).Both,therevenueandtheassessee,filedappealsbeforetheTribunal.Theappealfiledby
the assessee was, however, barred by limitation, there being a delay of 551 days. During the
courseofthehearingbeforetheTribunal,theassesseewithdrewitsappeal,butsoughttopress
in aid the provisions of rule 27 of the Incometax (Appellate Tribunal) Rules, 1963 to contend
thattheCommissioner(Appeals)erredinpartlyconfirmingthedisallowance.TheTribunalheld
that in the absence of relevant details being brought on record by the parties and in the
interests of justice it was appropriate to remand the entire matter pertaining to the
disallowance of Rs. 28.69 lakhs to the Assessing Officer. Accordingly, the order passed by the
Assessing Officer on this account was set aside in its entirety and the Assessing Officer was
directed to decide the matter afresh in view of the decision of Mumbai Special Bench inDy.
CITv.Shreyas S. Morakhia[2010]40 SOT 432.On appeal to the High Court, the revenue
contendedthatrule27ofthe1963Ruleswouldonlypermittheassessee,astherespondentto
the appeal by the revenue, to support the order appealed against on any of the grounds
decided in favour of the assessee and, hence, the assessee could have supported the order of
the Commissioner (Appeals) to the extent to which the appellate authority had allowed the
claimoftheassesseeintheamountofRs.13.73lakhsandnotdisallowanceofRs.14.96lakhs.
Allowing the appeal the Court held that Tribunal erred in setting aside order of Commissioner
(Appeals) in its entirety and by restoring proceedings to Assessing Officer in regard to entire
disallowance; Tribunal could have restored proceedings to Assessing Officer only as regards
amount of disallowance deleted by Commissioner (Appeals). Under rule 27 the respondent is
permittedtosupporttheorderappealedagainst,thoughhemaynothaveappealedagainstthe
order, on any of the grounds decided against him, however set side of entire order is not
permitted.(A.Y.200405)
CIT. v. Jamnadas Virji Shares & Stock Brokers (P.) Ltd. (2013)/86 DTR 402/258 CTR 458/ 212
Taxman120(Mag)(Bom.)(HC)
S.254(1):Appellate TribunalOrdersRectification of mistakeExparte orderRecalling the

orderanddecidingallowingthebaddebtwasheldtobejustified.[S.36(1)(vii)].
AssesseehadwrittenoffanadvanceofRs.65lakhsasbaddebtsongroundthatdespitefilinga
suitsumwasnotrecoverable.IssuehadreacheduptoTribunal.Tribunalbyanexparteorder
held against assessee. Subsequently, however, assessee applied for recall of such an order.
Tribunal thereupon proceeded to decide appeal afresh. In such exercise Tribunal overruled
objections of Assessing Officer and allowed claim of assessee by holding that loan written off
hadbecomebaddebtwhichwasallowable,sinceassesseewasinbusinessofbankingormoney
lending. Revenue contended that Tribunal having previously ruled against assessee could not
havechangeddecision.CourtheldthatsinceoriginalorderofTribunalwaspassedinabsenceof
assesseewhichhadshownsufficientgroundjustifyingitsabsence,andhadsatisfiednecessary
conditionsofsection36(2)(i),Tribunalwasrightindecidingappealafreshandallowingclaimof
assessee.
Dy.CITv.HindustanMISwacoLtd.(2013)212Taxman293(Guj.)(HC)
372
S.254(1):AppellateTribunalOrdersDutyofTribunaltogiveitsownreason.
The Court observed that there was no discussion in the order of the Tribunal about the
respective arguments of the parties. It did not contain the points for determination and its
findingsthereon.Evenanorderofaffirmationbyahigherauthorityrequiresthattheauthority
should give its own reasons, may be, in brief for its concurrence with the order appealed. The
Tribunalisunderalegalobligationtorecorditsownfindingonthesubmissionsoftheparties,
may be in brief, depending upon the facts and circumstances of the case. But if it does not
containanyreasonsuchanorderisnoorderintheeyesoflawandcannotbeallowedtostand.
Intheopeningportionoftheorder,theTribunalnoticedthegroundsraisedbytheassesseein
the memo of appeal. It had taken trouble to reproduce them but left them undecided.
Definitely,thecasemeritedadifferenttreatmentatthehandsoftheTribunal.(A.Y.19911992
AbhyudayaPharmaceuticalsv.CIT(2013)350ITR358/214Taxman61(Mag.)(All)(HC)
S.254(1):AppellateTribunalOrders496daysdelayinfilingappealduetoCAsfaultisbona
fide&mustbecondoned.
The assessee filed an appeal before the Tribunal which was delayed by 496 days. In the
applicationforcondonationofdelay,theassesseeclaimedthathehadhandedoverthepapers
to his Chartered Accountant and that the latter had mixed up the papers with other papers in
his office which led to the delay. The department opposed the application on the ground that
therewasgrossnegligenceonthepartoftheassesseeandthatsufficientcauseforthedelay
wasnotexplained.HELDbytheTribunal:
Thefactsdonotsuggestthattheassesseehasactedinamalafidemannerorthatthereasons
explained are only a device to cover an ulteriorpurpose. It is a settled proposition of law that
Courts should take a lenient view on the matter of condonation of delay provided the
explanation and the reason for delay is bonafide and not merely a device to cover an ulterior
purpose or an attempt to save limitation in an underhand way. The Court should be liberal in
construing sufficient cause and should lean in favour of such party. Whenever substantial
Justiceandtechnicalconsiderationsareopposedtoeachother,causeofsubstantialJusticehas
to be preferred. On facts, the reasons explained by the assessee show that due to bonafide
mistake and inadvertence, the appeal could not be filed within the period of limitation.
Accordingly,thedelayof496dayshastobecondoned(collectorLandAcquisitionv.Mst.Katiji
andOrs.(1987)167ITR471(SC)referred).(A.Y.200506)
Y.P.Trivediv.JCIT(Mum)(Trib.)www.itatonline.org.
S.254(1):AppellateTribunalAdditionalgroundsPowertoadmit.
The assessee had not made claim of bad debt in the return of income but made same during
the course of assessment proceedings. The Assessing Officer and the Commissioner(Appeals)
didnotacceptthenewclaim.ItwasheldthattheCommissioner(Appeals)couldhaveaccepted
thenewclaimbyvirtueofitsappellatepowers.(A.Y.200708)
Givaudan Flavours (India) (P.) Ltd. v. Dy.CIT (2013) 56 SOT 105(URO) / 22 ITR 732 (Mum.)
(Trib.)
S.254(1):AppellateTribunalDelayinfilingappealAffidavitRequirementsofavalidaffidavit
insupportofdelaycondonationapplicationismust,otherwisedelaymaynotbecondoned.
373
TheassesseefiledanappealbeforetheCIT(A)whichwasdelayedby4months.Thedelaywas
explainedtohavebeencausedbythefactthattheassistantoftheAuthorizedRepresentative
keptthepapersinadrawerandoverlookedthemtillapenaltynoticewasreceived.TheCIT(A)
declined to condone the delay and dismissed the appeal. The assessee filed an appeal before
the Tribunal and also filed an affidavit of the Authorized Representative in support of the
application for condonation of delay. HELD by the Tribunal dismissing the application and the
appeal.
The affidavit produced by the AR is not a valid affidavit because there is no verification
appendedonitandthereisnomentionastowhichoftheparasaretruetotheknowledgeof
thedeponentandwhichoftheparasoftheaffidavitaretruetohisbelief.Theaffidavitisalso
notadulyswornaffidavitasrequiredunderRule10oftheITATRules1963becauseithasnot
been properly endorsed by the notary regarding the oath of affirmation before him by the
executantoftheaffidavit.Thenotaryhasputhissignaturesunderhisnamesealbutthereisno
mentionwhethertheoathwasadministeredtothesignatoryorifdoneso,whenandwhereit
was administered. Evenwords Sworn beforeme aremissing. If the affidavit does not certify
orendorsethefactthatoathhasbeenadministered,itremainsawastepaper.Onmerits,the
case is one of gross negligence and inaction on the part of the assessee and the AR. The
explanation that the ARs assistant kept the papers in his drawer and failed to take necessary
action is vague and evasive and not sufficient cause for condonation. There is also no general
principlesavingthepartyfromallmistakesofitscounsel.Thereisalsototalinactionandgross
negligence on the part of the assessee for not inquiring the status of the appeal from the AR.
Though courts adopt liberal view while condoning delay on the principle that technicalities
should not prevail over the cause of justice, litigants should not take the courts for granted.
(A.Y.200607)
KunalSuranav.ITO(Mum.)(Trib.)www.itatonline.org
S.254(1):Appellate Tribunal OrdersPowers Additional evidence No power to declare
retrospective effect of amendment.Additional evidence after hearing is also permissible.
(AppellateTribunal)Rules1963Rule29)
TheTribunalhasnopowertodeclareretrospectiveeffectofamendmentunconstitutionalThe
Tribunalsuomoturequireadditionalevidenceevenafterconclusionofhearing.(A.Y.200708)
L.G. Electronics India P. Ltd. v. ACIT (2013) 140 ITD 41 / 22 ITR 1/83 DTR 1/152 TTJ 273 (SB)
(Delhi)(Trib.)
S.254(1):Appellate Tribunal OrdersPowers No powers to decide validity of provisions of

Act.[S.92C(2)]
TheIncometaxAppellateTribunalisacreatinoftheIncometaxActandnotaconstitutional
authority.IthastointerprettheprovisionsoftheActasitstands.Itcannotadjudicateupon
theconstitutionalvalityormotherwiseofanyprovisionsoftheAct.(A.Y.200607)
IHGITServices(India)PvtLtdv.ITO(2013)23ITR608(SB)(Delhi)(Trib.)
S.254(2):Appellate TribunalRectification of mistake apparent from the recordOral

submissionValidity of searchDeciding the issue on merit without giving an opportunity of
beingheardisamistakeapparentfromtherecordRecallingtheorderwasvalid.
374
The Tribunal upheld the validity of search proceedings carried out at premises of assessee.
Thereafter, the Tribunal also proceeded to examine on merits,the various issues raised by
assesseeregardingadditionsretainedbyCommissioner(Appeals).Thereafter,assesseemoved
an application for rectification of above order on ground that at time of oral submissions
assessee was informed that Tribunal would not consider issues of additions on merits and in
said situation assessee did not got chance to argue its case. The Tribunal accepted assessee's
caseandrectifieditsorder.Held,sincetheTribunalhadproceededtodecidecertainissueson
merits without giving full opportunity to assessee to make submissions thereon, the order
suffered from an error apparent on record and, therefore, it committed no error in exercising
powerofrectification.
DCITv.ManuP.Vyas(2013)214Taxman86(Mag.)(Guj.)(HC)
S.254(2):Appellate TribunalRectification of mistake apparent from the recordMatter

remandedbyTribunalPeriodoffouryearsforfilingsuchanapplicationhaselapsedWritis
notmaintainable.
The Assessing Officer denied the deductions under sections 80HH, 80I and 80IA to the
assessee in respect of certain plants and added back the prior period expenses which was
confirmed by the Commissioner (Appeals). The Tribunal set aside the order of the
Commissioner (Appeals) and restored the matter for fresh adjudication before the Assessing
Officer, after which the Assessing Officer passed an order giving effect without considering
some of the issues before the Tribunal. Against this order giving effect, the assessee filed an
appeal before the Commissioner (Appeals), which was dismissed. The assessee filed an appeal
beforetheTribunalwhichwaspending.Onawritpetitionchallengingthelegalityoftheearlier
order which was passed by the Tribunal and in the alternative, seeking a writ of mandamus
directingtheAssessingOfficertogiveeffecttotheorderoftheTribunalasifallthegroundsof
appeal had been set aside for fresh adjudication, it was observed that the assessee failed to
adopt the remedy which the statute had provided under section 254(2)and the period of four
years for filing such an application has elapsed. Also, since there was no valid explanation for
thedelay,therewasnojustificationtoentertaintherequestforsettingasidetheorderofthe
Tribunal.(A.Y.199899)
BharatPetroleumCorporationLtd.v.ITO(2013)354ITR165(Bom.)(HC)
S.254(2):AppellateTribunalRectificationofmistakeapparentfromtherecordNot
consideringthedecisionofSupremeCourtcanberectifiedundersection254(2).[S.11,13(1)
(c)(ii)]
Assessee, a charitable trust, claimed exemption under section 11. Assessing Officer having
foundthatduringcurrentyearassesseehadadvancedasumofRs.25lakhtooneP,whowas
managingtrusteeoftrust,tookviewthatthisamountedtoviolationofsection13(1)(c)(ii).He,
therefore,askedassesseetoexplainastowhyexemptionclaimedundersection11shouldnot
bedenied.AssesseeexplainedthatincurrentyearnofundsweregivenbytrusttoP,andthat
said transaction related to earlier assessment year 200203. Assessing Officer did not accept
explanation of assessee and denied exemption under section 11. Commissioner (Appeals)
having found, that during current year no funds were given by trust to P, granted exemption
under section 11 to assessee. Tribunal held that assessee had violated provisions of section
375
13(1) (c) (ii) and accordingly set aside order passed by Commissioner (Appeals). Thereupon
assesseefiledapetitionundersection254(2)statingthatTribunalwhiledecidingappealdidnot
considerdecisionofSupremeCourtrenderedincaseofAditanarEducationalInstitutionv.Addl.
CIT[1997]224ITR310foradjudicatingissueregardingviolationofsection13(1)(c)(ii).Tribunal
(i) after taking into account fact that advance of Rs. 25 lakh was given to P during period 14
2001 to 3132002, and (ii) also taking into account decision of Supreme Court in case of
Aditanar Educational Institution (supra), held that there was a mistake apparent on record in
earlier order passed by it. It further on basis of above findings held that assessee had not
violated provisions of section 13(1) (c) (ii) during relevant assessment year 200304 and
accordingly rectified order passed by it earlier. On appeal to High Court by revenue the Court
heldthat,onfactsandincircumstancesofcase,Tribunalhadrightlyexercisedpowersconferred
under section 254(2). Therefore, theimpugned order passed by Tribunal was justified.Section
254(2)hasbeenenactednotonlytosafeguardinterestofrevenuebutalsotoenableTribunal
torectifyerrorapparentonfaceofrecord.(A.Y.200304)
CITv.ParkTrust(2013)212Taxman115(Mag.)(Mad.)(HC)
S.254(2):Appellate TribunalRectification of mistake apparent from the record Rectification

of order based on the Subsequentlarger bench decision of supreme Court is proper
Applicationismadeintimeordercanbepassedthereafter.
Tribunal following a decision of Supreme Court deleted penalty under section 271 (1) (c).
Subsequently, Larger Bench of Supreme Court overruled decision relied upon by Tribunal. On
basis of latter decision of Supreme Court, revenue sought to recall Tribunal's decision under
section 254(2). Accordingly, Tribunal recalled its earlier decision. On appeal by assessee the
CourtheldthatsubsequentdecisionofSupremeCourtoperatedretrospectivelyand,therefore,
it had to be regarded as it existed when order was passed by Tribunal and, thus, there was
mistakeapparentfromrecordwhichcouldnotbeallowedtoremain,furtheronlylimitationfor
correctingmistake,thatisimposedbyprovisionsofsection254(2),isonlywithrespecttotime
andsinceininstantcaseapplicationforrectificationhadbeenmadeintime,orderofTribunal
recallingitsearlierordercouldnotbefaulted.(A.Y.199394,199697,199798)
LakshmiSugarMillsCo.Ltd.v.CIT(2013)212Taxman118(Mag.)(Delhi)(HC)
S.254(2):Appellate TribunalRectification of mistake apparent from the recordDefects were

notifiedonnoticeboard,thatitselfcouldbeconstruedasnoticetoassesseetorectifyoffice
objectionsDismissalofmiscellaneousapplicationwhichwasfiledafternineyearswasheldto
bejustified.(KarnatakaAgriculturalIncometaxAct,1957S.34)
AssesseepresentedappealbeforeTribunalon312002.Matterwasadjournedforrectification
ofdefects.Whenmatterwaslistedon1142002,Tribunalgrantedtimetill3042002torectify
defects.Matterwasrelistedon3042002.Onsaiddateassesseewasnotpresentanddefects
had not been rectified. Notice of defects was duly published and it was affixed on notice
board.Tribunal rejected appeal on ground of noncompliance of office objections. Thereafter
assessee received a demand notice on 412011 on ground that appeal filed by assessee was
rejected. After that assessee filed a miscellaneous petition before Tribunal seeking to recall
orderdated3042002andrestoreappealtofileandhearitonmerit.Tribunalfoundthatdelay
of nine years was not at all explained by assessee inasmuch as assessee was not vigilant after
376
filing of appeal. The Court held thatpetitioner could not be heard to say that Tribunal was
obligedtoinformpetitioneraboutdismissaloforderfornonremovalofofficeobjections.Since
defects were notified on notice board, that itself could be construed as notice to assessee to
rectify office objections. Therefore, order passed by Tribunal rejecting miscellaneous petition
on ground of delay was justified and thus, petition of assessee in respect of rejection of
miscellaneouspetitionwastoberejected.(A.Y.199899)
Baganeheddal 'C' Estate v.Karnataka Appellate Tribunal (2013) 212 Taxman 99(Mag.) (Karn.)
(HC)
S.254(2):Appellate TribunalPower of rectificationDebatableFailure to apply the law to

factstobeinvestigatedcannotbecorrectedbywayofrectification.
Inordertoattracttheapplicationofsection254(2),amistakemustexistandthesamemustbe
apparent from the record. The power to rectify the mistake, however, does not cover cases
wherearevisionorreviewoftheorderisintended.Also,adecisiononadebatablepointoflaw
orfactorfailuretoapplythelawtoasetoffactswhichremainstobeinvestigatedcannotbe
correctedbywayofrectification.(A.Y.200607)
PremColonisers(P.)Ltd.v.ITO(2013)56SOT121(URO)(Delhi)(Trib.)
S.254(2):AppellateTribunalPowerofrectificationCorrectfindingTwoviews.
Iftwoviewsarepossibleonapointoflawandoneofthealternativesisadoptedinitsprevious
order, it cannot be held that there is a mistake apparent from record on account of non
adoptionof theotherpossibleview.Unlesstherearemanifesterrorswhichareobvious,clear
and selfevident, the Tribunal cannot recall its previous order, in an attempt to rewrite the
order.(A.Y.200708)
M.Pochamma(Smt.)v.DCIT(2013)56SOT126(URO)(Hyd.)(Trib.)
S.254(2):AppellateTribunalPowertorecallorderMistakeapparentfromtherecord.
Where an error is far from self evident, it ceases to be an apparent error. It is no doubt true
that a mistake capable of being rectified under section 254(2) is not confined to clerical or
arithmetical mistakes. On the other hand, it does not cover any mistake which may be
discovered by a complicated process of investigation, argument or proof. A rectification
application can lie only with regard to an error on the face of the record, which has not
emerged from the material on record. Moreover the assessee has not been able to point out
any apparent mistake in the order passed by the Tribunal and in case application of the
assesseeisaccepted,itwouldtantamounttoreviewofthe orderoftheTribunal,whichisnot
permissible.(A.Y.199798)
PushpaAgarwal(Smt.)v.ITO(2013)56SOT128(URO)(Delhi)(Trib.)
S.254(2):AppellateTribunalMistakeapparentfromtherecordRectification.
Recallingtheentireorderobviouslywouldmeanpassingofafreshorder.Thatdoesnotappear
tobethelegislativeintent.Thescopeandambitofapplicationofsection254(2)isrestrictedto
rectification of mistakes apparent from the record. Recalling of an order automatically
necessitates rehearing and readjudication of the entire subjectmatter of appeal. The dispute
nolongerremainsrestrictedtoanymistakesoughttoberectified.(A.Y.200506)
377
SyndicateRealtorsv.ITO(2013)56SOT123(URO)(Hyd.)(Trib.)
S.254(2):AppellateTribunalRectificationofmistakeMiscalculationofnumberofassessmentyearsfor
deductionundersection10B.[S.10B]
Tribunal inadvertently miscalculating number of assessment years for which exemption available.
Mistaketoberectified.Changeofyeargoestorootoforder.Earlierorderrecalled.(A.Y.20042005)
ACITv.QmaxTestEquipmentsP.Ltd.(2013)23ITR187(Chennai)(Trib.)
S.255:AppellateTribunalBindingprecedentSpecialbenchSuspensionbyHighCourt
DeductionatsourceSpecialBenchverdictbindingdespitesuspensionbyHighCourt.(S.40(a)
(ia),194C)
TheassesseepaiddumperhirechargesofRs.36.37lakhsandclaimeditasadeduction.TheAO
disallowed the claim u/s 40(a) (ia) on the ground that the assessee had not deducted TDS
thereonu/s194C.BeforetheTribunal,theassesseearguedthatitwasnotliabletodeductTDS
u/s194Castherewasonlynocontractualagreement.Inthealternative,itwasarguedthatin
accordance with the Special Bench judgement in Merilyn Shipping& Transports v. Add. CIT
(2012) 136 ITD 23 (SB), the disallowance u/s 40(a) (ia) had to be confined to the amounts
payableasattheendoftheyearanditdidnotapplytotheamountsalreadypaidduringthe
year. The assessee also argued that though the Andhra Pradesh High Court had granted an
interimsuspensionagainstthesaidjudgementoftheSpecialBench,itwasstillbinding.Held
bytheTribunal:
Theargumentthats.194Cdoesnotapplyintheabsenceofawrittencontractualagreementis
not acceptable. Even a verbal contract is sufficient. As regards the judgement of the Special
Bench in Merilyn Shipping& Transports v Add. CIT (2012) 136 ITD 23 (SB) where the view was
taken that s. 40(a) (ia) can apply only to the amounts remaining payable as at the end of the
year and not to the amounts paid during theyear,though the AndhraPradesh High Court has
granted interim suspension of the said judgement, the said stay/ suspension applies only to
thepartiestothatproceedinganddoesnotdestroythebindingeffectofthejudgementofthe
SpecialBench.Thereisadifferencebetweenstayofoperationofanorderandquashingof
anorder.While,inthecaseofaquashing,theorderofthelowercourtceasestoexist,inthe
case of a stay, the order of the lower court continues to operate and have binding effect.
Accordingly,thejudgementoftheSpecialBenchinMerilynShippingstillholdsgroundandthe
TDS provisions will apply, for purposes of invocation of s. 40(a) (ia), only on the amounts
remaining payable at the end of the year and not on the amounts paid (Shree Chamund
MopedsLtd.vs.ChurchofSouthIndiaTrustAssociationAIR1992SC1439,1444&PijushKanti
Chowdhuryvs.StateofWestBengal2007(3)CHN178followed).(A.Y.200708)
ITOv.MGBTransport(2013)23ITR391(Kol.)(Trib.)
S.260A:AppealHigh CourtRevisionAfter giving effect Order of High Court would prevail

over all orders that were passed by different authorities and notwithstanding all those
orders,AssessingOfficerwouldreframeassessment.[S.143(3),254(1),263]
378
Revenue passed first assessment order against which appeal was filed before Commissioner
(Appeals). In meantime, there wasa revision of assessment and a fresh assessment order was
passed. This order was set aside by Tribunal against which revenue preferred appeal before
High Court. During pendency of that appeal, first assessment order was set aside by
Commissioner (Appeals) and thereafter by Tribunal on 1812012. On other hand, in appeal in
revisional matter, High Court remanded matter back to assessing authority to reconsider all
issues and directed to pass a fresh order of assessment. In respect of original assessment,
revenue filed an appeal before High Court against Tribunal's order. The Court held that the
orderofHighCourtwouldprevailoverallordersthatwerepassedbydifferentauthoritiesand
notwithstandingallthoseorders,AssessingOfficerwouldreframeassessment.
DCITv.S.Madhava(HUF)(2013)214Taxman87(Mag.)(Karn.)(HC)
S.26OA:AppealHighCourtCommissioner,remandingtheproceedingsnoquestionoflaw.[S.
263]
TheCommissionerafterrecordingcogentreasonsfoundthattheorderpassedbytheAssessing
Officer was erroneous and also prejudicial to the interest of the revenue. He was, therefore,
entitled to exercise revisional powers under S. 263. While doing so, he remanded the
proceedings before the Assessing Officer for full inquiry and fresh consideration. He had not
given any specific directions to consider the issue in a particular manner. In any case, the
Tribunalfurtherclarifiedthisissueintheimpugnedorder.Therefore,noquestionoflawarises
forconsideration.(A.Y.200607)
AdaniAgro(P.)Ltd.v.DCIT(2013)214Taxman138(Mag.)(Guj.)(HC)
S.260A:AppealHighCourtMonetaryceilinglimitsApplicabletopendingcases.
When clause 11 of Instruction No. 3 of 2011, dated February 9, 2011, specifically says that it will be
applicabletothecasesfiledonorafterFebruary9,2011,tosaythatitisapplicabletopendingcasesis
against the provisions under section 268A, public interest and the public policy. Therefore, Instruction
No. 3, dated February 9, 2011, has no retrospective effect and the appeal filed by the Revenue was
maintainable.(A.Y.199293)
CITv.B.Sumangaladevi(Smt.)(2013)352ITR143(Karn.)(HC)
S.260A:AppealHigh CourtMonetary ceiling limitsInstruction No. 3 of 2011, dated February 9, 2011
raisingmonetarylimits,whetherretrospective.
ADivisionBenchoftheKarnatakaHighCourtinCITv.RankaandRanka[2013]352ITR121(Karn)took
the view that Instruction No. 3, dated February 9, 2011, issued by the CBDT enhancing the monetary
limitsforappealsbytheDepartmentisapplicabletopendingcasesalsoandthishadbeenfollowedby
the court in several subsequent decisions. The judgment in Ranka and Ranka had been made the
subjectmatter of the appeal before the Supreme Court and in many appeals. Held accordingly,
dismissingtheappeal,thatlibertywasgiventotheRevenuetorevivetheappealintheeventofsuccess
intheirappealbeforetheSupremeCourt.
CITv.SpiceTelecom(2013)352ITR151(Karn.)(HC)
S.260A:Appeal High Court Territorial jurisdictionCause of actionPart of cause action writ is
maintainableinthatparticularStateHighCourt.[Art.226].
379
EvenifpartofthecauseofactionhasarisenintermsofArticle226(2)oftheConstitution,thepetition
would be maintainable, in State of Gujarat and High Court of Gujarat had jurisdiction to entertain
instantwritpetition.
LKSBullionImport&Export(P.)Ltd.v.DGIT(2013)214Taxman68/88DTR95(Guj.)(HC)
S.260A:AppealHighCourtSubstantialquestionoflawDisallowanceofdepreciationand
interest.(S.32,36(1)(iii))
Groundsrelatedtothemattersofappreciationofevidenceforafactualenquiryandrendering
of findings on facts about the factory building construction. CIT (A) and Tribunal had deleted
disallowance on account of depreciation on building and interest expenses observing that no
defectswerepointedoutinthebooks. Itwas notacasewhereassesseehadshownexcessive
valuationofbuilding.Impugnedordersdidnotsufferfromanyperversityorwrongapplication
ofanyprincipleoflaw.(A.Y.200506)
CITv.BohraIndustriesLtd.(2013)83DTR113(Raj.)(HC)
S.260A:AppealHighCourtMonetarylimitCircular:Depttoshowwhyappealshouldnotbe
dismissed.
ThedepartmentfiledanappealbeforetheTribunal.TheTribunaldismissedtheappealonthe
ground that the tax involved in the appeal was less than the monetary limit of Rs. 3 lakhs
prescribed in CBDT Instruction No.3/2011 dated 9.2.2011. The Tribunal followed CIT v
Madhukar Inamdar (HUF) (2009) 318 ITR 149 (Bom) where it was held that the CBDT
Instructions fixing monetary limit for filing an appeal to the Tribunal would apply even to
pendingcases.TheDepartmentthenfiledaMAbeforetheTribunalpointingoutthatinCIT v.
SuryaHerbaltheSupremeCourthadheldthattheCBDTInstructionNo.3/2011wouldnotapply
ipso facto and would not apply where the matter has cascading effect or raises a common
principleinvolvingalargenumberofmatters.TheTribunaldismissedtheMA.Onappealbythe
departmenttotheHighCourt,HELDdismissingtheappeal:
The grievance of the Revenue is that the Tribunal ought to have entertained the appeal by
following the decision of the Apex Court in the matter of Surya Herbal Ltd. However, the
revenue has not been able to point out before us any of circumstance as laid down by the
SupremeCourtinthematterofSuryaHerbalLtdbeingapplicabletothiscasewhichwouldlead
to nonapplication of CBDT instructions No.3/2011. In the above circumstances, we see no
reasontoentertaintheproposedquestionoflaw(itwasalsoheldfollowingChemAmitv.ACIT
(2005) 272 ITR 397(Bom) (HC) that an appeal u/s 260A cannot be filed to challenge an order
dismissingaMA)
CITv.SevakPharmaPvt.Ltd(Bom.)(HighCourt)www.itatonline.org.
S.260A:AppealHigh CourtConstitutional validity High Court in appeal cannotdetermine

constitutionalvalidityofamendment,itisbeyondscopeofjurisdictionundersection260A.
Basedonretrospectiveamendmentofsection80HHC,assessee'sassessmentwasreopenedto
disallow deduction in respect of profit on sale of DEPB.Tribunal upheld reopening of
assessment. On appeal to High Court, assessee took ground that retrospective amendment of
section 80HHC had been struck down by Gujarat High Court ,by following or dissenting from
380
judgmentofHighCourtofGujarat,TheCourtheldthatTribunalcouldnotconsidervalidityofa
retrospective amendment, such question could not arise from its order, thereforeinstant case
High Court would be determining constitutional validity of amendment; it would then be
stepping out of and beyond scope of jurisdiction under section 260A. High Court in appeal
cannotdetermineconstitutionalvalidityofamendment,itisbeyondscopeofjurisdictionunder
section260A.Infavourofrevenue(A.Y.200102,200304)
M.AbdulRehumanKunjuv.ACIT(2013)213Taxman11(Mag.)(Ker.)(HC)
S.260A:AppealHighCourtPleawhichwasnotraisedatanystage,couldnotberaisedforfirst
timebeforeCourt.(S.263,292BB)
Notice had been issued under signature of Incometax (Technical), whereas in view of
provisionsofpowersundersection263(1),itwasonlyCommissionertoissuenotice.Inappeal
to High Court, revenue raised newplea that in view of provisions of section 292BB, it was not
openforassesseetoraiseanobjectionwithregardtoproceedingsinitiatedundersection263
ashehadparticipatedinproceedingsandtenderedhisreply.TheCourtheldthatpleascanbe
raised only out of judgment passed by Tribunal or other authorities, but plea which was not
raisedatanystage,asininstantcase,couldnotberaisedforfirsttimebeforeCourt,therefore,
appealagainstorderofTribunalfailed.(A.Y.200708)
CITv.RajeshKumarPandey(2013)213Taxman19(Mag.)(All)(HC)
S.260A:Appeal High Court Tax effectLess than 2 lakhsAppeal is not maintainable. (S.
268A).
Tribunalquashedreassessmentproceedingstobringgiftedamounttotaxforwantofmaterial.
Appeal against order of Tribunal involved tax effect of less than Rs. 2 lakh. Court held that
theappeal of revenue isnot maintainable as tax effect was lower than Rs. 2 lakh prescribed
under CBDT Instruction No. 1979 [F. No. 279/126/98IT], dated 2732000. Hencecase also did
notfallinexclusionaryclauseofsaidInstruction.(A.Y.200506)
CIT.v.SanjayKumarAgrawal(2013)212Taxman127(Mag.)(All)(HC)
S.260A:AppealHighCourtMonetarylimitsLessthantwolakhsappealwasdismissed.
Against common order of Tribunal, revenue filed an appeal under section 260A before High
Court,sinceininstantcasetaxeffectthatwasinvolvedwasnotmorethanRs.2lakhs,interms
ofBoard'sInstructionNo.2/2005,dated24102005saidappealwasliabletobedismissedon
questionofmaintainability.(A.Y.19992000,200001)
CITv.GolfViewHomesLtd.(2013)81DTR46/213Taxman8(Mag.)/255CTR176(Karn.)(HC)
S.260A:AppealHighCourtAppealGuidelinesforengagementofstandingcounselsCBDTgave
assurancetodotheneedful.
BeforetheCourttheCBDTMemberstatedthat,insofarasrevampingsystemandgivingbetter
assistancetoCourtwasconcerned,allnecessaryactionhadbeentaken;matteroffreshpanel
waspendingbeforeLawMinistry;admittedfeewasbeingpaidtostandingcounselsandarrears
of admitted fees would be cleared within next two months and disputed parameters to be
sorted by counsels themselves. Member assured court that there would be no laxity in
assistancerenderedtoCourtinfuture.
381
CITv.JacksonEngineersLtd.(2013)213Taxman10(Mag.)(Delhi)(HC))
S.260A:Appeal High Court Memorandum of appeal The question not relating to appeal
cannotbepermittedtobeagitated.
Against orders of Commissioner (Appeals), revenue preferred two appeals before Tribunal.
Assessee also preferred an appeal before Tribunal.Tribunal clubbed together all these appeals
and disposed of them by a common order. Against order of Tribunal, revenue preferred an
appealbeforeHighCourt.Duringpendencyofappeal,revenuealsofiledanapplicationseeking
for suitable amendment in memorandum of appeal so that instant appeal could be agitated
insofarasitrelatedtoorderpassedbyTribunalinappealofassesseeincommonorderpassed
by it. The Court held that allowing application of this nature and also to permit revenue to
agitate such question by further alteration of memorandum of appeal, etc., was not feasible
courseofactionatthispointoftime.Asitwasbarredbylimitation.Thequestionnotrelatingto
appealcannotbepermittedtoagitate.(A.Y.19992000,200001)
CITv.GolfViewHomesLtd.(2013)81DTR46/213Taxman8(Mag.)(Karn.)(HC)
S.260A:AppealHighCourtSubstantialquestionoflawMeaningPrincipleofconsistencyintax
matters.
Anappealundersection260AoftheIncometaxAct1961,willliebeforetheHighCourtifthe
appellantisabletosatisfytheCourtthatitinvolvesasubstantialquestionoflaw.Inordertobe
substantial, a question of law must be debatable, not previously settled under the law of the
land or binding precedent, and must have a material bearing on the decision of the case, if
answered either way,in so far as the rights of the parties before it are concerned. The High
Courtinexerciseofitssecondappellatejurisdictionshouldnormallyacceptallfindingsoffacts
recorded by the first appellate court, being forum of facts. Adequacy of materials or
possibilitiesofanotherviewonfacts,isnogroundforHighCourttoentertainasecondappeal.
The High Court can on factsinterfere only after it reaches the conclusion that, in view of the
materialsonrecord,nopersondulyinstructedinlawcanreachthatconclusion.
Dy.CITv.SulabhInternationalSocialServiceOrganisation(2013)350ITR189(Patna)(HC)
S.263:Commissioner Revision of orders prejudicial to revenueAssessing Officer failed to

makeprovisionfordisallowance,revisionofordersetasideofassessmentwasvalid.[S.14A]
The assessee earned exempt dividend income and interest income. It incurred interest
expenditure. It claimed that out of the interestpaid by it, a part of sum was paid towards the
nontaxable income. On the aforesaid basis, a total loss was computed. The Assessing Officer
had accepted said computation. The Commissioner noticed that the assessee contended that
itsownfundsaswellasborrowedfundshadbeendeployedforvariousactivitiesincludingthat
ofinvestmentinshares.However,theassesseehadnotgivenonetoonecorelationsbetween
thefundsavailableandthefundsdeployedandnoseparateaccountsweremaintainedforthe
purposes of taxable income and exempt income. He concluded that the Assessing Officer had
notdealtwiththeissueofdisallowanceofinterestunderS.14Aandtherefore,theassessment
order passed by him was clearly erroneous and prejudicial to the interest of the revenue and
directedfordisallowanceofentireinterestexpenditure.TheTribunalsetasidetheorderunder
382
S. 263. Held, the interference by the Commissioner was based on facts and not any change of
opinionandhence,theorderpassedbyTribunalwassetaside.
CITv.RKBKFiscalServices(P.)Ltd.(2013)214Taxman89(Mag.)/87DTR301(Cal.)(HC)
S.263:CommissionerRevisionofordersprejudicialtorevenueOmissionbyAssessingOfficer
ContingentliabilityProvisionforwarranty.
TheTribunalpointedoutthattheAssessingOfficerhadnotexaminedtheaspectwithregardto
theadmissibilityofacertainsumshownasprovisionforwarrantycost.Thenonconsideration
oromissionbytheAssessingOfficerhavingbeenfoundtobeerroneousandprejudicialtothe
interestsoftheRevenue,therewasnoreasontointerferewithsuchfactualfindings.Orderof
Tribunalconfirmingtherevisionwasupheld.(A.Y.200405)
RenownedAutoProductsMfrs.Ltd.v.ITO(2013)354ITR127(Mad.)(HC)
S.263: CommissionerRevision of orders prejudicial to revenue Circular contrary to the decision of

HighCourtsorSupremecourtistobeignoredbyjudicialfunctionsrevisionwasheldtobenotvalid.
[S.119]
IfanexistingcircularisinconflictwiththelawofthelandlaiddownbytheHighCourtsortheSupreme
Court,theRevenueauthoritieswhileactingquasijudicially,shouldignoresuchcircularsindischargeof
theirquasijudicialfunctions.
The sole reason for invocation of section 263 was a Board circular. Since the outcome of the original
orderofassessmentwasintunewiththeDivisionBenchdecisionsofthejurisdictionalcourt,theorder
ofrevisionwasheldinvalid.(A.Y.19981999)
BhartiaIndustriesLtdv.CIT(2013)353ITR486(Cal.)(HC)
S.263:CommissionerRevisionofordersprejudicialtorevenueExportWithoutreducingthe
profitsRevisionwasheldtobevalid.(S.80HHC,.80IA.)
Theassesseehadclaimeddeductionu/s80HHCandalsou/s80IAandthesamewasallowedby
the AO. The CIT while exercising his revisional powers u/s 263 held that assessment is
erroneous and prejudicial to the interest of the revenue, as the assessee while computing the
deduction u/s 80HHC, had not reduced the claim of deduction u/s 80IA from the profits and
gainsfromthebusiness,thereforerevisionbytheCITu/s263washeldtobevalid.(A.Y.2004
05)
CITv.AbhishekIndustriesLtd.(2013)255CTR504/82DTR1/213Taxman176(P&H)(HC)
S.263:Commissioner Revision of orders prejudicial to revenue Revision to make further

enquiryisheldtobenotvalid.
When, during course of framing of assessment, Assessing Officer had access to all records of
assessee,andafterperusingsaidrecords,heframedassessment,saidassessmentcouldnotbe
reopenedinexerciseofrevisionpowerundersection263formakingfurtherinquiries.
CIT.v.AmitCorpn.(2013)213Taxman19(Mag.)(Guj.)(HC)
S.263:Commissioner Revision of orders prejudicial to revenue Investment wasmade

beyondduedateRevisionoforderwasnotjustified.(S.54F,139(1),139(4))
383
Assesseefiledherreturnwhereinsheraisedaclaimfordeductionundersection54F.Assessing
Officer allowed assessee's claim. Commissioner passed a revisional order holding that
assessee'sclaimwaswronglyallowedbecauseshemadeinvestmentinnewhousebeyonddue
date prescribed under section 139(1).Tribunal set aside revisional order holding that
investmentwasmadewithintimespecifiedundersection139(4)relyingontheorderpassedin
caseofFatimaBaiv.ITO[2009]32DTR243(Kar.).Onappealbyrevenueitwascontendedthat
orderpassedinaforesaidcasewasincorrectand,thus,itcouldnotbeaccepted.Thecourtheld
thatiforderpassedinaforesaidcasewasincorrect,revenueshouldhavefiledanappealagainst
it; however, at any rate that would not be a ground for invoking section 263. The court held
thatTribunalwasjustifiedinsettingasiderevisionalorder.(A.Y.200607)
CIT.v.VrindaP.Issac(Smt)(2013)212Taxman101(Mag.)(Karn.)(HC)
S.263:CommissionerRevision of orders prejudicial to revenue Period of limitationOn facts

thelimitationtobecomputedfromthedateoforiginalorder.(S.68,80I)
In original assessment order dated 2831995, an addition under section 68 was made and
deduction under section 80I was granted on total income, inclusive of income under section
68.Grantofsuchdeductionwasnotquestionedbyrevenueatrelevanttime.Tribunalremitted
issue pertaining to addition under section 68 to Assessing Officer for reconsideration. In
remandproceedings,AssessingOfficeronceagainmadeadditionundersection68andgranted
deductionundersection80I.Invokingsection263,Commissionervideorderdated3032007,
set aside assessment order on ground that deduction under section 80I was wrongly
computed.TheTribunalsetasiderevisionorderongroundthattheproceedingsundersection
263wasbarredbylimitation.OnappealbyrevenuetheHighCourtheldthatremandproceeding
waslimitedtoadditionundersection68and,therefore,limitationquaissueofdeductionunder
section80Iwouldhavetobecomputedfromdateoforiginalassessmentorder,i.e.,2831995,
therefore,revisionorderdated3032007wastimebarred.(A.Y.199293)
ACIT.v.ModernCementIndustriesLtd.(2013)212Taxman135(Mag.)(Guj.)(HC)
S.263:Commissioner Revision of orders prejudicial to revenueAlternative remedyWrit

against the orderunder section 263 was held to be notvalid as an alternative remedyis
available.(S.43B,253(1)(c))
Assessee claimed deduction on account of payment of bonus for assessment year 199596.
Same was allowed under section 43B. Said claim had also been allowed in preceding
assessment year 199495 Rectification proceedings were initiated but subsequently dropped
Commissionerinvokedsection263anddirectedAssessingOfficerforrecomputation.Assessee
filed writ petition alleging that there was jurisdictional error in invoking section 263.Single
Judge held that order passed by Commissioner was without jurisdiction.On writ appealit was
heldthatsinglejudgewasnotjustifiedininterferingwiththeorderoftheCommissionerpassed
undersection263,remedyofappealundersection253(1)(c)wasavailabletoit.Therefore,writ
petition ought not to be entertained and Single Judge was not justified in interfering with
revisionalorder.Infavourofrevenue.(A.Y.199596)
CITv.B&APlantationandIndustriesLtd.(2013)212Taxman137(Mag.)(Gau.)(HC)
384
S.263:Commissioner Revision of orders prejudicial to revenue Error of Assessing Officer
shouldbe"unsustainable"Disallowanceundersection14A,debatable,hencerevisionheldto
benotwarranted.(S.10(33),14)
Whether the deduction under section 14A was warranted,was a debatable fact. In any event,
even if it were not debatable, the error by the Assessing Officer was not "unsustainable".
Possibly he could have taken another view; yet, that he did not do so, would not render his
opinionanunsustainableone,warrantingexerciseofsection263.(A.Y.20022003)
CITv.DLFLtd.(2013)350ITR555/214Taxman91(Mag.)(Delhi)(HC)
S.263:CommissionerRevision of order prejudicial to revenueNonresidents Mineral oil,

businessforprospecting/exploration,etc.(S.44BB)
Where Assessing Officer did not analyse as to whether payment received by assessee was in
respectofservicesrenderedorfacilitiesprovidedinconnectionwithprospectingforextraction
orproductionofmineraloilsoritwasreceivedonlybywayofsalepriceofgoods/materialssold
by assessee, may be outside India and, thus, there was failure on part of Assessing Officer to
ascertain whether said revenue would or could come under provisions of section 44BB,
Commissioner rightly revised said order under section 263.Appeal of assessee was dismissed.
(A.Y.200607)]
MIOverseasLtd.v.DIT(IT)[2013]212Taxman190(Uttarakhand)(HC)
S.263:CommissionerRevisionoforderprejudicialtorevenueBusinessexpenditureCapital
orrevenueRevisionheldtobenotjustified.
Assesseepaidcertainamounttowardsregulatoryfeeandstampdutyandclaimeddeductionof
same as a revenue expenditure. Assessing Officer allowed claim of deduction. Commissioner
issued on assessee a notice under section 263 stating that license fee, loan arrangement
chargesandstampdutywerecapitalexpenditure.AssessingOfficerbeforepassingassessment
order made an enquiryand directed his mind on all aspects. View adopted by him was clearly
one among two plausible views that could havebeen taken. Commissioner did notspecifically
furnish any reasons to say why original assessment order was unsupportable in
law.Commissioner could not have validly exercised his revisionary power under section 263 in
instantcase.(A.Y.200405)
CITv.VodafoneEssarSouthLtd.(2013)212Taxman184(Delhi)(HC)
S.263:CommissionerRevisionofordersprejudicialtorevenueCapitalgainsInvestmentina
residentialhouse.[S.54F.]
Assessee was deriving income from dealing in property transactions. Assessee had claimed
LTCG and had also claimed benefit of section 54F. Assessment was completed under section
143(3).Commissioneroftheviewthatassesseewasengagedinbusinessofsaleandpurchase
of properties, concluded that he could not claim benefit of deduction under section
54F.AccordinglysetasideorderoftheAssessingOfficer.OnappealtheTribunalheldthateven
though assessees main source of income was sale and purchase of plots/land, yet it did not
mean that assessee could not purchase and hold some plots as capital asset and claim
exemptionundersection54Fontheirsale.MoreoverinviewofthefactthatAssessingOfficer
385
had made proper enquiries in this regard and he had taken possible views, accordingly
impugnedrevisionalorderpassedbycommissionerwasnotsustainable.(A.Y.200607)
SunilBhandariv.ACIT(2013)141ITD10/154TTJ751(Jodhpur)(Trib.)
S.263:Commissioner Revision of orders prejudicial to revenue AOPHousing project

Merger.[S.80IB(10)]
AssesseeisanAOP.Itclaimeddeductionundersection80IB(10)whichwasdisallowedbythe
Assessing Officer.On appeal it was allowed by the Commissioner (Appeals) and Tribunal. The
matter was remanded back to the Assessing Officer to give effect to the appellate order.
Assessing Officer passed the order allowing the claim of assessee. Commissioner passed the
revision order under section 163 setting aside the assessment on ground that profits of the
assesseeAOP were not distributed between the members in accordance with terms of
agreement which resulted in excess allowance of deduction claimed under section
80IB(10).Before tribunal it was contended that manner in which the AOP distributes its profit
has no bearing over eligible quantum of deduction under section 80IB(10) as the eligible
quantumwillbegrossreceiptsfromtheprojectreducedbyexpensesincurredontheproject.It
was also contended that once deduction under section 80IB(10) was subject matter of appeal
before Commissioner (Appeals), it covered all aspects of the matter relating to deductions
under section 80IB(10) and the order of Assessing Officer on that issue had merged with the
order of Commissioner (Appeals),therefore according to clause (c) of Explanation to section
263(1) the Commissioner was debarred from exercising jurisdiction under section 263 as the
subjectmatteroftheappealwasdeductionundersection80IB(10).Tribunalheldthatonmerit
as well as on merger, power under section 263 has been wrongly invoked. Appeal of assessee
wasallowed.(A.Y.200708)
FortalezaDevelopersv.CIT(2013)141ITD133(Mum.)(Trib.)
S.263:CommissionerRevision of orders prejudicial to revenue Avoidance of taxTransfer

pricingTransfer pricing provisions do not apply (i) to an investment in share capital of
overseascompanies&(ii)totransactionswherenoincomehasarisen.[S.92B,92C]
The assessee invested Rs. 21 crores in the share capital of its overseas subsidiaries. The AO
completedtheassessmentwithoutmakinganytransferpricingadjustment.TheCITrevisedthe
assessment u/s.263 on the ground that the transaction was an international transaction u/s
92B and that the AO ought to have referred the matter to the TPO to determine whether the
investments were made at arms length. The assessee filed an appeal before the Tribunal in
which it argued (i) that an investment in the share capital of another company was not an
international transaction u/s 92B and (ii) as there was no income, the transfer pricing
provisionsdidnotapply.HELDbytheTribunalupholdingtheplea:
AnamountpaidforinvestmentinsharecapitalofsubsidiariesoutsideIndiaisnotinthenature
of an international transaction as defined in S.92B. Transfer pricing provisions are not
applicable to transactions where there is no income (Circular No. 14, dated 22/11/2011, Dana
Corporation(2010)321ITR178(AAR)&AmiantitInternationalHoldingLtd.(2010)322ITR678
(AAR)referred)(A.Y.200708)
VijaiElectricalsLtd.v.ACIT(Hyd.)(Trib.)www.itatonline.org
386
S.263:CommissionerRevision of ordersTwin conditions to be satisfiedAssessing Officer not
discussingallowabilityordisallowanceofdeductionsRevisionheldtobejustified.(S.80IB)
TheCommissionerhastobesatisfiedoftwinconditionsviz.,(i)theordersoughttoberevisedis
erroneous; and (ii) it is prejudicial to the interests of the Revenue, for invoking section 263. If
one of this is absent, revision cannot be made. The claim of the assessee under section 80
IB(7B)wasallowedthoughtheassesseehadnotmaintainedseparatebooksofaccountforthe
business of convention centre. The Assessing Officer has not discussed the allowability or
disallowanceofthesedeductionsandhisorderwassilentontheseaspects.Thus,theorderof
the Assessing Officer was erroneous in so far as it was prejudicial to the interests of the
Revenue.Tothatextent,theCommissioner'sactioninexercisingjurisdictionundersection263
of the Act was justified. With reference to disallowance of additional depreciation claimed by
the assessee on plant and machinery under section 32(1)(iia) of the Act the assessee, having
not challenged this issue before the Commissioner, could not reargue the issue before the
TribunalafterconcedingbeforetheCommissioner.
Nonmaintenance of separate books of account for convention centre itself could not be a
reason for rejecting outright the claim under section 80IB of the Act. In that event also the
deduction under section 80IB(7B) could be granted to the assessee in proportion to the
turnovertoprofitoftheconventionhall;theassessee'sclaimundersection80IB(7B)couldnot
bedeniedbytheCommissioner.(A.Y.20062007)
LeoMeridianInfrastructureProjectsandHotelsLtd.v.Dy.CIT(2013)24ITR123(Hyd.)(Trib.)
S.263:CommissionerRevision of orders prejudicial to revenue Order passed without application of

mindisliabletoberevised.[S.80IA]
Assessing Officer accepting nil return of assessee and allowing claim to deduction under section 80IA
withoutenquirywhetherassesseefulfilledconditionsforeligibility.Tribunalheldrevisionisvalid.(A.Y.
20052006)
VodafoneEssarLtd.v.CIT(2013)23ITR147/153TTJ451/85DTR337(Chandigarh)(Trib.)
S.263:CommissionerRevisionofordersprejudicialtorevenueCapitalorrevenue.
Revision on ground that expenses incurred by assessee capital in nature. Finding of the Assessing
Officer was that expenses were revenue in nature. Tribunal held that assessment order was not
erroneous.Orderofrevisiontobesetaside..(A.Y.20062007)
StarMusicv.Dy.CIT(2013)22ITR700(Chennai)(Trib.)
S.263:CommissionerRevisionoforderprejudicialtorevenueBusinessexpenditureDeduction
atsourceFailurebyAssessingOfficertomakeenquiryinrespectofpaymentsliabletotax
deductionatsource,revisionisheldtobejustified.(S.40(a)(ia),194J194H)
The assessee is a telecommunications service provider. The Assessing Officer, inter alia, made
twodisallowancesundersection40(a)(ia)oftheIncometaxAct,1961onthegroundoffailure
by the assessee to deduct tax at source on the payments: free airtime to distributors in the
natureofcommissionexpensesliabletodeductiontaxatsourceundersection194HoftheAct,
387
and roaming charges paid to other operators in the nature of fees for technical services liable
for deduction of tax at source under section 194J of the Act. On the basis that the nature of
business of the assessee was the same for the assessment year 200708 also and that the
assessee had not deducted tax at source on the free airtime allowed to distributors under
section 194H of the Act or on the roaming and interconnection charges under section 194J of
theAct,theCommissionerissuednoticeofrevisionundersection263totheassessee,setaside
the assessment for that year and directed the Assessing Officer to examine the case afresh in
respect of these two issues and after giving proper opportunity to the assessee and pass a
speakingorder.Onappeal:Held,dismissingtheappeal,(i)thattheissueofdisallowanceoffree
airtime to distributors under section 40(a) (ia) of the Act had not been examined by the
AssessingOfficerinthecourseofassessmentproceedingsfortheassessmentyear200708.No
referencetheretowasthereintheassessmentorder.TheAssessingOfficerhadnotissuedany
queryinthisregardorobtainednecessarydetails.Hence,itcouldnotbesaidthattheAssessing
Officerhadappliedoneofthetwoviewspossible.(ii)Thatontheissueofroamingchargespaid
thefactthatcertaintaxdeductibleatsourcehadnotbeensodeductedwasclearlyprejudicial
to the Revenue. That something was available in the balancesheet, profit and loss account or
books of accounts could not lead to the conclusion that the Assessing Officer had applied his
mind.TherewasnodiscussionbytheAssessingOfficeronthesesubjects,norhadtheAssessing
Officer made any enquiry on these subjects. The Assessing Officer had mechanically accepted
whattheassesseewantedhimtoacceptwithoutanyapplicationofmindorenquiry.Similarly,
noevidencehadbeenplacedthattheclaimmadebytheassesseewasobjectivelyexaminedor
consideredbytheAssessingOfficereitheronrecordorintheassessmentorder.TheAssessing
Officer had completely omitted the issue in question from consideration and made the
assessmentinanarbitrarymanner.Hence,itwasafitcasefortheCommissionertoexercisehis
revisionaljurisdictionundersection263.Appealofassesseewasdismissed.(A.Y.20072008)
BhartiHexacomLtd.v.CIT(2013)21ITR648(Delhi)(Trib.)
S.263:CommissionerRevisionofordersprejudicialtorevenueTransferpricingCommissioner
has no jurisdiction over TPO administratively and, therefore, Commissioner cannot revise
orderpassedbyTPOundersection92CA(3).(S.92CA)
AssesseesoldsharestoitsAElocatedabroad.Intransferpricingproceedings,TPOdetermined
ALP of share transactions at a higher amount. He thus passed an order under section 92CA(3)
proposing certain adjustments. Assessing Officer passed assessment order accepting addition
proposed by TPO. Subsequently, TPO made a proposal that order passed by him contained
some computation errors and, thus, same be rectified. Commissioner passed an order under
section263revisingassessmentorder.Itwas,however,undisputedthattherewasnoerrorin
assessment order because Assessing Officer had proceeded to compute total income under
section92CA(4)inconformitywithALPdeterminedbyTPO.Tribunalheldthatwheretwoviews
are possible and the TPO has taken one possible view the proceedings under section 263
cannot be invoked. Even otherwise, in this case instead of initiating proposal on TPO order as
suggested,theCommissionerinitiatedtheproceedingsunderAssessingOfficer'sorderwhichis
not erroneous or prejudicial to the interests of the revenue, as Assessing Officer sincerely
followedthemandateofprovisionsofsection92CAinproceedingtocomputethetotalincome
undersubsection(4)ofsection92CAinconformitywiththearmslengthpricesodetermined
388
bytheTPO.Astheprovisionsofsection92CA(4)havebeenamendedwitheffectfrom162007
which used the word "shall" Assessing Officer is bound to follow the TPO's order determined
undersubsection(3).Accordingly,thereisnoerrorintheorderofAssessingOfficersothatit
can be considered as erroneous and prejudicial to the interests of the revenue. In view of
above,theimpugnedrevisionalorderpassedundersection263hastobesetaside.(A.Y.2005
06)
EssarSteelLtd.v.Add.CIT(2013)55SOT1(URO)(Mum.)(Trib.)
S.263:CommissionerRevisionofordersprejudicialtorevenueCommissiontovariousparties
Matterremandedforverification.
Assessee paid commission to different parties to tune of Rs. 4.19 crores. Assessing Officer
accepted claim of payment of commission by placing reliance only on confirmation letters
issued by payees without gathering any information regarding genuineness of payments and
evidence to suggest nature of services rendered by these parties. Commissioner revised the
orderundersection263.OnappealbyrevenuetheTribunalheldthatitwasincumbentonpart
of Assessing Officer to come to independent conclusion that payments were commensurate
withnatureofservicesrenderedbypartiesasmereconfirmationlettersthemselvescouldnot
prove genuineness of payments and nature of services rendered ; therefore, it would be
appropriate to remit entire issue back to file of Assessing Officer to carry further enquiry and
examineissuethoroughly.Matterremanded.(A.Y.200708)
SunMineralsv.Add.CIT(2013)55SOT54(Hyd.)(Trib.)
S.263:Commissioner Revision of orders prejudicial to revenue Penalty Settingaside

assessmentfordenovoconsiderationwasheldtobenotvalid.(S.271(1)(C).
Assesseeclaimed100percentdepreciationoncenteringmaterial.AssessingOfficerfoundthat
centeringmaterialfellunderhead'Plantandmachinery'onwhich15percentdepreciationwas
admissible. Accordingly, he disallowed excess depreciation and made addition. In revision,
CommissionerfoundthatAssessingOfficerhadnotleviedpenaltyundersection271(1)(c).He,
setasideassessment.TribunalheldthatCommissionerhasauthoritytoinitiateandlevypenalty
under section 271 (1) (c) and justification of imposition of penalty should be decided by him.
Therefore,therewasnonecessitytosetasideassessmentfordenovoconsideration.(A.Y.2006
07)
S.Anitha(Smt)v.CIT(2013)55SOT88(URO)(Bang.)(Trib.)
S.263:Commissioner Revision of order prejudicial to revenue Capital gains Exemption

Investment in bonds Beyond Prescribed time limit As no evidence to justify the delay,
orderundersection263washeldtobejustified.(S.54EC.)
Assessee sold agricultural landon 1012006 and invested the sale consideration in Rural
Electrification Corporation Ltd. bondson 2712007 which is beyond the prescribed time limit.
The assessee claimed exemption u/s.54EC. The claim was allowed by the Assessing
Officerundersection143(3).Commissionerundersection263directedtheAssessingOfficerto
disallow the claim. The Assessee filed an appeal before the Tribunal.The assessee submitted
that delay was due to unavailability of applied forms. However, it was held that there was no
evidence toshow that assessee had applied forbonds but due to theirunavailability, failed to
389
invest within time. The Tribunal also held that it could be accepted that the timelimit for
investment extended by Notification up to 31122006 canbe stretched up to 27012007by
exercising jurisdiction under the Act. Hence, in the view of above stated legal position
withdrawal of exemption u/s 54EC by commission was justified. Note: Notification No.S.O.
2146(E)dated22/12/2006.(A.Y.200607)
AnuradhaVenkatesan(Smt)v.ITO(2013)140ITD421(Chennai)(Trib.)
S.263:Commissioner Revision of orders prejudicial to revenue Lack of proper enquiry

cannotbethegroundforrevision.(S.43(5))
TheCITinvokedtheprovisionofsection263onthegroundthattheAssessingOfficeraccepted
the long term capital gain shown by the assessee without making sufficient enquiries. The
Tribunal found that in the Asst. Years 199596, 199697, 200102, 200203, 200304, 200506
and200607,theclaimedinvestmentandthecapitalgainclaimedthereonhavebeenaccepted
by the Assessing Officer or at the appellate stage. Even in the future Asst. Years 200809 and
200910theAssessingOfficerhasacceptedtheclaimoflongtermcapitalgainaswellasshort
term capital gain in assessment orders framed under section 143(3) of the Act. The Tribunal
followedthedecisionofHonbleBombayHighCourtinthecaseofCITvs.GabrielIndia(1993)
114 CTR 81 (Bom.) and held that the assessment order was not erroneous as the Assessing
Officer has accepted the claimed long term capital gain and loss in derivative trading after
conducting inquiry thereto and thus the assessment order cannot be held erroneous and thus
alsoprejudicialtotheinterestofrevenue.(A.Y.200708)
HBStockHoldingsLtd.v.CIT(2013)152TTJ451/83DTR210(Delhi)(Trib.)
S.263: Commissioner Revision of orders prejudicial to revenue Lack of proper enquiry

MatterremandedtoCommissioner.
AOdidnot enquireaboutthegenuinenessand reasonablenessofthe paymentofcommission
andsyndicationfees.Heneitherenquiredabouttheguaranteefeespaidbytheassesseetotwo
companies. The assessment order was erroneous and prejudicial to the interests of the
revenue.However,CITalsodidnotconsiderthemeritsoftheobjectionsraisedbytheassessee
totheshowcausenotice,matterisremandedtoCITforadjudicationandtorecordhisfindings
ontheobjectionsoftheassessee.(A.Y.200607)
ReligareFinvestLtd.v.CIT(2013)83DTR315/152TTJ647(Delhi)(Trib.)
S.263:CommissionerRevisionofordersprejudicialtointerestofrevenueNoapplicationof
mindbytheAOatthetimeofassessmentAnorderwithoutapplicationofmindisdefinitely
prejudicialtotheinterestofrevenue.(S.36(1)(viia).)
The assessee claimed provision made for standard assets also as a provision for bad and
doubtfuldebtsundersection36(1)(viia).AssessingOfficerallowedthedeductionundersection
36(1)(viia).CITinitiatedproceedingsundersection263oftheAct.AsperCIT,theprovisionfor
standardassetscouldnotbeconsideredasprovisionforbadanddoubtfuldebtswhichcouldbe
allowed under section 36(1) (viia) of the Act. Before the Tribunal the assessee submitted that
AssessingOfficerhastakenalawfulviewandtherefore,CITcouldnotsubstitutehisviewwith
that of Assessing Officer. The Tribunal upheld the revisional order passed by the CIT and
observed that there was no enquiry made during the course of assessment proceeding.
390
Therefore,theorderwhichwassilentontheclaimmadebyassessee,andallowingsuchclaim,
without any discussion will definitely render it erroneous and prejudicial to the interest of
revenue.TribunaldismissingtheappealfollowedthedecisionofApexCourtincaseofMalabar
IndustrialCo.Ltd.vs.CIT(2000)243ITR83(SC)(A.Y.200708).
BharatOverseasBankLtd.v.CIT(2013)152TTJ546/82DTR373(Chennai)(Trib.)
S.264:CommissionerRevisionofotherordersCondonationofdelayCommissioner(Appeals)
DoctrineofmergerOrderrejectingappealbyCommissioner(Appeals),furtherrevisionbefore
Commissionerisnotmaintainable.(S.264(4)(C))
TheassesseefiledanapplicationbeforetheCommissioner(Appeals)tocondonethedelay.He
declined to condone the delay and dismissed the appeal. Subsequently, the assessee filed a
revisionapplicationundersection264oftheAct,,andalongwithithealsofiledanapplication
tocondonethedelay.TheCommissionerrejectedtherevisionapplication.Intheorder,hehad
dealt with the maintainability of the revision, the tenability of the request for condonation of
delay and also the merits of the revision itself. On all these grounds, he decided against the
assessee. On a writ petitionby assessee, dismissing the petition,the Court held that the order
dismissingtheappealfiledbytheassesseewasanorderintheappealfiledbytheassessee.The
assessee had not waived his appellate right to maintain an application for revision under
section 264. Thus, the finding of the Commissioner that in view of section 264(4), the revision
filedbytheassesseewasnotmaintainable,hadtobeupheld.(A.Y.20002001)
K.H.Tradersv.CIT(2013)351ITR1/85DTR287/213Taxman41(Mag.)(Ker.)(HC)
S.264:CommissionerRevision of other ordersCondonationof delayDisputes between

partnersDelaywascondoned.
The assesseefirm is carrying on business in the export of walnuts and walnut Kernels. During
the relevant assessment year, it filed its return of income declaring loss of Rs. 3.8 crores. The
return was taken up for scrutiny by the Assessing Officer and several notices of hearing were
issued to the assessee. In absence of proper response, the Assessing Officer completed the
assessment under section 144 on 2822003. A revision petition under section 264 along with
an application before the Commissioner was filed for condonation of the delay. The
Commissioner held that the assessment order was delivered to the authorized representative
oftheassesseefirmon932004andevenallowingforthependencyoflitigationbetweenthe
partners before the High Court for rendition of partnership accounts and for partition of the
family business properties, the delay after February, 2005, when the consent decree was
passed by the Court, remained to be explained. He accordingly refused to condone the delay
and rejected the revision petitionin limine. On writ the court held that there was litigation
between partners of assesseefirm as well as litigations against assesseefirm. Authorised
representativeofassesseefirmwasactingonhisownand partnersoffirmwerenotawareof
passingofbestjudgmentassessmentorder.AssessingOfficerpassedbestjudgmentordereven
though he was aware of fact that assessee's books of account was in custody of Court
Commissioner. It was only when services of authorised representative were subsequently
terminated, partners of assesseefirm came to know about aforesaid proceedings and, then
theyfiledapplicationseekingcondonationofdelayimmediately.TheCourtheldthat,delayhad
to be viewed having regard to background of litigation between partners of assesseefirm
391
which ultimately resulted in consent decree and in view of above, it could be concluded that
there was sufficient cause for condoning delay in filing revision petition before Commissioner.
Infavourofassessee(A.Y.200001)
NarinderKumarv.CIT(2013)212Taxman105(Mag.)(Delhi)(HC)
S.264:CommissionerRevision of other ordersReasoned orderNatural justiceNonspeaking

orderofCommissionerrejectingtheapplicationwassetaside.
The Commissioner dismissed the petition of the petitioner on the ground that the petitioner
has an alternative remedy by filing an appeal. Petitioner filed writ petition against the said
order,thecourtheldthatitiswellsettledlawthatoneofthebasicprincipleofnaturaljusticeis
that the authority concerned must pass a speaking orderso as to enable a party to know the
reasons so as to why his applicationis beingaccepted or rejected. This giving of reasons also
ensuresdueapplicationofmindtothefactsbytheauthorityconcerned.Onfactsnonspeaking
order of Commissioner rejecting assessees application under section 264 was set aside. (A.Y.
200708)
UniversalPackaging&Orsv.CIT(2013)352ITR398/84DTR101/257CTR236(Bom.)(HC)
S.264:CommissionerRevision of other ordersCommissioner cannot dismiss revision

applicationmerelyongroundthatquantumissuehasnotattainedfinality.
Theassesseefortheassessmentyear200304byfilingthereturnofincomedeclaredlossofRs.
93,33,000.The Assessing Officer framed a scrutiny assessment under section 143(3) on 181
2006disallowingthereductionofRs.1,08,16,965.Healsoinitiatedpenaltyproceedingsunder
section271(1)(c).HealsopassedanorderimposingpenaltyofRs.1,19,25,702.Theassessee
challenged the said order of penalty before the Commissioner by filing revision application
under section 264. After condoning delay caused in filing such revision application, the
proceedings were taken up by the Commissioner for hearing. Before the Commissioner the
assessee had pointed out the quantum additions on the basis of which the penalty was
imposed were deleted. It had also come on record that against such appellate order the
department'sappealwasalsodismissedbytheTribunal.Turningdownsuchcontentionsofthe
assessee the Commissioner rejected the revision petition on two grounds, firstly, that the
questionofquantumadditionshadnotachievedfinality.AgainstthejudgmentoftheTribunal
confirming deletion of such quantum additions, the revenue had preferred further appeal
beforeHighCourtandsuchappealwaspending.SecondreasonwhytheCommissionerwasnot
inclinedtoentertaintherevisionpetitionwasthataccordingtohimrevisionproceedingswere
contemplated only to mitigate the situation faced by the assessee who is unable to approach
the appellate authority for relief. The Commissioner noted that the assessee had already
exercised his right of appeal before the appellate authorities. He could not claim relief under
section 264. On petition :The court held that (1).Section 264 nowhere provides than an
assessee can resort to such proceedings only when he is unable to approach appellate
authority,(2) Fact that assessee has preferred appeal against quantum additions will not
therefore, take away his right to file revision application. (3) Commissioner while deciding
revision petition must take into consideration prevailing order at that time. Therefore
Commissionercannotdismissrevisionapplicationmerelyongroundthatquantumissuehasnot
attainedfinality.Infavourofassessee.(A.Y.200304)
392
AryamanSpinners(P.)Ltd.v.CIT(2013)212Taxman102(Mag.)(Guj.)(HC)
S.268A:Appeal Low tax effectAssessing the nil income after set off of loss Dismissal of
appealwasnotproperthematterremandedtodecidetheissueonmerits.(S.253,260A)
Assessee filed return declaring nil income. Assessing Officer fixed total income of assessee at
Rs.1,76,32, 251. He further allowed setoff of business loss and unabsorbed depreciation to
tune of Rs.1,74,96,566 and eventually determined taxable income of assessee at Rs. 1,35,685.
Commissioner (Appeals) partly allowed appeal of assessee. Revenue challenged order of
Commissioner (Appeals) before Tribunal, which dismissed appeal on ground of low tax effect.
Revenue contended before High Court that notional tax effect in instant appeal exceeded
monetary limit prescribed by Board. The court held thatin view of judgment of Gujarat High
Court delivered in another appeal on identical question of law, Tribunal was wrong in
dismissing appeal of revenue on ground of low tax effect. Thereforematter deserved to be
remandedbacktoTribunalforreconsiderationonmerits.Matterremanded.(A.Y.200405)
CITv.SambhavMediaLtd.(2013)212Taxman129(Mag.)(Guj.)(HC)
S.268A:AppealHighcourtMonetarylimitsMatterreferredtolargerBench.(S.260A)
The Revenue filed appeal on 13102010 against Tribunal's judgment when the tax effect
involvedexceededRs.4laci.e.thresholdlimitasprovidedin"instructionsof2008".However,
as per "instructions of 2011", such limit was revised to "does not exceed Rs. 10 lac".The
assessee contended that though at the time of filing of the appeal the limits prescribed by
'instructions of 2008' were applicable but the revised limits contained in the 'instructions of
2011' should be applied when the appeal is taken up for hearing. In view of the conflicting
judgments,theHighCourtwasoftheviewthatissuerequiresconsiderationbyalargerBench
regarding applicability of 'instructions of 2011' prospectively or otherwise to all pending cases
filedearlier.MatterreferredtolargerBench.
CITv.ShambhubhaiMahadevAhir(2013)213Taxman179(Guj.)(HC)
S.269SS:DepositsloansModeofrepaymentPenaltywasdeleted.(S.269T,271D,271E)
Assessing Officer found that assesseehostel had accepted and repaid amounts of
loans/deposits otherwise than by cross cheques / drafts in contravention of provisions of
sections269SSand269T.Assesseecontendedthatsomeexpenditurewasincurredbyhostelor
schoolstudentsandamountwasreimbursedtohostelbymanagingtrusteeofschool,anditdid
notbecomeadepositorloangivenortakenbywayofcash.Itthereforecontendedthatthere
wasnocontraventionofprovisionsofsections269SSand269Tandtheywerenotliabletopay
penaltyundersections271Dand271E.AssessingOfficerdidnotacceptsubmissionofassessee
and imposed penalty under sections 271D and 271E, respectively. Since there was nothing on
recordtoshowthatabovetransactionswereattachedwithcertainconditionsorstipulationas
toperiodofrepayment,rateofinterest,mannerofpayment,etc.,soastotreattransactionsas
loanordeposits,penaltycouldnotbelevieduponassessee.Appealofrevenuewasdismissed.
ITOv.VSHostel(2013)212Taxman61(Mag.)(Guj.)(HC)
S.271(1)(c):PenaltyFurnishinginaccurateparticularsAssesseesclaimscaleddownLevyof
penaltywasnotjustified.[S.80IB]
393
Meremakingofaclaimwhichisultimatelyheldnottobesustainableinlaw,wouldnotamount
to furnishing inaccurate particulars regarding the income of an assessee. Where assessee's
claimsofdeductionunderS.80IBhadbeendownscaled.Itwouldnotmeanthatitisacaseof
furnishing inaccurate particulars of income. Furthermore, there was no finding in the penalty
order as to which part of the income, the assessee had concealed and with regard to which
particularfacetofincomehadtheassesseeprovidedinaccurateparticularsthereof.Therefore,
nopenaltycouldbelevied.(AY200304,200405)
CITv.JaksonLtd.(2013)214Taxman94(Delhi)(HC)
S.271(1)(c):Penalty Concealment Rejection of books of account, levy of penalty was not

justified.
TheAssessingOfficerimposedpenaltyontwocounts,firstly,additionsweremadeinincomeof
assesseeafterrejectionofbookresultsonbasisoffairgrossprofitrateand,secondlyassessee
had retained 3 per cent of sales tax with it. With respect to first aspect of penalty, Tribunal
opined that no penalty could be imposed merely because account books of assessee were
rejectedandthatprofitwasestimatedonbasisoffairgrossprofitratio.Asregardsretentionof
portion of sales tax, Tribunal stated that no evidence was brought on record to suggest that
assessee had retained a portion of sales tax with it and hence, deleted the penalty. Since the
order passed by Tribunal was based on appreciation of evidence on record, same did not
requireanyinterference.(A.Y.200102)
CITv.WhiteleneChemicals(2013)214Taxman93(Mag.)(Guj.)(HC)
S.271(1)(c):PenaltyConcealmentWrongclaimLevyofpenaltywasnotjustified.[S.80IA]
Duringassessmentproceedings,theAssessingOfficeropinedthatassesseehadraisedawrong
claim of deduction under S. 80IA. He, thus, rejected the assessee's claim and also passed a
penalty order under S. 271(1)(c).The Commissioner (Appeals) as well as Tribunal took a view
that issue relating to deduction under S. 80It was squarely covered in favour of assessee in
viewofthedecisionoftheApexCourtincaseofCITv.ReliancePetroproducts(P.)Ltd.[2010]
322ITR158.Hence,theimpugnedpenaltyorderwassetaside.
S.271(1)(c):PenaltyConcealmentFor not offering capital gains on S.50C stamp duty value

Concealmentpenaltycannotbelevied.[S.50C]
The assessee sold property for a consideration of Rs. 2.50 crore. However, for the purpose of
stampduty,thepropertywasvaluedatRs.5.19croreandstampdutywaspaidonthatvalue.
The assessee offered capital gains on the basis that the sale consideration was Rs. 2.50 crore.
TheAOinvokedS.50CandheldthatthesaleconsiderationhadtobetakenatRs.5.19croreand
capitalgainscomputedonthatbasis.TheAOimposedpenaltyu/s271(1)(c)whichwasdeleted
by the CIT(A) and the Tribunal by relying onRenu Hingorani. On appeal by the department to
theHighCourt,HELDdismissingtheappeal.
Though the assessee could have disputed the valuation on the basis of the deemed value and
chosenottodoso,thefactremainsthattheactualamountreceivedwasofferedfortaxation.It
isonlyonthebasisofthedeemedconsiderationthattheproceedingsu/s.271(1)(c)started.The
revenue has failed to produce any iota of evidence that the assessee actually received one
394
paisemorethantheamountshowntohavebeenreceivedbyhim.Assuch,thereisnoscopeto
admittheappeal.
CITv.MadanTheatres(2013)88DTR217(Cal.)(HC)
S.271(1)(c):PenaltyConcealmentBogus purchasesStatement of seller denying the salesPenalty
heldtobevalid.
Theseller,inhisswornstatement,hadstatedthathehadnotmadeanysalesandhadgivenonlybillsto
theassessee.Theassesseehadalsonotchosentocrossexaminetheseller.TheTribunalaswellasthe
appellate authority had not controverted or distinguished this fact by relying on any statement or
material documents produced by the assessee. Therefore, the levy of penalty was valid. (A.Ys. 2000
2001,20012002)
CITv.MahaveerMirrorIndustriesP.Ltd.(2013)353ITR553(Mad.)(HC)
S.271(1)(c):PenaltyConcealmentMisdeclaration of machinery as of foreign originConcealing real

valuetoclaim100percentdepreciationLevyofpenaltywasjustified.
The valuer, after inspecting the machinery, was of the opinion that the machinery was of Indian make
and it would not cost much. Held, he would have necessarily disclosed the fact to the officials of the
assesseeandtheassesseecouldnotpleadignoranceofthefact.However,eventhereaftertheassessee
had submitted its return claiming depreciation. One of the officials of the assessee who had inspected
the machinery along with the valuer was examined by the Directorate of Revenue Intelligence and his
statement was recorded. On the facts, it could only be presumed that the assessee being well aware
thataftertheenquiryitwouldbeliabletopayadditionaltaxandpenalty,wasforcedtomakepayment
voluntarily.Therefore,thecontentionthatinordertoshowthebonafidesoftheassessee,theassessee
had volunteered to make payment even before the enquiry proceedings were complete could not be
accepted. Thus, the penalty levied was justifiable.
CITv.SundaramFinanceLtd.(2013)353ITR375(Mad.)(HC)
S.271(1)(c):PenaltyConcealmentSurveyRevised return filed after survey showing the unaccounted
salesLevyofpenaltywasjustified.
During survey, it was found that the stock book was not maintained properly and that there were
unaccountedsalesandunaccountedcashcredits.Theassesseefiledarevisedreturnshowingtheclosing
stockasonMarch31,1995,atRs.37,34,245asagainstRs.17,88,961declaredintheoriginalreturn.The
assessmentwasaccordinglycompletedandpenaltywaslevied.
Held, the assessee had not only declared higher value of closing stock but had also increased the
quantityoftheclosingstock,namely,gold.Therefore,butforthesurveybeingconducted,thesewould
not have been detected. Even though the discrepancy was unearthed on the date of survey, the
assessee had admitted to the discrepancy for the year 199596. The imposition of penalty was valid.
(A.Y.19951996)
B.DamodarVamanBaligaJewellersv.JCIT(2013)353ITR206(Karn.)(HC)
S.271(1)(c):PenaltyConcealmentConversion of stockintrade into investment just before sale of
propertyIntentionwastopaylowertax,levyofpenaltywasjustified.
395
The assessee purchased a piece of land in the financial year 199899 and shown it as stockintrade.
During the financial year relevant to the assessment year 200304, it converted its stockintrade into
"investment" and sold the property and offered the profit as longterm gains. Since the change in the
books of account, just before the sale of the property, was made to avoid payment of full taxes by
changingthecomplexionoftheearningsonthesaleoftheproperty,theassesseehadclearlyfurnished
inaccurateparticularsofincome.Hence,levyofpenaltywasjustified(A.Y.20032004).
CITv.SplenderConstruction(2013)352ITR588(Delhi)(HC)
S.271(1)(c):PenaltyConcealment of incomePenalty for disallowance of claim on basis of subsequent
SupremeCourtdecisionisheldtobenotjustified.
AdditionsmadeonaccountofdisallowanceonthebasisofsubsequentSupremeCourtjudgementwere
neither due to the failure on the part of the assessee to furnish accurate particulars nor on account of
furnishinginaccurateparticulars.Hence,thelevyofpenaltywasnotjustified.
CITv.CeletronixPowerIndiaP.Ltd.(2013)352ITR70(Bom.)(HC)
S.271(1)(c):PenaltyConcealmentClaimofexpendituretoberevenueDisallowanceofclaim,penalty
wasnotjustified.
Itwasonthebasisoftheinterpretationoftheprovisionsofthestatute,thattheAssessingOfficerhad
foundthattheexpenditureclaimedbytheassesseewasnotrevenueexpenditurebutcapitalexpenses.
There is a fine distinction as to when expenditure can be treated as revenue or capital expenditure.
Therefore, merely for the reason that the assessee had claimed the expenditure to be revenue, would
notrendertheassesseeliabletopenaltyproceedings.(A.Y.20012002)
CITv.AmtekAutoLtd.(2013)352ITR394(P&H)(HC)
S.271(1)(c):Penalty Concealment Wrong advice by chartered accountant Levy of
concealmentisnotvalid,ifwrongclaimduetomistakebonafideWrongadviceofCA.
Theassesseefiledareturnofincomeinwhichitcommittedtwomistakes(i)Depreciationwas
claimed at Rs.1.70 crores instead of at Rs. 1.05 crores due to a mistake in calculation, (ii) the
assesseesolditsgarmentmanufacturingmachineandsufferedalossofRs.21.68lakhsthereon.
Thoughthelosswasoncapitalaccount,itwasclaimedasarevenuededuction.Inthecourseof
the assessment proceedings, the assessee realised its mistake and withdrew the claim for
excess depreciation and the claim for the loss. The AO levied penalty u/s 271 (1) (c) on both
issueswhichwasconfirmedbytheCIT(A).However,theTribunalheldthatbothmistakeshad
occurredduetoamistake/wrongadvicegivenbytheCharteredAccountantandthattherewas
a bona fide mistake. It was also held that the bonafide of the assessee is established from
thefactthattheassesseeacceptedthemistakeanddidnotpreferanyappealagainsttheorder
oftheAO.OnappealbythedepartmenttotheHighCourt,HELDdismissingtheappeal:
Thegrievanceoftherevenueisthatpenaltyisjustifiedinviewofthefactthattheassesseehad
not filed a revised return of income. However, the Tribunal noted that the time to file revised
return had expired. In any event, even the revenue does not dispute that it was a bonafide
mistakeonthepartoftheassessee.Intheaboveview,impositionofpenaltyupontheassessee
isnotwarranted.(A.Y.200304)
396
CITv.SomanyEvergreenKnitsLtd.(2013)352ITR592(Bom)(HC).
S.271(1)(c):PenaltyConcealmentRevised Return During the assessment proceedings

assessee filed revised return declaring higher profit A.Onot recoding satisfaction that the
assesseehasconcealedincomePenaltyisnotleviable.
Where the A.O. had not recorded any satisfaction that the assessee had concealed income or
furnished inaccurate particulars of income and the additional income offered in the revised
return filed during the assessment proceedings is accepted by the A.O. Penalty under section
271(1)(c)isnotleviable.(A.Y.197677)
CIT v. Ashok Kumar Jain (2013) 81 DTR 94/214 Taxman 98(Mag.)/255 CTR 189 (Jharkhand)
(HC)
S.271(1)(c):PenaltyConcealmentAbsenceofduecaredoesnotmeanthattheassesseeis
guiltyoffurnishinginaccurateparticularsofincome.
Where Additions were made not in respect of lack of bonafides, penalty levied under section
271(1)(c)oftheActisnotsustainableasabsenceofduecaredoesnotmeanthattheassessee
isguiltyoffurnishinginaccurateparticulars.(A.Y.199192)
CITv.BalajiDistilleriesLtd.(2013)81DTR190/214Taxman96(Mag.)/255CTR265(Mad)(HC)
S.271(1)(c):PenaltyConcealment loss returnSpeculation lossWrong claim penalty was

confirmed.
Assessee filed its return without disclosing speculative profit earned from sale of shares. In
response to Assessing Officer's notice, assessee contended that there was no need to disclose
speculative profit in profit and loss account because speculative loss had been incurred in
earlieryears.AssessingOfficerhavingrejectedassessee'sexplanation,addedspeculationprofit
totaxableincomeandalsoimposedpenaltyundersection271(1)(c).Thecourtheldthateven
ifspeculationprofitwaseligibleforsetoffagainstcarriedforwardspeculationloss,samewould
have effect of diminishing such speculation loss which would be carried forward for future
years.Since, it is well settled that in case of loss return also, penalty could be imposed if by
virtueofwrongclaim,duetowhichthecomputationoflossislikelytoreduce.Accordinglythe
impugnedpenaltyorderwastobeconfirmed.Infavourofrevenue.(A.Y.200607)
SubhashS.Shah.v.ITO(2013)213Taxman43(Mag.)(Guj.)(HC)
S.271(1)(c):PenaltyConcealmentExplanation5SearchandseizureInthereturnpursuantto
searchactiontheamountwasnotincluded,thecomputationwasrevisedinthecourseof
assessmentproceedingsLevyofpenaltywasjustified.(S.132(4),139(1),153A)
Afterfilingofreturnundersection139(1),searchwasconducted.Instatementrecordedunder
section132(4),assesseeadmittedbenamishareinvestment.Onbeingissuedwithnoticeunder
section 153A, assessee did not file any return and by a letter, requested that its return, filed
under section 139(1) prior to search and seizure be treated as its return filed in response to
notice under section 153A. It was only when assessment proceedings were taken up for
consideration, did assessee seek to revise its computation.The court held that it could be said
thatassesseedidnotincludeamountinreturnpursuanttonoticeissued,andinsteadchoseto
merely reiterate its return originally filed, therefore, 'escape route', provided by clause (2) to
397
Explanation5tosection271(1)(c)inthiscase,wasnotavailabletoassessee,anditwouldbe
liabletopenaltyforconcealment,asareturnfiledundersection153Acanneverbeassumedto
becoveredasoneundersection139(1).(A.Y.200607)
Shourya Towers (P.) Ltd.v.Dy. CIT (2013) 213 Taxman 20(Mag.)/255 CTR 225/81 DTR 161
(Delhi)(HC)
S.271(1)(c):PenaltyConcealmentSurrenderofincomePenaltyisleviable.
Inthecourseofassessmentproceedingsextraliabilityinrespectofsundrycreditorswasfound
byAssessingOfficer.Assesseesimplystatedthatbalanceasperhisaccountbookswerecorrect
and balance shown by third parties incorrect, however, to end prolonged assessment
proceedingsandbuypeace,assesseesurrenderedincomeandagreedtoaddition,however,no
plausibleexplanationwasgivenregardingdiscrepancyinbooksofaccount.Thecourtheldthat
mere surrender of income by assessee without offering plausible explanation regarding its
correctness, would not absolve assessee from charge of penalty for concealment of income.
Penaltywouldbeleviedonassessee.Infavourofrevenue.(A.Y.198990)
BajrangGlassEmporium.v.CIT(2013)213Taxman25(Mag.)(All)(HC)
S.271(1)(c):PenaltyCommencementDepreciationwasclaimedoncostofland,levyofpenalty
washeldtobejustified.(S.32)
AssessingOfficerdisallowedassessee'sclaimofdepreciationinrespectofapropertyonground
thatsaidproperlywasnotusedforbusinesspurposeandmoreovercostoflandwasincludedin
claim of depreciation though no depreciation is allowable under Act on land. He also levied
penalty under section 271 (1) (c) for furnishing inaccurate particulars holding that there was
complete lack of any evidence to show that property was used for purpose of assessee's
business and attempts made by assessee to show to contrary were indicative of frivolous
nature of claim. In appeal Commissioner (Appeals) confirmed the levy of penalty. Tribunal
deletedthepenaltyholdingthatexplanationsubmittedbyassesseewasbonafideandformere
disallowancelevyofpenaltywasnotjustified.OnappealbyrevenuetheCourtheldthatlevyof
penaltywasjustified.Infavourofrevenue(A.Y.200506)
CITv.MorganFinvest(P.)Ltd.(2013)81DTR441/213Taxman23(Mag.)(Delhi)(HC)
S.271(1)(c):Penalty ConcealmentHigh court admission of quantum appeal Admission of

quantumappealbyHighCourtshowsissueisdebatablelevyofpenaltyisnotjustified.
Theassesseesappealagainstthedisallowancemadeu/s14AwasadmittedbytheHighCourt.
The AO levied penalty u/s 271 (1) (c) in respect of the said disallowance. The CIT (A) and the
ITAT set aside the penalty levied u/s 271 (1) (c) on the ground that the issue of deduction u/s
14Awasadebatableissue.OnappealbytheDepartmenttotheHighCourtHELD:
BoththeCIT(A)aswellastheITAThavesetasidethepenaltyimposedbytheAOu/s271(1)
(c)onthegroundthattheissueofdeductionu/s14AoftheActwasadebatableissue.Wemay
alsonotethatagainstthequantumassessmentwhereunderdeductionu/s14AoftheActwas
prescribedtotheassessee,theassesseehaspreferredanappealinthisCourtu/s 260Aofthe
Actwhichhasalsobeenadmittedandsubstantialquestionoflawframed.Thisitselfshowsthat
398
theissueisdebatable.Forthesereasons,weareoftheopinionthatnoquestionoflawarisesin
thepresentcase.
CITv.LiquidInvestmentandTradingCo.(Delhi)(HC)www.itatonline.org
S.271(1)(c):PenaltyConcealmentShortterm capital gainsBusiness incomeTreating income

undersomeotherheadisnotfurnishingofinaccurateparticularsofincomelevyofpenaltyis
rightlydeleted.
Theassesseedeclaredincomefromshorttermcapitalgains.TheAssessingOfficerassesseditas
incomefrombusiness.Healsoleviedpenaltyundersection271(1)(c)oftheAct,ontheground
that the assessee had furnished inaccurate particulars of his income. The Commissioner
(Appeals)cancelledthepenalty.ThiswasconfirmedbytheTribunal.Onappealbyrevenuethe
CourtalsoconfirmedtheorderofTribunal.
CITv.AmitJain(2013)351ITR74/258CTR88/85DTR175/215Taxman81(Mag.)(Delhi)(HC)
S.271(1)(c):PenaltyConcealmentInadvertent mistakeWrong heads Concealment penalty

cannotbeleviedifincomenotofferedtotaxduetoinadvertentmistake.
The assessee claimed deduction/ exemption of interest on taxfree bonds of Rs.5.60 crores.
Assessing Officerasked the assessee to give details of the interest on taxfree bonds, the
assessee stated that it had inadvertently treated taxable interest of Rs. 75 lakhs as being tax
freeand offered the said sum to tax. The AO levied penalty u/s 271 (1) (c) forconcealment of
income/ filing inaccurate particulars of income.This was upheld by theCIT (A) though deleted
by the Tribunal on the ground that there was an inadvertent mistake by which the taxable
bondswereclassifiedastaxfreeandthattherewasnodesireonthepartoftheassesseeto
hideorconcealitsincomesoastoavoidpaymentoftaxoninterestfromthebonds.Onappeal
by the department,dismissing the appealthe Court held that the decision of the Tribunal is
based on finding of fact that there was an inadvertent mistake on the part of the assessee in
includingtheinterestreceivedof6%ontheGOICapitalIndexBondsasinterestreceivedontax
free bonds. It is not contended by the Revenue that above finding of fact by the Tribunal is
perverse.Inthesecircumstances,thereisnoreasontoentertaintheproposedquestion
Note:Itwasalsodecidedthatofferingincomeunderthewronghead(capitalgainsinsteadof
othersources)doesnotattracts.271(1)(c)penalty.(A.Y.19992000)
CIT v. Bennett Coleman & Co. Ltd (2013) 259 CTR 383/215 Taxman 93(Mag.)/87 DTR 368
(Bom.)(HC)
S.271(1)(c):PenaltyConcealment Revised returnSearch and seizure by Excise Department

Surveyby Tax departmentLevy of penalty is not justified when the revised return was filed
beforeissueofnoticeundersection148.(S.148,133A).
In course of a search conducted at assessee's premises by Excise Department, assessee
admitted suppression of turnover. Thereafter, based on said search, incometax authorities,
conducted survey and consequent thereto assessee filed revised returnsbefore issue of notice
under section 148 declaring additional income and suppression of sales and paid taxes as well
as interest. The Assessing Officer held that there was concealment of income by way of
suppressionwithintentiontoevadetaxandtheassesseeevenfailedtorevisetheincomeafter
thedateofsearchconductedbytheCentralExciseDepartment.Onappeal,theCommissioner
399
(Appeals) confirmed the order of the Assessing Officer. On further appeal, the Tribunal held
that when once the return was filed before the issue of notice under section 148 and tax due
with interest was paid, as the income was not suppressed, the imposition of penalty was not
proper. Therefore, the order of imposition of penalty was set aside. On appeal by revenue
theCourt held that merely because it was only after survey that a revised return was filed, it
wasnotagroundtoholdthattherewassuppressionofincomesoastojustifylevyofpenalty.
Infavourofassessee.(A.Y.200405to200607)
CITvVegaAutoAccessories(P.)Ltd.(2013)212Taxman95(Mag.)(Karn.)(HC)
S.271(1)(c):PenaltyConcealment SurveySurrender of income without explanation attracts

penalty.Penaltyjustified.(S.133A)
A survey u/s.133A was conducted on the assessees premises in the course of which certain
documents belonged to certain entities who had applied for shares in the assessee company
were found. The AO called upon the assessee to prove the nature and source of the monies
received as share capital, the creditworthiness of the applicants and the genuineness of the
transactions. The assessee offered Rs. 40.74 lakhs as income from other sources to avoid
litigation and to buy peace. It was made clear that in making the surrender, there was no
admission of concealment. The A.O. completed the assessment by adding the said sum and
leviedpenaltyu/s271(1)(c)forfurnishinginaccurateparticularsofincomeu/s.271(1)(c).This
wasupheldbytheCIT(A)thoughreversedbytheTribunal(includedinfile)onthegroundthat
there was no material to show any concealment and even in the penalty order it was not
specified as to the particular credit in respect of which the penalty was being imposed. It was
also emphasized by the Tribunal that the assessee had made it clear while surrendering that
there was no admission of concealment and that the offer was made in a spirit of settlement.
OnappealbytheDepartmenttotheHighCourt,HELDreversingtheTribunal:
WhentheAOcalledupontheassesseetoproduceevidenceastothenatureandsourceofthe
amountreceivedassharecapital,thecreditworthinessoftheapplicantsandthegenuinenessof
the transactions the assessee simply folded up and surrendered the sum of Rs. 40.74 lakhs by
merely stating that it wanted to buy peace. In the absence of any explanation in respect of
thesurrenderedincome,thefirstpartofclause(A)ofExplanation1tos.271(1)(c)isattracted
because the nature and source of the amount surrendered are facts material to the
computation of total income. The absence of any explanation regarding the receipt of the
money, which is in the exclusive knowledge of the assessee leads to an adverse inference
against the assessee and is statutorily considered as amounting to concealment of income
under the first part of clause (A) of the Explanation to s. 271 (1) (c) and penalty has to be
levied.(A.Y.200405)
CITv.MAKDataLtd(2013)352ITR1(Delhi)(HighCourt)
S.271(1)(c):PenaltyConcealmentFalseclaimsLevyofpenaltywasheldtobejustified.
An amount was Rs 10.81 lakhs was paid to PM (P) Ltd which was assessees sister concern.
These payments were made througha debit note raised at the close of the year. Tribunal has
given the finding thatno such amounts were paid. This finding ofTribunal was accepted by
assessee. On appeal by the assessee against the confirmation of penalty the court held that
where Tribunal had reached a finding of fact that appellant had filed inaccurate particulars
400
regardingitsincomebyshowingfalse/exaggeratedexpenses,itwouldbeconcludedthatthere
was a concealment of income on part of appellant, leading to imposition of penalty under
section271(1)(c)uponappellant.Appealofassesseewasdismissed.(A.Y.198990)
Sanghvi Swiss Refills (P.) Ltd. v. ACIT (2013)81 DTR 40/255 CTR 251 212 Taxman 66 (Mag.)
(Bom.)(HC)
S.271(1)(c):PenaltyConcealmentAs there was no clarity on law levy of penalty was held to

benotjustified.(S.78(2),170(1))
Assesseesucceededtobusinessofapartnershipfirmbywayoffamilysettlement.Heclaimed
set off of losses of erstwhile firm. Claim of assessee was disallowed by Assessing Officer,
Commissioner and Tribunal on ground that section 78(2) did not entitle assessee to set off
losses. High Court however, held that such claim was not allowable in view of section 170(1).
Meanwhile, penalty was imposed on ground that assessee had made a false claim.High Court,
on appeal, noted that there was absolutely no discussion of section 170 in order of
Commissioner (Appeals) and Tribunal which was applicable provision as regards succession.
Moreover, Assessing Officer as also Commissioner (Appeals) was under misapprehension that
assessee was not a successor.There was lack of clarity by incometax authorities right up to
Tribunal itself and, hence, imposition of penalty was not warranted. Appeal of assessee was
allowed.
PramodMittalv.CIT[2013]212Taxman64(Mag.)(Delhi)(HC)
S.271(1)(c):PenaltyConcealmentAOPDeletionofpenaltyheldtobejustified.(S.167B)
Assessee,anAOP,wasconstitutedforcarryingonbusinessofprocuringordersonbehalfofRIL
forsupplyofpurifiedtrephthalicacid.Inrespectofassessmentyearsinquestion,assesseefiled
a return of income at nil. During course of assessment proceeding, assessee was required to
explainastowhyincomeshouldnotbechargedtotaxinhandsofAOPbyapplyingprovisions
ofsection167B(2).Accordingtoassessee,ithaddistributedprofitamongstitsmembersasper
their respective shares which were defined in joint venture agreement and all of them had
shown their respective shares as income under provisions of section 167A, and, therefore,
section 167B(2) was not applicable. Assessing Officer rejected assessee's explanation and
assessed entire income in hands of AOP under section 167B(2).On second appeal, Tribunal
referred matter to Special Bench which upheld order passed by Assessing Officer. Thereupon,
Assessing Officer taking a view that assessee had deliberately shown income in hands of
members of AOP in order to evade taxes, passed a penalty order under section 271 (1)
(c).Tribunal, however, set aside penalty order. On revenue's appeal, it was noted that when
assessee had filed nil return, therewere two views possible inasmuch as Tribunal itself was in
doubt as to which of two views were to be preferred and it was for this very reason that
TribunalhadpassedreferralorderrequiringmattertobeconsideredbyaSpecialBench.Inview
ofabove,itcouldnotbesaidthatassesseecouldnothavehadsuchadoubtinitsmindwhenit
had indeed filed its return. Therefore, Tribunal was justified in setting aside penalty order.
Appealofrevenuewasdismissed.(A.Y.200304,200405).
CITv.PradeepAgenciesJointVenture(2013)212Taxman72(Mag.)(Delhi)(HC)
401
S.271(1)(c):PenaltyConcealmentNo explanation was filed Penalty was held to be justified.
[S.94(7)].
Assesseecompany engaged in business of sale and purchase of shares claimed certain loss on
saleofshares.AssessingOfficerdisallowedamountfornotcomplyingwithprovisionsofsection
94(7) and assessed it as income of assessee. Assessing Officer, thereafter imposed penalty
undersection271(1)(c).Onappeal,Commissioner(Appeals)deletedpenaltybutonappealby
revenueTribunalreversedorderofCommissioner(Appeals).Whenassesseecompanyhadbeen
availingservicesofacharteredaccountantandinspiteofthatnoreplywasfiledbyitfornon
compliance with provisions of section 94(7) while working out income shown in incometax
return, Explanation 1 to section 271 (1) (c) was directly applicable and penalty was rightly
imposedbyAssessingOfficer.Appealofassesseewasdismissed.(A.Y.200506)
VSBInvestment(P.)Ltd.v.CIT(2013)212Taxman59(Mag.)(P&H)(HC)
S.271(1)(c):PenaltyConcealment Revised return After detection Levy of penalty was

justified.
Assessee's case was taken up for scrutiny and concealment of income had been detected by
Assessing Officer. Assessee filed revised return. An amount was surrendered on ground of
buying peace with department. However, it was a specificconcealment for a particularmonth
whichwasdetectedbyAssessingOfficerandnotacasewhereadditionwasmadeinincomeon
estimateandsurmise.Sinceitwasclearcaseofconcealmentofincomeandfurnishingofwrong
particulars of income, penalty was correctly imposed. Appealof assessee was dismissed.
(A.Y.199394)
StandardHindCo.v.CIT(2013)212Taxman74(Mag.)(All.)(HC)
S.271(1)(c): PenaltyConcealmentExpenditure on higher study of son of managing director

Mattersetaside.
The assessee company incurred expenditure on sponsorship of advance education of son of a
managingdirectorandclaimedundertheheadstaffandlabourtrainingwelfareTheAssessing
Officer disallowed the expenses on the ground that son of the managing director was not an
employee or director of company. The Assessing officer levied the penalty. On appeal
Commissioner (Appeals) deleted the penalty. On appeal to Tribunal by revenue the Assessee
contended that an agreement was entered in to by assessee company with son of managing
directorthathewouldservethecompanyforthreeyearsafterreturningtoIndia.Tribunalheld
thattheassesseecouldnotfurnishdetailswhenthesonofmanagingdirectoroftheassessee
companyreturnedfromabroadandwhenhejoinedtheassesseecompanyandcouldnotgive
detailsofresolutionpassedinfavourofthepersonwhoenteredintosaidagreementwithson
ofthemanagingdirectoroftheassesseecompany.Matterwassetasidetodecidefresh.(A.Ys.
199798,199899)
Dy.CITv.InoxIndiaLtd.(2013)141ITD481(Ahd.)(Trib.)
S.271(1)(c):PenaltyNoconcealmentRepairexpensesClaimbonafide,levyofpenaltywas
notjustified.
Theassessee,whilefurnishingthereturnofincome,hadmadefulldisclosureabouttherepair
expenses. It had also attached a note to its return stating that since the question whether
402
repair expenditure was revenue or capital was debatable, the admissibility as revenue
expenditure of amount debited as repairs would be discussed at the time of assessment. The
claim made by the assessee may have been rejected but it could not be said that it was not
plausible or legally tenable. The bona fides of the claim had not been doubted by the
Department at any stage. In the absence of any contrary material brought on record by the
Department to show that the deduction claimed by the assessee was not bona fide or was
bogus, there was noconcealmenton the partof the assesseecalling for levy of penalty under
section271(1)(c).(A.Y.19971998)
BennettColemanandCo.Ltd.v.ACIT(2013)24ITR102(Mum.)(Trib.)
S.271(1)(C):PenaltyConcealmentFor S.40(a)(i) disallowance if TDS deducted next year, levy
ofpenaltywasnotjustified.[S.40(a)(i)]
Theassesseeincurredexpendituretowardsfeesfortechnicalservicesonwhich TDSwasnot
deducted by the end of the year. Though the auditor stated in the tax audit report that the
amount had to be disallowed u/s 40(a)(i), the assessee still claimed a deduction. The TDS was
paid in the subsequent financial year. The Assessing Officer disallowed the deduction and
imposedpenaltyu/s271(1)(c)whichwasaffirmedbytheCIT(A).Onappealbytheassesseeto
theTribunal,HELDallowingtheappeal:
S.40(a)(i)doesnotimposeanabsolutedisallowanceforfailuretodeductTDS.Itprovidesthat
thedeductionshallbeallowedintheyearofdeductionoftheTDS.Astheassesseehadinfact
deducted TDS in the immediately succeeding year, it had substantially complied with the
provision.Also,asthefactthatTDSwasnotdeductedwasstatedinthetaxauditreportwhich
was filed with the return, it could not be said that the assessee has not disclosed the correct
particularsofincome.(A.Y.200304)
DynatronPrivateLimitedv.DCIT(Mum.)(Trib.)www.itatonline.org.
S.271(1)(c):PenaltyConcealmentInaccurateparticularsDetailsnotfurnishedbyassessee,
levyofpenaltywasheldtobejustified.
Theassesseecompany,engagedinrunningahospital,hadsoldoffallitsfixedassets.Itdidnot
carryoutanybusinessduringthepreviousyearandreturnednilincomebutclaimeddeduction
ofexpenditureonaccountofresearchanddevelopmentactivities.Sincetheassesseecouldnot
furnishreasonableevidencetosupportitsclaimofincurringexpenditure,penaltywasleviedby
theAssessingOfficer.TheTribunalobservedthatsincenobusinesswascarriedoutbyassessee
during relevant previous year and no detail regarding nature of research carried out by
assesseecouldbeproduced,assesseehadnolocusstanditoclaimsuchexpenditureand,thus,
itwasafalseclaim.Hence,thepenaltywasheldtobejustified.(A.Y.200607)
ACITv.HarveyHeartHospitalsLtd.(2013)57SOT62(URO)(Chennai)(Trib.)
S.271(1)(c):PenaltyAdditiononestimatebasisLevyofpenaltywasnotjustified.
The Assessing Officer has made all additions, disallowances, treating the cash credits/foreign
receipts as well as the assessee's declared agricultural income merely on estimate and guess
workbasiswithoutbringingonrecordanypositiveandconcreteevidencetobeappliedagainst
the assessee. Hence, the liability could not be sustained. Also, the Assessing Officer has not
broughtanymaterialonrecordtoestablishanymalafideintentionoftheassesseetoevadetax
inreturnfiledbyassessee.Penaltywascancelled.(A.Y.200506)
403
ITOv.SukhamritSingh(2013)56SOT107(URO)(Asr.)(Trib.)
S.271(1)(c):PenaltyVoluntarydeclarationbyassesseeNosatisfactionofAssessingOfficerin
thereassessmentproceedingsLevyofpenaltywasnotjustified.[S.148,273A]
Sinceassesseevoluntarilyfiledthepetitionundersection273Awhichadmittedlywasnotvery
legal,asnopenaltyhadbeenimposed,but,neverthelesswasthestartingpointforinitiationof
reassessmentproceedings.Therefore,AssessingOfficershouldhavearrivedatasatisfactionin
thecourseofreassessmentproceedingsregardingfulfilmentofeitherofthesetwinconditions.
This satisfaction had to be derived from the conduct of the assessee. Since the very basis for
initiation of reassessment proceedings was the petition under section 273A along with which
assesseehadfiledreturnofincomeandthesameincomehadbeenreturnedinconsequenceto
proceedings under section 148, therefore, it cannot be held that Assessing Officer had
judiciously acquired the satisfaction regarding fulfilment of either of these twin conditions.
Thus,nopenaltywasliabletobelevied.(A.Ys.200304to200809)
VaishDegreeCollegeTrustv.ACIT(2013)56SOT112(URO)(Del.)(Trib.)
S.271(1)(c): PenaltyAgreed additionsBonafide explanationLevy of penalty was not

justified.
During course of assessment proceedings in response to query of Assessing Officer, assessee
furnishednecessaryevidencecalledforbyAssessingOfficerwithrespecttobookingadvancein
allcasesexceptinonecase.TheAssessingOfficerleviedpenaltyinrespectofthis.Theassessee
explained that despite its best effort it could neither produce that party nor any evidence in
respect of booking advance and it therefore itself offered same as income during assessment
proceedings with an intention of buying peace of mind and to avoid litigation. Since the
explanation of assessee prima facie appeared to be bona fide in view of fact that in all other
cases assessee furnished necessary evidence to satisfaction of Assessing Officer and nothing
had been brought on record by revenue to controvert explanation furnished by assessee, the
penaltywasliabletobedeleted.(A.Y.200506)
MeghMalharDevelopersv.ACIT(2013)56SOT109(URO)(Ahd.)(Trib.)
S.271(1)(c):PenaltyConcealmentSurrenderedIncomeSurveyReturnfiledaftersurveyLevy
ofpenaltywasnotjustified.
Theassesseefirmisengagedinrealestatebusiness.Fortherelevantyeartheassesseedidnot
fileitsreturnbeforeduedateoffilingofreturnaspersection139(1).Asurveywascarriedout
inthebusinesspremises.Inthecourseofsurveyassesseeagreedtooffer11.5%ofthesalesas
itsincome.Thereupon,theassesseeinthecourseofassessmentproceedingsagreedthatthe
income declared in the course of survey be adopted as the total income of the assessee.
Assessment was completed on the basis of disclosure and the Assessing Officer levied the
penalty under section 271(1)(c ) of the Act. Commissioner(Appeals) confirmed the order of
Assessing Officer levy of penalty. On appeal Tribunal held that the assessee filed return
disclosingamountsurrenderedinsurvey.AssessingOfficerwhopassedapenaltyorder,itisnot
foundthatthereisactuallyaconcealmentornondisclosureofparticularsofincomeinreturn.
Penaltycannotbeimposed.(A.Ys.200708,200809)
VasaviShelters.vITO(2013)141ITD590(Bang.)(Trib.)
404
S.271(1)(c): PenaltyConcealmentClaim to depreciation on entire medical equipment as life saving

deviceNoconcealmentofanyfact,penaltyisnotleviable.
Duringtheassessmentproceedings,theAssessingOfficerfoundthattheassesseeclaimeddepreciation
at the higher rate of 40 per cent on all equipment treating them as life saving devices. The Assessing
Officer observed that not all equipment were life saving equipment and disallowed the excess
depreciation. He initiated penalty proceedings under section 271(1)(c) treating this addition as
concealment of income and furnishing of inaccurate particulars. The Commissioner (Appeals) held that
theassesseehadmadeawrongclaimofdeduction,whichwasnottobeequatedwithconcealmentof
income. Therefore he deleted the penalty. On appeal by the Department :Held, that the assessee
furnished the entire details of the medical equipment deployed in its hospital. There was no
concealment and no furnishing of inaccurate particulars. The assessee did not claim depreciation at a
non existent rate and had not misrepresented any fact. It had made a wrong claim of depreciation on
the entire medical equipment, since there was no separate entry for general medical equipment to
reckon the rate of depreciation. The deletion of the penalty by the Commissioner (Appeals) was
justified.(A.Y.20042005).
Dy.CITv.ApolloHospitalsEnterpriseLtd.(2013)23ITR49/85DTR378(Chennai)(Trib.)
S.271(1)(c):PenaltyConcealmentClaimtodepreciationoncostofdevelopmentofportaland
ecommerce siteNot a fixed asset under section 2(11)(b)Penalty not leviable for wrong
claimDeletionofpenaltyisheldtobejustified.[S.2(11)(b)]
The assessee claimed depreciation towards expenses incurred on development of portal and e
commercesite.TheAssessingOfficerdisallowedthedepreciationonthegroundthatvirtualportaland
ecommercesitecouldnotbetreatedasfixedassetsandeligiblefordepreciationattherateapplicable
to plant and machinery and initiated penalty proceedings under section 271(1)(c) of the Act. The
Commissioner(Appeals)heldthattheassesseehaddisclosedthematerialfactsinitsreturninrespectof
the cost of the portal and ecommerce site and there was no concealment or furnishing of inaccurate
particularsofincomebytheassessee.Therefore,hedeletedthepenalty.OnappealbytheDepartment:
Held, that the Assessing Officer had not made out any case of concealment of particulars of income
rather, it was a case of disallowance of expenditure on the basis that the portal and ecommerce site
wasnotfixedasset.TheexpensesweregenuineandnotdeniedbytheAssessingOfficer.Therewasno
doubt that the assessee had developed the portal and ecommerce site and no declaration was false.
ThedeletionofthepenaltybytheCommissioner(Appeals)wasjustified.(A.Y.20052006)
Dy.CITv.HifundaLtd.(2013)22ITR488(Kolkata)(Trib.)
S.271(1)(c):Penalty Concealment Income deemed to accrue or arise in IndiaFurnishing of
inaccurateparticularsExclusionofamountoftaxdeductedatsourcefromincomenotbona
fidehencepenaltyisleviable.(S.9(1)(i))
Assessee, a Japanese bank was operating in India through its branch office/ PE. Its branch in
India received certain amount as income from a Korea company as guarantor in respect of a
loan given by bank to one D. The amount was subject to tax under Korean law and balance
afterdeductionoftaxwasremittedtoIndia.Itwasheldthatwhatevertaxhadbeendeducted
inKoreaonbehalfofnonresidentassesseehadtobeclaimedinitsowncountryi.e.Japanand
therefore,entireamountaccruedinIndia.Theamountexcludedwasnotanexpenditureclaim
405
but only tax paid on behalf of principal company and therefore, entire amount was taxable in
hands of assessee in India. It was therefore held that mere note given by assessee that tax
deducted in Korea did not accrue in India was not sufficient. As the exclusion of amount was
notbonafidepenaltyu/s271(1)(C)wasleviable.(AY200102)
Dy.DITv.SumitomoMitsuiBankingCorpn.(2013)140ITD528/151TTJ409(Mum.)(Trib.)
S.271(1)(c):PenaltyConcealmentUnrealisedexportproceedsdisclosedinreturnInformation
giveninreturnnotfoundtobeincorrect,Levyofpenaltyheldtobenotjustified.(S.10A)
The assessee filed the return and claimed exemption under section 10A of the Act. The
Assessing Officer observed that the assessee could not furnish any reason for treating the
unrealised export proceeds, eligible for claim for exemption. He, accordingly, added back Rs.
13,72,927andinitiatedpenaltyundersection271(1)(c).TheCommissioner(Appeals)heldthat
the assessee had not concealed any particulars of income or not suppressed any facts and
deleted the penalty. On appeal to the Tribunal, held that the assessee had made adequate
disclosurewithrespecttotheunrealisedexportproceedsatthetimeoffilingitsreturn,andno
faultcouldbefoundontheconductoftheassessee.Therefore,penaltywasnotexigibleunder
section 271 (1) (c) of the Incometax Act, 1961.Appeal of revenue was dismissed. (A. Y.2007
2008)
Dy.CITv.GenesysInternationalCorporationLtd.(2013)21ITR581/151TTJ606(Mum.)(Trib.)
S.271(1)(c):PenaltyConcealmentRevised returnIncome not fully declared in original return

butinreturnfiledpursuanttonoticeundersection148liableforpenaltyinfirstassessment
yearinsteadofallassessmentyears.(S.148)
Theassesseeisaqualifiedanesthetistworkinginaprivatehospital.Inresponsetonoticeunder
section 148 of the Incometax Act, 1961, the assessee filed another return substantially
enhancing his income and also claiming expenditure which had not been previously admitted.
TheAssessingOfficerdisallowedtheclaimandalsoinitiatedpenaltyundersection271(1)(c)of
theIncometaxAct,1961. TheCommissioner(Appeals)grantedpartrelieftotheassesseeand
held that his claim of expenditure was liable to be accepted at 30 per centof net receipt on
estimation basis. On appeal, the Tribunal restricted the expenditure to 15 per cent. Since,
penaltyproceedingsstoodrevived,theassesseesubmittedbeforetheAssessingOfficerthathe
had neither concealed his income nor furnished inaccurate particulars. The Assessing Officer
held that the revised return submitted by the assessee was only after the initiation of the
investigation and therefore he imposed penalty. The Commissioner (Appeals) confirmed this.
Onappeal,Held,thatonlywhennoticeundersection148wasissuedtotheassessee,hechose
todisclosethereceiptandraisetheclaimofexpenditure.Despitethefactthattheassessment
proceedings attained finality, this ipso facto did not absolve the assessee from the necessary
conclusion from his conduct that he had nevertheless concealed the income which ultimately
ledtofurnishinginaccurateparticularsintheinitialreturn.Therefore,theprovisionsofsection
271 (1) (c) were attracted in the act and conduct of the assessee. It is a settled law that the
assessmentproceedingsandpenaltyproceedingsarealtogetherdifferentandanydisallowance
doesnotresultinimpositionofpenalty.Inpenaltyproceedings,theassessee'sconductduring
assessmentalwayscarriessignificance.Therefore,itcouldnotbesaidthathewasnotguiltyof
concealment and furnishing of inaccurate particulars of income within the meaning of section
406
271 (1) (c). Moreover, the assessee had been continuing with the practice of alleged
concealmentandfurnishinginaccurateparticularsintheassessmentyears200001to200506.
However, adopting the "doctrine of continuity" and concurrence, the penalty was liable to be
confirmed only in the first assessment year i.e., assessment year 200001 instead of all the
assessmentyears.(A.Ys.20002001to20052006)
BapujiCherukuri(Dr)v.Dy.CIT(2013)21ITR714(Chennai)(Trib.)
S.271(1)(c):PenaltyConcealmentExplanation 5Due date expired Concession given by

revenue,penaltywasdeleted.(S.153A)
Pursuant to search proceedings, assessee filed its returns admitting undisclosed income of
various assessment years. Assessing Officer having completed assessments, passed separate
penalty orders for each assessment year involved.Assessee was successful in first appeal for
some of assessment years on basis of applicability of Explanation 5 to section 271 (1) (c). For
relevant assessment years, immunity under Explanation 5 to section 271 (1) (c) was not
available mainly for two reasons, firstly, due date for filing return under section 139(1) had
already expired as on date of search and, secondly, there was nonsatisfaction of condition of
payment of tax and interest by due date of filing return of income under section 153A.
However, in appellate proceedings revenue itself conceded that assessee's case was squarely
covered by Explanation 5 to section 271 (1) (c). Tribunal held that in view of revenue's
concession, impugned penalty order passed for assessment years in question was to be set
aside.(A.Y.200405,200506)
Dy.CITv.SheoKumarKajaria(2013)55SOT91(URO)(Kol.)(Trib.)
S.271(1)(c):PenaltyConcealmentTransferpricingComputationofALPDebateatthetime
of filing return as to whether current year data can be used or multiple year data has to be
usedAssesseeadoptingmultipleyeardata,bonafideexerciselevyofpenaltyheldtobenot
justified.(S.92C)
Assessee, engaged in providing market support services, returned nil income and computed
arm's length price of its transactions on basis of multiple year data. TPO being of opinion that
current year data was to be used, added some comparables and made transfer pricing
adjustment. The Assessing Officer made addition to assessee's income and initiated penalty
proceedings. It was held that where at time of filing return, there was a legal debate as to
whether current year data can be used or multiple year data has to be used, assessee's
adoptingmultipleyeardatawasabonafideexercise.Theassesseeactedinbonafidemannerin
conducting its transfer pricing study and arriving at arms length price. The explanation is
bonafidehencelevyofpenaltyundersection271(1)(C)isnotwarranted.(A.Y.200607)
VerizonCommunicationIndia(P.)Ltd.v.Dy.CIT(2013)140ITD122(Delhi)(Trib.)
S.271(1)(c):PenaltyConcealmentsurrenderofincomeLevyofpenaltyheldtobevalid.
During the course of assessment proceedings, the Assessing Officer after obtaining details of
creditors, issued notice under section 133(6) of the Act to N and G. In the light of the details
reflectedinthecopyofaccountoftheassesseereceivedfromthesepartiesvisavisthebooks
ofaccountoftheassessee,theAssessingOfficernoticeddifferences.Theassesseesurrendered
theamount.Accordinglyintermsofthesurrenderoftheamount,theAssessingOfficeradded
407
theamountandinitiatedpenaltyproceedingsundersection271(1)(c).Thiswasupheldbythe
Commissioner(Appeals).OnappealtotheTribunalheldthatasaresultofenquiriesmadebythe
AssessingOfficer,theassesseedidnotreconcilethedifferenceintheaccountofthetwoparties
andinsteadsurrenderedtheamountasincomeoftheyearunderconsideration.Inthecourse
ofpenaltyproceedings,theassesseedidnotbringanymaterialbeforetheAssessingOfficerto
rebut the inferences drawn by the Assessing Officer in the course of assessment proceedings.
The assessee claimed before the Assessing Officer and the Commissioner (Appeals) that the
additionwasacceptedinordertopurchasepeaceofmindandtobringanendtotheissue.But
this explanation was tendered only after the Assessing Officer confronted the evidence in the
form of copies of account of the assessee in the books of the two parties. Apparently, only
whentheassesseewascornered,theassesseesurrenderedtheamount.Thesurrenderwasnot
voluntary.Thelevyofpenaltywasvalid.(A.Y.20072008)
AjayJainv.ACIT[2013]21ITR41/57SOT64(URO)(Delhi)(Trib.)
S.271(1)(C):Penalty ConcealmentLevy of penalty was not justified without pointing out any
specificfact.
No penalty can be imposed if Assessing Officer has not pointed out any specific fact not
disclosed by the assessee or any wrong particulars furnished by the assessee. Based on the
primary facts disclosed by the assessee inference drawn by the AO could have been drawn.
(A.Y.0405)(CDelhi,ITANo.3522/Del/12dated1112013)
ADIT vGE Energy Control Systems(2013) BCAJ Pg. 24, Vol. 44B Part 5, February 2013(Delhi)
(Trib.)
S.271(1)(c):PenaltyConcealment Consistent losses show mistake/ absence of intention to
evadetaxes.
TheassesseefiledareturndeclaringalossofRs.16lakhsinwhichithadmadeawrongclaimof
depreciation. The AO disallowed the claim and levied 100% penalty which was upheld by the
CIT(A).BeforetheTribunal,theassesseeclaimedthatitsDirectorsweretechnicalpersonsnot
knowingtheintricateprovisionsoftheActbutweredependentontheadviceofprofessionals
forpreparingincometaxreturns.Itclaimedthatithadcommittedabonafidemistakeandthat
therewasnointentiontoevadetaxes.HELDbytheTribunalupholdingtheplea:
A mere mistake in making of a claim in the return of income would not ipso facto reflect
concealment or furnishing of inaccurate particulars of income in terms of s. 271 (1) (c). The
wrong claim of depreciation cannot be said to be made with an intention to evade taxes in as
much as even after the disallowance of depreciation, the resultant income of the assessee
remains a loss. The assessee had been incurring losses since the year 2003 due to the market
forces. Considering the entirety of circumstances, the claim on account of depreciation was a
mistake,anddidnotinvitetheprovisionsofs.271(1)(c).(A.Y.200708)
AmrutaOrganicsPvt.Ltdv.DCIT(Pune)(Trib.)www.itatonline.org
S.271(1)(c):Penalty ConcealmentProvision for diminution of value certain stocksLevy of

penaltywasheldtobenotjustified.
Theassesseehadmadeaprovisionfordiminutionofvaluecertainstocksbutcouldnotprovide
detailsofthestockswhosevaluehaddecreased.Duringthecourseofassessmentproceedings
theAOmadedisallowanceofwriteoffofcertainobsoletestockonthegroundthatthewrite
408
offwasactuallyaprovisionforunascertainedliabilitytheAOalsoheldthatthelossaccruedto
assesseewasdiminutioninthevalueofstock.TheviewoftheAOwasaffirmeduptotheITAT
on the ground that writeoff is not allowable as the assessee has failed to file supportive
documentsanddetailsTheAOleviedpenaltyandtheorderofthepenaltywasaffirmedbythe
CIT(A)Inthecourseofthepenaltyproceedings,theassesseeproducedmaterialwhichjustified
writeoff and hence contended that it was entitled for the writeoff. The Honble Tribunal
deletedthepenaltyonthegroundthatthequantumproceedingsandpenalproceedingsbeing
separate and independent, the finding in the quantum proceedings cannot be relied upon to
justifypenalty;theassesseewasentitledtoleadfreshevidencetoestablishthatthefindingin
quantumproceedingsisnotconclusive.(A.Y.200102)
GlobalGreenCo.Ltd.(2013)56SOT30(URO).(Delhi)(Trib.)
S.271(1)(c):Penalty Concealment Expenditure on R& DNon furnishing of details of fixed

assetsLiabletopenalty.
The assessee claimed to have incurred expenditure for R & D items. The A.O. asked the
assessee to produce documents to establish the claim of expenditure. The assessee failed to
produceanydocumentaryevidenceandhencetheA.O.leviedpenalty.BeforetheTribunal,the
assesseecontendedthattheTaxAuditreportwasfurnishedwhichmentionedincurringofthe
expenditure and this fact was sufficient to establish the claim of the assessee. Rejecting this
contentionandupholdingthepenalty,theHonbleTribunalheldthatataxauditreportcannot
takeplaceofthedocumentaryevidenceandhavingfailedtoproduceevidencetoestablishits
claimtheassesseehadexposeditselftopenalty.([A.Y.200304)ClariantChemicalsLtd(2013).
56SOT25(URO)(Mum.)(Trib.).
S.271B:PenaltyFailuretogetaccountsauditedDelayonpartofauditorsPenaltycouldnotbelevied.
[S.44AB]
Held that the books of account were delivered by the assessee for audit on August 14, 1989 (in time)
andthereportwasreceivedfromtheauditorsonMarch31,1991.Onthisfact,theTribunalarrivedata
conclusion that the delay was on the part of the auditors and it amounted to reasonable cause. This
findingoftheTribunalonthefactsandcircumstancesthattherewasreasonablecause,wasafindingof
fact.Hence,penaltycouldnotbeimposedundersection271B.(A.Y.19901991)
CITv.U.P.RajyaSahkariEvamBhoomiVikasBankLtd.(2013)353ITR152(All.)(HC)
S.271B:PenaltyFailure to get accounts auditedIllness of auditor levy of penalty was not justified.
[S.44AB]
Goingbythenatureofillnessthattheassesseesauditorhad,andconsideringthathehadfiledthetax
auditreportpromptlyfortheearlieryears,thedelayof29daysinfilingthetaxauditreportunder
section44ABmeritedtobecondoned.Hence,penaltycouldnotbeimposed.(A.Y.19881989)
LakshmiCardClothingManufacturingCo.P.Ltd.v.Dy.CIT(2013)353ITR544(Mad.)(HC)
409
S.271B:Penalty Failure to get accountsaudited Business Income Tax Audit Turnover
Online buying and selling of commodities being speculative in nature not liable for penalty.
(S.44AB)
Assesseeisengagedinonlinebuyingandsellingcommoditiesthroughcommodityexchange,as
aspeculativeactivity,whereinnophysicaldeliverywastakenorgiven,totaltransactionbooked
with such commodity exchange could not be considered as turnover for purpose of
considering liability of assessee to get accounts audited u/s.44AB. Buying and selling the
unitswas aspeculative transaction.No delivery has taken place henceLevy of penalty was
deleted.(A.Y.200607)
BanwariSitaramPasariHUFv.ACIT(2013)140ITD320/155TTJ110/88DTR349(Pune)(Trib.)
S.271B:PenaltyPenaltyFailuretogetaccountsauditedBusinessIncomeTaxAuditProject
completionmethod(S.44AB)
The assessee company was engaged in business of construction. It was following project
completionmethodofaccounting.InrespectofaSRAprojecttakenupbytheassessee,ithad
receivedabookingadvanceofRs.11.25crorefromM/s.WelspunGujaratStahiRobernLtd.The
advancewassubsequentlyreturnedin2010sincethepropertyhadseveralencroachments.The
assessee did not get its accounts audited as required u/s. 44AB of the Act since it was of the
view that the provisions of sec. 44AB would apply only when sales, turnover or gross receipts
exceed Rs.40 lakh. Since the assessee had only received an advance which was later refunded
and the assessee was following project completion method and the sales would be accounted
intheyearofcompletionoftheproject.TheAOleviedpenaltyu/s271BoftheAct.TheTribunal
heldthat,incaseofanassesseefollowingprojectcompletionmethod,advancereceivedwhich
is required to be adjusted against future income cannot be considered as gross receipt of
businessorturnover.Bonafidebeliefconstitutesreasonablecausefornonlevyofpenalty.(A.Y.
200708)(ITAno307/M/011,dated21112012)
Pilot Construction Pvt. Ltd. v. ITO (2013) BCAJ Pg. 18, Vol. 44BPart 4, January 2013(Mum.)
(Trib.)
S.271B:PenaltyFailuretogetaccountsauditedSinceassesseeisentitledtoregistrationfor
levyofpenaltymattersentbacktoAssessingOfficer.(S.12A)
Assessee trust did not get its accounts audited on the basis that the income is exempt.
Therefore, the assessee had a reasonable cause for not getting its accounts audited under
section44ABoftheAct.TheTribunalheldthattheassesseeisentitledtoregistration.Soforthe
levy of penalty, the Tribunal remanded the matter back to the file of Assessing Officer to be
decidedafreshinaccordancewithlawafterprovidingdueandreasonableopportunityofbeing
heardtotheassessee.(A.Y.200304to200708)
UrbanImprovementTrustSriganganejorv.CIT(2013)152TTJ507/83DTR282((Jodh.)(Trib.)
S.271D: Penalty Cash payments in excess of Rs. 20,000 No reasonable causeLevy of

penaltywasjustified.[Incometaxrules1962Rule6DD]
Except for stating that they had to make payments to the suppliers and the labour, there is
hardlyanymaterialavailableonrecordtoshowanyjustificationforpaymentofcashoverand
above Rs. 20,000 during the course of the year. Even the justification for making payment in
410
cash must necessarily satisfy extant rule 6DD of the Income Tax Rules. The assessee had not
shownanyacceptableorunavoidablecircumstancesorimpracticabilityordifficultyinreceiving
money otherwise than in cash. Except for mere statement that the work undertaken by the
assessee at outside the State was for the first time and there was necessity for meeting the
requirementstolabourandothersuppliersdemandingcash,nodetailswereplacedbeforethe
authorities concerned to accept the case of the assessee that there was a reasonable cause
shown in receiving an amount of Rs. 6,51,000 in cash from 'M'. Thus, the assessing authority
rightly pointed out that the explanation was not convincing, hence, the case of the assessee
was rejected. The plea that the transaction should be viewed as a gift transaction is devoid of
merit and it is only an afterthought. Confronting with the factual situation the transaction in
cash attracted penal provision, the assessee immediately wanted to change the colour of the
transactiontooneofgift.Hence,thispleawasliabletoberejected.(AY199495)
BuiltecEngineers&Buildersv.DCIT(2013)214Taxman99(Mag.)(Mad.)(HC)
S.271D:PenaltyAcceptsanyloanordepositReasonablecauseFindingastotheexistenceof
reasonablecauseisafindingoffactwhichcannotgiverisetoanysubstantialquestionoflaw.
(S.269SS,269T,273B.)
CIT(A)and theTribunalarrivedatconcurrentfindingsthat therewasreasonablecausewithin
the meaning of s. 273B for the violation of s. 269SS after taking note of the entire facts and
circumstances in which the assessee was placed, it cannot be held that the view taken by the
Tribunal is either perverse or absolutely irrational, and the findings recorded by the Tribunal
being essentially findings of fact, no substantial question of law arises. (A.Y. 199394 & 1999
2000to200102)
CITv.SaharaIndiaFinancialCorporationLtd.(2013)83DTR162/257CTR215(Delhi)(HC)
S.271D:PenaltyAcceptsanyloanordepositReasonablecause.(S.269T,271E,273B.)
Tribunal cancelled penalties u/ss. 271D and 271E after appraising several facts and
circumstances in accepting the assessees explanation that there exited reasonable cause
within the meaning of s. 273B for the violation of the provisions of ss. 269SS and 269T. The
revenuehadnotbroughtonrecordanymaterialtoshowthatthefindingoftheTribunalasto
theexistenceofreasonablecauseisperverse.Nosubstantialquestionoflawarose.(A.Y.1992
93,199394,199697,19992000&200001)
CITv.SaharaIndiaMutualBenefitCo.Ltd.(2013)83DTR 171/257CTR225/212Taxman97
(Mag.)(Delhi)(HC)
S.271D:Penalty Accepts any loan or deposit LimitationShow cause noticeBarred by

limitation.(S.269SS,275)
Showcausenoticefortheallegedcontraventionofs.269SSwasissuedontheassesseebythe
AO on 27
th
March 2003. Penalty levied by Jt. CIT on 28
th
May 2004 was beyond the period of
limitation,notwithstandingissueofshowcausenoticebyJt.CITafterthematterwasreferred
tohimon22
nd
March2004.(A.Y.200102)
CITv.JitendraSinghRathore(2013)352ITR327/83DTR227/257CTR18(Raj.)(HC)
411
S.271D:PenaltyAccepts any loan or depositReasonable causeNo material was placed
S.269SS)
Assessing Officer imposed penalty upon assessee for acceptance of cash loans from various
personsexceedingspecifiedlimit.Assesseesubmittedthathehadtofollowvillagecustomsand
traditionsandacceptwordsofeldersofvillageandthatsomedepositorsdidnothavePANs.No
material was placed on record as to which elder advice assessee had taken and why loan was
not received through crossed cheque when some depositors were having PAN, therefore,
impositionofpenaltyundersection271Dwasjustified.Infavourofrevenue.(A.Y.200506)
Addl.CITv.MadireddyVenkatReddy(2013)55SOT94(URO)(Hyd.)(Trib.)
S.271BA:PenaltyFailuretofurnishreportsInternationaltransactionTransferpricingReport
fromaccountanttobefurnishedFailuretofurnishreportisliabletopenalty.(S.92E,formno
3CEB)
AssessingOfficerleviedpenaltyundersection271BAongroundthatassesseefailedtofurnish
accountant'sreportinFormNo.3CEBasrequiredundersection92Ebyduedate.Submissionof
assessee was that it had filed return of income electronically; therefore annexures were not
requiredtobefurnished,andthatFormNo.3CEBwasfiledduringpenaltyproceedings.Though
the contention of assessee that return of income in electronic form was not to accompany
report in Form 3 CEB was correct. Tribunal held that the Assessee was required to file report
under section 92E, read with rule 10E, before specified date i.e., due date for filing of return.
therefore,penaltyundersection271BAwasrightlyimposed.(AY200607)
NectarLifesciencesLtd.v.Dy.CIT(2013)55SOT93(URO)(Delhi)(Trib.)
S.272A:PenaltyETDS returnDelay in filing TDS return through NSDL is a technical breach

Levyofpenaltyisnotjustified.
The AO imposed penalty u/s 272A(2) (k) for delay in filing the TDS return u/s 200(3). The
assesseesargumentthatthedelaywasduetoashortageofstaffwas rejectedontheground
that the same was not reasonablecause. TheCIT (A)confirmed the penalty. On appeal by the
assesseetotheTribunal,HELDallowingtheappeal:
The penalty was levied by the department in a mechanical manner. The assessee would have
filedthehardcopyofthequarterlystatementsbutthisisnotacceptedbythedepartment.The
computerhastogenerateanumberforacknowledgingreceiptofsuchstatements.Thenumber
is not generated till the computer tallies the PAN and the information available on AS26. The
late filing is caused by an administrative glitch. The delay occurs because the assessee
deductors are dependent on information of TDS and its deposit from the sub treasury of the
Government and the filing of the ereturn through the designated service provider of the
Incometax Department. The assesseedeductors have no technical competency to file the
returnbythemselveswithoutexternalaid.Theyarealsonotcompetenttodosobythemselves
asperrule37BandFilingofReturnof Taxdeductedatsourcescheme2003,whichrequires
the submission of quarterly statement through NSDL or other approved agencies which are
thirdpartiesandnotunderthecontroloftheassessees.Penaltyu/s272(A)(2)cannotbelevied
inaroutinemanner.ThelatefilingofTDSreturncannotbesaidtobeintentionalorwillful.Itis
onlyatechnicalorvenialbreach
BranchManager,UCOBankv.ACIT(2013)23ITR209(Cuttack)(Trib.)
412
S.272A:PenaltyETDSreturnPenaltydeletedfirstyearofdefault.(FormNo.24Q,26Q)
Tribunal held thatwhenthere is no provision for issuing separate notice for levy of penalty for
late or nonfiling of From nos. 24Q and 26Q as in case of failure to file these forms penalty is
leviable under section 272A(2). For relevant assessment year, assessee did not file ETDS
returns within specified time Assessing Officer, thus, levied penalty under section
272A(2).Tribunal held that since requirement of filing Form No. 24Q was new one being first
year of filing such return and, moreover, tax had been duly deducted by assessee, in such a
case,impugnedpenaltyorderwasnotsustainable.Infavourofassessee](200607)
TheManager,UnionBankofIndiavDy.CIT(2013)55SOT96(URO)(Agra)(Trib.)
S.272B:PenaltyPermanent account number Failure to mention PANs in form no 16, 16A, is

liabletopenalty.(S.139A,formno16,16A)
Duringcourseofinspection,AssessingOfficernoticedthatassesseehadfailedtomentionPANs
on Form Nos. 16 and 16A issued to persons from whom tax has been deducted at source.
AssesseeneithergaveanyexplanationnorevenappearedbeforeITO(TDS)ondatefixedITO
(TDS),thus,formedanopinionthatassesseewasnotpreventedbyanyreasonablecauseand,
thus, he passed a penalty order under section 271B. Tribunal held that on facts, assessee had
not made any compliance of section 139A(5B) and, thus, impugned penalty order was to be
confirmed.(A.Y.200708to200910)
General Manager, J&K Project Construction Corpn. Ltd. v. ITO. (2013) 55 SOT 98(URO (Asr.)
(Trib.)
S.276CC:Offences and prosecutionCompounding cannot be done in cases where order of conviction

has been passedAssessee to show sufficient cause or reason to support request for compounding.
[S.279]
Held, the assessee should have made a written request for the compounding of the offence, in the
prescribed pro forma, as provided under paragraph 4.4.1 of the guidelines. The assessee should also
have satisfied the other conditions contained in the guidelines, for the compounding of the offence.
Even though the guidelines prescribe that certain cases should not be compounded, normally, it is for
the assessee to show sufficient cause or reason to support his request for the compounding of the
offence.Theassesseewaspermittedtosubmitanappropriateapplication,beforetheDirectorGeneral
ofIncometaxintheformatprescribedintheguidelinesforthecompoundingoftheoffence.Onreceipt
of the application appropriate order had to be passed on the merits and in accordance with law after
givinganopportunityofpersonalhearingtotheassesse.(A.Y.19871988)
V.G.PaneerdasandCo.P.Ltd.v.Secretary,CBDT(2013)352ITR77(Mad.)(HC)
S.276CC:Offences and prosecutionFailure to file return in timeAccused paying tax and moving
SettlementCommissionNoimmunitybyCommissionfromprosecutionalreadylaunched.
Prosecutionwaslaunchedundersection276CCoftheActfornotfilingreturnafterconductingasearch
at the premises of the assessee. After paying the tax due, the assesse filed an application before the
Settlement Commission which found the disclosure made by him to be true and holding that the
petitionerhadagreedtobetaxedonthedepositsgrantedimmunityfrompenaltyforallyearsinvolved
in the settlement application. However, the Commission did not grant immunity from the prosecution
413
alreadylaunchedundersection276CConwhichthetrialcourttookcognizanceofthematter.Held,that
theorderoftheSettlementCommissionwasjustified.
AnilKumarSinhav.UOI(2013)352ITR170(Patna)(HC)
S.278B:Offences and prosecutionsPartners liable unless able to prove innocenceFinding that firm
hadtriedtoevadetax.[S.276C,276DCrl.PC,S.482]
Under section 278B, all the partners are equally responsible for commission of any offence by the
company/firm. The onus lies on the partners or directors to prove that they were not responsible for
actsofomissionorcommissioncommittedbythefirm/company.
It was a case of filing incorrect and false return clubbing the income of a proprietary concern of the
partner.Afternoticingthatcriminalprosecutionwasfiledfortheallegedact,atamuchbelatedstagein
the year 1997, under the Voluntary Disclosure of Income Scheme tax was paid on behalf of the
proprietary concern of the partner. At a subsequent stage, action taken by the petitioners may not
absolvethemfromthecharges.Atleastfortheperiodbetween1989and1997theoffenceofevasionof
theincometaxwascommittedbythepetitioners.Theprosecutioncouldnotbequashed.(A.Y.198990)
DeepakEngineeringWorksv.CIT(2013)352ITR161(Patna)(HC)
S.281B:ProvisionalattachmentRecoveryoftaxAttachmentoverandabovedemandraisedwasheld
tobenotjustifiedandillegal.
Oncetheassessmenthadbeencompleted,theRevenuewouldbejustifiedtoattachtheaccounttothe
extent of the demand raised against the assessee and not the entire amount standing to the credit of
theassessee.TheactionoftheRevenueinextendingtheperiodofattachmentinrespectofallthebank
accountsoftheassesseeandinrespectofoverthetaxdemandwaswhollyunjustifiedandillegal.
NirmalSinghv.UOI(2013)352ITR396/88DTR119/259CTR496(P&H)(HC)
S.281B:Provisional attachmentValidity periodAfter passing of assessment order the

provisionalattachmentisceasetooperate.
Court held thatprovisional attachment order passed under section 281B and notices/letters
issued to bank and sundry debtors of petitioner for not to make payment to petitioner would
ceasetooperateafterpassingofassessmentorder.Hence,thevalidityperiodofsixmonthsof
provisional attachment order would be extinguished after passing of assessment order. In
MotorolaSolutionsIndia(P.)Ltd.v.CIT(2013)212Taxman35(P&H)(HighCourt)
S.281B:ProvisionalattachmentThereisnoprovisioninstatutewhichgivespreferentialrights
to dues of State under ActBank as asecured creditor has preference over the dues of the
Income tax department in respect of the secured assets.[S.13(2) of the Securitization and
ReconstructionofFinancialAssetsandEnforcementofSecurityInterestAct,2002.]
A company availed loan from petitioner and mortgaged certain property to secure loan
advanced to it.Since said company defaulted in making payments of loan, petitioner initiated
proceedings under section 13(2) of the Securitization and Reconstruction of Financial Assets
414
and Enforcement of Security Interest Act, 2002.Thereupon, petitioner took possession over
propertyandputitonsale.Impugnedpropertyhadbeenprovisionallyattachedundersection
281B with prior approval of Commissioner and, it was on said basis, revenue claimed
preferential right to realize its dues being crown debt. There is no provision in statute which
gives preferential rights to dues of State under Act. Therefore, the petitioner as secured
creditor had preference over dues of department in respect of secured assets. In view of
aforesaid,instantwritpetitionwastobedisposedofwithadirectiontopetitionertoremitany
excess amount, after adjusting its dues, to revenue being preferential creditor amongst
unsecuredcreditors.Writpetitionofassesseewasallowed.
AxisBankLtd.v.CIT(2013)212Taxman19(Mag.)/259CTR492(P&H)(HC)
S.292C:Presumptionsastoassets,booksofaccountetc.Presumptionnotavailableinrespect
ofpersonotherthanpersonfromwhosepossessionbooksorassetsseized.(S.153A)During
the course of search, papers were seized from the premises of a hospital showing datewise
cashreceivedfromtheassessee.Theassesseeexplainedthatthedonationsweremadeoutof
unaccountedincomedeclaredbyS.TheAssessingOfficerfurthernotedthatthecompanywas
maintaining separate cash account. The presumption under section 292C of the Act was that
the paper belonged to the assessee and its contents were proved. The Assessing Officer
therefore, made the addition. The Dispute Resolution Panel rejected the objections raised by
theassesseeonthegroundthattheadditionmadewasbasedonseizedpapers.Papersseized
from the possession of S from the premises of the hospital showed the expenses incurred on
constructionofaschoolbuildingbelongingtotheMtrust.Anadditionwasmadeinthehands
of the assessee. That admittedly, the papers were seized from the premises of the hospital
fromthepossessionofSwhohadowneduptothedocuments.Noevidencewasfoundduring
the course of search to establish that the donations were made by the assessee out of
undisclosed income. S had donated the amount out of undisclosed income declared by him
undersection153AoftheAct.Thesourceofincomeoutofwhichthepaymenthadbeenmade
existed in the earlier years. The bank statement of M Trust which gave details of Rs. 5 lakhs
debitedtotheaccount.Therewasnothingonrecordtosuggestthattheseamountshadbeen
paid by the assessee. Therefore, no addition could be made in the hands of the assessee
company.Accordingtotheprovisionsofsection292Cthepresumptionwasthatthedocuments
related to S and not to the assessee. Hence, the Assessing Officer had wrongly applied the
provisionsofsection292C.TheTribunalheldthatthepaperinquestiondidnotshowthename
of any person from whose account the money had come for investment in school building.
There was no indication on these pages that amount had come from the account of the
assesseecompany. Therefore, no addition could be made in the hands of the assessee
company. Since the school was owned by M trust the addition could be made if at all, in the
handsofthetrustandnotinthehandsoftheassessee.(A.Y.20052006to20072008)
S.292BB:Notice deemed to be valid in certain circumstances ReassessmentSection 292BB

doesnothaveretrospectiveeffect.(S.143(2),148)
The AO issued a notice u/s 148 to make a reassessment. However, as a notice u/s 143(2) was
notissued,theTribunalquashedthereassessment.TheDepartmentfiledanappealbeforethe
415
HighCourtwhereitreliedons.292BB(whichprovidesthatthefailuretoissuenoticecannotbe
objected to if the assessee has appeared in theproceeding), inserted by the Finance Act 2008
w.e.f. 1.4.2008 and argued that the said provision was retrospective in operation and the
reassessmentwasvalid.HELDbytheHighCourtdismissingtheappeal:
The issue of a notice u/s 143(2) is mandatory. The failure to do so renders the reassessment
void(CWTv.HUFofH.H.LateShri.J.M.Scindia(2008)300ITR193(Bom.)followed).S.292BB
was inserted w.e.f. 1.4.2008 and came into operation prospectively for AY 2008 2009 and
onwards.
CITvSalmanKhan(Bom)(HC)www.itatonline.org.
S.292C:Presumptionastoassets,booksofaccount,etc.SearchandSeizureAdditiononthe
basisofdocumentsisheldtobejustified.
Pursuant to a search at assessee's premises, certain documents were found and one of such
documents contained working of interest at rate of 3 per cent on total sum of Rs. 3 lakh.
Assessee was directed to explain contents of document found during course of search
Assesseeexplainedthatcontentsofsaiddocumentwereroughworkingandnoloanwasgiven
out. Assessing Officer rejected assessee's explanation and brought to tax principal amount of
Rs. 3 lakh and interest thereon. Commissioner (Appeals) and Tribunal confirmed order of
Assessing Officer. On basis of material recovered during search, lower authorities had rightly
drawn presumption in terms of section 292C.therefore, impugned addition was to be
confirmed.Appealofassesseewasdismissed.(A.Y.199899)
HirenVasantlalShahv.ACIT(2013)212Taxman23(Mag.)(Guj.)(HC)
GifttaxAct,1958
S.4(1)(c):Deemed gift Revocable gift of shares Donor revoking gift but bonus shares
continuedwithdoneeMatterremanded.(S.11,16(1))
The assessee owned 6000 shares of Hero Cycles. On 20.02.1982, he executed a deed of
revocabletransferinfavourofM/s.YogeshChandra.Thedeedpermittedtheassesseeto,after
completionof74monthsfromthedateoftransferbutbeforetheexpiryof82monthsfromthe
said date, exercise the power of revoking the gift. In other words, there was a window of 8
months within which the gift could be revoked. The deed of revocable transfer specifically
statedthatthegiftshallnotincludeanybonussharesorrightsharesreceivedand/oraccruing
or coming to the transferee from Hero Cycles by virtue of ownership of the said shares.
Effectively, therefore, only a gift of 6000 equity shares was made by the assessee to the
transferee.On 29.09.1982 & 31.5.1986, the company issued 4000 and 10,000 bonus shares to
thetransferee.On15.6.1988,theassesseerevokedthegiftwiththeresultthatthe6000shares
giftedtothetransfereecamebacktotheassessee.However,the14,000bonussharesallotted
to the transferee while it was the holder of the equity shares of the company continued with
the transferee. In AY 198283, the GTO relied on McDowell and Co. Ltd. v. Commercial Tax
Officer(1985)154ITR148(SC)andheldthattherevocabletransferwasonlyforthepurposeof
reducing the wealth tax liability and was void. He, however, made a protective gifttax
assessment. The Tribunal and the High Court (CGT vs. Satya Nand Munjal (2002) 256 ITR 516
416
(P&H)) reversed the AO and held that a revocable transfer was valid even if its object was to
avoid wealthtax. The assessee was held liable to pay gifttax u/r 11 of the Gifttax Act. In AY
198990 the AO &CIT (A) held that the 14,000 shares belonged to the assessee and as the
revocation was only with respect to the 6,000 shares and the 14,000 bonus shares continued
with the transferee, there was a chargeable gift to that extent. The Tribunal reversed the AO
&CIT(A).Onappealbythedepartment,theHighCourtreversedtheTribunalandheldthatthe
assesseewasliabletogifttaxonthevalueofthebonussharesgiftedbyhimtothetransferee
applyingtheprinciplesofEscortsFarms(Ramgarh)Ltd.vCIT(1996)222ITR509(SC).Onappeal
bytheassesseetotheSupremeCourt,held:
The fundamental question is whether there was in fact a gift of 14,000 bonus shares made by
theassesseetothetransferee.Theanswertothisquestionliesins.4(1)(c)oftheGifttaxAct
whichprovidesthatwherethereisarelease,discharge,surrender,forfeitureorabandonment
ofanydebt,contractorotheractionableclaimorofanyinterestinpropertybyanyperson,the
valueoftherelease,discharge,surrender,forfeitureorabandonmenttotheextenttowhichit
hasnotbeenfoundtothesatisfactionoftheAOtohavebeenbonafide,shallbedeemedtobe
a gift made by the person responsible for the release, discharge, surrender, forfeiture or
abandonment.Onfacts,theassesseehadmadeavalidrevocablegiftof6000equitysharesin
thecompanyon20.2.1982tothetransferee.TheonlyeventthattookplaceinAY198990was
therevocationofthegiftbytheassesseeon15.6.1988.Thequestionwhethertherevocationof
the gift of the original shares in AY 198990 constitutes a gift of the bonus shares that were
allottedtothetransfereeon29.09.1982and31.05.1986requirestobeansweredinthelightof
s.4(1) (c). The question of applicability of Escorts Farms has to be decided after a finding is
reachedontheapplicabilityofthefirstpartofs.4(1)(c)(matterremanded).(A.Y.198990)
SatyaNandMunjalv.CGT(2013)350ITR640/256CTR121/82DTR284/213Taxman437(SC)
OmPrakashMunjalv.CGT(2013)350ITR640/256CTR121/82DTR284(SC)
S.4(1):DeemedgiftReconstitutionofPartnershipfirmdoesntamounttodeemedgift:
Reconstitution of a Partnership firm at the time of admission of new partner resulting into
reductionofshareinprofitoferstwhilepartnersdoesntamounttodeemedgiftandshallnot
give rise to levy of gift tax. (T.A. No. 394/ 395 of 2000,dt16/06/2012/(T.A. No. 346 of 2002,dt
16/16/2012)]
RatilalP.Patel(2012)BCAJNovemberP.402)(Guj.)(HC)
UrmilabenA.Patel(2012)ACAJNovemberP.402)(Guj.)(HC)
S.16B:RevocablegiftInterestMatterremanded.
TheHighCourtheldinteralia,thatsincegifttaxwasleviableontherevocabletransferofequity
sharesbytheassesseetoY,interestwasliabletobepaidbytheassesseeonthegifttaxlevied.
On appeal, the Supreme Court set aside the judgment of the High Court and remanded the
mattersforfreshconsiderationonthemeritsofthecase.(A.Y.198990)
SatyaNandMunjalv.CGT(2013)350ITR649/256CTR127/82DTR275/214Taxman10(Mag.)
(SC)
Om PrakashMunjal v.CGT(2013)350 ITR 649/ 256 CTR 127/82 DTR 275/214 Taxman
10(Mag.)(SC)
Brij Mohan Lal Munjal v.CGT ((2013)350 ITR 649/ 256 CTR 127/82 DTR 275/214 Taxman
10(Mag.)(SC)
417
InteresttaxAct,1974.
S.2(5):InterestCreditinstitution.Chargeableinterest.
Interest tax collected by a credit institution cannot partake character of chargeable interest
and,thusnointeresttaxwouldbeexigibleonit.
CITv.HaryanaFinancialCorpn.(2013)212Taxman25(Mag.)(P&H)(HC)
S.2(5):Interest Non banking financial institution Financial transaction Hire purchase

Matterremanded.
Tribunal has remitted the matter to original authority to have a fresh look, in to matter both
aspect of relevance of board circular and judgment of Supreme Court in case of Sundaram
Financev.StateofKerala,AIR1966SC1178.Appealofrevenuewasdismissed.(A.Y.199899)
CITv.StandardCharteredFinanceLtd(2013)212Taxman24(Mag.)(Karn.)(HC)
S.2(5B):FinancialCompanyLeasechargesDiscountingcharges.
Where factual aspect as to whether assessee was a financial company and whether interest
earned under three heads namely, lease charges, hire purchase charges and bill discounting
charges, were chargeable to tax under Interesttax Act being not clear, matter was to be
remandedbacktolowerauthoritiesforreconsiderationMatterremanded.
CITv.Motor&GeneralFinanceLtd.(2013)212Taxman76(Mag.)(Delhi)(HC)
S.2(7):InterestFinancechargesSeparateAccounts.
Assesseebankreceivedfinancechargesincaseofleasetransactionsenteredintobyitwithits
customerswherecustomerspurchasedmachineryfromfinancesprovidedbyassess.Assessing
Officer held that amount received by assessee was liable to interest tax. On appeal, Appellate
Authoritiesheldthatamountcollectedbyassesseewashirepurchasechargesandnotinterest
and, therefore, there was no liability to pay tax as such. In view of concurrent finding of fact
recorded by Appellate Authorities, no case for interference was made out. Appeal ofrevenue
was dismissed. When assessee had maintained a separate account in respect of amounts
collected from customers towards interesttax, amounts so collected by assessee were not
'interest' within meaning of section 2(7) and, hence, could not be treated as chargeable
interest.Appealofrevenuewasdismissed.
CITv.KarnatakaBankLtd.(2013)212Taxman78(Mag.)(Karn.)(HC)
S.5:ChargeableinterestInteresttaxcollectedbyacreditinstitutioncannotpartakecharacter
ofchargeableinterestand,thusnointeresttaxwouldbeexigibleonit.(S.2(5),26C)
The assessee is acredit institution earning interest. It filedits return of chargeableinterest. In
the course of assessment, Assessing Officer noted that assessee had not included the interest
tax collected from its clients in the chargeable interest. The Assessing Officer completed the
assessment under section 8(2) adding the said amount to the chargeable interest in view of
provisions of section 26C. On second appeal, the Tribunal deleted the addition holding that
amount of interest tax recovered from the customers was not chargeable to interest. On
revenue'sappealthecourtheldthatinteresttaxcollectedbyacreditinstitutioncannotpartake
418
character of chargeable interest and, thus no interest tax would be exigible on it. In favour of
assessee
CITv.HaryanaFinancialCorpn.(2013)212Taxman25(Mag.)(P&H)(HC)
S.5:ChargeableinterestProvisionInterestonbadordoubtfuldebts
Interest on nonperforming assets would be charged to interesttax only in year in which said
interestiscreditedtoprofitandlossaccountorinyearofreceipt,whicheverisearlier.Appealof
assesseewasallowed.(A.Y.199899)
AmericanExpressBankLtd.v.Add.CIT(2013)55SOT136(Trib.)(Mum.)
S.10:Reassessment Non disclosure of primary factsReassessment held to be valid. (S.8,

10A).
Assessee filed return of chargeable interest voluntarily, which had not been processed /
finalized by Assessing Officer. Later on, Assessing Officer issued a notice under section 10 to
reopen assessment on ground that certain interest chargeable to tax had escaped assessment
on account of nondisclosure by assessee. Assessing Officer passed a reassessment order and
brought to tax certain amount of interest. Appellate authorities having found that Assessing
Officerhadnotprocessedoriginalreturnfiledbyassesseewithinlimitationperiodoftwoyears
from end of assessment year under consideration, held that reopening of assessment was
barred by time. Situations may develop where Assessing Officer may be inactive, may be
indecisive or may be for justifiable reasons or deliberately does not conclude assessment, but
to hold or opine that even a reassessment is not possible in such situations will be virtually
amounting to rewriting contents of section 10.Since a reopening is permitted even in a
situation where an assessment order is passed, but that has resulted in escapement of some
chargeable interest to tax, reopening is also permitted where a return is filed, but no
assessment order is passed within time permitted for passing an assessment order under
section10A.Section10isaspecificenablingprovision onlytoremedysuchsituationsandonly
criteria is escapement of such chargeable interest to tax for whatever reason may be; while
invoking section 10 it can only be within parameters mentioned in section 10 and not with
reference to time stipulations provided for concluding an assessment or passing assessment
orderundersection8.Reopeningheldtobejustified.(A.Y.199798).
CITv.StandardCharteredFinanceLtd.(2013)212Taxman79(Mag.)(Karn.)(HC)
WealthtaxAct,1957
S.2(ea):AssetHousepropertyTransithouseforexecutivesdoesnotformpartofasset.
Transit house used for the stay of executives on official tour does not form part of asset u/s.
2(ea).(A.Y.199596)
CarborandumUniversalLtd.v.Dy.CWT(2013)83DTR75(Mad.)(HighCourt)
S.2(ea):AssetCommercialpropertiesCommercialPropertieswerenotconsideredasassetsin
termsofS.2(ea)(i)oftheWealthtaxAct,1957priorto01/04/97andhence,suchproperties
cantbeassessedunderthesaidAct.
419
Property given on rent, being a productive asset, bears the character of a Commercial
Property Commercial Properties were not included in the definition of asset as prescribed
u/s.2(ea) (i) of the Wealthtax Act, 1957 as it stood prior to 01/04/1997. Since the year under
consideration was Asst. Year 199697, it was held by the Honble High Court that the said
property cannot be assessed under the WealthTax Act. 1957. (T.A. no 540 of 2006. dt
16/06/2012)]
NarayanT.Baddi(Dr.)(2012)BCAJNovemberP.402)(Guj.)(HighCourt)
S.2(ea):AssetLeasefor99yearsUsedforthepurposeofbusinessLandisexempt.
Assesseehadbeenallocatedlandinquestionon99yearsleasebyStateIndustrialCorporation.
WTOdeniedexemptionundersection2(ea)(i)(3)andsubjectedlandtowealthtaxonground
that assessee was not doing any business therefrom for last number of years. In fact it was
found that assessee had carried on its business utilizing aforesaid asset for this purpose, and
this position was even accepted by department as well. On factsland in question held by
assesseewasexemptfromwealthtaxundersection2(ea)(i)(3).(A.Y.200102to200405)
CITv.SohnaForge(P.)Ltd.[2013]212Taxman82(Mag.)(Delhi)(HC)
S.2.(m):NetwealthAssetSurplusofincomePresumptionExceptionNopresumption
Additionofincomefromundisclosedsourcesinearlieryearsisnottreatedassurplusavailable
inassessee'shandstobetreatedaswealthforpurposeofwealthtaxforlatteryears.
The Incometax Officer, for the assessment years 198586 to 198889, found that the total
surplusavailablewiththeassesseebywayofincomebeingRs.21,15,164andthetotalwealth
disclosedbytheassesseebeingRs.97,25,000,theincreaseinthewealthwastothetuneofRs.
76,09,836.ThatincomeofRs.76,09,836wastakentobeincomefromundisclosedsources.The
total available surplus available with the assessee during the assessment years 197374 to
197677wasdeclaredtobeRs.21,15,164basedontheassessedincomeoftheassesseeforthe
threeyears.TheTribunalupheldtheassessment.Onappeals:
Held, dismissing the appeals, that the addition of Rs. 23,59,461 made from the assessment
years196364to197071couldnotbeheldtobeassetsinthehandsoftheassesseeafterthe
period of more than eight years and, therefore, no tax could be imposed on the basis of such
addition of Rs. 23,59,461 treating it to be wealth for the purpose of wealthtax for the years
198586to198889andonwards.(A.Y.19851986,to19881989)
Gyan Chand Jain v. CWT (2013) 350 ITR 353/84 DTR 170/257 CTR 273/213 Taxman
212(Jharkhand)(HC)
S.4:DeemedwealthAsset'belongingto'AllotmentoflandLiabletowealthtax.
Assessee was allotted certain land by State Government. It constructed sheds thereon and
rented out same to industrialists. Assessing Officer observed that though income from those
shedshadbeenreflectedinincomeofassessee,inreturnofwealthtaxaforesaidshedwerenot
shownas'assets'ofassessee.AssessingOfficer,therefore,addedvalueofthoseshedstowards
assetsofassesseeOnappeal,Tribunalheldthatpropertyinquestioncouldnotbetreatedto
beassetsofassesseesincesamehadonlybeenallottedtoitandwasactuallytransferredinits
favourinalateryear.Sinceassesseewasderivingrentalincomefromsheds,propertyshouldbe
deemedtobebelongingtoassesseeandwasliabletobeincludedinitsassets.
420
CITv.H.P.SmallIndustries&ExportCorp.(2013)212Taxman84(Mag.)(HP.)(HC)
S.5(i):Exemptions Property held by charitable and religious trust Exemption is held to be

available.
Assessee trust was constituted with object to provide educational facilities in catering.One 'K'
transferred movable and immovable properties of hotel 'V' to assesseetrust for providing
cateringeducationtherein.Saidtransferwastreatedasgiftinhandsof'K'butonappeallevyof
gift tax was set aside by Tribunal holding that there was no gift and it was only a permission
grantedforacollegetomanagesamefreeofrent.Incaseofassessee,AssessingOfficertreated
assets of hotel 'V' as assessee's wealth and computed wealth tax liability payable by
assessee.when assessee was not liable to pay any incometax on income derived by it from
activity carried on by it and 'K' was held not liable to pay gifttax for transfer of property in
assessee'sfavour,levyofwealthtaxonverysamepropertyongroundthatactivityconducted
by assessee in respect of property did not constitute a charitable or religious purpose was
unjustified.Appealofrevenuewasdismissed.(A.Y.198687)
CIT v.Manipal Hotel & Restaurant Management College Trust[2013] 212 Taxman 86 (Mag.)
(Karn.)(HC)
S.7:Valuation of assets Immovable property Let out property Interest free deposits
AnnualrentAdditionwasupheld:
Assessee let out its property on annual rent of Rs. 4.42 lakhs. It also received interest free
depositsofRs.31.50lakhsfromtenantWhilecomputingfairmarketvalueofpropertyletout,
Assessing Officer added interest at rate of 14 per cent on Rs. 31.50 lakhs to figure of annual
rent.Commissioner(Appeals)aswellasTribunalheldthatinterestamountcouldnotbeadded
toannualrenttocomputefairmarketvalueofproperty.ItisundisputedthatasperSchedule
III,rule5,whereanownerhasacceptedanamountordeposit,notbeinganadvancepayment
towardsrentforaperiodof3monthsorless,anamountcalculatedatrateof15percentper
annum on amount of deposit outstanding from month to month shall be added to compute
annualrent.Inviewofaforesaid,computationmadebyAssessingOfficerbyaddingintereston
security deposit to figure of annual rent was to be upheld. Appeal of revenue was up
held.(A.Y.198586to198788)
CWTv.MGBuildersCo.(2013)212Taxman15(Mag.)(Delhi)(HC)
S.7:ValuationofassetsImmovablepropertySlumsonpropertyhastobeconsideredforthe
purposeofvaluationofproperty.
Assessee acquired 50 per cent of share in a property. He acquired same under registered sale
deed.AAC accepted valuation of assessee where under apart fromconsideration mentioned in
sale deed and market value of the property, impediments like ownerships slums on property
werealsotakenintoconsiderationincomingtofairmarketvalue.Onappeal,Tribunaldeclined
tointerferewithfindingrecordedbyAAC.Onfacts,valuationacceptedbyTribunalwasjustand
properandrepresentedtruemarketvalueofproperty.(A.Y.199697to200304)
CITv.S.K.Ramprasad(2013)212Taxman15(Mag.)(Karn.)(HC)
421
S.7:ValuationofassetsForeigncarsNotionaldepreciation[WealthtaxRules,1957,Rule14
ScheduleIII]
Where assessee had only one foreign car on relevant date, no depreciation having been
admittedlyeitherclaimedorallowedonanyforeigncar,itsactualcosthadtobeconsideredas
its WDV as at year end. Concept of block of assets is relevant only to ascertain depreciation
exigible or admissible and consequently to determine WDV thereof. Value of any asset under
rule 14, on other hand is to be taken qua each separate business asset of assessee. Notional
depreciationi.e.neitherclaimednorallowed,couldnotbetakenintoaccountorconsideration
forpurposeofcomputingWDVofrelevantassetasatyearend.(A.Y.200506)
VenusRecords&Tapes(P.)Ltd.ACWT(2013)141ITD221/88DTR226(Mum.)(Trib.)
S.16:AssessmentNoticeReassessmentOrderpassedwithoutissuingmandatorynoticeheld
tobeinvalid.(S.16(2),16(4),17)
A notice under section 17 was issued to assessee on ground that authority had reason to
believe that wealth had escaped assessment Assessee did not file any return, in response to
said notice. Assessing Authority issued a notice under section 16(4) calling upon assessee to
produce accounts books and other documents for verification. Instead of producing books as
sought for in said notice, assessee filed returns under section 16(4) (i).Thereafter, Assessing
Authority passed assessment order.Assessee challenged said order before Appellate
Commissioner on ground that notice under section 16(2) was not issued before passing an
order of assessment which was mandatory. Appellate Commissioner taking a view that notice
issued under section 16(4) would satisfy requirement of law as well as principles of natural
justice, dismissed assessee's appeal. On further appeal, Tribunal held that impugned order of
assessmentpassedwithoutcomplyingwithrequirementofsection16(2)wasinvalid.Onappeal
byrevenuetheCourtheldthatsinceAssessingOfficerhadneithergivenanoticeundersection
16(2) nor a notice as contemplated in proviso to section 16(5) and passed impugned order,
ordersopassedwasviolativeofprinciplesofnaturaljustice,therefore,Tribunalwasjustifiedin
settingasideimpugnedassessmentorder.(A.Y.19992000to200304)
CWTv.PrameelaKrishna(Smt)(2013)212Taxman16(Mag.)(Karn.)(HC)
S.16(1)(a):AssessmentPrimafacieadjustmentDebatableTransithouse.
Intheproceedingsu/s.16(1)(a),transithousecouldnotbeincludedinthevalueofnetwealth.
(A.Y.199596)
CarborandumUniversalLtd.v.Dy.CWT(2013)83DTR75(Mad.)(HC)
S.18(1)(c):PenaltyConcealmentNO penalty can be levied in respect of addition made on
accountofadoptiondifferentmethodsofvaluationbyassesseeandDepartment:
Nopenaltycanbeleviedu/s.18(1)(c)onadditionmadeinrespectofdifferenceinvaluationof
properties on account of adoption of different methods of valuation by assessee and
department further, in case the penalty order does not clearly spell out as to whether the
penalty is levied for concealment of wealth orfor furnishing inaccurate particular of wealth.
(T.A.No.145/147Of200,dt,24/07/12)]
RamanbhaiB.PatelHUF(2012)BCAJNovemberP.399)(Guj.)(HC)
S.24:AppellateTribunalPowerAppealRectificationofmistakeNopowertoreview.
422
Assessee is an individual belonging to royal family of Patiala. In course of wealthtax
proceedings,departmenthadbifurcatedresidentiallandboundedbyfourwallsofpropertyinto
differentsegmentsandadopteddifferentratesofland.Onappeal,Tribunalconsideredfactsof
caseandproceededtoholdthatvalueofresidentialhouseandlandappurtenanttoresidential
house might be valued as per provisions of section 7(4). However, in same order, Tribunal
proceeded to hold that classification of land into different categories, area of land and
valuation of land, was fair and reasonable. In view of apparent contradictions in Tribunal's
order, assessee filed a miscellaneous application.Tribunal thus recalled its order for a limited
purpose of determining valuation of land appurtenant to residential house in question.
Subsequently, Tribunal concluded that there was no contradiction in findings recorded. On
facts, approach adopted by Tribunal in impugned order smacked review of earlier order.
Therefore,theimpugnedorderwastobesetasideand,matterwastoberemandedbackwith
adirectiontoTribunaltoreconciletwoordersinsteadofwritingaperfunctoryorder.(A.Y.1972
73to198485)
RajaMalwinderSinghv.CWT(2013)212Taxman17(Mag.)(P&H)(HC)
ExciseandCustoms.
S.35C:StayofrecoveryExciseandCustomsStayRecoveryCBECCircularthatdemandshould
be recovered even if stay application is not disposed of for no fault of assessee is arbitrary,
unjustified & unlawfulDigital data records For better administration and control to safe
guard the interest of revenue as well as fairness to assessees, Union of India Ministry of
Financerequestedtogivethesesuggestionsseriousandurgentconsideration.
The Central Board of Excise and Customs (CBEC) issued Circular No. 967/01/ 2013 CX dated
01.01.2013 to deal with recovery of demand. The Circular provided that (i) even if a stay
application is pending, steps for recovery must be initiated thirty days after the filing of the
appeal if no stay is granted, (ii) if the Commissioner (Appeals) has confirmed a demand,
recovery has to be initiated immediately despite s. 35F permitting the assessee to move the
Tribunalforadispensationoftherequirementofdepositand(iii)iftheTribunalhasconfirmed
the demand, recovery should be initiated immediately despite the statute providing a time
period for filing an appeal to the High Court. The Circular was challenged by the assessees on
the ground that recovery of the demand even when the assessee is not responsible for the
delayindisposalofthestayapplication/appealandduringthependencyofthetimeperiodfor
filing an appeal was arbitrary and violative of Article 14 of the Constitution. Held by the High
Courtupholdingtheplea:
(i)ThoughinKrishnaSales(CollectorofCustomsBombayv.KrishnaSales(P)Ltd.(1994)73ELT
519(SC)itwasheldthatthemerefilingofanappealdoesnotoperateasastayorsuspension
oftheorderappealedagainst,wherethedelayinthedisposalofanappealorastayapplication
arisesduetoafailureoftheAppellateAuthoritytodisposeoftheappealorthestayapplication
and the assessee is not at fault, there is no reason or justification to penalize the assessee by
recovering the demand in the meantime. Administrative reasons for nondisposal of the stay
applicationmayincludelackofadequateinfrastructure,unavailabilityoftheofficerconcerned
beforewhomthestayapplicationhasbeenfiled,absenceofaBenchbeforetheCESTATforthe
423
decision of an application for stay or the sheer volume of work. In such a situation, where an
assessee has done everything within his control by moving an application for stay and which
remains pending because of the inability of the Commissioner (Appeals) or the CESTAT to
dispose of the application within thirty days, it would be a travesty of justice if recovery
proceedingsareallowedtobeinitiatedinthemeantime.Theprotectionoftherevenuehasto
be necessarily balanced with fairness to the assessee. That was why, even though a specific
statutory provision came to be introduced by Parliament in s. 35C(2A) to the effect that an
order of stay would stand vacated where the appeal before the Tribunal was not disposed of
within 180 days, the Supreme Court held in COC &C.Ex.(Ahd) v. Kumar Cotton Mills Pvt. Ltd.
(2005)180ELT434(SC)thatthiswouldnotapplytoasituationwheretheappealhadremained
pendingforreasonsnotattributabletotheassessee.
(ii) Also initiation of recovery proceedings without allowing the assessee, the time which is
allowed by the statute for filing an appeal and for applying for a waiver of predeposit or for
filinganappealtotheHighCourtisnotjustified.Thecircularisinterroremanditsplaineffect
andconsequenceistodeprivetheassesseeoftheremedywhichisprovidedunderthelawof
moving,asthecasemaybe,theCESTAT,theHighCourtortheSupremeCourtagainstanorder
of adjudication of the competent appellate forum. There is no justification to commence
recovery immediately following an order in appeal where the limitation period for challenging
the decision of the Appellate Authority has not expired. The Circular is to that extent patently
arbitrary and violative of Article 14 of the Constitution. The Departments argument that the
field officers who initiate recovery action have no means of verifying the status of the stay
applicationisnotjustified.TheMinistryofFinanceshouldtakestepstoensurethatproceedings
beforealltheauthoritiesarerecordedintheelectronicform.Thiswillprovidetransparencyand
accountabilityinthefunctioningofallauthorities.However,ifthefailuretodisposeofthestay
application is because of the conduct of the assessee, the revenue would be justified in
commencingrecoveryaction.
Larsen&ToubroLimitedv.UOI(2013)(288)E.L.T.481/86DTR162/259CTR37(Bom.)(HC).
S.35C:StayofrecoveryProvisoCBECTaxRecoveryCircularisuntenable,misconceived,wholly
illegalandarbitrary.
The High Court had to consider two issues: (i) whether the revenue is justified in initiating
recovery proceedings on the basis of Circular dated 01.01.2013, even when an application for
waiver of predeposit is pending before the Appellate Authorities for the reason that on such
applicationforstayorwaiverofpredeposit,noordershavebeenpassed?And(ii)whetherthe
second proviso in subsection (2A) of s. 35C is directory and that the Tribunal in appropriate
circumstances can extend the period of stay beyond 180 days?Held,by the HighCourt:(i) The
CircularispurportedtobeissuedintermsofthejudgementinKrishnaSales(73)ELT519(SC).
Though in Krishna Sales it was held that mere filing of an appeal does not operate as stay or
suspensionoftheorderappealedagainst,theBoardhasoverlookedthefactthattheassessee
is not seeking stay only on account of filing of an appeal, but for the reason that the assessee
has sought dispensing with the predeposit of duty and penalty and has a right to demand
decisiononsuchapplication,arightwhichiscreatedbytheStatute.Therefore,theverybasisof
theCircularisuntenable,misconceived,whollyillegalandarbitrary.Therefore,theconditionof
424
recovery, ifno stay is granted within 30 days, is illegal, arbitrary, unjustified and consequently
setaside(Larsen&Tuobro(Bom)referred);
(ii)AsregardsappealspendingbeforetheTribunal,theassesseehasnocontroloverthenon
disposal of the appeal on account of nonavailability of infrastructure; the members of the
Tribunalandtheworkload. ThevacationofstayforthereasonthattheTribunalisnotableto
decide appeal within 180 days is a harsh, onerous and unreasonable condition. It burdens the
assessee for no fault of his. Such a condition is onerous and renders the right of appeal as
illusory. An order passed by a judicial forum cannot be annulled for no fault of the assessee.
Therefore, s. 35C(2A) which provides for automatic vacation of stay on the expiry of 180 days
hastobereaddowntomeanthatafter180daystheRevenuehasarighttobringtothenotice
oftheTribunaltheconductoftheassesseeindelayoravoidingthedecisionofappeal,soasto
warrantanorderofvacationofstay.Iftheprovisionisnotreaddowninthemannermentioned
above,itsuffersfromillegalityrenderingtherightofappealasredundant.
PMLIndustriesLimitedv.UOI(2013)86DTR227/259CTR87(P&H)HighCourt)
S.35L:AppealHighCourtGroundsnotarguedbeforeTribunalisnottoberaised.
TheCourtheldthatinanappealundersection35Lofthe1944Act,itisnotopentoeitherparty
toraiseanewgroundwhichwasneverarguedbeforetheTribunal.Thecourtsscrutinyofthe
argumentsadvancedhastobelimitedonlytothosegroundswhichwerearguedbytheparties
andaddressedbytheTribunalinitsorder.
CCEv.ConnaughtPlazaRestaurantP.Ltd(2013)18GSTR1(SC.)
VOLUNTARYDISCLOSUREOFINCOMESCHEME,1997.
S.64(2):Existence of stock, cash and amount of sundry debtors accepted in previous years
Presumptionthatthesamecontinuedforashortperiod.[FinanceAct,1997]
Under the Voluntary Disclosure of Income Scheme, 1997, the assessee submitted a declaration of
undisclosed income on December 26, 1997, which included stock, cash and the amount of sundry
debtors. It claimed that the disclosure was not only for the assessment year in which the survey was
conducted but also for the three years preceding the date of survey. The Tribunal held that the
disclosuremadebytheassesseewasnotvoluntaryanditwasacompulsiononthepartofittooptfor
theScheme.
Held, that rejection of stock, cash and the amount of sundry debtors for the year 199798 would
tantamounttorejectionoftheacceptedfactofthe Revenueoftheincreaseofstock,etc.,intheyears
199495, 199596, which had been accepted by the Revenue under the Scheme and accordingly the
assesseehadbeentaxed.Oncethatstock,cashandtheamountofsundrydebtorswasacceptedtobein
existenceintheyears199495and199596itcouldnotbedeclaredtohavebeenextinguishedinsucha
shortperiodoftime,i.e.,from1994to1997only.(A.Y.19971998)
Jainsonsv.ITO(2013)352ITR28/257CTR278/84DTR174(Jharkhand)(HC)
SERVICETAX.
S.65.Service tax Point of taxation CBEC Circulars on CAs liability to pay higher service tax
rateonservicesrendered/invoiceraisedbefore01.04.2012butpaymentreceivedthereafter
isultravires.(FinanceAct,1994.S.65(105)(s),66b),PointoftaxationRules2011,rule,4,7)
425
Rule 2(e) of the Point of Taxation Rules, 2011 inserted w.e.f. 01.04.2011 defined point of
taxation as the point in time when a service shall be deemed to have been provided.
Consequent to the insertion of s. 66B, the rate of service tax was enhanced from 10% to 12%
w.e.f.01.04.2012.TheHighCourthadtoconsiderwhatwouldbetherateoftaxwhere(a)the
serviceisprovidedbythecharteredaccountantspriorto01.04.2012(b)theinvoiceisissuedby
the CAs prior to 01.04.2012 but (c) the payment is received after 01.04.2012. On facts, as the
serviceswere renderedbefore 01.04.2012 and even the invoices were raised before that date
anditwasonlythatthepaymentwasreceivedafterthesaiddate,thePetitionerclaimedthat
Rule4(a)(ii)ofthePointofTaxationRules,2011appliesandthepointoftaxationshallbethe
date of issuance of the invoice. However, the service tax authorities issued Circular No.154
dated28.03.2012andCircularNo.158dated08.05.2012thatinrespectofinvoicesissuedonor
before31stMarch2012thepointoftaxationshallbethedateofpayment.ThePetitionerfiled
aWritPetitiontochallengethesaidCirculars.HELDbytheHighCourtupholdingtheplea:
Rule4ofthePointofTaxationRules,2011whichhascontinuedevenafter01.04.2012isclearly
theanswer.Itprovidesforaspecificsituationnamelydeterminationofthepointoftaxationin
caseofchangeineffectiverateoftax.AsperRule4,wheneverthereisachangeintheeffective
rateoftaxinrespectofaservice,thepointof taxationshallbedeterminedinthemannerset
out in the Rule. Subclause (ii) of Clause (a) of Rule 4 provides that where the taxable service
has been provided before 01.04.2012 and the invoice was also issued before 01.04.2012, but
thepaymentisreceivedafter01.04.2012,thenthedateofissuanceofinvoiceshallbedeemed
tobethedateonwhichtheservicewasrenderedand,consequently,thepointoftaxation.The
result is that where the services of the chartered accountants were actually rendered before
01.04.2012 and the invoices werealso issued before that date, but the paymentwas received
afterthesaiddate,therateoftaxwillbe10%andnot12%.Thecircularsinquestionhavenot
takennoteofthisaspect,andhaveproceededontheerroneousassumptionthattheoldRule7
continued to govern the case notwithstanding the introduction of the new Rule 7 which does
notprovideforthecontingencythathasariseninthepresentcase.Consequently,thecirculars
arequashedasbeingcontrarytotheFinanceAct,1994andthePointofTaxationRules,2011.A
Circular which is contrary to the Act and the Rules cannot be enforced (Ratan Melting & Wire
Industriesfollowed)
DelhiCharteredAccountantsSocietyv.UOI(2013)84DTR25/257CTR73(Delhi)(HC)
AlliedLaws.
ServicematterPromotionofincometaxInspectorsDirectrecruitspromotes.
where examination and selection process of direct recruits could not be completed within
recruitment year itself, modification/amendment in manner of determining inter se seniority
between direct recruits and promotees, carried out through Office Memorandum dated 72
1986,andcompilationofinstructionspertainingtoseniorityinOfficeMemorandumdated37
1986leavenoroomforanydoubtthat'rotationofquotas'principlewouldbefullyapplicableto
direct recruits. Direct recruits will, therefore, have to be interspaced with promotees of same
recruitment year. Claim of promotees that direct recruit Incometax inspectors in such a case
should be assigned seniority with reference to date of their actual appointment in Incometax
Department;andnotdateoforiginal/firstexamination/selection,wastobedeclined.
UOIv.N.R.Parmar(2013)212Taxman97(SC)
426
InocmetaxAppellateTribunalAdhocappointmentasofficiatingpresidentofITATisproper
andlegal.
Shri. G. E. Veerabhadrappa, the seniormost Vice President of the Tribunal, was vide order
dated 13.10.2011 appointed President of the Tribunal in an officiating capacity till the post
wasfilleduponregularbasis.Videnotificationdated5.5.2012thesaidorderwasmodifiedto
read in an officiating capacity up to 31.8.2012 or further orders. On 31.8.2012, Shri. H. L.
Karwa was appointed the President in place of Shri. G. E. Veerabhadrappa. Shri.
Veerabhadrappa was thereafter transferred on 7.11.2012 to Calcutta. Shri. Veerabhadrappa
filedaPetitionclaimingthat(i)thecurtailmentoftheperiodofappointmenttill31.8.2012was
unjustified, (ii) his removal from the post of President was actuated by malice and personal
vendetta of the Law Secretary owing to his refusal to cancel the transfers of Shri. Hari Om
MarathaandSmt.DivaSinghand(ii)theappointmentofShri.H.L.Karwa(thejuniormostVice
President)asPresidentwasirregularasfoundbytheAppointmentsCommitteeoftheCabinet.
The Law Ministry opposed the Petition on the ground that there were complaints regarding
integrityandthatthedecisionwastakenatthehighestlevelafterdueconsideration.HELDby
theCATdismissingthePetition:
(i)TheorderappointingtheApplicantasPresidentmadeitclearthattheappointmentwasin
an officiating capacity and until further orders. The appointment order did not confer any
invinciblerightontheApplicanttocontinueinoffice.Also,theorderdated5.5.2012restricting
the Applicants tenure as President till 31.8.2012 was challenged by him several months later.
Even though there may not be delay and laches, it can be said that the conduct was one of
acquiescenceanddidnotentitlehimtorelief;
(ii) As regards the allegation that the removal was motivated by malice and personal
vendetta, the exchange of correspondence between the President and the Law Ministry
regarding the transfers of the Members took place after the passing of the order dated
5.5.2012 curtailing the tenure of the Applicant till 31.8.2012. There is some merit in the
contention of the Respondents that the Applicant is trying to create a smoke screen by
unnecessarilydraggingthenamesoftheLawSecretariesandmakingpersonalallegations;
(iii) The allegation that the appointment of Shri. H. L. Karwa as Officiating President was
improper as a selection process was not resorted to is also not correct. The Government is
entitledtoappointthePresidentinanofficiatingcapacitysoastoensurethatnovacuumisleft
in the Institution. The opinion expressed by the Appointments Committee of the Cabinet is
totally misconceived. It is immaterial whether the person appointed as officiating President is
junior or not and there is no question of supersession. It is, however, desirable that the
appointmenttothepostofPresidentbemadeattheearliestonaregularbasisratherthanon
anadhoc/officiatingbasis.
G.E.Veerabhadrappav.UOI(CAT)www.itatonline.org.
Incometax Appellate TribunalPowers of President Transfer of membersAs there is prima

facie merit in the allegation regarding improper Collegium & mala fides, interim stay on
transferofITATMembercannotbevacated
HonbleShri. Sunil Kumar Yadav, Judicial Member, posted at Lucknow, filed a case before the
CentralAdministrativeTribunal(CAT),LucknowBench,claimingthathistransfer,withinaspan
427
ofoneyear,fromLucknowtoChennai,whichwasthenmodifiedfromLucknowtoKolkotawas
arbitrary and with a malafide intention and contrary to the guidelines laid down in Ajay
Gandhivs.V.B.Singh(2004)2SCC120.Byaninterimorderdated19.11.2012,theCATstayed
operation and implementation of the impugned transfer order. The UOI and the President of
theTribunalfiledanapplicationseekingvacationofthestayorder.HELDbytheCAT:
The interim order has been passed on the basis of a prima facie case that the impugned
transferorderhasnotbeenmadebyaproperCollegiuminaccordancewiththeguidelineslaid
down in Ajay Gandhis case and also on the ground of alleged mala fides against the present
officiatingpresidentoftheITAT.AnewpointhasnowbeenraisedbythetransferredMember
that the ACC (Cabinet Committee of Appointment) has not yet accorded approval on the
proposedappointmentofShriKarwaasofficiatingPresidentoftheITATonthegroundthatby
such appointment there is a supersession of three persons and as there is no difference
betweenanappointmentinasubstantivecapacityandanofficiatingcapacity,theappointment
requirestobeconsideredfirstbytheSelectionCommittee.Thisapprovalmayormaynotcome
in due course of time and then only the exact status of the competent authority i.e. the
President,ITAT,wouldbeascertained.Forthepresent,primafacie,thispointisinfavourofthe
applicant.AsregardsthepointofproperCollegium,therequirementinAjayGandhiisthatthe
PresidentshouldconsulttwoseniorVicePresidentsandnotthetwoVicePresidentsavailable.
IthasbeenallegedthatthoughthetwoSeniorVicePresidentswereavailablefortheCollegium,
they were ignored in an arbitrary manner and in utter defiance of the law. Prima facie there
appearstobesomesubstanceinthesubmission.Aprimafaciecasehasalsobeenmadeoutas
regardstheallegationofmalafides.Consequently,thereisnosubstantialandsufficientground
forvacatingtheinterimorderdated19.11.2012
SunilKumarYadavv.UOI(CAT),www.itatonline.org
Interpretationoftaxingstatues.
PrecedentJudgmentofForeignCourtsPersuasivevalue.
ThejudgmentofForeignCourtshaveonlypersuasivevalue.
L.G. Electronics India P. Ltd v. ACIT (2013)140 ITD 41/ 22 ITR 1/83 DTR 1/152 TTJ 273 (SB)
(Delhi)(Trib.)
FinanceBill,2013.
FinanceBill,2013.Noticeofamendments(2013)352ITR68(st)
FinanceAct,2013(ActNo.17of2013(2013)354ITR(st)1
(Presidentassenton10
th
May,2013)
PartAFinanceMinistersSpeech(2013)351ITR13(st)
PartBTaxproposals(2013)351ITR35(st)
FinanceBill,2013(18of2013)(2013)351ITR45(st)
Notesonclauses(2013)351ITR121(st)
428
Doubletaxationavoidanceagreements.
S.90 : Notification no S.O. 284(E). dt 29
th
January , 2013. Government of Republic of India and the
Government of Malaysia for the avoidance of double taxation and prevention of fiscal evasion with
respecttotaxonincome(2013)353ITR53(st)
S.90 : Notification no S.O. 418(E) dt 21
st
February, 2013. Government of Republic of India and the
GovernmentoftheFederalDemocraticofEhiopiafortheavoidanceofdoubletaxationandprevention
offiscalevasionwithrespecttotaxonincome(2013)353ITR78(St.)
Circulars
10of2012dated31
st
December,2012(2013)350ITR(ST)31.
RegCertificateSearchandseizure,132,readwith153A,153Cetc.
1of2013dated17
th
January,2013IssuesrelatingtoexportofcomputersoftwareDirecttax
benefitsClarification(2013)350ITR(St)34.
Service TaxCircular no967/01/2013 CX. dt 1
st
January, 2013 Recovery of confirmed demand
duringpendencyofstayapplicationReg(201)255CTR(Statutes)25
IncometaxAppellateTribunal.
ITATs Practice note, dt 1
st
Jan., 2013 Section 255 of the ITAct, 1961E. BenchProcedure of
Practice note for hearing appeals & applications fixed before ITAT Allahabad Bench, Allahabad
(2013)255CTR(Statutes)30
ITATsnote on departments General Grievances in the matter of representation and
adjudicationofcasesfixedbeforeeachbenchofITATDelhi(2013)212Taxman102(ST).
LifecentenarycelebrationofShriK.Sadgoplachari(FormerpresidentofITAT)SpeechJustice
SriS.Ranganthan(2013)21ITR(Trib.)(Journal)P.1
Instructions.
Instructionno.1of2013dt17thJanuary,2013Exchangeofinformationfortaxpurposeswith
foreignjurisdictionsGuidelinesforinboundandoutboundrequests.(2013)351ITR205(ST)
Circulars.
No.2of2013dt26thMarch,2013Circularonapplicationofprofitsplitmethod(2013)352ITR
2(ST)
No. 3 of 2013 dt 26th March, 2013 Circular on conditions relevant to identify development
centersengagedincontractR&Dserviceswithinsignificantrisk(2013)352ITR3(ST)
Marchoftheprofessional.
Philosopy of taxation and simplications by Honourable Mr Justice Swatanter Kumar ( 2013) AIFTPJ
JanuaryP.6
Income tax Appellate Tribunal Sulab Nyay ! Satvar Nyay! i.e. Easy justice ! Speedy justice!
HonourableMrH.L.Karwa,PresidentITAT(2013)AIFTPJJanuaryP.8
DoingbusinessinMyanmarTaxissuesbyS.Sharma(2013)AIFTPJJanuaryP11.
PresentAppellatesetupbyHonourablejusticeS.Ranganathn(Retd)(2013)AIFTPJMarchP.9
429
Role of chartered Accountants in the shaping of the ITAT by Honourable Justice R.V.Easwar ( 2013)
AIFTPJMarchP.12
RoleofBarAssociationbyHonourableJusticeR.V.Easwar(2013)AIFTPJAprilP7
Taxworld.
Minutes of the meeting held on 1842012, between the Honourable President of the ITAT Shri
G.E.Veerabadrappa,andthemanagingcommitteeoftheITATBarassociation.(2013)AIFTPJJanuary
P.59
Minutesofthemeetingheldon14thDecember,2012betweentheHonourablePresidentoftheITAT
ShriH.L.Karwa(2013)AIFTPJJanuaryP.61
Central Direct taxes Advisory Committee (CTDC) is to develop and encourage mutual cooperation
betweenthetaxpayersandtheIncometaxDepartmentandtoremoveadministrativeandprocedural
difficultiesofageneralnature:FinnaceMinster(2013)352ITR9(st)
ArticlesSections.
S.2(19AA): Demerger Some critical aspects of company and income tax laws by Dr. K.R.
Chandatre(2013)255CTR(Articles)65
S. 2(22) (e): Deemed dividend when advances are given on quid pro basisby
R.Raghunathan(2013)256CTR(Articles)43
S.4:Mutuality Interestfrom bank deposits whether exempt under mutuality doctrine
byR.Raghunathan(2013)255CTR(Articles)84
S.4:Income Earnest money forfeited Whether can be taxed as Incomeby T.N.Pandey(2013)
256CTR(Articles)5
S.4:IncomeCompensationreceivedinlieuofclosureofasourceofincomeiscapitalreceipt.by
T.N.Pandey(2013)258CTR(Articles)21.
S.5(2)(b):Commission to nonresident agentsWhether Accruing or Arising in India by Pradip
Kapashi,GautamNayak(2013)BCAJJanuaryP.40
S.9(1)(i):TaxabilityincaseofoffshoresupplyofcontractsbyRahulDhawan(2013)215Taxman4(Mag.)
S.9(1)(vi): Controversy around software royalty refuses to settleAn analysis of the decision of
DelhiHighCourtinNokianetworksbyAbhishekworah(2013)212Taxman1(Mag)
S.11:Charitable TrustsControversiesDepreciation on cost of assets allowed application of income, by
PradipKapashi,GautamNayak(2013)AprilP.47
S.11:NonProfitorganizationsunderDTCanappraisal(2013)350ITR(Journal)41
S.14A:ControcersiesSection 14A, and its applicability to cases of stock in trade by Pradip Kapashi ,
GautamNayak(2013)BCAJMarchP.33
S.14A:BusinessexpenditureApplicabilityofsection14Atoincomecoveredbydeductionsunder
chapterVIAbyR.Raghunathan(2013)255CTR(Articles)30.
S.15:SalaryHousingperquisitesforhighsalariedemployeesDelhiHighCourtsolvesthepuzzle
byT.C.A.Ramanujam(2013)256CTR(Articles)30
S.32:DepreciationGrantofdepreciationtolessorsinfinanceleasedealsbyT.N.Pandey(2013)258CTR
(Articles)85
430
S.37(1):Business expenditure Status of a broken contract in claiming deduction by Minuu
Agarwal(2013)256CTR(Articles)17
S.37(1):BusinessexpenditureHowconvincingistheCalcuttaHighCourtdecisionundersection
37(1)oftheIncometaxAct,1961byT.N.Pandey(2013)350ITR(Journal)51
S.37(1):Business expenditureExplanation to section 37(1) of the ITAct 1961by T.N. Pandey
(2013)255CTR(Articles)53
S. 37(1): Business expenditure How long litigation will be proliferated by disallowance of
expensesonthepleaofenduringbenefit,byT.N.Pandey(2013)259CTR40(Articles)
S.40(a)(ia):Amounts not deductibleWhen expenditure is capitalized to the cost of fixed asset

whennotaxisdeductedatsource,whetherdisallowancecanbemadeundersection40(a)(ia)
byKaushikD.Shah(2013)BCAJJanuaryP.498
S.40(a)(ia):AmountsnotdeductibleAmendmentstosection40(a)(ia)doesitapplytopending
assessmentsbyR.Raghunathan(2013)255CTR(Articles)73
S.40A(2):Canremunerationpaidbyfirmtoworkingpartnerwithinprescribedlimitsbepartlydisallowed
byinvokingsection40A(2)oftheAct.ByV.Pattabhiraman(2013)214Taxman73(Mag.)
S.44AA:MaintainingbooksofaccoutsSection44AA(2)isbeingmisinterpretedbyGauraPahuja
(2013)215Taxman59(Mag.)
S.44BB:Oil and natural gas Incometax assessment of nonresident oil and natural gas
explorationcompanies?byTarunJain(2013)350ITR(Journal)77
S.45:Doessaleofselfgeneratedcopyrightsinvitecapitalgainstax?ByT.N.Pandey(2013)350
ITR(Journal)33
S.45:CapitalgainsWhentaxplanninggoeshaywirebyT.C.A.Sangeetha(2013)255CTR26.
S.45:Is goodwill received by a retiring partnertaxable as capital gain.? By O.P. Srivastav (2013)
350ITR(Journal)58
S.45: Capital gains Compliance of conditions for exemption with in due date as per section
139(4),whethersufficient,byR.Raghunathn(2013)259CTR17(Articles)
S.47:CapitalgainsWillawardofoweltygiverisetocapitalgainstaxbyT.C.A.Sangeetha(2013)259CTR
(Articles)7
S.50C:ControversiesSection50CandtolerancebandbyPradipKapashi,GautamNayak(2013)BCAJ
MayP.64
S.52:CapitalgainsUnderstatementUnderstatementofsalepriceinpropertydealsAcasefor
reincarnationofsection52byGopalNathani(2013)350ITR(Journal)73
S.54:Capital gainsExemption on capital gains arising from transfer of residential house by
V.Pattabiraman(2013)214Taxman55(Mag)
S.54:Capital gainsExemption under section 54 and 54 F for investment in residential house outside
IndiabyR.Raghunathan(2013)258CTR(Articles)58
S. 54:Capital gains Sale of multiple capital assets at different point of time by Nisaha Malpani & Rama
Gupta(2013)259CTR(Articles)9
S.54F:Capital gainsAdding a floor in an existing building for claiming exemption under section 54F by
T.N.Pandey(2013)258CTR(Articles)75
431
S.54:Car parking space Eligible for exemption under section 54/54F?by Jignesh R.Shah(2013)
351ITR(Journal)1.
S.54:Capital gains Utilisation oflongterm capital gains, some suggestions by Dr.J.C.Agarwal
(2013)351ITR(Journal)46.
S.54: Capital gainsAvailability of exemption on purachse of residentai house property outside
IndiabyRamaGupta&NisahMalpani(2013)259CTR59(Articles)
S.56(2):Determinationoffairmarketvalueofunquotedsharesundersection56
(2)(viib)oftheIncometaxAct,1961,byNirenM.Nagri(2013)ACAJMayP.66
S.80IB(10):Housing Project JudicialBoost for housing Projectsby T.C.A.Sangeetha (2013) 256
CTR(Articles)1.
S.90:Whetherwithholdingtaxincludessurcharge.ByDindyalDhandaria(2013)215Taxman1(Mag.)
S.90:AnanalysisofNationalPetroleumConstructionCorporationv.ADIT(IT)(2012)20ITR545(Delhi)
(Trib.)byGopalNathani(2013)353ITR(Journal)1.
92(2A): Domestic Transfer pricingSalient features of domestic transfer pricing by Yash K. Shah (2013)
AprilACAJP.15
S.92C: Transfer pricing Distinction between subs.(2A) and s. (2B) of s. 92CA is real and effective by
TilakChanna(2013)258CTR(Articles)65
S.92B:TransferpricingWhetherinterestfreeloangivenbyanIndianCotoits100%subsidiary
cocanbesubjectedtotransferpricingadjustments?.byKaushikD.Shah(2012)BCAJFebP.542
S.119:CBDTPowerofCBDTundersection119(2)byShobhitKoshta(2013)214Taxman27(Mag.)
S.132: Search and seizure The need to reexanine the law as laid down in the case of Vipin
KumarJain(2013)259CTR64(Articles)
S.133A:SurveyAbuse of powers of survey under section 133A of the Incometax Act 1961 by
RavindraK.Vepari(2013)258CTR(Articles)14.
S.139(1):ValidityorrevisedreturnofincomebyKaushikD.Shah(2012)BCAJMarchP.606
S.139(5):RevisedreturnWithdrawalofclaimbyletterNotacaseofrevisedreturnbyGopal
Nathani(2013)350ITR(Journal)66
S.143(3): Assessment Incometax law does not mandate howtaxpayers should conduct their
businessandmaximizeprofitsbyT.N.Pandey(2013)256CTR(Articles)35.
S.143(3): Assessment Section 143(3) verses section 115JBThe plight of AO by Minu Agrawal
S.145:EventoccurringaftertheendofaccountingyearvisvisrevisedreturnbyV.K.Subramani
(2013) 212 Taxman 9 (Mag.)S.147: Reopening of assessment visvis Finance Ministers
AssuranceandCBDTInstructionbyTarunJain,(2013)350ITR(Journal)12.
S.145:Applicabilityofsection145intheauditedcaseundersection44AB,byN.R.Chakrabartti(
2013)259CTR28(Articles)
S.147:ReassessmentAfailedAmendmentinsection147,byT.C.A.Rmanujam(2013)259CTR
36(Articles)
432
S.154: Rectification Judicial resentment for consecutiveamendments, by Minu Agarwal (2013)
255CTR(Articles)49
S.179: CompanyRecovery Tax interest and penalty by T.C.A. Ramanujam (2013) 255 CTR
(Articles)51
S.179: Recovery Even a Director of public Limited company can be held liable for recoveryof
tax dues of the company An analysis, by Krishna Malhotra, Vinayak Srivastava, (2013) 212
Taxman91(Mag.)
S.194J:DeductionatsourceFeesforprofessionalortechnicalservicesAreliabletoAuthorsfor
ArticlesbyT.N.Pandey(2013)350(Journal)69
S.195: TDS liability spread up on whole of the sale consideration and not just limited to the
amount of estimated capital gains on sale of immoveable property..the legal position
revisitedbyAmitAggarwal,AlokPareek(2013)212Taxman5(Mag)
S.195: Deduction at source TDS on commission paid to Foreign Agents divergent views by
RaghavKumarBajaj(2013)212Taxman109(Mag.)
S.206AA:Issuesinconnectionwithsection206AAoftheincometaxAct,1961byChandrakant
K.Thakkar(2012)BCAJFebP.525
S.237:Refund: Does section 237 contemplate a refund assessmentby Minu Agarwal (2013)
255CTR(Articles)25
S. 251:Commissioner (Appeals) Power of remand of Commisssioner (Appeals) A matter of
uttercinfusionbyMinuAgarwal(2013)259CTR33(Articles)
S.251:Commissioner(Appeals)StayPowerofCommissioner(Appeals)tostayapplicationsfiled
beforethem(2012)351ITR(Journal)49
S.271AAB:Penalty Penalty on undisclosed income found during Search Section 271AAB
analysed(2013)351ITR(Journal)56
S.271(1)(c):PenaltyConcealmentConcurrent of concealmentGolden rule on doctrine of continuity
Advantageassessee.byGopalNathani(2013)214Taxman1.(Mag.)
S.271(1)(c): PenaltyConcealment Whether penalty under section 271(1)(c) can be charged for any
claim made by the assessee due to silly mistake or human error ? by Kaushik D.Shah ( 2013) April
ACAJP.33
S.271(1)(c): A land mark judgment from the Apex court on penalty for concealment ofincome
byV.Pattabhiraman(2013)212Taxman27(Mag.)
S.271(1)(c):PenaltyConcealmentHumanerrorinfilingITRsIsPWCcaseaguaranteeagainst
penaltybyGopalNathani(2013)350ITR(Journal)89
S.271(1)(c ):Penalty Concealment Lenient judicial trend in recent times by R.Raghunathn (
2013)259CTR49(Articles)
S.282:ServiceofnoticeHighCourtholdsthat serviceofnoticethroughspeedpostisvalidin
lawbyV.Pattabirman(2013)213Taxman4(Mag.)
S.292B: Defects in return/notices Section 292BCausing a new judicial controversyby Minu
Agarwal(2012)255CTR(Articles)81
ArticlesSubjects.
433
A.
AppealDraftingofappealsbeforefirstappellateauthorityundertheIncometaxAct,1961byJigneshJ
Shah(2013)AprilACAJP.18
Appellate Tribunal Importance and scope of filing of applications under Rule 27 of the Incometax
(AppellateTribunal)Rules1963byRameshChander(2013)259CTR(Articles)3
AOPTaxtreatmentoftheshareofacompanyintheincomeofanAOPbyS.K.Tyagi(2013)351
ITR(Journal)16
Accounts Other comprehensive income Some points to ponder by S. Ramachnadran (2013)
255CTR(Articles)4
B.
Budget20132014.
How should high net worth individuals and ultrahigh net worth individuals be taxed in forth
comingBudgetbyDr.AnilKumarJainandMrs.ParulJain(2013)256CTR(Articles)19
Tax Fatigue Steps to assure the feelings of tax payers through budget for 201314 by G.
Lakshminarasimhan(2013)256CTR(Articles)25.
HighertaxforsuperrichWhetherworthwhileMinuAgarwal(2013)256CTR(Articles)33
Indian Super Rich need not oppose paying capacity Based taxes by T.N.Pandey (2013) 213
Taxman1(Mag.)
Whatthebudgetcouldhavedone?byS.Rajaratnam(2013)351ITR41
ExtensionoftaxneutralityformergerstoalsoLLPsbyT.N.Pandey(2013)350ITR(Journal)93.
Proposal to set up tax administration reforms commission Some thoughts to make it a
successbyT.N.Pandey(2012)352ITR(Journal)17.
CommentsbyS.Balakrishnan(2013)352ITR(Journal)28
Budget twenty thirteen ExplorationChidambarams 8
th
:Indias 82 by Raji Nathani and Gopal
Nathani(2013)352ITR(Journal)37
C.
Commission to nonresident agentsWhether accruing or arising in India; by Pradip Kapashi , Gautam
Nayak(2013)BCAJJanuaryP.40
CompaniesBill,2012(2013)ChambersJournalFeb
Carbon creditShould gains on sale of carbon credits be liable to Incometax by T. N.
Pandey(2013)351ITR(Journal)33
Company Lifting of corporate veil of a company to catch tax evasion by
Dr.K.R.Chandratre(2013)257CTR(Articles)108
CaseAnalysisInstructions/154.271(1)(C),SpecialBenchS.10A,Waiverofinterest/Educational
expenses.(2013)352ITR(Journal)1
PrinciplesrealtingtocomputationofperiodoftimelaiddowninstautesandlegaldocumentsPart1by
Dr.K.R.Chandratre(2013)177Companycases77(Journal)
PrinciplesrealtingtocomputationofperiodoftimelaiddowninstautesandlegaldocumentsPartIIby
Dr.K.R.Chandratre(2013)177Companycases87(Journal)
434
PrinciplesrealtingtocomputationofperiodoftimelaiddowninstautesandlegaldocumentsPartIII
byDr.K.R.Chandratre(2013)177Companycases98(Journal)
A study of the relevant clauses of the companies Bill, 2012 vis Avis the impugned provisions of the
Companies Act , 1956 , on national company law Tribunal and its Appellate Tribunal and its Appellate
Tribunal in the light of the decision of the Constitution Bench of the Supreme Court ,by
Dr.K.S.Ravichandran(2013)177Companycases6(Journal)
ControversiesWhethertheexpenditureincurredonthebuybackofequityshareswillbe
treatedasrevenueexpenditureorcapitalexpenditure,byKaushikD.Shah(2013)ACAJMayP.
97.
D.
DirectorPersonalliabilityofcompanydirectorsfordebtsandotherfinancialobligationsofthecompany
byDr.K.R.Chadratre(2011)162CompanyCases81(Journal)
DirectorPersonalliabilityofcompanydirectorsfordebtsandotherfinancialobligationsofthecompany
byDr.K.R.Chadratre(2011)162CompanyCases90(Journal)
Drafting of agreement for transfer of immoveable properties and for development Rights by Ajay
R.Ssingh,ParasS.SavlaandRahulHakani(2013)AIFTPJJanuaryP.18
Double taxation treaty Origin and growth of double tax treaty and its role in the backdrop of
globalizationofeconomics,commerceandservicesbyDr.V.K.Moorthy(2013)AIFTPJAprilP.16
Dividends Oscillating tax policy regarding dividends by T.C.A.Ramanujam and T.C.A.Sangeetha ( 2013)
352ITR(Journal)110
F.
Foreign tax credit Discussion paper on drafting tax credit rules in India by S.Krishnan ( 2013) 352 ITR
(Journal)74
Finnacebill,2013InducementsandrestrictionsconcerningrealestatesectorbyT.N.Pandey(2013)352
ITR(Journal)61
Finance Bill , 2013Proposed amendments of section 56 of the Incometax Act by V.N.Murlidharan (
2013)352ITR(Journal)57
FinanceBill,2013SuppersessionofJudicialRulingsbyT.C.A.Ramanujam&T.C.A.Sanggeetha(2013)214
Taxman76(Mag.)
FinanceBill2013
Direct tax proposalsHighlights of the Finance Bill, 2013 by S. Rajaratnam (2013) 257CTR
(Articles)1.
ASuperIdeaintheBudgetbyT.C.A.Ramanujam(2013)257CTR(Articles)20
New house S.80E. Deduction Cheers to purchase of new house by R.Raghunathan (2013)
257CTR(Articles)7
DeductionS.80JJAA Clarifying the scope of section 80JJAA Practical issues remaining un
addressedbyRmaGupta&NishaMalpani(2013)257CTR(Articles)11.
435
CriticalanalysisImportantamendmentsbySunilH.Talati(2013)ACAJMarchP.585
MyImpressionsbyN.M.Ranka(2013)257CTR(Articles)42
Assessment Section 142(2A): Changes proposed by the Finance Bill, 2013 by T. N. Pandey
ExemptionConcessions to securitization Trusts extended by the Finance Bill 2013 .By
R.Ragunathan(2013)257CTR(Article)36
ProsecutionPowerstoarrestanddetentionoftaxpayersbyRevenuebyR.Santhanam(2013)
257CTR(Article)25
Return Proposed enlargement of a defective returnAO s night mare Minu Agarwal (2013)
257CTR(Article)33
ImportantprovisionsbyG.Lakshinarasimhan(2013)257CTR(Articles)67
PropertybuyersbewarebyR.Raghunathan(2013)257CTR(Articles)67
Dividendfromforeignsubsidiary,byNishaMalpani&RamaGupta(2013)257CTR(Articles)73
GAARGhostofGAARcomebackwithchangesbyR.Santhnam(2013)257CTR(Articles)57.
IncentivesforinvestmentinnewplantormachinerybyR.Santhanm(2013) 257CTR(Articles)
96.
CompanyCorporatetaxstructuremodifiedbyT.C.A.Sangheta(2013)257CTR(Article)91
CommoditiestaxbyR.Santhanam(2013)257CTR(Articles)81
KeymanInsurancepolicyAssignmentmadetaxablebyRamanBissa(2103)257(Article)86
SalientfeaturesoftheFinance,Bill,2013,byS.K.Tyagi(2013)351ITR(Journal)61
FinanceAct,2013SignificantdifferencebetweentheFinanceBill,2013andtheFinanceAct,
2013byManthanKhokhani(2013)ACAJMayP.76
Fringe Benefit tax (FBT): No fringe benefit tax leviable on expenditure for nonemployees like
entertainment,salespromotion,etc.byMukeshPatel(2013)212Taxman89(Mag.)
G.
GAAR New general anti avoidance Rule Whether missed first bus, by Minu Agarwal (2013) 259 CTR
(Articles)1
GAARAn Indian and International perspectiveby Sumit Singh Bagri and Uzma Naseem (2013)
212Taxman30(Mag.)
GeneralRevisitingoftheearlierdecisionsbytheSupremeCourtByT.N.Pandey(2013)255CTR
44(Articles)44.
H.
Hawalabills Transactions with suspected Hawala billsproviders (Income tax implications) by Anant
N.Pai(2013)AIFTPJAprilP.11
I.
ImmoveablepropertiesTransactionsbetweenpartnershipfirmandpartnersSometaxissuesbyAnant
Pai(2013)AIFTPJJanuaryP.30
InternationaltaxationProtocoltoIndiaUKtaxtreatyImpactanalysis,byPranavRaval,KunalMehata
(2013)AIFTPJFebruaryP.10
436
International taxationTaxation of long term capital gains on transfer of Unlisted Securities, by Mayur
Nayak,TarunG.Singhal(2013)BCAJFebruaryP.37.
InternationaltaxationUSTaxGoesglobalbyRajeshH.Dhruva,DarshitaM.Sanghvi(2013)BCAJMarch
P.10
International taxation Taxability of capital gains in India in respect of transfer of shares of a non
resident entity holding shares of an Indian Company , between two nonresidents in a tax treaty
situation;byMayurNayak,TarunkumarG.Singhal(2013)BCAJMarchP.39
International taxationRecent Global Developments in International Taxation Part 1 by Mayur Nayak ,
TarunG.Singhal(2013)BCAJAprilP.51
International taxationRecent Global Developments in International Taxation Part 1 by Mayur Nayak ,
TarunG.Singhal(2013)BCAJMayP.68
InternationaltaxationUKsdriveforcompetitivenessbyKananRaman(2013)BCAJMay39
Interpretation/StatutesTheliteralrulerevisitedbyS.Narayana(2013)255CTR(Articles)57
L.
LandmarkcasesbyS.Rajaratnam(2013)352ITR(Journal)119
LandmarkcasesbyS.Rajaratnam(2013)353ITR(Journal)13
M.
MaharashtraCooperativeHousingSocietiesPartII(2013)TheChambersJournalMay1983
P.
PreventionofmoneyLaunderingActAmendmentinthePreventionofMoneyLaunderingACTGEMand
Jewellery Sector brought under the Ambit of Prevention of Money Laundering Act by Raghav Kumar
Bajaj(2013)291E.L.T.A72
R.
Right of information Evolution of information rights jurisprudence .by Dr. Amitabh Rajan ( 2013) AIR
65(Journal)
RecoveryService tax Recovery on nonstayed indirect tax demands by Dr. Sanjiv Agarwal
(2013)256CTR(Articles)11.
Reassessment No reassessment based on audit objections by R.Santhanam (2013) 257CTR
(Articles)101
S.
ServicetaxTaxabilityofreimbursementsbyDr.SanjivAgawal(2013)258CTR(Articles)71
Service taxReverse mechanism under Service tax Emerging issues by Punit R.Prajapati ( 2013) April
ACAJP.6
437
ServicetaxRebateofservicetaxtoexportersbyDrSanjivAgaral(2013)258CTR(Articles)91t
Securities Taxation of Securities in India by Kavita Kanchhwahha and Kiran Kachhawah (2013) 214
Taxman103(Mag.)
Service tax Service tax on supply of fire services and goods by Dr. Sajive Agarwal (2013) 256
CTR(Articles)52.
ServicetaxVoluntarycomplianceScheme,2013byShaileshC.Shah(2013)BCAJMarchP.
594
Service tax Concept of bundledservices under the new service taxation scheme from I st July,
2012byT.N.Pandey(2013)255CTR(Article)14
ServiceTaxServicesbyforeigndiplomaticmissionlocatedinIndiabyDr.SanjayAgarwal(2013)
255CTR(Article)22
Service tax Exemption on input services to exporters. ByDr. Sanjiv Agarwal (2013) 255 CTR
(Articles)46
Service tax Stringent penalties under service tax regime.by Dr Sanjay Agarwal (2013) 258 CTR
(Article)6
Service tax Finance Bill Salient features of Union Budget 201314 and Finance Bill, 2013
Applicabletoservicetax.ByDr.SanjivAgrwal(2013)257CTR(Article)53
Service tax Levy of service taxwhen there is refrainment from providing service is apparent
unfairbyT.N.Pandey(2013)257CTR(Articles)116.
ServicetaxPersonalpenaltyinservicetaxbyDrSanjivAgrwal(2013)257CTR(Articles)121.
ServicetaxRegistrationofservicespecificaccountingcodesforregistrationbyDrSanjivAgrwal
(2013)259CTR46(Articles)
Service tax Selling of space or time slots for advertisements no longer taxable, by Dr Sanjay
Agarwal(2013)259CTR69(Articles)
ServicetaxNegativelistbyKunalA.Shah&JaineeR.Shah(2013)ACAJMayP.71
ServicetaxLevyofservicetaxonA/CrestaurantsbyV.N.Murlidhran(2013)60VST19(Journal)
T.
TaxlitigationNationallitigationpolicyandjudicialreviewbyT.C.A.Ramnujam(2013)258CTR(Articles)
81
FinanceBill2013
TaxationofSecuritizationTrustsbyN.M.Ranka(2013)AIFTPJMarchP.13.
Commodities Transaction tax & Taxation of commodity derivatives by Nikhil Ranjan ( 2013) AIFTPJ
MarchP15.
TaxresidencyCertificatebyS.R.Wadhwa(2013)AIFTPJMarchP.20
Tax on dividends, royalty and technical services fees in the case of foreign companies( 2013) AIFTPJ
MarchP.22
438
Investmentallowance.byHarishN.Motiwalla(2013)AIFTPJP25
ReintroductionofspecialinvestmentallowanceAboostforthemanufacturingsectorbyNiahaMalpani
&RamaGupta(2013)258CTR(Articles)49
PurchaseandsaleofimmoveablepropertybyNarayanP.Jain(2013)AIFTPJMarchP.29
BuybackofunlistedsharesAnomaliesandpotholes(2013)AIFTPJMarchP.32
KeymanInsurancepolicybySameerDalal(2013)AIFTPJMarchP.37
DecisionsoverruledbyS.N.Divetia(2013)AIFTPJMarchP.40
FinanceBill2013(2013)ChambersjournalMarch
AtallyofthetaxlawbyV.Pattabiraman,AuditOfficer(2013)350ITR(Journal)1Taxworld.
TaxhostilitytowardsequitycapitalbyMinuAgrawal(2013)257CTR(Articles)107.
W.
WealthtaxIssuesunderwealthtaxActbyJayeshC.SharedalalandJinalM.Gohel.(2013)ACAJ
JanuaryP.473
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S.2(15): Charitable purposeTrade business or commercePublic utilityActivity of evolving,

S.2(22)(e): Deemed dividendAccumulated profits do not include current years business

S.2(22)(e):DividendDeemed dividendLoans and advancesLegal fiction does not extend to

S.2(22)(e):DividendDeemed dividend Accumulated profits Share premium account does

S.2(22)(e):DividendDeemed dividend Advance given to company in which assessee holds

S.2(24):IncomeLotteryPrizeContessa carDraw of lots under the incentive scheme of the

S.2(47): Transfer Shares pledged with groupcompanyA transaction in respect of transfer of

S.4:Charge of incometaxAccrual IncomeInterest on arbitration awardWhen arbitration

S.4:Chargeable to taxMercantile systemAccrualInterest on non performing assetsNon

S.4:Charge of incometax Capital or revenue receipt Sale of trees is held to be capital

S.4:Charge of incometax Interest on behalf of GovernmentIf an assessee company cannot

S.4:Charge of IncometaxMutualityClubsInterest on fixed depositConcept of mutuality

S.4:Charge of incometax Hindu undivided family IndividualIncome from agricultural land

S.4:Charge of incometax Mutuality NonGovernment organisations managing selfhelp

S.5: Scope of total incomeAccrualGuarantee commissionCancellation before expiry

S.5: Scope of total income Accrual of Interest Certificate of depositInterest received on

S.9(1)(i): IncomedeemedtoaccrueorariseinIndiaBusinessincomeAmount receivedfor

S.9(1)(i):Income deemed to accrue or arise in India Business connection Service rendered

S.9(1)(i): Income deemed to accrue or arise in India Business connectionDeduction at

S.9(1)(i): Income deemed to accrue or arise in India Business connection Deduction at

S.9(1)(vi):Income deemed to accrue or arise in India Beneficial ownerRoyaltyDTAAIndia

S.9(1)(vi): Income deemed to accrue or arise in India RoyaltyBusiness profits

S.9(1)(vi):Income deemed to accrue or arise in India Fees for technical servicesPermanent

S.9(1)(vi):Income deemed to accrue or arise in India Royalty Consideration received for

S.9(1)(vii): Income deemed to accrue or arise in IndiaFees for technical servicesAnnual

S.9(1)(vii): Income deemed to accrue or arise in IndiaFees for technical servicesRepair of

S.9(1)(vii):Income deemed to accrue or arise in IndiaFees for technical servicesBoth non

S.9(1)(vii):Income deemed to accrue or arise in IndiaFees for technical servicesPayments to non

S.9(1)(vii):Income deemed to accrue or arise in IndiaFees for technical servicesBuying

S.9(1)(vii):Income deeded to accrue or arise in India Fees for technical servicesEffective

S.9(1)(vii):Income deemed to accrue or arise in IndiaFees for technical servicesDTAAIndia

S.9(1)(vii):Income deemed to accrue or arise in India Fees for technical servicesWebsite

S:9(1)(vii):Income deemed to accrue or arise in India Fees for technical servicesAbsence of

S.10(13A):Exempt income House rent allowanceMaster and servantExemption to be

S.10(23C): Exempt incomeApplicationSurplus generated cannot be the only ground for

S.10(23C): Exempt incomeEducational institution Application for approval Conditions

S.10(23C): Exempt incomeEducational institutionApplication for approvalInstitution solely

S.10(23C): Exempt income Educational institution Exemption can be claimed without

S.10(23C): Exempt incomeEducational institutionIncidental surplus Upgrading facilities of

S.10(23C):Exempt incomeEducational institutionRegistrationCancellationHeld to be

S.10(23C):Exempt incomeEducational institutionObject of general public utilityPetitioner

S.10(23G): Exempt income Infrastructure activitySale of sharesInterest incomeDTAA India

S.10A: Free trade zone Export turnoverTotal turnoverExpenditure incurred by assessee

S.10A: Free trade zone Newly established undertakingsTransfer pricing Operational

S.10A: Free trade zoneNewly established undertakingsDeduction u/s.10A is allowed from

S.10B: Hundred per cent exportOriented undertakingsProfit derived fromInterest on

S.10B:Hundred per cent exportOriented undertakingsProfits derived from undertakingsInterest

S.11: Property held for charitable purposesApproval of Charity CommissionerViolation in

S.11:Property held for charitable purposesBusiness held in trustTrust is entitled to

S.11:Property held for charitable purposesRegistrationMaintenance Public lavatories is

S.11:Property held for charitable purposesApplication of incomeCapital expenditure

S.12A:RegistrationTrust or institutionCondonation of delay in making application was held

S.12A: RegistrationTrust or InstitutionMaintain and develop existing gaushala and live

S.12A:RegistrationTrust or institutionDenial of registration it was premature for

S.12A:Registration Trust or institutionCancellationAmendment of section 2(15) barring

S.12A:RegistrationTrust or institutionTrust of primary purpose of public welfare is

S.12A: RegistrationTrust or institution Cancellation of registration under section 12AA(3)

S.12AA: Procedure for registrationCommencement of charitable activityRefusal for

S.12AA: Procedure for registrationTrust or institutionCommissionerwas not justified in

S.12AA: Procedure for registrationTrust or institutionBachelor degree course in the field of

S.12AA:Procedure for registration Institution Registration is condition precedent for

S.14A: Disallowance of expenditureExempt income Investment from own fundsNo