CONSOLIDATED DIGEST OF CASE LAWS (JANUARY 2016 TO APRIL 2016)

(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)

Compiled by Research team of KSA Legal Chambers and AIFTP Journal Committee

S. 2(14) : Capital asset- Shares-Non-resident not having permanent establishment in India-

Provisions relating to minimum alternate tax, transfer pricing and TDS not applicable - Non-
resident not bound to file return in India- DTAA-India- Mauritius. [S. 92 to 92F, 115JB, 139,
195, Art. 5, 13].
Non-resident not having permanent establishment in India, Transaction not for avoidance of tax.
Shares to be treated as capital asset not stock-in-trade . Profits not business income but capital gains
which is not taxable in India .Even if treated as business income not taxable in absence of permanent
establishment. Provisions relating to minimum alternate tax, transfer pricing and TDS not applicable .
Non-resident is not bound to file return in India considering the DTAA-India- Mauritius.
Dow Agro Sciences Agricultural Products Ltd., In re (2016) 380 ITR 668/ 131 DTR 177 / 65
taxmann.com 245/ 284 CTR 50 (AAR)

S.2(14)(iii) :Capital asset- Sale of land- Land was not situated within jurisdiction of a
municipality or a cantonment board- Not assessable as capital gains or business income- Entitle
exemption. [ S. 2(IA), 2(13, 2(14),28(i), 45 ]
Assessee did not pay capital gain tax on sale of a land by treating it as agricultural land, on the ground
that the Land was not situated within jurisdiction of a municipality or a cantonment board as
contemplated under clause (iii). Assessee was engaged in agricultural operations on such land . It was
specified as agricultural land in revenue records and was not subjected to any conversion as non-
agricultural land . AO called the report from Tahsildar who stated that the land are not cultivated for
the past 8 years. AO assessed the income under the head capital gains. CIT(A) accepted the
contention of assessee and deleted the addition as capital gains. On appeal by revenue dismissing the
appeal Tribunal held that; since intention of assessee from inception was to carry on agricultural
operations and there was no intention to sell land in future at that point of time and it was only due to
boom in real estate market which came into picture at a later stage, assessee sold land, merely because
of fact that land was sold for profit, it could not be held that income arising from sale of land was
taxable as profit arising from adventure in nature of trade . ( AY. 2011-12 )
ACIT v.Mansi Finance Chennai Ltd. (2016) 157 ITD 194 (Chennai) (Trib.)

S. 2(15) : Charitable purpose –SLP granted against the decision of the Delhi High Court in the
case of Institute of Chartered Accountants of India v. DGI (E )(2013) 358 ITR 91(Delhi)(HC)
The Honourable Apex Court has granted the special leave to appeal to the DGIT, New Delhi against
the order of the Delhi High Court in the case of Institute of Chartered Accountants of India vs.
Director General of Income-tax (Exemptions) wherein it was held that the assessee does not carry on
any trade or commerce or business and therefore, the 1st proviso to section 2(15) does not get attracted
and thereby, eligible for registration under section 10(23C)(vi) of the Act.
DGIT v. Institute of Chartered Accountants of India (2016) 236 Taxman 481 (SC)

S. 2(15) : Charitable purpose –For providing training charging fees-Such activity does not
amount to services in relation to trade, commerce and industry it amounts to imparting
education. [S. 10(23C)(vi)]

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Assessee institution engaged in imparting higher and specialized education in field of communication
including advertising and its related subjects . Training given to individual as well as to persons sent
by companies to meet needs of Indian industry and commerce. Held, such activity does not amount to
services in relation to trade, commerce and industry it amounts to imparting education,it will still be
held that the institution exist solely for educational purpose.
Mudra Foundation for Communications Research & Education v. CCIT (2016) 237 Taxman
139 (Guj.)(HC)

S. 2(15) : Charitable purpose – Activities undertaken by the assessee cannot be said to be of a

charitable and religious nature in the absence of any trust deed, registration under sections
12AA/ 80G and further where the bank accounts were maintained in the individual assessee’s
name. [ S.12AA, 80G ]
Assessee filed a return of income declaring his total income of Rs. 2,10,870/-. The assessee, in the
course of assessment proceedings, stated that he was a religious preacher and that he did not have any
personal bank account and that he did not carry out any business activity. AO obtained information
from the bank under section 133(6) and treatedincome from bank deposits as assessee’s income from
profession and vocation and after disallowing certain expenses made an addition of Rs. 1,21,67,653/-.
CIT(A) and ITAT dismissed the assessee’s appeals against the above stated additions. Before the
High Court, the assessee submitted that he managed an old historic Dera carrying on charitable and
religious activities and the bank accounts were that of the Dera and the assessee merely managed the
same. High Court noted that the bank account was in the name of the assessee and had a nomination
in favour of the assessee’s son and therefore could not be said to be that of the Dera. High Court
rejected the argument that the activities done by the appellant were of charitable and religious nature
and were being done in the name of Dera. High Court noted that there was no trust deed, no
registration sought under section 12AA, etc. High Court dismissed the assessee’s appeal as no
illegality or perversity in the order of the Tribunal was pointed out. (AY. 2009–10)
Makhan Singh v. ITO (2016) 236 Taxman 364 (P&H)(HC)
S. 2(15) : Charitable purpose –Provision of Medical Relief is charitable activity hence surplus
generated does not disentitle assessee from exemption . [ S. 11, 12AA ]
The activity in the nature of ‘medical relief’ fell outside the scope of the proviso to section 2(15).
Hence, any surplus resulting from the aforementioned activity would not be taxable, if the surplus was
dealt with in the manner provided under the Act. Accordingly, the corpus donations were not to be
included in the assessee’s total income.(AY. 2010-11)
Sundaram Medical Foundation v. Dy. CIT (E) (2016) 45 ITR 500 (Chennai)(Trib.)

S. 2(22)(e) : Deemed dividend – SLP dismissedagainst the decision of the Delhi High Court in
the case of CIT v. Subrata Roy(2015) 375 ITR 207 (Delhi)(HC)
The Honourable Apex Court has dismissed the special leave petition filed against the order of the
Delhi High Court in the case of CIT vs. Subrata Roy wherein it was held that in the case where the
amount was advanced by the firm, in which the assessee is a partner, to the assessee, it cannot be said
to have been advanced by the company in which the assessee is a shareholder. A certain sum of
money was due by the firm to the company. It was the case of the Assessing Officer that the firm was
used as a conduit to advance the loan to the shareholder by the company from out of the outstanding
receivable from the firm. It was held by the High Court that the sum cannot be said to have been
advanced by the company, when it was proved by the assessee that the firm had sufficient funds on its
own to advance the money and therefore, the provisions of section 2(22)(e) is not attracted. (AY.
1992-93)
CIT v. Subrata Roy Sahara (2016) 236 Taxman 396 (SC)

S. 2(22)(e):Deemed dividend - Assessee-company was not a shareholder of lending-company,

section 2(22)(e) would not apply merely because two shareholders of lending-company had a
beneficial ownership of shares in assessee company – SLP Admitted
Assessee-company had received a sum by way of loan or advance from SIPL. As two shareholders of
SIPL had a beneficial ownership of shares of assessee, Assessing Officer held that payment by way of
loan or advance was a dividend under section 2(22) (e). The High Court held that since recipient of

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loan, namely, assessee, was not a shareholder of SIPL, provisions of section 2(22)(e) would not apply.
SLP admitted by the Supreme Court.(AY. 2006-07)
CIT v. N.S.N. Jewellers (P.) Ltd. (2016)237 Taxman 246 (SC)

S. 2(22)(e):Deemed dividend- Loan - beneficial ownership of more than 10 per cent shares in a
closely held company- Assessable as deemed dividend . [ S. 153A ]
Assessee, who was a shareholder and director in a closely held company having beneficial ownership
of more than 10 per cent shares, had taken certain loan from company. In assessment proceedings
assessee submitted that loan was taken for purpose of purchase of land for company and, therefore,
could not be treated as deemed dividend. However, assessee failed to prove by furnishing relevant
details in form of agreements or details of amount spent for purpose for which it was drawn and he
kept on changing his arguments at each stage of proceedings. Tribunal held that loan taken by
assessee was rightly considered as deemed dividend . ( AY. 2007-08 to 2009-10 )
M. Amareswara Rao v.Dy.CIT (2016) 157 ITD 657 (Visakha)(Trib)

S. 2(22)(e): Deemed dividend – Not applicable to Loans or Deposits from public company.
On appeal by revenue,the Tribunal while deciding the issue in favour of the assessee, held that since S
Ltd. was a public limited company and registered with RBI since 1998 in the category of loan
investment company and engaged in activities of share sale, financing activities, etc. the loan or
advance or inter-corporate deposit given to the assessee did not fall within section 2(22)(e) and
moreover, it was a non-banking financial company which was excluded from the deeming provision.
(AY.2008-09)
Dy.CIT v. Sindhu Realtors Pvt. Ltd. (2016) 45 ITR 448 (Delhi)(Trib.)

S. (22)(e): Deemed dividend-Loans and advances to share holders- Loans received by the
company would be treated as deemed dividend in hands of P and S in proportion to their
shareholdings .
Assessees P and S were directors in two sister companies namely AI and AE.Shareholdings of both
directors in AE was 50 per cent whereas in AI it was 53.85 per cent for P and 46.11 per cent for S .
AI had received Rs. 10 lakh as loan from AE. AO held that loan received from was to be treated as
deemed dividend in the hnds of individual directors and since P and S were equal beneficiary of
shares to tune of 50 percent each in AI the company which had received the loan . On appeal CIT(A)
affirmed the order ofAO. On appeal the assessees contended that no mechanism had been provided in
Act regarding computation of deemed dividend in hands of directors and in absence of any such
mechanism, charging provisions would fail and no additions could be made . Tribunal held that if by
reasonable construction of relevant section, income could be deduced, then merely on ground that
specific provision had not been provided, it could not be held that computation provisions failed;
therefore, percentage of shareholdings in concern to which loan was given would be determining
factor of deemed dividend in case of shareholder and accordingly, 53.85 per cent, i.e., Rs. 5,38,850
should have been assessed as dividend in hands of P and 46.11 per cent, i.e. Rs. 4,61,100, in hands of
S. (AY. 2007-08)
Puneet Bhagat v. ITO (2016) 157 ITD 353(SMC)(Delhi)(Trib.)

S. 2(22)(e) : Deemed dividend – Business Transactions – Accounts produced by assessee shows

that it has several transactions with the company relating to purchase and sale of goods, job
work charges, rent paid and received – transaction are business transactions in ordinary course
of business – could not be treated as deemed dividend
Held that copy of account shows that the assessee has number of transactions related to purchase &
sale of goods, job work charges, rent received & paid. Also, there was debit balance in the books of
assessee and there was a closing credit balance. Thereby, these are business transactions during the
ordinary course of business. Said cannot be construed as deemed dividend u/s 2(22)(e). (AY. 1999-00,
2005-06)
K G Petrochem Ltd v. ACIT (2016) 176 TTJ 1(UO) (Jaipur)(Trib)

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S. 2(22)(e):Deemed dividend- Loan account is different from a current account on which
provisions of s. 2(22)(e) are not applicable.
There was a running current account between the Assessee and the private limited company in which
she was a director. At the end of the year, the balance was squared off and there was no closing
balance. The AO held that the monies lent by the company to the Assessee were loans and advances
within the meaning of s. 2(22)(e). The ITAT deleted the addition made by the AO and held that the
current account between the Assessee and the Director was a mutual account which was reciprocal
demands between the parties and did not benefit the Assessee alone. It was thus held that s. 2(22)(e)
cannot be invoked on current account transactions. (AY. 2009-10)
ITO v. Gayatri Chakraborty (Smt.) (2016) 45 ITR 197 (Kol.)(Trib.)

S. 2(22)(e):Deemed dividend- Not applicable to loans from NBFCs and companies which are
listed on a stock exchange.
The Assessee had received inter-corporate deposit from another company which was an NBFC and
was listed in the Delhi Stock Exchange. The AO treated the same as deemed dividend and added the
same to the income of the Assessee. On appeal, the ITAT held that the said loan could not be
considered as deemed dividend since deeming provisions were to be read strictly and NBFCs and
listed companies were excluded from the said provision. (AY .2008-09)
DCIT v. Sindhu Realtors Pvt. Ltd. (2016) 45 ITR 448 (Delhi)(Trib)
DCIT v. Sindhu Holdings Ltd (2016) 176 TTJ 41(UO) (Delhi)( Trib)
S. 2(22)(e): Deemed dividend- Son and daughter had over dawn from the company where the
assesse was a share holder having 41 percent of shares- Additin cannot be made as deemed
dividend.
Allowing the appeal of assesse the Tribunal held that ; Where assessee was a shareholder in a
company holding 41 per cent of shares and during year he and his son and daughter had overdrawn
certain amount from said company and Assessing Officer treating said amount as deemed dividend
under section 2(22)(e) added same in income of assessee, since both son and daughter were not
shareholders in company and during year company got only negative accumulated profits, provisions
of section 2(22)(e) could not be invoked. ( AY. 2007-08 )
Manoj Murarka v. ACIT ( 2016) 156 ITD 793 (Kol.)(Trib.)

S. 2(22)(d) : Deemed dividend- Buyback cannot be assessed as deemed dividend - The capital
gains on buy-back are exempt under the India-Mauritius DTAA-[Art. 10, Companies Act, S.77,
100, 105, 391]
A buyback cannot be regarded as a "colourable transaction" and cannot be assessed as "deemed
dividend" . The capital gains on buy-back are exempt under the India-Mauritius DTAA. ( ITA No.
3726/Mum/2015, dt. 12.02.2015)(AY-2011-12)
Goldman Sachs (India)(Securities Pvt. Ltd.v. ITO(Mum.)(Trib.);www.itatonline.org

S.2(22)(d):Deemed dividend-Redemption of preference shares does not constitute "deemed

dividend". [S.2(47), Companies Act, S.80(3), 100 ]
Redemption of preference shares does not constitute "deemed dividend". (ITA No. 4669/Mum/2014.
Dt. 06.04.2016)(AY. 2005-06)
Uday K. Pradhan v. ITO (Mum.)(Trib.);www.itatonline.org

S. 2(24) : Income – Capital or revenue-Receipt representing compensation for loss of source of

income would be treated as capital receipt.
Assessee was a journalist by profession and was appointed as the foreign correspondent in India of a
German news magazine. German publisher paid a lump sum amount upon termination as sign off
compensation for association of past 23 years and loss of work space. Assessing Officer treated the
compensation received to be revenue in nature and chargeable to tax under Income Tax Act, 1961.
High Court noted that the receipt in the hands of the Assessee was compensation for loss of an income
generating asset. Termination of contract had fatally injured the appellant’s only source of income for
the last 23 years. The mere fact that the Assesse was free to earn through other sources would not
make a difference. High Court relied on Supreme Court ruling in Kettlewell Bullen and Co. Ltd (53

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ITR 261) and Oberoi Hotel Pvt. Ltd. v. CIT(236 ITR 903) wherein the court held that if receipt
represents compensation for the loss of a source of income, it would be capital and it matters little that
the Assessee continues to be in receipt of income from its other similar operations. Accordingly the
Court ruled in favour of the Assessee and treated the receipt as capital receipt. (AY. 1994-95)
CIT v. Sharda Sinha (2016) 237 Taxman 111 (Delhi)(HC)

S. 2(24) : Income – Insertion of sub-clause (xviii) is not retrospective - Assessee received subsidy
from Tea Board and Ministry of Commerce & Industry, Government of India - Prior to
aforesaid amendment, if a subsidy was regarded as revenue subsidy, it would be taxable besides
value of subsidy getting reduced form actual cost of depreciable assets for purpose of allowing
depreciation [S. 43(1)]
Held that the aforesaid amendment to S..2(24)(xviii) of the Act has two parts. The first part says that
any subsidy whether it is capital or revenue will be regarded as "income". The second part is that, if
the value of the subsidy is reduced from the value of actual cost u/s.43(1) of the Act for allowing
depreciation, than the subsidy will not be taxed as "income". If, we were to hold that the amendment
is retrospective than the 1st part of the amendment by which any subsidy, whether capital or revenue,
is to be regarded as "Income" will create a charge to tax and unless the legislature specifically
imposes a charge to tax, retrospectively cannot be given. Therefore the 1st part cannot be regarded as
having retrospective operation. The second part of the amended provision of Sec.2(24)(xviii) of the
Act gives a relief in the form of relieving double taxation, one in the form of the subsidy being taxed
as income and again the value of subsidy being reduced from the actual cost of fixed assets on which
depreciation is to be allowed. It is not possible to regard one part of an amended provision as having
retrospective operation and the other part having only prospective operation. If the legislature wanted
the amendment to be applicable in the manner as contended by Assessee, it would have so provided in
the Finance Act, 2015. By a process of interpretation it would not be proper to regard retrospectively
to only one part of an amendment. Therefore prior to the amendment referred to above, if a subsidy is
regarded as revenue subsidy, it would be taxable besides the value of the subsidy getting reduced form
the actual cost of depreciable assets for the purpose of allowing depreciation, if the conditions laid
down in Explanation 10 to Sec.43(1) of the Act are satisfied. (AY. 2006-07)
Limtex Tea & Industries Ltd. v. ACIT (2016) 156 ITD 900/ 176 TTJ 265 (Kol.)(Trib.)

S. 2(24) : Income –Interest from recurring deposits is taxable on maturity when it gets entitled
and due.
The Assessee deposited funds in recurring deposits with banks for varying periods from 3-10 years.
Since, the interest on the recurring deposits was payable at the time of maturity, the same was not
offered for tax. The AO held that since in case of recurring deposit the interest is received and
reinvested, it has to be taxed every year. The ITAT held that the interest in respect of securities were
entitled, due and receivable only on maturity and accordingly, it would taxed in that year. Further, the
entire income had accrued and was offered to tax in subsequent AY by the Assessee. (AY. 2001-02,
2003-04 to 2008-09)
West Bengal Infrastructure Development Finance Corporation v. ACIT (2016) 45 ITR
285(Kol.)(Trib.)
DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285
(Kol.) (Trib.)

S. 2(24) : Income – Interest is crystallized and accrues in the year in which it gets finalized and
quantified and would be taxable in that year.
The Assessee had deposited sums with Pay and Accounts Office of the Government of West Bengal,
which did not initially carry interest. In 2001 it was pointed out that the funds were kept in interest
bearing account, and interest was due to be paid to public sector undertakings. Subsequently, after
much negotiations, in 2004, the State Government decided that it would pay interest. According to the
Assessee, the interest had crystallized in 2005 when it was ultimately quantified and accrued to it.
According to the AO, the interest had accrued in the impugned AY. It was held by the ITAT that
considering the fact that the interest was finalized and quantified in 2005, it would have crystallized
then and would be taxable in that year. (AY. 2001-02, 2003-04 to 2008-09)

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West Bengal Infrastructure Development Finance Corporation v. ACIT (2016) 45 ITR 285
(Kol.) (Trib.)
DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285
(Kol.) (Trib)

S. 2(47): Transfer-Transfer includes extinguishment of rights in capital asset-Surrender of floor

area ratio rights in land amounts to transfer- Liable to capital gains tax.[S. 2(14), 2(47)(ii), 45]
Held, the assessee had relinquished his rights over the floor area and, consequently, his right in the
floor area got extinguished to a certain extent. The seized material also disclosed that the developer
had paid Rs. 3.15 crores towards such surrender of floor area ratio and the sum would amount to sale
proceeds. Thus, it was a clear case of transfer within the definition as found in section 2(47) of the
Act. The transfer was complete on the day when the plan was sanctioned and the building of the
apartment complex started since there was no way for the assessee either getting back the floor area
ratio or using it.( AY. 1999-2000)
CIT v. Dinesh D. Ranka (2016) 380 ITR 440 (Karn.)(HC)

S. 4:Charge of income-tax–Sums collected towards apprehended sales tax liability–Refundable-

Cannot be assessable as income.
Dismissing the appeal the Court held that the amounts collected by the assesse from its customers
towards apprehended sales tax liability on sale of bottles and packing materials was not taxable
because it was refundable.( AY. 1988-89, 1989-90, 1990-91)
CIT v. Khoday Breweries Ltd ( 2016) 382 ITR 1 (SC)

S.4: Income chargeable to tax- Capital or revenue- compensation received for cancellation of a
sale deed of immovable property is held to be capital receipt-Revenue cannot be permitted to
shift its stand from one forum to another. [S. 2(24),10(3), 45, 56 ]

Allowing the appeal of revenue the Court held that ; the Revenue cannot be permitted to shift its stand
from one forum to another. The consistent case of the Revenue is to be tested at various levels for its
correctness. It is possible that in the interregnum there might be decisions of the Supreme Court which
might support or negate the case of the Revenue. That would then have to be taken to its logical end.
In the circumstances, the Court is not prepared to permit the Revenue to urge a new plea for the first
time in this Court. Having held that it could not be in the nature of capital gain it was not open to the
Revenue to seek to bring it to a tax under the revenue receipt.that the above sum of Rs. 20 lakhs
constituted revenue receipt in the hands of the Assessees. Not a receipt taxable under Section 10 (3).
The settled legal position is that all receipts do not constitute income. For a receipt sought to be taxed
as income, the burden lies upon the Revenue to prove that it is within the taxing provision. Among the
earlier decisions of the Supreme Court is Parimisetti Seetharamamma v. CIT (1965) 57 ITR 532 (SC)
where it was held “Whether a receipt is liable to be treated as income depends very largely upon the
facts and circumstances of each case; it is open to the income-tax authorities to raise an inference that
a receipt by an assembly is assessable income where he fails to disclose satisfactorily the source and
the nature of the receipt. But here the source of income was disclosed by the appellant and there was
no dispute about the truth of the disclosure. Examined in light of the legal position explained in the
above decisions, the Court is of the view that as far as the present case is concerned, the sum of Rs.20
lakhs received by the Assessees was in the context of the cancellation of the sale certificate and the
sale deed executed in their favour in relation to an immovable property and neither Assessee was
dealing in immovable property as part of his business. While it could if at all be said to be in the
nature of a capital receipt, what is relevant for the present case is that the Revenue has been unable to
make out a case for treating the said receipt as of a casual and non-recurring nature that could be
brought to tax under Section 10(3) read with Section 56 of the Act. Following the decision in Cadell
Weaving Mill (supra), there can be no manner of doubt that what is in the nature of capital receipt,
cannot be sought to be brought to tax by resorting to Section 10(3) read with Section 56 of the Act.(
ITA No. 136/2004, dt. 28.04.2016)( AY.1993-94, 1995-96)

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Girish Bansal v. UOI (Delhi)(HC), www.itatonline.org

Gynendra Bansal v. UOI ( Delhi) (HC) , www.itatonline.org.

S. 4:Charge of income-tax–Mutuality-The contributions made by the members to the assessee

cannot be a subject matter of tax merely because the part of its excess of income over
expenditure is invested in mutual funds.
The contributions made by the members to the assessee cannot be a subject matter of tax merely
because the part of its excess of income over expenditure is invested in mutual funds. The concept of
Mutual concerns not being subject to tax is based on the principle of no man can profit out of itself.
Therefore the test to be satisfied before an association can be classified as a Mutual concern are
complete identity between the members i.e. contributors and the participants, the action of the mutual
concern must be in furtherance of its objectives and there must be no scope of profiteering by the
contributors from a fund..( ITA No. 2455 of 2013, dt. 31.03.2016) (AY. 2007-08)
CIT v. Air Cargo Agents Association of India (Bom)(HC);www.itatonline.org

S. 4:Charge of income-tax- Accrual of income-Mercantile system of accounting- Waiver of

income recoverable from person facing financial difficulties- [ S. 145]
Even in mercantile system of accounting an item would be regarded as accrued income only if there is
certainty of receiving it and not when it has been waived, therefore non recognition of income on the
ground that the income had not really accrued as the realisability of the principal outstanding itself
was doubtful, is legally correct under the mercantile system of accounting, when the same is in
accordance with ASI notified by the Government and the provisions of Section 145(1) are subject to,
inter alia, mandate of ASI which also prescribes that ‘Accounting policies adopted by an assessee
should be such so as to represent a true and fair view of the state of affairs of the business, profession
or vocation in the financial statements prepared and presented on the basis of such accounting
policies.’ In the name of compliance with Section 145(1), it cannot be open to anyone to force
adoption of accounting policies which result in a distorted view of the affairs of the business.
Therefore, even under the mercantile method of accounting, and, on peculiar facts of instant case, the
assessee was justified in following the policy of not recognizing these interest revenues till the point of
time when the uncertainty to realize the revenues vanished.The Tribunal further referred to the fact
that the various resolutions which The decision rendered by the Tribunal in the impugned order is a
decision on facts and nothing has been shown to us which would warrant interference by this Court on
account of any finding being perverse or arbitrary.( ITA No. 2251 of 2013 with 2360 of 2013, dt.
05.04.2016)(AY. 2007-08, 2009-10 )
CIT v. Neon Solutions Pvt. Ltd. (Bom)(HC) ; www.itatonline.org

S. 4: Charge of income-tax – Capital or revenue- Compensation received in connection with

termination of share purchase agreement to be taxed as revenue receipt.
The assessee/a company, paid certain amount as earnest money to purchase shares under SPA
(Special Purchase Agreement) from shareholders of Zydus. Zydus was engaged in the same business
as the assessee. The shares of Zydus had been pledged to Cadila. In the event of sale of shares by the
seller, Cadila had the right of first refusal. The SPA between the provided that where Cadila was to
exercise their right to purchase the shares under the right of first refusal, the purchaser would
terminate the SPA. As per the SAP, the sellers had no right to terminate the agreement. Subsequently,
the sellers expressed their inability to sell their shares. The assessee entered into a supplementary
agreement with the seller to terminate the SPA. The supplementary provided that the seller would pay
the assessee the earnest money paid by the assessee, interest, penalty and compensation for
termination of SPA. The assessee claimed the compensation amount as a capital receipt. The
Assessing Officer rejected assessee's claim and reassessed income by claiming the same as revenue
receipt. The CIT(A), and Tribunal confirmed the order of the Assessing Officer.
The High Court observed that the intent was not to purchase the shares of Zydus, but to takeover its
business for expansion and accordingly the compensation was for the loss of profit and not for the

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impairment of a source of income. Therefor the High Court confirmed the order of the lower
authorities in holding the compensation as revenue income. (AY. 2008-09)
Avantor Performance Materials India Ltd. v. CIT (2016) 383 ITR 685/ 237 Taxman 603 / 282
CTR 494 (HP)(HC)

S. 4:Charge of income-tax -Capital or revenue-Money to be used in purchase of plant and

machinery temporarily placed in fixed deposits - Inextricably linked with setting up of plant -
Interest on fixed deposits-Capital receipt. [S. 2(24)]
Held, the test that is required to be employed is whether the activity which is taken up for setting up of
the business and the funds which are garnered are inextricably connected to the setting up of the
business. The findings of fact had been returned by the Commissioner (Appeals) and had been
confirmed by the Tribunal to the effect that the funds were inextricably connected with the setting up
of the power plant of the assessee. The Revenue had also not been able to point out any perversity in
such finding and, therefore, interest earned by the assessee from fixed deposits in the pre-
commencement period. (AY. 2009-2010)
PCIT . v. Facor Power Ltd. (2016) 380 ITR 474/237 Taxman 613/ 283 CTR 141 (Delhi) (HC)

S. 4:Charge of income-tax-Accrual of income-Acquisition of land - Enhanced compensation-

Award disputed in appeal before High Court-Right to receive not crystallised-Status-Whether
assessment in status of individual or Hindu undivided family- Disputed questions of law and
fact-Matter remanded.[S. 2(31)(i), 2(31)(ii)]
On appeal The CIT(A) annulled the assessment made in the status of individual. The Tribunal
remanded the matter to the Commissioner (Appeals) to decide the issue on the merits. On
appeal: Held, that the issue arising in the appeal raised a mixed question of law and fact and required
to be remanded to the Tribunal to decide afresh. Accordingly, the order passed by the Tribunal was set
aside and the matter was remitted to the Tribunal to adjudicate the issue afresh after hearing the
parties and by passing a speaking order in accordance with law.(AYs.2000-2001, 2001-2002, 2002-
2003 )
Raj Kumar Tewatia v. CIT (2016) 380 ITR 110 (P&H)(HC)

S. 4:Charge of income-tax - Income does not accrue if the debtor is in a precarious financial
position and recovery is doubtful.[S. 145]
The Tribunal held that income did not accrue in the hands of the assessee owing to the precarious
financial condition of the debtor notwithstanding that:, services were rendered and the income was
recorded in the books of account of the assessee during the relevant year and bad debts were claimed
in subsequent years when the dispute was settled.( ITA No.39/07, ITA No.650/07 & CO No.122/07,
dt. 30.10.2015) (AY. 2002-03)
Bechtel International Inc v. DDIT (Mum.)(Trib.);www.itatonline.org

S. 4:Charge of income-tax-Subsidy granted to set up a wind Mill project is a capital receipt. [S.
41(1), 43(1), 50]
Subsidy granted to set up a wind project is a capital receipt. the subsidy cannot be reduced under
Explanation 10 to S. 43(1) from the cost of the assets acquired though 100% depreciation is allowed
on the cost of the assets. The subsidy is also not assessable either u/s 41(1) or u/s 50.( ITA No.
3473/M/2013, dt. 26.11.2015) ( AY. 2008-09)
Uni Deritend Ltd. v. ACIT (Mum.)(Trib.);www.itatonline.org

S.4:Charge of income-tax-Mutuality–Co-Operative housing Society-TDR Premium received

from members is not liable to tax.
CIT(A) relied on ITAT order for A.Y. 2006-07 (ITA No. 499/M/2011) & A.Y. 2007-08 (ITA No.
500/M/2011) and held that TDR Premium received by Society from its members was not covered by
principle of Mutuality.The Tribunal for A.Y. 2008-09 reversed the order of Learned CIT(A) and held
that TDR premium will be covered by the principle of mutuality. Tribunal followed the order of High
Court in ITA No.427 / 428 / 590 of 2012. (ITA No. 66 & 67 /Mum/2014. Dt. 09.03.2015) (AY.1995-
96,2008-09)

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Hatkesh Co-op. Hsg Society Ltd. v. CIT (Mum.)(Trib.);www.itatonline.org
Editorial:ITAT order for A.Y. 2006-07 (ITA No. 499/M/2011) and A.Y. 2007-08 (ITA No.
500/M/2011) in case of Hatkesh Co-op. Hsg. Society is no longer good law.

S.4:Charge of income-tax-Mercantile system of accounting AIR information- Interest credited-

tax deducted by payer-Liable to be offered as income though not received during the year.[S.5,
56, 145]
Assessee, in his return of income, had not shown certain amount of interest received from a party on
which payer had also deducted tax at source on ground that he actually did not receive such interest .
AO on the basis of AIR information added the interest income as income from other sources .CIT (A)
affirmed the view of AO. On appeal the Tribunal held that since assessee was following mercantile
system of accounting, once interest amount had been credited to assessee and tax had been deducted
by payer, assessee could not take plea of not offering it as income on ground that he had not actually
received same . however, if said amount was treated as income of assessee, then credit of TDS had to
be given .(AY. 2009-10)
Girish M. Kothari v. JCIT (2016) 157 ITD 451 (Mum.)(Trib.)

S. 4: Charge of income-tax-Accrual–Advance professional fees received from clients- Not

taxable as income.[S. 145]
Assessee receiving advances from clients to meet expenses for and on behalf of its clients. Assessee
keeping advance receipts in separate ledger account. Assessee transferring professional fees to Profit
and Loss account and carry forward credit balance to next year as sundry creditors. Professional
advance received is not taxable in the hands of the assesse.(AY. 2009-10)
Vipin Malik v.ACIT (2016) 45 ITR 589 (Delhi)(Trib.)

S. 4:Charge of income-tax-Increase or decrease in liability on account of fluctuation in foreign

exchange- Capital account not taxable. [ S. 263]
In case of issue of FCCB, increase or decrease in liability on account of fluctuation in foreign
exchange as on date of balance sheet would be on capital account and, therefore, any gain or loss is
not taxable (AY.2008-09)
Subex Ltd. v. CIT ( 2016) 156 ITD 938 (Bang.)(Trib.)

S.4:Charge of income-tax–Foreign Exchange gain–Arose due to restatement of loan balance at

the end of the year–Assessee credited such gain in its P&L a/c–Loan has been utilized only on
revenue account–Foreign exchange gain is taxable – Since in subsequent years, foreign exchange
loss has not been claimed as deduction, AO is directed to allow deduction of notional loss in
subsequent years to be in consonance with aforesaid finding.
Borrowings were made from foreign shareholder and was utilized by advancing to its subsidiary in
ordinary course of business. Loan agreement clearly specifies that the borrowings are meant for
general corporate purpose. Held that even if assessee did not receive interest income from such loan,
it would not shift the business purpose. Foreign Exchange gain arose due to restatement of loan
balance at the end of the year at the prevailing exchange rate. Assessee credited such gain in its P&L
a/c. Amount advance is meant for business purpose of the assessee and has to be construed as
amounts lent in ordinary course of business. Even if no interest income is received on such advance,
resultant exchange gain restated at the end of the year has to be construed as a revenue receipt.
However, in subsequent years, assessee has incurred foreign exchange loss and has not claimed it as a
deduction since notional in nature. Since, to be in consonance and take consistence stand AO is
directed to grant deduction of notional foreign exchange loss in subsequent years. (AY. 2004-05)
ITO v. UMT Investment Ltd (2016) 176 TTJ 53 (Kol.)(Trib)

S. 4 :Charge of Income-tax-Capital or revenue-Subsidy received by way of exemption from sales

tax was capital in nature since the object of the incentive was to develop backward areas.
[S.28(i)]
The Assessee set up a unit in backward area and it was granted benefit of deferring the payment of
sales tax collected by it for 15 years. Subsequently, the Assessee opted for the Exemption Scheme

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wherein it was exempt from levy of sales tax. The benefit that arose was offered to tax as a capital
receipt in its revised return of income. The AO held that it was a revenue receipt. The ITAT held that
the subsidy was capital in nature since the object and purpose of the incentive was to develop
industries in the backward area, to remove imbalance and to maintain regional economic growth.
(AY. 2006-07, 2007-08)
John Deere India P. Ltd. v. DCIT (2016) 45 ITR 389 (Pune)(Trib.)
John Deere Equipment P. Ltd. v. ITO (2016) 45 ITR 389 (Pune)(Trib)

S. 4:Charge of income-tax-Penalty to be paid outside India for violation of law of other country
does not attract tax in India therefore tax is not to be deducted. [ S. 195 ]
The Assessee was a listed company in Indiaand ADR of the company were also listed on carried on
the New York Stock Exchange. The US Court levied a penalty of 10 million $ for violation of
Securities Exchange Act, 1934. The Assessee made an application to AAR to ascertain whether it was
required to deduct tax at source. The AAR held that penalty to be paid for violation of law cannot
attract tax under the Income-tax Act and therefore, provisions of section 195 were not attracted.
Satyam Computer Services Ltd. (2016) 380 ITR 189 / 236 Taxman 199) 282 CTR 41 (AAR)

S. 4 : Charge of income-tax – Settlement amount received in pursuance for surrender right to

sue is a capital receipt and not a business income, hence not chargeable to tax in India. [ S.28(i),
45 ]
The Applicant, a foreign institutional investor (‘FII’) alongwith its affiliates purchased shares of
Satyam Computer Services Limited ('Satyam') and Satyam's American Depository Shares ('ADRs').
Subsequently, in January 2009, the CEO confessed that the accounts of the company were
manipulated, pursuant to which, the Appellant and its affiliates disposed of the shares of Satyam and
ADRs.

Thereafter, the Appellant filed claims against Satyam for fraudulent misrepresentation. Finally, a
Settlement agreement was entered with Satyam whereby for an agreed amount, the Appellant on
behalf of the Aberdeen Investors would forever waive, release, discharge and dismiss all legal claims
against Satyam.

An application was filed with Authority of Advance Ruling (‘AAR’), to seek a ruling in respect of the
taxability of the agreed amount received from Satyam under the Settlement Agreement under the
Income-tax Act, 1961.

The AAR held that the nature of settlement amount is of a capital receipt and the amount has been
received against surrender of right to sue cannot be considered for the purpose of capital gains u/s.45,
relying on the AAR decision in the case Qualified Settlement Fund (QSF), In re (2016) 130 DTR
(AAR) 367. In the said case, under similar situation, AAR held that if right to sue is considered as a
capital asset, its cost of acquisition cannot be determined and in the absence of such cost of
acquisition, the computation provisions fails. Therefore, right to sue cannot be subjected to income tax
under the head 'capital gains'.

Further, it was held that the settlement amount have been received not as part of business profit or to
compensate the future income but as a result of surrender of the claim. Thus, even in accordance with
the principle of surrogatum such amount is not assessable as income because it does not replace any
business income.
Aberdeen Asset Management Plc., In re (2016)381 ITR 55/283 CTR 387/ 65 taxmann.com 246
/131 DTR 1 (AAR)]
Aberdeen Claims Administration Inc., In re (2016)381 ITR 55/283 CTR 387/ 65 taxmann.com
246 /131 DTR 1 (AAR)]

S. 6:Residence in India–Installation project continuing only for 178 days in fiscal year, less than
183 days-No permanent establishment of applicant in India-Business profits from execution of

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project taxable only in country where applicant was resident–DTAA-India-Singapore. [S.6(3),
Art. 7(1)]
Since the project executed by the applicant in India continued only for 178 days in a fiscal year, less
than 183 days in a fiscal year, there was no permanent establishment of the applicant in India and that
the business profits accruing or arising to the applicant by way of the execution of the project under
reference were taxable only in the country where the applicant was a resident in terms of article 7(1)
of the Double Taxation Avoidance Agreement between India and Singapore. (AY.2013-14)
Tiong Woon Project and Contracting (Pte) Ltd. In (2016) 380 ITR 187 (AAR)

S. 9(1)(i):Income deemed to accrue or arise in India - Business connection – liaison office-Profits

arising from off-shore supply of goods can not be taxed in India as the assessee does not have a
PE in India,the question of attribution of any income to the alleged PE also does not arise-
DTAA-India- USA. [Art. 5, 7 ]
Court held that subsidiary company is an independent tax entity and its income is chargeable to tax in
the state where it is resident. In the present case, the tax payable on activities carried out by Norte
India would have to be captured in the hands of Nortel India. Chapter X of the Act provides an
exhaustive mechanism for determining the Arm’s Length Price in case of related party transactions
for ensuring that real income of an Indian Assessee is charged to tax under the Act. Thus, the income
from installation, commissioning and testing activities as well as any function performed by expatriate
employees of the group companies seconded to Nortel India would be subject to tax in the hands of
Nortel India and the same cannot be considered as income of the Assessee. Therefore the profits
arising from off-shore supply of goods can not be taxed in India merely on basis that (a) the goods
continued in the possession of seller till acceptance of the goods by buyer in India, (b) the seller had a
liaison office in India, (c) the seller had a wholly-owned subsidiary in India which negotiated contacts
with the buyer, (d) installation, commissioning etc services were provided in India etc.In view of our
conclusion that the Assessee does not have a PE in India,the question of attribution of any income to
the alleged PE also does not arise.( ITA no. 666/2014, dt. 04.05.2016) (AY. 2003-04, 2004-05, 2005-
06)
Nortal Networks India International Inc v. DIT (Delhi)(HC);www.itatonline.org

S. 9(1)(i):Income deemed to accrue or arise in India - Business connection-Shipping company-

“international traffic” India-Singapore DTAA][Art. 3(h), 8 ]
Transportation of goods from Kandla port to Vizag Port in a vessel from Singapore bound to Dubai
falls within the definition of the term “international traffic” under Article 3(h) of India-Singapore
DTAA and cannot be said to be operating solely between the places in India and therefore, as per the
provisions of Article 8 of India-Singapore DTAA, the profits arising out of the same is not taxable in
India.
CIT v. Tarus Shipping Services (2016) 236 Taxman 555 (Guj.)(HC)

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

Services of non-resident companies for running duty free retail shops- Matter remanded-
DTAA-India- UK- UAE. [Art. 7, 13]
Assessee company was engaged in business of operation and maintenance of an International Airport.
It had established duty free retail outlet shop at international terminals of Airport. Assessee engaged
services of two non-resident companies namely Alpha and Kreol in running duty free retail outlet
shop. In consideration of services rendered by Alpha and Kreol, assessee agreed to pay 'commission
fee' at 2 per cent of gross sales from duty free retail outlet. Assessing Officer held that commission
fees was to be considered as business income deemed to accrue or arise in India through a 'business
connection' in India under section 9(1)(i). CIT(A) also confirmed the order of AO. On appeal the
Tribunal held that; revenue authorities had not examined existence of 'business connection' as per
statutory definition mentioned in Explanation 2 to section 9(1)(i). Moreover, authorities below failed
to conclude under which clause of relevant DTAAs existence of PE was satisfied. Therefore in
aforesaid circumstances, impugned order was to be set aside and, matter was to be remanded back for
disposal afresh. Matter remanded . ( AY. 2005-06, 2009-10)
Cochin International Airport Ltd.v. ITO (IT) ( 2016) 157 ITD 310 (Cochin)(Trib)

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S. 9(1)(i):Income deemed to accrue or arise in India - Business connection – Indian Liaison
Office and agents of US money transfer company, rendering services to Indian relations of
American residents in India, were not its PE in India; profit attributable to Indian activities was
not liable to tax in India- DTAA- India- USA [ Art. 5, 7]
Assessee-US company was engaged in business of transfer of money across countries through
specialised software. It set up Liaison Office which appointed agents in India for rendering said
services to Indian relations of American resident. Assessee provided software enabling agents to
access its mainframes in USA .No copyright over software was given to agents. Agents owned
computer system independently and assessee had no control over them. Further, activities of agents
were not wholly or almost wholly devoted on behalf of assessee .Transaction in
question/compensation was under arm's length price. The assessee filed its return declaring 'nil'
income by contending that it was not liable to pay any tax in India on income arising from money
transfer services as it did not have any permanent establishment in India. The Assessing Officer held
that income arising to the assessee from money transfer services was taxable in India, both under the
Income-tax Act and the DTAA between India and the USA. The Commissioner (Appeals) set aside
the order of the Assessing Officer. On appeal by revenue the Tribunal held that ; Indian Liaison
Office and agents of US money transfer company, rendering services to Indian relations of American
residents in India, were not its PE in India; profit attributable to Indian activities was not liable to tax
in India .( AY. 2004-05, 2009-10 )
Dy. CIT v. Western Union Financial Services Inc (2016) 156 ITD 882 (Delhi) (Trib.)

S. 9(1)(i):Income deemed to accrue or arise in India - Business connection –Branch office –

Compensated at arm’s length for performing services-No part of assesse’s profit could be taxed
in India as profits attributable to PE -DTAA- India – USA [ Art. 5, 7]
Allowing the appeal f assesse the Tribunal held that ; where assessee's branch office, which was
considered as assessee's PE in India, was compensated at arm's length for performing services in
respect of direct sales made by assessee in India, no part of assessee's profit could be taxed in India as
profit attributable to Indian PE. (AY. 2002-03 to 2004-05)
St. Jude Medical Inc v. Dy.CIT ( 2016) 156 ITD 387 (Mum)(Trib)

S. 9(1)(i):Income deemed to accrue or arise in India - Business connection – Composite contract

to supply, install and implement retail automation system would be taxable in India through the
project office in India. The sub-contract of service component could not be used to split the
composite contract.
Assessee entered into a composite contract to supply, install and implement retail automation system.
The installation of systems was sub-contracted to another party in India. Assessee alleged that the
income from supply of equipment was not taxable in India since it was supplied outside India and
payments were received outside India. The AO alleged that the contract could not be split into supply
of equipment and service income, and held that the project office was PE in India. ITAT held that the
project office opened in India to oversee the implementation of the project would constitute a PE in
India. Further, it was held that the income could not be split by the Assessee since it had entered into a
composite contract and was responsible for both the supply of equipment as well as installation
services. The sub-contract was only of the methods of executing the project and could not be used to
split the composite contract. (AY. 2008-09)
Orpak Systems Ltd. v. ADIT (IT)(2016) 176 TTJ 655(Mum.)(Trib.)

S. 9(1)(i):Income deemed to accrue or arise in India - Business connection- Power of attorney-

Liaison office- Does not constitute permanent establishment-DTAA-India-Japan. [S. 90, Art. 5]
A Power of Attorney executed by the Head Office in favour of the Liaison Office in India does not
create a Permanent Establishment if the powers are specific to the liaison office and are not unfettered
powers to enable to Liaison Office to act on behalf of the enterprise.( AY 2011-12)
Kawasaki Heavy Industries Ltd. v. ACIT (2016) 132 DTR 81 (Delhi)(Trib.)

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S. 9(1)(iv) : Income deemed to accrue or arise in India - Dividend by Indian company - Mere
reduction in capital occurred due to transfer of shares under scheme of buy back which was
approved by High Court does not fall under definition of 'reorganization' specified in article
13(5) – Held that gain was taxable in India- DTAA- India- Netgerlands [ Art. 13(5)]
The assessee tendered equity shares of a public listed Indian company under a scheme of arrangement
by way of buy back of own shares as per approval of High Court which resulted in capital gain. The
AO and CIT(A) rejected the claim of the assessee that as per paragraph 5 of Article 13 of India
Netherlands DTAA, the transaction felt under the definition of ‘reorganization’ as specified in Article
13(5) and that the gain was not taxable. On appeal to ITAT, it was held that the object of arrangement
was not financial restructuring but to enable assessee to transfer its shareholding and there was only
reduction in share capital and security holders continued to enjoy same types of rights and interests. It
further held thatthe attempt of the assessee to bring transferring of shares within the ambit of the term
'reorganization' may not be correct, since the objective of the arrangement was not financial
restructuring, but to provide an exit route to the non-resident shareholders. (AY. 2006-07)
Accordis Beheer B V v. DIT (IT) (2016) 157 ITD 373/ 176 TTJ 406 (Mum.)(Trib.)

S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Installation charges- Fees for
technical services – Contract cannot be re-characterised- There was no PE in India- On facts
the installation charges cannot be taxed as royalty or fees for technical services-DTAA-India –
Singapore .[ S. 9(1)(vii), Art , 5, 7 12(3)(b), 12(4)(a)]

Allowing the petition the Court held that ; the revenue cannot be permitted to re-characterise the
contract . The Court also held that there was no PE in India . On facts the Court held that; installation
charges cannot be taxed as royalty or fees for technical services, considering the provisions of DTAA
between India and Singapore. Order of AAR was setaside. ( WP No. 7416/2012, dt. 2.06.2016)

Technip Singapore Pte. Ltd. v. DIT (Delhi)(HC), www.itatonline.org

S. 9(1)(vi):Income deemed to accrue or arise in India-Royalty- The retrospective amendment
has no impact on assessees covered by DTAA because a corresponding amendment has not been
made to the definition of “royalty”-DTAA –India- Thailand- Netherland. [S. 90, Art . 12]
The retrospective amendment to s. 9(1)(vi) so as to supersede the law laid down in Asia Satellite 332
ITR 340 (Del) and assess transmission fees as “royalty” has no impact on assesses covered by DTAA
because a corresponding amendment has not been made to the definition of “royalty” therein-
Amendments to domestic law do not affect the DTAA-India- Thailand- Netherland. ( AY. 2007-08 ,
2009-10 )
DIT v. New Skies Satellite BV ( 2016) 382 ITR 114/ 238 Taxman 577 (Delhi)(HC)
DIT v. Shin Satlliete Public Co Ltd( 2016) 382 ITR 114 (Delhi) (HC)

S. 9(1)(vi):Income deemed to accrue or arise in India – Royalty – Consideration paid for use of
computer software cannot be considered as royalty- Not liable to deduct tax at source - DTAA-
India–Singapore. [Art. 12, Copyright Act,1957, S.52]
Allowing the appeal of assesse the Tribunal held that; the assessee cannot be said to have paid the
consideration for use of or the right to use copyright but has simply purchased the copyrighted work
embedded in the CD- ROM which can be said to be sale of ‘good’ by the owner. The consideration
paid by the assessee thus as per the clauses of DTAA can not be said to be royalty and the same will
be outside the scope of the definition of ‘royalty’ as provided in DTAA and would be taxable as
business income of the recipient. The assessee is entitled to the fair use of the work/product including
making copies for temporary purpose for protection against damage or loss even without a license
provided by the owner in this respect and the same would not constitute infringement of any copyright
of the owner of the work even as per the provisions of section 52 of the Copyright Act,1957.(ITA No.
7779/Mum/2011, dt.29.02.2016)(AY.2007-08)
Capgemini Business Services (I) Ltd. v. ACIT (Mum.)(Trib.);www.itatonline.org

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S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty - Consideration received for
providing access to internet and other email and networking facilities to Indian entity –
Amounts to use of embedded software – taxable as Royalty- DTAA- India- USA [ Art. 12 ]
The assessee entered into agreement called communication agreement with Cincom Systems India
Private Limited (‘CS India’). As per the said agreement the assessee had to provide access to internet
and other email and networking facilities. It was like a gateway that facilitated call centers to
incoming and outgoing calls from India to the people of USA. On appeal to Tribunal, it held that
consideration received by the assessee for providing services to CS India was royalty under Article
12(3) of the India- US DTAA observing that such payment was for the use of embedded secret
software enabling Indian customers to call residents of the USA and vice versa. Following the AAR
Ruling in the case of ABC (238 ITR 296), it held that the transaction would to related to scientific
work and would partake the character of intellectual property. (AY 2002-03, 2003-04 – 2006-07)
Cincom System Inc v. DDIT (2016) 176 TTJ 245 (Delhi) (Trib)

S. 9(1)(vii):Income deemed to accrue or arise in India - Fees for technical services – Assessee
entered into an agreement with US company for providing technical and engineering services –
In view of Expl. 2 to S. 9(1)(vii), payment made by assessee with regard to managerial, technical
and consultancy services liable to tax since services utilized in the business for earning income in
India – Under DTAA, foreign company reviewed the executions plans, with emphasis on key
milestones, provided the best practices available in form of written procedures, specifications
and details – assessee can use the specifications and procedures for other projects also – foreign
company has made available its technical knowledge to assessee as it is capable of deploying
such technology in future – assessee liable to deduct TDS [India-USA [S.195, Art. 12.]
Assessee entered into an agreement with RPL in India for providing technical and engineering
services. For providing such services, the assessee-company had entered into another agreement with
Foster Wheeler USA(Foster), an associate of the assessee-company. AO found that the payment made
by the assessee to Foster (USA) was liable for deduction of tax at source under section 195. Since tax
was not deducted, AO disallowed the entire payment by applying provisions of section 40(a)(i). On
appeal, assessee contended that the U.S. company did not make available any technical knowledge,
expertise, and know-how to the assessee. Therefore, the payment made by the assessee could not be
construed as fee for technical services under India-US DTAA. Held that, as per Explanation 2 to
section 9(1)(vii) payment made by the assessee with regard to managerial, technical and consultancy
services was liable to be taxed in India since the services were utilized in the business for earning
income in India. Under DTAA, the beneficial clause is used by invoking the concept of "make
available". Therefore, to consider the payment as fee for technical services, the technical knowledge,
expertise or know-how shall be made available to the assessee. It is an admitted position that the
assessee was engaged in the business of engineering and construction contract, engineering equipment
and power equipment supplier. For the purpose of carrying out the business in India, the assessee
received the above services from Foster Wheeler USA and assessee had received execution plans with
schedules, specifications, etc. Foster Wheeler USA reviewed the working of the assessee in respect of
its plans, execution and also provided time schedule with emphasis on key milestones and assessee
had also received systems for meeting the project budget and client satisfaction. The job specification
was also given by Foster Wheeler USA. Assessee was an expertise company in engineering and
construction works and specifications and other procedures were made available to the assessee-
company and the foreign company was reviewing and tracking the execution plans periodically, not
only the execution but also the project budget and client satisfaction, said foreign company had made
available its technical knowledge, expertise, know-how in execution of the contract by the assessee in
India. Hence, assessee is liable to deduct tax at source. (AY. 2008-09, 2009-10)
Foster Wheeler France SA v. DDIT(IT) (2016) 157 ITD 793 / 176 TTJ 521) (Chennai) (Trib.)

S.9(1)(vii):Income deemed to accrue or arise in India – Fees for technical services- Where
assessee made payment to a China based company for designing, drawing, supply and
installation of three passenger boarding bridges at Airport, matter was to be remanded back to
determine as to whether said payment was taxable in India in terms of 'fee for technical
services'- DTAA- India- China. (Art. 12(3) ]

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Assessee made payment to a China based company for designing, drawing, supply and installation of
three passenger boarding bridges at Airport without deducting tax at source . Assessing Officer was of
view that tax had to be deduct at source. It was noted from records that revenue authorities did not
consider as to whether payments in question fell within definition of 'royalty' under article 12(3) of
India - China DTAA . Moreover, question as to whether aforesaid payments could be regarded as 'fee
for technical services' under section 9(i)(vii) was also not a subject matter of examination before
lower authorities. In view of above, impugned order was to be set aside and, matter was to be
remanded back for disposal afresh. ( AY.2006-07)
Cochin International Airport Ltd.v.ITO(IT) (2016) 157 ITD 310 (Cochin)(Trib.)

S. 9(1)(vii):Income deemed to accrue or arise in India - Fees for technical services - Article 12 of
Model OECD Convention - Explanations to section 9(2) were inserted by Finance Act, 2010,
with retrospective effect from 1-6-1976 by which payments made by assessee to non-residents
were taxable in India as 'fee for technical services'; however in view of law as it existed at an
earlier point of time when payments were made, it was not possible to comply with tax
withholding liability.
The assessee was an advocate specialized in Intellectual Property Laws (IPR). The services of
assessee were utilized by its clients in India which included multinational major corporate etc. During
the year under consideration, assessee’s clients expressed interest in protecting their IPR in foreign
territories, he acted as a facilitator and entrusted work to a foreign attorney in respective jurisdictions
who rendered services to clients of assessee. The fees of foreign attorneys were remitted by assessee
upon receipt of payment/instructions from his clients and such amounts including fees of assessee for
facilitation were borne by clients. The AO held that the payments made by assessee to non- residents
were taxable in India as ‘fee for technical services ‘ in view of insertion of Explanation 2 to Section
9(1)(vii)(b) by Finance Act, 2010 with retrospective effect from 1-6-1976. On appeal to Tribunal, it
held that even though law amended was retrospective in nature but so far as tax withholding liability
was concerned, it depended on law as it existed at point of time when payments from which taxes
ought to have been withheld were made. Assessee therefore could not be faulted for not deducting
TDS.( AY. 2006-07, 2008-09, 2009-10)
DDIT v. Subhotosh Majumdar(2016)156 ITD 708 / 176 TTJ 600 (Kol.)(Trib.)

S. 9(1)(vii):Income deemed to accrue or arise in India-Fees for technical services -“Startup

services”, though technical in nature, are not assessable as “fees for technical services” if they
do not involve any “construction, assembly mining or like projects”. The services are also not
taxable under Article 12 as they do not “make available” technical knowledge- DTAA-India-
USA. [S.195(2), Art. 12.]
“Startup services”, though technical in nature, are not assessable as “fees for technical services” if
they do not involve any “construction, assembly mining or like projects”. The services are also not
taxable under Article 12 as they do not “make available” technical knowledge- DTAA-India-USA.
(ITA No. 8567/Mum/2010, dt. 11.03.2016)(AY. 1998-99)
Raytheon Ebasco Overseas Ltd. v. DCIT (Mum.)(Trib.);www.itatonline.org

S. 9(1)(vii):Income deemed to accrue or arise in India - Fees for technical services -In view of
Most favoured Nation (MFN) clause in Treaty of India and Netherlands, to decide scope of 'fee
for technical services' under India-Netherland DTAA, one has to see scope of taxability of
similar payment as explained in DTAA of India and USA- DTAA- India –Netherland [ S.
195,(Art. 12 ].
Assessee, a Netherland based company, rendered services towards agreement for basic refinery
package (BRP) to an Indian company. AO held that the assessee has provided technical services
hence taxable at the rate of 10 percent as PER THE India Dutch DTAA. CIT (A) held that agreement
for basic refinery package being a composite one, any bifurcation of services rendered under said
agreement would be self-contradictory. On appeal Tribunal held that ;as long as Assessing Officer
could demonstrate after collecting necessary details that only a part of service was taxable and non-
taxable consideration component (i.e. consideration for physical deliverables, consideration for
services other than technical services and consideration for services which do not transmit technical

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know-how etc.) was less than 50 per cent of overall consideration paid for basic refinery package, he
could certainly conclude that only a part of total services was taxable on account of its being
composite contract. In favour of assesessee.In view of Most favoured Nation clause set out in Treaty
between India and Dutch, to decide scope of ‘fees for technical services’ under article 12 of India
Dutch treaty one has to see scope of taxability of similar payments in treaty of India and USA and
unless Indo–Netherlands treaty is more beneficial to assessee, provisions of Indo-US tax treaty will
apply. Fees for non-technical consultancy services cannot be treated as covered by scope of ‘fees for
technical services’. (AY. 2005-06)
Shell Global Solutions International BV v. ITO (2016) 157 ITD 24 / 175 TTJ 286 (Ahd.)(Trib.)

S. 9(1)(vii):Income deemed to accrue or arise in India - Fees for technical services -Supply
management service fees received by Applicant–Not liable to deduct tax at source- DTAA-
India- UK [S. 195, Art. 13]
The Applicant is a company incorporated in UK. The Indian affiliate is engaged in the business of
manufacture and sale of turbochargers and purchases turbocharger components directly from third
party in UK and US and in relation to such purchases, the applicant provides supply management
services vide material suppliers management service agreement. AAR ruling was sought on question
whether the supply management service fees received by Applicant from Indian affiliate is in the
nature of “fees for technical services” (FTS) or “royalties” within the meaning of the term Article 13
of the India-UK DTAA.
The AAR held that, the Applicant is not imparting its technical knowledge and expertise to the Indian
Company based on which the Indian company will acquire such skills and will be able to make use of
it in future. Therefore, the ‘Make available’ clause under India–UK, DTAA is not satisfied and hence
such fee is not FTS under the Article 13 of the India-UK Treaty.
AAR further held that, the nature of services related to the identification of products and competitive
pricing cannot qualify as royalties under the provisions of Article 13 under India-UK DTAA because
it is not related with the use of, or the right to use any copyright, patent, trademark, design, or modal,
plan secret formula or process etc. Thus, Indian affiliate is not required to withhold tax under section
195 of the Act.
Cummins Ltd., In re (2016) 381 ITR 44/ 237 Taxman 693/ 283 CTR 241 (AAR)

S. 10(1) : Agricultural income – Lease deed and certificate of Wakf Board transferring lease in
favour of Assessee are sufficient to prove that the claim of agricultural income was valid.
The Assessee declared agricultural income being income from sale of poplar tree. The AO did not
allow the claim of the Assessee since proof of ownership of the land and cultivation. The CIT(A)
allowed the claim based on the copy of the lease deed, certificate issued by the Wakf Bard
transferring the lease in favour of the Assessee and that the income was received in cheque. The ITAT
upheld the order of the CIT(A) and held that the adequate evidences were filed by the Assessee to
prove the agricultural activity. (AY. 2006-07)
DCIT v. Davinder Kumar Bhasin (2016) 45 ITR 232 (Chd.)(Trib)

S. 10(10) : Commutation of pension – Leave Salary – Employee of the Central Government or

State Government – Whether Gratuity and leave encashment are to be governed by definition
of salary – [S. 10(10AA)]
The assessee had retired from a government bank under the ‘Exit Option Scheme’ floated by the bank.
He filed his return after claiming certain deductions under section 10(10) and 10(10AA) of the Act in
respect of gratuity and leave encashment. The Assessing Officer disallowed the excess amount of
gratuity and excess amount of leave encashment claimed by the assessee. The CIT(A) as well as the
Tribunal had upheld the order of the Assessing Officer by stating that the in the definition of salary as
per Rule 2(h) Part A, Fourth Schedule, no other payment or allowance other than dearness allowance
can be taken into consideration.
The main question under consideration was whether any benefit or allowance other than dearness
allowance was to be included in the basic salary of the assessee for computation of exemption on
gratuity and leave encashment. The CIT(A) referred the circular No. 46 dated 14 September 1970
issued by CBDT which said that salary would include periodical payments made to the employee by

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the employer as compensation for the services and payment made by way of allowances or perquisites
will not be taken into consideration as salary. However when DA is merged with salary it no longer
remains DA but becomes part of salary. The assesse relied on the definition of salary as laid down in
the 8th Bipartite Settlement agreement on wage revision between Indian Banks Association and their
workman. However the High Court held that the definition of salary is to be governed by the Rule 2
of part A of the Fourth schedule and cannot be imported and applied from other agreements and acts.
Thus the High Court held that the assessee was not able to demonstrate the approach of the below
authorities was erroneous or perverse or that the findings of fact recorded were based on misreading
or misappreciation on record so as to warrant any interference. Thus the High Court held that there
was no merit found in the appeal and hence the same was thereby dismissed. (AY. 2008-09)
Harbans Singh v. CIT (2016) 382 ITR 600/ 237 Taxman 596 (P&H)(HC)

S. 10(23C):Educational institution- To consider a university as wholly or substantiallay financed

by Governemnt as contemplated under section 10(23C (iiiab) , funds received from
Governemnt must be direct grants/ contributins from government source and not fees collected
from students under statute. University existing solely for the purpose of education and without
any profit motive,though huge surplus is entitled to exemption. [ S. 10(23C (iiab) ]
Court held that there was huge surplus (in excess of 6 to 15%) and minimal expenditure implies
profit motive. Court also held that ,therefore, be more appropriate to hold that funds received from the
Government contemplated under Section 10(23c)(iiiab) of the Act must be direct grants/contributions
from governmental sources and not fees collected under the statute. The view of the Delhi High Court
in Mother Diary Fruit & Vegetable Private Limited vs. Hatim Ali & Anr [(2015) 217 DLT 470] which
had been brought to the notice of the Court has to be understood in the context of the definition of
‘public authority’ as specified in Section 2(h)(d)(ii) of the Right to Information Act, 2005. Reliance
has been placed on the judgment of the High Court of Karnataka in Commissioner of Income-tax,
Bangalore vs. Indian Institute of Management (2014) 49 Taxmann.com 136 (Karnataka). The
situation before us, on facts, is different leading to the irresistible conclusion that the University does
not satisfy the second requirement spelt out by Section 10 (23c) (iiiab) of the Act. The appellant
University is neither directly nor even substantially financed by the Government so as to be entitled to
exemption from payment of tax under the Act.(CA No. 4361-4366 of 2016, dt. 12.04.2016)
Visvesvaraya Tecnological university v. ACIT( 2016) 68 taxmann.com 287
(SC);www.itatonline.org

S. 10(23C):Educational institution-At the stage of registering the assessee society, the prescribed
authority is only required to examine the nature, activity and genuineness of the institution and
nothing more - Conditions set out in the third proviso to section 10(23C) were to be seen at the
time of assessment and not at the stage of approval.
Assessee, a Society registered under the Societies Registration Act had one of the objects of
establishing an educational institution. Assessee’s application for registration under section
10(23C)(vi) was denied on the ground that the assessee did not exist solely for educational purpose, it
generated profits over the years which established the profit motive, it incurred huge expenditure on
advertisement like a commercial activity to promote the business activities and that it had given huge
loans to interested persons. High Court held that the prescribed authority, at the stage of registration,
is only required to examine the nature, activity and genuineness of the institution. Mere existence of
some profit does not disqualify the assessee if the sole purpose of existence is not profit making but
educational activities. The authority has to find out the predominant object of the activity and
determine whether the institution exists solely for education and not to earn profit. Further, High
Court held that the conditions set out in the third proviso to section 10(23C) were to be seen at the
time of assessment and not at the stage of approval. (AY.2008–09, 2010–11, 2011–12)
Manas Sewa Samiti v. CCIT (2016) 282 CTR 302 / 236 Taxman 546 (All) (HC)

S. 10 (23C):Educational institution–Assessee has not received approval from the prescribed

authority – It cannot be said that non-disposal of an application u/s 10(23C)(vi) would result in
deemed grant of approval.

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Assessee had not received the approval from the prescribed authority under section 10(23C)(vi) of the
Act. It could not be said that non-disposal of an application under section 10(23C)(vi) of the Act
would result in deemed grant of approval to the assessee, enabling it to claim deduction under section
10(23C)(vi) of the Act. Reliance placed on the ratio laid down by larger Bench of Hon'ble Allahabad
High Court CIT v. Muzafar Nagar Development Authority [2015] 57 taxmann.com 8 (All.). The
assessee is not entitled to the aforesaid deduction under section 10(23C)(vi) of the Act, in the absence
of approval being granted by the prescribed authority.
Mercedes Benz Education Academy v. ITO (2016) 156 ITD 488/ 176 TTJ 365/ 65 taxmann.com
73 (Pune) (Trib)

S. 10(23C):Educational institution–Notification of the Government of Himachal Pradesh has

been violated- Not entitled for exemption.
Assessee has been incorporated with the purpose of publication of books, prescribing syllabus and
conducting examination upto secondary level. secretary board admitted that assessee has not received
any financial support from State Government other than funds for distribution of free textbooks to the
students. Secretary admitted to have sold the textbooks and also admitted to the fact that board has
earned surplus over the expenditure from the activities of printing, publishing and sale of books ,also,
it was admitted that assessee is not imparting any education. Funds given by the State Government
has been violated by the assessee . Notification of the Government of Himachal Pradesh has been
violated. Himachal Pradesh Board of School Education Act does not authorize the assessee to earn
profit in violation of notification. Assessee’s contention that assessee can print and publish the
textbooks for other students out of the same amount received for a specific purpose has to be rejected
.Requirements of Sec. 10(23C)(iiiab) not fulfilled and assessee not entitled for exemption. (AY. 2011-
12)
Himachal Pradesh Board of School Education Act v. DCIT (2016) 176 TTJ 580 (Chd) (Trib)

S.10(23C) :Educational institution- Advance to sister Trust for educational purposes–Rejection

of exemption was held to be not justified.[S. 11, 12AA]
Allowing the appeal of assesse , the Tribunal held that ; where the assessee-society which was
running a school, advanced an amount to its sister-trust for construction of building for educational
purpose and Assessing Officer could not prove that said amount advanced was for non-charitable
purpose, rejection of exemption under section 10(23C)(iiiad) was not justified (AY.2010-11).
Vairams Kindergarten Society v. CIT(A)( 2015) 40 ITR 694/ (2016) 156 ITD 381
(Chennai)(Trib)

S. 10(23C) : Educational institution- Receipts being less than one crore- Mentioning other
objects- Exemption cannot be denied - There is no need to file from no 10BB.
Dismissing the appeal of revenue the Tribunal held that ;where assessee-trust was carrying out sole
activity of education during relevant year and its receipt from said activity was less than Rs. one crore,
assessee's claim for exemption under section 10(23C) (iiiad) could not be rejected on ground that it
had mentioned other objects also in trust deed. Section 10(23C)(iiiad) cases, there is no need to file
Form 10BB. (AY.2009-10,2010-11)
ITO v.Shri Balaji Prem Ashram & Nikhil Vidyalaya (2016) 156 ITD 479 (Chd.)(Trib)

S. 10(23FB):Venture capital-Exemption-In terms of SEBI (Alternative Investment Funds)

Regulation, 2012, 'corpus' means amount committed by investors and, thus, where assessee fund
did not invest more than 25 per cent of amount so committed by investors in only one venture
capital undertaking, its claim for exemption under section 10(23FB) was to be allowed-Interest
income earned by assessee fund from deposits kept with banks would be eligible for exemption
under section 10 (23FB).Interest income earned by assessee fund from deposits kept with banks
would be eligible for exemption under section 10 (23FB). [SEBI (Alternative Investment Funds)
Regulation, 2012]
Assessee, a venture capital fund, claimed exemption under section 10 (23FB) . Assessing Officer
held that since assessee had invested more than 25 per cent of contributions in one venture capital
undertaking, it had violated provisions of Regulation 12(b) of SEBI Guidelines (Venture Capital

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Fund) Regulations, 1996 hence rejected assessee's claim. According to Assessing Officer, 'corpus'
literally meant collection and in financial terms, it meant actual collection of funds On appeal
Tribunal held that ;in terms of SEBI (Alternative Investment Funds) Regulations, 2012, assessee was
justified in contending that total amount of funds committed by investors would be taken as 'corpus'
for purpose of Regulation 12(b) of SEBI (Venture Capital Funds) Regulation, 1996. Even otherwise,
since there was no material to show that SEBI alleged or stated that assessee had not fulfilled any of
prescribed conditions, Assessing Officer could not make his own interpretation of term 'corpus'.
Therefore the assessee's claim for exemption under section 10(23FB) was to be allowed. Tribunal
also held that interest income earned by assessee fund from deposits kept with banks would be
eligible for exemption under section 10 (23FB) (AY. 2007-08)
DHFL Venture Capital Fund v. ITO (2016) 157 ITD 60 (Mum.)(Trib.)

S. 10(38) : Long term capital gains from equities –Loss on sale of equity shares- cannot be
allowed as deduction.
In view of S. 10(38) any income arising from transfer of a the long term capital asset being equity
share is exempt from tax and, therefore, loss incurred on sale of long term capital asset being equity
shares cannot be allowed as deduction. (AY. 2009-10)
ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)

S. 10A:Free trade zone-Computation of deduction-Services relating to development of computer

software - Deemed to be part of export turnover of computer software outside India - Expenses
incurred in foreign currency for providing software development services outside India cannot
be excluded from export turnover.
Held, (i) that the services rendered by the assessee relating to the development of computer software
were deemed to be part of export turnover of computer software outside India. Therefore, the
expenses incurred in foreign currency for providing software development services outside India
could not be excluded from the export turnover while computing deduction under section 10A. CIT v.
Motor Industries Co. Ltd. [2016] 6 ITR-OL 84 (Karn) applied.
(ii) That the exchange fluctuation loss was to be reduced from the total turnover while computing the
deduction under section 10A. (AY .2004-2005)
CIT v. Kshema Technologies Ltd. (2016) 381 ITR 435/ 66 taxmann.com 165 (Karn) (HC)

S. 10A: Free trade zone - Subsidy received from parent company to be excluded from total
turnover.
On a question raised by the Department whether the subsidy received from the parent company of the
assessee was to be included in the total turnover for the purposes of computation of deduction under
section 10A of the Tribunal held that the subsidy could not be included in the total turnover for the
reason that the amount had nothing to do with the rendering of services or export of services of the
software. Held, dismissing the appeal, that there was nothing to indicate that the finding of fact by the
authorities below was perverse and therefore no substantial question of law arose for
consideration.(AY 2007-2008 )
CIT v. Sun Life India Service P. Ltd. (2016) 381 ITR 516 (P & H)(HC)

S. 10A: Free trade zone - Export of computer software – Matter remanded.

Held, that the Assessing Officer had no occasion to go into the claim of the assessee that the services
rendered related to the development or production of computer software since the assessee on its own
had reduced expenses in foreign currency from the export turnover and the total turnover and
thereafter had taken a different stand before the appellate authority, that the services were an integral
part of development of computer software. The Tribunal's finding was not based on examination of
available and relevant material to come to a conclusion whether the activity related to the computer
software as defined under Explanation 2 to section 10A or involving technical services which was to
be excluded from the export turnover in accordance with Explanation 4 to section 10A. Therefore, the
Tribunal was to examine the material on record and to record a finding as to the nature of the activity.
What was required to be excluded in the export turnover were only freight, telecommunication
charges or insurance attributable to the delivery of computer software outside India or expenses,

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incurred in foreign exchange in providing the technical services outside India which could not be
confused with the services rendered for the development of computer software, an integral part of
export turnover of computer software. Matter remanded. (AY. 2002-2003)
CIT v. Hewlett Packard Global Soft Ltd. (2016) 381 ITR 99/ 283 CTR 410/ 66 taxmann.com
152 (Karn) (HC)

S.10A: Free trade zone- Only condition for software exported from India to be considered in an
year is receipt of consideration of sale proceed within six months from end of previous year (or
within period extended by RBI) in convertible foreign exchange and importing of any other
condition such as furnishing of SOFTEX Form or obtaining of STPI clearance is completely
unwarranted

Assessee carried on its business through a unit in Software Technology Park ('STP') which was
entitled for claim of tax holiday under section 10A. While computing exemption under section 10A,
Assessing Officer excluded an invoice raised by assessee on 31-3-2010 on ground that said invoice
was cleared by STPI authority on 6-5-2010, i.e. in financial year 2010-11 . Tribunal held that; for
purpose of section 10A only condition for software exported from India to be considered in an year is
receipt of consideration of sale proceed within six months from end of previous year (or within period
extended by RBI) in convertible foreign exchange and furnishing of SOFTEX Form and certification
of said form by STPI is only a post facto procedure prescribed by Reserve Bank of India to ensure
timely and appropriate collection of export proceeds. Therefore, procedural non-compliance in course
of collection of such export proceeds, i.e., furnishing of SOFTEX Form and certification by STPI
authority within stipulated period six months from end of financial year, should not result in revenue
from export of software made in financial year 2009-10 to be treated as 'export turnover' of
subsequent year. ( AY. 2010-11)
Microsemi India (P.) Ltd.v.Dy.CIT (2016) 157 ITD 220 (Hyd) (Trib.)

S. 10A: Free trade zone- Computer software - Assessee earlier claiming deduction u/s. 80HHE
was entitled to claim deduction u/s. 10A – Deduction to be computed after reducing expenditure
already reduced from export turnover, from total turnover. [S. 80HHE]
The AO did not allow the assessee the deduction u/s. 10A of the Act on the ground that section
80HHC(5) of the Act prohibited the claim under any other section of the Act, once deduction was
claimed under this section. The Commissioner (Appeals) allowed the claim. On appeal, the Tribunal
held that there was no justification to hold that the assessee being an old unit and having once claimed
deduction u/s. 80HHE, was not entitled to claim deduction u/s. 10A on the profits of its units. The
claim of deduction u/s. 10A was supported by requisite audit certificate. There was no error in the
order of the CIT(A).(AY. 2005-06)
Dy. CIT v. Tata Consultancy Services Ltd. (2016) 46 ITR 394 (Mum.)(Trib.)

S. 10A : Free trade zone- Disallowed expenditure- Eligible deduction on enhanced income –
Application under Rule 27 of the ITAT Rules was permitted. [ S. 40(a)(ia)], ITATR, 27 ]
Held that it would be unnecessary to go into the question whether the payment in question is
reimbursement of expenses or in the nature of FTS or the question whether the services rendered
made available technology because even assuming the sum in question is to be disallowed u/s
40(a)(ia), disallowance will only go to enhance the profits derived by the assessee from the business
of export of computer software and on such enhanced profits deduction u/s 10A has to be allowed.
Further, application under rule 27 of ITAT Rules was permitted to take the above plea. (AY. 2007-08)
ITO v. Cerner Healthcare Solutions (P) Ltd (2016) 176 TTJ 63 (Bang) (Trib)

S. 10A : Free trade zone – Expenses reduced from the export turnover should be reduced from
the total turnover also.
The Assessee had incurred expenses in foreign currency towards data communication and travelling.
The AO reduced them from export turnover for the purpose of deduction under s. 10A, but did not
reduce the same from total turnover. The ITAT held that if any item was to be reduced from export
turnover, then it had to be reduced from the total turnover also. The ITAT observed that merely

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because the Department had filed an appeal against the jurisdictional High Court judgment, it would
not lose its precedential value. (AY 2008-09)
ITO v. Cerner Health Care Solutions P. Ltd. (2016) 45 ITR207 (Bang.)(Trib)

S. 10A :Free trade zone - Total turnover – Telecommunication charges and Insurance charges
have been excluded from export turnover – Also to be excluded from total turnover
Following the decision rendered by Karnataka High Court in case of Tata Elxsi Ltd. 349 ITR 98, AO
is directed to exclude telecommunication charges and insurance charges incurred be excluded both
from export turnover and total turnover. (AY. 2006-07)
FCG Software Services (India) (P) Ltd v. ITO (2016) 176 TTJ 145 / 66 taxmann.com 296 (Bang)
(Trib)

S. 10A : Free trade zone- - Enhancement of Income by transfer pricing addition –eligiblity to
claim deduction under section 10A does not operate as a bar for determining ALP of
international transaction undertaken - No benefit of deduction on transfer pricing adjustment.[
S. 10B,92C ]
Having heard no exception has carved out by the statute for non-determination of the ALP of an
international transaction of an assessee who is eligible for the benefit of deduction section 10A/10B or
any other section of Chapter- VIA of the Act. Section 92(1) clearly provides that any income arising
from an international transaction is required to be computed having regard to its arm's length price.
There is no provision exempting the computation of total income arising from an international
transaction having regard to its ALP, in the case of an assessee entitled to deduction u/s 10A or 10B
or any other relevant provision. A circumspect perusal of this proviso read along with sub-section (4)
of section 92C divulges that when the total income of an assessee from an international transaction is
computed having regard to its ALP, then, no deduction u/s 10A or any other section including those
covered under Chapter VIA of the Act shall be allowed in respect of the amount of income by which
the total income of the assessee has been enhanced after computation of income determined on the
basis of the ALP of an international transaction. The legislature has unconditionally provided for not
allowing the benefit of deduction under any section in respect of the addition made on account of
transfer pricing adjustment. Not allowing of any benefit u/s 10A in respect of an addition on account
of transfer pricing adjustment pre-supposes the existence of transfer pricing addition in the first
instance to an assessee who is otherwise eligible to the benefit of deduction under this section. If one
was to presume that no addition towards transfer pricing adjustment is comprehensible in the case of
an assessee enjoying the benefit of deduction u/s 10A, then there was no need to enshrine an express
provision forbidding the grant of deduction under this section in respect of enhancement of income
due to transfer pricing adjustment. Once the legislature has engrafted an unambiguous provision
explicitly spelling out the non-granting of deduction u/s 10A on the enhanced income due to transfer
pricing addition, we are afraid to accept the assessee's contention, which runs diagonally opposite to
the unequivocal language of proviso to section 92C(4). Our view is fortified by the Special Bench
order in the case of Aztec Software & Technology Services Ltd. v. Asstt. CIT [2007] 107 ITD
141/162 Taxman 119 (Bang.) in which similar issue has been decided by the Special Bench by
holding that availability of exemption u/s 10A to the assessee is no bar to applicability of sections 92C
and 92CA. fact that there is already a Special Bench decision in the case of Aztec Software &
Technology Services Ltd. (supra) which supports the making of transfer pricing adjustment
notwithstanding the eligibility of deduction u/s 10A to the assessee, apart from clear statutory
mandate contained in proviso to section 92C(4), we are more inclined to go with the view of the
Special Bench. Therefore, held that the eligibility of the assessee to deduction u/s 10A of the Act does
not operate as a bar for determining the ALP of international transaction undertaken by it and further
the enhancement of income due to such transfer pricing addition cannot be considered for allowing
the benefit of deduction under this section. (AY. 2008-09)
Headstrong Services India (P) Ltd v. DCIT (2016) 176 TTJ 665/ 66 taxmann.com 185
(Delhi)(Trib)

S. 10B: Export oriented undertakings - Research documents and speciality compound

produced while providing 'contract research' service in chemistry would be used only in later

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stages of development of industrially useful chemicals Amounts to manufacturing –Entitle
exemption.
Assessee-company was engaged in business of providing contract research services in field of
molecular biology and synthetic chemistry - Assessee had categorised its receipts under two heads,
namely, contract research fee and sale of compounds .Assessee filed its return claiming exemption
under section 10B. According to Assessing Officer, since assessee's earnings were not from exports of
compounds, but from entire research work including intellectual property embedded therein, claim
raised by assessee could not be allowed . CIT(A) allowed the claim . On appeal Tribunal held that
mere fact that end product was either research documents in nature of experimental records or
speciality compound which would find use only in later stages of development of industrially useful
chemicals and formulations, it could not be concluded that assessee was not manufacturing an article
or thing . therefore, assessee's claim for exemption was to be allowed. (AY. 2005-06,1006- 07)
Dy.CIT v.Syngene International Ltd. (2016) 157 ITD 542 (Bang) (Trib.)

S. 10B: Export oriented undertakings - Deduction u/s 10B is allowable if necessary approvals
are obtained, even though earlier deduction was claimed u/s 80IC. [ S. 80IC ]
The Assessee was earlier claiming deduction u/s 80IC and during the impugned AY it switched over
to claiming deduction u/s 10B. The AO did not allow the same on the ground that a switch over to
S.10B was not allowed from S. 80IC. On appeal, the ITAT allowed the deduction u/s 10B since it had
received all the necessary approvals for registering its unit and it had forgone its earlier claim of
deduction u/s 80IC. (AY 2009-10)
ACIT v. Windlass Steel Craft (2016) 45 ITR 259(Delhi)(Trib)

S. 10B:Export oriented undertakings-Gherkins pickles-Processes undertaken by the assessee

had significant effect on the raw nature, converting it to a material capable of withstanding
decay for a considerable period of time, amounts to manufacture –Entitle deduction.[S.10A]
Allowing the appeal of assessee the Tribunal held that ;once such raw gherkins are put into some
process which increases its shelf life to six months or more, there indeed happen some irreversible
change. Raw gherkins are changed from its original state to a state where it remains good for human
consumption even after six months. Thus the steps as undertaken by the assessee which included
fermentation and which extended the shelf life of raw gherkins, even if we construe as not
‘manufacture’, as commonly understood, it cannot be denied that it resulted in a product which cannot
be equated with raw gherkins. The processes undertaken by the assessee had significant effect on the
raw nature, converting it to a material capable of withstanding decay for a considerable period of
time. In our opinion, in such a situation, it is difficult to say that what was packed by the assessee after
the various process was very same as the raw gherkins which it got from its contract farmers.(ITA No.
1292/Bang/2010 & ITA No. 287/Bang/2013, dt. 18.03.2016)(AY. 2006-07, 2007-08)
Intergarden India Pvt. Ltd. v. ACIT (Bag.)(Trib.);www.itatonline.org

S. 10B : Export Oriented undertaking- Assessee can claim deduction though the deduction
under section 80IC was claimed in earlier years [ S.80IC ]
The Tribunal held that the AO had no where stated that the assessee had not fulfilled the conditions
necessary for claiming the deduction under section 10B, he only disallowed the claim of the assessee
by relying upon the provisions of section 80IC(5) which are not applicable for this year as the
assessee did not claim deduction under section 80IC. Therefore, there is no valid ground to interfere
with the findings given by the CIT(A) on this issue. (AY. 2009-10)
ACIT v. Windlass Steel Craft (2016) 175 TTJ 1(UO) (Delhi)(Trib.)

S. 11 : Property held for charitable purposes –Application of income-Mere deposit of surplus

funds in FDRs cannot be treated as application of fund there has to be nexus between
investment in FDRs and achievement of charitable objects of assessee- Matter remanded. [ S.
12A]

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Mere deposit of surplus funds in FDRs cannot be treated as application of fund there has to be nexus
between investment in FDRs and achievement of charitable objects of assessee. Matter remanded.
(AY. 2011-12)
ITO v. S.D. Public School(2016) 157 ITD 521 (Chd.)( Trib.)

S.11: Property held for charitable purposes- Advance to sister concern was out of surplus
accumulated – No violation exemption was to be allowed.
Where assessee-trust spent 85 per cent of its income for construction of building to be used for
educational purpose, mere fact that it advanced certain amount to its sister concern out of surplus
accumulated which remained at its disposal, there was no violation of provisions of section 11(2) and,
thus, assessee's claim for exemption of income was to be allowed.( AY. 2004-05 )
Chawara Educational Trust v. ITO (2016) 157 ITD 281 (Pune) (Trib.)

S. 11 : Property held for charitable purposes –Publishing news paper-Not entitle exemption. [ S.
2(15 ) ]
Dismissing the appeal of assesse the Tribunal held that; Where assessee-trust having object to
improve and spread language, was publishing newspaper following commercial activity, it could not
be considered as charitable activity. Denial of exemption was held to be justified .( AY. 2009-
10,2010-11)
Murasoli Trust v. ADIT ( E ) ( 2016) 156 ITD 761 (Chennai) (Trib.)

S. 11 : Property held for charitable purposes – Advance of money to managing trustee for
purchase of land- No violation- Entitle exemption. [ S. 13(1)(c) ]
Assessee trust advanced money to its managing trustee for purchase of land belonging to the latter and
the said trustee returned the entire money along-with interest after cancellation of agreement. It cannot
be said that the transaction between the assessee trust and the managing trustee was one without
adequate security or adequate interest or that the money was diverted for the benefit of the managing
trustee and, therefore, there is no violation of S. 13. There was no violation of any other provision of
the IT Act on transfer of three institutions and its infrastructure by another trust to the assessee trust
by way of donation. Assessee was entitled for exemption u/s. 11.(AY. 2010-11)
Dy. DIT (E) v. Vels Institute of Science, Technology & Advanced Studies (2016)157 ITD 237 /
130 DTR 331/ 175 TTJ 593 (Chennai)(Trib.)
S. 11 : Property held for charitablepurposes– Education of fathers serving in schools –
Exemption could not be denied . [ S. 2(15), 12A ]
Dismissing the appeal of revenue the Tribunal held that ; Where assessee, a charitable trust, spent
certain amount towards education of Fathers serving in schools run by it as teachers, supervisers etc.,
it was to be regarded as charitable purpose and, thus, assessee's claim for exemption of income under
section 11 could not be rejected. ( AY. 2003-04)
ACIT v. Carmelite Charitable Society (2016) 157 ITD 78 (SMC) (Amritsar)(Trib.)

S. 11: Property held for charitable purposes – Receipts from non members by allowing them to
have their stalls in trade fair being negligible –Denial of exemption was held to be not justified .
[ S. 2(15)]
Dismissing the appeal of revenue the Tribunal held that ;where assessee-association was formed with
an object to promote leather trade, in view of fact that assessee's receipt of rent from non-members by
allowing them to keep their stalls in trade fairs organised by assessee was negligible in comparison to
total trade receipts, assessee's case could not be said to be covered under proviso to section 2(15) (
AY.2009-10 )
ITO v.Indian Leather Products Association( 2016) 156 ITD 393 (Kol.)(Trib)

S. 11 : Property held for charitable purposes - Micro finance business commercial manner-Not
eligible exemption . [ S. 2(15)]
Where assessee was carrying on micro finance business in a commercial manner, its activities fell
under category of 'advancement of any other object of general public utility' and thereby hit by
proviso to section 2(15) disentitling it from exemption. (AY. 2009-10)

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ITO v. Kalanjiam Development Financial Services( 2016) 156 ITD 213 (Chennai) (Trib).

S. 11 : Property held for charitable purposes – Exemption allowed if the accumulated funds
were utilized in the subsequent year for the valid objects of the trust, though there was a
technical error in the Form 10 that was filed.
The Assessee Trust filed in its Form 10 that the accumulated sum would be used for social-economic
programmes. The AO treated it as income since the Assessee was not specific in how the funds were
going to be utilized. The ITAT allowed the exemption for the trust since the funds were utilized in the
subsequent year for its objects and the technical lapse in filling up of form 10 could be condoned. (AY
.2011-12)
Presentation Social Service Centre v. DDIT (2016) 45 ITR 23 (Hyd)(Trib)

S. 11 : Property held for charitable purposes - Excess application of funds not permissible to be
carried forward to subsequent years.[ S. 32 ]
Tribunal held that the ;claim of the assessee for carry forward of excess application of fund to
subsequent years was not permissible under the Act.Purchase cost of the assets would have been
already allowed as application of funds in the year of purchase. Therefore, loss on sale of these assets
could not be treated as application of funds once again.Claim of depreciation made by the assesse
could not be entertained as per the provisions of the Act.If the receivables on which claim of bad
debts was made were earlier treated as income of the assessee- trust, they should be allowed as
application of funds when such receivables had become bad and written off in the books of account,
following the mercantile system of accounting. (AY 2010-11)
Sundaram Medical Foundation v. Dy. CIT (E) (2016) 45 ITR 500 (Chennai)(Trib.)

S. 12A:Registration –Trust or institution- No obligation to maintain separate books of account-

First proviso applies to the advancement of any other object of general nature- Withdrawal of
registration was held to be not justifies .[ S.2(15) 11(4A)]
Dismissing the appeal of revenue the Court held that ;if the predominant purpose is charitable, the
earning of profit from an incidental activity like letting of property does not affect the charitable
status. As the letting is a part of the educational activities, there is no obligation to maintain separate
books u/s 11(4A). As per CBDT Circular No. 11 of 2008, the first proviso to s. 2(15) applies to the
'advancement of any other object of general public utility'.” ( AY.2009-10)
DIT (E) v. Lala Lajpatrai Memorial Trust( 2016) 383 ITR 345 (Bom)(HC)

S.12A:Registration–Trust or institution-Charitable purpose–Object need not be benefit of the

whole mankind or persons of country- Entitle registration-Matter was set aside to
Tribunal.[S.2(15), 80G(5)(vi)]
Allowing the appeal of assessee the Court held that;In order to constitute a “charitable purpose”, the
object need not be to benefit of the whole of mankind or of persons in a Country or State. Even
benefit to only a section of the public is sufficient. To ascertain the true nature/purpose of the Trust,
the objectives have to be considered as a whole and not in isolation.The Court also held that ,to
ascertain the true nature/purpose of the Trust, the objectives have to be considered as a whole, not in
isolation. The Tribunal cannot pick and choose certain objectives ignoring the main objectives. It
appears that the respondent and the Tribunal are influenced by the preamble in the Trust Deed.
Preamble cannot control the main objectives of the Trust. Matter was set aside to Tribunal.(ITA no.7-
8/2010, dt. 23.02.2016)
Bangalore Urban & Rural District Co-op Milk Producers v. DIT(E)
(Karn.)(HC);www.itatonline.org
S.12A : Registration –Trust or institution- Running of school-Refusal of registration was held to
be not justified. [ S.11, 12AA ]
Tribunal held that ; where assessee-educational trust undertook only one activity of running of school
out of 21 objects for charitable purposes and it was charging reasonable fees from students and it also
gave concession to poor and deserving students, registration of trust under section 12AA was to be
granted
Swami Dayanand Educational Trust v.CIT ( 2016) 157 ITD 564 (Delhi) ( Trib.)

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S. 12A: Registration –Trust or institution- Proviso to section 2(15) cannot be basis for
cancellation of registration under section 12A [ S. (2(15), 11]
Assessee was a golf club registered under section 12A. Commissioner cancelled its registration on
ground that it was indulged in certain commercial activities, e.g., running bar and restaurant . On
appeal Tribunal held that; since activities carried out by assessee were incidental to main object of
club and Commissioner failed to prove that activities were not genuine, his order cancelling
registration of assessee was bad in law. Whether issue as to whether activities of assessee are
commercial in nature has to be considered by Assessing Officer while giving exemption under section
11 and not by Commissioner for cancellation of registration .
Chandigarh Golf Club v. CIT ( 2016) 156 ITD 264 ( Chd.)(Trib)

S. 12A: Registration –Trust or institution-Commissioner is empowered to cancel registration

granted to a society under section 12A from assessment year 2011-12 onwards, he cannot
assume such power for earlier assessment years-Consideration of first proviso to section 2(15)
has no role to play in matters relating to registration of a trust or institution under section 12A
in respect of granting or declining or cancelling registration.[S. 2(15), 12AA]
Amendment to section 12AA(3) giving power to Commissioner to cancel registration granted under
section 12A has been conferred by Finance Act, 2010, which explicitly provides that said powers are
available to Commissioner with effect from 1-6-2010 and same accordingly can be applied for
assessment year 2011-12 and subsequent assessment years and, in view of this, Commissioner, could
not assume jurisdiction to cancel registration of assessee society from assessment year 2009-10
onwards. Tribunal also held that consideration of first proviso to section 2(15) has no role to play in
matters relating to registration of a trust or institution under section 12A in respect of granting or
declining of registration or in respect of cancellation. Amendment to proviso to section 2(15) brought
by Finance Act, 2008 cannot be basis for cancellation of registration already granted in earlier year
under section 12A. Commissioner had not given findings that activities of assessee were not genuine
or not being carried out in consonance with objects of assessee, action of Commissioner in cancelling
registration was not as per law .
Punjab Cricket Association v. CIT (2016) 157 ITD 227 (Chd.)(Trib)

S. 12AA:Procedure for registration-Trusts or institutions - Non disposal of an application for

registration before the expiry of six months as provided u/s 12AA (2) results in deemed grant of
registration.[S. 2(15)]
In Society for the Promotion of Education, Adventure Sport & Conservation of Environment vs.
Commissioner of Income Tax (2008) 216 CTR (All) 167, the Allahabad High Court held that non
disposal of an application for registration before the expiry of six months as provided u/s 12AA (2)
would result in deemed grant of registration. However, this was reversed by the Full Bench of the
Allahabad High Court in CIT vs. Muzafar Nagar Development Authority (2015) 372 ITR 209. The
appeal filed by the department in the case of Society for the Promotion of Education came up before
the Supreme Court. HELD by the Supreme Court disposing of the appeal:
(i) The short issue is with regard to the deemed registration of an application under Section 12AA of
the Income Tax Act. The High Court has taken the view that once an application is made under the
said provision and in case the same is not responded to within six months, it would be taken that the
application is registered under the provision.
(ii) The learned Additional Solicitor General appearing for the appellants, has raised an apprehension
that in the case of the respondent, since the date of application was of 24.02.2003, at the worst, the
same would operate only after six months from the date of the application.
(iii) We see no basis for such an apprehension since that is the only logical sense in which the
Judgment could be understood. Therefore, in order to disabuse any apprehension, we make it clear
that the registration of the application under Section 12AA of the Income Tax Act in the case of the
respondent shall take effect from 24.08.2003.
(iv) Subject to the above clarification and leaving all other questions of law open, the appeal is
disposed of with no order as to costs.(AY.1998-99)

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CIT v. Society for the Promotion of Education, adventure sport & Conservation of
Environment(2016) 382 ITR 6/ 133 DTR 1/ 284 CTR 207 / 238 Taxman 330 (SC)
Editorial:From the judgment of Allahabad High Court in, Society for the Promotion of Education,
adventure sport & Conservation of Environment v. CIT ( 2008) 216 CTR 167/ 5 DTR 329
(All)(HC). Though the Supreme Court left “all other questions of law open”, the impact of the verdict
is that the law laid down in Society for the Promotion of Education, Adventure Sport & Conservation
of Environment vs. Commissioner of Income Tax (2008) 216 CTR (All) 167 that there is a deemed
registration is approved and the law laid down by the Full Bench in CIT vs. Muzafar Nagar
Development Authority (2015) 372 ITR 209 is no longer good law.

S. 12AA : Cancellation of registration – Supreme Court grants leave to the department for
challenging the High Court’s order holding that registration of a charitable trust cannot be
cancelled by taking recourse to proviso to section 2(15) [S. 2(15)]
DIT(E) cancelled the registration of the assessee trust under section 12AA(3) in view of the fact that
the proviso to section 2(15) was attracted as the assessee earned huge profits from carrying on
activities in the nature of trade, commerce or business or activities of rendering service in relation to
any trade, commerce or business. ITAT and HC held that the registration of a trust can be cancelled
only under two circumstances, i.e. if the activities are not genuine or if the activities are not carried on
in accordance with the objects of the trust. HC held that the fact that the receipts from commercial
activities are more as compared to the overall receipts of the charitable organization cannot be a basis
to hold that the trust’s activities are not genuine or that the activities are not being carried out in
accordance with the objects. Attraction of proviso to section 2(15) cannot be a ground for cancellation
of registration. SC has granted leave to appeal against the said HC judgment. (AY 2008–09,d 2009–
10)
DIT(E) v. Kodava Samaja (2016) 236 Taxman 394 (SC)

S. 12AA:Registration –Trust or institution- Provisions of section 13(1)(b) cannot be invoked at

time of granting registration . [ S. 13(1)(b) ]
Assessee-society was formed to provide medical aid, educational institutions, scholarships, sports,
blood donation camps, other facilities and activities on teachings of Bhai Mansa Singh Ji. It filed an
application for registration under section 12AA .Commissioner rejected the application on the ground
of genuineness of the Trust. On appeal the Tribunal held that the Commissioner has not questioned
the charitable object of the Trust and also nor he had been able to bring on record any material to
prove that activities of assessee were not genuine, impugned order passed by him was to be set aside.
Bhai Mansa Singh Ji Welfare Society (Regd.) v. CIT (2016) 156 ITD 117 (Chd)(Trib.)

S. 13 : Denial of exemption-Trust or institution-Investment restrictions – Funds utilised for

purchase of car in the name of Trustee-Denial of exemption should be limited to amount which
was diverted. [ S. 11]
Tribunal held that; where funds of assessee-trust were utilized for purchase of car in name of its
trustee, there was violation of section 13(2)(b), read with section 13(3); denial of exemption under
section 11 should be limited to amount which was diverted in violation of section 13(2)(b).( AY.
2004-05)
Audyogik Shikshan Mandal v. ITO ( 2016) 156 ITD 1/ 176 TTJ 202(TM) (Pune)(Trib)

S. 13 : Denial of exemption-Trust or institution-Investment restrictions – Salary to executive

director-Salary being reasonable there is no violation, exemption cannot be denied . [ S. 11,
12AA ]
Dismissing the appeal of revenue the Tribunal held that ;where there was failure by Assessing Officer
to indicate in assessment order that salary paid by assessee-society to executive director was
unreasonable, no violation of provision of section 13(1)(c) could be alleged and exemption could not
be denied. ( AY.2011-12 )
Dy.CIT v. Gideons International in India ( 2016) 156 ITD 666 (Hyd)(Trib)

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S. 14A:Disallowance of expenditure-Exempt income-The disallowance of expenditure cannot
exceed the amount of tax-free dividend. [R.8D]
Dismissing the appeal of revenue the Court held that;in the present case, when the assessee claimed
that it had not made any expenditure on earning exempt income, the Assessing Officer in terms of sub
section (2) of Section 14A of the Act was required to collect such material evidence to determine
expenditure if any incurred by the assessee in relation to earning of exempt income. The income from
dividend had been shown at Rs. 1,11,564/- whereas disallowance under Section 14A read with Rule
8D of the Rules worked out by the Assessing Officer came to Rs. 4,09,675/-. Thus, the Assessing
Officer disallowed the entire tax exempt income which is not permissible as per settled position of
law. The window for disallowance is indicated in section 14A, and is only to the extent of disallowing
expenditure “incurred by the assessee in relation to the tax exempt income”. The disallowance under
section 14A read with Rule 8D as worked out by the Assessing officer is not in accordance with law
and as such working is not sustainable. The view adopted by the Tribunal being a plausible view
based on factual position and the relevant case law on the point, does not warrant any interference by
this Court. ( ITA No. 415 of 2015, dt. 12.01.2016) (AY. 2009-10)
Pr. CIT v. Empire Package Pvt. Ltd. (P &H) (HC);www.itatonline.org

S. 14A: Disallowance of expenditure-Exempt income- More interest free funds than interest
bering funds- Presumption is that investment in tax free securities has been made from interest
free funds- No disallowance is permissible-ITAT's order reversed on the ground that it is
"Judicial Indiscipline" leading to complete chaos and anarchy in the administration of law .[S.
254(1),Constitution of India, Art, 226, 227]
The ITAT passed an order in HDFC Bank Limited vs. DCIT ( 2015) 155 ITD 765 (Mum)(Trib) in
which it held that the presumption laid down in CIT v. HDFC Bank Ltd ( 2014) 366 ITR 505 (Bom.)
and CIT v. Reliance Utilities and Power Ltd ( 2009) 313 ITR 340 (Bom) that investments in tax-free
securities must be deemed to have come out of own funds and (ii) Law laid down in CIT v. India
Advantage Securities Ltd ( 2016) 380 ITR 471 (Bom) that s. 14A and Rule 8D does not apply to
securities held as stock-in-trade cannot be applied as both (2015) propositions are contrary to Godrej
& Boyce Mfg .Co Ltd v. Dy. CIT ( 2010) 328 ITR 81 (Bom). On a Writ Petition filed by the assesse
the court held reversed the ITAT's order on the ground that it is "Judicial Indiscipline" leading to
complete chaos and anarchy in the administration of law . The court also held that , Tribunal to decide
it afresh on its own merits and in accordance with law. However the Tribunal would scrupulously
follow the decisions rendered by this Court wherein a view a has been taken on identical issues arising
before it. It is not open to the Tribunal to disregard the binding decisions of this Court, the grounds
indicated in the impugned order which are not at all sustainable. Unless the Tribunal follows this
discipline, it would result in uncertainty of the law and confusion among the tax paying public as to
what are their obligations under the Act. Besides opening the gates for arbitrary action in the
administration of law, as each authority would then decide disregarding the binding precedents
leading to complete chaos and anarchy in the administration of law. When the assesse have more
interest free funds than interest bering funds, presumption is that investment in tax free securities has
been made from interest free funds hence no disallowance is permissible . (AY.2008-09)
HDFC Bank Ltd. v. DCIT( 2016) 383 ITR 529/ 132DTR 89/ 284 CTR 414 (Bom.)(HC)
Editorial: Order of Tribunal in HDFC Bank v. Dy CIT ( 2015) 155 ITD 765/ 173 TTJ 810
(Mum)(Trib ) is set aside.

S. 14A : Disallowance of expenditure - Exempt income – Disallowance of interest expenditure

would not be tenable where AO failed to establish a nexus between interest bearing funds and
investment made.[R.8D]
Assessee was a State Government undertaking engaged in financing industrial units. It had made
investment in securities on which it earned tax-free dividend income. The AO observed that though
75 per cent of investments were made through funds given by State Government, 25 per cent of
investments were made out of mixed pool of funds and, therefore, 25 per cent of interest expenditure
was taken as indirect expenditure liable for disallowance under section 14A, r.w. rule 8D. As amount
of disallowance exceeded amount of exempt income itself, AO adopted a sum of 5 per cent of indirect

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expenditure together with 0.5 per cent of average investments under rule 8D(2)(iii) as disallowance
under section 14A, read with rule 8D.

On appeal, the CIT(A) deleted the additions made by the AO on the ground that the AO failed to
establish direct nexus between borrowed funds and tax-free investments. The Tribunal affirmed the
order of the CIT(A).

The High Court held that as the disallowance was made on an ad hoc percentage without any basis or
assigning any reason whatsoever, the disallowance was rightly set aside by the appellate authorities.
The court observed that the AO had been unable to establish a nexus between the interest bearing
funds and the investments made. Accordingly, the High Court dismissed the Revenue’s appeal.((AY.
2009-10)
CIT v. Karnataka State Industrial & Infrastructure Development Corpn. Ltd. (2016) 237
Taxman 240 (Karn.)(HC)

S. 14A:Disallowance of expenditure- Exempt income- Investments in mutual funds and equity

funds – Not recording any finding- Disallowance was held to be not justified . [ R.8D ]
Assessee claiming investments to be old made out of capital and outstanding reserves of company and
no separate amount borrowed for making such investments. Disallowance only after recording
satisfaction that claim not correct. Assessing Officer not recording any reasons for rejecting claim of
assessee . Finding of fact recorded by Commissioner (Appeals) and Appellate Tribunal not perverse.
No substantial question of law arose for consideration.(AY. 2008-2009)
CIT v. Kapsons Associates (2016) 381 ITR 204 (P & H)(HC)

S. 14A:Disallowance of expenditure–Exempt income-Appellate authorities finding ten per cent.

of income earned could be apportioned towards expenses for earning dividend-Finding not
perverse. [S. 260A]
The Commissioner (Appeals) took into account the words of rule 8D and found that the figures as
derived by the Assessing Officer could not be taken into consideration. Disallowance of expenses can
be made which are incurred for earning dividend. For that purpose, the figures under the head
"Investment" could be taken and some charges apportioned for the purpose of computing the
expenses. The Commissioner (Appeals) found from such figures, that only 10% of the income earned
could be apportioned towards expenses for earning the dividend. Held, Rule had been applied
correctly. (AY.2008-09)
CIT v. India Advantage Securities Ltd. (2016) 380 ITR 471 (Bom.) (HC)

S.14A:Disallowance of expenditure-Exempt income-No disallowance can be made on shares

held as stock-in-trade.[R.8D]
Assessee, engaged in the business of share trading earned Rs. 12.04 lacs as exempt dividend income.
The AO made a disallowance of Rs. 46,89,748/- u/s 14A r.w Rule 8D. Before the CIT (A), the
assessee stated that the Tribunal in assessee’s own case for AY 2010-11 has held that no disallowance
u/s 14A r.w. Rule 8D can be made on dividend income from shares held as stock-in-trade. However,
the CIT (A), disregarding the order of Tribunal passed in assessee’s own case, followed the decision
of Mumbai Bench of the Tribunal in the case of HDFC Bank Ltd. v. DCIT in ITA No. 374/Mum/2012
decided on 23-09-2015 and rejected the appeal.
Before the Tribunal, submitted that the order of the Tribunal in the case of HDFC Bank Ltd. (supra)
on which the CIT had placed reliance had been reversed by the Hon’ble Bombay High Court in Writ
Petition No. 1753 of 2016 decided on 25-02-2016. Held, CIT (A) erred in not following the order of
Tribunal in asessee’s own case. The Bombay High Court in the case of CIT v. India Advantage
Securities Ltd. (supra) has confirmed the order of Tribunal wherein it was held that no disallowance
u/s. 14A r.w. Rule 8D can be made on shares held as stock-in-trade. The Tribunal further observed
that the CIT (A) should have maintained ‘Judicial Propriety’ in following the order of Appellate
Authority. However, it restrained from commenting on the judicial indiscipline committed by the CIT
(A) and expected that the CIT (A) concerned shall be more careful in future in honouring the orders of
the higher Appellate Authorities.( ITA No. 1715/PN/2015, dt. 18.03.2016)(AY.2012-13)

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Paresh Pritamlal Mehta v. ITO (Pune)(Trib.);www.itatonline.org

S. 14A : Disallowance of expenditure - Exempt income – 2 percent of exempt income was

directed to be disallowed.
Tribunal held that where assessee earned dividend income but did not claim any expenditure towards
same, rule 8D provisions being prospective in operation could not be applied during year, but since
incurring of certain administrative expenses cannot be ruled out, Assessing Officer was directed to
disallow 2 per cent of exempt income as expenditure towards earning that income. ( AY.2008-09)
Super Auto Forge (P.) Ltd. v.ACIT (2016) 156 ITD 467 (Chennai)(Trib)

S. 14A: Disallowance of expenditure- Exempt income- Recording of satisfaction is mandatory-

No disallowance can be made .
In respect of tax free interest income earned on RBI bonds by assessee, Assessing Officer made
disallowance under section 14A by invoking provisions of rule 8D(2) without recording his
satisfaction under rule 8D(1), impugned disallowance was not sustainable. ( AY. 2008-09 , 2009-10]
Damodar Valley Corporation v.Add.CIT (2016) 157 ITD 415 (Kol.)(Trib.)

S. 14A : Disallowance of expenditure - Exempt income - Share application money cannot be

included while working average value of investment. [R. 8D]
It was held that share application money cannot be included while working out the average value of
the investments under rule 8D(2)(iii). (AY. 2009-10)
ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)

S. 14A : Disallowance of expenditure - Exempt income – Disallowance can not exceed exempt
dividend income.
The Assessee was in the business of trading of shares, cloth, commission and real estate rent, and
maintained the same books of accounts for all the businesses. Due to the exempt divided income and
interest expenses incurred, the AO made disallowance u/s 14A. The ITAT observed that the dividend
was earned in the normal course of business, and if one assumed that some expenditure was incurred
to earn the exempt income, then the disallowance could not exceed the amount of exempt income.
(AY 2008-09)
K. Ratanchand and Co. v. ITO (2016) 45 ITR608 (Ahd)(Trib)

S. 14A : Disallowance of expenditure - Exempt income – Preference shares to be included while

computing the disallowance u/s 14A, though exempt income was received from another
investment source. Disallowance u/s 14A should not exceed exempt income.
The Assessee, a Government company, earned exempt income from Mutual Funds. Further, it had
also given loans to another company which was a Government JV. Under the directions of the State
Government, this loan was converted into cumulative preference shares. The AO included this
preference shares while computing the disallowance u/s 14A. On appeal, the ITAT held that
preference shares should be considered for computing the disallowance u/s 14A since the dividend
from it would be exempt from tax. Further, the ITAT also held that though exempt income, during the
year, was not earned from preference shares, it would be still be included for computing the
disallowance u/s 14A. However, the ITAT held that the disallowance u/s 14A could not exceed the
amount of exempt income.(AY. 2001-02, 2003-04 to 2008-09)
West Bengal Infrastructure Development Finance Corporation v. ACIT (2016) 45 ITR 285
(Kol.(Trib)
DCIT v. West Bengal Infrastructure Development Finance Corporation(2016) 45 ITR 285
(Kol.(Trib)

S. 14A : Disallowance of expenditure - Exempt income - Disallowance of Interest borrowed

money was not utilized no disallowance can be made-Disallowance under rule 8D is restricted to
0.5% of average value of investments resulting in tax exempt income.

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Tribunal held that the borrowed money was not utilsed for investment in shares hence disallowance
of Interest borrowed money was not justified and disallowance under rule 8D is restricted to 0.5% of
average value of investments resulting in tax exempt income. (AY. 2008-09)
UFO Movies India Ltd. v. ACIT (2016) 175 TTJ 633Delhi)(Trib.)

S. 14A :Disallowance of expenditure - Exempt income – Interest bearing funds were not used
for investment in shares-No disallowance can be made in respect of interest.
The Tribunal held that the assessee has not used interest bearing funds for the purpose of making
investment in shares, therefore no disallowance can be made under section 14A on account of interest
expenditure. As regards administrative expenses, AO is directed to make disallowance as per Rule 8D
after setting off the suo motto disallowance made by assessee. (AY. 2009-10)
GlaxoSmithKline Consumer Healthcare Ltd. v. Jt. CIT (2016) 175 TTJ 552 (Chd.)(Trib.)
S. 14A : Disallowance of expenditure - Exempt income – Non interest bearing funds are more
than the amount invested which generated exempt income- Matter remanded.
Non-interest bearing funds available with assessee more than the amount of investment which
generated exempt income.Matter remanded to AO to examine fund position of assessee and decide
accordingly. (AY. 2008-09)
Yes Bank Ltd. v. ACIT (2016) 46 ITR 317 (Mum.)(Trib.)
Dy. CIT v. Yes Bank Ltd. (2016) 46 ITR 317 (Mum.)(Trib.)

S. 14A : Disallowance of expenditure - Exempt income - No exempt income received during the
previous year - No disallowance made –Portion of administrative expenses to be disallowed –
Rule 8D (2)(iii) cannot be applied when securities were held as stock in trade. [R. 8D]
Tribunal held that; since the assessee did not receive exempt income during the previous year, there
was no requirement to make disallowance under rule 8D(2)(iii) of the Rules. However, a portion of
the administrative expenses were required to be disallowed, even if no dividend was received since
the assessee would have spent some portion of the expenses for purchase, sale and maintenance of
investment. Since the object of the assessee in making investment was to hold them as stock in trade
the AO was to restrict the disallowance under rule 8D(2)(iii) of the rules.(AY. 2008-09)
Yes Bank Ltd. v. ACIT (2016) 46 ITR 317 (Mum.)(Trib.)
Dy. CIT v. Yes Bank Ltd. (2016) 46 ITR 317 (Mum.)(Trib.)

S. 14A : Disallowance of expenditure - Exempt income – No interest expenditure was incurred-

Disallowance was not justified.
No interest expenditure was incurred for earning any exempt income hence disallowance made was
not justified.(AY. 2006-07 and 2007-08)
Yes Bank Ltd. v. Dy. CIT (2016) 46 ITR 121 (Mum.)(Trib.)

S. 14A: Disallowance of expenses- Exempt income-Assessing Officer straight away computed

disallowance without recording his satisfaction, action of Assessing Officer was not in
accordance with law. [ R.8D ]
Since Assessing Officer had not considered claim of assessee at all and he had straight away
embarked upon computing disallowance without recording his satisfaction, action of Assessing
Officer in making disallowance was not in accordance with law.( AY.2006-07, 2007-08)
ACIT v. Pawan Kumar Jhunjhunwala (2016) 157 ITD 667 (Kol) (Trib.)

S.14A : Disallowance of expenditure - Exempt income – Provision for computing disallowance

at 0.5 percent justified in the absence of rule 8D.
Investment originally made in year 1992-93 and earlier years . No change was made in the investment
portfolio during years 2004-05 to 2007-08 either by purchase of new shares or by disposal of existing
shares. Provision for computing disallowance at 0.5 percent justified in the absence of rule 8D. (AY.
2004-05, 2007-08 )
Mazagaon Dock Ltd.v. ITO (2016)46 ITR 162 (Mum.)(Trib.)

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S. 14A : Disallowance of expenditure - Exempt income – No disallowance was made by the
assesse- Invoking the provision read with rule 8D(2)(iii) was held to be justified . [ R.8D ]
Undisputedly, the assessee did not make any suo-moto disallowance. Therefore, it was to be presumed
that the assessee claimed that no expenditure was incurred by him in relation to income which would
not form part of the total income under the Act. Therefore, the AO rightly disallowed the dividend by
invoking the provisions of section 14A read with rule 8D(2)(iii) of the rules.(AY. 2009-10)
Vipin Malik v.ACIT (2016) 45 ITR 589 (Delhi)(Trib.)

S. 17(3):Profits in lieu of salary – Tips received by employees is not salary hence not liable to
deduct tax at source. [ S. 15, 192 ]
Held that as "tips" are paid to employees of the assessee from an outsider on a voluntary basis and the
employees have no vested right to receive the same, the same is not "salary" and the assessee has no
obligation to deduct TDS. ( CA No. 4435-37 of 2016, dt. 26.04.2016)
ITC Limited v. CIT (SC);www.itatonline.org

S. 17(3) : Profits in lieu of salary – Amount paid by employer to employee in order to put an end
to litigation which was related to employee’s termination of service was not in nature of “profit
in lieu of salary”. [S.15 ]
Assessee, an individual, was an employee of company 'G'. He was discharged from service under the
relevant Service Rules after giving three month's pay. Further, the assessee was also paid certain
amount as ex-gratia compensation on premature cessation of his services. The assessee treated the
said ex-gratia payment as a capital receipt and consequently did not offer it to tax. The AO took a
view that compensation so received was to be taxed u/s. 17(3) as 'profits in lieu of salary'. The
Tribunal confirmed the order passed by AO.

On appeal, the HC held that the assessee's services came to be terminated under the relevant service
rules after giving three months' pay. Therefore, insofar as the obligation of the employer to pay any
amount to the assessee in relation to the termination of his services, the same came to an end in view
of the discharge of his services under relevant rule. The amount in question was paid only in terms of
the settlement, without there being any obligation on the part of the employer to pay any further
amount to the assessee in terms of the services rules. The employer, voluntarily at its discretion,
agreed to pay the amount in question to the assessee with a view to bring an end to the litigation.
There was no obligation cast upon the employer to make such payment and, therefore, the same
would not be taxable as 'profits in lieu of salary' as envisaged u/s. 17(3)(i).(A.Y. 1994-95)
Arunbhai R. Naik v. ITO (2016) 131 DTR 402/ 284 CTR 284 (Guj. HC)

S.17(3) : Profits in lieu of salary - Amount received from his employer on retirement is profits in
lieu of salary and not non-compete fees- Liable to tax . [S. 4, 15 ]
At the time of retirement, the assesse received various retirement benefits from the company. Further,
the assessee was also paid certain amount as compensation which was claimed as non-compete fees,
not chargeable to taxable. However, the AO re-characterized the nature of payment to be ‘profits in
lieu of salary’ as the assessee failed to provide explanation the manner in which the compensation was
computed and negotiated with the company. The CIT(A) and Tribunal upheld the order of the AO.
On appeal, the HC held that the assessee has worked with the company for more than 33 years and
received handsome retirement package and would not compete with his former employer. Hence, the
payment shown as non-compete fees is a camouflage transaction to reduce tax implication.(AY. 2003-
04)
B.L.Shah v. ACIT(2016) 131 DTR 265 / 284 CTR 165 (Bom.)HC)

S.22:Income from house property-Gross rent received was less than from the let out property-
Tax effect was below limit prescribed in CBDT circular-Appeal was dismissed leaving question
of law open.
High Court held that the Tribunal was right in law on directing the Assessing Officer to adopt the
gross rent received bythe assessee being lessor from the let out property for the purpose of
computation of income from house property in place of much higher fetched by the lessee by sub

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letting the same property .On appeal by revenue , Apex Court dismissed the appeal as the tax effect
was below limit prescribed in CBDT circular , leaving the question of law open. (AY.1991-92)
CIT v.Hemraj Mahabir Prasad Ltd. (2016) 382 ITR 170 (SC)

S. 22 : Income from house property – Income from letting out of office premises to be decided
based on the judgment of Chennai Properties and Investments Ltd- Matter remanded.
The Assessee, engaged in the business of property leasing, had earned rental income from letting out
of office premises which it had disclosed as income from business profits. The AO treated it as
Income from House Property. The ITAT remanded the matter to be decided afresh in light of the
decision of the Hon'ble Supreme Court in the case of Chennai Properties and Investment Ltd. (AY.
2008-09, 2009-10)
Damsak Projects P. Ltd. v. DCIT (2016) 45 ITR 278 (Mum.)(Trib.)

S. 22: Income from house property – Notional rent- Additional evidence-Matter remanded to
AO to determine afresh income from house properties. [ S. 23 ]
The AO while computing the income from house property did not make enquiry with respect to the
properties in accordance with the Act and failed to follow the principles laid down by the court to
determine the prevailing market rent of these properties and rather computed the annual letting value
based on notional rent on cost of properties. The department failed to consider the additional evidence
produced by the assessee thus vitiating the principles of natural justice. Matter remanded. (AY. 2007-
08)
Vishwanath Acharya v. ACIT (2016) 45 ITR 554 (Mum.)(Trib.)

S. 23 : Income from house property –House Property inherited under will which is not yet
probated, no notional rent can be assessed. [ S. 22 ]
It was held that Assessee having inherited the house property from his mother through her will which
has not yet been probated, he is not the owner of the said property and, therefore, no notional rent can
be assessed in the hands of the assessee while computing his income under the head income from
house property. (AY. 2005-06)
Dilip Loyalka v. ACIT (2016) 130 DTR 73/ 175 TTJ 334 (Kol.)(Trib.)

S. 23: Income from house property- Annual value- Estimation of notional rent without any basis
was held to be not justified. [S. 22]
Allowing the appeal of assesse the Tribunal held that ;where Assessing Officer estimated notional rent
of house property without giving any basis, same was to be rejected.(AY. 2006-07)
Sunil Kumar Saha v. ITO ( 2016) 156 ITD 1 (Kol.)(Trib.)

S. 23: Income from house property- Annual value-Vacancy period-Estimation of annual value
being highest rent received in last three years was held to be justified. [S. 22]
Where assessee utilized property for personal purposes and let out property occasionally but did not
give any details for rent received and vacancy period of property, there was no illegality in annual
value taken by Assessing Officer being highest of rent received in last three years. ((AY. 2006-07)
Sunil Kumar Saha v. ITO ( 2016) 156 ITD 1 (Kol.)(Trib)

S. 23:Income from house property- Notional income in respect of unsold shops cannot be
charged to tax under the head income from house property. [S.22]
Allowing the appeal of assesse the Tribunal held that ; notional income in respect of unsold shops
cannot be charged to tax under the head income from house property. (AY. 2009-10)(ITA No 4277/
Mum/ 2012 dt. 13-05-2015 Bench ‘C’ )
C. R. Developments Pvt. Ltd. v. JCIT ( 2016) BCAJ - February-P. 34 (Mum.)(Trib.)

S. 23:Income from house property-Annual value-Brokerage paid to give out premises on rent
and to earn lease rent is not deductible in computing the Income from house property. [S.22, 24]
Brokerage paid to give out premises on rent and to earn lease rent is not deductible in computing the
Income from house property. ( ITA No. 5494/Mum/2013, dt. 05.06.2015) ( AY. 2010-11)

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Radiant Premises Pvt. Ltd. v. ACIT (Mum.)(Trib.);www.itatonline.org

S. 24 :Income from house property - Deductions - Deduction for interest paid on loan is not
available when loan was taken after acquisition of the house property. [S. 22]
Assessee, an individual, filed return of income claiming deduction for interest paid on loan under
section 24(b) of the Act. The Assessing Officer denied the deduction on the ground that the property
was purchased in November 2005 and loan was taken only in December 2005. The CIT(A) and
Tribunal upheld the order of the Assessing Officer. On appeal, the High Court held that deduction
under section 24(b) is available only if loan was utilized for acquisition of the property therefore,
assessee was not entitled to claim the deduction under section 24(b). (AY. 2007-08)
Vijay Aggarwal v. CIT (2016) 236 Taxman 542 (P & H)(HC)

S. 24 : Income from house property – Deduction- Interest paid on loan taken over while
acquiring mortgaged property would be deductible under section 24(1)(vi) against rental
income from said property.[ S. 22]
The assessee was having rental income and claimed deduction of interest from the said income under
section 24(1)(vi). The Assessing Officer disallowed the said deduction as the assessee had not
purchased/constructed any building from the funds on which the interest was paid. On appeal, the
Commissioner (Appeals) upheld the disallowance. On second appeal, the Tribunal allowed deduction
under section 24(1)(vi) to assessee by recording finding that said loan liability was undertaken by
assessee for acquiring its mortgaged property.

The High Court held that Section 24(1)(vi) of the Act at the relevant time provided that where the
property had been acquired, constructed, repaired, renewed or re-constructed with borrowed capital,
the amount of interest payable on such capital was a permissible deduction from income from house
property. Thus, it would be required to be seen in the present case whether the deduction of interest
paid by the assessee on the borrowed funds satisfied the requirements of clause (vi) of sub-section (1)
of Section 24 of the Act. The Court further observed that the tribunal had come to a finding that there
was a nexus between the loan taken and the acquisition of the property. The Revenue was unable to
show any perversity in the findings of the tribunal and accordingly the High Court dismissed the
Revenues appeal. (AY. 1997-98)
CIT v. Harayana Television Ltd. (2016) 237 Taxman 247 (P&H)(HC)

S. 28(i):Business income- Capital gains-Mere non-introduction of interest-bearing funds is not

sufficient to conclude that gains from sale of shares are not business income [ S.45 ]

The Tribunal, by the impugned order dated 30th August 2013, after considering the Circular No.4 of
2007 dated 15th June 2007 issued by the Central Board of Direct Taxes, observed that there are
various factors such as frequency, volume, entry in the books of accounts, nature of funds used,
holding period etc. which are relevant in deciding the true nature of transactions and no single factor
is conclusive. Thus, mere non-introduction of interest bearing funds will not alone determine the
nature of the transactions. The impugned order, after analyzing the statement of capital gains which
were available before it, came to the conclusion that most of the shares have been sold within 30 days
of its purchase and upheld the order of the CIT(A)… In view of the above, we see no reason to
interfere with the above concurrent findings of fact which has not been shown to perverse or
arbitrary.( ITA No. 2242 of 2013, dt 22.02.2016) (AY. 2008-09)
Pine Tree Finserve Pvt. Ltd. v. CIT (Bom)(HC) ; www.itatonline.org

S. 28(i) : Business income – Individual engaged in manufacture and sale of pharmaceutical

products - Income earned from sale of undivided share of land and construction of flats on said
land - treated as business income.
The Assessee was originally a partnership-firm engaged in the business of manufacturing and selling
pharmaceutical items, it purchased land which was depicted as the business asset of the partnership
firm. After retirement of two partners, the firm became a sole proprietary concern and the Assessee
became the sole proprietor. In AY 1999-2000, Assessee sold the said land by registered sale deeds

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conveying undivided shares. The Department was of the view that sale of properties was not part of
the business of the Assessee, hence, the income cannot be treated as business income. However,
CIT(A) did not concur with the Department’s view and ruled in favour of Assessee.
On appeal, the High Court held that department’s contention is fallacious. As the Assessee is an
individual, he need not necessarily confine his activity to a particular line of business. High Court
noted that Assessee, was a partnership firm, which purchased the property only as a part of its
business assets. Therefore there cannot be a presumption that the Assessee cannot carry on any
activity other than that of manufacture and sale of pharmaceutical products. Hence High Court upheld
Tribunal decision that sale of undivided shares of land and the construction of flats cannot be subject
to computation of capital gains and that the same would be treated as business income. (AY. 2000-01
to 2005-06)
CIT v. R. Sethuraman (2016) 237 Taxman 581 (Mad.)(HC)

S. 28(i):Business income- Accrual-Non-refundable upfront premium from various parties for

permitting them to develop various facilities such as docking of ships, loading and unloading of
containers on land provided by it for a period of 30 years, entire amount of premium was to be
brought to tax in assessment year in question itself. [S. 145]
Assessee was carrying on business of providing port, berthing and docking facilities at New
Mangalore Port .It had control and domain over vast tracks of land known as 'designated port area'.
Assessee provided various facilities for docking of ships, loading and unloading of container on ships
and warehousing within designated port area . Assessee formulated a scheme of BOT Model under
which it permitted some of companies to develop aforesaid facilities on land provided by assessee .
In terms of BOT scheme, assessee received from Concessionaires upfront lump sum premium for
allowing those companies to develop facilities and use same for a period of 30 years. In computation
of income, assessee offered 1/30th of upfront premium as income for year under consideration and
showed balance received as liability being in nature of pre-paid income .Assessing Officer treated
entire amount of upfront premium received by assessee from three companies/concessionaires as
income for year under consideration. CIT(A) up held the order of AO.On appeal Tribunal held that;
from records that assessee had completed and discharged all its obligation by executing agreement
and no further liability was to be discharged by assessee for next 30 years under concession
agreement. It was also undisputed that upfront premium amount was admittedly non-refundable
amount irrespective of premature termination of concession/lease agreement therefore on facts, there
would be no question of accrual of income in future years and, therefore, impugned order passed by
Assessing Officer was to be upheld . ( AY. 2009-10)
New Mangalore Port Trust v.ACIT (2016) 157 ITD 399 (Bang.) (Trib.)

S.28(i) : Business income-Commission income to be treated as business income and not as

income from other sources. [S. 14, 56]
The Assessee earned commission income along with income from management of hotels. As per the
objects clause in its MOA and AOA, it could carry on the business of hotels as well as work as a
consultant commission agent in India and abroad. The AO treated the commission income as income
from other sources. The ITAT held that the commission income would be chargeable under the head
of Business Profits since it is covered in the objects clause of the Assessee. (AY. 2008-09 ,2009-10)
Mahagun Hotels P. Ltd. v. DCIT (2016) 45 ITR 347 (Delhi)(Trib)

S. 28(i):Business income-Interest income from fixed deposit and short-term parking of surplus
funds to be treated as business income.[ S. 14, 56]
The Assessee earned interest income on fixed deposits maintained for the purpose of obtaining a
performance guarantee from the bank. The furnishing a bank guarantee was a mandatory condition to
start construction of the hotel, which was the business of the Assessee. The Assessee also earned
interest income on loan funds disbursed which was parked for a short duration. The AO treated both
the interest income as income from other sources. The ITAT held that the interest income on fixed
deposit was inextricably linked to the business of the Assessee and hence was to be treated as business
income. Further, the interest income from short-term parking was also business income since it was an

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act of prudency to earn interest income for 9 days before the loan could be utilised, so as to reduce the
interest cost. (AY. 2008-09 , 2009-10)
Mahagun Hotels P. Ltd. v. DCIT (2016) 45 ITR 347 (Delhi)(Trib.)

S. 28(i) : Business income – Income from house property-Lease of hotel premises along with
facilities like restaurant, crockery, etc. will be business income. [S.22]
The Assessee offered to tax rental income from lease of two hotels as Income from Business Profits.
The AO treated the same as Income from House Property. The ITAT held that it would be business
income on the ground that the Assessee had given the premises on rent along with facilities like
restaurant, crockery, electronic appliances, etc. so as to make the premises known as a hotel. (AY.
2007-08)
Enn Zen Enterprises (P) Ltd. v. ACIT(2016) 45 ITR 382 (Chd.)(Trib.)

S. 28(i) :Income from business- Income from house property- Rental income from commercial
complex assessable as business income.[S. 22]
The Tribunal held that the assessee’s objects are not in respect of letting of any particular property,
the very object is the commercial exploitation of the properties. The assessee is providing hosts of
amenities and facilities which amounts to composite business activity. The income from the multiplex
is liable to be assessed as business income and not as income from house property. (AY. 2007-08 to
2009-10)
Dy. CIT v. M. S. Luvish Projects (P) Ltd. (2016) 175 TTJ 153 (Mum.)(Trib.)

S. 28(i) :Business loss- Speculative- Derivative loss on reinstatement of foreign currency forward
contracts is not speculative and is an ascertained liability. [ S.43(5) ]
The Assessee incurred a derivative loss arising out of reinstatement of foreign currency forward
contracts entered into to hedge against the forex risk on account of receivables. The AO held that it
was speculative loss and that it was notional in nature. The ITAT held that derivative transactions on
foreign exchange were exempt from the purview of speculative transactions since they were settled by
actual delivery. Further, the ITAT also held that the marked to market loss on reinstatement of the
derivative is not a notional or contingent loss, but an ascertained liability which had crystallized on
the date of balance sheet. (AY. 2009-10)
Inventurus Knowledge Services P. Ltd. v. ITO (2016) 45 ITR 57 (Mum)(Trib)

S. 28(i): Business loss- Valuation of stock- Loss arising on revaluation of securities – Allowable.
Loss arising on re-valuation of securities was required to be allowed.(AY. 2008-09)
Yes Bank Ltd. v. ACIT (2016) 46 ITR 317 (Mum.)(Trib.)
Dy. CIT v. Yes Bank Ltd. (2016) 46 ITR 317 (Mum.)(Trib.)

S. 28(i) :Business loss- Banks -Valuation of stock - Provision made for revaluation in respect of
securities transferred from Held to Maturity' to 'Available for Sale' was deductible
Since the profits on sale of investments and income from investments were always treated as business
income, it was to be implied that the investments were treated as stock in trade and not as capital
asset. The classification of security made and the loss arose on account of revaluation of securities
were required to be allowed.The provision for revaluation in respect of securities transferred from
held to maturity category to available for sale category was to be allowed as a deduction.Depreciation
in respect of HDFC Bonds and debentures which were held to be ‘held for trading’ was
allowable.(AY. 2006-07 and 2007-08)
Yes Bank Ltd. v. Dy. CIT (2016) 46 ITR 121 (Mum.)(Trib.)

S. 28(1) : Business Loss -Dealing in land – Advance given in the course of business – Non-refund
of advance is a business loss allowable as deduction.
On appeal, the Tribunal held that the assessee could not establish that the advance amount of Rs.31
lakhs was returned to it but the transaction in land was part of the business of the assessee and non-
refund of the advance amount to the assessee was a business loss incidental to the business of the
assessee. Thus, the loss was an allowable deduction u/s.28 of the Act.(AY. 2006-07)

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Today Homes and Infrastructure Pvt. Ltd. v. Dy. CIT (2016) 46 ITR 586 (Delhi)(Trib.)

S. 28(iv):Business income- Waiver of loan by Bank assessable as business income . [ S.28(i)]

The waiver by the lender of even the principal amount of loan constitutes a "benefit" arising from
business and is assessable to tax as income. (TCA no. 278 of 2014) (AY. 2006-07)
CIT v. Ramaniyam Homes P. Ltd. (Mad)(HC);www.itatonline.org

S. 32:Depreciation-Carry forward and set off-Amendment in 1996 -Effect-Unabsorbed

depreciation as on 1-4-1997 can be set off against income from any head for AY immediately
following 1-4-1997 and thereafter unabsorbed depreciation if any to be set off only against
business income for a period of eight assessment years.[S. 32(2)].
The depreciation, unabsorbed or otherwise or current, would be set off against the income arising
from business or profession or any other income but the left over portion thereof could not be set off
in the AY 1998-99 except against the income arising from business or profession. SLP of assessee
was dismissed. (AY. 1998-1999)
Peerless General Finance and Investment Co. Ltd. v. CIT (2016) 380 ITR 165 (SC)

S. 32:Depreciation-Sale and lease back-Lessee not claiming depreciation- Entitled depreciation.

The assessee claimed 100 percent .depreciation on energy measuring devices purchased from Haryana
State Electricity Board. After purchase they were leased back to the Board under a lease agreement.
The Assessing Officer held that purchase and lease back transaction was in fact and in substance a
finance lease agreement . He disallowed the depreciation relying on circular no 20f 2001 dt 9 the
February 2001. CIT(A) and Tribunal allowed the claim of depreciation. On appeal by revenue ,
dismissing the appeal the Court held that the Transaction was genuine and the assesse is entitled to
depreciation. Relied on I.C.D.S. Ltd v.CIT ( 2013) 350 ITR 527 (SC)& West Cost Paper Mills Ltd (
2010) 322 ITR 9 (SC)(St.)(AY. 1996-97)
CIT v. Apollo Fine vest (I) Ltd (2016) 382 ITR 33 (Bom)(HC)

S. 32 : Depreciation – Additional depreciation allowed on manufacture/production of ‘article or

thing’ – Depreciation is allowable on assets kept ready for use
Assessee was engaged in the business of FM radio broadcasting and was granted permission for
operating FM Radio Broadcasting channels. In its return if income, Assessee claimed additional
depreciation under section 32(1)(iia) of the Act, on new plant and machinery acquired for production
of radio programmes. Assessing Officer did not concur with the Assessee and did not consider
production of radio programmes as production of article or thing. On appeal the Tribunal held that
Assessee was eligible for claiming additional depreciation under section 32(1)(iia) of the Act.
Aggrieved by the Tribunal judgement, Revenue preferred an appeal before the High Court.
The High Court observed that production of radio programmes involved process of recording, editing
and making copies prior to broadcasting, there comes into existence a ‘thing’ which is tangible and
which can be transmitted and even sold by making copies. High Court placed reliance on
Gramophone Co India Ltd v. Collector of Customs (1 SCC 549)(SC) and Collector of Central excise
v. Rajasthan State Chemical Works (4 SCC 473)(SC). Thus it was held that Assessee had acquired and
installed plant and machinery for manufacture of ‘article or thing’ and it is entitled to claim additional
depreciation under section 32(1)(iia) of the Act.
For the year under consideration Assessing Officer had disallowed Assessee claim for depreciation on
licence fee for radio station as the same were not used during the year. Contrary to the Assessing
Officer’s claim, radio stations were ready-to-use and had started trial runs. High Court placed relied
upon Refrigeration & Allied Ind. Ltd (247 ITR 12)(Del) where it was held that an asset can be said to
be ‘used’ when it is kept ‘ready to use’ and Capital Bus Service Pvt. Ltd (123 ITR 404)(Del) where
similar view was taken. As a result it was held that Assessee would be entitled to claim depreciation
on licence fee as the same were kept ready-to-use for the year under consideration. (AY 2008-09)
CIT v. Radio Today Broadcasting Ltd. (2016) 382 ITR 42 / 237 Taxman 126 (Delhi)(HC)

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S. 32 : Depreciation – Electrically operated vehicles including battery power or fuel cell
powered vehicles are entitled to 100 per cent depreciation under Appendix I, Part-A, Item
III(3)(xiii)(o) of Income-tax Rules, 1962.
The assessee claimed 100 per cent depreciation on battery power or fuel cell powered vehicles. The
revenue authorities rejected assessee's claim, which was reversed by the Tribunal.
On appeal, the High Court held that electrically operated vehicles including battery power or fuel cell
powered vehicles are entitled to 100 per cent depreciation under Appendix I, Part-A, Item
III(3)(xiii)(o) of Income-tax Rules, 1962.(AY. 2002-03)
CIT v. ITC Ltd. (2016) 237 Taxman 533 (Cal.)(HC)

S. 32 : Depreciation – Business purchased as a going concern –Goodwill to be valued at excess of

amount paid over net value of assets as per AS 10 – Depreciation allowable on goodwill.
The assessee purchased business of another company as going concern in slump sale. The amount
paid over and above net value of assets was capitalized as goodwill. The valuation report trifurcated
value of goodwill into (a) technical knowhow; (b) valuation for business on hand and (c) non-compete
fees. The assessee claimed depreciation on above items. AO disallowed the depreciation claim. The
ITAT accepted assessee's contention that entire sum paid towards intangibles could be considered as
goodwill on which depreciation must be allowed. It, however, remitted matter to the AO to determine
whether valuation of goodwill was appropriate. High Court held that consideration paid by the
assessee in excess of value of tangible assets was to be classified as goodwill especially in the case
where the transaction in question was a slump sale which did not contemplate separate values to be
ascribed to various assets (tangible and intangible). (AY. 2007-08)
Triune Energy Services (P.) Ltd. v. Dy. CIT (2016) 237 Taxman 230 (Delhi)(HC)

S. 32 : Depreciation-Fees paid to Registrar of Companies for increase in share capital, which

was used for acquisition of Plant & Machinery, is eligible for depreciation @15%-Alternatively
as amortization of expenses. [S. 35D(2)(c)]
Assessee company was carrying on the business of manufacturing yarn. During the year, the assessee
had paid fees of Rs. 10 lakhs to registrar of companies for increasing the share capital. The money
raised by the assesse was used for expansion of business and was capitalized as a part of Plant &
machinery and depreciation @15% was claimed. The Assessing Officer disallowed the depreciation
claimed by the Assessee. The CIT(A) allowed the depreciation on the ground that fees paid to
registrar in view of the decision of Supreme Court in Punjab State Industrial Development
Corporation Limited vs. CIT (225 ITR 792). The Tribunal reversed the decision of CIT(A) and
disallowed the claim of depreciation. On appeal, the High Court held that assessee was entitled to
depreciation as fees paid were capitalized as a part of Plant & Machinery. It was also held that if
assesse was not eligible for depreciation under section 32 then, it would be entitled to amortization of
expenses under section 35(2)(c)(iv). (AY. 2006-07)
Rana Polycot Ltd. v. CIT (2016) 236Taxman567 (P & H) (HC)

S. 32: Depreciation-Additional depreciation-Half of twenty per cent. allowable where plant and
machinery put to use after October 31, 2006 and before March 31, 2007-No restriction in
claiming balance 50 per cent in next assessment year.[S. 32(1)(iia)].
Additional depreciation allowable u/s 32(1)(iia). is a one-time benefit to encourage industrialisation
and the relevant provisions have to be construed reasonably and purposively. The additional
depreciation is allowed in the year of purchase and if in the year of purchase the assessee is eligible
only for 50 per cent. depreciation, the balance 50 per cent. can be carried forward for the subsequent
year. ( AY. 2010-2011)
CIT (LTU) v. Rittal India P. Ltd. (No.2) (2016) 380 ITR428 (Karn.) (HC)

S. 32:Depreciation-Meaning of "owner"-Lease of land for ninety-nine years-Lessee constructing

buildings on land and in full control of such buildings - Entitled to depreciation on buildings
and on sanitary fittings installed in them.
During the previous years relevant to the AYs in question the assessee was indeed in full control of
the three buildings, viz., the hotel building, the World Trade Tower and the World Trade Centre and

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in any event, notwithstanding the clarificatory amendment inserted as Explanation 1 in section 32
with effect from April 1, 1988, the assessee would be entitled to claim depreciation in respect thereof,
including depreciation on the plumbing and sanitary ware installed therein.(AY.1989-1990 to 1993-
1994 )
CIT v. Bharat Hotels Ltd. (2016) 380 ITR 552/65 taxmann.com 39 (Delhi)(HC)

S. 32:Depreciation-Integral part of computer systems-Eligible depreciation at 60%.

Printers, switches, net working equipments, UPS and pen drives, are integral part of computer system
hence eligible depreciation at 60%.(ITA No.2806/ Del/ dt. 16-10-2015)(AY. 2007-08)
GE Capital Business Process Management Services (P) Ltd. (2016) Chamber’s Journal-
January –P. 95 (Delhi)(Trib.)

S. 32: Depreciation-Routers and switches being input/output devices, are integral part of
computer and, hence, entitled to higher rate of depreciation at 60 per cent.
CPU alone cannot be described as computer; routers and switches being input/output devices, are
integral part of computer and, hence, entitled to higher rate of depreciation at 60 per cent.(AY.2011-
12 )
IBAHN India (P.) Ltd.v Dy.CIT (2016) 157 ITD 382 (Mum) (Trib.)

S. 32: Depreciation- Unabsorbed depreciation allowance has not only to be set off against other
heads of income in relevant previous year but where it is carried forward, it stands on exactly
same footing as current depreciation. [S.71]
Allowing the appeal of assesse the Tribunal held that ; Unabsorbed depreciation allowance has not
only to be set off against other heads of income in relevant previous year but where it is carried
forward, it stands on exactly same footing as current depreciation. ( AY. 2007-08)
Sunshield Chemicals (P.) Ltd v. ITO ( 2016) 156 ITD 452/ 175 TTJ 129 (Mum)(Trib).

S. 32 : Depreciation - Drilling rigs- Registered as heavy goods vehicle – Eligible depreciation @

40 %.
It was held that workover mobile rigs owned by the assessee which are registered under category of
heavy goods vehicle by the State Transport Authority are eligible for depreciation @ 40 per cent.
(AY. 2002-03 to 2008-09)
John Energy Ltd. v. Dy. CIT (2016) 130 DTR 348(Ahd.)(Trib.)

S. 32 : Depreciation – Depreciation not allowed on tools and machinery used in construction of

hotel building since the Assessee was in the hotel business.
The Assessee, engaged in the business of hotels, claimed depreciation on tools / machines used for
construction of its hotel. The AO did not allow the same since it was not in the business of
construction. The CIT(A) upheld the disallowance and also rejected the alternative claim of
accumulating the depreciation towards the cost of construction. The CIT(A) did not allow the
alternative claim on the basis that the if the cost of depreciation was allowed to be accumulated, then
the same would be allowable to depreciation when the hotel was completed. The ITAT upheld the
disallowance and held that the Assessee was not eligible for depreciation on tools and machinery
purchased since they were a cost of construction of the hotel building. (AY. 2008-09, 2009-10)
Mahagun Hotels P. Ltd. v. DCIT (2016) 45 ITR 347 (Delhi)(Trib)

S. 32 : Depreciation – Claim for higher depreciation on windmill is allowable if it is made in the

return of income filed u/s 139(1).
The Assessee made a claim for depreciation at the rate of 80% on windmills in its return of income for
the impugned year instead of filing a claim as per the procedure mentioned in rule 5(1A). The AO
disallowed the claim of additional depreciation at the rate of 80% on windmills holding that the
Assessee did not exercise the option for claiming higher depreciation. The Assessee submitted before
the ITAT that it had filed the requisite form in the previous AY and there was no need to exercise the
claim again. The ITAT allowed the claim of depreciation at higher rate and held that the claim would
be allowable if it was made in the return filed in accordance with s. 139(1) in the form prescribed

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therein, and no separate procedure of filing a letter of request or intimation with regard to the exercise
of option would be required to be followed. (AY. 2010-11)
DCIT v. Power Soaps P. Ltd. (2016) 45 ITR 250 (Chennai)(Trib)

S. 32:Depreciation –Plant- Building constructed with a specific design – Necessary for the
assessee’s business – Provides strong foundation and structure to existing factory building – to
be treated as ‘plant’.
The assessee was engaged in the business of manufacturing intermediaries and bulk drugs, which was
undertaken at the manufacturing facility of the assessee. One of the ground related to capitalization of
civil construction expenses under the head plant and machinery. The assessee claimed depreciation @
15%. On appeal to the Tribunal, it held that the civil construction expenses incurred were for building
strong foundation and structure for existing factory building. Where a building was constructed with a
specific design keeping in view specified technical requirements without which the assessee’s
business could not be carried on, it quailed to be treated as plant. Any reinforcement to civil
construction to be treated as installation cost of plant and machinery and qualifies for depreciation as
plant and machinery. (AY. 2010-11)
DSM Sinochem Pharmaceuticals India P.Ltd v. DCIT (2016) 176 TTJ 322 (Chd.) (Trib.)

S. 32 : Depreciation – Charitable trust- Not entitle depreciation. [S. 11]

The Tribunal held that the assessee charitable institution claiming exemption under section 11 not
being engaged in any business, is not entitle for any depreciation. (AY. 2010-11)
Dy. DIT (E) v. Vels Institute of Science, Technology & Advanced Studies (2016)157ITD 237/ 130
DTR 331/ 175 TTJ 593 (Chennai)(Trib.)

S.32:Depreciation- Additional depreciation-Production of fabricated piles for construction

business, it did not involve production or manufacture of an article or thing hence not eligible
additional depreciation.
Tribunal held that the ; production of prefabricated piles which were going to be used by assessee in
its business of piling, would form part of construction activity irrespective of fact whether such piles
were constructed at project site or at some other place with help of machinery; it did not involve
production or manufacture of an article or thing entitling assessee to additional depreciation on said
machinery.( AY. 2008-09)
Stefon Constructions (P.) Ltd v. CIT (2016) 156 ITD 615 (Mum.)(Trib.)

S. 35D:Preliminary expenses- Shares acquired cannot be treated as land or building, plant or

machinery etc., but only as 'cost of project' for purpose of allowing deduction. [ S. 263 ]
Allowing the appeal of assesee the Trribunal held that ;shares acquired cannot be treated by any
stretch of imagination as land or building, plant or machinery etc., and treated as 'cost of project' for
purpose of allowing deduction under section 35D. Share premium cannot be considered as part of
'issued share capital' while allowing deduction under section 35D. FCCBs can be considered as
'debentures' and taken as part of capital employed for allowing deduction under section
35D.(AY.2008-09)
Subex Ltd v. CIT ( 2016) 156 ITD 938 (Bang) (Trib)

S. 35D : Amortization of preliminary expenses – Claim for deduction cannot be disallowed when
it was allowed in earlier AYs.
The Assessee incurred registration fees for amending the objects clause of its memorandum of
association. 10% of the amortised fees was claimed as deduction u/s 35D during the said year. The
claim was disallowed by the AO, though it was allowed in previous AYs. The ITAT allowed the
claim of the AO and held that AO could not disturb the claim deduction in the impugned AY, which
was accepted in earlier years. (AY. 2001-02, 2003-04 to 2008-09)
West Bengal Infrastructure Development Finance Corporation v. ACIT (2016) 45 ITR 285
(Kol.)(Trib.)
DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285
(Kol)(Trib)

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S. 35D : Amortisation of preliminary expenses -Assessee a banking company – Deduction is not
allowable.
The claim of deduction u/s. 35D of the Act was not allowable to the assessee, a banking
company.(AY. 2008-09)

Yes Bank Ltd. v. ACIT (2016) 46 ITR 317 (Mum.)(Trib.)

Dy. CIT v. Yes Bank Ltd. (2016) 46 ITR 317 (Mum.)(Trib.)

S. 36(1)(ii):Business expenditure–Sum paid as bonus or commission to employee–Commission

paid in recognition of services provided by director–Payment cannot be questioned on mere
speculation by revenue that same was to avoid payment of dividend tax – Disallowance was
deleted.
The assessee company had paid commission to Directors for their hard work and extra efforts for
procuring the contract and its subsequent execution. The CIT(A) disallowed the same holding that the
commission was paid to directors who had substantial shareholding in the assessee. Further it stated
that assessee-company had earned substantial profits, and the same could have been distributed as
dividend. On appeal to ITAT, it held that merely because the assessee was a private limited company
and had agreed to pay the commission to the directors by passing resolution in this regard before the
close of year, the same could not be disallowed in the hands of assessee on mere surmises. It further
held that where the directors had given services and in recognition thereof, there was payment of
commission to the said directors, then the same could not be questioned merely on the basis of
speculation by the revenue on the ground that it was to avoid payment of dividend tax. It should be
noted that the directors had paid taxes on its income. (AY 2007-08, 2009-10 , 2010-11)
Arihantam Infraprojects (P.) Ltd. v. JCIT (2016) 156 ITD 425/ 176 TTJ 202 (Pune) (Trib.)

S. 36(1)(iii) :Interest on borrowed capital – No disallowance in case there are sufficient

shareholder’s funds without interest burden and borrowing had been used for the purpose of
business only.
The AO disallowed the interest debited to the P&L A/c for the reason that the Assessee had given
share application money to another company which was not yielding any interest income and that
there was no surplus funds with the Assessee. On appeal, the ITAT deleted the disallowance and held
that the Assessee had proved that it had sufficient shareholder’s funds without interest burden and the
borrowing had been used for business purpose. (AY. 2008-09)
DCIT v. Sindhu Realtors Pvt. Ltd. (2016) 45 ITR 448 (Delhi)(Trib)

S. 36(1)(iii) :Interest on borrowed capital –no material proving that it was for non-business
exigencies brought on record by the AO - Interest on unsecured loan allowed.
The Assessee paid interest at the rate of 15% on unsecured loan. The Assessee had also paid interest
on advances and loans from its Director, while it had advanced interest-free loan to the same director.
The AO restricted the claim to 8%. On appeal, the ITAT allowed the interest expense at the rate of
15% and held that the AO had not brought on record any material to prove that the interest was not for
business exigencies and that the loan was used for purpose other than its business. (AY. 2009-10)
ACIT v. Windlass Steel Craft (2016) 45 ITR 259 (Delhi)(Trib)

S. 36(1)(iii) : Interest on borrowed capital -Payment of interest on unsecured loans at higher

rate-No justification in restricting the deduction at 8 % as against 15% claimed by the assessee.
The Tribunal held that the AO has not brought any material on record to substantiate that the interest
paid by the assessee to the creditor was not for the business exigencies or the loans were utilized by
the assessee elsewhere and not for business purposes. Therefore, there was no justification in
restricting the deduction of interest at 8 per cent instead of the actual rate of interest at 15%. (AY.
2009-10)
ACIT v. Windlass Steel Craft (2016) 175 TTJ 1(UO) (Delhi)(Trib.)
S.36(1)(iii):Interest on borrowed capital-Extension of existing business- Interest is not allowable
till capital asset acquired was put to use.

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Assessee paid interest on borrowed capital which was used for acquisition of windmill for extension
of existing business of generation of electricity through windmill, interest could not be allowed till
capital asset acquired by assessee was put to use .(AY. 2011-12)
Narasu's Spinning Mills v.ACIT (2016) 157 ITD 512 (Chennai)(Trib.)

S.36(1)(iii):Interest on borrowed capital-Sufficient interest free funds- Presumption is advances

were from interest free funds- No disallowance can be made.
Dismissing the appeal of revenue the Tribunal held that ;where assessee had enough interest-free
funds to advance interest-free sums to its sister concern, presumption would be that advances were out
of interest-free funds and, therefore, interest expenses could not be disallowed under section 36(1)(iii)
(AY. 2008-09).
ACIT v. Omax Bikes Ltd ( 2016) 156 ITD 566 (Chd)(Trib)

S.36(1)(iii): Interest on borrowed capital–Interest free advances provided to subsidiary –No

interest burden could be attributed in hands of assessee by virtue of loan advanced to its
subsidiary.
On appeal, the Tribunal held that the nexus between the interest-free loans and the interest-free
advance had been established by the assessee and when there was no interest burden on the assessee
by virtue of the loan advanced to its subsidiary, no such interest could be attributable in the hands of
assesse.(AY. 2006-07 and 2007-08)
Rain Commodities Ltd. v. Dy. CIT (2016) 46 ITR 1 (Hyd.)(Trib.)
Rain Cements Ltd. v. Dy. CIT (2016) 46 ITR 1 (Hyd.)(Trib.)

S. 36(1)(iii) :Interest on borrowed capital-Disallowance of interest not proper.

On appeal the Tribunal held that, only 28.63 percent of share holders’ funds invested in application
for shares in company, hencethe disallowance made by the AO was deleted. (AY.2008-09)
Dy. CIT v. Sindhu Realtors Pvt. Ltd. (2016) 45 ITR 448 (Delhi)(Trib.)

S. 36(I)(v) :Contribution approved gratuity fund - Employees GroupGratuity Fund to LIC –

Approval is pending- Eligible deduction.
Tribunal held that ; where assessee paid amount towards Employees Group Gratuity Fund to LIC and
application made by assessee was still pending before Commissioner for approval and assessee had no
control over Fund created by LIC for benefit of its employees, disallowance under section 36(1)(v)
was not be made. (AY. 2011-12)
Narasu's Spinning Mills v.ACIT (2016) 157 ITD 512 (Chennai)( Trib.)

S. 36(1)(vii) :Bad debt – SLP granted against the decision of the Allahabad High Court in the
case of CIT, Lucknow vs. U.P Rajkiya Nirman Nigam Ltd.(2013) 217 Taxman 367 (All.) (HC)
The Honourable Apex Court has granted the special leave to appeal against the order of the Allahabad
High Court in the case of CIT, Lucknow vs. U.P Rajkiya Nirman Nigam Ltd wherein it was held that
the assessee is entitled to claim of deduction under section 36(1)(vii) in respect of bad debts which are
written off for the previous year even when the decision to write off of bad debts were taken
subsequent to the end of the relevant previous year and write off was done accordingly. (AY. 2004-
05)
CIT v. U. P. Rajkiya Nirman Nigam Ltd. (2016) 236 Taxman 393 (SC)

S. 36(1)(vii) :Bad debt – Write off of interest income on non-preforming assets will be allowed as
bad debts since a reduction from interest income will have the effect of debit to P&L A/c.
The Assessee, an NBFC, reversed interest income accounted for in the earlier years since the assets
concerned had become non-performing assets. The interest income treated as irrecoverable and
deduction was claimed u/s 36(1)(vii). However, in the books of accounts, it was reduced from the
interest income, instead of a debit to the P&L A/c. The claim was not allowed by the Revenue
authorities on the ground that it was not debited to the P&L A/c. The ITAT allowed the claim and
held that a reduction from the credit side of the P&L A/c would have the effect of a debit to the P&L

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A/c and hence the write off should be allowed a bad debts u/s 36(1)(vii). (AY. 2001-02, 2003-04 to
2008-09)
West Bengal Infrastructure Development Finance Corporation v. ACIT(2016) 45 ITR285
(Kol.)(Trib.)
DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR285
(Kol.)(Trib.)

S. 36(1)(viia) :Bad debt-Provision for bad and doubtful debts - Schedule bank – Deduction
allowable for a Government company engaged in the eligible business of financing
infrastructural facilities.
The Assessee was a Government owned NBFC and claimed deduction u/s 36(1)(viia) which was
deduction of 5% allowable to public financial institutions or state financial corporation. The AO held
that it was not a notified entity u/s 4A(2) of Companies Act, 1956. The ITAT allowed the claim of the
Assessee on the ground that it was a Government company and engaged in the eligible business of
financing infrastructural facilities. (AY. 2001-02, 2003-04 to 2008-09)
West Bengal Infrastructure Development Finance Corporation v. ACIT (2016) 45 ITR 285
(Kol)(Trib)
DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285
(Kol)(Trib)

S. 36(1)(viia) :Bad debt-Provision for bad and doubtful debts - Schedule bank - provision made
against advances of rural branches only.
Provision for doubtful debts as allowable under section 36(1)(viia) is in respect of provision made
against advances of rural branches only; bad debts in respect of advances of non-rural branches is to
be allowed fully and is not required to be set off against provision for bad debts claimed.(AY. 2003-
04-, 2004-05)
Allahabad Bank v.ACIT (2016) 157 ITD 693 / 46 ITR 678 (Kol.)(Trib.)

S. 36(1)(viii) : Eligible business - Special reserve - Banking company entitle to deduction.

Banking company has been duly included in 'specified entity' to which provisions of section
36(1)(viii) are applicable. therefore, deduction has to be allowed to assessee-bank which is engaged in
business of providing long-term finance for industrial, agriculture and infrastructure development in
India and is a govt. company; however said deduction will be restricted to amount transferred to
special reserve subject to limit of prescribed percentage of profits derived from providing long-term
finance for approved purposes mentioned in section 36(1)(viii). (AY. 2003-04-, 2004-05)
Allahabad Bank v.ACIT ( (2016) 157 ITD 693 / 46 ITR 678 (Kol.)(Trib.)

S. 37(1):Business expenditure-Enhanced rent paid under agreement was held to be allowable.

Dismissing the appeal of revenue the Court held that in view of the revamp of the machinery a fresh
agreement had been entered in to, warranting the payment of higher rent and that agreement was not a
sham transaction, and the High Court affirmed the findings of the Tribunal.(AY. 1988-89, 1989-90,
1990-91)
CIT v. Khoday Breweries Ltd. (2016) 382 ITR 1(SC)

S. 37(1):Business expenditure-Capital or revenue-Expenditure in respect of a project which did

not materialize has to be treated as revenue expenditure as not capital asset comes into
existence.
On the question was to whether if the project does not materialize and an asset is not created,
expenditure on steps in that direction must be treated as capital expenditure or revenue expenditure,
the Supreme Court in Commissioner of Income Tax vs. Madras Auto Service (P) Ltd., reported at
(1998) 233 ITR 468 clinches the controversy. There while considering the issue, the Court finds that
the assessee could not have claimed it as capital expenditure, as there was no capital asset generated
by spending said amount. The expenditure has been held rightly classified as revenue expenditure.
CIT v. Manganese Ore India Ltd( 2016) 238 Taxman 315 (Bom.)(HC)

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S. 37(1):Business expenditure-Capital or revenue-Expenditure on "application software" is
revenue expenditure.
Allowing the appeal of assesse the Court held that ;Expenditure on "application software" is revenue
as it allows efficient carrying on of business and requires to be constantly updated due to rapid
advancements in technology and increasing complexity of the features.(ITA No. 278 of 2007, dt.
18.03.2016) (AY.1997-98 )
Indian Aluminum Co. v. CIT (Cal)(HC);www.itatonline.org

S. 37(1):Business expenditure-Capital or revenue-Royalty- Cannot be treated as job worker or

contractor-Held to be allowable.
The Assessing Officer disallowed 25 percent . of the expenses on account of royalty as being capital
in nature. CIT(A) has allowed the claim which was up held by the Tribunal. On appeal dismissing the
appeal of revenue , the Tribunal held that since the assesse had acted like any other original
equipment manufacturer , it could not be treated as a job worker or a contractor.(AY. 2004-05, 2005-
06)
CIT v. Kethin Panalfa Ltd. (2016) 381 ITR 407 (Delhi)(HC)

S. 37(1): Business expenditure-Royalty-Held to be allowable .

Assessee is acting like original equipment manufacturer hence cannot be treated as job worker or
contractor therefore payment of royalty is held to be allowable. (AY. 2004-2005, 2005-2006)
CIT v. Keihin Panalfa Ltd (2016) 381 ITR 407 (Delhi)(HC)

S. 37(1):Business expenditure-Interest on borrowed capital– Interest free advances-Sufficient

interest free advance-No disallowance can be made.
Assessee having sufficient interest-free advances from its directors, shareholders and members of
their families to cover interest-free advances made by company .Interest on borrowings not to be
disallowed. (AY. 2008-2009)
CIT v. Kapsons Associates (2016) 381 ITR 204 (P & H)(HC)

S.37(1):Business expenditure - Investments in shops and penthouses - Merely because some

properties were rented it cannot be inferred that investments in other properties not for
business purpose.
That the assessee was in the business, inter alia, of making investments in shares and property. Merely
because the assessee had rented out some of its properties, it could not be inferred that investments in
other properties were not for business purposes. The assessee could always give out its properties on
rent and acquire further properties towards investment.(AY. 2008-2009)
CIT v. Kapsons Associates (2016) 381 ITR 204 (P & H)(HC)

S. 37(1) : Business Expenditure – Deduction of commission paid – PAN to be used by Income

Tax Authorities – To track the transactions of commission agents – Matter remitted to
Assessing Officer to conduct further inquiry
Assessee is a business concern dealing in chemicals. It had claimed deduction for the commission
paid to three companies. Assessing Officer held that in absence of details of services rendered,
identification of persons who rendered such services and justification of the expenditure it was
difficult to come to a conclusion that the expenditure was wholly and exclusively for the business
purpose and hence disallowed the same. The CIT(A) also upheld the views of the Assessing Officer
and dismissed the assessee’s appeal. In appeal to the Tribunal, the Tribunal held the commission paid
to the corporate entities, through banking channel whose PAN have been furnished to the Assessing
Officer cannot be doubted and disallowed without proper enquires. Hence the Tribunal ruled in
favour of the assessee. Aggrieved Revenue filed an appeal before the High Court. The Revenue
contended that the Department had taken all the possible steps to find about the whereabouts of the
concern and it was a duty of the assessee to prove the claim of deduction. The Revenue stated that the
Commission agents were not traceable and therefore it was for the assessee to produce those
commission agents.

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Relying on the various judicial precedents High Court held that the onus of proof was on assessee in
cases where there was a proof of payment of commission, and to show that the payment was
exclusively for the business. The High Court observed the powers of the Income Tax Authorities and
laid down the importance and utility of the PAN. The High Court held that the Income Tax
Authorities had power to track the transactions of the Commission Agents using the PAN. In this
result the High Court had set aside and remitted the matter back to the Assessing Officer with a
direction to conduct further enquiry with regard to the claim of deduction on commission payments.
(AY. 2003-04)
CIT v. Textile Dye Chem Corporation (2015) 237 Taxman 354 (Mad.)(HC)

S. 37(1) : Business expenditure – Allowabilityof travel expenditure - Where foreign buyer of

assessee was situated in Singapore, expenditure incurred for travel to meet buyer in Singapore
could only be allowed; and expenses incurred on travel to countries other than Singapore were
to be disallowed
The assessee, an export oriented unit, claimed deduction of foreign travel expenditure of its president
and directors for purpose of marketing and selling its goods. Assessing Officer found that president
and directors of company had not only travelled to Singapore where associated enterprise was situated
but also to other countries and therefore, disallowed expenses incurred by assessee on travel to
countries other than Singapore. The CIT(A) and Tribunal confirmed order of Assessing Officer. In
appeal, the High court held that the view taken by Tribunal to restrict the expenses of travel only to
Singapore visit where the foreign buyer of the appellant was situated, could not be said to be perverse.
( (AY. 2003-04)
Advance Power Display Systems Ltd. v. CIT (2016) 382 ITR 607/237 Taxman 16 (Bom.)(HC)

S. 37(1) : Business expenditure – Deferred revenue expenditure - Decision to abandon project,

balance deferred revenue expenditure relating to said project would be deemed to arise in
relevant year.
The assessee was running a project which was not making profits. Therefore, it was abandoned and
entire expenses, including balance deferred revenue expenditure were written off during the year. The
Assessing Officer disallowed the balance deferred revenue expenditure as it was not related to current
year's income. The CIT(A) allowed the claim of assessee, which was affirmed by the Tribunal. On
appeal, the High Court held that since the project was abandoned in the assessment year 1995-96 and
the entire expenses was written off during the said assessment year. It can be safely concluded that the
expenditure arose in the relevant year. (AY. 1995-96, 1996-97)
CIT v. Alcove Industries Ltd. (2016)237 Taxman 226 (Cal.)(HC)

S. 37(1) : Business expenditure – Royalty paid to director for use IPR of the director – Held,
assessee company is a separate juristic entity – Payment made as royalty is an allowable
expenditure.
Director of the assessee company, had invented the technology through which ringtones could be
created. He carried on the business in the name and style of ‘phoneytunes.com’ as a sole proprietor.
Assessee company entered into an agreement with the director for using the brand name in lieu of
payment of royalty. The AO and CIT(A) held that the director cannot enter into an agreement with the
company as they are the same person. High Court held that, assessee company is a separate juristic
entity and therefore, can enter into the said agreement. Further, it was held that the director had
obtained copyright in the artistic work comprised in the name ‘phoneytunes.com’ and registration
thereof was not compulsory. Further, it constituted the trademark of the director. Held, therefore, the
assessee was entitled to use the trademark as a licensee and the payment of royalty made was
allowable as a deduction. (AY. 2006-07 to 2008-09)
CIT v. Mobisoft Tele Solutions (P.) Ltd. (2016) 237 Taxman 221 (P&H)(HC)

S. 37(1) : Business expenditure -Rule 9B - Cost of preparing positive prints of the film cannot be
treated as a part of the cost of acquisition of distribution rights of films and the same cannot be
carried forward for amortization in terms of Rule 9B [R9B ]

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Assessee, a partnership firm, was engaged in the business of distribution of Hindi motion
picture/films. During the year, assessee claimed set off of expenses pertaining to the earlier year
which related to feature films released during that earlier year but did not complete a commercial run
of 180 days as on 31st March of that year. According to the assessee, business expenses were to be
reduced from the gross realizations and thereafter the cost of acquisition was to be reduced from the
surplus and if the surplus was not enough to absorb the entire cost, the balance cost was to be carried
forward to the subsequent year. AO held that the cost of feature films (without taking into account
expenses such as cost of prints) was to be reduced from the gross realizations and the balance was to
be carried forward. High Court held that in view of the clear language of Rule 9B, the cost of
preparing positive prints cannot be treated as a part of the cost of acquisition of distribution rights of
films and the same cannot be carried forward for amortization in terms of Rule 9B. High Court further
observed that the assessee was entitled to a deduction to the extent the cost of acquisition of the films
did not exceed the amount realized by the assessee from exhibiting the film and the balance cost was
to be carried forward. High Court held that in view of the plain language of Rule 9B(3), "amount
realized" must be given its plain meaning and would mean the amount realized without accounting for
any expenditure incurred by the assessee in its business. (AY. 1992 – 93, 1993 – 94)
Honey Enterprises v. CIT (2016) 381 ITR 258 /236 Taxman 519 (Delhi)(HC)

S. 37(1): Business expenditure - Interest on borrowed capital - Effect of Explanation 8 to section

43(1) - Borrowed capital used for construction of hotels as part of expansion of business -
Interest deductible. [ S.43(1)]
The construction of three hotels had been undertaken by the assessee in Srinagar, Goa and Mumbai.
The assessee had borrowed loans for the projects. The Assessing Officer noted that 75% of the total
interest of Rs. 1.54 crores paid on the term loan obtained from the Jammu and Kashmir Bank
amounting to Rs. 1,15,77,137 was capitalised. The balance of Rs. 38,59,046 was charged to the profit
and loss account as revenue expenditure. According to the Assessing Officer, the assessee did not
provide any justification how 25% of the total interest paid could be claimed as revenue expenditure.
This was accordingly added back. The Commissioner (Appeals) deleted the addition and this was
upheld by the Tribunal. On appeal by the Department: Held, that the assessee was entitled to claim the
payment of interest on the borrowings made in relation to the hotel projects at Srinagar, Goa and
Mumbai, which were in the nature of expansion of the business of the assessee, as revenue
expenditure. (AY. 2000-2001)
CIT v. Bharat Hotels Ltd.( 2015) 64 taxmann.com 14/ (2016) 381 ITR 222 (Delhi) (HC)

S. 37(1) : Business expenditure – Where an assessee follows the mercantile system of accounting,
it is not necessary that the liability must have actually been incurred during the relevant year. If
the amount is ascertainable with a reasonable certainty the assessee can claim it as an expense
or deduction. [ S. 145 ]
Assessee is engaged in the business of running cinema hall. It entered into a License Agreement with
New Delhi Municipal Council (NDMC) for running the cinema hall for a period of ten years. The
agreement also gave an option to the assessee to get its license renewed for a further period of ten
years. On completion of term, assessee applied for renewal of the license and a fresh license
agreement was entered into between the assessee and the NDMC wherein the annual license fee was
increased by the NDMC. The assessee paid the increased license fee for certain period under protest
and filed a suit challenging the enhancement of the said license fee. This was followed by various
rounds of further litigation and the legal proceedings between the assessee and the NDMC which are
still pending adjudication.

The assessee followed the mercantile system of accounting and in the returns filed for the assessment
years 1982-83 to 2008-09, it claimed deduction towards enhance licence fee payable and interest on
arrears of licence fee payable to NDMC.

The AO disallowed the claim of license fees to the extent not paid to NDMC and interest amount
claimed in relation to certain the assessment years. On appeal, CIT(A) deleted the addition made by
AO. However, the Tribunal upheld the observation of the AO.

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On appeal, the HC held that where an assessee follows the mercantile system of accounting, it is not
necessary that the liability must have actually been incurred during the assessment year in question to
enable the assessee to claim it as an expense or deduction. If the liability can be ascertained with
reasonable certainty, it had to be allowed as a deduction.(AY. 1987-88 to 2003-04)
Aggarwal and Modi Enterprises (Cinema Project) Co. (P.) Ltd. v. CIT( 2016)381 ITR 469/ 238
Taxman 17 /131 DTR 289/ 284 CTR 211 (Delhi)(HC)

S. 37(1):Business expenditure–Payment of damages to compensate the loss suffered by other, is

compensatory in nature and hence, allowable.
The assessee had taken on lease a plot of land from the Calcutta Port Trust. It had encroached some of
land belonging to the trust, for which the trust asked the assessee to pay damages before proposal of
the assessee for grant of a long-term lease in respect of the encroached land. The assessee made the
said payment and claimed it as revenue expenditure u/s. 37(1).

The AO treated the impugned payment as capital in nature on the ground that it was expended to
obtain a long-term lease. He also held that the encroachment amounted to an infraction of law. The
CIT(A) and Tribunal concurred with the view of the AO.

On appeal, the HC held that the impugned payment was made to compensate the loss suffered by the
Trust and for benefit already received by the assessee as a user of land. Therefore, payment is not in
the nature of penalty. Further, the impugned payment was also held to be not a capital expenditure as
prayer for lease of encroached land could not have been examined before payment of the
compensation.(AY. 2001-02)
Mundial Export Import Finance (P) Ltd. v. CIT (2016) 131 DTR 195/ 284 CTR 87/ 238 Taxman
34 (Cal.)(HC)
S. 37(1):Business expenditure- Capital or revenue-Product Trial expenses of a new product is
revenue in nature as it does not provide the assessee with any enduring benefit- Compensation
paid to supplier to ensure goodwill and continued relationship is revenue expenditure.
Product Trial expenses of a new product is revenue in nature, does not provide Assessee any enduring
benefit. Compensation to paid to supplier to ensure goodwill and continued relationship is revenue
expenditure. ( ITA No. 7978/Mum/2010, dt. 25.05.2016)(AY.2006-07)
Bayer Crop Science Limited v. ACIT (Mum.)(Trib.), www.itatonline.org

S. 37(1):Business expenditure-Audit fee- Prior period expenses -Method of accounting- Matter

remanded. [S. 145 ]
Assessee made contain provision in its profit and loss account in respect of accounting and auditing
charges. On appeal Tribunal held that ;matter was to be remanded back to Assessing Officer with
direction to verify whether assessee was following practice of recognizing expenditure of audit fee
pertaining to each year irrespective of actual payment and, if yes, then, it should not be disallowed for
year under consideration. As regards prior period expenses also matter was remanded to the AO. (
AY. 2009-10)
New Mangalore Port Trust v.ACIT (2016) 157 ITD 399 (Bang) (Trib.)

S. 37(1): Business expenditure-Disallowance of expenses on account of personal element was

made on estimation and revenue had not challenged issue before Tribunal for earlier assessment
years, disallowance had to be restricted in line with previous assessment years.

Assessing Officer disallowed certain percentage of expenditures ranging from 10-15 per cent on
account of personal usage. Commissioner (Appeals) restricted disallowance to 10 per cent. Since
revenue had not challenged issue before Tribunal against orders of Commissioner (Appeals) for
earlier assessment years and it was only an estimated disallowance, Assessing Officer was directed to
restrict disallowance at 5 per cent as restricted in earlier years.(AY. 2005-06, 2007-08)
ACIT v. Pawan Kumar Jhunjhunwala (2016) 157 ITD 667 (Kol) (Trib.)

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S. 37(1) : Business expenditure-Genuineness of commission payments –ad-hoc disallowance
It was held that AO having not controverted the assessee’s claim and not brought any material on
record to show that the commission expenditure was either bogus or was not allowable deduction,
disallowance made by him solely on ad hoc basis cannot be sustained. (AY. 2008-09)
Dy. CIT v. Vodafone Mobile Services Ltd. (2016) 130 DTR 195 (Delhi)(Trib.)

S. 37(1) : Business expenditure- Commission payments – No disallowance can be made only on

the ground that copy of assessee’s account did not indicate in the account of payee , when tax
was deducted
It was held that commission by cheques after deducting TDS could not be disallowed on the basis that
the copy of the assessee’s account in the payees books of account did not indicate any payment
received by him from the assessee. (AY. 2009-10)
ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib).

S. 37(1) : Business expenditure-Capital or revenue- Advertisement expenditure on product

launches was held to be revenue in nature.
It was held that no asset of permanent nature comes into existence on display of granty signs and,
therefore, expenditure incurred by the assessee on the installation of granty signs and other
advertisement expenditure on product launches was allowable as revenue expenditure. (AY. 2008-09 )
Dy. CIT v. Vodafone Mobile Services Ltd. (2016) 130 DTR 195 (Delhi)(Trib.)

S. 37(1):Business Expenditure–Penal Interest paid to bank. – Compensatory in nature – Not an

offence prohibited by any law – Allowable.
The assessee had paid penal interest for not fulfilling a stipulated condition in the loan agreement
which was compensatory in nature. The banks were entitled to charge extra rate of interest which was
reimbursed to the assessee on fulfillment of condition. On appeal to Tribunal, it was held that the
assessee has not committed any offence prohibited under any law and hence doesn’t come under the
ambit of Explanation to Section 37. The expenditure was allowable. (AY. 2008-09)
ACIT v. Bharat Hi-Tech (Cement) P Ltd (2016) 176 TTJ166 (Kol) (Trib)

S. 37(1):Business Expenditure–Capital or Revenue–Expenditure incurred for undertaking

expansion of existing business–to be treated as revenue expenditure.
The assessee was engaged in the business of manufacturing intermediaries and bulk drugs, which was
undertaken at the manufacturing facility of the assessee. During the year under consideration, the
assessee had undertaken expansion of its existing business for which it had incurred both direct and
indirect expenses. The direct expenses were capitalized to the fixed assets whereas the indirect ones,
other than the ones which increased the value of assets, were claimed as revenue expenditure. The AO
disallowed the indirect expenses since the bifurcation of expenses incurred on new project were not
provided. On appeal to the Tribunal, it held that any expenditure incurred for the purpose of running
the business or working it with a view to produce the profits were revenue expenditure and would not
become capital expenditure merely for the reason that such expansion was termed as new project.
(AY. 2010-11)
DSM Sinochem Pharmaceuticals India P.Ltd v. DCIT (2016) 176 TTJ 322 (Chd) (Trib)

S. 37(1) : Business expenditure–Repairs and maintenance expenses to be disallowed if original

vouchers were not produced and genuineness of expense has been doubted by lower authorities.
The Assessee claimed repairs and maintenance expense being in the nature of revenue expenditure.
Since it was related to the installation of new cooler and duct, the AO treated the same as capital in
nature and allowed depreciation on it. The Assessee repeatedly changed stands on whether it was
incurred towards air cooler or purchase of CCTV and did not submit vouchers in support of the claim.
Thus, the CIT(A) upheld the disallowance made by the AO. The ITAT upheld the disallowance since
the genuineness of the expense has been doubted by the AO and original vouchers were not submitted
by the Assessee. (AY. 2008-09)
Brothers Pharma P. Ltd. v. ITO (2016) 45 ITR 154 (Jaipur)(Trib)

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S. 37(1) : Business expenditure–Capital or revenue-Expenditure incurred for use of technical
know-how for improving the manufacturing process would be revenue in nature.
The Assessee entered into a technical assistance agreement by virtue of which it was granted a license
to use technical know-how in its manufacturing operations. The expenditure was claimed to be
revenue in nature by the Assessee, while the AO held that that it was capital in nature. The CIT(A)
ruled in favour of the Assessee. On appeal, the ITAT held that expense was incurred only for
improvement of technology used in its manufacturing process and would be revenue in nature.
Further, no new asset with enduring benefit was acquired by the Assessee as it was only given a right
to use the technical information. (AY. 2005-06)
DCIT v. I.F.G.L Refractories Ltd. (2016) 45 ITR 1 (Kol)(Trib)

S. 37(1): Business Expenditure–Commission payments could not be disallowed on adhoc basis

unless any material brought on record to justify disallowance.
Assessee Company was engaged in the business of providing cellular mobile telephony network.
During the year under consideration, the AO made disallowance of commission paid to distributors.
On appeal to Tribunal, it was held that since the AO has not brought any material on record to show
that the commission expenditure was either bogus or was not allowable, there could not be any adhoc
disallowance of the same. (AY.2008-09)
DDIT v. Vodafone Mobile Services Ltd) (2016) 176 TTJ 430 (Delhi)(Trib.)

S 37(1):Business Expenditure–Capital or revenue– Advertisement expenditure-Display of

granty signs and product launching expenses–No asset of permanent nature comes into
existence-Expenditure allowed as revenue.
Assessee Company was engaged in the business of providing cellular mobile telephony network.
During the year under consideration, the AO made disallowance of Advertisement expenses. The
Tribunal held that the expenditure incurred on display of granty signs and on product launches were
allowable as revenue since no asset of permanent nature comes into existence. (AY..2008-09)
DDIT v. Vodafone Mobile Services Ltd (2016) 176 TTJ 430 (Delhi)(Trib.)
S. 37(1) : Business Expenditure – Capital or revenue – Royalty paid to DOT – Necessary to run
the business - Amount allowed as Revenue expenditure
Assessee Company was engaged in the business of providing cellular mobile telephony network.
During the year under consideration, the AO made disallowances of Royalty paid to DOT. On appeal
to Tribunal, it was held that the royalty pertaining to spectrum charges was paid to DOT on a
quarterly basis as a percentage of revenue. The assessee could not run the business without making
such payments and hence the same were allowable as revenue expenditure. (AY.2008-09)
DDIT v. Vodafone Mobile Services Ltd (2016) 176 TTJ 430 (Delhi)(Trib.)

S. 37(1) : Business expenditure – Stamp duty paid for increasing the authorized capital was
capital in nature.
The Assessee paid stamp duty for increasing its authorized share capital. The AO treated it as capital
in nature and disallowed the same. The ITAT held that the said expenses were capital in nature. (AY.
2009-10)
Inventurus Knowledge Services P. Ltd. v. ITO (2016) 45 ITR 57 (Mum.)(Trib.)

S. 37(1) : Business expenditure – Advertisement expenses incurred after the issuance certificate
by the Censor Board is allowable.
The Assessee incurred advertisement expenses after the obtaining the certificate from the Censor
Board, which was disallowed by the AO based on the provisions of rules 9A and 9B. The ITAT held
that advertisement and publicity expenses incurred after obtaining the certificate from the Censor
Board would be allowable to the Assessee u/s 37 based on the earlier decisions of the Tribunal. (AY.
2009-10)
Dharma Productions P. Ltd. v. ACIT (2016) 45 ITR 102 (Mum)(Trib)
S. 37(1) : Business expenditure – Adhoc disallowance not allowed in case primary documents
have not been doubted and has it not been alleged that bogus expenses or inflated expenses have
been booked.

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The AO disallowed adhoc 25% of certain expenses claimed by the Assessee due to want of evidence.
The ITAT followed earlier year and deleted the disallowance and held that the AO had not doubted
the primary documents, but had made bald observations. (AY. 2009-10)
Dharma Productions P. Ltd. v. ACIT (2016) 45 ITR 102 (Mum)(Trib)

S. 37(1) : Business expenditure – Marker research expenses- Order of CIT(A) was accepted in
earlier year- Appeal of revenue was dismissed.
The Tribunal allowed the expenditure on the ground that for earlier years. The department has not
filed the appeal before Tribunal and accepted the order of CIT(A). the facts and circumstances being
same the Tribunal held that department cannot agitated the issue in this year. (AY. 2003-04)
Dy. CIT v. Pfizer Ltd. (2016) 175 TTJ 92 (Mum.)(Trib.)

S. 37(1) : Business expenditure – Provision for liability under long term incentive plan for
employees-Held to be allowable.
The Tribunal held that provision on account of incentive plan made by the assessee during the year is
an ascertained liability. The AO has nowhere objected to the method of quantifying the said provision
by the assessee. Therefore, the same is allowable as deduction. (AY. 2009-10)
GlaxoSmithKline Consumer Healthcare Ltd. v. Jt. CIT (2016) 175 TTJ 552 (Chd.)(Trib.)

S. 37(1) : Business expenditure – Interest for late deposit of service tax- Cannot be termed as
penalty- Allowable as deduction.
The Tribunal held that interest paid on delayed payment of service tax cannot be termed as penalty for
infringement of any law and, therefore the same cannot be disallowed . (AY. 2012-13)
Gillco Developers & Builders (P) Ltd. v. Dy. CIT (2016) 175 TTJ 81 (UO)(Chd.)(Trib.)

S. 37(1) : Business expenditure – Provision for liability on account of leave encashment-

Allowable as deduction.
The Tribunal held that provision for liability on account of leave encashment is allowable as
deduction. (AY. 1996-97 to 1998-99)
ICI India Ltd. v. Dy. CIT (2016) 175 TTJ 217 (Kol.)(Trib.)

S. 37(1) : Business expenditure – Liability under VRS is allowable as deduction.

The Tribunal held that provision for liability under VRS is allowable as deduction. (AY. 1996-97 to
1998-99)
ICI India Ltd. v. Dy. CIT (2016) 175 TTJ 217 (Kol.)(Trib.)

S. 37(1) : Business expenditure – Capital or revenue- Expenditure to make computer system

Y2K compliant was held to be revenue expenditure.
The Tribunal held that the expenses incurred to make computer system Y2K compliant is revenue
expenditure. (AY. 1996-97 to 1998-99)
ICI India Ltd. v. Dy. CIT (2016) 175 TTJ 217 (Kol.)(Trib.)

S. 37(1) : Business expenditure –Capital or revenue- Expenditure in shifting corporate office

was held to be revenue expenditure.
The Tribunal held that the expenditure in shifting corporate office constituted revenue expenditure.
(AY. 2007-08)
Gillette India Ltd. v. ACIT (2016) 175 TTJ 35 (UO)(Jaipur)(Trib.)
S. 37(1) : Business expenditure – Real estate development – Commission and Brokerage paid to
brokers or agents - quantum of expenses cannot be examined by AO.
On appeal, the tribunal held that merely because any income had not been earned during the year
directly from any activity, it could not be said that the related expenses was not expense for the
business of the assessee. Whether the income has been earned or not and whether the ultimate benefit
had accrued immediately or not, the expenses incurred shall be allowable if these have been incurred
for business or for commercial expediency. Further, once the expenses had been found to be genuine
and to have been incurred for the purpose of the business, the quantum of the expenses could not be

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examined by the AO to adjudicate how much of the expenses were justifiable and whether the
expenses claimed were proportionate or disproportionate vis a vis the requirement of the business.
(AY. 2006-07)
Today Homes and Infrastructure Pvt. Ltd. v. Dy. CIT (2016) 46 ITR 586 (Delhi)(Trib.)

S. 37(1) : Business expenditure –Bribe for awarding of contract – Sum deleted in case of
recipient and deletion affirmed by High Court –No disallowance can be made.
The AO added Rs. 21.62 crores on the ground that the assessee paid a sum in the form of bribe for
awarding of contract. The Commissioner (Appeal) deleted the addition. On appeal the Tribunal held
that, the entire addition made by the AO was solely based on suspicion and surmises. The addition
was deleted by the CIT(A) in the hands of the alleged recipient of the bribe which was upheld by the
Tribunal and ultimately approved by the jurisdictional High Court. Therefore, the addition was rightly
deleted by the CIT(A) in the assessee’s case.(AY. 2006-07)
Today Homes and Infrastructure Pvt. Ltd. v. Dy. CIT (2016) 46 ITR 586 (Delhi)(Trib.)
S. 37(1) : Business Expenditure – Commercial expediency- Safeguard interest- Allowable as
business expenditure.
On appeal, the Tribunal held that the purpose of taking over the loan was to improve the financial
viability of the subsidiary company to facilitate a one-time settlement of certain loans in the
subsidiary company and to complete subscription of non-convertible debentures in the subsidiary
company. Therefore, it was an expenditure to safeguard its interest or investment in subsidiary
company. Therefore, it was for the business purpose of the assessee and hence revenue in nature.(AY.
2006-07 and 2007-08)
Rain Commodities Ltd. v. Dy. CIT (2016) 46 ITR 1 (Hyd.)(Trib.)
Rain Cements Ltd. v. Dy. CIT (2016) 46 ITR 1 (Hyd.)(Trib.)

S. 37(1) : Business expenditure – Co-operative Bank - Expenditure on various welfare funds -

Statutory obligation - hence allowable under the Act
The funds contributed neither remained with the apex co-operative bank nor came back to the
assessee in another form and the amounts were spent only out of statutory obligation. Further, one of
the objects of the assessee was to develop or assist and co-operate the members of district central co-
operative banks and other co-operative societies and hence the contribution was only made in further
pursuance of the objects of the bank for which it was established and there was no business interest in
incurring the expenditure. The amount spent could not be disallowed.(AY. 2007-08)
Karnataka State Co-operative Apex Bank Ltd.v. Dy. CIT (2016) 46 ITR 728 (Bang.)(Trib.)

S.37(1) : Business expenditure –Disallowance by netting off prior period income against prior
period expenditure was held to be Justified.
The entire amount of the prior period expenses, while assessing the entire amount of prior period
income, could not be disallowed for the AY 2004-05 and 2007-08, without bringing support of any of
the provisions of the Act. Therefore, held that the assessee was justified in computing the
disallowance netting the prior period income against the prior period expenditure. The assessee had
offered the net income in the AY 2007-08. Netting was held to be justified. (AY. 2004-05, 2007-08 to
2010-11)
Mazagaon Dock Ltd.v. ITO (2016)46 ITR 162 (Mum.)(Trib.)

S. 37(1) : Business expenditure –Advertisement expenses – No discrepancy was pointed on

ledgers and bills produced before authorities disallowance was held to be not justified.
On appeal, the tribunal held that the AO had not pointed out any discrepancy or any reason explained
inadmissible in the nature in terms of section 37 of the Act. Just because the assessee had not offered
the sum for tax in the previous years, it could not be a ground for disallowing the expenses. The
addition was to be deleted. (AY. 2007-08)
Sahil Study Circle Pvt. Ltd. v. Dy. CIT (2016) 46 ITR 182 (Delhi)(Trib.)

S. 37(1):Business expenditure- Capital or revenue-Stamp duty or fees paid for increase in

authorised capital is capital in nature.

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Tribunal held that ;Stamp duty or fees paid to Ministry of Corporate Affairs towards increase in
authorised capital of company would be considered as capital expenditure. ( AY. 2009-10)
Inventurus Knowledge Services (P.) Ltd v. ITO ( 2016) 156 ITD 727/ 45 ITR 57 (Mum)(Trib)

S. 37(1):Business expenditure-licence fee–Limited right to use software-Allowable as business

expenditure.
Amount paid as licence fee in order to get limited right to use software programme belonging to other
company, held to be allowable as business expenditure.( ITA No 2806/ Del/ dt . 16-10-2015)(AY.
2007-08 )
GE Capital Business Process Management Services (P) Ltd ( 2016) Chamber’s Journal-
January–P. 95 (Delhi)(Trib.)

S. 37(1):Business expenditure-Sales promotion expenses-Gift to doctors bearing logo of

company-Allowable expenditure-CBDT Circular dated 01.08.2012 is prospective.
Receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same by manufacturer
is not prohibited under any law for the time being in force. Giving small gifts bearing company logo
to doctors does not tantamount to giving gifts to doctors but it is regarded as advertising expenses. As
regards sponsoring doctors for conferences and extending hospitality, pharmaceuticals companies
have been sponsoring practicing doctors to attend prestigious conferences so that they gather
contemporary knowledge about management of certain illness/disease and learn about newer
therapies. We found that the disallowance was made by the AO by relying on the CBDT Circular
dated 01.08.2012 onwards. However, the Circular was not applicable because it was introduced
w.e.f.01.08.2012. i.e. assessment year 2013-2014, whereas the relevant assessment year under
consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance
so made by the AO in both the assessment years under consideration.(ITA No. 6429
&6428/Mum/2013 & ITA No.11/Mum/2014, dt. 23.12.2015) (AY. 2010-11,2011-12)
DCIT v. Syncom Formulation (I) Ltd. (Mum.)(Trib.);www.itatonline.org

S.37(1):Business expenditure-Penalties & fines paid to SEBI, BSE etc for breach of
regulatory/procedural requirements are "compensatory" in nature and not for any purpose
which is an ‘offense’ prohibited by the law.[Explanation]
(i) The payments have been made on account of routine fines for minor procedural irregularities, in
day- to- day working of the assessee company. The assessee company is engaged into stock broking
activities and also in financial services which involves substantial compliance requirements with
various regulatory authorities e.g. BSE, NSE, CDSL, NSDL, & SEBI etc. In the regular course of the
business of the assessee company, certain procedural non-compliances are not unusual, for which
assessee is required to pay some fines or penalties. In our considered view, these routine fines or
penalties are “compensatory” in nature; these are not punitive. These fines are generally levied to
ensure procedural compliances by the concerned persons. Their levy depend upon facts and
circumstances of the case, and peculiarities or complexities of the situations involved. Sometimes
elements of discretions of levying authorities are also involved therein.
(ii) On the other hand, an ‘offence’ would be the one which will arise as a result to commission of an
action which is prohibited by law, and, in all the given situations, no element of any consent of the
parties involved can bring any change in its legal consequences. Similarly, any amount paid by the
assessee, in the form of compensation, as a consequence of breach of contract between the two
parties, cannot be said to be amount paid for any purpose which is an ‘offence’, prohibited by the law.
In other words, under the income tax law, one is required to go into the real nature of the transactions
and not to the nomenclature that may have been assigned by the parties. Thus, to decide such issues,
we are required to see real substance under the Income Tax Law, and not merely its form. Thus, only
those payments, which have been made by the assessee for any purpose which is an ‘offence’ or
which is ‘prohibited by law’, shall alone would be hit by the explanation to section 37.(ITA No.
8047/Mum/2010, dt. 29.09.2015) (AY. 2006-07)
Mangal Keshav Securities Limited v. ACIT (Mum.)(Trib.);www.itatonline.org

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S. 37(1):Business expenditure-Payment of speed money to dock workers are not bribes or
prohibited under the law hence cannot be disallowed.
Allowing the appeal of assesse the Tribunal held that Payment of speed money to dock workers are
not bribes or prohibited under the law hence cannot be disallowed.(AY. 2009-10) (ITA no . 4524
/Mum/2013 dt 18-03-2016, Bench ‘ D’)
D.H. Patkar & Co. v.ITO (2016) BCAJ-April-P. 32 (Mum.)(Trib.)

S. 37(1):Business expenditure-There is a distinction between "setting up" and

"commencement" of a business. A business is "set up" and expenditure is deductible even if
assessee has no customers and no income. [S.3, 71]
The assessee has already purchased residential flat for the purpose of resale/lease, and therefore
assessee was apparently ready to do its business. Under these circumstances, it can be said that the
business is set up by the assessee during the year under consideration. For the deductibility of
expenses incurred after this stage, earning of the business income is not a mandatory condition under
the law. The assessee may not have been successful in getting customers or earning the business
income, but if the assessee has done requisite preparations and if the assessee can be said to be in a
position to cater to its customers, then it can be said that business is set up and it would amount to
carrying on the business and accordingly the expenses would stand allowable to the assessee,
irrespective of the fact whether actually assessee got any customer and earned any business income
during the year or not. (AY 2008-09)
Multi Act Realty Enterprises Pvt. Ltd.v. ACIT (Mum.)(Trib.);www.itatonline.org
S. 40(a)(i):Amounts not deductible- Deduction at source- Fees for technical services-Failure to
deduct TDS on payment to a non-resident will result in a disallowance violates the non-
discrimination clause in Article 26 of the India-USA DTAA because a similar disallowance is
not made on payments to residents- DTAA- India- USA [ S. 9(1)( vii), 195 Art , 12, 26]
Dismissing the appeal of revenue the Court held that Section 40 (a) (i) of the Act is discriminatory
and therefore, not applicable as per provisions of Article 26 (3) of the Indo-US DTAA. Affirmed the
view of Tribunal in in Herbalife International India (P) Ltd v. ACIT ( 2006 )101 ITD 450 (Delhi)
(Trib), where in Tribunal held that the AO cannot invoke provision of section 40(a)(i) to disallow the
claim even on assumption that um in question was chargeable to tax in India. ( ITA No. 7/2007,
dt.1305.2016)(AY. 2001-02)
CIT v. Herbalife International India Pvt. Ltd. (Delhi)(HC);www.itatonline.org

S. 40(a)(i) : Amounts not deductible - Deduction at source -Non-resident- TDS is not required to
be deducted on payment by foreign bank's Indian branch to its overseas head office and,
therefore, disallowance of such payment is not valid- Model OECD convention. [ S.9(1)(i), Art
11. ]

TDS is not required to be deducted from payments made by a foreign bank's Indian branch to its
overseas head office, since in such a situation, payment is made by non-resident to himself and,
therefore, disallowance of said payment is not valid.( AY.2009-10)
DBS Bank Ltd. v.Dy.IT(IT) (2016) 157 ITD 476/176 TTJ 293 (Mum.)(Trib.)

S.40(a)(i):Amounts not deductible- Deduction at source- Commission- Rendering market

service abroad- Matter remanded . [ S.9(1)(i), 195 ]
Tribunal held that ,assessee did not bring material on record showing that non-resident agents had
rendered marketing services abroad and there was no business connection in India, question as to
whether commission paid to them was taxable in India, was to be remanded back for disposal afresh.
(AY. 2010-11)
Chenitan Color Chem (P.) Ltd v. ACIT( 2015) 43 ITR 181/ ( 2016) 156 ITD 509
(Chennai)(Trib)

S.40(a)(i):Amounts not deductible- Deduction at source- Sales commission- Non –resident-

Matter remanded. [S.9(1)(i), 195]

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Assessee had made payment of sales commission to non-resident agents. Since assessee did not
deduct tax at source while making said payments, Assessing Officer disallowed same by invoking
provisions of section 40(a)(i) . Commissioner (Appeals) deleted said disallowance. On appeal
Tribunal held that ; since assessee had not established that non-resident had rendered services abroad
and there was no business connection in India by producing relevant records, nature of services
rendered by non-resident agents could not be determined . Matter remanded. (AY.2011-12)
ACIT v. Euro Leder Fashions Ltd. (2016) 156 ITD 208 (Chennai)(Trib)

S.40(a)(ia):Amounts not deductible-Deduction at source–Fees for technical services- Fee paid to

Bombay Stock exchange as Transaction charges is not fees for technical services –Not liable to
deduct tax at source. [S. 9(1)( vii), 194J]
The High Court of Bombay (CIT v. Kotak Securities Ltd. (2012)340 ITR 333) held that the
transaction charges paid by a member of the Bombay Stock Exchange to transact business of sale and
purchase of shares amounts to payment of a fee for ‘technical services’ rendered by the Bombay
Stock Exchange. Therefore under the provisions of Section 194J of the Income Tax Act, 1961 (for
short “the Act”), on such payments TDS was deductible at source. The said deductions not having
been made by the appellant – assessee, the entire amount paid to the Bombay Stock Exchange on
account of transaction charges was not deducted in computing the income chargeable under the head
“profits and gains of business or profession” of the appellant. On appeal reversing the judgment the
Court held that ;Fee paid to Bombay Stock exchange as Transaction charges is not fees for technical
services hence not liable to deduct tax at source. (AY.2005-06).
CIT v. Kotak Securities Ltd (2016) 383 ITR 1(SC)

S. 40(a)(ia):Amounts not deductible Deduction at source-Non-resident- Commission-Services

rendered outside India- Order of Tribunal was set aside for reconsideration. [S. 195]
The Tribunal took the view (Sesa Resources v. ACIT) that in view of the retrospective amendment to
s. 195 to provide that s. 195 applies whether or not the non-resident person has a residence or place of
business or business connection in India, commission to non-resident agents for services rendered
outside India is liable for TDS u/s 195 and has to suffer disallowance u/s 40(a)(ia). In appeal High
Court , seta side the order of Tribunal. ( TA. No. 11 of 2016, dt. 07.03.2016)(AY.2009-10)
Sesa Resoureces Ltd. v. DCIT (Bom.)(HC);www.itatonline.org
Editorial: After seta side , Tribunal decided in favour of assesse. ITA no 267 /Pan/2015 dt 27-04-
2016 DCIT v.Sesa Resoureces Ltd.. www.itatonline.org

S. 40(a)(ia):Amounts not deductible-Deduction at source- Commission- Services were rendered

outside India- Not liable to deduct tax at source. [S. 9(1)(i), 9(1)(vii),195]
Commission paid to a non-resident for services rendered outside India is not chargeable to tax in India
and is not liable for TDS. Insertion of Explanation 4 to s. 9(1)(i) and Explanation 2 to s. 195(1) by FA
2012 w.r.e.f. 01.04.1962 and insertion of Explanation below s. 9 (2) by FA 2010, w.r.e.f. 01.06.1976
makes no difference to the law. .(AY. 2010-11 )
CIT v. Farida Leather company(2016) 238 Taxman 473 (Mad.)(HC)
S. 40(a)(ia):Amounts not deductible-Payments made for purchase of software as product and
for resale in Indian market - Not "royalty" - Assessee not liable to deduct tax at source. [
S.9(1)(vi) , 195]
Held, that the agreement indicated that the assessee was appointed for the purposes of reselling the
software and payments made were on account of purchases made by the assessee. Payments made by
a reseller for the purchase of software for sale in the Indian market could not be considered royalty. It
was not disputed that in the preceding year, the Assessing Officer had accepted the transactions to be
of purchase of software. The assessee was not liable to deduct tax at source. Deletion of addition was
proper. (AY. 2008-2009 )
Pr.CIT v. M. Tech India P. Ltd. (2016) 381 ITR 31/ 238 Taxman 178 /132 DTR 57 (Delhi)(HC)

S. 40(a)(ia): Amounts not deductible-Payments by a CA firm to foreign professional entities for

services rendered abroad is not taxable.The retrospective amendment to s. 9(1)(vii) to tax

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services rendered outside India does not apply in the context of a disallowance u/s 40(a)(ia) in
the hands of the payer- DTAA-India- USA. [S. 9(1)(vii), 195, Art , 12, 15]
(i) The issue revolves around the payments made by the assessee to certain non-resident entities for
professional services rendered by them outside India. It has been consistently explained by the
assessee that the services of such entities were availed during the course of the execution of
engagements of assessee firm. The assessee firm did not deduct the tax at source and, therefore, the
Assessing Officer invoked the provisions of section 40(a)(i) of the Act and disallowed such
expenditure. The payments have been made to 12 different professional entities based in 10 different
countries. In so far as the payments that are made to KPMG LLP, USA and KPMG LLP, Canada are
concerned, the same has been made on account of professional services rendered in relation to
taxation and transfer pricing. Undisputedly, the professional services have been rendered by the
aforesaid entities outside India. The stand of the Revenue is that such services are in the nature of ‘fee
for technical services’ and, therefore, tax was liable to be deducted at source in India. Factually
speaking, the aforesaid stand of the Revenue is devoid of any support because there is no material to
establish that any technical knowledge, skill, etc. has been made available to the assessee so as to
consider it as falling within the purview of Article-12 of Indo-US Double Taxation Avoidance
Agreement. It is also an established fact that such non-resident recipients do not have permanent
establishment in India and, therefore, in the said background the same can, at best, be treated as
independent personal services covered by Article-15 of the Indo-US Double Taxation Avoidance
Agreement. As a consequence and in the absence of any fixed base in India, such income cannot be
held chargeable to tax in India so as to require deduction of tax at source. Therefore, invoking of
section 40(a)(i) of the Act to disallow such expenditure is not tenable.
(ii) Apart therefrom, even if we were to accept, for the sake of argument, that the services by the
aforesaid entities are in the nature of technical services and are rendered and utilized in India so as to
be taxable in terms of section 9(1)(vii) of the Act, even then the disallowance is not warranted as the
following discussion would show. Ostensibly, the requirement of rendering services in India in order
to attract section 9(1)(vii) of the Act was removed by insertion of Explanation by the Finance Act,
2010 with retrospective effect from 1/4/1976. This has been understood by the Revenue to say that
inspite of the services having been rendered by the recipients outside India, the same is taxable in
India by applying the aforesaid amendment. In our view, such retrospective amendment would be
determinative of the tax liability in the hands of the recipients of income. So however, in the present
case, what is held against the assessee is the failure to deduct tax at source at the time of payment of
such income. Ostensibly, dehors the aforesaid amendment, the impugned income was not subject to
tax deduction at source in India as per the prevailing legal position. Taxability of a sum in the hands
of recipient, on account of a subsequent retrospective amendment would not expose the assessee-
payer to an impossible situation of requiring deduction of tax at source on the date of payment.
Therefore, on this count also the assessee cannot be held to be in default in not deducting tax at source
so as to trigger the disallowance under section 40(a)(i) of the Act ( ITA No. 1917/Mum/2013, dt.
06.05.2016)(AY. 2009-10)
ACIT v. BSR & Co. (Mum.)(Trib.), www.itatonline.org

S.40(a)(ia):Amounts not deductible –Deduction at source- Form 15H was filed – No requirement
of deduction at source- No disallowance can be made [ S.194A ]
Tribunal held that where the assessee credited interest in recipient account without deducting TDS at
time of payment, in view of filing of Form 15H by recipient there was no requirement for deduction
of tax and, accordingly, disallowance was not justified. ( AY. 2011-12 )
Narasu's Spinning Mills v.ACIT (2016) 157 ITD 512 (Chennai)(Trib.)

S.40(a)(ia): Amounts not deductible- Deduction at source- Payments towards deficit

registration charges as directed by High Court, no tax needed to be deducted at source. [ S.194J
]
As directed by Calcutta High Court, assessee paid a sum towards deficit registration charges by way
of bank-draft in favour of Additional Registrar of Assurances being share of client's fee of assessee.
No tax needed to be deducted at source on this sum, and hence, no disallowance could be made. (AY.
2005-06)

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ACIT v. Pawan Kumar Jhunjhunwala (2016) 157 ITD 667 (Kol.) (Trib.)

S.40(a)(ia): Amounts not deductible- Deduction at source-lawyer shared client's fee with other
lawyers without deducting TDS, no disallowance could be made if there was no profit element in
sum paid and was mere reimbursement of expenses. [ S.194J ]
Assessee-lawyer paid remuneration to other lawyers. It was not clear from records whether assessee
claimed any deduction on such payments. It was also not clear whether said payments were
reimbursed to assessee by his clients - Whether if there was no profit element in sum paid and was
mere reimbursement of expenses, then no disallowance could operate .Matter remanded. (AY. 2005-
06)
ACIT v. Pawan Kumar Jhunjhunwala (2016) 157 ITD 667 (Kol.) (Trib.)

S.40(a)(ia):Amounts not deductible- Deduction at source- Audit fee, bank charges, salary,
depreciation-Additional evidence was filed – Matter remanded. [ S. 194J]
On appeal before Tribunal, assessee submitted documents by way of additional evidence to indicate
that expenditure incurred towards audit fee and salary were genuine and contended that payment of
professional fee would not attract provisions of section 194J in view of second proviso to sub-section
(1) of section 194J . Considering submissions made by assessee on applicability of section 194J as
well as additional evidence produced, issue relating to claim of salary and audit fee required
examination afresh .Matter remanded. (AY.2009-10)
Girish M. Kothari v. JCIT (2016) 157 ITD 451 (Mum.)(Trib.)

S.40(a)(ia):Amounts not deductible-Deduction of tax at source- Contractor- Even if no written

contract the assesse is liable to deduct tax at source. [S. 194C]
Allowing the appeal of revenue the Tribunal held that ; Assessee would be liable to deduct tax at
source under section 194C on payments made as transportation charges to intermediate parties who
arranged actual transporters from open market for carriage of goods by transport for assessee, even if
there was no written contract between assessee and intermediary party. ( AY. 2007-08)
ITO v. Gopal S. Rajput ( 2016) 156 ITD 827 (Mum)(Ttib)

S. 40(a)(ia):Amounts not deductible-Deduction at source- Commission – Service rendered

outside India- Not liable to deduct tax at source -Retrospective amendment does not make any
difference to the legal position. [S. 195]
Commission paid to non-resident agents for services rendered outside India is not liable for TDS u/s
195. The retrospective amendment to s. 195 to provide that s. 195 applies whether or not the non-
resident person has a residence or place of business or business connection in India makes no
difference to the legal position.(ITA No. 267/PAN/2015, dt. 27.04.2016) (AY. 2009-10)
DCIT v. Sesa Resources Ltd. (Trib)(Panji);www.itatonline.org

S.40(a)(ia):Disallowance of expenses- Deduction at source-Interest other than interest on

securities- Nodal agency- No liability to deduct tax at source. [S.192A, 194A]
AO disallowed the interest on the ground that the assesse has failed to deduct tax at source. On
appeal CIT(A) has taken note of amendment to section 2101 and section 40(a)(ia) made by the
Finance Act of 2012 , with effect from 1-04-2013 to the effect that the said provision would not apply
,if the payee had taken the amount in computing its income and paid tax thereon . CIT(A) held that
proviso was inserted with effect from 1-4-2013 were to remedy consequences and therefore , the same
were treated as clarificatory in nature and retrospective in operation and granted relief to the assesse.
On appeal Tribunal held that; ; ;where assessee infrastructure corporation acted as a Nodal Agency for
loan taken by Government organisations from other Government organisations, if payee had taken
amount of interest received by it in computing its income and paid tax thereon, assessee would have
no TDS obligation. ( AY. .2009-10, 2010-11 )
Dy.CIT v. A.P. Industrial Infrastructure Corporation Ltd ( 2016) 156 ITD 410 (Hyd.)(Trib)

S. 40(a)(ia): Amounts not deductible- Deduction at source-Last monh deduction was deposited
before due date of filing of return- No disallowance can be made.[S. 139(1)]

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Tribunal held that where assessee had deducted tax in last month of previous year and deposited same
before due date of filing of return under section 139(1), Assessing Officer could not disallow said
payment under section 40(a)(ia) (AY. 2007-08)
Furniture Concepts (I) Ltd. v. ACIT (2016) 156 ITD 233 (Mum.)(Trib.)
S. 40(a)(ia):Amounts not deductible-Deduction at source-Payee has paid the tax–Amendment is
retrospective-No disallowance can be made.
Tribunal held that the amendment inserted w.e.f. 01.04.2013, is retrospective in operation because it
is curative and intended to remedy an unintended consequence. Accordingly, if the payee has paid the
tax, the payer will not suffer a disallowance.(ITA No. 888/JP/2014, dt. 4.11.2015)(AY. 2009-10)
Rakesh Tak v. ITO (Jai)(Trib);www.itatonline.org

S. 40(a)(ia): Amounts not deductible–Deduction at source- Salary- Employees deputed pursuant

to a secondmentagreement are not "employees" of the assessee and so the amounts paid by way
of reimbursement of their salary is not subject to TDS in the assessee's hands. [ S.192]
The employees are not the employees of assessee Mahanagar Gas Ltd but employees of British Gas
and they are working with assessee only in view of secondment agreement. As per joint venture
agreement GAIL and British Gas have agreed to second, therefore, employees to the joint venture
company i.e. Mahanagar Gas Ltd. on secondment basis and under secondment agreement certain
employees have been seconded to the assessee. Since the employers were seconded for limited time of
2 to 3 years, the remuneration payable to these seconded employees were being paid by British Gas or
GAIL recoverable from assessee on cost to cost basis. The nature of secondment agreement make
clear the duties of second employees, their liabilities towards assessee and reimbursement of actual
cost of remuneration, benefits and disbursement by assessee to the joint venture partners. These are
reimbursements. Also the employee’s remuneration was allowable to tax in India then there would be
tax deduction obligation on the employer who was responsible for making payment to the employees.
In the present case, there was subsisting employer employee relation between British Gas and
expatriate. British Gas was also person responsible for making payment to expatriate and application
for deducting tax at source from salary was on British Gas. British Gas has deducted TDS on these
remunerations paid to seconded employees and also deposited in the treasury of the Govt. of India.
The TDS on salary payment to expatriate seconded employees to assessee have been given certificate
to assessee stating the above fact which is available in the paper book of the assessee. All taxes have
been paid by British Gas and second time TDS cannot be deducted on the same amount. CBDT
Circular No. 720 dated 30.08.1995 clarifies that any sum payable shall be liable for deduction of tax
only under one section. (AY. 2009-10)
DCIT v. Mahanagar Gas Ltd. (Mum.)(Trib.); www.itatonline.org

S.40(a)(ia):Amounts not deductible-Fees for technical services – Expense incurred by the

Foreign Branch Office for conducting its business abroad, could not be treated as fees for
technical services incurred by the Assessee-Disallowance was held to be not justified.
[S.9(1)(vii)]
Assessee undertook business outside India through its branch office in Japan. The software
development work was outsourced by the Japan Branch Office to another Japanese Company. The
AO held that payments made by the Branch Office were fees for technical services paid by the
Assessee and were to be disallowed u/s 40(a) (i) since no tax was deducted at source. The ITAT
deleted the disallowance and held that merely because the financial statements of the Branch Office
was included in the Assessee’s financial statements, it could not be said that the expense was of the
Assessee. (AY .2008-09)
NEC HCL System Technologies Ltd. v. ACIT (2016) 176 TTJ436 (Delhi)(Trib)

S.40(a)(ia):Amounts not deductible-Fees for technical services – Expense incurred by the

Foreign Branch Office for conducting its business abroad, could not be treated as fees for
technical services incurred by the Assessee- Disallowance was held to be not justified
[S.9(1)(vii) ]
Assessee undertook business outside India through its branch office in Japan. The software
development work was outsourced by the Japan Branch Office to another Japanese Company. The

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AO held that payments made by the Branch Office were fees for technical services paid by the
Assessee and were to be disallowed u/s 40(a) (i) since no tax was deducted at source. The ITAT
deleted the disallowance and held that merely because the financial statements of the Branch Office
was included in the Assessee’s financial statements, it could not be said that the expense was of the
Assessee. (AY .2008-09)
NEC HCL System Technologies Ltd. v. ACIT (2016) 176 TTJ436 (Delhi)(Trib.)

S. 40(a)(ia) : Amounts not deductible - Deduction at source -Non-resident -Reimbursement of

expenses is not income in hands of the recipient and deduction of tax at source is not required.
The AO disallowed the reimbursement of expenses made by the Assessee to its foreign associate
company on the basis that tax was not deducted at source on the same. The ITAT decided in favour of
the Assessee and held that reimbursement of expenses was not income in hands of the non-resident
and hence tax was not to be deducted on the same. (AY .2008-09)
ITO v. Cerner Health Care Solutions P. Ltd. (2016) 45 ITR 207 (Bang)(Trib)

S. 40(a)(ia) :Amounts not deductible - Deduction at source –Advertisement contract on which

VAT was paid – Not liable to deduct tax at source.[S. 194C]
The Tribunal held that purchase of articles relating to advertisement on which VAT is paid does not
attract TDS liability, hence, disallowance under section 40(a)(ia) is not sustainable. (AY. 2007-08)
Gillette India Ltd. v. ACIT (2016) 175 TTJ 35 (UO)(Jaipur)(Trib.)

S. 40(a)(ia) :Amounts not deductible - Deduction at source –No disallowance was made for short
deduction of TDS.[S. 194C, 194J]
The Tribunal held that when the assessee has made deduction of tax at source under section 194C
instead of section 194J, disallowance cannot be made under section 40(a)(ia) for short deduction of
tax at source.
Cross object filed by assessee dismissed. (AY. 2009-10)
Dy. CIT v. Parryware Roca (P) Ltd. (2016) 175 TTJ 450 (Chennai)(Trib.)

S.40(a)(ia):Amounts not deductible-Deduction at source- Capital or revenue-Import of software

products for own use as well as for trading was capital in nature on which depreciation was
allowable. [S. 32, 37(1), 195]
The assessee imported certain software products for its business as well as for the purpose of trading.
The AO disallowed the expenditure, applying the provision of sec. 40(a)(i) of the Act on the ground
that the tax was required to be deducted at source u/s. 195 of the Act. The CIT(A) allowed the claim
in respect of import of software observing that the payment was towards copyrighted articles and only
represented the purchase price of an article and could not be considered as royalty and therefore, no
obligation of the assessee to deduct tax at source u/s.195 of the Act and no disallowance could be
made u/s. 40(a)(i) of the Act. On appeal by department in which the assessee raised an alternative
contention that it had incurred expenses on account of software acquired within India and the AO
treated it as a capital expenditure and allowed depreciation thereon and the expenditure on imported
software may be treated similarly. On appeal, the Tribunal held that expenses on imported software
were also in the nature of capital expenditure and depreciation was allowed thereon. The AO was to
allow depreciation on the imported software purchased by the assessee. (AY. 2005-06)
Dy. CIT v. Tata Consultancy Services Ltd. (2016) 46 ITR 394 (Mum.)(Trib.)

S.40(a)(ii):Amounts not deductible-Overseas taxes paid by the assessee not allowable. [S. 37(1)]
The AO disallowed the deduction of overseas tax paid by the assessee holding that such taxes were
covered by the provisions of section 40(a)(ii) of the Act. The CIT(A) allowed the deduction. On
appeal, the Tribunal held that the disallowance was proper.(AY. 2005-06)
Dy.CIT v. Tata Consultancy Services Ltd. (2016) 46 ITR 394 (Mum.)(Trib.)

S.40(a)(iii):Amounts not deductible-Deduction at source- Salaries paid to expatriate employees

overseas on which tax was paid in accordance with CBDT Circular-Allowable as deduction

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though tax was not deducted at source-Entries in books of account not decisive of entitlement to
claim of deduction- DTAA- India- UK.[S. 192, Art. 7]
Allowing the appeal of assesse the Court held that; Salaries paid to expatriate employees overseas on
which tax was paid in accordance with CBDT Circular dated 685 dated 17/20.06.1994 and Circular
686 dated 12.8.94 is permissible as a deduction even though the tax is not paid within the time limit
but is paid subsequently- Entries in books of account not decisive of entitlement to claim of
deduction- DTAA- India- UK.(AY.1991-92)
ANZ Grindlays Bank v. DCIT (2016) 382 ITR 156/133 DTR 90 / 238 Taxman 128 (Delhi)(HC)

S. 40A(2):Expenses or payments not deductible–Excessive or unreasonable – No disallowance

u/s. 40A(2) in case of Trade discounts as it was not an expenditure and actual payments were
not made for such discounts.
The Assessee allowed trade discount of around 7.29% to its sister concerns. The AO alleged that the
sister concerns were enjoying deduction u/s 80-IB which led to shifting of profits and therefore there
was a violation of s. 40A(2). The ITAT upheld the order of the CIT(A) who held that trade discounts
were not expenditure incurred and actual payments were not made and hence, provisions of s. 40A(2)
would not be applicable. (AY. 2010-11)
DCIT v. Power Soaps P. Ltd. (2016) 45 ITR 250 (Chennai)(Trib)

S. 40A(3) : Expenses or payments not deductible - Cash payments exceeding prescribed limits –
Payment for purchase of fire crackers made in cash – Disallowance sustained.
Assessee claimed that the fire crackers were not purchased from the companies themselves but from
the agents and retailers in villages .Held, in absence of even names of such agents or retailers, vague
statement of the assessee cannot be accepted- Disallowance sustained. (AY. 2000-01, 2001-02)
N. Mohammed Ali v. ITO (2016) 237 Taxman 211 (Mad.)(HC)

S. 40A(3) :Expenses or payments not deductible - Cash payments exceeding prescribed limits –
Deletion of disallowance made under section 40A(3) by the Tribunal on the ground that cash
payments were made on account of business exigencies is a finding of fact and cannot be held to
be perverse
AO disallowed certain expenses exceeding Rs. 10,000 under section 40A(3) for which the payments
were made in cash. ITAT accepted the contention of the assessee that cash payments were made on
account of business exigencies. High Court observed that there was no dispute about the genuineness
of the payment or regarding the identity of the payee. High Court held that the question whether the
assessee's business exigencies required payments to be made in cash was a question of fact and such
finding could not be held to be perverse. ((AY. 1992 – 93 ,1993 – 94)
Honey Enterprises v. CIT (2016)381 ITR 258/236 Taxman 519 (Delhi)(HC)

S. 40A(3) :Expenses or payments not deductible - Cash payments exceeding prescribed limits –
Payment of salary to various employees on various dates in cash does not violate 40A(3) though
there may be an error in accounting entries.
Payment of salary to various employees was made in cash and accordingly the AO disallowed the
same u/s 40A(3). The Assessee submitted that the payments were made to various employees on
different dates but the accountant had inadvertently posted those entries on a single day. Vouchers of
different dates were submitted by the Assessee which was rejected by the AO. An affidavit of the
accountant that he was not well versed with operating computers was also submitted. The ITAT
deleted the disallowance and held that the genuineness of the payment was not doubted by the AO and
cash payments were made to maintain good relations with the employees who insisted on cash
payment only. (AY. 2008-09)
Brothers Pharma P. Ltd. v. ITO (2016) 45 ITR 154 (Jaipur)(Trib)

S. 41(1) : Profits chargeable to tax - Remission or cessation of trading liability - Provision for
expenses likely to be incurred on re-delivery of aircrafts taken on lease - Lease extended for
further period along with liability – Liability could not be said to have ceased for purpose of
invocation of section 41(1)

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The assessee had made a provision in earlier years in respect of expenses likely to be incurred on
redelivery of air crafts taken on lease. The lease period was due to expire during the year. However,
the lease was extended/renewed for a further period.

The Assessing Officer invoked section 41(1) and held that there was cessation of liability and sought
to bring the entire amount to tax. The CIT(A) held that there was no cessation of liability as the lease
had been extended and therefore, the provision for expenses which were likely to be incurred at the
time of redelivery of the four air crafts continued. The Tribunal upheld the CIT(A)’s order.

On appeal, the High Court observed that there was a concurrent finding of the lower appellate
authorities that the liability for expenses had not ceased, but deferred as the lease had been extended.
The expenses were likely to be incurred when the lease expired and air crafts redelivered. Therefore,
the same would have to be provided for. The High Court held that section 41(1) was application only
when there was cessation and/or remission of liability incurred (which had been duly paid and/or
provided for) in subsequent years, consequent to which some benefit was obtained by the assessee.
There was neither the cessation / remission of liability nor any benefit obtained by the assessee for the
purposes of section 41(1). (AY. 2006-07)

CIT v. Jet Airways (India) Ltd. (2016) 237 Taxman 572 (Bom.)(HC)

S. 41(1) : Profits chargeable to tax - Remission or cessation of trading liability – Credit balances
cannot be treated as income without a bilateral waiver especially when the balances were paid
off in subsequent years.
The AO had directed the Assessee to file confirmations of parties whose balances were shown as
outstanding. The creditors whose confirmations were not submitted and were very old balances were
treated as income by the AO. The ITAT held that the burden was on the Revenue to prove that the
there was a bilateral write-off of outstanding amounts. In case of the Assessee, evidences of
repayment in subsequent years were filed which proved that the liabilities were in existence. (AY.
2008-09)
Brothers Pharma P. Ltd. v. ITO (2016) 45 ITR 154 (Jaipur)(Trib)

S. 43(1) : Actual cost - SLP dismissedagainst the decision of the Gujarat High Court in the case
of CIT v. Sandvik Chokshi Ltd. [2015]230 Taxman 546 (Guj.) [Explanation 3 to S. 43(1)]
The Honourable Apex Court dismissed the special leave petition filed against the order of the Gujarat
High Court in the case of CIT vs. Sandvik Chokshi wherein it was held that the Assessing Officer
could not have invoked Explanation 3 to section 43(1) and disallowed the depreciation as, at the time
of transfer of assets, there was no income for the assessee for it to reduce its tax liability and therefore,
refused to interfere with the finding of the CIT(A) and ITAT.
(AY 1997-98)
CIT v. Sandvik Chokshi Ltd. (2016) 236 Taxman 482 (SC)

Note: However, for the subsequent assessment years from 1998-99 to 2002-03, the Honourable Apex
Court has admitted the SLP filed by the Revenue against the order of the Gujarat High Court reported
in CIT v. Sandvik Chokshi Ltd. [2015] 55 taxmann.com 453/230 Taxman 546 (Guj.). (AY 1998-99 to
2002-03)
CIT v. Sandvik Chokshi Ltd. (2016) (2016) 236 Taxman 480 (SC)

S. 43(1) : Actual cost - SLP dismissedagainst the decision of the Gujarat High Court in the case
of CIT v. Sandvik Chokshi Ltd. (2015) 55 taxmann.com 451/230 Taxman 546 (Guj.)
[Explanation 8 to S. 43(1)]
The Honourable Apex Court has dismissed the special leave petition filed against the order of the
Gujarat High Court in the case of CIT vs. Sandvik Chokshi wherein it was held that the Assessing
Officer could not have invoked Explanation 8 to section 43(1) to disallow the interest paid on unpaid
purchase consideration as it was paid after the slump sale was effected and factory was in operation
and therefore, interest paid was to be allowed as revenue expenditure. (AY. 1997-98)

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CIT v. Sandvik Chokshi Ltd. (2016) 236 Taxman 482 (SC)

Note: However, for the subsequent assessment years from 1998-99 to 2002-03, the Honourable Apex
Court has admitted the SLP filed by the Revenue against the order of the Gujarat High Court reported
in CIT v. Sandvik Chokshi Ltd. [2015] 55 taxmann.com 453/230 Taxman 546 (Guj.). (AY 1998-99
to 2002-03)
CIT v. Sandvik Chokshi Ltd. (2016) 236 Taxman 480 (SC)
S. 43(1) : Actual cost-Subsidy granted to set up a wind Mill project is capital receipt, it cannot
be reduced from the cost, nor the subsidy is assessable either under section 41(1) or section 50.
[S. 4, 41(1), 50 ]
Subsidy granted to set up a wind project is a capital receipt. the subsidy cannot be reduced under
Explanation 10 to S. 43(1) from the cost of the assets acquired though 100% depreciation is allowed
on the cost of the assets. The subsidy is also not assessable either u/s 41(1) or u/s 50.( ITA No.
3473/M/2013, dt. 26.11.2015) ( AY. 2008-09)
Uni Deritend limited v. ACIT (Mum.)(Trib.);www.itatonline.org

S. 43(1): Actual cost- Acquisition of second hand machinery from sister concern- Assessing
Officer has not discharged the onus of proving that main object was reduction in tax liability.
Dismissing the appeal of revenue the Tribunal held that ; Explanation 3 to section 43(1) could not be
applied in respect of acquisition of second hand plant and machinery by assessee from its sister
concerns where firstly, Assessing Officer could not discharge its onus that main objective of transfer
of assets was reduction of tax liability and secondly revenue did not discharge its obligation to
determine fair value of assets and replace it with cost of acquisition of assesse ( AY.2005-06)

CIT v. Jaya Hind Sciaky Ltd ( 2016) 156 ITD 547 (Pune)(Trib)

S. 43(1) : Actual cost – subsidy – Capital or Revenue – Backward area subsidy received towards
incentive on building and pollution control devices for setting up manufacturing unit – Not
meant for working capital purposes – Held capital in nature
The assessee had set up a cement manufacturing unit in a backward district for which it was entitled
to State Capital Incentive subsidy @ 25% of fixed capital investment. The assessee treated the said
subsidy received towards incentive on building and pollution control devices as capital in nature. The
AO treated the same as revenue subsidy for want of details. On appeal to Tribunal, it was held that the
subsidy was received only as an incentive on building and pollution control devices for setting a
manufacturing unit in backward district and it was not meant for working capital purposes or for
running the cement manufacturing unit. The subsidy received has gone to reduce the capital cost of
the assessee in view of Explanation 10 to Section 43(1). The subsidy received by the assessee was
capital in nature. (AY. 2008-09)
ACIT v. Bharat Hi-Tech (Cement) P Ltd (2016) 176 TTJ 166(Kol) (Trib)
S. 43(5) : Speculative transaction – Forward foreign exchange contracts- Derivatives in foreign
currency are commodity- Loss incurred is not speculative in nature –Allowable as business loss.

Assessee-company was a domestic company registered as an approved SEZ and was a KPO primarily
involved in revenue cycle management for clients across America and was billing its overseas clients
in foreign currency . It had entered into forward foreign exchange contracts and had booked marked
to market loss on unexpired contracts as on date of balance sheet based on adverse movement of value
of United States Dollar vis-a-vis in relation to Indian rupees based on prevailing rate at year end . The
Assessing Officer held these transactions of foreign exchange as speculative in nature and disallowed
the set off of same against the income from business other than speculation business. The Assessing
Officer also held the said marked to market loss on the forward contracts of foreign exchange as
contingent and notional loss and, hence, disallowable under the Act. On appeal CIT(A) affirmed the
order of AO. On appeal, allowing the appeal Tribunal held that ;since assessee-company had entered
into derivative transactions in foreign currency through a recognised stock exchange and those
transactions were backed by time stamped contract notes carrying unique client identity number and
PAN allotted under Act, those derivative transactions duly fulfilled all conditions as specified under

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section 43(5) and, hence, were not speculative transactions as defined under section 43(5) and loss
incurred on such transactions was not speculative loss under section 43(5) . Further said loss was not a
notional or contingent loss rather it was ascertained liability which had crystallised on date of balance
sheet and could be computed with reasonable certainty and accuracy and, hence, allowable as non-
speculation loss. ( AY. 2009-10)

Inventurus Knowledge Services (P.) Ltd v. ITO ( 2016) 156 ITD 727/ 45 ITR 57 (Mum)(Trib).
Editorial:Araska Diamond (P.) Ltd. v. A CIT /[2015] 152 ITD 203 (Mum.) isdistinguished and
Instruction no 3 of 2010 dt 23- 03 2010 is also considered.

S. 43(5) : Speculative transaction - Business loss- Hedging-Loss on account of forex forward

contracts consequent to cancellation of export orders not speculation loss allowable as business
loss .[ S. 28(i)]
It was held that forward contracts in question being purely hedging transactions entered into by the
assessee to safeguard against loss arising out of fluctuation in foreign currency are not speculative
transactions falling within the ambit of S. 43(5) and, therefore, loss incurred on account of such forex
forward contracts consequent to cancellation of export orders is not speculative loss. (AY. 2009-10)
ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)

S. 43A : Rate of exchange - Foreign currency - Expenditure incurred to get rid of forward
contracts which assessee had entered into for purpose of hedging against fluctuations of foreign
exchange, could not come within four corners of section 43A
The assessee incurred expenditure for of cancellation of foreign exchange covers. The assessee
capitalised the same under section 43A and accordingly claimed depreciation.
The revenue authorities rejected assessee's claim, which was reversed by the Tribunal.
On appeal, the High Court held that from the submissions advanced by the assessee himself it would
appear that the claim could not have come within the four corners of section 43A. The assessee did
not incur any loss arising out of fluctuations in the exchange price. The Court further observed that
the assessee might have claimed it as an expenditure which could have been considered in accordance
with law, but there was no case for any claim being put forward on account of depreciation.( (AY.
2002-03)
CIT v. ITC Ltd. (2016)237 Taxman 533 (Cal.)(HC)
S. 43B:Deduction on actual payment-Sales tax deferred loan incentive scheme-Amount of sales
tax collected deemed paid and cannot be taxed.
The amount representing sales tax deferred under the sales tax deferred loan incentive scheme was to
be deemed as paid and, therefore, not taxable. The provisions of section 43B of the would not be
applicable. Since the assessee was succeeding on the merits, the question of reassessment had
become purely academic. The Tribunal remanded the matter to the Assessing Officer for fresh
consideration.(AY .2003-2004 )
CIT v. McDowell and Co. Ltd. (2016) 380 ITR 80 (Karn.)(HC)

S. 43B :Deduction on actual payment-Delayed payment of employees’ contribution to state

insurance fund would be allowed if it is made within the due date of filing return.
The Assessee made deposited the employees’ contributions to the state insurance fund after the due
date and the AO disallowed the same u/s 36(1)(x). The CIT(A) upheld the same and held that
provisions of section 43B would be applicable only on employer’s contribution and not on
employees’ contribution. The ITAT held that the contributions to employees’ state insurance fund
were made within the due date of filing return and hence the addition was to be deleted. (AY. 2008-
09)
Brothers Pharma P. Ltd. v. ITO (2016) 45 ITR 154 (Jaipur)(Trib)

S. 43B :Deduction on actual payment-Interest on sales tax deferment – Matter remanded to AO

to verify difference in liability recorded in books and actual liability of sales tax.

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On appeal, the Tribunal held that the fact that there was a difference in liability recorded in the books
of the subsidiary and the actual liability of sales tax needed verification by the AO. Therefore, the
issue was remitted to the file of the AO for verification in accordance with the law. (AY. 2006-07 and
2007-08)

Rain Commodities Ltd. v. Dy. CIT (2016) 46 ITR 1 (Hyd.)(Trib.)

Rain Cements Ltd. v. Dy. CIT (2016) 46 ITR 1 (Hyd.)(Trib.)

S.43B :Deduction on actual payment- Deduction of service tax only on actual payment -
Assessee precluded from claiming amount again in subsequent assessment year.

According to the terms of agreement, the liability to pay service tax was placed upon the assessee as
service receiver. The AO noticed that during the AY 2007-08 that the assessee had provided service-
tax liability of Rs.104.45 crores in its books of account but it had actually paid a sum of Rs.101.21
crores only. Hence, he disallowed the difference of the amount of Rs.2.93 crores u/s.43B of the Act.
Moreover, assessee had paid service tax of Rs.22.91 crores in advance in the AY 2006-07which was
claimed as deduction by the assesse and disallowed by the AO on the view that assesse cannot claim
deduction on the advance payment of service tax. Since the disallowance made in AY 2006-07 was
disputed by the assessee by filing an appeal, the AO, as a protective measure, added the amount in the
AY 2007-08 also. The CIT(A) deleted the addition. On appeal by the department, held that the
assessee claimed a sum of Rs.22.91 crores on payment basis in the AY 2006-07 and the same was
allowed by the CIT(A) in that year. Hence, the assessee was precluded from claiming the amount
again in the AY. 2007-08.(AY. 2004-05, 2007-08 to 2010-11)

Mazagaon Dock Ltd.v. ITO (2016)46 ITR 162 (Mum.)(Trib.)

S. 43D : Public financial institutions – Interest on non-performing assets would be chargeable to

tax in the year in which it is actually received.
The Assessee, a Government owned NBFC, did not recognize interest income on loans lent since they
were categorized as non-performing assets. AO sought to tax the same on the ground that RBI norms
were not binding under Income-tax Act. The ITAT held that as per s. 43D, interest on non-performing
assets were chargeable to tax in the year in which it is credited to the P&L a/c or in the year in which
it is actually received, whichever is earlier. The Assessee, being a State Industrial Investment
Corporation, is eligible for the same as per Explanation (f) though it was not a public financial
institution within the meaning of Explanation (c). Further, the ITAT observed that having regard to
the real income theory and RBI’s prudential norms, interest on NPAs would be recognized only at the
time receipt due to the uncertainty in its receipt. (AY. 2001-02, 2003-04 to 2008-09)
West Bengal Infrastructure Development Finance Corporation v. ACIT(2016) 45 ITR 285
(Kol)(Trib)
DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285
(Kol)(Trib)
S. 44BB:Mineral oils-Non-resident-Prospecting for, or extraction or production of mineral oils -
Service tax collected by assessee on amount paid to it for rendering services-Service tax not an
amount paid or payable or received or deemed to be received by assessee for services rendered
by it-Assessee only collecting service tax for passing it on to Government - Not includible in
gross receipt.
The assessee provided equipment on hire and manpower for exploration and production of mineral oil
and natural gas. For the AY 2008-09, it declared an income of Rs. 49,31,260 according to the
provisions of section 44BB(3). In computing the gross receipts for the purposes of determining the
taxable income, the assessee did not include a sum of Rs. 2,09,24,553 being the service tax received
from its customers. The Assessing Officer included Rs. 2,09,24,553 in the gross receipts for
computing the taxable income u/s 44BB. The appellate authorities allowed the claim of the assessee.
On appeals:
Held, dismissing the appeals, (i) that for the purposes of computing the presumptive income of the
assessee for the purposes of section 44BB the service tax collected by the assessee on the amount paid

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to it for rendering services was not to be included in the gross receipts in terms of section 44BB(2)
read with section 44BB(1). The service tax is not an amount paid or payable, or received or deemed to
be received by the assessee for the services rendered by it. The assessee only collected the service tax
for passing it on to the Government.
(ii) That Circular No. 4 of 2008, dated April 28, 2008*, clarified that service tax paid by the tenant
does not partake of the nature of income of the landlord. The landlord only acts as a collecting agency
for Government for collection of service tax. Circular No. 1 of 2014, dated January 13, 2014**, also
clarified that service tax is not to be included in the fees for professional services or technical
services. (AY. 2008-2009)
PCIT v. Mitchell Drilling International P. Ltd. (2016) 380 ITR 130 (Delhi)(HC)

S.44BB:Mineral oils-Income received by a non-resident under a time charter agreement accrues

and arises in India even when the vessel and crew are outside the territorial waters of India.
Such income is assessable on a presumptive basis. [S.9(1)(vii), 44DA.]
Income received by a non-resident under a time charter agreement accrues and arises in India even
when the vessel and crew are outside the territorial waters of India. Such income is assessable on a
presumptive basis.. (ITA No. 4542/del/2013, dt. 11.03.2016) (AY. 2008-09)
Siemoffshore Crewing AS v. ADIT (Delhi)(Trib.);www.itatonline.org

S.44BB : Mineral oils – Computation- When income was computed at 10 percent of gross
receipts separate deduction of fuel cost cannot be claimed- Demobilisation revenue of entire
transit period had to be included in gross receipts.
Dismissing the appeal of assessee the Tribunal held that; where profits and gains of business carried
out by assessee-company were to be computed at 10 per cent of gross receipts as per deeming
provisions of section 44BB, it could not claim separate deduction of fuel cost incurred in respect of
contract undertaken for construction of offshore facilities for development of certain gas fields. In
terms of section 44BB, demobilisation revenue of entire transit period had to be included in gross
receipts. (AY. 2010-11 )
Fugro Rovtech Ltd.v.ACIT(IT) (2016) 157 ITD 250 (Mum) (Trib.)

S. 44BB : Mineral oils – Assessee entered into a contract with RIL to provide facilities in
connection with extracting, prospecting or production of mineral oil – assessee signed a change
order' with RIL to facilitate certain amendments in scope of work of original contract - original
contract and 'change order' were inextricably linked with each other - entire consideration
received for scope of work was taxable in India under section 44BB

The applicant, a company incorporated in and a tax resident of Norway, was engaged in the business
of providing floating production storage and offloading facilities, a type of floating production system
used in offshore oil and gas industry. It entered into a contract on May 9, 2007 with an Indian
company under which for a consideration on a day rate lease rental basis, the applicant was required
to provide floating production storage and offloading facilities at the assigned site in connection with
extraction, prospecting or production of mineral oil. The contract specified the fee towards
mobilisation of the vessel from Singapore to India to the offshore location in India. The consideration
for floating production storage and offloading facility and fees towards mobilisation of the vessel
under contract were offered to tax from assessment year 2009-10 onwards, accepting that they had
accrued in India for supplying plant and machinery on hire used or to be used in the prospecting,
extracting or production of mineral oil and the income was computed in terms of section 44BB of the
Act. Similarly, the mobilisation revenue was also offered to tax on the same basis.

On July 27, 2008, the applicant signed a “change order” with the Indian company to facilitate
amendments in the scope of work under the original contract. The amendments involved fabrication
and installation of new living quarters on board the floating production storage and offloading
facilities, procurement and installation of heating, ventilation air conditioning systems on board the
living quarters, mobilising the commissioning team of the applicant four months prior to the floating
production storage facilities sailing to India instead of six weeks prior, extending the dry docking as

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envisaged, expediting the deliveries of the topside modules and increasing the productivity of the
Singapore shipyard and timely installation of buoy and moorings inn India. The consideration
received in terms of the change order was not offered to tax on the premises that a substantial portion
of the work was performed outside India. However the Indian company withheld tax based on a
withholding order of the department in respect of the original contract.

The applicant sought an advance ruling on (1) Whether consideration received by the applicant under
the 'Change Order' for undertaking the various activities is in the nature of business profits or in the
nature of 'fees for technical services' as defined in the Explanation 2 of section 9(1)(vii).(2) If the
scope of work is in nature of business profits, would the consideration for the scope of work, as
mentioned in question 1 above, be taxable in India even though it pertains to work performed wholly
outside India. (3) Whether on the stated facts and in the circumstances of the case, the consideration
received by the Applicant for installation of the buoy and moorings in India is in the nature of
business profits on fees for technical services under section 9 of the Act. Whether the income
chargeable to tax ought to be computed having regard to the computational mechanism under section
44BB of the Act. (4) If for any reason the amount as received by the Applicant for performing the
scope of work as mentioned in Question No. 1 is taxable in India, whether the income chargeable to
tax ought to be computed having regard to the computational under section 44BB of the Act.(5)
Whether consideration received by the Applicant is attributable to mobilization of the FPSO to the
extent of the distance travelled by the FPSO outside India is taxable in India.

The AAR observed that, it was apparent from facts that the applicant was giving different treatment to
considerations received as per the original contract and as per the change order. Not only that, it was
giving different treatment to considerations received pursuant to change order also as its offering
consideration for installation of buoys and moorings for tax under section 44BB and for other amount
it is taking the stand that the same is not taxable. The AAR further observed that an analysis of
original contract and of the change order done showed that the change order is nothing but
amendments in their original contract. It is mentioned upfront in clear terms in the change order. The
original contract already had Clauses pertaining to provisioning of 104 living quarters and for HVSC
systems. As per the Change Order the applicant has made 104 living quarters livable and installed
new HVAC system by dismantling the existing one. In paragraph 9(IX) it is apparent that the entire
scope of work in the change order is nothing but modifications/amendments in the original
contract.The AAR held that it was beyond doubt that the consideration received as per change order
was similar to consideration received as per original contract and that it was also established that both
original contract and amendments therein by way of change order are inextricably linked with
extraction, processing, production, storing & offloading of crude oil and natural gas for which RIL
had floated tender and granted the contract to the applicant. Hence, the applicant would be governed
by provisions of section 44BB of the Act.

The AAR further held that, section 44BB does not make any distinction between amount paid in India
or outside India and, therefore, the entire amount has to be considered for the purpose of computation
under this section. Accordingly there was no reason to give a different treatment to the consideration
received pursuant to the change order. The AAR rejected the applicant’s contention that the
consideration received as per change order is not taxable under the DTAA between India and Norway.
The AAR observed that the scope of work as per change order has not changed as compared to that in
the original contract and that the applicant's arguments is based on the stand that it, being a resident of
Norway, does not carry on any activity offshore in India while performing its obligations under the
change order and, therefore, provisions of article 23 are not applicable. This stand was based on the
distinction between original contract and change order and was different from the stand taken in
respect of original contract in the returns filed by the applicant from assessment year 2009-2010
onwards. Further, the scope of work is to prepare the FPSO for chartering to provide the same on
lease rental basis to extract, receive, process, produce, store & offload crude oil and natural gas from
development area in India and all activities and works connected with this including its preparation
for chartering are inextricably linked with the main work. Accordingly, the entire consideration

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received for the scope of work as mentioned in ques No. 1 is taxable in India under the provisions of
section 44BB.

Aker Contracting FP ASA, In re (2016)381 ITR 489 / 237 Taxman 427 / 283 CTR 250 (AAR)

S. 44BBA : Air craft - Non-residents – In the absence of any income, section 44BBA cannot be
applied to bring to tax the presumptive income constituting 5% of the gross receipts in terms of
section 44BBA(2)- Not assessable on deemed income .[ S. 147 ]
Assessee was established by the Ministry of Transport of the Kingdom of Jordon to carry passengers
and cargo on international flights to and from Jordan. Assessee did not file its return of income in
India as it was incurring losses since commencement of its operations in India. AO held that 5% of the
gross receipts earned by the assessee were deemed to be taxable income on a presumptive basis as per
section 44BBA. High Court held that section 44BBA is not a charging provision but only a machinery
provision and it cannot preclude an assessee from producing books of accounts to show that in any
particular AY there is no taxable income. High Court held that where there is no income, section
44BBA cannot be applied to bring to tax the presumptive income constituting 5% of the gross receipts
in terms of section 44BBA(2). (AY. 1989–90 to 1993–94)
DIT v. Royal Jordanian Airlines (2016) 383 ITR 465/ 236 Taxman 10 (Delhi)(HC)

S. 44C : Non-residents - Head office expenditure - to be allowed fully in view of Article 7(3) of
the treaty prior to 1 April 2008 - Amendment brought by way of protocol which mandates
applicability of domestic laws - Prospective in nature – DTAA- India- UAE [ Art. 7(3)]
The assessee was a banking company incorporated in UAE and has 2 branches in India. The income
from banking operations in India was offered for tax in India in view of India- UAE DTAA. The
business profit of the bank related to its Indian operations was required to be computed in accordance
with the provisions of Art. 7 of the DTAA which allowed the deduction of all expenses wherever
incurred and reasonably allocable to the PE. During the year under consideration, the assessee had
incurred head office expenses. There were administrative expenses which were allocated by head
office to its branches. In the first round of proceedings, the Tribunal had set aside the claim to AO in
view of amendment to Section 44C. In the second round of proceedings, the AO restricted the
expenses in view of Section 44C. On appeal to Tribunal, it was held that in view of provisions
contained in Article 7(3) of Indo- UAE DTAA prior to 1ST April 2008, the income of the PE of the
assessee was to be computed as business income after allowing all the expenses attributable to its
business in India including the head office expenses without invoking the provisions of Section 44C.
The amendment brought by way of Protocol by which Article 7(3) has been amended and limitation
clause has been brought in, which mandates applicability of domestic law , would apply from 1 April
2008 and has no retrospective effect. (AY 1995-96 to 2000-01)
Abu Dhabi Commercial Bank Limited vs. ADIT (2016) 176 TTJ 115 (Mum) (Trib.)

S. 45 : Capital gains- Accrual-Deferred consideration dependent on a contingency does not

accrue unless the contingency has occurred and is not liable to capital gains tax in year of
transfer.[S.48]
Dismissing the appeal of revenue the Court held that ; The Tribunal held that what amount has to be
brought to tax is the amount which has been received and/or accrued to the assessee and not any
notional or hypothetical income as the revenue is seeking to tax the assessee in the subject assessment
year 2006-07… learned counsel for the Revenue urged that in terms of section 45(1) of the Act that
transfer of capital asset would attract the capital gains tax. It is further submitted that the amount to be
taxed under section 45(1) is not dependent upon the receipt of the consideration. In support of the
above he invites our attention to Section 45(1)(A) and section 45(5) of the Act which in contrast
brings to tax capital gains on amount received… in the subject assessment year no right to claim any
particular amount gets vested in the hands of the assessee. Therefore, entire amount of Rs.20 crores
which is sought to be taxed by the Assessing Officer is not the amount which has accrued to the
assessee. The test of accrual is whether there is a right to receive the amount though later and such
right is legally enforceable… contention of the Revenue that the impugned order is seeking to tax the
amount on receipt basis by not having brought it to tax in the subject assessment year, is not correct.

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This for the reason, that the amounts to be received as deferred consideration under the agreement
could not be subjected to tax in the assessment year 2006-07 as the same has not accrued during the
year.( ITA NO.2348 of 2013, dt. 29.03.2016) (AY.2006-07)
CIT v. Hemal Raju Shete (Mrs) (Bom)(HC) ; www.itatonline.org

S. 45 : Capital gains –Business income – sale of shares and mutual funds held as investment –
maintenance of two separate accounts in respect of shares held in trading portfolio and
investment portfolio – gains arising on sale of shares held in investment portfolio to be treated
as capital gains .[ S.28(i)]
The assessee held two separate accounts in respect of dealing in shares and mutual funds under
trading portfolio and under investment portfolio. During the year under consideration, the assessee
sold shares and mutual funds in investment portfolio and returned long term capital gain on the same.
The Assessing Officer held that the gains arising out of the same has to be treated as business income
as he is a trader in shares for the reason that the assessee held the shares of the same company both
under investment portfolio and trading portfolio and the assessee has the discretion to decide which
scrip is to be held under investment portfolio and which one under trading portfolio. On appeal, the
CIT(A) upheld the order of the Assessing Officer, which was subsequently reversed by the Tribunal.
On appeal by the Revenue, the High Court held that the tests applied by the Assessing Officer is not
correct relying upon Circular No. 4 of 2007 dated 15/06/2007 which gives the discretion to the
assessee to treat a particular scrip either as investment or as stock in trade. Further, also following the
principle of consistency as it was held that the gain is to be assessed as capital gain in the preceeding
previous year, it was held that the gain arising on the sale of shares and mutual funds is to be assessed
as capital gain in the year under consideration. (AY 2006-07)
CITv. IHP Finvest Ltd. (2016) 236 Taxman 64 (Bom.)(HC)

S. 45: Capital gains – Sale of business of firm as a going concern to a company for
consideration of paid up capital does not amount to transfer liable as tax as capital gains -
Conversion of capital asset in to stock-in-trade – Distribution of capital assets necessary to
invoke the provisions of the section.[ S. 2(47) 28(v), 45(2)]
The assessee was a firm and was having a shopping centre and land which was non business asset and
hence was kept out of the Balance sheet. During the year under appeal, the said asset was brought into
the stock of the business and corresponding credit was given to the respective capital accounts of the
partners in their profit sharing ratio. The firm was converted into a joint stock company with the same
objects to deal in land, building and construction. The Assessing Officer noticed that the asset i.e. is
the shopping centre was introduced for the first time in the books and thus charged this receipt of
income. Alternatively, the Assessing Officer observed that in this transaction the assessee has
transferred an asset where the cost of acquisition is nil for a consideration of Rs. 1,16,40,000/- for
Shopping Centre and for the land which had acquisition value of Rs. 12,00,000/- for a consideration
of Rs. 65,00,000/- The Assessing Officer treated the same as short term capital gain as the asset had
been brought for the first time in its books of account and added it to the income of the assessee.
Before the CIT(A) the assessee contended that the provisions of section 28(iv) of the Act were not
applicable as neither the act of bringing an asset into the books or revaluation thereof would amount
to benefit or perquisite because the asset was already owned by the assessee, though not reflected in
its books. The fact that the asset had been brought into its books did not amount to obtaining any
benefit by the assessee. It was further contended that no capital gains had occurred when it had
converted the firm into a joint stock company as in view of the provisions of Chapter IV of the
Companies Act, the act of declaring a firm as a company did not amount to transfer. It was contended
that if the property is transferred from an individual to himself, then no profit or gain accrues to such
person.
The CIT(A) held that a transfer of assets by a partnership firm to a company comprising only of
shareholders who were earlier partners of the firm attracts liability under section 45 of the Act and
directed the Assessing Officer to compute the capital gains as per the provisions of section 48 read
with section 55 of the Act. The Tribunal held that capital gains can be brought to assessment only, if
the full value of the consideration is received by or accrues to the transferor. The consideration in the
instant case is stated to be allotment of shares though the shares were issued by the company not to

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the firm but to its partners. Even if it was considered that the shares somehow represented the
consideration, the firm would not be liable to tax.
After going through the various submissions and contentions of both the parties and relying on
various judicial precedents the High Court (including decision of Bombay High Court in case of
Texspin Engineering and Manufacturing Works (263 ITR 345) (Bom) and held that impugned
transaction is not chargeable to tax under section 28(iv), 45 and 45(4) of the Act. Accordingly
department’s appeal was dismissed. (AY 1996-97)
Dy. CIT v. R. L. Kalathia and Co. (2016) 381 ITR 180/237 Taxman 621 (Guj.)(HC)

S.45:Capital gains- Business income-Investment in share-Substantial and frequent transactions-

Considering the circular of Board No 6 /2016 dt 29-02-2016 – Profit is assessable as capital
gains. [ S.28(i)]
Tribunal held that ;since the assessee has treated the securities as investment and not as stock in trade
in all the years, therefore, in view of the CBDT Circular No. 6/2016 dated 29.02.2016, the revenue is
not permitted to take a contrary view in the present year and claimed that the security is stock in trade
and, therefore, the profit/gain caused to the assessee be treated as business income. In our view, there
is no merit in the contention of the revenue and is deserves to be dismissed in view of the circular(
ITA No. 605/JP/2013, dt. 18.03.2016)(AY. 2008-09)
DCIT v. Mahendra Kumar Bader (Jaipur)(Trib);www.itatonline.org

S. 45: Capital gains- Business income- Investment in shares- Frequency of transaction being
very low assessable as capital gains. [S.28(i)]
where shares were purchased by assessee as an investor and frequency of share transactions was very
low, profit arising from sale of such shares was liable to tax under head 'capital gains' and not
'business income'(AY.2005-06).
Anjana Devi Agarwal v.ACIT (2016)157 ITD 702 (Kol)(Trib.)

S.45 :Capital gains- Long term capital gains from equities- Shares held as investment was
settled by the Settlor as corpus of Trust-Shares were sold within a week of settlement-
Assessable as capital gains and not as business income.[S. 10(38), 28(i)]
Assessee-trust was created in 2010 to ensure effective succession planning mechanism and
intergenerational transfer of trust corpus and income Six lakh shares of Tech Mahindra were
contributed by Settlor towards corpus of assessee-trust. Out of total number of shares, 96% were
alloted to Settlor under ESOP in 2007 by his company. Remaining 4% shares were bought by Settlor
in 2008 .In books, these shares were treated as an investment and not as stock-in-trade. Sales of these
shares were affected within a week of settlement for securing investment because of down trend of
price of share . AO assessed the capital gains as business income. CIT(A) accepted the income as
capital gains. On appeal by revenue dismissing the appeal the Tribunal held that; activity was neither
a business activity, nor was it an adventure in nature of trade hence profit on sale of shares was
assessable as capital gain and exempt under section 10(38). (AY. 2010-11)
ACIT v.Vernan Private Trust (2016) 157 ITD 211 (Mum) (Trib.)

S.45:Capital gains- Business income- Transaction of sale and purchase of shares- Assessable as
capital gains. [ S. 28(i)]
Assessee declared certain amount of short-term and long-term capital gains from transaction of sale
and purchase of shares. AO treated same as business income of assessee holding that assessee was
engaged in systematic trading activity. CIT(A) accepted the income as capital gains . On appeal by
revenue; dismissing the appeal, the Tribunal held that ; liquidating of investment with a view to
minimize losses when share market is showing volatility could not be considered as business Act of
maintaining regular books along with demat account and contract notes and, thus, organising proper
records could not be considered as systematic and regular trading activity since maintaining books
and organising records is necessary for evaluating investment activity in shares. Portfolio held by
assessee, when considered in light of lack of frequency of transactions, consistent valuation of shares
at cost value, separation of speculation/F&O business from investment activity, investment being
made from own funds, showed that assessee was engaged as investor in shares and not as trader and,

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therefore, income returned by assessee as short-term and long-term capital gain had to be assessed
under respective heads as claimed by assessee and not as business income .(AY. 2010-11)
ACIT v. Nemichand P. Jain HUF(2016) 157 ITD 257 (Mum) (Trib.)

S. 45: Capital gains– Cost of acquisition –Partition of HUF Family arrangement-Cost incurred
by previous owner shall be adopted and period of holding of the assets should be reckoned from
1963 – Benefit of Indexation to be granted from 1981. [S. 2(42A),47,49,55(2)(b)]
Held that the family arrangements which was settled through awardin 1987 should not be regarded as
transfer u/s 47 as section provides that any distribution of capital assets on the total partition of HUF
shall not be regarded as transfer. It cannot be said that assessee acquired property in 1987 because as
per law the rights of assessee have only been reinstated or redetermined. No fresh rights have taken
birth. Assessee was a beneficial owner of the property since 1963 as term ‘held’ in section 2(42A)
does not imply that it should be actually be held as owner. Even otherwise, assessee would fall in
situations as provided in sec. 49(1). Hence, in any case cost incurred by the previous owner shall be
adopted while computing capital gains in the hands of assessee and period of holding of assets in the
hands of the assessee should also be reckoned from 1963. Therefore, value for the purpose of taking
cost and benefit of indexation should be adopted as on 1st April 1981. (AY. 2007-08)
ITO v. P.M. Rungta (HUF) (2016) 176 TTJ 648 (Mum) (Trib)

S. 45 : Capital gains – Long term or Short term - Gains arising on the assignment of leasehold
interest in the land being a capital asset was rightly offered for tax as long term capital gains -
Consideration attributable to the transfer of the building was rightly offered as short term
capital gains – Treatment in books of account doesn’t have bearing on taxability – Amount paid
to trust directly in view of agreement was to be taxed in the hands of trust only there being no
diversion of overriding title.[ S.4]
The assessee acquired a plot of land on lease for the period of 98 years. The assessee constructed a
factory building on the land taken on lease which it was using for its business. It granted lease of first
floor of the said constructed building to a trust. During the year under consideration the assessee
entered into an agreement pursuant to which it transferred to S Ltd, the factory building and
assignment of benefits of his leasehold interest for the unexpired period for Rs 4.95 crores out of
which 1.5 cr was towards sale consideration for the land which was offered as long term capital gains.
The Trust was paid 1.5 cr as per terms of agreement on vacation of premises. Balance 1.95 cr was
reduced from block of assets in respect for building. The AO held that land was an integral part of the
asset on which the factory building existed and accordingly he held that entire consideration was on
account of sale of a depreciable asset i.e. factory building. Further he contended that assessee has not
shown the land in its fixed asset schedule. On appeal to Tribunal, it held that assessee transferred two
rights i) lease right which is a capital asset and 2) factory building. Treatment of assets in purchaser’s
account does not have any material bearing on taxability of the receipt in the hands of assessee. Since
assessee had not paid any sum by way of premium for acquisition of land, there was no question of
reflecting land as an asset in the balance sheet. As evident from the agreement and Form 37-I
submitted before appropriate property, the assessee had transferred independent interests in two
different assets and therefore the capital gains arising on the assignment of leasehold interest in the
land being a capital asset was rightly offered for tax as long term capital gains and the consideration
attributable to the transfer of the building was rightly offered as short term capital gains. Further the
amount paid to trust by S Ltd cannot be held as income in the hands of the assessee as the same was
paid in view of agreement and therefore was based on a legal obligation on vacant of premises by
trust. Since the payment was received by trust directly, there is no diversion of overriding title and the
amount was taxable in the hands of trust only. (AY 2003-04)
DCIT v. J. B. Engg .Works(2016) 176 TTJ 699 (Mum) (Trib)
S. 45: Capital gains- Slump sale- Sale of entire share holding to subsidiary company to third
party- It was mere transfer of shares cannot be assessed as slump sale . [ S 2(19AA, 2(42C) 48,
50B ]
The assesee sold its entire share holdings in its subsidiary company to a third party . On the said sale
the assessee worked the capital gains under section 48 of the Act. The AO treated the sale
consideration as slump sale of undertaking and computed the capital gains under section 50B. CIT

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(A) up held the order of AO. On appeal the Tribunal held that where the assessee sold its entire share
holdings to third party , since it was a case of mere transfer of shares and more over sale consideration
was received by assessee itself and not by subsidiary it could not be treated as slump sale with in the
meaning of section 2 (42C) of the Act.(AY. 2007-08)
UTV Software Communications Ltd. v. ACIT (2016) 157 ITD 71/176 TTJ 315 (Mum.)(Trib.)

S. 45 : Capital gains – Slump sale of undertaking – Capital gain is not chargeable if valuation
placed on various assets was not ascertainable. [S. 50B]
The Tribunal held that capital gain on sale of business undertaking for a lump sum consideration is
not chargeable to tax if valuation placed on various assets is not ascertainable. The Tribunal held that
capital gain is not chargeable. (AY. 1996-97 to 1998-99)
ICI India Ltd. v. Dy. CIT (2016) 175 TTJ 217 (Kol.)(Trib.)

S. 45: Capital gains- slump sale- where assessee did not sell all assets of tea estate owned by it
and, moreover, consideration stipulated for transfer of estate had been split over different
assets, both movable and immovable, it could not be regarded as a case of slump sale. [S. (42C),
50B]
Assessee-company carried on business of growing and manufacture of tea. It owned two tea gardens .
During relevant year, assessee sold one tea estate for a total value of Rs. 18 crores . Assessing Officer
held that the assessee company sold its entire tea estate as a going concern basis hence liable to
assessed as slump sale. CIT(A) held that the sale of tea estate was not a slump sale with n the
meaning of section 2(42C) read with section 50B of the Act. On appeal the tribunal held that the
ssessee had not sold all assets belonging to tea estate. Moreover, total consideration stipulated for
transfer of estate had been split over different assets, both movable and immovable, hence on facts, it
was not a case of slump sale merely for reason that tea estate was transferred to buyer as a going
concern ,therefore, impugned addition was to be deleted. (AY. 2000-01)
Dy.CIT v. Tongani Tea Co. Ltd. ( 2016) 156 ITD 188 (Kol.)(Trib)

S. 45: Capital gains- Short term-Transfer-(Sweat equity Stock option)- Exercised the option
after three years and same day shares were sold- gains will be short term or alternative income
from other sources- Not entitle exemption under section 10(38). [S. 2(47), 10 (38)]
Allowing the appeal of revenue , the Tribunal held that ; where sweat equity shares were offered to
assessee by employer was accepted immediately and assessee exercised option after three years and
on same date shares were also sold, gains would be short-term capital gain or, in alternative, income
from other sources, not liable for exemption under section 10(38) or section 54EC. (AY. 2002-03,
2004-05 )
ACIT v.Pramod H. Lele ( 2016) 156 ITD 571 (Mum)(Trib)

S. 45:Capital gains- Premium received on grant of tenancy right was held to be assessable as
capital gains and not as income from house property. [S.(2(14), 2(47), 54EC, 147,Transfer of
Property Act, S.105]
The assesse trust received the premium from the Tenants for grant of tenancy rights. Assessee has
shown the said receipt as long term capital gain and invested the said amount and claimed exemption
under section 54F of the Act. Assessing Officer assessed the premium as income from house
property and denied the exemption under section 54EC of the Act. on appeal the Commissioner
(Appeals) allowed the claim of assessee. On appeal by revenue, dismissing the appeal the Tribunal
held that the premium received by the assesse from the tenants is a capital asset and not advance rent
exigible to tax under the head income from house property. Tribunal has also allowed the Cross
objection of assesse on the reassessment. (ITA No. 844/Mum/2014 & C.O. 76/Mum/2015 dt.
29.02.2016) (AY. 2005-06)
ITO v. Dr. Vasant J. Rath Trust (Mum.)(Trib.);www.itatonline.org

S. 45(4) : Capital gains - Distribution of capital asset – Conversion of firm to a company - When
a partnership firm is transformed into a limited company with no change in the number of

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partners and extent of property, there is no transfer of assets involved and hence, there is no
liability to pay tax on capital gains.[S. 2(47),45]
The assessee, erstwhile registered firm, was engaged in the business of training and trading of
software. It consisted of only two partners, who were holding equal stakes in the firm. Subsequently,
the assessee firm revalued its assets and the partnership business was converted into the business of
Private Limited Company as a going concern and all the assets of the firm got vested as assets of the
Private Limited Company, in which, the same partners were interested.
The Assessing Officer opined that the transfer of business assets of the assessee firm to the Private
Limited Company would constitute distribution of assets and would attract capital gains as
contemplated under section 45(4) and that the assessee was liable to pay tax on 'capital gains'.
The Commissioner (Appeals) allowed the appeal holding that when a partnership firm was
transformed into a private limited company, there was no transfer of capital assets as contemplated
under section 45(4).
The Tribunal again held that the transfer of assets of a partnership firm, without dissolution, to a
private limited company fell within the expression 'otherwise' as contemplated under section 45 (4)
and, therefore, the assessee was liable to pay tax.
The High Court held that before a levy on the capital gain can be imposed, it is a must to ensure that,
such a gain has arisen from the disposal of the asset, by any one of the mode, referred to in the
definition of the term 'transfer' in section 2(47). It was well settled that when a partnership firm is
transformed into a private limited company, there is no distribution of assets and as such, there was no
transfer and therefore, the assessee was not liable to pay any tax on capital gains. There was no case
law supporting the proposition that even in cases of subsisting Partners of a partnership firm
transferring assets to a private limited company, there would be a transfer, covered under the
expression 'otherwise'.So far as this case is concerned, there is no transfer of asset as (a) no
consideration was received or accrued on transfer of assets from the firm to the company; (b) the firm
has only revalued its assets which will not amount to transfer;(c) the provision of section 45(4) of the
Act is applicable only when the firm is dissolved. In the instant case, there is no distribution of asset,
but only taking over of the assets from the firm to the Company. Therefore, it is clear that the vesting
of the property in the private limited company is not consequent or incidental to a transfer. There is no
transfer of a capital assets as contemplated by section 45(1).(AY. 1992-93)
CADD Centre v. ACIT (2016) 383 ITR 258/237 Taxman 401 (Mad.)(HC)

S. 48: Capital gains- Full value of consideration- Market value cannot be substituted .[ S.45,
45(2), 45(4), 50C ]
AO substituted the consideration receive don sale of shares by break up method and converted loss in
to gain. On appeal CIT(A) held that in the absence of any provision in the Act to replace the
consideration receive don sale of shares by adopting the market value is not permissible. Tribunal up
held the order of CIT(A). On appeal by revenue dismissing the appeal the Court held that when ever
the Parliament thought it fit that the consideration on a transfer of a capital asset has to be ascertained
on the basis of market value of the asset transferred , specific provision has been made in the Act. To
illustrate section 50C provides for stamp value duty in case of transfer of land and buildings .
Similarly , section 45(2) and section 45(4) provide that in cases of conversion of inveatment in to
stock in trade or transfer of shares on dissolution of a firm to its partners respectively has to be market
value . Accordingly the consideration disclosed on sale of shares by the assesse was in fact the only
consideration received/ accrued to it , no occasion to substitute the same can arise. ( ITA No 2337 of
2013 dt 8-03-2016)( AY. 2008-09)
CIT v. B.Arunkumar & Co (Bom)(HC) (Unreported)( 2016) BCAJ-March-P. 46

S. 48:Capital gains-Computation-Interest on borrowed money utilized for acquiring shares can

be capitalized as cost of acquisition.[ S.45]
Dismissing the appeal of revenue; the Tribunal held that; the interest paid by the assessee on loans
taken for acquiring the shares in the past can be allowed as a deduction u/s 48 as cost of acquisition
while computing capital gain on sale of such shares. Followed Trishul Investments Ltd. (2008) 305
ITR 434 (Mad.) (HC).ITA No. 236/Mum/2010, dt. 08.05.2015)(AY.2005-06)
DCIT v. Fritz D. Silva (Mum.)(Trib.);www.itatonline.org

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S. 48: Capital gains – Cost of Improvement – Legal expenses were incurred to protect the
investments of assessee and should be added to the cost of shares as cost of improvement.[ S. 45]

The assessee was engaged in the business of manufacturing and processing of Ayurvedic medicines.
The assessee engaged lawyers as financial advisors to evaluate the maximum value to get and to
prevent other companies to buy the shares at low price. The assessee claimed the expenditure incurred
towards legal services as legal expenses. The AO invoked section 14A of the Income-tax Act, 1961,
and disallowed the expenses on the ground that the expenses were incurred to safeguard the
investment and that investment would yield exempt income in form of dividend. The CIT(A)
confirmed the order of the AO.

On appeal, the tribunal held that there was an improvement in the value of the shares held by the
assessee. Hence, the expenses could be added to the cost of shares as cost of improvement. The AO
was to recompute the amount of capital gains earned by the assessee. (AY. 2009-10)

Vaipa Pharmaceuticals Pvt. Ltd. v. ACIT (2016) 46 ITR 109 (Mum.)(Trib.)

S. 48:Capital gains – Computation –Cost of improvement-Fails to establish his claim of

renovation- Deduction was not allowed. [ S. 45 ]
Dismissing the appeal of the assesse , Tribunal held that; Assessee's claim towards cost of
improvement while computing capital gain on sale of a flat was rejected where assessee failed to
establish his claim of renovation being carried out in said flat with any cogent or reliable
evidence.((AY.2009-10)
Yashovardhan Sinha v. ITO ( 2016) 156 ITD 540 (Patna)(Trib)

S. 50B:Slump sale-Net worth of undertaking-Aggregate value of total assets not to be taken at

written down value of block of assets- Actual cost to be reduced, inter alia, by depreciation as
would have been allowable for years commencing on or after 1-4-1988 - Depreciation actually
allowed for these years not relevant. [S.2(11), 32, 43(6)(i)(C ).]
The Tribunal had accepted the assessee's contention that In case the entire block of assets was sold,
the written down value of the block of assets as existing must be taken at the aggregate value of the
total assets. On appeal allowing the appeal of revenue the Court held that ; This was not correct for
the reason that there was no provision which mandates adopting this method of computation. It could
not be disputed that the plain language of sub-clause (b) of clause (C) contemplates reduction from
the actual cost of assets of the depreciation "that would have been allowable to the assessee for any
AY commencing on or after the 1st day of April, 1988, as if the asset was the only asset in the
relevant block of assets. In view of the plain language, there was no scope to read the provisions of
sub-clause (b) of clause (C) to permit deduction of depreciation actually allowed and not as "would
have been allowable". With the introduction of the concept of block of assets, the direct co-relation
between depreciation allowed and a separate asset constituting the block is lost. Therefore, it was not
possible to co-relate the quantum of depreciation allowed in respect of individual assets constituting a
block.(AY. 2001-2002 )
CIT v. Dharampal Satyapal (2016) 380 ITR 527/ 283 CTR 37 (Delhi) (HC)

S. 50C : Capital gains - Full value of consideration - Stamp valuation – Value ascertained by the
DVO lesser than the value adopted by the State Stamp Duty authority – Held, value ascertained
by DVO to be taken as full value of consideration [S. 45 ]
Assessee sold the property for a total consideration of Rs. 47 lakh. Sub registrar of the Stamp Duty
valued the asset at Rs. 3.4 crores. The assessee carried the said valuation in appeal before the Deputy
collector, Stamp Duties who valued the property at Rs. 1.33 crores. AO adopted the latter value as the
full value of consideration. CIT(A) called for the valuation report from DVO, who inturn valued the
property at Rs. 71.98 lakh. The said value was adopted by the CIT(A) as full value of consideration.
Held, as per the provisions of section 50C, where the value ascertained by the DVO is lesser than the

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value adopted by the State Stamp Duty authority, then the earlier one is to be taken as full value of
consideration. (AY. 2007-08)
PCIT v. Rajabhai Lumbhabhai Hadiya (2016) 237 Taxman 528 (Guj.)(HC)
S. 50C : Capital gains - Full value of consideration - Stamp valuation –Agreement was entered
in 2001 and part consideration was received and later sale deed was executed in April 2003,
transfer of property could be said to have taken place in 2001, when provision of section 50C
was not in existence hence same was not applicable. [ S. 2(47),45 48 ]
The provisions of section 50C are not applicable in the case where the agreement for sale is entered
into prior to the introduction of section 50C, i.e. AY 2003-04 and sale deed is entered into after the
introduction of Section 50C. The moment the agreement for sale is entered into, transfer is said to
have taken place for the purpose of section 50C and relying upon the decision of the Supreme Court
in the case of Sanjeev Lal v. CIT [2014] 365 ITR 389wherein it was held that once an agreement to
sell is executed in favour of some person, the said person gets a right to get the property transferred in
his favour and, consequently, some right of the vendor is extinguished, it was held that the transfer in
the instant case took place in 2001 i.e. the year in which the agreement for sale was entered into and
as provisions of section 50C were not in the statute then, there was no case of application of section
50C of the Act. (AY.2003-04, 2004-05)
CIT v. Shimbhu Mehra(2016) 236 Taxman 561 (All.)(HC)

S. 50C Capital gains - Full value of consideration - Stamp valuation – Valuation adopted by
DVO is more than stamp valuation stamp valuation is to be adopted .[ S.45 ]
Assessee had sold house property for an amount of Rs. 73.60 lakhs and stamp duty had been paid at
circle rate of Rs. 1.25 crores. District Valuation Officer (DVO) valued property at Rs. 2.97 crores,
treating same to be commercial property. Assessing Officer considered sale consideration on basis of
valuation made by DAO and accordingly made addition . On appeal, Commissioner (Appeals)
considered sale value on basis of valuation made by stamp valuation authorities.On appeal to
Tribunal the assessee raised objections regarding valuation made by DVO. Tribunal held that
objections raised against valuation made by DVO had no meaning, as assessment in hands of assessee
had not been made on such valuation report but on a much lesser value as determined by stamp
valuation authorities. On appeal High Court up held the order of Tribunal.(AY. 2006-07)
B.M.J. Real Estate (P.) Ltd. v. CIT (2016) 236 Taxman 579 (P&H)(HC)

S. 50C:Capital gains - Full value of consideration - Stamp valuation- The stamp duty value on
the date of agreement and not date of sale deed has to be taken. The nature of the property on
the date of agreement has to be considered--Proviso to S.56(2)(vii)(b) is curative and
retrospective left open.[S.56(2)(vii)(b) ]
The stamp duty value on the date of agreement and not date of sale deed has to be taken. Followed
the ratio in Sanjeev Lal and Smt. Shantilal Motilal V/s. CIT(365 ITR 389) as well as decisions of the
coordinate bench of this Tribunal at Visakhapatnam in the cases of M/s. Lahiri Promoters
Visakhapatnam V/s. ACIT, Circle 1(1), Visakhapatnam (ITA No.12/Vizag/2009 dated 22.6.2010) and
Moole Rami Reddy V/s. ITO (ITA No.311/Vizag/2010 dated 10.12.2010). It is therefore, now settled
that the SRO value as on the date of agreement of sale has to be considered for the purpose of
computation of capital gains. The next question is the nature of the property for valuation under
S.50C, because, according to the assessee, even if the date of registered sale deed is considered for
determination of the fair market value under S.50C, the SRO value should be taken for residential
area and not commercial area. He submitted that if the value of the residential area as on 1.4.2006 i.e.
Rs.10,000 per sq. yard, is taken into consideration, the sale consideration received by the assessee was
more than the SRO value and no addition was warranted. Therefore, the nature of the property as on
the date of transfer attains importance. There cannot be any dispute that the nature of the property on
the date of transfer/sale is to be considered.Proviso to s. 56(2)(vii)(b) is curative and retrospective left
open. (ITA No. 1942/hyd/2014, dt. 27.11.2015) ( AY. 2006-07)
Mohd. Imran Baig v. ITO ( Hyd.) (Trib.) ;www.itatonline.org
S. 50C:Capital gains - Full value of consideration - Stamp valuation does not apply to transfer
of leasehold rights in land.[S.45]

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Allowing the appeal of assessee the Tribunal held that; Section 50C of the Act provides that if the
consideration received or accruing is less than the value adopted or assessed or assessable by the
stamp valuation authority of the State Government for such transfer then the value so adopted or
assessed or assessable shall be deemed to be the full value of consideration and the capital gains will
be computed accordingly. The phraseology of section 50C of the Act clearly provides that it would
apply only to “a capital asset, being land or building or both”. The moot question before us is as to
whether such expression would cover the transfer of a capital asset being leasehold rights in land or
building. There cannot be a dispute to the proposition that the expression land by itself cannot include
within its fold leasehold right in land also. Of-course, leasehold right in land is also a capital asset and
we find no fault with this stand of the Revenue. So however, every kind of a ‘capital asset’ is not
covered within the scope of section 50C of the Act for the purposes of ascertaining the full value of
consideration. Infact, the heading of section itself provides that it is “Special provision for full value
of consideration in certain cases”. Therefore, there is a significance to the expression “a capital asset,
being land or building or both” contained in section 50C of the Act. The significance is that only
capital asset being land or building or both are covered within the scope of section 50C of the Act,
and not all kinds of capital assets.(ITA No. 5136/Mum/2014, dt. 16.03.2016)(AY.2010-11)
Farid Gulmohamed v. ITO (Mum.)(Trib.);www.itatonline.org

S. 50C : Capital gains - Full value of consideration - Stamp valuation Difference being les than
2% addition was held to be not justified. [ S. 45 ]
It was held that difference between the valuation for the stamp duty and the actual consideration
received by the assessee being less than 2 per cent the addition made by the AO by adopting the
valuation of the impugned property as determined for stamp duty purposes as the sale consideration
for the purpose of computing the long term capital gain is not sustainable. (AY. 2009-10)
ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)

S. 50C : Capital gains - Full value of consideration - Stamp valuation – Provision cannot be
applied in case of transfer of leasehold rights. [S.45 ]
The capital gains arising out of transfer of leasehold rights was not offered to tax by the Assessee. The
AO computed the capital gains by applying provisions of s. 50C. The ITAT held that provisions of s.
50C cannot be invoked in respect of transfer of leasehold rights. (AY. 2007-08)
ITO v. Hari Om Gupta [2016] 45 ITR 137 (Luck.)(Trib)

S. 50C : Capital gains - Full value of consideration - Stamp valuation – Amount of sale
consideration has been determined in view of stamp duty valuation – Consideration cannot be
estimated.[ S.45 ]
Held that provisions of sec. 50C lays down that the value adopted or assessed by Stamp Valuation
Authority shall be deemed be full value of consideration. Law is well settled that scope of deeming
fiction cannot be extended beyond what has been clearly mentioned in law. Full value of
consideration of the asset has been determined based upon the value as was assessed by the stamp
valuation authority. Therefore, once the amount of sale consideration has been determined keeping in
view of provisions of law no question would arise of estimating the value of consideration once again.
CIT(A) erred in estimating lease rent as it was beyond the provisions of law. (AY. 03-04, 06-07, 07-
08)
Kamala Brothers v. ITO (2016) 176 TTJ 178 (Mum)(Trib)

S. 50C : Capital gains - Full value of consideration - Fair Market Value – Primary duty of the
AO to refer to the Departmental Valuation Officer – Failure by AO to discharge his duty –
Matter Remanded to refer the matter to the Departmental Valuation Officer.[ 45 ]
The assessee, a HUF, was engaged in the business of money lending. During the previous year, the
assesse sold an item of immovable property comprising of land and building. The assessee stated that
the sale deed was not released after registration owing to sudden dispute and the case was pending
before the court of law. The AO after confirming the market value of that land from the sub-
registrar’s office, invoked the provisions of section 50C of the Act and computed the capital gains on
the sale of the immovable property. The Commissioner (Appeals) confirmed this.

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On appeal, the tribunal held that the AO failed to refer the matter to the Department Valuation Officer
for valuing the property in accordance with the section 50C(2) of the Act and also failed to consider
the matter of litigation involved in the title to the property. The AO was to refer the matter to the
Departmental Valuation Officer and decide it afresh.(AY. 2009-10)
S. D. Vimalchand Jain v. ITO (2016) 45 ITR 628 (Chennai)(Trib.)

S. 54:Capital gains - Profit on sale of property used for residence - Assessee can deposit
unutilized capital gain in prescribed bank or institution before due date of filing income tax
return as per section 139(1), despite fact that he had already purchased one residential flat. [S.
45, 139(1)]
Tribunal held that ;here is no bar under section 54(2) on assessee for making deposit of unutilized
capital gain in capital gain account with prescribed bank or institution before due date of filing
income tax return as per section 139(1), despite fact that assessee had already purchased one
residential flat. However, such amount needs to be utilized for purchase or construction of new asset
within period specified in sub-section (1) of section 54.(AY. 2008-09)
Suresh Kumar K. Tek v. ITO (2016) 157 ITD 119 (Mum) (Trib.)

S. 54 : Capital gains - Profit on sale of property used for residence – Gift of property- Entitle to
exemption. [S. 45, 47(iii)]
Dismissing the appeal of revenue , the Tribunal held that ; where assessee had sold his residential
property in April, 2010 and invested sale proceeds in August, 2010 in another residential property and
in November, 2010 he had settled new property to his daughter out of love and affection, settlement of
property was a gift falling under section 47(iii) and assessee was entitled to exemption under section
54 in respect of capital gains arising on sale of property. ( AY.2011-12)
ITO v. Abdul Hameed Khan Mohammed ( 2016) 156 ITD 778 ( Chennai)(Trib)

S. 54 : Capital gains - Profit on sale of property used for residence – Deduction allowable on
purchase of residential house which could include multiple residential units. [ S. 45 ]
The Assessee sold his tenancy rights and claimed deduction u/s 54 in respect of purchase of two flats
in different locations in different societies. The AO did not allow the deduction on one of the flats.
The ITAT held that deduction u/s 54 could be claimed for a residential house which could include
multiple residential units based on the judgment of the Hon'ble Madras High Court in the case of CIT
v. Smt. V.R. Karpagam [2015] 373 ITR 127 (Mad). The ITAT observed that the amendment to s. 54F
to make it applicable to only one residential house would become effective from 1 April 2015. (AY.
2009-10)
Nilesh Pravin Vora & Yatin Pravin Vora (Legal heirs of Pravin Laxmidas Vora) v. ITO (2016)
45 ITR 228 (Mum.)(Trib)

S. 54 :Capital gains - Profit on sale of property used for residence – Assessee utilising entire
capital gains within period of one year in constructing a house which could not be completed
due to circumstances beyond assessee’s control – Assessee was entitled to exemption.[ S.45 ]
The AO disallowed the exemption u/s.54 of the Act on the ground that the assessee had entered into a
development agreement with S for construction of an independent house in a gated community in the
land but the construction of the house was not completed within the stipulated period. The CIT(A)
allowed the exemption.On appeal held that the assessee had utilised the capital gains within the period
of one year but due to certain circumstances beyond the control of the assessee, the construction of the
house could not be completed within the specified period. Therefore, the assessee was entitled to
exemption. (AY. 2009-10)
ITO v. Narayan Rao (2016) 46 ITR 178 (Hyd.)(Trib.)

S. 54 : Capital gains - Profit on sale of property used for residence –Construction of new
residential flat was not completed byend of three years from transfer-No entitled to exemption.
[S. 45]

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Dismissing the appeal of assesse , the Tribunal held that ; where construction of new residential flat
was not complete by end of three years from transfer, assessee would not be entitled to exemption
under section 54. (AY.2009-10)
Yashovardhan Sinha v. ITO ( 2016) 156 ITD 540 (Patna)(Trib)

S. 54EC:Capital gains-Investment in bonds–Bonds were not available –Purchased with in the

reasonable time of made availability of Bonds – Eligible –Exemption. [S.45]
Where bonds of assessee's choice were not available throughout stipulated period for investment for
claiming exemption from capital gain, time limit to invest in bonds would get automatically extended.
Where the assesse purchased the Bonds with in the time allowable, he is eligible for exemption. (AY.
2006-07)
Sunil Kumar Saha v. ITO ( 2016) 156 ITD 1 (Kol)(Trib)

S.54EC:Capital gains-Investment in bonds–Payment of cheque dates back to date of

presentation and not date of encashment [S.45]
Allowing the appeal of the assessee the Tribunal held that the period of six months available for
making investment means six months and not 180 days . Payment by cheque dates back to date of
presentation and not date of encashment.(AY. 2005-06)( ITA No. 7548/Mum/ 2012 dt. 28-8-2015)
Bench ‘B’.
Neela S. Karyakarte v.ITO (2016) BCAJ–March–P. 30 (Mum.)(Trib.)

S. 54F : Capital gains-Investment in a residential house-Amount invested in new asset need not
be entirely sourced from capital gain.[S.45]
The assessee claimed benefit of section 54F, however, he did not entirely source the amount invested
in his new asset from capital gain receipts and therefore the he AO made an addition to the income of
the assessee. The CIT(A) upheld the addition made by the AO. The Tribunal reversed order of the
CIT(A) holding that section 54F did not put any restriction whether the investment was made out of
loan amount or from the sale consideration and, therefore, for availing the benefit of section 54F
amount invested in the new asset need not be entirely sourced from capital gain.

The High Court upheld the order of the Tribunal and held that, no provision had been made in the
statute that in order to avail benefit of section 54F, the assessee had to utilize the amount received by
him on sale of original capital asset for the purposes of meeting the cost of the new asset. Once that is
so, the assessee was entitled for benefit under section 54F. (AY. 2009-10)
CIT v. Kapil Kumar Agarwal (2016)382 ITR 56 / 237 Taxman 555 / 284 CTR 75/ 131 DTR 87
(P&H)(HC)

S. 54F:Capital gains - Investment in a residential house – Demolition of structure does not

amount to transfer - Entitle exemption- CIT(A) is bound to follow the order of Jurisdictional
High Court in the case of another Co-owner.[S. 2(47),45]
Demolition of structure does not amount to transfer, capital gain exemption cannot be withdrawn .
Tribunal also held that judicial discipline and rule of law demand and requires that lower judicial
authorities should and must follow the decisions/judgment of higher judicial authorities on identical
facts. Thus, the CIT(A) was bound by law to follow the jurisdictional High Court judgment in the case
of Mrs Chhaya B. Parekh In our considered view that this instant case is squarely covered by the
decision of Hon’ble Bombay High Court in the case of Mrs Chhaya B. Parekh and hence the assessee
is entitled for his claim of deduction u/s 54 F of the Act as claimed in the return of income filed with
the Revenue.( ITA No. 6169/Mum/2013, dt. 15.4.2016) (AY. 2007-08)
Dilip Manhar Parekjh v. DCIT (Mum)(Trib); www.itatonline.org

S. 54F:Capital gains - Investment in a residential house – While allowing exemption deemed

consideration u/s 50C has to be taken into consideration and it cannot be restricted to the
consideration mentioned in the sale deed – Funds invested need not be from same source it can
be from other source.[ S. 45, 50C ]

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Dismissing the appeal of revenue the Tribunal held that ;the ultimate object and purpose of section
50C of the I.T. Act is to see that the undisclosed income of capital gains received by the assessee
should be taxed and that the law should not encourage and permit the assessee to peg down the market
value at their whims and fancy to avoid tax, but when the capital gain is assessed on notional basis,
whatever amount is invested in the new residential house within the prescribed period under section
54 of the I.T. Act, the entire amount invested, should get benefit of deduction irrespective of the fact
that the funds from other sources are utilised for new residential house.( ITA No. 848/hyd/2015, dt.
13.05.2016)(AY. 2010-11)
ITO v. Kondal Reddy Mandal Reddy (Hyd)(Trib);www.itatonline.org

S. 54F : Capital gains - Investment in a residential house – Construction was not completed
within three years- Whole of capital gain was liable to be taxed in previous year in which period
of three years expired from date of sale of original asset .[ S.45, 263 ]
Assessee sold a property and purchased a vacant site for construction of residential house. She
deposited remaining sale consideration in Capital Gain Account Scheme and claimed exemption. AO
allowed the exemption . She could not complete construction within period of three years and offered
capital gain for tax after three years. Commissioner in revision proceedings held that only unutilized
portion of sale consideration was taxable in previous year in which period of three years expired from
date of sale of original asset but investment made in vacant site was to be taxed in year in which
capital gain arose. Tribunal held that the view of Commissioner was incorrect. Assessee was required
to pay tax on whole capital gain in previous year in which period of three years from date of transfer
of original asset expired. (AY.2009-10)
Vegesina Kamala v.ITO (2016) 157 ITD 457 (Visakha) ( Trib.)

S. 54F : Capital gains – Investment in residential house – Property booked by assessee’s mother-
in-law, payments made and possession of house taken by her – Assessee later applying to add
her name – Payments made 17 months prior to date of sale– Assessee not entitled to exemption.
[ S. 45 ]
Purchase of a constructed house in a self-financing scheme from any authority would be treated as
construction and not purchase of a residential house. However, in the instant case, the possession
letter was issued in the name of the mother-in-law, on 7-11-2006 and possession was to be taken by
her on or before 14-12-2006, which was taken by her on 15-11-2006. Perpetual lease was executed on
23-6-2007, in which name of the assessee and her mother in law had beenshown. Accordingly, the
order of CIT(A) on the first exemption claim u/s.54F of the Act was upheld.(AY. 2008-09)
Seema Singh Beniwal v. Dy. CIT (2016) 45 ITR 664 (Jaipur)(Trib.

S. 54F : Capital gains – Investment in residential house – Purchase of plot out of sum deposited
in capital gains account scheme– Construction within 3 years from the date of sale - Habitable
as servant quarters–Entitled to deduction.[ S. 45 ]
The CBDT has clarified that purchase of plot of land is a part of residential house for claiming
deduction u/s.54F of the Act. The assessee sold first flat on 20-10-2007 and second one on 15-03-
2008 whereas the assessee constructed a room on the plot upto 15-03-2010 which was within three
years from the date of sale of the first flat, 20-10-2007. Thus, the assessee was entitled to deduction
u/s.54F of the Act on second investment at Rs. 29.37 lakhs. (AY. 2008-09)
Seema Singh Beniwal v. Dy. CIT (2016) 45 ITR 664 (Jaipur)(Trib.)

S. 56 : Income from Other Sources - Interest received under the Land Acquisition Act, 1894 is
taxable as income from other sources . [S. 2(28A), Land Acquisition Act, 1894 , S. 28 ]
The assessee HUF received interest under section 28 of the Land Acquisition Act, 1894. Section 28
empowers the court to award interest on the excess amount of compensation awarded by it over the
amount awarded by the Collector. Assesse contended that the said interest would partake the
character of compensation or damage and therefore, would not be liable to tax. High Court held that
the interest received u/s 28 was on account of keeping back the amount payable to the owner and did
not form part of the compensation or damages for the loss of right to retain possession. Accordingly it

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was held that amount received by the assessee was in the nature of interest and was taxable as income
from other sources. (AY. 2010-11)
Manjet Singh (HUF) Karta Manjeet Singhv. UOI (2016) 237 Taxman 116 (P&H)(HC)

S. 56: Income from other sources-Construction activities- Deposited surplus funds in FRDs-
interest earned thereon was to be taxed as 'income from other sources. [ S. 4 ]
Allowing the appeal of revenue the Tribunal held that ; where assessee, engaged in construction
activities, deposited its surplusfunds in FDRs, interest earned thereon was to be taxed as 'income from
other sources'. ( AY.2007-08 to 2009-10)
ACIT v. Z Square Shopping Mall (P.) Ltd. (2016) 157 ITD 105 (Luck.)(Trib.)

S. 56: Income from other sources- Income from house property- Let out building with furniture
in a composite manner Assessable under the head income from other sources. [S. 22]
Tribunal held that ;where assessee let out his building along with furniture and fixtures and electrical
installations and offered rental income under head 'Income from house property', rental income would
fall under head 'Income from other sources, as the let out was in a composite manner which were
inseparable from each other. (AY. 2010-11 )
ACIT v. Ajay Kalia ( 2016) 157 ITD 187 (Delhi ) (Trib.)

S. 56:Income from other sources- Capital gains- Mere making of payment by assessee to a
builder, even prior to sanction of building plan itself, cannot be said to have yielded a vested
right in assessee to get a property which was neither in existence at that time nor any process
for construction of same had started- Income accrued to the assesse was held to be assessable as
income from other sources. [S. 2(47), 45]
Assessee paid certain amount to a builder for allotment of offices in a building - In allotment letter, it
was specifically mentioned that after construction of building, offices located in said building could
be used only for activities relating to information technology . Since assessee was not involved in any
activity of information technology, it entered into agreement for sale of office premises with
builder.thereupon, builder sold allotment rights of assessee to third parties at a higher amount.
Assessee offered the amount as capital gains. AO assessed the gain as income from other sources.On
appeal by assesse dismissing the appeal the Tribunal held that; mere making of payment by assessee
to a builder, even prior to sanction of building plan itself, cannot be said to have yielded in a vested
right in assessee to get a property which was neither in existence at that time nor any process for
construction of same had started . On facts, it could be concluded that assessee had advanced money
to builder to make quick profits either by way of interest or by way of share in profits which builder
may gain by selling properties. therefore, income accrued to assessee relating to aforesaid transaction
was to be assessed as income from other sources .( AY.2009-10)
S. Narendrakumar & Co v. Dy.CIT ( 2016) 156 ITD 440/ 175 TTJ 113 (Mum)(Trib).

S.56:Income from other sources-Interest income on fixed deposits-Method of accounting-

Income was offered on the basis of certificate received from the Bank–Addition was held to be
not justified. [S.4]
Tribunal held that where assessee was following same method of accounting to show interest income
on fixed deposits on basis of bank certificates only, no addition could be made on ground that portion
of interest was not shown.(AY. 2006-07)
Sunil Kumar Saha v. ITO ( 2016) 156 ITD 1 (Kol)(Trib)

S. 57 : Income from other sources – Write off of interest and lease charges which were earlier
offered to tax under section 56 cannot be claimed as a deduction under section 57(iii) or under
section 36(1)(vii) [S. 36(1)(vii),56,]
Assesseehad given loans to its subsidiary and had also leased out its machineries and was entitled to
receive interest on loans and rental income for lease of machines. Interest and rental income which
had accrued were shown as income from other sources under Section 56 in the return of income. As
the subsidiary was incurring losses, the assessee wrote off the interest and lease charges and claimed
the same as deduction. AO denied the claim under section 57(iii). High Court held that where income

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has been offered to tax under the head income from other sources, the claim for deduction can be
considered only under section 57. High Court denied the assessee’s claim for write off of interest and
lease charges as the requisites under section 57(iii) were not satisfied. High Court further held that
deduction cannot also be claimed under section 36(1)(vii) as the same can be availed only where the
income is offered under the head profits and gains from business or profession. (AY. 2008–09)
Malankara Plantations Ltd. v. ACIT (2016) 236 Taxman 61 (Kerala)(HC)

S. 68:Cash credits-Share application money-Identity, genuineness of transaction and

creditworthiness of persons from whom assessee received funds-No examination by Tribunal-
Matter remanded.
The Tribunal had not examined the facts relating to the assessee. The Tribunal had simply proceeded
on the basis of the facts obtaining in the case of Pranjul Overseas (P.) Ltd.on the statement of the
parties that the facts of that case were similar to the facts in the case of the assessee. However, an
examination of the documents, it did not appear that the facts in the case of Pranjul Overseas (P.)
Ltd.were similar to those obtaining in the present case. In the case of Pranjul Overseas (P.) Ltd., the
assessee disputed that any search took place at its registered office but the written submissions filed
by the assessee in this case did not indicate that any such dispute was raised. Even before the court it
had not been contended that no search took place at the declared registered office of the assessee.
Thus, the matter was remanded to the Tribunal to examine the facts relevant to the assessee for
determining whether an addition u/s 68A was sustainable. It would also be open for the Tribunal to
remand the matter for further enquiries if it so considered necessary.(AY .2003-2004 to2009-2010)
PCIT v. Matchless Glass Services P. Ltd. (2016) 380 ITR 370/237 Taxman 195/ 284 CTR 150
(Delhi)(HC)

S. 68 : Cash credits–Onus on the Assessee is to only prove creditworthiness and genuineness of

the source from which it has received loan - No onus to prove genuineness of source.
For the year under consideration, Assessee had received loan from Tom Investments Limited of Rs.
38 lacs. During assessment proceedings of Assessee, authorised representative of Tom Investments
Limited attended the proceedings to substantiate the genuineness of loan transaction and Tom
Investment Limited intimated that the amount lent to Assessee was had in turn borrowed from M/s
Tuq Credits Limited. The Tom Investments Limited was unable to furnish the information to prove
genuineness and credibility of Tuq Credits Limited. Therefore the Assessing Officer concluded that
Tuq Credits Limited is not a genuine party and the entire chain of lending and borrowing was bogus.
Hence the loan received was treated as unexplained income and entire interest expenditure was
disallowed to the Assessee.
High Court while deciding the case in favour of the Assessee, relied on Gauhati High Court decision
in case of Nemi Chand Kothari (264 ITR 254) wherein it was held that it is not the burden of the
Assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor it is
the burden of the Assessee to prove that the sub-creditor had the creditworthiness to advance the cash
credit to the creditor form whom the cash credit has been, eventually, received by the Assessee. In the
present case the Assessee has indeed discharged its onus of proving the creditworthiness and
gaminess of the lender (TIL), hence the HC held that no disallowance or addition could be made
under section 68 of the Act. (AY. 1994-95)
CIT v. Shiv Dhoot Pearls & Investment Limited (2016) 237 Taxman 104 (Delhi)(HC)
Editorial: Amendment in Section 68 of the Act in Finance Act, 2012]

S. 68 : Cash credits – Gift-Identity of the donor and capacity of the donor to gift the sum
established – Assessee not under obligation to provide the business dealings of the donor to the
Assessing Officer.
Addition was made under section 68 in respect of gift received from the donor through M/s. Blackfin
Development Company Inc., USA. The addition on account of the same was made by the Assessing
Officer under section 68 of the Act due to certain discrepancies noticed by the Assessing Officer
between the statement of the donor and the assessee and that the donor did not provide the details
pertaining to its business transactions, agreement with Blackfin, details of bank accounts etc and that
the existence of the agreement between the assessee and Blackfin casts certain doubt in the nature of

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the transaction. The Tribunal, on going through various explanations filed by the donor, assessee and
also by Blackfin and also evidence substantiating the same, held that the gift received by the assessee
was genuine and therefore, no addition could have been made under section 68. On appeal by the
Revenue, it was held by the High Court that the apart from doubting and questioning the material
produced by the Assessee, the Assessing Officer had not produced any positive evidence which could
lead to the inference that the amount received by the Assessee was not gift and therefore, dismissed
the appeal of the Revenue.
CIT v. Sudhir Budharaja (2016) 236 Taxman 50 (Delhi)(HC)

S. 68 : Cash credits – Gift- In a case where the assessee did not prove the financial capacity of
the donors or the fact that the assessee had close relations with the donors, the gifts could not be
treated as genuine.
The assessee had received gifts during the year which were introduced as capital in his proprietary
concern. During the course of assessment, details were sought by the AO in respect of these gifts.
Assessee produced two persons and filed declaration of gift from the others. AO held that the persons
making the gift did not have the capacity of making such gifts and further had no relations with the
assessee and there was no natural love and affection between the parties. AO held that the assessee
had not proved identity of certain persons making the gift and creditworthiness and genuineness of all
of them. AO, therefore, added the amount of gift as an unexplained cash credit under section 68.
CIT(A) set aside the addition. CIT(A)’s order was reversed by the Tribunal. High Court observed that
the income tax returns of the persons making the gift showed that the donors did not have the
financial capacity to make gifts. Therefore, the assessee did not prove the creditworthiness of the
donors.Assessee did not bring any evidence to show whether the alleged donors had adequate funds or
that they had the financial capacity to make such gifts. High Court observed that it could not be held
that gifts were genuine. (AY. 2002–03)
Laxmandas Sujandas Dalpat v. ITO (2016) 381 ITR 283 /236 Taxman 372 (Guj.)(HC)

S. 68:Cash credits – Gift- Where the assessee received a gift from NRE account through
banking channels, however was not able to demonstrate close relationship nor did it submit
affidavit from donor, the said gift was taxable as unexplained cash credits.
The assessee shown credit of certain amount in the capital account as “Gift”. The AO treated the said
gift as unexplained cash credit u/s. 68 on the ground that the assessee had failed to prove genuineness
of the gift. However, the order of the AO was reversed by the CIT(A). The Revenue preferred an
appeal before the Tribunal wherein the findings of the AO were restored.

The assessee preferred an appeal before the HC. The HC concurred with the findings of Tribunal that
the assessee has failed to prove her relationship with the donor and genuineness of the gift. The
factum that the transaction was out of love and affection, is a sine qua non to establish a genuine gift
and therefore, the said amount was correctly held to be taxable u/s. 68. (AY. 1994-95)
Sarita Aggarwal v. ITO (2016) 131 DTR 103 (Delhi) (HC)

S.68: Cash credits-Long-term capital gains on sale of "penny" stocks cannot be treated as bogus
& unexplained cash credit if the documentation is in order & there is no allegation of
manipulation by SEBI or the BSE-Denial of right of cross-examination is a fatal flaw which
renders the assessment order a nullity. [ S.45, 143(3) ]

Allowing the appeal of assesse the Tribunal held that; Documents pertaining to the purchase and sale
of shares of M/s Shukun Constructions Ltd. such as contract notes of brokers, copies of physical share
certificates, transfer of physical shares to the name of the assessee and consolidation by the company,
the D-MAT account statement of the assessee with SHCIL confirming the said shares in the
assessee’s name, bank statements and summary thereof and financial statements of the assessee, viz.,
Balance Sheet of earlier years showing that the fact of holding these shares were furnished before the
AO from 16.07.2007 onwards, i.e. well before the assessment was concluded on 31.12.2007. It is also
seen that the show cause notice issued by the AO to the assessee on 13.11.2007 as to why the

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transaction in the said shares be not treated as a bogus/arranged one was replied to by the assessee
vide letter dated 21.11.2007 addressed to the AO. In our considered view, after an appreciation of the
material on record, we find that no proper investigation has been carried out by the AO to controvert
the material evidence brought on record by the assessee. Even the statement recorded on 31.12.2007
by the AO from one Sir Niraj Sanghvi, which was strongly relied upon by the AO, we find has no
evidentiary or corroborative value as it is of a person who has no role in the said share purchase
transactions. Further, the said statement, recorded on the day the order of assessment was concluded,
i.e. 31.12.2007, was recorded behind the back of the assessee and neither copy of the same was given
to the assessee for rebuttal, nor was the assessee allowed due opportunity to cross-examine Shri Niraj
Sanghvi. It is seen from the record that no statement was recorded from Smt. Charu Sanghvi,
Proprietor, Falgun Invest from whom the assessee purchased the said shares of M/s. Shukun
Constructions Ltd. In this factual and legal matrix as discussed above, we find that the statement of
Shri Niraj Sanghvi, which was so strongly relied upon to form the basis of the AO’s conclusion, is
fatally flawed and has no corroboratory or evidentiary value since it was recorded behind the back of
the assessee and was used to arrive at an adverse finding in respect of the assessee’s purchase of the
‘said shares’ without putting the assessee on notice by affording her opportunity of rebuttal of the
statement and/or cross-examination of Niraj Sanghvi. There is no evidence on record to show that any
action or enquiry was carried out either by the SEBI or BSE in respect of the alleged manipulation or
propping up of the price rate movement of the ‘said shares’ of Shukun Constructions Ltd., as has been
assessed by the AO. The shares of Shukun Constructions Ltd. is listed on BSE and that the sale
transaction of the ‘said shares’ by the assessee is at the rate quoted on the date of sale has been
confirmed both by BSE and the concerned stock broker M/s. Khambatta Securities Ltd. It is strange
that the AO has made the addition under section 68 of the Act treating the entire sale proceeds of the
‘said shares’ received by the assessee through regular banking channels from stock broker registered
with SEBI, M/s. Khambatta Securities Ltd., which facts have been confirmed by the said stock broker.
In our considered view, the assessee has discharged the onus required under section 68 of the Act as
she has established the identity of the payer, source of funds received on sale of the same shares and
the genuineness of the transaction. The addition under section 68 of the Act in the case on hand, it
appears, has been made only because the AO presumed that the purchases of the ‘said shares’ of M/s.
Shukun Constructions Ltd. were not made on the date as disclosed by the assessee, but was backdated
and an arranged transaction, and not because there was any irregularity in the sale of the said shares.
We find from the material on record that the purchases of the said shares were duly disclosed under
the head investment in the audited Balance Sheet as on 31.03.2004 relevant to A.Y. 2004-05. In this
context we concur with the averments of the learned A.R. for the assessee that if there was any
adverse material in respect of the purchases of the ‘said shares’, the AO ought to have or would have
proceeded to initiate proceedings for reopening the assessment for A.Y. 2004-05 while concluding the
assessment for A.Y. 2005-06, the year under consideration, on 31.12.2007 or thereafter till
31.03.2011, which he has not done. (ITA No. 3801/mum/2011, dt. 27.04.2016)(AY. 2005-06)

Farrah Marker v. ITO (Mum)(Trib), www.itatonline.org

S. 68: cash credits- Shares- Demat – Consideration was received through banking channel-
Addition was held to be not justified. [ S. 143(3)]
During the year, the assessee sold shares through a stock broker M/s Hem Securities Limited and
treated the gains as exempt long term capital gains. The AO treated the sale as bogus on the ground
that certain information was received from the Investigation Wing as a consequence of a search and
seizure action carried out under section 132 of the Act in the case of M/s Alliance Intermediaries &
Network Pvt. Ltd., through which the assessee had effected purchase of the impugned shares in the
immediately preceding year. As a result, the sale consideration has been treated as income from
undisclosed sources on the ground that there was no real sale and purchase of shares.
Held, the purchase of shares in the immediately preceding year was accepted by the Department in an
order u/s 147 r.w.s 143(3) of the Act. The shares were evidenced by entries in the demat statement
and consideration was received through banking channel. There was no clinching material to say that
the impugned transaction was bogus. Also, the statement recorded during the search on M/s Alliance

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Intermediaries & Network Pvt. Ltd. does not contain any infirmity qua the impugned transaction.
Therefore, the addition as income from undisclosed income was liable to be deleted.( ITA No.
2799/Mum/2015, dt. 29.02.2016)(AY. 2009-10)
Arvind Asmal Mehta v. ITO (Mum)(Trib), www.itatonline.org

S. 68 : Cash credits –Share capital- Identity, genuineness and creditworthiness of the

shareholder companies was furnished- Addition was held to be not justified.
Assessee company having produced copies of share applications, confirmations of the shareholders,
copies of their PANs board resolutions, directors reports, auditors reports, balance sheets, P & L A/c
and bank accounts in all the cases to prove the identity, genuineness and creditworthiness of the
shareholder companies and AO having not clarified what enquiry was conducted and what evidences
have been collected to draw adverse conclusion against the assessee, impugned addition made by the
AO cannot be sustained. (AY. 2008-09 )
Jadau Jewellers & Manufacturers (P) Ltd. v. ACIT (2016) 130 DTR 17 / 175 TTJ 344
(Jaipur)(Trib.)

S. 68 : Cash credits – Addition cannot be made for loans taken in the period prior to the
commencement of business as well as in the initial period of business. No addition in respect of
parties against whom summons for examination was not issued by the AO.
The Assessee obtained unsecured loans from numerous parties, while installing its plant and
machinery and also for 6 months after commencement of manufacturing. Confirmation of majority of
the parties was submitted by the Assessee and were even produced before the AO. However, addition
u/s 68 was made by the AO for want for creditworthiness of the parties. The ITAT deleted the
addition made by the AO and held that receipts during the pre-commencement period and during the
initial duration of operations could be assumed to be capital receipts since the Assessee could not
have earned huge income / profits during the pre-commencement and initial period of business.
Further, the ITAT also held the addition could not be made on the parties who were not presented by
the Assessee, since no summons for their examination was issued by the AO. (AY. 2006-07, 2007-08)
Kundles Loh Udyog v. ITO (2016) 45 ITR 11 (Chd.)(Trib)

S. 68 : Cash credits – Advance received against sale of accommodations in name of close family
members of assessee – Matter remanded.
The accommodations were already stated to be acquired out of undisclosed income of the assessee
which was brought to tax as undisclosed income in the hands of the assessee by a block assessment
order and orders of the Settlement Commission were framed against the assessee with taxes paid to
the department. Hence, the capital gains arising on sale of these accommodations owned and held by
the assessee in the name of close family members were chargeable to tax in the hands of the assessee.
The AO was directed to compute capital gains arising out of these two accommodations in the hands
of the assessee after duly verifying and authenticating the claim of the assessee with respect to
acquisition and ownership of the above accommodations.Matter remanded. (AY. 2007-08)
Vishwanath Acharya v. ACIT (2016) 45 ITR 554 (Mum.)(Trib.)

S. 68 : Cash credits – Cash deposits – Additional evidence- Matter remanded.

There was sufficient cause shown by the assesse which prevented the assesse from producing the
additional evidence during the assessment proceedings. Therefore, the AO was to admit the additional
evidence and decide the issue afresh on the merits after giving sufficient opportunity of being heard to
the assessee. Matter remanded. (AY. 2007-08)

Vishwanath Acharya v. ACIT (2016) 45 ITR 554 (Mum.)(Trib.)

S. 68 : Cash credits –Memorandum of Understanding – Cash returned to assessee and

surrendered the property as part of total surrender –Credit cannot be treated as Unexplained
Tribunal held that the cash was returned as per the memorandum of understanding hence addition
cannot be made as cash credits . (AY. 2006-07)
Today Homes and Infrastructure Pvt. Ltd. v. Dy. CIT (2016) 46 ITR 586 (Delhi)(Trib.)

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S. 68 : Cash credits – Share capital- Cross examination of witness was not given- Addition was
held to be not justified. [S.133(6)]
On appeal, the Tribunal held that the AO neither provided opportunity of cross-examination of his
witness as demanded by the assessee nor brought any material on record to controvert the material
placed on record by the assessee. The AO made direct enquiries with company C u/s. 133(6) of the
Act, in response to which confirmation was filed by that company. But the AO preferred to rely upon
the statement of the Director and disregarded all the other evidence. Therefore, the addition made by
the AO was not sustainable. (AY. 2007-08)
Vitrag Metal Pvt. Ltd. v. ITO (2016) 46 ITR 201 (Mum.)(Trib.)

S.68 : Cash credits – Accommodation entries – No addition could be made in hands of assessee
on account of unexplained cash credit.
Tribunal held that ; on appeal the High Court had held that the order of the Commission was final and
conclusive as to the matters stated therein for the AY decided by the Commission. The order of the
Commission showed that all the relevant material including the seized material was duly considered
by the Commission. Moreover, the jurisdictional High Court had held that even if some material had
been suppressed from the Commission, the only course available to the Revenue was to approach the
Commission for declaring its order a nullity. The order of the Commission was binding on the
Department and the logical consequences of the order had to be given effect. Thus, the addition u/s.68
could not be made in the case of the conduit companies. (AY. 2008-09)
Omni Farms Pvt. Ltd.v. Dy. CIT (2016) 46 ITR 505 (Delhi)(Trib.)

S.68 : Cash credits–Share transactions-General statement of director of another company

before Investigating wing and not providing assessee opportunity to confront director in
relation to transactions related to assessee – Additions was held to be not justified. [S. 132]
Tribunal held that the AO made additions on the basis of a general statement of the director of the
company. The name of the assessee did not appear specifically in any of the statement of the director.
Merely because the assessee could not produce the director before the AO that itself was not a
sufficient ground for the confrontation of the additions. Even the AO, in his remand report, did not
controvert the evidence filed by the assessee. Therefore, the additions made by the AO were not
warranted.(AY. 2003-04)
Yamuna Estate P.Ltd. v. ITO (2016) 45 ITR 517 (Mum.)(Trib.)

S. 68:Cash credits-Share application-Addition can be made in the hands of alleged bogus share
holders and not in the recipient company.
Dismissing the appeal of revenue the Tribunal held that in case of receipt of share application money
from the alleged bogus shareholders , addition can be made in the hands of the alleged share holders
and not in the income of the recipient company.( ITA No 3645/ Mum/ 2014 Bench A dt. 30-11-
2015 (AY. 2007-08)
ITO v. Superline Construction Pvt. Ltd. (2016) BCAJ–January-P. 18(Mum.)(Trib.)

S. 68:Cash credits-Share application money received from an associate concern cannot be

assessed as cash credits if assessee has discharged its initial onus to prove the identity,
creditworthiness and genuineness of the transaction.
Dismissing the appeal of revenue; the Tribunal held that the CIT(A) has dealt with issue all the
objections raised by the AO and after considering the documents placed on record, recorded a
categorical finding to the effect that amount payable and receivable by the assessee was squared off
which was in accordance with the provisions of Companies Act. Further finding was recorded to the
effect that these companies were assessed with I.T. Department for several years. The identity and
genuineness of the transaction was duly accepted. The detailed finding recorded by CIT(A) are as per
material on record( ITA no. 1470/Mum/2011, dt. 30.03.2016)(AY.2007-08)
DCIT v. Overseas Infrastructures (Mum.)(Trib.);www.itatonline.org

S.68:Cash credits-Confirmation was filed-Burden was discharged- Addition was deleted.

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The assessee filed the confirmation letters and other evidences ,Tribunal by following the ratio laid
down in CIT v. Orissa Corporation ( 1986 ) 159 ITR 78 (SC), held that addition was not justified.(
ITA No. 5500/Del/2013, dt. 24.02.2016)(AY.2009-10)
Hitender Pal Singh v. ITO (Delhi)(Trib.);www.itatonline.org

S. 68:Cash credits-Share application and share premium from private companies cannot be
treated as bogus and assessed as cash credits merely on the basis of report of Inspector.
Dismissing the appeal of revenue the Tribunal held that; The Assessing Officer heavily relied on the
Inspector’s report in confirming the addition but result of the enquiry of the Inspector has not been
communicated to the assessee, which is against the principles of natural justice. As per Assessing
Officer, in case of 5 companies, the source of fund was not found explained. The ld Assessing Officer
again gave show cause notice on 23/12/2010. The assessee filed reply on 27/12/2010 and it was
claimed before the Assessing Officer that no enquiry has been made by the Assessing Officer on
changed addresses. The Assessing Officer had not considered the evidence filed by the assessee
during the course of assessment proceedings i.e. affidavits confirming the transaction, PAN number,
complete addresses of creditors, copy of balance sheet, ITR for A.Y. 2008-09, bank statement and
form No. 18. The assessee had discharged its onus by providing the requisite evidences to prove the
identity, genuineness and creditworthiness of the cash creditors. The Assessing Officer herself had
accepted the remaining cash creditors to the tune of Rs. 3.95 crores explained on the basis of similar
evidences produced by the assessee as genuine. The loan/share capitals were received from the private
limited companies. They also are filing return under the company’s law and all information is
available on MCA website. The ADIT report was not conclusive to held that the cash creditors were
not genuine. It is not required under the law to prove the source of source U/s 68 of the Act. Primary
burden lies on the assessee has been discharged by filing the requisite evidences before the Assessing
Officer and shifted on the Assessing Officer to disprove the cash creditors’ transactions are not
genuine or bogus. The share application money was received by the appellant and subsequently
returned though banking channel. In case of 7 companies, the notices were served on it on given
addresses. There is no evidence directly or indirectly with the Assessing Officer that the assessee had
routed undisclosed money in the guise of share application money or loan. The ld DR’s argument
have also not convinced us that these parties were in accommodation entries in form of loan and share
application money after charging certain commission as such no survey/search has been carried out on
the creditors to prove that these companies are habitual to provide loan/share application money even
there is no evidence with the ld DR for making such allegation during the course of written
submissions. The case laws relied by the ld AR are squarely applicable on the given facts and
circumstances.( ITA No. 1103/JP/2011, dt. 21.03.2016) (AY. 2008-09)
ACIT v. Dhanlaxmi Equipment Pvt. Ltd. (Jaipur)(Trib.);www.itatonline.org

S. 69:Unexpained investments- Capital gains-"penny" stocks gave rise to huge capital gains in a
short period does not mean that the transaction is "bogus" if the documentation and evidences
cannot be faulted- Addition cannot be made as unexplained investments- Off market
transaction not unlawful. [ S.10(38), 45 ]

On appeal by the Department to the High Court HELD dismissing the appeal:The ITAT allowed the
claim of the Assessee by recording that the purchase of shares were duly recorded in the books
maintained by the Assessee. The ITAT has recorded a finding that the source of funds for acquisition
of the shares was the agricultural income which was duly offered and assessed to tax in those
Assessment Years. The Assessee has produced certificates from the aforesaid four companies to the
effect that the shares were infact transferred to the name of the Assessee. In these circumstances, the
decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly
disclosed by the Assessee cannot be faulted.Similarly, the sale of the said shares for Rs.1,41,08,484
through two Brokers namely, M/s Richmond Securities Pvt. Ltd. and M/s. Scorpio Management
Consultants Pvt. Ltd. cannot be disputed, because the fact that the Assessee has received the said
amount is not in dispute. It is neither the case of the Revenue that the shares in question are still lying
with the Assessee nor it is the case of the Revenue that the amounts received by the Assessee on sale

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of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the
statement of the Director of M/s. Richmand Securities Pvt. Ltd. regarding the sale transaction, the
Tribunal relying on the statement of the employee of M/s. Richmand Securities Pvt. Ltd. held that the
sale transaction was genuine.( ITA No. 456 of 2007, dt.07.09.2011)(AY. 2011-02)

CIT v. Mukesh Ratilal Marolia (Bom)(HC), www.itatonline.org

Editorial: Judgement of Tribunal in Mukesh R.Marolia v. Add.CIT ( 2006) SOT 247 (Mum)(Trib) is
affirmed .
SLP of revenue was dismissed by Supreme Court .SLP No 20146/ 2012 dt 27-1- 2014
S. 69 :Unexplained investments–Search carried on at the premises of third party- Merely on the
basis of third party statement addition cannot be made. [S. 131, 132 ]
A search was conducted upon one 'S' and certain agreements to sell were seized from his possession,
which indicated that the assessee had entered into agreement with 'S' to purchase various plots of land.
Further, statement of ‘S’ was also recorded u/s 131.'S' clarified that the plots referred to in the
agreement to sell were disputed and could not be transferred due to pending civil suits. In place of
those plots, other plots which were in the same vicinity were transferred to the person specified by the
assesse and the entire consideration in terms of the agreement to sell had been paid by a
person/representative of the assessee.Thereupon the Assessing Officer made additions in crores of
rupees under section 69 to the income of the assessee in relation to the assessment years 2005-06 to
2008-09.The Tribunal upon appreciation of the evidence on record held that insofar as assessment
year 2005-06 was concerned, the agreement proved that Rs. 11 lakhs had been paid by the assessee.It,
accordingly, partly allowed the appeal in relation to assessment year 2005-06 by upholding the
addition to the extent of Rs. 11 lakhs and allowed the assessee’s appeals in relation to assessment
years 2006-07 and 2007-08.On analysis of the various documents, the High Court held that revenue
had failed to bring on record any reliable material to prove that the assessee had made actual
investment in crores in the previous years relevant to assessment years 2005-06, 2006-07 and 2007-08
except for the payment of Rs. 11 lakh. Held no addition u/s 69 justified. (AY. 2005-06 to 2007-08)
PCIT v. Vivek Prahladbhai Patel (2016) 237 Taxman 331 (Guj.)(HC)

S. 69:Unexplained investments-Bogus purchases- Sales was accepted as genuine- Purchase

cannot be assessed as bogus.
Dismissing the appeal of revenue the Tribunal held that ; assesse has furnished quantitative
reconciliation, gross profit rate is comparable to earlier and subsequent years, suppliers are income tax
assesse and their sales have not been treated as bogus by their Assessing Officer, payments are by
account payee cheques and other evidence was available , hence the purchases cannot be treated as
bogus purchases.(ITA No. 5163/Mum/ 2013 dt.24-02-2016 ( AY. 2010-11)
ACIT v. Jaybharat Textiles & Real Estate Ltd (Mum)(Trib) www.itatonline.org

S. 69:Unexplained investments-Discrepancy in Stock– Assessee’s bank had taken insurance

policy for stocks to protect cash credit facility provided–Inference of AO that the same meant to
be declaration made by assessee – letters issued by bank and policy document,stock
reconciliation statement proves no quantity difference–Addition towards suppression of closing
stock cannot be sustained.
The assessee’s bank had taken an insurance policy of stocks of Rs 1.5 cr in order to protect its cash
credit facility advanced to the assessee. In the insurance policy, it was mentioned that the property
insured was ‘on stock of cement manufacturing’. The closing stock of finished goods declared by
assessee was to the tune of Rs 33,895 in its balance sheet. The AO inferred that the insured amount of
stock is the stock declared to bank for finished goods alone and added the differential amount under
Section 69. On appeal to Tribunal, it was held that the clarificatory letter issued by bank , insurance
policy document and stock reconciliation statement showed that the amount insured was for raw
materials and finished goods both and that there was no quantity difference between what was

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submitted to bank vis-à-vis the audited balance sheet filed with return. No addition was to be made
towards suppression of closing stock. (AY 2008-09)
ACIT v. Bharat Hi-Tech (Cement) P Ltd (2016) 176 TTJ 166(Kol) ( Trib)

S.69:Unexplained investments-Genuineness of Transaction– Lease Deed properly registered and

stamp duty was paid– Approved by BMC and State Government–Transactions cannot be held
to be sham on basis of doubts and apprehensions.
Held that CIT(A) has recorded detailed findings that the transaction was of lease only. CIT(A) held
that lease deed was properly registered and stamp duty was paid as per Bombay Stamp Act. Further,
lease deed was approved by BMC and State Government. Title of the property continued in the name
of assessee. Transactions cannot be held to be sham merely on basis of doubts and apprehensions.
Documents cannot be brushed aside or rewritten without any contrary material on record. Thereby, no
inference is called for. (AY. 03-04, 06-07, 07-08)
Kamala Brothers v. ITO (2016) 176 TTJ 178 (Mum)(Trib)

S. 69 :Unexplained investments–Details mentioned in pocket diary related to the items traded

by the Assessee,- Only addition of gross profit was held to be justified.
Consequent to a search in the business premises of the Assessee, a pocket diary containing details of
cash, chains and 28H set was found. The Director was questioned only regarding the cash mentioned
in the diary. The AO aggregated all the three items as unexplained investment in the hands of the
Assessee. During the course of assessment, the Director disowned the diary. The ITAT held that
Assessee did not discharge the burden upon him to disprove the documents obtained during the course
of the search. Since the items mentioned in the diary related to the business of the Assessee, it could
have been unaccounted for in its books. Since, the Assessee had furnished the gross profit earned
from sale of jewellery, the ITAT held that the addition was to be restricted to the amount of gross
profit on that sum. (AY. 2009-10, 2010-11)
Tribhovandas Bhimji Zaveri (Delhi) P. Ltd. v. ACIT (2016) 45 ITR 636 (Mum)(Trib)

S. 69 :Unexplained investments - Books of account having been accepted no addition can be

made in respect of suppressed sales of scrap. [S. 145]
The Tribunal held that assessee’s books of account having been accepted and there being no evidence
whatsoever of suppression of sales of scrap, addition was not justified. (AY. 2007-08)
Gillette India Ltd. v. ACIT (2016) 175 TTJ 35 (UO)(Jaipur)(Trib.)

S. 69 : Unexplained investments-Addition or disallowance can be set off-Telescoping of amount

surrendered.
The Tribunal held that addition or disallowance made by the AO can be set off against the amount
surrendered during the search proceedings when no other undisclosed income has been discovered
during the assessment proceedings. (AY. 2012-13)
Gillco Developers & Builders (P) Ltd. v. Dy. CIT (2016) 175 TTJ 81 (UO)(Chd.)(Trib.)

S. 69:Unexplained investments–Bogus purchases-An addition on account of bogus purchases

cannot be made only on the basis of information received from the MVAT department.
[S.143(3)]
Allowing the appeal of assesse the Tribunal held that;we have carefully considered the rival
submissions. The entire discussion in the assessment order reveals that purchases from four parties
namely Dhruv sales Corporation – Rs.13,67,640/-; Subhlaxmi Sales Corp. – Rs.20,20,800/-; Dharshan
Sales Corporation -Rs.9,64,656/-; and Paras (India)- Rs.33,98,400, totalling to Rs.77,51,496/- have
been treated to be bogus based on the purported enquiries conducted by the Sales Tax Department of
the Government of Maharashtra. Ostensibly, the Assessing Officer ought to have brought on record
material which is relevant to the transactions of the assessee with the aforesaid four parties instead of
making a general observation about the information received from the Sales Tax Department of the
Government of Maharashtra. Quite clearly, the Assessing Officer as well as CIT(Appeals) have taken
note of the fact that no sales could have been effected by the assessee without purchases. In the
present case, assessee has explained that all its sales are by way of exports. The books of account

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maintained by the assessee show payment for effecting such purchases by account payee cheques and
also the vouchers for sale and purchase of goods, etc. Notably, no independent enquiries have been
conducted by the Assessing Officer. Under identical circumstances, our Co-ordinate Benches in the
cases of Deepak Popatwala Gal, Shri Rajeev G. Kalathiland Ramesh Kumar and Co. have held that
the Assessing Officer was not justified in making additions merely on the basis of information
obtained from the Sales Tax Department of the Government of Maharashtra without conducting any
independent enquiries. Before the CIT(Appeals), one of the points raised by the assessee was with
respect to an opportunity to cross examine the four parties, but we find that no such opportunity have
been allowed. Considering the entirety of facts and circumstances of the case and the aforesaid
precedents, which have been rendered under identical circumstances, in our view, the CIT(Appeals)
erred in sustaining the addition to the extent of Rs.4,19,356/- instead of deleting the entire addition of
Rs.9,68,937/- madeby the Assessing Officer. We direct accordingly.(ITA No. 5427/Mum/2015, dt.
18.03.2016)(AY2009-10)
Imperial Imp & Exp. v. ITO (Mum.)(Trib.);www.itatonline.org

S. 69:Unexplained investments-Bogus purchases-Theory that transaction "defies human

probabilities" cannot be applied to purchases in isolation but has to be applied to the entire
transaction in the light of documentary evidence produced by the assessee-Sales are accepted as
genuine-Purchases cannot be disallowed.Addition was deleted. [S.143(3)]
Allowing the appeal of assessee following the ratio of decision in CIT v. Nikunj Eximp Enterprieses
Pvt. Ltd. (2015)372 ITR 619 (Bom)(HC ), the Tribunal held that there cannot be sales without
purchases and the fact that the assessee has exported the goods was not controverted. It is a known
fact that the claim of export cannot be considered to be not-genuine, since the export cannot take
place without clearance from Customs Authorities, another arm of Government of India. Hence, the
claim of export has to be necessarily accepted on the basis of relevant documents. In the instant case
also, the assessee has furnished the copies of purchase invoices, confirmation letters, copies of ledger
accounts, copies of export bills, the details of re-import of the same and details of payment of customs
duty on re-import, the details of purchase return. All these chronological events have not been
disproved by the tax authorities. Therefore the theory of human probability has been applied to only
part of transactions and not to the whole round of transactions. In any case, it cannot be said that the
claim of the assessee defies the human probabilities, when one examines the documents furnished by
the assessee. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the
addition made by the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct
the AO to delete the impugned addition.( ITA no. 3823/Mum/2014, dt. 09.03.2016)(AY 2009-10)
Maruti Impex v. JCIT (Mum.)(Trib.);www.itatonline.org

S. 69:Unexplained investments-Additions confirmed by the CIT(A) was deleted by considering

the details submitted by the Assessee.
Assessing Officer made the addition which was confirmed by the CIT(A) without considering the
various submissions and details filed by the assesse . On appeal tribunal held that ; We have
considered the rival contentions of the parties and perused the material available before us. We have
also perused various certificates and bank statements which were brought to our notice during the
course of hearing from page no 13 to 42 of the paper book. As discussed above we find it is a classical
case where various additions have been made by the AO without proper application of mind and has
no distant connection with the material on record. We find that the third party transactions were added
in the hands of the assessee without without any basis or material and thus, the AO framed the
assessment in a hypothetical way putting the assessee to enormous harassment and inconvenience.
Similarly, the ld. CIT(A) confirmed the addition without looking into the merits and facts of the cases
which are very clear and apparent from the records produced. Therefore, in view of these facts, the
additions of Rs.1,40,43,154/- in Ground No.1, Rs.10 lakhs in ground no 2 and Rs.26 lakhs in ground
No.3 on account of unexplained/undisclosed income are ordered to be deleted by reversing the order
of First Appellate Authority. AO is directed accordingly.( ITA No. 5302/mum/2012, dt. 15.03.2016) (
AY. 2007-08)
Mintu Sayermal Jain (Mrs) v. ITO (Mum.)(Trib.);www.itatonline.org

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S. 69A:Unexplained money-Gifts-large gifts received from abroad from donors who are total
strangers to the assessee and not related by relationship, business or friendship- Deletion of
addition was held to be justified.
(i) Suspicion and doubt may be the starting point of an investigation but cannot, at the final stage of
assessment, take the place of relevant facts, particularly where a deeming provision is sought to be
invoked. The principle that governs a deeming provision is that the initial onus lies upon the revenue
to raise a prima facie doubt on the basis of credible material. The onus, thereafter, shifts to the
assessee to prove that the gift is genuine and if the assessee is unable to proffer a credible explanation,
the Assessing Officer may legitimately raise an inference against the assessee. If, however, the
assessee furnishes all relevant facts within his knowledge and offers a credible explanation, the onus
reverts to the revenue to prove that these facts are not correct. The revenue cannot draw an inference
based upon suspicion or doubt or perceptions of culpability or on the quantum of the amount,
involved. Any ambiguity or any ifs and buts in the material collected by the Assessing Officer must
necessarily be read in favour of the assessee, particularly when the question is one of taxation, under a
deeming provision. Thus, neither suspicion/doubt, nor the quantum shall determine the exercise of
jurisdiction by the Assessing Officer. The above exposition shall not be misconstrued to restrict the
power of the revenue to raise an inference as to the efficacy of material produced by or before the
Assessing Officer.
(ii) On the question whether the assessee has discharged the onus of establishing that the gifts are
genuine and cannot be treated as his deemed income under Section 69-A of the Act, admittedly, the
gifts were received by the assessee for and on behalf of his daughters, while he was in London.
Alleging that the gifts were the deemed income of the assessee, the Assessing Officer called upon the
assessee to show cause why the gifts be not treated as his income. The Assessing Officer also initiated
a protective assessment against the daughters. The Assessing Officer may have been right in serving a
notice and initiating an investigation as these large monetary gifts would raise suspicion about their
genuineness but was apparently so convinced of the nature of the funds that he forgot that he is
dealing with a deeming provision and proceeded to initiate an inquisition instead of an inquiry.
(iii) A question may, however, legitimately arise that such a large amount could not be given as a gift
on the marriage of the assessee’s daughter but this question is speculative and cannot form the basis
for raising an inference against an assessee. The Assessing Officer was apparently over-awed by the
amount of the gift and, therefore, proceeded to base his opinion on his perception that no one would
gift such a large amount. A deeming provision requires the Assessing Officer to collect relevant facts
and then confront the assessee, who is thereafter, required to explain incriminating facts and in case
he fails to proffer a credible information, the Assessing Officer may validly raise an inference of
deemed income under section 69-A of the Act.
(iv) If the assessee proffers an explanation and discloses all relevant facts within his knowledge, the
onus reverts to the revenue to adduce evidence and only thereafter, may an inference be raised, based
upon relevant facts, by invoking the deeming provisions of Section 69-A of the Act. It is true that
inferences and presumptions are integral to an adjudicatory process but cannot by themselves be
raised to the status of substantial evidence or evidence sufficient to raise an inference. A deeming
provision, thus, enables the revenue to raise an inference against an assessee on the basis of tangible
material and not on mere suspicion, conjectures or perceptions. It would also be necessary to reiterate
that it is not perceptions but concrete facts that underline quasi judicial determinations and where
concrete facts are not available, relevant facts, as would raise a credible inference of culpability
requiring an assessee to rebut the inference so raised. More often than not, revenue authorities, for
want of relevant material, institute “inquisitions”, as opposed to inquiries and by addressing questions
that the more inculpatory in nature, seek to build their case, from answers proffered by an assessee.
(v) An arrangement between a donor and another is an arrangement between the donor and his source
of money. The onus to probe and prove this aspect lies upon the revenue and not upon the assessee,
particularly where the income is being dealt with under a deeming provision. A person who receives a
gift, is not required to prove the source of the money of his donor.
(vi) The Assessing Officer proceeded as if the entire onus lay upon the assessee, ignored the material
received from the Central Board of Direct Taxes from the Inland Revenue Service, Great Britain and
failed to follow the matter any further with respect to Varinder Sharma and on the basis of suspicion,
held that gifts are not genuine. Having already held that it was for the revenue to proceed to

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investigate the matter further, I find no error in the opinion recorded by the Tribunal and
consequently, the substantial question of law is answered against the revenue.
CIT v. Jawahar Lal Oswal (FB)( 2016) 382 ITR 453 / 133 DTR 15/ 284 CTR 188 238 Taxman
225 (P & H) (HC)
CIT v. Monica Oswal (Ms)(FB)( 2016) 382 ITR 453/ 133 DTR 15/ 284 CTR 188 (P & H) (HC)
CIT v. Ruchika Oswal(Ms)( 2016) 382 ITR 453/ 133 DTR 15/ 284 CTR 188 (FB)(P & H) (HC)
CIT v. Jawahal Lal Oswal (FB)( 2016) 382 ITR 453/ 133 DTR 15/ 284 CTR 188 (P & H) (HC)
Editorial : CIT v. Jawahar Lal Oswal ( 2004) 190 CTR 56 (P&H)(HC)

S. 69A : Unexplained money – Pay order-On the basis of evidence found in the course of search
addition was made, since assessee had not established that amount mentioned in pay order was
not in nature of income, impugned addition deserved to be upheld .[ S. 292C ]
On 5-1-2007, Authorised Officer conducted a search under section 132 upon assessee and one 'K',
who was colleague of assessee, and seized various documents including a letter dated 12-4-1999,
bearing seal of UBS-AG (Union Bank of Switzerland), from residence of 'K' - In said letter, it was
stated that pay order in favour of assessee payable in India had expired its encashment period and
fresh pay order was in process of being issued. Said letter was written by Chief Manager UBS-AG to
assessee. Assessing Officer assessed assessee for assessment year 2000-01 and on basis of said letter
made a certain addition to his income on account of income from undisclosed sources by way of pay
order . Assessee denied any knowledge of aforesaid letter On appeal the Tribunal held that the onus
to establish nature of money/receipt as being not in nature of income was on assessee and which he
had clearly not established , under circumstances, there was no basis to consider amount mentioned
in pay order as not received by assessee during relevant assessment year and being not in nature of
income therefore, impugned addition deserved to be upheld.(AY.2000-01)
Hassan Ali Khan v. Dy.CIT (2016) 157 ITD 529 (Mum) ( Trib.)

S. 69A : Unexplained money–Jewellery given to daughter at the time of marriage as per Will-
No addition could be made merely on ground that 'Will' was not registered and no probate or
letter of Administration had been obtained.
Allowing the appeal of assesse the Tribunal held that ;Assessing Officer could not make addition to
assessee's income in respect of jewellery given to his daughter at time of marriage as per 'Will' of
assessee's mother merely on ground that 'Will' was not registered and no probate or letter of
Administration had been obtained ( AY. 2006-07)
Subhash Chander Goel v. ITO ( 2016) 156 ITD 808 (Chd.)(Trib.)

S. 69A : Unexplained money – No addition if the difference in stock of gold was reconciled by
the Assessee as it had received gold on sale or return basis which was not included in its books
as stock.
During the course of search, there was a difference in the physical stock of gold as against the book
stock. The shortage in stock was treated as unaccounted sales by the AO and added to the income of
the Asssessee. Before the CIT(A), the Assessee submitted that the difference in stock was because it
had given certain stock to karigars and it had also received certain stock on sale or return basis. While,
the CIT(A) accepted that certain stock was kept with karigars, he did not accept that some gold was
received on sale or return basis. The ITAT held that the CIT(A) had adopted a pick and choose
method and the Director need not have all the minutest details of the stock of gold. The addition was
deleted on the basis of the documentary evidence filed by the Assessee which was not controverted by
the Department. (AY. 2009-10 ,2010-11)
Tribhovandas Bhimji Zaveri (Delhi) P. Ltd. v. ACIT (2016) 45 ITR 636 (Mum.)(Trib.)

S. 69A : Unexplained money – Negative cash balance was added as unexplained money in the
absence of any explanation by the Assessee.
The AO noticed negative cash balance on certain dates, and peak of this negative balance was added
and unexplained income. The Assessee alleged that the entries were recorded in the books of accounts
on the wring dates which led to the negative cash balance. The ITAT held that the AO had found

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specific defects in the cash book which could not be controverted by the Assessee and the addition
was upheld. (AY. 2008-09)
Brothers Pharma P. Ltd. v. ITO (2016) 45 ITR (Jaipur)(Trib) 154

S. 69B :Amounts of investments not fully disclosed in books of account –Ornaments , watches,
cash was found in the course of search- Since income returned by assessee for preceding nine
years was meager, impugned addition deserved to be confirmed.
Asessing Officer on basis of various documents seized on search from assessee made certain addition
to his income on account of unexplained ornaments, watches and cash in hand . Assessee stated that
he had shown said assets in account books for current assessment year 2000-01 as opening capital
carried over from generations as part of family heirlooms. On appeal Tribunal held that since income
returned by assessee for nine years preceding current year was meager, being not sufficient for family
even to meet two ends, impugned addition deserved to be confirmed .(AY.2000-01)
Hassan Ali Khan v. Dy.CIT (2016) 157 ITD 529 (Mum) ( Trib.)

S. 69C : Unexplained expenditure–Birth day expenses- Addition was reduced to half–Held to be

justified.
AO has made addition to the income of the assessee on account of expenses incurred on birth day
party of his grand son. On appeal Tribunal reduced the addition to half holding that the invitation to
birth day party was from son and daughter in law of assessee. On appeal the High Court affirmed the
view of the Tribunal. ( AY. 2007-08 )
Vijay Agarwal v. CIT ( 2016) 236 Taxman 542 (P& H)(HC)

S. 69C: Unexplained expenditure-Investments–Explanation regarding amounts in the name of

sundry creditors-Amounts representing credits can be added to total income-Matter remanded
to permit parties to prove genuineness of creditors. [S. 68, 69]
Allowing the appeal of assesse, the Court held that; If sundry credits are not proved by the assessee
addition can be made by the Assessing Officer by resorting to section 69C. Held, that the Tribunal had
found on factual scrutiny that the sundry creditors indicated in the books of account of the assessee
were not proved in their entirety and the genuineness of the sundry creditors being a question of fact it
was required to be examined by the Assessing Officer. It remitted the matter to the Assessing Officer
reserving liberty to the Revenue as well as the assessee to prove the genuineness of sundry creditors.
This was justified.(AY. 2003-2004, 2004-2005)
P.M.Abdulla v. ITO(2015) 60 taxmann.com 52/ (2016) 380 ITR 125 (Karn.)(HC)

S. 69C : Unexplained expenditure – Personal expenditure-Addition of Rs 7-50 was confirmed

as against addition of Rs. 28.50 lakhs to income of assessee on account of life style other
expenditure,
Assessing Officer made an addition of Rs. 28.50 lakhs to income of assessee on account of life style
other expenditure . Tribunal held that said estimate of Rs. 28.50 lakhs, to be valid in law, had to be an
informed one, taking into account different variables or attributes on which it depended. Since no such
exercise had been attempted by revenue, addition on account of lifestyle required to be made on basis
of assessee's own estimate at Rs. 7.50 lakhs .(AY.2000-01)
Hassan Ali Khan v. Dy.CIT (2016) 157 ITD 529 (Mum.)(Trib.)

S. 69C : Unexplained expenditure–Addition on account of marriage expenses of daughter on

basis of surmises and conjectures was deleted.
Allowing the appeal of assesse the Tribunal held that ; Assessing Officer without making a reasonable
estimate of expenses incurred by assessee on marriage of his daughter on basis of material on record,
could not make addition under section 69C merely on basis of surmises and conjectures.( AY. 2006-
07)
Subhash Chander Goel v. ITO (2016) 156 ITD 808 (Chd.)(Trib.)

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S.69C:Unexplained expenditure-Assessment-Bogus Sales and purchases- Addition solely on the
basis of information received from the sales-tax department is not sustainable. Suspicion of the
highest degree cannot take the place of evidence. [S.143(3)]
Allowing the appeal of assessee the Tribunal held that; the AO had made the addition on the basis of
information received from the Sales tax department, but, he did not make any independent inquiry. He
did not follow the principles of natural justice before making the addition. The First Appellate
Authority had reduced the addition to 20%, but he has not given any justification except stating that
same was done to plug the probable leakage revenue. Considering the peculiar facts and
circumstances of the case, we are reversing the order of the First Appellate Authority.(ITA No.
4547/2545/1275/Mum/2014, dt. 01.01.2016)(AY. 2009-10)
Hiralal Chunilal Jain v. ITO (Mum.)(Trib.);www.itatonline.org

S. 70 : Set off of loss - One source against income from another source - Same head of income –
Loss of 10A eligible unit allowed to be set off against profit of non-10A unit. [ S. 10A, 72 ]
The Assessee had two units; one eligible for deduction u/s 10A which had incurred a loss; and another
non-eligible unit. The Assessee set-off the loss from the eligible unit against the profit of the non-
eligible unit. The ITAT allowed the claim of the Assessee based on the circular of the CBDT, which
stated that loss of eligible units would be allowed for carry forward and set off u/s 72. (AY 2008-09)
NEC HCL System Technologies Ltd. v. ACIT (2016) 176 TTJ436 (Delhi)(Trib.)

S. 71 : Set off of loss One head against income from another - Free trade zone- Loss suffered by
assessee in an unit entitled for exemption under section 10A cannot be set off against income
from any other unit not eligible for such exemption. [ S.10A ]
Tribunal held that loss suffered by assessee in an unit entitled for exemption under section 10A cannot
be set off against income from other unit which is not eligible for such exemption. ( AY. 2008-09)
Super Auto Forge (P.) Ltd. v.ACIT (2016) 157 ITD 467 (Chennai)(Trib)

S. 73: Losses in speculation business - The amendment to Explanation to s. 73 by Finance (No.

2) Act, 2014 w.e.f. 01.04.2015 is clarificatory in nature and operates retrospectively from
01.04.1977, being the date the Explanation to s. 73 was placed on the statute. Therefore, the loss
incurred in share trading business by companies whose principal business is trading in shares
will not be treated as speculation loss but as normal business loss and the same can be adjusted
against income from business or other sources.[S. 28(i), 56]
Allowing the appeal of assesse the Tribunal held that;
(1).The intention of the Legislature, from a perusal of the Wanchoo Committee Report and CBDT
Circular No. 204 dated 24.07.1976, was not to treat purchase and sale of shares by companies whose
main business is trading in shares as speculative business and therefore the Explanation to section 73
of the Act should be read only to the extent of the purpose for which it was inserted. The subsequent
amendment made by Finance (No.2) Act, 2014 in the Explanation to section 73 of the Act appears to
be made in order to clarify the real intention behind the insertion thereof, by removing the obvious
hardship caused to various assessees whose main business is trading in shares. The amendment has
removed the anomaly and brought the ambit of the Explanation to section 73 of the Act in line with
the intention of the Legislature by placing the companies whose principal business is trading in shares
as part of the exception to Explanation to section 73 of the Act, because such companies were not the
companies for whom the Explanation was inserted.
(ii) The insertion of the amendment in the Explanation to section 73 of the Act by the Finance (No. 2)
Act, 2014, in our view, is curative and classificatory in nature. If the amendment is applied
prospectively from A.Y. 2015-16, a piquant situation would arise that an assessee who has earned
profit from purchase and sale of shares in A.Y. 2015-16 would be treated as normal business profit
and not speculation business profit in view of the exception carried out by the amendment in
Explanation to section 73 of the Act. In these circumstances, speculation business loss incurred by
trading in shares in earlier years will not be allowed to be set off against such profit from purchase
and sale of shares to such companies in A.Y. 2015-16. For this reason also, the amendment inserted to
Explanation to section 73 of the Act by Finance (No. 2) Act, 2014 is to be applied retrospectively

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from the date of the insertion to Explanation to section 73 of the Act. (ITA No. 321/Mum/2013, dt.
13.05.2016)(AY. 2009-10)
Fiduciary Share & Stock P. Ltd. v. ACIT (Mum)(Trib), www.itatonline.org

S. 73 : Losses in speculation business - Neither trading in shares done by taking delivery, nor
derivative transaction (Future and options) in shares are speculative transaction; loss from one
can be set off from profit from other. [S. 43(5)]
The assessee is engaged in broking business and also in hedging and arbitrage business. The assessee
incurred loss in dealing in shares which was cla imed as regular business of assessee. In respect of
non delivery based transactions , the assesse had profit on futures and option dealings while incurred
loss on NSE and BSE capital market . AO treated losses on both delivery and non-delivery based
share transactions as speculation loss hereby making the assessee ineligible to set off the same against
the regular business profit derived from derived transaction. On appeal CIT(A) up held the order of
AO. On secand appeal Tribunal held that ‘ Trading of shares which is done by taking delivery does
not come under purview of section 43(5); similarly, as per sub-clause (d) of section 43(5), derivative
transaction in shares is also not speculation transaction as defined in section 43(5); and therefore, both
profit/loss from all share delivery transactions and derivative transactions have same meaning as far
as section 43(5) is concerned . loss from share dealing should be allowed to be set off from profits
from F & O in share transactions. Thus, before application of Explanation to section 73, aggregation
of business profit or loss from these transactions is to be worked out irrespective of fact whether it is
from share delivery transaction or derivative transactions .(AY. 2008-09)

Lohia Securities Ltd.v. Dy.CIT (2016) 157 ITD 265 (Kol.) (Trib.)

S. 73 : Losses in speculation business – Divided and interest income Entitled to set off the loss
arising out of trading in futures and options/ derivatives against other income. [ S. 56, 72]
During year the assesse earned dividend income and interest income and it claimed set off of loss
arising out of trading in Futures and Options/derivatives against other income. Lower authorities
disallowed the claim . On appeal the Tribunal held that ; assessee's case would fall within purview of
exception carved out in Explanation to section 73. and, therefore, it was entitled to set off of loss
against other income (AY. 2006-07)
A.K. Capital Markets Ltd. v. Dy.CIT ( 2016) 156 ITD 528 (Delhi)(Trib.)

S. 73: Losses in speculation business-Where the assessee is a dealer in shares, the entire
business of share trading and derivatives should be treated as a composite business and
aggregated before applying Explanation to S. 73.[S. 43(5)]
Allowing the appeal of assessee the Tribunal held that; The assessee was a member of two recognized
Stock Exchange–BSE & NSE. Both Exchanges had two separate segments i.e. Capital Market
Segment and Derivative Segment. In Capital market segment, assessee made trading of equity shares
whereas in derivative segment, future and options. The AO held that the transactions done by the
assessee which were not covered u/s 43(5) shall be hit by explanation to section 73 and shall be
treated as speculative in nature and accordingly he disallowed a sum of Rs.56,94,166/- as deemed
speculative loss, applying explanation to section 73. CIT (A) held that derivative transactions were
covered by sec. 43(5)(d) and therefore, could not be held as speculative transactions. On the other
hand, share trading done in the cash market is hit by explanation to section 73, and therefore,any
loss/profit arising there from shall be deemed to be speculative, and could only be set off against
income of subsequent years.

Held, by the Tribunal, where the assessee is a dealer in shares, the entire business consists in sale
purchase of shares, then, it should be treated as composite business. Also, assessee’s stand of treating
the whole business as composite business has always been accepted by the revenue in earlier as well
as subsequent years. Accordingly, whole of assessee’s business was treated as speculative and loss of
current year was allowed to be set off against profits of the current year.( ITA NO.4053/Mum/2013,
dt. 16.03.2016)(AY. 2009-10)
J.G.A. Shah Brokers P. Ltd. v. DCIT (Mum.)(Trib.);www.itatonline.org

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S. 74 : Losses-Capital gains-loss arising from transfer of short-term capital asset, which are
brought forward from earlier years, can be set-off against capital gain assessable for subsequent
assessment year in respect of any other capital asset. [S. 70]
Allowing the appeal of assesse the Tribunal held that; In view of provisions of section 74(1)(a) loss
arising from transfer of short-term capital asset, which are brought forward from earlier years, can be
set-off against capital gain assessable for subsequent assessment year in respect of any other capital
asset which could be either long-term capital gain and short-term capital gain.[AY.2010-11]
GSB Capital Markets Ltd. v. Dy.CIT (2016) 156 ITD 770 (Mum)(Trib).

S.79:Carry forward and set off of losses -Change of hundred per cent. shareholding and
beneficial ownership of shares in assessee -No question of piercing veil at instance of assessee to
show ultimate beneficial ownership with parent company arises- Loss was not allowed to be set
off.
Dismissing the appeal of assessee the Court held that;Having examined the facts as well as the
concurrent orders of the AO and the ITAT, the Court finds that there was indeed a change of
ownership of 100% shares of Yum India from Yum Asia to Yum Singapore, both of which were
distinct entities. Although they might be AEs of Yum USA, there is nothing to show that there was
any agreement or arrangement that the beneficial owner of such shares would be the holding
company, Yum USA. The question of ‘piercing the veil’ at the instance of Yum India does not arise.
In the circumstances, it was rightly concluded by the ITAT that in terms of Section 79 of the Act,
Yum India cannot be permitted to set off the carry forward accumulated business losses of the earlier
years.(AY.2009-2010)
ITO v. Yum Restaurants (I) P. Ltd. (2016) 380 ITR 637/ 131 DTR 23 /66 taxmann.com 47/283
CTR 129(Delhi)(HC)

S. 80C : Deduction-Deduction for repayment of loan is not available when loan was taken after
acquisition of the house property. [ S. 24 ]
Assessee, an individual, filed return of income claiming deduction for repayment of loan under
section 80C(2)(xviii) of the Act. The Assessing Officer denied the deduction on the ground that the
property was purchased in November 2005 and loan was taken only in December 2005. The CIT(A)
and Tribunal upheld the order of the Assessing Officer. On appeal, the High Court held that deduction
under section 80C(2)(xviii) is available only if loan was utilized for acquisition of the property
therefore, assessee was not entitled to claim the deduction under section 80C.(AY. 2007-08)
Vijay Aggarwal v. CIT (2016) 236 Taxman 542 (P & H) (HC)

S. 80G : Donation – Renewal of registration - Non-maintenance of accounts pertaining to grant

received from Government – Matter remanded to ITAT to re-examine the facts and re-consider
the grant of renewal of registration under section 80G. [S. 80G(5)(i)]
The assessee-society had filed an application for renewal of registration granted under section 80G.
The Commissioner rejected the application on the ground that the receipt of grant from the
government towards vermiculture project and expenditure incurred from the same were not accounted
for in the books of the society. On appeal before the Tribunal, the Tribunal held that the assessee is
entitled to renewal of registration under section 80G of the Act. On further appeal before the High
Court by the Revenue, the matter was remanded back to the Tribunal to re-decide the matter on merits
as the Tribunal, in the earlier occasion, overturned the findings of the Commissioner without
appreciating the facts and unsupported by reasons substantiating the same.
CIT v. Vijaya Mahantesh Vidyavardak Sangha (2016) 236 Taxman 414 (Karn.)(HC)

S. 80G: Donations-Approval of institution–Disqualification of religious trusts-Trust registered

as religious trust – Not spending any amount for religious purposes or activities – Trust entitled
for registration. [S.80G(5)]
On appeal, the tribunal held that though the assessee was registered as a religious trust its income and
expenditure account showed that it had spent amount on education, medical relief and relief to the

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poor. Hence, it was eligible for the benefits of section 80G(5B). The Commissioner was directed to
grant section 80G(5) registration to the assessee. (AY. 2015-16)
Yamunaji Mandir Trust v. CIT (2016) 46 ITR 283 (Rajkot)(Trib.)

S. 80HHC:Export business-Industrial undertaking-Whether the assesse is entitled deductions

under all three sections ,ie. 80HHC, 80IA, 80IB, matter referred to larger Bench. [S. 80IA(9),
80IB]
Controversy on whether S. 801A(9) mandates that the amount of profits allowed as deduction u/s
801A(1) has to be reduced from the profits of the business of the undertaking while computing
deduction under any another provisions under heading “C” in Chapter VI-A of the Income-tax Act,
1961 is referred to larger Bench.While Hon’ble Mr. Justice Anil R. Dave took the view that the
judgement of the Delhi High Court in Great Eastern Exports v. CIT[2011] 332 ITR 14 (Delhi) lays
down the correct position in law and allowed the appeals of the Revenue, Hon’ble Mr. Justice Dipak
Misra dissented and held that the law laid down by the Bombay High Court had in Associated
Capsules Private Limited v. Dy. CIT [2011] 332 ITR 42 (Bom.) lays down the correct position in law
and dismissed the appeals of the Revenue.In view of difference of opinion, the matters have been
referred to a larger Bench in terms of signed reportable judgment. The Registry has been directed to
place the matters before the Hon’ble the Chief Justice of India.
ACIT v. Micro Labs Ltd.(2016) 380 ITR 1/ 283 CTR 9 (SC)

S. 80HHC:Export business- Total turnover-Sale proceeds of scrap cannot be included in total

turnover.
The issue in these appeals pertains to the question whether the proceeds generated from the sale of
scrap would be included in the total turnover. In the recent decision of this Court in CIT v. Punjab
Stainless Steel Industries & Ors. reported in [2014] 364 ITR 144 (SC) it has been held that sale
proceeds generated from the sale of scrap would not be included in the total turnover for the purpose
of deduction under Section 80HHC of the Income Tax Act, 1961.(AY. 1989-90 to 1991-92)
Jagraon Export v. CIT(2016) 132 DTR 86/ 284 CTR 209/ 238 Taxman 88 (SC)
Editorial: Judgement inCIT v. Bicycle Wheels (India) ( 2011) 335 ITR 384/ 244 CTR 453/ 61 DTR
243 (P&H)(HC) is reversed.

S. 80HHC:Export business-Export turnover-Export through export house and receipt of sum in

Indian currency–Sum constitute export turn over eligible for deduction.
High Court held that; where the assessee exported marine products through an export house and
received 3.5percentof freight on board value of the goods exported in Indian currency the sum
received could not be considered as export turnover as it had not been received in convertible foreign
exchange and part of the sum was not eligible for the benefit granted under section 80HHC. On
appeal allowing the appeal the Court held that the assessee was entitled to the deduction. (AY. 1994-
95, 1995-96, 1996-97)
Southern Sea Foods Ltd. v. JCIT (2016) 382 ITR 306 (SC)
Editorial: Decision in Southern Sea Foods Ltd v. JCIT (2007) 288 ITR 151 (Mad)(HC) is reversed.

S. 80HHC : Export business – While computing profits eligible for deduction u/s 80HHC, entire
amount of deemed income u/s 41 would be taken in consideration, even if it is in the nature of
interest, commission, etc. However, while computing interest, only the net interest, i.e. gross
interest as reduced by the expenditure incurred for earning such income, is to be taken into
consideration [S. 41(1) ]
The assessee received a waiver of interest payable as a result of one-time settlement with the bank.
The same was offered as deemed income u/s 41(1) and was fully claimed as a deduction u/s 80HHC.
The AO denied the exemption to the extent of ninety percent of the deemed income u/s 41(1) as the
same was not derived from the exports of the assessee. On appeal, the CIT(A) confirmed the AO’s
order. The Tribunal, however, allowed the claim.

On Revenue’s appeal, the HC held that S. 41(1) creates a legal fiction and can be extended for the
purpose of deduction u/s 80HHC. Further, the liability incurred by the assessee in respect of the

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interest, earlier allowed as a deduction while computing the profits of the export business will not
undergo a change in its nature and become an independent income. However, while calculating the
interest under clause (baa) of the explanation, only the net interest i.e gross interest as reduced by the
expenditure incurred for earning such interest will be used for the purpose of allowing deduction u/s
80HHC.(AY. 2001-02)
CIT v. Purewal & Associates Ltd. (2016) 131 DTR 63 (HP) (HC)

S. 80IA:Industrial undertaking-Deduction is allowable without setting off losses /unabsorbed

depreciation which were set off earlier years against other business income. [S.32(2), 72]
The High Court had to consider whether the assessee is entitled to deduction under Section 80IA
without setting off the losses/unabsorbed depreciation pertaining to the windmill, which were set off
in the earlier year against other business income of the assessee following the decision of the
jurisdictional High Court in the case of M/s.Velayudhaswamy Spinning Mills (340 ITR 477), when
the same is pending appeal before the Supreme Court in SLP. Civil No.33475 of 2012. HELD by the
High Court dismissing the appeal:
(i) On the basis of the decision in Velayudhaswamy Spinning Mills (340 ITR 477), the Central Board
of Direct Taxes has issued Circular No.1/ 2016 dated 15.2.2016. The CBDT has clarified that an
assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from
which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or
twenty) years, as prescribed under that Sub-Section. It is clarified that once such initial assessment
year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten
consecutive years beginning from the year in respect of which he has exercised such option subject to
the fulfillment of conditions prescribed in the section. Hence, the term ‘initial assessment year’ would
mean the first year opted for by the assessee for claiming deduction u/s 801A. However, the total
number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty
years, as the case may be and the period of claim should be availed in continuity.
(ii) We cannot resist our temptation to record one more fact. If an issue is covered by the judgment of
the High Court, it is always open to the Department to take it on appeal to the Supreme Court and get
the law settled once and for all. But, once a decision is taken at the level of the Board, we do not know
why repeated appeals should be filed, only to meet with the same fate as that of a decision, on which,
a circular has been issued. The Department shall take note of this for future guidance.( TCA No. 176
of 2016, dt. 01.03.2016) (AY. 2010-11)
CIT v. G.R.T. Jewellers (India) Pvt. Ltd. (Mad.)(HC);www.itatonline.org

S. 80IA :Industrial undertakings – Infrastructure development – Application of deduction

under section 80IA in case of captive consumption of electricity generated – Rate to be adopted
for the purpose of computation of deduction under section 80IA
The assessee was engaged in the manufacture of paper board. It installed power generating plant for
the purpose of supplying uninterrupted power to manufacturing plant. The entire production from the
plant was supplied to the paperboard manufacturing unit. For the purpose of computation of deduction
under section 80IA, the assessee adopted the rate at which the Andhra Pradesh State Electricity Board
(APSEB) supplied electricity to it. It was the stand of the Assessing Officer that the assessee was not
entitled to deduction under section 80IA for the reason that as it was a case of captive consumption of
electricity and there was no profit arising from the sale of electricity. It was also held that the rate
adopted by the assessee is not correct as the purchase rate cannot be said to be the market value and
therefore, adopted the rate which was adopted by M/s. Indian Aluminium Company Ltd, which is
assessed in the same circle, to Grid Corporation of Orissa Ltd and as a result, loss was determined and
thereby, denied benefit under section 80IA of the Act. The High Court held that the assessee was
entitled to claim of deduction under section 80IA of the Act even on account of captive consumption
for the reason that the premise for claiming the benefit according to clause (iv) of sub-section (4) of
section 80-IA was setting up of an undertaking for the generation of power during the specified period
and therefore, it cannot be held that the benefit under section 80-IA was not available to the assessee
because the power generated was consumed at home or by other business of the assessee and thatit is
now well-settled that a statute granting incentives for promoting growth and development should be
construed liberally so as to advance the objective of the provision and not to frustrate it. On the issue

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of price to be adopted for the purpose of computation of deduction under section 80IA, it was held
that the rate at which electricity was purchased from ABSEB by the paper unit of the assessee can, by
no means, be the market rate at which the power plant of the assessee could have sold its production
in the open market and that the rate to be adopted can be ascertained on the basis of the rates fixed by
the Tariff Regulation Commission for sale of electricity by the generating companies to the
distribution licensees. Matter remanded to determine the market value based on above. (AY .2002-
03)
CITv. ITC Ltd. (2016) 236 Taxman 612 (Cal.)(HC)

S. 80IB:Industrial undertaking-Subsidies-transport, interest, and power-Profit derived from

undertaking-Eligible for deduction. [S. 28(iii)(b), 56 ,80IB(4), 80IC ]
The assessee claimed deduction under Section 80IB of the Income Tax Act on the profits and gains of
business of the industrial undertaking. The assessee included the following subsidies in the profits and
gains, namely, Transport subsidy, Interest subsidy and Power subsidy.The Assessing Officer held that
the amounts received by the assessee as subsidies were revenue receipts and did not qualify for
deduction under Section 80IB(4) of the Act and, accordingly, the assessee’s claim for deduction on
account of the three subsidies aforementioned were disallowed. This was upheld by the CIT(A)
though reversed by the ITAT. The High Court also upheld the claim of the assessee. On appeal by the
department to the Supreme Court;held dismissing the appeal the Court held that; subsidies-transport,
interest, and power-Profit derived from undertaking hence eligible for deduction.( AY. 2004-05,
2006-07)
CIT v. Meghalaya Steel Ltd. (2016) 383 ITR 217/ 132 DTR 273/ 284 CTR 321/ 238 Taxman 559
(SC)
Editorial:From the Judgement of Gauhati High Court in CIT v. Meghalaya Steel Ltd ( 2013) 261
CTR 17/ 91 DTR 81 (Gau.)(HC)

S. 80IB:Industrial undertakings- Initial assessment year-Year in which special deduction is

available - Year of manufacture-Manufacture started in accounting year 1994-95 relevant to
AY 1995-96 not 1996-97.
The assessee was in the business of manufacturing machine tools. At about the end of 1994, the
assessee had manufactured three vertical machining centres. The assessee participated in an exhibition
during January, 1995, and the three machines were displayed at the exhibition. According to the
assessee, the three machines so manufactured were prototype and in order to have field trial being
conducted, it sold the three machines to group companies in March, 1995. It was the case of the
assessee that the purpose of sale to such group companies was only to conduct field trial and to get
feedback in order to know the technical faults, if any in the machines and to set right such defects.
The assessee claimed special deduction u/s 80-IB for the AY 2005-06. According to the assessee, the
initial AY from which the deduction was being claimed was the AY 1996-97. The Assessing Officer
held that the initial AY was 1995-96 and the assessee was not entitled to claim deduction u/s 80-
IB(3). This was confirmed by the Commissioner (Appeals) and the Tribunal. On appeal to the High
Court:
Held, dismissing the appeal, that even before the products were sold to the group companies in the
month of March, 1995, the machines were exhibited in public at New Delhi. There was a lot of
appreciation for the machines and in fact during the exhibition, bookings took place. Merely because
the assessee had sold three machines to its group companies, it could not be said that there was no
commercial transaction. It could not be said that the machines were manufactured only on trial basis
and not for commercial purposes in the financial year 1994-95 relevant to the AY 1995-96. The
assessee was not entitled to deduction u/s 80IB for the AY 2005-06.(AY. 2005-2006)
ACE Manufacturing Systems Ltd. v. Addl.CIT (LTU) (2016) 380 ITR 432 (Karn.)(HC)

S. 80IA : Industrial undertakings - Infrastructure development- Liquidated damages-excess

provision written back- Interest and other refund from universal services- Deduction for
telecommunication services is available in respect of profits of eligible business and it is not
restricted to profits derived from eligible business as mentioned in section 80IA(1).

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Assessee claimed deduction u/s 80IA(2A). AO disallowed deduction on various miscellaneous
income on the ground that sub-section (1) of section 80IA uses the phrase “ derived from”.
According to the assessee section 80-IA alongwith sub-section (1), (2) and (2A) of the same , the
qualification of “derived from” as is available in sub-section (1) of section 80IA of the Act cannot be
read into sub section (2A) of section 80IA of the Act. It was held that Sub S. (2A) of S. 80IA
overrides the requirements of sub ss. (1) and (2) as it starts with non obstante clause, namely,
`notwithstanding” which is further qualified by “anything contained in sub s. (1) or sub S. (2)” and
uses the words “profits and gains of eligible business” as against “profits and gains derived by an
undertaking or an enterprise from” used in sub ss (1) and (2) and, therefore, the restriction of “derived
from” contained in sub s (1) cannot be read into the provision of Sub s. (2A) of S. 80IA.(AY. 2004-
05)
Bharat Sanchar Nigam Ltd. v. Dy. CIT (2016) 156 ITD 847/ 175 TTJ 369 / 130 DTR 161
(Delhi)(Trib.)

S. 80IB:Industrial undertaking- Hotel- Rent and other misc items – Derived from the business
of the Hotel- Entitle the deduction. [S.80IB (7)]
Amounts by way of rent and other misc items, though shown as "other income" in the books,
constitutes "key revenue category" as per ICAI Guidelines and are "derived" from the business of the
hotel and eligible deduction.( ITA No. 240-242/Coah/2015, dt. 01.03.2016)(AY. 2007-08,2008-09
,2010-11)
Kumarakom Lake Resort Pvt. Ltd. v. ACIT (Cochin)(Trib);www.itatonline.org

S. 80IB:Industrial undertakings-Failure to maintain separate books of account- AO shall

compute to deduction on reasonable basis. [S. 145]
Tribunal held that ; where assessee claimed deduction under section 80-IAB but failed to maintain
separate books of account for eligible units, Assessing Officer shall compute deduction on reasonable
basis .( AY. .2009-10, 2010-11 )
Dy.CIT v. A.P. Industrial Infrastructure Corporation Ltd. (2016) 156 ITD 410 (Hyd.)(Trib)

S. 80P : Co-operative societies-Earning of co-operative society must be through utilisation of

labour of members-Society running toddy shops-Tapping of toddy not main business of society -
Income from utilising labour of members for tapping toddy - Not entitled to [S.80P(2)(a)(vi)]
Since income of the society had nothing to do with the collective disposal of the labour of its
members but was entirely from the price realised by it for the sale of toddy through the society`s own
toddy shops, the Tribunal was justified in holding that the assessee-societies were not eligible for
the.(AY 2008-2009, 2009-2010)
Hosdurg Range Kallu Chethu Vyavasaya Thozhiali Sahakarana Sangham v. CIT (2016) 380
ITR 34 (Ker) (HC)
Nileswar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT (2016) 380
ITR 34 (Ker) (HC)
Peravoor Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT (2016) 380
ITR 34 (Ker) (HC)

S.80P : Co-operative societies – Income tax authorities neither competent nor they possess any
jurisdiction to decide whether the assessee is a co –operative society or a co operative Bank-
Entitle exemption. [ S 2(24)(viia) ]
The assessee was a co-operative society registered under the Karnataka State Co-operative Society
Act, 1956. It claimed deduction under section 80P(2)(a)(i) of the Act.The Assessing Officer opined
that the assessee was not entitled to the deduction, as, claimed, for the reason that the activity of the
assessee was covered under section 2(24)(viia) which required the inclusion of profits and gains of
any business of banking (including providing credit facilities) carried on by a co-operative society. It
was held that the bye laws of the assessee indicated that their primary object was transactions that
were apparently in the nature of banking. In that, the assessee was receiving deposits from its
members and providing loans to other members and, hence, it satisfied all the three conditions
contemplated under section 56(ccv) of the Banking Regulation Act. From this premise, the Assessing

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Officer had proceeded on the basis that a primary co-operative bank meant a co-operative society.
Therefore, he held that the assessee being a primary co-operative bank was not eligible for deduction
under section 80P.
The CIT(A) and the Tribunal confirmed the order of the Assessing Officer.On appeal to the High
Court the Court held that the Authorities under Income-tax Act are neither competent nor do they
possess any jurisdiction to resolve controversy as to whether assessee was a co-operative society or a
co-operative bank, as defined under provisions of Banking Regulation Act. The assessee is entitled
the exemption.(AY. 2009-10)
Belgaum Merchants Co-op Credit Society Ltd. v. CIT (2016) 236 Taxman 351 (Karn.)(HC)

S. 80QQB : Royalty - Authors other than text books - Book written on income tax problems in
question answer form- Entitle to deduction.
It was held that book authorized by the assessee on income tax problems in question answer form is a
literary work in terms of s. 80QQB and, therefore, assessee is entitled to deduction u/s. 80QQB in
respect of the royalty received by him on the same. (AY. 2005-06).
Dilip Loyalka v. ACIT (2016) 130 DTR 73/ 175 TTJ 334 (Kol.)(Trib.)

S.80RR:Professional income-Foreign sources-Sport person-Held eligible deduction.

Assessee claimed deduction in respect of professional income from foreign sources. Assessing Officer
held that the assesse did not fall any category of profession defined u/s 80RR. On appeal Tribunal
held that the assesse is a sportsman and sportsman may also be used to describe former player who
continues to remain associated and engaged , for the promotion of the related sports activities . On
the facts the assesse has been undoubtedly a cricketer of international stature, hence deduction is
available to the assesse.ITA No. 3970 & 3971/Mum/2010, dt. 16.03.2016)(AY. 2001-02 & 2002-03)
Sunil Gavaskar v. ITO (Mum.)(Trib.);www.itatonline.org

S. 90: Double txation relief-Permanent establishment-The main business is fabrication and

installation of platforms, project office acting as a communication channel would qualify as an
activity of auxiliary character, hence eligible for exclusionary clause of art. 5(3)(e) of the DTAA
-Installation activities lasted from 19/11/2006 to 27/04/2007 which is less than minimum period
of 9 months – Even if period during which pre-installation activities were in place, the total
period would not exceed nine months, therefore, no PE under art. 5(2)(h) .Agreement between
assessee and ASL is on principal-to-principal basis . ASL acted as an agent of independent
status to whom art. 5(5) applies .ASL would not constitute Dependent Agent PE in India-
DTAA- India- UAE [Art. 5(3)(e)]
The assessee, a company incorporated in UAE, entered into contracts with ONGC for the installation
of petroleum platforms and submarine pipelines and also included various activities. Whilst the
activities relating to survey, installation and commissioning were done entirely in India, the platforms
were designed, engineered and fabricated overseas. The assessee filed its return of income for relevant
years.

The AO opined that the assessee had a fixed place PE in India in the form of a project office at
Mumbai and also, held that Arcadia Shipping Limited (“ASL”) constituted a Dependent Agent PE
(“DAPE”) of the assessee in India. The DRP upheld the order of AO. On an appeal, the Tribunal
concluded that the assessee's project office in India was its PE.

On appeal, the HC held that the assessee’s project office in Mumbai cannot be treated as PE in India.
Firstly, there were no material to support that employees of the project office were present at the
meeting or they had participated in review of the engineering documents or in the discussions or
approval of the designs submitted to ONGC, it has to be accepted that the assessee’s project office
was only used as a communication channel. Secondly, the main business of assessee was fabrication
and installation of platforms whereas project office only acted as a communication channel.
Therefore, the activities of project office would be covered by the exclusionary clause under art.
5(3)(e) of the DTAA.

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On applicability of art. 5(2)(h), the HC held that it is necessary that the 'site, project or activity
continues for a period of more than nine months'. During the period, 21/05/2006 to 19/11/2006, the
assessee did not have access to the site office, therefore, this period cannot be considered for
determination of PE in India under art. 5(2)(h). The installation activities lasted from 19.11.2006 to
27.04.2007, which is much less than the minimum period of nine months. Even if the time spent by
ASL in conducting the pre-engineering, pre-design survey is included, the duration of the project
activities in India would not exceed nine months. Therefore, if the duration of the project activities in
India was less than nine months, Assessee did not have a PE in India under art. 5(2)(h) of the DTAA.

On ASL being treated as a Dependent Agent PE (“DAPE”) of the assessee under art. 5(4) of the
DTAA, the HC held that the ASL provision of logistics and consultancy support was in its regular
course of business and the agreement between the assessee and ASL was on principal-to-principal
basis. Further, the consultancy agreement does not authorise ASL to conclude contracts on behalf of
the assessee. Therefore, ASL is an agent of independent status and therefore, would not constitute a
DAPE of the assessee in India. (AY. 2007-08, 2008-09)
National Petroleum Construction Company v. DIT(IT)(2016) 131 DTR 113/ 284 CTR 373/238
Taxman 40 (Delhi)(HC)

S. 90 :Double taxation relief - Assessee is eligible to claim credit of taxes paid in other country
even if income is exempt by virtue of section 10A- DTAA- India- USA - Canada [S. 4, 5 , 10A,
Art , 25, 23 ]
Assessee carried on business of exporting software including services for on-site development of
software through its permanent establishment in other country. The income earned by the assessee
from export and onsite development was exempt under section 10A of the Act. During the assessment
proceeding, it claimed credit for taxes paid, in respect of permanent establishment, in other countries.
The Assessing Officer denied the claim of the assessee on the ground that no revised return was filed
by the assessee. The CIT(A) allowed the relief to assessee however, the Tribunal remanded it back to
Assessing Officer with the observation that the income is exempt under section 10A therefore the
assessee would not be able to claim credit for taxes paid outside India. On appeal, the High Court held
that payment of taxes in both the countries is not sine qua nonfor claiming benefit of section 90.
Taxability of income in India is not precondition to claim benefit of section 90 as section 10A does
not give blanket exemption it only has the effect of suspending the collection of revenue for 10 years.
The income exempted under section 10A is chargeable to tax under section 4 and includible in the
total income under section 5 but, taxability is suspended for 10 years. It was also held that the
countries with which there is no agreement under section 90, credit of taxes is available by virtue of
provisions of section 91.
Wipro Ltd. v. DCIT (2016) 382 ITR 179/ 236 Taxman 209 /282 CTR 346 (Karn.)(HC )

S. 90 :Double taxation relief – Offshore contract-Income from offshore contract was held to be
not chargeable to tax- DTAA- India-Japan. [S. 9(1)(vii), Art. 7]

Allowing the appeal of assesse Tribunal held that ; where Japanese company executed Engineering,
Procurement, Construction and Commissioning contracts in India through Indian project office,
income from offshore services, though chargeable under section 9(1)(vii) was exempt under DTAA
and, hence, could not be charged to tax in light of section 90(2). ( AY. 2008-09)
IHI Corporation v. ADIT(IT) ( 2016) 156 ITD 677 (Mum)(Trib)

S.90 :Double taxation relief- Surcharge and education cess is not leviable when tax rate is
prescribed under DTAA- India- UK. [Art. 2]
Dismissing the appeal of revenue the Tribunal held that when tax rate is determined under DTAA ,
then tax rate prescribed therein shall have to be followed strictly without any additional taxes thereon
in form of surcharge or education cess. ( AY.2010-11)
Dy.CIT v.BOC Group Ltd ( 2016) 156 ITD 402 (Mum)(Trib).

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S. 90 :Double taxation relief – Computation of profits attributable to PE-Position settled by
amendment in protocol to DTAA – Simply because there is more specific provision post
protocol amendment, it cannot be concluded that the judicial precedent by Tribunal ceases to
hold good- DTAA- India- UAE .[ Art.7 ]
A protocol amending India-UAE treaty has been entered into. Protocol has two major changes- first
with regards to definition of a ‘resident of a contracting state’ and second restrictions under domestic
tax law specifically extending to computation of taxable profits under article 7. Reverse
discrimination which would have resulted by not restricting the deductions in the light of provisions
of the Act for non-resident assessee was not permissible under India-UAE DTAA prior to the protocol
amendment and such a reverse discrimination is not permissible even now as specifically provided for
in the said protocol amendment. Every specific amendment to the law or a treaty particularly when it
is disadvantageous to the taxpayers and is enacted as a measure of abundant caution is generally
fraught with what tax academicians and policymaker term as the risk of its kill effect. The issue is
squarely covered by the decision of Tribunal in assessee’s own case. This stand has now been
accepted in the protocol to India-UAE treaty. Just because there is more specific and unambiguous
provision post the protocol amendment, one cannot come to conclusion that judicial precedent
rendered by Co-oredinate Bench, even without specific and unambiguous expressions, ceases to hold
good. That will be stretching the things too far and will also be contrary to the approach adopted by a
very large number of judicial precedents. (AY .2002-03)
Mashreq Bank PSC v. DDIT (2016) 176 TTJ 85 (Mum)(Trib)

S. 92B:Transfer pricing-Corporate Guarantees-Explanation i(c) to S. 92 B, though stated to be

clarificatory and stated to be effective from 01.04.2002, has to be necessarily treated as effective
from at best AY 2013-14 as it is an "anti abuse" provision.[S.92C]
Allowing the appeal of assess the Tribunal held that; 2012 amendment does not add anything or
expand the scope of international transaction defined under section 92B, assuming that it indeed does
not- as learned Departmental Representative contends, this provision has already been judicially
interpreted, and the matter rests there unless it is reversed by a higher judicial forum. However, if the
2012 amendment does increase the scope of international transaction under section 92B, as is our
considered view, there is no way it could be implemented for the period prior to this law coming on
the statute i.e. 28th May 2012. The law is well settled. It does not expect anyone to perform an
impossibility.

It is for this reason that the Explanation to Section 92 B, though stated to be clarificatory and stated to
be effective from 1st April 2002, has to be necessarily treated as effective from at best the assessment
year 2013-14. In addition to this reason, in the light of Hon’ble Delhi High Court’s guidance in the
case of New Skies Satellite BV also, the amendment in the definition of international transaction
under Section 92B, to the extent it pertains to the issuance of corporate guarantee being outside the
scope of ‘international transaction’, cannot be said to be retrospective in effect. The fact that it is
stated to be retrospective, in the light of the aforesaid guidance of Hon’ble Delhi High Court, would
not alter the situation, and it can only be treated as prospective.( I.T.A. Nos. 2618 and
2876/Mum/2014, dt.31.03.2016)(AY.2009-10)
Siro Clinpharm Private Ltd. v. DCIT (Mum.)(Trib.);www.itatonline.org

S.92B: Transfer pricing- lending money-Transaction of advancing money by assessee to its AE

located abroad for acquisition of satellite rights of Hollywood films did not fall within purview
of expression 'international transaction' . [S. 92C ]
The AO has made certain adjustments on account of Arm’s length interest , and computed on
notional basis in respect of advance given to the AE by assessee. The DRP confirmed the addition.
On appeal Tribunal held that ;transaction of advancing money by assessee to its AE located abroad for
acquisition of satellite rights of Hollywood films did not fall within purview of expression
'international transaction' in terms of section 92B. Accordingly the addition was deleted. (AY. 2010-
11)
KSS Ltd.v. Dy.CIT (2016) 157 ITD 124 (Mum)(Trib)

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S. 92B:Transfer pricing- Corporate gurantee-Issuance of corporate guarantee by assessee on
behalf of its subsidiary company is in nature of quasi capital or shareholder activity and not in
nature of 'provision for services' and, therefore, said transaction is to be excluded from scope of
'international transaction'. [S.92C ]
Tribunal held that issuance of corporate guarantee by assessee on behalf of its subsidiary company is
in nature of quasi capital or shareholder activity and not in nature of 'provision for services' and,
therefore, said transaction is to be excluded from scope of 'international transaction' . Even otherwise,
since issuance of corporate guarantee does not have "bearing on profits, income, losses or assets", it
does not constitute an international transaction, under section 92B, in respect of which an arm's length
price adjustment can be made. ( AY. 2006-07)
Micro Ink Ltd.v. Add.CIT ( 2016) 157 ITD 132 / 175 TTJ 8 (Ahd) (Trib.)

S. 92C:Transfer pricing-Arm's length price–Adjustment only in respect of transactions with its

associated enterprises.[S.92A, 92B]
Transfer pricing Officer applied arm’s length price to sales to associated enterprises and as well as to
other enterprises. The Tribunal directed the Assessing Officer to compute the arm’s length price in
respect of the international transactions entered in to between the assessee with its associated
enterprises alone. On appeal by revenue; dismissing the appeal the Court held that the adjustment
which was to be done to arrive at arm’s length price was only in respect of the transactions with its
associated enterprises. (AY.2006-07)
CIT v. Tara Jewels Exports P.Ltd (2016) 381 ITR 404/ 129 DTR 410 (Bom.)(HC)

S. 92C:Transfer pricing-Arm's length price–Adjustment only in respect of transactions with its

associated enterprises.[S.92A, 92B]
Dismissing the appeal of revenue the Court held that Tribunal was justified in restricting adjustment
only on international transactions.
CIT v. Gold Star Jewellery Design (P) Ltd ( 2016) 238 Taxman 5 (Bom)(HC)

S. 92C: Transfer pricing - Arm's length price - Determination only with respect to assessee's
international transactions with associated enterprises - Not in respect of transactions entered
into by assessee with independent unrelated third parties.
Held, that in terms of Chapter X of the re-determination of the consideration was to be done only with
regard to income arising from international transactions on determination of arm's length price. The
adjustment which was mandated was only in respect of international transaction and not transactions
entered into by the assessee with independent unrelated third parties. There was no issue of avoidance
of tax requiring adjustment in the valuation in respect of transactions entered into with independent
third parties. The adjustment as proposed by the Department if allowed would result in increasing the
profit in respect of transactions entered into with enterprises other than associated enterprises and thus
the adjustment was beyond the scope and ambit of Chapter X. (AY.2007-2008 )
CIT v. Thyssen Krupp Industries India P. Ltd. (2016) 381 ITR 413/ 129 DTR 412 (Bom.) (HC)

S. 92C:Transfer pricing-Arm's length price-Adjustment to be made only for transactions

attributed to international transactions and not to entire expenses.
Held, that the adjustment made by the Assessing Officer was related to the entire expenses and not
just the international transactions alone. Since the international transactions only constituted 23.38%,
a transfer pricing adjustment proportionate to that extent alone could be made in respect of such
international transactions. (AY. 2004-2005, 2005-2006 )
CIT v. Keihin Panalfa Ltd (2016) 381 ITR 407 (Delhi)(HC)
Editorial:Order in ACIT v. Keihin Panalfa Ltd. [2015] 4 ITR (Trib.)-OL 492 (Delhi) affirmed.

S. 92C:Transfer pricing–Adjustment arising out of Arm’s Length Price is to be restricted to

only international transactions.[S.92B ]
During the year under consideration the Assessee had international transactions with Associated
Enterprises over and above transactions with independent third parties. The Tribunal by its impugned
order negate the contention of the Revenue that adjustment arising out of Arm’s Length Price has to

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be made to the entire turnover of the Assessee, as same is contrary to the clear mandate for section 92
of the Act, which permits adjustment only of income arising from International Transactions having
regard to its Arm’s Length Price.
High Court held that transactions with parties other than the International Transactions with
associated enterprise or in respect of specified domestic transactions are not within the ambit of
Chapter X of the Act. Similar view was taken in Tara Jewels Exports Pvt Ltd (ITA No. 1814 of 2013,
dtd 5 October 2013) and Keihin Panalfa Ltd (ITA No.11 of 2015, dtd 9 September 2015). Revenue’s
appeal was dismissed. (AY. 2007-08)
CIT v. Ratilal Becharlal & Sons (2016) 237 Taxman 71 (Bom.)(HC)
Editorial: Decision in CIT v. Tara Jewels Exports Pvt Ltd ( ) is accepted by the revenue .

S. 92C:Transfer pricing–Arm’s length price- Capital employed under TNMM method, wihout
seggrgation of capital employed in respect of AE and non- AE transactions , action of TPO
was heldto be not justified .
Assessee has applied base of total cost under TNMM method to determine PLI. TPO has applied base
capital employed . Tribunal applied base of total cost on ground that though capital employed could
be base in terms of rule 10B(1)( e ) (i) , return on capital employed (‘RoCE’) obtained in absence of
there being any segregation of capital employed in respect of AE and non AE transactions , would
not give an appropriate result. On appeal by revenue , dismissing the appeal the Court held that
revenue could not show application of RoCE method in assessee’s industry . On fcats the view taken
by Tribunal being a reasonable and possible view order of Tribunal was up held.

CIT v. Gold Star Jewellery Design (P) Ltd ( 2016) 238 Taxman 5 (Bom)(HC)

S. 92C:Transfer pricing-Arm's length price-Several transactions between two or more

associated enterprises can form single composite transaction-Burden to prove-Relevance of
whether transaction resulting in an increase in assessee's profit-Whether business decision
commercially sound or not-Not relevant.
The acquisition of various items or components in the assessee's venture could indeed be telescoped
into and form a single transaction. An assessee may enter into one composite transaction with its
associated enterprise involving the provision of various services or the sale of various goods. If it is
established that each transaction was so inextricably linked to the other that the one could not survive
without the other, it could be said that it formed a part of a transaction and that it was an international
transaction. This would normally constitute one transaction.
Held, that the absence of profit may at the highest be a factor while considering whether or not the
transactions were genuine. That would depend upon the facts of each case. However, mere absence of
profit would not be a ground for holding that the transactions were not genuine and ought not to be
taken into consideration in the assessment proceedings.
(ii) That absent any law, an assessee could not be compelled to avail of the services available in India.
It was for the assessee to determine whose services it desired to avail of and whose goods it intended
to purchase. It was certainly understandable if the assessee preferred to deal with its group
entities/associated enterprises. So long as there was no bar in law to the assessee availing of the
services of a particular party, the authorities under the Act must determine whether the consideration
paid therefor was at an arm's length price or not. [Matter remanded to the Tribunal for decision
afresh.] (AY. 2007-2008)
CIT v. Knorr Bremse India P. Ltd (2016) 380 ITR 307/ 236 Taxman 318/ 282 CTR 44
(P&H)(HC)

S. 92C:Transfer pricing-Companies with large turnover like Infosys & Wipro are not
comparable to companies with smaller turnover and should be excluded from the list of
comparables.
(a) For transfer pricing purposes, the Tribunal did not accept three companies as comparable by
stating as follows:
(i) HCL Comnet Systems & Services Ltd:- We find force in the submission of the ld. AR that this
company cannot be a comparable as the turnover of this company is 260.18 crores while in the case of

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the Assessee, the turnover is around Rs.11 crores only. While making the selection of comparables,
the turnover filter, in our opinion, has to be the basis for selection. A company having turnover of
Rs.11 crores cannot be compared with a company which is having turnover of Rs.260 crores which is
more than 23 times the turnover of the Assessee. This company cannot be regarded to be in equal size
to the Asseessee. We, accordingly, direct the AO to exclude this company out of the comparables.
(ii) Infosys BPO Ltd:- In this case also we noted the turnover in respect of this Company is Rs.649.56
crores while the turnover of the Asseessee company is around Rs. 11 crores which is much more than
65 times of the Assessee’s turnover. We, therefore, do not find any illegality or infirmity in the order
of CIT(A) in excluding this Company out of the comparables.
(iii) Wipro Ltd-The turnover reported in the case of Wipro Ltd. Is Rs.939.78 crores while in the case
of the Asseessee the turnover is around Rs. 11 crores. Therefore, on the basis of the turnover filter
itself this company cannot be regarded to be comparable to the Asseessee.
(b) The said findings of the Tribunal in respect of the said three Companies are on the basis of
appreciation of evidence on record. We find no infirmity in the said findings of the Tribunal on that
count. In fact, the Tribunal has endorsed the views of the CIT Appeals whilst coming to such
conclusions. The concurrent findings of facts arrived at by the Authorities below, cannot be
reappreciated by this Court in the present Appeal as held by the Apex Court in the Judgment reported
in 2011(1) SCC 673 in the case of Vijay Kumar Talwar vs. CIT.
(c) The said Companies are no doubt large and distinct companies where the area of development of
subject services are different and as such the profit earned therefrom cannot be a bench-marked or
equated with the assessee. The learned Counsel has rightly relied upon the Judgment of the Delhi
High Court reported in (2013) 36 taxmann.com 289 (Delhi) in the case of Commissioner of Income-
tax vs. Agnity India Technologies (P.) Ltd. Learned Counsel has also brought to our notice the Order
of the Income Tax Appellate Tribunal whilst examining similar circumstances for the assessment year
2005-06. He has taken us through the findings therein to point out that the conclusions arrived at are
based on a comparison that the condition in any uncontrolled transaction between an independent
enterprises for the purpose of such comparison, economically relevant characteristics must be
sufficiently comparable if two parties are to be placed in a similar situation. Learned Counsel as such
submitted that it is not open for the appellant to now contend a different criteria to ascertain the
comparability. In fact the Tribunal whilst passing the impugned Order has considered the said
principles whilst coming to the conclusion that the said three Companies cannot be treated to be
comparable to the Assessee Company. The turn over is obviously a relevant factor to consider the
comparability. (AY. 2007-08)
CIT v. Pentair Water India Pvt. Ltd ( 2016) 381 ITR 216/ 282 CTR 160/ 69 taxman.com 180
(Bom.)(HC)

S. 92C:Transfer pricing-Even if TNMM is found acceptable as regards all other transactions, it

is open to the TPO to segregate a portion and subject it to an entirely different method i.e. CUP
if the assessee does not provide satisfactory replies to his queries.
The High Court had to consider the question “Whether the Transactional Net Margin Method adopted
by the assessee is the most appropriate method envisaged under Section 92C(2) of the Income Tax
Act, 1961 read with Rule 10C of the Income Tax Rules, 1962 and whether the Income Tax Appellate
Tribunal had erred in directing the Assessing Officer to apply Comparable Uncontrolled Price
Method?” HELD by the High Court:
(i) The narrow controversy which this Court is called upon to decide is as to whether the adoption of
the CUP method by the revenue authorities was justified. What the assessee urges essentially is that
whereas the TP report furnished by it applied the TNMM method which was found acceptable as
regards all other transactions/business activities, it was not open to the revenue to segregate a portion
and subject it to an entirely different method, i.e. CUP. The assessee relies upon paras 3.6, 3.9 and
3.10 of the OECD guidelines in support of its contentions. It also relies upon certain rulings of
different Benches of the ITAT to urge that such sequential segregation and setting portion of the TP
exercise – so to say, to break with the integrity is unjustified and unsupported by the text of the law,
i.e. Section 92C of the Income Tax Act. The assessee also relies upon Rule 10E of the Income Tax
Rules, which guide the proper approach of the TPO in such matters.

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(ii) The cumulative effect of various provisions of the Income Tax Act, notably Sections 92, 92C, 92D
and 92E read together with Rule 10B and 10D is the obligation to discern, if in a given set of
circumstances, the assessee has disclosed international transactions, as well as an ALP. The ultimate
purpose of this exercise- the primary onus of which is upon the assessee, is to ensure that no amount
which is otherwise to be designated or treated as income, under law, escapes assessment. The
assessee’s TP report is to be accurate and based on materials; its explanations for the queries raised by
the TPO, convincing and reasonable. The underlying emphasis of the law (Section 92-C) is that the
method appropriate to the transaction, amongst the four specified ones, is to be applied.
(iii) The factual discussion in this case clearly reveals that the assessee chose to import components
not from the manufacturer (which was an AE) but an intermediary. Normally, this would have been a
commercial decision, which revenue authorities would not question. However, interestingly, the
vendor of the components (which constituted over 85% of the raw materials imported and about 38%
of the total raw materials sourced) was also connected with both the assessee and the manufacturer. If
these realities emerged during the TP exercise, compelling the TPO to closely scrutinize the value of
such imports and seek further details from the assessee, to justify its decision, the onus was clearly on
the latter to afford a convincing and reasonable explanation. Such of the explanations that were
forthcoming, were apparently unconvincing. What the assessee banks upon in its appeal to this Court
is the unbending and inflexible acceptance of its TP exercise; according to its logic, a “bundled” or
aggregated series or chain of transactions used in the TP report should remain undisturbed. Now, there
can be no dispute that the AO would normally accept the figures given, if they do not show features
that call for his interference. However, his job also extends to critically evaluating materials and in
cases which do require scrutiny, go ahead and do so. In the process, at least in this case, the unusual
features which remained unexplained by the assessee, influenced the TPO and the AO to resort to
transfer pricing adjustment and determine ALP by adopting the CUP method for the procurements
from Sumitomo Japan. The “second test” spoken of in Sony Ericcson (supra) i.e “the form and
substance of the transaction were the same but the arrangements made in relation to a transaction,
when viewed in their totality, differ from those which would have been adopted by an independent
enterprise behaving in a commercially rational manner..” was in effect adopted. This Court finds no
infirmity in this approach. As a result, the question framed is answered against the assessee and in
favour of the revenue.(AY. 2002- 03, 2003-04)
Denso India Ltd. v. CIT (2016) 133 DTR 33 (Delhi)(HC)

S. 92C:Transfer pricing-CUP method can be applied by a comparing a pricing formulae, rather

than the pricing quantification in amount. Rule 10AB inserted w.e.f. 01.04.2012 is beneficial in
nature and so retrospective w.e.f. 01.04.2002
Dismissing the appeal of revenue the Court held that;CUP method can be applied by a comparing a
pricing formulae, rather than the pricing quantification in amount. Rule 10AB inserted w.e.f.
01.04.2012 is beneficial in nature and so retrospective w.e.f. 01.04.2002.(AY.2007-08)(ITA No.
374/2015, dt. 10.12.2015)
Pr.CIT v. Global Forwarding India Pvt.Ltd. (Delhi)(HC);www.itatonline.org

S. 92C: Transfer pricing-Advertising marketing and Sales promotion (AMP) Expenditure-Onus

is on revenue. [S.92B, 92CA]
Dismissing the appeal of revenue the Court held that; the onus is on the Revenue to demonstrate by
tangible material that there is an international transaction involving AMP expenses between the Indian
Co and the AE. In the absence of that first step, the question of determining the ALP of such a
transaction does not arise. In the absence of a machinery provision it is hazardous for any TPO to
proceed to determine the ALP of such a transaction since Bright Line Test has been negatived as a
valid method of determining the existence of an international transaction and thereafter its ALP. (
AY.2008-09 )
CIT v. Whirlpool of India Ltd. (2016) 381 ITR 154 / 237 Taxman 49/ 283 CTR 273 (Delhi)(HC)

S. 92C:Transfer pricing - International transactions - Arm's length price - Advertising,

marketing and promotion expenses - Bright line method not legally permissible method - Need
for detailed examination - Matter remanded.

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Adoption of the bright line test for determining the existence of an international transaction involving
the advertising, marketing and promotion expenses was no longer legally permissible. Therefore,
there would be a need for a detailed examination of the operating agreement between the assessee,
associated enterprise and the franchisees to ascertain if any part of the advertising, marketing and
promotion expenses was for the purpose of creating marketing intangibles for the associated
enterprise of the assessee. It was only after an international transaction involving the assessee and its
associated enterprise in relation to the advertising, marketing and promotion expenses was shown to
exist, that the further question of determining the arm's length price of such international transaction
would arise.(AY. 2009-2010)
ITO v. Yum Restaurants (I) P. Ltd. (2016) 380 ITR 637/ 131 DTR 23 / 66 taxmann.com 47
(Delhi)(HC)

S. 92C:Transfer pricing- Amount in dispute exceeding five crores of rupees-Matter has to be

referred to Transfer Pricing Officer [S. 92CA,144C]
The assessee had entered into international transactions. The international transactions were certified
to be at arm`s length, based on the transactional net margin method as defined. The transfer pricing
report and the transfer pricing documentation had been filed with the Assessing Officer during the AY
2012-13. The Assessing Officer proceeded to pass an assessment order without referring the matter to
the Transfer Pricing Officer. On a writ petition to quash the order. Held, that since the provisions of
the Act make it very clear that u/s 92CA the only option was to place the matter before the Transfer
Pricing Officer, and that option had not been followed, the assessment order was not valid and had to
be set aside. (AY. 2012-2013)
Carrier Race Technologies P. Ltd. v. ITO (2016) 380 ITR 483 / 64 taxmann.com 252(Mad) (HC)

S. 92C : Transfer pricing-Arms’ length price–Adjustments-AMP expenses–Since the revenue

sharing model of the assessee was duly support by relevant documents the TPOs alteration to
the sharing ratio was to be set aside.
During relevant year, assessee entered into international transactions with its AE. In terms of
agreement, assessee retained 75 per cent of revenue and paid 25 per cent of revenue to its subsidiaries
for marketing and administrative support services provided by them. The TPO fixed remuneration
sharing model of 15 per cent in cases where customers entered into contracts directly with assessee
and thus made certain addition to assessee's ALP. The CIT(A) and the Tribunal set aside said addition
noting that TPO in principle had accepted remuneration model of 25 per cent revenue sharing and
same had been substantiated and justified by documents submitted before him. Further the department
had not doubted the genuineness of the documents relied upon by the assessee. Accordingly the High
Court dismissed the department’s appeal. (AY. 2006-07)
CIT v. ITC, Infotech India Ltd. (2016)237 Taxman 476 (Cal.)(HC)

S. 92C : Transfer pricing-Arms’ length price–Selection of comparables–Selecting a comparable

in a subsequent assessment year for determining ALP, would not ipso facto make it a
comparable to determine ALP in subject assessment year
For the purpose of determination of arm's length price, the assessee had, before the CIT(A) forwarded
three additional comparables. The assessee sought their inclusion as they had been regarded as
comparable in subsequent assessment years. The CIT(A) sought a remand report from the TPO to
determine whether these additional comparables submitted by the assessee had been used as
comparables in the subsequent years. In the remand report, the TPO confirmed that the comparables
had been used in the subsequent years, and accordingly the CIT(A) considered the comprables in
determing the ALP. On appeal by the department, the Tribunal held that inclusion in the subsequent
years would not ipso facto lead to the same comarables being applied in the subject assessment year.
The Tribunal rejected the comparables on merits. The High Court upheld the order of the Tribunal in
holding that the comparables would not ipso facto apply for determining ALP of the subsequent year.
The High Court also held that since neither the TPO nor the CIT(A) has examined the merits of
including the comparables, it would be appropriate to restore the matter to the TPO to consider the
comparables. (AY. 2003-04)
Advance Power Display Systems Ltd. v. CIT (2016)382 ITR 607 / 237 Taxman 16 (Bom.)(HC)

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S.92C:Transfer pricing - Arms’ length price–AMP Expenses–No adjustment could be made
where on account of AMP expenses, where there was no international transaction with AEs for
promoting the brand of the AE.
The assessee-company was engaged in the business of manufacturing and trading of soft contact
lenses and eye care solutions. In transfer pricing proceedings, the TPO noted that the assessee had
entered into an agreement with its AE, B&L USA, for distribution of the product manufactured by its
group companies, in terms of which the assessee was required to promote the B&L brand and to
develop marketing intangibles for B&L products in India by incurring expenditure on AMP. The TPO
opined that the AMP expenses did not benefit the assessee as it had incurred a loss in assessment year
2006-07. The TPO noted that the assessee did not receive any reimbursement from its AE for the
AMP expenses. The TPO concluded that the Assessee had developed marketing intangibles for its AE
andwas in the process of making the intangible even more valuable by incurring huge AMP expenses,
bearing risks and using both its tangible assets and skilled, trained manpower. TPO, applied 10 per
cent markup on AMP expenses and made addition to assessee's ALP. The adjustment was confirmed
by the DRP.

The High Court held that the mere fact that B&L, USA through B&L, South Asia, Inc held 99.9% of
the share of the Assessee would not ipso facto lead to the conclusion that AMP expenditure by the
Assessee involved an international transaction with B&L, USA. The Court further held that merely
because there was an incidental benefit to the foreign AE, it cannot be said that the AMP expenses
incurred by the Indian entity was for promoting the brand of the foreign AE. The revenue had been
unable to show the existence of an international transaction involving AMP expenses between the
assessee and its AE and accordingly no adjustment could be made. (AY. 2006-07 to 2009-10)
Bausch & Lomb Eyecare (India) (P.) Ltd. v. ACIT (2016) 381 ITR 227 / 237 Taxman 24 / 283
CTR 296 (Delhi)(HC)

S. 92C : Transfer pricing - Arms’ length price–Advertising, marketing and promotion (‘AMP’)
activities- Assessee, part of ‘Yum Restaurants group’–subsidiary company floated in India for
carrying on AMP activities for assessee, its franchisees and business associates – contribution of
fixed percentage from its ‘equity store’ towards AMP activates – TPO held that assessee not
adequately compensated for the AMP expenses - Held, matter to be set aside to decide afresh
whether the activities constitute international transaction – Held, if it constitutes international
transaction then to decide ALP as per the judgment in case of Sony Ericsson. [S. 92B]
The assessee, was part of the 'Yum Restaurants Group' with its ultimate holding company being 'Yum
USA'. A company namely 'Yum Marketing' was formed as a wholly owned subsidiary of assessee
for carrying out advertising, marketing and promotion ('AMP') activities on behalf of assessee, its
franchisees and business associates in India.In terms of agreement, assessee was required to contribute
a fixed percentage from its 'equity stores' as its contribution towards 'AMP' activities.TPO opined that
assessee had not been adequately compensated for the AMP expenses incurred by it. The TPO took a
view that assessee had to be separately compensated by the AE due to creation of marketing
intangibles. Held, matter to be set aside to the AO, to decide after going through the operating
agreement, whether there exist any international transaction. Further, if it is held that there exist an
international transaction, then the computation of ALP should be done based on the decision of Delhi
High Court in Sony Ericsson Mobile Communication India (P.) Ltd. v. CIT (2015) 374 ITR 118
(Delhi).(AY.2009-10)
Yum Restaurants (India) (P) Ltd. v. ITO (2016)380 ITR 637 / 237 Taxman 652/131 DTR
23(Delhi)(HC)

S. 92C : Transfer pricing - Arms’ length price–Assessee, a logistics service provider, offering a
bouquet of international and domestic freight handling services–residual profits were split
between the assessee and the AE’s in the ratio of 50:50 – similar arrangement present with third
parties–common industry practice - CUP applied by assessee–Held, transaction at ALP.
Assessee, a logistics service provider, was offering a bouquet of international and domestic freight
handling services including time defined air and ocean transport and freight forwarding services. In

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the said business, the residual profits were split between the Assessee and the AEs in the ratio of
50:50. The he Assessee used the CUP Method for benchmarking its international transactions with its
AEs. TPO, for want of documents/ vouchers related to third parties adopted TNMM instead of CUP.
ITAT held that in this field of business activity, the 50:50 business model (i.e. the business model of
sharing residual profits in equal ratio with the service provider at the other end of the transaction i.e.
at the consignee's end in the case of export transaction and at consigner's end in the case of import
transaction), was a standard practice. Further, it acknowledged that where a standard formula is
adopted, the data regarding the precise amount charged or received for precisely the same services
may not be available. ITAT upheld that ALP of services rendered to, or received from, the AEs,
which was computed on the basis of the same 50:50 model as was the industry norm and was
employed by the assessee for computing similar services to the independent enterprises. High Court
found the impugned order of the ITAT to be well reasoned and researched and did not admit the
substantial question of law. (AY. 2006-07, 2007-08)
CIT v. Toll Global Forwarding India (P.) Ltd. (2016) 381 ITR 38 / 237 Taxman 326 / 283 CTR
346 (Delhi)(HC)

S. 92C : Transfer pricing - Whether a transaction is at an arm's length price or not is not
dependent on whether the transaction results in an increase in the assessee's profit -
Transactions may be aggregated if it is established that each transaction is so inextricably
linked to the other that one cannot survive without the other – Merely because assessee could
have obtained certain services from Indian entities cannot be a basis to disallow expenses paid
to AE or to disregard the arms length price
The assessee's business was segregated into two parts, manufacture and distribution. The assessee
benchmarked the manufacturing and distribution segments separately by adopting the Transactional
Net Margin Method (TNMM). TPO, in respect of certain services, held that services are a class of
transactions of their own and, therefore, require separate analysis. TPO, therefore, analysed the said
segregated services/transactions separately under the CUP Method.TPO held that when a taxpayer is
involved in distinct activities they have to be analysed separately by applying the most appropriate
method in each case. In respect of certain services, TPO held that no benefit was received by the TPO
and therefore the expenses incurred were not justified. High Court rejected the TPO’s rationale and
held that whether a transaction is at an arm's length price or not is not dependent on whether the
transaction results in an increase in the assessee's profit. High Court observed that merely because an
assessee does not profit from the use of the goods or services it does not follow that they were not
sold at an arm's length price. On the aspect of aggregation of transactions, the High Court observed
that transactions may be aggregated if it is established that each transaction is so inextricably linked to
the other that the one cannot survive without the other. However, the High Court further observed that
merely because the purchase of each item and availing of each service is a component leading to the
manufacture/production of the final product sold or service provided by the assessee, it does not
follow that they are not independent transactions for the sale of goods or provision of services. High
Court rejected the TPO’s argument that the assessee could have obtained certain services even from
Indian entities on the ground that the assessee cannot be compelled to avail of the services from an
Indian concern. High Court noted that the above cannot be a ground for rejecting a claim for
deduction and nor can it be a ground for assuming that the consideration paid is not at ALP. High
Court remanded the matter back to the Tribunal for deciding the issue in light of the ratio laid down.
((AY. 2007–08)
Knorr-Bremse India (P.) Ltd. v. ACIT (2016) 380 ITR 307 (P&H)(HC)

S. 92C:Transfer pricing-Net margin method-Arbitrary action of the AO in treating the payment

by the assessee to the AE as excessive/ unreasonable was held to be not justified.
Dismissing the appeal of revenue the Tribunal held that, arbitrary action of the AO in treating the
payment by the assessee to the AE as excessive/ unreasonable was held to be not justified.( ITA No.
7700/Mum/2010, dt.25.05.2016)(AY.2003-04)
ITO v. Intertoll ICS india Private Limited (Mum)(Trib), www.itatonline.org

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S. 92C:Transfer pricing-Advertising, marketing and sales promotion (AMP)-In the case of a
manufacturer operating in a competitive industry, high AMP expenditure cannot be assumed to
have been incurred for the benefit of the brand owner-Adjustment by the TPO was deleted.
In the case of a manufacturer operating in a competitive industry, high AMP expenditure cannot be
assumed to have been incurred for the benefit of the brand owner. The TPO has to prove that the real
intention of the assessee in incurring AMP expenses was to benefit the AEs and not to promote its
own business. Also, if the assessee has reported high turnover & profits & offered to tax, the basic
ingredient required to invoke s. 92 that there is transfer of profit from India remains unproved. In the
absence of the AO/ TPO showing that there is a formal/ informal agreement to share the AMP
expenditure, the adjustment cannot be made. The matter cannot be remanded to the AO/ TPO for
reconsideration.( ITA No. 7714, 1119, 976,518 and 335/Mum/2012, dt. 04.05.2016)(AY 2009-10,
2010-11)
Loreal India Private Ltd. v. DCIT (Mum)(Trib) www.itatonline.org

S. 92C:Transfer Pricing-Alleged excess investment in share capital of wholly owned subsidiary

cannot be termed as loan and notional interest charged thereon.
The Tribunal deleted the Transfer pricing addition on account of
a) alleged excess consideration paid on investment in share capital of wholly owned subsidiary re-
characterized as loan
b) and notional interest thereon on the ground that
i. Chapter X of the Act is inapplicable to an international transaction on capital account which
does not result in income chargeable to tax and
ii. Re-characterisation of the transaction is not permitted under the Act, and
iii. That potential income, to qualify as income subject to transfer pricing under the Act, should
arise from the impugned international transaction which is before the TPO for consideration and not
out of a hypothetical transaction that may or may not take place in the future.(ITA No.
2115/Mum/2015, dt. 19.02.2016)(AY-2009-10)
Topsgrup Electronic Systems v. ITO (Mum.)(Trib.);www.itatonline.org

S. 92C: Transfer pricing-“Need Test”, “Evidence Test” or “Rendition Test” to evaluate the ALP
of intra-group services rendered by an Associated Enterprise- Adjustment by the TPO was held
to be not justified.
The rendering of intra group services for which Assessee has paid Rs.21,20,48,533/- TPO determined
ALP at NIL holding that the assessee did not obtained any benefit of such services and the services
provided by the foreign AE were either not required, these are incidental or stewardship services or
duplicate services and hence unwarranted. Since, in his opinion, the assessee failed to provide any
evidence about the services rendered by the AE necessitating the payment of such charges, he
computed the ALP of this international transaction at Rs. Nil. TPO has simply held that as there is no
benefit from the services for which payments has been made in determined the ALP of this
international transaction at Nil without carrying out any FAR analysis of this intra-group services. On
appeal HELD by the Tribunal:
(i) Regarding the need test, it is apparent that looking to the size of the business of the assessee and
also for the continuous growth of the services assessee has justified that such services are required. It
is pertinent to note that requirement of the services should be judged from the viewpoint of the
appellant as a businessman. Therefore in this regard we are of the view that assessee has substantiated
that these services are required by it. As the company is one of the parties as service receiver of that
agreement it proves that such services were required by the assessee. Further the assessee is part of
the MNE organization, which has provided the service to many companies across the globe. As all
other companies situated in all together different companies and operating in different geographies
have also received and used these services which is evident from the allocation list submitted by the
assessee therefore this itself proves that for the assessee to remain competitive in its business such
services are required. Therefore the assessee satisfied the need test which is alleged by ld. TPO to
have not been satisfied by the assessee.
(ii) Regarding the receipt of the services from AE, the assessee can be asked to maintain and produce
the evidence of receipt of services, which a businessman keeps and maintains regarding services

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related from the third party. The burden cannot be higher on the assessee for evidencing the receipt of
services of higher level merely because the services have been rendered by its AE. Against these
overwhelming evidence placed by the assessee before the lower authorities ld. TPO has merely stated
that assessee has not been able to provide any evidence n that the AE has provided such services to
the assessee. We could not find any instances placed in the order of LD, TPO where it held that the
evidence placed by the assessee are not substantiated by rendition of service by the AE.
(iii) Hence in view of the overwhelming evidence placed by the assessee for receipt of services and
following the decision of coordinate bench respectfully, we are of the view that rendering of services
must be seen from the view point of the assessee and further assessee cannot be asked to keep and
maintain evidences of services rendered by AE higher than which is expected from a businessman
receiving services from an unrelated provider. Therefore, we reject the view point of Ld. TPO and Ld.
DRP that assessee has not shown the receipt of the services. In view of above we are of the view that
assessee has justified the receipt of services and satisfied the rendition test.
(iv) From the above decision of Honourable High court it is apparent that the user of the services are
concerned with the usefulness of its services which enhances the value thereof and consequently in
furtherance of its commercial interest. Merely profitability cannot be the criteria for benefit, it is much
more than what is determinable in monetary terms. Therefore while determining ALP of IA,
usefulness, enhancement in value and furtherance of business interest is required to be seen.( ITA No
5882/Del/2010 5816/Del/2011 & 6282/Del/2012,dt. 02.05.2016)(AY. 2006-07 2007-08, 2008-09)
GE Money Financial Services Pvt. Ltd. Ltd. v. ACIT (Delhi)(Trib);www.itatonline.org

S.92C:Transfer pricing-Unpaid service-tax could not be disallowed as no deduction was

claimed-Carry forward of losses of amalgamating company cannot be disallowed- Rule 46A is
not applicable to DRP proceedings.[S. 43B, 72A]
The Tribunal held that;
1. TP adjustment was to be restricted only to AE transactions despite the fact that assessee carried out
benchmarking at entity level;
2. Revenue’s contention that DRP erred in admitting additional evidence (which was not produced by
assessee before AO) in violation of Rule 46A, was invalid since Rule 46A is not applicable to DRP
proceedings
3. Disallowance of unpaid service tax could not be made under section 43B where the assessee did not
claim the same in its Profit and Loss account.
4. Where the assessee fulfilled all the conditions prescribed under Section 72A read with Rule 9C, the
AO could not deny the claim of carry forward of losses pertaining to the amalgamating company.(
ITA No.5335,5487,2143 & 2095/M/2014 ,dt.28.10.2015)( AY. 2007-08, 2009-10)
DCIT v. Alstom Project Ltd. (Mum)(Trib) , www.itatonline.org

S. 92C: Transfer pricing- Corporate Guarantees are not comparable to Bank Guarantees- ALP
of corporate guarantee was taken at 0.5%. [S. 92B,92CA ]
Corporate Guarantees are not comparable to Bank Guarantees & so the commission of 3% charged by
Banks is not a benchmark to evaluate the ALP of a corporate guarantee but it has to taken at 0.5%.
ITAT decisions which upheld the 3% rate cannot be followed as they are contrary to CIT v. Everest
Kento Cylinders Ltd ( 2015) 378 ITR 57 (Bom) (HC).( ITA No. 859&768/MUM/2014Dt.
29.04.2016)(AY. 2008-09)
Thomas Cook (India)(Limited v. ACIT (Mum)(Trib);www.itatonline.org

S. 92C: Transfer pricing- Arm’ s length price-Copy right infringement expenditure – Matter
was remanded.
Tribunal held that ; where assessee claimed deduction of expenditure incurred towards copyright
infringement settlement from operating cost of transactions with its AE, since all facts relating to
issue were not on record, i.e., whether infringement of copyright was with regard to international
transactions and whether it formed part of operating expenditure or not, matter was to be remanded
back for disposal afresh.( AY. 2010-11)
Avineon India (P.) Ltd. v. Dy.CIT ( 2016)157 ITD 483( Hyd)(Trib)

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S. 92C: Transfer pricing- Arm’s length price-Expenditure was incurred by assessee-tour
operater in its role of a principal and not as an agent of its foreign AE, for arranging tours,
inasmuch as said amount was not recoverable per se from its AE, said sum could not at all be
construed as 'Pass through costs' and were liable to be considered while determining ALP of
international transaction
Assessee-company, engaged in business of inbound tours and travels, provided services to foreign
tourist (arranging hotels, tour and travels) sent by its AE to India . Assessee claimed that expenses
incurred for arranging tours were on behalf of AE and it was simply paying such costs and passing
through same to its AE and, hence, said expenses being pass through cost, should be ignored while
computing ALP of said transactions. AO did not concur with the assessee’s submission hence by
applying 11.72 percent on such costs made the addition. CIT(A) deleted the addition .On appeal by
revenue , the Tribunal held that; It was found that assessee got a composite fixed amount from its AE
for hotel, transportation, air fare and it had to bear all costs in making arrangements for stay and travel
of tourists in India. Since entire sum represented costs incurred by assessee in its role of a principal
and not as an agent of its AE, inasmuch as said amount was not recoverable per se from its AE, said
sum could not at all be construed as 'Pass through costs' and were to be included while computing
ALP of said transaction . ( AY. 2006-07)
Dy.CIT v.Fritidsresor Tours & Travels India (P.) Ltd. (2016) 157 ITD 495 (Delhi)(Trib.)

S.92C:Transfer pricing- Arm’s length price- For determining ALP under 'Cost plus method',
both direct and indirect costs of providing services are to be considered in hands of assessee as
well as comparable uncontrolled companies-Current year data only to be considered.
For determining ALP under 'Cost plus method', both direct and indirect costs of providing services are
to be considered in hands of assessee as well as comparable uncontrolled companies. Ratio of 'Net
profit to total costs' has no place in mechanism provided for computing ALP under 'Cost Plus method'
under rule 10B. Since determination of ALP had been made on basis of multiple year data and not
current year data alone, matter should be restored to file of Assessing Officer. (AY. 2006-07)

Dy.CIT v.Fritidsresor Tours & Travels India (P.) Ltd. (2016) 157 ITD 495 (Delhi) (Trib.)

S.92C:Transfer pricing- Arm’s length price-Comparable- Company which had under gone
business restructuring could not be accepted as comparable – Company which had extrodinary
event of amalgamation cannot be held to be comparables.
In case of assessee rendering software development services to its AE, company which was
developing its own software products and company which had undergone business restructuring
process during relevant year, could not be accepted as comparables while determining ALP. A
company in whose case extraordinary event of amalgamation took place, a company which had huge
brand value and a company engaged in business of BPO service and providing high-end technology
services such as software testing and validation, could not be accepted as comparables. Matter
remanded. ( AY. 2010-11)
Equant Solutions India (P.) Ltd. v. Dy. CIT ( 2016) 157 ITD 292 (Delhi) ( Trib.)

S.92C:Transfer pricing- Arm’s length price-Interest-Transaction relating to extra credit period

to A.E. has to be aggregated with sale transactions for determining ALP.
Tribunal held that; where extended credit period to A.E. for realisation of sale proceeds is directly
related to and arising out of sale transaction, sale transaction with A.E. and resultant extended credit
period for realisation of sale proceeds being two sides of a coin, are closely linked transactions and,
thus, transaction relating to extra credit has to be aggregated with sale transactions for determining
ALP. where assessee had provided extended credit facilities for realisation of export receivables to
both A.E and non-A.E. without charging interest but in case of A.E. extended period exceeded 180
days, before concluding that a tangible benefit had been passed on to A.E. as a result of such extended
credit facility, margin of both transactions, viz., A.E. and non-A.E., had to be seen and, if there was
considerable difference between margin of A.E. transaction with that of non-A.E., then it needed to be
examined whether higher margin charged to A.E. took care of extended credit period for realisation of
export sale proceeds. Matter remanded]. (AY. 2009-10)

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Yash Jewellery (P.) Ltd. v. Dy.CIT ( 2016)157 ITD 340 (Mum) (Trib.)

S.92C:Transfer pricing-Arm’s length price-When interest was includible in operating income

and operating income itself had been accepted as reasonable by TPO under TNMM, there could
not be an occasion to make adjustment for notional interest on delayed realization of debtors.
Assessee was a leading ink manufacturer in India. During relevant year, assessee supplied base
material to its subsidiary in USA. Subsidiary company manufactured printing ink by using base
material and sold it in USA . TPO held that the assessee had allowed its subsidiary an average credit
period of 186 days as against average credit period of 130 days allowed to independent enterprises,
i.e., non-AEs . He thus made adjustment in respect of excess credit period of 56 days by computing
time value of money at rate of 6.38 percent on LIBOR plus basis. The DRP set a side the objections
of AO. On appeal Tribunal held that when interest was includible in operating income and operating
income itself had been accepted as reasonable by TPO under TNMM, there could not be an occasion
to make adjustment for notional interest on delayed realization of debtors . Moreover, since assessee
had sold semi finished goods to its subsidiary company whereas sale transactions with independent
enterprises were in respect of finished goods, there was no occasion of any comparison between them
in order to determine ALP . In view of aforesaid, impugned addition was to be deleted. (AY. 2006-
07)

Micro Ink Ltd.v. Add.CIT (2016) 157 ITD 132 / 175 TTJ 8(Ahd) (Trib.)

S. 92C:Transfer pricing- Arm’s length price-Export of commodities to AE at same price at

which those were purchased from local market did not call for transfer pricing adjustment if
transaction was made by assessee to retain status of Star Export House.
Assessee had acted as a support service provider in respect of transactions of export of guar gums and
pet chips and did not make any profit and sold goods to AE at same price at which it was purchased
from local market and AE in turn sold commodities to customers at same price at which these were
bought from assessee, just to retain status of Star Export House, international transactions with AE
met arm's length standard and, accordingly, addition on account of arm's length price was not
justified. ( AY. 2002-03)
Pepsico India Holdings (P.) Ltd. v. ADCIT(2016) 157 ITD 1 (Delhi)(Trib.)

S. 92C:Transfer pricing-Arm’s length price-TP adjustment towards ALP, if any, is required to

be made only in respect of international transactions entered into by assessee with its AEs and
not at entity level of assessee.
Allowing the appeal of assesse the Tribunal held that; TP adjustment towards ALP, if any, is required
to be made only in respect of international transactions entered into by assessee with its AEs and not
at entity level of assesse. (AY.2008-09)
Maine Global Enterprises (P.) Ltd v. ACIT ( 2016) 156 ITD 841 (Mum)(Trib)

S.92C:Transfer pricing- Arm’s length price- CUP method- transfer pricing adjustment made
relying on TNMM was to be deleted.
Allowing the appeal of assesse the Tribunal held that ;Where assessee had followed CUP method for
determining ALP, which was a standard method, it could not be discarded in preference over
transactional profit methods unless revenue authorities were able to demonstrate fallacies in
application of such method ( AY.2010-11).
Kailash Jewels (P.) Ltd. v. ITO ( 2016) 156 ITD 685 (Delhi)(Trib)

S.92C:Transfer pricing-Arm’s length price- Berry ratio can be used as PLI in benchmarking
ALP for indenting and steel trading transactions of assessee; it does not offend rule 10B.
Tribunal held that berry ratio could be used as PLI in benchmarking ALP for indenting and steel
trading transactions of assesse and berry ratio adopted by assessee does not offend rule 10B.
Compensation model of assessee did not include profit attributable to assessee on account of location
saving, hence, adjustments for use of locational savings was unwarranted . Further, use of intangibles
could not be inferred or assumed and had to be demonstrated on basis of cogent materials by

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TPO/Assessing Officer and adjustment for use of intangibles was unwarranted. TPO cannot make
notional adjustments to cost base of AEs for determining arm's length price of assessee and hence
same were to be deleted and matter was to be remanded back for necessary factual verifications and
ALP computation .(AY. 2010-11) .
Marubeni Itochu Steel India (P.) Ltd. v. Dy. CIT (2016) 156 ITD 620 (Delhi)(Trib).

S.92C:Transfer pricing-Arm’s length price- Comparables- Company which outsourced its ITES
to third party vendors could not be accepted as valid comparables.
Allowing the appeal of assesse the Tribunal held that ,where assessee, engaged in manufacturing
cassia gum powder, rendered marketing support services to its AE, company involved in high end
niche market segment of financial contents and company which outsourced its ITES to third party
vendors, could not be accepted as valid comparables while determining ALP. Matter remanded. (AY.
2007-08)
Lubrizol Advanced Materials India (P.) Ltd v. Dy.CIT ( 2016) 156 ITD 249 (Ahd)(Trib)

S. 92C : Transfer pricing–Arm’s length price (CUP)- where internally uncontrolled comparable
transactions of rendering similar services as provided to AEs are available, CUP would be most
appropriate method for determining ALP .
Tribunal held that ,while determining ALP under CUP method, if number of comparable uncontrolled
transactions are available, it is arithmetic mean of price charged in all such transactions, which is
considered for determining ALP of an international transaction; in such a case, neither Assessing
Officer nor Transfer Pricing Officer can resort to cherry-picking. (AY. 2005-06)
ADIT v. ABB Lummus Heat Transfer BV (2016) 156 ITD 168 (Delhi)(Trib)

S.92C:Transfer pricing–Arm’s length price- Sale of product to associated enterprises cannot be

taken as bench mark.
Tribunal held that prices, on which assessee has sold same products to resident associated enterprises,
cannot be taken as benchmark for ascertaining arm's length price of its similar sale transaction with
non-resident enterprises ( AY. 2007-08, 2008-09)
Gemstone Glass (P.) Ltd v. JCIT (2016) 156 ITD 176 (Ahd.)(Trib)

S.92C:Transfer pricing- Arm’s length price- CPM method- TPO was directed to adopt
TNMMmethod.
Tribunal held that,CPM is not a residuary method in sense that if every other method of ascertaining
arm's length price fails, CPM can be applied on basis of imperfect data; if at all there is a residuary
method, or what is termed as method of last resort, it is transactional net margin method . The matter
was remitted to TPO to determine the arm’s length price on the basis of TNMM method .( AY. 2007-
08, 2008-09)
Gemstone Glass (P.) Ltd v. JCIT ( 2016) 156 ITD 176 (Ahd.)(Trib.)

S. 92C : Transfer pricing - Arm’s length price - Advertisement marketing and promotion
expenses- Matter remanded.
It was held that it is mandatory to make a comparison of the AMP functions performed by the
assessee and comparables and then making an adjustment, if any, due to difference between the two
so that the AMP functions performed by the assessee and comparable are brought to a similar
platform. TPO having made transfer pricing analysis only on the basis of AMP spend without
discussing AMP functions, matter remanded for decision afresh. (AY. 2010-11).
Discovery Communications India v. Dy. CIT (2016) 130 DTR 137 / 175 TTJ 271 (Delhi)(Trib.)

S. 92C : Transfer pricing - Arms’ length price - Import of goods from AE- CUP method-
Adjustment on the basis of price on day to day basis was held to be not justified.
Assessee having made imports from its AEs at a price lower than the accepted comparable CUP price,
no ALP adjustment could be made. When the ALP is justified on the basis of the CUP method
accepted by the TPO, there cannot be an occasion to make adjustment on the basis of price averaging
on day to day basis. (AY. 2004-05)

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UE Trade Corporation India (P) Ltd. v. ITO (2016) 130 DTR 345/176 TTJ 252 (Delhi)(Trib.)

S. 92C : Transfer pricing - Arms’ length price - Selection of comparable-Functionally different

cannot be treated as comparable.
It was held that the fact that the segmental details of SP Ltd (comparable) in the public domain for the
relevant year were not reliable, the said company was functionally incomparable to the business
support services segment of assessee company as it organized events on sponsorship and was
functioning with an entirely different revenue generation model and, therefore, SP Ltd cannot be
treated as comparable to the assessee. (AY. 2008-09)
Qualcomm India (P) Ltd. v. Dy. CIT (2016) 130 DTR 1 (Delhi)(Trib.)

S. 92C : Transfer pricing – Determination of Arms’ length price – Assessee engaged in

trading/distributing activities – Resale Price Method to be regarded as most appropriate
method - internal comparables were to be preferred to external comparables for distribution
segment, wherever appropriate data was available.
Assessee does central spare-parts management entity/division for all Honda products sold in India and
also exports products to Honda subsidiaries/dealers in Indian subcontinent/Europe, Africa and South
America. Assessee had used TNMM Method as the most appropriate method. TPO rejected the
TNMM used by the assessee as most appropriate method and held that RPM was MAM. Further, also
TPO considered internal comparable uncontrolled transaction of the assessee for determination of the
ALP since assessee had transactions with both related and unrelated parties. DRP upheld the action of
TPO. Held that assessee has, in all its reports and submission, stated that it is a distributor/re-seller of
spare parts, and that it is selling as well as purchasing the spare parts, from both related and unrelated
entities. Even the functional analysis carried on by the assessee in its T.P. report does not claim or
indicate that the assessee is carrying out manufacturing activity of any type. In the TP study, the
assessee has described itself to be engaged in the business of trading activity. However, the assessee
has, as a passing reference, stated before the DRP that it places order for certain spares with the
manufacturer in certain circumstances. Placing orders for manufacturing, does not make the assessee a
manufacturer. It would be a case of procurement of spares through job work orders on factories. There
may be cases of value addition, in case the assessee supplies certain parts to the job work
manufacturer for manufacture of a spare part. Assessee is predominantly a distributor and is involved
in some cases in placing orders for certain spares from factories. This does not make the assessee a
manufacturer. Instead of buying goods off the shelf, it is buying spares by placing job work order
from manufacturer. The claim of laying down the design, specification etc. by the assessee, is not
acceptable for the reason that, it is the Automobile company which manufactures the car, which does
such functions. The type of specification, quality etc., of spares is duly defined in each and every
car/auto manufacture. Further, assessee has expressed a situation where certain parts are imported,
and used as parts of the kit, that is manufactured/assemble locally on Job order basis, and then sold.
The burden is on the assessee to furnish the required data for separate determining of ALP in all cases
where there is value addition through manufacture/assembly. Facts and functions of the assessee have
not been properly reported by the assessee and resultantly have not been appreciated and adjudicated
upon by the TPO. The function of distributor has to be treated differently from the function of job
order manufacturer of spare or cases where there is value addition. Hence, the facts of the case, the
functional profile etc. have to be examined afresh to arrive at the correct ALP. Following directions
were passed: (a) RPM is the MAM for the Distributor/trading segment. Finding of the DRP for the
segment where value addition is made to imported spares, and in case where procurement is done by
placing job work orders, fresh adjudication is to be done de novo to determine the MAM, is upheld.
(b) The burden is on the assessee to substantiate its claim of value addition etc. (c) Internal
comparables were to be preferred to external comparables for the distribution segment, wherever
appropriate data was available. (AY. 09-10,10-11)
Honda Motor India (P) Ltd v. ACIT (2016) 176 TTJ 282 / 66 taxmann.com 9 (Delhi)(Trib.)

S. 92C : Transfer pricing–Arms’ length price–Assessee was not having debtors and was entirely
funded by advance received from AE – Revenue did not contend that comparables considered

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were not carrying any debtors, creditors and inventories–Adjustment of working capital needed
on comparables in order to bring parity.
Held that revenue has not disputed the averment of the assessee that it was carrying no debtors and its
supplies to the AEs were always funded by them through advances. Effectively what it would mean
was that assessee did not need any working capital loan at all and was relying on its own resources.
Hence to bring the uncontrolled transaction comparable to the transactions of an assessee, it was
required to eliminate the material differences which are likely to affect the price or cost or profits
arising from the transactions. There is no case for the Revenue that the comparables considered were
not carrying debtors, inventories and creditors. When assessee was not having any debtors and was
entirely funded by advance received from AE abroad against supplies, then in order to bring parity
between the results of the selected comparables and that of the assessee it is essential that adjustment
for the working capital is made on the results of such comparables. Only then can the uncontrolled
transaction become comparable to the international transactions of the assessee. Therefore, DRP was
correct in giving the direction to the AO to carry out the necessary working capital adjustment in
working out the average PLI of the comparables.(AY.2010-11)
Indigra Exports (P) Ltd v. DCIT (2016) 176 TTJ 384 / 64 taxmann.com 370 (Bang) ( Trib)
S. 92C : Transfer pricing– Arms’ length price – Foreign exchange gain/loss can be non-
operational - If AO shows that such gains/loss came out of hedging and transactions which were
independent of business revenue earning transaction of assessee – Revenue earned by assesse
was from export – Foreign exchange income/loss was to be treated as operating in nature.
Held that foreign exchange gain/loss could be considered as non-operational only if the AO could
show that such gains/loss came out of hedging and transactions which were independent of the
business revenue earning transaction of the assessee. Preponderance of probability will always weigh
in favour of the assessee when its revenues are only from exports. No presumption that foreign
exchange gain/loss were not having any nexus to the operations of the assessee. AO is directed to
accept the claim of the Assessee.(AY.2010-11)
Indigra Exports (P) Ltd. v. DCIT (2016) 176 TTJ 384 /64 taxmann.com 370 (Bang)( Trib)

S. 92C : Transfer pricing – Arms’ length price – Assessee opined that economic slow-down,
frequent power disruptions, spiralling cost of raw material all resulted in lower utilisation of
capacity, leading to under absorption of fixed costs – TPO held that assessee was not able to
substantiate its claim for adjustment of depreciation while working out its PLI - Depreciation
on fixed assets need not be directly proportional to utilisation of machinery because assets can
get depreciated by non usage as well - Attempt of assessee to have a lesser charge of
depreciation while working out its PLI in guise of under utilisation of capacity, was not correct
Assessee had a capacity for production of 1,22,233 sq.mts of granite but it had only produced 28,336
sq.mt during the year. Therefore, there was underutilisation of capacity and assets. Fixed cost
remaining the same, irrespective of the actual utilisation, such cost had to be charged to the
production. As per assessee reason for under utilisation was that there were difficulties in procuring
raw material, not owning any captive mines, and severe shortage of power. Thereby, assessee made
adjustment in depreciation. Held that it would mean that wear and tear of the fixed assets were
considered at a lower level than what it would have been if such assets were used without respite.
Depreciation on fixed assets need not be directly proportional to utilisation of machinery. Assets can
get depreciated by non usage as well. Hence attempt of the assessee to have a lesser charge of
depreciation while working out its PLI in the guise of under utilisation of capacity was not correct. No
doubt, Rule 10B(1)(e) requires adjustment of differences between international transactions and the
comparable uncontrolled transactions which would materially affect the net material margin. But
assessee was unable to establish that the comparables had claimed depreciation after considering their
capacity utilisation. Further assessee also could not establish the existence of a linear relationship
between its depreciation cost and machine utilisation. Thereby, grounds are dismissed. (AY.2010-11)
Indigra Exports (P) Ltd v. DCIT (2016) 176 TTJ 384 / 64 taxmann.com 370 (Bang) (Trib)

S. 92C : Transfer pricing - Arms’ length price – Comparable company earning income from
different model should be rejected. High profitability could not be a reason for rejection of a
comparable.

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The Assessee was engaged in providing business support services. There was a dispute with respect to
the selection of comparable companies. The ITAT held that the company earned income through a
different business model of renting out spaces on rent and was not comparable to the Assessee.
Further, the ITAT observed that a company could not be rejected on the grounds of high profitability
as high profit was not a measure of efficiency in management. (AY. 2008-09)
Qualcomm India Pvt. Ltd. v. DCIT (2016) 45 ITR 370 (Delhi)(Trib.)

S. 92C : Transfer pricing - Arms’ length price -Comparables chosen on the basis of FAR
Analysis – Cannot be excluded as it was not consistently loss making companies – Onus on
Revenue to bring more cogent reason, argument or fact to justify its exclusion
The assessee had availed of the services of expatriates from its AE's for provision of technical
services to RIL under the agreement. The TPO after considering the comparables chosen by the
assessee excluded loss making companies like Himachal Futuristic Communication Ltd (HFCL) and
made an adjustment. The CIT(A) observed that the TPO had not disputed FAR of HFCL so far as
comparability with the assessee was concerned . Accordingly it held that it cannot be said that HFCL
was consistently loss making company and hence could not be treated as comparable. On appeal to
Tribunal, it was held that where on FAR analysis the conclusion that a company was correctly chosen
as a comparable remains unassailed, then it was necessary for the revenue at that stage to bring some
cogent reason, argument or fact justifying that still the comparable needs to be excluded. It further
held that merely reiterating TPO’s stand would not hold good at Tribunal stage. (AY. 2005-06)
DCIT v. Nortel Networks India (P.) Ltd (2016) 176 TTJ 25 (UO) /66 taxmann.com 177 (Delhi)(
Trib.)

S. 92C : Transfer pricing - Arms’ length price -Net operating profit margin of assessee to be
computed and compared with net operating profit margin of the comparable companies with
same base.
Assessee was a subsidiary of Agilent Technologies Europe BV. Its business operations comprised of
facilitation of sales of Agilent products in Indian market. It was a 'Commission agent' as regards its
transactions under Indent model and a 'Trader' as regards its transactions under Buy-Sell model. For
the purpose of determining the ALP of its international transaction, the Assessee combined both the
segments. It compared its OP / OC (Operating Profit / Operating Cost) margin with the OP / VAE
(Operating Profit / Value added expenses) margin of the comparable companies for determining the
ALP of its international transactions To maintain parity, the TPO adopted 'Value Added Expenses' as
base (denominator) while computing the margin of the comparable companies. . On appeal to
Tribunal, it was held that as per rule 10B(1)(e), while applying TNMM, the margin of the tested party
as well the comparable companies should be computed having regard to the same base and
accordingly, the action of the TPO was upheld by the ITAT. further, the ITAT also observed that for
benchmarking the trading segment, operating cost could be an appropriate base, while value added
expenses could be an appropriate base of commission agents. Since both the segments were
incorrectly combined to determine the ALP, the matter was remanded for de novo determination.
(AY. 2005-06)
DDIT v. Agilent Technologies India (P.) Ltd(2016) 176 TTJ 415/ 67 taxmann.com 95 (Delhi)(
Trib.)

S. 92C : Transfer pricing - Arms’ length price - Selection of Comparables - A company, though
in almost similar line of business functionally, ceases to be comparable, because of adoption of a
different business model as per which activities are mostly outsourced – Comparable cannot be
rejected if there was no negative phase of economic cycle.
The assessee’s primary functions include the provision of electronic publishing services, such as,
computerized data conversion, web-page construction, data entry/key boarding, copyediting, and
CAD/CAM/GIM mapping services to its AE. The assessee undertook one international transaction of:
'Provision of IT-Enabled data Conversion services’. The TPO selected 11 companies as comparables.
On appeal to Tribunal, it was held that VIT Ltd though functionally similar to assessee but had
outsourcing 75 % of its jobs as against complete in-house working of assessee, and hence could not be
treated as comparable. Though revenue has right to file cross objections against the adverse order of

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the CIT(A) but it has no right to file appeal against the view taken by the AO/TPO himself which was
not disturbed in the first appeal. When TPO himself considered ASE Ltd as comparable, there could
be no reason for revenue to be aggrieved against its inclusion; and department could take recourse to
other legal remedies, if any, available as per law insofar as its grievance against decision of Assessing
Officer/TPO was concerned. Further it held that comparable company namely Ask Me Info Hubs Ltd
could not be rejected if there was no negative phase of economic cycle and TPO’s observations that
the company had declining turnover and profitability was factually unfounded. (AY. 2007-08)
ACIT v. Tech Books Electronics P. Ltd (2016 )176 TTJ 20/65 taxmann.com 241 (Delhi)(Trib.)

S. 92C : Transfer pricing - Arms’ length price–No transfer pricing adjustment if the TPO had
accepted international transaction to be arm’s length in subsequent year and facts have
remained the same.
The Assessee submitted documents supporting the selection of CUP as the most appropriate method
to benchmark its transactions, which was rejected by the TPO on the basis that they were sketchy. The
TPO applied TNMM wherein one company was selected as comparable by the TPO. The Assessee
submitted additional evidences before the CIT(A) to prove that CUP was the correct method to be
applied and the company selected by the TPO was not comparable to the Assessee due to various
reasons. The CIT(A) accepted the additional evidences since the Assessee was prevented by sufficient
cause, being the illness and subsequent death of his accountant, to submit them at the time of
assessment. The CIT(A) deleted the TP adjustment. On appeal by the Department, the ITAT upheld
the order of the CIT(A) since the AO did not dispute the correctness of the additional evidences
submitted by the Assessee and the Assessee was prevented by sufficient cause from submitting the
same at the time of assessment. Further, the TPO had accepted the CUP method applied by the
Assessee in subsequent years. The ITAT also held that the company selected by the TPO as
comparable was into manufacturing activity while the Assessee was only into trading and hence the
adjustment made by the TPO was rightly deleted by the CIT(A). (AY. 2006-07)
DCIT v. Davinder Kumar Bhasin (2016) 45 ITR 232 (Chd.)(Trib.)

S. 92C : Transfer pricing - Arms’ length price – Selection of Comparable – DRP in preceding
year accepted EDCIL as comparable – No change in circumstances in current year – EDCIL to
be accepted as a comparable – After including EDCIL as comparable, margin within +/-5% -
No transfer pricing adjustment.
During the assessment, TPO rejected the EDCIL as comparable on the basis that the said is not
functionally comparable. On appeal against the final assessment order, assessee argued that EDCIL is
engaged in provision of support services and company operates in three segments. Two segments of
EDCIL are comparable to services provided by assessee to its AE. Held that, in assessee’s own case
for AY 08-09 DRP directed the TPO to consider the two segments as comparable to the assessee and
since business of EDCIL and assessee has remained unchanged there exists no reason to reject the
company in the year under consideration. AO/DRP was directed to include the comparable in the final
set. Further, after inclusion of EDCIL margin comes within+/- 5%, international transaction is
considered to be at arm’s length and adjustment is liable to be deleted. (AY. 2009-10)
Eli Lilly & Co. (India) (P) Ltd v. ACIT (2016) 176 TTJ 234 (Delhi) (Trib.)
S. 92C : Transfer pricing–Arms’ length price–Selection of Most Appropriate Method – For
selection of Most Appropriate Method “availability, coverage and reliability of data necessary
for application of method”–Internal TNMM not most appropriate method as only one
comparable available and comparable company was an AE of the assessee in past – Sufficient
external comparables for TNMM are available.
Assessee was engaged in the business of providing information technology enabled services in the
areas of insurance claim processing, mortgage loan processing and document processing services to
its AE as well as non-AEs. Assessee used Internal TNMM to benchmark its transaction with AE. TPO
held that assessee was undertaking different functions and assuming entirely different risks in respect
of the AE and non-AE transactions, and considering these differences in functions and risks, the
benchmarking done through internal TNMM could not be accepted. DRP also rejected the contention
of assessee. Before ITAT, assessee contended that internal TNMM had been incorrectly rejected by
the TPO. Held that a method selected for benchmarking must be a permissible method to be included

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in the consideration zone. The method selected for benchmarking must not only be a permissible
method but it should be the 'most appropriate method' on the facts and circumstances of that case and
vis-a-vis the other methods which can be applied on the facts of that case. The selection of most
appropriate method is not simply deciding a question as to what is permissible and what is not
permissible, because, as is elementary, everything permissible in law is not necessarily the most
appropriate thing. It is important to bear in mind the fact that under section 92C(1), 'the arm's length
price in relation to an international transaction shall be determined by one of the (prescribed)
methods, being the most appropriate method, having regard to the nature of transaction or class of
transaction or class of associated persons or functions performed by such persons as such other
relevant factors as the Board may prescribe. Rule 10C prescribes the relevant factors for determining
the most appropriate method. One of the important factors governing the decision on as to what will
constitute the most appropriate method, as set out in rule 10C(1)(c) is 'the availability, coverage and
reliability of data necessary for application of the method'. The availability of data, with respect to a
particular method vis-a-vis other methods of determining the ALP, is thus one of the crucial factors in
deciding whether that particular method of determining the ALP is 'most appropriate method' of
determining ALP on the facts of that case, or not. When only one comparable is available for
application of a particular method, this serious limitation on the availability of data, certainly relegates
its appropriateness vis-a-vis other alternate methods available, such as external TNMM, in respect of
which sufficient, and essentially reliable, data is available and the internal TNMM is certainly not the
most appropriate method on the facts of this case. The fact that the independent enterprise was an
associated enterprise in not so distant past, the fact that despite its becoming, in legal terms and as an
offshoot of group restructuring, an independent enterprise, the assessee continues to work for this
enterprise even after making huge losses, as high as 21.75 per cent on cost, and the fact that it is a
single comparable, does raise serious apprehensions about its reliability. This fact situation, coupled
with the admitted position that sufficient number of external comparables for TNMM are available,
does leave the internal TNMM much lower in the hierarchy of methods, particularly vis-a-vis external
TNMM, appropriate for determining the ALP on the facts of this case. The internal TNMM, on the
basis of which the assessee had done its benchmarking, was indeed not the most appropriate method
and the line of reasoning adopted by the TPO and the DRP are approved. (AY. 2008-09)
Fortune Infotech Ltd. v. ACIT (2016) 176 TTJ 619 / 66 taxmann.com 92 (Ahd ) (Trib)

S. 92C : Transfer pricing - Arms’ length price – Selection of Comparable – Related Parties
transaction exceed 15% - Aforesaid companies to be excluded from the list of comparables
Held that as far as comparable companies chosen by the TPO viz., Aztec Software Limited and
Geometric Software Ltd. (Seg.) and Megasoft Ltd., are concerned, in view of the decision of the
Tribunal in the case of 24/7 Customer.Com (P.) Ltd. v. Dy. CIT [2013] 140 ITD 344/[2012] 28
taxmann.com 258 (Bang.), followed by this Tribunal in the case of Logica (P.) Ltd. v. Asstt. CIT
[2013] 36 taxmann.com 374 (Bang. - Trib.) wherein it was held that where the RPT exceeds 15%,
such companies should not be taken as comparable companies. Following the said decision, the
aforesaid companies referred be excluded from the list of comparable companies while working out
the ALP. (AY. 2006-07)
FCG Software Services (India) (P) Ltd v. ITO (2016) 176 TTJ 145/ 66 taxmann.com 296
(Bang)(Trib)

S. 92C : Transfer pricing –Arms’ length price – Adjustments of global profits of assessee – No
judicial authority for the proposition that the TP adjustments cannot result in a situation that
these are in excess of global profits
Assessee contended that the total adjustment made to the arm's length price of the appellant should be
restricted to the overall income earned by the AE from third parties. Conceptual justification for this
proposition is that the ALP adjustment should be restricted to the overall profits of the group as a
whole. Held that all intra AE relationships are not linear. There are complex structures involved in
many intra AE transactions, and, if it is held that the ALP adjustments cannot exceed the global
profits, it will result in interaction of too many tax jurisdictions, in many a cases with irreconcilable
tax laws - particularly with respect to permissible tax manoeuvrings, to come to a logical conclusion
in such cases. Therefore, it cannot be held that ALP adjustments cannot result in a situation that the

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profits of the AEs and the ALP adjustments, put together, exceed the global profits of the group as a
whole. There is no judicial authority for the proposition that the TP adjustments of an assessee cannot
result in a situation that these are in excess of the global profits. Right course of action will be to remit
the matter to the Assessing Officer with a direction to re-examine this aspect of the matter in the light
of the decision of Global Vantage (P.) Ltd.' (2013) 354 ITR 21 (Del HC) In the absence of necessary
information such as average selling expenses in this line of activity at the relevant point of time, this
issue cannot be decided at this stage. In case the assessee can indeed demonstrate that the residual
revenues belonging to the assessee, after making appropriate adjustments for the average selling
expenses in his line of commercial activity, are less than the transaction value, or within 5% range of
the same, the same will have to be accepted as an arm's length price by the Assessing Officer. The
functional profile of the AE, as also other related factors such as weightage to this functional profile
in terms of the revenue allocation, will also have to be examined. (AY. 2008-09)
Fortune Infotech Ltd. v. ACIT (2016) 176 TTJ 619/ 66 taxmann.com 92 (Ahd)(Trib)

S. 92C : Transfer pricing - Arms’ length price – Selection of Comparable – Turnover relevant
criteria for choosing comparables – Turnover of companies above Rs. 200 crs to be excluded –
AO directed to recompute arithmetic mean.
Held that Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd. v. Dy.
CIT 376 ITR 183 has considered the issue as to whether comparable can be rejected on the ground
that they have exceptionally high profit margins or fluctuation profit margins, as compared to the
assessee in transfer pricing analysis. The observations of the High Court, insofar as it refers to
turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should
follow the decision of a non-jurisdiction High Court. However, it was found that the Bombay High
Court in the case of CIT v. Pentair Water India Pvt. Ltd., Tax Appeal No. 18 of 2015 judgment dated
16-9-2015 has taken the view that turnover is a relevant criterion for choosing companies as
comparable companies in determination of ALP in transfer pricing cases. There was no decision of
the jurisdictional High Court on this issue. Following the principle that where two views are available
on an issue, the view favourable to the assessee has to be adopted, the view of the Bombay High
Court on the issue was to be followed and, thus, the companies, viz., Flextronics Software Systems
Ltd., iGate Global Solutions Ltd., Mindtree Ltd., Persistent Systems Ltd., Sasken Communication
Technologies Ltd., Infosys Technologies Ltd. having turnover above Rs. 200 crores should be
excluded from the list of comparable companies. The Assessing Officer was directed to compute the
Arithmetic mean by excluding the aforesaid companies from the list of comparable (AY 2006-07)
FCG Software Services (India) (P) Ltd v. ITO (2016) 176 TTJ 145 / 66 taxmann.com 296 (Bang)
(Trib)

S. 92C : Transfer pricing – Computation of Arms’ length price – Adjustment on account of

underutilization capacity – No specific submission and quantification of underutilization
capacity – Impact is to be with reasonable precision, quantified and then only adjustment can
be held.
Held that merely because the employee costs of the assessee are higher, it does not lead to the
conclusion that there is an underutilization of capacity. Underutilization is much more in the case of
non AE transactions inasmuch as "the employee costs to turnover ratio in AE segment is 76% whereas
in non-AE segment it is 97%". There is no specific submission and quantification on the fact, if at all,
of the underutilization of capacity. There is no room for vague generalities and over simplifications,
as the impact of underutilized capacity is to be, with reasonable precision, quantified and then only it
can be adjusted. The exercise of quantifying the capacity underutilization has not been carried out at
all. There is no discussion in the orders of the authorities below or in the submissions of the assessee.
Therefore, we are not inclined to uphold the assessee's grievance with respect to denial of adjustment
for capacity underutilization. (AY. 2008-09)
Fortune Infotech Ltd. v. ACIT (2016) 176 TTJ 619/ 66 taxmann.com 92 (Ahd) (Trib)

S. 92C : Transfer pricing –Arms’ length price – Not permissible to substitute actual profit
earned by assessee with any other profit base i.e. either by considering actual profits for earlier
years or by taking into account projected profits of subsequent years

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Assessee adopted PLI of OP/OC and computed its weighted average profit rate of 16.53%, by taking
profit margins for a period of four years, being actual figure for the current year at 6.52% and
projected figures for coming three years at 17.23%, 19.05% and 19.05%. TPO rejected the approach
and held that only profit for the current year could be considered as the assessee's PLI. Held that when
we consider the language of section 92(1) in juxtaposition to that of section 92C(1), it emerges that it
is the income arising from an international transaction which is to be computed having regard to its
ALP. Section 92C(3)(a) provides that where the AO is of the opinion that "the price charged or paid
in an international transaction" has not been determined as per ALP, then, he may proceed to
determine the ALP in relation to the said international transaction. The base for comparison, being the
actual income of the assessee from an international transaction, cannot be substituted with any
hypothetical figure by considering, inter alia, projected profits for the subsequent years. Essence of
the entire transfer pricing provisions is to compare the actual price/profit realized/earned by the
assessee from an international transaction with the price/profit realized/earned from comparable
uncontrolled transactions. It is totally impermissible to substitute actual profit earned by the assessee
from an international transaction with any other profit base, either by considering the actual profits for
the earlier years as well or by taking into account the projected profits of the subsequent years, for the
purposes of determining the ALP of an international transaction. Figures taken for subsequent three
years are mere projections. Therefore, view point of the assessee in calculating its PLI by considering
figures for the current year and also projected figures for subsequent three years is erroneous.
Headstrong Services India (P) Ltd v. DCIT (2016) 176 TTJ 665/66 taxmann.com 185
(Delhi)(Trib)

S. 92C : Transfer pricing – Arms’ length price – Transactional Net Margin Method –Rule
10B(1)(e) – Calculation of net profit margin as per Rule 10B(1)(e) Adjustment to the profit
margin should be made to the comparables and not to the assessee.
Held that from bare perusal of Rule 10B(1)(e)(i) brings out that net profit margin realized by the
enterprise from an international transaction is to be computed in relation to a particular base. Sub-
clause (ii) provides that the net profit margin realized by the enterprise from the comparable
uncontrolled transaction is computed having regard to the same base. Sub-clause (iii) provides that the
net profit margin realized by a comparable company, determined as per sub-clause (ii) above, 'is
adjusted to take into account the differences, if any, between the international transaction and the
comparable uncontrolled transactions which could materially affect the amount of net profit margin
in the open market.' On going through sub-clauses of Rule 10B(1)(e), it becomes patent that as per the
first step, the net profit margin 'realized' by the enterprise from an international transaction is to be
computed. Use of the word 'realized' in the provision richly indicates that it is the calculation of actual
operating profit margin of the assessee earned from international transaction, which is not any
adjusted figure. From the language of sub-clause (iv), where again reference has been made to profit
margin 'realized' by the assessee from the international transaction. When we consider sub-clauses (ii)
and (iii), it turns out that, firstly, the net operating margin actually realized from the comparable
uncontrolled transaction is computed, which is determined in the same way as that of the assessee as
per clause (i), that is, actual figures without making any adjustment. Then sub-clause (iii) talks of
adjusting the actually realized margin of comparables to bring the same at par with the international
transaction undertaken by the assessee, so as to iron out the effects of differences between the
international transaction and comparable uncontrolled transactions. On going through all the sub-
clauses of Rule 10B(1)(e), the position which follows is that the net profit margin realized by the
assessee from its international transaction is taken as such and the adjustments, if any, due to
differences between the international transaction and comparable uncontrolled transactions, are given
effect to in the profit margin of comparables. Contention of AR that the adjustment should be carried
out in the profit margin of the assessee is devoid of merit and contrary to the legal provisions. (AY.
2008-09)
Headstrong Services India (P) Ltd v. DCIT (2016) 176 TTJ 665 / 66 taxmann.com 185
(Delhi)(Trib)

S. 92C : Transfer pricing–Arms’ length price – Foreign Exchange Fluctuation can be legally
made in profit margin of comparables and not in the margin of assessee – When assessee enters

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an agreement with its AE with effect from first day of previous year – No scope for comparing
foreign exchange rate of the year with previous years.
Held that any northwards or southwards sojourn in the foreign currency rate leaves its impact on the
operating profit of the assessee in the same manner as on that of the comparables. If the assessee's
profit margin got shrinked due to adverse fluctuation in the foreign exchange rate, the same rate when
applied to the comparables, would have affected their profit margins as well. Since adjustment was
permissible in the profit margin of comparables only due to differences between the international
transaction and the comparable uncontrolled transaction, and not due to a factor affecting profit of
both the assessee and comparables in the same manner, we refuse to allow any adjustment in the
profit rate of comparables because of fluctuation in the foreign currency rate. Therefore neither the
assessee can claim any adjustment on account of foreign exchange fluctuation rate in its profit nor
such an adjustment. (AY. 2008-09)
Headstrong Services India (P) Ltd v. DCIT (2016) 176 TTJ 665/ 66 taxmann.com 185
(Delhi)(Trib)

S. 92C : Transfer pricing - Arms’ length price – TNMM is the most appropriate method since
domestic segment cannot be compared to export segment.
The Assessee, engaged in manufacture and sale of tractors, selected TNMM as the most appropriate
method to benchmark its international transaction. The AO changed the same to Cost Plus Method
and compared the gross margin from sale of tractors in the domestic segment to the AE segment. The
ITAT held that TNMM was the most appropriate method for since the domestic segment and export
segment could not be compared due to various differences in risks as well as the fact that the TPO had
accepted TNMM in the previous years. (AY. 2006-07 ,2007-08)
John Deere India P. Ltd. v. DCIT & John Deere Equipment P. Ltd. v. ITO (2016) 45 ITR 389
(Pune)(Trib)

S. 92C : Transfer pricing –Arms’ length price – Internal CUP method cannot be applied – in
comparing revenue sharing formula between assessee & its AE on one hand and its AE & third
parties
Held that assessee has treated itself as a tested party in its transfer pricing study report, which has
been accepted by the TPO. Under the CUP method as prescribed under Rule 10B(1)(a), price charged
for services rendered in a comparable uncontrolled transaction is identified which is then adjusted to
account for differences, if any, between the international transaction undertaken by the assessee and
comparable uncontrolled transactions. Such adjusted price is taken as ALP in respect of the services
provided by the assessee in the international transaction. From the machinery provision contained in
Rule 10B(1)(a), it is clear that the internal CUP provides for comparing the assessee's international
transaction with another comparable uncontrolled transaction undertaken by it. We fail to appreciate
the logic behind the ld. AR's submission in comparing the Revenue sharing formula between the
assessee and its AE on the one hand and its AE and third parties on the other. As the assessee is a
tested party, under the CUP method, it is only the price charged by it which can be compared with the
price charged by some comparable(s) in uncontrolled transactions. The argument put forth on behalf
of the assessee can be successfully applied only in determining the ALP of the international
transactions undertaken by its AE so as to make a valid comparison between remuneration paid by
such AE to the assessee with that paid to unrelated parties, provided other terms and conditions of the
provision of services are similar. Assessee can resort to the CUP method only by showing that the
price charged by it from its AE was favourably comparable to the price charged by some other
comparable company in uncontrolled transaction(s). No material on record to show the price charged
in a comparable uncontrolled situation. Therefore hold that the view before the DRP to the CUP
method is devoid of merits and most appropriate method is TNMM which was originally adopted by
the assessee and also approved by the TPO.(AY. 2008-09)
Headstrong Services India (P) Ltd v. DCIT (2016) 176 TTJ 665/ 66 taxmann.com 185 (Delhi)(
Trib)

S. 92C : Transfer pricing – Arm’s Length Price – Burden is on asessee to show that comparable
had a particular capacity utlisation. [R. 10B(1)(e), 10B(3)]

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Tribunal held that the assessee’s contention that the adjustment on account of difference between
capacity utilization of comparable companies and the assessee should be adjusted in the profit margin
of the assessee is rejected . Adjustment for capacity utilization or for that matter any other adjustment,
can be legally made only in the profit margin of the comparables, if otherwise factually warranted.
(AY. 2011-12)
Saxo India (P) Ltd. v. ACIT (2016) 176 TTJ 540 / 67 taxmann.com 155 (Delhi)(Trib.)

S. 92C : Transfer pricing – Arm’s Length price- As per separate segment of software
development covering IT infrastructure sector is comparable to soft ware service provider-
Transaction being deemed to be two AEs will cease to be uncontrolled transaction. [ S .92B ]
Tribunal held that where a company which has a separate segment of software development covering
IT Infrastructure sector is comparable to software service provider. Tribunal also held that as per
section 92B assessee’s transaction with non –AE third person shall be deemed to be a transaction
entered in to between two AEs if there exists a prior agreement in relation to relevant transaction
between non AE third person and AE of assessee or terms are already determined between non AE
third person and AE of assessee; transaction being deemed to be between two AEs , will cease to be
uncontrolled transaction.(AY. 2011-12).
Saxo India (P) Ltd. v. ACIT (2016) 176 TTJ 540 / 67 taxmann.com 155 (Delhi)(Trib.)

S. 92C : Transfer pricing - Arm’s length price- though functionally similar but outsourcing 75
percent of its jobs as against complete in house working of assessee, cannot be treated as
comparable. [R. 10B(1)(e)]
Tribunal held that though functionally similar but outsourcing 75 percent of its jobs as against
complete in house working of assessee, cannot be treated as comparable. Arguments of the
Department Representative to treat ASE-Ltd, as functionally dissimilar and delete it from the list of
comparables is not acceptable, as the same has been treated by the TPO as comparable and the
CIT(A) has not tinkered with this conclusion of the AO/TPO. (AY. 2007-08)
ACIT v. Tech Books Electronics (P) Ltd. (2016) 176 TTJ 20/ 65 taxmann.com 241 (Delhi)(Trib.)

S. 92C : Transfer pricing – Reimbursement for business support service- Addition was delted.
The Tribunal held that the assessee did not incur any expenditure on its own on this behalf and
provided all details of service rendered by AE worked out by assessee, the addition towards ALP
deleted. (AY. 2007-08)
Gillette India Ltd. v. ACIT (2016) 175 TTJ 35 (UO)(Jaipur)(Trib.)

S. 92C : Transfer pricing – Most appropriate method-Matter was set aside.

The Tribunal set aside the order of AO and directed AO to refer the matter again to the DRP which
shall determine the actual function performed by the assessee, the assets employed and the risks
assumed by it after examining the agreement between the parties and thereafter decide the matter in
accordant with law. (AY. 2009-10, 2010-11)
Roca Bathroom Products P. Ltd. v. Jt. CIT (2016) 175 TTJ 450 (Chennai)(Trib.)

S. 92C : Transfer pricing – Selection of comparables-In the absence of segmental analysis it

cannot be considered as comparable.
The Tribunal held that in the absence of segmental analysis, it cannot be considered as a comparable.
Tribunal relied on the decision of Mumbai bench of Tribunal in the case of Ivonik Degussa India (P)
Ltd. (2013) 151 TTJ 1 (Mum.). The Tribunal upheld the order of CIT(A) and dismissed the ground
raised by the Department. (AY. 2003-04)
Dy. CIT v. Pfizer Ltd. (2016) 175 TTJ 92 (Mum.)(Trib.)

S. 92C:Transfer pricing- Assessee falling within category of companies having turnover between
Rs. 1 crore and Rs. 200 crores – Companies having turnover of more than Rs. 200 crores to be
eliminated from list of comparables –Foreign Exchange Fluctuation Gains to be added to
operating revenue.

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On appeal, the Tribunal held that; the turnover filter is an important criteria in choosing the
comparables. The assesee’s turnover was in the range of Rs. 1 crore to Rs. 200 crores. Thus,
companies having turnover of more than Rs.200 crores had to be eliminated from the list of
comparables. Thus, the order of the Dispute Resolution Panel excluding the six companies from the
list of comparable companies chosen by the Transfer Pricing Officer on the basis of turnover and size
was upheld.Comparables having related party transactions of upto 15 percent of the total revenues
could be considered .Matter remanded.The foreign exchange fluctuation gains were required to be
added to the operating revenue.(AY. 2010-11)
Obopay Mobile Technology India Pvt. Ltd.v. Dy. CIT (2016) 46 ITR42 (Bang.)(Trib.)

S. 92C : Transfer pricing- AO shall examine issue of transfer pricing and with approval of
Commissioner make a reference to Transfer Pricing Officer – No transfer pricing adjustment
can be made where assessee enjoyed benefit u/s. 10A or section 80HHE or where tax rate in
country of associated enterprises is higher than in India. [ S.10A, 80HHE, 92CA ]
The assessee contended that under section 92C or 92CA, it is the statutory duty of the AO to decide
independently whether the determination of arm’s length price by the assessee should be accepted, or
whether or not after applying the provisions of section 92CA, the transfer pricing adjustment should
be made and that similarly, it is only after proper application of mind to all the facts and holding a
prima facie belief that the AO can make reference to the Transfer Pricing Officer.

On appeal, the Tribunal held that the AO erred in not himself examining the issue of transfer pricing
and with the approval of the Commissioner, made a reference to the Transfer Pricing officer
u/s.92CA(1) of the Act. The AO as well as the CIT(A) failed to apply their mind to the transfer
pricing report filed by the assessee. The assessee was correct in contending that no transfer pricing
adjustment can be made in a case where the assessee enjoyed the benefit u/s. 10A or section 80HHE
of the Act or where the tax rate in the country of associated enterprise is higher than that of the tax
rate in India. (AY. 2005-06)
Dy. CIT v. Tata Consultancy Services Ltd. (2016) 46 ITR 394 (Mum.)(Trib.)

S.92C:Transfer pricing-argument that transfer pricing adjustment cannot be made if the

assessee's income is deductible u/s. 10A/ 10B is not acceptable. [S.10A, 10B]
The assessee claimed that as its profit from the rendering of software development services is
deductible u/s 10A, then, no motive can be attributed for artificially reducing the profit by
manipulating the price with its AE. It was submitted that the profit of an assessee, eligible for
deduction under section 10A, becomes tax neutral irrespective of its quantum and that, therefore,
either the international transaction should not be processed in terms of Chapter-X of the Act or higher
amount of deduction should be allowed corresponding to the amount of addition on account of
transfer pricing adjustment. HELD by the Tribunal rejecting the contention:
(i) In so far as the first submission for not carrying out any transfer pricing adjustment in view of the
benefit enjoyed by it u/s 10A of the Act is concerned, we find that no exception has been carved out
by the statute for non-determination of the ALP of an international transaction of an assessee who is
eligible for the benefit of deduction section 10A/10B or any other section of Chapter- VIA of the Act.
Section 92(1) clearly provides that any income arising from an international transaction is required to
be computed having regard to its arm’s length price. There is no provision exempting the computation
of total income arising from an international transaction having regard to its ALP, in the case of an
assessee entitled to deduction u/s 10A or 10B or any other relevant provision. Section 92C dealing
with computation of ALP clearly provides that the ALP in relation to an international transaction shall
be determined by one of the methods given in this provision. This section also does not immune an
international transaction from the computation of its ALP when income is otherwise eligible for
deduction. On the contrary, we find that sub-section (4) of section 92C plainly stipulates that where an
ALP is determined, the AO may compute the total income of the assessee having regard to the ALP so
determined. This shows that the total income of an assessee entering into an international transaction,
is required to be necessarily computed having regard to its ALP without any exception. Thus, the
argument that since its income is subject to deduction u/s 10A, the provisions of the Chapter-X of the

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Act should not be applied, in our considered opinion, has no force in view of the clear statutory
mandate contained in proviso to section 92C(4).
(ii) Our view is fortified by the Special Bench order in the case of Aztech Software and
Technology Services Ltd. vs. ACIT (2007) 107 ITD 141 (SB) (Bangalore) in which similar issue has
been decided by the Special Bench by holding that availability of exemption u/s 10A to the assessee is
no bar to applicability of sections 92C and 92CA. Similar view has been taken by Pune Bench of the
Tribunal in the case of ACIT vs. MSS India (P) Ltd. (2009) 123 TTJ 657 (Pune) and several other
orders. The reliance of the AR on the order of the Mumbai Bench of the Tribunal in the case of DCIT
vs. Tata Consultants Services Ltd. (ITA No. 7513/M/2010) dated 4.11.2015, in our considered
opinion is misconceived, because, in that case, the Tribunal primarily found that the AO erred in not
himself examining the issue of TP and failed to apply his mind to the TP report filed by the assessee.
The last sentence in para 54 of the order upholding the assessee’s contention that no TP adjustment
can be made where the assessee enjoys benefit of deduction u/s 10A or 80HHE, etc is only obiter
dicta inasmuch as the addition was found to be not sustainable on the other main grounds as discussed
in the body of the order. On the contrary, we find that the decision of the Special bench in Aztech
Software (supra) permitting the applicability of sections 92C and 92CA to an assessee availing the
benefit of section 10A of the Act is its ratio decidendi. On a specific query, the ld. AR could not point
out any judgment of some Hon’ble High Court deciding this point either way. In view of the fact that
there is already a Special Bench decision in the case of Aztech Software (supra) which supports the
making of transfer pricing adjustment notwithstanding the eligibility of deduction u/s 10A to the
assessee, apart from clear statutory mandate contained in proviso to section 92C(4), we are more
inclined to go with the view of the Special Bench.
(iii) It is, therefore, held that the eligibility of the assessee to deduction u/s 10A of the Act does not
operate as a bar for determining the ALP of international transaction undertaken by it and further the
enhancement of income due to such transfer pricing addition cannot be considered for allowing the
benefit of deduction under this section.(ITA No. 6200/Del/2012, dt. 11.02.2016)(AY. 2008-09)
Headstrong services India Pvt. Ltd.(Delhi)(Trib.);www.itatonline.org

S. 92C:Transfer pricing-The existence of an "international transaction" w.r.t. AMP

Expenditure cannot be assumed. The onus is on the TPO to prove such transaction. There is no
machinery provision to ascertain the price to promote the AE's brand values. The AMP
Expenditure should be treated as operating cost to apply TNMM and determine ALP of
transactions with AE.
(i) No TP adjustment can be made by deducing from the difference between AMP expenditure
incurred by assessee-company and AMP expenditure of comparable entity, if there is no explicit
arrangement between the assessee-company and its foreign AE for incurring such expenditure. The
fact that the benefit of such AMP expenditure would also enure to its foreign AE is not sufficient to
infer existence of international transaction. The onus lies on the revenue to prove the existence of
international transaction involving AMP expenditure between the assessee company and its foreign
AE.
(ii) In the absence of machinery provisions to ascertain the price incurred by the assessee-
company to promote the brand values of the products of the foreign entity, no TP adjustment can be
made by invoking the provisions of Chapter X of the Act.
(iii) On facts, it is not a case of revenue that there existed an arrangement and agreement between
the assessee-company and its foreign AE to incur AMP expenditure to promote brand value of its
products on behalf of the foreign AE, merely because the assessee-company incurred more
expenditure on AMP compared to the expenditure incurred by comparable companies, it cannot be
inferred that there existed international transaction between assessee-company and its foreign AE.
Therefore, the question of determination of ALP on such transaction does not arise.
(iv) However, the transaction of expenditure on AMP should be treated as a part of aggregate of
bundle of transactions on which TNMM should be applied in order to determine the ALP of its
transactions with its AE. In other words, the transaction of expenditure on AMP cannot be treated as a
separate transaction.
(v) In the present case, we find from the TP study that the operating profit cost to the total
operating cost was adopted as Profit Level Indicator which means that the AMP expenditure was not

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considered as a part of the operating cost. This goes to show that the AMP expenditure was not
subsumed in the operating profitability of the assessee-company. Therefore, in order to determine the
ALP of international transaction with its AE, it is sine qua non that the AMP expenditure should be
considered as a part of the operating cost. Therefore, we restore the issue of determination of ALP, on
the above lines, to the file of the AO/TPO.( ITA No. 29/B/14 & 227/B/15, dt. 05.02.2016)(2009 -10,
2010-11)
Essilor India Pvt. Ltd. v. DCIT (Bang.)(Trib.);www.itatonline.org

S. 92C :Transferring pricing-adjustment on account of ECB from parent company– When

internal CUP with un related parties is available it should be given precedence over external
CUP-Addition was deleted.
Allowing the appeal of assesse the Tribunal held that ;revenue has not disputed the submission made
by the assessee before the CIT (A) that effective rate of interest paid by it in India was 6.62% on
loans. Interest paid by assessee on loans taken from AE abroad was 5%. This was below the rate of
interest assessee was paying on loans taken within India. When internal CUP with unrelated parties is
available, in our opinion, it should be given precedence over external CUP. Addition was
deleted.(ITA No. 1292/Bang/2010 & ITA No. 287/Bang/2013, dt. 18.03.2016)(AY. 2006-07, 2007-
08)
Intergarden India Pvt. Ltd. v. ACIT (Bag.)(Trib.);www.itatonline.org

S. 92CA : Reference to transfer pricing officer-Mere existence of Technical Collaboration

Agreement - For use of brand name, cannot imply arrangement with foreign AE regarding
AMP expense for promoting brand of foreign AE. [S.92C]
The TPO had benchmarked the AMP expenses of the Assessee by applying the Bright line test (BLT)
and compared the percentage of such expenses incurred to total sales of the Appellant with that of
comparable companies. The DRP further sustained the adjustment made by the TPO. Aggrieved
assessee filed an appeal before the Tribunal which was disposed off and ruled against the assessee.
The High Court held that the Revenue had been unable to demonstrate with tangible material the
existence of an international transaction involving AMP expenses between assessee and foreign AE,
thus the question of determining ALP did not arise. The High Court relying on co-ordinate bench
ruling in Maruti Suzuki India Ltd. (ITA No. 110/2015) dated 11 December 2015, held that assessees’
cases were not covered by Delhi HC decision in Sony Ericson Mobile Communications India P. Ltd
(374 ITR 118) (Del) since the assessees in that case were distributors who were receiving subsidies /
subventions from their respective AEs, and none of them appeared to have questioned existence of
international transaction on account of AMP expenses, as regards to the question on existence of
international transaction of AMP expenses, HC observed that although, under section 92B read with
Section 92F(v) of the Act an international transaction could include an arrangement, understanding or
action in concert but this could not be a matter of inference, HC held that there had to be a tangible
evidence on record to show that two parties 'acted in concert'.
Further the HC had additionally held that mere existence of Technical Collaboration Agreement
whereby license granted for use of brand name, cannot imply arrangement with foreign AE regarding
AMP expense for promoting brand of foreign AE. Further, HC noted that the condition in the license
agreement that technology would be used for sale of goods in designated jurisdictions/ specified
territories was not an unusual arrangement and thus, recharacterization of Assessee as “contract
manufacturer” was unwarranted. HC also observed that the Revenue could not controvert Assessee's
submission that substantial turnover of Assessee was from manufacturing activity as compared to
distribution activity and contention that market development in India is function of AE was factually
incorrect. Thus the High Court ruled in favour of the Assessee. (AY 2008-09)
The High Court had considered the ruling of the Special Bench in case of LG Electronics India Pvt.
Ltd. (140 ITD 41) and the decision of Delhi High Court in case of Sonny Ericsson Mobile
Communications India P. Ltd (374 ITR 118). (AY. 2008-09)
Honda Siel Power Products Ltd. v. Dy. CIT (2016) 237 Taxman 304 /283 CTR 322 (Delhi)(HC)

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S. 94 : Transaction in securities -Dividend stripping- Assessee sold securities within three
months on which dividend was received, loss on securities was liable to be restricted to extent of
dividend received.
Assessee adjusted short term capital loss on sale of securities against short term capital gains .
Assessing Officer disallowed said loss on securities which were sold within a period of three months
since dividend was claimed from above securities. Commissioner (Appeals) restricted disallowance to
extent of dividend received .Order of Commissioner (Appeals) had no infirmity since it was in
accordance with law. (AY. 2005-06)
ACIT v. Pawan Kumar Jhunjhunwala (2016) 157 ITD 667 (Kol) (Trib.)

S. 115BBC : Anonymous donations- Donations could not be taxed. [S. 12AA]

Dismissing the appeal of revenue the Tribunal held that ; where assessee trust was established for
charitable and religious purposes and anonymous donation was received by it without any specific
direction that such donation was for any university or other educational institutions or any hospital or
other medical institutions run by assessee-trust, such donation could not be taxed by invoking
provisions of section 115BBC. (AY. 2009-10)
ITO(E) v.Satyug Darshan Trust (2016) 156 ITD 524 (SMC)(Delhi)( Trib)
S. 115JA : Book profit - SLP dismissedagainst the decision of the Karnataka High Court in the
case of CIT v. Karnataka Soaps and Detergents Ltd.(2015) 59 taxmann.com 43 (Karn)(HC)
The Honourable Apex Court dismissed the special leave petition filed against the order of the
Karnataka High Court in the case of CIT vs. Karnataka Soaps and Detergents Ltd wherein it was held
that the assessee is entitled to deduct the entire revenue expenditure as claimed in the profit and loss
account prepared in accordance with the provisions of Part II of Schedule VI of Companies Act 1956
for the purposes of computation of book profits under section 115JA of the Act and whereas, in the
published accounts to show to the shareholders, such expenditure was deferred and recognized in the
balance sheet. (AY. 1999-00, 2000-01, 2006-07)
CIT v. Karnataka Soaps and Detergents Ltd. (2016) 236 Taxman 395 (SC)

S. 115JA:Book profit- Capital receipts-such as subsidy & carbon credits which have no income
element, have to be excluded from book profits even if credited to the P&L A/c.[S.115JB]
Capital receipts-such as subsidy & carbon credits which have no income element, have to be excluded
from book profits even if credited to the P&L A/c. (ITA No. 417 & 418/LKW/2013, dt.
09.02.2016)(AY. 2008-09, 2009-10)
ACIT v. L. H. Sugar Factory Ltd. (Luck)(Trib.);www.itatonline.org

S. 115JAA : Book profit - Deemed income - Tax credit – MAT credit to be given before levy of
surcharge and education cess.
The AO first computed the tax payable after giving MAT credit (inclusive of surcharge and education
cess) and thereafter, on the resultant figure, surcharge and education cess was levied. However, vide
order u/s 154 tax was calculated after giving credit of MAT without surcharge and education cess and
thereafter on the resultant figure, surcharge and education cess was levied. The ITAT upheld the order
of the CIT(A) and held that credit for MAT should be given before levy of surcharge and education
cess. (AY 2007-08, 2008-09)
DCIT v. J.K. Cement (2016) 45 ITR 50 (Luck(Trib)

S. 115JB : Book profit –Sale of land – profit directly credited to capital reserve – Audit report
qualified to this extent – Held, no power to embark upon a fresh enquiry in regard to the entries
made in the books of account once the accounts are audited and approved by the company in
general body meeting and thereafter filed before the Registrar of Companies – Held, no
adjustment of Book Profit required.
Assessee sold the landand credited the capital gain arising out of the sale of the land directly to capital
reserve and not to profit and loss account. The auditor's report certified with a qualification that the
profit and loss account and balance sheet referred to in the report complied with substantially in all
material respects with the applicable accounting standards referred to in section 211(3C) of the
Companies Act except that the land and building was sold during the year and the capital gain had

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been transferred directly to capital reserve account instead of crediting to profit and loss account.The
AO held that, as per Clause 3(XII)(b) and (c) of Part II of Schedule VI and as per the accounting
standards applicable, the capital gain should be routed through Profit and loss account. Further, even
the auditors’ report was qualified and therefore, the AO held that the amount of capital gain should
have been credited to profit and loss account. High Court, after considering the judgment in case of
Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273(SC), held that AO had no power to embark upon a
fresh enquiry in regard to the entries made in the books of account. It was also held that AO had no
power to recompute the book profit and had to rely upon the authentic statements of accounts of the
company, the accounts being scrutinized and certified by the statutory auditors though with a
qualification, approved by the company in general body meeting and thereafter filed before the
Registrar of Companies, who had a statutory obligation to examine and be satisfied that the accounts
of the company are maintained in accordance with the requirements of the Companies Act. (AY.
2002-03)
Sri Hariram Hotels (P.) Ltd. v. CIT (2016) 237 Taxman 564 (Karn.)(HC)

S.115JB:Book profit- Corporation established under Damodar Valley Corporation Act, 1948,
provisions relating to book profit would not apply-Explanation 3 to section 115JB inserted by
Finance Act, 2012, has prospective effect and, thus, it is applicable only with effect from
assessment year 2013-14 onwards.
Provisions relating to book profit is applicable only to entities registered and recognised to be
companies under Companies Act, 1956 and, therefore, in case of assessee-corporation established
under Damodar Valley Corporation Act, 1948, provisions . Explanation 3 to section 115JB inserted by
Finance Act, 2012, has prospective effect and thus it is applicable only with effect from assessment
year 2013-14 onwards - ( AY. 2008-09 , 2009-10]
Damodar Valley Corporation v.Add.CIT (2016) 157 ITD 415 (Kol)(Trib)

S.115JB:Book profit- Disallowance of expenditure –Exempt income-Added back for arriving

book profit. [ S. 14A, R.8D ]
In terms of clause (f) to Explanation 1 to section 115JB(2), disallowance made by Assessing Officer
under section 14A, read with rule 8D of 1962 Rules, has to be added back for purpose of arriving at
figure of book profit. (AY. 2008-09)
Dy.CIT v.Viraj Profiles Ltd. (2016) 156 ITD 72(Mum) (Trib)

S. 115JB : Book profit –Banking company - Provision is not applicable- Expl. 3 thereto by the
Finance Act, 2012 is applicable w.e.f. A.Y. 2013-14 only . [ Companies Act, S. 211(2) ]
Assessee being a nationalized bank and not a company within the meaning of the companies Act,
1956. S. 211(2) and proviso thereto of that Act are not applicable to it and, therefore, the provisions of
S. 115JB are also not applicable. Amendment made to S. 115JB r.w. Expl. 3 thereto by the Finance
Act, 2012 is applicable w.e.f. A.Y. 2013-14 only. (AY. 2002-03 )
UCO Bank v. Dy. CIT (2016)156 ITD 146 / 175 TTJ 607/ 130 DTR 113 (Kol.)(Trib.)

S. 115WA : Fringe benefits - Charge of tax – Concessional rate of tax as per rule 8 for tea
manufacturers would be available for levy of FBT.
The Assessee was engaged in the business of growing and manufacturing tea and claimed the
concessional rate of tax of 40% under rule 8 for determining the taxable value of fringe benefits. The
AO alleged that same was not allowable since FBT was payable even when income-tax is not payable
and determined the taxable value of fringe benefits at 100%. The ITAT allowed the claim of the
Assessee and held that the FBT would fall within the ambit of the Income-tax Act and since there was
no non-obstante clause in the charging section, and consequently the benefit of rule 8 would be
available. (AY. 2008-09, 2009-10)
Mcleod Russel India Ltd. v. ACIT (2016) 45 ITR 182 (Kol)(Trib)

S. 116: Income tax authorities-Promotion of CIT(A)- Based on Annual Confidential Reports

(ACRs) of CIT(A), promotion denied – representation made by the CIT(A) against the ACR -
Competent authority confirmed ratings in report without adverting to the representation– CAT

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directed competent authority to decide the representation of the CIT(A) afresh in the light of
the directions issued – Held, competent authority to dispose of the objections raised by CIT(A)
in light of directions issued by CAT failing which the CIT(A) shall be considered for promotion.
CIT(A)’s Annual Confidential Reports (ACRs) were assessed by the reporting authority as 'good' as a
result of which promotion was denied to the CIT(A). CIT(A) submitted his representation against
recording of his ACR as 'good'. The competent authority rejected the representation and confirmed the
ratings in the ACR.Central Administrative Tribunal (‘CAT’) directed the competent authority to
decide the representation of the CIT(A) afresh in the light of the directions issued by the CAT. High
Court directed the competent authority to dispose of the representation made by the CIT(A) in an
objective manner in the light of the directions issued by the CAT within one month from the date of
the judgment, failing which the respondent would be considered for promotion irrespective of such an
entry found in the ACR.
UOI v. Subhash Kumar (2016) 237 Taxman 547 (P&H)(HC)

S. 119 :Central Board of Direct Taxes-The Assessee failed to explain ‘Genuine Hardship’ for
delay of 30 months in filing return of income therefore, application for condonation of delay in
filing return of income was to be rejected [S. 139]
Assessee filed return of income for the year on 18.01.2012 declaring total income of Rs. 2,30,667 and
claiming refund of Rs. 1,29,126. There was a delay of 30 months in filing return of income therefore,
an application was made by the assesse under section 119(2) for condonation of delay in filing return
of income. The assesse explained that he was the only cable operator in the state and due to the
difficult field job, personally, he used to stay very disturbed. Secondly, he also submitted that TDS
certificates were misplaced therefore the return of income could not be filed in time. The application
was rejected by the Commissioner holding that no specific reason is given by the assessee for delay.
On Writ Petition, the High Court held that the assessee has failed to prove the ‘genuine Hardship’ as
he has not produced any evidence to in support the explanation furnished to the Commissioner. (AY.
2009-10)
Shyam Sundar Nirankari v. CIT (2016) 236 Taxman 591 (P & H) (HC )

S. 119 :Central Board of Direct Taxes-The Assessee was allotted PAN in the status of the firm in
the year 2005 however, application for rectification in the status was made only in the year
2014. The High Court denied the relief under section 119 as it was not a case of “genuine
hardship”. [S. 139A ]
Assessee, an association of person, was carrying on the business managing properties. It did not file
any return of income as income earned by the AOP was offered by the members in their proportionate
interest. On 13.10.2011, the assessee received a notice to file the return of income in the status of a
“firm”. The assessee pointed out that the department has inadvertently issued a PAN in the status of
the firm instead of in the status of the AOP and income earned by the AOP was offered to tax by the
members in the proportion of their share. The assessee, however, under protest filed the return of
income in the status of the firm and requested the Assessing Officer to process the return of income
and give credit to the tax deducted at source since the members of the AOP had not received the credit
for the same. The assesse also made an application to Commissioner for condonation of delay and
suitable direction to Assessing Officer. The application was rejected by the Commissioner. On Writ
Petition filed by the assessee, the High Court held that PAN was allotted way back in the year 2005
however, assesse did not take any action to rectify the same. The assessee made the application for
relief under section 119 only in the year 2014. Therefore, there was a clear lapse on the part of the
assessee and hence the case does not fall within the scope of “genuine hardship”. (SCA No. 8193 of
2015 dt. 04/12/2015)
Tulsi Mall (Association of Person) v. CIT (2016) 236 Taxman 586 (Guj.)(HC)

S. 131 : Power–Discovery-Production of evidence-The Assessing Officer is empowered to visit

the house of the assessee for the purpose of examining him on oath. [S. 131(IA), 132]
During the search proceedings, cash of Rs. 40 lakhs was found from the residence of the Assessee.
The Assessing Officer drew the Punchnama on the same day and issued notice to assessee to be
present at his residence for examination on oath. The assessee challenged the action of the Assessing

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Officer before the High Court in a Writ Petition. The Single Judge held that action of the Assessing
Officer amounts to “trespass” and the Assessing Officer is to be prosecuted. On appeal by the
department, the division bench held that the Assessing Officer under section 131(1A) empowers the
Assessing Officer to appear before him at his officer or he can go to the place of such and examine
him on oath.)
DCIT(Inv.) v. Prakash V. Sanghavi (2016) 236Taxman176 (Karn.)(HC)

S. 132 : Search and seizure–Supreme Court grants leave to appeal against the High Court order
holding that the Tribunal is bound to consider the validity of search for determining the
jurisdiction for making a block assessment. [S. 158BC]
The assessee challenged the block assessment order on the ground that the search was illegal and
contrary to law and therefore the order was void ab initio.Tribunal held that it had no jurisdiction to
examine the authorisation of the search as such authorisation does not result in any tax demand on the
assessee and as the appeal was with reference to the tax liability imposed on the assessee, the Tribunal
could not go into the validity of the authorization of search. High Court remitted the matter to the
Tribunal to look into the validity of search for determining jurisdiction for making a block
assessment. Supreme Court has granted leave to appeal against the said judgment of the High Court.
(Special Leave to Appeal (C) No. 10472 of 2014 dt. 30-11-2015)
Dy. CIT v. V. Ram Prasad(2016) 236 Taxman 479 (SC)

S. 132 : Search and seizure –Addition made by the Assessing Officer on account of discrepancy
in the physical value and book value of the stock – Amount was offered by the partner of the
assessee before the Settlement Commission which was accepted – No addition can be made in
the hands of the assessee – Method of valuation of stock.
During the course of the search carried out in the premises of the firm, certain materials were seized.
It was also found that there was a discrepancy in the physical value of the stock and the book value of
the stock as on the date of search. The partner of the assessee-firm approached the settlement
commissioner under section 245C of the Act and disclosed the said difference which was also
accepted by them. In the meantime, the addition was made in the hands of the firm by the Assessing
Officer which was deleted by CIT(A) and confirmed by the Tribunal. On appeal before the High
Court, it was held that the addition cannot be made in the hands of the assessee as the amount was
disclosed by the partner of the assessee-firm before the Settlement Commission and was also accepted
by it which was never questioned by the Department. Therefore, addition cannot be made in the hands
of the assessee-firm. Further, in respect of method to be adopted for valuation of stock, it was held by
the High Court that it is a well-settled principle of accountancy that the stock has to be valued at cost
or market price whichever is lower. (BP. 1996-97 to 2001-02)
CIT v. Jever Jewellers (2015) 236 Taxman 282 (Jharkhand)(HC)

S. 132(4) : Search and seizure –Statement on oath- Discrepancies in stock in trade were found at
the time of search and the Director made a voluntary offer of certain sum of amount to tax as
income – Held the voluntary income is part of the discrepancy in stock and not an additional
income.[ S. 132 ]
Consequent to a search in the business premises of the Assessee, the Director of the company, in his
sworn statement u/s 132(4), voluntarily agreed to offer certain sum of money as income. Certain
discrepancies in stock as per books of accounts and physical verification were also noted by the
Department. However, when the return was filed pursuant to the notice issued u/s 153A, the same was
not offered. The AO held that the amount surrendered was independent of the difference in stock and
taxed the same. The Assessee alleged that the statement of the Director was obtained in coercion. On
appeal, the ITAT held that the statement was obtained under duress and the search officials were
posing questions for 4 days and the search was concluded immediately after the Director surrendered
the additional income. Thus, the disclosure made by the Director was not voluntary. Further, since no
incriminating material was seized during the search except for the discrepancies in stock, the
additional income confessed by the Director pertained to the difference in stock. (AY 2009-10,2010-
11)
Tribhovandas Bhimji Zaveri (Delhi) P. Ltd. v. ACIT (2016) 45 ITR 636 (Mum)(Trib)

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S. 132A :Powers-Requisition of assets–Where the tax department had not gathered information
regarding the ownership of the assets seized, the Trial Court was justified in demanding
security deposit from the tax department for obtaining custody of the assets. [S.132B]
The Tax Department received information from the Ujjain police station that they had seized cash of
Rs. 27.80 lakh and silver bullion items valued at Rs. 2.05 crore from the assessee. The Tax
Department as well as the assessee filed an application with the Trial Court for obtaining the assets.
The Trial Courtdirected the Police Authoritiesto deliver the cash and jewellery to the Tax Department
subject to payment of security deposit. The Tax Department filed a writ challenging the restrictions
placed by the Trial Court for obtaining the assets whereas the assessee filed a writ petition demanding
the release of assets as the property could not be retained post 120 days as per section 132B if there
was no outstanding demand of tax, interest or penalty. High Court held that the Trial Court was wrong
in entertaining the application of the Tax Department under section 132A because neither the police
nor the CIT had gathered any information on record regarding the ownership of silver. However, as
the assessment proceedings in the assessee’s case were ongoing, the Trial Court was right in
considering the payment of security on production of silver. High Court set aside the Trial Court’s
order and allowed the assessee to move a fresh application and the Tax Department to move an
application under Section 132-A if it has any fresh information regarding the ownership of the silver
bullion etc.
Dy. DIT(I) v. Nayan Kothari(2016) 383 ITR 276/ 236 Taxman 398
(MP)(HC)
Rupam and Ors v. CIT ( 2016) 383 ITR 276 (Bom)(HC)

S. 132B : Application of seized or requisitioned assets – Application filed for release of asset –
disposed off by the AO after more than 1 year – Held, not valid and the cash ordered to be
released along with interest. [First proviso and second proviso to S.132B(1)(i)]
On 25.3.2014, certain cash was seized by the competent authority. Application was filed by the
assessee on 17.4.2014 for release of such cash. Despite repeated reminders, the authority failed to
dispose off such application and it was disposed off, denying such release, only on 20.7.2015 i.e. after
the expiry of more than 1 year. High Court held that if an application is made under first proviso to
section 132B(1)(i) then the same should be disposed off within the time limit given in the second
proviso which is 120 days from the date on which of the last of the authorizations for the search was
executed. Second proviso though speaks of releasing the assets as referred to in first proviso within
the time limit prescribed, still the question of not releasing the asset would arise only upon the
decision on the application is taken by the AO. If no decision is taken within the time limit, then the
releasing of assets becomes imminent. Further, it was held that such time limit cannot be said to be
directory in nature.
Nadim Dilip Bhai Panjvani v. ITO (2016) 383 ITR 375/237 Taxman 480 (Guj.)(HC)

S. 132B : Application of seized or requisitioned assets – Seized cash can be adjusted against self-
assessment tax and not advance tax. [S. 153A]
A search was conducted and cash to the extent of Rs. 20 lakhs was seized by the Department. On
completion of assessment u/s 153A, the AO adjusted the seized cash against the self-assessment tax.
However, this was rectified u/s 154 as there was no existing liability. The ITAT held that seized cash
ought to be adjusted against the tax liability pursuant to assessment u/s 153A which is an existing
liability. Without prejudice to the fact that section 132B was prospective in nature and would be
inapplicable to the impugned case, the ITAT held that adjustment of seized cash against self-
assessment tax was allowed, but against advance tax was not allowed. Further, the ITAT also held that
the issue being debatable could not be rectified by the AO u/s 154. (AY. 2006-07)
ACIT v. Narendra N. Thacker (2016) 45 ITR 188 (Kol)(Trib)

S. 133A: Survey-Unexplained money -Surrendering amount during survey - Retraction from

surrender and declaring a loss in the return of income - Addition solely on basis of admission
given by Managing Director during survey was not justified. [ S. 69C ]

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On appeal, the Tribunal held that relying only on the statement made by the managing director of the
assessee at the time of survey, the authorities could not made the addition in the light of the retraction
made by the managing director wherein he had reconciled the receipts found during the survey. The
AO had not bothered to enquire into the veracity of the explanation given by the assessee. The order
of the authority were not sustainable.(AY. 2007-08)
Sahil Study Circle Pvt. Ltd. v. Dy. CIT (2016) 46 ITR 182 (Delhi)(Trib.)

S. 139: Return- Revised computation- Remission- Refusal to consider the revised computation
was held to be not valid.[ S. 143(3)]
Tribunal held that the Assessing Officer could not refuse to consider revised computation wherein
deduction was claimed on account of remission by bank under one time settlement taking a view that
assessee should have filed revised return for raising such a claim (AY. 2007-08)
Furniture Concepts (I) Ltd. v. ACIT (2016) 156 ITD 233 (Mum)(Trib)

S. 142(2A): Assessment special audit-Notice was not given to the assessee before the order was
passed – Order was set aside –Fresh notice was issued – For computing the limitation period
from date of interim order till date was excludible. [S. 158BE]
Court held that as a general rule, therefore, when there is no stay of the assessment proceedings
passed by the Court, Explanation 1 to Section 158BE of the Act may not be attracted. However, this
general statement of legal principle has to be read subject to an exception in order to interpret it
rationally and practically. In those cases where stay of some other nature is granted than the stay of
the assessment proceedings but the effect of such stay is to prevent the assessing officer from
effectively passing assessment order, even that kind of stay order may be treated as stay of the
assessment proceedings because of the reason that such stay order becomes an obstacle for the
assessing officer to pass an assessment order thereby preventing the assessing officer to proceed with
the assessment proceedings and carry out appropriate assessment. For an example, if the court passes
an order injuncting the assessing officer from summoning certain records either from the assessee or
even from a third party and without those records it is not possible to proceed with the assessment
proceedings and pass the assessment order, even such type of order may amount to staying the
assessment proceedings. The special audit is an integral part of the assessment proceedings, i.e.,
without special audit it is not possible for the assessing officer to carry out the assessment and so, stay
of the special audit may qualify as stay of assessment proceedings and, therefore, would be covered
by the said explanation.( CA. No. 2667 of 2007, dt. 28.04.2016)(AY. 1994-95 to 1998-99)
VLS Finance Ltd. v. CIT (SC), www.itatonline.org
Editorial: Decision in VLS Finance Ltd. v. CIT ( 2007) 289 ITR 286 (Delhi)(HC) is affirmed.

S. 143(1D): Assessment-Refund-Instruction No.1 of 2015 dated 13.01.2015 which curtails the

discretion of the AO by 'preventing' him from processing the return and granting refund, where
notice has been issued to the assessee u/s 143(2), is unsustainable in law and quashed. [S. 143(2)]
Assessee was entitled huge amount of refund due to deduction of tax at source . The assesse was not
granted the refund in view of Instruction no 1 of 2015 dated 13-01-2015 curtailed the discretion of
the AO by preventing from him from processing the return and granting refund where notice has been
issued to the assesse u/s 143(2) of the Act. On writ allowing the petition the Court held that
instruction being unsustainable in law and liable to be quashed . ( W.P. 12304/2015 & CM
32604/2015, dt. 11.05.2016)(AY. 2012-13, 20013-14, 2014-15 )
Tata Teleservices Limited v. CBDT (Delhi)(HC);www.itatonline.org

S. 143(2) :Assessment–Limitation-Amendment of proviso to section 143(2) with effect from 1-4-

2008 - Return filed on 24-7-2007- Proviso as amended not applicable-Notice had to be issued
within twelve months-Months means calendar months-Notice issued on 26-9-2008-Barred by
limitation. [S. 143(3)]
Held, allowing the petition, that the proviso to section 143(2) of the has been amended with effect
from April 1, 2008. In the instant case, the return was filed on July 24, 2007. According to the law as
it stood then, i.e, prior to the amendment, the period for issue of notice was twelve months from the
end of the month in which the return was furnished. "Twelve months" means twelve calendar months

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and not the AY. In the instant case, twelve months`s period from the end of the month in which the
return was filed, expired on July 31, 2008, so a notice should have been served on or before August 1,
2008, but it was given on September 26, 2008. It was barred by limitation.(AY. 2007-2008)
Tulsi Food Products v. Dy.CIT (2016) 380 ITR 192 (All.)(HC)

S. 143(2):Assessment–Notice–Where notice is issued u/s. 143(2) beyond the period of limitation,

the assessment order cannot be sustained and is to be quashed- Substantial question of law can
be raised first time before the High Court.[S.260A, 292BB]
The issue before the HC was that whether the AO was justified passing an assessment order without
serving a notice u/s. 143(2) within the stipulated period as prescribed under the Act. The HC held that
the jurisdiction of AO starts only if the notice u/s. 143(2) is issued within the prescribed time. It has
nothing to do with service of the notice which is contemplated u/s. 292BB. Therefore, the order of the
Tribunal, first appellate authority and the assessment order cannot be sustained and are to be quashed.
Further, the assessee had raised the aforesaid question for the first time before the HC to which the
Revenue raised objection for admission. The HC held that a substantial question of law which is based
on records and does not require any investigation of any facts can be entertained in appeal before the
HC even if the same is not taken before the lower authorities. (AY.1997-98)
U P Hotels Ltd. v. CIT(2016) 131 DTR 99/283 CTR 417 (All)( HC)

S.143(2):Assessment-Where assessee did not file return under section 139(1); or under section
139(4); or in response to section 148; or in response to section 142(1); Assessing Officer was not
required to issue notice under section 143(2) before completing assessment under- Reassessment
was held to be valid. [S. 139(1), 142(10), 148]
During relevant year, assessee filed its return beyond time limit available under scheme of Act and it
was therefore non est and invalid return in eye of law. Assessing Officer reopened assessment by
issuance of notice under section 148 and made certain additions . Assessee questioned legality and
validity of assessment order on ground that assessment order passed under section 143(2), read with
section 147, was without jurisdiction in absence of service of statutory notice under section 143(2) .
CIT(A) affirmed the order of AO. On appeal Tribunal held that since assessee had not filed return
under section 139(1); or under section 139(4); or in response to section 148; or in response to section
142(1); provisions of section 143(2) did not get triggered at all, therefore, assessee's objection was
held to be not valid. ( AY. 2004-05 )
Chawara Educational Trust v. ITO (2016) 157 ITD 281 (Pune) (Trib.)

S. 143(2) : Assessment –Absence of notice entire reassessment is vitiated. [ S.292BB ]

Mere order sheet entry mentioning that notice u/s. 143(2) has been issued cannot substitute the
mandatory requirement of law in respect of issue of notice. Sec. 292BB is prospective in operation
and is applicable from asst. yr. 2008-09 onwards. Entire reassessment proceedings are vitiated for non
issuance of s. 143(2) notice by the AO. (AY. 2004-05)
Dy. CIT v. Dharampal Satyapal Ltd. (2016) 130 DTR 241 (Delhi)(Trib.)

S. 143(3) : Assessment – Revised computation of income should be used for completing the
assessment which was based on the audited books of accounts.
The Assessee being a Government Company was audited by the Comptroller of Auditor General
(CAG). Based on the audit accounts, revised computation of income was filed during the course of
assessment. However, the AO completed the assessment based on the original return of income which
was filed prior to the finalization of accounts by the CAG. The ITAT held that the assessment should
be completed, like in previous AYs, based on the revised computation of income. The purpose of
assessment was to arrive at the proper figure of income and it would be travesty of justice if audited
accounts are ignored during the course of assessment though they are available. (AY. 2001-02, 2003-
04 to 2008-09)
West Bengal Infrastructure Development Finance Corporation v. ACIT (2016) 45 ITR 285
(Kol)(Trib)
DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285
(Kol)(Trib)

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S. 143(3):Assessment-In an AIR scrutiny assessment, the AO is not entitled to widen the scope
of scrutiny without approval of the CIT as per CBDT's Instruction. Such an assessment order is
not sustainable.[S. 119]
Allowing the appeal of assessee the Tribunal held that; (i) The AIR information was regarding
transaction of Rs. 25 lakhs dated 31.3.2011 Para 2 of the CBDT Instruction dated 08.09.2010 states
that the scrutiny of cases selected on the basis of information received through AIR returns would be
limited only to the aspects of information received through AIR;
(ii) As seen, the AIR information in the present case was regarding cash deposits of Rs. 25 lakhs by
the assessee in her savings bank account with OBC. Meaning thereby, that the assessee was required
to explain the source of such cash deposits. The assessee explained the same as sale proceeds of her
residential house amounting to Rs.32.25 lakhs received from Smt. Naunihal Kaur, the purchaser. Her
this assertion was duly supported by a copy of the concerned sale deed;
(iii) Now, as per the CBDT Instruction, nothing further was to be gone into by the AO, since the
information received through AIR was the cash deposits. However, the AO as noted in paras 3.1 &
3.3 of the assessment order itself asked the assessee vide letter dated 13.12.2013 to produce Smt.
Balbir Kaur and Smt. Kamaljit Kaur, with whom the assessee had entered into a separate agreement to
sell and from whom, the assessee had received a sum of Rs. 3 lakhs at the time of agreement “for their
examination in order to ascertain whether the agreement, was finalized or cancelled”. The AO
observed that this proceeding was limited to the extent of the AIR information;
(iv) Evidently, the matter of the other agreement to sell does not stand covered in the AIR
information, which was regarding the cash deposits of Rs. 25 lakhs, which the assessee had
adequately explained, as above. So, it was obviously not within the purview of the AO to ask the
assessee to produce Smt. Balbir Kaur and Smt. Kamaljit Kaur, or to make addition of Rs. 3 lakhs, as
was done;
(v) In fact, what the AO did was to widen the scrutiny. Now, para 2 of CBDT Instruction is specific
when it states that where it is felt that apart from the AIR information, there is potential escapement of
income more than Rs. 10 lakhs, the case may be taken up for wider scrutiny with the approval of the
administrative Commissioner.
(vi) So, the proper course for the AO before making these additional enquiries would have been to
take approval from the administrative Commissioner to widen the scrutiny. This, however, was not
done and therefore, the action of the AO is violative of the CBDT Instruction.(ITA No.87(Asr)/2016,
dt. 24.03.2016)(AY.2011-12)
Gurpreet Kaur v. ITO (Asr.)(Trib.);www.itatonline.org

S. 144C : Reference to dispute resolution panel–Non-passing of draft assessment order and later
on rectifying the final assessment order would negate the entire proceedings.
AO issued the order u/s 143(3) along with the demand notice. Thereafter, he wrote a letter that the
said order was actually a draft assessment order passed u/s 143(3) r.w.s 144C and the demand notice
was issued inadvertently. A rectified draft assessment order was issued to the Assessee. The ITAT
held that the entre proceedings was illegal and it was sine qua non for the AO to pass a draft
assessment order and in the instant case the AO had passed an order, consequent to which demand
was computed and penalty proceedings were initiated. This mistake could not be rectified by s. 292B
since the intention of passing such an order was not to pass a draft order, but a final assessment order.
Since the issue was taken up as an additional ground in the second round of proceedings, the ITAT
observed that additional grounds of appeal could be taken in the second round of proceedings, if it
went to the root of the issue and if decided, could render other grounds as academic and infructuous.
(AY. 2007-08)
Jazzy Creations (P) Ltd. v. ITO (2016) 176 TTJ 393(Mum.) (Trib)

S. 145: Method of accounting- Inability of the assessee, an Advocate, to reconcile the

professional receipts with the TDS certificates and to give a detailed party-wise breakup of fees
receipts does not mean that the difference can be assessed as undisclosed income. [S.69, 194J]
The assessee challenged the order of the Commissioner of Income Tax in confirming the addition of
Rs.47,37,000 made by Assessing Officer on account of non-reconciliation of professional receipts

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with TDS certificates. Insofar as that aspect is concerned, the Tribunal considered this submission of
both sides and found that the assessee was engaged as an Advocate to argue the matters by what is
popularly known as Advocates on record or instructing Advocates method, meaning thereby the client
does not engage the assessee directly but a professional or the Advocate engaged by the client
requests the assessee to argue the case. The brief is then taken as the counsel brief. That being the
practice, the assessee gave an explanation that the breakup as desired cannot be given and with regard
to all payments. It is pointed out that at times, assessee receives fees directly from the clients or from
the instructing Advocates or Chartered Accountants if such professionals have collected the amounts
from the clients.Under these circumstances, the breakup as desired cannot be placed on record. An
explanation which has been given by the assessee and accepted in the past has been now accepted by
the Tribunal once again. On appeal by revenue dismissing the appeal the Court held that; since it is
accepted for the Assessment Year 2006-07, in the peculiar facts, in relation to the present assesse. , we
are of the view that this Appeal does not deserve to be entertained. It does not give rise to any
substantial question of law.( ITA No. 1930 of 2011, dt. 18.03.2014) ( AY. 2006-07)
CIT v. S. Ganesh (Bom)(HC) ;www.itatonline.org

S. 145:Method of accounting-Minor discrepancies in the books of accounts cannot lead to

rejection of books of account and Best judgment assessment should be based on some material,
ad-hoc addition to the income cannot be made.
Assessee was carrying on the business of manufacturing edible oil and oil cake and sale thereof.
During the course of assessment, the Assessing Officer noticed that stock register is not maintained
quality-wise and does not contain day to day shortage of lots in the production.Accordingly, books of
account were rejected and income was estimated at 1.98% of turnover. The CIT (A) upheld the
rejection of books of account however, reduced the addition to 1.75%. The Tribunal held that
rejection of books of account was invalid and consequentially, addition made to the income was
deleted. On appeal, High Court held that the books of account were properly maintained by the
assesse and minor discrepancies in the stock register cannot lead to rejection of books of account
under section 145(3). The High Court also held that Best judgment assessment should be based on
some material and addition to the income cannot be made on ad-hoc basis. (AY. 2008 -09,2009-10)
Pr. CIT v. Bhawani Silicate Industries(2016) 236 Taxman 596(Raj.) (HC)

S. 145 : Method of accounting–No addition based on monthly sales and purchases can be made
by the AO when no unrecorded sales and purchases had been found by the AO.
The Assessee was a trader of consumer goods and followed direct marketing business model. Since
the Assessee had failed to mention the gross profit rate in the audit report, the AO calculated the same
from the P&L A/c, Balance sheet and month-wise purchase and sales as submitted by the Assessee.
Consequently, an addition was made by the AO to the income of the Assessee. The CIT(A) applied an
average of the net profit rate earned by the Assessee in subsequent two years. On appeal by the
Department, the ITAT held that the AO failed to consider the genuineness of the purchases and sales
and the nature of business of the Assessee. The ITAT held that the addition by the AO based on
month-wise details could not be sustained, when no unrecorded sales and purchases had been found
by him. The addition was deleted considering the fact that the net profit rate was accepted by the
Department in subsequent two years. (AY. 2009-10)
DCIT v. Smart Value Product and Services Ltd. (2016) 45 ITR 33 (Chd.)(Trib.)
S. 145 :Method of accounting - Valuation of closing stock – Value of unsold parking space – Ad
hoc addition as cost of construction was held to be not justified.
Tribunal held that the AO has made adhoc addition as cost of construction of parking spaces on an
estimate basis without substantiating or bringing on record what separate expenses were incurred on
the same by the assessee and held that the parking spaces were sold alongwith flats only to the flat
purchasers and not to anybody else. The AO has made the addition by nationally increasing the cost
of construction of parking spaces. Therefore, CIT(A) was justified in deleting the impugned addition
made by the AO. (AY. 2009-10)
ACIT v. Vardhaman Estate Corporation (2016) 175 TTJ 15 (UO)(Mum.)(Trib.)

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S. 145 : Method of accounting – Cash system and mercantile system- Profession and business-
Two method of accounting allowable for two sources of income was held to be valid.
There would be no distortion in computing the correct income by following either of the two methods
of accounting regularly and there would be only a timing difference and no prejudice would cause to
the Revenue. Thus, the assessee was not following a hybrid method of accounting. The method of
accounting was allowable.(AY. 2007-08)
Vishwanath Acharya v. ACIT (2016) 45 ITR 554 (Mum.)(Trib.)

S. 145: Method of accounting –Rejection of books of account - Books of account cannot be

rejected on an arbitrary basis. [S. 144]
Allowing the appeal of assessee Tribunal held that;The assessee is a company having declared a
turnover of Rs.44.45 crores and profit thereon of Rs.1.65 crores. The books of accounts are duly
audited and no defect has been pointed out vis-a-vis the sales, purchase or profit“It is a subsidiary of a
Korean Company and therefore, the authorities below had to be circumspect before arriving at such a
conclusion, particularly when there is no iota of material to doubt the quantitive details, audited
results vis-a-vis the turnover and profit declared so as to warrant rejection. Instances of irregularities
in cash payment cannot warrant ipso facts rejecting of books of accounts, at best disallowance could
have been made u/s 40A (3) of the Act. We, therefore, hold that the books of accounts were
incorrectly rejected as it is not a case where it can be held that the books of account was incorrect or
incomplete or correct profits could not be deduced. On the contrary, we find that completed audited
books of accounts were produced before the AO, which were duly examined and such book of
accounts have not been shown to have been maintained from where correct profits could not be
deduced, thus vitiating the entire action of the AO and CIT(A) for rejecting the books of
account.”(ITA No. 2043/Del/2013, dt. 02.02.2016)(AY.2008-09)
Samwon Precision Mould Mfg. (India) P. Ltd. v. ITO (Delhi)(Trib.);www.itatonline.org

S. 145A : Method of accounting – Valuation – Change in closing stock – Corresponding

adjustment to be done in the opening stock
Held that when adjustment of excise duty is made in closing stock then corresponding adjustment is to
be made in opening stock as held by decision of Delhi High Court in case of CIT v. Mahavir
Aluminum (2008) 297 ITR 77 (Del HC). (AY 1999-00, 2005-06)
K G Petrochem Ltd. v. ACIT (2016) 176 TTJ 1 (UO) (Jaipur) (Trib)

S. 145A:Method of accounting- Valuation of stock-Inclusive method cannot be applied

selectively to closing stock without applying it to opening stock, purchases and sales.
Tribunal held that ; Inclusive method cannot be applied selectively to closing stock without applying
it to opening stock, purchases and sales. Matter remanded.( AY. 2007-08)

Sunshield Chemicals (P.) Ltd. v. ITO ( 2016) 156 ITD 452/ 175 TTJ 129 (Mum.)(Trib.)

S. 145A : Method of accounting – Valuation -Provision mandating inclusive method of

accounting to follow tax, duties or cess – Assessee ought to follow inclusive method in respect of
MODVAT.
The deposit made with the port trust was not includible in the computation made u/s. 145A, if it did
not fall in the category of tax, duty, cess or fee levied under the law. It was liable to be included in the
adjustments u/s. 145 only if it was shown that the payment was made under authority of any law.
Further, if the deposit so made was refundable to the assessee, then also the amount of deposit could
not be included u/s.145A. The AO was directed to re-examine this issue.(AY. 2004-05, 2007-08 to
2010-11)
Mazagaon Dock Ltd.v. ITO (2016)46 ITR 162 (Mum.)(Trib.)

S. 147:Reassessment- Accrual of income-Even if income by way of rent is enhanced with

retrospective effect, it accrues only when a right to receive the income is vested in the assesse-
Notice to assesse the income prior to accrual is without jurisdiction. [S. 5, 22, 23, 148]

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Following the ratio in E.D. Sassoon & Co Ltd (1954) 26 ITR 27(SC), the court held that even if
income by way of rent is enhanced with retrospective effect, it accrues only when a right to receive
the income is vested in the assesse hence notice to assesse the income prior to accrual is without
jurisdiction. (CANo . 4091 of 2016 dt.19-04-2016)(AY.1989-9080)
P.G.& W. Sawoo Pvt Ltd v. ACIT(SC) www.itatonline .org.

S. 147 : Reassessment-Mechanical way of recording satisfaction by Joint Commissioner for

granting approval for reopening is unsustainable.[S. 148]
A search was conducted at the residential and business premises of Assessee. Thereafter notice for
block assessment under section 158BC of the Act was issued and returns were filed which were
processed under section 143(1) of the Act. However, notice under section 148 was issued by the
Assessing Officer on basis of certain reasons recorded. Order was passed under section 143(3) read
with section 147, of the Act, pursuant to that appeals were filed before the Commissioner on Income
Tax (Appeals), Income Tax Appellate Tribunal and the High Court.
The High Court found that the reasons recorded by the Joint Commissioner, for according section, it
only stated that “I am Satisfied”. As this action for sanction was without application of mind and this
was done in mechanical manner, following the law laid down in case of Arjun Singh vs. ADIT (246
ITR 363)(SC) , the Commissioner (Appeals) quashed the notice under section 148 of the Act, and the
same having been upheld by Tribunal and the Hon’ble High Court.
Aggrieved by the High Court, Revenue filed an appeal before the Supreme Court which was
dismissed by the Hon’ble Supreme Court.
CIT v. S. Goyanka Lines & Chemical Ltd. (2016) 237 Taxman 378 (SC)

S. 147:Reassessment- After the expiry of four years-Reopening of assessment after the expiry of
four years without showing any failure on part of assessee to disclose fully and truly all material
facts, is liable to be quashed-Reopening of a claim which has been examined and allowed in the
original assessment proceedings, is a “mere change of opinion”. [S.10(33), 148 ]
In the return of income, the assessee claimed dividend income from units of mutual fund as exempt
u/s. 10(33) of the Act. The said claim was examined and allowed in regular assessment proceedings.

Thereafter, the AO reopened the assessment u/s. 147 of the Act on the ground that dividend income is
not exempt u/s. 10(33) of the Act as it has arisen from transfer of units of mutual funds and also, the
assessee is a trader in shares and dividend income received was integral part of traded goods and
could not be segregated from cost of shares.

The assessee challenged the initiation of reassessment proceedings by filing a writ petition before the
Hon’ble Bombay HC. The HC quashed the initiation of reassessment proceedings on the ground that
assessment was reopened after the expiry of four years without showing any failure on the part of the
assessee to disclose fully and truly all material facts. Further, in the original assessment proceedings,
claim of exemption u/s. 10(33) was specifically examined and allowed, hence, reopening was a “mere
change of opinion”.

On merits, the HC held that dividend income has been earned from holdings of units of mutual funds
and not from transfer of units. Therefore, impugned dividend income is eligible for exemption u/s.
10(33). (AY. 2000-01)
Nirmal Bang Securities (P) Ltd. v. ACIT. (2016)382 ITR 93 / 131 DTR 35/ 284 CTR 244
(Bom.)(HC)

S. 147:Reassessment–After the expiry of four years-Deductions granted in original assessment

after enquiry–Reassessment was held to be invalid.[S.148]
During original assessment proceedings, the assessee submitted complete details of the software
licence fees and justified its claim. Only thereafter did the Assessing Officer while framing the
assessment, treat the payment of software licence fees made to the foreign companies as revenue
expenditure and allow the deductions Subsequent reopening on the ground that payment of software

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licence fees was in the nature of royalty and, thus, in the nature of capital expenditure, and wrongly
claimed the deduction, was not valid. (AY. 2008-2009 )
E–Infochips Ltd. v. Dy.CIT (2016) 380 ITR 449 (Guj.)(HC)

S. 147:Reassessment-After the expiry of four years- Recompute valuation of stock-No failure

to disclose material facts necessary for assessment – Notice was held to be not valid. [S.148]
Where the issue of accounting treatment in respect of unutilised Cenvat credit for the purpose of
valuing the closing stock was already examined by the Assessing Officer during the scrutiny
assessment, reassessment proceedings on the same issue without any tangible material is mere a
change of opinion and, hence, not sustainable.(AY. 2009-2010)
Tirupati Foam Ltd. v. Dy. CIT (2016) 380 ITR 493 (Guj.)(HC)

S. 147: Reassessment-After the expiry of four years -Assessee disclosed all material facts
necessary for making assessment and no failure on his part – Reassessment was held to be
invalid. [S.148]
Dismissing the appeal of revenue, the Court held that;in the reasons recorded by the Assessing
Officer, he observed that the entries made related to purchases, which explanation was given by the
assessee in the original assessment proceedings. Consequently, all the necessary explanation and
information was furnished by the assessee and, therefore, there was no failure on the part of the
assessee to disclose fully and truly all material facts for making assessment. The Tribunal had given a
categorical finding that the assessee had disclosed all the material facts necessary for making the
assessment and there was no failure on his part. This finding of the Tribunal was perfectly correct and
the Assessing Officer in his original assessment proceedings had considered each and every document
and the explanation given by the assessee on the seized documents. Therefore, it was not a case where
the assessee failed to disclose fully or truly all material facts necessary for making the assessment.
The notice issued u/s 148 was invalid. (AY. 1991-1992)
CIT v. Hemkunt Timbers Ltd. (2016) 380 ITR 658/ 283 CTR 1/ 67 taxmann.com 231 (All.)(HC)

S. 147: Reassessment-After the expiry of four years-CBDT instructions cannot override the
provisions-Assessing Officer has to form his own opinion-Reassessment on the basis of Audit
objection was held to be bad in law. [S.148]
Allowing the petition the Court held that; Reopening of assessment to take remedial action pursuant to
audit objections as per Instruction No. 9 of 2006 is not valid if AO disagrees with the objections.
Instruction No. 9 cannot override the requirement in s. 147 that AO should form his own belief that
income has escaped assessment. Court held that the CBDT instructions cannot override the provisions
of section 147. (AY. 2004-05)
Sun Pharmaceuticals Industries Ltd. v. DCIT(2016) 381 ITR 387 (Delhi)(HC)

S.147:Reassessment-Though assessee claims that she is a non-resident & that onus is on the
revenue to show that the money in the HSBC Geneva account is taxable in India, the non-
cooperation with the Revenue by signing the consent waiver form shows that she has something
to hide and makes it an unfit case for exercise of writ jurisdiction.[S. 148, 149(1)(c)]
Dismissing the petition the Court held that;(i)During the course of the hearing of the Reply of the
Revenue it was pointed out to us that despite the Revenue’s request, the Petitioner had failed to sign a
Consent Waiver Form (“the Waiver”) which would have enabled HSBC to provide information about
the Account. According to the petitioner the Waiver was sought only on 30th October, 2015 i.e. much
after the issue of the impugned notice on 31st March, 2015 and also after filing of this Petition in
Court on 30th October, 2015. In any case, we asked the Petitioner whether she is now ready to sign
the Waiver. At the time of the rejoinder we were informed that the Petitioner is willing to sign the
Consent Waiver Form with a modification–namely as alleged beneficiary rather than holder or
beneficiary of the account in HSBC, Geneva.
(ii) However, on enquiry by the Revenue from HSBC, Geneva, it was learnt that a modified Consent
Waiver Form would not enable the bank to give copies of the bank statement of A/c. No. 5091404580
since the Waiver would have to be provided without modifications.

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(iii) We notice that the principal contention of the Petitioner before us has been that she is non-
resident and it is only her income which is received or accrued or arising in India which can be
brought to tax under the Act. Thus, it is submitted that it is for the Revenue to establish that the
income had accrued or arisen in India which was lying on 26th March, 2006 in A/c. No. 5091404580
in HSBC, Geneva. We find that the Petitioner and/or her uncle – Dilip Mehta i.e. Executor of the
Estate of late Ramniklal N. Mehta who could probably amongst others be able to produce copies of
the bank statement either by giving a Consent Waiver Form to the Income Tax Department or in the
alternative Mr. Dilip Mehta could instruct the Director of M/s. White Cedar to apply for and furnish to
him copies of the bank statement in A/c. No. 5091404580 of HSBC,Geneva. The fact that it is within
the authority/power of Mr. Dilip Mehta to instruct M/s. White Cedar is evident from the letter dated
14th. August 2014 addressed by HSBC Bank, Geneva to M/s. Red Oak Operation Ltd. which has
been taken on record and marked X for identification. This bank statement if obtained from HSBC,
Geneva, would reveal and/or possibly give clues as to the source of amounts deposited in the Account
No. 5091404580 of HSBC. Neither the Petitioner nor her uncle i.e. Executor of the Estate of late
Ramniklal N. Mehta is ready to obtain the necessary statement either directly or through M/s. White
Cedar from HSBC, Geneva in respect of A/c. No. 5091404580 by exercising or causing to be
exercised the limited authority to instruct White Cedar to apply for and obtain the requisite
information.
(iv) In the normal course of human conduct if a person has nothing to hide and serious allegations
/questions are being raised about the funds a person would make available the documents which
would put to rest all questions which seem to arise in the mind of the Authorities. The conduct on the
part of the Petitioner and her uncle, in not being forthcoming, to our mind leads us to the conclusion
that this is not a fit case where we should exercise our extra ordinary writ jurisdiction and/or interfere
with the orders passed by the authorities under the Act. If a person has nothing to hide, we believe the
person would have cooperated in obtaining the Bank Statements.(WP(L) NO. 3172 OF 2015, dt.
05.04.2016)(AY.2006-07)
Soignee R. Kothari v. DCIT (Bom.)(HC); www.itatonline.org

S.147: Reassessment - Non-residents – In thae absence of taxable income , notice for

reassessment was held to be not valid .[ S. 44BBA, 148 ]
High Court held that where there is no income, section 44BBA cannot be applied to bring to tax the
presumptive income constituting 5% of the gross receipts in terms of section 44BBA(2) and as the
assesse is not having the taxable income reassessment was held to be not valid.(AY. 1989–90 to
1993–94)
DIT v. Royal Jordanian Airlines (2016) 383 ITR 465/ 236 Taxman 10 (Delhi)(HC)

S. 147: Reassessment - Belief must be that of Assessing Officer - CBDT instruction directing
remedial action in case of audit objections - Notice based solely on such instruction (CBDT
Instruction No. 9 of 2006).Presumption that Assessing Officer had passed order u/s 143(3) after
application of mind - Claim rendered inadmissible due to subsequent change in law - No failure
to disclose fact - No allegation that material facts had not been disclosed - Notice not valid. [ S.
10(34), 14A, 115JB, 119 , 143(3), 148 ].
Held, (i) that out of eight reasons for reopening the assessment, reasons at serial Nos. 3 to 7 above
were only as a result of the audit objections. These audit objections were not accepted by the
Assessing Officer as was evident from five separate letters dated February 10, 2006 written by the
Deputy Commissioner (1), Delhi to the Deputy Director Revenue Audit. Nevertheless, the notice
under section 148 was issued as a result of Instruction No. 9 of 2006 dated November 7, 2006 issued
by the Central Board of Direct Taxes. The notice was not valid in respect of these reasons.

(ii) That the reason at serial No. 1 stated that an amount of Rs.2,15,99,534 as "provision for doubtful
debts and advances" had to be added back for the purposes of calculation of book profits in terms of
clause (i) of Explanation 1 to section 115JB. The assessee had pointed out that the clause had been
inserted by the Finance (No. 2) Act, 2009 with retrospective effect from April 1, 2001. Clearly, the
clause did not exist at the time of filing of the return of income on October 29, 2004. The notice was
not valid in so far as this reason was concerned.

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(iii) That the reason at serial No. 2 for reopening of the assessment was that despite the assessee
earning dividend of Rs. 1,85,30,220 which was treated as exempt under section 10(34), no
disallowance of expenditure was made under section 14A. It was alleged that the assessee failed to
produce details to show that no expenditure was incurred on earning of the exempt income. During
the original assessment proceedings under section 143(3), there was a specific query raised by the
Assessing Officer in the letter dated December 24, 2004 addressed to the assessee. Question 8
required the assessee to give details of dividend exempt under section 10(34) received from HDFC
along with copies of accounts. Question 9 of the Assessing Officer`s letter dated February 25, 2005
was regarding the dividend of Rs.1.85 crores received from HDFC. The assessee submitted detailed
replies in this regard on January 31, 2005 enclosing the complete details. Another reply was furnished
on March 16, 2005. Para. 8 of the reply dealt in detail with the query regarding the dividend of Rs.
1.85 crores received from HDFC. Here again the reason for reopening the assessment, specific to this
reason, failed to spell out the material that the assessee had failed to disclose fully and truly. The
notice was not valid in respect of this reason.

(iv) That the reason at serial No. 8 was that the assessee was unable to reconcile the receipts of USD,
10369250 from R USA despite various opportunities. The explanations offered by the assessee in its
reply dated February 11, 2011 that the amount was included in the amount already disclosed was
obviously overlooked while seeking to reopen the assessment. Consequently, there was no basis in the
conclusion of the Assessing Officer that the assessee was unable to reconcile the receipts from R
USA. This ground was also unsustainable in law. The notice of reassessment was not valid and was
liable to be quashed.(AY. 2004-2005)
Sun Pharmaceutical Industries Ltd. v. Dy.CIT (2016) 381 ITR 387/ 237 Taxman 709(Delhi)(HC)

S. 147: Reassessment- Permanent Establishment (PE)-If the alleged PE has been assessed on
ALP basis in terms of Article 7, no income has escaped escapement so as to justify issue of
reassessment notice- DTAA- India- USA [S. 148, Art. 5, 7, 11]
Allowing the petition the Court held that ; even if the subsidiary of a foreign company is considered
as its PE, only such income as is attributable in terms of paragraphs 1 and 2 of Article 7 can be
brought to tax. In the present case, there is no dispute that Adobe India – which according to the AO
is the Assessee’s PE – has been independently taxed on income from R&D services and such tax has
been computed on the basis that its dealings with the Assessee are at arm’s length (that is, at ALP).
Therefore, even if Adobe India is considered to be the Assessee’s PE, the entire income which could
be brought in the net of tax in the hands of the Assessee has already been so taxed in the hands of
Adobe India. There is no material that would even remotely suggest that the Assessee has undertaken
any activity in India other than services which have already been subjected to ALP
scrutiny/adjustment in the hands of Adobe India. Thus, in our view, even if the AO is correct in its
assumption that Adobe India constituted the Assessee’s PE in terms of Article 5(1), 5(2)(l) or 5(5) of
the Indo-US DTAA, the facts in this case do not provide the AO any reason to believe that any part of
the Assessee’s income had escaped assessment under the Act. ( WP No.2384/2013 & CM 4515/2013,
dt. 16.05.2016)( AY. 2004-05, 2005-06, 2006-07)
Adobe Systems Inc. v. ADIT (HC)(Delhi) ;www.itatonline.org

S. 147 :Reassessment-AO can form reasons to believe that income has escaped assessment by
examining the very return and/or the documents accompanying the return. It is not necessary in
such a case for the AO to come across some fresh tangible material to form ‘reasons to believe’
that income has escaped assessment.[S. 143(1), 148]
Dismissing the petition the Court held that ,where reopening is sought of an assessment in a situation
where the initial return is processed under Section 143 (1) of the Act, the AO can form reasons to
believe that income has escaped assessment by examining the very return and/or the documents
accompanying the return. It is not necessary in such a case for the AO to come across some fresh
tangible material to form ‘reasons to believe’ that income has escaped assessment. In the assessment
proceedings pursuant to such reopening, it will be open to the Assessee to contest the reopening on
the ground that there was either no reason to believe or that the alleged reason to believe is not

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relevant for the formation of the belief that income chargeable to tax has escaped assessment.( WP
No. 1393/2002, dt. 18.05.2016) (AY. 1999-2000)
Indu Lalta Rangwala v. DCIT (Delhi)(HC) , www.itatonline.org

S. 147 : Reassessment- Limitation-ITO who is not the Assessing Officerof the assessee, not
empowered to reopen the assessment.[S.148 , 149(1)]
The time limit for reopening of the assessment under section 147 of the Act in the assessee’s case was
31 March 2012. The extended period of limitation in terms of section 149(1)(b) of the Act was 31
March 2014 (i.e. 6 years from end of the assessment year). The DCIT – Circle 39(1) was the
Assessing Officer of the Assessee and had the jurisdiction over this case. However on 14 March 2014
the ITO Ward 39(2) issued a notice to the assessee under section 148 of the Act. The notice of
reopening was issued by ITO Ward 39(2) who was not the Assessing Officer of the assessee and this
single fact in itself vitiates the reopening of the assessment. Realising the mistake the Assessing
Officer (who had the jurisdiction over the Assessee) issued a notice dated 23 June 2014 under section
148 of the Act but it was beyond the deadline of 31 March 2014 under section 149(1)(b) of the Act.
One of the main points urged in the present petition is that the reopening of the assessment sought to
be made under Section 148 of the Act is bad in law since the notice had been issued and the reasons
for reopening had been recorded by the ITO Ward 39(20, who was not the Assessing Officer as far as
petitioner is concerned.
The High Court held that it was only the Assessing Officer who has issued the original assessment
order dated 13th April 2009 for AY 2007-08 under Section 143 (3) of the was empowered to exercise
powers under Section 147/148 to re-open the assessment. This was because he alone would be in a
position to form reasons to believe that some income of that particular AY had escaped assessment.
Further provisions of section 151 of the Act required prior approval of CIT if he feels that the
assessment order is prejudicial to the interest of Revenue. However in any event ITO who has not
passed the original order cannot reopen the assessment.
Thus the writ petition filed by the Assessee is allowed. (AY. 2007-08)
Dushyant Kumar Jain v. CIT (2016) 381 ITR 428/ 237 Taxman 646 (Delhi)(HC)

S. 147 : Reassessment –With in four years- Issue of share capital at huge premium –Reopened
on the ground that excess premium was cash credit and had escaped assessment – Held, not
necessary to have some material outside or extraneous to the original records – Held, reasons
not perverse to terminate the assessment proceedings at this stage. [S. 68, 143(1)]
The assessee company had filed nil return which was accepted u/s 143(1). Subsequently, the AO
reopened the assessment on the ground that the assessee had issued shares at huge premium and
therefore, he had reason to believe that said excess premium was unexplained cash credit which had
escaped assessment. Held, where the return has been accepted u/s 143(1), then the contention that it
was necessary to have some material outside or extraneous to the original records cannot be accepted.
Further, it was held that prima facie the facts appeared to be glaring and it would not be proper to
terminate the assessment proceedings at this stage. Whether the assessee would be able to discharge
the minimal burden of establishing identity, source and creditworthiness or whether the assessee
company had started its operations cannot be gone into at this stage. The assessee can present its case
before the AO during the assessment proceedings. (AY. 2011-12)
Olwin Tiles (India) (P.) Ltd. v. Dy. CIT (2016) 237 Taxman 342 / 283 CTR 200 (Guj.)(HC)

S. 147: Reassessment–No addition on the issues mentioned in “reason to believe”–AO is not

permitted to bring to tax other issues which did not form part of reasons recorded, but came to
his notice subsequently in the course of reassessment proceedings. [S. 11,148]
In the reassessment order, the AO brought to tax escaped income relating to the cost of construction
on the basis of report of the DVO; but there is no adverse finding on undisclosed investment of the
funds or payment made to various parties or denial of benefit u/s. 11 of the Act which he had
considered to have escaped assessment in the reasons recorded while initiating proceedings u/s. 147 of
the Act.
The CIT(A) confirmed the action of the AO, however, the Tribunal reversed the findings of the AO.

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On further appeal, the HC held that the assumption of jurisdiction u/s. 147 of the Act, is the reason to
believe that certain income of the assessee has escaped assessment or reassessment. However, if in the
course of proceedings u/s. 147 of the Act, the AO came to the conclusion that the income which
formed his “reason to believe”, did not escape assessment, then, the AO would not have any
jurisdiction, to tax any other income as having escaped assessment and which may come to his notice
subsequently in the course of proceedings u/s. 147.

Dy. CIT v. Takshila Educational Society (2016) 131 DTR 332/ 284 CTR 306 (Pat.) (HC)

S. 147: Reassessment- Jurisdiction- Participated in the proceedings- Writ is not maintainable. [

S.148, Constitution of India , Art. 226 ]
If the assessee responds to the S. 142(1)/ 143(2) notices, it means that he has submitted to the AO's
jurisdiction and is estopped for filing a Writ Petition to challenge the same. The fact that the
jurisdiction is challenged while participating in the proceedings is irrelevant. Petition of the assesse
was dismissed.(AY.2008-09)
Amaya Infrastructure Pvt. Ltd. v. ITO(2016) 383 ITR 498 (Bom)(HC)

S. 147 :Reassessment-Even when return of income is processed under section 143(1),

reassessment can be initiated only if there is tangible material. [ S. 40(a)(i),143(1) ]
The assesse filed return of income declaring loss of Rs. 96,19,890. The return of income was
processed under section 143(1) and refund of Rs. 20,16,957 was granted. The assessing officer sought
to reopen the assessment on the ground that management fees paid to a foreign company is to be
disallowed under section 40(a)(i) as reported in the Tax Audit report annexed to the return of income.
The assessee filed objection against initiation of reassessment proceedings which were not disposed
off by the Assessing Officer and order was passed making disallowance under section 40(a)(i). The
CIT(A) upheld the initiation of reassessment proceedings but, deleted the addition made by the
Assessing Officer. On appeal, the Tribunal quashed the reassessment proceeding under section 147 on
the ground that there was no tangible material. The High Court held that reassessment proceeding was
based on the Tax Audit report which was filed with the return of income therefore, there was no
tangible material to show escapement of income. It was also held that even in a case where return was
processed under section 143(1), reassessment proceeding can be initiated only if “reason to believe”
exists as laid down by Supreme Court in CIT vs. Kelvinator of India Ltd. (320 ITR 561)(SC). (AY.
2003-04)
PR. CIT v. Tupperware India (P.) Ltd. (2016) 236 Taxman 494 /284 CTR 68 (Delhi) ( HC)

S. 147:Reassessment-An assessment cannot be reopened for the purpose of making a fishing and
roving enquiry. [S.148 ]
Allowing the appeal the Court held that;Section 147/148 of the Act is not meant for reopening an
already concluded assessment by first issuing notice and then proceeding to investigate and find out if
there was any lacuna in the accounts. If such further investigation, by reopening a concluded
assessment, is permitted, it, would give rise to fishing and rowing enquiries, because, in every case,
the Assessing Officer can then issue notice for the purpose of investigation, and thus reopen any
concluded assessment. Reassessment was quashed. (ITA No. 795/2009, dt. 24.08.2015) (AY. 2004-
05) )
C. M. Mahadeva v. CIT (Karn.)(HC);www.itatonline.org

S.147:Reassessment-Change of opinion Method of accounting-Reopeningon factually erroneous

premise is not permissible. [S.148]
Allowing the petition the Court held that, none of the objections raised by the assessee was
adequately dealt with by the AO. Court also held that since the action of the Revenue was based on a
factually erroneous premise, the Court is of the view that the reopening of the assessments for the said
AYs is not sustainable in law. The Court is also satisfied that the requirement of the law, as explained
by the Court in Commissioner of Income Tax. v. Kelvinator of India Limited (2010) 320 ITR 561
(SC), and reiterated in the later decisions, has not been fulfilled in the present case.(AY.2006-
07,2007-08, 2008-09, 2009-10)

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Dr. Ajit Gupta v. ACIT( 2016) 383 ITR 361 (Delhi)(HC)

S. 147:Reassessment-Change of opinion-Claim for exemption granted after considering

material-Subsequent reassessment proceedings on ground excess exemption was granted–
Reassessment was held to be not valid. [S.10A, 148]
Dismissing the appeal of revenue the Court held that ; it could be seen from the original assessment
records that the claim of the assessee u/s 10A was thoroughly scrutinised, the Assessing Officer had
examined the claim of expenditure incurred in foreign currency for providing technical services
allocating the sum of Rs. 38,51,45,781 between the five software technology park units in the ratio of
the export sales. In fact, the Assessing Officer had raised certain queries during the assessment
proceedings and a detailed reply had been given by the assessee. The Tribunal was fully justified in
arriving at the conclusion that the reopening of assessment was by change of opinion. The
reassessment was not valid.( AY. 2003-2004 )
CIT v. Hewlett-Packard Globalsoft P. Ltd. (2016) 380 ITR 386 (Karn.)(HC)

S. 147:Reassessment-Non disposal of objections-Providing the assessee with the recorded

reasons towards the end of the limitation period and passing a reassessment order without
dealing with the objections results in gross harassment to the assessee which the Pr. CIT should
note & remedy.[S. 144C, 148]
(i) This passing of the draft Assessment order on 30th March, 2015 was in the face of the decision of
the Supreme Court in GKN Driveshafts (India)Ltd v/s Income Tax Officer and Others reported in 259
ITR 19 (SC), wherein it has been laid down that whenever a reopening notice is issued under Section
148 of the Act, the Assessing Officer was to make available to the assessee, on request, a copy of the
reasons recorded while issuing the notice for reopening the Assessment. The assessee is then entitled
to file its objection to the grounds in support of the reopening notice and the Assessing Officer is
required to dispose of the assessee’s objection to the reasons recorded by a speaking order. It is only if
the Assessing Officer rejects the objection that he can proceed with the Assessment proceedings of the
reopened Assessments.
(ii) In the present case, as the issue involves the provisions with regard to transfer pricing cases, the
period of limitation to dispose of an Assessment consequent to reopening notice as provided in 4th
proviso to sub-section(2) of Section 153 of the Act is two years from the end of the financial year in
which the reopening notice was served. In this case, the impugned reopening notice was issued on 6th
February, 2013 and the reasons in support were supplied only on 19th March, 2015. This when the
Revenue was aware at all times that the period to pass an order of reassessment on the impugned
reopening notice dated 6th February 2013 would expire on 31st March, 2015. However, there is no
reason forthcoming on the part of the Revenue to satisfactorily explain the delay. The only reason
made out in the affidavit dated 3rd September, 2015 by the Assessing Officer was that the issue was
pending before the Transfer Pricing Officer (TPO) and it was only after the TPO had passed his order
on transfer pricing were the reasons for reopening provided to the Petitioner. We are unable to
understand how the TPO could at all exercise jurisdiction and enter upon enquiry on the reopening
notice before the same is upheld by an order of the Assessing Officer passed on objections. Besides
the recording of reasons for issuing the reopening notice is to be on the basis of the Assessing
Officer’s reasons. The TPO’s reasons on merits much after the issue of the reopening notice does not
have any bearing on serving the reasons recorded upon the party whose assessment is being sought to
be reopened.
(iii) One more peculiar fact to note is that in the affidavit dated 10th July 2015 filed by one Prabhakar
Ranjan on behalf of the Revenue it is stated that the Assessing Officer was under a bonafide
impression that the TPO would pass an order in favour of the assessee. In fact, if that be so, we are
unable to understand how the assessing officer could have any reason to believe that income
chargeable to tax has escaped assessment. Be that as it may, this petition was adjourned from time to
time to enable the Revenue to file the necessary affidavits explaining their contention.
(v) In fact, on 23rd December 2015 the Revenue again sought time. At that stage, we indicated that in
view of the gross facts of this case, the Principal Commissioner of Income Tax would take serious
note of the above and after examining the facts, if necessary, take appropriate remedial action to
ensure that an assessee is not made to suffer for no fault on its part. This is particularly so as almost

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the entire period of two years from the end of the financial year in which the notice is issued was
consumed by the Assessing Officer in failing to give reasons recorded in support of the impugned
notice. Nevertheless, the Assessing Officer proceeds to pass a draft Assessment order without dealing
with the objections filed by the Petitioner. We could have on that date or even earlier passed an order
setting aside the draft assessment order dated 30th March 2015 as it was passed without disposing of
the objections. Thus, clearly without jurisdiction. However, we were of the view that although this
appears to be a gross case of harassing an Assessee, the Principal Commissioner would take note and
adopt remedial action / proceedings.( AY. 2007-08)
Bayer Material Science Pvt. Ltd.v. DCIT(2016) 382 ITR 333/ 133 DTR 53 / 237 Taxman 723
(Bom.)(HC)

S. 147:Reassessment-Reason to believe-It is open to the assessee to challenge a notice issued

u/s.148 as being without jurisdiction for absence of reason to believe even in case where the
assessment has been completed earlier by Intimation u/s 143(1) of the Act. [S. 143(1),148]
The assessee filed a Writ Petition to challenge a notice issued u/s 148 in a case where only an
intimation u/s 143(1) had been passed. The Department contented that the Writ Petition was not
maintainable in view of the judgement of the Supreme Court in Deputy Commissioner of Income Tax
Vs. Zuari Estate Development and Investment Co. Ltd. (2015) 373 ITR 661 where the order of the
Bombay High Court in Zuari Estate Development Co. Ltd. Vs. Dy. Commissioner of Income Tax 271
ITR 269 had been set aside. The Supreme Court held that where the original Return has been accepted
by Intimation under Section 143(1) of the Act, there could be no change of opinion. Further, it was
contended that the Supreme Court impliedly held that in such cases where assessment is completed by
Intimation under Section 143(1) of the Act, there is no requirement for the Assessing Officer to have
reason to believe that income chargeable to tax has escaped assessment, so as to exercise jurisdiction
under Section 148 of the Act. HELD by the Bombay High Court:
(i)T he Apex Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P.
Ltd. 291 ITR 500, had an occasion to deal with identical facts, namely reopening Notices issued under
Section 148 of the Act where assessment is completed earlier by Intimation under Section 143(1) of
the Act. In the above case, the Apex Court held that a Notice for reopening an assessment under
Section 148 of the Act could only be justified if the Assessing Officer has reason to believe that
income chargeable to tax has escaped assessment. This decision of the Supreme Court in Rajesh
Jhaveri Stock Brokers P. Ltd. (Supra) has not been disturbed by the Apex Court in Zuari Estate
Development and Investment Co. Ltd. (Supra). In fact, the Supreme Court in Zuari Estate
Development and Investment Co. Ltd. (Supra) makes a specific reference to its decision in Rajesh
Jhaveri Stock Brokers P. Ltd. (Supra) to hold that where the assessment has been completed by
Intimation under Section 143(1) of the Act, there can be no question of change of opinion.
(ii) The Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has not dealt with
the issue whether before invoking Section 148 of the Act, the Assessing Officer must have reason to
believe that income chargeable to tax has escaped assessment, where the original assessment has been
completed by Intimation under Section 143(1) of the Act. The Revenue is trying to infer that because
the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has set aside the order
of this Court and restored the issue to be decided on merits by the Tribunal, it must be inferred that the
Apex Court had come to the conclusion that reason to believe was not necessary for issuing
reassessment Notices where the regular assessment was completed under Section 143(1) of the Act.
As rightly pointed out by Mr. Pardiwalla, it can equally be inferred that the Apex Court in the above
case had come to the conclusion that there is reason to believe that income had escaped assessment
and consequently restored the issue to the Tribunal to decide the reassessment proceedings on merits.
(iii) It is settled position in law that the decision of the Court has to be read in the context of the facts
involved therein and not on the basis of what logically flows therefrom as held by the Supreme Court
in Ambica Quarry Works Vs. State of Gujarat, 1987(1) SCC 213. The Apex Court in Zuari Estate
Development and Investment Co. Ltd. (Supra)not having dealt with the issue of reason to believe that
income chargeable to tax has escaped assessment on the part of the Assessing Officer in cases where
regular assessment was completed by Intimation under Section 143(1) of the Act, it would not be wise
for us to infer that the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (Supra)
has held that the condition precedent for the issue of reopening notice namely, reason to believe that

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income chargeable to tax has escaped assessment, has no application where the assessment has been
completed by Intimation under Section 143(1) of the Act. The law on this point has been expressly
laid down by the Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) and the same
would continue to apply and be binding upon us. Thus, even in cases where no assessment order is
passed and assessment is completed by Intimation under Section 143(1) of the Act, the sine qua non
to issue a reopening notice is reason to believe that income chargeable to tax has escaped assessment.
In the above view, it is open for the petitioner to challenge a notice issued under Section 148 of the
Act as being without jurisdiction for absence of reason to believe even in case where the Assessment
has been completed earlier by Intimation under Section 143(1) of the Act.( WP.No No.3027 of 2015,
dt. 10.02.2016) (AY.2010-11 )-
Khubchandani Healthparks Pvt. Ltd. v. ITO (Bom.)(HC);www.itatonline.org

S. 147: Reassessment-The reopening of the assessment is not valid if the reasons recorded are
incoherent and do not indicate what the basis for reopening. [S. 143(1), 148]
(i) A plain reading of the reasons recorded for reopening reveals that the reasons are totally
incoherent. In fact, a plain reading of it gives rise to doubts whether some lines have gone missing or
some punctuation marks have been left out. Grammatically also the reasons recorded make little
sense. However, this is the least of the problems. Essentially, the reasons recorded do not indicate
what the basis for the reopening of the assessments is;
(ii) Under Section 147 (1) of the Act, the reasons recorded for reopening an assessment should state
that the Assessee had failed to disclose fully and truly all the material facts necessary for his
assessment in the returns as originally filed and the reasons recorded should provide a live link to the
formation of the belief that income has escaped assessment (Madhukar Khosla v. Assistant
Commissioner of Income Tax (2014) 367 ITR 165 (Del);
(iii) It is well settled that the reasons recorded for reopening the assessment have to speak for
themselves. They have to spell out that (i) there was a failure of the Assessee to disclose fully and
truly all the material facts necessary for the assessment and (ii) the reasons must provide a live link to
the formation of the belief that income had escaped assessment. These reasons cannot be supplied
subsequent to the recording of such reasons either in the form of an order rejecting the objections or
an affidavit filed by the Revenue (Northern Exim (P) Ltd. v. DCIT [2013] 357 ITR 586 (Del)
referred);
(iv) Even otherwise even the above reasons given subsequently do not satisfy the jurisdictional
requirements of Section 147 (1) of the Act inasmuch as they do not indicate that there was a failure by
the Assessee to disclose fully and truly all the material facts necessary for the assessment. The reasons
also do not provide a live link to the formation of the belief that income had escaped assessment.( WP
No. 8994/2014 & CM 20547/2014, dt. 18.02.2016)(AY. 2007-08 to 2012-13)
Sabharwal Properties Industries Pvt. Ltd. v. ITO (2016) 382 ITR 547 (Delhi)(HC)
Sabharwal Apartments Pvt. Ltd. v. ITO(2016) 382 ITR 547 (Delhi)(HC)

S. 147:Reassessment–After the expiry of four years- Full and true disclosure made during
assessment proceedings – No failure on part of assessee – Reopening assessment held not valid.
[S. 40(a)(ia), 148]
During the year under consideration, the assessee had made payments in foreign currency towards
interest, professional fees and others paid to non-residents. The said payments were claimed as
expenditure. In the regular assessment under Section 143(3), the details of payments made were
furnished. The AO after examining all, disallowed machinery charges by invoking provisions of
Section 40(a)(i) but allowed others. The other payments which were allowed earlier were disallowed
in the reassessment proceedings vide order under Section 147 in view of restrospective amendment in
Section 9(2) which taxed any services provided by non-residents in India. On appeal to Tribunal, it
was held that assessee having submitted all details of payments of commission, professional fees and
other expenses made to non residents in foreign currency at the time of original assessment, there was
no failure on part of assessee to disclose all facts fully and truly for its assessment and therefore the
assessment could not be reopened beyond 4 years from the end of the relevant assessment year on the
ground that the said payments were taxable in view of retrospective operation of Explanation below

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Section 9(2) and consequently the payments were liable to be disallowed under Section 40(a)(i). (AY
2005-06, 2008-09,2009-10)
Brakes India Ltd. v. DCIT (2016) 176 TTJ 716 (Chennai) (Trib)

S. 147:Reassessment-After the expiry of four years – Audit objection-No independent mind-

Reassessment was quashed. [S 10A, 148]
On appeal, the Tribunal held that the assessee had truly and fully disclosed all the material facts in the
return and also during the assessment proceedings with respect to material and relevant facts
concerning setting up and commencement of operations and its claim of deduction which had been
duly considered while framing the original assessment and granting deduction. The proceedings
u/s.147 and 148 initiated against the assessee need to be dropped as the proceedings were not validly
initiated but merely on a change of opinion based upon the audit objections and the AO has not
independently applied his mind before reopening the proceedings. As the proceedings were initiated
after four years from the end of the relevant AY. and the proviso to section 147 was applicable. The
assessee was not hit by section 10A(2) as it could not be said that it was formed by splitting up or
reconstruction of business already in existence nor was it brought on record that there was transfer to
a new business of machineries or plant previously used for any purpose. Circular No.1 of 2005 issued
in the context of section 10B supported the stand of the assessee. Thus, the assessee was entitled to
deduction u/s. 10A (AY. 2006-07)

Prothious Engineering Services Pvt. Ltd. v. ITO (2016) 46 ITR 438 (Mum.)(Trib)

S. 147: Reassessment-The AO is duty bound to provide to the assessee the reasons recorded for
reopening the assessment within a reasonable time. Failure to do so renders the reassessment
order unsustainable in law. [ S.148 ]

Allowing the appeal of assesse the Tribunal held that ; The Hon’ble Apex Court in GKN Driveshafts
(India) Ltd. vs. ITO (2003)259 ITR 19 has held that “it is clear that the completion of assessment/
reassessment without furnishing the reasons recorded by the AO for initiation of proceedings under
section 147/148 of the Act is not sustainable in law as it is incumbent on the AO to supply them
within reasonable time. We note that on the anvil of this judgment, on the request of the Assessee, the
AO is bound to furnish the reasons recorded for initiation of proceedings under section 147 of the Act
within a reasonable period of time so that the assessee could file its objections thereto and the AO was
to dispose of the same by passing a speaking order thereon, which the AO has not done. We also note
that even as per the rules of natural justice, the assessee is entitled to know the reasons on the basis of
which the AO has formed an opinion that income assessable to tax has escaped assessment. The
furnishing of reasons to the assessee is to enable/facilitate it to present its defence and objections to
the initiation of proceedings under section 147/148 of the Act. Therefore, we are of the considered
opinion that there was no justifiable reasons for the AO to deprive the assessee of the recorded
reasons by him for initiating proceedings under section 147/148 of the Act. Therefore, in our
considered opinion, the reopening in question is not sustainable in the eyes of law. Accordingly, we
allow the assessee’s appeal on legality aspect without proceeding to adjudicate on merits by quashing
the assessment order. (ITA No. 6611/Del/2013, dt.03.06.2016)(AY. 2001-02)

Inderjeet Singh Sachdeva v. DCIT (Delhi)(Trib), www.itatonline.org

S. 147:Reassessment-Non-furnishing by the AO of reasons recorded for reopening the
assessment , renders the reopening void. [S.148]
Despite repeated letters requesting to provide copy of the reasons recorded or the grounds on which
the assessment was reopened, no such reasons were provided to the assessee. We find that the DR
could not substantiate whether any reasons were provided by the Assessing Officer to the assessee and
merely relying on the fact that general practice was followed in Department of supplying reasons, it
cannot be presumed that reasons were supplied in the case of the assessee. On the other hand, the

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assessee has filed evidences in support of its claim of request for providing grounds of initiation of the
reassessment proceedings in almost every submission made before the Assessing Officer. Therefore,
in our considered view, the Assessing Officer has not complied with the direction of the Hon’ble
Supreme Court in the case of GKN Driveshaft (India) limited v. CIT (2003) 259 ITR 19 (SC)
providing reasons for reassessment within a reasonable time, and therefore respectfully following the
decisions cited above, the reassessment completed by the Assessing Officer under section 147 of the
Act cannot be sustained in the case of the assessee and quashed. ( ITA No. 2205/Del/2015, dt.
16.05.2016)( AY. 2006-07)
Ujagar Holding Pvt. Ltd. v. ITO (Delhi)(Trib), www.itatonline.org

S. 147 : Reassessment - Absence of new tangible material, reassessment was held to be not valid.
[S. 148]
AO having issued notice u/s. 148 on the basis of the recommendation of the Addl. DIT (Inv.) and
relying on the contents of the very same flowchart of manufacturing process which was produced by
the assessee during the original assessment, there was no new tangible material to form reason to
believe that income had escaped assessment and, therefore, reopening of assessment is vitiated on this
count. Further, assessment made u/s. 143(3) could not be reopened after expiry of four years form the
end of the relevant assessment year, since all the material facts were fully and truly disclosed during
the original assessment u/s. 143(3) and the issue of deduction u/s. 80IC was subject matter of
assessment proceedings as well as revisional proceedings u/s. 264 impugned reassessment is based
upon change of opinion on the same set of facts which is not permissible. (AY. 2004-05)
Dy. CIT v. Dharampal Satyapal Ltd. (2016) 130 DTR 241 (Delhi)(Trib.)

S. 147 : Reassessment–Within four years–No reassessment on mere change of opinion as the

Assessee had submitted all relevant details at the time of assessment and genuineness of
transaction was not doubted by the AO. [S.143(3)]
After the original assessment was completed u/s 143(3), it was reopened based on information
received from the Investigation Wing of the Income-tax department pursuant to a search at the
premise of an individual that the Assessee has received accommodation entries as share application
money. On appeal, the Tribunal quashed the reassessment on the basis that the Assessee had disclosed
all relevant facts to the AO during the course of assessment and the reassessment was simiplicitor
based on a change of opinion. Based on the confirmation of the parties, the genuineness of the
transaction was not doubted by the AO. Further, the AO had appended a note to the order u/s 143(3)
that the investments in the company had been considered and passed on the respective AOs. (AY.
2009-10)
A.P. Refinery P. Ltd. v. Addl. CIT (2016) 45 ITR 724 (Chd)(Trib.)

S. 147:Reassessment- Statement recorded by the Police Officer and assesse admitted having
spent Rs 48-50 lakhs on marriage of his daughter- Reassessment was held to be not valid. [S.
69C,143(1), 148 , Criminal Procedure Code, 1973, S. 161]
Assessee filed his return declaring certain taxable income. Return was processed under section 143(1).
Subsequently, Assessing Officer noted that assessee had made a statement under section 161 of
Criminal Procedure Code, 1973 to Police that he had incurred approximately Rs. 45-50 lacs on
marriage of his daughter and gift of jewellery of Rs. 55 lacs was made to his daughter at time of
marriage as per 'Will' of assessee's mother. Assessing Officer initiated reassessment proceedings by
recording reasons that source of expenditure incurred on marriage including cost of jewellery gifted
by assessee to his daughter were required to be verified. The Commissioner (Appeals) upheld that
validity of reassessment proceedings. He, however, granted partial relief in respect of addition made
by Assessing Officer in reassessment proceedings. On appeal the Tribunal held that; A statement
recorded by Police Officer under section 161 of Code of Criminal Procedure, 1973, is neither given
'on oath' nor it is tested by cross examination and, therefore, such a statement cannot be treated as
substantive evidence to reopen assessment proceedings. (AY. 2006-07)
Subhash Chander Goel v. ITO ( 2016) 156 ITD 808 (Chd)(Trib)

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S.147:Reassessment-There has to be tangible material to reopen the assessment–Reassessment
was held to be bad in law. [S. 80IC, 143(1), 148]
Tribunal held that though in case of section 143(1)(a), any argument of it being illegal because of
change of opinion is not sustainable, however, there has to be some tangible material in possession of
Assessing Officer to reopen such cases. ( AY. 2011-12 )
Amit Engineers v. ACIT (2016) 156 ITD 566 (Chd.)(Trib.)

S. 147 : Reassessment-Approval from prescribed authority was not obtained for earlier years-
Reassessment was held to be valid . [S. 10(23C), 143(1), 148]
Assessee had furnished return of income declaring loss of Rs.33,60,746/-. The return was processed
under section 143(1) of the Act and no scrutiny assessment under section 143(3) of the Act was
completed against the assessee for captioned assessment year. AO recorded reasons for reopening the
assessment on the ground that deduction under section 10(23C)(vi) of the Act was claimed by the
assessee in the return of income, which was not allowable to the assessee in the absence of certificate
issued for recognizing the assessee under section 10(23C)(vi) of the Act. In view of no assessment
being completed under section 143(3) of the Act, we find merit in the order of CIT(A) in holding that
the reopening of assessment was valid, in view of the ratio laid down by the Hon'ble Supreme Court
in Rajesh Jhaveri Stock Brokers (P.) Ltd 291 ITR 500. Reasons recorded by the AO for reopening the
assessment pursuant to assessment being completed in the hands of assessee relating to assessment
year 2006-07, wherein it came to the knowledge of the Assessing Officer that the assessee has no
approval from the prescribed authority for availing the said exemption under section 10(23C)(vi) of
the Act and in view of the material which had come to the notice of Assessing Officer on a later date,
there were appropriate reasons with the Assessing Officer for formation of belief that the income had
escaped assessment for the year for issue of notice under section 148 of the Act. Since all the
conditions necessary for reopening of the assessment were attracted, we uphold the recording of
reasons under section 147 of the Act and thereafter, issue of notice under section 148 of the Act as
both legal and valid. (AY. 02-03, 04-05 to 07-08)
Mercedes Benz Education Academy v. ITO (2016) 176 TTJ 365 /65 taxmann.com 73
(Pune)(Trib.)
S. 147 : Reassessment–Reassessment based on an illegal TPO’s order is void ab initio and hence
liable to be quashed. [ S. 143(2),148]
The AO could not pass a draft assessment order pursuant to the order of the TPO since no notice u/s
143(2) was issued to the Assessee. Subsequently, the AO treated the order of the TPO as information
and sought to reopen the assessment by issuing a notice u/s 148. The ITAT quashed the reassessment
on the basis that the reference to the TPO was illegal since no notice u/s 143(2) was issued by the AO.
Consequently, the order of the TPO pursuant to an illegal reference cannot be used in the
reassessment proceedings. (AY. 2010-11)
Bucyrus India P. Ltd. v. DCIT (2016) 45 ITR 216 (Kol.)(Trib)

S.147:Reassessment- Book profit- Foreign exchange fluctuation gains-Computation was

available on record- No new tangible material- Reassessment was bad in law. [S. 4, 115JB,
143(1),148]
Tribunal held that ; where reassessment was initiated on ground that assessee had excluded foreign
exchange fluctuation gains while computing total income while, in fact, same computation was
available on record during assessment, reassessment was bad. ( AY. 2004-05, 2005-06)
Sabic Research & Technology (P.) Ltd. v. ITO (2016) 156 ITD 327 ( Ahd.)(Trib.)

S. 147: Reassessment-Search-A case where the AO detects incriminating material in search has
to be processed only u/s 153C and not u/s 147. A notice u/s.148 to assess such undisclosed
income is void ab initio. [S. 148, 153C]
Allowing the appeal the Tribunal held that;On having gone through the decisions cited above
especially the decision of Amritsar Bench in the case of ITO vs. Arun Kumar Kapoor 140 TTJ 249,
we find that in that case as in the present case before us, reassessment was initiated on the basis of
incriminating material found in search of third party and the validity of the same was challenged by
the assessee before the Learned CIT(Appeals) and the Learned CIT(Appeals) vitiated the proceedings.

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The same was questioned by the Revenue before the ITAT and the ITAT after discussing the cases of
the parties and the relevant provisions in details has come to the conclusion that in the above situation,
provisions of sec. 153C were applicable which excludes the application of sections 147 and 148 of the
Act. The ITAT held the notice issued under sec. 148 and proceedings under sec. 147 as illegal and
void ab initio. It was held that Assessing Officer having not followed procedure under sec. 153C,
reassessment order was rightly quashed by the CIT(Appeals). In the present case before us, it is an
admitted fact, as also evident from the reasons recorded and the assessment order that the initiation of
reopening proceedings was made by the Assessing Officer on the basis of information received from
the Directorate of Income-tax (Inv.) on the basis of search & seizure operation conducted at the
premises of Rock Land Group of Cases and the documents related to the assessee found during the
course of search were made available to the Assessing Officer of the present assessee. We thus
respectfully following the decision of Co-ordinate Bench of the ITAT in the case of ACIT vs. Arun
Kapur – 140 TTJ 249 (Amritsar) hold that provisions of sec. 153C of the Act were applicable in the
present case for framing the assessment, if any, which excludes the application of sec. 147 of the Act,
hence, notice issued under sec. 148 of the Act and assessment framed in furtherance thereto under sec.
147 read with section 143(3) of the Act are void ab initio.(ITA No. 2430/Del/2015, dt.
20.05.2016)(AY. 2007-08)
Rajat Saurabh Chatterji v. ACIT (Delhi)(Trib) , www.itatonline.org

S. 147:Reassessment-Notice is issued in a mechanical manner, based on information received

from another AO, and sanction is accorded by the CIT in a mechanical explained-
Reassessment was held to be bad in law .[ S. 148, 151 ]
After going through the reasons recorded by the Assessing Officer for reopening and the approval
thereof by the Addl. CIT we are of the view that AO has not applied his mind so as to come to an
independent conclusion that he has reason to believe that income has escaped during the year. In our
view the reasons are vague and are not based on any tangible material as well as are not acceptable in
the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of
information allegedly received by him from the Directorate of Income Tax (Investigation), New
Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable
in the case of the assessee, we are of the considered view that the reopening in the case of the assessee
for the asstt. Year in dispute is bad in law and deserves to be quashed. Even otherwise, a perusal of
the above demonstrates that the Addl. CIT has written “Approved” which establishes that he has not
recorded proper satisfaction / approval, before issue of notice u/s. 148 of the I.T. Act. Thereafter, the
AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received
by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts
and circumstances of the present case and the case law applicable in the case of the assessee, we are
of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is
bad in law and deserves to be quashed.( ITA No. 5128/del/2015, dt. 22.04.2016)(AY. 2006-07)
Banke Bihar Properties Pvt. Ltd. v. ITO (Delhi)(Trib); www.itatonline.org

S. 147 : Reassessment –Issue concluded in original assessment proceedings cannot be re-agitated

during course of reassessment proceedings. [S.148 ]

The additional claim on account of loss on sale of securities was made only in the return of income
filed in response to the notice u/s.148. The additional claim was obviously not made in the original
assessment proceedings nor sought to be re-considered by the AO during the course of re-assessment
proceedings. Even assuming that it was only readjustment of a claim already made, such readjustment
was not possible in the proceedings of reassessment.(AY. 2007-08)
Karnataka State Co-operative Apex Bank Ltd.v. Dy. CIT (2016) 46 ITR 728 (Bang.)(Trib.)

S. 147: Reassessment-Within four years-Search operations in premises of third person –

Documents found belonging to third person and not to assesse- Reassessment was held t be
justified .[ S. 148,153C]
The condition precedent for issuance of notice u/s.153C was not fulfilled. The re-opening of the
assessment was done within the limitation period and there was no specific evidence in corroboration

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with regard to the contention that no sanction taken from the authorities. Therefore, the reopening of
the assessment was rightly done u/s.147 of the Act.(AY. 2003-04)
Yamuna Estate P.Ltd. v. ITO (2016) 45 ITR 517 (Mum.)(Trib.)

S. 147:Reassessment – No information about any bogus gift – No tangible material to justify

income chargeable to tax had escaped assessment – Reassessment was held to be invalid.[ S.
69A,148 ]
The AO reopened the assessment u/s. 147 of the Act on the ground that the assessee had shown a gift
of Rs. 21 lakhs from two persons and since they did not have any blood relationship with the assessee
nor was there any occasion for the gift. He made and addition on account of income from undisclosed
sources u/s.69A of the Act. The CIT(A) confirmed this.

On appeal, the Tribunal held that the reasons recorded did not clarify how there was a failure on the
part of the assessee to disclose fully and truly all material facts. There was no material available with
the AO of the donors to give any information to the AO of the assessee to make out a case of
escapement of income in the case of the assessee. A valid reopening of assessment had to be based
only on tangible material to justify the conclusion that there was escapement of income. The AO had
not validly assumed jurisdiction under section 147 and 148 of the Act for reopening of the assessment.
The addition was to be deleted. (AY. 2005-06)
Sarika Jain(Smt.) v. ITO (2016) 46 ITR 246 (Chd.)(Trib.)
Vikram Jain and Sons, HUF v. ITO (2016) 46 ITR 246 (Chd.)(Trib.)
Santosh R. Jain(Smt.) v. ITO (2016) 46 ITR 246 (Chd.)(Trib.)

S. 147:Reassessment-Reopening in the absence of fresh material and merely on change of

opinion is nor permissible [S.148]
“Therefore, we are of the considered view that assessee had made full and true disclosure during the
original assessment proceedings. We are also of the view that reopening had been done merely on
change of opinion in as much as that in the original assessment made u/s. 143(3) of the I.T. Act. We
also find that AO has no fresh material to form his opinion regarding escapement of assessment and
he has also not found any tangible material to record the reasons for reopening of the assessment of
the assessee. It is a settled law that merely change of opinion is not permissible under the law.”(ITA
No. 4086/Del/2013, dt. 30.03.2016) (AY. 2004-05)
Vijay Power Generators Ltd. v. ACIT (Delhi)(Trib.);www.itatonline.org

S. 147:Reassessment-Reopening of assessment is not permissible in the absence of "fresh

tangible material"- Reassessment was quashed. [S.148]
Allowing the appeal the Tribunal held that ; In the present case, it was noticed by us that the case of
the assessee is that there was no fresh tangible material in the possession of AO at the time of
recording of impugned reasons. A perusal of the ‘Reasons’ recorded by the AO in this case reveals
that at the time of recording of these ‘Reasons’ the AO had examined original assessment records
only and no fresh material had come in the possession of the AO. In response to our specific query
also, Ld DR could not point out any fresh material available with the AO at the time of reopening of
the case of the assessee. Thus, assertion of the assessee that there was no fresh material with AO for
reopening of this case, remained uncontroverted. Under these facts and circumstances, let us now
examine settled position of law on this issue. It has been held in various judgments coming from
various courts that availability of fresh tangible material in the possession of AO at the time of
recording of impugned reasons is a sine qua none, before the AO can record reasons for reopening of
the case. We begin with the judgment of Hon’ble Supreme Court in the case of CIT vs. Kelvinator
India Ltd. 320 ITR 561 (SC), laying down that for reopening of the assessment, the AO should have
in its possession ‘tangible material’. The term ‘tangible material’ has been understood and explained
by various courts subsequently. There has been unanimity of the courts on this issue that in absence of
fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already
concluded assessment.( ITA No. 5858 & 5859/Mum/2012, dt. 28.10.2015) ( AY. 2005-06, 2006-07)
Golden Tobacco Limited v. DCI (Mum.)(Trib.);www.itatonline.org

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S.147:Reassessment-On the wrong and invalid assumption of Jurisdictional and all subsequent
proceedings is pursuance thereto can’t be held as sustainable and valid, hencethe same deserve
to be quashed and we quash the same.[S.148]
When we logically analyse the facts of the case, specially averments of the AO in the reasons
recorded, then we note that in the operative paragraph the AO has held that “since the expenditure of
Rs. 2,47,468/- were incurred by the assessee through credit card remained unexplained, Ihave reason
to believe that income to the tune of Rs. 2,47,468/- has escaped assessment”. This conclusion of the
AO is factually baseless as this issue was posed to the assessee by DCIT, Bangalore replying to his
notices and the ld. DR has not disputed that copies of the said notices and reply was filed before the
AO on the assessment record. In this situation it was on the AO to peruse the relevant assessment
record of AY 2005-06 which forming reason to believe and thus it is safely presumed that the AO
initiated reassessment proceedings u/s 147 of the Act and issued notice u/s 148 of the Act without
application of mind working in a mechanical manner and thus the same are not sustainable in the facts
and on law. Respectfully following the dicta laid down by jurisdictional High Court in the case of CIT
vs. G & G Pharma we are inclined to hold that the AO issued notice u/s 148 of Act on the wrong and
invalid assumption of Jurisdictional and all subsequent proceedings is pursuance thereto can’t be held
as sustainable and valid hence, the same deserve to be quashed and we quash the same. It is ordered
accordingly( ITA No. 7/Del/2013, dt. 19.02.2016)(AY 2004-05)
Suresh M. Bajaj v. ITO (Delhi)(Trib.);www.itatonline.org

S. 147:Reassessment-If AO does not make any addition for the reason stated for reopening, he
cannot add any other income holds good even for years when Explanation 3 to s. 147 is
operative. [S.148]
Allowing the appeal of assessee the Tribunal held that; The argument of the Ld. DR that the ratio
propounded in Jet Airways India vs. CIT 331 ITR 236 and Ranbaxy Laboratories Ltd. vs. CIT(2011)
336 ITR 136 does not apply since those cases related to assessment years when Explanation 3 to
section 147 was not on the statute, we find has not merit since in the above mentioned decisions the
Court has interpreted the provision of section 147 on first principle to hold that only if addition are
made on account of income which the AO had reason to believe had escaped assessment that any
other addition can be made. It is not Explanation 3 which had been interpreted in favour of the
assessee in these cases. In fact we find that Explanation 3 empowers AO’s to make assessment on any
matter which comes to their notice during assessment proceedings. But the same alongwith section
147 has been interpreted as stated above. Therefore, the presence or absence of Explanation 3 to
section 147 does not nullify the interpretation given by the courts in the above stated judgments.
Further the argument of the Ld. DR that the reason is not rendered invalid merely because no addition
has been made on account of incomes which the AO had reason to believe had escaped assessment, is
also of no consequence, since as is evident from the order cited above, the courts have not held the
reasons to be invalid in such cases and quashed the proceedings. The validity of the reasons had not
been in issue in these cases, but the courts have interpreted the provisions of section 147 on first
principles and held that the AO had no power to assess any other income to tax unless addition is
made of income which he had reason to believe had escaped assessment.
(ii) Respectfully following the above judgments, we hold that in the absence of any addition having
been made on incomes which the AO had reason to believe had escaped assessment, no addition of
any other income could have been made and that the AO had exceeded his jurisdiction in passing the
impugned order u/s 147. The same is liable to be quashed. We quash accordingly.( ITA
No.134/Ag/2014, dt. 05.04.2016)(AY. 2003-04)
Anugrah Varhney v. ITO (Agra)(Trib.);www.itatonline.org

S. 147:Reassessment-Audit objection-If the AO objects to the audit objection, he cannot have

reason to believe that income has escaped assessment and is not entitled to reopen the
assessment.[S.148]
Allowing the appeal of assessee the Tribunal held that;The AO recorded reasons pursuant to an audit
objection and reopened assessee’s assessment. However, the AO replied to the audit objection stating
that the issue was debatable in nature. The AO replied that in principle the objections raised by the
audit are not acceptable. However, still the AO proceeded to reopen the assessment. The Tribunal

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held that once the AO himself disagreed with the audit objections, reopening could not be done. The
requirement of law for reopening of the case is that the AO should be in a position to form a belief
about escapement of income. Although, it is true that at the stage of reopening, the belief need not be
conclusive, but it is equally expected that the position of law should be clear in the mind of the AO, at
least prima–facie. The belief need not be conclusive but it should be firm and clear. No belief can be
formed out of confusion and doubtful thoughts.( ITA No. 3970 & 3971/Mum/2010, dt.
16.03.2016)(AY. 2001-02 & 2002-03)
Sunil Gavaskar v. ITO (Mum.)(Trib.);www.itatonline.org

S. 148 :Reassessment-Notice affixed on the door of the place of business after the assessee
refusing to accept the Notice is a valid service of Notice- Assessing Officer must supply
information demanded by the asessee. [S. 143(2), 147, 282, Order V, Rule 17 & 18 of CPC, 1908]
Assessee was a Doctor by Profession. A Notice under section 148 was issued by the Assessing Officer
which returned unserved. Thereafter, the Assessing Officer deputed 2 Inspectors to make Personal
service of the Notice upon the assessee. The Inspectors went to the assessee’s residence however, the
assesse had gone to his clinic. The Inspectors followed the assesse to his clinic and made efforts to
serve the Notice on him personally. However, the assessee refused to accept the Notice and left the
Clinic citing emergency call as a reason. Thereafter, the Inspectors tried to serve the Notice on the
staff in the Clinic but, nobody accepted the Notice. Finally, the Inspectors affixed the Notice on the
door of the Clinic. Later on, the assessee received Notice under section 142(1) requesting submission
of certain details. The assessee challenged the reassessment proceeding in a Writ Petition on the
ground that no valid Notice has been served on him. The High Court held that when Notice cannot be
served on the assessee, it must be affixed at some conspicuous part of the residence or place of
business as per Order V, Rule 17 & 18 of CPC, 1908. Therefore, Notice affixed by the Inspector on
the door of the clinic was a valid service. Court alsi held that the Assessing Officer must supply
information demanded by the Assessee. Compliance with notice u/s 143(2) is not necessary. (AY.
2008-09)
Sheo Murti Singh (Dr.) v. CIT (2016) 383 ITR 174/ 236 Taxman 405(All.)(HC)

S. 149:Reassessment–Time limit-Provision at relevant time was ten years - Notice could be

issued on or before 31-5-2001-Notice issued on 11-4-2001-Not barred by limitation. [S.147,
148/150(1)]
Court held that; the dispute related to the AY. 1992-93 and under the then existing provision u/s.149
the period of limitation was ten years. Accordingly, the reassessment notice could be issued on or
before May 31, 2001. The notice u/s 148 issued on April 11, 2001 was within the period of
limitation.(AY. 1992-1993)
CIT v. Hemkunt Timbers Ltd. (2016) 380 ITR 658/283 CTR 1/ 67 taxmann.com 231(All.)(HC)

S. 151 : Reassessment-Sanction for issue of notice–Non application of mind- Reassessment was

held to be bad in law. [S. 147,148]
Addl. CIT and the CIT having simply written “Yes. I am satisfied” on the same day while according
sanction under s. 151, it does not in any manner shed any light as to whether there was any application
of mind at all by the two senior officers. Therefore, sanction granted by the CIT is invalid and
consequently, the notice u/s. 148 issued by the AO is bad in law. (AY. 2004-05).
Dy. CIT v. Dharampal Satyapal Ltd. (2016) 130 DTR 241/ 175 TTJ 217 (Delhi)(Trib.)
S. 153: Assessment–Limitation-Draft assessment order- Concurrent jurisdiction-In a case of
conferment of “concurrent” jurisdiction upon the ITO & IAC, the ITO does not stand denuded
of powers to make an assessment. It is open to the ITO to assume jurisdiction and pass the
assessment order in case the IAC does not exercise those powers. What is important is the actual
exercise of powers and not merely conferment of the powers. S. 144B applies only if the IAC
exercises powers or performs the functions of an ITO. [S. 123,124,125A, 144B]
Allowing the appeal of revenue , the Court held that ; in the instant case, as already noted above, no
such power was exercised or function of an ITO was performed by the IAC. We would like to point
out here that the High Court of Gujarat while dismissing the appeal of the Revenue failed to take into
account the earlier judgment of the Co-ordinate Bench of the High Court in CIT vs. Shree Digvijay

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Woollen Mills Ltd. [1995] 212 ITR 310], which has taken the view that we have expressed above. We
agree with the view taken in CIT vs. Shree Digvijay Woollen Mills Ltd thereby allowing Civil Appeal
No. 2984 of 2008 and setting aside the impugned judgment.( CA No. 2984/2008, dt. 02.05.2016)(AY.
1981-82, 1977-78)
CIT v. Saurashtra Cement & Chemical Industries Ltd. (SC), www.itatonline.org
Surya Sugar Mills Pvt. Ptd v. CIT(SC), www.itatonline.org
Editorial: Order in CIT v. Surya Sugar Mills P.Ltd ( 2011) 336 ITR 572 (All)(HC) is affirmed.

S. 153 : Assessment–Reassessment-Limitation – Limitation for the purpose of section 153 shall

start from the end of the year in which the notice is served on the assessee and not from the end
of year in which it is issued. [S. 147, 148]
A notice u/s. 148 for AY 1959-60 dated 23-1-1965 was issued to the assessee. The said notice was
served on the assessee only in September 1965. The provisions of section 153(2) at the relevant time
prescribed limitation of four years for making assessment from the end of assessment year in which
notice u/s. 148 was served upon assessee.The assessment order came to be passed on 18-3-1970.
Held, time limit for completion of assessment was four years from the end of the year in which notice
was served and not the year in which it was issued. Accordingly, reassessment held to be valid.)(AY.
1959-60)
R.B. Shreeram Durgaprasad v. CIT (2016) 237 Taxman 189 (Bom.)(HC)

S. 153A: Assessment - Search or requisition -If the assessee stands amalgamated with another
Co, it ceases to exists and all proceedings of search u/s 132, notice and assessment u/s 153C on
the assessee are a nullity and void ab initio. [S. 132, 153C ]
(i) The Assessee which was initially incorporated on 1st January, 1999 merged with M/s B. S.
Infratech Pvt. Ltd. with effect from 1st April, 2008 by the order of the Court. A search took place on
20th October, 2008 in the cases of Mr B. K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan
Buildcon Pvt. Ltd. On the basis that in the course of search certain documents belonging to the
Assessee company were found, notice was issued to the Assessee under Section 153C (1) on 10th
September, 2010. Therefore, not only on the date on which notice was issued but even on the date of
the search, the Assessee had ceased to exist in the eyes of law.
(ii) In identical circumstances, in cases arising out of the same search, this Court has by its order dated
19th August, 2015 in the Revenue’s appeals ITA Nos.582, 584, 431, 533, 432 & 433 of 2015 (Pr.
Commissioner of Income Tax (Central-II) v. Images Credit And Portfolio Pvt. Ltd.) and order dated
29th September, 2015 in ITA Nos.745, 746,748, 749 and 750/2015 (Pr. Commissioner of Income Tax
(Central-2) v. M/s Mevron Projects Pvt. Ltd.) invalidated the assessment proceedings against the
Assessee in those cases which, on account of having merged with another entity with effect from a
date anterior to the search, also no longer existed on the date of search, on the date of the issue of
notice and consequent assessment order passed under Section 153 C of the Act.( ITA Nos.365, 366,
367, 368, 371 & 372 of 2013, dt. 15.10.2015)
CIT v. Indu Surveyors & Loss Assessors Pvt. Ltd. (Delhi)(HC);www.itatonline.org

S. 153A:Assessment-Search or requisition - Assessment cannot be made for the AYs in which

incriminating material is not recovered even though incriminating material may be recovered
for other years in the block of 6 years.
The High Court had to consider whether there had to be incriminating material recovered during the
search qua the Assessee in each of the years for the purposes of framing an assessment under Section
153A of the Act. HELD by the High Court:
(i) It is not in dispute that in respect of the Assessee for the AYs in question the initial assessment
proceedings took place under Section 143(3) of the Act. Thereafter they were sought to be reopened
by issuing notice under Section 147 of the Act and re-assessment orders were passed under Section
147 read with Section 143(3) of the Act. During both the aforementioned proceedings the question
whether the gold and silver utensils were the capital assets or personal effects of the Assessee was
examined. They were held not to be the personal effects.
(i) It has been noticed by the ITAT in the impugned order that for the AYs in question no
incriminating material qua the Assessee was found. In that view of the matter, and in light of the

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decision of this Court in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi), the Court is of the view
that the impugned order of the ITAT suffers from no legal infirmity and no substantial question of law
arises for determination.( ITA Nos. 274/2016 & 276/2016, dt. 29.04.2016) (AY. 1998-99, 1999-00)
Pr. CIT v. Lata Jain (Delhi)(HC);www.itatonline.org
S. 153A:Assessment–Search-No incriminating evidence related to share capital issued found
during course of search-Deletion of addition was held to be justified. [S.68]
Held, dismissing the appeal, that the order of the Commissioner (Appeals) revealed that there was a
factual finding that no incriminating evidence related to share capital issued was found during the
course of search as was manifest from the order of the Assessing Officer. Consequently, it was held
that the Assessing Officer was not justified in invoking section 68 for the purposes of making
additions on account of share capital. There was nothing to show that the factual determination was
perverse. (AY. 2002-2003)
PCIT v. Kurele Paper Mills P. Ltd. (2016) 380 ITR 571 (Delhi)(HC)
Editorial:The Supreme Court has dismissed the special leave petition filed by the Department against
this judgment [2016] 380 ITR 64(St.)

S. 153A : Assessment - Search - Accounts which were duly verified during regular assessment of
assessee could not be re-appreciated merely because further a search was conducted in premises
of assessee as same would amount to reopening of concluded assessment.[S.143(1)]
Assessments had been completed under section 143(3) and under section 143(1).Thereafter, a search
was conducted in the premises of the assessee. The AO made certain additions after holding that the
accounts of the assessee did not tally with the corresponding accounts of the creditors and debtors.
The CIT(A) allowed the assessee’s appeal, after concluding that no incriminating documents were
found during the course of search, on the basis of which additions had been made by the AO. This
finding was upheld by the Tribunal.

On appeal, the High Court observed that there were specific findings of fact recorded by both the
CIT(A) and the Tribunal that there were no incriminating documents found during the course of
search, on the basis of which the additions had been made by the AO and that the accounts were
submitted by the assessee at the time of regular assessment which were duly verified and accepted by
the AO. In the absence of any incriminating documents having been found, if the assessment was
allowed to be reopened the same would amount to the revenue getting a second opportunity to reopen
a concluded assessment, which is not permissible. The High court held that, merely because a search
was conducted in the premises of the assessee, would not entitle the revenue to initiate the process of
reassessment, for which there was a separate procedure prescribed in the statute. It was only when the
conditions prescribed for reassessment were fulfilled that a concluded assessment could be reopened.
The very same accounts which were submitted by the assessee, on the basis of which assessment had
been concluded, could not be re-appreciated by the AO merely because a search had been conducted
in the premises of the assessee.(AY.2005-06 to 2008-09)
CIT v. Lancy Constructions (2016) 237 Taxman 728 (Karn.)(HC)

S.153A:Assessment–Search-Assessments completed on date of search-No incriminating

materials found during search-Block assessment was held to be not valid. [S. 132.]
(i) Once a search takes place u/s 132 of the Act, notice u/s 153A(1) will have to be mandatorily
issued to the person in respect of whom search was conducted requiring him to file returns for six
AYs immediately preceding the previous year relevant to the AY in which the search takes place. (ii)
Assessments and reassessments pending on the date of the search shall abate. In so far as pending
assessments are concerned, the jurisdiction to make the original assessment and the assessment u/s
153A merges into one. (iii) The Assessing Officer will exercise normal assessment powers in respect
of the six years previous to the relevant AY in which the search takes place. The Assessing Officer
has the power to assess and reassess the "total income" of the six years in separate assessment orders
for each of the six years. In other words, there will be only one assessment order in respect of each of
the six AYs in which both the disclosed and the undisclosed income would be brought to tax. (iv)
Although section 153A does not say that additions should be strictly made on the basis of evidence
found in the course of the search, or other post-search material or information available with the

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Assessing Officer which can be related to the evidence found, it does not mean that the assessment
can be arbitrary or made without any relevance or nexus with the seized material. Assessment has to
be made under this section only on the basis of the seized material. (v) In the absence of any
incriminating material, the completed assessment can be reiterated and the abated assessment or
reassessment can be made. (vi) Only one assessment shall be made separately for each AY on the
basis of the findings of the search and any other material existing or brought on the record of the
Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while
making the assessment u/s 153A only on the basis of some incriminating material unearthed during
the course of search or requisition of documents or undisclosed income or property discovered in the
course of search which were not produced or not already disclosed or made known in the course of
original assessment. (AY 2002-2003, to 2006-2007)
CIT v. Kabul Chawla (2016) 380 ITR 573 (Delhi)(HC)

S. 153A : Assessment-Search or requisition-Not issued notice with in prescribed limit-Absence

of incriminating material, order was held to be bad in law. [S. 143(2)]
AO having not issued notice u/s. 143(2) within the prescribed time limit pursuant to the return filed by
the assessee under s. 139(1), no proceeding was pending before the AO on the date of initiation of
search which had abated, and the Revenue authorities having found no incriminating document during
the course of search, the impugned order passed u/s. 153A r.w.s. 143(3) is void ab initio. (AY. 2008-
09)
Jadau Jewellers & Manufacturers (P) Ltd. v. ACIT (2016) 130 DTR 17 (Jaipur)(Trib.)

S.153A :Assessment - Income of any other person –Search and seizure –No satisfaction recorded
by AO in respect of whom the search was conducted prior to issuing notice – Notice and
assessment against the assessee was not valid. [S. 153C, 292B]
In the absence of satisfaction by the AO of the person in respect of whom search was conducted, the
AO of the assessee would not get any jurisdiction to issue such notice. Accordingly, notice u/s.153C
issued by the AO of the person in respect of whom search was conducted lacked jurisdiction and this
was not curable by virtue of the provisions of section 292B.(AY. 2003-04 to 2008-09)
Parshwa Corporation and others v. Dy. CIT (2016) 46 ITR 266 (Ahd.)(Trib.)

S. 153A:Assessment-Search and seizure-assessment made u/s. 143(1) can be said to have abated
in the absence of incriminating material.[S. 143(1)]
Allowing the appeal of assessee the Tribunal held that ;On a conspectus of Section 153A(1) of the
Act, read with the provisos thereto, and in the light of the law explained in the aforementioned
decisions, the legal position that emerges is as under:
(i) Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will
have to be mandatorily issued to the person searched requiring him to file returns for six AYs
immediately preceding the previous year relevant to the AY in which the search takes place.
(ii) Assessments and reassessments pending on the date of the search shall abate. The total
income for such AYs will have to be computed by the AOs as a fresh exercise.
(iii) The AO will exercise normal assessment powers in respect of the six years previous to the
relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total
income’ of the aforementioned six years in separate assessment orders for each of the six years. In
other words there will be only one assessment order in respect of each of the six AYs “in which both
the disclosed and the undisclosed income would be brought to tax”.
(iv) Although Section 153 A does not say that additions should be strictly made on the basis of
evidence found in the course of the search, or other post-search material or information available with
the AO which can be related to the evidence found, it does not mean that the assessment “can be
arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment
has to be made under this Section only on the basis of seized material.”
(v) In absence of any incriminating material, the completed assessment can be reiterated and the
abated assessment or reassessment can be made.
The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date
of search) and the word ‘reassess’ to completed assessment proceedings.

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vi. Insofar as pending assessments are concerned, the jurisdiction to make the original
assessment and the assessment under Section 153A merges into one. Only one assessment shall be
made separately for each AY on the basis of the findings of the search and any other material existing
or brought on the record of the AO.
(vii) Completed assessments can be interfered with by the AO while making the assessment under
Section 153 A only on the basis of some incriminating material unearthed during the course of search
or requisition of documents or undisclosed income or property discovered in the course of search
which were not produced or not already disclosed or made known in the course of original
assessment.( ITA No. 173 to 177/Mum/2015, dt. 31.12.2015) ( AY 2005-06 to 2009-10)
Ideal Appliances Co. Pvt. Ltd. v. DCIT (Mum.)(Trib.);www.itatonline.org
S. 153C : Assessment-Income of any other person-Search and seizure -Assessing Officer of a
person searched, under section 153A, is required to record satisfaction that assets/documents
found during search belong to the other person before handing over the documents to the
Assessing Officer of that other person. [S. 153A]
A search was conducted on group companies of the assessee. During the course of search, copies of
resolutions, affidavits, counter foils of Income-tax returns, Share application forms pertaining to the
assessee were found by the Assessing officer of a person searched under section 153A of the Act. The
Assessing Officer of the person searched and the assesse was same therefore, notice under section
153C of the Act was issued by the Assessing Officer and assessment was completed after making
addition under section 68 of the Act. The Assessee challenged the jurisdiction make assessment under
section 153C of the Act before CIT(A) however, it was rejected by him. On appeal to the Tribunal,
assessment under section 153C was quashed on the ground that satisfaction was not recorded by the
Assessing Officer of the person searched, under section 153A, that the documents found during the
search belong to the assessee before handing over the same to the assessee. The High Court held that
satisfaction by the Assessing Officer of the person searched under section 153A is sine qua non for
initiation of proceedings under section 153C. The High Court further held that held that section 153C
is not attracted where documents pertaining to the other person is found, it is attracted only in case
where documents belonging to the other person is found. It was held that satisfaction must be
recorded by the Assessing Officer even if the Assessing Officer of the person searched under section
153A and a person sought to be assessed under section 153C is the same. (AY. 2003-04 to 2005-06,
2008-09, 2009-10)
PR. CIT v. Nikki Drug & Chemicals (P.) Ltd. (2016) 236 Taxman 305 (Delhi)(HC)

S. 153C:Assessment - Income of any other person - Search and seizure-No satisfaction recorded
before initiating proceedings-Assessment was held to be not valid.
Held, the order passed by the Tribunal, the final fact finding authority, clearly states that no
satisfaction note had been recorded before initiating the proceedings u/s 153C. When no satisfaction
was recorded the requirement of section 153C was not satisfied. Therefore, there was no reason to
interfere with the order passed by the Tribunal, which had not sustained the proceedings u/s 153C for
the reason that there was no satisfaction at any stage. .(AY .2002-2003, 2006-2007)
CIT v. Madhu Keshwani (Smt.)(2016) 380 ITR 566 (All) (HC )
CIT v. Nirmala Keshwani (Smt.)(2016) 380 ITR 566 (All)(HC)
CIT v. Nisha Keshwani (Smt.)(2016) 380 ITR 566 (All) (HC)

S. 153C:Assessment - Income of any other person - Search and seizure -Affidavits of person in
respect of whom search conducted that documents belonged to him - No other evidence of
undisclosed income – Proceedings was held to be not valid.[S. 132,153A]
It was not disputed that the hard disk did not contain any incriminating material as the data on the
hard disc only supported the return filed by the assessee. This apart, as the hard disc did not belong to
the assessee, proceedings u/s 153C could not be initiated on the basis of the disk. Thus, the provisions
of section 153C, which are to enable an investigation in respect of the seized asset, could not be
resorted to. The Assessing Officer had no jurisdiction to make the reassessment u/s 153C.(AY. 2003-
2004 to 2008-2009
CIT v. RRJ Securities Ltd.(2015) 62 taxmann.com 391/(2016) 380 ITR 612/ 282 CTR 321
(Delhi)(HC)

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S. 153C:Assessment-Income of any other person-Search and seizure-Limitation starts from date
on which assets or documents received by Assessing Officer of third person-Limitation will start
on date of recording of satisfaction that incriminating material belonged to third person-
Satisfaction recorded on 8-9-2010- Assessments for AYs 2003-04 and 2004-05 was held to be
barred by limitation.[S.132, 153A ]
Dismissing the appeal of revenue the Court held that; in any case the date of recording of satisfaction
u/s 153C was September 8, 2010. The assessments made in respect of the AYs 2003-04 and 2004-05
would be beyond the period of six Assessment years. The assessments for the AYs 2003-04 and 2004-
05 were outside the scope of section 153C and the Assessing Officer had no jurisdiction to make an
assessment of the assessee's income for those years.(AY .2003-2004 to 2008-2009 )
CIT v. RRJ Securities Ltd.(2015) 62 taxmann.com 391/ (2016) 380 ITR 612/ 282 CTR
321(Delhi)(HC)

S. 153C : Assessment – Satisfaction was not recorded hence the order was held to be bad in law.
[S. 132(4A, 133A]
No satisfaction was recorded before issue of notice hence the order was held to be bad in law.(AY.
2007-08, 2008-09, 2009-10, 2010-11)
Super Malls Pvt. Ltd. v. Dy. CIT (2016) 176 TTJ 563 (Delhi)(Trib.)

S. 154:Rectification of mistakes-Lease income assessed as income from financing transaction -

No appeal against such assessment or disallowance of depreciation - Earlier application for
rectification given up - Application to delete income from lease was held to be not
valid.[S.154(IA), 254(2)]
The lease income was assessed as income from a financial transaction and upheld by the High Court.
A plea for rectification for deletion of income from lease was raised before the High Court but not
pursued. Subsequently, an application was made for rectification u/s 154(1A) and also u/s 254(2). The
applications were rejected by the Tribunal. Held, that at the initial point of time, it was well within the
assessee`s knowledge that the income, though not treated as an income from lease, was treated as
income from finance transaction in respect of the same party. Therefore, the new plea taken by the
assessee that consequent to the disallowance of depreciation, the income should also be deleted, had
no basis. The case did not fall within the scope of section 154(1A) warranting rectification as
envisaged in the provision.(AY. 1993-1994 to 1996-1997)
Indus Finance Corporation Ltd. v. CIT(2015) 63 taxmann.com 244/ (2016) 380 ITR 504
(Mad.)(HC)

S. 154:Rectification of mistakes-Commissioner (Appeals) and Tribunal failing to adjudicate

issue of jurisdiction u/s 154 - Matter remanded to Commissioner (Appeals) to decide issue
afresh. [S.54, 54F , 54EC]
The assessee sold certain shares and computed capital gains and claimed deduction u/s 54.. The
Assessing Officer, without noticing that the capital asset which had been transferred was not a long-
term capital asset, allowed the claim of deduction u/s 54. On finding that the assessee had made and
been allowed a wrong claim u/s 54, the Assessing Officer issued a notice u/s 154. The assessee
accepted the mistake crept in the order of assessment and filed a revised computation claiming the
benefit u/s 54F and section 54EC. The Assessing Officer allowed the proportionate investment and
taxed the remaining sale consideration. The Commissioner (Appeals), on considering the appeal filed
against the regular assessment, against the disallowance of interest claimed on the loans borrowed
from the banks and other institutions, granted relief to the assessee. As regards the appeal against the
order u/s 154, he failed to consider the issue on the merits but allowed the appeal with an observation
that in view of the finding given in the main appellate order it became consequential in nature and,
accordingly, the appeal as regards section 154 succeeded. As regards the order u/s 154, the Tribunal
rejected the appeal filed by the Revenue and allowed the cross-appeal filed by the assessee on the
jurisdiction of the Assessing Officer u/s 154 holding that no challenge was made by the Revenue as
regards the order of the Commissioner (Appeals) on the issue of section 154. On appeal:

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Held, allowing the appeal, that with regard to the appeal filed u/s 154 no reasons were assigned by the
Commissioner (Appeals). On this issue, appeals were filed by the Revenue before the Tribunal
including the grounds of appeal on the issue of section 154. Cross-objections were filed by the
assessee on this issue. Thus, it was manifest that the Commissioner (Appeals) and the Tribunal failed
to adjudicate the matter in a right perspective. The finding given on the proceedings u/s 154 was
perverse and not sustainable. The matter was remanded to the Commissioner (Appeals) to adjudicate
on the issue of section 154 in accordance with law after hearing the parties.(AY. 2002-2003)
CIT v. Pradeep Kar (2016) 380 ITR 121 (Karn.)(HC)

S. 154:Rectification of mistake -Tax cannot be levied on assessee at a higher amount or at a

higher rate merely because assessee, under a mistaken belief or due to an error, offered income
for taxation at that amount or that rate. [ S.4 ]
Assessee filed an application seeking rectification of assessment order on ground that in computing
income, incorrect figures of net profit and depreciation had been picked up from profit and loss
account . Assessing Officer rejected said application on ground that assessee itself had computed
income on basis of incorrect figures. CIT(A) ,allowed the claim of assessee. On appeal dismissing the
appeal of revenue the Tribunal held that ; tax cannot be levied on assessee at a higher amount or at a
higher rate merely because assessee, under a mistaken belief or due to an error, offered income for
taxation at that amount or that rate. Order of CIT(A) was up held. (Dattatraya Gopal Bhotte v. CIT (
1984) 150 ITR 460 (Bom)(HC) ( AY. 2008-09)
ACITv. Rupam Impex (2016) 157 ITD 360 (Rajkot)(Trib.)

S. 154: Rectification of mistake-Pension fund would continue to be governed by provisions of

section 44 irrespective of fact it is exempted or not; therefore, even after insertion of section
10(23AAB), while determining actuarial valuation surplus from insurance business under
section 44, loss incurred from pension fund has to be excluded-Non –consideration of
subsequent decision of Apex Court or jurisdictional High Court could give rise to a mistake
apparent record where an order is inconsistent there with. [S.10(23AAB), 44]
Assessee moved the application under sectin154 and claimed that there was a mistake in reducing the
loss of its pension business as it was also a part of its business and thus liable to be taken in to account
in computing income from the same under section 44 read with first schedule thereto. AO rejected the
application. CIT (A) affirmed the order of AO. On appeal Tribunal held that; pension fund would
continue to be governed by provisions of section 44 irrespective of fact it is exempted or not; and,
therefore, even after insertion of section 10(23AAB), loss incurred from pension fund has to be
excluded while determining actuarial valuation surplus from insurance business. The Tribunal also
held that non –consideration of subsequent decision of Apex Court or jurisdictional High Court could
give rise to a mistake apparent record where an order is inconsistent there with. (AY. 2009-10)
Sunlife Insurance Company Ltd. v. Jt. CIT (2016) 157 ITD 16 (Mum.)(Trib.)

S. 154 : Rectification of mistake Set off of unabsorbed losses – Rectification order was held to be
bad in law. [S. 32]
Dismissing the appeal of revenue the Tribunal held that ; as issue of set off of unabsorbed
depreciation pertaining to assessment year 1996-97 and earlier years was subject matter of huge
debate, it could not be subject matter of rectification proceedings( AY. 2007-08)
Dy. CIT v. India Jute & Industries Ltd ( 2016) 156 ITD 912 ( Kol) (Trib)

S. 154 : Rectification of mistake –Additional depreciation- View once allowed by the AO could
not be rectified by him if the issues is debatable. [ S. 32(1)(iia)]
The Assessee installed and put to use power generating captive units which was used for
manufacturing of cement. Additional depreciation u/s 32(1)(iia) claimed by the Assessee was allowed
by the AO in the original assessment. The AO sought to disallow the claim for depreciation vide
rectification order u/s 154 on the basis that electricity was not an “article” or “thing” that could be
manufactured or produced. The ITAT held that the issues was debatable and the view taken by the
AO could not be revised u/s 154. (AY .2007-08 ,2008-09)
DCIT v. J.K. Cement (2016) 45 ITR 50 (Luck)(Trib)

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S. 154: Rectification of mistake- Depreciation- Asset put to use- Debatable issue- Rectification
order by the AO was held to be not justified.[S. 32]
Allowing the appeal of assesse the Tribunal held that ,in respect of rejecting assessee's claim for
excessive depreciation, issue as to when assets were actually put to use during relevant year was a
debatable issue and, thus, rectification order passed by Assessing Officer in respect of said issue was
not sustainable.((AY. 2007-08)
S.R. Industries Ltd v. ACIT ( 2016) 156 ITD 384 ( Chd.) (Trib)

S. 154:Rectification of mistake-Carry forward and set off of loss – CIT(A) justified in directing
the AO to allow carry forward and set off loss in rectification under Sec 154 where it could not
be claimed due to technical default. [S. 72, 143(1)]
Assessee had filed its return of income within due date, which was processed under Sec 143(1), but
later on detection of mistake in its return, filed a rectification application under Sec 154 before the AO
stating that losses of earlier year which had to be brought forward from earlier years to be set off
against income for the impugned assessment year. Assessee claimed that although proper mention
regarding brought forward losses was made in the return in the schedule for carry forward of losses
but the amount had been inadvertently omitted to be mentioned in the Brought forward of losses
schedule. Since the software used for automatic processing of returns did not take care of necessary
adjustment under Sec 143(1)(a)(ii) it was a mistake apparent from record. AO however rejected the
application of the assessee stating that the assessee had not mentioned the brought forward losses to
be carried forward in the returns of previous two years and also that it was a settled position of law
that is an assessee does not claim brought forward loss in return of income filed by due date, the loss
will not be allowed to be carried forward to the future. CIT(A) observed that it was an undisputed fact
that the assessee company had genuinely accumulated losses and had technically fulfilled the
condition of filing the return before due date. CIT(A) directed the AO to modify the order u/s 154 and
allow appropriate relief to the assessee. Tribunal upheld the order of the CIT(A) stating that relied and
rectification claimed by the assessee was bon fide and legal claim of the assessee could not be denied
because of some technical fault. (AY .2008-09)
ACIT v. Mangalam Timber Products Ltd (2016) 176 TTJ 21 (UO) (Ctk)(Trib)

S. 154:Rectification of mistake-Interest on refunds - Delay in claiming exemption under section

10(23G) – By itself cannot lead to delay attributable to assessee – Non disallowance of interest
under Section 244A for such delayed period – Not mistake apparent from record [S. 10(23G)
244A]
The assessee was a non- resident. It received notice under Section 154 pertaining to non disallowance
of interest under Section 244A on the ground that the delay was attributable to the assessee. The ITAT
held that the delay in making of the claim under Section 10(23G) could not lead to the conclusion that
the delay was attributed to the assessee. Further non disallowance of interest under Section 244A for
such delayed period was not mistake apparent from record. (AY.2002-03)
DBS Bank Ltd. v.DDIT (2016)157 ITD 476 / 176 TTJ 293 (Mum)- (Trib.)

S. 154 : Rectification of mistake- Intimation- Once matter is taken up for scrutiny rectification
order passed under section 143(1)(a) has no validity in the eyes of law. [ S.143(1)(a)
The Tribunal held that once the matter is taken up under scrutiny assessment by issuing a notice under
section 143(2) then the earlier rectification order passed under section 154 on intimation under section
143(1)(a) has no validity in the eyes of law. (AY. 1996-97 to 1998-99)
ICI India Ltd. v. Dy. CIT (2016) 175 TTJ 217 (Kol.)(Trib.)

S. 158BD : Block assessment - Undisclosed income of any other person – Preparation of

satisfaction note depends on facts of each case, which must be prepared as soon as practically
possible and without undue delay after the proceedings are completed u/s 158BC of the
searched person.[S. 158BC]
The AO carried out a search operation u/s 132 and held that the sales recorded in the documents
seized were not recorded by the assessee in the books of accounts and therefore made an addition to

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the total income. The CIT(A) accepted the assessee’s contention that the amount surrendered during
the survey carried out u/s 133A included the unaccounted sales transactions.

Before the Tribunal, the assessee contended that the AO lacks the jurisdiction to make the impugned
assessment as the department had not recorded the satisfaction note that the undisclosed income
pertains to a person other than the person searched before or at the time of assessment of the person
searched u/s 158BC, which is a requirement for initiating proceedings u/s 158BD. The Tribunal held
that the satisfaction note recorded was beyond the period prescribed by law and therefore allowed the
appeal of the assessee.

On revenue’s appeal, the HC held that as per the Supreme Court decision in CIT vs. Calcutta
Knitwears (2014) 267 CTR 105 (SC), the satisfaction note could be prepared at any of the following
stages: (a) either at the time of initiating proceedings u/s 158BC against the searched person (b)
during the stage of assessment proceedings u/s 158BC (c) immediately after the completion of
assessment proceedings u/s 158BC of the searched person. Accordingly, the HC held that as there is
no outer limit specified for the words ‘immediately after’, it will depend upon the facts of the case and
it cannot be read as the very next moment or the very next day. Since in the given case, the AO had
issued notices to about 70 persons and had taken action against them, which involved enormous
paperwork, a period of three and a half months taken to record satisfaction can be held to be
reasonable.
CIT v. Arora Fabrics (P.) Ltd. (2016) 131 DTR 308/ 284 CTR 293 (P&H) (HC)
CIT v. Calcutta Knitwears (2016) 131 DTR 308 / 284 CTR 293 (P&H ) (HC)
CIT v. Rajan Knit Fab. (P.) Ltd. (2016) 131 DTR 308/ 284 CTR 293 (P&H HC)
CIT v. Mridula Prop. Dhruv Fabrics (2016) 131 DTR 308/ 284 CTR 293 (P&H HC)

S. 158BE : Block assessment - Time limit – Last panchanama drawn on 5-8-1998- A search
under section 132 of the Act , will conclude in the day the last panchanama is drawn . The limit
for making of an order under section 158BC read with section 158BE will start from last
panchanama. [S. 132, 158BC]
Supreme Court held that ; the appellants never challenged subsequent visits and searches of their
premises by the respondents on the ground that in the absence of a fresh authorisation those searches
were illegal, null and void. The revenue authorities visited and searched the premises of the appellants
for the first time on 22nd June, 1998. In the panchnama drawn on that date, it was remarked
‘temporarily concluded’, meaning thereby, according to the revenue authorities, search had not been
concluded. For this reason, the respondent authorities visited many times on subsequent occasions and
every time panchnama was drawn with the same remarks, i.e. ‘temporarily concluded’. It is only on
5th August, 1998 when the premises were searched last, the panchnama drawn on that date recorded
the remarks that the search was ‘finally concluded’. Thus, according to the respondents, the search
had finally been completed only on 5th August, 1998 and panchnama was duly drawn on the said date
as well. The appellants, in the writ petition filed, had no where challenged the validity of searches on
the subsequent dates raising a plea that the same was illegal in the absence of any fresh and valid
authorisation. On the contrary, the appellants proceeded on the basis that search was conduced from
22nd June, 1998 and finally concluded on 5th August, 1998. On the aforesaid facts and in the absence
of any challenge laid by the appellants to the subsequent searches, we cannot countenance the
arguments of the appellants that limitation period is not to be counted from the last date of search
when the search operation completed, i.e. 5th August, 1998. Therefore, this issue is also decided in
favour of the respondents. ( CA. No. 2667 of 2007, dt. 28.04.2016)(AY. 1994-95 to 1998-99)
VLS Finance Ltd. v. CIT (SC), www.itatonline.org
Editorial: Decision in VLS Finance Ltd. v. CIT ( 2007) 289 ITR 286 (Delhi)(HC) is affirmed.

S.172:Shipping business-Non-resident-Shipping companies assessed u/s 172 are not subject to

deduction at source obligations u/s 195- Demurrages charges paid by Indian Company to
foreign company was held to be not liable to deduct tax at source. [S. 40(a)(ia),44B,195]
As a Division Bench of the Bombay High Court was unable to agree with the view taken in
Commissioner of Income-tax vs. Orient (Goa) Private Limited 325 ITR 554, the Full Bench had to

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consider the question “Whether, while dealing with the allowability of expenditure under section
40(a)(i) of the Income Tax Act, 1961, the status of a person making the expenditure has to be a non-
resident before the provision to section 172 of the Act can be invoked?” HELD by the Full Bench
overruling CIT vs. Orient (Goa) Private Limited 325 ITR 554:
(i) A bare perusal of s. 44BB indicates as to how this provision covers the case of an assessee who is a
non-resident and engaged in the business of operation of ships. That stipulates a sum equal to 7 % of
the aggregate ½ of the amount specified in sub-section (2) of section 44B as deemed to be profits and
gains of such business chargeable to tax under the head “Profits and Gains of Business or Profession”.
It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of section
44B. It clarifies that the amount paid or payable or received or deemed to be received, as the case may
be, by way of demurrage charges or handling charges or any other amount of similar nature shall for
the purposes of sub-section (1) deemed to be the profits and gains of the business, namely, shipping
business chargeable to tax under that head. The amounts which are paid or payable whether in or out
of India to the assessee or to any person on his behalf on account of carriage of passengers, livestock,
mail or goods shipped at a port in India and the amount received was deemed to be received in India
by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods
shipped at any port outside India shall be deemed to be the profits and gains. On that the tax is
payable by virtue of subsection (1) of section 172. That has to be levied and recovered in terms of the
sub-sections of section 172 of the Income Tax Act. Once section 172 falls in Chapter XV titled as
Liability in Special Cases – Profits of Non-residents, then section 172 is referable to section 44B.
Both provisions open with a non-obstante clause and whereas section 44B enacts special provisions
for computing profits and gains of shipping business in case of non-residents section 172 dealing with
shipping business of non-residents is enacted for the purpose of levy and recovery of tax in the case of
any ship belonging to or chartered by a non-resident operated from India. These sections and
particularly section 172 devise a scheme for levy and recovery of tax. The sub-sections of section 44B
denote as to how the amounts paid to or payable would include demurrage charges or handling
charges or any other amount of similar nature. The sub-sections of section 172 read together and
harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered.
Therefore, there is no warrant in applying the provisions in chapter XVII for collection and recovery
of the tax and its deduction at source vide section 195.
(ii) To our mind, the Division Bench judgment in Commissioner of Income-tax vs. Orient (Goa) Pvt.
Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as
understood above. There need not be apprehension because there is no escape from the levy and
recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to
leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the
apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly
the legislature cast the obligation to deduct tax at source on the person responsible to make payment
to a non-resident in shipping business.
(iii) The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the
Division Bench which made the referring order that section 172 of the Income Tax Act has a bearing
and an important one on the obligation to deduct tax at source. Therefore, it is the recipient’s position
and the perspective in which the recipient’s income would be taxed will have to be borne in mind. The
non-resident shipping company in respect of its’ income would be in a position to rely upon section
44B and consequently section 172. However, we do not see how there is an obligation to deduct tax at
source on the resident assessee/Indian company before us. While computing the income of the non-
resident Indian / foreign company, assistance can be derived by such non-residents from section 44B
if they are in shipping business. It would also be in a position to rely upon section 172 but the
responsibility of the person making payment to a non-resident in sub-section (1) of section 195 cannot
be avoided in the manner set out in other cases. The scheme as above operates only to cases covered
by section 172 of the IT Act and none else.(AY.1999-2000)
CIT v. V. S. Dempo & Co Pvt. Ltd. (2016) 381 ITR 303/131 DTR 217 /284 CTR 1/ 238 Taxman
91 (FB) (Bom)(HC)
Sesa Goa & Co Ltd. v. CIT(2016) 381 ITR 303/131 DTR 217/284 CTR 1/ 66 taxmann.com 93
(FB) (Bom.)(HC)

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S. 192:Deduction at source-Payments by hospital to doctors- Professional doctors not entitled to
benefits allowed to salaried doctors - Not employees of hospital but independent professionals -
Payments to doctors not salary but professional charges and tax deductible at source
accordingly. [S. 194J, 201(1), 201(IA)]
Held, professional doctors were not entitled to leave travel concession, concession in medical
treatment of relatives, provident fund, leave encashment and retirement benefits like gratuity. They
were required to follow defined procedure to maintain uniformity in action and administrative
discipline but this did not mean that they became employees of the hospital. Further, the Department
had not taxed the payments received by any of the doctors from the hospital under the head "Income
from salary". The Tribunal held that there did not exist employer-employee relationship between the
hospital and the persons providing professional services. The Tribunal, after considering the
agreement in its entirety, concluded that it was not a case of employer-employee relationship between
the hospital and the doctors. Therefore, the income of the doctors was not salary but professional
charges and taxable accordingly. (AY 2009-2010)
CIT (TDS) v. Ivy Health Life Sciences P. Ltd.(2016) 380 ITR 242 /236 Taxman 292 (P&H) (HC)
Editorial: Order in Deputy CIT (TDS) v. Ivy Health Life Sciences P. Ltd. [2012] 20 ITR (Trib) 179
(Chandigarh) is affirmed.

S. 194A : Deduction at source - Interest other than interest on securities –Compensation for
acquisition of land – Failure of High Court to give reasons- Matter remanded.
On appeal against the judgement of High Court , holding that Tribunal was not justified in affirming
the order of the appellate authority holding that there was no liability on the appellant to deduct tax
at source on the interest payable for belated payment of compensation for land acquired and that
section 194A of the Act was not applicable to such payment and restoring the order oftax Recovery
Officer. The Apex Court held that since the High Court had not recorded reasons , in its order, its
orders were set aside and remanded to High Court for decision afresh giving detailed reasons after
hearing counsel of parties. (AY. 2002-03)
Commissioner, Belgaum Urban Development Authority v. CIT (2016) 382 ITR 8 (SC)

S.194A :Deduction at source-Interest other than interest on securities- Charge of income-tax-

Compensation awarded by Motor Accident Claims Tribunal and interest accruing thereon is
not subject to deduction of tax at source--CBDT Circular dated 14.10.2011 is not good law. [ S.
4, 156 ]
Dismissing the revision petition the Court held that ; Compensation awarded by the Motor
Accident Claims Tribunal, and interest accruing thereon, is to ameliorate the sufferings of the
victims and does not have the character of "income". If there is a conflict between a social
welfare legislation and a taxation legislation, the social welfare legislation will prevail since it
subserves larger public interest. CBDT Circular dated 14.10.2011 is not good law. If there is a
conflict between a social welfare legislation and a taxation legislation, then, this Court is of the view
that a social welfare legislation should prevail since it subserves larger public interest. The Motor
Vehicle Act is one such legislation which has been passed with a benevolent intention for
compensating the accident victims who have suffered bodily disablement or loss of life and the
Income Tax Act which is primarily intended for Tax collection by the State cannot put spokes in the
effective and efficacious enforcement of the Motor Vehicles Act. In fact, if one might deeply analyse,
it could be seen that there is no direct conflict between any provisions of the Income Tax Act and the
Motor Vehicles Act and it is only by the interpretation of the provisions the concept of compulsory
payment of TDS has crept into the realm of compensation payment in Motor Vehicle Accident cases.
Hence the compensation awarded or the interest accruing therein from the compensation that has been
awarded by the Motor Accident Claims Tribunal cannot be subjected to TDS and the same cannot be
insisted to be paid to the Tax Authorities since the compensation and the interest awarded therein does
not fall under the term ‘income’ as defined under the Income Tax Act, 1961.( CRP(PD) No. 1343 of
2012 and M.P.No. 1 of 2012, dt. 02.06.2016)

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Tamil Nadu State Transport Corporation (Salem) Ltd. v. Chinnadurai (Mad)(HC),
www.itatonline.org
S. 194A:Deduction of tax at source-Interest-Insurance company -Death or injury-
Compensation-Not a business transaction or a receipt of any charges on account of services
rendered by any other party-Insurance company not required to deduct tax at source.
Compensation received under the Motor Vehicles Act is either on account of loss of earning capacity
on account of death or injury or on account of pain and suffering and such receipt is not by way of
earning or profit. Award of compensation is on the principle of restitution to place the claimant in the
same position in which he would have been had the loss of life or injury has not been suffered.
Held, the payment of compensation on account of death and injury is not a business transaction or a
receipt of any charges on account of services rendered by any other party. Thus, in such cases, the
insurance company is not liable to impose tax deduction at source. The orders calling upon the
insurance company to pay the tax deducted at source/deduct tax at source on the interest part, were
not sustainable and were set aside.
National Insurance Co. Ltd. v. Ritu Kunawar and ors (2016) 380 ITR 467 (P & H) (HC)
New India Assurance Co.Ltd. v. Sudesh Chawala and Ors(2016) 380 ITR 467 (P & H) (HC)
New India Assurance Co.Ltd v. Sunita Sharma and Ors(2016) 380 ITR 467 (P & H) (HC)

S. 194C: Deduction at source- Contractor- Transportation of goods and container – Tax was
rightly deducted as contractor .[ S. 194I]
Where assessee-company, engaged in business of cargo handling, made payments for transportation
of goods to transporter which also supplied containers, since use of containers was only incidental to
transporting of cargo, assessee was justified in deducting tax at source under sec. 194C from
payments in question. Provision of section 194I can not be invoked . (AY. 2009-10)
ACIT v.Pushpak Logistics (P.) Ltd.(2016) 157 ITD 471 (Rajkot)( Trib.)

S. 194C: Deduction at source- Contractors-Maintenance Charges- Tax is deductible as per

section 194C and under section 194J. [S. 194J]
Allowing the appeal of asseee the Tribunal held that ;where assessee was running diagnostic
laboratories and it paid routine maintenance charges to professionals for maintaining medical
equipments and deducted tax at source under section 194C, it had not committed any default by
deducting tax at source under section 194C. (AY. 2010-11)
DDRC SRL Diagnostic (P.) Ltd. v. ITO (2016) 157 ITD 92 (Mum.)(Trib.)

S. 194H:Deduction at source – Commission or brokerage – Discount- Matter remanded.

Tribunal held that ;Where assessee was running diagnostic laboratories and it had given discount to
hospitals in respect of testing charges received by it and Assessing Officer held that discount given
was in nature of commission liable for deduction under section 194H, since nature of relationship
between assessee and hospitals had not been examined by considering basic facts, matter required
fresh examination. (AY.2010-11)
DDRC SRL Diagnostic (P.) Ltd. v. ITO (2016) 157 ITD 92 (Mum.)(Trib.)

S. 194J : Deduction at source-Fees for technical services-since there was neither transfer of any
technology nor any service attributable to a technical service was offered, tax was not required
to be deducted at source under sec. 194J while making payment of transmission charges.[S.
201(1)]
The assessee was a State owned company engaged in the business of buying and selling electricity. It
purchased electricity from State owned generators like KPCL and NTC. The power was transmitted
from the generation point to the consumers through the transmission network of KPTCL. No tax was
withheld on the transmission charges and therefore the AO held that the assessee was in default under
section 201(1).
In appellate proceedings, the assessee brought to the notice of the Commissioner (Appeals) that the
payee namely the KPTCL had paid the taxes due on its income. Thus, the assessee urged that no
demand could be raised against it. The Commissioner (Appeals) accepted assessee's explanation.

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Accordingly, the appeal was allowed in part and the Assessing Officer was directed to afford an
opportunity to the assessee to furnish proof of payment of taxes by the payees and thereafter work out
interest under section 201(1A) from the date of remittance of TDS till the date of filing of the return
by the payee. The order passed by the Commissioner (Appeals) was challenged by both the assessee
as well as revenue. The assessee was aggrieved by the order of the Commissioner to the extent that it
had been rendered liable to pay interest. Revenue was aggrieved by the order passed by the
Commissioner against a finding that no demand could be visualized under section 201 when the
assessee would satisfy the authorities below that the taxes were paid by the payee. The Tribunal
dismissed both appeals.
The High Court held that the provision of section 194J would come into play only when there is
payment of fee for availing technical services. It was apparent from perusal of transmission agreement
that there was no mention of any offer with regard to any ‘technical services’ by the KPTCL. There
was neither transfer of any technology nor any service attributable to a technical service offered by
the KPTCL and accepted by the assessee. Therefore, application of section 194J to the facts of the
case by the revenue is misconceived. (AY. 2007-08 to 2010-11)
CIT v. Hubli Electric Supply Co. Ltd. (2016)237 Taxman 7 (Karn.)(HC)

S. 194J : Deduction of tax at source-Fees for professional or technical services–Support services

of assessee involving identification of customers to whom services to be rendered – Payments
made by assessee liable to tax deduction.[S.194C, 201(1),201(1A)]
The services of the most of the personnel of the assessee were provided by outsourcing agencies. The
work relating to front office management, liaison work, data entry was being manned by the
outsourced personnel. The assessee made payments for three kinds of service. They were support
services such as field activations, vendor payment queries, entering receipts into SAP and field
verification, customer support services such as tele-calling for bill payments, tele-calling for new
activations and housekeeping services. The assesse was deducting tax at the rate of 2% u/s.194C of
the Act on the payments made for their services. The AO held that the provision of services of
technical or other personnel for rendering managerial, technical or consultancy services would be
treated as technical services and would attract TDS at the rate of 10% and therefore the assessee was
in default.The CIT(A) held that the payments made towards housekeeping shall be subject to TDS
u/s.194C and with respect to other support services the assessee would be covered for tax deduction at
source u/s.194J. On appeal, the tribunal concurred with the view of CIT(A). (AY. 2013-14 & 2014-
15)
Vodafone Cellular Ltd.v. Dy. CIT (2016) 45 ITR 333 (Chennai)(Trib.)

S. 194LA :Deduction at source-Compensation on acquisition of certain immoveable property–

Immovable property acquired in auction - Entire Payment made before the introduction of
section –Sale Certificate issued after the introduction of section - Held, no liability on the
assessee to deduct TDS.
Assessee purchased a property from the bank in an auction. In March, 2012, assessee made payment
to the bank. On 1-6-2013, section 194LA was introduced providing for deduction of TDS on payment
for purchase of immovable properties. In September, 2013, the bank executed sale certificate in
favour of the assessee which was thereafter presented for registration to the Sub-registrar.Sub-
Registrar, in view of section 194LA, issued an endorsement intimating the assessee that registration
could be completed only on production of proof of deduction of TDS. Held, when the assessee had
paid the amount to the transferor, there was no obligation in law on the assessee to deduct the TDS u/s
194LA. Held, sale certificate should be registered without insisting upon deduction of TDS u/s
194LA.
Shubhankar Estates (P.) Ltd. v. Senior Sub-Registrar (2016) 237 Taxman 731 (Karn.)(HC)

S. 195:Deduction at source-Royalty-Copy right-(i) Purchase of a license to use shelf/shrink-

wrapped software is purchase of a “product” and not a “copyright”, (ii) The retrospective
insertion of Explanation 4 to s. 9(1)(vi) to include “software” in the definition of “royalty” does
not apply to DTAAs, (iii) In view of the conflict of views amongst the High Courts, the view in
favour of the assessee should be followed, (iv) An obligation to deduct TDS u/s 195 cannot be

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imposed by the retrospective insertion of Explanation 4 to s. 9(1)(vi), (v) As payments for
software were not “royalty” at the time of payment, the assessee cannot be held to be in default
for not deducting TDS. [S. 9(1)(v),9(1)(vi)]
Dismissing the appeal of revenue the Tribunal held that; (i) A comparison of the definition of
“royalty” as provided under the DTAA (USA), as reproduced above, with the definition of “royalty”
as provided under Income Tax Act shows that the same are not in pari materia with each other. The
definition provided under the DTAA is the very short and restrictive definition, whereas, the
definition of the royalty as provided under the Income Tax Act is a very wide and inclusive definition
but the same seems to be somewhat vague also. Computer software has been recognized as a separate
item not only in 2nd proviso to clause (vi) but in “Explanation 4” also and has been included in the
definition and within the scope of the words “right”, “property” or “information” as provided under
clauses (b) and (c) to section 9(1)(vi) . The term “computer software” has not been included in the
meaning and scope of the term “literary work” under clause (v) to Explanation 2. It is also pertinent to
mention here that the consideration paid for „computer software‟ has not been specifically included
under the definition of royalty under the DTAA.
(ii) The Hon‘ble Delhi High Court in the case of DIT vs. Nokia Networks OY [2012] Taxmann.com
225 (Delhi) has held that though Explanation 4 was added to section 9(1)(vi) by the Finance Act 2012
with retrospective effect from 1.6.1976 to provide that all consideration for user of software shall be
assessable as “royalty”, the definition in the DTAA has been left unchanged. That in Siemens AG 310
ITR 320 (Bom), it was held that amendments cannot be read into the treaty. As the assessee has opted
to be assessed by the DTAA, the consideration cannot be assessed as “royalty” despite the
retrospective amendments to the Act.
(iii) Further, in a recent judgment in the case of DIT Vs New Skies Satellite BV, (ITA 473/2012 vide
order dated 08.02.2016), the Hon‘ble Delhi High Court has observed that no amendment to the Act,
whether retrospective or prospective can be read in a manner so as to extend its operation to the terms
of an international treaty. In other words, a clarificatory or declaratory amendment, much less one
which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have
the same retroactive effect on an international instrument affected between two sovereign states prior
to such amendment. That an amendment to a treaty must be brought about by an agreement between
the parties. Unilateral amendments to treaties are therefore categorically prohibited. Even the
Parliament is not competent to effect amendments to international instruments. Therefore, mere
amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is
brought about in the agreement as well. Hon‘ble Delhi High Court concluded in the said decision
(supra) that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the
first determinative interpretation given to the word “royalty” prior to the amendment in the Income
Tax Act will continue to hold the field for the purpose of assessment years preceding the Finance Act,
2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are
amended jointly by both parties;
(iv) While finalizing this order, we have come across a recent decision of the Co-ordinate Delhi
Bench of the Tribunal in the case of Datamine International Ltd. vs. ADIT in ITA No.5651/Del/2010
vide order dated 14.03.16 on the identical issue wherein the definition of royalty vis-à-vis computer
software in the light of India UK Treaty has been discussed. The Tribunal in para 12.1 of the said
order(supra) has observed that in the India-UK Treaty, in para 3(a) of Article 13 which deals with the
definition of “royalty” in the relevant India-UK Treaty, there was no specific mention of word
“computer software” along with other terms such as “literary, artistic or scientific work, patent, trade
mark” etc. The Tribunal observed that such a language of the India-UK DTAA was in sharp contrast
to the specific use of the term “computer software” or “computer software programme” together with
other terms such as literary, artistic or scientific work, patent, trade mark etc. in many other DTAAs
such as India-Malaysia Treaty, wherein, the term “computer software programme” has been
separately mentioned along with the words copy right of a literary, artistic or scientific work …. plan,
knowhow, computer software programme, secret formula or process. It is thus clear that wherever the
Government of India intended to include consideration for the use of software as ‘Royalties’, it
explicitly provided so in the DTAA with the concerned country. Since Article 13(3)(a) of the DTAA
with UK does not contain any consideration for the use of or the right to use any ‘computer software’,
the same cannot be imported into it.;

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(v) In view of our detailed discussion made above, the assessee cannot be said to have paid the
consideration for use of or the right to use copyright but has simply purchased the copyrighted work
embedded in the CD- ROM which can be said to be sale of “good” by the owner. The consideration
paid by the assessee thus as per the clauses of DTAA cannot be said to be royalty and the same will be
outside the scope of the definition of “royalty” as provided in DTAA and would be taxable as
business income of the recipient. The assessee is entitled to the fair use of the work/product including
making copies for temporary purpose for protection against damage or loss even without a license
provided by the owner in this respect and the same would not constitute infringement of any copyright
of the owner of the work even as per the provisions of section 52 of the Copyright Act,1957;
(v) Even otherwise, the Revenue has not cited any direct case law of the jurisdictional High Court of
Bombay before us. In the case laws cited by the Revenue of the Hon‘ble Karanatka High Court in the
matter of CIT vs. Samsung Electronics Company Ltd (2012) 345 ITR 494 and CIT vs. Synopsis
International Old Ltd. (2013) 212 taxman 454, though, a view in favour of the Revenue has been
taken, but the Hon‘ble Delhi High Court in the case of DIT vs. Infrasoft Ltd. (supra), which is a latter
decision, has discussed the Samsung case also and has taken the view in favour of the assessee. The
Hon‘ble Delhi High court has taken the identical view favouring the assessee in the case of DIT vs
Nokia Network (supra) and in the case of DIT vs. Ericson A.B. (supra) also. The Hon‘ble Bombay
High Court in the case of The Addl. Commissioner of Sales Tax vs. M/s Ankit International, Sales
Tax Appeal No.9 of 2011 vide order dated 15 September, 2011 while relying upon the decisions of
the Hon‘ble Supreme Court in The Commissioner of Income Tax V. Vegetable Product Ltd. (1973)
88 ITR 192 and in Mauri Yeast India Pvt. Ltd. V. State of U.P. (2008) 14 VST 259(SC) : (2008) 5
S.C.C. 680 has held that, if two views in regard to the interpretation of a provision are possible, the
Court would be justified in adopting that construction which favours the assessee. Reliance can also
be placed in this regard on the decision of Hon‘ble Supreme Court in Bihar State Electricity Board
and another vs. M/s. Usha Martin Industries and another: (1997) 5 SCC 289. We accordingly adopt
the construction in favour of the assessee.
(vi) Also, as the purchase orders for the softwares were made much prior to the year 2012,
Explanation 4 to section 9(1)(vi) inserted by Finance Act, 2012 with retrospective effect 01.06.1976,
vide which the right for use or right to use a computer software including granting of license has been
included in the definition of the term right, property or information, the consideration paid for which
has been deemed to be income by royalty under section 9(1)(vi) of the Act, though preceded with the
phrase “it is hereby clarified” and is followed by the words “includes” and “has always included” yet
the said explanation cannot be applied retrospectively. Vide said Explanation, computer software has
been specifically added into the definition of right, property or information. However, prior to the
insertion of explanation 4 to section 9(1)(vi), no such interpretation as has ever been done by any
court of law to include computer software in the definition of right, property or information under
section 9(1)(vi) of the Act. Under sub-clause (v) to Explanation 2, consideration paid for the transfer
of all or any rights in respect of any copyright in literary, artistic or scientific work was to be
considered in the definition of royalty. The assessee was not supposed to deduct TDS on the
remittance made for the purchase of software prior to the bringing of amendment/insertion of
Explanation 4 to the section 9(1)(vi) of the Act, as per the interpretation of the relevant provision done
by various courts, the assessee was under bonafide belief that no TDS was deductable as the
consideration paid for purchase off the shelf/shrink wrapped software would not fall in the definition
of royalty.
(vii) Even in cases where there is no treaty/DTAA of India with the country of which the recipient is a
resident, in the light of the law laid down by the Hon‘ble Supreme Court in the case of Sedco Forex
International Drill INC. & Others vs. Commissioner of Income Tax & another and in view of the
observations made above, the assessee during the relevant period prior to the insertion of explanation
4 to section 9(1)(vi) of the I.T. Act, was not liable to deduct TDS even in above said two cases also
even though there was no DTAA with the countries from the residents of whom the assessee had
made the purchases.( ITA No.1980, 1981, 1982, 1984, 1986, 2523, 2529/M/2008 dt. 18.05.2016)(AY.
2006-07, 2007-8)
DDIT v. Reliance Industries Ltd. (Mum.)(Trib.), www.itatonline.org

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S. 195:Dedcution at source-Installation services provided by a foreign enterprise which are
inextricably connected to the sale of goods are not assessable as "fees for technical services" or
as "business profits" under the DTAA- India- USA-Not liable to deduct tax at source. [S. 201,
Art.12(4)]
The Tribunal held that review of design does not amount to transfer of design and hence fees for the
same cannot be taxed as FTS / FIS under the India US treaty.
Though service of installation is covered by the FTS clause as well as Installation PE clause of the
India China treaty and though the installation contract (including period of after sales service)
exceeded 183 days, the income from installation activity was neither taxable as FTS nor as business
income since;
• the service of installation was inextricably connected to sale of goods, the same could not be treated
as FIS or FTS
• specific installation PE clause in India China Treaty will override General FTS clause
• the aforesaid threshold limit of 183 days would have to be applied to the actual period of installation
(which was less than 183 days) and not the contractual period.( ITA No. 7878/Mum/2010,dt.
23.03.2016)(AY. 2008-09)
Gujarat Pipavav Port Limited v. ITO (Mum)(Trib), www.itatonline.org

S. 195 : Deduction at source–Non-resident–Settlement amount payable by Applicant to QSF-

pursuant to the final judgement of the US Court–Not regarded as sum chargeable to tax in
hands of QSF.
The applicant is an Indian company whose shares are listed on Bombay Stock Exchange (BSE) and
National Stock Exchange (NSE). It's American Depository Shares (ADS) were listed in the New York
Stock Exchange (NYSE).
A number of suits were filed against the Indian company as well as its auditors in various jurisdictions
in the US, for claiming damages. The suits were consolidated and a consolidated ‘Class Action
Complaint’ was filed for alleged violation of the Securities Exchange Act of US.
The US court passed a preliminary order approving the settlement and later the the US court passed a
final judgment in this regard. Under the terms of the settlement, Indian Company had first to deposit
the agreed amounts in a segregated account in India. Thereafter, the amount deposited by would be
transferred to an initial escrow account in New York. After the approval of the settlement, the amount
had to be transferred from the initial escrow account to the final escrow account to be treated as
Qualified Settlement Fund (QSF). Thereafter, it had to be distributed to the qualified claimants in the
class action, after deducting the expenses including legal fees incurred and meeting the tax liability, if
any.
Before actual transfer of the funds, the applicant approached the AAR for a ruling on whether the
settlement amount payable under the Stipulation to the QSF was liable to TDS under section 195 of
the Act.
Ruling in favour of the Revenue, AAR held that the settlement amount constituted ‘income from other
sources’ in the hands of QSF, under Article 23(3) of the Indo-US DTAA. Thus, the 3 applicants were
required to withhold tax under section 195 of the Act, before the fund was distributed. Having held
that the income arose in India and observing that the Lead Counsel was a resident of the USA, the
AAR held that the receipts under class action suit were squarely covered by Article 23(3) of the Indo-
US DTAA.
Against the aforesaid AAR, a writ was filed before Delhi HC. HC had set-side the above AAR ruling
and remanded matter back to AAR to firstly examine whether the afore-mentioned receipts were in
nature of revenue or capital and then determine chargeability under the Act.
Further AAR rejected Revenue’s stand that amount was taxable under the head ‘income from other
sources’. AAR noted that Sec 56(1) contemplates only such source which does not specifically fall
under any one of other four heads of income. AAR held that the income in the nature of settlement
amount in lieu of surrender of ‘right to sue’ was not covered in this section.
Thus AAR disagreed with earlier AAR ruling in applicant’s case and held that amount was not
taxable under section 56 of the Act. However, as TDS under section 195 of the Act was already
deducted pursuant to co-ordinate bench order, AAR clarified that the remedy for this was available in
Income-tax Act for the payee to claim refund and for that appropriate action will have to be taken.

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Lead Counsel of Qualified Settlement Fund (QSF). In RE (2016) 381 ITR 1/ 237 Taxman 667/
283 CTR 361(AAR)

S. 195:Deduction source-Penalty paid to Government of U. S. A. pursuant to order of court in

U. S. A. for violations of securities law in that country-No tax liability-No tax required to be
deducted at source.
That unless the payment made attracts tax under the law in India, there would be no liability to deduct
tax u/s 195 of the Act. A penalty ordered by the U. S. court can never attract any tax nor would such a
payment made by the applicant attract any tax liability. The payment being penalty as ordered by the
court of competent jurisdiction could never attract any such tax liability. Hence, the applicant would
not be required to deduct any such amount u/s 195.
Satyam Computer Services Ltd., In re (2016) 380 ITR 180 / 236 Taxman 199/ 282 CTR 41
(AAR)

S. 196 : Deduction at source-Provision not applicable–Payable to Government–Non-deduction

of tax at source. [S. 196(i)]
The assessee had obtained a loan from Punjab Agro Industrial Corporation (PAIC). The assessee had
made a provision for interest payment to the extent of Rs.48,00,000/- in its books, however no
payment was made. No tax was deducted at source in respect of the provision made in the books. The
AO passed the order under section 201(1)/201(1A) holding the assessee as assessee-in-default and
consequently raised a demand of TDS and also interest. It was the submission of the assessee that the
no tax was required to be deducted as the payment is made to the Government as the corpus of PAIC
was formed by the Government from which payment was made. The assessee had relied upon a
certificate from PAIC to that extent which also said that the income from the corpus belongs to the
Government. The contentions were rejected both by the CIT(A) and ITAT. On appeal, it was held by
the High Court that the certificate relied upon by the assessee is a self-serving certificate not
substantiated by any other corroborative evidence. Therefore, it was held that it cannot be said that the
payment was made to the Government and therefore, section 196(i) was held not to be applicable.
(AY. 2008-09)
Council for Citrus and Agri juicing in Punjab v. CIT(TDS) (2016) 236 Taxman 489 (P&H)(HC)

S. 196C:Income from foreign currency bonds or shares of Indian company- Deduction at

source- Interest paid on FCCBs issued by it to bond holders outside India - Not liable to deduct
tax at source-DTAA- India- UK. [S. 9(1)(v)(b), 115AC, 201(1), 201(IA), Art. 5(2), 12]
Assessee, an Indian company, issued FCCBs to non-residents and utilized proceeds of said FCCBs for
acquisition of foreign subsidiaries outside India. Assessee remitted interest on said FCCBs to foreign
bond holders but did not deduct TDS on same . AO held that the income of bond holders was liable
to TDS under section 196C accordingly passed an order invoking provisions of section 201(1)(IA).
On appeal CIT (A) held that interest paid by assesse on its FCCBs is covered by exception to section
9(1)(v) (b) and consequently , it fell out side ambit of deemed income arising and accruing in India
and as a result out of section 5 On appeal the Tribunal held that dismissing the appeal of revenue the
Tribunal held that ;where assessee-company paid interest on FCCBs issued by it to bond-holders
outside India, said income squarely fell under exclusion clause of sub-section (1)(v)(b) of section 9,
and, consequently, it could not fall within ambit of section 5(2). (AY. 2005-06, 2007-08, 2010-11 )
Suzlon Energy Ltd. v. ACIT ( 2016) 156 ITD 7 (Ahd.)(Trib)

S. 201: Deduction at source–Limitation-Failure to deduct or pay The amendment to s. 201(3) by

FA 2014 to extend the time limit for passing s. 201 orders is prospective and does not apply to
cases which are already time-barred. A show-cause notice involving a pure point of law can be
challenged in a Writ Petition.[S.201(3), Constitution of India, Art. 226]
The High Court had to consider whether section 201(3) of the Income Tax Act as amended on
1/10/2014 by Finance Act of 2014 would be applicable retrospectively or prospectively and whether
the said provision would be applicable with respect to the proceedings under the Income Tax Act for
A.Y. 2008-09 and 2009-2010, the proceedings which had already become time barred in view of the

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provisions of section 201(3) of the Act prior to amendment in section 201(3) of the Act by Finance
Act 2014. HELD by the High Court:
(i) Though the petitioners have challenged the impugned notices / summonses issued under section
201 of the Income Tax Act and the revenue has raised objection against the maintainability and/or
entertainability of the present petitions against the Show Cause Notice, it is required to be noted that
in the present case, the issue involved is pure question of law, more particularly as to whether, section
201(3) as amended by Finance Act (No.2) 2014 would be applicable retrospectively or not? Under the
circumstances, when pure question of law is involved, petitions cannot be dismissed solely on the
ground that the present petitions are against the Show Cause Notices (Harbanslal Sahnia and another
Versus Indian Oil Corpn. (2003) 2 SCC 107 (para 7) and Filterco and another Versus Commissioner
of Sales Tax, Madhya Pradsesh and another, reported in (1986) 24 ELT 180 SC followed);
(ii) Section 201(3) of the Act as amended by Finance Act, 2012 amended on 28/5/2012 was
specifically made applicable retrospectively w.e.f. 1/14/2012, whereby limitation period was
substituted from four years to six years for passing orders where TDS Statement had not been filed.
However, section 201(3) of the Act as amended by Finance Act No.2 of 2014, as mentioned in the
memorandum of the Finance Bill No.2 of 2014 is stated to have effect from 1st October, 2014. Thus,
wherever the Parliament / Legislature wanted to make provisions applicable retrospectively, it has
been so provided. While making amendment in section 201(3) of the Act by Finance Act No.2 of
2014, does not so specifically provide that the said amendment shall be made applicable
retrospectively. On the other-hand, it is specifically stated that the said amendment will take effect
from 1/10/2014. As observed hereinabove, in the present cases, limitations provided for passing order
under section 201(1) of the Act for A.Y. 2007-08 and 2008-09 had already been expired on 31/3/2011
and 31/3/2012, respectively, i.e. prior to section 201(3) came to be amended by Finance Act No.2 of
2014.
(iii) An accrued right to plead a time barred which is acquired after the lapse of the statutory period is
in every sense a right even though it arises under an Act which is procedural. It is a right which is not
to be taken away by conferring on the statute a retrospective operation unless such a construction is
unavoidable.
(iv) Considering the law laid down by the Hon’ble Supreme Court in the aforesaid decisions, to the
facts of the case on hand and more particularly considering the fact that while amending section 201
by Finance Act, 2014, it has been specifically mentioned that the same shall be applicable w.e.f.
1/10/2014 and even considering the fact that proceedings for F.Y. 2007-08 and 2008-09 had become
time barred and/or for the aforesaid financial years, limitation under section 201(3)(i) of the Act had
already expired on 31/3/2011 and 31/3/2012, respectively, much prior to the amendment in section
201 as amended by Finance Act, 2014 and therefore, as such a right has been accrued in favour of the
assessee and considering the fact that wherever legislature wanted to give retrospective effect so
specifically provided while amending section 201(3) (ii) of the Act as was amended by Finance Act,
2012 with retrospective effect from 1/4/2010, it is to be held that section 201(3), as amended by
Finance Act No.2 of 2014 shall not be applicable retrospectively and therefore, no order under section
201(i) of the Act can be passed for which limitation had already expired prior to amended section
201(3) as amended by Finance Act No.2 of 2014. Under the circumstances, the impugned notices /
summonses cannot be sustained and the same deserve to be quashed and set aside and writ of
prohibition, as prayed for, deserves to be granted. ( 2007-08, 2008-09)
Tata Teleservice v. UOI (2016) 132 DTR 1/ 284 CTR 337 (Guj.)(HC)
Troikaa Pharmaceuticals Ltd. v.UOI ( 2016) 132 DTR 1/284 CTR 337(Guj.)(HC)

S. 201 : Deduction of Tax at source–Short deduction of tax- Recipients disclosing amount

received from assessee in returns filed by them for relevant AY–Assessee not treated as assessee
in default–AO directed to verify whether taxes paid by recipients– Assessee liable to pay interest
till date of payment of taxes by recipients.
The AO found that the assessee had not deducted tax at appropriate rate. The CIT(A) held that onus
was on the assessee to satisfy the AO that tax had been duly paid by the recipients. The confirmation
issued by the recipient companies did not specify whether they had paid taxes on the amounts
received from the assessee. He therefore, upheld the action of the AO in treating the assessee in
default and raising the demand u/s. 201(1).

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On appeal, the Tribunal held that it was clearly evident that recipient companies had admitted the fact
that the amounts received from the assessee which were subject to tax deduction at source had been
shown by them in the returns filed for the AY. Therefore, the assessee could not be treated as an
assessee in default. The AO was directed to verify whether taxed had been paid by the recipients in
respect of the amount received by them from the assessee and if upon such verification it was found
that they had paid tax on the amount received by them from the assessee, the assessee could not be
treated as an assessee in default. However, the assessee is liable to pay interest u/s. 201(1A) till the
date of payment of taxes by the recipients on the income received by them from the assessee. (AY.
2009-10)
Wockhardt Hospitals Ltd. v. ACIT(TDS) (2016) 46 ITR 259 (Mum.)(Trib.)

S. 206AA:Requirement to furnish Permanent Account Number -it is not automatic that a flat
rate of 20 per cent shall be applied wherever PAN is not furnished- Matter remanded. [S. 192]
Assessee-company deducted tax at source under section 192 in respect of salary of employees who
failed to furnish their correct PAN. Assessing Officer applied a flat rate of 20 per cent as per section
206AA in respect of those cases and held assessee liable for short deduction of TDS . On appeal
Tribunal held that it is not automatic that a flat rate of 20 per cent shall be applied wherever PAN is
not furnished. In view of aforesaid legal position, impugned order was to be set aside and, matter was
to be remanded back for disposal afresh.(AY. 2011-12, 2013-14)
Rashtriya Ispat Nigam Ltd.v.Add.CIT (2016) 157 ITD 366 / 176 TTJ 747 (Visakha)(Trib.)

S. 206AA:Requirement to furnish Permanent Account Number- S. 90(2) overrides S. 206AA

and so the assessee is required to deduct TDS as per the DTAA and not as per s. 206AA. The
issue is debatable and so cannot be rectified by the AO u/s 200A [S.90(2)].
(i) Where the tax has been deducted on the strength of the beneficial provisions of section
DTAAs, the provisions of section 206AA of the Act cannot be invoked by the Assessing Officer to
insist on the tax deduction @ 20%, having regard to the overriding nature of the provisions of section
90(2) of the Act. Section 206AA of the Act does not override the provisions of section 90(2) of the
Act and in the payments made to non-residents, the assessee correctly applied the rate of tax
prescribed under the DTAAs and not as per section 206AA of the Act because the provisions of the
DTAAs was more beneficial.
(ii) The explanation below sub-section-1 of Section 200A of the IT Act, which clarifies that in respect
of deduction of tax at source where such rate is not in accordance with provisions of this Act can be
considered as an incorrect claim apparent from the statement. However, in the case in hand, it is not a
simple case of deduction of tax at source by applying the rate only as per the provisions of Act, when
the benefit of DTAA is available to the recipient of the amount in question. Therefore, the question of
applying the rate of 20% as provided u/s 206AA of the IT Act is an issue which requires a long drawn
reasoning and finding. Hence, we are of the considered opinion, that applying the rate of 20% without
considering the provisions of DTAA and consequent adjustment while framing the intimation u/s
200A is beyond the scope of the said provision. Thus, the AO has travelled beyond the jurisdiction of
making the adjustment as per the provisions of Section 200A of the IT Act, 1961.( ITA No. 1544 to
1547/Bang/2013, dt. 12.02.2016)(AY. 2011-12)
Wipro Ltd. v. ITO (Bang.)(Trib.);www.itatonline.org

S. 206C : Collection at source – Scrap – The words ‘waste and scrap’ in clause (b) to
explanation to section 206C of the Act is a singular item – Assessee was not required to collect
tax a source on mere scrap as the same was not covered by clause (b) of the Explanation to
section 206C.
The Assessee had made sales of scrap, however no tax was collected at source on sale of scrap by the
Assessee. Therefore the Assessing Officer held that as a consequence of non-compliance of
provisions of section 206C of the Act, the Assessee was liable to pay tax and interest under section
206C(7) of the Act.
The Tribunal noted that the Assessee is engaged in ship breaking activity and the items in question are
finished products obtained from the activity and constitute sizeable chunk of production done by ship
breakers. Tribunal ruled in favour of the Assessee treating the sale of scrap out of the scope of section

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206C and hence it was not required to collect tax at source. It was held that “waste and scrap” must be
from manufacture or mechanical working of material which is definitely not usable as such because of
breakage, cutting up, ware and to other reasons. The word “is” as used in the definition of Scrap, in
explanation to section 206C, is meant for singular term i.e. “waste and scrap” and hence sale of scrap,
which is not part of manufacturing activities would not be regarded as ‘waste and scrap’ and thereby
not liable for tax collection at source. Aggrieved the Revenue filed an appeal before the High Court.
The High Court noted that the products may be commercially known as ‘scrap’ they are definitely not
‘waste and scrap’, as such items are usable as such and therefore do not fall within the definition of
scrap as envisaged in the Explanation to section 206C(1) of the Act. From plain reading of the
explanation it is evident that any material which is usable as such would not fall within the ambit of
the expression “scrap” as envisaged under the clause. High Court upheld the order of the Tribunal and
dismissed the appeal filed by the Revenue. (AY. 2005-06)
CIT v. Priya Blue Industries Pvt. Ltd. (2016) 381 ITR 210 / 237 Taxman 1 (Guj.)(HC)

S. 220 : Collection and recovery – Assessee deemed in default – Assessing Officerorder

unreasonably high pitched causing hardships to Assessee – Assessee entitled not to be treated as
being in default in respect of amount in appeal. [S. 246A]
The individual filed the return which also included agricultural income, on which exemption was
taken, the same was rejected by the Assessing Officer and was treated as regular income from
undisclosed source. The Assessee filed an appeal under section 246A of the Act which is still pending
for adjudication. Since the CIT(A) did not have the powers to grant stay against the recovery of
disputed demand, the Assessee filed a writ petition in the High Court.
The Revenue contended that the Assessee failed to prove that the agricultural activities were carried
by him. Mere proof of ownership was not adequate and the burden of proving it genuine was on the
Assessee. Taking into the above considerations the Revenue had asked to pay 50% of the disputed
demand. The Revenue also contended that the filing of appeal before the CIT(A) did not grant blanket
stay to the Assessee, it also relied on the CBDT instruction no. 1914 dated 2 December 1993 which
superseded the CBDT instruction no. 95 dated 21 August 1969 and said that the Assessing Officer had
used the discretion as per the new CBDT instruction.
The Assessee argued that the current assessment by the Assessing Officer was high pitched and this
case fell within the ambit of section 220(3) and 220(6) of the Act which states that the assessee could
before the expiry of the due date make an application to extend the time of payment to instalments
and the Assessing Officer in his discretion treat the Assessee as not being in default. Assessee also
referred to various case laws which held that if the Assessing Officer order was unreasonable high
pitched or caused genuine hardships to the Assessee then the Assessee could be treated as Assessee
not being in default.
Thus the High Court held that the high pitched assessments made by Assessing Officer were not
unknown and would cause serious prejudice to the Assessee and miscarriage of justice. It was also
held that the powers under section 220(3) and 220(6) of the Act were to be exercised in accordance
with the CBDT instruction no. 95 which was binding on all the Assessing Officer. Hence the order
passed by the Assessing Officer was against the principles to the various judgements and the
impugned order was set aside and the Assessing Officer was directed to pass a suitable order after
proving opportunity to the Assessee. (AY. 2012-13)
N. Jegatheesan v. Dy. CIT (2015) 237 Taxman 490 (Mad.)(HC)
Editorial: The recent office memorandum issued by the CBDT dated 29 February 2016 modified the
Instruction No. 1914 dated 2 December 1993

S. 220 : Collection and recovery - Assessee deemed in default – order of Commissioner

(Appeals) allowing registration to assessee firm was reversed by Tribunal, benefit of waiver of
interest in respect of section 220(2) would be allowed up to period provided in this order of
Tribunal and it could not be restricted up to date of order of jurisdictional High Court in
another case on similar issue.
Though the assessee firm was assessed as a 'registered firm' in earlier years, for the assessment years
1991-92 and 1992-93, the assessee firm was assessed as unregistered'.

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On appeal, the CIT(A) allowed the appeal of assessee and directed the AO to allow registration to the
assessee for both the years. On further appeal, the Tribunal reversed the order of the CIT(A) and
restored the order of the Assessing Officer. On demand raised under section 143(3), the assessee was
made liable to pay interest under section 220(2). The assessee filed petition under section 220(2A) for
waiver of interest demanded. The CIT(A) held that though the appeal filed by the Department was
decided by the Tribunal in its favour on 20-5-1998, the issue was already decided by this court in
Narayana & Co. v. CIT [1997] 223 ITR 209/[1996] 88 Taxman 299 by judgment dated 14-3-1996.
Accordingly, the CIT(A) held that the pendency of the Departments appeal in the Tribunal against the
assessee was only procedural matter and, therefore, the assessee was entitled to waiver of interest only
up to March, 1996 when Narayanan & Co.'s case (supra) was decided.
On writ, the Single Judge set aside the view taken by the CIT(A). On appeal from the writ order,
Section 220(2A) contains three conditions, satisfaction of which are required for the CIT(A) to reduce
or waive the amount of interest, viz., (i) payment of such amount would cause genuine hardship to the
assessee (ii) default in the payment of the amount on which interest is payable was due to
circumstances beyond the control of the assessee and (iii) that the assessee has cooperated in any
enquiry relating to the assessment or any proceedings for the recovery of any amount due from him.
Reading of the order shows that the CIT(A) himself has accepted the position that in the case of the
respondent, all the aforesaid conditions are satisfied. However, the CIT(A) limited the benefit of
waiver only up to March, 1996 and the reason thereof is that this Court has, in Narayanan &Co.'s case
(supra) decided the issue against the assessee therein by judgment dated 14-3-1996 and that the case
of the respondent is covered by that judgment. Thus, though the CIT(A) has accepted that the three
conditions provided for in section 220(2A) are satisfied, he has chosen to limit the benefit of waiver to
a particular period. While examining the validity of that order, what is relevant to be examined is
whether the reason assigned by the CIT(A)for restricting waiver is valid or not. On such examination,
it is seen that in March, 1996, though this Court decided the case of Narayanan & Co. (supra), the
favourable appellate order obtained by the assessee herein in an appeal filed by them, entitling them
for assessment treating the firm as a registered one, was remaining valid. That order was invalidated
by the Tribunal only on 20-5-1998, in the appeal filed by the revenue. In other words, it was only on
20-5-1998, the assessee became disentitled to assessment on the status of a registered firm. The fact
that this court has decided the issue in the case of Narayanan & Co. (supra) is of no consequence at all
till 20-5-1998 when the appeal was decided by the Tribunal. This, therefore, shows that the reason
which weighed with the CIT(A) to restrict the benefit of waiver till March, 1996 is absolutely
untenable. (AY. 1991-92 and 1992-93)
CIT v. Muthappan Enterprises (2016) 237 Taxman 551 (Ker.)(HC)

S. 220 : Collection and recovery–In a case where income of a local authority was assessed at nil
in the past and the income was sought to be taxed during the year solely on the basis of the
proviso to section 2(15), demand should be kept in abeyance at least till the disposal of the first
appeal.[S. (15)]
Assessee, an urban development authority, filed its return of income declaring its income as 'Nil'. The
Assessing Officer assessed the assessee’s income at Rs. 4,25,77,240 and raised a demand of Rs.
1,92,73,490. The assessee made an application under section 220(6) to the DCIT(E) for keeping the
demand in abeyance till the final disposal of the appeal before the CIT(A). The assessee was asked to
pay the demand in 6 equal installments. In a further application made to ACIT(E) and thereafter to
CIT(E), the installments payable were increased to 12 but the demand was not kept in abeyance. The
DCIT(E) attached the asssessee’s bank accounts. The assessee agreed to make payment under protest
by way of instalments. The attachment of the bank accounts was thereafter lifted. High Court
observed that as theincome of the petitioner was assessed at nil in the past and that the income was
sought to be taxed only byresorting to the proviso to section 2(15), the lower authorities should have
shown some restraint till the issue was decided at least at the level of the first appellate authority.
High Court granted complete stay of balance demand as the assessee had already paid 25% of the
demand. (AY 2012 – 13)
Jamnagar Area Development Authority v. Principal CIT (OSD) ( E ) (2016)236 Taxman 484
(Guj.)(HC)

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S. 220:Collection and recovery- Assessee deemed in default-Stay An order disposing off a stay
application has to objectively consider the prima facie case on merits, financial hardship and
balance of convenience and give reasons for the rejection.[S.220(6)]
Allowing the petition the Court held that; an order disposing off a stay application has to objectively
consider the prima facie case on merits, financial hardship and balance of convenience and give
reasons for the rejection. ( WP (L) NO.635 OF 2016, dt. 16.03.2016)
Maharashtra Industrial Development Corporation (MIDC) v. CIT
(Bom)(HC);www.itatonline.org

S. 220 : Collection and recovery-Assessee deemed in default - Department was directed to

redeposit moneys collected illegally by attachment of assessee’s bank account during pendency
of stay application. A order passed on a stay application must give reasons for the refusal to stay
the demand.
On writ the Court directed the department to redeposit moneys collected illegally by attachment of
assessee’s bank account during pendency of stay application. A order passed on a stay application
must give reasons for the refusal to stay the demand. ( AY.2009-10)

Khandelwal Laboratories Pvt. Ltd. v. DCIT( 2016) 383 ITR 485/ 238 Taxman 620 (Bom.)(HC)
S. 220:Collection and recovery-Assessee deemed in default - Stay-Strictures passed against high-
handed and unfair approach of AO (IRS Officer) in refusing to give an acknowledgement of
stay application. Chief CIT directed to ensure such behaviour is not repeated. Dept directed to
nominate another AO to hear stay application.[S. 220(6)]
Allowing the petition the Court held that; (1) We find this conduct on the part of the Assessing
Officer to accept a stay application and not immediately give acknowledgement of its receipt is
unacceptable. The least that is expected of a civil servant is to be fair and civil. In the absence of the
above, his conduct is not one becoming of an Officer belonging to the prestigious Indian Revenue
Service. The least that is expected of an Officer is that when a person files an application / letter,
which is accepted by him, an acknowledgement should be forthwith given to the party filing the
application or letter. In case he refuses to accept the letter he should endorse on the letter / application
the reason why it is not being accepted with a line or two for the refusal to accept. In case he does
accept it and give an acknowledgment he can deal with the applications/ letters as is appropriate in
accordance with law. We believe that what has happened in this case is an aberration. However, the
Chief Commissioner of Income Tax would ensure that his Officers do not behave in such an high
handed and unfair manner, not expected of civil servants.
(ii) Be that as it may, the stay application is still pending decision. Normally, we would have let the
Assessing Officer decide the same. However, looking at the manner in which the petitioner has been
dealt with by the Assessing Officer in regard to its stay application dated 17th February, 2016, it
would be in the interest of justice that the application for stay filed by the petitioner be heard by
another Officer different from the Assessing Officer i.e. respondent no.1 herein. The Officer to deal
with the petitioner’s stay application dated 17th July, 2016 is to be selected / nominated by the
Revenue.(WP. No. 526 of 2016, dt. 17.03.2016)(AY.2012-13)
Pirmal Fund management Pvt. Ltd. v. DCIT (Bom.)(HC);www.itatonline.org

S. 222 : Collection and recovery - Certificate to Tax Recovery Officer –Auction proceedings
were conducted in accordance with the established procedure hence petition was dismissed-
Incorrect valuation was kept open to be decided by the Tax recovery officer.
Dismissing the petition the Court held that; The Tribunal held that auction proceedings were
conducted in accordance with the established procedure. The Tribunal further opined that the
objection regarding correct valuation of the properties could still be considered by the Recovery
Officer, which had been kept open.The Tribunal, thus, concluded that the appeal preferred by the
assessee was premature and dismissed the same being devoid of merits. As regards valuation the issue
was left open before the Tax recovery officer.
Centauto Automotives (P.) Ltd. v. Union Bank of India (2016) 236 Taxman 68 (MP)(HC)

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S. 234C : Interest - Deferment of advance tax – Interest u/s 234C should be calculated on tax
payable on returned income and not on revised computation of income filed at the assessment.
The Assessee, a Government company, filed its original return of income declaring a total income of
Rs. 495.03 crores and a refund of Rs. 6.12 crores subsequent to the audit of accounts by the CAG and
adoption of the same in the AGM, a revised computation of income along with audited accounts was
filed during the course of assessment. In the revised computation of income, the Assessee showed
income of Rs. 228.83 crores and claimed a refund of Rs. 95.15 crores. The Assessee mentioned that
Rs. 56,87,807/- was payable as interest u/s 234C. The AO computed the income as per the revised
computation of income, but charged interest u/s 234C of Rs. 62,13,902/- based on the original return
of income and not on the revised computation of income. The ITAT held that interest u/s 234C is
charged for deferment of advance tax. It is charged with reference to tax due on returned income and
not on revised computation of income filed subsequently by the Assessee. (AY. 2001-02, 2003-04 to
2008-09)
West Bengal Infrastructure Development Finance Corporation v. ACIT (2016) 45 ITR 285
(Kol)(Trib)
DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285
(Kol)(Trib)

S. 234B : Interest - Advance tax -Interest cannot be charged up to the date of revisional,
appellate or rectification order. [ S. 234B(4)]
The Assessing Officer charged interest under section 234B up to the date of the order giving effect to
Tribunal’s order. The High Court held that section 234B clearly states that interest can be charged
from 1st April of next financial year up to the date of determination of income under section 143(1)
and where regular assessment is made up to the date of such regular assessment. It was also held that
section 234B(4) only deals with quantum of tax and does not extend the time period for imposition of
interest.
Pr. CIT v. Applitech Solutions Limited (2016) 236 Taxman 602 (Guj.)(HC)

S. 234E:Deduction at source – Duty of person deducting tax – Collection at Source - Fee-

Default in furnishing the statements – Provision imposing fees @ Rs. 200 per day for late filing
of TDS return is Constitutionally valid – Constitutional validity not amendable to challenge on
the ground of provision being too onerous or statute does not allow sufficient time or
consideration of reasonable cause for violation of provision.
The Petitioner filed a writ petition, challenging the constitutional validity of S. 234E of the Act on the
ground that there is no provision for condonation of delay and also, the reason given by the Central
Government as well as the IT Department for insertion of S. 200A do not justify the levy of fee u/s.
234E of the Act. Also, prior to amendment by Finance Act, 2015, there were no provision for
computation of fee and appeal.
The HC held that the constitutional validity is not amenable to be challenged on the ground that the
performance insisted upon by the statutory provision is too onerous or that the statute does not leave
sufficient time or does not allow reasonable cause to be considered for violation of the provision.
Further, the HC held that the levy of fee of Rs. 200 per day on late filing of the TDS returns, is a
compensatory fee and not in the nature of penalty. It was also held that against levy of fee, though
prior to Finance Act, 2015 there was no provision for computation of fee and an appeal, but thereafter,
amendments have been made u/s. 200A, 246A and 272A and in view thereof, vires of S. 234E cannot
be challenged.
Dundload Shikshan Sansthan & Anr. v.UOI (2016) 131 DTR 382/ 284 CTR 175 (Raj.)(HC)
S.244A:Interest on refunds - Interest is allowed on refund of excess payment on self-assessment
of tax and Explanation to section 244A(1)(b) does not bar payment of interest on such excess
refund.[S. 140A,154]
The question before HC was whether Tribunal was justified in granting interest u/s. 244A(1)(b) on
excess payment of self-assessment of tax in view of s. 244A(1)(b) r.w Explanation thereto of the Act
which provides that, date of payment of tax means date on and from which the amount of tax
specified in the of notice of demand u/s. 156 is paid in excess of such amount. Another question
before the Tribunal was whether interest granted u/s. 244 can be withdrawn u/s. 154.

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On analyzing various judicial precedents, the HC held that clause (b) of sub-s. (1) of s. 244A is
residual in nature and provides for interest on refund of excess self-assessment tax paid by the
assessee. Further, the Explanation to s. 244A(1)(b) would have no application since the tax in
question was not paid consequent to any notice of demand u/s. 156 but was paid u/s. 140A. Hence,
according to mandate of s. 244A(1)(b) interest is payable on refund of excess self-assessment tax
from the date of payment of such tax to the date when the refund is granted.

On the second question of law, the HC held that 'mistake apparent from the record' is rectifiable u/s.
154. Thus, the pre-condition to invoke s. 154 is the presence of a mistake and that the same must be
apparent from the record. The power to rectify a mistake u/s. 154 does not extend to revision or
review of the order and hence, interest granted u/s. 244A cannot be withdrawn u/s. 154.(AY. 1992-
93,1993-94)
CIT v. Birla Corporation Ltd (2016) 131 DTR 153/ 284 CTR 97 / 238 Taxamn 482 (Cal) HC)

S. 245:Refund - Set off of refunds against tax remaining payable – Adjustment of refund
without giving an opportunity was held to be bad in law- Directed the department to refund the
amount of refund adjusted with interest.
Approach of the department of setting off / adjusting refund against demand without serving a prior s.
245 intimation to the assessee and without providing opportunity of hearing to assessee & without
arriving at a satisfaction to the effect that such adjustment of refund can only be the mode of recovery
of demand is bad in law. Dept directed to refund the amount set off / adjusted together with interest.(
WP No. 683/2016, dt. 25.04.2016)
Vijay Singh kadam v. CCIT(Delhi)(HC) ;www.itatonline.org

S. 245C:Settlement of cases-Application by person related to applicant - Meaning of "related

party"-Effect of Explanation to section 245C(1)-Company would be a related party only if a
director of such company has a substantial interest in applicant- Clubbing of shares were not
permitted- Petition was dismissed.
Holding a substantial interest in the specified person, by a director of the applicant, is a necessary
qualifying condition. If the Legislature had intended to enlarge the ambit of the qualifying condition
by including a relative of the director it would have specifically provided so. A company would not
qualify as a related party merely because any relative of one of its directors has a substantial interest
in the specified person.
Beneficial owner of the share as referred to in Explanation (b)(A) refers to shares held in a company
by a person either in his own name or in the name of other persons. A corporate entity is a separate
legal entity. Merely because a director of the specified person holds shares in a company which in
turn holds shares in the company that would not make the director the beneficial holder of the shares
of the company and, thus, qualify the applicant as a related party. The words used are "any director of
such company" and "any relative of such director". Clubbing of shares were not permitted. Petition of
assessee was dismissed.
Rockland Hotels Ltd. v. ITSC (2016) 380 ITR 197/ 236 Taxman 180/ 282 CTR 142 (Delhi)(HC)

S. 245D(2C):Settlement Commission-Full and true disclosure of income and manner in which

such income derived-Self-assessment tax-Total income-Meaning of-Additional tax-Special
formula - Deeming fiction - Amount of tax calculated on total income in application reduced by
tax calculated on total income returned for that year - Assessee not paying self-assessment tax in
return u/s 153A and section 143(2) - Settlement application not valid. [S. 143(2), 153A, 245D].
Once an application is made by the assessee for settlement of his case, the different stages before the
Commission come with time frame. Even the final order which the Commission may pass has a
deadline beyond which if no order is passed, the proceedings would abate. At a stage where the
Commission is required to ascertain where an assessee has paid the additional tax with interest
thereon only upon which application can be allowed to proceed further, no complex exercise or
verification is envisaged. If the concept of total income contained in the Act is imported as such a
stage, it can give rise to multiple disputes and lengthy debates with respect to the total income of an

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assessee and whether full tax on such income has been paid or not. At such a stage, the Legislature
does not envisage the Commission to go into a complex exercise of ascertaining the total income of
the assessee and further ascertaining his tax liability on such income. Therefore, the Legislature has
provided for a simple formula possible of a simple arithmetical application. In a given case, the
assessee may be entitled to a refund once the Commission passes its final order. Such isolated case,
however, would not govern the interpretation of sub-sections (1B) and (1C) of section 245C. Any
such interpretation would give rise to complex consideration by the Commission of the assessee's total
income not as defined in sub-section (1B) to but as otherwise understood and referred to in section 5.
The Legislature never intended that at the stage of ascertaining whether the assessee has deposited the
additional tax on an application made for settlement of the case, such complex exercise should be
undertaken by the Commission. Further, accepting any such interpretation would defeat the very
purpose of introducing the simplicity of computation of "total income" of an assessee for the purpose
of the provision and his liability to pay additional tax with interest thereon. Subsequent to the search,
the assessee filed the returns u/s 139(1) and after the issue of section 153A notices for the AYs 2006-
07 to 2011-12, the assessee had offered to tax the amount amounting to Rs. 34,74,47,123 which was
the total amount admitted u/s 132(4) under the AYs 2007-08 to 2012-13. Therefore, the assessee had
not paid the self-assessment tax in the return u/s 153A and section 143(2) for the AYs 2007-08 to
2012-13, the application was not valid and the order passed by the Commission was liable to be
quashed.(AY. 2006-2007 to 2012-2013 )
CIT v. Kiti Construction Ltd. (2016) 380 ITR 82 (MP) (HC)

S. 245F:Settlement Commission–Does not have power to direct Special audit under section
142(2A) of the Act- No power of regular assessment which vested in Assessing Officer. [S.
142(2A),245C].
Held, allowing the petition, (i) that the Commission did not engage itself in the process of assessment
and could not make an assessment order. The order that the Commission makes u/s.245D(4) was not
in the nature of an assessment but by way of a settlement and contains the terms of settlement. Thus,
the powers which are vested in an income-tax authority and could be exercised by the Commission
are such which have a nexus with the settlement proceedings which would not include the making of
an assessment under the Act.
(ii) That since the requirement of a special audit falls under the procedure for assessment which is
distinct and different from settlement proceedings, the Commission would not have jurisdiction to
direct a special audit as it does not have any nexus with the settlement proceedings. All that the
Commission is required to do in the course of the settlement proceedings is to ensure that the assessee
who has made the application for settlement of his case has, inter alia, made a full and true declaration
of his hitherto undisclosed income and the manner in which it was derived. If the accounts put forth
by the assessee before the Commission are found by the Commission on the basis of the available
records or the reports of the Commissioner to be neither full nor true then the only option available
with the Commission is to reject the application for settlement and relegate the assessee to the normal
provisions of assessment under the Act. The Commission could not, by itself, enter upon an
assessment and step into the shoes of an Assessing Officer for the purposes of making an assessment.
Chapter XIX-A provisions contemplate assessment by settlement and not by way of regular
assessment u/s 143(3) or "assessment" u/s 143(1) or u/s 144 and Chapter XIX-A is a code by
itself.(AY 2004-2005 to 2011-2012)
Agson Global P. Ltd. v. ITSC (2016) 380 ITR 342/ 237 Taxman 158/ 282 CTR 441(Delhi)(HC)

S.245HA:Settlement Commission-Change of law-Provision for abatement of proceedings where

no order passed by cut-off date - To be read down - Abatement only where failure owing to
reasons attributable to applicant. [S. 245C]
Following Union of India v. Gurmeet Kalra reported as Union of India v. Star Television News Ltd.
[2015] 373 ITR 528 (SC), it was held that only where the application for settlement could not be
disposed of for any reasons attributable on the part of the applicant would proceedings abate u/s
245HA(1)(iv). Settlement Commission directed to consider whether the proceedings had been delayed
on account of reasons attributable to the applicant and if they were not, to proceed with the
application as if not abated. (CA NO 14074/15 dt 4-12-2015)

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CIT v. Rajendra Kumar Verma (2016) 380 ITR 430 (SC)
Editorial: Appeal from Rajendra Kumar Verma v. DG(Inv) ( 2012) 345 ITR 32 (All) (HC)

S. 245R : Advance rulings-Transaction designed prima facie for avoidance of income-tax–

Supreme court grants leave to appeal against the High Court’s order in the case of Goodyear
Tire & Rubber Co.
Assessee, a US company,proposed to transfer its 74% shareholding in an Indian company, Goodyear
India Ltd. to its 100% Singaporean subsidiary, Goodyear Orient Company (Pte) Limited without
consideration. Assessee filed an application before the Authority for Advance Rulings (’AAR’) to
ascertain the tax implications arising from the above transaction. AAR held that there would be no tax
liability in the hands of the assessee or the Singapore company. AAR further held that even if the
assessee had received consideration, there would be no tax liability as the Indian company whose
shares were sold was a listed company and the capital gains would be exempt under section 10(38)
and therefore the said transaction cannot be said to be designed for avoidance of tax. In a writ petition
filed by the revenue authorities, the High Court refused to interfere with the order of the AAR as no
illegality was pointed out in the AAR’s ruling. Supreme Court has granted leave to appeal against the
High Court’s order.
DIT(IT) v. Goodyear Tire & Rubber Co. (2016) 236 Taxman 389 (SC)

S. 245R: Advance rulings- A notice u/s 143(2)(ii) cannot be issued in a routine, casual or
mechanical manner but after forming an opinion that it is "necessary or expedient" to do so. A
S. 143(2) notice in the standard form is not a bar u/s 245R(2) for admission of an AAR
application for advance ruling. [ S.143(2), Constitution of India , Art. 14 ]
The challenge in the main petition was to an order dated 7th August 2013, passed by the Authority for
Advance Rulings (‘AAR’) whereby the Petitioner’s application for determination of the question
regarding taxability of its profits arising from offshore supplies was rejected on the ground that the
bar under clause (i) below the proviso to Section 245R (2) of the Income Tax Act, 1961 (‘Act’) to the
AAR allowing the application stood attracted. It was held that once notice was issued to the Petitioner
under Section 143(2) of the Act, it should be construed that the question raised in the application was
a question that was ‘pending’ adjudication and therefore the aforementioned bar in terms of clause (i)
below the proviso to Section 245 R (2) of the Act could apply. HELD by the High Court:
(i) Under Section 143 (2) (ii) of the Act, an AO can serve on the Assessee a notice requiring him to
attend his office and produce any evidence on which the Assessee seeks to rely in support of return if
the AO “considers it necessary or expedient to ensure that the Assessee has not understated the
income or has not computed excessive loss or has not underpaid the tax in any manner’. Therefore,
the scope of the enquiry that an AO can undertake in terms of Section 143 (2) (ii) is a wide ranging
one. What is relevant for the present case is that prior to issuance of the notice under Section 143 (2)
(ii) the AO has to form an opinion that it is ‘necessary or expedient’ to ensure that an Assessee has not
(i) understated the income or (ii) has not computed excessive loss, or (iii) has not underpaid the tax in
any manner. The AO is, therefore, not expected to issue a notice under Section 143 (2) (ii) in a routine
or casual or mechanical manner.
(ii) Turning to the notice issued in the instant case to the Petitioner under Section 143(2) (ii) of the
Act, it is seen that it is in a standard format which merely states that “there are certain points in
connection with the return of income on which the AO would like some further information.” In any
event the question raised in the applications by the Petitioner before the AAR do not appear to be
forming the subject matter of the said notice under Section 143 (2) (ii) of the Act. Consequently, the
mere fact that such a notice was issued prior to the filing of the application by the Petitioner before the
AAR will not constitute a bar, in terms of clause (i) to the proviso to Section 245-R (2) of the Act, on
the AAR entertaining and allowing the application.(AY. 2010-11 )
Hyosung Corporation v. AAR (2016) 382 ITR 371/ 284 CTR 121/131 DTR 369/ 238 Taxman
401 (Delhi)(HC)

S. 246A : Appeal –Commissioner (Appeals)- Additional evidence –Matter remanded to AO for

admitting additional ground.

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On appeal, the tribunal held that the assessee was prevented by the reasonable cause from making a
claim before the AO during the assessment proceedings and had accordingly raised an issue before the
CIT(A). Therefore, the additional ground raised by the assessee was admitted and the issue was
remitted to the AO to consider and allow the discount on debentures on proportionate basis. (AY.
2006-07 and 2007-08)
Rain Commodities Ltd. v. Dy. CIT (2016) 46 ITR 1 (Hyd.)(Trib.)
Rain Cements Ltd. v. Dy. CIT (2016) 46 ITR 1 (Hyd.)(Trib.)

S.250:Appeal-Commissioner (Appeals)–Procedure-Rule 46A of the Income Tax Rules which

regulates the admission of additional evidence by the CIT(A) cannot override the principles of
natural justice.[R.46A]
The assessee could collect various evidences only after passing of the assessment order. According to
the assessee, these additional evidences are vital documents which are required to be considered in
order to adjudicate the issue in a judicious manner. The principle “Audi alteram partem”, i.e. no man
should be condemned unheard is the basic canon principles of natural justice and accordingly we find
merit in the contentions of the assessee that Rule 46A of the Income Tax Rules cannot be over ride the
principles of natural justice. Hence we are of the view that the learned CIT(A) was not justified in
refusing to admit the various additional evidences furnished by the assessee. Since the assessee was
not given opportunity to contradict the findings given by the AO by not admitting the additional
evidences, we are of the view that the Ld CIT(A) should re-adjudicate all the issues afresh by
admitting the additional evidences.( I.T.A. No.5138/Mum/2015, dt. 06.04.2016)(AY. 2007-08)
Avan Gidwani v. ACIT (Mum.)(Trib.);www.itatonline.org

S. 251 : Appeal - Commissioner (Appeals) – Powers -Interest on loan paid during the year can
be claimed as an allowance before appellate authorities.
The Assessee was a Government owned NBFC paid interest on bank loan. However, deduction was
not claimed in the return of income. A claim was made before the CIT(A) which was rejected on the
ground that no revised return was filed by the Assessee and the claim was neither debited to P&L A/c
nor was it allowed or disallowed u/s 43B. On appeal, the ITAT allowed the claim of the Assessee and
held that irrespective of the method of accounting and whether the amount was debited to P&L A/c or
not, interest and other expenses covered by s. 43B would be allowable only in the year of actual
payment and not in any other year. Further, the ITAT observed that a new claim can be made before
the appellate authorities and filing of revised return will not be necessary to make a new claim. (AY.
2001-02, 2003-04 to 2008-09)
West Bengal Infrastructure Development Finance Corporation v. ACIT(2016) 45 ITR 285
(Kol)(Trib)
DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285
(Kol)(Trib)

S. 251:Appeal - Commissioner (Appeals)-Power to make enhancement and go beyond the

subject matter of appeal.
CIT(A) has power of enhancement and can go beyond the subject matter of appeal.(AY. 2010-11)
Sundaram Medical Foundation v. Dy. CIT (E)–I (2016) 45 ITR 500 (Chennai)(Trib.)

S. 252 : Appeal - Commissioner (Appeals) – Additional evidence- Rule does not contemplate
that the CIT(A) should call for objections before admitting the additional evidence. [R. 46A]
It was held that Rule 46A does not contemplate a procedure whereby the CIT(A) should first call for
objections of AO regarding admissibility of the additional evidence and again call for objections
regarding the veracity and relevance of the additional evidence once such evidence has been
admitted. (AY. 2009-10)
ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib).

S. 253 : Appellate Tribunal – Cross objection- Revenue appeal was dismissed because of low
tax effect- Cross objection cannot be dismissed in limine. [ S 268A, ITAT R. 22, 27 ]]

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Tribunal held that where against order of Commissioner (Appeals), revenue filed appeal before
Tribunal and assessee also filed cross-objection and Tribunal dismissed appeal of revenue because of
low tax effect, cross-objection could not be dismissed in limine for reason of dismissal of revenue's
appeal. (AY. 2010-11)
ACIT v. Ajay Kalia ( 2016) 157 ITD 187 (Delhi ) (Trib.)

S. 253 :Appellate Tribunal- Fee provided under section 253(6) was not paid by revenue appeal
of revenue was dismissed.[S. 144C, 253(6),253(2A)]
Revenue has preferred appeals to the Tribunal against the order passed under section 253(2A)
without payment of institution feany step tp pay the fee.e. It was pointed out at the time of filing of
appeals but the revenue had not taken any step to pay the fee. Therefored the appealed
ssionerCodismissal. Commissere or were posted Tribunal held that since the memorandum of
appeal is not accompanied by the fee as prescribed, there is no discretion to the Tribunal to accept
memorandum of appeal filed, in violation of the statutory provisions. Memorandum of appeals filed
by the Revenue are hereby rejected as not maintainable. (AY. 2010-11)
ACIT v. D. E. Shaw India Software (P) Ltd. (2016)156 ITD 594/ 175 TTJ 492 (Hyd.)(Trib.)
ACIT v. Deloitte Consulting India (P) Ltd. (2016) 175 TTJ 492 (Hyd.)(Trib.)
ACIT v. Deloitte Support Services India (P) Ltd. (2016) 175 TTJ 492 (Hyd.)(Trib.)
ACIT v. Deloitte Tax Services India (P) Ltd. (2016) 175 TTJ 492 (Hyd.)(Trib.)

S. 254(1):Appellate Tribunal- Adjournment -Failure by ITAT to grant an adjournment

requested due to bereavement results in breach of principles of natural justice- Matter was set
aside.
In the peculiar facts and circumstances of the case and in the interest of justice, the learned Tribunal
could have given an opportunity of hearing to the appellant for the subsequent date. Having failed to
grant a short adjournment has resulted in passing the impugned order in breach of the principle of
natural justice which calls for the interference of this Court. The substantial question of law is
answered accordingly.
Zuari Global Ltd. v. Pr. CIT( 2016) 383 ITR 171 (Bom)(HC)

S.254(1):Appellate Tribunal-Non-consideration by the ITAT of a judgement of the co-ordinate

Bench makes the order a non-speaking one and breaches the principles of natural justice-
Order of Tribunal was seta side. [S. 14A, R.8D]
Allowing the appeal , the Court held that ;In fact the impugned order of the Tribunal in paragraph 6
thereof does record the appellant’s reliance upon the decision of the Courtof its coordinate Bench in
J.K. Investors (Bombay) Ltd vs. Assistant Commissioner of Income Tax (ITA No.7858/MUM/2011)
decided on 13th March, 2013. However, thereafter the impugned order does not deal with the
appellant’s reliance upon the decision of the Tribunal in J.K. Investors (supra) while dismissing the
appellant-assessee’s appeal before it. In fact the impugned order of the Tribunal ought to have dealt
with its decision in J. K. Investors (supra) and considered its applicability to the present facts. In view
of the fact that the impugned order of the Tribunal does not deal with its decision in J. K. Investors
(supra) relied upon by the appellant-assessee.in support of its submission as recorded in the impugned
order itself makes the impugned order a nonspeaking order and, therefore, in breach of principles of
natural justice. The substantial question of law is answered in the affirmative i.e. in favour of the
appellantassessee and against the revenue. However, the issue of applicability of Rule 8D of the Rules
or otherwise has yet to be determined by the Tribunal. In these circumstances, we set aside the
impugned order dated 10th July, 2013 passed by the Tribunal and restore the entire appeal to the
Tribunal for fresh disposal in accordance with law. All contentions of both sides left open.( ITA No.
2342 of 2013, dt. 08.03.2016)
DSP Investment Pvt. Ltd. v. ACIT (Bom)(HC); www.itatonline.org

S. 254(1):Appellate Tribunal-Precedent- Binding nature- Jurisdictional High Court-Law

declared by the decision of the High Court will be binding upon all authorities and Tribunals
functioning with in State- Duty of Tribunal to follow decision of jurisdcitoional High Court and
Co -Ordinate Tribunal- Writ is maintainable. [S.14A, Constitution of India, Art .226]

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Law declared by the decisions of the High Court will be binding upon all authorities and Tribunals
functioning with in State; when an appeal is not entertained then the order of the Tribunal holds the
filed and the Co –ordinate benches of Tribunal are obliged to follow the same .Duty of Tribunal to
follow decision of jurisdcitoional High Court and Co -Ordinate Tribunal. Not following the jusdment
of Jurisdcitional High Court , the Writ is maintainable and the Court would quash such an
order.(AY.2008-09)
HDFC Bank Ltd. v. DCIT(2016) 383 ITR 529/ 132 DTR 89/ 284 CTR 414 (Bom.)(HC)

S. 254(1) : Appellate Tribunal–The power under rule 12 of ITAT Rules is to either reject a
memorandum of appeal or return it for correction, if the memorandum of appeal is not in the
prescribed form. It is only after the memorandum of appeal is put in the prescribed form that it
has to be represented for acceptance under rule 7. [S. 260A, ITAT,R. 7, 12]
Against the order of the Commissioner (Appeals), the revenue filed an appeal before the Tribunal in
the prescribed form. The Tribunal by order dated 6-11-2007 dismissed the appeal on the ground that
the revenue had not obtained approval of the Committee on Disputes (COD) to prosecute a dispute
with the assessee, a public sector company, which was required in view of the decision of the
Supreme Court in the case of ONGC v. CCE [2004] 6 SCC 437. Thereafter on 17-2-2011, the
Supreme Court in the case of Electronics Corpn. of India Ltd. v. Union of India [2011] 332 ITR 58
held that the approval of COD was no longer required to prosecute a dispute amongst the departments
of the Government and Public Sector undertakings inter se. Consequent to the above, in the year 2012
the revenue filed a miscellaneous application before the Tribunal for recall of the order dated 6-11-
2007. The Tribunal by order dated 8-2-2013 dismissed the above application as being beyond the
period of limitation provided in section 254(2). Before the High Court, the Revenue contended that
there was no occasion to apply section 254(2) to its application for recall of the order dated 6-11-
2007. It was further argued that order dated 6-11-2007 was not an order passed under section 254(1)
but an order under rule 12 of the Income-tax (Appellate Tribunal) Rules, 1963, and accordingly, no
period of limitation applied.

The High Court held that rule 12 could not have any application, as the sine qua non for its
application was that the memorandum of appeal was not in the prescribed form. Admittedly, in instant
case, the memorandum of appeal was in the prescribed form. The appeal filed by the revenue itself
was listed for hearing on 6-11-2007 before a Division Bench of the Tribunal leading to an order under
section 254(1). This order was an appealable order under section 260A.

The High Court further observed that whenever a memorandum of appeal is rejected under rule 12,
then it has to be represented under rule 7. In the instant case, no memorandum of appeal has been
represented by the revenue under rule 7. This also is indicative of the fact that the order dated 6-11-
2007 of the Tribunal has not been exercised under rule 12 but under section 254(1). Moreover the
period from the date of rejection of the memorandum of appeal till the date of representation after
amending the memorandum of appeal would not be excluded while computing the period of limitation
as provided under the Act for the purposes of filing an appeal before the Tribunal. (AY. 2000-01)

CIT v. Air India Ltd.(2016) 383 ITR 284/237 Taxman 639 /131 DTR 81(Bom.)(HC)

S.254(1):Appellate Tribunal- Additional evidence- CIT(A) ought to have given opportunity to

Assessing Officer before admitting additional evidence.[S.144, 250, R.46A(3)]
A best judgement assessment was passed under section 144 of the Act by Assessing Officer,
disallowing deductions under section 10A of the Act. On appeal, CIT(A) set aside the assessment
order after considering the documents furnished and the evidence placed on record by the Assessee.
Aggrieved the Revenue appealed against the CIT(A) order before the Tribunal.
Tribunal dismissed the revenue’s appeal and held that there is no requirement in law that the CIT(A)
should invariably consult or confront the Assessing Officer every time additional evidence is obtained
by CIT(A) on its own motion. Also in cases wherein the additional evidence is in nature of clinching
evidence, leaving no further room for any doubt or controversy , in such case no useful purpose would

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be served in performing the ritual or forwarding the evidence to the assessing officer and in obtaining
his report.
Revenue preferred appeal before the High Court against the impugned order. High Court noted that
the Tribunal had failed to note that Rule 46A(3) requires the assessing officer to be given an
opportunity to examine the documents produced by the assessee for the first time before the CIT(A).
This mandate of Rule 46A(3) could not have been dispend with, as it is a statutorily prescribed rule of
natural justice. High Court held that Rule 46A(3), cannot be whittled down or brushed aside as
performing a ritual. While sub rule (4) confers power on the first appellate authority to cause
production of documents, justice and fair play would require the Assessing Officer to be given the
opportunity to examine such documents and put forth his objections. Accordingly, the High Court
held that the document which the Assessee intends to place before the appellate authority, cannot be
entertained by CIT(A) except on fulfilment of the following conditions:- (1) recording reasons in
writing for receiving such evidence; and (2) giving the assessing authority an opportunity to examine
the documents.
As a result High Court set aside the CIT(A) order and directed to pass a fresh order after giving the
Assessing Officer opportunity of being heard. (AY. 2010-11)
CIT v. NE Technologies India (P) Ltd. (2016) 237 Taxman 151 (AP)(HC)

S. 254(1):Appellate Tribunal –Right of Respondent in an appeal before Tribunal – The

respondent cannot assail the finding of the CIT(A) without filing an appeal – Rule 27 would not
permit the respondent to expand the scope of an appeal and argue on issues which are not
subject matter of appeal. [S.68, 153A, ITATR. 27]
Pursuant to a search and seizure action, the AO invoked the provisions of S. 153A of the Act and
completed the assessment by bringing to tax share application money as unexplained u/s. 68 of the
Act.

The CIT(A) held that addition u/s. 68 was beyond the scope of S. 153A, however, upheld the addition
on merits. The Tribunal though allowed the revenue to assail the finding of the CIT(A) on scope of
Sec. 153A, reversed the assessment order.

Against the order of the Tribunal, the Revenue preferred an appeal before the HC wherein it was held
that, the issue whether the additions made by the AO were outside the scope of s.153A, had been
decided by the CIT(A) in favour of assessee, against which no appeal was preferred by the Revenue
before the Tribunal and thus, had attained the finality. In absence of any appeal, the Tribunal could
not have disturbed the said findings. Further, the Revenue cannot take recourse to Rule 27 of the
ITAT (Rules), 1963 as it would not extend to permitting the respondent to expand the scope of an
appeal and assail the decision on issues, which are not subject matter of the appeal.(AY. 2008-09)
CIT v. Divine Infracon (P) Ltd. (2016) 131 DTR 395 (Delhi)(HC)

S. 254(1):Appellate Tribunal-Corrigendum-Additional evidence- Tribunal cannot consider new

material or information which comes to the possession of the AO after passing the assessment
order- The appellate procedure is designed to adjudicate matters that were originally framed in
the assessment order and new material cannot be considered.
It is an admitted fact that the statement taken from Shri Jagdish Prasad Purohit was not considered by
the AO. Under the scheme of the Act, the order passed by the assessing officer is being contested by
the assessee before Ld CIT(A) and thereafter, by both the parties before the Tribunal, if they feel
aggrieved by the order passed by Ld CIT(A). After passing the assessment order, the assessing officer
becomes functus officio and hence, if any material or information comes to the knowledge of the AO
subsequently, then the assessing officer is required to follow the course of action provided under the
Act and the Income tax Act does not provide for modification of the order that has already been
passed. The appellate procedure has been designed to adjudicate the matters that were originally
framed in the assessment order. Hence, in our considered view, it may not be correct an altogether
new material at this stage. Further, the Ld A.R has submitted that Shri Jagdish Prasad Purohit has not
implicated the assessee in the statement and he has retracted from the statement by filing an affidavit.
He has also furnished a copy of retraction statement. These limited facts show that the statement given

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by Shri Jagdish Prasad Purohit and its reliability are debatable. Since the additional evidence sought
to be relied upon by the revenue is a debatable one; since the same was not considered or relied upon
by the AO and since alternative course of action is available to the revenue under the Act to deal with
the same, in our view, it should not be admitted at this stage. Accordingly we are of the view that the
grounds urged by placing reliance on the same are also liable to be dismissed. Accordingly we decline
to admit the additional evidence filed by the revenue and the revised grounds urged by the revenue in
connection there with are also dismissed.( ITA No. 2034/mum/2014, dt. 09.05.2016) (AY. 2009-10)
H. K. Pujara Builders v. ACIT (Mum.)(Trib.), www.itatonline.org

S. 254(1):Appellate Tribunal-A liberal view must be taken in matters of condonation of delay. A

delay of 2191 days caused by an employee leaving the services of the assessee and not handing
over papers to the assessee deserves to be condoned.
There was a delay of 2191 days in filing the instant appeal. In the affidavit, the assessee stated that the
employee concerned, who was handling with the taxation matter left the assessee company and due to
inadvertent mistake, the papers and documents, related to the appeal remained to be handed over,
which caused the delay.
Held, if a litigant satisfies the Courts that there was sufficient reason for availing the remedy after the
expiry of limitation, delay could be condoned. In every case of delay, there can be some lapses on the
part of the litigant concern. That alone is not enough to turn down the plea and to shut the doors
against him, unless and until, it makes a mala-fide or a dilatory statutory, the court must show utmost
consideration to such litigant. In matters concerning the filing of appeals, in exercise of the statutory
right, a refusal to condone the delay can result in a meritorious matter being thrown out at the
threshold, which may lead to miscarriage of justice. Since the employee who was earlier handling the
tax matters of the assessee company, while leaving the job of the assessee company, did not handover
the relevant papers either to the assessee or to the next person, a fact which caused the delay, the delay
was liable to be condoned by taking a lenient view. ( ITA No. 3786/Mum/2012, dt. 18.03.20165)(AY.
2002-03)
Lahoti Overseas Ltd. v. DCIT (Mum.)(Trib.), www.itatonline.org
S. 254(1): Appellate Tribunal- Delay of 1737 days was condoned . [S.10(10C)]
Tribunal has condoned the delay of 1737 days on the ground that delay was due to callousness and
lack of commitment of his authorised representatives and health problems of assessee ,keeping in
view fact that assessee would be otherwise entitled to benefit of deduction under section 10(10C) as
per CBDT Instruction and keeping in mind circumstances in which appeal of assessee was filed
belatedly, delay in filing appeal was to be condoned. (AY. 2004-05)
Anupam Biswas v. ITO (2016) 157 ITD 445(SMC) (Kol.) (Trib.)

S. 254(1):Appellate Tribunal – Delay of 2192 days- Reason of waiting for decision of regular
appeal can not be a sufficient reason to condone the delay. [S.12AA]
Dismissing the appeal the Tribunal held that ; the explanation of the assessee that the delay of filing of
appeal of 2192 days was on the plea of waiting for decision of regular appeals for other assessment
years would not amount to a sufficient cause for condonation of delay in filing appeal against said
rejection order. ( AY. 2009-10 to 2011-12 )
Baddi Barotiwala Nalagarh Development Authority v. CIT ( 2016) 157 ITD 571(Chd)(Trib)

S. 254(1) : Appellate Tribunal–Additional grounds-Facts necessary to apply filter sought to be

relied upon in the additional ground are already available on record–Assessee can claim the
said filter for necessary adjudication–Additional Ground admissible. [S.92C]
On admissibility of additional ground, question as to whether the aforesaid two companies are
comparable or not with the assessee as per FAR analysis has to be decided on the basis of data which
is available in public domain. Therefore, facts necessary to apply the filter sought to be relied in the
additional grounds are already available on record. Therefore, there can be no valid objection to
deciding the question of applying the aforesaid filter, if otherwise it is found to be a valid filter.
Decision of Quark Systems clearly supports the plea of assessee. Question as to whether the turnover
filter was a filter applied in determining ALP in software development services is a matter of judicial
decision. Thereby, ground of appeal deserves to be admitted for adjudication. (AY. 2006-07)

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FCG Software Services (India) (P) Ltd v. ITO (2016) 176 TTJ 145/ 66 taxmann.com 296
(Bang.)(Trib.)

S.254(1):Appellate Tribunal–Right of Respondent–Revenue has no right to appeal against view

taken by AO/TPO himself. [ITATR. 27]
Though revenue has right to file cross objections against the adverse order of the CIT(A) but it has no
right to file appeal against the view taken by the AO/TPO himself which was not disturbed in the first
appeal. When TPO himself considered ASE Ltd as comparable, there could be no reason for revenue
to be aggrieved against its inclusion; and department could take recourse to other legal remedies, if
any, available as per law insofar as its grievance against decision of Assessing Officer/TPO was
concerned. (AY. 2007-08)
ACIT v Tech Books Electronics P. Ltd (2016) 176 TTJ 20/65 taxmann.com 241 (Delhi )(Trib.)

S. 254(1): Appellate Tribunal-Additional evidence–Ledger account is not an additional

evidence. [R. 29]
The assessee submitted copy of ledger account during the hearing of the appeal before the CIT(A).
Since copy of the ledger account of the assessee was placed before the authorities during the first
appellate proceedings and assessment proceedings, it could not be treated as additional evidence.
Therefore, there was no requirement of invoking provisions of rule 29 of the 1963 Rules for
admission and consideration of additional evidence.(AY. 2009-10)

Vipin Malik v.ACIT (2016) 45 ITR 589 (Delhi)(Trib.)

S. 254(2):Appellate Tribunal-Rectification of mistake apparent from the record–Power of

rectification – Finding on merits cannot be challenged in the guise of rectification. [S.119(2)(b),
237]
The Assessing Officer held that the assessee is not eligible for refund claimed in the return of income
as the return was filed belatedly and the assessee was asked to approach the CBDT by filing an
application under section 119(2)(b) of the Act, if required. Aggrieved by the intimation, the assessee
filed an appeal before the CIT(A), who dismissed the appeal holding that the intimation by the
Assessing Officer is not an order under section 237 of the Act. Aggrieved, the assessee filed an appeal
before the Tribunal, wherein it was held that the communication of the Assessing Officer rejecting the
refund amounted to an order passed under section 237 of the Act. Aggrieved, the revenue filed a
miscellaneous application before the ITAT seeking to rectify the order which was dismissed on the
ground that the ITAT cannot reverse its order in the garb of rectification. On appeal by the Revenue,
the High Court dismissed the appeal holding that as the order of the Tribunal cannot be a subject
matter of rectification when it held on merits that the communication amounted to an order under
section 237 of the Act and the Revenue had a remedy of filing an appeal before the High Court
against the same.
CIT v. Sri. Ponkumar Magnesite Mines Lorry Transport Operator Periyagollapatti (2016) 236
Taxman 410 (Mad.)(HC)

S. 254(2):Appellate Tribunal–Rectification of mistake-Subsequent decision of High Court

reversing the view of the ITAT constitute mistake apparent from record.[S.14A]
The Rectification application was filed on the basis of Delhi High Court decision in CIT v. Holcim
India (P) Ltd. (2014) 90CCH 0081)(Delhi)(HC) wherein the Court held that provisions of section
14A cannot be invoked when no exempt income was earned by assesse during the relevant financial
period. Allowing the petition the Tribunal held that non consideration of proposition of law laid down
by the High Court is a mistake apparent from record. Tribunal followed the ratio in ACIT v.
Saurashtra Kurch Stock Exchange Ltd (2003 ) 262 ITR 146 (Giuj) (HC). (MA.No 269/Del/2014
/ITA No. 4395/Del/2013, dt. 19.02.2016)(AY. 2008-09)
Green Meadows Pvt. Ltd. v. ITO (Delhi)(Trib);www.itatonline.org

S. 254(2):Appellate Tribunal- Rectification of mistake-Key man insurance policy-Tribunal

decided on the basis of IRDA a circulars–Mistake apparent on record. [S.10(10D)].

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Assessee took Keyman Insurance Policies on life of its employee and claimed deduction in respect of
premium . Tribunal decided the issue on the basis of IRDA circulars which has no role to play in
deciding whether premium on insurance policies paid are covered by scope of 'keyman insurance
policy' under section 10(10D) . On rectification application by assessee, allowing the petition the
Tribunal held that the order of the Tribunal sufferred from mistake apparent from record particularly
when specific submissions of assessee were not adjudicated. Matter remanded. (AY. 2006-07)
F.C. Sondhi & Co. (India) (P.) Ltd. v. Dy.CIT (2016) 156 ITD 103 (Asr.)(Trib)

S. 254(2A):Appellate Tribunal–Stay-Tribunal has power to grant stay beyond 365

days.[S.254(1)]
Dismissing the writ petition of revenue; the Court held that as the Third Proviso which restricts the
power of the ITAT to grant stay beyond 365 days “even if the delay in disposing of the appeal is not
attributable to the assessee” has been struck down in Pepsi Foods Pvt. Ltd. v.ACIT (2015) 376 ITR 87
(Del.) as being arbitrary, unreasonable and discriminatory, the law laid down in Narang Overseas (P)
Ltd. v.ITAT (2007) 295 ITR 22 (Bom.) & CIT v. Ronuk Industries Ltd (2011) 333 ITR 99 (Bom.)
that the ITAT has power to grant stay beyond 365 days has to be followed. (AY. 2009-10to 2012-13)
CIT v. Tata Teleservices (Maharashtra) Ltd. (2016) 133 DTR 119 (Bom.)(HC)

S.255:Appellate Tribunal- Special Bench - Matter before a Division Bench of Tribunal for
giving effect to majority opinion of Accountant Member and Third Member and assessee raised
objections urging to adjourn matter or refer matter to President for Constitution of a Special
Bench, objections were liable to be rejected and majority view deserved to be confirmed. [S.
271(1) (c)]
CIT(A) deleted penalty imposed upon assessee under section 271(1)(c) . Third Member of Tribunal
concurring with view taken by Accountant Member opined that CIT(A) was not justified in deleting
penalty. When Competent Authority placed matter before a Division Bench for giving effect to
majority opinion, assessee raised objections urging to adjourn matter or refer matter to President for
Constitution of a Special Bench . Earlier a Division Bench of Tribunal in case of Jupiter Corporation
Services Ltd. v. Dy. CIT ( 2015) 62 taxmann.com 58 (Ahd) on similar issue in favour of revenue . In
view of above decision, objections raised by assessee were liable to be rejected and majority view
deserved to be confirmed . ( AY.1995-96 to 1997-98)
ACIT v. Megh Malhar Finstock (P.) Ltd (2016) 157 ITD 593 (Ahd) (Trib.)

S. 256:Reference-High Court-Reference jurisdiction High Court should not act as an appellate

Court to review such findings of fact arrived at by the Tribunal by a process of reappreciation
and reappraisal of the evidence on record.
The Court held that; It is well settled that issues of fact determined by the Tribunal are final and the
High Court in exercise of its reference jurisdiction should not act as an appellate Court to review such
findings of fact arrived at by the Tribunal by a process of reappreciation and reappraisal of the
evidence on record. On merit dismissed the appeal of assesee. (AY.1984-85).)
Ganapathy & Co. v. CIT( 2016) 381 ITR 363/ 237 Taxman 587/ 283 CTR 121(SC)

S. 256: Reference-High Court-Monetary limits prescribed for litigation by revenue-Effect of

CBDT Instruction No. 5 of 2014 - Instruction applicable to pending references.
Where a reference under section 256(1) of the was filed in which tax effect was less than Rs. 4
lakhs. Held, that Instruction No. 5 of 2014 issued by the Central Board of Direct Taxes was applicable
to the reference, even if it was pending. The tax effect involved was less than the monetary limit
prescribed by the instruction. There was nothing to indicate that the issue raised in this particular
reference would fall within the exclusion clause in the instruction or that the issue had a cascading
effect. Therefore, the reference was to be returned unanswered. ( AY. 1988-1989 )
CIT v. Computer Point (I) Ltd. (2016) 381 ITR 441 (Bom.)(HC)

S.256:Reference-High Court-Tax effect was less than the monetary limit- Reference returned un
answered.

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Tax effect was less than the monetary limit prescribed by the instruction . Therefore the reference was
returned unanswered .(AY. 1988-89)
CIT v. Computer Point (I) Ltd ( 2016) 381 ITR 441 (Bom.)(HC)

S. 260A:Appeal- High Court- Binding nature-Reluctance of AOs to comply with binding Court
judgements leads to negative reactions amongst business entities doing business in India and
hurts National pride and image. Hereafter non-compliance with orders would visit officials with
individual penalties, including forfeiture of salaries. A copy of order be sent to the Secretary in
the Ministry of Finance, Government of India and the Chairman, Central Board of Excise and
Customs.
We are mindful of the fact that the judgment and order of this Court was delivered much after the
impugned order. The impugned order is dated 29th January, 2016, whereas the Division Bench in the
petitioner’s case is dated 22nd February, 2016. But, we expected the officers to save precious time of
this Court in not requiring it to pass a detailed order and judgment by withdrawing the impugned
condition / clause. That is not forthcoming as we find that officers after officers are reluctant to take
decisions for the consequences might be drastic for them. No officer is acting independently and
following judgments of this Court, but waiting for the superiors to give them a nod. Even the
superiors are reluctant given the status of the assessee and the quantum of the demand or the refund
claim. We are sure that some day we would be required to step in and order action against such
officers who refuse to comply with the Court judgments and which are binding on them as they fear
drastic consequences or unless their superiors have given them the green signal. If there is such
reluctance, then, we do not find any enthusiasm much less encouragement for business entities to do
business in India or with Indian business entitles. Such negative reactions / responses hurt eventually
the National pride and image. It is time that the officers inculcate in them a habit of following and
implementing judicial orders which bind them and unmindful of the response of their superiors. That
would generate the right support from all, including those who come forward to pay taxes and
sometimes voluntarily. Hereafter if such orders are not withdrawn despite binding Division Bench
judgments of this Court that would visit the officials with individual penalties, including forfeiture of
their salaries until they take a corrective action. If any approval or nod is required from superiors that
should also be granted expeditiously and while obeying the court orders, the officers can always
reserve the Revenue’s rights to challenge them in appropriate legal proceedings. A copy of order be
sent to the Secretary in the Ministry of Finance, Government of India and the Chairman, Central
Board of Excise and Customs. We are constrained to observe as above simply because repeated
suggestions to Mr. Jetly so as to persuade the officers to withdraw the orders impugned in the petition
of their own did not meet any favourable response( WP. No. 2855 of 2016, dt. 28.03.2016)
Larsen & Tourbo Limited v. UOI(Bom)(HC), www.itatonline.org

S. 260A: Appeal-High Court-Transfer Pricing- High Court irked at fact that Dept is unaware of
which of its matters are admitted/ dismissed. Chief CIT directed to streamline the procedure for
filing appeal before the High Court- Pr. Chief Commissioner has assure d that in the website of
department a separate section called legal cell will be included and all information regrading
appeals admitted and dismissed will be made available to the assesses. [S.92C]
When the matter came up for hearing the Hon’ble Court observed that in few of the matters the appeal
of the revenue on the above issue were dismissed after considering the detailed arguments of the
assessee and the revenue. The said orders of the Bombay High Court were also accepted by the
revenue. The Hon’ble court also observed that similar matter was decided in favour of the assessee by
the Delhi High Court. However, in one of the matter the issue was admitted by the Bombay High
Court by an exparte order which was not brought to the notice of the Hon’ble High Court. To avoid
such an inconsistent stand of the revenue, the Hon’ble Court directed the Principal Chief
Commissioner to stream line the procedure to be followed for filing an appeal to the High Court and
to bring transparency. In pursuance to the said direction of the Hon’ble High Court, Principal Chief
Commissioner of Income tax filed an affidavit before the Court on 5/5/2016, wherein he has informed
that he has constituted the committee of Chief Commissioners on 3/5/2016 (Refer copy enclosed).
Principal Chief Commissioner in his affidavit stated that web site www.incometaxgovin it has been
decided to add a legal corner on the web site where all questions of law admitted, dismissed by the

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Hon’ble Bombay High Court will be hosted. The access to the web site will be provided to all
concerned for easy reference where the questions of law would be bunched section wise. Expert
committee will meet every week and decision pronounced by the Bombay High Court will be
discussed and appropriate action will be taken (Refer Affidavit). Hon’ble High Court also agreed with
the suggestion of Dr. K. Shivaram, Sr. Advocate that the legal corner on the web site should also
indicate whether the question of law formulated by the Revenue was rejected and the same has been
accepted by the Income tax Dept. The counsel for the revenue stated that on instruction from the
Principal Chief Commissioner the web site will be functional by 15/6/2016.( ITA No. 2287 of 2013,
dt. 06.05.2016)
CIT v. TCL India Holding Pvt. Ltd.(Bom)(HC);www.itatonline.org

S.260A : Appeal – High Court – Revenue should be deprecated for filing frivolous appeal. When
a question of law is already covered by earlier orders of the Court, the Court may constrained
to impose cost on AO & CIT.
The Revenue had raised various question of law which were either covered by earlier orders of
Tribunal in assessee’s own case and are accepted by Revenue by not filing an appeal to HC; or which
already been concluded by Supreme Court against the Revenue.

In such a scenario, the HC held that a question of law which is already settled and accepted by
Revenue in earlier years in assessee’s own case, cannot be again challenged before the Court.
However, the Revenue can challenge the ground on a different valid point provided the same is
mentioned in the memo of appeal or is filed before the hearing by way of an affidavit. Otherwise, the
Court may be constrained to impose costs on the AO concerned and CIT heading the
Commissionerate. (AY. 2003-04)
CIT v. Goodlas Nerolac Paints Ltd. (2016) 131 DTR 57/ 284 CTR 266 (Bom.)(HC)

S.260A : Appeal – High Court – Question not raised before Tribunal cannot be raised before
Court.
Question not raised before Tribunal cannot be raised before Court.(AY. 2000-01)
CIT v. Air India Ltd. (2016) 383 ITR 284/237 Taxman 639 /131 DTR 81 (Bom.)(HC)

S. 260A:Appeal–High Court-Substantial question of law raised for the first time which is based
on records and does not require any investigation of any facts can be admitted in appeal before
the High court. [ S.143(2), 292BB]
The issue before the HC was that whether the AO was justified passing an assessment order without
serving a notice u/s. 143(2) within the stipulated period as prescribed under the Act. The HC held that
the jurisdiction of AO starts only if the notice u/s. 143(2) is issued within the prescribed time. It has
nothing to do with service of the notice which is contemplated u/s. 292BB. Therefore, the order of the
Tribunal, first appellate authority and the assessment order cannot be sustained and are to be quashed.
Further, the assessee had raised the aforesaid question for the first time before the HC to which the
Revenue raised objection for admission. The HC held that a substantial question of law which is based
on records and does not require any investigation of any facts can be entertained in appeal before the
HC even if the same is not taken before the lower authorities. (AY.1997-98)
U P Hotels Ltd. v. CIT(2016) 131 DTR 99/ 283 CTR 417 (All)( HC)

S. 260A : Appeal – High Court – Where the Tribunal has made decision on a legal issue by
following its earlier order which has been accepted by Revenue, appeal is not maintainable
before the HC for its subsequent years unless a different argument is raised.
The Tribunal had allowed assessee’s appeal following the decision of Tribunal in the case of ACIT v.
Bright Star Investment Pvt. Ltd. (2009) 120 TTJ 498 which was accepted by Revenue as no appeal
was filed before HC. However, an appeal was filed before HC in assessee’s case.

The HC, while dismissing the appeal held that once a Tribunal’s view on a legal issue is accepted by
in a particular case, the same legal point cannot be challenged now before HC in respect of another
assessee’s case. This is for the reason that the basic feature of rule of law is certainty of law and its

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uniform application among all the assessee. However, the Revenue can challenge the ground on a
different valid point provided the same is mentioned in the memo of appeal or is filed before the
hearing by way of an affidavit.(AY. 2004-05)
CIT v. Synchem Chemicals (I) Ltd. (2016) 131 DTR 51/ 284 DTR 260 (Bom. HC)

S. 260A: Appeal-High Court–Delay of 1271 days-No reasonable explanation for delay - Delay
could not be condoned.
Held, dismissing the appeals, that the court was not satisfied with the reasons offered for the
extraordinary delay of 1271 days and the delay of 1876 days in filing the appeals. The delay could not
be condoned.
CIT v. Arvinder Singh (2016) 380 ITR 179 (Delhi)(HC)
CIT v. Elegant Travels P. Ltd. (2016) 380 ITR 179 (Delhi)(HC)

S. 260A: Appeal-High Court-Substantial questions of law-No finding whether during AY

whether there was separate inter college-Substantial questions of law arose [S. (2(7), (2(24),
(2(31), 10(23C)(vi)].
The Tribunal and the Commissioner (Appeals) had not examined whether during the AYs, there was
any separate inter college inasmuch as it was for the first time that approval was granted to run an
inter college on July 14, 2012. While reversing the order of the Assessing Officer, this factual aspect
was not dealt with. All the issues had to be looked into along with the definition of the word
"assessee" u/s 2(7), the definition of the word "person" u/s 2(31), the definition of the word "income"
u/s 10 as contained in section 2(24). It was in this background that the claim of exemption as sought
u/s 10(23C)(iiiad) would also have to be seen. Therefore, substantial questions of law arose for
consideration on the facts and legal issues.(AY. 2010-2011, 2011-2012 )
CIT(E) v. Chironji Lal Virendra Pal Saraswati Shaiksha parishad (2016) 380 ITR 265
(All.)(HC)

S. 263: Commissioner - Revision of orders prejudicial to revenue - Even if AO applies mind and
decides not to assess expenditure as unexplained u/s 69C because the assessee withdrew the
claim for deduction, the CIT is entitled to revise the assessment on the ground that the matter
needed further investigation. [S.69C]
(i) The CIT took the view that notwithstanding the withdrawal of the claim by the assessee, in view of
the earlier stand taken that the said expenses were incurred for security purposes of the assessee, the
Assessing Officer ought to have proceeded with the matter as the assessee was following the cash
system of accounting and the filing of the re-revised return, prima facie, indicated that the additional
expenses claimed had been incurred. Withdrawal of claim by assessee can be for variety of reasons
and this does not mean that Assessing Officer should abandon enquiries regarding sources for
incurring expenses. Assessee follows cash system of accounting and the claim regarding additional
expenses was made through duly verified revised return. The claim was pressed during assessment
proceedings carried on by A.O. after filing revised return and it was specially stated in letter dated
13.02.2004 that expenses were for security purposes and that payments have been made out of cash
balances available etc. Under the circumstances, the Assessing Officer was expected to examine the
matter further to arrive at a definite finding whether assessee incurred expenses or not and in case,
actually incurred, then what were sources for incurring these expenses. Assessing Officer was
satisfied on withdrawal of the claim and in my view, his failure to decide the matter regarding actual
incurring of additional expenses and sources thereof resulted into erroneous order which is prejudicial
to the interest of revenue.”
(ii) There can be no doubt that so long as the view taken by the Assessing Officer is a possible view
the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on
the ground that there is another possible view of the matter. Permitting exercise of revisional power in
a situation where two views are possible would really amount to conferring some kind of an appellate
power in the revisional authority. This is a course of action that must be desisted from. However, the
above is not the situation in the present case in view of the reasons stated by the learned C.I.T. on the
basis of which the said authority felt that the matter needed further investigation, a view with which
we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of

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which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same
gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under
Section 69-C of the Act could not have been simply dropped on the ground that the claim has been
withdrawn. We, therefore, are of the opinion that the learned C.I.T. was perfectly justified in coming
to his conclusions insofar as the issue No.(iii) is concerned and in passing the impugned order on that
basis. The learned Tribunal as well as the High Court, therefore, ought not to have interfered with the
said conclusion.( CA. No. 5009 of 2016, dt. 11.05.2016) (AY. 2001-02)
CIT v. Amitabh Bachchan (SC); www.itatonline.org

S. 263: Commissioner - Revision of orders prejudicial to revenue - Cash credits- Share capital-
Even if the AO has conducted an inquiry into the taxability of share capital receipts CIT is
entitled to revise if the AO has not applied his mind to important aspects. [S. 68]
In Subhlakshmi Vanijya Pvt. Ltd vs. CIT (2015) 155 ITD 171 ( Kol)(Trib) Vaibhavlaxmi Financial
Advisory Pvt.Ltd vs. CIT and Rajmandir Estates Pvt. Ltd vs. CIT the Tribunal upheld the exercise of
revisionary powers u/s 263 by the CIT on the ground that though the AO had conducted necessary
enquiries, he had not applied his mind properly to the evidence on record. The assessee filed an appeal
in the High Court , dismissing the appeal the Court held that ; We have indicated above the pieces of
evidence which go to show that the Commissioner had reasons to entertain the belief that this was or
could be a case of money laundering which went unnoticed because the assessing officer did not hold
requisite investigation except for calling for the records. The evidence which we have tabulated above
and the prima facie inference drawn by us is deducible from the documents also submitted before the
assessing officer. The fact that the assessing officer did not apply his mind to those pieces of evidence
would be evident from the assessment order itself.The persons behind the assessee company and the
persons behind the subscribing companies were not interrogated which was essential to unearth the
truth. The question for consideration is whether in the presence of materials discussed above the
Commissioner was justified in treating the assessment order erroneous and prejudicial to the interest
of the revenue. That question in the facts and circumstances has to be answered in the affirmative.
Whether receipt of share capital was a taxable event prior to 1st April, 2013 before introduction of
Clause (VII b) to the Sub-section 2 of Section 56 of the Income Tax Act; whether the concept of arms
length pricing in a domestic transaction before introduction of Section 92A and 92BA of the Income
Tax Act was there at the relevant point of time are not questions which arise for determination in this
case.( GA No. 509 of 2016 & ITA no. 113 of 2016, dt. 13.05.2016) (AY. 2009-10)

Rajmandir Estates Private Limited v. Pr. CIT (Cal)(HC), www.itatonline.org

S. 263: Commissioner-Revision of orders prejudicial to revenue -Book profit - As the loss

suffered on transfer of business was rightly debited to the P&L A/c as per AS 13, it cannot be
added back to the Book Profits- Revision order was held to be bad in law. [S.115JB]
The assessee debited an amount of Rs. 919.52 lakhs to the Profit and Loss Account in accordance
with a scheme of arrangement for the transfer of its investment division to Daisy Commercials Pvt.
Ltd. (hereinafter referred to as ‘DCPL’). According to the sanctioned scheme, the assessee transferred
its investment division worth Rs.23.16 crores to DCPL. The shareholders of the assessee company
were issued shares of the value of Rs.13.96 crores in DCPL. The assessee reduced its share capital by
Rs.13.96 crores. The difference between the investment value of Rs.23.16 crores and the share capital
reduction of Rs.13.96 cores, that is, Rs.9.20 crores was debited to the Profit & Loss Account for the
year ended March 31, 2006. This was allowed by the AO in computing the book profits. The CIT
revised the assessment u/s 263 and held that not adding back the aforesaid amount of Rs 919.52 lakhs
in computing the book profit u/s.115JB of the Act made the assessment order erroneous and
prejudicial to the interests of the revenue. The Tribunal accepted the claim of the assessee. On appeal
by the department to the High Court HELD dismissing the appeal:
(i) What is required of us is to examine the legality of exercise of power under Section 263 of the Act
by the CIT. It is a fact that the assessee incurred loss of a sum of Rs.9.20 crores by resorting to
transfer of its investment division to Daisy Commercials Private Ltd. The loss was debited to the
profit and loss account. The assessment was under Section 115JB of the Act. The assessing officer did
not question the act of debiting loss arising out of the transfer to the P/L account. The CIT was of the

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opinion that the loss could not have been debited to the P/L account and the amount was required to
be added back for computation of book profit under Section 115JB.
(ii) The accounting standards laid down by the institute however provide for recognition of the profit
or loss arising out of investment in the profit and loss account. Reference in this regard may be made
to Clauses 21 and 25 of Accounting Standard 13. The disclosure made in the financial statements is in
pursuance of the requirement of Clause- 25 quoted above and is also in pursuance of Clause 2(b) of
Part II of Schedule VI to the Companies Act, 1956 which is not to be construed as any qualification
indicating any inaccuracy in the accounts. There was, thus no mistake on the part of the assessee in
debiting the loss to the profit and loss account. Once it is realized that the assessee had correctly
debited the profit and loss account for the loss arising out of the transfer of investment division, there
remains no difficulty in realizing that the CIT proceeded on a wrong premise which was responsible
for exercise of jurisdiction under Section 263 which he would not have done if he had realized the
correct position. ( GA no. 3094 of 2012, ITA No. 7 of 2004, dt. 04.03.2016)(AY.2006-07)
CIT v. Binani Cement Ltd. (Cal.)(HC);www.itatonline.org

S. 263: Commissioner-Revision of orders prejudicial to revenue - Amounts not deductible-

Disallowance for short-deduction TDS default (i.e. deduction u/s 194H instead of u/s 194H) [S.
40(a)(ia), 194C, 194H]
The CIT passed an order u/s 263 on the ground that the Assessing Officer has not disallowed the
expenditure under Section 40a(ia) of the Act as per the audit report submitted by the statutory auditors
in Form 3-CD wherein it was specifically made clear that the assessee has not considered CBDT
Circular No.715 in respect of Section 194C of the Act pertaining to deduction of TDS on
advertisement contract with M/s TLG India Pvt. Ltd. After hearing the parties, the Commissioner set-
aside the assessment order holding that the provisions of Section 40a(ia) of the Act is applicable.
Being aggrieved by the said order, the assessee preferred appeal before the Tribunal. The Tribunal
having considered the explanation furnished by the assessee before the Assessing Officer which forms
part of the assessment records, has come to a conclusion that the assessee has deducted TDS under
Section 194H of the Act and the provisions of Section 194C of the Act are not applicable to the
present case. On law, it followed the Judgment of the Calcutta High Court reported in S. K.
Tekriwal[2014] 361 ITR 432 (Cal). As regards the binding nature of the CBDT Circular, the Tribunal
has followed the Judgment of the Apex Court in Hindustan Aeronautics Limited reported in 243 ITR
808. The Tribunal has also followed a co-ordinate Bench decision of this Court in Dhaanya seeds
Private Limited reported in ITA No.1523/Bang/2012 dated 27.09.2013. Thus, Tribunal having
considered the case on facts and law, has come to a conclusion that the Commissioner had no
jurisdiction to invoke the provisions of Section 263 of the Act as the twin conditions which are
mandatorily required to be satisfied for invoking the provisions of Section 263 of the Act i.e., (i) order
to be revised is erroneous and (ii) prejudicial to the interest of the revenue are not satisfied. On appeal
by the department to the High Court HELD dismissing the appeal:
We have carefully considered the arguments addressed by both the parties and perused the material on
record in the light of the Judgments referred to by the Tribunal in arriving at the conclusion. An
identical question regarding Section 40(a)(ia) of the Act was considered by the Calcutta High Court
in S. K. Tekriwal [2014] 361ITR 432 (Cal) and the findings given by the Calcutta High Court has
been followed by the Tribunal. Similarly, as regards the binding nature of the CBDT, the Tribunal has
followed the Judgment of the Apex Court in HAL (supra). In view of both the decisions cited supra,
no substantial questions of law arises for our determination in this appeal.( ITA No.342 of 2015, dt.
16.02.2016) (AY.2007-08)
CIT v. Hewlett-Packard India Sales Pvt. Ltd( 2016) 382 ITR 496 (Karn.)(HC)

S. 263 : Commissioner – Revision of orders prejudicial to Revenue- Lease rental- Capital or

revenue- Revision was is not justified as the Commissioner failed to record as to how and in
what manner order was erroneous and prejudicial to revenue.
The Assessee Company had claimed a deduction on account of lease rental paid for motor car taken
on finance lease and the same was allowed in the assessment. The Commissioner being of the view
that the lease rentals were required to be treated as capital expenditure, thus directed the Assessing
Officer to examine the same.

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Tribunal was of the view that the Assessing Officer (while passing the order under section 143(3) of
the Act) had requisite details and evidences and on being satisfied of such details and evidences, he
had allowed the claim to the assessee. Therefore the assessment order passed by the Assessing Officer
was not erroneous and prejudicial to the revenue. Aggrieved by the order, the revenue preferred an
appeal before the High Court.
The High Court followed the earlier year orders, wherein DRP had ruled in the favour of the Assessee
and had allowed deductions on account of lease rental payment. High Court also noted that the
Commissioner had simply directed the Assessing Officer to examine the matter without recording as
to why the order passed by the Assessing Officer was prejudicial to the interest of the revenue and
erroneous.
High Court held that the Assessing Officer had adopted one of the courses permissible by law and the
factors relevant for exercise of power under section 263 were absent and the order passed does not
record how and in what manner the assessment order passed by the Assessing Officer was erroneous
and prejudicial to the interest of the Revenue. Accordingly High Court dismissed the revenue’s
appeal. (AY. 2007-08)
CIT v. Philips India Ltd. (2016) 237 Taxman 538 (Cal.)(HC)
S. 263 : Commissioner - Revision of orders prejudicial to revenue – Order passed without
complying with the direction of Tribunal would erroneous and prejudicial to interests of
Revenue. Therefore, CIT has power to exercise revisional powers to set aside the assessment.[ S.
254(1)]
The Tribunal had remanded matter to the AO after issuing certain directions. However, the AO passed
the order without complying with the directions of the Tribunal. Thereafter, the CIT exercised
revisional powers u/s. 263 in setting aside the assessment order and remanded it to AO.

Appeal was filed before the HC challenging the jurisdiction of CIT u/s. 263. The HC held that
assessment order passed without complying with the directions of the Tribunal (remand order) is
erroneous and prejudicial to the interest of Revenue and thus CIT has power to revise the assessment
order u/s. 263.(AY. 1990-91 to 1994-95)
U.P. Forest Corporation v. CIT (2016) 131 DTR 274/ 284 CTR 311 (All HC)

S. 263: Commissioner - Revision of orders prejudicial to revenueThere is doubt whether

Explanation 2(a) to S. 263, inserted by FA 2015 w.e.f. 01.04.2015 has retrospective effect. The
said Explanation does not override the law that the CIT cannot fault an assessment order
without conducting his own inquiry or verification to establish that the assessment order is not
sustainable in law.
(i) The law interpreted by the High Courts makes it clear that the CIT, before holding an order to be
erroneous, should have conducted necessary enquiries or verification in order to show that the finding
given by the assessing officer is erroneous, the CIT should have shown that the view taken by the AO
is unsustainable in law. In the instant case, the CIT has failed to do so and has simply expressed the
view that the assessing officer should have conducted enquiry in a particular manner as desired by
him. Such a course of action of the CIT is not in accordance with the mandate of the provisions of sec.
263 of the Act. The CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the
Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance
Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view
that the said Explanation cannot be said to have over ridden the law interpreted by Hon’ble Delhi
High Court, referred above. If that be the case, then the CIT can find fault with each and every
assessment order, without conducting any enquiry or verification in order to establish that the
assessment order is not sustainable in law and order for revision. He can also force the AO to conduct
the enquiries in the manner preferred by CIT, thus prejudicing the independent application of mind of
the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec.
263 of the Act, since it would lead to unending litigations and there would not be any point of finality
in the legal proceedings. The Hon’ble Supreme Court has held in the case of Parashuram Pottery
Works Co. Ltd Vs. ITO (1977) (106 ITR 1) that there must be a point of finality in all legal
proceedings and the stale issues should not be reactivitated beyond a particular stage and the lapse of

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time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other
spheres of human activity.
(ii) Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has
been passed without making enquiries or verification, which should have been made. In our
considered view, this provison shall apply, if the order has been passed without making enquiries or
verification which a reasonable and prudent officer shall have carried out in such cases, which means
that the opinion formed by CIT cannot be taken as final one, without scrutinising the nature of enquiry
or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the
case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is
whether the AO has passed the order after carrying our enquiries or verification, which a reasonable
and prudent officer would have carried out or not. It does not authorise or give unfettered powers to
the CIT to revise each and every order, if in his opinion, the same has been passed without making
enquiries or verification which should have been made. In our view, it is the responsibility of the CIT
to show that the enquiries or verification conducted by the AO was not in accordance with the
enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the
question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective
or prospective application shall not be relevant.( ITA No. 2690, 2691/Mum/2016,dt. 06.05.2016)(AY.
2008-09)
Narayan Tatu Rane v. ITO (Mum.)(Trib.), www.itatonline.org

S. 263:Commissioner - Revision of orders prejudicial to revenue - As issue of whether TDS

should be u/s. 194C or 194H is subject to two views, revision is not possible. [S.194C, 194H]
Allowing the appeal of assessee the Tribunal held that;in the original assessment proceedings, the AO
had analysed the payment in detail and then concluded that the provisions of sec. 194C are applicable.
Also, not two but three views were possible viz. (i) TDS u/s 194H which was discussed by the AO in
original order; (ii) TDS u/s 194C which was upheld by AO; and (iii) sec. 194A now sought to be
taken by CIT. Since three views were possible, revision was not permissible. Furthermore, even on
merits, it was held that view of the CIT was not correct because there was no money borrowed or debt
incurred, and hence, payment made to NCL was not “income by way of interest”.( ITA
No.4010&4011/Mum/2014, dt. 19.02.2016)(AY.2010-11,2011-12)
Neo Sports Broadcast Pvt.Ltd. v. CIT (Mum.)(Trib.);www.itatonline.org

S. 263:Commissioner-Revision of orders prejudicial to revenue- Share application-Revision

cannot be initiated to conduct roving inquiries whether share application money share premium
constitute undisclosed income.
Allowing the appeal , the Tribunal held that ;In the present case although the AO has mentioned
regarding the submissions of documents and discussion carried out but still the CIT has mentioned
while passing the order u/s 263 of the Act that the order of AO is erroneous and prejudicial to the
interest of revenue. In this respect we would further like to mention that the order of AO in the present
case may be brief but that by itself is not a sufficient reason to held the order of assessment as
erroneous and prejudicial to the interest of the revenue. The scope of interference u/s 263 is not to set
aside merely unfavaourable orders and bring to tax some more money to the treasury nor is the section
meant to get at sheer escapement of revenue which is taken care of by other provisions in the Act.
Power under Section 263 cannot be exercised for starting fishing and roving enquiries. In the garb of
exercising power under Section 263, the Commissioner cannot initiate proceedings with a view to
starting fishing and roving enquires in matters or orders which are already concluded.(ITA
No.2794&2795/Mum/2014 dt. 23.03.2016)(AY. 2004-05)
Rachana Finance & Investments Pvt. Ltd. v. CIT (Mum.)(Trib.);www.itatonline.org

S. 263:Commissioner-Revision of order prejudicial to revenue-An order of revision which does

not show independent application of mind by the CIT is against the spirit of the Act and liable
to be set aside [S. 143(3).
Allowing the appeal of assessee the Tribunal held that;(i) As per the provisions of section 263 it is the
Commissioner of Income Tax who has to examine the records and thereafter form an independent
opinion that the order passed by the Assessing Officer is erroneous in so far as it prejudicial to the

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interest of revenue. In the present case we find that the Commissioner of Income Tax has not
exercised his independent judgment for invoking revisional powers. The Commissioner of Income
Tax has to pass a speaking order highlighting deficiencies in the assessment order with reasons.
(ii) A perusal of the impugned order shows, that the Commissioner of Income Tax in the instant case
has merely reproduced the deficiencies pointed out by the Dy. Commissioner of Income Tax in the
assessment order. The Commissioner of Income Tax has not given the reasons as to how the findings
of the Assessing Officer are erroneous in so far as prejudicial to the interest of revenue. The
contention of the assessee is that all the relevant documents were placed on record by the assessee
during the course of assessment proceedings. The Assessing Officer has passed the order after
considering the same. The duty of the assessee is bring all the relevant documents before the
Assessing Officer. The manner in which the order is to be passed is the prerogative of the Assessing
Officer.
(iii) The order of the Assessing Officer may be brief and cryptic but that by itself is not sufficient
reason to hold that the assessment order is erroneous and prejudicial to the interest of revenue. It is for
the Commissioner to point out as to what error was committed by the Assessing Officer in taking a
particular view. In the case in hand, the Commissioner of Income Tax has failed to point out error in
the assessment order. For invoking revisionary powers the Commissioner of Income Tax has to
exercise his own discretion and judgment. Here the Commissioner of Income Tax has invoked the
provisions of section 263 at the mere suggestion of the Dy. Commissioner of Income Tax, without
exercising his own discretion and judgment. In view of the fact that the Commissioner of Income Tax
has invoked the provisions of section 263 without applying his own independent judgment and merely
at the behest of proposal forwarded by the Dy. Commissioner of Income Tax is against the spirit of
Act. Thus, the impugned order is liable to be set aside.( ITA No. 1223/PN/2013, dt. 21.12.2015) (AY.
2008-09)
Span Overseas Ltd. v. CIT (Mum.)(Trib.);www.itatonline.org

S.263:Commissioner-Revision of orders prejudicial to revenue - Explanation 2 to s. 263 (which

supersedes the law that there is a difference between "lack of inquiry" and "inadequate
inquiry") is "declaratory & clarificatory" in nature and is inserted to provide clarity on the
issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the
interests of Revenue.
(i) The amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 of the Act is
declaratory & clarificatory in nature and is inserted to provide clarity on the issue as to which orders
passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue, it is, inter-alia,
provided that if the order is passed without making inquiries or verifications by AO which, should
have been made or the order is passed allowing any relief without inquiring into the claim; the order
shall be deemed to be erroneous and prejudicial to the interest of Revenue. The Hon’ble Supreme
Court in the case of Malabar Industrial Company Limited v. CIT (2000) 109 Taxman 66 (SC) held
that if the AO has accepted the entry in the statement of account filed by the taxpayer without making
enquiry, the said order of the AO shall be deemed to be erroneous in so far as it is prejudicial to the
interest of the Revenue. In our considered opinion, the facts of the case of the assessee company are
similar to the facts in the case of Malabar Industrial Co. Limited(supra) whereby no
enquiry/verification is made by the AO whatsoever with respect to claim of deduction of Rs. 17.72
crores with respect to the provisions for warranty, excise duty , sales tax and liquidated damages.
Moreover, now Explanation 2 to Section 263 of the Act is inserted in the statute which is declaratory
and claraficatory in nature to declare the law and provide clarity on the issue whereby if the A.O.
failed to make any enquiry or necessary verification which should have been made, the order becomes
erroneous in so far as it is prejudicial to the interest of revenue.
(ii) A proviso added from 01-04-1988 to Section 43B of the Act from 01-04-1984 came up for
consideration in Allied Motors Private Limited v. CIT (1997) 91 taxman 205(SC) before Hon’ble
Supreme Court and it was given retrospective effect from the inception of the section on the reasoning
that the proviso was added to remedy unintended consequences and supply an obvious omission so
that the section may be given a reasonable interpretation and that in fact the amendment to insert the
proviso would not serve its object unless it is construed as retrospective. In CIT v. Podar Cement Pvt.
Limited (1997) 92 Taxman 541 (SC), the Hon’ble Supreme Court held that amendment introduced by

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the Finance Act,1987 in so far the related to Section 27(iii), (iiia) and (iiib) which redefined the
expression ‘owner of house property’, in respect of which there was a sharp divergence of opinion
amongst the High Courts, was clarificatory and declaratory in nature and consequently retrospective.
Similarly, in Brij Mohan Das Laxman Das v. CIT (1997) 90 Taxman 41(SC), explanation 2 added to
section 40 of the Act was held to be declaratory in nature and, therefore, retrospective.(Reference
Page 569-570,Principles of Statutory Interpretation by Justice G.P.Singh, 13th Ed.).
(iii) In our considered view, the CIT has rightly invoked the provisions of section 263 of the Act as
the A.O. failed to make proper enquiry, examination and verifications as warranted for the proper
completion of the assessment, with respect to claim of deduction of Rs.17.72 crores with respect to
the provisions for warranty, excise duty, sales tax and liquidated damages.(ITA No. 1994/Mum/2013
& ITA no. 2836/mum/2014, dt. 01.02.2016) ( AY. 2007-08)
Crompton Greaves Ltd. v. CIT (Mum.)(Trib.);www.itatonline.org

S. 263:Commissioner-Revision of orders prejudicial to revenue –Order passed on a non–existing

entity-Consent of assesse will not give jurisdiction to Commissioner to revises the order- Order
was held to be bad in law.
Allowing the appeal of assessee the Tribunal held that; on due consideration of all these arguments,
we are of the view that in the Income Tax Act, there is no provision to communicate this fact to the
Commissioner. The assessee has already informed the AO. We have extracted the copy of the letter
written by the assessee. We have also made reference of the assessment order vide which the AO has
taken cognizance of this fact while he issued notice under section 143(2) of the Income Tax Act. In
the order of the ITAT, Kolkata Bench itself has observed that legally when a company amalgamates
with another, it loses its identity and no proceedings can be taken in its earlier name. The Bench had
taken a different view on account of notorious facts available in that case. No such circumstances are
before us. Apart from above, we are of the view that even if the assessee gave consent for taking up
the proceedings under section 263 against it, that would not infuse jurisdiction in the
ld.Commissioner. In other words, this adjournment application, reply to show cause notice would not
infuse jurisdiction to ld.Commissioner. Jurisdiction should be by virtue of operation of the Act and
not by the consent of an assessee. A perusal of section 263 would indicate that before taking any
action under section 263, the ld.Commissioner has to pursue record and record would include the
communication made by the assessee to the AO on 23.7.2013 intimating about the fact of
amalgamation. Therefore, we are of the view that the issue in dispute is squarely covered in favour of
the assessee by the decision of Hon’ble Gujarat High Court in the case of Khurana Engineering Ltd. .
Since we have arrived at a conclusion that initiation of proceedings against HEPL is void ab inito,
therefore, we do not deem it necessary to adjudicate on other issues on merit. No proceedings under
section 263 can be taken up against HEPL after its amalgamation with Milestone Tradelinks Pvt. Ltd.
Therefore, we allow the appeal of the assessee and quash the order passed by the ld.Commissioner
under section 263 of the Income Tax Act.( ITA No. 1578/Ahd/2015, dt. 0403.2016) ( AY. 2006-07)
Milestone Tradelinks P. Ltd. v. ITO (Ahad.)(Trib.);www.itatonline.org

S. 263 : Commissioner - Revision of orders prejudicial to revenue- solicitor received money

from his client to meet out expenses incurred on behalf of client, solicitor remained liable to
account by this money to his client, and, hence, it did not become income of assessee- Revision
order was held to be not valid. [ S. 5, 145 ]
Where assessee-solicitor received money from his client to meet out expenses incurred on behalf of
client, solicitor remained liable to account by this money to his client, and, hence, it did not become
income of assessee. Revision proceedings was held to be not valid. ( AY. 2005-06, 2007-08)
ACIT v. Pawan Kumar Jhunjhunwala (2016) 157 ITD 667 (Kol.) (Trib.)

S. 263: Commissioner-Revision of orders prejudicial to revenue –Investment from borrowed

money – Revision was held to be not valid. [S.54F]
Allowing the appeal of the assesse the Tribunal held that ; where assessee had fulfilled all conditions
of investment of equivalent amount of capital gain in purchase of residential house qualifying for
relief under section 54F, she would be entitled to exemption under section 54F for total investment
irrespective of fact that part of such investment came from borrowed money.( AY. 2009-10)

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Sumathi Gedupudi (Smt.) v. Add.CIT (2016) 156 ITD 419 (Hyd.)(Trib.)

S. 263:Commissioner - Revision of orders prejudicial to revenue – VDIS certificate-Even

inadequate, that would not, by itself, give occasion to Commissioner to pass revision order
merely because he has a different opinion in matter. [ S.69A ]
Tribunal held that ; where the assessee had filed VDIS certificate to show that jewellery found during
search had been declared under VDIS and Assessing Officer accepted such certificate, there was no
error in order of Assessing Officer so as to invoke revisional jurisdiction. If there was an enquiry,
even inadequate, that would not, by itself, give occasion to Commissioner to pass order under section
263, merely because he has a different opinion in matter ( AY. 2011-12)
Narain Singla v. Pc.CIT (2016) 156 ITD 275 (Chd.)(Trib.)

S. 263 : Commissioner - Revision of orders prejudicial to revenue –Detailed enquiry made

during assessment proceedings and AO came to conclusion that no TDS is liable to be
deducted– Merely, AO did mention about these investigations does not make order illegal- CIT
cannot impose his view and hold order is erroneous. [S.40(a)ia), 271C]
Held that CIT can assume jurisdiction u/s 263 if CIT finds AO’s order to be erroneous and prejudicial
to interest of revenue simultaneously. If AO has taken one of the possible views then CIT cannot
impose his view. But if AO makes enquires but fails to apply law properly then the order can be said
to erroneous. Also, CIT has to show that the case is prejudicial to revenue. AO has raised the issue of
non-deduction of TDS which were duly replied by assessee. Further, AO has conducted independent
enquires from the suppliers of the material also. Hence, it is not a case of no enquiry. Also, it cannot
be a case of inadequate enquiry as query raised by AO has been properly addressed and AO has also
preferred to issue notices to concerned parties which were duly replied to AO. On this basis, no
disallowance was made. Judging this case on the scale of no enquiry or inadequate enquiry would not
serve any purpose. Fact that AO did not mention these investigations made by him in assessment
order does not make his action illegal. Further, once provisions of sec. 40(a)(ia) are not applicable on
facts, whatever was going through in the mind of AO at that time, it is a fact that he has reached to a
correct conclusion. Thereby, order of AO cannot be erroneous. Initiating Sec. 271C penalty
proceedings cannot be a relevant factor to decide whether disallowance u/s 40(a)(ia) was applicable or
not. Thereby, order u/s 263 cannot be erroneous and jurisdiction assumed by CIT is bad in law. (AY
2005-06)
Krypton Datamatics Ltd v. DCIT (2016) 176 TTJ 11(UO) (Chd.) (Trib.)

S. 263 : Commissioner - Revision of orders prejudicial to revenue – Revision not possible if the
AO had taken a view after due consideration of Assessee’s submissions. [S. 143(3)]
After the completion of assessment u/s 143(3), the CIT invoked the powers u/s 263 and alleged that
the AO did not complete the assessment in a proper manner. The ITAT held that the Assessee had
filed detailed submissions before the AO on all the issues mentioned by the CIT based on which the
AO had taken a view. This view, though different from that of the CIT, cannot be taken as prejudicial
to the Revenue, especially when the view of the AO had been supported by the judgment of the
Hon'ble Supreme Court. (AY. 2008-09, 2009-10)
Damsak Projects P. Ltd. v. DCIT (2016) 45 ITR 278 (Mum.)(Trib.)

S. 263:Commissioner- Revision order prejudicial to the interest of revenue- Revision order was
passed in the name of non-existent amalgamating company – S.292BB does not come under
rescue when there is a fault on assumption of jurisdiction – Order passed in the name of non-
existent company is bad in law. [S. 143(3), 292BB]
CIT passed an order u/s 263 against an order passed u/s 143(3) of the Act. Assessee filed an appeal
before ITAT on the ground that order u/s 263 should be quashed on the ground that order has been
passed in the name of Bond Company Ltd. which is not at all in existence on the date of passing order
u/s 263. Held that Bond Company Ltd. has been merged the assessee vide High Court order passed on
16th May 2014 and pursuant to the merger, Bond Company Ltd. has lost its identity and existence.
Assessee has specifically brought to the notice of CIT that Bond Company Ltd. has merged with the
assessee. Thereby, assessee has duly discharged its onus of informing the Revenue about the facts of

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the merger. CIT ought to have taken cognizance and should have issued fresh show-cause notice in
the name of the assessee and passed the fresh order in the name of the assessee. Further, Sec. 292BB
cannot be applied to the facts of the case as Sec. 292BB can be made applicable only to assessment or
reassessment proceedings and not revisional proceedings. Also, sec. 292BB cannot come to the rescue
when there is basic fault on assumption of jurisdiction on a non-existent entity. When there is a
jurisdictional defect, it cannot be cured. In view of the same, order passed in the hands of non-existent
company is bad in law. (AY. 2010-11)
Emerald Company Ltd. v. ITO (2016) 176 TTJ 276 (Kol.)(Trib.)

S. 263 : Commissioner - Revision of orders prejudicial to revenue - Deemed Dividend – No

incriminating materials found during search – No addition was made in assessment – Revision
on premise of deemed dividend was held to be not justified.[S.2(22)(e)]
Deemed dividend could be assessed only in the hands of shareholder and only when the loan is
advanced by a company to such shareholder. The monies received by the assessee from the lending
company constituted an intercorporate deposit and not a loan and hence the provisions of section
2(22)(e) are not applicable. Intercorporate deposits and loans are totally distinct and separate. The
assessee was not a shareholder of GGPL in any of the AY for which the proceedings u/s. 263 had
been initiated. Thus, the AO had rightly not made any additions towards deemed dividend in the
proceedings completed u/s. 153C.(AY. 2007-08 to 2010-11)
Tanuj Holdings Pvt. Ltd. v. Dy.CIT (2016) 46 ITR 420 (Kol.)(Trib.)

S. 263 : Commissioner - Revision of orders prejudicial to revenue - Inadequate or lack of

enquiry- Revision was held to be not justified. [S.54F]
Where Assessing Officer examined an issue, Commissioner could not assume jurisdiction on same
issue by stating that Assessing Officer had conducted inadequate enquiry or there was a lack of
enquiry. (AY.2009-10)
Vegesina Kamala v.ITO (2016) 157 ITD 457 (Visakha) (Trib.)

S.263: Commissioner-Revision of orders prejudicial to revenue- Assessment order passed in

pursuance of time barred notice is not amenable to revision.[S.143(2)]
Held that the notice u/s. 143(2) of the Act, was issued beyond time.The assessment order passed
pursuant to the notice which was beyond time was not justified and all proceedings subsequent to the
notice were of no consequence. Hence, the revision order passed u/s.263 was to be quashed. (AY.
2007-08)
Krishan Kumar Saraf v. CIT (2016) 46 ITR 387 (Delhi)(Trib.)

S. 263 : Commissioner - Revision of orders prejudicial to revenue - No power to decide issue

adjudicated by appellate authorities – Original seized document relating to agreement for
purchase of land already considered by appellate authorities against department – Copy of the
same document not admissible in evidence in subsequent revision proceedings.
If a matter in issue has been considered in appeal and decided by the appellate authorities, the same
issue could not be a subject matter of revision u/s. 263 of the Income-tax Act, 1961. The AO observed
that according to the document seized during the search, the agreement was for the purchase of land
by the assessee at the rate of Rs.1,25,000/- per bigha whereas the rate of land under the agreement was
Rs.6,50,000 per bigha. The AO concluded that the assessee paid an amount of Rs. 23,62,500 for the
purchase of the land leading to an addition u/s. 69B.

On appeal, the tribunal held that the AO had examined the seized document at the assessment stage
and his order has been set aside by the appellate authorities. Therefore, there was no question of
considering his order to be erroneous in so far as prejudicial to the interests of the revenue. When the
seized document itself was not relied upon by the appellate authorities, the copy of the same
agreement as was received through independent sources would not make any difference in favour of
the revenue. Therefore, the proceedings u/s. 263 were clearly beyond the competence of the principal
commissioner and the whole proceedings were unjustified and unreasonable and liable to be set aside.
(AY. 2007-08)

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R. P. Import and Export Pvt. Ltd. v. CIT (2016) 46 ITR 97 (Chd.)(Trib.)

S. 263 : Commissioner - Revision of orders prejudicial to revenue - failing to record reasons in

assessment order for conclusion reached by AO on issues arising for consideration–Revision
directing for fresh assessment was proper.
The assessee claimed depreciation on goodwill and operational expenses. The Principal
Commissioner invoked the provisions of section 263 of the Act on the ground that the AO had not
discussed and verified the claim of the assessee. On appeal, the assessee contended that the AO had
raised specific enquiries during the course of assessment proceedings and accepted its claim and it
was not necessary to discuss about the enquiries made by the AO in the assessment order.

Held that the AO had not discussed the issues that arose for consideration in the assessment order.
The proceedings before the AO being judicial proceedings, he was expected to record his own reasons
for the conclusion reached. Whether it was an administrative order or judicial order, the reasons for
the conclusion or decision taken had to be recorded in the order itself. There was no infirmity in the
order of the Principal Commissioner. The AO was directed to conduct an independent enquiry and
pass a speaking order recording his own reasons without being influenced by any of the observations
made by the Principal Commissioner. (AY. 2010-11)
Medall Health Care P. Ltd.v. CIT (2016) 46 ITR 36 (Chennai)(Trib.)

S. 263: Commissioner - Revision of orders prejudicial to revenue Amortization of preliminary

expenses-Allowability of claim attaining finality in assessment’s own case for same AY by
Tribunal- Question not open to further adjudication in revision proceedings. [S. 35D]
The assessee claimed deduction u/s. 35D of the Act, in respect of amortisation of expenditure incurred
on the initial public offer of Equity shares. The claim of the assessee was allowed by the AO but the
Commissioner u/s. 263 of the Act cancelled the assessment order on the ground that the assessee was
not an industrial undertaking entitled to deduction u/s. 35D. The tribunal confirmed the order of the
Commissioner passed u/s. 263. The CIT(A) confirmed the order of AO on the ground that since the
Tribunal had held that the assessee was not an industrial undertaking, the assessee was not entitled to
deduction u/s. 35D of the Act.
On appeal held that after the order of the Tribunal in the assessee’s own case, the issue of allowability
of claim u/s. 35D was no more open for consideration. Hence, the High court would be the right
forum to hear the legal grievances against the order passed u/s. 263. (AY. 2006-07)
Yes Bank Ltd v. ACIT (2016) 46 ITR 88 (Mum.)(Trib.)

S. 263: Commissioner-Revision of order prejudicial to the revenue-Principle of Mutuality –

Beneficiaries of assessee trust general public – Principle of mutuality not applicable- Revision
was held to be justified. [S. 12AA].
The assessee trust was not registered u/s.12AA of the Act, but was established by three individuals
and was administered by three trustees. The object of the assessee was to perform poojas for the
benefit of the mankind. For the relevant previous year, the assessee claimed exemption on the
principle of mutuality. The AO allowed the claim of the assessee under the concept of mutuality. The
Commissioner (Exemptions) in exercise of powers u/s.263 of the Act found that the beneficiaries of
the assessee were the general public without restriction of case, religion and colour and therefore, the
income could not be exempted under the concept of mutuality.

On appeal, the Tribunal held that beneficiaries of the assessee were the entire mankind and individual
beneficiaries could not be identified. Since the beneficiaries could not be identified and the assessee
was administered only by three trustees, the contributors might not have any role in the
administration. Therefore, there was no question of applying the concept of mutuality and the
Commissioner ( E ) was justified in denying the exemption. (AY. 2010-11)
Sri Sai Padhuga Trust v. ITO(E) (2016) 45 ITR 633 (Chennai)(Trib.)

S. 268A : Appeal – Instructions -no appeals were to be filed to Supreme Court where tax effect
was less than Rs. 10 lakhs

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As per Instruction No. 2/2005 dated 24.10.2005 of the CBDT, no appeals were to be filed where the
tax effect was less than Rs. 10 lakhs. Further, as the Department had not filed appeal even before High
Court in a similar case, the matter was dismissed with the question of law left open. (AY.1991-92)
CIT v. Hemraj Mahabir Prasad Ltd. (2016) 237 Taxman 379 (SC)

S. 268A:Appeal-High Court-Monetary limit for filing appeal and reference- Though the low tax
effect circular No. 21/2015 dated 10.12.2015 does not refer to references filed u/s.256(1), it has to
be held to apply to references as well in view of the objective of the CBDT to focus only on large
tax effect matters.[S.256(1),260A]
Dismissing the reference of revenue as unanswered , the Court held that; The need for the CBDT to
issue the 15th December 2015 Circular and to clarify that it would apply retrospectively to govern
even pending appeals arose on account of the enormous increase in the number of appeals being filed
by the Revenue over the years. To give figures of this Court in the year 1995, the total number of
References filed in this Court were in the aggregate 504 i.e. both at the instance of the Revenue and
the Assessee. In 2001, the total number of appeals filed under Section 260A of the Act in this Court in
the aggregate were 648 and 546 of there were filed by the Revenue. In 2009, the total number of
appeals filed under Section 260A of the Act in the aggregate was 4266, out of which, that filed by the
Revenue were 3790. However, it may be pointed out that in 2015, the total number of appeals filed
under Section 260A of the Act in the aggregate was 2384, out of which, that filed by the Revenue
were 1834. Thus, the Revenue has now become circumspect in filing appeals as they seem to filter
orders of the Tribunal which requires challenge. However, many of the indiscriminate appeals filed by
the Revenue, are awaiting disposal. It thus appears that appeals are being filed by the Revenue from
almost every order of the Tribunal adverse to it, without taking into account the tax effect involved
with the fear that in other cases where tax effect is more, the non-filing of an appeal may be used
against the department as having accepted the position in law. It is in that view that the Circular of
2015 clarifies that non filing of appeal in view of low tax effect will not be used against the Revenue
in other appeals. Therefore the CBDT to ensure that there is uniformity in respect of filing of appeals
has fixed threshold limits which would do away with the discretion of the officer to file and pursue
the appeal remedy where the tax effect is less than the minimum amounts specified. It is noteworthy
that the Circular specifically provides that where the tax effect is higher than that specified in the
Circular then the filing of appeal in such cases is to be decided on the merits of the case. Therefore, to
enable the Revenue to focus on matters where the tax implication is above Rs.20 lacs only such
matters should be agitated in appeal before the High Court according to the Circular. This policy of
non filing and of not pressing and/or withdrawing admitted appeals having tax effect of less than
Rs.20 lacs has been specifically declared to be retrospective by the Circular dated 10th December,
2015. There is no reason why the circular should not apply to pending References where the tax effect
is less than Rs.20 lacs as the objective of the Circular would stand fulfilled on its application even to
pending References more particularly bearing in mind that there are 1149 number of References still
awaiting disposal by this Court and a large number of them would have tax effect of less than Rs. 20
Lakhs. In the above view, we hold that as admittedly, the tax effect is less than Rs. 20 lacs in the
present Reference Application at the instance of the Revenue, the same is being returned unanswered.
However, we make it clear that the question of law as raised for our opinion is left open be considered
in an appropriate case.
CIT v. Sunny Sounds P. Ltd.(2016) 381 ITR 443/ 237 Taxman 295/ 283 CTR 158 (Bom.)(HC)

S. 269SS: Acceptance and repayment of loans or deposits in cash exceeding specified limit-Audit
report highlighting violations – Imposition of penalty justified. [ S. 271D ]
The assessee was in the business of dealing in shares and securities and also receiving loans and
advancing loans. It received cash loans of Rs.73.8 lakhs from L in contravention of the provisions of
section 269SS of the Act. The AO held that the assessee in accepting the cash loans from L to the tune
of Rs.48.6 lakhs exceeding Rs.20,000 had violated the provisions of section 269SS and, hence,
penalty u/s.271D was leviable, and levied penalty of Rs.48.6 lakhs u/s.271D.This was confirmed by
the CIT(A)

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Held that the cash loans were utilised mainly by the assessee for advancing money to sister concerns
for which no reasonable cause was shown. The sister concern of the assessee could have itself
borrowed loan from L directly instead of routing the money through the assessee. The assessee had
taken the plea that these loans were genuine. The provisions of section 269SS are strict provisions
making the taxpayer liable for penalty for taking loan or deposit of Rs.20,000 or more in cash. Thus, it
was not only loan transaction which should be genuine but the taxpayer should come forward with
reasonable cause as provided u/s.273B to get out of clutches of section 269SS r.w.s. 271D. Thus, both
the conditions are to be cumulatively satisfied by the taxpayer. (AY. 2005-06)
Pankaj Investments v. ACIT (2016) 46 ITR 345 (Mum.)(Trib.)

S.269UA:Purchase of immoveable property by Central Government-Understatement of

consideration-Land held under lease from Municipality-Comparable instance of sale taken of
property in adjustment and commercial property- Order for pre-emptive purchase was vitiated.
[S. 269UD]
Allowing the appeal the Court held that the Authority had wrongly compared the commercial
premises which shows notice was visited by gross violation of mind. Authority also erred in holding
that V had transferred property to the extent of 78 percent to U and the consideration for was Rs
1,00, 40,000 was not in respect of built up area but on the other hand clearly stated to be for transfer
of subject land. Thus the order of Appropriate Authority thus suffered from gross perversity. The
Court also held that the High Court had failed to render a finding on the relevance of the comparable
sale instances , particularly , why a sale instance in an adjusting locality had been considered valid
instead of sale instance in the same locality. Accordingly the order of High Court was reversed.
Unitech Ltd. and another v. UOI (2016) 381 ITR 456 / 133 DTR 2 /237 Taxman 361(SC)
Editorial: Decision in Vidarbha Engineering Industries v.UOI( 2004) 271 ITR 229( Bom) (HC) is
reversed

S. 269UC: Purchase by Central Government of immoveable properties – Restrictions on

transfer - Declaration filed under Kar Vivad Samadhan Scheme during pendency of appeal
from block assessment - Certificate issued in terms of Scheme in favour of vendor granting
immunity from prosecution - No legal obligation on part of vendor and purchasers to file form
37-I - Prosecution for failure to file form 37-I in respect of sale under section 269UC is not
maintainable. [ S.276AB, R. 48L, Form no 37I]
The first respondent, the owner of certain property, sold it in six portions to the other respondents
under six separate sale deeds executed in during March, 1995, transferring to each a one-sixth
undivided share in the property for a sale price of Rs. 9 lakhs each, the total sale consideration being
Rs. 54 lakhs. Thereafter, a search was conducted under section 132 of the in the residence of the
vendor and based on documents seized, the Department took the view that the sale value of the
property sold by the vendor was nearly Rs. 130 lakhs and had been grossly undervalued at Rs. 54
lakhs to evade payment of tax. The AO made a block assessment for the period 1987-88 to 1996-97 of
the total undisclosed income at Rs. 96,38,355 and arrived at the tax due at 60% The vendor appealed
against the assessment. During the pendency of the appeal before the Appellate Tribunal, she filed a
declaration under the Kar Vivad Samadhan Scheme, 1998 and the designated authority under the
Scheme issued a certificate determining the amount payable by her towards full and final settlement
of the tax arrears for the block period April 1, 1986 to October 3, 1996 quantifying the arrears as Rs.
47,83,018 and the vendor also paid the tax due at Rs. 31,88,675. On receipt of such payment, the
designated authority under the scheme issued an immunity certificate in favour of the vendor. Eight
months later, the Department initiated prosecution against the vendor and the purchasers for the
offence punishable under sections 269UC and 276AB, on the ground that they failed to file the
statement in form 37-I in respect of the sale transaction effected between them and thereby they had
contravened the provisions of section 269UC, which was an offence punishable under section 276AB.
The vendor filed a writ petition upon which the court directed the trial court to permit the vendor to
file an application to drop the proceedings initiated against her on the ground that she had been
granted immunity by the Department under the scheme. Before the trial court, the purchasers filed
separate petitions. The trial court discharged the vendor as well as the purchasers from the purview of
prosecution. On a revision petition by the Department:

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Held, dismissing the petitions, (i) that from the certificate issued under the Scheme, it was clear that
the vendor paid the tax for the block period April 1, 1986 to October 3, 1996. The declaration made
by the vendor under section 89 of the Finance (No. 2) Act, 1998, included the sale of the property in
favour of the purchasers and covered the value of the property assessed by the Department. Only after
analysing the declaration made by the vendor, was the dispute settled. When the vendor made such
declaration and paid the tax arrears, the prosecution launched against her and the purchasers was
unnecessary.
(ii) That the obligation on the part of the vendor and purchasers to file form 37-I would arise only
when the consideration for the transfer was above Rs. 10 lakhs as contemplated under section 269UC.
Since each of the sale deeds was executed for a value of Rs. 9 lakhs, there was no legal obligation on
the part of the vendor and purchasers to file form 37-I. Further, the declaration made by the vendor
granted immunity from prosecution, which included immunity from proceedings under section
269UC of the Act for failure to file form 37-I. [ BP. 1987-88 to 1996-97)
Rajagopal (R.) Member-I, Appropriate Authority v. N. Sasikala(Smt.) (2015) 64 taxmann.com
254 / (2016) 381 ITR 79 (Mad.) (HC)
Rajagopal (R.) Member-I, Appropriate Authority v. S. Ramayama (Smt.)(2015) 64
taxmann.com 254 (2016) 381 ITR 79 (Mad.) (HC)
Rajagopal (R.) Member-I, Appropriate Authority v. V.N. Sudhagaran and another.( 2015) 64
taxmann.com 254 / (2016) 381 ITR 79 (Mad.)(HC)

S. 269UD : Purchase by Central Government of immoveable properties – Order – Plot held on

lease – Development agreement entered into with assessee in respect of said plot – Form 37-I
submitted u/s 269UC – consideration declared in the form was Rs. 100.40 lakh – Appropriated
authority of the view that consideration understated by 15% based on sale instance in an
adjoining locality – Assessee pointed out sale instance in the same locality – Appropriate
Authority rejected the sale instance – order passed u/s 269UD for compulsory pre-emptive
purchase – Held, transfer of development right of the land by lessee did not amount to sale
under Chapter XXC – Further, held order preferring sale instance in adjoining locality over
that in same locality invalid. [S. 269UA, 269UC]
One ‘V’ Engineers held 3 plots of land on lease. It entered into a development agreement with the
assessee in respect of the said land. The assessee submitted a statement in Form 37-I u/s 269UC
wherein the consideration for the transfer was declared at Rs. 100.40 lakh towards the cost of
construction of the share of ‘V’ Engineers. The Appropriate Authority, relying on the sale instance in
the adjoining locality stated that the sale consideration was understated by more than 15%. The
assessee, in rebuttal, gave a sale instance in the same locality. However, the Appropriate Authority,
rejected the latter sale instance and passed an order u/s 269UD for compulsory pre-emptive purchase
of the land. Supreme Court held that, since ‘V’ Engineers were not the owners of the land and were
mere lessee, therefore there could not have been any valid exchange or transfer of the land. Further, it
was held that the transaction was not in the nature of sale, lease or a license. Further, held that
acceptance of sale instance in adjoining locality over that in the same locality was not proper.
Unitech Ltd. v. UOI (2016) 381 ITR 456/ 237 Taxman 361(SC)

S.271(1)(c): Penalty –Concealment-Bogus Purchases-If the assessment order in the quantum

proceedings is altered by an appellate authority in a significant way, the very basis of initiation
of the penalty proceedings is rendered non-existent and the AO cannot continue the penalty
proceedings on the basis of the same notice.
Relying on the decision of the Calcutta High Court in CIT v. Ananda Bazar Patrika Pvt. Ltd. (1979)
116 ITR 416 (Cal), the ITAT held that “once the basis for initiation of penalty proceedings was
altered or modified by the first appellate authority, the Assessing Officer has no jurisdiction thereafter
to proceed on the basis of the findings of the first appellate authority.” On further appeal by the
department HELD by the High Court dismissing the appeal:
Once the assessment order of the AO in the quantum proceedings was altered by the CIT (A) in a
significant way, the very basis of initiation of the penalty proceedings was rendered non-existent. The
AO could not have thereafter continued the penalty proceedings on the basis of the same notice. Also,
the Court concurs with the CIT (A) and the ITAT that once the finding of the AO on bogus purchases

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was set aside, it could not be said that there was any concealment of facts or furnishing of inaccurate
particulars by the Assessee that warranted the imposition of penalty under Section 271 (1) (c) of the
Act.( ITA No. 313/2016, dt. 13.05.2016) (AY. 2007-08)
Pr. CIT v. Fortune Technocomps (P) Ltd. (Delhi)(HC);www.itatonline.org

S. 271(1)(c) : Penalty – Concealment - Disallowance of claim, effect of - Business loss was shown
in e-return, software atomically reflected loss returned as carry forward loss – The assessee had
in subsequent assessment year had not claimed carry forward loss was evidence of fact that
there was no intent to furnish inaccurate particulars of income.
The assessee filed its return of income claiming deduction of certain expenditure which resulted in
business loss. The Assessing Officer disallowed the expenditure as the business had not commenced
and added the same to the income of the assessee. The AO disallowed the carry forward loss as
claimed in the return of income as it was filed beyond the due date. The AO also passed a penalty
order under section 271(1)(c) on ground that assessee had deliberately furnished inaccurate particulars
of income relating to carry forward loss.
The CIT(A) as well as the Tribunal set aside the penalty order holding that even when assessee
declared net loss in its e-return, it was automatically reflected as carry forward loss. It was also found
that return of income filed for the subsequent assessment year prior to the order of the subject
assessment year also indicated that the assessee had not claimed any set off or loss carried forward
from the earlier assessment years.
The High Court dismissed the Revenue’s appeal holding that, the CIT(A) and the Tribunal have
concurrently reached a finding of fact that the assessee had not claimed any carry forward loss either
in the return which it has filed for the subject assessment year or in the subsequent assessment years.
In the subject assessment year, once a loss was shown in the e-return, the software suo motu reflected
the loss returned as carry forward loss. The assessee has not fed in the entry of carried forward loss
while filing its return of income in the e-return. The fact that assessee had in the subsequent
assessment year not claimed carry forward loss was evidence of the fact that there was no intent to
furnish inaccurate particulars of income or conceal income. In any case, both the Commissioner
(Appeals) as well as the Tribunal had concurrently reached a finding of fact that there was no intent
on the part of the assessee to evade tax. This finding is not shown to be arbitrary. Therefore, the
Tribunal was justified in setting aside impugned penalty order. (AY. 2008-09)
CIT v. First Data (India) (P.) Ltd. (2016) 237 Taxman 543 (Bom.)(HC)

S. 271(1)(c): Penalty- Concealment- No penalty is leviable where the refund amount alongwith
interest is not brought to tax for a bonafide reason and is disclosed in the notes to accounts,
thereby being no concealment of income.
The assessee received refund alongwith interest, after giving effect of the CIT(A)’s order. As the
Revenue filed an appeal against the said CIT(A)’s order before the Tribunal, the assessee treated the
interest income as contingent in nature. Therefore, interest income was not credited to its P&L A/c but
disclosed in the notes to accounts. The AO, however, did not agree with the assessee and treated
interest income as income, chargeable to tax in year of receipt. Thereafter, AO initiated penalty
proceedings u/s 271(1)(c). The CIT(A) and Tribunal, however, deleted the penalty.
On appeal, the HC held that the issue out of from which refund and interest is arising is subjudice
matter. Accordingly, interest earned on the refund is disclosed in the notes to accounts without been
included in the computation of the total income, would constitute bona fide belief of the assessee that
interest income was not exigible to tax on actual receipt of the income. The action of the assessee was
justified in treating the interest as the matter was subjudice and also being contingent in nature.
Hence, the assessee in the instant case has not furnished inaccurate particulars of income and no
penalty can be levied u/s. 271(1)(c). (AY. 2005-06)
CIT v. Pilani Investment & Industries Corporation Ltd. (2016) 383 ITR 635/ 131 DTR 321/ 284
CTR 272/238 Taxman 384 (Cal.) HC)

S. 271(1)(c):Penalty–Concealment-Foreign gifts-Factum of gifts mentioned in note in return-

When explanation called for further particulars not furnished on account of sour relationship -
Tribunal cancelling penalty.

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Held, the concealment, as such, in the facts and circumstances, was missing, as admittedly, it was not
that the amount was detected subsequently but the factum of the gifts from the brother and sister had
been mentioned in the note in the return. The explanation was later on called for and further
particulars could not be furnished on account of sour relationship and the fact that the assessee was
not in touch with her brother who had allegedly shifted from Canada, thereafter. In such
circumstances, the discretion which had been exercised by the Tribunal, in setting aside the penalty,
could not be said to be perverse or suffering from such illegality as would warrant interference.( AY.
2009-2010)
CIT v. Sunila Sharma (2016) 380 ITR 462 (P & H)(HC)

S. 271(1)(c):Penalty–Concealment- Survey-Capital gains on sale of shares-Penalty is not leviable

on income declared during survey and offered in return-A mere change of head of income from
capital gains to business income does not attract penalty. [S. 10(38)]
Dismissing the appeal of revenue the Court held that ; We find that the Commissioner of Income
Tax(A) during the penalty proceedings had again examined the issue whether the claim of capital gain
made in the regular return of income to the extent of Rs.1.62 Crores with the particulars in support of
the same. On examination, the CIT(A) reaches a prima facie conclusion that the income could be
regarded as long term capital gain. Once the aforesaid conclusion has been reached coupled with two
further facts viz. the authorities have rendered a finding of fact that the Respondent-assessee had not
concealed its income nor filed inaccurate particulars attributable to capital gains in its regular return of
income, the view taken to delete the penalty is a possible view. In the present fact, the view taken by
the CIT(A) as well as the Tribunal is a reasonable and possible view. Nothing has been shown to us to
hold that the findings of the CIT(A) and Tribunal was perverse and/or arbitrary warranting any
interference by this Court. It may be pointed out that even in the Memo of Appeal, it is not urged by
the Revenue that the finding of the CIT(A) and Tribunal are in any manner perverse.The reliance by
the Revenue upon the decision of the Apex Court in Mak Data P. Ltd v. CIT ( 2013) 358 ITR 593
(SC) to contend that the justification of having deleted and accepted the amount of Rs.1.62 Crores as
business income, to buy peace is not available. (AY. 2006-07)
CIT v. Hiralal Doshi( 2016) 383 ITR 19(Bom.)(HC)

S. 271(1)(c):Penalty-Concealment-If the notice is issued without application of mind (by striking

out the relevant part in the notice),the penalty proceedings are invalid.[s.271(1)(b),271(IB)]
The assessee filed a return of income claiming certain deductions as revenue expenditure disclosing
the same under the head ‘financial expenses’ in the return of income filed by him. This return was
taken for scrutiny and after adjudication, the Assessing Officer held that the claim made by the
assessee as revenue expenditure is capital in nature and allowed the deduction claimed by the
assessee. Having held so, separate proceedings were initiated under Section 271(1)(c) of the Act to
levy penalty for wilful concealment of the particulars of income and for furnishing inaccurate
particulars of such income. In the printed proforma issued by the Assessing Officer under Section 274
read with Section 271 of the Act the Assessing Officer has deleted the paragraph relating to “have
concealed the particulars of your income or furnished inaccurate particulars of such income” and has
put a right mark on the printed form relating to the para “failure to comply with a notice under Section
22(4)/23(2) of the Indian Income-tax Act, 1922 or under Section 142(1)/143(2) of the Income Tax
Act, 1961” which corresponds to Section 271(1)(b) of the Act. The High Court had to consider
whether such a notice is proper in law. HELD by the High Court:
(i) It is clear that the notice is issued proposing to levy penalty under Section 271(1)(b) of the Act
whereas the order is passed by the Assessing Officer under Section 271(1)(c) of the Act which clearly
indicates that there was no application of mind by the Assessing Officer while issuing the notice
under Section 274 of the Act. It is imperative from the order under Section 271(1)(c) of the Act that
the Assessing Officer noticed that the assessee has declared the revenue expenditure in the financial
expenses which was capital in nature. This is based on the verification of details of the return of
income filed by the assessee. If so, there was no occasion for the Assessing Officer to come to a
conclusion that there was concealment of the income by the assessee or the assessee has filed
inaccurate particulars. The very particulars were available in the return of income;

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(ii) This clearly indicates that the Assessing Officer had no jurisdiction to pass the penalty order under
Section 271(1)(c) of the Act without issuing a proper notice as required under law and moreover,
when the particulars are disclosed in the return of income;
(iii) As regards Section 271(1-B) of the Act, it clearly indicates that the assessment order should
contain a direction for initiation of proceedings. Merely saying that the penalty proceedings have been
initiated would not satisfy the requirement, a direction to initiate proceeding shall be clear and not be
ambiguous;
(iv) In the light of the said judgment of the Co-ordinate Bench in CIT vs. Manjunatha Cotton And
Ginning Factory 350 ITR 565 (Kar), we are of the considered view that the Assessing Officer has not
applied his mind at the time of issuing notice under Section 274 R/W Section 271(1)(b) of the Act.
This view is fortified by the order passed under Section 271(1)(c) of the Act. No direction is coming
forth in the assessments order for levying penalty which is mandatory as per Section 271(1B) of the
Act. Considering the relevant factors, appellate commissioner has rightly allowed the appeal of the
assessee setting-aside the order passed by the Assessing Officer which has been reversed by the ITAT
on the ground that the assessee deliberately evaded the payment of tax by declaring the capital
expenditure as revenue expenditure in the ‘financial expenses’. In our considered opinion, for the
reasons stated above, the order passed by the ITAT is not sustainable. Accordingly, we set aside the
order of the ITAT and restore the order passed by the CIT(A) answering the substantial questions of
law in favour of the assessee and against the revenue.(ITA No. 240/2010, dt. 25.01.2016) (AY.2011-
12 )
Safina Hotels Private Limited v. CIT (Karn.)(HC);www.itatonline.org

S. 271(1)(c):Penalty-Concealment-Surrender of income without any incriminating materials no

penalty can be levied. [S. 132(4), 153A]
It is undisputed fact that during the course of search, no incriminating documents were found and
seized. The assessee surrendered the additional income under section 132(4) at Rs. 15 lacs and
requested not to impose penalty u/s 271(1)(c) of the IT Act. The AO imposed the penalty by invoking
the Explanation 5A to section 271(1)(c) of the Act, which has been confirmed by ld. CIT (A) by
considering the judgment of Hon’ble Supreme Court in the case of MAK Data Pvt. Ltd. vs. CIT
(2013) 358 ITR 593 (SC). But for imposing the penalty under Explanation 5A on the basis of
statement recorded during the course of search, it is necessary to be found incriminating documents
and is to be considered at the time of assessment framed under section 153A of the Act. The issue has
been considered by various High Courts as well as by ITAT as relied upon by the assessee, which are
squarely applicable to the case of the assessee. As no incriminating documents were found during the
course of search, therefore, Explanation 5A to section 271(1)(c) is not applicable. Accordingly, we
delete the penalty confirmed by ld. CIT (A).( ITA No. 296/JP/2014, dt. 06.05.2016) (AY. 2007-08)
Ajay trader v. DCIT (Jaipur)(Trib), www.itatonline.org

S. 271(1)(c):Penalty-Concealment-Levy of penalty u/s 271(1)(c) on income disclosed in a search

instead of u/s 271AAA is not sustainable. [S. 153A,271AAA]
(i) It is not in dispute that the assessee during the search and seizure proceedings categorically
admitted that the undisclosed income of Rs.36,02,828/- has been accrued to him along with his three
brothers in their individual capacity by way of trading in various commodities and real estates and all
these facts got duly corroborated from the seized material.
(ii) When aforesaid undisputed facts are examined in the light of the amended provisions contained
under sub-section (2) and (3) of section 271AAA, the penalty in this case, if at all leviable, it should
have been levied under section 271AAA (1) and not u/s 271(1)(c) as has categorically been provided
in sub-section (3) of section 271AAA. Intention of the legislative in incorporating the provisions
contained u/s 271AA effective during the period 1st June, 2007 to 1st July, 2012 is to provide general
amnesty in search and seizure cases, and the case of the assessee undisputedly falls u/s 271AAA and
cannot be dealt with u/s 271(1)(c) by any stretch of imagination even.
(iii) So, we are of the considered view that the very initiation of the penalty proceedings against the
assessee u/s 271(1)(c) are vitiated in view of the amended provisions of law applicable effective from
1.6.2007 till 1.7.2012, as the additional income to the tune of Rs.36,80,520/- was disclosed by the
assessee on the basis of search operation conducted on 10.02.2009. So, without going into the merits

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of the case, we are of the considered view that initiation of penalty proceedings as well as penalty
orders and impugned order passed by the ld. CIT (A) are not sustainable in the eyes of law.( ITA No.
844/Del/2014, dt. 19.05.2016)(AY. 2008-09)
Ashwani Kumar Arora v. ACIT (Delhi)(Trib),www.itatonline.org

S. 271(1)(c):Penalty-Concealment-Rejection of books of account and estimate of income- Levy

of penalty was held to be not justified. [S. 144]
Allowing the appeal of assesse Tribunal held that ; where Assessing Officer framed assessment of
assessee f under section 144 and after rejecting account books adopted net profit rate of 8 per cent,
which was reduced by Tribunal to 7 per cent, and in mean time Assessing Officer also levied penalty
under section 271(1)(c), since assessee was an existing assessee and it did not file return for above
assessment year and Assessing Officer and Tribunal adopted different estimates, no penalty under
section 271(1)(c) was leviable upon assesse ( AY.2007-08 )
California Design & Construction INC India, Chandigarh v. ITO (2016) 156 ITD 919
(Chd.)(Trib)

S. 271(1)(c):Penalty-Concealment-Income-tax provisions are highly complicated and it is

difficult for a layman to understand the same. Even seasoned tax professionals have difficulty in
comprehending these provisions. Making a claim for deduction u/s S.80 IA which has numerous
conditions is a complicated affair & cannot attract penalty. [S.80IA]
(i) The assessee has made a claim u/s 80 IA of the Act. Along with the return of income the assessee
filed report from a Chartered Accountant in form no.10 CCB as required u/s 80 IA(7) of the Act. The
claim was made on the advice of the auditors. A perusal of this audit report demonstrates that the
auditors of the assessee also believed that the assessee was eligible for deduction u/s 80 IA of the Act.
It was a conscious claim made by the assessee supported by an audit report. The assessee has also
made an application to STPI for setting up the infrastructure facilities under the STPI Scheme. All
details of the claim made u/s 80 IA are filed by the assessee, along with the return of income. Under
these circumstances we are of the considered opinion that the explanation given by the assessee that it
was under a genuine belief that it was entitled for relief u/s 80 IA of the Act is bonafide. The assessee
acted under the guidance and advice of a Chartered Accountant. Hence in our view it was under a
bonafide belief that it is entitled to the claim for deduction under provisions of s.80 IA of the Act.
(ii) The provisions under the Income Tax Act are highly complicated and its different for a layman to
understand the same. Even seasoned tax professionals have difficulty in comprehending these
provisions. Making a claim for deduction under the provisions of S.80 IA of the Act which has
numerous conditions attached, is a complicated affair. It is another matter that the assessing
authorities have found that the claim is not admissible. Under these circumstances we hold that it
cannot be said that this is a case of furnishing of inaccurate particulars of income.( ITA No.
5100/Del/2011, dt. 07.04.2016)(AY. 2004-05)
Oxford Softech P. Ltd. v. ITO (Delhi)(Trib); www.itatonline.org

S. 271(1)(c) : Penalty–Concealment-Disallowance of claim of loss from share transaction- Levy

of penalty was held to be not valid as despite the request brokerwas not summoned.[S. 131]
Authorities below having failed to consider the explanation and evidence adduced by the assessee in
support of his claim of loss from share transactions and not summoned the broker by serving
summons under s. 131 despite such request by the assessee, penalty under s. 271(1)(c) imposed by the
AO simply by relying on the findings in the assessment order and the contents of the letter of the
stock exchange intimating that the said broker was not registered without verifying the same is
untenable. (AY. 2005-06)
Gordhan Das Gilara v. ACIT (2016) 130 DTR 67/ 175 TTJ 627 (Jaipur)(Trib.)
S. 271(1)(c) : Penalty –Concealment- Non disclosure of receipts from sale of paintings by
professional painter on bona fide belief- Levy of penalty was held to be not justified.
AO having not disputed the position that the paintings sold by the assessee a professional painter,
were personal effects of the assessee and consequently the income from the sale of paintings were
capital receipts not chargeable to tax, the plea of the assessee that the receipts from the sale of
paintings were not offered to tax on the basis of bona fide belief is acceptable. Further, satisfaction for

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initiation of penalty proceedings is not discernible from the order of assessment penalty u/s. 271(1)(c)
was not therefore sustainable. (AY. 2006-07 )
Suvaprasanna Bhatacharya v. ACIT (2016) 130 DTR 49 (Kol.)(Trib.)

S. 271(1)(c):Penalty–Concealment-Quantum appeal admitted-Capital gains on sale of land

based on registered valuer’s report – Subsequently modified in reassessment proceedings by AO
and then by CIT(A)–There could be no concealment of income or furnishing of inaccurate
particulars on part of assessee – No penalty when quantum appeal is admitted by High Court.
The assessee declared capital gain on sale of land in its return of income. The capital gain to the tune
of Rs 46,48,295 was determined based on registered valuer’s report. The said return of income was
accepted under Section 143(3) of the Act. The assessment was subsequently reopened under Section
148 and capital gain was recomputed to Rs 3,36,63,125. The CIT(A) reduced the capital gains
determined by AO to Rs 2,23,95,570 which was confirmed by Tribunal. Penalty proceedings were
initiated against the assessee. On appeal to Tribunal, it was held that there were 3 different opinions
with respect to rates of land i.e one adopted by AO in original assessment, two as formed by the AO
in reassessment proceedings and three as adopted by CIT(A). The Tribunal approved the view of CIT
(A) which was again subject to review before the High Court. Therefore it could not be said with
certainty that there was concealment of income or furnishing of inaccurate particulars of income on
the part of the assessee. Further the quantum appeal being admitted by High Court, it was apparent
that the issue was debatable. Penalty under Section 271(1)(c) could not be sustained. (AY. 2004-05
2005-06)
ACIT v. G M Finance & Trading Co(2016) 176 TTJ 638 (Mum.)(Trib.)

S. 271(1)(c) : Penalty–Concealment–No penalty in case addition does not have any effect of taxes
to be paid and tax continues to be paid as per s. 115JB. [S. 94(7),115JB]
The Assessee had failed to give effect to s. 94(7) and penalty was levied by the AO for filing
inaccurate particulars of income. However, since the Assessee was paying tax as per the provisions of
s. 115JB, this did not have any effect on the tax liability as per normal provisions of the Act. The
ITAT held that since the addition did not have any bearing on the tax to be paid, no penalty should be
levied. (AY. 2005-06)
Compucom Software Ltd. v. DCIT [2016] 45 ITR 619 (Jaipur)(Trib)

S. 271(1)(c) : Penalty –Concealment- Furnishing of Inaccurate particulars – Claim made by

assessee held to be not sustainable in law – Penalty cannot be levied.
AO levied penalty on 5 additions namely 1) claim of depreciation under the block ‘Buildings’ 2) Loss
on sale of current assets 3) Claim of bad debts 4) Investments written off and 5) Irrecoverable project
expenses written off; on the ground that assessee has furnished inaccurate particulars of income. The
CIT(A) deleted the penalty. On appeal to Tribunal, it held that other than the claim made by the
assessee with regard to 5 items, no fault has been found by the AO in the particulars of income
submitted by the assessee in its return. Merely because the claim of the assessee was not sustainable
in law, assessee cannot be construed to have furnished inaccurate particulars of income. (AY. 2007-
08)
ACIT v. Best & Crompton Engg. Ltd (2016) 176 TTJ 224 (Chennai)(Trib.)

S. 271(1)(c) : Penalty – Concealment – Surrender of income- Loss shown in return was assessed
as Nil income - AO accepted the surrender without raising any objection – reason given by
assessee for making the surrender appears to be reasonable – Not case of revenue that assessee
has not actually incurred loss- Levy of penalty was held to be not justified.
Held that AO has recorded that during assessment assessee was under the burden of heavy debt and
was not involved in any business activities. Such finding of a fact was based on report of the inspector
deputed to make enquires regarding the assessee. Due to difficult circumstances, assessee has
expressed its inability to furnish details or information and as a consequence surrendered the loss.
Assessee surrendered his loses to buy peace in view of the impossibility faced by him in furnishing
adequate details to substantiate claim of loss. Reason given by assessee for making the alleged
surrender appears to be plausible and reasonable from a common man’s point of view. AO accepted

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the surrender without any objection or reservation and no infirmity has been pointed out by AO or
CIT(A) in the explanation given by assessee for making the alleged surrender of losses. AO has not
alleged that assessee has actually not earned the loses and by claiming the same has furnished
inaccurate particulars of income. Surrender of income is without relying on any adverse material. No
adverse material available on record, observations of AO and CIT(A) about concealment of income or
furnishing of inaccurate particulars of income are not borne out from record and hence liable to be
deleted. (AY. 2007-08)
Narindera Industries v. ACIT (2016) 176 TTJ 35 (UO)(Chd.)(Trib.)
S. 271(1)(c) : Penalty – Concealment – Penalty to be levied in case the explanation of the
Assessee is false and not bonafide though the quantum appeal is admitted before High Court.
[S.80HHC]
The deduction u/s 80HHC claimed by the Assessee was not allowed by the AO on the ground that the
export proceeds were not repatriated within 6 months from end of the year. The Assessee alleged that
it received post-facto approval from RBI. Against the adverse decision of the ITAT, the Assessee’s
appeal was admitted by the High Court. Subsequently, penalty was levied by the AO. The levy of
penalty was upheld by the ITAT on the ground that the approval from the RBI was an after-thought
and was not applied for during the impugned year, hence the explanation of the Assessee was false
and was not bonafide. (AY 2003-.04)
Emblem Fashion Wear Exports P. Ltd. v. ITO (2016) 45 ITR 358 (Mum.)(Trib.)

S. 271(1)(c) :Penalty–Concealment-Additional income was disclosed in the return-Levy of

penalty was held to be not justified. [S.153A]
Tribunal held that levy of penalty in respect of amount disclosed in the return of income was held to
be not justified. (AY. 2003-04 to 2006-07)
Radhey Shyam Mittal v. Dy. CIT (2016) 175 TTJ 70(UO) (SMC) (Jaipur) (Trib.)

S. 271(1)(c) : Penalty–Concealment- claim of assesse supported by Accounting Standard 7-Not a

case of concealment of particulars because information given by assessee in its return was found
to be correct- Levy of penalty was held to be not justified.
Assessee claimed expenses on account of provision made for contract some of which were complete
and others incomplete. The AOdisallowed the provision since it was in the nature of unascertained
liability and also imposed penalty u/s. 271(1)(c) of the Act. The CIT(A) confirmed this.

On appeal by the assessee, Tribunal held that the assessee claimed losses with regard to the
incomplete work which was not allowed by the AO and the losses were added to the income of the
assessee. It was not a case of furnishing inaccurate particulars of income. Making an incorrect claim
in the return of income would not amount to concealment of particulars. The AO was not justified in
levying penalty since the claim of assessee was supported by Accounting Standard-7 issued by ICAI.
The penalty was to be deleted. (AY.2003-04)
Uhde India P.Ltd.v. ACIT (2016) 45 ITR 177 (Mum.)(Trib)

S. 271(1)(c):Penalty–Concealment-Ifshow cause notice does not specify the concealment

particulars–Levy of penalty was held to be bad in law.
Allowing the appeal of assesse the Tribunal held that for valid initiation of penalty proceedings it is
essential that ; prima facie, the case may deserve the imposition of penalty should be discernible from
the order passed and notice must specify as to whether the assesse was quilty of having ‘ furnished in
accurate particulars of income’ or having ‘concealed particulars of such income .(AY. 2006-07)( ITA
No.1303/ Kol. /2010 dt 6-11-2015) Bench ‘ B’ )
Suvaprasanna Bhatacharya v.ACIT (2016) BCAJ–January- P. 19 (Kol.)(Trib.)

S. 271(1)(c):Penalty–Concealment-If show-cause notice does not delete inappropriate words

whereby it was not clear as to whether the default is concealing particulars of income or for
furnishing inaccurate particulars of income, the levy of penalty is invalid.
The Tribunal quashed penalty proceedings initiated u/s 271(1)(c) for AY 2007-08 as penalty show
cause notice failed to specify default committed by assessee i.e. the AO did not delete inappropriate

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words / parts whereby it was not clear as to the default committed by assessee was for concealing
particulars of income or for furnishing inaccurate particulars of income.(ITA no. 1746/mum/2011,
dt.22.12.2015)( AY. 2007-08)
Sanghavi Savla Commodity Brokers Pvt.Ltd. v. ACIT (Mum.)(Trib.);www.itatonline.org

S. 271(1)(c):Penalty–Concealment- Disallowance of expenses and deductions-Penalty cannot be

levied on all issues in a "wholesale" manner. The AO has to give findings for each issue
separately. [S. 80IB,80HHC]
Allowing the appeal of assessee the Tribunal held that ;Penalty cannot be levied on all issues in a
"wholesale" manner. The AO has to give findings for each issue separately. He has to apply mind
meticulously and carefully for each issue separately and establish precisely whether there was
concealment of income or furnishing of inaccurate particulars of income. The Assessee cannot be
fastened with the liability of penalty without there being a clear or specific charge. Fixing a charge in
a vague and casual manner is not permitted under the law. Fixing twin charges is also not permitted
under the law.( AY. 2004-05)
Mangalam Drugs & Organics Ltd. v. DCIT (Mum.)(Trib.);www.itatonline.org

S. 271(1)(c):Penalty-Concealment-Depreciation-House property-No penalty leviable on bonafide

human error committed while filing return of income.
When the assessee was confronted with the depreciation being claimed on the property, the income
from which had been returned under the head income from house property, it immediately realized its
mistake of computation of total income and agreed for the addition to its total income. The mistake
was inadvertent, is evident from the fact that assessee had furnished return of income of Rs.
3,27,79,273/- and, therefore, there was no reason to make a false claim of a petty sum of Rs.
7,87,734/-. The property was appearing in the fixed assets schedule along with other properties,
therefore, for all practical purposes, it was treated as a business asset and the depreciation was,
accordingly, claimed in the books of account. This aspect is not disputed. It was only at the time of
computation of income that the assessee should have made the addition to the profits as per P&L A/c
because the income from this property was returned under the head income from house property.
Under such circumstances it cannot be disputed that human error could have crept into while making
the computation. Thus, it is evident that assessee did not misrepresent the facts at any stage of
proceeding.( ITA No. 1590/Del/2014. Dt. 03.03.2016) (AY. 2009-10)
B. L. International v. ACIT (Delhi)(Trib.);www.itatonline.org

S.271B:Penalty–Failure to get accounts audited-Belief that a mutual association like a club is

not liable for tax audit is a bona fide one and constitutes reasonable cause u/s.273B. [S. 44AB,
273B]
Allowing the appeal of assesssee the Court held that ;Without entering into the issue of applicability
of Section 44AB of the Act, the assessee had the bonafide belief which constituted reasonable cause
to absolve him from the levy of penalty. Section 273(B) of the Act makes it clear that that no penalty
shall be leviable to a person or on assessee for any failure referred to under the provision of Section
271B of the Act, if, it is proved that there was reasonable cause for such failure.[ ITA No. 279 & 280
of 2010, C/W ITA No. 173/2009, dt. 26.02.2016)
Koramangala Club v. ITO (Kar.)(HC);www.itatonline.org

S. 271C:Penalty-Failure to deduct at source–Tax and interest was paid- Penalty cannot be

levied if Department is unable to show contumacious conduct on the part of the
assessee.[S.201(1), 201(IA)]
The Tribunal deleted the levy of penalty u/s 271-C for failure to deduct tax at source on the basis that
the department has to show that there was “contumacious conduct on the part of the assessee, which
was affirmed by the High Court.On appeal to the Supreme Court, HELD dismissing the appeal: “On
facts, we are convinced that there is no substantial question of law, the facts and law having properly
and correctly been assessed and approached by the Commissioner of Income Tax (Appeals) as well as
by the Income Tax Appellate Tribunal. Thus, we see no merits in the appeal and it is accordingly
dismissed. No costs.

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CIT v. Bank of Nova Scotia (2016) 380 ITR 550/ 237 Taxman 594/ 283 CTR 128 (SC)

S. 271C:Penalty-Failure to deduct at source –Based on the certificate of chartered accountant

certificate- Levy of penalty was held to be not justified - DTAA- India-UK. [S. 201,201(IA),
273B, Art. 13]
Dismissing the appeal of revenue the Tribunal held that ;where view adopted by assessee based upon
certificate of CA that engineering services availed by it were not technical services, was one of
possible views, there was reasonable cause as envisaged under section 273B for not deducting tax at
source by assessee and, thus, penalty under section 271C was not to be imposed. (AY. 200910)
ADIT v. Leighton Welspun Contractors (P.) Ltd. ( 2016) 156 ITD 515 (Mum.)(Trib.)

S. 272A : Penalty-Delay in filing TDS return–Different stand before AO and CIT(A)- No

reasonable cause-Levy of penalty was held to be justified. [S.272A(2)(k)]
Before AO , Assessee submitted its Explanation by stating that deductee was director of company to
whom rent / professional fee was paid and salary was paid to family members of company, hence,
there was no willful intention to delay or deprive any deductee of TDS credit. However, Assessee had
taken completely different stand in Appeal proceedings by stating that due to oversight of staff, TDS
statement could not be filed. It was held that no specific reasonable cause having been shown by
assessee for admitted delay in filing TDS returns and assessee taking different stands before AO and
appellate authority, penalty under s. 272A(2)(k) was sustainable. (AY. 2010-11).
Weatherguard Aircon (P) Ltd. v. Addl.CIT(2016)130 DTR 133/ 176 TTJ 141 (Mum.)(Trib.)

S. 275 : Penalty-Bar of limitation-During the pendency of appeal before ITAT, penalty u/s
271(1)(c) cannot be levied on the assessee. [S. 147, 148, 271(1)(c)]
Certain addi1tion was made to assessee's income in reassessment proceedings. First Appellate
Authority had disposed of the appeal and further appeal of assessee before the Tribunal was pending.
In the meantime, the AO levied penalty on the assessee u/s 271(1)(c). Held, order imposing penalty
cannot be passed if the appeal against basic order of assessment is pending before the competent
superior authority. Held, notices initiating penalty, could not have been issued before the order of the
ITAT. (AY .1959-60)
R.B. Shreeram Durgaprasad v. CIT (2016) 237 Taxman 189 (Bom.)(HC)

S. 276C : Offences and prosecutions - Willful attempt to evade tax – Notice under section 156
for recovering the tax need not be issued before launching prosecution. Existence of other
modes of recovery cannot act as a bar to the initiation of prosecution proceedings. [S. 156,
221(1)]
Assessee filed the return of income declaring the total income of Rs. 2.10 cr. on which tax and interest
of Rs. 68.28 lakh became payable.However, out of the above tax payable, the assessee did not pay a
sum of Rs. 58.15 lakh. Notice under section 221(1) was issued to him by the DCIT to produce the
details of tax paid. Assessee filed a letter stating that he had done contracts for the State Government
on which tax was payable. However, self-assessment tax was not paid as he did not receive the
amounts due from the State Government and that he was willing to pay the tax once these amounts
were received from the Government.Prosecution proceedings were launched against the assessee.
High Court rejected the assessee’s plea that prosecution should be quashed as notice under section
156 was not served on the assessee. High Court held that such notice is not required to be issued for
prosecution. High Court further held that existence of other modes of recovery cannot act as a bar to
the initiation of prosecution proceedings. (AY. 2012 – 13)
Kalluri Krishan Pushkar v. Dy. CIT (2016) 236 Taxman 27 (AP &T)(HC)

S. 276D:Offences and prosecutions - Failure to produce books of accounts – Documents -

Pendency of appeal has no bearing on the initiation of the prosecution under the Act-At the time
of commission of alleged offence the petitioner has not reached the age of 70 Years, hence
circular was held to be not applicable.
Assessee filed return of income declaring total income of Rs. 75,31,769. Subsequently, when the
Income-tax department received information regarding existence of a foreign bank account, the

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assessee offered to pay the tax on the amount lying in his foreign bank account. Later on, assessee
filed appeal against the assessment order and penalty order passed by the Assessing Officer. The
assessee also filed a stay application, before Additional Chief Metropolitan Magistrate, against launch
of prosecution on the ground that the appeal before the appellate authority is pending. The Additional
Chief Metropolitan Magistratedismissed the stay application filed by the assesse. On writ petition,
High Court held that pendency of appeal before the authority has no bearing on the prosecution. The
Court also held that at the time of commission of alleged offence offence the petitioner has not
reached the age of 70 years hence the instruction no 5051 dated 07-02-2011 which stated that no
prosecution can be initiated against a person who is above the age of 70 years was held to be not
applicable. (AY. 2007-08)
Pradip Burman v. ITO (2016) 382 ITR 418/ 236 Taxman 606 (Delhi) ( HC)

S. 293 : Bar of suits in civil courts – payment made in installments in accordance with the order
of the court for release of assets seized – three pay orders deposited with the department not
encashed – principal amount remaining dormant without interest accruing thereon – Dispute
settled by the Settlement commission – demand finalized by the AO - Interest on amount of the
pay order demanded by the assessee – Civil Suit filed - Held, dues of the assessee stood
determined by the order of Settlement commission – Held, assessee has no right to claim interest
on the bank drafts pending encashment at this stage – Held, right way was to file appeal against
the AO order - Held, no jurisdiction with the High Court to entertain civil suit. [S. 245D]
In a search operation, certain silver bars of the assessee were seized. On filing a writ petition, the
Court directed the assessee to make payment in installments of the market value of the seized assets
and get the assets released. The assessee, inter-alia, gave three pay orders which were not encashed by
the Department and therefore, the principal amount was lying dormant with the bank without interest
accruing thereon. In so far as the assessments were concerned, the assessee went to the Settlement
Commission, who had passed the order. Pursuant to such order, the AO computed the income and
determined the amount payable by the assessee. Assessee was aggrieved by the fact that no interest
was paid to him on the amount of pay orders which was not encashed by the Department. In the civil
suit filed by the assessee, the Court held that, assessee was well aware about the said pay orders but he
did not raise the issue before the Settlement Commission or the AO. Thus, the Court held that, either
the issue was not raised or if it was raised, the AO had denied the interest to the assessee.
Accordingly, it was held that the right remedy was to file an appeal against the said order of the AO
and in view of section 293, no civil suit can be entertained by the Court.
Vishwanath Khanna v. CCIT (2016)237 Taxman 502(Delhi)(HC)

S. 293 : Bar of suits in civil courts -Income Tax Act is a complete Code and no separate suit is
maintainable for claim of damages when the assessee had exhausted all the remedies under the
Income tax Act and further where the assessee had failed to prove that search carried out was
illegal and that damages were actually suffered.
Search was conducted at the premises of the assessee, a registered partnership firm and assessee’s
stock of perishable items were seized. It was alleged by the assessee that the search was illegal and
that search warrants were obtained with an ulterior motive by the tax officer from the higher
authorities by misleading the facts. The assessee filed a suit for recovery of damages caused by the act
of revenue authorities. Trial court and the first appellate court dismissed the suit of the assessee. High
Court noted that the Lower Courts had given a categorical finding that the assessee had exhausted all
the remedies under the Income Tax Act, 1961 which could not be interfered with. High Court held
that Income Tax Act is a complete Code and no separate suit is maintainable. High Court further
noted that the assessee had failed to prove that any illegal raid was conducted by the Income Tax
Authorities and had also failed to prove the damages suffered by it. (BP.1986-87 to 1996-97)
Paras Rice Mills v. UOI (2016) 236 Taxman 21 (P&H) (HC)

Wealth –tax Act, 1957

S. 2(e) : The land on which a building is under construction is liable to wealth tax
The taxpayer, is a HUF and was co-owner of a land situated at a village in Bangalore District. The
taxpayer entered into various development agreements for the construction of residential flats. The

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taxpayer claimed that it had retained ownership of the land until the flats are fully constructed, and
therefore, it continued to be the owner of the land for the Financial Year 1995-96 and the subsequent
years till their sale. A notice under Section 17 of the Wealth Tax Act (the Act) was issued to the
taxpayer, and it filed a return of wealth. The Assessing Officer held the property as urban land and
brought it to tax. On department’s appeal the High Court reversed the order of the Tribunal holding
that the taxpayer is not entitled to the benefit of clause (ii) to Explanation 1(b) to Section 2(e)(a)(v) of
the Act, as the building had not been constructed and was still under construction during the relevant
year.
On the Assessee’s appeal the Supreme Court held that the ‘Urban land' is to be included in calculating
the 'net wealth' for the purpose of determining wealth tax under the Act. However, certain lands are
not to be treated as 'urban land' that are mentioned in Explanation 1(b) to Section 2(e)(a)(v) of the
Act.
A plain reading of the said clause makes it clear that in order to avail the benefit, the following
conditions have to be satisfied: (a) The land is occupied by any building; (b) Such a building has been
constructed; and (c) The construction is done with the approval of the appropriate authority.
The plain language of the provision indicates that the benefit of the said clause would be applicable
only in respect of the building 'which has been constructed'. The expression 'has been constructed'
cannot include within its sweep a building that is not fully constructed or is in the process of
construction. The opening words of clause (ii) to Explanation 1(b) to Section 2(e)(a)(v) of the Act
states 'the land occupied by any building'. The land cannot be treated to be occupied by a building
where it is still under construction. Thus the Supreme Court dismissed the appeal filed by the
Assessee. (AY. 1996-97)
Giridhar G. Yadalam v. CIT (2016) 237 Taxman 392/ 284 CTR 433 (SC)

Interest-tax Act, 1974

S. 10: Reopening of assessment-If no assessment order is passed, there cannot be a notice for re-
assessment inasmuch as the question of re-assessment arises only when there is an assessment in
the first instance.
On the return filed by the assessee for the assessment year 1997-98 under the Interest-tax Act, 1974
no assessment order was passed. Much after the last date of the assessment year, the Assessing
Officer sought to reopen the assessment by notice under section 10 of the Act and thereafter
proceeded to reassess the interest chargeable under the Act. The Commissioner (Appeals) set aside the
reassessment order and this was upheld by the Appellate Tribunal. On further appeal by the Revenue,
the High Court reversed the Tribunal holding that even if there was no original assessment order
passed under section 10, there could be reassessment. On further appeal:
Held, allowing the appeal, that where there was no assessment order passed, there could not be a
notice for reassessment inasmuch as the question of reassessment would arise only when there was an
assessment in the first instance.Trustees of H. E. H. the Nizam's Supplemental Family Trust v. CIT
[2000] 242 ITR 381 (SC) followed.(AY. 1997-1998
Standard Chartered Finance Ltd. v. CIT (2016) 381 ITR 453/ 238 Taxman 87/ 284 CTR 210
/132 DTR 87(SC)

Kar Vivad Samadhan Scheme , 1988

S.88:Instructions issued by Ministry of Finance cannot modify Scheme having statutory
character - Instructions regarding applicability of marginal rate to unpaid tax for determining
disputed income - Not applicable to taxable income arising from capital gains for which uniform
rate applies - Assessing Officer to determine disputed income in relation to unpaid tax by
applying rate of 33.6% and to calculate tax at 35% of disputed income. [S.89]
The instructions issued by the Ministry of Finance cannot modify a scheme which is statutory in
character. The instructions of the Ministry of Finance regarding applicability of a marginal rate to the
unpaid tax for determining the disputed income cannot apply where the taxable income arises only
from capital gains and to which a uniform rate of 33.6% applies.
Held, that the instructions issued were not consistent with the provisions of the Finance (No. 2) Act,
1998, which did not deal with the marginal rate, particularly when computing the disputed income
arising out of the capital gains. The Act would stipulate the rate of tax where the tax was in arrears.

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For the assessee, the rate was 35% of the disputed income. Therefore, the first step was to determine
the unpaid tax which undisputedly was Rs.81,58,392. The next step was to determine the disputed
income in relation to the unpaid tax applying the rate of 33.6% Thirdly, the tax payable would be
calculated at 35% of the disputed income so computed. The Department was directed to re-compute
the disputed income and thereafter calculate the tax payable by the assessee in terms of the Scheme.
(AY. 1994-1995 )
B.P. Jain and Associates v. CIT (2016) 381 ITR 423/ 67 taxmann.com 332 (Delhi) (HC)

Interpretation of taxing statues- Aids to construction-Budget speech of Finance Minister.

The speech of a Minister is relevant in so far it gives the background for the introduction of a
particular provision. It is not determinative of the construction of the provision , but gives the render
an idea as to what was in Minister’s mind when he sought to introduce it .
CIT v. Meghalaya Steel Ltd. (2016) 383 ITR 217/ 132 DTR 273/ 284 CTR 321/ 238 Taxman 559
(SC)

Allied laws.
Customs Act,
S.110: Accountability- Strictures-Customs officials directed to pay costs of Rs. 14 lakh + interest
@ 9% p.a. from personal account and to face disciplinary action for “high-handedness”,
arbitrariness” and seeking to “hoodwink” Court.
Honourable Court explained the accountability of the public officers by referring various Judgments
of Apex Court and held that ;when this Court has found that the petitioners have been put to a loss of
at least Rs.14,69,650/- on account of complete deterioration of quality of split betel nuts solely on
account of deliberate laches on the part of the officials of the Custom Department it would direct
respondent no.2 to pay a sum of Rs.14,69,650/- along with interest at the rate of 9% per annum for the
period 28.3.2013, the date on which the order of provisional release of the seized article was passed
by the competent authority to the order directing release of the seized articles dated 9.8.2014 within a
period of three months from today. The Court also observed that ; It is, however, made clear that such
amount, which has to be paid by way of compensation for the loss caused to the petitioners on account
of delay of nearly 1½ years in release of the seized articles, shall be recovered from the erring
officials and for the purposes of fixing individual responsibility on such erring officials this Court
would direct the Chairman of Central Board of Excise and Customs Department of Revenue, New
Delhi to get an enquiry conducted by an Officer not below in the rank of Chief Commissioner of
Customs who must not be posted and/or associated in any manner with Patna Zone of the Custom
Department. Upon completion of such enquiry and upon submission of enquiry report appropriate
action under the orders of Chairman Central Board of Excise and Customs, New Delhi be taken
against erring officials not only for recovery of the amount directed to be paid under this judgment to
the petitioners but also for initiating and concluding disciplinary proceedings by the competent
authority against the erring officials of Customs Department of Patna zone who are found to have
caused delay in release of the seized articles of the petitioners in any part of period in between
28.3.2013 to 9.8.2014. This whole exercise must be completed within a period of six months from the
date of receipt of this judgment by the Chairman of the Central Board of Excise and Customs, New
Delhi, who having taken his action as directed above shall also submit his action taken report to the
registry of this Court on or before 30th of June, 2016. 85. With the aforementioned observations and
directions, this writ application is allowed with a cost of Rs. 25,000/- quantified by this Court for
coercing and compelling the petitioners to file this writ petition for release of their seized betel nuts to
be paid by the Respondents to the petitioners within a period of three months from today. It is,
however, made clear that irrespective of initiation and conclusion of the aforesaid proceedings against
the erring officials of Customs department of Patna zone by the Chairman of Central Board of Excise
and Customs, the payment of the amount of Rs.14,69,650/- alongwith interest at the rate of 9% per
annum from 28.3.2013 to 9.8.2014 must be made to the petitioners within a period of three months
from today, failing which the amount of interest on the amount of Rs. 14,69,650/- shall stand
enhanced from 9% per annum to 18% per annum from 28.3.2013 till the date of its actual
payment.Let a copy of this judgment be sent immediately to not only the Chairman of Central Board
of Excise and Customs Department of Revenue, Ministry of Finance, New Delhi, but also to the

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Commissioner of Customs (Preventive), respondent no.2, for its compliance in letter and spirit.( Civil
WP. No. 13382 of 2014, dt. 30.11.2015)
Overseas Enterprises v. UOI (Patna) (HC);www.itatonline.org

Hindu Succession Act , 1956

S. 6: Ancestral property-Formation of a HUF by the surviving members of the deceased. [
Amendment of 2005 ]
(a) The law, therefore, insofar as it applies to joint family property governed by the Mitakshara
School, prior to the amendment of 2005, could therefore be summarized as follows:-
(i) When a male Hindu dies after the commencement of the Hindu Succession Act, 1956, having at
the time of his death an interest in Mitakshara coparcenary property, his interest in the property will
devolve by survivorship upon the surviving members of the coparcenary (vide Section 6).
(ii) To proposition (i), an exception is contained in Section 30
Explanation of the Act, making it clear that notwithstanding anything contained in the Act, the interest
of a male Hindu in Mitakshara coparcenary property is property that can be disposed of by him by
will or other testamentary disposition.
(iii) A second exception engrafted on proposition (i) is contained in the proviso to Section 6, which
states that if such a male Hindu had died leaving behind a female relative specified in Class I of the
Schedule or a male relative specified in that Class who claims through such female relative surviving
him, then the interest of the deceased in the coparcenary property would devolve by testamentary or
intestate succession, and not by survivorship.
(iv) In order to determine the share of the Hindu male coparcener who is governed by Section 6
proviso, a partition is effected by operation of law immediately before his death. In this partition, all
the coparceners and the male Hindu’s widow get a share in the joint family property.
(v) On the application of Section 8 of the Act, either by reason of the death of a male Hindu leaving
self-acquired property or by the application of Section 6 proviso, such property would devolve only
by intestacy and not survivorship.
(vi) On a conjoint reading of Sections 4, 8 and 19 of the Act, after joint family property has been
distributed in accordance with section 8 on principles of intestacy, the joint family property ceases to
be joint family property in the hands of the various persons who have succeeded to it as they hold the
property as tenants in common and not as joint tenants.
(b) Applying the law to the facts of this case, it is clear that on the death of Jagannath Singh in 1973,
the joint family property which was ancestral property in the hands of Jagannath Singh and the other
coparceners, devolved by succession under Section 8 of the Act. This being the case, the ancestral
property ceased to be joint family property on the date of death of Jagannath Singh, and the other
coparceners and his widow held the property as tenants in common and not as joint tenants. This
being the case, on the date of the birth of the appellant in 1977 the said ancestral property, not being
joint family property, the suit for partition of such property would not be maintainable.( Civil Appeal
No. 2360 of 2016, dt. 02.03.2016)
Uttam v. Saubhag Singh, AIR 2016 SC 1169, 2016 (3) Bom CR 83 (SC)

S. 6: The Hindu Succession (Amendment Act), 2005 which came into effect on 09.09.2015 and
by which daughters in a joint Hindu family, governed by Mitakshara law, were granted
statutory right in the coparcenary property (being property not partitioned or alienated) of
their fathers applies only if both the father and the daughter are alive on the date of
commencement of the Amendment Act.
(i) An amendment of a substantive provision is always prospective unless either expressly or by
necessary intendment it is retrospective3. In the present case, there is neither any express provision for
giving retrospective effect to the amended provision nor necessary intendment to that effect.
Requirement of partition being registered can have no application to statutory notional partition on
opening of succession as per unamended provision, having regard to nature of such partition which is
by operation of law. The intent and effect of the Amendment will be considered a little later. On this
finding, the view of the High Court cannot be sustained.
(ii) Contention of the respondents that the Amendment should be read as retrospective being a piece
of social legislation cannot be accepted. Even a social legislation cannot be given retrospective effect

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unless so provided for or so intended by the legislature. In the present case, the legislature has
expressly made the Amendment applicable on and from its commencement and only if death of the
coparcener in question is after the Amendment. Thus, no other interpretation is possible in view of
express language of the statute. The proviso keeping dispositions or alienations or partitions prior to
20th December, 2004 unaffected can also not lead to the inference that the daughter could be a
coparcener prior to the commencement of the Act. The proviso only means that the transactions not
covered thereby will not affect the extent of coparcenary property which may be available when the
main provision is applicable. Similarly, Explanation has to be read harmoniously with the substantive
provision of Section 6(5) by being limited to a transaction of partition effected after 20th
December,2004. Notional partition, by its very nature, is not covered either under proviso or under
sub-section 5 or under the
Explanation.
(iii) Interpretation of a provision depends on the text and the context (RBI vs. Peerless (1987) 1 SCC
424, para 33). Normal rule is to read the words of a statute in ordinary sense. In case of ambiguity,
rational meaning has to be given (Kehar Singh vs. State (1988) 3 SCC 609). In case of apparent
conflict, harmonious meaning to advance the object and intention of legislature has to be given
(District Mining Officer vs. Tata Iron and Steel Co. (2001) 7 SCC 358).
(iv) There have been number of occasions when a proviso or an explanation came up for
interpretation. Depending on the text, context and the purpose, different rules of interpretation have
been applied (S. Sundaram Pillai vs. R. Pattabiraman (1985) 1 SCC 591).
(v) Normal rule is that a proviso excepts something out of the enactment which would otherwise be
within the purview of the enactment but if the text, context or purpose so require a different rule may
apply. Similarly, an explanation is to explain the meaning of words of the section but if the language
or purpose so require, the explanation can be so interpreted. Rules of interpretation of statutes are
useful servants but difficult masters (Keshavji Ravji & Co. vs. CIT (1990) 2 SCC 231). Object of
interpretation is to discover the intention of legislature.
(vi) In this background, we find that the proviso to Section 6(1) and sub-section (5) of Section 6
clearly intend to exclude the transactions referred to therein which may have taken place prior to 20th
December, 2004 on which date the Bill was introduced. Explanation cannot permit reopening of
partitions which were valid when effected. Object of giving finality to transactions prior to 20th
December, 2004 is not to make the main provision retrospective in any manner. The object is that by
fake transactions available property at the introduction of the Bill is not taken away and remains
available as and when right conferred by the statute becomes available and is to be enforced. Main
provision of the Amendment in Section 6(1) and (3) is not in any manner intended to be affected but
strengthened in this way. Settled principles governing such transactions relied upon by the appellants
are not intended to be done away with for period prior to 20th December, 2004. In no case statutory
notional partition even after 20th December, 2004 could be covered by the Explanation or the proviso
in question.
(vii) Accordingly, we hold that the rights under the amendment are applicable to living daughters of
living coparceners as on 9th September, 2005 irrespective of when such daughters are born.
Disposition or alienation including partitions which may have taken place before 20th December,
2004 as per law applicable prior to the said date will remain unaffected. Any transaction of partition
effected thereafter will be governed by the Explanation.( Civil Appeal No. 7217 of 2013,
dt.24.11.2015 )
Prakash v. Phulvati (SC);www.itatonline.org

S. 6:Co-parcener-Eldest daughter is entitled to be Karta of the HUF-Pursuant to the

amendment to the Hindu Succession Act, 1956 by the Hindu Succession (Amendment) Act, 2005
all rights which were available to a Hindu male are now also available to a Hindu female. A
daughter is now recognised as a co-parcener by birth in her own right and has the same rights
in the co-parcenary property that are given to a son. Consequently, the eldest daughter is
entitled to be the Karta of the HUF.
The High Court had to consider whether the plaintiff, being the first born amongst the co-parceners of
the HUF property, would by virtue of her birth, be entitled to be its Karta. HELD by the High Court
upholding the claim:

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(i) It is rather an odd proposition that while females would have equal rights of inheritance in an HUF
property, this right could nonetheless be curtailed when it comes to the management of the same. The
clear language of Section 6 of the Hindu Succession Act does not stipulate any such restriction.
Therefore, the submissions on behalf of defendant Nos. 1 to 4 which are to the contrary are untenable.
(ii) The impediment which prevented a female member of a HUF from becoming its Karta was that
she did not possess the necessary qualification of co-parcenership. Section 6 of the Hindu Succession
Act is a socially beneficial legislation; it gives equal rights of inheritance to Hindu males and females.
Its objective is to recognise the rights of female Hindus as co-parceners and to enhance their right to
equality apropos succession. Therefore, Courts would be extremely vigilant apropos any endeavour to
curtail or fetter the statutory guarantee of enhancement of their rights. Now that this disqualification
has been removed by the 2005 Amendment, there is no reason why Hindu women should be denied
the position of a Karta. If a male member of an HUF, by virtue of his being the first born eldest, can
be a Karta, so can a female member. The Court finds no restriction in the law preventing the eldest
female co-parcener of an HUF, from being its Karta. The plaintiff’s father‟s right in the HUF did not
dissipate but was inherited by her. Nor did her marriage alter the right to inherit the co-parcenary to
which she succeeded after her father‟s demise in terms of Section 6. The said provision only
emphasises the statutory rights of females. Accordingly, issues 5, 6 and 8 too are found in favour of
the plaintiff. 29. In these circumstances, the suit is decreed in favour of the plaintiff in terms of the
prayer clause, and she is declared the Karta of “D.R. Gupta & Sons (HUF)”.( CS(OS) 2011/2006, dt.
22.12.2015)
Sujata Sharma v. Manu Gupta (2016) IIAD (Delhi) 312; 226 (2016) DLT 647
(Delhi)(HC);www.itatonline.org

Indian Penal Code, 1860

S. 408: Corruption- Strictures- High Court Shocked At Loot Of Taxpayers Funds By Corrupt
Babus-Calls For Non-Cooperation Movement By Taxpayers to Eradicate "Hydra Headed
Monster" of corruption- If corruption continues tax payers may resort to refuse to pay taxes by
‘non-coopertion movement’ [ S. 4, Code of Criminal Procedure , 1973 ]
Hon’ble Justice A. B. Chaudhari of the Nagpur Bench of the Bombay High Court has passed severe
strictures against the Government for turning a blind eye to the rampant corruption in the Country.
The learned Judge lamented that “It shocks one and all as to the manner in which the taxpayers’
money is being swindled, misappropriated and robbed by such unscrupulous holders of posts”.
He also pointed that corruption has become the order of the day over the past few decades and that
taxpayers are helpless victims of the sordid state of affairs.
“Does the taxpayers pay the money to the Government for such kind of acrobatics being played”
Justice Chaudhari asked in a rhetorical manner.
He also lamented that ethics and morals have taken a back seat in modern India’s scheme of things.
He opined that to eradicate the “hydra headed monster” of corruption, citizens have to come together
to tell their Governments that they have had enough. He also recommended that taxpayers’ may have
to resort to refuse to pay taxes by a “non-cooperation movement“.
The learned Judge also found fault with the attitude of the employees’ unions who are otherwise very
vigilant about their rights. He expressed surprise that the Unions do not “condemn, outcast or
demonstrate against their counterpart bureaucracy indulging in corruption” and on the contrary
support their misdeeds.
“The reply filed on behalf of the State shows misappropriation and embezzlement of amount to the
tune of approximately Rs. 385 crores, which is stymieing. It shocks one and all as to the manner in
which the taxpayers’ money is being swindled, misappropriated and robbed by such unscrupulous
holders of posts. The money was meant for upliftment of the ‘Matang’ community and instead of that,
the political appointee, the Chairman Ramesh Kadam, in league with the Managing Director and the
Bank Officers of the Bank of Maharashtra, looted the tax payers’ money. How this huge amount of
Rs. 385 crores will come back is a ‘million dollar question’.
For the last over two decades, this has become the order of the day and sordid state of affairs; whereas
the taxpayers’ are merely looking at this grim situation.
Does the taxpayers pay the money to the Government for such kind of acrobatics being played.

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Ethics and morals have taken a back seat in modern India’s scheme of things. In my considered
opinion, corruption can be beaten if all work together.
To eradicate the cancer of corruption the “hydra headed monster”, it is now a high time for the
citizens to come together to tell their Governments that they have had enough. That is this miasma of
corruption. If the same continues, taxpayers’ may resort to refuse to pay taxes by ‘non-cooperation
movement’. It is surprising that the Unions of Central or State Government employees, whether
politically affiliated or otherwise, make demonstrations for demanding the application of VII Pay
Commission, but they do not condemn, outcast or demonstrate against their counterpart bureaucracy
indulging in corruption. On the contrary, they provide support.
There has been a report in the recent point of time that there are some more Corporations of theState
of Maharashtra who have indulged into huge misappropriation of the taxpayers’ money in the alike
fashion.
Therefore, this Court expects the Director General of Police, MS, Mumbai and rather requests him to
take up such cases and find out the veracity of such a claim made in newspapers, and if there is
substance, to immediately proceed to take action in all such cases as the taxpayers are in deep
anguish. Let the Government as well as mandarins in the corridors of power understand the
excruciating pain and anguish of the tax payers, who have been suffering for over two decades in the
State of Maharashtra. There is a onerous responsibility on those who govern to prove to the taxpayers
that eradication of corruption would not prove for them a “forlorn hope”.
Pralhad @Pratap S/o. Tanbaji Pawar v. State of Maharashtra ( 2016) 238 Taxman 83
(Bom.)(HC)

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