No penalty can be levied u/s 271(1)(c) for concealment of income on addition made u/s 41(1) in respect of sundry creditors appearing in Balance-sheet:

AO levied penalty u/s 271(1)(c) on addition made u/s 41(1) in respect of sundry creditors outstanding at the end of the year. Hon’ble ITAT observed that such liability duly appeared in the Balance-sheet of the assessee and hence, it couldn’t be said that the conclusively liability ceased to exist. It was held that although the addition was not in dispute, it didn’t amount to concealment of income and hence, penalty was not justified on such addition. Accordingly, penalty was deleted.

[CHRAG HARMANBHAI PATEL (HUF) Vs. ITO – ITA Nos.298 & 1323/Ahd/2012]

No addition can be made u/s 41(1) in respect of creditors outstanding at the end of the year:

AO found that there were certain outstanding creditors for goods at the end of the year and few of them were outstanding for over three years. AO issued notices u/s 133(6) to certain creditors which returned un-served and even the assessee couldn’t furnish confirmation of any of the creditors. Hence, AO concluded that the creditors no longer existed at the given places, the said outstanding sums were no more payable and the liability had ceased to exist. Accordingly, an addition was made in respect of such creditors u/s 41(1). The Hon’ble ITAT observed that the assessee had shown such creditors as its liability in the Balance-sheet and the same was in respect of purchases made by the assessee. The assessee had not written off the said amount and had acknowledged the liability to pay by reflecting the same in Balance-sheet. Even the Revenue had not brought anything on record to prove that the assessee had obtained any benefit either by way of remission or cessation of liabilities. In light of the aforesaid facts, the impugned addition was deleted by the Hon’ble ITAT.

[PURVIDEVI MAHENDRAKUMAR CHAUDHARY VS. ITO – ITA NOS.1426 & 1698/Ahd/2012]

No disallowance can be made u/s 36(1)(iii) in respect of interest if assessee has sufficient interest free funds:

AO found that the assessee had certain capital work-in-progress. He further observed that assessee’s total loss and miscellaneous expenses were far more than assessee’s share capital and accordingly, assessee’s net worth was negative. He therefore took a view that secured and unsecured loans might have been used for making payments for acquisition of assets. Accordingly, he made proportionate disallowance of interest u/s 36(1)(iii). Hon’ble ITAT observed that AO had disallowed interest u/s 36(1)(iii) without ascertaining the fact as to whether capital was borrowed for capital assets or not. Revenue also failed to prove the onus of establishing the nexus that interest bearing funds had been used for acquiring such capital assets. Further, such investment was made in preceding year when the assessee had interest free funds. Following the ratio laid down in the case of “Reliance Utilities and Power Ltd. – 313 ITR 340 (Mum)”, CIT(A) had held that the presumption will go in favour of the assessee that such investments were made out of interest free funds and accordingly, deleted the said disallowance. Revenue couldn’t controvert such findings of CIT(A) and accordingly, Hon’ble ITAT also upheld the order passed by CIT(A).

[ITO Vs. RAVIRAJ FOILS LTD. – ITA No. 2945/Ahd/2011]

Liquidated damages paid towards late delivery of goods are allowable as business expenditure:

AO disallowed certain liquidated damages incurred by the assessee paid towards late delivery of goods. Hon’ble ITAT observed that amount in respect of liquidated damages was deducted on account of delay in terms of purchase order. Delay in delivery had occurred due to delay in terms of purchase order, delay in approvals of drawings by the customers and performance tests of the equipment, etc. In light of such facts, it was held that amounts paid as damages towards late delivery of goods are allowable as business expenditure.

[ACIT Vs. MAZDA LTD. – ITA Nos.1106 & 1750/Ahd/2012]

If CIT(A) dismisses a ground after wrongly recording that the same is not pressed by assessee, ITAT can restore the matter for afresh consideration:

AO made an addition on account of water and service charges. Ld. CIT(A) recorded that the assessee had not pressed the said ground since the same was decided against the assessee in earlier years. Assessee preferred an appeal before ITAT and submitted that CIT(A) had wrongly recorded the same. ITAT observed that the DR had not brought anything on record to show the said issue was decided against the assessee in earlier years. Hence, ITAT restored the matter to the file of AO to decide the issue afresh after giving reasonable opportunity of being heard to the assessee alongwith certain directions. On Revenue’s appeal, Hon’ble High Court held that the order of ITAT required no interference and accordingly, revenue’s appeal was dismissed.

[CIT vs. Gujarat Alkalies & Chemicals Ltd. – Tax Appeal No. 816 of 2013]

Interest paid @ 18% on unsecured loans from parties covered u/s 40A(2)(b) is reasonable:

AO found that the assessee had paid interest @ 18% on unsecured loans obtained from persons covered u/s 40A(2)(b) as against interest @ 12% to other parties. Hence, he disallowed interest in excess of 12%. Hon’ble ITAT observed that the said loans from unsecured persons were received in earlier years and interest @ 18% on such loans was accepted in earlier years by the revenue. It was further observed that the parties to whom interest @ 18% was paid were falling in the highest tax bracket and hence, there was no loss to the revenue. Hon’ble ITAT was of the view that such unsecured loans were obtained to meet the business requirements and to ensure that the assessee’s movable and immovable assets remain free from any encumbrances. Further, such loans involve huge risks and are generally not required to be repaid at a short notice. In light of the above, it was held that interest @ 18% was reasonable.

[SOUTHERN INDIA BIDI WORKS PVT. LTD. Vs. ACIT – ITA Nos.1847/Ahd/2011 and 1113/Ahd/2012]

ITAT is bound to deal with judgment relied upon and cited by an assessee:

AO made addition in respect of bogus purchases/sales which was confirmed by CIT(A) as well as ITAT. On further appeal, Hon’ble High Court observed that ITAT, while dismissing assessee’s appeal, had neither considered nor dealt with the judgment in the case of “CIT vs. President Industries – 258 ITR 654” which was cited by the assesse and on which, assessee had placed heavy reliance. Hon’ble High Court held that whenever any decision has been relied upon and/or cited by any assessee, the concerned authority /ITAT is bound to consider and deal with the same and opine as to whether the same shall be applicable or not. Accordingly, the matter was remanded to ITAT with a direction to decide the issue after considering the decision in the case of CIT vs. President as relied upon by the assessee.

[Dattani And Co. vs. ITO – Tax Appeal No.847-849 of 2013]

No disallowance u/s 43B if amount is deposited within the grace period:

AO made disallowance u/s 43B in respect of employees’ contribution to PF considering the said payment to be belated since the same was deposited after the due date prescribed under the PF Act. The said disallowance was deleted by CIT(A) as well as ITAT consequent to which revenue preferred an appeal before the Hon’ble High Court. Hon’ble High Court observed that the ITAT had deleted the said disallowance on the count that the said assessee had deposited the said sum within the extended grace period under the PF Act. It was held that since the assessee was entitled to make the said payment under PF Act within the grace period and since the assessee had made the said payment within such grace period, it cannot be said that the assessee had not deposited the amount within the prescribed time limit. Accordingly, Revenue’s appeal was dismissed.

[CIT vs. Amoli Organics (P) Ltd. – Tax Appeal No.36 of 2008]

Registration u/s 12A cannot be denied merely on the count that no substantial activities have been carried out:

CIT rejected assessee-trust’s application for registration u/s 12A since he was not satisfied with the activities of the assessee and was of the opinion that no substantial charitable activities were carried out. ITAT quashed the said order and gave a direction to grant registration to the assessee u/s 12A. On Revenue’s appeal, Hon’ble High Court observed that the main object of the assessee was to promote, establish, run, support, maintain and advance the cause of education, to grant aid, or other assistance to all types of educational institutions including schools, colleges, universities and other institutions for the benefit of students. Revenue had neither doubted nor disputed the object and purpose of the assessee. Also it was first year after the establishment of the assessee-trust. Assessee was registered u/s 25 of the Companies Act. Total donation received by the assessee was merely Rs.7,103/- out of which scholarship was given to the tune of Rs.4,000/- approx. Hon’ble High Court thus held that ITAT was right in holding that looking to the magnitude of income during the under consideration, charitable activities carried out cannot be considered to be of low magnitude. ITAT had rightly directed to grant registration to the assessee u/s 12A. Accordingly, Hon’ble High Court upheld the order of ITAT and dismissed the Revenue’s appeal.

[CIT vs. Satvara Education Foundation – Tax Appeal No.907 of 2013]

Entire deduction u/s 80IB(10) cannot be denied merely on the counts that some of the units were not fully constructed before the prescribed date and that multiple approvals were obtained w.r.t different units:

AO denied deduction u/s 80IB(10) on the counts that the entire housing project was not completed within the prescribed time limit and there were multiple approvals w.r.t. different units. On appeal, CIT(A) allowed deduction u/s 80IB(10) w.r.t. those units of the said project which were approved and constructed prior to 31/03/08. The said order was confirmed by ITAT. On Revenue’s appeal, Hon’ble High Court observed that the said project was duly approved before the cut-off date being 01/04/04. It was w.r.t. 119 units and construction of most of units was completed before the prescribed dated i.e. 31/03/08. Assessee had fulfilled the conditions w.r.t. size of plot and built up area per unit. AO had not pointed out any condition prescribed u/s 80IB(10) which had been violated by the assessee. It was thus held merely because multiple approvals have been obtained, deduction u/s 80IB(10) cannot be denied. It was also held that though the entire project has not been completed before the prescribed date, deduction u/s 80IB(10) must be granted w.r.t. units which have been completed before the prescribed date. Revenue’s appeal was dismissed accordingly.

[CIT vs. B M And Brothers – Tax Appeal No.796 of 2013]

Unutilized MODVAT credit appearing in Balance-sheet doesn’t constitute income of an assessee:

Assessee had availed MODVAT credit paid at the time purchase of capital assets being plant and machineries. Part of such CENVAT credit was utilised by the assessee against sale of finished goods. AO found that the assessee had reduced the cost of plant and machineries to the extent of MODVAT credit for the purpose of claiming depreciation. AO was of the view that MODVAT received on purchase of plant and machineries, being capital in nature, cannot be allowed to be set-off against revenue receipts. According to AO, it was a kind of subsidy and incentive given by the Govt. and hence, it was to be treated as assessee’s income. Hon’ble ITAT held that the differential amount of MODVAT credit (after adjustment of current year’s utilization) appearing on asset side of Balance-sheet is a pre-paid expenditure and not chargeable to P&L account. It doesn’t constitute income of an assessee. Accordingly, CIT(A)’s order deleting the said addition was upheld by the Hon’ble ITAT.

[DCIT Vs. M/S. CAMPHOR & ALLIED PRODUCTS LTD. – ITA No.370/Ahd/2013]

No penalty can be levied on addition made in respect of bad debts claimed on the basis of a bona belief:

AO levied penalty on the addition made in respect of bad-debts. Hon’ble ITAT observed that the assessee had earlier sold factory shed but couldn’t recover entire sale proceeds and hence, the unrealized sum was claimed as bad-debts. AO was of the view that since the transaction as to sale of factory shed was not a trading transaction, loss on account of non-realization of such sale proceeds was a capital loss and hence, it wasn’t allowable as bad-debts. It was further observed that the claim of bad-debts was duly reflected in P&L a/c as well as return of income. It was not the case that the assessee had not disclosed the amount or had concealed the particulars of income. Assessee’s contention was that it was of bona fide view that since amount written off was out of amount that had already been offered to tax, it was eligible for the claim of bad-debts and such bona fide belief of the assessee had not been controverted by the Revenue by bringing any tangible material on record. Hence, relying on the decisions in the cases of “Price Waterhouse Coopers Pvt. Ltd. vs. CIT – 348 ITR 306 (SC)”, the penalty was deleted.

[M/S. POONAM PROTEINS PVT. LTD. Vs. ITO – ITA No.1626/Ahd/2010]

Process of obtaining rice from paddy is a manufacturing activity and assessee is eligible for claim of additional depreciation:

Assessee, engaged in the business of running rice mill, claimed additional depreciation on plant and machinery which came to be disallowed by AO since he was of the view that the assessee was not engaged in the manufacture/production of any article. Hon’ble ITAT held that the assessee rice is manufactured/produced after a cumbersome process applied on paddy and the commodity so manufactured cannot be regarded or used as the original commodity. Rather, rice is a distinct commodity than the raw material used (i.e. paddy) either considering the usage or marketability of the product. Hence, the assessee was rightly eligible for additional depreciation.

[M/S. VIJAYALAXMI RICE MILL Vs. ITO – ITA 2205/Ahd/2010]

No disallowance can be made u/s 43B in respect of late payment of PF and employees’ contribution if the same are deposited before due date of filing return of income:

AO made disallowance u/s 43B in respect of late payment of PF and Employee’s contribution to Provident Fund. Hon’ble ITAT observed that though the said payments were made late (i.e. within the grace period or minor delay of around six days), such payment were made before due date of filing return of income. Hon’ble ITAT, following the ratio laid down by the Hon’ble Apex Court in the case of “CIT vs. Alom Extrusion – 319 ITR 306 (SC)”, held that no such disallowance can be made u/s 43B since the said amounts were deposited before due date of filing return of income. The disallowance u/s 43B was deleted accordingly.

[DCIT Vs. V.K. PATEL & CO. – ITA No.330/Ahd/2013]

Penalty cannot be levied u/s 271(1)(c) by invoking Explanation 5 merely on account of late payment of tax and interest on additional income disclosed during search:

Assessee declared certain income as undisclosed income during the course of search on which AO levied penalty u/s 271(1)(c) by invoking Explanation 5 by not granting the immunity provided under clause 2 to Explanation 5. Hon’ble ITAT observed that the assessee had made a statement u/s 132(4) as to his undisclosed income. Assessee had also substantiated the manner in which such income was derived. Assessee had also paid tax on such income along with interest. The only count on which AO didn’t grant immunity from penalty was that the tax and interest were paid late and not at the time of filing return of income. Hon’ble ITAT, relying on the decision of the Hon’ble Apex Court in the case of “ACIT vs. Gebilal Kanhaialal HUF – 348 ITR 561 (SC)”, held that no time limit has been prescribed in law for payment of tax with interest for claiming immunity. Accordingly, the penalty was deleted.

[SHRI KAMLESH JAIN Vs. ACIT – ITA No.2525/Ahd/2010]

No proportionate disallowance of interest expenditure is called for in respect of interest free advances if an assessee has sufficient interest free funds:

AO found that the assessee had obtained funds from bank in form of working capital on which interest was paid and had advanced interest free loan to a related party. Hence, he disallowed proportionate interest expenditure. Hon’ble ITAT found that increase in the amount of reserves and surplus of the assessee for the given year was itself much more than the interest free loan advanced by the assessee. Further, Revenue had not brought any evidence on record to prove that interest bearing funds obtained by the assessee had been utilised for such interest free advances. Neither AO nor CIT(A) had established direct nexus between interest bearing funds and interest free advances. The Hon’ble ITAT, following the ratio laid down in the cases of “CIT Vs. Reliance Utilities and Power Ltd. – 313 ITR 340 (Bom)” and “CIT vs. Raghuvir Synthetics Ltd. – 354 ITR 222 (Guj)”, held that if an assessee has both, interest bearing funds as well as interest free funds, then it shall be presumed that interest free advances have been made out of interest free funds if the same are sufficient to meet such interest free advances.

[GUJARAT INSECTICIDES LTD. Vs. ACIT – ITA 556 & 675/Ahd/2013]

No disallowance u/s 40(a)(ia) in respect of payment to truck owners exceeding Rs.50,000/- for non-compliance of S.194C in absence of any contract:

AO made disallowance u/s 40(a)(ia) in respect of payments made to truck owners/parties exceeding Rs.50,000/- in aggregate on or after 01/10/04 without deducting tax at source u/s 194C. Hon’ble ITAT observed that there was no contract for carrying out such work of transportation between assessee and such truck owners/parties pursuant to which such payments were made. Even Revenue had not brought any cogent materials to establish that such payments were made pursuant to any such contract. Accordingly, revenue had not established that provisions of S.194C were applicable in assessee’s case. Hence, it was held that S.194C was not applicable in the given case and consequently, no disallowance is called for u/s 40(a)(ia).

[ACIT Vs. SHREE DHAIN AUTO TRANSPORT CORPORATION – ITA Nos.1 to 4/Ahd/2013]

Penalty u/s 271(1)(c) cannot be levied on disallowance made u/s 40(a)(ia) by invoking legal fiction:

AO levied penalty u/s 271(1)(c) on disallowance made u/s 40(a)(ia). Hon’ble ITAT observed that the assessee had paid interest to a fiancé company but had not deducted tax at source u/s 194A since he was under a bona fide belief that provisions of TDS were not applicable on payment of interest to NBFC. AO had not alleged that the said payment was non-genuine, bogus, excessive or unreasonable. Disallowance u/s 40(a)(ia) was made by merely invoking the legal fiction. It was thus held that disallowance u/s 40(a)(ia) will not attract penalty for furnishing inaccurate particulars of income. Accordingly, the penalty was deleted. Reliance was also placed on the decision of the Hon’ble Apex Court in the case of “CIT vs. Mother India Refrigeration Pvt. Ltd. – 155 ITR 711 (SC)” wherein in was held that legal fictions are created for some definite purpose and the same must be limited to that purpose and should not be extended beyond that legitimate filed.

[ITO Vs. VISHAL MADHUSUDHANBHAI CHOKSI – ITA No.62/Ahd/2013]

No addition can be made u/s 40A(2) unless AO finds out Fair Market Value of the concerned goods or services and compares the same with payment made by assessee to related parties:

AO made disallowance u/s 40A(2) of part of the job charges paid by the assessee to a person covered vide S.40A(2)(b) since he considered it to be excessive. Hon’ble ITAT found that the appellant had paid texturizing labour charges at 15/kg to its sister concerns whereas its own cost of production was Rs.9.71/kg. Hence, AO took a view that the assessee had made excess payment of Rs.5.29/kg (i.e. Rs.15 – Rs.9.71) and hence, he disallowed corresponding labour charges. For working out such a disallowance, AO firstly needs to compare payment made by assessee with “Fair Market Value” (FMV) of such goods or services and then, if payment is found to be excessive or unreasonable as compared to FMV, then disallowance can be made to the extent of excessive or unreasonable sum paid. In the given case, AO compared the payment of labour charges with “Cost of production” of the assessee and not the “FMV”. Further, Revenue couldn’t controvert the fact that if octroi, freight and cartage are added to cost of production, assessee’s average cost works out to Rs.15.02/kg. In light of the aforesaid facts, the addition made u/s 40A(2) was deleted.

[M/S. J.J. TEXTURISERS Vs. ITO – ITA No.978/Ahd/2010]

S.194C is not applicable while making payment is respect of purchase of standardized materials available in market:

AO made disallowance u/s 40(a)(ia) since he was of the view that the assessee had not deducted tax u/s 194C while making payments in respect of packing materials. Hon’ble ITAT found that the concerned payment was in respect of purchase of plastic trays, cups, spoon and plastic dishes, etc. and the said items did not carry the logo of the assesse. Further, the said purchases were of the standardized materials available in the market. It was thus held that such purchases cannot be considered as being a case of contract which would require deduction of tax u/s 194C. Consequentially, disallowance u/s 40(a)(ia) was deleted.

[RASRANJAN FOOD PRODUCTS PVT. LTD. Vs. ITO – ITA No.1794/Ahd/2010 & CO No.188/Ahd/2010]

Depreciation on vehicles can be claimed by a company even if such vehicles are purchased in the names of its directors:

AO disallowed depreciation on vehicles on the count that the said vehicles were purchased in the name of the directors of the assessee-company. He was of the view that since the ownership of such vehicles did not belong to the company, it was not entitled to depreciation. Hon’ble ITAT observed that the assesse-company had made payments for such vehicles. The said vehicles were recorded in the books of assessee-company and were also used for the purpose of business of the assessee-company. In light of the aforesaid facts, Hon’ble ITAT rightly confirmed the order of CIT(A) allowing depreciation on such vehicles to the assessee-company.

[RASRANJAN FOOD PRODUCTS PVT. LTD. Vs. ITO – ITA No.1794/Ahd/2010 & CO No.188/Ahd/2010]

No addition can be made u/s 68 in respect of cash deposited in bank a/c out of earlier cash withdrawals:

AO made an addition u/s 68 in respect of cash deposited in bank account considering it to be unexplained. Hon’ble ITAT observed that the assessee had received sale proceeds of shares of ONGC on two occasions which were deposited in a bank account. On the very next of the said sale proceeds being credited in the bank account, sizable sum out of the same was withdrawn by the assessee. After few months, assessee re-deposited certain cash in the very same bank account and assessee claimed that the said deposit was out of the cash withdrawal made earlier. AO made addition u/s 68 in respect of the said cash deposit. Further, Hon’ble ITAT also observed that assessee was an employee of ONGC, had no other occupation and had already offered long term capital gain on sale of shares for tax. It was held that there could be various reasons for an assessee to keep liquid cash in his possession which is not unnatural. Moreover, revenue had not brought any material on record to establish that the assessee had deposited cash other than what he had withdrawn from his bank account. Since the addition u/s 68 was made merely on the basis of presumptions and assumptions, it was harsh and not justifiable. Accordingly, the addition was deleted by the Hon’ble ITAT.

[NAVINCHANDRA RAVJIBHAI CHAVDA Vs. ITO – ITA No.2335/Ahd/2012]

No penalty can be levied u/s 271AAA on the count that assessee failed to substantiate the manner in which undisclosed income was derived if the authorised officer doesn’t ask specific question w.r.t. manner in which such income was derived:

A search action was carried out during the course of which, certain cash, gold ornaments and jewellery were found. Hence, assessee made certain disclosure as his undisclosed income so as to cover the discrepancy in cash & jewellery on which AO levied penalty u/s 271AAA. Hon’ble ITAT observed that the assessee had specified in his statement recorded u/s 132(4) that such income was earned from medical profession. Moreover, the said income was duly offered in the return on income and tax on such disclosure was adjusted from seized cash. AO levied penalty u/s 271AAA since he was of the view that assessee didn’t substantiate the manner in which such income was derived. Hon’ble ITAT further observed that neither at the stage of recording assessee’s statement nor at the stage of assessment proceedings, assessee was asked either by the authorised officer or AO to substantiate the manner in which undisclosed income was derived. Hon’ble ITAT, following decision in the case of Radhakrishnan Goyal vs. CIT [278 ITR 454 (All)], held that u/s 132(4), unless authorised officer puts a specific question w.r.t. manner in which income has been derived, it is not expected from a person to make a statement in this regard. Having complied with the requirements of S.271AAA(2), it was held that assessee was eligible for immunity from penalty u/s 271AAA and CIT(A) was right in deleting such penalty.

[DCIT Vs. Dr. MUKESH S. SHAH – ITA No.1942/Ahd/2012]

Explanation 5 to S.271(1)(c) cannot be invoked to levy penalty on income disclosed during survey u/s 133A:

A survey u/s 133A took place at the assessee firm’s premises during the course of which certain excess stock and excess cash were found. AO levied penalty on the said amounts representing unaccounted stock and unaccounted cash by invoking Explanation 5 to S.271(1)(c). On appeal, the Hon’ble ITAT observed that the assessee firm had furnished its return of income which included the unaccounted income on account of excess stock and excess cash. Tax arising thereon was duly paid and the said return of income was accepted u/s 143(3). Further, the said disclosure was made during the course of survey u/s 133A and not during the course of search u/s 132. Explanation 5 can be invoked in case of search initiated u/s 132 and not in case of survey u/s 133A. Further, the said amounts were included in the return of income and the said return was accepted by AO. Hence, it cannot be said that the assessee had concealed its income or furnished inaccurate particulars of income. Also, there cannot be any concealment prior to furnishing return of income. In light of the above, the penalty was deleted.

[BHARAT STEEL SUPPLIERS VS. ACIT – ITA NOS.1546-47/Ahd/2010]

Loss arising on sale of shares wherein sales take place prior to purchase of shares without any stock being available must be treated as “Speculation loss” and not as “Contrived loss”:

AO disallowed loss on sale of shares considering it to be “Contrived loss” since he was of the view that transactions in purchase and sale of shares were merely paper transactions and the assessee had just booked the loss. Further, such transactions were off market transactions and not routed through the stock exchange. The Hon’ble ITAT observed that the transactions of sales were entered before the corresponding purchase transactions and without any stock being available with the assessee. Such transactions were evidenced by purchase and sales bills. The same were not reflected in demat account since sales transactions were effected prior to that of purchases. The shares were sold first with the intention to purchase the same when its prices fell down but since the prices of shares increased, the assessee had to purchase the shares so as to minimize the shares. The Hon’ble ITAT was of the view that the activity of first selling and then purchasing shares was a permissible and normal business activity in share transactions. Hence, it was held that loss arising thereon cannot be considered as contrived loss. However, since there were no consequential deliveries of shares, the said loss was to be treated as “Speculation loss”.

Deduction u/s 80IB(10) can be availed even if the assessee doesn’t have “Legal ownership” over the land:

Assessee is engaged in the business of construction and development of housing projects and had claimed deduction u/s 80IB(10). AO denied the said deduction merely on the counts that the land was not owned by the assessee and the certificate for eligibility of deduction was issued by the local authorities in the name of the owner of the land. The Hon’ble ITAT observed that though the land was not owned by the assessee, the development rights were with the assessee as per the agreement with the owner of the land. The assessee had all rights to develop the project and even the risk was with the assessee. Assessee was rewarded with profits arising out of such development activities and not any fixed receipt. Possession of land had been passed on to the assessee, expenses on development had been debited to the P&L a/c and the sale proceeds had been credited to the P&L a/c. In light of the above, it was held that the assessee was rightly eligible for deduction u/s 80IB(10) in light of the ratio laid down by the Hon’ble Gujarat High Court in the case of Radhe Developers.

Notional interest on NPA recorded in books and routed through Balance-sheet as per the guidelines of RBI cannot be taxed in the hands of the bank:

AO made an addition in respect of Interest on NPA (Non-performing asset) account. The Hon’ble ITAT observed that the assessee, a Co-operative bank, passed a book entry in respect of interest on NPA by debiting “Interest receivable on NPA a/c” and crediting “Muddat Viti Vyaj Anamat a/c”. Both these accounts were reflected in the Balance-sheet on the asset side and liability side respectively. Such a provision was made as per guidelines issued by RBI. The profit and loss account was not credited at all since it was a notional entry and no such interest was actually received. Even Section 43 was not applicable since the P&L account was not credited and such interest was directly shown in Balance-sheet. Hence, it was held that such interest can’t be taxed in the hands of the assessee.

Interest earned on deposits made out of grant received from Govt. for specified purposes with certain restrictions as to usage of such funds and with a condition that such interest would form part of grant can’t be taxed in the hands of the assessee:

Assessee, a Special Purpose vehicle (SPV), is engaged in the development of SEZ, Diamond Trading Institution and other such    infrastructure to promote the diamond industry to a worldwide level. During the year under consideration, assessee received certain interest on FDR from a bank which was taxed by AO in the hands of the assessee. On appeal, the Hon’ble ITAT observed that the assessee has been promoted under Industrial Infrastructure Upgradation Scheme (IIUS) of Central Government for carrying out infrastructural development in the industrial cluster. Accordingly, the Central Govt. released certain grant and such funds could have been used only for the prescribed projects. Such projects couldn’t take off as the notification for declaring SEZ was not received from Central Govt. and there were no. of hitches in allotment of land and other Govt. approvals. Hence, the said funds were kept under Escrow accounts / FDRs with bank. The assessee neither had any entitlement over such funds nor had the authority to spend the same without the approval of the Govt. Further, it was also prescribed that interest earned on such grants already released by the Govt. shall also form part of the central grant limit. Hon’ble ITAT was of the view that the assessee was merely a custodian and Govt. had prohibited grant as well as interest from any use except for the prescribed purposes. In case such project is not materialised, the same has to be repaid to the respective agencies with interest. The assessee was holding interest income as trustee of the Govt. Hence, it was held that such interest income cannot be taxed in the hands of the assessee.

“Principal” portion out of the lease rental which becomes irrecoverable can be claimed as “bad-debts”:

Assessee, engaged in the business of leasing and hire purchase of equipment, investment, trading of shares and securities, etc., claimed certain sum as “Bad-debts” during the year under consideration. AO allowed the “Interest” portion of hire and lease charges out of total bad-debts but disallowed the “Principal” portion on the count that the said amount was never offered as income. Hon’ble ITAT observed that “Interest” portion of lease rental was duly offered as income. Such interest is a part of debt and hence, part of the debt has been taken into account in computation of income. Accordingly, conditions stipulated in S.36(2) stands satisfied. Hence, the assessee was eligible for deduction in respect of such bad-debts and accordingly, the impugned disallowance was deleted.

No addition can be made in respect of on-money merely on the basis of third party’s statement recorded u/s 131(1A) and certain notings on rough papers found at third party’s premises during search:

AO made an addition in respect of on-money paid by the assessee towards purchase of a land. The Hon’ble ITAT observed that a search was conducted at the premises of a third party and certain notings on rough papers were found. AO also recorded statement of a third party u/s 131(1A). On the basis of such statement and the said notings, AO made the impugned addition. There was no material or evidence that any on-money was paid by the assessee. Further, the said land had a registered document and the value had been accepted by the registered authority for the purpose of stamp duty. AO had also not referred the matter to DVO for determining the market value of the said land as of the date of registration. Even the statement of the said third party was a self-serving statement without any supporting evidence. In light of the above, it was held that such third party evidences cannot be a base for the impugned addition. Accordingly, the impugned addition was deleted.

S.194C is applicable in case of “Connectivity charges” & “Gas transportation charges” and not S.194I:

Assessee is engaged in the business of laying and operating natural gas transmission network. During the year under consideration, assesse had paid “Connectivity charges” and “Gas transportation charges” and had deducted tax at source u/s 194C. AO was of the view that the assessee ought to have deducted tax u/s 194I and hence, he passed and order u/s 201(1), making huge addition on that count. The Hon’ble ITAT observed that pursuant to contract with the customers, the assessee charged them based on the quantity of gas supplied through pipelines not owned by the assessee. “Connectivity charges” were paid by the assessee against the agreement for using the pipeline connection for transportation of gas and “Gas transportation charges” were paid for transportation of such gas. Such pipelines were owned by someone else and it was open for such owner to provide services to its other clients. Moreover, such owner had complete control over such pipelines. Thus, the said transportation was “Work” as per S.194C. In light of the above, it was held that S.194C is applicable and not S.194I. Accordingly, the addition in respect of the same was deleted. 

“Builders” who build immovable properties for sale to customers are not bound to follow “Percentage Completion method” as prescribed under AS-7:

Assessee, an individual engaged in the construction business, followed “Project completion method” for accounting income from such construction business. AO was of the view that income from such business must be offered by following “Percentage completion method”. Hence, he worked out assessee’s income on the basis of “Percentage completion method” and made an addition in respect of the same. On appeal, Ld. CIT(A) observed that the assessee had disclosed profits on the concerned projects in subsequent Asst. Year on the basis of “Project completion method”. Moreover, such system of accounting was followed consistently by the assessee and was also accepted by the Dept. in the earlier Asst. Year vide order u/s 143(3). Ld. CIT(A) held that AS-7 applies in case of “Construction Contracts” wherein a “Contractor” carries out construction work on behalf of the other person who has awarded such contract to him. However, in case of “Builders” (as in the present case), they build immovable properties for sale to customers. Hence, there is no construction contract and the assessee is not bound to follow “Percentage completion method” as per AS-7. The addition was deleted accordingly. On Revenue’s appeal, the Hon’ble ITAT confirmed the Ld. CIT(A)’s order.

S.194C is applicable in case of “Vehicle hiring charges” and not S.194I:

Assesse had paid “Vehicle hiring charges” during the year under consideration and had deducted tax at source u/s 194C. AO was of the view that the assessee ought to have deducted tax u/s 194I and hence, he passed and order u/s 201(1), making huge addition on that count. The Hon’ble ITAT observed that S.194C categorically covers “Transportation”. The contractor was obliged to provide particular type of vehicle but not the same vehicle. Such contractor was to bear the cost of running and maintenance, repair and insurance, etc. and was obliged to provide another similar vehicle in case of break down. Even the assessee was to make payment on the basis of kms travelled and not any fixed amount. Such vehicles were, at all times, under the supervision and control of the said contractor. Hence, such contract was for carrying out specific work for the assessee and it cannot be said that a vehicle has been taken on hire. Further, vehicle hiring charges are not covered vide S.194I. Hence, it was held that S.194C is applicable and not S.194I. Accordingly, the addition in respect of the same was deleted.

[ACIT VS. GUJARAT STATE PETRONET LTD. – ITA NO.3371/Ahd 2010 & CO 17/Ahd/2011]

Expenditure incurred on renovation so as to generate more profit by attracting more customers is revenue expenditure:

AO disallowed expenditure incurred by the assessee on renovation of her hospital by treating the same to be capital in nature. The Hon’ble ITAT observed that the assessee was a doctor by profession and was having a hospital in rented premises. Certain expenditure was incurred on renovation of the hospital for attracting more customers and to remain in competition in the field of medical profession. Such expenditure included colour, painting, repairs to terrace, splitting the existing rooms, making attached bathrooms, replacement of aluminium doors/windows for proper ventilation, etc. No new asset was created by incurring such expenditure. Rather, it was a necessity for assessee’s business to generate more profit by attracting more customers. Further, such expenditure was also recurring in nature. It was held that any expenditure which facilitated the assessee’s trading operations or enabling him to manage and conduct his business more efficiently and profitably must be considered as revenue expenditure. Accordingly, the impugned addition was deleted.

[DR. PARUL ASHWIN SHAH Vs. ACIT – ITA 2072/Ahd/2012]

“Liquated damages” paid in accordance with contractual arrangements are allowable as business expenditure:

AO disallowed claim of an expenditure by treating the same to be penal in nature. The Hon’ble ITAT observed that the assessee was engaged in the business of public work construction on contract basis. As per the contractual arrangements, if it failed to complete the work within the stipulated time, then it was liable to pay certain liquidated damages at certain specified percentage which came to be called “Time limit deduction”. This expenditure was disallowed by AO. The Hon’ble ITAT found that the said amount was not in the nature of penalty on account of disobedience or infraction of any law. Rather, it was in the nature of liquated damages. It was thus held that the said expenditure allowable as business expenditure.

[DCIT Vs. M/S. GAYATRI CONSTRUCTION CO. – ITA NO.736/Ahd/2010]

A company can claim depreciation on cars used for its business purposes even if the same is registered in the name of its director:

AO disallowed assessee’s claim of depreciation on cars on the count that the cars were registered in the name of a director of the assessee-company. He was of the view that the assessee-company had no dominion on such car and further, there was no material to show that the use of such car was for the purpose of the assessee-company’s business. The Hon’ble ITAT observed that the said car was purchased out of the funds of the assessee-company and the same was reflected in the Balance-sheet of the assessee-company. It was held that requirement of S.32 is that the vehicle must be owned by the assessee and not that the vehicle must be a “Registered owner” of the same under The Motors Vehicles Act. Accordingly, the assessee-company was eligible for depreciation on such car.

[SWATI AUTOLINK PVT. LTD. Vs. ITO – ITA NOS.1471/Ahd/2010]

Interest @ 15% paid by assessee-HUF to its coparceners on loans advanced by them can’t be said to be excessive for the purpose of making addition u/s 40A(2)(b):

AO found that the assessee-HUF had paid interest @ 15% p.a. to its two Coparceners on loans advance by such coparceners to the assessee-HUF as against interest @ 12% p.a. to other parties. Hence, AO made an addition to the extent of differential interest @ 3% u/s 40A(2)(b) of the Act. Hon’ble ITAT was of the view that in light of the prevailing rate of interest during the relevant assessment year, 15% rate of interest was not found to be excessive. Further, the loans raised from such coparceners can be safely relied upon by the assessee-HUF since such coparceners may not demand the amount of loan back in the near future and the level of confidentiality was obviously more with respect to such coparceners. In light of the aforesaid facts, it was held that interest at the rate of 15% can’t be said to be excessive and the provisions of S.40A(2)(b) were wrongly invoked. Hence, the said addition was deleted.

[SHRI HITESH NARENDRABHAI SHAH (HUF) Vs. ITO – ITA No.2370/Ahd/2010]

Expenses in respect of gifts distributed among members and staff so as to augment and maintain the business are allowable as deduction u/s 37:

Assessee, a Co-operative Bank, on the occasion of its golden jubilee year, distributed gift articles to its members and staff members and debited the expenses in respect of the same to its profit and loss account. AO was of the view that such gift expenses were not directly related with the assessee’s business and hence he disallowed the said gift expenses. Hon’ble ITAT observed that such expenditure was incurred for keeping alive good image among the members, for generating goodwill, for ensuring continuity of the business with the members and also to maintain cordial relations with the staff members. The Hon’ble ITAT, following the decision of the Hon’ble Gujarat High Court rendered in the case of Karjan Co-Op. Cotton Sales reported at 199 ITR 17 (Guj), held that such in the course of augmenting the business and maintain it, if the assessee decided to give such gifts, it cannot be said that it was not doing something as a prudent businessman. Accordingly, the said expenses were held to be allowable as business expenditure u/s 37.

[ACIT Vs. THE GUJARAT STATE CO-OP. BANK LTD. – ITA No.1899/Ahd/2012]

Delay in filing tax appeal is to be condoned if the same is on account of time taken in disposal of rectification application moved before ITAT:

There was a delay of 1271 days in filing the tax appeal before the Hon’ble High Court. The Hon’ble High Court observed that the appellant had moved a Misc. Application (MA) before the ITAT u/s 254(2) against its order dated 17/10/08. The said MA was decided by ITAT on 16/04/12. Hence, the appellant preferred a tax appeal before the Hon’ble High Court and filed a Civil Application for condonation of delay of 1271 days. In light of the aforesaid facts, the said delay was condoned by the Hon’ble High Court.

[PRAVAN AIR PRODUCTS PVT. LTD. – CA 335 of 2012 - GHC]

Deduction u/s 80IB(10) can be availed even if the land is not owned by the assessee and name of the assessee doesn’t appear in the permission granted by the local authority:

Assessee developed a housing project and claimed deduction u/s 80IB(10). AO observed that the assessee was neither the owner of the land nor its name appeared in the permission granted by the local authority. AO was of the view that the assessee had developed the housing project for and on behalf of some other person and hence he denied the deduction u/s 80IB(10). Tribunal allowed the said deduction in light of the decision in the case “CIT vs. Radhe Developers – 341 ITR 403 (Guj)”. On Revenue’s appeal, Hon’ble High Court observed that the decision in the case of Radhe Developers was challenged before the Hon’ble Supreme Court and such SLP came to be dismissed by the Hon’ble Apex Court vide its order dated 27/07/2012. Hence, the Revenue’s appeal in this case was also dismissed by the Hon’ble High Court.

[CIT Vs. SHREE RAM CONSTRUCTION - TAX APPEAL NO.430 of 2012 – GHC]

Addition made u/s 69 on the basis of DVO’s report which itself is found to be defective deserves to be deleted:

Assessee purchased a piece of land and sold it subsequently. AO referred the matter to DVO (Departmental Valuation Officer) for valuation and made an addition u/s 69 on the basis of such valuation. On appeal, CIT(A) found that DVO’s report had many defects. DVO had not taken proper comparables for the purpose of valuation. DVO had taken into account constructed property whereas what was sold by the assessee was and open piece of land. Since the AO had blindly followed DVO’s report and there was no evidence on record to prove that the consideration was actually higher than what was reflected by the assessee, CIT(A) deleted the said addition. CIT(A) also opined that provisions of S.50C would have application only for the purpose of determining the sale consideration for computing capital gain. S.50C can’t be applied for determining income under other heads of income. The said was upheld by the Tribunal as well as the Hon’ble High Court. Revenue’s appeal was dismissed accordingly.

[CIT Vs. SHILANKIT ARCADE (P.) LTD. - TAX APPEAL NO.420 of 2011 – GHC]

CIT cannot reject the application for registration of Trust u/s 12A merely on the count that the activities of the Trust have not commenced:

The assessee-trust moved an application for registration u/s 12A which was rejected by CIT merely because that the trust had not commenced its activities. Hon’ble High Court observed that as per S.12A, the provisions of S.11 & S.12 shall not apply unless a Trust moves an application for registration before CIT within one year from the date of its creation and the Trust is registered u/s 12AA. As per S.12AA, CIT may, on receiving such an application, call for such documents or information from the Trust as he may think fit so as to satisfy himself about the objectives of the Trust and the genuineness of its activities. However, this does not imply that if the activities of the Trust have not commenced, CIT has an authority to reject the application for the registration on the ground that the Trust failed to convince him about the genuineness of its activities. It was held that CIT was not justified in rejecting the application for registration of Trust on the count that its activities had not commenced.

[CIT Vs. KUTCHI DASA OSWAL MOTO PARIWAR AMBAMA TRUST - TAX APPEAL NO.918 of 2011 – GHC]

Trust can adjust its excess expenditure in earlier years against income of subsequent years:

Assessee adjusted its excess expenditure incurred in earlier years against income of the year under consideration. AO denied such an adjustment. On appeal, both the lower authorities directed AO to allow the adjustment of excess expenditure in earlier years against income of year under consideration. The said view was also upheld by the Hon’ble High Court. Revenue’s appeal was dismissed accordingly.

[CIT Vs. OSHWAL EDUCATION TRUST - TAX APPEAL NO.391 of 2012 - GHC]

Addition u/s 68 cannot be made in respect of Opening balance:

AO made an addition of Rs.10,09,000/- on account of unsecured loans. The Tribunal observes that out of the said sum, only a sum of Rs.50,000/- was received in the year under consideration and the balance was on account of opening balance. Hence, the addition was restricted to Rs.50,000/- by the Tribunal. The said view was also upheld by the Hon’ble High Court. Revenue’s appeal was dismissed accordingly.

[CIT Vs. JAGATKUMAR SATISHBHAI PATEL - TAX APPEAL NO.324 of 2012 - GHC)

MAT credit needs to be taken into consideration before calculating interest u/s 234B and the said amendment is retrospective in nature:

S.234B provides for interest for defaults in payment of advance tax. While calculating “Assessed tax” for the purpose of calculating interest u/s 234B, the amount of “MAT credit” allowed to be set off in accordance with the provisions of S.115JAA shall be reduced from the same. The said amendment was effective from 01/04/2007. AO was of the view that the said amendment was “Prospective” in nature and hence he didn’t consider the MAT credit while calculating interest u/s 234B. It was held by the Hon’ble High Court that the said amendment was for the purpose of removal of ambiguity and needs to be held as “Retrospective” in nature. Revenue’s appeal was dismissed accordingly.

[CCIT Vs. GUJARAT MITRA PVT. LTD. - TAX APPEAL NO.274 of 2012 - GHC]

No addition can be made u/s 41(1) unless Revenue establishes that such liability has seized even if assessee doesn’t furnish details, addresses and identity of the creditors:

AO made an addition u/s 41(1) since the assessee had not furnished details, addresses and identity of the creditors at the assessment stage. ITAT deleted the said addition after holding that onus is on the Revenue to establish that the liability has seized and the Revenue had failed to establish the same. On Revenue’s appeal, the Hon’ble High Court upheld the ITAT’s view and dismissed Revenue’s appeal.

[MUKESH PRINTS - TAX APPEAL NO.264 of 2012 - GHC]

No addition can be made u/s 69C as “Unexplained stock” by aggregating negative stock from time to time. Peak of such stock can only be added.

AO found that there was negative stock in assessee’s case from time to time. He took aggregate of such negative stock and made an addition of Rs.47,72,525/- u/s 69C as “Unexplained stock”. ITAT observed that the peak of the negative stock i.e. Rs.(-)2,10,452/- was much less than the amount of addition made by AO. Assessee dealt in several variety of items and hence, it was not possible for it to maintain details of stock. Assessee had produced all the books and vouchers before AO for verification. Even profit rate had improved as compared to earlier year. Considering such facts, ITAT restricted the addition to Rs.3,00,000/-. The said view was upheld by the Hon’ble High Court and Revenue’s appeal was dismissed.

[JHAVERI INDUSTRIES - TAX APPEAL NO.257 of 2012 - GHC]

Interest income earned from share application money can be set off against public issue expenditure:

Interest earned on Share application money parked in a separate account till allotment can be adjusted towards expenditure incurred for raising share capital.

[SHREE RAMA MULTI TECH LTD. - TAX APPEAL NO.235 of 2012 - GHC]

Disallowance made u/s 40(a)(ia) in respect of expenditure for the purpose of developing housing projects would qualify for deduction u/s 80IB(10):

AO made disallowance u/s 40(a)(ia) in respect of expenditure incurred by the assessee for the purpose of developing housing projects since the assessee had not deducted tax at source as per the requirements of the Act. Hon’ble High Court held that such disallowance would ultimately go to increase the assessee’s profit from the business of developing housing projects. Deduction u/s 80IB(10) was already allowed to the assessee by following the decision in the case of “CIT vs. Radhe Developers – 341 ITR 403 (Guj)”. Hence, profit computed after disallowance u/s 40(a)(ia) would qualify for deduction u/s 80IB(10). Revenue’s appeal was dismissed accordingly.

[ITO Vs. KEVAL CONSTRUCTION - TAX APPEAL NO.443 of 2012 – GHC]

Once GP addition is made, no separate addition is called for in respect of unaccounted stock and discrepancy in stock as per books and as per bank statements:

Revenue challenged two additions viz. one in respect if unaccounted stock and another in respect of difference in stocks as per statement given to bank and as per the Balance-sheet. Since the ITAT had confirmed the GP addition made on account of negative GP, both the said additions were deleted by it. ITAT was of the opinion that there was nothing on record to show that extra GP addition confirmed by it was invested somewhere else. The said view was upheld by the Hon’ble High Court also.

[DEVSHREE SYNTEX PVT. LTD. - TAX APPEAL NO.166 of 2012 - GHC]

Deduction can be claimed in respect of “Provision for Performance Guarantee”:

The appellant had undertaken Govt. Contracts and had made provision for “Performance Guarantee” since it was to maintain certain establishment and undertake certain tasks in case any performance complaint is received for a period of three as agreed in the contract. AO disallowed the same on the ground that the liability was contingent and no proper estimation was made for arriving at such a figure. On Revenue’s appeal, the Hon’ble High Court observed that the appellant had taken statistics from experienced suppliers from the market and had also taken help of experts. The appellant was to widen its network of engineers and technical staff to different places in the State so that every compliant could be attended within minimum span of time not exceeding 24 hours. Penalty of Rs.500 per day was also envisaged if complaint was not attended within 24 hours. The appellant was also to set apart 3% of the deal value towards performance warranties. The Hon’ble High Court was of the view that it was not a case where estimation of performance guarantee was on ad hoc basis without any foundation. Hence, Revenue’s appeal was dismissed.

[S KUMAR INDUSTRIES LTD. – TAX APPEAL NO.162 of 2010 - GHC]

Delay in filing tax appeal is to be condoned if the same is on account of time taken in disposal of rectification application moved before ITAT:

There was a delay of 314 days in filing the tax appeal before the Hon’ble High Court. The Hon’ble High Court observed that the appellant had moved a rectification application before the ITAT. When such application was dismissed by ITAT, the appellant preferred a tax appeal before the Hon’ble High Court and filed a Civil Application for condonation of delay of 314 days. In light of the aforesaid facts, the said delay was condoned by the Hon’ble High Court.

[POONAM DYEING AND PTG. MILLS PVT. LTD. – CA 309 of 2012 - GHC]

No ad-hoc disallowance can be made in absence of any specific material and without pointing out any defects in vouchers:

AO disallowed 10% of vehicle/diesel oil-grease expense. CIT(A) and ITAT found that there was no specific material with the AO for making such disallowance. Assessee had maintained all the vouchers for the said expenditure and increase in expenditure was justified on account of inflation in diesel prices. Hence, the lower appellate authorities held that AO couldn’t have made such ad-hoc disallowance without pointing out any defects in bills and vouchers maintained by the assessee. The Hon’ble High Court didn’t interfere with the said order of ITAT since the issue was purely based on facts.

[G.K. PATEL & CO. - TAX APPEAL NO.1580 of 2011 - GHC]

Sales-tax Dept. cannot attach property of a person to recover outstanding sales tax dues of proprietary concerns of his mother and father:

The petitioner bought a Shed from a person who had bought the same from a Bank in a public auction. The said shed was situated at an Industrial estate which in the nature of a Co-Operative Society and the said society refused to transfer the said shed in the name of the petitioner on the count that the said shed was attached by Sales tax Dept. since there were huge outstanding sales tax dues recoverable from two proprietary concerns of father and mother of the original owner of the said shed. The Hon’ble High Court observed that the original owner of the shed stood as a guarantor in respect of loan granted by the concerned bank (which conducted the auction) to the proprietary concern of his mother and this transaction took place prior to attachment of the said shed by the sales tax Dept. Since the proprietary concern of mother of shed’s original owner couldn’t pay off her dues to bank, the bank auctioned the shed as per the provisions of SARFAESI Act and the sales tax Dept. didn’t raise any objection when the bank issued a public notice in respect of the said auction. It was held that the original owner of the shed had no legal relation with the said two proprietary concerns and hence, the sales tax Dept. couldn’t have attached the shed for recovering the dues of the said entities moreso when the original owner had no outstanding sales tax dues. Hence, the attachment by sales tax Dept. was set-aside and the Co-Operative Society was directed to register the said shed in the name of the petitioner.

[GIRIRAJ M. SHAH - SCA 10707 of 2012 - GHC]

No disallowance can be made u/s 40A(2)(b) unless AO brings on records any comparable case as to fair market value of similar services:

AO made disallowance u/s 40A(2)(b) which was deleted by the both the lower appellate authorities. On further appeal, the Hon’ble High Court observed that assessee had explained the AO the circumstances in which payment was made to sister concern and there was nothing unreasonable about such payment. AO made the said disallowance without referring to any comparable case to find out fair market value of similar services and what would be the reasonable amount for such work. Further, AO had accepted such payment in earlier years. It was held that the question as to whether any expenditure is excessive or unreasonable is a question of fact and hence was not required to be considered by the Hon’ble High Court.

[G.K. PATEL & CO. - TAX APPEAL NO.1580 of 2011 - GHC]

TRO cannot ignore or overrule NOC granted by ACIT after considering the facts in its entirety in respect of sale of immovable property and attach the said property on account of outstanding income tax dues:

Tax Recovery Officer (TRO) issued an order prohibiting and restraining original owner of an immovable property under consideration from transferring or charging the said property and the said order has been challenged by the petitioner who bought the said property from the original owner. On Writ, the Hon’ble High Court observed that the original owner having huge outstanding income-tax dues approached the ACIT for obtaining NOC to sell the said property. ACIT granted NOC subject to a condition that entire sale proceeds of the said property to the extent of income tax dues shall be remitted to the Dept. While granting such NOC, ACIT was fully aware of the fact that the sale proceeds were less than income-tax dues. The said NOC has not been even recalled. TRO couldn’t have ignored or overruled NOC granted by ACIT without any further process. It was thus held that the impugned order shall be set-aside subject to a condition that the entire sale proceeds shall be deposited with Dept. along with interest.

[VIKRAMSINH JILUBHA VALA - SCA 10847 of 2012 - GHC]

Commission paid to a foreign agent is allowable u/s 37:

AO disallowed commission paid by the assessee to a foreign agent. ITAT observed that the export sale proceeds received by the assessee were only net amount i.e. gross bill amount less agent’s commission. There was no dispute regarding the commission paid by the assessee and even the foreign buyer had stated that the commission would be distributed to agents abroad. Hence, it was held that assessee was eligible for deduction u/s 37 in respect of the said commission paid to a foreign agent. The said view was also upheld by the Hon’ble High Court.

[VISHAL JANAKKUMAR AGARWAL - TAX APPEAL NO.550 of 2011 - GHC &  SUPREME (INDIA) IMPEX LTD.  - TAX APPEAL NO.563 of 2011 - GHC]

Once order passed by CIT u/s 263 is quashed, AO has no jurisdiction to pass consequential order u/s 143(3) r.w.s. 263:

CIT passed an order u/s 263 which was quashed by ITAT. AO passed an order u/s 143(3) r.w.s. 263 as per the directions of CIT. Assessee challenged the said order passed by AO. Hon’ble ITAT held that since CIT’s order passed u/s 263 was quashed by ITAT, AO had no jurisdiction to pass any such consequential order. The said view was upheld by the Hon’ble High Court also.

[B DEVCHAND & SONS SHIPPING PVT. LTD. - TAX APPEAL NO.53 of 2012 - GHC]

Delay in filing appeal must be condoned if the same is technical in nature and well explained:

Assessee challenged the Asst. Order before CIT(A) who decided the issue against the assessee vide his order dated 09.01.02. Assessee preferred second appeal against the said order of CIT(A) and also moved an application u/s 154 before CIT(A). Assessee was granted substantial relief by CIT(A) vide his rectification order dated 17.03.03 and appeal before ITAT came to be withdrawn by the assessee on 10.03.04 since it was not interested in pursuing second appeal for the remaining small portion of disputed addition. Revenue preferred an appeal before ITAT against the rectification order dated 17.03.03 passed by CIT(A) and the same was allowed by ITAT vide order dated 31.03.08. Hence, assessee moved a rectification application before ITAT seeking to revive its previous appeal against order of CIT(A) and the same was dismissed by ITAT vide order dated 15.05.09.Thereafter, assessee filed an appeal before ITAT challenging CIT(A)’s original order dated 09.01.02 and also sought for condonation of delay. ITAT refused to condone the delay of 7 years and 3 months in filing second appeal and dismissed assessee’s appeal. On challenging the said order further, the Hon’ble High Court observed that by virtue of ITAT’s order dated 31.03.08 allowing Revenue’s appeal, the order of CIT(A) dated 09.01.02 came to be revived. After CIT(A) passed a rectification order in favour of the assessee, the assessee was aggrieved by the original order of CIT(A) 09.01.02 only when ITAT passed an order dated 31.03.08. Between 17.03.03 (when CIT(A) passed rectification order) and 31.03.08 (when ITAT reversed such rectification order), assessee had no cause, no reason or no possibility of maintaining an appeal against the original order of CIT(A) dated 09.01.02. It was held that the delay was technical in nature and well explained. Hence, the order of the ITAT was reversed, delay in filing the appeal before ITAT was condoned and the matter was remanded to ITAT for deciding the same on merits.

[UMAKANT  LEASING AND FINANCE PVT. LTD. - TAX APPEAL NO.1550 of 2011 - GHC]

If delay in filing appeal is explained, matter must be decided on merits rather than on technicalities:

ITAT dismissed assessee’s appeal on the ground of limitation since it was not convinced by assessee’s explanation in respect of delay of 791 days in filing appeal. The Hon’ble High Court observed that General Manager of the assessee company filed an affidavit stating that grounds of appeal were prepared, signature of the authorised person were obtained and appeal fees were also paid in time. However, for filing the said appeal, grounds of appeal against earlier order of CIT(A) dated 19.08.1994 were required and the same couldn’t be traced since the matter was very old. After continuous follow-up with the Income-tax Department, the same could be obtained and thereafter the appeal came to be filed. In due course, there was a delay of 7941 days in filing the appeal. The Hon’ble High Court was of the view that when cause substantial justice is pitted against technicalities, Courts are reluctant to terminate legal proceedings on technical grounds. Hence, ITAT’s order was reversed and ITAT was directed to decide the same on merits.

[GUJARAT ELECTRICITY BOARD - TAX APPEAL NO.1379 of 2011 - GHC]

Unintentional delay in filing of appeal must be viewed liberally and appeal must be decided on merits rather than on technical counts:

ITAT dismissed assessee’s appeal merely on a technical ground that there was a delay of 883 days in filing the said appeal. The Hon’ble High Court observed that the assessee had instructed the concerned Chartered Accountant to present the appeal but it couldn’t be presented in time on account of oversight of the office boy. Though the affidavit of the office boy was not filed at the time of hearing, the same was filed before the decision of the ITAT. The Hon’ble High Court was of the view that unintentional delay in filing of appeal must be viewed liberally and appeals must be decided on merits rather than on technical aspects. It was held that the ITAT ought to have taken into account the said affidavit and minor discrepancy in the name of office boy should not be fatal to the main cause. Accordingly, the matter was remanded to the ITAT to reconsider the issue after taking into account the affidavit of the office boy.

[MAHENDRA AMBALAL PATEL - TAX APPEAL NO.1584 of 2011 - GHC]

Exemption u/s 54EC can be claimed in respect of “Depreciable assets”:

Assessee sold certain “Depreciable Assets” forming part of “Block of Assets” which were held for more than 36 months, earned capital gain, invested such funds in specified bonds and claimed exemption u/s 54EC which was denied by AO since he was of the view that by virtue of S.50, such capital gain shall be “Short term capital gain” whereas exemption u/s 54EC is available only in respect of “Long Term Capital Gain”. The Hon’ble High Court held that special provisions of S.50 for computation of capital gains in case of depreciable assets are confined in relation to S.48 & 49 only. S.54EC is available in respect of “Long term capital asset”. Once such condition is fulfilled, the fact that asset was such on which depreciation has been allowed and therefore computation of capital gain would be done as per S.50 by applying modifications in S.48 & 49 would not change the “Nature” of capital assets for “Availability of exemption u/s 54EC”.

[HIMALAYA MACHINERY PVT. LTD. - TAX APPEAL NO.271 of 2012 - GHC]

Books of accounts can’t be rejected merely on the basis of variation in consumption of electricity:

AO rejected assessee’s books of accounts and made addition u/s 145(3). Both the lower authorities observed that AO did not find any specific defects in the books of accounts and had rejected the same merely on the basis of variation in consumption of electricity. Hence, it was held that AO had committed an error in rejecting the books and the addition was deleted. The said view was upheld by the Hon’ble High Court.

[PRIYANKA POLYSTER - TAX APPEAL NO.231 of 2012 - GHC]

No penalty u/s 271(1)(c) if claim is made on the basis of orders of earlier years and entire facts are within are within the knowledge of Revenue:

AO levied penalty u/s 271(1)(c) which was deleted by lower appellate authorities after finding that the claim in respect of which penalty was levied was made on the basis of orders of earlier years and entire facts were within the knowledge of the Revenue. The said view was upheld by the Hon’ble High Court also.

[SOMA TEXTILES AND INDUSTRIES LTD. - TAX APPEAL NO.205 of 2012 - GHC]

No penalty can be levied u/s 271D if assessee proves that there was a reasonable cause:

AO levied penalty u/s 271D since the assessee had accepted certain deposits in cash. CIT(A) and ITAT found that assessee was supposed to show certain bank balance for obtaining U.S. visa for his son and hence, he accepted the said cash deposits. CIT(A) and ITAT found it to be a reasonable cause for accepting deposits in cash and deleted the said penalty. The said view was upheld by the Hon’ble High Court also.

[PANACHAND HIRALAL LUNECHIA - TAX APPEAL NO.239 of 2012 - GHC]

No penalty can be levied u/s 271E if assessee proves that there was a reasonable cause for failure on his part:

Assessee had huge outstanding dues to various creditors for over 20 years and also had to recover huge amount from one entity for which he had filed a petition before Hon’ble High Court in 1983. As per Hon’ble High Court’s decision, he received part payment from his debtors from which he made payments to his creditors in cash and hence, AO levied penalty u/s 271E. Assessee explained the Hon’ble ITAT that his creditors insisted on cash payments and were visiting his house every day. He was 80 years old and was unaware of the legal requirement of making such payments through cheque. The said explanation was found to be bona fide by ITAT and so, ITAT deleted the said penalty in view of provisions of S.273B. The said view was upheld by the Hon’ble High Court also.

[MAHESH HARIKRISHANDAS AMIN HUF - TAX APPEAL NO.190 & 191 of 2012 - GHC]

Claim in respect of bad-debts is allowable once the same is written off as irrecoverable in the books of accounts:

Assessee claimed deduction in respect of bad-debts since the said sum was irrecoverable in spite of filing a suit. AO denied the said claim on the count that the debt had not become bad and doubtful. The Hon’ble High Court held after 01/04/89, it is not necessary for an assessee to establish that the debt had become irrecoverable. Since the assessee had written off such amount as irrecoverable in its books of accounts, the said claim is to be allowed.

[HINDUSTAN MI SWACO LTD. - TAX APPEAL NO.98 of 2012 - GHC]

Trust must be granted registration u/s 12AA once the requirements as provided u/s 12A are fulfilled:

CIT rejected petitioner’s application for registration of Trust u/s 12AA on the ground that since the Trust was established for the benefit of “Leuva Patel Community”, as per S.13(1)(b), its income shall not be excluded from total income as provided u/s 11 or 12. The Hon’ble High Court held that “Leuva Patel Community” cannot be considered as “Religious community or caste” as provided u/s 13(1)(b). Further, while considering an application for registration of Trust, CIT must make a clear distinction between requirement of “Registration” and requirement for “claiming tax benefit”. Insofar as S.12AA is concerned, CIT must decide whether trust fulfils necessary requirements of registration as provided u/s 12A.

[LEUVA PATEL SEVA SAMAJ TRUST - TAX APPEAL NO.59 of 2012 - GHC]

“Intention” at the time of purchase of shares, “Volume” and “Frequency” of transactions in shares are key factors in determining whether gain arising on sale of such shares is to taxed as “Capital Gain” or as “Business income”:

Assessee, a salaried employee, offered certain gain arising on sale of shares as LTCG (Long Term Capital Gain” over and above his income from salary which was treated as “Business income” by AO. Both, the lower appellate authorities reversed AO’s order after observing that the assessee invested his funds as investment and whenever it was convenient, it was sold. Assessee’s intention at the time of purchase was to invest and not to trade. Merely because on one or two occasions, there was also purchase and sale of shares, it can’t be said that assessee was trading in shares. Hence, the said gain was held to be “LTCG” and not “Business income”. The said view was also upheld by the Hon’ble High Court.

[MITESH NATHULAL LAVTI - TAX APPEAL NO.1506 of 2011 - GHC

BRIJESH BHAGWATILAL LAVTI - TAX APPEAL NO.1508 of 2011 - GHC,   SAURABH RAMESHCHANDRA LAVTI - TAX APPEAL NO.1509 of 2011 - GHC,   MANISH NATHULAL LAVTI (TAX APPEAL NO.1510 of 2011 - GHC]

CIT cannot resort to provisions of S.263 in a case where view taken by AO is found to be plausible and is not erroneous:

The assessee had obtained a loan from GIIC and since the assessee defaulted in repayment of such principal sum with interest, it opted for OTS (One time settlement) framed by GIIC whereby 43% of the outstanding amount was waived. Assessee offered 43% of outstanding interest for tax u/s 41(1). AO worked out different proportion on pro-rata basis and made certain addition u/s 41(1). CIT passed an order u/s 263 since he considered that AO committed an error in passing the Asst. Order and his order was prejudicial to the interest of the revenue.The Hon’ble High Court observed that there was no clarity on the part of GIIC w.r.t. the portion in which amount paid by assessee under GIIC was to be appropriated. It was held that in such a scenario, the view taken by AO was plausible and cannot be said to be erroneous for which CIT could have taken recourse to S.263.

[B DEVCHAND & SONS SHIPPING PVT. LTD. – TAX APPEAL NO.1505 of 2011 - GHC]