Provisions of S. 35AB are not applicable to Revenue expenditure:

Provisions of Section 35AB dealing with expenditure on know-how shall be applicable only if any such expenditure incurred is Capital in nature. The Revenue expenditure on know-how would be continued to be governed by the provisions of S. 37(1) of the Act. Provisions of S. 35AB won’t apply to Revenue expenditure even if the same is in respect of know-how.

[SAYAJI INDUSTRIES LTD. - TAX APPEAL No.326 of 2000 - GHC]

No penalty can be levied if assessment is framed on income computed u/s 115JB and the addition on which penalty has been levied has no tax incident in the normal course of assessment:

AO disallowed lease rent paid by the assessee and levied penalty on the same. Hon’ble ITAT observed that “Total income” of the assessee was assessed at NIL after allowing set off in respect of unabsorbed business loss of earlier years. Still, there was substantial unabsorbed depreciation which was carried forward for subsequent years. However, assessee had declared income under the provisions of MAT u/s 115JB. It was further observed that even after disallowance of the said lease rent, there was no taxable income on which tax was payable by the assessee in the regular course of the assessment. Hence, the said disallowance had no bearing on the imposition of tax liability. Since the assessment was framed under the MAT provisions by invoking S.115JB and the impugned addition (i.e. lease rent) had no tax incident in the normal course of assessment, the penalty was deleted.

[DCIT vs. M/s. Narmada Chematur Petrochemicals Ltd. – ITA No.3837/Ahd/2008]

Once the assets are put to use in earlier years and form part of block of assets, depreciation can be claimed on the same in subsequent years even if all the items in block are not used simultaneously:

Once the assets have been put to use in earlier years, such assets form part of block of assets and depreciation thereon has been allowed in the past, then depreciation on the said assets can’t be restricted or disallowed in subsequent years on the pretext that only a portion thereof has been put to use. Items falling within the block of assets cannot be segregated for the purpose of granting or restricting depreciation. Once the assets are used for business, it is not necessary that all the items falling within the concerned block have to be simultaneously used for being entitled to depreciation.

[S.K.PATEL FAMILY TRUST - TAX APPEAL No.84 of 2000 - GHC]

No interest u/s 234B can be levied unless AO gives specific direction in the Asst. Order:

No interest can be levied through a notice of demand unless there is any specific direction giving reference to the section charging interest in the Assessment Order.

[S.K.PATEL FAMILY TRUST - TAX APPEAL No.84 of 2000 - GHC]

Income from salary which has been subjected to TDS can’t be categorized as undisclosed income:

Income from Salary which has been subjected to deduction of tax at source cannot be categorized as “Undisclosed Income” as defined u/s 158B(b). Such an income cannot be taxed as income during the block period by virtue of computation provisions of section 158BB in Search cases.

[HARISHKUMAR J. GUPTA - TAX APPEAL No.63 of 2000 - GHC]

S. 194C is not applicable in the first year of operation. Consequently, notice issued u/s 148 to disallow expenditure for non-compliance of S.194C is liable to be quashed:

A notice u/s 148 was issued within a period of four years from the end of relevant Asst. Year so as to disallow an amount of Rs.3,07,59,872/- in respect of labour charges on the pretext that the assessee failed to deduct tax at source u/s 194C at the time of making the said payment. Asst. was framed earlier u/s 143(3) without making disallowance in respect of the same. According to Proviso to Section 194C(2), an individual or HUF is supposed to deduct tax at source only if its total sales, gross receipts or turnover from its business or profession exceeds monetary limits specified under clauses (a) or (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid. This being the first year of operation, the said condition is not fulfilled and hence the assessee is not supposed to deduct tax u/s 194C. Hence, AO’s reason to believe that income chargeable to tax in case of assessee has escaped assessment is without foundation and lacks validity. Accordingly, the impugned notice issued u/s 148 is quashed.

[HARSHADBHAI NARANBHAI BAGADIA - SCA 12243 of 2009 - GHC]

Only “Profit element” embedded in gross receipts added as “Undisclosed income” should be charged to tax if the same are in respect of business transactions:

AO made addition of the gross receipts as “Undisclosed Income”. The Hon’ble ITAT held that only “Profit element” embedded in such gross receipts should be charged to tax since the said receipts were in respect of business transactions. Hon’ble High Court dismissed the tax appeal preferred by the Revenue since it didn’t give rise to any substantial question of law.

[JINENDRA S. JAIN - TAX APPEAL No.2280 of 2009 - GHC &
PANNA CORPORATION - TAX APPEAL No.323 with 325 of 2000 - GHC]

Interest earned on short term deposits with bank made by Co-operative societies engaged in banking activities to meet any eventuality in its business is eligible for deduction u/s 80P(2)(a)(i) and it can’t be taxed u/s 56:

Assessee is a Co-operative Society maintaining certain “Operations funds” and to meet any eventuality towards repayment of deposits, it maintains some liquated funds as “short term deposits with bank”. It claimed deduction u/s 80P(2)(a)(i) which was denied by AO by invoking S.80P(4) since he was of the view that assessee is a only “Primary credit society” and not a “Primary agriculture credit society”. Ld. CIT(A) held that assessee was eligible for deduction u/s 80P(2)(a)(i) but certain interest income earned from bank out of surplus invested was taxable u/s 56. Hon’ble ITAT observed that the entire funds were utilized for the purposes of business and there were no surplus funds. Further, to meet any eventuality in its business, assessee was required to maintain some liquid funds for which the assessee made investments in short term deposits. It was held that since such investments were not made out of any surplus funds, interest arising on the same can’t be taxed u/s 56 and the assessee was eligible for claiming deduction u/s 80P(2)(a)(i).

[Dhanlaxmi Credit Co-Operative Society Ltd. vs. ITO – ITA No.2342/Ahd/2012]

Addition u/s 69A on account of unexplained deposits in bank account must be restricted to the peak amount:

AO framed an ex-parte assessment and made huge addition u/s 69A in respect of deposits in the bank account of the assessee. On appeal, the Hon’ble ITAT held that the said addition has to be restricted to the peak amount of the unexplained funds out of the cash deposited and withdrawn by the assessee from her bank account.

[Mrs. Grace Mrudulesh Amin vs. ITO – ITA No.947/Ahd/2010]

Notice u/s 143(2) served on CA of an assessee who has not been specifically authorised to accept the same can’t be said to have been served validly:

AO served notice u/s 143(2) on the Chartered Accountant (CA), who audited the books of the assessee, on the last day of 12^th month from the end of the month in which the assessee filed the return of income. Hon’ble ITAT found that AO had not claimed that the said CA was authorised to receive any notice on behalf of the assessee or was representative of the assessee or that any power of attorney was executed by the assessee in his favour. It was held that such a notice cannot be said to be validly served within the prescribed statutory period. Since the jurisdiction was not validly assumed by AO, the assessment framed u/s 144 was ordered to be cancelled.

[M/s. Devansh Enterprise vs. ITO – ITA No.1419/Ahd/2006]

Deduction cannot be denied merely because correct section is not mentioned:

Assessee, by mistake, mentioned S.11 instead of S.80P(2)(a)(i) while claiming deduction at the time of filing return of income and the said claim was denied by AO. On Appeal, Hon’ble ITAT, Ahmedabad observed that the assessee has been claiming deduction u/s 80P(2)(a)(i) for years and the same has been allowed by the Revenue. The claim was denied merely because, by mistake, wrong section was mentioned. It was held that assessee should not be denied the deduction just because correct section is not mentioned while filing the return of income. The claim was thus allowed.

[ITO vs. Chanasma Becharaji Tal. Primary School Teachers’ Co-op. Credit Society Ltd. – ITA No.2055/Ahd/2012]

Share-brokers can claim deduction in respect of sum irrecoverable from clients as bad-debts:

Assessee, a share broker, purchased shares on behalf of his clients and paid money in respect of the same from his own pockets. Brokerage receivable by him was shown as income in his books of accounts. Since the sum paid by him couldn’t be received from the clients, he wrote off the same as “bad-debts”. AO denied the said claim since he was of the view that condition prescribed u/s 36(2) was not satisfied. On appeal, the Hon’ble ITAT, Ahmedabad held that the money receivable from clients had to be treated as “debt” and since it became bad, it was rightly claimed as “bad-debts”. Since the brokerage payable by the clients was a part of the debt and that debt had been taken into account in computation of income, conditions prescribed u/s 36(2) r.w.s. 36(1)(vii) stood satisfied. Hence, the assessee was entitled to the deduction of the said bad-debts. Hon’ble ITAT followed the ratio laid down in the case of Bonanza Portfolio Ltd. – 320 ITR 178 (Delhi).

[ACIT vs. Cannon Capital and Finance Ltd. – ITA No.1578/Ahd/2012]