Circular passed by CBDT as per S. 119 beyond its authority is not considered to be effective:

As per the provisions of Section 194A(3)(v), a co-operative society is not supposed to comply with the requirements of TDS as prescribed u/s 194A at the time of paying interest to its members or to any other co-operative society. The said section makes no distinction between different classes of members. However, CBDT issued a Circular dated 11/09/02 making certain distinction between different classes of members and narrowed down the scope of members in respect of whom the said exemption was available. On challenging the said validity of the said circular, the Hon’ble High Court held that CBDT has crossed its authority under the garb of Section 119 of the Act and hence, the said circular is not effective.

[GUJARAT URBAN CO-OPERATIVE BANK FEDERATION (SCA 11209 of 2002 with 1465 of 2003, Judgment dated 12/06/12)]

If liability to pay Excise duty is not incurred, excise duty is not to be included in closing stock:

Under the scheme of excise duty, an assessee incurs liability to pay excise duty only upon both the events taking place, namely manufacture of excisable goods and removal of excisable goods. Accordingly, if such a liability in not incurred, excise duty is not to be included in the valuation of closing stock.

[BELL GRANITO CERAMICA LTD. - TAX APPEAL No.436 with 437 of 2011 - GHC]

Penalty doesn’t survive on an addition which has either been deleted in quantum appeal or has been restored to the file of AO for verification:

AO levied penalty on addition made u/s40(a)(ia). Hon’ble ITAT observed that penalty was levied on two items of which, one item was deleted by the Hon’ble ITAT in quantum appeal and as regards the second item, the matter was remitted to the file of AO for certain verification. It was held that in such a factual position, penalty doesn’t survive.

[ACIT vs. Shir Omprakash Ramanlal Chaudhary – ITA No.1773/Ahd/2012]

No disallowance u/s 40(a)(ia) in respect of TDS deposited prior to due date of filing of return of income:

AO made disallowance u/s 40(a)(ia) in respect of tax duly deducted at source but paid to the Govt. Dept. in June 2009 since he was of the view that such TDS ought to have been paid before 31/03/09. The Hon’ble ITAT held that since such TDS was paid to the Govt. Dept. prior to the due date of filing return of income, no disallowance u/s 40(a)(ia) is warranted.

[ITO vs. Tej Organisers Pvt. Ltd. – ITA No.2466/Ahd/2012]

Once the order passed by CIT u/s 263 gets vacated, asst. order passed by AO u/s 143(3) r.w.s. 263 as per direction given by CIT doesn’t survive:

AO passed an order u/s 143(3) r.w.s. 263 since the assessment was set aside by CIT vide his order passed u/s 263 directing AO to frame the assessment de novo. Hon’ble ITAT observed that the said order passed by CIT u/s 263 was vacated by the Hon’ble ITAT. It was held that since the order passed u/s 263 has been vacated, asst. order passed by AO in pursuance to the said order of CIT doesn’t survive. Hence, the Revenue’s appeal was dismissed.

[DCIT vs. Shri Sudarshan P. Amin – ITA No.2750/Ahd/2012]

In case where ITAT remands a matter to the file of AO, if AO doesn’t pass Asst. Order within one year from the end of financial year in which such order is received by CCIT or CIT, such asst. proceedings becomes time barred:

Whenever Hon’ble ITAT remands a matter to the file of AO with certain specific directions, AO must pass an Asst. Order within a period of two years from the end of financial year (“One Year” instead of “two years” w.e.f. 01/06/2001) in which such order passed by Hon’ble ITAT is received by the Chief Commissioner or Commissioner as prescribed u/s 153(2A) of the Act. If AO doesn’t pass an Asst. Order within the prescribed time limit, such proceedings become time-barred and the assessment placed before AO by Hon’ble ITAT’s order must be treated as having abated. Any excess tax paid by the assessee under original assessment framed by the AO must be refunded with consequential effect.

[INSTRUMENTS AND CONTROL COMPANY (SCA 10330 of 2003, Judgment dated 18/06/12)]

Requisite satisfaction must be recorded by AO of the person searched in order to assume jurisdiction u/s 158BD:

Appellant raised a technical ground before the Hon’ble ITAT that AO’s order was bad in law since there was no requisite satisfaction recorded in order to assume jurisdiction u/s 158BD. Hon’ble ITAT was of the view that requisite satisfaction must be recorded by AO of the person searched in order to assume jurisdiction u/s 158BD. If no such satisfaction is recorded by AO of the person searched, then no proceedings can be initiated u/s 158BD. It was observed that CIT(A) had not given such finding as to satisfaction by AO since no specific ground was raised by the appellant before him although the ground that AO’s order was bad in law and must be quashed was raised. Hence, the matter was restored to the file of CIT(A) for fresh decision with a direction that if proper jurisdiction is not assumed by AO, the assessment needs to be quashed and if proper jurisdiction has been assumed, then the issues must be decided on merits.

[Jaydeep Enterprises vs. ACIT – IT(SS)A No.37/Ahd/2005]

Refund claim of an assessee must be examined in light of circular in force as of the date of application for such refund:

Petitioner moved an application for refund arising to it which was appropriate in light of the CBDT circular prevalent at that point of time. Since, the Department did not respond to the said application for a considerable time, another letter reminding about the same was addressed to AO. During the pendency of such application, CBDT came out with another circular superseding the earlier circular and according to provisions of the said circular, Petitioner was ineligible for the said refund and the Department denied the said refund on the strength of such subsequent circular. It was held that the Department cannot process application of an assessee after an indefinite period of time and apply a rule that may have changed in the meantime by virtue of change in circular. Hence, the refund claim of the Petitioner must be examined in light of the circular in force as of the date of application.

[MARDIA CHEMICALS LTD. - SCA 4141 of 2001 - GHC &

 FAG BEARINGS INDIA LTD. - SCA 11132 of 2002 - GHC]

No disallowance can be made in respect of employees’ contribution to PF if the same is deposited before due date of filing return of income:

AO made disallowance in respect of employees contribution and shortfall in employees contribution to PF account. Hon’ble ITAT observed that thought the PF amount was not deposited within the stipulated time, the said amounts were deposited before due date of filing the return of income as specified u/s139(1). Hence, it was held that no such disallowance is called for since the said amounts were deposited before due date of filing return of income. Hon’ble ITAT followed the ratio laid down in the case of CIT vs. Alom Extrusions Ltd. – 319 ITR 306 (SC).

[Gujarat State Road Transport Corporation vs. ACIT - ITA No.2598 & 2785/Ahd/2009]

No penalty can be levied merely because AO treats “Business loss” as “Speculation loss” and carries forward the same for set off in future:

Appellant entered into transactions on MCX i.e. Multi Commodity Exchange and incurred loss. The said loss was treated as normal business loss by the appellant and the same was set off against income under other heads of income. AO treated the said loss as speculation loss, allowed the same to be carried forward for claiming set off in future, disallowed appellant’s claim in respect of business loss and levied penalty on the same. Hon’ble ITAT observed that MCX was a recognised stock exchange w.e.f. 28^th September 2003 and Finance Act 2005 inserted clause (d) in S.43(5) w.e.f. 01/04/06 which provided that eligible transactions carried out in recognised stock exchange shall not be treated as speculation loss. Hence, the appellant had a bona fide belief that the transactions on MCX were to be treated as normal business. Further, act of AO was merely change of head of income. Since the appellant had disclosed all the material facts and the explanation furnished by him was not found to be false by AO, the penalty was deleted.

[Jagdish R. Acharya vs. ACIT – ITA Nos.2460-61/Ahd/2012]

Expenditure incurred on acquisition of ISO certificate is revenue expenditure:

Assessee incurred certain expenditure for obtaining ISO certificate which was disallowed by AO since he was of the view that the said expenditure is capital in nature. Hon’ble ITAT, following the ratio laid down in the case of “CIT vs. Infosys Technologies Ltd. – 349 ITR 582 (Karn)”, held expenditure incurred towards acquisition of ISO certificate is a revenue expenditure.

[ACIT vs. Unity Dyechem Pvt. Ltd. – ITA 1738/Ahd/2010 & CO 187/Ahd/2010]

“Entrance fees” received by a club from “new members” is a “Capital receipt”:

Assessee is running the business of gymkhana and club. AO made an addition in respect of “Entrance fees” received from “new members”. Hon’ble ITAT observed that such entrance fees was charged by the assessee as one-time fee and was non-refundable in nature. It was held that such entrance fee is a capital receipt and was rightly deleted by CIT(A). Hon’ble ITAT had followed the ratio laid down in the case of ACIT vs. Karnavati Club Ltd. (ITA No.2963/Ahd/2009 and CO 269/Ahd/2009).

[DCIT vs. Gala Gymkhana Pvt. Ltd.” – ITA No.960/Ahd/2010]

No penalty can be levied if the assessment is made on “Protective basis” or if the concerned addition is made on the basis of estimation:

AO levied penalty on addition made in respect of income from coaching classes. Hon’ble ITAT observed that the in the original assessment, the said addition was made on “Protective basis”. Secondly, such addition was made on the basis of estimation of tuition income. Thirdly, in the assessment order, AO had initiated penalty proceedings for concealing the particulars of income and for furnishing inaccurate particulars of income which shows that there was no clear cut finding as to the type of default committed by the assessee. In light of the above, Hon’ble ITAT deleted the said penalty.

[Sonalben Pareshkumar Dave vs. ITO – ITA No.2318 to 2323/Ahd/2012]

Process of converting semi finished bags into laminated HDPE bags amounts to manufacture and hence, deduction can be availed u/s 80IA:

The process of converting “Semi finished bags” into “Laminated HDPE bags” amounts to “Manufacture” since both the products are entirely distinct, have different identity, have different utilities and both fetch different prices in the market. The assessee’s unit, being engaged in an activity of manufacture, falls within the ambit of “Industrial Undertaking” as defined u/s 80IA(12)(b) and is therefore eligible for deduction u/s 80IA of the Act.

[JHAVERI COATERS (P.) LTD. - TAX APPEAL No.96 of 2000 - GHC &

 JHAVERI COATERS (P.) LTD. - TAX APPEAL No.98 of 2000 - GHC]

No addition can be made u/s 69 if the assets are duly recorded in the books of accounts and no incriminating material is found as to payments made over and above the amount recorded in books:

A search took place at the assessee’s premises during the course of which large no. of works of art were found. AO got certain paintings valued by a person who was H.O.D. (Drawing and Painting) in a School of Arts in Mumbai. AO took the said valuation as base, adjusted and reduced the same at the rate of 25% per year for determining the value for the year under consideration, gave credit or cost shown by the assessee in books and added the difference u/s69. Hon’ble ITAT observed that the assessee had duly recorded that cost of the said paintings in the books and no incriminating material was found during the course of search which could suggest that the assessee had made payments over and above the amounts recorded in the books. The valuer had not given any basis for arriving at such value of paintings. Even AO has not given any basis to arrive at the value of paintings and the method adopted by him in applying 25% discount per year. In light of the aforesaid facts, the said addition was deleted by the Hon’ble ITAT.

[DCIT vs. Shri Praful A. Shah – ITA No.649/Ahd/2011 & CO 34/Ahd/2012]

No tax is required to be deducted at source in respect of an expenditure on which assessee has paid FBT:

AO made disallowance in respect of amount reimbursed by the assessee to its employees towards cost of uniform, stitching charges, washing expenses, etc. since no tax was deducted at source. Hon’ble ITAT observed that assessee had paid FBT on the said expenditure. Hence, the same cannot be considered as perquisites in the hands of the employees and are also not taxable in their hands. It was thus held that the assessee is not liable to deduct tax at source and accordingly, the said addition was deleted.

[Oil and natural Gas Corporation Ltd. vs. ACIT (TDS) – ITA Nos.152 to 154/Ahd/2012 and others]

No penalty can be levied on disallowance u/s 43B if such disallowance is disclosed in Tax Audit Report:

AO levied penalty on disallowance made u/s43B in respect of interest to bank which had been debited to the books of accounts but not paid before the due date. Hon’ble ITAT observed that the disallowance u/s43B was duly disclosed in the Tax Audit Report filed along with the return of income. However, while computing the total income, the same was not disallowed. AO disallowed the same on a technical count that such interest was not paid before due date. It was held that no penalty can be levied on such disallowance since the said disallowance was made on account of a technical default and not on account of the claim being bogus in nature.

[M/s. Dabhoi Cotton Ginning and Pressing Factory vs. ACIT – ITA No.2146/Ahd/2012]

No interest can be levied u/s 234A if entire amount of tax has been paid on or before due date of filing return of income even if return is filed after due date:

If entire amount of tax on taxable income has been paid on or before due date of filing return of income, then even if return of income is filed after due date of filing return of income, no interest can be levied u/s 234A. If tax on total income has been paid in part on or before due date of filing return of income, then interest u/s 234A can be levied only on differential amount of tax (i.e. on total tax less tax already paid before on or before due date) and not on the entire amount of tax or else, it shall render the provisions of Section 234A penal in nature which the statute does not provide for.

[BHARATBHAI B. SHAH - SCA 9820 of 2002 - GHC]

If an assessee-company cannot allot shares immediately in favor of State Government against investment made by it in assessee-company, then Interest earned on deposits made out of such funds shall belong to the State Govt. and shall not be taxed in the hands of assessee:

The assessee company received certain funds from Govt. of Gujarat as contribution towards it equity share capital. Till the time the assessee company allotted shares to Govt. of Gujarat, the said funds were parked in short term deposits with a schedule bank on which it earned certain interest. The assessee company and Govt. of Gujarat had entered into an arrangement according to which the said interest should belong to and be received on behalf of Govt. of Gujarat. It was held by the Hon’ble High Court that during the pendency of allotment of shares, the funds received towards equity share capital were held by the assessee company in trust for and on behalf of Govt. of Gujarat and hence, any interest accrued by investment of such funds must belong to the Govt. of Gujarat and till it remained in the hands of the assessee company, it must be treated to have been held in trust.

[GUJARAT POWER CORPORATION LTD. - TAX APPEAL No.99 of 2000 - GHC]

No penalty can be levied if addition is made merely because of change in head of income:

Appellant had shown certain income on sale of shares as long term capital gain and certain part of income as income from speculative business of trading in shares. AO treated the said capital gain as speculation income, made an addition in respect of the same and levied penalty. Hon’ble ITAT observed that transactions in respect of shares were duly disclosed at the time of filing return of income. Appellant had disclosed names of the companies, description of shares, date of transfer of shares, sale consideration, cost of acquisition and the indexed cost. Accordingly, the appellant had worked out long term capital gain. Explanation offered by the appellant was not found satisfactory by AO and therefore he treated the same as speculation income. But there was no allegation as to concealment of facts or dealings in sham transactions. Since the addition was made merely because of change in head of income, penalty was deleted.

[M/s. Crown Tradelink Pvt. Ltd. vs. ACIT – ITA No.2768/Ahd/2012]

No addition can be made u/s 14A in excess of expenses debited in P&L a/c. Also, no addition can be made u/s 14A in respect of purchases and depreciation debited to P&L a/c:

AO made huge disallowance u/s 14A on the basis of Rule 8D of the Income-tax Rules, 1962. Hon’ble ITAT observed that apart from purchase and depreciation, only three expenses were debited to the P&L account viz. Administrative expenses, interest expenses and other expenses. Out of the same, assessee had disallowed entire interest expenses while computing her income. CIT(A) had confirmed the addition made by AO to the extent of aggregate of administrative and other expenses and deleted the balance amount of addition. It was held that no addition can be made u/s 14A in respect purchases and depreciation. Since rest of the three expenses were either disallowed by assessee or confirmed by CIT(A), no further addition can be sustained u/s 14A in excess of the amount debited to P&L account.

[ACIT vs. Smt. Neeta M. Patel – ITA No.1964/Ahd/2012]

No addition can be made u/s 41(1) in respect of balance of creditors appearing in the books of accounts at the end of the relevant year:

AO made an addition u/s 41(1) in respect of sundry creditors on the count that the same remain unverifiable since the assessee failed to furnish PAN and evidences establishing identity and credit-worthiness of the said creditors. Hon’ble ITAT observed that AO had not brought any material on records indicating that the assessee had obtained any benefit in respect of the said liabilities. Further, the said liabilities still existed in assessee’s books of accounts at the end of the relevant assessment year. Hence, the said addition was deleted by the Hon’ble ITAT.

[ITO vs. Shri Jagmohansingh G. Dhiman – ITA No.1959/Ahd/2012]

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]

No penalty can be levied in respect of addition made on account of adoption of different methods of valuation by assessee and Department:

No penalty can be levied u/s 18(1)(c) of the Wealth-tax Act on addition made in respect of difference in valuation of properties on account of adoption of different methods of valuation by assessee and Department. Further, in case the Penalty Order does not clearly spell out as to whether the penalty is levied for concealment of wealth or for furnishing inaccurate particulars of wealth, penalty cannot be levied.

[RAMANBHAI B. PATEL HUF - TAX APPEAL No.145 with 147 of 2000 - GHC]

No addition can be made u/s 145A merely because assessee follows “Exclusive method” for valuation of closing stock:

AO made an addition u/s 145A since assessee had not added VAT paid on goods lying in closing stock at the end of the year while valuing such closing stock. Hon’ble ITAT observed that as per the working of profit based on inclusive method as well as exclusive method furnished by the assessee, there was no impact on the returned income. As per S.145A, assessee is required to follow inclusive method. However, as per guidelines issued by ICAI, assessee is required to follow exclusive method and the said approach has been approved by various Hon’ble High Courts. The effect of following either of the two methods is revenue neutral. Accordingly, the Hon’ble ITAT deleted the impugned addition.

[Satyam Trust vs. ACIT – ITA Nos.3298 & 3299/Ahd/2010]

No addition u/s 68 can be made in respect of sale proceeds already offered as income:

Once the sale proceeds have been offered as income by the assessee and the same has been accepted by AO, no addition in respect of the same can be justified u/s 68 or else, it shall tantamount to double taxation of the same income.

[VISHAL EXPORTS OVERSEAS LTD. - TAX APPEAL No.2471 with 2473, 2475 & 2476 of 2009 - GHC]

For the purpose of S.2(14)(iii)(b), distance needs to be measured in terms of “Approach roads” and not as per straight line distance on a horizontal plane or as per crow’s flight:

Assessee sold his agricultural lands situated near Sanand. No gain arising thereon was offered to tax since the said lands, being agricultural lands, didn’t fall within the ambit of capital asset as per S.2(14)(iii)(b). AO, on the basis of certificate issued by Talati, found that the said lands were located within two kms of Municipality limits of Sanand and as per Notification dated 06^th January 1994, Sanand Municipal Area has been notified in all directions upto two kms from Municipal limits for the purpose of S.2(14)(iii)(b). Hence, he was of the view that the said lands are capital assets and gain arising thereon must be taxed as capital gain. Hon’ble ITAT observed that at the time of selling the said lands, there was only one approach road and as per the distance measured through the said approach road, the lands were more than two kms away from Municipal limits of Sanand. It was held that such distance must be measured in terms of approach road and not as per straight line distance on a horizontal plane or as per crow’s flight. Accordingly, the said lands did not fall within the ambit of capital assets as per S.2(14)(iii)(b) and hence, appellant is not liable for any tax on gain arising on sale of such lands.

[ITO vs. Smt. Ashaben Lallubhai Desai – ITA No.2122/Ahd/2012]