Ginning and pressing of cotton amounts to manufacturing activity:

AO denied assessee’s claim u/s 80IB on the ground that assessee was not engaged in the manufacturing activity. Both the lower authorities allowed the assessee’s claim. On Revenue’s appeal, the Hon’ble High Courtheld that the ginning and pressing of cotton amounts to manufacturing activity and hence assessee was eligible for deduction u/s 80IB. Accordingly, the Revenue’s appeal was dismissed.

[JAYDEEP COTTON FIBRES PVT. LTD. - TAX APPEAL NO.1062 of 2011 - GHC]

No disallowance in respect of interest on interest-free advances if there are sufficient funds to make such interest-free advances:

AO made addition in respect of interest on advances made by assessee-company to certain concerns in which Directors of the company were interested. CIT(A) and Hon’ble ITAT deleted the said addition as they found that the assessee-company had sufficient funds to make interest-free advances and borrowed funds were not directed for making interest free advances.On Revenue’s appeal, the Hon’ble High Court concurred the view of the lower appellate authorities and dismissed the Revenue’s appeal.

[NAVAL TECHNOPLAST INDUSTRIES LTD. - TAX APPEAL NO.1416 & 1417 of 2011 - GHC]

Commission paid to related parties is an allowable expenditure:

AO made an addition in respect of commission paid by assessee to related parties. The said addition was deleted by CIT(A) and Hon’ble ITAT by observing that the parties had sent confirmation of having received the commission directly to AO, complete details of month-wise commissions were filed and tax was deducted whenever TDS provisions were applicable. On Revenue’s appeal, the Hon’ble High Court also found that payment of commission was genuine and proper. Hence, Revenue’s appeal was dismissed.

[NAVAL TECHNOPLAST INDUSTRIES LTD. - TAX APPEAL NO.1416 of 2011 - GHC]

Ornaments of a lady forming part of her Stridhan seized from her ex-husband’s premises during search action must be handed over to her:

The Department had seized the petitioner’s gold ornaments and valuables at the time of search at the premises of the petitioner’s ex-husband. The said ornaments formed part of the petitioner’s Stridhan. Petitioner’s ex-husband had filed an affidavit unequivocally accepting that the said ornaments belonged to the petitioner and the Family Court, Mumbai had also, while granting decree of dissolution of marriage, provided that petitioner shall be entitled to all those ornaments lying with the Income-tax Authority at Ahmedabad. Also no proceedings were pending that could have justified with-holding of the said ornaments. Hence, the Hon’ble High Court directed the Department to handover the said ornaments to the petitioner.

[RENUKA R. MODI - SCA7537 of 2012 - GHC]

No substantial question of arises in case where ITAT remands an issue to the file of CIT(A) for fresh consideration:

The Hon’ble ITAT remanded the issue as regardsdisallowance u/s 14A to the file of CIT(A). On Revenue’s appeal, the Hon’ble High Court found that ITAT had merely remanded the issue to the file of CIT(A)for fresh consideration in light of the applicable law and judgments in the field. It was held that no substantial question of arises out of the same and the tax appeal was dismissed.

[ZEPPELIN MOBILE SYSTEMS (INDIA) LTD. - TAX APPEAL No.1212 of 2011 - GHC]

Change in the nature of Accounting treatment of Subsidy received in past doesn’t permit Revenue to examine taxability of such receipt in the year of such change by re-opening the Assessment:

Assessee received subsidy in the year 1995 which was shown in its Balance-sheet in the Subsidy Account. In FY 2003-04,itwas transferred to Partner’s capital account without any specific mention of this amount in the break-up given. Notice u/s 148 was issued for AY 2004-05on the pretext that the amount of subsidy, being business income of the assessee, escaped the assessment. The Hon’ble High Court held that the “Taxable event” did not arise during AY 04-05. If such subsidy invited tax, assessee ought to have been taxed in the previous asst. year corresponding to the previous year in which such subsidy was received. Merely because assessee changed the nature of treatment of such subsidy received in 1995 for accounting purpose, it would not permit the Revenue to examine the taxability of such receipt in Asst. Year 2004-05. Accordingly, the notice u/s 148 was quashed.

[CHIMANLAL AND SONS - SCA 16846 of 2011 - GHC]

Claim allowed at the original assessment stage after detailed examination cannot be disallowed by re-opening the assessment even within four years:

Asst. was framed earlier u/s 143(3) without making any disallowance in respect of “Maintenance contribution”. The asst. was sought to be re-opened within a period of four years from the end of relevant Asst. Year on the pretext that “Maintenance contribution” was not an allowable expense since it was not directly related to the assessee’s business. The Hon’ble High Court observed that AO had allowed the said claim at the stage of original assessment after detailed examination. It was held that without there being any additional record, any attempt on the part of the AO to disallow such expenditure by re-opening the assessment would be based on mere change of opinion which is not permissible in law. Accordingly, the notice u/s 148 was quashed.

[VISHWANATH ENGINEERS - SCA 204 of 2012 - GHC]

Income treated as “Capital gain” while framing original assessment after threadbare examination cannot be treated as “Business income” by re-opening the assessment even within four years:

Asst. was framed earlier u/s 143(3) wherein income arising on sale of certain landed properties was treated as “Capital Gain”. The asst. was sought to be re-opened within a period of four years from the end of relevant Asst. Year on the pretext that since assessee is engaged in the business of land development and purchase and sale of plots, the concerned landed properties are stock in trade and profit arising on sale of the same shall be “Business income”. The Hon’ble High Court observed that at the stage of original assessment, AO had thoroughly examined assessee’s return which consisted of only one source of income i.e. capital gain. It was held that any deviation from the view taken by AO at the time of framing original assessment shall amount to mere change of opinion and hence, the notice u/s 148 was quashed.

[ASHWAMEGH CO-OP. HOUS. SOC. LTD. VIBHAG-2 - SCA 12598, 12600 & 12614 of 2012 - GHC]

Notice u/s 148, in case of an agent of a non-resident, cannot be issued after the expiry of two years from the end of relevant assessment year. Also, it cannot be issued without passing an order u/s 163(2):

AO issued a notice u/s 148 describing the petitioner as an agent of a foreign company i.e. a non-resident without passing an order u/s 163(2)treatingthe petitioner as an agent of the foreign company. On filing a Writ petition, the Hon’ble High Court held that the said notice was time barred as per the provisions of S.149(3) as the same was issued after the expiry of two years from the end of relevant assessment year. It was further held that the impugned notice was to be quashed as no order was passed u/s 163(2) prior to issuance of the said notice.Further, the notice was also liable to be quashed on the ground of incongruity as the notice u/s 148 described the petitioner as an agent of the foreign company whereas earlier, AO had issued notice u/s 163(1) to the petitioner asking him to show cause as to why he should not be treated as an agent of some third person and not the said foreign company.

[ARVIND MILL LTD. - TAX APPEAL Nos.8857 & 8858 of 2003 - GHC]

Once Department accepts the tax paid under returns of income filed by an assessee without ever questioning that such returns were filed before a wrong officer, it cannot later contend that such officer had no jurisdiction to accept the same:

Assessee had filed its returns of income before his normal Assessing Officer which were accepted by such officer u/s 143(1) whereas he was actually supposed to file the same before the special Assessing officer designated as such consequent to search action at the assessee’s premises in the past. Hence, the assessment was sought to be re-opened on the sole ground that assessee had filed returns of income with other wards with mala fide intentions. It was held by the Hon’ble High Court that the assessee had discharged his liabilities by filing returns of income and the same being accepted vide intimation u/s 143(1). Since the Department has accepted the tax paid under such returns without ever questioning filing of such returns before a wrong officer, it cannot now be allowed to contend that such returns were filed before wrong officers who had no jurisdiction to accept the same. Since the sole ground for such re-opening of the assessment was not sustainable, notices u/s 148 were quashed.

[BIPINKUMAR P KHANDHERIA (SCA 6557 TO 6560 of 2001, Judgment dated 13/08/12)]

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

Assessee sold certain “Depreciable Assets” forming part of “Block of Assets” which were held for more than 36 months, earned capital gain which was offered for taxation as “Short term capital gain” u/s 50, invested such funds in RECL 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 ITAT held that legal fiction created by the statute by virtue of S.50 is merely to deem “capital gain” as short term capital gain and not to deem “the asset” as short term capital asset. Therefore it cannot be said that S.50C converts a long term capital asset into a short term capital asset. Hence, the assessee was eligible for exemption u/s 54EC in respect of such capital gain.

[DCIT Vs. ADITYA MEDISALES LTD. – ITA No.2544/Ahd/2012 &

 ITO Vs. M/S. POLESTAR INDUSTRIES – ITA Nos.1944/Ahd/2010]

A transaction in respect of transfer of shares pledged with a bank to a group company can be regarded as “Transfer” for income-tax purposes so far as requirements of S. 2(47) are complied with:

A transaction in respect of sale of shares pledged with a bank to a group company cannot be said to be a colorable device merely on the grounds that such a transaction resulted into loss to the assessee and that the requirements of Section 108 of The Companies Act, 1956 regarding registration of transfer of shares have not been complied with since the shares were in possession of a bank owing to which such shares could not have been said to be transferred. So far as the requirements of Section 2(47) of the Income-tax Act, 1961 are complied with, the transaction is to be regarded as “Transfer” for the income-tax purposes. There is no restriction that such a transaction cannot be effected with a group company. Also, it is not open for the revenue to doubt the loss suffered by the assessee unless it doubts the sale prices of the shares.

[BIRAJ INVESTMENT PVT. LTD. - TAX APPEAL No.260 of 2000 - GHC]

Expenses incurred by a tenant on repairs of the house property cannot be included in ALV of the house property:

Assessee received rent in respect of let out house property which was offered to tax after claiming standard deduction @ 30% u/s 24(a). According to AO, standard deduction was nothing but allowance for repairs expenses. He found that the repairing charges were to be borne by the tenant and not the assessee. He was of the view that in such a scenario, benefit of same expenditure shall be taken by both, tenant and the assessee, at a time. Hence, he disallowed the said standard deduction. Ld. CIT(A) was of the view that ALV (Annual Letting Value) of a property in case where tenant takes the responsibility of repairs shall be less than ALV of a property in case where owner undertakes such responsibility and if tenant undertakes such responsibility, then such expenses shall be included in ALV of such property. Even though Ld. CIT(A) deleted the said disallowance, he directed AO to determine ALV as per his aforesaid view. Hon’ble ITAT held that deduction @ 30% is a standard deduction which need not be necessarily towards repairs of the house property. It was further held that amount of expenditure incurred by the tenant on repairs shall not be includible in ALV of the property in light of order pronounced by Hon’ble ITAT, Mumbai in the case of Mukesh D. Ambani – (2006) 7 SOT 521 (Mum).

[TUSHAR SHANTILAL KOTHARI Vs. DCIT – ITA NO.1727/Ahd/2010]

“Credit balance” in provision for bad and doubtful debts as prescribed under Proviso to S. 36(1)(vii) means “Opening credit balance” of the same:

As per the Proviso to Section 36(1)(vii), in case of an assessee to which clause (viia) of Section 36(1) applies, amount of deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. The credit balance for this purpose shall be the “Opening credit balance” i.e. the balance brought forward as on 1^st April of the relevant accounting year.

[UTI BANK LTD. - TAX APPEAL No.1077 to 1080 of 2010 - GHC]

Purchase of electric meters from RSEB and leasing back the same to RSEB is genuine transaction and depreciation can be claimed on such electric meters:

The assessee bought electric meters from Rajasthan State Electricity board (RSEB) and leased them back to RSEB on hire purchase basis. The Department didn’t allow assessee’s claim of depreciation on the said electric meters as it was of the view that the said transaction was a sham transaction in light of the ratio laid down in McDowell’s case (154 ITR 148). It was held by the Hon’ble High Court that the said transaction was a genuine transaction and the assessee was eligible for depreciation on the said electric meters.

[PARAMOUNT POLLUTION CONTROL LTD.  - TAX APPEAL No.166 of 2000 - GHC]

Provisions of S.269SS cannot be invoked in case of book entry i.e. transfer between two accounts by way of Journal Entry:

AO noticed that the assessee had received certain unsecured loans. According to him, since the said amounts were not received through account payee cheques, provisions of S.269SS were violated and hence, penalty was levied u/s 271D. Hon’ble ITAT observed that the assessee had entered into an agreement with the concerned persons according to which those persons infused funds in the business of the assessee. The said funds were not in the nature of unsecured loans but were in the nature of capital contribution since those parties had share in the profits and losses of the assessee. Those persons had incurred certain expenses on behalf of the assessee for restarting assessee’s business including buying the machinery and the accounts of the said persons were credited by passing a J.V. in the books of accounts. As per Explanation (iii) to S.269SS, “loan or deposit” means loan or deposit “of money”. Transfer between two accounts by way of journal entry does not imply receipt of loan or deposit in monetary terms. It was thus held that there was no violation of S.269SS and consequently, there was no question of levying penalty u/s 271D.

[ITO Vs. SHRI MINESHKUMAR SHANTILAL PATEL – ITA NO.643/Ahd/2010]

CENVAT credit on inputs written off at the time of surrendering the Excise Registration Certificate is allowable as deduction u/s 37:

Assessee’s unit was an excisable unit. During the year under consideration, assessee had written off certain sum pertaining to excise duty by debiting the P&L account and the said sum was disallowed by AO. Hon’ble ITAT observed that Government had declared a scheme according to which the assessee was given an option to continue with the present rate of excise duty or to avail a route of exemption. Assessee opted for the exemption route, surrendered its Excise Registration Certificate and then wrote off the said sum that represented unutilized CENVAT credit availed on inputs as was evident from RG-23A Part II. Further, the purchase cost of input was debited net off CENVAT credit in the P&L account. It was held that such CENVAT credit on inputs was in respect of raw materials and hence, the claim of the assessee was wholly and exclusively for the purpose of its business. Hence, the impugned disallowance was deleted by the Hon’ble ITAT.

[ACIT Vs. M/S. RANGOLI INDUSTRIES PVT. LTD. – ITA No.1936/Ahd/2010]

Income arising on forward exchange contracts by an assessee engaged in the business of import and export must be treated as “Business income” and not “Speculation income”:

Assessee was engaged in the business of import and export of diamonds. He entered into forward exchange contract in respect of import and export transactions in order to protect its interest against the fluctuation in the rate of foreign exchange currency. On cancellation of such contracts, assessee was entitled to either profit or loss depending upon the rated contracted and the rates prevailing at the time of cancellation. During the year under consideration, the assessee earned income on such forward contracts on account of fluctuations in foreign exchange. AO held that such income was “Speculative income” in light of the provisions of S.43(5). On appeal, the Hon’ble ITAT held that profit arising on cancellation of such forward contracts is an integral part of such business and provisions of S.43(5) shall not apply in such cases. Hence, the said income should be treated as “Business income” and not “Speculation income”.

[M/S. VEER GEMS Vs. ACIT – ITA NO.2478/Ahd/2009]