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]

No addition can be made on the basis of “Dumb documents” seized during a search action:

If documents seized during a Search action are found to be “Dumb documents”, then in absence of any evidence that such documents unearthed a concealed business activity of the assessee, addition made on the basis of the same by placing reliance on S.132(4A) remains un-corroborated and needs to be deleted.If an addition is to be made on the basis of seized documents, then it must be supported by “some identification” having nexus with unaccounted business activity of the assessee. It was further held that S.132(4A) uses the words “may presume” which imply that such presumption is rebuttable.

[DHARMENDRASINH R. WAGHELA (TAX APPEAL NO.1539 of 2011 - GHC]

Explanation III to S.194C defining the term “Work” cannot be pressed in to bring an assessee’s case within the scope of S.194C(2) if the same is otherwise not includible for non-fulfillment of requirements of S.194C(2):

It was further held that for application of S.194C(2), a relationship between contractor and sub-contractor is necessary. Explanation III to S.194C merely provides that for the purpose of S.194C, the expression “Work” shall include carriage of goods and any passengers by any mode of transport other then railways. However, the Explanation, at any rate, cannot be pressed in service to bring the case of an assessee within the scope of sub-section (2) if the same is otherwise not includible since requirements of such sub-section are not fulfilled.

[PRASHANT S. SHAH - TAX APPEAL NO.1591 of 2011 - GHC]

No disallowance can be made u/s 40(a)(ia) for non-deduction of tax at source u/s 194C unless there exists relationship in the capacity of Contractor and Sub-contractor:

Assessee, an Individual, was awarded a sub-contract by “M/s. ANS Construction Ltd.” (“ANS” for short) w.r.t. construction of peripheral and approach roads.To carry out such work, assessee had to purchase construction materials and for transportation of the same at the given site, he had availed the services of other transporters to whom certain payments were made under the head “Transport charges”. AO disallowed the said transport charges u/s 40(a)(ia) on account of non-deduction of tax at source u/s 194C. The Hon’ble High Court observed that w.r.t. 194C(2), “Nature” of contract between assessee and transporters was such that the same cannot be considered as a relationship between a Contractor and Sub-contractor. None of the responsibilities of the Contractor vis-à-vis the execution of work were fastened on the transporters, assessee had indemnified ANS against any contractual legal or financial liability if so arises in future assessee was solely responsible for execution of work andno part of such liability was fastened on the transporters.Assessee had only availed of the services of such transporters for carrying out the materials to the site. Hence, it was held that ITAT was right in concluding that it was not a case of relationship between the assessee contractor and transporters in the capacity of sub-contractors.

[PRASHANT S. SHAH - TAX APPEAL NO.1591 of 2011 - GHC]

No expenditure can be considered excessive merely by comparing it with preceding year’s expenditure:

AO made addition on account of excessive expenses which was deleted by both the lower appellate authorities. On Revenue’s appeal, the Hon’ble High Court observed that AO made the said addition by merely making a comparative study of the expenses for the year under consideration with the preceding the Asst. Year without pointing out as to which of the expenses incurred by the assessee were not connected with the business activity of the assessee or were not admissible in law.It was held that in absence of any specific pin-pointing, AO could not have made the addition merely by comparing expenditure with the preceding year’s expenditure. Revenue’s appeal was dismissed accordingly.

[SYMPHONY COMFORT SYSTEM LTD. - TAX APPEAL NO.1501 of 2011 - GHC]

Low GP rate as compared to earlier Asst. Year can’t be the sole reason for rejection of books of accounts or for making addition on account of low gross profit:

AO made addition on account of low gross profit which was deleted by both the lower appellate authorities. On Revenue’s appeal, the Hon’ble High Court observed that AO had made the said addition after rejecting assessee’s books on the sole ground that GP rate of relevant Asst. Year was less than that of preceding Asst. Year ignoring the facts that day to day stock registers were maintained on computer. No specific defects in assessee’s books were found out by AO. It was held that ITAT was right in deleting the said addition in the given factual background and Revenue’s appeal was dismissed.

[SYMPHONY COMFORT SYSTEM LTD. - TAX APPEAL NO.1501 of 2011 - GHC]

ITAT can always permit a “Legal Contention” at the appellate stage even if it is raised for the first time:

Revenue challenged the order of Hon’ble ITAT since ITAT had entertained certain additional grounds raised by the assessee for the first time which, according to the Revenue, would require investigation into the facts. The Hon’ble High Court observed that such additional grounds were nothing but legal contentions that had arisen out of CIT(A)’s order which was challenged before ITAT. It was held that ITAT can always permit a legal contention at the appellate stage even if it is raised for the first time.

[ASHOKKUMAR THAKKAR ALIAS ASHOK T. GOKLANI - TAX APPEAL NO.1418 of 2011 - GHC]

Disallowance u/s 40(a)(ia) cannot be made merely because Form No.15J was not furnished in time i.e. upto 30th June of subsequent financial year:

AO made disallowance u/s 40(a)(ia) for non-compliance of S.194C on the ground that assessee had not furnished Form No.15J before 30^th June of the subsequent financial year as required under Rule 29D. The Hon’ble High Court held that the requirements for exclusion provided in sub-section (3) of S.194C from liability to deduct tax at source under sub-section (2) would be fulfilled the moment the concerned sub-contractors produce Form No.15-I to the assessee. The requirement of such payer to furnish details to the income-tax authorities in the prescribed form within the prescribed time would arise later and any infraction in such a requirement would not make requirement of deduction of tax at source applicable under sub-section (2) of S.194C. Fulfilment of such a requirement cannot be linked with deduction of tax at source. Hence, no disallowance u/s 40(a)(ia) is justified.

[VALIBHAI KHANBHAI MANKAD - TAX APPEAL NO.1182 of 2011 - GHC]

Only “Profit element” embedded in sale proceeds of DEPB is to be reduced u/s 28(iiid) for computing deduction u/s 80HHC:

Only “Profit element” embedded in sale proceeds of DEPB is to be reduced u/s 28(iiid) from the sale proceeds of the assessee for computing deduction u/s 80HHC and not the entire sale proceeds of DEPB.

[BLOOM DECOR PVT. LTD. - TAX APPEAL NO.1008 of 2011 - GHC]

Deduction can be claimed in respect of a crystallized liability:

AO invoked S.43B and disallowed assessee’s claim in respect of “Water connection charges” paid to Surat Municipal Corporation” on the ground that liability to pay the same had not crystallised during the year under consideration. Both the lower appellate authorities allowed assessee’s claim after recording factual findings that assessee had actually incurred the said expenditure. Liability in respect of the same had been crystallized during the relevant year and hence, the same cannot be termed as a contingent liability. Neither the contractee had reimbursed the assessee nor had the contractee claimed such amount by way of expenditure. The said view was upheld by the Hon’ble High Court also.

[BHAGWATI CORPORATION - TAX APPEAL NO.932 of 2011 - GHC]

CIT is bound to apply ITAT’s order in Revision proceedings even if further appeal is pending before High Court. Revision application can be moved against penalty order even if concerned additions have been challenged in quantum appeal:

Assessee challenged the penalty order before CIT by moving a revision application u/s 264 which was rejected by CIT on two grounds viz. (1) The issue in quantum appeal has not attained finality since the Hon’ble High Court had admitted quantum appeal preferred by the Revenue against order of ITAT deleting the concerned additions on which penalty was levied & (2)Revision proceedings are contemplated only to mitigate the situation faced by the assessee who are unable to approach appellate authorities for relief. It was held by the Hon’ble High Court that in case CIT was inclined to decide the Revision petition without waiting for High Court’s decision in quantum appeal, he was duty bound to apply the order of ITAT as it stood at that time. It was further held that the fact that the assessee had preferred appeal against quantum additions would not take away his right to file revision application against the penalty order.

[ARYAMAN SPINNERS PVT. LTD. - SCA 10636 of 2012 - GHC]

Land Survey expenditure is a revenue expenditure for those who are engaged in the business of land:

AO disallowed Land Survey expenditure incurred by the assessee. Hon’ble High Court observed that assessee was engaged in the business of purchasing land suitable for setting up windmills. The said lands were part of its stock in trade. Assessee had to conduct survey to decide the suitability of such lands for the purpose of windmill. It was held that conducting survey of the land for the purpose of deciding its suitability was an integral part of its business and accordingly, land survey expenditure was held to be revenue expenditure.

[SARJAN REALITIES LTD. - TAX APPEAL NO.1374 of 2011 - GHC]

S.50C is applicable only in case of “Seller” and not in case of “Buyer”:

AO made addition u/s 69B on the basis of difference in valuation of land. On appeal, both, CIT(A) and the Hon’ble ITAT, deleted the said addition after holding that provisions of S.50C will apply to “Seller” only and not to a “Purchaser”.On Revenue’s appeal, the Hon’ble High Court held that S.50C, by a deeming fiction, substitutes the consideration received on sale of a capital asset by stamp duty valuation. Such deeming fiction, however, is applicable only in case of a “Seller” for the purpose of S.48. Hence, ITAT had committed no error in confirming the view taken by CIT(A). Accordingly, Revenue’s tax appeal was dismissed.

[SARJAN REALITIES LTD. - TAX APPEAL NO.1374 of 2011 - GHC]

Deduction u/s 80-IB(10) can’t be denied even if assessee follows “Project completion method” instead of “Percentage completion method” as prescribed by AS-7 (Revised):

AO denied deduction u/s 80-IB(10) only on the ground that assessee engaged in business of construction had adopted “Project completion method” instead of “Percentage completion method” as prescribed under AS-7 (Revised). The Hon’ble High Court observed that there was no allegation to the effect that on account of “Project completion method” adopted by the assessee, its profit for any particular year was distorted. Further, the assessee had followed the same system consistently for a long period of time. It was thus held that assessee must be allowed deduction u/s 80-IB(10).

[SATHDHAR ENTERPRISES - TAX APPEAL NO.1389 & 1390 of 2011 - GHC]

Deduction u/s 80-IB(10) cannot be denied merely on the ground that BU permission was not obtained prior to 31/03/08:

AO denied assessee’s claim of deduction u/s 80-IB(10) on the ground that since BU permission was granted to the assessee after March 2008,construction must have been completed after such date. CIT(A) and ITAT allowed the said claim after recording findings that construction was completed before 31/03/08, several units were sold before that date and application was also moved for BU permission on 15/02/06 i.e. almost two years before the cut-off date. The Local authority had rejected such application on 01/07/06 for some technical reasons and not on the ground of non-completion of construction. Thereafter, upon revised efforts from the assessee, it granted the said permission by an order dated 19/03/09.The Hon’ble High Court held that not every condition of the statute can be seen as mandatory. If substantial compliance thereof is established on record, court may take a view that minor deviation thereof would not vitiate the very purpose for which deduction was being made available. Assessee’s claim was thus allowed.

[TARNETAR CORPORATION - TAX APPEAL NO.1241 of 2011 - GHC]

To claim deduction u/s 80IB(10), Developer need not be the Owner of the land:

AO disallowed the deduction claimed by assessee u/s 80-IB(10) on two counts viz. (1) Assessee (i.e. the developer) was not the Owner of the land on which construction of residential units was carried out and (2) Built-up area of residential units exceeded 1500 sq. Feet. When the matter was carried before the Hon’ble High Court, the Hon’ble High Court, following its own decision in the case of CIT vs. Radhe Developers reported at [2012] 341 ITR 403(Guj), held that developer need not be owner of the land. As regards second issue, it was observed that ITAT had recorded a finding that AO’s conclusion in respect of built-up area exceeding 1500 sq. Feet was baseless. Hence, the Hon’ble High Court abstained from disturbing such a factual finding of ITAT.

[NIKHIL ASSOCIATES - TAX APPEAL NO.1155 of 2011 - GHC &

 SAFAL ASSOCIATES (TAX APPEAL NO.1357 of 2011 - GHC]

G.P. rate shall be accepted if it is higher than average G.P. rate of last three years immediately preceding the relevant year:

AO rejected assessee’s books and calculated assessee’s income at a G.P. rate higher than that declared by the assessee. Hon’ble ITAT reversed AO’s order as it found that G.P. rate declared by assessee was higher than the average G.P. rate of last three years immediately preceding the relevant year. Hon’ble High Court held that no question of law arises out of the same since findings of ITAT were purely factual in nature. Accordingly, Revenue’s appeal was dismissed.

[KIRAN INDUSTRIES PVT. LTD. - TAX APPEAL NO.449 of 2011 - GHC]

No Penalty in case where tax liability gets confirmed on the basis of a decision that was not available at the time of filing return of income:

AO levied penalty on the ground that decision u/s 80HHC was wrongly claimed. ITAT deleted such penalty as it found that tax penalty against the assessee was confirmed on the basis of decision of Hon’ble Apex Court which was not available at the time when assessee filed return of income. ITAT relied on decision in the case of CIT vs. Reliance Petro Products Pvt. Ltd. [322 ITR 158 (SC)] wherein it has been highlighted that filing of wrong claim per se would not give rise to penalty proceedings. On Revenue’s appeal, the Hon’ble High Court upheld the view taken by ITAT.

[FRIENDS SALT WORKS AND ALLIED INDUSTRIES - TAX APPEAL NO.397 of 2012 - GHC]

Addition made solely on the basis of Survey statement – Not justified:

AO made an addition in respect of unexplained investment at ten times of the amount found to be recorded in a document impounded during survey solely on the basis of statement of partner of the assessee firm in which the partner stated that one zero was omitted from such impounded document. No evidence was found that could prove that the said noting was in respect of loans and advances. ITAT reduced the said addition to the amount recorded in impounded document as against addition made at ten times on the ground that statement recorded during survey cannot be relied upon. Consequent to such conclusion, ITAT also deleted interest on such unexplained investment.

[M/S. GOLDEN FINANCE - TAX APPEAL No.393 of 2011 - GHC]

Assessment in case of person not being searched can be carried out u/s 158BD only by issuance of proper notice:

A Search action was carried out at the premises of a Company. Assessee’s premises were also searched in the capacity of “Employee” of the said company (and not in his “Individual” capacity) and notice was issued to the assessee u/s 158BC. Hon’ble ITAT annulled the assessment so framed in the assessee’s case after noting that since the assessee was not the person searched, the said proceedings could have carried out u/s 158BD only by issuance of proper notice and this was not done in the given case. On Revenue’s appeal, the Hon’ble High Court upheld the view taken by ITAT.

[NILESH S. RAITHATHA - TAX APPEAL NO.861 & 862 of 2011 - GHC]

Satisfaction that undisclosed income belongs to some person other than person searched needs to be recorded by AO having jurisdiction over persons searched:

A search action was conducted at the premises of one Acharya Group of persons from where certain documents in respect of undisclosed income of the present assessee were found. AO having jurisdiction over persons searched handed over the said documents to the AO having jurisdiction over the present assessee who in turn, recorded his satisfaction as regards undisclosed income for issuance of notice. As per Section 158BD, such satisfaction needs to be recorded by AO having jurisdiction over persons searched. It was held that since the AO having jurisdiction over persons searched had not recorded the satisfaction that the undisclosed income belonged to the present assessee, the proceedings against the present assessee were not valid.

[M/S. JYOTI SALT INDUSTRIES C/O JAGDISH R. ACHARYA - TAX APPEAL NO.1040 of 2011 - GHC]