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]