Penalty u/s 271(1)(c) cannot be levied on disallowance made u/s 40(a)(ia) for failure to deduct tax at source u/s 194C:

AO levied penalty u/s 271(1)(c) on disallowance made u/s 40(a)(ia) on account of failure to deduct tax at source on certain payments covered u/s 194C. Such penalty came to be deleted by CIT(A) as well as ITAT. On Revenue’s appeal, Hon’ble High Court found that ITAT applied decision in the case of Reliance Petroproducts Pvt. Ltd. – 322 ITR 158 (SC) and observed that merely on account of disallowance of certain claim, penalty cannot be imposed. ITAT had also recorded that the question of disallowance u/s 40(a)(ia) in respect of transporters had given rise of diversified opinion. Further, genuineness of expenditure was not in question. Disallowance was made on the count that tax was not deducted at source. In light of the above, Hon’ble High Court dismissed Revenue’s appeal.

[CIT Vs. Dahyabhai Veljibhai Patel – Tax Appeal No.793 of 2013]

Filing of audit report at the assessment stage instead of filing it alongwith return of income is construed as sufficient compliance for claiming deduction u/s 80IB:

AO disallowed the deduction claimed u/s 80IB of the Act merely on the count that the audit report was not filed alongwith the return of income. The said claim was allowed by CIT(A). On Revenue’s appeal, Hon’ble ITAT observed that the though the assessee had not filed the audit report alongwith the return of income, the same was furnished before AO at the assessment stage. It was also observed that the Hon’ble Gujarat High Court, in the case of “CIT vs. Gujarat Oil and Allied Industries – 201 ITR 325 (Guj)”, has held that the requirement of filing audit report alongwith return of income is procedural in nature and audit report filed at the assessment stage shall be construed as sufficient compliance of the same. Following the said decision, assessee’s claim u/s 80IB was allowed. Accordingly, revenue’s appeal was dismissed.

[DCIT vs. Anoli Holdings Pvt. Ltd. – ITA No.3175/Ahd/2010]

No disallowance can be made u/s 14A r.w.r. 8D if interest income is more than interest expenditure:

AO found that the assessee-company is a partner in several partnership firms and has earned profits from such firms which have been claimed as exempt u/s 10(2A). Also, the assessee had paid interest on unsecured loans during the year under consideration. AO therefore took a view that assessee invested such borrowed funds in various partnership firms and earned exempted income. Consequently, he made disallowance u/s 14A r.w.r. 8D. Hon’ble ITAT observed that the assessee had sufficient own funds and hence, it was of the view that it was unfair on the part of revenue to presume that borrowed funds had been utilised for the purpose of making investment in such partnership firms. It was further observed that interest income earned by the assessee was more than the interest expenditure. Hon’ble ITAT, following the order in the case of “ITO vs. Karnavati Petrochem Pvt. Ltd. – ITA No.2228/Ahd/2012”, held that when the interest income was more than interest expense, AO was not justified in invoking the provisions of S.14A r.w.r. 8D. Accordingly, the impugned addition was deleted.

[Safal Reality Pvt. Ltd. vs. ACIT – ITA Nos.2334/Ahd/2012 & 1842/Ahd/2013]

Depreciation on vehicles cannot be disallowed merely because such vehicles have been registered in the name of director of an assessee-company:

AO disallowed depreciation on cars on the count that such cars were bought and registered in the name of the director of the assessee-company. On appeal, CIT(A) observed that payment in respect of such cars was made by the assessee. Such cars were sued for the business of the assessee. Accordingly, CIT(A) allowed the claim of depreciation in such cars. On Revenue’s appeal, Hon’ble ITAT also observed that assessee had made payments of such cars. The said cars were included in the block of assets of the assessee and were used for assessee’s business. In light of the above, Hon’ble ITAT also held that there was no reason to interfere with the order of CIT(A). Accordingly, Revenue’s appeal was dismissed.

[DCIT vs. Nandan Exim Ltd - ITA Nos.601 & 225/Ahd/2011 and 2419/Ahd/2010]

Gift received by an HUF from uncle of Karta of such HUF shall be not be taxable in the hands of HUF:

AO made an addition in the hands of the assessee-HUF in respect of sum introduced by Karta of the HUF during AY 2005-06. The said addition was made since he was of the view that HUF can’t have any relatives and hence, sum received by HUF from its Karta is to be taxed as gift u/s 56(2). Hon’ble ITAT observed that the Karta of the HUF had received a gift from his uncle (brother of his father). It was an undisputed fact that the said gift was accepted by the donee as Karta of the HUF. Hon’ble ITAT was of the view that HUF is basically “a group of relatives”. It was further observed that for the purpose of S.56(2)(vii) introduced w.e.f. 01/10/09, “Relative” in case of HUF includes “any member thereof”. Considering the aforesaid scenario, it was held that the assessee-HUF had received gift from a relative who is uncle of Karta of the assessee-HUF (i.e. “Brother or sister of either of the parents of an individual). Hence, the gift was not chargeable in the hands of the assessee-HUF.

Note: Hon’ble ITAT has, in the case, treated uncle of Karta of assessee-HUF as relative of HUF by adopting liberal interpretation. However, in case of a gift received by any HUF after 01/10/09 from any person other than member of such HUF shall be taxable in light of Explanation to S.56(2)(vii) according to which only “Members” of HUF are considered to be relatives of an HUF.

[HARSHADBHAI DAHYALAL VAIDHYA HUF Vs. ITO – ITA No.1527/Ahd/2010]

Interest received on FDR made from grant received from Govt. can’t be considered as assessee’s income if such interest is to be treated as part of the grant as per the terms of release of such grant:

AO made addition in respect of interest on FDR received by the assessee which was confirmed by CIT(A) but deleted by ITAT. On Revenue’s appeal, Hon’ble High Court observed that the assessee received grant from Central Govt. (CG) and the same was deposited in bank as FDR. AO made the impugned addition since he found that the assessee had claimed refund in respect of TDS on such interest deducted by the concerned bank. ITAT found from the letter issued by CG while releasing the grant that interest earned on grant already released shall form part of central grant limit. Hence, relying on decisions in the case of “Gujarat Municipal Finance Board vs. DCIT – 318 ITR 317 (Guj)” and “Gujarat Power Corporation Ltd. vs. ITO – 354 ITR 201 (Guj)], the impugned addition was deleted. Hon’ble High Court also held that in light of the aforesaid stipulated condition and the two decisions cited above, such interest shall be treated as part of grant received from CG and hence, it can’t be treated as assessee’s income. Accordingly, Revenue’s appeal was dismissed.

[CIT vs. Sar Infracon Pvt. Ltd. – Tax Appeal No.855 of 2013 and 828 of 2013]

Depreciation on electric fittings which are integral part of plant and machinery can be claimed at @25%:

Assessee claimed depreciation on electric fittings @ 25% which was restricted by AO to 15% being the rate of depreciation on electrical fittings. CIT(A) allowed the claim of depreciation @ 25%. On revenue’s appeal, Hon’ble ITAT observed that the assessee is engaged in the business of running a multiplex theatre. The electric fittings included equipment connected to projector and other film exhibition systems. It was observed that Hon’ble Rajasthan High Court, in the case of “CIT vs. RG Ispat Ltd. – 272 ITR 383”, has held that where a particular structure is merely helpful in carrying on the activities of assessee, it may not be a plant but if it is an integral part of plant and machinery or portion of that building is an integral part of plant and machinery, then that should be considered as plant in view of the Hon’ble Apex Court’s decision in the case of “CIT vs. Karnataka Power Corporation – 247 ITR 268 (SC)”. In the assessee’s case, electric fittings were essential part of the film exhibition and not ancillary to its business. Without such electric items, the projector as well as exhibition systems cannot be run. Hence, it was held that such electric fittings were part and parcel of the plant & machinery and assessee was entitled to depreciation @ 25%. Accordingly, Revenue’s appeal was dismissed.

[DCIT vs. Anoli Holdings Pvt. Ltd. – ITA No.3175/Ahd/2010]