Depreciation on vehicles can be claimed by a company even if such vehicles are purchased in the names of its directors:

AO disallowed depreciation on vehicles on the count that the said vehicles were purchased in the name of the directors of the assessee-company. He was of the view that since the ownership of such vehicles did not belong to the company, it was not entitled to depreciation. Hon’ble ITAT observed that the assesse-company had made payments for such vehicles. The said vehicles were recorded in the books of assessee-company and were also used for the purpose of business of the assessee-company. In light of the aforesaid facts, Hon’ble ITAT rightly confirmed the order of CIT(A) allowing depreciation on such vehicles to the assessee-company.

[RASRANJAN FOOD PRODUCTS PVT. LTD. Vs. ITO – ITA No.1794/Ahd/2010 & CO No.188/Ahd/2010]

No addition can be made u/s 68 in respect of cash deposited in bank a/c out of earlier cash withdrawals:

AO made an addition u/s 68 in respect of cash deposited in bank account considering it to be unexplained. Hon’ble ITAT observed that the assessee had received sale proceeds of shares of ONGC on two occasions which were deposited in a bank account. On the very next of the said sale proceeds being credited in the bank account, sizable sum out of the same was withdrawn by the assessee. After few months, assessee re-deposited certain cash in the very same bank account and assessee claimed that the said deposit was out of the cash withdrawal made earlier. AO made addition u/s 68 in respect of the said cash deposit. Further, Hon’ble ITAT also observed that assessee was an employee of ONGC, had no other occupation and had already offered long term capital gain on sale of shares for tax. It was held that there could be various reasons for an assessee to keep liquid cash in his possession which is not unnatural. Moreover, revenue had not brought any material on record to establish that the assessee had deposited cash other than what he had withdrawn from his bank account. Since the addition u/s 68 was made merely on the basis of presumptions and assumptions, it was harsh and not justifiable. Accordingly, the addition was deleted by the Hon’ble ITAT.

[NAVINCHANDRA RAVJIBHAI CHAVDA Vs. ITO – ITA No.2335/Ahd/2012]

No penalty can be levied u/s 271AAA on the count that assessee failed to substantiate the manner in which undisclosed income was derived if the authorised officer doesn’t ask specific question w.r.t. manner in which such income was derived:

A search action was carried out during the course of which, certain cash, gold ornaments and jewellery were found. Hence, assessee made certain disclosure as his undisclosed income so as to cover the discrepancy in cash & jewellery on which AO levied penalty u/s 271AAA. Hon’ble ITAT observed that the assessee had specified in his statement recorded u/s 132(4) that such income was earned from medical profession. Moreover, the said income was duly offered in the return on income and tax on such disclosure was adjusted from seized cash. AO levied penalty u/s 271AAA since he was of the view that assessee didn’t substantiate the manner in which such income was derived. Hon’ble ITAT further observed that neither at the stage of recording assessee’s statement nor at the stage of assessment proceedings, assessee was asked either by the authorised officer or AO to substantiate the manner in which undisclosed income was derived. Hon’ble ITAT, following decision in the case of Radhakrishnan Goyal vs. CIT [278 ITR 454 (All)], held that u/s 132(4), unless authorised officer puts a specific question w.r.t. manner in which income has been derived, it is not expected from a person to make a statement in this regard. Having complied with the requirements of S.271AAA(2), it was held that assessee was eligible for immunity from penalty u/s 271AAA and CIT(A) was right in deleting such penalty.

[DCIT Vs. Dr. MUKESH S. SHAH – ITA No.1942/Ahd/2012]

Explanation 5 to S.271(1)(c) cannot be invoked to levy penalty on income disclosed during survey u/s 133A:

A survey u/s 133A took place at the assessee firm’s premises during the course of which certain excess stock and excess cash were found. AO levied penalty on the said amounts representing unaccounted stock and unaccounted cash by invoking Explanation 5 to S.271(1)(c). On appeal, the Hon’ble ITAT observed that the assessee firm had furnished its return of income which included the unaccounted income on account of excess stock and excess cash. Tax arising thereon was duly paid and the said return of income was accepted u/s 143(3). Further, the said disclosure was made during the course of survey u/s 133A and not during the course of search u/s 132. Explanation 5 can be invoked in case of search initiated u/s 132 and not in case of survey u/s 133A. Further, the said amounts were included in the return of income and the said return was accepted by AO. Hence, it cannot be said that the assessee had concealed its income or furnished inaccurate particulars of income. Also, there cannot be any concealment prior to furnishing return of income. In light of the above, the penalty was deleted.

[BHARAT STEEL SUPPLIERS VS. ACIT – ITA NOS.1546-47/Ahd/2010]

Loss arising on sale of shares wherein sales take place prior to purchase of shares without any stock being available must be treated as “Speculation loss” and not as “Contrived loss”:

AO disallowed loss on sale of shares considering it to be “Contrived loss” since he was of the view that transactions in purchase and sale of shares were merely paper transactions and the assessee had just booked the loss. Further, such transactions were off market transactions and not routed through the stock exchange. The Hon’ble ITAT observed that the transactions of sales were entered before the corresponding purchase transactions and without any stock being available with the assessee. Such transactions were evidenced by purchase and sales bills. The same were not reflected in demat account since sales transactions were effected prior to that of purchases. The shares were sold first with the intention to purchase the same when its prices fell down but since the prices of shares increased, the assessee had to purchase the shares so as to minimize the shares. The Hon’ble ITAT was of the view that the activity of first selling and then purchasing shares was a permissible and normal business activity in share transactions. Hence, it was held that loss arising thereon cannot be considered as contrived loss. However, since there were no consequential deliveries of shares, the said loss was to be treated as “Speculation loss”.

Deduction u/s 80IB(10) can be availed even if the assessee doesn’t have “Legal ownership” over the land:

Assessee is engaged in the business of construction and development of housing projects and had claimed deduction u/s 80IB(10). AO denied the said deduction merely on the counts that the land was not owned by the assessee and the certificate for eligibility of deduction was issued by the local authorities in the name of the owner of the land. The Hon’ble ITAT observed that though the land was not owned by the assessee, the development rights were with the assessee as per the agreement with the owner of the land. The assessee had all rights to develop the project and even the risk was with the assessee. Assessee was rewarded with profits arising out of such development activities and not any fixed receipt. Possession of land had been passed on to the assessee, expenses on development had been debited to the P&L a/c and the sale proceeds had been credited to the P&L a/c. In light of the above, it was held that the assessee was rightly eligible for deduction u/s 80IB(10) in light of the ratio laid down by the Hon’ble Gujarat High Court in the case of Radhe Developers.

Notional interest on NPA recorded in books and routed through Balance-sheet as per the guidelines of RBI cannot be taxed in the hands of the bank:

AO made an addition in respect of Interest on NPA (Non-performing asset) account. The Hon’ble ITAT observed that the assessee, a Co-operative bank, passed a book entry in respect of interest on NPA by debiting “Interest receivable on NPA a/c” and crediting “Muddat Viti Vyaj Anamat a/c”. Both these accounts were reflected in the Balance-sheet on the asset side and liability side respectively. Such a provision was made as per guidelines issued by RBI. The profit and loss account was not credited at all since it was a notional entry and no such interest was actually received. Even Section 43 was not applicable since the P&L account was not credited and such interest was directly shown in Balance-sheet. Hence, it was held that such interest can’t be taxed in the hands of the assessee.