Gist
Of Important Judgements & Tribunal Orders Reported in Oct
2007
Subject
Index:
Supreme
Court
1. Interest
awarded to the assessee by the High Court for illegal seizure of stock-in-trade
of the assessee was converted to costs of Rs. 75,000/- towards the claim for
interest
2. Lease rent
paid by the lessee for acquiring leasehold rights for ten years to extract
minerals is a capital expenditure
High
Court:
1. Block
assessment – Undisclosed income is required to be computed on the basis of
evidence found during the search or directly relatable to evidence found during
the search
2. Penalty under
section 271(1)(c) – Mere rejection of claim of the assessee – Does not amount to
concealment
3. Income from
undisclosed sources – Alleged understatement of sale consideration without
proper enquiry – Additions not justified
4. Expenditure
incurred on repairs and renovation of rented office premises are Revenue
Expenditure
5. Profit –
Profit and Loss Account of company certified by authorities under Companies Act
–Binding on Assessing Officer
6. Clause (f) of
section 43b arbitrary, unconscionable
TRIBUNAL:
1. Book profit –
Sec. 115JB – Deferred tax liability – Not to be increased by Explanation while
computing book profit – A.Y. 2002-03
2. Book profit –
S. 115JB – Tax paid on distributed dividend u/s. 115-O – Similar to Fringe
Benefit Tax – Allowable as deduction while computing book profit –
A.Y. 2004-05
3. Book profit –
S. 115JA – Lease equalization charges – Does not amount to ‘reserve’ – Not to be
added while computing book profit – A. Y.
1998-99
4.Capital gains
– Ss. 2(47) & 45(4) – Reduction of profit sharing ratio of existing partners
on reconstitution of firm – Revaluation of assets & crediting partners
capital account – Not transfer within the meaning of sections 2(47) and 45(4) –
A.Y. 1994-95
5. Deductions –
Sec. 80-IB – Operation of cold storage – Income either from job work or on
account of purchase, storage and sale of goods have direct nexus with cold
storage plant – Eligible for deduction u/s. 80-IB – A.Ys. 2001-02 to
2003-04
6. Deduction –
Sec. 80HHE – Total turnover – Export of computer software manufactured in SEEPZ
unit – Only turnover of SEEPZ unit is to be considered – A.Y.
1993-94
SUPREME
COURT
1.
Interest
awarded to the assessee by the High Court for illegal seizure of stock-in-trade
of the assessee was converted to costs of Rs. 75,000/- towards the claim for
interest
Director-General
of Income-tax & Anr. vs. Diamondstar Exports Ltd. & Ors. [293 ITR 438
(SC)]
1. On a writ petition filed by the
assessee challenging the seizure of certain jewellery and ornaments belonging to
the assessee, the High Court held that the search and seizure were invalid and
illegal. The High Court ordered that interest at the rate of 8% per annum should
be paid on the value of diamonds and jewellery worth Rs. 84.68 lakhs from the
date of seizure till payment.
2. Allowing the departmental
appeal the Supreme Court held as under :
"Without going into the question
as to the payability of interest on the value of goods found by the court to
have been illegally seized, we hold that the appellants are liable to compensate
the respondents at least by way of costs. The loss obviously suffered by the
respondents during the pendency of the proceedings before the High Court was
further aggravated by the delay in complying with the High Court’s decision. In
the circumstances, we direct the appellants to pay a sum of Rs. 75,000/- to the
respondents on account of costs which the respondents will accept in full and
final settlement of the claim towards the quantum of interest under the impugned
order. Such payment is to be made within a period of four weeks. In the event
such payment is not made, this appeal will stand dismissed with
costs."
2.
Lease
rent paid by the lessee for acquiring leasehold rights for ten years to extract
minerals is a capital expenditure
Enterprising
Enterprises vs. DCIT [293 ITR 437 (SC)]
1. The assessee, which had a taken
a quarry on lease for ten years, claimed deduction of a proportionate part of
the rent as deduction for the period January 10, 1991 to October 31, 1991.
2. When the matter reached the
Supreme Court, it was held that the proportionate part of the lease rent was not
deductible. The Supreme Court observed as under while disallowing the claim of
the assessee:
" ….. Having considered the
decisions of this court in Pingle Industries Ltd. vs. CIT [1960] 40 ITR 67 (SC),
Gotan Lime Syndicate vs. CIT [1966] 59 ITR 718 (SC) and Aditya Minerals P. Ltd.
vs. CIT [1999] 8 SCC 97, we are of the opinion that the distinction lies between
a case where royalty or rent is being paid on the one hand and where the entire
amount of lease is paid either at a time or in instalments. Whereas in the
former case it would be a revenue expenditure in the latter it would be a
capital expenditure. In this view of the matter, we are of the opinion that this
not a case where the High Court could have interfered with the order of the
Tribunal. The High Court was thus right to dismiss the appeal of the
appellant."
Note:- In Aditya Minerals Pvt.Ltd.
vs. CIT (239 ITR 817), the assessee had obtained lease in respect of a land for
a period of 15 years at payment of certain amount calculated at the basis of the
monthly rent, which was payable in advance and to be adjusted towards the rent
for every month. The lease granted to the assessee was at the liberty to use the
land for excavation purposes and subsidiary purposes. Considering the fact that
there was payment once for all, the Constitution Bench of the Supreme Court came
to the conclusion that the expenditure was capital
expenditure.
B. V.
Jhaveri
Advocate
1.
Block
assessment – Undisclosed income is required to be computed on the basis of
evidence found during the search or directly relatable to evidence found during
the search
CIT vs. Balaji
Wire (P) Ltd. [2007] 212 CTR (
The assessee’s business and
residential premises were subjected to search operations under section 132(1) of
the Act on 11th September, 2001 along with the Bansal Group. During the search
operations nothing incriminating except the books of accounts of the assessee
was found and the revenue wanted to verify their correctness. Accordingly the
statement of one Mr. V.P. Jain was recorded on 25th September, 2001 in which he
had made purchases of Rs. 25 crores from the Bansal Group out of which delivery
was made to the extent of about 2 or 3 crores and for balance only bills were
issued. Subsequently V.P. Jain retracted his statement and therefore another
statement was recorded on 14th December, 2001 when he was cross examined by one
of the members of the Bansal Group. In the statement he stated that the goods
were directly sent to his customers and therefore he did not have physically
received the goods in his shop. However, the Learned Assessing Officer has
passed the Assessment Order by making additions on account of undisclosed income
in the hands of the assessee by observing that V.P. Jain was only preparing
false bill for the Bansal Group for which he received a commission. The assessee
preferred an appeal against the Assessment Order. The Learned CIT(A) confirmed
the Assessing Officer’s action. Being aggrieved by the Order of the CIT(A) the
assessee preferred an appeal to the Income-tax Appellate Tribunal. The Appellate
Tribunal allowed the appeal filed by the assessee on the ground that during the
course of search, no evidence was found of any bogus payments. The statements of
V.P. Jain were post search statement having no nexus with the search and they
could not have been relied upon for the purpose of proceedings under section
158BC of the Act.
The Department being aggrieved by
the Appellate Tribunal’s Order preferred an appeal before Hon’ble Delhi High
Court under section 260A of the Act. The Hon’ble High Court upheld the order of
the Appellate Tribunal with the observations that in the absence of recovery of
any incriminating material during the search conducted in the premises of the
assessee group, the statement of a third party recorded after the search
proceedings could not be used against the assessee as it could not be said to be
directly connected with the recovery of any incriminating material during the
search.
2.
Penalty
under section 271(1)(c) – Mere rejection of claim of the assessee – Does not
amount to concealment
CIT vs. Caplin
Point Laboratories Ltd. [2007] 212 CTR (
The assessee before the Hon’ble
Madras High Court was a company engaged in manufacture and sale of
pharmaceutical products. The assessee has filed the return of income claiming
deduction under sections 80HHC and 80-I of the Act. However the assessment was
completed disallowing the claim of the assessee. The AO has also levied penalty
under section 271(1)(c) of the Act. Being aggrieved by the order of the
Assessing Officer the assessee preferred an appeal before the Commissioner of
Income Tax (Appeals). The first appellate authority allowed the appeal filed by
the assessee and deleted the penalty levied by the AO.
Being aggrieved by the above order
of the Commissioner of Income Tax (Appeals), the revenue filed an appeal before
the Income Tax Appellate Tribunal. However, the Hon’ble Tribunal dismissed the
appeal filed by the department.
Being aggrieved by the above order
of the Appellate Tribunal, the revenue filed an appeal before the Hon’ble Madras
High Court under Section 260A of the Act. The Hon’ble High Court dismissed the
appeal filed by the revenue and held that CIT(A) and the Tribunal recorded a
concurrent finding that there was no concealment of income by the assessee in
showing interest income as "business income" instead of "income from other
sources" for the purpose of claiming deduction under sections 80HHC and
80-I.
3.
Income
from undisclosed sources – Alleged understatement of sale consideration without
proper enquiry – Additions not justified
CIT vs. Emerald
Construction (P) Ltd. [2007] 212 CTR (Raj) 20
The assessee before the Hon’ble
Rajasthan High Court was a private limited company. The Learned Assessing
Officer passed the assessment order by observing that the status of transferred
shop as semi-finished was only for the purpose of paying less stamp duty, but
actual transfer was of finished shops and thereby made additions as income from
undisclosed sources by taking the sale consideration at 8 per cent higher then
stated in the sale deed. On appeal the first appellate authority granted relief
by deleting the additions. Being aggrieved the revenue preferred an appeal to
the Income-tax Appellate Tribunal. The Hon’ble tribunal dismissed the appeal of
the revenue.
Being aggrieved by the Order of
the Appellate Tribunal, the revenue filed an appeal before the Hon’ble Rajasthan
High Court under section 260A of the Act. Hon’ble High Court upheld the order of
the Appellate Tribunal and held that in the absence of any material on record to
show that the actual consideration received by assessee for transfer of shops in
question was more than what has been stated in the transfer deed, no addition
can be made.
4.
Expenditure
incurred on repairs and renovation of rented office premises are Revenue
Expenditure
CIT vs. Dr.
A.M. Singhvi [2007] 212 CTR (Raj) 1
The assessee before the Hon’ble
Rajasthan High Court was an advocate. The assessee has filed return of income
claiming the expenditure incurred on office repairs and maintenance as revenue
expenditure. The assessment was completed by disallowing the expenditures
incurred on repairs and maintenance by treating the same as capital expenditure.
Being aggrieved by the order of the Assessing Officer, the assessee preferred an
appeal before the Commissioner of Income-tax (Appeals). The first appellate
authority allowed the appeal of assessee. Being aggrieved by the above order,
revenue preferred an appeal before the Income-tax Appellate Tribunal. Hon’ble
Tribunal had dismissed the appeal of the revenue.
The Department being aggrieved by
the Appellate Tribunal’s Order preferred an appeal before Hon’ble Delhi High
Court under section 260A of the Act. The Hon’ble High Court upheld the order of
the Appellate Tribunal with the observations that expenditure incurred by
assessee, an advocate, on repairs and renovation of rented office premises for
running the profession smoothly and more profitably, was revenue in
nature.
5.
Book
profit – Profit and Loss Account of company certified by authorities under
Companies Act –Binding on Assessing Officer
CIT vs. Kovai
Maruthi Paper and Board P. Ltd. [2007] 294 ITR 57
(Mad).
The assessee before the Hon’ble
Madras High Court had filed return of income declaring nil income. However the
provisions of section 115JA were attracted on the facts of the assessee’s case.
Hence, tax liability on the book profit was computed and paid. The return was
accepted under section 143(1). Subsequently the assessment was revised under
section 154 to tax the amount of government subsidy which was received by the
assessee but has not been reduced from the cost of machinery on which claim of
depreciation in excess of eligible limit was allowed. Being aggrieved by the
order of the Assessing Officer, the assessee preferred an appeal before the
Commissioner of Income-tax (Appeals). However, the first appellate authority had
affirmed the view of the Learned Assessing Officer. Being aggrieved by the above
order, assessee preferred an appeal before the Income-tax Appellate Tribunal.
Hon’ble Tribunal allowed the appeal of the
assessee.
Being aggrieved by the Order of
the Appellate Tribunal, the revenue filed an appeal before the Hon’ble Delhi
High Court under section 260A of the Act. Hon’ble High Court has dismissed the
appeal of the revenue with the observation that once the profit and loss account
prepared by the assessee is certified by the authorities under the Companies
Act, 1956, as having been properly maintained in accordance with the Companies
Act, the Assessing Officer has only the limited power of making increases and
reductions as provided in the Explanation to section 115J of the Income-tax Act,
1961, and he does not have the jurisdiction to go behind the net profit shown in
the profit and loss account.
6.
Clause
(f) of section 43b arbitrary, unconscionable
Exide
Industries Limited & Anr. vs.
The appeal before the Division
bench of the Hon’ble Calcutta High Court was against the rejection of a Writ
Petition challenging the validity of Section 43B(f) on behalf of the assessee it
was contented that such sub-section was ultra vires the law of the land in view
of the fact that the assessee, being a body corporate, was entitled to maintain
its account by mercantile system of accounting which is permissible in law.
Hence, the amount payable to its employees as leave encashment was to be shown
in the balance sheet as a liability for each and every year and the employer was
entitled to have deduction not only in the year in which it was actually paid
but also for the years when provision was made.
It was further contended that
section 43B was introduced by the Finance Act, 1983, w.e.f. 1st April, 1984 for
the purpose of preventing the attempt of the assessee to get deduction on the
unpaid statutory liability instead of discharging the same. Clause (f) had no
nexus with such object for which the said provision was enacted.
Assuming the legislature was
entitled to bring clause (f) by way of amendment by incorporating the same
within the ambit of s. 43B such amendment is ultra vires the Act in absence of
non-disclosure of the objects.
Incorporation of clause (f) was
unreasonable, arbitrary and inconsistent with the object disclosed while
inserting s. 43B.
The
K. Gopal
Advocate
1.
Book
profit – Sec. 115JB – Deferred tax liability – Not to be increased by
Explanation while computing book profit – A.Y. 2002-03
Maharaja Shree
Umaid Mills Ltd. vs. ACIT (2007) 17 SOT 72 (Jp); Order dated 31-7-2007 &
ACIT vs. Balrampur Chini Mills Ltd. (2007) 111 TTJ 230 (Kol); Order dated
9-3-2007
The amount of Deferred tax
liability neither falls within the ambit of clause (a) of Explanation to
sub-section (2) of section 115JB being not the amount of income-tax paid or
payable and the provisions thereof nor within the ambit of clause (c) of the
Explanation to section 115JB(2) being an ascertained liability. Thus, for the
purpose of section 115JB, the book profit does not need to be increased by the
amount of deferred tax liability.
2.
Book
profit – S. 115JB – Tax paid on distributed dividend u/s. 115-O – Similar to
Fringe Benefit Tax – Allowable as deduction while computing book profit – A.Y.
2004-05
ACIT vs. Balrampur Chini Mills
Ltd. (2007) 111 TTJ 230 (Kol); Order dated 9-3-2007
Tax on distributed profit is
different from income tax payable and the provision of section 115-O is similar
to fringe benefit tax payable under Chapter XII-H, since both are payable at the
time of incurring certain expenditure, which is in the form of fringe benefit
tax to employees or dividend to shareholders. Thus, the tax paid on distributed
dividend u/s.115-O is allowable deduction in computing book
profit.
3.
Book
profit – S. 115JA – Lease equalization charges – Does not amount to ‘reserve’ –
Not to be added while computing book profit – A. Y. 1998-99
GE Capital
Transportation Financial Services Ltd. vs. ACIT (2007) 17 SOT 173 (
Lease equalization charge could
not be regarded as an amount transferred to reserves as envisaged in Explanation
(b) to section 115JA(2) and thus, could not be added while computing book profit
u/s. 115JA.
4.
Capital
gains – Ss. 2(47) & 45(4) – Reduction of profit sharing ratio of existing
partners on reconstitution of firm – Revaluation of assets & crediting
partners capital account – Not transfer within the meaning of sections 2(47) and
45(4) – A.Y. 1994-95
ITO vs. Smt.
Paru D. Dave (2007) 111 TTJ 288 (Mum); Order dated
22-12-2006
No transfer under section 2(47)
was involved either on revaluation of assets of firm or on reduction of share
ratio of existing partners on reconstitution of firm by bringing in new partners
and section 45(4) was not attracted and hence, no capital gains arose on such
transactions.
5.
Deductions
– Sec. 80-IB – Operation of cold storage – Income either from job work or on
account of purchase, storage and sale of goods have direct nexus with cold
storage plant – Eligible for deduction u/s. 80-IB – A.Ys. 2001-02 to 2003-04
Sumaraj
Seafoods (P.) Ltd. vs. ITO (2007) 17 SOT 33 (Mum); Order dated
26-6-2007
In the case of an industrial
undertaking which operates its cold storage plant, the profits eligible for
deduction would be restricted to the profits generated from activity of
operating the cold storage plant which would include – (i) the activity of
storage of goods belonging to others against charges, and (ii) activity of
storage of its own goods for sale. So long as the activity of operation of cold
storage is distinct and independent small-scale industrial unit, its income
either by job work or on account of purchase, storage and sale of goods having a
direct nexus with cold storage plant would be eligible for deduction u/s.
80-IB.
6.
Deduction
– Sec. 80HHE – Total turnover – Export of computer software manufactured in
SEEPZ unit – Only turnover of SEEPZ unit is to be considered – A.Y. 1993-94
Datamatics Ltd.
vs. ACIT [2007] 111 TTJ 55 (Mum); Order dated
14-2-2007
Assessee maintaining separate
books of account in respect of SEEPZ unit where it was manufacturing and
exporting computer software, the total turnover for the purpose of computing
deduction under section 80HHE was only the turnover of the SEEPZ unit and not of
the entire business activity.
Reepal
Tralshawala
Chartered
Accountant
Rupesh
Srivastava
e.mail:
rupesh@thetaxcorp.com
PH:
9225908041 (
9243408041 ( Karnataka )
CAclubindia
