THE CHAMBER OF TAX CONSULTANTS

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1 THE CHAMBER OF TAX CONSULTANTS 3, Rewa Chambers, Ground Floor, 31, New Marine Lines, Mumbai Tel.: / Fax: office@ctconline.org Website: CA DINESH R SHAH Study Group Meeting RECENT DIRECT TAXES JUDGEMENT 18 TH January (1) Business Expenses- deduction etc. Advertisement Expenses. CIT V/s. Asian Paints (India) Ltd. (2016) 243 Taxman 348. Bombay High Court. In Short. Expenditure incurred by assessee- company on corporate advertisement to maintain its corporate image which resulted in increased sale of products was to be allowed as revenue expenditure. 2. SAP Software Programme Exp whether Revenue Expenses (?) CIT V/s. KSB Pumps Ltd (2016) 243 Taxman 240 (Bombay H.C) Se.37 (1): Summary:- Professional fees paid by assessee to its collaborator for implementation of SAP Software programme for enhancing efficiency of its organization is revenue expenditure. 3. Income from Business V/s. Income from House Property. RAYALA CORPORATION (P) LTD. V/s ASST. CIT. (2016) 243 Taxman 360 The Court held that (a The I.T Department submitted that the rent Income should be the main source of Income or the purpose for which the company is incorporated should be to earn Income from rent. So as to make the rental Income to be the Income taxable under the Head profit and Gains of business. It is an admitted fact in the instant case that the assessee- Company has only one business and that is of leasing its property and earning rent there from. Thus even on the factual aspect. There is no substance in what has been submitted by the revenue. ASSESSMENT REASSESSMENT REVISION. 1

2 (4) Kamlesh K. Singhal General Manager (M.M.) V/.s Commissioner of Income tax III (2016) 243 Taxman.250. Se 264 of Income tax Act Revision of other orders. (Mistake by assessee] A.Y whether mistake in tax Assessment, even if due to assessee s mistake, could be corrected in excise of Commissioner s revisional powers under section 264 of I.T Act Held YES. (5) Re-opening of case. u/s 147/148 of I.T Act 1961 Sun Pharmaceutical Industries Ltd V/s Asst. CIT (2016) 243 Taxman 299 (Gujarat H.C) Where elaborate reasons had been recorded by AO which demonstrated how prima facie it could be shown that technology developed by assessee through its research and development facilities was routed through shell companies i.e. unimed Technologies was an associate concern of Sun Pharma Sun BVI was the assessee s subsidiary based in British Virgin Island and CARACO was a Sister Concern of the assessee Sun Pharma]. to avoid payment of tax. Same could form basis for reopening of assessment. (6) Allowability of Cash Expenses (?) H. Gouthamchand Jain V/s ITO Ward 1 (2) Chennai. (2016) 243 Taxman 198 (Madras) Summary. Where only after Survey operation disclosing undisclosed Income an expenditure was shown to have been incurred during current year for first time. (7) Others,. Transfer Fees. Hatkesh Co.op. Hsg. Society Ltd V/s Asst CIT 21 (1) Mumbai. (2016) 243 Taxamn 213 Bombay High Court. In respect of transfer fees and TDR premium received by Co. operative Housing Society from its members principle of Mutuality would apply. Section 4 of I.T Act Mutual concern (Principle of Mutuality) A.Y to , and A.Y In case of assessee Co.operative Housing Society Coordinate Bench of Tribunal came to conclusion that transfer fees as well as TDR premium received by a co.operative Society from its members was covered by principle of mutuality- In impuged order for current years. Tribunal was silent about reason why it choose to ignore clear decision of co. ordinate Bench Tribunal and took a contrary view. Whether impugned order of Tribunal was legally sustainable Held No. [Note Sind Co.operative H.S. Ltd V/s ITO (2009) 317 ITR 47 Bombay followed. 2

3 (8) Co-operative Society:- Special deduction:- State Bank of India V/s CIT (2016) 389 ITR 578 (Gujarat H.C) Special deduction- Interest Income from deposit of Surplus funds in Bank- neither Business Income nor Income from Investment in any other Co.operative Society Eligible for deduction. Income tax Act 1961 Se. 80P (2) (a) (i) (d) (9) Change in Method of Valuation of Stock. Bajaj Auto Ltd V/s CIT (2016) 389 ITR 259 (Bombay H.C) Reference- Method of Accounting- Valuation of Closing Stock. Automobile Industrychange in Method of Accounting is justified if Bonafide and regularly employed. (10) Income from House Property. CIT V/s Ansal Housing and Construction. (2016) 389 ITR 373 (Delhi H.,C) Annual Letting value- determination- Letting of property not part of Business or object of Assessee- Provisions ofse.22, 23 applicable to properties of Assessee. The High Court held that the Appellate Tribunal was not justified in holding that the provisions of Se.22 & 23 of the I.T Act 1961 were not applicable to the properties owned by the Assessee since letting out of properties was not the business and object of the Assessee in CIT V/s Ansal Housing Finance & Leasing Co. Ltd. (11) University Exemption- Condition V/s 10 (23c) (iiiab) Visvesvaraya Technological University. (2016) 389 ITR 10 (S.C) From the decision of the Supreme Court affirming the Dharwad Bench of the Karnataka High Court. See (2016) 384 ITR 37 (SC) holding that the assessee did not satisfy the second requirement spelt out by section 10 (23c) (iiiab) of the Income tax Act 1961 and that the assessee was neither directly nor even substantially financed by the Government. So as to be entitled to exemption from payment of tax. Under the Act the assessee filed a review petition. (12) The Supreme Court rejected the prayer for oral hearing and dismissed the review petition holding that no case for review was made out. i.e. University- Exemption condition that University must be wholly or substantially financed by Government I.T Act 1961 Se.10 (23c) (iiiab). (13) Valuation of Stock in trade. CIT V/s Agarwal Enterprises (2016 ) 143 DTR (Bombay)277 Accounts- Valuation of Closing Stock- Weighted Average Method consistently followed. Valuation as per method consistently followed by assessee should not be disturbed. Assessee having valued its shareholding as per weighted Average Method. Consistently followed by it for the last 16 years the same should not be disturbed. CIT (A) and Tribunal found the same acceptable and as per accounting standard- No substantial question of law arises. 3

4 (14) Exemption of In case of Investment in residential house. (2016) 161 ITD Page 721 Dy CIT V/s Dr. Chalasani M. Rao (Visakhapatnam Tribunal) Applicability of Section 50C. Meaning of full value of consideration as referred to in Explanation to Section 54F (1) is not governed by meaning of words full value of consideration, as mentioned in Section 50C (15) One of the object sale and purchase- Charitable Trust but ultimate object was not profit- making- Dt IT V/s Semi conductor laboratory deptt. of space govt. of India. (201) 161 ITD 584 Chandigarh-Tribunal) (issue No 7) 2 (15) read with Section 11 & 12 of I.T Act 1961 Charitable purpose (Proviso to Se 2 (15). A.Y & A.Y Assessee was a registered Society working under Government of India for advancement of object of general public utility. It was found that even though object was not profit making- Assessee manufactured articles as required by government concern and also sold it to them at less than market rate- Whether since assessee was not driven by profit motive. Case of assessee was not hit by proviso to Se.2 (15) and therefore assessee would be eligible for exemption. (16) Insertion of proviso to section 50C by Finance Act With effect from 1/4/2017 has retrospective effect:- Dharamshibhai Sonani V/s Asst CUIT Circle 9 Surat. (2016) 161 ITD 627 (Ahmedabad Tribunal) Section 50C of I.T Act 1961 Capital gains. Whether Insertion of proviso to Se 50C by the Finance Act 2016 w.e.f 1/4/2017 has retrospective effect Held yes. Assessee entered into on Agreement to Se.11 apiece of Land on 29/6/2005. Sale deed of land was executed on 24/4/2007. AO having invoked provisions of section 50C adopted stamp duty valuation rate prevailing on date on which sale deed was executed. Accordingly certain addition was made to capital gains arising from sale of land- Whether in view of aforesaid legal position, impugned addition was to be set aside and matter was to be remanded back to A.O for re computation of Capital gain on the basis of Stamp duty valuation rate prevailing on date of Agreement to sell Held YES. (17) CIT V/s Yokogawa India Ltd (Supreme Court) (2017) 145 DTR (SC) 1. A.Y to In view of the amendment made by the Finance Act Se 10A has changed its colour from being an exemption Section to a provision providing for deduction though 10A as amended, is a provision for deduction, the stage of deduction would be while computing the gross total Income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total Income under Chapter VI, therefore, the provisions for set off and carry forward contained in SS 70,72 and 74 do not come into play while allowing the deduction under Section 10A. (18) Income tax Act SS 2 (15) proviso and Section 11. 4

5 Amul Research & Development Association V/s ITO (2017) 145 DTR (Ahd Tribunal) 30 (issue No 3) Assessee is engaged in providing medical, maternity, nursery fertility and vaccination facilities to boline milch animal belonging to milk producers in lieu of 12 paisa per liter of the milk produced and not in any other way involved in a trade commerce or business, its claim for exemption under Se.11 could not be rejected by invoking the first proviso to Se.2(15) further assessee s activities deserves to be treated under the specific category of medical relief and not under any other object of general public utility. (19) Cash paid to retiring partner for its right in firm was not chargeable to capital gain tax under Se.45 (4) (2016) 161 ITD Page No 798 (Mumbai Tribunal) Keshav & Company V/s ITO (Mumbai) (20) Se. 143 (1) Revision under Se 264 (2017) 390 ITR 109 (Calcutta HC) Utanka Roy V/s Director of Income tax (International Taxation) Power of Commissioner Power Under Section 264 Wide enough to set aside intimation order under section 143 (1) Income Accrual. Non-resident Assessee receiving Income for services rendered outside India- to be treated as Income received outside India Se 5(2). (21) Joint Venture (?) How to be taxed (?) CIT V/s. G Balraj (2017) 390 ITR 50 (Karnataka) Income Accrual Assessee obtaining contract- work shared by assessee with another person. Amount received for work shared proportionate to work- Amounts received by assessee and such other person shown separately- No Evidence of Joint Venture. Amount received by other person can not be added to his Income. (22) Object of general Public utility:- Quality Circle Forum of India V/s Dy DIT (2016) 162 ITD 122 Hydrabad. Where revenue had granted registration under section 12 to assessee treating activities as charitable: merely charging of fees for carrying such activities would not loose character of charity. (23) Booking Rights:- Dy CIT Kolata V/s Unique International (P) Ltd. (2016) 76 taxmann.com 181 (Kolkata Tribunal) Where in dispute of adopting either of sale deed valuation or stamp duty valuation assessee contended for first time before Tribunal that property in question was in nature of booking rights, and not land and building itself and therefore Section 50C would not be applicable, matter was to be read adjudicated. (24) Method of Accounting: Estimation of Income 5

6 Dy CIT Junagadh V/s Jauyabhai Bhayabhai Wagh (2016) 76 taxmann.com 141 (Rajkot Tribunal) Net Profit: where assessee- construction contractor explained that he did not accumulate construction materials to avoid pilferage and, hence no stock register was required to be maintained, Assessing Office could not reject books of account on this ground and apply net profit of 8% percent. (25) Disallowance under S. 40A (3) Ajmer Food Products (P) Ltd V/s Jt. CIT (2017) 145 DTR (JP) Tribunal 57 (5) Assessee having made payments in cash in view of the Insistence of the payees and identity and the genuineness of the transactions not being in dispute, impugned disallowance under Se.40A(3) is not sustainable. (26) Appeal (Tribunal) Power of Tribunal:- Dismissal for defaults of appearance:- Partha Mitra V/s ITO (2017) 145 DTR (Kol)( TM) Tribunal 99. It is not open to the Tribunal to dismiss an appeal without addressing itself to the merits of issues in appeal, simply because the appellant has not appeared before the Tribunal. Appeal is restored to the Tribunal to be heard on merits subject to the appellant depositing costs of Rs.10,000/-. (27) Business Expenditure: Allowability:- Defalcation of Money. Asst CIT V/s Timex Watches Ltd (2017) 145 DTR (Del) Tribunal 81 (6) Fraudulent withdrawals of money from assessee s bank account by an unknown person which could not be recovered is an event occurring in the regular course of assessee s business and, therefore, the impugned amount is allowable as business expenditure under Se.37 (1) (28) Company Book Profit under Se.115 JB. Torm Shipping India (P) Ltd V/s ITO (2017) 145 DTR (Mumbai) Tribunal Page 152 (8) Provision for leave encashment made on actuarial basis can not be treated as an unascertained liability and, therefore such provision debited by the assessee company in its P & L A/c can not be added while computing the book profit under Se.115JB. (29) Business Expenditure- Disallowance Under Se 40A (3) Exceptional and unavoidable circumstances:- International Ships Stores Suppliers V/s Jt. CIT (2017) 145 DTR (Mumbai Tribunal (P) 1 (1) Assessee having not demonstrated that cash payment made by it in contravention of the provisions of Se.40A(3) are covered by either of the exceptions contemplated under rule 6DD disallowance is upheld, more finding of the purchase transactions as genuine would not take the same beyond the scope and Ken of the disallowance contemplated under Se.40A(3) 6

7 (30) Share trading and future and option Losses:- ITO V/s PKS Holdings (2017) 162 ITD 1 Where assessee, a dealer in both shares and property incurred loss on derivatives being future option loss on transactions entered on NSE he would be entitled to set off same against profit on sale of property. (31) Expenditure oln unlawful Purpose:- Harbinger System (P) Ltd V/s Dy CIT (2017) 53 ITR (*Tribunal) 73 Pune Tribunal. Un authorized use of Microsoft operating Systems- Civil Suit resulting in compromise between parties- Payments of compensation for loss of business and also covering cost of litigation- Explanation to Section 37 (1) does not apply to such understanding between two private parties- allowable. (32) Business Income V/s Income from House Property:- Mack Soft Tech (P) Ltd V/s Dy CIT (2017) 53 ITR (Tribunal) 64 Hydrabad. Assessee s main business to create infrastructure and let it to earn Income there from. Income from letting out and operation of property Income from business. (33) Unexplained Investment Vikrant Jaywant Sankhe V./s ITO (2017) 53 ITR (Tribunal) 83 (Mumbai) Construction of building- Assessee not furnishing documentary evidence. In respect of purchase of construction material construction of expenses etc. department valuation officers to be accepted as correct. (34) Un explaioned Expenditure:- Bogus Purchases: Se 69C Arun Shimpi V/s ITO 53 ITR (Tribunal) 151 Mumbai. CIT (A) restricting disallowance on inference that assessee actually made purchases in open market but inflated invoices- department accepting net profit rate of 10=43 percent earned by assessee in preceding year: Additions to be made to make profit comparable with that of preceding. (35) Se 153 A Search and Seizure:- Assessment in search cases:- Electro Steel Casting Ltd V/s Dy CIT (2017) 53 ITR (Tribunal) 5 (Kolkata) Assessments and reassessments pending on date of search stand abated, Total Income for such assessment years to be computed as a fresh exercise. (36) Se.5 (2) Income Accrual:: Non- Resident. Utanka Roy V/s DIT (International Taxation) (2018) 390 ITR 109 (Calcuttta HC) Non-resident Assessee receiving Income for services rendered outside India- To be treated as Income received outside India. (37) Appeal to Appellate Tribunal: Duty of Tribunal. Parmanand Building (P) Ltd V/s CIT (2017) 390 ITR (Bombay H.C) Page 40 7

8 Tribunal rejecting miscellaneous application filed by assessee for reason that ground not taken in assessee s appeal and cross objection- Miscellaneous application bringing out apparent error on record., Tribunal duty bound to pass necessary consequential order even without alternative submission, if situation warrants Tribunal to allow miscellaneous application and consider alternative plea made by assessee. (38) Se 264:- Revision- Power of Commissioner:- Utanka Roy V/s DIT (International Taxation) (2018) 390 ITR (Cal HC) 109 Power under section 264 wide enough to set aside intimation under Section 143 (1). (39) Assessment:- S.P Construction V/s ITO 92017) 390 ITR (P & H) 314 Return not filed by assessee until detected during a search. Failure by assessee to furnish relevant details Gross Receipts- Application of net profit rate on estimate neither arbitrary nor unreasonable Se.132 (40) Depreciation. Nirma Credit and Capital Ltd V/s Asst. CIT (2017) 390 ITR (Gujarat H.C) 302 User of Asset- Not necessary that all items falling within plant and machinery should be simultaneously used. finding that assets used for business Assessee entitled to depreciation. (41) Section 40 (a) (ii) Business Expenditure. Reliance Infrastructure Ltd V/s CIT (2017) 390 ITR (Bombay 271. Business Expenditure- Disallowance Tax paid on profits and gains of business Tax definition- Tax paid abroad not covered- except where eligible for double taxation relief Tax paid in Saudi Arabia attributable to Income arising or accruing in India- Not eligible for relief under Section 91- Disallowance not attracted. (42) Se. 143 Reassessment Notice: Validity Travancore Diagostics (P) Ltd v/s Asst CIT (2017) 390 ITR (Kerala HC) 167 Reassessment can be made within time for regular assessment- Reassessment under section 147 read with section 143 (3)- Condition precedent. Notice u/s ) omission to issue notice under Section 143 (2) Defect not curable. Section 292 BB not applicable,. Reassessment not valid. (43) Se 158 BC search and Seizure:- CIT V/s Smt. S. Jayalakshmi Ammal. (2017) 390 ITR (Madras HC) 189 8

9 Block assessment- undisclosed Income- Corroborative evidence needed in case of statement- Finding that additions were not sustainable- Justified. (44) Non Resident Se & Taxability Formula One World Championship Ltd V/s CIT (I.T) (2017) 390 ITR (Delhi) 199 Deduction of tax at source. Assessee carrying on business in India through permanent Establish payments made assessee under race promotion contract. Business Income and chargeable to tax deduction under Section 195 to be made from payments made to assessee. 9