MonthlyDigestofCaseLaws(September2011) (JournalsReferred:ACAJ/BCAJ/BLR/CITC/CTR/DTR/ITD/ITR(Trib.)/ITR/SOT/SSC/TTJ/TLR/ Taxman/Taxation/TaxWorld,www.itatonline.org) S.2(13):AdventureinnatureoftradeInvestmentinagriculturalland.

nd. A person makes investment in agricultural land within limits of town panchayats, and agricultural incomewasshownanddeclaredyearafteryear.Permissionwassoughttodeveloplands.Nofurther action,wastakenforover12yearstilldateofsale,andentirelandissoldafteritsvalueappreciated,it wouldnotbecomeadventureinthenatureoftrade. ITOvChandarHUF(2011)47SOT17(Chennai)(Trib). S.2(14):CapitalassetsCapitalgainsTownPanchayat. A Town Panchayat is notified for urban agglomeration, but it is not a municipality. Agricultural lands fallingwithinsaidtownpanchayatwouldnotfallwithinmunicipality,andhenceisnotacapitalassetas perthedefinitionundersection2(14)(iii).(A.Y.200607) ITOvChanderHUF(2011)47SOT17(Chennai)(Trib). S. 2(22)(e) : Deemed Dividend shares held in the name of partners of the firm for purpose of S.2(22)(e)firmisconsideredasshareholderthoughsharesheldinnamesofpartners Itwasheldthatfors.2(22)(e),afirmhastobetreatedastheshareholdereventhoughitisnotthe registeredshareholder.Thefirstlimbofs.2(22)(e)isattractedifthepaymentismadebyacompany by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares. While it is correct that the person to whom the payment is made should not only be a registered shareholder but a beneficial share holder, the argument that a firm cannot be treated as a shareholder only because the shares are held in the names of its partners is not acceptable. If this contention is accepted, in no case a partnership firm can come within the mischief of s. 2 (22)(e) because the shares would always be held in the names of the partners and never in the name of the firm.Thiswouldfrustratetheobjectofs.2(22)(e)andleadtoabsurdresults. CITvNationaltravelService(Delhi)(HighCourt).(www.itatonline.org) S.5:IncomeAccrualFixeddepositsinbanksInterest. Assessee society held fixed deposits in banks for a term exceeding more than one year. It had not shownanyinterestincomefromsaidFDsduringpreviousyearongroundthatincomefromFDswould be offered to tax on its receipt from bank on maturity on basis of certificate of TDS issued by bank. AssessingOfficeraddedinterestat10%onestimatebasis.TheTribunalheldthattheassesseewasnot liabletodeclareinterestincomeaccruedbutnotduetoit inrelevant assessmentyearinviewoffact thatsaidsumwasnotacknowledgedbybankorbyassesseeitself.(A.Y.200708). PuriDistrictCoOpMilkProducersUnionLtdvITO(2011)132ITD127(Cuttack)(Trib). S.9 (1) (vii): Income deemed to accrue or arise in India Fees for technical services DTAAIndiaUSA. (Art.12). 1
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 AssesseerunningbusinessofHotelmakingpaymentstoUSbasedinteriorLandscapingconsultants M.WorkdonebyMisbasicallyinspectionofhotel,reviewingofthefacilities,comparingthesamewith Msstandardsandsuggestingimprovements/changewhereverrequiredtoMstandard,whichdidnot amounttotechnicalservicesandthereforenotaxwasdeductibleatsource.Similarly,feespaidtoUK companyAwasalsoforworkofdesign,documentationanddidnotfallunderart13ofIndoUKDTAA , likewise, fees paid to Thailand company BD, for rendering services of landscape architectural consultancywasnotassessableinIndia.(A.Y.200304to200506). AsstCITvViceroyHotelsLtd(2011)60DTR1(Hyd)(Trib). S.10B:ExemptionEOUJobworkdonebysisterconcern. Assessee, an EOU, approved by NEPZ authorities, being engaged in manufacture of articles and exportingthesamecannotbedeniedexemptionundersection10Bonlybecause,itwasgettingsome jobworkdonefromitssisterconcern.(A.Y.200304). CITvContinentalEnginesLtd(2011)60DTR40(Delhi)(HighCourt). S.14A:BusinessexpenditureExemptedincomeInvestmentintaxfreeincome. If the investment in tax free income yielding securities is made from interest free funds , no disallowancecanbemadeundersection14A.(A.Y.200102). CITvLubiSummersiblesLtd(ACAJVol35Part5August2011P.319)(Guj)(HighCourt) S.14A:BusinessexpenditureExemptedincomeOldinvestmentsOwnfunds. Investments in shares were made by the assessee from own funds , no disallowances were made in earlieryears.Nodisallowancecanbemadefortherelevantyear.(A.Y.200506). G.D.Metsteel(P)LtdvAsstCIT(2011)47SOT62(Mum)(Trib). S.14A:BusinessExpenditureExemptedIncomeNonexusbetweeninvestmentintaxfreesecurities and borrowed funds. No disallowance to made Disallowance under section 14A cannot exceed exemptincome. In AY 200708, the assessee received dividend of in respect of investment in shares made in earlier years. No investments were made during the year. It was claimed that the investment in the earlier yearswasmadeoutofreserves&surplusandthattherewasnoexpenditureincurredduringtheyearto earn the dividend. The AO held that as in the earlier years, the assessee had borrowed funds, s. 14A applied. It was held that if there is no nexus between borrowed funds and investments made in purchaseofshares,disallowanceu/s14Aisnotwarranted.(A.Y.200708). ACITvPunjabstateCoop&Mktg(Chandigarh)(Trib)(www.itatonline.org) S. 14A : Business Expenditure Rule 8D to be applied only after showing how assessees method is incorrect

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 It is a prerequisite that before invoking Rule 8D, the AO must record his satisfaction on how the assesseescalculationisincorrect.TheAOcannotapplyRule8Dwithoutpointingoutanyinaccuracyin themethod of apportionmentorallocationofexpenses.Further,theonusisontheAOtoshowthat expenditure has been incurred by the assessee for earning taxfree income. Without discharging the onus,theAOisnotentitledtomakeanadhocdisallowance.Aclearfindingofincurringofexpenditure isnecessary.Nodisallowancecanbemadeonthebasisofpresumptions DCITvJindalPhotoLimited(Delhi)(Trib)(www.itatonline.org) S.17(2)(iiia):PerquisitesEmployeesstockoptionEquitywarrantcertificates. WarrantissuedinFebruary1999andassesseexercisingoptioninApril1999. Perquisitesariseandtaxableinfinancialyear19992000relevanttoassessmentyear20002001.Dateof exerciseofoptionisdateofacquisitionofsharesandnotdateofcertificate.(A.Y.200001). DyCITvVijayGopalJindal(2011)11ITR451(Delhi)(Trib). S.22:IncomefromhousepropertyAnnualvalueSecondpropertyRentcontrolAct. Assessee having two self occupied properties. In case of the second property, relevant provisions of theRentcontrolActwereapplicable.TheAssessingOfficerisboundtodeterminethestandardrentof the premises in accordance with provisions of Act. However ,where the standard rent has not been determinedbytherentcontrolauthority,theAssessingOfficerisdutyboundtodotheexcisehimself anddeterminethestandardrentaspertheprovisionsoftherelevantRentControlAct. JayantibhaiMeghibhaivAddlCIT(ACAJVol35Part5.August2011P.320)(Ahd)(Trib) S.28(iv):Remissionofloanliability(S.41(1). Thetribunalheldthatsinceloanreceivedwasutilizedforacquiringcapitalassets,theamountremitted was not taxable under section 41 (1). As it was remission of liability section 28(iv) was also not applicable. TerraAgroTechnologiesvs.ACIT,ITANo.1503/Mds./2010,Dt.09062011,A.Y.200405,BCAJSeptember 2011,pg.23,Vol.43A,Part6 S.32:DepreciationBuildingLandscapingexpensesHotelStoragetank. SincetheassesseeisinHotelbusinessitsbuildingisnotmerelyastructureoffourwallsbutincludesall such things as are necessary to give the building better look and is a matter of attraction for the customers, therefore Landscaping done by assessee in its hotel is to be treated as building and depreciationisallowable. Payments made by assessee to NDMC for unauthorized occupation , construction of diesel storage tanks and fire fighting tanks and covering sanitary lines without approval in respect of the hotel acquiredbyitfromtheCentralGovernmentformedpartofpurchaseconsiderationasthesepayments weremadeto perfect thetitle ofthe assessee in the property and the amount being capitalizedthe assesseeisentitledfordepreciation.(A.Ys200304to200708) DyCITvHotelExcelsiorLtd(2011)60DTR450/141TTJ248(Delhi)(Trib). 3
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 S.32(1)(ii):DepreciationDiscontinuanceofbusiness. Assesseecompanydidnotdoanyhotelbusinessafteritshotelbuildingwaswashedawayinfloodsin September,1995.However,assesseecompanybeingajuristicentityincorporatedundertheCompanies Act,didnotceasetoexist.SinceithastofulfillitsobligationsimposedbyCompaniesActtillitiswould upsome,staffhastobemaintained.Therefore,oncetheassesseecompanyisinexistence,itisentitled todepreciationthoughithasdiscontinueditsbusiness.(A.Ys199899to200203). CITvKirtiResorts(P)Ltd(2011)60DTR138/243CTR341(HP)(HighCourt). S.32(1(ii):DepreciationNoncompetefee. Non compete fee is not in the nature of knowhow, patents copy right , trade marks , licenses or franchiseswithinthemeaningofsection32(1)(ii),depreciationisnotallowable. SharpBusinessSystems(India)LtdvDyCIT(2011)59DTR385(Delhi)(Trib). S.32:DepreciationUnabsorbedCarryforwardandsetoff. Provisions of section 32 (2) as amended w.e.f. 1st April ,1997 permit set off of brought forward unabsorbeddepreciationfirstlyagainstthebusinessprofitsandthenagainstincomeunderanyother head in Asst Year 199798 and subsequent assessment years for a period of eight years ,therefore unabsorbeddepreciationfortheperioduptoassessmentyear199697couldbebroughtforwardand setoffagainstincomechargeableundertheheadincomefromothersources.(A.ys1989to200203). CITvKirtiResorts(P)Ltd(2011)60DTR138/243CTR340(HP)(HighCourt). S.36(1)(iii):BusinessexpenditureInterestonborrowedcapitalInvestmentinsisterconcernSharesof subsidiaryControloverthecompany. Investment made by the assessee company out of bank overdraft in the shares of its subsidiary companytohavecontroloverthatcompanybeinganintegralpartofitsbusiness,interestpaidbythe assesseewhichisattributabletosaidborrowingsisallowableasdeductionundersection36(1)(iii). CITvPhilCorporation(2011)61DTR15(Bom)(HighCourt). S.37(1):BusinessexpenditureCapitalorrevenueNoncompetefeesDeferredrevenueexpenditure. Expenditure incurredbytheassesseetowardoffthecompetitionforaperiodofsevenyearsduring whichanycompanycouldhavesetupitsproductsandreputationinthemarket,expenditurecannot beallowedasrevenueexpenditure.Asnoncompetefeeisheldtobecapitalexpenditure,claimfor treating it as revenue expenditure entitled to deduction for seven years is also not allowable. ( A.Y.200102). SharpBusinessSystems(India)LtdvDyCIT(2011)59DTR385(Delhi)(Trib). S.37(1):BusinessexpenditureCapitalorrevenueExpenditureonsoftware. Expensesincurredbytheassesseeforobtaininglicensetousesoftwarearetobetreatedasrevenue expenditure.(A.Ys200304,200405&200607) STMicroelectronics(P)LtdvCIT(2011)61DTR1(Delhi)(Trib). 4
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 S.40(a)(ia):ExpensesorpaymentsnotdeductibleInterestFormno15G. Depositorshavingsubmittedformno15Gtotheassesseewellintime,interestpaidtothemwithout deductionoftaxatsourcecannotbedisallowedundersection40(a)(ia)simplybecausethesaidforms could not be submitted to the AO the with in the time stipulated in the Act , once the same were availabletotheAOwhileframingtheassessment.(A.Y.200607). ShyamSunderKailashChandvITO(2011)60DTR270(Jaipur)(Trib). S.40(a)(ia).ExpensesorpaymentsnotdeductibleCommissionNonresidentAgentServicerendered outsideIndia.(S.9(1)(i),195). CommissionpaidtononresidentagentforservicesrenderedoutsideIndianotbeingchargeabletotax inIndiacouldnotbedisallowedundersection40(a)(ia).(A.Ys200102to200405). DyCITvDevisLaboratoriesLtd(2011)60DTR210(Hyd)(Trib)/140TTJ746. S. 40 (a) (i): Amounts not deductibleDeduction of tax at source Non residentA Fee for user of nameandaccreditationnottaxableasroyalty.(S.195) Theassessee,engagedinmanufactureoftoothpasteetcpaidRs11,71,826asaccreditationpanelfees toBritishDentalHealthFoundationUKwithoutdeductionoftaxatsource.TheAOdisallowedthesum u/s 40(a)(i) on the ground that the sum was taxable as royalty and tax had not been deducted at sourceu/s195(1).TheCIT(A)deletedthedisallowance.BeforetheTribunal,thedepartmentarguedthat sincetheassesseederivedvaluableadvantagefromtheaccreditationbyBDHFandusedthesameasa marketingtool,theamountconstitutedroyalty.HELDdismissingtheappeal: (i)Theobligationtodeducttaxu/s195(1)arisesonlyifthepaymentischargeabletotaxinthehandsof nonresidentrecipient.Iftherecipientoftheincomeisnotchargeabletotax,thevicariousliabilityon thepayerisineffectual.AstheAOhadnotestablishedhowtherecipientwasliabletopaytax,hewasin errorindisallowingu/s40(a)(i). (ii)Onmerits,thoughtheaccreditationfeespermittedtheassesseetheuseofnameofBritishDental HealthFoundation,itdidnotconstituteroyaltyunderArticle13oftheIndiaUKDTAAbecauseitdid not allow the accredited product to use, or have a right to use, a trademark, nor any information concerningindustrial,commercialorscientificexperiencesoastofallwithinthedefinitionoftheterm. Thepurposeoftheaccreditationbyareputedbodywastogivecertaincomfortleveltotheendusers oftheproductandtoconstitutetheUSPoftheproduct.Thetermroyaltycannotbeconstruedasper itsnormalconnotationsinbusinessparlancebuthastobeconstruedasperthedefinitioninArticle13. The amount constituted business profits and as the recipient did not have a PE in India, it was not taxableinIndia. ACITvAnchorHealthandBeautyCarePvt.Ltd.(Mum)(Trib).www.itatonline.org. S.40A(3):AmountsnotdeductibleBlockAssessmentProfitestimated.(S.158BB). Provisions of section 40A (3) cannot be invoked in block assessment with respect to the purchases found as per seized material and unrecorded in the regular books of account , especially , when the profitfromtheunrecordedtransactionshasbeenestimatedanddeclared. 5
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 KirtiFoodsLtdvAsstCIT(2011)60DTR96(Pune)(Trib). S.40A(9):AmountsnotdeductibleCorporationStateActContributionForstatutorycorpsastheir ServiceRegulationshaveforceoflaw The assessee, a corporation set up under a State Act, made a contribution of Rs. 16.77 lakhs, in its capacityasemployerandaspertheserviceregulations,totheMSWKarmachariWelfareFund.The AO&CIT(A)tooktheviewthatthepayment,beingtoafund,washitbys.40A(9)andnotallowable asadeduction.IntheappealtotheTribunal,theassesseeclaimedthatitsserviceregulationshadthe forceoflawands.40A(9)didnotapply.HELDallowingtheappeal: S.40A(9)providesthatnodeductionshallbeallowedinrespectofanysumpaidbytheassesseeasan employerascontributiontoanyfundexceptwheresuchsumissopaidasrequiredbyorunder any other law for the time being in force. In the case of statutory corporations, the regulations providingforthetermsandconditionsofemploymentandconditionsofservicehavetheforceoflaw. ThereisnodistinctioninprinciplebetweenapersondirectlyundertheemploymentoftheGovernment andapersonundertheemploymentofastatutorycorporation.Consequently,theserviceregulations framedbytheassesseebywhichitagreedtomakepaymenttotheFundcarriedstatutoryforceandfell withintheexpressionasrequiredbyorunderanyotherlawforpurposesofs.40A(9). MaharashtrastateWarehousingCorporationvACIT(Pune)(Trib).www.itatonline.org. S.41(1):ProfitschargeabletotaxIncomeLiabilitiesoutstandingmorethanthreeyears. Out standing liabilities of the assessee can not be said to have ceased to exist merely because the relevantaccountshavebecomenonoperationalorperiodofthreeyearshaveexpiredand,therefore suchliabilitiescannotbechargedtotaxbyinvokingtheprovisionsofsection41(1),moresowhenthe assesseehasnotwrittenbacksuchliabilitiesinitsprofitandlossaccount.(A.Ys200305to200708). DyCITvHotelExcelsiorLtd(2011)60DTR450/141TTJ448(Delhi)(Trib). S. 43B: Business disallowance Actual payment Bonus to employees Before due date of filing of return. Bonuspaymentmadebeforeduedateoffilingofreturnnodisallowancecanbemade.(A.Y.200506). G.D.Metsteel(P)LtdvAsstCIT(2011)47SOT62(Mum)(Trib). S. 44BB:Business of exploration of mineral oilRoyalties Fees for technical servicesDTAAIndia Norway. Service of conducting seismic surveys and providing onshore seismic data acquisition and other associated services are taxable under special provision .Entire receipts are subjects to deeming provisionundersection44BB,incomecannotbesplit. BergenOilfieldServicesAS,Norway(2011)337ITR167(AAR). S. 45: Capital Gains Investment in shares High volume and short holding period Gains to be consideredasshorttermcapitalgains.(s.28)

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 IntheinstantcasetheTribunalrecordedthefindingthatinanumberofcasestheassesseehadheldthe LTCGsharesformorethan10yearsandthatthepurchaseandsaleofshareswithinaperiodofoneyear hadbeenofferedasSTCG.Thesamewasacceptedintheprecedingassessmentyear.Itwasheldthatit is open to an assessee to trade in the shares and also to invest in shares. When shares are held as investment, the income arising on sale of those shares is assessable as LTCG/STCG. Accordingly, the decision of the Tribunal in holding that the income arising on sale of shares held as investment were liabletobeassessedasLTCG/STCGcannotbefaulted. CITvNaishadhV.Vachharajani(BombayHighCourt).(www.itatonline.org) S.45:CapitalgainsSharesPurchaseandsaleShorttime. Mere fact that the shares were sold in a short span of time of acquisition due to steep and unanticipated rise in stock market does not mean that the intention was not to hold them for long periodoftimeordealinthem.Profitonsaleofshareswithinshortspanof7to10monthsheldtobe capitalgainsandnotasbusinessincome.(A.Y.200506). CITvConsolidatedFinvestandHoldingLtd(2011)337ITR264(Delhi)(HighCourt). S. 45. Capital lossLoss on prorata reduction of share capital is Notional. In absence of consideration,capitalgainsprovisionsdonotapply TheassesseeinvestedRs.24.84croresinequitysharesofTimesGuaranteeLtd.Pursuanttoaschemeof reductionu/s100oftheCompaniesAct,thefacevalueofTimesGuaranteeshareswasfirstreducedto Rs.5fromRs.10andthereaftertwoequitysharesofRs.5eachwereconsolidatedintooneequityshare of Rs.10.The resultwas thatthe assessees investment wasreduced to Rs.12.42crores.The assessee, claimed that the reduction in face value was a transfer and that it had suffered a longterm capital lossofRs.22.21croresafterindexation.TheAOdisallowedtheclaimonthegroundthat(i)therewasno transfer and (ii) there was no consideration and the machinery provisions of s. 48 cannot apply. TheissuewasreferredtotheSpecialBench.Heldbythemajority (i)FirstthefacevalueofeachsharewasreducedfromRs.10toRs.5andthentwosharesofRs.5each wereconsolidatedintooneshareofRs.10each.Iftheargumentisthatearliershareswerereplacedor substitutedbynewshares,thenthereisnotransferbutitismerelyacaseofsubstitutionofonekind ofsharewithanotherkindofshare (ii)Assumingthatareductionofsharesinthemannerdonebytheassesseeamountstoatransfer,s. 45isnotattractedbecausethereisnoconsiderationreceivedbytheassesseeforthetransfer.Unless anduntilaparticulartransactionleadstocomputationofcapitalgainsorlossascontemplatedbys. 45&48,itcannotattractcapitalgaintax.Onfacts,theassesseehadnotreceivedanyconsiderationfor reductionofsharecapital.Whilethenumberofsharesheldbytheassesseehasreducedto50%,nothing hadmovedfromthesideofthecompanytotheassessee. (iii)Further,bythereduction,theassesseesrightshadnotbeenextinguishedbecauseitcontinuedto holdthesamepercentageintheholdingofTimesGuarenteeasitdidbeforethereduction.Therewas nochangeintheintrinsicvalueofhissharesandevenhisrightsvisvisothershareholdersaswellas visvis company remained the same. The concept of capital gains has to be understood as in the commercialworldandtherewasnolossthatcanbesaidtohaveactuallyaccruedtotheshareholderas aresultofreductioninthesharecapital.Also,therewouldbenochangeeveninthecostofacquisition ofsharesbyvirtueofs.55(v). Minorityviewisthat, 7
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 (i)Onthepointoftransfer,areductionofsharecapitalu/s100oftheCompaniesActcantakeplace eitherbypayingexcesscapitaltotheshareholdersorbycancellinglostcapital.Whilethefirstmethod amountstoatransfertheothermethod(adoptedbytheassessee)resultsinanextinguishmentof rightsintheshareswhichisalsoatransfer.Consequently,areductionofcapitalbycancellationof sharesresultsinatransfer; (ii)Onthepointthatacapitallosscannotbecomputedifthereisnoconsideration,whileitistruethat the failure of the computation provisions results in a failure of the charging provisions . there is a distinctionbetweenacasewherethecomputationprovisionisincapableofascertainmentandacase where it is ascertained as zero orNil. In the presentcase, the consideration receivedby the assessee wasNil.Itwasnotacasewheretheconsiderationwasincapableofascertainment; (iii)Onthepointthatthereisnoloss,theargumentthataswiththereductionofcapital,thereisa corresponding increase in the net worth per share and the assessees interest in TGL remains unaffectedonan overall basis is notacceptable because afterthereduction, theassessee isleftwith lesser number of shares. The fact that the book value has increased has no effect. An increase or decreaseinthemarketvalueofsharesisofnoconsequenceifthesharesareheldasinvestment; (iv)theapprehensionthattheassesseewouldderiveadoubleadvantagebyclaimingthelossnowand theentirecostatthetimeofsaleisunfoundedbecause(a)theassesseesbooksshowstheinvestments at the reduced amount and (b) u/s 55(2)(iv)(v), the cost of acquisition of the remaining consolidated shareswillbethereducedamount. BennettColeman&Co.Ltd.vACIT(Mum)(SpecialBench)(Trib)www.itatonline.org. S. 45 : Capital Gains PMS Fees not deductible against capital gains Despite dissenting orders, referencetoSpecialBenchnotnecessary WhetheranearlierordershouldbefollowedorareferencetotheSpecialBenchbemadedependson whether the Bench is satisfied or not about the correctness of the earlier order and not on the view point of the aggrieved party. It is only when a subsequent Bench finds itself unable to endorse the earlierviewthatitmaymakereferencefortheconstitutionoftheSpecialBench.Theaggrievedparty cannotcompelthelaterBenchtoeithertakeacontraryviewormakeareferencefortheconstitutionof theSpecialBench. HomiK.BhabhavITO(Mum)(Trib)(www.itatonline.org) S. 48: Capital gains Fees paid for Portfolio Management services Cost of acquisitionDiversion of income. FeespaidbyassesseeforPMSwasnotinextricablylinkedwithparticularinstanceofpurchaseandsale ofsharesandsecuritiesandsaleofsharesandsecuritiessoastotreatthesameasexpenditureincurred whollyandexclusivelyinconnectionwithcostofacquisition,improvement,ofsharesandsecuritiesso astobeeligiblefordeductionincomputingcapitalgainsundersection48.Paymentoffeesbyassessee forPMSdidnotamounttodiversionofincomebyanoverridingtitle(A.Y.200405) DevendraMotilalKotharivDyCIT(2011)132ITD173(Mum)(Trib). S.48:CapitalgainsComputationIndexationPreferenceshares.

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 Once shares are specifically covered by indexation of costs ,and unless there is a specific exclusion clauseforpreferenceshares,itcannotbeopentoAssessingOfficertodeclineindexationbenefitsto preferenceshares.(A.Y.200506). G.D.Metsteel(P)LtdvAsstCIT(2011)47SOT62(Mum)(Trib). S.68:CashCreditShareapplicationmoneyIdentityofshareholders. Assesseehavingestablishedidentityofshareholders,additionundersection68couldnotbemadeon thegroundthatassesseefailedtoexplainthesourceofcredit.Departmentwasfreetoproceedagainst shareholdersinaccordancewithlaw.(A.Y.199293). HindustanLinks&ResinsLtdvDyCIT(2011)60DTR18(Guj)(HighCourt). S.69:IncomefromundisclosedsourceStatementinthecourseofsearchRetraction[S.132(4)] Merelyonthebasisofstatementmadeundersection132(4),inrespectofloans,additionundersection 69 as incomefrom undisclosed source can not be madewhenthe said statement wasretracted and evidence to show the genuineness of loan was filed. The court also referred the Circular of CBDT No F.NO.286/2/2003IT(Inv)dt10thMarch2003.(A.Y.199495) M.Naranan&BrosvAsstCIT(2011)60DTR233(Mad)(HighCourt). S.80IA: DeductionIndustrial undertaking Developing, operating and maintaining industrial park WithdrawalofapprovalWritmaintainable.(Art226). Asperthescheme,whatwasrequiredtobedonebythepetitionerwastoprovideforinfrastructural facilitiesbeforelastdateenvisagedunderthescheme.Thereaftertherewasnoobligationonthepart of the petitioner to ensure that industrial units on such plots must also come into existence and commence their production activities , therefore impugned show cause notice for withdrawal of approval of assessees Industrial Park was quashed and the CBDT was directed to notify the same. OrdinarilyCourtsdonotencouragelitigationattheshowcausenoticestatebutwheretheshowcause noticeisbasedonpremisewhichislegallynotsustainable,writpetitionheldtobemaintainable. GaneshHousingCorporationLtdvPadamSinghUndersecretary(2011)61DTR1(Guj)(HighCourt). S. 80IA:Deduction Industrial undertaking Generation and supply of powerDeemed generation of power. Assesseeenteredintoagreementforsupplyofpower.Agreementprovidingthatifpowernotrequired, compensation charges to be paid. Amount received for deemed generation of power is entitled to deductionundersection80IAasthecompensationhasdirectnexuswiththebusinessofgenerationof power.(A.Y.200405). MagnumPowerGenerationLtdvDyCIT(2011)11ITR493(Delhi)(Trib). S.80IB:DeductionManufactureProductionAssemblingofdifferentpartsofwindmill. Different parts of windmill when assembled get transformed in to an ultimate product which is commerciallyknownasawindmillwhichamountstomanufactureorproductionwiththemeaningof section80IB(2)(iii).(A.Y.200506). 9
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 CITvChiranjeeviWindEnergyLtd(2011)243CTR195(Mad)(HighCourt). S.80IB:DeductionManufactureProductionWaterpurificationsystemOutsourcingTwentyormore workers. Assesseehimselfismakingthefinalproductie.,waterpurificationsystem,itcannotbesaidthatheis notengagedinmanufacturemerelybecause,somematerialisreadilypurchasedfromthemarketand some raw material is got manufactured by outsourcing , assessee having employed twenty or more workers during the major part of the year , there is substantial compliance of the condition of employment of minimum number of workers and ,therefore assessee is entitled for deduction under section80IB,moresowhensimilardeductionhasbeenallowedintheprecedingyears.(A.Y.200102). P.L.PatelvITO(2011)60DTR53(Mum)(Trib). S.80IB: DeductionProfits and gains from Industrial undertakings other than infrastructure developmentundertakingsJobworkchargesApportionmentofreceipts. AssesseeHUFwasengagedinmanufacturingofmouldsforballpensand,supplyingsametoballpen manufacturing concerns. It also provided services to buyers by way of repair and maintenance of mouldssoldtothemandchargedjobworkcharges,whichincludedreceiptonaccountofsaleofspare partsandrepairandmaintenancecharges.TheTribunalheldthatincomeearnedbyassesseecouldnot befromrepairsandmaintenancechargescouldnotbeequatedatparwithincomefrommanufacturing andhencenoteligibledeductionintermsofsection80IB.Sinceintheabsenceofrecordofassesseeit was not possible to decide how much was for repairs and how much for was job charges it was estimatedat50%ofreceiptasjobworkchargesonwhichtheassesseewouldentitleddeductionunder section 80IB and balance 50% as receipt on account of repair and maintenance charges on which the assesseewouldnotbeentitledtogetdeductionundersection80IB.(A.Y.200506). DyCITvRajeshkr.Drolia(2011)132ITD23(Kolkata)(SB)(Trib). S.80IB(10):DeductionHousingprojectCommercialarea8.8%. Commercialareaoftheresidentialpluscommercialprojectdidnotexceed8.8%oftotalarea,further, deductioniseligibletohousingprojectapprovedbythelocalauthorityassuchorasresidentialplus commercial projecthavingresidential as wellascommercialunitstotheextentpermittedunderthe DCRules.Assesseeisentitledtodeductionundersection80IB(10).(A.Y.200405). BhumirajHomesLtdvDyCIT(2011)60DTR65(Mum)(Trib). S.80IB(10):DeductionHousingprojectSaleofpairofflatsinthenameoffamilymembersexceeding 1000squarefeetAmendmentwitheffectfrom142010isprospectiveinnature. Under pre amended section as long as a residential unit has less than specified area , is as per duly approvedplansandiscapableofbeingusedforresidentialpurposesonstandalonebasis,deduction under section 80IB (10), can not be declined in respect of same merely because end user , by buying morethanonesuchunitinname of familymembershasmergedthoseresidentialunitsinto a larger residential unit of a size which is in excess of specified size. Amendment ,made to section 80IB (10) witheffectfrom142010,isprospectiveinnature.(A.Y.200405). EmgeenHoldings(P)LtdvDyCIT(2011)47SOT98(Mum)(Trib). 10
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 S.92C:AvoidanceofTaxTransferPricingSaleofIPRsImportantPrinciplesofLawExplained. There is nothing in s.92CA that requires the AO to first form a considered opinion before making a referencetotheTPO.Itissufficientifheformsaprimafacieopinionthatitisnecessaryandexpedient tomakesuchareference.Themakingofthereferenceisastepinthecollectionofmaterialformaking theassessmentanddoesnotvisittheassesseewithcivilconsequences.Thereisasafeguardofseeking priorapprovaloftheCIT.Moreover,byvirtueofCBDTsInstructionNo.3of2003dated20.5.2003itis mandatoryfortheAOtorefercaseswithaggregatevalueofinternationaltransactionsmorethanRs.5 crorestotheTPO TheargumentthattheExcessEarningMethodadoptedbytheTPOisnotaprescribedmethodisnot acceptable.AsaleofIPRisnotaroutinetransactioninvolvingregularpurchaseandsale.Thereareno comparables available. The Excess Earning Method is an established method of valuation which is upheld by the U.S Courtsin the context of software products.TheExcessEarning Methodmethod supplementstheCUPmethodandisusedtoarriveattheCUPpricei.e.thepriceatwhichtheassessee wouldhavesoldinanuncontrolledcondition. TallySolutionsPvt.Ltd.vDCIT(Bang)(Trib)(www.itatonline.org) S. 92C : Avoidance of Tax Transfer Pricing Principles of Comparable Uncontrolled Transaction explained. UnderRule10B(1)(e)(ii),thenetprofitmarginrealizedbytheenterpriseorbyanunrelatedenterprise fromacomparableuncontrolledtransactionoranumberofsuchtransactioniscomputedhavingregard tothesamebase.ThetermuncontrolledtransactionisdefinedinRule10A(a)tomeanatransaction betweenenterprisesotherthanassociateenterprises,whetherresidentornonresident.Theresultis thatinapplyingtheTNMM,thenetprofitmarginrealizedfromacomparableuncontrolledtransaction istobetakenintoconsideration.Theconditionsrequirethatacaseshouldnotonlybecomparablebut alsohaveuncontrolledtransactions.Thesetwinconditionsneedtobecumulativelysatisfied.Ifacaseis only comparable but has controlled transactions or viceversa, it falls outside the ambit of the list of comparablecases; The fact whether the comparable has a higher or lower profit rate has not been prescribed as a determinativefactortomakeacaseincomparable.Thisisbecauseprofitisnotafactorinitself,buta consequenceoftheeffectofvariousfactors.Onlyifthehigherorlowerprofitrateresultsonaccountof theeffectoffactorsgiveninrule10B(2)readwithsubrule(3),thatsuchcaseshallmeritomission.If howeversuchextremeprofitrateisachievedbecauseoffactorsotherthanthosegivenintherule,then suchcasewouldcontinuetofinditsplaceinthelistofcomparables; DCITvBPIndiaServicePvt.Ltd.(Mum)(Trib)(www.itatonline.org) S.92C:AvoidanceoftaxTransferpricingComputationSelectionofcomparables. HeldthatintheabsenceofanyperversityinthefindingoftheTribunalintheselectionofadifferentset of comparables for determination of ALP and recomputation of ratio of operating profit/total cost at 21.97%asagainst35.26%adoptedbyTPO,nointerferenceiswarranted. The High court further upheld the decision of the Tribunal of allowing depreciation on administrative assetsfordeterminingtheoperatingprofitswhilecomputingtheALP. (A.Y.200506). CITvRakhraTechnologies(P)Ltd(2011)243CTR505(P&H)(HighCourt). 11
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 S.92A:AvoidanceofTaxTransferPricingAssociatedEnterprisesDefactocontrolofanunrelated partyunrelatedpartiesalsoconsideredassociatedenterprises. If one enterprise controls the decision making of the other or if the decision making of two or more enterprisesarecontrolledbysameperson,theseenterprisesarerequiredtobetreatedasassociated enterprises. Though the expression used in the statute is participation in control or management or capital,essentiallyallthesethreeingredientsrefertodefactocontrolondecisionmaking. Theargument,basedonQuarkSystems38SOT307(SB),thatexceptionallyhighandlowprofitmaking comparablesarerequiredtobeexcludedfromthelistofTNMMcomparablesisnotacceptable.Merely becauseanassesseehasmadehighprofitorhighlossisnotsufficientgroundforexclusionifthereisno lackoffunctionalcomparability.Whilethereissomemeritinexcludingcomparablesatthetopendof the range and at the bottom end of the range as done in the US Transfer Pricing Regulations, this cannot be adopted as a practice in the absence of any provisions to this effect in the Indian TP regulations.(Benefitof+/5%adjustmentasdirectedinUETradeCorporation44SOT457tobegiven); The adjustment made by the TPO with regard to the advertisement expenditure incurred by the assesseewaswithoutjurisdictionbecausetheAOhadnotmadeanyreferenceonthisissuetotheTPO. AsthereferencetotheTPOistransactionspecificandnotenterprisespecific,theTPOOfficerhasno powertogointoamatterwhichhasnotbeenreferredtohimbytheAO.EventheCBDTInstructions areclearonthis(3iInfotechLtd136TTJ641followed)(A.Y.200607). DiageoIndiaPvt.LtdvACIT(2011)47SOT252(Mum)(Trib) S.92C:AvoidanceofTaxTransferPricingMethodsofcomputingALPImportantPrinciplesofCost Plus,CUP&TNMMExplained The assessee, engaged in the business of manufacture and export of studded diamond and gold jewellery,imported&exporteddiamondsandexportedjewellerytoassociatedenterprises.Fortransfer pricingpurposes,theALPoftheimported&exporteddiamondswasevaluatedusingtheComparable Uncontrolled Price (CUP) method while the exports of jewellery was evaluated using the Cost Plus Method (CPM). The TPO & AO rejected both methods on the ground that adequate material to supportitwasnotavailableandinsteadadoptedtheTNMMandmadeanadjustment.Onappeal,the CIT(A)upheldtheadoptionofCPMontheimports&exportsofdiamondsonthegroundthattotalcost details were maintained and the average margin earned from AE transactions was higher than that earned from non AE transactions. However, he did not deal with the ALV on export of jewellery. On appealbythedepartment,HELDreversingtheCIT(A): (i) As regards the CPM, it had not been correctly applied. The application of CPM provides for (a) ascertaining thedirect and indirectcosts of property transferred, or services rendered,to theAE; (b) ascertaining the normal mark up of profit over aggregate of costs in respect of similar property or services to unrelated enterprises and (c) adjusting the normal mark up for differences, if any, in the materialfactorssuchasriskprofile,creditperiodetc.Whilethebenchmarkgrossprofitcanbesetby taking into account several transactions with unrelated enterprise on a global basis, the benchmark cannotbeappliedonaglobalbasisbuthastobeonatransactionbasis.Eg.ifthebenchmarkGPis20% and the assessee charges a markup of 2% in one transaction with AE and 38% in another transaction with the AE, both transactions, will meet the ALP test resulting in an incongruity. On facts, while the normal mark up has been computed at 16.31%, and the average of mark up on sales to AEs has been takenat17.08%andallAEtransactionstakentobeatALP,thereareindividualinstanceswhichareless thanthebenchmark.Thisisnotthecorrectway to applytheCPM.Also,thecostsof inputshave not 12
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 been verified and it is not shown that the terms of sale to the AEs and all other relevant factors are materiallysimilartothetransactionswithindependententerprises.Also,theCPMhasbeenappliedby comparing gross profit on sales, whereas the method requires comparison of mark up on costs on transactionswithAEsvisvismarkuponcostsontransactionswithnonAEs(matterremandedtoCIT (A)fordenovoconsideration); (ii) As regards the CUP for import & export of diamonds (which was not decided by the CIT (A)),the assessee ought to have produced evidence to show that the transactions are at prevailing market prices; (iii)AsregardstheTNMM,InternationaltransactionswithAEshavethreesignificantareasofimpacton theoverallprofitabilityi.e.salesoffinishedgoodstoAEs,salesofrawmaterialstoAEsandpurchaseof raw materials of AEs), and if the ALP cannot be reasonably determined by CUP or any other direct method(i.e. CPMandRPM)inrespectofevenoneoftheseareas,theapplicationofTNMMorother indirect method ( i.e. profit split method) is inevitable. On a conceptual note, when ALP of the transactionswithAEscannotbereasonablyascertained,theprofitearnedbytheassesseeenteringinto thesetransactionsistobeestimated,andthatispreciselywhatTNMMdoes.WhenTNMMisappliedin the context of sales of finished goods to AEs, it is this figure which is taken as variable figure and it bears the impact of higher margins, and when TNMM is applied in the context of purchases of raw materials from AEs, it is the figure of purchases of raw material from AEs which is taken as variable figure and itbears the impact of higher margins.Beyond that, the cause ofinvokingTNMMdoes not makemuchmaterialdifference(pointwhetherTNMMhastobeappliedtothetransactionsandnoton overallprofitsleftopen); (iv) The argument, relying on Indo American Jewellery Ltd 41 SOT 1, that no ALP adjustment can be made as the assessee enjoys s. 10A tax benefits and has no motive to avoid tax is not acceptable becausethoseobservationsareobiterdictawithoutbindingforceandinviewofAztechSoftware107 ITDSB141whereitwasheldthattaxavoidancemotivesneednotbeshownbeforeinvokingtransfer pricingprovisions. ACITvTaraUltimoPrivateLimited(Mum)(Trib)(www.itatonline.org) S.92C:AvoidanceoftaxTransferpricingComputationDataSelectionofcomparable5%Adjustments. Theexpressionshallhasbeenusedinrule10B(4)whichmakesitabundantlyclearthatonlycurrent yeardataofanuncontrolledtransactionistobeusedforthepurposeofcomparabilitywhileexamining the international transactions with AE s , unless the case is covered by the proviso i.e. if the data of precedingtwoyearsrevealsfactswhichcouldhaveaninfluenceonthedeterminationoftransferprice. Assesseecompanybeingengagedinproducingsemiconductorintegratedcircuitsisacomplexproduct requiringskilledworkforce.TPOwasjustifiedintreatingitashighendserviceproviderforthepurpose of selection of comparables. The fact that the assessees role is only 2 to 3 percent of the overall operationsperformedbythegroupisnotatallrelevantfordecidingwhetheritishighendperformeror low end performer. Assessee having submitted a TP report every year by using different filters for selectingcomparablesarecommensuratetotheresultdeclaredbyit.TPOwasjustifiedinrejectingthe same and selecting new comparables by applying quantitative as well as qualitative filters. Tolerance band provided in the proviso to section 92C(2) is not to be construed as a standard deduction. If the arithmeticmeanofcomparablesfallswithinrangeofsaidtoleranceband,noadjustmentisrequired,if itexceedsthentheultimateadjustmentisnotrequiredtobecomputedafterreducingthearithmetic meanby5percent.(A.Ys200304,200405,200607) STMicroelectronics(p)LtdvCIT(2011)61DTR1(Trib)(Delhi). 13
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 S.94:AvoidanceoftaxTransactioninsecuritiesTaxfreedividendLossonsaleofunits.(S.10(33). AssesseehadpurchasedcertainunitsofUTIfromPon2951989atrateofRs14.75perunit,atthesame timeassesseeenteredintoanirrecoverablecommitmenttosellbackthoseunitstoPatrateofRs13 per unit on 3171989. The assessee received dividend at the rate of 18 percent on those units. The assessee incurred loss. The assessing officer disallowed the loss holding that the same was predetermined.TheHighcourtheldthatevenifitwasassumedthattransactionwasapreplannedone, therewasnothingtoimpeachgenuinenessoftransactionandtherefore,assesseewasentitledtoclaim thelossonsaidtransaction.(A.Y.199091) EvereadayIndustriesLtdvCIT(2011)201Taxman278(Cal)(HighCourt). S.115F:CapitalgainsForeignexchangeassetsNonresidentBonusshares. Theassesseeacquiredtheoriginalsharesbyinvestinginconvertibleforeignexchangeandtherefore,it can notbesaid thatthe bonus shares are acquiredin isolation withouttakingin toconsiderationthe original shares acquired by the assessee. Therefore bonus shares were held to be covered by section 115C(b)oftheActandthesameareeligibleforbenefitundersection115F.(A.Y.200607). Sanjay Gala vs. ITO, ITA No.2989/Mum/2008, Dt.15072011, A.Y.200506, BCAJ September 2011, pg. 20, Vol.43A,Part6 S.115H:NonresidentIncomefromforeignexchangeasset.Coverableforeignexchange(S.115E.). If the original source of the deposit is convertible foreign exchange ,the transfer of such foreign exchange asset , namely from one bank to another will not affect its identity as a foreign exchange asset , assessee was entitled to concessional rate of tax on the interest earned from NRNR deposits undersection115Hreadwithsection115E. CITvM.C.George(2011)60DTR166/243CTR404(Ker)(HighCourt). S.115JA:BookprofitCompanyBroughtforwardbusinessloss.(S.154). In order to allow deduction of brought forward business loss or unabsorbed depreciation in the computation ofbookprofitunder section 115JA, both should be available as per the accountsofthe assessee . Since nothing is left after setting off brought forward business loss up to 199495 against profit,assesseewasnotentitledtoanyreliefunderclause(b)ofExplanation(iii)ofsection115JAfor assessmentyear199798.Rectificationorderpassedundersection154heldtobevalid.(A.Y.199798). CITvCarbon&ChemicalsIndiaLtd(2011)59DTR396(Ker)(HighCourt). S.119:CircularsBindingnatureConflictinlawlaiddownbyHighCourtorSupremeCourt. If a circular is in conflict with the law laid down by High Courts or Supreme court ,the revenue authoritieswhileactingquasijudicially,shouldignoresuchcircularindischargeoftheirquasijudicial functions.(A.Y.199899) BhartiaIndustriesLtdvCIT(2011)243CTR328(Cal)(HighCourt). 14
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 S.144C:DisputesResolutionpanelDirection. DirectiongivenbytheDisputeResolutionPaneltotheAssessingOfficertoreconsiderpetitionersclaim fordeductionundersection10Aafterverifyingtheincomefromengineeringanddesignservicesand examiningwhetherthesamequalifiedfordeductionornotgivinglibertytoAssessingOfficertodecide the issue , after hearing the petitioner,is not violative of sub section (5) and (8) of section 144C.(A.Y.200607). GEIndiaTechnologyCentre(P)LtdvDYCIT(2011)242CTR462/60DTR322(Kar)(HighCourt). S.145:MethodofAccountingDespites.209(3)oftheCosAct,companycanfollowcashsystemfor taxpurposes AsperSec.209(3)oftheCosAct,acompanyisobligedtofollowthemercantilesystemandthatisits regularmethodforpurposesofs.145.Itwasheldthattheassesseehasregularlyemployedthecash system of accounting in recording its day to day business transactions. It is not a case where the assessee has been maintaining its accounts of day to day business under the mercantile system of accountingandthereafterpreparesaccountsinaccordancewithcashsystemofaccountingforincome taxpurposes.Section209(3)oftheCompaniesAct,1956doesnotoverrides.145oftheIncometaxAct. There was also no valid basis for the AOs action in rejecting the books of account and system of accountingfollowedbytheassessee.Further,sincethedepartmenthasacceptedtheassesseessystem forthepastseveralyears,theprinciplesofconsistencyapplyandthereshouldbefinalityandcertainty inlitigationintheabsenceoffreshfactstoshowthattheassesseessystemofaccountingisarbitraryor perverse. DCITvStupconsultantsPvt.Ltd.(Mum)(Trib)(www.itatonline.org) S.147:ReassessmentValuationofpropertyInspectorsreport. Merelybecausethestampvaluationauthorityhasadoptedcertainvaluationforpaymentofstampduty onthepropertypurchasedbytheassessee,thesamecannotbethebasistoconcludethatassessees incomehasescapedassessment,particularlywhennotangiblematerialhasbeenbroughtonrecordto suggest escapement of income except the inspectors report which could not be relied upon to ascertain the market value of property, hence reassessment quashed by the CIT (A) was up held.(A.Y.200506). ITOvShivShaktiBuildHome(P)Ltd(2011)141TTJ123(Jodhpur)(Trib). S.147:Reassessment:AssessingOfficerraisedspecificandpointedqueriesins.143(3)assessment, AOcannotbesaidtohaveformedanyopinionifexplicitopinionnotrecorded. The question of change of opinion arises when the AO forms an opinion and decides not to make an addition and holds that the assessee is correct. Here, though the AO had asked specific and pointed queriestherewasnodiscussion,groundorreasonwhyadditionwasnotmadeinspiteoftheassessees failure to furnish conformation and details to that extent. The argument that when the assessment order does not record any explicit opinion on the aspects now sought to be examined, it must be presumedthatthoseaspectswerepresenttothemindoftheAOandhadbeenheldinfavourofthe assesseeistoofarfetchedapropositiontomeritacceptance

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 The term failure on the part of the assessee is not restricted only to the incometax return but extends also to the assessment proceedings. If the assessee does not disclose or furnish to the AO completeandcorrectinformationanddetailsitisrequiredandunderanobligationtodisclose,thereisa failureonitspart. DalmiaPvt.Ltd.vCIT(Delhi)(HighCourt)(www.itatonline.org) S.147:ReassessmentHousingproject.(S.80IB(10). Asthereassessmentproceedingsareaimedattaxingtheincomewhichhasescapedassessment,these cannotbetakenasatoolforputtingtheassesseeinabetterpositionthaninwhichitwasbeforesuch proceedings.(A.Y.200405). BhumirajHomesLtdvDyCIT(2011)60DTR65(Mum)(Trib). S.154:RectificationofmistakesBookprofitNotconsideringthestatutoryprovision.(S.115JA). When original assessment is completed without reference to the statutory provision and in clear violationofthesame,suchassessmentcouldberectifiedundersection154.Inordertoallowdeduction ofbroughtforwardbusinesslossorunabsorbeddepreciationinthecomputationofbookprofitunder section115JA,bothshouldbeavailableaspertheaccountsoftheassessee.Sincenothingisleftafter settingoffbroughtforwardbusinesslossupto199495againstprofit,assesseewasnotentitledtoany reliefunderclause(b)ofExplanation(iii)ofsection115JAforassessmentyear199798.(A.Y.199798). CITvCarbon&ChemicalsIndiaLtd(2011)59DTR396(Ker)(HighCourt). S.158BFA:InterestTaxpaidafterduedateoffilingofreturnCredit. Whilecalculatinginterestundersection158BFA(1),creditcannotbeallowedforthetaxpaidbythe assesseeonvariousdatesaftertheduedateoffilingofreturn. KirtiFoodsLtdvAsstCIT(2011)60DTR96(Pune)(Trib). S.271(1)(c):PenaltyConcealmentCarryforwardlossshownatawrongfigureMistakeofconsultant Disallowanceofdeductionundersection80G. Carryforwardlossshownatawrongfigureduetomistakeoftaxconsultantwouldnotattractpenalty undersection271(1)(c),asthecorrectfigurewasavailablewithAssessingOfficerfromtheassessment of earlier years andthe mistake wasrectified on being pointedoutbefore finalization of assessment. Recognition to donee trust under section 80G being available earlier, there was bona fide belief to claimdeductionundersection80Ghencetherewasnocaseforlevyingpenaltyundersection271(1)(c). (A.Y.200405) AsstCITvA.H.Wheeler&Co(P)Ltd(2011)60DTR25(All)(Trib). S. 271 (1) (c ):PenaltyConcealment Search and seizure Disclosure Due date of filing of return Explanation5.(S.132(4). Assessee made disclosure under section 132 (4), and paid the tax. Time for filing of return has not expired.Penaltycannotbeimposed.(A.Y.198990. 16
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 CITvBhandariSilkStore(2011)337ITR153(P&H)(HighCourt). S.271(1)(c):PenaltyConcealmentNopenaltycanbeleviedwithoutAssessingofficersfindingon InaccurateParticulars. Where there is no finding by the AO that the assessee furnished inaccurate particulars and that its explanationwasnotbonafide,theimpositionofpenaltyu/s271(1)(c)wasacompletenonstarter.A mereerroneousclaimmadebyanassessee,thoughunderabonafidebeliefthat,itwasaclaimwhich wasmaintainableinlawcannotleadtoanimpositionofpenalty.Theclaimfordeductionwasmadeina bona fide manner and the information with respect to the claims was provided in the return and documentsappendedthereto.Accordingly,thereisnofurnishingofinaccurateparticulars.Makingof anincorrectclaimforexpendituredoesnotconstitutefurnishingofinaccurateparticularsofincome CITvMahanagarTelphoneNigamLtd(Delhi)(HighCourt)(www.itatonline.org) S. 271(1)(c ): Penalty ConcealmentFurnishing Inaccurate Particulars Despite disclosure of conversionofstockintoinvestmentandacceptancebytheAssessingOfficerclaimthatgainsisLong termcapitalgainpenaltyisleviable. Theassesseeownedaplotoflandwhichintheearlieryearswastreatedasstockintrade.Intheyear ofsale,theassesseeconvertedthestockintoinvestmentandofferedthegainsasLongtermcapital gain . Penalty u/s 271(1)(c ) was levied. It was held that though the Assessing Officer accepted the conversion, the assessees claim that the gains was a LTCG amounted to furnishing inaccurate particularsofincome.TheissuewasnotdebatableasheldbytheTribunal.WhentheorderoftheAOin quantumproceedingswassustainedbyallsuccessiveauthoritiesandtheHighCourtalsodismissedthe appeal at the admission stage, albeit after admitting the same, it cannot be said that the issue was debatable. CITvSplenderConstruction(Delhi)(HighCourt).(www.itatonline.org) S.275(1)(a):PenaltyConcealmentBaroflimitationonimpositionlimitationperiodnotcurbedby Proviso., The period of six months provided for imposition of penalty u/s 275(1)(a) starts running after the successiveappealsfromanassessmentorderhavebeenfinallydecidedbytheCIT(A)ortheITAT.The proviso to s. 275(1)(a) extends the period for imposing penalty from six months to one year of the receiptoftheCIT(A)sorderafter1.6.2003.Theprovisocarvesoutanexceptionfromthemainsection inasmuch as in cases where no appeal is filed before the ITAT the AO must impose penalty within a periodofoneyearofthedateofreceiptoftheCIT(A)sorder.Aprovisoismerelyasubsidiarytothe mainsectionandmustbeconstruedharmoniouslywiththemainprovision.Theprovisotos.275(1)(a) doesnotnullifytheavailabilitytotheAOoftheperiodoflimitationofsixmonthsfromtheendofthe monthwhentheorderoftheITATisreceived. CITv.MohirInvestment&TradingCo.(Delhi)(HighCourt)(www.itatonline.org) S.276B:OffencesandProsecutionCompoundingofoffencesGuidelinesTechnicaloffences.

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 Under the guidelines of September 30, 1994 , technical offences could be compounded by the Chief Commissioner or Director General on certain conditions. The court held that compounding is not possibleafterfilingofcomplaint.(A.Y.198283). AnilBatravChiefCIT(2011)337ITR251(Delhi)(HighCourt). S.288(2):AuthorisedRepresentativeNeednotbearegisteredIncomeTaxpractitioner. Under rule 49 (a) , of the Income tax Rules ,1962 , an authorized income tax practitioner means any authorizedrepresentativeasdefinedinclause(v)orclause(vi)orclause(vii)ofsection(2)ofsection 288oftheIncometaxAct,1961,forappearingbeforetheTribunal.Itcannotbereadtomeanthatan authorizedrepresentativeasdefinedinsubsection(2)hastogethimselfregisteredasanauthorized incometaxpractitioner.Section288(2)doesnotsaythattheauthorizedrepresentativeshallalsobean authorizedincometaxpractitionerregisteredunderrule54and55oftheRules.Therightgiveninthis respectbytheActcannotbedilutedbytheRulesnorcanitberestricted,byspecifyingaprocedurefor registration.Therightgiventoanassesseetoappointaqualifiedauthorizedrepresentativecannotbe denied. VidyaSikshaaEducationalandCharitableTrustvCIT(2011)11ITR(Trib)236(Chennai)(Trib). Wealthtax. S. 35B :Offences and Prosecution Willful failure to file return SanctionCriminal procedure Code S. 245(1).(S.35O). Sanctionauthorityhassanctionedtheprosecution,withoutapplicationofmind,therewasnoevidence thatdefaultwaswillful.TheCourtheldthatprosecutionwasnotvalid.(A.Y.199394). J.JayalaithavAsstCIT(2011)337ITR1/60DTR169/243CTR467(Mad)(HighCourt). FinanceAct,1983WealthtaxValuationLandUrbanlandCeilingActScheduleIII. AssesseeslandwasdeclaredassurplusunderULCRAbutpossessionwasnottakenoverbyauthorities andinviewofsection3and4ofrepealedAct,1999,theassesseecontinuedtobeowneroftheland and its value was includible in net wealth. Land being subject to ULCRA, the same has to be valued takingintoconsiderationrestrictionunderULCRA.(A.Ys198485to198990,199192&199293). CWTvChemsfordClubLtd(2011)243CTR89(Delhi)(HighCourt) General. Dependent Agent Permanent Establishment: Tests to determine Agents right to bind, & dependence on,principal The assessee, a company registered in the Netherlands but resident in Ireland for tax purposes appointed Dell AS, a Norwegian company, as its commissionaire for sales to customers in Norway. Dell AS entered into agreements in its own name and its acts (under the commission agreement and CommissionAct)didnotbindtheprincipal.TheassesseeclaimedthatitwasnottaxableinNorwayin respectoftheproductssoldthroughDellASonthegroundthatDellASwasnotitsDependentAgent Permanent Establishment(DAPE) underArticle 5(5)oftheNorwayIrelandDTAA onthe ground that (a)theagenthadnoauthoritytoenterintocontractsinthenameoftheassesseeandlegallybindthe 18
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 assesseeand(b)theagentwasnotadependentagent.However,theincometaxdepartmenttook the view that Dell AS constituted a PE under Article 5(5) of the DTAA and that 60 percent of Dell Products net profit on sales in Norway was attributable to the PE. This was confirmed by the Oslo DistrictCourt.OnappealbytheassesseetotheCourtofAppeal,HELDdismissingtheappeal: (i)UnderArticle5(5)oftheDTAA,anagentisconsideredapermanentestablishmentfortheprincipalif twoconditionsarefulfilled(i)theagentmustbedependentontheprincipaland(ii)theagentmust havetherighttoconcludecontractsinthenameoftheprincipal.Thequestionwhethertheagenthas theauthoritytoconcludecontractsonbehalfoftheenterprisehastobeconsidered,notfromaliteral sensewhetherthecontractsareinthenameoftheenterprise,butfromafunctionalsensewhether the agent in reality binds the principal. The objective of Article 5 (5) is to protect the principle of source taxation, i.e. that the tax shall be due to the country where the revenue was created. This principlewouldbedisregardedifonlythecommissionrelationshipwasconsidereddespitethefinancial and legal attachment between the agent and the principal being strong. To ask if Dell AS in reality bindsDellProductsisinaccordancewiththefunctionalinterpretationofArticle5(5).Thesubstance must prevail over the form. The fact that a commissionaire under the Commissionaire Act and the commission agreement does not bind the principal through his sales is not enough to rule out that a permanent establishment does not exist (Vienna Convention, OECD Model Convention Commentary, Commentaries by Klaus Vogel & ArvidSkaar considered, decision of the French SAT in Zimmer that as thecommissionairedidnotbindtheprincipal,itwasnotaPEdespitedependenceontheprincipalnot followed); (ii)Onfacts,DellProductswasinrealityboundbythecontractsconcludedbyDellASbecause(a)all sales were made under the trademark Dell; (b) the sales were made on standard / approved conditionslaiddownbyDellProducts;(c)inpractice,alloftheagentsagreementswerehonouredby theprincipaland(d)therewerenoinstanceswheretheagentssaleshavenotbeenacceptedbythe principal; (iii) The question whether the agent is dependent on the principal has to be decided on the application of various tests such as the degree of instruction and control. On facts, Dell AS was dependent on Dell Products because (a) Dell AS was only allowed to sell permitted products on conditions of prices and guarantees determined by Dell Products, (b) there was an overlap of board membersinthetwocompaniesandaboardmemberofDellProductswasthegeneralmanagerofDell AS,(c)duetotheintegratedaccountingsystemoftheDellcompaniesDellProductshadfullinsightto the finances of Dell AS, (d) under the commission agreement, Dell Products had access to Dell AS premises,(e)DellASsoldgoodsasacommissionaireonlyonbehalfofDellProductsthoughithadthe theoretical right to sell for others; (f) all business of Dell AS was done under the trademark Dell, its letterheads, agreements and advertisements had the logo Dell. Dell AS was thus branded identicallyastherestoftheDellGroup,butwithoutowningthebrand.AllthesefactsmadeDellASfully dependent on the principal. Without the commission agreement, Dell AS may as well close down its operations.Thefactthattheagentactedindependentlyinmattersofstaffhire,purchaseandleaseof assetsandpremises,etcwasirrelevantbecausethebigpictureshowedDellAStobedependenton DellProducts; (iv) The determination of profits attributable to the PE has to be done as if the agent was independentoftheprincipal.Onthemethodstobeused,Article7(2)oftheDTAAprovidesforthe direct method of allocating all costs and revenue between the HO and the PE while Article 7(4) 19
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 providesfortheindirectmethodofallocatingonlythenetprofitsusingkeyssuchassales,revenues, expenses, number of employees, capital structure or a combination of these factors. In Norway, the indirectmethodisinpractice.Thisispracticalbecausetheaccountsdonotpermitindividualitemsof incomeandexpendituretobeidentifiedforallocationpurposesandalsobecauseitgivesaresultwhich isinaccordancewiththearmslengthprinciple.WhileunderArticle7(2),atwostepprocedurehastobe adoptedbyfirstdeterminingacommercialremunerationforDellASandthenacommercialprofitfor other functions performed by the PE, under Article 7(4) it is sufficient that the result to a reasonable degreecorrespondstothearmslengthprincipleandrequiresthatthePEshouldbeallocatedrevenues in accordance with its functions, risk and assets used. On facts, the value creation occurred through salesmadebyDellASanditwasthemajorvaluedriver.DellProductsfunctionsandcontributionto thevaluecreationwaslimitedcomparedtotheactivityofDellAS.Consequently,allocating60%ofDell Products profits from sales in Norway to the PE was reasonable (over & above the assessment of commissionintheagentshands). DellProductsvsTaxEast(NorwayCourtofAppeal)www.itatonline.org Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.organditsaffiliatesacceptsanyliabilitiesforanylossordamageofanykindarisingoutofany inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No partofthisdocumentshouldbedistributedorcopied(exceptforpersonal,noncommercialuse)without expresswrittenpermissionofitatonline.org

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