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Monday, August 1, 2016

IMPORTANT DECISIONS ON INCOME TAX



IMPORTANT DECISIONS ON INCOME TAX
As per fb page of ITAT Bar Association Kolkata (between 18.07.2016 to 31.07.2016)
1. S. 2(22)(e) :

1) ITAT MUMBAI
Computation of deemed dividend
a)  When the credits in the nature of income payable to the assessee are credited to the account of the assessee, the same signifies that those credits constitute liability in the hands of the above said company .Accordingly,  withdrawals to that extent cannot be considered as loan taken by the assessee, which would attract the provisions of sec. 2(22)(e).
b)  With regard to the computation of accumulated profits, it shall not include current year’s proportionate profit, since the current years profit shall be deemed to accrue only when the books of account are closed at the year end.
Mohit Kamboj Versus ITO-6 (2) (1) , Mumbai
No.- I.T.A. No. 3365/Mum/2013, I.T.A. No. 3366/Mum/2013
Dated.- July 13, 2016
Deemed dividend addition u/s 2(22)(e) - assessee is a share holder holding more than 10% stock in some private limited companies –

Held:-  A careful perusal of the Ledger account copy of the assessee as available in the books of M/s KBJ Jewellery Pvt. Ltd shows that the same has been operated as a current account, i.e., there has been credit of Director’s remuneration; Rent, rates & taxes etc., Besides that there has been repeated deposit and withdrawal of cash. When the credits in the nature of income payable to the assessee are credited to the account of the assessee, the same signifies that those credits constitute liability in the hands of the above said company and hence the above said company is liable to pay those amount to the assessee.
Accordingly, in our view, withdrawals to that extent cannot be considered as loan taken by the assessee, which would attract the provisions of sec. 2(22)(e).The amount withdrawn by the assessee, either by way of advance or as subsequent payment, to the extent of the liability of the company towards Directors Remuneration, Rent, other income items etc. credited to the account, should be considered as payment made towards settlement  of liability. Accordingly, we modify the orders passed by the Ld CIT(A) and direct the AO to compute the loan amount by excluding the withdrawals as stated above in the case of KBJ Jewellery (P) Ltd and also in other two companies referred above.
With regard to the computation of accumulated profits, we hold that it shall not include current year’s proportionate profit, since the current years profit shall be deemed to accrue only when the books of account are closed at the year end. Accordingly we direct the AO to compute the accumulated profit in the manner discussed above - Decided partly in favour of assessee

2) Whether relief can be granted to the assessee by treating the amount under the head ‘reserve and surplus’ representing share premium and credit balance of profit and loss account as not falling within the ambit of deemed dividend under section 2(22)(e) - YES: HC

IN THE HIGH COURT OF CALCUTTA
ITA No.23 of 2009
COMMISSIONER OF INCOME TAX, KOL-III
Vs
SHREE BALAJI GLASS MANUFACTURING PVT LTD
Girish Chandra Gupta & Arindam Sinha, JJ
Dated: July 13, 2016
The assessee company borrowed a sum of Rs.1,12,50,000/- from Pushpak Commercial Finance Pvt. Ltd. and a sum of Rs.1,79,50,000/- from Anjani Highrise Pvt.Ltd. Part of the aforesaid amounts representing share premium and accumulated profits were treated as deemed dividend by AO. The finding of AO was reversed by the CIT (A) and upheld by Tribunal. The necessary ingredients in order to impart character of deemed dividend to any payment made by a company was that such payment should have been made by the company from out of its accumulated profits. It was not in dispute that in the hands of Anjani High Rise Pvt Ltd there was no accumulated profit. The money was lent from out of reserve and surplus constituted by share premium account whereas in the case of Pushpak Commercial Finance Pvt.Ltd., the accumulated profits were only a sum of Rs.18,36,454.03/-. The money lent was a sum of Rs.1,12,50,000/-. The aforesaid payment of more than Rs.1.12 Crores, it may rightly be contended, included the accumulated profit of Rs.18,36,454/-. The balance sum admittedly was from out of the share premium account. Unless the payment was made from out of accumulated profits the payment does not partake the character of deemed dividend, as would appear from Section 2(22)(e).
Held
The Tribunal has found that 34.98% funds of Pushpak Commercial Finance Pvt Ltd were utilized in money lending. Tribunal was of the opinion that utilization of 34.98% of the total funds in the business of money lending constitutes a substantial part of the business of the company. The question as to whether the Tribunal was justified in allowing the relief to the assessee when the money was paid from out of reserve and surplus representing share premium is answered in the affirmative because share premium does not constitute accumulated profits or even profits of the company. The balance sum of Rs.18 lakhs and odd paid from out of the accumulated profits would not bring the payment made by Pushpak Commercial Finance Pvt Ltd. to the assessee within the mischief of Section 2(22)(e) because the payment has been held to have been made by Pushpak Commercial Financed Pvt Ltd in the ordinary course of its business of money lending which is substantial part of the business of the company. The issue only was whether money lending was a substantial part of the business of Pushpak. Tribunal decided that issue in the affirmative. Mr.Nizamuddin has not advanced any submission to show that the aforesaid view of Tribunal is wrong in law. We, as such, find no reason to interfere with the views taken by Tribunal. Therefore, the question formulated above is answered accordingly. The appeal is, thus, dismissed.

3)  No deemed dividend if transaction of advance was made between companies for business expediency
Where assessee-company was a major shareholder in three companies, since said companies were having various business transactions and running accounts with each other, loans given by those companies to each other in course of inter-se business transactions could not be regarded as deemed dividend in hands of assessee.

[2016] 71 
taxmann.com 239 (Mumbai - Tribunal)
Chandrasekhar Maruti v.Assistant Commissioner of Income-tax-10(2)

2.  S. 10B

2016 (7) TMI 920 - CALCUTTA HIGH COURT
Commissioner of Income Tax, Kolkata Versus Hindustan Gum And Chemicals Ltd
Interest income treated as part of the profits of business of the 100% E.O.U. eligible for deduction under Section 10B -

Held:

Total turnover shall naturally include receipt on account of interest. The legislature does not appear to have provided for excluding the amount of interest from the total turn over as has been done in the case of 80HHC by explanation (baa) of sub-section (4C) thereof. In that case, 90% of the income arising out of interest has to be excluded from the profits of the business for the purpose of arriving at deduction available under Section 80HHC. But an identical provision is not there. Therefore, that provision cannot be imported by implication. The submission that the amount earned from interest was not intended to be taken into account for the purpose of giving benefit under subsection (1) of Section 10B may be correct. But the amount of deduction available to a 100% export oriented undertaking is necessarily dependent upon the formula provided in subsection (4). There is, as such, no scope for any controversy that part of the money was earned from interest and not from export.
There is no requirement for the purposes of section 10B to establish direct nexus between the income and the undertaking. The entire business income of the 100% EOU will be the “profits of the business of the undertaking”. It has been held above that the interest earned on temporarily surplus business funds of the 100% EOU deposited with banks for short periods is business income and has in fact been so assessed. It is not in dispute that the surplus funds were of the 100% EOU. As such, the interest earned thereon has to be regarded as part of the “profit of the business of the undertaking. Tribunal was correct in directing the Assessing Officer to treat the interest income as part of the profits of business of the 100% E.O.U. eligible for deduction under Section 10B and compute deduction accordingly - Decided in favour of assessee
No.- ITA 666 of 2008, GA No. 3269 of 2014, ITAT 159 of 2014
Dated.- June 30, 2016
Girish Chandra Gupta And Asha Arora, JJ.aaa

3.    S. 14A rw Rule 8D :

1) 2016 (7) TMI 620 - ITAT KOLKATA
M/s. Soyuz Trading Co. Ltd. Versus I.T.O., Ward-8 (4) , Kolkata
Disallowance u/s 14A - apportionment of expenses - AO cannot mechanically apply the provisions of Rule 8D for the purpose of disallowance u/s 14A of the Act- as a last resort, the AO should go to Rules for making disallowance u/s 14A
 Held 
We find that the total expenses debited to profit and loss account is Rs 2,28,25,154/- and out of this, direct expenses of consultancy and professional charges amounting to Rs. 1,96,48,885/- for earning consultancy income i.e taxable income would be automatically out of the purview of computing disallowance u/s 14A of the Act. The remaining common expenses of Rs. 31,76,269/- have to be apportioned between taxable and non-taxable income. We find that the ratio of apportionment adopted by the assessee at 45.5% in the income component is very fair and accordingly direct the Learned AO to disallow Rs 14,45,202/- being 45.5% of Rs 31,76,269/- u/s 14A of the Act to meet the ends of justice.
We hold that the Learned AO cannot mechanically apply the provisions of Rule 8D for the purpose of disallowance u/s 14A of the Act. In our opinion, the same could be used only as a last resort only in the event of the AO not able to make a fair substitution of the disallowance figure as contemplated u/s 14A(2) of the Act. In any case, the provisions of the Act would always prevail over the Rules as admittedly the Rules are only subordinate piece of legislation and are meant only to support the Act. Rules could act only as a guiding force to effectively implement the provisions of the Act. If the manner so contemplated in the Act fails, then as a last resort, the AO should go to Rules for making disallowance u/s 14A . Hence we hold that the Learned AO has got sufficient powers to substitute the disallowance figure at Rs 14,45,202/- in terms of section 14A(2) of the Act itself and hence Rule 8D need not be followed in the facts of the instant case. - Decided partly in favour of assessee.
No.- ITA.2530/Kol/2013
Dated.- July 8, 2016
Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM

2) Sec. 14A disallowance to be computed by considering only those shares which yielded dividend income during the year.
July 29, 2016[2016] 71 taxmann.com 269 (Kolkata - Trib.). 
DCIT Vs. Teenlok Advisory Services Pvt. Ltd.
IT: Provisions of section 14A read with rule 8D could be invoked to make a disallowance on account of expenditure incurred in relation to exempt income in form of dividend received by assessee on shares held as stock-in-trade
IT: Disallowance under rule 8D with respect to income not includible in total income has to be computed by taking into consideration only those shares, which has yielded dividend income in year under consideration

4.    S. 23(1)(c) :

2016 (7) TMI 942 - ITAT PUNE
Shri Vikas Keshav Garud Versus The Income Tax Officer, Ward 1 (2) , Nashik
No.- ITA No.747/PN/2014
Dated.- March 31, 2016
MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM
Where the property which was let-out in the preceding year was vacant during the entire year in question, the ALV will be NIL
The relevant facts are that the CIT(A) confirmed the action of Assessing Officer in adopting the gross ALV at Rs1,51,200/- of the property in question having regard to the ALV of Rs 12,600/- per month which was the actual rent received by the assessee in respect of this property in the financial year 2006-07 ( earlier year ) from the then tenant. For arriving at this conclusion, the CIT(A) relied upon the decision of the Hon’ble Andhra Pradesh High Court in the case of Vivek Jain vs. ACIT, (2011) 337 ITR 74 (AP).

Held:
We have carefully considered the orders of the authorities below and material placed on record. We observe that the Assessing Officer has denied the application of section 23(1)(c) of the Act for determination of ALV on the ground that clause (c) does not apply to a situation where the property has either not been let out at all during the previous year or even if let out, was not vacant during the whole or any part of the previous year. As per the Assessing Officer, words “where the property is let” cannot be read as “where the property is intended to be let”. For this proposition, the Assessing Officer has heavily relied upon the decision of the Hon’ble Andhra Pradesh High Court in the case of Vivek Jain (supra). The Assessee ardently contested the action of the AO before CIT(A) and claimed that in view of S. 23(1)(c), the annual letting value (ALV) ought to have been determined at nil having regard to the fact the property could not be let out and remained vacant for the whole year. In support of this proposition, decisions of the Tribunal in the case of Premsudha Exports (P) Ltd. & Presmshree gems (P) Ltd. vs. ACIT, 110 ITD 158 (Mum-Trib.) and Shakuntala Devi vs. DDIT in ITA No.1524/Bang/2010 order dated 20.12.2011 were relied upon before CIT(A). We notice from the order of the CIT(A) that the property was actually let out in the financial year 2006-07 to M/s IDBI Home Finance Ltd. at an actual rental value of Rs12,600/- per month i.e. Rs 1,51,200/- per annum. During the year relevant to assessment year 2009-10 in appeal, the assessee could not let out the property and thus remained vacant throughout the year. Therefore, the surrounding circumstances would suggest that the property was always available to be let out, however, could not be actually let out in reality. The intention to let out the property is thus loud and clear in the circumstances which did not however fructify.
8. The ALV of property remaining vacant for the whole year has to be computed with reference to section 23(1)(c) of the Act. This sub-section deals with a situation where the property remains vacant for the whole year. Section 23(1)(c) of the Act as relevant in the context is set out for ready reference as under :-
“[Annual value how determined.
23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be-
(a) xxxxx
(b) xxxxx
(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :
9. Section 23(1)(c) by its literal wording include a situation where a property which was vacant during the whole year by saying that “when a property is let and was vacant during the whole or part of the previous year actual rent received or receivable by the owner is less than sum referred to in clause (a), the amount so received or receivable”. It goes without saying that a situation cannot co-exist wherein the property is let during the previous year and is also simultaneously vacant for the whole year. The word ‘let’ and ‘vacant’ are mutually exclusive. To appreciate it further, the underlying principle of this provision has to be viewed with regard to the intention together with efforts put by assessee in letting out the property, etc. and then gross annual value is required to be determined. If the assessee intended to let the property and took appropriate efforts in letting the property but ultimately failed to let the same, the actual rent received from it will have to be considered as “Zero” being less than the sum referred in section 23(1)(a) of the Act.

5.    S. 28 :
2016 (7) TMI 951 - ITAT CHENNAI
M/s Eastman Exports Global Clothing (P) Ltd Versus The Jt. Commissioner of Income-tax
Nature of receipt of Premium on transfer of Market Linked Focus Product Scheme scrips - revenue or capital receipt 

Held: 
The Apex Court in the case of Ponni Sugars & Chemicals Ltd (2008 (9) TMI 14 - SUPREME COURT) had an occasion to examine an identical situation and observed that if the object of the subsidy was to enable the assessee to carry on the business more profitably, then the receipt is on the revenue account. On the other hand, if the object of assistance was to enable the assessee to set up a new unit or expand the existing unit, then the receipt is on the capital account. In the case before us, the Government of India provided the incentive for exploring the new markets across the globe. Exploring a new market for a specified area would naturally expand the market area of the assessee. The incentive given to the assessee is not for running the business profitably but for expanding the market area. Therefore, this Tribunal is of the considered opinion that the incentive given by the Government to the assessee for exploring the new market is a capital receipt, hence it cannot be treated as income either u/s 2(24) or 28 of the Act. In view of the above, we are unable to uphold the order of the lower authority. Accordingly, the orders of the lower authorities are set aside and the addition made by the Assessing Officer is deleted. - Decided in favour of assessee.
No.- I.T.A. Nos. 47 & 48/Mds/2016
Dated.- May 17, 2016
Shri N.R.S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member

6.    S. 30(a)(i) :

Accumulated Repairs Expenditure On Rented Premises: Whether Allowable As Deduction Under Section 30(A)(I) Of The Income Tax Act, 1961?
Section 30 of the Income Tax Act, 1961(for short “the Act”), deals with the deduction of rent, rates, taxes, repairs and insurance of buildings used for the purpose of business or profession of an assessee while section 31 of the Act deals with the deduction in respect of repairs and insurance of machinery, plant and furniture.
The term repairs generally means restoring a thing into a good condition. Etymologically, the word “repair” is derived from O. F. reparer which in its turn is derived from L re (repairer i. e. again to make ready). Repair is a comprehensive word which means “to make good defects” and which therefore must include renewal where that is necessary (Inguis vs. Buttery 3 App. Cas. 552).
According to section 30(a)(i) of the Act, where the premises are occupied by the assessee as the tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs, shall be deducted while computing total income of the assessee.

Sometimes an assessee incurs expenditure for the purpose of business or profession but the item on which is expenditure is laid down, is not expressly covered by section 30 to 36 of the Act, can be claimed as deduction while computing of his income, subject to provisions of section 37(1) of the Act.
Recently, in DCIT vs. Ikea Trading (India) P Ltd. [ITA No: 5393/Del/2010, decided on 02.06.2016], one of the question was whether the Ld. CIT (A) erred in treating the expenditure on repair and maintenance of Rs. 1,44,25,239/- as revenue expenditure and deleting the addition made by the Ld. AO.
The brief facts of the case were that assessee was a company engaged in the business of trading of different products such as carpets, textile, metal, plastic items etc. The company purchased these products locally and exported them.
The assessee had incurred following expenditure and same were held to the capital expenditure :-
Particulars Amount(in Rs.)
EDP Maintenance Cost 22,32,507
Upkeep maintenance at office building 1,97,358
Repair and maintenance-office premises 15,76,638
Legal rentals 44,11,920
Security costs 53,87,700
Cleaning costs 6,19,116
Total 1,44,25,239
Learned AR submitted before ITAT that above were the expenses incurred by the assessee on premises that are not owned by the assessee but on rented premises. He submitted the complete details in the form of vouchers, bills etc, of expenditure submitted before AO and before ld CIT(A). He submitted that genuineness of the expenditure had not been doubted by the Ld. AO but only issue was whether this expenditure were capital or revenue in nature. He further submitted that the undisputedly these were repair and maintenance expenditure and assessee had not derived any benefit of enduring nature, no capital assets was acquired and they were in the nature of routine ordinary day to day expenses on maintenance of equipments, cleaning charges, etc. and in case of rented premises even accumulated repairs expenditure are allowable as restrictions applies when the assessee owns the building and claims depreciation then only current repair expenditure and not accumulated repairs are allowable. He placed reliance on decision of Bharat Gears Limited vs. CIT [337 ITR 368 (Del.)], where repairs expenditure was allowed considering the decision of honourable supreme court.
The learned DR relied on the decision of honourable Supreme Court in CIT vs. Savarana Spinning mills Limited [293 ITR 201(SC)] pleading that the most of the expenditure were not in the nature of current repair expenditure but accumulated repairs so even though the expenditure was revenue in nature, same was not allowable.
He further referred to the decision of honourable Supreme court in case of Deepak Agro Foods vs. State Of Rajasthan (2008-TIOL-134-SC-CT] and Hon’ble Delhi high court in case of CIT vs. Jan samparak Advertising Limited [56 taxmann.com 286 (Del)], CIT vs. Manish Build Well Pvt. Ltd. [ITA no 9258/2011 dated 15.11.2011].
The learned members of the Delhi ITAT found that the reliance on the decision CIT vs. Saravana Spinning Mills Pvt. Ltd. (supra) by the Revenue is misplaced as in that case, Hon’ble Supreme Court was concerned about the modernisation and replacement expenses on the textile mill and it was held that it was not allowable. In the present case, the issue is not of repairs on plant and machinery but related to expenditure on building, further the building was also not owned by the assessee but was a rented premises. Further, the members found that the Revenue had not taken a ground in its appeal against the admission of addition evidence therefore the various decisions cited of Hon’ble Delhi High Court in the case of CIT vs. Manish Build Well Pvt. Ltd.(supra) and of Supreme Court in the case of Deepak Agro Foods vs. State of Rajasthan & Ors (supra) do not apply to the facts of this case. The expenditure would be dealt with by the provision of section 30 of the Act, which are as under:-
“In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed–
(a) where the premises are occupied by the assessee–
(i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs;
(ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;
(b) any sums paid on account of land revenue, local rates or municipal taxes;
(c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.
Explanation: For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure.”
The learned members of the ITAT Delhi observed that on reading of the above section, the accumulated repairs are not allowed when the assessee owns building and therefore as a tenant cost of repairs to the premises is allowable whether they are accumulated or current. According to us these expenditure are purely of revenue in nature and the assessee obtains no advantage of enduring nature. These are purely routine, miscellaneous expenditure, rent charges, cleaning charges and repairs on computer & other equipments and cannot be held to capital expenditure by any stretch of imagination.
The learned ITAT members held that the Ld. CIT(A) was correct in holding that the expenditure incurred by the assessee were repair and other expenditure and were allowable under section 30a(i) and 37(1) of the Act and these were not capital expenditure in nature.
Goldline:
The decision of the ITAT Delhi in Ikea Trading (India) P Ltd. case(supra) allowing on rented premises, under section 30a(i), even accumulated repairs expenditure as deduction is welcome one.


7.    S. 36(1)(iii) :
2016 (7) TMI 943 - ITAT BANGALORE
The Deputy Commissioner of Income Tax, Central Circle 2 (2), Bangalore Versus M/s. JSR Constructions Pvt. Ltd., and Vica-Versa

Interest expenditure disallowed for the reason that it was expenditure pertaining to work-in-progress and had to be capitalized - 

Held: 
It is clear from clause 12 of the Accounting Standards 2 that normal interest and borrowing costs cannot form part of cost of inventory. When an assessee is following method of valuation of inventory which is in accordance with the Accounting Standards prescribed by ICAI, in our opinion, Revenue cannot step into the shoes of assessee and foist on it a different method, unless there is a clear statutory edict allowing a departure from such accepted standards. We cannot say that assessee had understated its work-in-progress or inventory by not charging interest relating to working capital loan to its valuation. Assessee was well justified in considering interest as a period cost and debiting in its profit & loss account. We do not find any merit in the additions made by the AO - Decided in favour of assessee.
No.- ITA No.875/Bang/2014, ITA No.741/Bang/2014
Dated.- April 13, 2016
SHRI ABRAHAM P. GEOERGE, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER

8.    S. 37 :

1)2016 (7) TMI 761 - BOMBAY HIGH COURT
Commissioner of Income Tax Versus Ratnaraj N. Bhandari
Sec 37 : Whether disallowance of claim of expenditure by the AO on account of the amount forfeited by the Seller of property for non-fulfillment of the purchase agreement justified ? 

Held :
There is nothing on record to prove that the sale agreement between the respondent-assessee and his vendor M/s. Emtech Solution (P) Ltd. is collusive. We find that the CIT(A) as well as the Tribunal have rendered concurrent findings of fact that the parties had entered into agreement which was genuine. In fact, the vendor M/s. Emtech Solutions (P) Ltd. had itself confirmed the transaction and also of having received the sum of Rs 2.40 crores from the respondent. The transaction could not be completed as a ready buyer one Mr. Gandhi had withdrawn his offer to purchase the subject property. The further cheques issued by the respondent had been dishonoured, which led the respondent to permit forfeiting the advance/part payment. In respect of the manner in which the vendor has shown the receipt, we asked Mr. Pinto whether it has shown its receipt on capital account to avoid paying taxes. Mr. Pinto responded by stating he is not aware. In any case it is a settled position that nature of receipt in the hands of the payee will not determine the nature of payment i.e. capital or revenue in the hands of the payer. The respondent – assessee is dealer in immovable property and it is for a businessman to decide the manner in which he should conduct his business and take steps which are in the best interest of his business. A mere loss in a venture does not mean that the transaction is not genuine. Therefore, the revenue has not been able to show that the findings of fact rendered by the CIT(A) and the Tribunal are perverse and/or arbitrary. - Decided against revenue
No.- Income Tax Appeal No. 2460 of 2013
Dated.- June 21, 2016
M. S. Sanklecha And A. K. Menon , JJ.


2)2016 (7) TMI 679 - CALCUTTA HIGH COURT
M/s Video Plaza Versus I.T. Officer, Ward-1 (4) , Durgapur
Expenditure towards bank charges - revenue or capital - when did business is set up? - Held that:- We are of the opinion that the view taken by the learned Tribunal treating the expenditure towards bank charges as capital expenditure does not require any interference. Business was admittedly set up on 7th May, 2006 when it started its business, or may be on 6th May, 2006 when it was ready for starting its business (i.e. after the end of the P.Y). - Decided in favour of revenue
No.- ITA 126 of 2011
Dated.- June 13, 2016
Girish Chandra Gupta And Asha Arora, JJ.
ORDER
The Court : The subject matter of challenge in the appeal is a judgment and order dated 6th August, 2010 by which the learned Income Tax Appellate Tribunal “B” Bench, Kolkata in ITA No.2015/Kol./2009 pertaining to the Assessment Year 2006-07 concurring with the CIT(A) held that “expenditure towards bank charges of
Rs 6,79,331/- related to the new project i.e. restaurant cum hotel project is capital expenditure and would have to be capitalized as assessment year under consideration”.
Challenging the aforesaid order, the assessee has come up in appeal. The appeal was admitted on 10th May, 2011 on the following question of law:
“Whether the learned Tribunal below committed substantial error of law in treating the expenditure towards bank charges of Rs 6,79,331/- as capital expenditure by totally overlooking the fact that it was for the expansion of the seflsame business where common books of account and common bank account are maintained by the assessee for the above expansion.”
We have heard Mr. Sen, learned advocate appearing for the appellant/assessee. He drew our attention to a judgment in the case of Khimji Visram and Sons (Gujarat) Private Limited vs. Commissioner of Income-Tax, reported in [1994] 209 ITR 993 [Guj.]. He drew our attention to a passage quoted by the Gujarat High Court from the judgment in the case of Western India Vegetable Products Ltd. vs. C.I.T, which is as follows:
“There is a clear distinction between a person commencing a business and a person setting up a business and for the purpose of the Indian Income-tax Act it is the setting up of the business and not the commencement of the business that is to be considered. It is only after the business is set up that the previous year of that business commences and any expense incurred prior to the setting up of a business would not be a permissible deduction. When a business is established and is ready to commence business, then it can be said of that business that it is set up; but before it is ready to commence business it is not set up. There may, however, be an interval between the setting up of the business and the commencement of the business and all expenses incurred during that interval would be a permissible deduction.” (emphasis* supplied).
Mr. Sen submitted that the learned Tribunal has refused to allow the expenditure simply on the ground that the hotel was opened on 7th May, 2006, that is to say, after the end of the relevant previous year. That is no doubt true. But, it was for the assessee to adduce evidence to show as to when was the hotel set up. We have asked Mr. Sen to find out if there is any 3 evidence discussed in any of the three judgments to show that the hotel had been set up in the relevant previous year, but he was unable to do so.
The question for consideration in all cases is as to when was the business set up. Once the business is set up, the expenditure incurred is deductible under Sections 36 and 37 as the case may be. But before the business is set up, the expenditure cannot be admissible for deduction.
He also drew our attention to a judgment of the Apex Court in the case of CIT vs. Sarabhai Management Corporation Ltd., reported in [1991] 192 ITR 151 [SC]. He drew our attention to the following findings of the Apex Court :
“Even if, as submitted by Dr. Gauri Shankar, the first category of activity referred to by the High Court, viz., the acquisition of a property for being let out can be said to be only a preparatory stage (analogous to the acquisition of buildings, plant and machinery in a manufacturing business), the subsequent activities certainly constitute activities in the course of the carrying on of the assessee’s business. It would not be correct, as rightly pointed out by the High Court, to treat the assessee as having commenced its business only when the licensee or lessee occupied the premises or started paying rent.”
This judgment does not help him because in this case acquisition of the property or the period required for acquisition of the property is said to be a period during which revenue expenditure is not deductible. In the case before us, during construction of the hotel it cannot be said that the acquisition of the hotel was completed.
For the aforesaid reasons, we are of the opinion that the view taken by the learned Tribunal does not require any interference. The fact that the assessee was already in business or that the assessee had gone in for expansion of the business by diversifying it, does not alter the situation that the hotel business was a new business undertaken by the assessee. Any expenditure incurred for that business has to be allowable in accordance with law. That eventuality cannot arise unless the business has actually been set up. Business was admittedly set up on 7th May, 2006 when it started its business, or may be on 6th May, 2006 when it was ready for starting its business.
The question is answered in the negative and in favour of the revenue.
The appeal is dismissed.



3)2016 (7) TMI 758 - ITAT CHENNAI
The Assistant Commissioner of Income Tax, Company Circle II (4) , Chennai Versus M/s. K7 Computing Pvt. Ltd.
Issue 1
Capital vs Revenue Expenditure
Disallowance of the claim of deduction towards software purchases –

Held: 
The test of enduring benefit is not certain or conclusive test in determining the expenditure as capital or revenue. The real intent of the expenditure and whether the expenditure results in creation of fixed capital for the assessee are to be examined. Thus, in view of the ratio laid down by the Hon’ble Delhi High Court in the case of CIT vs. Asahi India Safety Glass Ltd.(2011 (11) TMI 2 - DELHI HIGH COURT ), we hold that the software expenses should be treated as revenue in nature and accordingly, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to delete the disallowance made on this account. - Decided in favour of assessee.
Issue 2
Disallowance of the claim of depreciation at 60% for UPS attached to computers (restricted to 15%) –
Held 
We direct the Assessing Officer to allow 60% depreciation on UPS. See DCIT v. Indian Bank [2016 (7) TMI 728 - ITAT CHENNAI]
No.- I.T.A.No.2268/Mds/2012, C.O. No. 65/Mds/2013
Dated.- July 13, 2016
Shri Chandra Poojari, Accountant Member and Shri Duvvuru RL Reddy, Judicial Member


9.   S. 30(a)(i) r.w S. 37(1) :
DCIT vs. Ikea Trading (India) P Ltd. [ITA No: 5393/Del/2010, decided on 02.06.2016]
Accumulated Repairs Expenditure On Rented Premises: Whether Allowable As Deduction Under Section 30(a)(i) Of The Income Tax Act, 1961?
Section 30 of the Income Tax Act, 1961(for short “the Act”), deals with the deduction of rent, rates, taxes, repairs and insurance of buildings used for the purpose of business or profession of an assessee while section 31 of the Act deals with the deduction in respect of repairs and insurance of machinery, plant and furniture.
The term repairs generally means restoring a thing into a good condition. Etymologically, the word “repair” is derived from O. F. reparer which in its turn is derived from L re (repairer i. e. again to make ready). Repair is a comprehensive word which means “to make good defects” and which therefore must include renewal where that is necessary (Inguis vs. Buttery 3 App. Cas. 552).
According to section 30(a)(i) of the Act, where the premises are occupied by the assessee as the tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs, shall be deducted while computing total income of the assessee.

Sometimes an assessee incurs expenditure for the purpose of business or profession but the item on which is expenditure is laid down, is not expressly covered by section 30 to 36 of the Act, can be claimed as deduction while computing of his income, subject to provisions of section 37(1) of the Act.
Recently, in DCIT vs. Ikea Trading (India) P Ltd. [ITA No: 5393/Del/2010, decided on 02.06.2016], one of the question was whether the Ld. CIT (A) erred in treating the expenditure on repair and maintenance of Rs. 1,44,25,239/- as revenue expenditure and deleting the addition made by the Ld. AO.
The brief facts of the case were that assessee was a company engaged in the business of trading of different products such as carpets, textile, metal, plastic items etc. The company purchased these products locally and exported them.
The assessee had incurred following expenditure and same were held to the capital expenditure :-
Particulars Amount(in Rs.)
EDP Maintenance Cost 22,32,507
Upkeep maintenance at office building 1,97,358
Repair and maintenance-office premises 15,76,638
Legal rentals 44,11,920
Security costs 53,87,700
Cleaning costs 6,19,116
Total 1,44,25,239
Learned AR submitted before ITAT that above were the expenses incurred by the assessee on premises that are not owned by the assessee but on rented premises. He submitted the complete details in the form of vouchers, bills etc, of expenditure submitted before AO and before ld CIT(A). He submitted that genuineness of the expenditure had not been doubted by the Ld. AO but only issue was whether this expenditure were capital or revenue in nature. He further submitted that the undisputedly these were repair and maintenance expenditure and assessee had not derived any benefit of enduring nature, no capital assets was acquired and they were in the nature of routine ordinary day to day expenses on maintenance of equipments, cleaning charges, etc. and in case of rented premises even accumulated repairs expenditure are allowable as restrictions applies when the assessee owns the building and claims depreciation then only current repair expenditure and not accumulated repairs are allowable. He placed reliance on decision of Bharat Gears Limited vs. CIT [337 ITR 368 (Del.)], where repairs expenditure was allowed considering the decision of honourable supreme court.
The learned DR relied on the decision of honourable Supreme Court in CIT vs. Savarana Spinning mills Limited [293 ITR 201(SC)] pleading that the most of the expenditure were not in the nature of current repair expenditure but accumulated repairs so even though the expenditure was revenue in nature, same was not allowable.
He further referred to the decision of honourable Supreme court in case of Deepak Agro Foods vs. State Of Rajasthan (2008-TIOL-134-SC-CT] and Hon’ble Delhi high court in case of CIT vs. Jan samparak Advertising Limited [56 taxmann.com 286 (Del)], CIT vs. Manish Build Well Pvt. Ltd. [ITA no 9258/2011 dated 15.11.2011].
The learned members of the Delhi ITAT found that the reliance on the decision CIT vs. Saravana Spinning Mills Pvt. Ltd. (supra) by the Revenue is misplaced as in that case, Hon’ble Supreme Court was concerned about the modernisation and replacement expenses on the textile mill and it was held that it was not allowable. In the present case, the issue is not of repairs on plant and machinery but related to expenditure on building, further the building was also not owned by the assessee but was a rented premises. Further, the members found that the Revenue had not taken a ground in its appeal against the admission of addition evidence therefore the various decisions cited of Hon’ble Delhi High Court in the case of CIT vs. Manish Build Well Pvt. Ltd.(supra) and of Supreme Court in the case of Deepak Agro Foods vs. State of Rajasthan & Ors (supra) do not apply to the facts of this case. The expenditure would be dealt with by the provision of section 30 of the Act, which are as under:-
“In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed–
(a) where the premises are occupied by the assessee–
(i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs;
(ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;
(b) any sums paid on account of land revenue, local rates or municipal taxes;
(c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.
Explanation: For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure.”
The learned members of the ITAT Delhi observed that on reading of the above section, the accumulated repairs are not allowed when the assessee owns building and therefore as a tenant cost of repairs to the premises is allowable whether they are accumulated or current. According to us these expenditure are purely of revenue in nature and the assessee obtains no advantage of enduring nature. These are purely routine, miscellaneous expenditure, rent charges, cleaning charges and repairs on computer & other equipments and cannot be held to capital expenditure by any stretch of imagination.
The learned ITAT members held that the Ld. CIT(A) was correct in holding that the expenditure incurred by the assessee were repair and other expenditure and were allowable under section 30a(i) and 37(1) of the Act and these were not capital expenditure in nature.
Goldline:
The decision of the ITAT Delhi in Ikea Trading (India) P Ltd. case(supra) allowing on rented premises, under section 30a(i), even accumulated repairs expenditure as deduction is welcome one.


10.     S. 43B :
Both employees and employer's contribution covered under Sec. 43B: Patna HC
July 21, 2016[2016] 71 taxmann.com 247 (Patna) Bihar State warehousing Corporation Ltd. Vs. CIT-1, Patna
Although technical reading of section 43B and the provisions of sub-section (2) of section 24 (x) read with section 36 (1) (va) creates the impression that the employees' contribution would continue to be treated differently under a different head of deduction, as the head of deduction is separate under section 43B and section 36 but on a broader reading of the amendments made to section 43B repeatedly and the intention of Parliament, there appears to be sufficient justification for taking the view that the employees' and the employer's contribution ought to be treated in the same manner.

11.   S. 54F :
2016 (5) TMI 874 - ITAT HYDERABAD
The Income Tax Officer, Ward-9 (3), Hyderabad Versus Mr. Kondal Reddy Mandal Reddy
Exemption under section 54F - whether the deemed consideration under section 50C of the I.T. Act is to be taken into consideration or the consideration mentioned in the sale deed only is to be taken into consideration? 

Held:
Since the facts in the case of the assessee herein are similar to the facts in the case of Raj Babbar (2013 (1) TMI 237 - ITAT MUMBAI ), respectfully following the decision of the Coordinate Bench, we do not see any reason to interfere with the order of the CIT(A).
Actual consideration mentioned in the sale deed is reqd to be taken into consideration for the purposes of claiming exemption u/s 54F
No.- ITA.No.848/Hyd/2015, Cross Objection No.01/Hyd/2016
Dated.- May 13, 2016
SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
For The Revenue : Mr. B.R. Ramesh
For The Assessee : Mr. K.C. Devdas
ORDER
PER SMT. P. MADHAVI DEVI, J.M.
3. Brief facts of the case are that the assessee, an individual, deriving income from house property, capital gains and interest income, filed his return of income for the A.Y. 2010-2011 on 13.04.2011 declaring income of Rs 5,19,930. During the assessment proceedings under section 143(3) of the Act, the A.O. observed that the assessee has sold his plot at Banjarahills for a consideration of Rs 20 lakhs as is mentioned in the sale deed. He observed that vendees have paid the stamp duty, registration charges etc., for the value of Rs 89,60,000. Therefore, he invoked the provisions of section 50C of the Act and brought the difference of Rs 69,60,000 to tax as the capital gain. Against the same, the assessee claimed deduction under section 54F of the I.T. Act for investment of Rs 1,37,15,550 made by him for construction of a residential house at Ramakrishnapuram, Saroornagar, Ranga Reddy District. The A.O. however, held that the sale consideration of Rs 20 lakhs mentioned in the sale deed alone is eligible for exemption under section 54F and not deemed consideration arrived at by invoking the provisions of section 50C of the I.T. Act. He therefore, brought the sum of Rs 69,60,000 to tax as capital gain. Aggrieved, assessee preferred an appeal before the CIT(A) who allowed the same and the Revenue is in appeal before us.
..... .....
5. The Ld. Counsel for the assessee, on the other hand, supported the orders of the CIT(A) and also placed reliance upon the following decisions.
(1) Raj Babbar vs. ITO (2013) 56 SOT 1 (ITAT) (Mum.)
(2) Gouli Mahadevappa vs. ITO (2013) 356 ITR 90 (Kar.)
6. Having regard to the rival contentions and the material on record, we find that there is no dispute that the assessee has invested a sum of Rs 1,37,00,000 in the construction of a new residential house at Saroornagar. It is also not disputed that the sale consideration under section 50C is to be adopted as the sale consideration for computation of the capital gain. The dispute only is whether the actual sale consideration mentioned in the sale deed or the deemed sale consideration under section 50C is to be adopted for allowing the deduction under section 54F of the I.T. Act. We find that in the case of Raj Babbar vs. ITO (cited supra), the Tribunal at Mumbai has considered this issue at length and at para 11 to 13 held as under :
“11. From the provisions of section 54F (1), it is evident that the provisions of section (a) and (b) read with the explanation on 'net consideration' decides if any chargeable capital gains u/s 45 exists or not subject to the conditions specified therein. As per the provisions of section 54F(1)(a) of the Act, no capital gains are chargeable u/s 45 of the Act, "If the cost of the new asset is not less than the net consideration in respect of the original asset". The principle of proportionate exemption vide clause (b) above is put into service. Now, the question is what is the meaning of the expression 'net consideration'? The same is defined in the Explanation below the section 54F(1) and the same reads that "For the purpose of this section (54F), net consideration', in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer." It is a settled issue that the provisions of section 54F of the Act are code by itself. Thus, the plain reading of the provisions of sections 45, 48, 50C and 54F of the Act suggest that there is nothing to bar benefits of exemption u/s 54F in respect of the capital gains relatable to the FVC as per the deemed fiction u/s 50C of the Act. Clause (a) of section 54F(I) specifies that If the cost of the new asset is not less than the net consideration in respect of the original asset, there is no chargeable capital gains u/s 45 of the Act. In the instant case, the cost of the new asset is Rs 17,65,752/- and 'net consideration ' as defined is ' .. the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer' i.e. Rs 16,87,000 as per sec 50C and Rs 8 lakhs as per the sale deed. The said clause (a) refers to the provisions of section 45 of the Act. In the given facts of the instant case, no chargeable capital gains arises u/s 45 of the Act. Thus, in this case, with investment of Rs17,65,752/- in new asset, the cost of the new asset is not less than the net consideration (NC) in respect of the original asset. Of course, the 'net consideration' has two variants depending on FVC adopted and in this case, the NCs are quantitatively lesser than the cost of the new asset leaving no chargeable capital gains u/s 45 of the Act. Therefore, in our opinion, the assessee is not chargeable to any capital gains considering the given facts of the case and also the said clause (a) of section 54F(1).


12.    S. 68 :
1)An important decision on trade advance gone unnoticed rendered by Calcutta High Court in 2010 holding-
a) Trade Advances recorded by the assessee against which supply of goods in subsequent year was proved by way of documentary evidence cannot be added under sec 68.
b) Merely because trade creditors did not appear in response to summons by the A.O. , no adverse inference can be drawn.
c) Tribunal cannot ignore fact finding by the CIT (A)



2)2016 (7) TMI 759 - ITAT KOLKATA
M/s. India Finance Ltd. Versus Deputy Commissioner of Income-tax, Central Circle-VIII, Kolkata.
Disallowance of loss on account of trading in cotton knitted fabrics –

Held: 
The trading loss claimed by the assessee is not a genuine trading loss and the entire transactions have been carried out in a circuitous route among the group concerns by doing paper work in the form of purchase and sales invoices only to give the colour of genuinity. We hold that the assessee had adopted merely a colourable device with an intent to evade payment of taxes. We find that the decision rendered by the co-ordinate bench of this tribunal in the case of Smt Indra Jalan vs. ITO supra is squarely applicable to the facts of the instant case before us and respectfully following the same, we dismiss the grounds raised by the assessee - Decided in favour of revenue
I.T.A No. 678/Kol/2013
Date: July 13, 2016
Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM

3) No addition of cash credit under sec. 68 if all deposits routed via banking channel and depositors were having PAN
July 28, 2016[2016] 71 taxmann.com 275 (Gujarat)
Where deposits was made with assessee represented booking amount received toward construction and same was done through banking channel and copies of account of depositor were duly filed, section 68 would not apply
[2016] 71 taxmann.com 275 (Gujarat), Income-tax Officer, Ward 2(3) v. Shanti Enterprise
SECTION 68, OF THE INCOME-TAX ACT, 1961 - CASH CREDIT (DEPOSITS) - ASSESSMENT YEAR 2000-01 - ASSESSEE PARTNERSHIP FIRM, ENGAGED IN CONSTRUCTION OF A MARKET IN JOINT VENTURE, HAD SHOWN RECEIPTS OF BOOKING DEPOSIT - ENTRIES WERE NOT FOUND TO BE GENUINE BY ASSESSING OFFICER - HOWEVER, TRIBUNAL OBSERVED THAT ALL DEPOSITORS EXCEPT ONE WERE INCOME-TAX ASSESSEES AND DEPOSITS WERE RECEIVED THROUGH BANKING CHANNEL - COPIES OF ACCOUNT OF EACH DEPOSITOR WERE DULY FILED - MONEY REPRESENTED AMOUNTS TOWARDS BOOKING RECEIVED INITIALLY THROUGH AN ENTITY WITH WHICH ASSESSEE FORMED JOINT VENTURE OF DEVELOPING PROJECT ON LAND WHICH WAS ALLOTED BY MUNICIPAL CORPORATION - WHETHER PROVISIONS OF SECTION 68 WOULD NOT APPLY - HELD, YES



4) CIT couldn't doubt genuineness of gift if AO had already made detailed enquiry on this aspect
July 29, 2016[2016] 71 taxmann.com 272 (Bombay)
CIT vs. Miracle Modi- 16/06/2016
Where Assessing Officer after making proper and detailed enquiries, took a view that amount received by assessee as gift from his relatives was a genuine transaction, impugned revisional order passed by Commissioner directing Assessing Officer to enquire into capacity of donors and to decide about genuineness of gift afresh, was not sustainable

13.    S. 69 :

2016 (7) TMI 681 - GUJARAT HIGH COURT
COMMISSIONER OF INCOME TAX RAJKOT-I Versus PATEL PROTEINS PVT. LTD
Addition u/s 69 : Addition made on account of difference in stock statement as furnished before the bank as compared to shown in books of account for availing higher credit facility - Held 
In the case of Riddhi Steel and Tubes (2013 (10) TMI 291 - GUJARAT HIGH COURT) it was held by this Court that only on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. Accordingly, the question is answered in the affirmative i.e. against the appellant revenue and in favour of the assessee. We hold that the Tribunal was right in law in deleting the addition made on account of difference in stock statement as furnished before the bank as compared to shown in books of account for availing higher credit facility. - Decided in favour of the assessee
No.- TAX APPEAL NO. 1 of 2007
Dated.- July 13, 2016
MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ.
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
By way of this appeal, the appellant – Department has challenged the order dated 31/03/2006 passed by the ITAT in I.T. (SS) NO.60/Rjt/03 for the block period 01/04/1994 to 08/08/2000.
2. While admitting this appeal, following question was posed for consideration of this Court:
“Whether on the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in deleting the addition made on account of difference in stock statement as furnished before the bank as compared to shown in books of account for availing higher credit facility?”
3. Learned Counsel for the assessee has mainly contended that the issue raised in this appeal is identical to one which has been decided by this Court in Tax Appeal No.1371 of 2006 by an order dated 12/12/2014 and placed reliance upon paragraph no.4 to 7 which reads as under:
“4. The issue involved in the present Tax Appeal is now not res integra in view of the decision of this Court in the case of Commissioner of Income tax, Ahmedabad vs. Riddhi Steel and Tubes (P) Ltd reported in [2013] 40taxmann.com 177 (Gujarat) wherein this Court has held as under:
9. The entire emphasis of the Revenue is that the decisions of this Court only pertain to the value of the stock and not on the factum of difference in the quantity of the stock shown in the books of account and in the documents furnished to the banking authorities for the purpose of availing credit facilities/loan. However, this version is not acceptable in as much as the Tribunal has noted that there was no physical verification of the stock by the banking authorities as on 31st March 2009. Although much reliance was placed by the Assessing Officer and CIT [A] on the godown visit by the Bank Manager after closing of the year ie., on 25th April 2009, however, no physical verification and counting of the stock took place during such visit and even otherwise, the Bank Managers report indicates that 3000 tonnes of Coil was already included in the stock of the month of March 2009 and because of such inclusion, the stock position of March 2009 has shown the increase in quantity. It also found that the stock register was maintained by the assessee giving complete quantity details; including month-wise details of raw materials, finished goods and semi-finished goods.
9.1 Again, the Court cannot be oblivious of the fact that the assessee had been subjected to statutory audit under the Companies Act, 1956 and also tax audit under the Incometax Act. No errors were found at any stage in the report submitted by these auditors and for the past eight years, the assessee had been following continuously/consistently the method of accounting, as provided under section 145 of the Act, valuing the closing stock and inventory, as provided under section 145 A of the Act. The assessee was also subjected to Excise and VAT and the books of account were found genuine and no discrepancies were found even by the Excise Audit report for the period January 2009 to December 2009 which was carried out by the Excise Revenue Audit Team, wherein the Excise Department, after a detailed scrutiny of the books of account, stock register, excise records, accepted the books of account and other records maintained by the assessee to be true, correct; except finding few discrepancies in so far as inventory is concerned."

14.    S. 69C r.w S.44AD:
No Sec. 69C additions when assessee is covered by presumptive taxation Scheme of Sec. 44AD
July 21, 2016[2016] 71 taxmann.com 246 (Chandigarh - Trib.)- Band Lal Popli Vs. DCIT , circle ii,. Chandigarh.
IT : Where profit declared by assessee as per scheme of presumptive taxation under section 44AD was accepted, Assessing Officer could not make separate addition under section 69C
• From analysis of section 44AD, it has already been held that assessee had not incurred the expenses to the extent of 92% of gross receipts. Therefore, in the instant case provisions of section 69C couldn't be applied. Asking the assessee to prove to the satisfaction of AO, the expenditure to the extent of 92% of gross receipts would also defeat the purposes of presumptive taxation.
• The scheme of presumptive taxation under section 44AD has been formed in order to avoid the long drawn process of assessment in cases of small traders or in cases of those businesses where the incomes are almost of static quantum of all the businesses. Thus, the Assessing Officer can make the addition under section 69C, once he has carved out the case out of the glitches of the provisions of section 44AD.


15.      S. 80G :
No denial of sec. 80G approval once sec. 12AA registration granted unless taxpayer violates conditions of approval
July 22, 2016[2016] 71 taxmann.com 205 (Jaipur - Trib.)- Hemdha Media resources Pvt. Ltd. Vs. CIT(exemptions), Jaipur.
 Once registration under section 12AA has been granted to a company incorporated under section 25 of Companies Act, 1956, it cannot be denied approval under section 80G(5)(vi) unless there is non-fulfilment of conditions specified in section 80G(5)

16.     S. 115JA :
2016 (7) TMI 1210 - GUJARAT HIGH COURT
PR. COMMISSIONER OF INCOME TAX-2 VADODARA Versus SUN PHARMACEUTICAL INDUSTRIES LTD
MAT - computation of the book profit under explanation to section 115JA - addition made on account of lease equalization charges -Whether it is in the nature of reserve or not ? Held 
The lease equalization fund is not in the nature of a reserve - the lease equalization charge would not fall within the ambit of clause (b) of the Explanation to sub-section (2) of section 115JA of the Act. Under the circumstances, while computing the book profit under section 115JA of the Act, the question of increasing the net profit by the amount of lease equalization charge would not arise, the same being not in the nature of a reserve. - Decided against the revenue.
No.- TAX APPEAL NO.768 of 2015
Dated.- March 1, 2016
MS. HARSHA DEVANI AND MR. G.R.UDHWANI, JJ.

17.    S. 131 :
2016 (7) TMI 1212 - GUJARAT HIGH COURT
THE COMMISSIONER OF INCOME TAX-IV Versus RAMANBHAI B PATEL
Additions on the basis of statement recorded u/s 131 - AO rejected the retracted statement of the assessee on a reasoning that the same has been furnished after two months and the statement was recorded in the presence of assessee's Advocate and also the fact that the detailed breakup submitted by the assessee with respect to earning of income cannot be put into the mouth of the assessee and thereby additions were made.
Held:
Assessee was not allowed to cross examine the person, on the basis of whose statement the proceedings was initiated. 
Thus the Revenue has not brought any evidence. The onus, in our opinion, is on the Revenue to prove that the assessee has earned the income.
Court relied upon,inter alia, the decision of Andaman Timber Industries v. Commissioner of Central Excise, KolkataII [2015] 62 
taxmann.com 3 (SC)
Additions were rightly deleted - Decided against the revenue.
No.- TAX APPEAL NO. 207 of 2008 With TAX APPEAL NO. 208 of 2008 TO TAX APPEAL NO. 210 of 2008
Dated.- July 20, 2016
MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ.


18.     S. 139(9) :
Belated ITR V not fatal.
ITAT BANGALORE
Fibres and Fabrics International Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle 11 (3) , Bangalore
No.- ITA Nos.918 & 919  /Bang/2013
Dated.- July 13, 2016
AO is not justified in treating the original return of income as invalid for belated receipt of Form ITR-V. Therefore direct the AO to grant the benefit of the determined business losses for future years.- Decided in favour of assessee.
27. The second issue relates to the denial of carry forward losses on the ground of belated receipt of Form ITR-V. It is not in dispute that the appellant had submitted Form ITR-V, but it was submitted with a delay of only 5 days. The appellant received the electronically generated mail from the department acknowledging e-filing of return of income. Subsequently, in accordance with the instructions of the Department, the appellant posted a copy of Form ITR-V duly signed. The Form was remitted by post. Based on this return, the AO has acted upon. The AO while rejecting the carry forward losses has relied upon the Notification issued by the Ministry of Finance wherein it is stated that date of transmission of data electronically shall be the date of furnishing of return, if the Form ITR-V is furnished in the prescribed manner and within the period specified. Further ITR-V was required to be furnished within a period of 15 days from the date of filing the return of income electronically. It is worth noting that AO has not rejected the claim on account belated receipt of Form ITR-V. It is undisputed fact that there was no communication of any kind either from the Central Processing Unit or the AO intimating the appellant that ITR-V was not received within time. In fact, the AO acted upon the return of income filed by the appellant. It implies that the AO had condoned the delay in receipt of Form ITR-V, as the Notification dated 4.1.2012 empowers the Commissioner to condone the delay in receipt of Form ITRV. In fact, we are told at the Bar that the CBDT had issued general Notifications extending the date of receipt of ITR-V. Furthermore, the provisions of sub-section (9) of section 139 provides that where the AO considers that return of income furnished by the assessee is defective, he may intimate the defect to the assessee and afford an opportunity to rectify such defect within a period of 15 days or within such further period as may be extended by the AO. Failure to comply with the defect notice renders the return of income invalid. Proviso to sub-section (9) of section 139 stipulates that where the assessee rectifies the defect after the expiry of such period of 15 days or the extended period, but before the assessment is made, the AO may condone the delay and treat the return as a valid return.
28. In the present case, the AO has not intimated any defect in the return of income filed to the appellant and therefore the action of the AO in treating the original return of income as invalid does not stand the test of the law. Even otherwise, it is not the case of the AO that the appellant had not posted Form ITR-V within the prescribed time limit. The Hon’ble Bombay High Court in the case of Crawford Bayley & Co. v. UOI, 343 ITR 232, held that the action of the AO declaring return of income invalid for non-receipt of ITR-V was invalid. Respectfully following this decision, we hold that the AO is not justified in treating the original return of income as invalid for belated receipt of Form ITR-V. We therefore direct the AO to grant the benefit of the determined business losses for future years. Accordingly, this ground of appeal is also allowed.

19.    S. 144 r.w S.145 :
2016 (7) TMI 943 - ITAT BANGALORE
The Deputy Commissioner of Income Tax, Central Circle 2 (2), Bangalore Versus M/s. JSR Constructions Pvt. Ltd., and Vica-Versa

Rejection of books of account and estimation of business income and further addition u/s 41(1) was made.

Held: 
AO in his remand report has stated that assessee was unable to give ledger extracts from the books of creditors for proving the credit. But this by itself would not show that liabilities had ceased to exist; when the liabilities were appearing in the books of account. AO had not issued any summons on the creditors or obtained any statements from them which would show that liabilities were not existing and had ceased. In any case, we find that assessment was completed u/s. 144 of the Act. When an assessment is completed u/s. 144 of the Act by applying the net profit rate on the turnover, addition u/s. 41(1) of the Act, in our opinion, cannot be made. When books of account as such are rejected, the question whether creditors appear in such books were there or had ceased to exist, would become irrelevant. We are of the opinion that ld. CIT(Appeals) was justified in deleting such addition.- Decided in favour of assessee
No.- ITA No.875/Bang/2014, ITA No.741/Bang/2014
Dated.- April 13, 2016
SHRI ABRAHAM P. GEOERGE, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER

20.   S. 147 :
1)M/s. Amaya Infrastructure Pvt. Ltd. vs. Income Tax Officer (Bombay High Court)
Appeal Number : Writ Petition No. 787 of 2016
Date of Judgement/Order : 20.04.2016
Related Assessment Year : 2008-09
Courts : All High Courts (1101) Bombay High Court (272)

Brief of the case:
The Hon’ble Bombay HC in the above cited case held that when assessee participated in reassessment proceedings by furnishing the required documents and challenges the reopening subsequently before the high court by filing a writ petition then it would not be appropriate for the high court to exercise its exclusive jurisdiction because the assessee has already chosen AO to exercise jurisdiction in the matter and to challenge his order before the appropriate appellate forum provided under the Act.



Facts of the case:
AO issued a notice dated 30th March, 2015 under Section 148 of the Act to reopen the assessment for AY 2008-09 u/s 148. Assessee was asked to file a Return of Income in the prescribed form for the subject assessment year within 30 days of the service of the notice. The petitioner admittedly filed its Return of Income only on 29th December, 2015 for the subject assessment year and sought reasons recorded by the Assessing Officer in support of the notice issued u/s 148.
On 4th January, 2016, the Assessing Officer furnished to the petitioner reasons recorded while issuing the impugned notice dated 30th March, 2015. On 14th Jan, 2016, the petitioners submitted the details called for by the Assessing Officer but pointed out that the information is being submitted subject to the objections to the impugned notice which would be filed by it.
On 22nd January, 2016 the petitioners filed its objections to the reasons recorded in support of the impugned notice. On 25th January, 2016, the Assessing Officer disposed of the objections to the reasons recorded in support of the impugned notice. The reopening thereafter was challenged by filling writ petition before Bombay HC.
At the instance of the petitioners ad interim relief was granted by high court staying the impugned notice dated 30th March, 2015.

Contention of the Assessee:
It was submitted that furnishing the information to AO was without prejudice to its objections to the reasons which were to be filed in due course. Thus, there was no participation in proceedings before the Assessing Officer and it is open for the assessee to challenge the reopening before High court by filling writ petition instead of contesting the same before the CIT(Appeals).

Contention of the Revenue:
Revenue objected that as the petitioner has participated in proceedings before the Assessing Officer in respect of the impugned notice, this Court should not exercise its extraordinary writ jurisdiction in favour of the petitioners. Because it is not open for the assessee to challenge the reopening parallel before the appellate authorities as well as before high court.
Held by Hon’ble High Court:
HC observed that it would exercise its jurisdiction under Article 226 only when it is of the view that interest of justice would require its exercise.
The provisions under Section 147 and 148 of the Act empowers the Assessing Officer to issue a reopening notice, subject to satisfaction of the parameters set out therein. It is open to the assessee to challenge the order of the Assessing Officer under the Act on the ground that the conditions precedent for its exercise are not satisfied. Assessee can challenge the notice u/s 148 either by challenging it under Article 226 of the Constitution of India or by challenging it before the authorities under the Act.
In this case, the petitioners have filed detailed information called for by the Assessing Officer under Section 142(1) and 143(2) of the Act and thus participated in the assessment proceedings. Thus, the petitioner has chosen to submit itself to jurisdiction of AO and the objections to the reasons are made in the course of reassessment proceedings. The petitioners in this case having participated in the proceedings, do not deserve this court’s exercising of extraordinary jurisdiction under Article 226 of the Constitution of India. The petitioner is not without alternative remedy. It has an effective alternative remedy available under the Act. All contentions left open to be urged before the Authorities.
It would be completely different scenario where the petitioners have not participated in the proceedings before the Assessing Officer and object to exercise of jurisdiction by the Assessing Officer at the very threshold and not while participating in the reassessment proceedings.
This not being the case the petition deserved to be dismissed.

2) No reassessment by AO on vague reason that sizable income should be disclosed when sale consideration was huge
 Income cannot be said to have escaped assessment merely on presumption that sizable income must be disclosed when both sale and purchase transactions of huge amount are made in respect of properties
[2016] 71 taxmann.com 221 (Gujarat) Jayesh Govindbhai Balar v. Income Tax Officer, Ward-3(2)(4), Surat


21.    S. 194C :
No TDS on transportation charges reimbursed by buyer if seller is liable to pay such charges to GTA
July 21, 2016[2016] 71 taxmann.com 207 (Calcutta)
 Where seller sold goods to assessee (buyer) and under contract of sale it was bound to send goods to buyer and to pay transportation charges to goods transport agency and assessee reimbursed freight component to seller and claimed deduction of same, assessee was not liable to deduct tax at source under section 194C in respect of freight component
HIGH COURT OF CALCUTTA- Hightension Switchgears (P.) Ltd.
v.Commissioner of Income-tax

22.    S. 195 :
2016 (7) TMI 953 - ITAT MUMBAI
Tata Chemicals Limited Versus Deputy Commissioner of Income Tax (International Taxation) , Mumbai
TDS u/s 195 - Payment of Euro towards purchase of Basic Engineering Design Package - Whether liable to withholding tax as being a payment for technical services? - Whether retrospective amendment in S. 9(1)(vii) by inserting explanation thereto will affect TDS liability on the date of payment when explanation was not there?

Held: 
The position of law as it stood then, including the taxing of the income under section 9(1)(vii) was that, if the services which are source of income is sought to be taxed, have to be rendered in India as well has to be utilized in India so as to be held to be taxable in India. Both the conditions have to be satisfied simultaneously, that is, the services which are source of income should be utilized in India and services should have been rendered in India. However, if the second limb is not satisfied that is, services have been rendered outside India, then same was held to be outside the purview of taxability in India. The Ld. CIT(A) has also admitted to this position, however, he held that the Explanation to section 9(1)(vii) inserted by the Finance Act, 2010 with retrospective effect from 01.06.1976 was brought specifically to overcome the said decisions of Hon’ble Supreme Court as well as the other Courts. Once this is an admitted position, then it is very difficult to comprehend that, assessee should have deducted TDS on such payment when law of the land did not permit so or envisage any withholding of tax, on the basis of law which was brought from subsequent date albeit with retrospective date stating that, now all such payment for services even rendered outside India is taxable in India. Here, the maxim of “lex non cogit ad impossibilia, is fully applicable that is, the law does not possibly compel a person to do something which is impossible, that is, when there was no provision for taxing an amount in India at the relevant time then how it can be expected that a tax should be deducted on such a payment.
Here in this case, the decision of Hon’ble Supreme Court in the case of Ishikawajma Harima Heavy Industries Ltd vs. DIT (2007 (1) TMI 91 - SUPREME COURT ) was rendered on 4th January, 2007; agreement was entered by the assessee with SP Italy on 26th April; 2007; application was made before the AO on 23rd August, 2007 for the payment to be made in September, 2007; therefore, assessee had a valid reason and reasonable ground for not with holding the tax at that time, because as observed above, there was no such provision or any explanation in the statute. Thus, we hold that, assessee was not liable to deduct TDS under section 195, at the time of making the payment. - Decided in favour of assessee
No.- ITA No. : 283/Mum/2012
Dated.- June 13, 2016
SHRI G S PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER

23.    S. 220(6) :
BOMBAY HIGH COURT
Stay application pending no coercive action. Bank attachment quashed.
M/s. Ventura Textiles Ltd. Versus Income Tax Officer – 11 (3) (3) , Mumbai
No.- Writ Petition No. 1557 of 2016
Dated.- July 14, 2016
Stay of demand - attachment orders - Held that:- The petitioner made an application for stay to the Commissioner of Income Tax seeking a Review of the order dated 2nd June, 2016 passed by the Assessing Officer. The Commissioner of Income Tax has not yet disposed of the petitioners' application dated 7th June, 2016 seeking a stay in terms of Section 220(6) of the Act. However, pending disposal of the petitioner's stay application, the Assessing Officer by an order dated 28th June, 2016 passed under Section 226(3) of the Act has attached the petitioners' bank account. We are of the view that when the petitioners' application for stay under Section 220(6) of the Act is pending disposal before the Authorities under the Act, no coercive proceedings should be taken till its disposal. Taking coercive proceedings when an application for stay under Section 220(6) of the Act is pending would make the Section redundant. The Revenue is free to take action for recovery only after disposal of the application for stay adverse to the assessee.
In the above view, by way of an interim order, we vacate the attachment Notice dated 28th June, 2016 made by the Assessing Officer upon the petitioners bankers.


24.      S. 271(1)(c) :

1)2016 (7) TMI 757 - ITAT MUMBAI
Qpro Infotech Ltd. Versus DCIT 2 (3) , Mumbai
Penalty u/s 271(1)(c) - Claim of bad debts for non recovery of share application money disallowed- Assessee accepted the addition & did not file appeal against quantum addition- A.O had assessed loss even after disallowance but ROI was filed belatedly.

Held: 
The levy of penalty and its confirmation has far reaching serious implications upon an assessee, since it may also invite prosecution of the assessee. Thus, matters with regard to ‘levy’ of penalty cannot be taken lightly or casually as it may cause unintended and avoidable hardship to the tax payers. Further, it is well settled law that levy of penalty is not automatic upon the making of disallowance itself by the AO in the assessment order. Any disallowance/addition in the assessment order would not necessarily lead to levy of penalty ‘ipso facto’ as a natural consequence.
In our country’s legal and constitutional frame work, the role assigned to the income tax department is to act like a ‘watch dog’ to ensure that tax evasion is checked and legitimate tax collection is augmented, but not to act like a ‘scare crow’.
In the facts of the case before us nothing has been brought by the authorities to show that the claim of the assessee was bogus. Nothing has been shown to establish whether there was concealment of income or furnishing of inaccurate particulars of income and how. It has been merely mentioned by the AO in the last para of the penalty order that in case return of the assessee was not selected for scrutiny, then it would have resulted in excess carry forward of the losses to be adjusted against the income of future years. But, here also, Ld. AO went factually wrong, since return of the assessee was filed beyond time limit prescribed u/s 139(1) and therefore, the assessee was not eligible to carry forward loss claimed in the return. Thus, whole premise of the AO was built under misconception of facts and incorrect understanding of law. Above all, Ld. CIT(A) also miserably failed in his duty, by passing a casual order and collapsing the ‘check and balance’ mechanism envisaged by the statute. The levy of penalty was highly unjustified and the same is directed to be deleted. - Decided in favour of assessee.
No.- ITA NO.2197/Mum/2013
Dated.- July 13, 2016
Shri Joginder Singh, Judicial Member, and Shri Ashwani Taneja, Accountant Member



2)Deal with department no penalty. High Court Calcutta

IN THE HIGH COURT OF CALCUTTA
ITA No.331 of 2009
COMMISSIONER OF INCOME TAX
CENTRAL-III, KOLKATA
Vs
M/s SARAF AGENCIES LTD
Girish Chandra Gupta & Asha Arora, JJ
Dated: June 29, 2016
The learned Tribunal was of the following opinion:"We are of the considered view that the Ld. CIT(A) has rightly held that "considering the totality of circumstances, the judicial discretion restricting that the Assessing Officer permits him not to levy penalty and omission of exercise it appears unjustified". In view of the above, we do not find any reason to interfere with the order of the Ld CIT(A). Hence, we uphold the order of the Ld CIT(A) and reject the ground of appeal taken by the Department. "From the recital of the facts appearing from the order of the CIT(Appeals), it appears that there was some sort of understanding between the department and the director of the assessee company as to the person who should disclose the income on the basis of the documents seized. The CIT(Appeals) has referred to that understanding by holding that S.N. Saraf "was acting upon some kind of understanding about the person who should make the declaration". The picture which emerges is that after the search and seizure, the revenue itself was unable to make up its mind as to whether the undisclosed income belonged to the company/assessee or to the director Sri S.N. Shroff. There was in those circumstances an understanding arrived at between the parties on the basis whereof the director made a disclosure of Rs.2.16 crores whereas the company filed a nil return. Ultimately the undisclosed income of the director was assessed at Rs.2.02 crores approximately and undisclosed income of the company was assessed at Rs.37 lakhs. Both the CIT(A) and the Tribunal were of the opinion that in the facts of the case no penalty should be levied upon the company. The understanding arrived at between the revenue, the company and the director has not been disproved nor is that finding assailed. Imposition of penalty, when returns of undisclosed income were filed in consultation with the revenue, would certainly have been inequitable.

25.    International Taxation :
2016 (7) TMI 762 - DELHI HIGH COURT
COMMISSIONER OF INCOME TAX-2 Versus HALLIBURTON EXPORT INC
International Taxation : Sale of pre-packaged software whether amounts to ‘royalty’ or ‘fee for technical services’ taxable as business income? - Held 
It is not in dispute that Article 12 (3) of the Double Taxation Avoidance Agreement (‘DTAA’) between India and the United States of America (USA) is relevant for deciding the above issue.
Section 90 (3) of the Act makes it clear that for avoidance of double taxation , it is only when the provisions of the Act are more beneficial to the Assessee, the Act will prevail over the treaty. Conversely, where the provision of the treaty is more beneficial to the Assessee, the treaty would prevail over the Act.
The right to use a copyright in a programme is totally different from the right to use a programme embedded in a cassette or a CD which may be a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. See Director of Income Tax v. Infrasoft Limited (2013 (11) TMI 1382 - DELHI HIGH COURT )
ITA No 363/2016, ITA No.365/2016
Date :July 11, 2016
S. MURALIDHAR AND NAJMI WAZIRI, JJ.

26.   Lease Transaction :
Income Tax - annual lease rent - sub lease - sister concern - remission of amount - board resolution.
IN THE HIGH COURT OF CALCUTTA
ITA No.56/2008
COMMISSIONER OF INCOME TAX
CENTRAL-I, KOLKATA
Vs
SHREE HANUMAN SUGAR & INDUSTRIES LTD
Girish Chandra Gupta & Arindam Sinha, JJ
Dated: July 11, 2016
Whether when the bonafides of lease transaction are not in dispute, there is no evidence available with the AO to show that the assessee has received excess amount, is it possible for them to made addition of that account even if such decision was taken by the Board of Directors - NO: HC
The assessee is a lessee in respect of the sugar factory. The assessee, on its part, has sub let the factory. During the year consequent to the breakdown of the boiler, necessitating extensive repairs and renovations, the assessee agreed to reduce the rental from Rs.225 lakhs to Rs.75 lakhs. AO made an addition of a sum of Rs.150 lakhs on the ground that "the assessee has failed to justify reason for allowing reduction of lease rent to the lessee-company which belongs to the same group of companies. The lease rent has, therefore, accrued in the hands of the assessee amounting to Rs.2,25,00,000/- which was receivable as per agreement and Rs.1,50,00,000/- was added to the total income of the assessee being accrued lease rent for the relevant previous year. On appeal, CIT(A) agreed with the views of AO and added that the effect of the agreement between the lessor and the lessee cannot be modified by such resolution. Lease rent payable to the appellant is stipulated in the agreement. This agreement has not lapsed. Therefore, income in terms of the agreement has accrued to the assessee. On further appeal by the assessee, Tribunal deleted the addition.
Held that,
there is no denial of the fact that the bona fide of the transaction was never in dispute. There is evidence to show that the assessee resolved to remit the sum of Rs.1.5 crore. There is also evidence to show that the assessee received only a sum of Rs.75 lakhs. In that view of the matter, the addition of the sum of Rs.1.5 crore, made by the Assessing Officer and upheld by the CIT(A) was rightly deleted by the Tribunal. In that view of the matter, the question formulated is answered in the affirmative and against the revenue. The appeal, for the aforesaid reasons, is dismissed. The parties shall, however, bear their own costs.



Miscellaneous :
1)Supreme Court explains relevance of Budget speech
SUPREME COURT
Amin Merchant Versus Chairman, Central Board of Excise & Revenue & Others
No.- Civil Appeal Nos. 4676-4677 of 2013
Dated.- July 22, 2016
Every legislation is done with the object of public good as said by Jeremy Bentham.
Taxation is an unilateral decision of the Parliament and it is the exercise of the sovereign power.
The financial proposals put forth by the Finance Minister reflects the governmental view for raising revenue to meet the expenditure for the financial year and it is the financial policy of the Central Government.
The Finance Minster’s speech only highlights the more important proposals of the budget.
Those are not the enactments by the Parliament.

2)CIT vs. TCL India Holdings Pvt. Ltd (Bombay High Court)
Strictures passed against department for casual and careless representation despite huge revenue implications. Dept directed to take remedial measures such as updating the website, appointment of meritorious advocates, proper evaluation of work done by the advocates, ensuring even distribution of work amongst advocates etc. Prevailing practice of evaluating competence of advocates on basis of "cases won or lost" deplored
Instruction No.3/2012 dated 11th April, 2012 of the CBDT also sets out the parameters of performance of the counsel for renewal of his appointment, one of the criteria mentioned therein is the number of cases won by the Counsel for the Income Tax department. This can never be a measure of competence of an Advocate i.e. an officer of the Court. In fact, the quality of the Advocate would be best judged by his performance and not in the result of the litigation. This evaluation can take place only when the Advocate is seen in action. We find that when the Advocates appear before us, very rarely are the Assessing Officer or other Officers involved in the litigation present in Court. In case, they are present, they would be able to give feedback to the Commissioner of Income Tax which could be factored in while briefing him and / or renewing his engagement