Court INCOME TAX APPELLATE TRIBUNAL
Brief As per a Supreme Court decision, objection to notice must be disposed of first and only thereafter assessment can be proceeded. The objections dated 16.3.2010 were disposed of by Income-tax Officer on 22.10.2010 and notice u/s 143(2) is dated 15.9.2010. Thus it is bad in law and the notice is invalid. No subsequent such notice has been issued in this case. Valid issuance of notice is a necessary precondition for reassessment which is missing.
Citation Ingrain Securities (P) Ltd. ,1/561, G.T. Road, Shahdara, New Delhi-32(Appellant) V/s. Income-tax Of f icer, Ward-11(4), New Delhi [PAN:AAACI 1511 R] (Respondent)
Judgement IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'C' BENCH BEFORE SHRI I.C. SUDHIR, JM & SHRI A.N. PAHUJA, AM ITA no.2474/Del/2012 Assessment year: 2003-04 Ingrain Securities (P) Ltd. , 1/561, G.T. Road, Shahdara, New Delhi-32 (Appellant) V/s. Income-tax Of f icer, Ward-11(4), New Delhi [PAN:AAACI 1511 R] (Respondent) Assessee by Shri S.C. Singhal, AR Revenue by Shri Satpal Singh, DR Date of hearing 24.7.2012&01-08-2012 Date of pronouncement 01-08-2012 O R D E R AN Pahuja:- This appeal filed on 22-05-2012 by the assessee against an order dated 27-02-2012 of the ld. CIT(A)-XV, New Delhi, raises the following grounds:- 1. "The learned Income-tax Officer has mechanically without application of his mind has issued notice u/s 148 simply on the basis of information received from investigation wing. The reasons recorded show lack of application of mind by the Incometax Officer. The approval before issue of notice u/s 148 is missing on the notice received. The initiation and notice u/s 148 be held invalid and bad in law. 2. Belief must follow investigation and not vice versa. On page 6 of assessment order, any sign of enquiry or investigation is missing which has been done only after issue of notice u/s 148. This is not correct in law and results in holding the notice invalid. 3. Reasons recorded were not sent with the notice u/s 148 dated 15.3.2010. As per assessment order admittedly they were provided on 22.10.2010. In view ITAT Delhi and Delhi High Court, notice sent in the end of limitation period must be accompanied with reasons recorded otherwise, the notice will be invalid. 4. Inspite of specific request before the Income-tax Officer in letter dated 16.3.2010 (point 4), no evidence etc. with Income-tax Officer was ever shown to assessee. Rather bank a/c statements collected directly by the Assessing Officer later on were also not given to the assessee. Principles of natural justice do not permit it. Information gathered directly by Income-tax Officer later on were also not given to the assessee. Principles of natural justice do not permit it. Informatifon gathered directly by Income tax Officer and used against the assessee and not disclosed to him, is not allowed to be used. 5. As per a Supreme Court decision, objection to notice must be disposed of first and only thereafter assessment can be proceeded. The objections dated 16.3.2010 were disposed of by Income-tax Officer on 22.10.2010 and notice u/s 143(2) is dated 15.9.2010. Thus it is bad in law and the notice is invalid. No subsequent such notice has been issued in this case. Valid issuance of notice is a necessary precondition for reassessment which is missing. 6. In case of exparte assessment order and CIT(A) order, the ITAT can accept the additional evidences and decide the case on merits. Permission be kindly granted for submission of additional evidences. 7. Almost all the transactions are with limited companies listed in assessment order and their bank a/c obtained directly by Income-tax Officer confirm cheque transaction in each case. Following Supreme Court decision, the addition in this case is uncalled for. Further providing source of source is not the obligation of the appellant. The onus laid by law on assessee has been discharged. 8. Formula of peak credit could have been applied as each transaction is one after the other and not simultaneously. Maximum amount rotated is ``5 lakh. 9. Income-tax Officer himself has treated appellant as entry operator and worked out 0.25% income as commission for providing accommodation entries. Following ITAT special Bench, Delhi total amount of transactions at ``80,52,000/- need be added and only 0.25% thereof be treated as income. 10. The commission @0.25% is without any past history of the case, arbitrary and purely on guess work. No comparable case has been cited and the same is denied. No opportunity was given. 11. The hearing before earlier CIT(A) was attended and written submissions were filed and the hearing was completed. The new CIT(A) as per order gave two notices. As no notices could be served on the appellant the hearing could not be attended and CIT(A) without ensuring service of notice, passed an exparte order. The CIT(A) file carries all information and no comment is there on facts and merits of the case. The limitation period problem is clear from Income-tax Officer file. Income-tax Officer sent initially assessment order of some other party in envelop addressed to the appellant. On written application, the correct order was provided by the Income-tax Officer and then the appeal was filed within given time. 12. The appellant denies levy of interest without clear finding in assessment order and alternatively it be reduced in the light of relief granted." 2. Adverting first to ground no.11 in the appeal, facts in brief, as per relevant orders that return declaring loss of ``9,86,415/- filed on 13.09.2004 by the assessee, was processed on 28.09.2004 u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act). Subsequently, on a report received from DIT(Investigation)-I, New Delhi that the assessee obtained accommodation entries of `82,52,000/-from various persons as detailed on page 1 to 6 of the assessment order, the Assessing Officer (A.O. in short), after recording reasons in writing, reopened the assessment with the issue of a notice u/s 147 of the Act on 15.3.2010. In response, the assessee replied vide letter received by the AO on 21.4.2010 that return already filed on 13th September, 2004 may be treated as return in response to the notice u/s 148 of the Act. Inter alia, the assessee sought a copy of reasons recorded. The AO observed that a copy of reasons had already been supplied before issuing notice u/s 148 of the Act. The objections raised by the assessee were disposed of vide order dated 22.10.2010. Since the assessee did not submit details sought by the AO in a questionnaire nor furnished confirmation of the parties from whom share capital/share application money was received, the AO added the amount of ``80,52,000/- u/s 68 of the Act besides commission of ``20,130/- +12,000/- in obtaining the aforesaid accommodation entries. 3. On appeal, despite seeking adjournments in pursuance to notice dated 27th June, 2011, 13th October, 2011 and 01.12.2011, none appeared on behalf of the assessee on 6.1.2012. Accordingly, the ld. CIT(A) without going into the merits of the issue, dismissed the appeal of the assessee, being not maintainable, in the following terms:- "5. From the perusal of Form No.35 and the other documents attached, while filing the appeal with this office, this appeal is against the Assessing Officer's order dated 30.11.2010, whereas the appeal (as per Form No.35) is filed on 17.02.2011. The records show that assessment order and notice of demand were dispatched to the appellant by "speed post" on 13.12.2010, hence as per provisions of section 249(2), the appeal is filed late and is also not accompanied by any application for "condonation of delay", as a result, the appeal is not maintainable." 4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld.AR on behalf of the assessee submitted that none of the notices were served upon the assessee and the ld CIT(A) was not justified in dismissing the appeal in limine. To a query by the Bench, the ld. AR did not reply as to why the assessee did not appear before the ld. CIT(A)despite seeking adjournments, as mentioned in the impugned order. On the other hand, the ld. DR supported the findings of the ld. CIT(A). To a query by the Bench, the ld. DR admitted that assessment order was dispatched to the assessee through speed post on 13.01.2011 and not on 13th December, 2010 as mentioned by the ld. CIT(A). 5. We have heard both the parties and gone through the facts of the case. The assessee mentioned in its grounds of appeal no. 11 that the hearing before the earlier CIT(A) was attended, written submissions were filed and the hearing was completed. The new CIT(A) issued two notices. As no notice could be served on the assessee the hearing could not be attended and ld. CIT(A) without ensuring service of notice, passed an exparte order. It is also mentioned in the ground that the AO initially sent assessment order of some other party in envelop addressed to the assessee and on written application, the correct order was provided by the AO and accordingly, appeal was filed within time before the ld. CIT(A). The ld. AR appearing before us did not reply as to who appeared before the ld. CIT(A) on 23.8.2011 & 4.11.2011,seeking adjournments and on 6.9.11,who filed abridged grounds of appeal. The approach of the assessee in seeking adjournments on one pretext or the other before the lower authorities is not in accordance with law and apparently, the assessee did not co-operate with the ld. CIT(A) in determining correct income of the assessee. We may clarify that we are not condoning the default on the part of the assessee. The appeal in this case was filed before the ld. CIT(A) on 17.02.2011, claiming that assessment order was served upon the assessee on 19.01.2011. The ld. CIT(A) has not recorded any specific findings as to when the assessment order was served upon the assessee while the ld. DR admitted before us that assessment order was dispatched only on 13.01.2011 and not on 13.12.2010 as observed by the ld. CIT(A). In these circumstances, especially when the ld. CIT(A) did not record has specific findings on the date of service of the assessment order while the assessee claimed before him that order was served only on 19.1.2011,we have no alternative but to vacate the findings of ld. CIT(A) and accordingly, restore the matter to his file with the directions to re-adjudicate the issues in accordance with law after ascertaining the correct date of service of assessment order on the assessee and of course after allowing sufficient opportunity to both the parties. With these directions ground no.11 in the appeal is disposed of. As a corollary, remaining grounds raised by the assessee do not survive for our adjudication at this stage. 6. No other argument or submission was made before us. 7. In result, appeal is allowed but for statistical purposes. Order pronounced in open Court Sd/- Sd/- (I.C. SUDHIR) (A.N. PAHUJA) (Judicial Member) (Accountant Member) NS Copy of the Order forwarded to:- 1 Assessee 2. Income-tax Officer, Ward-11(4) ,New Delhi 3. CIT concerned. 4. CIT (A)-XV, New Delhi 5. DR, ITAT,'C' Bench, New Delhi 6. Guard File. BY ORDER, Deputy/Asstt.Registrar ITAT, Delhi
 | | | Posted on 24 August 2012 by Diganta Paul |
Court HIGH COURT OF DELHI
Brief The Inquiry Officer gave a report opining that there was an interpolation in the school leaving certificate for the reason it was proved that in the school record the date of birth of the petitioner was 01.11.1954. As per the school record, this was the date of birth mentioned in the school leaving certificate and that the year 1954 was converted, by manipulation, to read : 1948. But the Inquiry Officer held that there was no evidence to prove that the petitioner had manipulated so.
Citation SRI PATI RAM ..... Petitioner Represented by: Mr.Apurb Lal, Advocate. Versus UNION OF INDIA & ORS. ….Respondents Represented by: Mr.Rajinder Nischal, Advocate
Judgement * IN THE HIGH COURT OF DELHI AT NEW DELHI % Date of Decision: August 09, 2012 + WP(C) 1354/1999 SRI PATI RAM ..... Petitioner Represented by: Mr.Apurb Lal, Advocate. Versus UNION OF INDIA & ORS. ….Respondents Represented by: Mr.Rajinder Nischal, Advocate CORAM: HON'BLE MR. JUSTICE PRADEEP NANDRAJOG HON'BLE MR. JUSTICE MANMOHAN SINGH PRADEEP NANDRAJOG, J. (Oral) 1. It is not in dispute that the petitioner was appointed as a Sepoy in Bihar Military Police on September 15, 1968. The Unit of Bihar Military Police with which petitioner was attached being merged with CRPF on April 01, 1969, the petitioner became an employee of CRPF. 2. While joining service under Bihar Military Police, no proof of age of the petitioner was taken and thus whatever age was disclosed by the petitioner was accepted. Petitioner stated that he was 20 years old when he joined Bihar Military Police service and this fact was noted in the service record. 3. But on becoming a Constable under CRPF, and required to furnish proof of his age, the petitioner furnished a school leaving certificate which recorded that he was born on 01.11.1948. 4. The petitioner continued to serve, till it was brought to the notice of the department that the petitioner had interpolated the school leaving certificate by changing the year '1954' to '1948' i.e. the date of birth which was recorded as '01.11.1948' was actually '01.11.1954'. 5. Preliminary inquiry revealed that there was an interpolation in the school leaving certificate. The year '1954' was altered to '1948'. 6. A charge-sheet was issued and served upon the petitioner. Inquiry Officer was appointed. Witnesses were examined. 7. The Inquiry Officer gave a report opining that there was an interpolation in the school leaving certificate for the reason it was proved that in the school record the date of birth of the petitioner was 01.11.1954. As per the school record, this was the date of birth mentioned in the school leaving certificate and that the year 1954 was converted, by manipulation, to read : 1948. 8. But the Inquiry Officer held that there was no evidence to prove that the petitioner had manipulated so. 9. The Disciplinary Authority disagreed with the reasoning of the Inquiry Officer and while forwarding the report of the Inquiry Officer, penned a note of disagreement, and called upon the petitioner to respond thereto. 10. At this stage, we note that one grievance raised by the petitioner is that the note of disagreement penned by the Disciplinary Authority was sent to the petitioner after he had responded to the findings returned by the Disciplinary Authority, but we note that the petitioner has withheld the fact that he was forwarded the report of the Inquiry Officer under cover of a letter dated January 17, 1997, which forms part of the official record seen by us, and the letter in question encloses the note of disagreement to the report of the Inquiry Officer, as tentatively formed by the Disciplinary Authority. 11. On February 18, 1997 the Disciplinary Authority levied the penalty of compulsory retirement upon the petitioner. He opined that the petitioner would be the only beneficiary of altering the date of birth as recorded in the school leaving certificate i.e. 01.11.1954 and converting the same to 01.11.1948. He opined that in the enrolment form the petitioner had disclosed his age to be 20 years. He took employment on 15.09.1968. The altered date of birth i.e. 01.11.1948 would obviously conform to his being 20 years of age. 12. Noting that the misconduct was grave, the Disciplinary Authority took into account that 27 years had gone by. During these 27 years the petitioner had rendered an unblemished service and had a family to support. 13. Unfortunately for the petitioner, the Appellate Authority opined that the penalty was grossly inadequate and accordingly on April 05, 1997, issued a notice to the petitioner to show cause as to why the penalty be not enhanced to one of removal from service. After considering the reply sent by the petitioner, the Appellate Authority, as per order dated May 26, 1997, enhanced the penalty to one of removal from service. The petitioner filed a further appeal which was dismissed vide order dated September 23, 1998. 14. The petitioner has challenged the order levying penalty of removal from service as also the order imposing penalty of compulsory retirement. 15. Learned counsel for the petitioner urges that indeed there is no proof that the petitioner interpolated the school leaving certificate. Learned counsel urges that if petitioner was born on 01.11.1954 he would be hardly 14 years of age and this would have been detected when petitioner joined service on 15.09.1968. 16. The argument advanced by learned counsel for the petitioner is ignoring the fact that at the inquiry, it was the stand taken by the petitioner that the school leaving certificate filed by him recorded his date of birth to be 01.11.1954. It was his case that somebody had interpolated by changing the year 1954 to 1948. 17. It is also relevant to note that even in the writ petition, the petitioner places reliance upon Annexure P-4, as per which the Headmaster of the school had forwarded a certified copy of the school leaving certificate issued to the petitioner. The said copy has not been filed by the petitioner, but counsel admits that as per the same the date of birth of the petitioner as recorded is 01.11.1954. 18. Now, the petitioner was obviously around 14 years of age on 15.09.1968, and how he managed employment, when the minimum age had to be 18 years would remain a mystery for us. Nay! It is obviously a case of corruption. Petitioner's father bribed his way and got the petitioner employment at the tender age of 14 years. The petitioner's father well knew of said fact. So that the record was straight, the strategy of contrivance adopted was to interpolate the school leaving certificate to show that the petitioner was born in the year 1948. 19. We have repeatedly asked learned counsel for the petitioner as to whether the petitioner admits that in the school leaving certificate which was furnished by him, was his date of birth recorded as 01.11.1954. The counsel admits so. When we asked learned counsel for the petitioner whether the year 1954 was interpolated to read 1948, counsel admits, but simultaneously urges, that there is no proof that the petitioner did so. 20. Irrespective of the fact whether petitioner made the interpolation, the fact of the matter would remain that the petitioner admits being born on 01.11.1954. He obviously got employment on false information pertaining to his age. On 15.09.1968, he could not be 20 years old. He was barely 14 years of age. 21. We concur with the view taken by the Disciplinary Authority that there is enough circumstantial evidence to establish that the petitioner is the culprit. 22. Holding against the guilt of the petitioner, the Disciplinary Authority took into account two mitigating factors; being firstly that the petitioner had served for 27 years and had a family to support; secondly, the service rendered was blameless. The Appellate Authority took a contra view i.e. that the offence was too serious to be condoned. 23. Now, there is enough evidence to support the finding of fact that the petitioner was 14 years old when he was employed in Bihar Military Police. He was too young to manipulate evidence. It is obvious that his father managed an employment for the petitioner and it was the father, who, in all probability is a culprit. No doubt, the beneficiary is the petitioner, but the department also took too long a time to verify the school leaving certificate submitted by the petitioner when Bihar Military Police was merged in the CRPF. By the time the penalty was imposed the petitioner had rendered 27 years blameless service. 24. Under the circumstances, we dispose of the writ petition quashing the order dated May 26, 1997 as also the order dated September 23, 1998 and restore the order dated February 18, 1997 by which the petitioner was levied the penalty of compulsory retirement with all pensionary benefits admissible under the Rules. 25. Petitioner be paid the arrears of pension and other admissible dues which he would be entitled to on being compulsorily retired. Necessary payment be made within eight weeks from today. Future pension be paid as per Rules. 26. No costs. (PRADEEP NANDRAJOG) JUDGE (MANMOHAN SINGH) JUDGE
TR'S TRIBUNAL TAX REPORTS (ITR (TRIB)) Volume 18 : Part 2 (Issue dated : 27-08-2012) Best judgment assessment --Rejection of accounts and assessment under section 144--Disallowance of expenses under section 40(a)(ia) on ground of non-deduction of tax at source--Not justified--Income-tax Act, 1961, ss. 40(a)(ia), 144-- ITO v. Sahadev Pradhan (Cuttack) . . . 180 Business income --Income from other sources--Interest on income-tax refund--Is income from other sources, not business income--Income-tax Act, 1961, ss. 28, 56-- Kotak Mahindra Capital Co. Ltd. v. Assistant CIT [SB] (Mumbai) . . . 213 Capital gains --Computation--Effect of section 50C--Assessee booking flat--Amount paid for booking returned subsequently--Section 50C not applicable--Income-tax Act, 1961, ss. 45, 50C-- ITO v. Yasin Moosa Godil (Ahmedabad) . . . 253 ----Loss--Carry forward and set off--Change of law--Amendment with effect from April 1, 2003 restricting set-off of long-term capital loss only against long-term capital gains and not against short-term capital gains--Applicable only to long-term capital loss incurred in assessment year 2003-04 and subsequent years--Set-off of long-term capital loss brought forward from periods prior to assessment year 2003-04 governed by provisions as they stood prior to amendment--Assessee entitled to set off brought forward long-term capital loss relating to assessment year 2001-02 against short-term capital gains of assessment year 2003-04--Income-tax Act, 1961, s. 74 (as amended by Finance Act, 2002)-- Kotak Mahindra Capital Co. Ltd. v. Assistant CIT [SB] (Mumbai) . . . 213 Charitable purpose --Donation for charitable purpose--Approval of institution--If objects charitable no right to deny approval--Registration under section 12A is sufficient proof--Assessee entitled to renewal of exemption certificate--Income-tax Act, 1961, ss. 12A, 80G(5)(vi)-- Bengal Hosiery Manufacturers’ Association v. Director of Income-tax (Exemption) (Kolkata) . . . 205 ----Donation for charitable purposes--Registration of trust under section 80G--Clause in trust deed empowering trustees to invest in business--Other clauses making it clear that all powers subject to limitations and restrictions under Income-tax Act--Clause cannot be read in isolation--Trust granted registration under sections 10(23C) and 12A--Trust entitled to registration under section 80G--Income-tax Act, 1961, ss. 10(23C), 12A, 80G-- NSHM Academy v. CIT (Kolkata) . . . 244 Company --Book profits--Minimum alternate tax--Interest--Section 115JB not applicable--Net profit already computed under Companies Act--Addition to book profit not proper--Income-tax Act, 1961, s. 115JB-- Joint CIT v. Shreyans Industries Ltd. (Chandigarh) . . . 169 ----Book profits--Provision for gratuity--To be excluded from calculation of book profits--Income-tax Act, 1961, s. 115JB-- Joint CIT v. Shreyans Industries Ltd. (Chandigarh) . . . 169 Depreciation --Goodwill--Amalgamation of wholly owned subsidiary with assessee-company--Subsidiary company earning income by lease of property--Primary asset transferred was land--No proof of transfer of goodwill--Depreciation not allowable on goodwill--Income-tax Act, 1961, s. 32-- Deputy CIT v. Toyo Engineering India Ltd. (Mumbai) . . . 159 Export --Special deduction--Profit on transfer of DEPB licence--Duty of Assessing Officer to grant opportunity of hearing to assessee--Matter remanded--Income-tax Act, 1961, s. 80HHC-- Jacob Export House v. Assistant CIT (Chandigarh) . . . 175 Interpretation of taxing statutes --Strict construction--Construction according to rules of grammar-- Kotak Mahindra Capital Co. Ltd. v. Assistant CIT [SB] (Mumbai) . . . 213 Non-resident --Business loss--Set off--No permanent establishment in India--Assessee choosing to be governed by Income-tax Act and not by Double Taxation Avoidance Agreement--Assessing Officer cannot impose Double Taxation Avoidance Agreement--Assessee entitled to set off loss under “Profits and gains of business or profession†against “Income from other sources†--Income-tax Act, 1961, ss. 71, 90(2)-- Prudential Assurance Co. Ltd. v. Assistant Director of Income-tax (Mumbai) . . . 186 Reassessment --Notice issued after four years--No case of failure to disclose material facts--Reassessment on change of opinion--To be quashed--Income-tax Act, 1961, ss. 143(3), 147, 148-- Prudential Assurance Co. Ltd. v. Assistant Director of Income-tax (Mumbai) . . . 186 Refund --Interest--Interest on excess refund--Provision inserted with effect from June 1, 2003--Explanation that interest leviable for assessment years prior to that date if proceedings completed thereafter--Assessee liable to pay interest--Income-tax Act, 1961, s. 234D-- Kotak Mahindra Capital Co. Ltd. v. Assistant CIT [SB] (Mumbai) . . . 213 SECTIONWISE INDEX TO CASES REPORTED IN THIS PART S. 10(23C) --Charitable purposes--Donation for charitable purposes--Registration of trust under section 80G--Clause in trust deed empowering trustees to invest in business--Other clauses making it clear that all powers subject to limitations and restrictions under Income-tax Act--Clause cannot be read in isolation--Trust granted registration under sections 10(23C) and 12A--Trust entitled to registration under section 80G-- NSHM Academy v. CIT (Kolkata) . . . 244 S. 12A --Charitable purpose--Donation for charitable purpose--Approval of institution--If objects charitable no right to deny approval--Registration under section 12A is sufficient proof--Assessee entitled to renewal of exemption certificate-- Bengal Hosiery Manufacturers’ Association v. Director of Income-tax (Exemption) (Kolkata) . . . 205 ----Charitable purposes--Donation for charitable purposes--Registration of trust under section 80G--Clause in trust deed empowering trustees to invest in business--Other clauses making it clear that all powers subject to limitations and restrictions under Income-tax Act--Clause cannot be read in isolation--Trust granted registration under sections 10(23C) and 12A--Trust entitled to registration under section 80G-- NSHM Academy v. CIT (Kolkata) . . . 244 S. 28 --Business income--Income from other sources--Interest on income-tax refund--Is income from other sources, not business income-- Kotak Mahindra Capital Co. Ltd. v. Assistant CIT [SB] (Mumbai) . . . 213 S. 32 --Depreciation--Goodwill--Amalgamation of wholly owned subsidiary with assessee-company--Subsidiary company earning income by lease of property--Primary asset transferred was land--No proof of transfer of goodwill--Depreciation not allowable on goodwill-- Deputy CIT v. Toyo Engineering India Ltd. (Mumbai) . . . 159 S. 40(a)(ia) --Best judgment assessment--Rejection of accounts and assessment under section 144--Disallowance of expenses under section 40(a)(ia) on ground of non-deduction of tax at source--Not justified-- ITO v. Sahadev Pradhan (Cuttack) . . . 180 S. 45 --Capital gains--Computation--Effect of section 50C--Assessee booking flat--Amount paid for booking returned subsequently--Section 50C not applicable-- ITO v. Yasin Moosa Godil (Ahmedabad) . . . 253 S. 50C --Capital gains--Computation--Effect of section 50C--Assessee booking flat--Amount paid for booking returned subsequently--Section 50C not applicable-- ITO v. Yasin Moosa Godil (Ahmedabad) . . . 253 S. 56 --Business income--Income from other sources--Interest on income-tax refund--Is income from other sources, not business income-- Kotak Mahindra Capital Co. Ltd. v. Assistant CIT [SB] (Mumbai) . . . 213 S. 71 --Non-resident--Business loss--Set off--No permanent establishment in India--Assessee choosing to be governed by Income-tax Act and not by Double Taxation Avoidance Agreement--Assessing Officer cannot impose Double Taxation Avoidance Agreement--Assessee entitled to set off loss under “Profits and gains of business or profession†against “Income from other sources†-- Prudential Assurance Co. Ltd. v. Assistant Director of Income-tax (Mumbai) . . . 186 S. 74 (as amended by Finance Act, 2002) --Capital gains--Loss--Carry forward and set off--Change of law--Amendment with effect from April 1, 2003 restricting set-off of long-term capital loss only against long-term capital gains and not against short-term capital gains--Applicable only to long-term capital loss incurred in assessment year 2003-04 and subsequent years--Set-off of long-term capital loss brought forward from periods prior to assessment year 2003-04 governed by provisions as they stood prior to amendment--Assessee entitled to set off brought forward long-term capital loss relating to assessment year 2001-02 against short-term capital gains of assessment year 2003-04-- Kotak Mahindra Capital Co. Ltd. v. Assistant CIT [SB] (Mumbai) . . . 213 S. 80G --Charitable purposes--Donation for charitable purposes--Registration of trust under section 80G--Clause in trust deed empowering trustees to invest in business--Other clauses making it clear that all powers subject to limitations and restrictions under Income-tax Act--Clause cannot be read in isolation--Trust granted registration under sections 10(23C) and 12A--Trust entitled to registration under section 80G-- NSHM Academy v. CIT (Kolkata) . . . 244 S. 80G(5)(vi) --Charitable purpose--Donation for charitable purpose--Approval of institution--If objects charitable no right to deny approval--Registration under section 12A is sufficient proof--Assessee entitled to renewal of exemption certificate-- Bengal Hosiery Manufacturers’ Association v. Director of Income-tax (Exemption) (Kolkata) . . . 205 S. 80HHC --Export--Special deduction--Profit on transfer of DEPB licence--Duty of Assessing Officer to grant opportunity of hearing to assessee--Matter remanded-- Jacob Export House v. Assistant CIT (Chandigarh) . . . 175 S. 90(2) --Non-resident--Business loss--Set off--No permanent establishment in India--Assessee choosing to be governed by Income-tax Act and not by Double Taxation Avoidance Agreement--Assessing Officer cannot impose Double Taxation Avoidance Agreement--Assessee entitled to set off loss under “Profits and gains of business or profession†against “Income from other sources†-- Prudential Assurance Co. Ltd. v. Assistant Director of Income-tax (Mumbai) . . . 186 S. 115JB --Company--Book profits--Minimum alternate tax--Interest--Section 115JB not applicable--Net profit already computed under Companies Act--Addition to book profit not proper-- Joint CIT v. Shreyans Industries Ltd. (Chandigarh) . . . 169 ----Company--Book profits--Provision for gratuity--To be excluded from calculation of book profits-- Joint CIT v. Shreyans Industries Ltd. (Chandigarh) . . . 169 S. 143(3) --Reassessment--Notice issued after four years--No case of failure to disclose material facts--Reassessment on change of opinion--To be quashed-- Prudential Assurance Co. Ltd. v. Assistant Director of Income-tax (Mumbai) . . . 186 S. 144 --Best judgment assessment--Rejection of accounts and assessment under section 144--Disallowance of expenses under section 40(a)(ia) on ground of non-deduction of tax at source--Not justified-- ITO v. Sahadev Pradhan (Cuttack) . . . 180 S. 147 --Reassessment--Notice issued after four years--No case of failure to disclose material facts--Reassessment on change of opinion--To be quashed-- Prudential Assurance Co. Ltd. v. Assistant Director of Income-tax (Mumbai) . . . 186 S. 148 --Reassessment--Notice issued after four years--No case of failure to disclose material facts--Reassessment on change of opinion--To be quashed-- Prudential Assurance Co. Ltd. v. Assistant Director of Income-tax (Mumbai) . . . 186 S. 234D --Refund--Interest--Interest on excess refund--Provision inserted with effect from June 1, 2003--Explanation that interest leviable for assessment years prior to that date if proceedings completed thereafter--Assessee liable to pay interest-- Kotak Mahindra Capital Co. Ltd. v. Assistant CIT [SB] (Mumbai) . . . 213
INCOME TAX REPORTS (ITR) Volume 346 Part 4 (Issue dated 27-8-2012) HIGH COURTS Advance tax --Interest--No material on record that assessee committed default in payment of advance tax--Tribunal justified in remitting matter to Assessing Officer for decision afresh--Income-tax Act, 1961, s. 234B-- CIT v . Kotak Securities Ltd . (No. 2)
(Bom) . . . 352 Business expenditure --Purchase of software--Is revenue expenditure--Income-tax Act, 1961, s. 37-- CIT v . Amway India Enterprises (Delhi) . . . 341 ----Repairs--Current repairs--Is revenue expenditure--Income-tax Act, 1961, s. 37-- CIT v . Amway India Enterprises (Delhi) . . . 341 ----Software expenses--Expenditure not to create new asset or a new source of income but to upgrade system--Extent of expenditure cannot be a decisive factor in determining its nature--Treatment in books of account not conclusive--Software expenditure is revenue expenditure--Income-tax Act, 1961, s. 37-- CIT v . Asahi India Safety Glass Ltd . (Delhi) . . . 329 Capital or revenue expenditur e--Software expenses--Allowable--Income- tax Act, 1961-- CIT v . Kotak Securites Ltd . (No. 1) (Bom) . . . 349 Depreciation --First stock exchange membership card--Entitled to depreciation--Income-tax Act, 1961-- CIT v . Kotak Securites Ltd . (No. 1) (Bom) . . . 349 ----First stock exchange membership card--Entitled to depreciation--Income-tax Act, 1961-- CIT v. Kotak Securities Ltd . (No. 2) (Bom) . . . 352 Reassessment --Reassessment after four years--Failure by assessee to disclose material facts--Income from other sources--Reopening of assessment to disallow interest on borrowings for purchase of shares--No failure by assessee--Reassessment not permissible--Income-tax Act, 1961, ss. 57(iii), 147, 148-- Ashank D. Desai v . Asst. CIT
(Guj) . . . 326 AUTHORITY FOR ADVANCE RULINGS Non-resident --Royalty--Provision of social media monitoring service for company, brand or product, for subscribing clients--Subscriptions are royalty chargeable to tax in India--Tax deductible at source on payments--Income-tax Act, 1961, ss. 9(1)(vi), Expln. 2(iv), 195--Double Taxation Avoidance Agreement between India and Singapore, art. 12-- ThoughtBuzz Pvt. Ltd., In re . . . 345 Sec 54 relief not limited to one house | Proceeds from sale of multiple houses, if invested in a single house, would also qualify for exemption from long-term capital gains tax | Sandeep Shanbhag | As most readers would be aware, exemption from long-term capital gains tax from sale of a residential house is available u/s 54 provided the capital gain amount is invested within specified time limits in another residential house. However, recently the issue that came up before the Mumbai bench of the income tax tribunal was whether the exemption was available in cases where more than a single house is sold and the resultant combined long-term capital gain is invested in another residential property.
The brief facts of the case were that the assessee, along with his three brothers, had purchased two flats in two separate buildings. The first flat was bought in 1983-84 whereas the other in 1981-82. In both the flats, the assessee held a 25% share. Subsequently, one flat was sold in 1996-97 whereas the other in 1997-98. The assessee computed the long-term capital gain in respect of the two flats treating the same as one property and invested the amount of capital gain from the two sale transactions in construction of a residential house. The balance amount (that was not invested) was offered for tax.
The assessee submitted before the assessing officer (AO) that the two flats though not contiguous were in proximate buildings and as both had been routinely used as one residential house it was submitted that the same should be treated as one house. The AO, however, did not accept this contention. It was observed by him that these flats were located in different buildings and were situated on different roads and these had also been acquired in different years. So, they could not be treated as one house property.
The AO also observed that the scheme of Section 54 allowed exemption in respect of residential houses, the income from which was chargeable under the head "income from house property". In this case, the assessee owned two residential houses and exemption from house property income was available only in respect of one house as self-occupied property. The second property automatically would be considered to be deemed let out. However, since the assessee had not declared it as such in the tax return, it was to be assumed that the only reason there of was that the assessee had ipso facto treated the flat as being used for the purpose of business. The AO, therefore, held that since the second flat had been used for the purpose of business, income from which was not chargeable to tax under the head "income from house property", the exemption u/s 54 was not available on that flat.
The assessee disputed the decision of the AO and appealed before the commissioner of income tax (appeals) CIT(A). The CIT(A) after considering the submissions of the assessee observed that though the flats in question were not contiguous, these were part of one and the same residential house and, therefore, two flats had to be treated as one residential property. The CIT(A) accordingly held that the AO was not justified in treating one of the flats as business asset and in denying benefit of claim of deduction u/s 54. Aggrieved by the said decision, it was the turn of the revenue department to appeal before the tribunal.
The tribunal did not agree with the view taken by the CIT(A) that the two flats constituted one residential house. The flats were located in two different buildings owned by the two different housing societies and were situated on two different roads. These flats were acquired in two different years. There was no common approach road to the buildings. Therefore, the two flats could not be treated as one residential property.
Having held that the two flats were in fact two different residential houses, the tribunal was of the view that now it is required to be examined whether the assessee is entitled for exemption u/s 54 of the Act. Its opinion was that there was no restriction placed in Section 54 that exemption is allowable only in respect of sale of one residential house. Even if the assessee sells more than one residential house in the same year and the capital gain is invested in a new residential house, the claim of exemption cannot be denied if the other conditions of Section 54 are being fulfilled.
The provisions of Section 54 as pointed out earlier apply to transfer of any number of residential houses by the assessee provided the capital gain arising therefrom is invested in a residential house within the prescribed time limits. Thus, there is an in-built restriction that capital gain arising from the sale of one residential house cannot be invested in more than one residential house. However, there is no restriction that capital gain arising out of sale of more than one residential house cannot be invested in another residential house.
As regards the finding given by the AO that one of the flats, by default, would be considered as having been used for the purpose of business and therefore, was not eligible for exemption u/s 54, the AO has drawn his conclusion based on the ground that the assessee had not returned any income from the flat. The CIT(A) had not accepted the finding given by the AO and the tribunal agreed to the view taken by CIT(A). The assessee had shown no income from the second flat because the assessee had treated both the flats as one residential house which had been used as a self-acquired property. There was no material to support any business use of the flat. While it is true that the requirement of Sec. 54 is that income should be chargeable to tax under the head "house property income", it is not necessary that income should have been actually charged.
To conclude
Taking all of the above into considerations, the tribunal finally ruled that AO should allow the capital gain exemption u/s 54 of the Act after verifying that the new residential house had been constructed within prescribed time limits.
The writer is director, Wonderland Consultants, a tax and financial planning firm. He may be
contacted at
sandeep.shanbhag@gmail.com |
Published Date: Aug 25, 2012
Closing a loan? A no-dues certificate is a must | Harsh Roongta | I have a home loan with ICICI which I got about 3 years ago. Now, I look to close that loan and go for a bigger house. How do I get this done?
You will have to pre-pay the existing loan and take a new loan to finance the purchase of the bigger house. You may have to pay pre-payment charges on paying off your existing loan if the loan is under fixed rate. Before you apply for second loan, it is advisable to close your existing loan so that the eligibility for the second loan is not impacted by existence of the first loan. For pre-paying the first loan, request the bank to provide you with outstanding amount details.
The bank will typically provide you the estimated amount, on payment of which the outstanding loan will be fully paid off. This amount includes the prepayment charge, if any, chargeable by your bank. This letter will also list the documents held by them that will be released on payment of the stated amount. This amount mentioned is typically calculated as on a future date, to enable time for the buyer to arrange the payment.
After the payment of all dues, the bank will return your original documents and issues you a loan closure letter indicating that there is no outstanding amount to be paid. Please make sure you get the no dues certificate to obviate any issues in future. For your new loan, you can consider your existing lender, apart from others, in the market.
The writer is CEO, Apnapaisa.com, an online marketplace for loans, insurance and investments. He can be reached at
www.facebook.com/apnapaisa |
Valuations decent, tap chaos to invest systematically | Nitin Shrivastava |  |  |
Pradeep Gokhale, fund manager, equities and head of research at Tata Mutual Fund, believes that lower risk perception among global investors and expectation of further monetary easing in the US and Europe may keep the markets steady in the near term. However, he tells Nitin Shrivastava that for Indian markets to re-rate significantly, we would need sustainable improvement in return on equity and earnings. Edited excerpts:
Markets have now gained more than 10% since June. What's keeping them resilient?
The low market valuation in June has certainly been one of the reasons for the recent rally. Simultaneously, there have been developments on the policy front, both domestically and internationally. The EU summit decision on direct recapitalisation of EU banks and ECB chief Draghi's strong assertions on preserving the euro and buying government debt, have given confidence to markets. The resultant lower risk perceptions have caused a shift of funds from debt to risk assets and led to a rally in equity and commodities. In India, we are seeing efforts to resolve the power sector problems and other initiatives to improve policy framework.
Has anything changed on the macro front drastically for markets to rejoice?
The macro situation is not very encouraging. We are seeing a slowdown of growth both in India and major economies of the world such as the US, the EU, China and Japan. In India, the growth slowdown has not yet resulted in lower inflation and our twin deficits remain elevated. The market is not rejoicing a change in macro conditions, but the fact that respective authorities, be it the EU, China or India, seem to be working to address the issues at hand. Market probably sees the recent policy announcements which I mentioned earlier, as more constructive rather than the 'kick the can down the road' type steps it has seen for the past 12-18 months. However, while these steps are welcome, one cannot ignore the fact that much more needs to be done to resolve these issues.
The CPI numbers released earlier this week saw some moderation. What's your view on inflation in coming months?
The WPI inflation has shown some moderation, but the CPI inflation has not yet reflected a similar decline. However, both these numbers are not fully representing the real inflation picture due to the element of suppressed inflation (due to controlled energy prices). Inflation in the next six months to a year may come down cyclically due to the slowdown in growth. However, the root cause of inflation in India is our high fiscal deficit and the resultant crowding out of investments in private sector. Unless we take effective steps to tackle the fiscal deficits by improving the quality and nature of our government spending, inflation is likely to remain high.
What do you make out of market valuations currently in light of consistent downgrade in Sensex earnings estimates?
The market valuations are below historical averages on price to earnings and price to book basis. This is definitely a comforting factor. However, our earnings per share (EPS) growth rates and return on equities (RoE) have also declined compared to the historical averages. Thus, unless we see an increase in EPS growth rates and sustainable improvement in RoEs, we may not see material re-rating of the markets.
Your fund performance of Tata Pure Equity has consistently outperformed its benchmark. What do you ascribe this to?
Tata Pure Equity Fund is focussed on large cap stocks. We continue to focus on high quality set of businesses or companies that have compounding characteristics, good governance, better management quality, innate strengths in their business areas and superior capital efficiency. At the same time, we do make tactical opportunity calls on businesses having a basic standard of quality, but make a good purchase at a certain valuation. In the past one year, the fund's overweight positions in auto/auto ancillaries, healthcare, and cement and underweight in metals have helped it outperform.
On which sectors are you overweight currently?
The fund is currently overweight on pharma, cement and auto/auto ancillary sectors. Even within these sectors, we have taken a more stock-specific approach. These sectors offer steady earnings growth, healthy cash generations and reasonable valuations.
You seem to be underweight on construction, engineering and services. What would be the triggers for you to change your stance?
Me being underweight on these sectors is because we do not see economic growth improving in a hurry despite the efforts by governments and central banks. Concrete steps to address power sector issues and strong push for infrastructure spending would be crucial.
What are the key events which may lead markets to move either way from here on?
The key triggers remain the policy actions of governments and central banks around the world. There are expectations of monetary easing from the ECB/ Fed as also Chinese central bank which are partly built in the current prices. Also, there are key events taking place in the next few months such as the German Constitution Court's decision on the European Stability Mechanism (ESM), elections in the Netherlands and the US and several state elections in India etc. These would have a bearing on equity markets.
How should retail investors approach the markets from the medium term perspective?
There are significant political schedules in the next few months, which may lead to higher volatility near term. However, the retail investor should keep in mind that India's current economic problems are cyclical and not structural and thus likely to be resolved in the medium term. Today's market valuations are not demanding and thus one can assume that at least parts of the problems are in the price. Equity investing is a game of patience and we feel risk reward is favourable for equities for investors with a medium term view. The risks are well known, but valuations and the secular growth potential of Indian economy are on the investor's side. Thus, I feel investors should use this volatility to systematically invest in Indian markets.
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Published Date: Aug 25, 2012 |
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