[aaykarbhavan] Judgments in bunches and Information , I T R [4 Attachments]

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Constitution of India and Service Tax (Fast track Part 1)

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 Kaushal Agrawal

The Video below explains how the Central Govt derived power from Constitution of India to enact a law to levy tax on services. It also explains 6 categories of transactions called deemed sales which are now subjected to sales tax and not service tax.

This video is useful for CA, CS, CMA, B Com, MBA students and to all those who are keen to learn tax. Lastly please forgive my mistake and do let us know. And if this video has helped you in any way and generated slightest of interest,

Assessee cannot claim exemption U/s. 54 on two disparately placed properties

Posted In Income Tax Case Laws | Featured, Judiciary | 1 Comment »

Issue – Assessee in this appeal had sold a residential house at Film Nagar, Hyderabad, during the relevant previous year, for a sum of Rs. 6,50,00,000/-. After deducting indexed cost of acquisition, the long term capital gain came to Rs. 5,98,25,430/-. In the tax return filed, assessee claimed exemption under Section 54 of Income-tax Act, 1961 (in short 'the Act') on such capital gain for acquisition of a new  residential house at Jubilee Hills, Hyderabad, for Rs. 1,86,15,220/- and acquisition of a land for Rs. 1,90,00,000/- for the purpose of constructing a residential house. Balance amount was placed in deposits in capital gains scheme. Assessing Officer was of the opinion that exemption under Section 54 could be given to only one residential property. He, therefore, disallowed the claim of exemption with reference to first property, viz. Rs. 1,86,15,220/- and reworked the total income.

Held by CIT (A) – Argument of the assessee before CIT (A) was that the term "a residential house" used in Section 54 of the Act, had to be construed in plurality. Reliance was placed on the decision of Hon'ble Karnataka High Court in the case of CIT v. K.G. Rukminiamma (331 ITR 211), CIT v. D. Anand Basappa (309 ITR 329), CIT v. Smt. Jyothi K. Mehta (2011) 12 taxman 440, decision of Chennai Bench of the Tribunal in the case of ITO v. P.C. Ramakrishna (108 ITD 251), Delhi Bench of this Tribunal in the case of Prem Prakash Bhutani v. ACIT (2009) 31 SOT 38. However, CIT(Appeals) was not appreciative of these contentions. According to him, in all such cases, exemption under Section 54 was given for more than one residential unit for a reason that such residential units were situated within the same building or were adjacent or oppositely placed flats, amenable to a joint enjoyment. Reliance was placed by the CIT(Appeals) on the decision of Hon'ble Punjab & Haryana High Court in the case of Pawan Arya v. CIT (2011) 49 DTR 123.

Held by ITAT- CIT(Appeals) was justified in confirming the view taken by the A.O. that assessee could not claim exemption under Section 54 on two disparately placed properties.

INCOME TAX APPELLATE TRIBUNAL, CHENNAI

Shri A. Kodanda Rami Reddy

v.

The Income Tax Officer

BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

AND SHRI V. DURGA RAO, JUDICIAL MEMBER

I.T.A. No. 1 865/Mds/2012 – (Assessment Year : 2009-10) 

Date of Hearing : 19.06.2013

Date of Pronouncement : 04.07.2013

O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :

Assessee in this appeal had sold a residential house at Film Nagar, Hyderabad, during the relevant previous year, for a sum of Rs. 6,50,00,000/-. After deducting indexed cost of acquisition, the long term capital gain came to Rs. 5,98,25,430/-. In the tax return filed, assessee claimed exemption under Section 54 of Income-tax Act, 1961 (in short 'the Act') on such capital gain for acquisition of a new  residential house at Jubilee Hills, Hyderabad, for Rs. 1,86,15,220/- and acquisition of a land for Rs. 1,90,00,000/- for the purpose of constructing a residential house. Balance amount was placed in deposits in capital gains scheme. Assessing Officer was of the opinion that exemption under Section 54 could be given to only one residential property. He, therefore, disallowed the claim of exemption with reference to first property, viz. Rs. 1,86,15,220/- and reworked the total income.

2. Assessee moved in appeal before CIT(Appeals) against the denial of exemption under Section 54 on two properties. Argument of the assessee was that the term "a residential house" used in Section 54 of the Act, had to be construed in plurality. Reliance was placed on the decision of Hon'ble Karnataka High Court in the case of CIT v. K.G. Rukminiamma (331 ITR 211), CIT v. D. Anand Basappa (309 ITR 329), CIT v. Smt. Jyothi K. Mehta (2011) 12 taxman 440, decision of Chennai Bench of the Tribunal in the case of ITO v. P.C. Ramakrishna (108 ITD 251), Delhi Bench of this Tribunal in the case of Prem Prakash Bhutani v. ACIT (2009) 31 SOT 38. However, CIT(Appeals) was not appreciative of these contentions. According to him, in all such cases, exemption under Section 54 was given for more than one residential unit for a reason that such residential units were situated within the same building or were adjacent or oppositely placed flats, amenable to a joint enjoyment. Reliance was placed by the CIT(Appeals) on the decision of Hon'ble Punjab & Haryana High Court in the case of Pawan Arya v. CIT (2011) 49 DTR 123.

3. Now before us, learned A.R., strongly assailing the orders of authorities below, apart from relying on the decisions cited by the assessee before the CIT(Appeals), also placed reliance on a unreported decision of Hon'ble Andhra Pradesh High Court in the case of CIT v. Syed Ali Adil in I.T.T.A. No.410 of 2012 dated 20.12.2012, copy of which has been placed at paper-book pages 30- 32. As per learned A.R., decision of the Special Bench of this Tribunal in the case of ITO v. Ms. Sushila M. Jhaveri (107 ITD 327) stood overruled by virtue of the above judgment of Hon'ble Andhra Pradesh High Court. According to him, it was not necessary that residential units purchased by an assessee should be placed or situated within the same building or should be adjacent flats for claiming exemption under Section 54 of the Act.

4. Per contra, learned D.R. supported the orders of authorities

5. We have perused the orders and heard the rival submissions. No doubt, the plethora of decisions relied on by the learned A.R. clearly mention that the term "a residential house" used in Section 54 has to be construed in plurality. But, as held by Hon'ble Hon'ble Apex Court in the case of CIT v. Sun Engineering Works Pvt. Ltd. (198 ITR 297), judgment of a court cannot be seen divorced from the fact situation. Its relevance is only when facts are on all four squares. In each of the case, relied on by the learned A.R., the residential units were situated in the same building or were part of the same residential complex and were flats. Either they were adjacently situated or were situated at upper and lower flats or situated in such a manner that the units could be construed together as "a residential house". Hon'ble Delhi High Court in the case of CIT v. Gita Duggal in ITA 1237/2011 dated 21.02.2013, observed at para 8 of its order, as under:-

8. There could also be another angle. Section 54/54F uses the expression a residential house". The expression used is not a residential unit". This is a new concept introduced by the assessing officer into the section. Section 54/54F requires the assessee to acquire a residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and  independently used as an independent residence, the requirement of the Section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited."

The above decision was rendered by their Lordships after considering the decision of Hon'ble Karnataka High Court in the case of CIT v.  Smt. K.G. Rukminiamma (supra). Tenor of this judgment would clearly show that plurality in interpreting "a residential house" would apply so long as the units were in the same building.

6. No doubt, Hon'ble Andhra Pradesh High Court in the case of CIT v. Syed Ali Adil (supra), at paras 9 and 10 of its order, observed as under:-

"9. He contended that the deduction under Section 54 of the Act is allowable only for one residential house and not for more than one residential house and that the Tribunal erred in holding that the deduction under Section 54 of the Act is allowable for two independent residential flats in the same complex. He also placed reliance on the decision of the Special Bench of the Tribunal in I.T.O. Vs. Suseela M.Jhaveri5.

10. We see no force in the said contention. As held in b. Ananda Basappa's case (1 supra) by the Karnataka High Court, the expression "a residential house" in Section 54 (1) of the Act has to be understood in a sense that the building should be of residential nature and "a" should not be understood to indicate a singular number and where an assessee had purchased two residential flats, he is entitled to exemption under Section 54 in respect of capital gains on sale of its property on purchase of both the flats, more so, when the flats are situated side by side and the builder has effected modification of the flats to make it as one unit, despite the fact that the flats were purchased by separate sale deeds. This decision was followed by the Karnataka High Court in CIT Vs. Smt. K.G.Rukminiamma6 where a residential house was transferred and four flats in a single residential complex were purchased by the assessee, it was held that all four residential flats constituted "a residential house" for the purpose of Section 54 and that the four residential flats cannot be construed as four residential houses for the purpose of Section 54. Admittedly the two flats purchased by the assessee are adjacent to one another and have a common meeting point. In the impugned order, the Tribunal has also relied upon the decisions in K.G.Vyas's case (2 supra), P.C.Ramakrishna, HIJF's case (3 supra) and Prakash Bhutani's case (4 supra) wherein it was held that exemption under Section 54 only requires that the property should be of residential nature and the fact that the residential house consists of several independent units cannot be an impediment to grant relief under Section 54 even if such independent units were on different floors. The decision in Suseela M.Jhaveri's case (5 supra) holding that only one residential house should be given the relief under Section 54 does not appear to be correct and we disapprove of it. We agree with the interpretation placed on Section 54 by the High Court of Karnataka in b.Ananda Basappa's case (1 supra) and Smt. K.G.Rukminiamma's case (6 supra) and the decisions of the Mumbai, Chennai and belhi Benches of the Tribunal in K.G.Vyas (2 supra), P.C.Ramakrishna, HIJF (3 supra) and Prakash Bhutani (4 supra). We therefore hold that the CIT (Appeals) was correct in setting aside the order of the assessing officer and the Tribunal rightly confirmed the decision of the CIT (Appeals)."

The above judgment does disapprove and hold as incorrect the decision of Special Bench in the case of Ms. Sushila M. Jhaveri (supra). Nevertheless, in the case before Hon'ble Andhra Pradesh High Court also, the flats were situated side-by-side and the builder had effected modification of the flats so as to make it one unit. As against this, if we look at the case before us, the two properties purchased were disparately situated. There was no way they could be joined together. Construction was to begin in one of the properties. Being geographically disparate, there was no possibility  of joining them together to form a residential house. Therefore, in our opinion, the said decision of Hon'ble Andhra Pradesh will not help the assessee's case in any way. As against this, Hon'ble Punjab and Haryana High Court in the case of Pawan Arya v. CIT (supra), relied on by the ld. CIT(Appeals), held at paras 2 to 4 of its order, as under:-

"2. The assessee claimed exemption on capital gains on sale of flat on the ground of acquisition of two houses. The Assessing Officer set off the capital gain against one of the houses but held the claim not to be admissible against second house. However, the CIT(A) upheld the claim of the assessee relying upon decision of Bangalore Bench of the Tribunal in b.Anand Basappa Vs. ITO (2005) 92 TTJ (Bang) 597: (2004) 91 ITb 53 (Bang). The said view has been reversed by the Tribunal as follows:-

"6. We have carefully considered the rival submissions in the light of the material placed before us. The facts in the present case are clear. The assessee is claiming exemption in respect of two independent residential houses situated at different locations; one is in bilshad Colony, belhi and the other is in Faridabad. The assessee in the Special Bench case had also purchased two residential houses against sale consideration of residential flat at 'Gulistan' situated at Bhulabai besai Road, Mumbai. One residential property was at Varun Apartments at Varsova and the other property was at Erlyn Apartments, Bandra and it was held by the Special Bench in the aforementioned case i.e. ITO Vs. Ms. Sushila M. Jhaveri (supra) that the assessee is entitled to get exemption only in respect of one house of her choice. Therefore, the decision of Special Bench is fully applicable to the present case and the assessee can avail exemption u/s 54 in respect of one residential house only. The factual aspect has not been disputed by ld. AR. The only dispute before us is legal proposition that whether the assessee is entitled to get exemption in respect of two independent residential houses purchased out of sale consideration of another residential house. Therefore, the issue is decided in favour of the department and it is held that the assessee is entitled to get exemption u/s 54 in respect of one property only and no question has been raised by ld. AR regarding the choice of the property or the factual aspect of the matter.

7. So it relates to the decision relied upon by ld. AR of Hon'ble Karnataka High Court in the case of CIT Vs. b. Anand Basapa, it may be mentioned that the said case cannot be applied to the case of the assessee on the ground that in that case the two houses purchased by the assessee were not independent properties and a factual finding has been recorded that the two apartments which were claimed to be exempted against sale consideration were situated side by side and it was also stated by the builder in that case that he has effected modification of the flats to make it as one unit by opening the door in between two apartments. On these facts, the Hon'ble High Court has observed that the fact that at the time when Inspector inspected the premises, the flats were occupied by two different tenants is not the ground to hold that apartment is not one residential unit. The fact that the assessee could have purchased both the flats in one single sale deed or could be narrated the purchase of two premises as one unit in the sale deed is not the ground to hold that the assessee had no intention to purchase two flats as one unit. From these observations of Hon'ble High Court, it is clear that while rendering the decision they have kept in mind that the purchase of two flats in the same building which were united for living of the assessee by making necessary modifications made the residential unit as one and, thus, that case could not be applied to the facts of the case of the assessee………"

3. We have heard learned counsel for the appellant.

4. As regards claim for exemption against acquisition of two houses under Section 54 of the Act, the same is not admissible in plain language of statute. In the judgment of Karnataka High Court in CIT v. b. Ananda Basappa [2009] 223 CTR (Kar) 186: (2009) 309 ITR 329 (Kar), referred to in the impugned order,  exemption against purchase of two flats was allowed having regard to the finding that both the flats could be treated to be one house as both had been combined to make one residential unit. The said judgment, thus, proceeds on a different fact situation."

We are thus of the opinion that the CIT(Appeals) was justified in confirming the view taken by the A.O. that assessee could not claim exemption under Section 54 on two disparately placed properties.

7. In the result, appeal filed by the assessee is dismissed.

Order was pronounced in the Court on Thursday, the 4th of July, 2013, at Chennai.

Also Read- Investment in multiple houses for exemption under section 54/54F

IT: Where property held as stock-in-trade is converted into investment, for ascertaining as to whether property is a short-term capital asset or a long term capital asset, period for which said asset is held by assessee's as capital asset (investment) alone has to be reckoned

■■■

[2014] 41 taxmann.com 305 (Chennai - Trib.)

IN THE ITAT CHENNAI BENCH 'A'

CS Holdings (P.) Ltd.

v.

Assistant Commissioner of Income-tax, Co. Circle - I(3), Chennai*

DR. O.K. NARAYANAN, VICE-PRESIDENT 
AND VIKAS AWASTHY, JUDICIAL MEMBER

IT APPEAL NO. 1699 (MAD.) OF 2013
[ASSESSMENT YEAR 2010-11]

NOVEMBER  20, 2013 

Section 45, read with section 48, of the Income-tax Act, 1961 - Capital gains - Chargeable as [Conversion of capital assets into stock-in-trade] - Assessment year 2010-11 - Whether where property held as stock-in-trade is converted into investment, for ascertaining as to whether property is a short term capital asset or a long term capital asset, period for which said asset is held by assessee as capital asset (investment) alone has to be reckoned - Held, yes - Assessee-company purchased shares and kept them as investment - Thereafter, assessee had converted those shares into stock-in-trade - In relevant assessment year, again assessee converted those shares into investment and sold said shares - It claimed exemption on account of long-term capital gain on sale of shares - Assessing Officer held that trading in shares being main activity of assessee, gain arising from transfer of shares was business income of assessee - Whether though gain arising on sale of said shares would be assessable as capital gain, but since date of acquisition of shares as investment was not forthcoming from records, issue was remitted back to file of Assessing Officer - Held, yes [Para 9] [Matter remanded]

FACTS

 

■		The assessee-company purchased shares with borrowed funds and held the same as investment. In the next year, the assessee converted the entire shares held as investment into stock-in-trade and claimed interest on borrowal as deduction.
■		For the relevant assessment year, the assessee converted the shares held as stock-in-trade in to investment and sold shares and income from sale of shares was shown as Long Term Capital Gain. The assessee claimed exemption of the dividend earned during relevant period as well as Long Term Capital Gain.
■		The Assessing Officer was of the opinion that the sole motive of converting stock-in-trade into investment during the relevant assessment year was evasion of tax. He held that trading in shares was not incidental activity but main business activity of the assessee. Hence, it was nothing but an adventure in nature of trade and the profit out of it was to be assessed under the head 'Business income'.
■		The Commissioner (Appeals) confirmed the findings of the Assessing Officer.
■		On second appeal:

HELD

 

■		The provisions of section 45(2) provide that the profit or gain arising from the transfer by way of conversion of a capital asset into stock-in-trade on a business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock in trade is sold or otherwise transferred by him. For the purpose of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of capital asset. However, the provision of section 45 does not provide for the treatment of assets if converted from stock-in-trade to investment. [Para 6]
■		Section 2(47) defines transfer in relation to the capital asset. Sub-clause (iv) states that in case where the asset is converted by the owner thereof into, or is treated by him as stock-in-trade of a business carried on by him, such conversion or treatment shall be treated as transfer in relation to the capital asset. Section 2(47) also does not provide for the vice versa situation where the stock-in-trade is converted into capital asset. Undoubtedly, it is the prerogative of the assessee to manage the affairs of his business. However, the assessee has to follow consistent method in accounting policies and treatment of his asset. The Tribunal in Splendor constructions (P.) Ltd. v. ITO [2009] 27 SOT 39, had concluded that in case where the property held as stock-in-trade is converted into investment, for ascertaining as to whether property is a short term capital asset or a long term capital asset, period for which said asset is held by the assessee's as capital asset (investment) alone has to be reckoned. [Para 8]
■		Applying the same principle in the present case, the period for which the shares were held as stock-in-trade by the assessee is to be excluded from the total period for which the share were held by the assessee, was remitted since, the date of but acquisition of shares was not forthcoming from the records, issue back to the file of the Assessing Officer to determine the total period of holding of shares as capital asset. [Para 9]

CASE REVIEW

 

CIT v. N.S.S. Investments (P.) Ltd. [2005] 277 ITR 149/[2007] 158 Taxman 13 (Mad.); Felspar Credit & Investment (P.) Ltd. v. CIT [2012] 346 ITR 121/27 taxmann.com 137 (Mad.) (para 5) distinguished.

Splendor Constructions (P.) Ltd. v. ITO [2009] 27 SOT 39 (Delhi) (para 7) followed.

CASES REFERRED TO

 

CIT v. N.S.S. Investments (P.) Ltd. [2005] 277 ITR 149/[2007] 158 Taxman 13 (Mad.) (para 3), Felspar Credit & Investment (P.) Ltd. v. CIT[2012] 346 ITR 121/27 taxmann.com 137 (Mad.) (para 3), CIT v. Vinay Mittal [2012] 208 Taxman 106/22 taxmann.com 151 (Delhi) (para 3) andSplendor Constructions (P.) Ltd. v. ITO [2009] 27 SOT 39 (Delhi) (para 4).

R. Sivaraman for the Appellant. Shaji P. Jacob for the Respondent.

ORDER

 

Vikas Awasthy, Judicial Member - The appeal has been filed by the assessee against the order of the Commissioner of Income Tax(Appeals)-I, Chennai dated 27-08-2013 relevant to the Assessment Year (AY) 2010-11.

2. The assessee-company filed its original return of income for the AY.2010-11 on 23-09-2010 declaring 'NIL' income. Thereafter, assessee filed its revised return of income on 11-10-2010 declaring 'NIL' income under normal provisions and 'book profit' Rs. 52,27,71,157/- under the provisions of section 115JB of the Income Tax Act, 1961 (herein after referred to as 'the Act'). Later on, the assessee filed another revised return on 24-01-2012 declaring 'NIL' income under normal provisions and 'book profit' u/s. 115JB as Rs. 52,34,23,763/-. The case of the assessee was selected for scrutiny and notice u/s.143(2) was issued to the assessee on 25-08-2011. In assessment proceedings, the Assessing Officer observed that the assessee-company was incorporated in the year 2007. The assessee had borrowed funds from M/s. S & M Associates for purchase of shares. During the AY.2007-08, the assessee purchased shares of Shriram Transport and Finance Co. Ltd., to the tune of Rs. 2,73,64,742/- and held the same as investment. In the AY. 2008-09, the assessee converted the entire shares held as investment to stock in trade. The assessee further purchased shares to the tune of Rs. 13,87,729/-. Therefore, as on 31-03-2008, the closing stock of shares was Rs. 2,87,52,471/-. The assessee claimed interest on borrowed capital and thus declared business loss of Rs. 63,74,720/- in its return of income for the AY.2008-09. In the AY. 2009-10, the assessee continued to hold the shares as stock in trade. During the AY.2009-10, the assessee sold certain shares. The profit on sale of shares was shown as 'Business Income' in the Profit & Loss A/c. After netting of the interest payment on borrowed capital, the assessee declared a business loss of Rs. 9,06,38,717/- in the return of income for the period relevant to the AY. 2009-10. For the AY. 2010-11, the assessee vide Board's resolution dated 01-04-2009, converted the shares held as stock in trade to investment. During the period relevant to AY. 2010-11, the assessee sold shares and income from sale of shares Rs. 53,06,73,819/- was shown as Long Term Capital Gain. The assessee claimed exemption of the dividend earned during relevant period as well as Long Term Capital Gain and dis-allowed interest expenses to the tune of Rs. 12,84,50,420/- u/s.14A thereby declaring net loss of Rs. 6,847/-. The book profit u/s.115JB was assessed as Rs. 52,34,23,763/-. The Assessing Officer was of the opinion that the sole motive of converting stock in trade into investment during the AY. 2010-11 was evasion of tax. The Assessing Officer held that trading in shares is not incidental activity but main business activity of the assessee. Hence, it is nothing but an 'adventure in nature of trade', the profit out of which is to be assessee under the head 'Business Income'.

Aggrieved against the assessment order dated 15-02-2013, the assessee preferred an appeal before the CIT(Appeals). The CIT(Appeals) vide order dated 27-08-2013, confirmed the findings of the Assessing Officer on this issue and dismissed this ground of appeal of the assessee.

The assessee has come in second appeal before the Tribunal assailing the order of the CIT(Appeals).

3. Shri R. Sivaraman, Advocate appearing on behalf of the assessee submitted that in the AY.2007-08 after the incorporation of the assessee-company, the shares were held by the assessee as investments. Subsequently, in the AY.2008-09, the investments were converted into stock in trade. However. The desired results were not achieved by the assessee. Therefore, the Board of Directors vide resolution dated 01-04-2009 again converted the shares held as stock in trade to investment. The shares were sold in the month of November 2009 i.e., more than seven months from the date of conversion of shares from stock in trade to investment. The treatment of shares from investment to stock in trade and again back to investments was the policy decision of the company which was duly approved by the Board of Directors. The income from sale of shares was offered to tax as Long Term Capital Gains although exempt under the provisions of section 10 of the Act. The ld. Counsel for the assessee further submitted that it is the prerogative of the assessee to decide whether to treat the shares as investment or stock in trade. For treating the shares as investment or stock in trade the assessee is not required to seek approval or sanction from any authority under the Act. In order to support his contentions, the ld. Counsel for the assessee relied on the judgment of the Hon'ble Madras High Court in the case of CIT v. N.S.S. Investments (P.) Ltd. [2005] 277 ITR 149/[2007] 158 Taxman 13 and Felspar Credit & Investment (P.) Ltd. v. CIT [2012] 346 ITR 121/27 taxmann.com 137 (Mad) and the judgment of the Hon'ble Delhi High Court in the case of CIT v.Vinay Mittal [2012] 208 Taxman 106/22 taxmann.com 151.

4. Per contra, Shri Shaji P. Jacob, appearing on behalf of the Revenue vehemently supporting the order of the CIT(Appeals) prayed for the dismissal of the appeal of the assessee. The ld. DR submitted that the assessee has been taking inconsistent stand. The shares were purchased by the assessee with borrowed funds and claimed interest paid on borrowings as expenditure. When the assessee intended to sell shares, the same were converted from stock in trade to investment to evade tax liability. As long as the assessee had to pay huge interest on the borrowings, the assessee treated the shares as stock in trade and claimed the interest as expenditure. When the assessee anticipated huge profit from sale of shares, the stock in trade was converted into investments. The ld. DR contended that even if the shares are held to be investment and profit on sale is considered as capital gains, the holding period of the shares as investments is less than twelve months. Therefore, the assessee is not entitled to claim benefit of Long Term Capital Gains. In order to support his contentions, the DR relied on the order of the Delhi Bench of the Tribunal in the case of Splendor Constructions (P.) Ltd. v. ITO [2009] 27 SOT 39.

5. We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below, as well as the decisions relied on by the representatives of both the sides. It is an un-disputed fact that the assessee-company was incorporated in the year 2007 with the object of making investment in shares. It is also not in dispute that when the investment was initially made in the AY.2007-08, the shares were held by the assessee as investment. In the period relevant to the AY.2008-09, the entire shareholding of the assessee was converted from investment to stock in trade on 01-04-2008. In the AY.2009-10, the assessee continued to hold the shares as stock in trade. Again in AY.2010-11, vide Board's resolution dated 01-04-2009 the assessee converted the shares held as stock in trade into investment. It is evident from records that the assessee has made investment in shares from borrowed capital and has been claiming interest paid thereon as expenditure during the period, the shares were held as stock in trade.

6. The provisions of section 45(2) provides that the profit or gain arising from the transfer by way of conversion of a capital asset to stock in trade on a business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock in trade is sold or otherwise transferred by him. For the purpose of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of capital asset. However, the provisions of section 45 does not provide for the treatment of assets if converted from stock in trade to investment.

Section 2(47) defines transfer in relation to the capital asset. Sub-clause (iv) states that in case where the asset is converted by the owner thereof into, or is treated by him as stock in trade of a business carried on by him, such conversion or treatment shall be treated as transfer in relation to the capital asset. Section 2(47) also does not provide for the vice-versa situation where the stock in trade is converted into capital asset.

7. Undoubtedly, it is the prerogative of the assessee to manage the affairs of his business. However, the assessee has to follow consistent method in accounting policies and treatment of his assets. The Hon'ble Madras High Court in the case of N.S.S. Investments (P.) Ltd., (supra), has held that the profit on sale of shares held as investment is to be treated as capital gains instead of 'Business Income' and that the assessee can hold some shares as capital for the purpose of earning dividend and some shares as stock in trade for the purpose of doing business of buying and selling.

In case of Felspar Credit and Investment (P.) Ltd. (supra), the Hon'ble High Court has held that where the shares have been held as investment, the profit on sale of shares results in capital gains. There is no dispute about the law laid down by the Hon'ble Jurisdictional High Court in the aforesaid decisions. However, the aforesaid decisions do not apply in the facts and circumstances of the present case. In the instant case, the assessee has converted the shares initially held as investment into stock in trade and after two AYs, again converted the stock in trade into investment. The period during which the shares were held as stock in trade, the assessee claimed the interest on borrowings as expenditure. The assessee again in the year of sale of shares converted the shares held as stock in trade into investment and claimed the benefit of section 10.

8. It is not in dispute that when shares were sold by the assessee, they were converted into capital asset. Thus, the gain arising there from on sale would be assessable as capital gain. Now, what is to be ascertained is whether the shares at the time of sale were 'Short Term Capital Asset' or a 'Long Term Capital Asset' for which period of holding the shares has to be determined. The Delhi Bench of the Tribunal in the case of Splendor Constructions (P.) Ltd. (supra) while dealing with a similar issue has held that where the property-in-question is held by the assessee as stock in trade for the purpose of its business and the same had been converted by the assessee into investment, the period for which the said property was held as stock in trade cannot be reckoned for ascertaining as to whether it was a 'Long Term Capital Asset' or a 'Short Term Capital Asset' within the meaning given in Section 2(29A) and 2(42A) of the Act. The Tribunal concluded that in case where the property held as stock in trade is converted into investment, for ascertaining as to whether property is a Short Term Capital Asset or a Long Term Capital Asset, period for which said asset is held by the assessee's as capital asset (investment) alone has to be reckoned.

9. Applying the same principle in the present case, the period for which the shares were held as stock in trade by the assessee is to be excluded from the total period for which the shares were held by the assessee. Since, the date of acquisition of shares is not forth coming from the records, we remit this issue back to the file of the Assessing Officer to determine the total period of holding of shares as capital asset. The period during which the shares were held as stock in trade is to be excluded.

The appeal of the assessee is thus allowed for statistical purposes.

POOJA

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*Matter remanded.

M. Jaffer Saheb (Decd.) vs. CIT (Andhra Pradesh High Court)

Interest u/s 244A is not taxable in the year of grant of refund but has to be spread over the respective AYs to which it relates

In AY 1982-1983 the AO raised a demand which the assessee paid. In AY 1990-91 (16.06.1989) the AO gave effect to the Tribunal's order and refunded the tax paid by the assessee together with interest for the period from 30.10.1985 to 31.08.1989. The AO held that the said interest was assessable to tax in AY 1990-1991 while the assessee claimed that the said interest had to be spread over and assessed in AYs 1985-1986 to 1988-1989. The CIT(A) upheld the claim of the assessee though the Tribunal upheld the stand of the AO. On appeal by the assessee to the High Court HELD allowing the appeal:

The stand of the department that interest u/s 244(1A) accrues to the assessee only when it is granted to the assessee along with refund order issued u/s 240 is not correct. Interest accrues on a day to day basis on the excess amount paid by the assessee. The entitlement of interest is a right conferred by the statute and it does not depend on the order for the refund being made. An order for the refund is only consequential order which in law is required to be made more in the nature of complying with the procedural requirement, but the right to claim interest of the assessee is statutory right conferred by the Act. Accordingly, the interest has to be spread over and taxed in the respective years (K. Devayani Amma 328 ITR 10 (Ker) dissented from)

Note: The Govt has paid interest of Rs. 37,365 crore in 4 FYs. The practical consequence is that interest for years which are beyond reopening cannot be taxed. Also consider the impact on Avada Trading 100 ITD 131 (Mum) (SB) where it was held that s. 244A interest granted u/s 143(1)(a) was taxable in the year of receipt and could not be deferred to year of finality u/s 143(3). See also Sandvik Asia 133 ITD 126 (Pune) (TM) where it was held that interest received cannot be set-off against interest paid

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Civil Service Examnation- Relaxation of Number of Attempts

Posted In Finance | News | No Comments »

The Central Government has approved two additional attempts to all categories of candidates w.e.f. Civil Services Examination 2014 with consequential age relaxation of maximum age for all categories of candidates, if required from February 07, 2014.

Source- Ministry of Personnel, Public Grievances & Pensions- Press Release Dated 11-February, 2014

www.cliofindia.com info@cliofindia.com

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INCOME TAX REPORTS (ITR) HIGHLIGHTS

OnLine Edition Vol. 2				Print Edition Vol. 361, Part 1, dated 17-2-2014
SUPREME COURT	HIGH COURTS	ENGLISH CASES	CLB	SUPREME COURT	HIGH COURTS	ENGLISH CASES	CLB
SAT	DRAT	STATUTES	JOURNAL	SAT	DRAT	STATUTES	JOURNAL
NEWS-BRIEFS	AAR	TAXATION TRIBUNAL	CESTAT	NEWS-BRIEFS	AAR	TAXATION TRIBUNAL	CESTAT

ONLINE EDITION

HIGH COURT JUDGMENTS

F Export of computer software : Ninety per cent. of income from brokerage, interest, rent charges or receipts of similar nature cannot be reduced while computing special deduction under section 80HHE : CIT v. Robert Bosch (India) Ltd. (Karn) p. 97

F Penalty under Income-tax Act and Wealth-tax Act : Liability to pay penalty arises only when order imposing penalty is passed : Moongipa Securities Ltd. v. Asst. CIT and WT (Delhi) p. 108

F Recovery of tax and penalty due of predecessor from successor : No provision for such recovery under Wealth-tax Act : Moongipa Securities Ltd. v. Asst. CIT and WT (Delhi) p. 108

F Settlement of cases : Acceptance of return and return not taken up for scrutiny within time prescribed : Assessment not to be deemed pending only because final order of assessment not passed : CIT v. ITSC (Guj) p. 120

PRINT EDITION

SUPREME COURT JUDGMENTS

F Wilful failure to file returns : Onus on assessee to prove circumstances which prevented it from filing returns in terms of section 139(1) or in response to notices under sections 142 and 148 : Sasi Enterprises v. Asst. CIT p. 163

F Wilful failure to file returns : Best judgment assessments : Prosecution need not await culmination of assessment proceedings : Sasi Enterprises v. Asst. CIT p. 163

F Wilful failure to file return : Best judgment assessment : That would not nullify liability of assessee to file return : Sasi Enterprises v. Asst. CIT p. 163

F Declaration in individual returns of partners that no return filed by firm because accounts of firm not finalised : Not to affect duty of firm to file return : Sasi Enterprises v. Asst. CIT p. 163

HIGH COURT JUDGMENTS

F Winnings in kind : No duty on payer to deduct tax at source : CIT v. Hindustan Lever Ltd. (Karn) p. 1

F Share application money : Evidence furnished to establish genuineness of transactions : AO merely rejecting evidence without giving reasons : Additions not valid : CIT v. Gangeshwari Metal P. Ltd. (Delhi) p. 10

F Burden on Revenue to prove service of notice : CIT v. Gita Rani Ghosh (Gauhati) p. 17

F Refund of tax consequent to appellate order : Right deemed to have accrued in relevant year even though dispute as to right settled in later year : M. Jaffer Saheb (Decd.) v. CIT (AP) p. 25

F Loss of non-export processing zone unit need not be set off against profit/income of export processing zone unit : CIT v. Tei Technologies P. Ltd. (Delhi) p. 36

F Order under section 127(2) passed without giving notice liable to be set aside : Smt. Chandra Prabha Kushwaha v. CIT (All) p. 66

F Whether maternity hospital exists solely for philanthropic purposes and not for purpose of profit and aggregate annual receipts must not exceed prescribed amount : Matter remanded : Nehru Prasutika Aspatal Samiti v. CIT (All) p. 68

F Application for waiver for several years : Commissioner assuming relief could be given once for one year not justified : Asha Pal Gulati v. CBDT (Delhi) p. 73

F Best judgment assessment : Commissioner (Appeals) adopting rate of seven per cent. instead of 4.5 per cent. declared by assessee : Reasonable assessment : CIT v. Jogendra Singh and Co. (All) p. 78

F Payment to group concern of assessee : Assessee proving group concern acting as agent and amount paid on behalf of assessee by its agent : No disallowance : CIT v. Harbanslal Malhotra and Sons P. Ltd. (Cal) p. 82

F Transfer pricing : Assessee receiving service charges of 5 per cent. of cost plus mark-up : Calculation of net profit margin to be with reference to cost incurred by assessee and not by third party manufacturer or associated enterprise : LI and Fung India P. Ltd. v. CIT (Delhi) p. 85

F Conveyance allowance paid to employees taxable under head "Salary" : Sriram Refregeration Industries v. ITO (AP) p. 119

F Foreign bank charging interest on Indian bank in process of negotiating letter of credit on behalf of assessee : No obligation of assessee to make tax deduction at source : Sriram Refregeration Industries v. ITO (AP) p. 119

F No expenditure incurred for earning exempt income : AO to collect relevant material to determine expenditure relating to such exempt income : CIT v. Deepak Mittal (P & H) p. 131

F Amount belonging to assessee available with Revenue far in excess of tax payable in terms of return and demand created under section 143(1)(a) : Assessee cannot be denied hearing on ground of non-payment of tax due on returned income : CIT v. Pramod Kumar Dang (Delhi) p. 137

F Tribunal restoring registration on ground in previous years exemption under section 11 was allowed to assessee : Justified : CIT v. Jeevan Deep Charitable Trust (All) p. 143

F Share application money : Addition under section 68 not valid where evidence that applications were genuine : CIT v. Expo Globe India Ltd. (Delhi) p. 147

F Disallowance of commission not justified where no evidence to show transaction relating to payment of commission not genuine or payment excessive and unreasonable : CIT v. Rajarani Exports P. Ltd. (Cal) p. 152

F Unexplained investment : Assessee discharging initial burden to establish identity, creditworthiness and genuineness for allotment of shares : Deletion of addition justified : CIT v. Nipuan Auto P. Ltd. (Delhi) p. 155

F Payments to contractors : TDS before March 31 of year and amounts deposited in Central Government before last date for filling return : No disallowance could be made : CIT v. J. K. Construction Co. (Guj) p. 181

F Audit of assessee done and audit report submitted well in time : Assessee could have filed return within time : Learning Curve Technologies Bangalore P. Ltd. v. Asst. CIT (Karn) p. 183

F Hotel : Profits of entire business of assessee to be reckoned as a whole : Hotel and Allied P. Ltd. v. Deputy CIT (Ker) p. 184

F Interest can be charged on tax calculated on book profits : Hotel and Allied P. Ltd. v. Deputy CIT (Ker) p. 184

F Interest from bank and other dividends assessable only as income from other sources : Hotel and Allied P. Ltd. v. Deputy CIT (Ker) p. 184

F Club expenses : Matter remanded to AO to ascertain whether it was paid towards membership fee or otherwise : Hotel and Allied P. Ltd. v. Deputy CIT (Ker) p. 184

F Where astrologer instrumental in election victory of certain candidates and amount received from candidates as mark of admiration assessable as income from business : N. K. Unnikrishna Panicker v. CIT (Ker) p. 187

F Assessee entitled to deduction under sections 80HHC, 80-I, 80-IA for bottling of gas into gas cylinders : CIT v. Hindustan Petroleum Corporation Ltd. (Bom) p. 190

F Transportation and other charges incurred by agent on behalf of assessee : Assessee not required to deduct tax at source : CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (Guj) p. 192

JOURNAL

F Disallowance under section 14A, in the light of the case of Deepak Mittal-S. K. Tyagi, Advocate . . . 1

F Goetze case and Tribunal's power under the Income-tax Act, 1961-Vishal Mishra and Rahul Singh, Advocates . . . 7

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TDS on legal service received from outside India

Posted In Income Tax | Articles | 18 Comments »

Pawan Sehrawat (CA, CS)

Under Income tax as per explanation 2 to section 9(1)(vii), legal service is considered as fee for technical service.

Explanation 2 u/s 9(1)(vii) says "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".

Legal fees is deemed to accrue or arise in India, whether or not non-resident has place of business in india or has rendered services in India.

Explanation to section 9 says, "For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,—

(i)  the non-resident has a residence or place of business or business connection in India; or

(ii)  the non-resident has rendered services in India.

TDS rate under IT Act is 25% [as per section 115A(B)].

India has entered into tax treaty with several countries which contain clauses for less withholding tax or no withholding tax rate. Assessee has option to use lower withholding rate (lower of IT rate or DTAA rate).

Section 90(2) says "Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee."

To get the benefit of tax treaties, non-resident has to share Tax Residency Certificate. Otherwise normal IT rate shall apply.

Section 90(4) says "An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless 60b[a certificate of his being a resident] in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory."

Further, besides having TRC, non-resident should have PAN no. otherwise tax rate as per section 206AA will apply. As this section contains non-obstante clause.

Section 206AA(1) says, "Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—

(i)  at the rate specified in the relevant provision of this Act; or

(ii)  at the rate or rates in force; or

(iii) at the rate of twenty per cent"

Lets understand with the help of an example:

Example 1

Mr. X of USA/UK provided some legal service from there only, to client in India. Now as per USA/UK treaties with India, rate is NIL.

Hence, Withholding tax rate will be.

• If he has PAN & TRC, NIL tax.
• If he has PAN only, tax rate shall be as per IT Act i.e. 25%. Since he can't take benefit of tax treaty.
• If he has only TRC, tax rate shall be higher of 20% or above 25%.

Note: 25% tds rate shall be increased by applicable SC, EC & SHEC.

Section 234E – How to pay Fees for Late filing of TDS Statement?

Posted In Income Tax | Articles, Featured | 3 Comments »

Intimation u/s 200A of the Income Tax Act, 1961 intimating an outstanding demand for the relevant quarters, including demand under section 234E towards Fee for delayed filing of TDS Statement(s), have already been sent by CPC (TDS) on Registered email address and by post, at the address, as mentioned in the relevant TDS Statement of the deductors.

We would hereby like to draw your attention towards the provisions of section 234E of the Act, which reads as follows:

Levy for Late filing of TDS Statement (Section 234E of Income Tax Act)

• Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time
  prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues.
• The amount of fee referred to in sub-section (1) shall not exceed the amount of tax deductible or collectible, as the case may be.
• The amount of fee referred to in sub-section (1) shall be paid before delivering or causing to be delivered a statement in accordance with sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C.
• The provisions of this section shall apply to a statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.

You are advised to pay the outstanding demand at an early date to avoid Penal Interest u/s 220(2) of the Act apart from intimation of other recovery proceedings as per Income Tax Act, 1961. If the demand has already been paid, you are requested to file a Correction Statement by tagging the challan and the Justification report can be verified for closure of demand, if the revision has already been submitted and processed.

How to pay the demand:

The following steps shall help you analyze and pay the demand:

• Download the Justification Report from TRACES portal to view your latest outstanding demand.
• On downloading the Justification Report.Use Challan ITNS 281 to pay the above with your relevant Banker or use any other Challan, which has adequate balance available
• Download the Conso File from Traces portal.
• In case of payment towards late filing fee, please Tag the challan towards the payment, in the "Fee" column" (Column Number 305 for 24Q, 404 for 26Q, 706 for 26Q) using RPU Ver. 3.8, mentioning appropriate amount in such column and validate to generate the FVU.
• Submit the Correction Statement at TIN Facilitation Centre.
• The demand can also be paid by using the Online Correction facility.

CPC introduces Online facility of filing corrections to TDS Statements

Posted In Income Tax | Articles | 1 Comment »

CPC (TDS) has introduced the convenience of online facility of filing corrections to the TDS Statements. With this feature, you will be able to breeze through submitting revisions with ease and confidence when you complete your transactions on TRACES portal.

To avail the facility, you have to to Login to TRACES and navigate to "Defaults" tab to locate "Request for Correction" from the drop-down list.

Pre-requisites for filing online Corrections:

• Digital Signature is mandatory to be registered on TRACES for raising online corrections. To register your Digital Signature, please refer to the e-tutorial for any help available on TRACES website.
• Online request can be submitted, only if there is a regular statement already filed and processed.
• All previous corrections pertaining to the statement should have been processed and the processing status can be verified from the  Dashboard

Functionalities available:

• PAN Correction
  • Invalid to Valid PAN: The correct name of the Valid PAN will be displayed in "Name as per changed PAN".
  • Valid to Valid PAN: If the new PAN entered is Invalid, a message is displayed in the "Action Status". Please note that there is only one opportunity for a Valid to Valid PAN correction.
  • All the corrected rows can be viewed by clicking on "Show Edited Rows" on the screen
• Challan/BIN Correction
  • A list of all Unmatched Challans can be viewed and tagged with this functionality.
  • Please note that the Matched challans cannot be tagged, however, Unmatched Challans can be corrected for  "Section Code" and "Amount Claimed" and tagged to Deductee rows in the statement. In addition, NO CHALLAN, which has been used for other purposes outside the system, should be tagged.
  • The corrections to Unmatched Challans can be reset by clicking the Reset tab, if this requires to be further corrected.
• Action Summary
  • After carrying out all the corrections, Action Summary can be referred for all changes carried out.
  • Please click "Confirm" for all intended changes and the statement is ready for submission.
• Actions to complete Submission
  • Please navigate to "Defaults" tab to locate "Corrections Ready for Submission".
  • Click on "Submit for Processing", which will prompt to digitally sign the submission.
  • Once the correction is submitted successfully, a Token Number for the same will be available.

Quote correct BIN while filing TDS/TCS statement

Posted In Income Tax | Articles | No Comments »

It is mandatory for Government deductors, who are reporting TDS without payment through bank challans, to quote correct Book Identification Number (BIN), while filing TDS/TCS statement. In case correct BIN is not quoted in the respective TDS statement, a Short Payment demand shall be raised by CPC(TDS).

BIN is generated by the Tax Information Network (NSDL) once the respective Principal Accounts Officer files monthly statements in Form 24G. You may contact your respective PAO/ AO/ AAO/DTO/ TO/ CDO and collect the BIN details. You can also check BIN from TIN portal at https://onlineservices.tin.egov-nsdl.com/TIN/JSP/etbaf/ViewBIN.jsp

Due date for filling TDS/TCS statement for the Quarter 3 of Financial Year 2013-14  is 31st January'2014. You are, therefore, advised to file your TDS/TCS statement on time to avoid late filing fee of Rupees 200/- per day u/s 234E of Income Tax Act, 1961.

AHMEDABAD, FEB 12, 2014: THE issue before the Bench is - Whether when the assessee enters into agreement for transporting employees and guests of a Research Institute and hires certain vehicles on rent to fulfil its obligations, any TDS liability u/s 194C arises on payments made in this regard. And the answer goes against the Revenue.

Facts of the case

The assessee concern had undertaken a contract of transporting the employees of Institute of Plasma Research by supplying vehicles for the purpose. In the course of executing the contract, the assessee hired certain vehicles from a private agency and made payment of Rs. 42.84 lakhs. During assessment, AO contended that u/s 194C, assessee was required to deduct tax at source, while making such payment. The assessee admittedly not having done so, such payment would be hit by the provisions of Section 40(a)(ia) and the expenditure should be disallowed. The assessee contended that the assessee had only rented the vehicles and the said agency had not provided any service of carriage of passengers. The charges were therefore paid for renting or hiring of the vehicles. AO was unmoved and he disallowed the expenditure and observed that it was clear that assessee was liable to deduct TDS as per Section 194C. It was admitted that the assessee had not deducted tax from payment to other to the extent of Rs. 42,84,497/-, though he was liable to do so. In view of this, the assessee had not complied with the provisions of section 194C and as such the provisions of section 40 (a)(ia) were clearly attracted in the assessee's case.

On appeal before the CIT (A), assessee relied on the terms of the agreement between the assessee and the IPR to further contend that no part of the assessee's responsibility arising out of the said agreement was further contracted out with a private agency. The CIT [A], however, basing reliance on the terms of the agreement negated the contention. On further appeal, Tribunal allowed the assessee's appeal and reversed the deduction.

Before the HC, the Revenue's counsel had contended that Tribunal committed an error in reversing the decision of revenue authorities. The payments made by the assessee were clearly hit by Section 194C. It was submitted that assessee had for the first time canvassed before the Commissioner that in view of the agreement between the assessee and the IPR, the question of relationship between the contractor and subcontractor would not arise. Referring to the terms of the agreement, counsel contended that part of the work undertaken by the assessee under the said agreement was assigned to the subcontractor. Looked from any angle, even otherwise, such payment would fall under section 194C.

Held that,

++ from the various clauses of the agreement between assessee and IPR, it could be seen that the entire task was assigned to assessee by the IPR for transportation of its employees and the guests; for which the assessee had to maintain certain number of vehicles in good working condition and to deploy necessary staff and for such purpose, IPR agreed to pay rent. The entire task was to be performed by the contractor and could not be assigned to a subcontractor without prior permission of the IPR. As held and observed by the Tribunal, the Revenue did not bring out any material to establish that the owner of the vehicles performed the work of transportation. The assessee had merely hired the vehicles for performing its part of the contract with IPR. That being the position, the Revenue's stand that the work of transportation or part thereof was assigned to a subcontractor was rightly not accepted by the Tribunal;

++ in a judgment of CIT v. Prashant H. Shah, the Division Bench of HC considered the provisions of Section 194C and in particular, subsection (2) thereof in connection with the contract for construction. When the Revenue contended that the contractor had engaged a subcontractor for performance of part of the work, the Court observed that subsection (2) of section 194C requires that any person, that is, a contractor responsible for paying any sum to any resident subcontractor in pursuance of a contract with the subcontractor for carrying out or for supply of labour for carrying out the whole or any part of the work undertaken by the contractor or for supplying any labour, which the contractor had undertaken to supply has to, at the time of credited such sum to the account of subcontractor, or at the time of payment in cash or in any other manner, deduct TDS at the specified rate. For application of subsection (2) of section 194C, the requirement is that there is a contractor who has undertaken to carry out any work or supply of labour, a part of such work or supply of labour is executed through a subcontractor and in pursuance of execution of such work, the payment is being made either in cash or in any other manner or the same is being credited in the account of the subcontractor. Only under such circumstances, the requirement of deducting tax at source on such payment would arise on the part of the contractor. The Tribunal, upon detailed examination of the nature of relationship between the assessee and the transporter, came to the conclusion that this is not a case of subcontract. The Tribunal noted that none of the responsibilities of the contractor vis-a-vis the execution of the work were fastened on the transporters. The Tribunal noted that the assessee had indemnified ANS Construction against any legal or financial liability if such liability arises in future out of such contract. The assessee was solely responsible for execution of the work. No part of such liability was fastened on the transporters. The assessee had only availed of the services of such transporters for carrying out the material to the site. The Tribunal, therefore, concluded and rightly so in our opinion that this was not a case of relationship between the assessee contractor and the transporters in the capacity of subcontractors. To reiterate, for application of section 194C (2) what was necessary was a relationship between the contractor and subcontractor and not merely be hiring of an agency by the contractor during the course of execution of the work. In the present case, such vital requirement of relationship of a contractor and subcontractor between the assessee and the transporters was missing. The Tribunal, in our view, was perfectly justified in holding that liability to deduct tax at source in the present case do not arise. In the result, we see no question of law arising. Tax Appeal is therefore dismissed.

IT : Where Assessing Officer had conducted enquiries into matter of sale of shares prior to surrender made by assessee and duly established on record that said share transactions were sham and bogus, he was justified in levying penalty under section 271(1)(c) in respect of addition made for those transactions

■■■

[2014] 41 taxmann.com 269 (Agra - Trib.)

IN THE ITAT AGRA BENCH

Deputy Commissioner of Income-tax -4(1), Agra

v.

Mukesh Kumar Agarwal, (HUF)*

BHAVNESH SAINI, JUDICIAL MEMBER 
AND A.L. GEHLOT, ACCOUNTANT MEMBER

IT APPEAL NO. 178 (AGRA) OF 2011
[ASSESSMENT YEAR 2002-03]

MAY  11, 2012 

Section 271(1)(c), read with section 68, of the Income-tax Act, 1961 - Penalty - For concealment of income [Surrender of income] - Assessment year 2002-03 - Assessee filed return of income declaring long term capital gain arising from sale of shares - On getting information of bogus transaction of shares, Assessing Officer issued notice under section 148 - In response to said notice, assessee surrendered income earned on sale of shares as income from undisclosed sources - Assessing Officer taking a view that capital gain transactions in question were sham, made addition under section 68 and also passed a penalty order under section 271(1)(c) - It was undisputed that Assessing Officer had conducted enquiries into matter of sale of said shares prior to surrender made by assessee and duly established on record that share transactions were sham and bogus - Whether in view of above, it could be concluded that assessee had intentionally and deliberately filed inaccurate particulars of his income in original return and, therefore, impugned penalty order was to be confirmed - Held, yes [Para 5.5] [In favour of revenue]

FACTS

 

■		The assessee filed return of income declaring long term capital gain arising from sale of shares.
■		On getting information of bogus transaction of shares, the Assessing Officer issued notice under section 148.
■		In response to said notice, assessee surrendered the income earned on sale of shares as income from undisclosed sources and it was clarified that because of the above surrender made by the assessee, there was no need to prove the genuineness of the transaction in the matter.
■		The Assessing Officer taking a view that capital gain transactions claimed were sham, made addition under section 68. He also passed a penalty order under section 271(1)(c) in respect of aforesaid addition.
■		The Commissioner (Appeals), however, relying upon order passed by the Tribunal in another case, set aside impugned penalty order.
■		On revenue's appeal:

HELD

 

■		It was noted from records that despite surrender made by the assessee of the income out of undisclosed sources, the Assessing Officer brought sufficient material on record to prove that the assessee has not entered into any genuine transaction of sale of shares.
■		Therefore, the finding given in the assessment order and the surrender made by the assessee in pursuance of the enquiries conducted by the Assessing Officer against the assessee, it is established on record that the assessee never filed any revised return in pursuance of notice under section 148.
■		It is also established on record that the Assessing Officer conducted enquiries into the matter of sale of bogus shares prior to surrender made by the assessee and established on record that assessee entered into bogus and sham transactions of sale of shares.
■		It is, therefore, clear on record that the assessee at the initial stage tried to prolong the matter before the Assessing Officer at the reassessment stage and has not provided any relevant information to the Assessing Officer. The assessee made disclosure of undisclosed income only under compulsion when the assessee was cornered by the Assessing Officer on the basis of the material found against him.
■		The law has provided furnishing of revised return in a case of any omission in the original return. Such omission has to be inadvertent and bona fide. If the omission is intentional, the revised return also cannot absolve the assessee.
■		Each case would depend on its own facts considering the investigation conducted by the Revenue Department and the evidence collected during the course of investigation by the department.
■		In this case, the original return filed by the assessee declaring capital gains in question on sale of shares of company 'C' was not bona fide because the shares in question held by the assessee were never transferred in the name of any person as a purchaser. This fact was within the knowledge of the assessee which was also confirmed by the company, 'C', whose shares were allegedly held by the assessee and allegedly sold by the assessee.
■		Since no shares were sold, there is no question of receiving any long term capital gains on the same transaction. The Assessing Officer also conducted enquiries in the case of brokers, 'N' and despite specific enquiries made in the case of broker, the broker was not traceable.
■		The bank accounts were examined from where drafts in question were issued and it was found that the cash was deposited before issue of drafts. Thus, sufficient material was brought on record by the department against the assessee and all material was brought to the notice of assessee and only thereafter, the assessee made surrender of undisclosed income. [Para 5]
■		It was thus apparent from records that the assessee had intentionally and deliberately filed inaccurate particulars of his income in the original return and therefore, penalty was leviable in the present case. [Para 5.5]
■		The Commissioner (Appeals) without considering the facts and material on record, merely by following another order of Tribunal cancelled the penalty. Such a casual approach by the Commissioner (Appeals) is not appreciated.
■		The Commissioner (Appeals) failed to consider the order sheet and the material collected by the Assessing Officer during the course of investigation which clearly proved that the assessee has deliberately and intentionally filed inaccurate particulars of income in the original return of income and only when the assessee was confronted and cornered by the department, the assessee made surrender of undisclosed income.
■		On collecting adverse material against the assessee, had the department not reopened the assessment under section 148, the assessee would not have surrendered the undisclosed income.
■		Even if the assessee would have filed the revised return in the facts of this case in pursuance to the notice under section 148, it would not make any difference because the Assessing Officer has collected incriminating material against the assessee prior to the surrender of undisclosed income and confronted the same to the assessee with due show cause notice.
■		Therefore, the facts and material brought on record clearly justify the levy of penalty, which has been ignored by the Commissioner (Appeals) while cancelling the penalty. Therefore, the order of the Commissioner (Appeals) cannot be sustained in law. [Para 6]
■		In view of above, the order of Commissioner (Appeals) is set aside and the order of Assessing Officer is restored in imposing penalty under section 271(1)(c) against the assessee. [Para 7]
■		In the result, the departmental appeal is allowed. [Para 8]

CASES REFERRED TO

 

CIT v. Rakesh Suri [2011] 331 ITR 458/9 taxmann.com 5 (All.) (para 3), ITO v. Smt. Vandana Agarwal [dated 17-7-2009 PB-50] (para 4), CIT v.Rajiv Garg [2009] 313 ITR 256/[2008] 175 Taxman 184 (Punj. & Har.) (para 4), LMP Precision Engg. Co. Ltd. v. Dy. CIT [2011] 330 ITR 93/[2009] 183 Taxman 12 (Guj.) (para 5.2), Prempal Gandhi v. CIT [2011] 335 ITR 23/[2009] 185 Taxman 64 (Punj. & Har.) (para 5.3) and Jyoti Laxman Konkar v. CIT [2007] 292 ITR 163 (Bom.) (para 5.4).

Sohail Akhtar for the Appellant. Anurag Sinha for the Respondent.

ORDER

 

Bhavnesh Saini, Judicial Member - This appeal by the Revenue is directed against the order of ld. CIT(A)-II, Dehradun (camp Agra) dated 21.01.2011 for the assessment year 2002-03, challenging the cancellation of penalty u/s. 271(1)(c) of the IT Act.

2. The ld. CIT(A) noted the brief facts in the impugned order that in the course of assessment proceedings, the assessee submitted before the AO that he was not in a mood to fight with the department on technical issues and wanted to cooperate and surrender the capital gains income to be taxed as income from other sources. However, the AO examined the transactions in question and concluded that the capital gain transactions claimed were sham and brought the sale proceeds to tax as income from other sources and addition was made u/s. 68 of the IT Act. The AO initiated the penalty proceedings and vide separate order, penalty was levied which was challenged before the ld. CIT(A). The submissions of the assessee were forwarded to the AO for comments, but the same were not taken care of. It was submitted before the ld. CIT(A) on behalf of the assessee that the capital gains income, originally shown, was surrendered in the course of assessment proceedings as income from other sources and the same was assessed as such and, therefore, there was no question of preferring any appeal against the quantum. It was contended that in many cases, where the income from long term capital gains was surrendered to be assessed as income from other sources, the ITAT Agra Bench deleted the penalty and relied upon such orders in the cases of Ashok Kumar Lavania v. ACIT, Saumya Agarwal v. ITO. It was also submitted that in the cases of Dr. S.D. Maurya and Dr. R.C. Mishra, on identical facts, penalty levied on surrender of long term capital gains to be assessed as income from other sources, the ld. CIT(A) deleted the penalty and on further appeal, the Tribunal confirmed the order of the ld. CIT(A). The ld. CIT(A) on consideration of the submissions of the assessee found that there is no single feature which could be distinguished from the facts of the case. Therefore, following the Tribunal order, penalty was cancelled and the appeal of the assessee was allowed.

3. The ld. DR relied upon the orders of the AO and submitted that reassessment proceedings were initiated u/s. 148 of the IT Act and despite service of notice, the assessee did not furnish return of income in response to the notice u/s. 148 of the IT Act. The assessee requested for the extension of time to file the return before the AO, which was rightly rejected because there is no such provision under the law. He has filed copy of letter of the assessee dated 18.08.2005, in which the assessee made surrender of capital gains income as income from other sources. He has also filed copy of letter of M/s. Capital Trade Link Ltd. dated 22.07.2005 in which it was explained that the concerned shares are still held in the name of the assessee and have not been transferred to any person in the records of the company. The ld. DR referred to the order-sheet entries recorded by the AO, in which the AO has noted on 26.07.2005 that no information has been received from the broker M/s. North India Securities Pvt. Ltd., but the information has been received from the Capital Trade Link Ltd. Thereafter on the request of the assessee, the case was adjourned. The ld. DR referred to the order sheet dated 11.08.2005 in which the authorized representative of the assessee appeared before the AO and filed the reply and objections regarding the notice u/s. 148 of the IT Act in which the AO rejected the claim of assessee for allowing time to file the return belatedly in response to notice u/s. 148 of the Act and the assessee was directed to file complete reply on 18.08.2005. The AO also recorded in this order sheet dated 11.08.2005 that the assessee was shown all information received from M/s. Capital Trade Link Ltd., in which it was recorded that the shares are still held in the name of assessee. Therefore, the assessee was directed to prove the genuineness of sale of shares and to show cause why it should not be concluded that the shares were not sold and the amounts received on account of sale of shares be not added as undisclosed income u/s. 68 of the IT Act. The case was adjourned to 18.08.2005 and the assessee filed reply on 18.08.2005 making surrender of capital gains as income from undisclosed sources and the assessee also stated in reply that there is no necessity to prove the genuineness of the transaction in the matter. The ld. DR, therefore, submitted that the assessee surrendered the income on account of undisclosed sources only when the AO made total enquiry against the assessee and cornered the assessee in this behalf, otherwise the assessee would not have disclosed the undisclosed income. The ld. DR further submitted that the AO brought sufficient material on record to prove that the assessee entered into bogus transactions of purchase and sale of shares because the assessee was not able to prove the genuineness of the transactions in the matter. The ld. DR further submitted that when the AO asked for the complete details and brought the material on record against the assessee, the assessee made a surrender of undisclosed income because only 10% tax was paid on capital gains instead of full tax payable on undisclosed income. The ld. DR submitted that the assessee had intentionally and deliberately filed inaccurate particulars of income in the original return. Therefore, the ld. CIT(A) should not have cancelled the penalty. He has submitted that the assessee made surrender of undisclosed income after initial enquiry conducted by the department and sufficient material was brought against the assessee. Therefore, the decisions of the Tribunal relied upon by the ld. CIT(A) are not applicable. He relied upon the decision of Hon'ble Allahabad High Court in the case of CIT v. Rakesh Suri [2011] 331 ITR 458/9 taxman.com 5, in which it was held that when surrender of income was made under compulsion by the Revenue, there is no voluntary disclosure of income and penalty u/s. 271(1)(c) was justified. The ld. DR further submitted that the decisions of the Tribunal relied upon before the ld. CIT(A) are clearly distinguishable on facts because in the case of the assessee, no revised return has been filed.

4. On the other hand, the ld. counsel for the assessee reiterated the submissions made before the authorities below and submitted that no enquiries were conducted by the AO prior to 11.08.2005 and the assessee made surrender of income on 18.08.2005 immediately as noted in the assessment order because the assessee wanted to buy peace. He has submitted that the assessee was never cornered by the department of holding undisclosed income. The assessee in the original return of income disclosed the entire amount of the addition as income earned on account of long term capital gains. Therefore, the assessee disclosed complete facts in the original return of income. Therefore, it is not a case of concealment of income or filing of inaccurate particulars of income. He has submitted that the burden is upon the AO to prove that the assessee has concealed the particulars of income. He has relied upon the order of ITAT, Agra Bench in the case of ITO v. Smt. Vandana Agarwal dated 17.07.2009 (PB-50), in which the Tribunal found that the explanation of the assessee has been substantiated by the evidence brought on record. Therefore, penalty is not leviable. He has also relied upon the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Rajiv Garg [2009] 313 ITR 256/[2008] 175 Taxman 184, in which it was held that the assessee having surrendered the additional income along with explanation in the revised return filed in pursuance of notice u/s. 148 of the IT Act and the AO has not taken any objection that the assessee's explanation was not bona fide, penalty u/s. 271(1)(c) is not leviable. He has submitted that the Hon'ble High Court relied upon the decision in the case of Suresh Chand Mittal and that the decision in the case of Rajiv Garg (supra) has been upheld by the Hon'ble Supreme Court (PB-49) by dismissing the departmental appeal.

5. We have considered the rival submissions and the material on record. It is not in dispute that the assessee filed original return of income on 07.08.2002 declaring income of Rs.7,98,950/- on account of long term capital gains on selling the shares of M/s. Capital Trade Link Ltd. The said shares were stated to be sold through the broker M/s. North India Securities Pvt. Ltd., New Delhi. On getting information of bogus transaction of shares, the AO issued notice u/s. 148 of the Act, asking the assessee to furnish the return of income u/s. 148 of the IT Act. The assessee's representative instead of complying with the statutory notice, sought adjournments on various dates and ultimately proceedings were adjourned to 04.08.2005 and 11.08.2005. The assessee's representative wanted time to file return of income u/s. 148 belatedly, but his request was not allowed because there was no such provision under the law. The order sheets of the AO have been filed in the paper book by the ld. DR. The AO on 26.07.2005 noted that no information has been received from broker, M/s. North India Securities Pvt. Ltd., but information was received from M/s. Capital Trade Link Ltd. dated 22.07.2005 whose shares were alleged to be sold through broker. Copy of the letter dated 22.07.2005 is filed on record in which M/s. Capital Trade Link Ltd. confirmed that entire shares stated to be sold are still held in the name of assessee and have not been transferred to any person in the records of the company. Thereafter the assessee's representative appeared on 05.08.2005 before the AO and sought adjournment for filing reply. The case was adjourned on 11.08.2005 and on that day, reply was filed and objections were raised regarding proceedings u/s. 148 and assessee was directed to file reply by 18.08.2005 and the assessee was shown information received from M/s. Capital Trade Link Ltd. that no shares have been transferred till date and the same are held in the name of assessee. Therefore, the assessee was directed to prove the genuineness of the sale of shares in question and show cause notice was also given to the assessee as to why it should not be concluded that the shares were not sold and the amount in question has been received on account of undisclosed income should not be added u/s. 68 of the IT Act. The case was adjourned to 18.08.2005. The ld. DR filed copy of reply of assessee dated 18.08.2005 in which the assessee surrendered the income earned on sale of shares of M/s. Capital Trade Link Ltd. as income from undisclosed sources and it was clarified that because of the above surrender made by the assessee, there is no need to prove the genuineness of the transaction in the matter. Before proceeding further, we may also note here that despite surrender made by the assessee of the income out of undisclosed sources, the AO brought sufficient material on record to prove that the assessee has not entered into any genuine transaction of sale of shares. Therefore, the finding given in the assessment order and the surrender made by the assessee in pursuance of the enquiries conducted by the AO against the assessee, it is established on record that the assessee never filed any revised return in pursuance of notice u/s. 148 of the Act. It is also established on record that the AO conducted enquiries into the matter of sale of bogus shares prior to surrender made by the assessee on 18.08.2005 and established on record that the AO brought sufficient material on record against the assessee that the assessee entered into bogus and sham transactions of sale of shares and specific material was brought to the notice of assessee and show cause notice was given to the assessee on 11.08.2005 as to why addition u/s. 68 be not made against the assessee. It is, therefore, clear on record that the assessee at the initial stage tried to prolong the matter before the AO at the reassessment stage and has not provided any relevant information to the AO. The assessee made disclosure of undisclosed income only under compulsion when the assessee was cornered by the AO on the basis of the material found against him. The law has provided furnishing of revised return in a case of any omission in the original return. Such omission has to be inadvertent and bona fide. If the omission is intentional, the revised return also cannot absolve the assessee. Each case would depend on the facts of each case, considering the investigation conducted by the Revenue Department and the evidence collected during the course of investigation by the department. In this case, the original return filed by the assessee declaring capital gains in question on sale of shares of M/s. Capital Trade Link Ltd. was not bona fide because the shares in question held by the assessee were never transferred in the name of any person as a purchaser. This fact was within the knowledge of the assessee which was also confirmed by the Company, M/s. Capital Trade Link Ltd., whose shares were allegedly held by the assessee and allegedly sold by the assessee. Since no shares were sold, there is no question of receiving any long term capital gains on the same transaction. The AO conducted enquiries in the case of brokers, M/s. North India Securities Pvt. Ltd., New Delhi and despite specific enquiries made in the case of broker, the broker was not traceable. The bank accounts were examined from where drafts in question were issued and it was found that the cash was deposited before issue of drafts. Thus, sufficient material was brought on record by the Revenue department against the assessee and all material was brought to the notice of assessee and only thereafter, the assessee made surrender of undisclosed income on 18.08.2005.

5.1 Hon'ble Allahabad High Court in the case of Rakesh Suri (supra) held —

"The assessee filed his return for the assessment year 2004-05 disclosing total of Rs. 1,17,600. The case was selected for scrutiny. It was found that the assessee had shown long-term capital gains on sale of shares. He had constructed a house between financial years 2001-02 and 2004-05 investing Rs.56,74,567. The income-tax authorities repeatedly required the assessee to furnish the contract note of purchase and sale of shares sold with a copy of bill of broker, justify holding of shares, which were sold, year-wise investment in the house property, valuation report of the approved valuer, confirmation of salary received from the company and other documents. The assessee did not furnish full details. His statement that the shares had been sold through the Delhi Stock Exchange was found to be false. The assessee was directed to furnish reply in terms of the order dated November 9, 2006. He was further directed to furnish the name of the stock exchange through which shares were purchased and sold, rate of shares in the stock exchange on date of purchase and sale on or before December 6, 2006. On December 6, 2006, the assessee surrendered the entry appearing in his bank account on sale of shares amounting to Rs. 61,35,844 on agreed basis. The Assessing Officer treated the sum of Rs. 61,35,844 as income from undisclosed sources under section 69A of the Income-tax Act, 1961, and also levied penalty. The Commissioner (Appeals) cancelled the penalty and this was confirmed by the Tribunal. On appeal to the High Court:

Held, allowing the appeal, that the assessee had concealed the material facts and given incorrect statement of facts in the application and also not provided information required by the Assessing Officer, after receipt of notice. Accordingly the action of the assessee was neither bona fide nor voluntary. The manner in which the assessee had tried to prolong the case before the Assessing Officer by not providing information immediately and by narrating incorrect facts in the letter dated December 6, 2006 showed that the assessee had concealed the income and disclosure was not voluntary but under compulsion being cornered by the Assessing Officer. Penalty had to be imposed."

5.2 Hon'ble Gujrat High Court in the case of LMP Precision Engg. Co. Ltd. v. Dy. CIT [2011] 330 ITR 93/[2009] 183 Taxman 12 held —

"The Deputy Director of Income-tax (Investigation), Bombay undertook survey action some time in September, 1988 and on verification of certain purchases made by the assessee it was found that the purchases did not appear to be genuine. Before the proceedings could be finally concluded the assessee filed a declaration under section 273A of the Act disclosing additional income of Rs. 54,71,463 as being relatable to assessment year 1985-86. On the same day, declaration was also made of a sum of Rs.18 lakhs each for assessment years 1986-87, 1987-88 and 1988-89. This application under section 273A of the Act was followed by revised returns filed on February 14, 1989 for all the three assessment years declaring identical additional income in the revised returns. Before assessments could be finalised, after regularising the same by issuance of notice under section 148 of the Act, the assessee came forward with another application declaring additional income of Rs. 78,56,613. The first declaration was in relation to purchases from ISC while the second disclosure was in relation to purchase made from SC, NB and NPST. The assessments were not challenged by the assessee. The Assessing Officer initiated penalty proceedings under section 271(1)(c). The explanation of the assessee for all the three years was that revised returns were voluntary, additional income in each of the revised returns was declared to purchase peace and no concealment was involved. It was submitted that the returns were revised even before issuance of notice under section 148 of the Act. The Assessing Officer did not accept the explanation of the assessee and levied penalties. Successive appeals filed by the assessee before the Commissioner (Appeals) and the Tribunal were dismissed by the two appellate authorities confirming the penalties levied by the Assessing Officer. However, the Tribunal came to the conclusion that the assessee had co-operated in finalisation of the assessment and accepted the assessment of additional income and so, the Tribunal reduced the penalty levied from the maximum to the minimum. On a reference:

Held, that it was only after the statement of the chairman and managing director was recorded by the Deputy Director of Income-tax (Investigation Mumbai, that the first disclosure dated October 20,1988, Rs. 54,71,463 was made accompanied by another disclosure of Rs. 54 lakhs in a round figure being divided into three segments of Rs. 18 lakhs each for assessment yean 1986-87, 1987-88 and 1988-89. The revised return declaring a sum of Rs.78,56,613 came about as a consequence of follow-up proceedings undertaken by the Deputy Director of Income-tax in relation to the other three suppliers, viz., SC, NB and NPST. Therefore, the assessee could not be stated to have voluntarily come forward to disclose income which had unintentionally been omitted from the original return of income. The imposition of penalty was valid."

5.3 Hon'ble Punjab & Haryana High Court in the case of Prem Pal Gandhi v. CIT [2011] 335 ITR 23/[2009] 185 Taxman 64 held —

"The assessee derived income from property dealings. After assessment was completed, the Assessing Officer noticed that the assessee had substantial transactions in the bank which were not disclosed and proceedings were Initiated for reassessment. The assessee filed a revised return and offered the peak credits in the bank account and interest thereon, with a condition that no penalty be imposed and he may not be prosecuted. The Assessing Officer did not accept the conditions. The Assessing Officer completed the assessment and also imposed penalty. The Commissioner (Appeals) accepted the plea of the assessee to the effect that the assessee having filed higher return and surrendered the undisclosed income, penalty was not leviable. The Tribunal reversed the order on the ground that the assessee furnished inaccurate particulars of his income and also concealed particulars of his income while filing the original return and was not able to establish the inadvertent mistake or omission in the original return, when he declared showing much larger income in the revised return. On appeal:

Held, dismissing the appeal, that the plausibility or otherwise of the explanation of the assessee was a pure question of fact. Admittedly, the assessee concealed the transactions in the bank account and when notice of reassessment was issued, finding no other way out, the assessee surrendered income to avoid penal consequences. In such a situation, it could not be held that the assessee wanted to buy peace of mind and there was no evidence of concealment, which called for penalty. This was not a case where penalty had been imposed only because the assessee disclosed higher income voluntarily but a case of clear concealment where the assessee having found no other way out, was forced to surrender the undisclosed income. No substantial question of law arose."

5.4 Hon'ble Bombay High Court in the case of Jyoti Laxman Konkar v. CIT [2007] 292 ITR 163 held —

"The assessee had filed a return for the assessment year 1999-2000 declaring an income of Rs.7,40,510. Not satisfied therewith, the Assessing Officer carried out a survey under section 133A of the Income-tax Act, 1961, and during the survey found that there was a discrepancy in stock to the tune of Rs.18,28,706 which was brought to the notice of the assessee, and the assessee filed a revised return disclosing additional income of Rs.18,28,706. The Assessing Officer imposed penalty under section 271(1)(c) and this was upheld by the Tribunal. On appeal to the High Court :

Held, dismissing the appeal, that the question whether there is concealment of income or not has to be decided with reference to the facts of a given case and the fact finding authorities under the Act having come to the conclusion that in the facts of the case, the assessee had concealed the income initially with a view to avoid the payment of tax, the imposition of penalty was valid."

5.5 All the above decisions squarely apply to the case of the assessee and prove that the assessee had intentionally and deliberately filed inaccurate particulars of his income in the original return and therefore, penalty was leviable in the present case.

5.6 The ld. counsel for the assessee, however, relied upon the decision of Hon'ble Punjab & Haryana High Court in the case of Rajiv Garg (supra) in support of his contention that it is not a case of concealment in, which decision in the case of Suresh Chand Mittal has also been considered. However, the said decisions in the case of Rajiv Garg (supra) and Suresh Chand Mittal (supra) have been considered by the Hon'ble Punjab & Haryana High Court in its later decision in the case of Prem Pal Gandhi (supra) and penalty has been confirmed. Therefore, said decisions would not support the case of the assessee. Further in the case of assessee, no revised return has been filed in response to the notice u/s. 148 of the IT Act and further the assessee made surrender of undisclosed income only when he was confronted with the incriminating material against him and cornered by the Revenue Department after making detailed enquiry. Therefore, said decision would not support the case of assessee. The ld. counsel for the assessee further relied upon the order of ITAT, Agra Bench in the case of Smt. Vandana Agarwal (supra), in which the Tribunal found that explanation furnished by the assessee stands substantiated by evidence brought on record. In the light of the decisions of various High courts, noted above, first of all decision of Tribunal cannot be given preference and further when the assessee himself surrendered the undisclosed income at the assessment stage, there is no question of assessee's explanation substantiated by the evidence to prove genuine transaction of sale of shares. Therefore, such decision of the Tribunal would not support the case of the assessee.

6. We may also note here that the ld. CIT(A) without considering the facts and material on record, merely by following another order of Tribunal cancelled the penalty. Such a casual approach by the ld. CIT(A) is not appreciated. The ld. CIT(A) failed to consider the order sheet and the material collected by the AO during the course of investigation which clearly proved that the assessee has deliberately and intentionally filed inaccurate particulars of income in the original return of income and only when the assessee was confronted and cornered by the department, the assessee made surrender of undisclosed income. On collecting adverse material against the assessee, had the department not reopened the assessment u/s. 148 of the IT Act, the assessee would never surrender the undisclosed income. Even if the assessee would have filed the revised return in the facts of this case in pursuance to the notice u/s. 148 of the IT Act, it would not make any difference because the AO has collected incriminating material against the assessee prior to the surrender of undisclosed income and confronted the same to the assessee with due show cause notice. Therefore, the facts and material brought on record clearly justify the levy of penalty, which has been ignored by the ld. CIT(A) while canceling the penalty. Therefore, the order of the ld. CIT(A) cannot be sustained in law.

7. Considering the totality of facts and circumstances in the light of decisions of various courts referred to above, we are of the view that the ld. CIT(A) was not justified in canceling the penalty. We accordingly, set aside and reverse the order of ld. CIT(A) and restore the order of AO in imposing penalty u/s. 271(1)(c) against the assessee.

8. In the result, the departmental appeal is allowed.

SUNIL

---

*In favour of revenue.

IT: Amount of statutory disallowance under section 40(a)(ia) has to be considered as business profit eligible for deduction under section 10A

IT: Where communication charges, insurance charges and reimbursement of expenses attributable to delivery of computer software outside India, are to be reduced from export turnover then same should as well be reduced from total turnover while computing deduction under section 10A

■■■

[2014] 41 taxmann.com 244 (Hyderabad - Trib.)

IN THE ITAT HYDERABAD BENCH 'B'

Virtusa (India) (P.) Ltd.

v.

Deputy Commissioner of Income-tax, Circle-3(3)*

CHANDRA POOJARI, ACCOUNTANT MEMBER 
AND SAKTIJIT DEY, JUDICIAL MEMBER

IT APPEAL NO. 16 (HYD.) OF 2013
[ASSESSMENT YEAR 2008-09]

OCTOBER  9, 2013 

Section 10A, read with section 40(a)(ia), of the Income-tax Act, 1961 - Free trade zone - [Computation of deduction] - Assessment year 2008-09 - Whether amount of statutory disallowance under section 40(a)(ia) has to be considered as business profit eligible for deduction under section 10A - Held, yes - Whether where communication charges, insurance charges and reimbursement of expenses attributable to delivery of computer software outside India, are to be reduced from export turnover then same should as well be reduced from total turnover while computing deduction under section 10A - Held, yes [Paras 9 and 11] [In favour of assessee]

CASE REVIEW

 

ITO v. Keval Construction [2013] 354 ITR 13/33 taxmann.com 277 (Guj.) (para 9), Bartronics India Ltd. v. Asstt. CIT [2012] 52 SOT 188/22 taxmann.com 5 (Hyd.) (para 9), ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (Chennai)(SB) (para 11) and CIT v. Gem Plus Jewellery [2013] 330 ITR 175/[2010] 194 Taxman 192 (Bom.) (para 11) followed.

CASES REFERRED TO

 

Virtusa (India)(P.) Ltd. v. Dy. CIT [2013] 38 taxmann.com 166 (Hyd.-Trib) (para 5), ITO v. Keval Construction [2013] 354 ITR 13/33 taxmann.com 277 (Guj.) (para 8), Bartronics India Ltd. v. Asstt. CIT [2012] 52 SOT 188/22 taxmann.com 5 (Hyd.) (para 8), ITO v. Sak Saft Ltd.[2009] 30 SOT 55 (Chennai) (SB) (para 11) and CIT v. Gem Plus Jewellery [2011] 330 ITR 175/[2010] 194 Taxman 192 (Bom.) (para 11).

Ravi Bhardwaj for the Appellant. D. Sudhakar Rao for the Respondent.

ORDER

 

Chandra Poojari, Accountant Member - This appeal by the assessee is directed against the assessment order passed u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 on the direction of dispute resolution Panel (DRP), Hyderabad for A.Y. 2008-09.

2. The assessee raised the following grounds:

Each of the grounds given below is independent and without prejudice to the other grounds of appeal preferred by the Appellant.

Based on the facts and circumstances of the case and in law, the learned Assessing Officer (" AO") erred in:

1.		Contending that the Chennai unit is formed by splitting up of the Hyderabad unit for the subject assessment year. Whereas on the identical set of facts, the learned AO for assessment year 2006-07 and 2007-08 held that the Chennai unit is formed by reconstruction of the Hyderabad unit. The approach adopted by the learned AO for framing the assessment for different assessment years on identical set of facts clearly indicates an inconsistency in approach and lack of proper application of mind.
		Based on the facts and circumstances of the case and in law, the learned AO and the Hon'ble Dispute Resolution Panel ("DRP") erred in:
2.		Having held that the Chennai unit is not formed by reconstruction of the Hyderabad unit, the Hon'ble DRP erred in law and on facts by holding that the Chennai unit is not a distinct and independent unit but a continuation/expansion of the Hyderabad unit of the Appellant without stating any reasons.
3.		Disallowing the annual software license fees of Rs. 3,98,51,957 paid to Ingram Micro India Private Limited under section 40(a)(ia) of the Income-tax Act, 1961 ('the Act') on the ground that the payment is in the nature of royalty liable to tax deduction at source under section 194J of the Act.
4.		Without prejudice to ground 3 above, assuming but not admitting that, payment made towards annual software license fees is considered as royalty under section 194J of the Act:

(a)		Failed to appreciate that the Appellant did not deducted tax at source based on the law as existed at the time of payment/ credit to Ingram Micro India Private Limited. The Explanation 4 to section 9(1)(vi) of the Act was inserted by the Finance Act 2012 with retrospective effect from June 1, 1976. Hence, the Appellant cannot be fastened with retroactive liability to withhold tax which leads to impossibility of performance.
(b)		Ought to have considered the amount of statutory disallowances as business profits eligible for deduction under section 10A of the Act.

5.		Considering the communication charges and insurance charges incurred by the Appellant as attributable to the delivery of computer software outside India and deducting the same from the export turnover for the computation of deduction under section l0A of the Act.
6.		Considering the amount of reimbursement of expenses to Virtusa Corporation, USA of Rs. 1,08,82,616 as expenditure incurred in foreign exchange in providing technical services outside India and deducting the same from the export turnover for the computation of deduction under section 10A of the Act.
7.		Without prejudice to ground 5 and 6 above, ought to have appreciated that the communication charges, insurance charges and reimbursement of expenses to Virtusa Corporation, USA, if reduced from the export turnover are also to be reduced from the total turnover.
8.		Adding the amount of reimbursement of expenses by associated enterprises of Rs. 4,41,42,852 to the total turnover and export turnover for computation of deduction u/s. 10A of the Act.
9.		Reducing the amount of statutory disallowances under the Act from the business profits for computation of deduction under section 10A of the Act.

3. Before us the assessee filed a letter dated 8th October, 2013 informing that ground Nos. 3, 4(a) and 9, 5, 8 are not pressed. Accordingly, these grounds are dismissed as not pressed.

4. Now, we take ground Nos. 1 and 2 for adjudication which read as follows:

1.		Contending that the Chennai unit is formed by splitting up of the Hyderabad unit for the subject assessment year. Whereas on the identical set of facts, the learned AO for assessment year 2006-07 and 2007-08 held that the Chennai unit is formed by reconstruction of the Hyderabad unit. The approach adopted by the learned AO for framing the assessment for different assessment years on identical set of facts clearly indicates an inconsistency in approach and lack of proper application of mind.
2.		Having held that the Chennai unit is not formed by reconstruction of the Hyderabad unit, the Hon'ble DRP erred in law and on facts by holding that the Chennai unit is not a distinct and independent unit but a continuation/expansion of the Hyderabad unit of the Appellant without stating any reasons.

5. After hearing both the parties, were of the opinion that similar issue was considered by this Tribunal in assessee's own case for A.Y. 2007-08 vide order Virtusa (India)(P.) Ltd. v. Dy. CIT [2013] 38 taxmann.com 166 (Hyd.-Trib) wherein the Tribunal held in para 25 as follows:

"25. We have considered the submissions of the parties on this issue. As can be seen from the order of the DRP, though they have accepted the fact that the Chennai unit is not formed by reconstruction of the Hyderabad unit, but, they ultimately held that Chennai Unit and Hyderabad Unit are not two distinct and independent units. However, on perusal of the aforesaid order of the coordinate Bench, we find that the issue in dispute has been set at rest and decided in favour of the assessee. Therefore, following the decision of the coordinate Bench, we allow the ground of the assessee and direct the AO to allow benefit u/s. 10A of the Act to the Chennai Unit."

6. In view of the above order of the Tribunal, we are inclined to decide the issue in favour of the assessee. This ground of the assessee is allowed.

7. The next ground for our consideration is ground No. 4(b) which reads as follows:

"4(b) Ought to have considered the amount of statutory disallowances as business profits eligible for deduction under section 10A of the Act."

8. After hearing both the parties, we are of the opinion that this issue is squarely covered by the judgement of ITO v. Keval Construction [2013] 354 ITR 13/33 taxmann.com 277 (Guj) wherein held that ultimate profit of the assessee as computed even after making disallowance u/s. 40(a)(ia) would qualify for deduction as provided under section 80IB. Further same view was taken in the case of Bartronics India Ltd. v. Asstt. CIT [2012] 52 SOT 188/22 taxmann.com 5 (Hyd). wherein held as under:

"10. We have heard the rival submissions and perused the materials on record. It is the well established fact that as per the provisions of section 10B recomputed profits shall be considered for the purpose of computation of deduction u/s 10B. In view of various Tribunals & High Courts have held that disallowances of expenditure should be computed for the purpose of deduction u/s 10B accordingly if the assessing Officer recomputes the profit from eligible business by disallowing certain expenditure and liability u/s 40(a) (ia) and 43B, such recomputed profit shall be considered for the purpose of deduction u/s 43B. The assessee has placed his reliance on the following judgments which support the claim of the assessee:

(a)		The decision of this Tribunal in the case of DCIT v. Planet Online Pvt. Ltd. in ITA No. 1016/Hyd/07 where it has been held: "Profits and gains of business is defined in section 28 and as per section 29 income referred to in section 28 shall be computed in accordance with the provisions of section 30 to 43D. From the above provisions in the statute, it thus clear that the profit of the undertaking in the case of the appellant has to be computed in accordance with the provisions of the section 30 to 43D., i.e., including the provisions of section 43B of the Act. In view of the above legal provisions in my considered view, exemption under section 10B has to be computed on the profits determined after taking into account the disallowances to be made under section 43B of the Act."
(b)		The Delhi Tribunal in the case of ITO v. M/s. Sahasra Electronics Private Limited (2010-TIOL-89-ITAT-DEL) held that it is a settled proposition that when the assessee is claiming exemption under section 10A and assessee's profit from eligible business by the AO is recomputed the deduction under section 10A is also to be allowed on the recomputed profit under section 10A.
(c)		Delhi Tribunal in the case of M/s. International Gold Co. Ltd. v. Income tax officer 2010-TIOL-652-ITAT-MUM) held that even if the disallowance is sustained, it will only go to increase the business profits of the assessee which is exempt under section 10A as per the decision of the Hon'ble Bombay High Court in the case of Gemplus Jewellery India Ltd. and allowed the assessee's appeal.
(d)		Hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India Ltd. [(2010) 233-CTR(Bom)-24 : 42-DTR-73] held that exemption under section 10A - profits and gains derived from exports - Addition on account of disallowance of employer's and employees' contribution towards PF/ESIC - Disallowance of the PF/ESIC payments has been made because of the statutory provisions i.e. Sec. 43B in the case of the employer's contribution and Sec. 36(1)(v) r.w.s. 2(24)(x) in the case of the employees' contribution which have been deemed to be the income of the assessee -plain consequence of the disallowance and the add back that has been made by the AO is an increase in the business profits of the assessee - Exemption under section 10A is allowable with reference to such enhanced income.

11. In view of the above discussion, the assessing officer is directed to consider the additions made above while calculating deduction u/s 10B. Accordingly the AO is directed to recompute the deduction after taking into account disallowances made above. Accordingly these grounds of the assessee are allowed."

9. In view of the above discussion, we are inclined to hold that amount of statutory disallowance has to be considered as business profit eligible for deduction u/s. 10A of the Act. This ground is allowed.

10. The next ground for adjudication is ground No. 6 which reads as follows:

"6. Considering the amount of reimbursement of expenses to Virtusa Corporation, USA of Rs. 1,08,82,616 as expenditure incurred in foreign exchange in providing technical services outside India and deducting the same from the export turnover for the computation of deduction under section 10A of the Act."

11. This issue is covered by the order of the Tribunal in the case of ITO v. Sak Saft Ltd. [2009] 30 SOT 55 (Chennai) (SB) and also by the judgement of Bombay High Court in the case of CIT v. Gem Plus Jewellery [2011] 330 ITR 175/[2010] 194 Taxman 192 wherein held that if communication charges, insurance charges and reimbursement of expenses attributable to the delivery of computer software outside India, are to be reduced from the export turnover then the same should as well be reduced from total turnover while computing deduction u/s. 10A of the Act. Therefore, following the aforesaid ratio laid down in the said decisions, we direct the AO to reduce this impugned amount both from the export turnover as well as total turnover while computing deduction u/s. 10A of the Act. Accordingly, this ground is decided in favour of the assessee.

12. The next ground is Ground No. 7 which reads as under:

"7. Without prejudice to ground 5 and 6 above, ought to have appreciated that the communication charges, insurance charges and reimbursement of expenses to Virtusa Corporation, USA, if reduced from the export turnover are also to be reduced from the total turnover."

13. This ground is covered in favour of the assessee by the order of the Special Bench in the case of Sak Soft (supra) wherein held that the above components are to be reduced in export turnover as well as in total turnover. However, we make it clear that the assessee shall not get double benefit once vide Ground No. 6 and another vide ground No. 7. Our findings in Ground No. 7 are subject to the findings given in ground No. 6.

14. In the result, assessee's appeal is partly allowed.

SUNIL

---

*In favour of assessee.

IT : Deduction on account of bad debts was allowable to assessee since debts were outstanding since long and assessee wrote off same as irrecoverable in its books

IT : Where assessee-firm applied for conversion of leasehold land into freehold land and leasing authority worked out outstanding dues of lease amount during year and, consequently, assessee paid said sum to leasing authority, same was allowable under section 43B

IT : Where firm continued to be owner of assets and no transfer of asset took place, provisions of section 45 were not applicable

■■■

[2014] 41 taxmann.com 281 (Delhi - Trib.)

IN THE ITAT DELHI BENCH 'F'

Radhu Palace

v.

Additional Commissioner of Income-tax, Range 36, New Delhi*

B.C. MEENA, ACCOUNTANT MEMBER 
AND C.M. GARG, JUDICIAL MEMBER

IT APPEAL NO. 4710 (DELHI) OF 2009
[ASSESSMENT YEAR 2006-07]

AUGUST  27, 2013 

I. Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts [Conditions precedent] - Assessment year 2006-07 - Assessee-firm, engaged in business of exhibition of films, claimed deduction on account of bad debts - These debts were outstanding since long - Ledger accounts of all debtors were also produced - Moreover, assessee had wrote off said debts as irrecoverable in its book - Whether relief to assessee in respect of bad debts was allowable as per amended provisions of section 36(1)(vii) - Held, yes [Para 6] [In favour of assessee]

II. Section 45 of the Income-tax Act, 1961 - Capital gain - Chargeable as [In case of firm/partner] - Assessment year 2006-07 - Assessee was a partnership firm - During year, two new partners were admitted and, consequently, assets owned by assessee were revalued and increase in capital on account of revaluation of asset was added to account of existing partners - Assessing Officer held that long-term capital gain arose on revaluation of assets and made addition to assessee's income under section 45 - Whether since firm continued to be owner of assets and no transfer of asset took place, which is necessary to invoke provisions of section 45(4) for levying capital gain on transfer of capital asset, provisions of section 45 were not applicable to instant case - Held, yes [Para 11] [In favour of assessee]

III. Section 43B, read with section 35D, of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed on actual payment [Lease rental] - Assessment year 2006-07 - Assessee took a land on lease in earlier years - It was paying lease rentals on estimate basis - During relevant year, it applied for conversion of said leasehold land into freehold land - Leasing authority (DDA) worked out outstanding dues of lease amount during year and, consequently, assessee paid said sum to leasing authority - It claimed deduction on account of said sum as prior period expenses - Whether since actual quantification of liability was made during year and liability on account of lease rental having been paid during year, same was allowable under section 43B - Held, yes [In favour of assessee]

FACTS - I

 

■		The assessee's claim for deduction on account of bad debts was disallowed by the Assessing Officer on the ground that assessee had failed to discharge the onus to prove that debt had become bad.
■		The Commissioner (Appeals) had confirmed the said disallowance by holding that no evidence was produced to show that the debt had indeed become bad.
■		On appeal, the assessee submitted that ledger account for all the parties showed that the debts were old and these were outstanding since long and had become non-recoverable and that as per amended provisions of section 36(1)(vii), the assessee was not required to establish that the debts in fact had become bad.

HELD -I

 

■		All these debts were very old and outstanding since long in the accounts of the assessee-firm. The bad debts are allowable under section 36(1)(vii). Bad debts or part of the debts are allowable when these are revenue in nature. The nature of the debt was not doubted by the revenue. The only apprehension cast was that assessee has not carried out any effort to recover the amounts. These debts were in respect of business carried out by the assessee which also continued during the relevant previous year. These debts have been taken into account in computing the income of the assessee in those relevant years. The assessee also submitted the ledger account of all these persons against whom the debt was outstanding. From the paper book it was found that in the case of an individual. The amount was outstanding since March 1999. Similarly, in other cases, the amount was outstanding since 1998. The Supreme Court in the case of T.R.F. Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391, after the amendment of section 36(1)(vii) of the Income-tax Act, 1961 with effect from 1-4-1989, held that in order to obtain a deduction in relation to bad debts it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. In the assessee's case, this condition of written off has been fulfilled. [Para 5]
■		Thus, the Commissioner (Appeals) was not justified in conforming the action of the Assessing Officer. [Para 5]

FACTS - II

 

■		The assessee was a partnership firm. During the year, two new partner were admitted who had brought into capital as their contribution. Consequently, assets owned by assessee-firm were revalued and the increase in the capital on account of revaluation of the assets was added to the capital account of existing partners.
■		The Assessing Officer held that long-term capital gain arose on revaluation of assets at time of induction of new capital and made addition under section 45(4).
■		The Commissioner (Appeals) confirmed the said order.
■		On second appeal:

HELD -II

 

■		Sub-sections (3) & (4) of section 45 applicable to the year under assessment were inserted in the statute by the Finance Act, 1987 with effect from 1-4-1988. Prior to that, transfer of asset by a firm to a partner was not exigible to taxes. The implication of this amendment is that when a firm transfers any asset to a partner then the same will be liable to 'capital gain' on the fair market value on the date of transfer. This transfer can be at the time of dissolution of the firm when the assets were transferred to the partners or this transfer can be 'otherwise' also when a partner is allocated any asset of the firm while leaving the firm. Thus, there has to be a transfer of an asset of the firm to the partner. In the absence of any transfer of any asset of the firm to the partners, the provisions of section 45(4) cannot be invoked. In the present case, there is no such transfer of asset and hence provisions of section 45(4) are not applicable. The firm continued to be owner of land and no transfer of asset took place which was necessary to invoke the provisions of section 45(4) for levying the capital gain on the transfer of the capital asset. [Para 11]
■		Considering the facts of the assessee's case and the legal position revenue authorities were not justified in making and sustaining the addition. [Para 11]

CASE REVIEW -I

 

TRF Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 (SC); CIT v. Morgan Securities & Credits (P.) Ltd. [2007] 292 ITR 339/162 Taxman 124 (Delhi) and CIT v. Autometers Ltd. [2007] 292 ITR 345/[2008] 167 Taxman 286 (Delhi) (para 5) followed.

CASE REVIEW -II

 

CIT v. A.N. Naik Associates [2004] 265 ITR 346/136 Taxman 107 (Bom.); Suvardhan v. CIT [2006] 287 ITR 404/156 Taxman 229 (Kar.) andCIT v. Southern Tubes [2008] 306 ITR 216/171 Taxman 254 (Ker.) (para 11) distinguished.

CIT v. Kunnamkulam Mill Board [2002] 257 ITR 544/125 Taxman 802 (Ker.) and Delhi Industries & Enterprises v. Asstt. CIT [2013] 31 taxmann.com 384 (Delhi) (para 11) followed.

CASES REFERRED TO

 

T.R.F. Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 (SC) (para 4), CIT v. Morgan Securities & Credits (P.) Ltd. [2007] 292 ITR 339/162 Taxman 124 (Delhi) (para 4), CIT v. Autometers Ltd. [2007] 292 ITR 345/[2008] 167 Taxman 286 (Delhi) (para 4), CIT v. A.N. Naik Associates[2004] 265 ITR 346/136 Taxman 107 (Bom) (para 9), Suvardhan v. CIT [2006] 287 ITR 404/156 Taxman 229 (Kar.) (para 9), CIT v.Kunnamkulam Mill Board [2002] 257 ITR 544/125 Taxman 802 (Ker.) (para 9), Delhi Industries & Enterprises v. Asstt. CIT [2013] 31 taxmann.com 384 (Delhi) (para 9), ITO v. Fine Developers [2012] 26 taxmann.com 202/[2013] 55 SOT 122 (Mum.) (para 9), CIT v. Gurunath Talkies [2010] 328 ITR 59/189 Taxman 171 (Kar.) (para 9), CIT v. P.N. Panjawani [2012] 21 taxmann.com 458/208 Taxman 22 (Kar.) (para 9) and CIT v. Southern Tubes [2008] 306 ITR 216/171 Taxman 254 (Ker.) (para 11).

Ved Jain and Ms. Rano Jain for the Appellant. Madhukar Kr. Bhagat for the Respondent.

ORDER

 

B.C. Meena, Accountant Member - This appeal filed by the assessee emanates from the order of the CIT (Appeals)-XXVII, New Delhi dated 22.10.2009.

2. The assessee firm is engaged in the business of exhibition of films. The return of income was filed on 31.10.2006 declaring a loss of Rs.4,32,011/-.

3. The assessee is in appeal before us by taking the following grounds of appeal :—

"1.		That the ld C.I.T. (Appeals) has erred both on facts and in law in the disallowance of the claim of bad debts amounting to Rs.3,70,892/-. The disallowance as sustained is wholly illegal, arbitrary and against the settled legal position. The finding that the assessee failed to discharge the onus to prove to the satisfaction of the AO that debt had become bad, is wholly perverse and contrary to the provisions of law. The submissions made and evidence produced has arbitrarily been brushed aside.
2.		That the ld C.I.T.(Appeals) has erred both on facts and in law in upholding the disallowance of Rs.l,20,816/- being the alleged prior period expenses. The ld C.I.T.(Appeals) has failed to appreciate that the liability on account of lease rental paid to DDA on conversion of lease hold land into free hold land, having been actually paid during the year, the same was allowable U/S 43B of the Act.
3.		That the ld C.I.T.(Appeals) has erred both on facts and in law in summarily upholding the assessment of alleged long term capital gains of Rs.5,80,04,265/- u/s 45(4) of the Act, alleged arose on revaluation of certain assets at the time of induction of two new partners to the partnership. The detailed submissions made have arbitrarily been disregarded.
3.1		That the finding of the ld C.I.T. (A) that the case of the assessee gets covered under the "or otherwise" clause of the provisions of section 45(4), is based on misreading and mis-interpretation of the relevant provisions and is thus wholly unsustainable.
3.2		That the ld C.I.T. (Appeals) has failed to appreciate that provisions of section 45(4) of the Act were wholly inapplicable on the facts of the instant case as there had not been any dissolution of the firm or distribution of assets of the partnership firm or 'transfer' of any asset within the meaning of provisions contained in section 2(14) or 45(4) of the Act.
3.3		That the ld C.I.T.(Appeals) has failed to appreciate that the case law relied upon by the ld AO of Hon'ble Bombay High Court in CIT v.A.N. Naik Associates [2004] 265 ITR 346 (Born) was not applicable on the facts and was distinguishable.
4.		That the ld C.I.T. (Appeals) has erred in not disposing of Ground no.6 relating to charging of interest u/s 234 A, B, C & D of the Act."

4. In the ground no.1, the issue involved is confirming the disallowance of Rs.3,70,892/- on account of bad debts. The ld. AR submitted that this disallowance was sustained by CIT (A) against the settled legal position. The finding of the Assessing Officer that the assessee has failed to discharge the onus to prove to the satisfaction of the Assessing Officer that debt has become bad, is wholly perverse and contrary to the provisions of law. The Assessing Officer as well as the CIT (A) has not considered the evidences produced before them and they have just brushed aside the documents submitted before them. The Assessing Officer's only reason for disallowing the amount was that no evidence was filed to show that the efforts were made to recover the debt. The CIT (A) has confirmed this disallowance by holding that no evidence was produced before the Assessing Officer that the debt has indeed become bad. Ld. AR submitted that assessee has submitted ledger account for all the parties which are also placed at pages 23 to 52 in the paper book to support that the debts were old and these were outstandings since long and has become non-recoverable. Ld. AR also submitted that provisions of section 36(1)(vii) of the Income-tax Act, 1961 does not require the assessee to establish that the debts in fact has become bad. He relied on the following case laws :—

(i)		T.R.F. Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 (SC);
(ii)		CIT v. Morgan Securities & Credits (P) Ltd. [2007] 292 ITR 339/162 Taxman 124 (Delhi);
(iii)		CIT v. Autometers Ltd. [2007] 292 ITR 345/[2008] 167 Taxman 286 (Delhi);

On the other hand, ld. DR relied on the orders of the authorities below.

5. We have heard both the sides on the issue. We have also perused the material available on record. We hold that all these debts were very old and outstanding since long in the accounts of the assessee firm. The bad debts are allowable u/s 36(1)(vii) of the Income-tax Act, 1961. Bad debts or part of the debts are allowable when these were revenue in nature. The nature of the debt was not doubted by the revenue. The only apprehension casted was that assessee has not carried out any effort to recover the amounts. These debts were in respect of business carried out by the assessee which also continued during the relevant previous year. These debts have been taken into account in computing the income of the assessee in those relevant years. The assessee also submitted that the ledger account of all these persons against whom the debt was outstanding. We find from the paper book that in the case of J.S. Shaan, the amount was outstanding since March 1999. Similarly, in the cases of Prakash Kour, U.P. Chemicals & Sales Corporation, K.K. Ghai, Ved Prakash Ralhan, J.B. Lal, Ved Prakash Malhotra, the amount was outstanding since 1998. As held by Hon'ble Supreme Court in the case ofTRF Ltd. (supra) after the amendment of section 36(1)(vii) of the Income-tax Act, 1961 w.e.f. 01.04.1989, in order to obtain a deduction in relation to bad debts it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. In the assessee's case, this condition of written off has been fulfilled. Similarly, in the case of Morgan Securities and Credits (P.) Ltd. (supra), Hon'ble Delhi High Court has held as under :—

"Held, dismissing the appeal, that the Commissioner (Appeals) and the Assessing Officer were influenced by the fact that there had been no previous dealings between the assessee and SHC ; no security was taken for the loan and the sequence of events from the advance of the loan to its writing off did not span even one year. These factors would be relevant if the stand of the Revenue was that the transaction itself was sham or false. Once it was accepted by the Revenue that the transactions actually took place, these fac-tors would in fact quell a doubt that the decision to write off the loan as a bad debt was a consequence of an honest judgment. Any prudent person on learn-ing that an unsecured loan had become perilously irrecoverable would expe-ditiously initiate each and every legal remedy available to him as had been manifested itself in the case of the assessee. Thus, the Tribunal had rightly deleted the disallowance of Rs. 4 crores."

Similarly, in the case of Autometers Ltd. (supra) Hon'ble Delhi High Court has held as under :—

"Held accordingly, dismissing the appeal, that what the assessee had written off as irrecoverable in its books of account in the financial year 1993-94 relevant to the Assessment Year 1994-95 was a bad debt. The Commissioner (Appeals) and the Tribunal rightly took the view that in terms of section 36(1)(vii) all that the assessee had to do was to write off a bad debt as irrecoverable and that had been done in the assessee's case and the order of the Assessing Officer requiring the assessee to prove that the debts had become bad was not correct."

Considering the case laws relied upon and the facts of the case, we find that the CIT (A) was not justified in confirming the action of the Assessing Officer. Therefore, we set aside order of the authorities below on this issue and allow the relief to the assessee in respect of bad debts claimed in the year of Rs.3,70,892/-.

6. In the ground no.2, the issue involved is dismissing the claim of Rs.1,20,816/- treated as prior period expenses. The ld. AR submitted that the assessee was given leasehold land by DDA in 19787 and starting paying lease rent every year since 1983. The assessee was depositing lease rent on its own estimate basis. During the year, the assessee applied for conversion of leasehold land right to freehold. The DDA office worked out the total dues to the tune of Rs.1,20,816/- which has been paid by the assessee during the year. This liability was actually quantified by the leasing authority - DDA in this year only. Therefore, it has been crystallized only during this year. Since it has been crystallized during the year the assessee has made the payment and made the claim. Therefore, the CIT (A) was not justified in confirming the same.

7. On the other hand, ld. DR relied on the orders of the authorities below.

8. We have heard both the sides on this issue. We have also perused the relevant papers in the paper book. The facts of the case show that this outstanding dues of lease amount has been worked out by the DDA during the year when the assessee approached the authorities to convert the leasehold land to freehold. Prior to that, the lese rent being paid by the assessee on its estimate basis. Thus, the actual quantification of the liability was during the year itself. The auditor's report that this expenditure was related to the prior period is only relevant to the extent that while calculating the lease rent to convert the leasehold land to the freehold land. The actual working of the lease rent for the past years for which the assessee has paid on his own estimate basis has been considered. Considering these facts in view, we find no merits in the addition, therefore, we set aside the orders of the authorities below with this issue also.

9. In the ground no.3 to 3.3, the issue involved is upholding the addition made on account of long term capital gain of Rs.5,80,04,265/- u/s 45(4) of the Income-tax Act, 1961. While pleading on behalf of the assessee, the ld. AR submitted that assessee is a partnership firm which has seven partners as per partnership deed dated 10.12.1998. Copy of the partnership deed is placed pages 82 to 86 of the paper book. During the year under consideration, two new partners, Shri C.D. Bhandari and Shri J.D. Bhandari were admitted to partnership with capital contribution of Rs.8,73,57,853/- each. The land which was shown at Rs.12,70,000/- as on 01.04.2005 was revalued at Rs.18,30,48,800/-. The increase in the capital resulting from the revaluation was added to the capital account in each of the existing partners. The copy of the capital account of the partners is placed at pages 108 of the paper book. The ld. AR further submitted that Assessing Officer has invoked section 45(4) and also relied on the judgment of Hon'ble Bombay High Court in the case of CIT v. A.N. Naik Associates [2004] 265 ITR 346/136 Taxman 107. The ld. AR submitted that the provisions of section 45(4) was not at all applicable to the assessee's case as there was no dissolution of the firm nor any partner has retired during the year. In assessee's case, only two new partners have joined during the year. There is no distribution of the assets of the firm. The firm continues to be the owner of the assets. This fact is evident form the balance sheet as on 31.03.2006. The ld. AR submitted that the case of Hon'ble Bombay High Court in the case of A.N. Naik Associates(supra) relied on by the Assessing Officer rather supports the case of the assessee. In that case, the assets of the firm were transferred to the retiring partner and in that context, the Hon'ble High Court has held that it was a transfer of assets by the firm to a partner and as such, it falls within the meaning of distribution of assets "otherwise". The facts of assessee's case are different as no asset of the firm has been transferred to any of the partners. The firm continues to be the owner of the assets. The firm has just added two new partners who had bought the capital which has been credited in their capital account. He further submitted that the other judgments relied upon by the Assessing Officer is of Suvardhan v. CIT [2006] 287 ITR 404/156 Taxman 229 (Kar.). The ld. AR submitted that the facts of this case are also different. Therefore, the ratio of that judgment is not applicable to the case of the assessee. In that case, the business of the firm after dissolution was taken over by one of the partners. Thus, there was a transfer of assets by a firm to a partner. In that view, the Hon'ble Court has held that there was transfer of assets by the firm. The ld. AR further submitted that the assessee's case is squarely covered by the decision of Hon'ble Kerala High Court in the case of CIT v. Kunnamkulam Mill Board [2002] 257 ITR 544/125 Taxman 802. Ld. AR further submitted that the ITAT, Delhi Coordinate Bench in the case of Delhi Industries & Enterprises v. Asstt. CIT [2013] 31 taxmann.com 384 has elaborately discussed the provisions and held that the provisions of section 45(4) are not applicable till such time any asset of the firm is transferred to any of the partners whether it is by way of dissolution or otherwise. He relied on the decision of Hon'ble Kerala High Court in the case ofKunnamkulam Mill Board (supra) and requested to allow the relief to the assessee. Ld. AR also submitted that ITAT, Mumbai Bench in the case ofITO v. Fine Developers [2012] 26 taxmann.com 202/[2013] 55 SOT 122 has also granted the relief to the assessee where the assessee has not transferred any right in the capital asset in favour of the retiring partner. He also relied on the judgment of Hon'ble Karnataka High Court in the case ofCIT v. Gurunath Talkies [2010] 328 ITR 59/189 Taxman 171 and also CIT v. P.N. Panjawani [2012] 21 taxmann.com 458/208 Taxman 22 (Kar.)

10. On the other hand, ld. DR relied on the orders of the authorities below.

11. After hearing both the sides, we decide the issue as under :—

The assessee is a partnership firm. During the year, two new partners, Shri C.D. Bhandari and Shri J.D. Bhandari admitted ad partners. Both these new partners brought into capital of Rs.8,73,57,853/- each. The land owned by the assessee firm was revalued as on 01.04.2005 at Rs.18,30,48,800/-. The increase in the capital on account of revaluation of the land was added to the capital account of existing partners. This fact is evident from page 108 of the paper book which shows the balance in capital account of partners as on 31.03.2006. Section 45 (4) read as under :—

"(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer."

Sub-sections (3) & (4) to section 45 of the Act applicable to the year under assessment were inserted in the statue by the Finance Act, 1987 w.e.f. 01.04.1988. Prior to that, transfer of asset by a firm to a partner was not liable to pay the taxes on transfer of assessee. The implication of this amendment is that when a firm transfers any asset to a partner then the same will be liable to "capital gain" on the fair market value on the date of transfer. This transfer can be at the time of the dissolution of the firm when the assets were transferred to the partners or this transfer can be "otherwise" also when a partner is allocated any asset of the firm while leaving the firm. Thus, there has to be a transfer of an asset of the firm to the partner. In the absence of any transfer of any asset of the firm to the partners, the provisions of section 45(4) of the Income-tax Act, 1961 cannot be invoked. In our considered view, in the present case, there is no such transfer of asset and hence provisions of section 45(4) of the Income-tax Act, 1961 is not applicable. The firm continues to be the owner of the land and no transfer took place which is necessary to invoke the provisions of section 45(4) for levying the capital gain on the transfer of the capital asset. The reliance of revenue on the decision of Hon'ble Bombay High Court in A.N. Naik Associates, (supra), is also of no help as the facts of that case were quite different. In that case, the assets of the firm were transferred to a retiring partner. In that context, the Hon'ble Bombay High Court has held that it is a transfer of asset by the firm to a partner and as such, it falls within the meaning of distribution of assets "otherwise". Thus, there was a transfer of asset of the firm to one of the partner. Such position is not in the assessee's case. The firm continues to be the owner of the asset. Only two new partners have joined the firm and these have brought in capital which credited to their respective capital account. In the case of Suvardhan (supra) reliance of the revenue is also of no help. In that case, the facts were also different. In that case, the business of the firm after dissolution was taken over by one of the partners. Thus, there was a transfer of assets of a firm to a partner. In that view of the matter, Hon'ble Kerala High Court has held that there is a transfer of asset from the firm to a partner. The third case relied on by the revenue is CIT v. Southern Tubes [2008] 306 ITR 216/171 Taxman 254 (Ker.) was also having the variation in facts from the assessee's case. In that case, there was dissolution of firm and the assets were taken over by the partners. Such position is not in the assessee's case. Moreover, the assessee's case is covered by the decision of Hon'ble Kerala High Court in the case of Kunnamkulam Mill Board (supra) wherein the Hon'ble High Court has held as under :—

"The firm is the assessee while it had five partners or seven partners or even when it had only two partners. There is no change in the status of the assessee. What further has to be noticed is that the firm has its own rights and liabilities and it can incur liabilities or own and possess properties. In a case of this nature what happens is that with the admission of new partners, the rights of the existing partners are reduced and that a right is created in favour of the newly inducted partners. But the ownership of the property does not change even with the change in the constitution of the firm. As long as there is no change in ownership of the firm and its properties merely for the simple reason that the partnership of the firm stood reconstituted, there is no transfer of capital asset. Likewise, if a partner retires he does not transfer any right in the immovable property in favour of the surviving partner because he had no specific right with respect to the properties of the firm. What transpires is the right to share the income of the properties stood transferred in favour of the surviving partners, and there is no transfer of ownership of the property in such cases. When a partnership is reconstituted by adding a new partner, there is no transfer of assets within the meaning of s. 45(4)."

Moreover, the assessee's case is also covered by the decision of ITAT, Coordinate Bench in the case of Delhi Industries & Enterprises (supra) wherein the ITAT has held as under :—

"30. On an analysis of all these decisions and the details, we find that there is conflict of opinion between the various Hon'ble High Courts. The decision of Hon'ble Kerala High Court in the case of CIT v. Kannamkulam Mill Board [2002] 257 ITR 544/125 Taxman 802 favour of the assessee. Learned DR brought to our notice the decision of Hon'ble Kerala High Court in the case of CIT. v. Southern Tube [2008] 306 ITR 216in favour of the revenue but we find in that case the firm was dissolved and assets were taken by one of the partners in his proprietaryship concern. The latest decision of Hon'ble Kerala High Court is again in favour of the assessee. Similarly, there are decisions at the end of the ITAT which are in favour of assessee. The decision of Hon'ble Madhaya Pradesh High Court is also in favour of the assessee. On the other hand, the decision of Hon'ble Karnataka High Court and Hon'ble Mumbai High Court are in favour of the revenue. Faced with this situation, we deem it appropriate to follow the decisions which are in favour of the assessee. Hon'ble Kerala High Court in its latest decision rendered on 28.10.2010 in ITA No.474 of 1999 in the case of CIT v. Shri M.V. Narayanan has held that on retirement of partner, if the firm, continues with the business then there is no distribution of assets and section 45(4) of the Act would not be applicable. Though the parties have not advanced any agreement but at the time of decision, it struck to our mind, that true sense nothing was gained by the firm."

The ITAT, Mumbai Bench in the case of Fine Developers (supra) has held as under:—

"5.3.3 From the above, it can safely be held that allocation of assets of the firm to the retiring partners is the basis for invocation of provisions of Section 45(4). In the case under consideration, neither there was any dissolution nor other event took place that had an effect of allocation of exclusive interest in any capital asset to the retiring partners. In these circumstances, FAA was justified in holding that conditions of Section 45(4) were not fulfilled. In our opinion the firm or the continuing partners were not liable to be taxed under the head 'capital gains', as held by the FAA. Retiring partners had relinquished their rights in the assets of the firm and in lieu of that firm had paid the retiring partners money lying in their capital account. Obviously, assessee-firm had not transferred any right in capital asset to the retiring partners rather it is the retiring partners who have transferred the rights in capital assets in favour of the continuing partners. So, even if capital gain has to be taxed it has to be in the hands of the retiring partners not in the case of the assessee-firm.

6. We have considered the cases relied upon by the DR and the AR. As far as matter of CIT v. Gurunath Talkies [2010] 328 ITR 59/189 Taxman 171 (Kar.) is concerned, we are of the opinion that facts of the present case are distinguishable, as held by the FAA. In the case under consideration assets were not taken over by the new partners. As stated earlier, section 45 was amended to overcome the difficulties faced by the Revenue because of the decisions of Malabar Fishries and Kartikeya Sarabhai (Supra). So, in our opinion they are of no help after introduction of sub-section 3 and 4 to the Sec. 45 of the Act. Case relied upon by the AR support the view taken by the FAA.

6.1 As there was no transfer of a capital asset by the assessee-firm by way of distribution or otherwise in the AY under consideration, therefore, we do not see any reason to disagree with the logical findings given by the FAA. Upholding his order we decide the Grounds against the AO."

Considering the facts of the assessee's case and the legal position in view of the various decisions of ITAT and Hon'ble High Courts, we find that revenue authorities were not justified in making and sustaining the addition. Therefore, we set aside the orders of authorities below on this issue and allow the relief to the assessee on this ground.

12. In ground no.4, the assessee has pleaded that CIT (A) has not disposed of ground no.6 relating to charging of interest u/s 234A, B, C & D of the Income-tax Act, 1961. After hearing both the sides, we find that the charging of interest is mandatory. Therefore, this ground is dismissed.

13. In the result, the appeal of the assessee is partly allowed.

■■

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*In favour of assessee.

IT : Where revaluation reserve is created after 1-4-1997, in terms of proviso to clause (i) of second part of Explanation to section 115JB, amount withdrawn from said reserve in an assessment year commencing after 1-4-1997 would not be reduced from book profit unless book profit of such year had been increased by those reserves

■■■

[2014] 41 taxmann.com 266 (Gujarat)

HIGH COURT OF GUJARAT

Alembic Ltd.

v.

Assistant Commissioner of Income-tax*

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

TAX APPEAL NO. 529 OF 2012†

MARCH  12, 2013 

Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax [Revaluation reserve] - Whether where revaluation reserve is created after 1-4-1997, in terms of proviso to clause (i) of second part of Explanation to section 115JB, amount withdrawn from said reserve in an assessment year commencing after 1-4-1997 would not be reduced from book profit unless book profit of such year had been increased by those reserves - Held, yes - Whether since assessee failed to fulfil aforesaid requirement, its claim for benefit of exclusion clause i.e. clause (i) to second part of Explanation to section 115JB in respect of withdrawals made from revaluation reserve, was to be rejected - Held, yes [Para 4] [In favour of revenue]

B.S. Soparkar for the Appellant.

ORDER

 

Akil Kureshi, J. - Assessee is in appeal against the judgment of the Income-tax Appellate Tribunal dated 11-05-2012 raising following questions for our consideration:

"(a)		Whether in the facts and circumstances of the case the Income-tax Appellate Tribunal was right in law in reversing the order of CIT(A) and holding that amount of Rs. 16,54,000/- withdrawn from revaluation reserve was required to be added to the "book profits" for the purpose of computing the appellant's liability on MAT?
(b)		Whether in the facts and circumstances of the case the Income-tax Appellate Tribunal was right in law in reversing the order of CIT(A) and holding that the appellant is not entitled to depreciation for the purpose of computing "book profit", on the enhanced value of assets on their revaluation?
(c)		Whether in the facts and circumstances of the case the Income-tax Appellate Tribunal was right in law in not following the earlier orders of the different Benches of the Tribunal in the appellant's own case for different years wherein on identical facts the very issues have been held in favour of the appellant when the law obliges the Tribunal to refer the matter to the Special Bench in case the subsequent Bench is not inclined to follow the order of the earlier Bench?"

2. Insofar as question No. (a) is concerned, the same arises out of computation of book profit under Section 115 JB of the Income-tax Act, 1961. The assessee having made certain withdrawal from revaluation reserve, desired to fall under Clause (i) to the second part of the explanation to Section 115JB to be reduced for computation of the book profit. The Tribunal, however, noting that such reserve was created after 01-04-1997, the assessee would have to satisfy the conditions contained in the proviso to said Clause (i). Finding that such conditions were not fulfilled, the Tribunal held that the claim of the assessee was not justified. The Tribunal observed as under:

"43. We have considered rival submissions and also the written note submitted by the Ld. Counsel for the assessee which is reproduced above. In the written note filed by the Ld. Counsel for the assessee, it is not disputed by him that the revaluation reserve was not created before 01-04-1997. His own submission is this that since revaluation reserve could not be created by way of debit to P & L account, this exclusion in clause (i) of Explanation (1) to Section 115JB is not applicable and the same is applicable only to those reserves which are capable of being created by debit to the P & L account. We find no merit in this contention of the Ld. Counsel for the assessee because there is no mention in the section which is quoted by Ld. Counsel for the assessee in the written note reproduced above that the exclusion is applicable only to those reserves which can be created by way of debit to P & L account and was not so created. In our humble opinion, this exclusion is applicable to all those cases where reserve is not created by way of debit to P & L account prior to 01-04-1997 and this is not relevant as to whether reserve was capable of being created by way of debit to P & L account or not. Regarding proviso to clause(i) to Explanation (1) to Section 115JB referred to by Ld. A.R in his written note, we find that the field of both are different. As per exception carved out in clause(i) of Explanation (1), reduction from book profit is not allowable if the reserve is created before 01-04-1997 by way of without debiting the P & L account and the field of the proviso is that if the reserve is credited by way of debit to P & L account and was not added back to book profit in the year of creation of book profit. In our humble opinion, creation of reserve without debiting the P & L account means some income is directly credited to reserve a/c instead of P & L account and hence, this exception. The fallacy in this argument of Ld. A.R can be better understood by way of a hypothetical example in the light of our understanding noted above. "Suppose, a reserve of Rs. 100/- is created without debit to P &L account and the profit as per such P & L account is Rs. 900/-. Then, if this income of Rs. 100/-which is directly credited to reserve account is credited to P & L account, profit as per P & L account would have been Rs. 1,000/-. Then, if a reserve is created of Rs. 100/-by way of debit to P & L account and is added back to book profit as per clause (b) of Explanation (1) to section 115JA/JB, then the book profit will be Rs. 1,000/- but when reserve is created without debit to P & L account, book profit is only Rs. 900/- because this amount of Rs. 100/- was not created to P & L account and was directly credited to reserve account. Hence, the effect is the same i.e. in the exemption and the proviso because in both the situations, book profit of the year of creation of reserve goes down by the amount of reserve and hence, no further reduction is allowable in the year of withdrawal from such reserve as the in the present case. Therefore, we feel that on this issue, the order of Ld. CIT(A) is not sustainable."

3. Having heard learned counsel for the assessee, we do not find any error in view of the Tribunal. Relevant clause of the explanation reads as under:

"115JB **

**

**

if any amount referred to in clauses (a) to (I) is debited to the profit and loss account, and as reduced by,—

(I) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account:

Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be; or"

4. Admittedly, in the present case when the reserve was created not before the 01-04-1997, the exclusion clause from the amount withdrawn from such reserve, proviso would apply only if the assessee satisfies the proviso to said clause. The proviso provides that, where section is applicable to an assessee, the amount withdrawn from reserves created or a provision made in a previous year relevant to the assessment year commencing after 01-04-1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions. Admittedly, in the present case, this essential requirement was not fulfilled. In that view of the matter, the assessee could not have claimed benefit of such exclusion clause, even if the contention of the assessee was that it was not possible to satisfy such a requirement. To our mind, the same would not be material insofar as the question of interpretation of the such proviso is concerned. Such question is, therefore, not required to be considered.

5. In our opinion, question No. (b) requires consideration. We may record that question (c) pertains to ratio of consistency; however, when we examine question (b) on merits, such additional question need not be framed.

6. In the result, tax appeal is admitted for consideration of question No. (b):

'(b) Whether in the facts and circumstances of the case the Income-tax Appellate Tribunal was right in law in reversing the order of CIT(A) and holding that the appellant is not entitled to depreciation for the purpose of computing "book profit", on the enhanced value of assets on their revaluation?'

SUNIL

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*In favour of revenue.

†Arising out of order of Tribunal, dated 11-5-2012

If proper source of capital & share premium not shown than addition can be made u/s. 68

Posted In Income Tax Case Laws | Judiciary | No Comments »

In the present case, the assessee can be said to have discharged its onus under section 68 of the Act in proving the genuineness of the share capital in respect of the impugned 22 shareholdersin the light of proposition laid down by the Supreme Court and Delhi High Courtin the cases cited above. The appellant has given all the necessary details in order to establish the identity of the aforementioned share applicants. It is also observed that all the share applicants are corporate assessees, incorporated under Indian CompaniesAct. After considering the entire material placed on record, it is fair to conclude that the aforementioned 22 share applicants were exiting parties. It is also seen that the Assessing Officer could not point out any discrepancy in the evidences relied upon by the assessee. Further, what is the desired documentary evidence required to support the claim of the assessee as required by the Assessing Officer is not coming out of the order of the Assessing Officer. Though, the share-applicants could not be examined by the Assessing Officer, since they were existing on the file of the Income Tax Department and their income-tax details were made available to the Assessing Officer, it was equally the duty of the Assessing Officer to have taken steps to verify their assessment records and if necessary to also have them examined by the respective Assessing Officers having jurisdiction over them (share-applicants), which has not been done by him. In these circumstances, it is held that the addition of Rs.9,96,50,000/- on account of share capital and share premium u/s 68 of the Act can not be sustained and accordingly, the same is directed to be deleted.

Since issue involved in the appeal has not been considered by the CIT(A) appropriately while giving relief to the assessee, therefore, considering the entirety of facts, circumstances and material on record, we find it just and appropriate to set aside the order of the Ld.CIT(A) and restore the matter back on his file with the direction to consider the issue afresh after giving due opportunity to the assessee as well as to Assessing Officer. We hold and direct accordingly.

 INCOME TAX APPELLATE TRIBUNAL, DELHI

ITA No.2653/Del./2011 -Assessment Year: 2007-08

ITO  Vs.  Jwalaji Propbuild Pvt. Ltd.

ORDER

PER U.B.S. BEDI, J.M.

This appeal of the Revenue is directed against the order passed by the CIT (A)- VII, New Delhi, dated 11.03.2011, relevant to assessment year 2007-08, wherein following single effective ground has been raised:

"2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.9,96,50,000/- made by the Assessing Officer u/s 68 of the I.T. Act, 1961 being the unexplained share capital and share premium of Rs.1,01,00,000/- and Rs.8,95,50,000, respectively.

2.1 The CIT(A) ignored the findings recorded by the Assessing Officer and the fact that the assessee did not discharge the onus of proving existence and fact that the assessee did not discharge the onus of proving existence and creditworthiness of the creditors and genuineness of the transactions.

2. The Assessing Officer in this case has made addition of Rs.9,96,50,000/- on account of share capital of Rs.1,01,00,000/- and share premium of Rs.8,95,50,000/- u/s 68 of the I.T. Act, 1961 and while making the addition, Assessing Officer observed that subscribing companies from whom the share capital was received had filed nominal income and as such capital investment cannot be accepted and made the impugned additions. In appeal, assessee submitted that Assessing Officer has just made the addition by simply holding that capital investment cannot be accepted in view of subscribing companies from whom the share capital had been received had filed nominal income. Assessee supported his plea by citing various decisions in his submissions as reproduced in para. 4 by Ld.CIT(A), who discussed the submissions and various judgments in his order from Paras. 4.1 to 4.3 and concluded to delete the impugned addition as per para.

4.4 of his order, which reads as under:

"4.4 In the present case, the assessee can be said to have discharged its onus under section 68 of the Act in proving the genuineness of the share capital in respect of the impugned 22shareholders in the light of proposition laid down by the Supreme Court and Delhi High Court in the cases cited above. The appellant has given all the necessary details in order to establish the identity of the aforementioned share applicants. It is also observed that all the share applicants are corporate assessees, incorporated under Indian Companies Act. After considering the entire material placed on record, it is fair to conclude that the aforementioned 22 share applicants were exiting parties. It is also seen that the Assessing Officer could not point out any discrepancy in the evidences relied upon by the assessee. Further, what is the desired documentary evidence required to support the claim of the assessee as required by the Assessing Officer is not coming out of the order of the Assessing Officer. Though, the share-applicants could not be examined by the Assessing Officer, since they were existing onthe file of the Income Tax Department and their income-tax details were made available to the Assessing Officer, it was equally the duty of the Assessing Officer to have taken steps to verify their assessment records and if necessary to also have them examined by the respective Assessing Officers having jurisdiction over them (share-applicants), which has not been done by him. In these circumstances, it is held that the addition of Rs.9,96,50,000/- on account of share capital and share premium u/s 68 of the Act can not be sustained and accordingly, the same is directed to be deleted."

3. Aggrieved by this order of CIT(A), department has come up in appeal while relying upon the basis and reasoning as given by the Assessing Officer, it was pleaded for setting aside the order of CIT(A) and restoring that of the Assessing Officer.

4. Ld.DR has relied upon the judgment of Delhi High Court in CIT vs. Nova Promotor & Finlease P. Ltd. (I.T.A. No.342 of 2011), reported in 18 Taxman.Com 217 (Del.) in which Lovely Exports (P) Ltd. has duly been discussed to decide the issue in favour of the Revenue and further reliance was placed on ITO vs. Omega Biotech Ltd.(2010) 4 I.T.R. (Trib.) 72 (Del.). Therefore, following the ratio of the said judgments, Ld.DR has pleaded for reversal of the order of the CIT(A) and restoring of Assessing Officer.

5. Despite sending notice sufficiently in advance, assessee did not appear at the time when case was called up for hearing. So, we proceeded to decide this appeal of the department ex-parte qua-the-assessee on the basis of material available on record in the light of the arguments advanced by the Ld.DR.

6. We have heard Ld.DR and considered the material on record as well as precedents relied upon by the Ld.DR and find that in the case of Nova Promotors & Finlease (P) Ltd., Hon'ble Delhi High Court has discussed and distinguished the decision of Hon'ble Supreme Court in the case of CIT vs. Lovely Export Pvt. Ltd., 216 CTR (SC) 195 and various other related decisions to decide the appeal in favour of the department.

7. Since issue involved in the appeal has not been considered by the CIT(A) appropriately while giving relief to the assessee, therefore, considering the entirety of facts, circumstances and material on record, we find it just and appropriate to set aside the order of the Ld.CIT(A) and restore the matter back on his file with the direction to consider the issue afresh after giving due opportunity to the assessee as well as to Assessing Officer. We hold and direct accordingly.

8. As a result, the appeal filed by the department gets accepted for statistical purposes.

--
Regards,

Pawan Singla , LLB

M. No. 9825829075

Allowability of Long term capital loss on sale of shares of a group company partly to a related buyer and partly to an unconnected third party buyer

Posted In Income Tax Case Laws | Judiciary | No Comments »

ITO V/s. J.M. Morgan Stanley P. Ltd. (ITAT Mumbai), ITA No.623/Mum/2009, Date of Pronouncement :13-12-2013

Issue – Whether the transaction of sale of shares of a group company at a loss could be treated as a non-genuine transaction intended solely to create a loss to adjust against taxable income?

Held in favour of Assessee :-

It is observed that the claim of the assessee for long term capital loss arising from sale of shares of was disallowed by the A.O. by treating the relevant transactions of purchase and sale of shares as a colourable device adopted by the assessee with an ultra motive to claim the long term capital loss. His allegation of the colourable device having been used by the assessee was mainly based on circular transactions allegedly made between different companies belonging to the same group whereby the shares sold had again come back to the same group. In this regard, the ld. D.R. has contended that the case made out by the A.O. of circular transaction was accepted even by the ld. CIT(A) but still he allowed the claim of the assessee for long term capital loss holding that the circularity was extremely weak. It is, however, observed that a very specific and categorical finding was given by the ld. CIT(A) in his impugned order that it was not a case of circularity where the assessee had re-purchased the shares after sale. He observed that the shares under consideration, on the other hand, had never come back to the assessee. Having held so, the ld. CIT(A) considered the case made out by the A.O. on the basis of controlling factor and observed in this context that even if this factor had been taken into consideration, it was not a circularity amongst only group companies and if at all such circularity was in existence, the same was extremely weak. It, therefore, cannot be said that the case of circularity made out by the A.O. was accepted by the ld. CIT(A) as sought to be contended by the ld. D.R. On the other hand, it was specifically rejected by the ld. CIT(A) observing that the shares in between were purchased by the third parties absolutely un-connected with the assessee group. He also noted that the shares purchased by the said third parties were held by them for a substantial time before selling the same at profit. It was also noted by the ld. CIT(A) that 50% of the shares sold by the assessee were held by outside corporate entity totally un-connected with the assessee even at the time he passed his impugned order. He observed that the said entity was a public limited company and the assessee having no stake in the said company, it cannot be said that any benefit was derived by the assessee from the transactions of purchase and sale of shares. As regards the rate at which the shares had been sold by the assessee, the ld. CIT(A) found that the valuation of shares was done by an independent Chartered Accountant and the same was not challenged by the A.O. by bringing in his own valuation. He held that the principle laid down by the Hon'ble Supreme Court in the case of MacDowell (supra) thus was not
applicable in the case of the assessee as there was no benefit derived either by the assessee or even by the group. In support of the Revenue's case on the issue under consideration, the ld. D.R. has relied on the decision of Hon'ble
Calcutta High Court in the case of L.N. Dalmia (supra) and of Kolkata Bench of ITAT in the case of Edward Keventer (P.) Ltd. (supra). On perusal of the orders passed in these two cases, we find that the facts involved were entirely different than the facts involved in the present case. In the case of L.N. Dalmia, two companies were formed by the assessee, one was LNE where he and his nephew were shareholders and directors. The other company was K where shareholders and directors were assessee and his wife. The assessee, his wife and his nephew were also directors of PPM. By the transfer of shares of PPM by the assessee to LNE and K, the transferor did not loose his control either over the transferred shares or the concerned company namely PPM. The transfers had taken place without any ready cash and the entire sale was made on credit. There was no positive proof that the purchasing company had sufficient funds to acquire the shares for the agreed consideration. The assessee, on the other hand, had incurred huge interest on borrowed funds allegedly utilized for the acquisition of shares and in the relevant year such interest amounted to Rs. 1,46,501/-. Keeping in view all these vital aspects, which were considered to be not disclosong any normal business like behavior, the transaction of sale of shares was held to be not genuine by the Hon'ble Calcutta High Court and the claim of the assessee for resultant loss was held to be not allowable. In the present case, the facts involved, as already discussed, are materially different inasmuch as the shares in question were not only transferred to third parties totally unconnected with the assessee but the same were also held by the said party for a considerable time. Similarly, in the case of Edward Keventer (P.) Ltd. (supra), the facts involved were different than the facts of the present case inasmuch as the five companies involved in the share transactions belonged to the same group with the assessee having influence over them and transactions of sale of shares and thereafter acquiring the same back were found to be made within the same group. It was also apparent that the five companies had acted only at the dictation of the assessee company in purchasing the shares as and when the assessee company had intended to sell and then the selling of shares back to the assessee company when the assessee wanted so without showing or explaining any commercial consideration in support thereof. Keeping in view all these facts of the case, it was held by the Tribunal that the composite transactions of first purchasing the shares and then re-selling the same at the same rate were fit to be disregarded as there was no commercial purpose and the same were artificially inserted to enable the assessee company belonging to the same group to book loss for acquiring the benefit for the tax purpose. The cases relied upon by the ld. D.R. thus are distinguishable on facts and the same cannot be of any help to the Revenue in the present case.

As submitted by the ld. Counsel for the assessee and remained  undisputed by the ld. D.R., capital gains arising from subsequent sale of shares by Mr. Mahendra T. Bhammer and family was declared by them in their returns and the same was even accepted by the Department. In the case of Vishal P. Mehta (supra) cited by the ld. Counsel for the assessee, it was held by the Tribunal that where subsequent sale is accepted by the Department as genuine, there is no reason or justification to doubt the earlier transaction. It is also observed that Mr. Mahendra T. Bhammer confirmed on oath of having purchased the shares from the assessee company and having made the payment against such purchase. The ld. Counsel for the assessee has also furnished the relevant details to show that the long term capital loss claimed in the year under consideration has not been sett off by the assessee against any long term capital gain till 2012-13 and the same has finally lapsed, which again goes to show that there was no ulterior motive in selling the shares at loss as alleged by the A.O. As such, considering all the facts of the case, we are of the view that there is no infirmity in the impugned order of the ld. CIT(A) allowing the claim of the assessee for lose of Rs. 27.67 crores in the year under consideration i.e 2004-05. We, therefore, uphold the impugned order of the ld. CIT(A) on this issue and dismiss the appeal filed by the Revenue.

Depreciation on electric fittings which are integral part of plant and machinery can be claimed at @25%

Posted In Income Tax Case Laws | Judiciary | No Comments »

D.R. relied upon the order of the A.O. and argued that as per Rule, on electric item depreciation is allowable @ 15%. Therefore, he requested to confirm the order of the A.O. At the outset, ld. A.R. argued that the assessee is engaged in the business of running a multiplex theatre. The cost of electric fittings and equipments amounting to Rs.59,48,760/-. The electric fittings are engaged for running the projector and film exhibition systems. Thus, the electric fittings and equipments are apparently in the nature of apparatus or plant which is essential for carrying on the main business activity of the assessee. The various High Courts have held that depreciation on items as per Rule are less but are used or fitted with the main plant and machinery and are integral part of the very plant and machinery for carrying on the business activity, the higher depreciation can be allowed. He relied upon the decision of Hon'ble Supreme Court in case of CIT vs. Karnataka Power Corporation, 243 ITR 81, wherein Hon'ble Supreme Court applied the functional test in this case on building which is specially designed and equipped to function as a Nursing Home constituted a plant for the purpose of depreciation. Therefore, he prayed to confirm the order of CIT(A).

We have heard the rival contentions and perused the material on record. It is undisputed that electrical items are fitted with projector and other film exhibition systems. Without electrical items, the projector as well as exhibition systems cannot be run. Therefore, it is a part and parcel of the plant and machinery. Thus, the assessee is entitled to higher rate @ 25%. We confirm the order of the CIT(A) and dismiss the Revenue's appeal on this ground

Brief on Equated Monthly Investment & Download EMI Calculator

Posted In Finance | Articles | No Comments »

An Equated Monthly Installment (EMI) is A fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month, so that over a specified number of years, the loan is paid off in full.

The Equated Monthly Installment (EMI) depends on three factors: loan amount, interest rate and the duration of the loan.The EMI has an interest and a principal portion. Through the principal, the borrower repays the loan each month. Through the interest, he pays the bank the interest due on the outstanding loan amount.  The Equated Monthly Installment (EMI) are structured in such a way that the interest portion forms a major part of the payment that is made in the initial years. In the later years, the principal component becomes high. The Equated Monthly Installment (EMI) can change in the case of an alteration in interest rates or if there is a prepayment. It is also possible to keep the Equated Monthly Installment (EMI) constant and increase or decrease the tenure of the loan to reflect the changes in interest rates or loan prepayment.

Receiving HRA? Rent a house to save Income Tax

Posted In Income Tax | Articles, Featured | 6 Comments »

House Rent is a Major Expense for Individual especially for those staying in Metro and Other Cities . However, the same House Rent Expense can help save some tax for salaried employees. In current salary packages, employees receive house rent allowance (HRA) to meet the cost of renting an house. A salaried employee staying in a rented house can claim a tax exemption towards the HRA received, subject to the limits specified in this regard under Section 10(13A) of the Income Tax Act.

HRA exemption

The tax exemption is limited to the least of-

i) Actual HRA received

ii) 50% of the basic salary (if staying in Mumbai, Delhi, Kolkata, Chennai) else 40%

iii) Actual rent paid less 10% of basic salary.

How it applies :-For example, assume one earns a basic salary of Rs 20,000 per month and rents a flat in Mumbai for Rs 5,000 per month. His actual HRA is Rs 8,000. He is eligible for 50 percent of the basic pay for HRA exemption.

Least of:

• Actual HRA received – Rs 8,000

• 50 percent of basic salary – Rs 10,000

• Excess of rent paid over 10 percent of salary, i.e., Rs 5,000 less Rs 2,000 – Rs 3,000.

As such, Rs 3,000 per month is the least and will be the exemption allowable for HRA deduction. If he has no rent outflow, he will have to pay tax on full allowance of Rs 8,000. Also, tax exemption can be claimed only where HRA is part of the salary package. Depending on the amount paid as rent and HRA received, tax exemption can be claimed. If one receives HRA for the period during which he did not rent an accommodation, then no exemption can be claimed.

Documents required

You need to submit proof of rent paid through monthly rent receipts and rent agreement. Monthly rent receipts should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc. If one is unable to do so, he/she could claim the exemption while filing the tax return and seek a refund. The rent receipts act as proof of payment of rent and should, therefore, be preserved.

Central Board of Direct Taxes (CBDT) has vide CIRCULAR NO. 8/2013, Dated: Dated: October 10, 2013 said if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer. In case the landlord does not have a PAN, a declaration to this effect from the landlord along with  the name and address of the landlord should be filed by the employee.

Also Read – Claiming HRA – What to do if landlord do not have PAN?

HRA and housing loan exemption

 If a ready to use home for which home loan is taken is rented out to someone else, while you continue to reside in a rental accommodation then HRA along with the home loan benefits could be claimed. On the other hand, since you are recipient of rental income, then the tax would be applicable to the rental income received. Hence, in specific cases an individual can claim both HRA and home loan benefits together. Also, employers do have regulations in this regard, therefore, it is wise and advisable to cross check with the employer before you claim HRA and home loan benefits together.

10 lesser known Income Tax Deductions

Posted In Income Tax | Articles, Featured | 13 Comments »

CA Sandeep Kanoi

We all know about the popularly know deductions like deduction u/s. 80C & 80D. But many times we use to forget to claim many other deductions which are available under the Income Tax Act, which can reduce our tax burden significantly. In this article we discussed 10 such lesser know deductions which taxpayers tend to forget to claim while filing there Income Tax Return.

1. Set off of Capital Loss Against Capital Gain

While most of us know that we need to pay taxes on short term or long term capital gains, not many are aware of the fact that capital losses, if any, can be balanced off against gains. So, for instance, if you have made a long-term capital gain of Rs 15 lakh by selling off your property and long-term capital loss of Rs 3 lakh by selling stocks which are either not listed or are sold off market  , the total taxable amount would Rs 12 lakh.

Please note Capital Gain on Sale of Shares sold through Stock Exchange can not be set off against other capital gain as profit from sale of shares of listed companies through stock exchange in exempt.

It is important to note that short term losses can be balanced off against both short term as well as long term capital gains. However, long term capital losses can only be balanced off against long term capital gains.

Read more – Carry Forward and Set Off of Losses – Income Tax

2. Deductions under section 80GG in respect of rent paid :Deduction to the extent of Rs 2,000 per month or 25 per cent of total income (whichever is less) is available under Section 80GG of the I-T Act in respect of rent paid by an individual on his accommodation, provided the individual does not get any house rent allowance.

Read More on this – Section 80GG Deductions – For rent paid

3. Medical treatment of specified ailments under section 80DDB:-Deductions of expenses on medical treatment of specified ailments (such as AIDS, cancer and neurological diseases) can be claimed under Section 80DDB. The maximum amount of deduction allowed from gross total income is restricted to Rs 40,000 (which goes up to Rs 60,000 if the age of the person treated is 60 years or more) on condition that no medical reimbursement is received from any insurance company or employer for this amount.

In order to claim this deduction, however, you will have to submit Form 10-1 from a specialist doctor working in a government hospital in India, confirming the treatment of the disease.

Read More on section 80DDB – Deduction under section 80DDB with FAQ

4. Deduction under section 80U for Person with disability:-Under Section 80U of the Act, an individual who is certified by the prescribed medical authority to be a person with disability shall be allowed a deduction of Rs 50,000 and an individual, who is certified as a person with severe disability, shall be allowed a deduction of Rs 75,000. W.e.f. 01.04.2010 this limit has been raised to Rs. 1 lakh.

Read More on Deduction Under Section 80U – Deduction U/s. 80U for disabled persons

5. Charitable deductions under section 80G: Deduction is also available under Section 80G of the I-T Act in respect of donations made by an individual to certain funds, charitable institutions and so on. There is no restriction on the amount of charity.  The rate of deduction, however, is either 50 or 100 per cent, depending on the choice of trust. Also, donations must be made to registered institutions only.This includes any amount contributed to a recognised political party. It can be claimed as a deduction under Section 80GGC (80GGB for corporates). This is a new deduction and was introduced in April 2010.   Donations to institutions involved in scientific research or rural development get exemption under Section 80GGA.  The donation can also be made to an electoral trust that works for conducting elections. Interestingly, unlike other deductions, there is no ceiling on the amount that can be claimed as deduction. Of course, this doesn't mean one can claim deduction for cash payments. The deduction is available only if the sum goes into the party coffers. The quantum of deduction depends on the nature of the organisation. For instance, money given to certain establishments, such as the National Defence Fund, the Prime Minister's National Relief Fund and the Chief Minister's Relief Fund enjoy 100% deduction.On the other hand, NGOs such as Child Rights and You, Helpage India and the National Children's Fund give you only 50% deduction. So, it's a good idea to find out how much deduction is available before you write out a cheque. However, you cannot use this route to evade tax by bringing down your income tax slab. There is a ceiling on the deduction a taxpayer can claim in a year. The quantum of deduction is limited to 10% of the gross total income of the donor. Also, only cash donations are taken into account. Donations of food, clothes and medicines do not qualify for such a deduction.

Read more on Deduction Under Section 80G – Deduction U/s. 80G of Income Tax Act, 1961 for donation

6. Interest on loan taken for higher education & vocational courses. :- Taxpayers also tend to forget that the interest paid on an education loan taken for higher studies or vocational curses qualifies for deduction under Section 80E of the I-T Act. Also, effective April 1, 2008, the said deduction is also available where the loan is taken for the purpose of higher education of spouse or children of the individual or the student for whom the individual is a legal guardian. Thus, if you have taken a loan for higher education, don't forget to make your claim. Also remember that the deduction benefit on interest is allowed for maximum eight years, or till the interest is fully paid.

Read more on Deduction Under Section 80E – Education Loan – The Mantra to Save Tax under section 80E

7. Interest paid on a second home loan is fully deductible :-  The tax benefits of a home loan are well known. Under Section 24b, one can claim a deduction of up to Rs 1.5 lakh a year for the interest paid. If the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as deduction.  If you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or deemed income is taxable. For instance, if you have taken a home loan of Rs 50 lakh at 9.5% for 20 years, your interest payment in the first year will be Rs 4.7 lakh and you can save tax up to Rs 1.09 lakh.

Taxability of second House under Income Tax Act,1961

8. HRA as well as home loan benefits:-

If you took a home loan and are still living in a rented place, you will be entitled to:

1. Tax benefit on principal repayment under Section 80C
2. Tax benefit on interest payment under Section 24
3. HRA benefit

Of course, you can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete, the HRA benefit stops. If you took a home loan, got possession of the house, have rented it out and stay in a rented accommodation, you will be entitled to all the three benefits mentioned above. However, in this case, the rent you receive would be considered as your taxable income.

9. Save tax through your family - Simplest way of saving tax is by investing through parents, parent in laws, wife and children. If you invest in the right instrument, the rate of return may be higher as well. Here is how we can save tax through our family members. Read Following Post for more details :-

Tax Planning- Save tax through your family

10. Repairs and maintenance of house property – You will never forget to claim deduction of interest on repayment of your home loan, but not many people know that any interest paid on home loan for reconstruction or repair of the "house property" qualifies for deduction of up to 30,000, subject to the overall limit of 1,50,000.

(Republished with amendments)

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