Case Digest on High Court Income Tax Judgements, 2016-17 - Part 6

AO cannot alter the profit declared in the Audited Account prepared under Companies Act for the purpose of sec. 115JB: Bombay HC: CIT vs M/S. CENTURY TEXTILES AND INDUSTRIES LTD.

In CIT v. M/s. Century Textiles and Industries Ltd., the Bombay High Court ruled that the Assessing Officer cannot modify the profit declared in audited accounts under the Companies Act for Section 115JB of the Income Tax Act. The AO added depreciation arrears to audited book profits for the Assessment Years 2000-01 and 2001-02. The assessee argued that accounts, prepared as per the Companies Act and audited, cannot be altered for Section 115JB, citing the Apex Court's decision in CIT vs. Apollo Tyres Ltd.

The High Court upheld the Tribunal's decision, emphasizing that the AO must accept book profits as per the Companies Act, with adjustments only as per the Section's Explanation. The court dismissed the Revenue's appeal, noting no flaws in the Tribunal's order and pending appeal admission for the mentioned Assessment Year. The decision aligns with earlier rulings preventing AO interference with audited account profits under the Companies Act.

Depreciation u/s 32 is allowable on Assets ‘Ready for Use’: Allahabad HC : CIT vs M/S U.P.STATE  BRIDGE CORPORATION LTD

In this case, the Allahabad High Court ruled that depreciation is allowable on 'ready-to-use' assets under section 32 of the Income Tax Act. The Revenue challenged the ITAT's order, arguing that the categorization of an item as either Revenue or Capital should not overlap. The assessee, involved in bridge construction, claimed depreciation on owned shuttering material, considering it essential.

The High Court, citing a previous decision favouring the assessee on the same issue, upheld the claim, stating that as the owner of ready-to-use shuttering, the assessee is entitled to 100% depreciation. The bench, citing the earlier decision, dismissed the appeal, stating that no compelling reason was presented to warrant a different view. The appeal was decided in favour of the assessee and against the Revenue.

Mere Approval by Concerned Authority u/s 151 without stating Reasons for Permitting Re-Assessment is invalid: Delhi HC: PCIT vs M/S N.C CABLES LTD.

The Delhi High Court division bench ruled that the approval under section 151 of the Income Tax Act for reassessment must include stated reasons; mere approval without reasons is invalid. The case involved M/s N.C. Cables Ltd, challenging reassessment proceedings initiated after eight years. The Appellate Tribunal quashed the proceedings, citing a lack of proper application of mind by the sanctioning authority and insufficient inquiry by the Assessing Officer. The assessee argued that the CIT (A) merely approved the AO's note without proper investigation. The bench, comprising Justice S. Ravindra Bhat and Justice Najimi Waziri, dismissed the appeal, emphasizing that the CIT (A) must apply their mind and form an opinion, not just ritually approve without meaningful consideration.

Expenditure towards Interest and Financial/Back charges paid to Financial Institutions are Revenue Expenditure, not taxable: Rajasthan HC: CIT vs M/s MODERN THREADS (I) LTD.

In this case, the Rajasthan High Court rejected the revenue's plea, affirming that interest and financial/back charges paid to a financial institution for a loan are considered revenue expenditure. The lower appellate authorities had earlier allowed the expenditure, considering it as deferred revenue expenditure related to preoperative interest and bank charges for installing a unit. The High Court, citing a previous decision, upheld the findings of the adjudicating authorities and ruled in favour of the assessee.

Delay in passing orders within the Statutory Time Limit cannot be justified on Ground of ‘Administrative Clearance’: Bombay HC: OTTERS vs DIRECTOR OF INCOME TAX (EXEMPTIONS) MUMBAI & ORS

In a recent ruling, the Bombay High Court division bench, comprising Justice M.S. Sanklecha and Justice A.K. Menon, annulled the ITAT order dismissing a rectification application after a delay of more than 90 days. The court held that the delay, attributed to "administrative clearance," is not justifiable under Rule 34(5)(c) of the Income Tax Appellate Tribunal Rules, 1963, and the precedent set in Shivsagar Veg. Restaurant v/s. ACIT. The bench emphasized that the Tribunal must pronounce its order within 90 days, as mandated by the rules, and questioned the meaning of "administrative clearance." Citing a previous directive to prevent delays, the court quashed the Tribunal's order.

The word ‘Education’ cannot be confined to Certain Group for the purpose of S. 2(15) ad 10(23C) of the Income Tax Act: Allahabad HC: CIT vs Dr. VIRENDRA SWAROOP EDUCATIONAL FOUNDATION

In CIT v. Dr. Virendra Swaroop Educational Foundation, the Allahabad High Court ruled that the term 'education' is broad and cannot be restricted to a specific group for Sections 2(15) and 10(23C) of the Income Tax Act. The assessee-trust, engaged in educational activities, faced a denial of Section 80G (5) approval renewal by the C.I.T. The ITAT granted renewal, stating that the trust qualified for exemption under Section 11 and that there was no violation of Section 13. The Revenue argued that the trust's genuineness should be examined by the CIT, but the High Court disagreed, noting the absence of evidence supporting the Revenue's claim. The court emphasized that 'education' in Section 2(15) encompasses all individuals and cannot be limited to specific groups. The appeals were dismissed, affirming the trust's entitlement to Section 80G (5) exemption.

Re-Assessment solely on Ground of Reversal of Legal Position by Apex Court Judgment is invalid: Patna HC : SAMSUNG INDIA ELECTRONICS PVT. LTD. vs THE STATE OF BIHAR

In a writ petition by Samsung India Electronics Pvt. Ltd and its dealers, the Patna High Court ruled that re-assessment under section 31 of the Bihar Value Added Tax Act, 2005, solely based on a change in legal position per an Apex Court decision, is invalid. The court quashed the proceedings, stating that re-assessment cannot be made on a mere change of opinion, and strict compliance with the Act's requirements is necessary for initiation. The petitioners, engaged in manufacturing electronic products, faced re-assessment after the Apex Court's decision in Nokia India Pvt Ltd. The petitioners argued that the reassessment lacked other supporting material and did not satisfy the requirements of section 31. The court accepted the petitioners' contentions, emphasizing that re-assessment without a 'reason to believe' in income concealment is not sustainable. The court highlighted that the reassessment was solely based on the Supreme Court decision, making it a mere change of opinion without jurisdiction.

‘Furnishing of inaccurate particulars of Income’ is different from ‘Concealment of Income’ for the purpose of sec. 271(i)(a): Bombay HC: CIT vs SHRI SAMSON PERINCHERY

In this case, the Bombay High Court ruled that 'furnishing inaccurate particulars of income' and 'concealment of income' under section 271(i)(a) of the Income Tax Act are distinct. The Court held that the Assessing Officer must specify the grounds for initiating a penalty. The Tribunal had struck down the penalty for not specifying the reason, noting that the penalty was imposed for concealment of income, while the order referred to furnishing inaccurate particulars. The Revenue argued there was no difference between the two, calling it "Tweedledum and Tweedledee." Dismissing the plea, the Court emphasized that the penalty must align with the specified ground, and imposing it for a different breach is not permissible without notice to the assessee.

Delhi HC allows Depreciation Claim of Rs. 4 Cr by Sony India Pvt Ltd: SONY INDIA PVT LTD. vs CIT

The Delhi High Court division bench allowed Sony India Pvt Ltd. to claim depreciation of Rs. 4,42,22,475, overturning the AO's disallowance based on a previous decision. The AO had relied on Allied Electronics and Magnetics Ltd. v. CIT. Sony India Pvt Ltd. challenged the Tribunal's order denying depreciation under Section 32 for the Daru Hera unit's assets. The appellant, engaged in assembling and distributing electronic goods, argued that amendments in section 43 and 50 of the Income Tax Act disallowed the AO's reasoning. The court noted the changes brought about by the amendments, distinguishing the case from the precedent relied upon. The bench emphasized that the previous judgment did not consider the amendments and was based on the law prevailing in 1972-73.

Genuinity of Transaction cannot be suspected if it is supported by Documentary Proof: Delhi HC: PCIT vs JATIN INVESTMENT PVT. LTD.

The Delhi High Court division bench observed that a transaction cannot be deemed fraudulent if the assessee provides documentary proof, establishes the identity of the purchasers, and no discrepancies are found. The court emphasized that the Assessing Officer (AO) must use powers under sections 131 and 133(6) of the Income Tax Act to verify the claim's genuineness instead of relying on surmises. The appeal by the IT Department was against the ITAT's decision upholding the first appellate authority's order, which deleted the addition of Rs 93.45 lakh under Section 68. The court stressed that the department cannot act on mere suspicion and must verify the genuineness of the claim without surmising. The case involved a reassessment against Jatin Investment Pvt Ltd for AY 2003-04 and AY 2004-05, where the AO added Rs 93.45 lakh based on suspicion without establishing fraudulent nature or providing credible evidence. The court rejected the Revenue's contention that incorrect reflection in the balance sheet justified applying Section 68, stating that no question of law arises. The bench upheld the ITAT's decision, emphasizing the need for evidence before making additions based on surmises.

IT proceedings against a Non-Existing Company which ceases to exist by virtue of Amalgamation Order is Illegal: Delhi HC: BDR BUILDERS AND DEVELOPERS PVT. LTD. vs THE ACIT

The Delhi High Court division bench ruled that re-assessment proceedings under sections 147/148 of the Income Tax Act cannot be initiated against a non-existing entity that ceases to exist due to an amalgamation order under section 394 of the Companies Act. In the case of BDR Builders And Developers Pvt. Ltd., the court held the re-assessment notice against the non-existent entity, M/s. Rishi Promoters, to be void and unsustainable. The court cited the decision in Omaxe Limited v. Assistant Commissioner of Income Tax, emphasizing the conclusive and final nature of Settlement Commission orders, making reopening under section 147 impermissible. The court noted that the revenue was aware of the amalgamation but still proceeded with the notice, deeming it illegal and unsustainable based on relevant judgments.

All Expenses incurred during ‘Setting Up’ and ‘Commencement’ of Business are Permissible Deductions: Bombay HC: CIT vs M/s AXIS PVT EQUITY LTD

In this case, the Bombay High Court's division bench held that all expenses incurred during the period between setting up and commencement of business are permissible deductions under the Income Tax Act. Dismissing the revenue's appeal, the court emphasized that determining whether the business has been set up is a matter of fact. The assessee, an asset management company, incurred expenses before the commencement of business. The Tribunal found in favour of the assessee, citing a similar precedent, and the High Court upheld the decision, stating that business is considered set up when it is established and ready to commence. The court rejected the revenue's argument and highlighted the absence of evidence demonstrating a difference between setting up and commencement of business.

Interest Earned Out of Bank FDs before the Commencement of Business is ‘Business Income’ of a Company: Bombay HC: CIT vs M/s GREEN INFRA LIMITED

In this case, the Bombay High Court's division bench ruled that interest received by the assessee-company from bank fixed deposits before commencing business qualifies as 'business income' under the Income Tax Act. The Revenue challenged the decision of the Appellate Tribunal, arguing that it should be categorised as income from other sources since the business hadn't commenced and the company wasn't involved in money lending. However, the court upheld the Tribunal's decision, citing precedent and emphasizing that the commencement of business cannot be determined differently based on the nature of the claim being made.

TDS provisions are not applicable in case of Payments in the nature of Reimbursement to Sister Concern: Delhi HC: PCIT vs SHRI DINESH KUMAR MATHUR

The Delhi High Court ruled that TDS provisions don't apply when payments to a sister concern are reimbursement. The assessee claimed an expenditure for raw material reimbursement to M/s. Aakriti Creation Pvt. Ltd. The AO disallowed it, but the CIT(A) allowed, citing a Tribunal decision. The Revenue contested, arguing Section 40(a)(ia) mandates TDS. The court, noting past rulings, remanded for reconsideration. If A.O. verifies reimbursement in M/s Aakriti Creation Pvt. Ltd.'s returns, Section 40(a)(ia) won't apply.

Appeal Voluntarily withdrawn by the Assessee cannot be restored by stating that Withdrawal was an Error: Bombay HC: JAYANT D. SANGHAVI vs ITAT & 2 Ors

The Bombay High Court rejected a plea to restore an appeal withdrawn by the assessee. The petitioner claimed withdrawal was on counsel's advice, but the court found no evidence supporting this. The Tribunal dismissed the appeal at the petitioner's request. Three years later, the petitioner sought recall, citing counsel's advice. The court noted the absence of evidence from the advocate and deemed the withdrawal unconditional. Without proof of counsel's advice, the court upheld the Tribunal's rejection under Section 254(2) of the Income Tax Act.

Amount deposited as Security during the Customs Proceedings is Allowable as Expenditure: Delhi HC: PCIT vs PRAVEEN SAXENA

The Delhi High Court, in Principal CIT v. Praveen Saxena, dismissed the Revenue's appeal, which argued that the amount deposited by the assessee as security during customs proceedings is not allowable under Section 43B of the Income Tax Act. The assessee deposited Rs. 70 lakhs as security following a court order during penalty proceedings by the Customs Department. The Assessing Officer deemed it penal, but the appellate authorities allowed it as compensatory. The court, noting the deposit was per High Court directions and not penal, rejected the appeal, emphasizing differences from the cited precedent. The Revenue's contentions were deemed misconceived and rejected.

Benefit of S. 54F is not available when Assessee has not started construction in the Purchased Plot within the Stipulated Time: Allahabad HC: AJAY KUMAR vs INCOME TAX OFFICER

The Allahabad High Court held that the exemption under Section 54F of the Income Tax Act is not available if the assessee fails to start construction on the purchased plot within the specified time. The assessee sold ancestral property, bought a new plot, but couldn't begin construction within the stipulated period. The AO denied exemption, stating that only the plot was purchased, not a constructed residential house. The appellate authority allowed the claim, but the tribunal overturned it. The High Court, citing precedent, emphasized that Section 54F requires either construction or purchase of a house within the specified period. Since the assessee didn't start construction, the appeal was dismissed, and the benefit of Section 54F was deemed unavailable.

Interest / Service Charges paid on Funds raised to Subscribe Debentures are Allowable Expenditure: Delhi HC: CIT vs M/S VIRAT INVESTMENT & MERCANTILE CO.

In this case, the Delhi High Court ruled that the assessee is entitled to a deduction under Section 37 of the Income Tax Act for interest/service charges paid on funds raised from LIC Mutual Fund to subscribe debentures. The investment company reported a loan transaction to fund its subscription to debentures in Shreyans Industries Ltd. The AO disallowed the deduction, citing Section 57(iii). The appellate authorities allowed the plea, emphasizing the assessee's status as the de facto owner of the debentures. The court noted that the interest expenditure is not capital-related but a service charge, and thus, Section 37 applies. The appeal was dismissed, affirming the allowance of the deduction.

Accounting Standard (AS) -7 is a Well-known and Recognized Method of Accounting: Delhi HC: PCIT vs M/S A2Z MAINTENANCE & ENGINEERING SERVICES LTD.

In this case, the Delhi High Court ruled that Accounting Standard (AS) -7 is a recognized method of accounting. The construction company provided maintenance services and showed deferred revenue income of 11.98 crores as per AS-7. The CIT(A) issued a notice under Section 263, revising the assessment, but the Tribunal upheld the accounting method's validity. The court concurred, noting the A.O. 's scrutiny during the original assessment and referencing a similar decision in Paras Buildtech India Pvt. Ltd. The appeal was dismissed in favour of the assessee.

Dept of Economic Affairs is Competent Authority for Approving Benefit of Sec 10(15)(iv)(c) of the Income Tax Act: Delhi HC: M/S TEJ QUEBCOR PRINTING LTD. vs JCIT

In this case, the Delhi High Court ruled that the Department of Economic Affairs is the competent authority for approving the benefit under Section 10(15)(iv)(c) of the Income Tax Act. The assessee, involved in printing and binding telephone directories, imported machinery from M/s. Quebecor Printing Ltd. Inc., Canada. The Department of Economic Affairs approved the benefit, advising the assessee to approach the Reserve Bank of India for foreign exchange remittance. The AO disallowed the deduction, citing non-deduction of TDS under Section 195. The first appellate authority granted relief, emphasizing compliance with statutory conditions. The ITAT allowed the revenue's appeal, arguing that benefits couldn't be granted due to the delayed approval by the Department of Revenue.

The High Court held that the approval of the Central Government pertained to the rate of interest, not the transaction itself. The absence of a specific agency notification by the Revenue rendered their arguments unsubstantial, and the Court emphasized that the Department of Revenue's approval did not differ significantly from that of the Department of Economic Affairs. The Court concluded that the Revenue's contentions lacked merit, upholding the assessee's position.

Sec 80IA(10) cannot be invoked Solely on Ground that there are Common Customers of both Eligible and Non-Eligible units: Bombay HC: MALAY N. SANGHVI vs INCOME TAX OFFICER

In this case, the Bombay High Court ruled that profits of a deduction-eligible undertaking cannot be considered "inflated" under Section 80-IB(10) of the Income Tax Act, 1961 without evidence of an arrangement between eligible and non-eligible units for generating extraordinary profits. Common customers alone do not imply profit transfer. The appellant contested the assessment order, arguing that Section 80IA(10) couldn't restrict the deduction under Section 80IB for his Jammu unit based on profits from his wife's unit in Valsad.

The court observed that the CIT(A) found no evidence of an arrangement or transfer of goods/services at below-market prices, and the Revenue failed to prove any business transactions between the two units. The Tribunal's reliance on common customers without considering the CIT(A)'s findings was deemed inappropriate. The court called for reconsideration by the Tribunal regarding the interpretation of Section 80IB(8) and (10) in this context.

Interest u/s 201(1A) of IT Act cannot be levied if the Deductee has returned losses and a Subsequent Assessment shows Positive Income: Allahabad HC: CIT vs M/s SAHARA INDIA COMMERCIAL CORPN. LTD.

The Allahabad High Court upheld the ITAT's decision that interest under Section 201(1A) of the Income Tax Act cannot be imposed if the deductee has reported losses for the relevant years. The court dismissed the Revenue's appeals, stating that the issue was squarely covered by a previous decision in Ghaziabad Development Authority Vs. Union of India. According to this precedent, interest under Section 201(1A) is compensatory, and if the recipient-assessee has no tax liability, no interest can be recovered. The court emphasized that if there is no obligation to pay tax by the recipient assessee, the deduction of tax by the assessee in default does not arise. The court directed the Assessing Officer to examine the liability of interest and make a fresh order accordingly.

Issue of Pre-Assessment notice to Wrong/Old Address of Assessee would not render a Valid Service of Notice: Bombay HC: CIT vs ABACUS DISTRIBUTION SYSTEMS (INDIA) PVT. LTD.

The Bombay High Court ruled that issuing a notice under section 143(2) of the Income Tax Act with the wrong address does not constitute valid service. The court quashed the assessment proceedings, emphasizing that non-service of the notice before the expiry of 12 months from the end of the month in which the return was filed renders the assessment void. The notice, initially sent to the wrong address, was forwarded to the correct one after the 12-month period. The court held that the incorrect addressing negated the presumption of service under Section 27 of the General Clauses Act. The subsequent service to the correct address was not sufficient to save the assessment, as there was no new information provided to the Assessing Officer between the initial notice and the corrected one. The court highlighted that the objection to the assessment proceedings was raised before completion, rendering Section 292BB of the Income Tax Act inapplicable.

Income Tax No Disallowance with respect to Exempt Income can be made if the Securities are held as Stock-in-Trade: Calcutta HC: CIT vs M/s. G K K CAPITAL MARKETS (P) LIMITED

In this case, the Calcutta High Court held that no disallowance under section 14A r/w Rule 8D can be made concerning exempt income if the securities are held as stock-in-trade. The decision was based on CBDT Circular No. 5/2014 dated 11.02.2014. The Revenue appealed against the ITAT's order, which granted relief to the assessee on the grounds that all shares were held as stock-in-trade, not as investments. The Revenue argued that disallowance under Section 14A was erroneously deleted by the Tribunal when the Assessing Officer applied Rule 8D. The assessee contended that since the Assessing Officer treated long-term capital gain as business income, Section 14A should not apply. The court, in dismissing the appeal, noted that the Revenue did not assert that the disallowed expenditure was related to exempt income not arising in the previous year, as required by the circular. The Assessing Officer accepted the correctness of the disallowed expenditure but did not allow the claim, treating the amount as business income and not subsequently disallowing the offered expenditure.

House given to Spouse for Inadequate Consideration could be attached to recover Tax dues of Assessee: Kerala HC: T.S SUJATHA vs TAX RECOVERY OFFICER & ANR

The Kerala High Court ruled that if an assessee transfers a property to his spouse for inadequate consideration during a block period when a search was conducted against him, and the assessee fails to pay the determined tax demand in block assessment proceedings, the tax department can proceed against the property of the spouse under the Explanation to section 222(1) of the Income Tax Act.

The case involved the husband transferring a property to his wife during a block period for which a search was conducted against him. The tax authorities initiated proceedings to recover the amount by attaching and selling the property in the wife's name. The wife argued that the transaction was not sham, as she had sufficient income, and the property's value was comparable to other properties in the area.

The court noted the long-standing unpaid tax arrears in the husband's name and allowed the department to proceed against the property under the Explanation to Section 222(1). The court emphasized that the property in the wife's name was not being proceeded against for any default committed by her and that the transaction, occurring during a period of suppression by the husband, along with inadequate consideration, justified proceedings for recovery. The court highlighted that the Explanation to Section 222(1) specifically allows proceedings against transferred assets in cases of inadequate consideration.

Documents found during Search must ‘belong to Assessee’ is a necessary Condition to invoke Assessment u/s 153C: Bombay HC: CIT vs M/s. ARPIT LAND PVT. LTD.

In a recent decision, the division bench of the Bombay High Court ruled that the condition that documents found during a search must "belong to the assessee" is a necessary prerequisite to invoke assessment under section 153C of the Income Tax Act. The bench concurred with the ITAT's findings, emphasizing that this requirement is a jurisdictional issue, and the non-satisfaction of this condition renders the entire proceedings null and void. The case involved a search on a company's premises, leading to the recovery of documents related to the assessee. The assessment under section 153C was initiated based on these documents. The assesses argued that the seized documents did not belong to them, challenging the jurisdiction of the assessment. The tribunal accepted this contention, prompting the Revenue to appeal to the High Court.

The division bench noted that the Revenue's submission was solely based on suspicion, lacking evidence indicating that the assessee and the searched persons were part of the same group. The bench emphasized the strict compliance required with section 153C and stated that the non-satisfaction of the condition that seized documents must belong to the assessee is a jurisdictional issue, rendering the proceedings null and void. The bench concluded that the issue of section 69C of the Income Tax Act could only be considered if the proceedings under section 153C are upheld.

No TDS for the Payments of Lease Rent / Interest / Other Payments for Acquisition of a Plot on Lease: Delhi HC: RAJESH PROJECTS (INDIA) PVT. LTD. vs CIT (TDS)

The Delhi High Court's division bench held that Tax Deduction at Source (TDS) is not required for lease rent, interest, or other payments related to the acquisition of a plot on lease. The petitioners, involved in property development, challenged notices from income tax authorities for non-deduction of TDS on payments to the Greater Noida Industrial Development Authority (GNOIDA) for long-term leases.

The court observed that payments as part of the lease premium or for acquiring leasehold rights are not subject to TDS, being capital payments. Payments for interest on lump sum lease premium, covered by Section 194-A, are exempt under Section 194A(3)(f) and not subjected to TDS. Any interest payments by a bank to GNOIDA on fixed deposits are also exempt from TDS.

The court directed GNOIDA to credit/reimburse TDS payments made by the petitioners due to coercive methods by the Revenue. If payments were made without TDS, GNOIDA should reimburse the petitioners. Amounts deposited with the court or Revenue should be appropriated for TDS liability. The court set aside the Income Tax Authority's order and clarified that once the basic liability (with interest paid by GNOIDA) is satisfied, no coercive methods for recovery or penalty should be pursued by the income tax authorities.

Once the Shares of Beneficiaries are found to be determinable, the Trustees cannot be Assessed for such Income: Karnataka HC: CIT vs M/S. INDIA ADVANTAGE FUND

The division bench of the Karnataka High Court held that when the shares of the beneficiaries are ascertainable, the income should be taxed in the hands of the respective beneficiaries rather than the trustees. The Assessing Officer initially decided to tax the income in the hands of the trustees at the maximum marginal rate, citing non-determinable shares of the beneficiaries. The Tribunal overturned this decision, stating that the trust couldn't be assessed as an Association of Persons (AOP), and the shares were determinable as per their order.

The bench emphasized that the Revenue did not dispute the Tribunal's findings and argued that the shares should be quantifiable at the time of executing the Trust Deed. The court clarified that the determination of shares should focus on their ascertainability, not the date of the Trust Deed's execution. The real test is whether the shares are determinable, and in this case, the assessing authority acknowledged that the beneficiaries would share benefits in proportion to their investments, indicating determinable shares. Consequently, the court concluded that the shares being ascertainable fulfilled the legal requirements, exempting the case from the applicability of Section 164 of the Income Tax Act.

Written Back Amount must be excluded while Computing Export Profits under Section 80HHC: Delhi HC: ROLLATAINERS LTD. vs CIT

The Delhi High Court determined that the written back amount must be excluded when computing export profits under Section 80HHC of the Income Tax Act. The case involved an appeal by Rollatainers Ltd against the ITAT's order, which confirmed that the write back of liabilities falls under the expression "any other receipt of similar nature" in Explanation (baa) of Section 80HHC. The court noted that written back liabilities are considered as profits and gains of business under Section 41(1) of the Act, relevant for computing "profits of the business" under Explanation (baa). Referring to the ACG Associated Capsules decision, the court emphasized that written back amounts, falling within "profits and gains of business," need to be excluded from export profits under Section 80HHC. Such amounts constitute independent income unrelated to export profits, and their exclusion prevents distortion in the computation. The court concluded that the ITAT's decision did not warrant interference on this matter.

ITAT can Call for Any Document / Record while disposing the Appeal: Delhi HC: PCIT vs INCOME-TAX APPELLATE TRIBUNAL & ANR.

The Delhi High Court division bench ruled that the Income Tax Appellate Tribunal (ITAT), being an appellate authority, has the authority to call for any document/record and examine the existence of the order that forms the basis of an assessment for the purpose of disposing of the appeal. The Revenue filed a writ petition challenging the Tribunal's order, where it admitted an additional ground raised by the assessee on the jurisdictional issue and directed the Revenue to produce a copy of the order underlying the assessment. The Revenue refused during the hearing, stating that the assessee could obtain it anytime, while the assessee argued that their RTI application was rejected. The Revenue contended that, considering the presumptive nature of Section 124, the Tribunal couldn't have examined the existence of the order due to its limited jurisdiction. However, the court found this contention unpersuasive, stating that, as an appellate body, the ITAT has the authority to call for records and examine the existence of the order, even though the effect of such order on account of Section 124 and a further inquiry into its legality may or may not be available.

Interest Paid to Seller of Securities for the broken period is Deductible from Income: Bombay HC: CIT vs AMERICAN EXPRESS BANK LTD.

The Bombay High Court's division bench in CIT v. American Express Bank held that the interest paid to the seller of securities for the broken period is deductible from the assessee's total income under the Income Tax Act. The Income Tax Appellate Tribunal referred the matter to the High Court, questioning whether such interest should be allowed as a deduction. The Revenue argued that a similar issue was decided in favour of the assessee in Commissioner of Income Tax vs. Citi Bank N.A., as per the Apex Court's decision. The bench, consisting of Justice M.S Sanklecha and Justice A.K Menon, concluded that, based on the Apex Court decision, the amount is deductible from the taxable income of the assessee.

Expenditures on Buy-Back of Shares, Acquisition of Know-How etc. are Revenue Expenditures, Deductible from Taxable Income: Bombay HC: CIT vs M/s. ADITYA BIRLA NUVO LTD.

In CIT v. M/s. Aditya Birla Nuvo Ltd, the Bombay High Court's division bench dismissed the Revenue's appeal, stating that expenses incurred on buy-back of shares, acquisition of marketing and technical knowhow, and premium paid on redemption of debentures are revenue expenditures and not taxable under the Income Tax Act. The court relied on the settled issue of buy-back expenses as revenue expenditure, citing CIT v/s. M/s. Hindalco Industries Ltd. It rejected the Revenue's argument to categorize expenses on marketing and technical knowhow as capital, citing the Apex Court's decision in Kedarnath Jute Mfg. Co. Ltd. The bench also noted that the Tribunal and High Court confirmed the allowability of premium on pre-redemption of debentures as revenue expenditure, citing CIT v/s. M/s. Grindwell Norton Ltd, and concluded that no substantial question arose on this issue, leading to the dismissal of the Revenue's appeal.

Gains from Purchase and Sale of Shares and Mutual Funds are Taxable under the head ‘Capital Gains’: Bombay HC: CIT v. MOHAN VALLABHDAS BHATIYA

The Bombay High Court's division bench ruled that income arising from the purchase and sale of shares and mutual funds is taxable under the "Capital Gains" head, not as business income under the Income Tax Act. The Revenue argued that, given the volume and frequency of transactions, the assessee engaged in share trading as a business. However, the bench noted the consistent treatment of gains by the assessee as capital gains in previous assessment years, accepted by the Revenue. Despite the argument of borrowed funds, the court upheld the findings that the income from the investment portfolio is chargeable under the head of capital gains. The court deemed the concurrent findings of fact by the CIT(A) and Tribunal as not shown to be perverse.

Disallowance of Interest u/s 14A should be made with reference to Net Interest Loan, not on Gross Interest: Bombay HC: CIT v. JUBILIANT ENTERPRISES PVT. LTD.

The Bombay High Court upheld the Tribunal's order that disallowance of interest under Section 14A of the Income Tax Act should be based on net interest loan. The Revenue argued for disallowance based on gross revenue, but the bench referred to the Tribunal's decision in Paresh K. Shah and its Calcutta Bench in Trade Apartments Ltd. The court noted the absence of a challenge to the decision in Paresh K. Shah, assuming it was accepted by the Revenue, and found no distinguishing features justifying disallowance on gross interest instead of net interest.

Assessment u/s 153A is Limited to Search Income only: Gujarat HC: PCIT vs DEEPAK J PANCHAL

In this case, the Gujarat High Court reiterated that the assessment under Section 153A of the Income Tax Act is limited to search-related income. The court upheld the Tribunal's decision, citing precedents such as Principal Commissioner of Income Tax-1 Vs. Devangi Alias Rupa and CIT Vs. Kabul Chawla. The court emphasized that the Assessing Officer, when framing assessments under Section 153A, can consider incriminating material found for the year under consideration only, as established in previous cases like Principal Commissioner of Income Tax -4 Vs. Saumya Construction Pvt.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates