Recent Controversies in Income Tax by jennyyingdi

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									Recent
Controversies in
Income Tax
By CA. Kapil Goel FCA LLB
Advocate (Delhi High Court)
9910272806
advocatekapilgoel@gmail.com
What is contained for discussion in
next slides!
   Search and Seizure related controversies
   Reopening related developments
   Section 14A developments
   Karnataka High Court orders! Charity taxation!
   Section 195/ Section 40(a)(i) Sec. 9(1)(vii)
   Section 37; 36(1)(iii); Section 40(a)(ia); 41(1)
   Section 68 & Section 271D/269SS penalty
   Section 263 law in D.G.Housing case
   Section 271(1)(c) Guj HC gift addition
Search and seizure: Assessment etc
Search Assessment section 292C
Presumption Gujarat High Court
   BABULAL JIVANLAL PATEL : Whether on the facts and in the
    circumstances of the case, the Appellate Tribunal was justified
    in law in not taking cognizance of provisions of section 292C of
    the Income Tax Act, 1961, in correct perspective as the said
    document was seized from the premises of the assessee?:
   The facts emerging from the record indicate that during the
    course of search a loose paper file annexure A-1 showed
    calculation of net profit of some trading activity. Such entries
    were made on the letter head of Doctor Shri Maganbhai Patel
    who had visited the family on 1.7.1999 when someone in the
    family was sick. The assessee had explained that the entries
    were not in his handwriting or in the handwriting of any of his
    family members. HELD:
   However, in the facts of the present case, what is found is a
    loose paper on the letter head of a Doctor on which entries
    were made regarding some trading activity. The assessee has
    denied the handwriting to be his or that of any of his family
    members
Search Assessment section 292C
Presumption
   . Considering the nature of the document, viz., a prescription
    of a doctor, on which certain entries were made on the
    reverse side, along with the fact that the assessee had
    explained that the handwriting, was not his or that of any of
    his family members, the presumption that the same belonged
    to the assessee stood rebutted. Besides as recorded by the
    Commissioner (Appeals) though search had been carried out
    in the entire group, no evidence whatsoever had been found
    during the search operations which could show that the
    assessee did carry out any business in his individual capacity
    to earn such income. Moreover, the assessee was not found
    to be in possession of unaccounted assets etc. which could
    be said to have been made out of such alleged
    unaccounted income. Thus, in the absence of any
    corroborative evidence to support the case of the revenue
    that the assessee had actually earned such huge income, the
    Tribunal was justified in upholding the deletion of the addition
    of Rs.21,25,000/-
Search Assessment section 292C
Presumption
   UMANG H THAKKAR - Opponent(s) GUJ. HIGH COURT SEC.
    292C/132(4A) etc.

    From the office of father of assessee file containing loose
    paper (176 pages) was impounded and on the basis of the
    notings made in this file, Assessing Officer added the sum of Rs
    . 2.8 crores as the assessee's unaccounted investment in land.
    . At the outset, it is required to be noted that though there are
    four questions raised for consideration the issue hinges on one
    aspect and i.e. Whether addition made by Assessing Officer to
    the tune of Rs. 2.8 crores by way of unaccounted investment
    can be sustained or not ? 10. It can be seen from the findings
    of the Tribunal noted above that addition made by the
    Assessing Officer has been rightly deleted by the Tribunal
    upholding the version of CIT(A) .
Search Assessment section 292C
Presumption
 ….Firstly on the settled law that no addition
 could be made on the basis of statement of
 the 3rd party, this deletion is made. Even if
 the person concerned was the father of
 assessee. Tribunal had noted that alleged
 loose papers/documents where the rough
 jottings were made on the papers, they
 were not handwriting of either assessee or
 any of his employees neither was there were
 any dates nor the figures indicative of
 anything (UMANG H THAKKAR )
DHIRAJLAL DURLABHBHAI
PATEL - HUF :
   Admittedly, except for the unsigned document, there is
    no other corroborating evidence to establish any
    transaction having been taken place, more particularly in
    relation to the amount stated in the said document.
    There is no evidence, nor any finding by any authority,
    that the possession of land was handed over by the
    assessee as contended by the learned counsel. In this
    factual matrix in absence of any cogent evidence to treat
    the amount stated in the unsigned document as the
    value of the transaction resulting in taxable income the
    Tribunal was justified in deleting the addition
Section 132: Search Validity
   High Court of Bombay (Nagpur Bench) in
    Spacewood Furnishers (P) Ltd. & Ors. v.
    Director General of Income Tax
    (Investigation) & Ors., (2012) 246 CTR
    Reports 313
Section 132: Search Validity
   The note of IT (Investigation) authorising the search
    was considered and it was held that same did not
    show any date, time or place, when the discreet
    enquiries were made and did not name the person
    from whom it was made. The market information
    did not find place in the satisfaction note and no
    details of the discreet enquiry were disclosed. It was
    held that satisfaction note must be based upon
    contemporaneous material, information becoming
    available to the competent authority. Loose
    satisfaction notes placed by authorities before
    each other cannot meet the requirement of the
    provisions and thus the authorisation in that case
    was found to be bad and unsustainable.
Orissa High Court search sec. 132
updates
   Maa Vaishnavi Sponge Ltd. vs Director General of
    Income Tax and Ors 339 ITR 413

    10. The intention of legislature is certainly not to give
    unbridled power to the authorized officer to seize or
    issue prohibitory order in respect of any asset/bank
    account etc. found in the course of search without
    application of his mind for forming of an opinion/a
    belief on the basis of any material available on
    record that the asset/deposit in bank account
    represents wholly or partly the undisclosed income
    of the assessee. …Therefore, order under s. 132(3}
    cannot be issued indiscriminately or it is not
    automatic in a search and seizure proceeding as
    contended by learned senior standing counsel Mr.
    A.K. Mohapatra.
Orissa High Court search sec. 132
updates
   Visa Comtrade Ltd. vs UOI and Ors. 338 ITR 343
    Top most care should be taken before taking seizure
    action in respect of a bank account already
    disclosed to the Income Tax Department; The Act
    has not given unbridled and arbitrary power to the
    I.T. Authorities to invoke power under Section 132 of
    the Act. Needless to say that subjective satisfaction
    must have some objective foundation. It cannot be
    ipse dixit of the Authorized Officer. On those
    untested allegations and in absence of any findings
    that source of any deposit in the current bank
    account has not been explained or not disclosed in
    the regular books of account, no seizure is
    sustainable. As noted above, the correctness of
    allegation has to be assessed in assessment.
Visa Comtrade Ltd. vs UOI
and Ors. 338 ITR 343
   It is a settled legal proposition that if an
    order is bad in its inception, it does not get
    sanctified at a later stage. A subsequent
    action/development cannot validate an
    action which was not lawful at its
    inception, for the reason that the illegality
    strikes at the root of the order.
M.D. Overseas Ltd. vs Director
General of Income Tax and Ors
333 ITR 407 . All. High Court
   70. Let's consider the question, whether the
    relevancy of information leading to reasons to
    believe for authorising the search is to be adjudged
    after disclosing and hearing the aggrieved person
    or not. 75. A man's home is his castle, is a proverbial
    expression of personal privacy and security. It
    means, there is nothing more sacred; more strongly
    guarded than one's own home: a man's home is his
    castle where he can be in perfect safety from
    intrusion. 76. More than 400 hundred years ago, Sir
    Edward Coke, an English judge, in Semayne's Case
    (1604) 77 Eng. Rep. 194 gave it legal recognition by
    observing, '[T]he house of every one is to him as his
    castle and fortress, as well for his defence against injury
    and violence as for his repose.'
M.D. Overseas Ltd Contd
   Since then it is not only part of English jurisprudence
    but of all democratic nations of the world; so is the
    case with us: the Constitution guarantees
    fundamental rights and protects our privacy under
    article 21 of the Constitution.
    77. We are not only exercising writ jurisdiction, but
    are also sentinel on the qui view for protections of
    the rights; we are on alert on any encroachment on
    any freedom. Should we decide a point relevant to
    intrusion of privacy without affording reasonable
    opportunity to the petitioners; should we adopt a
    procedure that might not be fair—the ultimate aim
    of all jurisprudence; the yardstick on which all
    procedure should be tested.
M.D. Overseas Ltd Contd.
   The procedure of indicating information
    and reason to believe (except the source)
    to the petitioner, then taking a decision on
    relevancy of the information after hearing
    the parties, ensures fairness. Had their
    disclosure barred by any enactment or
    were they privileged under the Evidence
    Act, then it would have been otherwise.
Siksha "O" Anusandhan vs CIT
336 ITR 112 HC (Orissa)
   (i) Whether in absence of warrant in the name of an
    assessee the search conducted in its premises is a
    valid search as contemplated under Section 132 of
    the I.T. Act, 1961?
   (ii) Whether initiation of a valid search as
    contemplated under Section 132 of the I.T. Act,
    1961 in case of a person is a pre-requisite to issue
    notice for making assessment/reassessment under
    Section 153 A of the I.T. Act, 1961 in respect of such
    person ?
   (iii) Whether on the facts and circumstances of the
    case, the I.T.A.T. is justified in remanding the matter
    to the Commissioner of Income Tax (Appeal) to
    adjudicate on a question of law raised before it
    instead of deciding the issue itself?
Siksha "O" Anusandhan
   In order to assume jurisdiction to assess a
    person under Section 153A, there must be
    initiation of a valid search in respect of such
    person under Section 132 of the I.T. Act, 1961.
    The word 'person' appearing in Section 132 and
    in Section 153 A of the I.T. Act, 1961 is one and
    the same person. Thus the person, in respect of
    whom search under Section 132 is initiated, is
    the same person against whom notice under
    Section 153A is to be issued for making
    assessment/reassessment under that Section.
Siksha "O" Anusandhan
   In view of the above, we are not inclined to accept
    the contention of Mr A. Mohapatra that even if
    there is any illegality in the search warrant, the
    same will not invalidate the search assessment
    proceeding initiated under Section 153A of the I.T.
    Act, 1961 Therefore, we are of the view that
    initiation of a valid search as contemplated under
    Section 132 of the I.T. Act, 1961 in case of a person is
    a prerequisite to issue notice for making
    assessment/reassessment under Section 153A of the
    I.T. Act, 1961 in respect of such person.
   Law is well settled that once the materials are
    available on record, the appellate Court should
    have disposed of the case on merit taking those
    materials into consideration and there is no need to
    direct remand. (apex Court in Indian Bank vs. K.S.Govindan
    Nair and Ors., (2004) 13 SCC 697 )
ACIT vs Amit Pande ITAT, Indore
28 July 2011
   Prima facie the Assessing Officer of the searched person
    should form an opinion with regard to any document,
    valuables, etc., as found during the course of search, and that
    such document, which are declined by the searched person,
    actually belongs to some other person against whom
    proceedings u/s 153C are required to be put into operation.
    After recording of such satisfaction, the document so seized
    should be handed over to the Assessing Officer having
    jurisdiction over such other person, therefore, the requirement
    of recording of such satisfaction cannot be substituted by an
    appraisal note which is prepared by the search party after
    completion of search. Appraisal note is a secret internal
    document of the department for its internal use and the
    contents of the same are not conveyed to the assessee nor its
    copy supplied to the assessee even on making a written
    request, therefore, it cannot be treated at par with the
    recording of satisfaction as stipulated u/s 153C of the Act
    which is a mandatory requirement
CIT vs Late J. Chandrasekar (HUF)
338 ITR 61 HC (Chennai)
   In the light of the fact that the Revenue did not
    produce any material to show that the materials
    were available at the hands of the Assessing Officer
    at the time of issuing notice, rightly the Tribunal
    came to the conclusion that the assumption of
    jurisdiction goes against the very tenor of section
    153C of the Act. Consequently, the appeal had to
    fail. Even though the learned standing counsel for
    the appellant strenuously contended that the files
    were available in the office of the Assessing Officer,
    yet, there is hardly any material to show that the
    contention taken by the learned standing counsel
    before this court can be substantiated or was
    substantiated before the Tribunal.
Case Title              Gist
Sinhgad Technical       AY specific incriminating document required for
Education Society vs       making addition/assuming jurisdiction u/s
ACIT 140 TTJ 233 (TO       153C of the Act (dumb document cannot
SAME effect in Bharti      belong any one)
Vidyapeeth orders
28th April, 2011)
Beejay Security &       The satisfaction note under section 153C of the
  Finance Ltd             Act merely says that the documents were
  LexReported             being sent to verify the transaction of lease.
  Mumbai Bench            On the facts of the case it cannot be said
                          that the AO was satisfied regarding existence
                          of any undisclosed income which would
                          warrant initiation of proceedings under
                          section 153C of the Act.In our view the
                          satisfaction required for proceedings under
                          section 153C cannot be reduced to a mere
                          formality of forwarding the documents found
                          in the course of search which did not belong
                          to the person searched and which belonged
                          to the person against whom proceedings
                          under section 153C are sought to be initiated.
Case Title              Gist
Shri S. Kathirvel 153C case: After cogitating the entire
CHENNAI BENCH ‘D’ facts and evidence available before
    :
I.T.A Nos.
                  us, it is for certain that no incriminating
1257/Mds/2009     evidence was found during search
Assessment year : and it was only the assessee who
2001-02           had disclosed this gift. By following
                        the above decision of the ITAT
                        Chandigarh Bench, we have to
                        delete this addition from the hands
                        of the assessee
153A Assessment         Hyd Bench ITAT in :M/s. Hyderabad House
Incriminating aterial
                        Pvt. Ltd., I.T.A. No. 727/Hyd/2010 : A.Y. 2002-
Must
(Assess/Reassess        03 29th February, 2012; M/s Sridevi Dairy
w.r.t to escaped        Farms (P) Ltd INCOME TAX APPELLATE
issue)
                        TRIBUNALBANGALORE BENCHES ‘B’ ITA
                        Nos.1093 to 1095/Bang/2010 20/1/2012
Case Title   Gist
Kunjamma     I.T.A. Nos. 624-629/Coch/2010 In the instant case, the AO of the
Varkey       person searched, i.e., the Group cases of P.A. Kuriakose and
Cochin        Paulson Varkey Group, and the assessee - the cases being
Bench        centralised – is the same, so that there would be no occasion or
             necessity for being handed over the same by the AO of
             the person searched, i.e., the assesse’s AO. Yet, the existence of
             such materials, among those seized (and/or requisitioned),
             belonging to the assessee, is a basic condition for initiating
             proceedings and issue of notice u/s. 153A r/w s. 153C. As afore-
             mentioned, surprisingly though, there is no mention anywhere in
             any of the assessment orders for each of the seven years, i.e., 2001-
             02 to 2007-08, that for A.Y. 2007-08 having been specifically called
             for by the Bench. Likewise, in the appellate orders But, we may
             reiterate, the absence of relevant materials belonging to the
             assessee and, consequently, is a case of lack of jurisdiction.
             We, accordingly, upholding th assessee’s claim, hold the
             assessments as without jurisdiction and, thus, bad in law, rather,
             void ab initio. The decisions cited by the assessee , i.e., P. Srinivas
             Naik vs. ACIT (2008) 117 ITD 201 (Bang.) and Sinhgad Technical
             Education Society vs. ACIT (in I.T.A. Nos. 114 to 117/PN/2010 dated
Section 153A/C: Search Asst.
   Ahd bench in Dr Manshukh Shah ; Mahipat
    Raichand; Khemani Distilleries; Shri Babubhai H.
    Parikh also states similar views
   Calcutta High Court Dinanath HUF; All. High Court
    Shaila Aggarwal 246 CTR 266 (abatement meaning u/s
    153A)
   Mumbai Bench ITAT in Vama Apparels 22/07/2011:
    It was not open to the Assessing Officer to re-agitate the
    issues which has already crystallized in the original
    assessment under section 143(3) of the Act, without
    there being incriminating material found as a result of
    search.
Section 15 3A/153C
   Gujarat High Court in Gambhir Silk Mills (approving AHd Bench
    ITAT order)

   Bang Bench ITAT in United Spirits case 13/01/2012
    However, in the present appellant’s case, no books of
    account nor any incriminate documents pertaining to the
    appellant were seized when a search was conducted in the
    residential premises of Sri Miglani and that no books of
    account or documents or assets seized or requisitioned were
    handed over to the assessing officer having jurisdiction over
    the appellant, but, only “(Para 3 of Asst. order) 3….A
    satisfaction note for initiation of action u/s 153C/148 in the
    case of CBDL was also received from the DCIT, CC-19, New
    Delhi….” Thus, the AO, in our considered view, was not within
    his realm for initiation of proceedings u/s 153A r.w.s 153C of
    the Act in the case of the present appellant
Guj High Court in case of MHASKAR GENERAL
HOSPITAL 09/08/2011

   A) Whether on the facts and circumstances of the
    case and in law, the Appellate Tribunal is right in
    quashing the order u/s.263 of the I.T.Act without
    considering the decision of this Hon'ble Court in the
    case of Fakir Mohmed Haji Hasan v. CIT 247 ITR 290?
    Refer: Deputy CIT v. Radhe Developers India Ltd.,
    (2010) 329 ITR 1(Guj.) With respect to second
    question, we may notice that the assessee's stand is
    that its sole business was that of running a hospital.
    It had no other source of income and that therefore,
    treating such undisclosed income from other source
    was not justified
Reopening u/s 148 of the Act
Gujarat High Court
   1) Bakulbhai Ramanlal Patel v. Income Tax Officer
    reported in (2011) 56 DTR(Guj.) 212, wherein Division
    Bench of this Court observed that the assessment
    cannot be reopened to verify whether any income
    chargeable to tax has escaped assessment and
    further that reopening of assessment cannot be
    permitted on vague and nonexistent reasons for a
    mere fishing inquiry.
   2) Hotel Oasis(Surat) (P) LTD. v. Deputy
    Commissioner of Income Tax reported in (2011) 57
    DTR (Guj) 378, wherein Division Bench of this Court
    observed that assessment cannot be reopened
    merely to make inquiries.
Voltas Limited WRIT PETITION NO.312 OF 2012 IN THE
HIGH COURT OF JUDICATURE AT BOMBAY 15
February 2012
 While a subsequent decision of a Court or a
  legislative amendment enforced after the order of
  assessment may legitimately give rise to an
  inference of an escapement of income, before the
  Assessing Officer proceeds to reopen an
  assessment after the expiry of four years of the end
  of the relevant Assessment Year, he must
  nonetheless apply his mind to the fundamental
  question as to whether there has been a failure to
  disclose on the part of the assessee. In the present
  case, ex facie there is no such allegation (refer:DIL
  Limited v. Assistant Commissioner of Income Tax
  (Writ Petition (Lodg.) No.2786 of 2011);Commissioner
  of Income Tax v. M/s. K. Mohan & Co. (Exports)
  (Income Tax Appeal (Lodg.) 2347 of 2010 and 1263
  of 2011 decided on 1 July 2011), Sesa Goa Ltd. v.
  Joint Commissioner of Income Tax)
NYK Line (India) Ltd.. WRIT PETITION NO.159 OF 2012
HIGH COURT OF JUDICATURE AT BOMBAY 10
FEBRUARY 2012
 14 Now, undoubtedly an order of assessment which has
  been passed for a subsequent assessment year may
  furnish a foundation to reopen an assessment for an
  earlier assessment year. However, there must be some
  new facts which come to light in the course of
  assessment for the subsequent assessment year which
  emerge in the order of assessment. Otherwise, a mere
  change of opinion on the part of the Assessing Officer in
  the course of assessment for a subsequent assessment
  year would not by itself legitimise the reopening of an
  assessment for an earlier year. The point to be
  emphasized is, therefore, that where in the case of
  assessment proceedings for a subsequent year certain
  additional information is obtained by the Revenue which
  was not available to it in the course of an assessment for
  an earlier year, that may legitimately be utilized as a
  ground for reopening an assessment of the earlier year
NYK Line (India) Ltd.. WRIT PETITION NO.159 OF 2012
HIGH COURT OF JUDICATURE AT BOMBAY 10
FEBRUARY 2012

   The new information which has come to the
    knowledge of the Revenue would, therefore,
    constitute tangible material. Consequently and in
    this background the mere fact that the Assessing
    Officer for Assessment Year 200708 had come to a
    different conclusion would not justify the reopening
    of the assessment for Assessment Year 200607. In
    order to establish that the reopening of the
    assessment for Assessment Year 200607 is not a
    mere change of opinion, the Revenue must
    demonstrate before the Court that during the
    course of the assessment proceedings for the
    subsequent year i.e. Assessment Year 200708 some
    new information or material had been brought on
    record which was not available when the
    assessment order was passed for Assessment Year
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
INCOME TAX APPEAL NO.6375 OF 2010 ICICI Bank Ltd

   7. This aspect of the matter has been considered in
    a judgment of a Division Bench of this Court in
    Ashoka Buildcon Ltd. Vs. Assistant Commissioner of
    Income Tax [2010] 325 ITR 574 (Bombay)2.
    Explanation 3 enables the Assessing Officer to assess
    or reassess income chargeable to tax which he has
    reason to believe had escaped assessment and
    other income which has escaped assessment and
    which comes to his notice subsequently in the
    course of the proceedings under the section. There
    is nothing on the record of the present case to
    indicate that there was any other income which
    had come to the notice of the Assessing Officer as
    having escaped assessment in the course of the
    proceedings under Section 147 and when he
    passed the order of reassessment.
Gujarat High Court in case of PRASAD KOCH TECHNIK
TECH PVT LTD reopening not for roving enquiries and
scope of sec. 40(a)(i) vis a vis Foreign supplier raw
material payment
   The Assessing Officer supplied reasons he had recorded for
    reopening the assessment, which read as under:- “The assessee
    company filed its return of income on 22.12.2006, declaring total
    income of Rs.1,00,86,370/-. The assessment u/s.143(3) was
    finalized on 18.06.2008 determining the taxable income of
    Rs.1,00,86,370/-. It is seen that the assessee company had made
    payment of Rs.21,60,399/- in Foreign Company for purchase of raw
    materials. However, neither did the company deduct TDS on this
    amount nor any certificate obtain from the concerned Assessing
    Officer for non-deduction of TDS. Thus, in view of the provisions of
    section 40a(i) and judgment of Karnataka High Court, entire amount
    was required to be disallowed and added back to the total
    income. As discussed above, the disallow expenditure of
    Rs.21,60,399/- resulted in under assessment of same income. In
    view of the facts discussed above, I have reason to believe that
    income of Rs.21,60,399/- being the amount of disallowable
    u/s.40a(i) chargeable to tax has escaped assessment for A.Y.2006-
    07 and accordingly it is the fit case for reopening the assessment
    u/s. 147 for the A.Y.2006-07.”
Gujarat High Court in case of PRASAD KOCH TECHNIK
TECH PVT LTD reopening not for roving enquiries and
scope of sec. 40(a)(i) vis a vis Foreign supplier raw
material payment
…22. In the reasons recorded, there is not even a
  prima facie belief or disclosure that on what basis,
  the Assessing Officer has formed his reason to
  believe that such payment to the foreign supplier
  attracted tax in India. In absence of any live link
  with the reasons recorded and the belief formed,
  we are of the opinion that the notice was wholly
  invalid. 23. If, as suggested by the counsel for the
  Revenue, we permit the Assessing Officer to
  ascertain full facts and bring them on record, and
  then decide whether income chargeable to tax
  had escaped assessment or not, we would permit
  the Assessing Officer to reopen the assessment only
  for fishing enquiry.
Section 14A: Exempt Income
M/s Siva Projects Engineering IN THE INCOME TAX
APPELLATE TRIBUNAL ‘A‘ BENCH, CHENNAI
17.02.2012
3. At the outset, we would like to state here that the ld.
   CIT(A) in the appeal of the assessee has confirmed the
   disallowance of expenditure of Rs. 37,87,800/- and has
   deleted the disallowance of interest of Rs. 27,447/-made
   u/s 14Aof the Act. Therefore, the grievance of the
   assessee which remains to be adjudicated by us is with
   regard to disallowance of expenditure of Rs. 37,87,800/-.
   10. Before us, the ld. A.R. of the assessee submitted
   that no exempt income was earned during the year and
   no expenditure was incurred in relation to earning
   exempt income and therefore disallowance by invoking
   Rule 8D was not warranted. She also submitted that the
   claim of the assessee that no expenditure was incurred
   in relation to investment of Rs. 101,56,27,000/- was not
   found to be incorrect by the ld. CIT(A). Therefore,
   disallowance of Rs. 37,87,800/- should have been
   deleted by the ld. CIT(A).
Chennai bench ITAT Contd (Siva Projects )
However, we find that in the instant case, the
  Assessing Officer has not brought no material on
  record to show that the claim of the assessee that
  no actual expenditure was incurred in making
  investments in question was not correct. The
  Assessing Officer, without disputing the correctness
  of the claim of the assessee has invoked the
  provisions of Rule 8D. …. 14. Thus it is observed that
  for determining the amount disallowable as per
  provisions of Rule 8D(2) the condition precedent is
  that the Assessing Officer must come to a
  conclusion having regard to the accounts of the
  assessee that claim of the assessee that no
  expenditure was incurred in relation to exempt
  income is not correct. We find that in the instant
  case, no such satisfaction has been arrived at.
  Therefore, computation of disallowable amount as
  per Rule 8D(2) cannot be sustained
Gujarat High Court
   SUBMERSIBLES LTD TAX APPEAL No. 868 of 2010
    Section 14A : “Whether the Appellate Tribunal is
    right in law and on facts in confirming the order
    passed by CIT (A) in deleting the disallowance of Rs.
    13,82,778/= made under Section 14A of the Act ?”
   Thus, from the entire gamut of facts, the Tribunal
    held that there was sufficient surplus funds available
    with the assessee to invest and there was no nexus
    that could be established with the expenditure
    incurred by the assessee for earning the dividend
    income. (ITAT order upheld)
Delhi bench I.T.A. No.3571(Del)/2011 M/s Mohan
Exports Pvt. Ltd 2/3/2012
 The ld. CIT(Appeals) has given a very specific finding
  that the examination of the bank account shows that
  such investments are out of interest-free funds available
  with the assessee-company. Rule 8D(2)(ii) deals with a
  case where the assessee has incurred expenditure by
  way of interest during the previous year which is not
  directly attributable to any particular income or receipt in
  terms of the decision in the case of Maxopp Investments
  Ltd. (supra). The lower authorities were expected to
  examine whether the interest paid in this year is or is not
  directly attributable to any particular income or receipt.
  There is a finding that the interest is not directly
  related to receipts by way of dividends.Therefore, In
  view of the finding of the ld. CIT(Appeals), no
  interest expenditure had been incurred for earning
  tax-free income. Therefore, the provision contained
  in Rule 8D(2)(ii) cannot be invoked.
Delhi bench

   ITA No. 2061/Del/2011 Seaview Developers
    Ltd., Law do not permits to assume
    hypothetically some expenses are there (where
    there is none in assessee’s P&L account) and
    then apply estimated rate to dividend income for
    disallowing notional expenses relatable to tax
    free income.
   U/s 115JB whether rule 8D can apply?
    Apparently No
Other developments
 Ahd ITAT in case of G M M Pfaulder Ltd,
  B ITA No.1241/Ahd/2006 Section 14A &
  section 36(1)(iii) disallowance of
  expenses on AD-HOC basis exhaustive
  analysis
 SC in Wallfort 326 ITR PAGE 1
 Delhi High Court Maxopp (18.11.2011)
  203 Taxman 364
Karnataka High Court orders!
Karnataka High Court orders : Subandam Uday Kumar
case
  Section 54F is a beneficial provision promoting the
  construction of a residential house, therefore the
  same should receive liberal play in light of purpose
  for which sec. 54F is incorporated in statute, which
  aims to encourage investments in acquisition of
  residential house and completion of construction or
  occupation of house is not the requirement of law.
  B) If after making the entire payment merely
  because a registered sale deed has not been
  executed and registered in favor of assessee before
  the period stipulated, he cannot be denied the
  benefit of section 54F deduction. C) Similarly in case
  assessee has invested the relevant sale
  consideration in construction of the house and
  merely because the construction was not complete
  in all respects and it was not in a fit condition to be
  occupied within the period stipulated, can be no
  bar for availing section 54F deduction.
P&H High COurt on Section 54/54F : LONG TERM
CAPITAL ASSET PERIOD OF HOLDING HOW TO BE
COUNTED

   : Vinod Kumar Jain Date of Decision: 24.9.2010 held :
    16. In view of the above, it is concluded that the
    provisions of Sections 2(14), 2(29A) and 2(42A)
    encompasses within its ambit those cases of capital
    asset which are held by an assessee. Once that is
    so,adverting to the facts of the present case, the
    assessee was allotted flat on 27.2.1982 on payment of
    instalments by issuance of an allotment letter and he had
    been making payment in terms thereof but the specific
    number of the flat was allocated to the assessee and
    possession delivered on 15.5.1986. The right of the
    assessee prior to 15.5.1986 was a right in the property.
    In such a situation, it cannot be held that prior to the said
    date, the assessee was not holding the flat.

P&H High COurt on Section 54/54F : LONG TERM
CAPITAL ASSET PERIOD OF HOLDING HOW TO BE
COUNTED

   : Whether on the facts and circumstances of
    the present case and the provisions of
    Section 2(29A) and Section 2(42A) read with
    section 54 of the Income Tax Act, the flat
    allotted to the appellant vide allotment
    letter dated 27.2.1982 is a long term capital
    gain and further the investing of that
    amount for the purchase of another house is
    exempted under the provisions of Income
    Tax Act, 1961?”

Karnataka High Court orders K
Satish Kumar Singh
   Section 249 Admitted tax payment: a) When
    once CIT-A dismiss the appeal in limine on
    limited ground of non payment of admitted
    tax as per ROI/ITR in terms of section 249(4),
    in case subsequently assessee comes up
    with relevant tax challans, CIT-A has
    power/duty to recall the earlier dismissal
    order for fresh decision on merits of the
    case; b) Likewise, ITAT can look into the
    request of assessee where CIT-A do not
    entertain suggested recall application on
    subsequent payment of admitted tax
Karnataka High Court Rama Krishna Sewa Ashram: ITA
248/2010:

   …The parliament intended to pass on the benefit of
    exemption of income tax to charitable and religious
    institutions. We are really surprised at the attitude of
    these authorities who are over technical in denying the
    benefit to deserving institutions, which are rendering
    laudable services to rural masses. By not granting the
    tax exemption benefit which they deserve the authorities
    have hampered said social activities of the trust and
    they are made to waste their precious time, energy and
    money in fighting this litigation….unfortunately the
    person who took decision to file this appeal before this
    court are wasting precious time of the trust which could
    have been used in the social service….this attitude on
    the part of the department cannot be countenanced.
    National Litigation policy 2011 to be kept in mind before
    filing appeals…Rs 1 lac costs imposed on department
Karnataka High Court In case of Karuna Health care
society: ITA 77/2011
   The order of DIT(E) gives us an impression
    that he was not concerned about the
    charitable activity carried on by the trust as
    such. He had no doubt in his mind that they
    were carrying on charitable activity. In the
    absence of any finding of siphoning of funds
    on part of trust for non charitable
    activity/personal activity, no adverse view
    should be taken at registration stage. Both
    the DIT(E) and ITAT missed the object with
    which the parliament has enacted these
    provisions to offer an incentive to persons
    who are well placed in life to take up
    charitable activities. Cost Rs 25000 imposed
    on Department
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Tax Case (Appeal)No.641 of 2011 Sarvodaya Ilakkiya
Pannai

   (i) Whether, on the facts and in the
    circumstances of the case, the Income Tax
    Appellate Tribunal was right in law in holding
    that the registration granted to the assessee
    under section 12A(a) would hold good, even
    though the assessee's main object in
    publication, purchase and sale of books which
    are not definitely charitable activity and the
    activities are purely a commercial venture with
    profit motive is valid ?
Sarvodaya Ilakkiya Pannai Mad. HC case contd.

   6. In order to apply the above provision, there must be a
    specific finding by the Commissioner that the activities of
    the trust or institution are not genuine or not being
    carried out in accordance with the objects of the trust or
    institution as the case may be. The question is, whether
    the order of the Commissioner of Income Tax could fall
    under the powers conferred on him under section
    12AA(3) of the Act. The only reason given by the
    Commissioner of Income Tax to cancel the registration is
    that the activities of the trust were not charitable and
    therefore, the trust is not entitled to exemption under
    section 11 and consequently, cancelled the registration
    granted under section 12AA.
Sarvodaya Ilakkiya Pannai Mad. HC case contd.

 10. The Tribunal had allowed the case of the assessee
 with the finding that none of the conditions under
 section 12AA(3) were violated and therefore, the
 satisfaction which was arrived at by the Commissioner of
 Income Tax was not justified (On a challenge to the said
 order cancelling registration, the Appellate Tribunal has
 found that the order of the Commissioner was not
 justified as the power to cancel could be only traced out
 to section 12AA(3) and in the absence of any activity
 carried on by the trust contrary to the objects, the
 registration cannot be revoked )
The Chartered Accountant Study Circle Tax Case
(Appeal) No.593 of 2011 13.2.2012 (Madras High
Court)
   2. The assessee-trust is a Society known as "The
    Chartered Accountants Study Circle". The aims and
    objects of the Society among other things are as follows:
           "a. To conduct periodical meetings on
    professional subjects;
            b. To publish books, booklets, etc. on
    professional subjects;
            c. To organise Seminars, Conventions,
    Conferences, etc., as may be deemed fit from time to
    time;
The Chartered Accountant Study Circle Tax Case
(Appeal) No.593 of 2011 13.2.2012 (Madras High
Court)
   Madras High Court Order on aforesaid factual background

           6. We have considered the above submission. The question,
    therefore, is whether the publication of books of professional interest
    to be used as a reference material by the general public including
    the professionals in respect of Bank Audit, Tax Audit, etc. would be
    construed to be a charitable purpose.
   Therefore, it cannot be held that the activities of the assessee-trust
    in publishing and selling books of professional interest, which are
    meant to be used as a reference material even by the general public
    as well as the professionals in respect of Bank Audit, Tax Audit, etc.,
    cannot be construed to be one of commerce in nature. The finding
    of the Tribunal in this regard requires no interference.
ITA.No. 183 of 2011 ( ) 16TH DAY OF FEBRUARY
2012             ST.MARY'S MALANKARA
SEMINARY,                   IN THE HIGH COURT OF KERALA AT
ERNAKULAM


   The first question raised is whether a
    seminary coaching and training students
    for priesthood is an educational institution
    as referred to in the above provision of the
    I.T. Act. Educational institution is not
    defined under the I.T.Act
ITA.No. 183 of 2011 ( ) 16TH DAY OF FEBRUARY
2012             ST.MARY'S MALANKARA
SEMINARY,                   IN THE HIGH COURT OF KERALA AT
ERNAKULAM

   Freedom to practice and propagate religion is a right
    conferred under Article 25 of the Constitution.
    Propagation of religion necessarily involves education
    and training of young generation on religious matters
    and unless the same is systematically done religious
    beliefs and practices cannot be carried to future
    generations. Therefore religious teaching is a right
    recognized under the Constitution. A person admitted to
    seminary takes as much as about 10 years to become a
    qualified priest and the long duration by itself reveals the
    extensive coaching and training required to become a
    priest who is a religious practitioner. So much so, there
    cannot be any controversy that religious teaching is also
    education within the meaning of the term contained in
    S.10 (23C)(iiiad) of the I.T.Act.
ITA.No. 183 of 2011 ( ) 16TH DAY OF FEBRUARY
2012             ST.MARY'S MALANKARA
SEMINARY,                   IN THE HIGH COURT OF KERALA AT
ERNAKULAM

   There is nothing to indicate that S.10(23C)(iiiad),
    requires the educational institutions referred to
    therein to impart education in any particular
    subject or in any manner whatsoever.         So
    much so, the term 'education' should enjoy a
    wide connotation covering all kinds of coaching
    and training carried on in a systematic
    manner leading to personality development of
    an individual.
   So much so, we hold that religious teaching in the seminary is also
    education and seminary is therefore an "educational institution" entitled for
    exemption u/s 10 (23C)(iiiad) of the I.T.Act.
Sec. 12AA & Sec. 80G Charity JITO CHENNAI
CHAPTERR Tax Case Appeal Nos.337 & 338 of 2011 IN
THE HIGH COURT OF JUDICATURE AT MADRAS

   2. A reference to the order of the Director of Income Tax
    (Exemptions) shows that the application filed by the
    assessee under Section 12AA of the Income Tax Act for
    registration of the Society, has been rejected at the
    threshold holding that in the object clause of the deed,
    particularly, in clause 3(a) and 3(f), there is a provision
    for domestic and overseas markets and also settlement
    of disputes by arbitration and therefore, the Director of
    Income Tax(Exemptions) has come to a conclusion that
    the object is not charitable in accordance with Section
    2(15) of the Act and is commercial in nature.
Sec. 12AA & Sec. 80G Charity JITO CHENNAI
CHAPTERR Tax Case Appeal Nos.337 & 338 of 2011 IN
THE HIGH COURT OF JUDICATURE AT MADRAS

   6. We have gone through the object clauses, namely,
    3(a) and 3(f), referred to by the Director of Income
    Tax(Exemptions), which are as follows: . (f) To provide
    for arbitration in respect of settlement of disputes
    arising in the course of trade, services, vacations,
    industry or other business matters of the community
    and to secure the services of experts if found
    necessary or desirable."
   7. We have also gone through the other clauses of
    the deed and it is very clear that the object of the
    Society is to propagate Non-violence and Tenets of
    Truth and to encourage universal spiritual uplifment
    as preached by the Tirthankar Bhagwants. What is
    stated about the settlement of dispute is only
    incidental thereto and cannot be stated to be
    commercial in nature.
Bombay High Court in The Chembur Gymkhana INCOME
TAX APPEAL NO.5568 OF 2010 February 13, 2012

   There is a finding of fact that the assessee is providing
    sports facilities as a part of its activities consisting of
    badminton, table tennis, billiards, cricket and skating
    among others. On these facts, the primary issue which
    has been decided by the Tribunal must be answered by
    holding that the assessee for Assessment Year 199697
    fulfilled the definition of the expression “charitable
    organization” in Section 2(15). The first question of law
    would, accordingly, have to be answered in the
    affirmative. ((1) Whether in the facts and circumstances
    of the case and in law, the Tribunal was right in holding
    that the assessee performs a charitable purpose within
    the meaning of Section 2(15) of the Income Tax Act,
    1961)
BHC in Gymkhana case :
   Supreme Court in CIT vs. Surat Art Silk
    Cloth Manufacturers Association,5 it is
    a settled principle of law that the primary
    or dominant purpose of the institution must
    be charitable. The test to be applied is
    whether the object which is pursued is of
    the main or primary object or whether it is
    ancillary to a dominant object
Delhi High Court orders!
Samora case (271D/269SS)
   ITA No.313/2006 Judgment delivered on:
    23.02.2012 Whether on the facts and
    circumstances of the case, the Income
    Tax Appellate Tribunal was right in law in
    concluding that no penalty was leviable on
    the assessee under the provisions of
    section 271D of the Income Tax Act,
    1961?
Samora case (271D/269SS)
   20. The Supreme Court in Asst. Director of Inspection
    (Investigation) v. Kum. A.B. Shanthi: 255 ITR 258
    (SC); observed that (1) if there was a genuine and
    bona fide transaction and (2) if for any reason the
    taxpayer could not get a loan or deposit by account-
    payee cheque or demand draft for some bona fide
    reasons, the authority vested with the power to
    impose penalty has got discretionary power. The
    existence of a genuine or bona fide transaction is
    not sufficient to attract the relief under section 273B
    of the said Act. It must also be established that for
    some bona fide reasons the assessee could not get
    a loan or deposit by an account payee cheque or
    account payee bank draft.
Samora case (271D/269SS)
   In the present case, the Tribunal has not
    returned any finding as to the second aspect.
    Without a clear finding on both the aspects
    referred to in the said Supreme Court decision,
    the Tribunal, in law, could not have concluded
    that the assessee had “reasonable cause” for its
    failure to accept the said amounts in compliance
    with section 269SS of the said Act.
   There is nothing on record to show that there were bona fide
    reasons for not accepting the said amounts through account
    payee cheques or account payee bank drafts. And, unless that
    is established, the shelter of section 273B is not available
Kamdhenu case (Section 68)
 We may repeat what is often said, that a delicate
 balance has to be maintained while walking on the tight
 rope of Sections 68 and 69 of the Act. On the on hand,
 no doubt, such kind of dubious practices are rampant, on
 the other hand, merely because there is an
 acknowledgement of such practices would not mean that
 in any of such cases coming before the Court, the Court
 has to presume that the assessee in questions as
 indulged in that practice. To make the assessee
 responsible, there has to be proper evidence. It is
 equally important that an innocent person cannot be
 fastened with liability without cogent evidence.
Kamdhenu case (Section 68)
   7) Even the Tribunal acts purely as an appellate
    authority. In that capacity, the Tribunal has to see
    whether the assessment framed by the AO, all for that
    matter, orders of the CIT(A) were according to law and
    purportedly framed on facts and whether there was
    sufficient material to support it. It is not for the Tribunal to
    start investigation. The Tribunal is only to see as to
    whether the additions are sustainable and there is
    adequate material to support the same if not the addition
    has to be deleted. At that stage, the tribunal would not
    order further inquiry. It is to be kept in mind that the AO
    is prosecutor as well as adjudicator and it is for the AO to
    collect sufficient material to make addition
Calcutta High Court in HIND CONTAINERS PVT. LTD.
Versus COMMISSIONER I.TAX, W.B.-IV, KOLKATA ITA
No. 315 of 2004

   “i] Whether a particular expenditure could be
    questioned by the Assessing Officer on the
    ground of justification and be disbelieved without
    any enquiry in order to hold the genuineness of
    a transaction as suspicious without holding any
    enquiry and giving opportunity to the assessee
    ?ii] If the answer to the above is in favour of
    assessee then whether the Tribunal was justified
    in law in upholding the disallowance of the
    payment of Rs.2,84,362/- made by the appellant
    to M/s. Aditya Associates towards labour
    charges for the purposes of the appellant’s
    business and its purported findings in that behalf
    are arbitrary, unreasonable and perverse ?”
Calcutta High Court in HIND CONTAINERS PVT. LTD.
Versus COMMISSIONER I.TAX, W.B.-IV, KOLKATA ITA
No. 315 of 2004

   In this case no attempt has been made to dispute the
    case made out by the appellant. Moreover, without
    examining the details with regard to the payment made
    in a year to the said Aditya Associates and looking at the
    aggregate figure, the cash transaction should not have
    been disbelieved or should not have been declared
    unacceptable under the proviso of sub-Section 3 of
    Section 40A.       In view of the aforesaid reason, we
    think that all the authorities below did not render
    justice and this needs reconsideration
Calcutta High Court in HIND CONTAINERS PVT. LTD.
Versus COMMISSIONER I.TAX, W.B.-IV, KOLKATA ITA
No. 315 of 2004

   We see force in the submission of Mr. Khaitan that the finding of all
    the authorities below that the said Aditya Associates, the sister
    concern of the company, is based on no evidence. We noticed that
    apparently there has been a document to show separate and distinct
    entity of the said Aditya Associates and in order to establish the
    same being unreal, it is something more which is required to be
    done by the Revenue as it has been ruled by the Supreme Court in
    the case of Commissioner of Income-tax (Central) Commissioner of
    Income-Tax (Central), Calcutta [supra]. At the bottom of page 360
    continued at page 361 of the said decision, the Supreme Court
    made the statement the statement of law in this regard as follows:

    “The onus to prove that the apparent is not the real is on the party
    who claims it to be so. As it was the department which claimed that
    the amount of fixed deposit receipt belonged to the respondent firm
    even though the receipt ………………………………….., the burden
    lay on the department to prove that the respondent was the owner of
    the amount…...”
Calcutta High Court in HIND CONTAINERS PVT. LTD.
Versus COMMISSIONER I.TAX, W.B.-IV, KOLKATA ITA
No. 315 of 2004
    Apart from the statement of law made by the Supreme Court, we
    quote the provision of Section 103 of the Indian Evidence Act, which
    is as follows:

    “103. Burden of proof as to particular fact. – The burden of proof
    as to any particular fact lies on that person who wishes the Court to
    believe in its existence, unless it is provided by any law that the
    proof of that fact shall lie on any particular person.”

    Here, the assessee thought it best to engage outsider in order to
    meet the contractual obligation with various government companies
    for supplying drums. Their existing labour force, perhaps, would not
    be adequate to meet the demand of the customers. Having regard to
    the expediency and necessity, the company decided to engage an
    outsider, namely M/s. Aditya Associates. How M/s.Aditya Associates
    has rendered services to the company could have been examined
    by the authorities concerned and this could have been done only by
    calling the said Aditya Associates or examining the other documents
    regarding the payment made to the said Aditya Associates. This
    exercise was not undertaken by the Assessing Officer
Allahabad High Court in Case :- INCOME TAX APPEAL
No. - 359 of 2011 Petitioner :- Commissioner Of Income
Tax Respondent :- M/S Standard Surfactants Ltd. ITAT
order section 36(1)(iii)
 In the present case, it is noticed that the assessee
  utilixed land belonging to M/s Standard
  Sulphonators Ltd. as a security against loan raised
  from the bank, this fax is also clear from page 17 of
  the assessee's compilation, which is a copy of
  certificate issued by the State Bank of India, Civil
  Lines, Kanpur wherein it is certified that the property
  owned by M/s Standard Sulphonators Ltd. Was
  pledged with the bank as security against lona
  provided to the assessee. The value of the said
  property as per valuation report dated 20.9.2007
  was Rs.2.25 cores.
Allahabad High Court in Case :- INCOME TAX APPEAL No. - 359 of
2011 Petitioner :- Commissioner Of Income Tax Respondent :- M/S
Standard Surfactants Ltd. ITAT order section 36(1)(iii)
  Since the company, M/s Standard Sulphonators Ltd. Had
  provided its land as security to the bank against loan
  taken by the assessee and in lieu of that the assessee
  deposited a sum of Rs.50 lakhs with the said company
  i.e. M/s Standard Sulphonators Lted., so it cannot be
  said that the said amount of Rs.50 lakhs was an interest
  free advance or loan. Therefore, the Assessing Officer
  was not justified in making the disallowance on account
  of notional interest on the said deposit…The Tribunal
  has allowed the assessee's claim regarding
  disallowances of interest paid on borrowed funds vis a
  vis advances/deposits made to M/s Standard
  Sulphonators Ltd. on the ground that the said company
  had given its property papers to the assessee for
  securing loan/advances from the State Bank of India.
  Property papers given by M/s Sulphonators Ltd. Was
  necessary as the bank was not willing to advance/ loan
  in the absence of any collateral security.
Allahabad High Court in Case :- INCOME TAX APPEAL
No. - 359 of 2011 Petitioner :- Commissioner Of Income
Tax Respondent :- M/S Standard Surfactants Ltd. ITAT
order section 36(1)(iii)

   That being the position, we are of the
    considered opinion that it is in the
    course of business transactions, and,
    therefore, the Tribunal was justified in
    deleting disallowance of the interest
    on assumed interest free advance S
M/s.UPS SCS (Asia) Limited IN THE INCOME TAX APPELLATE
TRIBUNAL MUMBAI BENCHES “L”, MUMBAI 22nd day of
February, 2012. ITA No.2426/Mum/2010
4. We have heard the rival submissions and perused
   the relevant material on record in the light of
   precedents cited. The entire dispute centers around
   the taxability of the amount received by the
   assessee from Menlo India in respect of services
   performed outside India on the export consignments
   of Menlo India originating from India. There is no
   quarrel over the nature of services for which the
   above referred amount has been paid to the
   assessee being, freight and logistics services such
   as transport, procurement, customs clearance,
   sorting, delivery, warehousing and pick up services.
   Now the primary question which arises for our
   consideration is as to whether the payment in
   respect of these services can be held as `fees for
   technical services’ within the meaning of section
   9(1)(vii).
M/s.UPS SCS (Asia) Limited IN THE INCOME TAX APPELLATE
TRIBUNAL MUMBAI BENCHES “L”, MUMBAI 22nd day of
February, 2012. ITA No.2426/Mum/2010

   In the absence of any specific definition of the phrase
    “managerial services” as used in section 9(1)(vii)
    defining the “fees for technical services”, it needs to be
    considered in a commercial sense. It cannot be
    interpreted in a narrow sense to mean simply executing
    the directions of the other for doing a specific task. For
    instance, if goods are to be loaded and some worker is
    instructed to place the goods on a carrier in a particular
    manner, the act of the worker in placing the goods in the
    prescribed manner, cannot be described as managing
    the goods. It is a simple direction given to the worker
    who has to execute it in the way prescribed. It is quite…
M/s.UPS SCS (Asia) Limited IN THE INCOME TAX APPELLATE
TRIBUNAL MUMBAI BENCHES “L”, MUMBAI 22nd day of
February, 2012. ITA No.2426/Mum/2010

    natural that some sort of application of mind is required in each and
    every aspect of the work done. As in the above example when the
    worker will lift the goods, he is expected to be vigilant in picking up
    the goods moving towards the carrier and then placing them. This
    act of the worker cannot be described as managing the goods
    because he simply followed the direction given to him. On the other
    hand, `managing’ encompasses not only the simple execution of a
    work, but also certain other aspects, such as planning for the way in
    which the execution is to be done coupled with the overall
    responsibility in a larger sense. Thus it is manifest that the word
    `managing’ is wider in scope than the word `executing’. Rather the
    later is embedded in the former and not vice versa
It is only when some consideration is given for rendering some
    advice or opinion etc., that the same falls within the scope of
    “consultancy services”. The word `consultancy’ excludes
    actual `execution’. The nature of services, being freight and
    logistics services provided by the assessee to Menlo India has
    not been disputed by the authorities below. There is nothing
    like giving any consultation worth the name.
M/s.UPS SCS (Asia) Limited IN THE INCOME TAX APPELLATE
TRIBUNAL MUMBAI BENCHES “L”, MUMBAI 22nd day of
February, 2012. ITA No.2426/Mum/2010

   . Where simply an equipment or a standard
    facility albeit developed or manufactured
    with the use of technology is used, such a
    user cannot be characterized as using
    `technical services’. The essence of
    theconsideration for the payment is
    rendering of services and not the use of
    computer. If incidentally computer is used at
    any stage, which is otherwise not necessary
    for rendering such services, the payment for
    freight and logistics will not partake of the
    character of fees of `technical services’. We,
    therefore, repel this contention raised on
    behalf of the Revenue.
Jaipur bench ITAT in Modern Insulator case 56 DTR

362; Delhi bench in HAVELL’s case 140 TTJ 283
   Further, as held by Jaipur bench of ITAT in Modern
    Insulator case 56 DTR 362 (also refer Delhi High
    Court in EON technology 203 Taxman 266) that
    commission related services rendered by foreign
    agent do not attract tax withholding u/s 195 of the
    Act as same are not in nature of technical
    /managerial services, same conclusion is available
    in number of Mumbai bench ITAT orders.
   Further, as pointed in HAVELL’s case that
    certification services provided by foreign agency to
    Indian party in connection with export sales, is
    something which stands utilized for the purpose of
    earning the income from a source outside India
    (here export orders from foreign buyers) and on that
    count itself there is no requirement of tax
    withholding u/s 195 read with section 9(1)(vii) of the
    Act on stated certification payments.
ACIT Vs. Merchant Shipping Services (P) Ltd. and Others,
135 TTJ (Mum)

    589 Where no technical services are provided as
    such, but the payment is made for the use of
    some machinery or equipment or standard facility
    which may have been created or brought into
    existence with the input of technical services
    along with man, machine and material, such
    payment would not partake of the character of
    fees for technical services. Take for example a
    person going to a cinema and purchasing ticket
    for watching a movie. When he purchases ticket,
    he pays for watching the movie and not for
    availing any technical service. It is a different
    matter that the move is exhibited on screen by
    way of some technical input)
(Pune bench in Glaxo case)

   To be more precise, any payment for technical
    services in order to be covered u/s. 194J,
    should be a consideration for acquiring or
    using technical knowhow simplicitor provided
    or made available by human element. There
    should be direct and live link between payment
    and receipt/use of technical
    services/information.
Guj H.C Concealment penalty
   KOKILABEN A SHAH Concealment penalty and GIFT
    addition u/s 68 Guj High Court Having perused the
    orders on record with the assistance of learned
    counsel for the Revenue, we see no reason to
    interfere. Tribunal observed that gift was received
    through normal banking channel. Identity of donor
    was disclosed and established. Assessee had
    furnished complete details of the gift. Tribunal noted
    that none of the departmental authorities made
    any attempt to find out whether the explanation of
    the assessee was false. Tribunal relied on decision of
    Division Bench of this Court in case of National
    Textiles v. Commissioner of Income Tax reported in
    249 ITR 125
Guj H.C Concealment penalty
   , wherein Bench observed that if the
    assessee gives an explanation which is
    unproved but not disproved, it would not
    lead to inference that assessee's case is
    false. We are also in broad agreement with
    the same. Relying on the decision of
    Nashaben H. Jariwala, wherein it was
    observed that merely because assessee
    failed to prove the gift in the manner
    required by the department, it is not possible
    to conclude that assessee concealed her
    income, tribunal in the present case deleted
    penalty.
Delhi High Court order in case of
ORALCE INDIA : MARCH 30,
2011 243 CTR 103
   It is well-settled that it is not open to the Department
    to adopt a subjective standard of reasonableness
    and disallow a part of business expenditure as
    being unreasonably large, or decide what type of
    expenditure the assessee should incur and in what
    circumstances. Thus, the jurisdiction of the AO is
    only confined to deicide “Profits and gains of
    business or profession”, i.e., whether the expenditure
    claimed was actually and factually expended or not and
    whether it was wholly and exclusive for the purposes of
    business. Reasonableness of the expenditure can be
    considered only from this limited angle for the purpose of
    determining whether in fact amount was spent or not. REFER
    Atherton Vs. British Insulated & Helsby Cables Ltd. reported as
    10 TC 155, 191 (HL) Supreme Court in the case of
    Commissioner of Income Tax Vs. Walchand, 65 ITR 381
CIT vs Vardhman Overseas Ltd.
204 Taxman 524 Delhi H.C.
   If, as contended before us by the learned
    standing counsel for the revenue, the alleged
    benefit enjoyed by the assessee by utilizing the
    amounts payable to the sundry creditors in its
    own business for a period of four years or more
    is to be brought to tax under Section 28(iv),
    notwithstanding that the conditions of Section
    41(1), which govern the factual situation, are not
    satisfied, then it would render the latter section
    otiose or a dead letter
HOTLINE ELECTRONICS
LTD ITA NO.1073/2011 Delhi H.C.
   The Tribunal is also right in its view that unless notices
    were issued to the creditors and they had stated
    that they have given up the claims against the
    assessee, no decision can be taken by the income
    tax authorities, merely on the ground that the debts
    remained unpaid in the assessee’s books for a
    number of years, that the liability has ceased or has
    been remitted. In the present case the Assessing
    Officer has not issued any notice to the creditors to
    confirm from them whether they have given up
    their dues from the assessee
HOTLINE ELECTRONICS
LTD ITA NO.1073/2011 Delhi H.C.
   The assessee herein is a limited company and as per
    the legal position the acknowledgment of the liability
    in favour of the creditors in its balance sheet
    extends the period of limitation for the purpose of
    Section 18 of the Limitation Act. It is the assessee’s
    claim that the debts are subsisting and it continues to be
    liable to pay the creditors. It is not open to the income
    tax authorities to draw the conclusion that the creditors
    have remitted the liability or that the liability has
    otherwise ceased without evidence or material when the
    assessee acknowledges a liability in the balance sheet
    and Explanation-1 is not applicable
Sec. 40(a)(ia)
 Kol bench ITAT In Sharma Kajaria & Co. ITA
 1288/Kol.2011:

 7. A plain look at the above statutory provision
 makes it clear that this provision seeks to restrict the
 deductions which are otherwise permissible under
 section 30 to 38 of the Act. In other words, as a
 result of this section, a disallowance can be made
 only in respect of an amount which is sought to be
 deducted under these sections. As a corollary to
 this position, unless a deduction is claimed in
 respect of the said amount, under sections 30 to 38,
 the disallowance under section 40(a)(ia) cannot
 come into play at all. the17th day of February, 2012
Other case laws
   Guj HC Bell Grantio reversal of entry and TDS liability
    ? Not there; Delhi High Court: KL Steel
    Hypertechnical contention for disallowance u/s
    40(a)(ia) not tenable

   Bombay High Court kotak Case 340 ITR 333 & Angel
    case: NCOME TAX APPEAL (L) NO. 475 OF 2011
    2. As regards first two questions are concerned, the
    findings of fact recorded by the ITAT is that VSAT
    and Lease Line charges paid by the assessee to
    Stock Exchange were merely reimbursement of the
    charges paid/payable by the Stock Exchange to
    the Department of Telecommunication. Since the
    VSAT and Lease Line charges paid by the assessee
    do not have any element of income, deducting tax
    while making such payments do not arise.
P&h high Court in cases of
Bhagwati Steels 326 ITR 108; 326
ITR 106;
   “if expenses incurred by a person on
    account of transportation, interest,
    storage, etc. are added to the cost of
    goods, it cannot be inferred that the
    person who is billed had paid certain
    amount on account of those services
    separately as the same becomes part of
    the commodity so sold”.
P&h high Court in cases of
Bhagwati Steels
   “The Tribunal after reading the whole contract in its
    entirety reached the conclusion that the transaction
    between the parties was essentially governed by the
    distribution agreement which was transaction of goods
    per se and could not be segregated for the purposes of
    payment of expenses by way of freight. The Tribunal had
    rightly held that if the freight expenses incurred by T
    were added to the cost of the goods in the invoice
    raised, it could not be inferred that the assessee had
    paid any amount of freight separately because it was
    part of the cost of the product purchased. The assessee
    could not be said to be an assessee in default for non
    deduction of tax at source in terms of section 194C of
    the Act on the amount of freight billed separately by T.
    As a consequence, the provisions of section 40(a)(ia) of
    the Act could not be applied to disallow the amount of
M/S.LAKSHMI HOSPITAL,
04/07/2011 Kerala High Court
 Cases falling under Section 69C are essentially
 expenditure accounted as such by the assessee
 but assessee fails to prove on demand by the
 department. It may so happen that when
 unaccounted income is disclosed in search, the
 assessee may claim expenditure against the same
 and if proved, department will be bound to accept
 it. In this case also assessee conceded that the unaccounted
 receipts were collected for payment to doctors attending to
 patients in the hospital. We do not know, why department did
 not venture to confront the doctors with the explanation
 offered by the respondent/assessee with regard to the
 payments made to them Since this exercise has not been
 done, we do not think the assessment is tenable in the hands
 of the respondent/assessee which obviously cannot be
 expected to give receipt or voucher from the doctors to whom
 unaccounted payments were made
Delhi High Court Sec. 263 law explained in
D.G.Housing case 1/3/2012

   Hon'ble Court has observed that "In some cases
    possibly though rarely, the CIT can also show and
    establish that the facts on record or inferences drawn
    from facts on record per se justified and mandated
    further enquiry or investigation but the Assessing Officer
    had erroneously not undertaken the same. However, the
    said finding must be clear, unambiguous and not
    debatable. The matter cannot be remitted for a fresh
    decision to the Assessing Officer to conduct further
    enquiries without a finding that the order is erroneous".
    The school of thought which seems to be gaining ground
    now is that lack of enquiry…
Delhi High Court Sec. 263 law explained in
D.G.Housing case 1/3/2012
   could indeed be a good reason provided two basic
    conditions are satisfied - first, that the AO has not made
    enquiries on the facts of the case which definitely require
    ( not that its simply desirable) further enquiries; and -
    second, that such an enquiry have a cause and effect
    relationship with order being rendered prejudicial to the
    legitimate interests of the revenue. One possible way of
    looking at the whole thing, therefore, is that no
    matter how desirable was it, but was it really
    'required of' the AO, in the light of facts on record, to
    make further enquiries. It will indeed be interesting
    to see some erudite decision explaining the
    limitation of observations made in Gee Vee
    Enterprises to the effect that the AO "cannot remain
    passive in the face of a return which is apparently in
    order but calls for further inquiry".
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