Recent Updates in Direct & Indirect Taxes and in Other Areas of Professional Interest

RECENT UPDATES IN DIRECT & INDIRECT TAXES AND IN OTHER AREAS OF PROFESSIONAL INTEREST– 16thMarch, 2015

CA Gopal Kumar Kedia

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INCOME TAX

Virendra Kumar R Banthia Vs CIT

Income Tax - Sections 154, 234A, 234B, 234C & 245D(4), Interest Payment - Rectification of order

Whether Settlement Commission can have recourse to rectification proceedings u/s 154, so as to levy interest u/s 234A, 234B and 234C of the Act. - Assessee's appeal allowed : BOMBAY HIGH COURT

CIT Vs K Jayakumar

Income Tax - Construction Activity - Cost of Construction - CPWD rates - DVO Report

Whether CPWD rates cannot be applied to the commercial-cum-residential complex constructed at Coimbatore on the ground that Coimbatore is a small town. - Revenue's appeal dismissed: MADRAS HIGH COURT

CIT Vs Shri N Sundararaman

Income Tax - Section 115H, Concessional rate of tax - Non Resident - Procedural and substantive requirements

Whether assessee is entitled to the concessional rate of tax u/s 115H when the assessee has not satisfied the procedural and substantive requirements under Chapter XII A of the Act. - Revenue's appeal dismissed : MADRAS HIGH COURT

CIT Vs Roots Multiclean Ltd

Income Tax - Sections 80I, 80IA & 80-IB, business undertaking - tax deduction.

Whether assessee is entitled to claim deduction u/s 80-IA of the Act when their losses have already been set off against other income of the business enterprise - Revenue's appeal dismissed : MADRAS HIGH COURT

CIT Vs Saffire Hotels Pvt. Ltd

Income Tax - Sections 45(2), 133A & 269UL(3), Capital Gain - Construction Work - Survey - Sale of Land - Stock in Trade.

Whether section 45(2) of Act can be invoked on sale of land which was claimed to be the capital asset of the assessee at the inception which later on converted into Stock in Trade in the business of construction - Whether AO should decide the year of conversion or treatment of land into stock in trade inspite of the fact that the assessee is involved in construction business and the land under construction has been purchased for construction business only. - Whether onus is on the AO to corroborate his assertion that there is cash component received by the assessee in sale transaction with the purchaser ignoring the documentary evidence fund during the course of survey u/s 133A of the Act. - Revenue's appeal dismissed : BOMBAY HIGH COURT

CIT Vs Hackbridge Hewittic & Easun Ltd

Income tax - Sections 28(va) & 55(2)(a), capital receipt - non-compete fee - transfer of goodwill & restrictive covenant.

Whether a non-compete fee paid to assessee in relation to his cessation from certain manufacturing activities giving its exclusive right to the purchaser, can be taxed by treating it as purchase of goodwill - NO: HC

Whether transfer of some technical know how and other advantages by an assessee to the joint venture company (of which the assessee is a part) would constitute transfer of goodwill, if the assessee continues with its business using its own trade name & licenses - NO: HC - Revenue's appeal dismissed : MADRAS HIGH COURT

Vishnu Kumar Bhargava Vs ITO

Income Tax - Sections 143(2) & 144 & Rule 46A - General Clauses Act - Section 27, assessment, notice, service of notice, best judgment assessment, additional evidence, unexplained cash deposit

Whether the order passed by the A.O. u/s 144 is sustainable where both the authorities below had given elaborate reasons to demonstrate that as per record, the notice u/s 143(2) was duly issued on the assessee and where the assessee was non-cooperative in assessment proceedings taking only specious plea that no valid notice U/s 143(2) of the Act was issued/served on him. - Assessee's appeal dismissed : JAIPUR ITAT

ITO Vs Vanaja Rao Quick Marriages Pvt. Ltd

Income Tax - Sections 40(a)(ia) & 194C.

Whether section 194C would apply to the payments made to the newspaper publishers for the advertisements made by the assessee on behalf of its customers when there is no evidence that a contractual relationship exist between the assessee and the newspaper publishers for carrying advertisements? Whether section 40(a)(ia) is not app licable with reference to payments already made. - Revenue's appeal dismissed & Assessee’s cross objection allowed : HYDERABAD ITAT

Vaddanhal Arecanut Traders Vs ITO

Income Tax - Sections 40(a)(ia), 139(1), 194A & 194H, commission, interest expenditure, TDS, deposit of TDS before due date for filing of return, amendment, retrospective application.

Whether the amendment to provisions of section 40(a)(ia) of the Act by the Finance Act, 2010 will operate retrospectively w.e.f. 1.4.2005 – Whether the tax deducted at source, if it is paid on or before the due date for filing of return of income cannot be disallowed u/s. 40(a)(ia). - Revenue’s appeal dismissed : BANGALORE ITAT

Jyothy Laboratories Ltd Vs DCIT

Income tax - Sections 35DD, 92CA(4), 142(1), 143(2), 220(6), 246A & 271(1)(c), ALP - AE - brand promotion fees - brought forward loss - capital gain - discretionary power - extraordinary writ jurisdiction - management fees - penalty

Whether assessee can seek stay for total outstanding demand by way of a direction from the jurisdictional High Court, when assessee itself has accepted partial stay in respect of such demand and the said order is in force - NO: HC

Whether Income tax Act contains any specific provisions which vest power in the authorities to grant stay under the Act or permit the assessee to pay tax in installments - NO: HC

Whether where the authority after having satisfied with the facts and circumstances of the case, has treated the assessee as not a defaulter for a particular amount, the stay in respect of such amount has been impliedly granted - YES: HC

Whether interference by jurisdictional High Court in form of extraordinary jurisdiction is warranted, where the Tribunals are acting within the limits of the powers assigned to them by the Legislature in a justifiable manner - NO: HC - Assessee's writ dismissed : MADRAS HIGH COURT

CIT Vs Colorplus Fashions Pvt. Ltd

Income Tax - Sections 80IA, 80IB & 143(3), job work - deduction - manufacture

Whether an assessee who gets the work done by a job worker can claim to be an industrial undertaking - Whether deduction u/s 80IB can be denied to an assessee in case the assessee does not manufacture any goods by itself, but gets the same manufactured by others on job work basis - Revenue's appeal dismissed : MADRAS HIGH COURT

CIT Vs Nishi Mehra

Income Tax - Sections 142A & 153A, DVO - valuation officer - handicrafts - exports - declared value - understatement of income.

Whether ITAT has rightly interpreted scope, power and jurisdiction of the Assessing Officer in block assessment proceedings and the term "undisclosed income" - Whether in absence of any incriminating evidence that anything has been paid over and above than the stated amount, the primary burden of proof is on the Revenue to show that there has been an understatement or concealment of income - Whether the opinion of the DVO, per se, is an information and can be relied upon in the absence of other corroborative evidence. - Revenue's appeal dismissed :DELHI HIGH COURT

CIT Vs Ansal Land Mark Township (P) Ltd

Income Tax - Section 143(3), AS 9 - AS 7 - borrowing cost - method pf accounting - guidance note issued by ICAI

Whether the guidance note issued by ICAI in a previous year can be the basis of addition made by the AO in the current financial year - Whether in case assessee has failed to provide for borrowing cost in the accounts, could the same be considered as a valid method of accounting. - Revenue's appeal dismissed : DELHI HIGH COURT

CIT Vs Krishna Capbox (P) Ltd

Income Tax - Sections 133(6), 143(1), 143(2) & 263, enquiry - investment - survey - fixed assets - confirmation

Whether if a query is raised during assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the Assessment Order, would lead to a conclusion that no mind had been applied to it. - Revenue's appeal dismissed : BOMBAY HIGH COURT

Praxis Institute of Participatory Practices Vs DIT

Income Tax – Sections 11 & 80G, the advancement of general public utility, charitable nature.

Whether merely because the assessee society is engaged in providing with consultancy services for fees can be a ground to say that it is hit by the first proviso to section 2(15) of the Act and hence it looses its charitable character and hence no exemption u/s 11/12 is to be allowed. - Assessee’s appeal allowed : DELHI ITAT

Rasranjan Food Products Pvt. Ltd Vs ITO

Income Tax – Section 145, Rejection of books, estimation of sales.

Whether, when assessee could not give any cogent reason as to why its sales were lesser than the sales of the preceding year inspite of the fact that one more outlet was opened and two franchisees were added by the assessee during the year, the AO can be said to be fully justified in estimating the turnover of the assessee after rejection of books. - Revenue’s appeal allowed & Assessee’s appeal dismissed : AHMEDABAD ITAT

ACIT Vs The Phoenix Mills Ltd

Income Tax - Section 37(1)

Whether the expenditure incurred by the assessee in respect of one of units of the assessee which was closed cannot be allowed as deduction even if there was no closure of business as a whole. - Revenue’s appeal dismissed : MUMBAI ITAT

Scooters India Ltd Vs DCIT

Income Tax – Sections 35(2AB) & 37(1).

Whether merely getting approval from ARAI and purchasing certain material from the market cannot be said to be carrying out in-house research & development activity for the purpose of weighted deduction u/s 35(2AB) of the Act – Whether expenditure incurred on enhancement of authorized capital is allowable as revenue expenditure – Whether the interest subsidy to the employees for maintaining harmonious relationship and welfare of the employees is an allowable business expenditure. - Assessee’s appeal partly allowed : LUCKNOW ITAT

Universal Cables Ltd Vs DCIT

Income Tax - Sections 14A, 32(1), 32(1)(iia) & 143(3), additional depreciation.

Whether if there is any contradiction between sections 32(1)(iia) and second proviso to section 32(1)(ii), it has to be reconciled so as to give harmonious effect to the legislative intent and benefits conferred on assessee by way of incentive provision cannot be taken away by adopting an implied meaning to second proviso to section 32(1)(ii) - Whether the assessee is entitled for 50% additional depreciation, when in the year in which the machinery is first put to use the assessee claimed only 50% of additional depreciation for the reason that the same is put to use for less than 180 days, in the relevant year for the balance of depreciation. - Assessee's appeal allowed : KOLKATA ITAT

ACIT Vs Sri Balaji Society

Income Tax – Sections 11, 13, charitable trust

Whether on the facts and in law, the assessee trust can be said to have violated the condition of Sec. 13(1)(c) r.w.s. 13(2)(c) of the Act and hence, not eligible to the benefit of exemption of Sec. 11 & 12 on the ground that the funds of the assessee are applied or used or diverted for the benefit of the person referred to Sec. 13(3). - Revenue’s appeal dismissed : PUNE ITAT

ACIT Vs Advocates Mutually Aided Coop Society

Income Tax – Section 80P, cooperative society.

Whether the activity of assessee is "banking business" and not "carrying on the business of banking or providing credit facilities to its members" as it was mobilizing funds from outsiders and doing normal banking business – Whether deduction u/s.80P(2)(i)(a) is even otherwise given to the assessee even if it accepts deposits from non-members – Whether the expenditure incurred by the assessee for the benefit of the Members, in the course of society activities, as permitted by the bye-laws of the society is an allowable expenditure. - Revenue’s appeal dismissed & Assessee’s appeal allowed : HYDERABAD ITAT

Premier Breweries Ltd Vs CIT

Income tax - Sections 37 & 256(2), business purposes - commission - commission agents & procurement of supply orders

Whether mere acceptance of proof of commission payments, agreements between the parties and affidavits, by the AO, will debar him from questioning whether expenses claimed u/s 37 are still be allowable - NO: SC

Whether the question regarding allowance of such deduction depends only on the facts & circumstances of each case - YES: SC

Whether determination of entitlement to deduction u/s 37 by weighing the basis of doubts, can be faulted, when no disturbance to the primary facts as found by the Tribunal has been made by the High Court while determining such entitlement - NO: SC - Assessee's appeal dismissed : SUPREME COURT OF INDIA

Joint Investments Pvt. Ltd Vs CIT

Income Tax - Section 14A& Rule 8D, interest - tax - refund

Whether, for the purpose of Sec 14A read with Rule 8D, there can be a situation where disallowance of expenditure can swallow the entire tax exempt income - NO: HC

Whether when the assessee itself has made some disallowance of expenditure in relation to dividend income, the AO can make greater disallowance without rejecting the computation of the assessee - NO: HC - Case remanded : DELHI HIGH COURT

Bikram Singh Vs DCIT

Income Tax - Writ - Sections 156, 220(6) & 226(3), Garnishee order - Undisclosed Income

Whether order of Revenue to the bank of assessee, to make payment of 50% of tax due from assessee, is justified, when appeal against the order of AO is pending before CIT(A). - Writ petition is allowed : DELHI HIGH COURT

CIT Vs Indian Farmer Fertilizer Co-Operative

Income tax - Sections 143(1) & 244A, advance tax payment - delayed payment of interest & income tax refund

Whether an assessee aggrieved by the delayed payment of income tax refund can claim interest , over and above the statutory interest payable u/s 244A - NO: HC

Whether a decision of Supreme Court dealing with any facts of a case prior to the insertion of Section 244A, can be considered as a binding authority in section 244-A related matter - NO: HC - Revenue's appeal partly allowed : DELHI HIGH COURT

CIT Vs Thiru Arooran Sugars Ltd

Income Tax - Section 254, Miscellaneous Petition - Rectification

Whether application for rectification u/s 254, filed well within time becomes infructuous if the Tribunal takes it up for hearing only after the lapse of four years from the date of the order sought to be rectified. - Revenue's appeal remanded : MADRAS HIGH COURT

Balwas Realty and Infrastructure Pvt. Ltd Vs CBDT

Income Tax - Sections 80IA(4) & 143(3), stay - grant of personal hearing - CBDT approval - project - exemption

Whether in order to claim benefit of exemption u/s 80IA, applicant must be able to show on the face of it that the conditions of exemption have been completely satisfied by him - Whether conduct of assessee in putting before the Adjudicating Authority, figures which when confronted were substituted with new figures, application for stay filed by the assessee has to be entertained. - Assessee's writ dismissed : BOMBAY HIGH COURT

CIT Vs UoI

Income Tax - Writ - Sections 158BC(c), 245-C & 245-D(4), Search operation - Undisclosed income

Whether order of settlement commission is illegal when it is passed without looking into the record and giving opportunity to parties. - Revenue's writ allowed: ALLAHABAD HIGH COURT

CIT Vs U P State Industrial Development Corp Ltd

Income Tax - Sections 43B & 263, disallowance u/s 43 - non application of mind.

Whether CIT is competent to exercise jurisdiction u/s 263 without appreciating the fact that there is a prima facie case of disallowance u/s 43B which had left to be considered by AO. - Revenue's appeal dismissed : ALLAHABAD HIGH COURT

ITO Vs Bhawani Silicate Industries

Income Tax – Section 145, books of account, gross profit.

Whether low yield or GP can be a factor to make the trading addition when the assessee otherwise maintains proper books of accounts and quantity wise details. - Revenue's appeal dismissed & Assessee's Cross Objection allowed: JAIPUR ITAT

Ahmedabad Stock Exchange Ltd Vs DCIT

Income Tax

Whether when there was an overriding title of SEBI then the accrued interest can be taxed - Whether the Assessee can claim deduction from such interest income when the interest is accrued but funds were taken out for the purpose of the benefit of the members and the assessee has no got benefit of accrual of interest. - Case remanded : AHMEDABAD ITAT

ITO Vs Abhishek Investment Pvt. Ltd

Income Tax - Sections 2 (22)(e)

Whether provisions of section 2 (22)(e) can be invoked when the assessee is not a shareholder of the company from where the loan amount was received. - Revenue’s & Assessee’s appeal dismissed : AHMEDABAD ITAT

SERVICE TAX

Bharat Forge Ltd Vs CCE

ST - Appellant is a manufacturer of crank shaft/forging and clears products both into DTA and for export - Service of Overseas Commission Agent were availed who procured sale orders for appellant - Appellant is not liable to be taxed on reverse charge basis prior to period 18.4.2006 - Only liable to pay the demand of ST subsequent to 18.4.2006 along with interest - By granting benefit of Section 80 of FA, 1994, all penalties set aside including under Section 78: CESTAT - Appeal partly allowed : MUMBAI CESTAT

Bhogawati Ssk Ltd Vs CCE

ST - Appellant is engaged in manufacture of Sugar and Molasses and is also registered under ST provisions for GTA services - There is only clerical error in tax paid short, as the payment for commission transport was made next year - Transaction founds to be properly recorded in books of account, therefore, appellant is not guilty of any act or omission with intent to evade payment of duty - Tax found, short paid with interest was deposited prior to issuance of SCN - Penalty is set aside under Section 78: CESTAT - Appeal allowed : MUMBAI CESTAT

Skelta Software Pvt. Ltd Vs CST

ST - Management, Maintenance or repair services-On the ground that the appellant should have paid ST under the category of MMR service on the full value and the payment of 25% of gross value is not correct, differential service tax demanded along with equivalent penalty - Appeal to CESTAT

Held: In the case of Wipro GE Medical Systems, Tribunal view that when Sales Tax has been paid on materials representing 70% of value, ST is not leviable on such portion, has been upheld by Supreme Court - Prima facie issue covered by said decision - Pre-deposit waived and stay granted: CESTAT - Stay granted : BANGALORE CESTAT

Karnataka State Cricket Association Vs CST

Service Tax - Event Management Service - BCCI conducting cricket matches through Karnataka State Cricket Association (KSCA), its affiliated associate - Whether taxable as "event management service" - Whether or not KSCA actually conducts the cricket matches and not managing the event and does not provide any assistance to BCCI in conducting the events or merely conducts cricket matches for and on behalf of BCCI - Whether or not entire income received under the heads viz. receipt for cricketing activities, TV subvention money, sponsorship subsidy and other receipts, match fees and other receipts, hire charges and rental covered by "event management service" - Glaring contradictions in the facts, conclusions and the proposal in the show-cause notice with regards to the nature and classification of the activity vis-a-vis demand - Debatable issues as such postponed to determine during final hearing - Prima-facie case made out by appellant - Pre-deposit waived - Stay granted : BANGALORE CESTAT