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16.03.2016 - Voice of CA presents - Updates
Wednesday, March 16, 2016

I. Headlines Today    

  1. Tax Exemption Could Revive MF Interest in PTCs  (Click for detail)
  2. Income Tax presses Rs 29,000 crore tax notice including interest on Cairn  (Click for detail)
  3. Lok Sabha Clears Real Estate Bill  (Click for detail)
  4. National courts of appeal not possible or desirable Centre  (Click for detail)
  5. Big dip in advance tax payment by PSBs  (Click for detail)
  6. Pay interest on savings account quarterly, RBI tells banks  (Click for detail)
  7. New CA course will make entry tough for students  (Click for detail)
  8. ICAI issues notice to Kingfisher Airlines' auditors  (Click for detail)
  9. Empanelment of Members to act as Observers at the Examination Centres for The Chartered Accountants Examinations May/ June 2016  (Click for detail)
II.  Direct Taxes Case Laws: 

1.  CIT Vs. M/S. Meghalaya Steels Ltd., Civil Appeal No. 7622 of 2014, Date of Pronouncement: 09.03.2016, Supreme Court of India


Whether an assessee is eligible for claiming deduction under section 80-IB of subsidy received, inter-alia, transport subsidy, interest subsidy and power subsidy from the Government?


Brief Facts:
The assessee company is engaged in the business of manufacture of Steel and Ferro Silicon in the state of Meghalaya. It declared an income of Rs. 2,06,970 for A.Y. 2005-06 after claiming the deductions for transport subsidy (Rs. 2,64,94,817), interest subsidy (Rs. 2,14,569), power subsidy (Rs. 7,00,000) u/s 80IB of the Act. The AO disallowed these deductions claiming it to be revenue receipts and therefore not qualified under the quoted section. CIT(A) upheld the order of AO while ITAT reversed the same. High court also decided the case in the favor of the assessee. Therefore, revenue carried the matter to SC.

Hon’ble Supreme Court held that deduction under section 80-IB is admissible only in respect of profit and gains derived from the business. The profits and gains originate from the business and also subsidies from Government.

In this case, all subsidies were revenue receipts, which were reimbursed to the assessee for elements of cost relating to manufacture or sale of their products. Therefore, there was a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies.

Hence, assessee would be entitled to claim deduction under Section 80-IB in respect of all subsidies received from the Government as same were granted in relation to manufacture and sale of the products of the undertaking and not in relation to post- manufacturing activity.
The appeal of the revenue stands dismissed.

(Please click here for judgment)


2.  Mohd Tehseen Vs. ITO, I.T.A. No. 4563/Del/2014, Date of Order: 11.03.2016, ITAT - Delhi

Whether the AO has rightly adopted the rate of 15% of the Net Profit on the unaccounted sale against 6% of Net Profit shown by the assessee?

Held: No

Brief Facts
The assessee filed his return of income showing income of Rs.1,59,972/– and found that assessee has deposited Rs. 92,93,900/- in his 3 bank accounts. Assessee was asked to explain the reasons and source of this deposit as assessee has disclosed sales of Rs.30,66,200/-only and against this cash deposit in the bank account is Rs.92,93,900/-. Assessee contended that he was required to show turnover to the banker because a cash credit limit of Rs.15 Lacs was sanctioned and, therefore, to justify the bank limit the turnover was shown. The assessee has filed his return of income showing net profit at the rate of 6% of the turnover as per provisions of section 44 AF of the income tax act. However, the AO treated the difference of Rs. 62,27,700/– as unexplained sales of the assessee and on which he applied a net profit rate of 15% and made an addition of Rs.9,34,155/-. The ld CIT(A) confirmed the addition of Rs.9,34,155/-.


We have carefully considered the rival contentions. It is undisputed that assessee has shown income at the rate of 6% of net profit on the turnover of Rs.30,66,200/- only whereas an amount of Rs.92,93,900/- is found deposited in various bank accounts. The assessee could not offer any satisfactory explanation about excess deposit of Rs.62,27,700/- compared to its sales. Therefore, we confirm the action of assessing officer of determining unaccounted sales of Rs.62,27,700/-. However, now the issue arises is whether the assessing officer has rightly adopted the rate of 15% of the net profit on this unaccounted sale against 6% net profit shown by the assessee. According to us, rate of 15% is an arbitrary rate and without any comparable cases. This rate is also higher against the rates provided by provisions of section 44AF of the Income Tax Act, which is 5%. Therefore, we are of the view that in absence of any comparable cases for adoption at such a high rate, which is almost 2.5 times of the net profit rate shown by the assessee, is not justified.In the result we direct the assessing officer to adopt net profit rate of 6% on unaccounted sales and restrict the addition to that extent only.

(Please click here for judgment)   

III. Useful Article:

1.  Increase in limitation period for issuing SCN - Is this “Ease of doing business”

(Please click here for detail)

[Contribution by CA. Bimal Jain and contributor is available at eMail-id:]


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