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26.10.2018 - Voice of CA presents - Latest Updates
Friday, October 26, 2018

  I. Headlines Today:   

  1. Govt. approves appointment of Adjudicating Authority & establishment of Appellate Tribunal under Benami Act  (Click for detail)
  2. New Common Form 36 notifies for filing ITAT appeal against order passed following DRP’s direction and other matters  (Click for detail)
  3. SC seeks report on role of Amrapali Group's statutory auditors  (Click for detail)
  4. Income Tax return: Buying a house in name of spouse? Beware, it may not help you save on taxes  (Click for detail)
  5. Promoters of 73,000 companies may face action  (Click for detail)
  6. RBI rejects government's proposal to ease PCA norms for banks  (Click for detail)
  7. Bank of Baroda, Dena Bank and Vijaya Bank to appoint valuers for merger  (Click for detail)

  II. Direct Taxes Case Laws: 

1.  PCIT vs. The Basti Sugar Mills Company Limited, I.T.A. No. 205/2018, Date of Pronouncement: 28.09.2018, High Court of Delhi


Whether interest paid on borrowed funds to be tested as commercial expediency in case the assessee gave an advance to sister concern and explained that advances are made out of own funds?

Answer: No,

Brief Facts:
The Assessment Order on remand observes that the assessee had been asked to adduce material to prove that the interest free advances to sister concerns were out of its own funds and not out of borrowed capital from the bank on which there was interest liability. This was necessary to examine the question of "commercial expediency”. The assessee having expressed their disability to correlate each and every entry of the advances to the sister concerns with availability of its own funds, there was failure to justify and explain commercial expediency in giving interest free advances of Rs.8,33,56,295/- to the sister concerns.

The issue “commercial expediency” is different. The Supreme Court in S.A. Builders (288 ITR 1) had observed that sec 36(1)(iii) of the Act states that interest paid in respect of capital borrowed for the purpose of business or profession is to be allowed as a deduction in computing taxable income. Accordingly, expenditure voluntarily incurred on the test of commercial expediency is to be allowed as a deduction. It is immaterial if a third party also benefits by the said expenditure.
The expression "commercial expediency" is again of wide import and includes such expenditure incurred for the purpose of business. Therefore, once it is established that there was a nexus between expenditure and purpose of business, which need not be the business of the assessee, deduction under Section 36(1)(iii) of the Act must be allowed. Revenue cannot assume the role and occupy armchair of a businessman to decide whether expenditure was reasonable.

The test of "commercial expediency" would only come into play if there was any finding that interest bearing funds had been diverted for making interest free loans. The loans taken by the respondent-assessee were for specific purposes and were duly represented by the value of stock. He observed that the respondent-assessee during the period relating to the Assessment Year had sales of Rs.37.16 crores, paid up share capital of Rs.8.20 crores and reserves of Rs.1.23 crores. He concluded that the assessee had furnished ample evidence to show that sufficient funds were available to give interest free loans. Accordingly, addition of Rs. 1,50,04,133/- was directed to be deleted. The aforesaid factual reasoning negates and nullifies the factual reasoning given by the Assessing Officer.
The appeal is in favour of the assessee and against the Revenue.

(Please click here for judgment)


2.  Sudhir Menon Vs ACIT, I.T.A. No. 1744/Mum/2016, Date of Pronouncement: 03.10.2018, ITAT- Mumbai

Whether AO has jurisdiction to pass the reassessment order if no fresh notice under section 143(2) is issued after the assessee files a return in response to notice under section 148 of the Income Tax act, 1961?

Held: No

Brief facts:
The assessee has filed his return of income on 31.07.2010 declaring total income at ₹46,76,95,780/- which was processed u/s 143(1) of theAct on 21.03.2012.A notice u/s 148 of the Act was issued dt 01.04.2013 on assessee for the reopening of the case. A notice u/s 143(2) was issued by the Ld. AO on 03.05.2013.The assessee filed a reply dt 23.05.2013 in response to notice u/s 148 stated that the return originally filed be treated as return filed in response to notice u/s 148 of the Act.The Ld. AO completed the assessment. The hon’ble CIT (A) agreed with the order of Ld. AO.Being aggrieved, the assessee filed an appeal before Hon’ble ITAT.

A notice u/s 148 of the Act dated1.04.2013 was issued and AO issued a notice u/s 143(2) of the Act dated03.05.2013 requiring the assessee to attend the office on 13.05.2013 before filing of return by assessee inresponse to this notice. Till 13.05.2013 no return of income was filedby the assessee in response to notice u/s 148 of the Act.According to consistent view of jurisdictional High Court andDelhi High Court, in the absence of pending return of income, theprovisions of section 143(2) of the Act is clear that notice can be issuedonly when a valid return is pending for assessment. Accordingly, thisnotice has no meaning. The assessee filed return of income undersection 148 of the Act vide letter dated 23.05.2013 stating that theoriginal return of income can be treated as return filed in response tonotice u/s 148 of the Act. It means that the assessee has filedreturn of income only on 23.05.2013. No notice u/s143(2) ofthe Act was issued by the Department on or after 23.05.2013. Therefore, the assessment framed without issuing a notice u/s143(2) of the Act when the return was filed by the assessee in responseto notice u/s 148 of the Actis bad inlaw. Accordingly, assessment is quashed.
Hence, the appeal was held in favour of theassessee and against therevenue.

Cases cited:
DIT vs. Society for Worldwide Inter Bank Financial, Telecommunications (2010)323 ITR 249 (Delhi- HC)
ACIT vs. Geno Pharmaceuticals Ltd. (2013) 32 162 (Bombay- HC)
CIT vs. Ms. Malvika Arun Somaiya (2010) 2 144 (Bombay- HC)

(Please click here for judgment)

Golden Rules:

  The three simple tips to play safe in life
    (i)  Don't promise when you are happy.
    (ii) Don't reply when you are angry.
   (iii) Don't decide when you are sad. 


Thanks & Regards


Voice of CA 

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