1.   CIT vs  Jindal Equipments Leasing & Consultancy Services Ltd. –DHC- SCOPE OF HIGH COURT APPEAL & Section 41(1) versus Section 28(iv) Held:

"AO had made the addition in terms of Section 41(1) of the Act read with Section 28(i) of the Act, which was upheld by the CIT(A). No doubt, the Tribunal has held that Section 41(1) does not apply to which legal position is constituted by the learned counsel for the Revenue before us, the Revenue still wants that the addition be sustained under provisions of Clause (iv) of Section 28 of the Act. The Revenue is not disputing the facts on the basis of which decision of the Tribunal is based. Submission is that on these very facts, provisions of Section 28(iv) of the Act shall be attracted. It is a pure question of law and therefore, the amended ground as raised by the Revenue can be allowed. The position in MCorp Global Pvt. Ltd. (supra) was entirely different." “Whether the amount of loan written off by the sister concern of the assessee is income of the assessee within the meaning of Section 28 of the Income Tax Act, 1961?” Held In the present case, the Tribunal has held that the waiver/written off part of principal amount of loan by JSPL does not constitute income at the hands of the assessee. On the facts of this case and particularly having regard to the nature of business only, it will constitute capital receipt. 10. We thus answer the question in favour of the assessee and against the Revenue. As a consequence, we dismiss this appeal.

(Click here for judgment)

   

2.   Smt. Urmila Gambhir vs CIT-DHC : Search Assessment Loose Document Inferential Value:

“12. To summarize, the contention of learned counsel for the Appellant is that Annexure A-6 which is a loose sheet of paper is a dumb document with no evidential value and, therefore, could not have been relied upon by the authorities below for arriving at any conclusion much less for the authorities on making additions in the income of the assessee; there was no causing connection between that paper and purchase of agricultural land at village Bhigan, Tehsil Gannaur, District Sonepat; there was no basis for arriving at figure of Rs.51,76,200/- even on the basis of the said document; in any case the deed regarding that land was in the name of the company and addition could not have been made at the hands of the assessee; the said document was not made available to the ITAT by the Revenue and, therefore, reliance thereupon amounted to violation of principles of natural justice; the burden was on the Revenue to prove any undisclosed income at the hands of the assessee, which was not discharged by the Revenue. 13. It is not in dispute that these very arguments were raised by the assessee before the A.O., in the appeal before the CIT(A) and thereafter before the ITAT as well….assessee did not disown this document or stated that it did not belong to him. His explanation was that this document had no connection with the purchase of the land by M/s. D.D. Industrial Corporation Limited at village Bhigan, Tehsil Gannaur, District Sonepat. It is only a rough estimate of the cost of setting up of a new project in and around Gurgaon and that this paper did not have any description of khasra number of any land and it also did not contained address of any person….Since there was no denial that the said paper was related to the purchase of the property, it was for the assessee was to demonstrate how it was related to the proposed purchase of land in and around Gurgaon. The A.O. found that the assessee had failed to furnish any details of land which he proposed to purchase in and around Gurgaon. No project details, which he was planning to have at the said land, had been furnished by the assessee. He had also failed to produce Mr. K. Lal (M.M. Suri) against whom 50.00 is mentioned in the said sheet of paper…Since the company was incorporated in January, 1996 only and it had not started its functions, there was no occasion of generation of unaccounted or accounted income for the company. For this reason he made actual additions in the income of the assessee who was the promoter of the said company and protective assessment was made in the name of the company…15. CIT as well as ITAT have confirmed the aforesaid findings. The ITAT observed that once it is found that slips were found from the possession and control of the assessee, then onus was upon the assessee to prove the contents of the slips, since these contents of the slip was within the knowledge of the assessee and he fails to discharge this onus. …17. It is clear from the above that after analyzing facts/material, findings of facts are arrived at to the effect that the said sheet of paper relates to actual transactions and did not depict or reflect rough estimate of the cost of setting up of a new project in and around Gurgaon, explanation sought to be given by the assessee, which he failed to establish. In the facts and circumstances of the case, we, therefore, cannot treat it to be a dumb paper and are unable to accept this contention of the learned counsel for the assessee.”

(Click here for judgment)

   

3.    CIT vs  Jacksons Engineers Ltd.-DHC: Section 80IA and Section 41(1) deemed income : Scope & eligibility: Held

“The AO was of the opinion that because of the trading operation, the assessee had become richer by the said amount. It has thus become definite surplus. Thus, though the advances were initially not taxable, their forfeiture rendered them to be treated as trading receipt and the amount had become a trade surplus. He thus included the said amount for the purpose of tax…….  In that para, the Tribunal has held that deduction under Section 80IA of the Act will be allowable in respect of any income incidental or attributable to the business of the undertaking, which is clearly erroneous in view of liberty. In the process, the Tribunal did not even consider the argument of the Revenue justifying the order of the CIT (A) on the basis of judgment of the Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra). After having considered the matter, we are of the view that the order of the AO as upheld by the CIT (A) on this aspect is correct in law. Having regard to the aforesaid judgment of the Supreme Court, the amount was to be treated as trading receipt and therefore, it has to be added as income of the assessee. The transferring of this amount to the capital reserve account unilaterally by the assessee by means of book entry was not an appropriate step. The following observations in T.V. Sundaram Iyengar & Sons Ltd. (supra) needs to be highlighted…. Once it is treated as business income, the interest question is as to whether deduction could be claimed under Section 80IA of the Act. Here again, we find that CIT (A) rightly held that it was not derived from any goods or services produced by the said unit and the it arose from the absence of any goods having been produced and supplied by Daman Unit. Ratio of liberty would, therefore, be applied squarely.”

(Click here for judgment)

   

4. CIT vs Nestor Pharmaceuticals Ltd. and Sidwal Refrigration Ind. Ltd. vs DCIT cases: DHC-Section 80IA Begun to Manufacture: Held

“In the present case, as noted above, the trial production began on 20th March, 1998 in its Goa plant as per the details given in the audit report furnished by the assessee along with its return of income for assessment year 2003-04 and 2004-05. According to the Assessing Officer this amounted to manufacture of its products on the date which means during the previous year relevant to assessment year 1998-99 and therefore that was the initial assessment year in which the assessee company was entitled to deduction under Section 80IA and the five years period expires on 2002-03. The assessee was, therefore, not entitled to deduction @ 100% of the profits of Goa unit and restricted the same to 30% of the profits from assessment year 2003-04. 6. The plea of the assessee was that trial production did not amount to manufacture of its products. It is only when commercial production commences, which according to the assessee commenced only in the assessment year 1999-2000, the assessee would become entitled to deduction under Section 80IA/80IB as per Clause(c) of Sub-section 12 of Section 80IA….The controversy, thus, boils down to the limited sphere namely whether, even with the start of trial production, with no commercial production in a particular year, it will be treated as “initial year” for the purpose of Section 80IA/80IB. The CIT(A) held so and this opinion of the CIT(A) did not found favour with the ITAT. 10. The Tribunal also took note of the judgment of Bombay High Court in Metropolitan Springs Pvt. Ltd. vs. Commissioner of Income Tax, (Central) Bombay, 132 ITR 893 and that of Allahabad High Court in Commissioner of Income Tax vs. Himalyan Magnesite Ltd., 276 ITR 56 to support its view. 12. After hearing the counsel for the parties, we are of the opinion that the interpretation given by the Tribunal to Section 80IA/80IB is correct in law....  Other appeals : However, on facts the Tribunal decided the case against the assessee. What weighed with the Tribunal was that the assessee had not only produced the goods for trial purposes but there was, in fact, sale of one water cooler and air-conditioner in the assessment year 1998-99 relevant to the previous year/financial year 1997-98. The explanation of the assessee that this was done to file the registration under the Excise Act as well as the Sales Tax Act. This did not find favour with the ITAT. …23. In the present case, the assessee had sold one water cooler and one air-conditioner before April, 1998. Thus, the stage of trial production had been crossed over and the assessee had come out with the final saleable product which was in fact sold as well. The quantum of commercial sale would be immaterial”.

(Click here for judgment)

 

   

What's New 

a.   Procedure for electronic filing of Central Excise and Service Tax returns

b.   Tax treatment of Goods sent to other States

c.   Final GST draft could be out by May

 

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"Voice of CA"

CA. Sanjay Kumar Agarwal, Founder - Voice of CA

Member  Central Council - ICAI  (Former Chairman - NIRC)

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CA. Mukesh K Bansal, Co-Moderator-FEMA, mkak@rediffmail.com