<DIRECT TAX LAWS>

n  Unless a sense of hierarchical discipline is observed, while implementing fiscal legislation, exercise of powers would be rendered arbitrary and subject to whim and caprice of Assessing Officers - In a case where the Assessing Officer has chosen to act in complete departure from a duly considered determination made by a superior officer, it is necessary for this Court to step in to ensure that the discipline of the hierarchy imposed by fiscal legislation is duly observed - McKinsey and Company Inc. v. Union of India [Writ Petition (L) No. 805 of 2010] [2010] 6 taxmann.com 64 (BOM.)

n  For purposes of clause (iv) of Explanation 1 to section 115JB, extent of reduction in respect of deduction available under section 80HHC has to be computed strictly in accordance with provisions of section 80HHC - Tribunal was not justified in coming to the conclusion that the amount to be reduced under clause (iv) of Explanation 1 to Section 115JB in respect of the profits eligible for deduction under Section 80HHC has to be computed with reference to the net profits in the profit and loss account and not according to the profits of the business computed under the head of profits and gains of business or profession - CIT v. Al-Kabeer Exports Ltd. [ITA No. 2619 of 2010] [2010] 6 taxmann.com 52 (BOM.)

n  Second rectification application by either party is maintainable only on issues not decided by Tribunal in any other rectification application filed by either of parties - Once the rectification application filed by one of the parties is considered and decided by the Tribunal rightly or wrongly, another rectification application on same issue is not maintainable against the order issued by the Tribunal under section 254(2) - CIT v. Aiswarya Trading Co. [ITA No. 829 of 2009] [2010] 6 taxmann.com 36 (KER.)

n  Where the damages paid to the assessee was directly and intimately linked with the procurement of a capital asset, compensation paid for the delay in procurement of capital asset amounted to sterilization of the capital asset of the assessee as supplier had failed to supply the plant within time as stipulated in the agreement and the amount received by the assessee towards compensation for sterilization of the profit earning source, was a capital receipt - Question whether a particular receipt is capital or revenue has frequently engaged attention of Courts but it has not been possible to lay down any single criterion as decisive in determination of the question - CIT v. Saurashtra Cement Ltd. [Civil Appeal No. 3702 of 2003] [2010] 6 taxmann.com 27 (SC)

n  Freight and insurance cannot be regarded as costs directly attributable to trading goods within meaning of clause (b) of Explanation to sub-section (3) of section 80HHC - Freight and insurance attributable to the transportation of goods beyond the customs station does not constitute a part of the direct costs which are defined to mean costs directly attributable to the trading goods exported out of India; the words, “exported out of India” are used in a descriptive sense; in order that the costs can be regarded as direct costs within the meaning of Explanation (b), they must be attributable to the trading goods which are eventually exported out of India - CIT v. King Metal Works [ITA (L) No. 801 of 2010] [2010] 6 taxmann.com 26 (BOM.)

n  DEPB : Amount equivalent to face value of DEPB as well as amount received in excess of DEPB would constitute profits of business under section 28(iiid) - Where the face value of the DEPB credit is offered to tax as business profits under Section 28(iiid) in the year in which the credit accrued to the assessee, then any further profit arising on transfer of DEPB credit would be taxed as profits of business under Section 28(iiid) in the year in which the transfer of DEPB credit takes place The value of the DEPB credit can by no means be regarded as a cash assistance which is received or receivable by a person against exports under any scheme of the Government of India - CIT v. Kalpataru Colours and Chemicals [ITA (LODG.) No. 2887 of 2009] [2010] 6 taxmann.com 25 (BOM.)

n  Words “amount on which interest was payable under sub-section (1) or sub-section 3” do not impose a condition that for interest to be attracted under section 234B(4) interest should actually be levied under original order of assessment under sub-section (1) - There is no reason or justification for the Court on the basis of the plain language used in sub-section (4) of section 234B to exclude the cases, where no interest has been levied on the assessee in the original order of assessment, from the liability to pay interest - Akbar Travels of India Pvt. Ltd. v. Income-tax Act Settlement Commission [Writ Petition No. 865 of 2010] [2010] 6 taxmann.com 24 (BOM.)

n  A non-resident company having received charter fee for hiring its shipping vessels to assessee in shape of 85 % of fish catch in India, sale of fish and realization of sale consideration of fish by it outside India shall not mean that there is no receipt in India - When 85% of the catch is received after valuation by the non-resident company in India, in sum and substance, it amounts to receipt of value of money which is chargeable to tax under section 5(2) - Kanchanganga Sea Foods Ltd. v. CIT [C.A. Nos. 3844-3847 of 2003 With C.A. Nos. 3849-3852 of 2003] [2010] 6 taxmann.com 19 (SC)

n  Dividend stripping transaction: In cases arising before 1-4-2002, losses pertaining to exempted income cannot be disallowed on ground that same are artificial - Losses over and above the amount of the dividend received would still be allowed from which it follows that the Parliament has not treated the dividend stripping transaction as sham or bogus; it has not treated the entire loss as fictitious or only a fiscal loss; after 1-4-2002, losses over and above the dividend received will not be ignored under section 94(7) - CIT v. Walfort Share & Stock Pvt. Ltd. [Civil Appeal No. 4927 of 2010] [2010] 6 taxmann.com 17 (SC)

n  Where two views are possible and AO has taken one view, CIT cannot exercise his powers under section 263 to differ with view of AO even if there has been a loss of revenue - The expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression “erroneous” and every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue - CIT v. Honda Siel Power Products Ltd. [ITA 1376/2009 and 1382/2009] [2010] 6 taxmann.com 15 (DELHI)

n  Exclusion of time stipulated in clause (v) of Explanation 1 to section 158BC would not be applicable in respect of service of notice under section 143(2) - Explanation 1(v) to section 158BC relates only to the computation of the period of limitation for passing an order under section 158BC(c) and not to the computation of limitation for serving a notice under section 143(2) - Rajan Gupta v. CIT [ITA 884/2009] [2010] 6 taxmann.com 14 (DELHI)

n  Requirement of furnishing tax audit report under section 44AB was introduced only with effect from 1-7-1995 for purpose of section 271B - Prior to 1-7-1995 the requirement was that the tax audit report had to be obtained as required under Section 44AB and the assessee had to furnish the report along with the return of income filed under Section 139(1) or in response to a notice under Section 142(1)(i); the provision in Section 271B prior to its amendment was consistent with the obligation imposed by Section 44AB - S.V. Pathak & Co. v. NC Tiwari [CIT W. P. No. 3794 of 1996] [2010] 6 taxmann.com 11 (BOM.)

n  Donations out of 15% accumulation permitted under section 11(1)(a) are not to be restricted by Explanation to section 11(2) - Even after the insertion of the “Explanation” appended under section 11(2) w.e.f. 1-4-2003, if a trust donates its entire income for a year to another charitable trust, it would still be entitled to exemption under section 11(1)(a); it defies logic as to why such donations cannot be permitted out of 15 % accumulation permitted under section 11(1)(a) itself - DIT (Exemption) v. Bagri Foundation [ITA No. 19/2010] [2010] 6 taxmann.com 10 (DELHI)

n  Where assessee files its return u/s 44AD, it is not under obligation to explain individual entry of cash deposit - Once under section 44AD exemption from maintaining of books of account has been provided and presumptive tax @ 8% of the gross receipt itself is the basis for determining the taxable income, the assessee is not under obligation to explain individual entry of cash deposit in the bank unless such entry has no nexus with the gross receipts - CIT v. Surinder Pal Anand [ITA No. 156 of 2010] [2010] 6 taxmann.com 7 (PUNJ. & HAR.)

n  Gross-border transaction: TPO/AO, before he determines arm’s length price in relation to income from an international transaction, needs to give appropriate notice to assessee, giving him an opportunity to produce evidence in support of arm’s length price computed by him - In case the TPO/AO proposes to make adjustments to the income of the assessee by revising the arm’s length price computed by him, he needs to give a notice to the assessee, conveying the grounds on which the adjustment is proposed to be made, followed by an opportunity to reply to that notice and produce evidence to controvert the grounds, on which the adjustment is proposed - Maruti Suzuki India Ltd. v. Addl. CIT [Transfer Pricing Officer W. P. (C) 6876/2008] [2010] 6 taxmann.com 6 (DELHI)

n  Interest on refund: Where proceeding resulting in refund is not delayed for reasons attributable to assessee, interest under section 244A cannot be denied - When the benefit of TDS has been allowed to the assessee, interest under section 244A can not be denied only on the ground that the TDS certificates are not furnished with the return of income - CIT v. Larsen & Toubra Ltd. [ITA (L) No. 3013 of 2009] [2010] 6 taxmann.com 5 (GUJ.)

n  Expenses incurred for setting up of a new unit in expansion of an existing business are allowable as revenue expenses - Where the so called new unit set up by the assessee was merely an expansion of its existing business and was not setting up of a new business, the expenses incurred in that regard were allowable as revenue expenses - CIT v. Ghanashyam Steel Work Ltd. [Tax Appeal Nos. 553 to 555 of 2009] [2010] 6 taxmann.com 4 (GUJ.)

n  When assessee commits default under a bona fide belief which is rectified by filing a revised return, it cannot be held liable for penalty under section 271(1)(c) - Where the assessee had bona fide made a claim for deduction under section 80-IA which came to be rectified by filing a revised return withdrawing the claim, there was no concealment or furnishing of inaccurate particulars of income on the part of the assessee - CIT v. Backbone Enterprises [Tax Appeal No. 560 of 2009] [2010] 6 taxmann.com 3 (GUJ.)

n  Definition of “export turnover” given in Explanation 2 to section 10A excludes freight and insurance - Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression “export turnover” cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula prescribed by section 10A(4) - CIT v. Gem Plus Jewellery India Ltd. [ITA No. 2426 of 2009] [2010] 6 taxmann.com 2 (BOM.)

n  To fall under ambit of section 170, there must be a transfer of ownership - The change in the shareholders of the company does not change the legal identity of the company for the purposes of section 170 - CIT v. Panchratan Hotels Pvt. Ltd. [ITA No. 13 of 2004] [2010] 6 taxmann.com 1 (HP)

n  Assessment beyond a period of four years can not be re-opened where there is full and true disclosure of all material facts by assessee - No action can be taken under the section 147 after the expiry of four years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year - Hindustan Petroleum Corporation Ltd. v. DCIT [W.P. No. 2513 of 2009] [2010] 5 taxmann.com 111 (BOM.)

n  Doctrine of Mutuality: Fact that an association satisfies norm of mutuality in respect of receipts of contributions from its members does not necessarily lead to conclusion that every activity of that association satisfies test of mutuality - An association may engage in activities which can be described as mutual and in other activities which are not mutual; in such a case, the principle of mutuality has to be confined to transactions with members possessing the essential character of mutuality; the two activities can in appropriate cases be separated and the profits derived from transactions which do not fulfill the requirements of mutuality can be brought to tax - CIT v. Common Effluent Treatment Plant (Thane Belapur) Association [ITA No. 2060 of 2009] [2010] 5 taxmann.com 110 (BOM.)

n  A dress designer is an artist for purposes of section 80RR - There is nothing in the statutory provision of section 80RR which would confine the meaning of the expression “artist” to a person engaged in the fine arts - CIT v. Tarun R. Tahiliani [ITA (L) Nos. 922 and 1275 of 2009] [2010] 5 taxmann.com 109 (BOM.)

n  If assessee has made a full and true disclosure of all material facts for his assessment, action of re-opening assessment beyond a period of four years would stand barred - Where the revenue has failed to establish before the Court that there was a failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment, the exercise of the power to re-open the assessment beyond a period of four years of the end of the relevant assessment year would fail to fulfill the statutory condition precedent to a valid exercise of the power to re-open an assessment beyond a period of four years - 3i Infotech Ltd. v. ACIT [W. P. No. 892 of 2010] [2010] 5 taxmann.com 108 (BOM.)

n  After receipt of return in response to notice under Section 148, it shall be mandatory for AO to serve a notice on assessee under section 143(2) assigning reason therein - In absence of any notice issued under section 143(2) after receipt of fresh return submitted by the assessee in response to notice under Section 148, the entire procedure adopted for escaped assessment, shall not be valid When the Statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same - CIT v. Rajeev Sharma [ITA No. 19 of 2004] [2010] 5 taxmann.com 101 (ALL.)

n  Even if Memorandum of Association of an assessee–trust contains varied objects, so long as record demonstrates that assessee only conducts educational institutions, it must be regarded as existing solely for purpose of education - The fact that a surplus may incidentally arise from the activities of the trust, after meeting the expenditure incurred for conducting educational activities, would not disentitle the trust of the benefit of the provisions of Section 10(23C) - Vanita Vishram Trust v. CCIT [W.P. Nos. 366 & 367 of 2010] [2010] 5 taxmann.com 98 (BOM.)

n  There is no provision in section 148(1) stating that after objection is received, a detailed order of rejection has to be passed before passing final order of reassessment - Even if there is any lacuna in the procedure followed by the Assessing Authority while rejecting the objections raised by the assessee against the notices issued under sections 147 and 148(1), it is not as if the assessee is left in lurch and deprived of its right from raising such issue, and it is open to the assessee to challenge the same, even at the time of questioning the final assessment orders - Mavis Satcom Ltd. v. DCIT [Writ Petition Nos. 27357, 27358/2009 and 810 and 811/2010] [2010] 5 taxmann.com 97 (MAD.)

n  Section 127 mandates that assessee must be given a reasonable opportunity of being heard while exercising power to transfer cases - Where the assessee was not provided with any opportunity of being heard in the matter, the reasons assigned in the order which was "administrative convenience and for co-ordinating effective investigation” also could not be said to be the reasons as envisaged in Section 127(1) - Anil Kumar Kothari v. UOI [WP(C) 4487/2009] [2010] 5 taxmann.com 95 (GAUHATI)

n  Where an assessment has been made under sub-section (3) of section 143 for the relevant assessment year, no action can be taken after the expiry of four years from the end of the relevant assessment year unless inter alia there has been a failure of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year - Indian Oil Corpn. Ltd. v. DCIT [Writ Petition No. 53 of 2010] [2010] 5 taxmann.com 91 (BOM.)

n  In order to attract provisions of section 41(1)(a), there must be a remission or cessation of the trading liability and consequently a benefit must enure to assessee - In order that the provisions of sub section (1) should be attracted the first requirement is that an allowance or deduction must have been made in the assessment for any year in respect of a loss, expenditure or trading liability incurred by the assessee - SI Group India Ltd. v. ITAT [ITA No. 1511 & 1512] [2010] 5 taxmann.com 90 (BOM.)

n  Conditions prescribed in clauses (a),(b) and (c) of sub-section 7 of section 94 are intended to be cumulative in nature - The Memorandum explaining the provisions of the Finance Bill of 2001 by which sub-section (7) of section 94 was inserted, would make it clear that the requirements that are spelt out in clauses (a),(b) and (c) were intended to be cumulative - CIT v. Alka Bhosle [ITA No. 2656 of 2009] [2010] 5 taxmann.com 89 (BOM.)

n  Appellate Forums while reversing orders of AO are legally bound to dwell upon specific reasons assigned by AO for not accepting explanation of assessee that statement made by him u/s 132(4) was obtained under coercion and duress - Where the AO has assigned cogent reasons for not accepting the retraction of the statement under section 132(4) by the assessee, but the Appellate Forums, without meeting the reasoning of the AO for not accepting the explanation of the assessee, reversed the order of the AO, the orders passed by the CIT(A) and the Tribunal are to be set aside and that of the AO is to be restored - ACIT v. Hukum Chand Jain [ITA Nos. 18 and 20 to 22 of 2006] [2010] 5 taxmann.com 88 (KER.)

n  When Banks claim deduction of bad debt written off in previous year by virtue of proviso to section 36(1)(vii), they are entitled to claim deduction of such bad debt only to extent it exceeds provision created and allowed as deduction under clause (viia) - The decision of the Division Bench of this Court in South Indian Bank Ltd. v. CIT [262 ITR 579] does not lay down the correct interpretation of the provisions of section 36(1)(vii)/(viia) - CIT v. South Indian Bank Ltd. [ITA No. 299 of 2009] [2010] 5 taxmann.com 87 (KER.)

n  Doctrine of mutuality does not apply in case business activities of an assessee-firm is not restricted to partners only - Where an Association or Company trades with its members only and the surplus out of the common fund is distributable among the members, there is mutuality and the surplus is not assessable to tax as profit - Prabhashankar Plaza v. ITO [ITA No. 2612/2005] [2010] 5 taxmann.com 86 (KAR.)

n  Recording of reasons: Despite heavy quantum of cases in Courts, it would neither be permissible nor possible to state as a principle of law, that while exercising power of judicial review on administrative action and more particularly judgment of courts in appeal before the higher Court, providing of reasons can never be dispensed with - The court should provide its own grounds and reasons for rejecting claim/prayer of a party whether at the very threshold i.e. at admission stage or after regular hearing, howsoever precise they may be It may not be very correct in law to say, that there is a qualified duty imposed upon the Courts to record reasons; our procedural law and the established practice, in fact, imposes unqualified obligation upon the Courts to record reasons; there is hardly any statutory provision under the Income Tax Act or under the Constitution itself requiring recording of reasons in the judgments but it is no more res integra and stands unequivocally settled by different judgments of this Court holding that, the courts and tribunals are required to pass reasoned judgments/ orders - Asstt. Commissioner, Commercial Tax Deptt. v. Shukla & Brothers [Civil Appeal No. 3289 of 2010] [2010] 5 taxmann.com 83 (SC)

n  The expression “Tax due” in section 179(1) will not comprehend within its ambit a penalty - Where Parliament has intended to make a specific provision imposing a liability to pay penalty apart from the tax which is due and payable, a specific provision to that effect has been made; the expression “tax due” in section 179(1) cannot comprehend within the meaning of that expression a liability to pay a penalty that may have been imposed on the company - Dinesh T. Tailor v. TRO [Writ Petition No. 641 of 2010] [2010] 5 taxmann.com 78 (BOM.)

n  Scope of Explanation 2 to Section 147 is such that Assessing Officer is free to re-examine correctness of a regular assessment and decide whether tax assessed, rate applied, relief and allowances granted, etc., are in terms of provisions of Act and if not, to revise assessment in terms of Section 147 - When the scope of the section 147, after amendment, is large enough to cover situations whereby deductions have been wrongly or excessively granted, the Tribunal has no authority to restrict the powers of the Assessing Officer by holding that change of opinion is not a ground to reopen the assessment under Section 147 - CIT v. Popular Vehicles & Services Ltd. [ITA No. 1628 of 2009] [2010] 5 taxmann.com 77 (KER.)

n  A low rate of gross profit, in absence of any material pointing towards falsehood of accounts books, cannot by itself be a ground to reject account books under section 145(3) - If the rate of gross profit declared by the assessee in a particular period is lower as compared to the gross profit declared by him in the preceding year, that may alert the Assessing Officer and serve as a warning to him, to look into the accounts more carefully and to look for some material which could lead to the conclusion that the accounts maintained by the assessee were not correct - CIT v. Poonam Rani [ITA No. 406/2009] [2010] 5 taxmann.com 76 (DELHI)

n  Provisional attachment of property : Section 281B provides for attachment of property of assessee only and of no one else - The fixed deposits of the petitioner not being the property of the assessee as such are not open to attachment under section 281B - Gopal Das Khandelwal v. Union of India [Civil Misc. Writ Petition No. 1654 of 2006] [2010] 5 taxmann.com 75 (ALL.)

n  Financiers of motor vehicles are not entitled to any depreciation much less higher rate of depreciation on such vehicles - If the financiers have only financed or purchased the vehicle and the borrowers are the registered owners, then the financiers are not entitled to claim any depreciation because they are neither the owners of the vehicle nor have they used the vehicle in their profession or business entitling them for depreciation under section 32(1) - CIT v. Manappuram General Finance & Leasing Ltd. [ITA No. 1186 of 2009] [2010] 5 taxmann.com 74 (KER.)

n  Assessment of rental income: For purpose of assessment under head “profit and gains of business or profession”, it shall be necessary that property acquired and used is for commercial purpose under business activity - Where the investment made by the assessee while constructing the commercial complex seems to be a business investment, the rental income earned from the building as a natural consequence shall be business income - CIT v. Goel Builders [ITA No. 127 of 2005] [2010] 5 taxmann.com 73 (ALL.)

n  Principle of consistency: It is always open for Assessing Officer to depart from earlier practice on substantial justifiable ground - In case an assessee changes his or her stand repeatedly and does not come with clean hand, then it shall be sufficient to depart from earlier practice and the principle of consistency shall not come in the way to assess the income on the basis of the material on record - CIT v. Swapna Roy [ITA No. 9 of 2005] [2010] 5 taxmann.com 72 (ALL.)

n  Income from other sources: Investment or expenditure made in a company where there is no hope of earning profit shall not be covered by section 57(iii) - The condition precedent to avail the benefit of section 57(iii) is that the investment must be proper and justified; proper investment means correct investment with intention to earn profit - CIT v. Swapna Roy [ITA No. 9 of 2005] [2010] 5 taxmann.com 71 (ALL.)

n  After acquisition and vesting of all rights of a land in State, mere speculative right to receive compensation/enhanced compensation is not and cannot possibly be treated as an asset under section 2(ea) of the Wealth-tax Act - As soon as the land of the assessee is requisitioned and stood vested in the State, he does not remain its owner and the mere inchoate right to receive the enhanced compensation cannot possibly be treated as assets and included in his wealth subsequently - CWT v. Parminder Singh [WTA Nos. 31 to 36 of 2009] [2010] 5 taxmann.com 69 (PUNJ. & HAR.)

n  Scope of appeal under section 248 can never be beyond scope of examination of nature of obligation under section 195(2) cast on a resident payer - In an appeal under section 248 the dispute relating to the chargability alone can be subject matter and not a possibility of assessing the income of the non-resident in the hands of the resident payer - CIT (Int’l Taxation) v. Sonata Information Technology Ltd. [ITA NOS. 351 OF 2007 & 614-619 OF 2009 etc.] [2010] 5 taxmann.com 64 (KAR.)

n  Second hand machinery purchased for use as spare parts for existing old machineries has to be considered as an allowable expenditure on revenue side - When an assessee purchases the spare parts for the existing machineries, same cannot be treated as capital expenditure and it has to be treated as revenue expenditure since these spare parts are purchased for the maintenance of the existing equipments - Dr. Aswath N. Rao v. ACIT [ITA No. 2900/2005] [2010] 5 taxmann.com 63 (KAR.)

n  Once initial burden in terms of section 68 of IT Act, 1961 is discharged by assessee, onus shifts to Department to prove that amount credited in books of accounts represents undisclosed income of assessee - The onus cast on the assessee stands discharged where the assessee is able to establish the three ingredients of section 68 i.e., (a) the identity of the creditor, (b) the genuineness of the transaction, and (c) creditworthiness of the creditor - CIT v. Kishori Lal Construction Ltd. [ITA 783/2007] [2010] 5 taxmann.com 60 (DELHI)

n  Assessment of land compensation under Wealth-tax provisions : Simple right to receive compensation/enhanced compensation cannot be treated as wealth of assessee and not liable to be includible in wealth of previous assessment years - The mere right to receive compensation/enhanced compensation is variable, speculative and ichoate; such right cannot be treated as wealth and includible in the previous returns of the assessees as such - CWT v. Nand Lal Mohan Lal etc. [WTA No. 55 & 56 of 2009] [2010] 5 taxmann.com 56 (PUNJ. & HAR.)

n  Imposition of penalty : If claim made by assessee besides being incorrect in law is mala fide, Explanation 1 to section 271(1)(c) would come into play and work to his disadvantage - If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c) - CIT v. Zoom Communication Pvt. Ltd. [ITA 07/2010] [2010] 5 taxmann.com 52 (DELHI)

n  Fixation of remuneration payable to Special Auditor: Special Auditor, to whom work is assigned, is very much at liberty, to insist upon payment of such fee as he may deem adequate for work assigned to him - If the remuneration demanded by the person proposed to be appointed as Special Auditor is not acceptable to the Chief Commissioner or the Commissioner, as the case may be, he may not assign the work to him; but, it would be difficult to accept that the special audit can be assigned to a person without fixing either the remuneration or the norms on which the remuneration is to be calculated after the work is completed and conveying the same to him - Dhanesh Gupta & Co. v. CIT(C) [WP (C) 2560/2008] [2010] 5 taxmann.com 50 (DELHI)

n  Rectification of computational error: A simple computational error can be resolved by rectifying an order of assessment under Section 154(1) - It would be entirely arbitrary for the Assessing Officer to reopen the entire assessment under Section 147 to rectify an error or mistake which can be rectified under Section 154; an arbitrary exercise of power is certainly not a consequence which Parliament contemplates - Hindustan Unilever Ltd. v. DCIT [Writ Petition No. 85 of 2009] [2010] 5 taxmann.com 48 (BOM.)

n  No substantial question of law would arise especially in a situation where a finding of fact is not demonstrated to be contrary to the evidence on the record - Where it has not been established before the Court that there has been any failure on the part of the Commissioner(Appeals) or the Tribunal to take into consideration relevant and germane circumstances; consequently, it would not be appropriate or proper for this Court to substitute its own conclusion of fact for a conclusion which has been arrived at by the Tribunal - CIT v. Scindia Investment Pvt. Ltd. [ITA No. 2416 of 2009] [2010] 5 taxmann.com 45 (BOM.)

n  Business Expenditure : An obligation incurred, while entering into a commercial contract, has to be taken as a business expenditure within the meaning of section 37(1) unless it is shown that the contract itself was a sham document and was made with an ulterior motive - It is not permissible for the Assessing Officer to place himself in the position of the management of the assessee and take it upon himself to decide how much would be a reasonable expenditure for a particular business purpose - CIT v. Micromatic Machine Tools P. Ltd. [ITA 587/2010] [2010] 5 taxmann.com 44 (DELHI)

n  Where the compensation received by the assessee-professional from his former employer was only for not carrying on business, the same cannot come under term “profit in lieu of salary” - If object of payment is unrelated to relation between employer and employee, it would not fall within expression "profit in lieu of salary" under section 17(3)(i) - CIT v. A K Khosla [Tax Case Appeal No. 232 of 2010] [2010] 5 taxmann.com 35 (MAD.)

n  Before charging interest under section 234B and 234C, MAT credit u/s115JAA is to be first allowed to assessee - There was no infirmity in the order of the Tribunal holding that the Commissioner (Appeals) was fully justified in directing the Assessing Officer to allow MAT credit before charging interest under section 234B and 234C - CIT v. Salora International Ltd. [ITA No. 693/2010] [2010] 5 taxmann.com 34 (DELHI)

n  Assessment order which gives effect to a binding precedent cannot be regarded as being erroneous or as being prejudicial to interests of Revenue - When the Assessing Officer has followed a binding ruling of the AAR, the Jurisdictional Commissioner cannot come to the conclusion that the view of the Assessing Officer was erroneous or that it was prejudicial to the interests of the Revenue - Prudential Assurance Company Ltd. v. DIT (Int’l Taxation) [Writ Petition No. 866 of 2010] [2010] 5 taxmann.com 21 (BOM.)

n  When Commissioner as Revisional Authority under section 263 seeks to exercise his jurisdiction on matters which did not form subject of order of reassessment, period of limitation would begin to run from original order of assessment - Where an assessment has been reopened under Section 147 in relation to a particular ground or in relation to certain specified grounds and, subsequent to the passing of the order of reassessment, the jurisdiction under Section 263 is sought to be exercised with reference to issues which do not form the subject of the reopening of the assessment or the order of reassessment, the period of limitation provided for in sub-section (2) of Section 263 would commence from the date of the order of assessment and not from the date on which the order reopening the reassessment has been passed - Ashoka Buildcon Ltd. v. ACIT [Writ Petition No. 10160 of 2009] [2010] 5 taxmann.com 20 (BOM.)

n  Third Party Administrators, when they make payments to hospitals, are liable to deduct tax at source under provisions of section 194J - It would be open to any hospital, if it is so advised, to make an application under the provisions of section 197 for the deduction of tax at a lower rate or, as the case may be, for no deduction of tax under section 194J - Dedicated Health Care Services TPA (India) Pvt. Ltd. v. ACIT [Writ Petition No. 404 of 2010] [2010] 5 taxmann.com 19 (BOM.)

n  Penalty under section 271(1)(c) is still leviable, even if no tax is payable by an assessee - Even if assessee has disclosed nil income and on verification of the record, it is found that certain income has been concealed or has wrongly been shown, in that case, penalty can still be levied - JCIT v. Saheli Leasing & Industries Ltd. [Civil Appeal No. 4278/2010] [2010] 5 taxmann.com 18 (SC)

n  There is no provision either in the Act or in the rules requiring an assessee carrying business of manufacturing readymade garments, to maintain a Stock Register, as a part of its accounts - Where the assessee has given an explanation regarding non-production of stock-register, which has been accepted not only by the CIT (Appeals) but also by the Tribunal and both of them have given a concurrent finding of fact that maintaining Stock Register was not feasible considering the nature of the business being run by the assessee, which was engaged in the business of manufacturing readymade garments by purchasing fabric which was then subjected to embroidery, dyeing and finishing and then converted into readymade garments by stitching, this Court cannot disturb finding of fact unless some perversity is pointed out in the finding of the Tribunal which is otherwise the final authority on facts - CIT v. Jas Jack Elegance Exports [ITA No. 681/2010] [2010] 5 taxmann.com 11 (DELHI)

n  Deposit of receipts in EEFC Account and exchange fluctuation which has arisen therefrom cannot be regarded as being part of profits derived by assessee from export of goods or merchandise - The Exchange fluctuation in the EEFC Account arises after the completion of the export activity and does not bear a proximate and direct nexus with the export transaction so as to fall within the expression “derived” by the assessee in sub-section (1) of section 80HHC - CIT v. Shah Originals [ITA No. 431 of 2008] [2010] 5 taxmann.com 10 (BOM.)

n  It would be impossible to accept view that rejection of an application under section 197 does not result in an order for purpose of section 264 - The expression “order” for the purposes of section 264 has a wide connotation; hence, any order passed by an authority subordinate to the Commissioner, other than an order to which section 263 applies, is subject to the revisional jurisdiction under section 264 - Larsen & Toubro Ltd. v. ACIT (TDS) [Writ Petition (L) No. 694 of 2010] [2010] 5 taxmann.com 9 (BOM.)

n  Raising a legal claim, even if it is ultimately found to be legally unacceptable, cannot amount to furnishing of inaccurate particulars of income - The connotations of expression ‘particulars of income’ do not extend to the issues of interpretation of law and as such making a claim, which is found to be unacceptable in law, cannot be treated as furnishing of inaccurate particulars of income - Equest India Pvt. Ltd. v. ITO [ITA No. 1548/Mum/06] [2010] 6 taxmann.com 65 (MUM. - ITAT)

n  A business centre cannot be said to be a ‘house’ for purposes of clause (3) of section 2(ea) of Wealth-tax Act - After the amendment in the definition of ‘assets’ effected by the Finance (No. 2) Act, 1998 w.e.f. 1-4-1999, any property in the nature of commercial establishments or complexes will not be included as assets - Cravatex Ltd. v. Addl. CIT [ITA No. 7381/Mum/02 WTA No. 42/Mum/03 WTA No. 38/Mum/03] [2010] 6 taxmann.com 61 (MUM. - ITAT)

n  When an assessee-company exploits its property to earn income in form of rent, rental income received by assessee is chargeable to tax under head “income from house property” and not under head “profits and gains of business” - Merely because the property was given on leave or licence for a specific purpose of running restaurant or it was given along with furniture, fixtures as well as other equipments required for running of restaurant, the same, could not change the character of rental income which is “income from house property” and the same would not become business income even if the hire was inclusive of other assets which were incidental to running a restaurant - Batra Gulati Hotels v. ITO [ITA NO. 655/Mum/2009] [2010] 6 taxmann.com 59 (MUM. - ITAT)

n  Merely because assessee has made some legal claim which has not been accepted by A.O. that will not amount to furnishing of inaccurate particulars of income - There is no justification to support the A.O. for levy of the penalty on the claim of the assessee u/s 80HHC, which was not accepted - Strides Arcolab Ltd. v. ACIT [ITA NO. 6233/Mum/2009] [2010] 6 taxmann.com 58 (MUM. - ITAT)

n  Housing project for purpose of section 80-IB(10) does not include construction of commercial establishment carried out by another entity in that area - Claim of the assessee for deduction under section80-IB (10) for the housing project cannot be denied because the commercial project was carried out by its sister concern in the same area - ITO v. Khyati Financial Services [ITA No.3740/Mum/2008] [2010] 6 taxmann.com 56 (MUM. - ITAT)

n  Indo-Singapore DTAA : A mere existence of a PE in India cannot lead to a conclusion that royalties arise in India - In addition to the existence of PE, for royalties to arise in India under Article 12(7) of the Treaty, it is essential that liability to pay such royalties has been “incurred in connection with” and “ borne by” the PE of the payer in India - SET Satellite Singapore Pte. Ltd. v. Addl. DIT (Intl. Taxation) [ITA No. 7349/Mum/2004] [2010] 6 taxmann.com 53 (MUM. - ITAT)

n  Provisions of TDS Chapter (Chapter XVII) are relevant only for ascertaining deductibility of tax at source and not for actual deduction and payment for attracting provisions of section 40(a)(ia) - If the provisions of section 194C with respect to the time of deduction and payments are applied for the disallowance u/s 40(a)(ia) then there will be no purpose or object for providing the certain conditions of actual deduction of tax and payment of tax u/s 40(a)(ia) - Bapushaeb Nanasaheb Dhumal v. ACIT [ITA NO. 6628/Mum/2009] [2010] 6 taxmann.com 51 (MUM. - ITAT)

n  Bad debt: Amount receivable by a share broker from his clients against purchase of shares when not recovered can be allowed as bad debt - The amount receivable by the assessee, who is a share broker, from his clients against the transactions of purchase of shares on their behalf constitutes debt which is trading debt; the brokerage/commission income arising from such transactions very much forms part of the said debt and when the amount of such brokerage/commission has been taken into account in computation of income of the assessee of the relevant previous year or any earlier year, it satisfies the condition stipulated in section 36(2)(i) and the assessee is entitled to deduction under section 36(1)(vii) by way of bad debts after having written off the said debts from his books of account as irrecoverable - DCIT v. Shreyas S. Morakhia [ITA No. 3374/Mum/2004] [2010] 6 taxmann.com 49 (MUM. - ITAT)(SB)

n  Indo-German DTAA: As per new Treaty, income from supervision activity like construction & installation of a project is to be treated as income of PE provided that said activity continues for a period exceeding six months as per article 5(2)(i) of DTAA - Where the supervisory activity of each project of the assessee-company was for less than 75 days, the income from the supervision and installation of the plant cannot be treated as income of the PE; since there was no PE of the assessee, there is no question for treating the income towards supervision, erection and commissioning of a plant as an income of the assessee taxable in India - ADIT(IT) v. Krupp UHDE GMBH [ITA No.4496 & 4652/Mum/2005] [2010] 6 taxmann.com 48 (MUM. - ITAT)

n  Year from which option has been exercised u/s 80-IA(1) is to be treated as initial assessment year for purpose of section 80-IA(5) - Section 80-IA(5) would come into operation only from the year in which the assessee started claiming deduction under section 80-IA i.e. from the initial year and the depreciation relating to the years prior to the initial assessment year cannot be brought back notionally to be adjusted against the income of the initial or subsequent assessment years - Rangamma Steels & Malleables v. ACIT [ITA No. 1171/Mds/09] [2010] 6 taxmann.com 47 (CHENNAI - ITAT)

n  Penalty is leviable within meaning of Explanation 1(B) to section 271(1)(c) in respect of alleged gifts received by minor sons of assessee which are finally found transferred to assessee’s books - Where assessee chose to sit quietly and did not furnish any satisfactory explanation about cash deposited in minors account which is finally transferred to assessee’s account, then it could not be said that assessee has discharged primary onus lying on him under Explanation 1(A) of section 271(1)(c) - Saurabh Bansal v. ITO [ITA No.351/Ahd/2008] [2010] 6 taxmann.com 46 (AHD. - ITAT)

n  R&D expenditure has to be apportioned between agricultural and non-agricultural activities and portion attributable to non-agricultural activities is to be allowed as deduction in computing taxable income - The assessee is entitled to deduction on account of R&D expenditure but the same has to be restricted in proportion to the turnover between the agricultural division and the commercial division, and the amount relatable to commercial division can alone be allowed as business expenditure - DCIT v. Vibha Agrotech Ltd. [ITA No.469/H/2008] [2010] 6 taxmann.com 45 (HYD. - ITAT)

n  Tribunal has the jurisdiction to entertain a fresh plea on subject matter of appeal - Tribunal is not precluded from considering a point which arises out of the appeal merely because such point had not been raised or urged by either party at the earlier stage of the proceedings - ACIT v. Amarnath Reddy [ITA Nos. 945 to 947/Mds/2007] [2010] 6 taxmann.com 44 (CHENNAI - ITAT)

n  As long as an AO has taken a possible view of a matter after applying his mind to facts of case and legal provision, view so taken cannot be subjected to revision proceedings under section 263 merely because the Commissioner has a different view of that matter - The true test, therefore, must lie in whether or not the view taken by the Assessing Officer could be said to be a possible view of the matter, upon due application of mind to facts of the case as also the applicable legal provisions - Jewel Enterprises v. ITO [ITA Nos. 6477 & 6478/Mum/07] [2010] 6 taxmann.com 42 (MUM. - ITAT)

n  Computation of ALP : It is mandatory for assessee, to follow one of prescribed methods and demonstrate that international transactions, entered into by it, with an associated enterprise, are at Arms Length Price - By simply saying that none of the methods prescribed u/s 92C can be applied and citing excuses for the same, does not absolve the assessee of its statutory duty in determining ALP as per the law - DCIT v. Starlite [ITA No. 2279/Mum/06] [2010] 6 taxmann.com 41 (MUM. - ITAT)

n  Indo-UK Tax Treaty : Entire profits relating to services rendered by the assessee, whether rendered in India or outside India, in respect of Indian projects is taxable in India - The assessee firm is eligible to the benefits of India UK tax treaty, as long as entire profits of the partnership firm are taxed in UK – whether in the hands of the partnership firm though the taxable income is determined in relation to the personal characteristics of the partners, or in the hands of the partners directly. It is not right to say that Article 5(2) of India UK tax treaty only provides examples of situations covered by Article 5(1). It is also not right to say that Article 5(2) of India UK tax treaty should only be read as a bunch of illustration of permanent establishments under the basis rule set out in Article 5(1). It cannot be said that professional services cannot be covered by the provisions of Article 5(2)(k) of Indo-UK Tax Treaty. In addition to taxability of income in respect of services rendered by the PE in India, any income in respect of the services rendered to an Indian project, which is similar to the services rendered by the permanent establishment, is also to be taxed in India in the hands of the assessee – irrespective of the fact whether such services are rendered through the permanent establishment, or directly by the general enterprise; there cannot be any professional services rendered in India which are not, at least indirectly, attributable to carrying out professional work in India; this indirect attribution, in view of the specific provisions of India-UK tax treaty, is enough to bring the income from such services within ambit of taxability in India - Linklaters LLP v. ITO (Int’l Taxation) [ITA No. 4896/Mum/03] [2010] 6 taxmann.com 38 (MUM. - ITAT)

n  Transfer pricing study of assessee and ALP of international transactions determined on the basis of such study simply cannot be rejected without any cogent reasons - It has been held by various judicial pronouncements that unless proper method is followed, comparables are chosen and selected after doing a proper FAR study as well as adjustments are made to the extent possible it would be unfair to summarily reject the transfer pricing analysis made by the assessee - DCIT v. Indo American Jewellery Ltd. [ITA No. 6194/Mum/2008] [2010] 6 taxmann.com 35 (MUM. - ITAT)

n  Term “Brand” falls within ambit of section 32(1)(ii) and assessee is eligible for depreciation on same - Depreciation is to be allowed to the assessee on the ‘brand’ received by it under the scheme of amalgamation - KEC International Ltd. v. ACIT [ITA No. 4420/Mum/2009] [2010] 6 taxmann.com 34 (MUM. - ITAT)

n  Indo-US DTAA: Reimbursable expenditure cannot form part of fee payable for technical services - The payment received by the non-resident foreign company as reimbursable expenditure does not fall within the four corners of clause 4 to Article 12 of the DTAA - ACIT v. Louis Berger International Inc. [ITA No. 1073 & 1074/Hyd/2004] [2010] 6 taxmann.com 33 (HYD. - ITAT)

n  A mere right of occupancy under leave and licence agreement, without any interest in the premises itself, cannot be considered to be sufficient to attract Explanation 1 of section 32(1) - The words “other right of occupancy” appearing in the Explanation 1 of section 32(1) should be construed ejusdem generis with the word “lease” and if that is so, the right of occupancy should be of such a nature that the assessee should possess an interest in the property and the occupancy must be referable to that interest - United Motors (India) Ltd. v. ITO [ITA No. 6291/Mum/2008] [2010] 6 taxmann.com 32 (MUM. - ITAT)

n  It is not necessary that for claiming deduction on account of foreign travel expenses, there has to be some business activity of assessee in foreign countries - Merely because there was no business activity of assessee-company in foreign countries, it cannot be said that claim of assessee for foreign travel expenses has to be disallowed - Scindia Investments Pvt. Ltd. v. ACIT [ITA No. 682/Mum/2009] [2010] 6 taxmann.com 31 (MUM. - ITAT)

n  Reimbursement of expenses cannot be subject matter of disallowance under section 40(a)(i) - Provisions of section 40(a)(i) will not be applicable in the case of reimbursement of actual expenses - DCIT v. Lazard India Pvt. Ltd. [ITA Nos. 7277/Mum/2008, 632/Mum/2009 & 4505/Mum/2009] [2010] 6 taxmann.com 30 (MUM. - ITAT)

n  Whenever assessee incurs expenditure for repair and maintenance of a building taken on lease for carrying on its business activity, it has to be allowed u/s 30(a)(i) provided same does not fall in capital field - Even after introduction of section 32(1A) or Explanation 1 to section 32, the assessee is entitled to claim the expenditure on repair/maintenance of premises taken on lease u/s 30(a)(i) - DCIT v. Chaya Lakshmi Creations (P.) Ltd. [ITA Nos. 250 to 252/Hyd/2010] [2010] 6 taxmann.com 29 (HYD. - ITAT)

n  When gift is not genuine, addition under section 68 is warranted - Mere identification of the donor and showing the movement of the gift amount through banking channels is not sufficient to prove the genuineness of the gift - Asha M. Agarwal v. ITO [ITA No. 400/Mum/2008] [2010] 6 taxmann.com 28 (MUM. - ITAT)

n  Long term capital gain cannot be excluded from net profit for purpose of computing book profit under section 115JB - Merely because the long term capital gain is exempt under section 47(iv) under the normal provision of the Act, it is not correct to say that it is also to be reduced from the net profit for the purpose of computing book profit under section 115JB of the Act when the Explanation to section 115JB does not provide for any deduction in terms of section 47(iv) - Rain Commodities Ltd. v. DCIT [ITA No. 673/Hyd/2009] [2010] 6 taxmann.com 23 (HYD.)

n  Appraisal report of survey team is of assistance in making final assessment but that itself cannot become a final assessment - Such appraisal report and facts collected at the time of survey are always subject to explanation and reconciliation by the assessee which can be explained either at the time of survey or after the survey before the AO at the time of assessment; survey is not intended to be a substitute for assessment - Chawla Brothers Pvt. Ltd. v. ACIT [ITA No. 6380 /M/2009] [2010] 6 taxmann.com 22 (MUM.)

n  In assessment proceedings pursuant to order under section 263 assessee cannot seek to show that there was some other benefit in favour of revenue which was prejudicial to interest of assessee - Only in the cases where the assessment order is erroneous and prejudicial to the interests of the revenue and not prejudicial to the interest of the assessee can be reopened under section 263 and the assessee is not eligible to claim any new benefit in the assessment proceedings pursuant to section 263 - ACIT v. ITW India Pvt. Ltd. [ITA No. 1631/Hyd/08] [2010] 6 taxmann.com 21 (HYD.)

n  Merely by giving evidence of identity and creditworthiness of donor, genuineness cannot be taken to be established automatically - The assessee is required to discharge the onus of submitting complete details of gifts before the AO; merely because money is claimed to have been transferred through banking channel, it is not enough to establish the genuineness of gift; the human probability has to be considered as to why donor is prompted to give gift to the assessee - Abhay Devilal Rathod v. DCIT [ITA Nos. 1391 & 1392/Ahd/2008] [2010] 6 taxmann.com 20 (AHD.)

n  Perquisites: Tax borne by employer on perquisites of employees would constitute non-monetary benefit and as such same is exempted u/s 10(10CC) - The assessee’s claim of exemption under section 10(10CC), in respect of tax paid by the employer in respect of salary paid to its employees, is to be allowed - Transocean Discoverer 534 v. ACIT [ITA NOS. 1715/Del/2006 to 1720/Del/2006] [2010] 6 taxmann.com 18 (DELHI)

n  Indo-Mauritius DTAA: Cessation of permanent establishment (PE) is relevant only for taxability of business profits and, even after cessation of PE in India, a non resident assessee can still be liable to its taxabilities under other heads, including under capital gains, in India - When a PE ceases to exist, either there can be a transfer of asset back to the non resident or there can be an alienation of such an asset to an outsider; there can not be any gains on transfer of assets back to the non resident, as no consideration is attached to such a transfer; however, when PE assets are alienated to an outsider; the gains or losses on such alienations are to be treated as gains or losses to the PE with consequent tax implications. even if sales has taken place as a part of the winding up process of the Indian PE, the sale will still be taxable in India - Cartier Shipping Co. Ltd. v. DDIT (IT) [ITA No. 3036/Mum/07] [2010] 6 taxmann.com 16 (MUM. - ITAT)

n  Unabsorbed Depreciation: Brought forward unabsorbed depreciation of earlier years cannot be included within the scope of section 32(2) - When the Supreme Court, being the highest Court of the land, itself held that the object of section 32(2) is to carry forward the unabsorbed depreciation for the current year in the following year, there cannot be any question of arguing to the effect that section 32(2) in the third period (i.e. A.Y. 2002-03 onwards), also refers to unabsorbed brought forward depreciation of the second period (i.e. A.Y. 1997-98 to 2001-02) - DCIT v. Times Guaranty Ltd. [ITA Nos. 4917 & 4918/Mum/2008] [2010] 6 taxmann.com 8 (MUM. - ITAT)

n  India–Netherlands DTAA: Mere provision of a dredger on dry lease for carrying out dredging activity in India does not result in assessee having a PE - As per Article 5 of the India Netherlands Tax Treaty, a PE means a fixed place of business through which business of an enterprise is wholly or partly carried out - DDIT v. Nederlandsche Overzee Baggermaatschappiji B.V. [ITA Nos. 8352/Mum/2004, 8888/Mum/2004, 1542/Mum/2005 and 2118/Mum/2006 C.O. No. 256/Mum/2006] [2010] 5 taxmann.com 120 (MUM. - ITAT)

n  Once commissioner/brokerage is credited in P&L account of assessee broker and entire debit balance including principal and brokerage is found irrecoverable and is written off in books by assessee, same can be allowed as bad debt allowable u/s 36(1)(vii) - Where total debt debited in the account of the client is inclusive of brokerage then brokerage being part of the total debt having been taken into account in computing the income, would satisfy the provisions of sec. 36(2) and therefore, when assessee writes off such debt then he would be entitled for deduction u/s. 36(1)(vii) - Madhur Shares & Stock Pvt. Ltd. v. ACIT [ITA Nos. 615/Ahd/2005 and 704/Ahd/2005] [2010] 5 taxmann.com 119 (AHD. - ITAT)

n  Depreciation cannot be allowed on membership card of Stock Exchange - As stock exchange card does not fall in any of the categories fixed under section 32(1)(ii) depreciation thereon would not be admissible - Madhur Shares & Stock Pvt. Ltd. v. ACIT [ITA Nos. 615/Ahd/2005 and 704/Ahd/2005] [2010] 5 taxmann.com 118 (AHD. - ITAT)

n  Penalty proceedings: Mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of income of assessee, but if claim besides being incorrect in law is malafide, Explanation 1 to section 271(1)(c) comes into play and work to disadvantage of assessee - If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bonafide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c) - Gujarat State Financial Services Ltd. v. ACIT [ITA Nos. 2078/Ahd/2006 & 2526/Ahd/2006] [2010] 5 taxmann.com 117 (AHD. - ITAT)

n  Without rejecting books of account regularly maintained, addition cannot be made only on basis of DVO’s report - If books of account are found to be correct and complete in all respect and no defect is pointed out therein and cost of construction of building is recorded therein, then the addition on account of difference in cost of construction cannot be made even if a report is obtained within the meaning of section 142A from the DVO - Rajhans Builders v. DCIT [ITA Nos. 3172 & 3288/Ahd/2009] [2010] 5 taxmann.com 116 (AHD. - ITAT)

n  Cessation of Liabilities: Liabilities reflected in balance sheet cannot be treated as cessation of liabilities - Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have ceased to exist - Nitin S. Garg v. ACIT [ITA Nos. 169,170,171 and 172/Ahd/2009] [2010] 5 taxmann.com 115 (AHD. - ITAT)

n  Penal provision of section 271(1)(c) would operate when there is a failure to disclose fully or truly all the particulars of income - When any fact material to the determination of an item as income or material to the correct computation is not filed or that which is filed is not accurate, then the assessee would be liable to penalty under section 271(1)(c) - Shyourajsingh B Chauhan v. ACIT [ITA No. 523/Ahd/2008] [2010] 5 taxmann.com 114 (AHD. - ITAT)

n  Royalty: Necessary ingredient for treating a payment as royalty is exclusiveness of right of a person over design or invention invented by him - Once there is no patent or any intellectual right vested in a person over a thing, no claim of royalty can be allowed to him - ITO v. Patwa Kinariwala Electronics Ltd. [ITA Nos. 2781/Ahd/2008, 934/Ahd/2006, 2448/Ahd/2005 and 2826/Ahd/2006] [2010] 5 taxmann.com 113 (AHD. - ITAT)

n  Only when assessee is able to offer reasonable explanation, based on some evidence, Assessing Officer cannot invoke Part B of Explanation to section 271(1)(c) - Where the assessee is not able to substantiate his claim of expenditure with any evidence, penalty is leviable under section 271(1)(c) - V. Kumara Swamy Naidu v. ITO [ITA No. 108/Hyd/2009] [2010] 5 taxmann.com 107 (HYD. - ITAT)

n  There is nothing in language of section 13(1)(b) to suggest that an institution of mixed objects is precluded from getting registration under section 12AA - Only a trust which is for religious purpose is excluded and debarred from registration under section 12AA; a trust whose object is charitable as well as religious is not debarred from registration - Rehoboth Mission v. DIT (Exemp) [ITA No. 352/Hyd/2010] [2010] 5 taxmann.com 106 (HYD. - ITAT)

n  Every loss of revenue as a consequence of an order of Assessing Officer, cannot be treated as prejudicial to the interests of the revenue - When an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law - Inventaa Chemical Ltd. v. ACIT [ITA No. 328/Hyd/2006] [2010] 5 taxmann.com 105 (HYD. - ITAT)

n  To avail deduction under section 10B an undertaking has to bring into India sale proceedings in convertible foreign exchange, which shall be physically brought to India - Amount received in the form of investment in equity shares in foreign exchange cannot be considered received in the form of convertible foreign exchange Giving the permission to the assessee to receive foreign exchange in the form of equity investment does not lead to the conclusion that the assessee received export proceeds in convertible foreign exchange - ACIT v. Bodhtree Consulting Ltd. [ITA No. 1591/Hyd/2008] [2010] 5 taxmann.com 104 (HYD. - ITAT)

n  Powers under section 254(2) cannot be exercised for reviewing a considered and conscious decision on grounds which are inherently subjective and capable of debate and discussion on adoption of one view or the other - The powers under section 254(2) can only be exercised when it is found that there is a mistake in the order of the Tribunal and the mistake is such that no two views are possible - Equest India Private Limited v. DCIT [MA No. 734/Mum.08] [2010] 5 taxmann.com 102 (MUM. - ITAT)

n  Making a wrong claim is not at par with concealment or giving of inaccurate information, which may call for levy of penalty under section 271(1)(c) - In order to apply the provisions of section 271(1)(c), there has to be concealment of particulars of the income of the assessee; the assessee must have furnished inaccurate particulars of his income - ITO v. Parikh Investment & Development P. Ltd. [ITA No. 4760/Mum/2009] [2010] 5 taxmann.com 100 (MUM. - ITAT)

n  India-Singapore DTAA: Technical services provided offshore do not require any deduction of tax at source - Rendering of services and utilization should be both in India and Explanation to section 9(2) does not dilute such requirements - Sun Microsystems India Pvt. Ltd. v. ITO [ITA No. 443 & 444/Bang/06] [2010] 5 taxmann.com 96 (BANG. - ITAT)

n  Invoking provisions of section 80-IA(10) does not arise in case there are no transactions by assessee with any other person - The Assessing Officer can invoke the provision of section 80-IA(10) only when there is a close connection between the assessee carrying on eligible business and any other person or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits - Reliance Energy Ltd. v. DCIT [ITA Nos. 4629,4630, 4702 & 4703 /Mum/2009] [2010] 5 taxmann.com 85 (MUM. - ITAT)

n  Once capital asset is converted into stock-in-trade provision of section 2(47) becomes irrelevant and does not apply - The sale/transfer of stock-in-trade cannot be equated with the transfer of capital asset under section 2(47) The meaning of the words "otherwise transferred" in section 45(2), should be according to its ordinary popular and natural sense, and it should not include a transaction referred to under sub-clause (v) of sub-section (47) of section 2 in relation to a 'capital asset’ - R.Gopinath (HUF) v. ACIT [ITA NOS. 29 & 30/Mds/2008] [2010] 5 taxmann.com 80 (CHENNAI - ITAT)

n  It is impossible to presume that expression ‘licence’ provided in section 32(l)(ii) is an endless expression and even a tenancy right can be brought under it - The agreement of the assessee to acquire a rented property for running its office cannot be considered as an intangible asset similar to know how, patents, copy rights, trade marks, etc under section 32(1)(ii) - ACIT v. Malayala Manorama Co. Ltd. [ITA NO. 323/Coch/2007] [2010] 5 taxmann.com 79 (COCH. - ITAT)

n  Human probability/tendency of non-cooperation by parties after business transaction is over, is required to be considered while deciding bona fide aspect of assessee in penalty matter under section 271(1)(c) - When transactions with a particular party are over that party may not be ready to co-operate in giving information which are exactly asked by the Assessing Officer from the assessee, under these circumstances, the revenue authorities have ample powers under the Act to issue summons to the party and if they are not exercising such powers, the assessee cannot be blamed for concealing particulars and or furnishing inaccurate particulars of income - Chempure v. ITO [ITA Nos. 451 to 453/M/2006] [2010] 5 taxmann.com 67 (MUM. - ITAT)

n  Penalty proceedings : Whenever an addition/disallowance is made, initial burden is upon assessee to prove that it is not his concealed income or he has not furnished inaccurate particulars of such income - When an explanation is offered, the onus stands shifted on to the Revenue whereby it has to be shown that the explanation offered by the assessee is false or assessee has not been able to substantiate his explanation and failed to prove that such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have not been disclosed - ITO v. Heaven Distillery Pvt. Ltd. [ITA No. 742/Mum/2008] [2010] 5 taxmann.com 70 (MUM. - ITAT)

n  Indo-UAE Tax Treaty: Aggregation of time spent on different projects can only arise for ‘connected’ projects - The word ‘connected’ is not defined anywhere in the India-UAE Tax Treaty but, contextual meaning of that term would include connection in terms of the nature of work carried out; the connection would not arise only because these are carried out at the nearby geographical location or for the same person, but there has to be something in the nature of work that must be connected - Valentine Maritime (Gulf) LLC v. ADIT (Int’l Taxation) [ITA NO. 2879/MUM/05] [2010] 5 taxmann.com 68 (MUM. - ITAT)

n  Proceedings u/s 163 are only intended to ensure that a person can be regarded as a representative assessee only on existence of certain conditions - The fact that the Agent has deducted tax under section 195 will not be a bar to proceed and pass an order under section 163 against the agent - Hindalco Industries Ltd. v. DCIT(IT) [ITA Nos. 3667 and 4684/Mum/2005, 6923/Mum/2006] [2010] 5 taxmann.com 65 (MUM. - ITAT)

n  Once estimation of income is made, further disallowances under section 40(a)(ia) are unwarranted - Where income of the assessee having been determined by resorting to estimation, there is no scope for any further disallowance either in terms of section 40(a)(ia)/40A(3) or otherwise - Teja Constructions v. ACIT [ITA NO. 308/HYD/2009] [2010] 5 taxmann.com 61 (HYD. - ITAT)

n  Before invoking provisions of section 153A it would be necessary to comply with provisions contained under section 132(1) - The purpose of section 132 for issue of warrant of authorization is to unearth, detect and to take possession of the unaccounted/ undisclosed income or property The mere issue of warrant of authorization without there being search of the premises mentioned in the warrant of authorization would be meaningless and would not serve the purpose of section 132; therefore, actual search shall have to be carried out necessarily before proceeding under section 153A - Dr. Manshukh Kanjibhai Shah v. ACIT [ITA No. 2878 to 2880/Ahd/2007] [2010] 5 taxmann.com 59 (AHD. - ITAT)

n  Assessee is not entitled to depreciation on a plant which is not in operation since its capitalization - Even after introduction of concept of block assets, identity of the individual assets are not lost and the Assessing Officer can restrict the depreciation having regard to the usage of a plant - Sponge Iron India Ltd. v. DCIT [ITAT No. 410 & 411/Hyd/2007] [2010] 5 taxmann.com 58 (HYD. - ITAT)

n  Indo–China Tax Treaty : It is no longer necessary that, in order to attract taxability in India, services must also be rendered in India; utilization of these services in India is enough to attract its taxability in India - The income of the Chinese company, by way of receipt of fees for technical services from an Indian company, is to be deemed to accrue or arise in India under section 9(1)(vii); it is accordingly liable to be taxed in India under the domestic tax law as also under the provisions of the applicable India China tax treaty - Ashapura Minichem Ltd. v. ADIT (Int’l Taxation) [ITA No. 2508/Mum/08] [2010] 5 taxmann.com 57 (MUM. - ITAT)

n  Accounting of membership fees of time-share property: It is not justifiable to tax entire income from membership fees of time-share property in a single year - The entire amount of time-share membership fee receivable by the assessee upfront at the time of enrolment of a member is not the income chargeable to tax in the initial year on account of contractual obligation that is fastened to the receipt to provide services in future over the term of contract - ACIT v. Mahindra Holidays & Resorts (India) Ltd. [Income-tax Appeal Nos. 2412 to 2416/Mds/2005] [2010] 5 taxmann.com 55 (CHENNAI - ITAT)(SB)

n  Depreciation on assets acquired out of foreign currency loans : Depreciation on account of enhanced cost due to fluctuation in foreign exchange rate is an allowable claim - DDIT (Int’l Taxation) v. Staubil A. G. India Branch Office [ITA No. 3703 /Mum/2005] [2010] 5 taxmann.com 49 (MUM. - ITAT)

n  Once book results are not rejected, AO has no alternative except to accept the book results - No assessment under the first proviso to section 145(1) or under section 145(2) can be sustained if the Assessing Officer has not considered and recorded a finding against the assessee as to whether he has been regularly employing a method of accounting or whether his income, profits or gains can properly be deduced from his method of accounting if he has been regularly employing a method of accounting or whether the accounts are correct and complete - Jai Pulse Mills v. ITO [ITA Nos. 1317-1319/Ahd/2004] [2010] 5 taxmann.com 42 (AHD. - ITAT)

n  Merely by carrying out processing which result into same commodity, there will not be any manufacturing or production for purpose of section 10B - The essence of determining whether new article or thing is manufactured or produced lies in the identity and use of the commodity before undergoing the processing and after the processing; if the identity and character remain the same then there is no manufacturing or production but where identity and character get transformed then it would be a manufacturing or production of new article or thing - Tonira Pharma Ltd. v. ACIT [ITA No. 235/Ahd/2007] [2010] 5 taxmann.com 41 (AHD. - ITAT)

n  When assessee exploits a property to derive rental income it has to be held that income realized by him by way of rental income from a building with other asset attached to the building, is to be assessed as ‘income from house property’ only - Where the assessee as the owner of the building was only exploiting the property as owner by letting out the same and realizing income by way of rent, such rental income was liable to be assessed under the head ‘income from house property’ - DDIT (I. Tax) v. G. Raghuram [ITA No.6/Hyd/2010] [2010] 5 taxmann.com 39 (HYD. - ITAT)

n  Agricultural land in Rajendra Nagar Municipality, Hyderabad cannot be treated as capital asset within meaning of section 2(14)(iii)(b) - Since Rajendra Nagar Municipality is not notified by the Central Government, the agricultural land falling therein cannot be treated as capital asset by taking the distance from the limits of Hyderabad Municipality - Srinivas Pandit (HUF) v. ITO [ITA No. 56/HYD/2007] [2010] 5 taxmann.com 38 (HYD. - ITAT)

n  Assessee in garb of entering hedging transaction cannot seek to enter into speculative transaction in any stocks or shares other than one held by him as inventory - If all speculative transactions will be claimed as hedging transactions, very purpose behind the provisions of section 73 not permitting set off of speculative loss against business income will become redundant - ACIT v. Dinesh K. Mehta (HUF) [ITA No. 976/Mum/2009] [2010] 5 taxmann.com 37 (MUM. - ITAT)

n  From assessment year 2001-02, provision for bad debts is to be added in book profit while computing book profit u/s 115JB - The ratio laid down by the Supreme Court in the case of HCL Comnet System & Services Ltd. [305 ITR 409] is no more applicable in view of the amended provisions of section 115JB brought in the statute with retrospective effect - DCM Shriram Consolidated Ltd. v. ACIT [ITA No. 4299/Del/2009] [2010] 5 taxmann.com 32 (DELHI)

n  If assessee had claimed certain depreciation to which it was not entitled, recognition under section 80G cannot be denied - Shri Lalita Ashram Trust v. CIT [ITA No. 4440 (Del) of 2009] [2010] 5 taxmann.com 31 (DELHI - ITAT)

n  Assessee-employer is not hit by retrospective insertion of Explanation 1 to section 17(2) in absence of any such extension of retrospective effect either in section 192 or section 201 - The assessee cannot be held to be in default for non-deduction of tax at source on the perquisite value of the residential accommodation provided at a lesser figure of rent than actually paid by the assessee to the lessor of the premises, in view of the amendment in law with retrospective effect from 1-4-2002 - State Bank of India v. DCIT [ITA Nos. 1722 to 1725/Hyd/08] [2010] 5 taxmann.com 30 (HYD. - ITAT)

n  Dharmendra Textile Processors’ case [[2008] 174 Taxman 571 (SC)] cannot be taken to be an authority for proposition that wherever addition is made to returned income, penalty under section 271(1)(c) follows automatically - The correct interpretation of the judgment is that the explanation of the assessee has to be tested in terms of the statutory provision of section 271(1)(c) - Microsoft Corpn. (India) Pvt. Ltd. v. DCIT [ITA NO. 106 (Del) 2009] [2010] 5 taxmann.com 27 (DELHI - ITAT)

n  If the funds of the business are parked for safe keeping or with a view to earn interest income de-hors the business activity, the interest resulting therefrom cannot assume the character of business income but it would fall under the head “income from other sources” - In order to cover any interest income earned on deposits under ambit of “business income”, necessary pre-requisite condition is not deployment of business funds but nature of deposits and purpose for which deposits is made, which results in such interest income - Lovlesh Jain v. ACIT [ITA No. 4725/Del/2009] [2010] 5 taxmann.com 26 (NEW DELHI - ITAT)

n  It is not any and every material, howsoever, vague and indefinite or distant, remote or far-fetched, which would warrant formation of belief relating to escapement of income of assessment - If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain a belief, the conclusion would be inescapable that the AO could not have reason to believe; in such a case, the notice issued by him would be liable to be struck down as invalid - ITO v. Lakshya Exim Pvt. Ltd. [ITA No. 2328/Del/2008] [2010] 5 taxmann.com 25 (NEW DELHI - ITAT)

n  Indo-Mauritius Tax Treaty – An assessee cannot be expected to demonstrate that contracts are not artificially split, that affairs are not so contrived so as to circumvent duration test or that there is no maneuvering so as to abuse treaty provisions - It is for the revenue authorities to establish beyond a reasonable degree of doubt that there is an abuse of treaty provisions by so artificially contriving the affairs as to wrongfully entitle the assessee to treaty benefits • Unless that exercise is conducted, it cannot be open to disregard the claim of the assessee by simply making vague and generalized claims about artificial splitting of contracts and about the sham arrangements to defeat the treaty provisions - J. Roy McDermott Eastern Hemisphere Ltd. v. JCIT [ITA No. 8084/Mum/04] [2010] 5 taxmann.com 22 (MUM. - ITAT)

n  Indo-UAE Tax Treaty – Expression ‘liable to tax’ in contracting State as used in Article 4(1) of Indo-UAE-DTAA does not necessarily imply that person should actually be liable to tax in that contracting State - To claim benefit of Article 13(3) by a tax resident of UAE, it is enough if other contracting State has right to tax such person, whether or not such a right is exercised - ITO (IT) v. Rameshkumar Goenka [ITA No. 3562/Mum/2009] [2010] 5 taxmann.com 17 (MUM. - ITAT)

n  Merely because for purpose of stamp duty, property is valued at higher cost, it cannot be said that assesses has made more payment than what is stated in sale deed - Where there is no evidence on record to show that the consideration over and above, what has been recorded in the sale deed/agreement has been made by the assessee and in the absence of the same, no addition can be made by estimating and substituting the market value - Kaushik Sureshbhai Reshamwlal v. ITO [ITA NO. 3374-3380/AHD/2009] [2010] 5 taxmann.com 15 (AHD. - ITAT)

n  Assessing Officer cannot take any action under section 147 merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on same set of facts - Where it was clear from the original assessment orders as well as order made by the appellate authority that the Assessing Officer was well aware about the primary facts, viz., the claim made by the assessee, the circumstances under which the claim was made, and the provisions of law which could be applied while granting the benefits, and the Assessing Officer consciously considered the facts and arrived at a decision, the assessment cannot be reopened merely because subsequently the Assessing Officer changes his opinion or some other officer takes a different view - Audco India Ltd. v. ITO [ITA No. 6305/M/2007] [2010] 5 taxmann.com 14 (MUM. - ITAT)

n  Indo-Swiss Tax Treaty – Consideration for information concerning industrial, commercial and scientific experience is to be regarded as royalty, only if it is received from imparting know-how - Providing strategic consulting services, which may entail the use of technical skills and commercial experience by a strategic consultant, does not amount to know-how being imparted to the buyer of the strategic consulting services - DDIT (IT) v. Preroy A. G. [ITA Nos. 4252, 4256, 5820, 5821 & 6575/Mum/2004] [2010] 5 taxmann.com 8 (MUM. - ITAT)

n  Payment or advances by a company to non-shareholders does not require TDS u/s 194 - The law does not expect the payer company to deduct TDS when payment is made to a non-shareholder - Marc Manufacturers (P.) Ltd. v. DCIT [ITA No. 1162,1163 & 1166/Hyd/2008] [2010] 5 taxmann.com 7 (HYD. - ITAT)

n  Whenever income returned by assessee is enhanced by Assessing Officer penal provision of section 271(1)(c) is not automatically attracted - For levying of penalty under section 271(1)(c), it is to be found that the assessee has concealed the particulars of income or has furnished inaccurate particulars of such income; it is, thus, necessary that before penalty is levied under section 271(1)(c) a clear cut findings must be recorded in the penalty order that the assessee had been guilty of concealment or furnishing inaccurate particulars - HOE Leather Garments Ltd. v. DCIT [ITA No. 38/Hyd/07] [2010] 5 taxmann.com 6 (HYD. - ITAT)

n  When sale of industrial unit must be held to have been made on slump sale basis - Where the case of the assessee has all along been that the method of arriving at the sale consideration of the industrial unit has been ‘capitalisation of profits’, and none of the authorities below has doubted correctness of that claim, it cannot at all be said that the sale of unit is an itemized sale of the assets of the unit; it is clearly a case of slump sale of the business - J. B. Electronics v. JCIT [ITA No. 874/PN/2001] [2010] 5 taxmann.com 5 (PUNE - ITAT)(TM)

n  For purpose of computing deduction u/s 10B, speculation business cannot be considered as business of undertaking - Where business of the undertaking was to manufacture and export readymade garments, the CIT (A) was not justified in holding that profit from forward contract is to be included in the profit of the business of the undertaking for the purposes of computing deduction under section 10B - ACIT v. K. Mohan & Co. (Exports) P. Ltd. [ITA No. 113/Bang/09] [2010] 5 taxmann.com 3 (BANG. - ITAT)

n  It is obligatory on part of assessee to deduct income-tax at source at the time of credit of interest income to account of payee or at time of payment thereof - Application of payees in Form No. 13 to jurisdictional AOs for issuance of authorization etc., cannot in any stretch of imagination, be construed as an authorization to assessee not to deduct TDS for interest due to payees - Rajendra Kumar v. DCIT [ITA No. 1180/Bang./2009] [2010] 5 taxmann.com 2 (BANG. - ITAT)

n  Provisions of section 194C are not attracted to finance agreements entered into between a financing company and producers/directors of films/TV serials - No relationship of a ‘Principal’ and a ‘contractor’ is created for purpose of section 194C when a contract of finance or outright finance for films/TV serials are entered into between a financer and producers/directors of films/TV serials - Entertainment One India Ltd. v. ITO (TDS) [ITA NOS. 1095 TO 1098/Mum/2007] [2010] 5 taxmann.com 1 (MUM. - ITAT)