Gist of Recent Imp. Judgements – Courts

(2014) 220 Taxman 31 (Rajasthan) (Mag) : (2013) 353 ITR 679 (Raj)

Issue :-

What is the meaning of “along with the Return of Income” in Sec. 80HHC(4) ?

Held :-

High Court has interpreted the above provision in the following words :

Expression ‘along with the return of income’ as occurring in sub section (4) of sec. 80HHC could always be interpreted as directory so far it relates to time of filing report and, hence, even if report is filed during assessment proceedings, assesee cannot be denied claim of deduction.

(2014) 220 Taxman 148 (Guj)

Issue :-

On the facts that the assessee had given statement of stock to bank which was inflated in quantity and value, whether addition to income can be made on that basis ?

Held :-

Tribunal had held as under :

On perusal of the various decisions, it is gathered that courts have laid down that additions cannot be made on account of difference arising in the quantity and value of stock shown in the books of account and statement furnished to the banking authorities, admittedly to avail higher credit facilities. Courts have laid down the following guidelines while dealing with the issue.

(a) The stock in quantity and value is inflated on estimate basis in the statement furnished to the banking authorities to avail higher financial credits;
(b) The inflated and estimated stock is hypothecated and not pledged;
(c) No actual verification of stock is carried out by the officer of banking authorities during the year or as on the date of valuation of stock;
(d) The assessee has maintained stock register;
(e) The assessee’s books of account are not found to be defective or non genuine by A.O.
(f) The books of account maintained by the assessee and accepted by the excise and /or Sales Tax Department;

On elaborating each guideline with reference to the facts on records the Tribunal upheld the say of the assessee.

High Court held that :

“It is a settled law as rightly held by the Tribunal that only on account of inflated statement furnished to the banking authorities for the purpose of availing of larger credit faculties, no addition can be made if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. If for the purpose of fulfilling the margin requirements of the base purely on inflated estimate basis, when the stock statement has reflected inflated value of the stock in wake of otherwise satisfactory explanation, both for purpose of value as well as quantity, we find no reason to interfere with the order of the Tribunal” .

(2013) 216 Taxman 170 (Mag) (Karnataka)

Issue :-

Mere expression that certain expenses were to be examined would give jurisdiction to CIT to issue notice u/s 263 ?

Held :-

In the case, assessment was completed u/s 143(3). CIT, issued a notice u/s 263 stating that there was a need to examine assessment order on certain aspects. In absence of recording an opinion over why order of assessment required initiation of revisionary proceedings, mere expression that certain items of expenses etc. were required to be examined did not satisfy the requirement of issue of show cause notice u/s 263. Therefore, impugned notice deserved to be quashed.

(2013) 261 CTR 79 (Kar) : (2013) 91 DTR (Kar) 132

Issue :-

What weightage should be given to the heading to a section ?

Held :-

In the case of weight age to heading (cash credits) u/s 68, High Court has held as under :

A heading is to be regarded as giving the key to the interpretation of the clauses ranged under it, unless the wording is inconsistent with such interpretation. The headings might be treated as preambles to the provisions following them. Though the Court is entitled to look at the headings in an Act of Parliament to resolve any doubt, they may have as to ambiguous words, the law is clear that those headings of a section cannot be used to give a different effect to clear words in the section where there cannot be any doubt as to the ordinary meaning of the words. The title of chapter be legitimately used to restrict to the plain terms of an enactment. The headings prefixed to sections or entries cannot control the plain words of the provision; they cannot also be referred to for the purpose of construing the provision when the words used in the provision are clear and unambiguous; nor can they be used for cutting down the plain meaning of the words in the provision. Only in the case of ambiguity or doubt the heading or sub heading may be referred to as an aid in construing the provision but even in such a case it could not be used for cutting down the vide application of the clear words used in the provision. Those headings are not meant to control the operation of enacting the words and it may be a wrong to permit them to do so.

(2013) 263 CTR 153 (Kar) : (2013) 92 ITR (Kar) 111

Issue :-

What are the requirements for levy of penalty u/s 271(1)(c)

Held :-

After insertion of Explanation 1 to Sec. 271(1)(c), the law on concealment and penalty has become stiffer. The explanation as it stands now is a complete code having the following features :

(1) Every difference between reported and assessed income needs an explanation.

(2) If no explanation is offered, levy of penalty may be justified.

(3) If explanation is offered, but is found to be false, penalty will be eligible.

(4) If explanation is offered and it is not found to be false, penalty may not be leviable.

(a) Such explanation is bonafide.

(b) The assessee has made available to the A.O. all the facts and materials necessary in computation of income.

Therefore the Explanation 1, understood in the proper context in particular, Cl. (c ) of sub sec (1) of Sec. 271 makes the intention of the legislature manifest. It clearly sets out when penalty is leviable and when penalty is not leviable. The condition precedent for levying the penalty is the satisfaction of the authority that there is concealment of particulars of the income or inaccurate particulars are furnished to avoid payment of tax.

(2013) 217 Taxman 54 (Mag) (Delhi) : (2013) 89 DTR (Del) 25

Issue :-

What are the principles for applicability of Sec. 41(1). Which is the year of addition when genuineness is assailed.

Held :-

Cessation of liability may occur by reason of it becoming unenforceable in law by creditor coupled with debtors intention not to Honour his liability or by a contract between parties or by discharge of debt.

Genuineness of transaction was required in year when liability had arisen and addition could not be made on such ground, treating it as assertion of trading liability, when assessee had acknowledged its liability successively.

(2013) 356 ITR 675 (Karn)

Issue :-

(1) Whether provisions of sec. 45(3)/45(4) are attracted when share of existing partners is reduced on entry of new partners?

Held :-

Partnership existed between three partners having equal share. Four new partners were admitted who brought Rs. 3.50 crores as their capital. On reconstitution shares of the existing partners were reduced to half. Existing partners had withdrawn Rs. 1,16,66,666/- each on reconstitution. A.O. held that the said A.O. made amount on the existing partners before reconstitution and added the amount of the 1,16,66,666/- in each of the partners. On appeal it is held as under :

Landed property in the firm was not owned by the erstwhile partners. It was owned by the firm. The erstwhile partners withdrew the money brought in by the incoming partners as drawings. They did not retire from the firm. They continued to be partners of the firm. However, their share got reduced. In other words, 50 percent of their share held before reconstitution became the share of the incoming partners. As the property was not owned by the erstwhile partners, it could not be said they transferred 50 percent thereof, in favour of the income partners and any amount represented the consideration received for such transfer. The provisions of section 45(3) or 45(4) were not applicable to the facts of the case No. capital gain arise.

(2013) 356 ITR 373 (Mad)

Issue :-

Whether adjustment of refund without intimation to the assessee is valid ?

Held :-

A.O. adjusted refund of subsequent year for which no intimation was sent to the assessee.

On the issue High Court held that :

Although the CIT was empowered to make adjustment of the refund, the same could be done only in the manner as contemplated under the provisions of the I.T. Act. It was conspicuous from the records that there was no intimation in writing to the assessee before making such adjustment of refund. As the Dy. CIT has not followed the procedure prescribed under the provisions of the Act while adjusting the refund against the outstanding demand, the order was vitiated in law and was liable to be set aside.

( 2013) 216 Taxman 225 (Guj) (Mag)

Issue :-

Whether estimation of gross profit without finding any defect in accounts is valid ?

Held :-

A.O. noticed that there was fall in gross profit rate declared by assessee as compared to previous year and made addition on account of low gross profit rate to assessee’s income. However no specific defect in maintenance of books of account by assessee had been pointed by A.O. The Assessing Officer was not justified in rejecting book result and enhancing gross profit rate.

(2014) 360 ITR 427 (Guj) : (2013) 216 Taxman 209 (Guj) (Mag)

Issue :-

When in original assessment the issue was examined, notice issued u/s 148 is valid ?

Held :-

A.O. issued notice u/s 148 seeking to reopen assessment made u/s 143(3). The notice was issued within four years from the end of the relevant assessment year. Reason recorded was to the effect that assessee had earned tax free dividend income which should have been subjected to disallowance of proportionate expenditure u/s 14A for earning such income on the basis of formula provided in Rule 8D. When entire issue pertaining to disallowance of expenditure u/s 14A was scrutinized by A.O. during original proceedings, reopening of assessment to make disallowance of such expenditure on the basis of formula provided in rule 8D would amount to change of opinion. Hence the notice issued u/s 148 was quashed.

(2013) 261 CTR 449 (Del) : (2013) 89 DTR (Del) 169

Issue :-

Whether penalty u/s 271(1)(c) is to be levied in every case of addition to income ?

Held :-

Disallowance of claim for deduction was made. Issue raised by the assessee was debatable and capable of two views. Assessee had an arguable case or had taken a bonafide plea. Assessee had given its explanation and categorically and clearly stated the true and full facts in the return it self . It did no try to camouflage or cover up the expenses claimed. Every addition or disallowance made does not justify and mandate levy of penalty for concealment u/s 271(1)(c). Levy of penalty is not automatic consequence when an addition is made by disallowance of an expenses and by not accepting the explanation given by the assessee. Merely making a claim which is held as not sustainable under law should not lead to penalization. When the assessee had furnished full details in the Return itself and the claim is debatable, reasonably plausible or may well have been accepted. Penalty u/s 271(1)(c) was not justified.

(2013) 261 CTR 499 (AP) : (2013) 354 ITR 35 (AP)

Issue :-

When the order of A.O. can be said to be erroneous or prejudicial to the interests of revenue so as to exercise jurisdiction of CIT u/s 263?

Held :-

A.O. having passed the assessment order accepting the case of the assesee that its income from sale of shares and mutual fund units has to be taxed under the head “Capital Gains”, after satisfying himself with the explanation and data submitted by the assessee in response to his querries. The order of the A.O. could not be termed as erroneous or prejudicial to the interests of Revenue warranting exercise of revisional jurisdiction u/s 263 merely because the CIT entertained a different opinion in the matter more so when the revenue has all along accepted that the assessee is holding shares and mutual fund units as investment.

(2013) 357 ITR 153 (Delhi)

Issue :-

Whether construction of several units of house would satisfy the provision of 54/54F to claim deduction ?

Held :-

Section 54 and 54F of I.T. Act, 1961 use expression “a residential house”. The expression used is not “a residential unit”. Sections 54 and 54F require the assessee to acquire “ a residential house” and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a member as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section should be taken to have been satisfied. There is nothing in these sections which requires the residential house to be constructed in a particular manner. The only requirement is that it should be for residential use and not for commercial use. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction u/s 54 or sec. 54F.

(2013) 217 Taxman 209 (All) (Mag)

Issue :-

Is it necessary to have creditworthiness of the applicant of share application when once the identity is proved ?

Held :-

Assessee company received certain amounts from share applicants. A.O. added same amount on ground that the company had failed to prove genuineness of transactions and creditworthiness of shareholders. He held that shareholders had shown low income in income tax returns which was much less compared to investment in share capital. CIT (Appeals) relying upon decision of Supreme Court in CIT v/s. Stellar Ivnestment Ltd. (2001) 251 ITR 263/115 Taxman 99 deleted impugned addition made by A.O. He held that in case of capital contributed by a shareholder, identity of a shareholder was only required to be proved. Tribunal upheld order of A.O.

High Court held that the case is squarely covered by the Supreme Court decision in Stellar Investment (P) Ltd.