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2017-08-18
With the commencement of the tax audit season this year, the updated exclusive Taxsutra insight endeavors to compile the key rulings delivered since last tax-audit season till today i.e August 18, 2017, which would impact the transactions typically covered in tax audits.
Clause 12: Presumptive income
| Sr. No. | Judgement | Summary |
| 1. | [TS-5147-SC-2016-O] | SC reverses HC order for AY 2009-10, holds special provisions u/s 44AD not applicable to assessee (engaged in civil contracts businesss) as the gross receipts exceed the eligible limit of Rs 40 lakhs in terms of proviso to Sec 44AD(2); Assessee had claimed depreciation u/s 32 which was denied by AO invoking section 44AD (a special provision for computing profits/gains arising out of civil construction at flat rate of 8% on gross basis |
| 2. | [TS-5438-ITAT-2017(DELHI)-O] | Delhi ITAT attributes 30% of profits to Indian branch (PE) of Singapore-based assessee (engaged in trading of medical equipment) in respect of direct sales in India by head office during AY 2003-04, ITAT directs computation of assessee's profit @ 10% of total sales in India relying on provisions of Sec 44BB and 44BBB and attributes 30% of such profits to Indian PE i.e. at 3% (30% of 10%) in view of case laws in case of Rolls Royce PLC, ZTE Corporation and GE Energy Parts; Thus rejects CIT(A)'s application of CPM with 15% mark-up based on subsequent year's TP reports |
Clauses 13 & 14: Method of Accounting and Valuation of closing stock
| Sr. No. | Judgement | Summary |
| 3. | [TS-5156-HC-2017(DELHI)-O] | HC dismisses Revenue’s appeal; Notes that where in case of assessee, engaged in construction business, Commissioner passed a revisional order alleging that certain amount was shown as deferred revenue income by changing method of accounting as per Accounting Standard (AS) - 7 which had resulted in lowering of profit, since it was an accepted method of accounting and, moreover, it had been followed consistently in subsequent years also, impugned revisional order was to be set aside |
| 4. | [TS-6057-ITAT-2017(KOLKATA)-O] | ITAT rules in favour of assessee; Notes that where assessee NBFC merely recognized amortization method of accounting in its books so as to be in consonance with RBI guideline but it had not changed treatment of upfront expenses in its return of income and same was claimed on accrual basis, said expenditure was to be allowed |
| 5. | [TS-5020-ITAT-2017(AHMEDABAD)-O] | ITAT dismisses Revenue’s appeal; Holds AO’s action of rejecting books of accounts maintained as per Sec. 44BBB(2) and computing tax on presumptive basis u/s. 44BBB(1), not justified; Notes that assessee had followed one of the recognized methods prescribed for determination of stage of completion of contract as prescribed in Accounting Standard (AS)-7 &Construction Contracts and also had its accounts audited and thereby fulfilled all conditions prescribed u/s 44BBB(2) |
| 6. | [TS-5528-HC-2017(GUJARAT)-O] | Where revenue had modified or substituted method of valuation of closing stock in particular year, same methodology would also have to be applied for valuation of opening stock for that year |
Clause 15: Conversion of capital asset into stock-in-trade
| Sr. No. | Judgement | Summary |
| 7. | [TS-6065-ITAT-2017(VISAKHAPATNAM)-O] | Visakhapatnam ITAT upholds treatment of profit on sale of agricultural land as business income of assessee, deletes capital gains addition for AY 2007-08; Notes that assessee converted his investment (i.e. agricultural land purchased in 1980) into stock-in-trade as on March 31, 2006 and developed the said land into various plots before selling in relevant AY, remarks that “this clearly indicates that intention of the assessee was to carry out adventure in the nature of trade to commercially exploit the said land.” |
Clause 16: Income u/s 28 & Capital receipts
| Sr. No. | Judgement | Summary |
| 8. | [TS-5655-ITAT-2017(MUMBAI)-O] | Mumbai ITAT rules that loan waiver of Rs. 314 cr., being on capital account, be reduced while computing book profits for the purposes of MAT calculation u/s 115JB for AY 2004-05; ITAT notes that loan waiver is neither taxable under the normal provisions of the IT Act, nor can be recorded as operational profit in the P&L account as per Companies Act and relevant Accounting Standards |
| 9. | [TS-6098-ITAT-2017(AHMEDABAD)-O] | ITAT rules in favour of assessee; Holds that forfeiture of application money received by issue of share warrants was a capital receipt |
Clause 17: Consideration on transfer of Land/building or both during the previous year for less than the value adopted or assessed or assessable by any authority of a State Government referred to in Sec.43CA or 50C
| Sr. No. | Judgement | Summary |
| 10. | [TS-6384-ITAT-2017(CHANDIGARH)-O] | Chandigarh ITAT deletes notional profit addition on sale of property constituting assessee's ‘stock-in-trade’ for AY 2010-11, holds that reference to the Valuation Officer (‘DVO’) was illegal, being made under general provision u/s 131(1)(d); ITAT observes that AO merely relied on DVO valuation and did not produce any other evidence to prove that assessee earned more than the stated consideration, moreover, notes that the specific provision for substituting sale consideration of immovable property held as stock-in- trade was brought on the Statute only w.e. f. April 1, 2014 by inserting Sec.43CA |
| 11. | [TS-6252-ITAT-2016(AHMEDABAD)-O] | Ahmedabad ITAT deletes addition u/s 50C (relating to substitution of sale consideration with stamp duty valuation) while computing capital gains on transfer of land by assessee-individual during AY 2008-09; Assessee had entered into ‘agreement to sell’ for land in June, 2005, but the sale deed could be executed only in April, 2007, AO adopted the stamp duty valuation as on April 24, 2007 and made addition u/s 50C |
| 12. | [TS-6181-ITAT-2017(DELHI)-O] | Delhi ITAT upholds CIT(A)’s order annulling assessment, quashes invocation of Sec. 50C(1) (relating to substitution of sale consideration with stamp duty valuation) while computing capital gains on sale of land by assessee-HUF during AY 2009-10; Notes that assessee had disputed adoption of stamp-valuation owing to several distressing circumstances (i. e the land being infertile, property subject to litigation) |
| 13. | [TS-5054-ITAT-2017(CHANDIGARH)-O] | Chandigarh ITAT allows assessee-individual’s claim of long term capital loss on transfer of plot to his nephews during AY 2009-10, rejects Revenue's application of Sec 50C on an unregistered document; ITAT notes that assessee received sale value of the plot at Rs. 26 lacs as per mutual family settlement approved by Civil Court |
| 14. | [TS-5018-HC-2017(PUNJAB & HARYANA)-O] | Punjab & Haryana HC dismisses Revenue’s appeal, rules that the fair market value ('FMV’) of the property cannot be substituted for the full value of consideration u/s 48 for the purposes of computing capital gains arising on transfer of land/building by assessee-company to its group company during AY 2006-07; Further, HC rejects Revenue’s invocation of Sec 50C to have the FMV determined, clarifies that even if Sec 50C was invoked, the stamp duty valuation would prevail and not the market value |
Clause 18: Depreciation
| Sr. No. | Judgement | Summary |
| 15. | [TS-6035-ITAT-2017(CHENNAI)-O] | Chennai ITAT upholds levy of penalty u/s 271(1)(c) on false depreciation claim made by assessee company on the furnace for AY 2004-05; Assessee had argued that the machinery (i.e furnace) was subject to trial run (i.e., at the supplier’s premises) in the presence of assessee’s engineers and hence it was put-to-use; Firstly, ITAT clarifies that the test running at supplier’s premises “is only to confirm if the plant being delivered, being from a foreign land, is in a OK state, and cannot in any manner be regarded as commissioning of it’s plant by the assessee” |
| 16. | [TS-5370-ITAT-2017(PUNE)-O] | Pune ITAT third member rules that process of generation of electricity through windmill amounts to ‘manufacture or production of article or thing’ as contemplated u/s 32(1)(iia), allows assessee’s ‘additional depreciation ’ claim on windmills for AYs 2011-12 & 2012-13 |
| 17. | [TS-5027-HC-2017(DELHI)-O] | Delhi HC allows Sony India’s appeal and reverses ITAT order for AY 2005-06, allows depreciation on assets forming part of ‘block of assets’ in respect of assessee’s unit which was sold and ceased to exist during relevant AY; Rejects Revenue’s stand that since the assets pertained to discontinued unit, depreciation u/s 32 cannot be allowed as assessee was neither the owner of assets nor assets were put to use in assessee’s business |
| 18. | [TS-5450-HC-2016(DELHI)-O] | HC dismisses Revenue’s appeal, allows depreciation @ 60% by treating the LAN/WAN equipments as computer peripherals; Revenue denied assessee’s depreciation claim of 60% by regarding the LAN/WAN equipments as plant and machinery and thus granted depreciation @ 15% |
| 19. | [TS-5256-HC-2017(MADRAS)-O] | Madras HC upholds ITAT order granting depreciation on ‘Jetty’ at 100% under the head ‘Building - temporary structure’ to assessee (engaged in cargo business) for AY 2005-06, rejects Revenue’s stand of treating it as ‘plant’ and limiting depreciation to 25% |
| 20. | [TS-6383-ITAT-2017(DELHI)-O] | Delhi ITAT rejects depreciation claim u/s. 32 on intangible asset of ‘Government Authorizations/Approvals’ acquired by assessee-company (a subsidiary of a US company, who manufactures franking machines) under a business transfer agreement (‘BTA’) for AYs 2005-06 to 2009-10; Notes that prior to formation of assessee, one company (‘KOAL’) was authorized by assessee’s US parent to sell / market franking machines to customers in India which included Postal Department of government, Banks |
| 21. | [TS-5441-HC-2017(MADRAS)-O] | Madras HC reverses ITAT order for AYs 1999-2000 and 2000-01, categorizes loss arising on sale of foreign cars as business loss in the hands of assessee (a shipping agent) , rejects invocation of Sec. 50 (special provision for capital-gains computation on depreciable assets; HC observes that Sec. 50 applies to a capital asset forming part of a block of assets, in respect of which, depreciation has been allowed |
| 22. | [TS-5321-HC-2017(MADRAS)-O] | Madras HC upholds ITAT’s order, allows assessee-company's balance additional depreciation claim u/s 32(1)(iia) (which provides for additional 20% depreciation on new plant and machinery installed) in subject AY 2011-12 |
| 23. | [TS-5058-SC-2017-O] | SC dismisses assessee’s (lessee) appeal, holds that assessee -Company wasn’t entitled to depreciation on hospital building u/s 32 absent ownership for AY 1992-93; Pursuant to an agreement between the assessee and the erstwhile firm it was agreed that the firm would hand over hospital building’s possession to the assessee post completing its construction, on the condition that entire cost of construction of the building would be borne by the assessee |
| 24. | [TS-5527-ITAT-2017(DELHI)-O] | Delhi ITAT rules on deductibility of leasehold expenses in case of assessee (running resorts and restaurants) for AY 2008-09; rejects Revenue’s stand that in terms of Explanation 1 to Sec 32(1)(iia), such expenses should be considered as a capital expenditure subject to depreciation allowance |
| 25. | [TS-6833-ITAT-2016(AHMEDABAD)-O] | Ahmedabad ITAT dismisses Revenue’s appeal for AY 2010-11, allows depreciation on ‘goodwill’ claimed by the assessee – company during the course of assessment proceedings vide a revised computation of income without filing revised return of income; Notes that pursuant to the scheme of arrangement approved by Gujarat HC in AY 2008-09, assessee had acquired the consumer products division and other related intangible assets of the such business which was accounted for as “goodwill” in its books of accounts |
| 26. | [TS-7040-ITAT-2016(DELHI)-O] | Delhi ITAT dismisses Revenue’s appeal, holds that assessee-company is entitled to claim depreciation at a higher rate of @ 30% on plastic moulds (used in the premises of various vendors for manufacturing plastic and rubber goods); Revenue denied depreciation at a higher rate of 30% on the ground that assessee was not a manufacturer of rubber and plastic goods and thus allowed depreciation @ 15% |
| 27. | [TS-5384-ITAT-2017(BANGALORE)-O] | Bangalore ITAT sets aside CIT(A)’s order for AY 2010-11 disallowing depreciation invoking provisions of Sec. 40(a)(ia); Assessee had claimed depreciation u/s 32 on the amount paid to Microsoft Corporation towards the cost of license and the cost of extension of the same |
| 28. | [TS-6148-ITAT-2017(DELHI)-O] | Where since assessee was not able to demonstrate genuineness of purchase of software and further story put forth by assessee that software had been handed over to collaborator for completing assessees housing project was also not substantiated by any documentary evidence, said purchase was to be held to be a bogus transaction not entitled to depreciation |
| 29. | [TS-5195-HC-2017(BOMBAY)-O] | Section 50C governs valuation of property to determine 'capital gains' but it has no application while determining 'profits and gains of business or profession' |
Clause 19: R&D Deductions
| Sr. No. | Judgement | Summary |
| 30. | [TS-5675-ITAT-2016(BANGALORE)-O] | Bangalore ITAT denies claim for deduction of expenditure out of government grant which was treated as capital receipt by assessee, but directs consideration of assessee's alternate claim for deduction u/s 35(1)(iv) subject to satisfying conditions set therein; Refuses to treat relevant expenditure as revenue in nature noting the coordinate bench's observation in assessee's own case to the effect that expenditure resulted in acquisition of capital asset in the form of indigenous and self-reliant technology for manufacture of combat aircrafts and helicopter |
| 31. | [TS-5732-HC-2017(Delhi)-O] | Delhi HC allows Maruti Suzuki’s writ, grants deduction u/s. 35(2AB) in respect of capital expenditure incurred on its R&D unit at Rohtak during AY 2011-12 despite DSIR recognition received in 2014; Notes that assessee could receive recognition from DSIR (i.e. prescribed authority) for R&D unit only in 2014, though application was originally made in 2011 |
| 32. | [TS-5094-SC-2017-O] | SC confirms Delhi HC decision for AY 1996-97, "premium" collected by assessee on its subscribed share capital doesn’t constitute “capital employed in the business of the Company" for computing deduction u/s 35D; Observes that capital employed in assessee’s business is exhaustively defined in the Explanation appended to Sec. 35D (3), which is the aggregate of 3 distinct components, namely, share capital, debentures and long term borrowings |
| 33. | [TS-6067-HC-2016(KERALA)-O] | Kerala HC reverses ITAT order for AYs 1999-00 and 2003-04, allows assessee’s (a public limited company) claim of amortisation of expenditure incurred in connection with rights issue of shares u/s 35D(2)(c)(iv); HC notes that assessee had offered shares to its existing shareholders in terms of rights issue u/s 81 of Companies Act, further notes that shares not accepted by the existing shareholders were subscribed by the promoters |
| 34. | [TS-5061-SC-2017-O] | SC upholds Sec. 143(1)(a) adjustment disallowing preliminary expenses; Issue decided by jurisdictional HC non-debatable |
Clause 20: Employee related payments
| Sr. No. | Judgement | Summary |
| 35. | [TS-5138-SC-2017-O] | SC dismisses Revenue’s SLP against Rajasthan HC judgment in case of Rajasthan State Beverages Corpn. Ltd. for AY 2009-10; With respect to Provident Fund (PF) and ESI payments, HC had relied on its co-ordinate bench ruling in State Bank of Bikaner & Jaipur and opined that deposit of PF & ESI amount on or before the due date of furnishing of the return of income, qualifies for deduction u/s 36 (1)(va); Dismissing SLP, SC states that “We do not find any merit in this petition.” |
| 36. | [TS-5167-SC-2016-O] | SC reverses Madras HC order, allows deduction u/s 36(1)(ii) to assessee-company for payment of bonus to employees through a Trust; During AYs 1999-2000 and 2001-02, owing to labour unrest, assessee had deposited the bonus amount with a Trust and when the dispute was settled, the trust paid the bonus amount to employees before the prescribed due date |
Clause 21(a): Business expense allowances/disallowances and details of amounts debited being in the nature of capital, personal, advertisement expenditure etc.
| Sr. No. | Judgement | Summary |
| 37. | Allowable expenses |
i) [TS-7299-ITAT-2016(Cochin)-O] - Upholds ITAT’s order; Compensation to sole-selling agent upon agreement termination, deductible u/s. 37(1) ii) [TS-6025-ITAT-2017(MUMBAI)-O] - Allows MTM losses deduction to Reliance Infra, applies Woodward Governor ratio iii) [TS-6040-ITAT-2017(MUMBAI)-O] - Forfeited media rights advance not capital loss; Grants deduction to Zee Entertainment iv) [TS-5248-HC-2017(MADRAS)-O] - Exorbitant ‘legal fees’ no ground to deny Sec. 37 deduction claim v) [TS-6977-ITAT-2016(MUMBAI)-O] - CA firm donation to ICAI buildings satisfies 'commercial expediency' test; Allows Sec. 37 deduction vi) Expenditure towards gifting of shares for setting up subsidiary's business deductible u/s 37 vii) [TS-5005-ITAT-2017(Mumbai)-O] - Pharma co. 'freebies' to doctors allowable deduction, not violative of MCI guidelines viii) [TS-5651-HC-2017(KARNATAKA)-O] - legal fee and other litigation charges for protecting business interests, allowable. |
Clause 21(b): Disallowances u/s 40(a)
| Sr. No. | Judgement | Summary |
| 38 | [TS-6568-ITAT-2016(Delhi)-O] | ITAT holds that subsistence payment by assessee-company to its UK parent on account of reimbursement of expenses on deputation not liable to Sec 195 TDS, deletes Sec 40(a)(i) disallowance |
| 39 | [TS-5107-SC-2017-O] | SC upholds Himachal Pradesh HC ruling, confirms disallowance u/s. Sec. 40(a)(ia) for freight amounts ‘paid’ to truck-owners during AY 2006-07 without deduction of tax at source u/s 194C; Rejects assessee’s plea that since the word used in Sec. 40(a)(ia) is 'payable', no disallowance can be made where the freight charges had been paid during the year |
| 40 | [TS-5051-HC-2017(Delhi)-O] | Delhi HC reverses ITAT order for AY1996-97, deletes disallowance made u/s 40(a)(i) towards non-deduction of TDS on interest paid by assessee (a domestic company) on machinery imported from supplier based in Canada, pursuant to benefit u/s 10(15)(iv)(c) |
| 41 | [TS-6772-ITAT-2016(Hyderabad)-O] | Hyderabad ITAT allows assessee-firm’s appeal for AY 2013-14, deletes disallowance u/s 40(a)(ia) on payment of finance charges; Notes that amount paid by the assessee towards the finance charges includes both interest and principle amount and that the entire amount was paid during the relevant previous year |
| 42 | [TS-6765-ITAT-2016(Hyderabad)-O] | Hyderabad ITAT reverses CIT(A) order for AY 2010-11, provisions of Sec. 40(a)(ia) [meant for computing business income] inapplicable to assessee-trust not engaged in any business activity and having exempt receipts; Notes that assessee-trust was constituted as an owners’ association of a commercial building to maintain the building and to utilise its common facilities |
| 43 | [TS-6480-ITAT-2016(Ahmedabad)-O] | Ahmedabad ITAT upholds Sec 40(a)(ia) disallowance for AY 2009-10 on year end provisions of commission expense as no TDS deducted by assessee-individual; Rejects assessee’s stand that since it was following mercantile system of accounting, deduction for ‘provision for commission payable’ should be allowed |
| 44 | [TS-7032-ITAT-2016(Bangalore)-O] | Bangalore ITAT upholds Sec 40(a)(ia) disallowance for TDS default for AY 2008-09, rules that payment made to each lorry owner /driver in excess of Rs. 50,000 for transporting iron-ore was subject to Sec 194C TDS |
| 45 | [TS-6397-ITAT-2017(Chennai)-O] | Chennai ITAT deletes Sec 40(a)(i) disallowance for belated TDS remittances u/s. 195 on payment of professional charges and corporate maintenance charges by assessee (an Indian company) to German and UK entities, by applying relief under non-discrimination article under respective DTAAs, follows Delhi ITAT ruling in Millennium Infocom Technologies Ltd. rendered in context of IndiaUS DTAA |
| 46 | [TS-5113-ITAT-2017(Mumbai)-O] | Mumbai ITAT deletes addition u/s 40(a)(i) for TDS default on payments made by assessee-company to NR-individuals for providing engineering services for AY 2009-10, TDS u/s 195 inapplicable; Notes that services provided by both the individuals fell under the ambit of 'independent personal services' (‘IPS’) and their stay in India was less than 183 days |
Clause 21(d): Disallowances u/s 40A(3)
| Sr. No. | Judgement | Summary |
| 47 | [TS-7103-ITAT-2016(Delhi)-O] | Delhi ITAT dismisses assessee’s appeal for AY 2009-10, upholds disallowance u/s 40A(3) in respect of payment made in excess of Rs. 20,000 to truck union since assessee couldn’t substantiate that its case was covered under any exceptions carved out in Rule 6DD of the IT Rules |
| 48 | [TS-6866-ITAT-2016(Mumbai)-O] | Mumbai ITAT upholds disallowance u/s 40A(3) in case of assessee (engaged in shipping business) for making cash payments exceeding the prescribed limit of Rs 20,000 during AY 2009-10; Rejects assessee’s submission that considering the business exigencies, the payments exceeded the monetary limit and since the genuineness of purchases was established, the disallowance was not warranted |
| 49 | [TS-5422-HC-2017(BOMBAY)-O] | Bombay HC invokes Sec. 40A(3), upholds disallowance of cash payments made to transporters and suppliers in a village with no banking facilities |
| 50 | [TS-6252-ITAT-2017(JAIPUR)-O] | Where assessee made cash payments of electricity bills to state Electricity Board in excess of Rs. 20,000, in view of fact that banking facility was not available where said payments were to be made, impugned disallowance under section 40A(3) was to be deleted |
| 51 | [TS-5905-ITAT-2017(VISAKHAPATNAM)-O] | stock-in-trade in business during same year, section 40A(3) could not be invoked to disallow cash payments made for purchase of land |
Clause 21(h): Disallowance u/s 14A
| Sr. No. | Judgement | Summary |
| 52 | TS-5639-HC-2017(Bombay)-O] | Bombay HC upholds ITAT order, quashes CIT's revision u/s 263 enhancing Sec 14A disallowance by invoking Rule 8D(2)(ii) for AY 2008-09; Upholds ITAT order that no interest expenditure was available for apportionment under Rule 8D(2)(ii) as the entire interest expenditure was directly related to earning of taxable income |
| 53 | [TS-5879-ITAT-2017(DELHI)-O] | Delhi ITAT Special Bench (‘SB’) rules in favour of taxpayer-assessee (a finance and investment company) for AY 2008-09, holds that expenditure incurred to earn exempt income determined u/s. 14A cannot be added while computing book profits for MAT u/s. 115JB |
| 54 | [TS-5879-ITAT-2017(DELHI)-O] | Bangalore ITAT upholds disallowance u/s. 14A read with Rule 8D on account of administrative expenses (i.e. indirect expenses) with respect to dividend income earned during AY 2008-09; Rejects assessee’s stand that disallowance cannot be made as it did not incur any expenditure for earning exempt income |
| 55 | [TS-6020-ITAT-2017(Mumbai)-O] | Mumbai ITAT deletes addition u/s. 14A in case of assessee (a finance company), notes that during relevant AY 2008-09, assessee suo-motu disallowed Rs. 15 lakh (approx.) u/s. 14A towards interest and indirect expenses which was subsequently enhanced by AO to Rs. 1.78 Cr by applying Rule 8D |
| 56 | [TS-5983-ITAT-2017(CHENNAI)-O] | Chennai ITAT upholds Sec. 14A disallowance, rejects assesseeindividual’s plea that since no investment yielding exempt income was made during relevant AY 2012-13, invocation of Rule 8D was not warranted as no expenditure was incurred; Referring to Sec. 14A read with Rule 8D, ITAT holds that even in a case where the assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute |
| 57 | [TS-6329-ITAT-2017(Bangalore)-O] | Bangalore ITAT upholds expense disallowance u/s. 14A, however, directs that business income increased by the amount of disallowance, should be considered for computing deduction u/s. 10A in case of assessee (a software development company) for AY 2008-09 |
| 58 | [TS-5110-SC-2017-O] | SC rules against the taxpayer, holds that Sec.14A disallowance is applicable to dividend income on which tax is payable u/s. 115-O; Rejects assessee’s stand that in view of inter-linkage between Sec. 14A [disallowance], Sec. 10(33) [dividend income exemption] and Sec. 115-O [dividend distribution tax (DDT) payment by company], dividend income doesn’t fall within the ambit of Sec. 14A as it has a tax incidence by way of DDT payable by the distributor company |
| 59 | [TS-5699-ITAT-2017(Mumbai)-O] | Mumbai ITAT upholds deletion of Sec 14A disallowance in case of assessee (a Morgan Stanley group company engaged in providing investment research advisory support, consultancy services to group companies) for AYs 2008-09 & 2009-10; Notes that during relevant AYs assessee made strategic investments in group companies and no exempt income was earned on such investment |
| 60 | [TS-5365-ITAT-2017(Chennai)-O] | Chennai ITAT upholds Sec 14A disallowance for AYs 2011-12 & 201213 in respect of strategic investments made by assessee-company in subsidiary / associate companies for business purposes; ITAT clarifies that the holding of asset/property under reference either as an investment or as stock-in-trade becomes inconsequential or irrelevant for Sec 14A application |
| 61 | [TS-5087-HC-2017(Punjab & Haryana)-O] | Punjab and Haryana HC upholds AO’s resort to Rule 8D for ascertaining Sec 14A disallowance for AY 2008-09, inference drawn by AO that assessee would have incurred certain administrative expenses to handle its huge investment portfolio worth Rs. 150 cr., valid and sufficient ‘satisfaction’ to invoke Rule 8D |
| 62 | [TS-5231-ITAT-2017(Delhi)-O] | Delhi ITAT upholds Sec 14A disallowance despite requisite satisfaction not recorded by AO before making the disallowance; During relevant AY 2009-10, assessee did not make any ‘suo-motu’ disallowance u/s 14A, however, in view of clear mandate u/s 14A read with Rule 8D, AO calculated the disallowance; ITAT observes that “Section 14A (1) & (2) read with Rule 8D(i), leave AO with no choice |
| 63 | [TS-7149-ITAT-2016(Chennai)-O] | Chennai ITAT dismisses assessee’s (a dealer in shares and securities)appeal for AY 2009-10, upholds disallowance made u/s 14A disallowance read with Rule 8D; On noting that no disallowance was made by the assessee despite earning exempt divided income Revenue made disallowance u/s 14A read with Rule 8D which was upheld by the CIT(A) |
| 64 | [TS-7150-ITAT-2016(Ahmedabad)-O] | Ahmedabad ITAT deletes disallowance u/s 14A read with Rule 8D, holds that the approach of lower authorities to attribute part of interest to investment yielding tax exempt income was incorrect considering that the investments were from common pool of funds but were less than available interest free fund; Noting that assessee’s interest free funds were “far in excess” of investments yielding exempt income |
| 65 | [TS-6218- HC-2016(Delhi)-O] | Delhi HC upholds ITAT’s order for AY 2006-07, deletes Sec. 14A disallowance computed by the AO in case of assessee-company (manufacturing chemical products); Disallowance computed by the assessee u/s 14A was rejected by the AO by merely stating that the amount disallowed by the assessee couldn’t be “taken into consideration” |
| 66 | [TS-5975-ITAT- 2017(MUMBAI)- O] | Where assessee developer received interest free flat booking advances which it invested to earn exempted income, even if assessee had debited related admin. expenses to P&L a/c and then transferred same to W-I-P, disallowance was to be made under section 14A |
| 67 | [TS-5269-HC- 2017(MADRAS)- O] | Rule 8D is retrospective in nature; Disallowance u/s 14A cannot be made when no exempt income is earned in the impugned AY |
Clause 21(i): Disallowance u/s 36(1)(iii)
| Sr. No. | Judgement | Summary |
| 68 | [TS-5384-HC-2017(Madras)-O] | Madras HC upholds ITAT order allowing deduction u/s. 36(1)(iii) for lease compensation charges paid by assessee-company (engaged in the manufacture of Soft drinks under a franchise from Coco Cola) to a finance company (‘SFL’) during AY 1999-2000 |
| 69 | [TS-5260-HC- 2017(PUNJAB & HARYANA)-O] | Where assessee gave interest free loan to its subsidiaries out of surplus funds, impugned disallowance made by Assessing Officer under section 36(1)(iii) was to be deleted |
| 70 | [TS-5732-ITAT- 2017(DELHI)-O] | Delhi ITAT confirms disallowance of interest on borrowed funds in the hands of assessee-partner (an individual) for AY 2010-11 in view of interest-free advances made to the firm, interest is disallowed to the extent relatable to share of profit derived from firm [which is exempt u/s 10(2A)] |
| 71 | [TS-5005-SC-2017-O] | SLP granted against High Court's ruling that where assessee-builder advanced borrowed amount to its sister concern for purpose of acquiring a portion of property in project proposed to be developed by its sister concern and said amount was not utilised for said project but it was used for some other project, assessee was not entitled for deduction of interest paid on borrowed amount |
Clause 25: Deemed profits u/s 41
| Sr. No. | Judgement | Summary |
| 72 | [TS-5963-ITAT-2017(Jaipur)-O] | Jaipur ITAT rules against a co-operative Bank (assessee, who was eligible for Sec. 80P exemption prior to subject AY 2007-08), upholds addition u/s. 41(1) with respect to transfer to Reserve Fund in AY 2007-08 of the excess provision for expenses (created from the profits of the earlier years when assessee was enjoying exemption) |
| 73 | [TS-5105-SC-2017-O] | SC upholds Karnataka HC judgment in Revenue's favour, holds that waiver of liability due by amalgamating company after amalgamation is taxable in the hands of the amalgamated company u/s 41(1) |
Clause 26: Disallowance u/s 43B
| Sr. No. | Judgement | Summary |
| 74 | [TS-5731-HC-2017(Chattisgarh)-O] | Chhattisgarh HC upholds ITAT order, deletes Sec. 43B addition with regards to unpaid VAT, not claimed as deduction in the books of accounts; HC notes that while the VAT component collected was not paid before the return filing due-date u/s. 139(1), such VAT was also not charged to the Profit and Loss account and was accounted for separately in the Books of Accounts |
| 75 | [TS-7007-ITAT-2016(Ahmedabad)-O] | Ahmedabad ITAT upholds Sec 43B disallowance on unpaid service tax for AY 2006-07 in case of an Electricity transmission company (‘assessee’); Rejects assessee’s stand that since service tax payable was not reflected in the profit and loss account and was only shown as liability in the balance sheet for tracking the tax payable as assessee was acting as a mere collecting agent, Sec 43B disallowance was not applicable |
Clause 28/29: Transactions covered u/s 56(2)(viia)/ 56(2)(viib)
| Sr. No. | Judgement | Summary |
| 76 | [TS-6434-HC-2016(Madras)-O] | Madras HC dismisses writ filed by assessee (a Private Ltd. Company) for AY 2009-10, upholds reassessment proceedings initiated u/s 147/148 for taxing excess share premium on issuance of compulsory convertible cumulative preference shares ('CCPS') u/s 68; Takes note of assessee's plea that premium received could be brought to tax u/s 56(2)(viib) [which provides that premium received in excess FMV can be taxed as income from other sources] which been introduced w.e.f April 1, 2013 (i.e. AY 201314) was inapplicable to the relevant AY |
Clause 31: Section 269SS/269T
| Sr. No. | Judgement | Summary |
| 77 | [TS-5024-SC-2017-O] | SC dismisses assessee’s SLP against Rajasthan HC judgement upholding levy of penalty u/s 271D for Sec 269SS violation; During AYs 1992-93 and 1993-94, assessee (engaged in cement manufacturing) had accepted ‘unsecured-loans’ of Rs. 2.8 Cr from its chairman-cum managing director (‘MD’) in cash |
| 78 | [TS-5636-HC-2017(Kerala)-O] | Kerala HC allows assessees’ writ, directs Revenue to process assessees’ declarations under the Direct Tax Dispute Resolution Scheme, 2016 ('DRS') with respect to penalties imposed under Sections 271D, 271E and 272A(2)(C) [i.e. penalties for contravening Sec. 269SS/T for accepting / repaying loan in cash and for nonfurnishing of statement by assessee-producers regarding film production carried on by them] for which appeals were pending before CIT(A) |
Clause 32: Brought forward loss/ depreciation allowance
| Sr. No. | Judgement | Summary |
| 79 | [TS-6182-ITAT-2017(Kolkata)-O] | Kolkata ITAT dismisses assessee’s (a public sector bank) appeal for AY 2004-05, holds that effect of brought forward losses u/s. 72 has to be given prior to allowing deduction towards provision for bad and doubtful debts u/s 36(1)(viia)(c) |
| 80 | [TS-7300-ITAT-2016(Mumbai)-O] | Mumbai ITAT quashes CIT’s order u/s 263 directing AO to set off the brought forward losses, while computing deduction u/s 10A for AYs 2010-11 & 2011-12 |
| 81 | [TS-6143-HC-2016(Punjab & Haryana)-O] | Punjab and Haryana HC upholds ITAT order deleting penalty u/s 271(1)(c) for AY 2004-05; During relevant AY, assessee had incorrectly claimed set-off of its income based on a legal opinion received from a CA firm |
| 82 | [TS-7303-ITAT-2016(Mumbai)-O] | Mumbai ITAT allows inter-se set-off of profit/ loss between cash segment and future segment of assessee-company dealing in cash future arbitrage for AY 2009-10; Rejects Revenue’s stand that set-off should be denied as assessee’s profit or loss from future arbitrage in derivatives should be treated as non-speculative transaction in terms of exception to Sec 43(5), whereas, transactions done in cash segment in shares should be treated as ‘speculative’ by virtue of Explanation to Sec 73 |
Clause 33: Chapter VIA Deductions
| Sr. No. | Judgement | Summary |
| 83 |
Judgments on benefit of S.80IA/S.80IB |
i) [TS-5750-HC-2017(Madras)-O] - Substantial expansion eligible for Sec. 80-IB benefit; Rejects splitting up/ reconstruction plea
ii) [TS-5132-SC-2017-O] - Bottling of LPG amounts to 'production', eligible for benefit u/s 80HH, 80I & 80IA
iii) [TS-5750-HC-2017(Delhi)-O] - 'Eligibility conditions’ u/s 80-IA applicable only to initial-AY, not entire taxholiday period
iv) Accepts Electricity Board's price as ‘market price’ for captive unit's Sec. 80IA claim
v) [TS-6168-ITAT-2016(DELHI)-O] - Allows Sec. 80IB/80IC deduction; Account maintenance on ERP-system providing unit-wise P/L sufficient compliance
vi) Denies Sec 80IB(10) deduction for allotting more than one unit to single buyer
vii) [TS-5100-SC-2017-O] - Dismisses SLP; Sec. 80IB deduction allowable despite non-filing of audit report with return
viii) [TS-5391-ITAT-2017(Chennai)-O] - Denies Sec 80-IB(10) deduction to assessee-builder engaged in construction as mere ‘contractor’
ix) [TS-7020-ITAT-2016(Hyderabad)-O] - Grants Sec. 10A deduction on profits post-disallowance although recent Circular's scope restricted |
| 84 | [TS-5733-HC-2017(Allahabad)-O] | Allahabad HC rules on the treatment of interest income (on FD receipts pledged with the bank for availing export credit facility) in computing deduction u/s 80HHC for AY 1998-99; |
| 85 | [TS-5565-HC-2017(Madras)-O] | Madras HC upholds ITAT order for AY 1998-99, holds that while computing 'eligible profit' for allowing deduction u/s 80HHD(1) (available to companies running hotels) loss from ineligible units/hotels cannot be deducted; Rejects Revenue’s stand that the expressions ‘business profits’ and ‘total receipts’ used in Sec. 80HHD(3) [prescribing formula for computing ‘eligible profits’], should take into account the gains/losses of ineligible entities as well |
Clause 33: Chapter III Deductions
| Sr. No. | Judgement | Summary |
| 86 | [TS-5604-HC-2017(DELHI)-O] | Delhi HC allows DSL Software Ltd.’s (assessee, an ITES company and presently amalgamated with its parent i.e. HCL Technologies Limited) writ petition for AY 2004-05 and quashes reassessment initiated beyond four years period; AO had re-opened assessment u/s 148 on the ground that assessee wrongly claimed deduction u/s 10A on the profits of its overseas branches |
| 87 | [TS-6326-ITAT-2017(CHENNAI)-O] | Chennai ITAT upholds denial of Sec. 10 deduction in reassessment proceedings for AY 2009-10 initiated within four-years period; Rejects assessee’s stand that AO had allowed deduction u/s. 10A in original assessment after examination of all the details, hence revisiting assessee’s claim tantamounts to ‘change of opinion’ |
| 88 | [TS-6077-ITAT-2017(Chennai)-O] | Chennai ITAT grants Sec. 10A exemption to assessee (a software company) for AYs 2010-11 and 2011-12 with respect to software exported by assessee; Rejects Revenue’s stand that assessee was not the manufacturer / developer of the software and that it merely exported the software that was purchased from a third party |
| 89 | [TS-5325-HC-2017(Delhi)-O] | Delhi HC dismisses assessee’s (100% EOU) writ for AY 2007-08, upholds constitutional validity of Sec. 80A(5) as well as fourth proviso to Sec. 10B(1) (the sections mandate filing of return of income within prescribed due-date u/s 139(1) in order to claim tax holiday u/s. 10A/10B) |
| 90 | [TS-5230-SC-2016-O] | SC rules upon issue of set-off of losses of Sec. 10A/10B units, non-eligible units while computing benefit allowable u/s 10A/10B in Yokogawa India and other cases; Holds that Sec. 10A/10B, post amendment by Finance Act, 2000 w.e.f. April 1, 2001, is a 'deduction provision' and not an 'exemption provision' even though it appears in Chapter III dealing with income not forming part of total income |
| 91 | [TS-6428-HC-2016(Delhi)-O] | Delhi HC allows assessee’s writ, quashes reassessment proceedings initiated u/s 147/148 for AY 2004-05; Revenue initiated reassessment proceedings on the ground that assessee should have desisted from filing Form. 56F in respect of the unit which reported losses, which misled the AO into permitting set-off of exempt unit’s losses (u/s 10A) and thus it had “reason to believe” that there was no true and material disclosure of facts on assessee’s part |
| 92 | [TS-6115-HC-2016(Delhi)-O] | Delhi HC upholds ITAT order, allows Sec 10A relief to assesseebranch (a 100% SEZ unit engaged in software development) on profits arising on transfer of software to its foreign head office (‘HO’) during AY 2002-03 |
| 93 | [TS-5501-HC-2017(Delhi)-O] | Delhi HC approves ITAT order allowing Sec. 10A deduction to Amadeus India (assessee, a 100% EOU engaged in rendering ITeS data processing services to Amadeus Spain) for AY 2009-10, notes that assessee’s sole activity was to provide software connectivity for providing access to Amadeus Computer Reservation System (‘CRS’) facility to travel agents for which it received income from Amadeus Spain |
| 94 | [TS-7301-ITAT-2016(Delhi)-O] | Delhi ITAT grants Sec.10AA deduction to a software company (‘assessee’, an Indian company) on income generated by its SEZ units from export of data processing services to Galileo B.V (the Netherlands based company maintaining and operating Computer Reservation System (‘CRS’) facility for airlines/hotel bookings worldwide) for AY 2007-08 |
| 95 | [TS-5135-SC-2016-O] | SC sets-aside Andhra Pradesh HC judgement dismissing Revenue’s appeal; Observes that the question raised before HC was whether trading activity carried on by assessee’s SEZ unit amounts to 'service' eligible for tax holiday u/s 10AA |
Clause 34: Non-compliance with TDS provisions
| Sr. No. | Judgement | Summary |
| 96 | [TS-5655-HC-2017(PATNA)-O] | Patna HC quashes prosecution proceedings u/s. 276B launched against assessee-company for committing TDS default, grants immunity u/s. 278AA for AY 2010-11; During relevant AY, assessee deducted TDS u/s. 194A/194H for Rs. 1.5 lac (approx.) on interest and commission payments, but failed to deposit the same within the specified time owing to Accountant’s oversight, however, upon the defect being noticed by the statutory auditor, TDS was deposited belatedly (but in the same year) alongwith interest u/s 201(1A) |
| 97 | [TS-5577-HC-2017(Allahabad)-O] | Allahabad HC rules in favour of Revenue, upholds initiation of proceedings u/s. 201(1)/201(1A) after a lapse of 10 years against assessee-company (‘deductor’) for TDS default relating to AYs 200405, 2005-06 and 2006-07; During relevant AYs, the assessee did not deduct TDS u/s. 195 on payment of sale consideration to an NRI in connection with the sale of land executed vide sale deed dated June 14, 2005 |
| 98 | [TS-5190-ITAT-2017(Panaji)-O] | Panaji ITAT rules on assessee-bank's (State Bank of Mysore branches) challenge against initiation of proceedings u/s 201(1)/(1A) for non-deduction of TDS u/s 194A on interest payments to Vishveshvaraya Technological University (‘VTU’) during AYs 2011-12 to 2015-16, directs AO to await CBDT’s decision in respect of petition filed by VTU u/s 119 |
| 99 | [TS-5391-ITAT-2017(Chennai)-O] | Kolkata ITAT deletes interest u/s 201(1A) levied for alleged short deduction of TDS u/s 194A on interest payments made by assesseecompany during AYs 2008-09 and 2009-10; Notes that the parties to whom assessee paid interest had obtained lower tax deduction certificates u/s 197 from their respective AOs, but the interest amount mentioned in such certificates was lesser than the actual interest payments made by assessee |
| 100 | [TS-6082-HC-2016(Kerala)-O] | Kerala HC dismisses assessee’s writ, upholds Chief Commissioner’s order denying interest on income-tax refund u/s 244A for the period of delay which occurred in curing defects in TDS certificates for AY 1995-95 |
| 101 | [TS-5552-HC-2017(Gujarat)-O] | Gujarat HC allows assessee’s petition challenging action of Incometax Department not permitting assessee to correct error in PAN ( mistake in 5 characters of PAN) of one of the deductees in TDS statement; For FY 2010-11, assessee deducted TDS @2% u/s 194C, but inadvertently mentioned incorrect PAN in quarterly TDS statement for one of the deductees |
Clause 36: Tax on distributed profits u/s 115-O
| Sr. No. | Judgement | Summary |
| 102 | [TS-5661-ITAT-2017(Bangalore)-O] | Bangalore ITAT rules that share buy-back payment by assessee (Indian subsidiary) to its 99% Mauritian holding company to the extent of Fair market price (‘FMP’), not a colourable device and capital gains benefit under Article 13(4) of India-Mauritius DTAA available for AY 2011-12; Relies on CBDT circular 3/2016 wherein it was clarified that pre-2013 share buy-back shall be taxable as capital gains, and it cannot be re-characterized as dividend |
