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Reported Judicial Decisions- Direct Taxes - Newsletter- February 2019

Statute: Income Tax Act  - Sec.4, 14A – Accrual of income ; own funds 
Decision in favour of : Assessee
Title  : CIT  vs  Maruthi Udyog Ltd
Citation: 407 ITR 159
Bench: Delhi HC
Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee.  In the context of the case which concerned the benefit under a scheme of advance licence under the duty entitlement passbook scheme even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the customs authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee.

Disallowance under  section 14A of the Act is  no longer res integra. As far as question (vi) is concerned, regarding onus to establish nexus between expenditure disallowed and earning tax free income,  it is covered in favour of the assessee by the decision of the Supreme Court in Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT [2017] 394 ITR 449(SC) and of this court in CIT v. Taikisha Engineering India Ltd. [2015] 370 ITR 338 (Delhi). Further, the Income-tax Appellate Tribunal has rendered a factual finding that the assessee was seized of sufficient funds which it could have invested and therefore, there was no question of disallowance of any amount on account of interest under section 14A of the Act. 

Statute: Income Tax Act – Sec.23(1) ( c ) – Vacancy allowance 
Decision in favour of : Assessee
Title  : Sachin Tendulkar  vs  DCIT
Citation: 66 ITR Trib SN 74
Bench: ITAT Mumbai
It was the plea of the assessee that he had made reasonable effort by requesting the builder to identify tenants for the flat. Since an appropriate tenant could not be found, the flat remained vacant. Hence, he claimed the benefit of section 23(1)(c) which duly permits deduction in this regard. That the assessee should maintain a dispatch register for his letters was an abnormal expectation. That the assessee should get a stamped receipt from the builder for the receipt of his letters was equally quixotic proposition. The expectation that despite his unarguably busy professional engagements commanding huge amount of money he should have embarked upon and displayed a more robust and exuberant expedition to find a tenant for his vacant flat by approaching other real estate brokers and keeping an infallible record thereof, was beyond normal conception. The assessee was entitled to vacancy allowance.

Statute: Income Tax Act – Sec.36(1)(iv) – Gratuity Premia to LIC
Decision in favour of : Assessee
Title  : Nortrans Marine Services Private Ltd  vs ACIT
Citation: 170 DTR 108
Bench: Kerala HC
Entire contributions paid by the assesse to the LIC as premium for the policy obtained for indemnification of the gratuity liability towards the employees even for the prior years, would be eligible for deduction under section 36(1)(iv).

Statute: Income Tax Act – Sec.37, Rule 9A – Abandoned Teleserial 
Decision in favour of : Assessee
Title  : CIT  vs  Prasad Productions
Citation: 407 ITR 541
Bench: Madras HC
The issue as to whether the cost of production of an abandoned teleserial or feature film should be treated as revenue expenditure or capital expenditure had to be decided according to the Circular issued by the Central Board of Direct Taxes in Circular No. 16 of 2015 dated October 6, 2015. Though the circular pertained to a feature film, there could not be any distinction between teleserial and feature film as the circular dealt with the aspect in respect to the cost of production of a film.

Statute: Income Tax Act – Sec.56(2)(v) -  Gift from relative 
Decision in favour of : Assessee
Title  : Pendurthi Chandrasekhar  vs  DCIT
Citation: 407 ITR 179
Bench: Telengana & AP HC
Section 56(2)(v) of the Income-tax Act, 1961 was inserted by the Finance (No. 2) Act, 2004 with effect from April 1, 2005. As could be seen from the language of sub-clauses (a) and (b) of clause (v) of sub-section (2) of section 56 , while under clause (a) which deals with a gift from any relative no occasion is envisaged, clause (b) dealing with money received from any other person, specifies the occasion of marriage. The Explanation to the provision defines “relative”, as persons including brother or sister of either of the parents of the individual. When the Act itself does not envisage any occasion for a relative to give a gift, it is impermissible for any authority and even for that matter for the court to import the concept of occasion and develop a theory based on such concept.

Statute: Income Tax Act – Sec.72 -  Stage to examine claim for set off 
Decision in favour of : Revenue
Title  : Shrikant Mohta  vs  CIT
Citation: 170 DTR 50
Bench: Kolkatta HC
Consideration that the loss in any year may be carried forward to subsequent year and set off against the profits and gains in the subsequent year is a question that has to be determined by the AO who deals with the assessment of the subsequent year 

Statute: Income Tax Act – Sec.119, 143(2) – Scrutiny assessment 
Decision in favour of : Assessee
Title  : M.Lodha Impex vs ITO
Citation: 170 DTR Trib 113; 171 ITD 659
Bench: ITAT Indore
Assessee filing revised return beyond time claiming refund of TDS . On application u/s 119(2b) for condoning the delay , CIT directing AO to determine the refund after scrutinizing the case as per para 7 of instruction 13 dated 22.12.2006.  AO issuing notice u/s 143(2) and completing scrutiny assessment.  CIT instruction does not empower AO to make scrutiny assessment and issue of notice u/s 143(2) beyond period of limitation is invalid. Assessment having been quashed due to invalid notice, AO directed to allow refund with interest as per law 

Statute: Income Tax Act – Sec.178 – Recovery by ITO after IBC 
Decision in favour of : Assessee
Title  : Leo Edibles and Fats Ltd   vs  TRO
Citation: 407 ITR 369
Bench: Telengana & AP HC 
 Tax Recovery Officer could not claim any priority merely because of the fact that the order of attachment was prior to the initiation of liquidation proceedings under the Code against the company. Section 36(3)(b) of the Code indicates in no uncertain terms that the liquidation estate assets may or may not be in the possession of the corporate debtor, including but not limited to encumbered assets. Therefore, even if the order of attachment constituted an encumbrance on the property, it still did not have the effect of taking it out of the purview of section 36(3)(b) of the Code. The order of attachment therefore could not be taken to be a bar for completion of the sale effected by the liquidator under the provisions of the Code. The Sub-Registrar had to entertain and register the sale transaction effected by the liquidator in favour of the petitioner, if not already done.

Statute: Income Tax Act – Sec.147 – Notice beyond four years 
Decision in favour of : Assessee
Title  : Anne Venkta Vishnu Vara Prasad  vs ACIT
Citation: 169  DTR 377
Bench: Andhra Pradesh HC
The jurisdictional conditons precedent that there must failure on the part of the assesse to disclose fully and truly all material facts necessary for their assessment and that the income which escaped assessment would amount to one lakh or more, did not even find mention in the notices or the reasons for reopening the assessment. Competent Authority could not have recorded the requisite satisfaction under section 151 when the fundamental jurisdictional conditions justifying the reopening of the assessment beyond the normal four year period did not find mention in the reasons recorded by the AO. In the absence threof, the reopening of such assessment cannot be countenanced.

Statute: Income Tax Act – Sec.159 – Notice on deceased person
Decision in favour of : Assessee
Title  : Alamelu Veerappan vs ITO
Citation: 169 DTR 434
Bench: Madras HC
Notice under section 148 issued in the name of the dead person is unenforceable in the eye of law; notice issued to the widow of the deceased person beyond the period of limitation is a nullity, unenforceable in law and without jurisdiction. Since the proceedings were initiated after the death of the assesse, provisions of section 159 have no application to the facts of the case. Impugned notice is wholly without jurisdiction and cannot be enforced
The language employed in section 292B is categorical and clear. The notice has to be in substance and effect, inconformity with or according to the intent and purpose of the Act. Issue relating to limitation is not a curable defect for the revenue to invoke section 292B. Revenue is not justified in contending that they having no knowledge about the death of the assesse are entitled to plead that the notice is not defective 

Statute: Income Tax Act – 194 H – Discount to Advertising agency
Decision in favour of : Assessee
Title  : Principal CIT  vs  Shailendra Garg
Citation: 407 ITR 388
Bench: Rajasthan HC
The Tribunal was right in concluding that the payment was on the basis of principal to principal and did not constitute commission and deleting the disallowance made by the assessing authority for non-deduction of tax at source from the commission or discount paid by the assessees to the advertising agency under section194H .
[The Supreme Court has dismissed special leave petition filed by the Department against this judgment : [2018] 406 ITR (St.) 9] – Decision of SC in 403 ITR 161 in Prasar Bharathi not cited, but HC decision of Kerala over ruled.

Statute: Income Tax Act – Sec.260A – Power to Review order 
Decision in favour of : Assessee
Title  : B.Jayalakshmi vs ACIT
Citation: 407 ITR 212 
Bench: Madras HC
In VIP Industries Ltd. v. CCE [2003] 5 SCC 507, it was held that all provisions, which bestow the High Court with appellate power, were framed in such a way that it would include the power of review and in these circumstances, sub-section (7) of section 260A of the Income-tax Act, 1961 cannot be construed in a narrow and restricted manner. In the case of M. M. Thomas, the Supreme Court held that the High Court, as a court of record, has a duty to itself to keep all its records correctly in accordance with law and if any apparent error is noticed by the High Court in respect of any orders passed that the High Court has not only the power but also a duty to correct it.

Statute: Income Tax Act – Sec.292 B –  Corrigendum cannot cure defect
Decision in favour of : Assessee
Title  : ACIT  vs  Vijay Television Private Ltd
Citation: 407 ITR 642
Bench: Madras HC
The order passed under section 143(3) of the Act was a final assessment order and the Revenue, realising the mistake committed by it, issued the corrigendum, amending the section to read section 144C read with section 92CA read with section 143(3) . The demand under section 156 of the Act had been issued and penalty had also been imposed. For all practical purposes, the order of assessment was one under section 143(3) of the Act, though the draft assessment order ought to have been passed under section 144C . Though the corrigendum had been issued it did not indicate that the demand and penalty made in the assessment order had been withdrawn. The mistake committed by the Revenue in not following the mandatory requirement of section 144C by passing an order under section143(3) could not be cured by the issuance of a corrigendum. The act committed by the Revenue was an incurable illegality, which could not be protected by section 292B . The order of assessment was not valid.

Statute: Income Tax Act – Sec.263, 292 BB -  Validity of notice 
Decision in favour of : Assessee
Title  : CIT (Exemptions)  vs  Modern School Society
Citation: 407 ITR 228
Bench: Rajasthan HC
The Commissioner (Exemptions) held that the assessee had provided undue benefit to person covered under section 13(3)(d) of the Income-tax Act, 1961 and consequently cancelled exemption u/s 10(23C) by order under section 263.   On appeal, the Tribunal held that the language and tenor of the show-cause notice did not exhibit any thought process of the Commissioner (Exemptions) but it revealed that it was issued and signed by the Deputy Commissioner (Hqr.) as per the instructions and directions of the Commissioner (Exemptions) and that it was apparent that the Commissioner (Exemptions) had delegated his powers to the Deputy Commissioner (Hqr.) to issue the show-cause notice and therefore, it was based on the satisfaction of the Deputy Commissioner (Hqr.) and not that of the Commissioner (Exemptions). The Tribunal further held that it was settled proposition of law that the notice issued by an authority other than the prescribed authority was not valid and therefore the consequential order passed by the Commissioner (Exemptions) was without jurisdiction. When the notice itself was not valid the jurisdiction assumed by the prescribed authority based on the invalid notice became invalid, vitiated the proceedings and the consequential order passed by the authority was invalid and void ab initio for want of jurisdiction and accordingly quashed the order passed by the Commissioner (Exemptions). On appeal, held that the order of the Tribunal was proper and that section 292 BB will not rescue.

Statute: Income Tax Act – Sec.271(1)(c ) – Higher Income in revised return
Decision in favour of : Assessee
Title  : Principal CIT  vs  Trisha Krishnan
Citation: 170 DTR 209
Bench: Madras HC
Assessee showing certain receipts as advance in the original return, but offering the same as income in revised return during the course of assessment is not liable for penalty since advances were reflected in the balancesheet filed along with the original return and thus there was no concealment.

Statute: Income Tax Act – Sec.271(1)( c ) -  Higher claim of depreciation
Decision in favour of : Assessee
Title  : Principal CIT  vs  Bunge India Private Ltd
Citation: 407 ITR 225
Bench: Bombay HC
Computation of depreciation in advertently at a higher rate following the earlier year, where the depreciation included additional depreciation also. Mistake is inadvertent error and bonafide explained.  Deletion of penalty by Tribunal proper.

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