Transcript Judicial Decisions

Judicial Decisions
Business/Profession
1
What is business
• 2(13)-includes trade/commerce/manufacture or
adventure/concern in nature thereof.
• Supreme Court-Karnani Properties 82 ITR 547activity carried on continuously in organised
manner with a set purpose to earn profits
• Common controversies-transactions in
shares/commercial complexes/development of
real estate/sale of capital assets.
2
Shares
• Supreme Court: Associated Industrial Development (82 ITR
586): Whether investment/stock-within knowledge of
assessee who should produce evidence of having
maintained the distinction
• Large number of decisions, without any clear direction[2011] 16 taxmann.com 204 (Ahmedabad - Trib.)Sugamchand C. Shah looks like a treatise on the subject.
• Various criteria stated. Number of transactions and period
of holding appear to be dominating.
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Shares : Other considerations
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Frequency of transactions
Whether staff and office maintained
Whether used own or borrowed funds
How asset shown/valued in books-stock or
investment
• Objects in Memorandum of Association
• Treatment in previous years.
• Occupation of assessee-say broker
4
Commercial complexes
• Supreme Court-S. G. Mercantile Corporation P.
Ltd.-83-ITR -700- Ownership and leasing-can
be as a part of business or as land-owner
depending on the object.
• In that case: Object clause-lease/acquire
property and deal with it commercially- Took
property on lease, repaired/remodelled and
let out portions as shops etc-held business.
5
Activity/business
Following may constitute single business
• Trading combined with manufacturing
• Different products manufactured by same
company.
• Manufacturing units at different locations.
• Veecumsees(SC-220 ITR 185)
6
Undertaking/business
• Although part of same business, new factory
may be New undertaking for incentive
provisions like 80IA/IC-Hindusthan Malleables
And Forgings Ltd-(191)-ITR -0070 -PAT
• Substantial expansion could be new
undertaking. Textile Machinery case [1977]
107 ITR 195 (SC)-Indian Aluminium -(108)-ITR 0367 -SC
7
Suspension period
• Suspension for a temporary period (could be
many years) –business considered continued:
-Prayshwin Patel(240 ITR 931)
-Vellore Electric Corporation Ltd.(243 ITR 529)
-Bhagwati Rerolling Mills(211 ITR 227)
-Medley Pharmaceuticals Ltd.(109 TTJ 328).
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Profit
• Receipt escaping tax net when:
• It is on transfer of capital asset (Although relating
to business) –Carbon credits- Hyderabad Bench in
case of My Home Power Ltd. 21 ITR (TRIB) 186
• It is not a revenue receipt-Reliance Industries Ltd.
2011-(339)-ITR -0632 -BOM /Ponni Sugar(306 ITR
392) (SC)/Inox Leisure (351)-ITR -0314 -GUJ
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Profit
• Deductions not listed in Act allowable under section
28:
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Embezzlement 34 ITR 10-SC
Advances for raw materials written off-46 ITR 639
Loss or decline in value of stock in trade- 55 ITR 707
Stocks acquired by gift/Conversion 45 ITR 152
Discounted value of gratuity/leave/warranty-SC-73 ITR
53-Metalbox, Rotork Controls India P. Ltd. (314 ITR 62)
• Damages for breach of contract-144 ITR 57
10
Accrual
• Export incentives- only after claim verified by
authorities. Sriyansh Knitters P. Ltd.(336 ITR
235) and Manav Tools(India) P. Ltd. (336 ITR
237) . Contrary to earlier decisions including
Bajaj Auto Limited( 322 ITR 29).
• Department should not agitate as no effect if
taken in one or other year Nagri Mills Ltd. -33
ITR 681
11
Stocks in Balance Sheet and bank
statement
-CIT V. Veerdip Rollers P. Ltd. 323 ITR 341 (Guj)-SLP of Department dismissed
307 ITR St. 3
-Ashok Kumar V. ITO 201 CTR 178 (J & K)
-Commissioner Of Income Tax V. Das Industries. 2008-(303)-ITR -0199 –ALL
-CIT V. N. Swamy-242 ITR 363(Madras)
-CIT V. Relaxo Footwear- 259 ITR 744(Rajasthan)
-CIT V. Sidhu Rice and General Mills- 281 ITR 428(Punjab and Haryana)
- Commissioner Of Income-Tax V. Acrow India Ltd. 298 ITR 0447 -BOM
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Income found in Survey
• May be considered to be business income for
40(b)/ 80IA etc.
• Income-tax Officer V. Jamanadas Muljibhai
(99 TTJ 197)-Rajkot
• Royale Sunrise V. Income-tax Officer (99 TTJ
1305)-Bangalore.
13
Gross profit decline
• Narendra Mafatlal Mehta V. Income Tax Officer- 59TTJ -0165 Mumbai Bench-gross profit bound to change
• Ahmedabad Bench Pushpanjali Dyeing and Printing
Mills P. Ltd.(72 TTJ 886). –No addition when no defect
in books
• -Delhi Securities Printers V. Deputy Commissioner Of
Income-Tax, Circle 33(1), New Delhi 2007-(015)-Sot 0353 -Tdel
• -Commissioner Of Income-Tax V. Rajni Kant Dave. 2006(281)-ITR -0006 –All
• -Ashoke Refractories P. Ltd. V. Commissioner Of
Income-Tax. 2005-(279)-ITR -0457 -Cal
14
Depreciation
• Car in name of Directors-Not allowed in case of Edwise
Consultants Pvt Ltd- ITA No.391/Mum/2011- Mysore
Minerals Ltd. v. CIT (1999) 106 Taxman 166 (SC)
distinguished
• Car purchased last day of the year but not registeredallowed as `ready to use’ [2013] 31 taxmann.com 228
(Delhi) -K and Co.
• Additional depreciation allowed in case of windmill
when power used for manufacturing unit- I.T.A.
No.1945 / Ahd/2010- Power build Ltd
15
Interest free loans to relatives
•
No disallowance when capital and reserves in case of a company exceed the loans:
- Supreme Court in case of Munjal Sales Corporation V. CIT (298 ITR 298).
- Ahmedabad Bench of ITAT in case of Torrent Financiers(73 TTJ 624).
- Allahabad High Court in case of CIT V. Motor Sales Ltd.(304 ITR 123).
- Madras High Court in case of Commissioner Of Income-tax V. South India Corporation (AGENCIES)
LTD. 290 ITR 217.
-Allahabad High Court in case of CIT V. Radico Khaitan Ltd.(274 ITR 354). 2009-(029)-SOT -0531 TBOM
- Metro Exporters Ltd. V. Income-tax Officer, ). 2009-(029)-SOT -0531 –TBOM
No addition when borrowed funds not used [2013] 36 taxmann.com 14 (Gujarat) -Arihant
Avenue & Credit Ltd.
16
Bad Debts
• T. R. F. LIMITED, APPELLANT V. Commissioner
Of Income Tax -2010-(323)-ITR -0397 –SC- not
necessary to establish irrecoverability. It is
enough if the bad debt is written off
• Anil H. Rastogi (86 ITD 193)- bad debt within
short period from the date of sale.
17
Capital/Revenue expenditure
• Advance for capital expenditure written offnot revenue 231 ITR 842-SC-Hasimara
• Expenditure to ward off competition for 15
years-not revenue-221 ITR 299-MP-Grover
• Total renovation resulting in enduring benefitcapital –Supreme Court - Ballimal Naval
Kishor V/s. CIT 224 ITR 414
18
Capital/Revenue
• Feasibility report for converting coke plant to
cement plant-Revenue-221 ITR 90-Patna
• Raychem RPG Ltd. (346 ITR 138)-Bombay:
Expenditure on ERP package -Revenue
• Repairing increases life of existing asset-not
capital expenditure [2013] 36 taxmann.com 19
(P & H) -Vishal Paper Industries
• Gujarat High Court -Indian Ginning & Pressing Co.
Ltd. V. CIT (170 CTR 122- change in flooring/
sheets of roof, removal of pillar, new cabin, etc
allowed as no new asset came into existence.
19
Capital/Revenue expenditure
• CIT V. Chowgule and Co. P. Ltd. (214 ITR 523), Bombay allowed large expenditure of Rs. 9952440/- about 25 years
earlier
• Expenditure on replacement of certain parts allowed (CIT
vs. Mahalakshmi Textile Mills Ltd. 66 ITR 710)-SC.
• Renovation and reconditioning allowed- Kalyanji Mavji &
Co. vs. CIT 122 ITR 49). SC
• Expenditure on Pipelines, Installations which belong to
Government –allowed-1988-(172)-ITR -0257 -SC Associated Cement Companies
20
Bogus bills of suppliers
• Allowed if the goods received and sold but the
supplier is not identifiable.
• CIT V. M K. Brothers(163 ITR 249), Gujarat High
Court
• Shreeraj Industries, ITA NO.2341/Ahd/1996, the
Ahmedabad Bench
• Vijay proteins 58 ITD 428
• J R Solvent 63 TTJ 165
• Bansal Steel 92 Taxman 314
• Ghanshyam 107 Taxman 126
21
Lumpsum disallowances
• Self made vouchers sufficient- Delhi Bench of ITAT in case of
ACIT V. Allied Construction (106 TTJ 616)
• Lumpsum disallowances deleted:
-Mahendra Oil Cake Industries (P.) Ltd. v. Asstt. CIT (55 TTJ
(Ahd) 711) disallowance of 1/4th of foreign tour expenditure
-Geetanjali Woollens (P.) Ltd. (050)-TTJ -0019 –TAHD
-Monach Foods Pvt. Ltd. -(054)-TTJ -0405 –TAHD
-Coca-Cola India Ltd. 2006-(104)-TTJ -0254 –TPUN
-Hughes Escorts Communications Ltd. 106)-TTJ -1065
-Nodi Exports 2008-(117)-TTJ -0913 –TDEL
22
Section 14A
• No disallowannce for expenses relating to investment in companies
for commercial purpose -Oriental Structural Engineers, Delhi ITA
605/2012
• Large investments in mutual funds- ½ % under Rule 8D confirmed
by ITAT Ahmedabad in case of Munjal Auto Industries.
• Expenses relating to shares held as stock in trade ITA
No.3029/Mum/2012- Damani Estates & Finance - disallowance to
be scaled down to 20% considering that the shares will give rise
to income which is taxable as well as not taxable. 20%
considering that the turnover would be about 5 times.
• [2013] 32 taxmann.com 370 , High Court Of Gujarat in case of UTI
Bank Ltd: where assessee had sufficient interest free funds, tax
free investments presumed interest free funds
23
40a(ia)
• Delhi High Court- Appeal No. 65/2013 Rajinder Kumar –relaxation allowing payment
upto due date for return-retrospective.
• APPEAL No. - 122 of 2013-Vector Shipping
Services(P) Ltd, Allahabad High Court –no
disallowance when the expenditure is paid
and not payable
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40(a)(ia)
• No allowance if tax not deducted originally but
later debited to the party or paid from own
pocket. ITAT Rajkot Bench in case of Bhoomi
Construction in IT APPEAL NO. 601 (RJT.) OF 2012
• TDS by agent-no TDS again by principal. Also no
TDS on reimbursements 35 taxmann.com 638
(Gujarat) -GNFC
• Deduction at lower rate : No/proportionate/full
disallowance
25
40A(2) and Interest
• Empire Motors in ITA No. 1272/AHD/2007 21% allowed.
• In Manisha Dyeing & Printing Works: I.T.A.
No. 3600/AHD./2007 18% allowed.
• In case of Kamalnayan S. Shah V. ACIT [I.T.A
No. 3130/Ahd/2008], market rate is
considered to be between 20% and 24%.
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40A(3)
• Cash deposit by assessee in bank account of
supplier: allowed in Smt. Shelly Passy-Punjab
350 ITR 227 but not allowed in Venkatadhri
Constructions (2012) 80 DTR 363 (Mad)
• Applies even if income is estimated- Sai Metal
Works-Income-tax Appeal No. 125 of 2004Punjal
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Late deposit of PF of employees
• Commonly added and deleted in appeal.
• Large number of decisions of Ahmedabad Bench of
ITAT and High Courts. Example: Gujarat Containers
Limited (ITA NO.2609/Ahd/2008 )
• Sabari Enterprises -2008-(298)-ITR -0141 -KAR
• CIT V. P.M. Electronics Ltd.- 220 CTR 635-Delhi High
Court
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43B
• Taxes not debited to profit and loss account no disallowance under section 43B in case of
• Electricity duty 329 ITR 91
• Service tax 305 ITR 324
• Luxury tax 35 taxmann.com 565
29
Various
• Discovery Estates P. Ltd. 356 ITR 159-sale of
different shops on same floor at different
rates, ranging from Rs.2300/- to Rs.6000/-. No
addition in absence of evidence
• Section 80IB(10)- new conditions with effect
from 1-4-2005. Not applicable to projects
approved prior to that date- Gujarat High
Court- Manan Corporation (356 ITR 44)
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