80IB is allowable for disallowance u/s 40(a)(ia) also

 M/s. Kashmir Udyog I.T.A. No.124(Asr)/2011 21-8-2012
M/s. Singla Cabales, Jammu, in ITA No.147(Asr)/2012 1-6-2012
M/s. Sun Pharmaceuticals, in ITA No.184(Asr)/2009, dated 11.06.2010
Sunandan Aggaral ITA 166/2012 dated 26-7-2012

Presumption however strong can not replace evidence

i. M/s. Monga Metals Pvt. Ltd, vs. ACTI(2000) 67 TTJ 247 (Allahabad).
ii. M/s. Elite Developers Vs. DCIT(2000) 73 ITD 379 ( Nagpur Tribunal)
iii. DCIT Vs. D.N. Kamani ( HUF) (1999) 70 ITD 77 ( Patna Tribunal)
iv. JCIT Vs. Gramophone Company of India Ltd, (2004) 265 ITR (A.T) 46  ( Kolkata Tribunal)
v. CIT vs. Ram Narain 224 ITR 180 (P & H)

Ancestral Property in revenue records can be assessed in Hands of HUF only

I.T.A. No.48(Asr)/2011 Amarbir Singh dtd 23-08-2012
In this assessee deposited cash in bank account out of sale proceeds of ancestral property. Held to assessable in hands of HUF by CIT(A) and ITAT

Wrong Claim by assessee does not tantamount to inaccurate particulars

Supreme Court in Reliance Petro Products 322 ITR 158

Order regarding stay of demand must discuss prima facie case

KLM Royal Dutch Airlines and Anr. v.Deputy Director of Income Tax, (2011) 332 ITR 224 (Delhi) in
support of the contention that the order should be a composite one and specifically deal with various elements such as existence of prima facie case etc.

Delhi High Court Reiterated it in case of Virgin Mobile India Private Limited dtd 17-8-2012 W.P. (C) 4983/2012

Stay of Demand under s.220(6)-CBDT Circulars

Board’s letter F.No.1/6/69-ITCC (Instruction No.96)
Minutes of the 8th Meeting of the Informal Consultative Committee held on 13th May, 1969 –
Implementation of assurance given regarding stay of recovery in certain cases – Sec. 220(6) of the IT Act,

Registration u/s 12AA to be granted even if no activity carried out

Delhi High Court ITA 1687/2010  16-08-2012

FOUNDATION OF OPHTHALMIC & OPTOMETRY RESEARCH EDUCATION CENTRE
Case Represented by CA Ved Jain
Cases Relied by Assessee Counsel

Sanjeevamma Hanumanthe Gowda Charitable Trust vs. Director of IT (Exemption) (2006) 203 CTR (Kar)
533 : (2006) 285 ITR 327 (Kar)

IT Training company educating storage networking held charitable

The main objects of the   assessee, a non-profit company under Section 25 of the Companies Act are   as follows :
     1. To promote, educate and train professionals as well as IT and end
  users in Public and Private sectors working in the field of Information
  Technology, Advancement in the adoption of storage networking as complete
  and trusted solutions, to lead the storage industry in developing and
  promoting standards, technologies and educational services to empower
  organization in the management of information, not with motive of profit.

Tribunal is bound by its earlier decision

The Tribunal is bound by its earlier decision where neither Tribunal has any reason nor the applicant in the ground of revision has brought any new point which requires reversal of eralier decision

Ram Murti Gupta and Sons 1992 P&H Taxes 366 (Pb Tri)

Supreme Court Judgement is precedent for question of lawlaw

Supreme Court judgement is precedent for quaestion of law only and for an order requiring reinstatement of employee without assigning reasons
Surinder Kumar and Ors 194 ITR 434 SC

Supreme Court Judgement even if doubted by another bench to be applied unless declared bad by another bench

Johnson Lifts Ltd 10 STM 864 HC-AP

Judges found to follow decision of co-ordinate bench

If Judges do not agree with decision of coordinate bench the matter must be referred to larger bench otherwise decision of coordinate bench must be followed

1.Sunder Das Kanahaya Lal Bhatija 77 STC 347(SC)
2. Devki Ammal 212 ITR 395 

Refund Harrassment-Anand Prakash Case Delhi High Court 04-05-2012

IN THE HIGH COURT OF DELHI AT NEW DELHI
W.P.(C) 2659/2012
COURT ON ITS OWN MOTION ..... Petitioner

Casual Transaction with relatives and bonafide belief -not penalty for 269SS,269T

•Casual transaction with relatives and bonafide belief and genuineness constitutes reasonable cause—no penalty. Sunil Kumar Goel  315 ITR 163 P&H

 

269SS,269T not applicable to book entry

Acceptance or repayment through journal entry do not attract section 269SS or 269T: Acceptance or repayment through Journal Entry would not come within the ambit of the words ‘loans or deposits’-section 269SS applies only where money passes from one person to another by way of ‘loan or deposit

•’[CIT v. Noida Toll Bridge Co. Ltd. 262 ITR 260 (Del.)]

Amount paid by firm to partners or vice versa- 269SS,269T not attracted

Amount paid by firm to partners or vice versa- is payment to self and does not partake the character of loan or deposits in general law. Provisions of section 269SS are not applicable to such facts( CIT v. Lokhpat Film Exchange (Cinema) [2008] 304 ITR 172 (Raj.)

S.54EC is applicable to depreciable assets also

•M/s. Jai Hind Rubber Products Vs ACIT, ITA No.2296/Mum/2011, Date of pronouncement: 03.08.2012, ITAT- Mumbai

Remuneration to Partners as per Income Tax Act

•The Asian Marketing 2nd May 2012 Rajasthan HC

•The Tribunal finding that “The quantification of the remuneration was apparent from clause 8 of the partnership deed which provided that the remuneration would be payable as per norms fixed by the Income-tax Act. The requirement in law is that remuneration should have been authorized and the amount of remuneration shall not exceed the amount specified in s. 40(b)(v) which uses the word ‘authorised‘ and not the word ‘quantify‘” is a finding of fact which cannot be interfered with by this Court.

•The same view has been taken in Durga Dass Devki Nandan 241 CTR 180 (HP) while a contrary view has been taken in Sood Brij & Associates & Madeena Constructions 134 ITD 1 (Che)(TM) 

206AA not applicable to persons non assesses

•

•

A. Kowsalaya Bai v UOI 5th June 2012

Writ Petitions 12780 – 12782 / 2010 (T) Karnatka High Court

 S. 206AA runs counter to s. 139A and is discriminatory. Though the Legislature’s intention is to bring maximum persons under the income-tax net, it may not insist that even persons whose income is below the taxable limit have to compulsorily obtain a PAN. If any tax avoidance is detected, that can be taken care of by penal provisions.

• Accordingly, s.206AA is read down as being inapplicable to persons whose income is less than the taxable limit. Banks & financial institutions should not insist upon PAN from such small investors. It continues to apply to persons whose income is above the taxable limit

The provisions of section 40(a)(ia) are applicable only to the expenses payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year, without deducting tax at source

•Merlyn Shipping 140 TTJ 1 (SB) Vizag.
Followed by ITAT Asr in Jamkash Vehicleades Pvt. Ltd
 I.T.A. No. 414(Asr)/2010 dated 6-08-2012 
Bright Enterprises Private Limited
Pranik Shipping & Services Ltd. v. Asstt. CIT [2012] 135 ITD 233/19 taxmann.com 107 (Mum.)
Underwater Services Co. [2012] 25 taxmann.com 216 (Mumbai - Trib.)

Ransom to secure release of Director-allowable.

Khemchand Motilal 243 CTR 270 MP 

Payment for settlement of dispute for infringement of patent- motivated by pure commercial purpose – allowable

Desiccant Rotors 245 CTR 572 (Del)

Compounding Fee of Construction is not allowable as business Expense

•Mamta Enterprises 266 ITR 356 Kar

Additional Compensation and new house received for displacement from old house is not taxable

Kushal K. Bangia v. ITO(2012) 50 SOT 1 (Mum.)(Trib.)

The assessee was the member of a housing society. The housing society and it’s members entered into an agreement with a developer pursuant to which the developer demolished the building

owned by the housing society and reconstructed a new multistoried building by using the FSI

arising out of the property and the outside TDR available under Development Control

Regulations. The assessee, as a member of the housing society, received a larger flat in the new

building, displacement compensation of Rs. 6 lakhs (at Rs.34,000/- p.m. for the period of

construction of the new building) and additional compensation of Rs.11.75 lakhs. The Assessing

Officer &CIT(A) held that the said “additional compensation” was assessable as income in the

assessee’s hands. On appeal by the assessee, held allowing the appeal:

Prize Money on Coupons of Small Saving Schemes is not income

CIT v. Tilak Raj Kalra (2012) 206 Taxman 126 / 249 CTR 205/69 DTR 363(P&H.)(High Court)


The Assessee subscribed to PPF which formed part of Small Savings Scheme encouraged by
Government of Punjab. The Govt issued lucky coupon on every investment of Rs.5,000/-. The
Assessee also received lucky coupon which won the prize of 1kg gold. The Assessing officer held
that the price money won by assessee fell within the meaning of section 2(24)(ix) and made
addition as income. On Appeal, the CIT(A) as well as the Tribunal deleted the addition. On
appeal, the High Court, confirmed the view of the Tribunal and held that incentive price received
by assessee on account of coupon given on the strength of small saving certificate would not fall
within the definition of lottery and would not be included as income as per section 2(24)(ix).

Coaching Classes by university or other distance education held not charitable u/s 2(15)

Dy. DIT v. Kuttukaran Foundation (2012) 51 SOT 175 ( Cochin) (Trib.)

A mere coaching class for preparing the students to attend the examination conducted by open university or by the other university or distance education cannot be considered to be regular and systematic schooling within the meaning of Section 2(15). For the purpose of section 2(15), the assessee has to necessarily conduct a regular school/ college in which the students are imparted education, knowledge, training which result in of degree or diploma by government or government agency or university. Activity of coaching classes cannot be considered as Charitable activity within the meaning of section 2(15), therefore the assessee is not entitled to exemption under section 11.

Publication of books on audit etc by ICAI is charitable activity

DIT v. The Chartered Accountants Study Circle ( 2012) 70 DTR 219( Mad.) (High Court)

On appeal by revenue the Court up held the order of Tribunal and held that activities of the assessee trust in publishing and selling books of professional interest which are meant to be used as reference material by general public as well as the professional in respect of bank audit, tax audit etc. cannot be construed as commercial activities and therefore, assessee trust formed with the object inter alia to conduct periodical meetings on professional subjects is entitled to approval under section 80G (5).

INADMISSIBILITY OF EXPENSES INCURRED IN PROVIDING FREEBEES TO MEDICAL PRACTITIONER BY PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRY

CIRCULAR NO. 5/2012 [F. NO. 225/142/2012-ITA.II], DATED 1-8-2012

It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956.

Procedural vs Substantive Proviions

Held by Supreme Court in Hitendra Vishnu Thakur vs State Of Maharashtra on 12 July, 1994

Equivalent citations: 1994 AIR 2623, 1994 SCC (4) 602

(i)A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits.

Interpretation beneficial to assessee to be followed where two interpretations exist

If an interpretation of taxing provision is ambiguous and is reasonably capable of more than one interpretation, that interpretation which is beneficial to the assessee has to be accepted. (i) CIT v. Gwalior Rayon Silk Mfg. Co. Ltd (1992) 196 ITR 149 (SC)

(ii) CIT v. Shahzada Nand & Sons and Ors. (1966) 60 ITR 392 (SC)

(iii) CIT v. Naga Hills Tea Co. Ltd. (1973) 89 ITR 236 (SC)

(iv) CED v. R. Kanakasabai and Ors. (1973) 89 ITR 251 (SC)

(v) Saroj Aggarwal v. CIT (1985) 156 ITR 497 (SC)

(vi) CIT v. Natu Hansraj (1976) 105 ITR 43 (Guj)

(vii) CIT v. J.H. Gotala (1985) 156 ITR 323 (SC)

(viii) Vegetable Products 88 ITR 192

If a law appears to be governed by either of two premises it is clearly the right of the assessee to claim that he should be assessed under that one which leaves him with a lighter burden.  CIT v. Bosotto 8 ITR 41(Mad)

ITAT remanding matter to AO-assessee cannot be worse off than what he was in the original assessment order

Kellogs India Private Limited ITA 6005/Mum/2010 dtd 10-8-2012

The AO passed a s. 143(3) assessment order in which he disallowed 50% of the expenditure on an ad-hoc basis. This was reduced to 25% by the CIT (A). On further appeal by the assessee, the Tribunal set aside the matter to the AO to examine the issue afresh. In the second round of appeal, the AO disallowed 100% of the expenditure on the ground that the assessee had already claimed the same expense under some other head and that there was a claim for double deduction. This was upheld by the CIT(A). Before the Tribunal, the assessee argued that once a matter has been set aside by the Tribunal, the assessee cannot be put into a worse situation than what it was at the time of original assessment. HELD by the Tribunal upholding the plea:

Finance lease vs Operating Lease

As per para 6.3 of Judgement
6.3 In the light of aforesaid terms and conditions of the agreement it is apparent that the assessee entered in to a financing lease arrangement with LPIN for taking certain vehicles for its use. A finance lease is one where the lessee uses the asset for substantially the whole of its useful life and the lease payments are calculated to cover the full cost together with interest charges. It is thus a disguised way of purchasing the asset with the help of a loan. 

Credit Co-op Society is different from Co-operative Bank, hence deduction of 80P to be allowed

a co-operative credit society Is entitled for deduction under section 80P(2)(a)(i)
2012] 24 taxmann.com 127 (Pune - Trib.) 26-6-2012
Jankalyan Nagri Sahakari Pat Sanstha Ltd.

Perpetuating Memory of national war heroes is charitable Activity

The primary object of the Samiti was to set-up suitable memorials to perpetuate the memory of National War heroes, in general all over India including Sh. Prithvi Raj Chauhan, Sh. Hem Chand Vikramaditya & Sh. Sadashiv Bhau and also to set up museum, library and exhibition,display of weaponry and other antique items connected with defence activities. 

The Commissioner of Income Tax placing reliance on the ratio laid down in Kedia Jatiya Sahayak Sabha & Fund v. CIT [1963] 49 ITR 74, 81 (Cal.) and in the case of Mahakoshal Shaheed Smarak Trust v. CIT [1983] 140 ITR 795/12 Taxman 173 (MP) held that the assessee was not eligible for registration under section 12AA of the ActHence registration u/s 12AA should be granted.

Held that above two decisions are applicable to particular community. Hence 12AA registration granted      2012] 24 taxmann.com 126 (Chandigarh - Trib.) Yodha Samarak Samiti v.Commissioner of Income-tax, Panchkula 11-06-2012

Agent maintaining Storage and Offloading efficient operation to receive, storage and deliver goods correctly, is a part of operating team for process of production carried out by other person and, thus, cannot be regarded as providing storage and warehousing services to such other person

[2012] 24 taxmann.com 144 (Chennai - CESTAT)

Aban Loyd Chiles Offshore Ltd.

v.

Commissioner of Service Tax, Chennai*

Instructions dated 31-5-2012 of ETC to conduct surveys

Adding to the misries of dealers in Punab, ETC has issued following direction on 31-05-2012 to its subordinates :

-          Surveys be got conducted

-          Scrutiny and assessment of all the returns

-          Authenticate all the bill books of dealers

-          Especially terrorise the dealers dealing in goods fetching rate of 12.5%

-          Visit the shops on regular basis

-          Note down numbers of running bills

-          Check customers for issue of invoice by dealers

-          All the dealers to be visited  in next two months.

Representation on E-Trip System in Punjab

The spate of recent pronouncements issued by the Excise and Taxation Commissioner has led to chaos and fury amongst the business community of the Punjab. All the constructive suggestions and recommendations are being brushed aside and have taken a seat aback and directions which will mar the already ailing trade and industry are being shot one after another. ETC’s efforts for increasing Vat revenue are targeted at making the dealers’ life more and more miserable instead of doing internal cleaning and wiping off corrupt officer and practices off the scene.

                                    The recent pronouncements of ETC of implementing E-TRIP system w.ef. 10-08-2012 has sent the shock waves amongst trading community. It says information regarding intra state movement of goods (with in Punjab) shall be furnished by persons making sales of Rs. 3 lakhs or above in a single transaction except in case of iron and steel where this threshold shall be Rs. 2 lakhs.

Order of Tribunal can not be revised if Case Law not quoted during Submissions

The counsel of assessee pleaded in service tax case before CESTAT that decision of Punjab & Haryana High Court on case of CCE v. First Flight Courier Ltd. [STA No. 48 of 2010, dated 28-1-2011] that penalty u/s 76 can not be imposed where penalty levied under s.78 even before amendemend in 2008 be considered . Further he argued that same judge passed similar order just 15 days before rendering judgement in assessee's own case.

Analysis of Service Tax Proposals in Finance Act 2012

New Charging Section 66B

•         There shall be Levied a tax (here in after referred service tax) @12%

•         on value of all services

•         other than those specified in negative list

•         provided or agreed to be provided in taxable territory

•         by one person to another

•         and collected in such manner as may be prescribed.

Analysis of Service-65B(44)

•         -any activity (not defined)

•         - for consideration (not defined)

•         - carried out by a person for another

•         - and includes a declared service (s.66E)(9 services) (out of this 4 services are similar to deemed sales under Art 366(29A) of Constitution)

Non Applicability of Service Tax in State of Jammu and Kashmir

-         Article 370 of Constitution restricts the Central Government to make laws for J&K, that is why service tax is not applicable to J&K

-         A person having place of business in J&K providing services out side J&K shall be charged to service tax. However if such person is not having any office or establishment outside J&K, collection of tax shall pose problem. But an opinion prevails that although charging of service tax in J&K is restricted but not the collection. Still it is a moot point

-         On the other hand a person in other parts of country providing service in J&K shall not be liable to service tax

-   A letter  of the Director General of Service Tax (F. No . V/DGST/03/GEN/INS/01/2004, dated 17-8-2004) referring the Central Board of Excise  and Customs (CBEC) Circular No. 56/5/2003, dated 25-4-2003 clarifies that,  "Service Tax is a destination based consumption tax and the principle of consumption of services would determine the liability of Service Tax."

According to the above letter of the DGST, the insurance services rendered to the clients having assets outside the state of Jammu and Kashmir, by M/s. New India Assurance Company Ltd., Jammu would be liable to Service Tax. However, services provided to the clients having assets in state of Jammu and Kashmir, by your Jammu Branch are not liable to Service Tax.

Principles of Best Judgement assessment

The Hon'ble Supreme Court has categorically laid down in the case of State of Orissa v. Maharaja Shri B.P. Singh Deo, 76 ITR 690 (SC), that the mere fact that the material placed by the assessee before the Assessing Officer is unreliable, does not empower the Officer to make an arbitrary order. The power to make the best judgment assessment is not arbitrary one. The Assessing Officer in making a best judgment assessment does not possess absolute arbitrary authority to assess the income at any figure as he likes. Although he is not bound by strict judicial principles, he should be guided by the Rules of Justice, equity and good conscience. The Assessing Officer must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be fair estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. There is nothing in section 144 for holding an assessment made by an officer u/s. 144 without conducting a local enquiry and without recording the details and results of that enquiry cannot have been made to the best of his judgment within the meaning of that section. The best judgment is to be based on a fair and proper estimate of assessee's income and the inference to be drawn from the available material should be properly inferable inference. The assessment is to be based on material to the extent to which the materials are discovered. This clearly supposes the Assessing Officer should make an intelligent well-grounded estimate. Such estimate must be based on adequate and relevant material. What is irrelevant material depends on the facts and circumstances of the case 

Case Laws on 269SS favoring assessee

In following cases 269SS not applied having regards to facts and circumstances of the case
i)ITO vs Rajendera Trading Co.48ITD210 Chd SMC
ii)Muthoot M. George Bankers 46 ITD 10 Cochin
iii)Jay Builders 111 Taxmann 211(Mum Tri)
iv)Shree Nath Builders 111 Taxmann 142
v)Mrs Rupali R. Desai 88 ITD76 (Mum)

Loan through book Entry. 269SS/T not to apply if backed by lender and acceptance letter of receiver
- Sunflower BUilders Private Limited 61 ITD 227

Retrospective Amendmend

nThe retrospectivity and prospectivity of the statute has been considered by Hon'ble Supreme Court in number of recent judgments, vide., (2008) 1 SCC 188 (Jaswant Talkies. Vs. Commercial Taxes Officer, Bhilwara); JT 2009 (9) SC 306 (High Court of Delhi Vs. A.K. Mahajan and others); JT 2009 (9) SC 386 (M/s Shakti Tube Ltd. Vs. State of Bihar); 2910 (2) SCC 422 (Union of India and another. Vs. Kartick Chandra Mondal and another), held that in case, statute expressly itself not made it operative retrospectively, it shall operate prospectively.

Vodafone Case

-Hutch Group formed and invested in India in HEL (Hutchison Essar Ltd.) in 1992 and thus invested in telecomm sector in India.
-On 12-01-1998, Hutch Group Co. HTIL (Hutchison Telecommunication International Ltd.) formed CGP -Investments Ltd. In Cayman Islands and acquired 100% shares in CGP Investments Ltd.
-HTIL was also incorporated in Cayman Islands.

Analysis of Direct Tax Under Union Budget 2012

                             FINANCE BILL 2012

                   DIRECT TAX PROVISIONS

Tax Rates for AY 2012-13 i.e. AY 2013-14

Individual/HUF/AOP,BOI, Artificial Juridical Person

Up to 200000	NIL
2000001 to 500000	10%
50000o1 to 1000000	20%
Above 1000000	30%

Exemption limit for senior citizen (age of sixty years or more but less than eighty years) Rs. 250000

Exemption limit for senior citizen (age of sixty years or more but less than eighty years) Rs. 500000

Rates of taxes for companies, firms, co operative societies, local authorities to continue

Analysis of Residence status for Individual under DTC (Standing Commitee Report)

  Clause 4 (1) of the Code deals with  residency of Individuals.

4(1) An individual shall be resident in India in any financial year, if he is in

India—

(a) for a period, or periods, amounting in all to one hundred and eighty-two days or more in that year; or

(b) for a period, or periods, amounting in all to—

(i) sixty days or more in that year; and

(ii)  three  hundred  and  sixty-five  days  or  more  within  the  four  years immediately preceding that year.

(2) The provisions of clause (b) of sub-section (1) shall not apply in respect of an individual who is—

(a) a citizen of India and who leaves India in that year as a member of the crew of an Indian ship; or

(b) a citizen of India and who leaves India in that year for the purposes of employment outside India.

Where assessee was putting up construction not for self occupation, but for business of selling a portion of building and leasing over premises it could not be absolved of its obligation under section 40A(3)

[2012] 19 taxmann.com 105 (Karnataka) HIGH COURT OF KARNATAKA Sanu Family Trust DECEMBER 7, 2011Section 40A(3) of the Income-tax Act, 1961

 - Business disallowance - Cash payment exceeding prescribed limits - Assessment year 1996-97 - Whether where assessee was putting up construction not for self occupation, but for business of selling a portion of building and leasing over premises it could not be absolved of its obligation under section 40A(3) and, therefore cash payments made by assessee in excess of Rs. 20,000 could not be allowed - Held, yes [In favour of revenue] 

Section 40(a)(ia) cannot be invoked in respect of reimbursement which are not routed through profit and loss account to be claimed as deduction

[2012] 19 taxmann.com 109 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'A'Sharma Kajaria & Co.FEBRUARY 17, 2012

Section 40(a)(ia), read with section 194J, of the Income-tax Act, 1961 - Business disallowance - Interest, etc., payable to resident without deduction of tax at source - Assessment year 2006-07 - Whether question of disallowance under section 40(a)(ia) can only arise when something is claimed as a deduction in computation of business income - Held, yes - Whether reimbursements simplicitor, being profit neutral, are not routed through profit and loss account to be claimed as deduction and, therefore, no disallowance under section 40(a)(ia) can be made in respect of reimbursements - Held, yes - Assessee was a firm of solicitors and advocates - During assessment proceedings, Assessing Officer noted that assessee had made payments to various lawyers for their professional services, but had not deducted tax at source under section 194J from same - He, therefore, disallowed such payments under section 40(a)(ia) - Assessee contended that amounts paid to lawyers were reimbursed by assessee's clients and when deduction was not claimed in respect of those amounts, there could not be any occasion to invoke section 40(a)(ia) - Commissioner (Appeals), however, upheld disallowance made by Assessing Officer - Whether without there being any categorical finding to effect that payments to outside lawyers were claimed as deductions in computation of profits, disallowance under section 40(a)(ia) in respect of such payments could be sustained - Held, no [In favour of assessee] 

Assessee has not credited interest in its books of account and such interest has not been paid in relevant year, and assessee claiming deduction in computation if income on merchantile basis, mandate of section 194A cannot be attracted to further invoke disallowance under section 40(a)(ia

Held by ITAT MUMBAI BENCH inPranik Shipping & Services Ltd. on 25-01-2012, [2012] 19 taxmann.com 107 (Mumbai - Trib.

"........................... the assessee did not credit such interest in the books of account under any account. Rather the deduction has been claimed on the basis of mercantile system of accounting straightway in the computation of income, without routing it through books of account, which has been held by us to be allowable in an earlier para. In view of the fact that the assessee has not credited the amount of such interest in its books of account and further such interest has not been paid in this year, the mandate of section 194A cannot be attracted. Rather this provision comes into play only when either the amount is credited in the books of account or interest is paid, whichever is earlier. Once there is no liability to deduct tax at source u/s 194A, the provisions of section 40(a)(ia) cannot be attracted.

14. Probably this loophole was not contemplated by the Legislature while enacting the relevant provisions, which has been exploited by the assessee as a measure of tax planning. We cannot remedy the situation. In this year the deduction has to be allowed. It will be open to the Assessing Officer to consider the later development of actual payment or non-payment of interest to M/s Sahara India Financial Corporation Limited and deal with it as per law in such later years. This ground is allowed.

15. In the result, the appeal is allowed.

As an interim relief, retired members of Tribunals are permitted to practice before Benches where they had not remained posted and held Courts temporarily or on regular basis

[2012] 19 taxmann.com 118 (Allahabad)

HIGH COURT OF ALLAHABAD

Dinesh Chandra Agarwal

v.

Union of India*

JANUARY 19, 2012

Rule 13E of the Income-tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963 - Ban on practise - Rule 13E notified on 3-6-2009 imposed a ban on practise by retired members before Tribunal - Petitioner, a retired member of Tribunal, filed writ petition to quash aforesaid rule 13E on ground that same is ultra vires to provisions of section 288 of Income-tax Act, 1961 as well as to provisions of section 30 of Advocates Act, 1961 - Whether rule 13E appears to be offensive in two respects; namely, that retired members have been completely barred from practice before Tribunal, and secondly, that aforesaid rule 13E has been interpreted to apply retrospectively in judgment rendered in case of Concept Creations v. Addl. CIT [2009] 120 ITD 19 (Delhi) (SB) by Tribunal, Delhi, beyond its pale of competence as it has jurisdiction to decide only matters relating to tax appeals as contained in Income-tax Act vide sections 253 and 254 thereof - Held, yes - Whether till next date of hearing, operation of impugned rule 13E as well as judgment in case of Concept Creations (supra) shall remain stayed insofar as they impose a complete ban on practice by retired members before Tribunal - Held, yes - Whether, thus, it would be open for retired members to practise before Benches of Tribunal where they had not remained posted and held courts temporarily or on regular basis - Held, yes [In favour of petitioner]