Issue :- Can Assessing Officer make inquiries in u/s. 147 proceedings on other points than for which notice u/s. 147 is issued.

Held : - When proceedings u/s. 147 of the I.T. Act, 1961 are initiated the proceedings are open only qua items of under assessment. The finality of assessment proceedings on other issues remains undisturbed. It makes no difference whether the assessment proceedings have become final on account of framing of an assessment u/s. 143(3) of the Act or on account of non issue of a notice u/s. 143(2) of the Act within the stipulated period. A general inquiry can only be made by the Assessing Officer by issuing a notice u/s. 143(2) of the Act within the stipulated time. After the expiry of the stipulated period, the Assessing Officer cannot seek material unconnected with the reason for reassessing the income.

Issue : - What treatment should be given to the discount amount and premium amount of the issue of the debentures ?

Held : - When a company issues debentures at a discount, it incurs a liability to pay a larger amount than it has borrowed,in future. The liability however to pay the discounted amount over and above the amount received for the debentures is a liability which has been incurred by the company for the purpose of its business in order to generate funds for its business activities. The amounts so obtained by issue of debentures are used by the company for the purpose of its business. On principle, the case of additional liability incurred over and above the sum received by issue of debentures redeemable on premium cannot be differentiated from the case of additional liability incurred over and above the sum received on account of issue of debentures at a discount. The expenditure so incurred for generating funds for the purpose of its business activities is not a capital expenditure but a revenue expenditure.

The loss thus arising need not be completely written off in the year in which the debentures are issued, since the benefit to be derived from the amount borrowed will continue till the debentures are redeemed, when the debentures are redeemable at the end of a fixed period a proportionate amount of discount should be written off out of revenue every year during which the debentures are outstanding.

The amount undertaken to be paid over and above the amount received on issue of debentures at the time of redemption was a revenue expenditure incurred for generating the fund for business activities. Thus the proportionate liability could be allowed as deduction in the period during which the money borrowed through the issue of debentures was to be utilized i.e. to say upto the date of redemption.

73. Sale of Agricultural land and Capital Gain

Issue : - What are the factory relevant for considering that the land is agricultural land even though situated in commercial area.

Held : - High Court laid down following two conditions to be satisfied for claiming the benefit from the sale agricultural land.

(i) The capital gain must arise from the transfer of land which, in the two years immediately preceeding the date on which the transfer took place was being used by the assessee or his parent for agricultural purposes; and

(ii) The assessee must have purchased the land within a period of two years after the sale of the above land for being used for agricultural purposes.

Court also held that the following are the irrelevant considerations for holding that the land in question is agricultural land.

(i) The land being located in a commercial area, or

(ii) The land having been partially used for non agricultural purposes; or

(iii) The vendees had also purchased it for non agricultural purposes.

74. Search Cases : Block Assessment : Computation v/s. Assessment

Issue : - Whether “computation” and assessment have different meanings for the purpose of Block Assessment in search cases ?

Held : - High Court has in the instant case distinguished the meanings of “computation” and “assessment” in the context of Block Assessment in the following manner.

(1) The word “Computation” has a narrower meaning than the word “Assessment”.

(2) It is also completely distinct and different from estimate.

(3) In the context of Income Tax Act, computation is a calculation, a method of determination by reckoning through calculation.

(4) It involves some methodical process with some amount of approximate mathematical precision based on the calculable data available.

(5) Calculation presupposes a calculation on the basis of the materials, which is something different from estimation or appraisal and it must be based on methodical calculation with same amount of proximity to mathematical process on the materials available on search and seizure.

75. Meaning of “Under Protest”

Issue : - What is the meaning of “under protest”.

Held : - In a case, where assessee filed return of wealth under protest and made certain claims of non inclusion of wealth in total wealth and had paid tax, the court had an occasion to consider the meaning of “under protest”, which is as under : -

(1) The matter had not been decided on merits,

(2) Fresh proceedings according to law were not barred,

(3) It means that if the terms are accepted the dispute shall and, if not, they cannot be used against the writers,

(4) In the commercial world, the words “without prejudice” normally import into transaction that the parties have agreed that as between themselves the receipt of money by one and its payment by the other shall not of themselves, have any legal effect on the rights of the parties, but they shall be open to settlement by legal controversy as if money had not been paid.

(5) In common parlance “without prejudice” denotes protest.

(6) In the instant case the words “without prejudice” were used to convey to the Assessing Officer that mere filing of return and payment of tax shall have no effect on the rights of the assessee and it shall be open to claim settlement of the controversy as if it had not filed the return under the Act. Filing of return “without prejudice” to the legal rights signifies filing or submission of the return accompanied by a declaration that if the protest is accepted, the dispute shall end, if not mere filing of return will not be allowed to be used against the assessee implying its admission.

(7) “Without Prejudice” implies future rectification in accordance with law.

76. Negligence by CIT & Explanation demanded by Court

Issue : - Court´s action of asking explanation of CIT for negligence.

Held : - In spite facts of death of the assessee on record, notices were issued and assessment was made in the name of the deceased person. Such assessment was cancelled holding that, “as the principles of natural justice are grossly violated, there is no option but to quash the assessment order”.

As a consequence court observed and ordered as under : -

There is another aspect of the matter. The facts speak a lot about the negligence on the part of the Commissioner of Income tax (Delhi) who is represented before us. No explanation is rendered whatsoever for not taking appropriate action after the respondents were informed about the death of the person concerned. No explanation is rendered whatsoever as to how proceedings commenced against the dead person.

Therefore, the Commissioner of Income Tax (Delhi) is directed to render the explanation in this behalf. The explanation to be rendered within a period of 15 days.

77. Income determined by Net Profit rate and Section 40A(3)

CIT v/s. Purshottamlal Tamrakar
270 ITR 314 (MP)

Issue :- Can there be further disallowance u/s. 40A(3) when the income is determined by application of Net Profit rate ?

Held : - High Court held that the Tribunal had rightly treated that Section 40A(3) is not applicable when a net profit rate is applied by the officer.

Once a net profit rate is applied, the expenses are deemed to be considered while applying the net profit rate. Therefore no further deduction is to be allowed or to be disallowed.