ISSUE:

Whether assessment framed on the basis of notice u/s 143(2) / 142(1) issued beyond the time allowed is bad in law?

HELD:

Notice under section 148 of the Income Tax Act having been issued on 28th August, 1993 and thereafter notice under section 143(2) / 142(1) having been issued on 28th February, 1996, i.e. beyond the time allowed under the IncomeTax Act, assessment framed under section 144 r.w.s. 147 of the Act is bad in law.

2. DCIT v. Catvision Products Limited (84 TTJ 241) (Delhi)

Assessment year 1991-92, Order dated 21st January, 2003

ISSUE:

Whether once a debt is written off in the books of account the same is allowable as deduction u/s 36(1)(vii) of the Act?

HELD:

As per the amended provisions, the claim of bad debt has to be allowed if the amount is written off in the books of accounts. Since the amount was written off in the books of accounts, ITAT held that the CIT(A) was justified in deleting the addition made by the Assessing Officer particularly when no reasons has been given by Assessing Officer for disallowing the same.

3. Hero Cycles Limited v. ACIT (84 TTJ 485) (Chandigarh)

Assessment year 1992-93 to 1994-95, Order dated 30th June, 2004

ISSUES:

· Whether royalty income is includible in the business profits while computing deduction u/s 80HHC of the Act?
· Whether loss on trading activities has to be set off against the export incentives while computing business profits for computation of deduction u/s 80HHC of the Act?

HELD:

· Royalty income from exploitation of trade mark of vendor by the vendee of business was assessable as business income for purposes of Computation of deduction u/s 80HHC of the Income Tax Act.
· Loss from export in traded goods cannot be set off against the export incentives though it can be set off against the manufacturing profit for the purposes of Computing deduction u/s 80HHC of the Act. ITAT has followed decision in the case of Lalsons Enterprises 82 TTJ 1048 and distinguished supreme court decision in the case of IPCA Laboratories Limited 187 CTR 513.

Note: However, special bench of Bombay Tribunal has taken the contrary view in the case of the Manglya Trading Company.

4. ACIT v. Smt. Jyoti Devi (84 TTJ 689) (Jodhpur)

Assessment year 1988-89, 1992-93 and 1993-94, Order dated 9th June, 2004

ISSUE:

Whether order passed on the basis of notice u/s 143(2) issued beyond limitation period is valid?

HELD:

As per the provisions of Section 143(2) notices under said section can be issued only within a period of 12 months from the end of the month in which the return was filed. Amended provisions of Section 147 came into effect w.e.f. 1-4-1989. However, explanatory notes referred to in the CBDT Circular clearly show that these amendments shall be applicable with retrospective effect. Thus, even for the assessment year 1988-89, it was mandatory for the A.O. to issue a notice under section 143(2) / 142(1) within a period of 12 months from the end of month in which return in response to notice under section 148 was filed. The issue of notice within a period of 12 months is a mandatory requirements of law. ITAT held that CIT(A) was justified in canceling the assessments based on the notice issued after the limitation period.

NOTE: Similar matter referred to Special Bench by Ahmedabad Income Tax Appellate Tribunal.

5. ACIT v. Air Canada (84 TTJ 615) (Delhi)

Assessment year 1994-95, Order dated 28th March, 2003

ISSUES:

· Whether payer can be treated as assessee in default when payee has paid advance tax on the receipts from which tax is not deducted?
· Whether penalty is leviable when tax is not deducted on a bonafide belief that provisions of TDS were not applicable?

HELD:

· If a person responsible for deducting tax has not deducted the same in accordance with the Provisions of the Income Tax Act, 1961, it would not be open to him to assert that he is not an assessee - in - default simply because the recipient has paid the advance tax on the amount received from hin. ITAT held that there was no information or evidence before the assessee to come to a reasonable belief that the recipient had paid advance tax at the time of deduction of tax and hence it is difficult to hold that merely on this plea of advance tax payable by the recipient, it absolved the payee for not complying with the provisions of section 194I.
· Non deduction of tax at source from payments made by the assessee-airline to a hotel for accommodation of its crew members under bona fide belief that the provisions of Section 194I were not applicable, did not attract penal provisions.

6. Coromandel Fertlizers Limited v. DCIT (90 ITD 344) (Hyd.)

Assessment year 1991-92, Order dated November 10, 2003

ISSUE:

Ø In a sale of undertaking, when special procedure is adopted for valuation of certain items would it make the sale an itemized sale?
Ø Whether provisions of Section 50 is applicable in such case ?

HELD:

Ø Since in all the documents like invitation for bids, offer made by ICL and Sale agreement, cement unit was stated to have been sold as a going concern, special procedures adopted for valuation of certain items would not detract from concept of a slump sale and the same can not be termed as itemized sale. Since entire manpower of assessee company was taken over by the purchaser with financial liabilities, said cement unit was transferred for a lump sum price as a functional productinve unit and therefore, the same is to be termed as slump sale only.
Ø As it was a slump sale there could not be any tax under head "Capital Gains on sale of an undertaking" as requisite computational factors like cost and date of acquisition, and improvement thereof could not be ascertained and hence provisions of Section 50 will not be applicable.

7. Society for Integrated Development in Urban and Rural Areas v. DCIT (90 ITD 493) (Hyd.)

Assessment year 1997-98, Order dated December 27, 2002

ISSUES:

· Whether exemption u/s 11 can be denied on the ground that trustees has pledge FDRs of the Trust for the personal use?
· Whether tax is leviable on the gross voluntary contributions or only on the contributions after setting of the expenditure?

HELD:

· Since Secretary and executive secretary were not only founder-members of the society but also were executive committee members and secretary herself had signed and pledged FDRs of society, they fell under the class of persons specified in Section 13(3) of the Income Tax Act, 1961. Therefore, provisions of section 13(2)(b) and 13(2)(c) are attracted and society had violated those provisions and was not entitled to exemption under section 11 of the Income Tax Act.
· As regard deductions of related expenditure, ITAT held that though by virtue of Section 2(24)(iia) of the Act voluntary contributions are income, but that by itself does not entitle the authorities to ignore all other well-settled principles of taxations and general law and levy of tax on gross receipts without considering the claim for deductions. Principles, such as, capital versus revenue, doctrines of overriding titles, form versus substance, interpretation of "deeming" or profit can be brought to tax and the same has to be computed in the manner laid down in the Act applying the normal principles of accountancy and taxation laws.

8. ACIT v. Dakshesh S. Shah (90 ITD 519) (Mum)

Assessment year 1998-99, Order dated February 19, 2003

ISSUE:

When dividend income is exempt from tax whether assessee can claim interest referable to amount borrowed for purposes of investment in shares? (Pre- Section 14A scenario)

HELD:

In order to claim deduction u/s 57(iii) assessee has to show that dividend income is assessable under section 56 of the Act. Where dividend income is exempt from tax, assessee is disentitled to claim deduction of interest referable to amount borrowed for the purpose of investments in shares.

9. Asia Investments Ltd. v. DCIT (90 ITD 630) (Mum)

Assessment year 1991-92 and 1992-93, Order dated May 8, 2003

ISSUE:

Whether profit from sale of scrap is eligible for the deduction u/s 80HH of the Act?

HELD:

ITAT held that profit on sale of scrap from an industrial undertaking is eligible for the deduction u/s 80HH of the Income Tax Act, 1961.