Sunday, July 31, 2011

Secure bank transactions must be customer-friendly too: RBI


Acknowledging the challenges faced by banks in thecyber era, a topRBI official has said banks should ensure transactions are hassle-free and user-friendly so as to the retain loyalty of customers.

"For example, multi-layer security by way of login password, transaction password and confidential data confirmation make online transactions more secure.

"But, there are issues like memorising multiple passwords, slogans, pictures, answers to questions, etc, and some transactions of urgent nature getting struck due to these problems, or even online access getting blocked some times.



"This, coupled with the time taken for access re-activation, password generation, etc, which is sometimes a lengthy, time-taking process, causes irritation and inconvenience to the customer," said RBI Executive DirectorG Padmanabhan at the Annual Conference on Secure Banking 2011 organised by theIndian Banking Association (IBA)) recently.

He said managing security was more challenging in online and phone banking compared to other delivery channels.

Threats to ATMs also take the form ofATM skimming,eavesdropping,spoofing and service denial, he observed, citing threats like password hacking, cardcloning, data and identity theft at various levels of the transaction, Padmanabhan added.

Observing that identity theft in electronic transactions is a growing cybercrime, Padmanabhan said innovative methods of hacking and stealing have come to the fore regularly and the industry has to take prompt action to safeguard business and customer interest.

Stressing that management of third party risks in transactions has becoming a daunting task, he said unlimited cyberspace exposes banks to internationally organised crimes.

"Inmobile banking, the challenge is to decide the transaction value limits up to which un-encrypted data can be transmitted for payments and funds transfer. If limits are set too tight, there can be cost and efficiency implications while making it too lax may invite the risk of information getting compromised.

"If we recognise that compromise of cards could happen, not only at ATMs but also at to over half-a-million and still growing point of sale (PoS) terminals, the task is indeed formidable," the RBI official said.

On the modus operandi of fraudsters, he said after the RBI introduced second factor authentication, their focus has shifted to ATM transactions.

Source : ET

Transfer Pricing: The contemporaneous data of relevant financial year is to be used for making the comparable analysis for arriving at the ALP, unless it is proved otherwise


Non-operating income and expenditure should be excluded while computing the profits of the comparable companies.

For arriving at the net margin of operating income, only operating income and operating expenses for the relevant business activity of the assessee are to be taken into consideration.

The assessee, a courier company, paid Rs. 43.46 crores to its holding company in Netherlands towards the reimbursement of cost in the transport of consignments. For arriving at the Arm’s Length Price (ALP), the assessee has adopted the Transactional Net Margin Method (TNMM), with operating profit/sale as Profit Level Indicator (PLI), as the most appropriate method. The assessee has identified four courier company as comparable and the arithmetical mean of their PLI comes to 3% where as the taxpayer’s PLI comes to 1% which lies within the 5% margin. The data used pertains to 2000–2001 and 2001–2002. Since the transaction was an international transaction and involved transfer pricing, a reference was made under s 92CA to the Transfer Pricing Officer (TPO). The TPO and CIT(A) adopted the TNMM and claimed that as the operating profit/operating income of the comparables was higher than that earned by the assessee, an adjustment had to be made. It was also claimed that the assessee was not entitled to rely on the data of earlier years. Being aggrieved, the assessee has filed the present appeal.



The issue is whether the international transaction of the assessee was at arm’s length and that multiple year data should have been considered for determining the ALP and that the CIT(A) and the TPO have erred in including non-operating income and expenses in computing the profits of the comparable companies, and whether the contemporaneous data of relevant financial year is to be used for making the comparable analysis for arriving at the ALP unless it is proved otherwise.

The relevant financial year is 2001–2002, while the assessee has used the data pertaining to AYs 1999–2000 and 2000–2001. The assessee’s argument that at the time of the TP study, it did not have the data relating to relevant comparable, ie for the FY 2001–2002, is acceptable. However, as held by the CIT(A), the assessee has to adopt the data available for the TP study at the time of filing of income-tax returns. It is not the case of the assessee that by the time of filing of income-tax returns, the data relevant to FY 2001–2002, was not available. Further, the prior year’s data is relevant only if the assessee is able to prove that the pricing pattern of the assessee for the relevant financial year has been influenced by the market conditions/business cycle/product life cycle of the earlier years. The assessee being in the business of courier services, the fluctuation caused by business/economic/product life cycle would not in any way affect the pricing pattern of the services of the relevant financial year. In the absence of any cogent and reasonable reasons given by the assessee for justification of the use of multiple year data, except placing reliance upon the OECD guidelines and also the proviso to Rule 10B(4) of the Income-tax Act, this Court does not see any reason to interfere with the order of the CIT(A). The OECD guidelines are not of a binding nature and even the provisions to Rule 10B(4) only provides that any subsequent year’s data cannot be considered. The CIT(A) rightly held that the contemporaneous data of the relevant financial year is to be used for making the comparable analysis for arriving at the ALP unless it is proved otherwise.

The argument that the assessee has not been given an opportunity for the inclusion of a new company for determining the ALP is not acceptable because the CIT(A) has clearly observed that M/s Gati Ltd., which is the comparable taken by the CIT(A), was the comparable taken in the subsequent financial year and the assessee had raised no objection to the same, when the nature of services are the same and the risk involved are also the same.

For arriving at the net margin of operating income, only operating income and operating expenses for the relevant business activity of the assessee are to be taken into consideration. The other incomes, such as dividend income, profit on sale of assets, donations as well as non-operating expenses which are included in the operating incomes of other comparable companies should be excluded as it effects the net margin of the operating profits of the comparables. The comparison has to be between the likes and on the equitable grounds of the indicators of the comparison, and therefore only the income derived from the operation of the said activity are to be considered. Similarly, the working capital adjustments also have to be considered while arriving at the operating net margins. Thus, this issue is remanded to the file of the AO/TPO to re-work out the operating margins of the comparables of the assessee and to make the adjustments of the transfer pricing accordingly.

The ALP shall be arrived at after giving the standard deduction of 5% of the arithmetical mean arrived at by the TPO/AO as provided under proviso to s 92C (2), before making adjustments of the transfer price. The AO is directed to adopt the arm’s length price accordingly.

Employees Provident Fund Organisation (EPFO) asked to deduct tax on all withdrawals by workers with less than five years of PF savings by I-T department

The I-T Department asks EPFO to deduct tax on all withdrawals by workers with less than five years of PF savings by the I-T department. EPFO has never levied any tax on such withdrawals, though as per the provisions, there is a lock-in-period of five years for PF savings. As per EPFO, they are of a view that as the statutory salary limit for EPF is Rs. 6500 pm, individuals whose salary is less than this taxable limit cannot be subjected to tax. Employers who run their own PF trusts already deduct tax on such premature withdrawals.


[Source: The Economic Times]

Saturday, July 30, 2011

Draft Land acquisition Bill offers land owners bigger rewards of industrialisation & urbanisation


Steering clear off the debate regarding the government's role in land acquisition, the draft National Land Acquisition and Rehabilitation & Resettlement Bill, 2011, offersland owners a bigger share of the rewards ofindustrialisation and urbanisation. The draft bill, which has been put in public domain, proposes a liberal compensation and award package for land owners that includes a subsistence allowance of 3,000 per family per month for a year, annuity of 2,000 per family per month for 20 years, 20% of the appreciation in value of land during each transaction for 10 years, and mandatory employment provisions, among other things. Observing that land markets in India are "imperfect", Rural Development Minister Jairam Ramesh said in his foreword to the draft that there is asymmetry of power and information between those wanting to acquire the land and those whose land is being acquired. "That is why there has to be a role for the government to put in place a transparent and flexible set of rules and regulations and to ensure its enforcement," he said.

Supreme Court bans mining in iron-ore rich Bellary; JSW Steel, Jindal Saw, Tata Metaliks to be hit



The Supreme Court's exasperation with the Karnataka government's response to the fast-spreadingmining scandal turned into outright anger on Friday with the court banning all mining across the iron ore-richBellary region. The ban will be effective in Bellary, nearby Hospet and Sandur, a region accounting for a third of the iron ore produced in India. Production of about 25 million tonnes of steel across the country is expected to be affected, including operations at JSW, India's biggest private sector steel firm.

Source : Economic Times

E-payment of customs duty mandatory


To reduce the transaction costs of importers and expedite time taken for customs clearance, the Central Board of Excise & Customs has decided to make e-payment of duty mandatory for importers paying Rs 1 lakh or more per transaction. The date will be notified separately. For those under the Customs Accredited Client Programme, irrespective of any amount of duty, the customs duty will have to be through e-payment only. E-payment at Customs locations was introduced in 2007 and is available through more than one authorised bank at all major locations having Indian Customs EDI System facility. Though voluntary, the facility has been made use of by numerous importers. Besides expediting the process of payment of duty and clearance of imported goods, it has resulted in less transaction costs, CBEC said in a circular.

How China boom triggered illegal mining in Karnataka

It was the 'China boom' that triggered uncontrollable illegal mining in Karnataka, and miners, transporters and suppliers flouted every rule in the book to plunder the natural resources of the state.

The Lokayukta report primarily records the various methods used by the people involved in the mining industry to illegally lift, transport and export iron ore from 2006-2010, from Karnataka.

It speaks about the 'China boom' and narrates how the measures taken to curtail illegalities fell flat in the face of the strong lobby of miners and their associates.




Legal mining

Iron ore should be extracted only from the lease area, which lies either on forest, revenue or patta lands (private lands). The quantity of ore to be extracted annually is specified in the contract.

Normally, the transportation of iron ore is from a lease area or stockyard to the port or steel plants. To transport the ore from one place to another requires an authorized transit permit, which is issued by the department of mines and geology (DMG) and also the forest department, if the lease area is on forest land.

Mineral dispatch permits (MDP) are bulk dispatch permits issued with a validity of one month. It contains the name of the lessee, stockyard owner, source of ore, quantity and grade of ore, name of the person in case of sale, and destination of consignment, route etc.


Export illegality

The total export of iron ore of Karnataka origin from 2006 to 2010 was 12.57 crore tonnes. Like in other commodities, exporters of iron ore have to register with the director general of foreign trade and obtain an import export code (IEC) number.

They should file a shipping bill with customs for each export consignment. The shipping bill is a customs document that contains the name and address of the exporter, origin of the ore, quantity and grade of iron ore, customs duty paid, name and address of the consignee, destination port and country etc.

But violating all rules, in connivance with officials of various departments, the miners exported ore illegally.

The highest quantity of export of illicit iron ore, approximately 1.27 crore tonnes, took place in 2009-10. From 2006-10 , the approximate loss to the state exchequer due to illegal exports was Rs 12,22,000 crore. To check the menace, export was banned from July 28, 2010.

Despite that, 17.58 lakh tonnes of ore was illegally exported.


Illegalities

The miners' lobby knew the tricks to beat the law. They bribed officials and forged documents to loot iron ore, especially from Bellary, Tumkur and Chitradurga districts.

This is how they did it: Miners extracted ore beyond the permitted quantity Extracted ore outside the permitted area Extracted and dispatched ore without paying royalty Transported ore without permits Extracted and transported ore using forged documents Overloaded vehicles to transport excess quantity and avoid royalty Bribed officials of all departments into turning a blind eye



Source : Economic Times


Reassessment , 29 July 2011

Reason to believe — Reopening of the assessment is unsustainable if no reason exists to believe that the income chargeable to tax has escaped assessment, as held by MumHC in Amar R Shanbhag v ITO –- In favour of: The assessee; Writ Petition No 552 of 2011.

There was an inordinate delay in obtaining the commencement certificate and, therefore, the petitioner once again terminated the Development Agreement dated 17 September 2004. Thereupon, Matoshree Properties filed a suit in the High Court, being Suit No 2863 of 2010, which was ultimately settled on 2 May 2011, wherein the consideration was enhanced from Rs 4 crores to Rs 7.5 crores.

 As per the consent terms filed on 2 May 2011, the amount of Rs 7.5 crores is to be paid in instalments upto 31 December 2011. It is also on record that the commencement certificate in the present case was issued on 29 December 2009. In these circumstances, it cannot be said that there was any reason to believe that the income chargeable to tax has escaped assessment in AY 2005–2006 so as to initiate reassessment proceedings under s 147 read with s 148 of the Act. So long as the consent terms filed on 2 May 2011 hold the field, the question of bringing to tax the capital gains under the Development Agreement dated 17 September 2004 in AY 2005–2006 does not arise at all.

Decided on: 18 July 2011.

Unexplained investment

No addition can be made on account of the unexplained investment on the basis of the DVO findings when the assessee satisfactorily explains that the difference was on account of the construction expenditure incurred, which was not considered by the DVO, as held by KarHC in CIT and Anr v R Hanumaiah AssociatesIn favour of: The assessee; ITA Nos 3225, 3224 of 2005.

Appeal — Finding of facts arrived by the Tribunal is not liable to be interfered in an appeal unless found to be arbitrary or perverse.

Decided on: 12 July 2011.


Deduction under s 80-IB(10)

The assessee, who had the development rights over the land, had undertaken the responsibility of obtaining all statutory clearances, permissions, etc, for putting up the housing project on the land and cannot be denied a deduction under s 80-IB(10) merely because the assessee had collaborated with EBPL, which had the necessary technical know-how as well as the finance for putting up the construction, as held by MumTrib in ADy CIT v Bombay Real Estate Development Company Pvt LtdIn favour of: The assessee; ITA Nos 6504, 6505/Mum/2008, 4219/Mum/2009, 4728/Mum/2007: (AYs 2002–2003, 2003–2004, 2004–2005 and 2005–2006).


Disallowance under s 40A(2)(b) — Since the AO has not brought on record anything to show that the payment to the MD is excessive or unreasonable, having regard to the fair market value of the services for which the payment was made or the legitimate needs of the business, no disallowance can be made under s 40A(2)(b). Further, the AO ought to have compared the payment made to the MD with payments made for similar services by other companies.

Decided on: 3 June 2011.

Friday, July 29, 2011

SEBI announces guideline for infra debt fund



Market regulator SEBI today came out with guidelines for infrastructure debt fund (IDF). The IDF can be set up by any existing mutual fund or an infrastructure finance company which have been engaged in financing the sector for five years, reports Aakansha Sethi of CNBC-TV18. Now mutual funds can float a 'Infrastructure Debt Fund' as a close-ended scheme maturing after five years or an interval scheme with lock-in of five years, the Securities and Exchange Board of India (SEBI) Chairman UK Sinha said. The IDF would invest 90% of its assets in the debt securities of infrastructure companies. The minimum investment into IDF would be Rs 1 crore and the minimum size of the unit would be 10 lakh, SEBI said.

Source : Money Control

India exempts Japan from anti-dumping duty on PVC Paste Resin


India has exempted Japan from the anti-dumping duty imposed on chemical used in manufacturing of leather products, while confirming that the levy will remain on China, South Korea, Russia, Thailand, Malaysia and Taiwan. The imposition of duty, which is for a period of five years, is aimed at protecting the interest of domestic players from cheap inward shipments into the country. The duty ranges from $1,471 to $1,707 per million tonne of the Poly Vinyl Chloride (PVC) Paste Resin. "The product had been exported to India from the subject countries (except Japan) below their associated normal values," the Department of Revenue said. 


The dumped imports of PVC Paste Resin has caused a material injury to the domestic industry, it said. In June 2010, the Directorate General of Anti Dumping and Allied Duties (DGAD) had imposed a provisional duty on imports of these products from countries, including Japan. Now, the DGAD again reviewed the situation and concluded that the duty will be imposed for a period of five years (unless revoked, superseded or amended) with a retrospective effect from July 26, 2010. This would not be applicable for Japan.


File I-T returns in spite of relief


Helps in applying for a loan, travelling abroad. With just two days left to file income tax returns, taxpayers falling in the Rs 5-lakh bracket and earning less than the Rs 10,000 limit, have the option of not filing their returns. However, there are a number of reasons why you should file. An Income Tax Return (ITR) receipt is an important document because it is more elaborate than Form 16 — the other important document for salaried individuals. Reason: Form 16 shows salary from only one employer and the tax deducted by it. Whereas, ITR also shows income from other sources also, including investments, which one might not have disclosed to the employer. In effect, is a more realistic depiction of the individual's monetary position.



If you have decided not to file returns on or before July 31, here’s why you should revisit your decision: Borrowing: While applying for a home loan, many banks make do with your Form 16. But, according to industry experts, if you aren’t getting a loan or not as much as you want, then handing over the last three years of ITR receipts will help. The ITR gives a sense of the borrower’s total income and his/her ability to support the loan repayment.

Source : Business Standard

You can start your company in 24 hours

It took Kishore Biyani almost three months to incorporate Pantaloon Retail; Tulsi Tanti needed a month to float Suzlon Energy; Ramesh Chauhan says it took him ages, and he had to agonise over 50-100 pages of documentation; Kiran Mazumdar Shaw recollects she did it in a "record time" of three months in 1978, an era in which six months was the norm. But come August, entrepreneurs dreaming about walking in their footsteps can float a company in exactly 24 hours, doing everything that's needed online.
At least, that's the promise the Ministry of Corporate Affairs (MCA) is holding out to start-up aspirants across the country. In a circular issued last Saturday, the ministry outlined several measures including online verification and clearance of the name of the company being incorporated, online submissions of statutory forms, and issuing digital certificates of incorporation. "The simplified process of online incorporation of companies is likely to be implemented with effect from 11th August, 2011," the circular signed by Assistant Director Monika Gupta said. "This will spur entrepreneurship and kick start the economy.
Source : Economic Times

 

Exemption under s 115F

Bonus shares received by the assessee are eligible for an exemption under s 115F even if the original shares were acquired in foreign currency, as held by MumTrib in Sanjay Gala v ITOIn favour of: The assessee; ITA No 2989/Mum/2008: (AY 2005–2006).
Sanjay Gala v ITO
ITAT BENCH “L”, MUMBAI
ITA No. 2989/Mum/2008
Assessment Year: 2005-06
P.M. Jagtap, A.M. and V. Durga Rao, J.M.

Decided on: 15 July 2011

Counsel appeared:
Mr. Vijay Mehta & Mr. Umesh K. Gala for the appellant
Mr. R.S. Srivastava for the respondent
Order
Per: V. Durga Rao, J.M.:

This appeal filed by the assessee is directed against the order of CIT(A)-XXXIII, Mumbai, passed on 14/02/2008 for the assessment year 2005-06 wherein the asesssee has raised the following ground of appeal:-
“1. Re: Non consideration of long term capital gains on sale of bonus shares as covered by S. 115F Rs. 10,63,265/-.
1.1 On the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in not
considering bonus shares received on account of original investments made in foreign currency as a foreign exchange asset covered by the provisions of s. 115F.”
2. Briefly stated the facts are that the assessee is a non-resident Indian and filed his return of income declaring income of Rs.60,000/-, Which was processed u/s 143(3) on 24/10/07 determining the total income at Rs. 11,23,265/-. In the assessment order, the AO had not treated the bonus shares as foreign exchange assets and had not allowed the benefits available u/s 1 15C of the Act. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Before the CIT(A) assessee filed a written submission, which was extracted by the CIT(A) in his order at pages 1to 7 wherein it was stated that bonus shares should be considered as foreign exchange asset and long term capital gain on same should be eligible for exemption u/s 115F. After considering the submissions of the assessee, the CIT(A) held as under: -
“4. I have gone through the facts of the case. Sec. 115C(b) defines Foreign Exchange Asset and it is extracted below:-
Sec. 115C(b) –Foreign exchange asset means any special asset which the assessee has acquired  or purchased with, or subscribed to in, convertible foreign exchange.”
4.1 The asset involved is bonus shares. As pointed out by the AO, it cannot be said that the appellant has acquired the bonus shares. It cannot be also said that the appellant has purchased the bonus shares.
Similarly, the appellant has also not subscribed to in convertible foreign exchange only with regard to the original shares. The original shares are entirely different assets than the bonus shares. Each share has a distinct number. So the appellant’s contention that the bonus shares should be considered as part of original shares and hence the appellant has subscribed to in convertible foreign exchange with regard to the bonus shares cannot be accepted. For e.g. a person might have purchased a cow with convertible foreign exchange. After some time, when the cow yields a calf it cannot be said that the calf was acquired through convertible foreign exchange. The calf might have been derived from the cow which was purchased with foreign convertible foreign exchange but definitely the calf is not purchased in convertible foreign exchange. Similar is the case with regard to the bonus shares. In this regard it is worthwhile to mention that the cost of bonus shares is always taken as Nil for the purpose
of capital gain. It was not at all linked with the cost price of the original shares purchased. In view of all the above, I uphold the action of the AO, hence, ground no. 2 is dismissed.”

3. Aggrieved by the order of CIT(A), the assessee is in appeal before us.

4. Before us, the learned counsel for the assessee submitted that the bonus shares received on account of original investment made in foreign currency as foreign exchange asset covered by the provisions of section 115F of the Act. The bonus shares are allotted in respect of shares already held and the cost of bonus shares is already embedded in the original shares. It was submitted that as per section 55(2)(aa)(iii) of the Act, the cost of acquisition of bonus shares is considered to be ‘Nil’, therefore, it cannot be said that the bonus shares should have been acquired in convertible foreign exchange. The learned counsel for the assessee relied upon judgment of the Hon’ble Supreme Court in the case of CIT v Dalmia Investment Co. Ltd., 52 ITR 567 wherein the Hon’ble Court held as under:-
“Where bonus shares are issued in respect of ordinary shares held in a company by an assessee who is a dealer in shares, their real cost to the assessee cannot be taken to be Nil or their face value. The have to be valued by spreading the cost of the old shares over the old shares and the new issue (viz. the bonus shares) taken together if they rank pari passu, and if they do not, the price may have to be adjusted either is proportion of the face value they bear (if there is no other circumstance to differentiate them) or on equitable considerations based on the market price before and after issue.
They have to be valued at the market value on the date when they were acquired.”
The Hon’ble Supreme Court further observed that can we then say that the bonus shares are a gift and are acquired for nothing? At first sight, it looks as if they are so, but the impact of the issue of bonus shares has to be seen to realize that there is an immediate detriment to the shareholder in respect of his original holding. The Income-tax Officer, in this case, has shown that in 1945 when the price of shares became stable it was Rs. 9 per share, while the value of the shares before the issue of bonus shares was Rs. 18 per share. In other words, by the issue of bonus shares pro rata, which ranked pari passue with the existing shares, the market price was exactly halved, and divided between the old and the bonus shares. This will ordinarily be the case but not when the shares do not rank pari passu and we shall deal with that case separately. When the shares rank pari passu the result may be stated by saying that what the shareholder held as a whole rupee coin is held by him, after the issue of bonus shares, in two 50 nP. Coins. The total value remains the same, but the evidence of that value is not in
one certificate but in two.”

5. The learned counsel also relied upon the judgment of jurisdictional High Court in the case of D.M. Dahanukar v CIT, 88 ITR 454 wherein it was held as under:–
“In Gold Mohore Investment Co. Ltd.’s case, the Supreme Court took the view that in the case of a dealer in shares who values his stock at cost, where bonus shares issued in respect of ordinary shares held by him rank pari passu with the original shares, the correct method of valuing the cost to the dealer of the bonus shares is to take the cost of the original shares, spread it over the original shares and the bonus shares collectively and find out the average price of all the shares.”

6. The learned counsel for the assessee also placed reliance on the judgment of the Delhi High Court in the case of Escorts Farms (Ramgarh) Ltd. v CIT, 143 ITR 749 wherein it was held as under:–
“From a layman’s point of view, the cost of the original shares is the price paid for them; and the cost of the bonus shares is nil. But once the principle of averaging is accepted, as it certainly has to be in respect of bonus shares at least, it necessarily implies that for the original cost the assessee must be taken to have acquired both the bonus and the original shares. In other words, the issue of the bonus shares, though subsequent, has the effect of altering the original cost of acquisition of the shares. There is nothing illegal in this, as the price paid by the assessee originally was not only for the shares themselves but also for such shares that it may yield subsequently, if any. The right to acquire bonus shares is a right embedded in the original shares, and they are a legal accretion thereto. The method of spreading over on both the bonus and the original shares the cost of acquisition of the original shares would appear to be the proper method of determining the value of the asset. For, there is no doubt that on the issuance of the bonus shares, the value of the original shares is proportionately diminished. In simple language it is ‘split up’. As such, the cost of acquisition of the original shares and their value is closely interlinked and interdependent on the issue of bonus shares. Therefore, once the bonus shares are issued, the averaging out formula has to be followed with regard to all the shares. But in view of the specific language of s. 55(2)(i) regarding the substituted market value of 1st January, 1954, this cannot be done where the assessee has elected to exercise an option as decided in Shekhawati General Traders Ltd.’s case [1971] 82 ITR 788 (SC).”

7. The learned counsel for the asesssee further relied on the Memorandum Explaining Finance Bill, 1995 [212 ITR (St.) 357] wherein it was held that ” For the sake of clarity and simplicity, section 55 is being amended to provide that the cost of bonus shares will be taken as Nil for computation of capital gain on sale of bonus shares. This would not affect the cost of original shares. This procedure will also be applicable to any other security where a bonus issue has been made. It was further held that  with a view to encouraging the flow of foreign exchange remittances into India and investment in India by non-resident Indian citizen and foreign nationals of Indian origin, the bill seeks to make special provisions relating to certain incomes of such non-residents.”

8. The learned DR, on the other hand, besides strongly relying upon the orders of the authorities below, submitted that Chapter XII is the special provisions and the cases relied upon by the learned counsel for the assessee have no application to the facts of the case of the assessee. He further submitted that the assessee has not invested anything on foreign exchange asset and only by virtue of original investment bonus shares were allotted to the assessee.

9. We have considered the rival submissions, perused the relevant material on record, and gone through the orders of the authorities below as well as decisions cited. The issue involved in this appeal for our consideration is whether the assessee is eligible for benefit u/s 115F of the Act, on the bonus shares received by him. The assessee is NRI acquired shares with convertible foreign exchange. Subsequently, bonus shares were allotted to him. According to the AO and CIT(A), the assessee is only eligible for benefit u/s 115F of the Act with regard to subscription made to original shares and he is not eligible for the bonus shares subsequently received by him as no subscription made in foreign exchange to receive the bonus shares. In this connection, we refer to the provisions of section 115C(b) of the Act, which read as under:-
(b) “foreign exchange asset” means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange;”

10. On perusal of the above provision, it is clear that foreign exchange asset for the purpose of section 115F is the one which assessee has acquired in convertible foreign exchange. In the present case, the assessee subscribed to shares in convertible foreign exchange and acquired the foreign exchange asset. In so far as this aspect is concerned, there is no dispute from the revenue authorities. The only dispute is with regard to the bonus shares received by the asesssee. The objection of the revenue authorities is that the assessee has received the bonus shares without investing any convertible foreign exchange. We are of the view that the assessee acquired the original shares by investing in convertible foreign exchange and, therefore, it cannot be said that the bonus shares are acquired in isolation without taking into consideration the original shares acquired by the assessee. The Hon’ble Supreme Court and various High courts have considered the issue with regard to value of the bonus shares and
held that “the method of spreading over on both the bonus and the original shares the cost of
acquisition of the original shares would appear to be the proper method of determining the value of the asset. For, there is no doubt that on the issuance of the bonus shares, the value of the original shares is proportionately diminished. In simple language it is ‘split up’. As such, the cost of acquisition of the original shares and their value is closely interlinked and interdependent on the issue of bonus shares. Therefore, once the bonus shares are issued, the averaging out formula has to be followed with regard to all the shares”. In view of the above proposition, the bonus shares acquired by the assessee are covered by section 115C(b) of the Act, and the same are eligible for benefit u/s 115F of the Act. Accordingly, the ground raised by the assessee is allowed.

11. In the result, appeal of the assessee is allowed.
Pronounced in the open court on this 15th day of July, 2011.

 

Deduction under s 80P(2)(a)(i)

Interest income received by the co-operative bank from advance rent is eligible for a deduction under s 80P(2)(a)(i), as held by MumHC in CIT v The Maratha Mandir Co-op Bank LtdIn favour of: The assessee; ITA No 4125 of 2010.

The interest income in the present case arose on account of giving advance rent to the landlord, from whom the premises were taken on rent for the purpose of carrying on a banking business, and the same was closely connected to the banking business carried on by the assessee. The Reserve Bank of India, controlling the banking business in India, has issued guidelines on 18 June 1987 thereby permitting co-operative banks to give advance rent to the landlords (from whom premises are taken for carrying on the business) subject to the charging of interest and other conditions set out therein.

 Thus, the interest income on advance rent is earned in accordance with the norms laid down by the RBI and, hence, it would be income earned during the course of carrying on the business of banking. The decision of the Apex Court in the case of Totgar’s Co-operative Sale Society Ltd v ITO reported in [2010] 322 ITR 283 (SC) is not applicable in the instant case. Thus, the interest on advance rent is business income eligible for a deduction under s 80P.

Decided on: 21 July 2011.

Deduction under s 80HHC

If a deduction under s 80-IA has been taken, a deduction under s 80HHC is not admissible, as held by PHHC in Gupta International v CIT, KarnalIn favour of: The revenue; ITA No 174 of 2011.
Gupta International v CIT, Karnal
High Court of Punjab and Haryana
ITA No. 174 of 2011
Adarsh Kumar Goel, ACJ and Ajay Kumar Mittal

Decided on: 20 July 2011

Counsel appeared:
Mr. Rishabh Kapoor, Advocate for the appellant
Adarsh Kumar Goel, ACJ.

This order will dispose of ITA Nos.174 and 175 of 2011 as both the appeals involve
common questions of law.

2. ITA No.174 of 2011 has been preferred by the assessee under section 260A of the
Income Tax Act, 1961 against the order of ITAT Delhi “C” Bench in ITA
No.2656/Delhi/2008 dated 10.7.2009 for the assessment year 2002-03 raising following
substantial questions of law:-
“a) Whether on the true and correct interpretation of the provisions of section
80HHC read with section 80-IA(9) read with section 80-IB(13) the Tribunal has
erred in restricting the claim of deductions under the Act?
b) Whether the provisions of Taxation Laws (Amendment) Act, 2005 by
bringing third and fourth proviso to section 80HHC retrospectively are
unconstitutional and against Article 14, 19 (1)(g) of the Constitution and needs
to be quashed?
c) Whether on the true and correct interpretation of the provisions of section 148
the same are applicable in a case where a substantive provision has been
brought in the statute retrospectively?

3. Learned counsel for the appellant-assessee fairly states that matter is covered against
the assessee by order of this Court dated 18.4.2011 in ITA No.469 of 2010, Asin Exim
International v. Commissioner of Income Tax, Jalandhar, Punjab wherein it was held
that if deduction under section 80-IA has been taken, deduction under section 80HHC
was not admissible in view of section 80-IB(13) read with section 80-IA(9) of the Act,
following earlier judgment of this Court in Friends Castings (P) Limited v. Commissioner
of Income Tax, (2011) 50 DTR Judgments 61.

4. In view of above, no substantial question of law arises. The appeals are dismissed.

Deduction under s 80M

Actual expenditure made in receiving the dividend is to be deducted for the purpose of calculating the deduction under s 80M and not a notional one based on average calculation, as held by KolHC in Faridabad Investment Company Ltd v CITIn favour of: The assessee; ITA No 60 of 2004.

RectificationDeduction under s 80M — Question as to whether any expenditure was incurred for the earning of dividend income and, if so, the quantum thereof could not be gone into and decided in the proceedings under s 154 as it requires a complicated process of investigation.
The rectification of an order does not mean the obliteration of the order originally passed and its substitution by a new order.


An error which has to be established by a long-drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record.

Decided on: 13 July 2011.


Stealing Jake

Thursday, July 28, 2011

Banks and broking companies forced to hard-sell demat accounts due to lack of business


The number of demat accounts with the country's two leading depositories, NSDL and CDSL, has grown substantially, despite unfavourable market conditions in the current year. Driving the growth are banks and broking firms which have been offering a free demat account facility to existing clients and prospective investors as part of their marketing efforts. Higher number of accounts, however, has not led to any improvement in participation of retail investors, as most of them continue to shy away from trading amid concerns over uncertain market conditions, according to brokers. As a result, many demat accounts are lying inactive continuously for the past many months. Since January this year, NSDL, the largest among the two depository services providers, has added 4 lakh new accounts, taking its tally to 1.17 crore at the end of June.

Source : Economic Times

Foreign retail investors must have PAN for investing in Mutual funds


Individual foreign investors seeking entry into Indianstock markets will now have to acquirePermanent Account Number, or PAN, the passport to allfinancial transactions. The mandatory PAN was announced recently by the finance ministry while outlining the framework for foreign retail investment in mutual funds, a promise made in the February budget. "The Central Board of Direct Taxes, the apex direct taxes body, will soon issue an instruction in this regard," a finance ministry official said. However, to ensure that the requirement does not make investing cumbersome, PAN will be issued on the basis of know your customer (KYC) scrutiny of the investor. 


KYC conditions prescribed by the market regulator, Sebi, are quite stringent making them PAN plus, said the official. However, experts say tax authorities should clarify that acquiring a PAN will not trigger an obligation to file income tax return here. "Primary concern these investors have is that PAN could trigger an obligation to file return," said Amitabh Singh, partner, Ernst & Young. PAN is a 10-digit alpha-numeric tax payer identification number that is allotted to an individual and is increasingly required to be quoted with financial transactions.

Takeover code: SEBI may raise open offer trigger limit to 25%


Securities and Exchange Board of India (SEBI) is likely to decide on thetakeover code of listed companies in its board meeting on Thursday. The market regulator, in the meeting, may also reopen a probe against National Securities Depository (NSDL) in the multi-crore initial public offer (IPO)) scam between 2003 and 2005, when thousands of retail investors were cheated as various entities opened thousands of demat accounts in fictitious names. SEBI will consider the proposals of the takeover committee, headed by C Achuthan, former presiding officer ofSecurities Appellate Tribunal (SAT), which suggested the increase in the open offer trigger limit to 25% from 15% and raising the open offer by acquirer to 100% from the existing 20%. The regulator is expected to go along with the panel's recommendation to raise the open-offer trigger limit, but may not mandate acquirers to make an open offer for all the public shareholding, lawyers and investment bankers said.

Accounts

Determination of gross profit — Arriving at the gross profit and working out the GP to compare with the profit earned on transactions by considering sales to group concerns and others as a basis and giving credit for only purchases from such group concerns and others, respectively, is not a scientific method of comparison, as held by MumTrib in Prism Jewellery v ITOIn favour of: The assessee; ITA No 8709/Mum/2010: (AY 2006–2007).

Merely because the assessee has not reconciled the use of raw materials and the price at which its goods were sold, it cannot be held that the assessee has declared higher profits to claim the deduction under s 10A
Unexplained investment — The provisions of s 69 applies only when the investments were not recorded in the books of accounts and the assessee has not offered any explanation for the nature and source of the investments.

The question of the unexplained investment outside the books of accounts does not arise when the books itself have accounts purchases and payments through cheques.
When the assessee has recorded the transaction in the books of accounts, and the mistake in representing the caratage of diamonds purchased by the Tax Auditor was also properly reconciled, there is no scope for any addition of unexplained investment.

Decided on: 30 June 2011.
 

Deduction under s 43B

The assessee is entitled to a deduction under s 43B even in the absence of supporting evidence for payment, on the basis of the tax audit report, as held by DelTrib in ACIT v Indian Farmer Fertilisers Coop LtdIn favour of: The assessee; ITA Nos 3350/Del/2009 and 1194/Del/2011: (AYs 2005–2006 and 2006–2007).

Business expenditure — The assessee is entitled to a deduction on the amount contributed to the Coop Education Fund under s 37.

Principle of consistency — Where, one way or the other, the fundamental aspect permeating through the different assessment years has been found as a fact and the parties have allowed that position to be sustained by not challenging the order, it would not be appropriate to allow the position to be changed in a subsequent year.

Decided on: 31 May 2011.

Pharma companies may get tax sops for clinical trials, patent filings

The Department of Pharmaceuticals is planning to recommend extension of tax benefits given to drugmakers for in-house R&D and research work done outside the firm such asclinical trials, bio-equivalence studies, regulatory approvals and patent filings which could benefit most Indian drug companies. Expenses incurred ondrug development process outside the firm should be eligible for tax exemption, if done through firms exclusively engaged in R&D and approved by specified authority, a draft proposal of the sub-working group (SWG) on regulatory issues for pharma sector for 12th Five-Year Plan said.




At present, the government gives weighted average tax deduction of 200% for in-house R&D investments and up to 175% if done with few R&D partners recognised by government. Pharma requires big investments to develop new medicines and most local drugmakers spend about 5-10% of their revenues on R&D.

Source : Economic Times

Wednesday, July 27, 2011

Penalty under s 271(1)(c)

 No penalty can be levied under s 271(1)(c) when there was only the CBDT Circular on the taxation of ESOP shares and where the assessee offered certain income in a particular year and paid taxes bona fidely and the AO taxed the same in another year, as held by DelTrib in ACIT v Vijay Kumar JindalIn favour of: The assessee; ITA No 4237/Del/2009: (AY 2000–2001).


The penalty imposed under s 271(1)(c) is unsustainable if a bona fide explanation is given by the assessee.

Decided on: 27 May 2011.

Deduction under s 36(1)(vii)

Deduction under s 36(1)(vii) is allowable if the amount was advanced in the ordinary course of business and the debt was written off as irrevocable in the books of accounts, as held by DelHC in All Grow Finance and Investment Pvt Ltd v CITIn favour of: The assessee; ITA No 682/2011.
All Grow Finance and Investment Pvt Ltd v CIT
High Court of Delhi
ITA No. 682/2011
A K Sikri and M L Mehta, JJ

Decided on: 3 June 2011

Counsel appeared:
Mr. O S Bajpai, Sr. Adv. with Mr. V N Jha, Adv. for the appellant
Ms. Suruchi Aggarwal, Adv. for the respondent
Judgment
Per: M L Mehta, J:
1. The assessee is in appeal before us against the impugned order dated 29th October, 2010 passed by the Income Tax Appellate Tribunal (in short “Tribunal”) in respect of the assessment year 2000-01.

2. This appeal was admitted on the following question of law:
(i) Whether on the facts and circumstances of the case, the Tribunal was justified in holding that the bad debt amounting to Rs.34,95,000/- were not allowable under section 36(1)(vii) read with section 36(2) of the Act.
(ii) Whether on the facts and circumstances of the case, the Tribunal misdirected itself in holding that the conditions of section 36(2) of the Act were not fulfilled in a case where the advance/debt itself was not shown as income in the profit and loss account.”

3. The assessee is a non-banking financial company. It derives its income from interest on money lent to various parties as a part of its money lending business. On 16th April, 1999 it lent Rs. 60 lakhs to M/s Bhav Portfolio. After deducting opening credit balance of Rs. 3.10 lakhs, a sum of Rs. 56.90 lakhs became due to be recovered. However, this amount could not be recovered even after several requests, reminders and legal notice. Ultimately, Rs. 28.45 lakhs (50% of amount due) was written off in assessment year 2000-01. The balance amount was also written off in the year 2004-05 and the same stand allowed in the assessment made under section 143(1) of the Income Tax Act (for short 'the Act'). Similarly, Rs. 6,50,000/- (being 50% of the amount due) was written off in the case of M/s Gallery in the relevant assessment year.

4. The Assessing Officer disallowed assessee's claim for bad debts holding that under section 36(2), to write off any bad debt, same has to be included in the income for earlier years which was not done in the case of assessee.

5. The findings of the Assessing Officer were confirmed by both CIT(A) as well as Tribunal. The
Tribunal also observed that the advances made by the assessee were without collateral security or any other type of security. Such non-compliance of safety measures in respect of security of debt shows that the advance was not made in the ordinary course of business. The Tribunal also observed that since the assessee failed to prove that the amount which has been advanced was ever shown as income in any of the previous years, therefore, conditions set out under section 36(2) are not fulfilled.

6. The main contention of the learned counsel for the appellant/assessee is that writing off the bad debt by itself is enough to claim the deduction of bad debt under section 36(2) of the Act. He submitted that this section does not require that the entire money lent, which has become
irrecoverable, need to be shown as income in the case of a non-banking money lending business. He submitted that the only requirement is that the money should have been lent in the ordinary course of business in the hope of earning interest. On the other hand, learned counsel for the revenue submitted that the debt or part thereof was not shown as income in the previous year in which the amount of such debt or part thereof was written off and so conditions under sub–section (2) of section 36 are not fulfilled and therefore, the amount could not be taken as bad debt. The contention raised by both the learned counsel centered around the interpretation of sub-section (2)(i) of section 36, which reads as under:-
“(2) In making any deduction for a bad debt or part thereof the following provisions shall apply-
[(i) No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of business of banking or money-lending which is carried on by the assessee;]” (emphasis supplied)

7. Learned counsel for the appellant/assessee has tried to interpret the section in two parts. He submitted that the requirement of the first part of the section would not be applicable to the second part of the section which relates to money lent in the ordinary course of business of banking or money lending carried on by the assessee. The second part of the section, as pointed out, has been highlighted by us in the clause (i) of sub-section (2) which has been reproduced above.

8. For the time being, without going in to this interpretation of two parts of clause (i) of sub-section (2), it may be stated that the provision of section 36(1)(vii) read with section 36(2)(i) of the Act would come into play only if; firstly the amount of loan or part thereof which is claimed as deduction should be established to have become bad debt and secondly, the amount should have been shown to have become irrecoverable and written off from the accounts of the assessee or from the account in which
the claim is made.

9. The division bench of our High Court in the case of CIT v. Morgan Securities and Credits (2007) 292 ITR 339, while interpreting section 36(1)(vii) and 36(2)(i) observed as under:-
5. A conjoint reading of section 36(2) and Section 36(i)(vii) makes it clear that the assessed would be entitled to a deduction of the amount of any bad debt which has been written off as irrecoverable in its Accounts for the previous year. Any lingering doubt would vanish on a careful reading of Circular Number 551 dated 23.1.1990, the relevant portion of which reads as follows:
6.6 The old provisions of Clause (vii) of Sub-section(1) read with Sub-section (2) of the section laid down conditions necessary for allowability of bad debts. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing officer in the year in which the same had been written off on the ground that the debt
was not established to have become bad in the year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalize the provisions, the Amending Act, 1987 has amended Clause (vii) of Sub-section (1) and Clause (I) of Sub-section (2) of the section to provide that the claim for bad debt will be allowed in the year in which such a bad debt
has been written off as irrecoverable in the accounts of the assessed.
6.7 Clauses (iii) and (iv) of Sub-section (2) of the section provided for allowing deduction for a bad debt in an earlier or later previous year, if the Income Tax Officer was satisfied that the debt did not become bad in the year in which it was written off by the assessed. These clauses have become redundant, as the bad debts are now being straightway allowed in the year of write off. The Amending Act , 1987 has, Therefore, amended these clauses to withdraw them after the assessment year 1988- 89.

7. It is our view that the Circular Number 551 leaves no scope for debate since it specifically notices the previous practice of having to establish that a debt had become bad in the previous year, which had generated enormous litigation on the question of allowability of bad debt in a particular year. The Circular expressed the hope that this litigation would be eliminated by permitting a debt to be treated as a bad or recoverable no sooner it was written off in the books of the assessed concerned.
10. There is no dispute with regard to the above mentioned proposition of law as interpreted by the decision of our High Court in the case of Morgan Securities (supra). However, the present case relates to assessee which is undisputedly a NBFC and is in the business of money lending and has been making advances to different concerns, two of them being those to whom advances were made and which are claimed as bad debts as noted above. In the manner the learned counsel for the appellant has interpreted clause (i) of sub-section (2), he states that the second part of this clause starting from 'or represents money lent … by the assessee' as highlighted by us deals with the different types of activities, not at all related to those with the first part of business activities. In other words, his submission was that in the case of advances/loans made by any concern doing the business of banking or money lending, it was not obligatory that such advances/loans or part thereof should be shown to
have become irrecoverable and consequently written off in the accounts of the assessee in the
previous year. This manner of interpretation was not acceptable to the learned counsel for the revenue who submitted that for claiming deduction of any amount as bad debt it was necessary to establish that the amount has become not only bad debt, but the same was also shown to have become irrecoverable and written off in the accounts of the assessee for the previous year. The interpretation of section 36(2) clause (i) came before the Division Bench of Madras High Court in the case of P.C.Dharmalinga Mudaliar v. Commissioner of Income Tax (1985) 152 ITR (Mad). Relying upon the famous judgment of Rowlatt J., in Curtis v. J. & G. Oldfield Ltd. [1925] 9 TC 319, the Division Bench held as under:-
“The first limb of s. 36(2)(i)(a) of the present Act only incorporates Rowlatt J.'s principle; that limb exacts very clearly that no deduction shall be allowed for a bad debt, unless such debt has been taken into account in computing the income of the assessee for the previous year or for an earlier previous year. It is implicit in this express condition that the debt should have arisen in the course of carrying on his business. In the second limb of s. 36(2)(i)(a), this condition is not repeated, for the simple reason that the second limb deals with money-lending and banking business in which the money itself is regarded as a stock-in-trade and, therefore, the money lent would certainly come into the revenue account, and, hence, it was perhaps thought to be unnecessary to emphasise the obvious by saying that money lent in a money-lending or banking business must have been taken into account in the
computation of money lending or banking business. The only requirement which was worthwhile to make mention of in a banking or money-lending business is that it must have been money lent in the course of the business of the assessee. Therefore, taking the provision in s. 36(2)(i)(a) as a whole, it is necessary in every case to find if a debt in a money-lending or banking business or a debt in a nonmoney-
lending or a non-banking business must have been incurred in the course of the assessee's
business. The second limb is that in the case of non-money-lending or non-banking business, a debt in order to be a bad debt must have been taken into account in the computation of the income of the assessee. This particular requirement takes care to exclude what may be called capital debts from qualifying for write-off as bad debts.”

11. In the present case there is no dispute that the amounts of debts in question were advanced by the assessee in the ordinary course of money lending. The question for consideration would be as to whether the condition prescribed in the first limb for taking the debt into account while computing the income can be read in the second limb also and whether that can be done despite the construction of the second limb in the manner which is separated from the first limb by use of “comma” preceding the word “or” which clearly divides the provision in two parts, viz., (i) first part, dealing with non-money lending business; and (ii) second part, dealing with money lending business alone and the division is intended to ensure the fulfillment of conditions for allowance of bad debts peculiar to each limb concerned.

12. The controversy that has arisen from the order of the Tribunal is whether the amount of debt itself should be shown as income before the debt qualifies for claim as a bad debt. It is seen that the controversy before the Madras High Court in the case of P.C. Dharmalinga (supra) was whether money advanced to a transport company from cloth and yarn business be treated as money advanced in the ordinary course of cloth and yarn business. The Madras High Court's emphasis as required by the second part was that it may be admittedly in relation to money lending business that debt is advanced in ordinary course of business and if the debt is not advanced in the ordinary course of business, it would not qualify for deduction as a bad debt. Thus, according to Madras High Court itself money lent as part of money lending business being stock-in-trade automatically comes into revenue account. In other words, it need not be taken into account in computing the income as required in the first limb in relation to non-money lending business to prove that it is on revenue account. Madras High Court correctly emphasizes as required as per second limb that it should be found out in relation to money lending business that debt is advanced in the ordinary course of money
lending business. If the debt is not advanced in the ordinary course of business, it would not qualify for deduction as a bad debt.

13. We are of the view that the only condition laid down in second part of sub-section (2) of Section 36 of the Act is that the amount should be advanced in the ordinary course of business which by itself proves its revenue nature and no further conditions are required to be satisfied which are only applicable with regard to debt qualifying as bad debt in the first part of sub-section (2) in the manner as interpreted above.

14. For the aforesaid reasons, we are in agreement with the submissions of learned counsel for the appellant/assessee as regards the interpretation of sub-section (2)(i) of Section 36 and that being so, we are of the view the authorities below are not justified in holding that the amount of Rs.34,95,000/- was not allowable as bad debt under section 36(1)(vii) read with Section 36(2) of the Act.

15. In view of this, the additional/alternative plea raised by the learned counsel for the appellant for allowing said deduction as business loss under Section 37 of the Act, does not require any consideration. In fact this additional ground was raised by the assessee before the CIT(A) which was disallowed, and for which the matter was remanded by the Tribunal. So, this ground does not require any further consideration in view of our findings in favour of the assessee as noted above.

16. Consequently, we answer the questions in favour of the assessee and against the revenue and allow the appeal of the assessee.
 

Search

Warrant of authorisation — Additional Director of Income Tax (Investigation) is duly authorised to issue warrants of search in view of the retrospective amendment of s 132(1), as held by DelHC in CIT v Prem GandhiIn favour of: The revenue; IT(SS)A No 267/Del/2002, ITA No 90/2009 and C M No 19981/2010: (Block Period 1990–1991 to 2000–2001).
CIT v Prem Gandhi
High Court of Delhi
IT(SS)A. No. 267/Del/2002
Block Period: 1990-91 to 2000-01
ITA No. 90/2009 & C M No. 19981/2010
A K Sikri and M L Mehta, JJ

Decided on: 5 May 2011

Counsel appeared:
P L Bansal, Sr. Adv. with Mr Deepak Anand for the appellant
Piyush Kaushik for the respondent
Judgment

ITA No.90/2009 & C M No.19981/2010
The appeal filed by the assessee before the Tribunal was allowed only on the ground that the warrant for authorization of search under section 132 can be issued by the Additional Director of Income Tax (Investigation) but he had no power to issue such authorization under Section 132(1) of the Income Tax Act.

2. In view of the amendment to section 132(1) of the Income Tax Act which has retrospective effect
from 1.6.1994, this ground does not survive. As per this amendment, Additional Director of Income
Tax (Investigation) is duly authorized to issue warrants of search. Thus, the impugned order passed by the Tribunal is set aside and the matter is remitted back to the Tribunal to decide the appeal of the respondent herein on merits.

3. Learned counsel for the respondent/assessee has also submitted that there is another jurisdictional plea which though not raised by the assessee but be permitted to raise the same before the Tribunal. He claims that on the ground of appeal before the Tribunal, jurisdictional plea that notice under section 143(2) was not served has not been taken by inadvertence though it was taken before the CIT(A) and the assessee should be allowed to make such a request before the ITAT and it will be for the ITAT to decide as to whether this plea is to be allowed or not.

4. In view thereof, the present appeal stands disposed of alongwith pending application.
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