Reepal Tralshawala,
Chartered Accountant

REPORTED DECISIONS

1. Assessment – Issue of notice – S. 143(2) – Notice issued after period of 12 months – Assessment was without jurisdiction – A. Ys. 2000-01 & 2001-02

Maker Tower A & B Co-op. Hsg. Society Ltd. vs. ITO (2008) 20 SOT 253 (Mum); Order dated 23-8-2007

The notice under section 143(2)(ii) having being issued beyond the period of 12 months from the end of the month in which the return of income was filed, the assessment made in pursuance of such notice was without jurisdiction.

2. Book Profits – Sec. 115JA – Provision for obsolescence loss – Not covered by cl. (c) of Explanation to sec. 115JA – Not to be added back – A.Y. 1998-99

Deepak Nitrite Ltd. vs. DCIT (2008) 3 DTR 511 (Ahd); Order dated 9-4-2007

Any provision made by assessee for diminution in value of assets by way of obsolescence loss, though a provision under the Companies Act, 1956, is not covered under cl. (c) of Explanation to s. 115JA, hence, cannot be added back for computing book profits.

3. Business expenditure –

Sec. 37(1) – Provision for warranty – Not a contingent liability – Provision made allowable as deduction – A.Ys. 1996-97 to 2000-01

Haden International Group India (P) Ltd. vs. ACIT (2008) 20 SOT 305 (Mum); Order dated 29-12-2007
Upon entering into contract with the customers on certain terms and conditions, which included after sales warranty for a period of one year, the assessee had provided for warrant at the rate of 2% of the value of the turnover booked during the year in its books of account for such estimated liability. The moment the assessee entered into a contract, it was tied up with a liability attached with the contract, though it might or might not incur the same in a year’s time. It is well settled that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date.

4. Depreciation – Sec. 32 – Block of asset concept – Depreciation allowed in earlier year on block of assets – Flats forming part of block of assets remaining vacant during the year or used for guest house purpose – Depreciation allowable on entire block of asset – A.Y. 1993-94 DCIT vs. Finolex Cables Ltd. [2008] 3 DTR 307 (Pune); Order dated 31-7-2007

Flats forming part of block of assets allowed depreciation in earlier year are eligible for depreciation in subsequent year as depreciation was allowable in entire block of assets, notwithstanding the fact that some of these flats remained vacant and some were used for guest-house purposes during the year under consideration.

5. Deduction – Section 80-IB(10) – Separate buildings constructed – Wings having dwelling units less than 1000 sq. ft. considered as one project and claimed as eligible for deduction – Other wings having more than 1000 sq. ft. considered as separate project and no deduction claimed – Deduction allowable as claimed – Further, housing project approved before 31-3-2005, amendment restricting shopping area did not apply and deduction allowable on entire shopping area – A.Y. 2005-06

Saroj Sales Organisation vs. ITO [2008] 3 DTR 494 (Mum); Order dated 24-1-2008

The commencement certificates in respect of building No. 1 consisting of wings ‘A’ & ‘B’ were received on 7-3-2001 & 30-3-2001. Commencement certificates for various wings in block ‘N’ were approved on various dates between 10-9-2001 and 23-9-2003. All the wings in block ‘N’ independently satisfied the necessary approval of a housing project. There is no dispute that all the dwelling units in various wings of block ‘N’ contained units of less than 1000 sq. ft. It is not open to the Revenue to include building No. 1 having wings ‘A’ & ‘B’ of which the dwelling units were more than 1000 sq. ft. as part of the block ‘N’ project merely to deny the statutory relief which the assessee is entitled to the eligible housing project. Unless there is a clear intention of the legislature the Revenue cannot be permitted to do so. The assessee has obtained different commencement certificates and started on different periods of time. They are separate by time, space and statutory approvals and even in designs, maintenance of separate books of account. The assessee has not claimed any relief in respect of project which admittedly does not admit the test laid down under section 80-IB(10). Combining these two projects into one will lead to a result which manifestly will be unjust and absurd and defeat the very provisions of deduction sections. As regards the objection of the AO that the permissible shopping area of housing project exceeds 5%, the assessee is not entitled for relief is also not sustainable. The housing projects were approved before 31-3-2005 and for such projects, which were so approved, there was no stipulation as to the shopping complex area is permissible in the project. The amendments were subsequently made while extending the deduction of income from housing project approved up to 31-3-2007 and the denial of deduction is clearly not in accordance with law.

6. Search & Seizure – Block assessment – Limitation u/s.158BE – Restraint order u/s.132(3) cannot extend the period of limitation – Block periods 1997-98 to 2003-04

ACIT vs. White & White Mineral (P) Ltd. (2008) 3 DTR 429 (Jd); Order dated 29-1-2008

Prohibitory order clamped on the office premises of the assessee on 20-12-2002, having been revoked on 21-12-2002, after examining the papers lying in the said room without making any seizure, search was virtually concluded on 21-12-2002. Thus, passing of order u/s. 132(3) again on 3-1-2003 and lifting the same within 10 minutes was a mere formality not having the effect of extending the limitation. Therefore, by passing a restraint order, the time limit available for framing of the order cannot be extended. Thus, the block assessment order passed on 31-3-2005 was barred by limitation.