REPORTED DECISIONS

1. Appellate Tribunal – Sec. 255 – Procedure – Third Member decision is similar to a Special Bench decision and should be followed and applied by regular benches – Decision of Special Bench even of three members has precedence over decision of a Third Member

DCIT vs. Padam Prakash (HUF) (2007) 104 ITD 1 (Del) (SB); Order dated 29-9-2006

The majority decision in the Third Member case is entitled to as much weight and respect as a decision of a Special Bench and it should be followed and applied by regular benches and cannot be disregarded. The decision of the Special Bench even of three Members is entitled to all the weight and must have precedence over the decision of a Third Member. Regular Benches are required to follow and act upon the decision of the Special Bench and in case its views are contradictory to the views of the Third Member, preference is required to be given to the Special Bench.

2. Appeal to Tribunal – Rectification u/s. 254(2) – Retrospective amendment of law – AO referred to DVO and made addition – Tribunal dismissed appeal of revenue holding that AO could not refer matter to DVO for estimating cost of construction – Sec. 142A inserted with retrospective effect from 15-11-1972 – AO exercised power in terms of sec. 131 and due to retrospective insertion of sec. 142A action of AO was not invalid – Order of Tribunal suffers from mistake apparent from record – A.Y. 1995-96 & 1996-97

DCIT vs. Shubham Industries (2007) 104 ITD 126 (Luc) (TM); Order dated 29-6-2006

In view of insertion of section 142A with retrospective effect from 15-11-1972, reference made by AO to DVO for estimating the cost of construction of a property is to be deemed to be valid even if such reference was made under section 131(1) and therefore the order of the Tribunal holding that the reference made by the AO to DVO was invalid suffers from mistake apparent from record.

3. Deduction u/s. 80-IB – Manufacture or production – Conversion of rough marble blocks into marble slabs, tiles, table tops, etc. after polishing with the help of various machines and manual labour – Finished product is commercially distinct commodity – Process amounts to manufacture – A.Y. 2000-01 & 2001-02

Aakash Stone Industries Ltd. vs. ACIT [2007] 106 TTJ 128 (Mum); Order dated 9-8-2006

Preparation of polished and finished marble slab, tiles, table tops, etc. from rough marble blocks amounts to manufacture and the finished product is a commercially distinct commodity having distinctive name and use and, therefore, assessee engaged in the manufacture/production of polished marble slabs, tiles, table tops, etc. is entitled to deduction u/s. 80-IB.

4. Rectification of mistakes – Section 154 r.w.s. 36(1)(vii) – Mistake apparent from record is to be seen as per the amended law and not as per the law existed at time of making original record – Provision for doubtful debts – Allowed overlooking subsequent amendment made with retrospective effect – Omission to apply statutory provision – Is mistake apparent from record rectifiable u/s. 154 of the Act – A.Y. 1993-94

GTC Industries Ltd. vs. DCIT (2007) 104 ITD 86 (Mum) (TM); Order dated 30-5-2006

The claim for deduction in respect of provision for bad and doubtful debts was allowed in the assessment under section 143(3). The AO subsequently disallowed the same invoking section 154 on the ground that the said provision was inadmissible deduction, as making of provision does not amount to write off.

The Judicial Member accepted the submission of the assessee that the order u/s. 154 has to be judged as per the law existed on the date of passing order u/s. 154 and the law that existed then was that the debiting of the profit and loss account and the crediting of the reserve for bad debts/provision for bad debts account, constituted sufficient compliance with the requirements of section 36(1)(vii) and the amendment brought out in the year 2001 by insertion of Explanation to the said section w.e.f. 1-4-1989 could not support the earlier order passed u/s. 154, but the Accountant Member held that the insertion of Explanation was with retrospective effect and omission to apply the statutory provision was mistake apparent on record capable of being rectified u/s. 154.
The Third Member relied upon the decision of Supreme Court in M.K. Venkatachalam vs. Bombay Dyeing & Manufacturing Co. Ltd. [1958] 34 ITR 143 (SC) held that for finding out whether there is a mistake apparent from the record, the authority has to look at the amended law and not the law that existed at the time of making the original record. If an order is plainly or obviously inconsistent with the specific and clear provision, as retrospectively amended, there is a mistake apparent from record, which would be rectifiable u/s. 154.

5. Search & Seizure – Penalty under section 158BFA(2) – Assessee could not obtain copies of voluminous seized records from the department – Filed block return on lump sum basis declaring loss – On receipt of seized papers, reconciled the same and disclosed petition to AO to substitute loss return by way of positive return – Not a case of deliberate filing inaccurate information or concealment of income – Penalty u/s.158BFA(2) is optional and was not leviable – Block Periods 1990-91 to 14-12-1999

Enfield Industries Ltd. vs. DCIT [2007] 106 TTJ 89 (Kol); Order dated 25-8-2006

Assessee having filed block return on the basis of incomplete information and in the absence of seized documents and later volunteered additional income arrive at on the basis of subsequent checking and reconciliation of documents acting on the advice of CIT who had given assurance of granting full immunity from penalty and prosecution, it cannot be said that the assessee had knowingly and deliberately filed inaccurate information and particulars to conceal its undisclosed income and, therefore, penalty under section 158BFA(2) is not leviable. Penalty under section 158BFA(2) is optional and onus lies on Department to prove concealment.

UNREPORTED DECISION

1. Income from house property vis-à-vis business income – Temporary let out of galas by builder after construction – Galas were stock in trade and constructed only for sale – Market conditions not favourable for sale and hence, unsold galas let out for temporary period – Income earned from letting of galas is business income and not income from house property – A.Y. 2001-02

Amber Erectors P. Ltd. vs. ITO, ITA No. 960/Mum/05, Mumbai Bench ‘K’, Order dated 31-10-2006

Appellant by Shri Chetan Karia Respondent by Shri B.R. Kamat

Assessee company engaged in the business of construction and development. 11 galas were constructed and completed in the A.Y. 2000-01. 8 galas were sold from time to time and the remaining 3 galas could not be sold for want of purchasers at the right price. These 3 galas were shown as stock-in-trade and were temporarily let out and were ultimately sold when the market conditions improved in the assessment year 2004-05. The rental income was shown as income from business on the ground that income was derived from temporary letting out on leave and licence basis of business stock-in-trade. AO rejected the claim and assessed as income from house property, which was confirmed by CIT(A).

The Tribunal held that the income arising from such temporary exploitation of stock in trade or business assets has to be treated as business income and not as income from house property. Tribunal relied on the decision in the case of Universal Plast vs. CIT 237 ITR 454 (SC) and distinguished the decision referred by DR in the case of Shambhu Investment 263 ITR 143 (SC) holding that in the case of Shambhu Investment there was no letting of business asset temporarily and that the property was let out along with other facilities and amenities and it was case of composite letting assessable as income from house property. However, in the instant case of assessee, stock-in-trade has been let out temporarily and therefore income from letting out of the industrial galas was to be assessed under the head income from business.