1.  Export of music software is "goods" eligible to deduction under section 80hhc

CIT vs. Superstar Music & Another [2007] 291 ITR 8 (Mad.)

The assessee company, before the Hon’ble Madras High Court, was engaged in the business of export of music software. The assessee’s claim of deduction under section 80HHC was rejected by the Assessing Officer on the ground that the prior to insertion of section 80HHF the assessee was not eligible to deduction with respect to export of music software of the assessee by following the decision of the Bombay High Court in the case of Abdulgafar A. Nadiawalla vs. ACIT (2004) 267 ITR 488 (Bom.). The Department preferred an appeal before the Hon’ble High Court.

The Hon’ble High Court considered the decision of the Apex Court in the case of Tata Consultancy Services vs. State of A. O. (2004) 271 ITR 401 and held that the attributes required for bringing the property involved within the meaning of "goods" were satisfied with reference to its utility; capability of being bought and sold, and capability of being transmitted, transferred, delivered, stored and possessed. The assessee was entitled to special deduction under section 80HHC in the assessment year 1999-2000

2. Addition without confronting the assessee with evidence not justified

CIT vs. Emerald Construction P. Ltd. [2007] 291 ITR 59 (Raj.)

The assessee before the Hon’ble High Court was engaged in the business of construction. For the assessment year 1996-97 the Assessing Officer made additions as income from undisclosed sources by taking the consideration for transfer of shops made by the assessee at 8 per cent higher than that stated in the transfer deed. This addition had been made on the supposed enquiry made from some shopkeeper in the market, about which the assessee was never informed. The Commissioner of Income-tax (Appeals) set aside the addition and this was confirmed by the Tribunal.

The department further carried the matter to the High Court. Hon’ble High Court observed that there was no reference to any material which related to the consideration for the shop in question being stated at a lower figure than what had actually passed. There were inquires conducted by the Assessing Officer about the transfer of shops in finished or unfinished condition but what was meant by finished or unfinished shop was not explained. Admittedly the shops were transferred without any fixtures and furniture. There was positive evidence by the solitary witness relied on by the Assessing Officer that he had not paid any extra price over what had been stated in his sale deed. The deletion of the addition was justified.

3. Additional evidence before cit(a)  Rule 46A of i. t. rules, 1962 – Admission of evidence is justified after giving sufficient opportunity to a. o.

CIT vs. Parimal Kanti Chanda [2007] 291 ITR 59 (Raj.)

The assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Guwahati, for adducing additional evidence in support of his plea raised in the appeal. The Revenue was given a notice and although time was granted no objection was filed by the Revenue and on consideration of the additional evidence, the appeal was allowed.

The Revenue, thereafter approached the Tribunal on consideration of the material held that adducing the additional evidence was in accordance with law.

On an appeal by the Department the Hon’ble High Court observed that section 250 of the Income-tax Act, 1961, provides for the procedure for hearing of appeal and it provides, inter alia, that during the course of hearing of the appeal, the appellate authority may make further inquiry as it deems fit and allow the appellant to take fresh grounds of appeal not raised by it. Rule 46A of the Income-tax Rules, 1962, provides for adducing of additional evidence at the stage of appeal hearing. As the revenue was given opportunity in terms of the Rule 46A the admission of additional evidence is justified.

4. Export exemption for computer software Section 10b Domestic profit Less than 25% of total sale  Domestic turnover part of export turnover

CIT vs. Savvy Systems (I) Ltd. (2007) 291 ITR 105 (Mad.)

The assessee was in the business of export of computer software. The Assessing Officer accepted the return filed by the assessee and while computing the deduction under section 10B of the Act, the Assessing Officer proceeded as if the domestic turnover would form part of export turnover on the ground that the domestic turnover was less than 25 per cent of the sales. Taking the view that the assessment order was erroneous and prejudicial to the interest of the Revenue, the Commissioner revised the order under section 263, pursuant to which, an order under section 154 of the Act came to be passed reducing the benefit of deduction under section 10B. The Tribunal accepted the contention of the assessee.

On an appeal by the Department it was observed that the domestic turnover of the sales did not exceed 25 per cent of the sales and it was not in dispute that the domestic turnover was less than 25 per cent of the total sales, thus, fully satisfying the requirements as provided in the second proviso to sub-section (1) of section 10B at the relevant period of time. The Tribunal was right in holding that for the purpose of the deduction under section 10B the domestic turnover formed part of the export turnover.

5. Business expenditure  Bad debt Amounts not releasable due to bad financial positions of the debtors companies Entitled to claim deduction u/s. 36(1)(vi)
    

CIT vs. Kerala State Industrial Development Corporation Ltd. [2007] 209 CTR 371 (Ker)

The Assessee before the Hon’ble Kerala High Court is a Limited Company owned by the Kerala Government. The assessee had written off amount of Rs. 27,52,651/- as bad debts.

These amounts were due from the assessee had debited those amounts to the P & L Account and claimed it as bad debt. The Assessing Officer disallowed the claim of the assessee by observing that the assessee can make a claim for deduction only when the dues from the borrower companies are finally settled.

On an appeal the CIT(A) rejected the claim of the Assessee for deduction 36(1)(vii) by holding that for claiming the deduction the assessee should have established that the debt in question has become a bad debt in fact. The CIT(A) has further observed that the assessee’s claim for deduction is based on the perception of the financial position of the debtor companies especially when final orders are yet to be passed by the liquidator for winding up of those companies.

Aggrieved by the above order of CIT(A) the assessee preferred an appeal before the Tribunal. The Appellate Tribunal allowed the assessee’s appeal and held that the assessee is entitled to get the benefit of deduction under section 36(1)(vii). The Department being aggrieved by the Appellate Tribunal’s order preferred an appeal before Hon’ble High Court under section 260A of the Act.

The Hon’ble High Court upheld the Appellate Tribunal’s order and observed that it is not necessary for the assessee to wait till the debtor company actually goes into liquidation before writing off the loan and then to claim deduction under section 36(1)(vii), it was not possible for the assessee to recover its debts from two companies which were ordered to be wound up; and therefore assessee was entitled to deduction of debts due from the said companies.

6. Recovery Garnishee proceedings Letter seeking time rejected and order under sections 201 and 201(1a) passed within three/four days without giving opportunity to assessee Such a high handed manner of it authorities is ab initio void

Mahindra & Mahindra Ltd. vs. Assessing Officer & Ors. [2007] 209 CTR 110 (Bom.)

The assessee before the Hon’ble Bombay High Court was a Limited company. In this case the show cause notice dated 21st March, 2007 was served on the assessee on 22nd March, 2007 at 4.42 pm with the draft order dated 15th March, 2007. In reply to the show cause notice the assessee had filed a letter dated 22nd March, 2007 seeking grant of time to file his reply by 29th March, 2007. The Assessing Officer had rejected the above letter for seeking the time. The assessee had again filed a letter on 23rd March, 2007 seeking time to reply the said show cause notice. However the same was rejected by the Assessing Officer on the very same day.

On 23rd March, 2007 itself, without even affording an opportunity of hearing to the assessee and order was on 23rd March, 2007 under sections 201 and 201(1A) and it was served at 12.30 pm demanding amount of
Rs. 29,42,56,264/- subsequently on 27th March, 2007 was a bank holiday on which day the Assessing Officer had passed a cryptic order without considering the detailed submissions made by the assessee.

The assessee challenged the Assessing Officer’s action before the Hon’ble High Court. The Hon’ble High Court had allowed the Writ Petition filed by the assessee and observed that the amount recovered by the Assessing Officer in garnishee proceedings in contravention of directions of High Court and in a high handed manner without even affording proper opportunity of hearing to the assessee directed to be deposited with the Registrar General of High Court. Contempt of Court proceedings initiated against the Assessing Officer.

7. Accrual of income When the assessee is maintaining the cash system of accounting Interest on securities will have to charged to tax on receipt

CIT vs. Tamilnadu Mercantile Bank Ltd. [2007] 209 CTR 250 (Mad.)

The assessee while filing the returns of income claimed exclusion of the interest representing the accrued interest in respect of the securities on the ground that it did not become due and that even after the omission of section 18 of the IT Act, the interest on securities should be charged only when it becomes due for payment as it does not accrue on day to day basis.

The Assessing Officer however disallowed the claims of the assessee by holding that after the omission of section 18 of the Act interest is to be assessed under the head "Business" or "Other sources" and therefore, the interest which accrues up to the end of the accounting year becomes taxable as the income of the previous year.

Being aggrieved by the above order the assessee preferred an appeal to the first appellate authority. The CIT(A) has allowed the appeal of the assessee and held that the omission of section 18 did not make any difference, and since the interest on securities falls due only on certain specified dates, the AO was not justified in holding that the interest accrued up to the last day of the accounting year should be subjected to tax. Being aggrieved by the above order of the CIT(A), department carried the matter before the Income Tax Appellate Tribunal. The Appellate Tribunal had dismissed the appeal filed by the revenue.

On reference u/s. 256(1) the Hon’ble High Court confirmed the order of the Appellate Tribunal with the observations that in view of deletion of section 18 w.e.f. 1st April, 1989, the second proviso to section 145(1) was inserted w.e.f. 1st April, 1989, which is a saving clause. It clearly provides that any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which such interest is due to the assessee only where no method of accounting is regularly employed by the assessee. In other words, if the assessee is maintaining cash system of accounting, the aforesaid proviso would not apply.