REPORTED DECISIONS

1. Business expenditure – Disallowance u/s 14A – Premium towards Keyman Insurance Policy – Income from Keyman Insurance Policy not included in total income of the assessee by dint of provisions of s. 10(10D) – Expenditure incurred by way of premium not allowable in terms of provisions of section 14A – A.Y. 1997-98

Agarwal Packaging (P) Ltd. vs. CIT [2007] 108 TTJ 787 (Pune); Order dated 16-6-2006

Income from Keyman Insurance Policy not having been included in the total income of the assessee by dint of provisions of s. 10(10D), expenditure incurred by way of premium on this policy cannot be allowed as deduction in view of prohibition in s. 14A.

2. Capital gains – S. 48 – Computation – Flat in co-op. society sold – Paid Rs. 4 lakhs to society for getting NOC – Amount incurred was necessary expenditure for transfer of flat and hence allowable u/s. 48 – AY 1998-99

Damodar G. Nagalia vs. ACIT (2007) 12 SOT 599 (Mum); Order dated 17-3-2006

The assessee owned a flat in housing co-operative society and the said flat was sold While computing the capital gains, the assessee claimed Rs. 4 lacs as expenditure u/s. 48 being payment made to housing co-op. society for getting NOC from the society for the sale of flat. The AO held that only Rs. 25,000/- was paid as transfer charges and balance Rs. 3.75 lakhs was voluntary contribution to the society and hence, disallowed Rs. 3.75 lakhs, which was upheld by the CIT(A).

The Tribunal held that as per the MOU between assessee and purchaser of flat, it provided a condition that the assessee had to make payment of Rs. 4 lakhs as transfer charges to the society. There were other correspondences of the assessee with the society for the payment of Rs. 4 lakhs and Society had made it clear to the assessee that on non-receipt of Rs. 4 lakhs the NOC would be withdrawn. The AO & CIT(A) did not choose to confront the society but merely relied upon the accounting entry passed by the society so as to adjust the amount of Rs. 4 lakhs in the books of account. As far as the assessee was concerned it was a consideration for obtaining NOC from the society. The claim of deduction u/s. 48 of the Act would depend on what was the nature of the transaction between the assessee and the society and not in what manner the society finally adjusted the sum in its books of account. The amount of Rs. 4 lakhs was a necessary expenditure for transfer of flat and therefore allowable u/s. 48.

3. Capital gains – Transfer – Part performance of contract – Payment of consideration within stipulated time being essence of contract – Payments not made in time by transferee – Contract does not confer any right to transferee as envisage u/s. 53A of the Transfer of Property Act 1882 – Provisions of s. 2(47)(v) of I.T. Act cannot be applied – Not a transfer – A.Y. 1996-97

General Glass Co. (P) Ltd. vs. DCIT [2007] 108 TTJ 854 (Mum); Order dated 7-12-2006

A plain reading of sec. 53A of TOP Act shows that in order that a contract can be termed to be ‘of the nature referred to in s. 53A of the Transfer of Property Act’ it is one of the necessary pre-conditions that transferee should have or is willing to perform his part of the contract. ‘Willingness to perform’ for the purposes of s. 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform his obligations. Unless the party has performed or is willing to perform his obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of section 53A of the TOP Act will come into play on the fact of that case. It is only elementary that unless provisions of s. 53A of the TOP Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer u/s.2(47)(v).

Transferee not willing to perform his obligation under the contract and having failed to keep the time schedule of payment of balance sale consideration as per agreement for sale dated 12-5-1995, no transfer within the meaning of sec. 2(47)(v) r/w s. 53A of Transfer of Property Act, 1882 could be said to have taken place in A.Y. 1996-97 and AO was not justified in reopening the assessment for A.Y. 1996-97 for brining to tax capital gains in that assessment year out of the said transaction.

4. Deduction – Sec. 80HHC – Computation of total turnover & direct cost element – Unrealised export proceeds – In arriving at adjusted total turnover only realized sale proceeds of trading export turnover have to be reduced from total turnover – For the purpose of working out export turnover of trading goods only so much of direct cost is to be reduced as is attributable to realized trading export turnover – A.Y. 1995-96

ITO vs. Artmis Exports (P.) Ltd. (2007) 108 TTJ 850 (Mum); Order dated 11-7-2006

In arriving at the adjusted total turnover, only the realized sale proceeds of trading export turnover have to be reduced from total turnover. For purpose of working out export turnover of trading goods only so much of the direct cost is to be reduced as is attributable to realized trading export turnover.

5. 5. Penalty – Concealment of income – Sec. 271(1)(c) – Engaged in business of builders – Pursuant to survey, it filed revised return withdrawing claim of deduction u/s. 80-IB – Genuine difference of opinion between assessee & tax authorities in respect of claim of deduction u/s. 80-IB – Assessee made full disclosure of material fact & acted bona fide – Explanation 1 to section 271(1)(c) not applicable and penalty cancelled – AY 2003-04

Telebuild Construction (P.) Ltd. vs. ACIT (2007) 13 SOT 218 (Mum); Order dated 12-10-2006

The assessee in the original return of income filed on 28-11-2003 claimed deduction u/s. 80-IB of the Act. A survey action was conducted u/s. 133A of the Act on 25-11-2004 wherein the director made statement admitting that the claim of deduction u/s. 80-IB would be withdrawn. Thereafter, the assessee filed revised return of income and withdrew the claim of deduction u/s. 80-IB. The AO levied penalty u/s. 271(1)(c), which was confirmed by the CIT(A).

Before the Tribunal, the assessee argued that its bona fide was proved by the fact that it had filed a letter dated 18-12-2001 to the AO disclosing the relevant facts and enquiring as to whether the assessee was entitled to claimed deduction u/s. 80-IB of the Act to which there was no reply by the AO. The Tribunal held that merely because the claim of deduction was found to be not admissible under the provision of the Act would not by itself make liable the assessee to penalty provisions for concealment of income or filing inaccurate particulars of income. The case involved genuine difference of opinion between the assessee and the tax authorities with regard to the issue of deduction u/s. 80-IB(10) and was therefore clearly outside the scope of Explanation 1 to section 271(1). Since the assessee had made full disclosure of all the relevant fact and had acted bona fide, it was not a fit case for levy of penalty u/s. 271(1)(c) and the penalty therefore levied was to be cancelled.

6. Search & Seizure – Block assessment – Limitation u/s.158BE – limitation to be reckoned from last date of Panchnama – Block period 1-4-1985 to 6-2-1996

Late D.T.S. Rao through L/H D.S. Manjunath vs. ACIT [2007] 108 TTJ 686 (Bang); Order dated 26-5-2006

Execution of search warrant is to be inferred from the date of conclusion of search recorded in the last Panchnama; since no seizure was made vide last Panchnama dt. 25-4-1996 and it was drawn after the prohibitory order u/s. 132(3) ceased to have effect, said Panachnama was not valid and therefore the earlier Panchnama dt. 19-2-1996 whereby books of account and documents were seized being the last Panchnama, assessment order passed on 24-4-1997 was barred by limitation.

UNREPORTED DECISION

1. Capital gains – Exemption – ss. 54 and 54F – Phrase ‘a residential house’ means only one residential house – Adjacent two residential units combined into one having common passage, common kitchen, etc. would constitute one residence house for the purpose of exemption – A.Y. 1995-96

ITO vs. Ms. Sushila M. Jhaveri, ITA No.2865/M/02, Special Bench, Order dated 17-4-2007

Exemption under sections 54 and 54F would be allowed in respect of one residential house only. If the assessee has purchased more than one residential house, then the choice would be with the assessee to avail the exemption in respect of either of the houses provided the other conditions are fulfilled. However, where more than one unit is purchased, which are adjacent to each other and are converted into one house for the purpose of residence by having common passage, common kitchen, etc., then it would be a case of investment in one residential house and consequently, the assessee would be entitled to exemption.