Monday, 16 November 2015

Five Imp Verdicts Of Supreme Court And High Court On Core Issues


Andaman Timber Industries vs. CCE (Supreme Court)


Failure to give the assessee the right to cross-examine witnesses whose statements are relied up results in breach of principles of natural justice. It is a serious flaw which renders the order a nullity

Not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected

 

CIT vs. M/s Kudu Industries (P&H High Court)


S. 36(1)(iii): In a case where advances for non-business purposes are made from mixed funds, neither the AO nor the assessee can claim that the funds have come from a particular source and so the disallowance should be worked out on the basis of the average interest rate

The judgment of this Court in Commissioner of Income Tax-I, Ludhiana vs. M/s Abhishek Industries, Ludhiana [2006] 286 ITR 1 (P&H) does not deal with the question of the rate of interest to be applied in cases where the assessee has mixed funds available with it. We also agree with the Tribunal’s view that where mixed funds are diverted towards interest free advances the disallowance should be made up to the level of the average cost of debt to the assessee. There is no justification in taking into consideration the rate of interest in respect of any particular transaction where under an assessee avails advances on interest. An assessee may avail several advances from the same lender or from different lenders and at varying rates of interest. In the absence of anything to indicate that the interest free advance was made only from a particular corresponding advance received by the assessee, the advance made by the assessee would obviously be from the common pool of money. Money lying in a common pool has no identity. The various amounts advanced to the assessee get merged into a common pool. There is no justification then either for the assessee or for the department to take into consideration the rate of interest in respect of a particular advance or advances to the assessee. The only logical approach is to take into consideration the average interest rate at which the assessee has availed of the advances

 

CIT vs. Vrindavan Farms (P) Ltd (Delhi High Court)


S. 68: If the identity and other details of the share applicants are available, the share application money cannot be treated as undisclosed income in the hands of the Co. The addition, if at all, should be in the hands of the applicants if their creditworthiness cannot be proved

The Court is of the view that the Assessee by produced sufficient documentation discharged its initial onus of showing the genuineness and creditworthiness of the share applicants. It was incumbent to the AO to have undertaken some inquiry and investigation before coming to a conclusion on the issue of creditworthiness. In para 39 of the decision in CIT v. Nova Promoters & Finlease Ltd. 342 ITR 169, the Court has taken note of a situation where the complete particulars of the share applicants are furnished to the AO and the AO fails to conduct an inquiry. The Court has observed that in that event no addition can be made in the hands of the Assessee under Section 68 of the Act and it will be open to the Revenue to move against the share applicants in accordance with law

 

Pr. CIT vs. JKD Capital & Finlease Ltd (Delhi High Court)


S. 275(1)(c): For penalty proceedings initiated on issues unrelated to assessment of income (such as for s. 269SS/ 269T & TDS defaults), time limit runs from date of initiation of penalty proceedings and not from date of CIT(A)'s order

Considering that the subject matter of the quantum proceedings was the non-compliance with Section 269T of the Act, there was no need for the appeal against the said order in the quantum proceedings to be disposed of before the penalty proceedings could be initiated. In other words, the initiation of penalty proceedings did not hinge on the completion of the appellate quantum proceedings. This position has been made explicit in the decision in CIT v. Worldwide Township Projects Limited (2014) 269 CTR 444 in which the Court concurred with the view expressed in Commissioner of Income-Tax v. Hissaria Bros. (2007) 291 ITR 244(Raj)

 

K. S. Venkatesh vs. DCIT (Karnataka High Court)


S. 154: Even if assessee offers interest income as "Other Sources" and claims set-off of brought forward business loss against it u/s 72, AO is not permitted to rectify as issue is debatable

The Assessing Officer sought to rectify the original assessment order on the ground that carried forward business loss was to the tune of Rs. 24,23,760/- and same had been set off against the total income which was inclusive of the income earned by the assessee under the head “Income from Other Sources” and “Income from House Property” as declared by him in the return of income and carried forward loss could have been set off against “Business Income” only. As already observed by us herein above the issue as to whether the said income earned by way of interest on Fixed Deposits, NSCs, would be available to the assessee to seek for set off as business loss or not under section 72 of the Act is a debatable issue and as such we are of the considered view that said issue could not have been gone into in a proceeding under section 154 of the Act

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