CIT v Bikaner Cuisine Pvt Ltd [ITA No. 475/2013 dated 04.10.13] (Delhi HC) Background: Assessee – M/s Bikaner Cuisine Pvt. Ltd. was not a shareholder of BIPS Systems Ltd. The latter company i.e. BIPS Systems Ltd. had granted unsecured loan of Rs.49,25,000/- to the assessee. The Assessing Officer invoked provisions of section 2(22)(e) of the Income Tax Act, 1961 and made an addition of Rs.33,84,290/- as deemed dividend in the hands of the assessee. The reason given was that the assessee and BIPS Systems Ltd. had common shareholder, namely, Narender Goel, who held more than 10% shares in BIPS Systems Ltd. and more than 20% voting rights in Bikaner Cuisine Pvt. Ltd. However, the accepted and admitted position is that the company is not a shareholder in BIPS Systems Ltd.
Miscellaneous
Shervani Hospitalities Ltd v CIT [I.T.A. No. 804 of 2011 dated 28.05.2013] Delhi High Court Background: The assessee is a company engaged in hospitality services. For the AY 2001-02, the assessee filed its return declaring loss of Rs.43,15,328. The assessment was completed under Section 143(3) of the Act at a positive income of Rs.9,26,510. In the first appeal, the assessee substantially succeeded and most of the additions/disallowances were deleted. After giving the first appeal effect, the loss was determined at Rs.34,30,680. Aggrieved, the Revenue preferred an appeal before the Tribunal, which was substantially allowed vide order dated 25th April, 2008. Proceedings under Section 271(1)(c) of the Act were initiated and vide order dated 29th January, 2009, penalty of Rs.16,44,330/– was imposed inter-alia observing that the assessee had failed to substantiate the explanation regarding additions/disallowances made in the assessment order resulting in reduction of returned loss. It was observed that the losses claimed could not be justified before the Assessing Officer and the additions had been finally upheld by the Tribunal. Concealment penalty was upheld in the first appeal by the Commissioner of Income Tax (Appeals).
Mens rea is not required to impose penalty for concealment – Del HC
ITO v SHASTHA PHARMA LABORATORIES PVT LTD [ ITA No.83/2007 ; ITA No.84/2007] – Karnataka High Court Background: The assessee, for the assessment years 1998-99 and 1997-98 disclosed the lease rent income of Rs.6,00,000/-. The assessee had received Rs.80,00,000/- as lease rent deposit. The AO held that the interest on deposit should be taken into account for computation of the rent received by the assessee. Therefore, he assessed the annual letting value of Rs.20,40,000/- which includes notional interest in respect of the deposit. The CIT(A) dismissed the appeal filed by the assessee by upholding the order of the Assessing Authority.
Notional interest on deposit cannot be added as income from house property – Kar HC
M/s WINDERMERE PROPERTIES PVT LTD v DCIT ITA No.7192/Mum/2010 (Mum ITAT) Background: The assessee claimed deduction of Rs. 11.05 crore towards interest u/s 24(b) of the Income-tax Act, 1961 in the computation of income under the head “Income from house property”. On perusal of its details, the Assessing Officer noticed that it comprised of the interest of Rs. 9.48 crore and prepayment charges of Rs. 1.56 crore. The Assessing Officer held that the prepayment charges of Rs. 1.56 crore would not fall u/s 24(b) of the Act. Resultantly, the deduction was denied for such amount. No relief was allowed in the first appeal.
Prepayment charges on foreclosure is akin to interest – Mum ITAT
M/s IFB AGRO INDUSTRIES LTD v JCIT (ITA No.114/Kol/2013) (Kolkata ITAT) Background: The assessee is a company engaged in the business of manufacture of rectified spirit and IMFL, marine products and trading of feed and beer. The assessee had received Inter-corporate deposits from M/s. IFB. Assessee held 18.82% of the shares of M/s. IFB. The AO treated the same as a loan received by the assessee from M/s. IFB. and invoked the provisions of section 2(22)(e) of the Act. An amount of Rs.17.5 cr. was deposited by M/s. IFB through RTGS in the bank account of the assesee but Rs.12 cr. out of the same was immediately returned as it was deposited without the assessee’s permission. On appeal, the CIT(A) had accepted the contention of the assessee that the Inter corporate deposit was only to an extent of Rs.11.20 cr. However, the CIT(A) had treated the Inter corporate deposits as a loan and had consequently treated the amount of Rs.11.20 cr. as deemed dividend u/s. 2(22)(e) of the Act.
Deemed dividend not applicable in case of inter-corporate deposits – Kol ITAT
DCIT vs. Vikas Oberoi (ITAT Mumbai) Background: The assessee was a beneficial shareholder of two companies named Kingston Properties P Ltd. (KPPL), New Dimensions Consultants P Ltd (NDCPL) & R. S. Estate Developers P Ltd (RSEDPL). NDCPL & RESEDPL advanced various sums of money to KPPL towards “share application money”. However, some of the advances were returned by KPPL while some were adjusted towards allotment of shares. The AO held that the transaction was a “colourable device” and a “loan and advance” which fell within the ambit of s. 2(22)(e). The said “loan and advance” was assessed as “deemed dividend” in the hands of the assessee – beneficial shareholder – following Universal Medicare 324 ITR 264 (Bom). The CIT(A) reversed the AO. On appeal by the department to the Tribunal HELD dismissing the appeal:
Share application money not subject to deemed dividend u/s 2(22)(e) – Mum ITAT
CIT v M/s Chelslind Textiles Ltd (ITA No: 361/2009 dtd 04/03/2009) – Karnataka HC Background: Assessee claimed deduction u/s 10B amounting to Rs.4,75,30,724/- on the business income of Rs.5,36,70,676. During the course of assessment proceedings, the AO allowed the deduction claimed by the assessee. The Commissioner of Income-tax observed that the AO allowed the deduction without setting-off unabsorbed depreciation amount of Rs.4,26,23,711. Therefore, the CIT in his jurisdiction under Section 263 of the Income Tax Act was of the view that the same resulted in excess deduction allowed under Section 10B of the Act and incorrect determination of loss was carried forward. Therefore, he set-aside the said order and directed the Assessing Officer to re-compute the total income after setting-off the unabsorbed depreciation. Further,the question arose as to whether an assessee incurring losses in the 10A unit has an option to opt out of the benefit under section 10A(8) and make inter-source and inter-head set-off u/s 72.
An assessee can opt out of 10A/10B exemption in the year of loss – Karnataka ...
Export Credit Guarantee Corporation of India Ltd v Addln CIT Writ Petition No. 502 of 2012 (order dtd January 10/11, 2013) – Bombay HC Background: Assessee filed a return of income for AY 2006-07 on 28 November 2006 in which it offered income computed at Rs. 385.25 crores to tax under Section 44. An order of assessment was made on 17 November 2008 under Section 143(3) by which the total income was determined at Rs.386.08 crores after making certain disallowances. A notice was issued on 24 March 2011 to the assessee seeking to reopen the assessment. The assessee by a letter dated 18 November 2011 objected to the notice proposing to reopen the assessment for A.Y. 2006-07. The Assessing Officer by his order dated 22 November 2011 disposed of the objections.
Full disclosure in the return of income does not preempt the AO from reassessment – ...
Woodland Associates (P.) Ltd. v ITO [ITA No. 5031 (Mum.) of 2011] Mumbai ITAT Background: Assessee during the year had credited the sum of Rs. 4,52,000/- on account of rent. The flats had been let out to Ms. Rekha Jalan, Managing Director of the company for a sum of Rs. 26,000/- per month and Ms. Snehal Jalan who is her daughter at a monthly rent of Rs. 12,000/-. Ms. Rekha Jalan held 81.71% shares in the company whereas Ms. Snehal Jalan held 13.33% shares. The assessee had declared income from property as business income and the actual rent received had been shown as annual value. The property had been held as a business asset and as per memorandum of association, it was business of the company to let out properties. The AO stated that leasing out the property could not be considered as trade or commerce. AO referred to the judgment of Hon’ble Supreme Court in the case of Shambhu Investments (P.) Ltd. v. CIT [2003] 263 ITR 143/129 Taxman 70. He, therefore, assessed the rental income under the head “house property”. As regards the fair rental value, the AO contended that letting out the flats to the persons who were controlling the company was only an arrangement to reduce tax. AO after analyzing the comparative rates observed that the average rent charged in respect of similar flat in the same society was 125 per sq.ft. According to the AO, annual value which is defined as sum for which property may be let out from year to year would be the fair rent available in the market. CIT(A) held that the property was covered under Maharashtra Rent Control Act, 1999 and, therefore, Annual letable value had to be taken as standard rent and therefore, the AO was not justified in taking the market rent.