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II. Direct Taxes Case Laws:
1. CIT
& ACIT Vs. Karnataka Vikas Grameen Bank, I.T.A. No. 100014/2014 c/w
ITA100013/2014, Date of Judgment: 14.12.2015, Karnataka High Court
Whether
the addition can be made u/s 41(1) of the Income Tax Act, 1961 towards
unclaimed ‘stale draft and pay orders’ in the hands of a Regional Rural
Bank?
Held: No
The
assessee is a Regional Rural Bank registered under the schedule of
Reserve Bank of India (RBI). The assessee had ‘stale draft and pay
orders’ for the reason that purchasers of DD/ Pay Orders had not claimed
or encashed them. The AO considered the same as profits chargeable to
tax u/s 41(1) of the Act.
The
hon’ble High Court held that section 41(1) of the Act can be invoked
when an allowance or deduction is sought to be made in respect of loss,
expenditure or trading liability is incurred by the assessee. In the
present case, the amount was with assessee because of the fact that the
payee or the holders of drafts/ pay orders had not encashed them and the
same was liable to be discharged as and when a claim is lodged by the
holder/ payee of a draft/ pay order. The provision is clear and
unambiguous and it would be incongruous to construe that the amount
involved as either a loss, expenditure or trading liability incurred by
the assessee. The reliance was placed on CIT vs T.V. Sundaram Iyenagar & Sons Limited (1996) 222 ITR 344 (SC)
wherein it was held that amount remaining un-claimed by various trading
parties for a long time and written back to the P&L a/c, is of
capital nature thereby not attracting the provisions of Section 41(1).
(Please click here for judgment)
2. Safina Hotels Pvt. Ltd. Vs. CIT & DCIT, I.T.A. No. 240/2010, Date of Judgment: 25.01.2016, Karnataka High Court
Whether penalty can be levied u/s 271(1)(c) of the Income Tax Act, 1961 where notice was issued u/s 271(1)(b) of the Act?
Held: No
The
assessee was engaged in the business of hotel industry. The assessee had
claimed loss on sale of investment under ‘financial charges’. The AO
disallowed the amount contending the same as capital in nature and
initiated separate penalty proceedings u/s 271(1)(c) of the Act for
willful concealment of the income and for furnishing inaccurate
particulars of such income. However, the notice issued u/s 274 r.w.s
271, corresponded to Section 271(1)(b) of the Act, and the order of AO
was passed u/s 271(1)(c) of the Act.
The
hon’ble High Court held that the AO had no jurisdiction to pass the
penalty order u/s 271(1)(c ) of the Act without issuing a proper notice
as required under law and when the particulars are disclosed in the
return of income. The hon’ble Court placed reliance on Judgement of ‘Manjunath Cotton and Ginnings (2013) 359 ITR 565’ (Kar).
Also held that, direction to initiate penalty proceedings in assessment
order, as required u/s 271(1B) of the Act should be clear and
unambiguous.
(Please click here for judgment)
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