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III. Direct Taxes Case Laws:
1. CIT Vs. M/s Ramaniyam Homes P Ltd., Tax Case (Appeal) No. 278 of 2014, Date of Pronouncement: 22.04.2016, High Court of Madras
Issue:
Whether the principal amount waived by the bank under the one time
settlement is a taxable receipt covered within the definition of the
term ‘income’ and taxable under Section 28(iv) of the Income Tax Act,
1961?
Held_Yes
Brief Facts:
The assessee filed the Return of Income for the Assessment Year
2006-07 declaring the loss of Rs. 2,42,20,780/-. The notice under
Section 143(2) and 142(1) of the Income Tax Act was issued to the
assessee. AO found that assessee was engaged in one time settlement
scheme with the Indian Bank. Therefore, interest waived by the bank was
treated as income u/s 41(1). Moreover, AO treated the difference between
the amount waived off and amount paid by the assessee as income u/s
28(iv). The CIT(A) approved the taxability of income u/s 41(1) but
deleted the addition u/s 28(iv). ITAT upheld the decision of CIT(A).
Aggrieved by which, the revenue is in appeal before the High Court.
Held:
It was held that Not the actual receipt of money, but the receipt of a
benefit or perquisite, which has a monetary value, whether such benefit
or perquisite is convertible into money or not, which is what is
covered by Section 28(iv). The accounting practices make no distinction
between the loan taken for the purpose of acquiring capital asset and
the loan taken for the purpose of trading activities. But section
36(1)(iii) allows the deduction of interest for loan taken for business
purposes but interest paid in respect of the loan taken for acquiring
capital asset would be allowed deduction only when such asset is put to
use. When the portion of loan taken for acquiring capital asset is
reduced (either by one time settlement or otherwise), as per double
entry system of accounting, the total amount of loan shown on the
liabilities side of the balance sheet is reduced and the amount shown as
capital reserve is increased to the extent of the waiver.
Alternatively, the waived amount is shown as a capital receipt in the
Profit & Loss Account. Hence in the above case, the question of law
is answered in the favour of the Revenue and the waived portion of the
loan would be taxable u/s 28(iv).
The appeal of the revenue is allowed.
(Please click here for judgment)
2. Oxford Softech P. Ltd. Vs. ITO, I.T.A. No. 5100/Del/2011, Date of Decision: 07.04.16, ITAT - Delhi
Issue:
Whether the penalty could be attracted if the assessee was under a bonafide belief claiming a deduction u/s 80IA of the Act ?
Held_No
Brief_Facts:
The assessee company is engaged in providing certain services
including air conditioning, generator backup, interiors, electric,
wooden fixtures and fittings etc. claiming deduction u/s 80 IA of the
Act to the extent of 100%. The order in Form 10CCB r.w. Rule 18BBB was
filed with the return. The A.O. disallowed the claim with the contention
that the assessee is merely providing certain interiors, furniture,
fixtures and generator back up power services etc. for BPO/Software
companies which are lessees of the building owned by its Director and
has received services and hire charges for the same and the assessee is
not engaged in the business of developing, operating and maintaining,
the infrastructure facilities as specified in Sec.80 IA of the Act. It
was also contended that the audit report submitted by the assessee in
form no.10 CCB does not mention the sub section of s.80 IA of the Act
under which the assessee was claiming deduction in column no.7 of the
audit report.
The
assessee could not submit the specific provision of Sec.80 IA under
which it was claiming deduction. Reliance placed by the assessee on
approvals of Dy.Director/Director of Software Technology Park of India
for claiming deduction u/s 80 IA, which is extracted in the assessment
order is not warranted for the reason that, the guarantee card etc. are
issued to the assessee company for approval of 100% software export unit
status under Software Technology Park Scheme and has no connection with
claim for deduction u/s 80 IA. The Dy.Director/Director of STPI is not
the competent authority to allow deduction u/s 80 IA of the Act as per
provisions of the law in the case of the assessee. Thus he denied the
deduction.
Held:
Hon’ble ITAT held that a perusal of audit report demonstrates that
the auditors of the assessee also believed that the assessee was
eligible for deduction u/s 80 IA of the Act supported by an audit
report. The assessee had also made an application to STPI for setting up
the infrastructure facilities under the STPI Scheme. All details of the
claim made u/s 80 IA were filed by the assessee, along with the return
of income. Under these circumstances, the explanation given by the
assessee that it was under a genuine belief that it was entitled for
relief u/s 80 IA of the Act is bonafide. Hence, ITAT held that the
assessee was under a bonafide belief that it was entitled to the claim
for deduction under provisions of s.80 IA of the Act. The provisions
under the Act are highly complicated and its different for a layman to
understand the same. Even seasoned tax professionals have difficulty in
comprehending these provisions. Making a claim for deduction u/s 80 IA
of the Act which has numerous conditions attached is a complicated
affair. It is another matter that the assessing authorities have found
that the claim is not admissible. Under these circumstances, it cannot
be said that this is a case of furnishing of inaccurate particulars of
income penalty u/s 271(1)(c) cannot be levied.
Thus, the appeal of assessee was allowed.
(Please click here for judgment)
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