1.  The Tata Power Co. Ltd., Vs. Addl. CIT, Range 2(1), I.T.A No.3382/ Mum/2010, Assessment year: 2005-06, Dated 31st May 2011, ITAT – Mumbai

The assessee earned LTCG of Rs.233 crores and claimed deduction of Rs.124 crores u/s.54EC on account of investment in specified bonds of NABARD. The assessee also had brought forward long term capital loss of Rs.111 crores. The assessee first claimed deduction u/s 54EC and then, against the balance, set-off the brought forward losses. The CIT revised the assessment u/s 263 on the ground that the long-term capital loss had to be first set-off against the LTCG and the deduction u/s 54EC was allowable only on the balance. On appeal by the assessee to the Tribunal, HELD allowing the appeal:

While s. 54EC is an exemption provision which exempts capital gains and takes them outside the purview of chargeable “capital gains”, s. 74 deals with the carry forward and set off of loss under the head “capital gains”. The stage at which set off of carried forward long term capital loss is to be given is subsequent to the stage at which income under the head capital gains is computed and deduction u/s 54EC is to be given in the course of the latter. Accordingly, s. 54EC deduction has to be given before set-off of losses.

(Please click here for judgment)

2.  DEPUTY COMMISSIONER OF INCOME TAX Vs. M/s AIG HOME FINANCE INDIA LTD, ITA No.2167/Mds/2010, Assessment Year: 2005-2006, Dated: 5th May 2011, ITAT – Chennai

Whether, even without doubting the payment of guarantee fee to third parties within a reasonable range, AO can make disallowance u/s 40A(2) on the ground that the third parties are shareholders in the assessee-company and they would have provided such services free of cost.

That a perusal of provisions of Section 40A(2)(b) of the Act shows that this provision is applicable where an A.O. is of the opinion that the payment is excessive or unreasonable when such payments had been made to related parties. Here, the A.O. has not shown how the payment made by the assessee to M/s Weizmann Ltd. was unreasonable or excessive.

(Please click here for judgment)