voluntary surrender of unexplained income :Penalty not justified

Heranba Industries Ltd. Vs. DCIT (ITAT Mumbai), I.T.A. No. 2292 of 2013, Date of Pronouncement: 08.04.2015 

Where assessee surrendered unexplained income voluntarily even after receiving notice u/s 143(2) and the AO had not brought any evidence on record to prove that there was concealment of income, whether levy of penalty u/s 271(1)(c) is not justified.

From the record we found that at the very first instance share application money was surrendered by assessee with a request not to initiate any penalty proceedings. The AO passed order u/s.143(3) adding surrendered amount u/s.69A on the plea that assessee has surrendered amount only after issue of notice.

It is not disputed by the department that sum which was added u/s.69A was one which was surrendered by the assessee itself. Neither there was any detection nor there was any information in the possession of the department except for the amount surrendered by the assessee and in these circumstances it cannot be said that there was any concealment.

In case of CIT vs. Suresh Chandra Mittal 251 ITR 9 (SC), Hon’ble Supreme Court observed that if the assessee has offered the additional income to buy peace of mind and to avoid litigation penalty u/s.271(1)(c) of the Act cannot be levied.

Mere Book Adjustments is not contravention of Section 269SS and Section 269T

[2015] 56 taxmann.com 336 (Andhra Pradesh and Telangana)

HIGH COURT OF ANDHRA PRADESH AND TELANGANA

Gururaj Mini Roller Flour Mills

v.

Additional Commissioner of Income-tax

Making book adjustment of funds by assessee firm with sister concern without making payment of cash, could not said to be violation or contravention of section 269SS and section 269T

No disallowance due to retro-amendment

Law prevalent at time of making payments would decide TDS liability; no disallowance due to retro-amendment

[2015] 56 taxmann.com 357 (Panaji - Trib.)

IN THE ITAT PANAJI BENCH

Assistant Commissioner of Income-tax, Circle-2 (1), Panaji, Goa

v.

Ajit Ramakant Phatarpekar

Where assessee made payments to foreign parties for monitoring and supervision of discharged cargo, in view of fact that retrospective amendment brought to section 9(1)(vii) by Finance Act, 2010 was not in existence at time when payments were made, amount in question was not taxable in India as fee for technical services

Section 28: Income from Lease Agreement is Income from Other Sources

Q: Whether the amount received by the assessee under a lease agreement is income from other sources or business income?

East West Hotels Ltd. v. DCIT (2009) 309 ITR 149 (Kar.) Section – 28

• The assessee was engaged in the hotel business activities. The assessee by an agreement with IHC gave one of its hotels on lease for an initial period of 33 years with an option to renew for a further period of 33 years.

• The assessee claimed that the amount received from IHC had to be treated as its business income. The claim was rejected by the Assessing Officer on the ground that the assessee was not getting any business income as the hotel had been leased out by the assessee to IHC and any amount received by the assessee from such company had to be treated as income from other sources and not business income.

• The Commissioner (Appeals) as well as the Tribunal held that the income received by the assessee from such hotel building was income from other sources.

• The High Court held that the clauses in the agreement were more in the nature of a lease deed and not a licence given for a particular period with no intention to resume its business of hotel in the premises.

• It could not be said that the assessee had been managing the hotel through IHC. Therefore, the amount received from IHC had to be treated as income from other sources and not as business income.

Section 28 :Amount transferred to the reserve fund is not business Expenditure

Q: Whether the amount transferred to the reserve fund account as per the provisions of section 67 of the Gujarat Co-operative Societies Act, 1962, was diversion of income at source by overriding title or could such transfer be treated as business expenditure deductible either under section 28 or section 37?

 CIT v. Mehsana District Co-op. Milk Producers’ Union Ltd. (2008) 307 ITR 83 (Guj.)  Section – 28

• The assessee contended that under sub-section (2) of section 67 of the Gujarat Co-operative Societies Act, 1962, at least one-fourth of the net profits of the society were required to be carried to the reserve fund every year, and hence there was a diversion at source by virtue of the provisions of section 67 which operates as an overriding title.

• Hence, it was submitted that the amount transferred to the reserve fund could not be charged as income liable to tax under the Act. Alternatively, it was pleaded that the amount of profits transferred to the reserve fund would constitute a charge on the taxable income under the provisions of section 28 of the Income-tax Act, 1961, or an expenditure having the characteristics of business expenditure under section 37. The Assessing Officer rejected the contention and this was upheld by the Tribunal.

• The High Court held that it was only in the event the society did not choose to use the reserve fund for the business of the society that the question about investing the reserve fund in the specified category of investments and thereafter utilizing the same for the objects specified by the State Government could arise.

• Hence, not only was there no diversion of income by overriding title but in fact there was no outgoing of funds from the domain of the assessee society. In fact, the profits at the specified percentage were set apart so as to be available to the society for use in the business of the society at a later point of time.

• Once the society was in a position to use the funds lying in the reserve fund for the business of the society as and when the society so chose, there could be no question of keeping out such profits from the purview of taxation.

• The Tribunal was right in law in holding that the amount transferred to the reserve fund account as per the provisions of section 67 of the Gujarat Co-operative Societies Act, 1962, was not diversion of income at source by overriding title nor could such transfer be treated as business expenditure deductible either under section 28 or section 37.
  

Section 28 : Subsidiary Company Wound up: Trading Loss on shares held

1. Can the assessee treat shares held in subsidiary company, which is ordered to be wound up, as trading loss?

 CIT v. H. P. Mineral and Industrial Development Corporation Ltd. (2008) 305 ITR 111 (HP) Section – 28

• One of the assessee’s subsidiary companies was ordered to be wound up and the assessee decided to write off the value of the shares held by it in the subsidiary company.

• The lower authorities decided in favour of the assessee holding that there was no question of selling off the shares as the subsidiary company had gone into liquidation.

• The High Court held that once a company had been ordered to be wound up, there was no question of any party dealing in the shares of that company.

• The Tribunal had come to a finding that the shares were stock-in-trade and had therefore allowed the loss. The loss had to be treated as a trading loss. The mere fact that the shares were not sold was of no significance since in fact the shares could not have been sold and had become worthless.

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