Bombay High Court Judgments — 2014

The High Court held that the reassessment notice and the consequent reassessment order were liable to be quashed. The primary reason was that the jurisdictional parameter under the proviso to Section 147 was not fulfilled. The Court found that the petitioner had made full and true disclosures of material facts concerning the determination of MAT liability, including the set-off of PPGM's losses and the debiting of capital loss to its profit and loss account. These disclosures were specifically considered by the Assessing Officer in the original assessment order dated March 21, 2002, under Section 143(3). The Court noted that the assessment order itself reflected this consideration. Therefore, there was no failure on the part of the assessee to disclose material facts, and the reopening of the assessment was not justified. The Court also found that the issuance of the notice and the order violated principles of natural justice due to the haste with which the proceedings were conducted. Consequently, the Court quashed the impugned notice and reassessment order.

The High Court held that the Commissioner, in exercise of powers under Section 264, is entitled to consider a law that has been retrospectively amended and made applicable to the assessment year in question, even if the amendment was made after the original assessment order. The Court reasoned that Section 264 does not place any restriction on the Commissioner's revisional powers to consider such subsequent retrospective amendments. The contention of the revenue that the 'record' should be reckoned only as of the date of the original order was rejected as an artificial distinction. The Court drew an analogy with Section 256(2) applications, where retrospective amendments must be given full effect. The Court found that if the applicable law, by virtue of retrospective amendment, leads to an overassessment, the Commissioner is duty-bound to correct it. The impugned order of the Commissioner was set aside, and the matter was remanded for reconsideration of the assessee's claim under Section 80HHC on merits and in accordance with the amended law.

The High Court held that the interest received by the assessee is not chargeable to income tax. The Court reasoned that the amount received as interest was due to the transaction not materializing and the society retaining the principal amount for a long period. It was not income from any deposit made by the assessee, nor was it compensation for the acquisition of land. Therefore, Section 56(2)(viii) of the Income Tax Act was not applicable. The Court found no perversity in the findings of the lower authorities and relied on the Supreme Court's decision in CIT Versus A. Gajapathy Naidu (1964) 53 ITR 114, which held that such income cannot be treated as income from other sources. The appeals were dismissed as no substantial question of law was involved.

The High Court held that the interest received by the assessee is not chargeable to income tax. The Court reasoned that the amount received as interest was due to the transaction not materializing and the society retaining the principal amount for a long period. It was not income from any deposit made by the assessee, nor was it compensation for the acquisition of land. Therefore, Section 56(2)(viii) of the Income Tax Act was not applicable. The Court found no perversity in the findings of the lower authorities and relied on the Supreme Court's decision in CIT Versus A. Gajapathy Naidu (1964) 53 ITR 114, which held that such income cannot be treated as income from other sources. The appeals were dismissed as no substantial question of law was involved.

The High Court held that the CBDT's refusal to condone the delay was based on an unduly restrictive approach. The Court found that the petitioner had offered an acceptable explanation for the delay, demonstrating genuine hardship. The Court noted that the CBDT's consideration of the delay in filing the condonation application itself was an afterthought, not raised in the show-cause notice. Citing precedents, the Court emphasized that delay alone, if not coupled with rights created in favor of others or indicative of mala fides, should not lead to rejection. The Court found the petitioner's explanation for the delay to be neither deliberate nor due to culpable negligence or mala fides. Therefore, the impugned order of the CBDT was set aside, the delay was condoned, and the Assessing Officer was directed to scrutinize the return and examine the refund claim on merits. The Court explicitly stated that it had not examined the entitlement to the refund, leaving that to the Assessing Officer.

The High Court held that there was no substantial question of law involved and dismissed the revenue's appeal. The Court reasoned that the amount received as interest was not compensation because it was due to the transaction not materializing and the society retaining the principal amount for a long period. It was neither income from deposits nor compensation for land acquisition. Therefore, Section 56(2)(viii) of the Income Tax Act was not applicable. The Court found no perversity in the findings of the authorities below. The High Court relied on the Apex Court's decision in CIT vs. A. Gajapathy Naidu (1964) 53 ITR 114, which held that such income cannot be treated as income from other sources.

The High Court held that the Tribunal's decision was well-reasoned and not perverse. Regarding the issue of flat area, the Court agreed with the Tribunal that 'super built-up area' includes common areas like staircases and balconies, and cannot be equated with 'built-up area' as defined by regulations. The Court noted that the definition of 'built-up area' inserted by the Finance Act, 2004, effective from April 1, 2005, which includes projections and balconies, would not apply retrospectively to projects completed before April 1, 2005. The Court found no distinguishing features to interfere with the Tribunal's finding that the flat areas were within the 1500 sq. ft. limit. Concerning the plot area, the Court affirmed the Tribunal's finding that the entire project stood on more than one acre. The Court also dismissed the revenue's submission for remand, stating it had no merit. Consequently, all questions were answered in favour of the assessee and against the revenue.

The High Court held that the Tribunal's view was well-reasoned and not perverse. Regarding the definition of 'built-up area', the Court noted that the insertion of 'including projections and balconies' was effective from April 1, 2005. It relied on its own decision in CIT vs. M/s. Tinnwala Industries, which held that this definition would not apply to projects completed before April 1, 2005. In the present case, the Tribunal correctly distinguished between 'super built-up area' and 'built-up area', concluding that the latter, as per regulations, excludes common areas and balconies. Therefore, the flats did not exceed the 1500 sq. ft. limit. The Court also found that the entire project was on more than one acre. The submission to remand the matter was rejected. The question regarding the pending SLP in Vandana Properties was implicitly addressed by the Court's own analysis of the law. The Court answered the questions in favour of the assessee.

The High Court held that the appeals were to be answered in favour of the assessee and against the revenue. Regarding the eligibility for deduction under Section 80-IB(10), the court affirmed the Tribunal's finding that the project was on a plot of land exceeding one acre and that the area of the flats was within the 1500 sq. ft. limit. The court agreed with the Tribunal's reasoning that 'super built-up area' includes common areas and balconies and cannot be equated with 'built-up area' as defined by regulations. The court also noted that the definition of 'built-up area' including projections and balconies, effective from April 1, 2005, was held by this court in CIT vs. M/s. Tinnwala Industries to be prospective and not applicable to projects completed before that date. The court found no merit in the revenue's submission for a remand. The questions raised in all appeals were answered in the affirmative, in favour of the assessee.

The High Court held that the issue primarily concerned Section 80-IB(10)(b) and (c). The Court noted the amendments to Section 80-IB(10), particularly the definition of 'built-up area' inserted by the Finance Act, 2004, effective from April 1, 2005. The Court agreed with the Tribunal that 'super built-up area' includes common areas and balconies and cannot be equated with 'built-up area'. The Court also referred to its own decision in CIT vs. M/s. Tinnwala Industries, which held that the definition of built-up area effective from April 1, 2005, was not retrospective. The Court found no distinguishing features to interfere with the Tribunal's well-reasoned order. The submission for remand was rejected. The Court concluded that the project was on more than one acre and the flats were within the 1500 sq. ft. limit. Therefore, the questions were answered in favour of the assessee and against the revenue.

The High Court held that the definition of 'built-up area' inserted by the Finance Act of 2004, effective from April 1, 2005, which includes projections and balconies, would not apply retrospectively to projects completed before April 1, 2005. The Court found that the ITAT's reasoning that 'super built-up area' includes common areas and balconies and cannot be equated with 'built-up area' (referring to carpet area excluding balconies and terraces) was well-reasoned and not perverse. The Court also noted that the definition of built-up area in Section 80-IB(14)(a) excludes common areas shared with other residential premises. The Tribunal's finding that the project was on more than one acre and the flats were within the 1500 sq. ft. limit was accepted as the finding of the last fact-finding authority. Consequently, the revenue's submission for remand was rejected. The questions of law were answered in favour of the assessee and against the revenue.

The High Court held that the Tribunal's decision was well-reasoned and not perverse. Regarding the issue of flat area exceeding 1500 sq. ft., the Court agreed with the Tribunal that 'super built-up area' includes common areas like staircases and balconies and cannot be equated with 'built-up area' as defined by regulations, which refers to carpet area. The Court noted that the definition of 'built-up area' in Section 80-IB(14)(a), which includes projections and balconies, was inserted w.e.f. April 1, 2005, and would not apply retrospectively to projects completed before that date, as per the ruling in CIT vs. Tinnwala Industries. Even considering the post-2005 definition, it made no difference to the assessee's case. The Court found no merit in the revenue's submission to remand the matter. The Court answered the questions in favour of the assessee, affirming that the project was on more than one acre and the flats were within the 1500 sq. ft. limit.

The High Court held that the finding recorded by the ITAT was correct. The Tribunal had correctly held that if the predominant purpose of a trust is charitable, and any profit generated incidentally is used for charitable purposes, the Assessee does not cease to be established for charitable purposes. This view was supported by the High Court's own judgment in CIT Vs. Agricultural Produce and Marketing Committee (291 ITR 419). Consequently, the High Court found that the appeal did not give rise to any substantial question of law. The Court did not disturb other findings of the Tribunal, including the necessity to remand the case back to the Commissioner of Income Tax.

The High Court held that the sine-qua-non for applying Chapter X of the Act is the arising of income from an international transaction, which should be chargeable to tax. The definition of income does not include capital receipts arising from capital account transactions unless specified in Section 2(24). There is no charge in the Act to tax amounts received on account of the issue of shares by an Indian entity to a non-resident entity, as it arises from a capital account transaction and is not income. Chapter X is a machinery provision and does not change the character of receipts. The Court found that the revenue's arguments regarding alternative remedy, non-disclosure in Form 3CEB, and restructuring were not substantial. The Court followed its decision in Vodafone-IV and set aside the TPO's order determining the ALP of the equity shares at Rs. 183.44 per share and the consequent draft assessment order seeking to tax the ALP and deemed interest. The Court clarified that the petitioner's remaining objections before the DRP would be considered on their merits.

The High Court allowed the petition, setting aside the Commissioner's order. The Court held that the petitioner is entitled to interest under Section 244A(1)(b) on the Rs. 18.24 lacs paid as self-assessment tax from the date of payment (August 31, 1994) to the date of refund (October 24, 1998). The Court reasoned that the distinction made by the revenue between voluntary payment of self-assessment tax and tax deducted at source or advance tax was not appreciated, as both are payments to discharge an obligation under the Act. The Court found support in the Supreme Court's decision in Union of India v. Tata Chemicals Ltd., which clarified that the requirement to pay interest arises whenever an amount is refunded to an assessee as compensation for the revenue's use of the money. The Court also rejected the revenue's argument that the Explanation to Section 244A(1)(b) limits interest to payments made pursuant to a Section 156 notice, citing the Tata Chemicals decision and the plain reading of Section 244A(1)(b) which mandates interest from the date of tax payment. The Assessing Officer was directed to compute and pay the interest within six weeks. No issue was expressly left undecided.

The High Court held that the appeal before it did not deserve consideration. The appellant's counsel was fair in contending that the appeal should not be pressed and be disposed of. Consequently, the appeal was not entertained and was dismissed as not pressed. The ITAT's order remanding the matter back to the CIT(A) for reconsideration was noted to have attained finality. The Court clarified that it had not dealt with the merits of the contentions raised by the parties. In light of the ITAT's remand and the quantified penalty of Rs. 20 crores by the CIT(A), the Court directed the appellant to deposit an additional sum of Rs. 5 crores with the Revenue within eight weeks as a pre-condition for protection during the pendency of the appeal before the CIT(A). Upon this deposit, the Revenue was restrained from coercive recovery measures. The attachment of the appellant's properties by the Revenue was ordered to continue until the disposal of the appeal.

The High Court held that no substantial questions of law arise for consideration in these appeals. The Court's reasoning was based on its own prior judgment in Income Tax Appeal No. 87 of 2000 (The Commissioner of Income Tax Vs. Mr. Jaydev H. Raja), where it had upheld the ITAT's order in a similar case. The Court also referred to a Delhi High Court judgment in Yoshio Kubo Vs. Commissioner of Income Tax, which was dated 31st July, 2013. Since the questions raised in the present appeals had already been considered and decided by the High Court, and the facts were similar, the Court found no merit in the appeals. Consequently, the appeals were dismissed.

The High Court held that none of the substantial questions of law could be answered in favour of the assessee, leading to the dismissal of the appeal. Regarding the Rs. 17,00,000/- advance, the Court noted that the ITAT had considered the facts and the assessee's arguments, and the appeal did not raise a substantial question of law on this point. Concerning the inclusion of the new industrial unit's income in the block assessment, the Court found that the ITAT had considered the relevant facts, and the AO had identified discrepancies in the separate books of account of the Verna branch. The Court concluded that question (d) did not emerge as a substantial question of law. On the issue of employee count for Section 80 IA(2)(v), the Court held that the emphasis in the clause is on workers employed in the 'manufacturing process'. Employees like sweepers, peons, managers, head clerks, and clerk-typists are part of the office establishment and do not directly participate in the manufacturing process. Therefore, they should be excluded when determining if the threshold of 10 workers is met. The Court found the ITAT's finding on this issue to be neither erroneous nor perverse, thus answering question (e) against the assessee. Consequently, the appeal was dismissed.

The High Court held that while the Petitioner's activities in rehabilitating slum dwellers are likely to be considered for charitable purposes and it has made out a fairly arguable case, an unconditional stay of the demand is not warranted. This is primarily because the Petitioner's Section 12A registration, which enables it to claim exemption under Section 11, has been cancelled for the subject Assessment Year 2011-12, and an appeal against this cancellation is pending before the Tribunal. The Court acknowledged that previous decisions were based on the definition of 'charitable purpose' prior to the introduction of the proviso to Section 2(15), and the impact of this amendment requires detailed examination. The Court also noted that the Petitioner's activities are not entirely devoid of commercial elements, as indicated by the Assessing Officer's assessment order. Therefore, the interest of justice would be met by directing the Petitioner to deposit 10% of the demand (Rs. 53.71 Crores) within six weeks. Upon this deposit, a complete stay of the recovery of the balance demand would be granted till the disposal of the Petitioner's appeal by the CIT(A). The Court clarified that its observations were confined to the stay application and would not prejudice the pending appeal.

The High Court allowed the petition, directing that pending the disposal of the appeal by the CIT(A) for AY 2011-12, MMRDA will not be treated as an assessee in default. The Court found that the Director's reasoning that the CIDCO decision was inapplicable because CIDCO had not sought exemption under Section 11, while MMRDA had, was flawed. The Court clarified that the claim of being an agent of the State is distinct from claiming exemption under Section 11 and is based on Article 289 of the Constitution. The Court also noted that the previous order directing a 25% deposit was based on the fact that the agent of the State issue was not raised before the Assessing Officer, which was not the case here. The Court held that the Petitioner had raised the issue before the Assessing Officer, who considered and denied it, making the CIDCO decision prima facie applicable. The Court further directed that if the CIT(A)'s order is adverse to MMRDA, the Revenue shall not take recovery steps until the time limit for filing an appeal expires or until a stay application with a higher forum is disposed of.

The High Court held that the authorities below had failed to apply their mind to the crucial aspect of whether the appellant received a sum of Rs. 2,90,000/- in the financial year ending March 31, 2000, as part consideration for the sale of his flat. The Court noted that this aspect was not minutely examined while passing the impugned orders. The Court also observed that the respondent's counsel was unable to point out that the material highlighted by the appellant's counsel was scrutinized by the Tribunal. Without delving into the merits of the rival submissions, the Court found it appropriate to remand the matter back to the ITAT for a fresh decision. The substantial question of law was answered accordingly. The impugned order of the ITAT was quashed and set aside, and the appeal was restored to the ITAT's file for a fresh hearing. All rival contentions on merits were kept open.

The High Court held that the Income Tax Appellate Tribunal (ITAT), while disposing of the appeal (ITA No.54/PNJ/2013) by its order dated March 28, 2014, had not provided specific reasons for not accepting the contentions raised by the assessee in their written submissions. The Court emphasized that the ITAT, being the last fact-finding authority, is expected to scrutinize all contentions and provide specific findings. Since the ITAT failed to do so, the High Court found it appropriate, in the interest of justice, to quash and set aside the impugned order. The Court directed that the appeal be restored to the file of the ITAT for a fresh disposal after hearing the parties in accordance with law. All contentions of both parties on merits were left open. The ratio is that an appellate tribunal must consider all submissions and provide reasoned findings, failing which its order is vitiated and liable for remand.

The High Court noted that the Revenue was not pressing Question No. 1. Regarding Question No. 2, the Court held that the decision of the Supreme Court in Alom Extrusions Ltd. applies to both employee's and employer's contributions. The Court reasoned that amendments to Section 43B, particularly the Finance Act, 2003, were curative and retrospective, aiming to prevent employers from withholding collected contributions and depriving workmen of benefits. The Court found no reason to fault the ITAT's order. Consequently, Questions 2, 3, and 4 were answered in favour of the assessee and against the revenue. The Court affirmed that both employee's and employer's contributions are covered under the amendment to Section 43B and the Alom Extrusions judgment, and the ITAT was correct in holding that payments thereof are subject to the benefits of Section 43B. Both appeals were disposed of accordingly.

The High Court held that the Supreme Court's decision in Alom Extrusions Ltd. applies to both employee's and employer's contributions. The Court noted that Section 43B mandates deduction only upon actual payment. Amendments to Section 43B, particularly the Finance Act, 2003, which deleted the second proviso and amended the first proviso, were considered curative and retrospective. This amendment brought parity between tax/duty payments and contributions to welfare funds, allowing deduction if paid before the due date for filing the return of income. The Court found no reason to fault the ITAT's order, which relied on Alom Extrusions. Therefore, questions 2, 3, and 4 were answered in favour of the assessee. The Court affirmed that payments of both employee's and employer's contributions are subject to the benefits of Section 43B as interpreted by the Supreme Court in Alom Extrusions.

The High Court held that the appeal fails and the reframed substantial question of law is answered in favour of the Revenue and against the Assessee. The Court found that the Tribunal's decision and the Allahabad High Court's judgment in Commissioner of Income Tax V/s. Noida Toll Bridge Co. Ltd. (which favored the assessee) could not be applied in the present case. The Court disagreed with the reasoning in the Noida Toll Bridge Co. Ltd. judgment, stating it relied solely on Section 32 of the Income Tax Act and failed to consider the provisions of the National Highways Act, 1956, or the National Highways Authority of India Act, 1988. The Court also noted that the claim for depreciation on toll roads/bridges had been allowed by the CIT(A) and the Revenue's appeal before the Division Bench met a similar fate. The Court clarified that the assessee's claim for depreciation on building, plant, and machinery falling under Section 32(1) would not be affected by this judgment. The Court did not find it necessary to refer to other judgments cited by the assessee concerning the scope of Section 263.

The High Court held that the reassessment proceedings initiated by the Respondent No. 1 were without jurisdiction. The Court noted that the reassessment was sought after a period of four years from the end of the relevant Assessment Year (2005-2006). The proviso to Section 147 of the Income Tax Act, 1961, requires that income chargeable to tax must have escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The Court found that the 'Reasons' supplied to the Petitioner for reopening the assessment did not state that the Petitioner had failed to disclose material facts. The rejection order, however, introduced this ground. Citing its own decision in Hindustan Levers v/s R.B. Wadkar, the Court held that the reasons for reopening cannot be improved upon, substituted, or supplemented. Since the initial reasons did not allege a failure to disclose material facts, this ground could not be used to justify the reopening after four years. Therefore, the jurisdictional requirement for reassessment after four years was not fulfilled. The Court quashed the notice and the order rejecting objections and directed the respondents not to proceed with reassessment proceedings for AY 2005-2006.

The High Court held that the ITAT was justified in confirming the deletion of the disallowance. Regarding issue (a), the Court found no justification for the AO's restriction of the deduction. It held that the mere fact that foreign principals also benefited from the advertisement and publicity expenses did not warrant denial of deduction under Section 37(1), citing the Supreme Court decision in Sassoon David. The Court found a direct nexus between the advertising expenditure and the assessee's revenue, particularly its commission from advertising sales. Regarding issue (b), the Court noted that the Transfer Pricing Officer had accepted the arm's length price, and the benefit to foreign principals was not ascertainable or taxable in India. The Court also stated that the expenses were paid to Indian residents and thus not covered by Section 92. Regarding issue (c), the Court implicitly upheld the ITAT's rejection of the deferred revenue expenditure claim by agreeing with the overall dismissal of the appeal. The Court found that the assessee had not suppressed any information and had offered its income to tax. The Court concluded that the foreign principals were not obligated to compensate the Indian agent for benefits received, as the agent's commission from ad-sales and distribution revenue sufficiently compensated it. The appeal was dismissed.

The High Court held that the Income Tax Appellate Tribunal (ITAT) failed to apply its mind to the grounds of challenge raised by the assessee. The Tribunal's observation that the assessee's claim of not being liable for interest tax due to over 50% income from consultancy could not be accepted, based on the CIT(A)'s reasons and relied-upon decisions, was insufficient. The Court found that the ITAT did not consider any of the specific grounds of appeal and merely upheld the CIT(A)'s observations without evaluating the merits of the assessee's contentions. The absence of a reasoned analysis by the ITAT on why the assessee's challenges lacked merit vitiated its consideration. Consequently, Question 4(D), concerning the ITAT's casual approach and lack of appropriate reasons, was answered in favour of the assessee. As this core issue was not properly decided, the other questions were not addressed at that stage. The impugned order of the ITAT was quashed and set aside, and the appeals were restored to the ITAT for a fresh decision in accordance with the law, with parties directed to appear before the ITAT. The principle established is that appellate authorities must provide reasoned orders and apply their mind to the specific grounds of appeal.

The High Court held that the interest income earned by the assessee is business income. The Court reasoned that the assessee utilized surplus money for investments in bank deposits, call money market, or intercorporate deposits, which retained their character as business assets. These amounts were invested for availing short-term loans or for LC opening, establishing a direct nexus with the business activity. The object clauses of the Memorandum and Articles of Association permit such activities. The Court also applied the principle of consistency, noting that for earlier assessment years (1967-68 to 1972-73), similar interest income was held to be business income, and there was no material change justifying a different view. The Court relied on the Supreme Court's decision in Radhasoami Satsang (supra) for the rule of consistency. The interest received has a direct or proximate relationship with the main business activity and should be treated as business income, unless the surplus money is totally pulled out from the business with no nexus and deposited solely to earn interest while remaining idle. The ITAT was correct in holding the interest income as business income. The questions of law are answered accordingly.

The High Court held that the substantial questions of law raised in the appeals were to be answered in the affirmative, in favour of the Assessees and against the Revenue. The Court's reasoning, as indicated by the final answer, implies that the Tribunal's decision allowing the deduction was upheld. This suggests that the Court found the amended provisions of Section 80-IB(10), particularly clause (d), were not applicable to projects approved before March 31, 2005, even if completed on or after April 1, 2005. The judgment likely followed the ratio of the cited case, CIT v/s Brahma Associates, emphasizing that amendments to tax laws are generally prospective and do not affect projects approved under the pre-amended provisions unless explicitly stated. The Court stressed the importance of considering the specific facts of each case and avoiding blind reliance on precedents. The appeals were disposed of in terms favouring the assessees.

The High Court held that the substantial questions of law raised in the appeals were to be answered in the affirmative, in favour of the Assessees and against the Revenue. The Court's reasoning, as indicated by the final paragraph, implies that the ITAT's decision to allow the deduction under Section 80-IB(10) was upheld. This suggests that the Court found the amended provisions of Section 80-IB(10)(d) were not applicable to projects approved before March 31, 2005, even if completed after April 1, 2005, or if sales occurred after that date. The ratio would be that the applicability of Section 80-IB(10)(d) is determined by the project's approval date, not solely by its completion date or sale date, especially when the amendment introduced new restrictions.

The High Court allowed both petitions, setting aside the impugned notices and the subsequent orders rejecting the assessee's objections. The Court held that the reasons recorded for issuing the notices under Section 148 did not demonstrate any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, which is a prerequisite for reopening beyond four years. The Court emphasized that the reasons for reopening must be tested as recorded at the time of issuing the notice, and subsequent affidavits or orders cannot substitute or add to these reasons. The Court found that the reasons primarily relied on a CBDT circular, which is an interpretation of statutory provisions and not a basis for forming a reasonable belief of escaped income. The Court also noted that the Supreme Court's decision in Topman Exports (supra), which favored the assessee, would apply even to notices issued prior to its pronouncement, as courts declare existing law. Therefore, proceeding with reassessment would be futile as the issue was concluded in favor of the assessee by the Apex Court's binding decision. The Court found no material to support the revenue's claim of failure to disclose, and the reliance on the CBDT circular was insufficient to establish a reasonable belief of escaped income.

The Court allowed both petitions, setting aside the notices issued under Section 148 for AY 1998-99 and 1999-2000, and consequently, the orders rejecting the assessee's objections. The Court held that the reasons recorded for issuing the notices did not disclose any failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. The Court emphasized that the reasons for reopening must be tested as recorded at the time of issuing the notice, and subsequent affidavits or orders cannot substitute or add to these reasons. The Court found that the notices were based solely on a CBDT circular, which is merely an interpretation and not a basis for forming a reasonable belief of escaped assessment. Furthermore, the Court noted that the Apex Court's decision in Topman Exports (supra), which covered the issue in favor of the assessee, would apply even to notices issued earlier, as courts declare existing law. Therefore, proceeding with reassessment would serve no purpose as the issue was concluded in favor of the assessee.

The High Court held that the Tribunal was correct in quashing the Commissioner's order passed under Section 263. On the first issue, the Court found that the Commissioner's order was not justified. The Tribunal had correctly held that the Assessing Officer's order was not erroneous or prejudicial to the interests of the revenue, especially since one of two possible views had been taken. The Court affirmed the principle that Section 263 jurisdiction cannot be exercised where two views are possible and the assessment order cannot be subjected to revision. Regarding the second issue, the Court agreed with the Tribunal that two views were possible concerning the applicability of the amended provisions. The Court relied on the Kerala High Court's decision in Kerala Finance Corporation Vs. CIT, followed by the Delhi High Court in CIT vs. I.F.C.I., which held that the amendment requiring the reserve to be 'maintained' was prospective and not retrospective. Therefore, for reserves created prior to April 1, 1998, the obligation to maintain them did not apply. The withdrawal of funds from the special reserve by the Assessee, which occurred before the amendment mandating maintenance came into effect, did not attract tax liability. The Court found no error in the Tribunal's reasoning that the Assessee was not obliged to maintain the fund when it was created, and the withdrawal occurred before the obligation to maintain came into effect. The appeals were dismissed.

The Bombay High Court held that the Tribunal was not justified in treating the land as stock-in-trade and consequently as business income. The Court found that the dissolution deed dated April 1, 1985, explicitly provided for the partners to take over the plots as co-owners and as capital assets. This agreement, according to the Court, served as a mode of conversion of stock-in-trade into capital assets. The Court distinguished the present case from *Khatau Vallabhdas v. Commissioner of Income-Tax*, where the issue involved division of grocery products, noting that the partnership's business was builders/contractors, not land dealing, and no construction activity was undertaken on the land. The Court answered both questions in the negative, in favour of the assessee. However, the Court left open the question of whether the gains were long-term or short-term capital gains, to be decided by the department.

The High Court held that the Tribunal was correct in quashing the order passed under Section 263. The Court found that the Commissioner of Income Tax erred in invoking Section 263. The Tribunal's finding that two views were possible was upheld. The Court reasoned that the amendment to Section 36(1)(viii) with effect from April 1, 1998, which introduced the words "and maintained", was not retrospective. Therefore, for reserves created prior to this amendment, the obligation was only to create the reserve, not necessarily to maintain it. The withdrawal of Rs. 10 crores and Rs. 25 crores by the assessee occurred before the effective date of the amendment, meaning these withdrawals did not fall foul of the law as it stood at the time of creation and subsequent withdrawal. The Court relied on judgments from the Kerala High Court (Kerala Finance Corporation Vs. CIT) and the Delhi High Court (CIT vs. I.F.C.I.) which held that amendments to reserve fund provisions are prospective. Consequently, the assessment order, which allowed the deduction based on the pre-amendment provisions, was not erroneous or prejudicial to the interests of the revenue. The appeals filed by the Revenue were dismissed.

The High Court held that the Tribunal was correct in quashing the Commissioner's order passed under Section 263. The Court found that the Assessing Officer's order was not erroneous or prejudicial to the interests of the revenue, as it was based on a plausible interpretation of the law. The Tribunal correctly applied the principle that Section 263 cannot be invoked when two views are possible, citing judgments like Grasim Industries Ltd. and CIT vs. Gabriel India Ltd. Regarding the specific issue of Section 36(1)(viii), the Court agreed with the Tribunal and the High Courts of Kerala (in Kerala Finance Corporation Vs. CIT) and Delhi (in CIT vs. I.F.C.I.) that the amendment adding the word 'maintained' to Section 36(1)(viii) was prospective, effective from April 1, 1998. Therefore, amounts withdrawn from special reserves created before this date were not subject to tax under Section 41(4A). The Assessee's disclosure in its accounts confirmed the creation of the reserve prior to the amendment. The Court concluded that there was no justification for invoking Section 263 and dismissed the appeals. The question of law A and B were answered in the affirmative, in favour of the assessee.

The High Court held that the Tribunal was correct in quashing the order of the Commissioner of Income Tax passed under Section 263. The Court found that the Assessing Officer's order, which allowed the deduction, was based on one of two possible views. Citing precedents like *Grasim Industries Ltd.* and *CIT vs. Gabriel India Ltd.*, the Court reiterated that Section 263 jurisdiction cannot be invoked when two views are possible and the assessment order is not erroneous or prejudicial to the Revenue. Furthermore, the Court agreed with the Kerala High Court's decision in *Kerala Finance Corporation Vs. CIT*, as followed by the Delhi High Court in *CIT vs. I.F.C.I.*, that the amendment to Section 36(1)(viii) with the words "and maintained" was prospective, effective from April 1, 1998. Therefore, the requirement to maintain the reserve did not apply to amounts created before this date. The withdrawal of Rs. 10 crores and Rs. 25 crores by the assessee occurred before the amendment's effective date, and thus, these amounts were not liable to tax. The Court concluded that there was no justification for invoking Section 263 and that the Tribunal's order was sustainable in law. The questions of law were answered in the affirmative, in favor of the assessee.

The High Court held that the question of law raised in the appeal had already been decided by this Court in the case of Commissioner of Income Tax vs. Samarth Sahakari Sakhar Karkhana Ltd. (2007) 294 ITR 540 (Bom). In that judgment, the Court had held that advances given to H&T contractors, even if at a lower rate of interest or without charging interest, were for business purposes and not a diversion of borrowed funds for non-business purposes. The Court found the Revenue's approach to the binding judgment objectionable and dismissed the appeal. The Court noted that the Revenue's ground for appeal, stating the High Court's decision was not acceptable and that an SLP was proposed, was an adamant attitude. The Court emphasized that a judgment of the High Court, as long as it stands, cannot be disregarded or ignored and must be obeyed. The Revenue cannot escape its binding effect by stating the decision was not acceptable or by proposing to file an SLP. The Court found no substantial question of law involved.

The High Court held that the Tribunal's order could not be faulted. Analyzing Section 2(22)(e), the Court noted that for its provisions to be attracted, the payment by the Company must be by way of advance or loan to a shareholder or for their individual benefit, and the Company must possess accumulated profits. In this case, no money was paid to the Respondent as an advance or loan, nor was any payment made for his individual benefit. The expenditure by the Company on repairs and renovation of the Respondent's premises, which he had leased to the Company, resulted in an enhancement of his asset value, but this did not constitute an advance, loan, or payment for his individual benefit. The Court found no presumption warranted to bring this within the definition of deemed dividend. The appeal was dismissed as it was restricted to the issue of dividend, and the findings regarding perquisite were not challenged. The Court also referred to its prior judgment in Income Tax Appeal No. 114 of 2012, where it held that if the recipient is not a shareholder of the lender company, a deemed dividend does not arise.

The High Court held that the impugned notice dated March 23, 2005, was partly valid. Regarding bad debts, the Court found no merit in the Revenue's contention that there was a failure to disclose. The Petitioner-Bank had made a full and true disclosure in its return, and the claim was fluid and dependent on factors that could change. The Assessing Officer had considered the claim and allowed it, making the reopening based on this ground a mere change of opinion. Therefore, the notice was not interfered with concerning bad debts. However, concerning depreciation on leased equipment, the Court found that the equipment was commissioned on March 31, 1998, as evidenced by the Karnataka Electricity Board certificate, indicating it was put to use. The Revenue's argument that the equipment was not put to use was a change of opinion, as the Assessing Officer had previously considered and allowed the depreciation claim. The Court cited CIT v. Shaan Finance (P) Ltd. to support the view that giving machinery on hire constitutes its use for business. Consequently, the notice was set aside to the extent it related to depreciation on equipment. The petition was partly allowed.

The High Court held that the ITAT had committed a serious error of law apparent on the face of the record by refusing to decide the claim relating to service charges and by remanding the matter to the Assessing Officer without proper consideration. The Court found substance in the assessee's contention that the ITAT had misdirected itself. The Court quashed the ITAT's order on the miscellaneous application and recalled the original order dated March 31, 2010, to the extent of the claim for service charges. The appeal was restored to the ITAT's file for a fresh decision on merits, with all contentions of both sides kept open. The Court clarified that the Tribunal must decide the issue without being influenced by the original order or the order on the rectification application and must consider the revenue's contentions regarding changes in circumstances for later assessment years, ensuring a complete and proper hearing. The ratio is that an appellate authority should not remand cases unnecessarily and must decide all factual and legal issues before it, especially when prior decisions on identical issues exist and have been approved by higher courts.

The High Court held that the Tribunal was not justified in approving depreciation on Rs. 93,14,942. The Court relied on the Supreme Court judgment in CIT vs. Madeva Upendra Sinai, which clarified that depreciation is allowed on the actual cost less depreciation 'actually allowed'. The term 'actually allowed' means depreciation taken into account or granted and given effect to, not merely notionally or implicitly granted. The Court found that the ITAT erred in ignoring this principle. Regarding the WDV, the Court noted that the Scheme of Amalgamation valued the fixed assets at Rs. 1,72,78,297 (cost less depreciation). The assessee had accepted this valuation in the Scheme. Therefore, the WDV for depreciation purposes should be Rs. 1,72,78,297, not Rs. 93,14,942. The Court rejected the assessee's alternative claim for depreciation on the original cost of Rs. 2,54,67,325, citing Explanation 2A to Section 43(6) and the principle that aggregate depreciation should not exceed the original cost. The question was answered in the negative, in favour of the assessee.

The High Court held that the CENVAT incentive, being a refund of tax and duty paid on inputs consumed for goods manufactured and exported, would automatically reduce the cost of manufacture of such goods, thereby necessarily increasing the profit. Consequently, the deemed credit of Rs. 89,34,887 would be part of the business profits eligible for deduction under Section 80HHC. The Court agreed with the Assessee's submission that this incentive reduces manufacturing costs and enhances profits. It found no other provision justifying the disallowance of CENVAT incentive while computing the deduction under Section 80HHC. The Court concluded that the ITAT had not misdirected itself in holding that the deemed credit was part of the business profits eligible for deduction under Section 80HHC, even if it did not specifically find a place in Section 80HHC(3). The Appeal was dismissed as it raised no substantial question of law.

The High Court held that the impugned notice dated March 26, 2003, issued under Section 148 of the Income Tax Act, 1961, to reopen the assessment for AY 1993-94, was quashed and set aside. The Court found that the ITAT's order dated October 25, 2002, in the block assessment proceedings, did not contain any finding or direction that would enable the Assessing Officer (AO) to extend the period of limitation under Section 150 of the Act for issuing the notice. The Tribunal's finding was limited to the scope of block assessments, stating that the extent of depreciation claimed would not be a subject matter of enquiry in block assessments as it cannot be considered undisclosed income. The Court emphasized that the Tribunal had no occasion to examine the permissibility of depreciation in that context and had recorded a finding that no material was found during the search to establish the claim for depreciation was incorrect. Furthermore, the reasons provided for the impugned notice did not indicate any failure on the petitioner's part to disclose truly and fully all material facts necessary for the assessment, which is a jurisdictional requirement for reopening beyond four years. The Court also noted that the issue of depreciation was considered by the AO during the regular assessment proceedings under Section 143(3), making the reopening based on a mere change of opinion unsustainable. Therefore, the notice was held to be time-barred and unsustainable on these grounds.

The High Court held that ordinarily, the license fee agreed between a willing licensor and licensee, uninfluenced by extraneous circumstances, provides reliable evidence of what a landlord might reasonably expect. The Court found no reason to uphold the Revenue's submission that notional rent on a security deposit could be taken into account for determination, especially when the deposit is refundable and interest-free. The AO should not presume such interest as income until the transaction's conclusion, as terms and conditions of leave and license agreements can vary. The Court also affirmed that if rent control legislation is applicable, the AO cannot override it and must follow its provisions for standard rent fixation. The AO cannot apply any other formula if rent has not been fixed under the relevant Act. The Court found no substantial question of law arising in cases where the AO's findings were interfered with by higher appellate authorities, and such findings, consistent with facts and not vitiated by perversity or error of law, should be upheld. Therefore, the Revenue's appeals were dismissed.

The High Court held that the Income Tax Reference was misconceived as the core issue of whether payments were technical service fees or royalty involved questions of fact derived from interpreting agreements. However, addressing the referred question, the Court agreed with the CIT(A) and ITAT that the payments were indeed in the nature of fees for technical services. The Court found that the ITAT's and CIT(A)'s conclusions were not perverse and were a possible interpretation of the agreements. Crucially, the Court affirmed that since all agreements were entered into prior to April 1, 1976, and were approved by the Central Government, the proviso to Section 9(1)(vii) of the Income Tax Act, 1961, was attracted. Consequently, the payments were exempt from tax. The question was answered in the affirmative, in favour of the assessee. The Income Tax Reference was disposed of accordingly.

The High Court held that questions (B) to (E) had to be answered in the affirmative, in favour of the Revenue and against the assessee. Question (A) was not pressed. The Court's reasoning was based on the clear dictum in the case of Manecklal Premchand (Deceased) v/s Commissioner of Income Tax (1990) 186 ITR 554, which this Court followed. In Manecklal Premchand, following the Gujarat High Court's decision in CIT Vs. Chunilal Khushaldas, [1974] 93 ITR 369, it was held that bonus shares are acquired by a shareholder on their issue date and are considered held from that date, not from the date of acquisition of the original shares. Therefore, the sale of bonus shares issued in October 1976 and sold in November 1977 constituted short-term capital gains. The Tribunal's conclusion that the controlling interest was an incidence of shareholding and that capital gains should be calculated separately for original and bonus shares based on their respective holding periods was upheld. The issue of reassessment validity (Question A) was not answered as it was not pressed.

The High Court found merit in the appeals. It referred to Section 14 of the Act which classifies income under various heads, including income from house property (Section 22), profits and gains of business or profession (Section 28), and income from other sources (Section 56). The Court focused on Section 56(2)(iii), which deals with income from letting machinery, plant, or furniture along with buildings where the letting of the building is inseparable from the letting of the machinery, plant, or furniture, provided it is not chargeable as business income. The Court analyzed the Constitution Bench decision in "Sultan Brothers (P) Ltd." which laid down three questions to determine inseparability: (1) was it the intention that the two should be enjoyed together? (2) was it the intention to make the letting practically one letting? (3) would one have been let alone and a lease of it accepted without the other? The High Court held that in the present case, the answers to the first two questions were affirmative, and the answer to the third question was in the negative, indicating that the letting of the office premises was intended to be inseparable from the letting of the furniture. Therefore, following "Sultan Brothers (P) Ltd." and "Smt. P. Andal Ammal", the Court held that the income is required to be assessed under the head 'income from other sources'. The appeals were allowed, and the Assessing Officer was directed to assess the income accordingly.

The High Court answered Question (A) in the affirmative, in favour of the assessee and against the Revenue. The Court found that the issue was squarely covered by its own judgment in Hindustan Cocoa Products Ltd. v/s Commissioner of Income Tax, [1999] 236 ITR 140. Since the factual finding that the deposits were primarily for tax payments was uncontroverted, the ratio of the cited judgment applied, allowing the deduction under Section 80V. For Question (B), the Court answered in the negative, in favour of the Revenue and against the assessee. The Court held that this issue was squarely covered by its judgment in Commissioner of Income Tax v/s AOROW India Ltd., [1998] 229 ITR 325. In that case, the Court had held that disallowance under Rule 6D should be computed with reference to the total expenditure incurred by an employee during the entire year, not on a per-trip basis. The Tribunal's confirmation of the CIT(A)'s direction was therefore incorrect.