CORPORATE AND PROFESSIONAL UPDATE ON DECEMBER 7, 2015

CORPORATE AND PROFESSIONAL UPDATE ON DECEMBER 7, 2015

1. INCOME TAX ACT

• SECTION 2(29BA)

MANUFACTURE

Embroidery work on synthetic fabrics : Where assessee was engaged in business of embroidery work on synthetic fabrics on job work basis, work of embroidery carried on by assessee would fall within ambit of definition of manufacture and thereby it was entitled to avail of additional depreciation on embroidery machine installed.

• SECTION 32

DEPRECIATION – ALLOWANCE/RATE OF LOOSE TOOLS

Loose tools: Where assessee without giving any reasons changed its accounting policy and claimed amount spent on purchase of loose tools as revenue expenditure which had been capitalized in earlier years, Assessing Officer was justified in initiating reassessment proceedings.

• SECTION 37(1)

BUSINESS EXPENDITURE

Conversion charges : Where factory premises of assessee was already in use for 30 years, on which conversion charge was paid in installments for using it for commercial/service activities interest paid along with installments could not be treated as capital expenditure –

Burden of proof: Where assessee paid certain amount to sub-contractors for carrying out work by them and proved genuineness of payment by producing cogent evidence and sub-contractors also confirmed that they received payment by banking channel, expenditure was allowable as business expenditure

Mining expenses: Expenditure incurred by assessee on rejuvenation of Bucket Wheel Excavator of mines was to be allowed as revenue expenditure.

•  SECTION 80-IA                 

DEDUCTIONS – PROFITS AND GAINS FROM INFRASTRUCTURE UNDERTAKINGS

                                                                                                                                Where during relevant year, assessee claimed deduction under section 80-IA in respect of one of its mining units, since first year of claim of assessee was assessment year 1999-2000 and section 80-IA(2) permitted assessee to claim deduction for any ten years out of first fifteen years, claim so raised was to be allowed.

• SECTION 92C

TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE

The issuance of corporate guarantees by holding company on behalf of its subsidiary where it is done to provide or compensate for lack of subsidiary’s core strength to raise bank finances is in the nature of quasi capital or shareholder activity and does not amount to a service in respect of which arm’s length adjustment can be done. This is a transaction which cannot happen in an arm’s length situation. This is because no bank will ever issue a guarantee in favour of an entity which lacks creditworthiness to raise a loan It is inherently impossible to decide arm’s length price of a transaction which cannot take place in an arm’s length situation.

Comparables and adjustments/Adjustments – IT cost: Where in course of business of manufacturing artificial flavors, food and non-food ingredients, assessee paid information technology cost to its AE for services such as internet charges, WAN site fee, SAP support fee etc., since said services were required for assessee’s business, TPO could not determine ALP of same at nil.

• SECTION 148

INCOME ESCAPING ASSESSMENT 

Recording of reasons : Where notice under section 148 was issued by Assessing Officer prior to recording of reasons for reassessment and, assessee’s objections were not disposed of by passing a speaking order, impugned notice deserved to be set aside.

• SECTION 153A

SEARCH AND SEIZURE

Involuntary disclosure : Where assessee offered a summary disclosure of an amount due to pressure of proceedings during search operations which were adversely affecting business and no incriminating material was discovered as a result of search operations and sole basis of additions was disclosure which was involuntary, additions were not justified.

• SECTION 245D

SETTLEMENT COMMISSION – PROCEDURE ON APPLICATION UNDER SECTION 245C

Maintainability of settlement application : Where department filed a writ petition praying for quashing of order passed by Settlement Commission admitting assessee’s application for settlement, department was to be directed to raise all objections before Commission itself.

2. COMPANIES ACT

• SECTION 397

OPPRESSION AND MISMANAGEMENT

Where appellant was party to arrangement by which his shares were divested and his shareholding was reduced in company, CLB’s order holding that there was no oppression on account of reduction of appellant’s shareholding did not give rise to any question of law.

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