The Tax Law Weekly By Taxmann

VOLUME 205 ISSUE 3I
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T H E T A X L A W W E E K L Y
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FOR THE WEEK OF MARCH 10 - MARCH 16, 2012 RELEASED ON MARCH 10
Cash credit
Section 80-IB deduction
Capital gains
Search and seizure
•
•
•
•
•
Entire share capital cannot be added
to assessee's income under section 68
only because some of shareholders
did not respond to notices issued to
them
Deduction under section 80-IB has to
be worked out from date of
commencement of commercial
production in industrial undertaking
and not from date of grant of licence
to start business operations
Where subject-matter of transfer
was business undertaking as a whole
and said undertaking consisted not
only of tangible items but other
intangibles transaction involved a
slump sale under section 50B
Payment made by assessee to
canteen owner on sale of a cinema
hall to vacate said premises would be
set-off against sale consideration for
computation of capital gains
Benefit of period of 60 days in terms
of proviso to Explanation to section
153B for completing assessment
under section 153A can be availed by
Assessing Officer any number of
times whenever situation for it
occurs
[61-94]MAGAZINE[9-14]STATUTES [219-322]TAX REPORTS e-Journal
Soft copies/electronically downloadable
version of is also available
Exemption under section 10(46) to Competition
Commission of India and National Skill Development
Corporation 10
Search and seizure
Fees for technical services
Repairs
Method of accounting
Income-tax (Appellate Tribunal) Amendment Rules, 2012
12
Club membership
Interest free loan
Royalty
n
n
n
n
n
n
n
If required, search and seizure can continue for days but at same
time due regard to human dignity and value cannot be ignored
(Patna) 232
Subscription amount paid by a company for obtaining corporate
membership in a club is revenue expenditure (Kar.) 250
Payment made by Indian company to British group company for
availing general business support services is in nature of 'fees for
technical services' (AAR - New Delhi) 288
Interest on interest-free loan availed by assessee from a company in
which she was a director, could not be treated as her deemed income
under section 2(24)(iv) (Punj. & Har.) 303
Cost of repair/reconstruction of tenanted premises is revenue in
nature and allowable as deduction under section 30(a)(i) (Bom.) 309
Payment received by applicant, an Australian company, from its
Indian distributor for sale of applicant's software product in India is
royalty (AAR - New Delhi) 320
Assessing Officer cannot disregard method of accounting for lease
followed by assessee on basis of Guidelines of ICAI (Delhi) 257
from
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20 LATEST ORDERS

BREAKING NEWS IX
CIT v. Tyco Electronics Tools India (P.) Ltd.
[2012] 18 taxmann.com 329 (Karnataka)
Profit for purpose of deduction under section 10A should be allowed
without setting off of unabsorbed loss and depreciation - [SECTION 10A, READ
WITH SECTION 72, OF THE INCOME-TAX ACT, 1961 - FREE TRADE ZONE] [ASSESSMENT YEARS
2001-02 AND 2002-03] [IN FAVOUR OF ASSESSEE]
Link Line Enterprises v. Asstt. CIT
[2012] 18 taxmann.com 332 (Kerala)
Order of Chief Commissioner granting waiver of interest in ignorance of
conditions of notification issued under section 119(2)(a) would be rectifiable
under section 154 - [SECTION 154, READ WITH SECTION 119, OF THE INCOME-TAX ACT,
1961 - RECTIFICATION OF MISTAKES - APPARENT FROM RECORDS] [ASSESSMENT YEARS 1989-
90 TO 1995-96] [IN FAVOUR OF REVENUE]
Mohanlal Punamchand (HUF) v. ITO
Validity of addition under section 68 vis-a-vis amount credited in books of
account by assessee on sale of diamonds and gold ornaments - [SECTION 68 OF
THE INCOME-TAX ACT, 1961 - CASH CREDITS] [ASSESSMENT YEAR 1998-99] [MATTER
REMANDED]
CIT v. Nilchem Capital Ltd.
[2012] 18 taxmann.com 350 (Gujarat)
Entire share capital cannot be added to assessee’s income under section 68
only because some of shareholders did not respond to notices issued to them
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TAXMAN MARCH 10 - MARCH 16, 2012 1

X BREAKING NEWS
- [SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CREDITS] [ASSESSMENT YEAR 1996-97]
[IN FAVOUR OF ASSESSEE]
Sterilite Industries (India) Ltd. v. Asstt. CIT
[2012] 18 taxmann.com 351 (Madras)
Deduction under section 80-IB has to be worked out from date of com-
mencement of commercial production in industrial undertaking and not from
date of grant of licence to start business operations - [SECTION 80-IB OF THE
INCOME-TAX ACT, 1961 - DEDUCTIONS - PROFITS AND GAINS FROM INDUSTRIAL UNDERTAK-
INGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS] [ASSESSMENT YEARS
2002-03 TO 2004-05] [IN FAVOUR OF ASSESSEE]
Director of Income-tax v. Society for Development Alternatives
[2012] 18 taxmann.com 364 (Delhi)
Where assessee carrying on charitable work received grants for specific
purposes from certain agencies, these grants could not be considered volun-
tary contribution as per section 12 - [SECTION 12 OF THE INCOME-TAX ACT, 1961 -
CHARITABLE OR RELIGIOUS TRUST - VOLUNTARY CONTRIBUTIONS] [IN FAVOUR OF ASSESSEE]
CIT v. Luwa India Ltd.
Royalty paid for know-how and technology granted to assessee as licence
for ‘use’ only is allowable - [SECTION 37(1) OF THE INCOME-TAX ACT, 1961 - BUSINESS
EXPENDITURE - ALLOWABILITY OF] [ASSESSMENT YEAR 1997-98] [IN FAVOUR OF ASSESSEE]
CIT v. Polychem Ltd.
[2012] 18 taxmann.com 366 (Bombay)
Where subject-matter of transfer was business undertaking as a whole and
said undertaking consisted not only of tangible items but other intangibles
transaction involved slump sale under section 50B -[SECTION50BOFTHEINCOME-

BREAKING NEWS XI
TAX ACT, 1961 - CAPITAL GAINS - SLUMP SALE, COST OF ACQUISITION IN CASE OF]
[ASSESSMENT YEAR 1994-95] [IN FAVOUR OF ASSESSEE]
Anand Education Society v. DGIT (Exemptions)
While deciding application for grant of approval under section 10(23C)(vi),
prescribed authority has to keep in mind principles laid down by Supreme
Court in case of American Hotel & Lodging Association, Educational Institute
v. CBDT [2008] 301 ITR 86/170 Taxman 306 -[SECTION 10(23C) OF THE INCOME-TAX
ACT, 1961 - CHARITABLE/RELIGIOUS INSTITUTIONS] [ASSESSMENT YEAR 2008-09 ONWARDS]
[MATTER REMANDED]
DIT v. Aparna Ashram
Wheremembersofanassociationofpersonsdidnothaveanyrightorshare
in income or assets of said association either on date of its formation or at any
time thereafter, association of persons was not liable to wealth-tax under
provisions of section 21AA - [SECTION 21AA READ WITH SECTION 3, OF THE WEALTH-
TAX ACT, 1957 - ASSESSMENT - WHEN ASSETS ARE HELD BY CERTAIN ASSOCIATION OF
PERSONS] [ASSESSMENT YEARS 1988-89 AND 1989-90] [IN FAVOUR OF ASSESSEE]
CIT v. Eagle Theatres
Payment made by assessee to canteen owner on sale of a cinema hall to
vacate said premises would be set-off against sale consideration for compu-
tation of capital gains - [SECTION 48 OF THE INCOME-TAX ACT, 1961 - CAPITAL GAINS -
COMPUTATION OF] [ASSESSMENT YEAR 2007-08] [IN FAVOUR OF ASSESSEE]
CIT v. Ulike Promoters (P.) Ltd.
Benefit of period of 60 days in terms of proviso to Explanation to section
153B for completing assessment under section 153A can be availed by

XII BREAKING NEWS
Assessing Officer any number of times whenever situation for it occurs -
[SECTION 153B, READ WITH SECTION 142, OF THE INCOME-TAX ACT, 1961 ASSESSMENT IN
CASE OF SEARCH - TIME-LIMIT FOR COMPLETION OF ASSESSMENT] [ASSESSMENT YEARS 1998-
99 TO 2001-02] [IN FAVOUR OF REVENUE]
CIT v. Sambhav Media Ltd.
[2012] 19 taxmann.com 12 (Gujarat)
Dismissing of appeal of revenue by Tribunal on ground of low tax effect not
justified where notional tax effect exceeded monetary limit prescribed by
Board - [SECTION 268A OF THE INCOME-TAX ACT, 1961 - APPEALS - FILING OF APPEALS OR
APPLICATION FOR REFERENCE BY INCOME-TAX AUTHORITY] [ASSESSMENT YEAR 2004-05]
[MATTER REMANDED]
CIT v. Bangalore Leather & Leather Crafts Ltd.
Where to tide over financial crisis, assessee received excess cash in several
instalments less than Rs. 20000 each from sister concern for which only it was
manufacturing, such excess cash cannot be treated as loan under section
269SS - [SECTION 269SS OF THE INCOME-TAX ACT, 1961 - DEPOSITS - MODE OF
TAKING/ACCEPTING] [ASSESSMENT YEAR 1997-98] [IN FAVOUR OF ASSESSEE]
Pramod Mittal v. CIT
In view of provisions of section 78(2), loss suffered by an erstwhile partner-
ship firm in which assessee was a partner, could not be set off against his
individual income - [SECTION 78 OF THE INCOME-TAX ACT, 1961 - LOSSES - CARRY
FORWARD AND SET OFF OF, IN CASE OF CHANGE IN CONSTITUTION OF FIRM OR ON
SUCCESSION] [ASSESSMENT YEAR 2005-06] [IN FAVOUR OF REVENUE]
Vikas Kalra v. CIT
[2012] 19 taxmann.com 25 (SC)
Sale value less face value of DEPB would be profit on transfer of DEPB and
would fall under section 28(iiid) for purposes of section 80HHC - [SECTION

BREAKING NEWS XIII
80HHC, READ WITH SECTION 28(iiid), OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS -
EXPORTERS] [ASSESSMENT YEARS 2001-02 AND 2004-05] [IN FAVOUR OF ASSESSEE]
CIT v. Kamdhenu Steel & Alloys Ltd.
Once assessee has prima facie discharged its burden of proving identity of
shareholders, genuineness of transaction and creditworthiness of sharehold-
ers, revenue cannot invoke section 68 without any additional material to
support such a move - [SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CREDITS]
[ASSESSMENT YEAR 2004-05] [IN FAVOUR OF ASSESSEE]
CWT v. Sohna Forge (P.) Ltd.
Property used in business, would be exempt from wealth-tax -[SECTION 2(ea)
OF THE WEALTH-TAX ACT, 1957 - ASSETS] [IN FAVOUR OF ASSESSEE]
Manohar Dairy & Restaurant v. ITO
[2012] 19 taxmann.com 30 (Madhya Pradesh)
Rejection of books of account in case of incorrect and incomplete details
regarding stock, cash sales, production yield, etc., is justified - [SECTION 145 OF
THE INCOME-TAX ACT, 1961 - METHOD OF ACCOUNTING - REJECTION OF ACCOUNTS]
[ASSESSMENT YEAR 2006-07] [IN FAVOUR OF REVENUE]
CIT v. Mulberry Silk International Ltd.
Amount of share capital contributed by sister concern of assessee could not
betreatedasassessee’sundisclosedincomeundersection68whenassessee’s
sister concern had accepted to have contributed said amount - [SECTION 68 OF
THE INCOME-TAX ACT, 1961 - CASH CREDIT] [BLOCK PERIOD 1989-90 TO 1999-2000] [IN
FAVOUR OF ASSESSEE]

Contents A-1
COntents
STATUTES
NOTIFICATIONS
- Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory Body/Authority/
Board/Commission - Notified body or authority - Competition Commission of India 10
- Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory Body/Authority/
Board/Commission - Notified body or authority - National Skill Development Corporation
10
RULES/AMENDMENT RULES
- Income-tax (Appellate Tribunal) Amendment Rules, 2012 - Amendment in rules 2, 4A, 9, 26
& 34A; deletion of proviso to rule 35A and substitution of words ‘Income Tax Officer’ and
“Appellate Assistant Commissioner” 12
TAX REPORTS
TABLE OF CASES
Airport Authority of India v. CIT (Delhi)(FB)(Mag.) 84
CTCI Overseas Corporation Ltd., In re (AAR - New Delhi) 297
Citrix Systems Asia Pacific Pty. Ltd., In re (AAR - New Delhi) 320
CIT v. Century Flour Mills Ltd. (Mad.)(Mag.) 93
CIT v. Duroflex Coir Industries Ltd. (Ker.)(Mag.) 75
CIT v. Gokuldas Exports (Kar.)(Mag.) 77
CIT v. Hotel Hilltop (Raj.)(Mag.) 91
CIT v. Hotline Electronics Ltd. (Delhi) 245
CIT v. Infosys Technologies Ltd. (Kar.) 250
CIT v. Madhu Gupta (Punj. & Har.) 303
CIT v. Modipon Ltd. (No. 1) (Delhi)(Mag.) 89
CIT v. Modipon Ltd. (No. 2) (Delhi)(Mag.) 79
CIT v. Talathi and Panthaky Associated (P.) Ltd. (Bom.) 309
CIT v. Tidel Park Ltd. (Mad.)(Mag.) 71
CIT v. Virtual Soft Systems Ltd. (Delhi) 257
CIT v. Wipro Finance Ltd. (Kar.) 317
CCIT v. State of Bihar Through The Chief Secretary (Patna) 232
Global Industries Asia Pacific Pte. Ltd., In re (AAR - New Delhi) 273
Indian Additives Ltd. v. Dy. CIT (Mad.)(Mag.) 72
Minda HUF Ltd. v. Union of India (Delhi)(Mag.) 81
SDB Cisco (India) Ltd. v. Asstt. CIT (Mad.)(Mag.) 70
Shell India Markets (P.) Ltd., In re (AAR - New Delhi) 288

A-2 Contents
SUBJECT INDEX
Business disallowance
Certain deductions to be allowed only on actual payment
- Assessment year 1989-90 - Whether an assessee is entitled to claim deduction on account
of excise duty paid in advance as business expenditure - Held, yes - Whether, therefore,
revenue’s objection that it was only on removal of goods that amount credited to personal
ledger account could be claimed as deductible under section 43B, could not be accepted
- Held, yes - CIT v. Modipon Ltd. (No. 2) (Delhi)(Mag.) 79
Business expenditure
Allowability of
- Assessment year 1999-2000 - Whether amount paid by assessee-company towards sub-
scription for obtaining corporate membership in club was allowable as revenue expendi-
ture - Held, yes - CIT v. Infosys Technologies Ltd. (Kar.) 250
- Assessment year 1999-2000 - Assessee-company made provision for post sale customer
service and claimed same as expenditure - Assessing Officer disallowed claim of assessee
as actual expenses had not been incurred by assessee during relevant assessment year -
However, on appeal, Tribunal allowed assessee’s claim - It was found that Supreme Court
in case of Rotork Controls India (P.) Ltd. v.CIT [2009] 314 ITR 62/180 Taxman 422 had laid
down conditions which are required to be satisfied for making claim in respect of post sale
customer service and had laid down principles relating to same - Benefit of said decision
ofSupremeCourtwasnotavailabletoTribunalondatewhenitpassedimpugnedorderand
Tribunal had only considered past experience and expenses incurred in previous year, on
basis of which claim was made - Whether matter should be remanded to Tribunal to pass
fresh orders in accordance with law laid down in Rotork Controls India (P.) Ltd.’s case
(supra) - Held, yes - CIT v. Infosys Technologies Ltd. (Kar.) 250
- Assessment year 2003-04 - Assessee claimed royalty payment as revenue expenditure
which, Assessing Officer observed, was allowable as capital expenditure - Assessing Officer
initiated reassessment under section 147 - It was found that nature of expenditure had
already been discussed during original assessment - Whether since Assessing Officer had
not verified facts, and there was no specific denial of fact that during course of original
assessment proceedings, assessee had filed reply before Assessing Officer on whether or
not payment of royalty were revenue expenditure in nature, it was to be held that there was
only change of opinion subsequently and, hence, reassessment proceedings were not valid
- Held, yes - Minda HUF Ltd. v. Union of India (Delhi)(Mag.) 81
- Assessment years 1996-97 onwards - Assessee-authority, engaged in management of
certain airports and allied services, had been making provisions for incurring expenditure
towards removal of illegal encroachments in and around security area of airports and
towards rehabilitation of encroachers - Assessing Officer disallowed said provision holding
that expenditure, if any incurred, was of capital nature - Whether expenditure so incurred
was to facilitate smooth functioning of assessee’s business, i.e., in relation to carrying on
business in a profitable manner, and, therefore, it was revenue in nature - Held, yes -
Whether, however, deduction was to be allowed on actual payment basis only - Held, yes
- Airport Authority of India v. CIT (Delhi)(FB)(Mag.) 84
Year in which deductible
- Assessment year 2004-05 - During relevant assessment year, assessee claimed certain
expenses as business expenditure - Assessing Officer was of view that a part of expenses
claimed related to prior period and as assessee-company was following mercantile system
of accounting, said expenses should have been claimed in previous year - On appeal before
Tribunal, assessee’s case was that those expenses were not booked earlier due to non-
receipt of details and information thereof on time which was beyond its control - It was

Contents A-3
further submitted that as per accounting policy followed by assessee, such expenses were
booked in year in which they were settled for payment - Tribunal having gone into details
of each and every such expense, recorded a finding of fact that all those expenses were
settled during relevant year - Accordingly, Tribunal allowed assessee’s claim - Whether on
facts,nosubstantialquestionoflawarosefromTribunal’sorderand,thus,revenue’sappeal
was to be dismissed - Held, yes - CIT v. Modipon Ltd. (No. 1) (Delhi)(Mag.) 89
Capital gains
Chargeable as
- Assessment year 1995-96 - Assessee-firm, by making a book entry on 29-3-1995 allowed its
partners to withdraw individual properties contributed by them and, thereafter, firm was
converted into joint stock company on 3-4-1995 - Assessing Officer held that transaction
would amount to transfer of capital assets which would attract capital gain under section
45(4) - Commissioner(Appeals) upheld order of Assessing Officer - However, on second
appeal, Tribunal, relying upon decision rendered by Tribunal in Asstt. CIT v. Unity Care &
Health Services [2006] 103 ITD 53 (Bang.), held that there was no transfer of capital asset
and, therefore, provisions of section 45(4) would not be attracted - Whether facts in Unity
Care and Health Services case were entirely different from one in instant case and,
therefore, Tribunal was not at all justified in relying upon said decision -Held, yes - Whether
sincequestionastowhethertherewastransferofimmovablepropertywhichwouldattract
capital gain under section 45(4) was a pure question of fact and same was to be decided by
Tribunal, matter was to be remitted to Tribunal for fresh disposal in accordance with law
- Held, yes - CIT v. Gokuldas Exports (Kar.)(Mag.) 77
Circulars & Notifications
- Circular No. 621, dated 19-12-1991 321
Deductions
Profits and gains from export of computer software
- Assessment year 1999-2000 - Whether exchange rate variation gain has to be excluded
from total turnover and export turnover for computation of deduction under section
80HHE - Held, no - CIT v. Infosys Technologies Ltd. (Kar.) 250
Profits and gains from hotel or industrial undertakings, etc., in backward areas
- Whether deductions under section 80HH and section 80-I have to be granted with
reference to gross total income arrived at after allowing deduction under section 35(2) -
Held, yes - CIT v. Duroflex Coir Industries Ltd. (Ker.)(Mag.) 75
Profits and gains from industrial undertakings other than infrastructure development
undertakings
- Whether assessee, engaged in manufacture and selling of additives on commission basis,
was not entitled to deduction under section 80-IB in respect of service income and
commission because those incomes were not derived from activity of industrial undertak-
ing - Held, yes - Indian Additives Ltd. v. Dy. CIT (Mad.)(Mag.) 72
Deemed dividend
- Assessee-firm had received certain amount as an advance from a company under an
agreement to handover management of firm’s hotel to said company - Partners of assessee-
firm were also shareholders in said company - Assessing Officer treated said amount
received by assessee-firm as deemed dividend under section 2(22)(e) in hands of assessee
and assessed same to tax - Whether it was not assessee-firm which was shown to be
shareholder of company but in fact it was its partners who were holding more than
requisite amount of shareholding in company and were having requisite interest in firm -
Held, yes - Whether, therefore, aforesaid amount received by assessee would not be
deemed dividend in hands of assessee-firm, rather it would obviously be deemed dividend
in hands of individuals (partners), on whose behalf, or on whose individual benefit, being

A-4 Contents
such shareholders, amount was paid by company to concern -Held, yes -CITv. Hotel Hilltop
(Raj.)(Mag.) 91
Depreciation
Allowance/rate of
- Assessment year 1998-99 - There was a search and on basis of material found during search
assessment was made for block period - Said block assessment order was now pending for
consideration in appeal before Commissioner (Appeals) - In regular assessment for
assessment year 1998-99, assessee had claimed depreciation in respect of plant and
machinery, which had been leased out by assessee - Assessing Officer as well as Commis-
sioner (Appeals) rejected assessee’s claim - However, Tribunal held that claim now made
was for year 1997-98, which was beyond block period; that depreciation had been claimed
in regular assessment and, thus disallowance of depreciation for relevant assessment year
was erroneous - Whether Tribunal could not have jumped into conclusion that deprecia-
tion which was now sought for was beyond period of search as even according to assessee
year of acquisition was 1997-98 and in absence of any material to show date of acquisition
of property and fact that said acquisition was made beyond block period - Held, yes -
Whether, therefore, order of Tribunal could not be sustained - Held, yes - Whether since
block assessment order is pending for consideration before first appellate authority, matter
regarding claim of depreciation on leased assets should be remanded to first appellate
authority - Held, yes - Whether contention as to whether acquisition of leased asset in
respect of which depreciation was claimed for assessment year 1998-99 would be covered
in block assessment or should be in regular assessment was kept open to be urged before
first appellate authority as assessee had to produce relevant material in that behalf - Held,
yes - CIT v. Wipro Finance Ltd. (Kar.) 317
High Court, appeal to
- Whether when Court is satisfied that case involves not only the substantial question of law
formulated, but also other substantial question of law not formulated by it, it can hear such
questions on reasons to be recorded - Held, yes - Indian Additives Ltd. v. Dy. CIT
(Mad.)(Mag.) 72
Income
Concept of real income
- Assessment years 1996-97 onwards - Whether if income does not result at all, there cannot
be a tax, even though in book keeping an entry is made about a hypothetical income which
is not materialized - Held, yes - Assessee-authority had been providing space at airports
managed by it to various Government agencies like Customs, Immigration, Meteorological
Department, Post Office, Police Agencies, etc., for performance of their duties - No payment
was made by those Government agencies for space occupied by them - However, on advice
of CAG assessee had been raising proforma invoices - Assessing Officer treated amount of
those invoices to be income of assessee on ground that assessee was following mercantile
system of accounting - Whether on application of ‘real income’ theory no income had
accrued to assessee in respect of Government agencies, like Police, Customs, etc., who had
never paid any amount to assessee - Held, yes - Airport Authority of India v. CIT
(Delhi)(FB)(Mag.) 84
Deemed to accrue or arise in India
- Applicant is a Singaporean company - It entered into a contract with IOCL to execute work
of ‘Residual offshore construction work at Paradip, in east coast of India Installation of
SPM Including anchor chains, floating and subsea hoses’ - For undertaking above opera-
tions resources including vessels were mobilized to India - Character of amount payable
under contract is linked to nature of work and amount is not lump sum for whole contract
- Lump sum amount is fixed only for mobilization and demobilization - Whether parties can
enter into a contract which provides for mobilization and demobilization for a separate
consideration though they are meant to be utilized in process of installation of SPM buoy

Contents A-5
and would be taxable in India under section 44BB -Held, yes - Whether if during activities
of installation, income in nature of royalty or fees for technical services or interest or of any
other nature arises, then such an income has to be assessed under that head of income -
Held, yes - Whether payment for mobilization and demobilization relates to use of
equipment for undertaking installation work and falls under definition of royalty under
article 12.3(b) of DTAA -Held, yes - Whether as installation is ancillary and subsidiary to use
of equipment or enjoyment of right for such use, payment for installation would fall under
definition of ‘fees for technical services’ as per article 12.4(a) of DTAA - Held, yes - Global
Industries Asia Pacific Pte. Ltd., In re (AAR - New Delhi) 273
- Applicant is an Indian company having network of retail fuel stations in India - SIPCL is
group company of applicant which is incorporated in UK and is in business of providing
consultancy services to various group companies - Applicant has entered into Cost
Contribution Agreement (CCA) with SIPCL for provision of General Business Support
Services (BSS) - Though applicant construes General BSS as management support services
of advisory nature, it appears from CCA that applicant receives services in form of general
finance advice, taxation advice, legal advice, advice on information technology, media
advice, assistance in contract and procurement and assistance in marketing - Whether
nature of General BSS, viewed as such, is of consultancy services and since while providing
General BSS, SIPCL works closely with employees of applicant and supports/advises them,
it is clear that General BSS is made available to applicant - Held, yes - Whether on facts
payment made by applicant to SIPCL for availing General BSS under CCA would constitute
income in hands of SIPCL and is in nature of fees for technical services within meaning of
Article 13.4(c) of DTAC between India and UK -Held, yes - Whether, on facts, such payment
can be said to be in nature of royalty within meaning of term inExplanation 2 to clause (vi)
of section 9(1) and under Article 13 of DTAC - Held, no - Shell India Markets (P.) Ltd., In re
(AAR - New Delhi) 288
- Applicant is a Hong Kong company and is in business of engineering, procurement and
construction of petroleum, petro-chemical and power plants - With a view to execute a
project awarded by Petronet, it has formed a consortium with CINDA, an Indian company,
to develop a terminal for receipt and storage of liquefied natural gas at Kochi - As per terms
of contract, applicant is responsible for offshore supplies and services and CINDA is
responsible for onshore supplies and services - Whether under section 2(31), consortium
of CINDA and applicant forms an Association of Persons (AOP) to carry out the project
awarded by Petronet and applicant can be said to have a business connection in India for
purpose of application of section 9(1) -Held, yes - Whether however, since applicant has not
carriedoutanypartofbusinessrelatingtooffshoresuppliesinIndiainasmuchasright,title,
payments, etc., in supplies have passed on to Petronet, which is importing these supplies,
outside India, amount received by applicant from Petronet for offshore supplies in terms
of aforesaid contract is not taxable in India - Held, yes - CTCI Overseas Corporation Ltd.,In
re (AAR - New Delhi) 297
- Applicant is an Australian Company engaged in business of providing software services -
It has appointed ‘I’, an Indian company, as non-exclusive distributor for sale of its software
products in India - It is contended by applicant that under agreement, software products
are purchased by distributor from applicant and sold by distributor - In respect of certain
software products such as Citrix XenApp, distributor places order of purchase with
applicant and makes payment for same to applicant and thereafter applicant transmits a
Key to end-user customer and on receipt of said Key, end-user customer downloads
software from applicant’s server - Applicant submits that right acquired by purchaser from
sale is only to use copyrighted article and not right to use copyright embedded in software
and, therefore, sum received by applicant from distributor from sale of software is nature
of sale revenue and cannot be classified as royalty as defined in section 9(1)(vi) and/or
under Article 12 of Indo-Australian tax treaty - Whether whenever a software is assigned
or licensed for use, there is involved an assignment of right to use embedded copyright in
software or a license to use embedded copyright, the intellectual property right in software

A-6 Contents
- Held, yes - Whether, therefore, it is not possible to divorce software from intellectual
property right of creator of software embedded therein - Held, yes - Whether, therefore,
applicant’s argument that licensing of a software for use by end-use customer, is mere sale
of a copyrighted article and does not involve grant of a right to use copyright in software,
cannot be accepted -Held, yes - Whether in view of above, it has to be ruled that payments
received by applicant from distributor for sale of software product is in nature of royalty
within meaning of section 9(1)(vi) -Held, yes - Whether since Article 12.3 of DTAA between
India and Australia defining royalties also ropes in payment of consideration for use of a
copyright in addition to consideration paid for right to use a copyright, covered by
definition in Income-tax Act, payment received by applicant from distributor is to be
treated as royalty within meaning of Article 12 - Held, yes - Citrix Systems Asia Pacific Pty.
Ltd., In re (AAR - New Delhi) 320
Definition of
- Assessment years 1990-91 to 1995-96 - Whether interest on interest-free loans availed by
assessee from two companies in which she was a director, could not be treated as her
deemed income in terms of section 2(24)(iv) -Held, yes -CITv. Madhu Gupta (Punj. & Har.)
303
Income from house property
Deductions
- Assessment years 1996-97 to 2000-01 - Whether ICAI is, recognized as body vested with
authority to recommend ASs for ultimate prescription by Central Government in consul-
tation with National Advisory Committee of Accounting Standards, for presentation of
financial statements and fact that opinion of ICAI regarding accounting for lease was
expressed in a Guidance Note which had not attained a mandatory status, would not
provide a basis to Assessing Officer to disregard books of account of assessee and in effect
method of accounting for leases followed by assessee on basis of guideline recommended
for adoption by ICAI -Held, yes - Whether lease equalization charge is result of adjustment,
which assessee has to make whenever amount put aside towards capital recovery is not
equivalent to depreciation claimed by assessee and in effect debits or credits its profit and
loss account with a lease equalization charge depending on whether or not depreciation
claimed is less or more than capital recovery - Held, yes - Whether thus, lease equalization
charges is a method of re-calibrating depreciation claimed by assessee in a given account-
ing period and method employed over full term of lease period would result in lease
equalization amount being reduced to a naught, as debit and credits in profit and loss
account would square off with each other - Held, yes - Whether, therefore, lease equaliza-
tion charges debited to profit and loss account could not be disallowed while computing
taxable income of assessee - Held, yes - CIT v. Virtual Soft Systems Ltd. (Delhi) 257
Income-tax Act, 1961
- Section 2(22) 91
- Section 2(24) 303
- Section 5 85
- Section 9 273, 288, 297, 320
- Section 24 257
- Section 30 309
- Section 32 317
- Section 36(1)(iii) 93
- Section 37(1) 250, 251, 81, 84, 89
- Section 41(1) 245, 81
- Section 43B 79

Contents A-7
- Section 44BB 273
- Section 45 77
- Section 80HH 75
- Section 80HHE 251
- Section 80-IB 72
- Section 115JB 71
- Section 132 232
- Section 145 70
- Section 260A 73
Interest on borrowed capital
- Assessment year 1991-92 - Assessee-company entered into an agreement for purchase of
land owned jointly by ‘P’, managing director of assessee-company, and also ‘N’ - As per
agreement, a sum of Rs. 20 lakhs was given as advance to managing director - Said
agreement was renewed year after year - Due to some unavoidable reasons, sale could not
be effected - Accordingly, managing director refunded amount of advance received from
assessee-company - Assessee’s claim for deduction under section 36(1)(iii) in respect of
interest paid on money borrowed was rejected by Assessing Officer holding that assessee
had given said amount as advance to managing director - On second appeal, Tribunal held
that revenue had not established nexus between borrowed funds and advanced money
with managing director - Tribunal accordingly allowed assesee’s claim - Whether since
amount was given only for purchase of land and it was for benefit of business, it could not
be concluded that payment in question was for non-business purpose -Held, yes - Whether,
therefore, Tribunal was justified in allowing assessee’s claim - Held, yes - CIT v. Century
Flour Mills Ltd. (Mad.)(Mag.) 93
Method of accounting
Change of
- Assessment year 1991-92 - Assessee was following cash system of accounting - However,
for purpose of preparing annual return for submission to members in Annual General
Meeting and for filing necessary returns under Companies Act, 1956, mercantile system
was adopted - Took a view that assessee had to compute its income for purpose of Act on
accrual basis - Whether, on facts, impugned order passed by Tribunal was to be upheld -
Held, yes - SDB Cisco (India) Ltd. v. Asstt. CIT (Mad.)(Mag.) 70
Minimum alternate tax
- Assessment year 2002-03 - While computing book profits under section 115JB, assessee-
company changed its method of computing depreciation from straight line method to
written down value method - There was also a resolution passed by board of directors for
changing existing rates of depreciation for purpose of books depreciation - Excess amount
of depreciation so calculated was debited in profit and loss account, which was audited,
certified and filed with registering authority - Whether so long as compliance in regard to
submission of accounts had not suffered any statutory defect, revenue authorities had to
accept authenticity of accounts submitted in accordance with provisions of Companies
Act, 1956 - Held, yes - Whether therefore, impugned change in method of computing
depreciation was to be allowed - Held, yes - CIT v. Tidel Park Ltd. (Mad.)(Mag.) 71
Non-residents
Mineral oil, business for prospecting /exploration, etc., in case of
- Applicant is a Singapore company - On 23-4-2008, it was awarded a sub-contract by Larsen
& Toubro (L&T) to execute work of installation and construction services for Single Point
Mooring (SPM) in waters of Mumbai High South field - For undertaking construction work
vessels were mobilized to India - Applicant accepts that receipts under contract are taxable

A-8 Contents
under section 44BB, but contends that since its vessels were not in India for more than 183
days, it would not have a PE in India in view of article 5.5 of DTAA and, therefore, liability
is attracted under section 44BB - Whether article 5.5 is a deeming provision and its import
is such that said article can be attracted even on provision of services simpliciter without
presence of an office building in country where services are being provided - Held, yes -
Whether since services and facilities being rendered by applicant go beyond installation
and include pre-installation services, post-installation services, procurement and transpor-
tation, duration of those of services cannot be excluded while calculating duration of
provision of services or facilities under article 5.5 - Held, yes - Whether therefore, even if
applicant was not mobilizing any vessel, it has a PE in terms of article 5.5 as it has provided
services or facilities in connection with exploration, exploitation or extraction of mineral
oils for more than 183 days during fiscal year - Held, yes - Whether therefore, income
derived by applicant in respect of contract with L&T is taxable in India under section 44BB
- Held, yes - Global Industries Asia Pacific Pte. Ltd., In re (AAR - New Delhi) 273
Remission or cessation of trading liability
- Assessment year 2005-06 - Whether unpaid liabilities cannot be added to assessee’s income
under section 41(1) merely because they remained unpaid for a sufficiently long time and
it is required of revenue authorities to show that liability to pay creditors has ceased or has
been remitted by creditors - Held, yes - CIT v. Hotline Electronics Ltd. (Delhi) 245
- Assessment year 2003-04 - Assessing Officer reopened assessment observing that assessee
had, in its computation of income, deducted Rs. 42,73,617 being amount written back
credited to profit and loss account and out of said sum assessee had considered only Rs.
32,29,341 as income under section 41(1) while excess deduction of Rs. 10,44,276 had
escaped assessment - Assessee had already explained that excess of Rs. 10,44,276 had
already been added back in computation of income of two preceding assessment years
2001-02 and 2002-03 - In these years Rs. 5,87,617 and Rs. 17,19,837 were added back as bad
and doubtful debts - On other hand, revenue failed to show and establish whether Rs.
10,44,276 was in fact not added back in earlier years - Whether since there was no material
and ground to reopen assessment on account of reason in respect of taxability of profit
under section 41(1) and reason recorded was a mere suspicion, it had no foundation or
prima facie basis - Held, yes - Minda HUF Ltd. v. Union of India (Delhi)(Mag.) 81
Rent, rates, taxes, repairs and insurance for buildings
- Assessment year 2003-04 - Assessee-company was carrying on its business in a building
takenonrent-BuildingwasdeclaredtobeunsafeforoccupationbyMunicipalCorporation
- Consequently, an agreement was entered into between owners, tenant, other occupants
and a developer, under which developer was to repair and reconstruct building at its own
cost, and, after that certain area was to be handed over to co-owners - Assessee was also
given its equivalent portion on condition that it would contribute towards cost incurred on
repair and reconstruction - Assessee’s share of cost was arrived at Rs. 1.50 crores; said
agreement also provided that there would be no increase in rent payable by assessee - On
above facts, Assessing Officer held that assessee had secured rights over portion of building
on payment of Rs. 1.50 crores which constituted deemed ownership of building - Accord-
ingly, Assessing Officer held expenditure of Rs. 1.50 crores to be capital in nature and
disallowed it - Commissioner (Appeals) and Tribunal reversed order of Assessing Officer -
Whether by contributing an amount of Rs. 1.50 crores towards re-construction, assessee
obtained a commercial advantage of securing tenancy of an equivalent area of premises
on same rent as before -Held, yes - Whether since there was no acquisition of a capital asset
and occupation of assessee continued in character of a tenancy, expenditure of Rs. 1.50
crores could not be regarded as capital in nature but revenue to be allowable by way of
deduction - Held, yes CIT v. Talathi and Panthaky Associated (P.) Ltd. (Bom.) 309
Search and seizure
- Whether if required, search and seizure can continue for days, but at same time due regard
to human dignity and value cannot be ignored - Held, yes - During search conducted at

Contents A-9
premises of respondent No. 3 there was interrogation carried out for 42 hours commencing
at 9.30 a.m. on 8-9-2010 till 3.30 a.m. on 10-9-2010; respondent No. 3 and his family members
were made to remain awake when it was time for sleep - Respondent No. 3 made a
complaint before Human Rights Commission alleging that during search and seizure
operation raiding party committed various acts of omission and commission including
violation of his human rights - Commission allowed complaint of respondent and held that
respondent/complainant would be entitled to monetary compensation and asked depart-
ment to submit its response as to why monetary compensation be not awarded to
complainant recoverable from salary of concerned officials of department - Whether since
there was no possible justification to continue interrogation and keep respondent No. 3
awake till 3.30 a.m. on second night of search; and since no reason had been assigned as to
why interrogations could not have been deferred till morning of next day, order passed by
Human Rights Commission as to violation of human rights of respondent No. 3 was to be
upheld - Held, yes - Whether however, since no opportunity was given to officials to
countenance charge of violation of human rights, in absence of an opportunity to defend
themselves against such charge in an enquiry, Commission erred in issuing notice to
officials to show cause or respond as to why penalty may not be levied for awarding
compensation to complainant - Held, yes - CCIT v. State of Bihar Through The Chief
Secretary (Patna) 232
MAGAZINE
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GOPAL NATHANI, Chartered Accountant 61
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Chartered Accountant 65
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2012] 9Notification
(ix) Investment on built up space for : Rs. 8,26,67,565
Industrial use (Amount in Rupees)
(x) Investment on Infrastructure Deve- : Rs. 10,52,24,434
lopment including investment on built up
space for industrial use (Amount in Rupees)
(xi) Proposed date of commencement of : 30-11-2005
the Industrial Park
2. Necessary approvals, including that for foreign direct investment or non-resident Indian
investment by the Foreign Investment Promotion Board or Reserve Bank of India or any
authority specified under any law for the time being in force, shall be taken separately as per
the policy and procedures in force.
3. The tax benefits under the Act can be availed of only after the number of units indicated
in Para 1 (vii) of this Notification, are located in the Industrial Park.
4. M/s. Prasad Technology Park Pvt. Ltd., Bangalore, shall continue to operate the Industrial
Park during the period in which the benefits under clause (iii) of sub-section (4) of section 80-
IA of the Income-tax Act, 1961 are to be availed.
5. In case the Industrial Park did not commence by 31-3-2006, fresh approval will be required
under the Industrial Park Scheme, 2008 subject to the applicability under that Scheme for
availing benefits under sub-section 4(iii) of section 80-IA of the Income-tax Act, 1961.
6. The approval will be invalid and M/s. Prasad Technology Park Pvt. Ltd., Bangalore shall be
solely responsible for any repercussions of such invalidity, if
(i) the application on the basis of which the approval is accorded by the Central Govern-
ment contains wrong information/misinformation or some material information has
not been provided in it.
(ii) it is for the location of the industrial park for which approval has already been accorded
in the name of another undertaking.
7. In case M/s. Prasad Technology Park Pvt. Ltd., Bangalore, transfers the operation and
maintenance of the industrial park (i.e., transferor undertaking) to another undertaking (i.e.,
the transferee undertaking), the transferor and transferee shall jointly intimate to the
Entrepreneurial Assistance Unit of the Secretariat for Industrial Assistance, Department of
Industrial Policy and Promotion, Udyog Bhawan, New Delhi-11 along with a copy of the
agreement executed between the transferor and transferee undertaking for the aforesaid
transfer.
8. The conditions mentioned in this notification as well as those included in the Industrial Park
Scheme, 2002 should be adhered to during the period for which benefits under this scheme
are to be availed. The Central Government may withdraw the above approval in case M/s.
Prasad Technology Park Pvt. Ltd., Bangalore, fails to comply with any of the conditions.
9. Any amendment of the project plan without the approval of the Central Government or
detection in future, or failure on the part of the applicant to disclose any material fact, will
invalidate the approval of the industrial park.

10 Taxman - Statutes [Vol. 205
NOTIFICATION
Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory body/
Authority/Board/Commission - Notified body or authority - Competition
Commission of India
NOTIFICATION NO. 12/2012 [F.NO.142/15/2011-SO (TPL)]/S.O. 344(E),
DATED 28-2-2012
In exercise of the powers conferred by clause (46) of section 10 of the Income-
tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the
purposes of the said clause, the Competition Commission of India, a Commis-
sion established under sub-section (1) of section 7 of the Competition Act, 2002
(Act 12 of 2003), in respect of the specified income arising to the said Commis-
sion, as follows:-
(a) amount received in the form of Government grants;
(b) fee received under the Competition Act, 2002; and
(c) interest income accrued on Government grants and interest accrued on
fee received under the Competition Act, 2002.
2. This Notification shall be applicable for the specified income of the Compe-
tition Commission of India for the financial year 2011-12 to financial year 2015-
16.
3. The Notification shall be effective where-
(i) the activities and the nature of the specified income of the Competition
Commission of India remain unchanged throughout the financial year,
and
(ii) the Competition Commission of India files return of income in accordance
with clause (g) of sub-section (4C) section 139 of the Act.
NOTIFICATION
Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory Body/
Authority/Board/Commission - Notified body or authority - National Skill
Development Corporation
NOTIFICATION NO. 11/2012 [F.NO.142/15/2011-SO (TPL)]/S.O. 343(E),
DATED 28-2-2012
In exercise of the powers conferred by clause (46) of section 10 of the Income-
tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the
purposes of the said clause, the National Skill Development Corporation, a body
constituted by the Central Government, in respect of the specified income
arising to the said Corporation, as follows:-

2012] 11
(a) long-term or short-term capital gain out of investment in an organisation
for skill development;
(b) dividend and royalty from skill development venture supported or funded
by National Skill Development Corporation;
(c) interest on loans to Institutions for skill development;
(d) interest earned on fixed deposits with banks; and
(e) amount received in the form of Government grants.
2. This Notification shall be applicable for the specified income of the National
Skill Development Corporation for the financial year 2011-12 to financial year
2015-16.
3. This notification shall be effective where-
(i) the activities and the nature of the specified income of the National Skill
Development Corporation remain unchanged throughout the financial
year; and
(ii) the National Skill Development Corporation files return of income in
accordance with clause (g) of sub-section (4C) section 139 of the Act.
Notification

RULES/AMENDMENT RULES
Income-tax (Appellate Tribunal) Amendment Rules, 2012 - Amendment in
rules 2, 4A, 9, 26 & 34A; deletion of proviso to rule 35A and substitution of
words ‘Income Tax Officer’ and “Appellate Assistant Commissioner”
NOTIFICATION NO. F. 71-AD(AT)/2012, DATED 7-2-2012
In exercise of the powers conferred by sub-section (5) of section 255 of the
Income Tax Act, 1961, the Appellate Tribunal hereby makes the following rules
further to amend the Income Tax (Appellate Tribunal) Rules, 1963, namely :-
Short title and Commencement (1) These rules may be called the Income Tax (Appel-
late Tribunal) Amendment Rules, 2012.
(2) These rules shall come into force with effect from
the date of their publication in the official Gazette.
Amendment in Rule 2 Definitions.
For the existing Rule 2(ii)(b), the following shall be
substituted:-
“(b) in relation to an income-tax authority who is a
party to any proceedings before the Tribunal -
(i) a person duly appointed by the Central Board of
Direct Taxes as “authorised representative” to
appear, plead and act on behalf of the income-
tax department; and
(ii) a person duly authorised by the Chief Commis-
sioner of Income-tax to appear, plead and act on
behalf of the income-tax department.”
Amendment in Rule 4A Powers and functions of the Registrar. For the existing
Rule 4A(2)(i), the following shall be substituted:- “to
receive all appeals, miscellaneous applications, stay
petitions as well as other documents including applica-
tions for early hearing, transfer of appeals, applications
for adjournment;”
Amendment in Rule 9 What to accompany memorandum of appeal?
In Rule 9, the words “Income Tax Officer” may be
substituted by the words “Assessing Officer.”
After existing Rule 9, the following shall be inserted as
Rule 9A :-
“9A (1) In the event of change in the address of the
parties to the appeal as provided in column Nos. 10 &
11 of Form No. 36, the appellant should file a revised
Form No. 36 duly filled up giving the new address of the
party, duly verified in the same manner as required by
Rule 47 of the Income Tax Rules, 1962.
(2) The revised Form No. 36 shall specify the appeal No.
asoriginallyassignedor,intheeventofnon-availability

2012] 13
of such No., the date of filing of the appeal shall be
mentioned in the covering letter.
(3) No cognizance of change of address of the parties
shall be taken for any purpose, unless a revised form as
per sub-rules (1) and (2) is filed.
(4) The address furnished in the revised Form No. 36
shall be deemed to be the address of the parties for the
purpose of service of all notices/orders.”
Amendment in Rule 26 Continuation of proceedings after the death or insol-
vency of a party to the appeal.
For the existing Rule 26, the following rule shall be
substituted:-
“Where an assessee whether he be an appellant or the
respondent to an appeal dies or is adjudicated insol-
vent or in the case of a company being wound up, the
appeal shall not abate and may, if the assessee was the
appellant, be continued by, and if he was the respon-
dent be continued against, the executor, administrator
or other legal representative of the assessee or by or
against the assignee, receiver or liquidator, as the case
may be:
Provided that:
(i) The assessee files a revised Form No. 36 duly
filled up giving revised name of the party duly
verified in the same manner as required by Rule
47 of Income Tax Rules, 1962;
(ii) The revised Form No. 36 shall specify the appeal
number as originally assigned or, in the event of
non-availability of such number on the date of
filing the appeal shall be mentioned in the cover-
ing letter to enable the Registrar to place fresh
Form No. 36 in the original file.”
Amendment in Rule 34A Procedure for dealing with applications under section
254(2).
For the existing Rule 34A(2), the following shall be
substituted:-
“Every application made under sub-rule (1) shall be in
triplicate and the procedure for filing of appeals in
these rules will apply mutatis mutandis to such appli-
cations.
The Applicant shall also state whether any Miscella-
neous Application under section 254(2) was filed ear-
lier before the Tribunal against the same order and if
so, the fate of such application. Copies of the orders
passed by the Tribunal on such applications shall also
be filed before the Tribunal in triplicate along with the
Miscellaneous Application.”
Rules/Amdt. Rules

The existing proviso to Rule 34A(3) is deleted.
Deletion of proviso to Rule 35A Procedure for filing and disposal of stay petition. The
existing Rule 35A(3) is deleted.
Further amendments Wherever the words“Income Tax Officer”exist in the
ITAT Rules, the same shall be substituted by the words
“Assessing Officer.”
Likewise, wherever the words “Appellate Assistant
Commissioner” exist in the ITAT Rules, the same be
substituted by the words “CIT(Appeals)”.

2012] 219
Subsequent to the search proceedings, the respondents-assessees filed revised
returns twice surrendering the income brought to tax, during the course of
search. After assessment of revised returns, the assessing authority proceeded
with the assessment and passed orders in the year 2005. Subsequently penalty
proceedings came to be initiated. The Assistant Commissioner of Income Tax
rejecting the defence taken by the respondents-assessees proceeded to impose
of penalty on all the assessees under Sec. 271(1)(c).
4. Aggrieved by the order of imposing penalty, appeals came to be filed before
the Commissioner of Income Tax (Appeals) for the above assessment years and
the first appellate authority by common order dated 16.5.2006 held that as the
assessees proceeded to declare the entire amount as their income pursuant to
search in order to buy peace with the department and for the reasons stated in
the order, held levying of penalty was not justified. All the appeals filed by
different assessees came to be allowed and penalty order came to be set aside.
5. Aggrieved by the same, the Revenue went in appeal before the Income Tax
Appellate Tribunal in ITA Nos. 659-666/B/06. The Tribunal held that penalty in
respect of commission paid by the assessees for securing the gifts was leviable.
However in respect of the gift amounts, which were found to be the income of
the assessees pursuant to the search, the Tribunal upheld the finding of the
AppellateCommissionerbyacommonorderdated13.12.2007.Aggrievedbythe
said order, the Revenue is before us raising the above substantial questions of
law.
6. According to the learned counsel for the Revenue Mr. Sheshachala, once the
amount shown as gift received in the original return was found to be incorrect
as per material detected in the search and which was undisclosed by the
assessee in their return of income, the Assessing Officer was justified in levying
penalty under Section 271(1)(c) of the Act. According to the learned counsel,
after insertion of Explanation to Section 271(1)(c) of the Act in the light of the
judgment of the Apex Court in K.P. Madhusudhanan v. CIT [2001] 251 ITR 99/
118 Taxman 324, the law relied upon by the Tribunal and the Appellate
Authority in CIT v. Sureshchandra Mittal [2001] 251 ITR 9/119 Taxman 433
(SC),CIT v.Suresh Chandra Mittal [2000] 241 ITR 124/[2002] 123 Taxman 1052
(MP) andSir Shadi Lal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33
Taxman 460A (SC) is not good law. According to Mr. Sheshachala, the appellate
authority committed an error by accepting the explanation offered by the
assessees that the entire income detected was declared in the revised return,
which was factually incorrect. According to the learned counsel, the defence of
the respondents-assessees was different from time to time, which is evident
from the defence raised before the first appellate authority and the new
defence raised by them before the Tribunal. Once theExplanation 5 to Section
271(1)(c) is not to the satisfaction of the Assessing Officer, question of extending
the benefit would not arise. Therefore the orders of the Commissioner of
Income Tax (Appeals) and, the order of the Tribunal deserves to be set aside
confirming the order of the Assessing Officer.
CIT v. Smt. Mukta Sridhar (Kar.)

220 Taxman - Tax Reports [Vol. 205
7. As against this, the learned counsel Mr. Chaitanya appealing for the respon-
dents-assessees contends that once statement is recorded while conducting
search as provided under sub-section (4) of Section-132 and when all the
questions were answered and when the letter dated 26.2.2004 given by all the
assessees is referred to in the statement, the object and the purpose with which
Explanation-5(2) of Section 271(1)(c) giving immunity to such persons has to be
extended and object cannot be frustrated. When perversity in appreciating the
material on record by the appellate authorities being not the ground of
challenge, the Revenue cannot question the same is his contention. According
to him, application of Explanation (5) is not a question of law, which entirely
depends on question of fact and the same is dealt with by a final fact finding
authority and Revenue cannot agitate the same again and again. According to
him, search team having chosen to take the statement in the format or fashion
which they have takeni.e. by putting question and answer, it is binding on all the
members who have signed confirming that they abide by the same. The
questionsandanswersdonotrelatetoanyindividualpersoni.e.Mr.Sridharand
all the questions were answered for the entire amount disclosed during the
searchrelatingtoentirefamily.TheentireamountdisclosedbyMr.Sridharwas
accepted and subjected to tax. Therefore there is no ground available to the
appellant-Revenue to challenge the same in the present appeals.
8. In reply, the learned counsel for the Revenue Mr. Sheshachala has taken us
through paragraphs 21, 26 and 27 of the order of the Tribunal to contend that
derival or origin of undisclosed income explained by one individual Mr. Sridhar
could be at the most accepted for himself and it cannot be an explanation or
answer in respect of others. Therefore there is non-compliance of Section
132(4) of the Act so far as all other assessees except Mr. Sridhar. He strenuously
contends that Explanation 5(2) of Section 271(c) is not applicable to other
assessees except Sridhar if no reason is disclosed. The statement of the party
relating to the business affair is part of return of income. Till revised returns
filed, income was not shown as income, but they were purposely shown as gift.
Therefore the appeals deserve to be allowed.
9.Learned counsel for the respondents-assessees in reply further contends that
as notice was given to Prakash Tea Agency Group, Mr. Sridhar on behalf of all
the persons of group has given the statement on 27.2.2004 after oath being
administered to him. Therefore it is as good as explanation on behalf of all the
persons pertaining to Prakash Tea Agency group. He further contends that Mr.
N. Shashindra, Smt. Vani Shashindra, Mr. Muktha Sridhar have stated that
statement given by Mr. V.N. Sridhar was in their absence and they abide by
what has been stated by Mr. V.N. Sridhar. Therefore according to him, the
statement recorded under section 132(4) of the Act is as good as statement of
others and even otherwise letter dated 26.2.2004 has been signed by all the
assessees and as such Expln. (5) is applicable to them also.
10. From the material placed before the Court and also the submissions of the
learned counsel appearing for the Revenue and the respondents-assessees, two

2012] 221
provisions of the Act are relevant for considering the substantial questions of
law raised in the above appeals. They are sections-132(4) and 271(1)(c) Expla-
nation-(5). It is useful to extract the said provisions here:
Section-132:
(1) Where the [Director General or Director] or the [Chief Commissioner or
Commissioner] [or Additional Director or Additional Commissioner] [or Joint
Director or Joint Commissioner] in consequence of information in his possession,
has reason to believe that -
(a) & (b)** ** **
(c) any person is in possession of any money, bullion, jewellery or other valuable
article or thing and such money, bullion, jewellery or other valuable article
or thing represents either wholly or partly income or property [which has not
been, or would not be, disclosed] for the purposes of the Indian Income-tax
Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the
undisclosed income or property).
(4) The authorised officer may, during the course of the search or seizure, examine
on oath any person, who is found to be in possession or control of any books of
account,documents,money,bullion,jewelleryorothervaluablearticleorthingand
any statement made by such person during such examination may thereafter be
used in evidence in any proceeding under the Indian Income tax Act, 1922 (11 of
1922), or under this Act.
[Explanation.-For the removal of doubts, it is hereby declared that the examination
of any person under this sub-section may be not merely in respect of any books of
account, other documents or assets found as a result of the search, but also in
respect of all matters relevant for the purposes of any investigation connected with
any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this
Act.]
271. (1) If the [Assessing] Officer or the [***] [Commissioner (Appeals)] [or the
Commissioner] in the course of any proceedings under this Act, is satisfied that any
person -
(a) & (b)** ** **
(c) has concealed the particulars of his income or [***] furnished inaccurate
particulars of such income,
(d) ** ** **
he may direct that such person shall pay by way of penalty-
[Explanation 5. - Where in the course of a [search initiated under section 132 before
the 1st day of June, 2007], the assessee is found to be the owner of any money,
bullion, jewellery or other valuable article or thing (hereafter in this Explanation
referred to as assets) and the assessee claims that such assets have been acquired
by him by utilising (wholly or in part) his income -
(a) for any previous year which has ended before the date of the search, but the
return of income for such year has not been furnished before the said date
or, where such return has been furnished before the said date, such income
has not been declared therein; or

(b) for any previous year which is to end on or after the date of the search, then,
notwithstanding that such income is declared by him in any return of income
furnished on or after the date of the search, he shall, for the purposes of
imposition of a penalty under clause (c) of sub-section (1) of this section, be
deemed to have concealed the particulars of his income or furnished
inaccurate particulars of such income, [unless,-
(1) such income is, or the transactions resulting in such income are recorded, -
(i) in a case falling under clause (a), before the date of the search; and
(ii) in a case falling under clause (b), on or before such date, in the books of
account, if any, maintained by him for any source of income or such income
is otherwise disclosed to the [Chief Commissioner or Commissioner] before
the said date; or
(2)he,inthecourseofthesearch,makesastatementundersub-section(4)ofsection
132 that any money, bullion, jewellery or other valuable article or thing found in his
possession or under his control, has been acquired out of his income which has not
been disclosed so far in his return of income to be furnished before the expiry of
time specified in [***] sub-section (1) of section 139, and also specifies in the
statement the manner in which such income has been derived and pays the tax,
together with interest, if any, in respect of such income.]
11. The department launched action against Prakash Tea Agency group of
cases in pursuance of search conducted under Section-132 of the Act between
6.1.2004 and 27.2.2004. The abovementioned respondents-assessees filed re-
vised return of income once and again another revised return of income was
filed. Some of the assessees had filed returns in their individual capacity and
also as members of Hindu Undivided Family. Assessment orders in favour of
the above respondents-assessees also came to be passed. Amounts represent
credits in the capital account of assessees during the previous year alleged to
have been received by way of gifts. During the course of search, it was
established that such gifts are not genuine and the assessees agreed to offer the
same for tax by treating them as income. As already stated above, additional
income also came to be declared by revised returns.
12. During the course of hearing before the Assessing Officer, the main person
of Prakash Tea Agency group by name Sri V.N. Sridhar had admitted paying
commission for organizing the gifts. Therefore in the returns subsequently
filed,theexpenditureinthenatureofcommissiontoanextentof3%inobtaining
such gifts was also revealed. Taking into consideration all these facts, assess-
ment orders came to be passed and these gifts were treated as undisclosed
income of the assessee and it was brought to tax. Quantum proceeding has
reached finality and same has been accepted by the assessees.
13. Subsequently, penalty proceedings under Section 271(1)(c) of the Act came
to be initiated against the respondents-assessees. Before the authority con-
cerned, the assessees denied furnishing of inaccurate particulars or conceal-
ment of income and further contended that though the donors of the gifts are
all identifiable and available to confirm the gifts, only with a view to buy peace

2012] 223
with the department, the same was declared as undisclosed income. According
to the representatives of the respondents-assessees, imposition of penalty
cannot be automatic as there being no mens rea or guilty mind on the part of
the respondents conceal the income.
14. Ultimately rejecting all the contentions, the authority concerned passed an
order holding that statements recorded during the course of search reveal that
gifts were agreed as not genuine and therefore the income has been offered to
tax. It was further opined that the assessee group has neither established the
existence of the donors or their creditworthiness. It was also opined that the
assessee group has organized non-genuine gifts for the purpose of converting
unaccounted income and bringing the same into the books without payment of
tax only with an intention of avoiding payment of tax. The authority opined that
the material confirms the state of mind, which is guilty of evasion of tax.
15. The respondents-assessees went up in appeal before the Commissioner of
Income Tax (Appeals). The respondents-assessees contended that gift amounts
were already disclosed to the department in the respective returns filed before
the date of search and during the assessment proceedings and with a view to
end the proceedings and on the understanding that no penalty will be levied,
they agreed for subjecting all the amounts to tax. By placing reliance onSuresh
Chandra Mittal case (supra) and also CIT v. Shyamlal M. Soni [2005] 276 ITR
156/144 Taxman 666 (MP), the appellate authority held that no penalty under
Section 271(1)(c) could be levied in a case where income returned in revised
return is accepted even though revised returns were filed after search and
subsequent to inquiries. The material for this conclusion was disclosure of gifts
to the department in the returns filed before the date of search and appellate
authority accepted the defence that only in order to buy peace and with an
understanding that no penalty would be levied, the assessees had agreed to file
revised returns. According to the first appellate authority, no enquiries were
conducted by the department and it was due to candid admission on the part
of the respondents-assessees these gifts were brought to tax as income. The
Appellate Authority opined that all the particulars are available in the return
and to buy peace, the respondents filed revised returns of income and therefore
in the light of the observations made in the above decisions, it held that the
imposition of penalty was not justified.
16. Challenging the order of the first appellate authority, the Revenue went in
appeal before the Appellate Tribunal. The Appellate Tribunal has gone into all
the material facts with reference to several precedents relied upon by both
Revenue and respondents-assessees and ultimately opined that unexplained
gifts have been found to be recorded in the regular books of account and such
gifts were disclosed in the returns filed, therefore Explanation 5(2) to Section-
271(1)(c) is complied with and hence there cannot be imposition of penalty on
the gifts. It further opined that commission for arranging gifts was also
surrendered in the revised returns and same is subject to penalty as per
Explanation (5).

17. So far as imposition of penalty on the amount surrendered as commission,
therespondents-assesseeshavenotchallengedandthesaidfindinghasreached
finality. So far as the other finding that no penalty could be imposed on the
unexplained gifts in view of surrendering the same in the revised returns which
was already recorded in the books of account, the Revenue has come up in
these appeals.
18.Explanation-5 to Section-271(1)(c) depends upon the particulars found with
the assessee at the time of search under Section-132 of the Act. As a matter of
fact, Explanation-5 to sub-section (1) of Section-271 was inserted by amend-
ment. This new explanation is a special provision applicable to cases when
assessee is found to be the owner of any money, bullion, jewellery or other
valuable article or thing revealed in the course of a search under Section-132
of the Act. If the assessee asserts and claims that the abovementioned assets
were acquired by him by utilising (wholly or in part) his income for the previous
year which has ended before the date of the search, but the return of income
for such year has not been furnished before the said date or, where such return
has been furnished before the said date, such income has not been declared in
the return, the assessee shall be liable for payment of penalty under section
271(1)(c) of the Act and such income is deemed to have been concealed or
inaccurately furnished. However the income referred to above if declared by
the assessee in any return of income furnished by him, on or after the date of
search will not provide any immunity to the assessee unless the conditions
indicated in clause-(2) of Explanation-5 are fulfilled.
19. Learned counsel for the Revenue emphasises that in the present case, the
conditions in Clause-2 to Explanation-5 of Section 271(1)(c) of the Act are not
completely fulfilled. Therefore both the appellate authorities were not justified
in setting aside the order of imposition of penalty.
20. Learned counsel for the Revenues relied upon the decision of the Apex
Court in the case of K.P. Madhusudhanan (supra) to contend that when the
assessee is put to notice under Section-271 of the Act that if he does not prove,
in the circumstances stated in the Explanation, that his failure to return his
correct income was not due to fraud or neglect, then deemed provision
regarding concealing the particulars of his income or furnishing inaccurate
particulars of income could be drawn. In the said case. Their Lordships opined
that after the introduction of Explanation-5, there is no question of proof of
mens rea. He also places reliance on the decision of the Hon’ble Supreme Court
in the case ofUnion of India v. Dharamendra Textile Processors [2008] 306 ITR
277/174 Taxman 571 to contend that provisions of Section-11AC inserted with
the intention of imposing mandatory penalty on persons who evaded payment
of tax cannot be read to contain mens rea as an essential ingredient and there
is no discretion with the authority competent to impose penalty to levy penalty
below the prescribed minimum. Their Lordships further opined that the object
behind enactment of Section 271(1)(c) read with Explanation indicate that the
said section has been enacted to provide for a remedy for loss of revenue and

2012] 225
penalty under that provision is a civil liability They further opined that wilful
concealment is not an essential ingredient for attracting civil liability as is the
case in the matter of prosecution under section-276C of the Act. In this context,
they proceeded to hold that in the case of Dilip N. Shroff v. Jt. CIT [2007] 161
Taxman 218 (SC) the conceptual and contextual difference between Section
271(1)(c) and section 276-C of the Act was lost sight of. He places reliance on the
decision in the case of Ashok Kumar Gupta v. CIT [2006] 287 ITR 376/157
Taxman 339 (Punj. & Har.) to contend that concession given in Explanation-5
to Section 271(1)(c) is meant for the persons who after surrendering the
undisclosed income pay the amount of tax along with interest, if any, on such
income before the due date and such benefit cannot be extended to an assessee
where he comes up with a plea of non-availability of funds for payment of tax
on surrendered income. Their Lordships further opined that only circum-
stances that could be explained for absolving the payment of penalty are
indicated in Explanation-5 itself. He also relies on the decision in the case of P.
K. Metrani v.CIT AIR 2007 SC 386 to contend that Section-132 being a complete
code by itself, it cannot intrude into any other provisions of the Act. Similarly,
other provisions of the Act cannot interfere with the scheme or the working of
Section-132 or its provisions. The learned counsel places reliance on this
decision to contend that the statement given by Mr. V.N. Sridhar if accepted
could be accepted only as a statement given by him and it cannot be held as a
valid statement in so far as other members of his family. In that context, learned
counsel contends that there has to be strict compliance of Section-132 of the
Act. He places reliance on the unreported decision of this Court in the case of
CIT v.J. Alexanderin ITRC No. 64/1999 disposed of on 19.6.2008. In this case, the
oath was not administered as required under Section-6 of the Oaths Act.
Therefore Their Lordships held that the statement of the Officer concerned,
which is recorded without administering oath has no evidentiary value and in
the eye of law, it is not at all an evidence and hence there is no evidence to
conclude that the amount of the fixed deposits belonged to the assessee therein.
He also places reliance on another unreported decision of this Court in the case
of CIT v. Sunrise Industrial Syndicate in ITRC No. 246/1998 disposed of on
14.2.2005 to contend that if an addition is made and if there is no proper
explanation for such addition, it would amount to concealment of income and
the authorities under the Act are justified in levying penalty.
21. According to the learned counsel for Revenue Mr. Sheshachala, after the
decision in K.P. Madhusudhanan’s case (supra) the Supreme Court has clearly
distinguished and has in fact observed that the observations made in the case
ofSir Shadi Lal Sugar & General Mills Ltd. (supra) was prior to the introduction
ofExplanationtoSection-271oftheAct,thereforethesaiddecisiondonotcome
totheaidofassesseeafterintroductionofExplanationtoSection-271oftheAct.
From K.P. Madhusudhanan’s case (supra), what we notice is after sirShadi Lal
Sugar & General Mills Ltd.'s case (supra), Explanation to Section-271 was
introduced and therefore the Revenue was no longer required to prove the

mens rea of a quasi-criminal offence regarding the intentional or deliberate
concealment of the amount. As a matter of fact, the word, ‘deliberately’ is
removed from sub-section (c) of Section-271(1). It only says, concealing the
particulars of his income or furnishing inaccurate particulars of such income.
The assessee would get the immunity from paying the penalty if he is able to
explain the causes as stated in clause (1) or (2) of Explanation-5.
22. The respondent’s counsel relied on various decisions so far as Clause-2 of
Explanation-5 to Section-271 of the Act.
23. He places reliance on the decision in the case ofCIT v.MishrimalSoni [2007]
289 ITR 77/162 Taxman 53 (Raj.) to contend that expression ‘possession’ used
in clause (2) of Explanation 5 to Section 271 is not confined to physical
possession, but extends to other type of possession which is capable of being
held. It was further held that as long as the assessee comes with a clean breast
of his undisclosed income represented by assets found to be in possession of the
assessee, he is not deemed to have concealed his income or concealed particu-
lars thereof.
24.He also places reliance on the decision in the ofCIT v.E.V.Balashanmugham
[2006] 286 ITR 626 (Mad.) to contend that the statements made by the assessee
during the course of search under Section-132 of the Act can be taken note of
and the explanation offered by the assessee in such statement in the opinion of
the officer concerned is acceptable, question of imposing of penalty would not
arise. In other words, it means in the opinion of the officer, if the explanation is
acceptable, imposition of penalty is not justified.
25. He also places reliance on the decision in the case of CIT v. S.D.V. Chandru
[2004] 136 Taxman 537 (Mad.) to contend that the statement of the assessee
recorded under Section 132(4) of the Act followed by filing of Returns by the
assessee for the earlier assessment year admitting large income and also paying
the tax together with interest, such income will get immunised from the levy of
penalty.
26. He also places reliance on the decision in the case of CIT v. Radha Kishan
Goel [2005] 278 ITR 454/[2006] 152 Taxman 290 (All.). In this case, Revenue
contended that though the assessee made the statement recorded under
Section 132(4) that unexplained cash and unexplained jewellery were undis-
closed income, the manner in which such income was derived has not been
disclosed in the statement and therefore immunity under Explanation 5 to
Section 271(1)(c) was not applicable. Their Lordships held that in case there is
nothing to the contrary in the statement recorded under Section 132(4) of the
Act, in the absence of any specific statement about the manner in which such
income has been derived, it can be inferred that such undisclosed income was
derived from the business which the assessee was carrying on or from other
sources. They further opined that much importance should not be attached to
the statement about the manner in which such income has been derived.

2012] 227
27. He also places reliance on the decision in the case of Gebilal Kanhaialal
(HUF) v. Asstt. CIT [2004] 270 ITR 523/[2005] 143 Taxman 42 (Raj.). In this case
it was held that when once in the statement under Section 132(4), the assessee
has disclosed particulars of concealed income and surrendered it for tax and
tax has been paid along with interest, imposition of penalty was not warranted.
28. He places reliance on the decision in the case of CIT v. Mahendra C. Shah
[2008] 299 ITR 305/172 Taxman 58 (Guj.). It was held in this case that there is
noprescriptionastopointoftimewhentaxhastobepaidquaamountofincome
declared in statement made under Section 132(4) of the Act. It was held that it
would be sufficient compliance of provision if tax is shown to have been paid
before assessment was completed. It was further held that Explanation -2 of
Explanation 5 itself specifies payment of tax together with interest, if any
indicatingthatLegislaturedidnotstipulateanyspecifiedtimelimitforpayment
of tax. Referring to Radha Kishan Goel’s case (supra). Their Lordships pro-
ceeded to hold that once income is declared and tax thereon is paid, it would
amount to substantial compliance not warranting any denial of benefit under
Explanation 5 of Section 271(1)(c) of the Act.
29. He further places reliance on the decision in the case of CIT v. Manmohan
Goel [2005] 149 Taxman 578 (All.). In this case, a search was conducted in the
residential as well as business premises of the assessee in which cash, jewellery
and other valuable articles and things were found and seized and subsequently,
assessee declared his income under Section 132(4) and moved application for
settlement. Assessment was completed on disclosed income of the assessee and
thereafter penalty proceedings were initiated. Held on facts conditions laid
down inExplanation 5(2) to Section 271(1)(c) were fulfilled and no penalty was
leviable. Their Lordships held that the basic idea or intention behind providing
Explanation 5(2) of Section 271(1)(c) is to avoid litigation by the Department
and to get the maximum tax at the earliest from the person whose business as
well as residential premises are searched. This was also a case of whole group
which had made an application for settlement, a little more than the original
surrender and far less than the subsequent surrender. In that context, Their
Lordships held that imposition of penalty was not justified.
30. He also places reliance on the decision in the case of CIT v. Mahesh Chand
Agrawal [2006] 157 Taxman 539 (All.) wherein relying on the earlier decision in
Radha Kishan Goel’s case (supra) held that no penalty was leviable.
31. He places reliance on the decision in the case of Sudarshan Silks & Sarees
v. CIT [2008] 300 ITR 205/169 Taxman 321 (SC). In this case, Their Lordships
held that Tribunal being the final Court of fact, decision of the Tribunal on facts
can be gone into by the High Court only if a question has been referred to it
which says that findings arrived at by the Tribunal on facts are perverse, in
sense that no reasonable person could have taken such a view.
32. A reference is also made to the decision in the case ofDilip N. Shroff (supra)
on the aspect of concealment of income and furnishing of inaccurate particu-
lars, wherein it is held as under:

67. ‘Concealment of income’ and ‘furnishing of inaccurate particulars’ are
different. Both concealment and furnishing inaccurate particulars refer
to deliberate act on the part of the assessee. A mere omission or negligence
would not constitute a deliberate act of suppressio veri or suggestio falsi.
Although it may not be very accurate or apt but suppressio veri would
amount to concealment, suggestio falsi would amount to furnishing of
inaccurate particulars.
83. It is of some significance that in the standard proforma used by the
Assessing Officer in issuing a notice despite the fact that the same
postulates that inappropriate words and paragraphs were to be deleted,
but the same had not been done. Thus, the Assessing Officer himself was
not sure as to whether he had proceeded on the basis that the assessee had
concealed his income or he had furnished inaccurate particulars. Even
before us, the learned Additional Solicitor General while placing the order
of assessment laid emphasis that he had dealt with both the situations.
84. The impugned order, therefore, suffers from non-application of mind.
It was also bound to comply with the principles of natural justice. [See
Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718].
33. He also places reliance on the decision in the case of CIT v. Reliance
Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) wherein it is
held as under:
8. ...... The basic reason why decision in Dilip N. Shroff’s case (supra) was
overruled by this Court in Dharamendra Textile Processors’ case (supra),
was that according to this Court the effect and difference between section
271(1)(c) and section 276C of the Act was lost sight of in case of Dilip N.
Shroff (supra). However, it must be pointed out that in Dharamendra
Textile Processors’ case (supra), no fault was found with the reasoning in
the decision inDilip N. Shroff’scase (supra), where the Court explained the
meaning of the terms “conceal” and “inaccurate”. It was only the ultimate
inference in Dilip N. Shroff’s case (supra) to the effect that mens rea was
an essential ingredient for the penalty under section 271(1)(c) that the
decision in Dilip N. Shroff’s case (supra) was overruled.
34.He also places reliance on the decision in the case ofNew Sorathia Engg. Co.
v.CIT [2006] 282 ITR 642/155 Taxman 513 (Guj.) wherein when the order of the
authority concerned showed that no clear-cut finding had been reached as to
whether penalty under section 271(1)(c) was being levied for concealment of
particulars of income by assessee or whether any inaccurate particulars of
income had been furnished, order of penalty could not be sustained.
35.According to the learned counsel for the Revenue, clause (2) toExplanation
5 of Section-271(1)(c) can be divided into five parts as mentioned below:
1. He (assessee) in the course of search makes a statement under sub-section
(4) of section-132,

2012] 229
2. That any money, bullion, jewellery or other valuable article or thing found
in his possession or under his control has been acquired out of his income.
3. Which (income) has not been disclosed so far in the return of income to
be furnished before the expiry of time specified in sub-section (1) of
Section 139.
4. And also specifies in the statement the manner in which such income has
been derived.
5. And pays the tax together with interest if any in respect of such income.
36.Learned counsel for the Revenue contends that if tax together with interest,
if any in respect of such income is not paid, as stated above, no benefit could be
extended. In order to understand what exactly explanation given by the
assessee, one has to see 132(4) statement given by the assessee. According to the
learned counsel, 132 statement was given by one Mr. V.N. Sridhar is applicable
only to him and not to other family members as the said statement does not
cover the statement of other family members.
37. On perusal of this statement recorded under section-132(4), we note that
oath was administered to the deponent Mr. V.N. Sridhar on 27.2.2004. It is in the
formofquestionsandanswers.Theofficerputsaquestiontohiminaparticular
way and the deponent gives the answer. The statement, of Mr. V.N. Sridhar
dated 27.2.2004 is placed on record. The notice for recording this statement is
dated 27.2.2004 wherein it is stated that Mr. V.M. Sridhar was required to
personally attend in respect of proceedings in the case of M/s Prakash Tea
Agency Group. Question No.4 in the statement pertains to undisclosed income
of Sri V.N. Sridhar, his business and his family members. He has given the
details not only relating to himself, but also other family members. He also
refers to a joint letter dated 26.2.2004 signed by all the family members which
was already submitted to the concerned authorities indicating that all the
details are already mentioned. He has stated in the statement the manner in
which the income was derived i.e. the tea business of the family. He has also
disclosed the details of the income were shown in the respective returns and it
is offered for taxation in the respective years in the hands of the concerned
persons. He also answers the question No.6 saying that the amount shown
against M/s Prakash Tea Agency is out of the income of the tea business of the
firm and the income shown by him and Mr. Shashindra is the professional
income of tea testing and similarly the income received by others is on account
of undisclosed income earned by them.
38. Apparently the oath would be administered to the deponent by the officer
concerned from the department. It is at the option of the concerned officer such
statement would be recorded. If no statement is recorded under section 132(4)
of other persons, there is no procedure to compel the officer to record
statements of all other persons. Though learned counsel for Revenue contends
that individual notices were sent, we do not have such records before us. The
very questions and answers under section 132(4) indicate the deponent was

asked details pertaining not only to himself but also all other family members.
It is not the case of the department that other than the statement of Mr. V.N.
Sridhar, any other statement was recorded under Section 132(4) and it is in
existence. There is only one statement of Mr. V.N. Sridhar recorded under
Section 132(4) and endorsed by 3 other assessees. As a matter of fact, Mr. N.
Shashindra, Smt. Vani Shashindra and Smt. Muktha Sridhar at the end of the
statement of Mr. V.N. Sridhar have also stated that the said statement was given
in their presence and they abide by what has been stated by Mr. V.N. Sridhar.
During the search proceedings between 6.1.2004 and 27.2.2004, the statement
of V.N. Sridhar was recorded. The manner in which the questions were put to
this deponent indicates that he was expected to answer for himself and all his
family members. It would be at the option of the officer what has to be asked
by way of question and it would be at the option of the deponent what should
be deposed. If the deponent had made clear that statement was only on his
behalf and not for other family members, he would not have made statement
explaining the details of others. Once the concerned officer of the department
chose to record the statement in the above fashion indicating that Mr. V.N.
Sridhar had to answer all the questions on behalf or Prakash Tea Agency Group
now they cannot turn round and say the details given in the statement of
Mr. V.N. Sridhar under section 132(4) holds good only for Mr. V.N. Sridhar
and not for others. It was the concerned officer who recorded this statement
who has to explain why he did not choose to record the statement of others.
Having chosen to discharge the duty of recording the statement under section
132(4) in the above fashion, now the Revenue cannot find fault with the
respondents-assessees contending, it would not bind others. Even otherwise,
letter submitted on 26.2.2004 by all the assessees which has been referred to in
the statement is signed by all the family members and a reference is made to
this letter not at one place but at several places in the statement recorded under
section 132(4).
39.It is now well-settled that themens rea regarding concealing and inaccurate
particulars need not be established by the department. It is also not in dispute
that the immunity from imposing penalty available under two clauses of
Explanation (5) can be extended to the respondents - assessees depending upon
the facts and circumstances of each case if the explanation offered is to the
satisfaction of the officer concerned. This Court can refer to the facts only if the
Tribunal on facts has proceeded to give a perverse finding. In the present case,
we are not faced with such a situation. The facts have to be referred because
of the stand of the Revenue in these appeals contending that the benefit of
statement of Mr. V.N. Sridhar cannot be extended to other respondents-
assessees. Before concluding the search, a declaration was obtained from this
group on 26.2.2004 and surrender of undisclosed income was made vide the
statement dated 27.2.2004 recorded under section 132(4) of the Act. The search
commenced on 6.1.2004 and the statement under section 132(4) of the Act was
obtained. Under these circumstances, naturally the assessee would start think-

2012] 231
ing that if a declaration is made under section 132(4) along with the taxes
together with interest payable is paid, no penalty would be imposed. The
department would also be keen to get declaration under section 132(4) so as to
collect tax and avoid litigation. Only with this view, the exception was created
in Explanation 5 to Section 271(1)(c) under clauses (1) and (2) to give immunity
to assessee from levy of penalty. During the course of search, if the assessee
surrendered the income agreeing to pay the tax and interest and if explanation
is given to the satisfaction of the officer concerned, assessee would be under the
impression that no penalty would be levied which would be subject to explana-
tion offered. In the present case, records reveal that the unexplained gifts were
treated as income and reference of such gifts is recorded in the regular books
of account which were disclosed in the returns filed. As a matter of fact, after
surrendering the income, they offered the said income to tax along with interest
and in fact they have paid the tax and interest on such income. We also note that
apart from surrendering the gifts so received as income, the assessees have
surrendered the expenditure incurred in the form of commission for arranging
such gifts. This resulted in imposition of penalty on the amount surrendered as
commission and the assessees have not challenged the same.
40. In view of the above discussion and reasoning, we are of the opinion that all
the amounts referred to as gifts were surrendered by assessees offering to pay
tax. Subsequently tax was also paid alongwith interest and the revised returns
were filed. In that view of the matter, we are of the opinion the substantial
questions have to be answered against the Revenue and in favour of the
respondents - assessees.
Accordingly, appeals are dismissed.

[2012] 205 TAXMAN 232/18 taxmann.com 70 (Patna)
HIGH COURT OF PATNA
Chief Commissioner of Income-tax (CCA)
v.
State of Bihar Through The Chief Secretary
SAMARENDRA PRATAP SINGH, J.
CIVIL WRIT JURISDICTION CASE NO. 10707 OF 2011
FEBRUARY 2, 2012
Section 132 of the Income-tax Act, 1961 read with sections 2(d), 12 and 16 of the
Protection of Human Rights Act, 1993 - Search and seizure - Whether if required,
search and seizure can continue for days, but at same time due regard to human
dignity and value cannot be ignored - Held, yes - During search conducted at
premises of respondent No. 3 there was interrogation carried out for 42 hours
commencing at 9.30 a.m. on 8-9-2010 till 3.30 a.m. on 10-9-2010; respondent
No. 3 and his family members were made to remain awake when it was time for
sleep - Respondent No. 3 made a complaint before Human Rights Commission
alleging that during search and seizure operation raiding party committed various
acts of omission and commission including violation of his human rights -
Commissionallowedcomplaintofrespondentandheldthatrespondent/complainant
would be entitled to monetary compensation and asked department to submit its
response as to why monetary compensation be not awarded to complainant
recoverable from salary of concerned officials of department - Whether since there
was no possible justification to continue interrogation and keep respondent No. 3
awake till 3.30 a.m. on second night of search; and since no reason had been
assigned as to why interrogations could not have been deferred till morning of next
day, order passed by Human Rights Commission as to violation of human rights
of respondent No. 3 was to be upheld - Held, yes - Whether however, since no
opportunity was given to officials to countenance charge of violation of human
rights, in absence of an opportunity to defend themselves against such charge in an
enquiry, Commission erred in issuing notice to officials to show cause or respond
as to why penalty may not be levied for awarding compensation to complainant -
Held, yes [Partly in favour of assessee]
FACTS
The Income-tax Department had conducted search operation in premises of
respondent No. 3. Respondent No. 3 made a complaint before the State Human
Rights Commission alleging that during the search and seizure operation the
raiding party committed various acts of omission and commission including

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