Monday, January 23, 2017

Foreign Co. can claim profits below Sec. 44BBB presumptive rate even when AS-7 is applicable on it


a) Foreign company was engaged in the business of erection, testing and commissioning of power plants. It had opened a project office for the execution of projects in India and opted for presumptive tax scheme under section 44BBB.

b) Its books of account were audited and prepared as per Accounting Standard-7 (AS-7).It claimed profits to be lower than the 10% presumptive rate u/s 44BBB.

c) The Assessing Officer (AO) discarded the method of accounting followed by the assesseeand rejected books of accounts in terms of section 145(3). He invoked the provisions of section 44BBB determined income @ 10%.

d) The CIT(A) held that AO had no right to reject audited books of accounts. Aggrieved from order of CIT(A), the revenue filed instant appeal before Tribunal.

The Tribunal held in favour of assessee as under:

1) Section 44BBBB clearly provides an option to an assessee to o􀁹er to tax lower profits and gains than profit deemed of 10% if books of accounts is maintained and also audited as per section 44AB.

2) Assessee had recognized revenue and cost following the percentage completion method prescribed by AS-7.

3) Assessee-company prepared its Balance Sheet and Profit & loss account in compliance with AS-7.

4) Assessee-company fulfilled all conditions prescribed u/s 44BBB and also has followed one of the recognized methods as prescribed in para 29 of the Accounting Standard-7 "Construction Contracts".

5) AO was of the view that method of accounting followed by assessee as per AS–7 was not correct and proper income could not be determined on that basis.

6) Hence, AO's action of rejecting books of accounts in terms of Section 145(3) and assessing income u/s 44BBBon presumptive basis was not justified. [2017] 77 266 (Ahmedabad - Trib.)

6 months investment period given under sec. 54EC should be treated as six British Calendar Months


a) Assessee earned long-term capital gains from sale of his ancestral property on 3-10-2008.

b) He invested amount of capital gains in REC bonds and claimed deduction under section 54EC.

c) Assessing Officer (AO) held that since the investment in the specified securities as stipulated under section 54EC was not made on or before 12-4-2009, i.e., within six months from the date of transfer of the property, the assessee was not entitled to claim deduction under section 54EC.

d) Commissioner (Appeals) upheld the order of AO. Aggrieved-assessee filed the instant appeal before Tribunal.

The Tribunal held in favour of assessee as under:

1) Section 54EC clearly stipulates that the investment has to be made in specified long term assets within a period of six months after the date of transfer of the original asset.

2) The word "month" is not defined under the Act, thus it has to be reckoned according to British Calendar in terms of section 3(35) of the General Clauses Act, 1897.Hence, six months period should be reckoned from end of month in which transfer took place.

3) REC bonds were subscribed by the assessee on 24-4-2009 and were allotted to the assessee by REC on 30-4-2009 which is within six months after the date of transfer of asset as per British Calendar month.

4) Since assessee fulfilled the conditions laid down under section 54EC, he was eligible for deduction under section 54EC.[2017] 77 174 (Mumbai - Trib.)

AO couldn't expand scope of special audit for those years which weren't specified in show cause notice: HC


a) Several firms converted into 5 companies, which amalgamated with assessee-company on 30-3-2012.

b) For year 2012-13, Assessing Officer found that properties of assessee-company had undergone multiple revaluation. Having regard to nature and complexity of accounts, he found it necessary to get the accounts audited by Special Auditor.

c) However, Assessing Officer(AO) ordered for special audit not only concerning financial year 2012-13 but also for financial year 2009-10 and also called for special audit of erstwhile firms and companies. However, there was no proposal in show-cause notice as to expanding scope of special audit for other years or for erstwhile firm and companies.

d) Aggrieved by the order of AO, assessee filed the instant writ before the High Court.

The High Court held in favour of assessee as under-

1) Insofar as the direction for auditing the company's account for the financial year 2012-13, same is backed by proper materials on record and reasons recorded by the Assessing Officer  Therefore, his formation of the belief that looking to the complexity and volume of the accounts, a special audit was called for, cannot be faulted.

2) However, in the impugned order, AO expanded the scope of special audit and directed the special audit not only for the financial year 2009-10 in case of the assessee, but also called for special audit of various other entities for number of years without any proposal in the show cause notice. 

3) It was held that where there was no proposal in show-cause notice as to expanding scope of special audit for other years or for erstwhile firms and companies, AO could not call for special audit in respect of same - [2017] 77 162 (Gujarat)

CCI imposed Rs. 135 crore penalty on Toyota, Nissan and Ford for restricting sale of spare parts


i. The informant alleged that genuine spare parts, diagnostic tools, software and technological information were not made available by the car manufacturers (i.e., Toyota, Nissan and Ford) to independent repair workshops (those which were not among authorized service centers of the car manufacturer).

The CCI held as under:

a. Toyota, Ford and Nissan were abusing their dominant position by imposing unfair conditions in nature of restrictions on purchase or sale of spare parts to independent automobile service providers.

b. Further, car manufactures were to be directed to remove all restrictions imposed on original equipment suppliers. Accordingly, CCI imposed Rs. 135 crore penalty for restrictive trade practices. [2017] 77 88 (CAT)

Participation by one Co. in management of other won’t create AE if Sec. 92A(2) criteria isn’t fulfilled

Section 92A(1) lays down the basic rule that in order to be treated as associated enterprise one enterprise, in relation to another enterprise, participate, directly or indirectly, or through one or more intermediaries, "in the management or control or capital of the other enterprise".

Section 92(A)(2) only provides illustrations of the cases in which such an enterprise participates in management, capital or control of another enterprise. In other words, what Section 92A (1) decides is the principle on the basis of which one has to examine whether or not two or more enterprise are associated enterprise or not. The principle is as long as an enterprise participates in any of the three aspects of the other enterprise, i.e. (a) management; (b) capital; or (c) control, these enterprises are required to be treated as associated enterprise, as also is the position when common persons participate in management, control or capital of both the enterprises.

However, the expression 'participation in management or capital or control' is not a defined expression. To find the meaning of this expression, one has to take recourse to Section 92(2) which gives practical illustrations, which are exhaustive and not simply illustrative.

Section 92A(2) governs the operation of Section 92A(1) by controlling the definition of participation in management or capital or control by one of the enterprise in the other enterprise. Mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) of Section 92A are fulfilled”. - [2017] 77 127 (Ahmedabad - Trib.)

Apex Court dismissed writ against PMGKY scheme


a) Petitioner has challenged the PMGKY scheme and it argued that there should not be any provision for penalty and surcharge, withholding of income under PMGKY scheme. 

The Apex Court held as under:

i) This Court could not enter into or encroach upon the policy making arena and suggest a dismissed - [2017] 77 51 (SC)

No winding-up due to non-payment of professional fee which was disputed on ground of incomplete services


i. Petitioner-firm entered into a contract for providing architectural design services for construction of building.

ii. There were disputes for which the petitioner's services were not continuously engaged by the respondent-company. Further, petitioner had asked for his professional fee.

iii. Respondent - company had denied its liability to pay the professional fees on the ground that the petitioner firm had not given complete services. For repayment of its dues, petitioner had filed winding up petition against the company.

The High Court held as under:

a) It appears that the agreement between the parties about the providing of 'Professional Services' cannot be said to have a smooth sailing. Further, no final 'admitted liability' crystallized in favor of the petitioner - firm towards its professional services.

b) Winding-up petition couldn’t be exercised against a solvent company, if the liability of the respondent-company towards the 'Professional fees' was under bona fide dispute. - [2017] 77 32 (Karnataka)

Secured creditors could realise their dues even when claims weren't lodged with liquidator: HC

a) The Court ordered sale of secured properties of Borrowers Company by public auction. Later on, company was ordered to be wound up but the Bank opted to remain outside the winding up, as secured creditor.

b) Secured creditors submitted that no part of surplus amount could be paid to the unsecured creditors as long as there is an unpaid balance amount due to the secured creditors.

c) Official Liquidator argued that the secured creditors who opted to remain outside the winding up were not entitled to surplus amount for realizing their dues a􀁺er date of winding up.

The High Court held as under:

i. Official liquidator was not justified in holding that payment of interest was to be made only to such parties whose claims were admitted and adjudicated by him and not to those creditors who remained outside the winding up

ii. Secured creditors were entitled to surplus amount for realizing their dues and interest earned thereon after date of winding up, even though all claims against company including that of unsecured creditors were not satisfied. - [2017] 77 25 (Bombay)