What is business
2(13)-includes trade/commerce/manufacture or adventure/concern in nature thereof.Supreme Court-KarnaniProperties 82 ITR 547-activity carried on continuously in organised manner with a set purpose to earn profitsCommon controversies-transactions in shares/commercial complexes/development of real estate/sale of capital assets.
Supreme Court: Associated Industrial Development (82 ITR 586): Whether investment/stock-within knowledge ofassesseewho should produce evidence of having maintained the distinctionLarge number of decisions, without any clear direction- 16 taxmann.com 204 (Ahmedabad - Trib.)-SugamchandC. Shah looks like a treatise on the subject.Various criteria stated. Number of transactions and period of holding appear to be dominating.
Shares : Other considerations
Frequency of transactionsWhether staff and office maintainedWhether used own or borrowed fundsHow asset shown/valued in books-stock or investmentObjects in Memorandum of AssociationTreatment in previous years.Occupation ofassessee-say broker
Supreme Court-S. G. Mercantile Corporation P. Ltd.-83-ITR -700- Ownership and leasing-can be as a part of business or as land-owner depending on the object.In that case: Object clause-lease/acquire property and deal with it commercially- Took property on lease, repaired/remodelled and let out portions as shops etc-held business.
Following may constitute single businessTrading combined with manufacturingDifferent products manufactured by same company.Manufacturing units at different locations.Veecumsees(SC-220 ITR 185)
Although part of same business, new factory may be New undertaking for incentive provisions like 80IA/IC-HindusthanMalleablesAnd Forgings Ltd-(191)-ITR -0070 -PATSubstantial expansion could be new undertaking. Textile Machinery case  107 ITR 195 (SC)-Indian Aluminium -(108)-ITR -0367 -SC
Suspension for a temporary period (could be many years) –business considered continued:-PrayshwinPatel(240 ITR 931)-Vellore Electric Corporation Ltd.(243 ITR 529)-BhagwatiRerolling Mills(211 ITR 227)-Medley Pharmaceuticals Ltd.(109 TTJ 328).
Receipt escaping tax net when:It is on transfer of capital asset (Although relating to business) –Carbon credits- Hyderabad Bench in case of My Home Power Ltd. 21 ITR (TRIB) 186It is not a revenue receipt-Reliance Industries Ltd.2011-(339)-ITR -0632 -BOM/PonniSugar(306 ITR 392) (SC)/Inox Leisure(351)-ITR -0314 -GUJ
Deductions not listed in Act allowable under section 28:Embezzlement 34 ITR 10-SCAdvances for raw materials written off-46 ITR 639Loss or decline in value of stock in trade- 55 ITR 707Stocks acquired by gift/Conversion 45 ITR 152Discounted value of gratuity/leave/warranty-SC-73 ITR 53-Metalbox,RotorkControls India P. Ltd. (314 ITR 62)Damages for breach of contract-144 ITR 57
Export incentives- only after claim verified by authorities.SriyanshKnitters P. Ltd.(336 ITR 235) andManavTools(India) P. Ltd. (336 ITR 237) . Contrary to earlier decisions including Bajaj Auto Limited( 322 ITR 29).Department should not agitate as no effect if taken in one or other yearNagriMills Ltd. -33 ITR 681
Stocks in Balance Sheet and bank statement
-CIT V.VeerdipRollers P. Ltd. 323 ITR 341 (Guj)-SLP of Department dismissed 307 ITR St. 3-Ashok Kumar V. ITO 201 CTR 178 (J & K)-Commissioner Of Income Tax V. Das Industries. 2008-(303)-ITR -0199 –ALL-CIT V. N. Swamy-242 ITR 363(Madras)-CIT V.RelaxoFootwear- 259 ITR 744(Rajasthan)-CIT V.SidhuRice and General Mills- 281 ITR 428(Punjab and Haryana)- Commissioner Of Income-Tax V.AcrowIndia Ltd. 298 ITR 0447 -BOM
Income found in Survey
May be considered to be business income for 40(b)/ 80IA etc.Income-tax Officer V.JamanadasMuljibhai(99 TTJ 197)-RajkotRoyale Sunrise V. Income-tax Officer (99 TTJ 1305)-Bangalore.
Gross profit decline
Narendra Mafatlal Mehta V. Income Tax Officer-59-TTJ -0165 Mumbai Bench-gross profit bound to changeAhmedabad BenchPushpanjaliDyeing and Printing Mills P. Ltd.(72 TTJ 886). –No addition when no defect in books-Delhi Securities Printers V. Deputy Commissioner Of Income-Tax, Circle 33(1), New Delhi 2007-(015)-Sot -0353 -Tdel-Commissioner Of Income-Tax V.RajniKant Dave. 2006-(281)-ITR -0006 –All-AshokeRefractoriesP. Ltd. V. Commissioner Of Income-Tax. 2005-(279)-ITR -0457 -Cal
Car in name of Directors-Not allowed in case ofEdwiseConsultants Pvt Ltd- ITA No.391/Mum/2011-Mysore Minerals Ltd. v. CIT (1999) 106 Taxman 166 (SC) distinguishedCar purchased last day of the year but not registered- allowed as `ready to use’  31 taxmann.com 228 (Delhi)-K and Co.Additional depreciation allowed in case of windmill when power used for manufacturing unit- I.T.A. No.1945 /Ahd/2010- Power build Ltd
Interest free loans to relatives
No disallowance when capital and reserves in case of a company exceed the loans:- Supreme Court in case of Munjal Sales Corporation V. CIT (298 ITR 298).- Ahmedabad Bench of ITAT in case of Torrent Financiers(73 TTJ 624).-Allahabad High Court in case of CIT V. Motor Sales Ltd.(304 ITR 123).- Madras High Court in case of Commissioner Of Income-tax V. South India Corporation (AGENCIES) LTD. 290 ITR 217.-Allahabad High Court in case of CIT V.RadicoKhaitanLtd.(274 ITR 354). 2009-(029)-SOT -0531 -TBOM- Metro Exporters Ltd. V. Income-tax Officer, ). 2009-(029)-SOT -0531 –TBOMNo addition when borrowed funds not used 36 taxmann.com 14 (Gujarat) -ArihantAvenue & Credit Ltd.
T. R. F. LIMITED, APPELLANT V. Commissioner Of Income Tax -2010-(323)-ITR -0397 –SC- not necessary to establishirrecoverability. It is enough if the bad debt is written offAnil H.Rastogi(86 ITD 193)- bad debt within short period from the date of sale.
Advance for capital expenditure written off- not revenue 231 ITR 842-SC-HasimaraExpenditure to ward off competition for 15 years-not revenue-221 ITR 299-MP-GroverTotal renovation resulting in enduring benefit-capital –Supreme Court -BallimalNavalKishorV/s. CIT 224 ITR 414
Feasibility report for converting coke plant to cement plant-Revenue-221 ITR 90-PatnaRaychem RPG Ltd. (346 ITR 138)-Bombay: Expenditure on ERP package -RevenueRepairing increases life of existing asset-not capital expenditure  36 taxmann.com 19 (P & H) -Vishal Paper IndustriesGujarat High Court -Indian Ginning & Pressing Co. Ltd. V. CIT (170 CTR 122- change in flooring/ sheets of roof, removal of pillar, new cabin, etc allowed as no new asset came into existence.
CIT V.Chowguleand Co. P. Ltd. (214 ITR 523), Bombay -allowed large expenditure of Rs. 9952440/- about 25 years earlierExpenditure on replacement of certain parts allowed (CIT vs.MahalakshmiTextile Mills Ltd. 66 ITR 710)-SC.Renovation and reconditioning allowed-KalyanjiMavji& Co. vs. CIT 122 ITR 49). SCExpenditure on Pipelines, Installations which belong to Government –allowed-1988-(172)-ITR -0257 -SC -Associated Cement Companies
Bogus bills of suppliers
Allowed if the goods received and sold but the supplier is not identifiable.CIT V. M K. Brothers(163 ITR 249), Gujarat High CourtShreerajIndustries, ITA NO.2341/Ahd/1996, the Ahmedabad BenchVijay proteins 58 ITD 428J R Solvent 63 TTJ 165BansalSteel 92 Taxman 314Ghanshyam107 Taxman 126
Self made vouchers sufficient- Delhi Bench of ITAT in case of ACIT V. Allied Construction (106 TTJ 616)Lumpsumdisallowances deleted:-MahendraOil Cake Industries (P.) Ltd. v.Asstt. CIT (55 TTJ (Ahd) 711) disallowance of1/4th of foreign tour expenditure-GeetanjaliWoollens(P.) Ltd. (050)-TTJ -0019 –TAHD-MonachFoods Pvt. Ltd. -(054)-TTJ -0405 –TAHD-Coca-Cola India Ltd. 2006-(104)-TTJ -0254 –TPUN-Hughes Escorts Communications Ltd. 106)-TTJ -1065-NodiExports 2008-(117)-TTJ -0913 –TDEL
Nodisallowanncefor expenses relating to investment in companies for commercial purpose -Oriental Structural Engineers, Delhi ITA 605/2012Large investments in mutual funds- ½ % under Rule 8D confirmed by ITAT Ahmedabad in case of Munjal Auto Industries.Expenses relating to shares held as stock in trade ITA No.3029/Mum/2012-DamaniEstates & Finance- disallowance to be scaled down to 20% considering that the shares will give rise to income which is taxable as well as not taxable. 20% considering that the turnover would be about 5 times. 32 taxmann.com 370 , High Court OfGujaratin case ofUTI Bank Ltd:whereassesseehad sufficient interest free funds, tax free investments presumed interest free funds
Delhi High Court- Appeal No. 65/2013 -RajinderKumar –relaxation allowing paymentuptodue date for return-retrospective.APPEAL No. - 122 of 2013-Vector Shipping Services(P) Ltd,Allahabad High Court–no disallowance when the expenditure is paid and not payable
No allowance if tax not deducted originally but later debited to the party or paid from own pocket. ITAT Rajkot Bench in case ofBhoomiConstruction in IT APPEAL NO. 601 (RJT.) OF 2012TDS by agent-no TDS again by principal. Also no TDS on reimbursements35 taxmann.com 638 (Gujarat) -GNFCDeduction at lower rate : No/proportionate/full disallowance
40A(2) and Interest
Empire Motors in ITA No. 1272/AHD/2007 -21% allowed.InManishaDyeing & Printing Works:I.T.A. No. 3600/AHD./2007 18% allowed.In case ofKamalnayanS. Shah V. ACIT [I.T.A No. 3130/Ahd/2008], market rate is considered to be between 20% and 24%.
Cash deposit byassesseein bank account of supplier: allowed in Smt. Shelly Passy-Punjab 350 ITR 227 but not allowed inVenkatadhriConstructions (2012) 80 DTR 363 (Mad)Applies even if income is estimated-SaiMetal Works-Income-tax Appeal No. 125 of 2004-Punjal
Late deposit of PF of employees
Commonly added and deleted in appeal.Large number of decisions of Ahmedabad Bench of ITAT and High Courts. Example: Gujarat Containers Limited (ITA NO.2609/Ahd/2008 )SabariEnterprises-2008-(298)-ITR -0141 -KARCIT V. P.M. Electronics Ltd.- 220 CTR 635-Delhi High Court
Taxes not debited to profit and loss account - no disallowance under section 43B in case ofElectricity duty 329 ITR 91Service tax 305 ITR 324Luxury tax 35 taxmann.com 565
Discovery Estates P. Ltd. 356 ITR159-sale ofdifferent shops on same floor at different rates, ranging from Rs.2300/- to Rs.6000/-. No addition in absenceof evidenceSection 80IB(10)-new conditionswith effect from 1-4-2005.Not applicable to projects approved prior to that date-Gujarat HighCourt-MananCorporation (356 ITR 44)