1st Puzzle

A candidate is participating in Kaun Banega Crorepati known as KBC and wins Rs. 50 Lakhs. At that stage he gets a choice whether to continue further or not. He can go home with Rs. 50 lakhs. It means, income of Rs. 50 lakhs has already accrued to him at that stage. Is it liable for tax at that stage even if he continues?

Suppose he continues and looses and remains eligible for prize only of Rs. 3,20,000/- while contesting for Rs. One crore. In this situation, he is not eligible for deduction of earned income of Rs. 50 lakhs in view of specific provision of section 58(4) of I T Act.

The question is : will he be liable for tax on Rs. 3,20,000/- or on Rs. 50 lakhs?

Puzzle 2

1. An assessee is having agriculture as the only source of income for which he maintains regular books of accounts. In such books of accounts, there is a cash credit which is undisputably unexplained.

(a) Whether such cash credit will be agricultural income as per agricultural income tax Act of the relevant State.

(b) If not, under which head of income it will be assessed under Central Income Tax Act?.

(c) Whether such unexplained cash credit would still be income even if book results are rejected u/s.145 of the I.T. Act.

(d)Suppose the assessee has loss from some business, whether such loss can be set off against unexplained cash credit income.

puzzle 3

3. An assessee has choice to maintain accounts either on cash or on mercantile basis if the income is from business. Salary and interest to partners are assessable under the head 'income from business'. The assessee argues that he maintains his accounts on cash basis and since he has not withdrawn salary and interest from the firm, they cannot be his taxable income till he actually receives them in cash. Thus he postpones taxation of his income. Is it legally correct.

Puzzle 4

C of Chennai deposited Rs. 50 lakhs in cash in his saving bank account and gave a loan of Rs. 50 lakhs to D of Delhi. C could not prove his source of Rs. 50 lakhs. D also could not prove the capacity of C to give loan.

AO of D at Delhi made addition of Rs. 50 lakhs u/s 68 in the assmt of D which was confirmed in first appeal.

AO of C also made addition of Rs. 50 Lakhs u/s 69 in the hands of C which was also confirmed in first appeal.

Appeals of Both D and C are pending respectively in ITAT Delhi and Chennai.

Which appeal should be confirmed?

In ITAT Delhi

in ITAT Chennai

Both

PUZZLE 5

An assessee had shown taxable wealth of Rs. 50 lakhs in the form of one piece of land. The WTO has referred the same to valuation officer for valuation. The Valuation Officer however valued the same at Rs. 30 lakhs only. At what value the assessment should be made?

6th puzzle:

As per some decisions of Honble SC, additional claim can be made by the assessee for the first time before the ITAT?. If such claim is so made and it is found that the claim is false or unsustainable or contains inaccurate particulars, who will levy penalty u/s 271(1) (c )?

AO

ITAT

None

Such claim cannot be made hence question does not arise..

7th Puzzle

C of Chennai deposited Rs. One crore in bank and gave a cheque of the said amount to D of Delhi for a loan. C had no capacity to deposit money in the bank and he could not prove the source of money.

It was treated as unexplained cash credit u/s 68 in the case of D. addition and penalty u/s 271(1)(c ) were confirmed by ITAT and HC.

Later on D repaid the amount to C in Jan. 2011.

Will it be assessable in the hands of C as gift u/s 56(2) of the I T Act?

Answer: 7th puzzle ,

If finding of AO of D under section 68 is that the money had actually belonged to D and C was only a name lender; then repayment by D to C would amount to gift assessable in the hands of C u/s 56(2) in the year of repayment.

If there is no such finding that is if only finding is that C had failed to prove his capacity to give loan, then apart from D being assessed u/s 68 of the IT Act, C would also be assessed u/s 69 of the IT Act for the year in which amount was deposited in his bank account.

If above view is not accepted, it would amount to allowing C to convert his black money into white without paying any tax and such interpretation would suffer from absurdity. This is settled rule of interpretation that absurdity should be avoided. C has Rs. One crore in white through these transactions and he must be subjected to tax somewhere on that amount irrespective of what has happened to D.

Puzzle 8

There is absolutely no basis for assessee to claim deduction u/s.80IB. He has furnished entire particulars regarding income and deduction. No fact was concealed. Still he had made the claim. Whether penalty u/s 271(1)(c) can be levied for such a claim which is patently incorrect.

Puzzle9

As per incentive scheme of sales tax department of govt. of Maharashtra, Sales Tax payable is deferred for about ten years and is converted into sales tax loan.

As per circular of CBDT, section 43B would not be invoked on such sales tax if it is converted into loan.

The question is whether such amount still remaining payable after conversion into loan is:

Sales tax payable and therefore a trading liability, or

Loan payable and therefore a capital liability;

For the purposes of IT Act 1961, and

Also for the purposes of presenting in B/S.

The following important facts are to be kept in view:

Department of sales tax is not basically a loan giving department.

Even if sales tax is converted into loan, it is still recoverable as an arrear of land revenue; as if it is sales tax recoverable.

The amount of loan liability automatically gets reduced if sales tax liability is reduced in appeal/ revision/ rectification/ review etc.

10th puzzle

There was a cash credit of Rs. One crore in the books of Mr. Ram on 1st july 07. In Aug. 07 , the AO made enquiries about this cash credit and the assessee stated it to be genuine cash credit. The department continuously pursued the inquiries about this cash credit and all the time the assessee took the stand that the cash credit was genuinely obtained.

The relevant assessment year is 08-09 and the assessee did not pay any advance tax on this amount of Rs. One crore; obviously on the stand that the cash credit was genuine. The assessee made payment of self assessment tax taking income without including the income of Rs. One crore, but had not filed the return of income.

Then the matter was pursued by investigation wing by way of enquiry. The assessee then surrendered and admitted cash credit to be bogus. He paid self assessment tax in respect of cash credit and filed return of income showing Rs. One crore as income from unexplained sources in addition to his normal other income.

Whether the assessee is liable for penalty u/s 271(1) (c ) of the I T Act in respect of unexplained cash credit.

PUZZLE NO.11

Mr Ram has got FD of Rs.50 lacs. He earns annual interest thereon. He had prematurely encashed the FD and given as interest free loan to his friend Mohan and Mohan is now earning the interest income. The FD in the hands of Ram was out of his own funds; and not out of the borrowed funds.

Whether income earned by Mohan of Rs.50 lacs can be treated as income of Ram u/s 60 of the Income-tax Act, 1961.

Puzzle 12

In the case of a company assessee, the assessing officer found that the expenditure of Rs. One crore shown in the books of accounts were bogus. On enquiry, the assessee surrendered additional income of Rs. One crore, admitting the expenditure to be bogus. Can this amount be added in the book profit for the purpose of computing MAT under section 115JB?

PUZZLE NO.13

One state government started a housing scheme for its officers and developed a colony. The government offered residential plots to its officers at the rate of 12 lacs. The market value of the plot was Rs.20 lacs. Since officers were to get the plots at a much cheaper rate, a large number of officers applied for the plot. But the government was not in a position to give plots to all the applicants. The government, therefore, decided to allot the plots by lottery.

The question is whether winner of lottery is liable to tax on Rs.8 lacs (being the difference between the market value of the plot and the rate at which the plot was given) as income from lottery.

PUZZLE NO.14

The assessee took a number of adjournments before the CIT(A); resulting in delay in disposal of appeal for two years. This has resulted in delayed refund to the assessee; because the CIT(A) had allowed the appeal.

Whether interest u/s.244A is allowable to the assessee for the period for which adjournment was taken.

PUZZLE NO.15

The assessee had set up a wind mill for Rs.10 crores and debited 80% of depreciation in the books that is the rate at which IT Act allows depreciation; and not the rate as per the Companies Act.

The wind mill has a useful life of 20 years and, therefore, reasonable amount of depreciation can be 5% that is only of Rs.50 lacs.

Can it be said that excess depreciation debited in the books than what is warranted as per the fall in the value of the asset, and supported by the rate of companies Act be treated as SECRET (Hidden) RESERVE as per accounting concept? Whether secret reserve can be added in the book profit u/s.115JB as any other reserve debited in the P & L A/c.

Puzzle 16

The assessee incurred Rs. 50 lakhs which are eligible for deduction u/s 35D. Out of this Rs. 20 lakhs were incurred in cash and section 40A(3) is attracted. Whether deduction u/s 35D would be 20% of Rs. 50 lakhs; or 20% of Rs. 30 lakhs.

Puzzle 17

Rule 28 of ITAT Rules 1963 reads as under:-

R. 28 Remand of the case by the tribunal: Where the tribunal is of the opinion that the case should be remanded, it may remand it to the authority from whose order the appeal has been preferred or to the income tax officer with such directions as the tribunal may think fit.

The learned authors Chaturvedi and Pithisaria has in their book INCOME TAX LAW Fifth edition stated that the words Income Tax Officer should have been substituted for the words Assessing Officer.

Section 254(1) which provides for the powers of ITAT reads as under:

The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

Thus section gives very wide powers to the ITAT.

The question is whether the ITAT can remand the case to assistant / deputy / Joint / Additional commissioner of income tax; if AC/DC/ JC/ Addl.CIT had passed the order.

Puzzle 18

If the roof of building is let out for microwave towers; whether this is income from House property, or income from other sources.

Puzzle 19

Assessee is a jeweller. He prepared inventory of gold jewellery as on 31-3-09 and it was 10 kg. The inventory was duly signed by the assessee and the stock was higher by one kg than what was the balance as per stock register.On 15th may 09, there was search and stock found was more by one kg than what was shown in the stock register. This inventory was also seized. Whether undisclosed income of one kg gold jewellery is assessable in AY 09-10 or AY 10-11

pavan ved

Puzzle 20

The assessee is a builder. He sold all the flats at Rs. 25 lakhs each. On each flat sold, he took on-money of Rs. 10 lakhs. He honestly entered on-money taken, in the account books and increased his profit accordingly. He is claiming 100% deduction u/s 80IB(10) on such on-money.

Whether such deduction is allowable.

Puzzle 21

Document price of a residential house is Rs. 25 lakhs. Stamp authority valuation is Rs. 35 lakhs. The assessee has shown Rs. 10 lakhs as on-money on sale in the return. Whether this on-money is assessable under the head capital gain.

Puzzle 22

In course of search , excess cash and stock found were of Rs. 20 crores. The assessee installed wind mill of Rs. 25 crores and claimed 80% depreciation. Can undisclosed income by way of excess stock and cash be set off against depreciation?

Puzzle 23

Revenue audit objection was not accepted by the AO. Can he reopen the assessment as a precautionary measure?

Puzzle 24

The AO passed assessment order as under:

The assessee filed return showing income of Rs. Ten Lakhs. In response to notice, the assessee appeared and produced books of accounts. After examining the books, I find it fair and reasonable to assess the total income at Rs. 25 lakhs.

In response to such assessment order, the assessee filed rectification application before the AO u/s 154 of the I T Act and argued that it is settled law that burden of proving the income is on AO and the AO has not discharged the burden; the addition was without any basis and that the assessee was not given opportunity to explain as to on what basis addition has been made.

The question is; whether the addition is liable to be deleted in rectification proceedings.

Puzzle 25:

The AO passed assessment order as under:

The assessee filed return showing income of Rs. Ten Lakhs. In response to notice, the assessee appeared and produced books of accounts. After examining the books, I find it fair and reasonable to assess the total income at Rs. 25 lakhs.

The assessee filed appeal against such order. The question is; whether CIT(A) can sustain the addition after examining the accounts in detail and detecting justification for making the addition.

Puzzle 26:

Under section 154(7) of I T Act, any order can be rectified within four years. u/s 154(1), intimation is not an order. Does it mean that there is no time limit for rectification of intimation?

Puzzle 27:

ITAT can rectify its order within four years. The relevant section is as under:

Section 254(2): The appellate tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake from the record , amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assess or assessing officer"

Does it mean that time limit of four years is applicable to ITAT only for suo moto rectification and not on rectification requested by any of the parties?

puzzle 28

The AO passed assessment order as under:

"The assessee filed return showing income of Rs. Ten Lakhs. In response to notice, the assessee appeared and produced books of accounts. After examining the books, I find it fair and reasonable to assess the total income at Rs. 25 lakhs.

Against this order, the CIT(A) is to decide appeal. what would be his decision if the appeal is to be decided ex-parte?

Puzzle 29

As per section 372A of Companies Act, the loan can be given by a company to certain other companies at a minimum particular rate of interest. Can income from interest be assessed at such interest rate if the loan is interest free in violation of Companies Act ?

puzzle 30

As per apex court's decision in the case of ITO Vs. ch. Atchaiah 218 ITR 239, the AO is to assess income in the right hand and assessment made in wrong hands is immaterial. Does it mean that concept of protective assessment is irrelevant after this decision?

puzzle 31

X Ltd. is a newly promoted company. It issued both equity and preference shares. It issued 50 lakh irredeemable preference shares of Rs. one at a premium of Rs. one thousand by private placement by one single party for which there was absolutely no justification for so much premium. The fair valuation of such share is Rs. one only. Therefore the AO held that the nature of credit by way of premium in books is not correct. He invoked section 68 and made addition of premium. Is AO right?

Puzzle 32

CIT(A) rejected AO's request for enhancement of assessed income and AO is in appeal before ITAT. Can ITAT enhance income in such situation?

Puzzle 33

Premium of Rs. 1000/- on preference shares of Rs. 1/- was added by AO in the hands of company issuing shares. on the ground that the assessee failed to offer explanation for such high premium. This share premium was added as income u/s 68 of IT Act and confirmed by ITAT. In penalty proceeding u/s 271(1)(c ) also; the assessee could not offer explanation / justification for such premium. Whether penalty justified.

Puzzle 34

X holds one lakh equity share of face value of Rs.10/- each in ABC Ltd. In view of heavy losses, the company reduced its share capital. Accordingly the face value of share was reduced to Rs. 5/-. X argues that his right in share has partially extinguished and therefore it is transfer within the meaning of section 2(47) of IT Act. He is claiming loss under the head capital gain. Is X right? answer should be with reason/s.

puzzle 35

Mr. Ram incurred loss of Rs. 50 lakhs in F&O of shares in AY 04-05 and it was speculation loss as per law of AY 04-05. He earned profit of Rs. 50 Lakhs in share F&O in AY 07-08; in which year it was not speculation profit, but business profit, because of amendment in IT Act. Since nature of business is exactly same, Mr. Ram claimed set off of loss of AY 04-05 from profit of AY 07-08. Is such set off allowable? Answer should be with reasons.

Puzzle 36

Whether provisions of section 143(2) are applicable in proceedings u/s 153A. Give reasons also.

Puzzle 37

The assessee aged 50 years left India on 25 May 2008 for Dubai. He had never been abroad earlier in his life. On 12 June 2008, he died in Dubai. Thus he did not satisfy mandatory condition of being in India for 60 days. Was he non-resident for FY 08-09?

Puzzle 38

An Ex-minister of state govt. was treated at the cost of Govt. and govt. spent gratuitously Rs. 30 lakhs. Whether this is taxable as perk /under the head salary from ex-employer.

whether it is taxable as gift u/s 56?

Puzzle 39

Whether assessment is liable to be annulled if notice u/s 143(2) is not issued but assessment is completed within the time upto which notice u/s 143(2) could be issued, by issuing notice u/s 142(1).

Puzzle 40

Whether provisions of limitation given in section 143(2) would be applicable if return of income in response to notice u/s 148 is furnished after the time allowed in the notice.

Puzzle 41

Whether depreciation can be disallowed u/s 40A(3) ; if payment for purchase of asset is made in cash and not by cheque.

Puzzle 42

Whether return filed in response to notice u/s 153A can be revised.

Puzzle 43

The AO made addition on point 'X'. The assessee filed appeal. Later on, AO deleted addition u/s 154. The assessee therefore requested to withdraw the appeal. The CIT(A) wants to make enhancement because in his opinion order u/s 154 passed by AO was incorrect. Can he make enhancement?

Puzzle44

Whether, in view of the specific wordings of section, provisions of section 40(a)(ia) are applicable only to those expenditure which are 'payable' and are not applicable to expenditure which are 'paid'.

Puzzle 45

U/s 40(a)(ia), certain expenditure are not allowable, if TDS is not made; and are allowable in any subsequent year in which TDS is made. If TDS is made after two years, how the payee would get credit?

puzzle 46

U/s 40(a)(ia), certain expenditure are not allowable, if TDS is not made; and are allowable in any subsequent year in which TDS is made. Whether disallowance is not to be made if the payee has paid his part of tax in time as advance tax or as self assessment tax; before the due date of filing return by the payer assessee.

puzzle 47

U/s 40(a)(ia), certain expenditure are not allowable, if TDS is not made; and are allowable in any subsequent year in which TDS is made. In subsequent year, the payee is not alive. How the assessee would get deduction.

Puzzle 48

The assessee owns a flat with carpet area of 1000 sq. ft. in an old building. In a scheme of reconstruction, one builder reconstructed the building and gave the assessee a reconstructed new flat with carpet area of 1300 square ft. and cash amount of Rs. 10 lakhs; in exchange for the old flat on the same land. In return, the builder availed extra FSI for self. whether the assessee would be liable for capital gain because the arrangement amounts to exchange of old flat and FSI benefit; with new flat and cash.

Puzzle 49

Rate of depreciation on Plant in AY 04-05 was say 25% and the assessee purchased plant of Rs. 100 Crores. However rate of depreciation was reduced to 15% in AY say 06-07. Assessee claims that 15% rate of depreciation would be applicable only in respect of those plants which are purchased in AY 06-07 and not for the plants which were already purchased in AY 04-05. Is assessee right. Does assessee have vested right in 25% rate of depreciation in the plant which were purchased in the year when the depreciation rate was 25%?

Puzzle 50

On a company assessee, the AO raised additional demand of tax and interest of Rs. 20 crores in respect of income under the head capital gain on sale of land. The CA, who is not very eminent, charged a fee of Rs. two cores for contesting before CIT(A). He won the case. The CA spent about 20 hours in preparation and two hours for appearing. Whether fee of Rs. two crore is allowable in the hands of company.