Court – Room Exercise

Semester VIII

Subject: Direct Taxation

INDEX

Sr No Moot Propositions Date Page Number

1 Proposition – 1 15th May, 2017 1

2 Proposition – 2 16th May, 2017 2

3 Proposition – 3 17th May, 2017 4

4 Proposition – 4 18th May, 2017 5

5 Proposition –5 19th May, 2017 6

6 Proposition – 6 20th May, 2017 7

Session: February – June 2017

NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW, RANCHI

 Direct Taxation
Moot Proposition – 1

Raghunath ganj is a very famous place for historical tourism industries comprising of three tourist
spots Visakha, Varnala and Vivandhara of Mahanata city. Surya, an individual by profession self-
employed is resident of Mahanta city having 10 acres agricultural land what he acquired by
succession and what was actually a gift from the king of the area,i.e. Raghunathganj to his
forefather in 1975. One day surya receives a notice of acquiring his 10 acres land from
Improvement Trust and subsequently the Improvement trust acquires the land by providing 3
crores Rs. as compensation to Surya. After receiving the compensation, Surya receives a demand
notice by the AO of the Income tax that as the assesse receives a bulk amount of money pertaining
to acquiring so he can be taxed u/s 45 of the Income Tax Act, 1961. Then after Surya Contended
that since the land was gifted to the assesseeee by the King of Raghunath Ganj, the cost of
acquisition of the said land was the same as that was in hands of the King. Since the King did not
incur any cost, the land was not chargeable to tax under section 45 of the Income tax Act. The
assessing office rejected the plea stating that he had done justice by resorting to the market value
of the land of the time of 1975.
Being aggrieved by the decision of the AO, Surya moved to appeal where his claim was sustained.
On the Other side, the IT authority they are planning to do appeal.

Issues:
What is the jurisdiction in either case? (in the case of assesse and in the case of revenue)
Whether AO is justified in his decision?

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 Direct Taxation
Moot Proposition – 2

Ravi is a great businessman of his area kanke . He has a vast domain of business relating to Cement
and Wood .He used to do a bulk amount of monetary transaction with several bank as well as
parties (i.e. different buyers/customers) across his area in course of his business. The assessee used
to file his income tax return in individual capacity for each and every assessment year. The assesse
filed her return for the A.Y. year 2015-16 on 24-09-2016 through e filling on a total income of
Rs.(INR)5,45,706.00/-.The return was selected for scrutiny u/s143(3) after taking necessary
approval from the appropriate authority under the Income Tax .Accordingly, notice was issued on
22/11/2016 and served on the assessee on 29/09/2011.In compliance with which Advocate
SARKAR appeared on the case with power.

Thereafter, notice u/s 142(1) along with requisitions issued and served on the aseesee .Advocate
Sishodia appeared from time to time and heard.

1. The assesse had shown a turnover of Rs. 4,13,75,961/- and gross profit of Rs.4,91,893/- on a
Q.P ratio- 1.18% in F.Y-2009-10. Whereas in F.Y-2008-09 he had shown a turnover of
Rs.2,65,47,285/- and gross profit of Rs.5,38,551/- on a G.P ratio-2%.. The assesse was asked to
explain the decline. He explained that increase in turnover leads to decline in gross profit. Since it
is rule of the market keeping this in view the AO/ITO estimateS G.P ratio on1.5% which amounts
to Rs.6,20,693/.Hence the difference of gross profit Rs.1,28,800/- is added back to his total
income.

2. From the payment statement of Ideal High Pvt Ltd. It (A company in the assesses area with
whom the assessee made several transactions) evident that assesse had paid Rs. 23,69,450/- against
purchase of a flat from a builder.

Whereas the assesse had shown payment of Rs.1.3,01,670/-. Hence, the assesse was asked to
explain why the payment of Rs. 10,67,780/- should not be considered to be concealed income.
And the difference amount Rs. 13,01,670/- is added back to his total income and penalty
proceeding u/s 271(1)(c) for the same is being initiated separately.

3. The assesse had claimed Rs.12,53,984/- under the head Transport & Coolie charges in P/L
account. He was asked to produce supporting bill/vouchers in respect of said expenditure. He
failed to produce all the bills/ vouchers in support of his claim. Therefore I disallow 10% of the
expenditure so claimed i.e. Rs.1,25,398/- and add back the same to his total income.

The total income of the assessee is therefore is computed as under:

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 Net income shown as per return Rs. 5,45,706/-

Addition: As discussed (as per Para-1) Rs. 1,28,800/-

As discussed (as per Para-2) Rs I 0,67,780/-

As discussed (as per Para-3) Rs. 1,25,398/.

Total- Rs.18,67,684/-

After rounding off Total Income Computed at Rs. 18,67,680/-.

Assessed as above u/s- 143(3) of the 1.1'. Act'1961. Penalty proceedings u/s- 271(1)(c) had already
been initiated. Copy of order, Demand Notice and challan are being issued to the assessee.

ISSUE(S)

1. Whether the AO/ITO has the authority to initiate the scrutiny proceedings u/s143 and issuing
the notice u/s142?
2. Whether the penalty proceedings initiated is justified?
3. Whether the discrepancies amount which was shown by the assessee could be treated as
concealment of income at the hand of the assesse?

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 Direct Taxation
Moot Proposition – 3

Ramarajan a small farmer in the district of Guntur, Andhrapradesh having only 2 bighas of
cultivated land. He is poor and needy and always intending to overcome his financial crunch and
condition. One day he noticed a promulgating beneficiary scheme of the government wherein the
Government is encouraging the poor and needy farmer to revive their cultivation profession in
terms of culvating super shanakr mini kit rice and coffee by providing financial assistance and
technical aid in support. Thereof, being encouraged by the government ,Ramarajan took the
benefit and support from the government but instead of cultivating minikit rice he entirely
produced coffee and in some portion opium. But on paper he showed the produce of both rice
and coffee.
But unfortunately, He was red handed caught and the entire coffee and opium produced by him
was confiscated.
Ramarajan argued he did nothing wrong and ready to pay tax liability arising accordingly the
circumstances and situation.

Issue:
Which will be the adjudicating authorities?
How his liability can be ascertained?
Whether is there any conflict of law?

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 Direct Taxation
Moot Proposition – 4

BINOX a popular multiplex cinema hall in Magadhpura City of Rajasthan owned by Mr.C.Deora.
Each and every week, the new movies used to be released and people used to gather to see those
movies.Mr.Deora is a fully fledged business man. He has fore slightness how to run business and
how to make profit. Mr.Deora did a little effort at the time of establishing the cinema hall by which
the cinema hall was exempted from giving entertainment tax, which was thus subsidized by the
state. The cinema hall, was running its business successfully with a good earned profit from its
establishment period 1st september2009 to 2015 without not paying a single rupee as entertainment
tax .But due to change of government in the state in january2016 as a result of democratic election,
the cinema hall business was at almost stake not facing profit what it was earned earlier. The reason
behind this loss was that the new government repudiated the earlier arrangement of subsidized
amount as entertainment tax and subsequently, the income tax authority demanded for tax as they
contended that the entertainment tax was actually capital receipt at the hand of the Mr. Deora.
The Ao of Income Tax Authority disallowed the claims of Mr.Deora as to the nature of
entertainment tax as non capital receipt and held proceedings with retrospective effect from 1 st
September 2009 to till 31st March 2015.
On appeal such claim of Mr.Deora was held yes by CIT (A) and Tribunal but being aggrieved by
the decision the department moved to appeal to the single bench of High Court.
Issue:
What is the right jurisdiction?
Whether the AO has right authority to initiate the case in later stage while earlier there is no act of
AO is seen?
Whether subsidized entertainment tax can be treated as capital receipt?

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 Direct Taxation
Moot Proposition – 5

“Jackob& sons” is a HUF engaged in manufacturing of cotton in the district of Dumka, Jharkhand.
In order to expand the business and to improve the quality of cotton yarn the Person incurred
expenditure on replacement of machinery in its textile mill and claimed deduction of the same as
revenue expenditure on the ground that it was merely for replacement of spare parts in the
spinning mill system and did not give rise to a new asset. In the books, the expenditure was
capitalized. The CIT held that each item of machinery in textile mill is independent. Every
replacement results in new asset and Replacement results in enduring benefit: Not in the nature of
current repairs and it will hamper the Concept of ‘assets’, ‘block of asset’, ‘depreciation’ will
become redundant if every replacement is allowed as deduction. So, the CIT disallowed the
deduction and assessed the tax. Subsequently, the case moves forward to CIT(A), High Court and
finally in the Supreme Court and the apex court upheld the disallowance.
ISSUE: Whether expenditure incurred on replacement of machinery in a textile mill is deductible
as revenue expenditure?

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 Direct Taxation
Moot Proposition – 6

Mr. X is a rich and influential person who runs many business in running condition like grocery,
stationery etc. in his locality. As he was affluent he had a passion for purchasing and selling land
and for investment in real estate sector. One day he gets an offer from a premium courier service
provider where by the courier concern expresses their concern for running one their branch at his
one of the house(s) premises. They also approach to give the rent not only for house premises
rather for certain office equipments and for a old car which is aimed by the courier concern for
using in their courier business.
Subsequently, the agreement is signed between Mr. X and the courier concern on 1.10.2015and
Mr. X starts to receive a lumsump amount as rent@1,80,000 (INR) from the next month onwards.
In the mean while Mr. X receives demand notice from IT authority for the AY 15-16 and he is
taxed for such aforesaid amount as business income.But Ramaknat denied to pay tax on business
income and claims that tax computed on business income is erroneous on the part of the
AO(assessing ofiicer ) and moved to appeal.
ISSUE:
1. Is Mr.X justified in his claim?
2. Is AO wrong or erroneous in computing the tax?
3. Is appeal maintainable?