9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (4) TMI 421 - AT - Income TaxApplicability of provisions of section 14A - assessee earned exempt income from interest income - whether the expenses relatable to these two cheques will not be at high as Rs. 3,75,867/- as disallowed by the AO or Rs. 50,020/- as decided by the CIT (A)? - Held that - The instant AY relates to the period prior to the amendment to section Rule 8D of the I T Rules, 1962. Reasonable basis is the mantra to be followed by the AO after rejecting the basis adopted by the assessee. As making disallowances based on a fixed percentage of the dividend income is not fair as such percentage is very wild and inappropriate to the present case which is with the case of merely with two dividend cheques. Also examining the reasoning given by the CIT(A) for arriving at the figure of Rs 50,020/- and find the same arrived at with some basis the grounds raised by the Revenue need to be dismissed. The disallowance of Rs. 50,020/- in respect of Rs. 21, 223/- appears to be fair and reasonable - against revenue. Disallowance of interest u/s 36(1)(iii) - CIT(A) deleted the addition - Held that - Contentions of the DR that the funds available should be taken on day to day basis and not on the basis of closing balance at the end of the year is not well. It has to be taken into consideration that what is the amount available with the assessee on the first day of the accounting year and what is the amount has been given to its sister concern and thereafter what is the closing balance at the end of the year. Therefore, confirm the finds of the CIT (A) on this issue. Taxability of interest income - income from other sources v/s business income - computation of deduction u/s 80-HHC - Held that - The funds were required for business purposes and as per pre-conditions of the Bank margin money was deposited in the shape of FDRs for availing overdraft facility and therefore, it has direct nexus with business activity and accordingly, it has to be treated as income from business and since there is a direct nexus between the earning of interest and expenditure of interest then netting of interest has also to be allowed in view of the decision of the Special Bench in the case Lalsons Enterprises 2004 (2) TMI 294 - ITAT DELHI-E . Therefore, these grounds of the assessee are allowed and the AO is directed to recalculate the deduction u/s 80-HHC accordingly. Considering the binding judgment of M/s ACG Associated Capsules Pvt. Ltd. 2012 (2) TMI 101 - SUPREME COURT OF INDIA the AO is directed to give effect to the same while granting deduction u/s 80- IA in respect of the interest income. Accordingly, for this limited purpose, relevant grounds are remitted to the files of the AO for necessary action. Applicability of provisions of section 94(7) - Held that - There is no dividend stripping in this case, where day-to-day investment of dividend is involved in the said transactions. The losses result on the basis of prevailing NAV on the date of purchase of the units and the date of withdrawal from the scheme will not attract the provisions of section 94(7). CIT(A) granted relief to the assessee after giving detailed reasoning in the impugned order. Against revenue. Claim of balances written back not considered as part of the business profits for the purpose of the computation of deduction u/s 80-HHC - Held that - CIT (A) found that more than 95% of this amount relates to write back of sundry creditors which are the business liabilities of the assessee as at the time of creation of these sundry creditors, the income of the assessee went down since these credits represents purchases. Therefore, the income arisen to the assessee from writing back of these balance should form part of the profits of the assessee as these are intimately connected with the business of the assessee. The findings of the CIT (A) neither could be controverted nor any other material was brought on record to establish otherwise. Recalculation of deduction u/s 80-HHC in respect of DEPB licenses - Held that - The said issue is covered in favour of the assessee by the judgment of Topman Exports Ltd 2012 (2) TMI 100 - SUPREME COURT OF INDIA wherein held that DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB Decided in favor of assessee. Denial of deduction u/s 80-IB - AO concluded that assessee could not have started this manufacturing before 31.3.2004 considering the requirements or approvals from the Pollution Control Committee (PCC) - Held that - It is evident that the assessee belongs to green category and the Notification dated 9th June 2011 does not apply to the AY 2004-05. Notwithstanding the above, it is noticed that the assessee finally obtained requisite approvals of PCC to establish or operate the unit during the year itself. So long as, the approvals are obtained before the end of the year, the delay noticed, being a procedural incursion, should not be used to deny the benefits of the beneficial provisions of section 80-IB. As requisite approvals are finally obtained and the State Government has not charged the assessee with any violations of any provisions under Air and Water Acts. Objections on the SSI-Registration issue - Held that - The assessee is provisionally registered before setting up of factory and start of commercial production, which is a sufficient compliance and there is no breach of any law. Employees number engaged in the manufacturing unit of the assessee - Held that - As it is the case of the assessee that the said workers do not have to continuously work for full year, contract or contingent workers also qualify to meet the requirements of the provisions of section 80-IB(2)(iv) merits acceptance but are covered by the additional evidences filed for the first time, thus require the attention of the AO. Invoice bearing the name of Jindal Photo Industries - Held that - Argument of the assessee that the same constitutes an inadvertent mistake also confirmed from page 125 of the paper book the confirmation of the said Om Borewell . Thus AO is directed to not to rely on this for denial of deduction. Quantity of consumption of electricity - Held that - Considering the undisputed fact relating to expenditure on purchase of diesel, which constitutes supplementary expenditure on power sources. Considering the volume of production, consumption of diesel and electricity bills for the month of March and also subsequent months, the arguments of the assessee merits acceptance. Description on packing material ie the Drums - Held that - In favour of the assessee s argument that why should assessee show purchase of packing material when he has reconcilable packing material, if accepted by the AO in the set aside proceedings. Doubt on the source of the stocks sold to the parties - Held that - Sales of the product is undisputed as the AO has taxed the profits earned on sale of the product to parties - the contents of these confirmation are met by the AO, the claim of the assessee cannot be denied merely based on fringe issues. AO needs to weigh between the uncontroverted fact of sale of the product qua the fringe issues before coming to the conclusion when comes to the applicability of the beneficial provisions such as section 80IB. AO is directed to make use of the additional evidences filed by both the parties and pass a speaking order.
Issues Involved:
1. Applicability of provisions of Section 14A of the Income Tax Act. 2. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act. 3. Taxability of interest income under the head "Income from Other Sources." 4. Applicability of provisions of Section 94(7) of the Income Tax Act. 5. Inclusion of sundry balances written back in business profits for deduction under Section 80-HHC. 6. Recalculation of deduction under Section 80-HHC in respect of DEPB licenses. 7. Denial of deduction under Section 80-IB for a new unit at Daman. Detailed Analysis: 1. Applicability of Provisions of Section 14A of the Income Tax Act: The assessee earned exempt income of Rs. 37,58,670/- and claimed that only Rs. 21,223/- was relatable expenditure. The AO disallowed 10% of the tax-free income (Rs. 3,75,867/-), but the CIT(A) restricted it to Rs. 50,020/-. The Tribunal found the AO's flat rate of 10% unreasonable and upheld the CIT(A)'s figure of Rs. 50,020/-, dismissing the Revenue's appeal on this ground. 2. Disallowance of Interest under Section 36(1)(iii) of the Income Tax Act: The AO disallowed interest expenditure related to interest-free advances to group concerns. The CIT(A) deleted this disallowance, referencing the Supreme Court's decision in SA Builders. The Tribunal upheld the CIT(A)'s decision, noting that the advances were for business purposes and the assessee had sufficient interest-free funds. 3. Taxability of Interest Income under the Head "Income from Other Sources": The AO treated interest income as "Income from Other Sources," but the assessee claimed it as "Business Income." The Tribunal upheld the assessee's claim, referencing the Bombay High Court's decision in Indo Swiss Jewels Ltd., and directed the AO to treat the interest income as business income and allow netting of interest for deduction under Section 80-HHC. 4. Applicability of Provisions of Section 94(7) of the Income Tax Act: The CIT(A) held that Section 94(7) was erroneously applied by the AO as the scheme involved day-to-day investment of dividends. The Tribunal agreed with the CIT(A) and dismissed the Revenue's appeal on this ground. 5. Inclusion of Sundry Balances Written Back in Business Profits for Deduction under Section 80-HHC: The AO excluded sundry balances written back from business profits for Section 80-HHC deduction. The CIT(A) included them, and the Tribunal upheld this decision, noting that these balances were intimately connected with the business. 6. Recalculation of Deduction under Section 80-HHC in Respect of DEPB Licenses: The Tribunal directed the AO to grant relief to the assessee, complying with the Supreme Court's judgment in Topman Exports Ltd., which was in favor of the assessee. 7. Denial of Deduction under Section 80-IB for a New Unit at Daman: The AO denied the deduction, citing procedural non-compliance and lack of evidence for manufacturing activity commencement. The CIT(A) upheld this denial. The Tribunal admitted additional evidence from both parties and set aside the issue for fresh examination by the AO, directing a speaking order on each issue raised. Conclusion: The Tribunal provided a thorough analysis and directed specific actions for each issue. The Revenue's appeal was largely dismissed, and the assessee's appeal was partly allowed for statistical purposes, with several issues remitted back to the AO for fresh examination.
|
