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2006 (10) TMI 182
Issues Involved:
1. Deletion of additions by CIT(A) on the grounds of the trust existing for charitable purposes.
2. Whether the trust was carrying on business activities under the guise of charitable activities.
3. Application of income for charitable purposes and eligibility for exemption u/s 11 and 12 of the IT Act, 1961.
Summary:
Issue 1: Deletion of Additions by CIT(A)
The Revenue contended that the CIT(A) erred in deleting the additions, arguing that the trust was receiving fees for letting out the wedding hall under the guise of donations. The CIT(A) observed that the trust was created with clear charitable aims and objects and that the activities carried out, including meditation camps, medical aid, and eye camps, were charitable in nature. The CIT(A) concluded that the trust was not charging money from a business perspective but accepting voluntary donations for the use of the Celebration Hall.
Issue 2: Business Activities vs. Charitable Activities
The AO disallowed exemptions u/s 11 and 12, concluding that the trust was carrying on business activities by letting out the Celebration Hall for social functions and camouflaging business receipts as donations. The CIT(A) clarified that the trust's activities were independent of the business activities conducted by the main trustee and his associates, who were running separate businesses within the same campus. The CIT(A) noted that the trust's receipts were utilized for its charitable aims and objects, and even if business activities were assumed, the income was applied for charitable purposes, thus entitling the trust to exemption.
Issue 3: Application of Income for Charitable Purposes
The Tribunal emphasized that for exemption u/s 11, the application of income for charitable purposes is crucial. It was undisputed that the trust's income was utilized for charitable activities. The trust was registered u/s 12A and had been granted exemption u/s 80G, affirming its charitable character. The Tribunal found no merit in the AO's inference that the meditation activities were not part of the trust's charitable activities. The Celebration Hall, leased from Mrs. Sulekha Sondhi, was used for charitable purposes, and the income from its use was applied accordingly.
Conclusion:
The Tribunal upheld the CIT(A)'s order, finding no infirmity in the deletion of additions and confirming that the trust was existing for charitable purposes. The appeal filed by the Revenue was dismissed.
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2006 (10) TMI 181
Issues Involved:
1. Cancellation of penalty imposed u/s 271(1)(c) of the IT Act, 1961.
2. Genuineness of transactions with A.R. Traders.
3. Adequacy of opportunity provided to the assessee.
4. Consideration of additional evidence in penalty proceedings.
Summary:
1. Cancellation of Penalty Imposed u/s 271(1)(c):
The appeal by the Revenue challenges the cancellation of a penalty of Rs. 4,22,772 imposed u/s 271(1)(c) for the assessment year 1998-99. The CIT(A) had cancelled the penalty, but the ITAT restored it, finding that the assessee failed to establish the genuineness of the loss claimed in transactions with A.R. Traders.
2. Genuineness of Transactions with A.R. Traders:
The assessee claimed a loss of Rs. 11.02 lakhs on the sale of fabric purchased from A.R. Traders, which the AO found to be bogus. The AO's enquiry revealed that A.R. Traders did not exist at the given address and that the transactions were highly improbable. The CIT(A) initially accepted the assessee's evidence, including affidavits and certificates, but the ITAT found that these did not sufficiently rebut the AO's findings.
3. Adequacy of Opportunity Provided to the Assessee:
The assessee argued that the AO did not provide a reasonable opportunity to be heard. However, the ITAT noted that the assessee had withdrawn the ground of inadequate opportunity during the quantum appeal before the CIT(A). The ITAT concluded that the AO had given sufficient opportunity to the assessee to establish the genuineness of the transactions.
4. Consideration of Additional Evidence in Penalty Proceedings:
The CIT(A) considered additional evidence such as affidavits and certificates, which were not adequately confronted to the AO. The ITAT criticized the CIT(A) for not recording findings with reference to the evidence on record and for ignoring the AO's findings. The ITAT emphasized that the penalty cannot be deleted based on unverified and self-serving documents.
Conclusion:
The ITAT restored the penalty of Rs. 4,22,772 imposed by the AO, concluding that the assessee failed to provide a satisfactory explanation for the loss claimed in transactions with A.R. Traders. The appeal of the Revenue was allowed.
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2006 (10) TMI 180
Issues Involved:
1. Validity of penalty proceedings under Section 271(1)(c) due to lack of satisfaction recorded by the Assessing Officer (AO).
2. Merit of the levy of penalty for concealment of income under Section 271(1)(c) regarding unexplained cash credit.
3. Merit of the levy of penalty for concealment of income under Section 271(1)(c) regarding the discrepancy in recording closing stock.
Issue-wise Detailed Analysis:
1. Validity of penalty proceedings under Section 271(1)(c) due to lack of satisfaction recorded by the AO:
The assessee contended that the penalty proceedings under Section 271(1)(c) were invalid as the AO did not record his satisfaction for initiating the penalty proceedings in the assessment order. The assessee relied on several judicial decisions, including CIT vs. Ram Commercial Enterprises Ltd., Diwan Enterprises vs. CIT & Ors., CIT vs. Vikas Promoters (P) Ltd., and Kshetra Mohan Roy vs. ITO, which emphasized that the AO's satisfaction must be recorded during the assessment proceedings. The Departmental Representative argued that recording satisfaction is not necessary and cited contrary decisions from Shyam Biri Works (P) Ltd. vs. CIT, Becker Gray & Co. (1930) Ltd. vs. ITO, and M. Sajjanraj Nahar vs. CIT.
The Tribunal noted the conflicting views among various High Courts but ultimately relied on the Supreme Court's decision in CIT vs. S.V. Angidi Chettiar, which held that an endorsement at the foot of the assessment order indicating the initiation of penalty proceedings is sufficient to show the AO's satisfaction. In the present case, the AO mentioned in the assessment order that the addition clearly attracts the penalty provision under Section 271(1)(c) and that penalty proceedings were separately initiated. Therefore, the Tribunal held that the AO was satisfied during the assessment proceedings, and the penalty proceedings were validly initiated.
2. Merit of the levy of penalty for concealment of income under Section 271(1)(c) regarding unexplained cash credit:
The AO levied a penalty on the addition of Rs. 8,70,000 as unexplained cash credit under Section 68. The assessee had furnished loan confirmations but could not produce the creditors before the AO and subsequently offered the amount for taxation. The Tribunal examined whether the assessee's case fell within the ambit of Explanation 1 to Section 271(1)(c), which deems the amount added as concealed income if the assessee fails to offer an explanation or offers a false explanation (Part A) or offers an explanation that is not substantiated and is not bona fide (Part B).
The Tribunal found that the assessee had offered an explanation and substantiated it by providing loan confirmations. The Revenue did not find the confirmations to be false, and the assessee's inability to produce the creditors did not automatically imply concealment. Therefore, the Tribunal held that the assessee's case did not fall within the ambit of Explanation 1 to Section 271(1)(c) and that the penalty for the addition of Rs. 8,70,000 was not justified.
3. Merit of the levy of penalty for concealment of income under Section 271(1)(c) regarding the discrepancy in recording closing stock:
The AO found a discrepancy in the closing stock figures shown in the trading account and balance sheet, leading to an addition of Rs. 87,500. The assessee admitted to having no explanation for the discrepancy. The Tribunal applied Part A of Explanation 1 to Section 271(1)(c), which deems the income as concealed if the assessee fails to offer an explanation. Since the assessee failed to explain the discrepancy, the Tribunal upheld the penalty for the addition of Rs. 87,500 and directed the AO to recompute the penalty on this amount.
Conclusion:
The Tribunal partly allowed the assessee's appeal by holding that the penalty for the unexplained cash credit was not justified, but upheld the penalty for the discrepancy in the closing stock.
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2006 (10) TMI 179
Issues Involved:
1. Computation of 'book profit' under Section 115JA of the IT Act.
2. Applicability of Section 154 for rectification of mistakes.
3. Double deduction claim of Rs. 120.39 crores.
4. Deletion of additions for provisions of doubtful debts and diminution in the value of investment.
Detailed Analysis:
1. Computation of 'book profit' under Section 115JA of the IT Act:
The primary issue was the computation of the assessee's 'book profit' for the assessment year 1997-98. The AO computed the book profit at Rs. 1,06,23,51,779 by adding Rs. 1,20,39,00,000 to the net profit of Rs. (-)30,32,03,000 as per the assessee's P&L account. The assessee argued that since their P&L account was prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956, the AO was not justified in going beyond the net profit shown therein. The Tribunal held that the AO's addition of Rs. 120.39 crores to the book profit was unjustified as the P&L account was certified by statutory auditors and prepared as per the Companies Act. The Tribunal followed the Supreme Court's decision in Apollo Tyres Ltd. vs. CIT, which restricts the AO from modifying the net profit shown in the P&L account except as provided in the Explanation to Section 115JA.
2. Applicability of Section 154 for rectification of mistakes:
The AO invoked Section 154 to rectify what was perceived as an apparent mistake in the net profit computation. The Tribunal noted that the scope of Section 154 is limited to rectifying apparent mistakes and does not extend to debatable issues. The Tribunal found that the AO's rectification involved a debatable issue regarding the double deduction claim, which is beyond the purview of Section 154. Therefore, the Tribunal quashed the AO's order under Section 154, emphasizing that the rectification power under this section is not applicable to issues of a debatable nature.
3. Double deduction claim of Rs. 120.39 crores:
The AO contended that the assessee claimed a deduction of Rs. 120.39 crores twice: once in the assessment year 1996-97 and again in the assessment year 1997-98. The Tribunal clarified that the deduction was claimed in the computation of total income under the IT Act for the assessment year 1996-97, but not debited in the P&L account. The amount was subsequently debited in the books of account in the assessment year 1997-98. The Tribunal held that the claim of deduction from the total income and the book profit are separate computations. The Tribunal concluded that the AO's assertion of double deduction was incorrect, and the deduction of Rs. 120.39 crores was not claimed twice under Section 115JA.
4. Deletion of additions for provisions of doubtful debts and diminution in the value of investment:
The CIT(A) had deleted the additions made by the AO for provisions of doubtful debts (Rs. 26.42 crores) and diminution in the value of investment (Rs. 15.36 crores). The Revenue appealed against this deletion. The Tribunal referred to the Special Bench decision in Usha Martin Industries Ltd., which held that Explanation (c) to Section 115JA does not apply to provisions for doubtful debts and diminution in the value of investment. Consequently, the Tribunal upheld the CIT(A)'s decision to delete these additions, affirming that such provisions cannot be added to the book profit under Explanation (c) to Section 115JA.
Conclusion:
The appeals filed by the assessee for the assessment years 1997-98 and 1998-99 were allowed, and the Revenue's appeal was dismissed. The Tribunal concluded that the AO's adjustments to the book profit were unjustified and that the rectification under Section 154 was not applicable to debatable issues. The Tribunal also upheld the deletion of additions for provisions of doubtful debts and diminution in the value of investment.
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2006 (10) TMI 178
Issues:
Assessment of set off of brought forward losses and unabsorbed depreciation against different sources of income.
Analysis:
The appeal was filed against the order of the CIT(A) regarding the assessment order under section 143(3) for the assessment year 2000-01. The assessee had claimed set off of brought forward unabsorbed depreciation and business losses of earlier years in the return of income. The Assessing Officer completed the assessment without addressing this claim. Upon filing an application for rectification under section 154, the Assessing Officer allowed set off of earlier years' business losses against business income but assessed capital gains and income from other sources without giving any set off. The CIT(A) held that the issue of set off against capital gains and income from other sources was debatable and not permissible under section 154. The assessee argued that judgments of various courts favored their claim based on settled law. The ITAT found that the Assessing Officer's failure to consider the claim was a mistake apparent from record and rectifiable under section 154.
The ITAT referred to the Supreme Court's judgment in T.S. Balaram, ITO v. Volkart Bros. to define "mistake apparent from record." It clarified that once a mistake is evident, it must be rectified, even if there may be differing opinions on the issue. The requirement is for the mistake to be apparent, not the rectification process. The ITAT disagreed with the CIT(A)'s view that the issue was debatable and held that the matter should be reconsidered on its merits. Therefore, the ITAT directed the case to be sent back to the CIT(A) for a decision on whether the assessee is entitled to set off unabsorbed depreciation against income from capital gains and other sources. The appeal was treated as allowed for statistical purposes.
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2006 (10) TMI 177
Issues Involved:
1. Treatment of loss of Rs. 53,22,770 as a speculation loss under Explanation to section 73.
2. Attribution of Rs. 33,34,903 as proportionate disallowance of expenditure in respect of share trading activities, increasing speculation loss.
Issue-wise Detailed Analysis:
1. Treatment of Loss of Rs. 53,22,770 as Speculation Loss:
The assessee, a stock broker dealing in shares, reported a loss of Rs. 53,22,770 under "Trading in Securities." The Assessing Officer (AO) considered this loss as speculative under Explanation to section 73 of the Income-tax Act, 1961, rejecting the assessee's contention that the transactions were not speculative as they were supported by delivery and that the major loss was due to the diminution in the value of stock. The AO's decision was based on the Tribunal's ruling in *Prudential Construction Co. Ltd v. Asstt. CIT* and the provisions of Explanation to section 73, which deems dealings in shares as speculative business unless exceptions apply. The CIT(A) upheld this view, leading to the assessee's appeal.
The Tribunal examined the scope of "gross total income" as per section 80B(5) and the scheme of the Act, concluding that gross total income consists only of positive income, not losses. The Tribunal provided examples to illustrate the application of Explanation to section 73, determining that the assessee's gross total income was "Nil" after setting off the business loss against income from other sources. Consequently, the first exception in Explanation to section 73 did not apply, and the loss from trading in shares was deemed speculative, disallowing set-off against other business income but allowing carry forward to subsequent years.
2. Attribution of Rs. 33,34,903 as Proportionate Disallowance of Expenditure:
The AO attributed Rs. 33,34,903 as proportionate disallowance of expenditure related to speculative business, based on the decisions of the Hon'ble Calcutta High Court in *Eastern Aviation and Industries Ltd. v. CIT* and the Hon'ble Bombay High Court in *Sinh National Sugar Mills (P.) Ltd. v. CIT*. The Tribunal directed the AO to exclude the loss from trading in securities (Rs. 53,22,770) from the total expenditure for allocation purposes, as such loss cannot be treated as part of the total expenditure.
The Tribunal also addressed the assessee's contention that interest expenditure of Rs. 84,37,224 should not be considered since borrowed funds were not used for purchasing shares. The AO was instructed to verify this claim and exclude the interest expenditure from total expenses if the borrowed funds were not used for share investment.
Conclusion:
The Tribunal partially allowed the assessee's appeal, affirming the treatment of the loss as speculative under Explanation to section 73 but directing the AO to exclude specific expenditures from the total expenses for allocation purposes.
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2006 (10) TMI 176
Issues involved:
The judgment deals with seven appeals by the revenue arising from different orders of the CIT(A)-XXVI, Mumbai, for the assessment years 1989-90 to 1995-96, with identical issues.
Details of the Judgment:
Issue 1: Non-appearance of the assessee and ex parte disposal of appeals
- The assessee did not appear during the hearing, and the appeals were disposed of ex parte after hearing the Departmental Representative and based on the available record.
Issue 2: Allegations of tax evasion by the assessee
- The Departmental Representative supported the Assessing Officer's findings, alleging that the assessee used the company as a facade to evade tax liabilities, emphasizing the need to examine the facts for justice.
Issue 3: Company's business activities and property ownership
- The company was incorporated for wholesale trading in grains and owned a property leased to a cooperative bank. The property was purchased and transferred without payment, with shareholders receiving compensation for rent collection, raising concerns about tax evasion.
Issue 4: Legal aspects and tax obligations of the company
- The judgment highlighted legal principles regarding company ownership, distinct from shareholders, and the doctrine of separate legal entity. It emphasized the need to assess the property income for tax purposes based on actual rent received.
Conclusion:
- The order of the Assessing Officer was restored due to the company's apparent tax evasion scheme and failure to address ownership and rental income aspects. The Departmental Representative's assistance was appreciated, leading to the allowance of the appeals.
This judgment underscores the importance of upholding tax obligations and legal principles related to company ownership and tax liability, ultimately restoring the Assessing Officer's order in light of the alleged tax evasion scheme by the assessee.
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2006 (10) TMI 175
Accrual Of Income - non-resident enterprise or its branches outside India - banking company incorporated in Germany - taxation of profits earned by the branch offices of non-resident companies - profit attributable to the PE - Interest receivable from Head Office/Overseas Branches of the bank - DTAA between India and Germany - CIT(A) held that the interest receivable by the Indian branch of your appellant from its head office/overseas branches is 'income' of your appellant taxable as such - HELD THAT:- The very concept of computation of PE profits is created as a fiction of tax law in order to demarcate tax jurisdiction over the operations of a company in a country of which it is not a tax resident. Unless the PE is treated as a separate profit centre, it is not possible to ascertain the profits of the permanent establishment which, in turn, constitute profits accruing or arising to the foreign GE in India.
On a conceptual note, it is also important to bear in mind that based on a substance-over-form approach, the tax treatment applicable to these fictitious entities, such as a PE, should be the same as in the cases where non-residents establish separate legal entities in the form of subsidiaries. If both entitles carry out similar economic activities, the choice of legal form should not lead to different tax results. The income of subsidiaries is determined separately based on the subsidiary's revenues and deductible costs and expenses taking into account all incurred items the taxation of PEs should be designed along the same lines. Therefore, while incomes of the PE should include all revenues, including revenues earned from other intra organization entities outside the respective tax jurisdiction, the expenses allowed as deductions from the profits of a PE should also be those that are actually borne by such a PE (i.e., that are incurred in the interest of the PE and not of another part/parts of the company) irrespective of whether or not the deductible amount should actually be reimbursed by the PE.
As rightly observed by the co-ordinate Bench of this Tribunal, in the case of Banque Indosuez, dealing with materially identical remarks made by the Hon'ble Calcutta High Court in the case of Betts Hartley Huett & Co. Ltd.,[1978 (4) TMI 58 - CALCUTTA HIGH COURT] "remarks are in a different context, that is an assessee whose operations comprehend both - a head office and a branch, and so, to our mind, are not applicable to the case like that of the present assessee in respect of whom the income of the permanent establishment, as a separate unit, has to be determined". We are in most respectful agreement with the views so expressed by the co-ordinate Bench.
Although these observations were in the context of determination of profits of the PE in accordance with the provisions of the applicable tax treaty, we are of the considered view that these observations are applicable with equal force on the question of determination 'accrued or arisen in India' u/s 5(2)(b) of the Act, which is nothing but the profits of the Indian PE as an independent unit.
Learned representatives have also agreed that it is an acceptable method to determine the profits accruing or arising in India, to the foreign bank, that the Indian PE is taken a profit centre. As a matter of fact, as we have discussed earlier in this order, there is no other way in accountancy or, for that purpose, even in commercial practices or in law in which the profits accruing or arising in India, in the hands of a tax entity not domiciled in India, can be determined. We have no treat the branches as hypothetically independent, and that is the underlying presumption in branch accounting methods in accountancy as well.
The assessee has admittedly lent monies to the head office, in consideration of which interest credits are received. These funds are acquired by the assessee by incurring certain costs, such as interest paid to the depositors as also establishment costs. The use of these funds, however, is outside Indian tax jurisdiction and the income earned from these funds, therefore, is exigible to tax outside Indian tax jurisdiction. When the revenues generated are not taxable in India, the expenditure incurred for earning these revenues also cannot be allowed as deduction of income exigible to tax in India. The entire costs of acquiring these funds should then cease to be deductible as an expense for the purposes of business in India.
In our considered opinion, expenditure can be allowed as deduction only in the tax jurisdiction in which the corresponding income is taxed, or, by the same logic, income is to be taxed in the same tax jurisdiction in which corresponding deduction is to be allowed. Where economic activities to earn an income are spread over two tax jurisdictions, the income can be suitably appropriated in those two jurisdictions, and the provision for intra organization interest charge does precisely that. If, however, we are to uphold the contention of the assessee, it will result in manifest absurdity. The taxability of income will be in the GE country, i.e., Germany, while allowability of expense will be in PE country, i.e., India. That is clearly an unintended absurdity, and an interpretation which leads to such incongruous results cannot meet any judicial approval.
It is not the assessee's case that the interest income from the head office is without any consideration or without sufficient consideration. In other words, fact of or correctness of interest earnings from head office are not in dispute. Therefore, in our considered view, the interest earnings from the head office are to be taken into account for the purposes of computing profits arising in or accruing in India. We, therefore, reject the contentions of the assessee.
Since the case of the assessee fails on the scope of the main chargeability section of income 'accruing or arising in India' u/s 5(2)(b) of the Act, there is no need to deal with the scope of the deeming fiction of income deemed to accrue or arise in India under section 9 of the Act. We have held the income to be 'accruing or arising in India' and therefore, it is not really relevant whether the income can be treated as 'deemed to accrue or arise in India'. While we, therefore, approve the conclusions arrived at by the CIT(A), we do not even see the need to deal with the reasoning adopted by the CIT(A). Our reasoning may be different, but conclusion is the same as arrived at by the CIT(A).
We approve the conclusion arrived at by the CIT(A), so far as this grievance of the assessee is concerned, and decline to interfere in the matter.
Ground No.2 is, accordingly, dismissed.
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2006 (10) TMI 174
Transfer of a capital asset - Chargeable as capital gain - Scope of occupancy right granted under D&NH Regulation,1971 u/s 4 of the Regulation - Whether, the possession of land as Alwara is a capital asset within the meaning of section 2(14) of the Act and the sale whereof is liable to capital gain u/s 45? - HELD THAT:- The Supreme Court decision in the case of Mysore Minerals Ltd.[1999 (9) TMI 1 - SUPREME COURT], though this case was rendered in respect of depreciation, fact remains that ownership has to be looked from a wider perspective, in the cases before us, assessees enjoyed unhindered possession and use of land, exercised their right of sale, which was duly accepted by the revenue authorities, sale deed was accordingly allowed to be executed and registered, all these put together, clearly leads to an inescapable conclusion that assessees may be owners of the land.
We have perused order of Tribunal in Shri Navroz J. Wadia's case in which Alwara rights are held to be tenancy rights and by applying therefore provisions of section 55(2) gains have been held to be liable for tax. In our considered opinion, the Tribunal has not appreciated a very vital fact that Alwara right ceased to exist way back in 1971. What was to be adjudicated was not the nature of Alwara rights, but the rights conferred on these assessees as per new Land Reforms Regulations in lieu of extinguishment of Alwara right. In our view Tribunal has adjudicated about the nature of Alwara right which may not be very relevant to the issue.
A plain reading of aforesaid provisions clearly reveals that tenant under this provision does not include erstwhile Alwara-right or the persons who has been given occupancy right u/s 4(2) of "D&NH" Land Reforms Regulation, 1971, therefore, erstwhile Alwara-right who have been granted occupancy right under new regulations are not be treated as tenant. In view thereof, we find merit in the arguments of learned counsel that the holding of the assessees cannot be held as tenancy.
Be that as it may with regard to the rights to these assessees under OA 1963 or D&NH Regulations, 1971, they are the rights of property and on transfer of the same a capital gain tax would arise u/s 45 of the Act.
The assessees, however, wants shelter of the decision of the Supreme Court in the case of B.C. Srinivasa Shetty [1981 (2) TMI 1 - SUPREME COURT] and contend that as there was no cost of acquisition, property cannot be subject to capital gain tax.
In our opinion the possession of land held by assessees' is not as Alwara right holder but on occupancy rights as per D&NH Land Reforms Regulation, 1971. The occupancy rights in these lands, therefore, amount to be capital assets within the meaning of section 2(14), the sale whereof is liable to be taxed as capital gain u/s 45. In consideration of above facts, circumstances, arguments and case laws, it is clear that assessees have sold capital asset as owners of land in question, cost of acquisition is clearly ascertainable, which is to be substituted by fair market value as on 1-4-1981 as prayed to be opted.
The cost of acquisition in the hands of the forefathers of the assessee being the previous owner, if cannot be ascertained, is to be the fair market value on the date on which capital assets became property of the previous owner and in that case also the assessees would be entitled to substitute the fair market value as on 1-4-1981 u/s 55(2) of the Act and that has to be allowed as a deduction with benefit of indexation cost as aforesaid. In either of the situation, the result would be same.
We, accordingly, hold that the sale of Occupancy right is the transfer of capital asset and would be chargeable to capital gain tax subject to deduction of the market value of the rights as on 1-4-1981 with benefits of indexation cost as aforesaid.
In the result, the appeals stand partly allowed.
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2006 (10) TMI 173
Issues Involved:
1. Annulling of the assessment order on the ground of no application under section 129 before the Assessing Officer.
2. Limitation of the assessment order passed on 13-5-1994.
Issue-wise Detailed Analysis:
1. Annulling of the assessment order on the ground of no application under section 129 before the Assessing Officer:
The case facts reveal that the assessee did not file the return of income despite notices under section 142(1). The initial Assessing Officer concluded the assessment proceedings on 22-11-1993 but did not pass an order. Upon transfer, the succeeding officer took charge in February 1994. The assessee requested a hearing opportunity under section 129 on 1-3-1994, which was received by the Assessing Officer on 25-3-1994. Hearings were conducted on 4-3-1994 and 7-3-1994. The second succeeding officer, who took over in April 1994, issued a notice on 6-5-1994 for a hearing on 9-5-1994 and passed the order on 13-5-1994.
Section 129 stipulates that a succeeding officer may continue proceedings from where they were left, provided the assessee is informed of the change and may demand re-hearing. The Tribunal noted that the assessee was not formally informed about the change of officer, and the letter dated 1-3-1994 could not be treated as an application under section 129. The Tribunal referenced the Patna High Court's decision in CIT v. Jagdish Prasad Chaudhary [1995] 211 ITR 472 (FB), emphasizing the obligation to inform the assessee about the change of officer to exercise their right to re-hearing effectively. The Tribunal concluded that the assessee's application on 1-3-1994 did not discharge the Assessing Officer's obligation to inform the assessee about the change of incumbent.
2. Limitation of the assessment order passed on 13-5-1994:
The assessee argued that the assessment order should have been passed by 31-3-1994, making the order passed on 13-5-1994 barred by limitation. The Tribunal examined the timeline and actions of the Assessing Officers. The first succeeding officer provided a hearing on 4-3-1994 and 7-3-1994, but no further action was taken by 31-3-1994. The second succeeding officer issued a notice on 6-5-1994 and passed the order on 13-5-1994. The Tribunal held that the application dated 1-3-1994 became redundant after the hearings on 4-3-1994 and 7-3-1994, and no new application was filed before the second succeeding officer. The Tribunal stated that the provisions of section 129 and section 153 (Explanation 1) did not apply, as the Assessing Officer failed to inform the assessee about the change of officer. Consequently, the assessment should have been completed by 31-3-1994, and the order passed on 13-5-1994 was beyond the time limit.
Conclusion:
The Tribunal concluded that the provisions of section 129 did not apply, and the assessment order passed on 13-5-1994 was barred by limitation. The CIT (Appeals) rightly annulled the assessment, and the appeal filed by the revenue was dismissed.
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2006 (10) TMI 172
Reopening of assessment u/s 147/148 - addition on bogus purchases - Income Escaping Assessment - Whether the Assessing Officer had adequate material to form belief to initiate reassessment proceedings - assumption of jurisdiction - deemed to have been corrected or taken care of section 292B - Validity of notice issued u/s 148 - HELD THAT:- We find that a survey was carried out by the Assessing Officer and large amount of material like bank pass book etc. were found and impounded. The assessee had not filed the return of income for this assessment year. Therefore, one could say that the Assessing Officer had enough material to justify the initiating action u/s 148(1).
In the present case, if we take out the fact of account with Central Bank of India from the reasons recorded, then what survives in those reasons is that there is a deposit of Rs. 1,02,047 in the bank account and assessee has not filed return of income. Then this fact alone would be sufficient to justify the reopening of assessment, because mere inadequacy of material for formation of belief would not make reopening of assessment invalid provided facts recorded in the reasons justify the inference that income chargeable to tax has escaped assessment. Thus, we hold that reference to a wrong bank account number alone in the reasons so recorded will not make assumption of jurisdiction to reopen the assessment as invalid. Other references can also lead to formation of belief that the income has escaped assessment.
Merely not filing of return of income will not result into an inference that any deposit in the bank account . was chargeable to tax and therefore, had escaped assessment, even if that amount exceeded minimum amount chargeable to tax, i.e., exceeded the exemption limit. We derive support for this conclusion from the decision of M.P High Court in Biaora Constructions (P.) Ltd. v. DIT [2005 (9) TMI 37 - MADHYA PRADESH HIGH COURT] for the proposition that if an amount as recorded in the regular books then it cannot be said to be concealed. Thus, where an amount is recorded in the regular books, it will not be automatically inferred that it was chargeable to tax and it has escaped assessment.
Thus, we hold that formation of belief by the Assessing Officer for reopening the assessment was not legally proper as on the basis of facts recorded in the reasons he could not have come to the inference that sum of Rs. 1,02,047 has escaped assessment. We, thus, hold that Assessing Officer has not formed a proper belief on the basis of material brought in the reasons so recorded and therefore, reopening of the assessment was without jurisdiction and invalid. The assessment on that basis is required to be annulled.
Any mandatory requirement for assumption of jurisdiction cannot be said to be covered by section 292B which comes into operation only when valid proceedings are initiated. Any invalid proceedings for assumption of jurisdiction cannot be corrected by section 292B. For this proposition, we rely on the decision in Sri Nath Suresh Chand Ram Naresh v. CIT [2004 (12) TMI 24 - ALLAHABAD HIGH COURT]. In that case, the notice was issued in the name of wrong person. Assessment proceedings were held not valid. This shows that act of assumption of jurisdiction u/s 148(1) extends up to the issuance of correct notice, in the name of correct person. Such mistakes could not be taken care by section 292B. Only inference from this is that any mistake in the process of assumption of jurisdiction could not be deemed to be corrected by section 292B. In the decision of Sun rolling Mills (P.) Ltd. v. ITO [1985 (5) TMI 9 - CALCUTTA HIGH COURT], the assessment was reopened u/s 147(b). The reasons recorded therefore were not considered as reasons for proceedings u/s 147(a). Thus, we reject the contention of the revenue that mentioning of wrong bank account number in the reasons could be deemed to be corrected by section 292B.
Bogus purchase - We are of the view that entire addition of Rs. 6,00,000 cannot be sustained. It is because the declared sales of the assessee are of Rs. 4,52,819 and closing stock is of Rs. 15,50,000. The closing stock is valued at cost. The Gross Profit rate declared by the assessee on sales of Rs. 4,52,819 is Rs. 2,26,786, which is about 50 per cent. If the purchases of Rs. 6,00,000 are added then profit will jump to Rs. 8,26,786 which would be about 182.50 per cent. This is unreasonable and cannot be sustained in law.
Further, we notice that the Assessing Officer in the assessment order mentions that the assessee had made purchases from various persons, but purchase of Rs. 6,00,000 has been shown from Saraf Medicinal and Botanical Garden. In other words, it was not a case of bogus purchases, but was a case of unverifiable purchases. For unverifiable purchases books can be rejected and profit can be estimated. Since the profit declared by the assessee is about 50 per cent and there is no material to show that the assessee would have earned more profit, then addition made by the Assessing Officer and confirmed by the CIT(A) cannot be sustained. As a result, on merits also the addition of Rs. 6,00,000 cannot survive.
As a result, we allow the appeal filed by the assessee.
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2006 (10) TMI 171
Cenvat/Modvat - Demand - Taxing statute - Whether the amount of 8% debited from the RG-23A Part II in terms of the provisions of Rule 57CC(1) and collected from the customers is required to be deposited with the Govt. in terms of the provisions of Section 11D of the Central Excise Act - HELD THAT:- A reading of Section 11D makes it clear that what is required is that amounts collected as duty should not be retained by the manufacturers and should be deposited with the revenue. The scheme of Central Excise duty payment is that a manufacturer removed goods from the factory of production after payment of duty. While selling the goods, the manufacturer recovered the duty so paid. In doing so, an assessee is recouping the tax already paid. The arrangement is not that the assessee first collected the tax from the buyer of the goods and then remits the amount to the government. Section 11D has to be read keeping this scheme in view.
The scheme of the law is that manufacturers shall not collect amounts falsely representing them as central excise duty and retain them, thus, unjustly, benefiting themselves. In the present cases, (irrespective of whether the 8% payments were duty or not) since the 8% amount remain already paid to the revenue, and no amount is retained by the assessee, Section 11D has no application.
The real identity of the amount 'collected' (whether excise duty payable or not) is of no relevance for Section 11D. What is relevant is only whether the collection was 'represented' as duty of excise. The representation may as well be entirely false. The qualifying of the representation through the words 'in any manner' makes this clear. Therefore, the contentions of both sides on the question, as to whether deposits under Rule 57CC are excise duty or not, are beside the point.
In the result, this Larger Bench confirm the view taken by the Tribunal in the case of Nu-Wave Shoes [2000 (9) TMI 193 - CEGAT, NEW DELHI].
Reference is answered as above and the appeals are returned to the original Bench for disposal.
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2006 (10) TMI 170
Whether the applicant entitled for concession under provision C.E. Notification No. 8/2003 dated 1-3-2003 despite of the fact that proposed equity of a Foreign Corporate Body is 96.875% (greater than 25%) and cannot be considered as a Small Scale Industrial Unit in view of Paragraph 2.5 page 9 of the Booklet of Foreign Direct Investment issued by Ministry of Commence and Industry?
Whether the machinery is imported can we start claiming the Credit of the Counter Vailing Duty and Special Additional Duty the moment we pay excise duty at the factory gate on our production? Can we accumulate credit of the CVD & SAD paid on the machinery till we complete clearances of ₹ 100 lakhs?
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2006 (10) TMI 169
Issues:
1. Proper intimation of closure date for furnace.
2. Penalty imposition under Rule 96ZO(3) for non-payment of duty.
Issue 1: Proper Intimation of Closure Date for Furnace
The appeal involved a dispute regarding the proper intimation of the closure date of a furnace by the assessee, a manufacturer of non-alloy steel ingots. The assessee applied for abatement claim, but the claim was disallowed due to a delay in filing closure intimation as required under Rule 96ZO(2) of the Central Excise Rules, 1944. The Tribunal accepted the assessee's explanation that the delay was due to intervening holidays. The High Court, after hearing the appellant, held that since the explanation was accepted on facts, no substantial question of law arose regarding the eligibility for the abatement claim. Therefore, the court dismissed the appeal on this issue.
Issue 2: Penalty Imposition under Rule 96ZO(3) for Non-Payment of Duty
The second issue revolved around the penalty imposed under Rule 96ZO(3) for the non-payment of the full amount of duty by the due date by the manufacturer. The assessee failed to pay the full amount by the specified date, resulting in a penalty being imposed. The court referred to a previous judgment where it was established that the penalty under Section 96ZO of the Act was discretionary and not mandatory, based on individual facts. In the present case, the court found that the appropriate authority had exercised discretion in reducing the penalty amount, and there was no indication of perversity in the decision. Consequently, the court concluded that no substantial question of law arose in this regard and dismissed the appeal on this issue as well.
In summary, the High Court of Punjab & Haryana at Chandigarh dismissed the revenue's appeal against the Customs, Excise & Service Tax Appellate Tribunal's order. The court upheld the acceptance of the assessee's explanation for the delay in closure intimation, finding no substantial question of law on the eligibility for abatement claim. Additionally, the court affirmed the discretionary nature of the penalty under Rule 96ZO(3) and found no perversity in the authority's decision to reduce the penalty amount, leading to the dismissal of the appeal on this issue too.
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2006 (10) TMI 168
Issues involved:
The issues involved in the judgment are the confiscation of silver ingots by customs authorities, the imposition of penalty, and the application of liberalization policy on importation of gold and silver.
Confiscation of Silver Ingots:
The petitioner's residential premises were searched, and silver ingots of foreign origin were seized. The petitioner produced baggage receipts to justify possession, but the ingots did not match the description in the receipts. The authorities seized the ingots on the belief of smuggling and passed an order of total confiscation along with a penalty. The first respondent confirmed the confiscation but reduced the penalty. The petitioner challenged the order through a writ petition.
Application of Liberalization Policy:
The petitioner's counsel cited judgments from various Tribunals to argue that the liberalization policy on importation of gold and silver should apply in this case. The counsel contended that since the petitioner was found in possession of the ingots in 1993, the same treatment as in previous cases should be given. The liberalization policy had been in effect from 1992-93 onwards.
Disposition of the Writ Petition:
After hearing both sides and considering the disputed facts, the judge decided to direct the respondents to consider imposing a redemption fine in lieu of total confiscation if the silver ingots seized from the petitioner were still available. The judgment referenced a similar case from the Kolkata Tribunal and emphasized the need to follow the Central Government's policy on liberalization of importation of silver and gold ingots. The writ petition was disposed of with the above directions, and no costs were awarded.
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2006 (10) TMI 167
Issues involved: Appeal by Revenue against Tribunal's order allowing Modvat credit, question of goods used for assembly of fire hydrant system falling under Chapter 84 and exclusion from definition of "capital goods" under Rule 57Q of Central Excise Rules.
Judgment Summary:
1. The appeal was filed by the Revenue against the Tribunal's decision to allow Modvat credit of Rs. 61,572, despite the argument that the goods used for the assembly of fire hydrant system fell under Chapter 84 and should be excluded from the definition of "capital goods" under Rule 57Q of the Central Excise Rules.
2. The assessee availed Modvat credit during a specific period, which was initially allowed by the adjudicating authority but later disallowed by the Commissioner (Appeals) on the basis that the goods were excluded from the Modvat Scheme during that time. The Tribunal reinstated the decision of the adjudicating authority, noting that the goods were procured under specific chapter sub-headings that did not fall under the exclusion clause of Rule 57Q.
3. The Revenue's counsel failed to demonstrate that the goods in question fell under the excluded entry in Rule 57Q. It was argued that the goods were capital goods based on a previous Supreme Court decision, but the Court held that this alone was insufficient to invoke the exclusionary clause unless the goods were covered by a specified entry in the rule.
4. The Court rejected the contention that the goods were automatically considered capital goods, emphasizing that for exclusion under Rule 57Q, the goods must specifically fall under the exclusion clause. The Tribunal had already made a specific finding that the goods did not meet the criteria for exclusion.
5. It was concluded that no substantial question of law arose from the Tribunal's order, leading to the dismissal of the appeal by the Court.
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2006 (10) TMI 166
Issues involved: Appeal under Section 35(G) of the Central Excise Act, 1944 against order of Customs, Excise & Gold (Control) Appellate Tribunal, delay in filing appeal, condonation of delay, negligence in filing appeal, substantial revenue cases not pursued diligently.
Delay in filing appeal: The appeal was filed in the High Court along with an application for condonation of delay of 1461 days. The application cited that the petition was initially filed before the Delhi High Court but was sent back and then filed in the Punjab and Haryana High Court. The reason for the delay was not adequately explained, and the counsel for the assessee argued that it was a case of gross negligence. The Court noted that casualness, laxity, and negligence cannot be considered reasonable causes for condonation of delay.
Merits of the objection: After hearing arguments from both parties, the Court found merit in the objection raised by the assessee regarding the substantial delay in filing the appeal. Even with a liberal view, the delay could not be attributed to any sufficient cause. The Court referred to a similar case where condonation of delay was sought but was declined.
Decision and corrective steps: The Court dismissed the application seeking condonation of delay and subsequently dismissed the appeal. The Court highlighted the need for diligence in pursuing cases involving substantial revenues and directed a copy of the order to be sent to the Central Board of Excise and Customs for necessary corrective measures to safeguard public revenue.
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2006 (10) TMI 165
Issues Involved:
Appeal under Section 130 of the Customs Act, 1962 against the final order by Customs Excise and Service Tax Appellate Tribunal; Allegations of illegal import of tin, nickel, and zinc concealed as aluminum scrap; Seizure of goods from trucks and godown; Claim of legal procurement by the appellant; Investigation revealing false claims and hawala transactions; Confiscation of goods and trucks; Imposition of fines and penalties; Dismissal of appeal by the Tribunal; Challenge of findings of fact; Substantial questions of law raised.
Detailed Analysis:
1. Illegal Import and Seizure of Goods: The case involved allegations of illegal import of tin, nickel, and zinc concealed as aluminum scrap. Goods were seized from trucks and a godown, leading to investigations into the ownership and procurement of these items.
2. False Claims and Hawala Transactions: The appellant claimed to have legally procured the goods from Delhi parties, but investigations revealed that the suppliers were defunct entities. Money allegedly paid for the goods had returned through a hawala channel, indicating false claims of procurement.
3. Confiscation and Penalties: The Commissioner of Customs concluded that the seized goods were part of the illegally imported items and not legally procured as claimed by the appellant. Consequently, the goods and trucks were confiscated, with fines and penalties imposed under the Customs Act.
4. Tribunal's Decision: The Tribunal upheld the order of confiscation and penalties, citing evidence that the goods were illegally imported and belonged to the family businesses controlled by the appellant.
5. Challenges Raised: The appellant raised substantial questions of law, challenging the findings of fact and the application of relevant provisions of the Customs Act. However, the Court found no perversity in the order under challenge and upheld the conclusions drawn by the Commissioner of Customs and the Tribunal.
6. Dismissal of Appeal: The Court dismissed the appeal, stating that no substantial question of law was raised, and the Customs Authorities had successfully established that the goods in question were indeed smuggled goods imported illegally. The decision was based on a thorough review of the evidence and the reasonableness of the conclusions drawn.
In conclusion, the judgment highlighted the meticulous investigation conducted by the authorities, the falsity of the appellant's claims regarding procurement, and the subsequent confiscation of goods and imposition of penalties. The Court's decision to dismiss the appeal was based on the lack of substantial legal questions raised and the adequacy of evidence supporting the findings of fact.
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2006 (10) TMI 164
Issues:
1. Interpretation of Section 35F of the Central Excise Act regarding pre-deposit during the pendency of an appeal.
2. Disallowance of Cenvat credit on mixer grinders by the second respondent and imposition of a penalty.
3. Allegation of mis-declaration by the petitioner company regarding the classification of mixer grinders as parts of refrigerators.
4. Application of Circular dated 28-10-2002 in determining the duty payment under Section 4A of the Central Excise Act.
5. Comparison with a similar case from the High Court of Delhi regarding pre-deposit under Section 35F.
Analysis:
1. The case involved a writ petition arising from an interim order directing the petitioner to pre-deposit a sum during the appeal under Section 35F of the Central Excise Act. The petitioner, a manufacturing company, contested the order which required pre-deposit of Rs. 17,00,000/-.
2. The second respondent disallowed Cenvat credit on mixer grinders, alleging misclassification by the petitioner. The penalty was imposed under Rule 13 of the Cenvat Credit Rules, 2001, leading to the appeal and subsequent interim order for pre-deposit.
3. The petitioner argued that the mixer grinders were correctly classified based on the Circular dated 28-10-2002, which allowed duty payment under Section 4A if items in a multi-pack were not intended for separate sale. The petitioner claimed the allegation of mis-declaration was unfounded.
4. The respondents contended that the mixer grinders were wrongly classified as parts of refrigerators, and the Circular could not justify the classification. They argued that the first respondent's order for pre-deposit was lawful and in accordance with the mis-declaration by the petitioner.
5. The Court referred to a similar case from the High Court of Delhi regarding pre-deposit under Section 35F, where a waiver of 50% of the duty amount was deemed sufficient. The petitioner's appeal to the Supreme Court was dismissed, upholding the pre-deposit requirement. The Court found the Delhi Court's decision applicable and upheld the first respondent's interim order, dismissing the writ petition and granting eight weeks for pre-depositing the duty amount.
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2006 (10) TMI 163
CENVAT - Demand for interest - paying excise duty while clearing the goods from time to time as per Rule 173G - few defaults - HELD THAT:- The fact however remains, that principles of natural justice require that the petitioner ought to be issued a Show Cause Notice as to why the interest amount should not be claimed from it and after affording a hearing that liability ought to be decided. That has not been done which is clearly contrary to the judgment of the Apex Court in Madhumilan Syntex [1988 (5) TMI 38 - SUPREME COURT]. That was particularly necessary in the fact of the present case where the petitioner has chosen to follow one of the options given by the Revenue and the demand for interest was being raised after a good number of years. As far as that aspect is concerned, in our view, tlie submissions of Mr. Patil deserve to be accepted. The petitioner was entitled to at-least show cause for which he had to be given an opportunity.
Thus, we interfere with the demand Notices and quash and set aside the detention Memo. Consequently, the goods will be released The respondents may issue a show cause notice to the petitioner as to why the interest as claimed should not be recovered and then after affording a hearing and considering the defence, pass appropriate orders.
Rule is made absolute in the aforesaid terms.
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