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2009 (12) TMI 951
Unexplained cash credit - transansaction of shares unexplained - bogus and sham transaction -Addition made as assessee had failed to discharge its onus to prove the genuineness of the transaction - HELD THAT:- We find ourselves in favour of the submission made as the assessee had produced confirmations which would clearly demonstrate it has discharged its initial burden.
The identity of M/s. Yadav and Company, by filing their confirmation and their assessment particularly Genuineness of the transaction by pointing out that the assessee had sold shares to M/s. Yadav and Company in the immediately preceding year (which has been accepted by the Department) and that the payment received during the relevant previous year was against the debt due from M/s. Yadav and Company and Creditworthiness of the creditor by pointing out that the amount was received by way of cheques drawn on the bank account.
The initial burden thus discharged, it was for the revenue to establish that the transaction in question was bogus. This would be so even if there is a denial by the creditors that the credits were not genuine as held by the Supreme Court in CIT v. Orissa Corpn. (P.) Ltd.1986 (3) TMI 3 - SUPREME COURT] - Mere denial by Yadavs that account in question was not operated by them would not automatically lead to the inference that assessee deposited in the said account and, therefore, it became its unaccounted income.
When the premises of M/s. Yadav and Company were searched by the Department in 2002 and the statements of aforesaid two persons were recorded, it is clear that Yadav and Company was very much in existence. More interestingly, M/s. Yadav and Company even assessed to Income-tax. In the case of assessee, the assessment was completed in December, 2003. In such a scenario, it would not have been difficult for the Assessing Officer to find the whereabouts of Yadavs particularly having regard to the statement of the assessee that it had no dealing with M/s. Yadav and Company after assessment year 2000-01 and was thus unaware of its present whereabouts. Live link between the bank account of M/s. Yadav and Company and the assessee has not been established. - Decided in favour of assessee
Whether the ITAT should have remitted the matter back to the Assessing Officer, if it was of the view that proper opportunity was not afforded to the assessee? - We feel that there was a bona fide confusion in the mind of the Assessing Officer regarding the onus viz., whether it was obligation of the assessee or the Assessing Officer to produce Sh. O.P. Yadav and Sh. Mohinder Singh Yadav. Therefore, in the interest of justice matter needs to be remitted back to the Assessing Officer to enable him to produce the Yadavs for cross-examination by the assessee. AO shall undertake fresh exercise as per the observations contained in the order of ITAT and this order and addition would be made only if those conditions are satisfied.
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2009 (12) TMI 950
Issues involved:
The correctness and legality of the order passed by the Tribunal, Bangalore Bench, in IT(SS)A No. 70/Bang/2004.
Issue 1:
The Tribunal's failure to consider crucial facts regarding the maintenance of annual returns before the RoC, impacting the claim of regular books of accounts being maintained before the date of search in the normal course of business.
Details:
The assessee filed a return of income for the block assessment period after a search was conducted. The AO disallowed a claim made by the assessee for a refund, leading to an appeal before the CIT(A) and subsequently before the Tribunal. The Tribunal dismissed the appeal, which is now challenged. The appellant argues that the books of accounts were regularly maintained, returns were filed before the RoC, and the unabsorbed depreciation and losses should be set off for computing total undisclosed income.
Issue 2:
The rejection of the claim for deduction of unabsorbed depreciation and losses against the income for relevant assessment years during block assessment.
Details:
The AO rejected the claim based on a retrospective amendment to the Act. The appellate authority and the Tribunal upheld this decision. The appellant contends that the losses and unabsorbed depreciation should be set off, citing a Supreme Court judgment in a similar case.
Judgment:
The High Court reframed the substantial question of law to determine whether the AO was correct in rejecting the claim for set off of loss and unabsorbed depreciation. Citing the Supreme Court's decision, the Court held in favor of the assessee, directing the AO to quantify the entitlement of set off. The appeal was allowed, with no costs imposed.
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2009 (12) TMI 949
Issues involved: Appeal against penalty orders u/s.271(1)(c) of the Income-tax Act, 1961 for seven consecutive assessment years 2001-02 to 2006-07.
Summary:
The Appellate Tribunal ITAT Bangalore heard the appeals filed by the assessee against the penalty orders passed by the Commissioner of Income-tax(A) for seven assessment years. The Assessing Officer had levied penalties u/s.271(1)(c) for the years in question based on income concealed by the assessee. During a survey u/s.133A, certain creditors reflected in the books of account were found to be unverifiable, leading the assessee to offer those credits as additional income for the assessment years. The assessee did not contest the quantum additions and accepted them without further appeals. However, the assessee argued that there was an understanding with the department that no penalty would be levied as cooperation was shown in offering additional income. Despite this, the Assessing Officer proceeded to levy penalties. The Tribunal noted that a significant portion of the credits offered as income actually belonged to earlier assessment years and should not have been considered for the current years. The Tribunal found that the assessee had already suffered additional tax due to this oversight and deemed it unfair to levy penalties on top of this. Consequently, the penalties for all seven assessment years were deleted, and the appeals filed by the assessee were allowed.
In conclusion, the Tribunal ruled in favor of the assessee, highlighting the additional tax burden suffered due to the misclassification of credits and the unfairness of imposing penalties on top of this. The decision to delete the penalties was based on the principle of fairness and the recognition of the unintended tax consequences faced by the assessee.
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2009 (12) TMI 948
Issues Involved:
1. Denial of exemption u/s 80P(2)(a)(i).
2. Addition of Rs. 21,61,240 on account of interest received from members.
3. Addition of Rs. 3,92,660 out of NPA provision.
Summary:
1. Denial of exemption u/s 80P(2)(a)(i):
The assessee, a primary co-operative agricultural development bank, claimed exemption u/s 80P(2)(a)(i) for interest income received from loans advanced to its members for non-farming schemes. The AO denied this exemption, stating that the activities fell under s. 80P(2)(c) and restricted the deduction to Rs. 50,000. The CIT(A) upheld the AO's decision. The Tribunal, however, found that the assessee was entitled to the deduction under s. 80P(2)(a)(i) as the interest income was attributable to the business of banking or providing credit facilities to its members, irrespective of whether the loans were for agricultural or non-farming purposes. The Tribunal emphasized the broader interpretation of "attributable to" as opposed to "derived from," citing the Supreme Court's decision in Cambay Electric Supply Industrial Co. Ltd. vs. CIT.
2. Addition of Rs. 21,61,240 on account of interest received from members:
The AO added Rs. 21,61,240 as estimated gross interest earned from loans advanced to members for non-farming schemes without considering the interest paid and other expenses incurred. The Tribunal noted that the assessee had provided sufficient evidence, including instructions from the Punjab State Co-operative Agricultural Bank Ltd., Chandigarh, directing the advancement of loans under non-farming sector. The Tribunal concluded that the interest income from these loans was part of the business of banking or providing credit facilities to members and thus eligible for deduction u/s 80P(2)(a)(i).
3. Addition of Rs. 3,92,660 out of NPA provision:
The AO disallowed Rs. 3,92,660 as excess provision u/s 36(viia). The CIT(A) upheld this disallowance. The Tribunal, however, held that even if the disallowance for excess provision was upheld, it would enhance the income entitled to deduction under s. 80P(2)(a)(i). The Tribunal referenced a similar case (Punjab State Co-op. Agri. Dev. Bank Ltd.) where the disallowance was deleted by the Tribunal, Chandigarh Bench. Following this precedent, the Tribunal deleted the addition of Rs. 3,92,660.
Conclusion:
The Tribunal allowed both appeals, granting the assessee the claimed deductions and deleting the disputed additions.
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2009 (12) TMI 947
Issues involved:
The legality and correctness of the order passed by the Income Tax Appellate Tribunal, Bangalore, in ITA No.9/Bang/2008 regarding the deduction of an Interim award passed by the Arbitrator against the assessee to pay a sum of Rs. 52.84 lakhs to its Sub-contractor and the recoverability of this amount from the Central Government.
Issue 1: Deductibility of Interim award during the current assessment year
The assessee, engaged in construction activities under a contract from the Central Government, faced a dispute with its Sub-contractor leading to an Interim award by the Arbitrator to pay Rs. 52.84 lakhs. The Assessing Officer initially disallowed the deduction on the premise that the amount could be recovered from the Central Government. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Income Tax Appellate Tribunal ruled in favor of the assessee, allowing the deduction as the payment was made based on the Interim order. The Tribunal emphasized that the payment could not be denied as a deduction merely because the final award was pending.
Issue 2: Recoverability of Interim award from the Central Government
The Tribunal highlighted that any payment made pursuant to an Interim order is contingent upon the final award of the Arbitration proceedings. If the final decision absolves the assessee from liability, any amount paid must be recovered from the Sub-contractor. Therefore, the Tribunal rejected the revenue's argument that the payment should not be deductible until the final award is issued.
Conclusion:
The High Court found no substantial questions of law in the appeal and consequently dismissed it, affirming the Tribunal's decision to allow the deduction of Rs. 52.84 lakhs paid by the assessee based on the Interim award.
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2009 (12) TMI 946
The Supreme Court issued an order clarifying a stay of recovery proceedings related to transit fee in a case mentioned on 15th May, 2009. The citation for this judgment is 2009 (12) TMI 946 - SC.
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2009 (12) TMI 945
Nature of receipt/income - sales tax incentive - present scheme is the New Package Scheme of Incentives 1993 of Government of Maharashtra - denial of claim of exclusion of sales-tax incentive on the ground that it is a capital receipt - HELD THAT:- FAA has come to a factually incorrect conclusion that the assessee has brought sales-tax incentive by way of interest free unsecured loan and it had to repay the sales-tax liability after 10 years as per the repayment schedule.
In view of the discussion we hold that the issue is squarely covered by the Special Bench of the Tribunal in the case of CIT vs Reliance Industries Ltd [2003 (10) TMI 255 - ITAT BOMBAY-J] and concluded that the receipt in question is capital receipt.
Argument of the revenue that sales-tax is not separately charged in the invoices - When a consolidated amount is charged in an invoice it cannot be said that it does not contain sales-tax component. Even if a separate account has been maintained for the sales-tax collected and paid, it is not correct to say they were not in the revenue field and are not reckoned while computing profit & loss of the concern. A disclosure by the auditor that separate account has been maintained for sales-tax recovered and paid does not mean that the effect of the sales-tax has not been considered in the accounts of the assessee. It is well settled that the entries in the books of account are not determinative of the fact whether a deduction is allowable or not. Thus, this objection of the revenue is rejected.
Disallowance of depreciation by reduction of notional tax on capital gain on an exemption allowed u/s 54G from the actual cost of the plant and machinery capitalized in the said assessment orders by invoking Explanation 10 to section 43(1) and thereafter computing the written down value - assessee alternatively, aggrieved at the non reduction of the same from the cost of land and building instead of plant and machinery - HELD THAT:- Section 54G exempts from capital gain on transfer of assets, in cases where an industrial undertaking is shifted from an urban area to a non urban area subject to fulfillment of certain conditions specified in that section.
An exemption from payment of capital gains tax granted u/ 54G cannot by any stretch of imagination be called a subsidy or grant or reimbursement. Such exemption cannot be said to have been granted by the State or Central Government to meet directly or indirectly a portion of the cost or the asset. For this sole reason, the entire theory made out by the assessing officer has to be quashed as devoid of merit. We are unable to comprehend how such strange, thoughts and propositions crept into the mind of the assessing officer.
The benefit u/s 54G was admittedly given to the assessee during the assessment years 1995-96 and 1996-97. Explanation 10 to sub section 43(1) was brought into the statute only wef 01-04-1999 and even in this Explanation, in our considered opinion, there is no possibility of anybody coming to a conclusion that actual cost of the asset as accepted by the revenue in the assessment years 1995-96 and 1996-97 have to be disturbed while doing the assessment for the assessment year 2003-04. The proposition suffice to say, is devoid of any logic. If such propositions are accepted, it will lead to a situation where any exemption granted under various provisions of the Income-tax Act for the payment of tax including depreciation, investment allowance etc. would be taken as a subsidy, grant or reimbursement and can be considered for the reduction of cost of asset.
CIT(A) exercise of his powers and setting aside the matter to the file of the assessing officer for fresh adjudication - CIT(Appeals) setting aside the matter with regard to factory power expenses, power house expenses,expenses incurred on maintenance of depot shed and non grant MAT credit brought forward from earlier years to the file of the A.O - HELD THAT:- We find that the CIT(A) has in erroneous exercise of his powers and wrongly set aside the matter to the file of the assessing officer for fresh adjudication though he had no power to do so consequent to the amendment brought into the Act with effect from 01-06-2001 by Finance Act, 2001 whereby section 251(1)(a) has been amended and the words "or he may set aside" have been deleted. We also find that while the CIT(A) agrees with the submissions of the assessee, he set aside the matter to the file of the assessing officer for fresh adjudication which is, in our considered opinion, not proper.
In any event, as the first appellate authority has no power to set aside the matter, we reverse his order to that extent and remit the matter back to his file for fresh adjudication in accordance with law. The assessee is at liberty to furnish any additional material in support of his claims and the first appellate authority is directed to admit such material and if necessary obtain a remand report from the assessing officer and dispose of these grounds on merits.
The first appellate authority shall not be influenced by the fact that in the set aside proceedings the assessee has not been able to present himself before the AO. With these observations we dispose of grounds 5, 6 9 & 10 of the assessee.
Ad-hoc disallowance of sale promotion expenses - Addition made there would be a possibility that some of the expenses would have not been incurred - HELD THAT:- Assessee provided complete break up of all the details in the course of assessment proceedings and also an extract of the ledger account in respect of the details provided. The assessing officer has not asked for any specific detail or proof in the nature of any particular bill from the assessee during the assessment proceedings. No explanation regarding allowability or reasonableness of the expenses was asked for during the course of assessment proceedings. On this factual matrix, we hold that the adhoc disallowance is nothing but a sheer surmise and such disallowance cannot be sustained
Disallowance of repair and expenses at head office - Expenditure largely been incurred for replacement of tiles, replacement of glass windows, doors panels etc - HELD THAT:- The nature of these expenses clearly suggest that they are in the revenue field as no asset of enduring nature can be said to have come into existence by incurring of this expenditure. Thus, We find that the assessee has rightly relied upon the judgment in the case of New Shorrock Spinning & Mfg Co Ld vs IT [1956 (2) TMI 54 - BOMBAY HIGH COURT] ; Cultural Enterprises Corporation vs CIT [1992 (1) TMI 81 - CALCUTTA HIGH COURT] and claimed that this expenditure has been wrongly disallowed. In the case of New Shorrock Spinning held that the test that must be applied is that as a result of the expenditure which is claimed as an expenditure for repairs, what is really being done is to preserve and manage an already existing asset. Respectfully applying these decisions to the facts of this case, we allow the ground of the assessee.
Levy of Interest u/s 234D - Section 234D was introduced with effect from 01-06-2003 and hence applicable for the assessment year 2004-05 as held in the case of ITO vs Ekta Promoters Pvt Ltd [2008 (7) TMI 452 - ITAT DELHI-E]. Respectfully following the same we allow this ground of the assessee and direct the AO not to levy interest u/s 234D.
Levy of Interest u/s 234B and 234C - We respectfully apply the decision in the case of South Eastern Coal Fields Ltd [2002 (2) TMI 344 - ITAT NAGPUR] and direct the AO to compute interest u/s 234C as per the income disclosed in the revised return. Coming to levy of interest u/s 234B we hold that it is consequential in nature. In the result, ground 12 is allowed in part.
In the result, appeal filed by the assessee is allowed in part.
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2009 (12) TMI 944
Issues involved: Appeal challenging Tribunal's cancellation of interest demand u/s 234B(3) of Income Tax Act in reassessment proceedings completed u/s 154.
Summary:
1. The appeal was filed by Revenue challenging Tribunal's cancellation of interest demand u/s 234B(3) in reassessment proceedings completed u/s 154. The Assessing Officer found no interest liability u/s 234B(1) in original assessment under Section 143(1) and regular assessment under Section 143(3) due to over 90% advance tax payment. However, reassessment u/s 147 led to additional tax demand, prompting interest levy u/s 234B(3) in rectification u/s 154. Tribunal held interest u/s 234B(3) can be levied only if interest was originally levied u/s 234B(1). The main issue is the interpretation of Section 234B(3) regarding the levy of interest.
2. The Tribunal's interpretation was that interest u/s 234B(3) is attracted only if interest was levied u/s 234B(1) in the original assessment. However, the Revenue argued that interest u/s 234B(3) is applicable regardless of interest levy u/s 234B(1) in regular assessment. The Court held that interest under Section 234B is levied in stages based on advance tax shortfall. Interest u/s 234B(1) is for shortfall till regular assessment, and u/s 234B(3) is for further shortfall in reassessment. The Court clarified that interest u/s 234B(3) can be levied even if no interest was demanded u/s 234B(1) in the original assessment.
3. Regarding the Assessing Officer's authority to levy interest u/s 234B(3) in rectification u/s 154, the Court held that omission in reassessment u/s 147 makes it defective, allowing rectification u/s 154 for interest levy u/s 234B(3). The Court allowed the appeal, restoring the interest levy u/s 234B(3) but directed that interest should be calculated only on the shortfall of advance tax paid, not on the entire balance demand raised in reassessment. Any errors in interest calculation should be corrected by the officer accordingly.
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2009 (12) TMI 943
TDS u/s 194C(1) or 194C(2) - Non deduction TDS - disallowance u/s 40(a)(ia) - assessee having his own trucks and is engaged in the business of transportation - assessee prays that his case be held as an independent 'contract' and not Annexure 'sub-contract' - AO held that the assessee is liable for deduction of tax under s. 194C(2) on the premise that the assessee was having agreement with the parties as a sub-contractor through whom truck were arranged for transportation of goods
HELD THAT:- Neither the AO nor the CIT(A) recorded any findings of fact that there was any oral or written agreement between the assessee and transporters for carriage of goods or there has been tripartite agreement between the assessee, M/s Priyadarsini Cements and truck owners, nor it has been proved that any sum of money regarding freight charges was paid to them in pursuance of contract for specific period, quantity or price.
In the absence of these facts, we are unable to give any findings to the applicability of the s. 1940(1). The assessee is pleading before us that s. 194C(1) is applicable without placing any documents to prove that he has entered into an agreement as a contractor with only truck owners and not as a sub-contractor and the assessee's arguments are only in air. In view of this fact, we are not in a position to uphold this argument of the assessee and the same is dismissed.
Applicability of s. 40(a)(ia) - Whether sec 40(a)(ia) applies to cases in which the hire charges are 'payable' and not applicable to the amounts which have been already paid? - HELD THAT:- Respectfully following ratio laid down in the case of Tej Constructions [2009 (10) TMI 593 - ITAT HYDERABAD] as held once the AO has observed that books of account are not reliable, how the same books can be relied for other purpose for invoking other provisions of the Act - The AO rejected the claim on the ground that according to s. 194C stipulates that the person making payment to a contractor or at the time of credit to the account has to deduct tax at source - If amount is actually paid and tax is not deducted under the above section, s. 40(a)(ia) is not applicable we are inclined to allow the appeal of the assessee on issue relating to the applicability of s. 40(a)(ia ).
Similar view has been taken in the case of Jaipur Vidyut Vitran Nigam Ltd. v. Dy.[2009 (4) TMI 489 - ITAT JAIPUR-A]. Further, the judgment relied by the Departmental Representative are relating to the upholding the constitutional validity of the provisions of s. 40(a)(ia ) and not relating to the applicability of s, 40(a)( ia).
In the result the appeal of the assessee is partly allowed.
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2009 (12) TMI 942
Issues involved: Appeal challenging Tribunal's order on addition of bogus purchases and unexplained trade credits.
Bogus Purchases: The assessee, a dealer in scrap items, was found to have made purchases not included in stock position, leading to an addition for purchase inflation. The AO added Rs. 4,48,126 to the value of purchase inflation. Similarly, credit purchases of Rs. 3,11,146 were accounted for, but notices to creditors returned unserved. The AO added this amount to income under section 68 of the IT Act.
First Appellate Authority: The assessee argued that stock shortage was due to wastage of materials, not purchase inflation. The first appellate authority considered the addition under section 68 as under section 69, ruling in favor of the assessee. The Tribunal upheld the CIT(A)'s order, prompting the Revenue's appeal.
Judgment on Bogus Purchases: The High Court found the assessee's explanations inconsistent, initially claiming stock omission was due to waste materials, then changing stance. As a scrap metal dealer, purchasing with impurities is illogical. The weight of waste material claimed by the assessee was deemed bogus (8.2833 tons). The Court reversed the Tribunal's decision, reinstating the first appellate authority's order and restoring the assessment.
Unexplained Trade Credits: The AO deemed credit entries as bogus, as creditors were untraceable. The assessee argued that payments were made in the subsequent year, which the Department accepted. The Court acknowledged the burden of proof on the assessee but remanded the matter to the AO for further consideration. If in the subsequent year, creditors are identified and payments verified, the addition of Rs. 3,11,146 will be deleted.
Conclusion: The appeal was allowed in part, with the High Court ruling in favor of the Revenue on the issue of bogus purchases and remanding the matter of unexplained trade credits for further examination.
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2009 (12) TMI 941
Issues involved: Appeal by Revenue challenging deduction u/s 80IA, disallowance of expenses, difference in conversion charges, and excess burning loss.
Deduction u/s 80IA:
The AO denied the claim of deduction u/s 80IA due to non-furnishing of essential certificate in the prescribed Form. However, the CIT(A) allowed the claim stating that the Audit Report was filed before completion of assessment, relying on precedents. The Tribunal upheld the CIT(A)'s decision, emphasizing technical breach and continuity of circumstances.
Disallowance of expenses:
The AO disallowed a claim of &8377; 19,45,247/- on freight and octroi expenses based on the agreement terms with the holding company. The CIT(A) noted the expenses were for stores materials, not specified raw materials, and hence deleted the addition. The Tribunal upheld this decision, citing lack of evidence on specific expenses.
Difference in conversion charges:
The AO sought to tax the variance in conversion charges between the assessee's and principal's books. The CIT(A) observed corrections made by the principal and deleted the addition, emphasizing matching TDS certificates. The Tribunal rejected the Revenue's appeal, relying on corrected figures and the absence of contrary evidence.
Excess burning loss:
The AO disallowed a claim for excess burning loss, reducing it to 5% from 10.96% based on survey findings. The CIT(A) overturned this decision, noting incomplete data and lack of process knowledge in the survey statements. The Tribunal remanded the issue to the AO for further examination, allowing the Revenue's appeal for statistical purposes.
Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes, maintaining deductions u/s 80IA and expenses, while remanding the issue of excess burning loss for further assessment.
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2009 (12) TMI 940
Issues involved: Consideration of CENVAT credit availed by the respondent in respect of capital goods in 2005-06 and imposition of penalty under Section 11AC of the Central Excise Act.
Summary:
Issue 1: Consideration of CENVAT credit availed by the respondent in 2005-06
The appeal pertains to the question of whether the CENVAT credit to the extent of 50% availed by the respondent in respect of capital goods in 2005-06 could be allowed. The respondent could not take the first 50% of the duty paid on the capital goods as CENVAT credit in the previous year (2004-05) due to their final products being fully exempt from payment of duty during that period. The original authority denied the CENVAT credit availed by the respondent in 2005-06 and imposed a penalty under Section 11AC of the Central Excise Act. The Commissioner (Appeals) allowed the appeal filed by the assessee, leading to the present appeal by the department.
Issue 2: Interpretation of relevant legal precedents
The respondent claimed that their CENVAT credit is supported by the decisions of the Tribunal in cases such as Ace Timez vs. CCE, Bangalore 2004 (170) ELT 371 (Tri.-Bang.) and Keihin Fie Pvt. Ltd. vs. CCE, Pune-III 2007 (213) ELT 637 (Tri.-Mumbai). These cases involved situations where the assessee had not availed 50% of the CENVAT credit on capital goods in the first financial year of receipt, and subsequently availed it in the next financial year. The Tribunal held that there was no bar against availing CENVAT credit in the second financial year to the extent of 50% where it was not availed in the first financial year. The department's appeal did not address these crucial decisions relied upon by the lower appellate authority, lacking elaboration on other Tribunal decisions mentioned in the appeal memo.
Conclusion:
The appeal was dismissed by the Appellate Tribunal CESTAT, MUMBAI, upholding the decision of the Commissioner (Appeals) in favor of the assessee regarding the CENVAT credit issue.
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2009 (12) TMI 939
Issues Involved:1. Whether the assessee is entitled to deduct the expenditure on advertisement and sales promotion in computing the profits of its business. Summary:Issue 1: Deductibility of Advertisement and Sales Promotion ExpenditureThe income-tax department filed appeals for the assessment years 1999-2000 and 2001-02, questioning the deductibility of the assessee's expenditure on advertisement and sales promotion. The Assessing Officer (AO) had disallowed these expenditures, arguing that they were capital in nature and should be capitalized as intangible assets u/s 32(1)(ii) of the Income Tax Act. The AO equated brand value to goodwill, asserting that the expenses conferred an enduring benefit to the assessee. On appeal, the CIT(A) found that the brands Halls and Chiclets were owned by Warner Lambert Pharmaceutical Company (USA), not the assessee. The CIT(A) held that the expenditure was recurring and in the revenue field, not conferring any enduring advantage or resulting in the acquisition of intangible assets. Consequently, the CIT(A) directed the AO to allow the expenditure as revenue expenditure for both assessment years. The Revenue contended that the CIT(A) did not adequately discuss the authorities cited by the AO and failed to appreciate that the sales had declined, indicating that the expenditure was not for promoting products but for brand building. The assessee argued that the expenditure had been accepted as revenue in nature in earlier scrutiny assessments and that no intangible assets were created. The assessee cited several authorities supporting the claim that advertisement and sales promotion expenses are revenue expenditures. The Tribunal, after considering the rival contentions and authorities, upheld the CIT(A)'s decision. It noted that the assessee was not the owner of the brands and that the expenditure was incurred wholly and exclusively for the purpose of the business. The Tribunal referenced various judgments, including those of the Allahabad High Court and Gujarat High Court, which supported the view that advertisement expenses do not result in enduring benefits and are revenue in nature. The Tribunal also dismissed the Revenue's argument that the CIT(A)'s order was not a speaking order, finding that the CIT(A) had examined the facts in detail. Regarding the reasonableness of the expenditure, the Tribunal noted that the percentage of expenditure to sales was not unreasonably high compared to previous years. It concluded that the provisions of section 32(1)(ii) were not applicable as the assessee had not acquired any intangible asset. The expenditure was incurred in the revenue field, and thus, allowable as revenue expenditure. In conclusion, the Tribunal upheld the CIT(A)'s orders, allowing the expenditure on advertisement and sales promotion as revenue expenditure for the assessment years 1999-2000 and 2001-02, and dismissed the appeals filed by the Revenue. Order pronounced on this 31st day of December, 2009.
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2009 (12) TMI 938
Issues involved: Determination of allowable expenditure u/s 37(1) against income from other sources when there is no trading activity, and application of commercial expediency test.
Summary:
The appellant, a private limited company engaged in various businesses, claimed deduction of administration expenses in a year with no trading activity. The Assessing Officer disallowed the claimed expenditure against income from other sources. The CIT (A) and ITAT upheld this decision without considering the appellant's arguments regarding the nature of income and business activity. The High Court observed that the Tribunal did not appropriately address the appellant's contentions and failed to provide specific findings. Referring to relevant case laws, the Court emphasized the need to determine whether the business had ceased or was merely dormant in the year in question. It held that if the business was suspended but not closed down, the claimed expenditure could be allowed as business expenditure and set off against income from other sources u/s 71 of the Act. As the authorities did not conduct this necessary examination, the Court set aside the orders and remitted the matter to the Assessing Officer for fresh assessment in light of these considerations.
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2009 (12) TMI 937
Issues Involved:
1. Reopening of assessment u/s. 148 of the Income-tax Act, 1961.
2. Method of completion of projects.
3. Non-acceptance of various expenses claimed by the assessee.
4. Treatment of compensation paid to various persons as the cost of the project.
5. Allowance of expenses incurred in subsequent years as part of the project cost.
6. Computation of profit from the project based on receipts against the sale of flats.
7. Deletion of addition out of receipt from the project.
Issue-wise Detailed Analysis:
1. Reopening of Assessment u/s. 148 of the Income-tax Act, 1961:
The assessee challenged the reopening of the assessment made by the Assessing Officer (AO) u/s. 148. The AO issued the notice based on documents found during a survey u/s. 133A, indicating that the assessee's project was substantially complete by 31st March 1999, and thus profits should have been declared in A.Y. 1999-2000. The CIT(A) upheld the AO's action, stating that there was prima facie material to believe that income had escaped assessment. The Tribunal found no infirmity in the CIT(A)'s order, referencing the Supreme Court decision in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., and upheld the reopening of the assessment.
2. Method of Completion of Projects:
The assessee argued that it followed the Project Completion Method, which had been accepted by the Department in previous years. The CIT(A) rejected this, stating that the project was substantially complete in the previous year relevant to A.Y. 1999-2000, as nearly all flats were sold and payments were received. The Tribunal agreed with the CIT(A), noting that accepting the assessee's claim would allow indefinite tax deferral by keeping a small part of the project incomplete.
3. Non-acceptance of Various Expenses Claimed by the Assessee:
The CIT(A) called for a remand report from the AO regarding the expenses claimed by the assessee. After reviewing the remand report and the assessee's submissions, the CIT(A) directed the AO to verify certain figures and recompute the profit from the project. The Tribunal upheld the CIT(A)'s directions, finding no infirmity in the order.
4. Treatment of Compensation Paid to Various Persons as the Cost of the Project:
The Revenue contested the CIT(A)'s direction to treat compensation paid to various persons as part of the project cost. The CIT(A) had called for a remand report and, after considering the evidence provided by the assessee, directed the AO to include the compensation as project cost. The Tribunal found no infirmity in the CIT(A)'s order, noting that the compensation was paid through cheques and the resale of flats resulted in higher receipts.
5. Allowance of Expenses Incurred in Subsequent Years as Part of the Project Cost:
The CIT(A) admitted additional evidence regarding expenses incurred after 31.3.1999 and called for a remand report. The AO objected, stating these expenses were incurred in subsequent years and were in the nature of repairs. The CIT(A) allowed an amount of Rs. 2,94,80,530 as part of the project cost. The Tribunal restored the issue to the AO for fresh adjudication, directing the AO to verify the evidence and ensure the expenses were not repairs.
6. Computation of Profit from the Project Based on Receipts Against the Sale of Flats:
The CIT(A) directed the AO to compute the profit from the project based on receipts from the sale of flats in various accounting years. The Tribunal restored this issue to the AO for fresh adjudication, in line with the directions given for the previous issue.
7. Deletion of Addition Out of Receipt from the Project:
The CIT(A) deleted the addition of Rs. 2,19,03,394, holding that it would result in double taxation as the receipt was already considered in A.Y. 1999-2000. The Tribunal restored this issue to the AO for fresh adjudication, consistent with the decision on the related issues.
Conclusion:
The Tribunal dismissed the assessee's appeal (I.T.A. No. 3568/Mum/2006), partly allowed the Revenue's appeal for statistical purposes (I.T.A. No. 3483/Mum/06), and allowed the Revenue's appeal for statistical purposes (I.T.A. No. 4396/Mum/06). The Tribunal directed the AO to re-examine several issues, ensuring a thorough and fair reassessment.
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2009 (12) TMI 936
The Supreme Court held that the civil appeals directly to the Court were not maintainable under Section 35-G of the Central Excise Act, 1944. The appeals were dismissed as withdrawn with liberty given to the appellants to move the High Court.
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2009 (12) TMI 935
Issues involved: Delay in filing appeal before the CIT (A) u/s 13.34% profit estimation for the assessment year 2005-06.
Delay in filing appeal: The appellant, represented by Shri A.V.Raghuram, argued that the delay of 355 days in filing the appeal was unintentional and beyond the control of the assessee. Citing a judgment of the Andhra Pradesh High Court, it was contended that when a person has a good case on merits, technical plea of limitation should not deprive them of their just due. The delay was attributed to a misunderstanding regarding the need to file an appeal for the assessment year 2005-06 after offering additional income for 2006-07.
Department's stance: On the contrary, the learned departmental representative, Shri H.Phani Raju, contended that the assessee had no reasonable cause for the delay in filing the appeal. Referring to a decision of the Chennai Bench of the Tribunal, it was argued that negligence on the part of the assessee cannot be condoned for the delay. The department suggested that if there was a reasonable cause for the delay, the matter should be remitted back to the CIT (A) for consideration on merits.
Judgment: The Tribunal considered the submissions and found that the delay was unintentional as the assessee was under the impression that no appeal was needed for the assessment year 2005-06 after offering additional income for 2006-07. Drawing parallels with a case before the Andhra Pradesh High Court, where delay was condoned due to a similar misunderstanding, the Tribunal concluded that the delay of 355 days should be condoned. The judgment emphasized that when an assessee has a good case on merits, technical limitations should not hinder justice. The order of the CIT (A) was set aside, and the delay in filing the appeal was condoned, directing the CIT (A) to consider the appeal on merits.
Result: The appeal of the assessee was allowed, and the order was pronounced on 18-12-09.
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2009 (12) TMI 933
Disallowance under section 43B - belated payment of PF contribution - addition of prior period expenses - deduction under section 80-IA - HELD THAT:- Standing counsel appearing for the Revenue has relied on decision of the Supreme Court in Synco Industries Ltd. vs. AO & Anr. [2008 (3) TMI 13 - SUPREME COURT] and contended that the claim u/s 80-IA though with reference to the profit of the new industrial limit, has to be limited to the net total income computed, if the claim amount is higher than such income. We do not think there can be any controversy on this proposition because u/s 80A(2) total deductions under Chapter VI-A have to be limited to the gross total income of the assessee computed under the provisions of the Act. Therefore, assessee cannot claim deduction u/s 80-IA in excess of gross total income computed, no matter eligible amounts may be higher than such income. However, we disapprove the pattern of computation made by the assessee by deducting from the profits of the eligible industrial unit the claim amount and then returning the balance to constitute gross total in the computation of total income.
In fact, the procedure to be followed for the purpose of granting deduction u/s 80-IA is to first compute the profits and gains of the eligible unit and then to determine the eligible deduction therefrom in terms of section 80-IA(5) of the Act. Thereafter, in the computation of total income under the provisions of the Act, the eligible deduction has to be reduced and if the total income computed is less than the eligible amount, deduction has to be limited to such amount.
Since there has been variations in the total income computed by virtue of disallowances and later orders of the higher authorities allowing it, we direct the officer to rework total income and therefrom allow eligible deduction u/s 80-IA(5) of the Act with reference to the profits of the eligible unit, but limiting it to the total income, if the claim amount is higher than such amount. The orders of the Tribunal and the first appellate authority will stand modified as above.
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2009 (12) TMI 932
Issues involved: Interpretation of Section 32(2) of the Finance Act, 1997 regarding set off of brought forward unabsorbed depreciation with long term capital gain.
Judgment Summary:
Issue 1: Set off of unabsorbed depreciation with long term capital gain
The issue in this case revolved around whether the brought forward unabsorbed depreciation could be set off with the long term capital gain following an amendment to Section 32(2) of the Finance Act, 1997. The Tribunal, relying on a previous decision and the Finance Minister's speech, answered this issue affirmatively. The Madras High Court also interpreted the provision similarly based on the Minister's speech. The Court observed that the provision could be construed in the same manner as decided by the Tribunal and the Madras High Court. Therefore, the Court concluded that no question of law arose and dismissed the appeal.
In conclusion, the Court upheld the Tribunal's decision and the interpretation of the provision based on the Finance Minister's speech, affirming the set off of brought forward unabsorbed depreciation with long term capital gain as per the amended Section 32(2) of the Finance Act, 1997.
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2009 (12) TMI 931
Entitlement to interest - whether the interest on delayed refund is to be paid to the party immediately after expiry of three months from the date of receipt of the application of refund u/s 11B and 11BB of CEA, 1944? - Held that: - the assessee is entitled for refund claim within three months from the date of application of refund claim and if there is any subsequent litigation, that does not bar the assessee to claim the interest from date of expiry of three months of the filing of the refund claim - appeal rejected - decided against Revenue.
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