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2011 (1) TMI 1451
Issues involved: Assessment of total income for the assessment year 2007-08, additions made under various heads by the Assessing Officer, disallowances due to non-production of vouchers/bills, applicability of section 40(a)(ia) regarding TDS on labor charges.
The appellant, a firm engaged in embroidery work using computerized machines, filed its income tax return for the assessment year 2007-08 admitting a total income of Rs. 6,70,550. The Assessing Officer (A.O.) made additions totaling Rs. 22,24,810 under different heads, including discrepancies in purchases and sales accounts, absence of bills for labor charges, ESI premium receipts, and non-deduction of TDS on labor charges. The firm appealed against these additions before the Commissioner of Income Tax (Appeals) who upheld the A.O.'s decision.
Upon hearing both parties and examining the records, it was noted that the disallowances were due to the non-production of vouchers and bills. The appellant contended that the A.O. did not verify any bills and did not provide an opportunity to produce them. The significant addition of Rs. 15,24,800 was related to the non-deduction of TDS on labor charges under section 40(a)(ia) of the Income Tax Act. The appellant argued that section 194C was not applicable to their case and section 40(a)(ia) should not be invoked. They claimed that the embroidery work was done by outside embroiderers under their control and supervision, not as a subcontract. The order of the CIT(A) was considered non-speaking, leading to the decision to set it aside and remand all issues back to the Assessing Officer for a fresh assessment after hearing the appellant.
Consequently, the appeal by the assessee was allowed for statistical purposes, and the entire matter was directed to be reconsidered by the Assessing Officer for a de novo assessment. The order was pronounced in an open court on the Eleventh Day of January, 2011.
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2011 (1) TMI 1450
Issues Involved: 1. Reopening of assessment. 2. Taxability of donations given to Ramakrishna Mutt.
Summary:
Reopening of Assessment: The first issue concerns the reopening of the assessment. The assessee, a public charitable trust registered u/s 12A of the Income Tax Act, 1961, filed its return for the assessment year 2006-07 on 31.10.2006. No notice u/s 143(1) and 143(2) was issued, but a notice for reopening u/s 148 was issued on 17.10.2007. The assessee argued that the assessment made u/s 143(3) read with s.147 is bad in law as the notice u/s 148 was issued before the expiry of the period for issuing notice u/s 143(2). The Tribunal, after considering various judgments, including CIT Vs. Ved & Co. (302 ITR 328) (Del.) and CIT Vs. TCP Ltd. (323 ITR 346) (Mds. HC), held that the reopening of assessment by issuing notice u/s 148 dated 17.10.2007 is bad in law. The Tribunal emphasized that proceedings u/s 147 can only be initiated after the earlier proceedings have terminated, which was not the case here. Hence, the first ground of the appeal was allowed in favor of the assessee.
Taxability of Donations to Ramakrishna Mutt: The second issue pertains to the taxability of donations given to Ramakrishna Mutt. The assessee contended that the donations received were for a specific purpose (helping Tsunami victims) and thus should not be treated as income. The assessee argued that the donations were tied-up funds and relied on the Tribunal's order in Nirmala Agricultural Society Vs. ITO (71 ITD 152) (Hyd.). However, the Tribunal found no evidence of how the funds were used for the welfare of Tsunami victims and noted that the end utilization was not furnished. The Tribunal held that the donation given to Ramakrishna Mutt cannot be considered as utilization u/s 11(3A) due to the proviso which prohibits such application of income. Consequently, the second ground was decided against the assessee.
Conclusion: The appeal was partly allowed, with the reopening of assessment being quashed, but the taxability of donations to Ramakrishna Mutt upheld.
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2011 (1) TMI 1449
Issues involved: The issues involved in the judgment are the legality of the Show Cause Notice issued by Respondent No. 2, the demand of &8377; 24,61,850/- under Section 72 of the Finance Act, 1994, the permissibility of issuing a Show Cause Notice after best judgment assessment under Section 73 of the Finance Act, 1994, and any other appropriate relief deemed just and proper.
Judgment Details:
Issue (a): The petitioner sought a writ to quash the Show Cause Notice issued by Respondent No. 2 as illegal. During the hearing, the respondents agreed that the adjudicating authority would address the petitioner's objection regarding the issuance of the show cause notice. The court directed the adjudicating authority to decide on the jurisdictional aspect after hearing the petitioner. The order was to be a speaking one, and the authority was given six weeks to make a decision. The writ petition was disposed of with no order as to costs.
Issue (b): The petitioner requested a writ to quash the demand of &8377; 24,61,850/- created by the respondents through best judgment assessment under Section 72 of the Finance Act, 1994. The court's direction to the adjudicating authority to address the jurisdictional aspect also applies to this issue. The authority was instructed to consider the petitioner's stance and make a decision within six weeks. The writ petition was disposed of without any costs being awarded.
Issue (c): The petitioner sought a writ to declare that no Show Cause Notice can be issued under Section 73 of the Finance Act, 1994, once a best judgment assessment has been made. The court's directive to the adjudicating authority to examine the jurisdictional aspect covers this issue as well. The authority was given six weeks to decide after hearing the petitioner. The writ petition was disposed of, and no costs were awarded.
Conclusion: The High Court directed the adjudicating authority to address the jurisdictional aspect raised by the petitioner regarding the Show Cause Notice and the demand created through best judgment assessment. The authority was given six weeks to make a decision after hearing the petitioner, and the writ petition was disposed of without any costs being imposed.
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2011 (1) TMI 1448
Issues involved: Appeal against CIT(A)'s order for assessment year 2006-07 regarding exemption u/s 10(23C)(vi) and u/s 11, acceptance of ITAT decisions, and collection of capitation fees by educational institutions.
Exemption u/s 10(23C)(vi): The Revenue contended that approval u/s 10(23C)(vi) is mandatory for societies with gross receipts over Rs. One crore. It was emphasized that section 10(23)(vi) provides for educational income exemption, not section 11. The Tribunal referred to the T.M.A. Pai Foundations case, stating that institutions collecting capitation fees cannot be considered charitable/educational. The matter was remitted to the assessing officer to determine if capitation fees were collected, emphasizing that such collections would disqualify the institution from exemptions u/s 10(23C) or u/s 11.
Acceptance of ITAT decisions: The Tribunal noted that previous decisions favored the assessee, citing cases like M/s Vasavi Academy Education and St. Theresa's Society. The Tribunal referred to Supreme Court judgments in support of disallowing exemptions for institutions collecting money beyond prescribed fees. The assessing officer was directed to reevaluate the issue in light of these judgments and give the assessee a fair hearing.
Collection of capitation fees: The Tribunal highlighted the need for assessing officers to investigate if educational institutions were collecting capitation fees, as per the T.M.A. Pai Foundations and Islamic Academy of Education cases. The Tribunal set aside the issue for fresh consideration, reiterating that any collections beyond prescribed fees would disqualify institutions from tax exemptions.
Conclusion: The Revenue's appeal was allowed for statistical purposes, and the issue was remitted to the assessing officer for reevaluation in accordance with the Supreme Court judgments. The Tribunal emphasized the importance of assessing whether educational institutions were collecting capitation fees, as this could impact their eligibility for tax exemptions.
Note: Separate judgments were not delivered by the judges in this case.
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2011 (1) TMI 1447
Issues involved: The issues involved in this case are: (i) Whether AO was justified in making addition of Rs. 12,12,509/- by applying the net profit rate of 5%. (ii) Whether learned CIT(A) was justified in making a further addition of Rs. 33,82,487/- by enhancing the rate of net profit from 5% applied by the AO to 12%.
Details of the Judgment:
Issue (i): The assessee, a proprietor of M/s Krishna Builders, filed a return of income for AY 2006-07 declaring taxable income of Rs. 11,97,694/-. The AO determined the total income at 5% of gross receipts, amounting to Rs. 22,92,698/-, as against the declared income of Rs. 12,80,189/-. The AO rejected the books of account due to incomplete records and lack of bills and vouchers for major expenses.
Issue (ii): The CIT(A) upheld the AO's decision to reject the books of account and applied a net profit rate of 12% on total contract receipts, citing precedents. The CIT(A) noted the failure of the assessee to produce complete records despite opportunities. The assessee's counsel argued for the production of complete books of account, but failed to provide evidence supporting this claim. The comparative analysis of turnover and net profit over the years showed an increase in turnover, with varying net profit percentages.
The Tribunal found that the AO's application of a 5% net profit rate was reasonable based on past assessments. Considering the incomplete records and the failure to produce complete books of account, the Tribunal determined a net profit rate of 4% as justified. The appeal was partly allowed, directing the AO to modify the assessment order accordingly.
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2011 (1) TMI 1446
Summoning of certain documents - Election Petition - Rejection of application praying for the summoning of certain documents on the ground that it was not permissible to summon the said documents - same person cast two votes in the election - it is alleged that Smt. Kalpana Kunwar and Smt. Kalpana Singh (wife of Petitioner) were one and the same person, but her name was registered at two places in the electoral rolls of the constituency and hence she had cast two votes in the election - it is also the case that Six (6) tendered votes cast in the election must be counted and the six (6) votes originally polled against the tendered votes must be rejected.
HELD THAT:- In KAILASH VERSUS NANHKU & ORS. [2005 (4) TMI 542 - SUPREME COURT], this Court held that the trial of an election petition is entirely different from the trial of a civil suit, as in a civil suit trial commences on framing the issues while trial of an election petition encompasses all proceedings commencing from the filing of the election petition up to the date of decision. Therefore, the procedure provided for the trial of civil suits under CPC is not applicable in its entirety to the trial of the election petition. For the purpose of the election petition, the word `trial' includes the entire proceedings commencing from the time of filing the election petition till the pronouncement of the judgment. The applicability of the procedure in Election Tribunal is circumscribed by two riders: firstly, the procedure prescribed in CPC is applicable only "as nearly as may be", and secondly, the CPC would give way to any provisions of the Act or any rules made thereunder. Therefore, the procedure prescribed in CPC applies to election trial with flexibility and only as guidelines.
The object of framing issues is to ascertain/shorten the area of dispute and pinpoint the points required to be determined by the court. The issues are framed so that no party at the trial is taken by surprise. It is the issues fixed and not the pleadings that guide the parties in the matter of adducing evidence - There may be an exceptional case wherein the parties proceed to trial fully knowing the rival case and lead all the evidence not only in support of their contentions but in refutation thereof by the other side. In such an eventuality, absence of an issue would not be fatal and it would not be permissible for a party to submit that there has been a mis-trial and the proceedings stood vitiated.
Thus, it is evident that the party to the election petition must plead the material fact and substantiate its averment by adducing sufficient evidence. The court cannot travel beyond the pleadings and the issue cannot be framed unless there are pleadings to raise the controversy on a particular fact or law. It is, therefore, not permissible for the court to allow the party to lead evidence which is not in the line of the pleadings. Even if the evidence is led that is just to be ignored as the same cannot be taken into consideration.
In the case at hand, the election petitioner/respondent has claimed only that there has been irregularity/illegality in counting of 6 tendered votes and the case squarely falls within the ambit of Section 100(1)(d)(iii) of the Act, 1951. Election petitioner has further pleaded that the result of the election stood materially affected because of improper receiving the six tendered votes and in absence of any Recrimination Petition in the case the appellant cannot be permitted to lead evidence on the fact which is not in issue - there are no cogent reason to interfere with the well reasoned judgment and order of the High Court impugned herein.
Appeal dismissed.
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2011 (1) TMI 1445
Issues Involved: 1. Entitlement to deduction u/s 80IB(10) regarding the minimum area of the plot. 2. Entitlement to deduction u/s 80IB(10) regarding the maximum built-up area of residential units. 3. Entitlement to deduction u/s 80IB(10) regarding the completion of the project before the stipulated date.
Summary:
1. Minimum Area of the Plot: The AO disallowed the deduction u/s 80IB(10) on the ground that the project was constructed on a plot of land less than 1 acre. The AO noted that the original plot was 5100 sq. mts., but 1186 sq. mts. were surrendered to KDMC for a DP Road, leaving 3914 sq. mts., which is less than 1 acre. The CIT(A) confirmed this view. However, the Tribunal referred to the decision in the case of M/s. Umiya Enterprises, which held that the area surrendered for DP Road should not be excluded for determining the size of the plot u/s 80IB(10)(b). Therefore, this objection does not survive.
2. Maximum Built-up Area of Residential Units: The AO observed that the built-up area of two units in Building No.3 exceeded 1500 sq. ft., including balconies, projections, terraces, and other exclusive areas. The CIT(A) did not accept the AO's contention and held that the built-up area of each unit was 1451 sq. ft. only, excluding the foyer area and open area. The department did not challenge this finding, so this objection does not survive.
3. Completion of the Project Before the Stipulated Date: The AO noted that the project was not completed before 31-3-2008, as required u/s 80IB(10)(a)(i), due to ongoing litigation regarding Building No.3. The CIT(A) confirmed this view. The Tribunal acknowledged that the project could not be completed due to circumstances beyond the assessee's control (litigation). Referring to various decisions, including Bengal Ambuja Housing Development Ltd. and Brigade Enterprises (P) Ltd., the Tribunal held that proportionate deduction u/s 80IB should be allowed in the ratio of the area completed to the sanctioned area. The Tribunal clarified that the size of the plot should be taken as 5100 sq. mts. for this purpose.
Conclusion: The appeal is partly allowed, granting proportionate deduction u/s 80IB based on the completed area relative to the sanctioned area, considering the plot size as 5100 sq. mts.
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2011 (1) TMI 1444
Issues Involved: 1. Treatment of software expenditure as capital or revenue expenditure. 2. Disallowance of expenditure on leased premises. 3. Disallowance of payment for non-deduction of TDS u/s 40(a)(ia).
Summary:
1. Treatment of Software Expenditure: The primary issue was whether the software expenditure of Rs. 2,03,500 should be treated as capital or revenue expenditure. The Assessing Officer (AO) treated it as capital expenditure, relying on the decision of the Hon'ble Rajasthan High Court in CIT v/s Arawali Construction Co. (P) Ltd., 259 ITR 30 (Raj.). The CIT(A) upheld the AO's decision, stating that the nature of expenditure does not change due to the economic environment and that computer software is included in the block of assets with allowable depreciation at 60%. However, the Tribunal, after considering the nature of the software and the need for constant upgradation, concluded that there is no enduring benefit and allowed it as revenue expenditure, setting aside the order of the CIT(A).
2. Disallowance of Expenditure on Leased Premises: The second issue was the disallowance of Rs. 41,522 towards the capitalization of expenditure on leased premises. The AO found that out of the total expenditure of Rs. 1.11 crore, Rs. 44,32,997 was for renovation and improvement of the building, thus falling under Explanation 1 of Section 32 of the Act. The CIT(A) confirmed the AO's action, stating that the expenses were indeed for renovation/improvement of office premises. The Tribunal upheld the CIT(A)'s decision, agreeing that the expenditure provided a permanent benefit to the company and confirmed the addition of Rs. 41,00,522.
3. Disallowance of Payment for Non-Deduction of TDS u/s 40(a)(ia): The third issue involved the disallowance of Rs. 2,37,01,175 for non-deduction of TDS on payments made to the parent company, Strategic Capital Corporation. The AO observed that the payments were for work including the supply of labor, attracting TDS u/s 194C. The CIT(A) upheld the AO's decision, stating that the payments were for work and supply of labor, thus TDS was deductible. The Tribunal, however, found that the payments were reimbursements for shared services and infrastructure on a cost-to-cost basis without any markup. It held that TDS was not required on reimbursed expenses as they had already been subjected to tax deductions at source when originally paid. Thus, the Tribunal allowed this ground of appeal.
4. Levy of Interest u/s 234A, 234B, 234C, and 234D: The last ground regarding the levy of interest charged u/s 234A, 234B, 234C, and 234D was not addressed by the CIT(A). The Tribunal set aside this issue to the file of the CIT(A) for fresh adjudication.
Conclusion: The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the treatment of software expenditure and the disallowance of payment for non-deduction of TDS, while upholding the disallowance of expenditure on leased premises. The issue of interest levy was remanded to the CIT(A) for fresh consideration.
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2011 (1) TMI 1443
Issues involved: Appeal by Revenue against reduction of net profit for diminution in value of investment for book profit u/s 115JB for assessment year 2006-07.
Summary: 1. The Revenue appealed against the reduction of net profit by &8377; 1,30,53,000/- for diminution in the value of investment for book profit u/s 115JB. 2. The AO noticed the discrepancy in the computation of income under normal provision and book profit u/s 115JB due to the exclusion of the exceptional item related to diminution in value of investment. 3. The assessee explained that the provision for diminution in the value of investment was rightly reduced in the computation of Book Profit as per the Explanation u/s 115JB(2). 4. The AO added back the amount of &8377; 1,30,53,000/- in the book profit citing the retrospective amendment in the Finance Act, 2009 disallowing such deductions. 5. The Ld. CIT(A) disallowed the addition, stating that the amount written back was part of the provision for which no deduction was allowed earlier, hence should not be included in book profit. 6. The Revenue contended that the provision for diminution in the value of investment was not added back under section 115JB, leading to an incorrect computation of book profit. 7. The Ld. Counsel for the Assessee argued that the amount written back was out of the provision created earlier, which was not claimed as a deduction in the book profit for the relevant year. 8. The Tribunal observed that the provision for diminution in the value of investment was not added back in the assessment year 2001-02, and the Ld. CIT(A)'s direction was based on incorrect facts, thus setting aside the order and restoring that of the AO. 9. Consequently, the appeal of the Revenue was allowed, and the original order was upheld.
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2011 (1) TMI 1442
Issues involved: Stay petition for waiver of pre-deposit of duty and penalty u/s Notification No. 89/95 dated 18.05.1995.
The Appellate Tribunal CESTAT Bangalore, comprising M.V. Ravindran, Judicial Member, and P. Karthikeyan, Technical Member, heard a stay petition filed for the waiver of pre-deposit of duty amounting to Rs. 29,00,532/- along with applicable interest and penalty of Rs. 29,00,532/-. The demand of duty arose as the appellant wrongly availed the benefit of Notification No. 89/95 dated 18.05.1995 for waste products generated during the manufacture of Rice Bran Oil. The Tribunal noted a similar case precedent where it was held that waste products arising during the manufacturing process are eligible for the said notification. Consequently, the Tribunal found that the appellant established a prima facie case for the waiver of pre-deposit, allowing the application and staying the recovery until the appeal's disposal.
Conclusion: The Tribunal allowed the waiver of pre-deposit of duty and penalty u/s Notification No. 89/95 dated 18.05.1995, based on the appellant's prima facie case and precedent set in a similar case, staying the recovery until the appeal's final disposal.
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2011 (1) TMI 1441
Appeal for revenue for Assessment - Nature of receipts Capital or Revenue - the AO treated the amount received by the assessee as west Bengal Industrial Promotion Assistance(WBIPA) as 'revenue receipt' and on appeal, the Ld. CIT(A) treated the WBIPA as a capital receipt and directed the AO to delete the additions for all the years under appeal. Aggrieved by the said order, now the revenue is in appeals before us.
HELD THAT:- the sole purpose behind the grant of assistance is to tide over the financial crisis and promotion of industries and that both these activities are related to capital field and cannot be linked up with day to day operations of the appellant in any manner. Respectfully following the jurisdictional Kolkata ITAT and High Court decisions, I treat WBIPA as a capital receipt and direct the A.O to delete the addition. This ground of appeal of the revenue for all the three assessment years are dismissed.
Rule 8D(2)(iii) for disallowance - HELD THAT:- Since Rule 8D was inserted by the IT 5th Amendment Rules 2008 w.e.f. 24.3.2008 and Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] has held that it is not retrospective in nature this rule is not applicable for the year under appeal. Therefore, the Ld. CIT(A) was not justified in directing the AO to apply Rule 8D(2)(iii) for disallowance. In the result, the appeals of the revenue for Assessment Years 2000-01 and 2006- 07 are dismissed and the appeal for Assessment Year 2005-06 of the revenue is partly allowed.
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2011 (1) TMI 1440
Issues Involved: The judgment involves the confirmation of penalty u/s 271(1)(c) of the IT Act by the Ld. Commissioner of Income Tax (Appeals) for the assessment year 2006-07.
Disallowance of Payment of ROC Fee: The Assessee claimed deduction for payment of ROC fee for increase in authorized capital under section 35D, but it was disallowed as there is no concept of deferred revenue expenditure in the Income Tax Act for an existing company.
Disallowance of Delayed Payment of Employee's Contribution to PF and ESI: The Assessee's explanation for delayed payments was based on circulars providing grace periods, but the Assessing Officer held that employees' contributions stand on a different footing than the sums referred to in Section 43B of the IT Act.
Disallowance u/s 14A: The Assessing Officer disallowed the claim of exempt dividend income under section 10(34) by applying Rule 8D of the Income Tax Rules.
Penalty Levied: A penalty of &8377; 85,530 was levied against the disallowances, which was confirmed by the Ld. Commissioner of Income Tax (Appeals) based on the Assessee's acceptance of the additions made.
Judgment: The ITAT Delhi set aside the penalty orders, ruling that the Assessee cannot be held guilty for concealment or furnishing inaccurate particulars regarding the disallowances. The Tribunal found no concealment in the delayed payments towards PF and ESI contributions, and the disallowance u/s 14A was deemed inapplicable as Rule 8D was notified for a later assessment year. The Tribunal cited legal precedents emphasizing that penalties should not be imposed for technical breaches or bonafide beliefs, ultimately allowing the Assessee's appeal and deleting the penalty.
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2011 (1) TMI 1439
The Supreme Court dismissed the appeals in the case with citation 2011 (1) TMI 1439 - SC. Dr. Mukundakam Sharma and Anil R. Dave were the judges.
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2011 (1) TMI 1438
Issues involved: Appeal against order of CIT(A) regarding deletion of addition towards capital introduced by partners and additions made towards advance u/s 68 of the IT Act for assessment year 2006-07.
Deletion of addition towards capital introduced by partners: The appeal concerned the deletion of addition made towards capital introduced by a partner, which was initially treated as unexplained credit u/s 68 of the IT Act due to lack of evidence. The Managing Partner had introduced capital through bank transfers, but failed to provide evidence of fund availability. However, the CIT(A) deleted the addition based on bank statements and a copy of the bank account obtained from Union Bank of India without confronting the evidence to the assessing officer. The Tribunal found this improper, stating that the CIT(A) should have presented the documents to the assessing officer before making a decision. Consequently, the issue was set aside to the assessing officer for fresh consideration after reviewing the documents produced by the assessee before the CIT(A).
Additions made towards advance u/s 68 of the IT Act: Another ground of appeal involved additions made towards an advance u/s 68 of the IT Act, where the assessee failed to provide names and addresses of the parties from whom the advance was received. The assessing officer treated it as unexplained credit, but the assessee contended that it was received towards sales advances and subsequently adjusted towards sales, thus not qualifying as unexplained credit. The CIT(A) agreed with the assessee and deleted the addition. However, the Tribunal noted that the evidence collected by the CIT(A) was not presented to the assessing officer for verification. In the interest of justice, the issue was set aside to the assessing officer for reconsideration in light of the evidence produced by the assessee before the CIT(A).
In conclusion, the appeal of the Revenue was partly allowed for statistical purposes, and the order was pronounced in open court on 7.1.2011.
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2011 (1) TMI 1437
Issues involved: Appeal against the order passed by CIT(A) regarding estimation of income u/s 44AD for assessment year 2007-08.
Revenue's Grounds: 1. CIT(A) erred in law and facts. 2. Discrepancy in estimation of gross receipts compared to similar cases. 3. Application of sections 30 to 44D when books are rejected.
Assessee's Cross Objection: Supports CIT(A)'s order.
Facts: Assessee, a construction company, filed return for AY 2007-08 with total income of Rs. 55,64,210. AO rejected books, estimated income at 10% of contract receipt. CIT(A) directed income estimation at 6% on gross receipts and 3% on hire charges. Revenue appealed.
Judgment: Assessee's books not reliable, discrepancies found. AO rightly rejected books. Profit estimation varies based on factors like location, raw material availability. Tribunal considered 8% estimation reasonable based on similar cases. Directed AO to estimate income at 8% of gross contract receipt.
Depreciation: Section 44AD restricts further deductions. Claim of depreciation on estimated income not justified.
Partner's Salary: Proviso to section 44AD(2) allows deduction of partner's salary from income. Payment of salary to partner allowed subject to limitations under section 40(b).
Precedent: Judgment of jurisdictional High Court not applicable due to changes in law. Salary paid to partner allowed separately from estimated income.
Outcome: Revenue's appeal partly allowed, Assessee's Cross Objection dismissed. Salary to partner allowed as per limitations.
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2011 (1) TMI 1436
Issues involved: Challenge to the levy of penalty u/s.271[1][c] for A.Yrs. 1999-2000 and 2001-02 based on disallowed salary payments to Managing Director as per Shareholders Agreement.
Summary:
A.Y 1999-2000 Penalty Amount Discrepancy: - The appeal challenged the penalty amount of &8377; 6,20,064/- but clarified it as &8377; 4,84,167/- due to deletion of penalty for depreciation on vehicle by CIT(A).
Disallowed Salary Payments to Managing Director: - The AO disallowed salary paid to Managing Director based on Shareholders Agreement terms. - CIT(A) confirmed the disallowance and imposed penalty u/s.271[1][c] @ 100%. - Assessee argued that the Shareholders Agreement mandated the foreign partner to pay Managing Director's salary. - Assessee appointed its representative as Managing Director due to foreign partner's resignation, with government approval for excess payment. - Tribunal noted genuine payment to Managing Director, approved by government, and no doubt on services rendered. - Tribunal emphasized that disallowance of legitimate claim does not warrant penalty, citing relevant case laws. - Tribunal held that failure to amend Shareholders Agreement due to business necessity does not constitute inaccurate particulars or concealed income. - Penalty was deleted as it was not a fit case for levy.
Outcome: - Appeals of the assessee were allowed, and penalty was deleted.
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2011 (1) TMI 1434
Issues involved: Disallowance u/s. 10A of the Act for the assessment year 2005-06.
Summary: The appeal was filed by the assessee against the order of the ld. CIT(Appeals) regarding the disallowance u/s. 10A of the Act for the assessment year 2005-06. The main issue revolved around the disallowance u/s. 10A by the ld. Dy.CIT, which was upheld by the ld. CIT(Appeals).
The ld. AO disallowed the deduction u/s. 10A for the A.Y. 2005-06 citing various reasons including the absence of the STPL certificate and no change in the assessee's business activities. The ld. CIT(Appeals) upheld the disallowance stating that the approval certificate by the STP was mandatory for claiming the deduction u/s. 10A.
On appeal, the assessee argued that all necessary details, including the STP approval letter, were submitted to the revenue during assessment proceedings. The AR contended that the non-production of the STP approval letter was not highlighted by the AO or the CIT(A). The ITAT in a previous case had annulled a similar order by the CIT for the A.Y. 2004-05, supporting the deductibility u/s. 10A.
The ld. DR supported the CIT(A) and argued that the ITAT did not assess the deductibility u/s. 10A in a previous order. However, upon reviewing the materials on record, the Tribunal found that the only issue was the absence of the STPI approval certificate. In the interest of justice, the Tribunal provided the assessee with another opportunity to produce the required certificate before the ld. AO for a determination on the entitlement to deduction u/s. 10A. The appeal of the assessee was allowed for statistical purposes.
This judgment highlights the importance of complying with the necessary documentation requirements for claiming deductions u/s. 10A of the Income Tax Act and the significance of providing opportunities for the assessee to rectify any deficiencies in the documentation process.
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2011 (1) TMI 1433
Power to summon persons to give evidence and produce documents - If learned ACMM considers some witnesses had been left out, instead of using its power of summoning additional witnesses under Section 311 Cr. P.C. during trial and to see that the culprit are punished, the learned ACMM seemed to have acted more like a Clerk than like a Judge and was happy in discharging everybody on the ground that there was no investigation on the point how the goods were allegedly exported, who were the officers posted at Customs Port at the relevant time and what goods were exported. - A Judge has power to summon additional evidence suo moto and has also power to question the witnesses and if he finds that investigation was mis-directed, the Judge can still ensure that necessary witnesses are summoned in the Court and examined - The parties are directed to appear before the Court of ACMM on 15th January, 2011
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2011 (1) TMI 1432
Investigation - 100% EOU - Bonded warehouse - Scrutiny - Demand - Apart from accepting that the import was made by M/s. ESSAR Oil Ltd. they have not been able to effectively rebut the findings of the Commissioner (Appeals) that the removal of the goods from the warehouse was authorised by the Supdt. of Customs without payment of any Customs duty - Failure on the part of the respondents to invite the attention of the officers to the fact of non-payment of Additional Duty by the importer i.e. M/s. ESSAR Oil Ltd. cannot be equated with any wilful and mala fide suppression of fact on the part of the appellants - Appeals are rejected accordingly
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2011 (1) TMI 1431
Issues Involved: 1. Classification of income from owned properties. 2. Classification of income from properties taken on rent. 3. Inclusion of notional interest in computing income from property.
Summary:
Issue 1: Classification of income from owned properties The primary issue was whether the income from properties owned by the assessee should be classified as "Profits and gains of business" or "Income from house property." The assessee argued that the properties were converted into business centers and thus the income should be treated as business income. However, the Assessing Officer (AO) classified it as "Income from house property." The ITAT upheld the AO's decision, citing precedents such as East India Housing and Land Development Trust Ltd. vs. CIT and Shambhu Investment P. Ltd. vs. CIT, which established that income from letting out properties, even with additional services, should be classified as "Income from house property." The Tribunal concluded that the assessee was not providing sufficient business center services to classify the income as business income.
Issue 2: Classification of income from properties taken on rent The second issue was whether the income from properties taken on rent and then let out should be classified as "Business income" or "Income from other sources." The AO treated this income as "Income from other sources," but the CIT(A) and the Tribunal upheld the assessee's claim that it should be classified as "Business income." The Tribunal noted that the assessee had been consistently treating such income as business income since the assessment year 1992-93 and that the activity constituted a continuous, organized, and systematic course of business.
Issue 3: Inclusion of notional interest in computing income from property The third issue involved the inclusion of notional interest on security deposits in the computation of income from property. The AO included 10% of the security deposits as notional rent, but the CIT(A) deleted this addition. The Tribunal affirmed the CIT(A)'s decision, referencing the Mumbai Bench's order in DCIT vs. Reclamation Realty India Pvt. Ltd., which held that notional interest income on security deposits should not be included in the income from property for the purposes of section 23(1)(a) of the Income Tax Act.
Conclusion: The Tribunal partly allowed the department's appeals, upholding the classification of income from owned properties as "Income from house property" and rejecting the inclusion of notional interest in computing property income. It also upheld the classification of income from properties taken on rent as "Business income."
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