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2011 (1) TMI 1224
Capital gain or business income - Sale of shares - Held that:- Assessing Officer gave a finding that the assessee was asked to submit proof of purchase and sale of shares, in response to which purchase note and sales note were filed. Thereafter, the assessee offered capital gains for taxation on August 29, 2008 by filing a letter to that effect - Thus, it transpires that the claim of the assessee has been rejected by treating the amount of Rs. 33,34,973 as income liable to be taxed under the head "Capital gains" and penalty proceedings have been initiated on this issue. According to our humble opinion, this amounts to recording a prima facie satisfaction that the assessee furnished inaccurate particulars of income - The assessee has furnished some explanation which is not found to be bona fide by us. The case of the Revenue also finds support from the decision in the case of Escorts Finance Ltd. In this case, the claim was made on the basis of the chartered accountant's certificate furnished in the prospectus. Yet, the court found that since the claim was prima facie inadmissible, the explanation of the assessee is not bona fide. In this case, the claim is not supported by any evidence. The explanation is also not based on any affidavit or declaration from the accountant - Following decision of Commissioner of Income-tax Versus ECS Ltd. [2010 (2) TMI 713 - Delhi High Court] - Decided in favour of assessee.
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2011 (1) TMI 1223
Issues Involved: 1. Assumption of jurisdiction under section 147 read with section 148. 2. Substantive assessment of Rs. 7.42 crores from the compromise with Syndicate Bank. 3. Double assessment of Rs. 7.42 crores in both assessment years 2000-01 and 2004-05. 4. Assessment of Rs. 7.42 crores in the assessment year 2000-01. 5. Legality of the addition of Rs. 7.42 crores. 6. Disallowance of wreck removal charges of Rs. 76,16,250. 7. Set-off of brought forward business losses and unabsorbed depreciation. 8. Levy of interest under sections 234B and 234D. 9. Confirmation of disallowance of bad debt of Rs. 26,25,000. 10. Treatment of short-term and long-term capital losses as speculative losses. 11. Set-off of unabsorbed depreciation from earlier years.
Issue-wise Detailed Analysis:
1. Assumption of Jurisdiction under Section 147/148: The assessee argued that the reopening of the assessment was illegal as the amount was already taxed in the assessment year 2004-05. The Tribunal did not adjudicate this ground as it was deemed academic after deciding in favor of the assessee on substantive grounds.
2. Substantive Assessment of Rs. 7.42 Crores: The Tribunal found that the benefit from the compromise with Syndicate Bank crystallized only in the assessment year 2004-05 when the bank issued a no-dues certificate. Thus, the addition of Rs. 7.42 crores could not be made in the assessment year 2000-01.
3. Double Assessment of Rs. 7.42 Crores: The Tribunal agreed with the assessee that taxing the same amount in both assessment years 2000-01 and 2004-05 was incorrect. The amount should only be taxed in the assessment year 2004-05.
4. Assessment of Rs. 7.42 Crores in the Assessment Year 2000-01: The Tribunal held that the income from the consent decree could not be brought to tax in the assessment year 2000-01 as the benefit was not obtained during that year. The addition was deleted for the assessment year 2000-01.
5. Legality of the Addition of Rs. 7.42 Crores: The Tribunal found the addition illegal and invalid for the assessment year 2000-01. It directed that the amount should only be taxed in the assessment year 2004-05.
6. Disallowance of Wreck Removal Charges: The assessee did not press this ground, and it was dismissed as not pressed.
7. Set-off of Brought Forward Business Losses and Unabsorbed Depreciation: The Tribunal set aside the issue to the file of the Assessing Officer for fresh adjudication.
8. Levy of Interest under Sections 234B and 234D: The Tribunal held that the levy of interest under section 234D is prospective, relying on the decision of the Special Bench of the Tribunal in the case of ITO v. Ekta Promoters P. Ltd. The ground was allowed in part.
9. Confirmation of Disallowance of Bad Debt of Rs. 26,25,000: The Tribunal held that the assessee was not in the business of banking or money lending. Thus, the bad debt could not be allowed under section 36(1)(vii) or section 37(1) of the Act. The ground was dismissed.
10. Treatment of Short-term and Long-term Capital Losses as Speculative Losses: The Tribunal found that the assessee was not in the business of purchase and sale of shares, and thus, the Explanation to section 73 did not apply. The issue was set aside to the file of the Assessing Officer for fresh adjudication.
11. Set-off of Unabsorbed Depreciation from Earlier Years: The Tribunal upheld the direction of the Commissioner of Income-tax (Appeals) allowing the set-off of unabsorbed depreciation of earlier years against the current year's income, in line with the decision of the Special Bench in the case of Deputy CIT v. Times Guaranty Ltd.
Conclusion: The appeal for the assessment year 2000-01 was allowed in part, primarily deleting the addition of Rs. 7.42 crores for that year. The cross appeals for the assessment year 2004-05 were also partly allowed, with directions for fresh adjudication on certain issues. The Tribunal's decision emphasized the correct assessment year for taxing the benefit from the compromise with Syndicate Bank and addressed various procedural and substantive issues raised by the assessee.
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2011 (1) TMI 1222
Issues Involved: 1. Whether the petition discloses grounds for passing an order under section 250 or section 247(1A) of the Companies Act, 1956, for investigation into the affairs of respondent No. 1 company. 2. Whether an investigation under section 247(1A) read with section 250 of the Act should be ordered. 3. Whether the petition falls under section 237(b) of the Act and within the jurisdiction of the Western Region Bench at Mumbai of the Company Law Board.
Issue-Wise Detailed Analysis:
1. Grounds for Investigation under Section 250 or Section 247(1A): The petitioners allege that respondent No. 2, in collusion with respondents Nos. 3 to 20, illegally and fraudulently siphoned off the assets of respondent No. 1 company and reduced the petitioners' shareholding from 50% to 0.5%. The petitioners argue that the fraudulent activities, including the sale of flats and wrongful appointments of directors, necessitate an investigation under section 237(a)(iii) of the Companies Act. The petitioners also claim that respondent No. 2's actions were aimed at hijacking the company and defrauding the petitioners.
2. Investigation under Section 247(1A) and Section 250: The Company Law Board has jurisdiction under section 247(1A) to investigate the membership and other matters of a company to determine the true persons financially interested in the company's success or failure or those able to control or materially influence the company's policy. However, the allegations in the petition, primarily concerning fraud and mismanagement, fall under section 237(b) of the Act, which deals with fraudulent or unlawful conduct of the company's business, fraud by persons involved in the company's formation or management, and failure to provide necessary information to members. The petition does not disclose grounds for invoking section 247(1A) or section 250, as it lacks specific averments related to membership issues or changes in the board composition prejudicial to public interest.
3. Jurisdiction under Section 237(b): The petition's allegations, including fraudulent sale of flats, wrongful share allotment, and suppression of statutory records, are covered under section 237(b) of the Act. This section addresses circumstances suggesting fraudulent conduct, fraud by company managers, and withholding information from members. The petition aligns with section 237(b)(i) to (iii) and falls within the jurisdiction of the Western Region Bench at Mumbai. The Principal Bench of the Company Law Board, New Delhi, does not have jurisdiction under section 247(1A) or section 250 for this petition.
Conclusion: The petition C.P. No. 71 of 2008 does not disclose grounds for exercising jurisdiction by the Company Law Board, Principal Bench, New Delhi, under section 247(1A) or section 250 of the Act. It is squarely covered under section 237(b) and falls within the jurisdiction of the Western Region Bench at Mumbai. The petition shall be heard by the Western Region Bench at Mumbai, and the ex parte stay on the proceedings in C.P. No. 29 of 2008 is vacated.
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2011 (1) TMI 1221
Order dated December 6, 2004, passed under section 45A of the Employees’ State Insurance Act, 1948 by the respondent ESI Corporation directing petitioner to make a contribution of ₹ 4,39,028 in respect of the period 1997-98 and 1998-99 challenged
Held that:- In so far as the ESI Act is concerned, payment of interest is a must on delayed payment whereas levy of damages is in the nature of penalty. Therefore, any waiver or modification of damages under section 85B may be possible but not for interest levied in terms of section 39(5) of the ESI Act. The writ petition is thoroughly misconceived. Accordingly, the writ petition will stand dismissed
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2011 (1) TMI 1220
Notice issued under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 challenged
Held that:- In this case, indisputably, there are other secured creditors who have not even issued any notice under section 13(2) of the SARFAESI Act. Thus the creditors representing not less than three-fourths in value of the amount outstanding, have not taken measures to recover the said secured debt under section 13(4) of the SARFAESI Act and therefore, as per the second proviso to section 15(1) of the SICA, the proceeding pending before the BIFR has not abated and so, the bar under section 22 of the SICA is applicable. Therefore, in the instant case, section 22 of the SICA is a bar for any further proceedings to be initiated by the first respondent under section 13(4) of the SARFAESI Act.
As we have noticed, the prayer in this writ petition is for quashing the notice issued under section 13(2) of the SARFAESI Act. In our considered opinion, as we have held supra, since the notice under section 13(2) of the SARFAESI Act does not constitute a measure to exercise the power of the first respondent under section 13(4) of the SARFAESI Act, the said notice cannot be quashed at all. It is for the petitioner either to comply with the demand or to send a proper reply for the said notice and thereafter, it is for the first respondent to act according to law by complying with section 13(9) of the SARFAESI Act as well as the second proviso to section 15(1) of the SICA. Appeal dismissed.
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2011 (1) TMI 1219
Whether the petitioner's stand is legally valid ?
Held that:- The provision under section 94 of the ESI Act is similar to that of section 11(2) of the EPF Act. Therefore, the reasoning found in Maharashtra State Cooperative Bank Ltd.'s case (2009 (10) TMI 825 - SUPREME COURT OF INDIA), will squarely apply to the case on hand.It is, therefore, reasonable to take the view that the statutory first charge created on the assets of the establishment by sub-section (2) of section 11 and priority given to the payment of any amount due from an employer will operate against all types of debts.
The contentions raised by the petitioner does not stand scrutiny of law.Appeal dismissed.
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2011 (1) TMI 1218
Whether ordering a meeting of shareholders is mandatory before any compromise or arrangement is considered or agreed upon by members of a company?
Held that:- A meeting is to held, in my opinion, when there is plurality of members or creditors to be bound by it. If there is one preference shareholder or one creditor there is no possibility of a meeting to bind him. He takes his own decision. But if his decision is to bind another group, then that decision has to be approved by them. Say there is one creditor. He enters into an arrangement with the company. There is no scope for any meeting. But, if that decision, affects members it has to be placed before them for approval, in a meeting.
In this circumstance the application for sanction is allowed.
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2011 (1) TMI 1216
Compounding of offence under Section 9 - Whether bail should be granted or not – Search conducted on the factory premises and godown of the petitioner - Found three pouch packing machines and one Tobacco Mixture machine ,finished goods, raw Tobacco, packing materials - These machines were found not to have been declared by the firm - Officer seized all these machines and materials - Petitioner was found to have evaded the excise duty.
It is true that the alleged offence is non-cognizable and also compoundable as envisaged by Section 9A of the Act of 1944, but the amount of excise duty, the petitioner is found to have evaded, is undoubtedly large and shocking - It amounts to Rs. 338.25 lac - Therefore the act of the petitioner may be termed as ‘Royal Thievery’ which is opposed to both democracy and society order.
Held that:- Since, accused petitioner has evaded the excise duty causing a great loss to the public exchequer, and the offence being of grave nature, therefore petitioner should not be allowed bail.
Bail petition filed dismissed.
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2011 (1) TMI 1215
Deduction u/s 80IB – Date of completion of project – Pune Municipal Corporation has not issued Occupancy Certificate on or before 31/3/2008 - PMC has failed to issue objection within 21 days of receipt of the Completion Certificate
Held that:- The objections raised after expiry of 21 days no major deviation or unauthorised construction if any has been shown, it would be just and proper to treat the date after expiry of 21 days from receipt of Completion Certificate as date of completion for the purpose of meeting the requirement of Explanation (ii) below Sec. 80IB(10)(a) with this understanding that PMC will continue with its action against the assessee to set the stated objections if any, at right.
Treat the date of issuance of such Occupancy Certificate along with Certified Completion plan as the date of Completion Certificate of the construction for the requirement of Explanation (ii) to Section 80IB(10)(a). Since in fact PMC do not issue Occupancy Certificate generally in time and with this understanding the Legislature have also introduced a deeming provision of 21 days to put constraint upon PMC, we after detailed deliberation in preceding paragraphs have come to a conclusion that in case of small objections of PMC raised after expiry of deeming period of 21 days under Rule 7.7 of DC Rules under PMC, the date when the applicant acquired deeming sanction will be treated as the date of Completion (occupancy) Certificate to meet out the requirement of Explanation (ii) to Section 80IB (10)(a)
In favour of assessee
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2011 (1) TMI 1214
Issues: Stay of demand subsequent to assessment for assessment year 2006-07 due to Transfer Pricing (TP) adjustment and disallowance of research and development expenses.
Analysis: The stay petition was filed by the assessee seeking a stay of demand arising from a TP adjustment of Rs. 9.86 crores and an addition of Rs. 1,03,54,937 for disallowance of research and development expenses for the assessment year 2006-07. The total demand amounted to Rs. 2,72,65,238, including interest under section 234B of the Income-tax Act. The assessee had paid a partial sum against the demand, leaving a balance outstanding. The assessee contended that the Transfer Pricing Officer (TPO) made adjustments using Transactional Net Margin Method (TNMM) instead of the Resale Price Method (RPM) applied by the assessee. The Dispute Resolution Panel (DRP) directed the TPO to re-examine the RPM based on audited accounts, which were now available. However, the TPO did not follow the DRP's direction, leading to the same adjustment being made in the assessment order. Regarding the research and development expenses, the Assessing Officer disallowed them as capital expenditure, but the DRP directed their examination to allow if related to the business. The Assessing Officer did not comply with the DRP's direction, resulting in the same addition. The assessee argued for a stay of demand, citing a prima facie case, but failed to demonstrate financial hardship.
The Learned DR opposed the stay petition, arguing against a prima facie case or financial hardship. It was highlighted that the RPM was not applied due to the assessee's failure to provide financial accounts of comparable cases. Regarding research and development expenses, the Assessing Officer found them irrelevant to the assessee's business of processing and marketing vegetable seeds, leading to their disallowance. The DR contended that the stay petition should be rejected.
Upon careful consideration of the contentions, the Tribunal observed that the TP adjustment and research and development expense disallowance were the key issues. The DRP's direction to apply RPM after receiving audited accounts was not followed by the Assessing Officer, who insisted on actual profit margin details. The Assessing Officer also deemed the research and development expenses unrelated to the assessee's business, contrary to the DRP's directive. The Tribunal found no prima facie case in favor of the assessee, emphasizing that a detailed examination was necessary. Citing the Supreme Court's precedent, the Tribunal noted that a prima facie case alone was insufficient for a stay, and no financial hardship was demonstrated by the assessee. Consequently, the Tribunal rejected the stay petition, directing the assessee to pay a specified sum by a certain date for an expedited appeal hearing.
In conclusion, the Tribunal denied the stay petition, emphasizing the need for a detailed examination of the case and the absence of financial hardship. The decision was based on the legal principle that a prima facie case must be accompanied by considerations of balance of convenience and public interest. The Tribunal's directive for an expedited appeal hearing underscored the importance of timely resolution in the interest of justice.
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2011 (1) TMI 1213
Issues Involved: 1. Disallowance of expenses due to lack of proper vouchers and cash payments. 2. Disallowance of depreciation on leased machinery. 3. Disallowance of deduction under section 80-IA of the Income-tax Act. 4. Application of interest under section 234B of the Income-tax Act.
Issue-wise Detailed Analysis:
1. Disallowance of Expenses: The Assessing Officer (AO) disallowed Rs. 50 lakhs from the expenses claimed by the assessee due to lack of proper vouchers and most payments being made in cash. The AO found that expenses towards site expenses, laying and jointing, and labor payments were not supported by external vouchers. The CIT(A) upheld the AO's decision, agreeing that the absence of supporting evidence justified the disallowance. The assessee argued that the expenses were supported by account copies from M/s. IVRCL and other documents, but the tribunal found that the account copies alone were insufficient proof. The tribunal upheld the disallowance, stating that the assessee failed to provide primary evidence for the expenses claimed.
2. Disallowance of Depreciation on Leased Machinery: The AO disallowed the depreciation claim of Rs. 41.15 lakhs on machinery leased from M/s. IVRCL, as IVRCL continued to claim depreciation on the same assets. The CIT(A) confirmed the AO's decision, noting that the ownership of the machinery remained with IVRCL. The tribunal upheld the disallowance, agreeing that the assessee was not entitled to depreciation since the machinery was not transferred to the assessee. The tribunal allowed the lease rentals paid by the assessee as revenue expenditure, finding no infirmity in the lower authorities' orders.
3. Disallowance of Deduction under Section 80-IA: The AO denied the deduction under section 80-IA, stating that the assessee was merely building infrastructure projects and not operating or maintaining them. The CIT(A) upheld the AO's decision. The assessee argued that it was engaged in developing infrastructure facilities, including operation and maintenance for a period of 2 to 5 years. The tribunal referred to the Larger Bench decision in B.T. Patil & Sons Belgaum Construction (P.) Ltd., which held that a mere contractor cannot claim the benefit under section 80-IA. The tribunal found contradictions in the AO's facts and remitted the issue back to the AO for fresh consideration, providing the assessee an opportunity to be heard.
4. Application of Interest under Section 234B: Interest under section 234B is consequential in nature. The tribunal disposed of this ground accordingly, noting that it would follow the outcome of the other issues.
Conclusion: The tribunal upheld the disallowance of expenses and depreciation on leased machinery but remitted the issue of deduction under section 80-IA back to the AO for fresh consideration. Interest under section 234B was treated as consequential. All appeals were partly allowed for statistical purposes, except ITA No. 720/Hyd./07 for the assessment year 2003-04, which was dismissed.
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2011 (1) TMI 1212
Issues Involved: Assessment of business expenses and interest income u/s 143(3) of the Income-tax Act, 1961.
Assessment of Business Expenses: The appellant, a company engaged in air transportation, declared a loss for the assessment year due to expenses incurred for pre-operation activities. The assessing officer disallowed these expenses as business expenditure since the appellant had not commenced its business. The appellant argued that the expenses should be treated as preliminary expenses and allowed to be amortized. However, the assessing authority did not consider the expenses for computing taxable income. The appellant contended that the expenses should be set off against interest income to declare a loss.
Assessment of Interest Income: The assessing officer determined the bank interest received by the appellant as income from other sources, not allowing it to be set off against the incurred expenses. The appellant, aggrieved by the assessment order, appealed, citing various grounds challenging the decision. The appellant relied on a Delhi High Court decision to support its claim that setting up the business, not commencement, is crucial for claiming business expenses.
Judgment: The Tribunal found that activities such as incorporating the company, obtaining necessary certificates, and agreements for aircraft purchase/lease did not constitute setting up the business. The absence of procured aircraft, essential for air transportation operations, indicated the business was not established. The Tribunal emphasized that the procurement of aircraft is vital for considering business setup. As the appellant had not acquired aircraft by the end of the previous year, the claim of setting up the business was deemed invalid. Consequently, the Tribunal upheld the lower authorities' decision to dismiss the appeal, denying the appellant's claim for business expenses deduction and interest income set off.
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2011 (1) TMI 1211
Issues: 1. Allowance on revaluation of unmatured oil exchange contract. 2. Exemption in respect of interest on tax-free bonds. 3. Allowability of payments made to employees under the Voluntary Retirement Scheme as Revenue expenditure. 4. Disallowance made on account of bad debts.
Issue 1: Allowance on revaluation of unmatured oil exchange contract The Tribunal dismissed the Revenue's appeal regarding the allowance on revaluation of unmatured oil exchange contract, citing the decision of the Special Bench in the case of Dy. CIT v. Bank of Bahrain & Kuwait. The Tribunal upheld the deduction of loss on the revaluation of forward contracts on the last date of the relevant accounting period before the maturity of the contract.
Issue 2: Exemption in respect of interest on tax-free bonds The Tribunal upheld the decision of the first appellate authority regarding the exemption in respect of interest on tax-free bonds. The Tribunal relied on previous decisions and ruled in favor of the assessee, following precedents that allowed the gross amount of interest payable to qualify for exemption under relevant sections of the Income Tax Act.
Issue 3: Allowability of payments made to employees under the Voluntary Retirement Scheme The Tribunal upheld the CIT(A)'s decision on the allowability of payments made to employees under the Voluntary Retirement Scheme as Revenue expenditure. Citing various legal precedents, including the Supreme Court's judgment in Indian Cable Co. Ltd. v. Workman, the Tribunal agreed that such expenditure was allowable in the year it was incurred, rejecting the Revenue's contention that it was of a capital nature.
Issue 4: Disallowance made on account of bad debts The Tribunal allowed the deduction for bad debts without setting off the closing provision, following the decision of the Mumbai ITAT in Oman International Bank. The Tribunal directed the Assessing Officer to allow the bad debts claimed by the assessee without setting off the closing provision, as the issue was covered in favor of the assessee in previous cases.
The Tribunal dismissed the Revenue's appeals in both assessment years, upholding the decisions of the first appellate authority on all issues. Additionally, the Cross Objections filed by the assessee were deemed infructuous and dismissed.
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2011 (1) TMI 1210
Rejecting comparable - incurring loss - HELD THAT:- It is observed that a similar issue was involved in assessee’s own case for the immediately preceding year i.e. 2003-04 and the Tribunal passed for the said year has restored the same to the file of the A.O. with a direction to decide the same afresh in the light of the decision of ITAT in the case of Sony India ( P.) Ltd.[2008 (9) TMI 420 - ITAT DELHI-H] wherein it was held that a comparable could not be excluded only on the ground of losses except in cases where there are other factors justifying exclusion of the said comparables. Respectfully following the said decision of the Tribunal in assessee’ s own case we restore this issue to the file of the A.O. for deciding the same afresh on the same line as directed by the Tribunal in A.Y. 2003-04. Ground is accordingly treated as allowed.
Different Business activites - comparables for transfer pricing analysis - HELD THAT:- the nature of business activity carried on by the four parties in question was entirely different from the business activity of the assessee. Moreover, the services rendered by these parties were in the non-technical field whereas assessee company was found to be rendering services in the technical field of research and development. As rightly held by the authorities below, the said concerns thus were functionally different from the assessee company and there was no justifiable reason to select the same as comparables for transfer pricing analysis. We therefore find no infirmity in the impugned or of the CIT(A) on this issue and upholding the same, we dismiss ground of the assessee’s appeal.
disallowance of benefit of 5% variation claimed - HELD THAT:- we restore this issue to the file of the A.O. with a direction to decide the same afresh in the light of the decision of ITAT in the case of Sony India (P.) Ltd.[2008 (9) TMI 420 - ITAT DELHI-H].
claim for adjustment - difference in risks profile - transfer pricing analysis - we restore this issue to the file of the A.O. for deciding the same afresh on the same line as has been directed by the Tribunal in A.Y. 2003-04. Ground of the assessee’s appeal is treated as allowed for statistical purpose.
comparable case - transfer pricing analysis - HELD THAT:- it is observed that M/s Ujjwal Ltd. was excluded by TPO/A.O. for the purpose of transfer pricing analysis on the ground of functional differentiation. The ld. CIT(A) however accepted the claim of the assessee for inclusion of the said party as comparable following his appellate order for A.Y. 2003-04. The Tribunal vide order dated 30.8.10 has upheld the said order of the ld. CIT(A) for A.Y. 2003-04. As the issue involved in the year under consider as well as all the material facts relevant are similar to that of A.Y. 2003-04, we respectfully follow the order of the Tribunal for 2003-04 and uphold the impugned order of the ld. CIT(A) allowing including of M/s Ujjawal Ltd. as comparable case for transfer pricing analysis. Ground of the Revenue’s appeal is accordingly dismissed.
deleting the addition - unrealised foreign exchange gain - HELD THAT:- it is observed that the addition made by the A.O. on account of foreign exchange fluctuation gain relating to ECB obtained by the assessee from its associated enterprises was deleted by the ld. CIT(A) treating the same capital receipt not chargeable to tax on the ground that it represented unrealised foreign exchange gain in respect of foreign currency loan obtained for acquisition of capital asset in India. While allowing relief to the assessee on this issue, the ld. CIT(A) followed his own appellate order passed in assessee’s case for A.Y. 2003-04 on a similar issue. As the issue involved in the year under consideration as well as all the material facts relevant are similar to that of A.Y. 2003-04, we respectfully follow the order of the Tribunal for 2003-04 and uphold the impugned order of the ld. CIT(A) and allow the relief to the assessee. Ground of the Revenue’s appeal is accordingly dismissed.
application seeking admission - additional ground - inclusion of Vimta Labs Ltd. as comparable - HELD THAT:- It is observed that although a detail submission was made on behalf of the assessee before the ld. CIT(A) on the basis of FAR analysis to show that the selection of M/s Vimta Labs as comparable is not justified, the ld. CIT(A) has not accepted the stand of the assessee on this issue without giving any cogent or convincing reasons. In its recent decision rendered in the case of Adobe Systems India (P.) Ltd.[2011 (1) TMI 933 - ITAT NEW DELHI] has held that exclusion of companies showing supernormal profits as compared to other comparable is fully justified. We, therefore, set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the A.O. with a direction to decide the same afresh after taking into consideration the submissions made by the assessee before the ld. CIT(A).
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2011 (1) TMI 1209
Issues Involved: 1. Disallowance on account of CENVAT credit u/s 145(a) 2. Disallowance of deduction u/s 80-IB 3. Disallowance u/s 14A 4. Transfer Pricing Adjustment u/s 92C(3)
Analysis:
Issue 1: Disallowance on account of CENVAT credit u/s 145(a) The AO made disallowances/additions, including CENVAT credit under section 145(a). The CIT(A) directed adjustments with reference to opening stock, purchase, and sales before considering the addition to closing stock due to unutilized CENVAT credit. The Revenue challenged this decision, arguing that the adjustment should not have been made before considering the CENVAT credit. The ITAT upheld the CIT(A)'s decision, citing relevant judgments and dismissed the Revenue's appeal on this ground.
Issue 2: Disallowance of deduction u/s 80-IB The AO disallowed deduction u/s 80-IB based on the Chartered Accountant issuing certificates. The CIT(A) held that there is no legal requirement for the same Chartered Accountant to certify accounts and issue Form No. 10CCA for claiming the deduction. The ITAT upheld the CIT(A)'s decision, stating that the deduction cannot be denied on this ground.
Issue 3: Disallowance u/s 14A The Revenue contested the CIT(A)'s decision to restrict the disallowance u/s 14A to Rs. 1,00,000, arguing that it ignored the ITAT Special Bench decision. However, the ITAT upheld the CIT(A)'s decision, considering it a reasonable disallowance based on the dividend income earned by the assessee.
Issue 4: Transfer Pricing Adjustment u/s 92C(3) Regarding the transfer pricing adjustment under section 92C(3), the ITAT found that both the assessee and the AO did not comply with statutory requirements. The ITAT held that imposing enterprise level operating profits as margins earned on international transactions with associated concerns is not permissible. Citing previous Tribunal decisions, the ITAT set aside the issue for fresh adjudication in accordance with the law, directing the assessee to file a new transfer pricing study.
In conclusion, the ITAT partially allowed the Revenue's appeal, upholding certain decisions of the CIT(A) while setting aside the transfer pricing adjustment issue for fresh adjudication.
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2011 (1) TMI 1208
Issues Involved: 1. Whether the assessee has a Permanent Establishment (PE) in India. 2. Taxability of advertisement revenues pertaining to AXN channel. 3. Taxability of subscription revenues u/s 9 of the Income Tax Act, 1961. 4. Liability of the assessee u/s 234B of the Income Tax Act, 1961.
Summary:
Issue 1: Permanent Establishment (PE) in India The assessee, a foreign company resident in Singapore, argued it did not have a PE in India as per Article 5 of the DTAA between India and Singapore. The AO determined that the assessee had a PE in India through SET India Ltd., a dependent agent. The CIT(A) held that if the service fee paid to SET India was on an arm's length basis, it extinguished the tax liability of the assessee in India. The Tribunal upheld this view, referencing the Supreme Court's decision in Morgan Stanley & Co. Inc., which stated that if the correct arm's length price is paid, nothing further would be left to tax in the hands of the foreign enterprise.
Issue 2: Taxability of Advertisement Revenues Pertaining to AXN Channel The AO argued that ad revenues from AXN channel were taxable in India as the assessee had a PE in India. The CIT(A) held that since the assessee paid an arm's length service fee to SET India, no further profits should be taxed in India. The Tribunal upheld this decision, dismissing the Revenue's appeal on this ground.
Issue 3: Taxability of Subscription Revenues u/s 9 of the Income Tax Act, 1961 The AO assessed the entire subscription revenues retained by SET India as taxable in the hands of the assessee. The CIT(A) treated the income as business income and not royalty. The Tribunal agreed with the assessee's alternative contention that if the subscription income is considered as the assessee's income, the payment made to SET India should be treated as expenditure, resulting in nil income. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground.
Issue 4: Liability of the Assessee u/s 234B of the Income Tax Act, 1961 The CIT(A) held that since the assessee was not liable to tax in India, the question of levy of interest u/s 234B did not arise. The Tribunal agreed, referencing the Bombay High Court's decision in the assessee's own case, which followed the precedent set in DIT (International Taxation) v. NGC Network Asia LLC. The Tribunal dismissed the Revenue's appeal on this ground.
Conclusion: The appeal filed by the Revenue was dismissed. Consequently, the assessee's appeal and cross objection were also dismissed as they became infructuous.
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2011 (1) TMI 1207
Issues: Levy of interest under section 234B of the Income-tax Act.
Analysis: The appeal was filed by the revenue against the order of CIT(A) for the assessment year 2005-06, specifically disputing the levy of interest under section 234B of the Income-tax Act. The assessee had initially declared a total income, but the AO made adjustments resulting in a higher total income assessment. The AO also imposed interest under section 234B due to a shortfall in advance tax payment. However, the assessee contended that they were not liable for interest under section 234B, citing that the entire income of the non-resident was tax deductible at source as per section 195 of the Income-tax Act. The CIT(A) accepted the assessee's explanation and deleted the interest levy, prompting the revenue to appeal.
The Tribunal, after hearing both parties, referred to a judgment of the Hon'ble High Court of Mumbai in a similar case, which held that failure on the part of the payer to deduct tax at source could not be a basis for levying interest under section 234B when the entire tax was deductible at source. The Tribunal noted that the Learned DR did not contest that the entire income of the assessee was indeed tax deductible at source. Consequently, in line with the High Court's decision, the Tribunal found no fault in the CIT(A)'s order deleting the interest charged under section 234B. Therefore, the Tribunal upheld the CIT(A)'s decision, resulting in the dismissal of the revenue's appeal.
In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order to delete the interest charged under section 234B based on the specific circumstances of the case and the legal interpretation provided by the Hon'ble High Court of Mumbai.
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2011 (1) TMI 1206
Issues: 1. Taxability of interest income on securities. 2. Disallowance of broken period interest. 3. Addition on account of deferred guarantee commission. 4. Disallowance under section 14A for exempt income. 5. Deduction of head office expenses under section 37(1) vs. section 44C.
Analysis:
Issue 1: Taxability of Interest Income on Securities (Asst. Year 2000-01): The Revenue appealed against the interest income taxability on a due basis. The Special Bench had ruled in favor of the assessee in a previous case. The Tribunal upheld the impugned order based on the precedent, denying the Revenue's appeal on this ground.
Issue 2: Disallowance of Broken Period Interest (Asst. Year 2000-01): The Revenue's appeal against the deletion of disallowance on broken period interest was dismissed as the Special Bench had previously ruled in favor of the assessee. The Tribunal upheld the impugned order on this issue as well.
Issue 3: Addition on Account of Deferred Guarantee Commission (Asst. Year 2000-01): The Tribunal remitted the matter to the Assessing Officer (AO) for a final decision in accordance with the Special Bench's directions regarding the deferred guarantee commission. It was clarified that double taxation of the same income should be avoided.
Issue 4: Disallowance under Section 14A for Exempt Income (Asst. Year 2000-01): The Tribunal directed the AO to compute disallowance under section 14A in accordance with the High Court's judgment, specifying that Rule 8D was not applicable prospectively. The Tribunal set aside the impugned order and directed a reassessment based on the High Court's ruling.
Issue 5: Deduction of Head Office Expenses under Section 37(1) vs. Section 44C (Asst. Year 2000-01): The Tribunal upheld the deletion of addition under section 37(1) for head office expenses incurred for Indian Branches, distinguishing them from common expenses under section 44C. The Tribunal agreed with the CIT(A)'s decision to allow the deduction under section 37(1) for specific expenses incurred for the Indian Branches.
Asst. Year 2001-02: The Tribunal dismissed some grounds as mutatis mutandis similar to the previous year, while others were restored to the AO for a fresh decision.
Asst. Year 2005-06: The Tribunal set aside the impugned order and restored the matter to the AO for fresh consideration based on the facts and circumstances similar to the previous year.
In conclusion, the Tribunal partially allowed the appeals for statistical purposes across the assessed years, addressing various taxability and deduction issues in each case.
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2011 (1) TMI 1205
Issues Involved: 1. Disallowance of advertisement expenditure. 2. Disallowance of interest on advances to an associate company. 3. Disallowance of sundry balances written off. 4. Disallowance of bad debts. 5. Adjustment under section 92CA. 6. Non-grant of depreciation on intangible assets. 7. Levy of interest under sections 234B and 234D.
Issue-wise Detailed Analysis:
1. Disallowance of Advertisement Expenditure: The first appellate authority treated the advertisement expenditure as business expenditure but disallowed the expenditure of the last quarter based on the date of release of advertisements. The Tribunal referenced its earlier decision for the assessment year 2002-2003, where the expenditure was allowed as revenue expenditure. The Tribunal followed this precedent and allowed the expenditure for the assessee.
2. Disallowance of Interest on Advances to an Associate Company: The issue pertains to disallowance of interest on advances to M/s Ezeego, an associate company. The Tribunal, referencing its earlier decision for the assessment year 2002-2003, found that the issue needs reconsideration and remanded it to the Assessing Officer for fresh adjudication to examine the commercial expediency of the advances.
3. Disallowance of Sundry Balances Written Off: The Tribunal allowed the write-off of sundry balances as business expenditure except for the TDS amount written off. The amounts written off included bills receivable for customers and advances given to suppliers, which were considered irrevocable and thus allowable as business losses under section 28.
4. Disallowance of Bad Debts: The issue of bad debts was covered in favor of the assessee by the Supreme Court decision in the case of T.R.F. Ltd. v. CIT. Following this precedent, the Tribunal dismissed the Revenue's ground on this issue.
5. Adjustment under Section 92CA: The Tribunal noted that a similar issue had been remanded to the Assessing Officer for fresh adjudication in the assessee's own case for the assessment year 2002-2003. The Tribunal followed the same approach and remanded the issue for fresh adjudication in accordance with the law.
6. Non-grant of Depreciation on Intangible Assets: The Tribunal found that the factual issues regarding the depreciation on intangible assets, specifically the customer database, were not properly examined by the lower authorities. The matter was remanded to the Assessing Officer for fresh adjudication after considering all factual aspects and arguments.
7. Levy of Interest under Sections 234B and 234D: The levy of interest under section 234B was deemed consequential. For section 234D, the Tribunal referenced the jurisdictional High Court's decision in the case of CIT v. Bajaj Hindustan Ltd., which held that the levy of interest under section 234D is applicable from the assessment year 2004-2005. Consequently, the Tribunal canceled the levy of interest under section 234D for the relevant assessment year.
Conclusion: The assessee's appeal (ITA. No. 3751/Mum/2007) was allowed in part, with certain issues remanded for fresh adjudication. The Revenue's appeal (ITA. No. 4165/Mum/2007) was also allowed in part, with some issues dismissed and others remanded for further examination.
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2011 (1) TMI 1204
Addition - Rate of G.P - No proper exercise is done by any of the Authorities below, the matter should have been remitted back to the Assessing Officer to take into consideration of those aspects and fix the GP rate - However, having regard to the fact that it is an old matter and all the relevant data are available with us which is taken note of above and this may provide a suitable yardstick for fixing the GP rate, we are doing this exercise ourselves - The average GP rate for the last five years is 3.25 per cent and for the subsequent year it is 4.59 per cent to 5.39 per cent. The GP rate of post survey period is 8-9 per cent but that period is less than three months - Keeping in mind these GP rates, we are of the opinion that the GP rate of 5 per cent would meet the justice - These appeals is disposed of.
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