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2018 (6) TMI 1862
Depreciation claim over and above the claim of section 11 and 12 - HELD THAT:- This issue is now settled, in favour of the assessee, by Hon’ble Supreme Court’s judgment in the case of Rajasthan and Gujarati Charitable Foundation [2017 (12) TMI 1067 - SUPREME COURT] normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income Tax Act. The Court rejected the argument on behalf of the revenue that section 32 of the Income Tax Act was the only section granting benefit of deduction on account of depreciation.
As held that income of a Charitable Trust derived form building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. In view of the aforesatated judgment of the Bombay High Curt, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against the Department.
It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well.
The assessee is, over and above the claim under section 11 and 12, entitled to the depreciation as well. CIT(A) had declined the same on the ground that since the assessee is allowed exemption under section 11, there is no question of grant of depreciation. The view so taken by the learned CIT(A), in the light of binding judicial precedents, does not merit our approval. We, therefore, direct the Assessing Officer to grant the depreciation as well.
Exemption u/s 11 - disallowing accumulation claimed by assessee u/s 11(2) - HELD THAT:- As learned CIT(A) rightly notes, we find that as regards the issue of claim having been made for the first time before the Assessing Officer, other than by way of a revised return, what is important to bear in mind is the fact that the claim was admitted by the Tribunal and the matter was remitted to the file of the Assessing Officer for consideration on merits in the light of the registration under section 12A.
CIT(A) was quite justified in rejecting the stand of the assessee.
As regards the requirement of filing the audit report on form 10B alongwith the return of income, find that, as reported in 179 ITR 61 (Stat), Hon’ble Supreme Court has dismissed the SLP against Hon’ble jurisdictional High Court’s declining to call a reference against this Tribunal’s direction “registration of the assessee trust under section 11 of the Income Tax Act, 1961, when the auditor’s report in form 10B, as required by Section 12A(b) of the Income Tax Act 1961, was not filed alongwith the return but was filed later on”. No decision to the contrary was brought to our notice.
As regards the investments in Kutch Railway and Petronet, we have noted that these investments in the PSUs were made pursuant to the directions of the Government of India, and, as such, disability under section 13(1)(d) will not be attracted. This aspect has been discussed in great detail in the findings of the CIT(A) which have been reproduced above, and no infirmities therein have been pointed out to us. Similarly, as far as the books of accounts are concerned, in the light of specific certificate issued by the CAG, this objection also ceases to have legally sustainable basis.
As for the accumulation aspect, there are no independent discussions in the impugned order and that is covered in denial of exemption itself. In the light of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.
Allowability of provision @ 20% of salary payable, for productivity linked reward - The quantification of productivity linked reward was not in doubt in the relevant previous year. The quantification was at 20%. The amount representing 15.5% is only “adhock payment” made during the relevant previous year. The actual payment cannot restrict the deductibility of a liability which is very well foreseen and quantified as a present liability. The amount claimed as deduction by the assessee represents present liability, and the mere fact that it was paid at a later date, as authorised by the Ministry of Shipping, Road Transport and Highways, does not restrict the deductibility. We are, therefore, of the considered view that the CIT(A) ought to have allowed the entire amount of PLR liability.
Disallowing to set-off carried forward loss - The loss to be set off is to be modified so as to include the deduction declined by the said rectification order. To this extent, action of the CIT(A) is indeed erroneous and cannot be sustained. We, therefore, accept the plea of the assessee on this point. AO is directed to allow the entire loss and not to restrict the same in the light of the rectification order which has been quashed anyway.
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2018 (6) TMI 1861
TP Adjustment - Tribunal justification in directing the AO/TPO to benchmark only the AE transactions without appreciating that the assessee itself in its transfer pricing study report (TPSR) has chosen entity level PLI to benchmark the AE transactions - HELD THAT:-Issue raised herein stands concluded against the Revenue by the decision in Assessee's own case [2018 (6) TMI 452 - BOMBAY HIGH COURT] relating to Assessment Year 2005-06 and also [2015 (11) TMI 1628 - BOMBAY HIGH COURT] relating to Assessment Year 2008-09.
Tribunal justification in directing the AO/TPO to include M/s. Tirumalai Chemicals Ltd. as one of the comparable - We find that it is not disputed before us that products sold by Assessee to AE as well as products manufactured by M/s. Tirumalai Chemicals Ltd., would fall under the category of specialty chemicals. It is in this context that the TNMM has been invoked as the most appropriate method. Further, the impugned order [2014 (12) TMI 382 - ITAT MUMBAI] of Tribunal has found that the capacity utilization by the both – M/s. Tirumalai Chemicals Ltd.,as well as by the Respondent Assessee, Is approximately the same. Thus, on facts, the view taken by the Tribunal is a possible and a reasonable view.
Tribunal directing that the provisions pertaining to earlier year but written back during the current year be treated as operational income of the current year - Tribunal has upheld the order of the DRP that the provisions pertaining to the earlier years written back in the subject Assessment Year would be in the nature of operating income. Thus, not exclude able while determining the operating profits. The impugned order of the Tribunal places reliance upon the orders in the case of Zee Entertainment Enterprises Pvt. Ltd. [2014 (8) TMI 1035 - ITAT MUMBAI] wherein it was held that provisions of writing back were to be considered as operating revenue, if an uniform approach is adopted unless of course, any contrary material is brought on record.
Revenue has not even made any attempt to point out why the reasoning of the Tribunal in Zee Entertainment (supra) was incorrect or that it was not applicable to the present facts.
Appeal dismissed. No substantial question of law.
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2018 (6) TMI 1860
Addition u/s 68 - unexplained cash credits - Bogus share application money receipts - amounts were received before the commencement of the business - HELD THAT:- As decided in Bharat Engineering Construction Company [1971 (9) TMI 14 - SUPREME COURT]as in the present case, the amounts were received before the commencement of the business. The Hon’ble Supreme Court held that as such, they could not be added as the assessee’s income.
The assessee is right in contending that the share application money having been received before the start of the assessee’s business, it cannot be considered as the assessee’s undisclosed income and that as such, no income of the assessee can be said to have escaped assessment. Assessee appeal is allowed.
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2018 (6) TMI 1859
TDS u/s 195 - Addition on account of export commission - CIT(A) held that no TDS was deductible on payments made to foreign parties - Disallowance in respect of content and software development expenses u/s 40(a)(ia) - CIT(A) deleted addition
HELD THAT:- We find that both the issues have been considered by the the ITAT, Mumbai Bench “G” for AYs 2011-12 and 2012-13 [2018 (2) TMI 2126 - ITAT MUMBAI] treated that payment to M/s. Columbus Travel Media Ltd., and Zagat Survey LLC cannot be treated as royalty u/s.9(1)(vi) of the Act. Hence, assesses was not required to deduct tax accordingly, no disallowance can be made u/s.40(a)(i) of the Act.
With regard to export commission paid to the foreign agents CIT(A) recorded a clear finding that commission has been paid for procuring export order and payment was made outside India. After relying on the CBDT Circular No.23 of 1969, 786 of 2000 and 7 of 2009, the CIT(A) held that no tax is deductible in respect of such export commission.CIT(A) also relied on the decisions of Welspring Universal [2015 (1) TMI 736 - ITAT DELHI] and Faizan Shoes (P) Ltd. [2014 (8) TMI 170 - MADRAS HIGH COURT], which has been accepted by the Department and no SLP has been filed. Thus no infirmity in the order of CIT(A) for deleting the disallowance made on account of payment made to foreign parties without deduction of tax at source - Decided against revenue.
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2018 (6) TMI 1858
Seeking dismissal of present appeal on the ground that the case is covered by the decision of this Court in COMMISSIONER OF SERVICE-TAX SERVICE TAX VERSUS MISYS SOFTWARE SOLUTIONS [INDIA] PVT. LTD., M/S. LG SOFT INDIA PVT. LTD, NVIDIA GRAPHICS PVT. LTD. AND PRINCIPAL COMMISSIONER OF SERVICE-TAX SERVICE TAX VERSUS ANZ OPERATIONS AND TECHNOLOGY PVT. LTD. [2018 (6) TMI 1202 - KARNATAKA HIGH COURT], in which it was held that 'respectfully agreeing with the order of the Coordinate Bench, we do not find any substantial question of law in the remand the order of the Tribunal and therefore, present appeals are liable to be dismissed and the same are accordingly dismissed.'
HELD THAT:- In view of the submission made by the learned counsel for the appellant-Revenue and on perusal of the judgment, the present appeal of the appellant-Revenue is dismissed.
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2018 (6) TMI 1857
Disallowance on account of advance received against depreciation deferred - CIT(A) deleted addition - HELD THAT:- Given that there are no changes in the facts and circumstances of the case, we do not see any infirmity in the order of ld. CIT (A) who has followed the decision of National Hydro Electric Power Corporation Ltd. [2010 (1) TMI 281 - SUPREME COURT] as well as NHPC Ltd. [2014 (12) TMI 214 - ITAT DELHI] and the fact that the same is covered by our own decision referred supra to hold that the CIT (A) was correct in holding that advance against depreciation cannot be added under the computation of the normal income. Decided against revenue.
Depositing the employees’ contribution to PF & ESI beyond the prescribed time limit - CIT(A) deleted addition - CIT(A) justification that employee’s contribution to PF & ESI are governed by the provisions of Section 43B and not by section 36(1)(va) r.w.s 2(24)(x) - HELD THAT:- CIT (A) has returned a finding that contribution to PF and ESI has been paid before the due date of filing of return of income under section 139(1) of the Act. The said findings remain uncontroverted before us. Following the decisions of Jaipur Vidyut Vitran Nigam ltd [2014 (1) TMI 1085 - RAJASTHAN HIGH COURT] and Udaipur Dugdh Utpadak Sahakari Sangh Ltd [2014 (8) TMI 677 - RAJASTHAN HIGH COURT] he has allowed the claim of the assessee. No infirmity in the order of the ld. CIT (A) has directed the deletion of disallowance so made by the AO. Decided against revenue.
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2018 (6) TMI 1856
LTCG - denial of deduction u/s. 54F - extension of an old existing house would not be equivalent to construction of a new residential house - HELD THAT:- The number of dwelling units is mentioned as two, both for sewage connection as well as for water connection. No doubt, AO has questioned the authenticity of the above letter, for want of seal and signature. However, in our opinion, the letter above produced could not have been disbelieved since it was issued on a standardized format and carried specific reference number with factum of a site inspection done by the Depot Engineer. In any case it is not disputed by the lower authorities that the construction in the first floor had a separate kitchen in it.
Separate water connection, separate sewage connection and existence of a kitchen clearly in our opinion indicate that what was constructed by the assessee in the first floor was an independent dwelling unit. We also find that there were separate EB meters for the two units and EB cards evidencing this has been placed at paper book page 9 to 12. Assessee had also placed on record photos of separate EB meters. In such circumstances, we are of the opinion that assessee's case that it had constructed new residential house in the upper floor of its existing residence is on a strong wicket.
Here the assessee had constructed an independent dwelling unit in the floor. In our opinion, assessee was eligible to claim deduction u/s. 54F of the Act on the cost of such new dwelling unit. AO is directed to give the deduction sought by the assessee u/s. 54F of the Act. Assessee appeal allowed.
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2018 (6) TMI 1855
Addition on estimation for foreign tour expenses - addition made during course of search u/s 132 - as submitted additions have been made on mere estimation and guess work without any incriminating material found during the course of search.
HELD THAT:- AR has reiterated the contentions raised before the ld CIT (A) and submitted that the assessee’s drawings during the year are sufficient enough to explain the source of such expenditure. In support, our reference was drawn to the assessee’s capital account for the financial year ended 31st March, 2015 which shows total drawings of Rs. 11,13,115/-.
As similar additions made in the hands of Dr Balvir Singh Tomar have been recently deleted by this Bench in [2018 (4) TMI 1988 - ITAT JAIPUR] - In absence of anything contrary on record, it would be reasonable to hold that the foreign tour expenses of Rs 2,68,450 are met out of such drawings of Rs 11,13,115.
In the result, following our decisions in case of Dr Balvir Singh Tomar, the addition made by the AO is hereby deleted and ground of the assessee’s appeal is allowed.
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2018 (6) TMI 1854
Levy of interest u/s 234B - payments mad are subject to tax deduction u/s 195 - HELD THAT:- An identical issue has already been adjudicated inNGC NETWORK ASIA LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT], M/S. JACABS CIVIL INCORPORATED / MITSUBISHI CORPORATION [2010 (8) TMI 37 - DELHI HIGH COURT] and HALLIBURTON OFFSHORE SERVICES INC. [2004 (7) TMI 74 - UTTARANCHAL HIGH COURT] as held interest u/s. 234B is not leviable because payments made to non-resident appellant are subject to tax deduction u/s. 195 of the Act. The A.O. is directed to grant the relief accordingly - Decided in favour of assessee.
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2018 (6) TMI 1853
Levy of interest and late fees u/s 234E - assessee deposited a sum towards TDS on property purchases jointly - As argued merely because the assessee has deducted TDS by mistake, the same cannot be basis for levy of interest and late fee u/s 234E of the Act - AR submitted that as per section 194IA, the liability to deduct TDS is applicable if the consideration for transfer of any immovable property is equal to or greater than Rs. 50,000,00/-. It was submitted in the instant case, the assessee has paid a sum of Rs. 37,50,000/- to co-owners.
HELD THAT:- It is an undisputed fact that the assessee has acquired an immoveable property which was jointly owned. It is also an undisputed fact that though the total consideration was agreed at Rs 75,00,000, the assessee has paid Rs 37,50,000/- each to the two individual and joint owners of the said immoveable property.
Section 194-IA provides that any person responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property exceeding Rs 50 lacs, shall be liable for deduction of tax at source at the rate of one percent of such sum. In the instant case, even though the total consideration for the immovable property has been agreed at Rs 75,00,000, the assessee is responsible for paying consideration of Rs 37,50,000 each to Smt. Rashi Harneja and Smt. Ravindra Harneja individually.
In fact, the assessee has actually paid Rs 37,50,000 individually to these two individuals as demonstrated by its filings in Form 27Q which has been accepted by the Revenue authorities and subsequently processed and intimation issued under section 200A of the Act. In light of the same, in our view, the provisions of section 194-IA are not applicable in the instant case.
Given that the provisions of section 194-IA are not attracted, there is no basis for levy of interest and late fee under section 234E of the Act and the demand so raised is hereby directed to be deleted. TDS already deposited shall not be refunded to the assessee as the transferor would be entitled to claim credit of the same in their respective return of income. Decided in favour of assessee.
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2018 (6) TMI 1852
Reopening of assessment u/s 147 - failure to disclose all facts regarding a bank account during the assessment proceedings - notice is beyond the prescribed period of four years
HELD THAT:- The petitioner had filed its objections by letter dated 23rd May, 2017 to the reasons inter-alia pointing out that during the course of assessment proceeding, the petitioner had submitted details of its Bank Accounts including that of the Abhudaya Co-operative Bank Limited. Besides, the same Bank Account is also reflected even in their Balance Sheet which is a subject matter of consideration during the assessment proceedings.
The order disposing off the objection is completely silent with regard to the petitioner’s contention that there was no failure on its part to disclose all facts with regard to the subject Bank Account during the assessment proceedings to the Department. The impugned notice being beyond the period of four years is hit by the first proviso to Section 147 and in absence of any failure to disclose the facts fully and truly, the AO cannot exercise jurisdiction. Prima-facie, it appears that the impugned notice is without jurisdiction. Accordingly, there shall be interim stay restraining the Revenue from acting further upon the impugned notice dated 30th March, 2017 for Assessment Year 2010-11.
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2018 (6) TMI 1851
Denial of deduction u/s 36(1)(viia) - provision for bad and doubtful debts appearing in the books of account of the assessee is higher than the provision calculated as per limit prescribed u/s 36(I)(viia) - assessee submitted that the deduction u/s 36(1)(viia) are statutory deductions allowable under the Act and the deductions have to be allowed whether the provisions is made or not? - HELD THAT:- There is no merit in the argument of the Ld. counsel. We agree with the CIT(A) that in order to claim deduction under section 36(viiia) of the Act, the assessee is required to make provision and debit the same from the P & L account. Hence, the assessee was required to make the provision in accordance with the Act.
The copy of P & L account submitted by the Ld. counsel prima facie shows that the assessee bank had made the provision for bad and doubtful advances to the extent of Rs. 45,84,000/-. Accordingly, deduction to that extent cannot be denied under the provisions of section 36(viia) of the Act. Since there is no reference of this document in the orders passed by the authorities below, in our considered view the same needs verification by the AO. Hence, in the interest of justice, we set aside the findings of the Ld. CIT(A) and restore the sole ground of appeal Assessment Year: 2010-11 of the assessee to the file of AO to verify the P & L Account submitted by the assessee and to allow the deduction to the extent of provision made by the assessee bank in its books of account. Assessee appeal allowed for statistical purposes.
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2018 (6) TMI 1850
Disallowance on interest free loans and advances - ITAT deleted disallowance - HELD THAT:- On perusal of the documentary evidences that the Assessee was already having a huge interest free funds available with it and that even the amount of loans and advances were utilized for the business purpose, more particularly in fixed assets and capital work in progress and thereafter that the Tribunal has deleted the disallowance and interest free loans and advances, it cannot be said that the learned Tribunal has committed any error to call for any interference by this Court.
View taken by the learned Tribunal deleting the dis-allowance on interest free loans and advances confirmed. No specific question of law arises.
Addition u/s 68 - loan and advances taken from one Bhupendrabhai J. Patel by cheque - HELD THAT:- Said loan and advances was not taken by the Assessee in the year under consideration. Under the circumstances when there was no unsecured loan during the year under consideration, the learned Tribunal has rightly observed and held that the provisions of Section 68 shall not be applicable. Even otherwise it is required to be noted that even the said loan was adjusted by the Assessee subsequently by allotment of Rs. 51,000/- shares of Rs. 100/- each - when the learned Tribunal has deleted the addition of Rs. 51,00,000/-, the same cannot be said to be erroneous. We confirm the deletion of the addition.
Assessee appeal allowed.
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2018 (6) TMI 1849
Disallowance u/s 40(a)(ia) - ITAT deleted addition - HELD THAT:- Tribunal allowed Assessee's appeal by following the order of its coordinate bench for the Assessment Year 2009-10 in respect of the same respondent - Assessee
Revenue very fairly points out that being aggrieved by the above order of Tribunal the Revenue filed an appeal to this Court. The appeal [2017 (7) TMI 1235 - BOMBAY HIGH COURT] This by following an earlier order of Division Bench of this Court in the matter of Commissioner of Income Tax -2 Vs. Health Indian TPA Services Pvt. Ltd [2015 (12) TMI 568 - BOMBAY HIGH COURT]
Revenue is not able to point out any distinguishing features in this case which would warrant taking a different view from that taken in Income Tax Appeal (supra). No substantial question of law arises.
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2018 (6) TMI 1848
Penalty levied u/s 271D - assessee has received cash exceeding ₹20,000/- from the Trust - assessee contended before AO that there was no loan or deposit - HELD THAT:- We have carefully gone through the judgment of Madras High Court in Idhayam Publications Ltd. [2006 (1) TMI 97 - MADRAS HIGH COURT] assessee contended before the Assessing Officer that there was no loan or deposit. AO rejected the claim of the assessee and levied penalty. The Tribunal, however, found that the proprietor of the sister concern, which deposited the funds, was one of the directors of the company and there was a running current account in his name. Therefore, there is no violation of Section 271D of the Act. In this case also, Shri A.N. Radhakrishnan is one of the directors in the assessee-company and he is also a trustee in other two Trusts. Therefore, this Tribunal is of the considered opinion that it is not a fit case for levying penalty under Section 271D of the Act.
Period of limitation - Moreover, for the assessment years 2008-09 and 2009-10, the penalty proceeding was initiated almost after six years. In view of the judgment of Madras High Court in M. Srinivasa Rao [2007 (9) TMI 32 - HIGH COURT , MADRAS] penalty proceeding should have been initiated within reasonable time even though no limitation was provided in the Income-tax Act. The threat of initiating penalty proceeding cannot be allowed to hang over the head of the assessee for an unreasonable period of time. There should be an end to the proceeding, that also within a reasonable period. Hence, in view of the judgment of Madras High Court in M. Srinivasa Rao (supra), the penalty proceeding initiated by the Assessing Officer for assessment years 2008-09 and 2009- 10, after the expiry of almost six years, is barred by limitation. Appeals filed by the assessee are allowed.
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2018 (6) TMI 1847
TDS u/s 194C and 194A - External Development Charges (herein referred to as ‘EDC’) and interest on late payment of EDC to Greater Mohali Area Development Authority (‘GMADA’) - AO held that tax was required to be deducted u/s 194C and u/s 194A on interest payment made to GMADA - As the assessee had not deducted tax at source, he treated the assessee/person responsible as ‘assessee in default’ and created demand u/s 201(1) / 201(1A)
HELD THAT:- A perusal of the notifications and policies of the Govt. also clearly reveal that though, in lieu of the benefits, concessions, incentives given by the government to the promoter for the purpose of development of infrastructure, the proportionate cost at fixed rates is got deposited by the government from the promoter for external development work, yet, the development is carried out by the local authority out of its own obligations/duties. The entire discussion can be summed up in the manner that though the promoter contributes towards the proportionate cost of infrastructure development, however, the works are not carried out by the local authority in consequence of specific performance of the agreement/contract but out of its own obligations and duties towards the public. Since the agreement cannot be said to be a work / service contract, hence, the provisions of section 194C will not be attracted in this case.
Interest paid on account of delayed payment of EDC charges - The perusal of the above statutory provisions of section 29 of the Punjab Regional and Town Planning and Development Act, 1995, read with notification dated August 14,2006 reveals that the GMADA has been established by the State Act. As per the sub section (4)(1) of section 29, ‘GMADA’ is a body corporate as well as local body.
In the case of ‘CIT (TDS) Vs. Canara Bank’ [2016 (5) TMI 570 - ALLAHABAD HIGH COURT] has elaborately discussed the distinction between a corporation established under an Act and body incorporated under an Act.
Hon'ble High Court while replying upon the decision in the case of Dalco Engineering (P.) Ltd. v. Satish Prabhakar Padhye [2010 (3) TMI 912 - SUPREME COURT] has observed that a company incorporated under the Companies Act is not created by the Company Act but comes into existence in accordance with the provisions of the said Act and that there was a well-marked distinction between body created by a statute and a body which after coming into existence is governed in accordance with the provisions of a statute.
The Hon'ble High Court while discussing about the status of ‘New Okhla Industrial Development Authority, Noida’ which was established under the Uttar Pradesh Industrial Area Development Act, 1976 has held that the said corporation (Noida) was established by the State Act and, therefore, was entitled to exemption payment of tax u/s 194A of the Act. The above decision of the Hon'ble Allahabad High Court is squarely applicable to the facts and circumstances of the case as the GMADA has been constituted by the State Government Act and it has been specifically provided that it is a body corporate and in view of the notification dated October 22, 1977 of the Central Government, the GMADA falls under the definition of any Corporation established by the Central, State or Provincial Act and thus the provisions of section 194A are not applicable. In view of this, the assessee was not liable to deduct TDS while remitting interest on delayed EDC charges to the GMADA.
We uphold the order of the CIT(A) in setting aside the impugned demand but on different grounds as discussed above. It is clarified that any observation made in this order will not be construed to or subscribing to or approving of the view in any manner of the CIT(A) that the EDC charges or interest thereupon by GMADA was not the taxable income of the GMADA. The above question is left open to be decided in an appropriate case. This appeal of the revenue is dismissed
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2018 (6) TMI 1846
TDS u/s 194C - assessee AOP worked as sub-contractor - AO was of the view that the capacity of the AOP was a sub-contractor, therefore, the Joint Venture was under obligation to deduct the TDS - CIT(A) held that provision u/s 194C of the Act is not applicable and allowed the claim of the assessee - HELD THAT:- Joint Venture has received the contract work by way of agreement. The parties have only the relationship inter-see in respect of Joint responsibility that existed in relation to the principal i.e. National Highway Authority of India. In fact, both the parties have decided to execute the contract on their own part. There is nothing on record to which it can be assumed that each member was interfering with the work of another. The Joint Venture is the main contractor and the members are not sub-contractor when the members are nowhere falls within the category of sub-contractor then there is no question of deduction u/s 194C of the Act and the question of disallowance u/s 40(a)(ia) of the Act nowhere arise.
Under the Joint Venture each party was under obligation to execute its own work according to its technical skill and capability for specified consideration and to bear its own losses and to retain its own profit separately. Each party is liable to be assessed as separate and independent entity. The contract awarded by the NHAI was a divisible contract. The Joint Venture was having specific constitution with regard to execution of work of independent entity.
As relying UAN RAJU CONSTRUCTIONS [2011 (5) TMI 636 - ITAT VISAKHAPATNAM] wherein held no merit in the presumption made by the AO that the Joint Venture is the "Main Contractor" and the members are the "Sub-contractors", thus we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Decided against revenue.
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2018 (6) TMI 1845
Tax free allowances - entitlement of judicial official of salary and allowances - scope of Shetty Commission recommendations - Disallowance of house rent allowance, medical allowance, sumptuary allowance and residence office allowance claimed by the assessee as exempt - assessee is a judicial Officer of Rajasthan judicial services and at present working as Additional District Judge - AO disallowed the claim of the assessee by holding that as per the provisions of Income Tax Act these allowances are not exempt from tax but are part of the salary income of the assessee - AO contended that as per the recommendation of the Shetty Commission these allowances are tax free and not to be included in the salary income of the assessee for the purpose of income tax.
HELD THAT:- HRA - Hon'ble Supreme Court in case of All India judges Association & Ors. v. Union of India & Ors [2001 (2) TMI 1023 - SUPREME COURT] has declined to accept the recommendation of the Shetty Commission for payment of house rent allowance over and above the official accommodation provided to the Judicial Officer. Therefore, the Hon'ble Supreme Court has held that the Judicial Officers are entitled for house rent allowance only when the Government, for any reason, is not able to make allotment or make available official accommodation. Thus as per the judgment of Hon'ble Supreme Court the Judicial officers are entitled for the house rent allowance at par with the other government officials and even equal to the judges of Hon'ble High Courts subject to the quantum of allowance varies from case to case depending upon the percentage of salary. Though the house rent allowance is exempt from tax as per provisions of High Courts judges (salaries and conditions of service) Act, 1954 as well as Supreme Court judges (Salaries and conditions of service) Act, 1958 however, the payment of HRA to the Judicial Officer is not governed by the provisions of these Acts. Section 22D of High Court judges (Salaries and conditions of service) Act 1954 and Section 23D of Supreme Court judges (Salaries and conditions of service) Act 1958 are pari material.
Thus it is clear that the value of rent free official residence provided to a judge or the allowance paid to him under sub-section (1A) of Section 23 is excluded is exempt from liability to pay income tax.
The provisions of High Court judges (Salaries and conditions of service) Act 1954 and as well as the Hon'ble Supreme Court judges (Salaries and conditions of service) Act 1958 are applicable only in respect of the judges of Hon'ble High Courts and Hon'ble Supreme court. The Judicial Officers government by the service conditions of the state higher judiciary cannot claim the benefit of High Courts judges (Salaries and conditions of service) Act 1954 as well as the Supreme Court Judges (Salaries and conditions of service) Act 1958. Therefore, the HRA drawn by the judicial officer of state higher judiciary is exempt only to the extent of the provisions of section 10(13A) r.w.r. 2A of the Income Tax Rules.Thus, in view of the above discussion, we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue.
Medical allowance - In case of Smt. Shilpa Sameer the Judicial Officer the Assessing officer while passing the assessment U/s. 143(3) of the Act dated 30.09.2013 has allowed the medical allowance as exempt to the extent of Rs. 15,000/-. Thus, we direct the AO to reconsider this issue of allowing the claim of exemption of medical allowance to the extent of Rs. 15,000/-. If the Assessment order in case of Smt. Shilpa Sameer is not disturbed till date then the claim of the assessee shall also be allowed to the extent of Rs. 15,000/-.
Sumptuary allowance - CIT(A) has rejected the claim of the assessee on the ground that the assessee has not brought on record any section, notification, circular etc. as issued by the CBDT - We find that the CBDT vide letter No. 35/32/66-IT(B), dated 24-9-1966 has made it clear that sumptuary allowance has to be treated as an entertainment allowance and accordingly, the said allowance received by a person who is in receipt of salary from the Government, to the extent of such allowance are required to be deducted in computing the income chargeable under head salaries U/s. 16(ii)(a) - Thus, the CBDT circular has clarified that this allowance may be regarded as entertainment allowance and exempt from payment of income tax. We hold that the Sumptuary allowance is exempt from payment of income tax and accordingly to be excluded as a deduction while computing income under the head salary.
Residence Office Allowance - We note that residence office allowance of Rs. 3,000/- received by the assessee is on account of minimum day to day expenses incurred by the assessee for keeping the residence office functional. Therefore, the expenses incurred on account of official work which is reimbursed by the Government in the shape of allowance cannot be treated as income of the assessee. In our view the allowance is paid to the Judicial Officer to avoid the furnishing accounts of petty expenses by the Judicial Officer for reimbursement. Thus, to avoid the production or furnishing of account of petty expenses in respect of residence office, the allowance is paid in lieu of reimbursement of such petty expenses. Accordingly, the residence office allowance cannot be treated as income of the assessee and the same has to be excluded from the salary income.
Leave Encashment - Though there is no provisions under the Income Tax Act to exempt the leave encashment from tax during the service of Government employee except the provisions of Section 10(10AA)(i) of the Act applicable at the time of superannuation.
Notification of Government of Odisha Gazette dated 25.06.2013 after consulting the Ministry of Law and Justice Government of India has decided that encashment of leave admissible to Judicial Officer in state shall continue to subject to applicable taxes. The language of the said gazette notification shows that the earlier resolution dated 17.08.2010 was modified vide this gazette notification dated 25.06.2013. Therefore, the said notification cannot be applied to the assessee before us with retrospective effect.
Vide judgment in case of All India Judges Association & Ors. v. Union of India and Ors [2001 (2) TMI 1023 - SUPREME COURT] subject to the modification all the recommendations of the Shetty Commission were accepted. The recommendation for leave encashment and leave salary was not modified by the Hon'ble Supreme Court but was accepted as recommended by the Shetty Commission. Therefore, in view of the fact that the leave encashment was recommended as tax free and accepted by the Hon'ble Supreme Court prior to the notification dated 25.06.2013 the leave encashment would be tax free. In the result, the appeal of the assessee is partly allowed.
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2018 (6) TMI 1844
TP Adjustment - addition on account of Arm's Length Price - comparable selection - assessee is engaged in the business of providing IT-enabled Services(ITES) and business support services, such as financial reports/related documents, technical service for development of software and other similar services to its AE on a ‘cost plus mark up’ basis - HELD THAT:- It is pertinent to note that the Tribunal in assessee’s own case for A.Y. 2007-08 [2017 (12) TMI 1731 - ITAT DELHI] rejected the three comparables i.e. Vishal Information Technologies Ltd., Wipro Ltd., Mold-tek Technological Ltd. as functionally different from the assessee company.
Genesys International Corporation Ltd.comparable provides Geospatial Services, viz., photogrammetric services, preparation of cadastral maps from aerial photographs etc. using niche software tolls which requires a different skill set, e.g., services of draftsman, cartographers and civil engineers etc. and need highly skilled manpower. Therefore, this comparable is rightly rejected by the CIT(A) as given a categorical finding as to the function of the comparable and the requirement of the highly skilled manpower.
Excess depreciation on computer accessories - Whether eligible items for depreciation at 60%? - HELD THAT:- CIT(A) has given the finding that the assessee had purchased computer peripherals like wireless access point, G-Tran, Carry cass, Pan Cards, spike buster, pen drive, ETI enhancements, switches, keylock, battery, tae, extension card, tv tune, convertor, charger etc. Rs. 1,62,975/- as computer peripherals. The Hon’ble Jurisdictional High Court in BSES Yamuna Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT] classified these items as eligible items for depreciation at 60%. Therefore, the decision of the Hon’ble Jurisdictional High Court is squarely applicable in assessee’s case. Therefore, Ground No. 2 of the Revenue’s appeal is dismissed.
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2018 (6) TMI 1843
TP Adjustment - royalty payment made to associate enterprise - Nil ALP determined - HELD THAT:- It is clear first of all that the lower authorities have been very fair in not holding the assessee’s royalty transactions to be a sham ones. They have applied benefit and commercial expediency test in the instant case whilst computing nil ALP. We see no reason to approve the same these two tests of benefits and commercial expediency are not to be invoked as per the above legal position. The impugned action of the lower authorities under challenge is therefore held to be not sustainable.
Quantification of the impugned ALP - TPO admittedly applied ‘CUP' method in his order (supra). He appears to have treated the tax payer itself as a valid comparable as it had not paid any royalty to the very payee in earlier assessment years. This made him to adopt nil price of the impugned royalty so as to make the adjustment in question.
No reason to concur with such a course of action since the assessee itself having paid Nil amount in the past to the AE, cannot be taken as a valid comparable. This tribunal in the case of Technimont ICB India (P) Ltd.[2013 (9) TMI 595 - ITAT MUMBAI] has concluded long back that a transaction between payee and its AE is not an uncontrolled one so as to be taken as a comparable. We accept the assessee’s instant first substantive ground both on legality as well as on quantification therefore. The impugned ALP adjustment stands deleted accordingly.
Disallowing provision for leave encashment u/s 43B(f) - HELD THAT:- This issue deserves to be remitted back to the Assessing Officer for taking a fresh call after the hon’ble apex court’s decision in the Revenue’s special leave petition converted to appeal staying operation of hon’ble jurisdictional high court’s judgment in Exide Industries Ltd.. [2007 (6) TMI 175 - CALCUTTA HIGH COURT] deleting identical disallowance as well as holding the statutory provision itself to be unconstitutional. We accept this fair stand and direct the AO to keep the instant issue in abeyance to be decided after the hon’ble apex court’s final verdict in the department’s appeal hereinabove.
Accrual of expenditure - Addition of commission charges - year of allowability - disallowance on the ground that the same is raised on accrual basis without any details being submitted - HELD THAT:- Departmental Representative, fails to dispute that the assessee’s stand throughout is of having filed all the relevant details before the AO. We therefore conclude that in absence of any material doubting accrual of the impugned expenditure in the relevant previous year, the same has to be held allowable in the assessment year in question only as per decision in the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT The assessee succeeds in its instant substantive ground.
Computing book profit u/s 115JB when Section 14A r.w.r 8D disallowance pertaining to its exempt income - HELD THAT:- Learned counsel’s only plea during the course of hearing is that the assessee has already offered the very sum in its return at the first instance. We therefore leave it open for the Assessing Officer to carry out necessary verification in order to avoid double disallowance. This substantive ground is taken as accepted for statistical purposes.
TP Adjustment - goods exported to Associate Enterprises outside India forming subject matter of international transactions - MAM selection - whether such domestic sales in case of independent parties vis-à-vis export sales to AEs could be taken as comparables or not? - HELD THAT:- A co-ordinate bench in M/s. Wrigley India Private Limited[2015 (1) TMI 193 - ITAT DELHI] declined the Revenue’s similar arguments applying CUP Method in identical circumstances -Undoubtedly, direct methods of determining ALP, including cost plus method, have an inherent edge over the indirect methods, such as TNMM, but such a preference can come into play only when appropriate comparable uncontrolled transactions can be identified and analysed accordingly. That has not been done in the present case. There is, therefore, no good reason to disturb the TNMM method adopted by the assessee.
Addition of club expenditure invoking Section 40(9) - HELD THAT:- No dispute about genuineness of the impugned expenditure to have incurred in a club set up at IEL, Gomia for entertainment and seminars. We observe in this backdrop that the lower authorities have wrongly invoked Section 40(9) as the same is attracted in case of specified purpose only and not qua a claim raised u/s 37 - DRP has deleted the very disallowance in the preceding assessment year. The same has attained finality. We thus adopt judicial consistency to delete the impugned disallowance as well.
Assessee appeal partly allowed.
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