Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
January 20, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Disallowance of brought forward and set off loss - Exemption u/s 11 - Assessee has been permitted to carry forward the losses and also to claim set off such losses against the income in earlier AYs - AT
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Nature of loss on share transaction - speculative transaction or not - appellant has maintained all the regular books of accounts and all necessary details have been filed before the AO in the course of assessment proceedings - The loss claimed is normal business loss - AT
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Undisclosed cash deposit in bank account - The amount deposited was received from purchasers/buyers - The assessee also explained that he was supplying marble on commission basis - no additions - AT
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Deduction u/s 80IB - The profit shown by the unit which is eligible for deduction u/s 80IA is very high i.e. 35% as compared to the profit of the other unit (belongs to his wife) only at the rate of 5% - deduction restricted to 10% - AT
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Non-compete fees paid - the three products of the company has advantage for seven years and the 4th product has advantage for fourteen years - payment is in the nature of capital expenditure - AT
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Nature of Development Fund collected from students - When the collection is meant for being spent on activities in the capital filed, the same cannot be treated by the Assessing Officer as revenue receipt - AT
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Merely because the assessee/purchaser had to pay the stamp duty as per the departmental instructions at a higher rate, that itself can not be a sufficient to hold that the actual sale consideration of the flats was more than that was mentioned in the sale agreement - AT
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Addition made u/s 36(1)(iii) of the Act – The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business, expenditure if it, was incurred on grounds of commercial expediency - AT
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Belated filing of non-deduction forms 15G/15H under Rule 29C – amount can not be disallowed u/s 40(a)(ia) for non deduction of TDS - AT
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Capital or Revenue expenses – The number of entries for purchase of software tools is running into 170 - thus, the expenditure incurred by the assessee was revenue in nature - AT
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Computation of book profits u/s 115JB - there was no merit in the argument of the counsel that the share of income of the joint venture should be excluded from the book profit of the assessee - AT
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ALP - Selection of comparables - PLI (Profit Level Indicator) – proper weightage has to be given for all these extra-ordinary items explained by the assessee before the TPO - AT
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Scope of Section 56(2)(vi) - monthly amount was paid by way of alimony only because they were husband and wife in pursuance of divorce agreement is taxable - but accumulation of the same held as capital in nature not taxable - AT
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Deletion of undisclosed investment in fixed deposits – merely for the reason that there was a mistake in making entries, a disclosed investment cannot be treated as undisclosed - AT
Customs
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Classification of goods - Violation of import policy - Mis declaration of goods - Year of manufacturing of goods - In this case the benefit of doubt should go to the appellant. - AT
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Notification No 6/2006 grants exemption only to sports goods - goods being sports requisite are not covered - continuous synthetic surface used for covering floors for indoor games cannot be held to be a sports goods - AT
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Claim of Rebate of duty on Export made under Rule 18 - Conditions of Notification no. 93/2004-Cs versus Notification no. 94/2004-Cus -Benefit of Notification No. 94/2004 is not barred in case facility of rebate on duty paid on finished goods cleared for export is availed - AT
Corporate Law
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Whether a challenge to an arbitration award (or arbitral agreement, or arbitral proceeding), wherein jurisdiction lies with more than one court, can be permitted to proceed simultaneously in two different courts - Held No - SC
Service Tax
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Government securities are not securities of a body corporate - service tax liability does not arise on Underwriting Fee or Underwriting Commission received by the Primary Dealers - AT
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Assessee is engaged in loading, unloading and shifting of sugar bags from floor of mill house to godown, from one godown to another. This activity does not fit in the definition of cargo handling service - AT
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Finance Act does not describe or define what are ‘clearing and forwarding operations’ - The clarification issued by the Board at the time of inception of levy needs to be given due weightage - AT
Central Excise
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Assessee cannot avail Cenvat credit of duty paid on tube lights under the head of capital goods, as goods procured are classified by seller under Chapter 94 - AT
Case Laws:
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Income Tax
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2014 (1) TMI 992
Validity of recomputation of deduction u/s 80HHC by applying section 80IA(9) - Held that:- While quashing and setting aside the order passed under section 154 of the Act, the learned ITAT has observed that the view that whether or not deduction under section 80IA should be reduced while computing the deduction under section 80HHC is an issue which was debatable - On a debatable issue when one possible view has been adopted, it cannot be said that there was a mistake apparent from record - While holding so the learned ITAT has not stated anything and/or observed anything as to how such issue was debatable issue and/or which two views were possible - Merely by submitting that issue was debatable, issue would not become debatable - It was required to be demonstrated how the issue was debatable and/or two views were possible out of which one view was accepted by the AO - The issue has been restored to ITAT for reconsideration.
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2014 (1) TMI 991
Validity of notice issued u/s 143(2) r.w.s 147 - period of limitation - Held that:- Decision in Assistant Commissioner of Income Tax and Anr vs. Hotel Blue Moon and others [2010 (2) TMI 1 - SUPREME COURT OF INDIA] followed - The learned ITAT has not committed any error in confirming the order passed by the learned CIT(A) - The Assessing Officer has issued notice under Section 143(2) of the Act after expiry of the time limit provided in subsection (2) of Section 143 of the Act - The order passed under Section 143(3) r/w Section 147 of the Act is invalid - Decided against Revenue.
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2014 (1) TMI 990
Lifting of attachment order - Held that:- The total outstanding dues are Rs.4,13,64,121 - On 26.09.2013, a sum of Rs.12,00,000/- has been paid and therefore, the balance of Rs.1,94,82,061/- out of the 50% demand, is the outstanding to be deposited - A sum of Rs.3,03,71,740/- is the refund which the petitioner is eligible for, for the assessment years 2012-13 and 2013- 14 - The petitioner submitted that he would not press for refund of the aforesaid amount and till the disposal of the appeal pending before the fourth respondent, no coercive steps may be initiated against the petitioner with regard to payment of balance 50% of outstanding dues. The authorities were directed to dispose of the appeal filed by petitioner on or before 28.02.2014 - Till then, the petitioner shall not press for refund of Rs.3,03,71,740 - Respondents are directed not to take any precipitative action in regard to the balance outstanding dues - The respondents were also directed to lift the attachment in respect of other bank accounts forthwith.
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2014 (1) TMI 989
Validity of notice u/s 142(1) - Held that:- As per the provisions of Section 143(2)(ii) of the Act, the notice is beyond the time specified under the said provision - The Tribunal has not considered this factual situation - The issue has been restored for fresh adjudication at ITAT level.
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2014 (1) TMI 987
Disallowance u/s 14A - Held that:- Following CIT Vs. Hero Cycles Ltd [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT] - Disallowance under section 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance under section 14A could not stand - As per section 14A(1) - Incurring of some expenditure by the assessee for earning of exempt income is essential for invoking the provisions of Section 14A. The Assessing Officer is required to record the satisfaction that he is not satisfied with the claim of the assessee with regard to incurring of no expenditure or the amount of the expenditure as specified by the assessee for earning of exempt income before embarking upon the determination of the amount of expenditure incurred in relation to exempt income under Section 14A(2). By using the word "shall" in sub-section (2) of Section 14A, the legislature has made it mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to exempt income as per the prescribed method i.e. Rule 8D. Before the insertion of Rule 8D, the Assessing Officer had the discretion to determine such expenditure on a reasonable and acceptable method of apportionment of expenditure between the taxable income and exempt income. Following Bharat Hari Singhania Vs. CWT [1994 (2) TMI 55 - SUPREME Court] - once the Assessing Officer records the satisfaction that he is not satisfied with the claim of the assessee of incurring of no expenditure or the amount of expenditure specified by the assessee, he is required to determine the expenditure incurred by the assessee in relation to the exempt income as per Rule 8D - Rule 8D is applicable from A.Y. 2008-09 which is mandatorily be adopted for computing disallowance u/s 14A - The CIT(A) was not justified in reducing the disallowance at a figure which was different than the disallowance determined as per Rule 8D of the Income-tax Rules - Decided in favour of Revenue. Disallowance for A.Y. 2007-08 - Held that:- Following Maxopp Investment Ltd. [2011 (11) TMI 267 - Delhi High Court] - In AY 2007-08, Rule 8D was not applicable, the Assessing Officer is required to compute the disallowance under Section 14A on the basis of reasonable apportionment of the expenditure between the exempt income and other income - The CIT(A) has worked out the disallowance by apportioning the expenditure for earning of exempt income at Rs. 1,59,479/- which is determined at the rate of 0.05% of average investment - Decided against Revenue.
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2014 (1) TMI 986
Determination of income - Held that:- The liaison office, apart from having Chief Representative Officer and other staff, is also having a Technical Expert - The employees of the assessee company are promoting the sales of the goods of the assessee company as per service conditions - There is a sales incentive plan by which employees are provided the incentive for achieving the sales target and the performance of the employees is being judged by the orders secured by the assessee company - All these activities clearly establish that the liaison office of the assessee was promoting the sales of the assessee company in India. In all the three years, the liaison office received more amount than the expenses actually incurred by the liaison office - The Assessing Officer himself has not treated reimbursement of expenses as income - The amount received by liaison office over and above the expenses actually incurred, year after year, was treated as income - Following Commissioner Of Income-Tax Versus Industrial Engineering Projects Pvt. Limited [1992 (7) TMI 38 - DELHI High Court] - To the extent of the receipt representing reimbursement of the expenses the same were not taxable - It is only when there was surplus that the same should be taxed - Decided against assessee.
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2014 (1) TMI 985
Disallowance of brought forward and set off loss - Exemption u/s 11 - The AO opined that if the view point of the assessee was accepted, it would result in granting double benefit, one being the exempt income and the other being carry forward of losses. - Held that:- Following assessee's own case for A.Y. 2006-07 [2012 (7) TMI 252 - ITAT, DELHI] - Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable religious purpose in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of the income of the trust for charitable and religious purpose - Assessee has been permitted to carry forward the losses and also to claim set off such losses against the income in earlier AYs, which has been accepted by Revenue - Decided in favour of assessee.
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2014 (1) TMI 984
Nature of loss on share transaction - speculative transaction or not - Held that:- The clearing difference has been determined by the appellant on the basis of statement of purchase and sales of shares and securities made on his behalf by broker - A perusal of the ledger account of broker maintained in the books of the appellant and the contract notes issued by the said company clearly reveals that the broker has actually purchased and sold shares and securities on behalf of the assessee and necessary charges on account of STT, stamp duty and other statutory levies have been debited to the assessee's account - The purchase and sale is routed through demat accounts and the only way to find out the profit and loss on the purchase and sales of securities made through a broker is the account statement submitted by such broker from time to time. In the present case, the appellant has maintained all the regular books of accounts and all necessary details have been filed before the AO in the course of assessment proceedings - The loss claimed is normal business loss - Decided against Revenue. Interest free unsecured loans received - additions u/s 56 rw.s. 68 - Held that:- the appellant has furnished all necessary evidence, namely, confirmations, copy of returns, copy of balance sheet and P&L A/c and the copy of bank statements evidencing obtaining and repayment of loans in question. Therefore, the primary burden placed on the appellant to prove the identity and creditworthiness of the creditors and genuineness of transactions was duly discharged - in the course of remand proceedings, all the creditors have appeared before the AO and their statements have been recorded. Therefore, the case of the appellant is that the issue of loans/cash credits cannot be decided on the basis of a solitary failure on the part of the appellant to produce the creditors in the course of assessment on short notice - merely because at a particular point of time they were not found at the given addresses would not be sufficient to hold that the said companies are non-existent entities and the transactions are bogus - Decided against Revenue.
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2014 (1) TMI 983
Selection of comparables for deterrmination of arm's length price - Held that:- In respect of inclusion of Infosys Ltd. as one of the comparables - The ld. AR relied on the case of Agnity India Technologies Pvt. Ltd. Vs. ITO [2013 (7) TMI 696 - DELHI HIGH COURT] - The tribunal order in Agnity Ltd. has become binding precedent to be respected and followed by the authorities - The issue has been restored to the file of the TPO for deciding this issue afresh as per the mandate of the aforesaid view of the Hon'ble High Court. In respect of inclusion of Bodhtree Consulting Ltd. as one of the comparables - The Annual accounts and the other relevant data of this company clearly depicted that it was also engaged in the business of IT Enabled Services as against the assessee dealing in software sector alone - The issue has been restored to the file of the TPO for deciding this issue afresh.
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2014 (1) TMI 982
Revenue recognition for advertising agencies - Held that:- For advertising agencies, media commissions will normally be recognised when the related advertisement or commercial appears before the public and the necessary intimation is received by the agency - The assessee has received pre-billing payment - Assessee treats this advance as advance for advertisement receipts and recognises the revenue as income when the directories are complete, published and put to public circulation. The above method of accounting adopted by the assessee is in accordance with AS-9 of the Institute of Chartered Accountant of India - The method of accounting adopted by the assessee is in consonance with the AS-9 and the same is also mentioned in Schedule 21 to the needs of the assessee - Following CIT vs. Excel Industries Ltd. [2013 (10) TMI 324 - SUPREME COURT] - The accrual of income must be considered from a realistic and practical angle - If Department has accepted the verdict in some year it cannot be allowed to challenge verdict in other years and dispute as to the year of taxability with no / meagre tax effect should not be raised by Department - Decided against Revenue.
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2014 (1) TMI 981
Depreciation on roads - Held that:- Though the NHAI remains legal owner of the site with full powers to hold, dispose of and deal with the site consistent with the provisions of the agreement, the assessee had been granted not merely possession but also right to enjoyment of the site and NHAI was obliged to defend this right and the assessee has the power to exclude others - In the case of assessee the land is held on lease and the road as capital asset has been built on it with exclusive ownership of the road, and the bridge in the assessee-company for the concession period, and which also includes the right to collect tolls and to regulate use of the bridge - Following Mysore Minerals Ltd. v. CIT [1999 (9) TMI 1 - SUPREME Court] - the term "owned" as occurring in Section 32(1) of the Act and held that it must be assigned a wider meaning anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings, though a formal deed of title may not have been executed and registered. Section 32 would apply for the purpose of providing depreciation to be worked out in accordance with the law - For removal of doubts the legislature has provided that the building includes roads at which the depreciation is admissible. Following CIT vs. Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME Court] - if the court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penalty - The CIT(A) was correct in taking one view - Decided against Revenue.
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2014 (1) TMI 980
Penalty u/s 271(1)(c) - Held that:- The assessee had claimed the depreciation on the ground of temporary suspension of the business whereas the AO disallowed the claim observing that the business was suspended since December 2000 on account of losses incurred and the same was not revived as on the date of assessment order - Though the depreciation claim on assets of the assessee had been disallowed and the said disallowance had been confirmed by the higher authorities, but that itself can not be a ground for mandatory levy of penalty - The levy of penalty is a penal action against the assessee for his wrongful act of furnishing of inaccurate particulars of income or for concealment of income - Every case of confirmation of disallowance cannot be regarded as a case of furnishing of inaccurate particulars of income or concealment of income - Following COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] - Simply for the reason that the Assessing Officer did not find the claim of the assessee to be sustainable in law up to a certain extent, it can not be a case for penalty u/s.271(1)(c) - Decided in favour of assessee.
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2014 (1) TMI 979
Addition u/s 68 - Held that:- The account for the assessee Trust shows that there was sufficient capital expenditure during the year which is much above the corpus donation received by the assessee - The assessee was conducting its business as per the aims and objects of the society - When there is no dispute that the assessee had disclosed the donations with the list of donors, the amount was paid by cheques and donations were applied for charitable purpose, there is no justification in making addition u/s 68 - The assessee has furnished evidences with regard to donations received - Some of the donors were produced before the Assessing Officer and many donors replied to the query of Assessing Officer - In respect of receipt of one of the major donations of Rs.45 lacs from SICPA India’s Pvt. Ltd confirmation was filed form the donor - The amount was received by cheque and fresh certificate of incorporation with Ministry of Corporate Affairs was also filed - The assessee had complied the requirement of Assessing Officer with regard to donors - Decided in favour of assessee.
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2014 (1) TMI 978
Unexplained expenses - Held that:- The AO has not brought any other material evidence on record to substantiate that expenses were incurred by the assessee - The AO has accepted that the amount has been incurred for the purchase of property of Shah Malleable Castings - The AO has also not made any effort to examine the persons in whose names the amounts have been found recorded in the seized documents - No evidence has been brought on record which could suggest that the AO has made investigations from the seller of the property to verify whether a sum of Rs. 50,05,000/- has been paid to them over and above the amount recorded in the books of accounts - Following ACIT Vs Prasant Ahluwalia [2004 (6) TMI 260 - ITAT CUTTACK] - Amounts noted in round figures clearly indicate that they were rough estimates and because they were not actually expended, all the figures were in round figures - As no corroborative material was brought on record by the AO for rejecting assessee's contention that jotting on the piece of paper was an estimate and not actually expended, additions based on chit papers and presumption of the AO could not be sustained in the absence of any corroborative material or evidence - Decided against Revenue.
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2014 (1) TMI 977
Undisclosed cash deposit in bank account - Held that:- The amount deposited was received from purchasers/buyers located at various places like Mumbai, Thane, Hyderabad, Kanpur etc - The assessee also explained that he was supplying marble on commission basis - The Assessing Officer was not justified in treating the total deposits in the bank account of the assessee as his undisclosed income - The Ld. CIT(A) rightly worked out the income by applying the net profit rate on the total receipts relating to the business of the assessee - Decided against Revenue.
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2014 (1) TMI 976
Deduction u/s 80IB - Held that:- Both the concerns carrying similar business of liquid soap material and most of the sales are made to the same concern where the rate is common for both the concerns - The profit shown by the unit which is eligible for deduction u/s 80IA is very high i.e. 35% as compared to the profit of the other unit (belongs to his wife) only at the rate of 5% - Following CIT V/s Schmetz India (P) Ltd [2012 (9) TMI 407 - BOMBAY HIGH COURT] - As per section 80IA(10) of the Act - AO has been empowered to redetermine the profits which may be reasonably deemed to have arisen from such eligible business, if the said undertaking has declared more than ordinary profit - AO rightly applied the provisions of section 80IA(10) of the Act to re-determine the profit - AO is reasonable to consider the net profit rate of 10% of the eligible unit as against 5% net profit of the unit which is not eligible for deduction u/s 80IA. The assessee could not controvert the facts as stated by AO and neither could controvert the submissions as made by ld. DR and /or query raised by the Bench at the time of hearing - The AO is justified to apply the provisions of sub-section (10) of section 80IA of the Act to re- determine the profit as the profit shown by eligible unit is abnormally high particularly when the cost of the material is the same, most of the sales are also made to the same party and both units are carrying on the similar business of manufacturing of liquid soap material - The AO was justified and reasonable to restrict deduction by taking the net profit rate of 10% of the total sales by the assessee of the Jammu unit inspite of the fact that the other unit i.e. M/s. The Umergaum Industries, Valsad whose proprietor is wife of assessee showing net profit rate of 5% only - Decided in favour of Revenue.
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2014 (1) TMI 975
Payment made under Voluntary Retirement Scheme - Revenue or capital expenditure - Held that:- Before introction of section 35DDA - The assessee can claim the expenditure incurred on account payment made for the VRS which are in the nature of business expenditure and are deductible u/s.37 - Following G.E.Medical Systems India (P) Ltd [2012 (10) TMI 53 - ITAT, Bangalore] - The Tribunal has allowed the claim of the assessee that the impugned expenditure is for the purpose of the business and deductible u/s.37 of the Act - Decided in favour of assessee. Non-compete fees paid - Held that:- The supply agreement has nothing to do with the competition fees agreement as the same has been paid on account of Agrimore not engaging in the production of these four items for seven years and fifteen years - Following CIT vs. Coal Shipment Pvt. Ltd [1971 (10) TMI 6 - SUPREME Court] - Payment made to ward of competition in the business of arrival would constitute capital expenditure of the object of making that payment is to derive an advantage by eliminating the competition over some length of time - The same result would not follow if there is no uncertainty of the duration of the advantage and the same can be put on an end any time - Although an enduring benefit need not be everlasting character it should not be so transitory and ephemeral that it can be terminated at any time at the volition of any of the parties - In the assessee's case, the three products of the company has advantage for seven years and the 4th product has advantage for fourteen years. The agreement has been entered in order to have the advantage of enduring nature as the life of these products itself in the competition age would be over before the period of seven years and fourteen years is over - Ld. CIT(A) was justified in upholding that this payment is required to be considered as capital in nature - Decided against assessee. Bad debts - Held that:- Following TRF Limited Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] - After 01.04.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable - If the bad debt has been written off as irrecoverable in the accounts of the assessee it is enough for claiming deduction u/s.36(1)(vii) - It becomes manifest that the deduction on account bad debt is to be allowed in the year in which the amount is written off in its books of account provided the conditions of section 36(2) are fulfilled - There is no requirement to distinctly prove that the debt has, in fact, become irrecoverable as a pre-requisite condition for allowing of deduction – Decided in favour of assessee. Value of closing stock - Held that:- Following assessee's own case for the Assessment Years 1994-95 - Post manufacturing expenses are not required to be included in the valuation of the closing stock - Decided against revenue.
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2014 (1) TMI 974
Whether receipt of Development Fund from students is liability or part of fees collected - Revenue receipt or capital receipt - exemption u/s 11 - Held that:- The assessee has treated the receipts as liability because the same are being separated for being utilised in providing amenities to the school children - The assessee has been following the same treatment in earlier years and the AO has not disputed the same - No cogent reason for deviating from the past has been brought on record - As per the notification issued by the Director of Education - Funds so collected in this regard should be specifically incurred for the purpose for which it is collected - When the collection is meant for being spent on activities in the capital filed, the same cannot be treated by the Assessing Officer as revenue receipt. Depreciation on assets treated as application of income - Held that:- Following CIT vs. Tiny Tots Education Society [2010 (7) TMI 377 - Punjab and Haryana High Court] - The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust - No double benefit is given in allowing claim for deprecation for computing income for purposes of Section 11 - Decided against Revenue.
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2014 (1) TMI 973
Suppression of sales consideration - Held that:- The AO has taken the stamp value of property as determined by the stamp valuation authority - There was made no actual verification of the carpet area of the flats in question but the same was increased/ converted into built up area in a mechanical manner on the basis of formula as reproduced above. Merely because the assessee/purchaser had to pay the stamp duty as per the departmental instructions at a higher rate on the basis of so increased saleable area calculated on the basis of above departmental instruction/formula, that itself can not be a sufficient basis for the revenue authorities to hold that the actual sale consideration of the flats was more than that was mentioned in the sale agreement, especially, in the absence of any other evidence/incriminating material brought by the Assessing Officer - it was mentioned in the agreement that the value/cost of balcony area was inclusive in the sale value of the carpet area and the said area was excluded for the purpose of calculating the carpet area, then under such circumstances, the reasonable inference can be that the cost of balcony area has been taken into consideration and embedded into, while fixing the rate of carpet area exclusive of area of balconies. The conclusions arrived at by the lower authorities are based on conjectures and surmises and not based on any plausible evidence - The burden is on the Revenue to prove that actual consideration was more than that was disclosed by the assessee, which in this case the Revenue has failed to discharge - Decided in favour of assessee. Genuineness of unsecured loan - Held that:- The assessee has submitted that the necessary details like confirmation letters from the creditors, copies of their income tax returns, ledger account etc were filed - The assessee had produced the required evidence before the Assessing Officer but the Assessing Officer failed to take notice of the same - The issue has been restored for fresh adjudication.
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2014 (1) TMI 954
Reasons recorded for computation of ALP u/s 92CA(1) of the Act – Compliance of section 92C(3) of the Act – Held that:- The company does not have any reportable related party transactions which have a bearing on the operating profits of the company - TPO has failed to notice that the Ma Foi data for December 2007 has substantial portion i.e. 9 months data that falls within the FY 2007-08 - Comparable companies draw up their financial statements for statutory purposes under the Companies Act, 1956, which are considered for comparability - The financial statements may be independently drawn up for tax purposes as of March 31 - The Companies are free to adopt different statutory year-ends, which may or may not coincide with the March year end - The fact that a company has a statutory year-end on December 31, 2007 as against the financial year end for tax purposes of March 31, 2008 does not by itself render that company incomparable, for the reason that the financial information is very much contemporaneous and falls within the period permitted by the Income-tax Rules, 1962. There is no difference, in view of DRP, between Personal Employer Organisation (PEO) and recruitment agency functionally - The revenue model may be different but that is an accounting issue, functionally there is no difference - The reason for recruitment from India is to avail, the services at a particular price - The detailed objections raised by counsel for the assessee and DRP has not considered the objections of the assessee and merely held that Info Edge (India) Ltd. and Overseas Manpower Corporation Ltd. are functionally same as the assessee - in Assessment Year 2007-08 the matter has already been restored back to the file of the DRP - keeping in the view the entire conspectus of the case and in the light of the submissions made by counsel for the assessee and the findings recorded by the DRP – the matter is required to be remitted back to the DRP/AO for re-adjudication – Decided in favour of Assessee.
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2014 (1) TMI 953
Validity of reopening of assessment u/s 147 of the Act – Reopening made to give effect to retrospective amendment u/s 115JB of the Act - Held that:- A perusal of the questionnaire issued by the AO to the assessee and the replies of the assessee demonstrate that the AO has examined the computation of book profits u/s. 115 JB of the Act - As on the date of completion of original assessment the legal position was in favour of the assessee as regards adjustment of provision for bad debts – thus, it can be safely presumed that the Assessing Officer had not suggested any adjustment to book profits u/s 115 JB on account of diminution in the value of an asset i.e. provision for bad debts – Relying upon CIT vs. HCL Comnet Systems and Services Ltd. [2008 (9) TMI 18 - SUPREME COURT] – the AO presumably has not made an adjustment u/s. 115 JB of the Act on the issue of provision for doubtful debts – the order of the CIT(A) for the reopening was on a mere change of opinion and hence is bad in law – Decided against revenue.
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2014 (1) TMI 952
Deduction u/s 80IC of the Act allowed – Job work receipts – Held that:- After hearing the parties before the Bench and the material available on record that the impugned order deserves to be set aside - whereas their Lordships have discussed at length, the process of manufacturing to hold that it is a separate identifiable product in the manufacturing process the order has only discussed case law and there is no discussion on the relevant aspect, the finding on record is necessary in order to consider the applicability of the judgement of the Jurisdictional Court to the facts of the case - The record shows that before the AO assertions are made that it is a separate identifiable product which the AO has not agreed with, however in the order no such discussion let alone finding has been arrived at by the CIT(A) - the order set aside and the matter remitted back to the CIT(A) – Decided in favour of Revenue.
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2014 (1) TMI 951
Disallowance made u/s 36(1)(iv) of the Act – PF contribution – Held that:- The decision in INCOME TAX OFFICER Versus LKP SECURITIES LTD [2013 (11) TMI 359 - ITAT MUMBAI] followed - The payment/s made within the grace period as allowed by virtue of any circular, order, etc. would be eligible for deduction - The language of the provision accords primacy to not only the relevant Act, but also to any circular, order, notification, etc. issued thereunder - Two, a 'due dale' - the benefit of the 'grace period' could not be disallowed, and which would rather bring the two enactments in harmony - The AO is directed to allow deduction u/s. 36(1)(iv) where any payment is made within the grace period. Disallowance made on account of marketing and field expenses – Held that:- All these expenses were incurred in cash - No further details of these expenses were made available unlike traveling expenses for directors and field staff where full details were maintained by assessee - CIT(A) was therefore of the view that when entire tour expenses of directors and field staff were booked under the head of traveling expenses, there was no justification for incurring these expenses - assessee could not give any cogent reason for claiming these expenses – the order of the CIT(A) upheld – Decided against Assessee. Disallowance of interest on loans and advances made for non-business purpose – Held that:- The assessee contended that the he was having interest free funds at its disposal, no disallowance of interest should have been made by AO - Before Ld. CIT(A) also this argument was advanced on behalf of the assessee, the same was however not accepted by him by observing that assessee has failed to substantiate this claim with any facts and figures – the contention of the assessee deserves due consideration and for this purpose, the matter is restored back to the file of AO for fresh adjudication – Decided partly in favour of Assessee.
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2014 (1) TMI 950
Deletion made u/s 40(a)(ia) of the Act - Non-compliance of Provisions of section 194C of the Act – Held that:- The provision of section 194C of the Act was not applicable in the case of the assessee - there was no contract between the assessee and the truck owner for carrying out any work of transportation - The assessee had made payment in aggregate of Rs.50,000/- to various truck owners - The revenue has not brought before us any cogent materials to establish that the assessee had made payment to the truck owners pursuant to a contract for carrying out the work of transportation – thus, the revenue has not established that the provisions of section 194C of the Act are applicable in the assessee's case consequently attracting the provisions of section 40 (a) (ia) of the Act – Decided against Revenue. Disallowance of payment of incentive to the drivers – Held that:- The decision in Shree Dhain Auto Transport Corporation Versus The Asst. CIT, Circle-5, Vadodara [2012 (9) TMI 730 - ITAT AHMEDABAD] Followed - if an assessee is maintaining accounts on mercantile system and a liability accrued, though discharged at a future date, held to be an allowable deduction while working out the profit and gains - The incurring of the liability was ascertainable for the year under appeal, therefore it is to be satisfied that it was not a contingent liability – Decided against Revenue.
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2014 (1) TMI 949
Allowability to Set off - Cost of erection of barricades and maintenance to be set off against advertisement income – Held that:- If the cost of barricades and maintenance are to be considered as a part of pre-operative expenditure, then the income arising out of advertisement placed on such barricades, would only go to reduce the pre-operative expenditure - It is not akin to interest on fixed deposits - Interest earned on deposit, is considered under the head "Income from other sources" when surplus funds are kept in bank - On the other hand, erection of barricade was a necessary operation required for execution of the project of the assessee, which was construction of roads. Earning of income from advertisement placed on such barricades, might have been incidental, but nevertheless, without such barricades, the income could not have been earned - If the advertisement income is to be considered under the head "income from other sources", then necessarily cost of barricades had to be considered as expenditure wholly and exclusively incurred for the purpose of making such income - If, on the other hand, the cost of barricades were to be considered as preliminary and pre-operative expenditure, revenue earned on advertisement would only go to reduce such expenditure - the assessee was entitled for claiming the barricade expenditure as expenses against income on advertisement – Decided in favour of Assessee.
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2014 (1) TMI 948
Disallowance made u/s 40A(3) of the Act – lorry hire charges paid in cash – Held that:- The assessee has paid lorry freight charges in cash in violation of provisions of sec. 40A(3) of the Act - The disallowance is prescribed under sec. 40A(3) under a legal fiction and hence the tax authorities have to necessarily comply with it unless it is shown by the assessee that the impugned payments falls within any of the exceptions given under the Act or Rules - The lorry drivers are collecting payments on behalf of the lorry owners and they cannot be considered as the agents of the assessee - The assessee is neither the owner of the vehicle nor the owner of the goods carried – Thus, the contention of the assessee that the lorry drivers are acting as the agent of the assessee is not correct – the assessee failed to show that the payments made by it in violation of the provisions of sec. 40A(3) of the Act is covered by any of the exceptions provided under Rule 6DD of the Income Tax Rules – order of the CIT(A) in confirming the disallowance made by the Assessing Officer u/s. 40A(3) of the Act upheld – Decided against Assessee.
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2014 (1) TMI 947
Validity of re-opening of assessment u/s 147 of the Act – Expenses claimed as broken period interest – deduction allowed u/s 36(1)(vii) of the Act – Held that:- Re-openings were done after the end of four years for the impugned assessment years. Therefore, the first proviso to Section 147 will squarely apply - It is required for the Revenue to show that there was failure on the part of the assessee to disclose fully and truly material facts necessary for the assessment - Reopening for assessment year 1989-90 was done for a reason that CBDT circular was not correctly followed by the A.O. with regard to the claim of bad debts under Sections 36(1)(vii) and 36(1)(viia) of the Act - Both these cannot be considered as arising on account of any failure on the part of the assessee to disclose fully and truly material facts necessary for the assessment - Both these also cannot be construed as on account of any evidence which could not come to the notice of the Assessing Officer for want of due diligence. The decision in CIT v. Kelvinator India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] followed - unless and until tangible materials are available with Assessing Officer, and failure of the assessee to fully and truly disclose material particulars necessary for assessment is established, reopening could not be done after the expiry of a period of four years from the end of the assessment year - thus, reopening done for both of the years was not valid – Decided in favour of Assessee.
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2014 (1) TMI 946
Penalty u/s 271(1)(c) of the Act – Method for determining Arm’s length price – Held that:- The assessee has demonstrated from the transfer pricing study, that CUP method could not be applied because no comparable data were available in the public domain - This explanation of the assessee is corroborated by the fact that the T.P.O has collected the data for applying the CUP by requisition made under section 133(6) of the Income Tax Act Which clearly shows that the data were not available in the public domain and the transfer pricing officer has exercised its power under section 133(6) read with section 92CA(7) - Once the assessee has brought out the fact on record that CUP was not selected because of non-availability of data, then, the assessee's case falls under the exception provided under Explanation 7 of u/s 271(1)(c) of the Act, being acted in good faith and with due diligence - the assessee has clearly made out a case that the price in relation to international transactions has been determined by adopting TNMM in good faith and with due diligence, because the data for applying CUP were not available in the public domain – thus, the penalty in respect of the adjustment made under section 92C(4) is not justified and liable to be deleted - Decided in favour of Assesse and against Revenue.
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2014 (1) TMI 945
Revision u/s 263 of the Act - Entitlement to claim deduction u/s 36(1)(viia)(a) of the Act – Held that:- The benefit of Section 36(1)(viia)(a) is available only to Scheduled and Non-Scheduled Banks, co-operative banks are not entitled for the same -the assessee is carrying on banking activities - . Thus, the assessee falls within the definition of Section 5(c) of Banking Regulation Act - The assessee is a Non-Scheduled Bank and is thus entitled to claim benefit of provisions of Section 36(1)(viia)(a) of the Act – the decision Asstt. CIT v. Jaipur Central Co-operative Bank Ltd.[2014 (1) TMI 833 - ITAT JAIPUR] followed. Creation of provision for bad debts - Whether the assessee has created any reserve/provision for bad and doubtful debts – Held that:- For claiming benefit under the provisions of Section 36(1)(viia)(a) the conditions to be satisfied is that the provision for bad and doubtful debts should have been made by the bank eligible to claim such deduction - the assessee has created provision for bad and doubtful debts may be under different nomenclature - This will not dis-entitle the assessee for claiming deduction under the provisions of Section 36(1)(viia)(a). The purpose for creation of reserve for NPA is same i.e., creating provision towards bad and doubtful debts – the order of the CIT(A) set aside – Decide in favour of Assessee.
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2014 (1) TMI 944
Disallowance made u/s 14A of the Act – Held that:- Before making the aforesaid disallowance, it is imperative for the Assessing Officer to establish that the expenditure has been incurred in relation to the earning of tax-free income - relying upon Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] - once a proximate cause for the disallowance is established, which is the relationship of the expenditure with income which does not form part of the total income then a disallowance under Section 14A of the Act has to be effected - Factually, there is no negation by the assessee to the assertions of the Assessing Officer - there is a proximate cause for the disallowance under Section 14A of the Act - The matter being a factual aspect needs determination at the level of the Assessing Officer - thus, while upholding in the principle, the disallowance under Section 14A of the Act , the matter remitted back to the AO to restrict the same only to the expenditure incurred in relation to earning of the exempt income – Decided in favour of Assessee. Disallowance made u/s 40(a)(ia) of the Act – Held that:- The provisions of Section 40(a)(ia) of the Act are applicable on payments made by the assessee towards earth moving charges which also contained an element of transportation charges - The element of transportation charges required deduction on tax at source and in the absence of any such deduction, the provisions of Section 40(a)(ia) of the Act has been invoked - apart from a bald assertion there is no other detail or information mentioned in the assessment order as to the similarities with other cases so as to justify the adoption of 25% - the entire exercise involves an element of estimation and guess work - it would be fit and proper to accept the estimate made by the assessee at 10% of the total expenditure – the AO is directed to restrict the disallowance to 10% of the earth moving charges – Decided in favour of Assessee. Disallowance made u/s 40A(3) of the Act – Held that:- The income of the assessee from business has not been estimated so as to justify the proposition being advanced - The disallowance under Section 40A(3) of the Act is a specific disallowance - the assessee has not advanced any reason – Decided against Assessee.
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2014 (1) TMI 943
Deletion made on account of set off made - Loss on Future and Option set off against the normal business – Held that:- There was a credit balance in one account and debit balance in another account - Simply because the broker has not carried out any adjustment entry during the year under consideration and he said adjustment entry during the year under consideration and he said adjustment entry was passed on the next day of the close of the year i.e. 1.4.2008, solely on this basis the F&O transactions of the appellant, which were duly routed through the recognize stock exchange, cannot be held as speculative transaction - as per the amended provisions of section 43(5), the transactions cannot be treated as speculative transactions and loss of such transactions cannot be held as notional loss with effect from 1.4.2006 – Relying upon The Commissioner of Income-tax, Central-IV Versus Shri Bharat R. Ruia (HUF) [2011 (4) TMI 37 - BOMBAY HIGH COURT]. The assessee has stated that there was net amount to be received by the assessee from the broker and therefore there was no need by the assessee to make the payment as on 31.3.2008 on account of loss in F&O segment - the assessee also filed details of loss incurred in derivatives before the AO – the order of the CIT(A) upheld simply because the broker had not carried any adjustment entered during the year under consideration and the said adjustment entry was passed on the next day of close of the year i.e. 1.4.2008 could not be a ground to hold that it was a notional loss – the CIT(A) has rightly held that the said F&O transactions were actually settled by the assessee and the loss incurred was actual - the AO is directed to treat the loss as business loss which is liable to be set off against the business income of the assessee – Decided against Revenue.
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2014 (1) TMI 942
Failure to maintain separate records – Held that:- In the assessment order, the AO himself has clearly stated that separate books of account for the exhibition held during the year under consideration were maintained by the assessee and the same were also produced for verification during the course of the assessment proceedings – Decided against Revenue. Nature of Activity – Holding of exhibition incidental to the main object or not – Entitlement for exemption u/s 11(4A) of the Act – Held that:- Exhibition for the purpose of promotion of industry connected with electrical manufacturing of goods and equipments is incidental to the objects of the assessee - the assessee is engaged in holding exhibitions for the trade and industry of machine tools in India - thus, the activity is incidental to the objects of the assessee - the findings of CIT(A) upheld that the conditions of Section 11(4A) are fulfilled by the assessee as the assessee has also maintained separate books for the activity – Decided against Revenue. Claim for carry forward of deficit – Set off/adjustment against the surplus of subsequent years – Assessee contended that the deficit was clearly claimed by the assessee in the computation of the total income filed along with the return of income, the same was not determined by the A.O. in the assessment order so as to enable the assessee to carry forward the same for set off or adjustment against the surplus of the subsequent years - Held that:- The decision in CIT vs. Institute of Banking [2003 (7) TMI 52 - BOMBAY High Court] followed – Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under section 11(1)(a) of the Act - the matter remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee.
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2014 (1) TMI 941
Computation of book profit u/s 115JB of the Act – Addition of provision for doubtful debts – Held that:- The word 'set aside' in clause (i) is followed by the word 'as' and not by the word 'to' as has been followed in clause (c) - When the amount is claimed or earmarked for meeting a certain future liability then the word 'set aside' in that context will mean that the amount earmarked 'to' the provision made for future liability - The amount is calculated on certain percentage basis and according to the age of the asset in question - It is the simple process of calculating the present value of the asset in comparison to its purchase value, taking into consideration the depreciation in its value with the use and passage of time - For this purpose, neither there can be any requirement of creating a fund, nor such type of fund can ever be required for its use at appropriate time. While interpreting a legal provision, a single word cannot be taken out to interpret the provision, rather the whole of the provision as well the inter correlation of words used therein is to be seen. When we read the entire clause (i) of Explanation 1 to Section 115JB, the simple meaning of the word 'set aside' used therein comes out with reference to the amounts as 'reduced, on account of diminution in the value of the asset - Decided against Assessee.
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2014 (1) TMI 940
Deletion of Interest u/s 234B of the Act - Failure to pay advance tax u/s 209 of the Act - TDS to be deducted u/s 195 of the Act – Held that:- The decision in Director of Income Tax Versus M/s. Jacabs Civil Incorporated / Mitsubishi Corporation [2010 (8) TMI 37 - DELHI HIGH COURT] followed - The entire tax is to be deducted at source which is payable on such payments made by the payee to the non-resident – Once it is found that the liability was that of the payer and the said payer has defaulted in deducting the tax at source, the Department is not remedy-less and therefore can take action against the payer under the provisions of Section 201 of the Income-tax Act and compute the amount accordingly - the non-resident is liable to pay tax and the question of payment of advance tax would not arise - This would be clear from the reading of Section 191 of the Act along with Section 209 (1) (d) of the Act - For this reason, it would not be permissible for the Revenue to charge any interest under Section 234B of the Act - the Tribunal has rightly held that the assessee was not liable to pay any interest under Section 234B of the Act – Decided against Revenue.
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2014 (1) TMI 939
Disallowance of the claim - Failure to deduct TDS – Provision made to make the payment to non-resident – Held that:- Section 195 put an obligation for deducting TDS while making payment to non-resident - It nowhere provides that such an obligation can be absolved by showing reasonable cause for not deducting the TDS while making payment or crediting the account - Relying upon Nathpa Jhakri Joint Venture Vs. ACIT [009 (12) TMI 677 - ITAT MUMBAI] - if amount paid or payable to non-resident is chargeable to tax in his hand and assessee fail to deduct tax at source then said amount shall not be allowed as deduction u/s 40 (a) (i) – assessee contended that there is no mala fide in the conduct of the assessee, it has just reimbursed the expenses to the parent company - It has not made this arrangement for avoiding payment of taxes - The element of income is embedded in the receipt of the auditor - If the receipts are routed through the parent company that does not extinguish the element of income from the payments – thus, the assessee was bound to deduct TDS - It failed to deduct TDS, hence a disallowance is to be made u/s 40 (a) (i) – the AO is directed to exclude the amount from the disallowance after verification – Decided partly in favour of Assessee.
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2014 (1) TMI 938
Levy of Penalty u/s 271(1)(c) of the Act – Assessment of LTCG made by AO – Held that:- The assessment proceedings and penalty proceedings under Section 271(1)(c) of the Act are independent proceedings and that the conclusions arrived at in the assessment proceedings may be good evidence but the same cannot be considered as conclusive for the purpose of evaluating levy of penalty under Section 271(1)(c) of the Act – Relying upon Commissioner of Income-Tax, Madras Versus Khoday Eswarsa And Sons [1971 (9) TMI 19 - SUPREME Court] - an assessee in the course of penalty proceedings is able to demonstrate with a fair degree of certainty that the addition made in the assessment proceedings itself was not warranted then the findings in the assessment order cannot be said to be final so as to fasten the liability of penalty under Section 271(1)(c) of the Act – thus, the preliminarily plea raised by the assessee while assailing the levy of penalty under Section 271(1)(c) of the Act deserves to be admitted and examined on its merits – also, the additional evidence sought to be placed on record by the assessee, which has been detailed above is also relevant - The material was not before the Assessing Officer while evaluating assessee's case for levy of penalty under Section 271(1)(c) of the Act – the matter remitted back to the AO for fresh adjudication – decided in favour of Assessee.
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2014 (1) TMI 937
Deletion of Interest u/s 234B of the Act – Liability to pay advance tax - Short payment of Advance Tax – Short deduction of TDS by the person making payment – Held that:- Interest u/s 234B is levied for the failure to pay advance tax as per the provisions of S.208 and 209 of the Act - All the assesses in these cases, are non-resident companies - the Revenues received by these G.E.Overseas Entities are held as liable to tax in India, then, as per S.195 of the Act, the payers of such income were under an obligation to deduct tax at source and consequently, in terms of pre-amended S.209(I)(d) of the Act, the assessee was not required to pay advance tax, as the advance tax payable by the tax payer is to be calculated, by reducing the tax on current income, by the amount of tax which would be "deductible or collectable" at source under the Act, during the said F.Y – Relying upon Director of Income Tax vs. Jacabs Civil Inc. [2010 (8) TMI 37 - DELHI HIGH COURT]. If the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments, the non- resident is not absolved from payment of taxes thereupon - the non-resident is liable to pay tax and the question of payment of advance tax would not arise - This would be clear from the reading of Section 191 of the Act along with Section 209 (1) (d) of the Act - it would not be permissible for the Revenue to charge any interest under Section 234B of the Act - The Tribunal has rightly held that the assessee was not liable to pay any interest under Section 234B of the Act - Decided against Revenue.
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2014 (1) TMI 936
Determination of assessee's income from the business of contracting – Applicability of section 44AD of the Act – Held that:- There is no hard and fast rule for estimating income from the business of civil constructing - So, however, Section 44AD of the Act prescribes estimation from contract business in cases specified there at the rate of 8% of gross receipts - Section 44AD covers cases of civil construction where the gross receipts from contract business do not exceed Rs. 40 lacs - the assessee before us does not fall within the prescription of Section 44AD of the Act as its contract receipts exceed Rs. 40 lacs - the presumptive rate of net profit of 8% incorporated in Section 44AD reflects a legislative approved rate of net profit, which can be considered as fair and reasonable to estimate income from contract business in cases like that of the present assessee where the books of account are not found reliable by the Assessing Officer - the determination of income from contracting business is also proximate to the rate of net profit of 8% contained in Section 44AD of the Act - the income from contracting business of the assessee be estimated at 8% of the gross receipts and the addition be worked out – Decided partly in favour of Assessee. Section 44AD of the Act did not apply to the assessee before it, however, considering that the presumptive net profit rate of 8% incorporated under Section 44AD of the Act which represented a just, fair and equitable rate of net profit, it would be fit to apply the same rate to calculate income from contract business of the assessee who was otherwise not covered by the provisions of Section 44AD of the Act – Relying upon EASTERN CONSTRUCTION COMPANY. Versus INCOME TAX OFFICER [1997 (8) TMI 106 - ITAT DELHI-D ] - the income from the contracting business of the assessee be determined by applying net profit ratio of 8% of the gross contract receipts – Decided partly in favour of Assessee and against Revenue.
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2014 (1) TMI 935
Applicability of Section 194C of the Act – Payments made for construction work – Held that:- The appellant has made payments to Rajasthan State Agriculture Marketing Board, the Body which has executed the construction work through its Executive Engineer or PWD - The agencies entered into contract with the contractor for construction for providing facilities - the works of planning and development of infrastructure i.e. construction and maintenance of roads within market area and approach road etc. are executed and carried out by the Board - Thus, these works are carried out by the Boards and not by the committee - Hence, section 194C will not be applicable in the case of the assessee - It is an Agricultural Marketing Board who is executing and carrying out the works – thus, there was no requirement of making deduction u/s. 194C of the Act by the assessee - the appellant cannot be held to be in default u/s. 201(1) of the IT Act, 1961 – Relying upon CIT vs. KUMS, Gajsinghpur & Ors. [2009 (1) TMI 781 - RAJASTHAN HIGH COURT] – Decided against Revenue.
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2014 (1) TMI 934
Addition made u/s 68 of the Act – Unexplained cash credits – Genuineness of the transaction – Held that:- In the absence of any corroborative material brought on record, doubting of genuineness of transaction on mere conjectures and surmises is legally unsustainable - Whether a particular credit in the books of account of the assessee is genuine or not in terms of section 68 of the Act is purely a question of fact and has to be decided on the basis of facts and materials available on record. Relying upon RB Mittal Vs. CIT [2000 (8) TMI 54 - ANDHRA PRADESH High Court] - The assessee have established the identity of the creditor his creditworthiness and also genuineness of the transaction (having been routed through banking channels) with supporting evidence, the conclusion arrived at by the revenue authorities disallowing the claim of the assessee on mere conjectures and surmises cannot be sustained - Sri Gurmeet Ajit Singh Rajpal has the creditworthiness to make the gift – thus, the department without having any material, direct or indirect, in its possession to substantiate the allegation that the gift is not genuine cannot make addition u/s 68 of the Act - there is no material before the department to show that the donor was either compensated by the assessee or assessee’s money was routed back to him by way of gift through the donor - the addition made by treating the gift of Rs. 45 lakhs as unexplained cash credit is without any basis and cannot be sustained – order of the CIT(A) set aside – Decided in favour of Assessee. Disallowance of interest payment either u/s.37(1) or u/s. 57(iii) of the Act – Held that:- The assessee has not been able to establish as to how and in what manner the interest free advance of borrowed fund to Smt. Inderjit Kaur Bagga has benefitted to the assessee- That besides, the assessee has not established the fact that interest payment is directly related to or has any nexus with the interest income earned by the assessee - Hence, the deduction claimed by the assessee cannot be allowed considering the facts and circumstances of the case – Decided against Assessee.
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2014 (1) TMI 933
Rejection of Application u/s 12A of the Act – Rejection of Apporval u/s 80G of the Act – Held that:- At the time of granting registration under section 12A of the Act, commencement of activity is not a relevant consideration if the trust is a new one - the assessee trust was created by trust deed dated 11th September, 2007 and it applied for registration on 26.2.2008 - it cannot be expected that the trust could have commenced activity within such a short time - at the time of grant of registration the registering authority has only to consider whether the objects of the trust are charitable or not. Relying upon CIT-1 vs. Kutchi Dasa Oswal Moto Pariwar Ambama Trust [2012 (12) TMI 876 - GUJARAT HIGH COURT] - the conclusion of the DIT(E) to the effect that since the assessee has not commenced its activities, registration under section 12A will not be granted is not the correct view - So far as the conclusion of the DIT(E) that the assessee is having mixed objects hence, registration cannot be granted - such conclusion is also not correct as there is no such restriction under the relevant provisions of the Act which could suggest that a trust having religious activity is not eligible for exemption - The DIT(E) was not justified in rejecting the application for grant of registration under section 12A of the Act and as well as the application seeking approval under section 80G of the Act – the Order passed by the DIT(E) set aside and the matter remitted back for considering the entire issue of grant of registration under section 12A of the Act afresh – Decided in favour of Assessee.
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2014 (1) TMI 932
Addition made u/s 36(1)(iii) of the Act – Suo moto enhancement without prior notice - Power of CIT(A) to enhance assessment u/s 251 – Held that:- The amount was investment prior to 1.4.2004, in the company Purifalir India P.Ltd. As on 31.3.2005 the assessee did not have any secured or unsecured loans - Thus it cannot be inferred that the investment made by the assessee in M/s Puriflair India P.Ltd. is out of borrowed funds - For the Assessment Year 2005-06, 2006-07, 2007-08 and 2008-09, no disallowance was made by the Assessing Officer u/s 36(1)(iii) of the Act. Similarly for the Assessment Year 2010-11 also no disallowance was made by the AO. There are advances on account of material sold and not interest free loans - The total interest free funds available with the assessee as against investment and advances – relying upon CIT vs. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - when interest free funds are available, then the presumption would be that such interest free funds were invested or advanced as interest free loans/advances - deduction u/s 36(1)(iii) of the Act, one has to enquire whether the loan was given by the assessee as a measure of commercial expediency - The expression "commercial expediency is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business - The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business, expenditure if it, was incurred on grounds of commercial expediency - the disallowance made by the Assessing Officer u/s 36(1)(iii) of the Act set aside - The CIT(A) has made the enhancements without following the requirements of S.251(2) of the Act, as he has not given a show cause notice to the assessee on the enhancements - the enhancements made by the CIT(A) deleted – Decided in favour of Assessee.
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2014 (1) TMI 931
Application of Section 115JB of the Act – Held that:- The assessee's contended that the Proviso (VII) of Sub Section 2 to S.115 JB applies to the assessee company, as it is a sick industrial company under sub section (1) of S.17 of the Sick Industrial Companies (Special Provisions) Act, 1985 - The Commissioner of Income Tax (Appeals') observed that the application of the assessee have been rejected by the BIFR at its hearing held on 20.1.2004 - The assessee filed an appeal with AAIFR, which remanded the matter back to the BIFR - the BIFR passed a detailed order rejecting the claim of the assessee on 15.5.2007 - The assessee claimed that it has again filed an appeal before the AAIFR and that certain interim orders are passed - the assessee's claim that it is a sick industrial company under SIC Act, 1985, has not been accepted by the concerned authority – there was no infirmity in the order of the CIT(A) – Decided against Assessee. Non-treatment of Interest received and miscellaneous income – Not Credited to P&L A/C as business income - Held that:- The CIT(A') followed the order in the Assessment Year 2004-05 - the unabsorbed depreciation would get absorbed against 'income from other sources', and that unabsorbed business loss could not be absorbed during the year, as the assessee has computed a loss – Revenue could not point out that the requirements of S.72 are not fulfilled by the assessee – Decided against Revenue.
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2014 (1) TMI 930
Validity of reopening of assessment u/s 147 of the Act – wrong claim of deduction made u/s 80HHC of the Act – Royalty derived from export business or not – Held that:- All the facts relating to the mining franchise fees and deduction claimed u/s 80HHC of the Act were before the AO at the time of original assessment proceeding and the AO after applying his mind to the facts and materials on record has taken conscious decision while calculating deduction u/s 80HHC – thus, it cannot be said that there is any failure on the part of the assessee to disclose truly and fully all the material facts necessary for its assessment - Even otherwise also there is nothing on record to suggest that escapement of income, if at all, there is any, was on account of failure on the part of the assessee to disclose fully and truly all material facts. Reopening of assessment on the basis of the self-same material, which were considered by the AO while completing original assessment would amount to change of opinion and the assessment order passed has to be held as invalid in law – Thus initiation of proceeding u/s 147 of the Act and the assessment order passed in cannot be considered to be valid firstly for the reason that there being no failure on the part of the assessee to disclose fully and truly all material facts, no reopening could have been made after expiry of 4 years from the end of the assessment year and secondly, there being no fresh and tangible material before the AO for initiating proceeding u/s 147 of the Act, initiation of proceeding on a mere change of opinion is invalid and bad in law – Decided against Revenue.
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2014 (1) TMI 929
Stock in transit not included under closing stock – Escapement of income - Held that:- There was no infirmity in the above reasoning given by the CIT(A) for deleting the addition made by the Assessing Officer - In the absence of any justification for disturbing the method of accounting regularly followed by the assessee with regard to non-inclusion of the stock in transit in the closing stock, the Assessing Officer is not justified in concluding in the first place that income chargeable to tax has escaped assessment. There is no case for the Revenue to make the addition on account of under-valuation of closing stock, by the cost of stock in transit only in the year under appeal, having found no fault in the method of accounting followed by the assessee, and consequently not made any such addition in the earlier years - addition made by including the stock in transit in the closing stock, without making corresponding adjustments in the stock figures of earlier years, the accounts of the assessee would reflect for the year under appeal a distorted picture - any adjustment to the closing stock would have its corresponding impact in the opening stock of the succeeding year - such an adjustment to the closing stock in the first place is of no significance – Decided against Revenue.
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2014 (1) TMI 928
Revision of order u/s 263 of the Act – Assessment revised u/s 143(3) r.w section 153A of the Act – Term loan treated as deemed dividend u/s 2(22)(e) of the Act – Held that:- The details of loans advanced were available before the AO and he has examined these details during those assessments - the AO has not expressed the acceptance of these loan details in so many words in the assessment order or search assessment order, that does not make any difference that the AO has not gone into the details of these loans - the CIT order passed u/s. 263 of the Act wants to change the opinion and this is not permissible in law as decided by the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000 (2) TMI 10 - SUPREME Court] - An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous - In the same category fall orders passed without applying the principles of natural justice or without application of mind - The phrase ''prejudicial to the interests of the Revenue'' is not an expression of art and is not defined in the Act. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue - If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue - The phrase ''prejudicial to the interests of the Revenue'' has to be read in conjunction with an erroneous order passed by the Assessing Officer - Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law – the order of Revision u/s 263 set aside – Decided in favour of Assessee.
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2014 (1) TMI 927
Interest paid to parties not allowed u/s 40(a)(ia) for non deduction of TDS – Belated filing of non-deduction forms 15G/15H under Rule 29C – Held that:- The default for non-furnishing of the declarations to the CIT as prescribed may result in invoking penalty provisions u/s. 272A(2)(f), for which separate provision/ procedure was prescribed under the Act - once Form 15G/Form 15H was received by the person responsible for deducting tax, there is no liability to deduct tax - Once there is no liability to deduct tax, it cannot be considered that tax is deductible at source under Chapter XVII-B as prescribed u/s. 40(a)(ia) - The provisions of section 40(a)(ia) can only be invoked in a case where tax is deductible at source and such tax has not been deducted or after deduction has not been paid - No such default occurred in the present case - the provisions of section 40(a)(ia) are not - Both the Assessing Officer and CIT(A) erred in considering that non-filing of form 15H invites disallowance u/s. 40(a)(ia) – Relying upon Vipin P. Mehta vs. Income Tax Officer 2011 (5) TMI 503 - ITAT MUMBAI] - thus, there is no need to deduct tax at source and there is no default committed by the assessee - Non filing or delayed filing of such forms can not result in disallowance u/s 40(a)(ia) – Decided in favour of Assessee.
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2014 (1) TMI 926
Rejection of long term capital loss on shares – Documentary evidences not filed – Held that:- The swapping of shares was approved by an agency of Govt. of India i.e. FIPB and it had approved the ratio of shares to be swapped - to challenge the prudence of the transaction was not proper - even if the transaction was not approved by the Sovereign and it was carried out by the assessee in normal course of its business AO/DRP could not question the prudence of the transaction - Genuiuness of a transaction can be definitely a subject of scrutiny by revenue authorities, but to decide the prudence of a transaction is prerogative of the assessee. A decision as whether to do /not to do business or to carry out / not to carry out a certain transaction is to taken by a businessman - If it is proved that a transaction had taken place, then resultant profit or loss has to be assessed as per the tax statutes – Relying upon Commissioner of Income Tax Versus Salitho Ores Ltd. [2010 (9) TMI 849 - Bombay High Court] - thus, by casting doubt about the prudence of the transaction, members of the DRP had stepped in to an exclusive discretionary zone of a businessman and it is not permissible - Any claim made by the assessee has to be proved by him and assessee cannot escape from the scrutiny by the AO – the AO had given sufficient opportunities to the assessee, but assessee did not furnish requisite information – the matter remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee. Disallowance of set-off of short term capital loss - Transaction Security Transaction Tax paid against short term capital gain arising from non STT transactions – Held that:- The decision in DEPUTY DIRECTOR OF INCOME TAX Versus M/s DWS INDIA EQUITY FUND [2012 (5) TMI 55 - ITAT MUMBAI] followed - Under the provisions of section 70(2), short term capital loss arising from any asset can be set off against short term capital gain arising from any other asset under a similar computation made - merely because the two set of transactions are liable for different rate of tax it cannot be said that income from these transactions does not arise from similar computation made as computation in both the cases has to be made in similar manner under the same provisions – Decided in favour of assessee.
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2014 (1) TMI 925
Treatment of Royalty under Article 12 of DTAA - Income from borrowed services – Held that:- Once there is an income in the nature of 'Business profits', its taxability can be considered only within the ambit of Article 7 of the DTAA - As the assessee is a tax resident of Thailand, the business profits can be taxed in India only if the enterprise carries on business in India through a Permanent Establishment (PE) situated in India - the opinion of the authorities below of including it under Article 12 or under Article 22 is not sustainable - The amount falls under Article 7 as 'Business profits' and is hence not chargeable to tax because of the absence of any PE in India - the amount of Rs. 79.99 lakh falls under Article 7 and not under Article 12 or Article 22 of the DTAA. If a particular item of income is taxable under the Income-tax Act, 1961, then it shall cease to be taxable in India, if the DTAA provides exemption in respect of such income - The core of the matter is that the DTAA overrides the regular provisions of the Act, insofar as it is more beneficial to the assessee - India has entered into a DTAA with Thailand and the nature of receipt is covered under Article 7 but in the present circumstances it is not chargeable to tax in India, patently the consideration of the provisions of the Act is ruled out - the amount is not includible in the total income of the assessee – Decided in favour of Assessee.
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2014 (1) TMI 924
Rejection in seeking registration u/s 12AA of the Act as society – Held that:- Advancement of animal welfare directed towards prevention or suppression of cruelty to animals or prevention or relief of suffering by animals are nothing but charity - The society engaged in such activity falls within the definition of general public utility as in section 2(15) of the Act - Associations promoting kindness and preventing or suppressing cruelty to animals, associations providing veterinary care and treatment, associations concerned with care and re-homing of animals that are abandoned or mistreated or lost, associations doing feline animal control, are extension of charities - This would fall within the object of "general public utility" - The DIT fell in error in refusing registration under Section 12A of the Act. Advancement of animal welfare directed towards prevention or suppression of cruelty to animals or prevention or relief of suffering by animals is nothing but charity - The society engaged in such activity falls within the definition of "general public utility" as stated in section 2(15) of the Act - on this reason rejection of application u/s. 12AA cannot be done – also the assessee shall furnish correct address and to remain independent by making necessary amendment to the trust deed up – the issued remitted back to the DIT(E) to reconsider the application of the assessee – Decided in favour of Assessee.
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2014 (1) TMI 923
Adoption of full value of consideration u/s 50C of the Act – Held that:- The value determined by the valuation officer on reference made to him under section 50C(2) of the Act is binding on the AO - the provisions of section 50C and section 55A are on a different footing - the value given by the Valuation Officer is final and binding on the AO - In view of specific deeming provision of 50C, order of CIT(A) has to be upheld - As per the provisions of section 50C(ii) the valuation adopted by stamp value authorities has to be adopted - as assessee objected, the valuation was referred to DVO under the provision of Section 50C (2) and the DVO adopted a fair valuation which is correct and fair according to the provisions of law. Alteration in the cost of acquisition – Held that:- The order of CIT(A) upheld to the extent of differentiating the agreements for the purpose of arriving at the cost of acquisition – CIT(A) analysed the agreements and determined the original cost at Rs.3 lakhs and confirmed the order - What the ld. CIT(A) missed was that the value of Rs.3 lakhs paid by assessee was cost as on 22.10.1979 - As per the provisions of the Act, the assessee is entitled for valuation as on 01.04.1981 - This aspect was not considered by the AO and CIT(A) - assessee valued property as on 01.04.1981 and claimed indexation - the cost of acquisition has to be adopted only as on 01.04.1986 - There is a registered valuation report according to which the value as on that date was at 33 lakhs and indexed cost at 480/140 was at Rs.1,13,14,285 - thus, the assessee is entitled to claim cost as on 01.04.1986 and indexed cost - Assessee is not entitled to add original cost or lease rights if any, as the property value was arrived as on 01.04.1986 on the basis of valuation report filed by assessee - The AO is directed to modify the computation and allow the benefit under section 54 as claimed – Decided partly in favour of Assessee.
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2014 (1) TMI 922
Deletion made u/s 68 of the Act – Unexplained cash credits – Creditworthiness of HUF not proved – Held that:- The CIT(A) set aside the addition without properly analysing the facts of the case – Thus, the order of the CIT(A) set aside – and the matter remitted back to the AO for fresh adjudication - the initial onus is upon the assessee to prove the identify, genuineness and creditworthiness of the creditors and the entire capital introduced by the assessee in this year as well as the differential figure of the loan taken in the earlier years and in the current year are also to be explained by the assessee properly – Decided in favour of Assessee.
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2014 (1) TMI 921
Issue of royalty payment – Held that:- On perusal of the order of the DRP, prima-facie, it gives an impression that they have not considered the submissions of the assessee or the documentary evidences while rejecting the claim of the assessee - The order has been passed in a rather mechanical manner on more than one issues by merely observing that the assessee has not been able to advance any fresh argument or analysis – thus, the finding of the TPO has to be accepted - the order of the DRP to be rather cryptic, bereft of reasons and mechanical - Excepting observing that there is no reason to disagree with the position taken by the TPO, the DRP has not expressed any reasons for coming to such a conclusion with regard to the arrangements or materials placed before it by the assessee – the contention of the assessee that there is violation of rules of principles of natural justice by not considering the submissions of the assessee and documentary evidences produced to be acceptable - matter remitted back to the DRP for fresh consideration – Decided in favour of Assessee. Computation of operating margin – Adjustment towards cost of repairs and plant & machinery and incremental depreciation not considered – Held that:- Various issues raised by the assessee before the DRP in relation to the ground have not at all been considered by the DRP – matter remitted back to the DRP for fresh adjudication. Disallowance of depreciation of non-compete fees and marketing network rights – Held that:- As decided in assessee’s own case that the payment towards non-compete fees and marketing networth rights falls within the definition of intangible assets as per section 32(1)(ii) of the Act - the payment made towards non-compete fees would come within the scope and ambit of intangible asset as defined in section 32(1)(ii) of the Act – also, the payment made towards acquiring market network rights have also to be treated as payments made for acquiring commercial/business rights akin to know-how, patent, trade mark, license, franchises, etc., which are eligible for depreciation and accordingly directed for allowing depreciation on non-compete fees and marketing network rights - the AO is directed to allow the claim of deprecation on payments made towards non-compete fees and market network rights – Decided in favour of Assessee.
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2014 (1) TMI 920
Deletion made u/s 14A of the Act – Nexus between the amounts incurred by the assessee for earning the tax free income – Held that:- CIT(A) was of the view that no nexus has been established by the AO with the amount incurred by the Assessee for earning the tax free income - the interest income was more than interest expense and thus the Assessee was having net positive interest income and therefore the same cannot be considered for disallowance – The appellant is also having net positive interest income which cannot be part for the disallowance - the administrative expenses to be 0.5% of the average investments and disallowed the same - the Revenue could not bring any material on record to controvert the findings of CIT(A) – there was no reason to interfere the order of CIT(A) – Decided against Revenue.
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2014 (1) TMI 919
Disallowance made on account of bad debt and advance written off u/s 36(1)(vii)– Held that:- The amount of advance given to M/s Dhillon Kool Drinks and Beverages Limited was advanced in the course of business. It is undisputed that the advances became irrecoverable. In such situation, as per the ratio emanating from the decision of the Hon'ble Jurisdictional High Court in the case of Mohanmeakin Ltd. vs. C.I.T. 2011 (5) TMI 243 - DELHI HIGH COURT, it is not relevant that the amount was claimed as bad debt. As per the Hon'ble High Court decision the amount was deductible as business loss u/s. 37 of the I.T. Act. In this case it was held that claim for deduction of non- recovery of trade advances was allowable on the facts of the case, merely because the bad debt claim was not made out under one particular provision of the Act, but was so made out under another provision of law, assessee cannot be deprived of the benefit of deduction of bad debts – the order of the CIT(A) set aside – Thus, the assessee is eligible to claim deduction on account of write off – Decided in favour of Assessee.
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2014 (1) TMI 918
Deletion made u/s 14A of the Act r.w Rule 8D of the Rules – Correctness of the claim – Held that:- 99% of the investment held by the assessee during the year, were made in the previous A.Ys. - In the A.Y. 2005-06, the assessee had invested 1.6 crores in mutual funds / shares. It had interest free funds of 4.1 crore in that year. Latter in the A.Y. 2006-07 the assessee invested 1.78 crore in mutual funds / shares and in that year it had interest free funds of 4.04 crore. The finding of the CIT (A) upheld that the borrowed funds had not been utilized for the purpose of making investment in shares/mutual funds - The factual finding of the CIT (A) that the assessee had interest free funds of Rs.25.13 crore at the end of the year, as against investment of 3.39 crore, is also not disputed by the DR - In fact the CIT (A) has considered the additional evidence filed by the assessee, by admitted the same and called for remand report from the AO and on consideration of this remand report has given these factual findings - The revenue has not disputed the admission of additional evidence – Relying upon Maxopp Investment Ltd. Vs. CIT [2011 (11) TMI 267 - Delhi High Court]. Disallowance of proportionate administrative expenses – Held that:- The assessee has demonstrated that there is no regular activity carried out by the assessee for making investment - When there is no activity of investment worth noting, no administrative expenditure can be apportioned – Relying upon CIT Vs. Hero Cycles [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT ] – relief granted to the assessee – decided against Revenue. Deletion of deduction claimed u/s 35D of the Act – Increase in share capital - Held that:- Similar claim was allowed by the AO in the A.Ys. 2005-06 & 2006-07 and on the principle of consistency the claim cannot be disallowed this year - Allowability of claim of amortization have to be considered in the first year of the claim – Relying upon Janak Dehydration Pvt. Ltd. Vs. ACIT [2010 (10) TMI 906 - ITAT AHMEDABAD] with regard to principle of consistency - Once a claim for amortization is examined in the initial year and allowed, it cannot be disallowed in this latter years of amortization – Decided against Revenue.
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2014 (1) TMI 917
Validity of Jurisdiction u/s 158BD of the Act – Held that:- This is noted by the A.O. in the assessment order that in the course of search carried out on 07.11.2000 in the premises of Mukesh M Oza, various incriminating documents and papers were found and seized and the A.O. who made the assessment of Shri Mukesh M Oza u/s 158BC had considered the seized material in the satisfaction note written for formation of a belief that the present assessee had earned undisclosed income for the concerned block period - But there is no finding given by Ld. CIT(A) as to whether any material was found in the course of search carried out in the case of Mukesh M Oza - There is no document available in the paper book showing any incriminating material found and seized in the course of search carried out on 07.11.2000 in the case of Mukesh M Oza – Decided partly in favour of Assessee.
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2014 (1) TMI 916
Deletion made on account of suppressed production – Proportionate wages not paid to the production – Held that:- The addition made on the basis of arithmetic comparison of monthly production with monthly wages could not be sustained - The wages are paid by the assessee on per day basis, and not linked to production - The production depends on variety of reasons, i.e. the work order received from the customers, quality of grey material, designing etc. - The assessee has produced the wage register along with its account books and no discrepancy therein could be established on behalf of the Revenue - The higher payment of wages in a particular month by the assessee, may be a good reason to provoke inquiry in this regard, but itself is not sufficient to make any addition/disallowance – Thus, the CIT(A) is justified in holding that the basis taken by the AO is misplaced and the books of accounts produced by the assessee are not rejected by the AO - No arithmetic formula to co-relate the wages with the production and estimate the suppression on account of variation in wages, is sustainable – Decided against Revenue. Deletion made on account of discount/rate difference expenses – Supporting evidence not failed – Held that:- The assessee is the best judge for its affairs, and it is the decision of the assessee to provide discount to its customers depending upon the nature and extend of the defect in the product after the job work is done, and the discount allowed may differ from person to person -The complete details were filed by the assessee in this regard and the method of accounting had been constantly followed year after year - The CIT(A) has recorded that all the required details were provided by the assessee in the form of books of accounts, bills and vouchers along with names and addresses, contact details, the amount of job work done and discount/claim/rate difference allowed to each of the customers - The CIT(A) has further recorded that without examining these details and evidences and without making independent inquiry and also without rejecting the books of accounts, the AO has disallowed the expenses - In earlier years also such claims of expenses under the same head have been made by the assessee which have been accepted by the department - in what manner business has to be conducted by the assessee, the AO cannot decide – order of the CIT(A) upheld – Decided against Revenue.
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2014 (1) TMI 915
Deletion made u/s 68 of the Act – Unexplained cash credits - Genuineness of the transactions – Identity and creditworthiness of the depositors not proved – Held that:- The Assessee has received loans from various parties - The parties are stated to be agriculturists deriving income from agriculture - the depositors are the existing shareholders but there is nothing on record to prove the contention – there was discrepancy in the land holding that was submitted before the Assessing Officer and that considered by CIT(A) – there is no documentary evidence to demonstrate that the parties had sold the agriculture produce through Vigneshwari Krupa Trading - Relying upon CIT Vs. Nipun Builders and Developers Pvt. Ltd. 2013 (1) TMI 238 - DELHI HIGH COURT] - creditworthiness of the shareholders/ deposits and other aspects noted above needs to be examined afresh – Matter remitted back to the AO for fresh adjudication – Decided in favour of Assessee.
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2014 (1) TMI 914
Deduction u/s 80IB(10) of the Act – Works contract - Held that:- The assessee has to appoint contractor and other agencies for execution of work - it has to appoint architect and get the plan prepare from them and get it approved for the local authority - The developers are also entitled to enroll the members to receive money from them to issue receipts from them and to give necessary documents and other certificates to members to obtaining loans - the developer is entitled to develop the said land and for that he has to bare all expenses for construction and for obtaining other permission etc. - The details of payment to the landlord is also appearing on the asset side of balance sheet - payment to the land lord is not an essential condition for granting deduction u/s 80IB of the Act - There is no such mention in the Act that entire construction of the land should be paid to the land lord. The decision in Income-tax Officer, Ward-2(5), Ahmedabad Versus Shakti Corporation [2008 (11) TMI 436 - ITAT AHMEDABAD] followed - The land owners were entitled to a fixed consideration of Rs. 11 per square feet and the housing project was to be developed by the assessee at his own cost and risk - Assessee had full control over development of land and sale of tenements - CIT(A) has rightly allowed the deduction u/s 80IB(10) of the Act to the assessee – Decided against Revenue.
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2014 (1) TMI 913
Deletion made on account of suppressed receipts – Held that:- The addition has been made by the assessing officer by simply holding that assessee - doctor has shown receipts only for five days in a week and not showing receipts on all Saturdays and Sundays of the year - CIT(A) has given relief to the assessee by holding that assessing officer has not been able to bring any evidence on the record to show that assessee-doctor was running his consulting room on Saturdays and Sundays also - the addition has been made by him only on the basis of assumptions and surmises. CIT(A) found that assessee during the assessment proceedings gave several evidences in the form of files of the patients managed by him and the prescriptions issued by him to his patients to show that the assessee-doctor was available for consultation only from Monday to Friday - As far as the medicines prescribed by the assessee-doctor on Saturdays and Sundays it was explained that those medicines were only for the patients who were admitted in his hospital and have nothing to do with his consulting receipts as he was not giving medicines along with prescriptions to his patients - The offer of the doctor to the assessing officer was not accepted by him to depute a person to verify whether his consulting room is open for five days only or for all 7 days of the week - The assessing officer without bringing anything on record to show that assessee was giving consultations to his patients on Saturdays and Sundays also have gone to make the addition was not sustainable in law - CIT(A) has rightly deleted the addition – Decided against Revenue.
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2014 (1) TMI 912
Disallowance u/s 40A(2)(b) of the Act – Excess payment of job charges – Held that:- The AO has not done any exercise to determine as to whether the amount paid by the Assessee to its sister concern were excessive or unreasonable by comparing the prevalent market rates - He has not arrived at an exact figure of excessive payment by comparing the amount paid by the assessee with the market rates for similar goods and services but he has rather considered the disallowance by comparing the cost of production to the Assessee with that the job work charges paid by assessee. This fact has not been controverted by Revenue by brining any material on record - The decision in Mahavir Dyeing & Print Mills Pvt. Ltd. Versus Income Tax Officer [2010 (4) TMI 968 - ITAT AHMEDABAD] followed – Where an assessee incur any expenditure in respect of which payment has been made to any of a person referred then in the opinion of the Assessing Officer such expenditure is excessive or unreasonable, having regard to the fair market value of the goods or services or facilities for which the payment is made, then so much of the expenditure as is so considered by the Assessing Officer to be excessive or unreasonable shall not be allowed as a deduction. On careful readings of this Section 40, it is worth to mention that before applying the provision it is required that the Assessing Officer should form an opinion having regard to fair market value of the service rendered. In the present case this exercise is lacking and the Assessing Officer need not make any attempt to find out the prevailing market rate - no case has been made out for disallowance u/s 40A(2)(b) and therefore no disallowance can be made - the disallowance made by the AO deleted – Decided in favour of Assessee
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2014 (1) TMI 911
Deduction u/s 80IB of the Act allowed – Merits of factory license challenged – Failure to prove commencement of manufacturing activity on or before 31.03.2004 – Held that:- The Assessing Officer in his order has noted that the licence was issued by the Chief Inspector of Factory on 12.10.2004 - there is nothing on record to show as to when the application for factory licence was made by the Assessee and when the same was received – Relying upon CIT vs. Jolly Polymers [2012 (4) TMI 398 - GUJARAT HIGH COURT] - lapse must be viewed as one which is purely technical even without accepting the contention of the counsel for the Assessee that grant of license subsequently would relate back to the original date of application- thus, the date of making an application for factory licence and its date of issue needs to be examined by the Assessing Officer – the matter remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Scrap sales allowable as deduction u/s 80IB of the Act – Held that:- The Assessing Officer has noted that the Assessee has not filed details of the scrap generated during the year - These details have also not been filed either before CIT(A) or before the Tribunal - the matter needs to be examined at the end of Assessing Officer for verification the nature of scrap generated by Assessee the matter remitted back to the AO for verification and give a finding as to whether the scrap has been generated during the course of manufacturing activity – Decided in favour of Revenue.
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2014 (1) TMI 910
Deletion of penalty u/s 271(1)(c) of the Act – Held that:- The Assessing Officer has nowhere alleged that the payment of interest made to finance company on which the TDS was deductable is non genuine or bogus - It is also a fact that there is nothing on record or alleged that the payment of interest is excessive or unreasonable - The disallowance has been made for non-deduction of TDS in view of provisions of section 40(a)(ia) - The legal fiction created by section 40(a)(ia) will not attract penalty for furnishing of inaccurate particulars of income because there is no inaccurate particulars in the return of income. Relying upon CIT Vs. Mother India Refrigeration Pvt. Ltd. [1985 (8) TMI 2 - SUPREME Court] - legal fictions are created only for some definite purpose and they must be limited to that purpose and should not be extended beyond that legitimate field - Further in CIT Vs. Reliance Petro Products Pvt. Ltd. [2010 (3) TMI 80 - SUPREME COURT] - merely because the Assessee has claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, attract penalty u/s 271(1)(c) – there was no reason to interfere with the order of CIT(A) – Decided against Revenue.
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2014 (1) TMI 909
Deduction u/s 10B of the Act – Proper allocation of commission and salary expenses not made – Held that:- Only Amritsar unit is eligible for deduction u/s.10B having manufacturing facilities - The Mumbai unit is only engaged in trading and hence is not eligible for deduction - Insofar as the allocation of commission and salary between the two units is concerned, the Assessing Officer has adopted a very reasonable manner in such bifurcation in the ratio of turnover of the two units - no exception can be found to the view taken by the learned CIT(A) in upholding the allocation of commission and salary between the two units in the ratio of their respective turnovers – the order upheld. Deduction in respect of export incentive u/s 10B of the Act – Held that:- The decision in Maral Overseas Ltd. vs. Addl. CIT [2012 (4) TMI 345 - ITAT INDORE] - the export incentives form part of `profits of the business' of the eligible undertaking and hence cannot be excluded from the eligible profit for the purpose of computing deduction u/s.10B – order set aside. Denial of Deduction in respect of Interest income u/s 10B of the Act - So long as a particular item of income falls under the head 'profit and gains of business or profession', the same qualifies for consideration under this section – If the item of income falls under any other head including `Income from other sources', the same goes out of the ambit of the eligible profits for the purpose of deduction u/s 10B - The correct nature of the amount of interest is not emanating from the material on record - order set aside and the matter remitted back to the AO for fresh adjudication – Relying upon ACG Associated Capsules Pvt. Ltd. VS. CIT [2012 (2) TMI 101 - SUPREME COURT OF INDIA] - `netting of interest' is relevant in the context of Explanation (baa) below section 80HHC(4C) defining the expression `profits of the business' - It has no application under sec. 10B, which is differently worded and has no definition of the expression `profits of the business' similar to that of section 80HHC – Decided partly in favour of Assessee. Penalty u/s 271(1)(c) of the Act – Reduction in amount of deduction u/s 10B of the Act – Held that:- The foundation for the imposition of penalty is the reduction in the amount of deduction u/s.10B - The amount of such deduction is backed by audit report in form no. 56G as per the requirements of sub-section (5) of section 10B - Once the assessee makes a claim on the basis of an opinion expressed by an expert, there can be no question of imposition of any penalty on the mere fact that the amount of deduction was reduced by the Assessing Officer - There can never be any doubt on the bona-fide of the assessee in claiming the deduction based on the audit report given by the auditor - the CIT(A) was justified in deleting the penalty u/s. 271(1)(c) – Decided against Revenue.
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2014 (1) TMI 908
Nature of Income - Whether income from letting out should be considered as house property income or business income – Held that:- There is no strait jacket formula prescribed for categorizing income under one head or other - When the facts of the appeals in the batch have already been considered and decided by the Tribunal in its earlier order - the rental income should considered as `Income from house property' and not as `Business income' and further no deduction for depreciation allowance or other administrative expenses should be allowed. Condonation of delay in filing cross objection – No addition to be made u/s 153A r.w. Section 143(3) of the Act – Held that:- The cross objections were filed by the assessee on 16.08.2011 challenging the jurisdiction of the Assessing Officer to pass order u/s 153A read with section 143(3) when no incriminating materials were found during the course search - it cannot be accepted as a reasonable cause for the delay because the Special Bench order was passed on 6th July, 2012 as against the date of filing of the instant cross objections of 16.08.2011 - the benefit of such Special Bench order can be available only after the date of its passing and not before that - the justification for the delay of around four years in presenting the cross objections cannot be accepted - the delay is not condoned and the cross objections are accordingly dismissed – Decided in favour of Revenue and against Assessee.
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2014 (1) TMI 907
Admission of additional evidence – Calculation of suppressed income – AO did not get the opportunity to offer comments as per Rule 46A of the Rules - Held that:- There was no violation of the provision of Rule 46A could be shown by the Revenue – Decided against Revenue. Error in application of GP ratio - The CIT(A) has passed a well considered speaking order on the issue - the GP rate has been applied as declared by the assessee on accounted job work on the figure of suppressed job charges for all three years in appeal – The GP rate applied by the CIT(A) on the suppressed job charges amounts to applying of net profit rate as no further deduction of expenditure was allowed to the assessee - There was no justification for applying the GP rate of 38.77% on the figure of suppressed job charges, as canvassed on behalf of the Revenue - the entire job charges could not be subjected to the tax, as all the direct expenditure, which are essential part for earning gross job receipts charges have to be allowed to the assessee to arrive at a realistic and reasonable figure of profit on the suppressed job charges received by the assessee – Relying upon Commissioner of Income-tax Vs President Industries [1999 (4) TMI 8 - GUJARAT High Court] – there was no infirmity in the order of the CIT(A) in partly allowing the ground of the appeal of the assessee, and estimating the GP rate on the suppressed job charges at GP declared on accounted job work by the assessee – Decided against Revenue.
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2014 (1) TMI 906
Addition made u/s 40A(3) of the Act – Held that:- The disallowance u/s. 40A(3) of the Act for payments made to drivers/sub-contractors, who are agents of assessee - The CIT(A) deleted the disallowance by holding that for the relevant assessment year, which is prior to the amendment w.e.f. Assessment Year 2009-10, where aggregate of cash payment in a day exceeding Rs.20,000/- is subject matter of disallowance, position during Assessment Year 2006-07 speaks of single cash payment in a day exceeding Rs.20,000 - The assessee made payment exceeding Rs. 20,000/- otherwise than by A/c. Payee Cheques or A/c Payee Bank Draft to the drivers/sub -contractors who are nothing but agent of the assessee - In view of provisions contained in Rules 6DD(1) such payments are permissible - The decision in ITO Versus Rajesh Kr Garg [2011 (8) TMI 632 - ITAT Kolkata] followed - The assessee as well as recipient had shown cash payment less than Rs.20,000 - Then, a single day more once but single entry of payment is not exceeding Rs.20,000 - the assessee has not violated the Section 40A(3) of the IT Act – decided in favour of Assessee. Disallowance u/s 36(1)(vii) of the Act - Addition made on claim of bad debts – Business or trading loss u/s 28(1) of the Act – Held that:- The appellant allowed Shri Rajeshbhai R. Mistry to collect money from the market from the debtors regularly as claimed by the appellant but not deposited with the firm - The appellant had debited the salary in the name of Shri Rajeshbhai R. Mistry and there was a full control of the employer on employee - The appellant had not brought on record any evidence that from which party he had collected money and not deposited - the appellant had not established his case that this is a permanent loss for him as no FIR lodged against the employee to recover the money - He has recovered to the extent of Rs. 2 lacs through the purchase of immovable property from Shri Rajeshbhai R. Mistry, which was not submitted before the A.O. or CIT(A) - there is no bad debt or no business loss to the appellant – order of the CIT(A) confirmed – Decided partly in favour of Assessee.
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2014 (1) TMI 905
Restriction of addition - Disallowance made for vehicle, office and sales promotional expenses – Held that:- The disallowance out of office expenses reasonably accepted by the appellant himself i.e. 20% - in business promotion account, a bill of silver purchases from M/s. C.B. Brothers, Surat, shows 3.667 kg silver which does not indicate any description of silver coins - the assessee has purchased silver only on 07.11.2007 in the name of Tirupati Traders - It is true that the appellant had paid this amount through account payee cheque which does prove that this expense is incurred wholly and exclusively for business purposes - The evidence showed the purchase of silver not idols or coins – the order of the CIT(A) under the head business promotion to the tune of Rs.69,875 – Decided partly in favour of Assessee. Deletion of addition made by estimating the GP @2.42% - Attempt made to lower the taxable income by inflating the expenses – Held that:- The AO rejected the books of account on the ground of lesser G.P. compare to his sister concern and discrepancy in office expenses and business promotion expenses - there was no defects found in the books of account and the appellant had maintained proper books of account including the bills and vouchers which were produced before the A.O. for verification - both the concerns deal with different cement companies having different agreements and terms and conditions - The rejection of book result by the A.O. is not based on solid grounds. G.P. has increased comparative preceding year - The ld. CIT(A) thoroughly had examined the issue of G.P. which support the claim of the assessee – Decided against
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2014 (1) TMI 904
Recall of order – Rectification of mistake apparent on record u/s 254 of the Act – Held that:- The issue has already been decided in the case of Teja Construction [2014 (1) TMI 832 - ITAT HYDERABAD] and the Assessing Officer is directed to estimate the income of the assessee, i.e., directing the Assessing Officer to estimate the income of the assessee @ 9% on own contract works, 8% on contracts taken by assessee on subcontracts and @ 5% on contracts given by the assessee to 3rd party on subcontracts and directing the Assessing Officer to allow remuneration, interest on pital and depreciation out of estimated income - In CIT vs. Pearl Woollen Mills [2009 (11) TMI 48 - PUNJAB AND HARYANA HIGH COURT] it has been held that Statutory authority cannot exercise power of review unless such power is expressly conferred - There is no express power of review conferred on the Tribunal - the scope of review does not extent to re- hearing of the case on merit - The scope and ambit of application of section 254(2) is very limited – Decided against Assessee.
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2014 (1) TMI 903
Recall of Order – Rectification of mistake apparent on record u/s 254(2) of the Act – Profits arising out of development of properties treated as capital gains – Held that:- The Tribunal was not considering the year in which capital gains actually accrued - it did not accrue during the year because there was no transfer of any rights in immovable property during the year - thus, the addition was deleted by Tribunal - The question of deleting the income offered by the assessee himself was not before the Tribunal, there was no such treatment given by the assessing officer, and hence not decided by the Tribunal - Relying upon State of Andhra Pradesh V/s. CTO and Another [1987 (4) TMI 49 - ANDHRA PRADESH High Court] -the Tribunal is ceased of its jurisdiction over that appeal, except to the limited extent of rectifying any mistake therein in terms of provisions of S.254(2) of the Act. All that the assessee speaks of is about the grievance that it has suffered on account of the consequential orders passed by the Assessing Officer for the year under consideration, while giving effect to the order of this Tribunal dated 7.5.2012 - the grievance of the assessee on account of alleged mistakes in the order, either on account of interpretational differences or even on account of disrespect/disregard to the directions of the Tribunal, shall not vest any power or jurisdiction back with the Tribunal, to oversee the correctness of the correctness of the consequential orders passed, much less, to give directions to revise or rectify the same, even if there is any mistake in the same - In the absence of any specific mistake which warrants any rectification within the scope of the provisions of section 254(2) of the Act – there was no reason to rectify the order – Decided against Assessee.
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2014 (1) TMI 902
Validity of order u/s. 143(3) r.w section 147 of the Act - Claim of deduction u/s 54F of the Act - Whether the purchase of property by the sister in law and nephew of the assessee can be considered as the investment by the assessee to substantiate his claim for deduction under S.54 - Held that:- Though beneficial provisions have to be interpreted liberally, there is a limit for such liberal interpretation, and it cannot be stretched beyond that point - the assessee had claimed exemption for the investment made by the sister-in-law and nephew stating that they are blood relations. The provisions of S.54 speak of investment in residential house property, that too only by an assessee, being an individual or an Hindu Undivided Family - The statutory provision as such does not include assessee's wife or assessee's minor children - the Courts have taken a liberal interpretation of the statutory provisions and extended the exemption available under S.54 to the assessee, even in the cases of investments in the names of spouse and minor children of the assessee - such liberal interpretation cannot be extended beyond a point so to cover investments made in the names of other blood relations or other relations – there was no infirmity in the order – Decided against Assessee.
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2014 (1) TMI 901
Recall of order u/s 254(2) of the Act – Mistake apparent on the record – Held that:- Statutory authority cannot exercise power of review unless such power is expressly conferred - There is no express power of review conferred on the Tribunal - the scope of review does not extend to re-hearing of the case on merit as decided in CIT vs. Pearl Woollen Mills [2009 (11) TMI 48 - PUNJAB AND HARYANA HIGH COURT] - An order u/s 254(2) does not have existence de hors the order under s. 254(1) - Recalling of the order is not permissible under s. 254(2) - Recalling of an order automatically necessitates rehearing and re-adjudication of the entire subject-matter of appeal - The dispute no longer remains restricted to any mistake sought to be rectified - Power to recall an order is prescribed in terms of Rule 24 of the ITAT Rules, 1963, and that too only in case where the assessee shows that it had a reasonable cause for being absent at a time when the appeal was taken up and was decided ex-parte - Judged in the above background the order passed by the Tribunal is indefensible. Relying upon CIT vs. Steal Cast Corporation [1975 (12) TMI 43 - GUJARAT High Court] - in the order of appellate authority, the ground might not have been dealt with that point and thereby it means that it was impliedly rejected - It is not necessary for the Tribunal to state in its judgement specifically or in express words that it has taken into account the cumulative effect of the circumstances or has considered the totality of the facts, as if that were a magic formula - if the judgement of the Tribunal shows that it has done so, there is no reason to interfere with the decision of the Tribunal – Decided against Assessee.
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2014 (1) TMI 900
Deletion made on notional interest - Interest free security deposit into rental income – Unexplained expenditure – Held that:- Despite the directions by the CIT(A), the Assessing Officer did not choose to determine the fair/market rental value of the property by making necessary enquiries, the rental income offered by the assessee is to be treated as the fair/market rental income or the Annual Letting Value of the property – Relying upon COMMISSIONER OF INCOME TAX, Versus MONI KUMAR SUBBA & Miracle Exporters P. Ltd. [2011 (3) TMI 497 - DELHI HIGH COURT] - the notional interest on the interest free security deposit cannot be taken as determining factor to arrive at the fair rent - The AO did not choose to comply the same and to make enquiries regarding the fair rental value of the property, the assessee cannot be harassed by prolonging the matter further on the issue, especially when, the AO himself has chosen not to make such enquiry - even for the previous year as well as for the subsequent year no objection has been raised by the revenue regarding the Annual Letting Value and the amount of rental income shown by the assessee has been accepted for the said years - There is no evidence on the file that annual rental value of the property was higher during the relevant year than that declared by the assessee – the order of the CIT(A) upheld – Decided against Revenue. Unexplained expenditure – Held that:- Though the CIT(A) has observed that the transactions as noted above were made by the assessee, has deleted the addition made by the AO in this respect - the finding portion of the order of learned CIT(A) is in contradiction to the factual finding - the matter on this issue is restored back to the learned CIT(A) to verify as to whether there was any mistake while giving the factual findings given in this respect and to give his findings afresh on the issue after giving both the parties opportunity of hearing – Decided partly in favour of Assessee.
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2014 (1) TMI 899
Disallowance u/s 14A of the Act – Assessee being individual must be considered accordingly – Application of Rule 8D – Held that:- The provisions of section 14A r w Rule 8D has application to the AY 2008-09 - the assessee made investment in shares and earned exempt income out of it - the assessee has not maintained separate accounts for his investment activities - The expenditure accounts are commonly maintained - The inclusion of disallowable expenditure u/s 14A of the Act in such common accounts is certainly a possibility – Thus, there is great amount of possibility that some of the expenditure incurred and debited to P & L account of Pundole Exports must relate to the exempt income of the assessee - the disallowance made by the AO is reasonable and in accordance with the provisions of section 14A of the Act read with Rule-8D of the Act – the claim of the assessee ie no expenditure is incurred and assessee, has not been demonstrated conclusively and logically - the onus is on the assessee to demonstrate when a claim of exemption and deduction of income or expenditure is made - Thus, the assessee has not discharged his onus satisfactorily - the order of the CIT(A) upheld – Decided against Assessee.
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2014 (1) TMI 898
Disallowance in respect of bad debts written off u/s 36 of the Act - Held that:- The decision in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT ] followed - This is the case, where CIT (A) is completely not judicious on the issue raised before him and has not regarded the established binding judicial pronouncements - When bad debt occurs, the bad debt account is debited and the customer’s account is credited - thus, closing the account of the customer - In the case of Companies, the provision is deducted from Sundry Debtors. Thus, the assessee is entitled to relief on account of bad debts – Decided in favour of Assessee. Disallowance as bad debts twice while computing disallowance u/s 14A of the Act – Held that:- It amounts to making addition twice, which is not sustainable in law - assessee mentioned that there cannot be disallowance u/s 14A of the Act in respect of the claim of bad debts – relying upon Star Television Entertainment Ltd [2010 (1) TMI 46 - AUTHORITY FOR ADVANCE RULINGS] - The claim of the bad debts is allowable in favour of the assessee – the issue remitted back to the AO for fresh adjudication after considering on bad debts - the expenditure of bad debt is outside the scope of the provisions of section 14A r w r 8D – Decided partly in favour of Assessee.
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2014 (1) TMI 897
Disallowance of M&D expenses - Genuineness of the claim of consumption of the medicine and disposables for the patients and the recording of the same – Held that:- The paper books contains sample copies of the patients' records - there is some noting relating to prescription of the medicines by the doctors - they do not indicate that the prescribed medicines are supplied by the assessee – the details furnished are not exhaustive for all the medicines consumed - the assessee is not maintaining the records relating to "consumption of medicine" - AO has not demonstrated the need for maintaining any records in this regard - it is trite law that the assessee is under obligation to demonstrate the claim of expenditure made in the return/financial statements – thus, the AO is justified in resorting to make disallowance on account of "consumption of medicine and disposables. The basis adopted by both the authorities rejected, ie flat rate of 20% or 5% of the claim - some amount of guesswork is accepted in such estimation based additions and however, complete guesswork is unacceptable - considering the failures of the assessee in discharge of the onus and to establish that said medicine and disposables are consumed for the patients, making round sum disallowance out of the claim in the return, must meet the needs of the justice - Such a measure may motivate the assessee in directing his accounting staff to maintain proper records or evidences on this account of 'consumption of medicine and disposables' too - The disallowance is restricted to round sum amount of Rs. 1 lakh - Thus, the AO is directed to restrict the disallowance – Decided Partly in favour of Assessee.
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2014 (1) TMI 896
Disallowance u/s 14A of the Act – Held that:- The AO has applied Rule 8D for working out the disallowance u/s 14A - The CIT(Appeals) has confirmed disallowance even though he agreed that Rule 8D cannot be held to be applicable in the Assessment Year 2006-07 but he confirmed the disallowance on the ground that it is quite reasonable - The assessee has worked out the disallowance as per working given before the Assessing Officer, which has been incorporated - Such a working has not been commented upon either by the CIT(Appeals) or by the Assessing Officer - No specific, extra expenditure has been pointed out – The decision in JM FINANCIAL SERVICES PVT LTD Versus ADDL COMMISSIONER OF INCOME TAX. MUMBAI [2013 (8) TMI 821 - ITAT MUMBAI] followed - disallowance of 5% of the dividend income would be quite reasonable for working out the disallowance u/s 14A - following the same principle in this year also, 5% of the dividend income would be reasonable for making the disallowance u/s 14A - the AO is directed to restrict the disallowance at 5% of the dividend income – Decided partly in favour of Assessee.
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2014 (1) TMI 895
Disallowance on outsourcing expenses u/s 40(a)(ia) of the Act – Held that:- From the agreement it is clear that DEOs and the Cos had to perform particular functions as per the requirements of the asssessee -They had to scan the documents besides carrying out the job of Bar Coding of the papers - As per the agreement, minimum qualification to do the job of Scanning/Bar Coding was diploma course after passing 12th standard - work done by these operators(DEOs/Cos) cannot termed as labour work - For Bar Coding and other related activities a minimum professional qualification and proficiency is required – Thus, work done by the operators has to be treated as technical service and provision of section 194J would be attracted to the payment made to them by the assessee company. The decision Deputy Commissioner of Income-tax - 11(2) Versus Chandabhoy & Jassobhoy [2011 (7) TMI 956 - ITAT MUMBAI] and in APOLLO TYRES LTD Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(1), ERNAKULAM [2013 (11) TMI 209 - ITAT COCHIN] followed - short deduction of TDS, if any, could have been considered as liability under the Income-tax Act as due from the assessee – thus, the disallowance of the entire expenditure, whose genuineness was not doubted by the assessing officer is not justified - in case of short/lesser deduction of tax, the entire expenditure whose genuineness was not doubted by the AO, could not be disallowed - Matter remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee.
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2014 (1) TMI 894
Revision u/s 263 of the Act - Wrong set off of short term capital loss against business income – Held that:- If in a given year, the mistake committed by the Assessing Officer is such which results into the reduction of the total income, the assessment order would be called as erroneous and prejudicial to the interest of the revenue notwithstanding the fact that in the subsequent years the effect of the mistake is neutralized - It is each year as a separate unit which has to be considered for the purposes of section 263 for examining as to whether or not the assessment order is erroneous and prejudicial to the interest of the Revenue – Revision is justified. Disallowance made u/s 14A of the Act – Held that:- The assessee did earn exempt income but did not offer any disallowance u/s 14A - Even if the assessee made investment in securities out of own funds, the disallowance on account of “other expenses” was called for u/s 14A - The Assessing Officer did not consider the application of section 14A – As held in Godrej & Boyce Ltd. Mfg. Co. v. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT] disallowance is required to be made on some 'reasonable basis’ under the circumstances which are prevailing – Revision in justified. TDS and income reconciliation not done - The Assessing Officer, while giving effect to the order u/s 263, did not make any addition on this score – Thus, no grievance can be said to have been resulted to the assessee by reason of the restoration of this issue by the learned CIT to the A.O. Valuation of closing stock – Held that:- The assessee did not follow the prescription of section 145A as per which the valuation of inventory is required to be done in 'inclusive’ manner – but, the assessee valued its inventory of raw material on 'exclusive’ basis by not including the amount of Cenvat – as decided in CIT Vs. Mahalaxmi Glass Works Pvt. Ltd. [2009 (4) TMI 182 - BOMBAY HIGH COURT ] where in the closing stock unutilized Modvat credit is adjusted, similar adjustment should be made to the opening stock also - Nowhere it has been held that despite the mandate of section 145A, the stock should be valued as per 'exclusive’ method - the assessment order accepting the same cannot be held to be valid. Reconciliation of Purchase and sale of investment – Held that:- The Assessing Officer u/s 143(3) read with section 263, has accepted the assessee’s contention on this point and did not make any addition - there can be no reason on the part of the assessee to assail this issue further – Decided partly in favour of Assessee.
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2014 (1) TMI 893
Disallowance u/s 14A and u/s 40a(ia) of the Act – Held that:- Assessee contended that they had made a voluntary surrender of all the disallowable expenses on his own - all the facts and figures were correctly disclosed and this is not a case of furnishing of inaccurate particulars - On examination of the details furnished, the assessee had suo-moto agreed to the technical disallowance – Relying upon CIT vs. Reliance Petro Products P. Ltd.[2010 (3) TMI 80 - SUPREME COURT] - The CIT(A) held that the assessee has furnished all the required details and that hence no penalty can be levied on technical/legal disallowances u/s 14A or u/s 40(a)(ia) – the order of the CIT(A) upheld – Decided against Revenue. Penalty u/s 271(1)(c) of the Act - Addition made on liquidated damages – Held that:- The CIT(A) should have deleted the penalty based on the same reasons given for deleting the penalty in the case of disallowance u/s 40(a)(ia) and u/s 14A - All the facts and figures regarding the claim were before the Revenue authorities and it is not a case of bogus claim - The claim of the assessee that it is inadvertent computation mistake through oversight appears to be a bonafide explanation - the facts do not suggest that this is not an inadvertent mistake as explained by the assessee - any excess or short provision would be reversed in the subsequent year - The decision in CIT vs. Reliance Petro Products P. Ltd. [2010 (3) TMI 80 - SUPREME COURT] and in Price Waterhouse Coopers P. Ltd. vs CIT [2012 (9) TMI 775 - SUPREME COURT] followed – Penalty levied by the CIT(A) set aside – Decided in favour of Assessee.
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2014 (1) TMI 892
Transfer pricing adjustment – Arm’s length principle not followed – Provision of software development services made - Benchmarking approach rejected – Selection of comparable - Held that:- The matter indeed deserves to be remitted to the file of the Assessing Officer so that both the aspects, which are very crucial to determination of correctness of arm's length price can be reexamined by the Assessing Officer in the light of appropriate clarifications of the assessee - the assessee has set out various objective tests employed in narrowing down universe of 18,249 comparables available in the Prowess database to 463 comparables. However, the qualitative analysis based on which, 20 comparables were finally selected from these 463 comparables, is not specified - there cannot be cherry picking for selecting unsuitability of comparables either, The assessee should have subjected all the comparables selected by the revenue to the same tests - Decided in favour of Assessee.
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2014 (1) TMI 891
Error in determination of ALP – Net profit margin on the entire turnover applied – Held that:- The decision in Phoenix Mecano (India) Ltd V/s DCIT [2011 (12) TMI 178 - ITAT MUMBAI] followed - the final adjustment on account of transfer pricing has to be made only in respect of transactions with Associated Enterprises and not in respect of entire turnover of the assessee as made by the revenue authorities - the adjustment made to determine the ALP by considering the entire purchases of the assessee in the assessment years under consideration is not in accordance with law - the orders of the authorities below set aside and the matter restored to the AO with a direction that the adjustment, if any, is required to be made due to determine of ALP, it should be restricted only to the purchases made from Associated Enterprises and not to the entire turnover of the assessee-company – Decided in favour of Assessee.
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2014 (1) TMI 890
Rejection of comparables - Adjustment in arm's length price - Exclusion of Wipro BPO Solutions – The decision in M/s. HSBC Electronic Data Processing India Ltd. Versus Dy. Commissioner of Income-tax Circle 2(2), Hyderabad [2013 (9) TMI 485 - ITAT HYDERABAD] followed - The contentions of the assessee against the inclusion of this comparable are not accepted, and this company was included as one of the comparables on the reason that the assessee's turnover is equally high as that of Wipro BPO Solutions - the assessee's contention that profit margin worked out by the TPO is incorrect requires to be examined by the TPO/Assessing Officer – the matter restored to the AO for fresh adjudication to examine the assessee's contentions on this aspect and accordingly decide the PLI of this comparable. Exclusion of Mercury Outsourcing Management Ltd and Transworks Information Services Ltd as comparables – Held that:- The order of the CIT(A) is not elaborate - The nature of the related party transactions cannot be examined and the TPO's working is different from the assessee –in the interests of justice the matter restored back to the AO to re-examine the functionality of the company afresh – Decided in favour of Assessee.
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2014 (1) TMI 889
Addition made u/s 68 of the Act – Transactions not genuine – Held that:- This is a case of sale of shares - Unlike the case where the assessee issues shares and collects money, in a case of sale of shoes the degree of burden of proof is not the same - In case of sale of shares, one asset i.e. shoes is converted into another asset i.e. cash - No new asset is acquired by the assessee - If sold at a higher rate, the difference is profit subject to tax - if the assessee give the identity of the person it should be sufficient – The decision in CIT vs. Medshave Health Care Ltd. [2010 (2) TMI 120 - DELHI HIGH COURT] - the assessee company had been holding the shares which were sold by it during the year and that it was on this basis that the Commissioner of Income Tax (Appeals) had arrived at a conclusion that there was no reason to hold that the assessee company did not own these shares - there was no reason to hold these transactions to be sham transactions or the credits to be unexplained cash credits – Decided against Revenue.
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2014 (1) TMI 888
Deletion of Penalty 271G of the Act – Specific information not asked by TPO u/s 92D(3) of the Act – Held that:- The decision in Cargill India (P.) Limited. Versus Deputy Commissioner Of Income-tax, Circle 3(1), New Delhi. [2008 (2) TMI 453 - ITAT DELHI-C] followed - there has to be a specific requisition under section 92 D(3), with due application of mind, for furnishing of information and it is only when such a requisition is not complied with that penalty under section 271 G can be levied - there is no such specific requisition in the case which has not been complied with - There is no restriction of furnishing prescribed information in response to notice u/s 92CA(2) of the Act to support the computation of ALP by the taxpayer - there was no authority u/s 92D(3) with the T.P.O. to require the taxpayer to furnish non specified information or such information or document already filed by the taxpayer or use of the provision without asking the taxpayer to support first its ALP of International transactions. There is no point in requiring the same information again or require un-prescribed information u/s 92D(3) and cast additional burden on the taxpayer - it would no more remain valid notice u/s 92D(3)/271G of the Act - Once no specific requisition has been issued under section 92 D(3) for furnishing of specific particulars, there is no question of its remaining uncomplied with - there is no occasion for imposition of penalty under section 271G of the Act – Decided against Revenue.
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2014 (1) TMI 887
Nature of Expenses – Revenue or Capital - Deduction claimed on expenditure - Expenses incurred on renovation of office premises – Held that:- The Act draws no distinction between the capital expenditure incurred in relation to the user's own building or that in respect of which he enjoys leasehold or the other right of occupancy, i.e., for the purpose of grant of depreciation thereunder - Relying upon CIT vs. Madras Auto Service (P.) Ltd [1998 (8) TMI 1 - SUPREME Court] - It would be proper to allow the assessee a final opportunity to present its case with regard to the relevant expenditure as being not capital expenditure but of revenue nature, i.e., as not falling with the scope and ambit of Explanation 1 to s. 32(1), before the AO - The CIT(A) having already allowed depreciation, i.e., on merits, which has not been contested by the Revenue, the assessee's claim with reference to its revised computation stands admitted for being considered – Decided in favour of Assessee.
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2014 (1) TMI 886
Obligation to deduct TDS u/s 201 r.w. 195 of the Act – Payments made for providing in-house training and market awareness and development training to employees – Held that:- The decision in of DIT v. Guy Carpenter & Co Ltd [2012 (5) TMI 31 - DELHI HIGH COURT] and CIT v. De Beers India Pvt. Ltd [2012 (5) TMI 191 - KARNATAKA HIGH COURT] followed - the training services rendered by the service provider are general in nature as the training is described as 'in house training of IT staff and medical staff' and of 'market awareness and development training' - this training does not involve any transfer of technology - in order to successfully invoke the coverage of training fees by 'make available' clause in the definition of fees for technical services, the onus is on the revenue authorities to demonstrate that these services do involve transfer of technology - That onus in not at all discharged by the Assessing Officer, or even by the learned Departmental Representative. When case of the revenue authorities fails on the tests of the treaty provisions, there is no occasion at all for their leaning upon the provisions of the Income Tax Act - The case of the revenue authorities does not succeed on the provisions of the tax treaty as there is nothing to establish that there is any transfer of technology – thus, the fees for training services of general nature, which does not seem to involve any transfer of technology, cannot be brought to tax under section 13(4)(c) of India UK tax treaty - the conclusions arrived at by the CIT(A) upheld – Decided against Revenue.
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2014 (1) TMI 885
Penalty u/s 271(1)(c) of the Act - Disallowance u/s 145A - Disallowance of reserve for cash discount - Held that:- The quantum order has set aside by the Tribunal and the matter has been remitted back to the file of the AO - the penalty proceedings which were initiated on the basis of quantum order cannot survive - the penalty imposed under this issue is hereby order to be set aside - Merely because the claim of the assessee has not been allowed by the authorities, it cannot be said that the assessee has concealed his particulars of income or has furnished inaccurate particulars of income in this respect - Hence the penalty levied by the A.O. and upheld by the learned CIT(A) for disallowance of provision for cash discount is deleted. Disallowance of provision for Executive Retirement Scheme – Held that:- The matter has been restored to the file of A.O. for deciding the issue afresh in the light of section 35DDA of the Act - the addition made by the A.O. and confirmed by the learned CIT(A) has already been set aside by the Tribunal and the matter has been restored to the file of A.O. for fresh adjudication, the very basis for levy of penalty has ceased to exist - the penalty imposed under the above head is ordered to be deleted. Disallowance for provision of bonus u/s 43B of the Act – Held that:- The decision in Commissioner of Income Tax Vs. Reliance Petroproducts (P.) Ltd. [2010 (3) TMI 80 - SUPREME COURT ] followed - merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, attract the penalty under section 271(1)(c) - if the view forwarded by the assessee can also be one of the possible views, then under such circumstances, even, if the assessee’s view did not go well with the authorities or because the assessee did not press the issue in the quantum appeal, that itself cannot be a ground for levy of penalty - In view of our observation above, the penalty imposed is set aside. Disallowance of deduction u/s 80-IB of the Act – Held that:- The levy of penalty for the matter in respect of which the disallowance has been upheld by the Tribunal - the matter which has been restored back to the file of A.O. for deciding the issue afresh, the very basis for the penalty has ceased exist - it is left to the AO to decide whether the penalty proceedings are to be initiated in view of the fresh assessment order pertaining to the matter in question – Decided partly in favour of Revenue.
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2014 (1) TMI 884
Disallowance of commission and directors remuneration - Held that:- The AO made disallowance because of the failure of assessee to provide the nature of services rendered by the payees - assessee had filed confirmation letters from six persons in which they had stated and confirmed that they had received commission on purchase orders - The Assessing Officer do not mention about these facts and there is no copies of such letters in the appeal papers - In view of conflicting statements by Assessing Officer and CIT (A), the matter may be looked again by Assessing Officer – matter remitted back to the AO for fresh adjudication. The AO made disallowance of 30% of remuneration paid to directors as excessive remuneration and in the absence of services proof of rendered by the directors – the Assessing Officer does not mention about the fact of income tax returns of the directors - this point should also be readjudicated by the Assessing Officer in the light of income tax returns of directors having been filed before him – Relying upon Assistant Commissioner of Income-tax, Circle 3(1), New Delhi Versus Bony Polymers (P.) Ltd. [2009 (11) TMI 658 - ITAT DELHI] - The Assessing Officer can compare the salary paid by assessee to its directors from their income tax returns and if the salary received from the assessee forms part of income of directors in their personal capacity, wherein, taxes has been paid, then he can arrive at the right conclusion – Decided in favour of Revenue.
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2014 (1) TMI 883
Recall of appeal – Rectification of error apparent on record - Denial of exemption u/s 54 of the Act - Cost of improvement incurred in the new house property – Held that:- The cost of purchases does include any capital expenditure incurred on the assesse on such property to make it liveable - As long as the costs are of such a nature as would be includible in the cost of construction in the normal course, even if the assessee has bought a readymade unit and incurred those costs after so purchasing the readymade unit – as per his taste and requirements, the costs so incurred will form integral part of the qualifying amount of investment in the house property - The use of words ‘purchased or construed’ does not mean that the property can either be purchased or constructed and not a combination of both the actions - A property may have been purchased as a readymade unit but that does not restricts the buyer from incurring any bonafide construction expenditure on improvisation or supplementary work - As long as the assessee has incurred the bonafide construction expenditure, even after purchasing the unit, the additional expenses so incurred would be eligible for qualifying investment under Section 54 - as the relevant factual verifications have not been carried out by any of the authorities below – it would be fit and proper to restore the matter to the Assessing Officer for fresh adjudication – Decided in favour of Assessee.
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2014 (1) TMI 882
Disallowance of depreciation on block of assets u/s 32 of the Act - Whether the assets used for the purpose of business or not - Held that:- To claim depreciation the assessee shall be the owner of the assets and put into use the assets during the relevant assessment year - The assessee itself has not carried out any business and no evidence has been placed that the assessee has carried on the business - The financial statement filed by the assessee for FY 2002-03 relevant to AY 2003-04 also shows no commercial activities and the Directors report also confirmed the same fact - Though the assessee owned the assets, it was not actually used and there is not even passive usage of the assets on which the assessee claimed depreciation - the order of the CIT(A) upheld for confirming the order of the Assessing Officer in disallowing loss including depreciation loss – Decided against Assessee.
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2014 (1) TMI 881
Disallowance u/s 36(1)(iii) of the Act – Held that:- There was no logic given by the authorities below as both the AO as well as CIT(A) has not given a finding as to how the assessee is required to capitalize the interest expenses - The reasoning far disallowance is self-contradictory - the disallowance made by the Assessing Officer and is not justified – the assessee has pointed out that it has sufficient interest free fund and this is not contradicted by the authorities below even before the Tribunal no material has been placed on record suggesting that the assessee was not having interest free funds available for such advances – The decision in Munjal Sales Corporation Versus Commissioner of Income Tax [2008 (2) TMI 19 - Supreme Court] followed - the Assessing Officer to delete the disallowance – Decided in favour of Assessee. Confirmation of depreciation interest on vehicle – Held that:- The terms "owned" "ownership" and "own" are generic terms - The meaning would depend on the context in which the term are used - the assessee has made submission that the cars were purchased in the name of the Director and such cars are utilized for the purposes of its business - the assessee would be entitled for the allowance depreciation as well as interest expenditure if the assessee is able to prove that the vehicles were under the dominion control of the assessee-company and were utilized for its business purpose - The contention of the assessee is that the vehicles were utilized for business purpose and the assessee-company has shown it in block of assets - this contention of the assessee is not considered by the authorities – Relying upon Mysore Minerals Ltd. Versus Commissioner of Income-Tax [1999 (9) TMI 1 - SUPREME Court] – Ao is directed to delete the addition – Decided in favour of Assessee.
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2014 (1) TMI 880
Disallowance on account of business promotion and entertainment expenses – Entitlement for Benefit of section 11 & 12 of the Act – Held that:-The two actions are mutually intrinsically exclusive and the disallowance need not necessarily lead to holding the assessee disentitled to the benefits of Sections 11 and 12 of the Act – Relying upon Assistant Commissioner of Income-tax, Circle -II, Faridabad Versus Idicula Trust Society [2012 (5) TMI 137 - ITAT DELHI] - if an assessee has extended any undue benefit to a person mentioned in Section 13 (3),that amount would not be considered as application of income for the purpose of fulfillment of objects of the Society and the benefit under Sections 11 and 12 would not be available of such amount - There is nothing on record to dispute the charitable nature of the assessee trust, as envisaged in its Trust Deed - The element of profit would not render such charitable nature otiose - there is no paradox in the findings recorded by the CIT (A) in firstly upholding the disallowance of business promotion and entertainment expenditure and then, holding the assessee entitled to the benefits of Sections 11 and 12 of the Act – Decided against Revenue. Disallowance of Advertisement expenses – Expenses incurred for commercial activities or not – Held that:- The object of the assessee trust is education - The expenditure in question has been incurred for inviting applications for the Hotel Management course and the Business Administration course, besides for the enhancement of the IMT brand name - the Assessing Officer observed that this expenditure indicated the commercial and non- charitable motive of the assessee, this observation formed the sole basis for the disallowance, without anything having been brought by the Assessing Officer on record as to how such expenditure was not in line with the object of the assessee trust – thus, there was no occasion for making any ad hoc disallowance – Decided against Revenue. Allowability of Exemption u/s 11/12 of the Act – Assessee not recognized in India – Held that:- As held in Delhi Music Society vs. DGIT [2011 (12) TMI 124 - DELHI HIGH COURT] – ‘education' does not mean schooling only and it is not confined to scholastic instruction only, but other forms of education are also included within its definition - The assessee has been show caused by the AICTE - the assessee's proposal for registration under the AICTE Regulations, 2005, stands considered by the Hearing Committee of the AICTE and the institution has been advised to submit the documents regarding the completion of the institutional building and other facilities as per the norms within six months' time - This combined with the fact that the application of the Trust is hitherto pending disposal with the AICTE, goes to show that nothing material hinges on the non-registration with the AICTE and the programmes conducted with the OBU are perfectly in order – Decided against Revenue.
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2014 (1) TMI 879
Nature of Expenses – Capital OR Revenue – Software expenses incurred – Held that:- In assessee’s own case it has been held that the software expenses incurred were in the nature of revenue expenditure - The CIT(Appeals) allowed the appeal filed by the assessee - No material has been brought on record or before us by the Revenue to show that the decision of the Tribunal is either modified or reversed by any higher Court – Decided against Revenue. Software expenditure - Deduction u/s 80HHC – Held that:- The assessee has acquired the licence to use the software and the licence is valid only for one year, it may be useful to the assessee for various functions like sales, finance, logistics operations and use of ERP system and it may confer certain benefits to the assessee but it cannot be said that there is enduring benefit to the assessee – The decision in CIT v. Raychem RPG Ltd. [2011 (7) TMI 953 - Bombay High Court ] followed - the expenses incurred by the assessee to acquire the software licence is of revenue expenses – Decided against Revenue.
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2014 (1) TMI 878
Disallowance u/s 36(1)(iii) of the Act – Notional interest disallowed – Held that:- In S.A.Builders V CIT [2006 (12) TMI 82 - SUPREME COURT] the principle laid down that where the amount has been advanced for commercial expediency of the person making the advances, then no disallowance is warranted u/s 36(1)(iii) of the Act – here, the assessee has failed to bring on record any evidence to show the commercial expediency in advancing the said amount to M/s Gian Residency Pvt. Ltd. – The decision in CIT V Abhishek Industries [2006 (8) TMI 123 - PUNJAB AND HARYANA High Court] followed - the disallowance u/s 36(1)(iii) of the Act in respect of the investment made with M/s Gian Residency Pvt. Ltd. upheld - Decided against Assessee. Disallowance of interest u/s 40(a)(ia) of the Act – Failure to deposit TDS – Deduction of TDS paid on unsecured loans - Held that:- The decision in CIT Vs. Sikander Khan N.Tunvar & Others [2013 (5) TMI 457 - GUJARAT HIGH COURT] followed - where the assessee has failed to deduct the tax at source and deposit the same within the specified period, the expenditure relatable to such deduction of tax at source would not be allowed as deduction, while computing the income of the assessee - the assessee was liable to deduct tax at source in respect of the interest paid to NBFCs and also interest paid on unsecured loans – the contention of the assessee that the disallowance of notional interest u/s 36(1)(ii) of the Act and the disallowance of interest in view of section 40(a)(ia) of the Act results in double addition cannot be accepted - The total interest expenditure claimed by the assessee was Rs.54 lacs, as against which addition u/s 36(1)(iii) of the Act has been made to the extent of Rs.34 lacs - The balance disallowance has been made by invoking the provisions of section 40(a)(ia) of the Act – Decided against Assessee. Disallowance of 1/10 of Expenses – Vehicle and telephone expenses – Held that:- The disallowance was rejected as the element of personal use cannot be ruled out – Decided against Assessee.
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2014 (1) TMI 877
Deletion made on account of Interest income – Held that:- The decision in B And A Plantations And Industries Ltd. Versus Commissioner Of Income-Tax [1999 (12) TMI 43 - GAUHATI High Court] followed - there is no provision in IT Act empowering the ITO to include in the in the income of the assessee, interest which was not due or collected – The AO should have examined the books of account and should have given specific finding that the assessee has charged more interest - there would have been any complication in the matter or the AO could not have examined the books of account, the proper course is provided in the Act for referring the matter for special audit - the AO did not examine the books of account in detail before arriving at the finding of charging of lower interest and also did not refer the matter for special audit - If the AO was of the view that the assessee has suppressed the interest, he should have given specific finding of fact and should have brought some material on record to justify his findings - even the book results of the assessee have not been rejected u/s.145(3) of the IT Act - the AO has merely estimated notional interest, which was not due or received by the assessee – Decided against Revenue.
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2014 (1) TMI 876
Addition on account of disallowance of expenses – Held that:- All the facts and figures appearing in the financial statements clearly show that the amount expenses of Rs. 8,17,7462/- were claimed by the assessee as regular business expenses incurred during the post survey period against regular business income which resulted in reduction of its regular business income which was estimated at Rs.1,42,00,000/- as on 15.03.2007 for advance tax purpose to that extent - the AO and the CIT(A) misconceived the claim of the assessee for the said expenses as that of against the additional income of Rs.15,00,000/- declared during the course of survey and made disallowance of the said expenses on the basis of this misconception without considering or examining the said claim on merit being the claim for regular business expenses of post survey period against regular business income – order set aside and the matter remitted back to the AO for fresh adjudication with a direction to consider and allow the claim of the assessee for the expenses as regular business expenses – Decided in favour of Assessee. Set off of brought forward business loss and unabsorbed depreciation – Application made u/s 154 of the Act – Held that:- The claim of the assessee for set off of brought forward loss and unabsorbed depreciation was not considered at all by the AO while framing the assessment - Since the AO has still not disposed of the application despite the specific direction given by the ld. CIT(A) – Thus, the AO is directed to dispose of the application filed by the assessee u/s 154 – Decided in favour of Assessee.
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2014 (1) TMI 875
Addition on account of unexplained gifts – Held that:- When the donor has no taxable income and was not filing any return of income, would clearly prove that he was not having sufficient means even to meet out the basic needs - there is no question of giving cash gift to the assessee in the assessment year - No evidence of having any savings in past have been filed - the assessee has no evidence to prove the creditworthiness of the donor and genuineness of the transaction in the matter - the assessee failed to prove all the basic ingredients of genuine gift in the matter - no sufficient evidences have been filed before the authorities to prove the genuine gift in the mater, it is clear that the gifts in the matter are not genuine and rather arranged affairs of the assessee. The assessee failed to prove the occasion of the gift and the creditworthiness of the donor - Genuineness of the gift is also not proved – The decision in CIT Vs Shri Durga Prasad More [1971 (8) TMI 17 - SUPREME Court] and Smt. Sumati Dayal Vs CIT [1995 (3) TMI 3 - SUPREME Court] followed - the assessee has failed to prove the genuine gift in the mater - it is a case of no evidence to prove creditworthiness of the creditor and genuineness of the gift – Decided against Assessee. Addition on account of unexplained cash – Held that:- The assessee has not filed copy of acknowledgement of filing of return of income for the assessment year 2006-07 to show the balance sheet if was filed with the revenue authorities along with the return of income - No evidence was furnished in this regard before the AO - there is no evidence to prove availability of cash in hand of ₹ 32,000 with the assessee as on 01.04.2006 - In the absence of any documentary evidence and that the claim is made for the first time at the assessment stage would clearly reveal that the explanation of the assessee is afterthought and concocted – Decided against Assessee. Addition towards household withdrawals – Held that:- There was no justification to sustain the addition - The AO has not given any basis as to how the household expenses shown by the assessee were not sufficient to meet out her day-to-day requirement - the AO was not justified in estimating the household expenses at a higher figure – Decided in favour of Assessee.
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2014 (1) TMI 874
Computation of book profits u/s 115J of the Act – Held that:- The assessee failed to comply with the directions and could not support and substantiate its claim on this issue by furnishing the relevant particulars and by justifying its claim on the basis of relevant provisions of the Act - Keeping in view this failure of the assessee to discharge the burden that lay on it to support and substantiate its claim by producing the relevant particulars and by referring to the relevant provisions of the Companies Act despite specific direction by the Tribunal – there was no justifiable reasons to interfere with the order of the CIT(A) confirming the computation of book profit made by the AO for the purpose of section 115J after rejecting the claim of the assessee for set off of unabsorbed depreciation and brought forward business loss – the order of the CIT(A) upheld – Decided against Assessee. Charging of Interest u/s 234B of the Act – Held that:- The decision in CIT vs. Kwality Biscuits Ltd. [2006 (4) TMI 121 - SUPREME Court] Snowcem India Ltd. vs. DCIT [2009 (1) TMI 6 - BOMBAY HIGH COURT] followed – order of the CIT(A) deleting the interest levied by the AO u/s 234B when the income was computed u/s.115J upheld – Decided against Revenue.
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2014 (1) TMI 873
Nature of expenses – Capital or Revenue expenses – Expenses incurred on purchase of software – Held that:- It is apparent that assessee had submitted complete information to Assessing Officer regarding software expenses claimed as revenue expenses and Assessing Officer after due application of mind had accepted the contentions of assessee - reopening after a period of four years without failure on the part of assessee was unjustified and illegal and therefore Ld CIT(A) has rightly held the assessment order as null and void - a number of payments has been made for purchase of software tools and amount ranged from Rs.10,000/- to Rs.75,000/- The number of entries for purchase of software tools is running into 170 - thus, the expenditure incurred by the assessee was revenue in nature – Decided against Revenue.
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2014 (1) TMI 872
Interest rate on ALP – Held that:- The decision in Siva Industries & Holdings Ltd. Versus Assistant Commissioner of Income-tax, Company Circle-VI(4), Chennai [2011 (5) TMI 451 - ITAT, CHENNAI] followed - LIBOR rate has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the Associated Enterprises – thus, no addition on this count is liable to be made in the hands of the assessee – Decided in favour of Assessee. Disallowance made u/s 14A r.w.8D of the Act – Held that:- The decision in Godrej & Boyce Mfg. Co. Ltd. [2010 (8) TMI 77 - BOMBAY HIGH COURT] followed - the provisions of rule 8D are applicable w.e.f. AY. 2008-09. prior to that, reasonable amount has to be deducted - The assessee has voluntarily made dis-allowance to the tune of Rs. 9,12,24,848/- on account of expenditure on interest - The assessee has not made any dis-allowance on management expenses in handling of portfolio - The assessee must have been incurring expenditure in managing portfolio of such a magnitude - the assessee must have spent Rs. 2 Crores in managing the investment portfolios - addition to the tune of Rs. 2 Crores is confirmed – Decided partly in favour of Assessee.
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2014 (1) TMI 871
Denial of depreciation on plant and machinery u/s 32 of the Act – Held that:- There is no benefit which the assessee derived from its sister-concern as a quid pro quo for allowing the user of such asset - The mere facts that the assessee utilized its funds or obtained a loan in its own name for acquiring the asset and also showed it in its books of account, would not change the consequence of the non- granting of depreciation in any manner when the essential fact prevails that the asset was, in fact, utilized by the sister concern for its own business purpose - It was candidly admitted that the return for the last year was processed u/s 143(1) in a summary manner and the case was not taken up for scrutiny assessment - the assessee is not entitled to depreciation as per law, the principle of consistency in the given circumstances cannot be followed as obviously there can be no estoppel against the provisions of the Act – Decided against Assessee. Addition made on account of difference in valuation of closing stock – Held that:- The invoices showing the sale of defective goods at a lower price in succeeding year were not placed before the AO - when the assessee is following 'Cost or market price whichever is less' as method for valuation, then the assessee cannot be compelled to value such stock at the cost price, if the market value of such stock is less - it is the market value which is required to be considered for determining the overall profit - it would be in the fitness of things if the order on this issue is set aside and the matter is remitted to the file of AO – Decided partly in favour of Asessee.
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2014 (1) TMI 870
Recall of order – Rectification of error apparent on record u/s 254 of the Act - Determination of the head of income – Held that:- The Tribunal had committed an error - An error apparent on the record means an error which strikes on mere looking and does not need a long drawn out process of reasoning on points on which there might be conceivably two opinions - by a long drawn process of reasoning assessee wants us to review the order dtd. 07.11.2012 - But it is not permissible as per the provisions of section 254(2) of the Act - under these provisions it is not permissible for the petitioner to contend that the appellate order was vitiated on the ground that the Tribunal failed to discuss all the contentions raised by counsel before it and to give reasons for coming to the conclusion which it did - If assessee finds an order defective on this ground, the remedy lay elsewhere and not by way of a Miscellaneous Application. The Tribunal is a creature of the statute and it is not been vested with the review jurisdiction - it does not have any power to review its orders – Relying upon Commissioner Of Income-Tax Versus Ramesh Electric And Trading Co. [1992 (11) TMI 32 - BOMBAY High Court] - the power of rectification available to the Tribunal u/s. 254(2) of the Act cannot be exercised on failure of the Tribunal to consider an argument advanced by either party for arriving at a conclusion ,because it is an error of judgment and not an error apparent on the record – The High Court has laid down guide lines and the boundaries of the rectification provisions – There is no mistake apparent on record – Decided partly in favour of Assessee.
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2014 (1) TMI 869
Nature of Income - Business income or Short term capital gain – Held that:- The AO has included the transactions carried out by the Portfolio Managers as the transactions entered into by the assessee – The stand taken by the AO and confirmed by the FAA is factual incorrect - Transactions done by the Portfolio Managers cannot be treated as business activities as held in the case of Income Tax officer 19(2)(1), Versus Radha Birju Patel [2010 (11) TMI 145 - ITAT MUMBAI] and ARA Trading & Investments (P.) Ltd. Versus Deputy Commissioner of Income-tax, Range 11(1), Pune [2009 (8) TMI 815 - ITAT PUNE ]. Assessee had not claimed the deduction of Rs. 14.74 lacs (Rs. 14,35,398-PMS Management fees and Rs. 39,303-PMS charges) while arriving at the capital gains in respect of shares dealt by the Portfolio Managers – the assessee had transacted only in thirty scrips resulting in STCG were is only fourteen scrips were treating by her resulting in LTCG, assessee had not borrowed any funds for making investments in shares thus if frequency of the shares holding period of the shares availability of borrowed funds, payments of interest on borrowed funds, shares sold by the Portfolio Managers and other similar facts are considered, it becomes clear that assessee was an investor only - in the category of STCG there are many scrips where assessee had invested in the initial public offer and the same were not purchased from the Stock Exchanges - the income arising out of the sale of shares should not be assessed as business income – Decided in favour of Assessee.
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2014 (1) TMI 868
Disallowance of expenses u/s 14A of the Act r.w Rule 8D of the Rules - Held that:- The Rule 8D of the Rules is not applicable to the assessment years i.e; AY 2006-07 as well as AY 2007-08 as Rule 8D is applicable with effect from assessment year 2008-09 and onwards as per the decision of the in the case of Godrej & Boyce Mfg Co Ltd Vs DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT]. The assessee has not made any disallowance on account of direct as well as indirect expenses on account of the investment made in the various mutual funds - The assessee has earned dividend income on the investments which is exempt under the provisions of the Act - the AO has to record his objective satisfaction that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditures in relation to income which does not form part of the total income of the assessee under the Act before he proceeds to make disallowance u/s 14A of the Act. For the purpose of making the investments in the various mutual funds and to keep a track of the dividend income received from them and also to manage the investments, the assessee needs not only an expert professional advise but to incur indirect and direct cost - The ld. CIT(A) has rightly stated that normally in managing similar schemes undertaken by Portfolio Managers, the total expenses charged by such Portfolio Managers are in the range of 2 to 3% which also includes their profit element of 1 to 1 ˝% - it will be fair and reasonable to consider the indirect/direct cost in relation thereto on an adhoc basis of Rs.1,50,000/- as against Rs.2,64,521/- considered by the CIT(A). The estimate of Rs.1,50,000 has been considered keeping in view the facts that the assessee has to use the services of its employees to maintain proper record of the investment, the receipt of dividend income from the mutual funds in the bank account, to follow up with the mutual funds where the assessee has made investment and also the other administrative expenses indirectly the assessee has to incur with regard to the said investments - the disallowance restricted on adhoc basis of Rs.1,50,000 u/s 14A of the Act relating to the assessment year 2006-07 – Decided partly in favour of Assessee.
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2014 (1) TMI 867
Treatment of Unabsorbed depreciation u/s 115JB(2) of the Act – Held that:- The Assessing Officer has categorically stated in his assessment order that the assessee has already claimed un-absorbed depreciation in the earlier AY and the same was allowed - The AR has not been able to controvert the categoric finding of Assessing Officer or give any plausible reason as to why un-absorbed depreciation was carried forward year after year despite the fact that the assessee has been filing return of income under MAT provisions for the earlier AYs - If un-absorbed depreciation has already been allowed in the earlier AYs, the unabsorbed depreciation in the subsequent AYs would be NIL as no amount of depreciation for the AY 2000-01 to 2005-06 is added in the figure of unabsorbed depreciation being carried forward from AY. 1999-2000 onwards – thus, the amount which could have been deducted in accordance with the provisions of Clause (iii) of Explanation 1 to Section 115JB is un- absorbed depreciation or un-absorbed business loss which ever is less, the amount of depreciation being less i.e., NIL is deductible for arriving at book profits for the AY. 2005-06 - the treatment given by the AO to unabsorbed depreciation while determining book profits u/s 115JB for the AY. 2005-06 accepted – Decided against Assessee.
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2014 (1) TMI 866
Computation of book profits u/s 115JB of the Act - Whether in computing the book profit u/s115JB the profit from joint venture, which are in the nature of AOPs of which the assessee is a member, should be included or excluded – Held that:- The share of income from joint venture has been included by the Assessee in their P&L account in their books of account - The only difference is that instead of including a single entry viz. assessee’s share of profits from joint venture, the assessee has included all the items of income and expenditure of the joint venture in proportion of their shares - This is the only a way of presentation of profits in the P&L Account - instead of single line entry showing share of profit from joint venture, the assessee’s share in all the entries of the joint venture are incorporated in the accounts of the assessee’s books - the result will be same and the net profit from the joint venture amounts to Rs.11,09,10,108 is included in the total profits as computed in the books - This is confirmed by the fact that in the memo of income the Assessee has excluded this amount from the total profits as per books on the ground that it is not taxable u/s 86 - the so called line-by-line inclusion of the joint venture accounts into the books of the company has resulted in the net profit of Rs.11,09,10,108/- from Joint ventures which forms part of the profit & loss of Rs.13,74,21,107/- computed in the P&L account of the assessee company. Profits to be Excluded or not - Whether profits from the Joint Ventures should be excluded in computing the Book Profits for the purpose of sec 115JB – Held that:- The share of profits of the Assessee from the Joint venture AOPs have been included in the P&L account in the Books – Relying upon APOLLO TYRES Vs. CIT [2002 (5) TMI 5 - SUPREME Court] - the only adjustment that can be made to the profits as per the P&L account is as per explanation to sec 115JB - None of the explanations provided for exclusion of share of profits from AOP on which tax is not payable by the memebrs of AOP - The share of income from an AOP is includible in the hands of the members of the AOP for taxation u/s 67A of the Act - But as per sec 86 of the Act, if the conditions are satisfied, then income tax shall not be payable by the Assessee in respect of his share of income of the Association of Person. The joint venture is in the nature of a firm and hence share of income should be excluded in computing book profits - However, no copy of return of income of Joint Venture brought on record to suggest that Joint Venture was assessed as a firm so as to exclude its income from the computation of book profit u/s 115JB of the Act – there was no merit in the argument of the counsel that the share of income of the joint venture should be excluded from the book profit of the assessee – Decided in favour of Revenue.
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2014 (1) TMI 865
Liability to deduct TDS u/s 194J of the Act – Payment made to Managing Director of the Company – Held that:- There was an oral agreement as on 01.02.2006 whereby the assessee agreed to pay Rs.5 crores to Shri G.N. Mohan Raju, for Shri G.N. Mohan Raju agreeing to offer 74% of economic interest in any new business initiative in the field of telecommunication, digital media and convergence that may be undertaken by digital media and convergence that may be undertaken by Shri G.N. Mohan Raju during his lifetime - the payments made by the assessee go to show that the oral agreement pleaded by the assessee is true - The assessee has credited Shri G.N. Mohan Raju in its books of accounts with regard to the liability of Rs.5 crores as on the date of oral agreement. The liability to deduct tax at source u/s. 194J of the Act will have to be tested as on the date of credit of the amount to the account of the payee and not on the date of payment because the date of credit in the books of accounts of the Assessee is earlier in point of time - the law as on 01.02.2006 as contained in section 194J of the Act has to be seen - prior to 13.07.2006, neither royalty or non-compete fee u/s. 28(va) of the Act was covered by the provisions of section 194J of the Act - there was no obligation to deduct tax at source u/s. 194J of the Act on the part of the assessee - payments made by the assessee were after 13.07.2006 cannot fasten any obligation on the part of the assessee u/s. 194J of the Act because the obligation arises only at the time of credit of sum to the account of the payee or at the time of payment, whichever is earlier - the provisions of section 194J were not applicable to the payment of Rs.5 crores made by the assessee – the orders passed by the revenue authorities treating the assessee as ‘assessee in default’ and also levying interest u/s. 201(1A) of the Act are found to be unsustainable and are cancelled – Decided in favour of Assessee.
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2014 (1) TMI 864
Deletion made on account of disallowance u/s 40(a)(ia) of the Act - Held that:- There is no contract between the assessee and the transporter and the section 194C is applicable to work contract - the clearing and forwarding contractor appoints for transportation of goods, and hence the only responsibility of the assessee was to make payment on receipts of goods - Relying upon CIT Vs United Rice Land Ltd [2008 (5) TMI 142 - PUNJAB AND HARYANA HIGH COURT] - in the absence of any documentary proof to establish that there is an agreement between the assessee and the transporter for carriage of goods, the order of the CIT(A) upheld – Decided against Revenue. Deletion made u/s 40(a)(ia) of the Act – Disallowance of cooli & cartage expenses – Held that:- CIT(A) has observed that these types of expenses are very petty in nature and incurred in the day-to-day running of any business, and that payments to labourers, who are usually illiterate and normally do not provide any bill or vouchers for the payment they receive - In a business, expenses of this type do happen in all regularity, which is a business necessity - there is nothing more has been brought on record by the Revenue - Decided against Revenue. Deletion made on account of disallowance of bad debts expenses u/s 36(1)(vii) of the Act - Held that:- CIT(A) allowed the claim of the assessee on the ground that the AO has accepted the fact that the bad debts was on account of advance for supply of raw-materials, and the party to whom the payment was being weak, the said bad debts became bad in nature - the assessee has succeeded in proving that the advances for the purpose of business and that the debt has been written off in the books of accounts – The decision in T.R.F. Ltd. Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] followed – Decided against Revenue. Deletion made on account of disallowance of interest expenses – Held that:- The rate of interest of 12% of borrowed funds should not have been considered as excessive - the assessee has satisfactorily explained the business exigencies for raising loan from other parties, and utilising the same wholly and exclusively for the purpose of business, and the rationale for keeping funds with the banks in the form of FDRs, which are valid points as a prudent businessman does normal course of business - the rate of interest @12% claimed by the assessee was too excessive or unreasonable, so as to prohibit the assessee from claiming the deduction in respect of loan taken from the relatives or for that matter, ‘specified persons’ - thus, the CIT(A) has justified in deleting the addition on account of disallowance of interest expenses by the AO – Decided against Revenue. Deletion made on account of disallowance of brokerage expenses – Held that:- The assessee has furnished before the AO the copies of sales register and other records to prove its case, as is evident from its reply and the observations of the CIT(A) - The assessee has also produced before us the copies of ledger account of brokerage expenses and bills and ledger account of parties - the addition was made only on assumption and hurried generalisation of the fact and observed that appellant has duly discharged his burden - The Revenue has not brought any material to convince us that the expenditure was not genuine or reasonable for the business purpose - the assessee has established with explanations and the accounts that the claim of the assessee is genuine and reasonable – thus, CIT(A) is justified in deleting the disallowance made by the AO – Decided against Revenue.
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2014 (1) TMI 863
Disallowance of expenses – expenses treated as being capital nature – Held that:- For expenses pertaining to Tennis hard court to tennis Clay Court, Dholpur planter for banquets these are not brining any enduring benefit or enhancement of capacity of hotel in any manner - the assessee is operating five star hotels, these expenses have been made to meet the requirement of efficiency and good service to the guests by a star hotel which do not bring any enduring benefit or enhancement of capacity in any manner to the assessee - Expenditure related to automatic door, installation of Milnor, water exterior, mobile radio and DVD players, these expenses also need to be tested in the light of the fact that these expenditures have been made by the assessee to maintain harmony and efficiency in the service of guest. The additions made are revenue in nature because these expenditures are not bringing any enduring benefit or enhancement of earning capacity of the assessee- The authorities below ignored a basic fact that the assessee is operating Five Star Hotel and it is bound to maintain good ambience and dignity of the hotel and to enable to the system which could provide efficiency and hassle free services to the guests of the hotel – thus, the expenses are revenue in nature – Decided in favour of Assessee. Disallowance on account of donation made – Deduction u/s 80G of the Axt – Held that:- No documentary evidence was produced before the authorities below to substantiate the claim u/s 80G of the Act pertaining to donation made by the assessee – thus, the order of the CIT(A) sustained - Decided against Assessee.
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2014 (1) TMI 862
Claim of deduction u/s 10A of the Act – Held that:- The decision in CIT & Anr. Vs. Yokogawa India Ltd. and Others [2011 (8) TMI 845 - Karnataka High Court ] followed - The assessee is eligible to claim deduction under Section 10A without setting of losses suffered by other units and there is nothing that stops the assessee from claiming set off on the balance profits which remained after the claim of deduction – Decided in favour of Assessee. TDS credit not given – Credit available to amalgamating company- Held that:- Assessing Officer has no way to verify whether the tax credit claimed has been properly made and paid - Assessing Officer has also no way to verify whether the amalgamating company had claimed credit for such amount after filing a tax return – the assessee ought have moved Hon'ble jurisdictional High Court for effective directions in this regard for carrying out the scheme of amalgamation, to the logical conclusion - Assessee having not done that, cannot require the Assessing Officer to give credit for a sum which has not been proved by it as remitted to the Treasury by the deductors – As the matter requires a fresh look by the Assessing Officer the same is remitted back – Decided in favour of Assessee.
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2014 (1) TMI 861
Power of Revision u/s 263 of the Act - Deduction u/s 10A of the Act wrongly allowed – Held that:- The assessment order passed by the AO is a cryptic one and it did not contain any discussion on the issues that were revised by the CIT u/s 263 of the Act - relying upon CIT Vs. Toyota Motor Corporation [2008 (4) TMI 231 - DELHI HIGH COURT] - the issue of deduction u/s 10A has been decided in favour of the assessee, yet the revision order passed by CIT is liable to sustained, since the AO did not make enquiry on the issue and further there is no discussion about the same in the assessment order. Depreciation on vehicle – Vehicle running on hire was allowed @ 40% as against 25% allowable – Held that:- There was no discussion in respect of this issue in the assessment order - the assessee did not make any submissions on this issue before the CIT – there is no reason to interfere with the order of the CIT on this issue – Decided against Assessee.
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2014 (1) TMI 860
Addition made u/s 68 of the Act - Unexplained deposits in bank – Held that:- The assessee has given the details of efforts taken by her to obtain a confirmation letter from the purchaser of the property - The son of the purchaser has confirmed the payment details - The particulars of the purchaser including his Permanent Account number were furnished to the Assessing officer - no effort was taken from the side of the AO to examine the veracity of the claim made by the assessee - The assessee, being the seller, cannot be expected to have control over the purchaser of the property after the completion of the sale transaction - Thus, the assessee has done all that she could do - there is no reason to suspect the claim of receipt of sale consideration at Rs.33.50 lakhs - the assessee has discharged the primary onus placed upon her under section 68 of the Act - the order of CIT(A) set aside and the assessing officer is directed to adopt the sale consideration as Rs.33.50 lakhs – Decided in favour of Assessee.
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2014 (1) TMI 859
Deletion of addition made on accrual basis – Project completion method or percentage completion method – Held that:- The assessee-company is a builder engaged in construction and sale of immovable property and not carrying out construction contract on behalf of others has not been disputed by the revenue - the CIT(A) has rightly held that revised accounting standard AS-7 issued by ICAI is not applicable to the facts of the assessee-company – the CIT(A) has given relief to the assessee as he found that assessee has shown the income in the years in which sales deeds were executed by him i.e. in A.Y. 2008-09 and 2009-10 by holding that additions made in the years under appeal by way of an estimated profit on work in progress were unwarranted – there was no infirmity in the order of CIT(A) because in case the additions made by AO in the years is confirmed, it will amount to double taxation in the hands of assessee-company – Decided against Revenue.
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2014 (1) TMI 858
Deletion made on account of investment – Acquisition of unquoted shares – Held that:- There is no evidence for backing up the rate of land and the cost of construction in the earlier valuation report - The cost of construction worked out by the valuer in the valuation report comes nearer to the cost of construction declared by M/s. Superior Builders Limited in its audited books of account - There is no material on record which could show that there has been any unaccounted investment in the construction of the building – there was no ground for rejecting the amount of expenditure debited in the regular course for the construction of the building - In the absence of any corroborative and incriminating documents, any third party material cannot be made basis for making the addition - The burden casted on the revenue cannot be said to be discharged merely on relying on the valuation report prepared for a different purpose obtained by issuing notice u/s 133(6) of the Income- tax Act - There must have been some material which could establish that there has been unaccounted transaction for acquiring the share – Decided against Revenue.
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2014 (1) TMI 857
Reference u/s 55A of the Act made to DVO for valuation - Assessee contended that the valuation to be made as the cost in the hands of previous owner – Scope of post amended Section 55A of the Act – Held that:- In order to maintain consistency, the AO ought not to have referred the matter to the Valuation Officer without verifying as to what was the stand taken by the Revenue in the case of other co-owners - the AO nowhere stated as to whether he has made any investigation with regard to the other co- owners' cases - the assessee's case is supported by Registered Valuer's report - The AO cannot be treated as an expert in the field of valuation and though it may not be necessary for him to give detailed account of the reasons for coming to the conclusion that it is a fit case for reference to the Valuation Officer but he ought to have appreciated that in the case of a jointly held asset singling out one co-owner without even bothering as to what has happened in other co-owners' cases would definitely lead to arbitrariness - rule of consistency ought to have been followed by the AO - no action has been taken in the hands of the other co-owners, it is not a fit case for reference to the Valuation Officer - Decided in favour of Assessee.
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2014 (1) TMI 856
Penalty levied u/s 271(1)(c) of the Act – Held that:- The addition u/s 68 of the Act was made by the Assessing Officer when the assessee himself offered to include the amount in his total income and consented to pay the tax - Another addition of Rs. 1 lakh was also made when the assessee voluntarily preferred to include Rs.1 lakh to his total income – The decision in National Textile vs Commissioner of Income Tax [2000 (10) TMI 19 - GUJARAT High Court] followed - The assessee consented to pay tax to avoid further litigation and to buy mental peace and instead of offering further explanation, the assessee voluntarily surrendered before the tax authorities and paid the tax imposed by the Assessing Officer in regard to the addition - In absence of further appeal to the Commissioner of Income Tax(A) or to the Tribunal, the quantum assessment order has reached to its finality but the assessment order is not conclusive evidence that the amount assessed was in fact the income of the assessee and it cannot be presumed that there was a conscious concealment or act of furnishing of inaccurate particulars by the assessee – Decided in favour of Assessee.
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2014 (1) TMI 855
Capital gains to be taxable in whose hands – Exemption u/s 54F - Revenue was of the view that after selling of the property, the property would be considered in the hands of HUF – Held that:- The assessee had himself returned capital gains in his individual return and claimed exemption under section 54F of the Act - assessee had made certain claims for sale and acquisition for assessment year 2005-06 as well as assessment year 2006-07 - the matter requires fresh look by the Assessing Officer - Assessing Officer has to verify whether the claim of assessee that the property belonged to HUF and whether the new investments made satisfied the conditions set out in Section 54F of the Act, before allowing the claim - Assessing Officer has to look into the veracity of the declaration made by the assessee throwing his personal property into the common hotchpotch of the HUF of which assessee was the kartha - Assessing Officer has to verify whether the returns of the HUF were filed before or after the filing of the individual return – Matter remitted back to the Ao for fresh adjudication – Decided in favour of Revenue.
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2014 (1) TMI 854
Addition made on account of sundry debtor/receivable not taken into account - Appeal partly allowed – Income to be assessed at 8% NP – Held that:- The assessee has not provided the books of accounts and vouchers and also not produced the confirmations of balances of creditors / as well as debtors - Assessing Officer has made certain additions by picking up certain figures from the assessee's balance sheet and profit and loss account - The basis of addition as observed by the Ld. Commissioner of Income Tax (A) is not coherent - the individual addition made by the Assessing Officer are on estimate basis and cannot be sustained – the Assessing Officer should have applied the provision of section 144 of the Act and should have restored to best judgement assessment - Assessing Officer is directed to assess the income of the assessee using 8% NP which would substitute all the additions made by the Assessing Officer – Decided against Revenue.
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2014 (1) TMI 853
Levy of MAT u/s 115JB of the Act - Whether the provisions made for doubtful loans and advances can be added back or not while ascertaining the book profit for the purpose of levy of MAT u/s 115JB of the Act – Held that:- The decision in ASSTT COMMISSIONER OF INCOME TAX Versus M/s ESSAR STEEL LTD [2012 (7) TMI 123 - ITAT MUMBAI] followed - Section 115JB of the Act provides for levy of MAT on the basis of book profit of the company - As per Explanation (1), after sub-section (2), the expression "book profit" means net profit as shown in the profit and loss account in previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 as increased or reduced by certain adjustments, as specified in that section - the amendment made by inserting a new clause (i) in Explanation (1) to Sub-section (2) of Section 115JB will apply in relation to from the assessment year 2001-02 and for subsequent assessment years while computing book profit for levy of Minimum Alternate Tax - order of the CIT(A) set aside - decided in favour of Revenue.
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2014 (1) TMI 852
ALP - Selection of comparables - Computation of difference in PLI (Profit Level Indicator) – Held that:- It is very clear from the computation of the assessee that the provision for outstanding derivative contracts was already added back in computing the total income of the assessee – Thus, the further addition made by the Assessing Officer has resulted in duplication - the addition of Rs. 60 lakhs is to be deleted. Non consideration of extra-ordinary items – Held that:- The TPO ought to have considered the extra-ordinary items while finalizing the Arm's Length Price (ALP) computation - proper weightage has to be given for all these extra-ordinary items explained by the assessee before the TPO - there will be no operating profit available for making ALP adjustment when the extra-ordinary items are given due treatment - nothing will be remained to make any addition by way of ALP adjustment - the order for entire ALP adjustment made by the assessing authority set aside – Decided in favour of Assessee.
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2014 (1) TMI 851
Deletion of demand made u/s 201(1)/201(1A) of the Act Exemption u/s 194A(3)(iii)(f) of the Act Eligibility for Exemption Separate application to be made - Revenue was of the view that the assessee is in default for not deducting tax at source u/s 194A(3) on interest paid / credited to societies Held that:- There is no requirement for issuing individual instructions by the Central Govt. because clause (f) talks about particular types of institutions - The reason for this is that Govt. might have decided that wherever various funds are being provided to various societies or trusts for specified schemes, that since funds belong to the Govt. and can be used only for the purpose of a particular project, there was no reason to deduct the tax because such Societies are being funded by the Govt. on 100% basis - Societies which are being wholly funded by the Govt. would qualify for non-deduction of tax the Societies are not wholly financed by the Central Govt Decided against Revenue.
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2014 (1) TMI 850
Disallowance of deduction u/s 40a(ia) of the Act – TDS on Live telecast Royalty u/s 194J - Held that:- The decision in DIT v. Neo Sports Broadcast (P) Ltd. [2011 (11) TMI 23 - ITAT MUMBAI] Followed - The question of granting exclusive right to do any work can arise only when such work has come into existence - the existence of work is a pre-condition and must precede the granting of exclusive right for doing of such work - As the meaning of copyright u/s 14 in the context of cinematograph film clearly refers to make a copy of the film and not its original recording obviously the broadcast of live telecast cannot be equated with the copy right of such film - There is no creation of any work as income is generated from betting on the basis of live telecast and the same was being shared on reciprocal basis and cannot be termed as royalty under the Act and therefore was not liable for tax deduction at source and consequent disallowance u/s 40a(ia) of the Act – Decided in favour of Assessee.
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2014 (1) TMI 849
Power of Revision u/s 263 of the Act - Allowability of broken period interest – Held that:- Although the disallowance on account of broken period interest relating to securities bought in the year under consideration but held in the stock as on 31-3-2008 was required to be disallowed, the interest accrued but not due having been added to the income of the assessee - the disallowance on account of broken period interest was not required to be made – Relying upon American Express International Banking Corporation Versus Commissioner Of Income-Tax. [2002 (9) TMI 96 - BOMBAY High Court] - when the broken period interest received is taxed in the hands of the assessee, the interest for broken period paid by the assessee cannot be disallowed. A sound and convincing basis thus was given by the A.O. to justify the addition made on account of disallowance of broken period interest on protective basis - There was no error in the orders of the A.O. passed u/s 143(3) of the Act for both the years under consideration on this issue as alleged by the ld. CIT calling for any revision u/s 263 of the Act - orders of the CIT passed u/s 263 of the Act for assessment years 2008-09 and 2009-10 set aside and the matter restored to the AO passed u/s 143(3) of the Act – Decided in favour of Assessee.
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2014 (1) TMI 848
Deletion made u/s 56(2)(vi) of the Act – Scope of Section 56(2)(vi) of the Act - Amount received was having consideration or not – Held that:- The divorce agreement was though entered in 1989-90 and monthly payments were promised to be paid to the assessee by husband – but he did not pay the same – the amount was paid by way of alimony only because they were husband and wife and appellant was spouse of the person who has paid the amount and, therefore, payment received from spouse did fall within the definition of relative - the amount was received against consideration of relinquishing her personal right of claiming monthly payments as provided under the divorce agreement. The assessee was to receive monthly alimony which was to be taxable in the each year from conclusion of divorce agreement but in this case monthly payments were not received and, therefore, were not offered tax - The receipt by the assessee represents accumulated monthly installments of alimony which has been received by the assessee as a consideration for relinquishing all her past and future claims - there was sufficient consideration in getting this amount - thus, section 56(2) (vi) is not applicable – the amount was a capital receipt not liable to tax – Decided against Revenue.
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2014 (1) TMI 847
Revision u/s 263 of the Act - The order of the CIT u/s. 263 of the Act does not anywhere show as to what is the specific error that the AO has committed when granting the assessee the deduction u/s. 80IA(4) of the Act - the AO has chosen one of the two views in respect of the claim of deduction u/s. 80IA(4) of the Act - the order passed u/s 263 of the Act is not sustainable in law - Relying upon Ranka Jewellers Vs. Addl. CIT [2010 (3) TMI 544 - BOMBAY HIGH COURT] – order set aside. Deduction u/s 80IA(4) of the Act – Held that:- The AO was right in law in granting the assessee the benefit of deduction u/s. 80IA(4) of the Act - the CIT's order passed u/s. 263 of the Act is unsustainable and is liable to be quashed - the explanation to section 80IA(4) of the Act which has been substituted by the Finance, Act, 2009 with retrospective effect of 01.04.2000 is attempting to take away the statutory benefit granted to the assessee u/s. 80IA(4) of the Act without making any amendment to the explanation to section 80IA(4) of the Act, the said explanation substituted by the Finance Act, 2009 w.e.f. 01.04.2000 being an hindrance to the statutory deduction available to the assessee under the provisions of section 80IA(4) - Decided in favour of Assessee.
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2014 (1) TMI 846
Nature of Income – Income for investment in share and house property – Held that:- Short term capital gain declared by the assessee in respect of share transaction has to be assessed as business income - The assessee has pointed out that the holding period in respect of transactions in shares of Logix Micro has been wrongly taken as less than one year - The shares were held for about two years and therefore, income in respect of these shares has to be assessed as long term capital gain - if the shares have been held for more than a year, it will clearly indicate investment activity – gain declared by the assessee has to be accepted as long term capital gain – Relying upon Jignesh Indulal Patel vs. ITO [2012 (12) TMI 335 - ITAT MUMBAI] – Thus, gain earned by the assessee from sale of shares which have been held by the assessee for more than a year has to be accepted as long term capital gain – matter restore to the file of AO for verification – Decided partly in favour of Assessee.
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2014 (1) TMI 845
Deletion of disallowance made on account of restriction of claim of waste/scrap & loss – Melting process involved in the manufacture or not – Held that:- The Assessing Officer has rejected the book results of the Assessee mainly for the reason that the Assessee did not produce the prescribed cost records though it was mandatorily required to maintain the same - From the covering letter addressed to the Assessing Officer by the Assessee it is seen that the Assessee had furnished the details called for by the Assessing Officer - CIT(A) has also noted that all the relevant records in respect of scrap generation and burning loss, daily production records, Excise record along with month wise summary of consumption, production data was furnished before Assessing Officer but the Assessing Officer could not find any discrepancy in the details submitted by the Assessee. Even the scrap percentage and process loss percentage are comparable with the earlier years - the Assessee had produced excise record and production record for verification before Assessing Officer and before him - Assessing Officer has not pinpointed any specific defect in the books of account of the Assessee – thus, CIT(A) was justified in holding that there was no basis for the Assessing Officer to reject the waste/scrap claimed by the Assessee and estimate the generation of scrap at 5% of material consumed and production loss at 1% of the total production - The Assessee had failed to produce cost records which it was statutorily required to maintain but the same was neither produced before Assessing Officer or CIT(A) though the Assessee claims that the various records prescribed have been maintained by it - The Assessee has not given any valid justification for not producing the aforesaid records for verification though it claimed to have maintained the same – Decided partly in favour of Assessee.
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2014 (1) TMI 844
Disallowance of expenses u/s 14A read with Rule 8D of the Act – Disallowance of interest and administrative expenditure - Held that:- The AO cannot invoke the provisions of Rule 8D until and unless, he gives a specific and cogent reasons which would accord his satisfaction, that the accounts cannot be relied upon - There was no basis or satisfaction having been recorded by the AO - The AO has nowhere made any reference with regard to the claim of the assessee, concerning expenses, having direct nexus with the exempt income – order of the CIT(A) set aside and the matter remitted back to the AO for deletion of disallowance worked out in accordance with the provisions of section 14A(2) read with Rule 8D – Decided in favour of Assessee.
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2014 (1) TMI 843
Addition made u/s 69 of the Act – Unexplained Investment – Held that:- It is beyond the purview of the lower authorities to suspect a transaction solely on the ground of adequacy/ inadequacy of consideration in the absence of any other corroborating evidence and thereby making any adverse inferences - the value as adopted by AO is based on the valuation determined by the stamp duty authorities while registering the agreement dated 07.10.2005 - The authorities below have done/confirmed the addition without bringing any positive material to hold that the investment in the flat in Ramgiri Paradise is made by the assessee out of his unexplained income - Mere suspicion without evidence on record cannot be basis for making an addition to income u/s 69 of the Act - The addition is entirely on a presumptive basis which is purely based on surmises - Thus, the addiction u/s 69 could not be made – Decided in favour of Assessee. Addition made u/s 68 of the Act – Unexplained cash credits – Bank deposits made – Held that:- During the assessment proceedings, the assessee has replied the query regarding source/explanation in respect of cash credits - By simply recording that the explanation given by the assessee is not acceptable as no corroborative evidence has been furnished to substantiate his claim, the addition is made by the AO – order set aside and the matter remitted back to the AO for fresh consideration – Decided in faovur of Assessee.
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2014 (1) TMI 842
Disallowance made u/s 37 of the Act - Liquidated damages charged by Government of India on account of delay in supply of vaccines – Held that:- There was an agreement between the assessee and Govt.of India for supply of medicines - assessee had written off liquidated damage as per the terms and conditions of the agreement - payment of liquidated damage has to be allowed – Relying Sardar Prit Inder Singh Versus Commissioner Of Income-Tax [1985 (7) TMI 35 - PATNA High Court] - damages for delay in supply and for supply of articles of inferior quality was not a penalty for infraction of law hence same was deductible and business expenditure - amounts paid to Government as penalty and damages for delay in execution of contracts was a deductible item - the order of the FAA reversed – Decided in favour of Assessee. Disallowance of amounts written off as irrecoverable u/s 37 of the Act - Advance given to Government departments – Held that:- FAA has given a categorical finding of fact that no details of departments except for of the PWD Department were furnished - in view of lack of proof that as to when and to whom these advances were given same could not be allowed u/s.37 or 36(1)(vii)of the Act - The order of the FAA does not suffer from any infirmity - In absence of details of expenditure claimed by the assessee he has rightly disallowed the claim of the assessee – Decided against Assessee.
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2014 (1) TMI 841
Disallowance of Interest under Explanation-8 of Section 43(1) of the Act - Purchase of brand name and trade marks – Held that:- In the order of CIT it is not clear as to whether interest had been paid till the date of acquisition of the asset or thereafter - Both the parties agreed that the issue may be restored to file of AO for fresh decision after necessary examination – order of the CIT(A) Set aside and the matter remitted back to the AO for fresh consideration – Decided in favour of Assessee. Book adjustments u/s 115JB - Addition of provision created for advertisement and sales promotion and distribution expenses – Held that:- Under the provisions of Explanation (c) of section 115JB(2), provision for meeting any liability, other than ascertained liabilities is required to be added to the book profit - The reason behind such provision is that while computing total income, only expenditure incurred towards ascertained liability whether by way of provision or otherwise is allowable as deduction – thus provision has been made in section 115JB to add back any amount of provision created for liabilities other than ascertained liabilities - the assessee itself found the ascertained liability for the year at Rs.5.25 crores and added back the balance amount of Rs.7.19 crores, in the same year it clearly shows that the provision to that extent was not towards ascertained liabilities - The CIT therefore was correct in directing the Assessing Officer to add Rs.7.19 crores to the book profit under the provisions of Explanation (c) of section 115JB(2) – Decided against Assessee.
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2014 (1) TMI 840
Disallowance of Bad debts – Allowability u/s 36(1)(vii) of the Act – Held that:- The appellant wrote off the date after the cheque issued by the said debtor was dishonored by the bank - considering the financial crises faced by the client and also to get the best out of the financial crises faced by the client, the appellant had to settle the sum of .43 lacs and balance is.21,11,238/- had to be written off as balance despite best efforts – Following DCIT Versus Shreyas S. Morakhia[2010 (7) TMI 455 - ITAT MUMBAI ] – Disallowance in respect of bad debts allowed – Decided against Revenue.
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2014 (1) TMI 839
Additions made on ground of presumptions - Addition of Investments made in earlier years – Addition on account of expenses – Held that:- Both the additions made by the AO which is confirmed by the learned CIT(A) are merely on presumption and assumption basis - There is no evidence either before the AO or before the CIT(A) to hold that the assessee has paid any commission or earned any commission on account of investment made during the year or investment received during the year – Thus, without any material on any information, estimation of commission income was without any basis - Again the expenses is on presumption basis, neither there was any material nor any information that the assessee is indulged in incurring bogus expenses - Merely on rejection of books of accounts, no addition can be made, if there is no basis or material – Decided in favour of Assessee.
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2014 (1) TMI 838
Addition made over and above the declared income – Addition made u/s 68 of the Act – Genuineness of the transaction – power of CIT(A) to enhance the income - Held that:- The cash availability with the firm was not to be doubted insofar as the source from where the cash was obtained was verified by the Assessing Officer when part of capital contribution was acceptable to the Assessing Officer to the extent of Rs.9.5 lakhs on the basis of identifying the loan creditors being another firm which was also partly on the basis of amount belonging to the said partner Shri Anil Kumar Chaudhury - this addition has been misinterpreted by the CIT(A) for confirming the addition on the basis of availability of cash in the hands of the firm which case was the introduction by the said partner on the availability of loan from the partner's wife and M/s.Aura Agency , another firm which the Assessing Officer had already verified – Decided in favour of Assessee. The cause for issue of notice u/s.251(2) for enhancing income in the light the CIT(A)having verified the cash book produced by the assessee to explain the payment of cash to the outgoing partners against their capital - there was never an occasion of incurring expenses without adequate cash balance was brought to the notice of the learned CIT(A) who held that this expenditure has been made out of undisclosed holding of cash be taxed in the hands of the assessee. Confirmation of excess income – Held that:- A reconciliation has been made not on hypothetical figure but the actual figures which are to be verified and it was not the case of the Assessing Officer that the credit for TDS claimed by the assessee was in accordance with the reconciliation which he accepted and that alone resulted in accepting the fact that the assessee had disclosed more receipts then were to be taxed not in accordance with the reconciliation - no income which has already been accepted to be taxed by the Assessing Officer can again be brought to tax merely because the assessee stands to gain for claiming reduction when the reconciliation is acceptable to the Assessing Officer – Decided in favour of Assessee.
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2014 (1) TMI 837
Admissibility of Interest 244A of the Act – Refund on tax payment – Held that:- The decision in CIT Vs Cholamandalam Investment & Finance Co. Ltd. [2007 (6) TMI 69 - HIGH COURT , MADRAS] and Sandvik Asia Ltd. v. CIT [2006 (1) TMI 55 - SUPREME Court] followed - The object behind the insertion of section 244A, is that an assessee is entitled to payment of interest for money remaining with the Government which would be ordered to be refunded - when the amount is ordered to be refunded the interest is to be calculated from the date of such payment of tax - how the Department has understood the section coupled with the fact that the principle underlying the said section is that, any excess payment of tax paid by the assessee is not only to be refunded but it has to be refunded with interest, if the case of the assessee does not fall under clause (a) or the Explanation to clause (b), the excess tax paid shall be refunded with interest from the date of payment of such tax - the AO is directed to allow interest u/s. 244A from the date of the payment of tax – Decided in favour of Assessee.
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2014 (1) TMI 836
Addition made u/s 68 of the Act – Unexplained cash credit – Sundry creditors on account of paddy procurement – Held that:- Though the AO has issued summons to four persons only two of them had appeared - Once the sundry creditor has been identified by the assessee and he has responded to the notice issued by the AO u/s. 131 of the Act and he has specifically confirmed the transaction with the assessee and the transactions are also substantially through their bank accounts, it cannot be said that the balance as standing in the account of the sundry creditor with whom the assessee is having the business transactions is not genuine - the addition made by the AO in respect of the sundry creditors Shri P. C. Giri and Shri Sudhanshu Sekhar is unsustainable as the assessee has discharged his onus for proving the transaction of the sundry creditor and no evidence whatsoever has been found to dislodge the evidence as produced by the assessee and the confirmation as given by the said two sundry creditors. The two sundry creditors were out of station when the notices had been issued by the AO and the assessee would be able to produce the said two sundry creditors before the AO for examination - the issue in respect of the sundry creditors Shri Atul Kr. Jena and Shri Gouri Shankar Nayak is liable to be restored to the file of the AO for readjudication – Decided partly in favour of Assessee - the appeal of the assessee has been disposed of the assessee has withdrawn its stay petition – Decided partly in favour of Assessee.
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2014 (1) TMI 835
Deletion of undisclosed investment in fixed deposits – Held that:- All the transactions are duly transacted through the disclosed bank accounts of the appellant firm, merely for the reason that there was a mistake in making entries, a disclosed investment cannot be treated as undisclosed - The CIT(A) has gone into the details of bank account maintained with Indian Overseas Bank and also noticed that the amount of Rs.20 lakhs was withdrawn by cheque and given to bank for making FDR - This is an explained FDR and in no way it can be stated that this is unexplained - The main ground of Revenue is that ledger account was not filed before the AO or no opportunity was allowed to the AO by the CIT(A) – there was no infirmity in the order of the CIT(A) – Decided against Revenue.
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2014 (1) TMI 834
Validity of Assessment u/s 144 of the Act – Held that:- There was no defect in the books of account resulting in the very Financial Statements which book results could not be rejected for a separate estimation alone - The assessing authorities themselves have contradicted their findings inspite of the assessee claiming in the immediately preceding Assessment Year the Assessing Officer had accepted 1% to be taxed insofar as the learned CIT(A) in those years had directed the Assessing Officer to adopt 1% income on the gross lorry receipts of the assessee - there was no reason to divert from the consistent adoption of 1% of the gross receipts to be taxed in the hands of the assessee on the basis of book results insofar as the return of 1% income also includes the extra income generated by the assessee on the hiring of the tipper which has been restricted by the learned CIT(A) to 5% as against 24% returned. The Assessing Officer is directed to compute the total receipts income at 1% of the gross freight receipts plus receipts of tipper hiring and also to accept the income returned by the assessee disclosed in the audited Financial Statements for which there can be no separate addition insofar as the disallowance of salary and interest to the partners was not on the basis of assessee not to be subjected to assessment order being passed u/s.144 - The income from interest is to be taxed as returned by the assessee – Decided partly in favour of Assessee.
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2014 (1) TMI 833
Deduction allowed u/s 36(1)(viia) of the Act – Co-operative Bank registered under Co-operative Societies Act - rural branch - Held that:- There is no reason to interfere with the finding of CIT (A) - the AO has not examined the provisions of section 36(1)(viia) completely neither explanation added to it which was considered by CIT (A) – the assessee falls under section 5C of the Banking Regulations Act, 1949 is a non-scheduled bank - assessee is a non-scheduled bank then as per provisions, deduction has to be allowed - The AO himself has allowed 75% of the deduction - he disallowed 10% further deduction which was allowable to the non-scheduled bank and scheduled bank - The assessee operated through rural branch which is a branch of scheduled bank or non-scheduled bank situated in a place which has a population of 10,000 which is not in dispute - The CIT (A) has ascertained the calculation of deduction claimed under section 36(1)(viia) of the advances given by its rural branch in Jamwa Ramgarh – Decided against Revenue.
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2014 (1) TMI 832
Error in directing AO for estimation of the income – Held that:- As decided in assessee’s own case in the previous years, the ITAT has estimated the profits of the Assessee @ 9% on own contract works, 8% on contracts taken by assessee on subcontracts and @ 5% on contracts given by the assessee to 3rd party on subcontracts - This estimate according to ITAT is before allowing remuneration, interest on capital and depreciation and hence ITAT directed that these amounts should be reduced out of the estimated income - Estimate of income may vary from case to case - The estimate may be gross profits after which other expenditure may be allowed or the estimate may of the net income after all the expenditure - their estimate of income as a percentage of Gross receipts is prior to allowance of depreciation, interest on capital and remuneration. The circumstances this year being identical as the earlier year and as Department has not brought anything on record to persuade us to take a different view - the order of the CIT(A) upheld regarding the rate of profits to be adopted on the gross receipts and a further allowance of remuneration, interest on capital and depreciation – Decided against Revenue. Depreciation u/s 32 of the Act – Held that:- It falls under the provision of section 30 to 38 and be deemed to have been already given full effect while estimating the income of the assessee - thus, with respect to depreciation, the ground of appeal raised by the Revenue is allowed – Decided partly in favour of Revenue. Deletion made appearing as liability – Held that:- The expenditure were of the nature claimed by the Assessee has been kept in mind for determining the estimated profits from business, none of the individual expenditure can be considered as having been allowed in computing the taxable income - In fact the books of the Assessee has been rejected and the profits have been estimated as a percentage of the gross receipts - the basic precondition for application of sec 41(1), allowance of the expenditure/ liability has been made in the assessment any previous year is not satisfied - This being the case the CIT(A) has correctly held that the addition appearing as liability in the books of account of the Assessee as profits u/s 41(1) is not sustainable – the order of the CIT(A) deleting the addition upheld appearing as liability in the books of the Assessee and confirm the deletion of these amounts – Decided partly in favour of Revenue.
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2014 (1) TMI 831
Assessability of income - Profits on sale of shares and mutual fund units – Profits and gains from business of capital gains – Held that:- The gains on sale of both securities and the units are taxable under the head ‘capital gains’ and not under the head ‘profits and gains from business or profession’ as held by the revenue - the acquisition of the shares and investment for the purpose of ‘control and management’ envisages the investment activity and not the business activity - Revenue has not brought anything to demonstrate that the facts are different in this year – decided in favour of Assessee. Applicability of section 14A of the Act r.w Rule 8D of the Rules – Held that:- The rules are inserted subsequently and applied prospectively – Relying upon Godrej and Boyce Mfg.Co. Ltd. Vs. DCIT and Anr. [2010 (8) TMI 77 - BOMBAY HIGH COURT] - CIT(A) fell in to error in assuming the jurisdiction of Rule 8D of the Income Tax Rules 1962 for the AY – thus, the enhancement has to go and therefore, the assessee wins on this issue – matter remitted back to the AO for proper adjudication – Decided partly in favour of Assessee.
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Customs
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2014 (1) TMI 971
Classification of goods - Violation of import policy - Mis declaration of goods - Year of manufacturing of goods - Held that:- machineries in questions were not got examined by a Chartered Engineer either at the time of import or after seizing the goods based on doubt regarding age of the machines. The whole argument of Revenue is based on information which they unearthed in their enquiry to the effect thatserial numbers for machines manufactured by CERDANS had crossed 4000 in 1989 itself.However the source of this information is not disclosed in para 6 of the impugned order. It is stated only in very general terms in para 21 of the impugned order also.Based on such unauthenticated informationit is argued that all machines with serial numbers less than that should have been manufactured earlier. It is in this aspect that some sort of conjecture has been made by Revenue in support of the case. It is possible that the manufacturer was giving different series of numbers for different type of machines. The exact year of taking over of the company of CERDANS by VAMATAX also is not clear. So no value can be added by argument based on takeover of the manufacturing company by another company. In this case the benefit of doubt should go to the appellant. Therefore I hold that Revenue has failed to prove any mis-declaration and violation of the import policy - Decided in favour of assessee.
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2014 (1) TMI 970
Penalty u/s 114(i) - Whether penalties are required to be imposed upon them for violating the procedural violations prescribed under Section 11(1) of the Foreign Trade Development Regulation Act, 1992 - Held that:- that nowhere it was required on the part of the appellant to follow a prescribed customs procedure and that CTPL had no knowledge of the contraband nature of Caster Oil making these goods liable to confiscation under Section 113(d) of the Customs Act, 1962. It had not been brought out by the adjudicating authority as to what violation has been committed by CTPL by storing Caster Oil received from DTA units and SEZ Units and whether CTPL was under some procedural obligation to store Caster Oil received from DTA units and SEZ units. There is no allegation of any diversion of Caster Oil stored in the tank of CTPL. There is no direct evidence to indicate that CTPL was aware that exporter of Caster Oil of SEZ units were not following the prescribed procedure. In view of these observations penalty upon CTPL cannot be imposed under Section 114 of the Customs Act, 1962 as no evidence has been brought on record suggesting any act or omission committed by CTPL which will make the goods liable to confiscation or that he knowingly abetted in the offence - Decided in favour assessee.
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2014 (1) TMI 969
Exemption in terms of S. No. 74 of Notification No 6/2006 - Classification of goods - Mis declaration of goods - Whether such sports flooring material can be held to be sports goods or not - Held that:- Notification No. 146/94-Cus. grants exemption to sports goods, sports equipments and sports requisites, whereas Central Excise notification grants exemption only to sports goods. Inasmuch as the said circular of the Board clarified the flooring materials as being sports requisite, the same are entitled to the benefit of Notification No. 146/94-Cus., which allow exemption to the sports requisite. For the purpose of countervailing duty, Notification No. 6/2006 is relevant which grants exemption only to sports goods - goods being sports requisite are not covered by Notification No. 6/2006 for the purpose of additional Duty. Admittedly the continuous synthetic surface used for covering floors for indoor games cannot be held to be a sports goods. As such, the benefit stands rightly denied by the lower authorities - Decided against assessee.
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2014 (1) TMI 968
Claim of Rebate of duty on Export made under Rule 18 - Conditions of Notification no. 93/2004-Cs versus Notification no. 94/2004-Cus - Denial of exemption notification 94/2004 dated 10-9-2004 - Goods imported under notification no. 94/2004 under advance licence for annual requirement or advance authorisation for annual requirement with actual user condition - Held that:- Notification 94/2004 has been issued in the context of import under advance licence for annual requirement or advance authorisation for annual requirement with actual user condition issued to Star Export Houses and Notification 93/2004 has been issued in the context of Import of Advance Licence/Advance Authorisation. The contention of the appellant is that Condition (v) of the Notification 93/2004 is similar to Condition (8) of Notification 94/2004 ibid. The Notification 93/2004 was amended with effect from 17-5-2005 - Condition (v) prior to amendment was similar to Condition (8) of Notification 94/2004. In this manner, prior to amendment the condition implicitly provided that facility has not been availed in case of inputs/raw materials under Rule 18 and Rule 19(2) and after amendment it explicitly provided for the same i.e. facility has not been availed in case of inputs/raw materials under Rule 18 and Rule 19(2) - only bar is in case of rebate taken on inputs/raw materials used in case of Rule 18 also as in the case of Rule 19. So far as the contention of the department that Notification 93/2004 has been issued in the context of imports under Advance Licence/Advance Authorisation. The Notification 93/2004 exempts material imported from whole of duty of Customs, whole of the additional duty, safeguard duty and anti-dumping duty leviable thereon respectively, under Sections 3, 8 and 9A of the Customs Tariff Act, 1975; and similarly, Notification 94/2004 also exempts material from whole of the duty of Customs and whole of the additional duty leviable thereon under Section 3 of the Customs Tariff Act, 1975. In these circumstances, who avails advance licence on annual basis on actual user condition cannot be put at disadvantage vis-a-vis one who avails facility of advance licence on consignment basis. Benefit of Notification No. 94/2004 is not barred in case facility of rebate on duty paid on finished goods cleared for export is availed - Decided in favour of assessee.
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2014 (1) TMI 967
Penalty u/s 114A - Mis declaration of goods - Overvaluation of goods - Confiscation of goods - Held that:- goods were allowed to be taken back to town on payment of redemption fine - department failed to prove any of the ingredient of Section 114(iii) on the part of the appellant i.e. any act of omission or commission which render goods liable for confiscation or act of aiding or abetting with which undue benefit of drawback was sought to be taken - Decided in favour of assessee.
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Corporate Laws
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2014 (1) TMI 966
Jurisdiction of Court to decided arbitration appeal - whether a challenge to an arbitration award (or arbitral agreement, or arbitral proceeding), wherein jurisdiction lies with more than one court, can be permitted to proceed simultaneously in two different courts - Held that:- term subject matter of the arbitration cannot be confused with subject matter of the suit . The term subject matter in Section 2(1)(e) is confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. In our opinion, the provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the Learned Counsel for the Appellants would, in fact, render Section 20 nugatory - Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process - both the Courts would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located. It is not open to the appellants to advance such submission before this Court. Firstly, because the appellants had in paragraph 8 of the reply affidavit filed before the High Court, clearly acknowledged the legal position, that both the High Court as also the District Judge, Thane, in so far as the present controversy is concerned, fall within the definition of the term Court under Section 2(1)(e) of the Arbitration Act. And secondly, because the impugned order passed by the High Court expressly notices in paragraph 10, that it was admitted by the rival parties before the High Court, that the High Court on the original side, as also the District Judge, Thane, had the jurisdiction in respect of the subject matter. A perusal of Section 42 of Arbitration Act reveals a clear acknowledgment by the legislature, that the jurisdiction for raising a challenge to the same arbitration agreement, arbitral proceeding or arbitral award, could most definitely arise in more than one court simultaneously. To remedy such a situation Section 42 of the Arbitration Act mandates, that the court wherein the first application arising out of such a challenge is filed, shall alone have the jurisdiction to adjudicate upon the dispute(s), which are filed later in point of time. The above legislative intent must also be understood as mandating, that disputes arising out of the same arbitration agreement, arbitral proceeding or arbitral award, would not be adjudicated upon by more than one court, even though jurisdiction to raise such disputes may legitimately lie before two or more courts. The very fact that the appellants before this Court, have chosen to initiate proceedings against the arbitral award before principal Civil Court of original jurisdiction in a district i.e., before the District Judge, Thane, and the respondent before this Court, has raised a challenge to the same arbitral award before the ordinary original civil side of the High Court of Bombay, clearly demonstrates, that the underlying principle contained in Section 42 of the Arbitration Act would stand breached, if two different courts would adjudicate upon disputes arising out of the same arbitral award. There can be no doubt, that adjudication of a controversy by different courts, can easily give rise to different conclusions and determinations. Therefore, logic and common sense also require, the determination of all such matters, by one jurisdictional court alone. In the present case, the complication in the matter has arisen only because, the proceedings initiated by the appellants before the District Judge, Thane, and proceedings initiated by the respondent on the ordinary original civil side of the High Court of Bombay, were filed on the same day - we uphold the order passed by the High Court requiring the matters to be adjudicated on the ordinary original civil side by the High Court of Bombay - Decided against Appellants.
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2014 (1) TMI 965
Reference u/s 15 - Abatement of proceedings - Whether the writ petitions be thrown out on the ground of availability of alternative remedy under Section 17 of the Act, 2002, since the Bank has already invoked Section 13(4) of the Act, 2002 - Held that:- A reference was made by the petitioners under Section 15 of the Act, 1985 in the month of October, 2010. The said application was registered as Case No. 53/2010. The Board considered the application on different dates and vide proceedings dated 12/12/2011, the Board was satisfied that the Company has become a sick industrial company under Section 3(1) (o) of the Act, 1985. The respondent bank which has been treated to be the lead bank by the consortium of bank which is the secured creditor issued a notice dated 01/8/2012 under Section 13(2) of the Act, 2002 which was served on the petitioners on 03/8/2012 and 04/8/2012 respectively. The petitioners having failed to discharge their liabilities, the Bank invoked Section 13(4) of the Act, 2002 by issuing possession notice dated 07/10/2012. The Bank thereafter filed an application under Section 14 of the Act, 2002 before the District Magistrate for taking physical possession on 11/3/2013 and 09/4/2013. Petitioners' case further in the writ petition is that the scheme of rehabilitation was prepared and submitted in December, 2011 before the BIFR and the matter is pending before the BIFR for taking measures for rehabilitation of the petitioners company. Reference does not comes to an end after its registration or after declaration of its sickness is granted by the Board. The Scheme of Section 15 of the Act,1985 as amended by Act No. 54 of 2002, indicates that after enforcement of the Act, 2002, no reference can be made to the BIFR, where financial assets have been acquired by any securitisation company or reconstruction company which is provided in the second proviso of Section 15 of the Act, 1985. The intent is clear that when financial assets have been acquired under sub-section (1) of Section 5 of the Act, 2002, reference to the Board is prohibited. The third proviso to Section 15 of the Act, is with regard to the reference which is pending before the BIFR and obviously which reference was made before the financial assets have been acquired under sub-section (1) of Section 5 of the Act, 2002. The abatement of reference pending before the Board is to take place when secured creditors not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of Section 13 of the Act, 2002. The intent is clear that when secured creditors not less than three-fourth in value of the amount outstanding decides to take measure under Section 13(4) of the Act, 2002, proceedings before the BIFR stands abated. Reference which has been pending before the Board at any stage is to abate on the measures taken under Section 13(4) of the Act, 2002 by not less than three-fourth of the secured creditors. The distinction between the two category of reference, i.e. firstly, registered and secondly, proceedings after registration is an artificial distinction, whereas the Legislature never intended any kind of distinction in the references pending before the Board - protection which has been given to a sick industrial company under a previous special statute, namely, SICA of 1985 has not been taken away by Section 37 of the Securitization Act. The aforesaid amendment which has been made in Section 41 of the Securitisation Act has been discussed above and this Court has also held that as a result of such amendment the present proceeding under SICA cannot abate. Since the proceeding under SICA cannot abate and the petitioner has been declared a sick industrial company, the bank cannot proceed against the petitioner in respect of its notice under Section 13(4) of the Securitization Act in view of the statutory bar created under Section 22 of SICA. If a reference under Section 15 of the Act, 1985 remains pending even if it is at the stage of Sections 16, 17,18 and 19 of the Act, 1985, the reference cannot be said to be not pending after its registration under Section 15 of the Act, 1985 or after declaration of the company as a sick unit - scheme for rehabilitation or reconstructing of a sick industrial company undertaken by a specialised body like BIFR/AAIFR should, as far as legally permissible, remain obstruction free - Even if the reference is proceeding under Section 16, 17,18 and 19 of the Act,1985 the secured creditors are fully empowered to take measures under Section 13(4) of the Act, 2002 in accordance with the third proviso to Section 15 of the Act, 1985. Respondent no.2 is fully entitled to proceed under Section 13(4) of the Act, 2002 and reference being Case No. 53/2010 having abated on taking measures under Section 13(4) of the Act, 2002, petitioners are not entitled for the benefit under Section 22 of the Act, 1985 - proceedings initiated by the Bank under Section 13(4) of the Act, 2002 are not without jurisdiction. The reference being Case No.53/2010 stands abated. However, it is still open for the petitioners to avail their statutory remedy under Section 17 of the Act, 2002 against any of the measures taken by the Bank under Section 13(4) of the Act, 2002 - Decided against Petitioner.
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FEMA
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2014 (1) TMI 972
Imposition of penalty - Contravention of the provisions of Section 9(1)(b) and 9(1)(d) - Tribunal rejected assessee's petition for waiver of penalty - Held that:- challenge made by the petitioner to the impugned order, does not stand to legal scrutiny. Except by contending that the earlier Appellate Board had orally allowed the petition for waiver of pre-deposit, the petitioner is not able to prove to the satisfaction of the Court that there was such an order in existence. It must also be noted that FEMA is a complete Court by itself and the question of challenging the Tribunal's order in a writ petition under Article 226 of the Constitution of India, will not arise - Act cannot be bypassed and the jurisdiction under Article 226 of the Constitution of India cannot be invoked - Decided against assessee.
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Service Tax
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2014 (1) TMI 1003
Underwriting Fee or Underwriting Commission - Whether dealing in government securities amounts to dealing in securities of a body corporate, particularly since government securities are issued by the Reserve bank of India, which is a 'body corporate' in terms of section 3 (2) of the RBI Act, 1934 - Held that:- Government securities are sovereign securities having zero default risk. Reserve Bank of India only manages the issue and also auction of Government Securities on behalf of the Government of India. In effect, Primary Dealers registered with the RBI (as opposed to registration with the Securities Exchange Board of India) deal in Government Securities, issued by the RBI on behalf of the Government of India, as a part of the central Government's market borrowing program. The general practice is that the RBI invites bids from the Primary Dealers, who in their bids indicate the amount to be underwritten and the underwriting fee expected by them. RBI examines these bids and decides the amount to be underwritten and underwriting fee to be paid to a Primary Dealer. Underwriting Fee is also known as Underwriting Commission in common parlance. Thus the conclusion drawn is that government securities are not securities of a body corporate - service tax liability does not arise on Underwriting Fee or Underwriting Commission received by the Primary Dealers during the course of the dealing in Government Securities - Decided against Revenue.
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2014 (1) TMI 1002
Demand of service tax - Construction of residential complex - Service tax liability of Developer - Held that:- Tribunal has been consistently holding that where UDS is sold first and then construction is done for the land owners, there is a service involved which fact is confirmed by the fact that there is no sale of constructed flats. Construction done after sale of UDS cannot be considered as a business of sale of flats but only as a business of providing service to the person to whom UDS was sold - prima facie there is a relationship of service provider and service recipient in this case and the clarifications issued by the CBEC are not applicable to the facts of the present case - Conditional Stay granted.
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2014 (1) TMI 1001
Demand of service tax - Service tax collected but not submitted - Held that:- appellant M/s. Cops Protections Pvt. Ltd. had in fact collected the amount of service tax liability which they have indicated on the invoices from their clients. In our view, it becomes appellant bounded duty to deposit such amounts which have been collected as service tax from their clients in the government treasury. We do not find any reason for granting a waiver of pre-deposit of such amounts collected by the appellant and not deposited in the government treasury - Stay denied.
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2014 (1) TMI 1000
Demand of service tax - Cargo handling service - Commissioner (Appeals) set aside liability of service tax - Held that:- Loading, unloading, packing or unpacking of cargo and includes cargo handling services provided for freight in special containers or for non-containerized freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport and corgo handling service incidental to freight, but does not include handling of export cargo or passenger baggage or mere transportation of goods - Assessee is engaged in loading, unloading and shifting of sugar bags from floor of mill house to godown, from one godown to another. This activity does not fit in the definition of cargo handling service - Decided against Revenue.
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2014 (1) TMI 999
Waiver of pre deposit - input service distributor (ISD) - Penalty imposed under Rule 15 (2) of the Central Excise Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 - Held that:- For availing cenvat credit when invoices are raised in favour of the Head Office or Circle Office and payments for such services were made from the said Office and services are claimed to have been used in exchanges under the Head Office/Circle Office, it is required to get the Head Office/Circle Office registered as ‘input service distributor’ and issue invoices in favour of its units/exchanges. Admittedly,the applicant’s Circle Office has not been registered as ‘input credit distributor’ under the said Rules and prima-facie, we find that the cenvat credit has not been availed correctly as per the procedure as laid down by the Cenvat Credit Rules, 2004. In these circumstances, the applicant failed to make out a prima-facie case for total waiver of predeposit of all dues adjudged against them - Partial stay granted.
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2014 (1) TMI 998
Demand prior to 1-6-2007 - Whether the appellant is liable to pay Service Tax in respect of joint development of residential complex in respect of the portion of the flats handed over to the land owner - Held that:- requirement of 50% of the pre-deposit ordered by the Commissioner (Appeals) is very reasonable and at this stage, learned consultant undertakes to deposit the amount and requests that the appeal may be remanded. Accordingly, we waive the requirement of pre-deposit and take up the appeal itself. In view of the fact that appeal has been dismissed for non-compliance and the consultant undertakes to deposit the amount, we set aside the impugned order and remand the matter to the Commissioner (Appeals) to decide the issue on merits subject to the condition that the appellant deposited 50% of the Service Tax demanded - Following decision of LCS City Makers Pvt. Ltd. v. CST [2012 (6) TMI 363 - CESTAT, CHENNAI] - Decided in favour of assessee.
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2014 (1) TMI 997
Denial of CENVAT Credit - Works contracts of laying of electrical lines, construction of sub-stations and erection, installation and commissioning of electrical transformers, etc., for Andhra Pradesh State owned power distribution companies - Held that:- Notification No. 45/2010-S.T., dated 20-7-2010 provides for exemption to the service provided relating to distribution and transmission of power from 16-6-2005. Since prima facie the issue appears to be covered by the exemption notification, we consider that there is no need for pre-deposit in this case - Stay granted.
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2014 (1) TMI 995
Availment of CENVAT Credit - Whether the appellant are entitled for Cenvat credit of Management Consultancy Service as per Rule 2(l) of the Cenvat Credit Rules, 2004 or not - Held that:- any service availed by a manufacturer of excisable goods in the course of their business activity is entitled for input service credit. It is undisputed that this Management Consultancy Service has been availed by the appellant in their business of manufacturing. Therefore, following the decision in Ultratech Cement [2010 (10) TMI 13 - BOMBAY HIGH COURT], Appellants are entitled for input service credit on Management Consultancy Service - Stay granted.
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2014 (1) TMI 994
Demand of service tax - Supervision of coal loading and transportation of coal by road - Clearing & Forwarding Agent’s Services - Held that:- Finance Act does not describe or define what are ‘clearing and forwarding operations’. However, the Board’s circular dated 11-7-1997 clearly specifies the functions undertaken by the C&F Agent in the normal course of business. The clarification issued by the Board at the time of inception of levy needs to be given due weightage, following the principles of ‘administrative construction’ of statutes as held by the Hon’ble Apex Court in the case of Collector of Central Excise v. Andhra Sugar Ltd. - [1988 (10) TMI 38 - SUPREME COURT OF INDIA] - definition given in the statute and the Board’s circular, it is clear that the activity undertaken by the appellant does not fall within the purview of ‘C & F Agent’s Services’ - activity of supervision and loading of coal does not come under the category of ‘Clearing and Forwarding Agent’s Service’ - Following decision of Karamchand Thapar & Bros. (Coal Sales) Ltd. v. Union of India [2009 (7) TMI 715 - CALCUTTA HIGH COURT] - Decided against Revenue.
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Central Excise
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2014 (1) TMI 996
Availment of CENVAT Credit - Credit on the “tube lights” as capital goods falling under CETSH No. 9405 10 90 of the Central Excise Tariff Act, 1985 - Goods Transport Agency - Held that:- seller has specifically classified the items under Chapter 94 showing as “Tube Light Fittings”. Nothing is on record to indicate that the appellant received fittings and not Tube Light. I find that the appellant herein cannot avail Cenvat credit of item under the head of capital goods, as goods procured are classified by seller under Chapter 94 - issue of availment of Cenvat credit of outward transportation, Service Tax paid up to 31-3-2008 is correct, as the input service definition - Following decision of CCE, Bangalore v. Madras Cements Ltd. [2010 (8) TMI 288 - KARNATAKA HIGH COURT] - Decided partly in favour of assessee.
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2014 (1) TMI 964
Aiding and abetting the sale and purchase of chakdo rickshaws - Waiver of pre-deposit of penalties under Rule 26 of the Central Excise Rules, 2002 – Held that:- The role played by the current appellants is not free from doubt and needs to be gone into detail – the appellants had collected cash on behalf of the manufacturers over and above the invoice value, which would indicate that they were aware that the amount which has been collected, no duty is discharged by manufacturers - the chakdo rickshaws are registered by the appellants with the RTO based upon the documents which has been given to them by manufacturer and each indicates that assessee’s invoice of the sale of the chakdo rickshaws - both the appellants directed to deposit an amount of Rs.1,00,000 each as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – partial stay granted.
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2014 (1) TMI 963
Denial of credit on input service distributed – Waiver of Pre-deposit – Held that:- The applicant did not produce all the documents before the adjudicating authority - There is no force in the submission of the learned counsel that there is no dispute regarding the authenticity of documents which have been received and accounted for in the books of accounts by the applicant - the applicants failed to make out a prima facie case for waiver of pre-deposit of the entire amount of tax and penalty - the applicant is directed to deposit a sum of Rupees one crore as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – Partial stay granted.
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2014 (1) TMI 962
Waiver of pre-deposit of penalty – Penalty under Rule 26 of Central Excise Rules, 2002 – Held that:- The appellant has not made out a prima facie case for the complete waiver of pre-deposit of the amount - the appellant directed to deposit an amount of Rupees Fifty Thousands as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – partial stay granted.
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2014 (1) TMI 961
Restoration of appeal – Non-compliance of pre-deposit ordered – Held that:- M/s G.K. Founders Pvt. Ltd. has complied with the Stay Order of deposit of Rs.25 lakhs and on application made by them - the appellant herein had made out a case for allowing the applications for restoration of appeals – Appeals recalled and restored – Decided in favour of Assessee.
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2014 (1) TMI 960
Under-valuation of final product - Cost of handling and forwarding charges not included - Waiver of pre-deposit of duty, interest and penalty – Held that:- The Revenue authorities has issued the show cause notices in the years 2004 and 2007 on an identical issue - they have not issued any show cause notices within limitation period - This show cause notice dated 07.04.2011 for the demand of differential duty for the period March 2006 to September 2010 is, prima facie, time barred – Pre-deposits waived till the disposal – Stay granted.
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2014 (1) TMI 959
Denial of cenvat credit – Services claimed as input services – Waiver of Pre-deposit - Revenue was of the view that no integral connection was established by the assessee to claim CENVAT credit on any of the services vis-a-vis their business of manufacture and clearance of excisable products – Held that:- the question as to whether an integral connection between the business of manufacture and clearance of excisable goods and each of the services claimed to be input services needs elaborate consideration, which can be had only at the final hearing stage - the entire demand is within the normal period of limitation – Thus, the appellant directed to deposit 10% of the total amount of CENVAT credit as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – Partial stay granted.
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2014 (1) TMI 958
Restoration of Appeal – Non-compliance of Section 35F of Central Excise Act – Pre-deposits not made –Held that:- Earlier the appellant deposited Rupees ten lakhs as pre-deposits but could not comply with the order n full – but later on the appellant had deposited the balance amount of Rs. 20 lakhs on 05.02.2013 as evidenced by the documents – there is a delay on the part of the appellant in depositing the balance amount - the appellant has satisfactorily explained the cause of the delay – Application allowed by ordering recall of order – Decided in favour of Assessee.
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2014 (1) TMI 957
Leviability of cess on manufacture - Waiver of Pre-deposit - Whether motor vehicle cess shall be payable by the appellant manufacturing body on the chassis supplied by ultimate manufacturer – Held that:- Section 9 of Industries (Development and Regulation) Act 1951, makes clear that cess is a levy on manufacture of goods by schedules industries - Motor vehicle is within that ambit - Central Excise authorities are tax administrators for the levy of cess - manufacturing was done by the appellant belonging to scheduled industry – Thus, the appellant is directed to deposit Rs. 15 as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – Partial stay granted.
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2014 (1) TMI 956
Diesel locomotive can be considered as capital goods under Rule 2a(A) of the CENVAT Credit Rules, 2004 or not – Waiver of Pre-deposit – Held that:- The appellant has not been able to rebut a crucial finding that packing plant consisted of a group of machineries and that the appellant could not clarify as to which of these machineries the loco was accessory - As per Chapter 84 the goods classified thereunder to be goods used for loading, unloading or otherwise handling materials - Whether packing plant could be so classified is a debatable question - Storage silo is not one of the capital goods envisaged under clause (i) or clause (ii) of the definition of capital goods - Storage tank is an item which figures down below in the array of the various clauses of the said definition - the assessee is not able to make out a prima facie case in their favour - the appellant is directed to pre-deposit an amount of Rupees Ten lakhs as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – Partial stay granted.
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2014 (1) TMI 955
Time-barred demand - Denial of credit on Capital goods used to fabricate a blast furnace - Waiver of Pre-deposit – Held that:- The appellant disclosed the material facts to the Department on 10/05/2004 and that the Range Officer noted the total accumulated MODVAT credit as available to the party - Whether the Superintendent was legally authorized to make such notings is not a matter of concern presently - the show-cause notice issued in September 2008 is, prima facie, time-barred – Thus, Pre-deposits waived till the disposal – stay granted.
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CST, VAT & Sales Tax
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2014 (1) TMI 1005
Levy of tax on Timber - Notification No. T.I.F.-2-2375/XI-9(251)/97-U.P.Act-15-48-Order-98, dated 23.11.1998 - First appellate authority granted partial relief declaring that for the assessment year 1997-98, the items are not taxable - However, Tribunal levied tax @ 15% on timber - Held that:- it appears that as per notification for the assessment year 1997-98, no tax can be levied as the timber was not taxable item - For the assessment year 1998-99, only for four months (1st December, 1998 - 31st March, 1999), the sale of timber or its items are subject to the tax @ 15%, as the said notification is applicable with effect from 1st December, 1998 - A.O. will pass a fresh order pertaining to the levy of tax on the sale of timber for the period of 1st December 1998 to 31st March, 1998 (four months) after examining the record, but within a period of three months after receipt of a certified copy of this order, as the matter is too old - Decided in favour of assessee.
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2014 (1) TMI 1004
Levy of VAT on Transfer of right to use ATM - Penalty U/s 51 (7) (b) of the Punjab Value Added Tax Act, 2005 - Registered dealer under the Act, 2005 - Held that:- The appellant procures ATM Machines and the related equipments in compliance of the service agreement between the appellant and the Banks, to be installed, operated and deployed at various locations in Punjab, whereby the possession, control, management, operation and the property in goods throughout remains with the appellant as is clear from the terms of agreement. The appellant is compensated for deployment of ATMs and their management by a transaction fee to be paid every time by a customer of the bank on availing the facility of ATMs successfully - accessibility to the ATM being provided to the bank customer did not put the customer in possession of ATM or any part thereof and the element of sales is not involved - Decided in favor of assessee.
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Indian Laws
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2014 (1) TMI 993
Right to information - Transfer of application from one department to another - Non relevant reply given to appellant - Held that:- The provisions of Section clearly define the duties to be performed by a CAPIO under the RTI Act i.e. (i) to receive the RTI applications or appeals from citizens and (ii) to forward the same to the officers/authority(s) appointed under the Act to deal with such applications/appeals. The law does not authorise the CAPIO/SAPIO to respond to RTI applications - According to Respondents since there is no CPIO designated in the office of the Solicitor General of India, and they look after the administrative function of the former, the RTI application had come to them for giving response to the Complainant. Commission hereby directs the Respondents-Department of Legal Affairs - who looks after the administrative functions of the office of the Solicitor General of India, to file a written submission before the Commission in support of their plea that the Solicitor General of India falls under the same footing as that of the office of Attorney General for India and that the full Bench decision of the Commission in the case of Attorney General for India (as referred to hereinabove) would apply to them (Solicitor General of India) as well. The written submission should reach the Commission by or before 20-11-2013. A copy of the written submission should also be sent to the Appellant for him to file rejoinder, if any - Decided in favour of appellant.
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2014 (1) TMI 988
Setting aside of recovery proceedings of loan given - Held that:- For non-repayment of loan the Recovery Officer attached plot No.722, which was in the ownership of Jagmohan Singh, one of the partners in M/s. Amar Timber Works - Harender Singh, brother of Jagmohan Singh, filed an objection petition before the Recovery Officer alleging, that the attached property did not belong to the judgment debtors, but had been purchased by him from his brother Jagmohan Singh, by executing an agreement of sale dated 10.1.1991 - The Recovery Officer ordered the sale of the property - On 22.9.2008, the Recovery Officer, in the absence of any objections, confirmed the sale of the property in favour of Sadashiv Prasad Singh - The High Court set aside the proceedings conducted by the Recovery Officer, including the sale of the property by public auction. In terms of the law declared by the Court, property purchased by a third party auction purchaser, in compliance of a court order, cannot be interfered with on the basis of the success or failure of parties to a proceeding, if auction purchaser had bonafidely purchased the property - Law makes a clear distinction between a stranger who is a bona fide purchaser of the property at an auction-sale and a decree-holder purchaser at a court auction - The strangers to the decree are afforded protection by the court because they are not connected with the decree - Unless the protection is extended to them the court sales would not fetch market value or fair price of the property. The High Court was not justified while setting aside the recovery proceedings and in ignoring the vested right of the appellant in the property in question, after his auction bid was accepted and confirmed, subjected him to grave injustice by depriving him to property which he had genuinely and legitimately purchased at a public auction - Not only did the Division Bench of the High Court in the matter by ignoring the sound, legal and clear principles laid down by this Court in respect of a third party auction purchaser, the High Court also clearly overlooked the equitable rights vested in the auction-purchaser during the pendency of a lis - The High Court also clearly overlooked the equitable rights vested in the auction purchaser while disposing of the matter. The objections raised should be rejected on variety of reasons - Harender Singh had created an unbelievable story with the connivance and help of his brother, so as to save the property in question - The claim in his objection petition, was based on an unregistered agreement to sell dated 10.1.1991Harender Singh, despite his having filed objections before the Recovery Officer, had abandoned the contest raised by him by not appearing - before the Recovery Officer - Having abandoned his claim before the Recovery Officer, it was not open to him to have reagitated the same by filing a writ petition before the High Court - Harender Singh could not be allowed to raise a challenge to the public auction held on 28.8.2008 because he had not raised any objection to the attachment of the property in question or the proclamations and notices issued in newspapers in connection with the auction thereof. The objector had lost all interest in the property in question and had therefore, remained a silent spectator to various orders which came to be passed from time to time - He had no equitable right in his favour to assail the auction-purchase made by Sadashiv Prasad Sinha on 28.8.2008 - The auction purchaser was a bona fide purchaser for consideration, having purchased the property in furtherance of a duly publicized public auction, interference by the High Court even on ground of equity should not be called for - Decided in favour of petitioner.
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