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TMI Tax Updates - e-Newsletter
November 4, 2013
Case Laws in this Newsletter:
Income Tax
Articles
Highlights / Catch Notes
Income Tax
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Deduction u/s 80IB(4) on account of insurance claim received on loss of stock – deduction allowed u/s 80 IB - AT
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Penalty u/s 272A(2)(k) – since the tax deduction and payment are made by treasury and there is undisputedly no default - There arises no reason for non-filing of TDS return with an intentional act or willful act to attract a quasi-criminal, imposition of penalty - AT
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Deduction u/s. 80IB(10) - The meaning of “date of completion” has been given in Explanation (ii) to clause (a) to section 80IB(10) - Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority - AT
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Nature of Lease - In substance, finance lease is a loan from the lessor to the lessee. In an operating lease, the lessor bears the risk of loss, the period is cancellable and lease rentals are not synchronized with the economic life of the asset. - AT
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Deduction u/s 80IA - if it was proved that, the assessee-company had obtained the status of a tenderer by virtue of a valid assignment, it should not be denied the benefit of deduction provided by the Central Government through introduction of sub-section (4A) of section 80 IA - AT
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Disallowance of Claim of Deduction u/s. 35AB – if the claim of the assessee is within the period of six years from the year in which the expenditure was incurred and the amount is also equal to 1/6th of such expenditure then the claim of assessee should be allowed - AT
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Indo U.S. DTAA - once the assessee was not a P.E. of VGCs, then “Force of Attraction Rule“ will not apply in terms of Article 7(1) of various DTAA. - AT
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Transfer Pricing Adjustment - Transfer Pricing Regulations do not contemplate taking into account future data for the purpose of bench marking - AT
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Arm's length price adjustments - Characterization of Business – On the proper analysis of the assessee's functions, the CIT(A) was justified in holding that assessee was not a distributer but a service provider alone and entitled for commission on service provided by it - AT
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Disallowance u/s 40(a)(i) – TDS u/s 195 - Liable to tax in the contracting State cannot be implied as the person is actually liable to tax but would also cover the cases where the other contracting State had the right to tax such person - AT
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Penalty u/s 271(1)(c) - Penalty will not merely be imposed because it was lawful to do so - once the explanation was not held to be false, the penalty cannot be sustained - AT
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Provision for Liquidated Damages - in the absence of any record maintained on the claim raised by the assessee, the CIT(A) had rightly held that the liability in question was an unascertained one and not allowable - AT
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Disallowance of Depreciation on Goodwill – The specified intangible assets acquired under slump sale agreement were in the nature of “business or commercial rights of similar nature“ specified in Section 32(1)(ii) of the Act and were accordingly eligible for depreciation - AT
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Disallowance of Administrative and Other Expenses as pre-operative expenses – the assessee had successfully identified certain mineral rich blocks too - the expression 'setting up' means 'to place on foot' or to establish or 'to ready to commence' - claim allowed - AT
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Taxability of Non-Compete fees – post amendment in Sec. 28 with the insertion of Clause (va) to section 28, the Non compete fee of Rs. 5 crores received by the assessee is liable to be taxed under the head profits and gains of business or profession - AT
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Expenditure has been incurred in connection with enabling engineers and other technical staff to participate in conferences and discussions organized by the Bio Diesel Association of India. - held as revenue in nature - AT
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Assessee contended that since the appeal is filed through legal heir and legal heir is not in a position to pay small tax, therefore, present appeal has been filed. Such a reason itself is not justified in filing the frivolous appeal before the Tribunal - AT
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Notice u/s 153A to be invalid – The Assessing Officer has not done his job in accordance with the Section 282 of the Act. In fact, he not sent any of the notices by post or through a process server. He has adopted only the mode of substituted service by way of affixture - Assessing Officer has also not followed order V, Rule 17 of the Code of Civil Procedure, 1908 - AT
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Assessment of Undisclosed income u/s 69A - It is a well settled proposition of law that the strict rule of evidence is not applicable to the income tax proceedings and the issues can be decided on the basis of preponderance of probabilities - AT
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Period of limitation for passing the penalty order u/s 275(1)(a) - the limitation period for the levy of penalty will be as provided for under s. 275(1)(a), i.e., six months from the end of the month in which the order of the Tribunal is received by the Chief CIT - AT
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Disallowance of Expenditure on Software for Own Use - AO had not recorded any finding, qua the usage and utility of the software in question and he had simply held that the assessee can claim depreciation @ 25% - AT
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Allowability of Deduction Claim u/s 80IB (4) - As the assessee's industrial undertaking was 'located in an industrially backward State' of Pondicherry, there was no need to fulfill the requirements of SSI - AT
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Deduction u/s 54(2) – The date of filing the return u/s.139 of the Act has wide scope - The return can be filed u/s.139(1) or u/s.139(4) of the Act - Both the returns i.e. either filed u/s.139(1) or u/s.139(4) of the Act were legally valid and accepted returns - There was no difference between these two returns (except for charging interest u/s 234B and allowing certain deductions or carrying forward of losses) - AT
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Nature of Interest income received u/s 244A cannot form part of business activity of the assessee and the same cannot even be treated as an activity incidental to the business of the assessee so as to say that such interest constitutes its business income - AT
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Registration u/s 12AA - CBDT Circular clearly stated that the proviso to Section 2 (15) does not apply in the case of education and where the purpose of a Trust or institution was education, it will constitute 'charitable purpose' even if it incidentally involves in carrying on of commercial activities. - AT
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Expenses Debited to P&L Account - Can we determine with reasonable accuracy the surplus or deficit that would arise in a contract execution which is far from complete - Can we say that such loss claimed were to off-set any deficiency in the depreciation claim - Answer to all these, in our opinion are a firm ‘No’. - AT
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Indo French DTAA - PE - Since there are no findings by the A.O., or the DRP, to the effect that the transactions between the agent and the assessee are not at an arm's length price, the agent is treated to be an independent agent in view of the provisions of Article 5(6). Such a finding by the revenue is a sine qua non for existence of PE - AT
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Disallowance of expenses - The assessee had filed only bills which only gave the broad nature of promotional activities such as van campaign. There was no evidence produced with regard to actual carrying on of such activities. The AO had specifically asked for identification of personnel involved in rendering of services which has not been given - AT
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Penalty u/s 271(1)(c) – Adopting “Doctrine of continuity“ and concurrence, the penalty in the assessee's case is liable to be confirmed only in the first assessment year - AT
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Capital gain on sale of shares – If the purchases and sales are effective within 90 days then they should be treated as trading of shares and if the transactions are held more than 90 days then those purchase and sales should be treated as investment portfolio - AT
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TDS on dividend declared to subscribers - Chit fund dividend to the subscribers does not partake the character of interest defined u/s 2(28A) and accordingly, the assessee is not liable to deduct tax under section194A - AT
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Income assessed in hands of HUF – capital gains and interest income - To avoid double taxation the same cannot be assessed again in the individual capacity - AT
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Software consumable expenses – The expenditure was incurred for application software and not for system software – The software was not of enduring nature and would become obsolete - Therefore it is revenue expenditure - AT
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Penalty u/s 271(1)(c) – Inaccurate particulars of income – Penalty u/s 271(1)(c) – Inaccurate particulars of income – Expenses on education of son of managing director named as Staff and labour training expenses - AT
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Interest on excess tax collected – u/s 244/a - the assessment proceedings didn’t got delayed due to the assessee's failure to submit the details before the authorities – interest allowed from the date of payment of tax - AT
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Penalty u/s 271(1)(c) – The assessee has not carried out any business activity during the year under consideration and on the contrary claiming huge expenditure showing loss in its books of accounts - levy of penalty confirmed - AT
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As the relief under section 10A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income - The relief under section 10A will have to be given before Chapter IV - AT
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Managing Director and whole time Director (Operations) were paid commission on the basis of duly passed Board Resolution and was in accordance with the provisions of the Companies act. The payment of Commission is necessarily a part of salary as defined in section 17 - claim allowed - AT
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Penalty levied under section 272B – The assessee has failed to furnish the permanent account number of one of the deductees, the assessee has defaulted and is eligible to levy of penalty under section 272B - AT
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Addition on account of low Net profit ratio – The onus is upon the Revenue to show that either the books of account maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom - AT
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Scope of the term Current Repairs - Disallowance of the cost of chamber assembly – Replacing compressor in the air-condition machine and picture tube in the television set would come within the connotation of “current repairs“ under section 31(i) - AT
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Disallowance on account of advertisement expenses – There is no concept of “deferred revenue expenditure“ in the Income-tax Act. The expenditure is either “revenue“ or “capital“ in nature. - AT
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Income from land as agricultural income or business income – AO's contention that the assessee cannot own agricultural land, as per the Karnataka Land Reforms Act, 1961, has no relevance to the issue on hand - AT
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Unexplained cash credit u/s 68 – It was incredible that a complete stranger would want to gift lakhs of rupees to a person only because that person wanted the amount for purchasing a house - the gifts could not be said to be genuine - AT
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Sale of Shares, Units and Securities through Portfolio Management Services(PMS) - taxable under the head capital gains and not under the head income from business or profession - AT
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Disallowance of loss from derivative business – assessee, having lack of knowledge about the contract note, did not desire for the contract note from sub-broker - transactions found genuine - claim allowed - AT
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Disallowance of Cenvat Credit – closer of factory - Held that:- The assessee was paying higherwrite off of CENVAT credit by the assessee in its books of account is allowable as business expenditure under the provisions of section 37(1) - AT
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Benefit u/s 80-IB(10) would be available if the developer has dominant control over the project and has developed the land at its own cost and risk and the benefit would be denied if the assessee had entered into an agreement for a fixed remuneration as a contractor to construct or develop the project on behalf of the land owner - AT
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Rebate u/s 88E – deduction of STT paid from the income tax computed u/s 115JB at book profit - Rebate u/s 80E available to the assesse - AT
Case Laws:
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Income Tax
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2013 (11) TMI 208
Valuation of property – Held that:- The guideline value is Rs. 3,95,91,000 – The valuation made by the assessee’s banker is Rs. 1.21 crores - The valuation made by the District Valuation Officer is less than the guideline value at Rs. 3,54,73,536 - All the variables are changing from time to time, from authority to authority, it is not possible to reject the contentions of the assessee as a whole - The valuation reported by the District Valuation Officer cannot be accepted - Equal importance shall be given to the other findings by the Commissioner of Income-tax (Appeals) – Taking into consideration all aspects of the case, the consideration accountable in the hands of the assessee-company for the purpose of section 50C is fixed at Rs. 2.5 crores - Decided partly in favour of assessee.
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2013 (11) TMI 207
Addition on account of low gross profit rate – There is a fall in the GP rate of assessee from 22.60% of the immediately preceding assessment year to 14.39% during the relevant assessment year whereas turnover of the assessee has increased from Rs.2.15 crores to Rs.4.91 crores during the relevant period - Held that:- the assessee has filed a statement showing variation in sale and purchase price and its effect on GP - The assessee has maintained day- to-day stock register, excise record and produce-wise quantitative details - The sale price of the assessee has not increased in proportion to the increase in the purchase price of the assessee - There is no adverse remark in the audit report regarding the assessee maintaining the day-to-day stock register – Decided against Revenue.
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2013 (11) TMI 206
Deduction u/s 80-IB(4) on account of insurance claim received on loss of stock – Compensation received for not supplying raw material – The insurance claim of Rs.90.91 lakh accepted by the insurance company comprised of the loss of stock-in-trade to the tune of Rs.85.07 lakh and the remaining amount towards plant and machinery - Held that:- The assessee adjusted rs. 80 lakhs in the previous year – Out of Rs. 10.91 lakhs from the remaining loss a sum of Rs.5.84 lakh was towards Plant and machinery – Following M/s.J.K.Aluminium Co. v. ITO [2011 (4) TMI 90 - ITAT NEW DELHI] - Deduction u/s 80-IB(4) allowed for Rs.5.07 lakh representing insurance claim in respect of loss of raw material - Decided in favour of the assessee. Compensation received for not supplying raw material – the compensation amount of Rs.3 lakh received by it from Crescent Chemsole Pvt. Ltd - Held that:- The assessee had to purchase raw materials from the market at higher price - The assessee has to show that there is a direct nexus of such income with the industrial undertaking – Partly allowed in favour of the assessee.
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2013 (11) TMI 205
Penalty u/s 272A(2)(k) – The exparte order passed by the learned CIT(A) vide order was under the challenge as to the imposition of the Penalty - Held that:- The penalty levied u/s.272A(2)(k) was cancelled for the respective assesses for the respective AYs as captioned in the cause title of this order by allowing the appeals under consideration - In consequence thereof, the respective Stay Petitions become infructuous - penalty levied u/s.272A(2)(k) against the assessee was not justified and as such cancelled the same by allowing the appeal of the assessee – relying upon Royal Metal Printers Pvt. Ltd. Vrs. Asst CIT [2010 (1) TMI 938 - ITAT, Mumbai]. The penalty u/s 272(A)(2) cannot be levied in a routine manner - Law was well settled that a bonafide breach cannot lead to a penalty u/s. 272(A) - Hindustan Steel Ltd. Vrs. State of Orissa 1969 (8) TMI 31 - SUPREME Court - in the present case of the respective assessees either Government bodies or aided by Govt., are public office and since the tax deduction and payment are made by treasury and there is undisputedly no default - There arises no reason for non-filing of TDS return with an intentional act or willful act to attract a quasi-criminal, imposition of penalty. Assessee contended that the penalty was imposed by the Additional CIT (TDS) u/s. 272A{2)(k) of the I.T. Act, 1961 being illegal, arbitrary, uncalled for and against the facts on record and the learned CIT(A) should have quashed the same - the explanation to show cause notice should have been considered by the learned Additional CIT (TDS) judicially and in accordance with law and hence the learned CIT(A) should have considered the same and he was not justified in dismissing the appeal - The taxes having been deposited the authorities below should have taken a liberal view as it is a quasi criminal proceeding and the question of mens rea was involved – Decided in favour of Assessee.
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2013 (11) TMI 204
Deduction u/s 80-HHE - Whether the 'total turnover' for the purpose of deduction u/s. 80-HHE would be the 'total turnover of the eligible unit' or 'the total turnover of all the units’ – Held that:- It was only the profits of the assessee's computer software business, christened as 'the eligible business', that would stand to be apportioned u/s.80-HHE(3) - it was only the total turnover of such eligible business that would stand to be taken in the denominator figure, with the export turnover having been already defined to be the qualifying export turnover of such business only - The assessee's manner of computation of deduction u/s. 80-HHE, thus, merits approval. It was only the profits of the eligible business, to the extent they were from or attributable to export out of India, which were subject to deduction under the section - No doubt, therefore, both global profits and global turnover could be considered for applying the proportionate turnover formula in determining the relevant profit, as indeed the language of the provision suggests - However, such a course is fraught with serious aberrations, leading to deduction being allowed on non-eligible profits on one hand, and being denied on the eligible profit, on the other. Non-segregation of the profits on the basis of activity, or even broadly, i.e., on the basis of trading and manufacturing sectors, which we find to have been the legislative response in respect of the para materia provision of s. 80-HHC by Finance Act, 1990 and Finance (No.2) Act, 1991, which also bore a similar computation formula based on the ratio of the relevant turnover, introducing some segregation in the computation mechanism of s. 80-HHC(3) and, correspondingly, concepts such as 'adjusted profits' and 'adjusted total turnover'. The provision of s. 80-HHE(3), however, has remained unchanged, so that the structural infirmity obtains - It was this rationalization that had guided the tribunal in interpreting the provision in a manner consistent with the intent of according the benefit there-under only to the profits from the specified, qualifying activity. The question of restricting the 'total turnover' to that of the eligible unit or business does not arise - A provision, even if beneficial, was to be read only in terms of its language, which was clear and unambiguous - If the intention of the Legislature was not to be found in the statute, its edict, it was to be found nowhere else - This was more so as not so reading may lead to the provision of s. 80HHE(3) being as rendered as of no consequence – Decided in favour of Assessee.
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2013 (11) TMI 203
Nature of Income - CIT(A) treated the income as income earned from investment in STCG for the A.Y. 2006-07 reversing the order by the AO u/s. 143(3) of the Income Tax Act, 1961 treating the same income as business income – Held that:- The appeal of the Department was allowed, and the AO was directed to treat the impugned income in question as earned through transactions made directly through ICICI Online as business income and assess the assessee accordingly - Assesse was engaged in business and not in investment - It was not the number of transactions per scrip alone that is relevant - The number and volume of scrips; the number of transactions; and the intention of assessee as demonstrated by the conduct, that were also the relevant factors - it was clearly revealed that the conduct of assessee was not that of an investor; rather, it showed that she was engaged in business of purchasing and selling shares - The number of transactions; the whole time engagement of assessee in making transactions according to the ups and down of the market to reduce the loss and make profit are the relevant factors which shows that assessee has been engaged in business/vocation and not as an ‘investor’, so far the assessment year in question is concerned. Not only a large number of transactions have been made directly through the ICICI Online, but the assessee has also made voluminous transactions through PMS - These transactions of purchase and sale have been made continuously and regularly throughout the year without any interval, showing that assessee was keeping a constant vigil on the ups and downs of the market, and purchasing and/or selling the shares accordingly - This type of conduct, it may be appreciated, cannot be said to be that of an investor; rather, has the characteristics of a business - The word “business” is a word of large and indefinite import - it is something which occupies the attention and labour of a person for the purpose of profit - it is an activity carried on continuously in an organized manner with a set purpose and with a view to earn profit - these attributes were present in the instant case. M.M. Nissim & Co. Versus Assistant Commissioner of Income-tax 11(3) [2007 (9) TMI 437 - ITAT MUMBAI] - The entirety of the transactions and the overall conduct of the assessee was to be taken, so that the same, being backed by delivery, were also considered as so, i.e., leading to STCG, and not business income, as claimed by the Revenue. The assessee’s case was not a case of a solitary transaction; rather, the sole motive of the assessee in making regular transactions of purchase and sale of shares is to earn profit by selling them at a higher rate - What the assessee in the case at hand was doing was a business of sale and purchase of shares as commodity, taking conscious decisions all the time to either buy, hold or sell a scrip by keeping a constant vigil on the market as also the developments in the economy as well as in relation to the shares held or to be held - Decided in favour of Revenue.
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2013 (11) TMI 202
Deduction u/s. 80IB(10) - Held that:- If a portion of the plot area was earmarked for roads after the assessee entered into development agreement and the plan was duly sanctioned by the competent authority - we cannot find fault with the assessee to deny the deduction u/s. 80IB(10) of the Act - Accordingly, we are of the opinion that the area of the plot available to the assessee for housing project is more than 1 acre - Accordingly, the claim of the assessee cannot be denied on this ground if it was available at the time of entering into development agreement and deduction u/s. 80IB(10) was to be given to the assessee. As per provisions of section 80IB(10) of the Act, the housing project should be on the size of a plot of minimum one acre. If the building project was sanctioned by the Municipal Corporation for developing the project in the area of one acre land or more, the assessee is entitled for deduction u/s. 80IB(10) of the Act. Non-production of Completion Certificate - The Assessing Officer was directed to consider the claim of the assessee - The project was approved by the Municipal Corporation of Hyderabad - As per certificate of assessee's architect the project was completed - The learned AR submitted before us that the assessee has completed the project by this date and the assessee is following contract completion method - The claim for deduction u/s. 80IB(10) was made by the assessee for the first time which was denied by the authorities on the reason that there was no completion certificate. The meaning of “date of completion” has been given in Explanation (ii) to clause (a) to section 80IB(10) - Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority - To grant deduction u/s. 80IB(10) it was mandatory to furnish the completion certificate of the housing project - The year of the assessment of income and connected deduction shall fall in the same assessment year - If the Revenue was taxing the profit in the year under consideration on the ground that the assessee was adopting "Percentage Completion Method" then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of "Percentage Completion Method" but tax the entire profit on completion of the project by applying "Project Completion Method - Decided in favour of Assessee.
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2013 (11) TMI 201
Nature of Lease - Whether the lease transaction was operating lease or financial lease – The transaction of the assessee was only a ‘financial lease’ and not that of ‘operation lease’ - following Asea Brown Boveri vs. IFCI [2004 (10) TMI 325 - SUPREME COURT OF INDIA] - The distinction between a “Finance lease” and an “operating lease” was set out in the Guidance Note on Accounting for Leases and Accounting Standard (AS) 19 - In a finance lease, the lessee selects the equipment & the lessor provides the funds, acquired the title to the equipment and allows the lessee to use it for its expected life - The lessee uses the asset for its entire economic life & all risks and rewards incidental to ownership are transferred to the lessee even though title may or may not be eventually transferred to the lessee. A finance lease is for a fixed period & non-cancellable. There is a fixed obligation on the lessee for payment of lease money & in case of premature termination, the lessor is entitled to recover his investment with expected interest. In substance, finance lease is a loan from the lessor to the lessee. In an operating lease, the lessor bears the risk of loss, the period is cancellable and lease rentals are not synchronized with the economic life of the asset. The assessee company claimed the lease rental by treating the said transaction as operating lease - However, in the assessment framed u/s 143(3), the AO disallowed the claim of impugned lease rental as he found the transaction was for the purpose of purchase of railway wagon by the assessee and assessee was the owner of the same by concluding the transaction as financial lease. Parial Disallowance of Interest – Held that:- Disallowance of proportionate interest cannot be made if the interest free advances have been made to the sister concerns for commercial expediency. Since in the instant case the assessee has conclusively proved that the amount has been paid to subsidiary companies for the purpose of business and no part of the amount of advance has been utilized by the Directors for their personal purpose and the entire amount has been utilized for the purpose of business, therefore, no proportionate disallowance of interest – Following the judgement of Taurian Iron and Steel Co. (P) Ltd. Versus Addl. CIT [2011 (12) TMI 410 - ITAT, Mumbai ] – Decided in favour of Assessee. Disallowance of Punitive Charges – Regarding 'punitive charges' as payments and not an offence or prohibited by law - According to the A.O., as per the provisions of Explanation to Sec. 37 any expenditure incurred by an assessee for any purpose which is an offence or prohibited by law shall not be deemed to have been incurred for the purposes of business and no deduction shall be allowed - It is the case of the Revenue that the same being a penalty paid to the Railways for violation of the rules and regulations, explanation to section 37(1) is attracted and therefore the same should be disallowed.
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2013 (11) TMI 200
Penalty u/s 271(1)(c) - The Assessing Officer had estimated net profit rate at 8% - In an appeal filed by the assessee in the quantum proceedings, the CIT(A) reduced the net profit rate from 8% to 5.18% and the order of CIT(A) was confirmed by Tribunal - The Assessing Officer had imposed penalty with reference to difference in estimated net profit rate sustained resulting into addition in income - Held that:- There was no reason to interfere in the order of CIT(A) deleting the penalty imposed u/s 271(1)(c) of the Income-tax Act, 1961 – Following Commissioner of Income-Tax Versus Chirag Ingots P. Ltd. [2004 (10) TMI 50 - MADHYA PRADESH High Court] - categorical finding was required to be recorded to prove the claim of the assessee as bogus while levying the penalty u/s 271(1)(c) - A categorically finding had also been recorded by the CIT(A) to the effect that despite extensive search operation, nothing incriminating was found/seized either in kind or in coin to substantiate that the income assessed and ultimately sustained on estimations, was, in fact, the concealed income earned by the assessee, since this was not conclusive and independently proved against the assessee on the strength of any evidence - We found that CIT(A) had dealt with various judicial pronouncements to arrive at a conclusion that it was not a fit case for levy of penalty - The detailed finding recorded by the ld.CIT(A) had not been controverted. While deleting the penalty, the ld. CIT(A) had categorically recorded a finding to the effect that no independent evidence was brought on record to prove beyond all shadows of doubt that the impugned sum ultimately sustained on estimations was the assessee’s income from undisclosed sources earned during the relevant previous year - As per CIT(A) unless there was a categorical finding of fact based on evidence to be brought on record against the assessee to this effect, the imposition of penalty u/s 271(1)(c) in respect of such addition made, without proving falsity in the explanation submitted and without bringing any evidence against the assessee was not justified – Decided against Revenue.
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2013 (11) TMI 199
Deduction u/s 10A - Exemption u/s 10A - Setting off of losses – Held that:- Following CIT v. Yokogawa India Ltd. [2011 (8) TMI 845 - Karnataka High Court] - The assessee was entitled to claim deduction u/s 10A of the Act for the STPI Unit - it was clear that the income of the section10A unit had to be excluded before arriving at the gross total income of the assessee - the income eligible for exemption under section 10A would not enter into computation as the same had to be deducted at source level. For the purpose of computation of relief u/s 10A of the Act, the foreign currency expenses have to be excluded not only from the export turnover but also to be reduced from the total turnover of the assessee – Explaining in CIT v. Tata Elxsi Ltd. & Others [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - when the expenses were reduced from the export turnover while computing deduction u/s 10A of the Act, the same should also be reduced from the total turnover in order to maintain parity between the numerator and the denominator - The AO was, therefore, directed to exclude the foreign currency expenses from the export turnover and also reduce the same from the total turnover of the assessee while computing the deduction u/s 10A of the Act. Transfer Pricing Adjustment u/s 92C(3) - Software Research and Development - Transfer Pricing – Computation of Arm's Length Price - International transaction – Arm’s Length Price - Assessee provided software research & development support services to its Associated Enterprise - Remunerated on a 'cost plus' basis - assessee adopted the Transactional Net Margin Method TNMM - Comparable - Comparability of the comparable relied upon by the TPO – Turnover filter is an important criterion in choosing the comparables - Inappropriate computation of operating margins of comparables and that of the Assessee - Following Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax[2013 (1) TMI 672 - ITAT BANGALORE]- Circle 12(4). BangaloreTreating foreign exchange gain or loss and provision for bad debts as non-operating in nature and fringe benefit tax as part of operating cost - AO was directed to work out the ALP of the assessee in accordance with the direction and if found that the difference in the margin of the assessee and the comparables was beyond 5% band-with recognized in proviso to section 92C(2) of the Act, then adjustment was required to be made to the reported value of the assessee's transaction with its AE. PRE-SALES AND MARKETING SERVICES - Following Lenovo (India) (P.) Ltd. v. ACIT [2012 (5) TMI 283 - ITAT BANGALORE ] The similar transaction with the associated enterprises for the subsequent years had been considered by the TPO and had been accepted without any ALP adjustments - There had to be a continuity and uniformity in the approach of the Revenue towards an issue and particularly in the case of the same assessee - the adjustments have been made only for the relevant assessment year, whereas similar transactions have been accepted to be at ALP for the subsequent years even though the same method had been followed by the assessee - When the facts and circumstances are the exactly the same, the Revenue cannot be permitted to take a different approach in two different assessment years.
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2013 (11) TMI 198
Assessment Order u/s 143(3) r.w.s. 147 of the Act - Re-opening of Assessment - Revenue contended that CIT (A) had erred in cancelling the reopening of assessment – Held that:- As seen from the copy of the satisfaction placed on record AO recorded “it was seen from the records that assessee had so arranged the affairs as to show extra ordinary profits from generation of electricity to avail higher 80IA deduction than admissible” - The extra profit was then worked out by AO on the basis of the information available in the record itself - In view of this since there was no failure on the part of assessee to disclose fully and truly all material facts, the order of the CIT (A) had to be upheld which was correct both on facts as well as on law - the Ld. CIT(A) had discussed extensively the reasons for reopening, the contentions of assessee and the decisions of various judicial authorities – the findings of Ld. CIT(A) as they were based on facts and applicable judicial principles was accepted –There was no dispute with reference to the fact that AO had issued notice under section 148 after four years from the end of the relevant assessment year - an assessment under section 143(3) was made earlier, the proviso to section 147 mandates that the reopening can be done only by the reason of failure on the part of assessee to disclose fully and truly all material facts necessary for assessment for that assessment year - Decided against Revenue. Deduction u/s 80IA - Assessee claimed deduction under section 80IA on self-utilized electricity produced in various generating units by taking the cost of sale at which it was procuring from various Electricity Boards and a note was accordingly left in the records - Held that:- There was no need to adjudicate the issue on merits by the CIT(A) once the reopening of the assessment itself was considered bad in law - The profit eligible for deduction under section 80IA had been rightly computed and allowed taking into account the market value of such goods as contemplated in section 80lA of the Act - The assessee has also objected to the re-opening of the assessment on the ground that the re-opening was done only on mere change of opinion – Following the Judgement of CIT, Delhi vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] and IL & FS Investment Managers Ltd. [2006 (11) TMI 181 - BOMBAY High Court ]. It has contended that all the details concerning the claim of deduction u/s 80IA in respect of power generating undertakings were disclosed in the computation of income and the Audit Report in form No. 10CCB - It was the contention of the assessee that the deductions u/s SOIA were allowed after due consideration of the details on record and submissions filed by the assessee, hence, any attempt to reopen the assessment on the same set of facts, was nothing but a change of opinion which cannot be a valid and legal ground justifying re-opening of the assessment - The assessee had also filed the assessment order passed u/s 143(3) to show that the deductions claimed by the assessee on these units were revised by the Assessing Officer, which only showed that the AO had, in fact, applied his mind to the issue of deduction.
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2013 (11) TMI 197
Whether the Tribunal while complying with the provisions of section 255(4) of the Act can consider the judgment of the Hon'ble High Court in the case of ABG Heavy Industries. Disallowance of Deduction u/s 80IA(4) - development of infrastructure facility as a whole or in part - Held that:- Taking the substance of the transaction, the assessee were entitled to all the profits in respect of the contract executed by them, hence the assessee would certainly be entitled to deduction under the provisions of 80IA as they have fulfilled all the other conditions - the Assessing Officer was directed to allow deduction u/s.80IA(4) of the Act to the assessee with regard to the projects in question for both the years - Following Deputy Commissioner of Income-tax, Central Circle-36, Mumbai Versus ABG Heavy Industries Ltd. [ 2010 (2) TMI 108 - BOMBAY HIGH COURT] and Ayush Ajay Construction Ltd. vs ITO [2000 (7) TMI 225 - ITAT INDORE ]. The assessee Company had been included as a sub-contractor for the all the other projects either the contracts were directly in the name of assessee company or in the name of the joint venture enterprise - The fact that the assessee had a tripartite agreement with the relevant authorities makes the assessee a party to the main contract work itself and which clearly shows that the assessee on their own right are contractors and not just sub contractors as normally understood - The assessee was the contractor vis-a-vis the portion allotted to them and not only subcontractors, i.e. a direct party to the main agreement - The assessee had entered into a main agreement, in their own right, can claim the benefit of section 80IA - assessee was otherwise fulfilling all the conditions they were entitled to deduction under the provisions of section 80IA. The action of the assigning and the work of construction undertaken by the assessee was recognised by the State Government and a tripartite agreement was executed between the assessee and the State Government through which the State Government had recognised that the assessee had stepped into the shoes of assessee and notified authorising the assessee to collect the toll tax for a particular period - Since the assessee company had rectified all act and deeds of its promoter and owned all the assets and liabilities of its promoter through an agreement of assignment executed between the assessee and ‘A’ after obtaining approval from the State Government, the assessee should be deemed to have undertaken the construction work since 1-4-1995 - Since the Government had provided this deduction in order to encourage economic growth of the country, the plenitude of exemption should not be whittled down, by laying stress on ambiguity here and there - If it was proved that, the assessee-company had obtained the status of a tenderer by virtue of a valid assignment, it should not be denied the benefit of deduction provided by the Central Government through introduction of sub-section (4A) of section 80 IA - The action of assessee could only be termed as a valid tax planning which was permissible under the law. Therefore, the assessee had fulfilled the requirements provided in section 80IA (4A)(ii) for claiming deduction, and, therefore, the Assessing Officer should have allowed the deduction claimed by the assessee company - Decided in favour of Assessee.
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2013 (11) TMI 196
Assessee’s Appeal – Disallowance of Deduction u/s 80I and 80 HH - Held that:- AR of the assessee fairly conceded that regarding allowability of deduction under these two Sections in respect of the income on account of FD interest, the issue was covered against the assessee – as per the decision in respect of FD interest income, for this income on account of interest on loan also, the AO was directed to allow benefit of netting if the assessee can established the nexus between interest expenditure and interest income and in that situation, only net interest income should be excluded from business profit for the purpose of allowing deduction under these two Sections Relying upon Lalsons Enterprises v. DCIT [2004 (2) TMI 294 - ITAT DELHI-E ]. The two issues of discount and transport income were covered in favour of assessee – there was no reason to take a contrary view in the present year and therefore, for these two items, we decide the issue in favour of assessee by following the Tribunal’s orders in earlier years. For all the remaining items, the main aspect i.e. allowability of these deductions for these incomes is decided against the assessee but for these remaining items, the issue was restored to the file of AO for granting benefit of netting income to assessee in case the assessee was able to establish nexus between expenses incurred, if any, for earning these income. In that situation, only net income should be excluded from the business profit for the purpose of computing deduction allowable to assessee under these two Sections – Decided against Assessee. Disallowance of Interest Expense - Held that:- Disallowance of small amount of interest was not justified - All the business payments were also made from the same bank accounts and business receipts were credited in the same bank account, it cannot be said conclusively that overdraft in the bank account on the date of payment of advance tax was on account of payment of advance tax and not on account of other business payments made on the same date or preceding dates - Considering all these facts, we feel that in the fact of the present case, the disallowance was not justified and we, therefore, delete the same – Decided in favour of Assessee. Allowability of Deduction u/s. 80I on Gross Profit – Held that:- Following CIT v. Amod Stamping [2004 (1) TMI 15 - GUJARAT High Court] and Joint Commissioner of Income-tax Versus Mandideep Engineering And Packing India P. Limited [2006 (4) TMI 75 - SUPREME Court ]- while computing the profits for the purpose of availing of deduction under section 80-I, the profits and gains of the assessee's business were not required to be reduced by the deduction admissible under section 80HH – Decided against Revenue. Allowability of Deduction u/s 80-I / 90IA / 80HH – Allowability of Deduction u/s 80J / 80JA / 80HH/ 80I / 80HH / - held that:- Following DCIT v, Harjivandas Juthabhai Zaveri And Another [1999 (12) TMI 5 - GUJARAT High Court ] The same goes to reduce cost and as a result, the profit remained same and therefore, deduction allowable to the assessee u/s. 80I of the Act was not required to be reduced on account of this receipt – For the benefit the assessee had to establish nexus between truck hire charges received and truck hire charges paid by showing that for the same income, expenses was incurred by the assessee and in that situation, the AO should exclude only net income on account of truck hire charges from profit of Mandali Division for computing deduction allowable to the assessee u/s. 80I, 80A and 80HH of the Act - it was not required to be excluded from business profit but if the assessee was not able to establish that all these receipts were nothing but reimbursement of expenses, then also the Assessing Officer should examine the alternative claim of the assessee i.e. benefit of netting should be allowed to the assessee - Decided against Revenue. Disallowance of Entertainment Expenses - Held that:- The issue should also go back to the file of Assessing Officer for fresh decision and if assessee can establish the amount of expenditure incurred for tea and coffee for employees, then no disallowance was called for to that extent - He should pass necessary order as per law as per above discussion after providing reasonable opportunity of being heard to assessee – Decided in favour of Revenue. Disallowance of Claim of Deduction u/s. 35AB - Order of Ld. CIT(A) was set aside on this issue and the matter was restored back to the file of Assessing Officer for fresh decision after examining the factual aspect and if it is found that this claim of the assessee in the present year was fulfilling this requirement u/s. 35AB of the Act i.e., all the expenditure was incurred by the assessee for acquiring technical know-how on or after 01-04-1986 and if the claim of the assessee is within the period of six years from the year in which the expenditure was incurred and the amount is also equal to 1/6th of such expenditure then the claim of assessee should be allowed. The Assessing Officer should pass necessary order as per law after providing reasonable opportunity of being heard to assessee – Decided in favour of Revenue. Disallowance Made u/s 40A(2) - Merely because the price paid to related party is excessive by price of Rs.0.01 per kg. which is less than 2% paid to the outsider, there cannot be any conclusive finding that price paid by the assessee to the related party was excessive or unreasonable without going into this aspect as to whether some other benefit is also received by the assessee or not from the related party as discussed above. Because of smallness of amount, we feel that going into these aspects will be a futile exercise and hence, we decline decline to interfere in the order of Ld. CIT (A) on this issue – Decided against Revenue.
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2013 (11) TMI 195
Expenses on Dealer's Commission - Held that:-The argument of the Authorized Representative that such dealer commission was allowed in the past, therefore, for the sake of continuity it may be allowed during the current year, was devoid of any logic - Assessment proceedings for each Assessment Year were different and independent, it does not mean that if by mistake a wrong claim allowed by the Assessing Officer in the earlier year, the same mistake will be repeated year after year –There was no ifirmity in the order of the Assessing Officer wherein he has disallowed a sum of Rs. 9,81,966/- out of the dealer commission which actually pertained to earlier years but was claimed as expenditure by the appellant company during the year - However, the prior period expenses cannot be allowed in the Assessment Year 2002-03. Addition to P.E. - accrual of income - Held that:- In order to treat any agent as P.E. within the meaning of Paras-4 and 5 of Article-5, it was very vital that such agent should fit into the description of "Dependent Agent" and had to perform either of the activities as mentioned in Articles-5(4) and 5(5), otherwise, it cannot be held that agent constitutes a P.E. of the foreign enterprise - VGCs were exercising comprehensive control over the branch of Varian India and that also bears entrepreneur risk in terms of collection of debtors and bad debt and sales return, etc. - in the case of indent sales, the sales made to the Indian customers are in pursuance of orders introduced and liaised by the assessee for which the assessee receives commission income from the VGCs - These indent sale orders produced by the assessee were not binding on the VGCs. They may accept or reject the orders completely at their own discretion and the assessee had no authority to negotiate or conclude contract on behalf of the VGCs - Further, the goods were delivered by the VGCs directly to the customers and all the risk associated with the sale of products lies with the VGCs and not with the assessee - Thus, the entrepreneur risk was not undertaken by the assessee - This also, inter-alia, means that the VGCs does not have any comprehensive control over the assessee = A lot of emphasis had been given by the Commissioner (Appeals) and the Assessing Officer on certain terms of obligation as per the D.R. Agreement - All those obligations which were undertaken by the assessee were only pre-sale and post-sale facilities provided to the customers by the assessee for which it was amply remunerated in the form of commission - There was nothing such obligation which binds the VGCs - In any case, these were mere administrative support functions and not the functions as were envisaged under Article 5(4). Whether the "Force of Attraction Rule" as given in Articles 7(1)(b) and (c) of Indo U.S. DTAA, Article 7(1)(b), Indo Australia, DTAA, Article 7(1)(b) and (c) of India Italy DTAA will apply in case of assessee so as to tax the profits of foreign enterprise, i.e., VGCs in the hands of the assessee in India – Held that:- The assessee, i.e., Varian Indian Branch of VIPL was not a dependent agent of VGCs and, therefore, it does not constitute a P.E. for various VGCs in India - once the assessee was not a P.E. of VGCs, then "Force of Attraction Rule" will not apply in terms of Article 7(1) of various DTAA. The attribution of 10% profit margin on the basis of global accounts of VGCs, as applied by the Assessing Officer, also had no legs to stand in view of the above conclusion and, therefore, the addition made by the Assessing Officer on this score and as confirmed by the Commissioner (Appeals) was deleted.
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2013 (11) TMI 194
Disallowance of Royalty - Held that:- Amount of royalty being paid was allowable as revenue expenditure and it cannot be treated as capital expenditure – Relying upon Gotan Lime Syndicate v. CIT [1965 (11) TMI 35 - SUPREME Court ] - The amount of royalty had to be allowed as revenue expenditure, as the said expenditure was in relation with the excavation of raw material - More you take the more royalty you pay - as amount of royalty in the case was directly linked with the volume of contract products - The more assets will produce, the amount of royalty will increase - In case assessee stops manufacturing of contract products the amount of royalty will not be payable - the amount of royalty which was linked with the volume of production was allowable as revenue expenditure. Disallowance of Know-How Fees – Held that:- The design acquired was not in relation to setting up of the plant or machinery but related to the process of manufacturing, the payments have to be considered as revenue expenditure as the acquirer does not obtain any asset of enduring nature - It was only the acquisition of information, guidance or payment for consultancy which is received by way of drawing and design and explains how the production process was to be carried on which will result into only revenue expenditure and not for acquisition of any capital asset - The amendment w.e.f 1.4.98 had not alter the situation - Whatever are capital expenditure which were in the nature of intangible assets and which were not eligible for depreciation earlier, were only now eligible for claim of depreciation u/s 32 but cannot be expended to mean that what were revenue expenditure was now to be treated as capital expenditure after the amendment Thus, the amount being revenue expenditure, was allowable as such u/s 37(2) of the Act. Relying upon Commissioner Of Income-Tax, Bombay City I Versus Tata Engineering And Locomotive Co. Pvt Limited [1979 (2) TMI 20 - BOMBAY High Court ] - The assessee merely acquired technical know-how so that it could manufacture the products as required but such know-how was not in relation to setting up of the plant or machinery - It will thus amount to acquisition of non-guidance and payment for consultancy and for which the assessee had received the design, drawing etc. so that the products were manufactured as required - Accordingly, the amount will be allowable as revenue expenditure. Disallowance for Use of Intranet Facility – Held that:- The network was being used by Denso group companies in India and cost incurred was shared - We are unable to uphold the finding of the AO that the expenditure in question cannot be allowed, as the cost sharing agreement is a sham agreement - When costs were being shared, we do not understand as to how specific charges or quantification of charges are asked to be mentioned in the agreement - Non-mentioning of the same in the agreement cannot be a ground for disallowance - No R.B.L approval was required or payments were made in India - The Assessing Officers of Denso Haryana Pvt. Ltd. and the assessee were the same - When Denso Haryana Pvt. Ltd. made a payment to a foreign company, the AO had not doubted that expenditure - When Denso Haryana Pvt. Ltd. was recovering a part of the expenditure from the assessee, cost reduction is accepted but the expenditure was doubted in the hands of the assessee - When an understanding was arrived at between different entities, the A.O. cannot sit in judgment as to the date of implementation etc. On these facts, we are of the opinion that the disallowance was made based on conjectures and surmises. Disallowance of Technical Service Expenses – Held that:- The expenses incurred for technical services provided by Benson Corporation, Japan, we found that during the course of assessment, the Assessing Officer had disallowed, the same was rectified u/s 154 and the same was reduced - We found that assessee had incurred these expenditure for conducting training of its employees in India as it facilitated the assessee's trading and manufacturing operation in India under agreement with Denso Corporation, Japan – Following Hindusthan Aluminium Corporation Limited Versus Commissioner Of Income-Tax [1986 (1) TMI 88 - CALCUTTA High Court] and Commissioner Of Income-Tax, Gujarat II Versus Mehta Transport Company [1985 (7) TMI 22 - GUJARAT High Court] - the CIT(A) deleted the addition and held that assessee had incurred the above expenditure for training of its employees which facilitated the assessee's trading operation to be carried on more efficiently or more profitably - No interference is required in the order of the CIT(A) for deleting the disallowance of expenditure incurred on training of the employees. Additions Made u/s 92CA(3) - Whether the CIT(A) had erred in deleting the addition made by the A.O. on account of TPO-1's order u/s 92 CA(3) dated 21.02.2005 on account of adjustments in the ALP of international transactions of the assessee – Held that:- Sec. 92C(1) referred to ALP in relation to an international transaction - Rule 10B(1)(e) read with section 92C deals with TNMM, and it refers to only net profit margin realized by an enterprise from an international transaction or a class of such transaction, but not operational margins of enterprises a whole. The net margins on the transaction was the basis of comparison - Only in cases where profits of an enterprise were attributable to similar transactions and when an enterprise does not have any other transaction or activity which was not similar, and which distorts the profits, then probably the net margin derived by an enterprise may also be the net margin of a transaction - In other words, when in an enterprise, only similar transactions were undertaken, i.e., all the transactions were of the same type, same class and of similar variety, and the enterprise does not have any other transaction which was not similar, in such a situation, the operating margins of the enterprise would be the TNMM of a class of transaction - The assessee imports raw-materials and components - In our view the most appropriate method is the CUP method As there was a high degree of product comparability, in our considered opinion CUP method was the most appropriate method to be followed in the case on hand - The finding of the learned CIT(A) on this issue does not convince us - If there were significant difference in the facts and circumstances between the transactions of import of raw-material and components from Japan vis-a-vis procurement of raw-material and components from local Indian vendors, suitable adjustments can be made for the same - The method itself cannot be rejected. Hence, this issue is decided in favour of the Revenue. Whether future data can be taken for the purpose of comparables - On this issue we uphold the order of the Commissioner of Income-tax (Appeals) that the Transfer Pricing Regulations do not contemplate taking into account future data for the purpose of bench marking - Hence in respect of 7 components, the TPO's action in using future data is rightly held as not in consonance with Transfer Pricing Provisions. Whether the valuation of goods accepted by the customs authority should be considered for the purpose of arriving at ALP - The valuation of goods by the customs authorities are done for the different purpose and in different context. When the imports are over-valued, the Customs Authorities are most likely do not disturb the value for the reason that, they could charge higher customs duty, whereas under Transfer Pricing Regulations, an attempt is being made to determine the arm's length price.
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2013 (11) TMI 193
Arm's length price - Transfer price adjustments - Characterization of Business – Benefit of Section 92C(2) - Nature of Assessee – Service provider or Not – Entitlement of Commission - Ordinary Commission Agent or Distributor - Distributor of the Associated Enterprises undertaking the task of installing and commissioning the service of Associated Enterprises and thereby assuming all the normal risk of the full fledged distributorship including the credit risk – The agreement between the assessee and the Associated Enterprises indicated that the assessee was a distributer of the Associated Enterprises - Held that:- The assessee cannot be categorized as distributer but as a service provider only - Moreover in subsequent order of the Transfer Pricing Officer for A.Y. 2006-07 had held assessee as commission agent in similar set of facts which justify the view of CIT(A) on the issue in the year under consideration - Though every assessment year was independent assessment year for the purpose of taking any legal view on taxation, but cardinal principle of interpretation was that consistency should not be disturbed unless facts and circumstances are different - On the proper analysis of the assessee's functions, the CIT(A) was justified in holding that assessee was not a distributer but a service provider alone and entitled for commission on service provided by it - The reasoned factual finding of the CIT(A) needs no interference. The characterization of the assessee not as a distributor but as a service provider was also confirmed in the subsequent order of the Transfer Pricing Officer for the AY 2007-08 - appellant was not found a distributor but as a service provider by the CIT(A) - The CIT(A) held that the Transfer Pricing Officer was wrong in changing the Profit Level Indicator (PLI) from Operating Profit/Total Cost to Operating Profit/Sales because the income of the assessee is from the commission and the cost base was not tainted by any related party activity - Therefore, the correct Profit Level Indicator was Operating Profit/Total Cost - In normal circumstances, a trader carries inventory risk and stores the goods for future sale - A trader also carries the risk of goods being unsold - The appellant does not carry any such inventory risk, since it does not maintain any stock for resale purposes. The commission was calculated based on the sale proceeds in India and the cost to the Associated Enterprises - The Associated Enterprises was well within its right and also based on commercial principles to source the supply of furniture from anywhere - In case Associated Enterprises had sourced the supply of furniture from its own related entities namely Haworth Furniture Shanghai Company Ltd. (China) or Haworth Australia or Haworth Holland as mentioned by the Transfer Pricing Officer. It does not change assessee from commission agent to distributor - The agreement does not bar in any way such transactions between the group entities. The facts as categorically mentioned by the Transfer Pricing Officer that the goods were directly shipped from the group companies to the buyers in India makes the point more clear that the assessee was not a distributor, it was only a facilitator for such transactions and for which it receives commission - Decided against Revenue.
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2013 (11) TMI 192
Application for Restoration of Appeal - Period of Limitation - Whether the ex parte order passed by the Tribunal can be recalled or rectified within the terms of section 254(2) after the expiry of limitation period of four years - Held that:- The date of order, as envisaged in section 254(2) should be construed to mean the date when the order was received or communicated to either party - In the case, when the Assessee had received the order, the Assessee was well within the limitation to file the present miscellaneous application within the scope of section 254(2) of the Act, for recalling of the ex parte order. The above provisions provide that the rectification of any mistake apparent from the record or to amend any order passed by the Tribunal under sub-section (1) of section 254, can be done suo motu or when such mistake is brought to its notice and rectification is sought by the Assessee or the Department. The time frame prescribed is "four years from the date of the order Following the Decision of Commissioner Of Income-Tax. Versus Multiplan India (Private) Limited. [1991 (5) TMI 120 - ITAT DELHI-D] - the order sought to be recalled had been passed ex parte and had not been adjudicated on merits, therefore the order was recalled as the assessee was prevented by a reasonable and sufficient cause for not putting up the appearance on the date fixed for hearing - Therefore, in the interest of natural justice - the order for hearing of the appeal on merits was recalled - The Registry was directed to fix the appeal on out-of-turn basis within a period of three months - The Registry was also directed to serve the notice at the changed address of the assessee, as given in the Affidavit filed along with the present miscellaneous application – Decided in favour of Assessee.
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2013 (11) TMI 191
Business Income - Whether gains shown by the assessee under the short term capital gains can be treated under the head “Business Income” – Held that:- There was no reason to interfere with the order of the learned CIT(A) in holding the gains arising from sale and purchase of shares as capital gain - It was also to be noted that the AO treated only short term capital gains as business income where as long term capital gains on the same portfolio was accepted as such - The case clearly demonstrated that the intention of the assessee to hold the shares as investment and not stock in trade - The motive of the transaction of sale and purchase was not to realize the profit at the earliest possible occasion but to retain share for appreciation of the value - It was evident from the fact that the unrealized gain in respect of shares which were held by the assessee at the end of the financial year was more than the capital gain offered by the assessee - If the motive of the assessee was to realize the profit in the volatile conditions of the market, then the assessee would have sold the shares instead of retaining the same at the end of the year. No benefit of reduction in value of stock and payment of STT was obtained by the assessee in any of the years indicate that the assessee was only an investor and not a trader - The reason for offering the five transactions as business income was also properly explained as punching errors by broker and sale during non-delivery period of stock exchange which have been considered as speculative in nature. The transactions cannot be treated differently in the year under consideration - Even otherwise, if the investment in the earlier year is treated as stock in trade in this year then in view of the provisions of section 45(2), the difference in the market price and the cost as shown in the books of account would be treated as capital gain.
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2013 (11) TMI 190
Adjustment to Arm's Length Price u/s 92A - Comparability of the Comparable relied upon by the TPO - Transfer pricing adjustments - selection of comparables - Held that:- comparables of companies having turnover of less than ₹ 2000 crores and above ₹ 200 crores only need to be considered – Companies having turnover of more than 200 crores have to be eliminated from the list of comparables - ‘Turnover filter’ to be used as a guidelines for selection of companies as comparables in Transfer Pricing – Relying upon Genisys Integrating Systems (India) (P.) Ltd.[ 2011 (8) TMI 952 - ITAT BANGALORE] - for the purpose of classification of companies on the basis of net sales or turnover and also taking into consideration the Indian scenario, the classification made by Dun & Bradstreet is more suitable and reasonable. Computation of deduction u/s 10A of the Income Tax Act – Interpretation of Total Turnover & Export Turnover under 10A - Held that:- While computing deduction under section 10A of the Income Tax Act, 1961 expenditure incurred by the assessee, if excluded from the Export Turnover should also be excluded from the Total Turnover - Following CIT v. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] There should be uniformity in the ingredients of both the numerator and the denominator of the formula, Section 10-A was a beneficial section - It was intended to provide incentives to promote exports - If the export turnover in the numerator was to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator - The reason being the total turnover included export turnover - The components of the export turnover in the numerator and the denominator cannot be different The grievance of the assessee projected in the aforesaid grounds would get redressed, if the AO was directed to reduce the communication and travel expenses from the export turnover as well as the total turnover, while computing deduction u/s. 10A of the Act.
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2013 (11) TMI 189
Transfer Pricing Adjustment – Held that:- The TPO was directed to verify the claim made by the assessee whether the sum was already excluded and thereafter, arrived at the operating income - If the operating income was arrived at after excluding by the assessee in TP study, then no further reduction of the said amount was warranted - Hence, this issue was restored to the file of Assessing Officer/TPO for verification and necessary action, if required. No submissions/arguments were raised in the course of hearing with regard to other issues of TP adjustment, apart from the above discussed issues - Hence, the issue related to rejection of use of non-contemporaneous data, the TPO's action in taking recourse under section 133(6) without giving an opportunity of cross examination to the assessee, filter of onsite turnover 75% etc. are not considered/ adjudicated. Calculation of operating income and net margin - The Assessing Officer/TPO was directed to work out the ALP of the assessee in accordance with the directions of the Bench and if found that the differential in the margin of the assessee and the comparables is beyond 5% bandwidth recognized in proviso to section 92C(2) of the Act, then adjustment was required to be made to the reported value of the assessee's transaction with its AE. Due to non-availability of full information about the segmental details as to how much was the sale of product and how much was from the services, therefore, this entity cannot be taken into account for comparability analysis for determining arms length price in the case of the assessee - Neither the TPO nor the DRP have noticed that there was bound to be a difference between the Assessee and Megasoft and the profit arising to the Megasoft as a result of the existence of the software product segment and no finding had been given that reasonably accurate adjustments can be made to eliminate the material effects of such differences - The Assessing Officer/TPO to exclude, after due verification, those comparables from the list with the related party transactions or controlled transactions in excess of 15% of the total revenue for the financial year 2006-07.
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2013 (11) TMI 188
Disallowance u/s 40(a)(i) – The tribunal observed that it was for the assessee who was a member of KPMG International to satisfy the adjudicator with all possible evidences that KPMG International was a mutual concern, the tribunal thereafter set aside the appeals to the file of CIT(A) with direction to adjudicate the issue raised by the assessee on the chargeability of income-tax on payments made to M/s. KPMG International - Both the parties agreed that the facts in the present appeals were identical and therefore there was no objection to the matter being restored to the file of CIT(A) following the earlier decision of the tribunal - We therefore set aside the orders of CIT(A) and restore the issue to the file of CIT(A) for passing fresh orders after necessary examination in the light of observations made above and after allowing opportunity of hearing to the assessee - the order passed by the Commissioner (Appeals) was set aside and restore the issue back to the file of the Commissioner (Appeals) for de novo adjudication in the light of the decision of the Tribunal given in assessee's own case for assessment years 1997-98, 2005-06 and 2006-07, which are the latest orders. Disallowance u/s 40(a)(i) in respect of reimbursement of expenditure and professional fee - Held that:- Taxability in one country was not sine qua non for availing relief under the treaty from taxability in other country - All that was necessary was that a person should be liable to tax in the contracting State by reason of domicile, resident, place of management, place of incorporation or any other similar criterion which refers to fiscal domicile of such person - If a fiscal domicile of a person was in the contracting State, which in the present case had not been doubted is in U.A.E. then was to be treated as resident of that contracting State irrespective of whether or not that person was actually liable to pay tax in that country - Liable to tax in the contracting State cannot be implied as the person is actually liable to tax but would also cover the cases where the other contracting State had the right to tax such person – Following Assistant Director of Income-tax Versus Green Emirate Shipping & Travels [Mumbai] [2005 (11) TMI 239 - ITAT MUMBAI] - It was immaterial whether or not such right had been exercised - We, accordingly, reject the basis for deducting the TDS u/s 195 by the Assessee for making the payment – Decided in favour of Assessee. Disallowance of Expenses - Disallowance on account of Reimbursement of Various Expenses towards air fare, conveyance, telephone, hospital bills, etc., made to KPMG, Dubai – Held that:- On reimbursement of expenses, there was no requirement to deduct TDS - Otherwise also, it was a settled principle of law that obligation to deduct tax arise only if the sum paid was taxable to tax in India - There had to be some element of income embedded in the remittances – Following G.E. India Technology Cen. (P.). Ltd. v. CIT2010 (9) TMI 7 - SUPREME COURT OF INDIA - obligation to deduct tax was limited to the appropriate portion of income which was chargeable under the Act. Further, on the issue that provisions of section 40(a)(i) cannot be applicable on reimbursement of expenses, had been upheld by various decisions - we hold that no TDS was deductible on the reimbursement of expenses – Decided in favour of Assessee. Deletion of Additions made - Whether Deleting the addition of reimbursement of professional indemnity insurance charges and bank guarantee charges holding that these amounts were only reimbursement of actual expenses and hence were not subject to TDS while remitting to foreign concern – Held that:- Following V. R. Entertainers (P.) Ltd. Versus Income-tax Officer (TDS) - 3(5), Mumbai [2011 (5) TMI 308 - ITAT MUMBAI] – the ground was restored to the file of the Commissioner (Appeals) for deciding the issue afresh. Deletion of Additions Made u/s 40(a)(i) - Whether the CIT(A) erred in deleting the addition of u/s 40(a)(i) of the Act without appreciating the reasoning given – Held that:- None of the payments which were not liable or chargeable to be taxed in India, no TDS was required to be deducted under section 195, therefore, the findings given by the Commissioner (Appeals) was factually and legally correct and, accordingly, the same was hereby affirmed - Sum paid by the appellant(s) to the foreign software supplier was not a "royalty" and that the same did not give rise to any "income" taxable in India and, therefore, the appellant(s) was not liable to deduct TAS - However, the High Court did not go into the merits of the case and it went straight to conclude that the moment there was remittance an obligation to deduct TAS arises, which view stands hereby overruled - Since the High Court did not go into the merits of the case on the question of payment of royalty, we hereby set aside the impugned judgments of the High Court and remit these cases to the High Court for de novo consideration of the cases on merits - The question which the High Court will answer was-whether on facts and circumstances of the case the Tribunal was justified in holding that the amount(s) paid by the appellant(s) to the foreign software suppliers was not "royalty" and that the same did not give rise to any "income" taxable in India and, therefore, the appellant(s) was not liable to deduct any tax at source.
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2013 (11) TMI 187
Penalty u/s 271(1)(c) - Held that:- Penalty will not merely be imposed because it was lawful to do so - Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances - In respect to AY 1991-92, the addition made by AO on account of cash credit and gift remained as against the assessment made by AO - Even in the penalty order, the AO had not brought out any reason how these amounts were concealed income whereas the identity of the creditors, creditworthiness and genuineness of transaction is proved except the negligible amount and that also due to lack of evidence - In respect to other additions, the AO had only made estimates. Hindustan Steel Ltd. Vs. State of Orissa [1969 (8) TMI 31 - SUPREME Court] - even if a minimum penalty was prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there was a technical or venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender was not liable to act in the manner prescribed by the statute - following the Hon'ble Supreme Court, we direct the AO to delete the penalty in AY 1991-92 - In respect to AY 1992-93, the assessee offered explanation before the lower authorities i.e. the AO as well as the CIT(A) during assessment proceedings and also during penalty proceedings - The relevant explanation was that there was no difference as such or the difference was very negligible. The jewelleries explained by the assessee and that was not found to be false by the AO - The explanation offered by assessee was not negated - as per rule of evidence there was distinction between set of facts ‘not proved' and facts disproved and facts proved - Benefit of the principle that mere non-satisfactory nature of explanation furnished cannot amount to proof of falsity of explanation furnished can apply in case the fact-finding authority reached to a stage where it can only conclude that the fact alleged was ‘not proved' which would result that except rejection of the explanation furnished by the assessee, there was no material to sustain the plea of concealment - once the explanation was not held to be false, the penalty cannot be sustained - Decided in favour of Assessee.
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2013 (11) TMI 186
Disallowance of Depreciation on Goodwill – Payment Made Over and Above the NAV – Slump Sale Agreement – Business Transfer - appellant contended that as part of business transfer there were certain other intangible assets that were acquired viz., knowhow, employees, business information, business records - Held that:- The specified intangible assets acquired under slump sale agreement were in the nature of "business or commercial rights of similar nature" specified in Section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that Section - Decided in favor of assessee. Areva T & D India Ltd. v. DCIT [2012 (4) TMI 79 - DELHI HIGH COURT] - applying the principle of ejusdem generis, which provided that where there were general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression "business or commercial rights of similar nature" specified in Section 32(1)(ii) of the Act, it is seen that such rights need not answer the description of "knowhow, patents, trademarks, licenses or franchises" but must be of similar nature as the specified assets – Decided in faovur of Assessee. Provision for Liquidated Damages - Expenses Towards Information Technology & Marketing Support Activities - Disallowance of the share of common expenses – Held that:- Held that:- Disallowance of warranty provision, the reasoning adopted by the Assessing Officer as well as CIT(A) was that the assessee had only followed approximation method instead of taking into consideration the liquidated damages as claimed by the concerned parties – in the absence of any record maintained on the claim raised by the assessee, the CIT(A) had rightly held that the liability in question was an unascertained one and not allowable - Consequently, qua this ground of the assessee, we confirm the findings of the CIT(A). The CIT(A)’s order that on the one hand he was directing the Assessing Officer to verify and allow the expenditure and on the other hand, he had disallowed the entire expenditure claimed by the assessee unmindful of the fact that the Assessing Officer himself had accepted the same - the findings of the CIT(A) in this regard were mutually contradictory. The whole expenditure claimed by the assessee as capital expenditure” was disallowed and directed the Assessing Officer to pass a fresh order after due verification of the claim raised by the assessee in accordance with law by affording adequate opportunity of hearing. Accordingly, this ground is partly accepted for statistical purpose.
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2013 (11) TMI 185
Disallowance of Administrative and Other Expenses as pre-operative expenses – Whether the CIT (A) erred in confirming the action of the AO in disallowing the administrative and other expenses - Held that:- The business should be construed set up as the assessee obtained necessary approvals, recruited requisite personal, procured requisite machinery etc. – Following CIT v. Saurashtra Cement & Chemical Industries Ltd. [1972 (8) TMI 19 - GUJARAT High Court] - the assessee had successfully identified certain mineral rich blocks too - the expression 'setting up' means 'to place on foot' or to establish or 'to ready to commence' - the assessee's business was set up in this year and in fact commenced too - The arguments of the assessee were valid and the claim of the assessee in respect of the debiting the sum to Profit and Loss account in this year is proper - describing the expenditure as pre-operative ones was incorrect. Nature of Interest Receipts and Tax Treatment - Charging of Interest u/s 234B OR 234C - Whether the CIT (A) erred in confirming the action of the AO for taxing the interest income under the head "income from other sources" – Held that:- The interest receipts are earning after set up of the business of assessee - Therefore, this issue requires fresh adjudication considering our finding on the main issue discussed and adjudicated above i.e. whether the business of assessee is set up in the year under consideration or not – Following Commissioner of Income-Tax Versus Bokaro Steel Limited [1998 (12) TMI 4 - SUPREME Court] - the business is set up in the year under consideration and the expenses as an allowable expenditure in the year under consideration. As such, the orders of the Revenue do not contain requisite details on the source of the funds kept with the banks which yielded interest income and the details related to the source of these funds kept with the Banks i.e interest bearing funds/non-interest bearing funds/excess funds or otherwise own funds of the assessee etc. In the set aside proceedings, AO is directed to examine these issues afresh and adjudicate the same.
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2013 (11) TMI 184
Taxability of Non-Compete fees – Capital gain vs Business Income or capital receipt not chargeable to tax - Held that:- post amendment in Sec. 28 with the insertion of Clause (va) to section 28, the Non compete fee of ₹ 5 crores received by the assessee is liable to be taxed under the head profits and gains of business or profession. - Decided against the assessee. Regarding exemption provided u/s. 28(va) - held that:- in the present case, there is no transfer of any capital asset therefore there is no question of the applicability of the exemption provided in sec.28[va] therefore the receipt is rightly being taxed under the head capital gains.
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2013 (11) TMI 183
Deduction u/s 10A - Reduction of telecommunication expenses and expenses incurred in foreign currency - Held that:- for the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula - Following decision of CIT v M/s Tata Elxsi Ltd. & Others [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - Decided against Revenue.
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2013 (11) TMI 182
Re-opening of assessment u/s 147 of the Income Tax Act – Invocation of proviso to Section 147 of the Act - Whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the year in question – Held that:- During the course of original assessment proceedings the Assessing Officer had raised a question on the issue of the claimed bad debt and on the provisions of warranty and current liabilities - Tax Audit Report filed by the assessee was already there on record on the basis of which reopening of assessment u/s 147 was initiated after recording the reasons. Thus it cannot be alleged that the assessee had not disclosed all the material and relevant facts fully and truly during the course of original assessment – No reason to interfere with the finding of the ld. CIT (A) that initiation of reopening proceedings in the present case was barred under the proviso to Section 147 of the Act – Decided in favor of Assessee.
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2013 (11) TMI 181
Allowance of expenditure on the warranty/guarantee – Addition of claim of loss of Rs. 2016607/- - Held that:- Claim of loss of Rs. RS.2016607/- was sustained by the assessee company in the normal course of business - It is an established business practice that in cases of setting up of plant and machinery/ manufacturing units, normally, performance guarantee and warranty agreements are executed between the supplier of plant and machinery and the buyer. Therefore, any defects/mistakes pointed out/detected during the currency of warranty/performance guarantee, it is the contractual obligation on the part of the supplier to remove those defects. In the present case, the loss of RS.20,16,607/- was sustained by the assessee company on account of rectifications carried out with respect to the palm oil mill established at Pothapalli (Andhra Pradesh) and supply of Hydraulic Bunch Hopper and skid steer system – Decided against the Revenue. Classification of expenditure as Revenue expenditure or capital expenditure – Expenditure of Rs. 10.12 lacs on account of payment of membership fee and registration fee to Bio Diesel Association – Held that:- Expenditure in this case has been incurred in connection with enabling engineers and other technical staff to participate in conferences and discussions organized by the Bio Diesel Association of India. The discussion held in the conferences were academic in nature and highlight the constraints faced by the industry and the new technologies and trends emerging as a result of globalization of economy. The problem faced in day to day working of bio diesel industry also come up from discussions and suggestions made during such discussions help the technical staff in solving the day to day problems – The expenditure is held as Revenue expenditure – Decided against the Revenue.
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2013 (11) TMI 180
Value of property arrived at by DVO has not been objected to by assessee at earlier stage - Stamp Valuation Authorities have assessed the value of property for stamp duty purposes at Rs.5,23,000/- - As the value adopted by assessee not agreed by A.O, the matter may be referred to the DVO as per section 50C(2) of the IT Act - DVO opined value at Rs.4,14,870/- - This figure was agreed to by the AO in the remand report – Held that:- Assessee never objected to the valuation report submitted by the AVO at Rs.4,14,870/-. If the assessee was at all aggrieved against the valuation report at Rs.4,14,870/-, the assessee should have raised objection to said valuation report at the proceedings before the ld. CIT(A) or in the remand proceedings before the AO. Since the assessee did not object to the report of DVO filed u/s. 50C(2) of the IT Act, therefore, the assessee could not be allowed to dispute the same report at this stage. DVO in the valuation report has referred to the basis of the circle rate adopted by him as per orders issued by ADM(F)/Sub- Registrar on 15.01.2003 effective at that time on sale of shops – No material has been produced against the basis adopted by DVO - If the assessee felt aggrieved against the rate taken by the DVO, it would have been proper for the assessee to raise objection on the basis of some material or evidence before the DVO, before the AO at the remand proceedings or at least before the ld. CIT(A). The assessee did not choose to do anything in the matter and merely raised the objection that since valuation was less than 15% in difference, therefore, no addition should be made. Such a plea was alien to the provisions of section 50C of the IT Act. Further section 50C is a special provision for full value of consideration in certain cases and deals with the transfer of capital asset by the assessee in land or building or both - ld. CIT(A) on proper appreciation of provisions of section 50C and the facts of the case rightly concluded that the valuation of sale consideration is to be taken at Rs.4,14,870/- as per valuation report and since cost of acquisition is admitted by the assessee at Rs.3,85,748/-, therefore, the addition was rightly restricted to Rs.29,122/- - Further, assessee has no evidence to support the plea of payment of brokerage on sale of property, therefore, the claim of assessee for such deduction has rightly disallowed by the ld. CIT(A) – Decided against the Assessee.
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2013 (11) TMI 179
Notice u/s 153A to be invalid – Notice issued not in accordance with section 282 of the Income Tax Act – Held that:- As held by Commissioner(A), no search and seizure action u/s.132(1) was carried out in the premises of appellant and hence notice u/s.153A was issued not in accordance with the provisions of law - The Assessing Officer has not followed the provisions of Section 282 of the Act - He should have served the notice on the appellant company or on the official liquidator by post or as if it were summons issued by a Court under the Code of Civil Procedure, 1908 - Such notice should have been addressed by him to the official liquidator or to the person who manages or controls company's affairs. The Assessing Officer has not done his job in accordance with the Section 282 of the Act. In fact, he not sent any of the notices by post or through a process server. He has adopted only the mode of substituted service by way of affixture - Assessing Officer has also not followed order V, Rule 17 of the Code of Civil Procedure, 1908, which mandates that the substituted service by affixture to be adopted only if the person refuses to sign the acknowledgement, or the serving officer after using all due and reasonable diligence, cannot find the defendant who is absent from his residence etc - Since the revenue has not challenged the order of the Commissioner of Income Tax(Appeals) for the Assessment Year 2007-08; therefore, the appeal filed by the assessee has become infructuous when the notice issued u/s 153A and u/s 142(1) has been held as against the provisions of law and consequently assessment on the basis of the said invalid notices, would not survive – Decided in favor of Assessee.
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2013 (11) TMI 178
Income of AOP, when it has not offered any income and profit of business has been diverted to the members of AOP – Held that:- Assessee A.O.P. has not offered any income since its formation – A.O. rejected the books of accounts u/s 145 of the Act and thereafter, after giving credit of recovery made on account of stores and material supplied by Kandla Port Trust at Rs.1,62,87,262/-, worked out the gross receipts at Rs.1,17,33,378/-(Rs.2,80,20,640-Rs.1,62,87,262/-) – A.O. estimated the net profit at 5% of the receipts at Rs.5,86,669/- and added in to the income – Decided against the Assessee. Applicability of section 40A(2) of the Income Tax Act – Held that:- For the purpose of invocation of this section one of the essential ingredient is that where an assessee incurs any expenditure and the AO is the opinion that such an expenditure is excessive, then the unreasonable amount is not to be allowed as a deduction – In the present case, AO has also raised a question quote "Now question arises as what is the nature of receipts was it loan/advance/relinquishment of right/gift. Answer is as simple as that these are payments by assessee towards sub-contract for the work executed for Kandla Port Trust" unquote - This aspect requires an indepth adjudication on the basis of the agreements executed between the parties and the constitution of this AOP on the basis of which the alleged amount was transferred in the hands of the members - Restored back to the file of ld.CIT(A) for de novo adjudication.
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2013 (11) TMI 177
Assessment of Undisclosed income u/s 69A of the Income Tax Act - Assessee had received a sum of Rs.46.55 lakhs from a Trust called Kuriakose Elias Trust, Trivandrum during the financial year 2004-05 in settlement of his dues, which are due from a person named Shri M.R. Somarajan, Amba Rubber Industries, Thampalakkadu, Kanjirappally, Kottayam District – Held that:- Ld CIT(A) has placed much reliance on the opinion given by the Government examiner of questioned documents. It is a well settled proposition of law that the strict rule of evidence is not applicable to the income tax proceedings and the issues can be decided on the basis of preponderance of probabilities - Signatures recorded in the receipts, final agreement and cheque needs to be verified - Opinion given by the Government Examiner with regard to the difference in the signature and handwriting would gain importance only if proper explanation is offered to the contradictions Identity of the assessee, who is in receipt of money, has been put in question – Held that:- It is a well settled proposition of law that the retraction can be accepted only on the basis of evidences and explanations - Tax authorities have not taken any step to verify the address in order to ascertain the correct identity of Mr. Alex George(assessee), particularly in the circumstances of the claim that the Alex George is a different person and not the assessee. The father's name has been mentioned as "K.C.George". In most of the situations; the father's name may not be alike, though the personal name may be alike - Restored the matter to Commissioner(A)’s file with the direction to cause enquiries on the above said lines and also such other enquiries that may be required and then take appropriate decision in accordance with the law.
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2013 (11) TMI 176
Unexplained cash credit u/s 68 of the Income Tax Act – Onus of proof on the assessee to explain the case credit – Held that:- Appellant did not receive the gift amounts through banking channel as claimed by the learned counsel for the appellant in the first written submissions. The gift amounts have been received by the appellant by way of DDs and no nexus has been established between the source of funds for procuring these DDs by the donor and his earnings in the NRE bank account - Whether the above amounts received were applied for the purpose of making gift to the appellant, is not established as relevant bank account has not been furnished and no nexus between the receipt of above amounts and procurement of DDs for making gifts to the appellant has been established - No Balance Sheet or financial statement or cash flow statement of the donor has been placed on record to indicate exhaustive resources of funds of the donor and the corresponding investments - Authenticity of the certificate given by the M/s Palm General Trading LLC(a firm of assessee’s brother, who is the donor) has not been established by the assessee - In the absence of supporting documents, the said certificate can only be considered as a self serving and bald certificate. Further the donor has failed to establish the nexus between the funds, if any, received by him from M/s Palm General Trading LLC and the impugned gifts – Decided against the Assessee. Addition of Rs.2.00 lakhs made to cover up the deficiencies noticed in the books of account relating to the contract business – Held that:- It was also an admitted position that substantial expenses were not supported by independent cross verifiable vouchers and therefore, the disallowance out of the same was justified for the reason that the appellant failed to establish genuineness of all expenses and establish identity of payees - Assessing Officer was justified in making the disallowance which was also reasonable considering the total claim of the appellant - Assessee failed to furnish any material or explanation to contradict the findings of the tax authorities – Decided against the Assessee.
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2013 (11) TMI 175
Condonation of delay in filing appeals – Held that:- Plea of the regarding the delay in filing these appeals is contradictory in nature. Firstly, the assessee has tried to make out a case that the assessee came to know by the CIT(A) only on receipt of complaint filed before the Economic Office Court, Hyderabad on 5.8.2012. Secondly, it was stated that the Managing Director of the assesseecompany is not keeping well and suffering from acute depression, mental instability, hypertension and diabetes. Delay cannot be condoned simply because the assessee's case calls for sympathy or merely out of benevolence to the party seeking relief. In granting the indulgence and condoning the delay, it must be proved beyond the shadow of doubt that the assessee is diligent and was not guilty of negligence whatsoever. A sufficient cause within the contemplation of the Limitation provisions must be a cause which is beyond the control of the party invoking the aid of the provisions. Where no negligence, nor inaction or want of bona-fide can be imputed to the assessee a liberal construction of the provisions has to be made in order to advance substantial justice. Seekers of justice must come with clean hands. The assessee justified the delay only with reference to the doctors' certificates with regard to Managing Director's ill health. In addition to this the assessee filed affidavit stating that the orders were not received. However, the fact that Sri Bathina Veerabhadra Rao continued to be Managing Director, directing the other functions of that post, notwithstanding the sickness claimed to be being suffered by him, shows the falsity or at least, inadequacy of reasonableness in that cause. Further, the evidence produced by the Department shows otherwise. Therefore, it shows that delay was due to the negligence and inaction on the part of the assessee. The assessee could have well avoided the delay by exercising all due care and attention – Sufficient reason was not shown for condonation of delay – Reliance has been placed upon the judgments in the cases s.a. Vedabai Alias Vaijanthibai Baburao Patil vs. Shantaram Baburao Patil [2001 (7) TMI 117 - SUPREME Court] and Ramlal vs. Rewa Coal Fields Ltd.[1961 (5) TMI 54 - SUPREME COURT]- Decided against the Assessee.
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2013 (11) TMI 174
Period of limitation for passing the penalty order u/s 275(1)(a) of the Income Tax Act – Held that:- A plain reading of this section shows that under section 275(1)(a), the requirement of the main section is that, when an assessment order is a subject matter of appeal before the Commissioner (Appeals), then the penalty order should be passed, within a period of six months from the end of the month in which the order of the Commissioner (Appeals) is received by the Chief Commissioner / Commissioner. The proviso to this section was inserted w.e.f. 1-06-2003, to expand this time period of six months to one year, in cases wherein the Commissioner (Appeals) passes an order on/after 1st June 2003 and no appeal is filed before the tribunal. The proviso does not deal with cases where the appeals are pending before the ITAT under section 253 of the Act. That limb of section 275(1)(a), which fixes the time limit of six months from the date of receipt of order of the ITAT by the Commissioner / Chief Commissioner, for passing an order of penalty is not disturbed in any manner by the insertion of the proviso as interpreted by the Hon’ble Madras High Court in the case of Rayala Corpn. (P.) Ltd [2006 (4) TMI 96 - MADRAS High Court]. The facts of the present appeal in hand are that the assessment order was passed on 31.03.2003. The Commissioner of Income Tax(A) passed order on 31.03.2004 and ITAT passed order deciding the cross appeals in quantum proceedings on 8.8.2008 and finally, the penalty order was passed on 18.3.2009. As per provisions of Section 275(1)(a) of the Act, the crucial date is the date of receipt of the order of ITAT by the Chief Commissioner, Commissioner or the Assessing Officer because the same would decide the basis of calculation of limitation because for calculation of limitation, the month of receipt and its subsequent six months period is relevant – Penalty order not barred by limitation. There is no dispute in this case that the petitioner has filed an appeal before the Tribunal and the same is pending. In such a case, the limitation period for the levy of penalty will be as provided for under s. 275(1)(a), i.e., six months from the end of the month in which the order of the Tribunal is received by the Chief CIT - Accordingly, this Court is of the view that the proviso to s. 275 (1)(a) of the Act, does not nullify the availability to the third respondent of the period of limitation of six months from the end of the month when the order of the Tribunal, Chennai, is received by the third respondent herein – In view of the discussion, it has been held that penalty order was passed within the prescribed period of limitation – Decided against the Assessee. Assessing Officer has recorded his satisfaction as required by the statute for initiation of penalty proceedings - Penalty proceedings in regard to the additions made pertaining to interest on SDF loan – Held that:- Assessing Officer has made multiple additions by making disallowances and after conclusion of every issue and addition, he has specifically mentioned his satisfaction about initiation of penalty proceedings related to that issue and at the end of the order - But at the same time, in assessment order pertaining to the interest on SDF loan, there is nothing to show that the Assessing Officer has recorded his satisfaction as required by the statute for initiation of penalty proceedings – Thus, relying upon the judgments in the cases Madhushree Gupta [2009 (7) TMI 38 - DELHI HIGH COURT ; Global Green Company Limited [2012 (10) TMI 120 - ITAT, DELHI], Budge Budge Co.Ltd [2005 (11) TMI 185 - ITAT CALCUTTA-E], in the present case, it is held that Assessing Officer has not recorded his satisfaction for initiation of penalty proceedings in regard to the additions made pertaining to interest on SDF loan at the end of relevant part of the order. Accordingly, the impugned order imposing penalty can not be sustained – Decided in favor of Assessee.
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2013 (11) TMI 173
Necessity of classification of head of Income in the assessment by the Assessing officer – Passing of direction by commissioner u/s 263 of the Income Tax Act – Assessee had entered into an agreement for transfer of its business of providing Automated Teller Machines (ATM) with all accessories of the above said business to a purchaser company namely Classic payment Solutions and Services Private Limited – Assessing officer never enquired the assessee about the head of the income i.e. whether the income was from business or from any other ‘head’ as prescribed in the “Act” – Held that:- CIT in his order nowhere writes a finding that the assessment order is ‘erroneous causing prejudice to the interest of the Revenue – Assessing officer has held that the receipt in question is not ‘business income’, but ‘income from other sources’. Thereafter, he has dealt with other issues pertaining to business loss and depreciation - CIT has rightly passed the impugned order under section 263 of the “Act” by directing the Assessing Officer to proceed afresh about the ‘head’ of income and other issues.
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2013 (11) TMI 172
Set off of long term capital loss – The assessee invested in debt oriented mutual funds issued by the Reliance, HDFC and ICICI Prudential and earned losses in these transaction – Held that:- Reasons for invoking section 10(23D) were not mentioned – The assessee is not a Mutual Fund Organisation – The issue was set aside for fresh adjudication.
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2013 (11) TMI 171
Computation of capital gains - Deduction of cost of improvement of land to compute capital gains not allowed on evidence – Held that:- For carrying out the development works of removing the rocks, boulders etc., heavy machinery, such as JCBs, Dozers etc., are required. However none of the parties mentioned as the developers of land were filing their returns of income and therefore were indeed not into the activity of carrying out such development works - Said parties did not even have any machinery or technology to carry out such works proving that the story of entering into development agreement was only a make believed arrangement - Assessee and his son failed to discharge the onus of proving that development work had been executed by them and even the technical ability to carry out such works could not be proved. Hence, deduction on this count not allowed – Decided against the assessee. Sale of land being agricultural does not constitute a transfer of capital asset for being taxed in the head capital gain when the land is not a capital asset either within the meaning of section 2(14)(iii)(a) or 2(14)(iii)(b) – Held that:- The land in question giving rise to capital gain was, in fact, urban land though agricultural operations have been carried out on them - The land is situated at Narsing Village of Rajendra Nagar Mandal, R.R. District which is within the municipal limits of Rajendra Nagar - This is urban land akin to the Hyderabad Municipality situated within 8 KM from the local limits of Hyderabad Municipal Corporation - Mere fact that the land in question was agricultural land cannot be a ground to claim for exemption under section 2(14) of the Act as the land is situated within the local limits of Hyderabad Municipal Corporation - Land in question is capital asset liable for income-tax – Following the decision of coordinate bench in the case of Smt. Gousia Begum and Others [2013 (9) TMI 559 - ITAT HYDERABAD]., held that the land in dispute cannot be considered as agricultural land so as to hold that it is exempt from capital gains – Decided against the Assessee.
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2013 (11) TMI 170
Entitlement of Deduction u/s 80IB - Weather the Commissioner of Income Tax (Appeals) erred in holding that the assessee is entitled for deduction under sec.80IB of the Act – Held that:- Held that:- The assessee was entitled to deduction under sec.80IB of the Act since the assessee unit was located in an industrially back-ward State specified in VIII Schedule and was governed by the provisions of sub sec.(iv) of Sec.80IB of the I.T. Act - by analyzing the provisions of the Act, the assessees, whose industrial undertakings were recognized as “Small Scale Industries” or located in an industrially back-ward state were eligible for deduction under sec.80IB of the Act even if they manufacture articles or things specified in the list in XI Schedule - The Revenue could not rebut any of the findings of Commissioner of Income Tax (Appeals) with any supporting material - The deduction u/s.80-IB was available for the assesses who being to manufacture or produce things or article specified in the section and subject to the conditions laid down. The assessee’s manufacturing unit was located in the State of Pondicherry, which was an “industrially backward State” - the assessee’s case was covered by the second limb of proviso to clause (iii) of sub-section (2) of sec.80-IB of the Act - Hence, the words “not being any article or thing specified in the list in the Eleventh Schedule” stands omitted from the language of clause (iii) of the Act - Manufacturing of any article or thing (including those specified in 11th Schedule) was sufficient for claiming deduction u/s.80-IB of the Act in such a case - On this account alone the instant assessee, being located in an “industrially backward State” of Pondicherry, was eligible for deduction u/s.80-IB of the Act - the assessee was located in the State of Pondicherry which was in an industrially backward State - There was no dispute regarding this - Hence, the assessee was eligible for deduction under the sub-section (4) of sec.8O-lB of the Act. The deduction u/s. 80-IB in the case of an industrial undertaking an industrially backward State specified in the Eighth Schedule is governed by the provisions of sub-sec.(4). The only requirement in such cases is that the industrial undertaking should be located in an industrially backward State. It makes no difference whether such undertaking is a small scale industry or not. In other words, once the industrial undertaking is located in an industrially backward State, all units (whether SSI or non-SSI) are equally eligible for deduction u/s.80-lB of the Act. Disallowance u/s 40(a)(1a) - The order of the CIT(A) was confirmed in respect of the deduction u/s.80IB and reversed in respect of disallowance u/s.40(a)(ia) - The Assessing Officer to consider the said payments made to various parties as allowable expenses in the subsequent years since the assessee has deducted TDS on the said amount and remitted the same to the Govt. account, subject to verification - the Assessing Officer made disallowance under sec.40(a)(1a) on the ground that the assessee has not deducted TDS on certain payments made to various parties.
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2013 (11) TMI 169
Disallowance of Expenditure on Software for Own Use - Whether the CIT(A) erred in deleting the addition made by the assessing officer towards expenditure on software for own use, relying upon CIT v. Southern Roadways Ltd. [2006 (10) TMI 82 - MADRAS HIGH COURT ] - Held that:- It would be in the interest of justice that the case the issue was restored back to the file of the Assessing Officer, who shall redecide it in accordance with law after affording adequate opportunity of hearing to the assessee - An expenditure can neither be held as revenue nor capital in nature - What was required was a pragmatic approach considering the nature, purpose of expenses incurred along with other relevant factors, which were to be subjectively considered - then only the endless issue can be adjudicated upon in the correct perspective - When we proceed to deal with the findings of the Assessing Officer as well as CIT(A) in the instant case, it was found that the Assessing Officer had not recorded any finding, qua the usage and utility of the software in question and he had simply held that the assessee can claim depreciation @ 25%. Disallowance of Unearned Income - Whether the CIT(A) erred in deleting the addition made by the assessing officer towards 'unearned income' – Following CIT vs. Dinesh Kumar Goel [2010 (10) TMI 287 - Delhi High Court] - Mercantile system of accounting – Fees for full course of package received in advance – Service to be rendered in next financial year – income not recognized unless service rendered – Income does not accrue - There was hardly any strife between the parties about the amount received qua ‘unearned income’ and payment made by the assessee without deducting tax at source - Per Revenue, the assessee’s unearned income was liable to be taxed and the payments made was royalty which requires tax deduction at source which was disputed by the assessee - decided in favor of assessee. Applicability of TDS provisions - Payment made by the assessee to foreign entities - Held that:- Following CIT Vs. Smt. Godavari Devi Saraf [1977 (9) TMI 24 - BOMBAY High Court] - After going through the operative portion, there was no iota of doubt that the payments in question made by the assessee cannot be subjected to the applicability of TDS provisions contained in the “Act” -Therefore, in view of the same and in order to maintain consistency - A perusal of the above findings makes it clear that the applicability of section 9 of the “Act” vis-à-vis the concept of royalty was duly considered and decided against the Revenue. In the course of hearing, the Revenue though has disputed the facts of the case, but merely on the basis of bald assertions, we are unable to accept the same.
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2013 (11) TMI 168
Allowability of Deduction Claim u/s 80IB (4) - Held that:- The assessee was eligible for deduction under the sub-section (4) of sec.80-IB of the Act, on all the article/things (including those mentioned in 11th schedule) manufactured by it - The assessee was located in the State of Pondicherry, which is in an industrially backward State - In also make no difference whether the undertaking is a SSI or not - In fact, the assessee claimed deduction under the sub-section (4) of sec.80-IB of the Act. Once, the industrial undertaking is located in an industrially backward State the assessee is eligible for deduction u/s.80-IB(4) of the Act - In such a situation there was no need to fulfill the requirements of 'SSI' nature - If the assessee wanted to claim deduction u/s.80-IB of the Act, being in the nature of 'SSI' (i.e. if wants to claim exception as per the first limb of proviso to clause(iii)), then only the assessee had to prove that it was recognised as a SSI and all the relevant conditions were fulfilled. As the assessee's industrial undertaking was 'located in an industrially backward State' of Pondicherry, there was no need to fulfill the requirements of SSI - The assessee was eligible for deduction u/s.80-IB(4) of the Act - The CIT(A) had given well reasoned and categoric finding with respect to eligibility of the assessee for claiming deduction under section 80IB – Decided against Revenue. Claim of Deduction u/s 35(1)(i) - Held that:- The assessee had incurred expenditure on the research and development activity in relation to its own business - Therefore, the assessee was eligible for deduction under section 35(1)(i) of the Act - Relying upon CIT Vs. U.P. Electronics Pvt. Ltd. [2005 (2) TMI 57 - ALLAHABAD High Court] - As per the provisions of section 35(1)(i), the only requirement for claiming deduction was that the amount should have been spent during previous year on research and development in relation to assessee’s own business only - It was not the case of the assessee or the Revenue that the assessee was contributing amount towards another organization engaged in research and development. The deduction claimed by the assessee under section 35 of the Act towards in house expenditure on scientific research - the assessee had submitted that it had been spending huge amount on research and development of new products and to improve the existing ones - The contention of the assessee was that since the assessee was spending money on research and development facility in its own unit and was related to its own business, no approval from the prescribed authority for claiming deduction under section 35 of the Act was required – Decided against Revenue.
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2013 (11) TMI 167
Deduction u/s 54(2) – Due Date of Filing Return u/s 139(1) - Belated filing of return Return – Whether the CIT(A) erred in directing the Assessing Officer to allow claim of deduction u/s 54 of the Act even though the assessee had not invested the entire capital gain within the due date of filing of return of income u/s 139(1) of the Act as mentioned in section 54 of the Act - Held that:- The amount of the capital gain utilised for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, means the date as prescribed not only u/s.139(1) but also u/s .139(4) of the Act - Thus, in the instant case, as the assessee invested (paid) the entire amount before filing the return of income (which may be u/s 139(4) of the Act), the assessee was eligible for deduction u/s .54 of the Act - The assessee was eligible for deduction u/s 54 of the Act - The Assessing Officer was directed to compute the taxable long term capital gains by allowing deduction but restricted to the amount of long term capital gains u/s 54 of the Act. Following CIT v. Ms. Jagriti Aggarwal [ 2011 (10) TMI 279 - PUNJAB AND HARYANA HIGH COURT] and Mrs. Esther Christopher Mascarenhas v. ITO [2010 (12) TMI 217 - ITAT, MUMBAI ] - due date for furnishing return of income as per section 139( 1) was subject to extended period provided under sub-section (4) of section 139 and, if a person had not furnished return of previous year within time allowed under sub-section (1), assessee could file return under sub-section (4) before expiry of one year from end of relevant assessment year - section 54 deduction could not be denied to assessee on this count. The date of filing the return u/s.139 of the Act has wide scope - The return can be filed u/s.139(1) or u/s.139(4) of the Act - Both the returns i.e. either filed u/s.139(1) or u/s.139(4) of the Act were legally valid and accepted returns - There was no difference between these two returns (except for charging interest u/s 234B and allowing certain deductions or carrying forward of losses) – Decided against Revenue.
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2013 (11) TMI 166
Addition towards Difference on Account of Broken Period Interest - Held that:- The interest in question on account of relevant Government securities can be brought to tax in the hands of the assessee only on the relevant due dates when it could be said to have accrued to the assessee - Following CIT vs. Bank of Rajastan Ltd.[ 2010 (4) TMI 217 - BOMBAY HIGH COURT] held while upholding the Tribunal’s order in deleting the similar addition made on account of interest accrued but not realized on the Government securities that interest on Government securities could be said to accrue only when it becomes due and, therefore, there should not be a charge to such income until such time that it becomes due - in the case of Government securities, interest accrues only on the coupon dates and not on day to day basis - the addition made by the AO and confirmed by the learned CIT(Appeals) on this issue was deleted and allowing the assessee’s appeal – Decided in favour of Assessee. Determination of Head of Income - under which interest on income-tax refund was chargeable to tax whether “income from other sources” or “profits and gains of business or profession” – Held that:- The interest on income-tax refund received by the assessee as income from other sources and not profits and gains of business or profession - The source of such interest income being the income-tax refund arising from the income-tax proceedings, the same cannot be treated as business income of the assessee - the activity resulting into income-tax refund as well as interest payable thereon as per the provisions of section 244A of the Income-tax Act, 1961 cannot form part of business activity of the assessee and the same cannot even be treated as an activity incidental to the business of the assessee so as to say that such interest constitutes its business income – Decided against the Assessee. Determination of the Head of Income - under which miscellaneous income earned by the assessee is chargeable to tax whether “income from other sources” or “profits & gains of business or profession” - Held that:- Miscellaneous income earned by the assessee as the income from other sources and not business income was upheld by the learned CIT(Appeals) observing that the said income had no link with any organized and regular business activity of the assessee - order of the CIT(Appeals) was set aside on this issue and restore the matter to the file of the AO to decide the same afresh after ascertaining the exact nature of non banking assets claimed to be held by the assessee in the normal course of its banking business – Decided against the Assessee. Additions made u/s 115JB - while computing its book profit u/s 115JB on account of the provision for doubtful debts – Held that:- Following Krung Thai Bank PCL vs. Joint Director of Income-tax [2010 (9) TMI 18 - ITAT, MUMBAI ] - the provisions of section 115JB cannot be applied in the case of the assessee being a banking company and there was thus no question of computation of book profit u/s 115JB or any addition to be made for this purpose - in the case of banking companies, the provisions of Schedule VI to the Companies Act, however, were not applicable in view of exemption set out under proviso to section 211(2) of the Companies Act and since the final accounts of the banking companies are required to be prepared in accordance with the provision of the Banking Regulation Act, the provisions of section 115JB cannot be applied to the case of a banking company - the question of computation of book profit under the said provisions or making any addition for this purpose does not arise at all - The addition made by the AO and confirmed by the learned CIT(Appeals) on account of provision for doubtful debts while computing the book profit u/s 115JB was deleted.
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2013 (11) TMI 165
Rejection of Application for Registration u/s 12AA - Compliances Were Duly Made As Per the Act - Aims and Objects of Society - Charitable in Nature OR Not - Provisions of RE Act – Validity of Activity Conducted – Held that:- The main object of the Assessee Society was education, which, undeniably, was of charitable nature, in line with the provisions of Section 2 (15) of the Act - the CIT had taken recourse to the RTE Act to reject the assessee's application - Under Section 12AA, what was required to be seen by the CIT while considering an application for grant of registration, was as to whether the object of the applicant was charitable and as to whether its activities were genuine any further - The jurisdiction and competence to examine an issue under the RTE Act obviously lies with the authorities mentioned - the CBDT Circular clearly stated that the proviso to Section 2 (15) does not apply in the case of education and where the purpose of a Trust or institution was education, it will constitute 'charitable purpose' even if it incidentally involves in carrying on of commercial activities. The order passed by the CIT was cancelled – CIT was directed to grant registration to the Society on verifying the original document of establishment of the assessee Trust - Shri Sain Ji Dharmarth Trust v.. CIT [2006 (1) TMI 455 - ITAT DELHI] and 'St. Don Bosco Educational Society v. CIT [2003 (12) TMI 306 - ITAT LUCKNOW ] and CIT vs. Surya Educational & Charitable Trust [2011 (10) TMI 47 - PUNJAB AND HARYANA HIGH COURT] - at the stage of granting or refusing registration, CIT was not required to examine as to what amount should form corpus of trust, in what manner accounts were maintained and what should appear in balance sheet - mere charging of high fees was not no ground of refusing registration, where the CIT had not doubted the objects and genuineness of the assessee's activities - u/s 12AA of the Act, the CIT was only to examine the genuineness of the objects of the Trust and not the application of income for charitable purpose, which can be examined at the stage when the Trust files its return. Disallowance of Deduction u/s 80 (G) - The matter of grant of exemption u/s 80(G) of the Act becomes consequential - Accordingly, the order passed u/s 80(G) of the Act was also cancelled and the appeal of the assessee was allowed.
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2013 (11) TMI 164
Expenses Debited to P&L Account - The Assessing Officer that assessee had debited in its Profit & Loss Account an item of expenditure called “expected loss” - The amount of expected lease equalization charges was accurately determinable, and it could result in an outgo or surplus - Intention was to recoup the capital cost and even out the imbalances arising on application of standard depreciation rates over assets of varying kinds - an assessee showing as current income, if his expected contract cost was lower than the total contract receipts - Can we determine with reasonable accuracy the surplus or deficit that would arise in a contract execution which is far from complete - Can we say that such loss claimed were to off-set any deficiency in the depreciation claim - Answer to all these, in our opinion are a firm ‘No’. There were no escalation clause in the contract with clients - Relying on the decision of Hon’ble Apex Court in the case of State Bank of Patiala Vs. CIT[ 1996 (3) TMI 128 - SUPREME Court ] - accrual system recognized the point of time at which liability was crystallized; expenses claimed by the assessee were only likely but not definite. It was nothing, but a contingent liability - Lease equalization charge represented the amount set aside to equalize the im-balance between lease rentals and depreciation created over a period of time - Sec.211(3C) of the Companies Act, 1956, required companies to follow the Accounting Standards prescribed by Institute of Chartered Accountants of India till Accounting Standards were notified by Government - Assessee could show that only a part of cost of asset could be recovered through the period of lease and depreciation provided was not sufficient to cover the deficit, even after considering the scrap value - If the depreciation claimed over the period of lease was less than capital recovery difference is debited as lease equalization charges and if it was more, difference was treated as lease equalization income. Disallowance of Staff Benefit Expenses – Held that:- Held that:- Just because a breakup was not furnished, disallowance could not have been made - When such break-up was produced before the CIT(A), it should have been admitted and adjudicated - The issue had to be restored to the file of Assessing Officer for consideration afresh - Assessee shall produce the evidence in support of the claim and A.O. shall proceed in accordance with lawAssessee had given a breakup of the total claim of staff benefits expenses before the A.O and such breakup had been reproduced - The details were reproduced by the A.O. in the assessment order itself - the assessee had indeed given the nature of expenses included under the head ‘Others’ - Only fault was that breakup was not given - A.O. had nowhere mentioned that assessee had failed to record such expenditure in its books of accounts. Disallowance of Bad Debts - Held that:- A sum was claimed by the assessee as bad debts relatable to one M/s.Thiru Arooran Sugar, Kollumangudi - CIT(A) after verification of the ledger, found that the amount due from the said party - He therefore, allowed the claim to that extent only - Nothing was brought before us by the A.R to show that there was anything due from Thiru Aooran Sugar as at the end of the relevant previous year - Assessee could not have written off as bad debt an amount more than what was due to it - there was no reason to interfere in the order of the CIT(A) in this regard. Levy of Interest u/s 234D – Held that:- Section 234D of the Act was brought into statutory by Finance Act, 2003 with effect from 01.06.03 - Since the assessment was completed after the said date, levy of interest under section 234D was justified – there was no reason to interfere in the orders of the lower authorities.
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2013 (11) TMI 163
Indo French DTAA - foreign company's business of operations of ships in international traffic carried out through agents's fixed place in India – question of existence of a Permanent Establishment – Dependent Agent Permanent Establishment(DAPE) or independent agent - Article 5, 7 & 9 of Indo French DTAA - determination of profits attributable to PE – Relief under article 9 – levy of interest u/s 234B - Held that:- Permanent establishment in the present case will be governed by Article 5(5) read with Article 5(6) of Indo French DTAA. Since there are no findings by the A.O., or the DRP, to the effect that the transactions between the agent and the assessee are not at an arm's length price, the agent is treated to be an independent agent in view of the provisions of Article 5(6). Such a finding by the revenue is a sine qua non for existence of DAPE. Thus, it is held that the assessee did not have any PE in India. Having held that the PE did not exist on the facts of this case, it is not really necessary to deal with profit attribution in the case of PEs. With respect to relief under Article 9 in respect of freight earnings it is held that the issue is covered against the assessee by a coordinate bench's decision in assessee's own case for the assessment year 2001-02 therefore, the assessee may take up the issue before Hon'ble Courts. Levy of interest under section 234 B – Following decision of DIT (International Taxation) v. NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] - A.O. is directed to grant necessary relief. - Decided partly in favor of assessee.
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2013 (11) TMI 162
Validity of reopening of assessment u/s 147 - Held that:- The dispute raised in this ground is regarding legal validity of re-opening of the assessment under section 147 of the Act. Under the provisions of section 147 as amended w.e.f. assessment year 1989-90, an assessment can be re-opened by AO if he has reason to believe that any income chargeable to tax has escaped assessment. It is settled legal position that for re-opening of an assessment there should be a direct nexus between material available before AO and formation of reasonable belief for escapement of income. The material available should be relevant to the formation of belief for escapement of income and it is not necessary that the material should be sufficient for making the addition in the re-assessment. The assessee in this case has challenged the re-opening of the assessment on technical grounds as well as on the merit of formation of belief - The reasons as recorded by AO before re-opening of the assessment have been reproduced in para-2 earlier. We find that reasons conveyed by the AO were the same as recorded by him in the file except the last line which related to formation of belief which had not been given. The assessee had asked for reasons for re-opening of the assessment and the AO had given reasons as recorded by him without any change and, therefore, it can not be said that the AO had given the gist of reasons recorded - Thus re-opening of the assessment under section 147 of the Act was legally in order - Decided against assessee. Disallowance of expenditure - Onus of proving transaction - Held that:- The claim of rendering of services by the companies therefore can not be accepted only on the basis of an affidavit. The transaction can also not be taken as genuine only on the basis of bills or on the ground that service tax and sales tax had been paid when actual rending of the services has not been established. The AO has given a clear finding that no evidence had been produced regarding actual rendering of any services. The assessee had filed only bills which only gave the broad nature of promotional activities such as van campaign. There was no evidence produced with regard to actual carrying on of such activities. The AO had specifically asked for identification of personnel involved in rendering of services which has not been given. The burden is on the assessee to prove the actual rendering of the services for which payments have been made which has not been discharged by producing any relevant material. The photographs do not establish as to who had actually conducted activities and, therefore photographs can not be considered as reliable and proper evidence. Full details of employees had not been given - Disallowance of expenses on the facts of the case is justified. The order of CIT(A) is accordingly upheld - Decided against assessee.
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2013 (11) TMI 161
Income Escapement u/s 147 - Whether the First Appellate Authority was justified to hold that the initiation of proceeding u/s. 147 of the IT Act was totally bad in law - Where the AO had sufficient reason to believe that income chargeable to tax had escaped assessment - The particular word ‘has reason to believe’ plays an important role in reopening the assessment u/s.147 of the I.T.Act - Once the reasons were duly recorded and the same were not arbitrary and irrational, the jurisdiction was validly assumed by the Assessing Officer and Court cannot look into the adequacy or sufficiency of reasons - as held by the Apex Court in the case of Raymond Wollen Mills Ltd Vrs. ITO [1997 (12) TMI 12 - SUPREME Court] - Weather the CIT(A) erred as in the amended provision of section 147 of the I.T.Act,1961 w.e.f. A/Y:1989-90 had not put any restrictions on the AO so as to exclude the application of reopening of any completed assessment proceeding even if made u/s.143(3). Also in the instant case since no opinion was ever formed, question of changing of such opinion does not arise at all in the proceeding u/s. 147 of the I.T.Act, 1961 - Held that:- The order of the learned CIT(A) insofar as after considering the legal issue with respect to validity of reassessment u/s.147 he had also considered the deletion of the amount brought on record by the Assessing Officer in the reassessment proceedings when the Assessing Officer has categorically given a finding that the amount of expenditure were incurred for transportation carriage expenses of Rs.33,86,803 and hire charges Rs.42,33,728 which were to be disallowed u/s.40(a)(ia) as no TDS has been deducted u/s.194C. He added the same to the income which was assessed by him u/s.143(3). It was clear that the Assessing Officer brought on record material which was not escapement of income but was opinion based in the disallowance u/s.40(a)(ia) when the non-deduction of tax as directed to him u/s.263 was to be followed by the learned Assessing Officer insofar as the material available to the Assessing Officer was not income having escaped assessment but non-deduction of tax at source u/s.194C. The learned DR before us has submitted the case laws relating to the computation of income under the provisions of Section 147/148 when the original reason to believe of income having escaped assessment need not necessarily be brought to tax in the reassessment proceedings when other parameter were available to the Assessing Officer to compute an income on the issue of notice u/s.147/148.The learned Counsel for the assessee has submitted various case laws which directly relate to the finding that the transportation expenses and hire charges are not to be disallowed unless the provisions of Section 194C has not been complied with. No material has been brought on record by the Assessing Officer as can be perused in his order as to how these expenses can be disallowed without bringing on record the violation of the provisions of Section 194C, we are of the considered view that the learned CIT(A) has rightly considered the case of the assessee appellant before it following the decision of Hon’ble jurisdictional High Court that the assessment records do not relate to such finding for assuming jurisdiction u/s.147. In this view of the matter, we are of the considered view that there is no infirmity in the order of the learned CIT(A). We uphold the same and dismiss the appeal of the Revenue.
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2013 (11) TMI 160
Penalty u/s 271(1)(c) – During the investigation proceedings of the hospital it was noticed that the assessee has not disclosed income of Rs. 22,77,395 – Held that:- The non – disclosure of income by the assessee amounts to concealment of income – The plea of the assessee “he assumed that the default in not declaring the income was not willful - All the amounts received by him from the hospital were included in the certificate issued by the hospital - He had come to know about the moneys not included in the certificate only through the notice issued to him by the Department under section 148” was not convincing - Adopting "Doctrine of continuity" and concurrence, the penalty in the assessee's case is liable to be confirmed only in the first assessment year - Decided against assessee for the first assessment year.
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2013 (11) TMI 159
Capital gain on sale of shares – Taxable under the profits and gains from business or Capital Gains – Held that:- The assessee has effected the sale of shares maximum within 30 days of purchase of such shares which clearly indicates that the assessee was carrying on the business by applying in shares through IPO and thereafter selling them immediately on allotment – This shows that the intention of the assessee was not to hold the allotted shares but to sell the same on allotment to take advantage of market imperfection - If the purchases and sales are effective within 90 days then they should be treated as trading of shares and if the transactions are held more than 90 days then those purchase and sales should be treated as investment portfolio - Decided against assessee.
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2013 (11) TMI 158
Disallowance of repairs and maintenance expenses – The expenditure was incurred by the assessee to carry out fixing of the water tank, construction of partition and fixing of doors, fixing of granite and concrete work and construction of false ceiling from plaster of paris - Held that:- Following Nathmal Bankatlal Parikh and Co. v. CIT [1979 (8) TMI 46 - ANDHRA PRADESH High Court] – The expenditure incurred on replacement of old part by a new one in the asset used and kept by the assessee for its own business is a revenue expenditure - The assessee has incurred the expenditure for renovating the existing building which is used by the assessee for its business purposes - No new asset has been created by the assessee – Decided in favour of assessee.
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2013 (11) TMI 157
TDS u/s 194H - Brokerage or sub-brokerage on securities – disallowance of sub-brokerage under section 40(a)(ia) - Held that:- According to the provisions of Section 194H Explanation(i) brokerage or sub-brokerage paid on units of mutual funds is not covered under the provisions of tax deduction at source – In this case Sub-brokerage paid was not for any other service but for services relating to securities – Decided against Revenue.
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2013 (11) TMI 156
TDS on dividend declared to subscribers - Held that:- Following Vipanchi Chit Funds Ltd., (ITA Nos. 804- 805/Hyd/2011) – Chit fund dividend to the subscribers does not partake the character of interest defined u/s 2(28A) and accordingly, the assessee is not liable to deduct tax under section194A - The provisions of s. 40(a)(ia) are not attracted – Decided in favour of assessee.
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2013 (11) TMI 155
Disallowance of interest paid to bank – Held that:- Although the assessee has advanced Rs. 1.12 crores out of the total assets of Rs.1.91 crores to various people without charging interest – The assessee has not paid any interest on total assets of Rs. 1.91 crores – Out of total bank loan taken the assessee has utilized only Rs.13.66 lakhs for margin deposit with stock broker - The disallowance shall be restricted to interest on Rs.13.66 lakhs - Decided in favour of assessee. Disallowance of interest u/s 14A read with rule 8D – Held that:- In view of the exempt income shown by the assessee in return of income – the disallowance u/s 14A read with Rule 8D is reasonable and justifiable – Decided against assessee.
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2013 (11) TMI 154
Income assessed in hands of HUF – Capital gain on sale of property and interest income on investment belonging to HUF – Held that:- The ancestral property was received by two brothers and the same was divided by two brothers by entering into an agreement between them - The assessee has shown capital gain on sale of his share and interest income in the hands of HUF and taxed thereunder - Copy of the return filed in Hindu undivided family capacity was furnished by the assessee in his appeal - To avoid double taxation the same cannot be assessed again in the individual capacity to avoid double taxation – Decided in favour of assessee.
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2013 (11) TMI 153
Estimation of net profit @ 8% - The contract was sub-contracted to one of the joint venture – The tax was deducted at source while remitting contractual payment – Held that:- there is Violation of principle of natural justice – both the authorities have given only a single chance to the assessee to reply the show cause notice issued by them. - The issue was restored to files of Assessing officer for denovo assessment – Decided in favour of assessee.
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2013 (11) TMI 152
Addition on account of Arm’s Length Price – Held that:- The TPO wrongly considered that the assessee is engaged in the business of IT/IT enabled services – CIT(A) has not allowed any opportunity to AO/TPO to rebut the comparables given by the assessee – According to assessee his business was of engineering, drawing and designing services - The issue was set aside for fresh adjudication. Disallowance on account of deduction u/s 80HHE – Held that:- The relevant provisions of Section 80HHC total turnover includes anything which has nexus with sale proceeds and excludes everything which has no such nexus - Turnover should be restricted only to such receipts which have an element of profit in it – Provisions of section 80HHC relevant in this context are analogous to the provisions of Section 80HHE – Keeping in view the setting aside of the first issue of the case the enhancement by TPO’s order will have no impact - The proviso to Section 92C(4) prohibits any deduction under Chapter VI-A to be allowed on the enhancement made as per the TPO’s order - No effect is to be given to the addition made by the Assessing Officer as per the TPO’s order while computing deduction under Chapter VI-A – Decided against Revenue.
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2013 (11) TMI 151
Reopening the case u/s 147/148 – Held that:- The investigation wing has information on record to show the assessee company was engaged in providing accommodation entries to its group companies - the company has introduced its own unaccounted money in its bank by way of accommodation entries – Decided against assessee. Addition on account of unaccounted cash deposit in bank – The assessee has maintained cash book recording deposit and withdrawals of cash and duly get it audited - Held that:- No specific reason was assigned by the authorities for non-reliance on the audited cash book maintained by the assessee-company - Assessee is not liable to explain the source of cash deposit – The issue was set aside for fresh adjudication. Addition on account of credits appearing in the bank account – The A.O. issued letter dated 8.12.2008 to the assessee to produce 10 parties for the transactions on 15.12.2008. The said notice was received only on 16.12.2008 in compliance to which the assessee appeared on 16.12.2008 - Held that:- The assessee was not given sufficient time to produce the parties in person from whom amounts have been received - Also the AO didn’t considered the documents and submissions made by the assessee - In view of natural justice –The issue was set aside for fresh adjudication.
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2013 (11) TMI 150
Disallowance of interest u/s 36(1)(iii) – The assessee has given loans and advances to certain persons without charging interest from them - Held that:- the amount given to an employee for meeting out certain business expenses is treated as imprest - And amount to other persons are for business purposes and are therefore in the nature of trade debts – In case of some parties the amount was advanced for non business purposes, so proportionate disallowance of interest shall be given - Decided against assessee.
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2013 (11) TMI 149
Software consumable expenses – revenue or capital expenditure - Held that:- Following Amway India Enterprises [2011 (11) TMI 4 - DELHI HIGH COURT] – The expenditure was incurred for application software and not for system software – The software was not of enduring nature and would become obsolete - Therefore it is revenue expenditure - Decided in favour of assessee. Software and hardware expenses – Held that:- The assessee did not made a claim before AO but submitted before FAA that the software/ hardware was for trading purposes – the assessee never claimed these as assets of the appellant-company - profit arising out of trading of these was offered for taxation - The issue remitted back for fresh adjudication – Partly allowed in favour of assessee. Deduction u/s 80HHE – On the basis of regular provisions under “profits and gains from business and profession” or book profits as per section 115JB - Held that:- Following Bhari Information Technology systems P. Ltd. [ 2011 (10) TMI 19 - Supreme Court of India] –Deduction under Section 80HHE has to be worked out on the basis of adjusted book profit under Section 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business - Decided in favor of assesseee.
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2013 (11) TMI 148
Penalty u/s 271(1)(c) – Inaccurate particulars of income – Expenses on education of son of managing director named as Staff and labour training expenses – Held that:- The assessee could not furnish details when the son of the managing director of the assessee-company returned from abroad and when he joined the assessee-company and could not give any detail of any of the resolution passed in favour of the person who entered into an agreement with son of the managing director of the assessee-company – Assessee relied on the decision in the case of Mukeshchandra A. Lakdawala v. ITO - The assessee has been charged for both the default and this is not permissible under law - The assessee has not raised the ground before CIT(A) – The issue is remitted back to the files of CIT(A) for fresh adjudication - Decided in favour of Revenue.
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2013 (11) TMI 147
Interest on excess tax collected – Held that:- In case of order u/s 143 interest has to be paid from the date of payment of tax to the date on which the refund is granted - If there is delay in the proceedings for reasons attributable to the assessee, the period of such delay should be excluded - The proceedings before the Assessing Officer, the learned Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal is a continuous process - the assessment proceedings didn’t got delayed due to the assessee's failure to submit the details before the authorities – interest allowed from the date of payment of tax - Decided in favour of assessee.
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2013 (11) TMI 146
Bad debts written off – Held that:- The officers didn’t went into the inquiry as to what goods the assessee wanted to purchase – Whether the debtors deals in those goods or not - It is not known whether the assessee deals in such goods which were to be supplied by the impugned four parties – In order to decide that the debts falls in trading field or capital field the purpose for which the advance were given needed to be known – The issue went back to the files of AO for fresh adjudication Decided against Revenue. Bad debts – Held that:- Following the binding judgment in TRF Ltd. vs. CIT Ranchi [2010 (2) TMI 211 - SUPREME COURT] - The bad debts written off in the books of account should be allowed as an allowable expenditure and the assessee does not have to establish that written off debts have become bad and irrecoverable – Decided against Revenue. Disallowance u/s 40(a)(ia) – Reimbursement of expenses to clearing and forwarding agent – Labour charges – Held that:- Following Maryline Shipping and Transports Ltd [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] - The provisions of section 40(a)(ia) of the Act have no application to the amounts already “paid” by the assessee during the financial year and they are applicable to the amounts “payable” as appearing in the balance sheet as on 31st March of the relevant financial year – Due to absence of discussion by lower authorities and for further examination of actual payment made by the assessee – Issue set back to the files of AO for fresh adjudication – Decided in favour of Revenue.
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2013 (11) TMI 145
Penalty u/s 271(1)(c) Justification of expenses incurred for earning no income Held that:- The assessee has not shown any nexus between the research carried on by the doctors and the business of the assessee The assessee has not furnished any details of expenditure and the outline of research and development carried out in the course of carrying on of its business A general claim that the company has carried on research and development is not sufficient to allow the expenditure The assessee has not carried out any business activity during the year under consideration and on the contrary claiming huge expenditure showing loss in its books of accounts - levy of penalty confirmed - Decided in favour of Revenue.
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2013 (11) TMI 144
Deduction u/s 10B – Internet Charges – Held that:- Following ITO v. Sak Soft Ltd.[ 2009 (3) TMI 243 - ITAT MADRAS-D] – If expenses incurred to provide technical services outside are excluded from export turnover then such expenses should also be excluded from the total turnover for computing income u/s 10B – Following the principle of parity between the export turnover and total turnover laid down in CIT v. Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME Court]. Setting-off of brought forward losses – Held that:- When two different views of the different jurisdictional High Courts are available, the decision favourable to the assessee is to be followed - Following Yokogawa India Ltd. [2011 (8) TMI 845 - Karnataka High Court] - As the relief under section 10A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income - The relief under section 10A will have to be given before Chapter IV – Decided against Revenue.
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2013 (11) TMI 143
Recall of consolidated order - The assessee thought that the date of hearing in the acknowledgment slip is only a tentative date - In the case of another member of the group the date of hearing was mentioned in the acknowledgment slip but the case was actually not fixed for hearing - Held that:- There was reasonable cause for non-compliance by the assessees on the date of hearing - In the interest of justice recall the orders dated February 13, 2012 of the Tribunal and restore the appeals to their original numbers - The date of hearing was pronounced in the open court - No formal notice of hearing issued by the registry- Decided in favour of assessee.
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2013 (11) TMI 142
Addition u/s 40(a)(ia) – Held that:- Following Merilyn Shipping and Transports [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] - The word "payable" used in section 40(a)(ia) is to be given its natural meaning and, going by the strict interpretation section 40(a)(ia) is applicable only to expenditure which is payable as on the date of balance sheet and cannot be invoked to disallow the amounts which have already been paid during the previous year, without deducting tax at source – The intention behind this provision is to curb bogus payments by creating bogus liabilities – The transportation charges claimed by the assessee had been paid before the end of the financial year – Decided against Revenue.
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2013 (11) TMI 141
Arm’s length price for transportation services provided to associated enterprise – The assessing officer referred the case to Transfer Pricing Officer - Held that:- Only the co-loading segment of the company is engaged in comparable activity, i.e., courier services – Margins of the comparable company and the assessee were erroneously computed – Based on the remand report of the transfer pricing officer – the revised arms’ length margin was computed to -3.06 percent and the arithmetic mean operating margin of the comparables at 1.18 per cent based on the data of the comparable companies – In price terms the (-) 5 per cent. figure comes to Rs. 12,31,972,759 while the (+) 5 percent comes to Rs. 13,61,654,102 whereas the appellant's price is Rs.13,52,402,382 which falls within the permitted range of 5 percent. Deduction u/s 43B – Held that:- The entire amount was paid before the closure of the financial year or within the due date for filing the return of Income – Decided against Revenue.
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2013 (11) TMI 140
Disallowance of commission paid to directors – Held that:- Following AMD Metplast (P) Ltd [2011 (12) TMI 320 - Delhi High Court]- Commission is part and parcel of salary and is subject to tax deduction at source – Contrarily, dividend is a return on investment and not salary or part thereof – Managing Director and whole time Director (Operations) were paid commission on the basis of duly passed Board Resolution and was in accordance with the provisions of the Companies act. The payment of Commission is necessarily a part of salary as defined in section 17 – Decided against Revenue. Disallowance of bad debts written off – Held that:- With regard to bad debts copies of invoices were furnished by the assessee - As per amendment in section 36, there is no requirement to show that efforts had been made to recover the amounts from debtors – Decided against revenue. Disallowance of foreign travel expenses – Held that:- Since spouses had also accompanied with the directors of the company there must be some element of personal nature in the expenses – Decided against assessee.
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2013 (11) TMI 139
Disallowance of deduction u/s 80HHC – Loss on exports incurred by the company - Held that:- The assessee could not reconcile the figures before the Revenue – The issue went to files of assessing officer for fresh adjudication – Decided in favour of assessee. Disallowance of amount contributed to provident fund u/s 56(2) – Held that:- Following Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] – In view of retrospective amendment to section 43B stating that the deduction shall be allowed if payment is made on or before the due date of furnishing of return of income – assessee made the payment before filing of Return of Income – Decided in favour of assessee. Disallowance out of motor car expenses – Interest on car loans – Depreciation on cars – Held that:- Assessee has not allowed the cars for personal use of either the Director or employee of the assessee – Following CIT vs. Metalman Auto P. Ltd [2011 (2) TMI 330 - PUNJAB AND HARYANA HIGH COURT] - Depreciation under section 32 was allowable to the assessee company on the assets which were purchased in the name of managing director of the assessee company and his wife but, used exclusively for the assessee’s business – Decided in favour of assessee. Disallowance of expenses on foreign travelling – Held that:- The onus to prove that expenses are incurred for business purposes is on assessee – The company has not made any exports/ imports to/ from the country visited – The assessee has not produced any evidence regarding any meeting or letter of intent for import of appellant’s goods / material from any party in London or UK – Not furnished the name and other details of any party whom the persons met for the purpose of any business in London - Decided against assessee. Busineses promotion and telephone expenses – Held that:- In view of deficiencies of bill and vouchers of the expenses, the disallowance was restricted to 10% in case of business promotion expenses and 5% in respect of telephone expenses as against disallowance of 25% an 10% respectively made by the assessing officer – Decided against assessee.
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2013 (11) TMI 138
Profits u/s section 80HHC – Held that:- Following case of Pfizer Ltd. [2010 (6) TMI 433 - Bombay High Court] - The claim on account of insurance for the stock-in-trade did not constitute a receipt of a similar nature within the meaning of Explanation (baa) - Insurance receipts are intimately connected to the business activities of the assessee thus constitutes operational income - No need for reducing 90 per cent of the insurance claim while computing the eligible profits under section 80HHC. Sale of scrap and miscellaneous receipts – Held that:- Following Dresser Rand India P. Ltd [2010 (4) TMI 664 - Bombay High Court] – The scrap was the combination of both scrap generated as a part of the manufacturing activities as well as scrap of the packing material attached to the imported consignments The issue go to the files of the Commissioner of Income-tax (Appeals) for redeciding the issue afresh. Technology transfer Receipts – Held that:- Following case of Motor Industries Co. Ltd [2010 (8) TMI 333 - Karnataka High Court] - The developmental work is intimately connected with the business of manufacture and sale of goods by the assessee. There is immediate nexus between the activity of export and the developmental work. Admittedly, for the services rendered by way of these developmental work, the assessee has been given the benefit of deductions under section 80-O – Decided in favour of assessee.
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2013 (11) TMI 137
Penalty levied under section 272B – Permanent account numbers of six deductees furnished by the assessee in e-TDS return were found to be incorrect - The assessee failed to furnish the requisite information before the Assessing Officer- Held that:- Missing/invalid permanent account number report was obtained from the Income-tax Officer (TDS) as on May 16, 2012 which shows one permanent account number of deductees under missing/invalid permanent account number category – The assessee has failed to furnish the permanent account number of one of the deductees, the assessee has defaulted and is eligible to levy of penalty under section 272B – Decided against assessee.
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2013 (11) TMI 136
Disallowance out of salary paid to managers – persons specified under section 40A(2)(b) - Held that:- The Assessing Officer has neither brought on record any reason why he has estimated disallowance nor brought out any comparative case to show that the salary paid is unreasonable or any evidence to show that the said relatives have not provided any services as claimed by assesse - Commissioner of Income-tax (Appeals) has not examined the plea raised or services rendered by the persons – The two employees rendered services and treating salary payment as genuine and reasonable – Decided in favour of assesse.
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2013 (11) TMI 135
Loss on account of windmill business eligible for deduction as per section 80-IA - Set-off of business loss from priority undertaking against income under other heads – Held that:- Following case of Synco Industries Ltd. v. Assessing Officer (Incometax) [2008 (3) TMI 13 - Supreme court] – If the gross total income includes any profits and gains derived from an industrial undertaking u/s 80-I deduction of 20 per cent of profits is allowed. The words "includes any profits" which indicate that the gross total income of an assessee shall include profits from a priority undertaking. While computing the quantum of deduction under section 80-I(6), the Assessing Officer has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deductions under Chapter VI-A - The non obstante clause appearing in section 80-I(6), is applicable only to the quantum of deduction, whereas, the gross total income under section 80B(5) which is also referred to in section 80-I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. Section 80A(2) and section 80B(5) are declaratory in nature. They apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and, therefore, the non obstante clause in section 80-I(6) cannot restrict the operation of sections 80A(2) and 80B(5) - Section 80-I(6) deals with actual computation of deduction whereas section 80-I(1) deals with the treatment to be given to such deductions in order to arrive at the total income of the assessee and, therefore, while interpreting section 80-I(1), which also refers to gross total income one has to read the expression 'gross total income' as defined in section 80B(5) – Decided against Revenue.
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2013 (11) TMI 134
Disallowance of amount paid to EPF – Held that:- Following CIT –vs.- Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] – Retrospective amendment to section 43B - The second proviso resulted in implementation problems and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, the Finance Act, 2003, which is made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1st April, 1988 - Remit the matter to the file of the Assessing Officer for deciding the matter afresh. Disallowance u/s. 40(a)(ia) – Held that:- Following Merilyn Shipping & Transport –vs. – ACIT [2012 (4) TMI 290 - ITAT VISAKHAPATNAM ] – Matter restored to the file of Assessing Officer for adjudication denovo - Decided in favour of assessee.
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2013 (11) TMI 133
Addition on account of low Net profit ratio – Held that:- It is well-settled law that merely on the ground of low gross profit ratio, the addition to the assessee's returned income cannot be made - the Assessing Officer merely referred to the discount of 10 percent offered by retailers on the printed price but did not demonstrate as to how that affected the gross profit declared by the assessee. He had not brought on record any comparable case, wherein, the net profit declared by a tax payer in the similar business, was higher, than the one declared by the assesse – Following S. N. Namasivayam Chettiar v. CIT [1960 (2) TMI 9 - SUPREME Court] - The accounts which are regularly maintained in the course of business should normally be taken as correct - The onus is upon the Revenue to show that either the books of account maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom – Decided against Revenue.
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2013 (11) TMI 132
Addition on account of unexplained advances received from customers – Assessing Officer has made addition of Rs. 28 lakhs in respect of advances of Rs. 25 lakhs shown to be received from M/s. Jot Agro Processors P. Ltd. and Rs. 3 lakhs from M/s Madura Agro Food Inds - As far as the advance received from M/s. Jot Agro P. Ltd. is concerned – The appellant has filed evidence being copies of various documents including confirmed copy of account of the appellant in the books of that company and wherein permanent account number of the company has been duly indicated - The amount of Rs. 3 lakhs claimed to be received from M/s. Madura Agro Food Inds. - The entry have been cross checked with the entries in the books of that company – The addition made by the Assessing Officer is based upon non-application of mind to the facts of the case and non-appreciation of the provisions of section 68 – Decided against Revenue.
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2013 (11) TMI 131
Depreciation on UPS - integral part of the computer – Held that:- Following Deputy CIT v. Datacraft India Ltd [2010 (7) TMI 642 - ITAT, MUMBAI] - The expression "computer" has not been defined in the Income-tax Act or the Rules and hence any device, which is essential to run the computer, has to be treated as part of the computer and entitled to the same rate of depreciation as that of the computer – There were frequent power failures in Ambarnath and in order to run the computer effectively UPS is an essential ingredient - Decided in favour of assessee.
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2013 (11) TMI 130
Scope of the term Current Repairs - Disallowance of the cost of chamber assembly – Held that:- Following the principles laid down in Saravana Spinning Mills P. Ltd [2007 (8) TMI 16 - SUPREME COURT OF INDIA] - When an integral part of the machine is replaced it would come within the connotation of "current repairs - Replacing compressor in the air-condition machine and picture tube in the television set would come within the connotation of "current repairs" under section 31(i) - Chamber assembly is one of the integral part of the intermix machine like compressor in the air-conditioner or picture tube in the television set - Replacing of chamber assembly in the intermix chamber is only for the purpose of maintaining the intermix chamber in a working condition - Intermix machine consists of bed plate, mixing chamber (chamber assembly), top cylinder, motor, gear, hydraulic power pack - Chamber assembly is fully integrated to the bed plate below the top cylinder - The chamber assembly cannot perform any independent and separate function. It functions only when it is fed with rotors and other parts of the intermix machine – Decided against revenue.
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2013 (11) TMI 129
Disallowance on account of advertisement expenses – Held that:- There is no concept of "deferred revenue expenditure" in the Income-tax Act. The expenditure is either "revenue" or "capital" in nature. If the expenditure is of revenue nature and is incurred wholly or exclusively for the purpose of business and has been incurred during the year, the same is allowable expenses - the advertisement expenses was allowable as revenue expenditure. Disallowance of depreciation on printers and scanners – Held that:- Following CIT v. BSES Yamuna Power Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT] - Computer accessories and peripherals such as, printers, scanners and server, etc., form an integral part of the computer system as they cannot be used without the computer. Hence, the same are part of the computer system and entitled to depreciation at the higher rate of 60 percent – Decided against Revenue.
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2013 (11) TMI 128
Income from land as agricultural income or business income – Held that:- Following Advanta India Ltd. [2010 (6) TMI 673 - ITAT BANGALORE] - Concerned village authorities had granted permission to the assessee to carry out agricultural activities on the land - The assessee had carried out only agricultural activities on the land in the relevant period, growing thereon red, yellow and green capsicum, culinary herbs, etc., which were both sold in the domestic market and exported to the Netherlands - The immediate source of the income is agricultural operation conducted by the assessee on the land and land alone and consequently the same is liable to be treated only as agricultural income – Assessing Officer's contention that the assessee cannot own agricultural land, as per the Karnataka Land Reforms Act, 1961, has no relevance to the issue on hand. - Decided against Revenue.
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2013 (11) TMI 127
Disallowance of remuneration to partner – Paid salary of Rs. 2.20 lakhs to Smt. Madhumita Paul, one of the partners of the assessee-firm – Held that:- No reason has been given for fixing the salary paid to Smt. Madhumita Paul at Rs. 1.20 lakhs - Proved that Smt. Madhumita Paul did know of the operations of the assessee's business - The Assessing Officer and the learned Commissioner of Income-tax (Appeals) has estimated the salary of Smt. Madhumita Paul without considering any comparative case or without laying any foundation for such estimation itself – Decided in favour of the assessee.
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2013 (11) TMI 126
Constitution of Permanent establishment ('PE') in India – Held that:- The issue regarding the period of continuation of the activities has been stated to be less than nine months by the assessee. On the basis of the data furnished, the period falls short only by about 20 days. The lower authorities have not examined the provision contained in article 5(2)(i) - This limited issue is restored to the file of the Assessing Officer to ascertain the period of the existence of the assessee in India and thereafter decide the existence of permanent establishment. Applicability of section 44BB – Held that:- As the assessee is engaged in the services of laying a pipeline in the offshore area for the extraction of oil and gas the services are 'in connection with the extraction/production of oil/gas' and therefore covered by section 44BB - In case it is held that a permanent establishment exists, its income may be taxed under section 44BB - Issue restored to the file of the Assessing Officer to ascertain the period of existence of the assessee in India. Calculating the total tax payable - the Assessing Officer calculated the tax payable after adding the income ignoring the fact that no refund was paid to the assessee. This matter can be rectified at the end of the Assessing Officer - The Assessing Officer would consider the issue of refund at his end de novo after giving a reasonable opportunity of being heard to the assesse – Decided in favour of assesse.
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2013 (11) TMI 125
Addition of income – cash system or mercantile system of accounting – Held that:- Provisions of section 145 of the Act have been amended with effect from April 1, 1997 - The assessee can follow either cash system or mercantile system of accounting - Prohibiting the hybrid system of accounting, which the assessee was following in the earlier years - The advances are taken as income in the year of the release of the films which is a faulty practice as the release of the films are not in the hands of the assessee as it is the sole prerogative of the producers of the films, whereas the assessee is enjoying the fruits of the advances from the day he gets them - Restoring the issue back to the files of the Assessing Officer - Assessee has already offered ₹ 53,52,000 in the computation of income in the relevant assessment year - The Assessing Officer is directed to verify the claim of the assessee that he has offered out of the total advance of ₹ 1,10,10,062, ₹ 27,58,062 in the assessment year 2006-07 and ₹ 2,50,000 in the assessment year 2007-08 and if found correct only the balance amount should be taxed in the year under consideration, to avoid double taxation – Decided in favour of assessee. Unexplained cash credits u/s 68 – payment of school fees of children was made by assessee’s mother-in-law - A copy of the confirmation and passport was submitted along with the reply – Held that:- Section 68 is not applicable as nothing has been found credited in the books of the assesse - The above confirmation does not mention the amount which has been paid by Mrs. Claude M. Grout nor she has given any details of her bank account - the mode of payments has also not been mentioned - Assessee has not filed any other corroborative evidence to substantiate the claim that the payment of school fees has been made by his mother-in-law - the assessee has failed to discharge the onus cast upon him – Decided against assessee. Disallowance of interest on loan – Amount borrowed for personal usage and purchase of some assets - Held that:- The assessee being a film star has to maintain a certain set of standard of living for which he may require money from time to time - Assuming that the assessee has borrowed money to purchase luxurious car, that would justify looking to the nature of profession of the assesse – Decided against Revenue.
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2013 (11) TMI 124
Assessment u/s 147 –- Held that:- The assessee himself has admitted 6 percent income on the sales effected which is more than that provided under section 44AF – Assessed the income of the assessee at 6 percent on the sales effected as against 8 percent made by the Assessing Officer – Decided in favour of assessee. Addition of unaccounted purchases – Held that:- The Assessing Officer has not produced any evidence to indicate that the purchases corresponding to the disclosed turnover were in addition to those evidenced by the demand draft of Rs. 21,97,000 - The purchases to the tune of Rs. 24,49,115 would have been made by the assessee closely tallies with the figure of demand drafts purchased by the assesse - The gross profit rate in this business ranges from 20 to 25 percent - Gross profit rate of 25 percent on the turnover of Rs. 32,65,486 comes to Rs. 8,16,731 - The explanation given by the assessee is plausible explanation - Deleted the addition of Rs. 21,97,000 – Decided against Revenue.
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2013 (11) TMI 123
Disallowance of depreciation – Charitable trust - The assessee had invested in building, which was held for the purposes of its objectives - The investment in building was taken as application of income - Held that:- Following findings in case of Institute of Banking [2003 (7) TMI 52 - BOMBAY High Court] - the amount of depreciation debited to the account of charitable institutions is to be deducted to arrive at an available income from charitable or religious purposes – Following Shri Adichunchanagiri Shikshana Trust [2010 (1) TMI 1100 - ITAT BANGALORE] - Wherein the Tribunal has allowed depreciation on an asset, even though the investment on the same was allowed as an application of income – Decided in favour of assessee.
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2013 (11) TMI 122
Deduction u/s 80HHC – Held that:- In view of the retrospective amendments made to section 80HHC allowing deduction in respect of incentives even in case of losses, the claim of the assessee requires fresh examination – As per amended provisions deduction under section 80HHC was allowable in respect of incentives even if there was loss from export business - The amended provisions did not cover computation of indirect cost in relation to export of trading goods under section 80HHC(3). The Assessing Officer in the original assessment had computed the direct and indirect cost in a particular manner while computing profit/loss from the export of trading goods which had become final as this aspect had not been disputed by the Revenue before the Tribunal - The Assessing Officer is not empowered to disturb the indirect cost computed in the original assessment – Decided in favour of assessee. Additional Ground - Deduction u/s 80HHE - such claim had neither been made in the return of income nor at the time of original assessment or in appeal against the original assessment - Such claim cannot be made in fresh proceedings – Decided against assessee. Computation of indirect expenses for export business – Held that:- Tribunal had restored the matter to the Assessing Officer for the limited purpose of considering deduction under section 80HHC - The Assessing Officer was not justified in going beyond the scope of direction given by the Tribunal – Following Sri Vindhya Vasini Prasad Gupta v. CIT [1990 (4) TMI 24 - ALLAHABAD High Court] - When the Tribunal had remanded the matter to consider one issue, the Appellate Assistant Commissioner was not empowered to go into other questions.
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2013 (11) TMI 121
Unexplained cash credit u/s 68 – Held that:- Following Rajeev Tandon v. Asst. CIT [2007 (7) TMI 40 - HIGH COURT , DELHI] – The donor had absolutely no connection with the assessee and they made gifts to the assessee only because he needed money to buy a house and he wanted to help him - this was not only quite unusual but also quite unnatural - It was incredible that a complete stranger would want to gift lakhs of rupees to a person only because that person wanted the amount for purchasing a house - the gifts could not be said to be genuine – Decided against the assesse.
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2013 (11) TMI 120
Recalling of Ex-parte order of Tribunal –Employee of the assessee refused to take the notice - The assessee filed an affidavit in support of his claim - Held that:- The assessee is not getting any benefit from such refusal rather these appeals were filed by the assessee himself - If the intention would have been of nonappearance then there was no need to file these appeals before the Tribunal - The letters or the orders sent to the above address are regularly served upon the deponent/assessee. There is a mistake on the part of the employee of the assessee, for which, the assessee should not be penalized - In view of the principle of natural justice, no person should be condemned unheard – appeals restored.
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2013 (11) TMI 119
Capital Gain to be assessed under the head “capital gains” or “business income” – sale of Shares, Units and Securities through Portfolio Management Services(PMS) - Held that:- Following Manan Nalin Shah Versus DCIT 14(1), Mumbai [2012 (9) TMI 793 - ITAT MUMBAI] - Income earned by the assessee-trust through PMS has to be assessed under the head capital gains and not under the head income from business or profession – Decided in favour of assesse.
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2013 (11) TMI 118
Income from royalty - Fees for technical services – Accounting method - Whether income from royalty and fee for technical services are to be taxed on receipt basis or accrual basis - the assessee has been consistently following the accrual basis method and the Tribunal has upheld the contentions of the assessee in various orders from the assessment years 1990-91 to 2003-04. Supply of software – Royalty - Held that:- Following Director of Income-tax v. Ericsson A. B. [2011 (12) TMI 91 - Delhi High Court] - the consideration received by the assessee for software was not royalty. The receipts would constitute business receipts in the hands of the assesse – the assessee who is a non-resident does not have a permanent establishment and therefore business income of the assessee cannot be taxed in India in the absence of a permanent establishment - the amount received by the assessee towards supply of software cannot be segregated from the supply of equipment and hence that portion cannot be considered as 'royalty' – Decided against Revenue.
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2013 (11) TMI 117
Disallowance of loss from derivative business – Held that:- Following Asst. CIT v. Shree Gopal Purohit [2009] [2009 (6) TMI 676 - ITAT MUMBAI] - Income from derivative transaction is non-speculative in nature - Even if there are procedural violations and the transactions are not strictly eligible transactions, there is no dispute that these are transactions in derivative products and such transactions even under the definition of speculative transactions in section 43(5) are non speculative - The assessee had maintained each and every record of the documentation provided by the sub-broker like trade confirmation report and bills - The assessee, having lack of knowledge about the contract note, did not desire for the contract note from sub-broker - The sub-broker has confirmed the transactions. The assessee has actually traded in derivatives, which is proved from all the trade confirmation reports and final settlement on record – Decided in favour of assesse.
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2013 (11) TMI 116
Disallowance of reinsurance premium paid to non-resident reinsurance companies – GE India Technology Cen. (P.) Ltd. v. CIT [2010 (9) TMI 7 - SUPREME COURT OF INDIA] - assessee contended that Reinsurance premium paid to non-resident reinsurance companies directly, where DTAA exists, and they having no place of permanent establishment in India, cannot be disallowed in the hands of the assessee under section 40(a)(i), as they are not liable to tax in India - Held that:- many of the fine details now placed by the assessees before us, were not available before the lower authorities - matter remanded back for de novo disposal in accordance with law after giving the assessees reasonable opportunity of being heard.
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2013 (11) TMI 115
Revision of Order u/s 263 – Held that:- Following CIT v. Max India Ltd. [2007 (11) TMI 12 - Supreme Court of India] - The order of the Assessing Officer allowing the claim of the assessee was based on a plausible view and the said view is not open for review by the Commissioner of Income-tax by way of invoking the jurisdiction under section 263 of the Act - Decided in favour of the assesse. Keyman Insurance Premium paid on lives of Partner - Held that:- Following CIT v. B. N. Exports [2010 (3) TMI 186 - BOMBAY HIGH COURT] - The assessee has no control over the way an assessment order is drafted and since, generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only those points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made - No merit in exercise of jurisdiction by the Commissioner of Income-tax under section 263.
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2013 (11) TMI 114
Penalty u/s 271A – Non maintenance of books of accounts – Held that:- It is very difficult to get an accountant at affordable cost in a remote village - Considering the remoteness of the village in which the assessee is carrying on the business and the nature of business conducted by the assesse – Reasonable cause for not maintaining books of account as required under section 44AA of the Act. Therefore, the assessee is entitled for exemption under section 273B of the Act – Decided in favour of assessee. Penalty u/s 271(1)(c) – Held that:- The assessee has not furnished any return in response to notice under section 148 and the assessee was having taxable income – deemed concealment – The assessed income as per the order of this Tribunal is more than the income actually returned by the assessee in all the years. Therefore, the difference between the income returned and income assessed is concealed income – Decided against assessee.
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2013 (11) TMI 113
Disallowance of Cenvat Credit – unutilized cenvat credit was written off on account of closer of factory - Held that:- The assessee was paying higher rate of excise duty on the raw material purchased by it as against the rate of excise duty applicable on the manufactured items, consequently credit of excise duty was available with the assesse - the assessee closed down its manufacturing unit and consequently the benefit of the CENVAT credit remained un-adjusted - Once the manufacturing unit of the assessee is closed down, the benefit of CENVAT credit not availed of against the excise duty payable on manufactured items, cannot be utilized by the assessee and the write off of CENVAT credit, is allowable as an expenditure in the year under consideration on the closure of the business - The write off of CENVAT credit by the assessee in its books of account is allowable as business expenditure under the provisions of section 37(1) of the Act relatable to the year - The assesse is allowed to claim write off of Cenvat Credit – Decided in favour of assesse.
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2013 (11) TMI 112
Deduction u/s 80HHC – Computation of book profit u/s 115JB - Held that:- Following Ajanta Pharma Ltd. vs. CIT (SC) [2010 (9) TMI 8 - SUPREME COURT] – The amount of profit eligible for deduction u/s 80HHC has to be reduced and the computation has to be made on the basis of book profit and not as per regular provisions of the Act - Relief will be computed u/s 80HHC (3)/(3A), subject to the conditions under sub-sections (4) and (4A) of that Section. The condition is only that relief should be certified by the Chartered Accountant. Such condition is not a qualifying condition, but, is a compliance condition. In accordance with the Section 115JB it has been clearly stated that relief will be computed u/s 80HHC (3)/(3A), subject to the conditions under sub-sections (4) and (4A) of that Section. The condition is only that relief should be certified by the Chartered Accountant - one cannot rely upon the last sentence in clause (iv) of Explanation to section 115JB (subject to the conditions specified in sub-section (4) and (4A) of that section) to obliterate the difference between “eligibility” and “deductibility” of profits - Decided against Revenue.
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2013 (11) TMI 111
Unrecognised gratuity fund u/s 37(1) – Held that:- The amount paid towards an unapproved gratuity fund can be deducted under sec. 37 of the I.T. Act, though not under sec. 36(1)(v) - even if any payment is made to an unapproved gratuity fund, it has to be allowed under sec. 37 - Binding judgement of Andhra Pradesh High Court in the case of Warner Hindusthan Ltd. (1983 (6) TMI 9 - ANDHRA PRADESH High Court) followed – Decided against Revenue. Disallowance of proportionate interest – Held that:- The assessee used its own non interest bearing funds and there is no cost to the assessee and it is a business decision taken by the assessee to make an investment in subsidiary company and that even if it is resulted in no income to the assessee - Following Sri Krishna Drugs Ltd. vs Department of Income tax [2013 (3) TMI 410 - ITAT HYDERABAD] – the notional interest cannot be disallowed on the reason that the assessee should have used its non interest bearing funds for the purpose of its own business purpose instead using borrowed funds for its business – Decided against Revenue. Depreciation on intangible assets u/s. 32(1)(ii) – Held that:- There is no nomenclature given in the books of account to the intangible rights acquired by the assessee is irrelevant for ascertaining the real nature of the transaction - The true nature of the assets which are acquired by the assessee is business and commercial rights which is nothing but goodwill on which the assessee is entitled for depreciation u/s. 32(1)(ii) of the Act - Following the judgement in Sri Krishna Drugs Ltd. vs Department of Income tax [2013 (3) TMI 410 - ITAT HYDERABAD] - Decided against Revenue.
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2013 (11) TMI 110
Whether deduction u/s 80-IB (10) allowed if the undertaking is not approved by local authority – The assessee was a partnership firm engaged in the business of development of land and construction of residential buildings – The assessee was denied deduction on the reason that the land was not in the name of firm - Held that:- Following Radhe Developers [2007 (6) TMI 316 - ITAT AHMEDABAD] – The assessees was entitled to the benefit u/s 80IB(10) even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners - There was a typographical error in the computation sheet and the actual profit was ₹ 26,35,686 and inadvertently the same was mentioned as ₹ 23,35,686 - The books of account are audited and it was not mentioned anywhere that there was undisclosed receipts – Following ITO v. Shakti Corporation [2008 (11) TMI 436 - ITAT AHMEDABAD] - the benefit under 80-IB(10) would be available if the developer has dominant control over the project and has developed the land at its own cost and risk and the benefit would be denied if the assessee had entered into an agreement for a fixed remuneration as a contractor to construct or develop the project on behalf of the land owner - The issue was restored for fresh adjudication. The TDS was not deducted on transport expenses of ₹ 10,93,134 inadvertently as this was the first year of applicability of section 40(a)(ia) of the Act – The assessee should be allowed deduction u/s 80IB(10) on the disallowance of ₹ 10,93,134 by invoking the provisions of section 40(a)(ia) - Decided against Revenue.
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2013 (11) TMI 109
Addition made u/s 69A – genuineness of transaction - sale of shears - STCG - Held that:- The transactions carried out by the assessee have been explained through material on record and the assessee entered into the transactions of purchase and sale of shares genuinely. Sale consideration is received through broker who is also existing assessee with the Revenue Department - there is no reason to treat the transaction as non-genuine for the purpose of making addition - the source of the receipt of the amount is explained and the transaction entered into by the assessee with the broker clearly suggests a case of short-term capital gains – Decided against Revenue. Validity of reassessment proceedings u/s. 148 - Without issuance of notice – Held that:- Both the additions made by the AO have been deleted on merits - validity of proceedings u/s. 148, did not arise from the order.
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2013 (11) TMI 108
Rebate u/s 88E – deduction of STT paid from the income tax computed u/s 115JB at book profit - Held that:- Following DCIT vs. M/s. MBL & Co. Ltd. [2011 (4) TMI 1312 - ITAT DELHI] – The assessee is entitled to a deduction of the amount equal to the STT paid by him in respect of the taxable Securities Transactions entered into in the course of business during the previous year – The rebate is to be granted from the amount of income tax chargeable on the total income of the assessee. The income tax is computed after arriving at the total income of the assessee and section 87 of the Income Tax Act, 1961 does not differentiate between the total income computed under the regular provisions of the Act or under section 115JB of the Income Tax Act, 1961 - Rebate u/s 80E available to the assesse – Decided against Revenue.
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