Nov 012014
 

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Income Tax Officer Versus M/s. Pratibhuti Viniyog Ltd. – Income Tax – ITAT MUMBAI – Tri – Non deduction of TDS – VSAT charges and transaction charges paid to stock exchange disallowed u/s 40(a)(ia) – Whether the charges were composite charges for professional and technical services rendered by the stock exchange to its members and the assessee has failed to deduct TDS – Held that:- Insofar as the transaction charges are concerned, the assessee was liable to deduct TDS u/s 194J as held in Commissioner of Income-tax – 4(3) Versus Kotak Securities Ltd. [2011 (10) TMI 24 - Bombay High Court] – the disallowance under section 40(a)(ia), has rightly been made by the AO As regards V-SAT charges are concerned for sum amounting to ₹ 1.10 lakhs, following the decision in The Income Tax Commissioner Mumbai City-4 Versus Angel Capital & Debit Market Ltd. [2014 (5) TMI 584 - BOMBAY HIGH COURT] – these are not in the nature of technical services, no TDS was required and consequently, no disallowance under section 40(a)(ia) is called for. Dividend income disallowed u/s 14A r/w Rule 8D – Held that:- CIT(A) rightly held that rule 8D is not applicable for the AY 2007-08 as it is applicable from the AY 2008-09 as decided in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] – disallowance cannot be made on the basis of formula laid down by the rule 8D in the AY 2007-08 and some reasonable basis has to be adopted – Decided against revenue. – 2014 (11) TMI 8 – ITAT MUMBAI – TMI – ITA No. 1689/Mum./2011 – - Dated:- 22-8-2014 – D. Karunakara Rao, AM And Amit Shukla, JM,JJ. For the Petitioner : Smt. Parminder For the Respondent : Shri Pradip Kedia ORDER Per Amit Shukla,J. M. The present appeal has been preferred by the Revenue challenging the impugned order dated 30th December 2010, passed by the learned Commissioner (Appeals)-VIII, Mumbai, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act"), for the assessment year 2007-08, on the following grounds:- "1(i). On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance of ₹ 3,00,009 made under section 40(a)(ia) in respect of VSAT charges and transaction charges paid to stock exchange, without appreciating the facts that these were composite charges for professional and technical services rendered by the stock exchange to its members and the assessee has failed to deduct TDS thereon. (ii). On the facts and in the circumstances of the case and in law the learned CIT(A) erred in in ignoring the fact that these services are essential in nature as they can only be availed by members of stock exchange. (iii) On the facts and in the circumstances of the case and in law the learned CIT(A) erred in ignoring the facts that use of technology and algorithmic based programs have converted an erstwhile physical market into a digitally operated market. (iv) On the facts and in the circumstances of the case and in law the learned CIT(A) erred in ignoring the fact that the services rendered by the brokers are not standard services but services that has been developed to cater to the needs of the broker community to facilitate trading. (v) On the facts and in the circumstances of the case and in law the learned CIT(A) has overlooked the fact that the brokers have in subsequent years themselves started deducting the TDS on such payments and that there is no reason to give a different treatment in this year. 2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the addition of ₹ 4,41,221 made under section 14A r/w Rule 8D by the Assessing Officer. 3. On the facts and in the circumstances of the case and in law the impugned order of the learned CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored." 2. Facts in brief:- The assessee company is engaged in the business of share broking and apart from that it has been receiving income from interest and dividend. The Assessing Officer noted that the assessee has debited V-SAT charges of ₹ 1,10,000 and transaction charges of ₹ 2,90,009, in the Profit & Loss account, which he was of the opinion that were in the nature of technical services, therefore, the assessee was liable to deduct tax on such payment. In response to the show cause notice, as to why disallowance under section 40(a)(ia) should not be made, the assessee submitted that the TDS has not been deducted, because there is no rendering of professional or technical services on such charges. Reliance was placed on the decision of the Tribunal, Mumbai Bench, in Kotak Securities Ltd. The Assessing Officer held that the decision of the Tribunal has not been accepted by the Department and the matter is pending before the High Court. Therefore, analysing the nature of services in detail, he held that such a payment is to be disallowed under section 40(a)(ia) as the assessee was liable to deduct tax under section 194J. 3. Before us, it has been admitted by both the parties that insofar as the disallowance of ₹ 2,90,009, on account of transaction charges is concerned, the same has been decided against the assessee by the Hon'ble Jurisdictional High Court in CIT v/s Kotak Securities Ltd. [2012] 340 ITR 333 (Bom.) However, the learned counsel pointed out that in another decision, the Hon'ble Jurisdictional High Court in CIT v/s The Stock and Bond Trading Company, vide order dated 14th October 2011, has held that even the transaction charges are not covered under section 194J. He though admitted that this decision of the High Court was delivered few days prior to the decision of Kotak Securities Ltd. Insofar as the V-SAT charges are concerned, the learned counsel submitted that this issue is covered infavour of the assessee by the decision of the Hon'ble Jurisdictional High Court in CIT v/s Angel Capital and Debit Market Ltd., ITA no.475 of 2011, order dated 28th July 2011. The learned Departmental Representative also admitted that the issue of V-SAT charges is covered by the said decision of the High Court. 4. Thus, in view of the above submissions, we hold that insofar as the transaction charges are concerned, the assessee was liable to deduct TDS under section 194J in view of the decision of Hon'ble Jurisdictional High Court in Kotak Securities Ltd., which is a later decision and, therefore, the disallowance under section 40(a)(ia), has rightly been made by the Assessing Officer. As regards V-SAT charges are concerned for sum amounting to ₹ 1.10 lakhs, following the decision of Angel Capital &Debit Market Ltd. (supra), we hold that these are not in the nature of technical services, therefore, no TDS was required and consequently, no disallowance under section 40(a)(ia) is called for. 5. However, regarding ground no.1, before us, the learned counsel has raised an alternative plea that all the payments remained paid up to 31st March 2007 and, therefore, no disallowance under section 40(a)(ia) should be made even with regard to transaction charges in view of the decision of Allahabad High Court in Vector Shipping Services Pvt. Ltd. He submitted that though there are two High Court decision, one of Calcutta High Court and other of Gujarat High Court against the assessee, however, the Hon ble Allahabad High Court in case of CIT v/s Vector Shipping Service Pvt. Ltd., ITA no.122 of 2013, order dated 9th July 2013, has held that the amount should be deducted on the amount which is payable and not which has been paid by the end of the year. He pointed out that this decision of the Allahabad High Court stands approved in the sense that the SLP against the said decision has been dismissed by the Hon'ble Supreme Court, vide order dated 2nd July 2014. Thus, he submitted that this decision being favourable to the assessee, should be followed. 6. The learned Departmental Representative, on the other hand, submitted that this issue was not raised before the authorities below, therefore, the same should not be entertained and secondly the decision of Calcutta High Court and Gujarat High Court should be followed which are more elaborate and detail judgments. 7. We have heard the rival contentions. On a perusal of the order of the Hon ble Allahabad High Court in Vector Shipping Services Pvt. Ltd., ITA no.122 of 2013, judgment dated 9th July 2013, it is seen that only question of law which was formulated by the Hon ble High Court was as under:- "Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the CIT(A) and thereby deleting the disallowance of ₹ 1,17,68,621 made by the Assessing Officer under section 40(a)(ia) of the I.T. Act, 1961, by ignoring the fact that the company M/s. Mercator Lines Ltd. had performed ship management work on behalf of the assessee. M/s. Vector Shipping Services Pvt. Ltd. and there was a Memorandum of Understanding signed between both the companies as per the definition of memorandum of understanding, it includes contract also." 8. Thus issue of paid and payable was not subject of reference before the Hon ble High Court. Further, from the facts which has been incorporated by the Hon ble High Court, was that M/s. Mercator Lines Ltd. had deducted tax at source on the salaries paid by it on behalf of the assessee in respect of which the disallowance was made by the Assessing Officer under section 40(a)(ia). While answering the aforesaid question of law, the Hon ble High Court held in the present case, tax was duly deducted as the TDS has been deducted from the salary of the employees paid by M/s. Mercator Lines Ltd. on behalf of Vector Shipping Service (the assessee) and the circumstances in which such salaries were paid by M/s. Mercator Lines Ltd., for M/. Vector Shipping Services, where sufficiently explained by the assessee. Thus, the issue was decided on the ground that the tax has already been deducted, therefore, no disallowance under section 40(a)(ia) should be made. After having answered the question in the aforesaid manner, the Hon ble High Court further observed as under:- "It is to be noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year." 9. Such an observation of the Hon ble High Court sans the issue in question of law formulated is in the form of obiter dicta. This observation was made by the Court because the Tribunal while dealing with the said disallowance has referred to the decision of the Special Bench in M/s. Merilyn Shipping and Transport Ltd., 136 ITD 23 (SB). It is not the case where the Hon ble High Court has categorically affirmed the reasoning and interpretation given by the Special Bench. On the contrary, we find that the Hon ble Calcutta High Court in CIT v/s Crescent Exports Syndicate, [2013] 262 CTR (Cal.) 525, has specifically examined the correctness of the majority view of Marilyn Shipping and disapproved the view taken by the Special Bench in the following manner:- The High Court examined the correctness of the majority views in the case of Merilyn Shipping. The main thrust of the majority view was based on the fact "that the Legislature has replaced the expression "amounts credited or paid" with the expression 'payable' in the final enactment. Comparison between the pre-amendment and post amendment law is permissible for the purpose of ascertaining the mischief sought to be remedied or the object sought to be achieved by an amendment. But the same comparison between the draft and the enacted law is not permissible. Nor can the draft or the bill be used for the purpose of regulating the meaning and purport of the enacted law. It is the finally enacted law which is the will of the legislature. CIT vs. Kelvinator reported in 2010(2) SCC 723, relied on. The Tribunal fell into an error in not realizing this aspect of the matter. The Tribunal held "that where language is clear the intention of the legislature is to be gathered from the language used". Having held so, it was not open to seek to interpret the section on the basis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the so-called representations made by the professional bodies. The Tribunal held that "Section 40(a)(ia) of the Act creates a legal fiction by virtue of which even the genuine and admissible expenses claimed by an assessee under the head "income from business and profession" if the assessee does not deduct TDS on such expenses are disallowed". Having held so was it open to the Tribunal to seek to justify that "this fiction cannot be extended any further and, therefore, cannot be invoked by AO to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid"? Does this not amount to deliberately reading something in the law which is not there? The Tribunal realized the meaning and purport of Sec. 40(a)(ia) correctly when it held that in case o………………

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Nov 012014
 

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Income Tax – Dated:- 1-11-2014 – Reopening of assessment u/s 147 – provisions of section 292BB of the Act is not applicable as the issue in disp………………

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Nov 012014
 

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Income Tax – Dated:- 1-11-2014 – The provisions of s. 221 providing for penalty payable when tax is in default applies to both the situations, i.e., when assessee is in default in respect of ………………

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Nov 012014
 

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Hope Micro Credit Finance (P.) Ltd. Versus Assistant Commissioner of Income-tax, Circle-1, Palakkad – Income Tax – ITAT COCHIN – Tri – Levy of penalty u/s 221 r.w. Section 140A(3) – Held that:- The assessee is liable to pay the admitted tax for AY 2012-13 as per the return filed by the assessee – The assessee failed to pay this amount even after giving notice to the assessee vide notice dated 01-11-2012 served upon the assessee on 02-11-2012 wherein the AO asked the assessee to pay the admitted tax with three days from the receipt of the notice – assessee is not able to point out any reasonable cause for not depositing the admitted tax with the Government – in the case of the assessee, the tax and interest is payable not in consonance with any order or assessment order or any other order under this Act by the Assessing officer – the amount of tax and interest is payable on the basis of the return filed by the assessee itself under the provisions of the Act which is payable by virtue of precedence of self assessment u/s. 140A(3) of the Act – The assessee having failed to pay the amount of tax on the basis of the return furnished by it for the relevant assessment year in accordance with the provisions of s. 140A(1) is deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid as per the statutory provision of s. 140A(3). The provision of s. 140A(3) further provides that in case the assessee is deemed to be in default, all the provisions of this Act shall apply to the case of the assessee. The provisions of s. 221 providing for penalty payable when tax is in default applies to both the situations, i.e., when assessee is in default in respect of the assessed tax or is deemed to be in default in making the payment of tax under self-assessment tax as per the return of income filed by the assessee – Self-assessment tax has to be calculated on the basis of the return filed by the assessee for the relevant assessment year and paid to the credit of the Government suo moto before furnishing the return of income and the return of income shall be accompanied by proof of payment of such tax and interest as per the statutory provisions of s. 140A(1) and there is no requirement of issue of notice of demand u/s. 156 by the Assessing officer for making such payment of tax and interest of the self-assessment tax before furnishing the return of income by the assessee – the penalty u/s. 221 was rightly levied on the assessee. Assessee argues that he cannot be considered as deemed to be in default and being so, the assessee cannot be fastened with the liability of penalty on the ground that there is provisions of sections 234A, 234B and 234C to take care of the loss to the Revenue – The argument of the assessee is devoid of merits as sec. 140A(3) is to be read with sec. 221 which empowers the AO to levy penalty when there is a failure on the part of the assessee to make the payment of self-assessment tax and interest as stipulated in section 140A(1) – The provision of section 221 is penal in nature – on the other hand provision of section 23A, 23B and 234C are compensatory in nature – the order of the CIT(A) is upheld and the order of levy of penalty u/s. 221 r.w.s. 140A(3) is upheld – Decided against assessee. – 2014 (11) TMI 6 – ITAT COCHIN – TMI – IT Appeal No. 789 (Coch.) of 2013 – - Dated:- 27-6-2014 – N.R.S. GANESAN, AND CHANDRA POOJARI, JJ. Sivadas Chettoor for the Appellant. Smt. Latha V. Kumar for the Respondent. ORDER Chandra Poojari, Accountant Member – This appeal filed by the assessee is directed against the order of the CIT(A)-V, Kochi dated 09-10-2013 for the assessment year 2012-13. 2. The grievance of the assessee in this appeal is with regard to levy of penalty u/s. 221 r.w.s. 140A(3)of the I.T. Act. 3. The brief facts of the case are that the assessee failed to make payment of advance tax of ₹ 92,01,650/- as required under the Income Tax Act, 1961 by 15-03-2012. This payment of income tax due and payable by the assessee was also not paid as self assessment tax at the time of filing their income tax return. Under the Act every assessee is required to pay the entire income tax with in the prescribed limit the by of advance tax. If the assessee is unable to pay the advance tax, the Act provides that they should pay self assessment tax before filing return of income u/s. 140A of the I.T. Act. If the assessee fails to pay, then the assessee is deemed to be an assessee in default in respect of tax and interest remaining unpaid, as per section 140A(3) of the I.T. Act. Thus payment of self assessment tax is an additional facility provided to the assessee to make payment of tax payable that may arise out of some upward revision/correction in their income at the time of filing their return. The assessee was therefore directed to pay the taxes overdue within 3 days from the date of receipt of letter dated 1/11/2012 which was received by the assessee on 2/11/2012 . However, the said letter was not complied with and therefore, the assessee is deemed to be an assessee in default as per the provisions of section 140A(3) of the I.T. Act in respect of the outstanding amount of self assessment tax of ₹ 92,01,650/- for the assessment year 2012-13. The Assessing officer issued notice under section 221(1) r.w.s. 140A(3) of the Act, which was served upon the assessee intimating that the assessee is deemed to be an assessee in default and to show cause as to why penalty u/s. 221(1) of the Act should not be levied for failure to pay self assessment tax for A.Y. 2012-13. The date of compliance was fixed on 3.12.2012. On the date of hearing before the Assessing officer, a representative from the company attended, and stated that the assessee has been facing certain financial difficulties and that the payment would be paid in a week's time. No written submissions were made nor any evidence in support of their contention was submitted for consideration before the Assessing officer. On 13/12/2012, a copy of challan evidencing the payment of ₹ 20,00,000/- was filed in the Tapal of Assessing officer. The assessee have not adduced any evidence to satisfactorily explain as to why the payment of advance tax or for that matter self assessment tax was not paid within the stipulated time as provided in the Income Tax Act. Therefore, the Assessing officer had no option but he took a stand that the assessee does not have any satisfactory or reasonable explanation to offer for failure to comply with the provisions of the Income Tax Act. The explanation to section 221(1) specifically provides that an assessee be liable to pay penalty u/s. 221 of the I.T. Act. The Assessing officer recorded the findings that the assessee is micro finance company providing finance to third parties. Therefore payment of undisputed self assessment taxes should not pose a problem unless the assessee utilizes the funds to be paid as taxes for providing loans at an interest to parties with a malafide intention to defer the payment of taxes. It is quite possible in the absence of any details, to infer that the assessee finds utilizing the funds for providing loans, a more profitable venture, than payment of tax as the interest element outside exceeds the interest payments to be made to the Government. The assessee by indulging in such practices has acted purely for its own personal pecuniary interest. According to the Assessing officer such a practice of the assessee if allowed would defeat the objectives of tax collection by the Government and therefore, need to be nipped in the bud or curbed as allowing such practice would also be an injustice to the law abiding taxpaying assessees. Therefore the Assessing officer concluded that this is a fit case for levy of penalty u/s. 221 r.w.s. 140A(3) of the I.T. Act and proceeded to levy penalty on the assessee for default in payment of self assessment tax amounting to ₹ 92,01,650/-. 4. The Assessing officer therefore imposed a penalty of ₹ 18,40,330/- being 20% of ₹ 92,01,650/-. 5. On appeal, the CIT(A) confirmed the order of the Assessing officer. Against this, the assessee has preferred this appeal before us. 6. The Ld. AR submitted that the said penalty is illegal and unsustainable in view of the substitution of sub section (3) of 140A by Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989. Attention is invited to the provision of section 140A(3) as at stood immediately before the said amendment effective from 1-4-1989 which is as follows: – "If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), two percent of such tax or part thereof, as the case may be shall be recovered from by way of penalty for every month during which the default continues". 7. The provision of section 140A(3) after the amendment is also given below. "If any assessee fails to pay the whole or any part of such tax or interest or both in accordance with the provisions of sub-section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid, and all the provisions of this Act shall apply accordingly." 8. He submitted that from the above amendment it can be concluded that the parliament intend to withdraw the penalty specifically provided u/s. 140A(3) in view of the simultaneous insertion of Section 234A, 234B, 234C in the Income Tax Act, providing for payment of penal interest when it defaults envisaged u/s. 140A(3) occurs. 9. The Ld. AR drew out attention to the provisions of sec. 234A, 234B, 234C of the Act as inserted by Direct Tax Laws (Amendment) Act, 1987 with effect from 01-04-1989. He submitted that a combined reading of substituted section 140A(3) with newly inserted section 234A, 234B & 234C would make the provision very clear that an expressed provisions providing for penalty has been done away with. It is also submitted that if demand is raised both under 140A(3) towards penalty and Section 234A, 234B, 234C towards penal interest then the whole demand becomes confisicatory, arbitory and would be hit by Article 14 of the constitution. Therefore harmonious construction of legal provision is required and the penalty imposed may kindly be removed. 10. The Ld. AR also drew our attention to the notes on clauses appended to the Direct Tax Law (Amendment) Bill 1987 (Bill No. 131 of 1987) as introduced in the Lok Sabha on 11/12/1987 which reads as follows: – "the existing sub section 3 of the section which provides for the levy of the penalty of non payment of Self Assessment Tax is being omitted." 11. He also invited our attention to Circular No. 549 dated 31/10/1989 issued by the Central Board of Direct Taxes explaining the scope of section 140A(3) and the impact of insertion of the new sections 234A, 234B, 234C vide Income Tax Amendment Act, 1987 which is as follows: – '"4.16 For delay in filing the return of income and for delay or default in payment of advance tax, mandatory interest is now payable under the provisions of new sections 234A to 234C inserted by the Amending Act, 1987. Further, under the new scheme of assessment also being introduced by the Amending Act, 1987 (refer para 5.2 of these Explanatory Notes), if the tax and interest due on the basis of returned income have been correctly paid, the return will be accepted as such and no further action on it will be necessary. For successful implementation of the new scheme of assessment, it is necessary that the assessees should also pay interest due it is necessary that the assessees should also pay interest due under the provisions of the new sections 234A to 234C along with the self-assessment tax before filing the return of income. The Amending Act, 1987, has, therefore, amended sub-section (1) of section 140A to make it mandatory for a person to pay before furnishing the return, tax together with interest payable under any provisions of the Act for delay in furnishing the return or any default or delay in payment of advance tax. Proof of payment of such tax and interest is to be attached with the return. Further, an Explanation has been inserted in the said sub-section (1) to clarify that where the assessee pays only part of, the amount due at the time of filing the return, such payment shall first be adjusted towards interest payable, and balance, if any, shall be adjusted towards the tax payable." "4.17. The old provisions of sub-section (3) of the section provided for levy of penalty for non-payment of self-assessment tax. Since the rate of mandatory interest for failure to pay the tax has not been increased, it is not necessary to retain this provision any more. The Amending Act, 1987, has accordingly, omitted the said sub-section (3)."' 12. According to the Ld. AR, from the above it is clear that the view of the department is not to impose penalty since the penalty is taken care under sections 234A, 234B, 2324C. It is to be noted that this circular being beneficial is binding on the department and hence it is requested that the said circular be applied in the case of appellant. 13. In any view of the matter it is submitted by Ld. AR that the penalty be cancelled or reasonable orders may be passed giving due relief since there is no mens rea. Further, the Ld. AR submitted that the appellant was in great financial difficulties. The appellant was given only 3 days time. The amount was demanded vide letter No. ACIT/Circle-1 PKD/2012/13 dated 1/11/2012 which was served on the appellant on 2/11/12. Giving 3 days time to remit ₹ 92 lakhs is most unfair and unreasonable if not totally arbitrary. Even then the appellant remitted on 13-12-2012 ₹ 20 lakhs soon on receipt of the notice. The Managing Director of the company died a few months back also. There is no demand notice even. The provisions of section 140A(3) clearly provides that provisions relating to section 221 as well as other provisions of the Act shall apply. Thus before treating the assessee………………

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Nov 012014
 

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ITO, Ward-20(1), New Delhi Versus New Age Overseas, Prop. Shri Daljit Singh – Income Tax – ITAT DELHI – Tri – Unexplained credit u/s 68 – Facts remained unrebutted on record – Service of notice – Held that:- The assessee was the sole proprietor of M/s New Age Overseas and filed the return for the year under consideration on 05.07.2001 declaring an income of Rs,2,78,410/- has not been disputed by the Revenue – the income included the income of ₹ 2,31,187/- from the proprietary firm M/s New Age Overseas has also not been rebutted – against this return filed on 05.07.2001, no notice u/s 143(2) has been issued to the assessee – The evidence in regard to the shifting of the firm M/s New Age Overseas 130-131-D, Kamla Nagar, Delhi to 96-D, Kamla Nagar, Delhi w.e.f 07.07.2004 and ultimately the proprietorship was closed on 31.03.2007 by surrendering the sales tax number also has been confronted by the AO by way of a Remand Report and has not been rebutted as per the finding on fact available on record and has also not been rebutted before us in the present proceedings. The fact that the assessee specifically shifted to B-7, Green park Extension, New Delhi and submitted his return in Ward-24(1), New Delhi is the finding of the fact recorded in the order which also has been confronted to the AO and not denied by him and also not rebutted before us by the Revenue in the present proceedings – the service of notice by way of affixtures from 31.03.2008 to 28.11.2008 on the premises i.e. 130D, Kamla Nagar has been taken cognizance by the CIT(A) to hold that the notices were not served at the correct address – the CIT(A) also proceeds to consider the fact that the AO could have obtained the correct address from the bank account of Vijaya Bank as the complete address was available there – This fact also stands unrebutted on record – the CIT(A) ought to have quashed the proceedings and there was no need to proceed to adjudicate upon the additions on merit – the reasoning taken by the CIT(A) on merits also has not been assailed by the Revenue either by referring to any fact or evidence – Decided against revenue. – 2014 (11) TMI 2 – ITAT DELHI – TMI – I.T.A .No. 3333/Del/2010, Co. 385/Del/2011 – - Dated:- 17-10-2014 – Smt. Diva Singh And Shri J. S. Reddy,JJ. For the Appellant : Sh. Manoj Kumar Chopra, Sr. DR For the Respondent : Sh. V. K. Goel, CA ORDER Per Diva Singh, JM The present appeal has been filed by the Revenue against the order dated 30.04.2010 of CIT(A)-XXII, New Delhi pertaining to 2001-02 assessment year and the assessee also is before us in the Cross Objection filed. The grounds raised by the department read as under:- 1. "The Ld. CIT(A) erred in law and on facts in deleting the addition of ₹ 1,08,000/- made by the Assessing Officer on account of un-explained credit u/s 68 of I.T.Act. 2. The Ld. CIT(A) erred in law and on facts in deleting the addition of ₹ 6,65,815/- made by the Assessing Officer on account of un-explained investment. 3. The ld. CIT(A) erred in law and on facts in deleting the addition of ₹ 10,89,423/- made by the Assessing Officer on account of profit estimate basis. 4. The appellant craves leave to amend or alter all or any of the aforesaid grounds of appeal and add any other ground of appeal." 2. The assessee has filed its cross objection on the following grounds:- 1. Under the facts and circumstances of the case, the CIT(A) has acted against the law in not quashing the reassessment order. 2. That the CIT(A) was not correct in law in not holding the impugned assessment to be illegal specifically when he had given the finding of fact not challenged by the Revenue that there were two assessments framed in the case of the assessee and the impugned assessment framed was the later assessment. 3. That the CIT(A) was wrong by not holding that assessment in the name of M/s New Age Overseas as an individual is invalid and illegal. 4. That the CIT(A) has acted against the law by not canceling the impugned assessment specially when he had held that the assessment has been made in the name of New Age Overseas which is not a human being. M/s New Age Overseas cannot be held to be an individual. The Revenue has not challenged these findings. 5. That the CIT(A) was not correct in not cancelling the assessment when the proceedings initiated u/s 147 are invalid and illegal as the reasons recorded are undated and not bonafide one and cannot be said to have been recorded prior to the issue of the notice u/s 148. 6. That the CIT(A) should have cancelled the reassessment specifically when he took the view that the notices were not served at the present address of the assessee and no notice was sent in accordance with Rule 19A of Order V of CPC. Even the appeal must be dismissed as the address of the assessee was not correctly mentioned. Service of the notice on the assessee is essential prerequisite for the valid proceedings u/s 147/148. 7. That the CIT(A) under the law and facts correctly deleted the addition of ₹ 108000/- made by the AO u/s 68 of the Income Tax Act.] 8. That the CIT(A) under the law and facts correctly deleted the addition of ₹ 665815/- made by the AO on account of unexplained investment. 9. That the CIT(A) under the law and facts correctly deleted the addition of ₹ 1089423/- made by the AO towards the profit on estimate basis. 10. Any other ground which may be taken subsequently." 3. Right at the outset, Ld. Sr. DR was required to address whether the department has any objection to any document filed on record. Attention of the Ld. Sr. DR was invited to the paper book available on record consisting of 128 pages filed on 30.11.2011 and the ld. Sr. DR was also required to address whether he was prepared to also agree the grounds in the Cross objection filed by the assessee. The said query was necessitated as in the past it has been found that frequently after devoting time to the argument hearing has to be adjourned as the concerned DR being on rotational duty was not fully prepared to argue. In response to the same, Ld. SR. DR submitted that he has gone through the paper book and also the C.O. and has no objection to any document placed on record and was ready to argue. Considering the said statement the hearing commenced. Before we address the arguments of the 4. The relevant facts of the case are that the AO passed the order u/s 144 on the basis of information received that the assessee had received accommodation entries in his bank account with Vijaya Bank, Kamla Nagar, Delhi of ₹ 1,08,000/-. In view of the same taking note of the fact that the said bank account pertained to M/s. New Age Overseas, 130-D, Kamla Nagar, notices were sent and addition of ₹ 18,63,238/- was made by an order u/s 144 as none appeared on behalf of the assessee. 5. In appeal before the First Appellate Authority the assessee placed the following facts on record:- 4. "Facts of the case The appellant Mr. Daljit Singh is an individual and he is assessed to income tax from last more than 15 years at PAN – ALVPSI043H, Ward 19(2) New Delhi from his residential address of B-1/17, phase – II, Ashok Vihar, Delhi – 110052. The appellant has filed his income tax returns in ward 19(2) at above PAN till assessment year 2006-07. However due to shifting of residence at B-7, Green Park Extension, New Delhi, the appellant has filed his income tax returns of assessment year 2007-08 and 2008-09 in ward 24(1) New Delhi by mentioning his existing PAN only. The appellant was the proprietor of M/s New Age Overseas 130/131- D, Kamla Nagar, Delhi – 110007. With effect from 07.07.2004, the address of the firm was changed to 96-D Kamla Nagar, Delhi-l10007. This concern was closed on 31.03.2007. The Sales Tax number was also surrendered w.e.f 31.03.2007. The correct details of the proprietor of the firm, new address of the firm and PAN of the proprietor were available with the banker of the firm M/s Vijaya Bank, Kamla Nagar, Delhi -110007 where the proprietary firm had its CC A/c No. 9811 from which the Assessing Officer collected all the information. The appellant has filed his Income tax return for the assessment year 2001-02 in ward 19(2) New Delhi as on 05.07.2001 by declaring net taxable Income at ₹ 2,78,410/-. The accounts of the assessee for the assessment year 2001-02 were audited by the auditors u/s 44AB of the Income Tax Act. Later on ITO ward 20(1) New Delhi on the basis of information from Additional DIT (Investigation) vide letter dated 26.03.2008 that M/s New Age Overseas has received a cheque of ₹ 1,08,000/- from Sunita Bhagchandka on 25.10.2000 who has been involved in providing accommodation entries, issued notice u/s 148 on 28.03.2008 and served the notice through affixture on 31.03.2008. Subsequent notices u/s 143(2) and 142(1) were also served through affixture. None appeared on behalf of the appellant therefore assessment was completed u/s 144 of the Income Tax Act determining the income at ₹ 18,63,240/-." 5.1. On the basis of the same the action of the AO was assailed. Apart from the above it was also submitted that the assessee has to be a "person" as defined u/s 2(7). Referring to the definition of "person" u/s 2(31) of the Act it was submitted that neither the assessee nor M/s New Overseas was in existence at 130/13-D, Kamla Nagar, Delhi-110007 the address at which the AO is claiming to have served the notice to the assessee by affixture. The copy of the affixture provided to the assessee was also assailed in the appellate proceedings on the ground that it neither carried signatures nor mentioned any details of the persons who identified the place of affixture as the assessee's place. It was submitted that in this background the notice stated to be served on 24.03.2008 by the AO cannot be said to be a valid service. It was further submitted that the business had closed down on 31.03.2007 and if it is so held that notices were if sent then at best they were affixed at the wrong place. Accordingly relying on the judgement of the Delhi High Court in the case of CIT vs Eshaan Holdings Pvt. Ltd. vide order dated 31.08.2009 in ITA No-1171/2008 (2009 TIOL-494-HC-Delhi) and the judgement in the case of CIT vs Hotline International P. Ltd. 296 ITR 333 it was submitted the action of the AO was bad in law. It was further submitted that there cannot be two assessments against the same assessee since M/s New Overseas is the proprietorship concern of Mr. Daljit Singh who in his individual capacity as proprietor of M/s New Age Overseas had voluntarily returned his income for the year under consideration namely 2001-02 assessment year on 05.07.2001as would be evident from acknowledgement no.0253 with Ward 19(2). It was submitted that no notice u/s 143(2) in respect of the said return had been received till date. Accordingly the said return it was submitted is deemed to be assessed. Relying upon the decision of CIT vs Dhampur Sugar Mills Ltd. 170 ITR 449 (All.), it was submitted that under the provisions of the income Tax Act only one assessment order is contemplated for a given year. Accordingly it was submitted that the second assessment order passed by the AO is a nullity as without re-opening the first asses………………

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Nov 012014
 

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Commissioner of Income Tax Versus M/s. Steel Authority of India Ltd. – Income Tax – DELHI HIGH COURT – HC – Deletion of penalty u/s 271(1)(c) – Capitalization of interest – Held that:- The Tribunal was rightly of the view that the changes in capitalization or de- capitalization of interest were effected by the assessee consequent to well controlled and regulated statutory regime under the aegis of Central Government – The assessees book results after statutory audit are subjected to audit and correction of CVC and CAG – The changes carried out by the assessee are in consonance to the recommendations of CVC and CAG – these details were filed along with the return of income – Penalty imposed under section 271(1)(c) is a civil liability – The section is enacted as a provision to assist and to vigorously check and prevent loss of revenue, but penalty for concealment can be imposed after noticing and applying the provisions of Section 271 (1)(c) of the Act including Explanation 1 – This is the primary and the basic flaw in the penalty orders passed by the AO – the Tribunal take due notice of the factual matrix and examine the question of bonafides – It stands recorded that the returns filed and income declared was as per the statutory audit report and the interest paid had been capitalized. Subsequently, audit objections that excessive interest had been capitalized, were raised by CVC and CAG – a part of interest so capitalized should have been treated as revenue expenditure – In order to comply with the said objections, excess interest was decapitalised – The assessee had given truthful and cogent explanation without concealing or hiding facts why interest relating to earlier years, which was capitalized, had been accounted for as a liability in the current years – It cannot be doubted or even questioned that the assessee had disclosed all facts relating to the explanation offered – The Tribunal after examining the factual matrix and the explanation given by the assessee, have come to the conclusion that the explanation of the assessee was bona fide – thus, the order of the Tribunal is upheld – Decided against revenue. – 2014 (11) TMI 20 – DELHI HIGH COURT – TMI – ITA No.599/2014, CM No.15750/2014, ITA No. 600/2014 – - Dated:- 25-9-2014 – Sanjiv Khanna And V. Kameswar Rao,JJ. For the Petitioner : Ms. Suruchi Aggarwal Sr. Standing Counsel For the Respondent : None ORDER Sanjiv Khanna, J (Oral) CM No. 15750/2014 in ITA No. 599/2014 Exemption allowed, subject to all just exceptions. Application stands disposed of. ITA No. 599/2014 ITA No. 600/2014 These two appeals filed by the revenue under Section 260A of the Income Tax Act, 1961 (Act, in short) relate to the Assessment Years 1999-2000 and 2000-2001. 2. By the common impugned order dated 24.01.2014, Income Tax Appellate Tribunal ('Tribunal', in short), has affirmed the order of the Commissioner of Income Tax (Appeals) ['CIT(A)', in short], deleting penalty levied under Section 271 (1)(c) of the Act amounting to ₹ 128.10 lacs for the assessment year 1999-2000 and ₹ 19.25 lacs for the assessment year 2000-2001. 3. The respondent assessee, a Public Sector Undertaking during the relevant period operated integrated steel plants and was engaged in activities relating to manufacturing and sale of steel articles etc. The respondent-assessee had shown considerable capitalization of assets on account of expansion and modernization. As installation, erection and commissioning of new machinery involved substantiated gestation time, Interest, relatable to the borrowings from the date of acquisition to the date of putting the asset to use, were added to the value of the assets and accordingly capitalized. This capitalization of interest became subject matter of audit objections by the Chief Vigilance Commission (CVC, for short) and Comptroller and Auditor General of India (CAG, for short) for the reason that the interest capitalized was higher or more than justified/required. In other words, a part of the interest capitalized should have been claimed as a revenue expenditure. These objections were raised subsequent to the statutory audit and long after filling of tax returns and even assessments for the respective years. In order to comply with and meet the said audit objection, the excess interest was de-capitalized by debiting interest and crediting the assets in the two assessment years. The impact of the said adjustments was reflected in the Profit & Loss a/c as an "Adjustment relating to an earlier years", since the interest related to earlier years, though the decision was taken during the current years. 4. For the assessment year 1999-2000, respondent assessee claimed various deductions including "interest of ₹ 366 lacs" being an "Adjustment relating to an earlier years". Likewise for assessment years 2000-2001, respondent assessee claimed various deductions including "interest of ₹ 50 lacs" being an "Adjustment relating to an earlier years". 5. In the regular assessment proceedings, no disallowance was made, but then, the Assessing Officer found that income had escaped assessment as "adjustment relating to earlier years" had been allowed as a deduction in the assessment years in question. Consequently, notices under section 148 of the Act were issued. 6. In the re-assessment orders, the Assessing Officer held that "interest" claimed (Rs.. 366 lacs and Rs.. 50 lacs for the assessment years 1999-2000 and 2000-01) pertained to earlier years, and was not related to the years in consideration. Therefore, the said interest claimed in the profit and loss account was disallowed. We are not concerned with the quantum order in these appeals, but with the penalty of ₹ 128 lacs and ₹ 19.25 lacs, for concealment of income, imposed by the Assessing Officer, under section 271(1)(c) of the Act, for furnishing inaccurate particulars of income by claiming prior period expenses. 7. Before we dwell on the appellate orders, we notice with regret, failure of the Assessing Officer to consider the justification and reasons given by the assessee for making the claim and failure to notice and consider Explanation 1 to Section 271(1)(c) of the Act. The two penalty orders are identically worded and for the sake of convenience, the entire reasoning given by the Assessing Officer is reproduced below:- "The AO observed that the claim of the assessee was not admissible as it could not be proved that the liability has been incurred during the year consideration. This issue was confirmed by the CIT(A) also. The interest had been capitalized by the assessee from the date of commencement of production. The C&AG auditors appear to have counted trial production as full production. The interest has, therefore, been de-capitalized based on wrong premises. Moreover, it is not possible to capitalize & de-capitalized in this way. In my opinion, the action of the AO in not allowing the reversal an account of decapitalization was justified. Hence, it is clear that the assessee has claimed capitalized interest on certain Plant & Machinery which was not allowable as per the provisions of the Act. Hence I am satisfied that the assessee had concealed the particulars of income and had also furnished inaccurate particulars of its income and thus committed default w………………

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Nov 012014
 

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Commissioner of Income Tax-XII Versus Indo Rub Industries – Income Tax – DELHI HIGH COURT – HC – Revision u/s 263 – Inquiry conducted or not – Whether or not the AO before passing the order u/s 143(3) of the Act had conducted enquiries which were “necessitated and required” considering the substantial increase in the capital account of the partners as well as investments made by the assessee firm in the form of capital assets – Held that:- The finding recorded by the Tribunal on the basis of documents and papers filed before them, was that the enquiry was duly made – The Tribunal has accepted that the assessee had filed letter dated 26.05.2010 and had also filed copies of income tax returns, computation of income, copy of statement of respective bank accounts of the partners to show that the said additions to the capital account were genuine – Similarly bills etc. for purchase of assets and relevant details were filed during the course of the assessment proceedings – no attempt was made by the CIT to ascertain from the then AO, who had passed original assessment order u/s 143(3) of the Act to assure the correct factual position – nothing prevented or obstructed the Commissioner from ascertaining the truth and verifying the correctness of the contents of the documents – absence or failure to properly maintain records cannot per se and by itself, would be a ground to invoke Section 263 of the Act i.e. the assessment order was erroneous and prejudicial to the interest of the revenue – revenue was not able to ensure the trustworthiness of their records and has, therefore, proceeded on the basis that no enquiry or investigation was conducted by the AO – The Tribunal has accepted the stand of the assessee that confirmation, documents, details were filed and ascertained by the AO – thus, the order of the Tribunal is upheld – Decided against revenue. – 2014 (11) TMI 19 – DELHI HIGH COURT – TMI – ITA 19/2013 – - Dated:- 1-10-2014 – Sanjiv Khanna And V. Kameswar Rao,JJ. For the Appellant : Mr.Kamal Sawhney, Sr. Standing Counsel with Mr.Sanjay Kumar and Mr.Jatin Sehgal, Advocates For the Respondent : Through ORDER Sanjiv Khanna, J (Oral) This appeal by the Revenue pertains to assessment year 2008-09. The respondent assessee was subjected to scrutiny assessment for the said assessment year and assessment order dated 20.08.2010 under Section 143(3) of the Income Tax Act, 1961 ( Act for short) was passed accepting income tax return declaring nil income. The assessment order mentions that the respondent assessee was engaged in manufacturing of rubber hose pipes, industrial and hydraulic hoses etc. It records that upon examination of the documents and details, the income of the respondent assessee firm stood accepted. Details of computation i.e. profit in the Profit and Loss A/c, depreciation, bonus etc. stand recorded. Disallowance under Section 40(a)(ia) of the Act of ₹ 5,45,691/- was made by the respondent assessee. 2. Subsequently notice under Section 263 of the Act was issued by the Commissioner of Income Tax, Delhi-XIII. The relevant portion of the notice is reproduced below:- On perusal of the assessment record and the assessment order dated 20.08.2010 for the assessment year 2008-09 at NIL income which was also the returned income in your case, it is found that assessment made u/s 143(3) is erroneous in so far as prejudicial to the interest of revenue as the Assessing Officer has while framing the assessment neglected glaring and prima facie issues and material before him without making due inquiries and rather framed the assessment on the basis of partial and technical compliance ignoring the substance of the issue before him which clearly goes against the framing of such order. 2. On examination of assessment record, it is found that the Assessing Officer did not verify the following issues:- (i) The Assessing Officer had called for details in respect of addition to fixed assets during the year, amounting to ₹ 5,36,73,181/- in the first half of the F.Y. and ₹ 69,31,924/- in the second half of the F.Y., along with copies of the bills but the same are not available on record. As such, the said additions to the fixed assets have remained unverified and unexamined and also, the then AO failed to examine the genuineness of the assessee s claim of depreciation during the period under consideration, amounting to ₹ 1,05,85,432/- and also did not examine the date of installation and date of putting to use such assets. (ii) The Assessing Officer did not examine the addition to partner s capital accounts. It is noticed that there is addition of ₹ 53,36,482/- in the case of Shri Baldev Raj Makija and ₹ 59,92,955/- in the case of Praveen Makija. Thus the nature and source of this capital introduced by the partners has remained unverified and un-vouched (emphasis supplied) 3. The respondent assessee filed response to the said notice and submitted that at the time of original assessment proceedings, the Assessing Officer had verified addition to the fixed assets amounting to ₹ 5,36,73,181/- in the first half and ₹ 69,31,924/- in the second half. Similarly with regard to addition to capital account, the assessee had filed details and proof in support. 4. The Commissioner of Income Tax held that the order passed by the Assessing Officer under Section 143(3) of the Act was erroneous and prejudicial to the interest of the Revenue as the two issues were not considered/examined/investigated by the Assessing Officer. However, in the body of the order, the Commissioner of Income Tax has referred to the explanation of the assessee on increase in the capital account of the partners as well as details submitted by the assessee vide letter dated 26.05.2010 regarding additions to the fixed assets along with photocopy of the receipts etc. He accepted as a fact that these documents and details were not available on record. The Commissioner did not comment why and for what reasons, these documents and papers were not available on record. Noticeably no adverse finding to contradict the assertion that these documents and details were filed with the Assessing Officer, was made. 5. The respondent assessee thereafter filed an appeal and has succeeded by the impugned order dated 13.07.2012. Before the Income Tax Appellate Tribunal ( Tribunal for short), the respondent assessee had filed a paper-book with documents to establish that full details and particulars had been furnished and enquiries were made by the Assessing Officer before passing the assessment order under Section 143(3) of the Act. Paragraph 3 of the order passed by the Tribunal in this regard is relevant and for the sake of completeness is reproduced below:- 3. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT. The ld. AR on behalf of the assessee while carrying us through page 8 to 14 of the paper book contended that during the course of assessment proceedings, the AO issued a show cause notice, seeking, inter-alia, the details of fixed assets and sources of addition to capital account of the partners. The assessee vide letter dated 26th May, 2010 submitted details of additions to fixed assets along with photocopies of bills besides confirmations of the partners towards addition to their capital to the extent of ₹ 53,36,428/- in the account of Shri Baldev Raj Makhija and ₹ 59,92,955/- in the account of Shri Praveen Makhija along with computation of income, copies of their ITR acknowledgments and copies of their respective bank accounts. Thus, the AO had made the necessary inquiries and was satisfied. It was further pointed out that the assessee submitted all the relevant details again before the CIT. Without pointing out as to how the assessment order was erroneous, the ld. CIT concluded that the aforesaid assessment order dated 20th August, 2010 was prejudicial to the interest of the revenue, the ld. AR added. The ld. AR vehemently argued that the ld. CIT incorrectly assumed the jurisdiction under Section 263 of the Act and set aside the assessment. Inter-alia, the ld. AR relied upon decisions in CIT vs. Sunbeam Auto Ltd. 332 ITR 167(Del.) (Delhi); CIT vs. Leisure Exports Ltd., 341 ITR 166(Del.), CIT vs. Hindustan Marketing & Advertising Co. Ltd., 341 ITR 180 (Del.); and CIT vs. Vikas Polymers, 341 ITR 537 (Delhi). Accepting the said assertion, the order under Section 263 of the Act, stands struck down. 6. The issue raised is whether or not the Assessing Officer before passing the order under Section 143(3) of the Act had conducted enquiries which were necessitated and required considering the substantial increase in the capital account of the partners as well as investments made by the assessee firm in the form of capital assets. The finding recorded by the Tribunal on the basis of documents and papers filed before them, was that the said enquiry was duly made. The Tribunal has accepted that the assessee had filed letter dated 26.05.2010 and had also filed copies of income tax returns, computation of income, copy of statement of respective bank accounts of the partners to show that th………………

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Nov 012014
 

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ID. Education Society Versus Principal Chief Commissioner of Income Tax – Income Tax – ALLAHABAD HIGH COURT – HC – Rejection of application of claim of exemption u/s 10(23C)(vii) – Delay in filing application beyond stipulated date of 30th September 2013 – Held that:- There is no basis or foundation in the submission that the delay in filing the application for an exemption u/s 10(23C)(vi) of the Act beyond the statutory date of 30 September 2013 should have been condoned – assessee has already filed an application u/s 10(23C)(vi), though for AY 2014-15 – thus, the order of the Principal Chief Commissioner does not suffer from any error – Decided against assessee. – 2014 (11) TMI 18 – ALLAHABAD HIGH COURT – TMI – Writ Tax No. – 598 of 2014 – - Dated:- 28-10-2014 – Hon'ble Dr. Dhananjaya Yeshwant Chandrachud,CJ And Hon'ble Pradeep Kumar Singh Baghel,JJ. For the Petitioner : Abhinav Mehrotra For the Respondent :- C.S.C. It ORDER The petitioner submitted an application under Section 10(23C)(vi) of the Income Tax Act, 19611 for Assessment Year 2013-14 on 19 March 2014. A notice to show cause was issued to the petitioner on 9 April 2014 to explain why its application should not be rejected on the ground that it was filed beyond the stipulated date of 30 September of the relevant assessment year from which the exemption was sought. Since the petitioner had filed the application beyond 30 September 2013, it sought a condonation of the delay in filing the application. The Principal Chief Commissioner of Income Tax, Kanpur by his impugned order dated 25 April 2014 has declined to entertain the application on the ground that it was filed beyond the stipulated date. The relevant proviso in Section 10(23C)(vi) of the Act provides as follows: "Provided also that in case the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in the first proviso makes an application on or after the 1st day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be made on or before the 30th day of September of the relevant assessment year from which the exemption is sought:" The submission, which has been urged, is that the power which has now been conferred upon the Chief Commissioner was earlier vested in the Central Board of Direct Taxes which, under Section 119(2)(b) of the Act, has the power in cases of genuine hardship to authorize by general or special order any income tax authority not being a Commissioner (Appeals) to admit an application or claim after the expiry of the period specified by the Act. Hence, it was submitted that once the power under the aforesaid proviso has now been vested with the Chief Commissioner, he must necessarily have all ancillary and incidental powers including the power to condone the delay. The Legislature has carefully included a stipulation that in the case of inter alia a fund, trust, institution, university, educational institution, hospital or other medical institution, an application for the purposes of the grant or continuance of an exemption shall be made on or before the 30th day of September of the relevant assessment year from which the exemption is sought. The Chief Commissioner, in whom the power is vested, is not a Court within the meaning of Section 5 of the Limitation Act, 1963. Even if the provisions of Section 29(2) of the Limitation Act, 1963 are considered in the context of fiscal legislation, the principle of law that must govern is as laid down in a judgment of ………………

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Nov 012014
 

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Housing & Urban Development Corporation Limited Versus Additional Commissioner of Income Tax – Income Tax – DELHI HIGH COURT – HC – Taxability of administrative expenses – Whether the Tribunal was right in holding that in terms of minutes of meeting held on 7th September, 1995 administrative expenses of 1.5% had accrued in respect of residential quarters at Andrews Ganj and were taxable as income – Held that:- There was merit in the submission made as the recorded minutes specifically refer to the position with reference to development of community centre complex at Andrews Ganj, New Delhi and not to the residential quarters under construction at Andrews Ganj – overhead charges were leviable by the assessee only in respect of Andrews Ganj community centre and not on the development of residential flats at the Andrews Ganj project – The letter has been kept on record – assessee had never received 1.5% administrative expenses in respect of the residential quarters in Andrews Ganj project – the stand of the assessee that the notes of the meeting held on 7th September, 1995 related to the development of community centre complex at Andrews Ganj, New Delhi and not to residential quarters is correct – There was no accrual of income in case the Government of India had not agreed to pay any overhead expenses or administrative charges @ 1.5% in respect of residential quarters at Andrews Ganj Complex, New Delhi – thus, the addition is to be set aside – Decided in favour of assessee. – 2014 (11) TMI 17 – DELHI HIGH COURT – TMI – Income Tax Appeal No. 339/2014 – - Dated:- 27-10-2014 – Sanjiv Khanna And V. Kameswar Rao,JJ. For the Petitioner : Mr. Gagan Kumar & Ms. Niyati Chanana, Advocates. For the Respondent : Ms. Suruchi Aggarwal, Sr. Standing Counsel. ORDER Sanjiv Khanna, J. (Oral): Having heard learned counsel for the parties, we frame the following substantial question of law: Whether Income Tax Appellate Tribunal was right in holding that in terms of minutes of meeting held on 7th September, 1995 administrative expenses of 1.5% had accrued in respect of residential quarters at Andrews Ganj and were taxable as income? 2. With the consent of the parties and as a short issue arises for consideration, we have taken up the appeal for hearing and the same is disposed of by this judgment. 3. The appellant-assessee is a company and a Public Sector Undertaking. For the Assessment Year 2002-03, return of income of the assessee declaring total income of ₹ 111,25,85,609/- filed on 23rd January, 2003 was taken up for scrutiny assessment. In the assessment order dated 19th March, 2004 several additions including addition of ₹ 35,57,615/- on account of 1.5% overhead and administrative charges relating to Andrews Ganj project were made. The assessee had undertaken construction of the Andrews Ganj project awarded to them by the Government of India. The Assessing Officer relied upon the minutes of meeting held on 7th September, 1995, to hold that the assessee was entitled to overhead charges of 1.5% not only in respect of cost of construction of the community centre but also on the cost of construction of the residential flats. This, as noticed, resulted in the addition of ₹ 35,57,615/-. The assessment order further records that in the books of accounts this amount had been reversed. 4. The Commissioner of Income Tax (Appeals) affirmed the finding that as per minutes of meeting held on 7th September, 1995 with Ministry of Urban Development, overhead administrative expenses were payable not only in respect of the community centre but in respect of residential quarters also. 5. The Income Tax Appellate Tribunal (Tribunal, for short) by the impugned order dated 20th December, 2013 has dismissed the appeal filed by the assessee, recording as under:- 5. At the time of hearing before us, the learned counsel for the assessee reiterated the same argument as was raised before the Assessing Officer that the overhead charges we………………

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Nov 012014
 

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M/s. GCDA Employees Pension Fund Trust Versus The Commissioner of Income Tax-I – Income Tax – KERALA HIGH COURT – HC – Rejection of application of registration u/s 12AA – Paying pension to the employees of the GCDA comes under the scope of charitable purpose or not u/s 2(15) – Held that:- The object of the Trust is to pay pension to the employees of the GCDA or their dependents from out of the corpus collected from the beneficiaries – the employees of the GCDA are contributing and from out of that contribution, they or their dependents are getting pension – Such an object implemented by the appellant-Trust cannot be said to be an object of general public utility attracting Section 2 (15) of the Act – The eligibility for registration depends upon the object of each of those Trusts – Such objects are not present in the case of the present Trust – thus, the order of the Tribunal is upheld – Decided against assessee. – 2014 (11) TMI 16 – KERALA HIGH COURT – TMI – ITA. No. 131 of 2014 – - Dated:- 8-10-2014 – Antony Dominic And Anil K. Narendran,JJ. For the Petitioner : Sri. T. M. Sreedharan For the Respondent : Sri. Jose Joseph, SC, For Income Tax JUDGMENT Antony Dominic , J. This appeal is filed against the order passed by the Income-tax Appellate Tribunal in I.T.A.No.503/Coch/2013 by which, the order passed by the Commissioner of Income-tax rejecting the application made by the appellant for registration under Section 12AA of the Income-tax Act('the Act' for short) was rejected. 2. We heard the learned Senior Counsel for the appellant and the learned Standing Counsel for the respondents. 3. The facts of the case are that, the appellant is a Trust. The object of the Trust is to pay pension to the employees of the Greater Cochin Development Authority (GCDA) from the corpus created out of the contributions made by the employees of the GCDA itself. Taking the view that the said object of the Trust did not spell out any charitable purpose as defined in Section 2(15) of the Act, registration under Section 12AA was declined and was affirmed by the Income-tax Appellate Tribunal. 4. The learned Senior Counsel for the appellant contended that even if it is true that the distribution of ………………

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Nov 012014
 

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THE COMMISSIONER OF INCOME TAX AND THE ASSISTANT COMMISSIONER OF INCOME TAX Versus SHRI GP GOYAL – Income Tax – KARNATAKA HIGH COURT – HC – Scope of undisclosed income u/s 115BA and 115BB – Transactions not recorded in the books of accounts – Whether the Tribunal was correct in holding that the additions of unexplained investment in shares, bullion etc., do not constitute undisclosed income and it was not liable to be brought to tax as per section 158BB or not – Held that:- The undisclosed income of the block period shall be the undisclosed income as defined u/s 158BA, BB and other documents and such other materials or information as are available with the AO and relatable to such evidence – the computation of undisclosed income of the block period is to be determined – The Tribunal has not looked into Section 158 BB (1) of the Act in coming to its conclusion – thus, the matter is to be remitted back to the Tribunal for consideration in respect of the investments made in those four items – Decided in favour of revenue. – 2014 (11) TMI 15 – KARNATAKA HIGH COURT – TMI – ITA No.649 of 2008 – - Dated:- 19-8-2014 – N Kumar & Rathnakala, JJ. For the Appellant : Sri K V Aravind, Adv. For the Respondent: Sri B N Jayadeva, Adv. JUDGEMENT Per: N Kumar: The revenue has preferred this appeal challenging the order passed by the Tribunal partly allowing the appeal of the assessee and granting relief to him. 2. The subject matter of this appeal is as under:- (i) Investments made by certain share holders in M/s Bellaire Apartments Limited; (ii) Investments made in M/s Syndicate Road Carriers; (iii) Investments made in M/s Bullion Investments and Financial Services; and (iv) Cost of construction which was discovered during the course of search. 3. The Tribunal has held that, in all these cases the undisclosed income is not detected as a result of search. The block assessment proceedings require the income to be computed based on the evidence gathered as a result of search. It is not permissible to make an addition without reference to any material gathered at the time of search and, therefore, the Tribunal interfered with the order passed by the lower authorities and granted relief to the assessee. 4. Therefore, the two substantial questions which arise for our consideration in this appeal are as under:- 1. Whether the Tribunal was correct in holding that the additions on account of unexplained investment in shares, bullion etc., do not constitute undisclosed income when these transactions were not recorded in the books of accounts of the assessee and the same was not liable to be brought to tax in accordance with Section 158BB of the Act? 2. Whether the Tribunal was correct in holding that the department had already knowledge of the denial of investment made by certain share hol………………

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Nov 012014
 

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Shri Suresh Nanda Versus ACIT Central Circle 13 New Delhi, DCIT. – Income Tax – ITAT DELHI – Tri – Determination of status of assessee – Residential or not – Held that:- Following the decision in Shri Suresh Nanda Versus ACIT, Central Circle-13, New Delhi [2014 (4) TMI 739 - ITAT DELHI] – although, the assessee has, in the preceding 4 years been in India for a period in excess of 365 days in India, in none of years has he been in India for a period in excess of 182 days – assessee was not a resident of India – This is a pure question of fact based on a plain reading of the provisions of section 6 – All that has to be seen is the number of days that the respondent/assessee has spent in India in the year in question as also in the preceding 4 years – thus, the order of the CIT(A) is upheld – Decided against revenue. Addition of commission income earned in defence deals – Held that:- No addition can be made based on the document – Dr.MV Rao has not been questioned on these documents – The document does not indicate that services have been rendered by the assessee or that any commission was received – Thus, no addition can be made based on the document – no mention or a reference was made to the assessee Mr.Suresh Nanda, much less any suggestion being made that Mr. Suresh Nanda was involved in defence deals or that he had earned any commission – the statement does not support the contentions of the Revenue that the assessee has earned commission – Dr.MV Rao has not admitted the ownership of the document found in his premises though the presumption is against him – In any event the documents have not been demonstrated as those which belong to the assessee by the Revenue – no addition can be made without further evidence being brought on record, that the documents in question actually did not belong to Dr.MV Rao, but in fact belong to the assessee – Addition cannot be made based on presumption – thus, the order of the CIT(A) is upheld – Decided against revenue. Unexplained investments made in M/s Claridges Hotels Pvt.Ltd. and in M/s Claridges SEZ Pvt. Ltd. – Held that:- As the assessee being a non-resident, there is evidence of dividend having been received by him outside India from a company incorporated outside India which is the source of investment in UBS Mauritius to the extent of 20% – Hence that income cannot be subjected to tax – There is also finding of fact that the remaining 80% of the shareholding belong to Mr. Hamilton Andrews and the same has been confirmed by him – as decided in assessee’s own case for the earlier assessment year, it has been rightly held that the assessee was not a resident in India, it is axiomatic that the addition u/s 68 would have to be deleted because it was a transfer from the respondent/assessee’s foreign account to the domestic account – the burden to prove that a particular income has either accrued or received in India is on the Revenue, if it chooses to bring to tax a particular receipt as income – In cases where exemptions or deductions are claimed from taxable income, then the burden of proof is on the assessee. The statement given by the assessee to the DIT Investigation, does not better the case of the Revenue, as the assessee has claimed that his interest in M/s Claridges Hotels P.Ltd. is only by way of investments made through M/s UBS, Mauritius, in which company he has only 20% stake. Simply because the assessee is the Chairman of M/s Clardges Hotels P.Ltd. and because his son was Managing Director of the company, it does not support the addition, the investment in the hotel is made by M/s UBS Ltd., Mauritius in while the company which the assessee controls it is a minority share holder – The assessee has demonstrated that he controls only 20% stake holder in M/s UBS Ltd., Mauritius – The dividend earned by the assessee from a company controlled by him i.e. M/s UBS Trading FZC was invested in M/s UBS Ltd. Mauritius, through Infotech Services Ltd. – Decided against revenue. Unexplained deposits in Deutsche Bank, Singapore – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the decision with regard to it would depend on whether the assessee is regarded as a resident or a non-resident – In case he is regarded as a resident then, obviously, this addition would have to be made – But, if he is regarded as a non-resident then this addition will have to be deleted – This is exactly what the Tribunal has done – assessee was not a resident in India in the years, it is axiomatic that the addition u/s 68 would have to be deleted because it was a transfer from the assessee’s foreign account to the domestic account – Decided against revenue. Payment made to assessee’s wife – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the addition cannot be upheld inasmuch as both were separated by way of deed of settlement dated 4-4-1998 and the payments based thereon on were already made – The addition has been made not based on any evidence or incriminating material, indicating that any payment was made out of books – The sole basis of addition is an assumption that there was some unwritten understanding between the assessee and his estranged wife Smt. Renu Nanda – lesser amount for support was paid by the assessee as compared to earlier years – the basis of addition being only on presumptions, there being no material what so ever, the addition is deleted – Decided against revenue. – 2014 (11) TMI 14 – ITAT DELHI – TMI – ITA no. 2236/Del/2013, ITA no. 2601/Del/2013, ITA no. 2605/Del/2013, C.O. 165/Del/2013, ITA no. 2606/Del/2013, C.O.No.166/Del/13 – - Dated:- 21-2-2014 – SHRI J.SUDHAKAR REDDY AND SHRI RAJPAL YADAV, JJ. For The Appellant :- Sh.Ajay Wadhwa, C.A. For The Respondent :- Sh. Ramesh Chand, CIT, D.R ORDER PER J.SUDHAKAR REDDY, AM ITA 2605/Del/13, ITA 2606/Del/13 and ITA 2601/Del/13 are filed by the Revenue. ITA 2236/Del/13 is filed by the assessee. The assessee has also filed C.O. 165/Del/2013 for the AY 2004-05 and C.O. 166/Del/2013 for the A.Y. 2005-06. 1.1. As the issues arising in all these appeals are common, for the sake of convenience they are heard together and are disposed off by way of this consolidated order. 2. Facts in brief:- The main issue that arise for our consideration in these appeals, is identical to the issue that arose for the consideration of the Tribunal for the AYs 2001-02, 2002-03 and 2004-05 in ITA nos. 1428-1429- 1430/Del/2012. The Tribunal vide order dt. 24th July,2012 had adjudicated the matter. The Revenue carried the matter in appeal before the Hon ble Delhi High Court in ITA nos. 85/2013 and ITA 100/13, ITA 87/13. Vide judgement dt. 25.2.2013 the Hon ble High Court had upheld the order of the I.T.A.T. The Assessing Officer followed his order for the earlier AYs and made additions to the income of the assessee. The assessee carried the matter in appeal. The First Appellate Authoirty applied the decision of the ITAT for the Assessment Year 2001-02, 2002-03, 2003-04 and adjudicated the issue in favour of the assessee on the issue of determination of residential status, as well as the other additions to income. Relief was granted and additions deleted. The Ld. Commissioner of Income Tax (Appeals) also rejected certain grounds raised by the assesee. Aggrieved with the relief granted by the Ld.Commissioner of Income Tax (Appelas) the Revenue has filed these appeals. The assessee also filed Cross Objections for the Assessment Year 2004-05 and 2005-06. 3. Both the parties submit that the facts of the case are same as the facts narrated by the ITAT while disposing off the appeals for the Assessment Years 2001-02, 2002-03 and 2003-04. In fact it was submitted that the A.O. had used the cut and paste technique in the computer, to narrate the facts in these AYs also. The ITAT recorded the facts in the earlier assessment year. For the sake of convenience we extract the facts as narrated by the Tribunal from para 4 to para 4.35 of that order. 4 Brief facts are- Assessee has been regularly assessed to tax in India since past so many years in the status of 'Non-resident' by way of assessments u/s 143(3). On the same lines, original assessment under regular provision of Sec. 143(3) for A.Y. 2001-02 was also framed on 26-3-2004, treating the assessee as Non Resident. Some additions to the tune of ₹ 1,21,93,650/- were made by the AO in the assessment. 4.1. Aggrieved assessee challenged the same in first appeal, wherein they were deleted. On second appeal, by the Revenue, the ITAT dismissed the same by upholding the order of CIT(A), 4.2. In the meanwhile, on 22nd February, 2007, Delhi Police searched the premises of one Dr. M.V. Rao who was found to be impersonating himself as Scientific Advisor to the Prime Minister of India. Delhi police accordingly informed the Directorate of Income tax (lnv.) that during the course of search action on one Dr. M.V. Rao they have found cash amounting to Rs. two Crores lying at his Green Park house along with some incriminating papers. Consequent thereto, the Director of Income Tax (Inv.)-II, Delhi issued Warrant of Authorization under section 132 of the Income tax Act, 1961 for search & seizure action at the premise of said Dr. M. V. Rao. 4.3. Subsequently, DIT (lnv) requested the Delhi Police to hand over photocopies of the documents seized by them. Search and seizure operations were also carried out at assessee's premises by income tax department on 28- 2-2007 along with one Shri Mohan Sambhaji Jagtap. Consequent to search, all these cases were centralized u/s 127(2). Notices were issued for proceedings u/s 153A and these assessments are accordingly framed u/s 153A read with Sec. 143(3). 4.4. Assessee filed his returns of income u/s 153A claiming the same status i.e. 'Non Resident' as claimed consistently. During the course of assessment proceedings AO found that some papers seized from Dr. M V Rao were confidential order sheet entries of the Ministry of Defence. Some of these papers are related to M/s Tadiran Communication Israel. M/s Transcom Services Ltd. was representing Tadiran in India for the servicing of communication equipment used by Indian armed force. 4.5. Among the papers received from the Delhi Police were page nos. 58 & 59 of Annexure A-10 which allegedly detail the working of commission on arms contracts and the corresponding payments. Other papers include a note on Page wirh page nos. 60 & 61 as its attachments. The contents of page no. 58 & 59 and other pages are reproduced in the assessment order :- 4.6. AO was of the view that these documents were details of the commission payments related to contracts for Radio Sets of the Indian Defence establishment. According to Delhi Police. Dr. M.V. Rao did not furnish any explanation contending that he was not in a position to comment upon the documents due to his critical health condition. The contents and purported meaning of the page documented is reproduced by AO in his order. 4.7. Assessee denied any role or connection with these deals however Assessing Officer held him to be closely involved with the business of Tadiran in the Indian Defence establishment, as reflected by page no. 79 of Annexure A- 10, found and seized on 22.02.2007 from residence of Dr. M.V. Rao. 4.8. Based on the above mentioned documents, Assessing Officer derived the following conclusions: (i) Sh. Suresh Nanda is actively involved in facilitating defence deals for foreign companies in India. Tadiran is one such client. (ii) The four contracts mentioned in the page Nos. 58 & 59 of Annexure A10 are contracts with Indian Defence establishment given to Tadiran of Israel. Commission ranging from 5 to 10 percent of the total value of the contract has been paid. (iii) The foot note on page 59 mentions that pages 58 & 59 are reconciliation statement. Pages 60 & 61 confirm the receipt of the amount mentioned in page 58 & 59. Thus, the commission income has been actually received in the hands of Sh. Suresh Nanda & his Group. 4.9. On the basis of information received from Dr. M.V. Rao, similar search & seizure operations were carried out in the premises of one Shri Mohan Jagtap and assessee. It resulted in seizure of some other papers and statement on oath of Shri Jagtap. 4.10. During the course of search proceedings a document in Russian Language was found & seized as page no. 4, Annexure no. 2 from the residence of Sh. Mohan Sambhaji Jagtap on 28-2-2007. The Russian to English translation to this document was arranged during the course of assessment proceedings. 4.11. This document has been signed by Sh. Mohan Sambhaji Jacthap as the agent. The remittance has been made to the bank account of Globtech International Inc. According to the AO, a perusal of the above document it is amply clear that parts 53-65K worth US$384460 have been sold in India and on this sale the commission due of USD 38446 has to be paid to the account of Globtech International Inc. This is in accordance with an agreement dated 30.03.1998. The document bears a date stamp of 07.05.2001. 4.12. During the course of search proceedings, one profile of Sh. Suresh Nanda was found & seized marked as page nos. l to 4, Annexure A15. As per this document assessee was alleged to have formed Globtech International Corporation as partnership concern dealing in consultancy and shipping activities of a technical nature. Another profile of Sh. Suresh Nanda was found and seized at page no. 22 Annexure A7, Party R-I, mentioning assessee as owner of Globtech International Corporation. AO rejecting assessee s explanations held that these papers represented that he had been receiving commission on supply of these goods to India, which was deposited in bank accounts situated in tax haven countries like Jersey Islands etc. as stated in the documents. 4.13. On the basis of these observations and material found during the course of search from the premises of the assessee, said M/s Dr. M.V. Rao & Mohan Jagtap, the Assessing Officer drew following inferences:- 3.1 Before year 2003 assessee had small set up in India in the form of small companies namely M/s. Crown Corporation Pvt. Ltd., M/s. Dynatron Services Pvt. Ltd., M/s C-l India Pvt. Ltd. and M/s. Transcom Services India Pvt. Ltd. etc. These companies were mostly engaged in services and spares of defence armaments. Mr. Nanda being a former Navy Man specializes in contracts for services and spares for equipment used by the Indian Navy. 3.2 In year 2003 he started investing heavily in hotel properties and lands in Delhi NCR and Mumbai. His first acquisition in India was the prestigious Hotel Claridges situated in Lutyens Delhi. After acquiring the Claridges he went on to extensively renovate the property and converted it into a boutique five star hotel. Along with this deal he also took management control of Claridges Nabha Palac………………

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Nov 012014
 

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M/s. Shriram Chits (P) Ltd. Versus Dy. Commissioner of Income-tax – Income Tax – ITAT HYDERABAD – Tri – Claim of deduction on bad debts on running and terminated groups – Bad debts allowable u/s 37(1) or business loss u/s 28 – Held that:- Following the decision in M/s. Shriram Chits (P) Ltd. Versus The Joint CIT (OSD), Hyderabad [2013 (5) TMI 227 - ITAT HYDERABAD] – The amount of loss incurred by the assessee has to be allowed on both running and terminated chits if irrecoverable if the prized chit amount has gone out of the hands of the assessee – bad debts can be allowed to the extent of instalments defaulted by the prized subscribers and written off as bad debt in the books of the assessee – thus, the order of CIT(A) is upheld in allowing the claim of the assessee for deduction on account of bad debts relating to running chits and terminated groups – Decided against revenue. Taxability of foreman’s dividend – Held that:- Following the decision in M/s. Shriram Chits (P) Ltd. Versus The Joint CIT (OSD), Hyderabad [2013 (5) TMI 227 - ITAT HYDERABAD] -in case of chit fund business, principle of mutuality will not apply. Accordingly, the claim of exemption of Foremans dividend was rejected and addition under reference was made – there is no applicability of mutuality on this income – the order of the CIT(A) confirming the taxability of foreman’s dividend in the hands of the assessee upheld – Decided against assessee. Commission on cancelled chit funds – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that from out of the amount that is payable to the defaulting subscriber consequent to his replacement by another person the company is entitled to deduct 5% as commission – This has nothing to do with the regular commission Income of the assessee – the commission Income accrues when the accounts have been finally settled to the defaulting non subscriber to our mind appears to be the correct position – The commission/ remuneration to the foreman in that case was sought to be recognised on the completion of chit method and had nothing to do with the type of additional commission receivable in case of substitution of a subscriber – The natures of Income In both these cases are different – The further commission of 5% receivable from a defaulting subscriber consequent to his removal and substitution on a full and final settlement of a defaulting subscriber account is recognised as Income on the finalisation of the issues – the order of the CIT(A) is upheld in deleting the addition – Decided against revenue. Addition on payment of royalty – Held that:- As decided in assessee’s own case for thea earlier assessment year, it has been held that when the assessee commenced its operation, ails its employees were from holding company who had prior experience in this line – even the assessee looks for managerial support, from its holding company which is again provided – The holding company is also stated to have conducted periodical meetings with the executives of the assessee in order to monitor its meetings – the payment Is for, legitimate benefit taken in the course of business and from any standard, it cannot be said that payment of ₹ 1 lakh as royalty is sufficient to produce the business of the magnitude procured by the assessee over the years – the order of the CIT(A) is upheld in deleting the disallowance on payment of royalty – Decided against revenue. – 2014 (11) TMI 13 – ITAT HYDERABAD – TMI – ITA No. 809/Hyd/14, ITA No. 1210/Hyd/14 – - Dated:- 29-10-2014 – Shri P. M. Jagtap And Shri Saktijit Dey,JJ. For the Petitioner : Shri K. C. Devadas For the Respondent : Shri B. Ramakrishna, DR ORDER Per P.M.Jagtap, Accountant Member : These two appeals, one filed by the assessee being ITA No.809/Hyd/2014 and the other filed by the Revenue, being ITA No.1210/Hyd/2014, are cross appeals, which are directed against the order of the learned Commissioner of Income-tax(Appeals) IV, Hyderabad. 2. The issues involved in grounds No.1 and 7 of the assessee s appeal and grounds No.1 and 5 in Revenue s appeal are general in nature requiring no specific adjudication. 3. The issue involved in ground Nos.2 and 3 of the assessee s appeal and ground No.2 of the Revenue s appeal is common and it relates to the assessee s claim for deduction on account of bad debts in respect of running and terminated groups. 4. The assessee in the present case is a company which is running chit fund business throughout the State of Andhra Pradesh through its various branches. The chit fund business is governed by the Chit Funds Act, 1982 and rules framed thereunder from time to time. As per the provisions of the Chit Fund Act, the relevant byelaws are registered with Registrar of Chits and after obtaining certificate of commencement, the company conducts auctions. As per the provisions of the bye-laws and chit agreement, each subscriber in his term as determined by lot or by auction shall be entitled to prize amount. The minutes of the proceedings of the auction will be recorded and such minutes will be filed with registrar as per the provisions of the Act. The prized subscriber is paid prize money after the process of verification and submission of sureties. The company derives 5% of the chit value as Foreman Commission . 5. The return of income for the year under consideration was filed by the assessee on 19.9.2011 declaring a total income of ₹ 12,04,63,030. In the Profit & Loss Account filed alongwith the return, a sum of ₹ 28,30,96,460 was debited by the assessee on account of bad debts written off which pertained to the running chits and terminated chits. Following the view taken on a similar issue in the assessments made for the earlier years, the Assessing Officer restricted the claim of the assessee for bad debts to 5% of the amounts due from the prized subscribers, which is the foreman s commission as the same alone was offered to tax by the assessee as the income either in the year under consideration or in the earlier years. The remaining 95% of the amount of bad debts claimed by the assessee accordingly was disallowed by the Assessing Officer on the ground that the same did not represent the income of the assessee for the year under consideration or for the earlier years. He also rejected the alternative claim of the assessee for deduction on account of entire amount of bad debts under S.37(1) or as business loss under S.28 of the Act. On appeal, the learned CIT(A) allowed the claim of the assessee for deduction on account of bad debts relatable to terminated chits, following the orders of the Tribunal in assessee s own case for earlier years. He also directed the Assessing Officer to compute the bad debts relating to running chits as per the direction of the Tribunal given in the earlier years. 6. Aggrieved by the order of the learned CIT(A) on this issue, the Revenue has raised ground No.2 in its appeal, challenging the relief allowed by the learned CIT(A) by way of allowing the claim of the assessee for deduction on account of bad debts, while the assessee has raised grounds No.2 and 3 in its appeal, mainly raising its alternative claim that its claim for bad debts is allowable even under S.37(1) or as business loss under S.28 of the Act. 7. We have heard the arguments of both the sides and also perused the relevant material on records. It is observed that a similar issue involving identical facts and circumstances has already been decided by the Tribunal consistently in favour of the assessee in the earlier years, and in one such decisions rendered for assessment year 2009-10 vide order dated 5.4.2013 passed in ITA No.651/Hyd/2012, a similar claim of the assessee for deduction on account of claim of bad debts in respect of running and terminated groups has been allowed by the Tribunal for the following reasons given in paragraph 10- "10. We have heard both the parties and perused the material on record. The crux of argument of the assessee's counsel is that in earlier years similar claim of the assessee has been allowed by the Tribunal and on that basis the present claim is to be allowed. He relied on the order of the Tribunal dated 12.10.2012 in M/s Sri Ram Chits Pvt. Ltd. ITA No. 975/12 for A.Y. 2009-10. While disposing the appeal for A.Y. 2009-10, the Tribunal relied on the earlier order of the Tribunal for A.Ys. 1995-96 to 1999- 2000, 2002-03 to 2006-07 and 2008-09. In earlier year, the Tribunal remitted the issue for computing the bad debts relatable to running chits. We have no dispute with regard to the findings of the Tribunal on earlier occasion. The amount of loss incurred by the assessee has to be allowed on both running and terminated chits if irrecoverable if the prized chit amount has gone out of the hands of the assessee. In other words, bad debts can be allowed to the extent of instalments defaulted by the prized subscribers and written off as bad debt in the books of the assessee. Accordingly, we direct the Assessing Officer to decide the issue in the light of the order of the Tribunal for A.Ys. 1995-96, 1997-98, 1998- 99 and 1999-2000 in ITA No.500/Hyd/1999 and 506/Hyd/1999 (1995-96), 294/Hyd/2010 and 327/Hyd/ 2001 (1997-98), 471/Hyd/2002(1998-99), 1049/Hyd/2002 (1999-2000) in assessee's own case dated 26.7.2004 wherein the Tribunal remitted the issue back to the file of the Assessing Officer to see whether the assessee made a claim of bad debt and written off in the books of account. Thus on similar direction we remit the issue back to the file of the Assessing Officer to re-examine the issue in the light of the order of earlier years i.e., 1995-96, 1997-98, 1998-99 and 1999-2000 (supra). This ground of the assessee is allowed for statistical purposes." 8. The above decision rendered for assessment year 2009- 10 has been subsequently followed by the Tribunal to decide similar issue in assessment year 2010-11, vide consolidated order dated 6.12.29013 passed in ITA No.1142/Hyd/2013 of the Revenue and ITA No.1049/Hyd/2013 of the assessee. Respectfully following the orders of the Tribunal for assessment year 2009-10 and 2010-11 in assessee s own case on similar issue, we uphold the impugned order of the learned CIT(A) allowing the claim of the assessee for deduction on account of bad debts relating to running chits and terminated groups. Ground No.2 of the Revenue s appeal is accordingly dismissed. 9. As regards the issue raised in grounds No.2 and 3 of the assessee s appeal relating to its alternative claim for deduction on account of bad debts under S.28, as business loss, it is observed that the same is also covered in favour of the assessee by the decision of the Madras High Court in the case of CIT V/s. Sri Ram Chits and Investments Limited (83 DTR (Mds) 208), wherein it was held that contribution of the assessee as a foreman in the place of a defaulting subscriber is deductible as bad debt under S.37(1) or as a business loss under S.28 (i) of the Act. Respectfully following the said decision of the Hon'ble Madras High Court in the case of Sri Ram Chits and Investments Ltd. (supra), we hold that the claim of the assessee for deduction of bad debts written off is also allowable alternatively as business loss under S.28(i). The relevant grounds of the assessee on this issue, being grounds No.2 and 3 in its appeal, are accordingly allowed. 10. In ground No.4 of its appeal, the assessee has challenged the action of the learned CIT(A) in upholding the taxability of foreman s dividend amounting to ₹ 12,02,66,441. 11. In the return of income filed by the assessee for the year under consideration, the income received in the form of foreman s dividends was claimed to be exempt by the assessee company on the basis of principle of mutuality. The Assessing Officer rejected this claim of the assessee and brought to tax the amount of foreman s dividend received by the assessee company in its hands. On appeal, the learned CIT(A) upheld the action of the Assessing Officer on this issue following the decision of the Tribunal in assessee s own case reported in 83 ITD 792. 12. At the time of hearing before us, the learned representatives of both sides have agreed that this ground is squarely covered in favour of the Revenue and against the assessee by the decisions rendered by the Tribunal in assessee s own case for the earlier years. In one such decisions rendered for assessment year 2009-10 vide order dated 5.4.2013, cited supra, the Tribunal discussed similar issue against the assessee vide paragraph 11 to15 of its order, which read as follows- 11. The next ground (ground No. 4) is with regard to upholding the taxability of foreman dividend at ₹ 8,44,39,492. Brief facts of the issue are that during the assessment proceedings, the Assessing Officer found that the above referred dividend income on company's chits was claimed as not taxable in view of the decision of Hon'ble Punjab and Haryana High Court in the case of Soda Silicate and Chemical Works (179 ITR 588). However, the Assessing Officer concluded that the contributors to the chit were not contributors to the mutual society. Besides, the profit arising as dividend on the chit subscribed by the Foreman is not distributed among the subscribers but among the share holders of the assessee company. He further found that Department's contention had been upheld by the Tribunal for Asst. Years 1999-2000, 2000-01 and 2001- 02 as reported in 83 ITD 792, besides in the assessee's own appeals for the A.Ys. 2002-03 to 2007-08. He also referred to the decision of the Tribunal Delhi Bench in the case of Sarvpriya Chits Pvt. Ltd. vs. CIT (60 ITD 674) wherein it was held that in case of chit fund business, principle of mutuality will not apply. Accordingly, the claim of exemption of Foreman's dividend was rejected and addition under reference was made. 12. During the appellate proceedings, the representative of the assessee submitted that though the department's contention has been upheld by the Tribunal, the assessee's appeal under sec. 260A of the Act on this issue is still pending before the Hon'ble Andhra Pradesh High Court. He, therefore, reiterated the arguments submitted on this issue in the earlier years. 13. On appeal the CIT(A) followed the earlier order of the Tribunal in assessee's own case reported in 83 ITD 792 (Hyd) for A.Y. 1991-92 to 1994-95 wherein the Tribunal observed as follows: "The only issue to be decided was whether the principle of mutuality was applicable to the assessee, which was a chit fund company. Admittedly, the assessee was a commercial entity formed to derive profits and gains from the business of chits. It is a settled proposition of law that the principle of mutuality is not applicable to commercial organisations formed with an object of earning profit of commercial nature. Under consideration was the case of a company whic………………

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Nov 012014
 

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Asstt. Commissioner of Income Tax Versus M/s. Sarabhai Machinery Pvt. Ltd. – Income Tax – ITAT AHMEDABAD – Tri – Reversal of provision for revaluation of liability – Held that:- The assessee has revalued its liability to M/s. Ambalal Sarabhai Enterprises Ltd. (ASE Ltd.) and increased the same by ₹ 28,23,735 – in normal parlance such increase in liability is not an expense incurred wholly and exclusively for the purposes of business and is therefore not allowable as deduction to the assessee – on similar revaluation made during the year when a debit has arisen in the profit and loss account because of write back of the liability which was written down in earlier year, such debit amount in the profit and loss account to the extent to which it was assessed as taxable income in the AY 1996-97 ought to be allowed as deduction as business loss to the assessee – when no cessation or increase in real liability takes places then the taxable income of the assessee is not effected merely because of passing entry of revaluation of liability in the books of the assessee – when no cessation of liability took place in the AY 1996-97 when the assessee by a book entry reduced its liability on revaluating the amount of reduction was treated by the Department as taxable income of the assessee and therefore when to that extent when liability is again enhanced by the assessee in its books of account, the enhanced amount is to be allowed as deduction from taxable income on the very same analogy – ₹ 28,23,735/- enhanced as liability during the year being part of ₹ 82,47,082/- which was reduced as liability during the AY 1996- 97 and assessed as taxable income of the assessee for that AY – thus, the order of the CIT(A) is modified – Decided against revenue. Disallowance u/s 14A – Held that:- No material was brought on record by the assessee to show that the investments in shares of M/s. Paras Petrofills Ltd. were not made out of interest bearing funds of the assessee and that the assessee had sufficient interest free funds for making such investments in shares – there was no reason to interfere with the order of CIT(A) – Decided against assessee. Confirmation of adhoc disallowance out of staff welfare expenses – Held that:- CIT(A) confirmed the action of the AO – assessee contended that the disallowance was made without pointing out the items of the expenses in respect of which the assessee had not maintained the vouchers and therefore, the AO is not justified in making disallowance of expenses on ad-hoc basis – AO has not pointed out for which items of the expenditure the assessee has not maintained the vouchers – Decided in favour of assessee. Payment made to employees contribution to the Provident Fund and ESI – Held that:- Following the decision in CIT v. Gujarat State Road Transport Corporation, [2014 (1) TMI 502 - GUJARAT HIGH COURT] – if the assessee has not credit the employees contribution to the employees account in the relevant fund or funds on or before the due date mentioned in the Explanation to section 36(1)(va), the assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO – Decided in favour of revenue. Disallowance out of vehicle expenses – Held that:- The tax is payable to the RTO for plying of vehicle on the road – Till immediately preceding year, the RTO was collecting tax every year and only in this year the RTO decided to levy life time tax on the vehicle of the assessee which was already used by the assessee and was not a case of acquisition of any new vehicle – By making this payment the assessee has not acquired any new asset – By making this payment to the RTO, the assessee is entitled to ply vehicle on road without which the assessee would not be able to ply the vehicle on road – the collection of road tax by RTO as one time payment was revenue expenditure – the order of the CIT(A) is upheld – Decided against revenue. – 2014 (11) TMI 12 – ITAT AHMEDABAD – TMI – ITA No. 2600/Ahd/2012, ITA No. 2623/Ahd/2012, ITA No.2606/Ahd/2012, CO No.19/Ahd/2013 – - Dated:- 19-9-2014 – G. C. Gupta, VP And N. S. Saini, AM,JJ. For thr Appellant : Smt Sonia Kumar, Sr. DR For the Respondent : Shri Vijay Kumar, AR ORDER Per Shri N. S. Saini, Accountant Member: The appeals in ITA No. 2600/Ahd/2012 and 2623/Ahd/2012 are the cross-appeals filed by the Revenue and assessee against the order of CIT(A)-III, Baroda dated 06.08.2012 for AY 2002-03. The appeal in ITA No.2606/Ahd/2012 and CO No.19/Ahd/2013 are filed by the Revenue and assessee respectively against the order of CIT(A)-III, Baroda dated 06.08.2012 for AY 2003-04. 2. The ground No.1 of the Revenue's appeal in both the Assessment Years i.e. AYs 2002-03 and 2003-04, is directed against the order of CIT(A)-III, Baroda in deleting the addition of ₹ 6,84,182/- in AY 2002-03 and ₹ 8,07,334/- in AY 2003-04 on account of reversal of the provision made by the assessee for revaluation of liability. 3. The ground No.1 of the appeal of the assessee in Assessment Year 2002-03 is directed against the order of the CIT(A)-III, Baroda in sustaining the disallowance made by the Assessing Officer of ₹ 21,39,553/- on account of revaluation of liability. 4. The facts of the case are that a tripartite agreement was made between Sarabbai Machinery Ltd. (SML), Ambalal Sarabhai Enterprise Ltd. (ASE Ltd.) and the purchasers of the shares of SML on 18.04.1994. At that particular point i.e. in 1994, SML was indebted to ASE Ltd. for an aggregate amount of ₹ 7,40,96,250/- (consisting of unpaid purchase consideration, advances received by SML from ASE Ltd and interest provided on these amounts). In the said agreement, clause 3 expressly provided that the interest on the unpaid purchase consideration shall cease to accrue with effect from 01.10.1993. The clause 4 of the agreement provided for the payments in installments in the following manner: "4.1 The aforesaid sum of ₹ 7,40,96,250 shall be paid by SML to ASE in the following manner: Rs. 1,00,00,000 On 1st October, 1994 1,00,00,000 On 1st April. 1995 1,00,00,000 On 1st October, 1995 1,14,10,000 On 1st April, 1996 4,14,10,000 3,26,86,250 On 1st April, 2014 7,40,96,250 Total 4.2………. 4.3 Whereas the last installment of ₹ 3,26,86,250 is payable on 1st April, 2014, SML shall be at liberty, in its sole discretion, to discharge that liability at any earlier point of time by the payment of that amount which would be the then present value of the said amount of ₹ 3,26,86,250 on the basis of the discounting factor of 18% p.a." 5. It was submitted by the AR of the assessee that the aforesaid agreement provides for provision of separate securities for the dues of ₹ 4,14,10,000 and ₹ 3,26,86,250. For ₹ 4,14,10,000/-, SML will give a Demand Promissory Note alongwith the purchaser Shri Siddharth Chimanbhai Patel as a joint signatory to the promissory note. Further, the assessee-company stated that SML is to create in favour of the ASE, an Equitable Mortgage by deposit of the Title Deeds of all its immovable properties at Ranoli and by hypothecating all its movable machinery and equipments at Ranoli as a security. It further stated that, the balance amount of ₹ 3,26,86,250 will be secured by Deep Discount Bonds/Debentures of such present value as would, on maturity on 1st April, 2014, give an aggregate amount of ₹ 3,26,86,250. Therefore, he submitted that, following position emerged with regard to SML's claim for interest on the unpaid purchase consideration:- AY Total Amount of interest Amount allowed in the asstt Amount disallowed 1987-88 41,41,500 41,41,500 Nil 1988-89 41,41,500 41,41,500 Nil 1989-90 72,47,625 31,06,125 41,41,500 1990-91 41,41,500 Nil 41,41,500 1991-92 41,41,500 Nil 41,41,500 1992-93 41,41,500 Nil 41,41,500 1993-94 41,41,500 Nil 41,41,500 1994-95 20,71,000 Nil 20,71,000 TOTAL 3,41,67,625 1,13,89,125 2,27,78,500 (-) 14,81,375 TDS on interest accounted in books 3,26,86,250 Balance due to ASE 6. It was further submitted that the Tripartite Agreement had the effect of ceasing the accrual of interest on the unpaid purchase consideration with effect from 01.10.1993. Thus, so far as the liability for interest upto 30.9.1993 is concerned, there was no cessation or remission of the liability whatsoever. The cessation of liability can take place only when SML actually exercises the option of discharging the liability for ₹ 3,26,86,250 earlier than on 1.4.2014 and it is only in that event that the amount by which the liability had ceased upon such earlier payment, can be known. 7. Considering that SML had the option to discharge the aggregate interest liability of ₹ 3,26,86,250 (which was payable on 1.4.2014) at any earlier point of time by the payment of only that amount which was equal to the discounted value thereof (based on the discounting factor of 18% p.a.) at the time of payment, solely with a view to secure that the books of account reflected this position, the Board of Directors of the Company passed a resolution at their meeting held on 2.9.1996 for writing back ₹ 82,47,082 [Rs. 99,08,539 minus ₹ 16,61,457 (present value of ₹ 3,26,86,250 as on 31/03/1996 at a discounting factor of 18%)]. This amount of ₹ 82,47,082 written back to the credit of the Profit and Loss Account does not at all represent any cessation, remission or waiver of the liability to ASE – especially such as is envisaged by Section 41 of the Income-tax Act, 1961, and there can be no question for including the credit as the Company's income for taxation purposes for the year ended 31.3.1996 corresponding to A.Y. 1996-97. The assessee-company submitted that the ASE has accounted for the entire amount of interest upto 30.9.1993 in its books of account and offered it for taxation. Further, for the reason that the Tripartite Agreement does not envisage any remission of that liability, ASE Ltd. has not passed any entry for withdrawing the credit for income in the form of that interest. However, this amount of ₹ 82,47,082/- written back to the credit of the Profit and Loss Account for A. Y. 1996-97 has been added by the department and considered it as company's income for that A. Y. 1996-97. 8. As per the agreement, during the year ended 31.3.1997, SML had subscribed an amount of ₹ 15,08,000 for 290 Deep Discount Bonds of ICICI Limited (@ ₹ 5,200 per bond.) which were to mature on 15.7.2021 and which, on maturity, were to fetch SML ₹ 5,20,00,000 (@ ₹ 2,00,000 per bond). Considering that no interest as such was to accrue on these bonds and the maturity value was payable only upon maturity/early redemption of the bonds, no entry was passed in the books of account for taking credit on account of income on these bonds in the books of account for the year ended 31.3.1997 and thereafter. However, as per one of the conditions of issue of the above bonds, ICICI Ltd exercised the option of Early Redemption of the Bond and paid ₹ 11,000 per bond on 15/07/2001. The effect of same was under: Gross Amount @ ₹ 11,000 per Bond On 290 Bonds 31,90,000 Less : TDS 3,43,128 Net Amount 28,46,872 This has created a surplus of ₹ 16,82,000/- as under: Gross Amount 31,90,000 Less : Cost of 290 Bonds@Rs.5,200 15,08,000 Surplus 16,82,000 Therefore, the aforesaid surplus amount was offered to tax in the A. Y. 2002-2003 and the TDS thereon was claimed in the return. 9. It was also submitted by the AR of the assessee that now the position in SML's books of accounts is that the books of account show a liability of only ₹ 16,61,457 on account of interest aggregating to ₹ 3,26,86,250 which is payable to the ASE Limited on 1.4.2014. That amount of ₹ 16,61,457 represents the present value (of the total liability of ₹ 3,26,86,250) as at 31.3.1996 arrived at on the basis of the discounting factor of 18 per cent per annum. The present value as at the end of subsequent years upto 31.3.2002 is as under: Rs. 31.3.1996 16,61,457 31.3.1997 19,60,519 31.3.1998 23,13,412 31.3.1999 27,29,826 31.3.2000 32,21,195 31.3.2001 38,01,010 31.3.2002 44,85,192 10. As the ICICI Bonds had been redeemed early, the board thought it advisable to write up the liability so that the books of account as at 31.3.2002 would show the liability at its then present value of ₹ 44,85,192. That would require a credit entry for ₹ 28,23,735 [Rs. 44,85,192 minus ₹ 16,61,457 (already provided there in books)] on account of increment in the present value during the period from 1.4.1996 to 31.3.2002 on the basis of the discounting factor of 18% per annum. This was done by the company by debiting profit and loss account and crediting liability account. As the Department assessed ₹ 82,47,082/- for A. Y. 1996-97, the same is now debited to Profit and Loss A/c. while restoring the liability and therefore is rightly deducted. 11. It was further submitted by the AR of the assessee that while disallowing the claim of the assessee the Assessing Officer has not appreciated the facts of the case properly. Further, he submitted that the Assessing officer in para 4.4.3 of his order has held that agreement was executed in 1994 and the bonds were purchased in 1997, therefore there is no direct nexus between purchase of bonds and payments of the liability and both are separate transaction and not connected with payment of liability to ASE limited. It was further held by assessing officer that bonds were getting matured in 2021 whereas the liability was to be ………………

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Nov 012014
 

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DCIT, Circle 17(1), DCIT, CIRCLE 12(1), New Delhi Versus M/s Vodafone Essar South Ltd., – Income Tax – ITAT DELHI – Tri – Depreciation on assets disallowed – Assets put to use during the year for business purpose or not – Held that:- As it has been held in COMMISSIONER OF INCOME TAX-IV, NEW DELHI Versus INSILCO LIMITED [2009 (2) TMI 31 - DELHI HIGH COURT] – the assessee has followed the prescribed accounting standards – the expression ‘used for the purposes of business’ appearing in Section 32 of the Act also takes into account emergency spares which even though ready for use are not as a matter of fact consumed or used during the relevant period, as these are spares specific to a fixed asset and will in all probability be useless once the asset is discarded – the expression used for the purpose of business appearing in section 32 of the Act also takes into account emergency spares which even though ready for use are not as a matter of fact are not as a matter of fact consumed or used during the relevant period as these are spares specific to a fixed assets and will in all probability be useless once the asset is discarded – first the nature of the spare has to be established and then the case law has to be applied – Since the nature of spares has not been established nor the same were examined, the matter is to be remitted back to the AO fresh examination – Decided in favour of assessee. Set off of interest expenses disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the interest expenditure incurred by the assessee cannot be adjusted against interest income earned by the assessee upto the date of commencement of business – interest expenditure incurred by the assessee during the pre-operative period upto the date of the commencement of the business cannot be adjusted against the interest income earned. Provision of network and repair expenses – Held that:- The authorities below have totally erred in treating the provision of expenses not allowable – It is only those provisions which are contingent liability which are not allowable – the provision was made for the repairs in this regard as the relevant bills were not received and payment thereof was not made upto the close of the assessment year – in accordance with accrual system of accounting, the provision in this regard was created – Hence, the provision for network repair and maintenance expenses cannot be said to be a provision made for contingent expenses – There is no contingency in the expenditure to be incurred in this regard – The expenditure has to be incurred though the exact amount was not ascertained – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. Rent expenses disallowed – Held that:- AO had made the disallowance in this regard, as some of the details were not available before the AO – assessee also agreed that the matter may be remitted to the file of the AO – thus, the matter is remitted back to the AO for examination of the details as furnished by the assessee in this regard – Decided in favour of assessee. Disallowance of expenses – Held that:- The provisions made by the assessee cannot be treated as contingent liability when nothing has been brought by the Revenue on record that expenditure in this regard was contingent in nature – The provision was made as the payment in this regard could not be made upto the close of the year as the bills in this regard were received late – Hence, there is no contingency in the expenditure to be incurred – Only the exact amount has not been ascertained – following the mercantile system of accounting such provision cannot be disallowed – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. Disallowance out of brand launch expenses – Held that:- The assessee has incurred expenditure which are in the nature of brand launch expenses – the expenditure incurred upto the pre- operative period has been capitalised and expenditure incurred after the operation has started have been debited to revenue – there is no concept of deferred revenue expenditure in taxation laws – The amount has actually been incurred by the assessee as such the same is allowable in the entirely – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. Allowability of set off of interest expenses against interest income – Held that:- Assessee’s business had not commenced during the previous year – It commenced only in the subsequent year in June, 2002 – In December, 2001 assessee has taken loan from the bank and assessee gave the same to its holding company – Assessee has adjusted the interest expenditure incurred in this regard with the interest income earned and offered the balance for taxation under the head ‘income from other sources’ – The interest expenditure incurred by the assessee are liable to be considered under the head ‘income from other business’ – The interest income earned is liable to be assessed under the income from other sources – assessee’s claim that interest expenditure incurred should be netted off against the interest income is not sustainable. Following the decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT 1997 (7) TMI 4 – SUPREME Court] – any income from non-business sources could not be set off against the liability to pay interest on funds borrowed for the purpose of plant and machinery, etc. even before the commencement of the business of the assessee – thus, the interest expenditure incurred for setting up of the business before the commencement of the business are to be computed under the preoperative expenses and are to be considered under income from business – Hence, the interest income earned, which is from the nonbusiness source cannot be adjusted against the liability to pay interest on funds borrowed of setting up of its business for purchase of plant and machinery etc. before the commencement of the business of the assessee – the order of the CIT(A) is upheld – Decided against assessee. – 2014 (11) TMI 11 – ITAT DELHI – TMI – I.T.A. No. 875/Del/2011, I.T.A. No. 91/Del/2011, I.T.A. No. 4146/Del/2011 – - Dated:- 7-2-2014 – SHRI RAJPAL YADAV AND SHRI SHAMIM YAHYA, JJ. For The Appellant : S/Sh. Salil Kapoor & Vikas Jain, Advocates For The Respondent : S/Sh.R.S. Meena, CIT(DR) & Sameer Sharma, Sr. D.R. ORDER PER SHAMIM YAHYA: AM These appeals by the Revenue and Assessee emanate out of order of the Ld. CIT(A) for the respective assessment years. Since the appeals were heard together and some of the issue are common, hence, these are being consolidated and disposed off together by this common order. I.T.A. NO. 875/Del/2011 (A.Y. 2003-04) – REVENUE S APPEAL 2. The ground raised is that the Ld. CIT(A) has erred on facts and in law by deleting the disallowance of depreciation of ₹ 1,46,14,147/-, ignoring that, the concerned assets on which the depreciation had been claimed were never used by the assessee during the year for the purposes of its business. 3. On this issue AO noted that assessee has debited various spares amounting to ₹ 2,84,24,466/- under the head fixed assets whereas the same related to purchase of spares. AO opined that from the perusal of the details of fixed assets file by the assessee it is apparent that assessee has debited various spares amounting to ₹ 2,84,24,466/- under the head fixed assets whereas the same are related to purchase of spares. AO told that since, the fixed assets were acquired first time in the current assessment year by the assessee and never used by the assessee in the current year, it should have been shown either as inventory or as consumables. That since it is apparent that assessee has neither used the spares as consumables and nor used the same in the current assessment year, hence, the amount of depreciation charged on the spares amounting to ₹ 1,46,14,147/- was disallowed and added back to the declared income. 4. Before the Ld. CIT(A) assessee submitted that had followed Accounting Standard (AS-2) (valuation of inventory) and AS-10 (accounting for fixed assets). It was submitted that assessee was following by accounting principles and capitalizing the spares with fixed assets and claimed depreciation at the prescribed rate. In this regard, assessee refereed to jurisdictional High Court decision in the case of CIT vs. Insilco Ltd. 222 CTR 641 (Del.) Alternatively the assessee claimed that if the depreciation of spares is disallowed, the assessee should be allowed entire expenses incurring amounting to ₹ 2,84,24,466/-. The Ld. CIT(A) considered the above and held that the approach taken by the assessee is correct and disallowance of depreciation was ordered to be deleted. 5. Against the above order the Revenue is in appeal before us. 6. We have heard both the counsel and perused the records. Ld. Counsel of the assessee submitted that the issue involved is squarely covered in favor of the assessee by the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Insilco Ltd. (Supra). We have carefully considered the submissions and perused the records. We find that the assessee has followed the prescribed accounting standards. The Hon ble Jurisdictional High Court in the decision cited above has referred to the above said accounting standard and observed in para 16.4 as under:- 16.4 It is clear upon reading the provisions of Accounting Standards (AS) 2 and (AS) 10 that, the opinion of the Council of the ICAI in respect of treatment of machinery spares is briefly that; machinery spares which are not specific to any fixed asset and can be used generally should be treated as part of inventory and charged to profit and loss account as and when they are consumed during the ordinary course of business. On the other hand, if the machinery spares are of the nature of capital spares/insurance spares which are specific to a particular item of fixed asset and their use is irregular, then, they should be capitalized separately and depreciated on a systematic basis over a time frame not exceeding the useful life of the fixed asset to which they relate. As a matter of fact, in case the fixed asset to which they relate, is discarded, the machinery spares will also have to be disposed of as these spares are integral parts of the fixed asset. 6.1 Furthermore, in para 17.4 the Hon ble Jurisdictional High Court has held as under:- 17.6 In view of the ratio of the judgments referred to hereinabove we are of the considered opinion that the expression used for the purposes of business? appearing in Section 32 of the Act also takes into account emergency spares which even though ready for use are not as a matter of fact consumed or used during the relevant period, as these are spares specific to a fixed asset and will in all probability be useless once the asset is discarded. In that sense, the concept of passive user which is applied by the aforementioned cases to standby machinery will be applicable to emergency/insurance spares. 6.2 From the above, it is clear that spares which are of capital spares in nature and are specific to a particular item of fixed assets and used irregularly, they should be capitalised separately and depreciated on a systematic basis over a time frame not extending the useful life of the fixed assets to which they related. Furthermore, as per the ratio emanating from the above judgment the expression used for the purpose of business appearing in section 32 of the Act also takes into account emergency spares which even though ready for use are not as a matter of fact are not as a matter of fact consumed or used during the relevant period as these are spares specific to a fixed assets and will in all probability be useless once the asset is discarded. In this situation, the concept of passive user is also applicable. We find that in this the nature of the spares on the touchstone of above said decision has not been examined by the authorities below. In our considered opinion, first the nature of the spare has to be established and then the case law has to be applied. Since the nature of spares has not been established nor the same were examined, we remit this issue to the files of the AO. The AO shall examine the issue afresh in light of the case law from Jurisdictional High Court as above. Needless to add that the assessee should be given adequate opportunity of being heard. ITA NO. 91/DEL/2011 (A.Y. 2003-04) (ASSESSEE S APPEAL) 7. The grounds raised read as under:- The Appellant respectfully submits that: 1. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) – XI, New Delhi (hereinafter referred to as the 'learned CIT(A)') erred in confirming the action of the learned Deputy Commissioner of Income Tax, Circle 12(1), New Delhi (hereinafter referred to as the' learned AO') in not allowing set-off of interest expense incurred by the appellant amounting to ₹ 8,093,396 against the interest income of ₹ 8,100,165. 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not allowing deduction for 'Provision for Network and Repair Expenses' amounting to ₹ 2,862,275/- 3. The facts and circumstances of the case and in law, the learned CIT(A) erred in erred in confirming the action of the learned AO in not allowing deduction for 'Rent Expenses' amounting to ₹ 42,450,0057/- 3.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in not considering the complete rental details submitted by the Appellant during the course of appellate hearing. 4. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in not allowing deduction for the following provisions: Provision for credit verification cost ₹ 1,141,060 Provision for consultancy charges ₹ 8,63,320 Provision for car hiring charges ₹ 9,85,684/- Total ₹ 2,990,064 5. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in restricting the deduction for 'Brand Launch Expenses' to the extent 20% and thereby disallowing an amount of ₹ 84,545 104 on the basis that such expenses are in the nature deferred revenue expenditure' allowable over a period of 5 years. All the above grounds are without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case. 8. Apropos Grou………………

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Nov 012014
 

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M/s. Bharati Airtel Limited Versus Dy. Commissioner of Income-tax, – Income Tax – ITAT HYDERABAD – Tri – Amount paid covered u/s 194J or not – Compliance of TDS provisions – Business of rendering various telecommunication services including landline and internet services – Whether the payment made by the assessee company to M/s. Records and Data Warehousing Pvt. Ltd. for the services rendered in pursuance of the Master Services Agreement is in the nature of payment to contractor as envisaged in S.194C or fee for technical services as covered by S.194J or not – Held that:- The amount was paid by the assessee company to M/s. Records and Data Warehousing Pvt. Ltd. for the services rendered in pursuance of a Master Services Agreement executed on 8th September, 2009 – services provider M/s. Records and Data Warehousing Pvt. Ltd. has necessary infrastructure, manpower and experience in providing world class record management services and it has base financial capabilities to perform the record management and related services. Following the decision in Commissioner of Income-tax Versus Bharti Cellular Ltd. & Hutchison Essar Telecom Ltd. [2010 (8) TMI 332 - Supreme Court of India] the expression appearing in S.194J has the same meaning as given in Explanation (2) to S.9(1)(vii), which means any consideration for rendering of any ‘managerial, technical or consultancy services’ – the rule of noscitur a sociis is clearly applicable and this would mean that the word ‘technical’ would take colour from the words ‘managerial’ and ‘consultancy’ in between which it is sandwiched – Elaborating further, Honble Delhi High Court observed that it is obvious that the expression ‘manager’ and consequently ‘managerial service’ has a definite human element attached to it and similarly, the services ‘consultancy’ also necessarily intends human intervention – the expression ‘fee for technical services’, as appearing in S.194J, they found that the question of human intervention was never raised even upto the level of the Tribunal – thus, the order is remitted back to the AO for fresh adjudication – Decided in favour of assessee. – 2014 (11) TMI 10 – ITAT HYDERABAD – TMI – ITA No.956/Hyd/13 ITA No.957/Hyd/13 ITA No.1287/Hyd/13 ITA No.1288/Hyd/13 ITA No.1289/Hyd/13 – - Dated:- 29-10-2014 – Shri P. M. Jagtap And Shri Saktijit Dey,JJ. For the Appellant : Shri Anil Bhalla For the Respondent : Shri B.Ramakrishna, DR ORDER Per P.M.Jagtap, Accountant Member : These five appeals filed by the assessee are directed against five separate orders passed by the learned Commissioner of Income-tax(Appeals) II, Hyderabad for assessment years 2006-07 to 2010-11, whereby she upheld the decision of the Assessing Officer in treating the amounts paid by the assessee to M/s. Records and Data Warehousing Pvt. Ltd. as covered by the provisions of S.194J of the Act and consequently upheld the levy of interest under S.201(1A) of the Act. 2. The assessee in the present case is a company which is engaged in the business of rendering various telecommunication services including landline and internet services in the State of Andhra Pradesh. Survey under S.133A was carried out in the business premises of the assessee on 9.10.2009 in order to verify the compliance of the TDS provisions by the assessee. During the course of survey, it was found that the assessee has deducted tax at source from the payments made to M/s. Records and Data Warehousing Pvt. Ltd. under S.194C of the Act. After verification of the details furnished by the assessee in this regard, the Assessing Officer was of the opinion that the payment made by the assessee to M/s. Records and Data Warehousing Pvt. Ltd. is covered by the provisions of S.194J and there was thus short deduction of tax at source by the assessee from the payments made to M/s. Records and Data Warehousing Pvt. Ltd. He therefore, issued a notice requiring the assessee company to show cause as to why it should not be treated as an assessee in default under S.201(1) for such short deduction of tax at source. In reply, the following explanation was offered by the assessee- They have entered into an agreement with service provider for collection, filing and maintenance of filled in Post Paid subscriber enrollment forms and Airtel Prepaid enrolment forms and to submit the form s based on retrieval request of Airtel form time to time. Service provider is engaged inter alia, in the business of record management and related services to corporate clients including but not limited to telecom operators. Service provider should employee adequately and fully service trained service staff. Hence, there is no staff of Bharti Airtel were involved. We are not paying any rent to the building directly or indirectly. Hence, deduction of TDS U/s. 194I does not apply. Service provider represented hat it has necessary infrastructure, Manpower and experience in the providing world cross record management services. And that it has claimed that the agreement is to carry out certain work and therefore the payment is towards contract for work, falling U/s. 194C. Thus, the assessee has vehemently objected for treating the nature as rent or technical fee. 3. The explanation of the assessee was not found acceptable by the Assessing Officer. According to him, as per the Master Agreement, the contractor was providing professional services having expertise in record and data management. He also noted that the amount paid by the assessee to M/s. Records and Data Warehousing Pvt. Ltd. was also subject to levy of service tax. He therefore held that the payments made by the assessee were in the nature of fee for technical/professional services falling under S.194J and the assessee was liable to deduct tax at a higher rate as applicable to the payments covered under S.194J. Accordingly, the assessee company was treated by the Assessing Officer as an assessee in default under S.201(1) for short deduction of tax at source on the payments made towards professional services covered under S.194J, and interest under S.201(1A) was also levied by him for all the five years under consideration as underITA No.956/Hyd/2013 & four others Assessment year Gross payment Amount deducted Amount deductible Difference Interest u/s. 201- (1A) upto 31.3.2011 Total 2006-07 4814674 107257 251567 144310 95324 239634 2007-08 10768101 241639 562633 320994 172390 493385 2008-09 10253013 232039 997732 765693 323317 1089010 2009-10 17208191 389909 1772444 1382535 400740 1783275 2010-11 28583221 588697 2858322 2269625 372823 2642448 4. Against the orders passed by the Assessing Officer under S.201(1)/ S.201(1A) treating it as an assessee in default, the assessee company filed its appeal for all the five years under consideration before the learned CIT(A). During the course of appeal proceedings, detailed submission was made by the assessee company in support of its case that there was no obligation on its part to deduct tax at source from the payment made to M/s. Records and Data Warehousing Pvt. Ltd. under S.194J. The said submission, as summarized by the learned CIT(A) in his impugned order dated 15.7.2013 for assessment year 2006-07, was as under- a) The activity of collection filing and retrieval of forms does not involve any service of technical, managerial and consultancy in nature. b) The professional or technical nature of service as enumerated in the provisions of 194J is not involved so as to attract the TDS under the said section. There is no managerial, technical consultancy service is involved. c) The contractor has paid tax on the income earned by him i.e., from the payments received from appellant company. We enclose herewith PAN of contractor to show that distributor is a regular assessee and therefore the tax was paid by him. d) A certificate obtained from Chartered Accountant confirming the fact that contractor has fully paid taxes on their overall income including payments received from appellant company and filed Income Tax returns is submitted. e) Reference is invited to the decision of Supreme Court in Hindustan Coca Cola Beverage (P)Ltd. 2007 TIOL-144 SCIT, wherein it has been held as under; No demand visualized under Sec.201(1) of the Income Tax should be enforced after the tax deductor has satisfied that officer in charge of TDS that the taxes due have been paid by the deductee assessee. However, this will not alter the liability to charge interest under Sec.201(1A) of the AC till the date of payment of taxes by the deductee assessee or the liability for penalty under Sec.271C of the Income Tax Act. … 5. After considering the submissions made by the assessee and the material available on record, the learned CIT(A) held that the Master Service Agreement dated 8.9.2009 entered into between the assessee and the M/s. Records and Data Warehousing Pvt. Ltd. was sufficient to show that it is not just a works contract, but the service provider was required to have experience, expertise and ability and skills to provide the services contracted for. He noted that as per clause 2.2.6 of the said agreement, the service provider was to devise effective administrative processes for the mandatory compliance and delivery of customer agreement forms submitted by the subscribers to the assessee company from time to time. He also noted that the service provider was also to monitor both the frequency and the nature of the service problems and to take action to implement changes to reduce and/or to eliminate recurring problems. He therefore, rejected the contention of the assessee that the payment made to M/s. Records and Data Warehousing Pvt. Ltd. was covered by S.194C treating the same untenable and upheld the decision of the Assessing Officer that the services rendered by M/s. Records and Data Warehousing Pvt. Ltd. to the assessee company were in the nature of technical services as covered by the provisions of S.194J of the Act. He however accepted the alternative plea of the assessee by relying on the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. V/s. CIT(293 ITR 226 ) that the payee having paid the tax on its income received from the assessee during all the five years under consideration, the same could not be recovered again from the assessee, even though there was default committed by the assessee in terms of short deduction of tax at source. He accordingly held that the assessee company could not be treated as assessee in default under S.201(1) for short deduction of tax at source form the payments made to M/s. Records and Data Warehousing Pvt. Ltd., as the payee had already paid tax due on its income for all the five years under consideration. He however, held that the assessee was still liable to pay interest under S.201(1A) from the date when the tax was deductible till the date when tax was actually paid by the deductee/payee. Accordingly, the Assessing Officer was directed by the learned CIT(A) to recompute the interest payable by the assessee under S.201(1A) for all the five years under consideration. 6. The learned counsel for the assessee at the outset, took us through the relevant Master Service Agreement placed in the paper book and pointed out the scope and structure of services provided by M/s. Records and Data Warehousing Pvt. Ltd. to the assessee company as stipulated in clause (2) of the Said Agreement. He also invited our attention to the Appendix B of the said agreement placed at pages 30 and 31 of the paper-book specifying the activities to be undertaken by the service provider. He contended that the scope of services rendered by the service provider and the activities undertaken in this regard are sufficient to show that only routine services were rendered by the service provider, which did not involve any expertise, much less any technical expertise. He also pointed out that the manpower required for rendering the services was of graduate level, which again goes to show that the services rendered were clerical in nature, without requirement of any technical or professional expertise. He submitted that the Assessing Officer and the learned CIT(A) have heavily relied on clause 3.11 of the agreement to hold that experience and expertise on the part of the service provider was required to render the services to the assessee company. He contended that the details of activities under taken by the service provider as enumerated in Appendix B to the agreement, however, clearly shows that no services in the nature of technical or pr………………

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Nov 012014
 

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Q Logic (India) Private Limited Versus The Dy. Commissioner of Income tax – Income Tax – ITAT PUNE – Tri – Selection of comparables – Abnormal profit making concerns – Determination of ALP – International transaction of software services to Associate Enterprises – Held that:- Following the decision in Maersk Global Centres (India) Private Ltd. Vs. ACIT [2014 (3) TMI 891 - ITAT MUMBAI] – concerns which earn abnormally high profit margins cannot be excluded straight away but it would require further investigations to ascertain the reasons for their high profits – assessee is justified in asserting that the margins of 64.48% of the concern considered for the year under consideration is not a normal business trend – the inclusion of the concern in the final set of comparables would not lend credibility to the comparability analysis and therefore, the same deserves to be excluded. The plea of the assessee for exclusion of Bodhtree Consulting Ltd. from the final list of comparables cannot be shut out merely because the said comparable has been adopted by the assessee in its Transfer Pricing Study – it would be imperative for the assessee to justify exclusion of a concern from the list of comparables if in the initial Transfer Pricing Study undertaken by it, such a concern has been adopted as a comparable – the profit margins of the concern are fluctuating widely and are abnormally high for the period under consideration – assessee has justifiably demonstrated that the concern M/s. Bodhtree Consulting Ltd. is liable to be excluded from the final set of comparables, even though the said concern was considered as a comparable initially in its Transfer Pricing Study – the concern, M/s. Bodhtree Consulting Ltd. be excluded from the final list of comparables for carrying out the comparability analysis – thus, the AO is directed to re-work the arm’s length price of international transactions of software services rendered by the assessee to its Associate Enterprise – Decided in favour of assessee. – 2014 (11) TMI 9 – ITAT PUNE – TMI – ITA No. 227/PN/2014 – - Dated:- 21-10-2014 – Shri G. S. Pannu And Shri R. S. Padvekar,JJ. For the Petitioner : Shri Dhanesh Bafna and Roshan Lu navat For the Respondent : Smt. M.S. Verma, CIT ORDER Per G. S. Pannu, AM The captioned appeal of the assessee for assessment year 2009-10 is directed against an order of the Deputy Commissioner of Income Tax, Circle- 1(2), Pune (in short the AO), passed u/s 143 r.w.s. 144C(13) of the Income-tax Act, 1961 (in short the Act ), dated 26.12.2013, which is in conformity with the directions given by the Dispute Resolution Panel (in short DRP) dated 23.12.2013. 2. In this appeal, the assessee has raised the following Grounds of Appeal:- 1. The Ld Assessing Officer ('AO') pursuant to the directions of the Ld. Dispute Resolution Panel ('DRP') erred in rejecting the benchmarking approach adopted/contemporaneous documentation maintained by the appellant and thereby making a transfer pricing adjustment of ₹ 19,689,494 to the income of the appellant by holding that the international transaction, pertaining to provision of software services ('IT services') to the associated enterprise ('AE'), are not at arm's length under the Income-tax Act, 1961 ('the Act'). 2. On the facts and in the circumstances of the case, the Ld. AO/DRP erred in modifying the benchmarking analysis, as conducted by the appellant using Transactional Net Margin Method (TNMM') for benchmarking its international transactions pertaining to provision of software services to the AE, and thereby modifying the set of comparables. In doing so, the Ld AO/DRP specifically erred in: a) conducting selective fresh analysis by applying certain additional quantitative / qualitative filters for identifying the comparables resulting in cherry picking of comparables which contradicts with the principles of conducting search (for comparables) in a scientific manner; b) rejecting companies functionally similar to that of the appellant's business operations of provision of software services from final set of comparables (identified based on the fresh search conducted by the appellant on a without prejudice basis); c) completely disregarding the fresh search provided by the assessee (on a without prejudice basis) using the data for FY 2008-09 without providing any cogent reasons for the same, whereas the Ld. AO/TPO had himself conducted a fresh search/analysis. 3. The Ld. DRP/AO erred in considering the single year data for the comparables i.e. data for FY 2008-09 only and disregarding multiple year data which was considered by the appellant in accordance with the provisions of Rule 10B(4) of the Income-tax Rule, 1962 ("Rules"). 4. The Ld. DRP / AO erred in not allowing an adjustment for the difference between the level of risk borne/assets employed by the comparables and the appellant as provided by the appellant, without providing any cogent reasons, and disregarding the provisions of Rules 10B(2) and (3) read with Rule 10C of the Rules. In doing so, the Ld DRP/AO erred by: (i) failing to capture that the appellant is a routine captive service provider as against the comparable companies selected by the Ld TPO which include entrepreneurial companies and hence an adjustment is necessary; (ii) disregarding the provisions of Rules 10B(2) and 10B(3) read with Rule 10C of the Rules. 3. In this appeal, although the assessee has raised multiple Grounds of Appeal but the substantive dispute is with regard to an addition of ₹ 1,96,89,494/- made by the Assessing Officer to the stated value of the international transactions of software services (IT services) rendered by the assessee towards Associate Enterprises in order to determine their arm s length price. 4. The appellant before us is a company incorporated under the provisions of the Companies Act, 1956 in November, 2007 as a wholly owned subsidiary of QLogic Corporation, USA. The assessee company is engaged in providing software services, quality assurance and IT support to QLogic Corporation and it has been contended that the operations of assessee commenced in the financial year 2008-09 corresponding to the assessment year under consideration i.e. 2009-10. The parent company i.e. QLogic Corporation outsources certain software development activities to the assessee company along with detailed specifications of the work to be undertaken. The assessee company is registered as a 100% Export Oriented Unit (EOU) with the Software Technology Parks of India and is providing services only to its parent company i.e. QLogic Corporation. In return of rendering such services, assessee is remunerated by the parent company on a cost plus mark up basis. 5. For the assessment year 2009-10, assessee filed a return of income declaring an income of ₹ 2,06,44,601/-. Since assessee had undertaken certain international transactions with its Associate Enterprises, the Assessing Officer made a reference to the Transfer Pricing Officer (in short TPO) u/s 92CA(1) of the Act in order to determine the arm s length price of the international transactions entered by the assessee with its Associate Enterprises. The TPO passed an order u/s 92CA(3) of the Act on 29.01.2013 determining an adjustment of ₹ 4,25,48,240/- to the stated value of the international transactions of software services rendered by the assessee to its Associate Enterprise so as to bring it to the level of arm s length price. Subsequently, the TPO has passed a rectification order u/s 92CA(5) r.w.s. 154 of the Act dated 20.03.2013 on an application by the assessee, whereby the adjustment to the stated value of the international transactions has been reworked at ₹ 1,96,89,494/-. On the basis of the order of the TPO, the Assessing Officer passed a draft assessment order on 25.03.2013 whereby, the total income of the assessee was sought to be computed in conformity with the arm s length price of the international transactions determined by the TPO thereby, resulting in a proposed addition of ₹ 1,96,89,494/-. The assessee preferred to file objections before the DRP who has since disposed of the said objections vide its order dated 23.12.2013 wherein, the draft assessment order of the Assessing Officer was confirmed. 6. Subsequently, the Assessing Officer has passed an assessment order u/s 143(3) r.w.s. 144C(13) of the Act on 26.12.2013 whereby, in terms of section 92CA(4) of the Act total income of the assessee has been computed in conformity with the arm s length price of the international transactions of software services determined by the TPO at ₹ 1,96,89,494/-. This addition is the subject matter of the proceedings before us. 7. In the Memo of Appeal, assessee has raised multiple Grounds of Appeal assailing the aforesaid addition but in the course of hearing before us, the learned Representative for the assessee has argued on (i) exclusion of Bodhtree Consulting Limited from the list of final comparables; (ii) inclusion of Akshay Software Technologies Limited in the final list of comparables; and, (iii) correcting the margin of Mindtree Limited a comparable adopted by the TPO in the final set of comparables. 8. Before we proceed to adjudicate the specific grievance of the assessee in the above background, the following facts are relevant. The international transactions which are subject matter of consideration before us relates to the services comprising of software development, test and quality assurance services being provided to QLogic Corporation, the parent company of the assessee. In its Transfer Pricing Study undertaken by the assessee with respect to aforesaid international transactions, assessee selected the Transactional Net Margin Method (TNMM) as the most appropriate method in order to determine the arm s length price of such transactions. The assessee used Operating profit / Total cost as the Profit Level Indicator (PLI). By selecting comparables, using certain filters, the assessee determined the arithmetic mean PLI of the comparables at 8.53% based on three years financial data of such comparables and 8.92% by using the financial data of the comparables for the financial year 2008-09 only. The assessee s PLI was computed at 18.02% and since the same compared favorably with the arithmetic mean of the comparable, it was contended that the international transactions of software services rendered to the Associate Enterprise was at a arm s length price. The TPO has not disturbed the selection of TNMM method as the most appropriate method for the purposes of determining the arm s length price of international transactions. The TPO has differed with the assessee on adoption of certain comparables in the final set of comparables. The TPO has considered the single year financial data of 2008-09 of the comparable concerns for the purposes of carrying out the comparability analysis. Be that as it may, the TPO has selected the following final set of comparables for the purpose of carrying out the comparability analysis:- Sr. No. Company After allowing working capital adjustment 1. L G S Global Ltd. 10.26% 2. FCS Software Solutions Ltd. 7.64% 3. Mindtree Ltd. 38.18% 4. Bodhtree Consulting Limited 64.48% 5. Persistent System Ltd. 34.1% 6. Larsen & Turbo Infotech Ltd. 18.23% ARITHMETIC MEAN 28.82% 9. In terms of the aforesaid, the TPO determined the arithmetic mean of the margins of the comparables at 28.82% and since assessee s margin was 18.02%, he has determined an amount of ₹ 1,96,89,494/-………………

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Nov 012014
 

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Jai Prakash Ahuja Versus Income-tax Officer, 2 (2) Kanpur – Income Tax – ITAT LUCKNOW – Tri – Reopening of assessment u/s 147 – Jurisdiction of AO – Held that:- Assessment was reopened after four years from the end of the relevant assessment year – before issuing notice u/s 148 of the Act, the AO was required to obtain sanction/approval from the competent authority prescribed under section 151 of the Act – section 292BB of the Act is presumptive section and on the basis of it, it can be presumed that notice required to be served was served upon the assessee if the assessee joins the assessment proceedings – provisions of section 292BB of the Act is not applicable as the issue in dispute is with regard to the validity of jurisdiction assumed by the AO for issuing notice u/s 148 of the Act – following the decision in Shri. Ghanshyam K. Khabrani. Versus Assistant Commissioner of Income Tax [2012 (3) TMI 266 - BOMBAY HIGH COURT] – u/s 151 of the Act, it was only the Jt. Commissioner or Addl. Commissioner who could grant the approval for issuuance of notice u/s 148 of the Act and if the approval is not granted by the Jt. Commissioner or Addl. Commissioner and instead it was granted by the ld. Commissioner of Income-tax, then the same was not an irregularity curable under section 292B of the Act and notice under section 148 of the Act would be invalid and void ab initio – sanction accorded by the CIT to the AO for issuance of notice u/s 148 of the Act was not proper, therefore, the AO did not assume proper jurisdiction to issue notice u/s 148 of the Act – notice issued u/s 148 of the Act is invalid and assessment framed consequent thereto is invalid and void ab initio – Decided in favour of assessee. – 2014 (11) TMI 7 – ITAT LUCKNOW – TMI – IT APPEAL NO. 341 (LKW) OF 2014 – - Dated:- 27-6-2014 – SUNIL KUMAR YADAV AND A.K. GARODIA, JJ. Swaran Singh for the Appellant. R.K. Ram for the Respondent. ORDER Sunil Kumar Yadav, Judicial Member – This appeal is preferred by the assessee against the order of the ld. CIT(A), inter alia, on the following grounds: – 1. That the Ld. C.I.T.(A), Dehradun holding concurrent charge of C.I.T.(A)-II, Kanpur has erred in law and on facts in sustaining the action of the Ld. A.O. with regard to the validity of initiation of proceedings under section 147 of the Income Tax Act, 1961. 2. That while sustaining the initiation of proceedings under section 147 of the Income Tax Act, 1961, the Ld. C.I.T.(A)-I, Dehradun holding concurrent charge of C.I.T.(A)-II, Kanpur has failed to consider and appreciate that the notice under section 148 of the Income Tax Act, 1961 dated 31.03.2010 was issued after taking approval of Commissioner of Income Tax instead of Joint Commissioner of Income Tax , Range -2, Kanpur. Therefore, the impugned re-assessment order is illegal and void-ab-initio. 3. That the alleged notice under section 148 of the Income Tax Act, 1961 was issued by the Ld. A.O. was without assuming proper jurisdiction and therefore the impugned notice under section 148 of the Income tax Act, 1961 was illegal and void ab initio. 4. That the Ld. C.I.T.(A)-I, Dehradun holding concurrent charge of C.I.T.(A)-II, Kanpur has erred in law and on facts in sustaining the addition of ₹ 2,39,088/- on account of Long Term Capital Gains on sale of Plot No. 431/7 Block-H, Kakadeo, Kanpur in which the appellant had 50% share. 5. That the order of the Ld. C.I.T.(A)-I, Dehradun holding concurrent charge of C.I.T.(A)-II, Kanpur is insupportable in law and on facts and deserves to be set aside. 6. That the additions sustained by the Ld. C.I.T.(A)-I, Dehradun holding concurrent charge of C.I.T.(A)-II, Kanpur are unsustainable in law and order of Ld. C.I.T,(A)-I, Dehradun holding concurrent charge of C.I.T.(A)-II, Kanpur is against the principles of natural justice and equity. That any other relief or relifs as your honour may deem fit in the facts and circumstances of the case, be granted. 2. Through these grounds, the assessee has raised preliminary objection with regard to the jurisdiction of the Assessing Officer for issuing notice under section 148 of the Income-tax Act, 1961 (hereinafter called in short "the Act") for reopening of assessment. In this regard, the ld. counsel for the assessee has invited our attention to the assessment order with the submission that the Assessing Officer has recorded in para 2 of the assessment order that for reopening the assessment, sanction was accorded by the ld. Commissioner of Income-tax and thereafter notice under section 148 of the Act was issued. This fact was not disputed by the Revenue either before the ld. CIT(A) or before us. Therefore, it is an admitted fact that notice under section 148 of the Act was issued after obtaining sanction/permission from the ld. Commissioner of Income-tax, whereas as per section 151(2) of the Act, sanction is required from the Jt. Commissioner of Income-tax and not from the ld. Commissioner of Income-tax. Since the sanction for reopening of assessment was not accorded by the competent authority, the Assessing Officer did not assume jurisdiction for issuing notice under section 148 of the Act for reopening of assessment. Though the assessee has raised a specific ground before the ld. CIT(A), but the ld. CIT(A) did not comment on it and has confirmed the order of the Assessing Officer sustaining the additions made by him. 3. The ld. counsel for the assessee has invited our attention to the provisions of section 151(2) of the Act, with the submission that in this case assessment was not framed under section 143(3) of the Act, therefore, sub-section (2) of section 151 of the Act will apply to the present case and as per sub-section (2) of section 151 of the Act, no notice shall be issued under section 148 of the Act by an Assessing Officer who is below the rank of Jt. Commissioner of Income-tax after expiry of four years from the end of the relevant assessment year, unless the Jt. Commissioner of Income-tax is satisfied with the reasons recorded by the Assessing Officer that it is a fit case for issue of such notice. Since sanction was accorded by the ld. Commissioner of Income-tax for issuance of notice under section 148 of the Act, sanction was not valid as per provisions of section 151(2) of the Act and, therefore, the Assessing Officer did not assume a valid jurisdiction to issue notice under section 148 of the Act for reopening of assessment under section 147 of the Act. Once notice issued under section 148 of the Act is not valid, assessment framed consequent thereto deserves to be annulled. In support of these contentions, the ld. counsel for the assessee has placed reliance upon the following judgments: – (i) CIT vs. SPL S Siddhartha Ltd [2012] 17 taxmann.com 138 (Delhi). (ii) Ghanshyam K Khabrani vs. ACIT-1 [2012] 20 taxmann.com 716 (Bom). (iii) Rahul Constructions v. Dy. CIT [IT Appeal No. 1543 (PN) of 2007, dated 12-1-2010]. (iv) Jai Singh v. State of U.P. [Civil Misc. Writ Petition (PIL) No.35248 of 2010]. Copies of the judgments are also placed on record. 4. The ld. D.R., on the other hand, has contended that since sanction was accorded by an Officer senior to the Jt. Commissioner of Income-tax, no defect can be pointed out in the sanction for issuance of notice under section 148 of the Act. Moreover, if some technical error is there, that would be covered under section 292BB of the Act, as the assessee himself has appeared and participated in the proceedings. 5. The ld. counsel for the assessee, in rebuttal, with regard to the curative section 292BB of the Act, has contended that this provision can be applied to presume that the notice required under the law is served upon the assessee where the assessee has joined the assessment proceedings, but in the instant case, the dispute is with regard to the valid jurisdiction for issuance of notice under section 148 of the Act. Therefore, provisions of section 292BB of the Act would not apply to the present case. 6. The ld. counsel for the assessee has also invited our attention to the application filed under Right to Information Act, with the submission that assessment under section 143(3) of the Act was not framed in this case as admitted by the Department in reply under the R.T.I. Act. Therefore, provisions of section 151(2) of the Act are directly applicable and the Assessing Officer was required to obtain sanction from the Jt. Commissioner of Income-tax and not from the ld. Commissioner of Income-tax. 7. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below, material available on record and the judgments referred to by the assessee, it is evident from the reply given by the Department to the assessee in response to the information sought under R.T.I. Act, 2005 that no assessment under section 143(3) of the Act was done for assessment year 2003-04 prior to the re-assessment under section 147 of the Act. It is also an admitted fact that assessment was reopened after four years from the end of the relevant assessment year. Therefore, before issuing notice under section 148 of the Act, the Assessing Officer was required to obtain sanction/approval from the competent authority prescribed under section 151 of the Act. For the sake of reference, provisions of section 151 of the Act is extracted hereunder: – "151. Sanction for issue of notice. – (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice: Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing officer, who is below the rank of Joint Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing officer, that it is a fit case for the issue of such notice." 8. Under section 151 of the Act, the authorities are identified who can issue notice for reopening of assessment under section 148 of the Act after forming a belief that income chargeable to tax has escaped assessment. As per sub-section (1) of section 151 of the Act where an assessment is framed under sub-section (3) of section 143 or 147 of the Act, no notice shall be issued under section 148 of the Act by an Assessing Officer who is below the rank of Asstt. Commissioner of Income-tax/Dy. Commissioner of Income-tax unless Jt. Commissioner of Income-tax is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issue of such notice. In case assessment requires reopening after four years from the end of the relevant assessment year, the Assessing Officer is required to obtain approval/sanction from the Chief Commissioner or Commissioner before issuance of notice under section 148 of the Act. 9. Sub-section (2) of the Act deals those types of cases where assessment was not completed under section 143(3) of the Act or 147 of the Act. In such type of cases, no notice shall be issued under section 148 of the Act by the Assessing Officer, who is below the rank of Jt. Commissioner of Income-tax after expiry of four years from the end of the relevant assessment year unless Jt. Commissioner of Income-tax is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice. It has been categorically mentioned in sub-section (2) of section 151 of the Act that sanction was required by the Assessing Officer from the Jt. Commissioner of Income-tax. 10. In the instant case, undisputedly no assessment was framed under section 143(3) of the Act or 147 of the Act as admitted by the Department in reply to the information sought under the R.T.I. Act. It is also an undisputed fact that the assessment was sought to be reopened after four years from the end of the relevant assessment year i.e. 2003-04, as notice under section 148 of the Act was issued on 31.3.2010. It is also an undisputed fact that sanction/approval was accorded by the ld. Commissioner of Income-tax and not by the Jt. Commissioner of Income-tax as mentioned in the assessment order by the Assessing Officer. 11. Therefore, it is abundantly clear that provisions of sub-section (2) of section 151 of the Act is to be applied for issuing notice under section 148 of the Act and as per sub-section (2) of section 151 of the Act, the Assessing Officer was required to obtain sanction/approval from the Jt. Commissioner of Income-tax and in the instant case, approval/sanction was obtained from the ld. Commissioner of Income-tax. Therefore, we have no hesitation in holding that the sanction accorded by the ld. Commissioner of Income-tax is not in accordance with law and in such a situation sanction accorded to the Assessing Officer is not valid and hence the Assessing Officer could not assume jurisdiction to issue notice under section 148 of the Act and in that case when the Assessin………………

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Deputy Commissioner of Income Tax Versus M/s Goetze(India) Ltd. – Income Tax – ITAT DELHI – Tri – Depreciation on assets of Vegetable Oil Division – Business conducted during the year or not – Whether the basic condition of Section 32 that assets must be used for the purpose of business is satisfied or not – Held that:- As decided in assessee’s own case for the earlier assessment year it has been held that once an asset forms a part of block of assets and the business having been carried on, the depreciation is allowable on the written down value (WDV) comprising of block of assets sole on as the business is being carried on by the Assessee then the condition of user of a particular asset is not applicable under the concept of allowing depreciation on block of assets as once the asset forms a part of block of assets it loses its individual WDV or identity – the CIT(A) rightly allowed relief for the Assessee and the order of the CIT(A) is upheld – Decided against revenue. Prior paid expenses – Held that:- As per regular system of accounting followed by the Assessee the disputed expenses are always claimed in the year in which the same are quantified – since the liability in respect of entire expenditure arose during the year under consideration – it cannot be disallowed by holding them to be prior period expenditure – the CIT(A) rightly granted relief for the Assessee and the order of the CIT(A) is upheld – Decided against revenue. Expenses on processing fees paid to banks and financial institutions – Revenue expenses or not – Held that:- CIT(A) was rightly of the view that the expenditure incurred wholly and exclusively for purposes of business – the upfront payment of fees has been made to banks and financial institutions as per an agreement – Interest under the Income Tax Act is allowed u/s 36(1)(iii) whole of this interest was allowable as long as it was paid in respect of business or profession – A proviso was added by Finance Act (2003) with effect from 1/4/2004 relevant to assessment year 2004-05 which is not applicable to the year under consideration – the processing fee was paid for obtaining a loan for the purpose of business then it is a revenue expenditure and it could not be disallowed hence the CIT(A) rightly deleted the addition – Decided against revenue. Commission paid for processing loans from banks/financial institutions – evidence to show that commission actually liaisoned or not – Held that:- The Assessee has submitted details of brokerage as well as amount of loan received and the name of the bank of financial institution from where the loans were obtained – the CIT(A) was right in holding that the respective progress rendered services to the Assessee for obtaining huge amounts of loans from banks and financial institutions – the brokerage expenses incurred has to be allowed as revenue expenditure and the CIT(A) rightly allowed the expenses – Decided against revenue. Exchange rate fluctuation – Violation of section 251 or not – Held that:- From computation of income for AY 2002-03, it is clear that the Assessee has added back a sum of ₹ 64 lakhs in the computation of income for the AY 2002-03 – deduction of ₹ 64 lakhs has been claimed on payment basis during the AY 2003-04 – the action of the CIT(A) is justified which is based on proper analysis of facts – CIT(A) rightly directed the AO to allow the relief subject to some verification of certain facts – Decided against revenue. Addition of provision made for various routine expenses – Held that:- CIT(A) has rightly observed that the Assessee has not explained the nature of the liability – it was not ascertainable as to whether the provisions has been made for a crystallized or contingent liability – when the allowability of claim of the Assessee has been decided in earlier and subsequent years by affording due opportunity to the Assessee to explain the nature of liability then during the year, the issue requires detail examination and verification at the end of AO – thus, the matter is to be remitted back to the AO for proper examination and verification – Decided in favour of assessee. – 2014 (11) TMI 5 – ITAT DELHI – TMI – I.T.A .No. 1375 /Del/2011(AY-2003-04) – - Dated:- 31-1-2014 – SHRI S. V. MEHROTRA AND SHRI CHANDRA MOHAN GARG, JJ. Appellant by Sh. Pradeep Dinodia, C.A & R. K. Kapoor, CA Respondent by Sh. Satpal Singh, Sr. DR ORDER PER CHANDRA MOHAN GARG, JM These appeals have been preferred against the order of Commissioner of Income Tax (Appeals)-III, Delhi vide dated 16/12/2010 in Appeal No. 121/2007-08 for the Assessment Year 2003-04. Since both the appeals by the Assessee as well as by the Revenue have been preferred against the one order of CIT (A), therefore, for the sake of convenience and clarity in the findings these appeals are being clubbed and we are deciding them both together by this consolidated order. GROUNDS OF THE REVENUE IN ITA NO. 1375/DEL/2011 2. The grounds raised by the Revenue read as under:- 1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing depreciation on assets of the Vegetable Oil Division by ignoring the fact that this business was not conducted during the year and the basic condition of Section 32 that assets must be used for the purpose of business is not satisfied. 2. On the facts and circumstances of the case, the Ld. CIT(A)has erred in deleting the addition of prior period expense of ₹ 1,36,51,602/- in law and on merits. 3. On the facts and circumstances of the case, the Ld. CIT(A)has erred in treating the expenditure of ₹ 92.50 lakhs incurred on processing fees paid to banks and financial institutions as Revenue expenditure. 4. On the facts and circumstances of the case, the Ld. CIT(A)has deleted the addition of ₹ 1,02,75,000/-. On account of commission paid for processing loans from banks/financial institutions without appreciating the fact that there is no evidence on record that recipient of the commission actually liaisoned with banks/financial institutions to arrange the finance for the assessee. 5. On the facts and circumstances of the case, the Ld. CIT(A)has erred in not remanding the addition on account of exchange rate fluctuation back to the AO and in giving directions to the AO in violation of Section 251. 6.(a) On the facts and circumstances of the case, the Ld. CIT(A) has erred in not remanding the addition made on account of disallowance of brought forward losses and depreciation to the AO when the matter has not been verified by the CIT(A) himself. (b) The CIT(A) has erred in not considering the entire facts of the case as well on the applicability of Section 79 & 80 in as much as the loss return filed was belated. 7.(a) The order of the CIT(A) is erroneous and not tenable in law and on facts. (b) The appellate craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of hearing of the appeal. GROUND NO. 1 OF THE REVENUE. 3. Apropos Ground No.1, the Ld. Departmental Representative submitted that the CIT (A) has erred in allowing depreciation on assets of Vegetable Oil Division by ignoring the fact that this business was not conducted during the year and the basic condition of Section 32 of the Income Tax Act 1961(for short the Act), is that the asset must be used for the purpose of business which is not satisfied by the Assessee to support his claim of depreciation. Replying to above, the Ld. Assessee s Representative drawn our attention towards Page No. 5 Para iv of the impugned order and submitted that this issue came to be examined fall of us time before ITAT in Assessee s own case in Assessment Year 2000-01 in ITA No. 2590/Del/2004 and also subsequently in ITA NO. 410/Del/2007 and ITA No. 1032/Del/2007 and the ITAT has allowed the claim of depreciation after examination of various aspects. The AR further submitted that the CIT(A) has followed ITAT s orders and allowed the relief for the Assessee. 4. After careful consideration of above submissions, we hold that the issue is covered in favour of the Assessee by earlier orders of this Tribunal in Assessee s own cases. Since, we have perused ITAT s orders available from Page No. 79 to Page No. 105 of the paper book wherein it has been held that once an asset forms a part of block of assets and the business having been carried on, the depreciation is allowable on the written down value (WDV) comprising of block of assets sole on as the business is being carried on by the Assessee then the condition of user of a particular asset is not applicable under the concept of allowing depreciation on block of assets as once the asset forms a part of block of assets it loses its individual WDV or identity. Accordingly, we hold that the CIT(A) rightly allowed relief for the Assessee and orders of the ITAT have not been set aside or modified by any high forum. We, therefore, of the firm opinion that we are unable to see any ambiguity or any other valid reason to interfere with the findings of the CIT(A) in this regard. Therefore, under these circumstances, Ground No.1 of the Revenue being devoid of merits is dismissed. GROUND NO. 2 OF THE REVENUE. 5. The Ld. Departmental Representative submitted that the CIT(A) has erred in deleting the addition of prior period expenses of ₹ 1,36,51,602/- in law and on merits. The Ld. Departmental Representative further submitted that the Assessee s claim of ₹ 1,06,16,692/- on account of Rent and Common Sharing Expenditure paid to Escorts Ltd which was claimed to be in dispute, therefore, the claim of the Assessee is not acceptable. The Ld. Departmental Representative further submitted that the expenses has to be charged in the year in which it was incurred in a mercantile system of accounting the expenses claimed by the Assessee were incurred in earlier years and cannot be allowed in the year under consideration. Therefore, the AO rightly made addition which was deleted by the CIT(A) on wrong premise. 6. Replying to the above, the Ld. AR drawn our attention towards Page NO. 104 to 106 of the paper book of the Assessee wherein in Assessee s own case for the Assessment Year 2001-02 in ITA No. 1032/Del/2007 filed by the Department, the ITAT C Bench has decided the issue in favour of the Assessee by holding that the bill of the contractor was raised during the relevant Assessment Year, therefore, the expenses related to current year was allowable. During the course of hearing, nothing has been brought on record to substantiate the contention of the Revenue that the said expenditure was not crystallized in the year under consideration. In absence of any such material, we are unable to see any infirmity or any other valid reason to interfere with the impugned order in this regard deleting the addition. 7. We perused details of 1.36 crores as well as later filed before the AO during the assessment proceedings (paper book Page No. 106 to 111). The AR has drawn our attention towards settlement deed between Escorts Ltd and the Assessee (Page book Page No. 117 & 118) dated 07/10/2002 wherein Escorts Ltd and Assessee agreed for rent sharing from 1st April 1998. We also perused copy of the Electricity Bills of factory which was also settled in the Year 2002 (paper book Page No. 115 & 116). The Ld. AR placed reliance on the various decisions of Hon ble Jurisdictional High Court of Delhi including decisions in the case of CIT vs. Modipon Ltd, 334 ITR 102, CIT Vs. Exxon Mobil Lubricants Pvt.Ltd 328 ITR 17, CIT Vs. Jagatjit Industries Ltd 194 Taxman 158 and decisions of Hon ble Supreme Court in the case of CIT Vs. Realest Builders & Services Ltd 307 ITR 202 (SC) and CIT Vs. Galaxo Smithkline Asia Pvt. Ltd 195 Taxman 35 (SC). The AR submitted that the Assessing Officer disallowed the expenses holding the same of the nature of prior period expenses, the same were held to be not proper and held to be allowed in the year in which such expenses have been incurred and crystallized. The AR drawn our attention towards order of Commissioner of Income Tax, Delhi-IV dated 22/12/2004 (paper book Page No. 121 to 123) and submitted that in view of categorical findings of the administrative CIT(A) in the order passed u/s 263 of the Act. It has been accepted that as per regular system of accounting followed by the Assessee the disputed expenses are always claimed in the year in which the same are quantified in view of above we inclined to hold that since the liability in respect of entire expenditure arose during the year under consideration. Therefore, the same cannot be disallowed by holding them to be prior period expenditure. Hence, the CIT(A) rightly granted relief for the Assessee and we decline to interfere with the impugned order in this regard. On the basis of aforementioned discussions, Ground No. 2 of the Revenue being devoid of merits is dismissed. GROUND NO. 3 OF THE REVENUE. 8. Apropos Ground No. 3 the Ld. Departmental Representative submitted that the CIT(A) has erred in treating the expenditure of ₹ 92.50 lakhs incurred of processing fees paid to banks and financial institutions as revenue expenditure. The Ld. Departmental Representative further submitted that the processing fees expenses one to be capitalized and the AO rightly made addition in this regard. The AR vehemently contended that this issue has been covered in favour of the Assessee by the decision of Hon ble Madras High Court in the case of CIT Vs. Shri Meenakshi Mills Ltd 290 ITR 107 (Madras) and submitted that the processing fee paid to banks and financial institutions for obtaining loan to as a Revenue expenditure and it should have been allowed u/s 37(1) /36(1)(iii) of the Act. The AR further submitted that the Hon ble Jurisdictional High Court of Delhi in the case of CIT Vs. Jai Parabolics Springs Ltd 172 Taxman 258(Delhi) has held that the deferred revenue expenditure is an accounting concept and it does not c………………

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