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Income Tax - Case Laws
Showing 81 to 100 of 182 Records
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2009 (3) TMI 519
Business Expenditure- The assessee is a partnership firm consisting of nine partners of which five are ladies. The Assessing Officer noticed that the assessee had paid salary to the partners treating them as working partner, although some of them resided in far away places and therefore he disallowed the salary paid by the assessee to these partners under section 40(b) of the Act. Commissioner (Appeals) held that the partner were working partners and allowed the claim. Held that- court did not interfere with the order in appeal in view of the finality of the assessments of the partner. The Assessing officer also disallowed 25 percent of payments under section 40A(2) but the Commissioner (Appeals) and Tribunal allowed it. Held that- that the entire payment had been made to various partners and relatives. The disallowance of 25 percent made by the Assessing Officer under section 40A(2)(a) of the Act was justified.
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2009 (3) TMI 512
Reassessment- The case of the petitioner is that the impugned notice under section 148 of the Act has been issued beyond the statutory period of four years as provided in section 147 of the Act and hence under the proviso thereto the burden is on the Revenue to show that the petitioner has either failed to furnish return of income, or comply with the statutory notice referred to in the provisions, or failed to disclose fully and truly all material facts relevant for the assessment of the assessment year in question. Held that- as the notice issued on the ground that the lease rent of paid by the for gas cylinders during the relevant accounting period had wrongly been claimed thus the action of the Assessing officer in issuing the notice under section 148 of the Act was nothing but a change of opinion on the same set of facts. the notice of reassessment was not valid and was liable to be quashed.
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2009 (3) TMI 511
Industrial undertaking-Special deduction- petitioners, under section 80-IB of the Act, industrial undertakings located in a industrially backward State specified in Eighth Schedule to the Act are eligible for 100 per cent. According to the petitioners, their units are entitled to the aforesaid deductions. The petitioners further contend that section 115JB of the Act which seeks to impose tax at the rate of 7.5 per cent. of the book profit of an industrial unit like the petitioners which are situated in a notified industrially backward area is illegal and unconstitutional as it seeks to override the benefits granted under section 80-IB. Held that- the doctrine of promissory estoppel could not be made applicable to the nullity legislature exercise inasmuch as the legislature could not be estopped from exercising its power so long as such exercise was in conformity with the provisions of seventh schedule to the constitution and it did not transgress the fundamental rights guaranteed by Part III of the constitution. By enacting the provisions of section 115JB, the legislature had restricted the benefits of deduction under section 80-IB by making industrial units like those of the assessees liable to tax at the rate of 7.5% of the book profits. Curtailment of benefit earlier granted by the legislative act could not be invalidated on the principles of promissory estoppels.
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2009 (3) TMI 509
Offences and prosecution- Evasion of tax- The petitioner is the Managing Director of the company. The company was engaged in the business of manufacture and sale of carbon steel strips. It filed its return by showing nil income. The return of income as well as verification signed by MD. Company shown heavy expenses. The company was asked to explain why there was steep increase in the expenses. The company explained that it had paid Rs. 29,46,422 to HSP towards the work of annealing and pickling of steel slabs at the rate of Rs 2500 per metric tonn. The assessing officer held that company could not have paid more than 500 per metric tonn to HSP, for the processing work done by latter. The Commissioner (Appeal) upheld this order. Tribunal dismiss the revenue appeal and partly allow assessee’s appeal. Held that- if the issue whether the amount paid by the company to HSP was reasonable or not admitted of more than one point of view, as was evident from the orders of the Assessing Officer and the Tribunal, then certainly the essential ingredient of section 276C(1) of the Act of a deliberate intent on the part of the company to evade the payment of income tax could not be said to exist in the present case.
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2009 (3) TMI 507
Transfer of case- Search and Seizure operation was carried out u/s 132(1) of the Act., in the business as well as the residential premises of the R group of case and the assessee’s case was covered in the group. In order to centralize the entire group of cases and for co-ordinated investigation and assessment, the assessee’s case was transferred from Parulia to ranchi. Held that- though section 127 postulates that the assessee should be given reasonable opportunity of being heard, no opportunity was granted to the assessee. No cause had been shown for denial of such opportunity, the written objection furnished by the assessee was not dealt with. The order of transfer had been passed in the mechanical manner, therefore the notice and the order of transfer could not be sustained and were to be set aside.
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2009 (3) TMI 506
Search and Seizure-Block Assessment- The Assistant Commissioner issued the notice upon the petitioner to file a return of total income including the undisclosed income in the status of a company for the block period from April 1, 1996 to October 28, 2002 u/s 158BD(a) of the Income Tax Act, 1996 to October 28, 2002 under section 158BD(a) of the Act. The Assistant Commissioner dropped the proceedings the next proceedings was initiated by the Assistant Commissioner Circle 38 calling upon him to file a return of total income including undisclosed income in the status of a company for block period. Held that-allow the petition, as the petitioner was required to file the return as company while the petitioner is an individual thus the status of the assessee is incorrectly described on the notice. Further without restoring the provisions contained in section 127 of the Act suo moto transfer of the file of the petitioner was arbitrary, without jurisdiction and ex-facie illegal. Consequently the assumption of jurisdiction by the Assistant Commissioner of Circle 38 could not be sustained and also was illegal.
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2009 (3) TMI 501
Unexplained money- The assessee which derived income from carriage contract for the assessment year 1996-97, filed a return disclosing total income of Rs. 5,76,133. After hearing the assessee the Assessing Officer added a sum of Rs. 1,04,7,720.30 to its income being the value of bitumen short supplied by the assessee to the various divisions of the Road Construction Department of the Government of Bihar. The assessee appealed before the Commissioner (Appeals) who deleted the additions. On appeal by the department, the Appellate Tribunal on the basis of claim of non-delivery by the executive engineers of the Road Construction Department before the Assessing officer repelled the plea of the assessee that it had delivered the bitumen. Held that- the assessee was in the business of contract carriage and in that capacity it lifted the bitumen to be supplied to the Road Construction department but having not supplied it to the owner, the assesee was the owner of the bitumen within the meaning of section 69A of the Act. The condition precedent for invoking section 69A of the Act existed and it would be liable to pay tax on the value of bitumen. Therefore, the confirmation of addition u/s 69A of the Act amounting to Rs. 1,04,71,720 was legal and valid.
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2009 (3) TMI 496
Substantial Question of law- An Appeal under section 260A of the Act, lies to the High Court from an order passed by the Tribunal only if the High Court is satisfied that the case involves a substantial question of law. Held that- the question whether the interest amount of Rs. 9,91,508 received by the assessee on the FDR should have been shown by it as income from business or income from other sources might be a question of law but it was not a substantial question of law inasmuch as on the answer to the question, the Revenue was not entitled to higher or lesser amount of tax from the assessee.
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2009 (3) TMI 473
Cash Credit- The assessing officer disallowed the loss on the ground that there was no material. On calling remand report from the Assessing Officer, the Assessing officer on remand in his report admitted that the identity of the parties and also that there was corresponding entries in the books of account. The Commissioner (Appeals) consequently allowed the appeal. The Tribunal deleted the additions made by the Assessing Officer towards unexplained cash credits. On appeal contending that the capacity to advance loan was not establishing and the Tribunal ought to have restored the matter to the Assessing officer for reconsideration. Held that- dismissing the appeal, that the books of account were available to the Assessing Officer and the books themselves would indicate the capacity of the party to advance loan. There was no further need on the part of the assessee to prove the capacity of the creditors. Thus, the reasoning adopted by the Tribunal was sustainable.
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2009 (3) TMI 472
Rectification of mistake- The assessee was assessed for the assessment year 1994-95 under section 143(3) of the Act. The Assessing officer found that the claim of the deduction under section 80-IA included a sum representing the export incentive received by the assessee. A notice under section 154 of the Act for rectification of mistake was issued and disallowed the deduction. The Commissioner (Appeals) set aside the order passed under section 154 of the Act. The Tribunal affirmed this, holding that the controversy decided by the Assessing Officer in rectification proceedings was a debatable issue. Held that- the Assessing Officer allowed the deduction at the time of passing the order under section 143(1A) of the Act and also at the time of passing the order under section 143(3) of the Act it was clearly a case of change of opinion. This could not be said to be a mistake apparent from the record and therefore, the provisions of section 154 of the Act, could not be invoked. The question as to whether the assessee was entitled for deduction or not, was a matter to be decided on the merit and could not be said to be an error apparent on record.
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2009 (3) TMI 419
Block Assessment under section 158BC– Search and Seizure – The Income tax authorities conducted a raid in the residence of the assessee. A large number of documents and other incriminating materials were seized during the course of search. Assessment for the block period was done in terms of section 158BC of the Income Tax Act, 1961. In this case Patna High Court-held that there is no merit in this appeal. In so far as the first question is concerned, we are convinced that the three ingredients engrafted in section 132 of the Act which constitute a valid search are satisfied in the present case, is answered against the assessee, and in favour of the Revenue. As to the second question, materials were indeed collected during the course of the search which led to the order of assessment. The second substantial question of law is also answered against the appellant, and in favour of the Revenue. The appeal is dismissed. – Decision in favor of revenue – against the assessee.
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2009 (3) TMI 410
Amount received as compensation – Business Income or Capital – The assessee-firm owned a cinema building popularly known as Prem Prakash Talkies. It entered into an agreement of sale with M/s. Jaipur Mineral and Development Syndicate Private Limited (“JMDSPL”). The Agreement failed nd the terms and conditions thereof could not be performed, and therefore, the assessee-firm became entitled to realize a sum of Rs. 20,000 as compensation. In this case Rajasthan High Court in the light of the Judgment of D.P. Sandu Bros. Chembur P.Ltd. (2005) 273 ITR 1 (SC) held that the aforesaid amount of Rs. 20,000 can only be treated as capital receipts.– Decision in favor of assessee – against the revenue
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2009 (3) TMI 401
Income deemed to accure or arise in India – Remuneration of non-resident - (1) Whether the payments made to REOL attract tax liability under section 9(1) (vii) (c) read with the Explanation to section 9(2) of the Income-tax Act and whether Jindal was obliged to effect TDS in the payments made to REOL under section 195 of the Income-tax Act?- suggests that the criteria of residence, place of business or business connection of a non-resident in India have been done away with for fastening the tax liability. However, the criteria of rendering service in India and the utilisation of the service in India laid down by the Supreme Court in Ishikawajima’s case [2007] 288 ITR 408 to attract tax liability under section 9(1)(vii) remain untouched and unaffected by the Explanation to section 9(2). –amounts received by non-residetn for technical services, start-up services and overall responsibility – Held that technical services not taxable in India – Remuneration for start-up services and over all responsibility taxable in India - Held that person responsible for deducting tax at source on payment to non-resident has a right to appeal against order holding remuneration of non-resident taxable – Assessee-Jindal has not produced the customs duty documents to show that the amounts paid to REOL in respect of “technical services, start-up services and overall responsibility” form part of the cost price of the equipment. Therefore, the Income-tax Appellate Tribunal has rightly held that Jindal is not entitled to benefit under article 12(2) of the Double Taxation Avoidance Agreement. Accordingly, the appeals are partly allowed
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2009 (3) TMI 379
Undisclosed income - During the course of search, the search party did not find any incriminating material against the assessee-respondent. However, discrepancy was alleged to have been found in stock of raw materials and finished products during search. The Assessing Officer valued the excess stock at Rs. 30,880 and treated the same as undisclosed income of the assessee-respondent - Needless to say that discrepancy worked out on the basis of estimation of quantity and value of stock is not accurate, correct and scientific. Therefore, in the absence of any defect found out in the books of account, maintained in the regular course of business, no addition can be made to the income disclosed by the assessee in its return of income on the basis of discrepancy worked out on estimation of stock - held that no addition can be made on the basis of the discrepancy worked out on estimation
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2009 (3) TMI 373
“Whether Tribunal was justified in law in holding that a debatable issue which cannot be a subject-matter of rectification in proceedings under section 154 of the Act, without appreciating the fact that the assessee has not deducted depreciation from the eligible profit before claiming deduction under section 80-IB?” - The very fact that this court itself is divided on the issue, whatever be the merits of the matter, the Assessing Officer at least had no jurisdiction to exercise his jurisdiction under section 154. As and when there is conflict of opinion amongst the Benches the same cannot amount to an error apparent on the face of the record. - in our opinion, there was no mistake apparent on the face of the record In the light of that the exercise of jurisdiction by the Assessing Officer was without jurisdiction. Consequently, we find no merits in this appeal, which is accordingly dismissed.
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2009 (3) TMI 353
The appellant is a Government of Kerala promoted company registered under section 25 of the Companies Act for taking care of the interest of the non-resident Keralites. Registration of the company as a charitable institution was applied for under section 12AA of the Income-tax Act, 1961 - Prima facie we are satisfied that the organisation is promoted for advancement of object of general public utility because it is formed to promote the interests of the non-resident Keralites. – Appellant is entitled to registration - However, we find that before deciding the entitlement for registration as charitable institution, the Commissioner should verify the source of funds and utilisation of the same before registration - Appeal is allowed
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2009 (3) TMI 259
Whether in law the hon’ble Tribunal was right in deleting the addition of Rs. 8,69,000 made by the Assessing Officer as estimated expenses incurred by the assessee in earning dividend income ?” - both the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal has come to a finding of fact that there were no expenses incurred by the assessee in earning dividend income and there were no administrative or personal expenses which could be said to be expenses for earning such dividend - Assessing Officer made an addition of Rs.3,11,00,273 on reconciliation of all the receipts of incomplete contracts. The Tribunal has found that similar additions made by the Assessing Officer were deleted for the assessment years 1996-97, 1997-98, 1998-99 and 1999-2000. - Revenue could not place any material before us to show that the orders of the Income-tax Appellate Tribunal for the assessment years 1996-97 to 1999-2000 were challenged. In the circumstances, according to us, question whether the tribunal was justified in deleting the addition made by AO in respect of incomplete contracts does not arise.
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2009 (3) TMI 252
Application seeking renewal of approval u/s 80G - nature of construction and maintenance of community hall - objects of the trust include relief of the poor, education and medical relief - business activists or not? - Trust belongs to one family, which includes brothers of the managing trustee - voluntary contributions received by a trust created only for charitable or religious purposes is to be deemed as income u/s 11.
HELD THAT:- The convention centre was constructed for earning income for the trust. Since the trust was finding it difficult to administer and to look after the day-to-day activities, therefore, the same was leased. This shows that the convention centre, i.e., kalyana mantapa was constructed for the purpose of carrying out the business activity. It has not been given on long lease but the lease is only of 36 months though it is renewable for a further period on mutually agreed terms and conditions. Such an activity of giving the convention centre on lease is part of the nature of activity in the form of trade or commerce.
The meaning of the words "in relation to" as appearing in section 14A has been considered by the Calcutta Bench in the case of Deputy CIT v. S.G. Investments and Industries Ltd.[2003 (5) TMI 198 - ITAT CALCUTTA-C].
After considering the meaning of the words "in relation to", the hon'ble Special Bench held that not only the direct but also the indirect expenditure, which has any relation to the exempt income, is not to be allowed as a deduction. It is therefore clear that any activity, which directly or indirectly facilitates the rendering of any service in relation to any trade, commerce or business, then such an activity will be covered under the proviso to section 2(15). For carrying out the business of hiring kalyana mantapa by the lessee, the building is an essential asset and without the building, such business cannot be carried out.
We therefore hold that the construction of kalyana mantapa and giving the same on lease in the case of the trust where all the objects are not in respect of relief of poor, education and medical is covered by the proviso to section 2(15) and the trust cannot be said to be created wholly for charitable purpose. In the case of Sengunthar Thirumana Mandapam [2006 (6) TMI 64 - MADRAS HIGH COURT] on which the assessee has placed reliance, in that case, the kalyana mandapam was to be allowed to be used for nominal rent by weavers and agriculturists.
In the instant case, the facts are different and therefore, that judgment is not applicable. The decision in the case of Ram Bhawan Dharamshala [2002 (7) TMI 798 - RAJASTHAN HIGH COURT] is also not applicable in view of the amended definition of charitable purpose and in that case, the hon'ble Madras High Court was concerned with the issue as to whether the letting out of the property is an activity of business. Now in the amended definition, the words used are "that the activity may be in the nature of trade, commerce or business".
In the case of Halai Nemon Association[1998 (11) TMI 37 - MADRAS HIGH COURT] the hon'ble Madras High Court has held that the building, which was being let out for functions and therefore, the receipts were taxable under the head "Business". Therefore, in the instant case, it cannot be said that the said trust existed wholly for the charitable purposes in view of the amended definition of charitable purpose.
As contended by ld AR that the ld DIT (Exemptions) should have refrained from considering section 13 in not granting the renewal of approval u/s 80G. As per section 80G(5), the concerned authority can give renewal of approval u/s 80G in case he is satisfied that the trust income is not liable to be included in total income under the provisions of sections 11 and 12. Section 12(1) clearly says that the provisions of sections 12 and 13 shall apply in respect of voluntary contributions received by the trust. Renewal of approval u/s 80G is in respect of voluntary contributions to be received by the trust. Therefore, as per section 12(1), the concerned authority is empowered to look into the applicability of section 13.
The concerned authority has to be satisfied that the income of the trust will not be liable to inclusion in the total income under the provisions of sections 11 and 12. The words "liable to inclusion" means that the authority concerned has to take a decision on the basis of the facts available at the time of application. The authority concerned cannot shut its eyes in case the provisions of section 13 ate applicable on the basis of the facts on record, though the actual assessment of that previous year may be made by AO subsequently, but the authority concerned has to take a decision on the basis of the facts as available on the date of application, which is before the start of the previous year while AO has to decide the issue on the basis of the facts of that particular previous year after the end of the previous year. Hence, it is held that the learned DIT (Exemptions) was legally correct in looking into the provisions of section 13 while considering the application of the trust for renewal of approval u/s 80G.
No prudent person would have invested such a huge amount without adequate security that the investment made will yield appropriate income and the investment will remain safe. Shri Ramamurthy, Hindu undivided family is a person covered u/s 13(3). As per section 13(1)(c), it is mentioned that if any part of income or property of the trust is used or applied directly or indirectly for the benefit of any person referred to in section 13(3), then nothing contained in sections 11 and 12 shall operate to exclude from the total income of the previous year of the person in receipt of the income.
Thus, investing such a huge amount in the construction of a kalyana mantapa without having adequate arrangement for retaining the land for a sufficient long period, resulted in a benefit to Shri Ramamurthy, Hindu undivided family, who is a person covered u/s 13(3).
The word "benefit" has not been defined in the Act and therefore, its ordinary meaning will have to be applied that it means, advantage and such advantage may be either monetary or non monetary. In view of the fact that the benefit is available to a person specified in section 13(3), therefore, the income of the trust is not exempt u/s 11 and 12 and therefore, the learned DIT (Exemptions) was right in not allowing renewal of approval u/s 80G.
Moreover, no basis has been provided for fixing the monthly rent to satisfy that the lease rent adequately compensates the trust, who has constructed the kalyana mantapa on the land leased out to it. The onus was on the appellant trust to have provided the basis that the agreed lease rent was adequate. If the appellant trust was having lease right over the land for a long period then the adequate compensation should have been considered that aspect as to what the assessee was leasing to Shri S. Ramamurthy was kalyana mantapa along with the land. In case only the building was being leased as the land belongs to Shri Ramamurthy, Hindu undivided family, then the appellant trust has not taken adequate steps to protect its investment. Hence, the learned DIT (Exemptions) was justified in not giving renewal of the approval u/s 80G.
In the result, the appeal of the assessee is dismissed.
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2009 (3) TMI 249
Appeal u/s 254 - TP Adjustment - determination of ALP - CPU or TNMM Method - Whether or not the assessee can indeed be faulted for not being able to supply the information which he has not supplied or which the assessee claims to be incapable of supplying - taxpayer is an Indian company engaged in the business of manufacturing and selling passenger cars - assessee entered into international transactions with two associated enterprises (AEs) - main transactions are of purchase of materials from assessee's parent company and of payment of royalty and technical know-how fees to assessee's parent company i.e., Skoda a/s - reference made to the TPO u/s. 92CA - CIT(A) noted that the assessee has not submitted entire data and information which was supplied to the AO and the TPO and dismissed - preliminary objection taken by the Revenue that we should not deal with the matter on merits as the assessee has not co-operated in the first appellate proceedings -
HELD THAT:- The CIT(A) has brushed aside fundamental questions, and proceeded to reject the appeal for want of details in general terms. The relevant details or at least a part of relevant details, as we have noted, were furnished by the assessee and in any case all those details were in the assessment records. It is not, therefore, wholly correct to say that the assessee did not at all co-operate before the CIT(A) or that the assessee failed to furnish the necessary details to the CIT(A) and that, for this reason alone, we are denuded of powers to deal with the matter on merits and simply remit the matter to the file of the CIT(A). We therefore decline to sustain the preliminary objection raised by the assessee (sic-Revenue). We will consider the matter in entirety, and, we see no need to restrict the options available to us for doing justice in the matter.
We have noted that there are references to the determination of arm's length price on the basis of CUP (comparable uncontrolled price) method, but, in the course of hearing before us, ld counsel for the assessee admitted that the transactions which were relied upon were transactions that the parent company had with other AEs and the price of Euro 680 thus given is not the price at which transactions have been entered into between independent persons. This is the price that the assessee had adopted as internal CUP.
The assessee also submitted that external CUP is not available because the product is unique. To our understanding, this argument is totally devoid of any merits. To be considered as internal CUP also, the transaction has to be an independent transaction i.e., between two entities, which are independent of each other. The sale of car kit has admittedly taken place only between the associated concerns. Therefore, the price at which such transaction has taken place is irrelevant for CUP analysis; what is referred to as CUP (comparable uncontrolled price) is price of a comparable but controlled transaction, since to be termed as an uncontrolled transaction, the transaction has to be between two entities which cannot influence or control each other's decision. The transactions between AEs obviously do not satisfy such a criterion. There is thus no internal CUP, as claimed by the assessee before the authorities below and as stated in the information filed along with the IT return. The assessee also accepts that there are no external comparables available.
Under these circumstances, in our considered view, the authorities below rightly rejected the assessee's case that even as per CUP method, the transactions that the assessee entered into with its parent company were at an arm's length price.
Ld counsel submits that rejection of CUP method does not make a material difference to the outcome of the appeal. It is stated that, without prejudice to the assessee's reliance on CUP method, the assessee agrees with the TPO that the most suitable method of determining ALP in the present case in TNMM method and that when TNMM method is correctly applied to the facts of this case, no ALP adjustment is warranted on the facts of the case.
It was thus contended before us that the computation of TNMM was vitiated inasmuch as the comparison was without taking into account (a) multiple year data; (b) the results of Ford India Ltd. and General Motors Ltd.; (c) adjustments on account of high level of import content of raw material; and (d) adjustments on account of lower capacity utilization. In any event, according to the learned counsel, ALP adjustments can be done in the profits relatable to the international transactions alone and not to the profits as a whole. Finally, learned counsel submitted that even when TNMM method is to be adopted, adjustment of 5 per cent variation from the arm's length price is permitted to the appellant under the provisions of s. 92C(2) of the Act. Our attention was also invited to some judicial precedents by the Co-ordinate Benches which cover this issue in favour of the assessee.
The crisil report which has been repeatedly referred before us was apparently not available to the TPO. In these circumstances and bearing in mind the fact the year before us was only second year of implementation of transfer pricing regime and it was a new area of taxation laws in which law had not developed, we think that it will meet the ends of justice that the assessee has liberty to raise all these arguments before the TPO so that the TPO can examine all the relevant contentions and decide the same by way of a speaking order in accordance with the law.
As we are remitting these issues to the file of the TPO, and as these issues are somewhat academic at this stage which will be relevant only when the assessee's plea regarding adjustment on account of higher import duties being warranted by peculiarities of operations in this year, we refrain from making any observations on the merits of the case. With the above observations, we hereby remit the matter to the file of the TPO so far as question of determination of ALP under the TNMM method is concerned.
This issue is now covered in favour of the assessee by a series of Tribunal decisions including decision in the case of Sony India (P) Ltd.[2008 (9) TMI 420 - ITAT DELHI-H] even as ld Departmental Representative vehemently supported the stand of the authorities and justified the same. We, therefore, uphold assessee's grievance in this respect and direct the AO to bear in mind the same while deciding the matter afresh.
To summarise, (i) the applicability of CUP method is rejected on the facts of this case; (ii) on the question of determination of ALP as per TNMM method, the matter is remitted to the file of the TPO with specific directions; and (iii) the grievance against denial of 5 per cent adjustment is upheld in principle in accordance with the Co-ordinate Bench decisions.
In the result, the appeal is partly allowed in the terms indicated above.
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2009 (3) TMI 246
Claim set off of unabsorbed depreciation and eligible business loss - Computation of income from short-term capital gains u/s. 50 - Whether AO is right in deducting only the WDV in order to compute the short-term capital gain? - retrospective operation - assessee had been charging depreciation on the assets in the books of account maintained by it from the AY 1985-86 onwards - While filing the return of income for the first time for AY 1995-96 also, the assessee computed the WDV as on 1st April, 1994 and claimed depreciation on the WDV only - However for computing the short-term capital gain u/s. 50, the assessee has sought deduction of original cost instead of the WDV.
HELD THAT:- The ld AR contended that there is no decision to support the view that Expln. 5 to s. 32 is retrospective and further submitted that the facts pertaining to Gold Coin Health Food (P) Ltd. are totally different from the instant case. However, we are unable to agree with his contentions, in view of the decision of Hon'ble Supreme Court in the case of Gold Coin Health Food (P) Ltd.[2008 (8) TMI 5 - SUPREME COURT], which lays down the proposition for interpretation of law. Under Art. 141 of the Constitution of India, the law declared by the Supreme Court shall be binding on all Courts within the territory of India. Hence, in our opinion, the Expln. 5 to s. 32 is clarificatory in nature and hence it will have retrospective operation.
Accordingly, the depreciation cannot be taken as "notionally allowed", but only as 'actually allowed.' Hence the AO is right in deducting only the WDV in order to compute the short-term capital gain.
Eligibility of unabsorbed depreciation/business loss for set off against short-term capital gain - As contended by ld AR, the gain arising on sale of depreciable assets is taxed as short-term capital gain in view of the legal fiction created by s. 50. Otherwise, such gain is normally treated as part of business receipt only. The High Court in the case of Shrikishan Chandmal [1965 (4) TMI 117 - MADHYA PRADESH HIGH COURT] has held that the dividend income from shares held as stock-in-trade which is assessable as "income from other sources", can be set off against brought forward business loss. The Hon'ble Supreme Court in the case of Western States Trading Co. (P) Ltd.[1971 (1) TMI 11 - SUPREME COURT] has also approved the decision of Hon'ble Madhya Pradesh High Court cited above.
In view of the propositions laid down in the above, we are of the opinion that the assessee is entitled to claim set off of unabsorbed depreciation and eligible business loss, if any, against short-term capital gain computed u/s 50. Hence we find merit in the contention of the ld AR. In any case, the dispute with regard to the eligibility of set off does not arise in respect of unabsorbed depreciation relating to AY 1996-97 and earlier years, in view of the decision in the case of S & S Power Switchgear Ltd.[2008 (3) TMI 328 - MADRAS HIGH COURT], Accordingly, we direct the AO to allow set off of the eligible amount of unabsorbed depreciation and unabsorbed business loss against the short-term capital gain.
The appeal of the assessee is partly allowed.
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