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Income Tax - Case Laws
Showing 241 to 260 of 515 Records
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2013 (8) TMI 705
Prima facie adjustments - Scope of section 143(1)(a) of the Act - Prima facie adjustment made by the AO in respect of various deductions/exemptions/claims made in the return in Income - Held that:- The scope of section 143(1)(a) of the Act is by now well settled. The assessing officer can make prima facie adjustments only in respect of issues which are not debatable and for which no further information required from the assessee other than that contained in the return of income and the accompanying documents. In other words where the claim admits of more than one interpretation or requires further facts and details, the same is outside the scope of the said section.
Power of Commissioner (A) to call for additional evidence under section 143(1)(a) - Ld. CIT (A) call for additional details and also to set aside the claimed deduction to the AO for further verification in a case u/s 143 (I) (a) – Held that:- While adjudicating an appeal against intimation under sec.143(1)(a) of the Act the CIT(A) is not empowered to call for further details at the appellate stage. The CIT(A) is required to see whether on the basis of the return or, the accompanying documents as filed before the assessing officer, any prima facie adjustment could be made. It is further not open to the CIT(A) to remit set aside the matter to the file of the assessing officer. The CIT(A) may either delete or sustain the prima facie adjustment - Decided against the Revenue.
Also, reliance is placed upon the case Khatau Junkar Ltd Vs. K.S. Pathania [1992 (2) TMI 67 - BOMBAY High Court ], wherein it was observed that in the absence of any specific provision in the Income Tax Act which disallows a deduction because a specific document specified in that section is not annexed to the return, the Income-tax Officer cannot, under clause (iii) of the proviso to section 143(1)(a), disallow a claim or a deduction because, in his view, adequate evidence in support of such a claim or deduction is not before him. He can disallow a claim for deduction only if he is satisfied, on the basis of the material which is before him, that the assessee is not entitled to such a deduction - Use of the phrases "prima facie admissible" in clause (ii) to the proviso and "prima facie inadmissible" in clause (iii) to the proviso also lend support to this interpretation. In its literal sense, "prima facie" means on the face of it. Hence, on the face of the return and the documents and accounts accompanying it, the deduction claimed must be inadmissible. Only then, can it be disallowed under the proviso to section 143(1)(a). In any further enquiry is necessary, or if the Income-tax Officer feels that further proof is required in connection with the claim for deduction, he will have to issue a notice under sub-section (2) of Section 143.
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2013 (8) TMI 704
Undisclosed income - Undervaluation registration of property - Whether the amount deposited in bank is part of sales consideration or undisclosed income liable to addition u/s 68 - Assessee himself made complaint about it - A.O. applied proceedings u/s 68 - Held that:- assessee as an honest citizen not only made a complaint to the registering authority that the sale deed has been registered at a value much below the amount, which he has actually received, he deposited the entire amount in the bank and voluntarily filed return. There was no material whatsoever or any circumstance, which could have suggested that this amount was received by him from any other source. The deposition of witness of the sale deed, the Bank Manager and the evidence filed with regard to valuation of the property was more than sufficient to discharge the burden, which the A.O. had unreasonably placed on the assessee. The A.O. in disbelieving the evidence has not given any reasons whatsoever to discard the statement of the witnesses, deposit of the entire sale consideration in bank and the deposition of the Bank Manager. The assessee had not only deposited the entire amount in the bank but also informed the registering authority of the deficiency of the stamp in the sale deed - from the facts and circumstances on the record that in the present case the Income Tax Officer did not act in bonafide manner. The assessee led substantial evidence to establish that the amount treated to be undisclosed income by the A.O. was the sale consideration of sale of his agricultural land, which he had deposited in the bank and had voluntarily filed return disclosing his income. Overwhelming evidence led by him was discarded without giving any reasons at all. The assessment was framed only on the ipse dixit of the A.O., which gives us reason to believe that he had exceeded his authority with some ill will or with ulterior motive - Decided against Revenue.
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2013 (8) TMI 703
Undisclosed Capital gain - Scope of block assessment proceedings - Additions due to cross references of entries in the books of account - Transfer of membership of recognized stock exchange - CIT upheld disallowance - Tribunal deleted disallowance - Held that:- Chapter XIV-B deals with the procedure for making assessment in cases of search. This block assessment is distinct and separate and independent of a regular assessment for the reason that in these block assessment proceedings, the Assessing Officer is concerned only with undisclosed income and he has no power to consider material and evidence not detected as a result of some external information or a survey or some other source other than a search, it is found that some income had escaped assessment, then it is open for the Assessing Officer to resort to a regular assessment including re-opening a completed assessment but he cannot drag these items into the block assessment proceedings envisaged under Chapter XIV-B of the Act.
Thus, a block assessment proceeding is distinct and different from the regular assessment proceeding and the Chapter deals exclusively with block assessment relating to search and all other proceedings are alien to it.
Whether the cross-reference in the balance sheet of the assessee and M/s Aasheesh Securities Ltd., could be treated as material on the basis of which enquiries could be made and the assessee to be reassessed on the source of income for charging income to the capital gain - Held no - decided in favour of the assessee and against the revenue.
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2013 (8) TMI 702
Rectification or order - Revision of order by Tribunal - Block assessment proceedings - Assesse through settlement commission paid excess tax - Settlement commission accepted only partial amount - A.O. and ITAT disallowed rectification of order - Held that:- settlement commission has also given its reasons as to why it is accepting only a part of the amount offered. The settlement commission has also positively declined to give a direction to exclude the assessment of a sum of Rs.20.00 lakhs each in the case of the respondents/assesses on the premise that the applicant M/s MSL was making an offer of Rs.4,84,88,500/- as its undisclosed income for the reason that it cannot issue such directions in respect of persons not before the Commission and insofar as limiting the offer to a sum of Rs.2,65,04,626/- the settlement commission noticed that such alone could have been the undisclosed income of the assesses in the earlier period and it had no income generated beyond this.
It is not as contended by Mr Parthasarthy that because the commission was satisfied the other part of the investment in M/s MSIL had been explained, the offer made by M/s MSL before seeking settlement before the commission was accepted only to the extent of unexplained investment in the other company. On the other hand, that was not considered by the settlement commission but the settlement commission only examined the capacity and ability of the applicant before it for generating the income which was not disclosed and later making an offer before a commission for the settlement. For this purpose the settlement commission had examined the past conduct and transactions of the applicant M/s MSL. In the absence of any such discussion regarding the source of investment in M/s MSIL, only offer being made by M/s MSL - a remand for such purpose will be in our considered opinion a futile exercise and more over such an exercise if at all could have been in the case of very company M/s MSIL and not by either the present respondents/assesses or M/s MSL - an applicant and declarant before the settlement commission - Decided in favour of Revenue.
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2013 (8) TMI 701
Disallowance u/s 36(1)(ii) - Interest expenses on borrowed funds - loan/ advances to subsidiary companies - Held that:- AO made disallowance of interest of Rs.5,74,25,564/- in assessment year 2002-03 for similar reasons as stated in the assessment year under consideration. We observe that the ld. CIT(A) confirmed the action of AO. But the Tribunal in further appeal after considering the submissions of the assessee vide para 11 at page 9 of the order allowed the claim of the assessee. It is relevant to state that the Tribunal has stated that ld. CIT(A) in the next assessment year viz assessment year 2003-04 himself allowed the relief to the assessee. Tribunal allowed the claim of the assessee in AY 2002-03 after observing that in case business of subsidiary is collapsed it will have severe repercussions on the assessee company. That the synergies of the business operation of the assessee company and its subsidiaries were re-aligned and the functions of the various companies were made complimentary and supplementary to each other, so as to avoid duplication of interest and deriving maximum value in its operation. That each company is inter dependent on the other. That the survival of assessee is also at stake, if the subsidiaries fail.
The Tribunal also observed that section 14A of the Act would also not come in the way for the reasons that the majority of the subsidiaries are foreign subsidiaries and the question of section 14A being applied for dividend received from them does not arise. The Tribunal also held that section 14A and section 36(1) (iii) operate in different fields - investment in shares in e-Capital Solution were through Share Swap and not shares investment were made in cash.
That the assessee acquired shares in e-Capital Solution not by payment of cash but by issue of its own shares to the sellers of the said shares after taking approval from Reserve Bank of India. Thus, question of using of borrowed funds for acquiring shares in e-Capital Solution does not arise - there is no infirmity in the order of ld. CIT(A) in deleting the disallowance of interest expenditure made by AO - Decided against Revenue.
Transfer Pricing adjustment - CIT deleted addition - Held that:- issue requires reconsideration by TPO and therefore matter be restored to AO to determine ALP including applicability of method to be adopted. Hence, the orders of authorities below is set aside and the matter is restored to the file of AO to determine ALP of transactions of the assessee with Associated Enterprises afresh after giving due opportunity of hearing to the assessee by a reasoned order and in accordance with law - Decided in favour of Revenue.
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2013 (8) TMI 700
Business income or capital gain - Investment portfolio - Whether the profit from the shares is a capital gain or business income - Held that:- It is seen that the assessee has shown all the purchases under the investment portfolio. It is further seen that the long term capital gain shown by the assessee has been accepted by the AO himself. Under the provision of law, it is clearly provided that if the holding of share is more than one year then the gain on account of sale of shares has to be treated as long term capital gain and if holding period of shares are less than one year then the gain on account of sale of shares has to be treated as short term capital gain. No where it is provided that if the transactions are frequent and voluminous then the claim of the assessee is not allowable as short term capital gain or long term capital gain as the case may be. The only question which is to be examined and seen by the AO as to what treatment has been given by the assessee in respect to purchase of shares. Whether the purchase of shares are shown under the head stock-in-trade or under the head investments. If purchases have been shown under the head stock-in-trade then the sale transactions has to be treated as business transactions and if the sales have been effected from investment account then the gain has to be treated as long term capital gain or short term capital gain, as the case may be. In the present case, the assessee has shown all the purchases under the head investment portfolio - Decided in favour of assessee.
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2013 (8) TMI 699
Deduction u/s 80IB - Deduction in SSI industry - withdrawal of benefit - value of plant and machinery had exceeded Rs.1 crore in subsequent years - Held that:- the condition that is not complied with by the assessee is a condition which is to be fulfilled on an year to year basis and not merely in the initial/formative year alone. To elaborate further, the industrial undertaking, to be eligible for the benefit of the claim u/s 80IB of the Act, four conditions mentioned in section 80IB(2) has to be fulfilled. The first condition is that the industrial undertaking must not have been formed by splitting up or reconstruction of a business already in existence with an exception that in case of units specified u/s 33B of the I T Act, this condition will not apply. The second condition is that such undertaking must not have been formed by transfer of machinery and plant previously used must not exceed 20% of the value of the total cost of the plant and machinery of such industrial undertaking. The third condition is that the industrial undertaking must produce or manufacture any article or thing other than any article or thing specified in the Eleventh Schedule. Exception to this third condition is that a SSIU can avail the 80IB benefit even if manufactures or produces articles or things specified in Eleventh Schedule. The fourth condition is that the industrial undertaking running with the aid of power must not have less than 10 employees and if it is run without power, the number of employees must be more than 20 employees.
Thus all the four conditions narrated above must be fulfilled if the industrial undertaking desires to avail benefit u/s 80IB of I T Act.
For a SSIU, there is also an extra condition i.e. it must be an SSI unit as per explanation (g) given in 80IB(14) of I T Act which refers to Section 11B of the IDR Act, 1951 which in turn prescribes a limit for investment in plant and machinery to designate the industrial undertaking as SSI unit. Thus, out of these give conditions; the first two conditions may be called formative or unchangeable. In other words, if in the initial year of manufacture or production, it is substantiated that it has fulfilled these two conditions, the Assessing Officer cannot on this ground in subsequent eligible years of the block period deny the benefit u/s 80IB.
The rest of the three conditions are to be fulfilled on year to year basis. The industrial undertaking must show in each subsequent year of claim that these three conditions have not been violated. Such claims of the assessee have to face the analysis and scrutiny of the Assessing Officer. Thus, since each assessment year is separate and independent, the revenue authorities had every power to examine and analyse the facts and figures as well as relevant law points of each year to find out whether all these three conditions are fulfilled or not - the value of plant and machinery had exceeded Rs.1 crore during the year under consideration which incidentally deprive the assessee to call itself as a Small Scale Industry - Decided against assessee.
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2013 (8) TMI 698
Admission of additional evidence u/s 46A - CIT rejected additional evidence - Held that:- The reliance placed by the the assessee on the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT V Mukta Metal Works (2011 (2) TMI 250 - PUNJAB AND HARYANA HIGH COURT) is misplaced in view of the facts being at variance. In the facts of the case before the Hon'ble High Court, the additional evidence was in the form of the report of Forensic Science Laboratory and an affidavit dated 27.12.2004 of the searched person. However, in the facts of the present case, additional evidence is by way of books of account being re-written including certain entries relating to sundry creditors, closing stock and even VAT in the provisional balance sheet, which as per the assessee were prepared on the basis of the books of account now written and permission for producing the same was sought from CIT(Appeals) as additional evidence under Rule 46A of IT Rules. - Decided against the assessee.
Addition u/s 68 - difference in the account of parties and further addition made by rejecting the books of account and also disallowance of expenses. - Held that:- The AO during the course of assessment proceedings noted that there was a difference in the balance shown in the account of M/s Diwan Steel Industries of Rs.699,980/- and of M/s Regent Steel Industries of Rs.30 lacs, when compared with the copy of account of the assessee in the books of account of the respective parties. The assessee having failed to reconcile the difference except by way of additional evidence, which has not been admitted by us in the paras herein above, the addition made by the AO merits to be upheld in the hands of the assessee.
Rejection of books of accounts - application of net profit rate of the earlier year - Held that:- The assessee had failed to produce the books of account before the authorities below and the revised books of account produced by way of additional evidence have been rejected by CIT(Appeals) - there was no alternative left but to estimate the trading income in the hands of the assessee and application of net profit rate to the sales receipts shown by the assessee - Decided against the assessee.
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2013 (8) TMI 697
Transfer pricing - Order of Dispute Resolution Panel (DRP) - Non-speaking order not stating the objections raised by the assessee and the reasons have also not been given, simply the order of TPO and Assessing Officer are referred - Held that:- The matter was referred to the DRP u/s 144C of the IT Act. Under sub-section (1) of Section 144C, the Assessing Officer is under an obligation to forward a draft of the proposed order of assessment to the assessee if he proposes to make on or after the first day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. Under sub-section (2) of Section 144, the assessee within 30 days of the receipt of such draft order can accept the variation made by the Assessing Officer or he can file objections either to Dispute Resolution Panel or to the Assessing Officer. Since the assessee had filed his objections with DRP, then, under sub-section (5) the DRP, upon receipt of objection is under obligation to issue directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and under sub-section (6) such directions which are put up under sub-section (5) would be further considering the following documents: (a) draft order; (b) the objection filed by the assessee; (c) the evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, valuation officer, or TPO or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be colleted by, it; and (g) result of any inquiry made by, or caused to be made by, it. Under sub-section (7), DRP is also authorized before issuing of direction under sub-section (5) to make such further inquiry, as it think fit or cause any further inquiry to be made by any income-tax authority and report the result of the same to it. Under sub-section (8) the DRP has power to confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further inquiry and passing of the assessment order. Under sub-section (11) no direction u/s sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue respectively. Under sub-section (12) directions under sub-section (5) cannot be passed after nine months from the end of the month in which draft order is forwarded to the eligible assessee. Under sub-section (13), on receipt of directions issued under subsection (5), the Assessing Officer has to pass the assessment order in conformity with the directions without providing any further opportunity of being heard to the assessee within one month from the end of the month in which such directions are received.
The rejection of comparables are based on detailed reasoning and after applying reasonable filters. The denial of working capital adjustment as also capacity adjustment is based on cogent reasoning, use of current data has been found more appropriate and fresh search has been rejected as there is no valid reason. Similarly, the DRP has rejected the other grounds. Therefore, the order passed by the ld. DRP is a non-speaking order not stating the objections raised by the assessee and the reasons have also not been given as simply the order of TPO and Assessing Officer are referred - Order restored back to DRP to pass a speaking order stating all the objections of the assessee and disposing them by giving cogent reasons for adjudication of the objections of the assessee - Following decision of Evalueserve Com (P.) Ltd. v. Ward 11(2) [2011 (11) TMI 111 - ITAT, DELHI] - Decided in favour of assessee.
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2013 (8) TMI 696
Revisional order u/s 263 - Held that:- Counsel for the appellant filed three paper books in this case which includes the copy of computation of income, copy of Audit Report, A.O’s. query letter dated 12.08.2009, reply of the assessee dated 02.09.2009, 11.09.2009, 18.11.2009 & 18.12.2009. The appellant had not filed any reply against the query raised by the AO on fall of G.P. Further confirmation in case of M/s. Umiya Finlease Pvt. Ltd., Somabhai Narayandas Patel & Soma Bhai Narayandas Patel HUF filed before CIT not before the A.O. The bank account in case of Bhagwati (Pvt.) Ltd., Moti Polymers (Pvt.) Ltd., Ambica Marbles Store Suppliers, Bhavna Sales Agency and Motidas Jivandas Patel had not been examined by the A.O. The order of the A.O. to that extent is erroneous and prejudicial of interest of Revenue. However, on other issues the ld. CIT had passed order under Section 263 of the I.T. Act without specific observations. The remarks of CIT are general. The Assessee had filed the confirmation in case of cash creditors, copy of return & copy of bank accounts. The Ld. A.O. had satisfied himself with evidences filed before him.
Appellant filed three paper books in this case which includes the copy of computation of income, copy of Audit Report, A.O’s. query letter dated 12.08.2009, reply of the assessee dated 02.09.2009, 11.09.2009, 18.11.2009 & 18.12.2009. The appellant had not filed any reply against the query raised by the AO on fall of G.P. Further confirmation in case of M/s. Umiya Finlease Pvt. Ltd., Somabhai Narayandas Patel & Soma Bhai Narayandas Patel HUF filed before CIT not before the A.O. The bank account in case of Bhagwati (Pvt.) Ltd., Moti Polymers (Pvt.) Ltd., Ambica Marbles Store Suppliers, Bhavna Sales Agency and Motidas Jivandas Patel had not been examined by the A.O. The order of the A.O. to that extent is erroneous and prejudicial of interest of Revenue. However, on other issues the ld. CIT had passed order under Section 263 of the I.T. Act without specific observations. The remarks of CIT are general. The Assessee had filed the confirmation in case of cash creditors, copy of return & copy of bank accounts. The Ld. A.O. had satisfied himself with evidences filed before him - Decided partly in favour of assessee.
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2013 (8) TMI 695
Unexplained cash credit - Cash deposit in bank account - Held that:- in view of provisions of section 68 of the Act ,where any sum is found credited in the books of the assessee for any previous year the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the AO, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money. If he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee AO has act reasonably. The claim of withdrawal of amounts for purchasing plot of land at Surat and re-depositing the same in the bank a/cs.is not been supported by any plausible explanation. After considering the withdrawals made by the assessee, assessee did not have sufficient funds at the end of the AY. 2006-07, which could be deposited in the banks in the year under consideration. It is not correct that assessee had sufficient funds that were carried forward from the earlier AY and were deposited in the bank a/cs during the year under consideration - Following decision of Sumati Dayal Versus Commissioner of Income-Tax [1995 (3) TMI 3 - SUPREME Court] - Decided in favour of Revenue.
Income from House property - Addition on house rent - notional interest on interest free security deposit - if AO finds that the actual rent received is less than the "fair/market rent" because of the reason that the assessee has received abnormally high interest free security deposit and because of that reason, the actual rent received is less than the rent which the property might fetch, he can undertake necessary exercise in that behalf - High Court in the case of Commissioner of Income Tax Vs. J. K. Investors (Bombay) Ltd., [2000 -TMI - 14566 - BOMBAY High Court] categorically rejected the formula of addition of notional interest while determining the "fair rent" - Decided in favor of the assessee
Income from House property - whether the annual letting value fixed by the Municipal Authorities under the Delhi Municipal Authority Act can be the basis of adopting annual letting value for the purposes of Section 23 of the Act - Calcutta High Court in Satya Co. Ltd. (1985 -TMI - 60423 - ITAT CALCUTTA-C) that in such circumstances, the annual value fixed by the Municipal Authorities can be a rationale yardstick. However, it would be subject to the condition that the annual value fixed bears a close proximity with the assessment year in question in respect of which the assessment is to be made under the Income Tax laws - Held that: If the assessing officer can show that rateable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/ evidence placed on record - Following decision of COMMISSIONER OF INCOME TAX, Versus MONI KUMAR SUBBA & Miracle Exporters P. Ltd. [2011 (3) TMI 497 - DELHI HIGH COURT] - Appeal is dismissed.
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2013 (8) TMI 694
Notice issued u/s 148 - Transfer of a case - Jurisdiction to issue notice u/s 148 with AO Delhi or AO Kolkata - Validity of reopening of assessment - CIT sustained notice of reassessment - Held that:- After going through the provisions of sections 120, 124 and 127 of the Act, the plenary powers regarding conferment of jurisdiction has been vested, by delegation by the statute, on the Commissioner having jurisdiction in respect of assessment of the case. This power, in the absence of any prohibition or restriction, empowers the Commissioner of Income-tax to effect realignment of jurisdiction. The Commissioner of Income-tax by order or direction, while divesting these authorities of the power in respect of performance of their duties under the Act conferred earlier, may confer such jurisdiction to other authorities under the Act, as he may direct. As soon as such order or direction is made completely divesting the jurisdiction of the authorities so long so empowered, all proceedings including those which might arise thereafter, before them as also proceedings pending before them, come within the jurisdiction of the newly conferred authorities unless any specific provision is made in respect of any pending proceedings.
Such consequence is inevitable when there is withdrawal of jurisdiction, which means automatic extinction of jurisdiction of one authority with simultaneous conferment of jurisdiction on another authority under the Act in respect of all pending and future proceedings. Explanation to section 127 of the Act makes it clear that the word "case" in relation to any person whose name is specified in the order of transfer means all proceedings under the Act in respect of any year which may be pending on the date of the transfer, and also includes all proceedings under the Act which may be commenced after the date of transfer in respect of any year.
The word "case" is thus used in a comprehensive sense of including both pending proceedings and proceedings to be instituted in the future. Consequently, an order of transfer can be validly made even if there be no proceedings pending for assessment of tax and the purpose of the transfer may simply be that all future proceedings are to take place before the officer to whom the case of the assessee is transferred.
The order passed by CIT-1, Delhi, transferring jurisdiction from ITO, Ward-3(3), New Delhi on 04-01-2010, subsequent action of the AO i.e. ITO, Ward-3(3), New Delhi issuing notice u/s. 148 of the Act dated 25-03-2010 is invalid because the jurisdiction from ITO, Ward-3(3), New Delhi by CIT-1, Delhi to ITO, Ward-6(1), Kolkata. - Decided in favour of assessee.
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2013 (8) TMI 672
Surrender of Sale (income) - whether unaccounted sundry debtors are part of surrendered sale - Unaccounted sale and debtors - Search conducted u/s 132 of the Income Tax Act - Assessment u/s 153A of the Act - Held that:- The total amount of surrender was included in the income of assessee in its computation of income - The amount of Rs. 84.20 lacs is on account of outstanding debtors not recorded in the books of accounts - During search proceedings, the assesssee had surrendered a particular amount representing various undisclosed assets including sundry debtors of Rs.84.20 lacs. When all other undisclosed assets has been accepted as income for A.Y 2007-08, the Assessing Officer was not justified in splitting this particular asset on the basis of seized material – Also, Sh. Naveen Jindal had agreed that the amount of Rs.84.20 lacs was debtors out side the books of accounts on 15.01.2007 which was surrendered and was a part of total surrender of five crores – Appeal allowed – Decided in favor of Assessee.
Disallowance of telephone, car expenses etc – Held that:- No incriminating material was found in respect of such expenses which could enable the Assessing Officer to disallow a part of it during proceedings u/s 153A – Thus, relying upon the judgment in the case of Jai Steels India vs. CIT in [2013 (6) TMI 161 - RAJASTHAN HIGH COURT], it was held that in case of assessment u/s 153A, the completed assessment can be tinkered only on the basis of incriminating material found during search - Without any incriminating material Assessing Officer was not justified in making disallowance – Decided in favor of Assessee.
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2013 (8) TMI 671
Unexplained income - Father of the assessee Shri Lalta Prasad Garg has executed Will in favour of the assessee and other family members - Deceased father having jewellery with him and given the same to the assessee and other family members through Will - Sold the same jewellery to M/s. Kalicharan Durga Prasad of Gwalior - In the case of one of the family member Shri Rajan Garg, the AO did not make any addition in this case and accepted the claim of receipt of jewellery through the Will and receipt of sale consideration of the said jewellery - The purchase of jewellery by M/s. Kalicharan Durga Prasad is supported by bills and books of account who has also made statement before the AO for purchase of jewellery from the assessee and other family members - All the entries are recorded in their books of account – The above informations obtained from commercial tax officer, Gwalior u/s. 133(6) by the AO to show that the jewellery was purchased by M/s. Kalicharan Durga Prasad, which is also disclosed in the Sales Tax Return. Therefore, the purchase of jewellery from the assessee and their family members are not in dispute - The returned income of the purchaser has been accepted by the AO also – Held that:- Revenue has not produced any material to contradict the findings of facts recorded by the ld. CIT(A) - ld. CIT(A) on proper appreciation of evidences on record correctly deleted the addition of Rs.65,00,000/-.
As regards the addition of Rs.20,00,000/-, assessee produced agreement to sale dated 06.06.06 before the AO through which the assessee received advance of Rs.20,00,000/- from Shri Kaushal Kishore Pawaiya - Shri Pawaiya, admitted in his statement of giving of advance of Rs.20,00,000/- in cash to the assessee - Purchaser of the property has admitted giving of advance to the assessee – In case of doubt in the minds of the AO of execution of agreement to sale, no examination of the marginal witnesses who have signed the agreement to sale to find out the truth in the matter, was done – Also, Shri Kaushal Kishore Pawaiya has maintained regular books of account which were produced before the AO in which availability of Rs.20,00,000/- as cash with him have been specifically mentioned - Plot of land was available to the assessee for sale at the time of entering into agreement to sale - Authorities of the Revenue department have not asked the purchaser to prove source of the source. The purchaser also in his statement explained the reasons for giving the advance in cash to the assessee because he was not maintaining bank account for the last ten years - The assessee in view of the above facts and circumstances and evidences on record has been able to prove identity of the purchaser, genuineness of the transaction and the amount actually received from the purchaser as advance – Appeal allowed – Decided in favor of Assessee.
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2013 (8) TMI 670
Reference made to TPO by Assessing Officer – Whether Section 92C and 92CA of the income tax act are independent of each other – Held that:- Proceedings in both the sections are quite independent of and distinct from each other and the proceedings under section 92CA(1) of the Act are not dependent on the proceedings under section 92C(3) of the Act. This is due to historical reasons as two provisions were introduced at different times as noted above.
The expression "necessary" or "expedient" is quite distinct from and independent of the circumstances mentioned in section 92C(3). The Assessing Officer may consider it necessary or expedient to refer the case of the assessee to the TPO even without considering existence of circumstances mentioned in section 92C of the Act. The Assessing Officer has only to be satisfied that it is necessary or expedient to make a reference to the T.P.O. No other condition is prescribed in the provision - Assessing Officer would consider it "necessary" or "expedient" would depend upon facts of each case. No doubt, even in cases covered by section 92C(3) of the Act, the Assessing Officer may in appropriate cases consider it necessary or expedient to refer the case of the assessee to the TPO for determining the ALP but that does not mean that powers of the Assessing Officer to refer the case to the TPO is restricted to those cases which are covered by section 92C(3) of the Act.
Had the legislature contemplated to refer the case of the assessee to the TPO only in the circumstances mentioned in section 92C(3) then the legislature would have to provide such conditions in place of words "necessary" or "expedient" in sub-section (1) of section 92CA. The requirements under both the sections are quite distinct as procedure to be followed in the sections is different. In the above sub-section 92CA(1) there is no reference to section 92C(3) - The CIT(A) has emphasized on the words "the said international transaction under section 92C". These words, only refers to the transaction in respect of which reference can be made to the TPO but the same does not, lead to the conclusion that the requirement of section 92C(3) can be read into section 92CA(1) of the Act – The view of this court is relying upon the decision of the Hon'ble Delhi High Court in the case of Sony India (P.) Ltd. v. CBDT [2006 (10) TMI 88 - DELHI HIGH COURT] - Decided against the Assessee.
Companies having higher profits included in comparable for computation of Arm’s Length price - To include Gemini Communication as comparable - The objection against the Gemini Communication Ltd. was raised by the assessee on the ground that the said company is having a super normal profit at 28.07% – Held that:- Profit at 28.07% is not a super normal because the decision relied upon by the assessee in support of its contention are based on the fact where the profit of the comparable as noted by the Tribunal was ranging from 50% to 100% and in those circumstances the Tribunal held that the cases where exceptional profit has been earned and termed as super normal profit should be excluded from the comparables. Therefore, when the profit in case of Gemini Communication does not fall in the category of super normal then merely because of high profits margin cannot be a factor for exclusion from proposed comparables until and unless the extreme results of a case are as a result of exceptional conditions exist.
Even as per OECD TP guidelines, the extreme results might consist of losses or unusually high profits itself cannot be a factor for potential comparables; but further examination would be needed to understand the reasons for such extreme results. If some reasons are detected which indicate a defect in the comparability or exceptional conditions for such an extreme results, then only the case may be excluded from the proposed comparables.
Exclusion of Punjab Communication Ltd. from the list of comparables for computation of Arm’s Length Price – Held that:- The said company is a persistent loss making company - For the last four years this company has been consistently suffering loss - The persistence loss from year after year itself shows existence of exceptional and extreme circumstances and therefore is a good reason for exclusion of the company from comparables. There is a consistence view of this Tribunal on this point that a company showing persistent losses from year after year cannot be considered as a good comparable for the purpose of determination of ALP.
Use of multi-year data for selecting comparables – Held that:- Data relating to the financial year in which the international transaction has been entered into to be used for computation of Arm’s Length Price - It is stipulated under Rule 10B(4) r.w.s Rule 10D(4) that contemporaneous information and documents should be considered as far as possible for the purpose of comparing uncontrolled transaction with the international transaction. Therefore, the comparability of an uncontrolled and unrelated transaction with the international transaction has to be tested by using current year data. Only when the current year data does not give a true picture of the affairs and results of the comparables due to existence of some abnormal circumstances, the multi year data can be considered.
Use of data by the TPO after the cut off date – Held that:- There is no infirmity in the action of the TPO in using contemporaneous data at the time of transfer pricing audit, though the same may not have been available to the assessee at the time of preparation of statutory transfer pricing study / documentation
Benefit of proviso to section 92C(2) of the Income Tax Act – Held that:- The benefit of proviso to section 92C(2) is available only when the price of international transaction of the assessee is within the tolerance range of ±5% of the ALP computed by taking the arithmetic mean of more than one price - Benefit under the proviso to section 92C(2) is available only as a tolerance range and not as a standard deduction. Accordingly, allowed the benefit of the proviso if the prices of the international transaction of the assessee are within the tolerance range of ±5% of the arithmetic mean of more than one comparable prices.
Effect of financial results on TPA – Held that:- Under the Transfer Pricing regulation/provisions the testing party is the assessee and the international transaction entered into by the assessee has to be tested by comparing the same with uncontrolled, unrelated comparable transaction - Price of international transaction in the hand of the AE of the assessee is absolutely irrelevant. The concept of Transfer Pricing based on the principle that instead of entering into a transaction with related party if the assessee had entered into a similar transaction with unrelated party what would have been the prices of said transaction between the assessee and unrelated party. The comparison is always in the context of the effect of the related party transaction and unrelated party transaction at the hand of the assessee. Therefore, the financial results of the AE are not at all relevant for the purpose of determination of arm's length price in relation to the international transaction entered into by the assessee. - Decided against the assessee.
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2013 (8) TMI 669
Book profit adjustment - MAT u/s 115JB - Addition made by the A.O. for calculating the book profit being the provision for retirement benefits – Held that:- Clause (f) in Section 43B of the Act. As per this clause (f), the expenses of leave encashment are allowable on an actual payment basis. No corresponding amendment, however, was brought about in Section 115JB of the Act, with the result that the provisions for expenses accrued and ascertained shall be allowed while computing book profits under MAT - Computation of retirement benefits, having been made on the basis of actuarial valuation, is based, undoubtedly, on a scientific basis - Ld. CIT (A) has correctly held that the provision for retirement benefit, as duly certified by the actuarial valuation, cannot be treated as a contingent or unascertained liability and it is a definite liability in present, which is to be discharged at a future date - Decided in favor of Assessee.
Computation of Transfer price on comparables - Apropos Phoenix Lamps was situated in an SEZ and it was enjoying certain benefits and was, thus, in more advantageous position as compared to the assessee – Held that:- Phoenix were to be retained as a comparable, certain adjustments were required to be made to its statistics – There are remaining three comparables, i.e., Indo-Japan Lightings, Fiem Industries Ltd. and Jagan Lamps Ltd. - The PLI’s of these comparables were 8.1%, 2.69% and 1.91% respectively, amounting to a total of 12.77%. - Average PLI of these comparables at 4.26%. The assessee’s margin, at 6.5%, it is seen, is higher than the above average PLI of 4.26% and the assessee’s margin, therefore, does not call for any adjustment on account of ALP concerning royalty payment on purchase of raw material - The CIT (A)’s order in this regard is found to be fully justified as against that of the TPO, who initially observed that an FAR convergence was mandatory and then, simply rejected the comparables on the basis of turnover, without checking out the FAR convergence, and thereafter, chose a single comparable which too (according to him) was not comparable to the assessee company, which observation has correctly been subverted by the Ld. CIT (A) - Since Phoenix Lamps, as found by the Ld. CIT (A), was operating in an SEZ, it, in order to be retained as a comparable, would have required adjustments to be made for the purpose, which, undeniably, was not done by the TPO. As such, Phoenix was rightly rejected as a comparable by the CIT (A). Even otherwise, undisputedly, the product manufactured by Phoenix is entirely different from that produced by the assessee. Whereas the assessee manufactures the complete lamp, i.e., the full lighting assembly or headlight/tail-light used in automobiles, Phoenix is making only the bulb contained therein - Phoenix nowhere qualifies as a ‘comparable’ to the assessee.
Adjustment in the Arm’s Length Price – There is agreement between the assessee and Stanley - Assessee was into a commercial relationship with Stanley and the expatriate engineers had been sent to ensure that the technology supplied was properly applied – Held that:- Mere obtaining of moulds, designs and drawings could not lead to disallowance of the royalty payment, since the technology for use thereof was what required the payment of royalty; that from the fact that the assessee’s turnover had increased over the years and that the assessee was establishing its own R&D Centre and thereby trying to absorb the technology the company received from its AE, went to show that it could not be said that there was no transfer of intangible, or that no technology had actually been received, or was required to be received.
Since Phoenix Lamps was an entity situated in an SEZ, enjoying certain benefits, being in an advantageous position as compared to the assessee, if it were to be retained as a comparable, certain adjustments were required to be made to it; that in Assessment Year 2006-07, the TPO had himself rejected Phoenix Lamps as a comparable; that so, Phoenix Lamps was being rejected as a comparable; that the remaining three comparables gave a PLI of 6.07% on the current year’s basis; and that the assessee’s PLI was at 6.50% and so, no adjustment was required to the arm’s length results - CIT (A) has correctly deleted the addition made – Decided against the Revenue.
Expenditure on account of foreign tour of the Director of the assessee company - Assessee’s Director, Shri D.K. Jain had incurred an expenditure of ₹ 1,11,497/- on his visit to the USA on 15.08.2003 and that of ₹ 1,47,937/- on his visit to Dubai on 01.10.2003 – Contended by Revenue that no import from the two countries, there was no business connection and the expenditure incurred was not commercially expedient- Held that:- As per Section 37(1) of the Act, it is not necessary that the incurrence of the expenditure should always result in earning of profits and it can be for any purpose, even incidental or ancillary to the business, for which the expenditure may have been incurred, in order to be allowable under the provision – Expenditure allowed – Decided against the Revenue.
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2013 (8) TMI 668
Rectification of mistake - Tribunal directed AO to recalculate interest u/s 234A, 234B and adjustment of seized amount with advance tax - A.O. failed to follow direction - Held that:- There is no mistake in the said order of the Tribunal, warranting any rectification, as the Tribunal made it amply clear and gave direction that seized amount has to be adjusted first towards existing liabilities and thereafter it should be adjusted towards the outstanding tax liability of the assessment years under consideration, and accordingly directed the Assessing Officer to recalculate the interest under S.234A and 234B of the Income-tax Act. It clearly means that if there is no exiting tax liability at the time of seizure of the cash, the seized amount should be adjusted towards payment of advance tax in terms of judgments cited by the assessee, noted above.
When once the Tribunal decides an issue in one way, the only course available to the Assessing Officer is to follow the order of the Tribunal in true spirits, and it is not permissible for the Assessing Officer to take a different view, or to sit in judgment over the order of the Tribunal by interpreting the same in the manner he wanted - while there is no warrant for rectification of the order of the Tribunal, in the absence of any specific mistake therein, and the grievance if any to the assessee, arises out of the consequential orders passed by the Assessing Officer - Decided against the Assessee.
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2013 (8) TMI 667
Re-opening of Assessment under section 147 of the Income Tax Act - Assessing Officer granted additional depreciation in the regular assessment and also agreed for deduction u/s. 80HHC on DEPB entitlement – Held that:- Thereafter, assessing Officer not came in to possession of any tangible fresh material to come to the conclusion that the deduction granted to the assessee in respect of additional depreciation and 80HHC deduction in respect of sale proceeds of DEPB entitlement is incorrect - There is no dispute that the assessee furnished full details in the original return of income and there is only change of opinion and the Assessing Officer did not demonstrate what material came to his knowledge for reopening the assessment which was not available at the time of completion of regular assessment – Relying upon the Apex Court judgment in the case of CIT vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA ], it has been held that reopening of assessment is not in accordance with law – Decided in favor of Assessee.
Availability of Additional depreciation u/s 32(1)(iia) – Held that:- Relying upon the judgment in the case of ACIT vs. SIL Investment Ltd. [2012 (6) TMI 83 - ITAT DELHI], eligibility for additional depreciation stands admitted
Profit element of DEPB can be reduced from the export profits for the purpose of working out the deduction u/s. 80HHC – Held that:- It is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Explanation (baa) to section 80HHC read with the words used in clauses (iiid) and (iiie) of section 28; the assessee was entitled to a deduction under section 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee – Appeal allowed – Decided in favor of Assessee.
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2013 (8) TMI 666
Valuation of closing stock - The Hon'ble ITAT set aside the order of Ld CIT(A) with the directions to the assessee to submit the required information so as to arrive at the correct valuation of stock. However, the assessee did not file the required information. Therefore, the Assessing Officer made fresh assessment on the basis of earlier addition which was earlier made by the Assessing Officer by adopting GP rate - ITAT has held that at best the valuation could have been made by the Assessing Officer at Rs.1,29,28,299/- and not more than it as the method of valuation adopted by the assessee was cost or market price whichever is lower - CIT(A) has done the same and has taken this valuation to arrive at the disallowance. The Ld CIT(A) while taking this figure has ignored the discount of Rs.15,42,378/- as claimed by assessee in original assessment proceedings – Held that:- Had the assessee furnished break up of age- wise stock, the disallowance would have been less than this figure or at the most equal to Rs.15,42,378/- as Ld CIT(A) has taken full cost price of stock as on 31.3.1996 which was also the observation of ITAT. – No infirmity in the order of CIT(A) – Decided against the Revenue.
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2013 (8) TMI 665
Bank branch classification as ‘Rural’ or ‘Urban’ – Classification as per RBI guidelines or Income Tax provisions - Overriding effect - Writing off bad debts under section 36(1)(viia) – Held that:- The Reserve Bank sanctions branches on different classifications, like rural, urban etc. In respect of the branches disputed in this case, permission of the Reserve Bank have been obtained by the assessee bank of the status that all branches are rural branches. Therefore, it is to be seen that according to banking norms, the disputed branches are rural branches. Now, this position has to be examined in the light of the Income Tax law. Income Tax law provides that a rural branch means a branch in a place where the population is less than 10,000 - Apropos the urban branches, writing off of bad debt, the assessee is eligible to write off of bad debt u/s 36(1)(viia)
A place includes a ward of a Gram Panchayat whose population is less than ten thousand and which may be a part of a panchayat whose population may be more than ten thousand as per 1990-91 census, provided the ward branch is notified as a rural branch by RBI. - the RBI Circular produced before us pertained to 3-6-2003. Ld. Counsel contends that similar panchayats have been named in licenses issued in earlier years also. - the issues are decided on principle but restored back to the file of assessing officer for verification.
Deduction of Bad-debts - Loan was given to Asia Pacific Investment Trust by consortium headed by SBI and assessee contributed a part of it – Held that:- The banking practice of advancing moneys to NBFC without taking any collateral security which was part of the loan policy and financing of the consortium becomes a business decision. Further, after the said trust went into liquidation and advance became irrecoverable, the RBI directed the assessee to write off the same as bad debt - A bad debt cannot be refused merely because of assessing officer's perception collateral securities should have been taken – Decided in favor of Assessee.
Revaluation of securities holding it to be a notional loss – Held that:- Securities held by the assessee bank in all these cases are the stock-in-trade of the business of the assessee banks and the notional loss suffered on account of the revaluation of the said securities at the close of the year is an allowable deduction in the computation of the profits of the appellant
Disallowance of expenses on modification in respect of Ahmedabad branch of the Bank, the assessee took premises on rent at Ahmedabad for a period of three years and made certain modifications to suit its requirement – Held that:- Structures were temporary in nature. The lease was only for a short period of three years and the structure was to be demolished thereafter. The temporary structure was created to increase the efficiency of the place and to suit to the assessee's banking needs - Expenditure incurred was qua the income generating apparatus of the assessee. In such eventuality the theory of enduring benefit also does not apply. Therefore, the expenditure is revenue in nature - Ground of the assessee is allowed – Decided in favor of Assessee.
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