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Income Tax - Case Laws
Showing 301 to 320 of 585 Records
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2013 (9) TMI 602
Allowance of depreciation - depreciation on toll road as building - ownership of the assets - Held that:- Assessing Officer while framing original assessment has raised this issue, but learned counsel for the assessee categorically stated that this toll road was constructed on B.O.O.T basis, i.e., means 'build', 'own', 'operate' and 'transfer'. According to him, the entire responsibility for maintaining and operating this toll road for 31 years is on the assessee as he has to collect toll-fee. Once this concept of B.O.O.T has been accepted by the Government of India under infrastructure policy and the Government of Gujarat also entered in a joint venture with the assessee and formed the SPV, the question of ownership rest with the assessee for the purposes of claim of depreciation. Accordingly, this issue on merits is allowed in favour of the assessee." Considering the above decision of the Tribunal, the learned Commissioner of Income-tax (Appeals) has allowed the appeal of the assessee in its favour. In these circumstances, we do not find it necessary to interfere with his order - Decided against Revenue.
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2013 (9) TMI 601
Revenue appeal - tax effect is below 2 lakhs - whether maintainable Held that:- the appeals of the Department for the assessment years 2002-03 to 2004-05 are liable to be dismissed in limine, but we observe that the facts and the issue involved in the appeals for the assessment years 200203 and 2003-04 are inter-linked with the appeals for the subsequent assessment years, viz., the assessment year 2005-06 and the assessment year 2006-07. Therefore, it is necessary to decide the issue involved in the appeals for the assessment year 2002-03 as well on merits instead of dismissing the appeal in limine. Decided in favor of revenue.
Disallowance of depreciation on the inflated price of windmill - Disallowance of depreciation of ₹ 9 crores considering the cost of per windmill as inflated by Rs. one crore considering the cost of per windmill of other buyers Held that:- Reliance placed on the cost price of windmill installed by M/s. Savita Chemicals Ltd. , i.e., the assessee as well as M/s. Savita Chemicals Ltd., have installed windmills on identical models at the same site and having many matching parameters. Considering the above facts, the assumption made by the Assessing Officer that the assessee inflated the cost price at Rs. one crore per windmill is not based on evidence and/or cogent material but is based on assumption and surmises - If the Assessing Officer wants to change the cost price, the onus is on the Assessing Officer to bring on record the relevant documents that price as shown by the assessee is not the actual price Commissioner of Income-tax (Appeals) has rightly held that disallowance of depreciation of ₹ 9 crores in the assessment year 2002-03 on the presumption that there was inflation in the purchase price at Rs. one crore per windmill is not justified Decided against the Revenue.
Excessive lease rent paid by the assessee to be disallowed Application of section 40A(2) of the Income tax act - Held that:- IREDA had financed the said project and the lease rents payable by the assessee to M/s. Weizmann Ltd., has been structured taking into consideration the instalment of principal and interest payable to IREDA by M/s. Weizmann Ltd - Lease rents paid by the assessee is based on lending rates of the financial institution, namely, IREDA - Assessee had made payment of lease rent by account payee cheque to the lessor, i.e., M/s. Weizmann Ltd which had accounted for the same in its books of account - Nothing on record to prove that there was excessive payment of lease rents by the assessee Decided against the Revenue.
Adjustment in the book value Disallowance of depreciation Held that:- Sub-section (2) of section 115JB of the Act provides the situation in which the Assessing Officer can make adjustment to the book profit - Considering the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002 (5) TMI 5 - SUPREME Court], disallowance of depreciation made by the Assessing Officer of ₹ 31,68,000 in each of the assessment year under consideration is not justified Decided against the Revenue.
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2013 (9) TMI 600
Disallowance of non-compete fees - Capital or revenue expenditure - Deferred revenue expenses - Purchase of Merchant Banking Division - Held that:- non-compete agreement was valid for a period of three years which in our view has to be considered as sufficient length of time to treat the expenditure as capital in nature. The protection acquired by the assessee from competition was not part of the working of the business and went on to appreciate the whole of the capital amount as held by the hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. [1954 (11) TMI 2 - SUPREME Court], and, therefore, on that ground also it has to be treated as capital in nature. Therefore, we hold that expenditure has to be disallowed as capital expenditure - Decided against Assessee.
Disallowance of SEBI fees - Fees paid on pro rata basis - Held that:- The assessee had paid a sum of ₹ 5 lakhs to the SEBI for granting registration for a period of three years to enable the assessee to perform certain stipulated functions. The Assessing Officer held that the expenditure was for smooth running of the assessee and was allowable as revenue expenditure but since benefit was for three years, he allowed expenditure on pro rata basis only for one year. - There is no provision in the Income-tax Act for amortisation of such expenditure. Therefore, once the expenditure has been found allowable as revenue expenditure, the same has to be allowed in full - Decided in favour of assessee.
Disallowance of service tax - Section 43B - Held that:- the same issue has already been considered by the Mumbai Bench of the Tribunal in case of Pharma Search [2012 (5) TMI 90 - ITAT MUMBAI] - as per service tax law, service tax is payable as and when the payment/fees for underlying services provided are realised. Therefore, if for any reason the payment for service rendered is not realised, there is no liability as to payment of service tax. - As the assessee had not realised any payment for services during the relevant year, it had no liability to pay service tax and once there was no liability for payment of service tax, the provision of section 43B were not applicable as the said provisions can be applied only if any liability has been incurred on account of service tax during the year. The addition made was, therefore, deleted. - Decided in favour of assessee.
Disallowance of depreciation - Payments made under the transfer of business agreement - Held that:- It has not been explained before us as to why the assessee would pay for rules and regulations and procedures which are available in the market and, therefore, we have to conclude that the payment of ₹ 25 lakhs had been made for the transfer of business and contracts including clients and client relationship which cannot be considered as know-how. The Commissioner of Income-tax (Appeals) has not accepted the finding of the Assessing Officer that payment was for goodwill nor any material has been produced before us to show that any part of the payment related to acquisition of goodwill. the payment was for transfer of business and contracts including clients and client relationship which in our view is not an intangible asset as defined in section 32(1)(ii) on which depreciation can be allowed - Decided against assessee.
Depreciation on the non-compete fee - Held that:- by obtaining non-compete right on payment of noncompete fee, the assessee can run his business without bothering about competition and, therefore, non-compete right was an intangible asset falling in the category of any other business or commercial right under section 32(1)(ii) - depreciation will be allowed to the assessee on the non-compete expenditure incurred by it - Following decision of Real Image Technologies (P.) Limited. Versus Assistant Commissioner Of Income-Tax [2008 (2) TMI 490 - ITAT MADRAS-B] - Decided in favour of assessee.
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2013 (9) TMI 599
Addition on account of unaccounted profit earned from the undisclosed purchases and sales Assessment u/s 153A - Held that:- Reliance has been placed upon the assessees own case for the A/Ys 2001-02 to 2004-05 On account of undisclosed purchases, Commissioner(A) has held that evidence found at the premises of Mr. Prem Kumar Arora cannot be taken as any basis to hold that the assessee made unaccounted purchases - Seized paper does not contain any name of the appellant - Neither in the statement, Mr. Prem Kumar Arora has alleged that such transactions pertained to the appellant - It is well settled position of law that document found from the third person cannot be applied against the appellant and the burden lays upon the Department to show that same reflects transactions of the appellant company. Reliance is placed on the judgment in the case of Sukhdayal Rambilas v. CIT reported in [1982 (1) TMI 49 - BOMBAY High Court] wherein it has been held that what is apparent is not real, the burden to establish this is on the person who alleges this - Since the issue in the assessment years 2005-06, 2006-07 and 2007-08 is identical to that of the earlier assessment years, respectfully following the decision of the Income-tax Appellate Tribunal, additions made by the Assessing Officer are deleted.
Addition on the ground of undisclosed speculation business income Held that:- During the course of search, no evidence was found to the effect that the assessee-company was engaged in speculative trading in agricultural commodities - On birthday of Mahashaya Dharam Pal Gulati, gold chains are distributed to the dealers, who achieve certain targets. For this purpose the assessee had purchased gold and alloy and got them converted from the jeweller, namely, Vijay Kumar Jewellers. The assessee had regular account with him for manufacturing of gold chains - The expenditure incurred by way of making charges as well as purchase of gold is reflected in the books of account This transaction can not be treated as speculation transaction - The assessee is not engaged in purchase and sale of gold on the basis of which it could be presumed that the asses- see was engaged in speculative business No evidence was brought on record Decided in favor of Assessee.
Disallowance of 20% of advertisement expenses - The Assessing Officer disallowed the expenditure on the ground that an attempt has been made by the company to promote Shri Dharam Pal Gulati and not the product Held that:- Had the assessee engaged a big celebrity for promotion of its products, the assessee would have incurred huge expenditure and that would have been allowed in full by the Assessing Officer. The expenditure has been incurred on promotion of the product - Merely because Mr. Dharam Pal Gulati name comes to prominence, it cannot be said that the expenditure was not incurred for the purpose of business Decided in favor of Assessee.
Addition because of inflation of purchase price of raw-materials Held that:- No such evidence during the course of search was found from the possession of the assessee indicating that actual beneficiary of over invoicing was the assessee - Since the addition has been made in the hands of Shri Sushil Kumar, no disallowance to that extent could be made in the hands of the assessee No addition need to be made Decided in favor of Assessee.
Addition on account of arms length price Addition made at average rate in the absence of comparables in the public domain Held that:- Arm's length price cannot be determined without proper comparables - Nearly similar types of spices, condiments and their mixtures are sold by other brands like, Everest Masala, Ramdeo Masala, Ashok Masala and other manufacturers, therefore, there is no absence of comparables - In 2012, public domain comparables should be abundantly available - Set aside the transfer pricing adjustments to the file of the Assessing Officer to undertake the same afresh in accordance with law Decided in favor of Assessee for statistical purpose.
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2013 (9) TMI 598
Selling and distribution expenses - Disallowance in regard to partners remuneration AO disallowed the expenses as higher in comparison with another company SPIL - Held that:- the total percentage of expenses during the impugned year is higher than expenses of SPIL inspite of the fact that there is difference between nature of business carried on by the assessee and that of SPIL as pointed out by the ld. counsel for the assessee..
Selling and distribution expense has to be considered while taking both the components i.e. expenses directly incurred and remuneration paid to working partner (SPIL) for using inter-alia marketing and distribution set up - Book results are duly audited has neither been rejected nor any deficiency was found by the lower authorities. It was also argued there cannot be any assessment of expenses on notional or assumption basis - Disallowance on selling and distribution expenses made by the AO is not justified Decided in favor of Assessee.
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2013 (9) TMI 597
Allowability of interest expenditure Business nexus of the amount borrowing Amount borrowed to be utilized in the business of the assessee - Assessee had maintained cash balances at its several branches being in angadia business Held that:- Reliance has been placed upon the judgments in the cases s.a. Asst.CIT vs. M/s.Patel Ambalal Hargovandas & Co [2013 (9) TMI 594 - ITAT AHMEDABAD] ACIT vs. Shri Vasantlal Ambalal Patel [2013 (9) TMI 593 - ITAT AHMEDABAD] - It was alleged by the Revenue Department that the borrowed money was kept as cash in hand and borrowed money was not in fact utilised for the purpose of the business - It could be a possibility that the assessee might be imprudent in holding large amount of cash but when this act of the assessee is to be visualized vis-ΰ-vis the business activity, then the allegation of the Revenue Department appears to be a conjuncture. Otherwise also, the outstanding cash is nothing but a business asset of the assessee. There is nothing illegal to maintain cash at various branches - It was not objected by the AO that claim of expenditure was not genuine - No fallacy in the view taken by the ld.CIT(A) that merely because the assessee had maintained cash balances at its several branches being in angadia business should not be a cause of disallowance of interest on borrowed funds Decided against the Revenue.
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2013 (9) TMI 596
Transfer pricing adjustments - ALP - Violation of Rule 10B(1)(a) - Determination of arm's length price - Internal Comparable Uncontrolled Price - CIT upheld adjustment made by TPO - Held that:- method upheld by the CIT(A), for the purposes of ascertaining ALP, is Internal CUP, but then the application of this method is clearly incorrect inasmuch as any application of any CUP (Comparable Uncontrolled Price) method involves dealing with prices of a product not the profit margin earned thereon - even in the case of 'internal CUP', the arm's length price to be adopted is the price, subject to admissible adjustments, at which the similar transactions are carried out between the assessee and an independent enterprise. Internal CUP has nothing to do with the margins earned by the same enterprises from other transactions - Following decision of Technimont ICB Pvt Ltd v Additional Commissioner of Income Tax [2013 (9) TMI 595 - ITAT MUMBAI] - Decided in favour of assessee.
Binding nature of earlier ITAT decision - Division bench decision in Bayer Material Science Pvt Ltd v. Additional Commissioner of Income Tax (2011 (12) TMI 393 - ITAT MUMBAI) or Third member decision in Technimont ICB Pvt Ltd v Additional Commissioner of Income Tax (2013 (9) TMI 595 - ITAT MUMBAI) whereas the judicial member in the Bayer case is the third member in the ICB case - Held that:- As far as the question of binding nature of these judgments is concerned, there does not seem to be much dispute on the proposition that a Third Member decision overrides the decision of a division bench and has a greater binding force. It has the same precedence value as that of a special bench. Elaborating this principle, a special bench of this Tribunal, in the case of DCIT v Oman International Bank SAOG (2006 (5) TMI 117 - ITAT BOMBAY-H), that a Third Member decision is defacto a decision of larger bench, and , in coming to this conclusion, the Special Bench was guided by Hon'ble Delhi High Court's judgment in the case of PC Puri v. CIT (1984 (2) TMI 48 - DELHI High Court).
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2013 (9) TMI 595
Transfer pricing adjustments - ALP - uncontrolled transaction - Comparables relied on by the assessee differ in their risk and functional profile from that of the assessee and thus cannot be accepted as comparable Held that:- What is an "uncontrolled transaction" has been clearly defined under rule 10A(a) to mean "a transaction between enterprises other than associated enterprises whether resident or non-resident". A plain reading of the meaning given to the expression "uncontrolled transaction" leaves no room for any doubt that it is a transaction between two non-associated enterprises. If the transaction is between two associated enterprises, it goes out of the ambit of "uncontrolled /transaction" under rule 10A. When section 92C is read along with rules 10B(e) and 10A, it becomes abundantly clear that in computing the arm's length price under the transactional net margin method, a comparison of the assessee's net profit margin from international transactions with its associate enterprises has necessarily to be made with that of the net profit margin realised by the same enterprise or an unrelated enterprise from a comparable but definitely uncontrolled transaction, i.e., a transaction between non-associated enterprises.
The arm's length price can be determined only by making comparison with a comparable uncontrolled transaction and not a comparable controlled transaction.
Internal comparable, being the subsidiary company of the assessee company, be taken as comparable for computing the ALP for an international transaction Held that:- Arm's length price represents the true value of transaction or profitability as will be there in the ordinary course without having any regard to the relationship between the concerns - Arm's length price of the transaction or the arm's length profit cannot be considered as benchmark for the purposes of making comparison in other cases Legislature restricted the ambit only to uncontrolled transactions for computing the arm's length price in respect of international transactions between two associate enterprises - The basic purpose behind the transfer pricing provisions is to ensure that the multinational companies do not arrange their intra group cross border transactions in such a way as to reduce the incidence of tax in India. A multinational company, having concerns across the world, may resort to pricing the intra group transactions in such a manner that lower income gets offered in countries with high tax rates and higher income gets reflected in countries with lower tax rates, so that its overall tax liability is shrinked.
Net profit margin realised from a transaction with an associate enterprise cannot be taken as a comparable being internal comparable for computation of the arm's length price of an international transaction with another associate enterprise even though the net margin from a transaction with associate enterprise is found and accepted at the arm's length price Therefore, M/s. ICBC, a wholly owned subsidiary of the assessee are dismissed as comparable for computing price for international transaction.
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2013 (9) TMI 594
Disallowance of Interest because the money borrowed is being used in the non-business purpose Held that:- The nature of business shown by the assessee is transfer of parcels and cash from one place to another. If for certain unavoidable circumstances like delay in transportation on account of cancellation of trains or other problems not in the control of the assessee, the assessee was not able to make delivery of the cash then cash lying with it, is utilized for delivery back and to fulfill its commitment. The assessee is himself to judge about the requirement of cash in his line of his business. Even otherwise cash balance is fully covered by partners capital and, therefore, there is no reason to disallow a part of interest payment - Assessee discharges the onus then for making disallowances it is for the AO to produce evidence to show that money borrowed was utilized for nonbusiness purposes - There is no material on record to show that money borrowed was utilized for non-business purposes the disallowance of interest cannot be upheld Decided against the Revenue.
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2013 (9) TMI 593
Disallowance of Interest on the ground that there is huge cash balance and the borrowed money is utilized for the non-business purpose Also, alleged that part of business is illegal business Held that:- The assessee carried out only one business of Angadia and from such composite business, profit/loss is worked out in the respective years and the AO himself has treated the business of the assessee to be one business Presumption of A.O. is that part of business is illegal business and part is legal business - However, fact on record remains that there is only one business of the assessee, part of which is not held to be illegal either by IT department or by any other government agency.
Interest payment is allowed as a business expenditure Decided against the revenue.
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2013 (9) TMI 573
Disallowance of Village Development Expenses - The village roads, assistance to schools, contributions to local festivals and other village activities surrounding the factory of the assessee was meant to include within its fold to crate expression of care and concern for the society at large and the people of the locality in which the business of the assessee was located in particular, thereof creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill - Therefore, the said expenditure in view of the decision of CIT v. Madras Refineries Ltd.[2003 (11) TMI 47 - MADRAS High Court] - Therefore we find no infirmity in the order of Ld. CIT(A) - Decided against Revenue.
Disallowance of Contribution made to Refrigerant Gas Manufacturer Association (REGMA) - Held that:- Whatever name called the amount was collected for the purpose of defraying expense of the association - The assessee had no right to any of the sums - No capital asset was being build up in the association from which the assessee can derive any benefit - Therefore, such payment had to be treated as expenditure in the line of business and deductible u/s. 37(1) - It was not the AOs contention that relevant services were not rendered or that there was any other motive for making such payment - In the circumstances and facts, we find no infirmity in the order of Ld. CIT(A).
Disallowance of Professional fees - The expenditure either falls u/s 14A or was incurred for earning income taxable under the head capital gain - assessee claimed exemption u/s Section 28(va)(ii)- Held that:- Disallowance of professional fees paid as consultancy fees for investment advisory services - the assessee company has invested in fixed assets, debentures, advances, ICD and bank deposits, immovable property and shares and mutual funds etc and therefore, it cannot be said that the services rendered by these two persons is in respect of investment in shares - no income is reported by the assessee under the head income from other sources being on account of investment other than investment in shares for which this payment of professional fee was said to have been paid by the assessee - Following the decision of Assesse's own case [2012 (8) TMI 37 - ITAT, AHMEDABAD] the entire payment of professional fee has to be considered towards earning of dividend income in the absence of any other income from any other investment being shown by the assessee - Decided against Assessee.
Reduction of Export Turnover - Deduction u/s 80HHC - The claim of shortage was further paid as compensation which makes the cost of exports higher, but actually does not reduce the export turnover - This was a normal business practice in all trades where shortage in handling was compensated by payment, but does not mean that goods were not cleared or payment not received for the full amount of export turnover.
Disallowance of Extension of Time for Construction of Building - The deferment of the construction plan was for various commercial reasons - It was also evident that if this requisite fee was not paid the allotment of the land may stand cancelled - This clearly established that this amount was paid for retaining the title of the land or either to protect the title of the land - In these circumstances, the amount paid to the authorities was capital expenditure and accordingly, it had to be capitalized with the cost of the asset - Thus, we are in conformity with the orders of the revenue authorities and dismiss this ground raised by the assessee.
Inclusion of Sales Tax and Excise Duty in total turnover for the purpose of computation of deduction u/s 80HHC - Held that:- As decided in Commissioner of Income-Tax Versus Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME COURT] excise duty and sales tax were includible in the "total turnover", which was the denominator in the formula contained in section 80HHC(3) as it stood in the material time - direction of CIT(A) for excluding it thus warranted - Decided in favour of Assessee.
Disallowance of Dividend Earned - Deduction u/s 80M - Allocation of expenses to an activity was a primary principle to determine the correct income of the assessee which may be sometimes cumbersome, however, inevitable - The assessee ought to have allocated its expenses for earning the dividend income which it failed to do so - Therefore, the revenue had no other option but to make an addition on estimate basis = The learned CIT(A) was gracious to reduce the disallowance from 10% of the dividend earned to 3% - Considering the facts and circumstances of the case and in the interest of justice and equity, we are of the opinion that such disallowance of 1% on the dividend earned will suffice. Accordingly, this ground raised by the assessee was partly allowed.
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2013 (9) TMI 572
Disallowance of Freight Charges - hire of trucks - CIT(A) has reduced it to 20% of 5% i.e., 1% which is in proportion to non- confirmation letters to total confirmation letters called for. Being so, the CIT(A) considered the disallowance at 20% of 5% = 1%. Admittedly, the Department not carried on detailed enquiry. There was enquiry on random basis. Considering the result of random enquiry, the CIT(A) sustained disallowance of 20% of the disallowance made by the AO. - Held that:- this kind of approach to disallow an expenditure cannot be sustained in its entirety. The Department is not disputing incurring of expenditure and, on the other hand, only disputing the quantum of expenditure - in this case the inflating of expenditure by the assessee cannot be ruled out. Considering the entire facts and circumstance of the case and chances of inflating the expenses by the assessee, to meet the ends of justice, we are inclined to sustain disallowance to the extent of non-confirmations from 37 parties in A.Y. 2008-09 and 8 parties in A.Y. 2009-10. - Decided partly in favor of assessee.
Decisions in the case of Sassoon J. David & Co. Ltd. Vs. CIT [1979 (5) TMI 3 - SUPREME Court ] and CIT v. Goodlass Nerolac Paints Ltd. [1990 (8) TMI 72 - BOMBAY High Court] followed.
Disallowance of Commission Held that:- The commission paid for earlier assessment years and the commission paid by similar companies in similar circumstances and reasonableness of the payment can definitely quantify the excessive payment of commission at 15% of the total commission paid by the assessee for these assessments years under consideration before us - This disallowance at 15% of total commission paid by the assessee would meet the ends of justice - the assessing officer to disallow only 15% commission paid the assessee as excessive in these assessment years as inadmissible - the disallowance at 15% on cash payment of the commission and the payments by crossed cheque/DD shall not be considered for disallowance.
Disallowance of Fixed En-Route Expenses - Held that:- Toll tax payment and payments to RTAs cannot be doubted - The assessee had furnished break up of these expenses - The other expenses like payments to local vehicle owners associations/ local drivers, spares and repairs expenses, there cannot be 100% foolproof evidences to support these payments - It was impossible to expect from the drivers and conductors foolproof supporting evidences and vouchers - it was appropriate to disallow 15% of these two expenses Following CIT vs. Swaminarayan Vijay Carry Trade (P) Ltd [2013 (6) TMI 50 - GUJARAT HIGH COURT ] - The hiring of the trucks was also correlated to the actual trips made - These details were meticulously given in supporting vouchers - It would be appropriate to point out that disallowance of this expenditure was not made at least in the preceding 10 years prior to assessment year 2008-09 and also in the subsequent assessment years 2010-11 after full enquiry - There cannot be any disallowance for assessment year 2008-09 and 2009-10.
The expenditure was incurred while transporting the goods from one place to another place by the drivers - These expenses were incurred in cash - While transporting the goods by road, no one can make payment by cheques, as the same were enroute expenses while transporting the goods by road - These payments include toll tax, payments to different RTAs of the States, payments to local vehicle owners associations, spares and repairs expenses Decided partly in favour of Assessee.
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2013 (9) TMI 571
Reassessment u/s 147 - Notice u/s 148 after the expiry of four years - failure to respond to a notice u/s 142(1) - According to the petitioner, this alleged reason to believe is based upon the order of Assessment for the Assessment Year 2008-09 where the TPO had made adjustment of about Rs.9.9 Crores on account of the arms length price with regard to the International Transactions with Associated Enterprises. - Held that:- the policy of law is that there must be a finality to all legal proceedings including assessments and therefore, completed assessment can only be reopened if all the conditions prescribed by the Act for reopening of assessment are satisfied. The Supreme Court in the matter of CIT v/s. Kelvinator of India [2010 (1) TMI 11 - SUPREME COURT OF INDIA] has held that there is a conceptual difference between the power to review and the power to reassess. The Act gives no power to the Assessing Officer to review an assessment but only a power to reassess. However, this power can only be exercised subject to certain pre conditions as provided in the Act being satisfied.
The argument that failure to respond to a notice under Section 142(1) of the Act calling upon the assessee to produce a document will lead to satisfaction of the proviso to Section 147 of the Act, to enable the Assessing Officer to take action to reassess after the expiry of four years from the end of the relevant assessment year is not acceptable.
No Form 3 CEB as required under Section 92E of the Act had been filed by the petitioner with the Assessing Officer in respect of the Assessment Year 2006-07 prior to issue of penalty notice under Section 271AB of the Act - Moreover, it was clear that Section 92E of the Act mandates making disclosure by filing of Form 3 CEB - Therefore, there was a failure to disclose all material facts on the part of the petitioner for the Assessment Year 2006-07.
Relying upon Siemens Information Systems Ltd. v/s. CIT [2012 (2) TMI 281 - Bombay High Court] - Assessment Order passed in a subsequent Assessment Year could well form the basis for obtaining tangible material to reach the belief that income chargeable to tax had escaped assessment - keeping in mind the fact that the petitioner had failed to disclose material facts necessary to be disclosed in terms of Section 92E of the Act, it must follow that there was reasonable belief that income chargeable to tax had escaped assessment in view of the fact that in a subsequent Assessment Year, the TPO had made adjustment to arms length price - Therefore, we find that there was reason to believe that income liable to tax had escaped assessment for the Assessment Year 2006-07.
Observations of the Assessing Officer speaks volume about the conduct of the petitioner and its desire to avoid furnishing Form 3 CEB as required under Section 92E of the Act before the Assessing Officer for the Assessment Year 2006-07 - there was no reason to entertain the present petition challenging the notice dated 3 May 2012 under Section 148 of the Act and the order dated 25 July 2012 dismissing the petitioner's objections while seeking to reassess the petitioner for the AY 2006-07 Decided against Assessee.
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2013 (9) TMI 570
Charitable activity u/s 2(15) - applicability of proviso of ection 2(15) - Exempted Income u/s 11 - Registration u/s 12AA - denial of exemption on the ground of commercial transactions - According to revenue The assessee is engaged in the activity of acquiring land, development of plots and construction residential as well as commercial places and sale thereof. The sales are also undertaken through auction process and sold to the highest bidder to earn more and more profits. The said activities are "trade" in nature and liable to tax.
Held that:- For the applicability of proviso to Section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15). The aims and objects of the assessee-trust are admittedly charitable in nature.
Mere selling some product at a profit will not ipso facto hit assessee by applying proviso to Section 2(15) and deny exemption available under Section 11. The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15).
Registration u/s 12AA - Held that:- The effect of such a certificate of registration under Section 12AAA cannot be ignored or wished away by the Assessing Officer by adopting a stand that the trust or institution was not fulfilling the conditions for applicability of Sections 11 & 12.
Proceedings u/s 143(2) - Whether the ITAT was correct in law in holding that without exhausting the provisions contained in section 143(2) of the Act the proceedings initiated by the Assessing Officer by issuing notice u/s 148 of the Act were not valid - Held that:- The Assessing Officer had not given any defective in computation of income as per Section 11 as submitted in Form-XB, but observed that the activities of the assessee were not charitable - The activities of the assessees were genuine – Following CIT vs. Andhra Pradesh State Road Transport Corporation [1986 (3) TMI 1 - SUPREME Court].
Exemption allowed - Decided in favour of Assessee.
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2013 (9) TMI 569
Addition of Rs. 32,716/- - Held that:- he A.O. observed that there was a capital addition of Rs.32,716/- in cash - Appellant has submitted that these deposits were made out of various household withdrawal made by the family members during the year Held that:- Being small amount and various withdrawal made by the family members for the household purposes, it is possible that to that extent the family members can save the amount Thus, the addition made is deleted.
Addition of Rs.13,54,000/- being gift received from brother Shri Rajendra S Shah Held that:- Evidences furnished by the Assessee has not been properly verified by the Commissioner(A) Thus, ld. CIT(A) may give one more chance to examine the evidence furnished by the appellant after giving the reasonable opportunity of being heard to the appellant Decided in favor of Assessee.
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2013 (9) TMI 568
Exemption u/s. 54F - Joint ownership of new house property - More than one residential house - Held that:- Exemption u/s. 54F has been granted to the assessee with a view to encourage construction of one residential house - The construction/purchase of a house other than one residential house was not covered by section 54F of the Act - The concession provided u/s. 54F w.e.f. 1.4.2001 would not be available in a case where the assessee already owns, on the date of transfer of the original assets, more than one residential house - Therefore, it was clear that emphasis had been given on owning more than one residential house by any assessee.
The assessees, who already owns, on the date of transfer of the original asset, more than one residential house, were not eligible for the concession provided u/s 54F of the Act - Even if other residential house may be either owned by the assessee wholly or partially - Therefore, the concession had been given only to encourage that any assessee should have his own residential house - In other words, when any assessee who owns more than one residential in his/her own title exercising such dominion over the residential house as would enable other being excluded therefrom and having right to use and occupy the said house and/or to enjoy its usufruct in his/her own right should be deemed to be the owner of the residential house for the purpose of section 54F of the Act - The proviso to section 54F of the Act clearly provided that no deduction shall be allowed if the assessee owns on the date of transfer of the residential asset more than one residential house. - Decided in favour of Revenue.
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2013 (9) TMI 567
Deemed Payment of Sales Tax u/s 43B - Notional sales tax/ sales tax subsidy received under schemes by Government - Capital receipt OR Revenue Receipt - Held that:- The claim for treatment of notional sales tax was capital receipt - Following DCIT V.Reliance Industries Limited. [2003 (10) TMI 255 (Tri)] it was held that claim for treatment of notional sales tax was capital receipt, thus not liable to tax - Further, CIT(A) had rightly held that it was not necessary to go into the alternative plea of the assessee as claiming the notional sales tax as deductible u/s 43B - Decided in favor of assessee.
Disallowance of Interest - dis-allowance of interest being interest referable to interest free loans and advances given to subsidiary companies - Held that:- Following Reliance Utilities & Power Ltd.[2009 (1) TMI 4 (HC)] - if interest free funds available to an assessee was sufficient to meet its investment, it can be presumed that the investments were made from the interest free funds available with the assessee - Therefore, considering the fact that assessee had its own funds more than loans given to its subsidiaries and also in absence of any nexus establishing that interest bearing borrowed funds were given as interest free to its subsidiaries - dis-allowance of interest was not justified - interest was allowable u/s 36(1)(iii) of the Act.
Disallowance of Administrative Expenses u/s 14A - Dis-allowance u/s 14A of estimated expenses out of administrative expenses being expenditure incurred in relation to earning the exempt income u/s 10(33) and 10(23G) - Held that:- Assessee's own funds were far in excess than the investments made by the assessee giving exempt income, dis-allowance of interest was not justified as it had to be presumed that investments had come from interest free funds available with assessee - assessee was allowed in part by restricting disallowance towards administrative and general expenses u/s 14A of Act towards earning of exempt income u/s 10(23G) while computing total taxable income under normal provisions of Act - However, no disallowance u/s 14A be considered while computing book profit u/s 115JB of the Act - Decided partly in favor of assessee.
Disallowance u/s 80HHC Deduction u/s 80HHC under provisions of section 115JB - Held that:- Exclusion of gross interest or net interest - 90% of net interest expenses have to be considered while computing deduction u/s 80HHC - ACG Associated Capsules Pvt. Ltd. vs. DCIT[2012 (2) TMI 101 (SC)] - CIT(A) erred in confirming restriction of eligible export profit u/s 80HHC(3) of Act by applying provisions of section 80HHC(1B) of Act for computing book profit u/s 115JB - CIT(A) erred in holding that all provisions of section 80HHC of the Act applied while reducing book profits by eligible amount of export profit u/s 115JB - Decided in favor of assessee.
Exclusion of profit allowed as deduction u/s 80IA/ 80IB with reference to all(exporting and non-exporting) units while arriving at deduction u/s 80HHC - assessee contended that exclusion should be restricted to export units with reference to which claim u/s 80 HHC was worked out - Held that:- When deduction u/s 80 HHC was to be considered, it was to be allowed in proportion to export turnover to total turnover of an undertaking and accordingly that proportion of deduction allowed u/s 80 HHC was to be considered and reduced while allowing deduction u/s 80 IA of those three exporting units subject to the condition that total deduction will not exceed the eligible profits of the undertaking - entire deduction allowed u/s 80 IA / 80 IB should not be reduced while computing deduction u/s 80 HHC - claim of export profits of these three units u/s 80 HHC should be reduced while allowing deduction u/s 80 IA in proportion of export turnover to total turnover - Decided in favor of assessee.
Dis-allowance of expenses on account of traveling of spouse of executives - Held that:- Assessee had not been able to establish that above expenses pertaining to wives/family members of the executives was necessary for purpose of the business - such expenditure was dis-allowed - Decided against the assessee.
Disallowance of Depreciation - Restriction of depreciation claimed - assessee didn't claimed depreciation in earlier years thus claimed depreciation on WDV whereas Revenue after considering depreciation for earlier years reduced WDV, thereon restricted depreciation - Held that:- Claim of depreciation prior to insertion of clause 5 to section 32(1), inserted w.e.f. 1/4/2002 as applicable from A.Y 2002-03, was optional and depreciation could not be thrust upon the assessee - Decided in favor of assessee.
Disallowance u/s 92C - Transfer pricing - Working of 'Cost plus' method followed by TPO was in dispute - Held that:- A perusal of workings clearly demonstrated that TPO had taken 50% of total cost and whereas the assessee had taken actual cost relating to charter hire activity - This had made a difference to the calculation of cost - Actuals have to be taken to arrive at the correct cost and only then cost plus method can be applied - Cost plus method does not contemplate estimation of cost - When actual figures were replaced in the calculation made by TPO, then, no adjustment was called for as the payment was at arms length price - Decided in favor of assessee.
Pre-operative Expenses - Held that:- Pre-operative expenses in question have been incurred for the purpose of business of assessee and expenditure was incurred for expansion of its existing activities - these preoperative expenses represent revenue expenditure incurred for purpose of business and be allowed as deduction u/s 37.
MAT - Disallowance by increasing the Book Orofit u/s 115JB - Revenue contending adding back of provision for doubtful debts while computing profits u/s 115JB - Held that:- Considering amendment made by finance (No.2) Act 2009 with retrospective effect from 1/4/2001 by inserting clause i in Explanation -1 to section 115JB the issue was to be decided against the assessee and thus addition made by AO was restored.
Commission to Associate Held that:- CIT(A) had rightly deleted the adjustment made by AO in respect of transaction entered into by the assessee with its associated enterprises REL - similar adjustment made by AO in the preceding assessment year 2002-03 were deleted by CIT(A) and the department did not dispute the said order of CIT(A) in appeal before the Tribunal.
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2013 (9) TMI 566
Search and Seizure Operations u/s 132 of Income Tax Act - Privilege u/s 123 and 124 of Evidence Act - The Income Tax department has claimed privilege of disclosing the satisfaction note to the petitioner - Held that:- It cannot be denied that the Finance Intelligence Unit (FIU), Ministry of Finance, Government of India - a Central National Agency reporting directly to the Finance Minister, was responsible for receiving, processing, analyzing and disseminating information related to suspected financial transactions - It was also responsible for coordinating and strengthening the efforts of national and international agencies, investigation in pursuance to global efforts against money laundering, terrorist financing and related crimes - The source, method and manner in collecting the information may be relevant for the security of organisation and the personnel involved and the methods adopted by them for collecting and processing the information - The preparation of the satisfaction note on such information could thus be treated as unpublished documents for which the Head of the Department namely the Director General of Income Tax (Investigation), UP and Uttrakhand had validly claimed privilege under Sections 123 and 124 of the Evidence Act - We do not find that claim of privilege was not for bonafide purpose.
The information of large amount of cash transactions in foreign bank may have generally raised doubts in bonafide manner on the nature of transactions - A large amount of accounted black money was floating in the market which poses a serious threat to the national economy - The Government of India had adopted several methods to discouraging the parallel economy being run by unscrupulous persons - The Financial Intelligence Unit (FIU), Ministry of Finance, Government of India was engaged in collecting such information against the money laundering, terrorist financing and related crimes - The sources and methods of the organisation collecting and processing such sensitive information cannot be subjected to public scrutiny to jeopardize the interest of the organisation and national interest.
Relying upon well-established principles of claiming privilege under Sections 123 and 124 of the Evidence Act in the judgments cited as above, we allow the application filed by the Income Tax department. Decided in favour of Revenue.
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2013 (9) TMI 565
Condonation of Delay - CIT(A) rejected the appeal on the ground of delay - appellant contended that appeal was filed before the AO by mistake, that mistake came to its notice when it contacted office of the FAA, that once mistake was noticed assessee requested the AO to transfer it to the FAA, that dealy in filing appeal was because of bona fide belief that appeal has been filed before the right forum, that FAA should have condoned the delay, that a liberal view should be take - Held that:- An assessee who claimed that it had won the case at the level of the Hon'ble Apex Court or was successful before the ITAT, cannot be treated an ignorant assessee - the assessee was aware that the CBDT has issued instruction with regard to stay of demand - Assessee, a corporate-assessee, filing returns of income of lacs of Rupees and assisted by highly qualified professionals cannot take shadow of umbrella of ignorance of the provisions of law - It was also not the case of the assessee that it was guided by the wrong advice of the professional or it took time to consult professionals - An individual of a small place and an ISO 9001-2000-company cannot be equated, while considering the condonation of delay. - Decided against the assessee.
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2013 (9) TMI 564
Applicability of Transfer pricing provisions - transactions with joint venture - transaction with associated enterprises - international transaction - DTAA with Malaysia - Held that:- all the decisions relating to the affairs of the Joint Venture are taken in India and the business is executed in India through a Joint Venture Agreement in India. Indisputably, Joint Ventures are residents in India. Even otherwise, Clause 3 of Article 4 of Malaysia provides that a person which includes AOPs also shall be deemed to be residents of the State in which its place of effective management is situated. On perusal of the Joint Venture agreements, it can be seen that all the decisions relating to the Joint Venture are taken in India and, therefore, the JVs are to be treated as "residents" only.
The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs in terms of section 92A(1) and 92A(2) of the Act. After considering the entire facts and circumstances of the present case and the findings of the DRP, we are of the opinion that the transactions taken place are with domestic enterprises and at least one among the AEs are not non-resident. Both the assessee and other parties which whom the assessee entered into transactions are the residents for the purpose of Indian Taxation. Any transaction between them will not constitute an international transaction. The transactions between the assessee and IJMII do not fall under section 92B(2) of the Act and same is the position in case of other entities with whom assessee carried on the impugned transactions - Provisions of transfer pricing not applicable - Decided against the revenue.
Nature of expenses - whether for the purpose of business - genuineness - Deduction was not allowed on the reason that this payment is not verifiable and they doubted the genuineness of the payments. - Held that:- The claim of payment of subcontract by the present assessee was not disqualified for deduction under the Act - Now, coming to next question as to whether the expenditure was capital expenditure or not, we are of the opinion that the expenditure was not a capital expenditure since the assessee did not acquire any capital asset.
Whether the payment was in the nature of personal expenditure or not, again, in our opinion, this was not the payment relating to personal benefit of any employees or directors of assessee-company - Being so, it was not personal expenditure.
Whether the expenditure was incurred wholly and exclusively for the purpose of business - In the case of Sassoon J. David & Co. Ltd. v. CIT [1979 (5) TMI 3 - SUPREME Court ] - the expression 'wholly and exclusively' used in s. 10(2)(xv) does not mean 'necessarily'. Ordinarily, it was for the assessee to decide whether any expenditure should be incurred in the course of his or its business - Such expenditure may be incurred voluntarily without any necessity and it was incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure - The fact somebody other than the assessee was also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv), if it satisfied otherwise the tests laid down by the law - The entire payment of subcontract cannot be disallowed as there was no evidence for such payment.
Whether the assessee had established the payment of subcontract by producing the necessary evidence - Held that:- Commissioner Of Income-Tax Versus Sigma Paints Limited [1990 (9) TMI 52 - BOMBAY High Court] - The payment vouchers giving the relevant details, including the names of the payees, and also bearing the signatures of the payees as recipients, had been produced by the assessee-company before the Assessing Officer - The payment vouchers contained full details of the nature of transaction - In other words, the details of all transactions in respect of which the subcontract payment had been paid by the assessee-company were duly recorded in the payment vouchers and other evidence - The only missing link was the address of the payees, which it was all along submitted and, however, the letters written by the Assessing Officer to those parties were returned by the postal authorities and these things cannot jeopardise the claim of the assessee-company - The payments were correlated to the transactions which the assessee had with those persons - The only missing link was stated to be the names of the particular parties to whom the payments were made - This, the Tribunal held, could not be supplied without detriment to the business interests of that assessee, considering the very nature of things.
The initial onus and burden of proof was on the assessee - In the instant case, such initial onus and burden of proof had been duly discharged by the Assessee Company by producing its audited books of accounts, payment vouchers-and other documents giving full details as to the nature of transactions, which necessitated the payment of such subcontract works and that this was an accepted norm and established in this line of business and that without such payment, it was not possible to survive in this line of business, as well as the prevalent trade practice in the line of business carried on by the Assessee Company all along. However, in this case the inflating of expenditure by the assessee cannot be ruled out. Considering the entire facts and circumstance of the case and chances of inflating the expenses by the assessee, to meet the ends of justice, we are inclined to disallow 15% of this payment. - Decided partly in favor of assessee.
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