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Income Tax - Case Laws
Showing 381 to 400 of 585 Records
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2013 (9) TMI 436
Additions on the account of cash flow statement furnished by the assessee – Addition of the amount of Rs. 10,40,000/- Held that:- During the course of search no incriminating documents were found relating to the fact that assessee was not having cash balances - ld. CIT(A) confirmed the addition merely on the basis that the assessee never filed capital account showing for each of the cash balances - Assessee has furnished sufficient material including income of the various years of assessee as well as assessee’s mother which sufficiently proves that the assessee must have opening balances - The assessee furnished cash flow statement for earlier year also i.e. A.Ys.2004-05 to 2010-11 - The cash flow of the earlier years clearly show that the assessee was having such an opening balances. The assessee discharged the burden regarding cash balances shown in the cash flow statement by furnishing total income and earning in earlier years and furnishing cash flow statements from A.Y.2004-05 onwards - A.O. himself accepted inflow and outflow of the cash in the chart submitted and he did not doubt about that. He doubted about only opening balances. When the assessee has furnished the position of income from earlier/different years and the total income of the assessee and his mother comes to Rs.2,32,83,547/-, it can not disbelieve that the assessee was not having cash balance to the extent of Rs.10,85,231/- as opening balance in A.Y.2009-10 - Assessee has furnished sufficient material and discharged the burden, supporting the fact that the assessee was having cash balance of Rs.10,48,000/- in the beginning of the year, particularly under the facts and circumstances when no incriminating documents or other material was found during the course of search – Decided in favor of Assessee.
Addition on estimation basis – estimation of larger sum of household expenses - A.O. noticed from the cash flow chart that the assessee has shown lower house hold withdrawals - Considering the size of family and social status of the assessee, the A.O. has estimated household expenses of Rs.22,000/- per month as against the total household withdrawal of Rs.1,80,424/- per annum shown by the assessee – Held that:- It is a search case and during the year no incriminating material or documents were found – A.O. made addition merely on the basis of general presumption, whereas, the assessee has furnished a reasonable explanation that the assessee is residing in remote area at 20 km. away from city having substantial agricultural income and produce. The assessee is widow mother, who is a separate income tax payer since long, also resides with the assessee and she has also been withdrawing for household expenses - In the absence of material, particularly under the circumstances where the assessee has satisfactorily explained the household expenses shown by the assessee, in the light of these facts, the CIT(A) is not correct in sustaining the addition of Rs.97,900/- - Therefore, deleted the said addition of Rs.97,900/- sustained by the ld. CIT(A).
Undisclosed investment in property u/s 69 of the Income Tax Act - Addition of Rs.38,77,589/- made by the A.O. by alleging undisclosed investment on the basis of DVO’s report - Assessee is one of the co-owners of the building - The DVO has furnished two reports of valuation. The DVO while submitting the second report estimated cost of Rs.1,30,30,085/- and clearly stated that the value determined by interpolation of cost index which is not in accordance with provisions of Section 142A of the Act – Held that:- Construction period was from 2000-2001 to 2010-2011 i.e. for about 10 years, bifurcation of yearly investment has been given by the assessee, considering objection of the assessee in respect of DVO’s report particularly not allowing 10% self-supervising charges, 3% of architect fee etc. the difference is only 13% in comparison to cost declared by the assessee and estimated by the DVO and the effect of the entire difference given in a particular year is not justified. Therefore, the investment declared by the assessee is reasonable and the same is acceptable, because in totality the investment shown by the assessee is correct. The first DVO’s report supports to this fact - Therefore, no addition is warranted - Deleted the addition of Rs.38,77,589/- made by the A.O. on account of investment in property under Section 69 of the Act and sustained by ld. CIT(A) – Decided in favor of Assessee.
Adhoc additions, without enquiry - The A.O. made addition of Rs.1,55,000/- on the ground that the DVO has shown the construction cost which does not include cost of land, furniture and furnishing, A.C., electrical equipment, old structures and old boundary wall. The A.O. treated 20% of the cost of construction shown by the assessee at Rs.15,50,000/- and calculated amount of addition of Rs.1,55,000/- by treating it as expenditure incurred for furniture and furnishing over and above cost of construction – Held that:- The A.O. has failed to point out by making enquiry that how many A.C and other electrical equipments were there with the assessee - Adhoc addition is not warranted – In the lack of enquiry and making addition without considering complete facts, merely on the basis of conjecture or surmises addition cannot be made particularly in case of search – No justification of making addition of Rs.1,55,000/-, therefore, it has been ordered to delete the addition of Rs.1,55,000/- - Decided in favor of Assessee.
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2013 (9) TMI 435
Exemption u/s 10A of the Income Tax Act - Disallowance of exemption claimed u/s. 10A of Rs.2,37,70,404/- on the alleged ground that the assessee was blending different types of tea but not manufacturing or producing any articles for the purpose claiming exemption u/s.10A – Held that:- In view of the admission made by AO, that assessee is carrying on the activity of blending of tea consistently, on factual aspects, which Revenue has not objected. It is not the case of the Revenue that there is no blending – Further, relying upon the decision in the case of Madhu Jayanti International Ltd [2012 (7) TMI 531 - ITAT KOLKATA ], claim of the assessee is allowed – Decided in favor of Assessee.
Relying upon the case Madhu Jayanti International, it is held that assessee who are in the business of blending and processing of tea and export thereof in 100% EOUs are manufacturer / producer of the tea for the purpose of claiming exemption u/s. 10B of the Act. Further, assessee who are in the business of blending and processing of tea in respect of undertakings in free trade zones are manufacture / producer of tea for the purpose of claiming exemption u/s. 10A of the Act – Examination of facts in the case of Madhu Jayanti International Ltd. is done, and found that there is blending of tea and consequently assessee is eligible for exemption u/s. 10B of the Act as prayed for. There appeal for the AY 2004-05 is allowed.
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2013 (9) TMI 434
Reimbursement of 50% of interest on housing loan taken by the employees - Employees of the assessee company have taken loan from the parties other than the assessee company and the company has actually reimbursed 50 per cent of the interest paid on the loan taken by the employees – Held that:- Allowed as expenditure to the Assessee – Decided in favor of Assessee.
Claim for deduction being the amount written off on account of diminution in the value of investment in shares of Petroleum Infrastructure Ltd – Held that:- Loss on account of diminution in the value of investment in shares is allowable by way of capital loss only when transfer of shares takes place. In the present case, there is no transfer of shares in question and, therefore, the claim of the assessee regarding this diminution in the value of investment in shares is not allowable. - Decided against the assessee.
Non-granting of depreciation of Rs.1,65,190/- on the assets leased to Rajasthan State Electricity Board (RSEB) - (a State Government Undertaking, formed under the State Electricity Supply Act) – Held that:- Relying upon the decision in the case of COMMISSIONER OF INCOME-TAX Versus GUJARAT GAS CO. LTD[2008 (9) TMI 126 - GUJARAT HIGH COURT], depreciation is allowed.
Penalty u/s 271 (1) (c) of the Income Tax Act – Held that:- There is no material brought out by the AO to prove the ingredients for levy of penalty that the assessee has furnished inaccurate particulars of income or concealed particulars of income - There was no fault or willful negligence on the part of the assessee and, therefore, penalty is not justified – Decided in favor of Assessee.
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2013 (9) TMI 433
Unexplained cash credit u/s 68 of the Income Tax Act - Amount of Rs. 2,28,50,000/- was received by the assessee from its shareholder M/s Prahlad Trading Pvt. Ltd. by cheques during the year under consideration - Confirmation letter of the said creditor was filed by the assessee during the course of assessment proceeding as called for by the A.O - All the relevant details such as complete name and address of the creditor, its Permanent Account Number and the details of mode of payment including the cheque Nos. were given therein - Source of amount in question paid to the assessee was explained by the said creditor as the application money received from M/s Kenex Exports Pvt. Ltd. towards OFCD – Held that:- Documentary evidence produced by the assessee was sufficient to discharge the initial onus that lay on the assessee in terms of section 68 of the Act to prove the identity and capacity of the creditor as well as genuineness of the transaction and there was no justification in the action of the A.O. in treating the amount in question received by the assessee from the concerned creditor M/s Prahlad Trading Pvt. Ltd. as unexplained cash credit u/s 68 of the Act without bringing any adverse material on record.
What is relevant in the context of unexplained cash credit u/s 68 is the explanation of the assessee in respect of the source of relevant cash credit - The funds for giving the amount in question were generated by the concerned creditor M/s Prahlad Trading Pvt. Ltd. from an independent source which was not even part of circular transactions alleged by the A.O. and this being so, the genuineness of the relevant cash credit cannot even otherwise be doubted on the basis of circular transactions as alleged by the A.O. As already observed by us, sufficient evidence was produced by the assessee to establish the identity and capacity of the concerned creditor as well as the genuineness of the relevant transactions and the onus in terms of section 68 to explain the said cash credit having been duly discharged by the assessee - Treating the said cash credit as unexplained u/s 68 of the Act is not justified - Deleted the addition and allowed the appeal of the assessee – Decided in favor of Assessee.
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2013 (9) TMI 412
Non Resident - Rate of Tax 10% or 15% - treaty (DTAA) with UK - Fees for Technical Services - Receipts from supply planning services - Assessee entered into Sightholder Contract 2008-2011 in the name of "Supplier of Choice, Sightholder Contract 2008-2011" - Held that:- It is both surprising and unfortunate that AO/DRP, who are specially chosen to for making of these specialized assessment involving international transactions, have ignored the basic fact of applying the appropriate SPS Agreement 2008-11 for the AY 2009-10. The fact is that the Revenue Authorities have not examined the issues and not made the additions of this magnitude in the light of the correct contract with Sightholders. It is surprising to notice despite the supply of the relevant contract 2008-2011 to the AO, the relevant assessment order refers to the provisions of the old contract with Sightholders and contents of para 3 of page 4 of the assessment order witness these basis avoidable mistakes.
It is for the AO and the DRP to come to the fresh conclusions on a quality of services rendered by the assessee under the new contract and they constitute technical services for qualifying the provisions of Article 13 of the India UK Tax Treaty.
Additional Evidence - Assessee filed certain invoices in the form of additional evidences to demonstrate the above facts for the first time before us. As per the assessee, these papers were not asked for by the AO, therefore, they were not filed. We find no reason to disbelief the arguments of the assessee in this regard. In our opinion, considering the provisions of Rule-29 of the ITAT, admitting these papers would help for passing a proper assessment order and will enable Assessing Officers to go into the facts in the right perspective as to whether the grading services include inscription services or not. Accordingly, we set aside the order of the AO and the DRP on this issue and remand the matter to the files of the AO for fresh adjudication after considering the additional evidences and the decisions of the Bombay High Court in the case of Diamond Services International (P) Ltd (supra), wherein it was held that the grading fees paid by the assessee to Gemological Institute of America (GIA) for the activity of certification and grading of diamonds, do not fall within the expression "royalty" under Article 12 of DTAA - Decided against assessee.
Interest u/s 234B - Held that:- Assessee being a non resident, the duty is cast on the payer to pay the tax at source and on failure, no interest u/s 234B of the Act is imposed on the payee-assessee. Accordingly, we direct the AO to reduce the relatable interest u/s 234B of the Act - Decided in favour of assessee.
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2013 (9) TMI 411
Concept of Mutuality - residential housing co-operative society - receipt of transfer charges - Held that:- contributors, by virtue of their membership, obtain a valuable capital asset in their own hands, i.e., the leasehold right in the plots allotted to them, as well as the interest in the super structure. No doubt, the said structure has only been funded by them, but then it is only on the land leased to them by the society, so that independent of the rights in land, leased to them on a 998 year lease, the same is of no value. It is this that they may encash or capitalize on or even trade on, as say by letting the property. Such valuable rights that inure to the members, i.e., separate and distinct from the rights that vest in them as a part of the class of contributors, militates against the very notion of mutuality, which in its concept and operation cannot yield any income to them in their individual capacity. In fact, they have practically all the rights, and at a cost, and which they may leverage to generate income for themselves. To exemplify, consider this: a member, to whom a plot is allotted, lets out the house built thereon, earning a monthly rent. Of course, the rent he receives is his income, and has nothing to do with the society or its income. So however, it is only by virtue and on account of he being a member of the housing society that he could generate the rental income. This, thus, is our basic objection, inasmuch as a mutual concern, by its very nature and concept, cannot lead to any profit, on the basis of contribution to and participation therein, to the contributor/participant.
We have deliberately taken an everyday example of letting, and independent of the transfer and TDR premium issues which dog such cases, and is the bone of contention between the parties, only to clarify our objection, which goes to the root of the matter, though is at heart, very simple. There is no creation of any Fund at this stage, i.e., when the society is formed and the members are enrolled; the society charging the members for granting lease what stands charged to it (on getting 999 years lease from the Government). The arrangement, thus, in its design and concept, is not a mutual arrangement, even as independent and apart from the said rights, the plot owners or members may organize themselves for any mutual activity, even if it arises or is consequential to their holding the said rights, as the maintenance activity referred to earlier. As such, any income, be it in the form of transfer fees or TDR premium, that arises to the society/association on account of the said arrangement would, by definition, be ineligible for mutuality.
The assessee's alternate plea for all the years is for being allowed expenditure in case 'transfer fees' and/or 'TDR premium' is considered as income subject to tax. The same has been denied by the Revenue in the absence of any relation between the expenses with the impugned receipts. Before us no improvement in its case could be made by the assessee. Without doubt, only the net income (on any activity or source or account) is to be taxed, so that the expenditure incurred in its respect would in principle warrant deduction. However, it is incumbent on the assessee to show as to how the expenditure being claimed against the stated receipts is related thereto or is in its respect, and which it has completely failed to. The expenditure has apparently no correlation therewith, viz. for AY 1996-97, being in the main on Navratra expenses, get together expenses and magazine expenses. Even if such expenditure, which may also include for other years general and administration expenses, or for maintenance expenses, is shown to be funded from the said receipts, the same would only be application of income, and not expenditure thereagainst. The ld. AR before us was at loss to explain as to how the said expenditure could be claimed as a deduction. The assessee's claim is wholly without basis and, thus, stands rightly rejected by the Revenue - Decided against assessee.
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2013 (9) TMI 410
Unexplained income - Suppressed sale of oil recovered from the two ships - undisclosed sale of various scrap items. - Held that:- While passing the order AO had not considered the details of oil sold, as pointed out by the FAA. Page no.1 of annexure-2 of the assessment order speaks about the item sold by the assessee company - AO has mentioned the sale of oil sold (in barrel),but in the narration he has mentioned furniture in place of furnace oil. - FAA has verified the sale bills along with the details of purchasers and quantity of oil sold - No additions - Decided in favour of assessee
Suppressed sales of 4 Anchors - Held that:- assessee had not challenged the ownership of anchors - anchors would have some realisable value. No ship will take a risk of not having a proper anchor, till it is dismatanled - FAA was very fair in his approach while deciding the appeal filed by the assessee. He has granted partial relief to the assessee and confirmed the addition that appears to be reasonable - Decided against assessee.
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2013 (9) TMI 409
Computation of the capital gains - Block of assets exists or not after Sale of the premises - Computation u/s 50 - Balance of WDV after sale of asset - Held that:- underlying presumption in the foregoing computation of the WDV, as well as in the manner of computing the capital gain u/s.50, is that all the assets comprising the block for the time being continue to be business assets and, thus, eligible for being considered as a part of the relevant block of assets. However, when a capital asset, as the Nariman Bhavan property in the instant case, is let by the assessee, the same no longer qualifies as a business asset. That is, it becomes ineligible for being considered as part of the relevant block of assets. The question of computing either depreciation or capital gains with reference to its value, therefore, just does not arise - no depreciation for the relevant year would be eligible on the said block in that case despite a positive WDV. This is for the reason that the block ceases to exist, with one asset being sold out and the other removed from the block by being let, and not for the reason of non-user, as stated by him.
Where, one may ask, is the question of user, when the asset itself is no longer a business asset? To clarify this aspect further, take the example of three, instead of two, assets comprising the block as at the beginning of the year. While one stands sold, the second is let out and the third continues to be retained in and used for business. Could depreciation be claimed with reference to the block comprising the two remaining assets? Clearly not, and an adjustment for the asset let, as it no longer forms part of or qualifies as an asset of the business, has necessarily to be made, in computing the WDV or the capital gain, on the asset sold or the depreciation on the sole remaining business asset, as the case may be, as under the scheme of the Act it would be an either or situation, and both cannot obtain. The asset let would be akin to any other independent capital asset owned by the assessee, though the fact of it having been used for business purposes and depreciated in the past would impact its date and cost of acquisition.
The assessee’s case clearly falls u/s. 50(2); the only asset, namely, the property at Arun Chambers, Mumbai, constituting the block at the relevant time, being sold in September, 2005, with no subsequent additions to the block. It would, we may though clarify, again, not matter if the other property rented out was so done subsequently, and not prior thereto in July, 2005. This is as the question of applicability of sec. 50(1) or s. 50(2) is to be seen as at the year-end, whereat only the depreciation u/s.32 as well as capital gain u/s.50 is to be computed, taking the entire transactions during the year into account.
The WDV of the block, adjusted for the removal of the property let out during the year in July, 2005, is to be taken into account for computing the STCG u/s.50. - Decided in favour of Revenue.
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2013 (9) TMI 408
Transfer pricing adjustment - Selection of comparables - Abnormal expenses - Low capacity utilization - Held that:- adjustment in case of the manufacturing segment has been made on the total turnover and not limited to transactions with AE. The sales of AE was Rs. 7,88,70,082/- and, therefore, the AO is required to compute the cost of such sales by applying margin in case of the assessee which was (-)5.41%. Thereafter, PLI of 9.49% is required to be added to the cost of sales to arrive at the market value of the international transaction. The AO is directed to make the adjustment only to the international transaction and not to the entire turnover.
The assessee had selected seven comparables, which have been rejected by the TPO holding them not comparable as being not engaged in trading of diamonds and on account of related party transactions in some cases. The TPO selected ten comparables giving mean margin of 3.47%. The assessee objected to six of comparables selected by TPO and the objections were rejected after giving specific reasons in respect of each comparables as mentioned in para 4.3 earlier. The assessee in the appeal before us has also raised objections in relation to some of the comparables. However we find, that the submission made by the learned AR was quite general in nature not supported by any evidence. No details of P&L account and balance sheet or annual reports were filed in respect of some comparables to substantiate the claim. The objection raised in relation to comparables is therefore rejected. However we find substance in the additional ground raised by the assessee requesting for benefit of +/-5% margin. The additional ground has already been admitted by us being a legal ground. We, therefore direct the AO to allow the benefit of +/- 5 % benefit to the assessee, which has also not been objected to by the learned DR before us - Decided partly in favour of assessee
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2013 (9) TMI 407
Disallowance u/s 14A - Disallowance of interest expenditure - Held that:- if there is sufficient material on record to establish that investment in shares/units was made out of non-interest bearing funds, then no disallowance has to be made out of interest debited to Profit & Loss account, even if there is dividend income from such investment. Where the expenditure incurred could not be related to exempted income, the provisions of section 14A would also not be attracted. It is also a settled law that the theory of apportionment of expenditure between taxable and non-taxable income, has been accepted. However, Assessing Officer has to satisfy himself and such satisfaction must be arrived at on the objective basis. If benefit arising from investment in shares out of interest-bearing fund is the dividend income exempt u/s.10(34) of the Act, the related expenditure has to be disallowed - fact of the present case was that the Assessing Officer had not enquired the issue in the light of the above legal pronouncements. Specially the pronouncement of the Hon'ble Bombay High Court was not available at that time, hence, the Assessing Officer's assessment order was devoid of merits as also applicable law. Now we have got certain guidelines, though can not be said to be exhaustive or complete, but on these lines, the Assessing Officer is expected henceforth to compute the correct disallowance, needless to say after providing an adequate opportunity of hearing to the assessee - Following decision of Commissioner of Income Tax-II Versus M/s Hero Cycles Ltd. [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT] - Decided in favour of assessee.
Disallowance of foreign travel expenditure - Held that:- although written notices were furnished before the AO but the details of the expenditure, purpose of the expenditure and the business connection of those expenditures could not be established. Certain expenditures which were stated to be incurred for the visit of Ms. Year R. Amin, were restaurant expenditure, florist expenditure, etc., which is bearing at page 37 of the paper book. Likewise on page 91, there is a short note about the purpose of the visit but the assessee is required to produce the direct evidence to establish the genuineness of the claim. We, therefore, restore this ground also back to the stage of the AO, so that the assessee can avail this opportunity to produce certain evidences through which it could be established that the foreign travel was in fact undertaken for the purpose of the business of the assessee - Decided in favour of assessee.
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2013 (9) TMI 406
Deduction u/s 80IC - New manufacturing unit - whether the profits earned by Parwanoo Unit really represented profits from manufacturing activity at Parwanoo Unit or not. - AO observed that that the Unit at Parwanoo does not appear to have been established physically. Therefore, the assessee was asked to show cause as to why deduction claimed u/s 80IC of the Act should not be disallowed. - Held that:- The major objection of the Assessing Officer was that in such a short period of four months without the help of technical people, it was not possible to achieve the said turnover.
We do agree with the Ld AR that assessee had every document to support that unit was established and we also agree with Ld AR that turnover was intimated to Sales tax authorities but the important question remains whether the entries of sales and purchases were any book entries or actual entries. The doubt of book entries is further corroborated by the fact that out of turnover of ₹ 1,34,39,000/- during the year an amount of ₹ 1,06,53,550/- remained invested in sundry debtors and out of purchases of ₹ 51,19,374/- an amount of ₹ 33,48,468/- remained unpaid upto 31.3.2005.
Though Ld CIT(A) has mentioned that money was received from debtors but the fact remains that turnover was made hurriedly in a period of four months that to without realizing the debtors. The profiles of buyers of assessee needs to be investigated to ascertain as to whether these persons actually dealt in the goods purchased from the assessee and further sellers profiles also needs to be investigated to ascertain as to whether they really dealt into the items sold by them to assessee. - Decided in favor of revenue for statistical purpose.
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2013 (9) TMI 405
Resassessment u/s 147 - Notice u/s 148 issued - Purchase advance or provisional purchase - Held that:- In a situation when a notice u/s. 148 was admittedly issued within four years from the end of the relevant assessment year then in our opinion the scope of jurisdiction u/s. 148 is very wide. The Section 147 of IT Act prescribes that "If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). The aforesaid provisions of Section 147 have been changed w.e.f. 1.4.1989 applicable from assessment year 1989-90. Majority of returns filed by the assessee are accepted as such. The assessment proceedings have, therefore, been simplified in such a situation if later on the AO has "reason to believe" that any income chargeable to tax has escaped assessment then he can re-compute the income by reopening the assessment.
If the notice is within four years then under this new provision the power is much wider and can be exercised even if the assessee had disclosed fully and truly all material facts. However, in a case where four years, as prescribed, have expired then failure on the part of the assessee to disclose true facts is to be established by the Revenue - opinion has to be formed only by the AO, therefore, a re-assessment must be based upon the belief of the AO and not of the Commissioner. In the present case, there was a sufficient material in the knowledge of the AO and that material was based upon the accounts of the assessee already on record through which the AO had reason to believe that the impugned purchases expenditure had escaped the assessment. Facts of the case has also revealed that there was no opinion formed at the first round of assessment, therefore, there is no question of change of opinion - Decided against assessee.
Business income - Inflated purchases - Held that:- assessee's version was that the goods were received, however bills were not received till 31.03.2003. But contrary to this; vide an another reply dated December, 2008 vide paragraph 2.2 it was informed to the ITO, Ward 4(3), Ahmedabad that the goods were received after the year end and the entry was made on the strength of the purchase bills - Discrepancy should be removed and the correct facts should be brought on record. Hence, the assessee is hereby directed to place the evidence of actual dates of delivery of goods. The AO can demand for evidence such as transport bills etc. As far as the provisional booking of an expense is concerned the same is not admissible unless and until crystallized during the year. In that condition, the AO has to first ascertain that there should not be double deduction of such expenditure - AO has to examine the dates when the sales have been actually executed in respect of these purchases. Thus, in the result, this ground is hereby restored back to the AO for fresh adjudication - Decided in favour of assessee.
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2013 (9) TMI 404
Accumulation of income - 'total income' 2(45) versus 'Income' u/s 11(1) - charitable institution - benefit of standard deduction under income from house property for the purpose of accumulation of income - Deduction u/s. 24(a) - Computation of income of trust - Held that:- While Sec.2(45) of the Act specifically defines "total income" the expression used in section 11(1) is only income. Accordingly, it would be incorrect to assign to the word 'income' used in section 11(1)(a), the same meaning as has been specifically assigned to the expression 'total income' in Sec.2(45) of the Act.
The income from property held for charitable or religious purposes cannot be equated with the income which is computed under the general provisions of the IT Act in respect of other assessees. In a case where an assessee-trust has income from different sources and a part of such income comes within the ambit of taxation, it will not be possible to earmark any part of such income to a particular head. Such income has to be computed in a normal commercial manner. Therefore, the question of allowing any statutory deductions as contemplated by the different provisions of the IT Act dealing with different heads of income cannot arise while deciding the percentage of application or accumulation under section 11 - Following decision of DIT Vs. Girdharilal Shewnarain Tantia Trust [1991 (6) TMI 8 - CALCUTTA High Court] - Decided in favour of Revenue.
Disallowance of depreciation - Held that:- If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income - Following decision of CIT v. Market Committee, Pipli [2010 (7) TMI 374 - Punjab and Haryana High Court] - Decided against Revenue.
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2013 (9) TMI 403
Cessation / waiver of interest liability - Deemed income u/s 41(1) - Applicability of section 41(1) of the Income Tax Act, when waiver of interest amount treated as capital receipt being related to preoperational period of the company - Assessee-company had raised loans from the Banks to start its business. Subsequently due to heavy losses the company was in trouble and a settlement with the Banks had saved it from a deep crisis. As per this agreement the Banks gave a waiver of interest amount to the company - Banks decided to waive a sum of ₹ 22,74,85,511/-, during the year under consideration against the overdue interest accumulated over the years including ₹ 7,31,55,195/- which pertained to pre-operative period. It was argued that the interest pertaining to pre-operative periods of ₹ 7,31,55,195/- was not offered for taxation because the company had neither claimed nor got deduction of this amount - Interest pertaining to pre-operative period was capitalized to the respective assets and deduction of depreciation on such assets had been claimed on the basis of written down value (WDV) of different block of assets – Held that:- 'Depreciation' claimed on the capital assets are not at all covered under provision of section 41(1) of the Income Tax Act – As per requirement of sec. 41(1) it is required that the assessee must have made a claim and it must have been either (i) allowed or (ii) deducted in any previus year. This allowance/deduction must relate to loss, expenditure or trading liability, incurred by the assessee as the case may be. This 'benefit obtained must be by way of 'remission' or 'cessation' of such loss, expenditure or trading liability – Hence, it is incorrect to say that amount of interest relating to the pre-operative period became part of trading operation of business and any benefit received on account of waiver of interest is in the nature of profits and gains of business in terms of provisions of section 28(iv) – Decided in favor of Assessee.
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2013 (9) TMI 402
Cancellation of registration u/s 12A of the Income Tax act – The ground of cancellation is that the school had violated the conditions imposed at the time of allotment of land by the Ministry of Urban Development, Government of India, according to which the assessee should have admitted students belonging to the weaker sections to the extent of 25% and granted free-ship to them - Held that:- No evidence available for non-compliance of admitting 25% of the students of EWS - The reasons consistently advanced for the shortfall of requisite percentage of admission of EWS is regard to locational aspect in the face of the evidence to the contrary as have to be accepted as where there is no alleged violation of any of the requirements either of the Urban Ministry or of the Directorate of Education the authorities under the Income tax Act cannot be said to presume to sit over in judgment for the implementation of the public policy on the judgement of the authorities empowered to implement them.
No doubt to have a social conscience is a laudable human desire and the desire to ensure compliance in letter and spirit to the stated government policy necessarily ought to throb in the heart of each and every citizen. However, while adjudicating on the issues which arise for determination under the Income-tax Act which is a Central Act enshrined in “List I” of the Constitution of India the tax adjudicator/judge empowered by a Central Act cannot usurp the power and role of an authority which as per the Constitutional scheme has been entrusted upon the state Administration and in this case on the Department of Education, Government of National Capital Territory of Delhi.
An authority constituted under the Central Act herein the Indian Income Tax Act cannot act on the basis of its own personal beliefs and philosophy however laudable, they may be as they have no role to play as the issues are to be decided and concluded on the basis of rules and provisions of the Income-tax Act, herein - section 2(15) of the Act. The decisions are not to be coloured or stained by personal whims and biases and are to be illuminated by the Income Tax Act.
The DIT(E) in the facts of the peculiar case cannot cancel Registration in the facts of the present case for the reasons set out in the impugned order as the same amounts to usurping the Role of an authority constituted to implement the government policy. Only when there is any instance of violation of terms and conditions pointed out by the Directorate of Education and/or the Urban Ministry on the information of de-recognition of the school by the Directorate of Education. The tax authorities can take notice. The gravity of the consequences of holding a certain school as de-recognised is not to be trifled with or taken lightly and it is a powerful tool in the hands of the Directorate of Education and if it is taken away, serious consequences are visited on the school which is not a fact in the present case – Decided in favor of Assessee.
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2013 (9) TMI 401
Transfer pricing adjustments - ALP - selection of comaprables - considering single year data instead of multi year data – Rule 10B read with section 92C of Income Tax Act - Selection of appropriate comparables for an International transaction – Held that:- It is mandatory for the purpose of comparing the data of an uncontrolled transaction with an international transaction that the same should be relating to the financial year in which the international transaction has been entered into. The information, data and documents should be contemporaneous - Current year data has to be taken into consideration until and unless some exceptional circumstances are brought on record to show that one year data of comparable do not give true picture being influent by such circumstances. As per Rule 10B (4) for determining the ALP u/s 92C, the data to be used in analysing any comparability of uncontrolled transaction with an international transaction shall be the data relating to the Financial Year in which the international transaction has been entered into. Thus, it is manifest from the sub rule (4) of Rule 10B that the data of the financial year in which the international transaction has been entered into to be used for analysing comparability of uncontrolled transaction in order to determine the ALP - The proviso to sub. rule (4) of Rule 10B provides the option for considering the data relating to the period other than the financial year in which the international transaction has been entered into; but not being more than two years prior to such financial year.
The proviso to sub. Rule 4 of Rule 10B does not mandate that always consider two more years' data of comparables in such analysis; but has a limited role only when the data of current year reveal some exceptional facts which could have influenced on determination of the Act in relation to the transaction being compared.
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2013 (9) TMI 400
Allowability of deduction u/s 80IB, if the return is not filed u/s 139(1) but u/s 153A – The provisions of section 80AC is directory or mandatory - Assessee engaged in the business of developing and building of housing projects approved by local authorities. The assessees have not filed their returns of income for the impugned assessment years within the due dates prescribed under section 139(1) of the Income-tax Act, 1961. Meanwhile, there was a search action under section 132 conducted on the business premises of the assessees on 6-8-2009 and 17-8-2009. In pursuance of the said search carried out under section 132, the Assessing Officer issued notices under section 153A, requiring the assessees to file their returns of income for the period relevant to six assessment years. The notices under section 153A were issued on 26-7-2011 – Held that:- Returns filed by the assessees under section 153A are to be treated as returns filed under section 139(1) by virtue of the law stated in section 153A(1)(a). As such, the assessees are entitled for the deduction available under section 80IB(1). The rider provided in section 80AC does not apply to the present cases, as the returns filed by the assesees under section 153A have been considered as returns filed under section 139(1) within time.
Levy of interest under section 234A – Held that:- Return filed under section 153A would be deemed to be a return of income under section 139 as per the express language of the provisions of section 153A(1)(a) and therefore the return of income filed under section 153A also is to be processed under section 143(1) and the income determined thereof. These are all consequences of search conducted under section 132 and the issuance of notice under section 153A. Once a recomputation in the assessment order under section 153A is done, the interest chargeable under section 234A would have to be reckoned from the date of determination of income under section 143(1), read with section 153A to the date of the recomputation of income under section 153A, read with section 143(3). This position is in tune with the law stated in section 234A(3).
Levy of interest u/s 234B of the Income Tax Act – Held that:- Interest under section 234B is to be levied only on the additional tax levied on the enhanced income determined under section 153A, read with section 143 and therefore the period of charge should be from the date of determination of the income under section 143(1), read with section 153A to the determination of increased total income under section 153A, read with section 143(3).
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2013 (9) TMI 399
Claim of deduction u/s 80IB of the Income Tax Act – Small scale industry - whether being "located in an industrially backward State" of Pondicherry, there is no need to fulfil the requirements of SSI - Held that:- For claiming deduction, certain conditions are to be necessarily satisfied - It is also clear that the conditions above said do not apply in case the undertaking in question is either a small scale industry or it operates from an industrially backward region and if any of the above said condition is satisfied, the concern undertaking becomes eligible for claiming deduction.
Pleadings of the Revenue only challenge the status of the assessee as small scale industry and the findings of the CIT(A) that the place of assessee’s business is in an industrially backward State i.e. Pondicherry - Even if it is hold that the assessee is a small scale industry, still it is entitled for claim of deduction in view of section 80IB(4) of the “Act” since it is operating from an industrially backward State - Assessee satisfies the relevant provision of section 80IB(4) of the “Act” and arguments of the Revenue that it is not a small scale industry or it manufacture an item contained in Schedule XI of the “Act” do not hold any ground – Decided against the Revenue.
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2013 (9) TMI 398
Allowance of Depreciation u/s 32(1) of the Income Tax Act for the assets acquired in the prior period – Retrospective amendment in section 43(6) of the Income Tax Act - Assessee filed return of income on 28.11.2003 disclosing total loss of Rs.146,78,95,230/-. The assessment was framed u/s. 143(3) of the Act as the assessee has claimed depreciation of Rs.201,21,64,960/- on fixed assets comprising depreciation of Rs.194,77,57,108/- on old assets and Rs.6,44,07,852/- on assets acquired during the year under consideration. The AO while completing assessment u/s. 143(3) of the Act allowed depreciation to the extent of Rs.6,44,07,852/- in respect of those assets which were acquired during the year under consideration. But did not allow depreciation of Rs.194,77,57,108/- in respect of old assets on the ground that the required information regarding details of actual assets of written down value as on 01.04.2002 was not furnished before him – Held that:- The assessee has filed step wise working in the form of audit report dated 20.01.2010 given by a Chartered Accountant firm - Subsequent amendment carried out by the Finance Act, 2008 by inserting explanation (6) to section 43(6) of the Act with retrospective effect from 01.04.2003 - For calculating depreciation the AO has to consider the retrospective amendment carried out in the statute book by inserting explanation (6) to section 43(6) of the Act and to allow depreciation in accordance with law after making fresh calculation with reference to the book value of the assets following the retrospective amendment – Decided in favor of Assessee.
Whether subsidy on account of river dredging and maintenance should be taxed in the hands of the assessee on cash basis as is being consistently followed by assessee or on accrual basis as alleged by AO – Held that:- The assessee offered for taxation the amount actually paid by government year after year against the dredging subsidy in the relevant year in which such payment was actually received and the amount sanctioned by way of dredging subsidy, which was offered for taxation in the year in which such sanction was granted on receipt of audit verification from CAG - Once the assessee is consistently following a system of accounting that actually received amount is offered for taxation year after year and it is accepted in some of assessment years, revenue cannot take a different stand in other years – Decided in favor of Assessee.
Deduction u/s 80G of the Income Tax, for the donation made - Assessee Port Trust has made deduction of Rs. 4 crores to the Prime Minister’s National Relief Fund - The assessee explained that during the FY 2004-05 relevant to AY 2005-06 the said donation was inadvertently debited to suspense account and was not transferred to P&L Account drawn for 31st March, 2005. Ld. counsel for the assessee stated that this mistake was detected in FY ending 31.03.2009 relevant to AY 2009-10 and immediately donation of Rs.4 crores was transferred to P&L Account under the head prior period charge – Held that:- This is an allowable claim in the year in which the payment is made. However, these are subject to verification of AO – Subject to verification by A.O. will decide in which year it is allowable.
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2013 (9) TMI 397
Nature of receipt - whether transfer of right or transfer of asset - Capital gain on transfer of bridge named ‘Yanam Project' to subsidiary company - Ownership - bridge was created under PPP mode under BOT scheme - Whether there is transfer of asset in the transaction of transfer of BOT from the Assessee to its 100% subsidiary – Held that:- BOT asset is figuring in the Balance Sheet at net cost price and the depreciation was being allowed to the assessee consequent to the orders of the CIT(A) and ITAT. Therefore, the issue that there is no capital asset in the books of the assessee cannot be accepted, as the very same Assessing Officer, who has completed the assessment under S.153A has considered the issue and rejected claim of depreciation in all these years on the very same asset, which is purportedly under the ownership of the Government of Andhra Pradesh. Therefore, consequent to the orders of the CIT(A) and ITAT, the assessee was allowed depreciation on the very same BOT asset. Therefore, the finding of the Commissioner of Income-tax that there is no capital asset to be transferred cannot be accepted – Decided in favor of Assessee.
Since, we have already considered the ownership of the asset and arrived at the conclusion that there is a capital asst, which is validly transferred to a 100% subsidiary company, there is no need to discuss the provisions of S.23 to 25 and S.65 of the Indian Contracts Act, to consider whether the agreement is void or not.
In any case, an agreement does not become void only because one of the parties assigned part of the rights to its 100% subsidiary, since this is authorized by the agreement itself,
Applicability of provisions of section 47(iv) of the Income Tax Act – Held that:- Assessee has right to collect toll and other fee and to develop way side facilities like advertisements, hoardings, etc. to generate revenue and also entitled to create additional structural facility to cater for the pipelines for oil, gas and water and at that time, they were envisaging establishing a pipeline for ONGC for transportation of gas by utilsiing this facility - Amount of toll collection is being assessed in the hands of GTBPL and the Commissioner has not considered the agreement as void and the toll collected thereon was not assessed in the hands of the assessee at all - There is a valid transfer to the 100% subsidiary company and since the provisions of S.47(iv) are directly applicable, this assignment can not be considered as ‘transfer' for the purpose of capital gains – Decided in favor of Assessee.
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