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Income Tax - Case Laws
Showing 441 to 460 of 585 Records
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2013 (9) TMI 305
TDS u/s 192 - obligation of the assessee to deduct tax at source on "medical reimbursement" - Default in deducting TDS - Assessee in default u/s 201 - Held that:- exemption in respect of medical expenditure is considered after collecting and verifying the details and evidence furnished by the employees. Policies and controls are in force to ensure that the requirements of the provision are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfill the process adopted in considering the exemption proviso to section 17(2).
The assessee is a law abiding Company. Internal controls are in place to discharge the statutory obligation under section 192. Honest and bona fide estimate of taxable salary is made in the process of deducting tax at source under section 192. Every effort is made by the assessee to comply with the requirements of section 192. The assessee is not benefited by allowing employees to claim exemption. The order passed by the AO under section 201(1) & 201(1A) is therefore bad in law and rightly quashed by the CIT(A) - there are grievances regarding lack of opportunity to the AO before CIT(A) and grounds challenging the finding that there is no dispute that the Assessee has satisfied itself that the employees were entitled to exemption under proviso (v) to Sec.17(2) of the Act.
As far as lack of opportunity is concerned, we find that the CIT(A) has only called for break up of the figures regarding medical reimbursement which was actually paid to employees and that which was considered not forming part of salary by the employee on production of evidence by the employee. In fact, the figures so given are the same figures on the basis of which the AO has passed order u/s.201(1) and 201(1A) of the Act - Decided against Revenue.
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2013 (9) TMI 304
Adjustment of transfer pricing - ALP - Held that:- appellant company had prima facie demonstrated that its prices are comparable and Arm's length price fixed objectively, honestly and in a bona fide manner as required by statutory regulations. This being directly explained by the appellant and as held by the Delhi Bench of the Income-tax Appellate Tribunal, [Mentor Graphics (Noida) (P) Ltd. (2007 (11) TMI 339 - ITAT DELHI-H )] the same cannot be varied by the Transfer Pricing Officer or the Assessing Officer unless it can be shown that these aspects were not properly examined in the report submitted. Therefore, in the light of above decision of the Delhi Bench of the Tribunal, it is held that the Transfer Pricing Officer or the Assessing Officer should not have rejected the arm's length price determined by the appellant without showing how the pricing worked out by the appellant was incorrect or perverse. In the present case, the appellant was given the financial statements of M/s. Qpro Infotech Ltd. by the TPO with a direction to compare its transactions with that company.
The appellant vide its letter dated 19-05-2006 demonstrated that its profit percentage is better than that of M/s. Qpro Infotech Ltd. as of March, 2004. The TPO however, did not accept the same and handed over the financial statements of another company, viz., M/s. New Gen Imaging Systems Pvt. Ltd. and directed the appellant company for comparison. The assessee company, vide its letter dated 06-11-2006 addressed to the TPO, explained that the line of activity of M/s. New Gen. Imaging Systems Pvt. Ltd. was different from them. Therefore, the assessee explained that it was a futile exercise to compare the uncomparables. The TPO however, disregarded these facts and proceeded to hold that the appellant's pricing is lower than the average rate of M/s. New Gen Imaging Systems Pvt. Ltd. and held that the appellant company has lowered its profit margin and has diverted its profit to the parent company.
From the material placed on record and on a careful examination of the same, it is found that the learned TPO has erred in attempting to compare the financial statements of the assessee company with those of M/s. New Gen Imaging Systems Pvt. Ltd. because both these companies are uncomparable - TPO is arbitrary in assuming that the appellant has lowered Its profit margin by diverting its profit to the parent company. This assumption is found to be baseless. The TPO's observations with regard to the AE siphoning off the appellant's profits are based merely on surmises and conjectures. Moreover, the transfer pricing provisions, as narrated above under the Income-tax Act, nowhere authorises the TPO to arbitrarily estimate the transfer price. The basis recorded by the TPO is devoid of merits. Therefore, the addition of Rs. 1,58,59,366/- is directed to be deleted - Decided against Revenue.
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2013 (9) TMI 303
Disallowance u/s 40(a)(ia) - Payment to consignment agents - TDS not deduction from agent's commission - CIT upheld disallowance - Held that:- The commission is said to be payment of commission if it is evident that it is being paid for service of a person provided in respect of sale of product of the assessee - The concerned parties have also furnished the sale Patti along with claim of the expenses on sale of consignment goods the claim of expenses given detail the expenses pertaining to the monthly selling expenses loading and unloading dealing with expenses. These expenses have been adjusted and accounted for in the account of respective parties - impugned payment is reimbursement of the expenses and are not the commission as the concerned party did not give any services in respect of the payment of expenditures made. Providing services is essentially requirement of the nature of transaction of a commission. Since this condition is not satisfied in the case under consideration therefore it is a case of reimbursement of the expenses incurred by the concerned party on behalf of the assessee - Since this is not a commission payment, therefore, there is no question of deducting tax at source under Section 194H of the Act. Since the payment is not subject to tax deducted at source, therefore, provisions of Section 40(a)(ia) of the Act is not applicable - Following decision of M/s. Pee Cee Cosma Sope Limited vs. JCIT [2013 (8) TMI 380 - ITAT AGRA.] - Decided in favour of assessee.
Disallowance u/s 36(1)(iii)/14A - interest expenditure - Use of interest bearing borrowed funds in the investment of shares - Held that:- The deduction contemplated by the section is in relation to the expenditure which could properly be regarded as necessary for the purpose of the business or profession. Expenditure incurred on account of commercial expediency for the purpose of business would be allowable under this provision. The expenditure to be allowed must have a nexus with the business of the Assessee. If the expenditure incurred is ostensibly incurred for the business, but if in reality is not for the purpose of business then such expenditure is not allowable - assessee has right to replace his own capital with borrowed funds which were already used for the purpose of business in acquiring assets and other - for the purpose of ascertaining profit and gains, the normal principles of commercial accounting should be applied, so long as they do not conflict with any express statutory provisions - The onus is on the assessee to furnish the relevant material regarding replacement of borrowed funds by own capital and interest free funds available with the assessee - Following decision of M/s. Pee Cee Soap & Chemicals (P) Ltd. Versus Addl. Commissioner of Income Tax [2013 (8) TMI 379 - ITAT AGRA] - Decided in favour of assessee.
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2013 (9) TMI 302
Deduction u/s 080IA - Container Freight Station(CFS) not being structure situated "at Port" – Held that:- Relying upon the decision of Special Bench in the case of All Cargo Global Logistics Ltd. vs. DCIT [2012 (7) TMI 222 - ITAT MUMBAI(SB)], it was held that CFS owned by them are better placed as ICDs considered in the case of Container Corporation of India [2012 (5) TMI 260 - DELHI HIGH COURT] were located far away at the places like Jameshedpur, Jodhpur,Jaipur etc. The CFS were situated nearly 5 Kms away from the Port. In the present case also CFS of the assessee is situated only 15 Kms away from the Port. So for the grant of deduction under section 80 IA(4), as per decision of Special Bench in the case of All Cargo and decision of Delhi High Court in Container Corporation of India, it is not a condition precedent that CFS of the assessee should be situated at port. So, non- situation of the CFS of the assessee at port does not disentitle it from claiming deduction u/s. 80 IA(4).
In the present case also the assessee has been provided with a certificate by JNPT that the assessee's CFS is an extended arm of the Port - Such certificate issued by JNPT was also withdrawn in those cases dealt by Special Bench - Such withdrawal by the JNPT was not considered as material by the Special Bench for denial of deduction under section 80IA(4). Moreover, in the certificate dated 31/3/2006, JNPT has clearly stated that assessee's CFS may be considered as an extended arm of the Port related activities in accordance with Circular No.133/95 dated 22/12/95 issued by Central Board of Excise & Customs, New Delhi, whereas in the so called withdrawal letter, which is highly relied upon by the revenue, it has no where been stated that how and on what basis the CFS of the assessee has suddenly ceased to be an extended arm of the Port.
Moreover, Co-ordinate Bench in the case of Ayush Ajay Construction Ltd. vs. ITO, [2000 (7) TMI 225 - ITAT INDORE] while interpreting the provisions of section 80IA(4), even in the absence of agreement, on recognition of the work done has come to a conclusion that assessee was entitled to get deduction – Also, following observation has been made in the case, “the object of its insertion to the tax statute in the light of the budget speech of the Hon'ble Finance Minister and the above said judicial pronouncements, we would find that the legislature has given a fillip of deductions to those enterprises who engage themselves in developing, maintaining and operating any infrastructure facilities for economic growth of the nation as it was felt by the legislature that inadequate infrastructure was a key constraint of our economic progress. As held by the apex Court in the case of Bajaj Tempo Ltd. vs. CIT[1992 (4) TMI 4 - SUPREME Court], the provisions of promoting economic growth should be interpreted liberally and the restriction on it too has to be construed so as to advance the objective of the provisions and not to frustrate it.” – Decided in favor of Assessee.
Further, the deduction for the years under consideration cannot be denied to the assessee on the ground that there is no provision for withdrawal of this deduction for the subsequent year for breach of certain conditions unless the deduction granted in initial A.Y.2004-05 is withdrawn. Such proposition is supported by the decision of Jurisdictional High Court in the case of CIT vs. Paul Brothers (1992 (10) TMI 5 - BOMBAY High Court). No contrary decision was cited by the other side. - Decided in favor of assessee.
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2013 (9) TMI 301
Loss of security deposit - business loss or bad debts - Capital or Revenue expenditure - conditions specified u/s 36(2) r.w.s.36(i)(vii) - whether the loss of security deposit in question is a business loss in the revenue field - Held that:- the above loss is a business loss ;for the reason that the assessee has taken on lease many premises spread over many parts of the country, and this act of taking this show room on lease is in the normal course of business. In fact 84 show rooms are taken on lease at various places. Six months rent was given as security deposit. This was given in the course of business. The transaction is intimately connected with the business of the assessee - There is no enduring benefit to the assessee.
The loss in question is in the revenue field and has been rightly claimed u/s 28. This is not a bad debt. - It is a deposit in the usual course of taking show rooms on lease. - Following decision of Empire Jute Co.Ltd. vs. CIT [1980 (5) TMI 1 - SUPREME Court] - Decided in favour of assessee.
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2013 (9) TMI 300
Transfer pricing - ALP - Shifting of profit outside India - Associate Enterprise suffered losses - Held that:- entire Chapter X in I.T.Act is devoted to determine Arms Length Price in respect of a cross border transaction made by an Indian entity, which is to be taxed in India. Whether said foreign A.E. is having losses, or otherwise not benefitted in any tax savings in that country, is not matter of examination in this Chapter-X of IT Act - Decided against assessee.
Rejection of Appellant's economic analysis - Valid reason not provided - assessee had given twelve comparable instances but it was noted that those instances were in respect of companies in production of 'glass products'. As against that assessee had manufactured 'glass mosaic'. Although it was informed that there was no major player in glass mosaic sector but Revenue Department has selected a comparable instance and bench marked international transaction against Bisazza India Pvt. Ltd. - while adopting TNMM method only profit based comparison is advisable, but start point for every comparison is product which is subject matter of international transaction - fundamental start point for comparison is similarity amongst nature of transaction, which depends upon none other than transaction of product. Without first establishing similarity of product between two comparable how is it practically possible to judge FAR? If nature of transaction is dissimilar in product then that should lead to an incongruous result. economic analysis, therefore, of comparable companies as attempted by assessee was not proper in eyes of law primarily because of reason that those companies were admittedly manufacturing ' glass wares' and not 'glass mosaic', particularly when revenue department was in a position to lay hand to compare transaction of assessee with a comparable company also dealing in glass mosaic. This product is undisputedly identical with product of assessee manufactured. Without first establishing proximity of products it is difficult to hold that comparables are from same economic segment. And without having intimate economic segment quoted companies can not be treated as "comparables". In sequence of preference it is incorrect to hold that ‘functional similarity' is to be preferred over and above 'product similarity' - Decided against assessee.
First onus of selection of comparables was discharged by assessee. Thereafter it became duty of TPO to find whether those were in fact comparable in all respect or not. At that juncture TPO had emptied basket of comparables of assessee by mentioning that first criteria of similarity of product had failed in said selection of assessee. Rather in this case a subtle allegation of TPO was that assessee has done cherry picking. Once selection of assessee had been discarded then begins duty part of TPO. He is duty bound to select most close comparable instances available to him being in public domain. There can be an initial selection of 'industry segment' - if broad segment has several other sub-segments then naturally next filter is required to be applied. - Decided in favor of revenue.
Use of data not in public domain - Benchmarking analysis - Violation of principle of natural justice - Held that:- TPO had exercised his powers by invoking provisions of Section 133(6) of IT Act for purpose of collecting information to determine ALP. As far as this power is concerned, same is enshrined under section 92CA(7) of IT Act - information collected after issuing notices under Section 136(6) is required to be communicated to assessee and AO is under obligation to furnish entire information to assessee. In present case, since undisputed fact is that assessee had in fact been given an opportunity to contradict material gathered by TPO - Following decision of MARUTI SUZUKI INDIA LTD. versus ADDITIONAL COMMISSIONER OF INCOME TAX TRANSFER PRICING OFFICER NEW DELHI [2010 (7) TMI 84 - DELHI HIGH COURT].
Tax administrator has more information available to them. But requirement is that it would be unfair to apply that information against assessee, unless that data/information is disclosed to assessee so that assessee can safeguard its legal interest - assessee has first entered into international transaction and thereupon to justify ALP he has cited few comparables. But law is that assessee is required to establish that international transaction was ALP transaction. Only to compute ALP it is expected to compare data's with other identical nature of companies, rather than collect information to defend ALP in respect of said international transaction which had already been completed - data of a private limited company as selected by TPO once communicated to assessee and assessee had been granted opportunity to refute same, then requirement of law has been fulfilled by TPO - Decided against Assessee.
Arbitrary approach in selection of comparables - Held that:- if only one comparable is left then selection is as per lawcomparables which were selected by assessee were not identical in respect of product manufactured. TPO had found that only one company happened to be manufacturing same article i.e. Glass Mosaic. Moreover, comparables which were selected by assessee did not have same line of manufacturing activity - It is not correct to say that merely on ground that TPO could have laid hand on one comparable than he was expected to do more research - ALP can be computed even on basis of one comparable - Following decision of Haworth (India) P. Ltd. Versus Deputy Commissioner of Income-tax [2013 (8) TMI 421 - ITAT DELHI] - Decided against assessee.
Application of 'Internal TNMM' - Some times it is find that internal comparables may have more direct as also closer relationship to transaction under consideration than external comparables. First similarity is resemblance of product. Likeness of product exported with product sold in domestic market can not be questioned. Even OECD guide lines have suggested an ideal situation with reference to profit indicator that same taxpayer earns in comparable uncontrolled transaction - . A general rule on determination of ALP is that prices may vary across different markets even for transaction involving product. Therefore to achieve comparability it requires that market in which independent and A.E. operate are comparable. Another possibility is that to achieve comparability domestic market sales can be compared with export market sales of that very assessee. By this procedure at least one thing is assured that products manufacture and sold is alike. Then economic factors, management factor, finance involvement etc. are also indistinguishable. These factors being dove tailed, either cross-border or domestic sales, hence impossible to tear apart therefore uniformly applies on both type of transaction of same assessee - internal comparable" can be considered but after certain adjustments - Decided in favour of assessee.
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2013 (9) TMI 299
Capital or Revenue receipt - Nature of Subsidy received from holding company State Trading Corporation of India (STC) - Held that:- In the present case, Rs.25 lakhs was not paid by a third party or by a public authority but by the holding company. It was not on account of any trade or a commercial transaction between the subsidiary and holding company. The holding company was a shareholder and the shares partake and were in nature of capital. Share subscription money received in the hands of the respondent assessee was a capital receipt. The intention and purpose behind the said payment was to secure and protect the capital investment made by STC Ltd. in the respondent. The payment of grant by STC and receipt thereof by the respondent was not during the course of trade or performance of trade, thus, could be categorised or classified as a gift or a capital grant and did not partake character of a trading receipts. - The receipt is capital in nature - Decided in favor of assessee.
The findings recorded by the Delhi High Court in their earlier decision in the case of the respondent/assessee [1981 (12) TMI 25 - DELHI High Court] is the grant given by the holding company was of capital nature and not revenue or contributing to the trading income of the respondent.
Even when we apply the purpose test applied in the case of Sahney Steel & Press Works Ltd. (1997 (9) TMI 3 - SUPREME Court) as explained in Ponni Sugar and Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT). It cannot be said that the earlier decision of the Delhi High Court [1981 (12) TMI 25 - DELHI High Court] has been overturned or overruled by the Supreme Court in the two decisions mentioned above. - Decided against Revenue.
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2013 (9) TMI 298
Disallowance u/s 14A - Held that:- the assessee has earned exempt income of Rs. 7,09,157, as dividend and no expenditure under section 14A was disallowed by the assessee. The Assessing Officer also, without any basis, has taken 17% of the administrative expenditure without looking to the nature of expenditure debited in the Profit & Loss account. Looking to the fact that the assessee has not incurred any interest expenditure, the disallowance of Rs. 45,000 on account of other administrative expenditure seems to be reasonable. Consequently, we do not find any reason to disturb the findings given by the Commissioner (Appeals) and the same are hereby upheld for the reason that, admittedly, the provisions of rule 8D are not applicable for the assessment year 2005-06 as held by the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, (2010 (8) TMI 77 - BOMBAY HIGH COURT) - Decided against Revenue.
Unexplained investment u/s 69 - Held that:- The assessee, before the Assessing Officer, contended that it has made investment of Rs. 5,00,000 only in Reliance Mutual Funds and the second investment of Rs. 5,00,000 has not been made by it. To clarify this contention, the assessee has filed the proof of investment made in the name of associate concern Brook Trading Company Pvt. Ltd. which had made the investment. Along with that a photocopy of cheque dated 1st March 2005, and the bank account was given before the Commissioner (Appeals). The Commissioner (Appeals), after verifying these details, has deleted the addition. The Commissioner (Appeals) having a co-terminus power with that of the Assessing Officer can very well examine these facts in the course of appellate proceedings. He has merely verified the assessee's contention from the copy of cheque and bank account along with the proof of investment in the name of Brook Trading Company Pvt. Ltd. Under these circumstances, it cannot be held that there is a violation of rule 46A. Thus, under these facts, the findings given by the Commissioner (Appeals) are affirmed - Decided against Revenue.
Commissioner (Appeals) and, accordingly, the same is confirmed - Decided against Revenue.
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2013 (9) TMI 297
Deduction u/s 80IC - Eligibility - Flour Mill versus Roller Flour Mill - Held that:- Assessee was running Flour Mill on which deduction u/s 80IB(4) has already been allowed by the Assessing Officer at 25%. Later on it is claimed that the same was upgrade to Roller Flour Mill and the assessee was entitled to 100% deduction u/s 80IC. - the assessee though argued that this item should be interpreted on the basis of a trade name but no Trade Journal or any other material was produced to show that in the trade parlance "Flour Mill" is distinct from "Roller Flour Mill". In any case the assessee itself has been shown to be running a Flour Mill - even in the trade Roller Flour Mill and Flour Mill is understood as one and same and in any case as observed in case of Pooja Industries (2013 (9) TMI 295 - ITAT CHANDIGARH) there is no material before us to reach a different conclusion. - Assessee is not entitled to deduction u/s 80IC - Decided against the assessee.
Disallwance u/s 40((a)(ia) - No deduction of TDS or Non deposit of TDS even before due date of filing of return - Whether disallowance u/s 40(a)(ia) of the I.T Act could be made only in respect of such amounts which are payable as on 31st Mach of the year under consideration - Held that:- Hon'ble Gujarat High Court has considered all aspects of the issues raised in the decision of Special Bench in case of Merilyn Shipping Transporters V. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM). We further find that that even Hon'ble Calcutta High Court has overruled this decision in case of CIT Vs. Cresent Export Syndicate [2013 (5) TMI 510 - CALCUTTA HIGH COURT]. Moreover Chandigarh Bench of the Tribunal consistently has been following the decision of Hon'ble Gujarat High Court in case of CIT V. Sikandarkhan N Tunwar and others (2013 (5) TMI 457 - GUJARAT HIGH COURT) as well as the decision of Hon'ble Calcutta High Court in case of CIT Vs. Cresent Export Syndicate (2013 (5) TMI 510 - CALCUTTA HIGH COURT). Therefore, with respect to above we decline to following the decision of Hon'ble Allahabad High Court for the above reasons. - Decided against the assessee.
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2013 (9) TMI 296
Deduction u/s 10A - Reduction of expenditure incurred in foreign currency from export turnover - DPO & Assessing Officer reduced the expenditure incurred in foreign currency from export turnover while computing the deduction under section 10A - Held that:- The Assessing Officer has given a finding that the assessee has incurred these expenses in the process of exports of software. This expenditure incurred was in providing technical services outside India. Therefore, this expenditure was excluded from the export turnover by the Assessing Officer which was affirmed by the DRP. The assessee could not able to substantiate its claim that such expenditure was not incurred in rendering any technical services. In the circumstances, the contention of the assessee that this expenditure should not be excluded from the export turnover is rejected. However, we agree with the assessee that this expenditure having excluded from the export turnover, it should also be excluded from the total turnover, in view of the decision of the Special Bench Tribunal in the case of Sak Soft Ltd. (supra). Therefore, we direct the Assessing Officer to exclude the expenditure incurred in foreign currency which was excluded from export turnover from the total turnover for the purpose of computing relief under section 10A of the Act - Decided in favour of assessee.
Disallowance u/s 14A - Whether DRP and the Assessing Officer ought to have granted deduction under section 10A on the enhanced income on account of the aforesaid disallowance - Held that:- Though the counsel for the assessee submits that during this year there were no borrowings and all the investments were made out of own funds, therefore, the provisions of section 14A cannot be invoked as it becomes academic, in view of the alternative ground of the assessee that deduction under section 10A has to be granted on the enhanced income on account of disallowance made under section 14A. As we incline to accept the alternative ground of appeal that the deduction under section 10A has to be granted on enhanced income on account of disallowance under section 14A - Disallowance shall go to enhance the profit eligible for deduction under section 10A. Accordingly, we direct the Assessing Officer to enhance the disallowance made under section 14A as part of the eligible profit for the purpose of section 10A - Following decision of Godrej & Boyce Manufacturing Co. Ltd., Vs. DCIT. [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Decided in favour of assessee.
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2013 (9) TMI 295
Deduction u/s 80IC - Eligibility - Flour Mill versus Roller Flour Mill - Held that:- This classification under various NIC standards has been issued by Ministry of Statistics and Programme Implementation, Government of India. Code 15311 has been mentioned in Part B of Schedule XIII at Col. 8. Since this Division pertain to Food and Brewages and only one item in respect of Flour Milling is there, it becomes clear that the Parliament was clear in its intention that activity of Flour Milling would not be entitled to deduction u/s 80IC and that is why the same has been placed in Schedule XIII along with Excise classification Code 11.01 as well as National Industries classification under Division 15 at Sl No. 15311. Therefore, the activity of Flour milling or article or thing under which can be called "Flour" is not eligible for deduction u/s 80IC by virtue of its entry in the negative list in Part B of Schedule XIII.
Assessee though argued that this item should be interpreted on the basis of a trade name but no Trade Journal or any other material was produced to show that in the trade parlance "Flour Mill" is distinct from "Roller Flour Mill". - CIT(A) has correctly brushed aside this clarification because it deals with the sales tax etc. which is a State subject and this clarification can not negates the intention of the Parliament given in Part B of Schedule XIII which is a negative list for deduction u/s 80IC. - Decided against the assessee.
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2013 (9) TMI 276
Capital gain or business income - Sale of Shares - Whether the subscription to 20% of the issued equity shares of M/s. MABL and subsequent sale thereof resulting in gain was in the nature of capital gains or in the nature of business income - Held that:- The fact that the Managing agency could be utilized for earning profit could not lead to the conclusion that shares so purchased were on revenue account in the absence of any intent to trade in in those shares. - Decided in favor of assessee.
The assessee by purchasing the shares also acquired the right to manage M/s. MABL and in the absence of any other evidence to indicate that there was an intent on the part of the appellant to deal in the shares the only conclusion would be that the entire transaction of purchase and sale by the appellant was on capital account.
Moreover, the subscription of 20% shares in M/s. MABL subscribed to by the appellant were not freely transferable but regulated and restricted by the shareholders agreement dated 16 May 2002. In view of the above agreement dated 16 May 2002 there was a three years lockin period in respect of the subscribed share capital and the appellant could not sell the same during that period. In case the appellant had to sell during three years lock in period the sale was restricted only to the other two parties to the shareholders agreement. Moreover, even after the three year lock in period was over, the other two parties to the agreement continue to have right of preemption in respect of the appellant's shareholding.
The shares had been purchased out of borrowed funds and yet the Apex Court held that the same would not by itself indicate/evidence an intent to deal in shares.
Taking all the cumulative factors including the decision of the Supreme Court in Ramnarain Sons (P) Ltd. [1960 (12) TMI 3 - SUPREME Court] the impugned order was incorrect in holding that 20% shares of M/s. MABL subscribed to by the appellant was stock in trade of the appellant and not its capital asset, as contended by the revenue. - Decided in favor of assessee.
Though the appellant had right to appoint its nominee as a Manager of M/s. MABL yet the nominee could not exercise authority as a Manager on his own but had to do so in consultation with others and therefore was not the Manager. Consequently, the conclusion by the Tribunal that no amount was paid while subscribing for the shares to enjoy the rights of Manager of M/s. MABL. Merely because the appellant's nominee acts as Managing Director of M/s. MABL and such function of Managing Director as a Manager has to be discharged in consultation with others does not denude the Manager of its authority and function as a Manager. It is axiomatic that no Manager in any field of business activity enjoys on absolute and unfettered rights to manage his business without having to consult others. Therefore, the finding in the impugned order that because the appellant nominee has no absolute right to manage M/s. MABL as it desires, it must follow that the appellant has no right as a Manager of M/s. MABL, is perverse. - Decided in favour of assessee.
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2013 (9) TMI 275
Amendments made to Section 40(a)(ia) by Finance Act, 2010 - Retrospective effect or Prospective effect - TDS on amount paid on before 28th February not paid before 31st March - But deposited before due date of filing of return - Held that:- Question whether the amendment is retrospective or prospective is vexed and rigid rule can be applied universally. Various rules of interpretation have developed in order to determine whether or not, an amendment is retrospective or prospective. Fiscal statutes imposing liabilities are governed by normal presumption that they are not retrospective. The cardinal rule is that the law to be applied, is that which is in force on the first day of the assessment year, unless otherwise mandated expressly or provided by necessary implication. The aforesaid dictum is based upon the principle that a new provision creating a liability or an obligation, affecting or taking away vested rights or attaching new disability is presumed to be prospective. However, it is accepted that Legislatures have plenary power to make retrospective amendments, subject to Constitutional restrictions.
Section 43B deals with statutory dues and stipulates that the year in which the payment is made the same would be allowed as a deduction even if the assessee is following the mercantile system of accountancy. The proviso, however, stipulates that deduction would be allowed where the statutory dues covered by Section 43B stand paid on or before the due date of filing of return of income. Section 40(a)(ia) is applicable to cases where an assessee is required to deduct tax at source and fails to deduct or does not make payment of the TDS before the due date, in such cases, notwithstanding Sections 30 to 38 of the Act, deduction is to be allowed as an expenditure in the year of payment unless a case is covered under the exceptions carved out. The amended proviso as inserted by Finance Act, 2010 states where an assessee has made payment of the TDS on or before the due date of filing of the return under Section 139(1), the sum shall be allowed as an expense in computing the income of the previous year. The two provisions are akin and the provisos to Sections 40(a)(ia) and 43B are to the same effect and for the same purpose.
Principle of matching which is disturbed by Section 40(a)(ia) of the Act, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses as they have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low G.P. rate and when expenditure which becomes subject matter of an order under Section 40(a)(ia) is substantial, can suffer severe adverse consequences as is apparent from the case of Naresh Kumar. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe off the adverse effect and the financial stress. Nevertheless the Section 40(a)(ia) has to be given full play keeping in mind the object and purpose behind the section. At the same time, the provision can be and should be interpreted liberally and equitable so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. Case of Naresh Kumar is not one of rare cases, but one of several cases as we find that Section 40(a)(ia) is invoked in large number of cases.
It is apparent that the respondent assesse did not violate the unamended section 40(a)(ia) of the act - The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support the expression “said due date” used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance.
Following the decision in Rajinder Kumar [2013 (7) TMI 454 - DELHI HIGH COURT], Decided against Revenue.
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2013 (9) TMI 274
Default u/s 206C - Import of scrap - TCS (Tax Collection at Source) - Held that:- assessee himself has declared the goods imported by him as brass scrap before the Customs authorities. He is therefore bound by that declaration. Once it is declared as waste and scrap under the Customs Tariff Act, it necessarily follows that it is in the nature of waste and scrap, which is definitely not usable as such. Be that as it may, the definition of "scrap" under Explanation (b) is wider in scope than the definition of "scrap" as given in the Customs Tariff Act. In this view of the matter, materials recovered on demolition of buildings, old machines/fixtures/fittings sold as scrap, discarded packing materials, etc., would also fall in the category of "scrap" as defined in Explanation (b) as all of them are items, which are no longer useful as such, and therefore fall in the category of waste and scrap from the manufacture or mechanical working of materials, which is definitely not usable as such - Decided against assessee.
Assessee submitted that he was under a bona-fide belief that what was imported and sold by him was not "scrap" within the meaning of Explanation (b) to section 206C. We are unable to accept the aforesaid submission for two principal reasons. One, the assessee has placed no material either before the AO or before the CIT(A) or before us to establish his bona-fide in the matter. It is not his case that he was advised by any competent professional that the scrap sold by him would not attract the provisions of section 206C. Two, the provisions of section 206C are not subject to reasonable cause or bona-fide belief like provisions relating to levy of penalty.
It is the assessee himself who had declared that the materials sold by him was imported by him as scrap. The AO is not required to prove facts admitted by the assessee himself. Once the assessee makes a declaration to that effect before the Government and the Government also acts upon that declaration, he is precluded from pleading otherwise before the Government. Section 115 of the Evidence Act is quite apposite. Both the authorities, namely, the AO and the CIT(A), have taken cognizance of the aforesaid declaration made by the assessee before the Customs authorities before fixing the liability on the assessee. It cannot therefore be said that the AO has not brought out any material on record to show that the material imported and subsequently sold by the assessee was "scrap". Two, we have also taken the view that the material imported and subsequently sold by the assessee was "scrap" within the meaning of Explanation (b) to section 206C.
First proviso to sub-section (6A) of section 206C not only seeks to rationalize the provisions relating to collection of tax at source but is also beneficial in nature in that it seeks to provide relief to the collectors of tax at source from the consequences flowing from non/short collection of tax at source after ensuring that the interest of the Revenue is well protected, we have no hesitation to hold that the said proviso would apply retrospectively and therefore to both the assessment years under appeal. We therefore direct the assessee to appear before the Assessing Officer along with relevant documents as stipulated by the first proviso to sub-section (6A) of section 206C within two months of the date on which this order is pronounced upon which the AO shall examine the claim of the assessee in the light of the said provisions and pass appropriate order accordingly in conformity with law after giving reasonable opportunity of hearing to the assessee - Following decision of Allied Motors (P.) Ltd. v. CIT [1997 (3) TMI 9 - SUPREME Court] - Decided in favour of assessee.
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2013 (9) TMI 273
Bad debts versus Provisions for bad and doubtful debts - rural banking - Scope and ambit of the proviso to Section 36(1)(vii) - whether deduction of the bad and doubtful debts actually written off in view of Section 36(1)(vii) limits the deduction allowable under the proviso to the excess over the credit balance made under clause (viia) of Section 36(1) – rural advances - Held that:- U/s 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year, while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans. Therefore, we hold that provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields – Following decision of Catholic Syrian Bank Ltd. Versus Commissioner of Income Tax, Thrissur [2012 (2) TMI 262 - SUPREME COURT OF INDIA] - Decided in favor of assessee.
Disallowance u/s 14A - Interest on tax free bonds and debentures and dividend income - Held that:- It is an undisputed fact that the Assessee has earned Rs. 39.65 Crore on account of interest on tax free bonds, debentures and dividend income which has been claimed as exempt. It is also a fact that the Assessee while computing the total income has suo motu disallowed Rs. 6.32 Crore u/s 14A. AO worked out the disallowance under Section 14A at Rs. 36.68 Crore and after setting off disallowance made by the assessee, he disallowed Rs. 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of Rs. 25.35 Crore - matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Assessee is also directed and furnish promptly the details called for by the AO to decide the issue - Decided in favour of assessee.
Disallowance of depreciation - Held that:- It is an undisputed fact that the income from lease has been considered by Assessee as income It is an undisputed fact that the AO has considered the lease entered by the Assessee to be a Finance lease to arrive at the conclusion that the assessee is not entitled to depreciation - disallowance as assessee’s use of vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them on hire - assessee is a public limited company engaged in the business of hire purchase, leasing and real estate - High Court allowed the appeal of revenue - As long as the asset is utilized for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. In the present case the assessee is a leasing company which leases out trucks that it purchases. Therefore, on a combined reading of Section 2(13) and Section 2(24) the income derived from leasing of the trucks would be business income, or income derived in the course of business, and has been so assessed. Hence, it fulfills the second requirement of Section 32 viz. that the asset must be used in the course of business. See CIT Karnataka, Bangalore Vs. Shaan Finance (P) Ltd., Bangalore [1998 (3) TMI 8 - SUPREME COURT] and M/S I. C. D. S. LTD. VERSUS COMMISSIONER OF INCOME TAX. MYSORE & ANR. [2013 (1) TMI 344 - SUPREME COURT] - Decided in favour of assessee.
Penalty u/s 271(1)(c) - Held that:- assessee had disclosed all the material facts before the AO and CIT(A). When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing inaccurate particulars thereof. This is a case of bona fide difference of opinion regarding the allowability of a claim of deduction between the Assessee and dept. What is to be seen is whether the said claim made by the assessee was bona fide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty under s. 271(1) (c) of the Act. In the present case all the necessary facts were furnished by Assessee. In the case of CIT Vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) the Hon. Apex Court has held that there making a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of Assessee. In view of the totality of facts we are of the view that the addition does not call for levy of penalty under s. 271(1)(c) - Decided in favour of assessee.
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2013 (9) TMI 272
Admission of additional evidence - Held that:- The appellate authorities should exercise their discretion in permitting or not permitting the assessee to raise an additional ground/additional evidence in accordance with law and reasons. There is no blanket permission to the assessee to raise the additional ground or filing of additional evidence according to his own whims and fancies. There should be reasonable cause for furnishing additional evidence belatedly. In the present case, we find no reasonable cause for raising the additional grounds/evidences so belatedly. Considering the facts of the present case, we have no hesitation in declining to admit the additional evidences filed by the assessee before us and accordingly the additional evidence is rejected. - Decided against the assessee.
Addition u/s 68 of the Income Tax Act – if this amount is duly assessed in the hands of Sri A. Mallikarjuna as his income, then taxing the same in the hands of the assessee would amount to double addition of the same amount. It cannot be permitted. Accordingly we direct the Assessing Officer to verify whether this amount taxed in the hands of Sri A. Mallikarjuna and if he has not filed any appeal against this addition in his hand or it reaches the finality by the decision of a superior judicial forum, then it should not be assessed once again in the hands of the present assessee. - Decided in favor of assessee.
Addition of Rs. 31.5 lakhs towards CD/DVD/satellite/overseas rights as against Rs. 25 lakhs – Held that:- As per the agreement between the assessee and Gemini Television total consideration is of Rs.31.5 lakhs and out of which the assessee received only Rs. 25 lakhs and the balance is to be paid on the date of signing the agreement - As the agreement entered with G. Harinath was found to be false, the claim of amount received from him at Rs. 25 lakhs is totally contrary to the facts on record. Being so, the CIT(A) is justified in sustaining the addition of Rs. 31.5 lakhs on this count.
Addition of Rs. 3 lakhs towards 16MM rights – Held that:- There was a seized document A/SRB/44 which was a xerox copy of agreement dated 16.10.2011 for sale of sole and exclusive exploitation of 16MM rights of the film “Maa Annaiah” for a period of 5 years from 25.12.2001 - The lessor and the lessee are the assessee firm and Sri MVVS Prasad son of Venkateswara Rao resident of Kovvur, West Godavari. Being so, no any infirmity in the order of the CIT(A) as the addition is based on the seized material and the same is confirmed.
Unexplained expenditure u/s 69C of the Income Tax Act – Held that:- Where in any financial year the assessee incurs any expenditure thereof and the assessee fails to offer satisfactory explanation to the Assessing Officer, the amount covered by such expenditure may be treated as deemed income of the assessee for such financial year. The scheme of section 69C would show that in cases where the nature and source of investment made by the assessee or the nature and sources of acquisition of any asset owned by the assessee or the source of expenditure incurred by the assessee are not explained at all or not satisfactorily explained, then, the value of such investment and money or the value of articles not recorded in the books of account or unexplained expenditure may be deemed to be the income of the assessee.
Deduction to be allowed in respect of unexplained expenditure included as deemed income in the hands of Assessee – Held that:- Because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14, it would not be possible to classify such deemed income under any of these heads including income from other sources which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69,69A, 69B and 69C will not apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted - When the expenditure was not recorded in the books of account and the assessee failed to offer satisfactory explanation about the nature and source of such expenditure, there could arise no question of treating the value of such expenditure, which was deemed to be the income of the assessee, as deductible expenditure in the financial year, and hence, such deemed income did not fall under the head ‘Profits and gains of business or profession’ – Hence, no deduction is allowed in this resect – Decided in favor of Revenue.
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2013 (9) TMI 271
Revision u/s 263 - Options when cryptic and arbitrary order passed by the Assessing officer – Held that:- Arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. - As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving his reasons therefor.
Reliance has been placed upon the various judgment in the case of S.N. Mukherjee v. Union of India [1990 (8) TMI 345 - SUPREME COURT], wherein it has been held that what is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy – In the present case, it has been held Assessing Officer is cryptic in nature and there is no discussion. No proper enquiry on the part of the Assessing Officer.
The Assessing Officer absolutely closed his eyes and completed the assessment without raising any objection on the impugned issues. Being so, the issues in dispute are required to be examined thoroughly by the Assessing Officer. The CIT is not justified himself giving direction to make addition - At all fairness, the issues to go back to the Assessing Officer for fresh consideration. Accordingly, the entire issues are remitted back to the Assessing Officer for fresh consideration. - Decided partly in favor of assessee.
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2013 (9) TMI 270
Re-opening of assessment u/s 147 for the reason of legal opinion expressed by the audit party and not the factual error found by the audit team – Held that:- Relying upon the judgment in the case of Xerox Modicorp Ltd.[ 2013 (1) TMI 160 - DELHI HIGH COURT]; Air India[1994 (10) TMI 33 - BOMBAY High Court] and Indian Eastern and Newspaper Society [1979 (8) TMI 1 - SUPREME Court], it has been held in the present case that re-opening of assessment is not valid.
In the instant case, audit party has not pointed out any factual error or omission but has expressed the opinion on the analysis of the balance sheet of one of the two concerns of the assessee that the interest paid by the assessee needs to be disallowed because the borrowed funds were diverted by providing interest free loans to others - The decision of Hon’ble Apex Court in the case of P.V.S. Beedies Pvt.Ltd. [1997 (10) TMI 5 - SUPREME Court] would not apply because in that case, there was only a factual error – Decided against the Revenue.
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2013 (9) TMI 269
Revision u/s 263 - Correctness of application of section 263 by CIT – AO allowed set off B/F losses and unabsorbed depreciation - Held that:- Nothing has been brought on record to show that any inquiry has been made by the AO in the course of assessment proceedings on this account and hence, it has to be accepted that such set off was allowed by the AO in the absence of any supporting material and without making any inquiry and therefore, the jurisdiction exercised by ld. CIT u/s. 263 of the Act is justified - Decided against the assessee.
Revision u/s 263 - AO did not refer the case of TPO where International transaction reported by the assessee in Form 3CEF is more than Rs.5 crore Held that:- oard Instruction No. 3 dated 20-05-2003 issued by CBDT u/s. 119 of the Act as per which it was decided that wherever the value of international transaction exceeds to Rs. 5 crore, the case should be taken up for scrutiny and reference u/s.92CA be made to the TPO - the Assessing Officer was duty-bound to refer the matter to the TPO for determination of Arm's Length Price and since, this was not done by the AO, it has to be accepted that the assessment order in both years is erroneous as well as prejudicial to the interest of Revenue. - Decided against the assessee.
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2013 (9) TMI 268
Tax Collection at Source (TCS) u/s 206 C on Dead Rent/Royalty - assessee in default - Held that:- lease/license was granted by the District Magistrate on behalf of the State Government for mines and quarries against consideration. May be the TAN is issued in the name of District Mining Officer, is not relevant to avoid liability to collect TCS by the District Magistrate. Considering the above facts, noted by the assessing officer and confirmed by the District Mining Officer that leases/licenses have been granted by the District Magistrate, would clearly prove that the District Magistrate, Jhansi is liable to collect TCS in the facts and circumstances of the case. - Decided against the assessee.
The amount payable or the amounts received are the important factors which shall have to be taken into consideration at the time of collection of TCS. The above provision, therefore, would not be restricted to the amounts paid or payable on account of specified terms. It may be anything and as such it would also apply against the amount payable or paid on account of dead rent/royalty. Whatever name is given in the agreement of mining, the same is payable by the licensee to the District Magistrate and upon that the District Magistrate is required to collect TCS as per above provisions. Whether dead rent was to be paid in advance or royalty was to be paid after start of business are not relevant criteria to deal with the provisions of section 206C(1C) of the IT Act. - Decided against the assessee.
The assessee is also liable to pay interest u/s 206(6A) of the Income Tax Act, which has been brought on the statute w.e.f. 01.04.2007 - Since the assessee was responsible for collecting tax and failed to do so in accordance with the provisions of law, therefore, for the failure of assessee to collect the tax, the assessee would be liable to pay tax to the credit of the Central Government in accordance with law. Therefore, quoting a wrong provision would not be relevant for the purpose of deciding the issue. Same view is taken by ITAT, Agra Bench in the case of Agra Development Authority v. ACIT [2012 (10) TMI 887 - ITAT AGRA] – Decided against the Assessee.
Double deduction of TCS from the assessee, when the leasee/lincencee has already paid tax - Held that:- Reliance has been placed upon the Hon’ble Karnatka High Court judgment in the case of Sree Manjunatha Wines v. CIT [2011 (9) TMI 254 - KARNATAKA HIGH COURT], wherein it has been held that If in a given case the assessee has not collected the tax from the buyer and if the buyer has paid tax to the revenue, the revenue is not deprived of the tax which is legitimately due to them. - The assessee submitted before the AO that all the licensees are assessed to Income-tax, but no evidences have been filed before the AO for payment of taxes - Restored the issue to the file of AO with direction to assessee to substantiate that all the payments of taxes have been made by the licensees/lessees referred in all the assessment years under appeals with proper evidence of payments by the licensees or lessees in question and the AO on verification of the same shall decide the issue in accordance with law by giving reasonable and sufficient opportunity of being heard to the assessee - Decided partly in favor of assessee.
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