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2015 (5) TMI 873 - DELHI HIGH COURT

Director of Income Tax- Delhi Versus M/s. Lufthansa Cargo India

Sections:- 009, 040, 090, 195,

Dated: 27/05/2015

ITA 95/2005

Liability to deduct tds - agreements between the assessee and non-residents are not fee for technical services within the meaning of Section 9(1)(vii) so as to oblige the assessee to deduct tax at source under Section 195 as held by ITAT - Held that:- ITAT was unduly influenced by all the regulatory compulsions which the assessee had to face. Besides international convention and domestic law that mandated aircraft component overhaul, the manufacturer itself – as a condition for the continued application of its warranty, and in order to escape any liability for lack of safety, required periodic overhaul and maintenance repairs. Unlike normal machinery repair, aircraft maintenance and repairs inherently are such as at no given point of time can be compared with contracts such as cleaning etc. Component overhaul and maintenance by its very nature cannot be undertaken by all and sundry entities. The level of technical expertise and ability required in such cases is not only exacting but specific, in that, aircraft supplied by manufacturer has to be serviced and its components maintained, serviced or overhauled by designated centres. It is this specification which makes the aircraft safe and airworthy because international and national domestic regulatory authorities mandate that certification of such component safety is a condition precedent for their airworthiness. The exclusive nature of these services cannot but lead to the inference that they are technical services within the meaning of Section 9(1)(vii) of the Act. The ITAT’s findings on this point are, therefore, erroneous. This question is accordingly answered in favour of the Revenue.

Whether payments made by the assessee fell within the purview of the exclusionary clause of Section 9(1)(vii)(b) of the Act and were not, therefore, chargeable to tax at source? - Held that:- Coming to the instant case, it is evident that fee which has been named as "success fee" by the assessee has been paid to the NRC. In the present case, the ITAT held that the overwhelming or predominant nature of the assessee’s activity was to wet-lease the aircraft to LCAG, a foreign company. The operations were abroad, and the expenses towards maintenance and repairs payments were for the purpose of earning abroad. In these circumstances, the ITAT’s factual findings cannot be faulted. The question of law is answered in favour of the assessee and against the revenue.


State Bank of Patiala Versus Commissioner of Income Tax & another

Sections:- 032, 147, 148,

Dated: 22/04/2015

CWP No.6765 of 2013, CWP No.6767 of 2013, CWP No.17892 of 2013

Reopening of assessment - whether the ATM is a computer or ought to be treated as normal plant and machinery, attracting different rates of depreciation? - Held that:- When the returns for the subsequent years were processed, the AO had disallowed the claim made @ 60% and added a sum of ₹ 3,71,00,000/- to the income of the assessee-Bank, by allowing depreciation @ 15% only, by treating the ATMs as plant and machinery. Keeping in view the fact that the ATMs had been operationalised by March, 2005, reasons were recorded to believe that the income of the assessee, chargeable to tax, had escaped assessment. There is no disputing the fact that the assessment for the said years, i.e., 2005-06 and 2006-07, under Section 143(3) had concluded on 28.11.2007 and 30.11.2007 and determination of tax upon the assessee was made on the basis of the assessment. The proviso to Section 147 provides that no action shall be taken under the said section, after the expiry of 4 years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment, by reason of failure on the part of the assessee to make the return or respond to the notice issued under Section 142(1) or Section 148. The other condition is that there should be disclosure of fully and truly all material facts necessary for the said assessment year.

The reason for reopening, thus, being merely a change of opinion on account of the assessment being made for the subsequent years would not give the AO the jurisdiction to reopen as he would, thus, be reviewing his earlier decision which has been held not to be permissible. Reopening notice quashed - Decided in favour of assesse.

2015 (5) TMI 871 - DELHI HIGH COURT

Ferrous Infrastructure Pvt. Ltd. & Another Versus Deputy Commissioner of Income Tax

Sections:- 147, 148,

Dated: 21/05/2015

W. P. (C) 5229/2014 & CM No. 10401 /2014

Reopening of assessment - absence of reasons recorded prior to the issuance of notice under Section 148 and the objections furnished by the petitioners to the Section 148 notice had not been disposed of by a separate speaking order prior to the re-assessment order - Held that:- As seen from the provisions of Section 148(2) as also the decisions of this Court in Haryana Acrylic(2008 (11) TMI 2 - DELHI HIGH COURT), and that of Baldwin Boys High School (2015 (2) TMI 806 - KARNATAKA HIGH COUR), that the reasons have to be recorded prior to the issuance of notice under Section 148. If they are not so recorded, then the notice under Section 148 and proceedings pursuant thereto are without authority of law. In the present case, it is evident that the reasons were recorded only on 18.09.2012, i.e., after the notice under Section 148 had been issued on 30.08.2012. Clearly, the statutory provisions, as explained by judicial decisions, indicate that the notice under Section 148 would be invalid and consequently all proceedings pursuant thereto would also be vitiated.

Assessing Officer has to pass a speaking order disposing of the objections “before proceeding with the assessment”. In the present case, a separate speaking order has not been passed and the objections have been dealt with, if at all, in the re-assessment order itself. On this ground also, the petitioner is liable to succeed. See GKN Driveshafts [2002 (11) TMI 7 - SUPREME Court] - Decided in favour of assesse.


Commissioner of Income Tax, Udaipur Versus The Udaipur Central Cooperative Bank Ltd.

Sections:- 080P, 271,

Dated: 01/05/2015

D B Income Tax Appeal No. 105/2013

Penalty u/s 271(1)(c) - claim of deduction under Section 80-P(2)(d) - Held that:- In the case in hand the applicant submitted the revised return and on basis of that tax was recovered. True it is, at the fist instance the assessee claimed exemption as per provisions of Section 80-P(2)(d) of the Act of 1961 but immediately on knowing about its non-applicability a revised return was filed disclosing accurate income. Under Section 271(1)(c) of the Act of 1961 it is required to be seen as to whether the assessee has concealed the income or the details supplied by him in return were found incorrect, erroneous, not accurate, not according to the truth or not exact depiction of the taxable income. No such eventuality in the instant matter exists. The Commissioner of Income Tax as well as the Income Tax Appellate Tribunal after examining the entire record arrived at the conclusion that first return submitted by assessee Udaipur Central Cooperative Bank Ltd. was a bonafide error and that was immediately rectified by submitting a revised return.

In this factual background we do not find any substantial question of law that may demand adjudication by us by entertaining an appeal as per provisions of Section 260-A of the Income Tax Act, 1961. - Decided in favour of assesse.


The Commissioner of Income Tax, Faridabad Versus M/s Carrier Air-Conditioning and Refrigeration (Formerly known as Aircon Limited)

Sections:- 037,

Dated: 19/05/2015

Income Tax Appeal No. 434 of 2014, Income Tax Appeal No. 439 of 2014

Disallowance of warranty provision - whether ITAT was right in law in treating provision for warranty in the present case as an ascertained liability, despite failure on part of the assessee to establish historical or scientific basis of arriving at the said provision? - Held that:- The question is answered in favour of the respondent by the judgment of Commissioner of Income Tax v. Majestic Auto Ltd. [(7) TMI 568 - PUNJAB & HARYANA HIGH COURT] which was also relied upon by the Tribunal.

So is the view taken in Calcutta Co. Ltd. v. CIT [1959 (5) TMI 3 - SUPREME Court] wherein held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Also see Rotork Controls India P. Ltd. v. Commissioner of Income Tax [ 2009 (5) TMI 16 - SUPREME COURT OF INDIA] 314 ITR 62 (SC)- Decided in favour of assesse.


Commissioner of Income Tax, Patiala Versus Nachhattar Singh & others

Sections:- 293,

Dated: 29/04/2015


Arrears of income tax - Attachment of accounts and money in these accounts was appropriated towards arrears of income tax - Whether the civil suit filed by the plaintiff/respondent was not barred under Section 293 of the Income Tax Act? - Held that:- A perusal of Section 293 of the Income Tax Act reveals that no suit shall be brought in any Civil Court to set aside or modify any proceeding taken or order made under the Income Tax Act thereby leaving no ambiguity that a Civil Court is prohibited from entertaining a suit to set aside or modify any order or proceedings initiated under the Income Tax Act. An exception, would obviously be available where the order passed or proceedings initiated are vitiated by fraud and then also if the fraudulent act is attributed to an officer exercising power under the Income Tax Act. The plaintiff/respondent No.1 does not allege any fraud by or at the behest of the Income Tax Department. The courts below have held that the fraud was perpetuated by M/s Janta Janta Scheme (Regd.) but have not returned a finding of fraud against the department.

The plaintiff/respondent No.1 was competent to file a suit for recovery against M/s Janta Janta Scheme (Regd.) but in absence of any allegation of fraud against the department, could not maintain a suit against the Income Tax Department. The substantial question of law is consequently answered in favour of the appellant by holding that in the facts and circumstances of the present case, the jurisdiction of Civil Courts, to entertain the suit, against the Income Tax Department, was barred by Section 293 of the Income Tax Act.


Commissioner of Income Tax Versus Co-Operative Bank of Rajkot Ltd

Sections:- 036, 037,

Dated: 05/05/2015

Tax Appeal No. 321 of 2015, Tax Appeal No. 322 of 2015

Amortization of premium paid on investments under "held to maturity category" - ITAT holding that the same is revenue expenditure in nature - held that:- The identical question came to be considered by in the case of Rajkot Dist.Co-op. Bank Ltd. [2014 (3) TMI 110 - GUJARAT HIGH COURT] and considering the paragraph (vii) of the CBDT Circular No.17 of 2008, it is held that the assessee is entitled to the amortization of security premium, as claimed. - Decided in favour of the assessee

2015 (5) TMI 866 - PATNA HIGH COURT

Commissioner of Income Tax-1, Patna, Assistant Commissioner of Income Tax Circle-II, Patna Versus Alken Laboratories Ltd, Exhibition Road, Patna

Sections:- 037, 043B,

Dated: 31/03/2015

Misc. Appeal No. 401 of 2008

10% disallowance of the expenditure on doctors - CIT(A) deleted the addition as confirmed by ITAT - Held that:- The Tribunal has agreed with the detailed reasoning given by the CIT (Appeals) for deleting the disallowance. Upon a consideration of the materials on the record, we do not find the said reasoning as unacceptable. - Decided against revenue.

Delayed payment of employer’s contribution under Section 43B - Tribunal deleting the addition - Held that:- From a perusal of the order of the Tribunal, it is evident that while doing so it has relied upon a decision of the Supreme Court in the case of CIT Vs. Vinay Cements Limited [2007 (3) TMI 346 - Supreme Court of India] which decision has been reiterated in the case of Commissioner of Income Tax Vs. Alom Extrusions Ltd.: (2009 (11) TMI 27 - SUPREME COURT). - Decided against revenue.

2015 (5) TMI 865 - ITAT DELHI

M/s Bharti Airtel Ltd. Versus Commissioner of Income Tax, New Delhi

Sections:- 028, 045, 037, 263,

Dated: 06/05/2015

ITA No. 3120/Del/2014

Revision u/s 263 - AO failed to examine the taxability of the difference between the cost of the assets and fair value of the assets transferred to BIL, shown directly credited to the ‘Reserves for Business Restructuring’ by the assessee company in its balance sheet and that the AO failed to examine as to whether the said difference was to be assessed as capital gain u/s 45 of the Act or as a business income u/s 28(iv) of the Act - capital loss on transfer of PI undertaking by the assessee to BIL for Nil consideration - Held that:- The assessee transferred telecom passive infrastructure undertaking to BIL at Nil consideration resulting in capital loss of ₹ 5739 crores. The said loss was not a tax deductible item and had been suo-motu added by the assessee in its computation of income under normal provisions. Thereafter the assessee had revalued its investment in the subsidiary company i.e. BIL from ₹ 5,00,000/- to ₹ 8218 crores and had given the corresponding credit to the Reserves for Business Restructuring, out of the said reserves an amount equal to the loss of ₹ 5739 crores had been credited to the P & L a/c.

From the above entries it is clear that the assessee had claimed the loss in the P & L A/c. However, the said amount was suo-motu added in the computation of income because it was not an allowable loss. This fact was examined by the AO who framed the draft assessment order for the approval of the DRP. The AO prepared a draft assessment order u/s 144C(1) of the Act and the said draft assessment order inter alia covered the issue relating to the taxability of transfer of PI undertaking to BIL at Nil consideration. The AO referred to the notes to the accounts and computation of total income, then specifically asked the assessee about the justification of the claim of capital loss amounting to ₹ 5739 crores which is evident from page nos. 73 to 78 of the draft assessment order dated 16.11.2011, copy of which is placed at page nos. 125 to 130 of the assessee’s compilation.

From the above noted facts, it therefore, appears that the issue on the basis of which assessment order was considered by the ld. CIT as erroneous and prejudicial to the interest of the Revenue was examined by the AO in detail and it was directed by the DRP that the addition was not to be made after proper verification. However, the AO arbitrarily made the addition. On the appeal of the assessee, the said addition was directed to be deleted by the ITAT vide its order dated 11.03.2014. We, therefore, do not see merit in this observation of the ld. CIT that the assessment order dated 30.10.2012 appeared to be erroneous and prejudicial to the interest of the Revenue because the AO failed to examine the taxability of ₹ 5739 crores.

The assessee passed the adjustment entries for a sum of ₹ 5739 crores in its books of account which had no effect on the profit/income of the assessee, therefore, the ld. CIT was not justified in holding that the AO had not examined the issue relating to the loss on account of transfer of passive telecom infrastructure to the subsidiary company. Therefore, it cannot be said that the assessment order dated 30.10.2012 was erroneous and prejudicial to the interest of the Revenue.

As regards to the adjustment entry for revaluation of investment in subsidiary company i.e. BIL the amount of ₹ 5739 crores transferred from Business Restructuring Reserves of ₹ 8218 crores was not a taxable item, the obvious corollary would be that the balance amount of ₹ 2479 crores (Rs. 8218 crores – ₹ 5739 crores) remaining in the said reserve account after the aforesaid transfer was non-taxable. The same finding had been given by the ITAT vide aforesaid order dated 11.03.2014. Therefore, the ld. CIT was not justified in holding that the order passed by the AO was erroneous as well as prejudicial to the interest of the Revenue particularly when the ld. CIT himself failed to arrive at a definite conclusion and to form an opinion regarding the tax implication of the impugned transaction. In the present case, the ld. CIT on the one hand, stated that the transfer of telecom passive infrastructure undertaking at Nil consideration resulted in a capital gain of ₹ 2479 crores, on the other hand, the same transaction was alternatively alleged to have resulted in a business income of ₹ 2479 crores u/s 28(iv) of the Act. Moreover, the ld. CIT directed the AO to re-examine and verify the issue, however, he himself failed to arrive at a definite conclusion. Therefore, we are of the view that the ld. CIT without arriving at a definite conclusion was not justified in holding the assessment order dated 30.10.2012 as erroneous and prejudicial to the interest of the Revenue. Action of the ld. CIT was impermissible u/s 263 of the Act particularly when he directed the AO to re-examine the issue and proposed to tax ₹ 2479 crores either under section 45 or section 28(iv) of the Act.

As regard expenditure incurred by the assessee towards amount paid to BIL for usage of passive telecom infrastructure ld. CIT directed the AO to re-examine the allowability of expenditure claimed by the assessee but he had not stated as to how and in what manner the expenses claimed by the assessee were impermissible, therefore, the action of the ld. CIT was not justified. As in the former part of this order that the AO in the original assessment proceedings had accepted the claim of the assessee after proper examination and verification of the claim and the ld. CIT had not given any finding as to how and in what manner the order of the AO on this issue was erroneous and prejudicial to the interest of the Revenue. He simply directed the AO to make further verification and examination for allowing the claim which the AO had already done, therefore, the order of the ld. CIT u/s 263 of the Act deserves to be set aside on this issue. This revision u/s 263 set aside - Decided in favour of assesse.

2015 (5) TMI 864 - ITAT KOLKATA

I.T.O., Ward-57 (3) Kolkata Versus Earnest Towers (P) Ltd.

Sections:- 040, 194I,

Dated: 13/05/2015

I.T.A No. 265/Kol/2012

TDS u/s 194I - Premium for acquiring leasehold rights for the leased plot - whether falls within the purview of sub clause (i) of explanation to sec. 194I which specifies the meaning of the term ‘rent’? - whether payment of premium was for acquisition of leasehold rights or for use of land? - Held that:- Commissioner of Income Tax(A) has also dealt with other cases pertaining to the land leased by MMRDA in the same or adjoining area and has held that the impugned deposit of lease premium does not constitute advance rent but it is a lease premium for acquiring land with right to construct a commercial building although with certain restrictions, but it is a capital expenditure not falling within the ambit of section 194- 1 of the Act. We also observe that the payment of lease premium was not to be made on periodical basis but it was one time payment to acquire the land with right to construct a commercial complex thereon and the lease premium was paid to MMRDA in four instalments, therefore, we are unable to see any perversity, infirmity or any other valid reason to interfere with the findings of the Commissioner of Income Tax(A). See CIT vs Vegetable products [1973 (1) TMI 1 - SUPREME Court]- Decided in favour of the assessee .

In the case of ITO vs Indian Newspaper Society (2013 (9) TMI 158 - ITAT DELHI) held that in case the lease premium paid by the assessee is held to be capital in nature and the assessee is not liable to deduct TDS on payment of lease premium to MMRDA. The issue is therefore decided against the revenue.

As regards the lease deed contained restrictive clauses therefore the payment of the assessee is in the nature of rent. A bare perusal of the clauses referred to by the revenue shows that they are only regulatory in nature for the uniform development of the area of land leased out to the assessee. Regulatory clauses are also present in the cases of development of freehold land owned by a person. Such regulatory clauses cannot convert the lease premium into tenancy as per section 194 I of the Act. Accordingly the issue is decided against the revenue.

2015 (5) TMI 863 - ITAT DELHI

Association of State Road Transport Versus CIT- V New Delhi

Sections:- 002(15), 011, 012, 013,

Dated: 08/05/2015

ITA No. 3271/DEL/2014

Revision u/s 263 - DIT(E) erred in holding that Receipts of appellant from Test Laboratory Services and Consultancy Services do not fall within the ambit of Section 2(15) of the Income Tax Act - appellant is not eligible for claiming exemption u/s 11 on income derived from the above receipts - Held that:- Assessing Officer raised query about the revenues received from test laboratory charges and consultancy charges and the assessee placed required details and explanation before the AO in this regard and this fact was also noted by the CIT(A) in paragraph 4.4 of the impugned order. We are unable to approve the observations of the CIT that the AO did not examine the issue of taxability of revenue from test laboratory and consultancy charges in the light of proviso to section 2 (15) of the Act. We may also point out that the AO has considered this issue in paragraph no. 2 and 3 of the assessment order and conclusion of the AO cannot be held as erroneous merely because the AO has not decided the issue in so many words as per expectation of the Ld. CIT.

Thus the CIT was not justified in holding that the view taken by the AO was granting exemption u/s 11 of the act was not inaccordance with law and was unsustainable. Per contra, from bare reading of the assessment order, it is vivid that the assessing officer made reasonable inquiry on the issue of test laboratory charges and consultancy charges and the AO took a plausible and reasonable view that the revenue earn from these activities cannot be held as income with the main object to earn profits. We also clearly note that the activities of laboratory testing and consultancy was in furtherance of main and charitable object of the assessee association it cannot be termed as activities with the main object of profit earning motive. - Decided in favour of assesse.

2015 (5) TMI 862 - ITAT DELHI

Income Tax Officer (E) , Trust Ward-III, Aayakar Bhavan, Laxmi Nagar, Delhi Versus Delhi Bureau of Text Books

Sections:- 002(15), 011, 012, 012A, 012AA,

Dated: 23/04/2015

ITA NOS. 2362-2363/Del/2010, 3796/Del/2011 & 56/Del/2013

Benefit of Section 11 - whether Registration U/S 12A does not automatically guarantee exemption from income tax U/S 11 of the Act? - whether registration has been granted u/s. 12A of the I.T. Act, AO cannot override exemption while passing the assessment order? - Held that:- The impugned order passed by the Ld. CIT(A) is contrary to the law and facts and on the file by holding that once registration has been granted u/s. 12A of the I.T. Act, AO cannot override exemption while passing the assessment order.

We have discussed in detail assessee-trust u/s 12AA of the Act as has been granted in the present appeal, then it will not be precluded to the AO to examine in details the every object of the society and to give finding in the assessment order as to whether the assessee has complied with the requirement of section 11 of the Act or not as to when the assessee is seeking exemption u/s. 11 of the I.T. Act. The registration granted u/s. 12AA of the Act to the assessee should not be obstacle in the way of AO, at the time when the assessment proceedings are to be taken and to decide as to whether the assessee is entitled for the benefit of section 11 and 12 of the I.T. Act as the case may be. After examining the Income and Expenditure Statement of the assessee for the asstt. year in dispute, we are of the view that the assessee has not incurred any expenditure for charitable purpose, as per their aims and objects. Therefore, the activities of the assessee is not charitable in nature and is commercial in nature. In view of the aims and objects of the assessee-society and the activities done by the assessee, we are of the view that the printing and stationery of the books fall under the general public utility limb of definition u/s. 2(15) of the I.T. Act, 1961 and not an education, because the activities of the society is not pertaining to systematic instructions school or training.

After going through the orders passed by the Revenue Authorities as well as the documentary evidence filed by the assessee in the shape of Paper Book, we are of the considered view that assessee has not proved that activities done by the assessee for the asstt. years in dispute is charitable in nature, as per the provisions of section 2(15) of the I.T. Act. We find that the Ld. First Appellate Authority has passed the impugned order and granted the exemption u/s. 11 and 12 of the I.T., Act to the assessee, which is contrary to the law and facts on the file, therefore, the order is not sustainable in the eyes of law, hence, we cancel the impugned orders by allowing all the appeals filed by the Revenue. - Decided against assesse.

2015 (5) TMI 861 - ITAT HYDERABAD

Zuari Cement Limited Versus Dy. Commissioner of Income Tax, TIRUPATI

Sections:- 032, 037, 092, 092C, 092CA,

Dated: 17/04/2015

I.T.A. No. 471/HYD/2014

Disallowance of Community Development Expenses - Held that:- It is not proper to disallow the entire amount on the basis of non-availability of few vouchers even though assessee has provided evidence by way of ledger accounts and payment details. AO does not have any right to disallow the amount stating that business necessity was also not proved beyond doubt. This issue was also decided by the DRP, so AO cannot again come to the same point which was held in favour of assessee. In view of this, we in the interest of justice, restore the issue to the file of AO to examine the vouchers only along with other Books of Accounts and other details to verify whether the expenditure was spent for the purpose of 'corporate social responsibility' of assessee-company which was allowed as a business expenditure u/s.37(1) by the DRP itself - Decided in favour of assesse for statistical purposes.

Disallowance is 'giveaways' - Held that:- If we pursue the orders, it is very clear that expenditure was incurred for purchase of gifts to advocates marriages, purchase of coolers gifted to Joint Director (Mines), purchase of gifts to M.V.Mysoora Reddy's son's marriage function, purchase of silver plate gifted to Inspector of Factories, purchase of gifts to Railway employees, purchase of gift for ESI official daughter's marriage, purchase of gifts to other Govt. employees etc. Except the purchase of gold coins from Corporation Bank, Bangalore on 16-02-2008 for ₹ 3,85,166/- vide Invoice No.120 for which no details were furnished, rest of the expenditure has same identity etc. Since the business necessity was already decided by the DRP, AO's duty is only to examine the vouchers. In our opinion, except the amount of ₹ 3,85,166/- for which details were not available, rest of the expenditure cannot be disallowed on the reasons stated by AO. We therefore, direct the AO to allow the expenditure, except the amount of ₹ 3,85,166/ - Decided partly in favour of assesse.

Disallowance of Contribution to Zuari School - Held that:- We were surprised about the reasoning given by the AO. He was directed by the DRP only to examine the necessary vouchers, AO should not question the wisdom of the DRP in allowing the expenditure u/s.37(1), subject to verification of the availability of vouchers. In our opinion, AO exceeded his jurisdiction in examining the MOU itself. Not only that, assessee also made contributions to another school at Sitapuram. This was being contributed earlier by SVCL which was later merged with assesseecompany. In both the places of Yerraguntla and Sitapuram, the school is being run mainly for the benefit of employees. Since, the DRP already decided to allow the expenditure u/s.37(1) and assessee furnished the vouchers, the reasons assigned by AO to disallow the expenditure cannot be accepted. - Decided in favour of assesse.

Transfer pricing adjustment - rejection of TNMM as most appropriate method - Held that:- As far as the royalty payment on sales is concerned, as rightly pointed out by the Ld.Counsel, there are no comparable companies which are offering similar services. The TPO's comparison on transactions of assessee subsidiary company much prior to the year under consideration cannot be justified. Therefore, on that basis itself, the comparison cannot be considered as an internal CUP. Moreover, the need for not charging royalty from SVCL was also explained as the subsidiary company was a sick company and in the process of reviving the company, assessee has not charged any royalty to its subsidiary company. Therefore, on FAR analysis, SVSL's past record with that of present transactions of assessee-company is not correct. Then, coming to external comparables, we were surprised to note that the TPO considered the technical fee payments without analyzing the nature of the payments. In some cases, it is royalty for acquiring the lime stone from Govt., which is not a 'royalty' for getting the technology from foreign AE. There is foreign exchange expenditure also considered as 'technical know-how fee'. A detailed objections of the assessee were not even considered or discussed either by the TPO or by the DRP. Therefore, on the basis of an external CUP ALP of 0.91% itself is not correct. Therefore, the entire exercise undertaken by the TPO on this issue is erroneous and cannot be justified.

Transfer of economic value of Zuari trade mark to Italcementi Group trade mark - Under the guise of TPO provisions, the TPO cannot determine the ALP at NIL as held by the Hon'ble Delhi High Court in the case of CIT Vs. EKL Applicances Ltd., (2012 (4) TMI 346 - DELHI HIGH COURT ). Therefore, rejecting the entire payment without there being any analysis on the CUP method cannot be accepted. In the guise of analyzing the transactions in the CUP method, the TPO has not brought any evidence on record to reject the 1% payment made to Italcementi Group. Moreover, while determining the price at NIL on the issue, the TPO surprisingly holds that assessee has transferred its 'Zuari Brand' to 'Italcementi Group'. We are unable to understand this logic. Italcementi Group never obtained, acquired or used Zuari Brand anywhere in the world, so that this cannot be considered for Transfer Pricing analysis. It is the Italcementi Group brand which is used by assessee-company. The TPO's analysis of AMP expenses are also not correct. The orders of the TPO/DRP on the TP issues are therefore set aside and the entire issue on TP analysis is restored to the file of AO for fresh consideration. - Decided in favour of assesse for statistical purposes.

Allowability of depreciation of goodwill - additional ground raised - Held that:- As rightly held by the Hon’ble Supreme Court in the case of S.A. Builders Ltd., [2006 (12) TMI 76 - SUPREME COURT OF INDIA], additional ground cannot be considered, in the absence of any facts on record.In view of this, since the issue did not arise in the year under consideration and the facts pertaining to the quantification of the claim are not on record, we cannot entertain the additional ground, just because law on this was settled on legal principles. If at all assessee's claim to depreciation was allowed in AY.2007-08, then, assessee can claim consequential depreciation in this assessment year, before the AO, the additional ground is accordingly rejected. - Decided against assesse.

2015 (5) TMI 860 - ITAT CHENNAI

M/s. SPB Projects and Consultancy Ltd. Versus Commissioner of Income Tax, Chennai-VI, Chennai

Sections:- 036, 263,

Dated: 15/04/2015

I .T.A.No.508/Mds/2014

Revision u/s 263 - assessee has made only provision for doubtful debt and has not made a write off - Held that:- The details called for by the Assessing Officer were furnished by the assessee and such details were accepted by the Assessing Officer and in such circumstances, it cannot be said that there is a lack of enquiry. There was an enquiry, though it is inadequate and in such circumstances, in view of the above decision of CIT Vs. Development Bank Ltd. (2010 (2) TMI 161 - BOMBAY HIGH COURT) the Commissioner of Income Tax lacks jurisdiction under section 263 of the Act to revise the assessment order.

The Hon’ble High Court in CIT Vs. U.P.Rajkiya Nirman Nigam Ltd [2013 (7) TMI 176 - ALLAHABAD HIGH COURT] held that where books are not closed and not signed by the Board of Directors and not adopted by the shareholders as per the Companies Act, it is legally permissible to make adjustments before they are finally adopted. Hence, in the case of the assessee when the books are closed and adopted by the Board of Directors and shareholders on 18.08.2009 by which time the entries were passed writing off the irrecoverable claims to the profit and loss account and party accounts. Thus, even on merits, the claims have to be allowed in view of the above Hon’ble Allahabad High Court decision. - Decided in favour of assesse.

2015 (5) TMI 859 - ITAT MUMBAI

Mumbai Metropolitan Region Development Authority Versus Director of Income Tax

Sections:- 002(15), 011, 012A, 254,

Dated: 10/04/2015

MA No. 126/Mum/2014, ITA No. 625/Mum/2012

Withdrawal of registration u/s. 12A - legal consequence/s of the applicability of proviso to section 2(15) on the registration of an entity as a charitable institution - Held that:- The language of proviso to section 2(15) extends to any activity that may be in the nature of trade, commerce or business - all terms of wide amplitude, or any activity of rendering any services in relation to the same. We, accordingly, have no hesitation in holding that the assessee’s activities are covered by the proviso to section 2(15); the gross receipt for the current year exceeding the minimum threshold limit which exceeds the application of the first proviso.

How to proceed in the matter to decide the present appeal, i.e., given our admission of a mistake apparent from record - the appropriate course under the circumstances, even as indicated during the hearing in the instant proceedings - Held that:- As to no objection by either party, is that the matter be referred to the hon’ble President of the Tribunal for constituting a larger bench of the tribunal to decide the highly contentious issue raised by the assessee’s Ground No.1, decided differently by different coordinate benches of this tribunal, for uniform application across the tribunal, of course after hearing the parties. The larger bench of the tribunal, in the case the reference made hereby is accepted by the hon’ble President, shall, apart from the other arguments and case law as may be canvassed before it by the parties, consider the same. We support our decision for the reference aforesaid, apart from the clear provision of section 255(4) of the Act, on the settled law on precedence as explained by several celebrated decisions in the higher courts of law, as for example in the case of CIT v. B.R. Constructions [1992 (6) TMI 13 - ANDHRA PRADESH High Court].

The matter is accordingly referred to the Hon’ble President for constituting a larger bench to decide the assessee’s Ground I. We decide accordingly.

2015 (5) TMI 858 - ITAT PUNE

Keihin FIE Private Limited Versus Asstt. Commissioner of Income Tax, Circle- 9, Pune.

Sections:- 092, 092C, 092CA,

Dated: 30/01/2015

ITA No.1441/PN/2010, ITA Nos.1001 & 1002/PN/2013

Determination of arm's length price of international transactions - ‘Export of components and parts’ made by the assessee to its associated enterprises - CIT(A) deleted the addition on the ground that the TPO wrongly compared the tested transactions with an incomparable transaction - Held that:- In the domestic market assessee was supplying carburettors and ASVs to OEMs such as Bajaj Auto and Hero Honda who used these products in the production of vehicles that they manufactured. In contrast, the associated enterprises to whom the components and parts were exported were essentially manufacturers of carburettors, who used the products exported by the assessee for manufacture of carburettors which in turn they sold to the OEMs. This difference was brought out by the assessee to establish that there were differences in functions performed and risks assumed with regard to export of components/parts and the sale of carburettors/ASVs in the domestic market. The CIT(A) has appreciated the aforesaid differences and in our considered opinion, there is no cogent material or evidence before us to dissuade us from affirming the stand of the CIT(A). The CIT(A) has categorically noted that assessee had exported components and parts whose profit margins should be compared with the margins derived from sale of parts/components and not sale of manufactured products. Going further, the CIT(A) held that volume of domestic sale of components/parts was quite insignificant to constitute a valid comparable with the export transactions. For all the aforesaid reasons, CIT(A) has differed with the approach of the TPO in benchmarking the impugned transaction of export of components and parts with the profit margin of domestic sales which primarily consist of manufactured products i.e. carburettors. Thus no reason to interfere with the ultimate conclusion of the CIT(A) to delete the addition on the ground that the TPO wrongly compared the tested transactions with an incomparable transaction.

Disallowance of engineering services fee - Held that:- No fault can be found in the manner in which the CIT(A) has come to conclude that the expenditure in question is to be allowed as a revenue expenditure. It is also not disputed before us that similar expenditure in assessment year 2006-07 stands allowed as a revenue expenditure by the Assessing Officer after due verification. The CIT(A) also noted that the engineering services provided by the parent company in this year related to day to day running of business in contrast to the earlier assessment year of 2004-05 wherein it related to the pre-installation stage of the imported machinery. Having regard to the facts and circumstances of the case and the findings of the CIT(A), we find no reasons to interfere with his decision of allowing deduction for ₹ 1,21,87,328/- representing engineering services fee as a revenue expenditure. The Revenue fails on this aspect. - Decided in favour of assesse.

2015 (5) TMI 857 - ITAT PANAJI

Ryatar Sahakari Sakkare Karkhane Niyamit Versus ACIT, Cir-1, JCIT, Cir-1, Bijapur, Income Tax Officer

Sections:- 040, 194C, 201,

Dated: 22/01/2015

ITA Nos.348 & 349/PNJ/2014, ITA No.350/PNJ/2014, ITA Nos.351 to 357/PNJ/2014

Condonation of delay - Disallowance made u/s40(a)(ia) r.w.s 194C - Charging of interest u/s. 201(1)/(1A) - Held that:- In the instant case the assessee society is registered under the Karnataka Co-operative Societies Act 1959. The assessee society’s main object is to manufacture of sugars by procuring cane from members and non-members. Thus, the society runs on co-operative basis. The assessee could not obtain the legal advice. Moreover, the assessee’s sugar factory was running in loss for so many years. Therefore, the assessee could not file appeal in time before the ld.CIT(A). The assessee has obtained legal opinion from an ex-principal, G.K.Law College, Hubli. The assessee has filed the appeal. The assessee has understood the legal position. We are of the view that the assessee had reasonable cause in not filing the appeal in time before the ld.CIT(A). The appeal may not be decided on technical ground, but it must be decided on merit in the interest of public. We find that the assessee society has huge money of the public. Therefore, in the interest of justice and fair play, we condone the aforesaid delay in filing all the appeals for all the assessment years under consideration and restore the matter to the file of the ld.CIT(A) to decide the appeal on merits after giving the assessee adequate opportunity of hearing. - Decided in favour of assesse for statistical purpose.

2015 (5) TMI 856 - ITAT DELHI

DCIT, Central Circle-08, New Delhi Versus M/s. NIIT Ltd.

Sections:- 010B, 032, 142,

Dated: 08/05/2015

ITA No. 1112/Del/2012

Eligibility of deduction u/s 10B - whether the three units of the assessee company namely NIITITES, NIIT-KTWO and NIIT-Mumbai are separate 100% EOUs of the assessee company ? - Held that:- Each of the three undertakings had been separately and independently granted registration by Software Technology Park of India, Pune (STPI) for claiming exemption u/s 10B of the act as newly set up 100% EOU, which is evident from the copies of STPI approval and extension letters thereto. Those three units were also granted separate licence by the Customs Authorities. Those EOU’s were situated at separate location having independent buildings on separate addresses, their Plant & Machinery and fixed assets were also separate, each of the EOU furnished separate Audit Report in Form No. 56G. Therefore, it cannot be said that the three EOU’s of the assessee company were formed after splitting off of the existing unit or reconstructing the old or non-eligible unit. In the present case, although it is an admitted fact that these units were not having separate books of accounts but ERP software accounting system was implemented by each of them and transactions of each unit were separately coded all the transaction were identifiable as in the case of separate books. Therefore, the ld. CIT(A) was fully justified in directing the AO to compute the deduction u/s 10B of the Act in respect of each unit separately. - Decided in favour of assesse.

Allowability of deduction u/s 10B - at the source itself and not after the computation of Gross Total Income - CIT(Appeals) allowing that deduction u/s 10B after deducting unabsorbed depreciation from the profit of business - Held that:- In the present case, it appears that the assessee was not having any unabsorbed depreciation relating to the eligible Export Oriented Units (EOU’s). Therefore, adjustment in the eligible profits of the EOU was not to be made on account of brought forward unabsorbed depreciation. The said unabsorbed depreciation was adjusted by the assessee against certain income from other sources and not against the eligible profits of the 100% EOU. - Decided against revenue.

Admission of the additional evidence - Held that:- AO vide notice u/s 142(1) of the Act called the details relating to claim u/s 10B of the Act which the assessee furnished. The ld. CIT(A) found from the record that the assessee replied to the showcause regarding the allowability of deduction u/s 10B of the Act vide submissions dated 30.12.2009. The ld. CIT(A) categorically stated that there was no specific show-cause given to the assessee as to why all the units of the assessee company be not treated as a single unit for the purpose of allowance of deduction u/s 10B of the Act, therefore, specific opportunity was not granted to the assessee for clarifying the issue as to why all the units of the assessee may not be considered as one unit for the purpose of section 10B of the Act and that the documents furnished by the assessee before him goes to the route of the aforesaid issue relating to deduction u/s 10B of the Act. In the present case, the ld. CIT(A) admitted those evidences after providing due and reasonable opportunity to the AO who furnished his remand report. Therefore, we do not see any merit in this ground of the departmental appeal - Decided against revenue.

2015 (5) TMI 855 - ITAT CHANDIGARH

DSM Anti-Infectives India Ltd. Versus The Addl CIT, Range-1, Chandigarh

Sections:- 154, 254,

Dated: 19/02/2015

M.A. Nos. 06/Chd/2015 (In ITA No.1139/Chd/2011), M.A. Nos. 07/Chd/2015 (In ITA No.1290/Chd/2012)

Rectification of mistake - Issue of guarantee by DSM Finance B.V.- Held that:- It is respectfully submitted that the appellant enjoyed significant savings interest cost due to the guarantee provided by the associated enterprise against the LC facility availed by the appellant. The detailed economic analysis undertaken by the appellant for benchmarking the guarantee provided by the associated enterprise is provided as Annexure 4A guarantee fee charged by DSM Netherlands to DSM India at 4% for the overall arrangement, shall be considered to be at arm's length as required under Indian Regulations.In view of the aforesaid, it is respectfully submitted that the above documents now placed on record by the appellant pursuant to the query raised by the Hon'ble Tribunal may kindly be taken into consideration while adjudicating the appeal of the assessee.

Corporate Service Charge - Held that:- The assessee had started receiving some financial services also from the holding company which explained the increase in total payments on account of corporate services. The assessee had tried to justify the payment on account of such financial services but when again it was confronted that if assessee had saved ₹ 100/- and if he pays the entire amount of ₹ 100/- to the holding company and in that case there would be no savings to the assessee. In response to this query, the Ld. Counsel on behalf of the assessee had admitted that there is international practice to pass on 50% of the amount of such financial savings on account of financial services and balance 50% was to be retained by the recipients of the services. This was found to be logical because benefit was being shared on 50 - 50 basis. Therefore, assessee was asked to give amount of total benefit on account of financial services.On the basis of above admission the Bench held that fee paid for other corporate services could not have increased so much and therefore, it was fair and just that that normal fee paid for corporate services should not be disallowed but in view of the increase in the amount the benefits obtained by the assessee on account of financial services have to be shared on the basis of 50-50. Thus no error in the order of Tribunal and therefore, no rectification can be made.


The Commissioner of Income Tax Versus Fantastic Buildcon Pvt. Ltd.

Sections:- 069, 069B,

Dated: 24/02/2015

ITA 8/2012

Suppression of income - sale price shown in the sale deed of the private respondent at ₹ 800/- per square feet is deliberately undervalued - Tribunal deleted the addition - Held that:- Considering appellant submition that the statement of the agreement-holder clearly discloses that the agreement was made on behalf of the respondent company. The agreement also discloses a payment of advance amount of ₹ 4-crore, which, according to the agreement-holder, was paid by the respondent company. The respondent company issued cheques towards advance payment to the vendor and virtually purchased the property. Therefore there appears to be no reasonable nexus and substantial evidence available to show that the agreement made by Mr Modi with the erstwhile owner was in fact for the benefit of the company and that the Tribunal did not appreciate the evidence in proper perspective, thus erred in allowing the appeal. - Decided against revenue.

The respondent company has shown the sale price in the account books at ₹ 9-crore odd. The department has not found any contra material to controvert the entries in the account books of the respondent company.Tribunal was justified and correct in law in holding that even if the addition was justified, it should had been made under Section 69B of the Income Tax Act, 1961 and not under section 69 of the Income Tax Act, 1961. Department has failed to discharge the burden under Section 69B of the Income Tax Act, 1961 of proving that the assessee made additional investment. - Decided against revenue.

Tribunal was justified and correct in law in holding that the provision of Section 114(g) of the Indian Evidence Act, 1872 is attracted in the case - Decided against revenue.

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